CRAWFORD STORES INC, S-4, 1997-06-09

CRAWFORD STORES INC
S-4, 1997-06-09
GROCERY STORES

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 9, 1997

REGISTRATION NO. 333-
================================================================================

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------

RALPHS GROCERY COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C> <C>
DELAWARE 5411 95-4356030
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
SUBSIDIARY REGISTRANTS
ALPHA BETA COMPANY CALIFORNIA 95-1456805
BAY AREA WAREHOUSE STORES, INC. CALIFORNIA 93-1087199
BELL MARKETS, INC. CALIFORNIA 94-1569281
CALA CO. DELAWARE 95-4200005
CALA FOODS, INC. CALIFORNIA 94-1342664
CRAWFORD STORES, INC. CALIFORNIA 95-0657410
FALLEY'S, INC. KANSAS 48-0605992
FOOD 4 LESS OF CALIFORNIA, INC. CALIFORNIA 33-0293011
FOOD 4 LESS GM, INC. CALIFORNIA 95-4390407
FOOD 4 LESS MERCHANDISING, INC. CALIFORNIA 33-0483193
FOOD 4 LESS OF SOUTHERN CALIFORNIA, INC. DELAWARE 33-0483203
(EXACT NAME OF REGISTRANT AS (STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
SPECIFIED IN ITS CHARTER) OF IDENTIFICATION
INCORPORATION OR NUMBER)
ORGANIZATION)
</TABLE>

1100 WEST ARTESIA BOULEVARD
COMPTON, CALIFORNIA 90220
(310) 884-9000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------

WAYNE S. BELL
ASSISTANT SECRETARY
RALPHS GROCERY COMPANY
1100 WEST ARTESIA BOULEVARD
COMPTON, CALIFORNIA 90220
(310) 884-9000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------

COPY TO:

THOMAS C. SADLER, ESQ.
LATHAM & WATKINS
633 WEST FIFTH STREET, SUITE 4000
LOS ANGELES, CALIFORNIA 90071
(213) 485-1234
------------------------

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
------------------------

CALCULATION OF REGISTRATION FEE

<TABLE>
<S> <C> <C> <C> <C>
=======================================================================================================
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH MAXIMUM AGGREGATE AMOUNT OF
CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED PER NOTE(1) PRICE(1) FEE
- -------------------------------------------------------------------------------------------------------

11% Senior Subordinated Notes due
2005................................. $155,000,000 100% $163,525,000 $49,554
Guarantees of the 11% Senior
Subordinated Notes due 2005.......... -- -- -- (2)
=======================================================================================================
</TABLE>

(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457.

(2) Pursuant to Rule 457(n), no separate fee is required.
------------------------

THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2

PROSPECTUS

OFFER TO EXCHANGE
11% SENIOR SUBORDINATED NOTES DUE 2005
FOR ALL OUTSTANDING 11% SENIOR SUBORDINATED NOTES DUE 2005
OF

RALPHS GROCERY COMPANY
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME ON ,
1997 UNLESS EXTENDED.

Ralphs Grocery Company (the "Company") is hereby offering (the "Exchange
Offer"), upon the terms and subject to the conditions set forth in this
Prospectus and the accompanying Letter of Transmittal (the "Letter of
Transmittal"), to exchange $1,000 principal amount of its 11% Senior
Subordinated Notes due 2005 (the "Exchange Notes"), which exchange has been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
pursuant to a registration statement of which this Prospectus is a part (the
"Registration Statement"), for each $1,000 principal amount of its outstanding
11% Senior Subordinated Notes due 2005 (the "Private Notes"), of which
$155,000,000 in aggregate principal amount was issued on March 26, 1997 and is
outstanding as of the date hereof. The form and terms of the Exchange Notes are
the same as the form and terms of the Private Notes except that (i) the exchange
will have been registered under the Securities Act, and, therefore, the Exchange
Notes will not bear legends restricting the transfer thereof and (ii) holders of
the Exchange Notes will not be entitled to certain rights of holders of the
Private Notes under the Registration Rights Agreement (as defined herein), which
rights will terminate upon the consummation of the Exchange Offer. The Exchange
Notes will evidence the same indebtedness as the Private Notes (which they
replace) and will be entitled to the benefits of an indenture dated as of March
26, 1997 governing the Private Notes and the Exchange Notes (the "Indenture").
The Private Notes and the Exchange Notes are sometimes referred to herein
collectively as the "Notes" or the "1997 11% Senior Subordinated Notes." See
"The Exchange Offer" and "Description of the Notes."

The Exchange Notes will bear interest at the same rate and on the same terms
as the Private Notes. Consequently, the Exchange Notes will bear interest at the
rate of 11% per annum and the interest thereon will be payable semi-annually on
June 15 and December 15 of each year, commencing June 15, 1997. The Exchange
Notes will bear interest from the date of the last interest payment on the
Private Notes or if no interest has been paid, from the date of original
issuance of the Private Notes. Holders whose Private Notes are accepted for
exchange will be deemed to have waived the right to receive any interest accrued
on the Private Notes.

The Notes will be redeemable, in whole or in part, at the option of the
Company, at any time on and after June 15, 2000 at the respective redemption
prices set forth herein, plus accrued and unpaid interest to the redemption
date. In addition, on or prior to June 15, 1998, the Company may, at its option,
use the net cash proceeds of one or more Public Equity Offerings (as defined) to
redeem up to an aggregate of 35% of the Notes originally issued at the
redemption prices set forth herein plus accrued and unpaid interest to the
redemption date. Upon a Change of Control (as defined) each holder of Notes has
the right to require the Company to repurchase such holder's Notes at a price
equal to 101% of their principal amount plus accrued and unpaid interest to the
date of repurchase. In addition, subject to certain conditions, the Company will
be obligated to make an offer to repurchase the Notes at 100% of their principal
amount, plus accrued and unpaid interest to the date of repurchase, with the net
cash proceeds of certain sales or other dispositions of assets. The terms of the
Notes are substantially identical to those of the Company's 11% Senior
Subordinated Notes due 2005 (the "1995 11% Senior Subordinated Notes"), which
were issued in a registered offering on June 14, 1995 and of which $524 million
aggregate principal amount is outstanding.

The Notes will be senior subordinated unsecured obligations of the Company
and will be subordinated in right of payment to all Senior Indebtedness (as
defined) of the Company, including the Company's obligations under the
Refinanced Credit Facility, the 1996 10.45% Senior Notes, the 1995 10.45% Senior
Notes, the 1992 10.45% Senior Notes (each as defined) and capital lease
obligations. The Notes will rank pari passu in right of payment with other
senior subordinated indebtedness of the Company, including the Company's
obligations under the 1995 11% Senior Subordinated Notes. At April 27, 1997, the
Company had outstanding $1,436.8 million aggregate principal amount of Senior
Indebtedness (not including obligations with respect to letters of credit issued
under the Refinanced Credit Facility, of which $89.1 million were outstanding as
of April 27, 1997), and $526.2 million of indebtedness ranking pari passu with
the Notes (not including $145.0 million of 13.75% Senior Subordinated Notes (as
defined), which were redeemed on April 28, 1997 with the proceeds of the Private
Placement (as defined) of the Private Notes). The Notes will be unconditionally
guaranteed (the "Guarantees") on a senior subordinated unsecured basis by each
of the Company's wholly-owned subsidiaries (the "Subsidiary Guarantors").

The Company will accept for exchange any and all validly tendered Private
Notes not withdrawn prior to 5:00 p.m., New York City time, on , 1997,
unless the Exchange Offer is extended by the Company in its sole discretion (the
"Expiration Date"). Tenders of Private Notes may be withdrawn at any time prior
to the Expiration Date. Private Notes may be tendered only in integral multiples
of $1,000. The Exchange Offer is subject to certain customary conditions. See
"The Exchange Offer -- Conditions."

SEE "RISK FACTORS" ON PAGE 15 FOR A DISCUSSION OF CERTAIN FACTORS THAT
INVESTORS SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE OFFER AND AN
INVESTMENT IN THE EXCHANGE NOTES SHOULD BE CONSIDERED BY POTENTIAL INVESTORS IN
THE NOTES.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------

The date of this Prospectus is , 1997
<PAGE> 3

Based on an interpretation by the staff of the Securities and Exchange
Commission (the "Commission") set forth in no-action letters issued to third
parties, the Company believes that the Exchange Notes issued pursuant to the
Exchange Offer in exchange for Private Notes may be offered for resale, resold
and otherwise transferred by a holder thereof (other than (i) a broker-dealer
who purchases such Exchange Notes directly from the Company to resell pursuant
to Rule 144A or any other available exemption under the Securities Act or (ii) a
person that is an affiliate of the Company within the meaning of Rule 405 under
the Securities Act), without compliance with the registration and prospectus
delivery provisions of the Securities Act; provided that the holder is acquiring
the Exchange Notes in the ordinary course of its business and is not
participating, and had no arrangement or understanding with any person to
participate, in the distribution of the Exchange Notes. Holders of Private Notes
wishing to accept the Exchange Offer must represent to the Company, as required
by the Registration Rights Agreement, that such conditions have been met. The
Company believes that none of the registered holders of the Private Notes is an
affiliate (as such term is defined in Rule 405 under the Securities Act) of the
Company.

Each broker-dealer that receives Exchange Notes for its own account in
exchange for Private Notes, where such Private Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. The Letter of Transmittal states that by
so acknowledging and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act. This Prospectus, as it may be amended or supplemented from time to time,
may be used by a broker-dealer in connection with resales of Exchange Notes
received in exchange for Private Notes where such Private Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities. The Company has indicated its intention to make this Prospectus (as
it may be amended or supplemented) available to any broker-dealer for use in
connection with any such resale for a period of 90 days after the Expiration
Date. See "Plan of Distribution."

Prior to the Exchange Offer, there has been no public market for the Notes.
The Company does not intend to list the Notes on any securities exchange or to
seek approval for quotation through any automated quotation system. There can be
no assurance that an active market for the Notes will develop. To the extent
that a market for the Notes does develop, the market value of the Notes will
depend on market conditions (such as yields on alternative investments), general
economic conditions, the Company's financial condition and certain other
factors. Such conditions might cause the Notes, to the extent that they are
traded, to trade at a significant discount from face value. See "Risk
Factors -- Absence of Public Market."

The Company will not receive any proceeds from, and has agreed to bear the
expenses of, the Exchange Offer. No underwriter is being used in connection with
this Exchange Offer.

THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF PRIVATE NOTES IN ANY JURISDICTION IN
WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE
WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.

The Exchange Notes will be available initially only in book-entry form. The
Company expects that the Exchange Notes issued pursuant to the Exchange Offer
will be issued in the form of one or more fully registered global notes that
will be deposited with, or on behalf of, the Depository Trust Company ("DTC" or
the "Depositary") and registered in its name or in the name of Cede & Co., as
its nominee. Beneficial interests in the global note representing the Exchange
Notes will be shown on, and transfers thereof will be effected only through,
records maintained by the Depositary and its participants. After the initial
issuance of such global note, Exchange Notes in certificated form will be issued
in exchange for the global note only in accordance with the terms and conditions
set forth in the Indenture. See "Description of the Notes -- Book Entry."

2
<PAGE> 4

SUMMARY

The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial data, including
the Financial Statements and notes thereto, appearing elsewhere in this
Prospectus. Unless the context otherwise requires, as used in this Prospectus
(i) all references to the "Company" refer to Ralphs Grocery Company subsequent
to its merger (the "Merger") with Food 4 Less Supermarkets, Inc. ("Food 4 Less")
on June 14, 1995 and refer to Food 4 Less prior to such date, and (ii) all
references to "Ralphs" or "RSI" refer to Ralphs Supermarkets, Inc. and all
references to "RGC" refer to Ralphs Grocery Company, a wholly owned subsidiary
of RSI, in each case prior to the consummation of the Merger. As used herein,
references to "fiscal 1996" refer to the 53 week period ended February 2, 1997,
which included a 17 week fourth quarter, and references to "fiscal 1995" refer
to the 52 week period ended January 28, 1996, which included a 16 week fourth
quarter and for the period prior to the date of the Merger reflects only the
operations of Food 4 Less. All references to market share and demographic data
in this Prospectus are based on the most recent industry publications and,
unless otherwise indicated, all references to numbers of stores are as of
February 2, 1997. As used herein, "Southern California" means Los Angeles,
Orange, Ventura, San Bernardino, Riverside, San Diego, Kern and Santa Barbara
counties.

THE COMPANY

Ralphs Grocery Company (the "Company") is the largest supermarket operator
in Southern California with 342 stores and an estimated market share of 26
percent in Los Angeles and Orange Counties. The Company operates the second
largest conventional supermarket chain in Southern California under the "Ralphs"
name (263 stores) and the largest warehouse supermarket chain in the region
under the "Food 4 Less" name (79 stores). The Company also operates in Northern
California (27 stores) and the Midwest (36 stores).

In Southern California, the Company's two complementary formats allow it to
serve a broad customer base and tailor its stores to the market characteristics
of individual store locations. The Company's conventional Ralphs stores
emphasize a broad selection of merchandise, high quality fresh produce, meat and
seafood and service departments, including bakery and delicatessen departments
in most stores. The Company's conventional stores also benefit from Ralphs'
strong private label program and its strengths in merchandising, store
operations and systems. By passing on format-related efficiencies, the Food 4
Less price impact warehouse format stores offer consumers the lowest overall
prices while providing product selections comparable to conventional
supermarkets.

At the beginning of fiscal 1996, the Company streamlined its management
structure and implemented several strategic initiatives which have contributed
to improving operating trends at the Company. These initiatives have resulted in
several notable achievements during fiscal 1996, including: (i) positive
comparable store sales for three consecutive quarters, including a 3.5% increase
in Southern California comparable store sales in the fourth quarter of fiscal
1996, (ii) an improvement of the Company's EBITDA margin to 6.7% in the fourth
quarter of fiscal 1996 from 5.5% in the comparable prior-year period, (iii) the
opening of 26 new stores and the remodeling of 20 stores, (iv) the acquisition
and integration of a one million square foot, state-of-the-art distribution
center, and (v) the launching of a major new marketing program designed to
increase sales and market share under the "First in Southern California" theme.

In fiscal 1996 Ralphs reported total sales of approximately $5.5 billion
and EBITDA (as defined) of $354.6 million. For the 12 week first quarter of
fiscal 1997 ending on April 27, 1997, the Company had sales of approximately
$1.3 billion and EBITDA (as defined) of $85.0 million (or 6.7 percent of sales)
as compared to sales of $1.2 billion and EBITDA (as defined) of $70.1 million
(or 5.7 percent of sales) for the first quarter of fiscal 1996. Total Company
comparable store sales increased by 4.1% for the first quarter of fiscal 1997
and, EBITDA (as defined) increased by 21.3% over the prior year period.

3
<PAGE> 5

Smith's Food & Drug Centers, Inc. (NYSE: SFD). These companies, together with
the Company, operate a total of 655 stores and had aggregate combined sales of
approximately $11 billion in their most recent fiscal years.

COMPANY STRENGTHS

Management and Yucaipa believe that the Company has several competitive
advantages, including: (i) a leading market position in Southern California,
(ii) a modern store base with attractive locations, (iii) technologically
advanced warehouse and distribution systems, and (iv) an experienced management
team.

- - LEADING MARKET POSITION IN SOUTHERN CALIFORNIA. The Company is the largest
supermarket operator in Southern California with a 26% market share in Los
Angeles and Orange Counties. The Company believes that, as a result of its
strong market share in Southern California, it will benefit from the improving
economic conditions in the region. Management believes that the Southern
California economy, which experienced a significant downturn beginning in
1991, has stabilized, with employment growth remaining relatively constant
since 1995 and retail spending experiencing a recovery since 1994.

- - MODERN STORE BASE WITH ATTRACTIVE LOCATIONS. The Company has a modern store
base with 60.7% of its stores having been either opened or remodeled in the
last five years. Since the Merger, the Company has closed 74 smaller,
underperforming stores, opened 37 stores, and expanded or remodeled 23 stores.
These improvements to its store base have resulted in an increase in Southern
California average store size of approximately 11.6%. In addition, as a result
of Ralphs' 124-year history in Southern California, the Company has valuable
and well established store locations, many which are in densely populated
metropolitan areas.

- - TECHNOLOGICALLY ADVANCED WAREHOUSE AND DISTRIBUTION SYSTEMS. The Company has
what it believes to be among the newest and most technologically advanced
warehousing and distribution systems in the industry. These include: (i) a one
million square foot, state-of-the-art manufacturing and distribution center
located in Riverside, California (the "Riverside Facility"), which was
originally opened in 1994 and which contains a creamery and an integrated
warehouse for dry grocery, dairy/deli and frozen food storage; (ii) a 17
million cubic foot high-rise automated storage and retrieval system warehouse
in the Glendale, California vicinity (the "Glendale Facility") for
non-perishable items, on which the Company completed a major renovation in
March 1997; and (iii) a 5.4 million cubic foot perishable service center in
Compton, California (the "Compton Facility") built in 1992 and designed for
the processing, storage and distribution of perishable items. The acquisition
of the Riverside facility allowed the Company to eliminate certain of its
smaller and less efficient warehouse facilities, and to consolidate its
distribution operations into the modern, efficient facilities located in
Compton, Glendale and Riverside, California. The consolidation allowed the
Company to improve its inventory management and reduce transportation costs
between facilities, management overhead and outside storage costs.

- - EXPERIENCED MANAGEMENT TEAM. The executive officers of the Company have
extensive experience in the supermarket industry. The Company's management
expertise combines the strengths of the former management teams of both Ralphs
and Food 4 Less, including strong store operations experience, a reputation
for quality and service, and demonstrated effectiveness in cost control and in
the acquisition and integration of supermarket companies.

4
<PAGE> 6

OPERATING STRATEGY AND GROWTH

Management is continuing to implement its strategic plan designed to
increase sales and profitability which consists of the following principal
elements: (i) aggressive new store and store remodeling programs, (ii) continued
implementation of cost savings initiatives, and (iii) innovative marketing and
merchandising programs.

- - AGGRESSIVE NEW STORE AND STORE REMODELING PROGRAMS. Management believes that
substantial opportunities exist to increase sales and profitability through
the opening of new stores and the remodeling of existing stores. During fiscal
1996, the Company opened 26 new stores. Average weekly sales at such stores
were over 33% higher than the overall chain average. The Company performed
remodels on 20 stores during fiscal 1996, and realized an average increase in
weekly sales of over 10%. The Company believes its new store and remodel
programs can continue to achieve positive results in the future. The Company
plans to open approximately eight new Ralphs stores, four new Food 4 Less
stores and to remodel, on a combined basis, approximately 57 stores in fiscal
1997.

- - CONTINUED IMPLEMENTATION OF COST SAVINGS INITIATIVES. At the time of the
Merger, management estimated that approximately $90 million of net annual cost
savings could be achieved by the end of the fourth full year of combined
operations following the Merger. Although the Company experienced delays in
the realization of certain of the cost savings anticipated at the time of the
Merger, the Company believes that the full amount of the $90 million in net
annual cost savings will still be realized within such time frame. To date,
the Company has realized the projected cost savings from the reduction in
advertising expenses and the consolidation of administrative functions. The
Company has achieved portions of and expects to achieve the remaining amount
of the originally anticipated cost savings through volume purchasing
efficiencies, improved warehouse and distribution efficiencies, consolidating
manufacturing facilities, and reducing store operations expenses. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview."

- - INNOVATIVE MARKETING AND MERCHANDISING PROGRAMS. The Company utilizes
innovative and aggressive marketing programs in an effort to increase sales,
market share and profitability. In September 1996 the Company launched its
"First in Southern California" marketing program, which emphasizes Ralphs'
lower regular retail prices in conjunction with its premier quality, wide
selection and enhanced customer service. The new marketing campaign also
highlights the Company's belief that more shoppers are choosing Ralphs than
any other supermarket in the region. Management believes that consumers'
favorable response to the "First in Southern California" marketing campaign
has resulted in increased customer traffic at its stores and has contributed
to an increase in fiscal 1996 fourth quarter comparable store sales in
Southern California of 3.5%. The Company continues to emphasize its successful
merchandising programs and exceptional product mix, including its strong
private label program and home meal replacement programs. The Company's
private label program provides quality comparable to that of national brands
at significantly lower prices, while the Company's gross margins on private
label products are generally higher than on national brands. The Company
believes it has one of the most successful private label programs in the
industry, with private label sales equal to approximately 18% of total grocery
sales. The Company intends to continue to expand its home meal replacement
program in its conventional supermarkets. The Company's home meal replacement
program offers a wide range of pre-packaged fresh, refrigerated and frozen
food items.

REFINANCING OF CREDIT FACILITY AND OLD SENIOR SUBORDINATED NOTES

On April 17, 1997, the Company amended and restated (the "Refinanced Credit
Facility") its existing credit facilities (the "1995 Credit Facility"). The
Refinanced Credit Facility has lower interest rates and a longer average life
than the 1995 Credit Facility. The Refinanced Credit Facility consists of a
$325.0 million Revolving Credit Facility, a $200.0 million Term Loan A Facility
and a $350.0 million Term Loan B Facility. On April 17, 1997 immediately prior
to the effectiveness of the amendment and restatement, the outstanding term
loans under the 1995 Credit Facility were $540.4 million. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

5
<PAGE> 7

On March 26, 1997 the Company issued $155 million aggregate principal
amount of Private Notes at a premium price of 105.5% resulting in gross proceeds
of $163.5 million (the "Private Placement"). The Private Notes were sold by the
Company to BT Securities Corporation ("BT Securities"), CIBC Wood Gundy
Securities Corp. ("CIBC Wood Gundy"), Credit Suisse First Boston ("CS First
Boston") and Donaldson, Lufkin, Jenrette Securities Corporation ("DLJ") as
Initial Purchasers in a transaction exempt from registration requirements of the
Securities Act (the "Private Placement"). The net proceeds of the Private Notes
were used to (i) redeem, on April 28, 1997, $140.2 million aggregate principal
amount of the Company's outstanding 13.75% Senior Subordinated Notes due 2005
(the "1995 13.75% Senior Subordinated Notes") at a price of 106.111%, plus
accrued interest to the date of redemption and $4.8 million aggregate principal
amount of the Company's outstanding 13.75% Senior Subordinated Notes due 2001
(the "1991 13.75% Senior Subordinated Notes," and together with the 1995 13.75%
Senior Subordinated Notes, the "13.75% Senior Subordinated Notes") at a price of
106.111%, plus accrued interest to the date of redemption and (ii) pay fees and
expenses related to the Private Placement.

It is anticipated that the refinancing of the 1995 Credit Facility,
together with the lower interest cost associated with the replacement of the
13.75% Senior Subordinated Notes with the Notes, will reduce the Company's
annual interest expense by approximately $12 million. See Management's
Discussion and Analysis of Results of Operations and Financial
Condition -- Liquidity and Capital Resources."

6
<PAGE> 8

THE EXCHANGE OFFER

THE EXCHANGE OFFER......The Company is hereby offering to exchange $1,000
principal amount of Exchange Notes for each $1,000
principal amount of Private Notes that are properly
tendered and accepted. The Company will issue Exchange
Notes on or promptly after the Expiration Date. As of
the date hereof, there is $155,000,000 aggregate
principal amount of Private Notes outstanding. See "The
Exchange Offer."

Based on an interpretation by the staff of the
Commission set forth in no-action letters issued to
third parties, the Company believes that the Exchange
Notes issued pursuant to the Exchange Offer in exchange
for Private Notes may be offered for resale, resold and
otherwise transferred by a holder thereof (other than
(i) a broker-dealer who purchases such Exchange Notes
directly from the Company to resell pursuant to Rule
144A or any other available exemption under the
Securities Act or (ii) a person that is an affiliate of
the Company within the meaning of Rule 405 under the
Securities Act), without compliance with the
registration and prospectus delivery provisions of the
Securities Act; provided that the holder is acquiring
Exchange Notes in the ordinary course of its business
and is not participating, and had no arrangement or
understanding with any person to participate, in the
distribution of the Exchange Notes. Each broker-dealer
that receives Exchange Notes for its own account in
exchange for Private Notes, where such Private Notes
were acquired by such broker-dealer as a result of
market-making activities or other trading activities,
must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. See
"The Exchange Offer -- Resale of the Exchange Notes."

REGISTRATION RIGHTS
AGREEMENT.............The Private Notes were sold by the Company on March 26,
1997 to the Initial Purchasers pursuant to a Purchase
Agreement, dated March 21, 1997, between the Company,
the Subsidiary Guarantors and the Initial Purchasers
(the "Purchase Agreement"). Pursuant to the Purchase
Agreement, the Company, the Subsidiary Guarantors and
the Initial Purchasers entered into a Registration
Rights Agreement, dated as of March 26, 1997 (the
"Registration Rights Agreement"), which grants the
holders of the Private Notes certain exchange and
registration rights. The Exchange Offer is intended to
satisfy such rights, which will terminate upon the
consummation of the Exchange Offer. The holders of the
Exchange Notes will not be entitled to any exchange or
registration rights with respect to the Exchange Notes.
See "The Exchange Offer -- Termination of Certain
Rights."

EXPIRATION DATE.........The Exchange Offer will expire at 5:00 p.m., New York
City time, on , 1997 unless the Exchange
Offer is extended by the Company in its sole discretion,
in which case the term "Expiration Date" shall mean the
latest date and time to which the Exchange Offer is
extended. See "The Exchange Offer -- Expiration Date;
Extensions; Amendments."

ACCRUED INTEREST ON THE
EXCHANGE NOTES AND THE
PRIVATE NOTES.........The Exchange Notes will bear interest from the date of
the last interest payment on the Private Notes or if no
interest has been paid, from the date of original
issuance of the Private Notes. Holders whose Private
Notes are accepted for exchange will be deemed to have
waived the right to receive any

7
<PAGE> 9

interest accrued on the Private Notes. See "The Exchange
Offer -- Interest on the Exchange Notes."

CONDITIONS TO THE
EXCHANGE OFFER..........The Exchange Offer is subject to certain customary
conditions that may be waived by the Company. The
Exchange Offer is not conditioned upon any minimum
aggregate principal amount of Private Notes being
tendered for exchange. See "The Exchange
Offer -- Conditions."

PROCEDURES FOR TENDERING
PRIVATE NOTES.........Each holder of Private Notes wishing to accept the
Exchange Offer must complete, sign and date the Letter
of Transmittal, or a facsimile thereof, in accordance
with the instructions contained herein and therein, and
mail or otherwise deliver such Letter of Transmittal, or
such facsimile, together with such Private Notes and any
other required documentation to United States Trust
Company of New York, as exchange agent (the "Exchange
Agent"), at the address set forth herein. By executing
the Letter of Transmittal, the holder will represent to
and agree with the Company that, among other things, (i)
the Exchange Notes to be acquired by such holder of
Private Notes in connection with the Exchange Offer are
being acquired by such holder in the ordinary course of
its business, (ii) such holder has no arrangement or
understanding with any person to participate in a
distribution of the Exchange Notes, (iii) that if such
holder is a broker-dealer registered under the Exchange
Act or is participating in the Exchange Offer for the
purposes of distributing the Exchange Notes, such holder
will comply with the registration and prospectus
delivery requirements of the Securities Act in
connection with a secondary resale transaction of the
Exchange Notes acquired by such person and cannot rely
on the position of the staff of the Commission set forth
in no-action letters (see "The Exchange Offer -- Resale
of the Exchange Notes"), (iv) such holder understands
that a secondary resale transaction described in clause
(iii) above and any resales of Exchange Notes obtained
by such holder in exchange for Private Notes acquired by
such holder directly from the Company should be covered
by an effective registration statement containing the
selling securityholder information required by Item 507
or Item 508, as applicable, of Regulation S-K of the
Commission and (v) such holder is not an "affiliate," as
defined in Rule 405 under the Securities Act, of the
Company. If the holder is a broker-dealer that will
receive Exchange Notes for its own account in exchange
for Private Notes that were acquired as a result of
market-making activities or other trading activities,
such holder will be required to acknowledge in the
Letter of Transmittal that such holder will deliver a
prospectus in connection with any resale of such
Exchange Notes; however, by so acknowledging and by
delivering a prospectus, such holder will not be deemed
to admit that it is an "underwriter" within the meaning
of the Securities Act. See "The Exchange
Offer -- Procedures for Tendering."

SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS.....Any beneficial owner whose Private Notes are registered
in the name of a broker, dealer, commercial bank, trust
company or other nominee and who wishes to tender such
Private Notes in the Exchange Offer should contact such
registered holder promptly and instruct such registered
holder to tender on such beneficial owner's behalf. If
such beneficial owner wishes to tender on such owner's
own behalf, such owner must, prior to completing and
executing the Letter of Transmittal and delivering such
owner's Private Notes, either make appropriate
arrangements to register ownership of the Private Notes
in

8
<PAGE> 10

such owner's name or obtain a properly completed bond
power from the registered holder. The transfer of
registered ownership may take considerable time and may
not be able to be completed prior to the Expiration
Date. See "The Exchange Offer -- Procedures for
Tendering."

GUARANTEED DELIVERY
PROCEDURES............Holders of Private Notes who wish to tender their
Private Notes and whose Private Notes are not
immediately available or who cannot deliver their
Private Notes, the Letter of Transmittal or any other
documentation required by the Letter of Transmittal to
the Exchange Agent prior to the Expiration Date must
tender their Private Notes according to the guaranteed
delivery procedures set forth under "The Exchange
Offer -- Guaranteed Delivery Procedures."

ACCEPTANCE OF THE
PRIVATE NOTES AND
DELIVERY OF THE
EXCHANGE NOTES........Subject to the satisfaction or waiver of the conditions
to the Exchange Offer, the Company will accept for
exchange any and all Private Notes that are properly
tendered in the Exchange Offer prior to the Expiration
Date. The Exchange Notes issued pursuant to the Exchange
Offer will be delivered on the earliest practicable date
following the Expiration Date. See "The Exchange
Offer -- Terms of the Exchange Offer."

WITHDRAWAL RIGHTS.......Tenders of Private Notes may be withdrawn at any time
prior to the Expiration Date. See "The Exchange
Offer -- Withdrawal of Tenders."

CERTAIN FEDERAL INCOME
TAX CONSIDERATIONS....The exchange of Private Notes for Exchange Notes will be
treated as a "non-event" for federal income tax purposes
because the Exchange Notes will not be considered to
differ materially from the Private Notes. As a result,
no material federal income tax consequences will result
to holders exchanging Private Notes for Exchange Notes.
See "Certain Federal Income Tax Considerations."

EXCHANGE AGENT..........United States Trust Company of New York is serving as
the Exchange Agent in connection with the Exchange
Offer.

THE EXCHANGE NOTES

The Exchange Offer applies to $155,000,000 aggregate principal amount of
the Private Notes. The form and terms of the Exchange Notes are the same as the
form and terms of the Private Notes except that (i) the exchange will have been
registered under the Securities Act and, therefore, the Exchange Notes will not
bear legends restricting the transfer thereof and (ii) holders of the Exchange
Notes will not be entitled to certain rights of holders of the Private Notes
under the Registration Rights Agreement, which rights will terminate upon
consummation of the Exchange Offer. The Exchange Notes will evidence the same
indebtedness as the Private Notes (which they replace) and will be issued under,
and be entitled to the benefits of, an indenture governing the Private Notes and
the Exchange Notes dated March 26, 1997 (the "Indenture") among the Company, the
Subsidiary Guarantors and United States Trust Company, as Trustee (the
"Trustee"). The Exchange Notes and the Private Notes are sometimes collectively
referred to herein as the "Notes." The terms of the Private Notes and the
Exchange Notes are substantially identical to those of the Company's 11% Senior
Subordinated Notes due 2005 (the "1995 Senior Subordinated Notes"), which were
issued in a registered offering on June 14, 1995 and of which $524 million
aggregate principal amount is outstanding. For further information and for
definitions of certain capitalized terms used below, see "Description of the
Notes."

9
<PAGE> 11

ISSUER..................Ralphs Grocery Company.

NOTES OFFERED...........$155,000,000 aggregate principal amount of 11% Senior
Subordinated Notes due 2005.

MATURITY DATE...........June 15, 2005.

INTEREST RATE...........The Exchange Notes will bear interest at the rate of 11%
per annum.

INTEREST PAYMENT
DATES...................June 15 and December 15, commencing on June 15, 1997.

OPTIONAL REDEMPTION.....The Notes will be redeemable at the option of the
Company, in whole or in part, at any time on or after
June 15, 2000, at the following redemption prices if
redeemed during the twelve-month period commencing on
June 15 of the year set forth below:

<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
-------------------------------------------------------- ----------
<S> <C>
2000.................................................... 105.500%
2001.................................................... 103.667%
2002.................................................... 101.833%
2003 and thereafter..................................... 100.000%
</TABLE>

in each case plus accrued and unpaid interest to the
date of redemption.

In addition, on or prior to June 15, 1998, the Company
may, at its option, use the net cash proceeds from one
or more Public Equity Offerings to redeem up to an
aggregate of 35% of the principal amount of the Notes
originally issued, at a redemption price equal to
109.429% of the principal amount thereof if redeemed
during the 12 months commencing on June 15, 1996 and
107.857% of the principal amount thereof if redeemed
during the 12 months commencing on June 15, 1997, in
each case plus accrued and unpaid interest to the
redemption date.

RANKING.................The Notes will be senior subordinated unsecured
obligations of the Company and will be subordinated in
right of payment to all Senior Indebtedness (as defined)
of the Company, including the Company's obligations
under the Refinanced Credit Facility, the 1996 Senior
Notes, the 1995 Senior Notes, and the 1992 Senior Notes.
At April 27, 1997, the aggregate amount of Senior
Indebtedness of the Company was $1,436.8 million (not
including obligations with respect to letters of credit
issued under the Refinanced Credit Facility, of which
$89.1 million were outstanding as of April 27, 1997),
the aggregate amount of Guarantor Senior Indebtedness of
the Subsidiary Guarantors (excluding guarantees by
Subsidiary Guarantors of certain Senior Indebtedness of
the Company) was $9.0 million, the Company had $124.4
million available to be borrowed under the Revolving
Facility, net of outstanding standby letters of credit
of $89.1 million, and the aggregate amount of
indebtedness ranking pari passu with the Notes was
$526.2 million (not including $145.0 million of 13.75%
Senior Subordinated Notes, which were redeemed on April
28, 1997 with the proceeds of the Private Placement of
the Private Notes).

GUARANTEES..............Pursuant to the Indenture, the Notes will be
unconditionally guaranteed (the "Guarantees") on a
senior subordinated unsecured basis by each of the
Company's wholly-owned subsidiaries (the "Subsidiary
Guarantors"). The Subsidiary Guarantees (as defined)
will be general unsecured obligations of the Subsidiary
Guarantors and will be subordinated in right of payment
to all existing and future Senior Debt of the Subsidiary
Guarantors.

10
<PAGE> 12

CHANGE OF CONTROL.......Upon a Change of Control (as defined), each holder of
the Notes has the right to require the Company to
repurchase such holder's Notes at a price equal to 101%
of the principal amount plus accrued and unpaid interest
to the date of repurchase.

CERTAIN COVENANTS.......The Indenture contains certain covenants, including, but
not limited to, covenants with respect to the following:
(i) limitation on restricted payments; (ii) limitation
on incurrences of additional indebtedness; (iii)
limitation on liens; (iv) limitation on asset sales; (v)
limitation on dividend and other payment restrictions
affecting subsidiaries; (vi) guarantees of certain
indebtedness; (vii) limitation on transactions with
affiliates; (viii) limitation on mergers and certain
other transactions; and (ix) limitations on preferred
stock of subsidiaries.

11
<PAGE> 13

SUMMARY HISTORICAL FINANCIAL DATA OF THE COMPANY

The following table sets forth summary historical financial data of the
Company and its predecessor Food 4 Less as of and for the 52 weeks ended June
27, 1992, June 26, 1993 and June 25, 1994, the 31 weeks ended January 29, 1995,
the 52 weeks ended January 28, 1996 and the 53 weeks ended February 2, 1997
which have been derived from the financial statements of the Company and Food 4
Less audited by Arthur Andersen LLP, independent public accountants. Certain
prior period amounts in the financial data presented below have been
reclassified to conform to the fiscal 1997 presentation. The summary historical
financial data of the Company presented below as of and for the 12 weeks ended
April 21, 1996 and April 27, 1997 have been derived from unaudited financial
statements of the Company which, in the opinion of management, reflect all
material adjustments, consisting of only normal recurring adjustments, necessary
for a fair presentation of such data. The following information should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the historical consolidated financial statements
of the Company and related notes thereto included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
12 WEEKS 12 WEEKS
52 WEEKS 52 WEEKS 52 WEEKS 31 WEEKS 52 WEEKS 53 WEEKS ENDED ENDED
ENDED ENDED ENDED ENDED ENDED ENDED APRIL APRIL
JUNE 27, JUNE 26, JUNE 25, JANUARY 29, JANUARY 28, FEBRUARY 2, 21, 27,
1992 1993 1994(A) 1995(B) 1996(C) 1997 1996 1997
-------- -------- -------- ----------- ----------- ----------- -------- --------
(IN MILLIONS, EXCEPT STORE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Sales............... $2,913.5 $2,742.0 $2,585.2 $ 1,556.5 $ 4,335.1 $ 5,516.3 $1,230.8 $1,276.2
Gross profit(d)..... 483.8 468.9 458.9 259.7 808.0 1,136.0 237.9 263.0
Selling, general and
administrative
expenses.......... 432.7 419.6 378.4 219.7 744.4 933.4 206.6 209.8
Interest
expense(e)........ 70.2 69.7 68.3 42.2 178.8 248.4 56.1 57.0
Net (loss)(f)....... (33.8) (27.4) (2.7) (11.5) (283.2) (93.8) (32.0) (60.0)
Ratio of earnings to
fixed
charges(g)........ -- (g) -- (g) 1.0 x --(g) --(g) --(g) -- (g) -- (g)
BALANCE SHEET DATA
(end of period)(h):
Working capital
surplus
(deficit)......... $ (66.3) $ (19.2) $ (54.9) $ (74.8) $ (178.5) $ (182.6) $(230.2) $(167.8)
Total assets........ 998.5 957.8 980.1 1,000.7 3,188.1 3,132.0 3,144.8 3,233.6
Total debt(i)....... 525.3 538.1 517.9 533.8 2,082.3 2,093.2 2,059.7 2,271.6
Stockholder's equity
(deficit)......... 50.8 72.9 69.0 57.8 59.1 (35.6) 27.1 (95.5)
OTHER DATA:
Depreciation and
amortization(j)... $ 54.9 $ 57.6 $ 57.1 $ 36.6 $ 125.3 169.7 $ 36.7 $ 37.8
Capital
expenditures...... 60.3 53.5 57.5 49.0 122.4 123.6 34.2 31.0
Stores open at end
of period......... 249 248 258 267 408 405 407 405
EBITDA (as
defined)(k)....... $ 101.7 $ 103.8 $ 130.6 $ 76.9 $ 245.1 $ 354.6 $ 70.1 $ 85.0
EBITDA margin(l).... 3.5 % 3.8 % 5.1 % 4.9% 5.7% 6.4% 5.7 % 6.7 %
</TABLE>

- ---------------

(a) Operating data for the 52 weeks ended June 25, 1994 include the results of
10 Food Barn stores, which were not material, from March 29, 1994, the date
of the Food Barn acquisition.

(b) Food 4 Less Supermarkets changed its fiscal year end from the 52 or 53-week
period which ends on the last Saturday in June to the 52 or 53-week period
which ends on the Sunday closest to January 31, resulting in a 31-week
transition period.

(d) Cost of sales has been principally determined using the last-in, first-out
("LIFO") method of valuing inventory. If cost of sales had been determined
using the first-in, first-out ("FIFO") method, gross profit would have been
greater by $3.6 million, $4.4 million, $0.7 million, $2.7 million, $2.2
million, $5.6 million, $1.3 million (unaudited) and $1.7 million (unaudited)
for the 52 weeks ended June 27, 1992, June 26, 1993, and June 25, 1994, the
31 weeks ended January 29, 1995, the 52 weeks ended January 28, 1996, the 53
weeks ended February 2, 1997 and the 12 weeks ended April 21, 1996 and April
27, 1997, respectively.

(e) Interest expense includes non-cash charges related to the amortization of
deferred financing costs and self-insurance discount of $11.3 million for
the 52 weeks ended June 27, 1992, $10.8 million for the 52 weeks ended June
26, 1993, $11.3 million for the

12
<PAGE> 14

52 weeks ended June 25, 1994, $6.9 million for the 31 weeks ended January
29, 1995, $18.5 million for the 52 weeks ended January 28, 1996, $21.5
million for the 53 weeks ended February 2, 1997, $5.3 million for the 12
weeks ended April 21, 1996 and $4.4 million for the 12 weeks ended April 27,
1997.

(f) Net loss includes a pre-tax provision for self insurance, which is
classified in cost of sales, selling, general and administrative expenses
and interest expense of $51.1 million, $43.9 million, $25.7 million, $9.8
million, $32.6 million, $29.2 million, $10.6 million and $9.5 million for
the 52 weeks ended June 27, 1992, June 26, 1993, and June 25, 1994, the 31
weeks ended January 29, 1995, the 52 weeks ended January 28, 1996, the 53
weeks ended February 2, 1997, the 12 weeks ended April 21, 1996 and the 12
weeks ended April 27, 1997, respectively. Included in the 52 weeks ended
June 25, 1994, the 31 weeks ended January 29, 1995 and the 52 weeks ended
January 28, 1996 are reduced employer contributions of $8.1 million, $14.3
million and $26.1 million, respectively, related to union health and welfare
benefit plans. Included in the 53 weeks ended February 2, 1997, the 12 weeks
ended April 21, 1996 and the 12 weeks ended April 27, 1997 are reduced
employer contributions of $17.8 million, $1.0 million and $2.7 million,
respectively, related to union pension and health and welfare benefit plans.

(g) For purposes of computing the ratio of earnings to fixed charges, "earnings"
consist of loss before provision for income taxes and extraordinary charges
plus fixed charges. "Fixed charges" consist of interest on all indebtedness,
amortization of deferred debt financing costs and one-third of rental
expense (the portion deemed representative of the interest factor). Earnings
were insufficient to cover fixed charges for the 52 weeks ended June 27,
1992 and June 26, 1993, the 31 weeks ended January 29, 1995, the 52 weeks
ended January 28, 1996, the 53 weeks ended February 2, 1997, the 12 weeks
ended April 21, 1996 and the 12 weeks ended April 27, 1997, by approximately
$25.6 million, $25.9 million, $11.5 million, $259.6 million, $93.8 million,
$32.0 million and $12.0 million, respectively. However, such earnings
included non-cash charges of $61.2 million for the 52 weeks ended June 27,
1992, $62.5 million for the 52 weeks ended June 26, 1993, $40.0 million for
the 31 weeks ended January 29, 1995, $202.5 million for the 52 weeks ended
January 28, 1996, $180.3 million for the 53 weeks ended February 2, 1997,
$40.0 million for the 12 weeks ended April 21, 1996 and $40.6 million for
the 12 weeks ended April 27, 1997, primarily consisting of depreciation and
amortization and the write-off of property and equipment associated with
stores closed as a result of the Merger, stores closed due to
under-performance, stores closed in connection with the acquisition of the
nine stores from Smith's, and warehouses to be closed as a result of the
acquisition of the Riverside Facility. In addition, earnings for the 52
weeks ended January 28, 1996 were reduced by cash restructuring charges of
$54.1 million.

(h) Balance sheet data as of June 25, 1994 reflect the acquisition of 10 Food
Barn stores. Balance sheet data as of January 28, 1996 relate to the Company
and reflect the Merger and the financings associated therewith.

(i) Total debt includes long-term debt, current maturities of long-term debt and
capital lease obligations.

(j) For the 52 weeks ended June 27, 1992, June 26, 1993 and June 25, 1994, the
31 weeks ended January 29, 1995, the 52 weeks ended January 28, 1996, the 53
weeks ended February 2, 1997, the 12 weeks ended April 21, 1996 and the 12
weeks ended April 27, 1997, depreciation and amortization includes
amortization of goodwill of $7.8 million, $7.6 million, $7.7 million, $4.6
million, $21.8 million, $38.7 million, $7.2 million and $8.1 million,
respectively.

(k) "EBITDA (as defined)," as presented historically by the Company, represents
income before interest expense, depreciation and amortization expense, the
LIFO provision, provision for income taxes, provision for earthquake losses,
provision for restructuring, a one-time charge in the 1995 transition period
for Teamsters Union sick pay benefits, $75.0 million of one-time costs
incurred in connection with the Merger in fiscal year 1995 and $13.5 million
of one-time costs incurred in connection with the acquisition of the
Riverside Facility and nine former Smith's stores in fiscal year 1996.
EBITDA is a widely accepted financial indicator of a company's ability to
service debt. However, EBITDA should not be construed as an alternative to
operating income or to cash flows from operating activities (as determined
in accordance with generally accepted accounting principles) and should not
be construed as an indication of the Company's operating performance or as a
measure of liquidity. EBITDA as presented may not be comparable to EBITDA of
other companies that do not calculate EBITDA in the same manner as the
Company. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."

(l) EBITDA margin represents EBITDA (as defined) as a percentage of sales.

13
<PAGE> 15

SUMMARY HISTORICAL FINANCIAL DATA OF RSI

The following table sets forth summary historical financial data of RSI as
of and for the 52 weeks ended January 31, 1993, January 30, 1994 and January 29,
1995, which have been derived from the financial statements of RSI and audited
by KPMG Peat Marwick LLP, independent certified public accountants. The
following information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the historical consolidated financial statements of RSI and related notes
thereto included elsewhere in this Prospectus.

- ---------------

(a) Includes provision for post retirement benefits other than pensions of $3.3
million, $3.4 million and $2.6 million for the 52 weeks ended January 31,
1993, January 30, 1994 and January 29, 1995, respectively.

(b) Interest expense includes non-cash charges related to the amortization of
deferred debt issuance costs of $5.5 million for the 52 weeks ended January
31, 1993, $6.5 million for the 52 weeks ended January 30, 1994 and $6.1
million for the 52 weeks ended January 29, 1995, respectively.

(c) Net earnings (loss) includes the extraordinary item relating to debt
refinancing, loss on disposal of assets, provisions for postretirement and
pension benefits and provision for earthquake losses. Net earnings (loss)
includes a pre-tax provision for self insurance, which is classified in cost
of sales, selling, general and administrative expenses and interest expense
of $36.9 million, $36.3 million, and $20.0 million, for the 52 weeks ended
January 31, 1993, the 52 weeks ended January 30, 1994 and the 52 weeks ended
January 29, 1995, respectively. Included in the 52 weeks ended January 30,
1994 and the 52 weeks ended January 29, 1995 are reduced employer
contributions of $11.8 million and $12.7 million, respectively, related to
union health and welfare benefit plans.

(d) For purposes of computing the ratio of earnings to fixed charges, "earnings"
consist of earnings before income taxes, extraordinary item and fixed
charges before capitalized interest. "Fixed charges" consist of interest
expense (including amortization of self-insurance reserves discount),
capitalized interest, amortization of deferred debt issuance costs and
one-third of rental expense (the portion deemed representative of the
interest factor).

(e) Total debt includes long-term debt, current maturities of long-term debt,
short-term debt and capital lease obligations.

(f) For the 52 weeks ended January 31, 1993, January 30, 1994 and January 29,
1995, depreciation and amortization includes amortization of the excess of
cost over net assets acquired of $11.0 million, $11.0 million and $11.0
million, respectively.

(g) "EBITDA," as defined and presented historically by RSI, represents earnings
before interest expense, income tax expense (benefit), depreciation and
amortization expense, provision for postretirement benefits, the LIFO
charge, extraordinary item relating to debt refinancing, provision for legal
settlement, provision for restructuring, provision for earthquake losses, a
one-time charge for Teamsters Union sick pay benefits, transition expense
and gains and losses on disposal of assets. EBITDA is a widely accepted
financial indicator of a company's ability to service debt. However, EBITDA
should not be construed as an alternative to operating income or to cash
flows from operating activities (as determined in accordance with generally
accepted accounting principles) and should not be construed as an indication
of Ralphs' operating performance or as a measure of liquidity. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

(h) EBITDA margin represents EBITDA (as defined) as a percentage of sales.

(i) Includes recognition of $109.1 million of deferred income tax benefit and
$1.1 million current income tax expense for the 52 weeks ended January 30,
1994 (see Note 11 of Notes to Consolidated Financial Statements of Ralphs
Supermarkets, Inc.).

14
<PAGE> 16

RISK FACTORS

Prospective investors should carefully consider the following factors, in
addition to the other matters described in this Prospectus, before purchasing
Notes.

LEVERAGE AND DEBT SERVICE

The Company is highly leveraged. At April 27, 1997, the Company's total
indebtedness (including current maturities) was $2,271.6 million (including
$145.0 million of 13.75% Senior Subordinated Notes, which were redeemed on April
28, 1997 with the proceeds of the Private Placement) and Stockholder's deficit
was $95.5 million, and the Company had an additional $124.4 million available to
be borrowed under the $325 million Revolving Facility portion of the Refinanced
Credit Facility (the "Revolving Facility") (net of $89.1 million in standby
letters of credit outstanding). On April 28, 1997, the 13.75% Senior
Subordinated Notes were redeemed at a price of 106.1 percent of their principal
amount, plus accrued interest thereon. $161.2 million of the proceeds of the
Private Placement, which was included in Restricted Cash at April 27, 1997, was
used to redeem the 13.75% Senior Subordinated Notes. In addition, as of February
2, 1997, scheduled payments under operating leases of the Company and its
subsidiaries for the twelve months following such date were $145.7 million. For
the 53 weeks ended February 2, 1997, after giving pro forma effect to the
Private Placement and the application of the proceeds therefrom and the issuance
of $100 million aggregate principal amount of 10.45% Senior Notes due 2004
issued on June 6, 1996 (the "1996 Senior Notes"), the Company's earnings before
fixed charges were inadequate to cover fixed charges by $108.4 million. However,
such earnings included non-cash charges of $186.3 million primarily consisting
of depreciation and amortization. For the 12 weeks ended April 27, 1997, the
Company's earnings before fixed charges were inadequate to cover fixed charges
by $12.0 million. However, such earnings included non-cash charges of $40.7
million primarily consisting of depreciation and amortization. The Company's
parent, Food 4 Less Holdings, Inc. ("Holdings") will be required to make
semi-annual cash payments of interest on its outstanding debt issued in
connection with the Merger commencing in December 2000 in the amount of
approximately $61 million per annum. The Indenture permits the Company (in the
absence of a default or event of default thereunder) to pay cash dividends to
Holdings in an amount sufficient to allow Holdings to pay interest on such
Indebtedness when due. The Company's ability to make scheduled payments of the
principal of, or interest on, or to refinance its Indebtedness (including the
Notes) and to make scheduled payments under its operating leases depends on its
future performance, which to a certain extent is subject to economic, financial,
competitive and other factors beyond its control.

Based upon the current level of operations and anticipated future growth,
the Company believes that its cash flow from operations, together with available
borrowings under the Revolving Facility and its other sources of liquidity
(including leases), will be adequate to meet its anticipated requirements for
working capital, capital expenditures, interest payments and scheduled principal
payments over the next several years. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources." There can be no assurance, however, that the Company's business will
continue to generate cash flow at or above current levels or that future cost
savings and growth can be achieved. If the Company is unable to generate
sufficient cash flow from operations in the future to service its debt and make
necessary capital expenditures, or if its future earnings growth is insufficient
to meet all required principal payments out of internally generated funds, the
Company may be required to refinance all or a portion of its existing debt, sell
assets or obtain additional financing. There can be no assurance that any such
refinancing or asset sales would be possible or that any additional financing
could be obtained, particularly in view of the Company's high level of debt and
the fact that substantially all of its assets are pledged to secure the
borrowings under the Refinanced Credit Facility and other secured obligations.

The Company's high level of debt will have several significant effects on
its future operations, including the following: (a) the Company will have
significant cash requirements to service debt, reducing funds available for
operations and future business opportunities and increasing the Company's
vulnerability to adverse general economic and industry conditions; (b) the
financial covenants and other restrictions contained in the Refinanced Credit
Facility and other agreements relating to the Company's indebtedness and in the
Indenture will require the Company to meet certain financial tests and will
restrict its ability to borrow additional funds, to dispose of

15
<PAGE> 17

assets or to pay cash dividends; and (c) because of the Company's debt service
requirements, funds available for working capital, capital expenditures,
acquisitions and general corporate purposes, may be limited. The Company's
leveraged position may increase its vulnerability to competitive pressures. The
Company's continued growth depends in part, on its ability to continue its
expansion and store conversion effort and, therefore, its inability to finance
capital expenditures through borrowed funds could have a material adverse effect
on the Company's future operations. Moreover, any default under the documents
governing the indebtedness of the Company could have a significant adverse
effect on the market value of the Notes.

SUBORDINATION OF THE NOTES

The payment of principal, premium, if any, and interest on, and any other
amounts owing in respect of, the Notes will be subordinated to the prior payment
in full of all existing and future Senior Indebtedness, including indebtedness
under the Refinanced Credit Facility, the 1996 Senior Notes, the 1995 Senior
Notes and the 1992 Senior Notes. Each Subsidiary Guarantor's Senior Subordinated
Note Guarantee will also be subordinated in right of payment to Senior
Indebtedness of the Subsidiary Guarantors ("Guarantor Senior Indebtedness").
Guarantor Senior Indebtedness will include all existing and future indebtedness
not expressly subordinated to other indebtedness, including indebtedness
represented by the guarantee of each Subsidiary Guarantor under the Refinanced
Credit Facility, the 1996 Senior Notes, the 1995 Senior Notes and the 1992
Senior Notes. As of April 27, 1997, the aggregate outstanding amount of Senior
Indebtedness of the Company was $1,436.8 million and the aggregate outstanding
amount of Guarantor Senior Indebtedness of the Subsidiary Guarantors (excluding
guarantees by Subsidiary Guarantors of certain Senior Indebtedness of the
Company) was $9.0 million and the Company had $124.4 million available to be
borrowed under the Revolving Facility, net of $89.1 million in outstanding
standby letters of credit issued. The Indenture limits, but does not prohibit,
the issuance by the Subsidiary Guarantors of additional indebtedness which is
Guarantor Senior Indebtedness. See "Description of the Notes -- Guarantees." In
the event of the bankruptcy, liquidation, dissolution, reorganization or other
winding up of the Company, the assets of the Company will be available to pay
obligations on the Notes only after all Senior Indebtedness has been paid in
full, and there may not be sufficient assets remaining to pay amounts due on any
or all of the Notes. In addition, under certain circumstances, the Company may
not pay principal of, premium, if any, or interest on, or any other amounts
owing in respect of, the Notes, or purchase, redeem or otherwise retire the
Notes, if a payment default or a non-payment default exists with respect to
certain Senior Indebtedness and, in the case of a non-payment default, a payment
blockage notice has been received by the Note Trustee (as defined). See
"Description of the Notes -- Subordination of the Notes."

COMPETITION

The supermarket industry is highly competitive and characterized by narrow
profit margins. The Company's competitors in each of its operating divisions
include national and regional supermarket chains, independent and specialty
grocers, drug and convenience stores, and the newer "alternative format" food
stores, including warehouse club stores, deep discount drug stores and "super
centers." Supermarket chains generally compete on the basis of location, quality
of products, service, price, product variety and store condition. The Company
regularly monitors its competitors' prices and adjusts its prices and marketing
strategy as management deems appropriate in light of existing conditions. Some
of the Company's competitors have greater financial resources than the Company
and could use these resources to take steps which could adversely affect the
Company's competitive position. One of the Company's primary competitors in
Southern California was recently acquired by a major multi-regional supermarket
chain which may increase competitive pressures for the Company. See
"Business -- Competition."

ABILITY TO ACHIEVE ANTICIPATED COST SAVINGS

At the time of the Merger, management of the Company estimated that
approximately $90 million of annualized net cost savings (as compared to such
costs for the pro forma combined fiscal year ended June 25, 1994) could be
achieved over a four year period as a result of integrating the operations of
Ralphs and Food 4 Less. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Overview." The cost savings estimates
were prepared solely by members of the management of the Company. The estimates
necessarily made numerous assumptions as to future sales levels and other
operating results, the

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availability of funds for capital expenditures as well as general industry and
business conditions and other matters, many of which are beyond the control of
the Company. Several of the cost savings estimates were premised on the
assumption that certain levels of efficiency formerly maintained by either Food
4 Less or Ralphs could continue to be achieved by the combined Company for all
periods following the Merger. Other estimates were based on a management
consensus as to what levels of purchasing and similar efficiencies should be
achievable by an entity the size of the Company. Estimates of potential cost
savings are forward looking statements that are inherently uncertain. Except for
savings already realized, actual cost savings, if any, could differ materially
from those projected. All of these forward looking statements are based on
estimates and assumptions made by management of the Company, which although
believed to be reasonable, are inherently uncertain and difficult to predict;
therefore, undue reliance should not be placed upon such estimates. There can be
no assurance that the savings anticipated in these forward looking statements
will be achieved. The following important factors, (as well as the factors set
forth in "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Overview -- Forward Looking Statements") among others,
could cause the Company not to achieve the cost savings contemplated herein or
otherwise cause the Company's results of operations to be adversely affected in
future periods: (i) increased competitive pressures from existing competitors
and new entrants, including price-cutting strategies, store openings and
remodels; (ii) inability to negotiate more favorable terms with suppliers;(iii)
inability to achieve future sales levels or other operating results that support
the cost savings; (iv) increases in labor costs; (v) inability to control
inventory levels; and (vi) operational inefficiencies in distribution or other
Company systems. Many of such factors are beyond the control of the Company. In
addition, there can be no assurance that unforeseen costs and expenses or other
factors will not offset the estimated cost savings or other components or the
Company's plan in whole or in part. Following the Merger, the Company
experienced certain unanticipated costs and delays in the realization of certain
projected cost savings. There can be no assurance that new or additional
unforeseen costs or delays will not arise either in connection with the
integration or the Company's operations or the ongoing conduct of its business.

GEOGRAPHIC CONCENTRATION

A substantial percentage of the Company's business (representing
approximately 90% of sales) is conducted in Southern California. Southern
California began to experience a significant economic downturn in 1991. The
economy in Southern California has been affected by substantial job losses in
the defense and aerospace industries and other adverse economic trends. These
adverse regional economic conditions had resulted in declining sales levels in
recent periods. Although management believes that the economy in Southern
California has recently stabilized, an economic downturn in Southern California
could have a material adverse effect on the Company. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

CONTROL OF THE COMPANY

All of the Company's outstanding common stock is held by Holdings.
Affiliates of Yucaipa and Apollo Advisors, L.P. have beneficial ownership of
approximately 40.3% (assuming that certain warrants which are not presently
exercisable were exercised in full) and 32.6%, respectively, of the outstanding
capital stock of Holdings. Pursuant to a stockholders' agreement (the "1995
Stockholders Agreement") which was entered into by the 1995 Equity Investors (as
defined herein) and certain other stockholders and warrantholders of the
Company, Holdings and the Company have boards consisting of nine and ten
members, respectively, and (i) Yucaipa has the right to elect six directors to
the board of Holdings and seven directors to the board of the Company, (ii)
Apollo has the right to elect two directors to the board of each of Holdings and
the Company and (iii) the other 1995 Equity Investors have the right to elect
one director to the board of each of Holdings and the Company. Under the 1995
Stockholders Agreement, unless and until Holdings has effected an initial public
offering of its equity securities meeting certain criteria, Holdings and its
subsidiaries, including the Company, may not take certain actions without the
approval of the Holdings directors which the 1995 Equity Investors are entitled
to elect, including but not limited to certain mergers, sale transactions,
transactions with affiliates, issuances of capital stock and payments of
dividends on or repurchases of capital stock. As a result of the ownership
structure of the Company and the contractual rights described above, the voting
and management control of the Company is highly concentrated. Yucaipa, acting
with the consent of the directors

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<PAGE> 19

elected by the 1995 Equity Investors, has the ability to direct the actions of
the Company with respect to matters such as the payment of dividends, material
acquisitions and dispositions and other extraordinary corporate transactions.
Yucaipa is a party to a consulting agreement with the Company, pursuant to which
Yucaipa renders certain management and advisory services to the Company, and
receives fees for such services. Yucaipa also received certain fees in
connection with the consummation of the Merger, including an advisory fee of
$21.5 million, of which $17.5 million was paid through the issuance of New
Discount Debentures by Holdings. See "Certain Relationships and Related
Transactions," "Principal Stockholders" and "Description of Capital Stock."

FRAUDULENT CONVEYANCE RISKS

Various fraudulent conveyance laws have been enacted for the protection of
creditors and may be utilized by a court to subordinate or avoid the Notes or
any Guarantee in favor of other existing or future creditors of the Company or a
Subsidiary Guarantor.

If a court in a lawsuit on behalf of any unpaid creditor of the Company or
a representative of the Company's creditors were to find that, at the time the
Company issued the Notes, the Company (x) intended to hinder, delay or defraud
any existing or future creditor or contemplated insolvency with a design to
prefer one or more creditors to the exclusion in whole or in part of others or
(y) did not receive fair consideration or reasonably equivalent value for
issuing such Notes and the Company (i) was insolvent, (ii) was rendered
insolvent by reason of such distribution, (iii) was engaged or about to engage
in a business or transaction for which its remaining assets constituted
unreasonably small capital to carry on its business, or (iv) intended to incur,
or believed that it would incur, debts beyond its ability to pay such debts as
they matured, such court could void such Notes and void such transactions.
Alternatively, in such event, claims of the holders of such Notes could be
subordinated to claims of the other creditors of the Company.

The Company's obligations under the Notes will be guaranteed by the
Subsidiary Guarantors. To the extent that a court were to find that (x) a
Guarantee was incurred by a Subsidiary Guarantor with intent to hinder, delay or
defraud any present or future creditor or the Subsidiary Guarantor contemplated
insolvency with a design to prefer one or more creditors to the exclusion in
whole or in part of others or (y) such Subsidiary Guarantor did not receive fair
consideration or reasonably equivalent value for issuing its Guarantee and such
Subsidiary Guarantor (i) was insolvent, (ii) was rendered insolvent by reason of
the issuance of such Guarantee, (iii) was engaged or about to engage in a
business or transaction for which the remaining assets of such Subsidiary
Guarantor constituted unreasonably small capital to carry on its business, or
(iv) intended to incur, or believed that it would incur, debts beyond its
ability to pay such debts as they matured, the court could void or subordinate
such Guarantee in favor of the Subsidiary Guarantor's creditors. Among other
things, a legal challenge of a Guarantee on fraudulent conveyance grounds may
focus on the benefits, if any, realized by the Subsidiary Guarantor as a result
of the issuance by the Company of the applicable Notes.

To the extent any Guarantees were avoided as a fraudulent conveyance or
held unenforceable for any other reason, holders of the Notes would cease to
have any claim in respect of such Subsidiary Guarantor and would be creditors
solely of the Company and any Subsidiary Guarantor whose Guarantee was not
avoided or held unenforceable. In such event, the claims of the holders of the
applicable Notes against the issuer of an invalid Guarantee would be subject to
the prior payment of all liabilities and preferred stock claims of such
Subsidiary Guarantor. There can be no assurance that, after providing for all
prior claims and preferred stock interests, if any, there would be sufficient
assets to satisfy the claims of the holders of the applicable Notes relating to
any voided portions of any of the Guarantees.

Based upon financial and other information currently available to it,
management of the Company believes that the Notes and the Guarantees are being
incurred for proper purposes and in good faith and that the Company and each
Subsidiary Guarantor (i) is solvent and will continue to be solvent after
issuing the Notes or its Guarantees, as the case may be, (ii) will have
sufficient capital for carrying on its business after such issuance, and (iii)
will be able to pay its debts as they mature. See "Management's Discussions and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."

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<PAGE> 20

In addition, if a court were to avoid the Guarantees under fraudulent
conveyance laws or other legal principles or, by the terms of such Guarantees,
the obligations thereunder were reduced as necessary to prevent such avoidance,
or the Guarantees were released, the claims of other creditors of the Subsidiary
Guarantors, including trade creditors, would to such extent have priority as to
the assets of such Subsidiary Guarantors over the claims of the holders of the
Notes. The Guarantees of the Notes by any Subsidiary Guarantor will be released
upon the sale of such Subsidiary Guarantor or upon the release by the lenders
under the Credit Facility of such Subsidiary Guarantor's Guarantee of the
Company's obligation under the Credit Facility. The Indenture limits the ability
of the Company and its subsidiaries to incur additional indebtedness and to
enter into agreements that would restrict the ability of any subsidiary to make
distributions, loans or other payments to the Company. However, these
limitations are subject to certain exceptions. See "Description of the Notes."

NET LOSSES

The Company reported net losses of $93.8 million for the 53 weeks ended
February 2, 1997 and $60.0 million for the 12 weeks ended April 27, 1997. The
Company reported net losses of $11.5 million for the 31 weeks ended January 29,
1995, $2.7 million for the 52 weeks ended June 25, 1994, $27.4 million for the
52 weeks ended June 26, 1993, and $33.8 million for the 52 weeks ended June 27,
1992. Ralphs reported net earnings of $32.1 million for the 52 weeks ended
January 29, 1995, $138.4 million for the 52 weeks ended January 30, 1994 and a
net loss of $76.1 million for the 52 weeks ended January 31, 1993. There can be
no assurance that the Company will not continue to report net losses in the
future.

ABSENCE OF PUBLIC MARKET

The Private Notes have not been registered under the Securities Act and are
subject to significant restrictions on resale. The Exchange Notes have no
established trading market. The Company does not intend to list the Notes on any
national securities exchange or to seek the admission thereof to trading in the
National Association of Securities Dealers Automated Quotation System. The
Company has been advised by the Initial Purchasers that they currently intend to
make a market in the Notes. However, the Initial Purchasers are not obligated to
do so and any market making may be discontinued at any time without notice. In
addition, such market making activity will be subject to the limits imposed by
the Securities Act and the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and may be limited during the Exchange Offer. If a trading
market does not develop or is not maintained, holders of the Notes may
experience difficulty in reselling the Notes or may be unable to sell them at
all. If a market for the Notes develops, any such market may be discontinued at
any time. If a public trading market develops for the Notes, future trading
prices of the Notes will depend on many factors, including, among other things,
prevailing interest rates, the Company's results of operations and the market
for similar securities.

FAILURE TO EXCHANGE PRIVATE NOTES

Exchange Notes will be issued in exchange for Private Notes only after
timely receipt by the Exchange Agent of such Private Notes, a properly completed
and duly executed Letter of Transmittal and all other required documentation.
Therefore, holders of Private Notes desiring to tender such Private Notes in
exchange for Exchange Notes should allow sufficient time to ensure timely
delivery. Neither the Exchange Agent nor the Company is under any duty to give
notification of defects or irregularities with respect to tenders of Private
Notes for exchange. Private Notes that are not tendered or are tendered but not
accepted will, following consummation of the Exchange Offer, continue to be
subject to the existing restrictions upon transfer thereof. In addition, any
holder of Private Notes who tenders in the Exchange Offer for the purpose of
participating in a distribution of the Exchange Notes will be required to comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any resale transaction. Each broker-dealer that receives
Exchange Notes for its own account in exchange for Private Notes, where such
Private Notes were acquired by such broker-dealer as a result of market-making
activities or any other trading activities, must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Notes. To
the extent that Private Notes are tendered and accepted in the Exchange Offer,
the trading market

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<PAGE> 21

for untendered and tendered but unaccepted Private Notes could be adversely
affected due to the limited amount, or "float," of the Private Notes that are
expected to remain outstanding following the Exchange Offer. Generally, a lower
"float" of a security could result in less demand to purchase such security and
could, therefore, result in lower prices for such security. For the same reason,
to the extent that a large amount of Private Notes are not tendered or are
tendered and not accepted in the Exchange Offer, the trading market for the
Exchange Notes could be adversely affected. See "Plan of Distribution" and "The
Exchange Offer."

THE EXCHANGE OFFER

PURPOSE OF THE EXCHANGE OFFER

The Private Notes were sold by the Company on March 26, 1997 (the "Closing
Date") to the Initial Purchasers pursuant to the Purchase Agreement. The Initial
Purchaser subsequently sold the Private Notes to (i) "qualified institutional
buyers" ("QIBs"), as defined in Rule 144A under the Securities Act ("Rule
144A"), in reliance on Rule 144A. As a condition to the sale of the Private
Notes, the Company, the Subsidiary Guarantors and the Initial Purchasers entered
into the Registration Rights Agreement on March 26, 1997. Pursuant to the
Registration Rights Agreement, the Company agreed that, unless the Exchange
Offer is not permitted by applicable law or Commission policy, it would (i) file
with the Commission a Registration Statement under the Securities Act with
respect to the Exchange Notes within 75 days after the Closing Date, (ii) use
its best efforts to cause such Registration Statement to become effective under
the Securities Act within 120 days after the date on which the Registration
Statement was required to be filed and (iii) use its best efforts to consummate
the Exchange Offer prior to the 60th day following the date on which the
Registration Statement is declared effective. A copy of the Registration Rights
Agreement has been filed as an exhibit to the Registration Statement. The
Registration Statement is intended to satisfy certain of the Company's
obligations under the Registration Rights Agreement and the Purchase Agreement.

RESALE OF THE EXCHANGE NOTES

With respect to the Exchange Notes, based upon an interpretation by the
staff of the Commission set forth in certain no-action letters issued to third
parties, the Company believes that a holder (other than (i) a broker-dealer who
purchases such Exchange Notes directly from the Company to resell pursuant to
Rule 144A or any other available exemption under the Securities Act or (ii) any
such holder that is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act) who exchanges Private Notes for Exchange Notes in the
ordinary course of business and who is not participating, does not intend to
participate, and has no arrangement with any person to participate, in a
distribution of the Exchange Notes, will be allowed to resell Exchange Notes to
the public without further registration under the Securities Act and without
delivering to the purchasers of the Exchange Notes a prospectus that satisfies
the requirements of Section 10 of the Securities Act. However, if any holder
acquires Exchange Notes in the Exchange Offer for the purpose of distributing or
participating in the distribution of the Exchange Notes or is a broker-dealer,
such holder cannot rely on the position of the staff of the Commission
enumerated in certain no-action letters issued to third parties and must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any resale transaction, unless an exemption from registration
is otherwise available. Each broker-dealer that receives Exchange Notes for its
own account in exchange for Private Notes, where such Private Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of
Exchange Notes received in exchange for Private Notes where such Private Notes
were acquired by such broker-dealer as a result of market-making or other
trading activities. Pursuant to the Registration Rights Agreement, the Company
and the Subsidiary Guarantors have agreed to make this Prospectus, as it may be
amended or supplemented from time to time, available to broker-dealers and other

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<PAGE> 22

persons, if any, with similar prospectus delivery requirements for use in
connection with any resale for a period of 90 days after consummation of the
Exchange Offer. See "Plan of Distribution."

TERMS OF THE EXCHANGE OFFER

Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Private
Notes validly tendered and not withdrawn prior to the Expiration Date. The
Company will issue $1,000 principal amount of Exchange Notes in exchange for
each $1,000 principal amount of outstanding Private Notes surrendered pursuant
to the Exchange Offer. Private Notes may be tendered only in integral multiples
of $1,000.

The form and terms of the Exchange Notes are the same as the form and terms
of the Private Notes except that (i) the exchange will be registered under the
Securities Act and, therefore, the Exchange Notes will not bear legends
restricting the transfer thereof and (ii) holders of the Exchange Notes will not
be entitled to any of the rights of holders of Private Notes under the
Registration Rights Agreement, which rights will terminate upon the consummation
of the Exchange Offer. The Exchange Notes will evidence the same indebtedness as
the Private Notes (which they replace) and will be issued under, and be entitled
to the benefits of, the Indenture, which also authorized the issuance of the
Private Notes, such that both series of Notes will be treated as a single class
of debt securities under the Indenture.

As of the date of this Prospectus, $155,000,000 in aggregate principal
amount of the Private Notes are outstanding and registered in the name of Cede &
Co., as nominee for DTC. Only a registered holder of the Private Notes (or such
holder's legal representative or attorney-in-fact) as reflected on the records
of the Trustee under the Indenture may participate in the Exchange Offer. There
will be no fixed record date for determining registered holders of the Private
Notes entitled to participate in the Exchange Offer.

Holders of the Private Notes do not have any appraisal or dissenters'
rights under the Indenture in connection with the Exchange Offer. The Company
intends to conduct the Exchange Offer in accordance with the provisions of the
Registration Rights Agreement and the applicable requirements of the Securities
Act, the Exchange Act and the rules and regulations of the Commission
thereunder.

The Company shall be deemed to have accepted validly tendered Private Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
of Private Notes for the purposes of receiving the Exchange Notes from the
Company.

Holders who tender Private Notes in the Exchange Offer will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Private
Notes pursuant to the Exchange Offer. The Company will pay all charges and
expenses, other than certain applicable taxes described below, in connection
with the Exchange Offer. See "-- Fees and Expenses."

EXPIRATION DATE; EXTENSIONS; AMENDMENTS

The term "Expiration Date" shall mean 5:00 p.m., New York City time on
, 1997, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended.

In order to extend the Exchange Offer, the Company will (i) notify the
Exchange Agent of any extension by oral or written notice, (ii) mail to the
registered holders an announcement thereof and (iii) issue a press release or
other public announcement which shall include disclosure of the approximate
number of Private Notes deposited to date, each prior to 9:00 a.m., New York
City time, on the next business day after the previously scheduled Expiration
Date. Without limiting the manner in which the Company may choose to make a
public announcement of any delay, extension, amendment or termination of the
Exchange Offer, the Company shall have no obligation to publish, advertise, or
otherwise communicate any such public announcement, other than by making a
timely release to an appropriate news agency.

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The Company reserves the right, in its sole discretion, (i) to delay
accepting any Private Notes, (ii) to extend the Exchange Offer or (iii) if any
conditions set forth below under "-- Conditions" shall not have been satisfied,
to terminate the Exchange Offer by giving oral or written notice of such delay,
extension or termination to the Exchange Agent. Any such delay in acceptance,
extension, termination or amendment will be followed as promptly as practicable
by oral or written notice thereof to the registered holders. If the Exchange
Offer is amended in a manner determined by the Company to constitute a material
change, the Company will promptly disclose such amendment by means of a
prospectus supplement that will be distributed to the registered holders, and
the Company will extend the Exchange Offer for a period of five to ten business
days, depending upon the significance of the amendment and the manner of
disclosure to the registered holders, if the Exchange Offer would otherwise
expire during such five to ten business day period.

INTEREST ON THE EXCHANGE NOTES

The Exchange Notes will bear interest at a rate equal to 11% per annum.
Interest on the Exchange Notes will be payable semi-annually on each June 15 and
December 15, commencing June 15, 1997. Holders of Exchange Notes will receive
interest on June 15, 1997 from the date of initial issuance of the Exchange
Notes, plus an amount equal to the accrued interest on the Private Notes from
the date of the last interest payment thereon or if no interest has been paid,
from the date of original issuance of the Private Notes (March 26, 1997) to the
date of exchange thereof for Exchange Notes. Holders of Private Notes that are
accepted for exchange will be deemed to have waived the right to receive any
interest accrued on the Private Notes.

PROCEDURES FOR TENDERING

Only a registered holder of Private Notes may tender such Private Notes in
the Exchange Offer. To tender in the Exchange Offer, a holder of Private Notes
must complete, sign and date the Letter of Transmittal, or a facsimile thereof,
have the signatures thereon guaranteed if required by the Letter of Transmittal,
and mail or otherwise deliver such Letter of Transmittal or such facsimile to
the Exchange Agent at the address set forth below under "-- Exchange Agent" for
receipt prior to the Expiration Date. In addition, either (i) certificates for
such Private Notes must be received by the Exchange Agent along with the Letter
of Transmittal, (ii) a timely confirmation of a book-entry transfer (a
"Book-Entry Confirmation") of such Private Notes, if such procedure is
available, into the Exchange Agent's account at the Depositary pursuant to the
procedure for book-entry transfer described below, must be received by the
Exchange Agent prior to the Expiration Date or (iii) the holder must comply with
the guaranteed delivery procedures described below.

The tender by a holder that is not withdrawn prior to the Expiration Date
will constitute an agreement between such holder and the Company in accordance
with the terms and subject to the conditions set forth herein and in the Letter
of Transmittal.

THE METHOD OF DELIVERY OF PRIVATE NOTES AND THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK
OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE
AN OVERNIGHT OR HAND DELIVERY SERVICE, PROPERLY INSURED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT
BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR PRIVATE NOTES SHOULD BE
SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS,
COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS
FOR SUCH HOLDERS.

Any beneficial owner(s) of the Private Notes whose Private Notes are
registered in the name of a broker, dealer, commercial bank, trust company or
other nominee and who wishes to tender should contact the registered holder
promptly and instruct such registered holder to tender on such beneficial
owner's behalf. If such beneficial owner wishes to tender on such owner's own
behalf, such owner must, prior to completing and executing the Letter of
Transmittal and delivering such owner's Private Notes, either make appropriate
arrangements to register ownership of the Private Notes in such owner's name or
obtain a properly completed bond power from the registered holder. The transfer
of registered ownership may take considerable time.

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<PAGE> 24

Signatures on a Letter of Transmittal or a notice of withdrawal described
below (see "-- Withdrawal of Tenders"), as the case may be, must be guaranteed
by an Eligible Institution (as defined below) unless the Private Notes tendered
pursuant thereto are tendered (i) by a registered holder who has not completed
the box titled "Special Delivery Instructions" on the Letter of Transmittal or
(ii) for the account of an Eligible Institution. In the event that signatures on
a Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantee must be made by a member firm of a
registered national securities exchange or of the National Association of
Securities Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or an "eligible guarantor institution" within
the meaning of Rule 17Ad-15 under the Exchange Act which is a member of one of
the recognized signature guarantee programs identified in the Letter of
Transmittal (an "Eligible Institution").

If the Letter of Transmittal is signed by a person other than the
registered holder of any Private Notes listed therein, such Private Notes must
be endorsed or accompanied by a properly completed bond power, signed by such
registered holder as such registered holder's name appears on such Private
Notes.

If the Letter of Transmittal or any Private Notes or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Company,
evidence satisfactory to the Company of their authority to so act must be
submitted with the Letter of Transmittal.

The Exchange Agent and the Depositary have confirmed that any financial
institution that is a participant in the Depositary's system may utilize the
Depositary's Automated Tender Offer Program to tender Private Notes.

All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Private Notes will be determined
by the Company in its sole discretion, which determination will be final and
binding. The Company reserves the absolute right to reject any and all Private
Notes not properly tendered or any Private Notes the Company's acceptance of
which would, in the opinion of counsel for the Company, be unlawful. The Company
also reserves the right to waive any defects, irregularities or conditions of
tender as to particular Private Notes. The Company's interpretation of the terms
and conditions of the Exchange Offer (including the instructions in the Letter
of Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Private Notes must be
cured within such time as the Company shall determine. Although the Company
intends to notify holders of defects or irregularities with respect to tenders
of Private Notes, neither the Company, the Exchange Agent nor any other person
shall incur any liability for failure to give such notification. Tenders of
Private Notes will not be deemed to have been made until such defects or
irregularities have been cured or waived.

While the Company has no present plan to acquire any Private Notes that are
not tendered in the Exchange Offer or to file a registration statement to permit
resales of any Private Notes that are not tendered pursuant to the Exchange
Offer, the Company reserves the right in its sole discretion to purchase or make
offers for any Private Notes that remain outstanding subsequent to the
Expiration Date or, as set forth below under "--Conditions," to terminate the
Exchange Offer and, to the extent permitted by applicable law, purchase Private
Notes in the open market, in privately negotiated transactions or otherwise. The
terms of any such purchases or offers could differ from the terms of the
Exchange Offer.

By tendering, each holder of Private Notes will represent to the Company
that, among other things, (i) Exchange Notes to be acquired by such holder of
Private Notes in connection with the Exchange Offer are being acquired by such
holder in the ordinary course of business of such holder, (ii) such holder has
no arrangement or understanding with any person to participate in the
distribution of the Exchange Notes, (iii) such holder acknowledges and agrees
that any person who is a broker-dealer registered under the Exchange Act or is
participating in the Exchange Offer for the purposes of distributing the
Exchange Notes must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction of the Exchange Notes acquired by such person and cannot rely on the
position of the staff of the Commission set forth in certain no-action letters,
(iv) such holder understands that a secondary resale transaction described in
clause (iii) above and any resales of Exchange Notes obtained by

23
<PAGE> 25

such holder in exchange for Private Notes acquired by such holder directly from
the Company should be covered by an effective registration statement containing
the selling securityholder information required by Item 507 or Item 508, as
applicable, of Regulation S-K of the Commission and (v) such holder is not an
"affiliate," as defined in Rule 405 under the Securities Act, of the Company. If
the holder is a broker-dealer that will receive Exchange Notes for such holder's
own account in exchange for Private Notes that were acquired as a result of
market-making activities or other trading activities, such holder will be
required to acknowledge in the Letter of Transmittal that such holder will
deliver a prospectus in connection with any resale of such Exchange Notes;
however, by so acknowledging and by delivering a prospectus, such holder will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act.

RETURN OF PRIVATE NOTES

If any tendered Private Notes are not accepted for any reason set forth in
the terms and conditions of the Exchange Offer or if Private Notes are withdrawn
or are submitted for a greater principal amount than the holders desire to
exchange, such unaccepted, withdrawn or non-exchanged Private Notes will be
returned without expense to the tendering holder thereof (or, in the case of
Private Notes tendered by book-entry transfer into the Exchange Agent's account
at the Depositary pursuant to the book-entry transfer procedures described
below, such Private Notes will be credited to an account maintained with the
Depositary) as promptly as practicable.

BOOK-ENTRY TRANSFER

The Exchange Agent will make a request to establish an account with respect
to the Private Notes at the Depositary for purposes of the Exchange Offer within
two business days after the date of this Prospectus, and any financial
institution that is a participant in the Depositary's systems may make
book-entry delivery of Private Notes by causing the Depositary to transfer such
Private Notes into the Exchange Agent's account at the Depositary in accordance
with the Depositary's procedures for transfer. However, although delivery of
Private Notes may be effected through book-entry transfer at the Depositary, the
Letter of Transmittal or facsimile thereof, with any required signature
guarantees and any other required documents, must, in any case, be transmitted
to and received by the Exchange Agent at the address set forth below under
"-- Exchange Agent" on or prior to the Expiration Date or pursuant to the
guaranteed delivery procedures described below.

GUARANTEED DELIVERY PROCEDURES

Holders who wish to tender their Private Notes and (i) whose Private Notes
are not immediately available or (ii) who cannot deliver their Private Notes,
the Letter of Transmittal or any other required documents to the Exchange Agent
prior to the Expiration Date, may effect a tender if:

(a) The tender is made through an Eligible Institution;

(b) Prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery substantially in the form provided by the Company (by
facsimile transmission, mail or hand delivery) setting forth the name and
address of the holder, the certificate number(s) of such Private Notes and
the principal amount of Private Notes tendered, stating that the tender is
being made thereby and guaranteeing that, within five New York Stock
Exchange trading days after the Expiration Date, the Letter of Transmittal
(or a facsimile thereof), together with the certificate(s) representing the
Private Notes in proper form for transfer or a Book-Entry Confirmation, as
the case may be, and any other documents required by the Letter of
Transmittal, will be deposited by the Eligible Institution with the
Exchange Agent; and

(c) Such properly executed Letter of Transmittal (or facsimile
thereof), as well as the certificate(s) representing all tendered Private
Notes in proper form for transfer and all other documents required by the
Letter of Transmittal are received by the Exchange Agent within five New
York Stock Exchange trading days after the Expiration Date.

Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Private Notes according to the
guaranteed delivery procedures set forth above.

24
<PAGE> 26

WITHDRAWAL OF TENDERS

Except as otherwise provided herein, tenders of Private Notes may be
withdrawn at any time prior to the Expiration Date.

To withdraw a tender of Private Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to the Expiration Date. Any such
notice of withdrawal must (i) specify the name of the person having deposited
the Private Notes to be withdrawn (the "Depositor"), (ii) identify the Private
Notes to be withdrawn (including the certificate number or numbers and principal
amount of such Private Notes) and (iii) be signed by the holder in the same
manner as the original signature on the Letter of Transmittal by which such
Private Notes were tendered (including any required signature guarantees). All
questions as to the validity, form and eligibility (including time of receipt)
of such notices will be determined by the Company in its sole discretion, whose
determination shall be final and binding on all parties. Any Private Notes so
withdrawn will be deemed not to have been validly tendered for purposes of the
Exchange Offer and no Exchange Notes will be issued with respect thereto unless
the Private Notes so withdrawn are validly retendered. Properly withdrawn
Private Notes may be retendered by following one of the procedures described
above under "The Exchange Offer -- Procedures for Tendering" at any time prior
to the Expiration Date.

CONDITIONS

Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange the Exchange Notes for, any
Private Notes, and may terminate the Exchange Offer as provided herein before
the acceptance of such Private Notes, if the Exchange Offer violates applicable
law, rules or regulations or an applicable interpretation of the staff of the
Commission.

If the Company determines in its sole discretion that any of these
conditions are not satisfied, the Company may (i) refuse to accept any Private
Notes and return all tendered Private Notes to the tendering holders, (ii)
extend the Exchange Offer and retain all Private Notes tendered prior to the
expiration of the Exchange Offer, subject, however, to the rights of holders to
withdraw such Private Notes (see "-- Withdrawal of Tenders") or (iii) waive such
unsatisfied conditions with respect to the Exchange Offer and accept all
properly tendered Private Notes that have not been withdrawn. If such waiver
constitutes a material change to the Exchange Offer, the Company will promptly
disclose such waiver by means of a prospectus supplement that will be
distributed to the registered holders of the Private Notes, and the Company will
extend the Exchange Offer for a period of five to ten business days, depending
upon the significance of the waiver and the manner of disclosure to the
registered holders, if the Exchange Offer would otherwise expire during such
five to ten business day period.

TERMINATION OF CERTAIN RIGHTS

All rights under the Registration Rights Agreement (including registration
rights) of holders of the Private Notes eligible to participate in the Exchange
Offer will terminate upon consummation of the Exchange Offer except with respect
to the Company's continuing obligations (i) to indemnify such holders (including
any broker-dealers) and certain parties related to such holders against certain
liabilities (including liabilities under the Securities Act), (ii) to provide,
upon the request of any holder of a transfer-restricted Private Note, the
information required by Rule 144A(d)(4) under the Securities Act in order to
permit resales of such Private Notes pursuant to Rule 144A, (iii) to use its
best efforts to keep the Registration Statement effective to the extent
necessary to ensure that it is available for resales of transfer-restricted
Private Notes by broker-dealers for a period of up to 90 days from the
Expiration Date and (iv) to provide copies of the latest version of the
Prospectus to broker-dealers upon their request for a period of up to 90 days
after the Expiration Date.

SHELF REGISTRATION

In the event that applicable interpretations of the staff of the Commission
do not permit the Company and the Subsidiary Guarantors to effect the Exchange
Offer, or if for any other reason the Exchange Offer is not consummated within
240 days after the Closing Date, or, under certain circumstances, if the Initial

25
<PAGE> 27

Purchaser shall so request, each of the Company and the Subsidiary Guarantors,
jointly and severally, will at its cost, (a) as promptly as practicable, file a
shelf registration statement covering resales of the Notes (a "Shelf
Registration Statement"), (b) use its best efforts to cause such Shelf
Registration Statement to be declared effective under the Securities Act and (c)
use its best efforts to keep effective such Shelf Registration Statement until
the earlier of three years after the Closing Date and such time as all of the
applicable Notes have been sold thereunder. The Company will, in the event of
the filing of a Shelf Registration Statement, provide to each holder of the
Notes copies of the prospectus which is a part of such Shelf Registration
Statement, notify each such holder when such Shelf Registration Statement has
become effective and take certain other actions as are required to permit
unrestricted resales of the Notes (and the related guarantees). A holder that
sells its Notes pursuant to a Shelf Registration Statement generally will be
required to be named as a selling securityholder in the related prospectus and
to deliver a prospectus to purchasers, will be subject to certain of the civil
liability provisions under the Securities Act in connection with such sales and
will be bound by the provisions of the Registration Rights Agreement which are
applicable to such a holder (including certain indemnification obligations).

LIQUIDATED DAMAGES

If the Company and the Subsidiary Guarantors fail to fulfill their
obligations under the Registration Rights Agreement, then the Company shall pay,
as liquidated damages ("Liquidated Damages"), to the holders of the Notes as
follows:

(i) if the Registration Statement or Shelf Registration Statement is
not filed within 75 days following the Closing Date, Liquidated Damages
shall accrue at a rate of .50% per annum of the principal amount of the
Notes for the first 90 days commencing on the 31st day after the Closing
Date, such Liquidated Damages rate increasing by an additional .25% per
annum of the principal amount of the Notes at the beginning of each
subsequent 90-day period;

(ii) if the Registration Statement or Shelf Registration Statement is
not declared effective within 120 days following the date on which such
registration statement is required to be filed, then, commencing on the
121st day after the date on which such registration statement is required
to be filed, Liquidated Damages shall accrue at a rate of .50% per annum of
the principal amount of the Notes for the first 90 days immediately
following the 121st day after the date on which such registration statement
is required to be filed, such Liquidated Damages rate increasing by an
additional .25% per annum of the principal amount of the Notes at the
beginning of each subsequent 90-day period or;

(iii) if (A) the Company and the Subsidiary Guarantors have not
exchanged Notes validly tendered in accordance with the terms of the
Exchange Offer on or prior to 60 days after the date on which the
Registration Statement was declared effective or (B) if applicable, the
Shelf Registration Statement has been declared effective and such Shelf
Registration Statement ceases to be effective at any time prior to the
third anniversary of the Closing Date (unless all the Notes have been sold
thereunder), then Liquidated Damages shall accrue at a rate of .50% per
annum of the principal amount of the Notes for the first 90 days commencing
on (x) the 61st day after such effective date, in the case of (A) above, or
(y) the day such Shelf Registration Statement ceases to be effective in the
case of (B) above, such Liquidated Damages rate increasing by an additional
.25% per annum of the principal amount of the Notes at the beginning of
each subsequent 90-day period;

provided, however that the Liquidated Damages rate may not exceed in the
aggregate 1.0% per annum of the principal amount of the Notes; and provided,
further, that (1) upon the filing of the Registration Statement or Shelf
Registration Statement (in the case of clause (i) above), (2) upon the
effectiveness of the Registration Statement or Shelf Registration Statement (in
the case of clause (ii) above), or (3) upon the exchange of Exchange Notes for
all Private Notes tendered (in the case of clause (iii)(A) above), or upon the
effectiveness of the Shelf Registration Statement which had ceased to remain
effective (in the case of clause (iii)(B) above), Liquidated Damages as a result
of such clause (or the relevant subclause thereof), as the case may be, shall
cease to accrue.

Any amounts of Liquidated Damages due pursuant to clauses (i), (ii) or
(iii) above will be payable in cash, on the same original interest payment dates
as the Notes. The amount of Liquidated Damages will be

26
<PAGE> 28

determined by multiplying the applicable Liquidated Damages rate by the
principal amount of the Notes multiplied by a fraction, the numerator of which
is the number of days such Liquidated Damages rate was applicable during such
period (determined on the basis of a 360-day year comprised of twelve 30-day
months), and the denominator of which is 360.

The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by, all the provisions of the Registration Rights Agreement, a copy
of which will be available upon request to the Company.

EXCHANGE AGENT

United States Trust Company of New York has been appointed as Exchange
Agent of the Exchange Offer. Questions and requests for assistance, requests for
additional copies of this Prospectus or of the Letter of Transmittal and
requests for Notice of Guaranteed Delivery should be directed to the Exchange
Agent addressed as follows:

By Hand or Overnight Courier: By Facsimile (for Eligible Institutions
only):
United States Trust Company of New York 212-420-6152
770 Broadway, 13th Floor
New York, New York 10003 Confirm Receipt of Notice of
Attention: Corporate Trust Unit Guaranteed Delivery by Telephone:
1-800-548-6565
Confirm Receipt of Notice of
Guaranteed Delivery by Telephone:
</TABLE>

DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION VIA A
FACSIMILE NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID
DELIVERY.

FEES AND EXPENSES

The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telephone or in person by officers and regular
employees of the Company and its affiliates.

The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.

The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company and are estimated in the aggregate to be approximately
[ ]. Such expenses include registration fees, fees and expenses of the
Exchange Agent and the Trustee, accounting and legal fees and printing costs,
among others.

The Company will pay all transfer taxes, if any, applicable to the exchange
of Private Notes pursuant to the Exchange Offer. If, however, a transfer tax is
imposed for any reason other than the exchange of the Private Notes pursuant to
the Exchange Offer, then the amount of any such transfer taxes (whether imposed
on the registered holder or any other persons) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemption therefrom
is not submitted with the Letter of Transmittal, the amount of such transfer
taxes will be billed directly to such tendering holder.

27
<PAGE> 29

CONSEQUENCE OF FAILURES TO EXCHANGE

Participation in the Exchange Offer is voluntary. Holders of the Private
Notes are urged to consult their financial and tax advisors in making their own
decisions on what action to take.

The Private Notes that are not exchanged for the Exchange Notes pursuant to
the Exchange Offer will remain restricted securities. Accordingly, such Private
Notes may be resold only (i) to a person whom the seller reasonably believes is
a QIB in a transaction meeting the requirements of Rule 144A, (ii) in a
transaction meeting the requirements of Rule 144 under the Securities Act, (iii)
outside the United States to a foreign person in a transaction meeting the
requirements of Rule 904 under the Securities Act, (iv) in accordance with
another exemption from the registration requirements of the Securities Act (and
based upon an opinion of counsel if the Company so requests), (v) to the Company
or (vi) pursuant to an effective registration statement and, in each case, in
accordance with any applicable securities laws of any state of the United States
or any other applicable jurisdiction.

ACCOUNTING TREATMENT

For accounting purposes, the Company will recognize no gain or loss as a
result of the Exchange Offer. The expenses of the Exchange Offer will be
amortized over the term of the Exchange Notes.

USE OF PROCEEDS

The Company will not receive any cash proceeds from the issuance of the
Exchange Notes offered hereby. In consideration for issuing the Exchange Notes
as contemplated in this Prospectus, the Company will receive in exchange Private
Notes in like principal amount, the terms of which are identical to the Exchange
Notes. The issuance of the Exchange Notes in exchange for the surrender of
Private Notes will not result in any increase in the indebtedness of the
Company.

28
<PAGE> 30

CAPITALIZATION

The following table sets forth the actual cash, short-term and current
portion of long-term debt and capitalization of the Company as of April 27, 1997
which includes the issuance of the Notes and the application of the proceeds
therefrom on March 26, 1997. The table should be read in conjunction with the
historical consolidated financial statements of the Company and related notes
thereto included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
ACTUAL
AT APRIL 27, 1997
---------------------
(DOLLARS IN MILLIONS)
<S> <C>
Cash........................................................................ $ 57.9
========
Restricted cash(a).......................................................... $ 161.2
========
Short-term and current portion of long-term debt:
Term Loans................................................................ $ 3.5
1995 13.75% Senior Subordinated Notes(a)(b)............................... 140.2
1991 13.75% Senior Subordinated Notes(a)(c)............................... 4.8
Other indebtedness........................................................ 0.3
Capital leases............................................................ 29.0
--------
Total short-term and current portion of long-term debt............ $ 177.8
========
Long-term debt:
Term Loans(d)............................................................. $ 546.5
Revolving Facility(d)(e).................................................. 111.5
1996 10.45% Senior Notes(f)............................................... 94.9
1995 10.45% Senior Notes(g)............................................... 520.3
Other senior indebtedness(h).............................................. 11.9
Capital leases............................................................ 119.0
1997 11% Senior Subordinated Notes(i)..................................... 163.5
1995 11% Senior Subordinated Notes........................................ 524.0
Other senior subordinated indebtedness.................................... 2.2
--------
Total long-term debt.............................................. $ 2,093.8
--------
Stockholder's equity (deficit):
Common stock, $.01 par value.............................................. --
Additional paid-in capital................................................ 466.8
Notes receivable from stockholders of parent(j)........................... (0.6)
Retained deficit.......................................................... (561.7)
--------
Total stockholder's equity (deficit)................................... (95.5)
--------
Total capitalization.............................................. $ 1,998.3
========
</TABLE>

- ---------------

(a) The Restricted Cash balance was used to redeem the 1995 13.75% Senior
Subordinated Notes and the 1991 13.75% Senior Subordinated Notes and to pay
the related call premium and accrued interest on April 28, 1997.

(b) Refers to the $140,184,000 aggregate principal amount of 13.75% Senior
Subordinated Notes due 2005 issued pursuant to an indenture dated June 1,
1995 (the "1995 13.75% Senior Subordinated Notes").

(c) Refers to the $145,000,000 aggregate principal amount of 13.75% Senior
Subordinated Notes due 2001 issued pursuant to an indenture dated June 15,
1991 (the "1991 13.75% Senior Subordinated Notes") of which $4,816,000 were
outstanding on April 27, 1997.

(d) On April 17, 1997, the Company amended and restated the 1995 Credit
Facility. The Refinanced Credit Facility consists of a $325 million
Revolving Facility, a $200 million Term Loan A Facility and a $350 million
Term Loan B Facility. The Refinanced Credit Facility has lower interest
rates and a longer average life than the 1995 Credit Facility. Giving effect
to the Refinanced Credit Facility and the replacement of the 13.75% Senior
Subordinated Notes with the 1997 11% Senior Subordinated Notes, the Company
anticipates that its annual cash interest expense will decrease by
approximately $12 million per year.

(e) The Revolving Facility provides for a $325 million line of credit which is
available for working capital requirements and general corporate purposes.
Up to $150 million of the Revolving Facility may be used to support letters
of credit. The letters of credit will be used to cover workers' compensation
contingencies and for other purposes permitted under the Revolving Facility.
As of April 27, 1997, letters of credit for approximately $89.1 million had
been issued under the Revolving Facility, primarily to satisfy the State of
California's requirements relating to workers' compensation self-insurance.

(f) Refers to the $100,000,000 aggregate principal amount of 10.45% Senior Notes
due 2004 issued pursuant to an indenture dated June 6, 1996 (the "1996
10.45% Senior Notes"). The 1996 10.45% Senior Notes are shown net of
unamortized discount.

29
<PAGE> 31

(g) Refers to the $520,326,000 aggregate principal amount of 10.45% Senior Notes
due 2004 issued pursuant to an indenture dated June 1, 1995 (the "1995
10.45% Senior Notes").

(h) Includes the $175,000,000 aggregate principal amount of 10.45% Senior Notes
due 2000 issued pursuant to an indenture dated April 15, 1992 (the "1992
10.45% Senior Notes") of which $4,700,000 were outstanding on April 27,
1997.

(i) Refers to the $155,000,000 aggregate principal amount of 11% Senior
Subordinated Notes due 2005 issued pursuant to an indenture dated March 26,
1997 (the "1997 11% Senior Subordinated Notes"). The 1997 11% Senior
Subordinated Notes were issued in the Private Placement at a premium of
105.5% resulting in gross proceeds of $163.5 million. Proceeds of the
Private Placement in excess of the principal amount will be amortized over
the life of the 1997 11% Senior Subordinated Notes.

(j) Represents notes receivable from shareholders of Holdings with respect to
the purchase of Holdings' common stock.

30
<PAGE> 32

SELECTED HISTORICAL FINANCIAL DATA OF THE COMPANY

The following table sets forth certain selected consolidated historical
financial data of the Company and its predecessor Food 4 Less. The operating and
balance sheet data of the Company and Food 4 Less set forth in the table below
as of and for the 52 weeks ended June 27, 1992, June 26, 1993 and June 25, 1994,
the 31 weeks ended January 29, 1995, the 52 weeks ended January 28, 1996 and the
53 weeks ended February 2, 1997 have been derived from the financial statements
of the Company and Food 4 Less which have been audited by Arthur Andersen LLP,
independent public accountants. Certain prior period amounts in the financial
data presented below have been reclassified to conform to the fiscal 1997
presentation. The summary historical financial data of the Company presented
below as of and for the 12 weeks ended April 21, 1996 and April 27, 1997 have
been derived from unaudited financial statements of the Company which, in the
opinion of management, reflect all material adjustments, consisting of only
normal recurring adjustments, necessary for a fair presentation of such data.
The following information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the historical consolidated financial statements of the Company and related
notes thereto included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS 52 WEEKS 31 WEEKS 52 WEEKS 53 WEEKS 12 WEEKS 12 WEEKS
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
JUNE 27, JUNE 26, JUNE 25, JANUARY 29, JANUARY 28, FEBRUARY 2, APRIL 21, APRIL 27,
1992 1993 1994(a) 1995(b) 1996(c) 1997 1996 1997
---------- ---------- ---------- ----------- ----------- ----------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT STORE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Sales................. $2,913,493 $2,742,027 $2,585,160 $1,556,522 $4,335,109 $5,516,259 $1,230,808 $1,276,222
Cost of sales(d)...... 2,429,711 2,273,167 2,126,302 1,296,810 3,527,120 4,380,241 992,883 1,013,269
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Gross profit(d)....... 483,782 468,860 458,858 259,712 807,989 1,136,018 237,925 262,953
Selling, general and
administrative
expenses............ 432,695 419,576 378,376 219,696 744,449 933,414 206,620 209,775
Amortization of
goodwill............ 7,795 7,571 7,691 4,615 21,847 38,650 7,202 8,132
Loss (gain) on
disposal of
assets.............. (1,364) (2,083) 37 (455) (547) 9,317 -- --
Restructuring
charge.............. -- -- -- 5,134 (e) 123,083 (f) -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating income
(loss)(d)........... 44,656 43,796 72,754 30,722 (80,843) 154,637 24,103 45,046
Interest expense(g)... 70,211 69,732 68,250 42,222 178,774 248,428 56,084 57,041
Provision for
earthquake losses... -- -- 4,504(h) -- -- -- -- --
Provision for income
taxes............... 3,441 1,427 2,700 -- 500 -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Loss before
extraordinary
charges............. (28,996) (27,363) (2,700) (11,500) (260,117) (93,791) (31,981) (11,995)
Extraordinary
charges............. 4,818(i) -- -- -- 23,128 (j) -- -- 47,983(k)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net loss(l)........... $ (33,814) $ (27,363) $ (2,700) $ (11,500) $ (283,245) $ (93,791) $ (31,981) $ (59,978)
========== ========== ========== ========== ========== ========== ========== ==========
Ratio of earnings to
fixed charges(m).... --(m) --(m) 1.0x --(m) --(m) --(m) --(m) --(m)
NON-CASH CHARGES:
Depreciation and
amortization of
property and
equipment........... $ 37,898 $ 37,426 $ 41,380 $ 25,966 $ 92,282 $ 129,008 $ 28,107 $ 29,813
Amortization of
goodwill and other
assets.............. 16,979 20,214 15,703 10,657 33,047 40,669 8,575 7,963
Amortization of
deferred financing
costs............... 6,304 4,901 5,472 3,413 8,193 10,667 3,336 2,779
BALANCE SHEET DATA (end
of period)(n):
Working capital
surplus (deficit)... $ (66,254) $ (19,222) $ (54,882) $ (74,776) $ (178,456) $ (182,641) $ (230,188) $ (167,758)
Total assets.......... 998,451 957,840 980,080 1,000,695 3,188,129 3,131,993 3,144,775 3,233,634
Total debt(o)......... 525,340 538,083 517,872 533,804 2,082,304 2,093,206 2,059,749 2,271,578
Stockholder's equity
(deficit)........... 50,771 72,863 69,021 57,803 59,119 (35,562) 27,138 (95,540)
OTHER DATA:
Depreciation and
amortization(p)..... $ 54,877 $ 57,640 $ 57,083 $ 36,623 $ 125,329 $ 169,677 $ 36,682 $ 37,776
Capital
expenditures........ 60,263 53,467 57,741 49,023 122,355 123,622 34,222 31,026
Stores open at end of
period.............. 249 248 258 267 408 405 407 405
EBITDA (as
defined)(q)......... $ 101,723 $ 103,794 $ 130,573 $ 76,853 $ 245,146 $ 354,646 $ 70,118 $ 85,024
EBITDA margin(r)...... 3.5% 3.8% 5.1% 4.9 % 5.7 % 6.4 % 5.7% 6.7%
</TABLE>

31
<PAGE> 33

(a) Operating data for the 52 weeks ended June 25, 1994 include the results of
10 Food Barn stores, which were not material, from March 29, 1994, the date
of the Food Barn acquisition.

(d) Cost of sales has been principally determined using the last-in, first-out
("LIFO") method of valuing inventory. If cost of sales had been determined
using the first-in, first-out ("FIFO") method, gross profit and operating
income would have been greater by $3.6 million, $4.4 million, $0.7 million,
$2.7 million, $2.2 million, $5.6 million, $1.3 million (unaudited) and $1.7
million (unaudited) for the 52 weeks ended June 27, 1992, June 26, 1993, and
June 25, 1994, the 31 weeks ended January 29, 1995, the 52 weeks ended
January 28, 1996 the 53 weeks ended February 2, 1997 and the 12 weeks ended
April 21, 1996 and April 27, 1997, respectively.

(e) The Company converted 11 of its conventional supermarkets to warehouse
stores. During the 31 weeks ended January 29, 1995, the Company recorded a
non-cash restructuring charge for the write-off of property and equipment at
the 11 stores of $5.1 million.

(f) The Company recorded a $75.2 million restructuring charge associated with
the closing of 58 stores and one warehouse facility in the 52 weeks ended
January 28, 1996. Pursuant to the settlement agreement with the State of
California, 24 Food 4 Less stores (as well as 3 Ralphs stores) were required
to be divested and an additional 34 under-performing stores were closed. The
Company also recorded a $47.9 million restructuring charge associated with
the closing of 9 stores and one warehouse facility in the 52 weeks ended
January 28, 1996, in conjunction with the agreement with Smith's to lease
the Riverside warehouse facility and 9 stores.

(g) Interest expense includes non-cash charges related to the amortization of
deferred financing costs.

(h) On January 17, 1994, Southern California was struck by a major earthquake
which resulted in the temporary closing of 31 of the Company's stores. The
closures were caused primarily by loss of electricity, water, inventory, or
damage to the affected stores. All but one of the closed stores reopened
within a week of the earthquake. The final closed store reopened on March
24, 1994. The Company is insured, subject to deductibles, against earthquake
losses (including business interruption). The pre-tax charge to earnings,
net of insurance recoveries, was approximately $4.5 million.

(i) Represents an extraordinary net charge of $4.8 million reflecting the
write-off of $6.7 million (net of related income tax benefit of $2.5
million) of deferred debt issuance costs as a result of the early redemption
of a portion of Food 4 Less' bank term loan, partially offset by a $1.9
million extraordinary gain (net of a related income tax expense of $0.7
million) on the replacement of partially depreciated assets following the
civil unrest in Los Angeles.

(j) Represents an extraordinary charge of $23.1 million relating to the
refinancing of Food 4 Less' old credit facility, 10.45% Senior Notes due
2000 (the "1992 Senior Notes"), 13.75% Senior Subordinated Notes due 2001
(the "1991 Senior Subordinated Notes") and Holdings' 15.25% Senior Discount
Notes due 2004 in connection with the Merger and the write-off of their
related debt issuance costs.

(k) Represents an extraordinary charge of $48.0 million relating to the
write-off of debt issuance costs associated with the refinancing of the 1995
Credit Facility and the write-off of debt issuance costs and premium paid
relating to the redemption of the 1991 and the 1995 13.75% Senior
Subordinated Notes.

(l) Net loss includes a pre-tax provision for self insurance, which is
classified in cost of sales, selling, general and administrative expenses,
and interest expense of $51.1 million, $43.9 million, $25.7 million, $9.8
million, $32.6 million, $29.2 million, $10.6 million and $9.5 million for
the 52 weeks ended June 27, 1992, June 26, 1993, and June 25, 1994, the 31
weeks ended January 29, 1995, the 52 weeks ended January 28, 1996, the 53
weeks ended February 2, 1997, and the 12 weeks ended April 21, 1996 and
April 27, 1997, respectively. Included in the 52 weeks ended June 25, 1994,
the 31 weeks ended January 29, 1995 and the 52 weeks ended January 28, 1996
are reduced employer contributions of $8.1 million, $14.3 million and $26.1
million, respectively, related to union health and welfare benefit plans.
Included in the 53 weeks ended February 2, 1997, the 12 weeks ended April
21, 1996 and the 12 weeks ended April 27, 1997 are reduced employer
contributions of $17.8 million, $1.0 million and $2.7 million, respectively,
related to union pension and health and welfare benefit plans.

(m) For purposes of computing the ratio of earnings to fixed charges, "earnings"
consist of loss before provision for income taxes and extraordinary charges
plus fixed charges. "Fixed charges" consist of interest on all indebtedness,
amortization of deferred debt financing costs and one-third of rental
expense (the portion deemed representative of the interest factor). Earnings
were insufficient to cover fixed charges for the 52 weeks ended June 27,
1992 and June 26, 1993, the 31 weeks ended January 29, 1995, the 52 weeks
ended January 28, 1996, the 53 weeks ended February 2, 1997, the 12 weeks
ended April 21, 1996 and the 12 weeks ended April 27, 1997, by approximately
$25.6 million, $25.9 million, $11.5 million, $259.6 million, $93.8 million,
$32.0 million and $12.0 million, respectively. However, such earnings
included non-cash charges of $61.2 million for the 52 weeks ended June 27,
1992, $62.5 million for the 52 weeks ended June 26, 1993, $40.0 million for
the 31 weeks ended January 29, 1995, $202.5 million for the 52 weeks ended
January 28, 1996, $180.3 million for the 53 weeks ended February 2, 1997,
$40.0 million for the 12 weeks ended April 21, 1996, $40.6 million for the
12 weeks ended April 27, 1997, primarily consisting of depreciation and
amortization and the write-off of property and equipment associated with
stores closed as a result of the Merger, stores closed due to
under-performance, stores closed in connection with the acquisition of the
nine stores from Smith's, and warehouses to be closed as a result of the
acquisition of the Riverside Facility. In addition, earnings for the 52
weeks ended January 28, 1996 were reduced by cash restructuring charges of
$54.1 million.

(n) Balance sheet data as of June 25, 1994 relates to Food 4 Less and reflect
the acquisition of 10 Food Barn stores. Balance sheet data as of January 28,
1996 relates to the Company and reflects the Merger and the financings
associated therewith.

(o) Total debt includes long-term debt, current maturities of long-term debt and
capital lease obligations.

(p) Depreciation and amortization includes amortization of goodwill.

(q) "EBITDA (as defined)," as presented historically by the Company, represents
income before interest expense, depreciation and amortization expense, the
LIFO provision, provision for income taxes, provision for earthquake losses,
provision for restructuring, a one-time charge in the 1995 transition period
for Teamsters Union sick pay benefits, $75.0 million of one-time costs
incurred in connection with the Merger in fiscal year 1995 and $13.5 million
of one-time costs incurred in connection with the acquisition of the
Riverside Facility and nine former Smith's stores in fiscal year 1996.
EBITDA is a widely accepted financial indicator of a company's ability to
service debt. However, EBITDA should not be construed as an alternative to
operating income or to cash flows from operating activities (as determined
in accordance with generally accepted accounting principles) and should not
be construed as an indication of the Company's operating performance or as a
measure of liquidity. EBITDA as presented may not be comparable to EBITDA of
other companies that do not calculate EBITDA in the same manner as the
Company. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."

(r) EBITDA margin represents EBITDA (as defined) as a percentage of sales.

32
<PAGE> 34

SELECTED HISTORICAL FINANCIAL DATA OF RSI

The following table presents selected historical financial data of RSI as
of and for the 52 weeks ended January 31, 1993, January 30, 1994 and January 29,
1995, which have been derived from the financial statements of RSI audited by
KPMG Peat Marwick LLP, independent certified public accountants. The following
information should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the historical
consolidated financial statements of RSI and related notes thereto included
elsewhere in this Prospectus.

<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS 52 WEEKS
ENDED ENDED ENDED
JANUARY 31, JANUARY 30, JANUARY 29,
1993 1994 1995
----------- ----------- -----------
(DOLLARS IN MILLIONS, EXCEPT STORE
DATA)
<S> <C> <C> <C>
OPERATING DATA:
Sales.................................................................. $2,843.8 $2,730.2 $2,724.6
Cost of sales.......................................................... 2,217.2 2,093.7 2,101.0
-------- -------- --------
Gross profit........................................................... 626.6 636.5 623.6
Selling, general and administrative expenses(a)........................ 470.0 471.0 467.0
Amortization of excess of cost over net assets acquired................ 11.0 11.0 11.0
Provisions for restructuring(b)........................................ 7.1 2.4 --
-------- -------- --------
Operating income....................................................... 138.5 152.1 145.6
Interest expense(c).................................................. 125.6 108.8 112.7
Loss on disposal of assets and provisions for legal settlement and
earthquake losses(d)................................................ 10.1 12.9 0.8
Income tax expense (benefit)........................................... 8.3 (108.0)(e) --
Extraordinary item-debt refinancing, net of tax benefits............... (70.6) -- --
-------- -------- --------
Net earnings (loss)(f)................................................. $ (76.1) $ 138.4 $ 32.1
======== ======== ========
Ratio of earnings to fixed charges(g).................................. 1.02x 1.24x 1.24x
BALANCE SHEET DATA (end of period):
Working capital surplus (deficit)...................................... $(122.0) $ (73.0) $(119.5)
Total assets........................................................... 1,388.5 1,483.7 1,509.9
Total debt(h).......................................................... 1,029.8 998.9 1,018.5
Stockholders' equity (deficit)......................................... (133.3) 5.1 27.2
OTHER DATA:
Depreciation and amortization(i)....................................... $ 76.9 $ 74.5 $ 76.0
Capital expenditures................................................... 102.7 62.2 64.0
Stores open at end of period........................................... 159 165 173
EBITDA (as defined)(j)................................................. $ 227.3 $ 230.2 $ 230.2
EBITDA margin(k)....................................................... 8.0% 8.4% 8.4%
</TABLE>

- ---------------

(b) Provisions for restructuring are charges for expenses relating to closing
of Ralphs central bakery operation. The charge reflected the complete
write-down of the bakery building, machinery and equipment, leaseholds,
related inventory and supplies, and providing severance pay to terminated
employees. These charges were $7.1 million and $2.4 million for the 52
weeks ended January 31, 1993 and the 52 weeks ended January 30, 1994,
respectively.

(c) Interest expense includes non-cash charges related to the amortization of
deferred debt issuance costs of $5.5 million for the 52 weeks ended January
31, 1993, $6.5 million for the 52 weeks ended January 30, 1994 and $6.1
million for the 52 weeks ended January 29, 1995, respectively.

(d) Loss on disposal of assets was $2.6 million, $1.9 million and $0.8 million
for the 52 weeks ended January 31, 1993, January 30, 1994 and January 29,
1995, respectively. Provision for legal settlement was $7.5 million for the
52 weeks ended January 31, 1993. Provision for earthquake losses was $11.0
million for the 52 weeks ended January 30, 1994. This represents reserve
for losses, net of anticipated insurance recoveries, resulting from the
January 17, 1994 Southern California earthquake.

(e) Includes recognition of $109.1 million of deferred income tax benefit and
$1.1 million current income tax expense for Fiscal 1993 (see Note 11 of
Notes to Consolidated Financial Statements of Ralphs Supermarkets, Inc.).

(f) Net earnings (loss) includes a pre-tax provision for self insurance, which
is classified in cost of sales, selling, general and administrative
expenses and interest expense, of $36.9 million, $36.3 million, and $20.0
million, for the 52 weeks ended January 31, 1993, the 52 weeks ended
January 30, 1994 and the 52 weeks ended January 29, 1995, respectively.
Included in the 52 weeks ended

33
<PAGE> 35

January 30, 1994 and the 52 weeks ended January 29, 1995 are reduced
employer contributions of $11.8 million and $12.7 million, respectively,
related to union health and welfare benefit plans.

(g) For purposes of computing the ratio of earnings to fixed charges,
"earnings" consist of earnings before income taxes, extraordinary items and
fixed charges before capitalized interest. "Fixed charges" consist of
interest expense (including amortization of self-insurance reserves
discount), capitalized interest, amortization of deferred debt issuance
costs and one-third of rental expense (the portion deemed representative of
the interest factor).

(h) Total debt includes long-term debt, current maturities of long-term debt,
short-term debt and capital lease obligations.

(i) For the 52 weeks ended January 31, 1993, January 30, 1994 and January 29,
1995, depreciation and amortization includes amortization of the excess of
cost over net assets acquired of $11.0 million, $11.0 million and $11.0
million, respectively.

(j) "EBITDA (as defined)" as presented historically by RSI, represents net
earnings before interest expense, income tax expense (benefit),
depreciation and amortization expense, provision for postretirement
benefits, the LIFO charge, extraordinary item relating to debt refinancing,
provision for legal settlement, provision for restructuring, provision for
earthquake losses, a one-time charge for Teamsters Union sick pay benefits,
transition expense and gains and losses on disposal of assets. EBITDA is a
widely accepted financial indicator of a company's ability to service debt.
However, EBITDA should not be construed as an alternative to operating
income or to cash flows from operating activities (as determined in
accordance with generally accepted accounting principles) and should not be
construed as an indication of Ralphs' operating performance or as a measure
of liquidity. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

(k) EBITDA margin represents EBITDA (as defined) as a percentage of sales.

34
<PAGE> 36

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

On June 14, 1995, Food 4 Less completed its acquisition of RSI and its
wholly owned subsidiary, Ralphs Grocery Company ("RGC" and together with RSI,
"Ralphs"). Concurrently with the consummation of the Merger, the Company
received a significant equity investment from its parent, Food 4 Less Holdings,
Inc. ("Holdings") and refinanced a substantial portion of the existing
indebtedness of Food 4 Less and RGC. See "Business -- The Merger and the
Financing."

Since the Merger, the Company has converted 111 former Alpha Beta, Boys and
Viva stores to the Ralphs format, converted 13 former Ralphs stores to the Food
4 Less warehouse store format, and opened 37 new stores, including nine Southern
California stores acquired from Smith's which became available when Smith's
withdrew from the California market. The Company has sold or closed 74 stores as
a result of divestitures required by the State of California and other steps
taken to improve the average size and quality of its store base. As a result of
the closure and divestiture of smaller stores and the opening of larger stores,
the average square footage per store in Southern California has increased
approximately 11.6% from 36,100 square feet at the time of the Merger to 40,300
square feet at the end of fiscal 1996.

Following the consummation of the Merger, sales in the Company's Southern
California Division fell short of anticipated levels for the second half of
fiscal 1995. This shortfall resulted primarily from achieving less benefit from
the Company's advertising program and experiencing greater competitive activity
than originally expected. In addition, the Company's operating margins were
affected by delays in the implementation of certain buying and other programs to
lower the cost of goods, excessive price markdowns in stores undergoing
conversion and a less advantageous than expected product mix in certain stores.
The realization of cost savings was also delayed in certain areas. In
particular, store operating expenses were higher than anticipated, due primarily
to lower productivity and higher labor costs than originally anticipated and
difficulties in introducing Ralphs merchandising and service standards into the
smaller conventional supermarkets formerly operated by Food 4 Less. Also, as the
Company's backstage facilities were integrated, the Company experienced higher
than expected warehouse and distribution costs resulting from, among other
things, higher than expected inventory levels, delays in the transfer of
distribution personnel from Food 4 Less to Ralphs facilities, and other
backstage operational inefficiencies.

At the beginning of fiscal 1996, the Company streamlined its management
structure and implemented several strategic initiatives designed to improve its
sales and margins. These changes have contributed to the Company's improved
results in fiscal 1996.

In the first quarter of fiscal 1996 the Company began to implement new
marketing initiatives designed to improve its sales performance. Comparable
store sales trends have been improving since that time. Comparable store sales
growth was positive in each of the last three quarters of fiscal 1996, and
reached 2.9% for the fourth quarter, which resulted in comparable store sales
growth of 1.8% for fiscal 1996. On September 11, 1996, the Company launched its
new "First in Southern California" marketing campaign. The new marketing
campaign highlights the Company's belief that more shoppers are choosing Ralphs
than any other supermarket in Southern California. The focus of the new campaign
is on lower regular retail prices while emphasizing those programs that enhance
Ralphs' offerings such as selection, quality, premier perishable departments and
customer service.

During the first quarter of fiscal 1996, the Company implemented a labor
productivity and cost reduction program. As a result, significant reductions
were made in store level and corporate headcount levels. In addition, through
the sublease of Smith's distribution center and creamery in Riverside,
California, the Company was able to consolidate its distribution operations into
three modern, efficient facilities located in Compton, Glendale and Riverside,
California. The elimination of certain smaller and less efficient facilities
allowed the Company to reduce transportation costs, management overhead and
outside storage costs and to improve its inventory management.

35
<PAGE> 37

Operating results improved each quarter during fiscal 1996, and the
Company's EBITDA margin improved from 5.7% in fiscal 1995 to an 6.4% in fiscal
1996. The Company's EBITDA margin in the first quarter of fiscal 1997 was 6.7%,
compared to 5.7% in the comparable prior year period. The Company's improved
EBITDA margin reflects the various initiatives which management has implemented.
Gross margin improvements reflect a reduction in warehousing and distribution
costs as a result of the consolidation of the Company's distribution operations,
as well as a reduction in the cost of goods sold as the benefits of inventory
management programs instituted by the Company are realized. SG&A expenses were
reduced as a percentage of sales as a result of tighter expense and labor
controls at store level and administrative cost reductions.

It is anticipated that the refinancing of the 1995 Credit Facility,
together with the lower interest cost associated with the replacement of the
13.75% Senior Subordinated Notes with the 1997 11% Senior Subordinated Notes
offering, will reduce the Company's annual interest expense by approximately $12
million.

ACCOUNTING PRESENTATION

The Company's results of operations for the 53 weeks ended February 2, 1997
reflect operations for the combined Company, while the results of operations for
the 52 weeks ended January 28, 1996 reflect 20 weeks of operations of F4L
Supermarkets prior to the Merger and 32 weeks of operations of the combined
Company. Management believes that the Company's results of operations for
periods ending after the consummation of the Merger are not directly comparable
to its results of operations for periods ending prior to such date. This lack of
comparability as a result of the Merger is attributable to several factors,
including the size of the combined Company (since the Merger approximately
doubled Food 4 Less' annual sales volume), the addition of 174 conventional
stores to the Company's overall store mix and the material changes in the
Company's capital structure.

The Merger has been accounted for as a purchase of Ralphs by Food 4 Less.
As a result, all financial statements for periods subsequent to June 14, 1995,
the date the Merger was consummated, reflect Ralphs' net assets at their
estimated fair market values as of June 14, 1995. The purchase price in excess
of the fair market value of Ralphs' net assets was recorded as goodwill and is
being amortized over a 40-year period. The Company finalized the allocation of
the Ralphs purchase price in the second quarter of fiscal 1996.

Food 4 Less changed its fiscal year end from the 52 or 53-week period which
ends on the last Saturday in June to the 52 or 53-week period which ends on the
Sunday closest to January 31, resulting in a transition period ended January 29,
1995. References to the 1995 transition period and fiscal 1995 are to the
31-week period ended January 29, 1995, and the 52-week period ending January 28,
1996, respectively. The operating results for the 1995 transition period are not
directly comparable to those of fiscal 1995, as these periods include 52 weeks
of operations.

FORWARD-LOOKING STATEMENTS

When used in this Offering Memorandum, the words "estimate," "expect,"
"project" and similar expressions are intended to identify forward-looking
statements within the meaning of Section 27A of the Securities Act and Section
21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act").
These forward-looking statements speak only as of the date hereof. All of these
forward-looking statements are based on estimates and assumptions made by
management of the Company, which although believed to be reasonable, are
inherently uncertain and difficult to predict; therefore, undue reliance should
not be placed upon such estimates. Such statements are subject to certain risks
and uncertainties, including those discussed under "Risk Factors" above, that
could cause actual results to differ materially from those projected. These
factors include, but are not limited to: (i) increased competitive pressures
from existing competitors and new entrants, including price-cutting strategies,
store openings and remodels; (ii) loss or retirement of key members of
management or the termination of the Company's Consulting Agreement with
Yucaipa; (iii) inability to negotiate more favorable terms with suppliers; (iv)
increases in interest rates or the Company's cost of borrowing or a default
under any material debt agreements; (v) inability to develop new stores in
advantageous locations or to successfully convert or remodel additional stores;
(vi) prolonged labor disruption; (vii) deterioration in general or regional
economic conditions; (viii) adverse state or federal

36
<PAGE> 38

legislation or regulation that increases the costs of compliance, or adverse
findings by a regulator with respect to existing operations; (ix) loss of
customers or sales weakness; (x) adverse determinations in connection with
pending or future litigations or other material claims against the Company; (xi)
inability to achieve future sales levels or other operating results that support
the cost savings; (xii) the unavailability of funds for capital expenditures;
(xiii) increases in labor costs; (xiv) inability to control inventory levels;
and (xv) operational inefficiencies in distribution or other Company systems.
Many of such factors are beyond the control of the Company. Following the
Merger, the Company has experienced certain unanticipated costs and delays in
the realization of certain projected cost savings. There can be no assurance
that new or additional unforeseen costs or delays will arise either in
connection with the integration or the Company's operations or the ongoing
conduct of its business. Accordingly, any forward-looking statements included
herein do not purport to be predictions of future events or circumstances and
may not be realized. For a discussion of certain risks which may affect the
Company, see "Risk Factors."

RESULTS OF OPERATIONS

The following table sets forth the historical operating results of the
Company for the 52 weeks ended June 25, 1994, the 31 weeks ended January 29,
1995, the 52 weeks ended January 28, 1996, the 52 weeks ended January 28, 1996,
the 53 weeks ended February 2, 1997, the 12 weeks ended April 21, 1996 and the
12 weeks ended April 27, 1997:
<TABLE>
<CAPTION>

1995
FISCAL YEAR FISCAL YEAR TRANSITION FISCAL YEAR FISCAL YEAR
1993 1994 PERIOD 1995 1996
---------------- ---------------- ---------------- ---------------- ----------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales................ $2,742.0 100.0% $2,585.2 100.0% $1,556.5 100.0% $4,335.1 100.0% $5,516.3 100.0%
Gross profit......... 468.9 17.1 458.9 17.8 259.7 16.7 808.0 18.6 1,136.0 20.6
Selling, general and
administrative
expenses............ 419.6 15.3 378.4 14.6 219.7 14.1 744.4 17.2 933.4 16.9
Amortization of
goodwill............ 7.6 0.3 7.7 0.3 4.6 0.3 21.8 0.5 38.7 0.7
Loss (gain) on
disposal of
assets.............. (2.1) (0.1) 0.0 0.0 (0.5) (0.0) (0.5) (0.0) 9.3 0.2
Restructuring
charge.............. 0.0 0.0 0.0 0.0 5.1 0.3 123.1 2.8 0.0 0.0
Operating income
(loss).............. 43.8 1.6 72.8 2.8 30.7 2.0 (80.8) (1.9) 154.6 2.8
Interest expense..... 69.8 2.5 68.3 2.6 42.2 2.7 178.8 4.1 248.4 4.5
Provision for
earthquake losses... 0.0 0.0 4.5 0.2 0.0 0.0 0.0 0.0 0.0 0.0
Provision for income
taxes............... 1.4 0.1 2.7 0.1 0.0 0.0 0.5 0.0 0.0 0.0
Loss before
extraordinary
charge.............. (27.4) (1.0) (2.7) (0.1) (11.5) (0.7) (260.1) (6.0) (93.8) (1.7)
Extraordinary
charge.............. 0.0 0.0 0.0 0.0 0.0 0.0 23.1 0.5 0.0 0.0
Net loss............. $ (27.4) (1.0) $ (2.7) (0.1) $ (11.5) (0.7)% $ (283.2) (6.5)% $ (93.8) (1.7)%

<CAPTION>
12 WEEKS ENDED
-----------------------------------------
APRIL 21, 1996 APRIL 27, 1997
---------------- ----------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Sales................ $1,230.8 100.0% $1,276.2 100.0%
Gross profit......... 237.9 19.3 263.0 20.6
Selling, general and
administrative
expenses............ 206.6 16.8 209.8 16.4
Amortization of
goodwill............ 7.2 0.6 8.1 0.6
Loss (gain) on
disposal of
assets.............. (0.0) (0.0) -- --
Restructuring
charge.............. -- -- -- --
Operating income
(loss).............. 24.1 2.0 45.0 3.5
Interest expense..... 56.1 4.6 57.0 4.5
Provision for
earthquake losses... -- -- -- --
Provision for income
taxes............... -- -- -- --
Loss before
extraordinary
charge.............. (32.0) (2.6) (12.0) (0.9)
Extraordinary
charge.............. -- -- 48.0 3.8
Net loss............. $ (32.0) (2.6)% $ (60.0) (4.7)%
</TABLE>

COMPARISON OF THE COMPANY'S RESULTS OF OPERATIONS FOR THE 12 WEEKS ENDED APRIL
27, 1997 WITH THE COMPANY'S RESULTS OF OPERATIONS FOR THE 12 WEEKS ENDED APRIL
21, 1996:

Sales. Sales increased $45.4 million, or 3.7 percent, from $1,230.8 million
for the 12 weeks ended April 21, 1996 to $1,276.2 million for the 12 weeks ended
April 27, 1997. The increase in sales was primarily attributable to a 4.1
percent increase in comparable store sales and continued success of new store
openings, partially offset by store closings. Since the beginning of fiscal
1996, 27 stores have been opened and 31 stores have been closed. The first
quarter of fiscal 1997 represents the fourth consecutive quarter that the
Company has achieved positive comparable store sales.

Gross Profit. Gross profit increased as a percentage of sales from 19.3
percent in the 12 weeks ended April 21, 1996 to 20.6 percent in the 12 weeks
ended April 27, 1997. The increase in gross profit margin reflects a reduction
in warehousing and distribution costs as a result of the consolidation of the
Company's

37
<PAGE> 39

distribution operations, as well as a reduction in the cost of goods sold as the
benefits of product procurement programs instituted by the Company are realized.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses ("SG&A") were $206.6 million and $209.8 million for the
12 weeks ended April 21, 1996 and April 27, 1997, respectively. SG&A decreased
as a percentage of sales from 16.8 percent to 16.4 percent for the same periods.
The reduction in SG&A as a percentage of sales reflects the continued results of
tighter expense and labor controls at the store level and continued
administrative cost reductions.

Operating Income. Primarily as a result of the factors discussed above, the
Company's operating income increased from $24.1 million in the 12 weeks ended
April 21, 1996 to $45.0 million in the 12 weeks ended April 27, 1997.

Loss Before Extraordinary Charges. Primarily as a result of the factors
discussed above, the Company's loss before extraordinary charges decreased from
$32.0 million in the 12 weeks ended April 21, 1996 to $12.0 million in the 12
weeks ended April 27, 1997.

Extraordinary Charges. Extraordinary charges of $48.0 million were recorded
during the 12 weeks ended April 27, 1997. These charges relate to the call
premium on the 13.75% Senior Subordinated Notes and the write-off of deferred
financing costs, associated with the Old Credit Facility and the 13.75% Senior
Subordinated Notes.

COMPARISON OF THE COMPANY'S RESULTS OF OPERATIONS FOR THE 53 WEEKS ENDED
FEBRUARY 2, 1997 WITH THE COMPANY'S RESULTS OF OPERATIONS FOR THE 52 WEEKS
ENDED JANUARY 28, 1996:

Sales. Sales per week increased $20.7 million, or 24.8 percent, from $83.4
million in the 52 weeks ended January 28, 1996 to $104.1 million in the 53 weeks
ended February 2, 1997. The increase in sales was primarily attributable to the
addition of 174 conventional supermarkets acquired through the Merger, new store
openings and the improved performance of converted stores partially offset by
the closing of 74 smaller stores since the Merger. Comparable store sales trends
have been improving each quarter since the Merger, and the fourth quarter
represents the third consecutive quarter the Company has achieved positive
comparable store sales, increasing by 2.9 percent. Excluding stores being
divested or closed in connection with the Merger, comparable store sales for
fiscal 1996 increased 1.8 percent. Management believes the increase in
comparable store sales was primarily attributable to additional consumers'
favorable response to the Company's "First in Southern California" marketing
program.

Gross Profit. Gross profit increased as a percentage of sales from 18.6
percent in the 52 weeks ended January 28, 1996 to 20.6 percent in the 53 weeks
ended February 2, 1997. The increase in gross profit margin reflects a reduction
in warehousing and distribution costs as a result of the consolidation of the
Company's distribution operations, as well as a reduction in the cost of goods
sold as the benefits of inventory management programs instituted by the Company
are realized. The increase in gross profit margin was also attributable to the
addition of RGC's conventional supermarkets which diluted the effect of the
Company's warehouse stores (which have lower gross margins that the Company's
conventional supermarkets) on its overall gross margin for the period. Gross
profit in 1995 was also impacted by certain one-time costs associated with the
integration of the Company's operations. See "Operating Income (Loss)."

Selling, General and Administrative Expenses. Selling, general,
administrative and other expenses ("SG&A") were $744.4 million and $933.4
million for the 52 weeks ended January 28, 1996 and the 53 weeks ended February
2, 1997, respectively. SG&A decreased as a percentage of sales from 17.2 percent
to 16.9 percent for those periods. The reduction in SG&A as a percentage of
sales reflects the results of tighter expense and labor controls at store level
and administrative costs reductions. The decrease in SG&A as a percentage of
sales was offset by an increase in SG&A due primarily to the addition of RGC's
conventional supermarkets acquired through the Merger. The additional
conventional supermarkets diluted the effect of the Company's warehouse stores
which have lower SG&A than the Company's conventional supermarkets. The Company
participates in multi-employer health and welfare plans for its store employees
who are members of the United Food and Commercial Workers Union ("UFCW"). As
part of the renewal of the Southern

38
<PAGE> 40

California UFCW contract in October 1995, employers contributing to UFCW health
and welfare plans received a pro rata share of the excess reserves in the plans
through a reduction of current employer contributions. The Company's share of
the excess reserves recognized in fiscal 1996 was $17.8 million, which partially
offset the increase in SG&A. SG&A was also impacted in fiscal 1995 and 1996 by
certain one-time costs associated with the integration of the Company's
operations. See "Operating Income (Loss)."

Restructuring Charge. During fiscal 1995, the Company recorded a $75.2
million charge associated with the closure of 58 former F4L Supermarkets stores
and one former F4L Supermarkets warehouse facility. The stores were closed to
comply with a settlement agreement with the State of California in connection
with the Merger or due to under-performance. Three RGC stores were also required
to be sold to comply with the settlement agreement. During fiscal year 1995, the
Company utilized $34.7 million of the reserve for restructuring costs ($50.0
million of costs partially offset by $15.3 million of proceeds from the
divestiture of stores). During fiscal year 1996, the Company utilized $15.1
million of the reserve for restructuring costs, consisting mainly of write-downs
of property and equipment, expenditures associated with the closed stores and
the warehouse facility and lease termination expenses ($15.2 million).

On December 29, 1995, the Company consummated an agreement with Smith's to
sublease its one million square foot distribution center and creamery facility
in Riverside, California for approximately 23 years, with renewal options
through 2043, and to acquire certain operating assets and inventory at that
facility. In addition, the Company also acquired nine of Smith's Southern
California stores which became available when Smith's withdrew from the
California market. As a result of the acquisition of the Riverside distribution
center and creamery, the Company closed its La Habra distribution center in the
first quarter of fiscal year 1996. Also, the Company closed nine of its smaller
and less efficient stores which were near the stores acquired from Smith's.
During the fourth quarter of fiscal year 1995, the Company recorded a $47.9
million restructuring charge to recognize the cost of closing these facilities.
During fiscal year 1996, the Company utilized $33.9 million of the reserve for
restructuring costs, consisting mainly of write-downs of property and equipment
($18.3 million) and lease termination expenses ($15.6 million).

Operating Income (Loss). In addition to the factors discussed above,
operating income for fiscal year 1996 was impacted by approximately $13.5
million of costs associated with the integration of the Smith's distribution
center and the continuing integration of the stores acquired from Smith's and
approximately $8.9 million associated with closed store reserves, which was
recorded in the fourth quarter.

Interest Expense. Interest expense (including amortization of deferred
financing costs) was $178.8 million for the 52 weeks ended January 28, 1996 and
$248.4 million for the 53 weeks ended February 2, 1997. The increase in interest
expense was primarily due to the increased indebtedness incurred in conjunction
with the Merger. See "Liquidity and Capital Resources."

Loss Before Extraordinary Charge. Primarily as a result of the factors
discussed above, the Company's loss before extraordinary charge decreased from
$260.1 million for fiscal year 1995 to $93.8 million in fiscal year 1996.

COMPARISON OF THE COMPANY'S RESULTS OF OPERATIONS FOR THE 52 WEEKS ENDED
JANUARY 28, 1996 WITH THE COMPANY'S RESULTS OF OPERATIONS FOR THE 31 WEEKS
ENDED JANUARY 29, 1995.

Sales

Sales per week increased $33.2 million, or 66.1 percent, from $50.2 million
in the 31 weeks ended January 29, 1995 to $83.4 million in the 52 weeks ended
January 28, 1996. The increase in sales was primarily attributable to the
addition of 174 conventional supermarkets acquired through the Merger. The sales
increase was partially offset by a pro forma comparable store sales (includes
the combined sales of Food 4 Less and RGC for the period prior to the Merger)
decline of 1.9 percent for the 52 weeks ended January 28, 1996 as compared to
the 52 weeks ended January 28, 1995. Excluding stores scheduled for divestiture
or closing, pro forma comparable store sales decreased 1.2 percent. Management
believes the decline in comparable store sales was primarily attributable to
additional competitive store openings and remodels in Southern California, as
well as the Company's own new store openings and conversions.

39
<PAGE> 41

Gross Profit

Gross profit increased as a percentage of sales from 16.7 percent in the 31
weeks ended January 29, 1995 to 18.6 percent in the 52 weeks ended January 28,
1996. The increase in gross profit margin was primarily attributable to the
addition of 174 conventional supermarkets which diluted the effect of the
Company's warehouse stores (which have lower gross margins than the Company's
conventional supermarkets) on its overall gross margin for the period. Gross
profit was also impacted by certain one-time costs associated with the
integration of the Company's operations. See "Operating Income (Loss)."

Selling, General and Administrative Expenses

SG&A expenses were $219.7 million and $744.4 million for the 31 weeks ended
January 29, 1995 and the 52 weeks ended January 28, 1996, respectively. SG&A
increased as a percentage of sales from 14.1 percent to 17.2 percent for the
same periods. The increase in SG&A as a percentage of sales was due primarily to
the addition of 174 conventional supermarkets acquired through the Merger. The
additional conventional supermarkets diluted the effect of the Company's
warehouse stores (which have lower SG&A than the Company's conventional
supermarkets) on its SG&A margin for the period. The Company participates in
multi-employer health and welfare plans for its store employees who are members
of the United Food and Commercial Workers Union ("UFCW"). As part of the renewal
of the Southern California UFCW contract in October 1993, employers contributing
to UFCW health and welfare plans received a pro rata share of the excess
reserves in the plans through a reduction of current employer contributions. The
Company's share of the excess reserves recognized in fiscal 1995 was $26.1
million, which partially offset the increase in SG&A. SG&A was also impacted by
certain one-time costs associated with the integration of the Company's
operations. See "-- Operating Income (Loss)."

Restructuring Charge

During fiscal 1995, the Company recorded a $75.2 million charge associated
with the closure of 58 stores formerly owned by Food 4 Less and one former Food
4 Less warehouse facility. Twenty-four of these stores were required to be
closed pursuant to a settlement agreement with the State of California in
connection with the Merger. Three RGC stores were also required to be sold.
Thirty-four of the closed stores were under-performing stores formerly owned by
Food 4 Less. The $75.2 million restructuring charge consisted of write-downs of
property and equipment ($52.2 million) less estimated proceeds ($16.0 million);
reserve for closed stores and warehouse facility ($16.1 million); write-off of
the Alpha Beta trademark ($8.3 million); write-off of other assets ($8.0
million); lease termination expenses ($4.0 million); and miscellaneous expenses
($2.6 million). During fiscal 1995, the Company utilized $34.7 million of the
reserve for restructuring costs ($50.0 million of costs partially offset by
$15.3 million of proceeds from the divestiture of stores). The charges consisted
of write-downs of property and equipment ($33.2 million); write-off of the Alpha
Beta trademark ($8.3 million); and expenditures associated with the closed
stores and the warehouse facility, consisting of write-offs of other assets,
lease termination expenditures and miscellaneous expenditures ($8.5 million).
Future lease payments of approximately $19.1 million will be offset against the
remaining reserve. Management believes that the remaining reserve is adequate to
complete the planned restructuring.

On December 29, 1995, the Company entered into an agreement with Smith's to
sublease its one million square foot distribution center and creamery facility
in Riverside, California for approximately 23 years, with renewal options
through 2043, at an annual rent of approximately $8.8 million. Concurrently with
such agreement, the Company also acquired certain operating assets and inventory
at that facility for a purchase price of approximately $20.2 million. In
addition, the Company also acquired nine of Smith's Southern California stores
which became available when Smith's withdrew from the California market. As a
result of the acquisition of the Riverside distribution center and creamery, the
Company closed its La Habra distribution center in the first quarter of fiscal
1996. Also, the Company closed nine of its stores which were near the acquired
former Smith's stores. During the fourth quarter of fiscal 1995, the Company
recorded an additional $47.9 million restructuring charge to recognize the cost
of closing these facilities, consisting of write-downs of property and equipment
($16.1 million), closure costs ($2.2 million), and lease termination expenses
($29.6 million).

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<PAGE> 42

Operating Income (Loss)

In addition to the factors discussed above, operating income includes
charges of approximately $75 million for costs associated with the conversion of
stores and integration of the Company's operations. These costs related
primarily to (i) markdowns on clearance inventory at Food 4 Less' Alpha Beta,
Boys and Viva stores converted to the Ralphs format, (ii) an advertising
campaign announcing the Merger, and (iii) incremental labor cost associated with
the training of Company personnel following store conversions. In addition, the
Company has experienced higher than anticipated warehousing and distribution
costs since the Merger, primarily due to the delay in the planned consolidation
of the Company's distribution facilities resulting from the acquisition of the
Riverside Facility. The Company has taken steps to reduce these increased costs
in future periods.

Interest Expense

Interest expense (including amortization of deferred financing costs) was
$42.2 million for the 31 weeks ended January 29, 1995 and $178.8 million for the
52 weeks ended January 28, 1996. The increase in interest expense was primarily
due to the increased indebtedness incurred in conjunction with the Merger. See
"Liquidity and Capital Resources."

Loss Before Extraordinary Charge

Primarily as a result of the factors discussed above, the Company's loss
before extraordinary charge increased from $11.5 million for the 1995 transition
period to $260.1 million for fiscal 1995.

Extraordinary Charge

An extraordinary charge of $23.1 million was recorded during fiscal 1995
relating to retirement of indebtedness of Food 4 Less in connection with the
Merger and the write-off of the related deferred financing costs.

RESULTS OF OPERATIONS OF RALPHS

The following table sets forth the historical operating results of Ralphs
for the 52 weeks ended January 30, 1994 ("fiscal 1993") and January 29, 1995
("fiscal 1994"):

<TABLE>
<CAPTION>
52 WEEKS ENDED
-----------------------------------------
JANUARY 31, 1994 JANUARY 30, 1995
------------------ ------------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Sales.................................................. $2,730.2 100.0% $2,724.6 100.0%
Cost of sales.......................................... 2,093.7 76.7 2,101.0 77.1
Selling, general and administrative expenses........... 471.0 17.2 467.0 17.2
Operating income(a).................................... 152.1 5.6 145.6 5.3
Net interest expense................................... 108.8 4.0 112.7 4.1
Provision for earthquake losses(b)..................... 11.0 0.4 -- --
Income tax expense (benefit)........................... (108.0) (4.0) -- --
Extraordinary item..................................... -- -- -- --
Net earnings (loss).................................... $ 138.4 5.1 $ 32.1 1.2
</TABLE>

- ---------------

(a) Operating income reflects charges of $2.4 million in fiscal 1993, for
expenses relating to closing of central bakery operation. The charge
reflected the complete write-down of the bakery building, machinery and
equipment, leaseholds, related inventory and supplies, and providing
severance pay to terminated employees.

(b) Represents reserve for losses, net of expected insurance recoveries,
resulting from the January 17, 1994 Southern California earthquake.

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<PAGE> 43

COMPARISON OF RALPHS' RESULTS OF OPERATIONS FOR THE 52 WEEKS ENDED JANUARY 29,
1995 WITH RALPHS' RESULTS OF OPERATIONS FOR THE 52 WEEKS ENDED JANUARY 30,
1994.

Sales

For the fifty-two weeks ended January 29, 1995, sales were $2,724.6
million, a decrease of $5.6 million or 0.2% from the fifty-two weeks ended
January 30, 1994. During fiscal 1994, Ralphs opened ten new stores (four in Los
Angeles County, three in Orange County, one in San Diego County and two in
Riverside County), closed two stores (in conjunction with new stores opening in
the same areas), and completed five store remodels. Comparable store sales
decreased 3.7%, which included an increase of 0.3% for replacement store sales,
from $2,707.9 million in fiscal 1993 to $2,606.4 million in fiscal 1994. Ralphs
sales continued to be adversely affected by the continuing softness of the
economy in Southern California, continuing competitive new store and remodeling
activity and recent pricing and promotional changes by competitors. Ralphs
continued to take steps to mitigate the impact of the weak retailing environment
in its markets, which included continuing its own new store and remodeling
program and initiating the Ralphs Savings Plan in February 1994, a new marketing
campaign specifically designed to enhance customer value.

On January 17, 1994, an earthquake in Southern California caused
considerable damage in Los Angeles and surrounding areas. Several Ralphs
supermarkets suffered earthquake damage, with 54 stores closed on the morning of
January 17th. Thirty-four stores reopened within one day and an additional 17
stores reopened within three days. Three stores in the San Fernando Valley area
of Los Angeles suffered major structural damage. All three stores have since
reopened for business, with the last reopening on April 15, 1994. Management
believes that there was some negative impact on sales resulting from the
temporary disruption of business resulting from the earthquake. Ralphs is
partially insured for earthquake losses. The pre-tax financial impact, net of
expected insurance recoveries, is expected to be approximately $11.0 million and
Ralphs reserved for this loss in fiscal 1993. The gross earthquake loss is
approximately $25.3 million and the expected insurance recovery is approximately
$14.3 million.

Cost of Sales

Cost of sales increased $7.3 million or 0.3% from $2,093.7 million in
fiscal 1993 to $2,101.0 million in fiscal 1994. As a percentage of sales, cost
of sales increased to 77.1% in fiscal 1994 from 76.7% in fiscal 1993. The
increase in cost of sales as a percentage of sales included a one-time charge
for Teamsters Union sick pay benefits pursuant to a new contract ratified in
August 1994 with the Teamsters. The total charge was $2.5 million, of which $2.1
million was included in cost of sales and $0.4 million in selling, general and
administrative expense. Increases in cost of sales were partially offset by
savings in warehousing and distribution costs, reductions in self-insurance
costs, pass-throughs of increased operating costs and increases in relative
margins where allowed by competitive conditions.

Warehousing and distribution cost savings were primarily attributable to
Ralphs' Glendale and Compton facilities along with the ongoing implementation of
new computer-controlled programs and labor standards that improved distribution
productivity. The Glendale facility can hold substantially more inventory and
requires fewer employees to operate than does a conventional warehouse of equal
size. This facility has reduced Ralphs' warehousing costs of non-perishable
items markedly, enabling it to take advantage of advance buying opportunities
and minimize "out-of-stocks." Ralphs engages in forward-buy purchases to take
advantage of special prices or to delay the impact of upcoming price increases
by purchasing and warehousing larger quantities of merchandise than immediately
required. The Compton facility has consolidated the operations of three existing
facilities and holds more inventory than the facilities it replaced, thereby
reducing Ralphs' warehouse distribution costs.

Over the last several years, Ralphs has been implementing modifications in
its workers compensation and general liability insurance programs. Ralphs
believes that these modifications have resulted in a significant reduction in
self-insurance costs for fiscal 1994. Based on a review of the results of these
modifications by Ralphs and its actuaries, adjustments to the accruals for
self-insurance costs were made during fiscal 1994 resulting in a reduction of
approximately $18.9 million. Of the total $18.9 million reduction in
self-insurance

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<PAGE> 44

costs, $7.5 million is included in cost of sales and $11.4 million is included
in selling, general and administrative expenses.

Selling, General and Administrative Expenses

SG&A expenses decreased $4.0 million or 0.8% from $471.0 million in fiscal
1993 to $467.0 million in fiscal 1994. As a percentage of sales, SG&A was 17.2%
in fiscal 1993 and 17.2% in fiscal 1994. The decrease in SG&A was primarily due
to a reduction in contributions to the United Food and Commercial Workers Union
("UFCW") health care benefit plans, due to an excess reserve in these plans, a
reduction in self-insurance costs, as discussed above, and the results of cost
savings programs instituted by Ralphs. Ralphs is continuing its expense
reduction program. The decrease in SG&A was partially offset by several factors
including increases in union wage rates, a one-time charge for Teamsters Union
sick pay benefits, as discussed above, transition expense relating to the Merger
($1.4 million) and increased rent expense resulting from new stores, including
fixture and equipment financing.

Ralphs participates in multi-employer pension plans and health and welfare
plans administered by various trustees for substantially all union employees.
Contributions to these plans are based upon negotiated contractual rates. In
both fiscal 1992 and fiscal 1993 the multi-employer pension plan was deemed to
be overfunded based upon the collective bargaining agreement then currently in
force. During fiscal 1993 the agreement called for pension benefits which
resulted in additional required expense. The UFCW health and welfare benefit
plans were overfunded and those employers who contributed to these plans
received a pro rata share of excess reserve in these health care benefit plans
through a reduction in current maintenance payments. Ralphs' share of the excess
reserve was approximately $24.5 million of which $11.8 million was recognized in
fiscal 1993 and the remainder, $12.7 million, was recognized in fiscal 1994.
Since employers are required to make contributions to the benefit funds at
whatever level is necessary to maintain plan benefits, there can be no assurance
that plan maintenance payments will remain at current levels.

Operating Income

Operating income in fiscal 1994 decreased 4.3% to $145.6 million from
$152.1 million in fiscal 1993. Operating margin, defined as operating income as
a percentage of sales, was 5.3% in fiscal 1994 compared to 5.6% in fiscal 1993.
EBITDA, defined as net earnings before interest expense, income tax expense
(benefit), depreciation and amortization expense, provision for postretirement
benefits, provision for LIFO expense, gain or loss on disposal of assets,
transition expense and a one-time charge for Teamsters Union sick pay benefits,
was 8.4% of sales or $230.2 million in fiscal 1994 and 8.4% of sales or $230.2
million in fiscal 1993.

Net Interest Expense

Net interest expense for fiscal 1994 was $112.7 million versus $108.8
million for fiscal 1993. Net interest expense increased primarily as a result of
increases in interest rates. Included as interest expense during fiscal 1994 was
$97.4 million, representing interest expense on existing debt obligations,
capitalized leases and a swap agreement. Comparable interest expense for fiscal
1993 was $92.8 million. Also included in net interest expense for fiscal 1994
was $15.3 million representing certain other charges related to amortization of
debt issuance costs, self-insurance discounts, lease valuation reserves and
other miscellaneous charges (categorized by Ralphs as non-cash interest expense)
as compared to $16.0 million for fiscal 1993. Investment income, which is
immaterial, has been offset against interest expense. The continuation of higher
interest rates subsequent to the end of fiscal 1994 has continued to increase
interest expense and adversely affect Ralphs' net income.

Net Earnings

For fiscal 1994, Ralphs reported net earnings of $32.1 million compared to
net earnings of $138.4 million for Fiscal 1993. The decrease in net earnings is
primarily the result of decreased operating income, higher interest expense due
to increased interest rates, the recognition of $109.1 million of deferred
income tax benefit in fiscal 1993 partially offset by $11.0 million recorded for
earthquake losses in Fiscal 1993.

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<PAGE> 45

Other

In February 1994, the Board of Directors of Ralphs authorized a dividend of
$10.0 million to be paid to RSI, and the Board of Directors of RSI authorized
distribution of this dividend to its shareholders subject to certain restrictive
covenants in the instruments governing certain of Ralphs' indebtedness that
impose limitations on the declaration or payment of dividends. Ralphs' credit
agreement, entered into in 1992 (the "1992 Credit Agreement"), was amended to
allow for the payment of the dividend to RSI for distribution to RSI's
shareholders. The fee for the amendment was approximately $500,000, which was
included in interest expense for the period. The dividend was distributed to the
shareholders of RSI in the second quarter of Fiscal 1994.

LIQUIDITY AND CAPITAL RESOURCES

Cash flow from operations, amounts available under the Company's $325
million revolving facility ("Revolving Facility") and lease financing are the
Company's principal sources of liquidity. The Company believes that these
sources will be adequate to meet its anticipated capital expenditure, working
capital and debt service requirements for the remainder of fiscal 1997.

At April 27, 1997, borrowings of $111.5 million under the Revolving
Facility and $89.1 million of standby letters of credit were outstanding. The
level of borrowings under the Company's Revolving Facility is dependent upon
cash flows from operations, the timing of disbursements, seasonal requirements
and capital expenditure activity. The Company is required to reduce loans
outstanding under the Revolving Facility to $110.0 million for a period of not
less than 30 consecutive days during the twelve consecutive month-period ended
on the last day of fiscal 1997. At May 23, 1997, the Company had $139.5 million
available for borrowing under the Revolving Facility.

During the first quarter of fiscal 1997, cash provided by operating
activities was approximately $8.5 million compared to $54.5 million in the first
quarter of fiscal 1996. The decline in cash from operating activities in the
current quarter is primarily due to the timing of payments of accounts payable
and accrued liabilities and prepaid expenses. These reductions in cash were
partially offset by an improvement in operating income of approximately $20.9
million. The improvement in operating income can primarily be attributed to
strong comparable store sales, a reduction in warehousing and distribution costs
resulting from the consolidation of the company's distribution operations, and a
reduction in cost of goods sold as the benefits of product procurement programs
are realized. The Company's principal use of cash in its operating activities is
inventory purchases. The Company's high inventory turnover rate generally allows
it to finance a substantial portion of its inventory through trade payables,
thereby reducing its short-term borrowing needs.

Cash used by investing activities was $30.6 million for the first quarter
of fiscal 1997. Investing activities consisted primarily of capital expenditures
of $31.0 million. The capital expenditures were financed primarily from cash
provided by operating and financing activities.

The capital expenditures in the first quarter of fiscal 1997, as discussed
above, relate to six new stores (one of which had been completed at April 27,
1997) and the remodeling of 43 stores (16 of which had been completed at April
27, 1997). The Company currently anticipates that its aggregate capital
expenditures for fiscal 1997 will be approximately $155.0 million (or $140.0
million, net of expected capital leases) and will include eight new stores and
58 remodels. Consistent with past practices, the Company intends to finance
these capital expenditures primarily with cash provided by operations,
borrowings under the Revolving Facility and through leasing transactions. No
assurance can be given that sources of financing for capital expenditures will
be available or sufficient to finance its anticipated capital expenditure
requirements; however, management believes the capital expenditure program has
substantial flexibility and is subject to revision based on various factors,
including changes in business conditions and cash flow requirements. Management
believes that if the Company were to substantially reduce or postpone these
programs, there would be no substantial impact on short-term operating
profitability. However, management also believes that the construction of new
stores is an important component of its future operating strategy. Consequently,
management believes that if these programs were substantially reduced, future
operating results, and ultimately its cash flow, would be adversely affected.

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<PAGE> 46

The capital expenditures discussed above do not include potential
acquisitions which the Company could make to expand within its existing markets
or to enter other markets. The Company has grown through acquisitions in the
past and from time to time engages in discussions with potential sellers of
individual stores, groups of stores or other retail supermarket chains.

The Company continues to monitor and evaluate the performance of individual
stores as well as operating markets in relation to its overall business
objectives. As a result of this evaluation, alternative strategies may be
considered by the Company which could result in the disposition of certain
assets.

Cash provided by financing activities was $12.4 million for the first
quarter of fiscal 1997, resulting primarily from refinancing activities.
Refinancing activities consisted of the issuance of 11% Senior Subordinated
Notes to refinance the Company's 13.75% Senior Subordinated Notes and the
refinancing and amendment of the previous bank credit facility ("1995 Credit
Facility") (discussed below). In total, financing activities consisted primarily
of proceeds of $713.5 million from the issuance of long-term debt and net
borrowings of $12.1 million under the Revolving Facility, partially offset by
principal payments of long-term debt of $541.0 million, restricted cash of
$161.2 million and capital lease payments of $6.6 million.

During the quarter, the Company issued $155 million principal amount of 11%
Senior Subordinated Notes due 2005 (the "1997 11% Senior Subordinated Notes")
with terms substantially identical to the Company's existing 11% Senior
Subordinated Notes at a price of 105.5% of their principal amount, resulting in
gross proceeds of $163.5 million. At April 27, 1997, $161.2 million of these
proceeds was included in restricted cash and was subsequently used to redeem all
of the Company's $145 million principal amount of 13.75% Senior Subordinated
Notes at a price of 106.1% of their principal amount and to pay the related
accrued interest through the redemption date which was April 28, 1997. As a
result, the Company has classified the principal amount of the $145 million
13.75% Senior Subordinated Notes as current in the balance sheet at April 27,
1997. The remaining proceeds were used to pay fees and expenses associated with
the issuance of the 1997 Senior Subordinated Notes.

During the quarter, the Company also amended and restated the 1995 Credit
Facility to lower interest margins and allow more flexibility with respect to
application of proceeds from certain asset sales and capital expenditures. The
Refinanced Credit Facility provides for a $200.0 million Term Loan A Facility
and a $350.0 million Term Loan B Facility (together, the "Term Loans") and a
$325 million Revolving Credit Facility ("Revolving Facility") under which
working capital loans may be made and commercial or standby letters of credit in
the maximum of $150.0 million may be issued.

Quarterly principal installments on the Term Loans continue to 2004, with
amounts due as follows: $2.6 million in fiscal 1997, $3.5 million in fiscal
1998, $25.5 million in fiscal 1999, $62.6 million in fiscal 2000, $87.5 million
in fiscal 2001 and $368.3 million thereafter.

As a result of the refinancings described above, the Company recorded
extraordinary charges in the first quarter of fiscal 1997 of approximately $48.0
million, consisting of the call premium on the 13.75% Senior Subordinated Notes
and the write-off of deferred financing costs, associated with the 1995 Credit
Facility and the 13.75% Senior Subordinated Notes.

The Company is a wholly-owned subsidiary of Holdings. Holdings has
outstanding $127.7 million accreted value of Discount Debentures and $165.0
million principal amount of Pay-In-Kind Debentures outstanding. Holdings is a
holding company which has no assets other than the capital stock of the Company.
Holdings will be required to commence semi-annual cash payments of interest on
the Discount Debentures and the Pay-In-Kind Debentures commencing December 15,
2000 in the amount of approximately $61 million per annum. Subject to the
limitations contained in its debt instruments, the Company intends to make
dividend payments to Holdings in amounts which are sufficient to permit Holdings
to service its cash interest requirements. The Company may pay other dividends
to Holdings in connection with certain employee stock repurchases and for
routine administrative expenses.

The Company is highly leveraged. At April 27, 1997, the Company's total
long-term indebtedness (including current maturities) and stockholder's deficit
were $2.3 billion and $95.5 million, respectively. Based upon current levels of
operations and anticipated cost savings and future growth, the Company believes

45
<PAGE> 47

that its cash flow from operations, together with available borrowings under the
Revolving Facility and its other sources of liquidity (including lease
financing), will be adequate to meet its anticipated requirements for working
capital, capital expenditures, integration costs and debt service payments.
There can be no assurance, however, that the Company's business will continue to
generate cash flow at or above current levels or that future cost savings and
growth can be achieved.

EFFECTS OF INFLATION AND COMPETITION

The Company's primary costs, inventory and labor, are affected by a number
of factors that are beyond its control, including availability and price of
merchandise, the competitive climate and general and regional economic
conditions. As is typical of the supermarket industry, the Company has generally
been able to maintain margins by adjusting its retail prices, but competitive
conditions may from time to time render it unable to do so while maintaining its
market share.

RECENT ACCOUNTING PRONOUNCEMENTS

In February 1997, Statement of Financial Accounting Standards No. 128,
"Earnings per Share," ("SFAS No. 128") was issued. SFAS No. 128 is effective for
earnings per share calculations for periods ending after December 15, 1997. The
new method of calculating earnings per share will have no effect on the
Company's historical earnings per share.

46
<PAGE> 48

BUSINESS

Ralphs Grocery Company (the "Company") is the largest supermarket operator
in Southern California with 342 stores and an estimated market share of 26% in
Los Angeles and Orange Counties. The Company operates the second largest
conventional supermarket chain in Southern California under the "Ralphs" name
(263 stores) and the largest warehouse supermarket chain in the region under the
"Food 4 Less" name (79 stores). The Company also operates in Northern California
(27 stores) and the Midwest (36 stores). The Company has achieved strong
competitive positions in each of its marketing areas by successfully tailoring
its merchandising strategy to the particular needs of the individual communities
it serves. In addition, the Company is a vertically integrated supermarket
company with major manufacturing facilities, including a bakery and creamery
operations, and full-line warehouse and distribution facilities servicing its
Southern California operations.

The Company operates both conventional and warehouse format stores under
various names. The following table sets forth by retail format the number of
stores operated by each of the Company's three divisions at February 2, 1997:

<TABLE>
<CAPTION>
SOUTHERN NORTHERN
CALIFORNIA CALIFORNIA MIDWESTERN TOTAL
---------- ---------- ---------- -----
<S> <C> <C> <C> <C>
Ralphs.............................. 263 -- -- 263
Cala................................ -- 8 -- 8
Bell................................ -- 13 -- 13
Falley's............................ -- -- 5 5
-- --
--- ---
Total Conventional............. 263 21 5 289
Food 4 Less......................... 79 -- 31 110
FoodsCo............................. -- 6 -- 6
-- --
--- ---
Total Warehouse................ 79 6 31 116
-- --
--- ---
Total Stores................... 342 27 36 405
=== == == ===
</TABLE>

In Southern California, the Company's two complementary formats allow it to
serve a broad customer base and tailor its stores to the market characteristics
of individual store locations. The Company's conventional stores emphasize a
broad selection of merchandise, high quality fresh produce, meat and seafood and
service departments, including bakery and delicatessen departments in most
stores. The Company's conventional stores also benefit from Ralphs' strong
private label program and its strengths in merchandising, store operations and
systems. By passing on format-related efficiencies, the Food 4 Less price impact
warehouse format stores offer consumers the lowest overall prices while
providing product selections comparable to conventional supermarkets.

At the beginning of fiscal 1996, the Company streamlined its management
structure and implemented several strategic initiatives which have contributed
to improving operating trends at the Company. These initiatives resulted in
several notable achievements, including: (i) positive comparable store sales for
three consecutive quarters, including a 3.5% increase in Southern California
comparable store sales in the fourth quarter of fiscal 1996, (ii) an improvement
of the Company's EBITDA margin to 6.7% in the fourth quarter of fiscal 1996 from
5.5% in the comparable prior-year period, (iii) the opening of 26 new stores and
the remodeling of 20 stores, (iv) the acquisition and integration of a new one
million square foot, state-of-the-art distribution center, and (v) the launching
of a major marketing program designed to increase sales and market share under
the "First in Southern California" theme.

In fiscal 1996 Ralphs reported total sales of approximately $5.5 billion
and EBITDA (as defined) of $354.6 million. For the 12 week first quarter of
fiscal 1997 ending on April 27, 1997, the Company had sales of approximately
$1.3 billion and EBITDA (as defined) of approximately $85.0 million (or 6.7
percent of sales) as compared to sales of $1.2 billion and EBITDA (as defined)
of $70.1 million (or 5.7 percent of sales) for the first quarter of fiscal 1996.
Total Company comparable store sales increased by 4.1% for the first quarter of
1997 and EBITDA (as defined) increased by 21.3% over the prior year.

47
<PAGE> 49

The Company is controlled by The Yucaipa Companies ("Yucaipa"), a private
investment group which specializes in the supermarket industry. The principals
of Yucaipa have significant expertise in acquiring and managing companies in the
supermarket industry, having completed 13 transactions. The other supermarket
companies presently controlled or managed by Yucaipa are Dominick's Finer Foods,
Inc. (NYSE; DFF) and Smith's Food & Drug Centers, Inc. (NYSE: SFD). These
companies, together with the Company, operate a total of 655 stores and had
aggregate combined sales of approximately $11 billion in their most recent
fiscal years.

The Company actively participates in a "best practices" program with all
other Yucaipa-managed supermarket chains that is intended to reduce costs and
improve business processes. For example, the Company coordinates its purchasing
efforts with other Yucaipa-managed supermarket chains in an effort to reduce its
product costs.

SOUTHERN CALIFORNIA DIVISION

The Southern California Division operates 342 supermarkets in eight
counties under the names "Ralphs" and "Food 4 Less." The Company's Southern
California stores account for approximately 90 percent of the Company's sales.

The combination of RGC and Food 4 Less created the largest supermarket
operator in Southern California. Since the Merger, the Company has consolidated
all of its stores in the region under its two leading complementary formats. The
Company operates the second largest conventional supermarket chain in the region
under the "Ralphs" name and the largest price impact warehouse supermarket chain
under the "Food 4 Less" name. Management believes the consolidation of its
formats in Southern California has improved the Company's ability to adapt its
stores' merchandising strategy to the local markets in which they operate while
achieving cost savings and other efficiencies.

Ralphs Conventional Format. The Company operates 263 Ralphs stores in
Southern California. All of the Company's conventional stores in the region use
the "Ralphs" name and are operated under a single format. Each store is
merchandised to appeal to the local community it serves and offers competitive
pricing with emphasis on overall value. Ralphs' substantial supermarket product
selection is a significant aspect of its marketing efforts. Ralphs stocks
between 35,000 and 45,000 merchandise items in its stores, including
approximately 2,800 private label products. Ralphs stores offer name-brand
grocery products; quality and freshness in its produce, meat, seafood,
delicatessen and bakery products; and broad selection in all departments. Most
Ralphs stores offer service delicatessen departments, on-premises bakery
facilities and seafood departments. Ralphs emphasizes store ambiance and
cleanliness, fast and friendly service, the convenience of debit and credit card
payment (including many in-store branch banks) and 24-hour operations in most
stores.

Food 4 Less Warehouse Format. The Company operates 79 stores in Southern
California which target the price-conscious segment of the market in both urban
and suburban areas under the name "Food 4 Less." Food 4 Less is a
warehouse-style, price impact store which is positioned to offer the lowest
overall prices in its marketing areas by passing on to the consumer savings
achieved through labor efficiencies and lower overhead and advertising costs
associated with the warehouse format, while providing the product selection and
variety associated with a conventional format. In-store operations are designed
to allow customers to perform certain labor-intensive services usually offered
in conventional supermarkets; for example, merchandise is presented on warehouse
style racks in full cartons, reducing labor intensive unpacking, and customers
bag their own groceries. Labor costs are also reduced because the stores
generally do not have labor-intensive service departments such as delicatessens,
bakeries and fresh seafood departments, although they do offer a complete line
of fresh meat, fish, produce and baked goods.

The Food 4 Less format generally consists of large facilities constructed
with high ceilings to accommodate warehouse racking with overhead pallet
storage. Wide aisles accommodate forklifts and, compared to conventional
supermarkets, a higher percentage of total store space is devoted to retail
selling because the top of the warehouse-style grocery racks on the sales floor
are used to store inventory, which reduces the need for large backroom storage.
The Food 4 Less warehouse format supermarkets have brightly

48
<PAGE> 50

painted walls and inexpensive signage in lieu of more expensive graphics. In
addition, a "Wall of Values" located at the entrance of each store presents the
customer with a selection of specially priced merchandise. Management believes
that there is a significant segment of the market, encompassing a wide range of
demographic groups, which prefers to shop in a warehouse format supermarket
because of its lowest overall pricing.

MARKETING AND MERCHANDISING

As a result of the consolidation of conventional format stores in Southern
California under the "Ralphs" name, the Company eliminated most of the separate
advertising associated with Food 4 Less' prior Alpha Beta, Boys and Viva
formats. Because Ralphs' current advertising program now covers the Southern
California region, the Company will be able to expand the number of Ralphs
stores without significantly increasing advertising costs.

The Company utilizes innovative and aggressive marketing programs in an
effort to increase sales, market share and profitability. In September 1996, the
Company launched its "First in Southern California" marketing program, which
emphasizes Ralphs' lower regular retail prices in conjunction with its premier
quality, wide selection and enhanced customer service. The new marketing
campaign also highlights the Company's belief that more shoppers are choosing
Ralphs than any other supermarket in the region. The program is designed to
increase store traffic and sales by a coordinated use of media advertisement and
targeted use of price promotions and double coupon offerings. Management
believes that consumers' favorable response to the "First in Southern
California" marketing campaign has resulted in increased customer traffic at its
stores and has contributed to an increase in fiscal 1996 fourth quarter
comparable store sales in Southern California of 3.5%. The Company continues to
emphasize its successful merchandising programs and exceptional product mix,
including its home meal replacement program and strong private label program.
The Company intends to continue to expand its home meal replacement program in
its conventional supermarkets. The Company's home meal replacement program
offers a wide range of pre-packaged fresh, refrigerated and frozen food items.

Through its private label program, the Company offers a diverse array of
grocery and general merchandise items under its own brand names which include
"Ralphs," "Private Selection," "Perfect Choice," "Plain Wrap" and "Equality."
The Company has entered into several private label licensing arrangements which
allow it to utilize recognized brand names on an exclusive basis in connection
with certain goods it manufactures or purchases from others, including
"Carnation" and "Sunnyside Farms" (dairy products) and "Van de Kamps" (baked
goods). In addition, the Company has entered into an agreement to distribute
private label dry grocery and frozen products under the "Sunny Select" and
"Grocers Pride" labels. The Company's private label program provides quality
comparable to that of national brands at significantly lower prices, while the
Company's gross margins on private label products are generally higher than on
national brands. The Company believes that its private label program is one of
the most successful in the supermarket industry, and the Company intends to
continue the growth of its private label program in the future.

Ralphs stores promote sales through the use of product coupons, consisting
of manufacturers' coupons and Ralphs' own promotional coupons. Ralphs offers a
double coupon program in all stores with Ralphs matching the price reduction
offered by the manufacturer up to certain limits. Ralphs also generates store
traffic through weekly advertised specials, special sales promotions such as
discounts on recreational activities, seasonal and holiday promotions, increased
private label selection, club pack items and exclusive product offerings.

The Food 4 Less warehouse stores utilize print and radio advertising which
emphasizes Food 4 Less' low-price leadership, rather than promoting special
prices on individual items. The Food 4 Less warehouse stores also utilize weekly
advertising circulars, customized to local communities, which highlight the
merchandise offered in each store.

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<PAGE> 51

WAREHOUSING AND DISTRIBUTION

In March 1996, the Company commenced operations in a state-of-the-art
distribution and creamery facility located in Riverside, California (the
"Riverside Facility") which was acquired from Smith's. The
technologically-advanced 90-acre complex has improved the quality, service and
productivity of the Company's distribution and manufacturing operations. The
Riverside Facility has more than one million square feet of warehousing and
manufacturing space consisting of a 675,000 square foot dry grocery service
center, a 270,000 square foot refrigerated and frozen food facility and a
115,000 square foot creamery facility. The Riverside Facility sublease runs for
approximately 23 years, with renewal options through 2043, and provides for
annual rent of approximately $8.8 million. The Company also acquired certain
operating assets and inventory at the Riverside Facility when it entered into
the sublease for a purchase price of approximately $20.2 million.

The acquisition of the Riverside facility in December 1995 allowed the
Company to eliminate certain of its smaller and less efficient warehouse
facilities and to consolidate its distribution operations into the modern,
efficient facilities located in Compton, Glendale and Riverside, California. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

The Riverside Facility also increases distribution capacity of the Company
by increasing storage capacity to 120,000 pallets and increasing the assortment
of items that are internally supported (increasing dry grocery from 10,000 to
14,000 SKUs and perishable and frozen items by 1,500 SKUs).

The Company also operates a 17 million cubic foot high-rise automated
storage and retrieval system ("ASRS") warehouse for non-perishable items, near
Glendale, California. The ASRS warehouse has a ground floor area of 170,000
square feet and capacity of approximately 50,000 pallets. Guided by computer
software, ten-story high cranes move pallets from the receiving dock to
programmed locations in the ASRS warehouse while recording the location and time
of storage. Goods are retrieved and delivered by the cranes to conveyors leading
to an adjacent "picking" warehouse where individual store orders are filled and
shipped. The Company's Glendale "picking" warehouse (together with the ASRS
warehouse, the "Glendale Facility") was damaged in the Northridge earthquake.
Its operations were transferred to the Riverside Facility while it was being
renovated. The Company completed its renovation of the Glendale "picking"
warehouse in March 1997. The Glendale Facility can hold substantially more
inventory and requires fewer employees to operate than a conventional warehouse
of equal size.

The Company's third major Southern California distribution center is its
5.4 million cubic foot facility in Compton, California designed to process and
store all perishable products (the "Compton Facility"). This facility was
constructed in 1992 and has enabled the Company to have the ability to deliver
perishable products to its stores on a daily basis, thereby improving the
freshness and quality of these products.

Combined shipments from the Company's Southern California warehouse
facilities accounted for approximately 75 percent of the Southern California
Division's total purchases during the 36 weeks ended October 6, 1996. Additional
purchases, consisting of mostly general merchandise, approximating 2 percent of
the division's total during this same period, were made through Certified
Grocers of California, Ltd. ("Certified"), a food distribution cooperative in
which the Company is a member.

The Company is party to a joint venture with a subsidiary of Certified
which operates a general merchandise warehouse in Fresno, California. Management
has been holding discussions with Certified concerning the possible termination
of the joint venture.

MANUFACTURING

The Riverside Facility's creamery is the production point for all fluid
milk products bound for sale in the Company's Food 4 Less warehouse stores.
Bottled water, fruit juice and ice for the entire Company will also be processed
and packaged at the Riverside Facility creamery. Milk bound for the Company's
Ralphs conventional stores, as well as all ice cream and ice cream products, are
processed at the Company's existing creamery at the Compton Facility in Compton,
California. The Compton Facility also processes selected

50
<PAGE> 52

delicatessen items, including packaged salads and cheeses, and produces cultured
products including sour cream and yogurt.

In addition to the foregoing facilities, the Company will continue to
operate a 316,000 square foot bakery in La Habra, California to manufacture a
broad line of baked goods.

STORE OPERATIONS AND RETAIL SYSTEMS

The Company has a modern store base with 60.7% of its stores having been
either opened or remodeled in the last five years. Since the Merger, the Company
closed 74 smaller, underperforming stores, opened 37 stores, and expanded or
remodeled 23 stores. During fiscal 1996, the Company opened 26 new stores and
remodeled 20 stores. These improvements to its store base have resulted in an
increase in Southern California average store size of approximately 11.6%. In
addition, as of result of Ralphs' 124-year history in Southern California, the
Company has valuable and well established store locations, many which are in
densely populated metropolitan areas.

The Southern California Division's store equipment and facilities are
generally in excellent condition. The Ralphs stores range in size from
approximately 18,900 square feet to 87,000 square feet and average approximately
37,700 square feet. The Southern California Food 4 Less stores are generally
larger and range in size from approximately 27,400 square feet to 109,300 square
feet, and average approximately 55,200 square feet. The Company believes the
Southern California Division's warehouse and distribution system and the design
of its stores permit the Company to decrease in-store stockroom space and
thereby increase available selling area.

The Southern California Division's management information systems and
optical scanning technology reduce the labor costs attributable to product
pricing and customer check-out, and provide the Company's management with
information that facilitates purchasing and receiving, inventory management,
warehouse reordering and management of accounts payable. All of the Company's
Southern California Division stores currently offer an electronic funds transfer
system which allows customers to make purchases, obtain cash or check approvals
in transactions linked to their bank accounts. In addition, the Company's stores
now offer customers the convenience of making purchases with major credit cards.

The Company's merger, expansion, remodeling and conversion efforts have
required, and will continue to require the funding of significant capital
expenditures. Remodels and new store openings, among other things, are subject
to the availability of developers' financing, agreements with developers and
landlords, local zoning regulations, construction schedules and other factors,
including costs, often beyond the Company's control. Accordingly, there can be
no assurance that the schedule will be met. Further, there is competition for
new store sites, and it is possible that this competition might adversely affect
the timing of its new store program. From time to time, the Company also closes
or sells marginal stores. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."

NORTHERN CALIFORNIA AND MIDWESTERN DIVISIONS

The Northern California Division of the Company operates 21 conventional
supermarkets in the greater San Francisco Bay area under the "Cala" and "Bell"
names, and six warehouse format stores under the "FoodsCo" name. Management
believes that the Northern California Division has excellent store locations in
the city of San Francisco that would be very difficult to replicate. The
Midwestern Division of the Company operates 36 stores, of which 31, including
ten former "Food Barn" stores which the Company acquired in March 1994, are
warehouse format stores operated under the "Food 4 Less" name, and five of which
are conventional supermarkets operated under the "Falley's" name. Of these 36
stores, 32 are located in Kansas and four are located in Missouri. Management
believes the Food 4 Less warehouse format stores are the low-price leaders in
each of the markets in which they compete. The Northern California Division's
conventional store strategy is to attract customers through its convenient
locations, broad product line and emphasis on quality and service, and its
advertising and promotion strategy highlights the reduced price specials offered
in its stores. In contrast, the Company's warehouse format stores, operated
under the Food 4 Less name in the Midwestern Division and the FoodsCo name in
the Northern California Division, emphasize lowest overall

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<PAGE> 53

prices rather than promoting special prices on individual items. The Northern
California Division's conventional stores range in size from approximately 8,900
square feet to 32,800 square feet, and average approximately 19,300 square feet.
The Northern California Division's warehouse stores range in size from
approximately 29,100 square feet to 59,700 square feet, and average
approximately 43,300 square feet. The Midwestern Division's warehouse format
stores range in size from approximately 8,800 square feet to 60,200 square feet
and average approximately 37,900 square feet.

The Northern California Division purchases merchandise from a number of
suppliers; however, approximately 36 percent of its purchases are made through
Certified Grocers of California, Ltd. ("Certified"), a food distribution
cooperative, pursuant to supply contracts. The Northern California Division does
not operate its own warehouse facilities, relying instead on direct delivery to
its stores by Certified and other vendors. Food 4 Less' Southern California
warehouse facilities supply a portion of the merchandise sold in the Northern
California Division stores.

The Midwestern Division's primary supplier is Associated Wholesale Grocers
("AWG"), a member-owned wholesale grocery cooperative based in Kansas City. The
Midwestern Division does not operate a central warehouse, but purchases
approximately 70 percent of the merchandise sold in its stores from AWG.
Management believes that, as AWG's largest single customer, the Midwestern
Division has significant buying power, allowing it to provide a broader product
line more economically than it could if it maintained its own full-line
warehouse. The Midwestern Division produces approximately 50 percent of all
case-ready fresh meat items sold in its stores at its central meat plant located
in Topeka, Kansas.

Since the beginning of fiscal 1991, the Northern California Division has
remodeled 13 stores, opened six new stores and, in fiscal 1995, acquired three
stores from Roger Wilco, now operated as Bell stores. The Northern California
Division Food 4 Less warehouse stores were renamed as FoodsCo warehouse stores
in fiscal 1994 following the sale by the Company of the exclusive rights to use
the "Food 4 Less" name in Northern California to Fleming Companies, Inc., which
previously held a non-exclusive license. See "Licensing Operations" for further
discussion of the amendment to the Fleming license.

HISTORY

On June 14, 1995, Holdings acquired all of the common stock of Ralphs
Supermarkets, Inc. ("RSI") in a transaction accounted for as a purchase by Food
4 Less. The consideration for the acquisition consisted of $388.1 million in
cash, $131.5 million principal amount of 13 5/8% Senior Subordinated Pay-In-Kind
Debentures due 2007 of Holdings (the "Seller Debentures") and $18.5 million
initial accreted value of 13 5/8% Senior Discount Debentures due 2005 of
Holdings (the "New Discount Debentures"). Food 4 Less, RSI and RSI's
wholly-owned subsidiary, Ralphs Grocery Company ("RGC"), combined through
mergers (the "Merger") in which RSI remained as the surviving entity and changed
its name to Ralphs Grocery Company.

Food 4 Less was organized by The Yucaipa Companies ("Yucaipa"), a private
investment group, in connection with the June 1989 acquisition of Breco Holding
Company, Inc. ("BHC"), which owned Boys, Viva, and Cala stores. Concurrently
with the acquisition of BHC (the "BHC Acquisition"), Food 4 Less, Inc. ("FFL"),
a corporation controlled by an affiliate of Yucaipa, contributed to Food 4 Less
all of the outstanding capital stock of Falley's, Inc. ("Falley's"), which owned
Food 4 Less' Midwestern stores and its Food 4 Less Southern California stores.
Food 4 Less added six stores to its Northern California Division by acquiring
Bell Markets, Inc. ("Bell") on June 30, 1989, and added seven stores to its
Southern California Division by acquiring certain operating assets of ABC Market
Corp. ("ABC") on January 15, 1990. On June 17, 1991, Food 4 Less acquired all of
the outstanding capital stock of Alpha Beta Company ("Alpha Beta"), which
operated 142 stores in seven Southern California counties (the "Alpha Beta
Acquisition"). On March 29, 1994, Food 4 Less added ten warehouse format stores
(formerly operated under the name "Food Barn") to its Midwestern Division which
it acquired from Associated Wholesale Grocers, Inc.

THE MERGER AND THE FINANCING

On June 14, 1995, Food 4 Less merged into RSI. Immediately following the
RSI Merger, Ralphs Grocery Company, which was a wholly-owned subsidiary of RSI,
merged with and into RSI pursuant to the

52
<PAGE> 54

RGC Merger, and RSI changed its name to Ralphs Grocery Company. The purchase
price for RSI was approximately $1.5 billion, including the assumption of debt.
The consideration paid to the stockholders of RSI consisted of $388.1 million in
cash, $131.5 million principal amount of the Seller Debentures and $18.5 million
initial accreted value of the New Discount Debentures which were issued by
Holdings.

The Merger was financed through the following principal transactions:

- Borrowings of $600 million aggregate principal amount pursuant to term
loans (the "Term Loans") under a senior bank facility (the "Credit
Facility") provided by a syndicate of banks led by Bankers Trust. The
Credit Facility also provides for a $325 million revolving credit
facility (the "Revolving Facility").

- The issuance by the Company of $350 million of 10.45% Senior Notes due
2004 (the "1995 Senior Notes") and $100 million of 11% Senior
Subordinated Notes due 2005 (the "1995 Senior Subordinated Notes").

- The issuance of preferred stock in a private placement by Holdings to a
group of investors (the "1995 Equity Investors") led by Apollo Advisors,
L.P. and Apollo Advisors II, L.P. (on behalf of one or more managed
entities) or their respective affiliates and designees ("Apollo") and
including affiliates of BT Securities Corporation ("BT Securities"), CS
First Boston Corporation ("CS First Boston") and Donaldson, Lufkin &
Jenrette Securities Corporation ("DLJ") and other institutional
investors, yielding cash proceeds of $140 million pursuant to the 1995
Equity Investment. Concurrently with the 1995 Equity Investment, the 1995
Equity Investors purchased outstanding shares of Holdings capital stock
from a stockholder of Holdings for a purchase price of $57.8 million.

- The exchange by Food 4 Less of (a) $170.3 million aggregate principal
amount of the 10.45% Senior Notes due 2000 of Food 4 Less (the "1992
Senior Notes") for $170.3 million aggregate principal amount of the 1995
Senior Notes plus $5.00 in cash per $1,000 principal amount exchanged and
(b) $140.2 million aggregate principal amount of the 13.75% Senior
Subordinated Notes due 2001 of Food 4 Less (the "1991 Senior Subordinated
Notes") for $140.2 million aggregate principal amount of the 13.75%
Senior Subordinated Notes due 2005 of the Company (the "1995 13.75%
Senior Subordinated Notes") plus $20.00 in cash per $1,000 principal
amount exchanged, together with the solicitation of consents from the
holders of the 1992 Senior Notes and 1991 Senior Subordinated Notes to
certain amendments to the indentures governing such notes.

- The offers by Food 4 Less to (i) exchange up to $450 million aggregate
principal amount of the Old RGC Notes (as defined herein) for up to $450
million aggregate principal amount of the 1995 11% Senior Subordinated
Notes plus $20.00 in cash per $1,000 principal amount of Old RGC Notes
exchanged and (ii) purchase Old RGC Notes for $1,010.00 in cash per
$1,000 principal amount of Old RGC Notes accepted for purchase, together
with the solicitation of consents from holders of Old RGC Notes to
certain amendments to the indenture governing the Old RGC Notes.

- The placement by Holdings pursuant to the New Discount Debenture
Placement of $100 million initial accreted value of New Discount
Debentures to a partnership including Yucaipa, the selling stockholders
of Ralphs, an affiliate of George Soros, Apollo, and an affiliate of each
of BT Securities, CS First Boston and DLJ. The $100 million initial
accreted value of New Discount Debentures included (a) $18.5 million that
was issued to the RSI stockholders, (b) $17.5 million, $2.5 million and
$2.5 million that was issued to Yucaipa, BT Securities and Apollo,
respectively, in satisfaction of fees otherwise payable by the Company
and Holdings in connection with the Merger and the related financing and
(c) $59 million that was issued for cash to the partnership described
above. The $41 million initial accreted value of New Discount Debentures
issued to the RSI stockholders, Apollo, BT Securities and Yucaipa were
contributed to such partnership by the recipients thereof.

- The assumption by the Company, pursuant to the Merger, of approximately
$162.9 million of other indebtedness of RGC and Food 4 Less.

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<PAGE> 55

COMPETITION

The Southern California Division competes with several large national and
regional chains, principally Albertsons, Hughes, Lucky, Stater Bros., and Vons,
and with smaller independent supermarkets and grocery stores as well as
warehouse clubs and other "alternative format" food stores. The Company's
primary competitor in Southern California is expected to be acquired by a major
multi-regional supermarket chain in the near future which may increase
competitive pressure for the Company. The Northern California Division competes
with large national and regional chains, principally Lucky and Safeway, and with
independent supermarket and grocery store operators and other retailers,
including "alternative format" stores. The Midwestern Division's supermarkets
compete with several national and regional supermarket chains, principally
Albertson's and Dillons, as well as independent grocery and "alternative format"
stores such as Hypermarket USA. The Company positions its warehouse format
supermarkets as the overall low-price leaders in each marketing area in which
they operate.

EMPLOYEES

The Company believes that its relationship with its employees is excellent.
At February 2, 1997, the Company had a total of 27,254 employees, as shown in
the table below.

<TABLE>
<CAPTION>
SOUTHERN NORTHERN
CALIFORNIA CALIFORNIA MIDWESTERN TOTAL
---------- ---------- ---------- ------
<S> <C> <C> <C> <C>
Administrative............................ 1,138 61 48 1,247
Warehouse, manufacturing and
transportation.......................... 3,350 -- 58 3,408
Stores.................................... 20,097 1,144 1,358 22,599
------ ----- ----- ------
Total........................... 24,585 1,205 1,464 27,254
====== ===== ===== ======
</TABLE>

Of the Company's 27,254 total employees at February 2, 1997, there were
23,419 employees covered by union contracts, principally with the United Food
and Commercial Workers Union (the "UFCW"). The table below sets forth
information regarding the Company's union contracts which cover more than 100
employees.

<TABLE>
<CAPTION>
DATE(S) OF
UNION NUMBER OF EMPLOYEES COVERED EXPIRATION
----- --------------------------- ----------
<S> <C> <C>
UFCW 14,214 Southern California October 3, 1999
Division clerks and meatcutters
Hospital and Service Employees 549 Southern California January 19, 1997(a)
Division store porters
International Brotherhood of Teamsters 2,867 Southern California September 13, 1998
Division drivers and
warehousemen
UFCW 1,054 Northern California March 7, 1998
Division clerks and meatcutters
UFCW 3,690 Southern California February 26, 2000
Division clerks and meatcutters
Bakery and Confectionery Workers 206 Southern California July 7, 2000
Division bakers
Hotel Employees and Restaurant Workers 839 Southern California Division September 11, 2000
Culinary Workers
</TABLE>

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<PAGE> 56

- ---------------

(a) Although negotiations for a new union contract are in progress, there can be
no assurance that a new contract will be reached on terms satisfactory to the
Company or that labor costs will not increase.

LICENSING OPERATIONS

The Company owns the "Food 4 Less" trademark and service mark and licenses
the "Food 4 Less" name for use by others. In fiscal 1996, earnings from
licensing operations were approximately $244,000. An exclusive license with the
right to sublicense the "Food 4 Less" name in all areas of the United States
except Arkansas, Iowa, Illinois, Minnesota, Nebraska, North Dakota, South
Dakota, Wisconsin, the upper peninsula of Michigan, certain portions of Kansas,
Missouri, and Tennessee has been granted to Fleming Companies, Inc. ("Fleming"),
a major food wholesaler and retailer. In August of 1993, the Company amended its
licensing agreement with Fleming to give Fleming exclusive use of the Food 4
Less name in Northern California and the Company exclusive use in Southern
California (the "Amendment"). With the exception of Northern California, and
subject to the Amendment and certain proximity restrictions, the Company retains
the right to open and operate its own "Food 4 Less" warehouse supermarkets
throughout the United States. As of February 2, 1997, there were 179 Food 4 Less
warehouse supermarkets in 12 states, including the 110 stores owned or leased
and operated by the Company. Of the remaining 69 stores, Fleming operates 7
under license, 10 are operated under sublicenses from Fleming and 52 are
operated by other licensees.

PROPERTIES

At February 2, 1997 the Company operated 405 supermarkets, as set forth in
the table below:

<TABLE>
<CAPTION>
NUMBER OF
SUPERMARKETS AVERAGE
---------------- TOTAL SQUARE FEET/
DIVISION OWNED LEASED SQUARE FEET FACILITY
------------------------------------------ ----- ------ ----------- ------------
<S> <C> <C> <C> <C>
Southern California....................... 62(a) 280 14,237,000 41,600
Northern California....................... -- 27 665,000 24,600
Midwestern................................ 2(b) 34 1,299,000 36,100
</TABLE>

- ---------------

(a) Includes fifteen stores located on real property subject to ground leases.

(b) Includes one store that is partially owned and partially leased.

Most of the Southern California Division's store locations are held
pursuant to long-term leases, many of which, in the opinion of management, have
below-market rental rates or other favorable lease terms. The average remaining
term (including all renewal options) of the Company's supermarket leases is
approximately 30 years.

In addition to the supermarkets, the Company operates three main warehouse
and distribution centers in Southern California. The newly acquired 90 acre
Riverside Facility has more than one million square feet of warehousing and
manufacturing space consisting of a creamery and several warehouses for dry
grocery, dairy/deli and frozen food storage. The Riverside Facility sublease
runs for approximately 23 years, with renewal options through 2043, and provides
for annual rent of approximately $8.8 million. The Glendale Facility is a
170,000 square foot high-rise automated storage and retrieval system warehouse.
It opened in 1987, handles non-perishable items and has a capacity of
approximately 50,000 pallets. The Compton Facility, which opened in 1992, is a
5.4 million cubic foot facility designed to process and store all perishable
products.

The Company also has manufacturing operations located in Compton that
produce a variety of dairy and other products, including fluid milk, ice cream,
yogurt and bottled waters and juices, as well as packaged ice, cheese and
packaged salads. The bakery operation is located at the La Habra complex and
measures 316,000 square feet.

The Company's former central office, manufacturing and warehouse complex in
La Habra, California had been leased from American Food & Drug Company ("AFD"),
an affiliate of American Stores, for a term ending in 2001. Operations at the La
Habra facility were discontinued as part of the Company's consolidation

55
<PAGE> 57

of warehouse and distribution facilities which began with the acquisition of the
Riverside Facility in December 1995. On October 29, 1996, the Company finalized
an agreement with AFD which resulted in the termination of the Company's leases
of the La Habra facility and its leases of two stores which had also been leased
from AFD. In addition, in order to complete the Company's settlement agreement
with the State of California entered into at the date of the Merger, the Company
concurrently sold a store to AFD. In addition, the Company entered into a new
lease for the bakery facility at the La Habra facility, which it will continue
to operate, and modified the terms of two other store leases. In fiscal 1995 the
Company recorded a restructuring charge which includes a $29.6 million provision
for lease termination expenses in connection with the closure of the La Habra
and other warehouses (as well as certain other properties). See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

LEGAL PROCEEDINGS

In December 1992, three California state antitrust class action suits were
commenced in Los Angeles Superior Court against the Company and other major
supermarket chains located in Southern California, alleging that they conspired
to refrain from competing in the retail market for fluid milk and to fix the
retail price of fluid milk above competitive prices. Specifically, class actions
were commenced by Diane Barela and Neila Ross, Ron Moliare and Paul C. Pfeifle
on December 7, December 14 and December 23, 1992, respectively. A class has been
certified consisting of all purchasers of milk in Los Angeles County from
December 7, 1988. Most defendants in the actions, not including the Company,
have reached tentative settlement agreements, and certain of the settlements
have been approved by the trial court. The Company is continuing to actively
defend itself in these class action suits.

On September 13, 1996, a class action lawsuit titled McCampbell, et al. v.
Ralphs Grocery Company, et al. was filed in the Superior Court of the State of
California, County of San Diego, against the Company and two other grocery store
chains operating in the Southern California area. The complaint alleges, among
other things, that the Company and others conspired to fix the retail price of
eggs in Southern California. The plaintiffs claim that the defendants' actions
violate provisions of the California Cartwright Act and constitute unfair
competition. Plaintiffs seek damages they purport to have sustained as a result
of the defendants' alleged actions, which damages may be trebled under the
applicable statute, and an injunction from future actions in restraint of trade
and unfair competition. Discovery has commenced and no class has been certified.
Management of the Company intends to defend this action vigorously and the
Company has filed an answer to the complaint denying the plaintiffs' allegations
and setting forth several defenses.

On December 20, 1996, a lawsuit titled Bundy, et al. v. Ralphs Grocery
Company, et al. was filed in the Los Angeles Superior Court against the Company.
The complaint was filed by eight individual plaintiffs who were terminated in
conjunction with the Company's restructuring. The plaintiffs claim that they
were wrongfully terminated for discriminatory reasons and that the Company
engaged in various fraudulent practices. The plaintiffs seek compensatory
damages in excess of $15,000,000, special and punitive damages. Management of
the Company believes that the plaintiffs' claims are without merit and intends
to defend this action vigorously.

In addition, the Company or its subsidiaries are defendants in a number of
other cases currently in litigation or are the subject of potential claims
encountered in the normal course of business which are being vigorously
defended. In the opinion of management, the resolutions of these matters will
not have a material effect on the Company's financial position or results of
operations.

The Company is subject to regulation by a variety of governmental agencies,
including, but not limited to, the California Department of Alcoholic Beverage
Control, the California Department of Agriculture, the U.S. Food and Drug
Administration, the U.S. Department of Agriculture and state and local health
departments.

ENVIRONMENTAL MATTERS

56
<PAGE> 58

connection with the U.S. Environmental Protection Agency (the "EPA"), to
identify contributors to groundwater contamination in the San Fernando Valley.
Significant parts of the San Fernando Valley, including the area where the
Glendale Facility is located, have been designated federal Superfund sites
requiring response actions under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, because of regional
groundwater contamination. On June 18, 1991, the EPA made its own request for
information concerning the Glendale Facility. Since that time, the Regional
Board has requested further investigation by Ralphs. Ralphs conducted the
requested investigations and reported the results to the Regional Board.
Approximately 25 companies have entered into a Consent Order (EPA Docket No.
94-11) with the EPA to investigate and design a remediation system for
contaminated groundwater beneath an area which includes the Glendale Facility.
The Company is not a party to the Consent Order, but is cooperating with
requests of the subject companies to allow installation of monitoring or
recovery wells on its property. On or about October 12, 1995, the EPA mailed a
Special Notice Letter to 44 parties, including the Company as owner and operator
of the Glendale Facility property, naming them as potentially responsible
parties ("PRPs"). On November 26, 1996, the EPA issued an Administrative Order
for Remedial Action (EPA Docket No. 97-06) against more than 60 respondents,
including the Company, in connection with the Superfund site. Under the order,
these PRPs are required to take certain actions, over an approximately 270-day
period, in connection with the implementation of interim remedies for the
treatment of groundwater. The PRPs have also agreed to an Alternative Dispute
Resolution Process to allocate the costs among themselves. Based upon available
information, management does not believe this matter will have a material
adverse effect on the Company's financial condition or results of operations.

The Company removed underground storage tanks and remediated soil
contamination at the Glendale Facility property. In some instances, the removals
and the contamination were associated with grocery business operations; in
others, they were associated with prior property users. Although the possibility
of other contamination from prior operations or adjacent properties exists at
the Glendale Facility property, management does not believe that the costs of
remediating such contamination will be material to the Company.

Apart from the Glendale Facility, the Company has had environmental
assessments performed on most of its facilities, including warehouse and
distribution facilities. The Company believes that any responsive actions
required at the examined properties as a result of such assessments will not
have a material adverse effect on its financial condition or results of
operations.

The Company is subject to a variety of environmental laws, rules,
regulations and investigative or enforcement activities, as are other companies
in the same or similar business. The Company believes it is in substantial
compliance with such laws, rules and regulations. These laws, rules, regulations
and agency activities change from time to time, and such changes may affect the
ongoing business and operations of the Company.

57
<PAGE> 59

MANAGEMENT

The following table sets forth certain information regarding the executive
officers and directors of the Company as of April 18, 1997. Directors serve
until the election and qualification of their successors.

<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------- --- ------------------------------------------------
<S> <C> <C>
Ronald W. Burkle 44 Chairman of the Board and Director
George G. Golleher 49 Chief Executive Officer and Director
Alfred A. Marasca 55 President, Chief Operating Officer and Director
Joe S. Burkle 73 Chief Executive Officer -- Falley's and Director
Greg Mays 50 Executive Vice President -- Finance and
Administration
John T. Standley 34 Chief Financial Officer
Harley DeLano 59 President -- Cala Foods
Tony Schnug 52 Group Senior Vice President -- Support
Operations
Christopher Hall 32 Group Vice President -- Finance, Controller and
Chief Accounting Officer
Robert I. Bernstein 34 Director
Robert Beyer 36 Director
Peter Copses 38 Director
Patrick L. Graham 47 Director
Lawrence K. Kalantari 37 Director
John Kissick 55 Director
</TABLE>

Ronald W. Burkle has been Chairman of the Board since February 1997. He has
been a Director since June 1995. He was Chairman of the Board from June 1995 to
January 1996. Mr. Burkle was a Director, Chairman of the Board and Chief
Executive Officer of Food 4 Less from its inception in 1989 until the Merger.
Mr. Burkle co-founded The Yucaipa Companies, Inc. in 1986 and served as
Director, Chairman of the Board, President and Chief Executive Officer of FFL
from 1987 and of Holdings from 1992 until the Merger, respectively. Mr. Burkle
has been Chairman of the Board of Dominick's Finer Foods, Inc. since March 1995
and served as Chief Executive Officer from March 1995 until January 1996. Mr.
Burkle also served as Chairman of the Board of Smitty's Supermarkets, Inc.
("Smitty's") from June 1994 until its merger in May 1996 with Smith's Food &
Drug Centers, Inc. ("Smith's"). He has been Chief Executive Officer of Smith's
since May 1996. He has also served as a Director of Kaufman & Broad Home
Corporation, Inc. since March 1995. Mr. Burkle is the son of Joe S. Burkle.

George G. Golleher has been Chief Executive Officer since January 1996 and
a Director since June 1995. He was Vice Chairman from June 1995 to January 1996.
He was a Director of Food 4 Less from its inception in 1989 and was the
President and Chief Operating Officer of Food 4 Less from January 1990 until the
Merger. From 1986 through 1989, Mr. Golleher served as Senior Vice
President -- Finance and Administration of The Boys Markets, Inc. Mr. Golleher
has served as a Director of Dominick's Finer Foods, Inc., an affiliate of The
Yucaipa Companies, from March 1995 until October 1996.

Alfred A. Marasca has been President, Chief Operating Officer and a
Director since June 1995. He was President and Chief Operating Officer of RGC
from February 1994 until the Merger. He was President of RGC from 1993 to 1994,
Executive Vice President -- Retail from 1991 to 1993, and Executive Vice
President -- Marketing from 1985 to 1991.

Joe S. Burkle has been a Director since June 1995 and Chief Executive
Officer of Falley's, Inc. since 1987. He was a Director and Executive Vice
President of Food 4 Less from its inception in 1989 until the Merger. Mr. Burkle
began his career in the supermarket industry in 1946, and served as President
and Chief

58
<PAGE> 60

Executive Officer of Stater Bros. Markets, a Southern California supermarket
chain. Prior to 1987, Mr. Burkle was a private investor in Southern California.
Mr. Burkle is the father of Ronald W. Burkle.

Greg Mays has been Executive Vice President -- Finance & Administration
since February 1997. Mr. Mays was Executive Vice President -- Finance and
Administration and Chief Financial Officer from September 1995 to February 1997.
He was Executive Vice President -- Finance & Administration from June 1995 to
September 1995. He was Executive Vice President -- Finance & Administration and
Chief Financial Officer of Food 4 Less and of Holdings from December 1992 until
the Merger. From 1989 to 1991, Mr. Mays was Chief Financial Officer of Almac's,
Inc. and, from 1991 to December 1992, he was President and Chief Financial
Officer of Almac's. From April 1988 to June 1989, Mr. Mays was Chief Financial
Officer of Food 4 Less of Modesto, Inc. and Cala Foods, Inc.

John T. Standley has been Chief Financial Officer since February 1997. He
was Senior Vice President -- Administration at Smith's from May 1996 to February
1997. He was Chief Financial Officer, Vice President and Assistant Secretary of
Smitty's from December 1994 to May 1996. From 1991 to 1994, Mr. Standley was
Vice President of Finance for Food 4 Less Supermarkets, Inc. Prior to 1991, he
was a manager at Arthur Andersen & Company.

Harley DeLano has been President of Cala Foods, Inc. since 1990. Mr. DeLano
was General Manager of ABC from 1980 to 1990. He serves as a Director of
Certified Grocers.

Tony Schnug has been Group Senior Vice President -- Support Operations
since January 1996. He was Senior Vice President of Manufacturing and
Construction from June 1995 to January 1996. He was Senior Vice
President -- Corporate Operations of Food 4 Less from 1990 until the Merger.
Before joining Food 4 Less, he was Managing Director of SAGE, a wholly-owned
subsidiary of Ogilvy & Mather, and Vice President -- Management Information
Systems of The Vons Company.

Christopher Hall has been Group Vice President -- Finance, Controller, and
Chief Accounting Officer since February 1997. He was Group Vice
President/Controller from September 1995 to February 1997. He was Vice
President, Accounting from June 1995 to September 1995. Prior to that, he was
Controller at Food 4 Less Supermarkets from 1993 to June 1995, and joined Food 4
Less Supermarkets in 1992 as Director -- Finance. Prior to 1992, he was a member
of the audit practice at Arthur Andersen LLP.

Robert I. Bernstein has been a Director since March 1997. He has been a
general partner of The Yucaipa Companies since joining the firm in December
1995. From 1986 to 1989 and from 1993 to 1995, Mr. Bernstein was employed by
Bankers Trust. From 1989 to 1992, he was an infantry officer in the U.S. Marine
Corps.

Robert Beyer has been a Director since June 1995. He has been a Group
Managing Director of Trust Company of the West ("TCW") since 1995. Mr. Beyer was
Co-Chief Executive Officer of Crescent Capital Corporation, a registered
investment advisor, from 1991 until its acquisition by TCW in 1995. From 1986 to
1991, Mr. Beyer was a member of the investment banking department of Drexel
Burnham Lambert, Incorporated. From 1983 to 1986, Mr. Beyer was a member of the
investment banking department of Bear, Stearns & Co., Inc.

Peter Copses has been a Director since June 1995. He has been a Principal
since 1990 of Apollo Advisors, L.P. which, together with an affiliate, acts as
managing general partner of Apollo Investment Fund, L.P., AIF II, L.P. and
Apollo Investment Fund III, L.P., private securities investment funds, and of
Lion Advisors, L.P., which acts as financial advisor to and representative for
certain institutional investors with respect to securities investments. Mr.
Copses is a Director of Dominicks Finer Foods, Inc., Family Restaurants, Inc.,
Forum Group, Inc. and Zale Corporation.

Patrick L. Graham has been a Director since June 1995. He joined The
Yucaipa Companies as a general partner in January 1993. Prior to that time, he
was a Managing Director in the Corporate Finance Department of Libra
Investments, Inc. from 1992 to 1993 and Paine Webber, Inc. from 1990 to 1992.
From 1982 to 1990, he was a Managing Director of the Corporate Finance
Department of Drexel Burnham Lambert, Inc. and an Associate Director of the
Corporate Finance Department of Bear Stearns & Co., Inc. Mr. Graham served as a

59
<PAGE> 61

Director of Smitty's Supermarkets, Inc. from June 1994 until May 1996 and of
Dominick's Finer Foods, Inc. since March 1995.

Lawrence K. Kalantari has been a director since March 1997. He has been a
general partner of The Yucaipa Companies since joining the firm in December
1995. Prior to that time, he was a Managing Director for Bankers Trust during
1995. Previously he was employed by CS First Boston Corporation from July 1993
to May 1995 and PaineWebber, Inc. from March 1990 to June 1993.

John Kissick has been a Director since June 1995. He is a principal of
Apollo Advisors, L.P. which, together with an affiliate, acts as managing
general partner of Apollo Investment Fund, L.P., AIF II, L.P. and Apollo
Investment Fund III, L.P., private securities investment funds, and of Lion
Advisors, L.P., which acts as financial advisor to and representative for
certain institutional investors with respect to securities investments. From
1990 to 1991, Mr. Kissick was a consultant with Kissick & Associates, a private
investment advisory firm. He serves as Director of Continental Graphics
Holdings, Inc., Converse, Inc., The Florsheim Shoe Company, Inc. and Furniture
Brands International, Inc.

The Company does not currently pay any fees or remuneration to its
directors for service on the board or any board committee, but will reimburse
directors for their ordinary out-of-pocket expenses.

Messrs. R. Burkle, Golleher, J. Burkle, Bernstein, Beyer, Copses, Graham,
Kalantari and Kissick are directors of Holdings.

60
<PAGE> 62

EXECUTIVE COMPENSATION

The following table sets forth information concerning the compensation of
the Chief Executive Officer, the four other most highly compensated executive
officers and one additional highly compensated former executive officer of the
Company (the "Named Executive Officers"), whose total salary and bonus for the
53 weeks ended February 2, 1997 exceeded $100,000 for services rendered in all
capacities to the Company and its subsidiaries for the same time period.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------------------------------------------------------------------
TRANSITION NO. OF SHARES
PERIOD/FISCAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR ENDED SALARY(7) BONUS(7) OPTIONS COMPENSATION(10)
- ------------------------------ ---------------- ---------- ---------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Byron E. Allumbaugh(1) February 2, 1997 $1,155,449 $ -- -- $ 1,500
Chairman January 28, 1996 $ 883,333 $ 547,692 820,227(9) $ 1,848
January 29, 1995(6) $ -- $ -- -- $ --
June 25, 1994 $ -- $ -- -- $ --
George G. Golleher(2) February 2, 1997 $ 770,833 $ -- 100,000(9) $ 1,500
Chief Executive Officer January 28, 1996 $ 503,205 $1,950,000(8) 200,000(9) $ 1,783
January 29, 1995(6) $ 298,100 $ 300,000 -- $ 3,329
June 25, 1994 $ 500,000 $ 500,000 -- $ 3,937
Alfred A. Marasca(3) February 2, 1997 $ 600,000 $ -- -- $ 1,500
President and January 28, 1996 $ 466,667 $ 333,846 300,000(9) $ 3,000
Chief Operating Officer January 29, 1995(6) $ -- $ -- -- $ --
June 25, 1994 $ -- $ -- -- $ --
Greg Mays(4) February 2, 1997 $ 314,583 $ -- -- $ 1,500
Executive Vice President -- January 28, 1996 $ 286,378 $ 355,000(8) 60,000 $ 1,783
Finance/Administration and January 29, 1995(6) $ 154,300 $ 85,000 -- $ 2,687
Chief Financial Officer June 25, 1994 $ 250,000 $ 150,000 -- $ --
Harley DeLano February 2, 1997 $ 215,000 48,887 30,000 $ 1,500
President, Cala Foods January 28, 1996 $ 211,218 $ 150,000 -- $ 1,783
January 29, 1995(6) $ 115,385 $ 50,000 -- $ 2,247
June 25, 1994 $ 197,404 $ 40,000 -- $ 3,329
Tony Schnug(5) February 2, 1997 $ 247,500 $ -- -- $ 1,500
Group Senior Vice January 28, 1996 $ 206,282 $ 201,000 35,000 $ 1,783
President-Support January 29, 1995 $ 210,385 $ 100,000 -- $ 2,247
Operating June 25, 1994 $ 190,000 $ 40,000 -- $ 3,145
</TABLE>

- ---------------

(1) In January 1996, Byron E. Allumbaugh became Chairman. Mr. Allumbaugh retired
as Chairman in January 1997.

(2) In January 1996, George G. Golleher became Chief Executive Officer.

(3) In June 1995, Alfred A. Marasca became President and Chief Operating
Officer.

(4) In September 1995, Greg Mays became Executive Vice President - Finance &
Administration and Chief Financial Officer.

(5) In January 1996, Tony Schnug became Group Senior Vice President-Support
Operations.

(6) Food 4 Less changed its fiscal year from the 52 or 53-week period which ends
on the last Saturday in June to the 52 to 53-week period which ends on the
Sunday closest to January 31, resulting in a 31-week transition period.

(7) Salary and bonus payments are reflected in the period they are paid.

(8) Includes payment of a special bonus upon change of control, in connection
with the Merger, for George Golleher and Greg Mays in the amount of
$1,750,000 and $150,000, respectively.

(9) All options shown were granted in connection with the Merger. Of such
options, 220,227 and 100,000 were granted to Messrs. Allumbaugh and Marasca,
respectively, in exchange for the cancellation of certain payments to such
individuals under RGC equity appreciation rights.

(10) The amounts shown in this column represent annual payments by the Company
to the Employee Profit Sharing and Retirement Program of the Company.

61
<PAGE> 63

The following table sets forth information concerning options granted in
fiscal 1996 to each of the Named Executive Officers pursuant to Holdings' 1995
Stock Option Plan. All options are exercisable for shares of Holdings' Common
Stock.

OPTION GRANTS IN FISCAL 1996

<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
AT ASSUMED
ANNUAL RATES
INDIVIDUAL GRANTS OF STOCK PRICE
------------------------------------------------------------ APPRECIATION
NO. OF % OF TOTAL OPTIONS EXERCISE OR FOR OPTION TERM
OPTIONS GRANTED TO EMPLOYEES BASE PRICE EXPIRATION -------------------
GRANTED(1) IN FISCAL YEAR ($/SH) DATE 5% ($) 10%($)
---------- -------------------- ----------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Byron E. Allumbaugh........ -- -- -- -- -- --
George G. Golleher......... 100,000 13.7% 10.00 4/29/06 628,895 1,593,742
Alfred A. Marasca.......... -- -- -- -- -- --
Greg Mays.................. 60,000 8.2% 10.00 4/29/06 377,337 956,245
Harley DeLano.............. 30,000 4.1% 10.00 4/29/06 188,688 478,123
Tony Schnug................ 35,000 4.8% 10.00 4/29/06 220,113 557,810
</TABLE>

- ---------------

(1) Mr. Golleher's options are immediately exercisable. Options held by Messrs.
Mays, Delano and Schnug vest over a five-year period commencing June 14,
1996.

The following tables sets forth for each of the Named Executive Officers,
as to outstanding options at February 2, 1997, the number of unexercised options
and the aggregate unrealized appreciation on "in-the-money" unexercised options
held at such date. No options were exercised by any of the Named Executive
Officers during fiscal 1996.

1996 FISCAL YEAR END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FISCAL YEAR END FISCAL YEAR END
NAME EXERCISABLE/UNEXERCISABLE (#) EXERCISABLE/UNEXERCISABLE ($)
- --------------------------------------------- ----------------------------- -----------------------------
<S> <C> <C>
Byron E. Allumbaugh.......................... 820,227/0 2,198,208/0
George G. Golleher........................... 300,000/0 0/0
Alfred A. Marasca............................ 300,000/0 999,000/0
Greg Mays.................................... 12,000/48,000 0/0
Harley DeLano................................ 6,000/24,000 0/0
Tony Schnug.................................. 7,000/28,000 0/0
</TABLE>

CONSULTING AND EMPLOYMENT AGREEMENTS

In connection with the consummation of the Merger, Food 4 Less' board of
directors authorized the payment of a special bonus of $1,750,000 to George
Golleher in a lump sum amount equal to the base salary due him under the
remaining term of his then existing employment agreement. As a condition of the
payment of such bonus, Mr. Golleher's existing employment agreement was
cancelled, and he entered into a new agreement which provides for an annual
salary currently equal to $1,000,000 plus a bonus equal to his salary in each
year if the Earnings Targets are reached. Mr. Golleher's new employment
agreement continues in effect certain additional rights, including the right to
be elected to the Company's board of directors and the right to require the
Company to repurchase certain of his shares of New Holdings stock upon his
death, disability or termination without cause.

62
<PAGE> 64

The employment agreement between the Company and Alfred Marasca provides
for a salary currently equal to $600,000 per annum and an annual bonus equal to
his salary if the Earnings Targets for the year are reached.

The employment agreement between the Company and Greg Mays provides for a
salary currently equal to $375,000 per annum and an annual bonus equal to his
salary if the Earnings Targets for the year are reached. Mr. Mays also received
a special bonus of $150,000 in fiscal 1995 upon the change of control in
connection with the Merger.

The employment agreements described above are for a term of three years and
provide generally that the Company may terminate the agreement for cause or upon
the failure of the employee to render services to the Company for a specified
period and the employee may terminate the agreement because of the employee's
disability. In addition, the employee's services may be suspended upon notice by
the Company and in such event the employee will continue to be compensated by
the Company during the remainder of the term of the agreement, subject to
certain offsets if the employee becomes engaged in another business.

The Company's consulting agreement with Mr. Joe Burkle provides for
compensation of $3,000 per week. Mr. Burkle provides the management and
consulting services of an executive vice president under the consulting
agreement. The agreement has a five-year term, which is automatically renewed on
January 1 of each year for a five-year term unless sixty days' notice is given
by either party; provided that if the Company terminates for reasons other than
for good cause, the payments due under the agreement continue for the balance of
the term.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Company does not have a board committee performing the functions of a
compensation committee. Byron E. Allumbaugh, Chairman, and George G. Golleher,
Chief Executive Officer of the Company, together with Alfred Marasca, President,
and Greg Mays, Executive Vice President, made decisions with regard to the
Company's executive officer compensation for fiscal 1996.

RETIREMENT PLANS

Retirement Plan. The Ralphs Grocery Company Retirement Plan (the
"Retirement Plan") is a defined benefit pension plan for salaried and hourly
nonunion employees with at least one year of credited service (1,000 hours). The
Company makes annual contributions to the Retirement Plan in such amounts as are
actuarially required to fund the benefits payable to participants in accordance
with the Employee Retirement Income Security Act of 1974, as amended ("ERISA").

Non-Qualified Retirement Plans. To allow the Company's retirement program
to provide benefits based upon a participant's total compensation and without
regard to other ERISA or tax code pension plan limitations, eligible executive
employees of the Company participate in the Ralphs Grocery Company Supplemental
Executive Retirement Plan (the "SERP") and the Ralphs Grocery Company Retirement
Supplement Plan (the "Supplement Plan"). The SERP and the Supplement Plan also
modify the benefit formula under the Retirement Plan in other respects. The
Company has purchased split dollar life insurance policies for participants
under the SERP. Under certain circumstances, the cash surrender value of certain
split dollar life insurance policies will offset the Company's obligations under
the SERP.

63
<PAGE> 65

The following table sets forth the combined estimated annual benefits
payable in the form of a (single) life annuity under the Retirement Plan, the
SERP and the Supplement Plan (unreduced by the cash surrender value of any life
insurance policies) to a participant in the above plans who is retiring at a
normal retirement date on January 1, 1997 for the specified final average
salaries and years of credited service.

<TABLE>
<CAPTION>
FINAL YEARS OF CREDITED SERVICE
AVERAGE ------------------------------------------------------------
SALARY 15 20 25 30 35
- --------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$ 100,000 $ 19,348 $ 25,798 $ 32,347 $ 38,697 $ 45,146
200,000 41,848 55,798 69,747 83,697 97,646
300,000 90,000 120,000 150,000 180,000 180,000
400,000 120,000 160,000 200,000 240,000 240,000
600,000 180,000 240,000 300,000 360,000 360,000
800,000 240,000 320,000 400,000 480,000 480,000
1,000,000 300,000 400,000 500,000 600,000 600,000
1,040,000 and above 312,000 416,000 520,000 624,000 624,000
</TABLE>

Messrs. Allumbaugh, Golleher, Marasca, Mays, Schnug and DeLano have
completed 39, 12, 33, 9, 7 and 12 years of credited service, respectively.
Compensation covered by the Retirement Plan, the SERP and Supplement Plan
includes both salary and bonus. The calculation of retirement benefits generally
is based on average compensation for the highest three years of the ten years
preceding retirement. The benefits earned by a participant under the SERP and
Supplement Plan are reduced by any benefits which the participant has earned
under the Retirement Plan and may be offset under certain circumstances by the
cash surrender value of life insurance policies maintained by the Company
pursuant to the insurance agreements entered into by the Company and the
executive. Benefits are not subject to any deduction for social security offset.

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<PAGE> 66

PRINCIPAL STOCKHOLDERS

The following table sets forth the ownership as of April 18, 1997 of Common
Stock and Series A Preferred Stock and Series B Preferred Stock of Holdings by
each person who, to the knowledge of Holdings, owns 5 percent or more of
Holdings' outstanding voting stock, by each person who is a director or Named
Executive Officer of the Company, and by all executive officers and directors of
the Company as a group.

<TABLE>
<CAPTION>
COMMON SERIES A SERIES B
STOCK(1) PREFERRED STOCK PREFERRED STOCK
---------------- ------------------- ------------------- PERCENTAGE PERCENTAGE
NUMBER NUMBER NUMBER OF TOTAL OF ALL
OF OF OF VOTING OUTSTANDING
BENEFICIAL OWNER(2) SHARES % SHARES % SHARES % POWER(1) STOCK(1)(3)
- ------------------------------------ --------- ---- --------- ---- -------- ----- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Yucaipa and affiliates:
The Yucaipa Companies(4).......... 17,566,389 65.6% -- -- -- -- 38.5% 35.8%
Ronald W. Burkle(5)............... 1,777,390 9.5% -- -- -- -- 4.7% 4.3%
George G. Golleher(5)(6).......... 562,525 2.9% -- -- -- -- 1.5% 1.4%
10000 Santa Monica Blvd.
Los Angeles, CA 90067
---------- ---- ---------- ---- --------- ----- ---- ----
Total....................... 19,906,304 73.5% -- -- -- -- 43.3% 40.3%
Alfred A. Marasca(7)................ 300,000 1.6% -- -- -- -- 0.8% 0.7%
Greg Mays(8)........................ 68,890 0.4% -- -- -- -- 0.2% 0.2%
Harley DeLano(9).................... 30,000 0.2% -- -- -- -- 0.1% 0.1%
Tony Schnug(9)...................... 35,000 0.2% -- -- -- -- 0.1% 0.1%
Apollo Advisors, L.P.
Apollo Advisors II, L.P.(10)
2 Manhattanville Road
Purchase, NY 10577................ 1,285,165 6.8% 10,733,244 64.3% -- -- 35.6% 32.6%
BT Investment Partners, Inc.(11)
130 Liberty Street
New York, NY 10006................ 509,812 2.7% 900,000 5.4% 3,100,000 100.0% 4.1% 12.2%
Other 1995 equity investors as a
group(12)......................... 40,172 0.2% 5,000,000 30.3% -- -- 15.1% 13.8%
All directors and executive officers
as a group (15
persons)(4)(5)(6)(7)(8)(10)(13)... 20,350,194 73.9% -- -- -- -- 43.9% 40.8%
</TABLE>

- ---------------

(1) Gives effect to the assumed exercise of outstanding warrants, held by
certain institutional investors, to acquire 2,008,874 shares of Holdings
common stock.

(2) Except as otherwise indicated, each beneficial owner has the sole power to
vote, as applicable, and to dispose of all shares of Common Stock or Series
A Preferred Stock or Series B Preferred Stock owned by such beneficial
owner.

(3) Assumes the conversion of all outstanding Series A Preferred Stock and
Series B Preferred Stock into Common Stock at the conversion rate
applicable as of March 15, 1997.

(4) Represents shares owned by The Yucaipa Companies, F4L Equity Partners,
L.P., FFL Partners, Yucaipa Capital Fund and Yucaipa/F4L Partners. These
entities are affiliated partnerships which are controlled, directly or
indirectly, by Ronald W. Burkle. The foregoing entities are parties to a
stockholders agreement with other Holdings investors which gives to Yucaipa
the right to elect a majority of the directors of Holdings. Share amount
and percentages shown for Yucaipa include a five-year warrant to purchase
8,000,000 shares of Holdings Common Stock held by Yucaipa. Such warrant
will become exercisable only upon the occurrence of an initial public
offering or certain sale transactions involving Holdings. The exercise
price of the warrant is such that the warrant has no value unless and until
the value of the Company's equity securities is greater than $1.220
billion. See "Description of Capital Stock -- Yucaipa Warrant."

(5) Certain management stockholders who own in the aggregate 431,096 shares of
Common Stock have entered into a Stockholder Voting Agreement and Proxy
pursuant to which Ronald W. Burkle, George G. Golleher and Yucaipa Capital
Advisors, Inc. have sole voting control over the shares currently owned by
such management stockholders until June 14, 2005. The 431,096 shares have
been included, solely for purposes of the above table, in the share amounts
shown for Mr. Burkle but not for Mr. Golleher. Neither Messrs. Burkle and
Golleher nor Yucaipa Capital Advisors, Inc. have the power to dispose of,
or any other form of investment power with respect to such shares. Messrs.
Burkle and Golleher have sole voting and investment power with respect to
1,346,294 and 562,525 shares of Common Stock they respectively own
(including in the case of Mr. Golleher, 300,000 shares issuable upon the
exercise of options).

(6) Includes 300,000 shares issuable upon the exercise of options held by Mr.
Golleher.

(7) Represents shares issuable upon the exercise of options held by Mr.
Marasca.

(8) Includes 60,000 shares issuable upon the exercise of options held by Mr.
Mays. In addition, Mr. Mays owns 8,890 of the 431,096 shares of Common
Stock that are subject to the Stockholder Voting Agreement and Proxy
described in note (4) above.

(9) Represents shares issuable upon the exercise of options held by Messrs.
DeLano and Schnug.

65
<PAGE> 67

(10) Represents shares owned by one or more entities managed by or affiliated
with Apollo Advisors, L.P. or Apollo Advisors II, L.P. (collectively,
"Apollo"), together with certain affiliates or designees of Apollo.

(11) Represents shares owned by BT Investment Partners, Inc. ("BTIP"), Bankers
Trust New York Corporation and BT Securities Corporation. Bankers Trust New
York Corporation and BT Securities Corporation are affiliated with BTIP.
BTIP expressly disclaims beneficial ownership of all shares owned by
Bankers Trust New York Corporation and BT Securities Corporation.

(12) Includes certain institutional investors, other than Apollo and BTIP, which
purchased Series A Preferred Stock of Holdings in connection with the
Merger. Pursuant to the 1995 Stockholders Agreement, certain corporate
actions by Holdings and its subsidiaries require the consent of the
directors whom the 1995 equity investors, including Apollo and BTIP, are
entitled to elect to the Holdings Board of Directors. Such investors do not
affirm the existence of a "group" within the meaning of Rule 13d-5 under
the Exchange Act, and expressly disclaim beneficial ownership of all
Holdings shares except for those shares held of record by each such
investor or its nominees.

(13) Includes 10,000 shares issuable upon the exercise of options held by
executive officers other than the named executive officers above.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The Company is a party to a consulting agreement with Yucaipa which
provides for certain management and financial services to be performed by
Yucaipa for the benefit of the Company and its subsidiaries. The services of
Messrs. R. Burkle, Bernstein, Graham and Kalantari, acting in their capacities
as directors, and the services of other Yucaipa personnel are provided to the
Company pursuant to this agreement. See "Item 10 -- Directors and Executive
Officers of the Registrant." Messrs. R. Burkle, Bernstein, Graham and Kalantari
are partners of Yucaipa. The consulting agreement provides for an annual
management fee payable by the Company to Yucaipa in the amount of $4 million,
plus reimbursement of out-of-pocket expenses. In addition, the Company may
retain Yucaipa in an advisory capacity in connection with acquisition or sale
transactions, in which case the Company will pay Yucaipa an advisory fee, except
that the retention of Yucaipa in connection with a sale of the entire Company
would require approval by a majority of the disinterested directors. The
agreement has a five-year term, which is automatically renewed on each
anniversary of the Merger for a five-year term unless ninety days' notice is
given by either party. The agreement may be terminated at any time by the
Company, provided that Yucaipa will be entitled to full monthly payments under
the agreement for the remaining term thereof, unless the Company terminates for
cause pursuant to the terms of the agreement. Yucaipa may terminate the
agreement if the Company fails to make a payment due thereunder, or if there
occurs a change of control (as defined in the agreement) of the Company, and
upon any such termination Yucaipa will be entitled to full monthly payments for
the remaining term of the agreement. Pursuant to the agreement (and a
predecessor agreement with Food 4 Less), Yucaipa earned a total of $3.6 million
in management fees for fiscal 1995 and $4.0 million for fiscal 1996.

Pursuant to the Yucaipa consulting agreement, upon closing of the RSI
Merger, Yucaipa received an advisory fee from Ralphs in the amount of $21.5
million, which was paid in cash and New Discount Debentures, plus reimbursement
of expenses in connection with the RSI Merger and the related transactions. Upon
closing of the RSI Merger, Yucaipa paid a cash fee of approximately $3.5 million
to Soros Fund Management in consideration for advisory services which Soros Fund
Management has rendered since 1991. Additionally, upon closing of the RSI
Merger, Yucaipa received a warrant to purchase 8,000,000 shares of Holdings
common stock exercisable under certain conditions. In consideration for its
commitment to purchase preferred stock as part of the 1995 Equity Investment,
Apollo received a fee of $5 million from Holdings upon closing of the RSI
Merger, which fee was paid in cash and notes.

In connection with the execution of the definitive Agreement and Plan of
Merger ("the Merger Agreement") between Food 4 Less, Holdings, FFL and RSI,
Yucaipa entered into the Put Agreement with the majority stockholder of RSI,
pursuant to which such RSI stockholder was entitled to put up to $10 million
aggregate principal amount of 13 5/8% Senior Subordinated Pay-in-Kind Debentures
due 2007 (the "Seller Debentures"), issued as part of the consideration for the
RSI Merger, to Yucaipa on the closing date of the Merger. The Yucaipa consulting
agreement provided that the Company reimburse Yucaipa for any loss and expenses
incurred by Yucaipa upon the resale of such Seller Debentures to any
unaffiliated third party. Pursuant to such agreement, the Company reimbursed an
affiliate of Yucaipa the amount of $3.5 million upon the closing of the Merger.

66
<PAGE> 68

Holdings files a consolidated federal income tax return, under which the
federal income tax liability of Holdings and its subsidiaries is determined on a
consolidated basis. Holdings is a party to a federal income tax sharing
agreement with the Company and certain of its subsidiaries (the "Tax Sharing
Agreement"). The Tax Sharing Agreement provides that in any year in which the
Company is included in any consolidated tax liability of Holdings and has
taxable income, the Company will pay to Holdings the amount of the tax liability
that the Company would have had on such due date if it had been filing a
separate return. Conversely, if the Company generates losses or credits which
actually reduce the consolidated tax liability of Holdings and its other
subsidiaries, Holdings will credit to the Company the amount of such reduction
in the consolidated tax liability. These credits are passed between Holdings and
the Company in the form of cash payments. In the event any state and local
income taxes are determinable on a combined or consolidated basis, the Tax
Sharing Agreement provides for a similar allocation between Holdings and the
Company of such state and local taxes.

As part of the financing for the RSI Merger, Holdings issued $100 million
initial accreted value of 13 5/8% Senior Discount Debentures due 2005 (the "New
Discount Debentures"), which was acquired by a partnership comprised of an
affiliate of Yucaipa and certain other investors. The $17.5 million initial
accreted value of New Discount Debentures contributed to the partnership by the
Yucaipa affiliate consists of New Discount Debentures issued in partial payment
of the Yucaipa consulting fee due upon closing of the RSI Merger, as described
above. Holdings granted to the partnership certain registration rights with
respect to the New Discount Debentures, and paid substantially all expenses of
the partnership in connection with the resale of the New Discount Debentures,
including underwriting discounts and brokers' commissions (subject to certain
limitations).

On October 20, 1995, the holder of the New Discount Debentures sold all of
such New Discount Debentures at a price equal to 77 percent of the accreted
value thereof. The sale of the New Discount Debentures was effected by BT
Securities Corporation ("BT Securities" an affiliate of BT Investment Partners,
Inc. ("BTIP")). BT Securities received a fee in the amount of 2 percent ($2.1
million) of the aggregate accreted value of the New Discount Debentures.
Holdings reimbursed the selling holder for such fee and other expenses of the
sale as contemplated by a registration rights agreement executed concurrently
with the consummation of the Merger. BT Securities and its affiliates have
provided investment banking and other financing services to the Company from
time to time and have received customary fees in connection therewith. On June
6, 1996, the Company issued the 1996 10.45% Senior Notes to BT Securities, which
resold the notes pursuant to Rule 144A under the Securities Act. BT Securities
received a fee in the amount of $2.3 million for acting as initial purchaser in
the offering. On March 26, 1997, the Company issued the 1997 11% Senior
Subordinated Notes to BT Securities and certain other investment banks, which
resold the Notes pursuant to Rule 144A under the Securities Act. BT Securities
received a fee of $1.6 million for acting as initial purchaser in the offering.
Bankers Trust Company, an affiliate of BTIP and BT Securities has acted as Agent
under the Credit Facility and receives customary fees for such services.

A contribution of $5 million was made to the partnership that purchased and
subsequently sold the New Discount Debentures, by an affiliate of the Company.
This affiliate borrowed the $5 million from the Company to fund its contribution
to the partnership. Holders of RGC equity appreciation rights ("EARs"),
including Messrs. Allumbaugh, Marasca and Gray, agreed to defer the receipt of
$5 million cash otherwise payable by RGC upon settlement of the EARs at the time
of the Merger, pending repayment of the $5 million loan made by the Company as
described above. When the New Discount Debentures were resold by the
partnership, and the proceeds from such resale distributed to the partners, all
of the approximately $2.1 million in total proceeds received by the affiliate
were applied to repayment of the loan, and the portion of the loan not repaid
was forgiven by the Company and the EAR holders.

FFL Partners, a partnership controlled by Ronald W. Burkle, is obligated,
pursuant to an agreement with Holdings, to repurchase shares of Holding's common
stock from certain terminated participants in an employee benefit plan
maintained by one of the Company's subsidiaries. See "Note 10 of Notes to
Consolidated Financial Statements of Ralphs Grocery Company." From time to time
the Company advances funds to plan participants on behalf of FFL Partners and
records a receivable from FFL Partners for the amount advanced. At February 2,
1997 the outstanding receivable from FFL Partners was approximately $271,000.

67
<PAGE> 69

Management believes that the terms of the transactions described above are
or were fair to the Company and are or were on terms at least as favorable to
the Company as those which could be obtained from unaffiliated parties (assuming
that such transactions could be effected with such parties).

DESCRIPTION OF CAPITAL STOCK

Following is a description of the authorized and outstanding capital stock
of the Company and Holdings, including the terms of the 1995 Equity Investment
to which was made in Holdings in connection with the Merger.

THE COMPANY

The authorized capital stock of the Company consists of 1,600,000 shares of
Common Stock, $.01 par value per share, of which 1,513,938 shares are
outstanding. All of such outstanding shares are owned by Holdings. There is no
public trading market for the Common Stock of the Company. The indentures that
govern outstanding debt securities of the Company contain certain restrictions
on the payment of cash dividends with respect to the Company's Common Stock. In
addition, the Credit Facility also restricts such payments. Subject to the
limitations contained in the Credit Facility and such indentures, holders of
Common Stock of the Company are entitled to dividends when and as declared by
the Board of Directors from funds legally available therefor, and upon
liquidation, are entitled to share ratably in any distribution to holders of
Common Stock. All holders of Common Stock are entitled to one vote per share on
any matter coming before the stockholders for a vote.

HOLDINGS

The authorized capital stock of Holdings consists of 60,000,000 shares of
Common Stock, $.01 par value, 25,000,000 shares of Non-Voting Common Stock, $.01
par value, 25,000,000 shares of Series A Preferred Stock, $.01 par value, and
25,000,000 shares of Series B Preferred Stock, $.01 par value. Of such
authorized shares, (i) 16,976,585 shares of Common Stock, 16,683,244 shares of
Series A Preferred Stock and 3,100,000 shares of Series B Preferred Stock are
outstanding and held by approximately 100 holders of record, (ii) 2,008,874
shares of Common Stock are reserved for issuance upon the exercise of
outstanding warrants held by institutional investors, (iii) 3,000,000 shares of
Common Stock are reserved for issuance upon the exercise of employee stock
options and (iv) 421,236 shares of Common Stock are held in treasury. An
additional 8,000,000 shares of Common Stock are reserved for issuance upon the
exercise of a warrant issued to Yucaipa upon closing of the Merger. See
"-- Yucaipa Warrant" below.

There is no public trading market for the capital stock of Holdings.
Holdings does not expect in the foreseeable future to pay any dividends on its
capital stock. Holders of Common Stock of Holdings are entitled to dividends
when and as declared by the Board of Directors of Holdings from funds legally
available therefor, and upon liquidation, are entitled to share ratably in any
distribution to holders of Common Stock. All holders of Holdings Common Stock
are entitled to one vote per share on any matter coming before the stockholders
for a vote.

Upon issuance, the Series A Preferred Stock initially had an aggregate
liquidation preference of $166,832,440, or $10 per share, which accretes as
described below. The holders of the Series A Preferred Stock vote (on an
as-converted basis) together with the Common Stock as a single class on all
matters submitted for stockholder vote. Each share of Series A Preferred Stock
initially is convertible at the option of the holder thereof into a number of
shares of Holdings Common Stock equal to the liquidation preference of such
share of Series A Preferred Stock divided by $10. Upon consummation of an
initial public offering of Holdings equity securities which meets certain
criteria, the shares of Series A Preferred Stock will automatically convert into
shares of Common Stock of Holdings at the same rate as applicable to an optional
conversion.

Upon issuance, the Series B Preferred Stock initially had an aggregate
liquidation preference of $31,000,000, or $10 per share, which accretes as
described below. The holders of Series B Preferred Stock

68
<PAGE> 70

generally are not entitled to vote on any matters, except as required by the
Delaware General Corporation Law. Upon the occurrence of a change of control,
each share of Series B Preferred Stock initially will be convertible at the
option of the holder thereof into a number of shares of Holdings Common Stock or
Non-Voting Common Stock equal to the liquidation preference of such share of
Series B Preferred Stock divided by $10. Upon consummation of an initial public
offering of Holdings equity securities which meets certain criteria, shares of
Series B Preferred Stock will automatically convert into shares of Non-Voting
Common Stock of Holdings at the same rate as applicable to an optional
conversion.

The liquidation preference of the Series A Preferred Stock and the Series B
Preferred Stock initially accretes daily at the rate of 7% per annum, compounded
quarterly, until the later of the fifth anniversary of the date of issuance or
the date the Company first reports EBITDA (as defined) of at least $500 million
for any twelve-month period. Thereafter, the liquidation preference will remain
constant. The accretion rate of the liquidation preference will increase (a) by
2% per annum if the Company fails to report EBITDA of at least $400 million for
the four fiscal quarters ending closest to the third anniversary of the date of
issuance (or for the rolling four-quarter period ending on any of the three
subsequent quarter-ends), (b) by 2% per annum if the Company fails to report
EBITDA of at least $425 million for the four fiscal quarters ending closest to
the fourth anniversary of the date of issuance (or for the rolling four-quarter
period ending on any of the three subsequent quarter-ends) or (c) by 2% per
annum if the Company fails to report EBITDA of at least $450 million for the
four fiscal quarters ending closest to the fifth anniversary of the date of
issuance, in each case, such increase to take effect on the first day after the
last day of the fiscal quarter with respect to which such failure occurred;
provided that the accretion rate of the liquidation preference will not at any
time exceed 13% per annum. The accretion of the liquidation preference will
result in a proportional increase in the number of shares of common stock
issuable upon conversion of the Series A Preferred Stock and the Series B
Preferred Stock.

Shares of Series A Preferred Stock or Series B Preferred Stock may be
converted (subject to certain conditions) at the option of the holder into
shares of the other series. The holders of Series A Preferred Stock and Series B
Preferred Stock have no rights to any fixed dividends in respect thereof.
Subject to certain exceptions, Holdings is prohibited from declaring dividends
with respect to, or redeem, purchase or otherwise acquire, shares of its capital
stock without the consent of holders of a majority of the Series A Preferred
Stock. If dividends are declared on the Series A Preferred Stock or the Series B
Preferred Stock which are payable in voting securities of Holdings, Holdings
will make available to each holder of Series A Preferred Stock and Series B
Preferred Stock, at such holder's request, dividends consisting of non-voting
securities of Holdings which are otherwise identical to the voting securities
and which are convertible into or exchangeable for such voting securities upon a
change of control.

1995 STOCKHOLDERS AGREEMENT

Under the terms of the 1995 Stockholders Agreement (which was entered into
by Holdings, Yucaipa and its affiliates, the 1995 Equity Investors and other
stockholders), the 1995 Equity Investors holding Series A Preferred Stock are
entitled to nominate three directors to the Board of Directors of each of
Holdings and the Company (the "Series A Directors"), of which two directors are
nominees of Apollo and one director is a nominee of the other 1995 Equity
Investors holding Series A Preferred Stock. The 1995 Stockholders Agreement
gives to Yucaipa the right to nominate six directors of Holdings and seven
directors of the Company, and the boards of Holdings and the Company consist of
a total of nine and ten directors, respectively. The numbers of directors which
may be nominated by the foregoing stockholders will be reduced if such
stockholders cease to own certain specified percentages of their initial
holdings. Unless and until Holdings has effected an initial public offering of
its equity securities meeting certain criteria, Holdings and its subsidiaries
may not take certain actions without the approval of the Series A Directors,
including but not limited to certain mergers, sale transactions, transactions
with affiliates, issuances of capital stock and payments of dividends on or
repurchases of capital stock. In addition, under the 1995 Registration Rights
Agreement the 1995 Equity Investors have certain "demand" and "piggyback"
registration rights with respect to their Series A Preferred Stock and Series B
Preferred Stock, as well as the right under the 1995 Stockholders Agreement to
participate, on a pro rata basis, in sales by Yucaipa of the Holdings stock it
holds.

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<PAGE> 71

In certain circumstances, Yucaipa will have the right to compel the
participation of the 1995 Equity Investors and other stockholders in sales of
all the outstanding shares of Holdings stock.

YUCAIPA WARRANT

Upon closing of the Merger, Holdings issued to Yucaipa a warrant to
purchase up to 8,000,000 shares of Holdings Common Stock. The initial exercise
price of such warrant is such that the warrant has no value unless and until the
value of the shares representing Holdings' equity on the Closing Date is greater
than $1.220 billion. Such warrant will be exercisable on a cashless basis at the
election of Yucaipa in the event Holdings completes an initial public offering
of equity securities meeting certain criteria, or in connection with certain
sale transactions involving Holdings, in either case effected on or prior to the
fifth anniversary of the Merger. The expiration date of such warrant, and the
deadline for such triggering transactions, may be extended from the fifth to the
seventh anniversary of the Merger if Holdings meets certain financial
performance goals prior to such fifth anniversary. The cashless exercise
provisions of such warrant allow the holder to exercise it without the payment
of cash consideration, provided that Holdings will withhold from the shares
otherwise issuable upon such exercise a number of shares having a fair market
value as of the exercise date equal to the exercise price.

DESCRIPTION OF THE NOTES

GENERAL

The Notes were issued under an indenture (the "Indenture"), dated March 26,
1997, by and among the Company, the Subsidiary Guarantors and United States
Trust Company of New York, as Trustee (the "Trustee").

The following summary of certain provisions of the Notes and the Indenture
does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, the Trust Indenture Act of 1939, as amended (the
"TIA"), and to all of the provisions of the Notes and the Indenture, including
the definitions of certain terms therein and those terms made a part of the
Indenture by reference to the TIA. The definitions of certain capitalized terms
used in the following summary are set forth below under "-- Certain
Definitions." Capitalized terms not defined herein shall have the meanings set
forth in the Indenture. A copy of the forms of the Indenture may be obtained
from the Company.

The Notes will be issued in fully registered form only, without coupons, in
denominations of $1,000 and integral multiples thereof. Initially, the Trustee
will act as Paying Agent and Registrar for the Notes. The Notes may be presented
for registration or transfer and exchange at the offices of their respective
Registrar, which for the Notes initially will be the Trustee's corporate trust
office. The Company may change any Paying Agent and Registrar without notice to
holders of the Notes (the "Holders"). The Company will pay principal (and
premium, if any) on the Notes at the Trustee's corporate office located in New
York, New York. At the Company's option, interest may be paid at the Trustee's
corporate trust office or by check mailed to the registered address of the
relevant Holders.

As used below in this "Description of the Notes," the "Company" means
Ralphs Grocery Company, but not any of its subsidiaries.

PRINCIPAL AND MATURITY OF AND INTEREST ON THE NOTES

The Notes are limited in aggregate principal amount to $155,000,000. The
Notes will mature on June 15, 2005. Interest on the Notes will accrue at the
rate of 11% per annum and will be payable semi-annually on each June 15 and
December 15, commencing on June 15, 1997, to the Holders of record on the
immediately preceding June 1 and December 1, provided that with respect to the
interest payment on June 15, 1997, the record date shall be the date of original
issuance. Interest on the Notes will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from the date of
original issuance. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months.

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<PAGE> 72

OPTIONAL REDEMPTION OF THE NOTES

The Notes will be redeemable, at the option of the Company, in whole at any
time or in part from time to time, on and after June 15, 2000, at the following
redemption prices (expressed as percentages of the principal amount) if redeemed
during the twelve-month period commencing on June 15 of the year set forth
below, plus, in each case, accrued and unpaid interest to the date of
redemption:

<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
------------------------------------------ ----------
<S> <C>
2000...................................... 105.500%
2001...................................... 103.667%
2002...................................... 101.833%
2003 and thereafter....................... 100.000%
</TABLE>

In addition, on or prior to June 15, 1998, the Company may, at its option,
use the net cash proceeds of one or more Public Equity Offerings to redeem up to
an aggregate of 35% of the principal amount of the Notes originally issued, at a
redemption price equal to 109.429% if redeemed during the 12 months commencing
on June 15, 1996 and 107.857% of the principal amount thereof if redeemed during
the 12 months commencing on June 15, 1997, in each case plus accrued and unpaid
interest, if any, to the redemption date. In order to effect the foregoing
redemption with the proceeds of a Public Equity Offering, the Company shall send
the redemption notice not later than 60 days after the consummation of such
Public Equity Offering.

NOTICES AND SELECTION

In the event of a redemption of less than all of the Notes, Notes will be
selected for redemption by the Trustee pro rata, by lot or by any other method
that such Trustee considers fair and appropriate and, if such Notes are listed
on any securities exchange, by a method that complies with the requirements of
such exchange; provided, however, that any redemption of the Notes pursuant to
the provisions relating to a Public Equity Offering shall be made on a pro rata
basis unless such method is otherwise legally prohibited. Notice of redemption
will be mailed at least 30 days but not more than 60 days before the redemption
date to each Holder of Notes to be redeemed at such Holder's registered address.
On and after the redemption date, interest will cease to accrue on Notes or
portions thereof called for redemption (unless the Company shall default in the
payment of the redemption price or accrued interest). Notes that are redeemed by
the Company or that are purchased by the Company pursuant to a Net Proceeds
Offer as described under "-- Certain Covenants -- Limitation on Asset Sales"
below or pursuant to a Change of Control Offer as described under "-- Change of
Control" below or that are otherwise acquired by the Company will be surrendered
to the Trustee for cancellation.

SUBORDINATION OF THE NOTES

The payment of the Obligations on the Notes will be subordinated in right
of payment, as set forth in the Indenture, to the prior payment in full in cash
or Cash Equivalents of all Senior Indebtedness, whether outstanding on the Issue
Date or thereafter incurred, including, with respect to Designated Senior
Indebtedness, any interest accruing subsequent to a bankruptcy or other similar
proceeding whether or not such interest is an allowed claim enforceable against
the Company in a bankruptcy case under Title 11 of the United States Code.

Upon any distribution of assets of the Company of any kind or character,
whether in cash, property or securities upon any dissolution, winding up, total
or partial liquidation or reorganization of the Company (including, without
limitation, in bankruptcy, insolvency, or receivership proceedings or upon any
assignment for the benefit of creditors or any other marshalling of the
Company's assets and liabilities), the holders of Senior Indebtedness shall
first be entitled to receive payment in full in cash or Cash Equivalents of all
amounts payable under Senior Indebtedness (including, with respect to Designated
Senior Indebtedness, any interest accruing after the commencement of any such
proceeding at the rate specified in the applicable Designated Senior
Indebtedness whether or not such interest is an allowed claim enforceable
against the Company in any such proceeding) before the Holders of Notes will be
entitled to receive any payment with

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respect to the Notes (excluding Permitted Subordinated Reorganization
Securities), and until all Obligations with respect to Senior Indebtedness are
paid in full in cash or Cash Equivalents, any distribution to which the Holders
of Notes would be entitled (excluding Permitted Subordinated Reorganization
Securities) shall be made to the holders of Senior Indebtedness.

No direct or indirect payment (other than payments previously made pursuant
to the provisions described under "-- Defeasance of Indenture" below) by or on
behalf of the Company of Obligations on the Notes whether pursuant to the terms
of the Notes or upon acceleration or otherwise shall be made if, at the time of
such payment, there exists a default in the payment of all or any portion of
principal of, premium, if any, or interest on any Designated Senior Indebtedness
or any other Senior Indebtedness which, at the time of determination, is equal
to or greater than $50 million in aggregate principal amount ("Significant
Senior Indebtedness") (and the Note Trustee has received written notice
thereof), and such default shall not have been cured or waived by or on behalf
of the holders of such Designated Senior Indebtedness or Significant Senior
Indebtedness, as the case may be, or shall have ceased to exist, until such
default shall have been cured or waived or shall have ceased to exist or such
Designated Senior Indebtedness or Significant Senior Indebtedness, as the case
may be, shall have been discharged or paid in full in cash or Cash Equivalents,
after which the Company shall resume making any and all required payments in
respect of the Notes, including any missed payments.

In addition, during the continuance of any other event of default with
respect to any Designated Senior Indebtedness pursuant to which the maturity
thereof may be accelerated, upon the earliest to occur of (a) receipt by the
Note Trustee of written notice from the holders of a majority of the outstanding
principal amount of the Designated Senior Indebtedness or their representative,
or (b) if such event of default results from the acceleration of the Notes, the
date of such acceleration, no such payment (other than payments previously made
pursuant to the provisions described under "-- Defeasance of Indenture" below)
may be made by the Company upon or in respect of the Notes for a period
("Payment Blockage Period") commencing on the earlier of the date of receipt of
such notice or the date of such acceleration and ending 179 days thereafter
(unless (x) such Payment Blockage Period shall be terminated by written notice
to the Note Trustee from the holders of a majority of the outstanding principal
amount of such Designated Senior Indebtedness or their representative who
delivered such notice or (y) such default is cured or waived, or ceases to exist
or such Designated Senior Indebtedness is discharged or paid in full in cash or
Cash Equivalents), after which the Company shall resume making any and all
required payments in respect of the Notes, including any missed payments.
Notwithstanding anything herein to the contrary, in no event will a Payment
Blockage Period extend beyond 179 days from the date on which such Payment
Blockage Period was commenced. Not more than one Payment Blockage Period may be
commenced with respect to the Notes during any period of 365 consecutive days.
No event of default which existed or was continuing on the date of the
commencement of any Payment Blockage Period with respect to the Designated
Senior Indebtedness initiating such Payment Blockage Period shall be, or be
made, the basis for the commencement of a second Payment Blockage Period by the
holders of such Designated Senior Indebtedness or their representative whether
or not within a period of 365 consecutive days unless such event of default
shall have been cured or waived for a period of not less than 90 consecutive
days.

If the Company fails to make any payment on the Notes when due or within
any applicable grace period, whether or not on account of the payment blockage
provision referred to above, such failure would constitute an Event of Default
under the Note Indenture and would enable the Holders of Notes to accelerate the
maturity thereof. See "-- Events of Default."

By reason of such subordination, in the event of the insolvency of the
Company, Holders of the Notes, may recover less, ratably, than holders of Senior
Indebtedness.

As of April 27, 1997, the aggregate amount of Senior Indebtedness
outstanding was $1,436.8 million (not including obligations with respect to
letters of credit issued under the Revolving Facility, of which $89.1 million
were outstanding as of April 27, 1997), the aggregate outstanding amount of
guarantor Senior Indebtedness of the Subsidiary Guarantors (excluding guarantees
by Subsidiary Guarantors of certain Senior

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Indebtedness of the Company) was $9.0 million, and the Company had $124.4
million available to be borrowed under the Revolving Facility.

GUARANTEES

Each Subsidiary Guarantor will unconditionally guarantee, jointly and
severally, the Company's obligations under the Notes on a senior subordinated
unsecured basis (the "Guarantees"). The Indebtedness represented by the
Guarantee will be subordinated on the same basis to Guarantor Senior
Indebtedness as the Notes are subordinated to Senior Indebtedness. See
"-- Subordination of the Notes".

Upon (i) the release by the lenders under the Term Loans, related documents
and future refinancings thereof of all guarantees of a Subsidiary Guarantor and
all Liens on the property and assets of such Subsidiary Guarantor relating to
such Indebtedness, or (ii) the sale or disposition (whether by merger, stock
purchase, asset sale or otherwise) of a Subsidiary Guarantor (or substantially
all of its assets) to an entity which is not a subsidiary of the Company, which
is otherwise in compliance with the Indenture, such Subsidiary Guarantor shall
be deemed released from all its obligations under its Guarantee; provided,
however, that any such termination shall occur only to the extent that all
obligations of such Subsidiary Guarantor under all of its guarantees of, and
under all of its pledges of assets or other security interests which secure,
such Indebtedness of the Company shall also terminate upon such release, sale or
transfer.

Each Subsidiary Guarantor may consolidate with or merge into or sell its
assets to the Company or another Subsidiary Guarantor without limitation. The
Indenture will further provide that a Subsidiary Guarantor may consolidate with
or merge into or sell its assets to a corporation other than the Company or
another Subsidiary Guarantor (whether or not affiliated with the Subsidiary
Guarantor, but subject to the provisions described in the immediately preceding
paragraph), provided that (a) if the surviving corporation is not the Subsidiary
Guarantor, the surviving corporation agrees to assume such Subsidiary
Guarantor's obligations under its Guarantee, and all its obligations under the
Indenture and (b) such transaction does not (i) violate any covenants set forth
in the Indenture or (ii) result in a Default or Event of Default under the
Indenture immediately thereafter that is continuing.

The obligations of each Subsidiary Guarantor under its Guarantee are
limited to the maximum amount as will, after giving effect to all other
contingent and fixed liabilities of such Subsidiary Guarantor (other than
liabilities of such Subsidiary Guarantor under Indebtedness which constitutes
Subordinated Indebtedness with respect to its Guarantee) and after giving effect
to any collections from or payments made by or on behalf of any other Subsidiary
Guarantor in respect of the obligations of such other Subsidiary Guarantor under
its Guarantee, or pursuant to its contribution obligations under the Indenture,
result in the obligations of such Subsidiary Guarantor under such Guarantee not
constituting a fraudulent conveyance or fraudulent transfer under federal or
state law. Each Subsidiary Guarantor that makes a payment or distribution under
a Guarantee shall be entitled to a contribution from each other Subsidiary
Guarantor in a pro rata amount based on the Adjusted Net Assets of each
Subsidiary Guarantor.

CHANGE OF CONTROL

The Indenture provides that, upon the occurrence of a Change of Control,
each Holder of Notes issued thereunder will have the right to require the
repurchase of such Holder's Notes pursuant to the offer described below (the
"Change of Control Offer"), at a purchase price equal to 101% of the principal
amount thereof plus accrued and unpaid interest to the date of repurchase.

The Indenture provides that within 30 days following the date upon which
the Change of Control occurred, the Company must send, by first class mail, a
notice to each Holder of Notes, with a copy to the Trustee, which notice shall
govern the terms of the Change of Control Offer. The Indenture requires that
notice of an event giving rise to a Change of Control shall be given on the same
date and in the same manner to all Holders. Such notice shall state, among other
things, the purchase date, which must be no earlier than 30 days nor later than
40 days from the date such notice is mailed, other than as may be required by
law (the "Change of Control Payment Date"). Holders electing to have a Note
purchased pursuant to a Change of Control Offer will be required to surrender
the Note, with the form entitled "Option of Holder to Elect

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Purchase" on the reverse of the Note completed, to the Paying Agent at the
address specified in the notice prior to the close of business on the Business
Day prior to the Change of Control Payment Date. The Change of Control Offer is
required to remain open for at least 20 Business Days or such longer period as
may be required by law.

The Company must comply with Rule 14e-1 under the Exchange Act and any
other applicable provisions of the federal securities laws in connection with a
Change of Control Offer.

CERTAIN COVENANTS

Except as otherwise specified below, the Indenture contains, among other
things, the following covenants:

Limitation on Restricted Payments. The Indenture provides that the Company
shall not, and shall cause each of its Subsidiaries not to, directly or
indirectly, make any Restricted Payment if, at the time of such proposed
Restricted Payment, or after giving effect thereto, (a) a Default or an Event of
Default shall have occurred and be continuing, (b) the Company could not incur
$1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to
the covenant described under "-- Limitation on Incurrences of Additional
Indebtedness" below or (c) the aggregate amount expended for all Restricted
Payments, including such proposed Restricted Payment (the amount of any
Restricted Payment, if other than cash, to be the fair market value thereof at
the date of payment as determined in good faith by the Board of Directors of the
Company), subsequent to June 14, 1995, shall exceed the sum of (i) 50% of the
aggregate Consolidated Net Income (or if such aggregate Consolidated Net Income
is a loss, minus 100% of such loss) of the Company earned subsequent to June 14,
1995 and on or prior to the date of the proposed Restricted Payment (the
"Reference Date") plus (ii) 100% of the aggregate Net Proceeds received by the
Company from any person (other than a Subsidiary of the Company) from the
issuance and sale (including upon exchange or conversion for other securities of
the Company) subsequent to June 14, 1995 and on or prior to the Reference Date
of Qualified Capital Stock (excluding (A) Qualified Capital Stock paid as a
dividend on any Capital Stock or as interest on any Indebtedness and (B) any Net
Proceeds from issuances and sales financed directly or indirectly using funds
borrowed from the Company or any Subsidiary, until and to the extent such
borrowing is repaid), plus (iii) 100% of the aggregate net cash proceeds
received by the Company as capital contributions to the Company after June 14,
1995, plus (iv) $25 million.

The Indenture provides that if no Default or Event of Default shall have
occurred and be continuing as a consequence thereof, the provisions set forth in
the immediately preceding paragraph will not prevent (1) the payment of any
dividend within 60 days after the date of its declaration if the dividend would
have been permitted on the date of declaration, (2) the acquisition of any
shares of Capital Stock of the Company or the repurchase, redemption or other
repayment of any Subordinated Indebtedness in exchange for or solely out of the
proceeds of the substantially concurrent sale (other than to a Subsidiary) of
shares of Qualified Capital Stock of the Company, (3) the repurchase, redemption
or other repayment of any Subordinated Indebtedness in exchange for or solely
out of the proceeds of the substantially concurrent sale (other than to a
Subsidiary) of Subordinated Indebtedness of the Company with an Average Life
equal to or greater than the then remaining Average Life of the Subordinated
Indebtedness repurchased, redeemed or repaid and (4) Permitted Payments;
provided, however, that the declaration of each dividend paid in accordance with
clause (1) above, each acquisition, repurchase, redemption or other repayment
made in accordance with, or of the type set forth in, clause (2) above, and each
payment described in clause (iii), (iv), (vi) and (vii) of the definition of the
term "Permitted Payments" shall each be counted for purposes of computing
amounts expended pursuant to subclause (c) in the immediately preceding
paragraph, and no amounts expended pursuant to clause (3) above or pursuant to
clause (i), (ii), (v), and (viii) of the definition of the term "Permitted
Payments" shall be so counted; provided further that to the extent any payments
made pursuant to clause (vi) of the definition of the term "Permitted Payments"
are deducted for purposes of computing the Consolidated Net Income of the
Company, such payments shall not be counted for purposes of computing amounts
expended as Restricted Payments pursuant to subclause (c) in the immediately
preceding paragraph.

Limitation on Incurrences of Additional Indebtedness. The Indenture
provides that the Company shall not, and shall not permit any of its
Subsidiaries, directly or indirectly, to incur, assume, guarantee, become

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liable, contingently or otherwise, with respect to, or otherwise become
responsible for the payment of (collectively "incur") any Indebtedness other
than Permitted Indebtedness; provided, however, that if no Default with respect
to payment of principal of, or interest on, the Notes or Event of Default under
the Indenture shall have occurred and be continuing at the time or as a
consequence of the incurrence of any such Indebtedness, the Company may incur
Indebtedness if immediately before and immediately after giving effect to the
incurrence of such Indebtedness the Operating Coverage Ratio of the Company
would be greater than 2.0 to 1.0; provided, further, a Subsidiary may incur
Acquired Indebtedness to the extent such Indebtedness could have been incurred
by the Company pursuant to the immediately preceding proviso.

In addition, the Indenture provides that neither the Company nor any
Subsidiary Guarantor will, directly or indirectly, incur any Indebtedness
(including Acquired Indebtedness) that is subordinate in right of payment to any
Indebtedness of the Company or such Subsidiary Guarantor, as the case may be,
unless such Indebtedness is either (a) pari passu in right of payment with the
Notes or the Guarantee of such Subsidiary Guarantor, as the case may be, or (b)
subordinate in right of payment to the Notes or the Note Guarantee of such
Subsidiary Guarantor, as the case may be, in the same manner and at least to the
same extent as the Notes are subordinate to Senior Indebtedness or as such
Guarantee is subordinated to Guarantor Senior Indebtedness of such Subsidiary
Guarantor, as the case may be.

Limitation on Liens. The Indenture provides that the Company shall not and
shall not permit any Subsidiary to create, incur, assume or suffer to exist any
Liens upon any of their respective assets unless the Notes are equally and
ratably secured by the Liens covering such assets, except for (i) Liens on
assets of the Company securing Senior Indebtedness and Liens on assets of a
Subsidiary Guarantor which, at the time of incurrence, secure Guarantor Senior
Indebtedness, (ii) existing and future Liens securing Indebtedness and other
obligations of the Company and its Subsidiaries under the Credit Agreement and
related documents or any refinancing or replacement thereof in whole or in part
permitted under the Indenture, (iii) Permitted Liens, (iv) Liens securing
Acquired Indebtedness; provided that such Liens (x) are not incurred in
connection with, or in contemplation of the acquisition of the property or
assets acquired and (y) do not extend to or cover any property or assets of the
Company or any Subsidiary other than the property or assets so acquired, (v)
Liens to secure Capitalized Lease Obligations and certain other Indebtedness
that is otherwise permitted under the Indenture; provided that (A) any such Lien
is created solely for the purpose of securing such other Indebtedness
representing, or incurred to finance, refinance or refund, the cost (including
sales and excise taxes, installation and delivery charges and other direct costs
of, and other direct expenses paid or charged in connection therewith) of the
purchase (whether through stock or asset purchase, merger or otherwise) or
construction or improvement of the property subject thereto (whether real or
personal, including fixtures and other equipment), (B) the principal amount of
the Indebtedness secured by such Lien does not exceed 100% of such costs and (C)
such Lien does not extend to or cover any other property other than such item of
property and any improvements on such item; (vi) Liens existing on the Issue
Date; (vii) Liens in favor of the Trustee and any substantially equivalent Lien
granted to any trustee or similar institution under any indenture for
Indebtedness permitted to be incurred under the Indenture; and (viii) any
replacement, extension or renewal, in whole or in part, of any Lien described in
this or the foregoing clauses including in connection with any refinancing of
the Indebtedness, in whole or in part, secured by any such Lien; provided that
to the extent any such clause limits the amount secured or the assets subject to
such Liens, no replacement, extension or renewal shall increase the amount or
the assets subject to such Liens, except to the extent that the Liens associated
with such additional assets are otherwise permitted hereunder.

Limitation on Asset Sales. The Indenture provides that neither the Company
nor any of its Subsidiaries shall consummate an Asset Sale unless (a) the
Company or the applicable Subsidiary receives consideration at the time of such
Asset Sale at least equal to the fair market value of the assets sold and (b)
upon consummation of an Asset Sale, the Company will within 365 days of the
receipt of the proceeds therefrom, either: (i) apply or cause its Subsidiary to
apply the Net Cash Proceeds of any Asset Sale to (A) a Related Business
Investment, (B) an investment in properties and assets that replace the
properties and assets that are the subject of such Asset Sale or (C) an
investment in properties and assets that will be used in the business of the
Company and its Subsidiaries existing on the Issue Date or in businesses
reasonably related thereto; (ii) in the case of a sale of a store or stores,
deem such Net Cash Proceeds to have been applied to the extent

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of any capital expenditures made to acquire or construct a replacement store in
the general vicinity of the store sold within 365 days preceding the date of the
Asset Sale; (iii) apply or cause to be applied such Net Cash Proceeds to the
permanent repayment of Pari Passu Indebtedness or Senior Indebtedness; provided,
however, that the repayment of any revolving loan (under the Credit Agreement or
otherwise) shall result in a permanent reduction in the commitment thereunder;
(iv) use such Net Cash Proceeds to secure Letter of Credit Obligations to the
extent the related letters of credit have not been drawn upon or returned
undrawn; or (v) after such time as the accumulated Net Cash Proceeds of Asset
Sales effected since June 14, 1995 equals or exceeds $20 million, apply or cause
to be applied such Net Cash Proceeds to the purchase of Notes tendered to the
Company for purchase at a price equal to 100% of the principal amount thereof
plus accrued interest thereon to the date of purchase pursuant to an offer to
purchase made by the Company as set forth below (a "Net Proceeds Offer");
provided, however, that the Company shall have the right to exclude from the
foregoing provisions Asset Sales subsequent to June 14, 1995, the proceeds of
which are derived from the sale and substantially concurrent lease-back of a
supermarket and/or related assets or equipment which are acquired or constructed
by the Company or a Subsidiary subsequent to the date that is six months prior
to the Issue Date; provided that such sale and substantially concurrent
lease-back occurs within 270 days following such acquisition or the completion
of such construction, as the case may be. Pending the utilization of any Net
Cash Proceeds in the manner (and within the time period) described above, the
Company may use any such Net Cash Proceeds to repay revolving loans (under the
Credit Agreement or otherwise) without a permanent reduction of the commitment
thereunder.

Each Net Proceeds Offer will be mailed to the record Holders of Notes as
shown on the register of Holders of such Notes not less than 325 nor more than
365 days after the relevant Asset Sale, with a copy to the Trustee, shall
specify the purchase date (which shall be no earlier than 30 days nor later than
40 days from the date such notice is mailed) and shall otherwise comply with the
procedures set forth in the Indenture. Upon receiving notice of the Net Proceeds
Offer, Holders of Notes may elect to tender their Notes in whole or in part in
integral multiples of $1,000 in exchange for cash. To the extent Holders
properly tender Notes in an amount exceeding the Net Proceeds Offer, Notes of
tendering Holders will be repurchased on a pro rata basis (based on amounts
tendered). A Net Proceeds Offer shall remain open for a period of 20 Business
Days or such longer period as may be required by law.

The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Net Proceeds Offer.

Limitation on Dividends and Other Payment Restrictions Affecting
Subsidiaries. The Indenture provides that the Company shall not, and shall not
permit any Subsidiary to, directly or indirectly, create or suffer to exist, or
allow to become effective any consensual Payment Restriction with respect to any
of its Subsidiaries, except for (a) any such restrictions contained in (i) the
Credit Agreement in effect on the Issue Date as any such Payment Restriction may
apply to any present or future Subsidiary, (ii) the Indenture and any agreement
in effect at or entered into on the Issue Date, (iii) Indebtedness of a person
existing at the time such person becomes a Subsidiary (provided that (x) such
Indebtedness is not incurred in connection with, or in contemplation of, such
person becoming a Subsidiary, (y) such restriction is not applicable to any
person, or the properties or assets of any person, other than the person so
acquired and (z) such Indebtedness is otherwise permitted to be incurred
pursuant to the provisions of the covenant described under "-- Limitation on
Incurrences of Additional Indebtedness" above), (iv) secured Indebtedness
otherwise permitted to be incurred pursuant to the provisions of the covenants
described under "-- Limitation on Incurrences of Additional Indebtedness" and
"-- Limitation on Liens" above that limit the right of the debtor to dispose of
the assets securing such Indebtedness; (b) customary non-assignment provisions
restricting subletting or assignment of any lease or other agreement entered
into by a Subsidiary; (c) customary net worth provisions contained in leases and
other agreements entered into by a Subsidiary in the ordinary course of
business; (d) customary restrictions with respect to a Subsidiary pursuant to an
agreement that has been entered into for the sale or disposition of all or
substantially all of the Capital Stock or assets of such Subsidiary; (e)
customary provisions in joint venture agreements and other similar agreements;
(f) restrictions contained in Indebtedness incurred to refinance, refund, extend
or renew Indebtedness referred to in clause (a) above;

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provided that the restrictions contained therein are not materially more
restrictive taken as a whole than those provided for in such Indebtedness being
refinanced, refunded, extended or renewed and (g) Payment Restrictions contained
in any other Indebtedness permitted to be incurred subsequent to the Issue Date
pursuant to the provisions of the covenant described under "-- Limitation on
Incurrences of Additional Indebtedness" above; provided that any such Payment
Restrictions are ordinary and customary with respect to the type of Indebtedness
being incurred (under the relevant circumstances) and, in any event, no more
restrictive than the most restrictive Payment Restrictions in effect on June 14,
1995.

Guarantees of Certain Indebtedness. The Indenture provides that the Company
shall not permit any of its Subsidiaries to (a) incur, guarantee or secure
through the granting of Liens the payment of any Indebtedness under the term
portion of the Credit Agreement or refinancings thereof or (b) pledge any
intercompany notes representing obligations of any of its Subsidiaries, to
secure the payment of any Indebtedness under the term portion of the Credit
Agreement or refinancings thereof, in each case unless such Subsidiary, the
Company and the Trustee execute and deliver a supplemental indenture evidencing
such Subsidiary's Guarantee.

Limitation on Transactions with Affiliates. The Indenture provides that
neither the Company nor any of its Subsidiaries shall (i) sell, lease, transfer
or otherwise dispose of any of its properties or assets or issue securities
(other than equity securities which do not constitute Disqualified Capital
Stock) to, (ii) purchase any property, assets or securities (other than equity
securities which do not constitute Disqualified Capital Stock) from, (iii) make
any Investment in, or (iv) enter into or suffer to exist any contract or
agreement with or for the benefit of, an Affiliate or Significant Stockholder
(or any Affiliate of such Significant Stockholder) of the Company or any
Subsidiary (an "Affiliate Transaction"), other than (x) Affiliate Transactions
permitted under the following paragraph and (y) Affiliate Transactions in the
ordinary course of business, that are fair to the Company or such Subsidiary, as
the case may be, and on terms at least as favorable as might reasonably have
been obtainable at such time from an unaffiliated party; provided that (A) with
respect to Affiliate Transactions involving aggregate payments in excess of $1
million and less than $5 million, the Company or such Subsidiary, as the case
may be, shall have delivered an Officers' Certificate to the Trustee certifying
that such Affiliate Transaction complies with clause (y) above (other than the
requirement set forth in such clause (y) that such Affiliate Transaction be in
the ordinary course of business), (B) with respect to Affiliate Transactions
involving aggregate payments in excess of $5 million and less than $15 million,
the Company or such Subsidiary, as the case may be, shall have delivered an
Officers' Certificate to the Trustee certifying that such Affiliate Transaction
complies with clause (y) above (other than the requirement set forth in such
clause (y) that such Affiliate Transaction be in the ordinary course of
business) and that such Affiliate Transaction has received the approval of a
majority of the disinterested members of the Board of Directors of the Company
or the Subsidiary, as the case may be, or, in the absence of any such approval
by the disinterested members of the Board of Directors of the Company or the
Subsidiary, as the case may be, that an Independent Financial Advisor has
reasonably and in good faith determined that the financial terms of such
Affiliate Transaction are fair to the Company or such Subsidiary, as the case
may be, or that the terms of such Affiliate Transaction are at least as
favorable as might reasonably have been obtained at such time from an
unaffiliated party and that such Independent Financial Advisor has provided
written confirmation of such determination to the Board of Directors and (C)
with respect to Affiliate Transactions involving aggregate payments in excess of
$15 million, the Company or such Subsidiary, as the case may be, shall have
delivered to the Trustee, a written opinion from an Independent Financial
Advisor to the effect that the financial terms of such Affiliate Transaction are
fair to the Company or such Subsidiary, as the case may be, or that the terms of
such Affiliate Transaction are at least as favorable as those that might
reasonably have been obtained at the time from an unaffiliated party.

The provisions of the foregoing paragraph shall not apply to (i) any
Permitted Payment, (ii) any Restricted Payment that is made in compliance with
the provisions of the covenant described under "-- Limitation on Restricted
Payments" above, (iii) reasonable and customary fees and compensation paid to,
and indemnity provided on behalf of, officers, directors, employees or
consultants of the Company or any Subsidiary, as determined by the Board of
Directors of the Company or any Subsidiary or the senior management thereof in
good faith, (iv) transactions exclusively between or among the Company and any
of its

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wholly-owned Subsidiaries or exclusively between or among such wholly-owned
Subsidiaries, provided such transactions are not otherwise prohibited by the
Indenture, (v) any agreement as in effect as of June 14, 1995 or any amendment
thereto or any transaction contemplated thereby (including pursuant to any
amendment thereto) so long as any such amendment is not disadvantageous to the
Holders of the Notes in any material respect, (vi) the existence of, or the
performance by the Company or any of its Subsidiaries of its obligations under
the terms of, any stockholders agreement (including any registration rights
agreement or purchase agreement related thereto) to which it (or Holdings) is a
party as of June 14, 1995 and any similar agreements which it (or Holdings) may
enter into thereafter; provided, however, that the existence of, or the
performance by the Company or any Subsidiaries of obligations under any future
amendment to, any such existing agreement or under any similar agreement entered
into after June 14, 1995 shall only be permitted by this clause (vi) to the
extent that the terms of any such amendment or new agreement are not otherwise
disadvantageous to the Holders of the Notes in any material respect, (vii)
transactions permitted by, and complying with, the provisions of the covenant
described under "-- Limitation on Mergers and Certain Other Transactions" below
and (viii) transactions with suppliers or other purchases or sales of goods or
services, in each case in the ordinary course of business (including, without
limitation, pursuant to joint venture agreements) and otherwise in compliance
with the terms of the Indenture which are fair to the Company, in the reasonable
determination of the Board of Directors of the Company or the senior management
thereof, or are on terms at least as favorable as might reasonably have been
obtained at such time from an unaffiliated party.

Limitations on Preferred Stock of Subsidiaries. The Indenture provides that
the Company will not permit any of its Subsidiaries to issue Preferred Stock
(other than to the Company or to a wholly-owned Subsidiary) or permit any person
(other than the Company or a wholly-owned Subsidiary) to own any Preferred Stock
of any Subsidiary.

Limitations on Mergers and Certain Other Transactions. The Indenture
provides that the Company, in a single transaction or through a series of
related transactions, shall not (i) consolidate with or merge with or into any
other person, or transfer (by lease, assignment, sale or otherwise) all or
substantially all of its properties and assets as an entirety or substantially
as an entirety to another person or group of affiliated persons or (ii) adopt a
Plan of Liquidation, unless, in either case, (1) either the Company shall be the
continuing person, or the person (if other than the Company) formed by such
consolidation or into which the Company is merged or to which all or
substantially all of the properties and assets of the Company as an entirety or
substantially as an entirety are transferred (or, in the case of a Plan of
Liquidation, any person to which assets are transferred) (the Company or such
other person being hereinafter referred to as the "Surviving Person") shall be a
corporation organized and validly existing under the laws of the United States,
any state thereof or the District of Columbia, and shall expressly assume, by an
indenture supplement, all the obligations of the Company under the Indenture and
the Notes; (2) immediately after and giving effect to such transaction and the
assumption contemplated by clause (1) above and the incurrence or anticipated
incurrence of any Indebtedness to be incurred in connection therewith, (A) the
Surviving Person shall have a Consolidated Net Worth equal to or greater than
the Consolidated Net Worth of the Company immediately preceding the transaction
and (B) the Surviving Person could incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) pursuant to the provisions of
the covenant described under "-- Limitation on Incurrences of Additional
Indebtedness" above; (3) immediately before and immediately after and giving
effect to such transaction and the assumption of the obligations as set forth in
clause (1) above and the incurrence or anticipated incurrence of any
Indebtedness to be incurred in connection therewith, no Default or Event of
Default shall have occurred and be continuing; and (4) each Subsidiary
Guarantor, unless it is the other party to the transaction, shall have by
supplemental indenture confirmed that its Guarantee of the obligations of the
Company under the Notes shall apply, without alteration or amendment as such
Guarantee applies on the date it was granted under the Indenture to the
obligations of the Company under the Indenture and the Notes to the obligations
of the Company or such Person, as the case may be, under the Indenture and the
Notes, after the consummation of such transaction.

The Indenture provides that upon any consolidation or merger or any
transfer of all or substantially all of the assets of the Company or any
adoption of a Plan of Liquidation by the Company in accordance with the

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foregoing, the surviving person formed by such consolidation or into which the
Company is merged or to which such transfer is made (or, in the case of a Plan
of Liquidation, to which assets are transferred) shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
the Indenture with the same effect as if such surviving person had been named as
the Company therein; provided, however, that solely for purposes of computing
amounts described in subclause (c) of the first paragraph of the covenant
described under "-- Limitation on Restricted Payments" above, any such surviving
person shall only be deemed to have succeeded to and be substituted for the
Company with respect to periods subsequent to the effective time of such merger,
consolidation or transfer of assets. When a successor corporation assumes all of
the obligations of the Company under the Indenture and the Notes and agrees to
be bound thereby, the predecesor shall be released from such obligations.

For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise in a single transaction or series of transactions) of all or
substantially all of the properties and assets of one or more direct or indirect
Subsidiaries, the Capital Stock of which constitutes all or substantially all of
the properties and assets of the Company shall be deemed to be the transfer of
all or substantially all of the properties and assets of the Company.

EVENTS OF DEFAULT

The following events constitute "Events of Default" under the Indenture:
(i) failure to make any interest payment on the Notes when due and the
continuance of such default for a period of 30 days; (ii) failure to pay
principal of, or premium, if any, on the Notes when due, whether at maturity,
upon acceleration, redemption, required repurchase or otherwise; (iii) failure
to comply with any other agreement contained in the Notes or the Indenture, if
such failure continues unremedied for 30 days after written notice given by the
Trustee or the Holders of at least 25% in principal amount of the Notes then
outstanding (except in the case of a default with respect to the covenants
described under "-- Certain Covenants -- Limitation on Restricted Payments,"
"-- Certain Covenants -- Limitations on Asset Sales," "-- Change of Control,"
and "-- Certain Covenants -- Limitations on Mergers and Certain Other
Transactions," which shall constitute Events of Default with notice but without
passage of time); (iv) a default under any Indebtedness of the Company or its
Subsidiaries, whether such Indebtedness now exists or shall hereinafter be
created, if both (A) such default either (1) results from the failure to pay any
such Indebtedness at its stated final maturity or (2) relates to an obligation
other than the obligation to pay such Indebtedness at its stated final maturity
and results in the holder or holders of such Indebtedness causing such
Indebtedness to become due prior to its stated final maturity and (B) the
principal amount of such Indebtedness, together with the principal amount of any
other such Indebtedness in default for failure to pay principal at stated final
maturity or the maturity of which has been so accelerated, aggregate $20 million
or more at any one time outstanding; (v) any final judgment or order for payment
of money in excess of $20 million shall be entered against the Company or any
Subsidiary of the Company or any of their respective properties and shall not be
discharged for a period of 60 days after such judgment becomes final and
nonappealable; (vi) either the Company or any Significant Subsidiary pursuant to
or within the meaning of any Bankruptcy Law: (a) commences a voluntary case or
proceeding; (b) consents to the entry of an order for relief against it in an
involuntary case or proceeding; (c) consents to the appointment of a custodian
of it or for all or substantially all of its property; or (d) makes a general
assignment for the benefit of its creditors; (vii) a court of competent
jurisdiction enters an order or decree under any Bankruptcy Law that: (a) is for
relief against the Company or any Significant Subsidiary, in an involuntary case
or proceeding; (b) appoints a Custodian of the Company or any Significant
Subsidiary, or for all or any substantial part of their respective properties;
or (c) orders the liquidation of the Company or any Significant Subsidiary, and
in each case the order or decree remains unstayed and in effect for 60 days;
(viii) the lenders under the Credit Agreement shall commence judicial
proceedings to foreclose upon any material portion of the assets of the Company
and its Subsidiaries; or (ix) any of the Guarantees issued under the Indenture
shall be declared or adjudged invalid in a final judgment or order issued by any
court of governmental authority. In the event of a declaration of acceleration
because an Event of Default set forth in clause (iv) above has occurred and is
continuing, such declaration of acceleration shall be automatically rescinded
and annulled if either (i) the holders of the Indebtedness which is the subject
of such Event of Default have waived such failure to pay at maturity or have
rescinded the acceleration in respect of such

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Indebtedness within 90 days of such maturity or declaration of acceleration, as
the case may be, and no other Event of Default has occurred during such 90-day
period which has not been cured or waived, or (ii) such Indebtedness shall have
been discharged or the maturity thereof shall have been extended such that it is
not then due and payable, or the underlying default has been cured (and any
acceleration based thereon of such other Indebtedness has been rescinded),
within 90 days of such maturity or declaration of acceleration, as the case may
be.

If an Event of Default (other than an Event of Default resulting from
bankruptcy, insolvency, receivership or reorganization of the Company or a
Subsidiary Guarantor) occurs and is continuing under the Indenture, the Trustee
or the Holders of at least 25% in principal amount of the then outstanding Notes
may declare due and payable all unpaid principal and interest accrued and unpaid
on the then outstanding Notes by notice in writing to the Company, the
administrative agent under the Credit Agreement and the Trustee specifying the
respective Event of Default and that it is a "notice of acceleration" (the
"Acceleration Notice"), and the same (i) shall become immediately due and
payable or (ii) if there are any amounts outstanding under the Credit Agreement,
shall become due and payable upon the first to occur of an acceleration under
the Credit Agreement, or five business days after receipt by the Company and the
administrative agent under the Credit Agreement of such Acceleration Notice. If
an Event of Default resulting from certain events of bankruptcy, insolvency,
receivership or reorganization of the Company or a Subsidiary Guarantor that is
a Significant Subsidiary shall occur under the Indenture, all unpaid principal
of and accrued interest on all then outstanding Notes shall be immediately due
and payable without any declaration or other act on the part of the Trustee or
any of the Holders of such Notes. After a declaration of acceleration under the
Indenture, subject to certain conditions, the Holders of a majority in principal
amount of the then outstanding Notes, by notice to the Trustee, may rescind such
declaration if all existing Events of Default under the Indenture are remedied.
In certain cases the Holders of a majority in principal amount of outstanding
Notes may waive a past default under the Indenture and its consequences, except
a default in the payment of or interest on any of the Notes.

The Indenture provides that if a Default or Event of Default occurs and is
continuing thereunder and if it is known to the Trustee, the Trustee shall mail
to each Holder of Notes notice of the Default or Event of Default within 90 days
after such Default or Event of Default occurs; provided, however, that, except
in the case of a Default or Event of Default in the payment of the principal of
or interest on any Notes, including the failure to make payment on a Change of
Control Payment Date pursuant to a Change of Control Offer or payment when due
pursuant to a Net Proceeds Offer the Trustee may withhold such notice if it in
good faith determines that withholding such notice is in the interest of the
Holders.

The Indenture provides that no Holder may pursue any remedy thereunder
unless the Trustee (i) shall have failed to act for a period of 60 days after
receiving written notice of a continuing Event of Default by such Holder and a
request to act by Holders of at least 25% in principal amount of Notes and (ii)
has received indemnification satisfactory to it; provided, however, that such
provision does not affect the right of any Holder to sue for enforcement of any
overdue payment of Notes.

The Indenture provides that two officers of the Company are required to
certify to the Trustee within 120 days after the end of each fiscal year of the
Company whether or not they know of any Default that occurred under the
Indenture during such fiscal year and, if applicable, describe such Default and
the status thereof.

DEFEASANCE OF INDENTURE

The Company may, at its option and at any time, elect to have the
obligations of the Company discharged with respect to the outstanding Notes.
Such Legal Defeasance means that the Company shall be deemed to have paid and
discharged the entire Indebtedness represented by the Notes except for (i) the
rights of Holders to receive payments in respect of the principal of, premium,
if any, and interest on Notes when such payments are due solely from the funds
held by the Trustee in the trust referred to below; (ii) the Company's
obligations to issue temporary Notes, register the transfer or exchange of
Notes, replace mutilated, destroyed, lost or stolen Notes and maintain an office
or agency for payments in respect of Notes and money for security

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payments held in trust in respect of Notes, (iii) the rights, powers, trusts,
duties and immunities of the Trustee and the Company's obligations in connection
therewith; and (iv) the Legal Defeasance provisions of the Indenture. In
addition, the Company may, at its option and at any time elect to have the
obligations of the Company released with respect to certain covenants described
above under "-- Certain Covenants" ("Covenant Defeasance"), and thereafter any
omission to comply with such obligations shall not constitute a Default or Event
of Default.

In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must have irrevocably deposited with the Trustee, in trust, for the
benefit of the Holders, cash in U.S. dollars, U.S. Government Obligations (as
defined in the Indenture), or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, premium, if any, and interest on the
outstanding Notes to redemption or maturity, provided that the Trustee shall
have been irrevocably instructed to apply such money or the proceeds of such
U.S. Government Obligations to said payments with respect to the Notes on the
maturity date or such redemption date, as the case may be; (ii) in the case of
Legal Defeasance, the Company shall have delivered to the Trustee an opinion of
counsel stating that (A) the Company has received from, or there has been
published by, the Internal Revenue Service a ruling or (B) since the Issue Date,
there has been a change in the applicable federal income tax law, in either case
to the effect that, and based thereon such opinion of counsel shall confirm
that, the Holders of Notes will not recognize income, gain or loss for federal
income tax purposes as a result of such Legal Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same times
as would have been the case if such Legal Defeasance had not occurred; (iii) in
the case of Covenant Defeasance, the Company shall have delivered to the Trustee
an opinion of counsel stating that the Holders of Notes will not recognize
income, gain or loss for federal income tax purposes as a result of such
Covenant Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such Covenant Defeasance had not occurred; (iv) no Default or Event of Default
shall have occurred and be continuing under the Indenture on the date of such
deposit or insofar as clauses (vi) and (vii) under the first paragraph under
"-- Events of Default" above are concerned, at any time in the period ending on
the 91st day after the date of deposit; (v) such Legal Defeasance or Covenant
Defeasance shall not cause the Trustee to have a conflicting interest with
respect to the Notes; (vi) such Legal Defeasance or Covenant Defeasance shall
not result in a breach or violation of, or constitute a default under, the
Indenture or any other material agreement or instrument to which the Company or
any Subsidiary Guarantor is a party or by which it is bound (and in that
connection, the Trustee shall have received a certificate from the Agent under
the Credit Agreement to that effect with respect to such Credit Agreement if
then in effect); (vii) the Company shall have delivered to the Trustee an
opinion of counsel to the effect that after the 91st day following the deposit
the trust funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally; (viii) the Company shall have delivered to the Trustee an Officer's
Certificate stating that the deposit was not made by the Company with the intent
of preferring the Holders of the Notes over other creditors of the Company or
any Subsidiary Guarantor or with the intent of defeating, hindering, delaying or
defrauding creditors of the Company, any Subsidiary Guarantor or others; and
(ix) the Company shall have delivered to the Trustee an officers' certificate
and an opinion of counsel, each stating that all conditions precedent provided
for relating to the Legal Defeasance or Covenant Defeasance have been complied
with.

SATISFACTION AND DISCHARGE

The Indenture will be discharged and will cease to be of further effect as
to all outstanding Notes when either (a) all such Notes theretofore
authenticated and delivered (except lost, stolen or destroyed Notes which have
been replaced or paid and Notes for whose payment money has theretofore been
deposited in trust and thereafter repaid to the Company) have been delivered to
the Trustee for cancellation; or (b)(i) all such Notes not theretofore delivered
to the Trustee for cancellation have become due and payable by reason of the
making of a notice of redemption or otherwise and the Company has irrevocably
deposited or caused to be deposited with the Trustee as trust funds in trust for
the purpose an amount of money sufficient to pay and discharge the entire
indebtedness on such Notes not theretofore delivered to the Trustee for
cancellation for principal, premium, if any, and accrued interest to the date of
maturity or redemption; (ii) no Default or

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Event of Default shall have occurred and be continuing on the date of such
deposit or shall occur as a result of such deposit and such deposit will not
result in a breach or violation of, or constitute a default under, any other
instrument to which the Company is a party or by which it is bound; (iii) the
Company has paid all sums payable by it under the Indenture; and (iv) the
Company has delivered irrevocable instructions to the Trustee to apply the
deposited money toward the payment of such Notes at maturity or the redemption
date, as the case may be. In addition, the Company must deliver an Officers'
Certificate and an Opinion of Counsel to the Trustee stating that all conditions
precedent to satisfaction and discharge have been complied with.

MODIFICATION OF THE INDENTURE

The Indenture and the Notes may be amended or supplemented (and compliance
with any provision thereof may be waived) by the Company, the Subsidiary
Guarantors, the Trustee and the Holders of not less than a majority in aggregate
principal amount of Notes then outstanding, except that (i) without the consent
of each Holder affected, no such amendment, supplement or waiver may (1) change
the principal amount of Notes the Holders of which must consent to an amendment,
supplement or waiver of any provision of the Indenture, the Notes or the
Guarantees, (2) reduce the rate or extend the time for payment of interest on
any Notes, (3) reduce the principal amount of any Notes, (4) change the Maturity
Date of any Notes or alter the redemption provisions in the Indenture or the
Notes in a manner adverse to any Holder, (5) make any changes in the provisions
concerning waivers of Defaults or Events of Default by Holders or the rights of
Holders to recover the principal of, interest on or redemption payment with
respect to any Notes, or (6) make the principal of, or interest on, any Notes
payable with anything or in any manner other than as provided for in the
Indenture, the Notes and the Guarantees, (ii) without the consent of Holders of
not less than 75% in aggregate principal amount of Notes then outstanding, no
such amendment, supplement or waiver may change the Change of Control Payment
Date or the purchase price in connection with any repurchase of Notes pursuant
to the covenant described under "-- Change of Control" above in a manner adverse
to any Holder or waive a Default or Event of Default resulting from a failure to
comply with the covenant described under "-- Change of Control" above and (iii)
without the consent of Holders of not less than two thirds in aggregate
principal amount of Notes then outstanding, no such amendment, supplement or
waiver may release any Subsidiary Guarantor from any of its obligations under
its Guarantee or the Indenture other than in accordance with the terms of such
Guarantee and the Indenture.

In addition, the Indenture, the Notes and the Guarantees may be amended by
the Company, the Subsidiary Guarantors and the Trustee (a) to cure any
ambiguity, defect or inconsistency therein; provided that such amendment or
supplement does not adversely affect the rights of any Holder thereof or (b) to
make any other change that does not adversely affect the rights of any Holder
thereunder in any material respect.

THE TRUSTEE

The Indenture provides that the Holders of a majority in principal amount
of the outstanding Notes may remove the Trustee thereunder and appoint a
successor trustee with the Company's consent, by so notifying the trustee to be
so removed and the Company. In addition, the Holders of a majority in principal
amount of the outstanding Notes have the right, subject to certain limitations,
to direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee under the Indenture or of exercising any trust or power
conferred on the Trustee.

The Indenture provides that, in case a Default or an Event of Default has
occurred and is continuing thereunder, the Trustee shall exercise such of the
rights and powers vested in it by the Indenture, and use the same degree of care
and skill in the exercise thereof, as a prudent person would exercise or use
under the circumstances in the conduct of such person's own affairs. Subject to
the latter provision, the Trustee is under no obligation to exercise any of its
rights or powers under the Indenture at the request, order or direction of any
of the Holders of the Notes, unless they shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
which may be incurred thereby. If the Company fails to pay such amounts of
principal of, premium, if any, or interest on, the Notes as shall have become
due and payable upon demand as specified in the Indenture, the Trustee, at the
request of the Holders of a majority in aggregate principal amount of Notes at
the time outstanding, and upon being offered such reasonable indemnity as it

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may be required against the costs, expenses and liabilities incurred by it,
except as a result of its negligence or bad faith, shall institute any actions
or proceedings at law or in equity for the collection of the sums so due and
unpaid, and collect in the manner provided by law the monies adjudged or decreed
to be payable.

The Indenture contains limitations on the rights of the Trustee, should it
become a creditor of the Company, to obtain payment of claims in certain cases
or to be realized on certain property received by it in respect of any such
claims, securities or otherwise. The Trustee is permitted to engage in other
transactions; however, if the Trustee acquires any "conflicting interest," it
must eliminate such conflict or resign.

REPORTS

The Indenture provides that the Company will deliver to the Trustee
thereunder within 15 days after the filing of the same with the Commission,
copies of the quarterly and annual report and of the information, documents and
other reports, if any, which the Company is required to file with the Commission
pursuant to Section 13 or 15(d) of the Exchange Act. The Indenture will further
provide that, notwithstanding that the Company may not be subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company
will file with the Commission, to the extent permitted, and provide the Trustee
and Holders of the Notes with such annual reports and such information,
documents and other reports specified in Sections 13 and 15(d) of the Exchange
Act. The Company will also comply with the other provisions of TIA Section
314(a).

CERTAIN DEFINITIONS

"Acquired Indebtedness" means (i) with respect to any person that becomes a
Subsidiary of the Company (or is merged into the Company or any of its
Subsidiaries) after the Issue Date, Indebtedness of such person or any of its
Subsidiaries existing at the time such person becomes a Subsidiary of the
Company (or is merged into the Company or any of its Subsidiaries) and which was
not incurred in connection with, or in contemplation of, such person becoming a
Subsidiary of the Company (or being merged into the Company or any of its
Subsidiaries) and (ii) with respect to the Company or any of its Subsidiaries,
any Indebtedness assumed by the Company or any of its Subsidiaries in connection
with the acquisition of any assets from another person (other than the Company
or any of its Subsidiaries), and which was not incurred by such other person in
connection with, or in contemplation of, such acquisition.

"Adjusted Net Assets" means, with respect to the Guarantee of a Subsidiary
Guarantor at any date, the lesser of the amount by which (x) the fair value of
the property of such Subsidiary Guarantor exceeds the total amount of
liabilities, including, without limitation, contingent liabilities (after giving
effect to all other fixed and contingent liabilities incurred or assumed on such
date (other than liabilities of such Subsidiary Guarantor under Indebtedness
which constitutes Subordinated Indebtedness with respect to such Guarantee)),
but excluding liabilities under the Guarantee of such Subsidiary Guarantor, at
such date and (y) the present fair salable value of the assets of such
Subsidiary Guarantor at such date exceeds the amount that will be required to
pay the probable liability of such Subsidiary Guarantor on its debts (after
giving effect to all other fixed and contingent liabilities incurred or assumed
on such date (other than liabilities of such Subsidiary Guarantor under
Indebtedness which constitutes Subordinated Indebtedness with respect to such
Guarantee) and after giving effect to any collection from any Subsidiary of such
Subsidiary Guarantor in respect of the obligations of such Subsidiary under its
Guarantee), excluding debt in respect of the Guarantee of such Subsidiary
Guarantor, as they become absolute and matured.

"Affiliate" means, with respect to any person, any other person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified person. For the purposes of this definition,
"control" when used with respect to any person means the power to direct the
management and policies of such person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"affiliated," "controlling" and "controlled" have meanings correlative to the
foregoing. For purposes of the Indenture, neither BT Securities Corporation nor
any of its Affiliates shall be deemed to be an Affiliate of the Company or any
of its Subsidiaries.

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"Asset Sale" means, with respect to any person, any sale, transfer or other
disposition or series of sales, transfers or other dispositions (including,
without limitation, by merger or consolidation or by exchange of assets and
whether by operation of law or otherwise) made by such person or any of its
subsidiaries to any person other than such person or one of its wholly-owned
subsidiaries (or, in the case of a sale, transfer or other disposition by a
Subsidiary, to any person other than the Company or a directly or indirectly
wholly-owned Subsidiary) of any assets of such person or any of its subsidiaries
including, without limitation, assets consisting of any Capital Stock or other
securities held by such person or any of its subsidiaries, and any Capital Stock
issued by any subsidiary of such person, in each case, outside of the ordinary
course of business, excluding, however, any sale, transfer or other disposition,
or series of related sales, transfers or other dispositions (i) involving only
Excluded Assets, (ii) resulting in Net Proceeds to the Company and the
Subsidiaries of $500,000 or less, (iii) pursuant to any foreclosure of assets or
other remedy provided by applicable law to a creditor of the Company or any
Subsidiary with a Lien on such assets, which Lien is permitted under the
Indenture; provided that such foreclosure or other remedy is conducted in a
commercially reasonable manner or in accordance with any Bankruptcy Law, (iv)
involving only Cash Equivalents or inventory in the ordinary course of business
or obsolete equipment in the ordinary course of business consistent with past
practices of the Company; (v) involving only the lease or sub-lease of any real
or personal property in the ordinary course of business; or (vi) the proceeds of
such Asset Sale which are not applied as contemplated in "-- Certain
Covenants -- Limitation on Asset Sales" and which, together with all other such
Asset Sale proceeds, do not exceed $20 million.

"Average Life" means, as of any date of determination, with respect to any
debt security, the quotient obtained by dividing (i) the sum of the products of
the number of years from the date of determination to the dates of each
successive scheduled principal payments of such debt security multiplied by the
amount of each such principal payment by (ii) the sum of all such principal
payments.

"Bankruptcy Law" means Title 11, U.S. Code or any similar Federal, state or
foreign law for the relief of debtors.

"Board of Directors" means, with respect to any person, the Board of
Directors of such person or of a subsidiary of such person or any duly
authorized committee of that Board.

"Board Resolution" means, with respect to any person, a duly adopted
resolution of the Board of Directors of such person.

"Capital Stock" means, with respect to any person, any and all shares,
interests, participation or other equivalents (however designated) of corporate
stock, including each class of common stock and preferred stock of such person.

"Capitalized Lease Obligation" means obligations under a lease that is
required to be capitalized for financial reporting purposes in accordance with
GAAP, and the amount of Indebtedness represented by such obligations shall be
the capitalized amount of such obligations determined in accordance with GAAP.

"Cash Equivalents" means (i) obligations issued or unconditionally
guaranteed by the United States of America or any agency thereof, or obligations
issued by any agency or instrumentality thereof and backed by the full faith and
credit of the United States of America, (ii) commercial paper rated the highest
grade by Moody's Investors Service, Inc. and Standard & Poor's Ratings Group and
maturing not more than one year from the date of creation thereof, (iii) time
deposits with, and certificates of deposit and banker's acceptances issued by,
any bank having capital surplus and undivided profits aggregating at least $500
million and maturing not more than one year from the date of creation thereof,
(iv) repurchase agreements that are secured by a perfected security interest in
an obligation described in clause (i) and are with any bank described in clause
(iii), (v) shares of any money market mutual fund that (a) has at least 95% of
its assets invested continuously in the types of investments referred to in
clauses (i) and (ii) above, (b) has net assets of not less than $500 million,
and (c) has the highest rating obtainable from either Standard & Poor's Ratings
Group or Moody's Investors Service, Inc. and (vi) readily marketable direct
obligations issued by any state of the United States of America or any political
subdivision thereof having one of the two highest rating categories obtainable
from either Moody's Investors Service, Inc. or Standard & Poor's Ratings Group.

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"Change of Control" means the acquisition after the Issue Date, in one or
more transactions, of beneficial ownership (within the meaning of Rule 13d-3
under the Exchange Act) by (i) any person or entity (other than any Permitted
Holder) or (ii) any group of persons or entities (excluding any Permitted
Holders) who constitute a group (within the meaning of Section 13(d)(3) of the
Exchange Act), in either case, of any securities of Holdings or the Company such
that, as a result of such acquisition, such person, entity or group beneficially
owns (within the meaning of Rule 13d-3 under the Exchange Act), directly or
indirectly, 40% or more of the then outstanding voting securities entitled to
vote on a regular basis for a majority of the Board of Directors of the Company
(but only to the extent that such beneficial ownership is not shared with any
Permitted Holder who has the power to direct the vote thereof); provided,
however, that no such Change of Control shall be deemed to have occurred if (A)
the Permitted Holders beneficially own, in the aggregate, at such time, a
greater percentage of such voting securities than such other person, entity or
group or (B) at the time of such acquisition, the Permitted Holders (or any of
them) possess the ability (by contract or otherwise) to elect, or cause the
election, of a majority of the members of the Company's Board of Directors.

"Commission" means the Securities and Exchange Commission.

"Common Stock" means, with respect to any person, any and all shares,
interests or other participations in, and other equivalents (however designated
and whether voting or nonvoting) of, such person's common stock, whether
outstanding at the Issue Date or issued after the Issue Date, and includes,
without limitation, all series and classes of such common stock.

"Consolidated Net Income" means, with respect to any person, for any
period, the aggregate of the net income (or loss) of such person and its
subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided that (a) the net income of any other person in which such
person or any of its subsidiaries has an interest (which interest does not cause
the net income of such other person to be consolidated with the net income of
such person and its subsidiaries in accordance with GAAP) shall be included only
to the extent of the amount of dividends or distributions actually paid to such
person or such subsidiary by such other person in such period; (b) the net
income of any subsidiary of such person that is subject to any Payment
Restriction shall be excluded to the extent such Payment Restriction actually
prevented the payment of an amount that otherwise could have been paid to, or
received by, such person or a subsidiary of such person not subject to any
Payment Restriction; and (c)(i) the net income (or loss) of any other person
acquired in a pooling of interests transaction for any period prior to the date
of such acquisition, (ii) all gains and losses realized on any Asset Sale, (iii)
all gains realized upon or in connection with or as a consequence of the
issuance of the Capital Stock of such person or any of its subsidiaries and any
gains on pension reversions received by such person or any of its subsidiaries,
(iv) all gains and losses realized on the purchase or other acquisition by such
person or any of its subsidiaries of any securities of such person or any of its
subsidiaries, (v) all gains and losses resulting from the cumulative effect of
any accounting change pursuant to the application of Accounting Principles Board
Opinion No. 20, as amended, (vi) all other extraordinary gains and losses, (vii)
(A) all non-cash charges, (B) up to $10 million of severance costs and (C) any
other restructuring reserves or charges (provided, however, that any cash
payments actually made with respect to the liabilities for which such
restructuring reserves or charges were created shall be deducted from
Consolidated Net Income in the period when made), in each case, incurred by the
Company or any of its Subsidiaries in connection with the Merger, including,
without limitation, the divestiture of the Excluded Assets, (viii) losses
incurred by the Company and its Subsidiaries resulting from earthquakes and (ix)
with respect to the Company, all deferred financing costs written off in
connection with the early extinguishment of any Indebtedness, shall each be
excluded; provided further that solely for the purpose of computing amounts
described in subclause (c) of the first paragraph of the covenant described
under "-- Limitation on Restricted Payments" above, "Consolidated Net Income" of
the Company for any period shall be reduced by the aggregate amount of dividends
paid by the Company or a Subsidiary to Holdings pursuant to clauses (v) and
(viii) of the definition of "Permitted Payments" during such period.

"Consolidated Net Worth" means, with respect to any person, the total
stockholders' equity (exclusive of any Disqualified Capital Stock) of such
person and its subsidiaries determined on a consolidated basis in accordance
with GAAP.

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"Consulting Agreement" means that certain Consulting Agreement dated as of
June 14, 1995 and as in effect on the Issue Date, among the Company, Holdings
and The Yucaipa Companies (as such Consulting Agreement may be amended or
replaced, so long as any amounts paid under any amended or replacement agreement
do not exceed the amounts payable under such Consulting Agreement as in effect
on the Issue Date).

"Credit Agreement" means the Credit Agreement, dated as of June 14, 1995,
as amended and in effect on the Issue Date, by and among Food 4 Less, as
borrower, certain of its subsidiaries, Holdings, as guarantor, the Lenders
referred to therein and Bankers Trust Company, as administrative agent, as the
same may be amended, extended, renewed, restated, supplemented or otherwise
modified (in each case, in whole or in part, and without limitation as to
amount, terms, conditions, covenants and other provisions) from time to time,
and any agreement governing Indebtedness incurred to refund, replace or
refinance any borrowings and commitments then outstanding or permitted to be
outstanding under such Credit Agreement or any such prior agreement as the same
may be amended, extended, renewed, restated, supplemented or otherwise modified
(in each case, in whole or in part, and without limitation as to amount, terms,
conditions, covenants and other provisions). The term "Credit Agreement" shall
include all related or ancillary documents, including, without limitation, any
guarantee agreements and security documents. The Company shall promptly notify
the Trustee of any such refunding or refinancing of the Credit Agreement.

"Custodian" means any receiver, trustee, assignee, liquidator, sequestrator
or similar official under any Bankruptcy Law.

"Disqualified Capital Stock" means, with respect to any person, any Capital
Stock of such person or its subsidiaries that, by its terms, by the terms of any
agreement related thereto or by the terms of any security, into which it is
convertible, puttable or exchangeable is, or upon the happening of any event or
the passage of time would be, required to be redeemed or repurchased by such
person or its subsidiaries, including at the option of the holder thereof, in
whole or in part, or has, or upon the happening of an event or passage of time
would have, a redemption or similar payment due, on or prior to the Maturity
Date of the Notes, or any other Capital Stock of such person or its subsidiaries
designated as Disqualified Capital Stock by such person at the time of issuance;
provided, however, that if such Capital Stock is either (i) redeemable or
repurchasable solely at the option of such person or (ii) issued to employees of
the Company or its Subsidiaries or to any plan for the benefit of such
employees, such Capital Stock shall not constitute Disqualified Capital Stock
unless so designated.

"EBDIT" means, with respect to any person, for any period, the Consolidated
Net Income of such person for such period, plus, in each case to the extent
deducted in computing Consolidated Net Income of such person for such period
(without duplication)(i) provisions for income taxes or similar charges
recognized by such person and its consolidated subsidiaries accrued during such
period, (ii) depreciation and amortization expense of such person and its
consolidated subsidiaries accrued during such period (but only to the extent not
included in Fixed Charges), (iii) Fixed Charges of such person and its
consolidated subsidiaries for such period, (iv) LIFO charges (credits) of such
person and its consolidated subsidiaries for such period, (v) the amount of any
restructuring reserve or charge recorded during such period in accordance with
GAAP, including any such reserve or charge related to the Merger, and (vi) any
other non-cash charges reducing Consolidated Net Income for such period
(excluding any such charge which requires an accrual of or a cash reserve for
cash charges for any future period), less, without duplication, (i) non-cash
items increasing Consolidated Net Income of such person for such period
(excluding any such items which represent the reversal of any accrual of, or
cash reserve for, anticipated cash charges in any prior period) in each case
determined in accordance with GAAP and (ii) the amount of all cash payments made
by such person or its subsidiaries during such period to the extent that such
cash payment has been provided for in a restructuring reserve or charge referred
to in clause (v) above (and were not otherwise deducted in the computation of
Consolidated Net Income of such person for such period).

"Exchange Act" means the Securities Exchange Act of 1934, as amended and
the rules and regulations promulgated by the Commission thereunder.

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"Excluded Assets" means assets of the Company or any Subsidiary required to
be disposed of by applicable regulatory authorities in connection with the
Merger.

"Existing Indebtedness" means the following indebtedness of the Company to
the extent outstanding on the Issue Date: (a) the 10.45% Senior Notes due 2004
issued pursuant to an indenture dated as of June 6, 1996, (b) the 10.45% Senior
Notes due 2004 issued pursuant to an indenture dated as of June 1, 1995; (c) the
10.45% Senior Notes due 2000 issued pursuant to an indenture dated as of April
15, 1992; (d) the 11% Senior Subordinated Notes due 2005 issued pursuant to an
indenture dated as of June 1, 1995; (e) the 9% Senior Subordinated Notes due
2003 issued pursuant to an indenture dated as of March 30, 1993; (f) the 10 1/4%
Senior Subordinated Notes due 2002 issued pursuant to an indenture dated as of
July 29, 1992; and (g)(1) the 13.75% Senior Subordinated Notes due 2005 issued
pursuant to an indenture dated as of June 1, 1995, and (2) the 13.75% Senior
Subordinated Notes due 2001 issued pursuant to an indenture dated as of June 15,
1991; provided that such indebtedness described under sub clauses (1) and (2) of
clause (g) hereof shall no longer constitute Existing Indebtedness from and
after April 29, 1997.

"Fixed Charges" means, with respect to any person, for any period, the
aggregate amount of (i) interest, whether expensed or capitalized, paid, accrued
or scheduled to be paid or accrued during such period (except to the extent
accrued in a prior period) in respect of all Indebtedness of such person and its
consolidated subsidiaries (including (a) original issue discount on any
Indebtedness (including (without duplication), in the case of the Company, any
original issue discount on the Notes but excluding amortization of debt issuance
costs) and (b) the interest portion of all deferred payment obligations,
calculated in accordance with the effective interest method, in each case to the
extent attributable to such period but excluding the amortization of debt
issuance costs), (ii) dividend requirements on Preferred Stock of such person
and its consolidated subsidiaries (whether in cash or otherwise (except
dividends payable in shares of Qualified Capital Stock)) declared or paid or
required to be declared or paid during such period (except to the extent accrued
in a prior period) and excluding items eliminated in consolidation and (iii)
dividends declared or paid or scheduled or required to be declared or paid to
Holdings which are permitted to be paid pursuant to clause (v) of the definition
of "Permitted Payments". For purposes of this definition, (a) interest on a
Capitalized Lease Obligation shall be deemed to accrue at an interest rate
reasonably determined by the Board of Directors of such person (as evidenced by
a Board Resolution) to be the rate of interest implicit in such Capitalized
Lease Obligation in accordance with GAAP, (b) interest on Indebtedness that is
determined on a fluctuating basis shall be deemed to have accrued at a fixed
rate per annum equal to the rate of interest of such Indebtedness in effect on
the date Fixed Charges are being calculated, (c) interest on Indebtedness that
may optionally be determined at an interest rate based upon a factor of a prime
or similar rate, a eurocurrency interbank offered rate, or other rate, shall be
deemed to have been based upon the rate actually chosen, or, if none, then based
upon such optional rate chosen as the Company may designate, and (d) Fixed
Charges shall be increased or reduced by the net cost (including amortization of
discount) or benefit associated with Interest Swap Obligations attributable to
such period. For purposes of clause (ii) above, dividend requirements shall be
increased to an amount representing the pre-tax earnings that would be required
to cover such dividend requirements; accordingly, the increased amount shall be
equal to a fraction, the numerator of which is the amount of such dividend
requirements and the denominator of which is one (1) minus the applicable actual
combined federal, state, local and foreign income tax rate of such person and
its subsidiaries (expressed as a decimal), on a consolidated basis, for the
fiscal year immediately preceding the date of the transaction giving rise to the
need to calculate Fixed Charges.

"Food 4 Less" means Food 4 Less Supermarkets, Inc., a Delaware corporation,
and its successors, including, without limitation, the Company.

"Foreign Exchange Agreement" means any foreign exchange contract, currency
swap agreement or other similar agreement or arrangement designed to protect
against fluctuations in currency values.

"GAAP" means generally accepted accounting principles as in effect in the
United States of America as of June 1, 1995.

"Holdings" means Food 4 Less Holdings, Inc., a Delaware corporation, and
its successors.

"Holdings Registration Rights Agreement" means that certain Registration
Rights Agreement by and between RGC Partners, L.P., Holdings and Food 4 Less, as
such Registration Rights Agreement may be

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amended or replaced, so long as any amounts paid by Holdings and the Company
under any amended or replacement agreement do not exceed the amounts payable by
Holdings and the Company under such Registration Rights Agreement as in effect
on June 14, 1995.

"Indebtedness" means with respect to any person, without duplication, (i)
all liabilities, contingent or otherwise, of such person (a) for borrowed money
(whether or not the recourse of the lender is to the whole of the assets of such
person or only to a portion thereof), (b) evidenced by bonds, notes, debentures,
drafts accepted or similar instruments or letters of credit or representing the
balance deferred and unpaid of the purchase price of any property (other than
any such balance that represents an account payable or any other monetary
obligation to a trade creditor (whether or not an Affiliate) created, incurred,
assumed or guaranteed by such person in the ordinary course of business of such
person in connection with obtaining goods, materials or services and due within
twelve months (or such longer period for payment as is customarily extended by
such trade creditor) of the incurrence thereof, which account is not overdue by
more than 90 days, according to the original terms of sale, unless such account
payable is being contested in good faith), or (c) for the payment of money
relating to a Capitalized Lease Obligation; (ii) the maximum fixed repurchase
price of all Disqualified Capital Stock of such person; (iii) reimbursement
obligations of such person with respect to letters of credit; (iv) obligations
of such person with respect to Interest Swap Obligations and Foreign Exchange
Agreements; (v) all liabilities of others of the kind described in the preceding
clause (i), (ii), (iii) or (iv) that such person has guaranteed or that is
otherwise its legal liability; and (vi) all obligations of others secured by a
Lien to which any of the properties or assets (including, without limitation,
leasehold interests and any other tangible or intangible property rights) of
such person are subject, whether or not the obligations secured thereby shall
have been assumed by such person or shall otherwise be such person's legal
liability (provided that if the obligations so secured have not been assumed by
such person or are not otherwise such person's legal liability, such obligations
shall be deemed to be in an amount equal to the fair market value of such
properties or assets, as determined in good faith by the Board of Directors of
such person, which determination shall be evidenced by a Board Resolution). For
purposes of the preceding sentence, the "maximum fixed repurchase price" of any
Disqualified Capital Stock that does not have a fixed repurchase price shall be
calculated in accordance with the terms of such Disqualified Capital Stock as if
such Disqualified Capital Stock were purchased on any date on which Indebtedness
shall be required to be determined pursuant to the Indenture, and if such price
is based upon, or measured by, the fair market value of such Disqualified
Capital Stock (or any equity security for which it may be exchanged or
converted), such fair market value shall be determined in good faith by the
Board of Directors of such person, which determination shall be evidenced by a
Board Resolution. For purposes of the Indenture, Indebtedness incurred by any
person that is a general partnership (other than non-recourse Indebtedness)
shall be deemed to have been incurred by the general partners of such
partnership pro rata in accordance with their respective interests in the
liabilities of such partnership unless any such general partner shall, in the
reasonable determination of the Board of Directors of the Company, be unable to
satisfy its pro rata share of the liabilities of the partnership, in which case
the pro rata share of any Indebtedness attributable to such partner shall be
deemed to be incurred at such time by the remaining general partners on a pro
rata basis in accordance with their interests.

"Independent Financial Advisor" means a reputable accounting, appraisal or
nationally recognized investment banking or consulting firm that is, in the
reasonable judgment of the Board of Directors of the Company, qualified to
perform the tasks for which such firm has been engaged and disinterested and
independent with respect to the Company and its Affiliates.

"Interest Swap Obligation" means any obligation of any person pursuant to
any arrangement with any other person whereby, directly or indirectly, such
person is entitled to receive from time to time periodic payments calculated by
applying either a fixed or floating rate of interest on a stated notional amount
in exchange for periodic payments made by such person calculated by applying a
fixed or floating rate of interest on the same notional amount; provided that
the term "Interest Swap Obligation" shall also include interest rate exchange,
collar, cap, swap option or similar agreements providing interest rate
protection.

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advances to employees for moving and travel expenses, as salary advances or to
permit the purchase of Qualified Capital Stock of Holdings or any of its
Subsidiaries and other similar customary expenses incurred, in each case in the
ordinary course of business consistent with past practice) or similar credit
extension constituting Indebtedness of such other person, and any guarantee of
Indebtedness of any other person.

"Issue Date" means the date of original issuance of the Notes under the
Indenture.

"Letter of Credit Obligations" means Indebtedness of the Company or any of
its Subsidiaries with respect to letters of credit issued pursuant to the Credit
Agreement, and for purposes of the definition of the term "Permitted
Indebtedness," the aggregate principal amount of Indebtedness outstanding at any
time with respect thereto, shall be deemed to consist of (a) the aggregate
maximum amount then available to be drawn under all such letters of credit (the
determination of such maximum amount to assume compliance with all conditions
for drawing), and (b) the aggregate amount that has then been paid by, and not
reimbursed to, the issuers under such letters of credit.

"Lien" means any mortgage, pledge, lien, encumbrance, charge or adverse
claim affecting title or resulting in an encumbrance against real or personal
property, or a security interest of any kind (including any conditional sale or
other title retention agreement, any lease in the nature thereof, any option or
other agreement to sell which is intended to constitute or create a security
interest, mortgage, pledge or lien, and any filing of or agreement to give any
financing statement under the Uniform Commercial Code (or equivalent statutes)
of any jurisdiction); provided that in no event shall an operating lease be
deemed to constitute a Lien under the Indenture.

"Maturity Date" means June 15, 2005.

"Merger" means (i) the merger of Food 4 Less into Ralphs Supermarkets, Inc.
(with Ralphs Supermarkets, Inc. surviving such merger) pursuant to the Merger
Agreement and (ii) immediately following the merger described in clause (i) of
this definition, the merger of Ralphs Grocery Company into Ralphs Supermarkets,
Inc. (with Ralphs Supermarkets, Inc. surviving such merger and changing its name
to "Ralphs Grocery Company" in connection with such merger).

"Merger Agreement" means the Agreement and Plan of Merger, dated September
14, 1994, by and among Holdings, Food 4 Less, Inc., Food 4 Less, RSI and the
stockholders of RSI, as such agreement was in effect on June 14, 1995.

"Net Cash Proceeds" means the Net Proceeds of any Asset Sale received in
the form of cash or Cash Equivalents.

"Net Proceeds" means (a) in the case of any Asset Sale or any issuance and
sale by any person of Qualified Capital Stock, the aggregate net proceeds
received by such person after payment of expenses, taxes, commissions and the
like incurred in connection therewith (and, in the case of any Asset Sale, net
of the amount of cash applied to repay Indebtedness secured by the asset
involved in such Asset Sale), whether such proceeds are in cash or in property
(valued at the fair market value thereof at the time of receipt as determined
with respect to any Asset Sale resulting in Net Proceeds in excess of $5 million
in good faith by the Board of Directors of such person, which determination
shall be evidenced by a Board Resolution) and (b) in the case of any conversion
or exchange of any outstanding Indebtedness or Disqualified Capital Stock of
such person for or into shares of Qualified Capital Stock of the Company, the
sum of (i) the fair market value of the proceeds received by the Company in
connection with the issuance of such Indebtedness or Disqualified Capital Stock
on the date of such issuance and (ii) any additional amount paid by the Holder
to the Company upon such conversion or exchange.

"New Discount Debenture Indenture" means the indenture dated as of June 14,
1995 under which the 13 5/8% Senior Discount Debentures due 2005 of Holdings
were issued, as the same may be modified and amended from time to time and
refinancings thereof to the extent such refinancings are permitted under the
Indenture.

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"New Discount Debentures" means the 13 5/8% Senior Discount Debentures due
2005 of Holdings issued pursuant to the New Discount Debenture Indenture, as the
same may be modified or amended from time to time and future refinancings
thereof to the extent such refinancings are permitted under the Indenture.

"Operating Coverage Ratio" means, with respect to any person, the ratio of
(1) EBDIT of such person for the period (the "Pro Forma Period") consisting of
the most recent four full fiscal quarters for which financial information in
respect thereof is available immediately prior to the date of the transaction
giving rise to the need to calculate the Operating Coverage Ratio (the
"Transaction Date") to (2) the aggregate Fixed Charges of such person for the
fiscal quarter in which the Transaction Date occurs and the three fiscal
quarters immediately subsequent to such fiscal quarter (the "Forward Period")
reasonably anticipated by the Board of Directors of such person to become due
from time to time during such period. In addition to, but without duplication
of, the foregoing, for purposes of this definition, "EBDIT" shall be calculated
after giving effect (without duplication), on a pro forma basis for the Pro
Forma Period (but no longer), to (a) any Investment, during the period
commencing on the first day of the Pro Forma Period to and including the
Transaction Date (the "Reference Period"), in any other person that, as a result
of such Investment, becomes a subsidiary of such person, (b) the acquisition,
during the Reference Period (by merger, consolidation or purchase of stock or
assets) of any business or assets, which acquisition is not prohibited by the
Indenture, and (c) any sales or other dispositions of assets (other than sales
of inventory in the ordinary course of business) occurring during the Reference
Period, in each case as if such incurrence, Investment, repayment, acquisition
or asset sale had occurred on the first day of the Reference Period. In
addition, for purposes of this definition, "Fixed Charges" shall be calculated
after giving effect (without duplication), on a pro forma basis for the Forward
Period, to any Indebtedness incurred or repaid on or after the first day of the
Forward Period and prior to the Transaction Date. If such person or any of its
subsidiaries directly or indirectly guarantees any Indebtedness of a third
person, the Operating Coverage Ratio shall give effect to the incurrence of such
Indebtedness as if such person or subsidiary had directly incurred such
guaranteed Indebtedness.

"operating lease" means any lease the obligations under which do not
constitute Capitalized Lease Obligations.

"Pari Passu Indebtedness" means, with respect to the Company or any
Subsidiary Guarantor, Indebtedness of such person which ranks pari passu in
right of payment to the Notes or the Guarantee of such Subsidiary Guarantor, as
the case may be in each case, whether or not secured by any Lien.

"Payment Restriction" means, with respect to a subsidiary of any person,
any encumbrance, restriction or limitation, whether by operation of the terms of
its charter or by reason of any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation, on the ability of (i) such subsidiary
to (a) pay dividends or make other distributions on its Capital Stock or make
payments on any obligation, liability or Indebtedness owed to such person or any
other subsidiary of such person, (b) make loans or advances to such person or
any other subsidiary of such person or (c) transfer any of its properties or
assets to such person or any other subsidiary of such person, or (ii) such
person or any other subsidiary of such person to receive or retain any such (a)
dividends, distributions or payments, (b) loans or advances or (c) transfer of
properties or assets.

"Permitted Holder" means (i) Food 4 Less Equity Partners, L.P. and The
Yucaipa Companies, or any entity controlled thereby or any of the partners
thereof, (ii) Apollo Advisors, L.P., Lion Advisors, L.P. or any entity
controlled thereby or any of the partners thereof, (iii) an employee benefit
plan of the Company, or any of its subsidiaries or any participant therein, (iv)
a trustee or other fiduciary holding securities under an employee benefit plan
of the Company or any of its subsidiaries or (v) any Permitted Transferee of any
of the foregoing persons.

"Permitted Indebtedness" means (a) Indebtedness of the Company and its
Subsidiaries (and the Company and each Subsidiary (to the extent it is not an
obligor) may guarantee such Indebtedness) pursuant to (i) the Term Loans in an
aggregate principal amount at any time outstanding not to exceed $600 million
less the aggregate amount of all principal repayments thereunder pursuant to and
in accordance with the covenant described under "-- Certain
Covenants -- Limitation on Asset Sales" above subsequent to June 14, 1995, (ii)
the revolving credit facility under the Credit Agreement (including the Letter
of Credit

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Obligations) in an aggregate principal amount at any time outstanding not to
exceed $325 million, less all permanent reductions thereunder pursuant to and in
accordance with the covenant described under "-- Certain Covenants -- Limitation
on Asset Sales" above since June 14, 1995, and (iii) any Indebtedness incurred
under the Credit Agreement pursuant to and in compliance with (A) clause (m) of
this definition and (B) the covenant described above under the caption
"-- Limitation on Incurrences of Additional Indebtedness" (other than Permitted
Indebtedness that is not incurred pursuant to clause (m) or this clause (a) of
this definition); (b) Indebtedness of the Company or a Subsidiary Guarantor owed
to and held by the Company or a Subsidiary Guarantor; (c) Indebtedness incurred
by the Company or any Subsidiary in connection with the purchase or improvement
of property (real or personal) or equipment or other capital expenditures in the
ordinary course of business (including for the purchase of assets or stock of
any retail grocery store or business) or consisting of Capitalized Lease
Obligations, provided that (i) at the time of the incurrence thereof, such
Indebtedness, together with any other Indebtedness incurred during the most
recently completed four fiscal quarter period in reliance upon this clause (c)
does not exceed, in the aggregate, 3% of net sales of the Company and its
Subsidiaries during the most recently completed four fiscal quarter period on a
consolidated basis and (ii) such Indebtedness, together with all then
outstanding Indebtedness incurred in reliance upon this clause (c) does not
exceed, in the aggregate, 3% of the aggregate net sales of the Company and its
Subsidiaries during the most recently completed twelve fiscal quarter period on
a consolidated basis (calculated on a pro forma basis if the date of incurrence
is prior to the end of the twelfth fiscal quarter following the Merger); (d)
Indebtedness incurred by the Company or any Subsidiary in connection with
capital expenditures in an aggregate principal amount not exceeding $150 million
(less the aggregate principal amount of any Indebtedness incurred by the Company
or any Subsidiary on or prior to the Issue Date in reliance on clause (d) of the
definition of "Permitted Indebtedness" under the indenture governing the 1995
Senior Subordinated Notes), provided that such capital expenditures relate
solely to the integration of the operations of RSI, Food 4 Less and their
respective subsidiaries as described in prospectus of Food 4 Less dated May 31,
1995; (e) Indebtedness of the Company or any Subsidiary incurred under certain
Foreign Exchange Agreements and Interest Swap Obligations entered into with
respect to Indebtedness otherwise permitted to be outstanding pursuant to the
covenant described above under the caption "-- Limitation on Incurrences of
Additional Indebtedness" or this definition of Permitted Indebtedness in a
notional amount not exceeding the aggregate principal amount of such
Indebtedness; (f) guarantees incurred in the ordinary course of business by the
Company or a Subsidiary of Indebtedness of any other person in aggregate not to
exceed $25 million at any time outstanding (less the amount of any guarantees
incurred by the Company or any Subsidiary on or prior to the Issue Date in
reliance on clause (f) of the definition of "Permitted Indebtedness" under the
indenture governing the 1995 Senior Subordinated Notes until such guarantees are
no longer outstanding); (g) guarantees by the Company or a Subsidiary Guarantor
of Indebtedness incurred by a wholly-owned Subsidiary Guarantor so long as the
incurrence of such Indebtedness incurred by such wholly-owned Subsidiary
Guarantor is permitted under the terms of the Indenture; (h) Refinancing
Indebtedness; (i) Indebtedness for letters of credit relating to workers'
compensation claims and self-insurance or similar requirements in the ordinary
course of business; (j) Existing Indebtedness and other Indebtedness outstanding
on the Issue Date; (k) Indebtedness arising from guarantees of Indebtedness of
the Company or any Subsidiary or other agreements of the Company or a Subsidiary
providing for indemnification, adjustment of purchase price or similar
obligations, in each case, incurred or assumed in connection with the
disposition of any business, assets or Subsidiary, other than guarantees of
Indebtedness incurred by any person acquiring all or any portion of such
business, assets or Subsidiary for the purpose of financing such acquisition;
provided that the maximum aggregate liability in respect of all such
Indebtedness shall at no time exceed the gross proceeds actually received by the
Company and its Subsidiaries in connection with such disposition; (l)
obligations in respect of performance bonds and completion guarantees provided
by the Company or any Subsidiary in the ordinary course of business; and (m)
additional Indebtedness of the Company and the Subsidiary Guarantors in an
amount not to exceed $175 million at any time outstanding (less the amount of
any Indebtedness incurred by the Company or any Subsidiary Guarantor on or prior
to the Issue Date in reliance on clause (m) of the definition of "Permitted
Indebtedness" under the indenture governing the 1995 Senior Subordinated Notes
until such Indebtedness is repaid or no longer outstanding).

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"Permitted Investment" by any person means (i) any Related Business
Investment, (ii) Investments in securities not constituting cash or Cash
Equivalents and received in connection with an Asset Sale made pursuant to the
provisions of the covenant described under "-- Certain Covenants -- Limitation
on Asset Sales" above or any other disposition of assets not constituting an
Asset Sale by reason of the $500,000 threshold contained in the definition
thereof, (iii) cash and Cash Equivalents, (iv) Investments existing on the Issue
Date, (v) Investments specifically permitted by and made in accordance with the
provisions of the covenant described under "-- Certain Covenants -- Limitation
on Transactions with Affiliates," (vi) Investments by Subsidiary Guarantors in
other Subsidiary Guarantors or the Company and Investments by the Company in a
Subsidiary Guarantor in the form of Indebtedness owed to the Company by such
Subsidiary Guarantor and Investments by Subsidiaries which are not Subsidiary
Guarantors in other Subsidiaries which are not Subsidiary Guarantors and (vii)
additional Investments in an aggregate amount not exceeding $15 million.

"Permitted Liens" means (i) Liens for taxes, assessments and governmental
charges or claims not yet due or which are being contested in good faith by
appropriate proceedings promptly instituted and diligently conducted and if a
reserve or other appropriate provision, if any, as shall be required in
conformity with GAAP shall have been made therefor; (ii) statutory Liens of
landlords and carriers, warehousemen, mechanics, suppliers, materialmen,
repairmen or other like Liens arising in the ordinary course of business,
deposits made to obtain the release of such Liens, and with respect to amounts
not yet delinquent for a period of more than 60 days or being contested in good
faith by an appropriate process of law, and for which a reserve or other
appropriate provision, if any, as shall be required by GAAP shall have been
made; (iii) Liens incurred or pledges or deposits made in the ordinary course of
business to secure obligations under workers' compensation, unemployment
insurance and other types of social security or similar legislation; (iv) Liens
incurred or deposits made to secure the performance of tenders, bids, leases,
statutory obligations, surety and appeal bonds, government contracts,
performance and return of money bonds and other obligations of a like nature
incurred in the ordinary course of business (exclusive of obligations for the
payment of borrowed money); (v) easements, rights-of-way, zoning or other
restrictions, minor defects or irregularities in title and other similar charges
or encumbrances not interfering in any material respect with the business of the
Company or any of its Subsidiaries incurred in the ordinary course of business;
(vi) Liens upon specific items of inventory or other goods and proceeds of any
person securing such person's obligations in respect of bankers' acceptances
issued or created for the account of such person to facilitate the purchase,
shipment or storage of such inventory or other goods in the ordinary course of
business; (vii) Liens securing reimbursement obligations with respect to letters
of credit which encumber documents and other property relating to such letters
of credit and the products and proceeds thereof; (viii) Liens in favor of
customs and revenue authorities arising as a matter of law to secure payment of
nondelinquent customs duties in connection with the importation of goods; (ix)
judgment and attachment Liens not giving rise to a Default or Event of Default;
(x) leases or subleases granted to others not interfering in any material
respect with the business of the Company or any Subsidiary; (xi) Liens
encumbering customary initial deposits and margin deposits, and other Liens
incurred in the ordinary course of business that are within the general
parameters customary in the industry, in each case securing Indebtedness under
Interest Swap Obligations and Foreign Exchange Agreements and forward contracts,
option futures contracts, futures options or similar agreements or arrangements
designed to protect the Company or any Subsidiary from fluctuations in the price
of commodities; (xii) Liens encumbering deposits made in the ordinary course of
business to secure nondelinquent obligations arising from statutory, regulatory,
contractual or warranty requirements of the Company or its Subsidiaries for
which a reserve or other appropriate provision, if any, as shall be required by
GAAP shall have been made; (xiii) Liens arising out of consignment or similar
arrangements for the sale of goods entered into by the Company or any Subsidiary
in the ordinary course of business in accordance with past practices; (xiv) any
interest or title of a lessor in the property subject to any lease, whether
characterized as capitalized or operating other than any such interest or title
resulting from or arising out of a default by the Company or any Subsidiary of
its obligations under such lease; (xv) Liens arising from filing UCC financing
statements for precautionary purposes in connection with true leases of personal
property that are otherwise permitted under the Indenture and under which the
Company or any Subsidiary is lessee; (xvi) Liens on assets of the Company
securing Indebtedness which would constitute Senior Indebtedness but for the
provisions of clause

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(c) in the third sentence of the definition of "Senior Indebtedness" and Liens
on assets of a Subsidiary Guarantor securing Indebtedness which would constitute
Guarantor Senior Indebtedness but for the provisions of clause (c) in the third
sentence of the definition of "Guarantor Senior Indebtedness"; and (xvii)
additional Liens securing Indebtedness in aggregate principal amount at any one
time outstanding not exceeding the sum of (i) $25 million and (ii) 10% of the
aggregate Consolidated Net Income of the Company earned subsequent to June 14,
1995 and on or prior to such time.

"Permitted Payments" means (i) any payment by the Company or any
Subsidiary, or any dividend by the Company or any Subsidiary to Holdings the
proceeds of which are utilized by Holdings to make payments, to The Yucaipa
Companies or the principals or any Affiliates thereof for consulting,
management, investment banking or similar services, or for reimbursement of
losses, costs and expenses pursuant to the Consulting Agreement, (ii) any
payment by the Company or any Subsidiary pursuant to the Second Amended and
Restated Tax Sharing Agreement, dated as of June 14, 1995, by and among the
Company, all direct and indirect subsidiaries, and Holdings as such Tax Sharing
Agreement may be amended from time to time, so long as the payment thereunder by
the Company and its Subsidiaries shall not exceed the amount of taxes the
Company would be required to pay if it were the filing person for all applicable
taxes, (iii) any payment by the Company or any Subsidiary pursuant to the
Transfer and Assumption Agreement, dated as of June 23, 1989, between Food 4
Less and Holdings, as in effect on the Issue Date, (iv) any payment by the
Company or any Subsidiary, or any dividend by the Company or any Subsidiary to
Holdings the proceeds of which are used by Holdings to make payments, (a) in
connection with repurchases of outstanding shares of the Company's or Holdings'
Common Stock following the death, disability or termination of employment of
management stockholders, and (b) of amounts required to be paid by Holdings, the
Company or any of its Subsidiaries to participants or former participants in
employee benefit plans upon termination of employment by such participants, as
provided in the documents related thereto, in an aggregate amount (for both
clauses (a) and (b)) not to exceed $10 million in any Yearly Period (provided
that any unused amounts may be carried over to any subsequent Yearly Period
subject to a maximum amount of $20 million in any Yearly Period), (v) from and
after June 15, 2000, payments of cash dividends to Holdings in an amount
sufficient to enable Holdings to make payments of interest required to be made
in respect of the Seller Debentures and the New Discount Debentures in an amount
not to exceed the amount payable thereunder in accordance with the terms thereof
in effect on June 14, 1995, (vi) dividends or other payments to Holdings
sufficient to enable Holdings to perform accounting, legal, corporate reporting
and administrative functions in the ordinary course of business or to pay
required fees and expenses in connection with the Merger and the registration
under applicable laws and regulations of its debt or equity securities, (vii)
dividends by the Company to Holdings of the Net Cash Proceeds of an Asset Sale
to the extent that (a) the Company or any of the Subsidiaries is required
pursuant to the Indenture to utilize such Net Cash Proceeds to repay the Notes
(and has complied with all such requirements), (b) such Net Cash Proceeds are
not required to be and have not been utilized to repay outstanding Indebtedness
of the Company or any of the Subsidiaries and (c) Holdings is required pursuant
to the documents governing any outstanding Indebtedness of Holdings to utilize
such Net Cash Proceeds to repay such Indebtedness (it being understood that only
the amounts not utilized as described in clauses (a) and (b) of this clause
(vii) shall be permitted to be distributed to Holdings pursuant to this clause
(vii)) and (viii) for so long as the sole business activity of such partnership
is to acquire, hold, sell, exchange, transfer or otherwise dispose of all or any
portion of the New Discount Debentures and to manage its investment in the New
Discount Debentures, any payment by the Company or any Subsidiary, or any
dividend or loan to Holdings, the proceeds of which are utilized by Holdings to
fund ongoing costs and expenses of RGC Partners, L.P. pursuant to the
Subscription Agreement and the Holdings Registration Rights Agreement.

"Permitted Subordinated Reorganization Securities" means securities of the
Company issued in a plan of reorganization in a case under the Bankruptcy Law
relating to the Company which constitutes either (y) Capital Stock (other than
Disqualified Capital Stock with the reference to "Maturity Date" in the
definition of such term modified to relate to the final stated maturity of any
debt securities issued in such plan of reorganization to the holders of
Designated Senior Indebtedness ("Senior Reorganization Securities")) and (z)
debt securities of the Company which are (i) unsecured, (ii) have no scheduled
mandatory amortization thereon prior to the final stated maturity of the Senior
Reorganization Securities and (iii) are

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subordinated in right of payment to the Senior Reorganization Securities to at
least the same extent as the Securities are subordinated to Designated Senior
Indebtedness.

"Permitted Transferees" means, with respect to any person, (i) any
Affiliate of such person, (ii) the heirs, executors, administrators,
testamentary trustees, legatees or beneficiaries of any such person, (iii) a
trust, the beneficiaries of which, or a corporation or partnership, the
stockholders or general or limited partners of which, include only such person
or his or her spouse or lineal descendants, in each case to whom such person has
transferred the beneficial ownership of any securities of the Company, (iv) any
investment account whose investment managers and investment advisors consist
solely of such person and/or Permitted Transferees of such person and (v) any
investment fund or investment entity that is a subsidiary of such person or a
Permitted Transferee of such person.

"Plan of Liquidation" means, with respect to any person, a plan that
provides for, contemplates or the effectuation of which is preceded or
accompanied by (whether or not substantially contemporaneously, in phases or
otherwise) (i) the sale, lease, conveyance or other disposition of all or
substantially all of the assets of such person otherwise than as an entirety or
substantially as an entirety and (ii) the distribution of all or substantially
all of the proceeds of such sale, lease, conveyance or other disposition and all
or substantially all of the remaining assets of such person to holders of
Capital Stock of such person.

"Preferred Stock" means, with respect to any person, Capital Stock of any
class or classes (however designated) which is preferred as to the payment of
dividends or distributions, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such person, over shares
of Capital Stock of any other class of such person.

"pro forma" means, with respect to any calculation made or required to be
made pursuant to the terms of the Indenture, a calculation in accordance with
Article 11 of Regulation S-X under the Securities Act, as interpreted by the
Company's chief financial officer or Board of Directors in consultation with its
independent certified public accountants.

"Public Equity Offering" means an underwritten public offering of Common
Stock of the Company or Holdings pursuant to a registration statement filed with
the Commission in accordance with the Securities Act which public equity
offering results in gross proceeds to the Company or Holdings, as the case may
be, of not less than $20 million; provided, however, that in the case of a
Public Equity Offering by Holdings, Holdings contributes to the capital of the
Company net cash proceeds in an amount sufficient to redeem Notes called for
redemption in accordance with the terms thereof.

"Qualified Capital Stock" means, with respect to any person, any Capital
Stock of such person that is not Disqualified Capital Stock.

"Refinancing Indebtedness" means, with respect to any person, Indebtedness
of such person issued in exchange for, or the proceeds from the issuance and
sale or disbursement of which are used to substantially concurrently repay,
redeem, refund, refinance, discharge or otherwise retire for value, in whole or
in part (collectively, "repay"), or constituting an amendment, modification or
supplement to, or a deferral or renewal of (collectively, an "amendment"), any
Indebtedness of such person existing on the Issue Date or Indebtedness (other
than Permitted Indebtedness, except Permitted Indebtedness incurred pursuant to
clauses (c), (d), (h) and (j) of the definition thereof) incurred in accordance
with the Indenture (a) in a principal amount (or, if such Refinancing
Indebtedness provides for an amount less than the principal amount thereof to be
due and payable upon the acceleration thereof, with an original issue price) not
in excess of (without duplication) (i) the principal amount or the original
issue price, as the case may be, of the Indebtedness so refinanced (or, if such
Refinancing Indebtedness refinances Indebtedness under a revolving credit
facility or other agreement providing a commitment for subsequent borrowings,
with a maximum commitment not to exceed the maximum commitment under such
revolving credit facility or other agreement) plus (ii) unpaid accrued interest
on such Indebtedness plus (iii) premiums, penalties, fees and expenses actually
incurred by such person in connection with the repayment or amendment thereof
and (b) with respect to Refinancing Indebtedness that repays or constitutes an
amendment to Subordinated Indebtedness, such Refinancing Indebtedness (x) shall
not have any fixed mandatory redemption or sinking

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fund requirement in an amount greater than or at a time prior to the amounts and
times specified in such repaid or amended Subordinated Indebtedness, except to
the extent that any such requirement applies on a date after the Maturity Date
of the Notes and (y) shall contain subordination and default provisions no less
favorable in any material respect to Holders of the Notes than those contained
in such repaid or amended Subordinated Indebtedness.

"Related Business Investment" means (i) any Investment by a person in any
other person a majority of whose revenues are derived from the operation of one
or more retail grocery stores or supermarkets or any other line of business
engaged in by the Company or any of its Subsidiaries as of the Issue Date; (ii)
any Investment by such person in any cooperative or other supplier, including,
without limitation, any joint venture which is intended to supply any product or
service useful to the business of the Company and its Subsidiaries as it is
conducted as of the Issue Date and as such business may thereafter evolve or
change; and (iii) any capital expenditure or Investment, in each case reasonably
related to the business of the Company and its Subsidiaries as it is conducted
as of the Issue Date and as such business may thereafter evolve or change.

"Restricted Debt Prepayment" means any purchase, redemption, defeasance
(including, but not limited to, in substance or legal defeasance) or other
acquisition or retirement for value, directly or indirectly, by the Company or a
Subsidiary, prior to the scheduled maturity or prior to any scheduled repayment
of principal or sinking fund payment, as the case may be, in respect of
Subordinated Indebtedness.

"Restricted Payment" means any (i) Stock Payment, (ii) Investment (other
than a Permitted Investment) or (iii) Restricted Debt Prepayment.

"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission promulgated thereunder.

"Seller Debentures" means the 13 5/8% Senior Subordinated Pay-in-Kind
Debentures due 2007 of Holdings issued pursuant to the Seller Debenture
Indenture, including any additional 13 5/8% Senior Subordinated Pay-in-Kind
Debentures due 2007 issued as interest thereon, in each case, as such Seller
Debentures may be modified or amended from time to time and future refinancings
thereof to the extent such refinancings are permitted under the Indenture.

"Seller Debenture Indenture" means the indenture between Holdings and
Norwest Minnesota, N.A., as trustee, dated as of June 14, 1995 under which the
13 5/8% Senior Subordinated Pay-in-Kind Debentures due 2007 of Holdings were
issued, as the same may be modified and amended from time to time and
refinancings thereof to the extent such refinancings are permitted under the
Indenture.

"Senior Indebtedness" means the principal of, premium, if any, and interest
on, and all other Obligations with respect to, any Indebtedness of the Company,
whether outstanding on the Issue Date or thereafter created, incurred or
assumed, unless, in the case of any particular Indebtedness, the instrument
creating or evidencing the same or pursuant to which the same is outstanding
expressly provides that such Indebtedness shall not be senior in right of
payment to the Notes. Without limiting the generality of the foregoing, "Senior
Indebtedness" shall include (x) the principal of, premium, if any, and interest
on all obligations of every nature of the Company from time to time owed to the
lenders under the Credit Agreement including, without limitation, the Letter of
Credit Obligations and principal of and interest on, all fees and expenses
payable under the Credit Agreement and (y) interest accruing thereon subsequent
to the occurrence of any Event of Default specified in clause (vi) or (vii)
under "-- Events of Default" relating to the Company, whether or not the claim
for such interest is allowed under any applicable Bankruptcy Law.
Notwithstanding the foregoing, "Senior Indebtedness" shall not include (a)
Indebtedness evidenced by the Notes, (b) Indebtedness that is expressly
subordinate or junior in right of payment to any Indebtedness of the Company,
(c) Indebtedness which, when incurred and without respect to any election under
Section 1111(b) of Title 11, United States Code, is without recourse to the
Company (other than Capitalized Lease Obligations), (d) Indebtedness which is
represented by Disqualified Capital Stock, (e) obligations for goods, materials
or services purchased in the ordinary course of business or obligations
consisting of trade payables, (f) Indebtedness of or amounts owed by the Company
for compensation to employees or for services rendered to the Company, (g) any
liability for federal, state, local or other taxes owed or owing by the Company,
(h) Indebtedness of the

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Company to a Subsidiary of the Company, and (i) that portion of any Indebtedness
which is incurred by the Company in violation of the Indenture.

"Significant Stockholder" means, with respect to any person, any other
person who is the beneficial owner (within the meaning of Rule 13d-3 under the
Exchange Act) of more than 10% of any class of equity securities of such person
that are entitled to vote on a regular basis for the election of directors of
such person.

"Significant Subsidiary" means each subsidiary of the Company that is
either (a) a "significant subsidiary" as defined in Rule 1-02(v) of Regulation
S-X under the Securities Act and the Exchange Act (as such regulation is in
effect on the Issue Date) or (b) material to the financial condition or results
of operations of the Company and its Subsidiaries taken as a whole.

"Stock Payment" means, with respect to any person, (a) the declaration or
payment by such person, either in cash or in property, of any dividend on
(except, in the case of the Company, dividends payable solely in Qualified
Capital Stock of the Company), or the making by such person or any of its
subsidiaries of any other distribution in respect of, such person's Qualified
Capital Stock or any warrants, rights or options to purchase or acquire shares
of any class of such Capital Stock (other than exchangeable or convertible
Indebtedness of such person), or (b) the redemption, repurchase, retirement or
other acquisition for value by such person or any of its subsidiaries, directly
or indirectly, of such person's Qualified Capital Stock (and, in the case of a
Subsidiary, Qualified Capital Stock of the Company) or any warrants, rights or
options to purchase or acquire shares of any class of such Capital Stock (other
than exchangeable or convertible Indebtedness of such person), other than, in
the case of the Company, through the issuance in exchange therefor solely of
Qualified Capital Stock of the Company; provided, however, that in the case of a
Subsidiary, the term "Stock Payment" shall not include any such payment with
respect to its Capital Stock or warrants, rights or options to purchase or
acquire shares of any class of its Capital Stock that are owned solely by the
Company or a wholly-owned Subsidiary.

"Subordinated Indebtedness" means, with respect to the Company or any
Subsidiary Guarantor, Indebtedness of such person which is subordinated in right
of payment to the Notes or the Guarantee of such Subsidiary Guarantor, as the
case may be.

"Subscription Agreement" means that certain Subscription Agreement, between
RGC Partners, L.P., Holdings, Food 4 Less and the partnership investors listed
on Exhibit A thereto, as such Subscription Agreement may be amended or replaced,
so long as any amounts paid by Holdings and the Company under any amended or
replacement agreement do not exceed the amounts payable by Holdings and the
Company under such Subscription Agreement as in effect on June 14, 1995.

"subsidiary" of any person means (i) a corporation a majority of whose
Capital Stock with voting power, under ordinary circumstances, to elect
directors is, at the date of determination, directly or indirectly, owned by
such person, by one or more subsidiaries of such person or by such person and
one or more subsidiaries of such person or (ii) a partnership in which such
person or a subsidiary of such person is, at the date of determination, a
general partner of such partnership, but only if such person or its subsidiary
is entitled to receive more than fifty percent of the assets of such partnership
upon its dissolution, or (iii) any other person (other than a corporation or a
partnership) in which such person, a subsidiary of such person or such person
and one or more subsidiaries of such person, directly or indirectly, at the date
of determination, has (x) at least a majority ownership interest or (y) the
power to elect or direct the election of a majority of the directors or other
governing body of such person.

"Subsidiary" means any subsidiary of the Company.

"Subsidiary Guarantor" means (i) each of Alpha Beta Company, Bay Area
Warehouse Stores, Inc., Bell Markets, Inc., Cala Co., Cala Foods, Inc.,
Falley's, Inc., Food 4 Less of California, Inc., Food 4 Less Merchandising,
Inc., Food 4 Less GM, Inc., Food 4 Less of Southern California, Inc., and
Crawford Stores, Inc., (ii) each of the Company's Subsidiaries which becomes a
guarantor of the Notes in compliance with the provisions set forth under
"-- Certain Covenants -- Guarantees of Certain Indebtedness," and (iii) each of
the Company's Subsidiaries executing a supplemental indenture in which such
Subsidiary agrees to be bound by the terms of the Indenture.

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"Term Loans" means the term loan facility under the Credit Agreement and
any agreement governing Indebtedness incurred to refund, replace or refinance
any borrowings outstanding under such facility or under any prior refunding,
replacement or refinancing thereof (in each case, in whole or in part, and
without limitation as to amount, terms, conditions, covenants and other
provisions).

"Yearly Period" means each fiscal year of the Company.

"The Yucaipa Companies" means The Yucaipa Companies, a California general
partnership, or any successor thereto which is an affiliate of Ronald W. Burkle
or his Permitted Transferees and which has been established for the sole purpose
of changing the form of The Yucaipa Companies from that of a partnership to that
of a limited liability company or any other form of entity which is not
materially adverse to the rights of the Holders under the Indenture.

DESCRIPTION OF THE CREDIT FACILITY

Set forth below is a summary of the material terms and conditions of the
Amended and Restated Credit Facility dated as of April 17, 1997 among the
Company, the Subsidiary Guarantors, Bankers Trust as Agent and the other lenders
party thereto (the "Refinanced Credit Facility"). This summary does not purport
to be a complete description of the Refinanced Credit Facility and is subject to
the detailed provisions of the loan agreement (the "Loan Agreement") and various
related documents entered into in connection with the Refinanced Credit
Facility. A copy of the Loan Agreement is available upon request from the
Company.

SUMMARY OF REFINANCED CREDIT FACILITY

General. The Refinanced Credit Facility was effective as of April 17, 1997
and is an amendment and restatement of the 1995 Credit Facility. The Refinanced
Credit Facility provides for (i) term loans in the aggregate amount of $550
million, currently comprised of a $200 million tranche which matures on February
15, 2003 (the "Tranche A Loan") and a $350 million tranche which matures on
February 15, 2004 (the "Tranche B Loan," and together with the Tranche A Loan,
the "Term Loans"); and (ii) the $325 million Revolving Facility (the "Revolving
Facility") under which working capital loans may be made and commercial or
standby letters of credit in the maximum aggregate amount of up to $150 million
may be issued, under which approximately $89.1 million of letters of credit were
outstanding as of April 27, 1997. As of April 27, 1997, the outstanding
principal amount of the Term Loans was $550 million and there was $111.5 million
outstanding under the Revolving Facility.

Proceeds of the term loans under the 1995 Credit Facility and initial
revolving loans under the 1995 Credit Facility, together with proceeds from the
other debt and equity financing transactions completed concurrently, were used
to fund the cash requirements for the acquisition of RSI, refinance existing
indebtedness of Ralphs and Food 4 Less, and pay various fees, expenses and other
costs associated with the Merger and the related financing. Upon the
effectiveness of the Refinanced Credit Facility, term loans and revolving loans
under the 1995 Credit Facility were converted into the Term Loans and revolving
loans under the Revolving Facility. Proceeds of loans under the Revolving
Facility were also used to pay fees, expenses and other costs associated with
such refinancing. The Revolving Facility is used to provide for the working
capital requirements and general corporate purposes of the Company and to issue
commercial and standby letters of credit to support workers' compensation
contingencies and for other corporate purposes.

Interest Rate; Fees. Borrowings under (i) the Revolving Facility and the
Tranche A Loan bear interest at a rate per annum equal to the Base Rate (as
defined in the Refinanced Credit Facility) plus a margin ranging from 0.25% to
1.25% or the Adjusted Eurodollar Rate (as defined in the Refinanced Credit
Facility) plus a margin ranging from 1.25% to 2.25%. The current margins for the
Revolving Facility and the Tranche A Loan are 0.75% for Base Rate Loans (as
defined in the Refinanced Credit Facility) and 1.75% for Eurodollar Rate Loans
(as defined in the Refinanced Credit Facility). Borrowings under the Tranche B
Loan bears interest at a rate per annum equal to the Base Rate plus a margin
ranging from 0.75% to 1.75% or the Adjusted Eurodollar Rate plus a margin
ranging from 1.75% to 2.75%. The current margins for the Tranche B Loan are
1.25% for Base Rate Loans and 2.25% for Eurodollar Rate Loans. Up to $30 million
of the Revolving Facility

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is available as a swingline facility and loans outstanding under the swingline
facility bear interest at a rate per annum equal to the Base Rate plus a margin
which ranges from 0.25% to 1.25% minus the Commitment Fee Percentage (as defined
in the Refinanced Credit Facility). After the occurrence of a default under the
Refinanced Credit Facility, interest will accrue at the rate equal to the rate
otherwise applicable under the Refinanced Credit Facility plus an additional
2.00% per annum. The Company pays the issuing bank a fee of 0.25% on each
standby letter of credit and each commercial letter of credit and pays the
lenders under the Refinanced Credit Facility a fee equal to the margin on
Eurodollar Rate Loans under the Revolving Facility (the "Eurodollar Margin")
minus the Commitment Fee Percentage for standby letters of credit and a fee
equal to the Eurodollar Margin minus 1% minus the Commitment Fee Percentage for
commercial letters of credit. Each of these fees is calculated based on the
amount available to be drawn under a letter of credit. In addition, the Company
will pay a commitment fee which ranges from 0.325% to 0.500% per annum on the
unused portions of the Revolving Facility and for purposes of calculating this
fee, loans under the swingline facility shall not be deemed to be outstanding.
The current commitment fee is 0.500%. The 1995 Credit Facility required the
Company to enter into hedging agreements to limit its exposure to increases in
interest rates for a period of not less than two years from the date of the
closing on the 1995 Credit Facility in an aggregate notional amount of not less
than $300 million. The Refinanced Credit Facility continues this requirement.
The Refinanced Credit Facility may be prepaid in whole or in part without
premium or penalty.

Amortization; Prepayments. The Tranche A Loan will mature on February 15,
2003, and the Tranche B Loan will mature on February 15, 2004. The Refinanced
Credit Facility provides for quarterly amortizations of the Term Loans in each
year as follows: $2.625 million in fiscal 1997, $3.5 million in fiscal 1998,
$25.5 million in fiscal 1999, $62.625 million in fiscal 2000, $87.5 million in
fiscal 2001, $112.75 million in fiscal 2002, $118.25 million in fiscal 2003 and
$137.25 million in fiscal 2004. Prepayments of Term Loans would reduce these
amortizations. The Revolving Facility will mature on February 15, 2003. The
Company is required to reduce loans outstanding under the Revolving Facility to
(i) $110 million for a period of not less than 30 consecutive days during each
period of twelve consecutive months through the end of Fiscal Year 1997 (as
defined in the Refinanced Credit Facility), and (ii) $100 million ($75 million
if the Company sells Cala for $25 million or more) for a period of not less than
30 consecutive days during each period of twelve consecutive months thereafter.
The Company is required to make certain prepayments, subject to certain
exceptions, on the Refinanced Credit Facility with 75% (100% for fiscal year
1997) of Consolidated Excess Cash Flow (as defined in the Refinanced Credit
Facility) and with the proceeds from certain asset sales, issuances of debt and
equity securities and any pension plan reversion. Such prepayments will be
allocated pro rata between the Tranche A Loans and Tranche B Loans and to
scheduled amortization payments of the Tranche A Loans and Tranche B Loans pro
rata. Mandatory prepayments on the Tranche B Loans will be used to make an offer
to repay such Loans and to the extent not accepted 50% of such amount will be
applied to reduce Tranche A Loans on a pro rata basis and the remaining 50% may
be retained by the Company.

Guarantees and Collateral. Holdings and all active subsidiaries of the
Company (including the Subsidiary Guarantors) have guaranteed the Company's
obligations under the Refinanced Credit Facility. The Company's obligations and
the guarantees of its subsidiaries are secured by substantially all personal
property of the Company and its subsidiaries, including a pledge of the stock of
all subsidiaries of the Company. Holdings' guarantee is secured by a pledge of
the stock of the Company. The Company's obligations also are secured by first
priority liens on certain real property fee interests of the Company and its
subsidiaries and on certain unencumbered leasehold interests of the Company and
its subsidiaries.

Covenants. The obligation of the lenders under the Refinanced Credit
Facility to advance funds is subject to the satisfaction of certain conditions
customary in agreements of this type. In addition, the Company is subject to
certain customary affirmative and negative covenants contained in the Refinanced
Credit Facility, including, without limitation, covenants that restrict, subject
to specified exceptions, (i) the incurrence of additional indebtedness and other
obligations, (ii) mergers or acquisitions, (iii) asset sales, (iv) the granting
of liens, (v) prepayment or repurchase of other indebtedness, (vi) engaging in
transactions with affiliates, or (vii) cash capital expenditures. Certain of
these covenants are more restrictive than those in favor of holders of the Notes
as described herein and as set forth in the Indenture. In addition, the
Refinanced

98
<PAGE> 100

Credit Facility requires that the Company maintain certain specified financial
covenants, including a minimum fixed charge coverage, a maximum ratio of total
debt to EBITDA and a minimum net worth.

Events of Default. The Refinanced Credit Facility also provides for
customary events of default. The occurrence of any of such events of default
could result in acceleration of the Company's obligations under the Refinanced
Credit Facility and foreclosure on the collateral securing such obligations,
which could have material adverse results to holders of the Notes.

DESCRIPTION OF HOLDINGS' INDEBTEDNESS

The New Discount Debentures. $100 million initial accreted value of 13 5/8%
Senior Discount Debentures due 2005 (the "New Discount Debentures") were issued
by Holdings upon consummation of the Merger. The New Discount Debentures will
have an aggregate principal amount of $193,363,570 at maturity and will mature
on July 15, 2005. The New Discount Debentures are senior unsecured obligations
of Holdings and rank senior in right of payment to all subordinated indebtedness
of Holdings, including the Seller Debentures. Until June 15, 2000, no interest
will accrue on the New Discount Debentures, but the Accreted Value (as defined
in the indenture governing the New Discount Debentures (the "New Debenture
Indenture")) will accrete at a rate of 13 5/8% (representing the amortization of
the original issue discount) from the date of original issuance until June 15,
2000, on a semi-annual bond equivalent basis using a 360 day year comprised of
twelve 30-day months, such that the Accreted Value shall be equal to the full
principal amount of the New Discount Debentures on June 15, 2000. The initial
Accreted Value per $1,000 principal amount of New Discount Debentures was
$519.92 (representing the original purchase price). Beginning on June 15, 2000,
cash interest on the New Discount Debentures will accrue at a rate of 13 5/8%
per annum and will be payable semi-annually in arrears on each June 15 and
December 15 of each year, commencing December 15, 2000, to the holders of record
on the immediately preceding June 1 and December 1.

On or after June 15, 2000, the New Discount Debentures may be redeemed, at
the option of Holdings, in whole at any time or in part from time to time, at a
redemption price equal to the applicable percentage of the principal amount
thereof set forth below, plus accrued and unpaid interest, to the redemption
date, if redeemed during the twelve-month period commencing on June 15 in the
years set forth below:

<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
------------------------------------- ----------------
<S> <C>
2000................................. 106.8125%
2001................................. 105.1094%
2002................................. 103.4063%
2003................................. 101.7031%
2004 and thereafter.................. 100.0000%
</TABLE>

Notwithstanding the foregoing, prior to June 15, 1998, Holdings may use the
net proceeds of a Public Equity Offering (as defined in the New Debenture
Indenture) of Holdings or the Company to redeem up to 35% of the New Discount
Debentures at a redemption price equal to 110% of the Accreted Value thereof on
the date of redemption.

In the event of a Change of Control (as defined in the New Debenture
Indenture), each holder has the right to require the repurchase of such holder's
New Discount Debentures at a purchase price equal to 101% of the Accreted Value
thereof on the Change of Control Payment Date (as defined in the New Debenture
Indenture) (if such date is prior to June 15, 2000) or 101% of the principal
amount thereof, plus accrued and unpaid interest, if any, to the Change of
Control Payment Date (if such date is on or after June 15, 2000).

The New Debenture Indenture contains covenants that, among other things,
limit the ability of Holdings to enter into certain mergers or consolidations or
incur certain liens or of Holdings or its subsidiaries to incur additional
indebtedness, pay dividends or make certain other Restricted Payments (as
defined in the New Debenture Indenture), or engage in certain transactions with
affiliates. Under certain circumstances, Holdings will be required to make an
offer to purchase New Discount Debentures at a price equal to 100% of the
Accreted Value thereof on the date of purchase, if such date is prior to June
15, 2000 or 100% of the principal

99
<PAGE> 101

amount thereof, plus accrued interest to the date of purchase, if such date is
on or after June 15, 2000, with the proceeds of certain Asset Sales (as defined
in the New Debenture Indenture). The New Debenture Indenture contains certain
customary events of defaults, which include the failure to pay interest and
principal, the failure to comply with certain covenants in the New Discount
Debentures or the New Debenture Indenture, a default under certain indebtedness,
the imposition of certain final judgments or warrants of attachment and certain
events occurring under bankruptcy laws.

Pursuant to the terms of a registration rights agreement entered into by
Holdings, Holdings filed a shelf registration statement with the Commission with
respect to the New Discount Debentures, and paid the expenses related thereto.
Pursuant to such registration statement, the initial holder of the New Discount
Debentures sold its entire interest in the New Discount Debentures.

The Seller Debentures. $131.5 million principal amount of 13 5/8% Senior
Subordinated Pay-In-Kind Debentures due 2007 (the "Seller Debentures") were
issued by Holdings to the stockholders of RSI upon consummation of the Merger.
The Seller Debentures were issued in an aggregate principal amount of $131.5
million and will mature on June 15, 2007. The Seller Debentures are general
unsecured obligations of Holdings and are subordinated to the prior payment when
due of all Senior Indebtedness (as defined in the indenture governing the Seller
Debentures (the "Debenture Indenture")), including the New Discount Debentures.
The Seller Debentures bear interest at a rate equal to 13 5/8% per annum,
payable semi-annually in arrears on each interest payment date. Holdings has the
option, in its sole discretion, to issue additional securities ("Secondary
Securities") in lieu of a cash payment of any or all of the interest due for the
period prior to the interest payment date five years after the date of issuance
of the Seller Debentures.

On or after June 15, 2000, the Seller Debentures may be redeemed, at the
option of Holdings, in whole at any time or in part from time to time, at a
redemption price equal to the applicable percentage of the principal amount
thereof set forth below, plus accrued and unpaid interest, if any, to the
redemption date, if redeemed during the twelve-month period commencing on June
15 in the years set forth below:

Notwithstanding the foregoing, prior to June 15, 1998, Holdings may use the
net proceeds of an Initial Public Offering (as defined in the Debenture
Indenture) of Holdings or Food 4 Less to redeem up to 35% of the Seller
Debentures at a redemption price equal to 110% of the principal amount thereof,
plus accrued and unpaid interest, if any, to the date of redemption.

In the event of a Change of Control (as defined in the Debenture
Indenture), each holder has the right to require the repurchase of such holder's
Seller Debentures at a purchase price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest, if any, to the date of purchase.

The Debenture Indenture contains certain covenants that, among other
things, limit the ability of Holdings to enter into certain mergers or
consolidations or incur certain liens or of Holdings or its subsidiaries to
incur additional indebtedness, pay dividends or make certain other Restricted
Payments (as defined in the Debenture Indenture), or engage in certain
transactions with affiliates. Under certain circumstances, Holdings will be
required to make an offer to purchase Seller Debentures at a price equal to 100%
of the principal amount thereof, plus accrued and unpaid interest, if any, to
the repurchase date with the proceeds of certain Asset Sales (as defined in the
Debenture Indenture). The Debenture Indenture contains certain customary events
of default, which will include the failure to pay interest and principal, the
failure to comply with certain covenants in the Seller Debentures or the
Debenture Indenture, a default under certain indebtedness, the imposition of
certain final judgments or warrants of attachment and certain events occurring
under bankruptcy laws.

100
<PAGE> 102

Pursuant to the terms of a registration rights agreement executed
concurrently with the closing of the Merger, Holdings has filed a shelf
registration statement with the Commission with respect to the Seller
Debentures. Holdings is obligated to use its best efforts to cause such shelf
registration statement to remain effective for up to three years, and pay the
expenses related thereto. If Holdings fails to comply with its obligations to
keep such shelf registration statement effective, Holdings will be obligated to
pay certain liquidated damages.

BOOK ENTRY; DELIVERY AND FORM

The Exchange Notes (and the related guarantees) to be issued in exchange
for Private Notes as set forth herein will initially will be represented by a
single, permanent global certificate in definitive, fully registered form (the
"Global Note"). The Global Note will be deposited on the date of the closing of
the Exchange Offer with, or on behalf of, The Depository Trust Company, New
York, New York ("DTC") and registered in the name of a nominee of DTC. The
information in this section concerning DTC and its book-entry system has been
obtained from sources that the Company believes to be reliable but the Company
takes no responsibility for the accuracy thereof.

DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its participating organizations (collectively, "Participants")
and to facilitate the clearance and settlement of securities transactions
between Participants through electronic book-entry changes in accounts of its
Participants, thereby eliminating the need for physical movement of
certificates. DTC's Participants include securities brokers and dealers, banks,
trust companies and clearing corporations and certain other organizations.
Indirect access to the DTC system is available to other entities such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly (collectively,
"Indirect Participants"). Persons who are not Participants may beneficially own
securities held by or on behalf of the DTC only through the Participants or
Indirect Participants.

The Global Note. The Company expects that pursuant to procedures
established by DTC (i) upon the issuance of the Global Note, DTC or its
custodian will credit, on its internal system, the principal amount of Notes of
the individual beneficial interests represented by such Global Note to the
respective accounts of persons who have accounts with such depositary and (ii)
ownership of beneficial interests in the Global Note will be shown on, and the
transfer of such ownership will be effected only through, records maintained by
DTC or its nominee (with respect to interests of Participants) and the records
of Participants (with respect to interests of persons other than Participants).
Such accounts initially will be the same accounts as those of the exchanging
holders of Private Notes and ownership of beneficial interests in the Global
Note will be limited to Participants who have accounts with DTC ("Participants")
or persons who hold interests through Participants. Prospective holders of the
Exchange Notes are advised that the laws of some states require that certain
persons take physical delivery in physical form of securities that they own.
Consequently, the ability to transfer Notes evidenced by the Global Note will be
limited to such extent.

So long as DTC, or its nominee, is the registered owner or holder of the
Notes, DTC or such nominee, as the case may be, will be considered the sole
owner or holder of the Notes represented by such Global Note for all purposes
under the Indenture. No beneficial owner of an interest in the Global Note will
be able to transfer that interest except in accordance with DTC's procedures, in
addition to those provided for under the Indenture with respect to the Notes.

Payments of the principal of, premium (if any), interest and Liquidated
Damages (if any) on, the Global Note will be made to DTC or its nominee, as the
case may be, as the registered owner thereof. None of the Company, the Trustee
or any Paying Agent will have any responsibility or liability for any aspect of
the records relating to or payments made on account of beneficial ownership
interests in the Global Note or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interest.

101
<PAGE> 103

The Company expects that DTC or its nominee, upon receipt of any payment of
principal, premium, if any, interest or Liquidated Damages, if any, in respect
of the Global Note, will credit Participants' accounts with payments in amounts
proportionate to their respective beneficial interests in the principal amount
of the Global Note as shown on the records of DTC or its nominee. The Company
also expects that payments by Participants to owners of beneficial interests in
the Global Note held through such Participants will be governed by standing
instructions and customary practice, as is now the case with securities held for
the accounts of customers registered in the names of nominees for such
customers. Such payments will be the responsibility of such Participants.

Transfers between participants in DTC will be effected in the ordinary way
through DTC's same-day funds system in accordance with DTC rules and will be
settled in same day funds. If a holder requires physical delivery of a
Certificated Security for any reason, including to sell Notes to persons in
states which require physical delivery of the Notes, or to pledge such
securities, such holder must transfer its interest in the Global Note, in
accordance with the normal procedures of DTC and with the procedures set forth
in the Indenture.

DTC has advised the Company that it will take any action permitted to be
taken by a holder of Notes (including the presentation of Notes for exchange as
described below) only at the direction of one or more Participants to whose
account the DTC interests in the Global Note are credited and only in respect of
such portion of the aggregate principal amount of Notes as to which such
Participant or Participants has or have given such direction. However, if there
is an Event of Default under the Indenture, DTC will exchange the Global Note
for Certificated Securities, which it will distribute to its Participants.

Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Note among Participants of DTC, it is under
no obligation to perform such procedures, and such procedures may be
discontinued at any time. Neither the Company nor the Trustee will have any
responsibility for the performance by DTC or its participants or Indirect
Participants of their respective obligations under the rules and procedures
governing their operations.

Certificated Securities. If DTC is at any time unwilling or unable to
continue as a depositary for the Global Note and a successor depositary is not
appointed by the Company within 90 days, Certificated Securities will be issued
in exchange for the Global Note.

102
<PAGE> 104

CERTAIN FEDERAL INCOME TAX CONSEQUENCES

In the opinion of Latham & Watkins, counsel to the Company, the following
discussion describes the material federal income tax consequences expected to
result to holders whose Private Notes are exchanged for Exchange Notes in the
Exchange Offer. Such opinion is based upon current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), applicable Treasury regulations,
judicial authority and administrative rulings and practice. There can be no
assurance that the Internal Revenue Service (the "Service") will not take a
contrary view, and no ruling from the Service has been or will be sought with
respect to the Exchange Offer. Legislative, judicial or administrative changes
or interpretations may be forthcoming that could alter or modify the statements
and conclusions set forth herein. Any such changes or interpretations may or may
not be retroactive and could affect the tax consequences to holders. Certain
holders (including insurance companies, tax-exempt organizations, financial
institutions, broker-dealers, foreign corporations and persons who are not
citizens or residents of the United States) may be subject to special rules not
discussed below. EACH HOLDER OF PRIVATE NOTES SHOULD CONSULT ITS OWN TAX ADVISOR
AS TO THE PARTICULAR TAX CONSEQUENCES OF EXCHANGING PRIVATE NOTES FOR EXCHANGE
NOTES, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN
LAWS.

The exchange of Private Notes for Exchange Notes will be treated as a
"non-event" for federal income tax purposes because the Exchange Notes will not
be considered to differ materially in kind or extent from the Private Notes. As
a result, no material federal income tax consequences will result to holders
exchanging Private Notes for Exchange Notes.

PLAN OF DISTRIBUTION

Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer where such Private Notes were acquired by such
broker-dealer as a result of market making activities or other trading
activities must acknowledge that it will deliver a prospectus in connection with
any resale of such Exchange Notes. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with the resales of Exchange Notes received in exchange for Private Notes where
such Private Notes were acquired as a result of market-making activities or
other trading activities. The Company has agreed that for a period of up to 90
days after the Expiration Date, it will make this Prospectus, as amended or
supplemented, available to any broker-dealer that requests such document in the
Letter of Transmittal for use in connection with any such resale.

The Company will not receive any proceeds from any sale of Exchange Notes
by broker-dealers or any other persons. Exchange Notes received by
broker-dealers for their own account pursuant to the Exchange Offer may be sold
from time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the Exchange Notes or
a combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer and/or the purchasers of any such
Exchange Notes. Any broker-dealer that resells Exchange Notes that were received
by it for its own account pursuant to the Exchange Offer and any broker or
dealer that participates in a distribution of such Exchange Notes may be deemed
to be an "underwriter" within the meaning of the Securities Act and any profit
on any such resale of Exchange Notes and any commissions or concessions received
by any such persons may be deemed to be underwriting compensation under the
Securities Act. The Letter of Transmittal states that by acknowledging that it
will deliver and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.

The Company has agreed to pay all expenses incident to the Company's
performance of, or compliance with, the Registration Rights Agreement and will
indemnify the holders of Private Notes (including any broker-dealers), and
certain parties related to such holders, against certain liabilities, including
liabilities under the Securities Act.

103
<PAGE> 105

LEGAL MATTERS

Certain legal matters with respect to the Exchange Notes offered hereby
will be passed upon for the Company by Latham & Watkins, Los Angeles,
California.

EXPERTS

The consolidated financial statements of Ralphs Grocery Company (formerly
Food 4 Less Supermarkets, Inc.) as of February 2, 1997, January 28, 1996 and
January 29, 1995 and for the 53 week period ended February 2, 1997, the 52 week
period ended January 28, 1996, the 31 week period ended January 29, 1995 and the
52 week period ended June 25, 1994, included in this Prospectus, have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said report.

The consolidated financial statements and schedule of Ralphs Supermarkets,
Inc. for the years ended January 29, 1995 and January 30, 1994, have been
included herein and in the Registration Statement in reliance upon the report of
KPMG Peat Marwick LLP, independent certified public accountants, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing.

AVAILABLE INFORMATION

The Company has filed with the Commission a Registration Statement on Form
S-4 under the Securities Act with respect to the Exchange Notes offered hereby.
As permitted by the rules and regulations of the Commission, this Prospectus
omits certain information, exhibits and undertakings contained in the
Registration Statement. For further information with respect to the Company and
the Exchange Notes offered hereby, reference is made to the Registration
Statement, including the exhibits thereto and the financial statements, notes
and schedules filed as a part thereof. The Registration Statement (and the
exhibits and schedules thereto), as well as the periodic reports and other
information filed by the Company with the Commission, may be inspected and
copied at the Public Reference Section of the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional
offices of the Commission located at Room 1400, 75 Park Place, New York, New
York 10007 and Suite 1400, Northwestern Atrium Center, 500 West Madison Street,
Chicago, Illinois 60661. Copies of such materials may be obtained from the
Public Reference Section of the Commission, Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and its public reference facilities
in New York, New York and Chicago, Illinois at the prescribed rates. The
Commission maintains a Web site at http://www.sec.gov that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission. Statements contained in this
Prospectus as to the contents of any contract or other document are not
necessarily complete, and in each instance reference is made to the copy of such
contract or document filed as an exhibit to the Registration Statement, each
such statement being qualified in all respects by such reference.

The Company is subject to the periodic reporting and other information
requirements of the Exchange Act. The Company has agreed that, whether or not it
is required to do so by the rules and regulations of the Commission, for so long
as any of the Notes remain outstanding, it will furnish to the holders of the
Notes and, following consummation of the Exchange Offer and to the extent
permitted by applicable law or regulations, file with the Commission (i) all
quarterly and annual financial information that would be required to be
contained in a filing with the Commission on Forms 10-Q and 10-K if the Company
were required to file such Forms, including for each a "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and, with respect
to the annual consolidated financial statements only, a report thereon by the
Company's independent auditors and (ii) all reports that would be required to be
filed with the Commission on Form 8-K if the Company were required to file such
reports. The Commission maintains a Web site at http://www.sec.gov that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission.

The principal address of the Company is 1100 West Artesia Boulevard,
Compton, California 90220 and the Company's telephone number is (310) 884-9000.

104
<PAGE> 106

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
RALPHS GROCERY COMPANY (FORMERLY FOOD 4 LESS SUPERMARKETS, INC.):

Report of Independent Public Accountants (Arthur Andersen LLP)........................ F-2
Consolidated balance sheets as of January 29, 1995, January 28, 1996, February 2, 1997
and
April 27, 1997 (unaudited).......................................................... F-3
Consolidated statements of operations for the 52 weeks ended June 25, 1994, the 31
weeks ended January 29, 1995, the 52 weeks ended January 28, 1996, the 53 weeks
ended February 2, 1997, the 12 weeks ended April 21, 1996 (unaudited) and the 12
weeks ended April 27, 1997 (unaudited).............................................. F-5
Consolidated statements of cash flows for the 52 weeks ended June 25, 1994, the 31
weeks ended January 29, 1995, the 52 weeks ended January 28, 1996, the 53 weeks
ended February 2, 1997, the 12 weeks ended April 21, 1996 (unaudited) and the 12
weeks ended April 27, 1997 (unaudited).............................................. F-6
Consolidated statements of stockholder's equity (deficit) for the 52 weeks ended June
25, 1994, the 31 weeks ended January 29, 1995, the 52 weeks ended January 28, 1996,
the 53 weeks ended February 2, 1997, the 12 weeks ended April 21, 1996 (unaudited)
and the 12 weeks ended April 27, 1997 (unaudited)................................... F-7
Notes to consolidated financial statements............................................ F-8

RALPHS SUPERMARKETS, INC.:

Independent Auditors' Report (KPMG Peat Marwick LLP).................................. F-33
Consolidated statements of operations for the years ended January 30, 1994 and January
29, 1995............................................................................ F-34
Consolidated statements of cash flows for the years ended January 30, 1994 and January
29, 1995............................................................................ F-35
Consolidated statements of stockholders' equity for the years ended January 30, 1994
and January 29, 1995................................................................ F-36
Notes to consolidated financial statements............................................ F-37
</TABLE>

F-1
<PAGE> 107

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and
Stockholder of Ralphs Grocery Company:

We have audited the accompanying consolidated balance sheets of Ralphs
Grocery Company (a Delaware corporation) (formerly Food 4 Less Supermarkets,
Inc. -- See Note 1 in the accompanying Notes to Consolidated Financial
Statements) and subsidiaries (the Company) as of January 29, 1995, January 28,
1996 and February 2, 1997 and the related consolidated statements of operations,
stockholder's equity (deficit) and cash flows for the 52 weeks ended June 25,
1994, the 31 weeks ended January 29, 1995, the 52 weeks ended January 28, 1996
and the 53 weeks ended February 2, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Ralphs
Grocery Company and subsidiaries as of January 29, 1995, January 28, 1996 and
February 2, 1997 and the results of their operations and their cash flows for
the 52 weeks ended June 25, 1994, the 31 weeks ended January 29, 1995, the 52
weeks ended January 28, 1996 and the 53 weeks ended February 2, 1997 in
conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Los Angeles, California
March 21, 1997 (except with respect to the
matter discussed in Note 14, as to which the
date is April 17, 1997).

F-2
<PAGE> 108

RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)

ASSETS

<TABLE>
<CAPTION>
JANUARY 29, JANUARY 28, FEBRUARY 2, APRIL 27,
1995 1996 1997 1997
----------- ----------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents..................... $ 19,560 $ 67,983 $ 67,589 $ 57,878
Restricted cash............................... -- -- -- 161,229
Trade receivables, less allowances of $1,192,
$1,954, $4,057 and $4,225 at January 29,
1995, January 28, 1996, February 2, 1997
and April 27, 1997, respectively........... 23,377 60,948 46,560 44,597
Notes and other receivables................... 3,985 6,452 531 483
Inventories................................... 224,686 502,669 502,095 498,763
Patronage receivables from suppliers.......... 5,173 4,557 4,433 1,459
Prepaid expenses and other.................... 13,051 34,855 21,925 27,144
-------- ---------- ---------- ----------
Total current assets.................. 289,832 677,464 643,133 791,553
INVESTMENTS IN AND NOTES RECEIVABLE FROM
SUPPLIER COOPERATIVES:
Associated Wholesale Grocers.................. 6,718 7,288 7,020 6,797
Certified Grocers of California and Other..... 5,686 4,926 4,945 4,945
PROPERTY AND EQUIPMENT:
Land.......................................... 23,488 183,125 173,803 173,803
Buildings..................................... 24,172 196,551 188,311 190,088
Leasehold improvements........................ 110,020 251,856 226,159 227,969
Equipment and fixtures........................ 190,016 441,760 401,716 419,093
Construction in progress...................... 8,042 61,296 51,117 59,215
Leased property under capital leases.......... 82,526 189,061 200,199 194,405
Leasehold interests........................... 96,556 114,475 112,398 112,398
-------- ---------- ---------- ----------
534,820 1,438,124 1,353,703 1,376,971
Less: Accumulated depreciation and
amortization............................... 154,382 226,451 301,477 324,624
-------- ---------- ---------- ----------
Net property and equipment.................... 380,438 1,211,673 1,052,226 1,052,347
OTHER ASSETS:
Deferred financing costs, less accumulated
amortization of $20,496, $6,964, $17,615
and $6,688 at January 29, 1995, January 28,
1996, February 2, 1997 and April 27, 1997,
respectively............................... 25,469 94,100 88,889 51,440
Goodwill, less accumulated amortization of
$38,560, $60,407, $99,057 and $107,189 at
January 29, 1995, January 28, 1996,
February 2, 1997 and April 27, 1997,
respectively............................... 263,112 1,173,445 1,310,956 1,302,824
Other, net.................................... 29,440 19,233 24,824 23,728
-------- ---------- ---------- ----------
$ 1,000,695 $ 3,188,129 $ 3,131,993 $3,233,634
======== ========== ========== ==========
</TABLE>

The accompanying notes are an integral part of these consolidated balance
sheets.

F-3
<PAGE> 109

RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)

CONSOLIDATED BALANCE SHEETS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)

<TABLE>
<CAPTION>
JANUARY 29, JANUARY 28, FEBRUARY 2, APRIL 27,
1995 1996 1997 1997
----------- ----------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable.............................. $ 190,455 $ 385,500 $ 371,240 $ 350,202
Accrued payroll and related liabilities....... 42,007 94,011 106,764 105,215
Accrued interest.............................. 10,730 23,870 31,011 55,161
Other accrued liabilities..................... 65,279 276,162 234,046 220,048
Income taxes payable.......................... 293 596 1,956 1,948
Current portion of self-insurance
liabilities................................ 28,616 21,785 48,251 48,251
Current portion of long-term debt............. 22,263 31,735 4,465 148,789
Current portion of obligations under capital
leases..................................... 4,965 22,261 28,041 29,027
---------- ---------- ---------- ----------
Total current liabilities............. 364,608 855,920 825,774 958,641
SENIOR DEBT, net of current portion............. 320,901 1,226,302 1,263,142 1,285,034
OBLIGATIONS UNDER CAPITAL LEASES................ 40,675 130,784 126,336 118,981
SENIOR SUBORDINATED DEBT........................ 145,000 671,222 671,222 689,747
DEFERRED INCOME TAXES........................... 17,534 17,988 21,074 21,074
SELF-INSURANCE LIABILITIES...................... 44,123 127,200 91,332 91,214
LEASE VALUATION RESERVE......................... -- 25,182 62,389 60,237
OTHER NON-CURRENT LIABILITIES................... 10,051 74,412 106,286 104,246
COMMITMENTS AND CONTINGENCIES................... -- -- -- --
STOCKHOLDER'S EQUITY (DEFICIT):
Cumulative convertible preferred stock, $.01
par value, 200,000 shares authorized and
50,000 shares issued at January 29, 1995
(aggregate liquidation value of $67.9
million at January 29, 1995) and no shares
authorized or issued at January 28, 1996,
February 2, 1997 or April 27, 1997......... 65,136 -- -- --
Common stock, $.01 par value, 5,000,000 shares
authorized: 1,519,632 shares, 1,513,938
shares, 1,513,938 shares and 1,513,938
shares issued at January 29, 1995, January
28, 1996, February 2, 1997 and April 27,
1997, respectively......................... 15 15 15 15
Additional capital............................ 107,650 466,783 466,783 466,783
Notes receivable from stockholders of
parent..................................... (702) (602) (592) (592)
Retained deficit.............................. (112,225) (407,077) (501,768) (561,746)
---------- ---------- ---------- ----------
59,874 59,119 (35,562) (95,540)
Treasury stock: 12,345 shares, no shares, no
shares and no shares of common stock at
January 29, 1995, January 28, 1996,
February 2, 1997 or April 27, 1997,
respectively............................... (2,071) -- -- --
---------- ---------- ---------- ----------
Total stockholder's equity
(deficit)........................... 57,803 59,119 (35,562) (95,540)
---------- ---------- ---------- ----------
$ 1,000,695 $ 3,188,129 $ 3,131,993 $3,233,634
========== ========== ========== ==========
</TABLE>

The accompanying notes are an integral part of these consolidated balance
sheets.

F-4
<PAGE> 110

RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
53 WEEKS
52 WEEKS 31 WEEKS 52 WEEKS ENDED 12 WEEKS 12 WEEKS
ENDED ENDED ENDED FEBRUARY ENDED ENDED
JUNE 25, JANUARY 29, JANUARY 28, 2, APRIL 21, APRIL 27,
1994 1995 1996 1997 1996 1997
---------- ----------- ----------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
SALES......................................... $2,585,160 $ 1,556,522 $ 4,335,109 $5,516,259 $1,230,808 $1,276,222
COST OF SALES (including purchases from
related parties of $175,929, $104,407,
$141,432, $95,341, $25,791 and $16,904 for
the 52 weeks ended June 25, 1994, the 31
weeks ended January 29, 1995, the 52 weeks
ended January 28, 1996, the 53 weeks ended
February 2, 1997, the 12 weeks ended April
21, 1996 and the 12 weeks ended April 27,
1997, respectively)......................... 2,126,302 1,296,810 3,527,120 4,380,241 992,883 1,013,269
---------- ---------- ---------- ---------- ---------- ----------
GROSS PROFIT.................................. 458,858 259,712 807,989 1,136,018 237,925 262,953
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES.................................... 378,376 219,696 744,449 933,414 206,620 209,775
AMORTIZATION OF GOODWILL...................... 7,691 4,615 21,847 38,650 7,202 8,132
LOSS (GAIN) ON DISPOSAL OF ASSETS............. 37 (455) (547) 9,317 -- --
RESTRUCTURING CHARGE.......................... -- 5,134 123,083 -- -- --
---------- ---------- ---------- ---------- ---------- ----------
OPERATING INCOME (LOSS)....................... 72,754 30,722 (80,843) 154,637 24,103 45,046
INTEREST EXPENSE:
Interest expense, excluding amortization of
deferred financing costs.................. 62,778 38,809 170,581 237,761 52,748 54,262
Amortization of deferred financing costs.... 5,472 3,413 8,193 10,667 3,336 2,779
---------- ---------- ---------- ---------- ---------- ----------
68,250 42,222 178,774 248,428 56,084 57,041
PROVISION FOR EARTHQUAKE LOSSES............... 4,504 -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
LOSS BEFORE PROVISION FOR INCOME TAXES AND
EXTRAORDINARY CHARGE........................ -- (11,500) (259,617) (93,791) (31,981) (11,995)
PROVISION FOR INCOME TAXES.................... 2,700 -- 500 -- -- --
---------- ---------- ---------- ---------- ---------- ----------
LOSS BEFORE EXTRAORDINARY CHARGE.............. (2,700) (11,500) (260,117) (93,791) (31,981) (11,995)
EXTRAORDINARY CHARGE.......................... -- -- 23,128 -- -- 47,983
---------- ---------- ---------- ---------- ---------- ----------
NET LOSS...................................... $ (2,700) $ (11,500) $ (283,245) $ (93,791) $ (31,981) $ (59,978)
========== ========== ========== ========== ========== ==========
PREFERRED STOCK ACCRETION..................... 8,767 6,139 3,960 -- -- --
LOSS APPLICABLE TO COMMON SHARES.............. $ (11,467) $ (17,639) $ (287,205) $ (93,791) $ (31,981) $ (59,978)
========== ========== ========== ========== ========== ==========
LOSS PER COMMON SHARE:
Loss before extraordinary charge............ $ (7.63) $ (11.72) $ (174.72) $ (61.95) $ (21.12) $ (7.92)
Extraordinary charge........................ -- -- (15.30) -- -- $ (31.70)
---------- ---------- ---------- ---------- ---------- ----------
Net loss.................................... $ (7.63) $ (11.72) $ (190.02) $ (61.95) $ (21,12) $ (39.62)
========== ========== ========== ========== ========== ==========
Average Number of Common Shares
Outstanding............................... 1,503,828 1,504,425 1,511,453 1,513,938 1,513,938 1,513,938
========== ========== ========== ========== ========== ==========
</TABLE>

The accompanying notes are an integral part of these consolidated statements.

F-5
<PAGE> 111

RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
52 WEEKS 31 WEEKS 52 WEEKS 53 WEEKS 12 WEEKS 12 WEEKS
ENDED ENDED ENDED ENDED ENDED ENDED
JUNE 25, JANUARY 29, JANUARY 28, FEBRUARY 2, APRIL 21, APRIL 27,
1994 1995 1996 1997 1996 1997
----------- ----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CASH PROVIDED (USED) BY OPERATING ACTIVITIES:
Cash received from customers................. $ 2,585,160 $ 1,556,522 $ 4,335,109 $ 5,516,259 $1,230,808 $1,276,222
Cash paid to suppliers and employees......... (2,441,353) (1,507,523) (4,197,875) (5,160,532) (1,156,304) (1,237,729)
Interest paid................................ (56,762) (33,553) (157,441) (230,620) (20,596) (30,112)
Income taxes refunded (paid)................. (247) 1,087 256 8,344 -- (8)
Interest received............................ 903 867 2,562 9,531 541 107
Other, net................................... 121 221 547 (9,317) 3 --
----------- ----------- ----------- ----------- ----------- -----------
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES................................... 87,822 17,621 (16,842) 133,665 54,452 8,480
CASH PROVIDED (USED) BY INVESTING ACTIVITIES:
Proceeds from sale of property and
equipment.................................. 11,953 7,199 21,373 29,503 31 1,497
Payment for purchase of property and
equipment.................................. (57,471) (49,023) (122,355) (123,622) (34,222) (31,026)
Payment of acquisition costs, net of cash
acquired................................... (11,050) -- (303,301) (12,705) -- (1,468)
Other, net................................... 813 (797) (1,120) (4,311) (973) 427
----------- ----------- ----------- ----------- ----------- -----------
NET CASH USED BY INVESTING ACTIVITIES......... (55,755) (42,621) (405,403) (111,135) (35,164) (30,570)
CASH PROVIDED (USED) BY FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt..... 28 -- 1,050,000 98,946 -- 713,525
Increase (decrease) in revolving loan, net... (4,900) 27,300 100,100 (28,000) (17,400) 12,100
Payments of long-term debt................... (14,224) (13,394) (576,727) (61,589) (1,623) (540,991)
Restricted cash.............................. -- -- -- -- -- (161,229)
Proceeds from issuance of common stock,
net........................................ -- 269 -- -- -- --
Purchase of treasury stock, net.............. (1,192) (57) -- -- -- --
Payments of capital lease obligation......... (3,693) (2,278) (15,314) (25,935) (6,134) (6,574)
Capital contribution from parent............. -- -- 12,108 -- -- --
Dividends.................................... -- -- (7,647) -- -- --
Deferred financing costs and other, net...... (179) (276) (91,852) (6,346) (3,572) (4,452)
----------- ----------- ----------- ----------- ----------- -----------
NET CASH PROVIDED (USED) BY FINANCING
ACTIVITIES................................... (24,160) 11,564 470,668 (22,924) (28,729) 12,379
----------- ----------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.................................. 7,907 (13,436) 48,423 (394) (9,441) (9,711)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD....................................... 25,089 32,996 19,560 67,983 67,983 67,589
----------- ----------- ----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.... $ 32,996 $ 19,560 $ 67,983 $ 67,589 $ 58,542 $ 57,878
=========== =========== =========== =========== =========== ===========
RECONCILIATION OF NET LOSS TO NET CASH
PROVIDED (USED) BY OPERATING ACTIVITIES:
Net loss..................................... $ (2,700) $ (11,500) $ (283,245) $ (93,791) $ (31,981) $ (59,978)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation and amortization................ 62,555 40,036 133,522 180,344 40,018 40,555
Restructuring charge......................... -- 5,134 123,083 -- -- --
Extraordinary charge......................... -- -- 23,128 -- -- 47,983
Amortization of debt discount................ -- -- -- 214 -- 107
Loss (gain) on sale of assets................ 65 (455) (547) 9,317 (3) --
Change in assets and liabilities, net of
effects
from acquisition of businesses:
Accounts and notes receivable.............. (3,220) (3,398) (74) 14,999 136 4,985
Inventories................................ (17,125) (11,794) 762 574 19,289 3,332
Prepaid expenses and other................. (5,717) (11,239) (18,291) 2,721 500 (6,190)
Accounts payable and accrued liabilities... 55,301 18,715 3,327 24,243 23,618 (22,188)
Self-insurance liabilities................. (3,790) (8,965) 737 (9,402) 2,875 (118)
Deferred income taxes...................... 2,506 2,794 454 3,086 -- --
Income taxes payable....................... (53) (1,707) 302 1,360 -- (8)
----------- ----------- ----------- ----------- ----------- -----------
Total adjustments............................ 90,522 29,121 266,403 227,456 86,433 68,458
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES................................... $ 87,822 $ 17,621 $ (16,842) $ 133,665 $ 54,452 $ 8,480
=========== =========== =========== =========== =========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Fixed assets acquired through issuance of
capital leases............................. $ 2,575 $ 4,304 $ 24,008 $ 28,485 $ 2,577 $ 5,098
=========== =========== =========== =========== =========== ===========
Reduction of goodwill and deferred income
taxes...................................... $ 9,896 $ -- $ -- $ -- $ -- $ --
=========== =========== =========== =========== =========== ===========
Acquisition of stores in fiscal year 1994 and
RSI
in fiscal year 1995
Fair value of assets acquired, including
goodwill................................. $ 11,241 $ -- $ 2,098,220 $ -- $ -- $ --
Net cash paid in acquisition............... (11,050) -- (303,301) $ -- $ -- $ --
Capital contribution from parent........... -- -- (262,000) $ -- $ -- $ --
----------- ----------- ----------- ----------- ----------- -----------
Liabilities assumed........................ $ 191 $ -- $ 1,532,919 $ -- $ -- $ --
=========== =========== =========== =========== =========== ===========
Accretion of preferred stock................. $ 8,767 $ 6,139 $ 3,960 $ -- $ -- $ --
=========== =========== =========== =========== =========== ===========
Retirement of Capital Lease.................. $ -- $ -- $ -- $ -- $ -- $ 4,693
=========== =========== =========== =========== =========== ===========
</TABLE>

The accompanying notes are an integral part of these consolidated statements.

F-6
<PAGE> 112

RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)

CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK TREASURY STOCK
------------------ ------------------ ----------------- STOCK-
NUMBER NUMBER NUMBER STOCK- HOLDER'S
OF OF OF HOLDERS' ADD'L RETAINED EQUITY
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT NOTES CAPITAL DEFICIT (DEFICIT)
------- -------- --------- ------ ------- ------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES AT JUNE 26,
1993................ 50,000 $ 50,230 1,519,632 $ 15 (13,249) $(1,199) $ (714) $107,650 $ (83,119) $ 72,863
Net loss............ -- -- -- -- -- -- -- -- (2,700) (2,700)
Purchase of Treasury
Stock............. -- -- -- -- (3,483) (1,270) 78 -- -- (1,192)
Payments of
Stockholders'
Notes............. -- -- -- -- -- -- 50 -- -- 50
Accretion of
Preferred Stock... -- 8,767 -- -- -- -- -- -- (8,767) --
------- -------- --------- --- ------- ------- ----- --------- --------- ---------
BALANCES AT JUNE 25,
1994................ 50,000 58,997 1,519,632 15 (16,732) (2,469) (586) 107,650 (94,586) 69,021
Net loss............ -- -- -- -- -- -- -- -- (11,500) (11,500)
Issuance of Treasury
Stock............. -- -- -- -- 5,504 460 (191) -- -- 269
Purchase of Treasury
Stock............. -- -- -- -- (1,117) (62) 5 -- -- (57)
Payments of
Stockholders'
Notes............. -- -- -- -- -- -- 70 -- -- 70
Accretion of
Preferred Stock... -- 6,139 -- -- -- -- -- -- (6,139) --
------- -------- --------- --- ------- ------- ----- --------- --------- ---------
BALANCES AT JANUARY
29, 1995............ 50,000 65,136 1,519,632 15 (12,345) (2,071) (702) 107,650 (112,225) 57,803
Net Loss............ -- -- -- -- -- -- -- -- (283,245) (283,245)
Payments of
Stockholders'
Notes............. -- -- -- -- -- -- 100 -- -- 100
Accretion of
Preferred Stock... -- 3,960 -- -- -- -- -- -- (3,960) --
Cancellation of
Preferred Stock... (50,000) (69,096) -- -- -- -- -- 69,096 -- --
Cancellation of
F4LSI Common Stock
held as Treasury
Stock............. -- -- (5,694) -- 5,694 955 -- (955) -- --
Cancellation of F4L
Holdings Common
Stock held as
Treasury Stock.... -- -- -- -- 6,651 1,116 -- (1,116) -- --
Dividend paid to F4L
Holdings, Inc..... -- -- -- -- -- -- -- -- (7,647) (7,647)
Capital Contribution
by F4L Holdings,
Inc............... -- -- -- -- -- -- -- 282,108 -- 282,108
Issuance of Stock
Options........... -- -- -- -- -- -- -- 10,000 -- 10,000
------- -------- --------- --- ------- ------- ----- --------- --------- ---------
BALANCES AT JANUARY
28, 1996............ -- -- 1,513,938 15 -- -- (602) 466,783 (407,077) 59,119
Net loss............ -- -- -- -- -- -- -- -- (93,791) (93,791)
Payments of
Stockholders'
Notes............. -- -- -- -- -- -- 10 -- -- 10
Dividend paid to F4L
Holdings, Inc. ... -- -- -- -- -- -- -- -- (900) (900)
------- -------- --------- --- ------- ------- ----- --------- --------- ---------
BALANCES AT FEBRUARY
2, 1997............. -- -- 1,513,938 15 -- -- (592) 466,783 (501,768) (35,562)
======= ======== ========= === ======= ======= ===== ========= ========= =========
Net loss
(unaudited)....... -- -- -- -- -- -- -- -- (59,978) (59,978)
------- -------- --------- --- ------- ------- ----- --------- --------- ---------
BALANCES AT APRIL 27,
1997 (UNAUDITED).... -- $ -- 1,513,938 $ 15 -- $ -- $ (592) $466,783 $(561,746) $ (95,540)
======= ======== ========= === ======= ======= ===== ========= ========= =========
</TABLE>

The accompanying notes are an integral part of these consolidated statements.

F-7
<PAGE> 113

RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) ORGANIZATION AND ACQUISITIONS

Ralphs Grocery Company (the "Company"), formerly known as Food 4 Less
Supermarkets, Inc. ("F4L Supermarkets"), a wholly-owned subsidiary of Food 4
Less Holdings, Inc. ("Holdings"), is a multiple format supermarket operator that
tailors its retail strategy to the particular needs of the individual
communities it serves. The Company operates in three geographic areas: Southern
California, Northern California and certain areas of the Midwest. The Company
has four first-tier subsidiaries: Cala Co. ("Cala"), Falley's, Inc.
("Falley's"), Food 4 Less of Southern California, Inc. ("F4L-SoCal"), formerly
known as Breco Holding Company, Inc. ("BHC") and Crawford Stores, Inc. Cala
Foods, Inc. ("Cala Foods") and Bell Markets, Inc. ("Bell") are subsidiaries of
Cala, and Alpha Beta Company ("Alpha Beta") is a subsidiary of F4L-SoCal.

Ralphs Merger

On June 14, 1995, F4L Supermarkets, Food 4 Less Holdings, Inc., a
California corporation ("Old Holdings"), and Food 4 Less, Inc. ("FFL") (which
owned a majority of the stock of Old Holdings) completed a definitive agreement
and plan of merger (the "Merger Agreement") with Ralphs Supermarkets, Inc.
("RSI") and the stockholders of RSI. Pursuant to the terms of the Merger
Agreement, as amended, F4L Supermarkets was merged with and into RSI (the "RSI
Merger"). Immediately following the RSI Merger, pre-Merger Ralphs Grocery
Company ("RGC"), which was a wholly-owned subsidiary of RSI, merged with and
into RSI (the "RGC Merger," and together with the RSI Merger, the "Merger"), and
RSI changed its name to Ralphs Grocery Company. Prior to the Merger, FFL merged
with and into Old Holdings, which was the surviving corporation (the "FFL
Merger"). Immediately following the FFL Merger, Old Holdings changed its
jurisdiction of incorporation by merging into a newly-formed, wholly-owned
subsidiary, incorporated in Delaware (the "Reincorporation Merger"). As a result
of the Merger, the FFL Merger and the Reincorporation Merger, the Company became
a wholly-owned subsidiary of Holdings.

The purchase price for the outstanding capital stock of RSI was $538.1
million; the Company paid $288.1 million in cash, Holdings paid $100.0 million
in cash, and Holdings issued $131.5 million of its Seller Debentures and $18.5
million of its Discount Debentures as consideration for the purchase. The
Company also paid fees associated with the acquisition of $47.8 million
(including a prepayment premium on outstanding mortgage debt of RGC of $19.7
million), which was offset by RGC's cash on hand at the Merger date of $32.6
million.

The merger has been accounted for in accordance with the purchase method of
accounting and, accordingly, the net assets acquired have been included in the
Company's consolidated balance sheets based upon their estimated fair values as
of the effective date. The purchase price in excess of the fair market value of
RSI's net assets was recorded as goodwill and is being amortized over a 40-year
period. The Company finalized the allocation of the RSI's purchase price in the
second quarter of fiscal 1996. The Company's consolidated statements of
operations include the revenues and expenses of RSI after the effective date of
the Merger.

The proceeds from the 1995 Credit Facility, the 1995 10.45% Senior Notes
and the 1995 11% Senior Subordinated Notes (all as defined below) provided the
sources of financing required to pay the Company's portion of the purchase price
and to repay outstanding bank debt of F4L Supermarkets and RGC of $176.5 million
and $228.9 million, respectively, and to repay existing mortgage debt of $174.0
million of RGC. In addition, the Company exchanged certain of its newly issued
senior notes and senior subordinated notes for outstanding indebtedness of RGC
and F4L Supermarkets. Proceeds from the 1995 Credit Facility also were used to
pay certain exchange and consent solicitation fees associated with the above
transactions, and to pay accrued interest on all exchanged debt securities in
the amount of $27.8 million, to pay $17.8 million to the holders of the RGC
Equity Appreciation Rights and to loan $5.0 million to an affiliate for the
benefit of such

F-8
<PAGE> 114

RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

holders, to pay approximately $93.3 million of fees and expenses of the Merger
and the related financing and to pay $3.5 million to purchase shares of common
stock of Old Holdings from certain dissenting shareholders. In addition,
Holdings issued $22.5 million of its Discount Debentures in consideration for
certain Merger-related services.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. The results of operations of
pre-Merger Ralphs Grocery Company and all previous acquisitions have been
excluded from the consolidated financial statements for periods prior to their
respective acquisition dates. All intercompany transactions have been eliminated
in consolidation.

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Interim Financial Statements

The consolidated balance sheet of the Company as of April 27, 1997 and the
consolidated statements of operations and cash flows for the 12 weeks ended
April 21, 1996 and April 27, 1997 are unaudited, but include all adjustments
(consisting of only normal recurring accruals) which the Company considers
necessary for a fair presentation of its consolidated financial position,
results of operations and cash flows for these periods. These interim financial
statements do not include all disclosures required by generally accepted
accounting principles, and, therefore, should be read in conjunction with the
Company's financial statements and notes thereto included herein. Results of
operations for interim periods are not necessarily indicative of the results for
a full fiscal year.

Fiscal Year

The Company operates within a conventional 52 or 53-week accounting fiscal
year. F4L Supermarkets, together with its subsidiaries, changed its fiscal
year-end from the last Saturday in June to the Sunday closest to January 31,
resulting in a 31-week transition period ended January 29, 1995. As a result of
the fiscal year-end change, the 52-week period ended June 25, 1994 is referred
to as fiscal 1994, the 31-week period ended January 29, 1995 is referred to as
the 1995 transition period, the 52-week period ended January 28, 1996 is
referred to as fiscal 1995 and the 53-week period ended February 2, 1997 is
referred to as fiscal 1996. Information presented below concerning subsequent
fiscal years starts with fiscal year 1997, which will cover the 52 weeks ended
February 1, 1998 and will proceed sequentially forward.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.

Inventories

Inventories, which consist of grocery products, are stated at the lower of
cost or market. Cost has been principally determined using the last-in,
first-out ("LIFO") method. If inventories had been valued using the

F-9
<PAGE> 115

RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

first-in, first-out ("FIFO") method, inventories would have been higher by $16.5
million, $18.7 million, $24.3 million and $26.1 million (unaudited) at January
29, 1995, January 28, 1996, February 2, 1997 and April 27, 1997, respectively,
and gross profit and operating income would have been greater by $0.7 million,
$2.7 million, $2.2 million $5.6 million, $1.3 million (unaudited) and $1.7
million (unaudited) for fiscal year 1994, the 1995 transition period, fiscal
year 1995, fiscal year 1996, the 12 weeks ended April 21, 1996 and the 12 weeks
ended April 27, 1997, respectively.

Pre-opening Costs

Certain costs associated with opening new stores are deferred and amortized
over one year following the opening of each new store.

Closed Store Reserves

When a store is closed, the Company provides a reserve for the net book
value of its property and equipment, net of salvage value, and the net present
value of the remaining lease obligation, net of sublease income.

Investments in Supplier Cooperatives

The investment in Certified is accounted for on the cost method. There are
certain restrictions on the sale of this investment.

Property and Equipment

Property and equipment are stated at cost. Depreciation expense includes
amortization of capital lease assets. Depreciation is provided using the
straight-line method over the following estimated useful lives:

<TABLE>
<S> <C>
Buildings and improvements.......................... 5-40 years
Equipment and fixtures.............................. 3-10 years
Property under capital leases and leasehold
interests......................................... 3-45 years (lease term)
</TABLE>

Deferred Financing Costs

Costs incurred in connection with the issuance of debt are amortized over
the term of the related debt using the effective interest method.

Long-Lived Assets

Goodwill, representing the excess of the purchase price over the fair value
of the net assets of businesses acquired, is amortized on a straight-line basis
over 40 years beginning at the date of acquisition.

In the first quarter of fiscal 1996, the Company adopted Statement of
Financial Accounting Standard No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of" ("SFAS 121"). The
adoption of SFAS 121 had no impact on the Company's financial position or on its
results of operations.

Income Taxes

The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS
109 is an asset and liability approach that requires the recognition of deferred
tax assets and liabilities for the expected future tax consequences of events
that have

F-10
<PAGE> 116

RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

been recognized in the Company's financial statements or tax returns. In
estimating future tax consequences, SFAS 109 generally considers all expected
future events other than proposed changes in the tax law or rates.

Notes Receivable from Stockholders of Parent

Notes receivable from stockholders of parent represent loans to employees
of the Company for purchases of Holdings' common stock. The notes are due over
various periods, bear interest at the prime rate, and are secured by each
stockholder's shares of Holdings' common stock.

Self-Insurance

The Company is self-insured for its workers' compensation, general
liability and vehicle accident claims. The Company establishes reserves based on
an independent actuary's valuation of open claims reported and an estimate of
claims incurred but not yet filed.

Discounts and Promotional Allowances

Promotional allowances and vendor discounts are recorded as a reduction of
cost of sales in the accompanying consolidated statements of operations.
Allowance proceeds received in advance are deferred and recognized in the period
earned.

Provision for Earthquake Losses

On January 17, 1994, Southern California was struck by a major earthquake
which resulted in the temporary closure of 31 of the Company's stores. The
closures were caused primarily by loss of electricity, water, inventory or
structural damage. All but one of the closed stores reopened within a week of
the earthquake. The final closed store reopened on March 24, 1994. The Company
is insured against earthquake losses (including business interruption), subject
to certain deductibles. The pre-tax loss, net of insurance recoveries, was
approximately $4.5 million.

Extraordinary Items

For the 52 weeks ended January 28, 1996, the Company recorded an
extraordinary charge relating to the refinancing of F4L Supermarkets' Old Credit
Facility, 10.45% Senior Notes due 2000 (the "Old F4L Senior Notes"), 13.75%
Senior Subordinated Notes due 2001 (the "Old F4L Senior Subordinated Notes"),
the repayment of Holdings' 15.25% Senior Discount Notes due 2004 in connection
with the Merger and the write-off of their related debt issuance costs.

Loss Per Common Share

Loss per common share is computed based on the weighted average number of
shares outstanding during the applicable period. Fully diluted loss per share
has been omitted as it is anti-dilutive for all periods presented.

Derivative Financial Instruments

The Company utilizes an interest rate collar agreement to set interest rate
limits on its Term Loans to satisfy the interest rate protection requirements
under its Credit Facility. Favorable or unfavorable movements of interest rates
outside of the interest rate limits are recorded as adjustments to interest
expense in the period in which the unfavorable movement occurs.

F-11
<PAGE> 117

RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Reclassifications

Certain prior period amounts in the consolidated financial statements have
been reclassified to conform to the fiscal year 1997 presentation.

(3) PREFERRED STOCK

On December 31, 1992, the Company issued 50,000 shares of $.01 par value
Series A cumulative convertible preferred stock (the "Preferred Stock") with a
liquidation value of $1,000 per share and 121,118 shares of its $.01 par value
common stock (the "Common Stock") to its parent company, Holdings, in exchange
for gross proceeds of $50.0 million. The Preferred Stock had a stated dividend
rate of $152.50 per share, per annum. In order to finance the purchase of the
Preferred Stock and Common Stock from the Company, Holdings issued $103.6
million aggregate principal amount of 15.25% Senior Discount Notes due 2004 (the
"Holdings Notes") and 121,118 Common Stock Purchase Warrants (the "Warrants")
for gross proceeds of $50.0 million.

In connection with the Merger, the Preferred Stock was cancelled. The
accreted amount of the Preferred Stock at the date of the Merger was contributed
to the Company's capital and is reflected in the Consolidated Statement of
Stockholder's Equity (Deficit) as a component of additional paid-in capital.
Also, at the time of the Merger, Holdings repaid its borrowings under the
Holdings Notes.

(4) SENIOR DEBT AND SENIOR SUBORDINATED DEBT

The Company's senior debt is summarized as follows (in thousands):

<TABLE>
<CAPTION>
AS OF
-------------------------------------------
JANUARY 29, JANUARY 28, FEBRUARY 2,
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Term Loans.............................................. $ -- $ 590,426 $ 541,432
Old Term Loan........................................... 125,732 -- --
10.45% Senior Notes, principal due 2004 with interest
payable semi-annually in arrears...................... -- 520,326 520,326
10.45% Senior Notes, principal due 2004 with interest
payable semi-annually in arrears, net of unamortized
debt discount of $5,161 at February 2, 1997, 11.5%
yield to maturity..................................... -- -- 94,839
10.45% Senior Notes, principal due 2000 with interest
payable semi-annually in arrears...................... 175,000 4,674 4,674
Revolving Facility...................................... -- 127,400 99,400
Old Revolving Loan...................................... 27,300 -- --
10.0% secured promissory note, collateralized by the
stock of Bell, due June 1996, interest payable
quarterly............................................. 8,000 8,000 --
Other senior debt....................................... 7,132 7,211 6,936
--------- ----------- -----------
343,164 1,258,037 1,267,607
Less--current portion................................... 22,263 31,735 4,465
--------- ----------- -----------
$ 320,901 $ 1,226,302 $ 1,263,142
========= =========== ===========
</TABLE>

Senior Debt

As part of the Merger financing, the Company entered into a bank credit
agreement (the "Credit Facility") comprised of a $600.0 million term loan
facility (the "Term Loans") and a revolving credit facility

F-12
<PAGE> 118

RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

of $325.0 million (the "Revolving Facility") under which working capital loans
may be made and commercial or standby letters of credit in the maximum aggregate
amount of up to $150.0 million may be issued. The Credit Facility is
collateralized by inventory, receivables, certain fixed assets, deposit
accounts, collection proceeds and certain intangibles.

At February 2, 1997, $541.4 million was outstanding under the Term Loans,
$99.4 million was outstanding under the Revolving Facility, and $89.1 million of
standby letters of credit had been issued on behalf of the Company. A commitment
fee of one-half of one percent per annum is charged on the average daily unused
portion of the Revolving Facility; such commitment fees are due quarterly in
arrears. At February 2, 1997, the weighted average interest rate on the Term
Loans was 8.99 percent and the interest rate on the Revolving Facility was 8.68
percent.

The Company has entered into an interest rate collar agreement with the
Credit Facility Administrative Agent that effectively sets interest rate limits
on the Company's term loans. The notational principal amount at February 2, 1997
and January 28, 1996 was $325 million. The agreement, which was entered into on
October 11, 1995 and expires on October 21, 1997, limits the interest rate
fluctuation of the 3-month Adjusted Eurodollar Rate (as defined) to a range
between 4.5 percent and 8.0 percent. The agreement requires quarterly cash
settlement for interest rate fluctuations outside of the limits. The agreement
satisfies the interest rate protection requirements under the Credit Facility.
As of February 2, 1997 and January 28, 1996, the 3-month Adjusted Eurodollar
Rate was 5.56 percent and 5.50 percent, respectively. No adjustments to interest
expense were recorded during fiscal year 1996 or 1995 as a result of this
agreement.

In November 1996, the Company amended the Term Loans to pay down $125.0
million on one of the original tranches (Tranche A) and initiated new tranches,
Tranche E, Tranche F, and Tranche G, in the amounts of $75.0 million, $25.0
million and $25.0 million, respectively. The amortization of the new tranches
mirrors the maturity of the initial Tranche B, initial Tranche C and initial
Tranche D.

Quarterly principal installments on the Term Loans continue to December
2003, with amounts payable in each year as follows: $4.3 million in fiscal 1997,
$4.3 million in fiscal 1998, $29.0 million in fiscal 1999, $66.4 million in
fiscal 2000, $118.2 million in fiscal 2001 and $319.2 million thereafter. The
principal installments can be accelerated if the Company receives proceeds on
the sale of certain of its assets in the future. To the extent that borrowings
under the Revolving Facility are not paid earlier, they are due in December
2003. The common stock of the Company and certain of its direct and indirect
subsidiaries has been pledged as security under the Credit Facility.

The Company issued $350.0 million of 10.45% Senior Notes due 2004 (the
"1995 10.45% Senior Notes") and exchanged $170.3 million principal amount of
1995 10.45% Senior Notes for an equal amount of the 10.45% F4L Senior Notes due
2000 (the "Old F4L Senior Notes") (together with the 1995 10.45% Senior Notes,
the "Senior Notes"), leaving an outstanding balance of $4.7 million of the Old
F4L Senior Notes. The Old F4L Senior Notes are due in two equal sinking fund
payments on April 15, 1999 and 2000. The Senior Notes are senior unsecured
obligations of the Company and rank "pari passu" in right of payment with other
senior unsecured indebtedness of the Company. However, the Senior Notes are
effectively subordinated to all secured indebtedness of the Company and its
subsidiaries, including indebtedness under the Credit Facility. Interest on the
1995 10.45% Senior Notes is payable semiannually in arrears on each June 15 and
December 15. Interest on the Old F4L Senior Notes is payable semiannually in
arrears on each April 15 and October 15.

In June 1996, the Company issued $100.0 million aggregate principal amount
of 10.45% Senior Notes due 2004 (the "1996 10.45% Senior Notes"). The terms of
the 1996 10.45% Senior Notes are substantially identical to those of the
Company's 1995 10.45% Senior Notes, which were issued in a registered offering
in June 1995 and of which $520.3 million aggregate principal amount is
outstanding. The 1996 10.45% Senior

F-13
<PAGE> 119

RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Notes were issued with original issue discount resulting in gross proceeds to
the Company of $94.6 million. In July 1996, the Company initiated an offer to
exchange (the "Exchange Offer") $1,000 principal amount of its 1996 10.45%
Senior Notes, which exchange has been registered under the Securities Act of
1933, as amended, for each $1,000 principal amount of its 1996 10.45% Senior
Notes. The Exchange Offer was completed in August 1996.

The $94.6 million of gross proceeds from the 1996 10.45% Senior Notes was
used to (i) repay $22.7 million of Term Loans, which was due within the
following twelve months, (ii) repay $21.7 million of additional Term Loans, pro
rata over the term thereof, (iii) repay $47.6 million in borrowings under the
Revolving Facility (without any reduction in amounts available for future
borrowing thereunder) and (iv) pay fees and expenses related to the 1996 10.45%
Senior Notes of approximately $2.6 million.

The 1995 10.45% Senior Notes and the 1996 10.45% Senior Notes (the "New
Senior Notes") may be redeemed, at the option of the Company, in whole at any
time or in part from time to time, beginning in fiscal 2000, at a redemption
price of 105.2 percent. The redemption price declines ratably to 100 percent in
fiscal 2003. In addition, on or prior to June 15, 1998, the Company may, at its
option, use the net cash proceeds of one or more public equity offerings to
redeem up to an aggregate of 35 percent of the principal amount of the New
Senior Notes originally issued, at a redemption price equal to 110.4 percent,
108.9 percent, and 107.5 percent of the principal amount thereof if redeemed
during the 12 months commencing on June 15, 1995, June 15, 1996, and June 15,
1997, respectively, in each case plus accrued and unpaid interest, if any, to
the redemption date. The Old F4L Senior Notes may be redeemed beginning in
fiscal year 1996 at 104.5 percent, declining ratably to 100 percent in fiscal
year 1999.

Scheduled maturities of principal of senior debt at February 2, 1997 are as
follows (in thousands):

<TABLE>
<CAPTION>
FISCAL YEAR
-------------------------------------------------
<S> <C>
1997............................................. $ 4,465
1998............................................. 4,571
1999............................................. 30,571
2000............................................. 71,292
2001............................................. 118,401
Later years...................................... 1,038,307
----------
$1,267,607
==========
</TABLE>

The Company's senior subordinated debt is summarized as follows (in
thousands):

<TABLE>
<CAPTION>
AS OF
----------------------------------------------
JANUARY 29, JANUARY 28, FEBRUARY 2,
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
11.00% Senior Subordinated Notes
principal due 2005 with interest
payable semi-annually in arrears....... $ -- $524,005 $524,005
13.75% Senior Subordinated Notes
principal due 2005 with interest
payable semi-annually in arrears....... -- 140,184 140,184
13.75% Senior Subordinated Notes
principal due 2001 with interest
payable semi-annually in arrears....... 145,000 4,816 4,816
Other Senior Subordinated debt........... -- 2,217 2,217
-------- -------- --------
$145,000 $671,222 $671,222
======== ======== ========
</TABLE>

F-14
<PAGE> 120

RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Senior Subordinated Debt

Concurrent with the Merger, the Company issued $100.0 million of 11% Senior
Subordinated Notes due 2005 (the "1995 11% Senior Subordinated Notes") and (i)
exchanged $142.2 million principal amount of the RGC 9% Senior Subordinated
Notes due 2003 (the "Old RGC 9% Notes") and $281.8 million principal amount of
the RGC 10.25% Senior Subordinated Notes due 2002 (the "Old RGC 10.25% Notes,"
and together with the Old RGC 9% Notes, the "Old RGC Notes") for an equal amount
of 1995 11% Senior Subordinated Notes, (ii) purchased $7.5 million principal
amount of Old RGC 9% Notes and $15.2 million principal amount of Old RGC 10.25%
Notes in conjunction with the offers, and (iii) subsequently purchased $0.1
million principal amount of Old RGC 9% Notes and $1.0 million principal amount
of Old RGC 10.25% Notes subject to the change of control provision, leaving an
outstanding balance of $0.1 million on the Old RGC 9% Notes and an outstanding
balance of $2.1 million on the Old RGC 10.25% Notes. The 1995 11% Senior
Subordinated Notes are senior subordinated, unsecured obligations of the Company
and are subordinated in right of payment to all senior indebtedness, including
the Company's obligations under the Credit Facility and the New Senior Notes and
the Old F4L Senior Notes. Interest on the New RGC Notes is payable semiannually
in arrears on each June 15 and December 15.

The 1995 11% Senior Subordinated Notes may be redeemed at the option of the
Company, in whole at any time or in part from time to time, beginning in fiscal
year 2000, at an initial redemption price of 105.5 percent. The redemption price
declines ratably to 100 percent in fiscal year 2003. In addition, on or prior to
June 15, 1998, the Company may, at its option, use the net cash proceeds of one
or more public equity offerings to redeem up to an aggregate of 35 percent of
the principal amount of the 1995 11% Senior Subordinated Notes originally
issued, at a redemption price equal to 111.0 percent, 109.4 percent, and 107.9
percent of the principal amount thereof if redeemed during the 12 months
commencing on June 15, 1995, June 15, 1996, and June 15, 1997, respectively, in
each case plus accrued and unpaid interest, if any, to the redemption date.

The Company exchanged $140.2 million 13.75% Senior Subordinated Notes due
2005 (the "New F4L Senior Subordinated Notes") for an equal amount of F4L 13.75%
Senior Subordinated Notes due 2001 (the "Old F4L Senior Subordinated Notes," and
together with the New F4L Senior Subordinated Notes, the "13.75% Senior
Subordinated Notes") of the Company, leaving an outstanding balance of $4.8
million of the Old F4L Senior Subordinated Notes. The 13.75% Senior Subordinated
Notes are senior subordinated unsecured obligations of the Company and are
subordinated in right of payment to all senior indebtedness, including the
Company's obligations under the Credit Facility, the New Senior Notes, and the
Old F4L Senior Notes and the 1995 11% Senior Subordinated Notes. Interest on the
13.75% Senior Subordinated Notes is payable semiannually in arrears on each June
15 and December 15 commencing on December 15, 1995. The New F4L Senior
Subordinated Notes may be redeemed beginning in fiscal year 1996 at a redemption
price of 106.111 percent. The redemption price declines ratably to 100 percent
in fiscal year 2000.

Scheduled maturities of principal of senior subordinated debt at February
2, 1997 are as follows (in thousands):

<TABLE>
<CAPTION>
FISCAL YEAR
--------------------------------------------------
<S> <C>
1997.............................................. $ --
1998.............................................. --
1999.............................................. --
2000.............................................. --
2001.............................................. 4,816
Later years....................................... 666,406
--------
$671,222
========
</TABLE>

F-15
<PAGE> 121

RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Financial Covenants

The Credit Facility, among other things, requires the Company to maintain
minimum levels of net worth (as defined), to maintain minimum levels of
earnings, to maintain a hedge agreement to provide interest rate protection, and
to comply with certain ratios related to fixed charges and indebtedness. During
fiscal 1995, certain financial covenants and other terms of the Credit Facility
were amended to, among other things, provide for the acquisition of Smith's Food
and Drug Centers, Inc. ("Smith's") Riverside distribution and creamery facility,
the acquisition of certain operating assets and inventory at that facility, the
acquisition of nine of the Smith's Southern California stores and the closure of
up to nine stores in conjunction with these acquisitions. In addition, the
Credit Facility and the indentures governing the New Senior Notes, the 1995 11%
Senior Subordinated Notes and the New F4L Senior Subordinated Notes limit, among
other things, additional borrowings, dividends on, and redemption of, capital
stock and the acquisition and the disposition of assets. At February 2, 1997,
the Company was in compliance with the financial covenants of its debt
agreements. At February 2, 1997, dividends and certain other payments are
restricted based on terms in the debt agreements.

(5) LEASES

The Company's operations are conducted primarily in leased properties.
Substantially all leases contain renewal options. Rental expense under operating
leases was as follows (in thousands):

<TABLE>
<CAPTION>
FOR THE
-----------------------------------------------------
31 WEEKS 52 WEEKS 53 WEEKS
52 WEEKS ENDED ENDED ENDED
ENDED JANUARY JANUARY FEBRUARY
JUNE 25, 29, 28, 2,
1994 1995 1996 1997
-------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Minimum rents................... $49,788 $ 33,458 $ 97,752 $ 146,101
Rents based on sales............ 3,806 1,999 3,439 3,786
</TABLE>

Following is a summary of future minimum lease payments under operating
leases at February 2, 1997 (in thousands):

<TABLE>
<CAPTION>
FISCAL YEAR
-------------------------------------------------
<S> <C>
1997............................................. $ 145,675
1998............................................. 138,038
1999............................................. 135,227
2000............................................. 131,243
2001............................................. 118,973
Later years...................................... 1,279,824
----------
$1,948,980
==========
</TABLE>

The Company has entered into lease agreements for new supermarket sites
which were not in operation at February 2, 1997. Future minimum lease payments
under such operating leases generally begin when such facilities open and at
February 2, 1997 are: 1997 -- $3.6 million; 1998 -- $6.9 million; 1999 -- $6.9
million; 2000 -- $6.9 million; 2001 -- $6.9 million; later years -- $112.5
million.

F-16
<PAGE> 122

RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Certain leases qualify as capital leases under the criteria established in
Statement of Financial Accounting Standards No. 13, "Accounting for Leases," and
are classified on the consolidated balance sheets as leased property under
capital leases. Future minimum lease payments for the property under capital
leases at February 2, 1997 are as follows (in thousands):

<TABLE>
<CAPTION>
FISCAL YEAR
--------------------------------------------------
<S> <C>
1997.............................................. $ 42,467
1998.............................................. 36,104
1999.............................................. 28,207
2000.............................................. 22,515
2001.............................................. 14,146
Later years....................................... 101,838
--------
Total minimum lease payments.................... 245,277
Less: amounts representing interest............... 90,900
--------
Present value of minimum lease payments........... 154,377
Less: current portion............................. 28,041
--------
$126,336
========
</TABLE>

Accumulated depreciation related to leased property under capital leases
was $27.6 million, $42.7 million and $62.0 million at January 29, 1995, January
28, 1996 and February 2, 1997, respectively.

(6) INVESTMENT IN A.W.G.

The investment in Associated Wholesale Grocers ("A.W.G.") consists
principally of A.W.G.'s six percent interest-bearing seven- and eight-year
patronage certificates received in payment of certain rebates. Following is a
summary of future maturities based upon current redemption terms (in thousands):

<TABLE>
<CAPTION>
FISCAL YEAR
----------------------------------------------------
<S> <C>
1997................................................ $ --
1998................................................ 757
1999................................................ 1,504
2000................................................ 1,478
2001................................................ 1,724
Later years......................................... 1,557
------
$7,020
======
</TABLE>

F-17
<PAGE> 123

RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(7) INCOME TAXES

The provision (benefit) for income taxes consists of the following (in
thousands):

<TABLE>
<CAPTION>
52 WEEKS 31 WEEKS 52 WEEKS 53 WEEKS
ENDED ENDED ENDED ENDED
JUNE 25, JANUARY 29, JANUARY 28, FEBRUARY 2,
1994 1995 1996 1997
-------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Current:
Federal.................................... $ 3,251 $ (2,894) $ -- $ --
State and other............................ 712 100 46 --
------- ------- --------- --------
3,963 (2,794) 46 --
------- ------- --------- --------
Deferred:
Federal.................................... (70) 2,794 -- --
State and other............................ (1,193) -- 454 --
------- ------- --------- --------
(1,263) 2,794 454 --
------- ------- --------- --------
$ 2,700 $ -- $ 500 $
======= ======= ========= ========
</TABLE>

A reconciliation of the provision (benefit) for income taxes to amounts
computed at the federal statutory rates of 35 percent for fiscal 1994, the 1995
transition period, fiscal 1995 and fiscal year 1996 is as follows (in
thousands):

<TABLE>
<CAPTION>
52 WEEKS 31 WEEKS 52 WEEKS 53 WEEKS
ENDED ENDED ENDED ENDED
JUNE 25, JANUARY 29, JANUARY 28, FEBRUARY 2,
1994 1995 1996 1997
-------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Federal income taxes at statutory rate on
loss before provision for income taxes and
extraordinary charges...................... $ -- $ (4,025) $ (98,959) $ (32,827)
State and other taxes, net of federal tax
benefit.................................... (1) 65 (16,794) (244)
Effect of permanent differences resulting
primarily from amortization of goodwill.... 2,820 1,701 (1,665) 9,801
Tax credits and other........................ -- -- 3,769 (4,818)
Accounting limitation (recognition) of
deferred tax benefit....................... (119) 2,259 114,149 28,088
------- ------- --------- --------
$ 2,700 $ -- $ 500 $ --
======= ======= ========= ========
</TABLE>

F-18
<PAGE> 124

RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The provision (benefit) for deferred taxes consists of the following (in
thousands):

<TABLE>
<CAPTION>
31 WEEKS 52 WEEKS 53 WEEKS
52 WEEKS ENDED ENDED ENDED
ENDED JANUARY JANUARY FEBRUARY
JUNE 25, 29, 28, 2,
1994 1995 1996 1997
-------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Property and equipment.......................... $(1,687) $ 992 $ (461) $ 20,606
Inventory....................................... (2,415) (2,627) (8,479) 40
Capital lease obligation........................ 2,792 527 (502) (5,253)
Self-insurance reserves......................... (535) 5,523 2,104 2,276
Accrued expense................................. (2,136) (3,807) (26,304) (1,435)
Accrued payroll and related liabilities......... 1,721 (3,879) (6,206) (2,916)
Tax intangibles................................. -- -- 6,234 10,182
State taxes..................................... -- -- (20,639) (3,879)
Net operating losses............................ 5,782 (6,963) (61,219) (49,773)
Tax credits..................................... (4,477) 1,711 3,601 --
Accounting limitation (recognition) of deferred
tax benefit................................... (1,085) 10,494 114,149 28,088
Other, net...................................... 777 823 (1,824) 2,064
------- ------- -------- --------
$(1,263) $ 2,794 $ 454 $ --
======= ======= ======== ========
</TABLE>

The significant components of the Company's deferred tax assets
(liabilities) are as follows (in thousands):

<TABLE>
<CAPTION>
JANUARY JANUARY FEBRUARY
29, 28, 2,
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Deferred tax assets:
Accrued payroll and related liabilities.............. $ 6,248 $ 27,579 $ 30,495
Other accrued liabilities............................ 12,080 71,954 73,389
Obligations under capital leases..................... -- 37,584 42,837
Self-insurance liabilities........................... 25,204 49,773 47,497
Loss carryforwards................................... 27,638 154,202 203,975
Tax credit carryforwards............................. 4,157 913 913
State taxes.......................................... -- 30,210 34,090
Other................................................ 570 18,026 16,075
-------- --------- ---------
Gross deferred tax assets......................... 75,897 390,241 449,271
Valuation allowance.................................. (41,643) (285,506) (313,594)
-------- --------- ---------
Net deferred tax assets........................... $ 34,254 $ 104,735 $ 135,677
-------- --------- ---------
Deferred tax liabilities:
Inventories.......................................... $(11,690) $ (9,762) $ (9,802)
Property and equipment............................... (28,527) (106,116) (129,808)
Obligations under capital leases..................... (9,261) -- --
Tax intangibles...................................... -- (6,234) (16,416)
Other................................................ (2,310) (611) (725)
-------- --------- ---------
Gross deferred tax liability...................... (51,788) (122,723) (156,751)
-------- --------- ---------
Net deferred tax liability........................ $(17,534) $ (17,988) $ (21,074)
======== ========= =========
</TABLE>

F-19
<PAGE> 125

RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The Company recorded a valuation allowance to reserve a portion of its
gross deferred tax assets at February 2, 1997 due primarily to financial and tax
losses in recent years. Under SFAS 109, this valuation allowance will be
adjusted in future periods as appropriate. However, the timing and extent of
such future adjustments to the allowance cannot be determined at this time.

At February 2, 1997, approximately $139.0 million of the valuation
allowance for deferred tax assets will reduce goodwill when the allowance is no
longer required.

At February 2, 1997, the Company has net operating loss carryforwards for
federal income tax purposes of $583.0 million, which expire from 2007 through
2012. The Company has federal Alternative Minimum Tax ("AMT") credit
carryforwards of approximately $0.9 million which are available to reduce future
regular taxes in excess of AMT. Currently, there is no expiration date for these
credits.

A portion of the loss carryforwards described above are subject to the
provisions of the Tax Reform Act of 1986, specifically Internal Revenue Code
Section 382. The law limits the use of net operating loss carryforwards when
changes of ownership of more than 50 percent occur during a three-year testing
period. Due to the Merger, the ownership of pre-Merger F4L Supermarkets and
pre-Merger RSI changed in excess of 50 percent. As a result, the Company's
utilization of approximately $78.0 million of F4L Supermarkets' and $187.0
million of RSI's federal net operating losses will be subject to an annual usage
limitation. The Company's annual limitations under Section 382 for F4L
Supermarkets' and RSI's net operating losses are approximately $15.6 million and
$15.0 million, respectively. Furthermore, all of the Company's pre-Merger RSI
net operating losses and a portion of the Company's Ralphs post-Merger losses
will reduce goodwill when utilized in future federal income tax returns.

The Company currently has Internal Revenue Service examinations in process
covering the years 1990 through 1993. Management believes that any required
adjustment to the Company's tax liabilities will not have a material adverse
impact on its financial position or results of operations.

(8) RELATED PARTY TRANSACTIONS

The Company has a five-year consulting agreement with an affiliated company
effective June 14, 1995 for management, financing, acquisition and other
services. The agreement is automatically renewed on June 14 of each year for the
five-year term unless 90 days' notice is given by either party. The contract
provides for annual management fees equal to $4 million plus advisory fees for
certain acquisition transactions if the affiliated company is retained by the
Company.

Management services expenses were $2.3 million during fiscal year 1994,
$1.2 million during the 1995 transition period, $3.6 million during fiscal year
1995 and $4.0 million during fiscal year 1996. Advisory fees were $0.2 million
during fiscal year 1994, $21.5 million during fiscal year 1995 and $1.7 million
during fiscal

F-20
<PAGE> 126

RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

year 1996. There were no such advisory fees for the 1995 transition period.
Advisory fees for financing transactions are capitalized and amortized over the
term of the related financing.

(9) COMMITMENTS AND CONTINGENCIES

The Company is contingently liable to former stockholders of certain
predecessors for any prorated gains which may be realized within ten years of
the acquisition of the respective companies resulting from the sale of certain
Certified stock. Such gains are only payable if Certified is purchased or
dissolved, or if the Company sells such Certified Stock within the period noted
above.

In connection with the bankruptcy reorganization of Federated Department
Stores, Inc. ("Federated") and its affiliates, Federated agreed to pay certain
potential tax liabilities relating to RGC as a member of the affiliated group of
companies comprising Federated and its subsidiaries. In consideration thereof,
RSI and RGC agreed to pay Federated a total of $10 million, payable $1 million
on each of February 3, 1992, 1993, 1994, 1995 and 1996 and $5 million on
February 3, 1997. In the event Federated is required to pay certain tax
liabilities, RSI and RGC agreed to reimburse Federated up to an additional $10
million, subject to certain adjustments. Pursuant to the terms of the Merger,
the $5 million payment and the potential $10 million payment will be paid in
cash.

The Company has entered into lease agreements with the developers of
several new sites in which the Company has agreed to provide construction
financing. At February 2, 1997, the Company had capitalized construction costs
of $20.3 million on total commitments of $24.0 million.

In December 1992, three California state antitrust class action suits were
commenced in Los Angeles Superior Court against the Company and other major
supermarket chains located in Southern California, alleging that they conspired
to refrain from competing in and to fix the price of fluid milk above
competitive prices. Specifically, class actions were commenced by Diane Barela
and Neila Ross, Ron Moliare and Paul C. Pfeifle on December 7, December 14 and
December 23, 1992, respectively. To date, the Court has yet to certify any of
these classes, while a demurrer to the complaints was denied. The Company will
vigorously defend itself in these class action suits.

On September 13, 1996 a class action lawsuit titled McCampbell, et al. v.
Ralphs Grocery Company, et al. was filed in the Superior Court of the State of
California, County of San Diego, against the Company and two other grocery store
chains operating in the Southern California area. The complaint alleges, among
other things, that the Company and others conspired to fix the retail price of
eggs in Southern California. The plaintiffs' claim that the defendants' actions
violate provisions of the California Cartwright Act and constitute unfair
competition. Plaintiffs seek damages they purport to have sustained as a result
of the defendants' alleged actions, which damages may be trebled under the
applicable statute, and an injunction from future actions in restraint of trade
and unfair competition. Because the case was recently filed, discovery has just
commenced. Management of the Company intends to defend this action vigorously
and the Company has filed an answer to the complaint denying the plaintiffs'
allegations and setting forth several defenses.

On December 20, 1996, a lawsuit titled Bundy, et al. v. Ralphs Grocery
Company, et al. was filed in the Los Angeles Superior Court against the Company.
The complaint was filed by eight individual plaintiffs who were terminated in
conjunction with the Company's restructuring. The plaintiffs claim that they
were wrongfully terminated for discriminatory reasons and that the Company
engaged in various fraudulent practices. The plaintiffs seek compensatory
damages in excess of $15 million, special and punitive damages. Management of
the Company believes that the plaintiff's claims are without merit and intends
to defend this action vigorously.

F-21
<PAGE> 127

RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

In addition, the Company or its subsidiaries are defendants in a number of
other cases currently in litigation or potential claims encountered in the
normal course of business which are being vigorously defended. In the opinion of
management, the resolutions of these matters will not have a material effect on
the Company's financial position or results of operations.

The Company self-insures its workers' compensation and general liability.
For fiscal year 1994, the 1995 transition period, fiscal year 1995 and fiscal
year 1996, the self-insurance loss provisions were $19.9 million, $6.3 million,
$32.6 million and $29.2 million, respectively. During fiscal year 1994, the
Company discounted its self-insurance liability using a 7.0 percent discount
rate. In the 1995 transition period, the Company changed the discount rate to
7.5 percent. In fiscal 1995, the Company changed the discount rate to 7.0
percent. In fiscal 1996, the Company changed the discount rate to 7.5 percent.
Management believes that this rate approximates the time value of money over the
anticipated payout period (approximately 10 years) for essentially risk-free
investments.

The Company's historical self-insurance liability at the end of the three
most recent fiscal years and the 1995 transition period is as follows (in
thousands):

<TABLE>
<CAPTION>
AS OF
------------------------------------------------------------
JUNE 25, JANUARY 29, JANUARY 28, FEBRUARY 2,
1994 1995 1996 1997
--------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Self-insurance liability...................... $ 90,898 $ 84,286 $ 161,391 $ 151,465
Less: Discount................................ (9,194) (11,547) (12,406) (11,882)
------- ------- -------- --------
Net self-insurance liability.................. $ 81,704 $ 72,739 $ 148,985 $ 139,583
======= ======= ======== ========
</TABLE>

The Company expects that cash payments for claims will aggregate
approximately $52.6 million, $37.5 million, $23.9 million, $14.5 million and
$8.7 million for the fiscal year 1997, the fiscal year 1998, the fiscal year
1999, the fiscal year 2000 and the fiscal year 2001, respectively.

Environmental Matters

In January 1991, the California Regional Water Quality Control Board for
the Los Angeles Region (the "Regional Board") requested that the Company conduct
a subsurface characterization of its Glendale Facility property located in the
Atwater District of Los Angeles, near Glendale, California. This request was
part of an ongoing effort by the Regional Board, in connection with the U.S.
Environmental Protection Agency (the "EPA"), to identify contributors to
groundwater contamination in the San Fernando Valley. Significant parts of the
San Fernando Valley, including the area where the Glendale Facility is located,
have been designated federal Superfund sites requiring response actions under
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended, because of regional groundwater contamination. On June 18,
1991, the EPA made its own request for information concerning the Company's
Glendale Facility. Since that time, the Regional Board has requested further
investigation by the Company. The Company conducted the requested investigations
and reported the results to the Regional Board. Approximately 25 companies have
entered into a Consent Order (EPA Docket No. 94-11) with the EPA to investigate
and design a remediation system for contaminated groundwater beneath an area
which includes the Glendale Facility. The Company is not a party to the Consent
Order, but is cooperating with requests of the subject companies to allow
installation of monitoring or recovery wells on its property. On or about
October 12, 1995, the EPA mailed a Special Notice Letter to 44 parties,
including the Company as owner and operator of the Glendale Facility property,
naming them as potentially responsible parties ("PRPs"). On November 26, 1996,
the EPA issued an Administrative Order for Remedial Action (EPA Docket No.
97-06) against more than 60 respondents, including the Company, in connection
with the Superfund site. Under the order, these PRP's are required to take
certain actions, over an approximately 270-day period, in connection with the
implementation

F-22
<PAGE> 128

RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

of interim remedies for the treatment of groundwater. The PRP's have also agreed
to an Alternative Dispute Resolution Process to allocate the costs among
themselves. Based upon available information, management does not believe this
matter will have a material adverse effect on the Company's financial condition
or results of operations.

At the time that Food 4 Less acquired Alpha Beta in 1991, it learned that
certain underground storage tanks located on the site of the La Habra facility
may have previously released hydrocarbons. In connection with the acquisition of
Alpha Beta, the seller (who is also the lessor of the La Habra facility) agreed
to retain responsibility, subject to certain limitations, for remediation of the
release.

(10) EMPLOYEE BENEFIT PLANS

As a result of the Merger, the Company adopted certain employee benefit
plans previously sponsored by RGC. These employee benefit plans include the
Ralphs Grocery Company Retirement Plan (the "Pension Plan"), the Ralphs Grocery
Company Supplemental Executive Retirement Plan (the "SERP"), and the Ralphs
Grocery Company Retirement Supplement Plan (the "Retirement Supplement Plan").

Pension Plan

The Pension Plan covers substantially all employees not already covered by
collective bargaining agreements with at least one year of service during which
1,000 hours have been worked. Employees who were employed by F4L Supermarkets
and who are otherwise eligible to participate in the Pension Plan became
eligible to participate in fiscal year 1995. The Company's policy is to fund
pension costs at or above the minimum annual requirement.

SERP

The SERP covers certain key officers of the Company. The Company has
purchased split dollar life insurance policies for certain participants under
this plan. Under certain circumstances, the cash surrender value of the split
dollar life insurance policies will offset the Company's obligations under the
SERP.

F-23
<PAGE> 129

RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Retirement Supplement Plan

The Retirement Supplement Plan is a non-qualified retirement plan designed
to provide eligible participants with benefits based on earnings over the
indexed amount of $150,000.

The following actuarially determined components were included in the net
pension expense for the above plans for fiscal year 1996 (dollars in thousands):

<TABLE>
<S> <C>
Service cost....................................................... $ 6,187
Interest cost on projected benefit obligation...................... 5,293
Actual return on assets............................................ (5,684)
Net amortization and deferral...................................... 1,907
-------
Net pension expense...................................... $ 7,703
=======
</TABLE>

Following are the assumptions used in determining the net pension expense:

<TABLE>
<S> <C>
Discount rate...................................................... 7.00%
Expected long term rate of return on plan assets................... 9.00%
Rate of pay increase............................................... 5.00%
</TABLE>

The funded status of the Pension Plan (based on December 1996 asset values)
is as follows:

<TABLE>
<CAPTION>
AS OF
FEBRUARY 2, 1997
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Assets Exceed Accumulated Benefits:
Actuarial present value of benefit obligations:
Vested benefit obligation............................... $(45,965)
Accumulated benefit obligation.......................... (46,351)
Projected benefit obligation............................ (66,858)
Plan assets at fair value............................... 50,189
--------
Projected benefit obligation in excess of Plan Assets..... (16,669)
Unrecognized net gain..................................... (3,376)
Unrecognized prior service cost........................... 1,023
--------
Accrued pension cost.................................... $(19,022)
========
</TABLE>

F-24
<PAGE> 130

RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The funded status of the SERP and Retirement Supplement Plan (based on
December 1996 asset values) is as follows:

<TABLE>
<CAPTION>
AS OF
FEBRUARY 2, 1997
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Accumulated Benefits Exceed Assets:
Actuarial present value of benefit obligations:
Vested benefit obligation............................... $ (5,006)
Accumulated benefit obligation.......................... (5,236)
Projected benefit obligation............................ (10,033)
Plan assets at fair value............................... --
--------
Projected benefit obligation in excess of Plan Assets..... (10,033)
Unrecognized net loss..................................... 607
Unrecognized prior service cost........................... 1,725
Adjustment required to recognize minimum liability........ (2)
--------
Accrued pension cost.................................... $ (7,703)
========
</TABLE>

Following are the assumptions used in determining the funded status:

<TABLE>
<S> <C>
Discount rate........................................................ 7.50%
Rate of pay increase................................................. 5.00%
</TABLE>

The assets of the Pension Plan consist primarily of common stocks, bonds,
debt securities, and a money market fund. Plan benefits are based primarily on
years of service and on average compensation during the last years of
employment.

Employee Stock Ownership Plans

The Company implemented Statement of Position No. 93-6 (the "SOP"),
"Employer Accounting for Employee Stock Ownership Plans," effective June 26,
1994. The implementation of the SOP did not have a material effect on the
accompanying consolidated financial statements.

The full-time employees of Falley's who are not members of a collective
bargaining agreement are covered under a 401(k) plan, a portion of which is
invested in Holdings stock (the "Falley's ESOP"). As is required pursuant to IRS
and ERISA requirements, any participant who receives stock from the Falley's
ESOP has the right to put that stock to Falley's or an affiliate of Falley's.
However, as part of the original stock sale agreement among the then
stockholders of Falley's, FFL and the Falley's ESOP, which has been amended from
time to time, a partnership which owns stock of Holdings entered into an
agreement with Falley's and Holdings to assume the obligation to purchase any
Holdings shares as to which terminated plan participants exercise a put option
under the terms of Falley's ESOP. As a result, neither Falley's nor the Company
is required to make cash payments to redeem the shares. As part of that
agreement, the Company may elect, after providing a right of first refusal to
the partnership, to purchase Holdings shares put under the provisions of the
plan. However, the partnership's obligation to purchase such Holdings shares is
unconditional, and any repurchase of shares by the Company is at the Company's
sole election. During fiscal year 1996, the Company did not purchase any of the
Holdings shares. As of February 2, 1997, the fair value of the shares allocated
which are subject to repurchase obligation by the partnership referred to above
was approximately $10.9 million.

F-25
<PAGE> 131

RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

In addition, the Company also sponsors two ESOPs for employees of the
Company who are members of certain collective bargaining agreements (the "Union
ESOPs"). The Union ESOPs provide for annual contributions based on hours worked
at a rate specified by the terms of the collective bargaining agreements. The
Company contributions are made in the form of Holdings stock or cash for the
purchase of Holdings stock and are to be allocated to participants based on
hours worked. During fiscal year 1995 and the 1995 transition period, the
Company recorded a charge against operations of approximately $0.8 million and
$0.3 million, respectively, for benefits under the Union ESOPs. There were no
shares issued to the Union ESOPs or to the Company's profit sharing plan at
January 28, 1996 or February 2, 1997.

Defined Contribution Plan

The Company sponsors the Ralphs Grocery Company Savings Plan
Plus -- Primary, the Ralphs Grocery Company Savings Plan Plus -- Basic and the
Ralphs Grocery Company Savings Plan Plus -- ESOP (collectively referred to as
the "401(k) Plan") covering substantially all employees who are not covered by
collective bargaining agreements and who have at least one year of service
during which 1,000 hours has been worked. The 401(k) Plan provides for both
pre-tax and after-tax contributions by participating employees. With certain
limitations, participants may elect to contribute on a pre-tax basis to the
401(k) Plan. The Company has committed to match a minimum of 20 percent of an
employee's contribution to the 401(k) Plan that does not exceed 5 percent of the
employee's eligible compensation. Expenses under the 401(k) Plan for fiscal year
1994, 1995 and 1996 were $0.7 million, $0.7 million and $0.8 million,
respectively.

Multi-Employer Benefit Plans

The Company contributes to multi-employer benefit plans administered by
various trustees. Contributions to these plans are based upon negotiated wage
contracts. These plans may be deemed to be defined benefit plans. Information
related to accumulated plan benefits and plan net assets as they may be
allocated to the Company at January 28, 1996 is not available. The Company
contributed $57.2 million, $21.6 million, $102.1 million and $138.8 million to
these plans for fiscal year 1994, the 1995 transition period, fiscal year 1995
and fiscal year 1996, respectively. Management is not aware of any plans to
terminate such plans.

The United Food and Commercial Workers health and welfare plans were
over-funded and those employers who contributed to the plans received a pro rata
share of the excess reserves in the plans through reduction of current
contributions. The Company's share of the excess reserve was $24.2 million, of
which $8.1 million, $14.3 million and $1.8 million was recognized in fiscal year
1994, the 1995 transition period, and fiscal year 1995, respectively. Offsetting
the reduction in employer contributions was a $5.5 million union contract
ratification bonus and contractual wage increases in the 1995 transition period.
As part of the renewal of the Southern California UFCW contract in October 1995,
employers contributing to UFCW health and welfare plans received a pro rata
share of the excess reserves in the plans through a reduction of current
employer contributions. The Company's share of the excess reserves recognized in
fiscal 1996 was $17.8 million. Offsetting the reduction was a $3.5 million union
bonus in fiscal year 1996.

Postretirement Medical Benefit Plans

The Company adopted postretirement medical benefit plans ("Postretirement
Medical Plans"), previously sponsored by RGC, which cover substantially all
employees who are not members of a collective bargaining agreement and who
retire under certain age and service requirements. The Postretirement Medical
Plans are insured plans and provide outpatient, inpatient and various other
covered services. The Company's policy is to fund the Plans as insurance
premiums are incurred. For persons who are less than age 65 at retirement and
for certain executives, the calendar 1996 year deductible is $1,000 per
individual, indexed to the medical care component of the Consumer Price Index.

F-26
<PAGE> 132

RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The net postretirement benefit cost of the Postretirement Medical Plans
include the following components for fiscal year 1996 (dollars in thousands):

<TABLE>
<S> <C>
Service cost........................................................ $ 909
Interest cost....................................................... 989
Return on plan assets............................................... --
Net amortization and deferral....................................... (281)
------
Net postretirement benefit cost........................... $1,617
======
</TABLE>

Following are the assumptions used in determining the net postretirement
benefit cost:

<TABLE>
<S> <C>
Discount rate......................................................... 7.00%
Expected long term rate of return on plan assets...................... N/A
Medical cost trend.................................................... 9.00%*
</TABLE>

- ---------------

* 1997 percentage decreases by 0.50% per year until 6.00% in 2002 and all future
years.

The funded status of the postretirement benefit plan (based on December 31,
1996 asset values) is as follows (dollars in thousands):

<TABLE>
<S> <C>
Accumulated postretirement benefit obligation:
Retirees.......................................................... $ (2,242)
Fully eligible plan participants.................................. (1,777)
Other active plan participants.................................... (10,126)
Plan assets at fair value......................................... --
--------
Accumulated postretirement obligations in excess of plan assets... (14,145)
Unrecognized gain................................................. (1,580)
Unrecognized prior service cost................................... (2,965)
--------
Accrued post retirement benefit obligation........................ $(18,690)
========
</TABLE>

Following are the assumptions used in determining the funded status:

<TABLE>
<S> <C>
Discount rate......................................................... 7.50%
Expected long term rate of return on plan assets...................... N/A
Medical cost trend.................................................... 8.50%*
</TABLE>

- ---------------

* 1997 percentage decreases by 0.50% per year until 6.00% in 2002 and all
future years

The effect of a 1.00 percent increase in the medical cost trend would
increase the fiscal 1996 service and interest cost by $0.7 million. The
accumulated postretirement benefit obligation at February 2, 1997 would also
increase by $5.1 million.

Stock Plans

Holdings has one employee stock option plan, the Food 4 Less Holdings, Inc.
1995 Stock Option Plan (the "Plan"). The Plan provides for an aggregate of
3,000,000 shares of the Holdings' common stock to be available for grants to
officers and other key employees of Holdings or its subsidiaries. Grants may be
at the fair market value at the date of grant or at a price determined by a
committee consisting of two or more non-employee directors of Holdings (the
"Committee"). If a grantee owns 10 percent or more of the total combined voting
power of all classes of capital stock of Holdings, the option exercise price
shall be at least

F-27
<PAGE> 133

RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

110 percent of the Fair Market Value of Common Stock on the date of grant.
Options expire ten years from the date of grant and become exercisable at the
rate of 20 percent per year, or over a vesting period determined by the
Committee. To date, options issued under the Plan have been granted exclusively
to employees of the Company.

The following table summarizes stock options available for grant:

<TABLE>
<CAPTION>
52 WEEKS 53 WEEKS
ENDED ENDED
JANUARY 28, FEBRUARY 2,
1996 1997
------------ ------------
<S> <C> <C>
Beginning balance..................................... -- 715,000
Authorized............................................ 3,000,000 --
Granted............................................... (2,415,000) (727,500)
Canceled.............................................. 130,000 210,250
---------- --------
Available for future grant............................ 715,000 197,750
========== ========
</TABLE>

A summary of the status of the Plan as of fiscal year 1996 and fiscal year
1995 and changes during the years ending on those dates is presented below:

<TABLE>
<CAPTION>
FISCAL YEAR 1995 FISCAL YEAR 1996
----------------------- -----------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Outstanding at beginning of year............... -- $ -- 2,285,000 $ 5.78
Granted........................................ 2,415,000 5.86 727,500 10.00
Exercised...................................... -- -- -- --
Canceled....................................... (130,000) 5.39 (210,250) 5.72
--------- ----- --------- -----
Outstanding at end of year..................... 2,285,000 5.89 2,802,250 6.97
========= ===== ========= =====
Exercisable at end of year..................... 2,225,000 5.78 2,254,000 6.23
========= ===== ========= =====
Weighted-average fair value of options granted
during the year.............................. $3.35 $ 3.55
===== =====
</TABLE>

The following table summarizes information about stock options outstanding
at February 2, 1997:

<TABLE>
<CAPTION>
WEIGHTED- WEIGHTED- WEIGHTED-
NUMBER AVERAGE AVERAGE NUMBER AVERAGE
RANGE OF OUTSTANDING REMAINING EXERCISE EXERCISABLE EXERCISE
EXERCISE PRICES AT 02/02/97 CONTRACTUAL LIFE PRICE AT 02/02/97 PRICE
- ---------------- ----------- ---------------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C>
$0.79 to $1.09 224,357 8.2years $ 0.84 224,357 $ 0.84
$1.58 to $2.31 172,083 8.2 1.82 172,083 1.82
$2.73 to $4.00 172,500 8.2 3.04 172,500 3.04
$4.29 to $6.00 120,833 8.2 4.76 120,833 4.76
$6.67 to $7.32 1,120,227 8.2 7.15 1,120,227 7.15
$10.00 992,250 8.9 10.00 444,500 10.00
--------- --- ----- --------- -----
$0.79 to $10.00 2,802,250 8.5years $ 6.97 2,254,500 $ 6.23
========= === ===== ========= =====
</TABLE>

At February 2, 1997, 3.0 million shares of Holdings' Common Stock were
reserved for issuance under Holdings' stock option plan.

F-28
<PAGE> 134

RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The Company applies APB Opinion 25 and related Interpretations in
accounting for the Plan and, accordingly, no compensation cost has been
recognized. Pro forma information regarding net income and earnings per share is
required by Statement of Financial Accounting Standards No. 123, "Accounting for
Stock Based Compensation" ("SFAS No. 123"), and has been determined as if the
Company had accounted for employee stock options under the fair value method of
SFAS No. 123. The fair value for stock options was estimated at the date of
grant using the minimum value method with the following assumptions for fiscal
1995 and 1996, respectively: weighted average risk-free interest rates of 6.01
percent and 6.46 percent and a weighted average expected life of the options of
7.0 years and 7.0 years.

For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. At the time of
Merger, 2.3 million Stock Options were granted, 2.2 million of which became
immediately vested. As a result, the effects of applying SFAS 123 for providing
pro forma disclosures in fiscal year 1996 and 1995 are not likely to be
representative of the effects on reported net income for future years. The
Company's pro forma information follows:

<TABLE>
<CAPTION>
FISCAL YEAR FISCAL YEAR
ENDED ENDED
JANUARY 28, FEBRUARY 2,
1996 1997
----------- -----------
(IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
<S> <C> <C>
NET LOSS:
As reported:
Loss before extraordinary charge..................... $ (260,117) $ (93,791)
Extraordinary charge................................. 23,128 --
Net loss............................................. (283,245) (93,791)
Pro forma:
Loss before extraordinary charge..................... $ (264,524) $ (94,299)
Extraordinary charge................................. 23,128 --
Net loss............................................. (287,652) (94,299)
LOSS PER COMMON SHARE:
As reported:
Loss before extraordinary charge..................... $ (174.72) $ (61.95)
Extraordinary charge................................. (15.30) --
Net loss............................................. (190.02) (61.95)
Pro forma:
Loss before extraordinary charge..................... $ (177.64) $ (62.29)
Extraordinary charge................................. (15.30) --
Net loss............................................. (192.94) (62.29)
</TABLE>

(11) FAIR VALUE OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:

Cash and Cash Equivalents

The carrying amount approximates fair value as a result of the short
maturity of these instruments.

F-29
<PAGE> 135

RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Short-Term Notes and Other Receivables

The carrying amount approximates fair value as a result of the short
maturity of these instruments.

Interest Rate Derivatives

The carrying amount of the interest rate collar agreement, which represents
favorable or unfavorable movements of interest rates outside of the interest
rate limits, approximates fair value.

Investments In and Notes Receivable From Supplier Cooperatives

The Company maintains a non-current deposit with Certified in the form of
Class B shares of Certified. Certified is not obligated in any fiscal year to
redeem more than a prescribed number of the Class B shares issued. Therefore, it
is not practicable to estimate the fair value of this investment.

The Company maintains non-current notes receivable from A.W.G. There are no
quoted market prices for this investment and a reasonable estimate could not be
made without incurring excessive costs. Additional information pertinent to the
value of this investment is provided in Note 6.

Long-Term Debt

The fair value of the New Senior Notes, the 1995 11% Senior Subordinated
Notes and the 13.75% Senior Subordinated Notes is based on quoted market prices.
The Term Loans and the Revolving Facility are estimated to be recorded at the
fair value of the debt. Market quotes for the fair value of the remainder of the
Company's debt are not available, and a reasonable estimate of the fair value
could not be made without incurring excessive costs. Additional information
pertinent to the value of the unquoted debt is provided in Note 4.

The estimated fair values of the Company's financial instruments are as
follows (in thousands):

<TABLE>
<CAPTION>
AS OF
FEBRUARY 2, 1997
-------------------------
CARRYING FAIR
AMOUNT VALUE
---------- ----------
<S> <C> <C>
Cash and cash equivalents........................... $ 67,589 $ 67,589
Short-term notes and other receivables.............. 531 531
Interest rate collar................................ -- --
Investments in and notes receivable from supplier
cooperatives (not practicable).................... 11,965 --
Long-term debt for which it is:
- Practicable to estimate fair values............. 1,920,186 2,000,740
- Not practicable................................. 18,643 --
</TABLE>

(12) RESTRUCTURING CHARGE

During fiscal 1995, the Company recorded a $75.2 million charge associated
with the closure of 58 former F4L Supermarkets stores and one former F4L
Supermarkets warehouse facility. The stores were closed to comply with a
settlement agreement with the State of California in connection with the Merger
or to improve the Company's future operating results. Three RGC stores were also
required to be sold to comply with the settlement agreement. During fiscal year
1995, the Company utilized $34.7 million of the reserve for restructuring costs
($50.0 million of costs partially offset by $15.3 million of proceeds from the
divestiture of stores). During fiscal year 1996, the Company utilized $15.1
million of the reserve for restructuring costs,

F-30
<PAGE> 136

RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

consisting mainly of write-downs of property and equipment, expenditures
associated with the closed stores and the warehouse facility and lease
termination expenses ($15.2 million) partially offset by proceeds from the sale
of certain related assets. During the quarter ended April 27, 1997, the Company
utilized $1.4 million (unaudited) of the reserve for restructuring costs,
consisting primarily of writedowns of property and equipment and lease
termination expenses.

(13) SELECTED QUARTERLY FINANCIAL RESULTS (UNAUDITED)

The tables below set forth the selected quarterly financial information for
fiscal year 1995 and fiscal year 1996 (in thousands, except per share amounts):

<TABLE>
<CAPTION>
12 WEEKS 12 WEEKS 12 WEEKS 16 WEEKS
ENDED ENDED ENDED ENDED
FISCAL YEAR 1995 04/23/95 07/16/95 10/08/95 01/28/96
- -------------------------------------------------- -------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Net Sales......................................... $623,598 $ 857,344 $1,207,093 $1,647,074
Gross Profit...................................... 106,400 157,720 222,498 321,371
Loss Before Extraordinary Items................... (2,812) (102,534) (49,750) (105,021)
Net Loss.......................................... (2,812) (125,662) (49,750) (105,021)
Loss Applicable to Common Shares.................. (5,188) (127,246) (49,750) (105,021)
Loss Per Common Share:
Loss Before Extraordinary Items................... $ (3.44) $ (68.96) $ (32.86) $ (69.37)
Loss Per Common Share............................. $ (3.44) $ (84.28) $ (32.86) $ (69.37)
</TABLE>

<TABLE>
<CAPTION>
12 WEEKS 12 WEEKS 12 WEEKS 17 WEEKS
ENDED ENDED ENDED ENDED
FISCAL YEAR 1996 04/21/96 07/14/96 10/06/96 02/02/97
- ------------------------------------------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net Sales....................................... $1,230,808 $1,243,768 $1,221,018 $1,820,665
Gross Profit.................................... 237,925 252,544 264,033 381,516
Net Loss........................................ (31,981) (21,539) (11,865) (28,406)
Loss Per Common Share........................... $ (21.12) $ (14.23) $ (7.84) $ (18.76)
</TABLE>

(14) SUBSEQUENT EVENT

On March 26, 1997, the Company issued $155 million of 11% Senior
Subordinated Notes due 2005 (the "1997 11% Senior Subordinated Notes") and
called all of the 13.75% Senior Subordinated Notes. The terms of the 1997 11%
Senior Subordinated Notes are substantially identical to those of the Company's
11% Senior Subordinated Notes due 2005 issued in June 1995. The 1997 11% Senior
Subordinated Notes were issued at a

F-31
<PAGE> 137

RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

premium price of 105.5, resulting in gross proceeds of $163.5 million. The
proceeds were used to (i) redeem an aggregate of $145.0 million of its
outstanding 13.75% Senior Subordinated Notes and (ii) pay accrued interest, call
premiums, fees and expenses related to the 1997 11% Senior Subordinated Notes.
The redemption price was 106.1 percent of the principal amount outstanding.

On April 17, 1997, the Company amended and restated its existing credit
facilities (the "Refinanced Credit Facility") with a facility with lower
interest rates and a longer average life. The refinancing was structured as an
amendment and restatement of the existing Credit Facility and the amended
facility consists of a $325.0 million Revolving Credit Facility, a $200.0
million Term Loan A Facility and a $350.0 million Term Loan B Facility. At the
time of the amendment and restatement the outstanding principal balance of term
loans under the existing term loan facility was $540.4 million.

Borrowings under the Refinanced Credit Facility bear interest at the bank's
Base Rate (as defined) plus a margin ranging from 0.25 percent to 1.25 percent
for the Revolving Credit Facility and the Term Loan A Facility and the bank's
Base Rate (as defined) plus a margin ranging from 0.75 percent to 1.75 percent
for the Term Loan B Facility or the Eurodollar Rate (as defined) plus a margin
ranging from 1.25 percent to 2.25 percent for the Revolving Credit Facility and
the Term Loan A Facility and the Eurodollar Rate (as defined) plus a margin
ranging from 1.75 percent to 2.75 percent for the Term Loan B Facility. The
interest rate for the Revolving Credit Facility and the Term Loan A Facility
currently is the bank's Base Rate (as defined) plus a margin of 0.75 percent or
the Eurodollar Rate (as defined) plus a margin of 1.75 percent. The interest
rate for the Term Loan B Facility currently is the bank's Base Rate (as defined)
plus a margin of 1.25 percent or the Eurodollar rate (as defined) plus a margin
of 2.25 percent.

Quarterly principal installments on the Refinanced Credit Facility continue
to 2004, with amounts payable in each year as follows: $2.6 million in fiscal
1997, $3.5 million in fiscal 1998, $25.5 million in fiscal 1999, $62.6 million
in fiscal 2000, $87.5 million in fiscal 2001 and $368.3 million thereafter.

Certain other terms and provisions of the previous Credit Facility were
also changed, including, but not limited to, application of proceeds of selected
asset sales and stock offerings and permitted capital expenditures. Management
believes that this refinancing provides increased operational and financial
flexibility through lower interest costs and lower short-term loan amortization.

As a result of the refinancings described above, the Company will incur an
extraordinary loss in the first quarter of fiscal 1997 of approximately $48.9
million, consisting of the call premium on the 13.75% Senior Subordinated Notes
and write-off of deferred financing costs.

F-32
<PAGE> 138

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
Ralphs Supermarkets, Inc.:

We have audited the accompanying consolidated statements of operations,
stockholders' equity and cash flows of Ralphs Supermarkets, Inc. and
subsidiaries for the years ended January 30, 1994 and January 29, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and the cash
flows of Ralphs Supermarkets, Inc. and subsidiaries for the years ended January
30, 1994 and January 29, 1995 in conformity with generally accepted accounting
principles.

KPMG PEAT MARWICK LLP

Los Angeles, California
March 9, 1995

F-33
<PAGE> 139

RALPHS SUPERMARKETS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JANUARY 30, 1994 JANUARY 29, 1995
------------------- -------------------
<S> <C> <C> <C> <C>
Sales............................................... $2,730,157 100.0% $2,724,604 100.0%
Cost of sales....................................... 2,093,727 76.7 2,101,033 77.1
---------- ----- ---------- -----
Gross profit...................................... 636,430 23.3 623,571 22.9
Selling, general and administrative expenses...... 471,000 17.2 467,022 17.2
Amortization of excess cost over net assets
acquired....................................... 10,996 0.4 10,996 0.4
Provision for restructuring....................... 2,374 0.1 -- --
---------- ----- ---------- -----
Operating income.................................. 152,060 5.6 145,553 5.3
Other expenses:
Interest, expense, net............................ 108,755 4.0 112,651 4.1
Loss on disposal of assets........................ 1,940 0.1 784 0.0
Provision for earthquake losses................... 11,048 0.4 -- --
---------- ----- ---------- -----
Earnings before income taxes........................ 30,317 1.1 32,118 1.2
Income tax expense (benefit)........................ (108,049) (4.0) -- --
---------- ----- ---------- -----
Net earnings........................................ $ 138,366 5.1% $ 32,118 1.2%
========== ===== ========== =====
</TABLE>

See accompanying notes to consolidated financial statements.

F-34
<PAGE> 140

RALPHS SUPERMARKETS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JANUARY 30, JANUARY 29,
1994 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings......................................................... $ 138,366 $ 32,118
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization..................................... 74,452 76,043
Amortization of discounts an deferred debt issuance costs......... 9,768 9,032
LIFO charge (credit).............................................. (2,054) 2,085
Loss on sale of assets............................................ 4,314 784
Provision for post-retirement benefits............................ 3,370 2,555
Other changes in assets and liabilities:
Accounts receivable.................................................. 326 (13,177)
Inventories at replacement cost...................................... 6,724 (21,120)
Prepaid expenses and other current assets............................ (1,658) (1,682)
Other assets......................................................... 4,449 (7,287)
Interest payable..................................................... (4,822) (2,419)
Accounts payable and accrued liabilities............................. (1,622) (1,047)
Income taxes payable................................................. (1,480) (2,906)
Deferred tax asset................................................... (109,125) (3,366)
Business interruption credit......................................... (581) --
Earthquake losses.................................................... (11,048) --
Self insurance reserves.............................................. 7,031 (7,503)
Other liabilities.................................................... (12,407) (6,692)
--------- ---------
Cash provided by operating activities................................ 104,003 55,418
--------- ---------
Cash flows from investing activities:
Capital expenditures................................................. (62,181) (64,018)
Proceeds from sale of property, plant and equipment.................. 16,700 13,257
--------- ---------
Cash used in investing activities.................................... (45,481) (50,761)
--------- ---------
Cash flows from financing activities:
Net borrowings under lines of credit................................. (31,100) 51,500
Capitalized financing and acquisition costs.......................... (5,108) (2,496)
Increase (decrease) in bank overdrafts............................... 655 7,952
Proceeds from issuance of long-term debt............................. 150,000 --
Dividends paid....................................................... -- (10,000)
Principal payments on long-term debt................................. (164,081) (71,568)
--------- ---------
Cash provided by (used in) financing activities...................... (49,634) (24,612)
--------- ---------
Net increase (decrease) in cash and cash equivalents................... 8,888 (19,955)
Cash and cash equivalents at beginning of period....................... 46,192 55,080
--------- ---------
Cash and cash equivalents at end of period............................. $ 55,080 $ 35,125
========= =========
</TABLE>

See accompanying notes to consolidated financial statements.

F-35
<PAGE> 141

RALPHS SUPERMARKETS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
RALPHS
RALPHS GROCERY COMPANY
SUPERMARKETS, INC. ------------------------
-------------------- ADDITIONAL
OUTSTANDING COMMON PAID-IN- ACCUMULATED
SHARES STOCK CAPITAL DEFICIT TOTAL
----------- ------ ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
BALANCES AT JANUARY 31, 1993..................... 25,587,280 256 175,292 (308,845) (133,297)
Net earnings................................... -- -- -- 138,366 138,366
---------- ---- -------- --------- ---------
BALANCES AT JANUARY 30, 1994..................... 25,587,280 256 175,292 (170,479) 5,069
Net earnings................................... -- -- -- 32,118 32,118
Dividends Paid................................. -- -- -- (10,000) (10,000)
---------- ---- -------- --------- ---------
BALANCES AT JANUARY 29, 1995..................... 25,587,280 $256 $ 175,292 $(148,361) $ 27,187
========== ==== ======== ========= =========
</TABLE>

See accompanying notes to consolidated financial statements.

F-36
<PAGE> 142

RALPHS SUPERMARKETS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) THE COMPANY

Ralphs Supermarkets, Inc. operates conventional format grocery stores in
the Southern California area.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of Presentation

These consolidated financial statements present the statements of
operations and cash flows of Ralphs Supermarkets, Inc. and subsidiary (Ralphs
Grocery Company) for the two years ended January 30, 1994 and January 29, 1995.

(b) Reporting Period

Ralphs' fiscal year ends on the Sunday closest to January 31. Fiscal
year-ends are as follows:

January 30, 1994 (Fiscal 1993)

January 29, 1995 (Fiscal 1994)

For purposes of the statements of cash flows, Ralphs considers all highly
liquid debt instruments with original maturities of three months or less to be
cash equivalents.

(d) Inventories

Inventories are stated at the lower cost or market. Cost is determined
primarily using the last-in, first-out (LIFO) method.

(e) Depreciation and Capitalized Interest

Depreciation of plant and equipment is calculated using the straight-line
method over the estimated useful lives of assets. Plant and equipment held under
capital leases and leasehold improvements are amortized using the straightline
method over the shorter of the lease term or the estimated useful life of the
asset. Useful lives range from 10 to 40 years for buildings and improvements and
3 to 20 years for fixtures and equipment.

Interest is capitalized in connection with the construction of major
facilities. The capitalized interest is recorded as part of the asset to which
it relates and is amortized over the asset's estimated useful life. Interest
cost capitalized during fiscal 1993 and 1994 was $.740 million and $.324
million, respectively.

(f) Deferred Debt Issuance Costs

Direct costs incurred as a result of financing transactions are capitalized
and amortized over the terms of the applicable debt agreements using the
effective interest method.

(g) Pre-opening Costs

Pre-opening costs of new stores are deferred and expensed at the time the
store opens. If a new store is ultimately not opened, the costs are expensed
directly to selling, general and administrative expense at the time it is
determined that the store will not be opened.

F-37
<PAGE> 143

RALPHS SUPERMARKETS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(h) Self Insurance Reserves

Ralphs is self-insured for a portion of workers' compensation, general
liability and automobile accident claims. Ralphs establishes reserve provisions
based on an independent actuary's review of claims filed and an estimate of
claims incurred but not yet filed.

(i) Excess of Cost Over Net Assets Acquired

The excess of cost over net assets acquired, resulting from the May 3, 1988
acquisition of Ralphs is being amortized using the straight-line method over 40
years. Ralphs assesses the recoverability of this intangible asset by
determining whether the amortization of the asset balance over its remaining
life can be recovered through projected undiscounted operating income (including
interest, depreciation and all amortization expense except amortization of
excess of cost over net assets acquired) over the remaining amortization period
of the excess of cost over net assets acquired. The amount of excess of cost
over net assets acquired impairment, if any, is measured based on projected
discounted future results using a discount rate reflecting Ralphs' average cost
of funds.

(j) Acquired Leases

Beneficial lease rights and lease valuation reserves are recorded as the
net present value of the differences between contractual rents under existing
lease agreements and fair value of entering such lease agreements as of the May
3, 1988 acquisition of Ralphs. All beneficial lease rights and lease valuation
reserves arose solely as a result of the May 3, 1988 acquisition. Adjustments to
the carrying value of these assets would typically occur only through additional
business combinations or in the event of early lease termination. Beneficial
lease rights are amortized using the straight-line method over the terms of the
leases. Lease valuation reserves are amortized using the interest method over
the terms of the leases.

(k) Discounts and Promotional Allowances

Promotional allowances and vendor discounts are recorded as a reduction of
cost of sales in the accompanying statements of operations. Allowance proceeds
received in advance are deferred and recognized over the period earned.

(l) Reclassification

Certain amounts in the accompanying financial statements have been
reclassified to conform to the current year's presentation.

(m) Consolidation Policy

The consolidated financial statements include the accounts of Ralphs
Supermarkets, Inc., and its wholly owned subsidiary, Ralphs Grocery Company, and
its wholly owned subsidiary, collectively referred to as the Company. All
material intercompany balances and transactions are eliminated in consolidation.

(n) Fair Value of Financial Instruments

The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:

(i) Cash and short-term investments: The carrying amount approximates
fair value because of the short maturity of those instruments.

F-38
<PAGE> 144

RALPHS SUPERMARKETS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(ii) Long-term debt: The fair value of Ralphs' long-term debt is
estimated based on the quoted market prices for the same or similar issues
or on the current rates offered to Ralphs for debt of the same remaining
maturities.

(iii) Interest Rate Swap Agreements: The fair value of interest rate
swap agreements is the estimated amount that Ralphs would receive or pay to
terminate the swap agreements at the reporting date, taking into account
current interest rates and the current credit-worthiness of the swap
counterparties.

(o) Advertising

The Company expenses the production costs of advertising the first time the
advertising takes place. Advertising expense was $16.4 million and $18.2 million
in fiscal 1993 and 1994, respectively.

(p) Transaction Costs

In connection with the proposed merger, Ralphs has capitalized in other
assets approximately $2.3 million of transaction costs, principally attorney and
accounting fees. Upon completion of the merger these amounts will be
reclassified to excess of cost of net assets acquired and amortized accordingly.

(3) LEASES

Ralphs has leases for retail store facilities, warehouses and manufacturing
plants for periods up to 30 years. Generally, the lease agreements include
renewal options for five years each. Under most leases, Ralphs is responsible
for property taxes, insurance, maintenance and expense related to the lease
property. Certain store leases require excess rentals based on a percentage of
sales at that location. Certain equipment is leased by Ralphs under agreements
ranging from 3 to 15 years. The agreements usually do not include renewal option
provisions.

Minimum rental payments due under capital leases and operating leases
subsequent to fiscal 1994 are as follows:

<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES TOTAL
-------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
1995................................................... $ 21,640 $ 61,324 $ 82,964
1996................................................... 19,093 60,847 79,940
1997................................................... 18,288 58,182 76,470
1998................................................... 15,901 53,321 69,222
1999................................................... 11,784 52,839 64,623
2000 and thereafter.................................... 53,959 373,021 426,980
-------- -------- --------
Total minimum lease payments........................... $140,665 $ 659,534 $800,199
======== ========
Less amounts representing interest..................... (51,581)
--------
Present value of net minimum lease payments............ 89,084
Less current portion of lease obligations.............. (13,151)
--------
Long-term capital lease obligations.................... $ 75,933
========
</TABLE>

F-39
<PAGE> 145

RALPHS SUPERMARKETS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Total rent expense is summarized as follows:

<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS
ENDED ENDED
JANUARY 30, JANUARY 29,
1994 1995
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Capital Leases
Contingent rental............................................. $ 2,241 $ 2,256
Rentals from subleases........................................ (2,048) (1,734)
Operating Leases
Minimum rentals............................................... 54,965 55,906
Contingent rentals............................................ 3,645 3,763
Rentals from subleases........................................ (1,150) (1,791)
-------- --------
$ 57,653 $ 58,400
======== ========
</TABLE>

(4) SELF-INSURANCE

Ralphs is a qualified self-insurer in the State of California for worker's
compensation and for automobile liability. For fiscal 1993 and 1994 self
insurance loss provisions amounted to (in thousands) $30,323 and $14,003,
respectively. Ralphs discounts self-insurance liabilities using an 8% discount
rate for all years presented. Management believes that this rate approximates
the time value of money over the anticipated payout period (approximately 8
years) for essentially risk free investments.

Based on a review of modifications in its workers compensation and general
liability insurance programs, Ralphs adjusted its self-insurance costs during
Fiscal 1994, resulting in a reduction in the loss provision in Fiscal 1994 of
approximately $18.9 million.

The Company expects that cash payments for claims over the next five years
will aggregate approximately $28 million in fiscal year 1995, $19 million in
fiscal year 1996, $13 million in fiscal year 1997, $8 million in fiscal year
1998 and $7 million in fiscal year 1999.

(5) COMMITMENTS AND CONTINGENCIES

In December 1992, three California state antitrust class action suits were
commenced in Los Angeles Superior Court against Ralphs and other major
supermarket chains located in Southern California, alleging that they conspired
to refrain from competing in the retail market for fluid milk and to fix the
retail price of fluid milk above competitive prices. Specifically, class actions
were commenced by Diane Barela and Neila Ross, Ron Moliare and Paul C. Pfeifle
on December 7, December 14, and December 23, 1992, respectively. The Court has
yet to certify any of these classes. A demurrer to the complaints was denied.
Notwithstanding that it believes there is no merit to these cases, Ralphs had
reached an agreement in principle to settle them.

However, no settlement agreement has been signed. The Company does not
believe that the resolution of these cases will have a material adverse effect
on its future financial condition. Any settlement would be subject to court
approval.

On March 25, 1991, George A. Koteen Associates, Inc. ("Koteen Associates")
commenced an action in San Diego Superior Court alleging that Ralphs breached an
alleged utility rate consulting agreement. In December 1992, a jury returned a
verdict of approximately $4.9 million in favor of Koteen Associates and in March
1993, attorney's fees and certain other costs were awarded to the plaintiff.
Ralphs has appealed the judgment and fully reserved in Fiscal 1992 against an
adverse ruling by the appellate courts.

F-40
<PAGE> 146

RALPHS SUPERMARKETS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

In April 1994, Ralphs was served with a complaint filed by over 240 former
employees at Ralphs' bakery in the Atwater district of Los Angeles (the "Bakery
Plaintiffs"). The action was commenced in the United States District Court for
the Central District of California, and, among other claims, the Bakery
Plaintiffs alleged that Ralphs breached its collective bargaining agreement and
violated the Workers Adjustment Retraining Notification Act (the "WARN Act")
when it downsized and subsequently closed the bakery. In their complaint, the
Bakery Plaintiffs are seeking damages for lost wages and benefits as well as
punitive damages. The Bakery Plaintiffs also named Ralphs and two of its
management employees in fraud, conspiracy and emotional distress causes of
action. In addition, the Bakery Plaintiffs sued their union local for breach of
its duty of fair representation and other alleged misconduct, including fraud
and conspiracy. The defendants have answered the complaint and discovery is
ongoing. Trial is set for February, 1996, and Ralphs is vigorously defending
this suit. Management believes, based on its assessment of the facts, that the
resolution of this case will not have a material effect on the Company's
financial position or results of operations.

In addition, Ralphs is a defendant in a number of other cases currently in
litigation or potential claims encountered in the normal course of business
which are being vigorously defended. In the opinion of management, the
resolutions of these matters will not have a material effect on Ralphs'
financial position or results of operations.

Environmental Matters

In January 1991, the California Regional Water Quality Control Board for
the Los Angeles Region (the "Regional Board") requested that Ralphs conduct a
subsurface characterization of Ralphs' Atwater property. This request was part
of an ongoing effort by the Regional Board, in connection with the U.S.
Environmental Protection Agency (the "EPA"), to identify contributors to
groundwater contamination in the San Fernando Valley. Significant parts of the
San Fernando Valley, including the area where Ralphs' Atwater property is
located, have been designated federal Superfund sites requiring response actions
under the Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended, because of regional groundwater contamination. On June 18,
1991, the EPA made its own request for information concerning the Atwater
property. Since that time, the Regional Board has requested further
investigation by Ralphs. Ralphs has conducted the requested investigations and
has reported the results to the Regional Board. Approximately 25 companies have
entered into a Consent Order (EPA Docket No. 94-11) with the EPA to investigate
and design a remediation system for contaminated groundwater beneath an area
which includes the Atwater property. Ralphs is not a party to the Consent Order,
but is cooperating with requests of the subject companies to allow installation
of monitoring or recovery wells on Ralphs' property. Based upon available
information, management does not believe this matter will have a material
adverse effect on the Company's financial condition or results of operations.

Ralphs has removed underground storage tanks and remediated soil
contamination at the Atwater property. In some instances the removals and the
contamination were associated with grocery business operations, in others they
were associated with prior property users. Although the possibility of other
contamination from prior operations or adjacent properties exists at the Atwater
property, management does not believe that the costs of remediating such
contamination will be material to the Company.

Apart from the Atwater property, the Company has recently had environmental
assessments performed on a significant portion of its facilities, including
warehouse and distribution facilities. The Company believes that any responsive
actions required at the examined properties as a result of such assessments will
not have a material adverse effect on its financial condition or results of
operations.

Ralphs has incurred approximately $4.5 million in non-recurring capital
expenditures for conversion of refrigerants during 1994. Other than these
expenditures, Ralphs has not incurred material capital expenditures

F-41
<PAGE> 147

RALPHS SUPERMARKETS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

for environmental controls during the previous three years, nor does management
anticipate incurring such expenditures during the current fiscal year or the
succeeding fiscal year.

Ralphs is subject to a variety of environmental laws, rules, regulations
and investigative or enforcement activities, as are other companies in the same
or similar business. The Company believes it is in substantial compliance with
such laws, rules and regulations. These laws, rules, regulations and agency
activities change from time to time, and such changes may affect the ongoing
business and operations of the Company.

(6) EQUITY APPRECIATION RIGHTS PLANS

Effective August 26, 1988, Ralphs adopted an Equity Appreciation Plan
("1988 Plan"), whereby certain officers received equity rights representing, in
aggregate, the right to receive 15% of the increase in the appraised value (as
defined in the 1988 Plan) of the Ralphs' equity over an initial value of $120.0
million. The 1988 Plan was amended in January 1992 by agreement among Ralphs and
the Equity Rights holders ("Amended Plan"). Ralphs accrued for the increase in
equity appreciation rights over the contractually defined vesting period (fully
accrued in fiscal 1991), based upon the maximum allowable contractual amount
which approximated ending appraised value.

Under the Amended Plan, all outstanding Equity Rights vested in full are no
longer subject to forfeiture by the holders, except in the event a holder's
employment is terminated for cause within the meaning of the Amended Plan. The
appraised value of Ralphs' equity is to be determined as of May 1 each year by
an investment banking company engaged for this purpose utilizing the methodology
specified in the Amended Plan (which is unchanged from that specified in the
1988 Plan); however, under the Amended Plan the appraised value of Ralphs'
equity for purposes of the plan may not be less than $400.0 million nor exceed
$517.0 million. The amount of equity rights redeemable at any given time is
defined in each holders' separate agreement. On exercise of an equity right, the
holder will be entitled to receive a pro rata percentage of any such increase in
appraised value. In addition, the Amended Plan provides for the possible
additional further payment to the holder of each exercised Equity Right of an
amount equal to the "Deferred Value" of such Equity Right as defined in the
Amended Plan. Ralphs did not incur any expense under the Equity Appreciation
Rights Plan in fiscal 1993 and fiscal 1994.

The amount of Equity Rights redeemable for each of the four years
subsequent to fiscal 1994 are as follows:

<TABLE>
<CAPTION>
(DOLLARS IN
THOUSANDS)
-----------
<S> <C>
1995...................................... $ 6,669
1996...................................... 12,389
1997...................................... 3,636
1998...................................... 10,150
-------
$32,844
=======
</TABLE>

F-42
<PAGE> 148

RALPHS SUPERMARKETS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(7) INCOME TAXES

Income tax expense (benefit) consists of the following:

52 WEEKS 52 WEEKS
ENDED ENDED
JANUARY 30, JANUARY 29,
1994 1995
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Current:
Federal................................................... $ (2,424) $ 713
State..................................................... 3,500 2,653
--------- -------
$ 1,076 $ 3,366
--------- -------
Deferred:
Federal................................................... $(109,125) $(3,366)
State..................................................... $ -- $ --
--------- -------
$(109,125) $(3,366)
--------- -------
Total income tax expense (benefit)........................ $(108,049) $ --
========= =======
</TABLE>

Income tax expense (benefit) has been classified in the accompanying
statements of operations as follows:

<TABLE>
<CAPTION>
1993 1994
--------- --------
<S> <C> <C>
Earnings before extraordinary items........................... $(108,049) $ --
Extraordinary item............................................ -- --
--------- --------
Net tax expense (benefit)..................................... $(108,049) $ --
========= ========
</TABLE>

The differences between income tax expense and income taxes computed using
the top marginal U.S. Federal income tax rate of 35% for fiscal 1993 and fiscal
1994 applied to earnings (loss) before income taxes were as follows:

52 WEEKS 52 WEEKS
ENDED ENDED
JANUARY 30, JANUARY 29,
1994 1995
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Amount of expected expense (benefit) computed using the
statutory Federal rate........................................ $ 10,611 $ 11,241
Utilization of financial operating loss....................... (10,611) (11,241)
Amortization of excess cost over net assets acquired.......... -- --
State income taxes, net of Federal income tax benefit......... 3,500 2,653
Accounting limitation (recognition) of deferred tax benefit... (109,125) (3,366)
Alternative minimum tax....................................... 625 --
Other, net.................................................... (3,049) 713
--------- --------
Total income tax expense (benefit)......................... $ (108,049) $ --
========= ========
</TABLE>

In connection with a reorganization plan filed under Chapter 11, Title 11
of the United States Bankruptcy Code by Ralphs former ultimate parent,
Federated, Ralphs entered into a "Tax Indemnity Agreement" with Federated and
certain of its affiliates (the "Affiliated Group"). The agreement required that
one of the affiliated companies, Federated Department Stores, pay certain tax
liabilities, if any, related to Ralphs Grocery Company being a member of the
Affiliated Group. The Tax Indemnity Agreement provides a

F-43
<PAGE> 149

RALPHS SUPERMARKETS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

formula to determine the amount of additional tax liabilities through February
3, 1992 that Ralphs Grocery Company would be obligated to pay the Affiliated
Group. However, such additional liability, if any, is limited to $10 million
subject to certain adjustments.

Under the Tax Indemnity agreement, both Ralphs Supermarkets, Inc. and
Ralphs Grocery Company have agreed to pay Federated Department Stores, Inc. $1
million annually for each of five years starting on February 3, 1992, and an
additional $5 million on February 3, 1997. These total payments of $10 million
have been recorded in the consolidated financial statements at February 2, 1992.
The five $1 million installments are to be paid by Ralphs Grocery Company and
the $5 million is the joint obligation of both Ralphs Supermarkets, Inc. and
Ralphs Grocery Company. Also, in the event Federated Department Stores, Inc. is
required to pay certain tax liabilities on behalf of Ralphs Grocery Company,
both Ralphs Supermarkets, Inc. and Ralphs Grocery Company have agreed to
reimburse Federated Department Stores, Inc. up to an additional $10 million,
subject to certain adjustments. This additional obligation is the joint and
several obligation of both Ralphs Supermarkets, Inc. and Ralphs Grocery Company.
The $5 million payment and the potential $10 million payment may be paid, at the
option of both Ralphs Supermarkets, Inc. and Ralphs Grocery Company, in cash or
newly issued Ralphs Supermarkets, Inc. Common Stock.

On October 15, 1992, Ralphs filed an election with the Internal Revenue
Service under Section 338(h)(10). Under this Section, Ralphs is required to
restate, for Federal tax purposes, its assets and liabilities to fair market
value as of February 3, 1992. The effect of this transaction is to record a new
Federal tax basis to reflect a change of control for Federal tax purposes
resulting from the Internal Reorganization. No change of control for financial
reporting purposes was affected.

In August, 1993, The Omnibus Budget Reconciliation Act of 1993 (the "Act")
was enacted. The Act increased the Federal income tax rate from 34 to 35 percent
for filers whose taxable income exceeded $10.0 million. In the current year, the
effect of the Federal income tax rate change was to increase the net deferred
tax assets. In addition, the Act also provided for the deductibility of certain
intangibles, including costs in excess gross assets acquired.

The Act has significantly impacted the aggregate deferred tax asset
position of Ralphs at January 29, 1995. Ralphs elected to retroactively apply
certain provisions of the Act related to the February 3, 1992 change of control
for Federal tax purposes. As such, approximately $610.7 million in excess of
cost over net assets acquired became fully deductible for Federal tax purposes.
This amount is deductible over 15 years. This excess in the tax basis over the
financial statement basis of excess of cost over net assets acquired aggregated
$123.0 million at January 29, 1995.

During the year ended January 30, 1994, Ralphs recorded the incremental
impact of the Act on deductible temporary differences and increased its deferred
income tax assets by a net amount of $109.1 million. The decision to reduce the
valuation allowance was based upon several factors. Specific among them, was the
Company's completion of its restructuring plan which effectively reduced
estimated interest expense by approximately $9.0 as compared to the year ended
January 31, 1993. In addition, the January 31, 1993 operating results were
negatively effected by several charges including provisions for restructuring,
legal settlements and a loss on retirement of debt all aggregating approximately
$90 million on a pre-tax basis.

Although there can be no assurance as to future taxable income, the Company
believes that, based upon the above mentioned events, as well as the Company's
expectation of future taxable income, it is more likely than not that the
recorded deferred tax asset will be realized. In order to realize the net
deferred tax asset currently recorded, Ralphs will need to generate sufficient
future taxable income, assuming current tax rates, of approximately $320.0
million.

At January 29, 1995, the Company has Federal net operating loss (NOL)
carryforwards of approximately $162.0 million and Federal and state Alternative
Minimum Tax Credit carryforwards of approximately

F-44
<PAGE> 150

RALPHS SUPERMARKETS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

$2.1 million which can be used to offset Federal taxable income and regular
taxes payable, respectively. The NOL carryforwards begin expiring in 2008.

During the past three fiscal years, the Company has generated Federal
taxable losses of approximately $162.0 million versus financial pre-tax earnings
of approximately $65.2 million for the same periods. These differences result
principally from excess tax versus financial amortization on certain intangible
assets (excess of cost over net assets acquired), as well as several other
originating temporary differences.

(8) EMPLOYEE BENEFIT PLANS

Ralphs has a defined benefit pension plan covering substantially all
employees not already covered by collective bargaining agreements with at least
one year of credit service (defined at 1,000 hours). Ralphs' policy is to fund
pension costs at or above the minimum annual requirement.

On February 23, 1990, the Company adopted a Supplemental Executive
Retirement Plan covering certain key officers of Ralphs. The Company has
purchased split dollar life insurance policies for participants under this plan.
Under certain circumstances, the cash surrender value of certain split dollar
life insurance policies will offset Ralphs obligations under the Supplemental
Executive Retirement Plan.

During the second quarter of 1994, the Company approved and adopted a new
non-qualified retirement plan, the Ralphs Grocery Company Retirement
Supplemental Plan ("Retirement Supplement Plan") effective January 1, 1994 and
amended the existing Supplemental Executive Retirement Plan effective April 9,
1994. These changes to the retirement plans were made pursuant to the enactment
of the 1993 Omnibus Budget Reconciliation Act.

Under the provisions of the Retirement Supplement Plan, participants are
entitled to receive benefits based on earnings over the indexed amount of
$150,000.

The following actuarially determined components were included in the net
pension expense:

<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS
ENDED ENDED
JANUARY 30, JANUARY 29,
1994 1995
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Service cost................................................ $ 2,228 $ 2,901
Interest cost on projected benefit obligation............... 2,838 3,821
Actual return on assets..................................... (2,695) (1,447)
Net amortization and deferral............................... (46) (1,100)
------- -------
Net pension expense.................................... $ 2,325 $ 4,175
======= =======
</TABLE>

The accrued pension cost for accumulated benefits that exceeded assets at
January 30, 1994 was immaterial to the consolidated financial statements.

Service costs for fiscal 1993 were calculated using a discount rate of 8.5%
and a rate of increase in future compensation levels of 6%. The 1994 discount
rate and the rate of increase in future compensation levels were reduced to
7.75% and 5.0%, respectively, to reflect the decline in interest rates in 1994.
The discount rate will be increased to 8.25% in 1995 in order to reflect the
increase in the current long-term interest rate. A long-term rate of return on
assets of 9% was used for fiscal 1993 and 1994.

The pension plan assets consist primarily of common stocks, bonds, debt
securities, and a money market fund. Plan benefits are based primarily on years
of service and on average compensation during the last years of employment.

F-45
<PAGE> 151

RALPHS SUPERMARKETS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Ralphs participates in multi-employer pension plans and health and welfare
plans administered by various trustees for substantially all union employees.
Contributions to these plans are based upon negotiated contractual rates. In
both Fiscal 1992 and Fiscal 1993 the multi-employer pension plan was deemed to
be overfunded based upon the collective bargaining agreement then currently in
force. During Fiscal 1993 the agreement called for pension benefits which
resulted in additional required expense. The UFCW health and welfare benefit
plans were overfunded and those employers who contributed to these plans
received a prorata share of excess reserve in these health care benefit plans
through a reduction in current maintenance payments. Ralphs' share of the excess
reserve was approximately $24.5 million of which $11.8 million was recognized in
Fiscal 1993 and the remainder, $12.7 million, was recognized in Fiscal 1994.
Since employers are required to make contributions to the benefit funds at
whatever level is necessary to maintain plan benefits, there can be no assurance
that plan maintenance payments will remain at current levels.

The expense related to these plans is summarized as follows:

<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS
ENDED ENDED
JANUARY 30, JANUARY 29,
1994 1995
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Multi-employer pension plans................................ $17,687 $ 8,897
======= =======
Multi-employer health and welfare........................... $45,235 $66,351
======= =======
</TABLE>

Ralphs maintains the Ralphs Grocery Company Savings Plan Plus -- Prime and
the Ralphs Grocery Savings Plan Plus -- Basic (collectively referred to as the
"401(k) Plan") covering substantially all employees who are not covered by
collective bargaining agreements and who have at least one year of credited
service (defined at 1,000 hours). The 401(k) Plan provided for both pre-tax and
after-tax contributions by participating employees. With certain limitations,
participants may elect to contribute from 1% to 12% of their annual compensation
on a pre-tax basis to the Plan. Ralphs has committed to match a minimum of 20%
of an employee's contribution to the 401(k) Plan that do not exceed 5% of the
employee's compensation. Expenses under the 401(k) Plan for fiscal 1993 and 1994
were $431,774 and $446,826, respectively.

Ralphs has an executive incentive compensation plan which covers
approximately 39 key employees. Benefits to participants are earned based on a
percentage of base compensation upon attainment of a targeted formula of
earnings. Expense under this plan for fiscal 1993 and 1994 was $2.6 million and
$2.4 million, respectively. Ralphs has also adopted an incentive plan for
certain members of management. Benefits to participants are earned based on a
percentage of base compensation upon attainment of a targeted formula of
earnings. Expense under this plan for fiscal 1993 and 1994 was $3.0 million and
$3.1 million, respectively.

The aforementioned incentive plans may be cancelled by the Board of
Directors at any time.

Ralphs sponsors a postretirement medical benefit plan (Postretirement
Medical Plan) covering substantially all employees who are not members of a
collective bargaining agreement and who retire under certain age and service
requirements.

The Postretirement Medical Plan is a traditional type medical plan
providing outpatient, inpatient and various other covered services. Such
benefits are funded from Ralphs' general assets. The calendar year deductible is
$1,270 per individual, indexed to the Medical Consumer Price Index.

F-46
<PAGE> 152

RALPHS SUPERMARKETS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The net periodic cost of the Postretirement Medical Plan includes the
following components:

<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS
ENDED ENDED
JANUARY 30, JANUARY 29,
1994 1995
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Service cost................................................ $ 1,767 $ 1,396
Interest cost............................................... 1,603 1,387
Return on plan assets....................................... -- --
Net amortization and deferment.............................. -- (228)
------ -------
Net postretirement benefit cost........................... $ 3,370 $ 2,555
====== =======
</TABLE>

Service cost was calculated using a medical cost trend of 10.5% and a
decreasing medical cost trend rate of 14%-8% for 1993 and 1994 respectively. The
discount rate for 1993 was 8.5% and was reduced to 7.75% in 1994 to reflect the
decline in interest rates in 1994. In 1995, the discount rate will increase to
8.25% in order to reflect the increase in the current long-term interest rate.
The long-term rate of return of plan assets is not applicable as the plan is not
funded.

The effect of a one-percent increase in the medical cost trend would
increase the fiscal 1994 service and interest cost to 18%.

(9) QUARTERLY RESULTS (UNAUDITED)

Quarterly results for fiscal 1993 and 1994 are as follows:

<TABLE>
<CAPTION>
GROSS OPERATING INCOME NET
SALES PROFIT INCOME TAXES EARNINGS
-------- ------ --------- ------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
FY 1993 Quarters
12 weeks ended 04/25/93................. $ 632.4 $142.4 $ 31.4 $ 1.0 $ 3.9
12 weeks ended 07/18/93................. 629.0 145.2 36.8 (1.0) 12.9
12 weeks ended 10/10/93................. 612.8 141.5 31.7 -- 7.0
16 weeks ended 01/30/94................. 856.0 207.4 52.2 (108.0) 114.6
-------- ------ ------ ------- ------
Total................................ $2,730.2 $636.5 $ 152.1 $(108.0) $138.4
======== ====== ====== ======= ======
FY 1994 Quarters
12 weeks ended 04/24/94................. $ 616.0 $141.7 $ 34.1 $ -- $ 8.4
12 weeks ended 07/17/94................. 625.0 142.9 32.9 -- 7.2
12 weeks ended 10/09/94................. 615.4 138.8 30.8 -- 4.3
16 weeks ended 01/29/95................. 868.2 200.2 47.8 -- 12.2
-------- ------ ------ ------- ------
Total................................ $2,724.6 $623.6 $ 145.6 $ -- $ 32.1
======== ====== ====== ======= ======
</TABLE>

F-47
<PAGE> 153

RALPHS SUPERMARKETS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(10) SUPPLEMENTAL CASH FLOW INFORMATION

<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS
ENDED ENDED
JANUARY 30, JANUARY 29,
1994 1995
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Supplemental cash flow disclosures:
Interest paid, net of amounts capitalized................. $93,738 $99,067
Income taxes paid......................................... $ 2,423 $ 6,270
Capital lease assets and obligations assumed.............. $15,395 $41,131
</TABLE>

(11) STOCK OPTION PLAN

On February 3, 1992, 3,162,235 options for Common Stock of the Company were
granted under the Ralphs Non-qualified Stock Option Plan. All options were
vested, but not exercisable, on the date of the grant. Options granted to
certain officers become exercisable at the rate of 20% on each September 30 of
calendar years 1992 through 1996. Options granted to other officers become
exercisable as to 10% of the grant on each of September 30, 1992 and 1993, 15%
on each of September 30, 1994 through September 30, 1997, and 20% on September
20, 1998.

The following table summarizes the Ralphs Non-qualified Stock Option Plan.

<TABLE>
<CAPTION>
NUMBER OF PRICE
OPTIONS RANGE
--------- ------
<S> <C> <C>
Options Outstanding at January 30, 1994:
Beginning of year............................................. 3,162,235 $20.21
Granted....................................................... -- --
Exercised..................................................... -- --
Cancelled..................................................... -- --
Expired....................................................... -- --
End of year................................................ 3,162,235 $20.21
--------- ------
Exercisable at end of year...................................... 811,760 --
--------- ------
Available for grant at end of year.............................. -- --
--------- ------
Options Outstanding at January 29, 1995:
Beginning of year............................................. 3,162,235 $20.21
Granted....................................................... -- --
Exercisable................................................... -- --
Cancelled..................................................... -- --
Expired....................................................... -- --
End of year................................................ 3,162,235 $20.21
--------- ------
Exercisable at end of year...................................... 1,330,924 --
--------- ------
Available for grant at end of year.............................. -- --
--------- ------
</TABLE>

The option price for outstanding options at January 29, 1995 assumes a
grant date fair market value of Common Stock of the Company equal to $20.21 per
share, which represents the high end of a range of estimated values of the
Common Stock of the Company on February 3, 1992, the date of the grant.

F-48
<PAGE> 154

RALPHS SUPERMARKETS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(12) THE MERGER (UNAUDITED)

On September 14, 1994, Food 4 Less Supermarkets, Inc. ("Food 4 Less"), Food
4 Less Holdings, Inc. ("Holdings"), and the parent company of Holdings, Food 4
Less, Inc. ("FFL"), entered into a definitive Agreement and Plan of Merger (as
amended from time to time, the "Merger Agreement") with Ralphs Supermarkets,
Inc. (the "Holding Company") and its stockholders. Pursuant to the terms of the
Merger Agreement, Food 4 Less will be merged with and into Holding Company (the
"RSI Merger") and Holding Company will continue as the surviving corporation.
Food 4 Less is a multiple format supermarket operator that operates in three
geographic areas: Southern California, Northern California and certain areas of
the Midwest.

Immediately following the RSI Merger, Ralphs Grocery Company ("RGC"), which
is currently a wholly-owned subsidiary of Holding Company, will merge with and
into Holding Company (the "RGC Merger," and together with the RSI Merger, the
"Merger"), and Holding Company will change its name to Ralphs Grocery Company
(the "New Company"). Prior to the Merger, FFL will merge with and into Holdings,
which will be the surviving corporation (the "FFL Merger"). Immediately
following the FFL Merger, Holdings will change its jurisdiction of incorporation
by merging with a newly-formed, wholly-owned subsidiary ("Holdings"),
incorporated in Delaware (the "Reincorporation Merger"). As a result of the
Merger, the FFL Merger and the Reincorporation Merger, the New Company will
become a wholly-owned subsidiary of Holdings. Agreement has been reached with
each of the California Attorney General and the Federal Trade Commission for
approval of the Merger. Food 4 Less and Ralphs have agreed in a settlement
agreement with the Attorney General to divest 27 specific stores in Southern
California. Under the agreement, the Company must divest 14 stores by June 30,
1995, and the balance of 13 stores by December 31, 1995.

In order to consummate the Merger, Food 4 Less has made an Offer to
Exchange and Offer to Purchase and Solicit Consents with respect to the holders
of the 9% Senior Subordinated Notes (the "Old RGC 9% Notes") due April 1, 2003
of RGC and the 10 1/4% Senior Subordinated Notes due July 15, 2002 of RGC (the
"Old RGC 10 1/4% Notes," and together with the Old RGC 9% Notes, the "Old RGC
Notes") (i) to exchange (as so amended and restated, the "Exchange Offers") such
Old RGC Notes for New Senior Subordinated Notes due 2005 (the "Notes") plus a
cash payment of $20.00 in cash for each $1,000 principal amount of Old RGC Notes
tendered for exchange or (ii) to purchase (the "Cash Offers," and together with
the Exchange Offers, the "Offers") Old RGC Notes for $1,010 in cash per $1,000
principal amount of Old RGC Notes accepted for purchase, in each case, plus
accrued and unpaid interest to the date of exchange of purchase. The Offers are
subject to the terms and conditions set forth in an Amended and Restated
Prospectus and Solicitation Statement, filed by Food 4 Less with the Securities
and Exchange Commission and which is subject to further change (the
"Prospectus"), including: (1) satisfaction of a minimum tender amount (i.e., at
least a majority of the aggregate principal amount of the outstanding Old RGC
Notes being validly tendered for exchange for Notes and not withdrawn pursuant
to the Offers prior to the date of expiration); (2) the receipt of the requisite
consents to certain amendments to the indentures (the "Indentures") under which
the Old RGC Notes were issued (i.e., consents from holders of Old RGC Notes
representing at least a majority in aggregate principal amount of each issue of
Old RGC Notes held by persons other than Ralphs and its affiliates) on or prior
to the date of expiration; (3) the satisfaction or waiver, in Food 4 Less' sole
discretion, of all conditions precedent to the Merger; (4) the prior or
contemporaneous consummation of other exchange offers, consent solicitations and
public offerings contemplated by the Prospectus; and (5) the prior or
contemporaneous consummation of the bank financing and the equity investment
described in the Prospectus. As a result of the RSI Merger and the RGC Merger,
the Notes and any outstanding Old RGC Notes not tendered in the Offers will be
the obligations of the New Company.

Conditions to the consummation of the RSI Merger include the receipt of
necessary consents and the completion of financing of the transaction. The
purchase price for Holding Company is approximately $1.5 billion, including the
assumption or repayment of debt. The consideration payable to the stockholders
of

F-49
<PAGE> 155

RALPHS SUPERMARKETS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Holding Company consists of $375 million in cash, $131.5 million principal
amount of 13 5/8% Senior Subordinated Pay-in-Kind Debentures due 2007 to be
issued to the selling shareholders of Holding Company (the "Seller Debentures")
by Holdings and $18.5 million initial accreted value of 13 5/8% Senior Discount
Debentures due 2005 (the "New Discount Debentures"). Holdings will use $100
million of the cash received from a new equity investment (the "1995 Equity
Investment"), together with the Seller Debentures and the New Discount
Debentures, to acquire approximately 48% of the capital stock of Holding Company
immediately prior to consummation of the RSI Merger. Holdings will then
contribute the $250 million of purchased shares of Holding Company stock to Food
4 Less, and pursuant to the RSI Merger the remaining shares of Holding Company
stock will be acquired for $275 million in cash.

Standard & Poor's has publicly announced that, upon consummation of the
Merger, it intends to assign a new rating to the Old RGC Notes. Such new rating
assignment, if implemented, would constitute a Rating Decline pursuant to the
Indentures. The consummation of the Merger and the resulting change in
composition of the Board of Directors of RGC, together with the anticipated
Rating Decline, would constitute a Change of Control Triggering Event under the
Indentures. Although RGC does not anticipate that there will be a significant
amount of Old RGC Notes outstanding following consummation of the Exchange
Offers, upon such a Change of Control Triggering Event, the New Company would be
obligated to make the Change of Control Offer following the Merger for all
outstanding Old RGC Notes at 101% of the principal amount thereof plus accrued
and unpaid interest to the date of repurchase.

Due to the increased size, dual format strategy and integration related
costs, after giving effect to or in connection with the Merger, RGC believes
that its future operating results will not be directly comparable to the
historical operating results of RGC. Upon consummation of the Merger, the
operations and activities of RGC will be significantly impacted due to
conversions of some existing stores to Food 4 Less warehouse stores as well as
the consolidation of various operating functions and departments. This
consolidation is expected to result in a restructuring charge for the New
Company. The restructuring charge may be material in relation to the
stockholders' equity and financial position of RGC and the New Company.

Following the consummation of the Merger, the New Company will be highly
leveraged.

F-50
<PAGE> 156

======================================================

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER
CONTAINED HEREIN OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR THE
ACCOMPANYING LETTER OF TRANSMITTAL, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY ANY SECURITY OTHER THAN THOSE TO WHICH IT RELATES, NOR DOES
IT CONSTITUTE AN OFFER TO SELL, OR THE SOLICITATION OF AN OFFER TO BUY, TO ANY
PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY EXCHANGE OF
EXCHANGE NOTES FOR PRIVATE NOTES MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF.

------------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary............................... 3
Risk Factors.......................... 15
The Exchange Offer.................... 20
Use of Proceeds....................... 28
Capitalization........................ 29
Selected Historical Financial Data of
the Company......................... 31
Selected Historical Financial Data of
RSI................................. 33
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 35
Business.............................. 47
Management............................ 58
Executive Compensation................ 61
Principal Stockholders................ 65
Certain Relationships and Related
Transactions........................ 66
Description of Capital Stock.......... 68
Description of the Notes.............. 70
Description of the Credit Facility.... 97
Description of Holdings'
Indebtedness........................ 99
Book Entry; Delivery and Form......... 101
Certain Federal Income Tax
Consequences........................ 103
Plan of Distribution.................. 103
Legal Matters......................... 104
Experts............................... 104
Available Information................. 104
Index to Financial Statements......... F-1
============================================
</TABLE>

======================================================

--------------------

PROSPECTUS
--------------------

RALPHS GROCERY COMPANY

$155,000,000
11% SENIOR SUBORDINATED NOTES
DUE 2005

, 1997

======================================================
<PAGE> 157

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Ralphs Grocery Company and its subsidiaries Cala Co. and Food 4 Less of
Southern California, Inc., are Delaware corporations and their Certificates of
Incorporation and Bylaws provide for indemnification of their officers and
directors to the fullest extent permitted by law. Section 102(b)(7) of the
Delaware General Corporation Law (the "DGCL") eliminates the liability of a
corporation's directors to a corporation or its stockholders, except for
liabilities related to breach of duty of loyalty, actions not in good faith, and
certain other liabilities.

Section 145 of the DGCL provides for the indemnification by a Delaware
corporation of its directors, officers, employees and agents in connection with
actions, suits or proceedings brought against them by a third party or in the
right of the corporation, by reason of the fact that they were or are such
directors, officers, employees or agents, against liabilities and expenses
incurred in any such action, suit or proceeding.

Alpha Beta Company, Bay Area Warehouse Stores, Inc., Bell Markets, Inc.,
Cala Foods, Inc., Crawford Stores, Inc., Food 4 Less of California, Inc., Food 4
Less GM, Inc. and Food 4 Less Merchandising, Inc. are California corporations
and their Certificates of Incorporation and Bylaws provide for indemnification
of their officers and directors to the fullest extent permitted by law. Section
204(10) of the California General Corporation Law (the "CGCL") eliminates the
liability of a corporation's directors for monetary damages to the fullest
extent permissible under California law. Pursuant to Section 204(11) of the
CGCL, a California corporation may indemnify Agents (as defined in Section 317
of the CGCL), subject only to the applicable limits set forth in Section 204 of
the CGCL with respect to actions for breach of duty to the corporation and its
shareholders.

As permitted by Section 317 of the CGCL, indemnification may be provided by
a California corporation of its Agents (as defined in Section 317 of the CGCL),
to the maximum extent permitted by the CGCL, in connection with any proceeding
arising by reason of the fact that such person is or was such a director or
officer, against expenses, judgments, fines, settlements and other amounts
actually and reasonably incurred in any such proceeding.

Falley's, Inc. is a Kansas corporation and its Bylaws provide for
indemnification of its officers and directors to the fullest extent permitted by
law. Section 17-6305(a) of the Kansas General Corporation Code (the "KGCC")
provides for the indemnification by a Kansas corporation of its directors,
officers, employees and agents in connection with actions, suits or proceedings
brought against them by a third party or in the right of the corporation, by
reason of the fact that they were or are such directors, officers, employees or
agents, against liabilities and expenses incurred in any such action, suit or
proceeding.

ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Exhibits

A list of exhibits filed with this Registration Statement on Form S-4 is
set forth in the Index to Exhibits on page E-1, and is incorporated herein by
reference.

(b) Financial Statement Schedules:

(i) Ralphs Grocery Company

Schedule II -- Valuation and Qualifying Accounts

(ii) Ralphs Supermarkets, Inc.

Schedule II -- Valuation and Qualifying Accounts

SCHEDULES OMITTED

Schedules not listed above are omitted because of the absence of the
conditions under which they are required or because the information required by
such omitted schedules is set forth in the financial statements or the notes
thereto.

II-1
<PAGE> 158

ITEM 22. UNDERTAKINGS.

(a) The undersigned registrants hereby undertake that insofar as
indemnification for liabilities arising under the Securities Act of 1933, as
amended (the "Act"), may be permitted to directors, officers and controlling
persons of the Registrants pursuant to the foregoing provisions, or otherwise,
the Registrants have been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim of
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or the registrant in the successful defense of
any action, suit paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.

(b) The undersigned registrants hereby undertake to respond to requests for
information that is incorporated by reference into this prospectus pursuant to
Item 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.

(c) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.

II-2
<PAGE> 159

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Los Angeles, State of
California, on June 6, 1997.

RALPHS GROCERY COMPANY

By: /s/ WAYNE S. BELL

------------------------------------
Wayne S. Bell
Assistant Secretary

Each person whose signature appears below constitutes and appoints Wayne S.
Bell his true and lawful attorney and agent, each acting alone, with full power
of substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and to file the same, with all
exhibits thereto and all other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney and agent, each
acting alone, full power and authority to do and perform each and every act and
thing requisite or necessary to be done, as fully to all intents and purposes as
he might or could do in person, thereby ratifying and confirming that said
attorney and agent, each acting alone, or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ------------------------------ -----------------
<C> <S> <C>

/s/ GEORGE G. GOLLEHER Chief Executive Officer and June 6, 1997
- --------------------------------------------- Director (Principal
George G. Golleher Executive Officer)

/s/ ALFRED A. MARASCA President, Chief Operating June 6, 1997
- --------------------------------------------- Officer and Director
Alfred A. Marasca

/s/ GREG MAYS Executive Vice President -- June 6, 1997
- --------------------------------------------- Finance/Administration
Greg Mays

/s/ JOHN T. STANDLEY Senior Vice President and June 6, 1997
- --------------------------------------------- Chief Financial Officer
John T. Standley (Principal Financial
Officer)

/s/ CHRISTOPHER HALL Group Vice June 6, 1997
- --------------------------------------------- President -- Finance,
Christopher Hall Controller and Chief
Accounting Officer
(Principal Accounting
Officer)

/s/ RONALD W. BURKLE Chairman of the Board and June 6, 1997
- --------------------------------------------- Director
Ronald W. Burkle

/s/ ROBERT I. BERNSTEIN Director June 6, 1997
- ---------------------------------------------
Robert I. Bernstein

/s/ ROBERT BEYER Director June 6, 1997
- ---------------------------------------------
Robert Beyer

/s/ JOE S. BURKLE Director June 6, 1997
- ---------------------------------------------
Joe S. Burkle
</TABLE>

II-3
<PAGE> 160

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ------------------------------ -----------------

/s/ PETER COPSES Director June 6, 1997
- ---------------------------------------------
Peter Copses

/s/ PATRICK L. GRAHAM Director June 6, 1997
- ---------------------------------------------
Patrick L. Graham

/s/ LAWRENCE K. KALANTARI Director June 6, 1997
- ---------------------------------------------
Lawrence K. Kalantari

/s/ JOHN KISSICK Director June 6, 1997
- ---------------------------------------------
John Kissick
</TABLE>

II-4
<PAGE> 161

SIGNATURES
(continued)

BAY AREA WAREHOUSE STORES, INC.
BELL MARKETS, INC.
CALA CO.
CALA FOODS, INC.
FOOD 4 LESS OF CALIFORNIA, INC.
FOOD 4 LESS GM, INC.
FOOD 4 LESS MERCHANDISING, INC.
FOOD 4 LESS OF SOUTHERN CALIFORNIA, INC.

BY: /s/ WAYNE S. BELL
-------------------------------------
Wayne S. Bell
Assistant Secretary

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ------------------------------ -----------------

<C> <S> <C>
/s/ GEORGE G. GOLLEHER Chief Executive Officer and June 6, 1997
- --------------------------------------------- Director (Principal
George G. Golleher Executive Officer) of each
Registrant

/s/ JOHN T. STANDLEY Chief Financial Officer June 6, 1997
- --------------------------------------------- (Principal Financial Officer
John T. Standley of each Registrant)

/s/ CHRISTOPHER HALL Vice President and Controller June 6, 1997
- --------------------------------------------- (Principal Accounting
Christopher Hall Officer of each Registrant)

/s/ RONALD W. BURKLE Director and Chairman of the June 6, 1997
- --------------------------------------------- Board of each Registrant
Ronald W. Burkle
</TABLE>

II-5
<PAGE> 162

SIGNATURES
(continued)

CRAWFORD STORES, INC.

By: /s/ WAYNE S. BELL
------------------------------------
Wayne S. Bell
Assistant Secretary

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ------------------------------ -----------------

<C> <S> <C>
/s/ ALFRED A. MARASCA President, Chief Operating June 6, 1997
- --------------------------------------------- Officer and Director
Alfred A. Marasca (Principal Executive
Officer)

/s/ JOHN T. STANDLEY Chief Financial Officer June 6, 1997
- --------------------------------------------- (Principal Financial
John T. Standley Officer)

/s/ CHRISTOPHER HALL Vice President and Controller June 6, 1997
- --------------------------------------------- (Principal Accounting
Christopher Hall Officer)

/s/ RONALD W. BURKLE Director June 6, 1997
- ---------------------------------------------
Ronald W. Burkle

/s/ GEORGE G. GOLLEHER Director June 6, 1997
- ---------------------------------------------
George G. Golleher
</TABLE>

II-6
<PAGE> 163

SIGNATURES
(continued)

ALPHA BETA COMPANY

By: /s/ WAYNE S. BELL
------------------------------------
Wayne S. Bell
Assistant Secretary

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ------------------------------ -----------------

<C> <S> <C>
/s/ RONALD W. BURKLE Chairman of the Board, Chief June 6, 1997
- --------------------------------------------- Executive Officer and
Ronald W. Burkle Director (Principal
Executive Officer)

/s/ JOHN T. STANDLEY Chief Financial Officer June 6, 1997
- --------------------------------------------- (Principal Financial
John T. Standley Officer)

/s/ CHRISTOPHER HALL Vice President and Controller June 6, 1997
- --------------------------------------------- (Principal Accounting
Christopher Hall Officer)

/s/ GEORGE G. GOLLEHER Director June 6, 1997
- ---------------------------------------------
George G. Golleher
</TABLE>

II-7
<PAGE> 164

SIGNATURES
(continued)

FALLEY'S, INC.

By: /s/ WAYNE S. BELL

------------------------------------
Wayne S. Bell
Assistant Secretary

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ------------------------------ -----------------

/s/ JOE S. BURKLE Chief Executive Officer June 6, 1997
- --------------------------------------------- (Principal Executive
Joe S. Burkle Officer)

/s/ JOHN T. STANDLEY Chief Financial Officer June 6, 1997
- --------------------------------------------- (Principal Financial
John T. Standley Officer)

/s/ CHRISTOPHER HALL Vice President and Controller June 6, 1997
- --------------------------------------------- (Principal Accounting
Christopher Hall Officer)

/s/ RONALD W. BURKLE Director and Chairman of the June 6, 1997
- --------------------------------------------- Board
Ronald W. Burkle

/s/ GEORGE G. GOLLEHER Director June 6, 1997
- ---------------------------------------------
George G. Golleher
</TABLE>

II-8
<PAGE> 165

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and
Stockholder of Ralphs Grocery Company:

We have audited, in accordance with generally accepted auditing standards,
the consolidated balance sheets of Ralphs Grocery Company (formerly Food 4 Less
Supermarkets, Inc. -- See Note 1 in the accompanying Notes to Consolidated
Financial Statements) and subsidiaries as of January 29, 1995, January 28, 1996,
and February 2, 1997 and the related consolidated statements of operations,
stockholder's equity (deficit) and cash flows for the 52 weeks ended June 25,
1994, the 31 weeks ended January 29, 1995, the 52 weeks ended January 28, 1996
and the 53 weeks ended February 2, 1997, and have issued our report thereon
dated March 21, 1997 (except with respect to the matter discussed in Note 14, as
to which the date is April 17, 1997). Our audits were made for the purpose of
forming an opinion on the basic financial statements taken as a whole. The
schedule on page S-2 is the responsibility of the Company's management and is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic consolidated financial
statements. This schedule has been subjected to the auditing procedures applied
in the audits of the basic consolidated financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic consolidated financial statements
taken as a whole.

ARTHUR ANDERSEN LLP

Los Angeles, California
March 21, 1997 (except with
respect to the matter
discussed in Note 14, as to
which the date is April 17,
1997)

S-1
<PAGE> 166

RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
53 WEEKS ENDED FEBRUARY 2, 1997, 52 WEEKS ENDED JANUARY 28, 1996,
31 WEEKS ENDED JANUARY 29, 1995 AND 52 WEEKS ENDED JUNE 25, 1994
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
PROVISIONS CHARGED
BALANCE AT CHARGED TO BALANCE
BEGINNING TO INTEREST OTHER AT END
OF PERIOD EXPENSE EXPENSE(a) PAYMENTS CHANGES(b) OF PERIOD
---------- ---------- ---------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Self-insurance liabilities
53 weeks ended February 2, 1997... $ 148,985 $ 29,184 $ 10,818 $49,494 -- $ 139,583
========= ======== ======== ======== ======== =========
52 weeks ended January 28, 1996... $ 72,739 $ 32,603 $ 10,287 $42,153 $ 75,509 $ 148,985
========= ======== ======== ======== ======== =========
31 weeks ended January 29, 1995... $ 81,704 $ 6,304 $ 3,453 $18,722 $ -- $ 72,739
========= ======== ======== ======== ======== =========
52 weeks ended June 25, 1994...... $ 85,494 $ 19,880 $ 5,836 $29,506 $ -- $ 81,704
========= ======== ======== ======== ======== =========
</TABLE>

- ---------------

(a) Amortization of discount on self-insurance reserves charged to interest
expense.

(b) Reflects self-insurance reserve of Ralphs Grocery Company which was acquired
on June 14, 1995.

S-2
<PAGE> 167

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

The Board of Directors
Ralphs Grocery Company:

The audits referred to in our report dated March 9, 1995, included the financial
statement schedule for the two years ended January 29, 1995, included in the
registration statement. This financial statement schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits. In our opinion, such financial
statement schedule, when considered in relation to the consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.

We consent to the use of our reports included herein and to the reference to our
firm under the headings "Selected Historical Financial Data of Ralphs", "Summary
of Historical Financial Data of Ralphs" and "Experts" in the prospectus.

KPMG PEAT MARWICK LLP

Los Angeles, California
June 5, 1997

S-3
<PAGE> 168

RALPHS SUPERMARKETS, INC.

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

52 WEEKS ENDED JANUARY 29, 1995 AND 52 WEEKS ENDED JANUARY 30, 1994
(IN THOUSANDS)

<TABLE>
<CAPTION>
BALANCE CHARGED TO BALANCE
BEGINNING COSTS AND CHARGED TO DEDUCTIONS AT END
OF PERIOD EXPENSES OTHER ACCOUNTS(b) (PAYMENTS) OF PERIOD
--------- ---------- ----------------- ---------- ---------
<S> <C> <C> <C> <C> <C>
JANUARY 29, 1995:
Self-Insurance Reserves(a)............. $80,010 $ 14,003 $ 5,976 $(27,483) $ 72,506
Store Closure Reserves................. $ 9,514 $ -- $ -- $ (764) $ 8,750
JANUARY 30, 1994:
Self-Insurance Reserves(a)............. $72,979 $ 30,323 $ 5,953 $(29,245) $ 80,010
Store Closure Reserves................. $10,277 $ -- $ -- $ (763) $ 9,514
</TABLE>

- ---------------

(a) Includes short-term portion.

(b) Amortization of discount on self-insurance reserves to interest expense.

S-4
<PAGE> 169

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGES
- ------ ------------------------------------------------------------------------ ------------
<S> <C> <C>
3.1 Restated Certificate of Incorporation, as amended, of Ralphs Grocery
Company (incorporated herein by reference to Exhibit 3.1 of Ralphs
Grocery Company's Quarterly Report on Form 10-Q for the quarter ended
July 16, 1995)..........................................................
3.2 Restated Bylaws of Ralphs Grocery Company (formerly known as Ralphs
Supermarkets, Inc.) (incorporated herein by reference to Exhibit 3.2 of
Ralphs Grocery Company's Registration Statement on Form S-4, No.
333-07005, as filed with the Securities and Exchange Commission on June
22, 1996)...............................................................
4.1 Amended and Restated Credit Agreement dated as of April 17, 1997 among
Food 4 Less Holdings, Inc., Ralphs Grocery Company, the lenders listed
therein and Bankers Trust Company, as agent.............................
4.2.1 Indenture for the 10.45% Senior Notes due 2004, dated as of June 1,
1995, by and among Food 4 Less Supermarkets, Inc., the subsidiary
guarantors identified therein and Norwest Bank Minnesota, National
Association, as trustee (incorporated herein by reference to Exhibit
4.4.1 of Food 4 Less Holdings, Inc.'s Quarterly Report on Form 10-Q for
the quarter ended July 16, 1995)........................................
4.2.2 First Supplemental Indenture for the 10.45% Senior Notes due 2004, dated
as of June 14, 1995, by and among Ralphs Grocery Company (as successor
by merger to Food 4 Less Supermarkets, Inc.), the subsidiary guarantors
identified therein, Crawford Stores, Inc. and Norwest Bank Minnesota,
National Association, trustee (incorporated herein by reference to
Exhibit 4.4.2 of Food 4 Less Holdings, Inc.'s Quarterly Report on Form
10-Q for the quarter ended July 16, 1995)...............................
4.3.1 Indenture for the 11% Senior Subordinated Notes due 2005, dated as of
June 1, 1995, by and among Food 4 Less Supermarkets, Inc., the
subsidiary guarantors identified therein and United States Trust Company
of New York, as trustee (incorporated herein by reference to Exhibit
4.6.1 of Food 4 Less Holdings, Inc.'s Quarterly Report on Form 10-Q for
the quarter ended July 16, 1995)........................................
4.3.2 First Supplemental Indenture for the 11% Senior Subordinated Notes due
2005, dated as of June 14, 1995, by and among Ralphs Grocery Company (as
successor by merger to Food 4 Less Supermarkets, Inc.), the subsidiary
guarantors identified therein, Crawford Stores, Inc. and United States
Trust Company of New York, as trustee (incorporated herein by reference
to Exhibit 4.6.2 of Food 4 Less Holdings, Inc.'s Quarterly Report on
Form 10-Q for the quarter ended July 16, 1995)..........................
4.4.1 Indenture for the 10 1/4% Senior Subordinated Notes due 2002, dated as
of July 29, 1992, by and between Ralphs Grocery Company and United
States Trust Company of New York, as trustee (incorporated herein by
reference to Exhibit 4.3 of Ralphs Grocery Company's Quarterly Report on
Form 10-Q for the quarter ended July 19, 1992)..........................
4.4.2 First Supplemental Indenture for the 10 1/4% Senior Subordinated Notes
due 2002, dated as of May 30, 1995, by and between Ralphs Grocery
Company and United States Trust Company of New York, as trustee
(incorporated herein by reference to Exhibit 4.1 of Ralphs Grocery
Company's Quarterly Report on Form 10-Q for the quarter ended April 23,
1995)...................................................................
</TABLE>

E-1
<PAGE> 170

<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGES
- ------ ------------------------------------------------------------------------ ------------
<S> <C> <C>
4.4.3 Second Supplemental Indenture for the 10 1/4% Senior Subordinated Notes
due 2002, dated as of June 14, 1995, by and between Ralphs Grocery
Company (as successor) and United States Trust Company of New York, as
Trustee (incorporated herein by reference to Exhibit 4.7.3 of Food 4
Less Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter
ended July 16, 1995)....................................................
4.5.1 Indenture for the 9% Senior Subordinated Notes due 2003, dated as of
March 30, 1993, by and between Ralphs Grocery Company and United States
Trust Company of New York, as trustee (incorporated herein by reference
to Exhibit 4.1 of Ralphs Grocery Company's Registration Statement on
Form S-4, No. 33-61812).................................................
4.5.2 First Supplemental Indenture for the 9% Senior Subordinated Notes due
2003, dated as of June 23, 1993, by and between Ralphs Grocery Company
and United States Trust Company of New York, as trustee (incorporated
herein by reference to Exhibit 4.2 of Ralphs Grocery Company's
Registration Statement on Form S-4, No. 33-61812).......................
4.5.3 Second Supplemental Indenture for the 9% Senior Subordinated Notes due
2003, dated as of May 30, 1995, by and between Ralphs Grocery Company
and United States Trust Company of New York, as trustee (incorporated
herein by reference to Exhibit 4.2 of Ralphs Grocery Company's Quarterly
Report on Form 10-Q, for the quarter ended April 23, 1995)..............
4.5.4 Third Supplemental Indenture for the 9% Senior Subordinated Notes due
2003, dated as of June 14, 1995, by and between Ralphs Grocery Company
(as successor) and United States Trust Company of New York, as trustee
(incorporated herein by reference to Exhibit 4.8.4 of Food 4 Less
Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended
July 16, 1995)..........................................................
4.6.1 Senior Note Indenture, dated as of April 15, 1992, by and among Food 4
Less Supermarkets, Inc., the subsidiary guarantors identified therein
and Norwest Bank Minnesota, National Association, as trustee
(incorporated herein by reference to Exhibit 4.1 to Food 4 Less
Supermarkets, Inc.'s Registration Statement on Form S-1, No.
33-46750)...............................................................
4.6.2 First Supplemental Indenture, dated as of July 24, 1992, by and among
Food 4 Less Supermarkets, Inc., the subsidiary guarantors identified
therein and Norwest Bank Minnesota, National Association, as trustee
(incorporated herein by reference to Exhibit 4.1.1 to Food 4 Less
Supermarkets, Inc.'s Annual Report on Form 10-K for the fiscal year
ended June 27, 1992)....................................................
4.6.3 Second Supplemental Indenture for the 10.45% Senior Notes due 2000,
dated as of June 14, 1995, by and among Food 4 Less Supermarkets, Inc.,
the subsidiary guarantors identified therein and Norwest Bank Minnesota,
National Association, as trustee (incorporated herein by reference to
Exhibit 4.9.3 of Food 4 Less Holdings, Inc.'s Quarterly Report on Form
10-Q for the quarter ended July 16, 1995)...............................
4.6.4 Third Supplemental Indenture for the 10.45% Senior Notes due 2000, dated
as of June 14, 1995, by and among Ralphs Grocery Company (as successor
by merger to Food 4 Less Supermarkets, Inc.), the subsidiary guarantors
identified therein and Norwest Bank Minnesota, National Association, as
trustee (incorporated herein by reference to Exhibit 4.9.4 of Food 4
Less Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter year
ended July 16, 1995)....................................................
</TABLE>

E-2
<PAGE> 171

<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGES
- ------ ------------------------------------------------------------------------ ------------
<S> <C> <C>
4.7 Indenture for the 10.45% Senior Notes due 2004, dated as of June 6,
1996, by and among Ralphs Grocery Company, the subsidiary guarantors
identified therein and Norwest Bank Minnesota, National Association, as
trustee (incorporated herein by reference to Exhibit 4.9 of Ralphs
Grocery Company's Registration Statement on Form S-4, No. 333-07005, as
filed with the Securities and Exchange Commission on June 27, 1996).....
4.8 Indenture for the 11% Senior Subordinated Notes due 2005 dated as of
March 26, 1997 by and among Ralphs Grocery Company, the subsidiary
guarantors identified therein, and United States Trust Company of New
York, as trustee........................................................
5.1 Opinion of Latham & Watkins regarding the validity of the Exchange Notes
and the guarantees of certain of the Subsidiary Guarantors, including
consent.................................................................
5.2 Opinion of Clutter, Hinkel & Aadalen, LLP regarding the guarantee of
Falley's Inc., including consent........................................
8 Opinion of Latham & Watkins regarding certain federal income tax
matters, including consent..............................................
10.1 Second Amended and Restated Tax Sharing Agreement dated as of June 14,
1995 by and among Food 4 Less Holdings, Inc., Ralphs Grocery Company and
the subsidiaries of Ralphs Grocery Company (incorporated herein by
reference to Exhibit 10.1 of Food 4 Less Holdings, Inc.'s Quarterly
Report on Form 10-Q for the quarter ended July 16, 1995)................
10.2 Stockholders Agreement of Food 4 Less Holdings, Inc. dated as of June
14, 1995 by and among Food 4 Less Holdings, Inc., Ralphs Grocery Company
and the investors listed on the signature pages thereto (incorporated
herein by reference to Exhibit 10.2 of Food for Less Holdings, Inc.'s
Quarterly Report on Form 10-Q for the quarter ended July 16, 1995)......
10.3 Consulting Agreement dated as of June 14, 1995 by and among The Yucaipa
Companies, Food 4 Less Holdings, Inc. and Ralphs Grocery Company
(incorporated herein by reference to Exhibit 10.4 of Food 4 Less
Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended
July 16, 1995)..........................................................
10.4 Employment Agreement dated as of June 14, 1995 between Food Less
Holdings, Inc., Ralphs Grocery Company and George G. Golleher
(incorporated herein by reference to Exhibit 10.11 of Food 4 Less
Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended
July 16, 1995)..........................................................
10.5 Employment Agreement dated as of June 14, 1995 between Ralphs Grocery
Company and Alfred A. Marasca (incorporated herein by reference to
Exhibit 10.9 of Ralphs Grocery Company's Quarterly Report on Form 10-Q
for the quarter ended July 16, 1995)....................................
10.6 Employment Agreement dated as of June 14, 1995 between Ralphs Grocery
Company and Greg Mays (incorporated herein by reference to Exhibit 10.10
of Ralphs Grocery Company's Quarterly Report on Form 10-Q for the
quarter ended July 16, 1995)............................................
10.7 Employment Agreement dated as of June 14, 1995 between Ralphs Grocery
Company and Harley DeLano (incorporated herein by reference to Exhibit
10.8 of Ralphs Grocery Company's Annual Report on Form 10-K for the
fiscal year ended January 28, 1996).....................................
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10.8 Employment Agreement dated as of June 14, 1995 between Ralphs Grocery
Company and Tony Schnug (incorporated herein by reference to Exhibit
10.10 of Ralphs Grocery Company's Annual Report on Form 10-K for the
fiscal year ended January 28, 1996).....................................
10.9 Management Stockholders Agreement dated as of June 14, 1995 between Food
4 Less Holdings, Inc. and the management employees listed on the
signature pages thereto (incorporated herein by reference to Exhibit
10.12 of Food 4 Less Holdings, Inc.'s Quarterly Report on Form 10-Q for
the quarter ended July 16, 1995)........................................
10.10 Consulting Agreement dated as of June 27, 1988 by and between Falley's,
Inc. and Joe S. Burkle (incorporated herein by reference to Exhibit
10.38 to Food 4 Less Supermarkets, Inc.'s Registration Statement on Form
S-1, No. 33-31152)......................................................
10.11 Letter Agreement dated as of December 10, 1990 amending Consulting
Agreement by and between Falley's, Inc. and Joe S. Burkle (incorporated
herein by reference to Exhibit 10.17.1 to Food 4 Less Supermarkets,
Inc.'s Annual Report on Form 10-K for the fiscal year ended June 29,
1991)...................................................................
10.12 Distribution Center Transfer Agreement, dated as of November 1, 1995, by
and between Smith's Food & Drug Centers, Inc., a Delaware corporation,
and Ralphs Grocery Company, relating to the Riverside, California
property (incorporated herein by reference to Exhibit 10.1 to Ralphs
Grocery's Company's Quarterly Report on Form 10-Q for the quarter ended
October 8, 1995)........................................................
10.13.1 Ralphs Grocery Company Retirement Supplement Plan, effective as of
January 1, 1994 (incorporated herein by reference to Exhibit 10.15.1 of
Ralphs Grocery Company's Annual Report on Form 10-K for the fiscal year
ended January 28, 1996).................................................
10.13.2 Amendment to the Retirement Supplement Plan, effective as of January 1,
1995 (incorporated herein by reference to Exhibit 10.15.2 of Ralphs
Grocery Company's Annual Report on Form 10-K for the fiscal year ended
January 28, 1996).......................................................
10.13.3 Second Amendment to the Retirement Supplement Plan, effective as of June
14, 1995, by and between Ralphs Grocery Company and Ralphs Grocery
Company Retirement Supplement Plan (incorporated herein by reference to
Exhibit 10.15.3 of Ralphs Grocery Company's Annual Report on Form 10-K
for the fiscal year ended January 28, 1996).............................
10.14.1 Ralphs Grocery Company Supplemental Executive Retirement Plan, amended
and restated as of April 9,1994 (incorporated herein by reference to
Exhibit 10.16.1 of Ralphs Grocery Company's Annual Report on Form 10-K
for the fiscal year ended January 28, 1996).............................
10.14.2 Amendment to the Amended and Restated Supplemental Executive Retirement
Plan, effective as of January 1, 1995 (incorporated herein by reference
to Exhibit 10.16.2 of Ralphs Grocery Company's Annual Report on Form
10-K for the fiscal year ended January 28, 1996)........................
10.14.3 Second Amendment to the Supplemental Executive Retirement Plan, dated as
of June 14, 1995, by and between Ralphs Grocery Company and Ralphs
Grocery Company Supplemental Executive Retirement Plan (incorporated
herein by reference to Exhibit 10.16.3 of Ralphs Grocery Company's
Annual Report on Form 10-K for the fiscal year ended January 28,
1996)...................................................................
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10.14.4 Third Amendment to the Ralphs Grocery Company Supplemental Executive
Plan, effective as of July 1, 1995 (incorporated herein by reference to
Exhibit 10.16.4 of Ralphs Grocery Company's Annual Report on Form 10-K
for the fiscal year ended January 28, 1996).............................
10.15 Purchase Agreement for the 11% Senior Subordinated Notes due 2005 dated
as of March 21, 1997 by and among Ralphs Grocery Company, the subsidiary
guarantors identified therein, and BT Securities Corporation, Bankers
Trust International, PLC CIBC Wood Gundy Securities Corp., Credit Suisse
First Boston, and Donaldson, Lufkin & Jenrette Securities Corporation...
10.16 Registration Rights Agreement for the 11% Senior Subordinated Notes due
2005 dated as of March 26, 1997 by and among Ralphs Grocery Company, the
subsidiary guarantors identified therein, and BT Securities Corporation,
Bankers Trust International, PLC, CIBC Wood Gundy Securities Corp.,
Credit Suisse First Boston and Donaldson, Lufkin & Jenrette Securities
Corporation.............................................................
12 Computation of Ratio of Earnings to Fixed Charges.......................
21 Subsidiaries (incorporated herein by reference to Exhibit 21 of Ralphs
Grocery Company's Annual Report on Form 10-K for the fiscal year ended
February 2, 1997).......................................................
23.1 Consent of Arthur Andersen LLP, independent public accountants..........
23.2 Consent of KPMG Peat Marwick LLP, independent certified public
accountants.............................................................
23.3 Consent of Latham & Watkins (included in the opinions filed as Exhibits
5.1 and 8 to the Registration Statement)................................
23.4 Consent of Irwin, Clutter & Severson (included in the opinion filed as
Exhibit 5.2 to the Registration Statement)..............................
24.1 Power of Attorney of Directors and Officers of Ralphs Grocery Company
(included in the signature pages in Part II of the Registration
Statement)..............................................................
24.2 Power of Attorney of Directors and Officers of Crawford Stores, Inc.
(included in the signature pages in Part II of the Registration
Statement)..............................................................
24.3 Power of Attorney of Directors and Officers of Alpha Beta Company
(included in the signature pages in Part II of the Registration
Statement)..............................................................
24.4 Power of Attorney of Directors and Officers of Falley's, Inc. (included
in the signature pages in Part II of the Registration Statement)........
99.1 Letter of Transmittal with respect to the Exchange Offer................
99.2 Notice of Guaranteed Delivery with respect to the Exchange Offer........
99.3 Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9.....................................................
</TABLE>

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<PAGE> 1
EXHIBIT 4.1

================================================================================

$875,000,000
AMENDED AND RESTATED CREDIT AGREEMENT

DATED AS OF APRIL 17, 1997

AMONG

FOOD 4 LESS HOLDINGS, INC.,
AS GUARANTOR,

RALPHS GROCERY COMPANY,
AS BORROWER,

THE LENDERS LISTED HEREIN,
AS LENDERS,

AND

BANKERS TRUST COMPANY,
AS AGENT

================================================================================
<PAGE> 2
FOOD 4 LESS HOLDINGS, INC.
AND
RALPHS GROCERY COMPANY

AMENDED AND RESTATED CREDIT AGREEMENT

TABLE OF CONTENTS

<TABLE>
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SECTION 1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . 2
1.1 Certain Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . 2
1.2 Accounting Terms; Utilization of GAAP for Purposes of Calculations Under Agreement . . . . . .. . . . 43
1.3 Other Definitional Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . 43

SECTION 2. AMOUNTS AND TERMS OF COMMITMENTS AND LOANS . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . 44
2.1 Term Loans and Commitments; Making of Loans; the Register; Notes . . . . . . . . . . . . . . .. . . . 44
2.2 Interest on the Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . 51
2.3 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . 55
2.4 Repayments, Prepayments and Reductions in Revolving Loan Commitments; General
Provisions Regarding Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . 56
2.5 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . 68
2.6 Special Provisions Governing Eurodollar Rate Loans . . . . . . . . . . . . . . . . . . . . . .. . . . 69
2.7 Increased Costs; Taxes; Capital Adequacy . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . 71
2.8 Obligation of Lenders and Issuing Lenders to Mitigate; Replacement of Lender . . . . . . . . .. . . . 76

SECTION 3. LETTERS OF CREDIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . 77
3.1 Issuance of Letters of Credit and Lenders' Purchase of Participations Therein . . . . . . . . .. . . . 77
3.2 Letter of Credit Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . 81
3.3 Drawings and Reimbursement of Amounts Drawn Under Letters of Credit . . . . . . . . . . . . . .. . . . 81
3.4 Obligations Absolute . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . 84
3.5 Indemnification; Nature of Issuing Lenders' Duties . . . . . . . . . . . . . . . . . . . . . .. . . . 85
3.6 Increased Costs and Taxes Relating to Letters of Credit . . . . . . . . . . . . . . . . . . . .. . . . 86

SECTION 4. CONDITIONS TO LOANS AND LETTERS OF CREDIT . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . 88
4.1 Conditions to Initial Effectiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . 88
4.2 Conditions to All Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . 93
4.3 Conditions to Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . 94
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SECTION 5. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
5.1 Organization, Powers, Qualification, Good Standing, Business and Subsidiaries . . . . . . . . . . . . . 95
5.2 Authorization of Borrowing, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
5.3 Financial Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
5.4 No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
5.5 Title to Properties; Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
5.6 Litigation; Adverse Facts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
5.7 Payment of Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
5.8 Performance of Agreements; Materially Adverse Agreements . . . . . . . . . . . . . . . . . . . . . . . 100
5.9 Governmental Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
5.10 Securities Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
5.11 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
5.12 Certain Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
5.13 Environmental Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
5.14 Employee Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
5.15 Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
5.16 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
5.17 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
5.18 Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104

SECTION 6. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
6.1 Financial Statements and Other Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
6.2 Corporate Existence, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
6.3 Payment of Taxes and Claims; Tax Consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
6.4 Maintenance of Properties; Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
6.5 Inspection; Lender Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
6.6 Compliance with Laws, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
6.7 Environmental Disclosure and Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
6.8 Loan Parties' Remedial Action Regarding Hazardous Materials . . . . . . . . . . . . . . . . . . . . . . 114
6.9 Interest Rate Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
6.10 Execution of Guaranty and Collateral Documents by Future Subsidiaries . . . . . . . . . . . . . . . . . 115
6.11 Additional Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
6.12 Redemption of Certain Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118

SECTION 7. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118
7.1 Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118
7.2 Liens and Related Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121
7.3 Investments; Joint Ventures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123
7.4 Contingent Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126
7.5 Restricted Junior Payments; Other Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . . 128
7.6 Financial Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129
7.7 Restriction on Fundamental Changes; Asset Sales and Acquisitions . . . . . . . . . . . . . . . . . . . 133
7.8 Consolidated Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135
7.9 Restriction on Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136
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7.10 Sales and Lease-Backs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137
7.11 Sale or Discount of Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138
7.12 Transactions with Shareholders and Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138
7.13 Disposal of Subsidiary Stock; Restrictions on Subsidiaries . . . . . . . . . . . . . . . . . . . . . . 138
7.14 Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139
7.15 Amendments of Certain Documents; No Prepayments of Certain Indebtedness . . . . . . . . . . . . . . . . 140
7.16 Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140

SECTION 8. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140
8.1 Failure to Make Payments When Due . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141
8.2 Default in Other Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141
8.3 Breach of Certain Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141
8.4 Breach of Warranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141
8.5 Other Defaults Under Loan Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142
8.6 Involuntary Bankruptcy; Appointment of Receiver, etc. . . . . . . . . . . . . . . . . . . . . . . . . . 142
8.7 Voluntary Bankruptcy; Appointment of Receiver, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . 142
8.8 Judgments and Attachments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143
8.9 Dissolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143
8.10 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143
8.11 Change in Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143
8.12 Invalidity of Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143
8.13 Failure of Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144
8.14 Action Under Related Financing Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144

SECTION 9. HOLDINGS GUARANTY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145
9.1 Guarantied Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145
9.2 Terms of Holdings Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146

SECTION 10. AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150
10.1 Appointment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150
10.2 Powers; General Immunity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150
10.3 Representations and Warranties; No Responsibility For Appraisal of Creditworthiness . . . . . . . . . . 152
10.4 Right to Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152
10.5 Successor Agent and Swing Line Lender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152
10.6 Guaranties and Collateral Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153

SECTION 11. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153
11.1 Assignments and Participations in Loans and Letters of Credit . . . . . . . . . . . . . . . . . . . . . 153
11.2 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156
11.3 Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157
11.4 Set-Off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158
11.5 Ratable Sharing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158
11.6 Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159
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11.7 Independence of Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161
11.8 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161
11.9 Survival of Representations, Warranties and Agreements . . . . . . . . . . . . . . . . . . . . . . . . 161
11.10 Failure or Indulgence Not Waiver; Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . 161
11.11 Marshalling; Payments Set Aside . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162
11.12 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162
11.13 Obligations Several; Independent Nature of Lenders' Rights . . . . . . . . . . . . . . . . . . . . . . 162
11.14 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162
11.15 Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163
11.16 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163
11.17 Consent to Jurisdiction and Service of Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163
11.18 Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164
11.19 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164
11.20 Counterparts; Effectiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165

Signature pages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
</TABLE>

iv
CREDIT AGREEMENT
<PAGE> 6
EXHIBITS

I FORM OF NOTICE OF BORROWING
II FORM OF NOTICE OF CONVERSION/CONTINUATION
III FORM OF REQUEST FOR LETTER OF CREDIT
IV FORM OF TRANCHE A TERM NOTE
V FORM OF TRANCHE B TERM NOTE
VI FORM OF REVOLVING NOTE
VII FORM OF SWING LINE NOTE
VIII FORM OF COMPLIANCE CERTIFICATE
IX FORM OF GUARANTY
X FORM OF PLEDGE AGREEMENT
XI FORM OF SECURITY AGREEMENT
XII FORM OF TRADEMARK SECURITY AGREEMENT
XIII FORM OF DEED OF TRUST
XIV FORM OF DEPOSIT ACCOUNTS SECURITY AGREEMENT
XV-A FORM OF OPINION OF LATHAM & WATKINS
XV-B FORM OF OPINION OF WAYNE BELL, ESQ.
XV-C FORM OF OPINION OF KANSAS COUNSEL
XVI FORM OF OPINION OF O'MELVENY & MYERS LLP
XVII FORM OF ASSIGNMENT AGREEMENT
XVIII FORM OF AUDITOR'S LETTER
XIX FORM OF FINANCIAL CONDITION CERTIFICATE
XX FORM OF MASTER ASSIGNMENT AGREEMENT
XXI FORM OF ACKNOWLEDGEMENT AND CONSENT

v
CREDIT AGREEMENT
<PAGE> 7
SCHEDULES

1.1A EXISTING LETTERS OF CREDIT
1.1B PLANNED DISPOSITIONS
1.1C SELECTED ASSETS
1.1D PLANNED IMPROVEMENT PROPERTIES
2.1 LENDERS' COMMITMENTS AND PRO RATA SHARES
4.1F REAL PROPERTY ASSETS
5.1 HOLDINGS AND SUBSIDIARIES OF HOLDINGS
5.3 CERTAIN ACCOUNTING MATTERS
5.11 ERISA MATTERS
5.12 BROKER'S OR FINDER'S FEES
5.13 ENVIRONMENTAL MATTERS
5.17 INTELLECTUAL PROPERTY
5.18 CERTAIN MATTERS RELATING TO PERMITS
7.1 EXISTING INDEBTEDNESS
7.2 EXISTING LIENS
7.3 EXISTING INVESTMENTS
7.4 EXISTING CONTINGENT OBLIGATIONS

vi
CREDIT AGREEMENT
<PAGE> 8
DEFINITIONS

A. CERTAIN DEFINED TERMS.

The following terms used in this Agreement shall have the
following meanings:

"ADAMS/VERMONT PARTNERSHIP" means Adams/Vermont Renaissance
Plaza, Ltd., a California limited partnership in which Company holds a 75%
partnership interest, as a general partner, which partnership was formed to
develop a shopping center located at Adams and Vermont Streets in Los Angeles,
California, including a store to be leased to or operated by Company or one of
its Subsidiaries.

"ADJUSTED EURODOLLAR RATE" means, for any Interest Rate
Determination Date with respect to an Interest Period for a Eurodollar Rate
Loan, the rate per annum obtained by dividing (i) the arithmetic average
(rounded upward to the nearest 1/16 of one percent) of the offered quotation,
if any, to first class banks in the interbank Eurodollar market by each of the
Reference Lenders for U.S. Dollar deposits of amounts in same day funds
comparable to the principal amount of the Eurodollar Rate Loan of that
Reference Lender for which the Adjusted Eurodollar Rate is then being
determined with maturities comparable to such Interest Period as of
approximately 10:00 A.M. (New York City time) on such Interest Rate
Determination Date by (ii) a percentage equal to 100% minus the stated maximum
rate of all reserve requirements (including, without limitation, any marginal,
emergency, supplemental, special or other reserves) applicable on such Interest
Rate Determination Date to any member bank of the Federal Reserve System in
respect of "Eurocurrency liabilities" as defined in Regulation D (or any
successor category of liabilities under Regulation D); provided that if any
Reference Lender fails to provide Agent with its aforementioned quotation then
the Adjusted Eurodollar Rate shall be determined based on the quotation(s)
provided to Agent by the other Reference Lender(s).

"AFFECTED LENDER" has the meaning assigned to that term in
subsection 2.6C.

"AFFILIATE", as applied to any Person, means any other Person
directly or indirectly controlling, controlled by, or under common control
with, that Person. For the purposes of this definition, "control" (including,
with correlative meanings, the terms "controlling", "controlled by" and "under
common control with"), as applied to any Person, means (i) the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of that Person, whether through the ownership of voting
securities or by contract or otherwise, or (ii) the ownership of more than 10%
of the voting securities of that Person; provided that Bankers Trust New York
Corporation and each of its Affiliates (as defined above) shall not be
considered to be an "Affiliate" of Holdings or any of its Subsidiaries.

"AGENT" has the meaning assigned to that term in the
introduction to this Agreement and also means and includes any successor
administrative agent appointed pursuant to subsection 10.5A.
<PAGE> 9
"AGREEMENT" means this Amended and Restated Credit Agreement
dated as of April 17, 1997, as it may be amended, supplemented or otherwise
modified from time to time.

"ALPHA BETA" means Alpha Beta Company, a California
corporation.

"AMOUNT OF UNFUNDED BENEFIT LIABILITY" means, with respect to
any Pension Plan, (i) if set forth on the most recent actuarial valuation
report with respect to such Pension Plan, the amount of unfunded benefit
liabilities (as defined in Section 4001(a)(18) of ERISA) and (ii) otherwise,
the excess of (a) the greater of the current liability (as defined in Section
412(1)(7) of the Internal Revenue Code) or the actuarial present value of the
accrued benefits with respect to such Pension Plan over (b) the market value of
the assets of such Pension Plan.

"APPLICABLE TRANCHE A BASE RATE MARGIN" means, as of any date
of determination, a percentage per annum set forth below opposite the
applicable Leverage Ratio; provided that for the period from the Effective Date
until the first delivery after the Effective Date of a Margin Determination
Certificate pursuant to subsection 6.1(xviii), the Applicable Tranche A Base
Rate Margin shall be 0.75% per annum; provided further that, if Company has
failed to provide a Margin Determination Certificate at the time required
pursuant to subsection 6.1, the Applicable Tranche A Base Rate Margin shall be
1.25% per annum for the period from the date such Margin Determination
Certificate was required to be delivered until such Margin Determination
Certificate is actually delivered:

<TABLE>
<CAPTION>
LEVERAGE RATIO APPLICABLE TRANCHE A BASE RATE MARGIN
<S> <C>
greater than 6.5:1.0 1.25%

less than or equal to 6.5:1.0 1.00%
but greater than 6.0:1.0

less than or equal to 6.0:1.0 0.75%
but greater than 5.5:1.0

less than or equal to 5.5:1.0 0.625%
but greater than 5.0:1.0

less than or equal to 5.0:1.0 0.50%
but greater than 4.75:1.0

less than or equal to 4.75:1.0 0.375%
but greater than 4.5:1.0

less than or equal to 4.5:1.0 0.25%
</TABLE>

"APPLICABLE TRANCHE A EURODOLLAR MARGIN" means, as of any date
of determination, a percentage per annum set forth below opposite the
applicable Leverage Ratio; provided that for the period from the Effective Date
until the first delivery after the Effective Date of a Margin Determination
Certificate pursuant to subsection 6.1(xviii), the Applicable Tranche A
Eurodollar Margin shall be 1.75% per annum; provided further that, if
<PAGE> 10
Company has failed to provide a Margin Determination Certificate at the time
required pursuant to subsection 6.1, the Applicable Tranche A Eurodollar Margin
shall be 2.25% per annum for the period from the date such Margin Determination
Certificate was required to be delivered until such Margin Determination
Certificate is actually delivered:

<TABLE>
<CAPTION>
LEVERAGE RATIO APPLICABLE TRANCHE A EURODOLLAR RATE
MARGIN
<S> <C>
greater than 6.5:1.0 2.25%

less than or equal to 6.5:1.0 2.00%
but greater than 6.0:1.0

less than or equal to 6.0:1.0 1.75%
but greater than 5.5:1.0

less than or equal to 5.5:1.0 1.625%
but greater than 5.0:1.0

less than or equal to 5.0:1.0 1.50%
but greater than 4.75:1.0

less than or equal to 4.75:1.0 1.375%
but greater than 4.5:1.0

less than or equal to 4.5:1.0 1.25%
</TABLE>

"APPLICABLE TRANCHE B BASE RATE MARGIN" means, as of any date
of determination, a percentage per annum set forth below opposite the
applicable Leverage Ratio; provided that for the period from the Effective Date
until the first delivery after the Effective Date of a Margin Determination
Certificate pursuant to subsection 6.1(xviii), the Applicable Tranche B Base
Rate Margin shall be 1.25% per annum; provided further that if Company has
failed to provide a Margin Determination Certificate at the time required
pursuant to subsection 6.1, the Applicable Tranche B Base Rate Margin shall be
1.75% per annum for the period from the date such Margin Determination
Certificate was required to be delivered until such Margin Determination
Certificate is actually delivered:
<PAGE> 11
<TABLE>
<CAPTION>
LEVERAGE RATIO APPLICABLE TRANCHE B BASE RATE MARGIN
<S> <C>
greater than 6.5:1.0 1.75%

less than or equal to 6.5:1.0 1.50%
but greater than 6.0:1.0

less than or equal to 6.0:1.0 1.25%
but greater than 5.5:1.0

less than or equal to 5.5:1.0 1.125%
but greater than 5.0:1.0

less than or equal to 5.0:1.0 1.00%
but greater than 4.75:1.0

less than or equal to 4.75:1.0 0.875%
but greater than 4.5:1.0

less than or equal to 4.5:1.0 0.75%
</TABLE>

"APPLICABLE TRANCHE B EURODOLLAR MARGIN" means, as of any date
of determination, a percentage per annum set forth below opposite the
applicable Leverage Ratio; provided that for the period from the Effective Date
until the first delivery after the Effective Date of a Margin Determination
Certificate pursuant to subsection 6.1(xviii), the Applicable Tranche B
Eurodollar Margin shall be 2.25% per annum; provided further that if Company
has failed to provide a Margin Determination Certificate at the time required
pursuant to subsection 6.1, the Applicable Tranche B Eurodollar Margin shall be
2.75% per annum for the period from the date such Margin Determination
Certificate was required to be delivered until such Margin Determination
Certificate is actually delivered:
<PAGE> 12
<TABLE>
<CAPTION>
LEVERAGE RATIO APPLICABLE TRANCHE B EURODOLLAR RATE
MARGIN
<S> <C>
greater than 6.5:1.0 2.75%

less than or equal to 6.5:1.0 2.50%
but greater than 6.0:1.0

less than or equal to 6.0:1.0 2.25%
but greater than 5.5:1.0

less than or equal to 5.5:1.0 2.125%
but greater than 5.0:1.0

less than or equal to 5.0:1.0 2.00%
but greater than 4.75:1.0

less than or equal to 4.75:1.0 1.875%
but greater than 4.5:1.0

less than or equal to 4.5:1.0 1.75%
</TABLE>

"ASSET SALE" means (i) the sale, lease, assignment or other
transfer (whether voluntary or involuntary) for value (collectively, a
"transfer") by Company or any of its Subsidiaries to any Person other than
Company or any of its wholly-owned Subsidiaries of (a) any of the stock of any
of Company's Subsidiaries, (b) substantially all of the assets of any division
or line of business of Company or any of its Subsidiaries, or (c) any other
assets (whether tangible or intangible) of Company or any of its Subsidiaries,
excluding (1) any Cash Equivalents or inventory sold in the ordinary course of
business, (2) any such transfer to the extent that the aggregate value of the
stock or assets transferred in any single transaction or related series of
transactions is equal to $100,000 or less, or $1,000,000 or less in the
aggregate in any Fiscal Year for all such excluded transfers and all excluded
occurrences described in clause (ii) below, and (3) any transfer in an
arm's-length transaction by Company or a Subsidiary of Company to a Developer
of a Development Site constituting a Development Investment permitted under
subsection 7.3(vii), or (ii) the occurrence of any complete or partial loss,
damage or destruction of any assets of Company or any of its Subsidiaries
giving rise to insurance proceeds, excluding any such occurrence to the extent
that the aggregate value of the assets lost, destroyed or damaged in any single
occurrence or related series of occurrences is equal to $100,000 or less, or
$1,000,000 or less in the aggregate in any Fiscal Year for all such excluded
occurrences and all excluded transfers described in clause (i)(2) above.

"ASSIGNMENT AGREEMENT" means an Assignment Agreement in
substantially the form of Exhibit XVII annexed hereto.

"AUDITOR'S LETTER" means a letter, substantially in the form
of Exhibit XVIII annexed hereto, acknowledged and agreed to by Company and
Arthur Andersen LLP, which shall be delivered to Agent pursuant to subsection
4.1M.
<PAGE> 13
"BANKERS" has the meaning assigned to that term in the
introduction to this Agreement.

"BANKRUPTCY CODE" means Title 11 of the United States Code
entitled "Bankruptcy", as now and hereafter in effect, or any successor
statute.

"BASE RATE" means, at any time, the higher of (x) the Prime
Rate or (y) the rate which is .50% per annum in excess of the Federal Funds
Effective Rate.

"BASE RATE LOANS" means Loans bearing interest at rates
determined by reference to the Base Rate as provided in subsection 2.2A.

"BUSINESS DAY" means any day excluding Saturday, Sunday and
any day which is a legal holiday under the laws of the State of New York or the
State of California or is a day on which banking institutions located in the
State of New York or in the State of California are authorized or required by
law or other governmental action to close.

"CALA" means Cala Co., a Delaware corporation.

"CAPITAL LEASE", as applied to any Person, means any lease of
any property (whether real, personal or mixed) by that Person as lessee that,
in conformity with GAAP, is required to be accounted for as a capital lease on
the balance sheet of that Person.

"CASH" means money, currency or a credit balance in a Deposit
Account.

"CASH EQUIVALENTS" means, as at any date of determination, (i)
marketable securities (a) issued or directly and unconditionally guaranteed as
to interest and principal by the United States Government or (b) issued by any
agency of the United States the obligations of which are backed by the full
faith and credit of the United States, in each case maturing within one year
after such date; (ii) marketable direct obligations issued by any state of the
United States of America or any political subdivision of any such state or any
public instrumentality thereof, in each case maturing within one year after
such date and having, at the time of the acquisition thereof, the highest
rating obtainable from either Standard & Poor's Ratings Group ("S&P") or
Moody's Investors Service, Inc. ("MOODY'S"); (iii) commercial paper maturing no
more than one year from the date of creation thereof and having, at the time of
the acquisition thereof, a rating of at least A-1 from S&P or at least P-1 from
Moody's; (iv) certificates of deposit or bankers' acceptances maturing within
one year after such date and issued or accepted by any Lender or by any
commercial bank organized under the laws of the United States of America or any
state thereof or the District of Columbia that (a) is at least "adequately
capitalized" (as defined in the regulations of its primary Federal banking
regulator) and (b) has Tier 1 capital (as defined in such regulations) of not
less than $100,000,000; (v) shares of any money market mutual fund that (a) has
at least 95% of its assets invested continuously in the types of investments
referred to in clauses (i) and (ii) above, (b) has net assets of not less than
$500,000,000, and (c) has the highest rating obtainable from either S&P or
Moody's; and (vi) repurchase agreements with respect to, and which are fully
secured by a security interest in, obligations of the type described in clause
(i) or clause (ii) above and are with any commercial bank described in clause
(iv) above.
<PAGE> 14
"CASH PROCEEDS" means, with respect to any Asset Sale, Cash
payments (including any Cash received by way of deferred payment pursuant to,
or monetization of, a note receivable or otherwise, but only as and when so
received) received from such Asset Sale.

"CERTIFICATE RE NON-BANK STATUS" means a certificate in form
and substance satisfactory to Agent delivered by a Lender to Agent pursuant to
subsection 2.7B(iii) pursuant to which such Lender certifies that it is not (i)
a "bank" as such term is defined in subsection 881(c)(3) of the Internal
Revenue Code; (ii) a 10 percent shareholder of Company within the meaning of
Section 871(h)(3)(B) or Section 881(c)(3)(B) of the Internal Revenue Code; or
(iii) a "controlled" foreign corporation related to Company within the meaning
of Section 864(d)(4) of the Internal Revenue Code.

"CHANGE OF CONTROL" means any of (a) the failure at any time
of Ronald W. Burkle (other than as a result of death or incapacity) to have
economic ownership of, directly or indirectly (including through his ownership
interest in the Yucaipa Investors), a percentage (calculated without regard to
any dilution resulting from (i) the accretion on the Holdings Preferred Stock,
(ii) the exercise of warrants to purchase Holdings Voting Stock which were
outstanding on the Closing Date; provided, however, that in the event any such
warrant (of which Ronald W. Burkle had direct or indirect economic ownership on
the Closing Date) is exercised, in addition to the percentage of Holdings
Voting Stock otherwise required to be maintained under this clause (a), Ronald
W. Burkle shall continue to have economic ownership of, directly or indirectly
(including through his ownership interest in the Yucaipa Investors), at least
50% of the number of shares of Holdings Voting Stock in which he had such
economic interest under such warrant on the Closing Date, or (iii) the exercise
of employee stock options) of issued and outstanding shares of Holdings Voting
Stock, which percentage shall be at least 50% of the percentage of the issued
and outstanding Holdings Voting Stock economically owned, directly or
indirectly (including through his ownership interest in the Yucaipa Investors),
by Ronald W. Burkle on the Closing Date, (b) the failure at any time of Yucaipa
and the Yucaipa Investors collectively to beneficially own and control and to
have economic ownership of, directly or indirectly, a percentage (calculated
without regard to any dilution resulting from (i) the accretion on the Holdings
Preferred Stock, (ii) the exercise of warrants to purchase Holdings Voting
Stock which were outstanding on the Closing Date; provided, however, that in
the event any such warrant (of which the Yucaipa Investors had direct or
indirect economic ownership on the Closing Date) is exercised, in addition to
the percentage of Holdings Voting Stock otherwise required to be maintained
under this clause (b), Yucaipa and the Yucaipa Investors collectively shall
continue to have economic ownership of, directly or indirectly, at least 50% of
the number of shares of Holdings Voting Stock in which they had such economic
interest under such warrant on the Closing Date, or (iii) the exercise of
employee stock options) of issued and outstanding Holdings Voting Stock, which
percentage shall be at least 50% of the percentage of the issued and
outstanding Holdings Voting Stock beneficially owned and controlled or
economically owned, directly or indirectly, by Yucaipa and the Yucaipa
Investors collectively on the Closing Date, (c) the failure at any time of
Ronald W. Burkle, directly or indirectly, to have the ability to elect a
majority of the members of the Board of Directors of Holdings and of Company;
provided that no Change in Control shall be deemed to have occurred under this
clause (c) as a result of the death or incapacity of Ronald W. Burkle for a
period of 60 days after such death or incapacity, (d) the failure at any time
of Holdings to
<PAGE> 15
beneficially own and control 100% of the issued and outstanding shares of
capital stock of Company or the failure at any time of Holdings to have the
ability to elect all of the Board of Directors of Company, or (e) the
occurrence of any "Change of Control" as defined in any of the Subordinated
Debt Indentures or the Senior Debt Indentures. As used herein, the term
"beneficially own" or "beneficial ownership" shall have the meaning set forth
in the Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder.

"CLASS" means, with respect to Lenders, each class of Lenders
under this Agreement, with there being two separate classes of Lenders, i.e.,
(i) Lenders having Term Loan Exposure with respect to Tranche A Term Loans
and/or Revolving Loan Exposure (taken together as a single class) and (ii)
Lenders having Term Loan Exposure with respect to Tranche B Term Loans.

"CLOSING DATE" means June 14, 1995, the date on which the
initial Loans were made.

"CO-AGENTS" has the meaning assigned to that term in the
introduction to this Agreement.

"COLLATERAL" means all the real, personal and mixed property
made subject to a Lien pursuant to the Collateral Documents.

"COLLATERAL ACCOUNT" has the meaning assigned to that term in
the Collateral Account Agreement.

"COLLATERAL ACCOUNT AGREEMENT" means the Collateral Account
Agreement executed and delivered by Company and Agent on the Closing Date,
pursuant to which Company may pledge cash to Agent to secure the obligations of
Company to reimburse Issuing Lenders for payments made under one or more
Letters of Credit as provided in Section 8, as such Collateral Account
Agreement may be amended, supplemented or otherwise modified from time to time.

"COLLATERAL DOCUMENTS" means the Holdings Pledge Agreement,
the Pledge Agreements, the Security Agreement, the Trademark Security
Agreement, the Deposit Accounts Security Agreement, the Deeds of Trust, the F4L
GM Security Agreement, the Collateral Account Agreement and all other
instruments or documents delivered by Holdings, Company or any of Company's
Subsidiaries in order to grant to Agent for the benefit of Lenders Liens on any
of their respective property.

"COMMERCIAL LETTER OF CREDIT" means any letter of credit or
similar instrument issued for the purpose of providing the primary payment
mechanism in connection with the purchase of any materials, goods or services
by Company or any of its Subsidiaries in the ordinary course of business of
Company or such Subsidiary.

"COMMITMENT FEE PERCENTAGE" means, as of any date of
determination, a percentage per annum set forth below opposite the applicable
Leverage Ratio; provided that for the period from the Effective Date until the
first delivery after the Effective Date of a
<PAGE> 16
Margin Determination Certificate pursuant to subsection 6.1(xviii), the
Commitment Fee Percentage shall be 0.500% per annum; provided further that if
Company has failed to provide a Margin Determination Certificate at the time
required pursuant to subsection 6.1, the Commitment Fee Percentage shall be
0.500% per annum for the period from the date such Margin Determination
Certificate was required to be delivered until such Margin Determination
Certificate is actually delivered:

<TABLE>
<CAPTION>
LEVERAGE RATIO COMMITMENT FEE PERCENTAGE
<S> <C>
greater than 5.5:1.0 0.500%

less than or equal to 5.5:1.0 0.425%
but greater than 5.0:1.0

less than or equal to 5.0:1.0 0.375%
but greater than 4.5:1.0

less than or equal to 4.5:1.0 0.325%
</TABLE>

"COMMITMENTS" means the commitments of Lenders to make Loans
as set forth in subsection 2.1A.

"COMPANY" has the meaning assigned to that term in the
preamble to this Agreement.

"COMPLIANCE CERTIFICATE" means a certificate substantially in
the form of Exhibit VIII annexed hereto delivered to Agent and Lenders by
Company pursuant to subsection 6.1(iv).

"CONSOLIDATED ADJUSTED EBITDA" means, for any period, without
duplication, the sum of the amounts for such period of (i) Consolidated Net
Income, (ii) Consolidated Cash Interest Expense, (iii) provisions for taxes
based on income, (iv) total depreciation expense, (v) total amortization
expense, (vi) Restructuring Charges, (vii) Smith's-Related Restructuring
Charges and (viii) other non-cash items reducing Consolidated Net Income less
other non-cash items increasing Consolidated Net Income, all of the foregoing
as determined on a consolidated basis for Company and its Subsidiaries in
conformity with GAAP.

"CONSOLIDATED CAPITAL EXPENDITURES" means, for any period, an
amount equal to (i) the sum of (a) the aggregate of all expenditures (whether
paid in cash or other consideration or accrued as a liability and including
that portion of Capital Leases which is capitalized on the consolidated balance
sheet of Company and its Subsidiaries) by Company and its Subsidiaries during
that period that, in conformity with GAAP, are included in "property, plant or
equipment" or comparable items reflected in the consolidated balance sheets of
Company and its Subsidiaries plus (b) to the extent not covered by clause
(i)(a) of this definition, the aggregate of all expenditures by Company and its
Subsidiaries during that period to acquire (by purchase or otherwise) the
business, property or fixed assets (other than current assets consisting of
inventory or accounts receivable) of any Person, or the stock or
<PAGE> 17
other evidence of beneficial ownership of any Person that, as a result of such
acquisition, becomes a Subsidiary of Company minus (ii) the sum (without
duplication) of (a) Consolidated Capital Expenditures (as defined in clause (i)
above) constituting Development Investments permitted under subsection
7.3(vii), (b) the principal amounts of Indebtedness permitted under subsections
7.1(iii) and 7.1(viii), (c) an amount equal to the proceeds received by Company
or any of its Subsidiaries from a sale-leaseback transaction of a store or
equipment permitted under subsection 7.10 so long as such transaction occurs
within 270 days of the completion of such store or acquisition of such
equipment and to the extent prior expenditures, up to an equivalent amount for
the asset so sold and leased back, constituted Consolidated Capital
Expenditures (as defined above) in such period or in any prior period, and (d)
expenditures in an amount not to exceed the proceeds of insurance, condemnation
awards (or payments in lieu thereof) or indemnity payments received from third
parties, so long as such expenditures were made for purposes permitted pursuant
to subsection 2.4B(iii)(a)(v) and so long as such expenditures are made not
later than 18 months after receipt of such proceeds.

"CONSOLIDATED CASH INTEREST EXPENSE" means, for any period,
total interest expense net of any interest income received in Cash by Company
or any of its Subsidiaries (including that portion attributable to Capital
Leases in accordance with GAAP and capitalized interest) of Company and its
Subsidiaries on a consolidated basis with respect to all outstanding
Indebtedness of Company and its Subsidiaries, including, without limitation,
all commissions, discounts and other fees and charges owed with respect to
letters of credit and bankers' acceptance financing and net costs under
Interest Rate Agreements, plus all dividends on capital stock of Company paid
or payable in Cash and used by Holdings to pay interest on Indebtedness of
Holdings, including without limitation the Holdings Discount Debentures and the
Seller Debentures, but excluding, however, (i) any amounts referred to in
subsection 2.3 payable to Agent and Lenders on or before the Effective Date and
(ii) any interest expenses not payable in Cash (including amortization of
discounts and premiums and amortization of debt issuance costs).

"CONSOLIDATED EXCESS CASH FLOW" means, for any Fiscal Year, an
amount equal to (i) the sum (without duplication) of the amounts for such
Fiscal Year of (a) Consolidated Net Income, (b) any after-tax gains
attributable to returned surplus assets of any Pension Plan, (c) the amount of
Net Cash Proceeds of Asset Sales received in such Fiscal Year that are not
otherwise included in Consolidated Net Income and that are required to be used
to prepay the Term Loans and/or permanently reduce the Revolving Loan
Commitments pursuant to subsection 2.4B(iii)(a), but excluding amounts returned
to Company pursuant to the last sentence of subsection 2.4B(iv)(b) which are
not used by Company to prepay the Term Loans and/or permanently reduce the
Revolving Loan Commitments, (d) the aggregate amount of Cash proceeds (net of
underwriting discounts, similar placement fees and commissions and other
reasonable costs and expenses associated therewith) from the issuance after the
Closing Date of any debt or equity Securities of Holdings or any of its
Subsidiaries that are required to be used to prepay the Loans pursuant to
subsections 2.4B(iii)(b) or 2.4B(iii)(c), as the case may be, but excluding
amounts returned to Company pursuant to the last sentence of subsection
2.4B(iv)(b) which are not used by Company to prepay the Terms Loans and/or
permanently reduce the Revolving Loan Commitments, (e) consolidated
depreciation and amortization expense for such Fiscal Year, (f) other non-cash
charges reducing Consolidated Net Income, including the net decrease (if any)
in deferred tax assets
<PAGE> 18
and the net increase (if any) in deferred tax liabilities of Company and its
Subsidiaries, (g) (to the extent not included in Consolidated Net Income) any
cash extraordinary gains, (h) an amount equal to the Net Cash Proceeds of Asset
Sales excluded from mandatory prepayments required to be made under subsection
2.4B(iii)(a) pursuant to clauses (i), (ii) and (iv) of the first proviso
thereof; provided that such Net Asset Sale Proceeds which meet the following
requirements ("Excluded Proceeds") shall not be added pursuant to this clause
(h): (x) they have not been reinvested as permitted pursuant to such clauses
(i), (ii) and (iv) and (y) the period for permitted reinvestment pursuant to
such clauses (i), (ii) and (iv) extends beyond the last date of the Fiscal
Year, (i) all Cash proceeds received by Company or any of its Subsidiaries in
payment or repayment of any Development Investment previously made by Company
or such Subsidiary and (j) an amount equal to the Excluded Proceeds from the
previous Fiscal Year; minus (ii) the sum (without duplication) of the amounts
for such Fiscal Year of (a) Consolidated Capital Expenditures permitted under
subsection 7.8 made during such Fiscal Year, (b) payments of principal made in
respect of any outstanding Indebtedness of Company or any of its Subsidiaries
to the extent such payments are permanent reductions in Funded Debt and not
prohibited under subsection 7.5, (c) the net increase (if any) in deferred tax
assets and the net decrease (if any) in deferred tax liabilities, (d) the
amount of all Development Investments paid or payable in cash permitted under
subsection 7.3(vii) made during such Fiscal Year and (e) other non-cash charges
increasing Consolidated Net Income, all of the foregoing as determined on a
consolidated basis for Company and its Subsidiaries in conformity with GAAP.

"CONSOLIDATED FIXED CHARGES" means, without duplication, for
any period, the sum of the amounts for such period of (i) Consolidated Cash
Interest Expense, (ii) Consolidated Rental Payments, and (iii) scheduled
principal payments attributable to Capital Leases of Company and its
Subsidiaries, all of the foregoing as determined on a consolidated basis for
Company and its Subsidiaries in conformity with GAAP.

"CONSOLIDATED NET INCOME" means, for any period, the net
income (or loss) of Company and its Subsidiaries on a consolidated basis for
such period taken as a single accounting period determined in conformity with
GAAP after deductions for (a) the aggregate dividends paid by Company to
Holdings with respect to capital stock of Company during such period or during
any prior period to the extent that such dividends are or were used by Holdings
to pay amounts recognized as expenses by Holdings during such period in
conformity with GAAP and (b) to the extent not included in the immediately
preceding clause (a), the aggregate dividends paid by Company to Holdings with
respect to capital stock of Company during such period to the extent that such
dividends are used by Holdings to pay interest on Indebtedness of Holdings,
including without limitation the Holdings Discount Debentures and the Seller
Debentures; provided that there shall be excluded (i) the income (or loss) of
any Person (other than a Subsidiary of Company) in which any other Person
(other than Company or any of its Subsidiaries) has a joint interest, except to
the extent of the amount of dividends or other distributions actually paid to
Company or any of its Subsidiaries by such Person during such period, (ii) the
income (or loss) of any Person accrued prior to the date it becomes a
Subsidiary of Company or is merged into or consolidated with Company or any of
its Subsidiaries or that Person's assets are acquired by Company or any of its
Subsidiaries, (iii) the income of any Subsidiary of Company to the extent that
the declaration or payment of dividends or similar distributions by that
Subsidiary of that income is not at the time permitted by operation of the
terms of its charter or any
<PAGE> 19
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Subsidiary, (iv) any after-tax gains or losses
attributable to Asset Sales or returned surplus assets of any Pension Plan, and
(v) (to the extent not included in clauses (i) through (iv) above) any net
extraordinary gains or net non-cash extraordinary losses.

"CONSOLIDATED NET WORTH" means, as at any date of
determination, without duplication, the sum of (i) the capital stock and
additional paid-in capital plus retained earnings (or minus accumulated
deficits) of Company and its Subsidiaries on a consolidated basis determined in
conformity with GAAP, (ii) the after tax impact (if any) of the cumulative
amount of Restructuring Charges incurred or reflected subsequent to the Closing
Date, (iii) the amount, not to exceed $50,000,000, for the write-off of
goodwill taken by Company and its Subsidiaries on a consolidated basis
determined in conformity with GAAP, (iv) to the extent that the net value of
the capital stock of Holdings held by any employee stock ownership plan of
Company or any of its Subsidiaries as shown on the consolidated balance sheet
of Company and its Subsidiaries is not included in clause (i) above, such net
value and (v) the after tax impact (if any) of the Smith's-Related
Restructuring Charges; provided that for purposes of this definition,
notwithstanding any adjustment made or required to be made after the Closing
Date as a result of the receipt on the Closing Date of debt Securities of
Holdings by the selling stockholders of Ralphs Supermarkets, Inc. and the other
Persons receiving such debt Securities on such date, (a) the value assigned to
the Seller Debentures, and to any capital contribution made by Holdings to
Company on the Closing Date the amount of which is calculated with reference to
the value of the Seller Debentures, will be $131,500,000 (as adjusted from time
to time pursuant to any adjustments required to be made after the Closing Date
other than as a result of the receipt on the Closing Date of debt Securities of
Holdings by such selling stockholders and the other Persons receiving such debt
Securities on the such date) and (b) the value assigned to the Holdings
Discount Debentures, and to any capital contribution made to Company by
Holdings on the Closing Date the amount of which is calculated with reference
to the value of the Holdings Discount Debentures, will be $100,000,000 (as
adjusted from time to time pursuant to any adjustments required to be made
after the Closing Date other than as a result of the receipt on the Closing
Date of debt Securities of Holdings by such selling stockholders and the other
Persons receiving such debt Securities on such date).

"CONSOLIDATED RENTAL PAYMENTS" means, for any period, the
aggregate amount of all rents paid or payable by Company and its Subsidiaries
on a consolidated basis during that period under all Operating Leases to which
Company or any of its Subsidiaries is a party as lessee (net of sublease
income).

"CONSOLIDATED TOTAL DEBT" means, as at any date of
determination, the aggregate stated balance sheet amount of all Indebtedness of
Company and its Subsidiaries, determined on a consolidated basis in accordance
with GAAP; provided that through and including April 30, 1997, the 1992 13.75%
Senior Subordinated Notes and the 1995 13.75% Senior Subordinated Notes shall
not be included as Indebtedness of Company for purposes of any calculation of
Company's Consolidated Total Debt.

"CONSULTING AGREEMENT" means that certain Consulting Agreement
dated as of the Closing Date among Holdings, Company and Yucaipa, as such
Consulting Agreement
<PAGE> 20
may be amended from time to time after the Closing Date to the extent permitted
under subsection 7.15A.

"CONTINGENT OBLIGATION", as applied to any Person, means any
direct or indirect liability, contingent or otherwise, of that Person (i) with
respect to any Indebtedness, lease, dividend or other obligation of another if
the primary purpose or intent thereof by the Person incurring the Contingent
Obligation is to provide assurance to the obligee of such obligation of another
that such obligation of another will be paid or discharged, or that any
agreements relating thereto will be complied with, or that the holders of such
obligation will be protected (in whole or in part) against loss in respect
thereof, (ii) with respect to any letter of credit issued for the account of
that Person or as to which that Person is otherwise liable for reimbursement of
drawings, or (iii) under Interest Rate Agreements and Currency Agreements.
Contingent Obligations shall include, without limitation, (a) the direct or
indirect guaranty, endorsement (otherwise than for collection or deposit in the
ordinary course of business), co-making, discounting with recourse or sale with
recourse by such Person of the obligation of another, (b) the obligation to
make take-or-pay or similar payments if required regardless of nonperformance
by any other party or parties to an agreement, and (c) any liability of such
Person for the obligation of another through any agreement (contingent or
otherwise) (X) to purchase, repurchase or otherwise acquire such obligation or
any security therefor, or to provide funds for the payment or discharge of such
obligation (whether in the form of loans, advances, stock purchases, capital
contributions or otherwise) or (Y) to maintain the solvency or any balance
sheet item, level of income or financial condition of another if, in the case
of any agreement described under subclauses (X) or (Y) of this sentence, the
primary purpose or intent thereof is as described in the preceding sentence.
The amount of any Contingent Obligation shall be equal to the amount of the
obligation so guaranteed or otherwise supported or, if less, the amount to
which such Contingent Obligation is specifically limited.

"CONTRACTUAL OBLIGATION", as applied to any Person, means any
provision of any Security issued by that Person or of any indenture, mortgage,
deed of trust, contract, undertaking, agreement or other instrument to which
that Person is a party or by which it or any of its properties is bound or to
which it or any of its properties is subject.

"COVERED REAL PROPERTY" has the meaning assigned to that term
in subsection 6.11.

"CURRENCY AGREEMENT" means any foreign exchange contract,
currency swap agreement, futures contract, option contract, synthetic cap or
other similar agreement or arrangement designed to protect Company or any of
its Subsidiaries against fluctuations in currency values.

"DEED OF TRUST" means each Deed of Trust executed and
delivered by any Loan Party on the Closing Date and each other deed of trust,
mortgage, security agreement and fixture filing relating to any fee or
leasehold interest of any Loan Party in real property substantially in the form
of Exhibit XIII annexed hereto, in each case (i) with appropriate insertions
and deletions based upon the nature of the real property interest (i.e., fee or
leasehold) to be encumbered thereby and (ii) containing such schedules and
including such additional provisions and other deviations from such Exhibit as
are satisfactory to Agent and
<PAGE> 21
not inconsistent with the provisions of subsection 6.11 or as are necessary to
conform such Exhibit to applicable local law, and which shall be dated the date
of delivery thereof and made by such Loan Party as trustor or mortgagor, as the
case may be, in favor of Agent, as beneficiary or mortgagee, delivered for the
purpose of securing all Obligations hereunder, as the same may be amended,
supplemented or otherwise modified from time to time.

"DEFERRED TRADE PAYABLES" means promissory notes (whether
interest bearing or non-interest bearing) executed by Company or any of its
Subsidiaries in favor of such entity's suppliers to finance the purchase price
and delivery costs of inventory in connection with such entity's opening or
acquisition of new stores or remodeling of existing stores.

"DEPOSIT ACCOUNT" means a demand, time, savings, passbook or
like account with a bank, savings and loan association, credit union or like
organization, other than an account evidenced by a negotiable certificate of
deposit.

"DEPOSIT ACCOUNTS SECURITY AGREEMENT" means each Deposit
Accounts Security Agreement executed and delivered by Company and certain of
Company's Subsidiaries on the Closing Date and each other Deposit Accounts
Security Agreement substantially in the form of Exhibit XIV annexed hereto, to
be executed and delivered by Subsidiaries of Company from time to time in
accordance with subsection 6.10, pursuant to which Company and such
Subsidiaries shall grant to Agent a security interest in all of its Deposit
Accounts maintained with commercial banks or other depository institutions
located in California or in any other jurisdiction which permits the perfection
of a security interest in Deposit Accounts by notifying the institution that
maintains the Deposit Accounts of such security interest, as each such Deposit
Accounts Security Agreement may be amended, supplemented or otherwise modified
from time to time, and "DEPOSIT ACCOUNTS SECURITY AGREEMENTS" means all such
Deposit Account Security Agreements, collectively.

"DEVELOPER" means any Person which owns, leases or otherwise
controls or intends to acquire an interest in a Development Site.

"DEVELOPMENT INVESTMENT" means (a) a loan by Company or a
Subsidiary of Company to a Developer, the proceeds of which are to be used to
finance a Development Project of such Developer, (b) a cash contribution by
Company or a Subsidiary of Company to the capital of a Developer, the proceeds
of which are to be used to finance a Development Project of such Developer, or
(c) a contribution by Company or a Subsidiary of Company to the capital of a
Developer of an interest of Company or such Subsidiary in a Development Site.
The amount of any Development Investment shall be the amount of cash loaned or
contributed to a Developer for the purpose specified above or the fair market
value of the interest of a Development Site contributed to the capital of a
Developer, which fair market value shall be determined, without regard to the
proposed investment, at the time of such contribution in good faith by
resolution of the Board of Directors of Company, in each case minus the amount
of cash received by Company or any of its Subsidiaries in repayment of such
Development Investment.

"DEVELOPMENT PROJECT" means a project for the development by
or at the direction of a Developer of a Development Site, including the
construction, remodeling,
<PAGE> 22
expansion or renovation of a store thereon, which store is to be leased to and
operated by Company or one of its Subsidiaries.

"DEVELOPMENT SITE" means real property which is identified by
Company or one of its Subsidiaries as the intended location for a store or a
shopping center and related improvements to be constructed, remodeled, expanded
or renovated by or at the direction of the Developer thereof, which in each
case shall include a store intended to be leased to and operated by Company or
one of its Subsidiaries.

"DOLLARS" and the sign "$" mean the lawful money of the United
States of America.

"EFFECTIVE DATE" means the date on or before May 31, 1997
which the conditions precedent to the purchase of the Loans and the making of
the initial Revolving Loans set forth in subsection 4.1 are satisfied.

"ELIGIBLE ASSIGNEE" means (A) (i) a commercial bank organized
under the laws of the United States or any state thereof; (ii) a savings and
loan association or savings bank organized under the laws of the United States
or any state thereof; (iii) a commercial bank organized under the laws of any
other country or a political subdivision thereof; provided that (x) such bank
is acting through a branch or agency located in the United States or (y) such
bank is organized under the laws of a country that is a member of the
Organization for Economic Cooperation and Development or a political
subdivision of such country; and (iv) any other entity which is an "accredited
investor" (as defined in Regulation D under the Securities Act) which extends
credit or buys loans as one of its businesses including, but not limited to,
insurance companies, mutual funds and lease financing companies, in each case
(under clauses (i) through (iv) above) that is reasonably acceptable to Agent;
and (B) any Lender and any Affiliate of any Lender and, with respect to any
Lender that is a fund that invests in loans, any other fund that invests in
loans and is managed by the same investment advisor of such Lender or by an
Affiliate of such investment advisor; provided that no Affiliate of Company
shall be an Eligible Assignee.

"EMPLOYEE BENEFIT PLAN" means any "employee benefit plan" as
defined in Section 3(3) of ERISA (i) which is, or, at any time within the five
calendar years immediately preceding the date hereof, was at any time,
maintained or contributed to by the Loan Parties or any of their respective
ERISA Affiliates or (ii) with respect to which any Loan Party retains any
liability, including any potential joint and several liability as a result of
an affiliation with an ERISA Affiliate or a party that would be an ERISA
Affiliate except for the fact the affiliation ceased more than five calendar
years prior to the date hereof.

"ENVIRONMENTAL CLAIM" means any accusation, allegation, notice
of violation, claim, demand, abatement order or other order or direction
(conditional or otherwise) by any governmental authority or any Person for any
damage, including, without limitation, personal injury (including sickness,
disease or death), tangible or intangible property damage, contribution,
indemnity, indirect or consequential damages, damage to the environment,
nuisance, pollution, contamination or other adverse effects on the environment,
or for fines, penalties or restrictions, in each case relating to, resulting
from or in connection with
<PAGE> 23
Hazardous Materials and relating to Company, any of its Subsidiaries, any of
their respective Affiliates or any Facility.

"ENVIRONMENTAL INDEMNITY" means the Environmental Indemnity
executed and delivered by Company on the Closing Date, as such Environmental
Indemnity may be amended, supplemented or otherwise modified from time to time.

"ENVIRONMENTAL LAWS" means all statutes, ordinances, orders,
rules, regulations, plans, policies or decrees and the like relating to (i)
environmental matters, including, without limitation, those relating to fines,
injunctions, penalties, damages, contribution, cost recovery compensation,
losses or injuries resulting from the Release or threatened Release of
Hazardous Materials, (ii) the generation, use, storage, transportation or
disposal of Hazardous Materials, or (iii) occupational safety and health,
industrial hygiene, land use or the protection of human, plant or animal health
or welfare, in any manner applicable to Company or any of its Subsidiaries or
any of their respective properties, including, without limitation, the
Comprehensive Environmental Response, Compensation, and Liability Act (42
U.S.C. Section 9601 et seq.), the Hazardous Materials Transportation Act (49
U.S.C. Section 1801 et seq.), the Resource Conservation and Recovery Act (42
U.S.C. Section 6901 et seq.), the Federal Water Pollution Control Act (33
U.S.C. Section 1251 et seq.), the Clean Air Act (42 U.S.C. Section 7401 et
seq.), the Toxic Substances Control Act (15 U.S.C. Section 2601 et seq.), the
Federal Insecticide, Fungicide and Rodenticide Act (7 U.S.C. Section 136 et
seq.), the Occupational Safety and Health Act (29 U.S.C. Section 651 et seq.)
and the Emergency Planning and Community Right-to-Know Act (42 U.S.C. Section
11001 et seq.), each as amended or supplemented, and any analogous future or
present local, state and federal statutes and regulations promulgated pursuant
thereto, each as in effect as of the date of determination.

"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and any successor statute.

"ERISA AFFILIATE", as applied to any Person, means (i) any
corporation which is, or was at any time within the five calendar years
immediately preceding the date hereof, a member of a controlled group of
corporations within the meaning of Section 414(b) of the Internal Revenue Code
of which that Person is, or was at any time within the five calendar years
immediately preceding the date hereof, a member; (ii) any trade or business
(whether or not incorporated) which is, or was at any time within the five
calendar years immediately preceding the date hereof, a member of a group of
trades or businesses under common control within the meaning of Section 414(c)
of the Internal Revenue Code of which that Person is, or was at any time within
the five calendar years immediately preceding the date hereof, a member; and
(iii) any member of an affiliated service group within the meaning of Section
414(m) or (o) of the Internal Revenue Code of which that Person, any
corporation described in clause (i) above or any trade or business described in
clause (ii) above is, or was at any time within the five calendar years
immediately preceding the date hereof, a member.

"ERISA EVENT" means (i) a "reportable event" within the
meaning of Section 4043 of ERISA and the regulations issued thereunder with
respect to any Pension Plan (excluding those for which the provision for 30-day
notice to the PBGC has been waived by regulation); (ii) the failure to meet the
minimum funding standard of Section 412 of the
<PAGE> 24
Internal Revenue Code with respect to any Pension Plan (whether or not waived
in accordance with Section 412(d) of the Internal Revenue Code) or the failure
to make by its due date a required installment under Section 412(m) of the
Internal Revenue Code with respect to any Pension Plan or the failure to make
any required contribution to a Multiemployer Plan; (iii) the provision by the
administrator of any Pension Plan pursuant to Section 4041(a)(2) of ERISA of a
notice of intent to terminate such plan in a distress termination described in
Section 4041(c) of ERISA; (iv) the withdrawal by any of the Loan Parties or any
of their respective ERISA Affiliates from any Pension Plan with two or more
contributing sponsors or the termination of any such Pension Plan resulting in
liability pursuant to Sections 4063 or 4064 of ERISA; (v) the institution by
the PBGC of proceedings to terminate any Pension Plan, or the occurrence of any
event or condition which might reasonably be expected to constitute grounds
under ERISA for the termination of, or the appointment of a trustee to
administer, any Pension Plan; (vi) the imposition of liability on any of the
Loan Parties or any of their respective ERISA Affiliates pursuant to Section
4062(e) or 4069 of ERISA or by reason of the application of Section 4212(c) of
ERISA; (vii) the withdrawal by any of the Loan Parties or any of their
respective ERISA Affiliates in a complete or partial withdrawal (within the
meaning of Sections 4203 and 4205 of ERISA) from any Multiemployer Plan if
there is any potential liability therefor, or the receipt by any of the Loan
Parties or any of their respective ERISA Affiliates of notice from any
Multiemployer Plan that it is in reorganization or insolvency pursuant to
Section 4241 or 4245 of ERISA, or that it intends to terminate or has
terminated under Section 4041A or 4042 of ERISA; (viii) the occurrence of an
act or omission which could reasonably be expected to give rise to the
imposition on any of the Loan Parties or any of their respective ERISA
Affiliates of fines, penalties, taxes or related charges under Chapter 43 of
the Internal Revenue Code or under Section 409 or 502(c), (i) or (l) or 4071 of
ERISA in respect of any Employee Benefit Plan; (ix) the assertion of a material
claim (other than routine claims for benefits) against any Employee Benefit
Plan other than a Multiemployer Plan or the assets thereof, or against any of
the Loan Parties or any of their respective ERISA Affiliates in connection with
any such Employee Benefit Plan; (x) receipt from the Internal Revenue Service
of notice of the failure of any Pension Plan (or any other Employee Benefit
Plan intended to be qualified under Section 401(a) of the Internal Revenue
Code) to qualify under Section 401(a) of the Internal Revenue Code, or the
failure of any trust forming part of any Pension Plan to qualify for exemption
from taxation under Section 501(a) of the Internal Revenue Code; or (xi) the
imposition of a Lien pursuant to Section 401(a)(29) or 412(n) of the Internal
Revenue Code or pursuant to ERISA with respect to any Pension Plan.

"EURODOLLAR RATE LOANS" means Loans bearing interest at rates
determined by reference to the Adjusted Eurodollar Rate as provided in
subsection 2.2A.

"EVENT OF DEFAULT" means each of the events set forth in
Section 8.

"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended from time to time, and any successor statute.

"EXCLUDED SITE" means, as of any date, provided that there
shall not then exist a Potential Event of Default or an Event of Default, all
of the following, excluding any fee interest in Real Property Assets on which
Agent shall have been granted a Lien in accordance with the terms hereof: (a)
any fee interest in undeveloped land acquired by
<PAGE> 25
Company or any of its Subsidiaries for the development of a grocery store, so
long as less than a year has elapsed since the date such fee interest was first
acquired by Company or any of its Subsidiaries (the "Acquisition Date"), (b)
any fee interest in Real Property Assets owned by Company or any of its
Subsidiaries consisting of a grocery store under construction, so long as less
than a year has elapsed since the date such construction commenced, and (c) any
fee interest in a grocery store, the construction of which is complete, which
fee interest was not previously a Covered Real Property, so long as not more
than 180 days has elapsed since the date of completion of such construction;
provided that the maximum length of time that a property may be characterized
as an Excluded Site is two years from its Acquisition Date; provided further
that if on any date there are more than five (5) properties that meet the
foregoing definition of "Excluded Site", only the five (5) such properties with
the earliest Acquisition Dates (and on which Agent shall not have been granted
a Lien in accordance with the terms hereof) shall constitute "Excluded Sites".
"EXCLUDED SITE" shall also include any Real Property Asset located outside of
California, so long as Agent has been notified by Company in writing of the
nature and address of such Real Property Asset and of the amount of
expenditures made or to be made to acquire or develop such Real Property Asset
and Agent has not requested a Deed of Trust with respect thereto. There shall
be no limitation on the number of Real Property Assets constituting Excluded
Sites pursuant to the foregoing sentence.

"EXISTING CREDIT AGREEMENT" has the meaning assigned to that
term in the introduction to this Agreement.

"EXISTING LETTERS OF CREDIT" means the Letters of Credit
listed on Schedule 1.1A annexed hereto.

"F4L GM SECURITY AGREEMENT" means the Security Agreement
executed and delivered on the Closing Date by Food 4 Less GM, Inc., a
California corporation, pursuant to which Food 4 Less GM, Inc. grants a
security interest in its general partnership interest in Golden Alliance to
Agent, as such Security Agreement may be amended, supplemented or otherwise
modified from time to time.

"F4L MERCHANDISING" means Food 4 Less Merchandising, Inc., a
California corporation.

"FACILITIES" means any and all real property (including,
without limitation, all buildings, fixtures or other improvements located
thereon) now, hereafter or heretofore owned, leased, operated or used by any of
the Loan Parties or any of their respective predecessors or Affiliates.

"FALLEY'S" means Falley's, Inc., a Kansas corporation.

"FEDERAL FUNDS EFFECTIVE RATE" means, for any period, a
fluctuating interest rate equal for each day during such period to the weighted
average of the rates on overnight Federal funds transactions with members of
the Federal Reserve System arranged by Federal funds brokers, as published for
such day (or, if such day is not a Business Day, for the next preceding
Business Day) by the Federal Reserve Bank of New York, or, if such rate is not
so published for any day which is a Business Day, the average of the quotations
for such day
<PAGE> 26
on such transactions received by Agent from three Federal funds brokers of
recognized standing selected by Agent.

"FISCAL PERIOD" means a fiscal period of Company and its
Subsidiaries, consisting of a four-week period or five-week period, as the case
may be.

"FISCAL QUARTER" means a fiscal quarter of Company and its
Subsidiaries, consisting of, in the case of each of the first three Fiscal
Quarters of each Fiscal Year, a 12-week period and, in the case of the fourth
Fiscal Quarter of each Fiscal Year, a 16 or 17-week period.

"FISCAL YEAR" means the fiscal year of Company and its
Subsidiaries, consisting of a 52- or 53-week period, ending on the date which
is the Sunday closest to January 31 of the following calendar year. For
purposes of this Agreement, any particular Fiscal Year shall be designated by
reference to the calendar year in which such Fiscal Year commences.

"FLOOD HAZARD PROPERTY" means a Real Property Asset subject to
a Deed of Trust located in an area designated by the Federal Emergency
Management Agency as having special flood or mudslide hazards.

"FUNDED DEBT", as applied to any Person, means all
Indebtedness of that Person which by its terms or by the terms of any
instrument or agreement relating thereto matures more than one year from, or is
directly renewable or extendable at the option of the debtor to a date more
than one year from (including an option of the debtor under a revolving credit
or similar agreement obligating the lender or lenders to extend credit over a
period of one year or more from), the date of the creation thereof.

"FUNDING AND PAYMENT OFFICE" means the office of Agent and
Swing Line Lender located at One Bankers Trust Plaza, New York, New York, or
such other office as shall be designated by Agent in a written notice delivered
to the other parties hereto.

"FUNDING DATE" means the date of the funding of a Loan.

"GAAP" means, subject to the limitations on the application
thereof set forth in subsection 1.2, generally accepted accounting principles
set forth in opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment of
the accounting profession, in each case as the same are applicable to the
circumstances as of the date of determination.

"GOLDEN ALLIANCE" means Golden Alliance Distribution, a
California general partnership, the general partners of which are Food 4 Less
GM, Inc. and Grocers General Merchandise Company.

"GOLDEN ALLIANCE AGREEMENT" means that certain Joint Venture
Agreement of Golden Alliance Distribution dated as of April 8, 1992 by and
between Food 4 Less GM,
<PAGE> 27
Inc., a California corporation, and Grocers General Merchandise Company, a
California corporation, as in effect on the Closing Date and as amended from
time to time to the extent permitted pursuant to subsection 7.15B.

"GOVERNMENTAL AUTHORIZATION" means any permit, license,
authorization, plan, directive, consent order or consent decree of or from any
federal, state or local governmental authority, agency or court.

"GUARANTY" means the Guaranty Agreement executed and delivered
by certain Subsidiaries of Company on the Closing Date, and each other Guaranty
Agreement to be executed and delivered by Subsidiaries of Company from time to
time in accordance with subsection 6.10, substantially in the form of Exhibit
IX annexed hereto, as each such Guaranty Agreement may be amended, supplemented
or otherwise modified from time to time.

"HAZARDOUS MATERIALS" means (i) any chemical, material or
substance at any time defined as or included in the definition of "hazardous
substances", "hazardous wastes", "hazardous materials", "extremely hazardous
waste", "restricted hazardous waste", "infectious waste", "toxic substances" or
any other formulations intended to define, list or classify substances by
reason of deleterious properties such as ignitability, corrosivity, reactivity,
carcinogenicity, toxicity, reproductive toxicity, "TCLP toxicity" or "EP
toxicity" or words of similar import under any applicable Environmental Laws or
publications promulgated pursuant thereto; (ii) any oil, petroleum, petroleum
fraction or petroleum derived substance; (iii) any drilling fluids, produced
waters and other wastes associated with the exploration, development or
production of crude oil, natural gas or geothermal resources; (iv) any
flammable substances or explosives; (v) any radioactive materials; (vi)
asbestos in any form; (vii) urea formaldehyde foam insulation; (viii)
electrical equipment which contains any oil or dielectric fluid containing
levels of polychlorinated biphenyls in excess of fifty parts per million; (ix)
pesticides; and (x) any other chemical, material or substance, exposure to
which is prohibited, limited or regulated by any governmental authority or
which may or could pose a hazard to the health and safety of the owners,
occupants or any Persons in the vicinity of the Facilities.

"HOLDINGS" has the meaning assigned to that term in the
preamble to this Agreement.

"HOLDINGS COMMON STOCK" means the Common Stock of Holdings,
par value $0.01 per share, and the Non-Voting Common Stock of Holdings, par
value $0.01 per share.

"HOLDINGS DISCOUNT DEBENTURE INDENTURE" means the indenture
dated as of June 1, 1995 between Holdings and United States Trust Company of
New York pursuant to which the Holdings Discount Debentures were issued, as
such indenture may be amended from time to time to the extent permitted under
subsection 7.15B.

"HOLDINGS DISCOUNT DEBENTURES" means the 13-5/8% Senior
Discount Debentures due 2005 issued by Holdings with an initial accreted value
of not less than $100,000,000 and an aggregate face amount at maturity of
$193,363,570, as such debentures may be amended from time to time to the extent
permitted under subsection 7.15B.
<PAGE> 28
"HOLDINGS GUARANTY" means the Obligations of Holdings set
forth in Section 9 hereof guaranteeing the Obligations of Company under the
Loan Documents and under Interest Rate Agreements relating thereto.

"HOLDINGS PLEDGE AGREEMENT" means the Pledge Agreement
executed and delivered by Holdings on the Closing Date, as such Pledge
Agreement may be amended, supplemented or otherwise modified from time to time.

"HOLDINGS PREFERRED STOCK" means the Series A Preferred Stock
of Holdings, par value $0.01 per share, and the Series B Preferred Stock of
Holdings, par value $0.01 per share.

"HOLDINGS VOTING STOCK" means the Holdings Common Stock, the
Holdings Preferred Stock and any additional class of capital stock of Holdings
entitled (without regard to the occurrence of any contingency) to vote for the
election of members of the Board of Directors of Holdings.

"INDEBTEDNESS", as applied to any Person, means (i) all
indebtedness for borrowed money, (ii) that portion of obligations with respect
to Capital Leases that is properly classified as a liability on a balance sheet
in conformity with GAAP, (iii) notes payable and drafts accepted representing
extensions of credit whether or not representing obligations for borrowed
money, (iv) any obligation owed for all or any part of the deferred purchase
price of property or services (excluding any such obligations incurred under
ERISA), which purchase price is (a) due more than twelve months from the date
of incurrence of the obligation in respect thereof or (b) evidenced by a note
or similar written instrument, and (v) all indebtedness secured by any Lien on
any property or asset owned or held by that Person regardless of whether the
indebtedness secured thereby shall have been assumed by that Person or is
nonrecourse to the credit of that Person. Obligations under Interest Rate
Agreements and Currency Agreements constitute Contingent Obligations and not
Indebtedness.

"INDEMNIFICATION AGREEMENT" means that certain Indemnification
Agreement, effective as of February 3, 1992, by and among Federated Department
Stores, Inc., each of its subsidiaries, Allied Stores Corporation, each of its
subsidiaries, Federated Stores, Inc., each of its holding companies and real
estate subsidiaries, Ralphs Grocery Company and Ralphs Holding Company (now
known as Ralphs Grocery Company), as such Indemnification Agreement may be
amended from time to time after the Closing Date to the extent permitted under
subsection 7.15A.

"INDEMNITEE" has the meaning assigned to that term in
subsection 11.3.

"INTELLECTUAL PROPERTY" means all patents, trademarks,
tradenames, copyrights, technology, know-how and processes used in or necessary
for the conduct of the business of the Loan Parties as currently conducted that
are material to the condition (financial or otherwise), business or operations
of Company or any of its Subsidiaries.

"INTEREST PAYMENT DATE" means (i) with respect to any Base
Rate Loan, each March 15, June 15, September 15 and December 15 of each year,
commencing on June 15,
<PAGE> 29
1997, and (ii) with respect to any Eurodollar Rate Loan, the last day of each
Interest Period applicable to such Loan; provided that in the case of each
Interest Period of longer than three months "Interest Payment Date" shall also
include the date that is three months after the commencement of such Interest
Period.

"INTEREST PERIOD" has the meaning assigned to that term in
subsection 2.2B.

"INTEREST RATE AGREEMENT" means any interest rate swap
agreement, interest rate cap agreement, interest rate collar agreement or other
similar agreement or arrangement designed to protect Company or any of its
Subsidiaries against fluctuations in interest rates.

"INTEREST RATE DETERMINATION DATE" means, with respect to any
Interest Period, the second Business Day prior to the first day of such
Interest Period.

"INTEREST RATE EXCHANGERS" has the meaning assigned to that
term in Section 9.

"INTERNAL REVENUE CODE" means the Internal Revenue Code of
1986, as amended to the date hereof and from time to time hereafter.

"INVESTMENT" means (i) any direct or indirect purchase or
other acquisition by the Loan Parties of, or of a beneficial interest in, any
Securities of any other Person (other than a Person that, prior to such
purchase or acquisition, was a Subsidiary of Holdings) or (ii) any direct or
indirect loan, advance (other than advances to employees for moving,
entertainment and travel expenses, drawing accounts and similar expenditures in
the ordinary course of business) or capital contribution by any of the Loan
Parties to any other Person (other than Company and any wholly-owned Subsidiary
of Company that has executed and delivered a counterpart of the Guaranty),
including all indebtedness and accounts receivable from that other Person that
are not current assets or did not arise from sales to that other Person in the
ordinary course of business. The amount of any Investment shall be the
original cost of such Investment plus the cost of all additions thereto,
without any adjustments for increases or decreases in value, or write-ups,
write-downs or write-offs with respect to such Investment.

"ISSUING LENDER" means, with respect to any Letter of Credit,
the Lender which agrees or is otherwise obligated to issue such Letter of
Credit, determined as provided in subsection 3.1B(ii).

"JOINT VENTURE" means a joint venture, partnership or other
similar arrangement, whether in corporate, partnership or other legal form;
provided that in no event shall any corporate Subsidiary of any Person be
considered to be a Joint Venture to which such Person is a party.

"LENDER" and "LENDERS" means the persons identified as
"Lenders" and listed on the signature pages of this Agreement, together with
their successors and permitted assigns pursuant to subsection 11.1, and the
term "Lenders" shall include Swing Line Lender unless the context otherwise
requires; provided that the term "Lenders", when used in the
<PAGE> 30
context of a particular Commitment or a particular Type of Loans, shall mean
Lenders having that Commitment or that Type of Loans.

"LETTER OF CREDIT" or "LETTERS OF CREDIT" means Commercial
Letters of Credit and Standby Letters of Credit issued or to be issued by
Issuing Lenders for the account of Company or any wholly-owned Subsidiary of
Company pursuant to subsection 3.1 and the Existing Letters of Credit.

"LETTER OF CREDIT USAGE" means, as at any date of
determination, the sum of (i) the maximum aggregate amount which is or at any
time thereafter may become available for drawing under all Letters of Credit
then outstanding plus (ii) the aggregate amount of all drawings under Letters
of Credit honored by Issuing Lenders and not theretofore reimbursed by Company
(including any such reimbursement out of the proceeds of Revolving Loans
pursuant to subsection 3.3B).

"LEVERAGE RATIO" means, as at any date of determination, the
ratio of Consolidated Total Debt as of the last day of the Fiscal Quarter
immediately preceding the Fiscal Quarter in which such date of determination
occurs to Consolidated Adjusted EBITDA for the four Fiscal Quarters ending as
of such last day of such immediately preceding Fiscal Quarter.

"LIEN" means any lien, mortgage, pledge, assignment, security
interest, charge or encumbrance of any kind (including any conditional sale or
other title retention agreement, any lease in the nature thereof, and any
agreement to give any security interest) and any option, trust or other
preferential arrangement having the practical effect of any of the foregoing.

"LOAN" or "LOANS" means one or more of the Term Loans,
Revolving Loans or Swing Line Loans or any combination thereof.

"LOAN DOCUMENTS" means this Agreement, the Notes, the
Guaranty, the Environmental Indemnity, the Collateral Documents and the Letters
of Credit (and any applications for, or other documents or certificates
executed by any Loan Party in favor of an Issuing Lender relating to, the
Letters of Credit).

"LOAN PARTY" means each of Holdings, Company and any of
Company's Subsidiaries from time to time executing a Loan Document, and "LOAN
PARTIES" means all such Persons, collectively.

"MARGIN DETERMINATION CERTIFICATE" means an Officers'
Certificate of Company delivered with the financial statements required
pursuant to subsections 6.1(ii) or 6.1(iii) setting forth in reasonable detail
the Leverage Ratio which is applicable as of the last day of the fiscal period
for which such financial statements and Officers' Certificate are being
delivered.

"MARGIN STOCK" has the meaning assigned to that term in
Regulation U of the Board of Governors of the Federal Reserve System as in
effect from time to time.
<PAGE> 31
"MASTER ASSIGNMENT AGREEMENT" means that certain Master
Assignment Agreement substantially in the form of Exhibit XX annexed hereto,
among Company, the lenders under the Existing Credit Agreement, the lenders
under this Agreement and the Agent pursuant to which all lenders under the
Existing Credit Agreement assign their loans and/or revolving loan commitments
to the Agent, and Agent assigns to each Lender under this Agreement, and each
such lender purchases from Agent, the Loans and/or Revolving Loan Commitments
as set forth on Schedule 2.1 attached to this Agreement.

"MATERIAL ADVERSE EFFECT" means (i) a material adverse effect
upon the business, operations, properties, assets, condition (financial or
otherwise) or prospects of the Loan Parties, taken as a whole, or (ii) the
material impairment of the ability of any Loan Party to perform, or the
impairment of the ability of Agent or Lenders to enforce, the Obligations or
any of the Loan Documents.

"MULTIEMPLOYER PLAN" means a "multiemployer plan", as defined
in Section 3(37) of ERISA, (i) to which any of the Loan Parties or any of their
respective ERISA Affiliates is contributing, or, at any time within the five
calendar years immediately preceding the date hereof, has contributed, (ii) to
which any of the Loan Parties or any of their respective ERISA Affiliates has,
or, at any time within the five calendar years immediately preceding the date
hereof, has had, an obligation to contribute or (iii) with respect to which any
of the Loan Parties retains any liability, including any potential joint and
several liability as a result of an affiliation with an ERISA Affiliate or a
party that would be an ERISA Affiliate except for the fact the affiliation
ceased more than five calendar years prior to the date hereof.

"NET CASH PROCEEDS" means, with respect to any Asset Sale,
Cash Proceeds of such Asset Sale net of bona fide direct costs of sale
including (i) income taxes reasonably estimated to be actually payable as a
result of such Asset Sale within two years of the date of such Asset Sale and
(ii) payment of the outstanding principal amount of, premium or penalty, if
any, and interest on, any Indebtedness (other than the Loans) that is secured
by a Lien on the stock or assets in question and that is required to be repaid
under the terms thereof as a result of such Asset Sale.

"1992 10-1/4% SENIOR SUBORDINATED NOTE INDENTURE" means the
indenture dated as of July 29, 1992 between Company (as the successor to Ralphs
Grocery Company) and United States Trust Company of New York pursuant to which
the 1992 10-1/4% Senior Subordinated Notes were issued, as amended by the First
Supplemental Indenture dated as of May 30, 1995 and the Second Supplemental
Indenture dated as of June 14, 1995, and as such indenture may be further
amended from time to time to the extent permitted under subsection 7.15B.

"1992 10-1/4% SENIOR SUBORDINATED NOTES" means Company's
$300,000,000 in initial aggregate principal amount of 10-1/4% Senior
Subordinated Notes due July 15, 2002, as such notes may be amended from time to
time to the extent permitted under subsection 7.15B.

"1992 13.75% SENIOR SUBORDINATED NOTE INDENTURE" means the
indenture dated as of June 15, 1991 among Company (as the successor to Food 4
Less Supermarkets,
<PAGE> 32
Inc.), the subsidiary guarantors named therein and United States Trust Company
of New York pursuant to which the 1992 13.75% Senior Subordinated Notes were
issued, as amended by the First Supplemental Indenture dated as of April 18,
1992, the Second Supplemental Indenture dated as of May 18, 1992, the Third
Supplemental Indenture dated as of July 24, 1992, the Fourth Supplemental
Indenture dated as of May 30, 1995 and the Fifth Supplemental Indenture dated
as of June 14, 1995, and as such indenture may be further amended from time to
time to the extent permitted under subsection 7.15B.

"1992 13.75% SENIOR SUBORDINATED NOTES" means Company's
$145,000,000 in initial aggregate principal amount of 13.75% Senior
Subordinated Notes due April 15, 2001, as such notes may be amended from time
to time to the extent permitted under subsection 7.15B.

"1992 10.45% SENIOR NOTE INDENTURE" means the indenture dated
as of April 15, 1992 among Company (as the successor to Food 4 Less
Supermarkets, Inc.), the subsidiary guarantors named therein and Norwest Bank
Minnesota, National Association, pursuant to which the 1992 10.45% Senior Notes
were issued, as amended by the First Supplemental Indenture dated July 24,
1992, the Second Supplemental Indenture dated as of May 30, 1995 and the Third
Supplemental Indenture dated as of June 14, 1995, and as such indenture may be
further amended from time to time to the extent permitted under subsection
7.15B.

"1992 10.45% SENIOR NOTES" means Company's $175,000,000 in
initial aggregate principal amount of 10.45% Senior Notes due June 15, 2000, as
such notes may be amended from time to time to the extent permitted under
subsection 7.15B.

"1993 9% SENIOR SUBORDINATED NOTE INDENTURE" means the
indenture dated as of March 30, 1993 between Company (as the successor to
Ralphs Grocery Company) and United States Trust Company of New York pursuant to
which the 1993 9% Senior Subordinated Notes were issued, as amended by the
First Supplemental Indenture dated as of June 23, 1993, the Second Supplemental
Indenture dated as of May 30, 1995 and the Third Supplemental Indenture dated
as of June 14, 1995, and as such indenture may be further amended from time to
time to the extent permitted under subsection 7.15B.

"1993 9% SENIOR SUBORDINATED NOTES" means Company's
$150,000,000 in initial aggregate principal amount of 9% Senior Subordinated
Notes due April 1, 2003, as such notes may be amended from time to time to the
extent permitted under subsection 7.15B.

"1995 11% SENIOR SUBORDINATED NOTE INDENTURE" means the
indenture dated as of June 1, 1995 among Company (as the successor to Food 4
Less Supermarkets, Inc.), the subsidiary guarantors named therein and United
States Trust Company of New York pursuant to which the 1995 11% Senior
Subordinated Notes were issued, as amended by a First Supplemental Indenture
dated as of June 14, 1995, and as it may be further amended from time to time
to the extent permitted under subsection 7.15B.

"1995 11% SENIOR SUBORDINATED NOTES" means the $524,055,000 in
initial aggregate principal amount of 11% Senior Subordinated Notes due 2005 of
the Company, as
<PAGE> 33
such notes may be amended from time to time to the extent permitted under
subsection 7.15B.

"1995 13.75% SENIOR SUBORDINATED NOTE INDENTURE" means the
indenture dated as of June 1, 1995 among Company (as the successor to Food 4
Less Supermarkets, Inc.), the subsidiary guarantors named therein and United
States Trust Company of New York pursuant to which the 1995 13.75% Senior
Subordinated Notes were issued, as amended by a First Supplemental Indenture
dated as of June 14, 1995, and as it may be further amended from time to time
to the extent permitted under subsection 7.15B.

"1995 13.75% SENIOR SUBORDINATED NOTES" means Company's
$140,184,000 in initial aggregate principal amount of Senior Subordinated Notes
due 2005, as such notes may be amended from time to time to the extent
permitted under subsection 7.15B.

"1995 10.45% SENIOR NOTE INDENTURE" means the indenture dated
as of June 1, 1995 among Company (as the successor to Food 4 Less Supermarkets,
Inc.), the subsidiary guarantors named therein and Norwest Bank Minnesota,
National Association pursuant to which the 1995 10.45% Senior Notes were
issued, as amended by a First Supplemental Indenture dated as of June 14, 1995,
and as it may be further amended from time to time to the extent permitted
under subsection 7.15B.

"1995 10.45% SENIOR NOTES" means Company's $520,326,000 in
initial aggregate principal amount of 10.45% Senior Notes due 2004, as such
notes may be amended from time to time to the extent permitted under subsection
7.15B.

"1996 10.45% SENIOR NOTE INDENTURE" means the indenture dated
as of June 6, 1996 among Company, the subsidiary guarantors named therein and
Norwest Bank Minnesota, National Association, pursuant to which the 1996 10.45%
Senior Notes were issued, as such indenture may be further amended from time to
time to the extent permitted under subsection 7.15B.

"1996 10.45% SENIOR NOTES" means Company's $100,000,000 in
initial aggregate principal amount of 10.45% Senior Notes due 2004, as such
notes may be amended from time to time to the extent permitted under subsection
7.15B.

"1997 11% SENIOR SUBORDINATED NOTE INDENTURE" means the
indenture dated as of March 26, 1997 among Company, the subsidiary guarantors
named therein and United States Trust Company of New York pursuant to which the
1997 11% Senior Subordinated Notes were issued, as amended from time to time to
the extent permitted under subsection 7.15B.

"1997 11% SENIOR SUBORDINATED NOTES" means Company's
$155,000,000 in initial aggregate principal amount of 11% Senior Subordinated
Notes due 2005, as such notes may be amended from time to time to the extent
permitted under subsection 7.15B.

"NON-RECOURSE INDEBTEDNESS" means, as applied to any Person,
all Indebtedness of that Person secured by Liens on specified assets of that
Person under the terms of which (i) no recourse may be had against that or any
other Person for the payment
<PAGE> 34
of the principal of or interest or premium on such Indebtedness or for any
claim based thereon and (ii) the enforcement of all obligations relating to
such Indebtedness is limited to foreclosure or other actions with respect to
such specified assets, in each case other than customary exceptions for fraud,
waste or environmental indemnification.

"NOTES" means one or more of the Term Notes, Revolving Notes
or Swing Line Note or any combination thereof.

"NOTICE OF BORROWING" means a notice substantially in the form
of Exhibit I annexed hereto delivered by Company to Agent pursuant to
subsection 2.1B with respect to a proposed borrowing.

"NOTICE OF CONVERSION/CONTINUATION" means a notice
substantially in the form of Exhibit II annexed hereto delivered by Company to
Agent pursuant to subsection 2.2D with respect to a proposed conversion or
continuation of the applicable basis for determining the interest rate with
respect to the Loans specified therein.

"REQUEST FOR LETTER OF CREDIT" means a notice substantially in
the form of Exhibit III annexed hereto delivered by Company to Agent pursuant
to subsection 3.1B(i) with respect to the proposed issuance of a Letter of
Credit.

"OBLIGATIONS" means all obligations of every nature of each
Loan Party from time to time owed to Agent, Lenders or any of them under the
Loan Documents, whether for principal, interest, reimbursement of amounts drawn
under Letters of Credit, fees, expenses, indemnification or otherwise.

"OFFICERS' CERTIFICATE" means, as applied to any corporation,
a certificate executed on behalf of such corporation by its chairman or vice
chairman of the board (if an officer) or its president or one of its executive
or senior vice presidents and by its chief financial officer or its treasurer;
provided that every Officers' Certificate with respect to the compliance with a
condition precedent to the making of any Loans hereunder shall include (i) a
statement that the officer or officers making or giving such Officers'
Certificate have read such condition and any definitions or other provisions
contained in this Agreement relating thereto, (ii) a statement that, in the
opinion of the signers, they have made or have caused to be made such
examination or investigation as is necessary to enable them to express an
informed opinion as to whether or not such condition has been complied with,
and (iii) a statement as to whether, in the opinion of the signers, such
condition has been complied with; and provided further that any Officers'
Certificate required pursuant to subsection 2.4B(iii) may be executed by any
one of the officers referred to in this definition.

"OPERATING LEASE" means, as applied to any Person, any lease
(including, without limitation, leases that may be terminated by the lessee at
any time) of any property (whether real, personal or mixed) that is not a
Capital Lease other than any such lease under which that Person is the lessor.

"PBGC" means the Pension Benefit Guaranty Corporation (or any
successor thereto).
<PAGE> 35
"PENSION PLAN" means any Employee Benefit Plan, other than a
Multiemployer Plan, which is subject to Section 412 of the Internal Revenue
Code or Section 302 of ERISA.

"PERMITTED ENCUMBRANCES" means the following types of Liens
(other than any such Lien imposed pursuant to Section 401(a)(29) or 412(n) of
the Internal Revenue Code or by ERISA):

a. Liens for taxes, assessments or governmental charges
or claims the payment of which is not, at the time, required by
subsection 6.3;

b. statutory Liens of landlords and banks and rights of
offset, and Liens of carriers, warehousemen, workmen, repairmen,
mechanics and materialmen and of growers on inventory consisting of
agricultural products and other Liens imposed by law incurred in the
ordinary course of business for sums not yet delinquent or being
contested in good faith, if such reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made
therefor;

c. Liens incurred or deposits made in the ordinary
course of business in connection with workers' compensation,
unemployment insurance and other types of social security, or to
secure the performance of tenders, statutory obligations, surety and
appeal bonds, bids, leases, government contracts, trade contracts,
utility payments, performance and return-of-money bonds and other
similar obligations (exclusive of obligations for the payment of
borrowed money);

d. any attachment or judgment Lien not constituting an
Event of Default under subsection 8.8;

e. leases or subleases granted to others not interfering
in any material respect with the ordinary conduct of the business of
Company or any of its Subsidiaries;

f. easements, rights-of-way, restrictions, minor
defects, encroachments or irregularities in title and other similar
charges or encumbrances not interfering in any material respect with
the ordinary conduct of the business of Company or any of its
Subsidiaries;

g. any (a) interest or title of a lessor or sublessor
(other than any Loan Party) under any lease permitted by subsection
7.9, (b) restriction or encumbrance that the interest or title of such
lessor or sublessor may be subject to (including without limitation
ground leases or other prior leases of the demised premises,
mortgages, mechanics liens, tax liens and easements), or (c)
subordination of the interest of the lessee or sublessee under such
lease to any restriction or encumbrance referred to in the preceding
clause (b);

h. Liens arising from filing UCC financing statements
for precautionary purposes relating solely to true leases of personal
property permitted by this Agreement under which Company or any of its
Subsidiaries is a lessee;
<PAGE> 36
i. Liens in favor of customs and revenue authorities
arising as a matter of law to secure payment of customs duties in
connection with the importation of goods;

j. any zoning or similar law or right reserved to or
vested in any governmental office or agency to control or regulate the
use of any real property;

k. Liens securing obligations (other than obligations
representing Indebtedness for borrowed money) under operating,
reciprocal easement or similar agreements entered into in the ordinary
course of business of Company and its Subsidiaries; and

l. any other title exception with respect to Real
Property Assets disclosed by the preliminary title report, title
commitment report or other search of title provided to Agent unless
disapproved by Agent prior to the Closing Date.

"PERSON" means and includes natural persons, corporations,
limited partnerships, general partnerships, joint stock companies, Joint
Ventures, associations, companies, trusts, banks, trust companies, land trusts,
business trusts or other organizations, whether or not legal entities, and
governments and agencies and political subdivisions thereof.

"PLANNED DISPOSITION" means the sale of any store identified
in Schedule 1.1B annexed hereto or of all or any portion of the real property
or personal property related to any such store.

"PLANNED IMPROVEMENT FINANCED AMOUNT" means with respect to
any NonRecourse Indebtedness incurred by Company or any of its Subsidiaries
with respect to any Planned Improvement Property pursuant to subsection
7.1(xiv), the initial principal amount of such Non-Recourse Indebtedness, and
with respect to any sale and concurrent lease-back by Company or any of its
Subsidiaries of any Planned Improvement Property pursuant to clause (b) of
subsection 7.10, the amount of the sales price for such Planned Improvement
Property.

"PLANNED IMPROVEMENT PROPERTIES" means the Real Property
Assets set forth on Schedule 1.1D annexed hereto.

"PLEDGE AGREEMENT" means each Pledge Agreement executed and
delivered by Company and certain Subsidiaries of Company on the Closing Date
and each other Pledge Agreement to be executed and delivered by Subsidiaries of
Company from time to time in accordance with subsection 6.10, substantially in
the form of Exhibit X annexed hereto, as each such Pledge Agreement may
hereafter be amended, supplemented or otherwise modified from time to time, and
"PLEDGE AGREEMENTS" means all such Pledge Agreements, collectively.

"POTENTIAL EVENT OF DEFAULT" means a condition or event that,
after notice or lapse of time or both, would constitute an Event of Default.
<PAGE> 37
"PRIME RATE" means the rate that Bankers announces from time
to time as its prime lending rate, as in effect from time to time. The Prime
Rate is a reference rate and does not necessarily represent the lowest or best
rate actually charged to any customer. Bankers or any other Lender may make
commercial loans or other loans at rates of interest at, above or below the
Prime Rate.

"PRO RATA SHARE" means, on any date of determination, (i) with
respect to all payments, computations and other matters relating to a Type of
Term Loan of any Lender, the percentage obtained by dividing (x) the Term Loan
Exposure of such Type of that Lender on such date by (y) the aggregate Term
Loan Exposure of such Type of all Lenders on such date, (ii) with respect to
all payments, computations and other matters relating to the Revolving Loan
Commitment or the Revolving Loans of any Lender or any Letters of Credit issued
or participations therein purchased by any Lender or any participations in any
Swing Line Loans purchased by any Lender, the percentage obtained by dividing
(x) the Revolving Loan Exposure of that Lender on such date by (y) the
aggregate Revolving Loan Exposure of all Lenders on such date, and (iii) for
all other purposes with respect to each Lender, the percentage obtained by
dividing (x) the sum of the Term Loan Exposure of all Types of that Lender on
such date plus the Revolving Loan Exposure of that Lender on such date by (y)
the sum of the aggregate Term Loan Exposure of all Types of all Lenders on such
date plus the aggregate Revolving Loan Exposure of all Lenders on such date, in
any such case as the applicable percentage may be adjusted by assignments
permitted pursuant to subsection 11.1. The initial Pro Rata Share of each
Lender for purposes of the preceding sentence is set forth opposite the name of
that Lender in Schedule 2.1 annexed hereto.

"REAL PROPERTY ASSETS" means interests in land, buildings,
improvements and fixtures attached thereto or used in the operation thereof, in
each case owned or leased (as lessee) by any Loan Party.

"REDEMPTION AMOUNT" means, at any time, $25,000,000; provided
that (i) if the Leverage Ratio (calculated on a pro forma basis giving effect
to any redemption or repurchase of Subordinated Indebtedness and/or Senior
Indebtedness of Holdings or Company and/or repurchase of capital stock of
Holdings and all Indebtedness incurred in connection therewith) (the "ADJUSTED
LEVERAGE RATIO") at such time is less than 4.00:1.00, the Redemption Amount
shall be increased to $50,000,000; and (ii) if the Adjusted Leverage Ratio at
such time is less than 3.50:1.00, the Redemption Amount shall be increased to
$75,000,000; provided, further, that the Redemption Amount shall be reduced by
the aggregate amount of all prior repurchases and/or redemptions made pursuant
to subsection 7.5A(x) and 7.5B(iv).

"REFERENCE LENDERS" means Bankers, The Chase Manhattan Bank
and Bank of America, N.T. & S.A.

"REFUNDED SWING LINE LOANS" has the meaning assigned to that
term in subsection 2.1A(iv).

"REGISTER" has the meaning assigned to that term in subsection
2.1D(i).
<PAGE> 38
"REGULATION D" means Regulation D of the Board of Governors of
the Federal Reserve System, as in effect from time to time.

"REIMBURSEMENT AGREEMENT" means that certain Reimbursement
Agreement, dated as of January 31, 1992, between Ralphs Grocery Company and The
Edward J. DeBartolo Corporation, as such Reimbursement Agreement may be amended
from time to time after the Closing Date to the extent permitted under
subsection 7.15A.

"REIMBURSEMENT DATE" has the meaning assigned to that term in
subsection 3.3B.

"RELATED FINANCING DOCUMENTS" means, collectively, the
Subordinated Debt Indentures, the Subordinated Indebtedness, the Senior Debt
Indentures, the Senior Indebtedness and all other agreements or instruments
delivered pursuant to or in connection with any of the foregoing including any
purchase agreement or registration rights agreement.

"RELEASE" means any release, spill, emission, leaking,
pumping, pouring, injection, escaping, deposit, disposal, discharge, dispersal,
dumping, leaching or migration of Hazardous Materials into the indoor or
outdoor environment (including, without limitation, the abandonment or disposal
of any barrels, containers or other closed receptacles containing any Hazardous
Materials), or into or out of any Facility, including the movement of any
Hazardous Material through the air, soil, surface water, groundwater or
property.

"REPLACED LENDER" has the meaning assigned to such term in
subsection 2.8.

"REPLACEMENT LENDER" has the meaning assigned to such term in
subsection 2.8.

"REPORTING DIVISION" means each of (a) Company and its
Subsidiaries on a consolidated basis, (b) until any Asset Sale of Cala, Cala
and its Subsidiaries on a consolidated basis, (c) until any Asset Sale of
Falley's, Falley's and its Subsidiaries on a consolidated basis and (d) Company
and its Subsidiaries (other than the Subsidiaries included in the foregoing
clauses (b) and (c)) on a consolidated basis.

"REQUISITE CLASS LENDERS" means, at any time, (i) for the
Class Lenders having Term Loan Exposure with respect to Tranche A Term Loans
and/or Revolving Loan Exposure, Lenders having or holding 66 and 2/3% of the
sum of the aggregate Term Loan Exposure with respect to Tranche A Term Loans of
all Lenders plus the aggregate Revolving Loan Exposure of all Lenders, and,
(ii) for the Class Lenders having Term Loan Exposure with respect to Tranche B
Term Loans, Lenders having or holding 66 and 2/3% of the sum of the aggregate
Term Loan Exposure with respect to Tranche B Term Loans of all Lenders.

"REQUISITE LENDERS" means Lenders having or holding a majority
of the sum of the aggregate Term Loan Exposure of all Term Lenders plus the
aggregate Revolving Loan Exposure of all Revolving Lenders.

"RESTRICTED JUNIOR PAYMENT" means (i) any dividend or other
distribution, direct or indirect, on account of any shares of any class of
stock of Holdings or Company
<PAGE> 39
now or hereafter outstanding, except a dividend payable solely in shares of
that class of stock to the holders of that class, (ii) any redemption,
retirement, sinking fund or similar payment, purchase or other acquisition for
value, direct or indirect, of any shares of any class of stock of Holdings or
Company now or hereafter outstanding, (iii) any payment made to retire, or to
obtain the surrender of, any outstanding warrants, options or other rights to
acquire shares of any class of stock of Holdings or Company now or hereafter
outstanding, and (iv) any payment or prepayment of principal of, premium, if
any, or interest on, or redemption, purchase, retirement, defeasance (including
in-substance or legal defeasance), sinking fund or similar payment with respect
to, any Subordinated Indebtedness.

"RESTRUCTURING CHARGES" means, for any period subsequent to
the Closing Date, (i) the amount of cash restructuring charges and integration
costs incurred by Company and its Subsidiaries in connection with the
restructuring and integration of Company's and its Subsidiaries' operations as
a result of the acquisition of Company and related transactions on the Closing
Date, the divestitures of stores by and the consolidation of facilities of
Company and its Subsidiaries and other similar restructurings or integrations;
provided that the aggregate amount of such cash charges and costs included in
Consolidated Adjusted EBITDA and Consolidated Net Worth for all periods shall
not exceed $45,000,000, and (ii) the amount of non-cash restructuring charges
and integration costs reflected on the consolidated financial statements of
Company and its Subsidiaries; provided that the aggregate amount of such
non-cash charges and costs included in Consolidated Adjusted EBITDA and
Consolidated Net Worth for all periods shall not exceed $55,000,000, in each
case to the extent such restructuring charges and integration costs reduce the
net income of Company and its Subsidiaries.

"REVOLVING LENDER" or "REVOLVING LENDERS" means the Lender or
Lenders having a Revolving Loan Commitment or having Revolving Loans
outstanding.

"REVOLVING LOAN COMMITMENT" means the commitment of a Lender
to make Revolving Loans to Company pursuant to subsection 2.1A(iii), to issue
and/or purchase participations in Letters of Credit pursuant to Section 3 and,
except for Swing Line Lender, to purchase participations in Swing Line Loans
pursuant to subsection 2.1A(iv), and "REVOLVING LOAN COMMITMENTS" means such
commitments of all Lenders in the aggregate.

"REVOLVING LOAN COMMITMENT TERMINATION DATE" means February
15, 2003.

"REVOLVING LOAN EXPOSURE" means, with respect to any Lender as
of any date of determination, (i) prior to the termination of the Revolving
Loan Commitments, that Lender's Revolving Loan Commitment, and (ii) after the
termination of the Revolving Loan Commitments, the sum of (a) the aggregate
outstanding principal amount of the Revolving Loans of that Lender plus (b) in
the event that Lender is an Issuing Lender, the aggregate Letter of Credit
Usage in respect of all Letters of Credit issued by that Lender (in each case
net of any participations purchased by other Lenders in such Letters of Credit
or any unreimbursed drawings thereunder) plus (c) the aggregate amount of all
participations purchased by that Lender in any outstanding Letters of Credit or
any unreimbursed drawings under any Letters of Credit plus (d) in the case of
Swing Line Lender, the aggregate outstanding principal amount of all Swing Line
Loans (net of any participations therein
<PAGE> 40
purchased by other Lenders) plus (e) the aggregate amount of all participations
purchased by that Lender in any outstanding Swing Line Loans.

"REVOLVING LOANS" means the Loans made by Lenders to Company
pursuant to subsection 2.1A(iii).

"REVOLVING NOTES" means (i) the promissory notes of Company
issued pursuant to subsection 2.1E on the Effective Date to evidence the
Revolving Loans of any Lender and (ii) any promissory notes issued by Company
pursuant to the last sentence of subsection 11.1B(i) in connection with
assignments of the Revolving Loan Commitments and Revolving Loans of any
Lenders, in each case substantially in the form of Exhibit VI annexed hereto,
as they may be amended, supplemented or otherwise modified from time to time.

"SECURITIES" means any stock, shares, partnership interests,
voting trust certificates, certificates of interest or participation in any
profit-sharing agreement or arrangement, options, warrants, bonds, debentures,
notes, or other evidences of indebtedness, secured or unsecured, convertible,
subordinated or otherwise, or in general any instruments commonly known as
"securities" or any certificates of interest, shares or participations in
temporary or interim certificates for the purchase or acquisition of, or any
right to subscribe to, purchase or acquire, any of the foregoing.

"SECURITIES ACT" means the Securities Act of 1933, as amended
from time to time, and any successor statute.

"SECURITY AGREEMENT" means each Security Agreement executed
and delivered by Holdings, Company and certain Subsidiaries of Company on the
Closing Date and each other Security Agreement to be executed and delivered by
Subsidiaries of Company from time to time in accordance with subsection 6.10,
substantially in the form of Exhibit XI annexed hereto, as each such Security
Agreement may be amended, supplemented or otherwise modified from time to time,
and "SECURITY AGREEMENTS" means all such Security Agreements, collectively.

"SELECTED ASSETS" means all or the majority of the Company's
existing Northern California operations, all or the majority of its existing
Midwestern operations, the shares of Associated Wholesalers, Inc. owned by
Falley's, and any or all of its owned warehouse facilities, in each case as set
forth in Schedule 1.1C annexed hereto.

"SELLER DEBENTURE INDENTURE" means the indenture dated as of
June 1, 1995 between Holdings and Norwest Bank Minnesota, National Association
pursuant to which the Seller Debentures were issued, as such Seller Debenture
Indenture may be amended from time to time to the extent permitted under
subsection 7.15B.

"SELLER DEBENTURES" means the $131,500,000 principal amount of
13-5/8% Senior Subordinated Pay-In-Kind Debentures due 2007 of Holdings issued
on the Closing Date pursuant to the Seller Debenture Indenture, together with
such 13-5/8% Senior Subordinated Pay-In-Kind Debentures due 2007 issued by
Holdings subsequent to the Closing Date as payment in-kind interest payments in
accordance with the Seller Debenture
<PAGE> 41
Indenture, as such debentures may be amended from time to time to the extent
permitted under subsection 7.15B.

"SENIOR DEBT INDENTURES" means any or all of the 1992 10.45%
Senior Note Indenture, the 1995 10.45% Senior Note Indenture, the 1996 10.45%
Senior Note Indenture, the Holdings Discount Debenture Indenture, and any
indenture pursuant to which any senior Indebtedness permitted under subsection
7.1(xiii) is issued.

"SENIOR INDEBTEDNESS" means any or all of the 1992 10.45%
Senior Notes, the 1995 10.45% Senior Notes, the 1996 10.45% Senior Notes, the
Holdings Discount Debentures, and any senior Indebtedness permitted under
subsection 7.1(xiii).

"SHAREHOLDERS AGREEMENT" means that certain Stockholders
Agreement of Holdings dated as of June 14, 1995 by and among each of the
purchasers and investors listed therein, Yucaipa, certain Affiliates of
Yucaipa, Holdings and Company, as such Stockholders Agreement may be amended
from time to time after the Closing Date to the extent permitted under
subsection 7.15A.

"SMITH'S-RELATED RESTRUCTURING CHARGES" means the amount of
non-cash and cash restructuring charges and integration costs incurred by
Company and its Subsidiaries in connection with the discontinuance of certain
of Company's warehousing, manufacturing and distribution operations at its
facility in La Habra, California, and the related transfer of such warehousing,
manufacturing and distribution operations to the facility subleased by Company
from Smith's Food & Drug Centers, Inc. ("SMITH'S") in Riverside, California
(the "WAREHOUSE RESTRUCTURING"), and the disposition of up to 9 grocery stores
operated by Company in southern California in connection with Company's
acquisition of up to 9 grocery stores from Smith's in southern California (the
"STORE RESTRUCTURING"), including in each case transition and transaction costs
related thereto; provided that (x) the aggregate amount of all such cash and
non-cash charges and costs and the aggregate amount of all such cash charges
and costs included in Consolidated Adjusted EBITDA and Consolidated Net Worth
as "Smith's-Related Restructuring Charges" for all periods with respect to the
Warehouse Restructuring shall not exceed $43,600,000 and $33,200,000,
respectively, and (y) the aggregate amount of all such cash and non-cash
charges and costs and the aggregate amount of all such cash charges and costs
included in Consolidated Adjusted EBITDA and Consolidated Net Worth as
"Smith's-Related Restructuring Charges" for all periods with respect to the
Store Restructuring shall not exceed $22,500,000 and $12,800,000, respectively,
in each case to the extent that such restructuring charges and integration
costs reduce the net income of Company and its Subsidiaries.

"SOLVENT" means, with respect to any Person, that as of the
date of determination both (A) (i) the then fair saleable value of the property
of such Person is (y) greater than the total amount of liabilities (including
contingent liabilities) of such Person and (z) not less than the amount that
will be required to pay the probable liabilities on such Person's then existing
debts as they become absolute and matured considering all financing
alternatives and potential asset sales reasonably available to such Person;
(ii) such Person's capital is not unreasonably small in relation to its
business or any contemplated or undertaken transaction; and (iii) such Person
does not intend to incur, or believe (nor should it reasonably believe) that it
will incur, debts beyond its ability to pay such debts as they
<PAGE> 42
become due; and (B) such Person is "solvent" within the meaning given that term
and similar terms under applicable laws relating to fraudulent transfers and
conveyances. For purposes of this definition, the amount of any contingent
liability at any time shall be computed as the amount that, in light of all of
the facts and circumstances existing at such time, represents the amount that
can reasonably be expected to become an actual or matured liability.

"SPECIFIED OFFICERS" means, with respect to any Loan Party,
such Loan Party's chairman of the board, vice chairman of the board, chief
executive officer, president, executive vice presidents, senior vice presidents
and, to the extent not included in any of the foregoing, all officers whose
functional areas include finance, real estate, law, employee benefits or human
resources (including without limitation the general counsel, chief financial
officer, treasurer and controller), and all other officers of such Loan Party
who have functions or duties that are equivalent or similar to those of any of
the foregoing.

"STANDBY LETTER OF CREDIT" means any standby letter of credit
issued for the purpose of supporting (i) Indebtedness of Company or any of its
Subsidiaries in respect of industrial revenue or development bonds or
financings, (ii) workers' compensation liabilities of Company or any of its
Subsidiaries, (iii) the obligations of third party insurers of Company or any
of its Subsidiaries arising by virtue of the laws of any jurisdiction requiring
third party insurers, (iv) obligations with respect to Capital Leases or
Operating Leases of Company or any of its Subsidiaries, and (v) performance,
payment, deposit or surety obligations of Company or any of its Subsidiaries,
in any case if required by law or governmental rule or regulation or in
accordance with custom and practice in the industry; provided that Standby
Letters of Credit may not be issued for the purpose of supporting trade
payables or any Indebtedness constituting "antecedent debt" (as that term is
used in Section 547 of the Bankruptcy Code).

"SUBORDINATED DEBT INDENTURES" means, collectively, the 1992
13.75% Senior Subordinated Note Indenture, the 1995 13.75% Senior Subordinated
Note Indenture, the 1993 9% Senior Subordinated Note Indenture, the 1992
10-1/4% Senior Subordinated Note Indenture, the 1995 11% Senior Subordinated
Note Indenture, the 1997 11% Senior Subordinated Note Indenture, the Seller
Debenture Indenture, and any indenture pursuant to which any subordinated
Indebtedness permitted under subsection 7.1(xiii) is issued.

"SUBORDINATED INDEBTEDNESS" means (i) the 1992 13.75% Senior
Subordinated Notes, the 1995 13.75% Senior Subordinated Notes, the 1995 11%
Senior Subordinated Notes, the Seller Debentures, the 1993 9% Senior
Subordinated Notes, the 1992 10-1/4% Senior Subordinated Notes and the 1997 11%
Senior Subordinated Notes and (ii) any other Indebtedness of Holdings or
Company subordinated in right of payment to the Obligations pursuant to
documentation containing maturities, amortization schedules, covenants,
defaults, remedies, subordination provisions and other material terms in form
and substance satisfactory to Agent and Requisite Lenders, including without
limitation any subordinated Indebtedness permitted under subsection 7.1(xiii).

"SUBSCRIPTION AGREEMENT" means that certain Subscription
Agreement dated as of June 14, 1995 among RGC Partners, L.P., Holdings, Company
and the partnership investors signatory thereto, as such Subscription Agreement
may be amended from time to time after the Closing Date to the extent permitted
under subsection 7.15A.
<PAGE> 43
"SUBSIDIARY" means, with respect to any Person, any
corporation, partnership, association, joint venture or other business entity
of which more than 50% of the total voting power of shares of stock or other
ownership interests entitled (without regard to the occurrence of any
contingency) to vote in the election of the Person or Persons (whether
directors, managers, trustees or other Persons performing similar functions)
having the power to direct or cause the direction of the management and
policies thereof is at the time owned or controlled, directly or indirectly, by
that Person or one or more of the other Subsidiaries of that Person or a
combination thereof.

"SWING LINE LENDER" means Bankers, or any Person serving as a
successor Agent hereunder, in its capacity as Swing Line Lender hereunder and
under the other Loan Documents.

"SWING LINE LOAN COMMITMENT" means the commitment of Swing
Line Lender to make Swing Line Loans to Company pursuant to subsection
2.1A(iv).

"SWING LINE LOANS" means the Loans made by Swing Line Lender
to Company pursuant to subsection 2.1A(iv).

"SWING LINE NOTE" means (i) the promissory note of Company
issued pursuant to subsection 2.1E on the Effective Date to evidence the Swing
Line Loans of Swing Line Lender and (ii) any promissory note issued by Company
to any successor Agent and Swing Line Lender pursuant to the last sentence of
subsection 10.6B, in each case substantially in the form of Exhibit VII annexed
hereto, as it may be amended, supplemented or otherwise modified from time to
time.

"TAX" or "TAXES" means any present or future tax, levy,
impost, duty, charge, fee, deduction or withholding of any nature and whatever
called, by whomsoever, on whomsoever and wherever imposed, levied, collected,
withheld or assessed; provided that "TAX ON THE OVERALL INCOME" of a Person
shall be construed as a reference to a tax imposed by the jurisdiction in which
that Person's principal office (and/or, in the case of a Lender, its lending
office) is located or in which that Person is organized or is deemed to be
doing business on all or part of the net income, profits, gains or receipts of
that Person (whether worldwide, or only insofar as such income, profits, gains
or receipts are considered to arise in or to relate to a particular
jurisdiction, or otherwise).

"TAX ELECTION AGREEMENT" means that certain Tax Election
Agreement, effective as of February 3, 1992, by and among The Edward J.
DeBartolo Corporation, Federated Department Stores, Inc., Federated Stores,
Inc., and Ralphs Holding Company (now Company), as such Tax Election Agreement
may be amended from time to time after the Closing Date to the extent permitted
under subsection 7.15A.

"TERM LOAN EXPOSURE" means, with respect to a Lender of a Type
of Term Loan as of any date of determination the outstanding principal amount
of the Term Loan of such Type of that Lender.

"TERM LOANS" means one or more of the Tranche A Term Loans or
the Tranche B Term Loans.
<PAGE> 44
"TERM NOTES" means (i) the promissory notes of Company
evidencing the Term Loans of a Type of Term Loan issued pursuant to subsection
2.1E on the Effective Date, and (ii) any promissory notes issued by Company
pursuant to the last sentence of subsection 11.1B(i) in connection with
assignments of the Term Loans of such Type, in each case substantially in the
form of Exhibits IV-V annexed hereto in the case of Tranche A Term Loans and
Tranche B Term Loans, respectively, in each case as they may be amended,
supplemented or otherwise modified from time to time.

"TITLE INSURANCE POLICIES" means ALTA loan title insurance
policies issued by a title insurance company reasonably satisfactory to Agent,
in the amounts reasonably satisfactory to Agent with respect to any particular
Real Property Assets subject to a Deed of Trust, assuring Agent that the
applicable Deed of Trust creates a valid and enforceable first priority lien on
the respective Real Property Asset subject to such Deed of Trust, free and
clear of all defects and encumbrances except Permitted Encumbrances, which
Title Insurance Policies shall be in form and substance reasonably satisfactory
to Agent and shall include an endorsement for any matters that Agent may
reasonably request and for future advances under this Agreement, the Notes and
the other Loan Documents, and shall provide for affirmative insurance and such
reinsurance as Agent may request, all of the foregoing in form and substance
reasonably satisfactory to Agent.

"TOTAL UTILIZATION OF REVOLVING LOAN COMMITMENTS" means, as at
any date of determination, the sum of (i) the aggregate principal amount of all
outstanding Revolving Loans plus (ii) the aggregate principal amount of all
outstanding Swing Line Loans plus (iii) the Letter of Credit Usage.

"TRADEMARK SECURITY AGREEMENT" means each Trademark Collateral
Security Agreement and Conditional Assignment executed and delivered by Company
and certain Subsidiaries of Company on the Closing Date and each other
Trademark Security Agreement to be executed and delivered by Subsidiaries of
Company from time to time in accordance with subsection 6.10, substantially in
the form of Exhibit XII annexed hereto, as each such Trademark Collateral
Security Agreement and Conditional Assignment may be amended, supplemented or
otherwise modified from time to time, and "TRADEMARK SECURITY AGREEMENTS" means
all such Trademark Collateral Security Agreements and Conditional Assignments,
collectively.

"TRANCHE A TERM LENDER" or "TRANCHE A TERM LENDERS" means the
Lender or Lenders having a Tranche A Term Loan outstanding.

"TRANCHE A TERM LOANS" means the Loans of the Tranche A Term
Lenders pursuant to subsection 2.1A(i).

"TRANCHE B TERM LENDER" or "TRANCHE B TERM LENDERS" means the
Lender or Lenders having a Tranche B Term Loan outstanding.

"TRANCHE B TERM LOANS" means the Loans of the Tranche B Term
Lenders pursuant to subsection 2.1A(ii).
<PAGE> 45
"TRANSACTION DOCUMENTS" means any or all of the Loan
Documents, the Related Financing Documents, the Tax Election Agreement, the
Indemnification Agreement, the Shareholders Agreement, the Consulting
Agreement, the Reimbursement Agreement and any guaranties relating to any of
the foregoing, and all other agreements or instruments delivered pursuant to or
in connection with any of the foregoing, including any purchase agreement or
registration rights agreement.

"TRANSFER AND ASSUMPTION AGREEMENT" means that certain
Transfer and Assumption Agreement, dated as of June 23, 1989, between Company
(as successor to Food 4 Less Supermarkets, Inc.) and Holdings (as successor to
Food 4 Less Holdings, Inc.), as it may be amended from time to time after the
Closing Date to the extent permitted under subsection 7.15A.

"TYPE" means a Term Loan, a Revolving Loan or a Swing Line
Loan (each of which is a "TYPE" of Loan) and with respect to a Term Loan, a
Tranche A Term Loan or a Tranche B Term Loan (each of which is a "TYPE" of Term
Loan).

"YUCAIPA" means The Yucaipa Companies, a California general
partnership, or any successor thereto (i) which is an Affiliate of Ronald W.
Burkle, (ii) which has been established for the sole purpose of changing the
form of The Yucaipa Companies from that of a partnership to that of a limited
liability company or such other form acceptable to Agent in its sole discretion
and (iii) the form and structure of which has been approved by Agent in its
sole discretion.

"YUCAIPA INVESTORS" means Ronald W. Burkle; F4L Equity
Partners, L.P.; FFL Partners; Yucaipa Capital Fund L.P.; Yucaipa/F4L Partners;
The Yucaipa Companies and any other entity formed after the Closing Date which
is an Affiliate of Ronald W. Burkle; provided, however, that, in the event that
F4L Equity Partners, L.P. is dissolved in accordance with the terms of its
governing partnership documents following the Closing Date, the shares of
Holdings Voting Stock which would have been distributable to Angeles
Development, BV if F4L Equity Partners, L.P. had been dissolved on the Closing
Date (which shares shall not exceed 20% of the total number of shares of
Holdings Voting Stock owned by F4L Equity Partners, L.P. on the Closing Date)
shall be deemed not to have been owned (economically or beneficially) by the
Yucaipa Investors on the Closing Date for purposes of this Agreement.

B. ACCOUNTING TERMS; UTILIZATION OF GAAP FOR PURPOSES OF CALCULATIONS
UNDER AGREEMENT.

For purposes of this Agreement, all accounting terms not
otherwise defined herein shall have the meanings assigned to them in conformity
with GAAP. Financial statements and other information required to be delivered
by Company to Lenders pursuant to clauses (i), (ii) and (iii) of subsection 6.1
shall be prepared in accordance with GAAP as in effect at the time of such
preparation (and delivered together with the reconciliation statements provided
for in subsection 6.1(v)). Calculations in connection with the definitions,
covenants and other provisions of this Agreement shall (i) utilize accounting
principles and policies in conformity with those used to prepare the financial
statements referred to in subsection 5.3, or (ii) if any amendments to the
provisions set forth in Sections
<PAGE> 46
1, 6 or 7 are made pursuant to negotiations conducted by operation of the
following sentence, accounting principles and policies in effect at the time of
the effectiveness of such amendments. Notwithstanding the foregoing, if any
changes in accounting principles from those used in the preparation of the
financial statements referred to in subsection 5.3 hereafter occasioned by the
promulgation of rules, regulations, pronouncements or opinions by or required
by the Financial Accounting Standards Board or the American Institute of
Certified Public Accountants (or successors thereto or agencies with similar
functions) result in a change in the method of calculation of financial
covenants, standards or terms found in Sections 1, 6 and 7 hereof, the parties
hereto agree to enter into negotiations in order to amend such provisions so as
to equitably reflect such changes with the desired result that the criteria for
evaluating Holdings' and Company's financial condition shall be the same after
such changes as if such changes had not been made. During the period of such
negotiations, but in no event for a period longer than 60 days, Company shall
not be required to deliver the additional financial statements required
pursuant to subsection 6.1(v). After the parties agree on amendments to the
provisions of Sections 1, 6 and 7 necessitated by such changes, Company shall
not be required to deliver the additional financial statements required
pursuant to subsection 6.1(v) with respect to such changes.

C. OTHER DEFINITIONAL PROVISIONS.

References to "Sections" and "subsections" shall be to
Sections and subsections, respectively, of this Agreement unless otherwise
specifically provided. Any of the terms defined in subsection 1.1 may, unless
the context otherwise requires, be used in the singular or the plural,
depending on the reference.

SECTION I. AMOUNTS AND TERMS OF COMMITMENTS AND LOANS

A. TERM LOANS AND COMMITMENTS; MAKING OF LOANS; THE REGISTER; NOTES.

1. TERM LOANS AND COMMITMENTS. Subject to the terms and
conditions of this Agreement and in reliance upon the representations and
warranties of Holdings and Company herein set forth, each Lender hereby
severally agrees to make Loans as described in subsections 2.1A(iii) and Swing
Line Lender hereby agrees to make the Loans described in subsection 2.1A(iv).

a. Tranche A Term Loans. The amount of each Tranche A
Term Lender's Tranche A Term Loan is set forth opposite its name on
Schedule 2.1 annexed hereto and the aggregate amount of the Tranche A
Term Loans is $200,000,000; provided that the Tranche A Term Loans of
Tranche A Term Lenders shall be adjusted to give effect to any
assignments of the Tranche A Term Loans pursuant to subsection 11.1B.
Tranche A Term Loans repaid or prepaid may not be reborrowed.

b. Tranche B Term Loans. The amount of each Tranche B
Term Lender's Tranche B Term Loan is set forth opposite its name on
Schedule 2.1 annexed hereto and the aggregate amount of the Tranche B
Term Loans is $350,000,000; provided that the Tranche B Term Loans of
Tranche B Term Lenders
<PAGE> 47
shall be adjusted to give effect to any assignments of the Tranche B
Term Loans pursuant to subsection 11.1B. Tranche B Term Loans repaid
or prepaid may not be reborrowed.

c. Revolving Loans. Each Revolving Lender severally
agrees, subject to the limitations set forth below with respect to the
maximum amount of Revolving Loans permitted to be outstanding from
time to time, to lend to Company from time to time during the period
from the Effective Date to but excluding the Revolving Loan Commitment
Termination Date an aggregate amount not exceeding its Pro Rata Share
of the aggregate amount of the Revolving Loan Commitments to be used
for the purposes identified in subsection 2.5B. The original amount
of each Revolving Lender's Revolving Loan Commitment is set forth
opposite its name on Schedule 2.1 annexed hereto and the aggregate
original amount of the Revolving Loan Commitments is $325,000,000;
provided that the Revolving Loan Commitments of Revolving Lenders
shall be adjusted to give effect to any assignments of the Revolving
Loan Commitments pursuant to subsection 11.1B; and provided further
that the amount of the Revolving Loan Commitments shall be reduced
from time to time by the amount of any reductions thereto made
pursuant to subsections 2.4B(ii) and 2.4B(iii). Each Revolving
Lender's Revolving Loan Commitment shall expire on the Revolving Loan
Commitment Termination Date and all Revolving Loans and all other
amounts owed hereunder with respect to the Revolving Loans and the
Revolving Loan Commitments shall be paid in full no later than that
date; provided that each Revolving Lender's Revolving Loan Commitment
shall expire immediately and without further action on May 31, 1997 if
the Term Loans are not purchased pursuant to the Master Assignment
Agreement on or before that date. Amounts borrowed under this
subsection 2.1A(iii) may be repaid and reborrowed to but excluding the
Revolving Loan Commitment Termination Date.

Anything contained in this Agreement to the contrary
notwithstanding, the Revolving Loans and the Revolving Loan
Commitments shall be subject to the following limitations in the
amounts and during the periods indicated:

(1) in no event shall the Total Utilization of
Revolving Loan Commitments at any time exceed the Revolving
Loan Commitments then in effect; and

(2) (i) for 30 consecutive days during each
period of twelve consecutive months through the last day of
Fiscal Year 1997, the sum of (1) the aggregate outstanding
principal amount of all Revolving Loans plus (2) the aggregate
outstanding principal amount of all Swing Line Loans shall not
exceed $110,000,000; and (ii) thereafter for 30 consecutive
days during each period of twelve consecutive months, the sum
of (1) the aggregate outstanding principal amount of all
Revolving Loans plus (2) the aggregate outstanding principal
amount of all Swing Line Loans shall not exceed $100,000,000
or, upon and after any Asset Sale of Cala the Net Cash
Proceeds of which are not less than $25,000,000, $75,000,000.
<PAGE> 48
d. Swing Line Loans. Swing Line Lender hereby agrees,
subject to the limitations set forth below with respect to the maximum
amount of Swing Line Loans permitted to be outstanding from time to
time, to make a portion of the Revolving Loan Commitments available to
Company from time to time during the period from the Effective Date to
but excluding the Revolving Loan Commitment Termination Date by making
Swing Line Loans to Company in an aggregate amount not exceeding the
amount of the Swing Line Loan Commitment to be used for the purposes
identified in subsection 2.5B, notwithstanding the fact that such
Swing Line Loans, when aggregated with Swing Line Lender's outstanding
Revolving Loans and Swing Line Lender's Pro Rata Share of the Letter
of Credit Usage then in effect, may exceed Swing Line Lender's
Revolving Loan Commitment. The original amount of the Swing Line Loan
Commitment is $30,000,000; provided that any reduction of the
Revolving Loan Commitments made pursuant to subsection 2.4B(ii) or
2.4B(iii) which reduces the aggregate Revolving Loan Commitments to an
amount less than the then current amount of the Swing Line Loan
Commitment shall result in an automatic corresponding reduction of the
Swing Line Loan Commitment to the amount of the Revolving Loan
Commitments, as so reduced, without any further action on the part of
Company, Agent or Swing Line Lender. The Swing Line Loan Commitment
shall expire on the Revolving Loan Commitment Termination Date and all
Swing Line Loans and all other amounts owed hereunder with respect to
the Swing Line Loans shall be paid in full no later than that date;
provided that the Swing Line Loan Commitment shall expire immediately
and without further action on May 31, 1997 if the Term Loans are not
purchased pursuant to the Master Assignment Agreement on or before
that date. Amounts borrowed under this subsection 2.1A(iv) may be
repaid and reborrowed to but excluding the Revolving Loan Commitment
Termination Date.

Anything contained in this Agreement to the contrary
notwithstanding, the Swing Line Loans and the Swing Line Loan
Commitment shall be subject to the following limitations in the
amounts and during the periods indicated:

(1) in no event shall the Total Utilization of
Revolving Loan Commitments at any time exceed the Revolving
Loan Commitments then in effect; and

With respect to any Swing Line Loans which have not been
voluntarily prepaid by Company pursuant to subsection 2.4B(i), Swing
Line Lender (i) may, at any time in its sole and absolute discretion,
and (ii) shall, at least once every seven days,
<PAGE> 49
deliver to Agent (with a copy to Company), no later than 1:00 P.M.
(New York City time) on the first Business Day in advance of the
proposed Funding Date, a notice requesting Revolving Lenders to make
Revolving Loans that are Base Rate Loans on such Funding Date in an
amount equal to the amount of such Swing Line Loans (the "REFUNDED
SWING LINE LOANS") outstanding on the date such notice is given which
Swing Line Lender requests Revolving Lenders to prepay. Anything
contained in this Agreement to the contrary notwithstanding, (i) the
proceeds of such Revolving Loans made by Revolving Lenders other than
Swing Line Lender shall be immediately delivered by Agent to Swing
Line Lender (and not to Company) and applied to repay a corresponding
portion of the Refunded Swing Line Loans and (ii) on the day such
Revolving Loans are made, Swing Line Lender's Pro Rata Share of the
Refunded Swing Line Loans shall be deemed to be paid with the proceeds
of a Revolving Loan made by Swing Line Lender, and such portion of the
Swing Line Loans deemed to be so paid shall no longer be outstanding
as Swing Line Loans and shall no longer be due under the Swing Line
Note of Swing Line Lender but shall instead constitute part of Swing
Line Lender's outstanding Revolving Loans and shall be due under the
Revolving Note of Swing Line Lender. Company hereby authorizes Agent
and Swing Line Lender to charge Company's accounts with Agent and
Swing Line Lender (up to the amount available in each such account) in
order to immediately pay Swing Line Lender the amount of the Refunded
Swing Line Loans to the extent the proceeds of such Revolving Loans
made by Revolving Lenders, including the Revolving Loan deemed to be
made by Swing Line Lender, are not sufficient to repay in full the
Refunded Swing Line Loans. If any portion of any such amount paid (or
deemed to be paid) to Swing Line Lender should be recovered by or on
behalf of Company from Swing Line Lender in bankruptcy, by assignment
for the benefit of creditors or otherwise, the loss of the amount so
recovered shall be ratably shared among all Revolving Lenders in the
manner contemplated by subsection 11.5.

Immediately upon the funding of each Swing Line Loan by Swing
Line Lender, each Revolving Lender shall be deemed to, and hereby
agrees to, have purchased a participation in such outstanding Swing
Line Loans in an amount equal to its Pro Rata Share (calculated
without giving effect to clauses (d) and (e) of the definition of
Revolving Loan Exposure) of the unpaid amount together with accrued
interest thereon. Upon one Business Day's notice from Swing Line
Lender, each Revolving Lender shall deliver to Swing Line Lender an
amount equal to its respective participation in same day funds at the
Funding and Payment Office. In order to evidence such participation
each Revolving Lender agrees to enter into a participation agreement
at the request of Swing Line Lender in form and substance reasonably
satisfactory to all parties. In the event any Revolving Lender fails
to make available to Swing Line Lender the amount of such Revolving
Lender's participation as provided in this paragraph, Swing Line
Lender shall be entitled to recover such amount on demand from such
Revolving Lender together with interest thereon at the rate
customarily used by Swing Line Lender for the correction of errors
among banks for three Business Days and thereafter at the Base Rate.
In the event Swing Line Lender receives a payment of any amount in
which other Revolving Lenders have purchased participations as
provided in this paragraph, Swing Line Lender shall promptly
distribute to each such other Revolving Lender its Pro Rata Share of
such payment.
<PAGE> 50
Anything contained herein to the contrary notwithstanding, (i)
each Revolving Lender's obligation to make Revolving Loans for the
purpose of repaying any Refunded Swing Line Loans pursuant to the
second preceding paragraph and each Revolving Lender's obligation to
purchase a participation in any unpaid Swing Line Loans pursuant to
the immediately preceding paragraph shall be absolute and
unconditional and shall not be affected by any circumstance, including
without limitation (a) any set-off, counterclaim, recoupment, defense
or other right which such Revolving Lender may have against Swing Line
Lender, Company or any other Person for any reason whatsoever; (b) the
occurrence or continuation of an Event of Default or a Potential Event
of Default; (c) any adverse change in the business, operations,
properties, assets, condition (financial or otherwise) or prospects of
Holdings or any of its Subsidiaries; (d) any breach of this Agreement
or any other Loan Document by any party thereto; or (e) any other
circumstance, happening or event whatsoever, whether or not similar to
any of the foregoing; provided that such obligations of each Revolving
Lender are subject to the satisfaction of one of the following: (X)
Swing Line Lender believed in good faith that all conditions under
Section 4 to the making of the applicable Swing Line Loans to be
refunded, were satisfied at the time such Swing Line Loans were made,
(Y) such Revolving Lender had actual knowledge, by receipt of any
notices required to be delivered to Revolving Lenders pursuant to
subsection 6.1(ix) or otherwise, that any such condition had not been
satisfied and such Revolving Lender failed to notify Swing Line Lender
and Agent in writing that it had no obligation to make Revolving Loans
until such condition was satisfied (any such notice to be effective as
of the date of receipt thereof by Swing Line Lender and Agent), or (Z)
the satisfaction of any such condition not satisfied had been waived
in accordance with subsection 11.6; and (ii) Swing Line Lender shall
not be obligated to make any Swing Line Loans if it has elected not to
do so after the occurrence and during the continuation of a Potential
Event of Default or Event of Default.

2. BORROWING MECHANICS. Revolving Loans made on any Funding Date
(other than Revolving Loans made pursuant to a request by Swing Line Lender
pursuant to subsection 2.1A(iv) for the purpose of repaying any Refunded Swing
Line Loans or Revolving Loans made pursuant to subsection 3.3B for the purpose
of reimbursing any Issuing Lender for the amount of a drawing under a Letter of
Credit issued by it) that are made as (i) Eurodollar Rate Loans shall be in an
aggregate minimum amount of $5,000,000 and integral multiples of $1,000,000 in
excess of that amount or (ii) Base Rate Loans shall be in an aggregate minimum
amount of $2,000,000 and integral multiples of $500,000 in excess of that
amount. Swing Line Loans made on any Funding Date shall be in an aggregate
minimum amount of $500,000 and integral multiples of $250,000 in excess of that
amount. Whenever Company desires that Revolving Lenders make Revolving Loans
Company shall deliver to Agent a Notice of Borrowing no later than 1:00 P.M.
(New York City time) at least three Business Days in advance of the proposed
Funding Date (in the case of a Eurodollar Rate Loan) or at least one Business
Day in advance of the proposed Funding Date (in the case of a Base Rate Loan).
Whenever Company desires that Swing Line Lender make a Swing Line Loan, it
shall deliver to Agent a Notice of Borrowing no later than 1:00 P.M. (New York
City time) on the proposed Funding Date. The Notice of Borrowing shall specify
(i) the proposed Funding Date (which shall be a Business Day), (ii) the amount
and Type of Loans requested, (iii) in the case of Swing Line Loans, that such
Loans shall be
<PAGE> 51
Base Rate Loans, (iv) whether such Loans shall be Base Rate Loans or Eurodollar
Rate Loans, and (v) in the case of any Loans requested to be made as Eurodollar
Rate Loans, the initial Interest Period requested therefor. Term Loans and
Revolving Loans may be continued as or converted into Base Rate Loans and
Eurodollar Rate Loans in the manner provided in subsection 2.2D. In lieu of
delivering the above-described Notice of Borrowing, Company may give Agent
telephonic notice by the required time of any proposed borrowing under this
subsection 2.1B; provided that such notice shall be promptly confirmed in
writing by delivery of a Notice of Borrowing to Agent on or before the
applicable Funding Date.

Neither Agent nor any Lender shall incur any liability to
Company in acting upon any telephonic notice referred to above that Agent
believes in good faith to have been given by a duly authorized officer or other
person authorized to borrow on behalf of Company or for otherwise acting in
good faith under this subsection 2.1B, and upon funding of Loans by Lenders in
accordance with this Agreement pursuant to any such telephonic notice Company
shall have effected Loans hereunder.

Company shall notify Agent prior to the funding of any Loans
in the event that any of the matters to which Company is required to certify in
the applicable Notice of Borrowing is no longer true and correct as of the
applicable Funding Date, and the acceptance by Company of the proceeds of any
Loans shall constitute a re-certification by Company, as of the applicable
Funding Date, as to the matters to which Company is required to certify in the
applicable Notice of Borrowing as modified pursuant to the notice provided for
in the first clause of this sentence (it being understood that the making of
such Loans by Lenders shall not in any way be construed as a waiver by Lenders
of any matter set forth in such notice).

Except as otherwise provided in subsections 2.6B, 2.6C and
2.6G, a Notice of Borrowing for a Eurodollar Rate Loan (or telephonic notice in
lieu thereof) shall be irrevocable on and after the related Interest Rate
Determination Date, and Company shall be bound to make a borrowing in
accordance therewith.

3. DISBURSEMENT OF FUNDS. All Revolving Loans under this
Agreement shall be made by Lenders simultaneously and proportionately to their
respective Pro Rata Shares of the Revolving Loan Commitments, it being
understood that no Lender shall be responsible for any default by any other
Lender in that other Lender's obligation to make a Loan requested hereunder nor
shall the Revolving Loan Commitment of any Lender be increased or decreased as
a result of a default by any other Lender in that other Lender's obligation to
make a Loan requested hereunder. Promptly after receipt by Agent of a Notice
of Borrowing pursuant to subsection 2.1B (or telephonic notice in lieu
thereof), Agent shall notify each Lender or Swing Line Lender, as the case may
be, of the proposed borrowing. Each Lender shall make the amount of its Loan
available to Agent not later than 12:00 Noon (New York City time) on the
applicable Funding Date, and Swing Line Lender shall make the amount of its
Swing Line Loan available to Agent not later than 2:00 P.M. (New York City
time) on the applicable Funding Date, in each case in same day funds in
Dollars, at the Funding and Payment Office. Except as provided in subsection
2.1A(iv) or subsection 3.3B with respect to Revolving Loans used to repay
Refunded Swing Line Loans or to reimburse any Issuing Lender for the amount of
a drawing under a Letter of Credit issued by it, upon satisfaction or waiver of
the conditions precedent specified in subsections 4.1 (in the case of
<PAGE> 52
Loans made on the Effective Date) and 4.2 (in the case of all Loans), Agent
shall make the proceeds of such Loans available to Company on the applicable
Funding Date by causing an amount of same day funds in Dollars equal to the
proceeds of all such Loans received by Agent from Lenders or Swing Line Lender,
as the case may be, to be credited to the account of Company at the Funding and
Payment Office.

Unless Agent shall have been notified by any Lender prior to
the Funding Date for any Loans that such Lender does not intend to make
available to Agent the amount of such Lender's Loan requested on such Funding
Date, Agent may assume that such Lender has made such amount available to Agent
on such Funding Date and Agent may, in its sole discretion, but shall not be
obligated to, make available to Company a corresponding amount on such Funding
Date. If such corresponding amount is not in fact made available to Agent by
such Lender, Agent shall be entitled to recover such corresponding amount on
demand from such Lender together with interest thereon, for each day from such
Funding Date until the date such amount is paid to Agent, at the customary rate
set by Agent for the correction of errors among banks for three Business Days
and thereafter at the Base Rate. If such Lender does not pay such
corresponding amount forthwith upon Agent's demand therefor, Agent shall
promptly notify Company and Company shall immediately pay such corresponding
amount to Agent together with interest thereon, for each day from such Funding
Date until the date such amount is paid to Agent, at the rate payable under
this Agreement for Base Rate Loans of the applicable type of Loans. Nothing in
this subsection 2.1C shall be deemed to relieve any Lender from its obligation
to fulfill its Commitments hereunder or to prejudice any rights that Company
may have against any Lender as a result of any default by such Lender
hereunder.

4. THE REGISTER.

a. Agent shall maintain, at its address referred to in
subsection 11.8, a register for the recordation of the names and
addresses of Lenders and the Commitments and Loans of each Lender from
time to time (the "REGISTER"). The Register shall be available for
inspection by Company or any Lender at any reasonable time and from
time to time upon reasonable prior notice.

b. Agent shall record in the Register the Revolving Loan
Commitment and the Term Loans and Revolving Loans from time to time of
each Lender, the Swing Line Loan Commitment and the Swing Line Loans
from time to time of Swing Line Lender, and each repayment or
prepayment in respect of the principal amount of the Term Loans or
Revolving Loans of each Lender or the Swing Line Loans of Swing Line
Lender. Any such recordation shall be conclusive and binding on
Company and each Lender, absent manifest error; provided that failure
to make any such recordation, or any error in such recordation, shall
not affect Company's Obligations in respect of the applicable Loans.

c. Each Lender shall record on its internal records
(including, without limitation, the Notes held by such Lender) the
amount of the Term Loans and each Revolving Loan made by it and each
payment in respect thereof. Any such recordation shall be conclusive
and binding on Company, absent manifest error; provided that failure
to make any such recordation, or any error in such recordation,
<PAGE> 53
shall not affect Company's Obligations in respect of the applicable
Loans; and provided further that in the event of any inconsistency
between the Register and any Lender's records, the recordations in the
Register shall govern, absent manifest error.

d. Company, Agent and Lenders shall deem and treat the
Persons listed as Lenders in the Register as the holders and owners of
the corresponding Commitments and Loans listed therein for all
purposes hereof, and no assignment or transfer of any such Commitment
or Loan shall be effective, in each case unless and until an
Assignment Agreement effecting the assignment or transfer thereof
shall have been accepted by Agent and recorded in the Register as
provided in subsection 11.1B(ii). Prior to such recordation, all
amounts owed with respect to the applicable Commitment or Loan shall
be owed to the Lender listed in the Register as the owner thereof, and
any request, authority or consent of any Person who, at the time of
making such request or giving such authority or consent, is listed in
the Register as a Lender shall be conclusive and binding on any
subsequent holder, assignee or transferee of the corresponding
Commitments or Loans.

e. Company hereby designates Bankers to serve as
Company's agent solely for purposes of maintaining the Register as
provided in this subsection 2.1D, and Company hereby agrees that, to
the extent Bankers serves in such capacity, Bankers and its officers,
directors, employees, agents and affiliates shall constitute
Indemnitees for all purposes under subsection 11.3.

E. NOTES. Company shall execute and deliver on the Effective
Date (i) to each Tranche A Term Lender (or to Agent for that Lender) a Tranche
A Term Note substantially in the form of Exhibit IV annexed hereto to evidence
that Lender's Tranche A Term Loan, in the principal amount of that Lender's
Tranche A Term Loan and with other appropriate insertions, (ii) to each Tranche
B Term Lender (or Agent for that Lender) a Tranche B Term Note substantially in
the form of Exhibit V annexed hereto to evidence that Lender's Tranche B Term
Loan, in the principal amount of that Lender's Tranche B Term Loan and with
other appropriate insertions, (iii) to each Revolving Lender (or to Agent for
that Lender) a Revolving Note substantially in the form of Exhibit VI annexed
hereto to evidence that Lender's Revolving Loans, in the principal amount of
that Lender's Revolving Loan Commitment and with other appropriate insertions,
and (iv) to Swing Line Lender a Swing Line Note substantially in the form of
Exhibit VII annexed hereto to evidence Swing Line Lender's Swing Line Loans, in
the principal amount of the Swing Line Loan Commitment and with other
appropriate insertions.

B. INTEREST ON THE LOANS.

1. RATE OF INTEREST. Subject to the provisions of subsections
2.6 and 2.7, each Term Loan and each Revolving Loan shall bear interest on the
unpaid principal amount thereof from the date made through maturity (whether by
acceleration or otherwise) at a rate determined by reference to the Base Rate
or the Adjusted Eurodollar Rate, as the case may be. Subject to the provisions
of subsection 2.7, each Swing Line Loan shall bear interest on the unpaid
principal amount thereof from the date made through maturity (whether by
acceleration or otherwise) at a rate determined by reference to the Base Rate.
The applicable basis for determining the rate of interest with respect to any
Loan shall be selected by
<PAGE> 54
Company initially at the time a Notice of Borrowing is given with respect to
such Loan pursuant to subsection 2.1B. The basis for determining the interest
rate with respect to any Term Loan or any Revolving Loan may be changed from
time to time pursuant to subsection 2.2D. If on any day a Term Loan or
Revolving Loan is outstanding with respect to which notice has not been
delivered to Agent in accordance with the terms of this Agreement specifying
the applicable basis for determining the rate of interest, then for that day
that Loan shall bear interest determined by reference to the Base Rate.

a. Subject to the provisions of subsections 2.2E and
2.7, the Tranche A Term Loans and the Revolving Loans shall bear
interest through maturity as follows:

(a) if a Base Rate Loan, then at the sum of the
Base Rate plus the Applicable Tranche A Base Rate Margin; or

(b) if a Eurodollar Rate Loan, then at the sum of
the Adjusted Eurodollar Rate plus the Applicable Tranche A
Eurodollar Margin.

b. Subject to the provisions of subsections 2.2E and
2.7, the Tranche B Term Loans shall bear interest through maturity as
follows:

(a) if a Base Rate Loan, then at the sum of the
Base Rate plus the Applicable Tranche B Base Rate Margin; or

(b) if a Eurodollar Rate Loan, then at the sum of
the Adjusted Eurodollar Rate plus the Applicable Tranche B
Eurodollar Margin.

c. Subject to the provisions of subsections 2.2E and
2.7, the Swing Line Loans shall bear interest through maturity at the
sum of the Base Rate plus the Applicable Tranche A Base Rate Margin
minus the Commitment Fee Percentage.

Upon delivery of the Margin Determination Certificate by
Company to Agent pursuant to subsection 6.1(xviii), the Applicable Tranche A
Base Rate Margin, the Applicable Tranche A Eurodollar Margin, the Applicable
Tranche B Base Rate Margin and the Applicable Tranche A Eurodollar Margin shall
automatically be adjusted in accordance with such Margin Determination
Certificate, such adjustment to become effective on the next succeeding
Business Day following the receipt by Agent of such Margin Determination
Certificate; provided that if a Margin Determination Certificate erroneously
indicates an applicable margin more favorable to Company than should be
afforded by the actual calculation of the Leverage Ratio, Company shall
promptly pay additional interest and letter of credit fees to correct for such
error.

2. INTEREST PERIODS. In connection with each Eurodollar Rate
Loan, Company may, pursuant to the applicable Notice of Borrowing or Notice of
Conversion/Continuation, as the case may be, select an interest period (each an
"INTEREST PERIOD") to be applicable to such Loan, which Interest Period shall
be, at Company's option, either a one, two, three or six month period; provided
that:
<PAGE> 55
a. the initial Interest Period for any Eurodollar Rate
Loan shall commence on the Funding Date in respect of such Loan, in
the case of a Loan initially made as a Eurodollar Rate Loan, or on the
date specified in the applicable Notice of Conversion/ Continuation,
in the case of a Loan converted to a Eurodollar Rate Loan;

b. in the case of immediately successive Interest
Periods applicable to a Eurodollar Rate Loan continued as such
pursuant to a Notice of Conversion/Continuation, each successive
Interest Period shall commence on the day on which the next preceding
Interest Period expires;

c. if an Interest Period would otherwise expire on a day
that is not a Business Day, such Interest Period shall expire on the
next succeeding Business Day; provided that, if any Interest Period
would otherwise expire on a day that is not a Business Day but is a
day of the month after which no further Business Day occurs in such
month, such Interest Period shall expire on the next preceding
Business Day;

d. any Interest Period that begins on the last Business
Day of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest
Period) shall, subject to clause (v) of this subsection 2.2B, end on
the last Business Day of a calendar month;

e. no Interest Period with respect to any portion of the
Tranche A Term Loans shall extend beyond February 15, 2003, no
Interest Period with respect to any portion of the Tranche B Term
Loans shall extend beyond February 15, 2004 and no Interest Period
with respect to any portion of the Revolving Loans shall extend beyond
the Revolving Loan Commitment Termination Date;

f. no Interest Period with respect to any portion of any
Type of Term Loan shall extend beyond a date on which Company is
required to make a scheduled payment of principal of Term Loans of
such Type unless the sum of (a) the aggregate principal amount of Term
Loans of such Type that are Base Rate Loans plus (b) the aggregate
principal amount of Term Loans of such Type that are Eurodollar Rate
Loans with Interest Periods expiring on or before such date equals or
exceeds the principal amount required to be paid on Term Loans of such
Type on such date;

g. there shall be no more than 12 Interest Periods
outstanding at any time (it being understood that Interest Periods for
different Types of Loans, whether or not such Interest Periods are for
the same period and end on the same day, constitute separate Interest
Periods); and

h. in the event Company fails to specify an Interest
Period for any Eurodollar Rate Loan in the applicable Notice of
Borrowing or Notice of Conversion/Continuation, Company shall be
deemed to have selected an Interest Period of one month.

3. INTEREST PAYMENTS. Subject to the provisions of subsection
2.2E, interest on each Loan shall be payable in arrears on and to each Interest
Payment Date applicable to that Loan, upon any prepayment of that Loan (to the
extent accrued on the amount being prepaid)
<PAGE> 56
and at maturity (including final maturity); provided that in the event any
Swing Line Loans or any Revolving Loans that are Base Rate Loans are prepaid
pursuant to subsection 2.4B(i), interest accrued on such Swing Line Loans or
Revolving Loans through the date of such prepayment shall be payable on the
next succeeding Interest Payment Date applicable to Base Rate Loans (or, if
earlier, at final maturity).

4. CONVERSION OR CONTINUATION. Subject to the provisions of
subsection 2.6, Company shall have the option (i) to convert at any time all or
any part of its outstanding Term Loans or Revolving Loans equal to $5,000,000
and integral multiples of $1,000,000 in excess of that amount from Loans
bearing interest at a rate determined by reference to one basis to Loans
bearing interest at a rate determined by reference to an alternative basis or
(ii) upon the expiration of any Interest Period applicable to a Eurodollar Rate
Loan, to continue all or any portion of such Loan equal to $5,000,000 and
integral multiples of $1,000,000 in excess of that amount as a Eurodollar Rate
Loan; provided however, that a Eurodollar Rate Loan may only be converted into
a Base Rate Loan on the expiration date of an Interest Period applicable
thereto; and provided further that no Loan may be made as or converted into a
Base Rate Loan during the period from December 24 of any year to and including
January 7 of the immediately succeeding year for the purpose of investing in
securities bearing interest at a rate determined by reference to any other
basis for the purpose of arbitrage or speculation.

Company shall deliver a Notice of Conversion/Continuation to
Agent no later than 1:00 P.M. (New York City time) at least one Business Day in
advance of the proposed conversion date (in the case of a conversion to a Base
Rate Loan) and at least three Business Days in advance of the proposed
conversion/continuation date (in the case of a conversion to, or a continuation
of, a Eurodollar Rate Loan). A Notice of Conversion/Continuation shall specify
(i) the proposed conversion/continuation date (which shall be a Business Day),
(ii) the amount and Type of the Loan to be converted/continued, (iii) the
nature of the proposed conversion/continuation, (iv) in the case of a
conversion to, or a continuation of, a Eurodollar Rate Loan, the requested
Interest Period, and (v) in the case of a conversion to, or a continuation of,
a Eurodollar Rate Loan, that no Potential Event of Default or Event of Default
has occurred and is continuing. In lieu of delivering the above-described
Notice of Conversion/Continuation, Company may give Agent telephonic notice by
the required time of any proposed conversion/continuation under this subsection
2.2D; provided that such notice shall be promptly confirmed in writing by
delivery of a Notice of Conversion/Continuation to Agent on or before the
proposed conversion/continuation date.

Neither Agent nor any Lender shall incur any liability to
Company in acting upon any telephonic notice referred to above that Agent
believes in good faith to have been given by a duly authorized officer or other
person authorized to act on behalf of Company or for otherwise acting in good
faith under this subsection 2.2D, and upon conversion or continuation of the
applicable basis for determining the interest rate with respect to any Loans in
accordance with this Agreement pursuant to any such telephonic notice Company
shall have effected a conversion or continuation, as the case may be,
hereunder.

Except as otherwise provided in subsections 2.6B, 2.6C and
2.6G, a Notice of Conversion/Continuation for conversion to, or continuation
of, a Eurodollar Rate Loan (or telephonic notice in lieu thereof) shall be
irrevocable on and after the related Interest Rate
<PAGE> 57
Determination Date, and Company shall be bound to effect a conversion or
continuation in accordance therewith.

5. DEFAULT RATE. Upon the occurrence and during the continuation
of any Event of Default, the outstanding principal amount of all Loans and, to
the extent permitted by applicable law, any interest payments thereon not paid
when due and any fees and other amounts then due and payable hereunder, shall
thereafter bear interest (including post-petition interest in any proceeding
under the Bankruptcy Code or other applicable bankruptcy laws) payable upon
demand at a rate that is 2% per annum in excess of the interest rate otherwise
payable under this Agreement with respect to the applicable Loans (or, in the
case of any such fees and other amounts, at a rate which is 2% per annum in
excess of the interest rate otherwise payable under this Agreement for Base
Rate Loans); provided that, in the case of Eurodollar Rate Loans, upon the
expiration of the Interest Period in effect at the time any such increase in
interest rate is effective such Eurodollar Rate Loans shall thereupon become
Base Rate Loans and shall thereafter bear interest payable upon demand at a
rate which is 2% per annum in excess of the interest rate otherwise payable
under this Agreement for Base Rate Loans. Payment or acceptance of the
increased rates of interest provided for in this subsection 2.2E is not a
permitted alternative to timely payment and shall not constitute a waiver of
any Event of Default or otherwise prejudice or limit any rights or remedies of
Agent or any Lender.

6. COMPUTATION OF INTEREST. Interest on the Loans shall be
computed on the basis of a 360-day year, in each case for the actual number of
days elapsed in the period during which it accrues. In computing interest on
any Loan, the date of the making of such Loan or the first day of an Interest
Period applicable to such Loan or, with respect to a Base Rate Loan being
converted from a Eurodollar Rate Loan, the date of conversion of such
Eurodollar Rate Loan to such Base Rate Loan, as the case may be, shall be
included, and the date of payment of such Loan or the Interest Payment Date
with respect to which such interest payment is being made or, with respect to a
Base Rate Loan being converted to a Eurodollar Rate Loan, the date of
conversion of such Base Rate Loan to such Eurodollar Rate Loan, as the case may
be, shall be excluded; provided that if a Loan is repaid on the same day on
which it is made, one day's interest shall be paid on that Loan.

C. FEES.

1. COMMITMENT FEES. Company agrees to pay to Agent, for
distribution to each Revolving Lender in proportion to that Revolving Lender's
Pro Rata Share, commitment fees for the period from and including the Effective
Date to and excluding the Revolving Loan Commitment Termination Date equal to
the average of the daily excess of the Revolving Loan Commitments over the
aggregate principal amount of Revolving Loans outstanding (but not any Swing
Line Loans outstanding) multiplied by the then applicable Commitment Fee
Percentage, such commitment fees to be calculated on the basis of a 360-day
year and the actual number of days elapsed and to be payable quarterly in
arrears on March 15, June 15, September 15 and December 15 of each year,
commencing on June 15, 1997, and on the Revolving Loan Commitment Termination
Date.

Upon delivery of the Margin Determination Certificate by
Company to Agent pursuant to subsection 6.1(xviii), the Commitment Fee
Percentage shall automatically be
<PAGE> 58
adjusted in accordance with such Margin Determination Certificate, such
adjustment to become effective on the next succeeding Business Day following
the receipt by Agent of such Margin Determination Certificate; provided that if
a Margin Determination Certificate erroneously indicates an applicable margin
more favorable to Company than should be afforded by the actual calculation of
the Leverage Ratio, Company shall promptly pay additional commitment fees to
correct for such error.

2. OTHER FEES. Company agrees to pay to Agent and Bankers, as
Arranger, such other fees in the amounts and at the times as have been
separately agreed upon by letter agreement between Company, Agent and such
Arranger. After receipt of such other fees from Company, Agent agrees to pay,
or to cause to be paid by such Arranger, to each Lender such portion of such
other fees in the amounts and at the times as have been separately agreed upon
in writing between Agent and/or Arranger and such Lender.

D. REPAYMENTS, PREPAYMENTS AND REDUCTIONS IN REVOLVING LOAN COMMITMENTS;
GENERAL PROVISIONS REGARDING PAYMENTS.

1. SCHEDULED PAYMENTS OF TERM LOANS.

a. Scheduled Payments of Tranche A Term Loans. Company
shall make principal payments on the Tranche A Term Loans in
installments on the dates and in the amounts set forth below:

<TABLE>
<CAPTION>
Scheduled Repayment
Date of Tranche A Term Loans
---- -----------------------
<S> <C>
September 15, 1999 $ 11,000,000
December 15, 1999 11,000,000
March 15, 2000 11,000,000
June 15, 2000 11,000,000
September 15, 2000 13,500,000
December 15, 2000 13,500,000
March 15, 2001 13,500,000
June 15, 2001 13,500,000
September 15, 2001 13,500,000
December 15, 2001 13,500,000
March 15, 2002 13,500,000
June 15, 2002 13,500,000
September 15, 2002 16,000,000
December 15, 2002 16,000,000
February 15, 2003 16,000,000
-----------
$200,000,000
</TABLE>

; provided that the scheduled installments of principal of the Tranche
A Term Loans set forth above shall be reduced in connection with any
voluntary or mandatory prepayments of the Term Loans in accordance
with subsection 2.4B(iv); and provided further that the Tranche A Term
Loans and all other amounts owed hereunder with respect to the Tranche
A Term Loans shall be paid in full no later than February 15,
<PAGE> 59
2003, and the final installment payable by Company in respect of the
Tranche A Term Loans on such date shall be in an amount, if such
amount is different from that specified above, sufficient to repay all
amounts owing by Company under this Agreement with respect to the
Tranche A Term Loans.

b. Scheduled Payments of Tranche B Term Loans. Company
shall make principal payments on the Tranche B Term Loans in equal
quarterly installments of $875,000 on each March 15, June 15,
September 15 and December 15, commencing on June 15, 1997, through and
including March 15, 2000, and thereafter on the dates and in the
amounts set forth below:

<TABLE>
<CAPTION>
Scheduled Repayment
Date of Tranche B Term Loans
---- -----------------------
<S> <C>
June 15, 2000 $ 5,000,000
September 15, 2000 3,875,000
December 15, 2000 3,875,000
March 15, 2001 5,875,000
June 15, 2001 5,875,000
September 15, 2001 10,875,000
December 15, 2001 10,875,000
March 15, 2002 11,875,000
June 15, 2002 11,875,000
September 15, 2002 15,000,000
December 15, 2002 15,000,000
March 15, 2003 15,000,000
June 15, 2003 15,000,000
September 15, 2003 35,000,000
December 15, 2003 37,250,000
February 15, 2004 137,250,000
------------
$350,000,000
</TABLE>

; provided that the scheduled installments of principal of the Tranche
B Term Loans set forth above shall be reduced in connection with any
voluntary or mandatory prepayments of the Term Loans in accordance
with subsection 2.4B(iv); and provided further that the Tranche B Term
Loans and all other amounts owed hereunder with respect to the Tranche
B Term Loans shall be paid in full no later than February 15, 2004,
and the final installment payable by Company in respect of the Tranche
B Term Loans on such date shall be in an amount, if such amount is
different from that specified above, sufficient to repay all amounts
owing by Company under this Agreement with respect to the Tranche B
Term Loans.
<PAGE> 60
2. PREPAYMENTS AND REDUCTIONS IN COMMITMENTS.

a. Voluntary Prepayments.

(1) Company may, upon written or telephonic
notice to Agent on or prior to 12:00 Noon (New York City time)
on the date of prepayment, which notice, if telephonic, shall
be promptly confirmed in writing, at any time and from time to
time prepay any Swing Line Loan on any Business Day in whole
or in part in an aggregate minimum amount of $500,000 and
integral multiples of $250,000 in excess of that amount.
Company may, upon not less than one Business Day's prior
written or telephonic notice, in the case of Base Rate Loans,
and three Business Days' prior written or telephonic notice,
in the case of Eurodollar Rate Loans, in each case given to
Agent by 12:00 Noon (New York City time) on the date required
and, if given by telephone, promptly confirmed in writing to
Agent (which original written or telephonic notice Agent will
promptly transmit by telefacsimile or telephone to each
Lender), at any time and from time to time prepay any Term
Loans or Revolving Loans on any Business Day in whole or in
part in an aggregate minimum amount of $5,000,000 and integral
multiples of $1,000,000 in excess of that amount for
Eurodollar Rate Loans or an aggregate minimum amount of
$2,000,000 and integral multiples of $500,000 in excess of
that amount for Base Rate Loans; provided, however, that
unless Company compensates each Lender for any breakage costs
associated with such prepayment in accordance with subsection
2.6D, a Eurodollar Rate Loan may only be prepaid on the
expiration of the Interest Period applicable thereto. Notice
of prepayment having been given as aforesaid, the principal
amount of the Loans specified in such notice shall become due
and payable on the prepayment date specified therein. Any
such voluntary prepayment shall be applied as specified in
subsection 2.4B(iv).

(2) In the event Company is entitled to replace a
non-consenting Lender pursuant to subsection 11.6B, Company
shall have the right, upon five Business Days' written notice
to Agent (which notice Agent shall promptly transmit to each
of the Lenders), to prepay all Loans, together with accrued
and unpaid interest, fees and other amounts owing to such
Lender (including without limitation amounts owing to such
Lender pursuant to subsection 2.6D) in accordance with
subsection 11.6B so long as (1) in the case of the prepayment
of the Revolving Loans of any Lender pursuant to this
subsection 2.4B(i)(b), the Revolving Loan Commitment of such
Lender is terminated concurrently with such prepayment
pursuant to subsection 2.4B(ii)(b) (at which time Schedule 2.1
shall be deemed modified to reflect the changed Revolving Loan
Commitments), and (2) in the case of the prepayment of the
Loans of any Lender, the consents required by subsection 11.6B
in connection with the prepayment pursuant to this subsection
2.4B(i)(b) shall have been obtained, and at such time, such
Lender shall no longer constitute a "Lender" for purposes of
this Agreement, except with respect to indemnifications under
this Agreement (including, without limitation, subsections
2.6D, 2.7, 3.6, 11.2 and 11.3), which shall survive as to such
Lender.
<PAGE> 61
b. Voluntary Reductions of Revolving Loan Commitments.

(1) Company may, upon not less than three
Business Days' prior written or telephonic notice confirmed in
writing to Agent (which original written or telephonic notice
Agent will promptly transmit by telefacsimile or telephone to
each Lender), at any time and from time to time terminate in
whole or permanently reduce in part, without premium or
penalty, the Revolving Loan Commitments in an amount up to the
amount by which the Revolving Loan Commitments exceed the
Total Utilization of Revolving Loan Commitments at the time of
such proposed termination or reduction; provided that any such
partial reduction of the Revolving Loan Commitments shall be
in an aggregate minimum amount of $2,000,000 and integral
multiples of $500,000 in excess of that amount. Company's
notice to Agent shall designate the date (which shall be a
Business Day) of such termination or reduction and the amount
of any partial reduction, and such termination or reduction of
the Revolving Loan Commitments shall be effective on the date
specified in Company's notice and shall reduce the Revolving
Loan Commitment of each Lender proportionately by its Pro Rata
Share of such reduction.

(2) In the event Company is entitled to replace a
non-consenting Lender pursuant to subsection 11.6B, Company
shall have the right, upon five Business Days' written notice
to Agent (which notice Agent shall promptly transmit to each
of the Lenders), to terminate the entire Revolving Loan
Commitment of such Lender so long as (1) all Loans, together
with accrued and unpaid interest, fees and other amounts owing
to such Lender are repaid, including without limitation
amounts owing to such Lender pursuant to subsection 2.6D,
pursuant to subsection 2.4B(i)(b) concurrently with the
effectiveness of such termination (at which time Schedule 2.1
shall be deemed modified to reflect such changed amounts), and
(2) the consents required by subsection 11.6B in connection
with the prepayment pursuant to subsection 2.4B(i)(b) shall
have been obtained, and at such time, such Lender shall no
longer constitute a "Lender" for purposes of this Agreement,
except with respect to indemnifications under this Agreement
(including, without limitation, subsections 2.6D, 2.7, 3.6,
11.2 and 11.3), which shall survive as to such Lender.

c. Mandatory Prepayments and Mandatory Reductions of
Revolving Loan Commitments. The Loans shall be prepaid and/or the
Revolving Loan Commitments shall be permanently reduced in the amounts
and under the circumstances set forth below, all such prepayments
and/or reductions to be applied as set forth below or as more
specifically provided in subsection 2.4B(iv):

(1) Prepayments and Reductions from Asset Sales.
No later than the earlier to occur of (y) the third Business
Day following the date of receipt (or if Company would incur
breakage costs as a result of a prepayment on such date, on
the earlier to occur of the first such date thereafter on
which no such breakage costs are incurred and 30 days after
such date of receipt) by Company or any of its Subsidiaries of
Cash Proceeds of any Asset Sale in an
<PAGE> 62
aggregate cumulative amount equal to or exceeding $5,000,000 and (z)
the date of the occurrence of any Event of Default or Potential Event
of Default, (A) in the case of the first $75,000,000 in Net Cash
Proceeds from an Asset Sale of Cala and its Subsidiaries, Falley's and
its Subsidiaries or the business of Cala and its Subsidiaries or
Falley's and its Subsidiaries (collectively, the "Selected Asset
Sales"), Company may apply such Net Cash Proceeds to prepay first
Swing Line Loans to the full extent thereof and thereafter Revolving
Loans to the remaining extent thereof and the Revolving Loan
Commitments shall not be reduced by such prepayment of Swing Line
Loans or Revolving Loans, (B) in the case of the first $50,000,000 in
Net Cash Proceeds from Selected Asset Sales thereafter, Company shall
(i) prepay the Term Loans in an amount equal to 50% of such Net Cash
Proceeds and (ii) prepay the Swing Line Loans to the full extent
thereof and thereafter the Revolving Loans in an amount equal to the
remaining 50% of such Net Cash Proceeds, but the Revolving Loan
Commitments shall not be reduced by any such prepayment of the Swing
Line Loans or Revolving Loans, and (C) in the case of Net Cash
Proceeds from Asset Sales which are not covered by the foregoing
clauses (A) or (B), Company shall prepay the Loans and/or the
Revolving Loan Commitments shall be permanently reduced in an amount
equal to such Net Cash Proceeds as specified in subsection 2.4B(iv);
provided, however, that, so long as no Event of Default or Potential
Event of Default shall have occurred and be continuing, the following
Net Cash Proceeds of Asset Sales received by Company and its
Subsidiaries from and after the date hereof need not be applied to the
mandatory prepayment of the Loans pursuant to this subsection
2.4B(iii)(a):

(i) other than Net Cash Proceeds from
Planned Dispositions, from Asset Sales covered by the
foregoing clause (B) or constituting Planned
Improvement Financed Amounts, Net Cash Proceeds from
the sale of any store to the extent that such Net
Cash Proceeds are reinvested in new stores or the
construction or remodeling of stores within 270 days
of such sale;

(ii) other than Net Cash Proceeds from
Planned Dispositions, from Asset Sales covered by the
foregoing clause (B) or constituting Planned
Improvement Financed Amounts, Net Cash Proceeds from
the sale of a store to the extent that such Net Cash
Proceeds do not exceed the Consolidated Capital
Expenditures made to acquire or build a replacement
store in the general vicinity of the store sold
within 270 days preceding the date of such sale, and,
so long as, in the case of clause (i) above and this
clause (ii), the aggregate amount of such Net Cash
Proceeds so excluded from the mandatory prepayment
provisions does not exceed in any Fiscal Year the
greater of (x) $15,000,000 and (y) the Net Cash
Proceeds, up to a maximum aggregate amount of
$25,000,000, received by Company or any Subsidiary of
Company with respect to the sale of the first five
stores in such Fiscal Year with respect to which
Company has not prepaid the Loans, pursuant to such
<PAGE> 63
clauses (i) and (ii), within three Business Days of
receipt of proceeds thereof;

(iii) other than Net Cash Proceeds
constituting Planned Improvement Financed Amounts,
Net Cash Proceeds from the sale and concurrent
lease-back of any store opened or acquired after the
Closing Date or any equipment acquired after the
Closing Date, in each case within 270 days of the
completion of such store or the acquisition of such
equipment, in each case to the extent and only to the
extent of Consolidated Capital Expenditures made with
respect to such store or such equipment;

(iv) Net Cash Proceeds from the sale of
worn-out or obsolete equipment, to the extent that
such Net Cash Proceeds are reinvested in the same or
similar equipment within 90 days of such sale;

(v) Net Cash Proceeds from the
occurrence of any loss, damage or destruction of any
stores or any other facilities of Company or any of
its Subsidiaries (including any assets located
therein) giving rise to insurance proceeds, to the
extent that (a) such Net Cash Proceeds are reinvested
to repair or rebuild the assets so lost, damaged or
destroyed or reinvested in new stores or the
construction or remodeling of stores within the
earlier of (1) 270 days of receipt of such Net Cash
Proceeds and (2) 18 months of the occurrence of such
loss, damage or destruction or (b) such Net Cash
Proceeds do not exceed the expenditures made by
Company or any of its Subsidiaries within the earlier
of (1) 270 days of receipt of such Net Cash Proceeds
and (2) 18 months of the occurrence of such loss,
damage or destruction, to repair or rebuild the
applicable assets so lost, damaged or destroyed or to
acquire new stores or to construct or remodel stores;
and

(vi) an amount equal to 75% of Net Cash
Proceeds constituting Planned Improvement Financed
Amounts to the extent that such Net Cash Proceeds are
used to remodel, expand, renovate or otherwise
improve the store located on the related Planned
Improvement Property within two years of the sale of
such Planned Improvement Property.

In addition to the prepayments and reductions
required pursuant to the preceding paragraph, in the event
that Company or any of its Subsidiaries accepts non-cash
consideration or defers a portion of the sales price for Cala
and/or Falley's in excess of 15% of the aggregate sales prices
for Cala and Falley's, the Revolving Loan Commitments shall be
automatically and permanently reduced upon consummation of
such sale in an amount equal to such non-cash consideration
and such deferred portion of such sales prices in excess of
15% of such aggregate sales prices. Immediately upon
consummation of any sale of Cala or Falley's which requires a
reduction in the
<PAGE> 64
Revolving Loan Commitments under this paragraph, the Company
shall deliver an Officers' Certificate to Agent notifying
Agent of such sale and of the amount of such reduction in the
Revolving Loan Commitments.

If, following the receipt by Company or any of its
Subsidiaries of Cash Proceeds of any Asset Sale, Company is
required to apply or cause to be applied any portion of such
Cash Proceeds to prepay any Indebtedness evidenced by any of
the Related Financing Documents pursuant to the applicable
Related Financing Document, then, notwithstanding anything
contained in this subsection 2.4B(iii)(a), Company shall
prepay the Loans and/or reduce the Revolving Loan Commitments
in the order set forth in this subsection 2.4B(iii)(a) so as
to eliminate any obligation to prepay such Indebtedness.

(2) Prepayments and Reductions Due to Issuance of
Debt. No later than the first Business Day following the date
of receipt by Holdings or any of its Subsidiaries of the cash
proceeds (net of underwriting discounts, similar placement
fees and commissions and other reasonable costs and expenses
associated therewith) from the issuance of any debt Securities
(other than the issuance of Indebtedness pursuant to
subsections 7.1(i)-(xii) and (xv) as in effect on the
Effective Date) of Holdings or any such Subsidiary (the "NET
DEBT PROCEEDS"), (i) in the case of Net Debt Proceeds which do
not constitute Planned Improvement Financed Amounts, Company
shall prepay the Loans and/or the Revolving Loan Commitments
shall be permanently reduced in an amount equal to such Net
Debt Proceeds; provided that to the extent that after giving
effect to any such issuances of debt Securities and any
permanent prepayment of the Loans from the proceeds thereof,
Company's Leverage Ratio is less than 2.50:1.00, Company shall
prepay the Loans and/or the Revolving Loan Commitments shall
be permanently reduced in an amount equal to 50% of such Net
Debt Proceeds; and (ii) in the case of Net Debt Proceeds
constituting Planned Improvement Financed Amounts, Company
shall prepay the Loans and/or the Revolving Loan Commitments
shall be permanently reduced in an amount equal to 25% of such
Net Debt Proceeds; provided that to the extent that any such
Planned Improvement Financed Amounts have not been used to
remodel, expand, renovate or otherwise improve the store
located on the related Planned Improvement Property within two
years of the issuance of such debt Securities, such Net Debt
Proceeds shall be applied by the Company no later than the
first Business Day following the expiration of such two-year
period to prepay the Loans and/or to permanently reduce the
Revolving Loan Commitments in accordance with this clause
(ii).

(3) Prepayments and Reductions Due to Issuance of
Equity Securities. No later than the first Business Day
following the date of receipt by Holdings of the cash proceeds
(net of underwriting discounts, similar placement fees and
commissions and other reasonable costs associated therewith)
from the issuance of any equity Securities of Holdings or the
receipt of any equity contribution by Holdings or Company
(other than issuances of equity to management employees
pursuant to agreements or stock option plans
<PAGE> 65

permitted under subsection 7.12) (without duplication) (the
"Net Equity Proceeds"), Company shall prepay the Loans and/or
the Revolving Loan Commitments shall be permanently reduced in
an amount equal to 50% of such Net Equity Proceeds (such amount
being the "EQUITY REPAYMENT AMOUNT"); provided, however, that,
commencing with Fiscal Year 1998 and for any Fiscal Year
thereafter, so long as no Event of Default or Potential Event
of Default shall have occurred and be continuing, for purposes
of this subsection 2.4B(iii)(c), up to 50% of the Equity
Repayment Amount (but in an aggregate amount since the Closing
Date not to exceed $25,000,000) may be applied within 60 days
of such date of receipt to redeem, retire or repurchase all or
any portion of any Indebtedness (other than the Loans) of any
of Holdings or Company, as set forth in an Officers'
Certificate of Company delivered to Agent on the date of
receipt by Holdings of such Net Equity Proceeds.

(4) Prepayments and Reductions Due to Reversion
of Surplus Assets of Pension Plans. On the date of return to
Holdings or any of its Subsidiaries of any surplus assets of
any pension plan of Holdings or any of its Subsidiaries,
Company shall prepay the Loans and/or the Revolving Loan
Commitments shall be permanently reduced in an amount (the
"NET REVERSION AMOUNT") equal to 100% of such returned surplus
assets, net of transaction costs and expenses incurred in
obtaining such return, including incremental taxes payable as
a result thereof.

(5) Prepayments and Reductions Due to Excess Cash
Flow. In the event that there shall be Consolidated Excess
Cash Flow for any Fiscal Year, within 100 days after the last
day of such Fiscal Year Company shall prepay the Loans and/or
the Revolving Loan Commitments shall be permanently reduced in
an amount equal to (i) for Fiscal Year 1997, 100%, and (ii)
commencing with Fiscal Year 1998 and thereafter, 75%, of such
Consolidated Excess Cash Flow (such amount being the "CASH
FLOW REPAYMENT AMOUNT"); provided, however, that, commencing
with Fiscal Year 1998 and for any Fiscal Year thereafter, so
long as no Event of Default or Potential Event of Default
shall have occurred and be continuing, for purposes of this
subsection 2.4B(iii)(e), up to 50% of the Cash Flow Repayment
Amount (but in an aggregate amount since the Closing Date not
to exceed $25,000,000) may be applied within 60 days of the
date of such required prepayment to redeem, retire or
repurchase all or any portion of any Indebtedness (other than
the Loans) of Company, as set forth in an Officers'
Certificate of Company delivered to Agent on the date of such
required prepayment.

(6) Prepayments Due to Reductions or Restrictions
of Revolving Loan Commitments. Company shall immediately
prepay first the Swing Line Loans and second the Revolving
Loans to the extent necessary (1) so that the Total
Utilization of Revolving Loan Commitments shall not at any
time exceed the Revolving Loan Commitments then in effect and
(2) to give effect to the limitations set forth in clause (b)
of the second paragraph of subsection 2.1A(iii) and clause (b)
of the second paragraph of subsection 2.1A(iv). Any
<PAGE> 66
such mandatory prepayments shall be applied as specified in
subsection 2.4B(iv) and shall not reduce the amount of the
Revolving Loan Commitments then in effect.

(7) Calculations of Net Proceeds Amounts;
Additional Prepayments and Reductions Based on Subsequent
Calculations. Concurrently with any prepayment of the Loans
and/or reduction of the Revolving Loan Commitments pursuant to
subsections 2.4B(iii)(a)-(e) or within three Business Days of
the receipt of any Net Cash Proceeds of Asset Sales under
subsection 2.4B(iii)(a), Company shall deliver to Agent an
Officers' Certificate demonstrating (1) the calculation of the
amount (the "NET PROCEEDS AMOUNT") of the applicable Net Cash
Proceeds of Asset Sales, Net Debt Proceeds, Net Equity
Proceeds, Net Reversion Amount (as such latter three terms are
defined in subsections 2.4B(iii)(b), (c) and (d),
respectively) or the applicable Consolidated Excess Cash Flow,
as the case may be, that gave rise to such prepayment and/or
reduction; (2) with respect to the receipt of Net Cash
Proceeds referred to in clauses (i), (iv), (v) and (vi) of
subsection 2.4B(iii)(a), in reasonable detail, the intended
application of such Net Cash Proceeds and the estimated costs
of the reinvestment or improvement referred to in such clauses
and in the case of Net Debt Proceeds referred to in clause
(ii) of subsection 2.4B(iii)(b), the intended application of
such Net Debt Proceeds; and (3) with respect to the receipt of
Net Cash Proceeds referred to in clauses (ii), (iii) and (v)
of subsection 2.4B(iii)(a), in reasonable detail the
Consolidated Capital Expenditures made by Company which
account for the exclusion of any such Net Cash Proceeds from
the mandatory prepayment requirements of subsection
2.4B(iii)(a). Such Officers' Certificate, in the case of
clauses (i), (iv) and (vi) of subsection 2.4B(iii)(a) and
clause (ii) of subsection 2.4B(iii)(b), may be amended at any
time and from time to time by Company during the 270-day,
90-day or two-year period following receipt of such Net Cash
Proceeds or Net Debt Proceeds, as the case may be. In the
event that Company shall subsequently determine that the
actual Net Proceeds Amount was greater than the amount set
forth in such Officers' Certificate or that, with respect to
clauses (i), (iv), (v) and (vi) of subsection 2.4B(iii)(a),
clause (ii) of subsection 2.4B(iii)(b) or the provisos in
subsections 2.4B(iii)(c) and (e), such Net Proceeds Amount was
not expended for the purposes specified in such Officers'
Certificate, as amended, within the time periods specified in
such clauses, Company shall promptly make an additional
prepayment of the Loans (and/or, if applicable, the Revolving
Loan Commitments shall be permanently reduced) in an amount
equal to the amount of such excess or unexpended portion, but
only to the extent such amount has not been previously applied
as a mandatory prepayment under subsection 2.4B(iii)(e), and
Company shall concurrently therewith deliver to Agent an
Officers' Certificate demonstrating the derivation of the
additional Net Proceeds Amount resulting in such excess or
unexpended portion.
<PAGE> 67
d. Application of Prepayments.

(1) Application of Voluntary Prepayments by Type
of Loans and Order of Maturity. Subject to the last sentence
of this subsection 2.4B(iv)(a), any voluntary prepayments
pursuant to subsection 2.4B(i)(a) shall be applied to Term
Loans, Revolving Loans or Swing Line Loans as specified by
Company in the applicable notice of prepayment; provided that
in the event Company fails to specify the Loans to which any
such prepayment shall be applied, such prepayment shall be
applied first to repay outstanding Swing Line Loans to the
full extent thereof, second to repay outstanding Revolving
Loans to the full extent thereof, and third to repay
outstanding Term Loans to the full extent thereof. Any
voluntary prepayments of the Term Loans pursuant to subsection
2.4B(i)(a) shall be applied (x) to each Type of Term Loan on a
pro rata basis and (y) to reduce the unpaid scheduled
installments of the principal of the Term Loans set forth in
subsections 2.4A(i)-(ii) on a pro rata basis.

(2) Application of Mandatory Prepayments by Type
of Loans. Any amount (the "APPLIED AMOUNT") required to be
applied as a mandatory prepayment of the Loans and/or a
reduction of the Revolving Loan Commitments pursuant to
subsections 2.4B(iii)(a)-(e) shall be applied first to prepay
the Term Loans to the full extent thereof, second, to the
extent of any remaining portion of the Applied Amount, to
prepay the Swing Line Loans to the full extent thereof and to
permanently reduce the Revolving Loan Commitments by the
amount of such prepayment, third, to the extent of any
remaining portion of the Applied Amount, to prepay the
Revolving Loans to the full extent thereof and to further
permanently reduce the Revolving Loan Commitments by the
amount of such prepayment, and fourth, in an amount equal to
any remaining portion of the Applied Amount, to further
permanently reduce the Revolving Loan Commitments to the full
extent thereof.

(3) Application of Mandatory Prepayments of Term
Loans by Order of Maturity. Any mandatory prepayments of the
Term Loans pursuant to subsection 2.4B(iii) shall be applied
(x) to each Type of Term Loan on a pro rata basis, (y) in the
case of any mandatory prepayments to be applied to the Tranche
A Term Loans, to reduce unpaid scheduled installments of
principal of the Tranche A Term Loans set forth in subsection
2.4A(i) in forward order of maturity for up to the immediately
succeeding twelve-month period, and (z) to reduce the unpaid
scheduled installments of principal of the Tranche B Term
Loans and the unpaid scheduled installments of principal of
the Tranche A Term Loans (after giving effect to clause (y)
above) set forth in subsections 2.4A(i) and 2.4A(ii) on a pro
rata basis; provided that in the case of Tranche B Term Loans,
upon receipt of any mandatory prepayments pursuant to
subsection 2.4B(iii) with respect to which Company has given
Agent written notification prior to such receipt that Company
has elected to give such Tranche B Term Lenders the right to
waive such Lenders' right to receive such prepayment (the
"WAIVABLE MANDATORY PREPAYMENT"), Agent shall notify such
Tranche B Term Lenders of such receipt and the amount of the
prepayment to be applied to each such Lender's Term Loans;
provided still
<PAGE> 68
further that Company shall use its reasonable efforts to notify
such Tranche B Term Lenders of such Waivable Mandatory
Prepayment three (3) Business Days prior to the payment to
Agent of such Waivable Mandatory Prepayments (it being
understood that Company shall have no liabilities for failing
to so notify such Lenders). In the event any such Tranche B
Term Lender desires to waive such Lender's right to receive any
such Waivable Mandatory Prepayment, such Lender shall so advise
Agent no later than the close of business on the date of such
notice from Agent. In the event that any such Lender waives
such Lender's right to any such Waivable Mandatory Prepayment,
Agent shall apply 50% of the amount so waived by such Lender to
prepay the Tranche A Term Loans and to reduce unpaid scheduled
installments of principal of the Tranche A Term Loans set forth
in subsection 2.4A(i) on a pro rata basis. Agent shall return
the remainder of the amount so waived by such Lender to
Company.

(4) Application of Prepayments to Base Rate Loans
and Eurodollar Rate Loans. Considering each Type of Loan
being prepaid separately, any prepayment thereof shall be
applied first to Base Rate Loans to the full extent thereof
before application to Eurodollar Rate Loans, in each case in a
manner which minimizes the amount of any payments required to
be made by Company pursuant to subsection 2.6D.

C. GENERAL PROVISIONS REGARDING PAYMENTS.

(i) Manner and Time of Payment. All payments by Company
of principal, interest, fees and other Obligations hereunder, under
the Notes and under the other Loan Documents shall be made in Dollars
in same day funds, without defense, setoff or counterclaim, free of
any restriction or condition, and delivered to Agent not later than
1:00 P.M. (New York City time) on the date due at the Funding and
Payment Office for the account of Lenders; funds received by Agent
after that time on such due date shall be deemed to have been paid by
Company on the next succeeding Business Day. Company hereby
authorizes Agent to charge its accounts with Agent in order to cause
timely payment to be made to Agent of all principal, interest, fees
and expenses due hereunder (subject to sufficient funds being
available in its accounts for that purpose).

(ii) Application of Payments to Principal and Interest.
Except as otherwise provided in subsection 2.2C, all payments in
respect of the principal amount of any Loan shall include payment of
accrued interest on the principal amount being repaid or prepaid, and
all such payments shall be applied to the payment of interest before
application to principal.

(iii) Apportionment of Payments. Aggregate principal and
interest payments in respect of Term Loans and Revolving Loans shall
be apportioned among all outstanding Loans to which such payments
relate, in each case proportionately to Lenders' respective Pro Rata
Shares. Agent shall promptly distribute to each Lender, at its
primary address set forth below its name on the appropriate signature
page hereof or at such other address as such Lender may request, its
Pro Rata Share of all
<PAGE> 69
such payments received by Agent and the commitment fees of such Lender
when received by Agent pursuant to subsection 2.3. Notwithstanding
the foregoing provisions of this subsection 2.4C(iii), if, pursuant to
the provisions of subsection 2.6C, any Notice of
Conversion/Continuation is withdrawn as to any Affected Lender or if
any Affected Lender makes Base Rate Loans in lieu of its Pro Rata
Share of any Eurodollar Rate Loans, Agent shall give effect thereto in
apportioning payments received thereafter.

(iv) Payments on Business Days. Whenever any payment to
be made hereunder shall be stated to be due on a day that is not a
Business Day, such payment shall be made on the next succeeding
Business Day and such extension of time shall be included in the
computation of the payment of interest hereunder or of the commitment
fees or Letter of Credit fees hereunder, as the case may be; provided,
however, that if the day on which payment relating to a Eurodollar
Rate Loan is due is not a Business Day but is a day of the month after
which no further Business Day occurs in that month, then the due date
thereof shall be the next preceding Business Day.

(v) Notation of Payment. Each Lender agrees that before
disposing of any Note held by it, or any part thereof (other than by
granting participations therein), that Lender will make a notation
thereon of all Loans evidenced by that Note and all principal payments
previously made thereon and of the date to which interest thereon has
been paid; provided that the failure to make (or any error in the
making of) a notation of any Loan made under such Note shall not limit
or otherwise affect the obligations of Company hereunder or under such
Note with respect to any Loan or any payments of principal or interest
on such Note.

E. USE OF PROCEEDS.

1. EFFECTIVE DATE. The proceeds of the Revolving Loans made on
the Effective Date shall be applied by Company to pay accrued interest, fees
and expenses under the Existing Credit Agreement and expenses incurred in
connection with the transactions contemplated by this Agreement and to working
capital and general corporate purposes.

2. REVOLVING LOANS; SWING LINE LOANS. The proceeds of any other
Revolving Loans and any Swing Line Loans shall be applied by Company for
working capital and general corporate purposes.

3. MARGIN REGULATIONS. No portion of the proceeds of any
borrowing under this Agreement shall be used by Company or any of its
Subsidiaries in any manner that might cause the borrowing or the application of
such proceeds to violate Regulation G, Regulation U, Regulation T or Regulation
X of the Board of Governors of the Federal Reserve System or any other
regulation of such Board or to violate the Exchange Act, in each case as in
effect on the date or dates of such borrowing and such use of proceeds.
<PAGE> 70
F. SPECIAL PROVISIONS GOVERNING EURODOLLAR RATE LOANS.

Notwithstanding any other provision of this Agreement to the
contrary, the following provisions shall govern with respect to Eurodollar Rate
Loans as to the matters covered:

1. DETERMINATION OF APPLICABLE INTEREST RATE. As soon as
practicable after 10:00 A.M. (New York City time) on each Interest Rate
Determination Date, Agent shall determine (which determination shall, absent
manifest error, be final, conclusive and binding upon all parties) the interest
rate that shall apply to the Eurodollar Rate Loans for which an interest rate
is then being determined for the applicable Interest Period and shall promptly
give notice thereof (by telefacsimile or by telephone confirmed in writing) to
Company and each Lender.

2. INABILITY TO DETERMINE APPLICABLE INTEREST RATE. In the event
that Agent shall have determined (which determination shall be final and
conclusive and binding upon all parties hereto), on any Interest Rate
Determination Date with respect to any Eurodollar Rate Loans, that, by reason
of circumstances affecting the interbank Eurodollar market, adequate and fair
means do not exist for ascertaining the interest rate applicable to such Loans
on the basis provided for in the definition of Adjusted Eurodollar Rate, Agent
shall on such date give notice (by telefacsimile or by telephone confirmed in
writing) to Company and each Lender of such determination, whereupon (i) no
Loans may be made as, or converted to, Eurodollar Rate Loans until such time as
Agent notifies Company and Lenders that the circumstances giving rise to such
notice no longer exist and (ii) any Notice of Borrowing or Notice of
Conversion/Continuation given by Company with respect to the Loans in respect
of which such determination was made shall be deemed to be rescinded by
Company.

3. ILLEGALITY OR IMPRACTICABILITY OF EURODOLLAR RATE LOANS. In
the event that on any date any Lender shall have determined (which
determination shall be final and conclusive and binding upon all parties hereto
but shall be made only after consultation with Company and Agent) that the
making, maintaining or continuation of its Eurodollar Rate Loans (i) has become
unlawful as a result of compliance by such Lender in good faith with any law,
treaty, governmental rule, regulation, guideline or order (or would conflict
with any such treaty, governmental rule, regulation, guideline or order not
having the force of law even though the failure to comply therewith would not
be unlawful), in each case that becomes effective (other than any change in
such law, treaty or governmental rule, regulation or order which was
promulgated prior to the date hereof and which becomes effective in accordance
with its terms after the date hereof) after the date of this Agreement, or (ii)
has become impracticable, or would cause such Lender material hardship, as a
result of contingencies occurring after the date of this Agreement which
materially and adversely affect the interbank Eurodollar market or the position
of such Lender in that market, then, and in any such event, such Lender shall
be an "AFFECTED LENDER" and it shall on that day give notice (by telefacsimile
or by telephone confirmed in writing) to Company and Agent of such
determination (which notice Agent shall promptly transmit to each other
Lender). Thereafter (a) the obligation of the Affected Lender to make Loans
as, or to convert Loans to, Eurodollar Rate Loans shall be suspended until such
notice shall be withdrawn by the Affected Lender, (b) to the extent such
determination by the Affected Lender relates to a Eurodollar Rate Loan then
being requested by Company pursuant to a Notice of Borrowing
<PAGE> 71
or a Notice of Conversion/Continuation, the Affected Lender shall make such
Loan as (or convert such Loan to, as the case may be) a Base Rate Loan, (c) the
Affected Lender's obligation to maintain its outstanding Eurodollar Rate Loans
(the "AFFECTED LOANS") shall be terminated at the earlier to occur of the
expiration of the Interest Period then in effect with respect to the Affected
Loans or when required by law, and (d) the Affected Loans shall automatically
convert into Base Rate Loans on the date of such termination. Notwithstanding
the foregoing, to the extent a determination by an Affected Lender as described
above relates to a Eurodollar Rate Loan then being requested by Company
pursuant to a Notice of Borrowing or a Notice of Conversion/Continuation,
Company shall have the option, subject to the provisions of subsection 2.6D, to
rescind such Notice of Borrowing or Notice of Conversion/Continuation as to all
Lenders by giving notice (by telefacsimile or by telephone confirmed in
writing) to Agent of such rescission on the date on which the Affected Lender
gives notice of its determination as described above (which notice of
rescission Agent shall promptly transmit to each other Lender). Except as
provided in the immediately preceding sentence, nothing in this subsection 2.6C
shall affect the obligation of any Lender other than an Affected Lender to make
or maintain Loans as, or to convert Loans to, Eurodollar Rate Loans in
accordance with the terms of this Agreement.

4. COMPENSATION FOR BREAKAGE OR NON-COMMENCEMENT OF INTEREST
PERIODS. Company shall compensate each Lender, upon written request by that
Lender (which request shall set forth in reasonable detail the basis for
requesting such amounts), for all reasonable losses, expenses and liabilities
(including, without limitation, any interest paid by that Lender to lenders of
funds borrowed by it to make or carry its Eurodollar Rate Loans and any loss,
expense or liability sustained by that Lender in connection with the
liquidation or re-employment of such funds) which that Lender will sustain or
has sustained: (i) if for any reason (other than a default by that Lender) a
borrowing of any Eurodollar Rate Loan does not occur on a date specified
therefor in a Notice of Borrowing or a telephonic request for borrowing, or a
conversion to or continuation of any Eurodollar Rate Loan does not occur on a
date specified therefor in a Notice of Conversion/Continuation or a telephonic
request for conversion or continuation, (ii) if any prepayment or other
principal payment or any conversion of any of its Eurodollar Rate Loans occurs
on a date prior to the last day of an Interest Period applicable to that Loan,
(iii) if any prepayment of any of its Eurodollar Rate Loans is not made on any
date specified in a notice of prepayment given by Company, or (iv) as a
consequence of any other default by Company in the repayment of its Eurodollar
Rate Loans when required by the terms of this Agreement.

5. BOOKING OF EURODOLLAR RATE LOANS. Any Lender may make, carry
or transfer Eurodollar Rate Loans at, to, or for the account of any of its
branch offices or the office of an Affiliate of that Lender.

6. ASSUMPTIONS CONCERNING FUNDING OF EURODOLLAR RATE LOANS.
Calculation of all amounts payable to a Lender under this subsection 2.6 and
under subsection 2.7A shall be made as though that Lender had actually funded
each of its relevant Eurodollar Rate Loans through the purchase of a Eurodollar
deposit bearing interest at the rate obtained pursuant to clause (i) of the
definition of Adjusted Eurodollar Rate in an amount equal to the amount of such
Eurodollar Rate Loan and having a maturity comparable to the relevant Interest
Period and through the transfer of such Eurodollar deposit from an offshore
office of that Lender to a domestic office of that Lender in the United States
of America; provided,
<PAGE> 72
however, that each Lender may fund each of its Eurodollar Rate Loans in any
manner it sees fit and the foregoing assumptions shall be utilized only for the
purposes of calculating amounts payable under this subsection 2.6 and under
subsection 2.7A.

7. EURODOLLAR RATE LOANS AFTER DEFAULT. After the occurrence of
and during the continuation of a Potential Event of Default or an Event of
Default, unless waived in accordance with the provisions of subsection 11.6,
(i) Company may not elect to have a Loan be made or maintained as, or converted
to, a Eurodollar Rate Loan after the expiration of any Interest Period then in
effect for that Loan and (ii) subject to the provisions of subsection 2.6D, any
Notice of Borrowing or Notice of Conversion/Continuation given by Company with
respect to a requested borrowing or conversion/continuation that has not yet
occurred shall be deemed to be rescinded by Company.

G. INCREASED COSTS; TAXES; CAPITAL ADEQUACY.

1. COMPENSATION FOR INCREASED COSTS AND TAXES. Subject to the
provisions of subsection 2.7B, in the event that any Lender shall determine
(which determination shall, absent manifest error, be final and conclusive and
binding upon all parties hereto) that any law, treaty or governmental rule,
regulation or order, or any change therein or in the interpretation,
administration or application thereof (including the introduction of any new
law, treaty or governmental rule, regulation or order), or any determination of
a court or governmental authority, in each case that becomes effective (other
than any change in such law, treaty or governmental rule, regulation or order
which was promulgated prior to the date hereof and which becomes effective in
accordance with its terms after the date hereof) after the date hereof, or the
compliance by such Lender with any guideline, request or directive issued or
made after the date hereof by any central bank, the National Association of
Insurance Commissioners ("NAIC") or other governmental or quasi-governmental
authority (whether or not having the force of law):

a. subjects such Lender (or its applicable lending
office) to any additional Tax (other than any Tax on the overall
income of such Lender) with respect to this Agreement or any of its
obligations hereunder or any payments to such Lender (or its
applicable lending office) of principal, interest, fees or any other
amount payable hereunder;

b. imposes, modifies or holds applicable any reserve
(including without limitation any marginal, emergency, supplemental,
special or other reserve), special deposit, compulsory loan, FDIC
insurance or similar requirement against assets held by, or deposits
or other liabilities in or for the account of, or advances or loans
by, or other credit extended by, or any other acquisition of funds by,
any office of such Lender (other than any such reserve or other
requirements with respect to Eurodollar Rate Loans that are reflected
in the definition of Adjusted Eurodollar Rate); or

c. imposes any other condition (other than with respect
to a Tax matter) on or affecting such Lender (or its applicable
lending office) or its obligations hereunder or the interbank
Eurodollar market;
<PAGE> 73
and the result of any of the foregoing is to increase the cost to such Lender
of agreeing to make, making or maintaining Loans hereunder or to reduce any
amount received or receivable by such Lender (or its applicable lending office)
with respect thereto; then, in any such case, Company shall promptly pay to
such Lender, upon receipt of the statement referred to in the next sentence,
such additional amount or amounts (in the form of an increased rate of, or a
different method of calculating, interest or otherwise as such Lender in its
sole discretion shall determine) as may be necessary to compensate such Lender
for any such increased cost or reduction in amounts received or receivable
hereunder; provided that a Lender shall not be entitled to avail itself of the
benefit of this subsection 2.7A to the extent that any such increased cost or
reduction in amounts was incurred more than six months prior to the time it
gives notice to Company (as provided in the next sentence) of the relevant
circumstance, unless such circumstance arose or became applicable
retrospectively, in which case such Lender shall not be limited to such six
month period so long as such Lender has given such notice to Company no later
than six months from the time such circumstance became applicable to such
Lender. Such Lender shall deliver to Company (with a copy to Agent) a written
statement, setting forth in reasonable detail the basis for calculating the
additional amounts owed to such Lender under this subsection 2.7A, which
statement shall be conclusive and binding upon all parties hereto absent
manifest error.

2. WITHHOLDING OF TAXES.

a. Payments to Be Free and Clear. Except as provided
specifically to the contrary in paragraphs (ii) and (iii) below, all
sums payable by Company or any other Loan Party to Agent or any Lender
under this Agreement or the other Loan Documents shall be paid free
and clear of and (except to the extent required by law) without any
deduction or withholding on account of any Tax (other than a Tax on
the overall income of any Lender) imposed, levied, collected, withheld
or assessed by or within the United States of America or any political
subdivision in or of the United States of America or any other
jurisdiction from or to which a payment is made by or on behalf of
Company or by any federation or organization of which the United
States of America or any such jurisdiction is a member at the time of
payment.

b. Grossing-up of Payments. If Company or any other
Person is required by law to make any deduction or withholding on
account of any such Tax from any sum paid or payable by Company to
Agent or any Lender under any of the Loan Documents:

(1) Company shall notify Agent of any such
requirement or any change in any such requirement as soon as
Company becomes aware of it;

(2) Company shall pay any such Tax before the
date on which penalties attach thereto, such payment to be
made (if the liability to pay is imposed on Company) for its
own account or (if that liability is imposed on Agent or such
Lender, as the case may be) on behalf of and in the name of
Agent or such Lender;

(3) the sum payable by Company in respect of
which the relevant deduction, withholding or payment is
required shall be increased to the extent
<PAGE> 74
necessary to ensure that, after the making of that deduction,
withholding or payment, Agent or such Lender, as the case may
be, receives on the due date and retains (free from any
liability in respect of any such deduction, withholding or
payment) a net sum equal to what it would have received and so
retained had no such deduction, withholding or payment been
required or made; and

(4) within 30 days after paying any sum from
which it is required by law to make any deduction or
withholding, and within 30 days after the due date of payment
of any Tax which it is required by clause (b) above to pay,
Company shall deliver to Agent evidence satisfactory to the
other affected parties of such deduction, withholding or
payment and of the remittance thereof to the relevant taxing
or other authority;

provided that no such additional amount shall be required to be paid
to any Lender under clause (c) above except to the extent that any
change after the date hereof (in the case of each Lender listed on the
signature pages hereof) or after the date of the Assignment Agreement
pursuant to which such Lender became a Lender (in the case of each
other Lender) in any such requirement for a deduction, withholding or
payment as is mentioned therein shall result in an increase in the
rate of such deduction, withholding or payment from that in effect at
the date of this Agreement or at the date of such Assignment
Agreement, as the case may be, in respect of payments to such Lender.

c. Evidence of Exemption from U.S. Withholding Tax.

(1) Each Lender that is organized under the laws
of any jurisdiction other than the United States or any state
or other political subdivision thereof (for purposes of this
subsection 2.7B(iii), a "NON-US LENDER") shall deliver to
Agent for transmission to Company, on or prior to the Closing
Date (in the case of each Lender listed on the signature pages
hereof) or on the date of the Assignment Agreement pursuant to
which it becomes a Lender (in the case of each other Lender),
and at such other times as may be necessary in the
determination of Company or Agent (each in the reasonable
exercise of its discretion), (1) two original copies of
Internal Revenue Service Form 1001 or 4224 (or any successor
forms), properly completed and duly executed by such Lender,
together with any other certificate or statement of exemption
required under the Internal Revenue Code or the regulations
issued thereunder to establish that such Lender is not subject
to deduction or withholding of United States federal income
tax with respect to any payments to such Lender of principal,
interest, fees or other amounts payable under any of the Loan
Documents or (2) if such Lender is not a "bank" or other
Person described in Section 881(c)(3) of the Internal Revenue
Code and cannot deliver either Internal Revenue Service Form
1001 or 4224 pursuant to clause (1) above, a Certificate re
Non-Bank Status together with two original copies of Internal
Revenue Service Form W-8 (or any successor form), properly
completed and duly executed by such Lender, together with any
other certificate or statement of exemption required under the
Internal Revenue Code or the regulations
<PAGE> 75
issued thereunder to establish that such Lender is not subject
to deduction or withholding of United States federal income tax
with respect to any payments to such Lender of interest payable
under any of the Loan Documents.

(2) Each Lender required to deliver any forms,
certificates or other evidence with respect to United States
federal income tax withholding matters pursuant to subsection
2.7B(iii)(a) hereby agrees, from time to time after the
initial delivery by such Lender of such forms, certificates or
other evidence, whenever a lapse in time or change in
circumstances renders such forms, certificates or other
evidence obsolete or inaccurate in any material respect, such
Lender shall (1) deliver to Agent for transmission to Company
two new original copies of Internal Revenue Service Form 1001
or 4224, or a Certificate re Non-Bank Status and two original
copies of Internal Revenue Service Form W-8, as the case may
be, properly completed and duly executed by such Lender,
together with any other certificate or statement of exemption
required in order to confirm or establish that such Lender is
not subject to deduction or withholding of United States
federal income tax with respect to payments to such Lender
under the Loan Documents or (2) immediately notify Agent and
Company of its inability to deliver any such forms,
certificates or other evidence.

(3) Company shall not be required to pay any
additional amount to any Non-US Lender under clause (c) of
subsection 2.7B(ii) if such Lender shall have failed to
satisfy the requirements of subsection 2.7B(iii)(a); provided
that if such Lender shall have satisfied such requirements on
the Closing Date (in the case of each Lender listed on the
signature pages hereof) or on the date of the Assignment
Agreement pursuant to which it became a Lender (in the case of
each other Lender), nothing in this subsection 2.7B(iii)(c)
shall relieve Company of its obligation to pay any additional
amounts pursuant to clause (c) of subsection 2.7B(ii) in the
event that, as a result of any change after the date of such
satisfaction in any applicable law, treaty or governmental
rule, regulation or order, or any change after the date of
such satisfaction in the interpretation, administration or
application thereof, such Lender is no longer properly
entitled to deliver forms, certificates or other evidence at a
subsequent date establishing the fact that such Lender is not
subject to withholding as described in subsection
2.7B(iii)(a).

3. CAPITAL ADEQUACY ADJUSTMENT. If any Lender shall have
determined that the adoption, effectiveness, phase-in or applicability after
the date hereof of any law, rule or regulation (or any provision thereof)
regarding capital adequacy, or, after the date hereof, any change therein or in
the interpretation or administration thereof by any governmental authority,
central bank, the NAIC or comparable agency charged with the interpretation or
administration thereof, or compliance by any Lender (or its applicable lending
office) with any guideline, request or directive regarding capital adequacy
(whether or not having the force of law) of any such governmental authority,
central bank, the NAIC or comparable agency, has or would have the effect of
reducing the rate of return on the capital of such Lender or any corporation
controlling such Lender as a consequence of, or with reference to, such
Lender's Loans or Commitments or Letters of Credit or participations therein or
other
<PAGE> 76
obligations hereunder with respect to the Loans or the Letters of Credit to a
level below that which such Lender or such controlling corporation could have
achieved but for such adoption, effectiveness, phase-in, applicability, change
or compliance (taking into consideration the policies of such Lender or such
controlling corporation with regard to capital adequacy), then from time to
time, within five Business Days after receipt by Company from such Lender of
the statement referred to in the next sentence, Company shall pay to such
Lender such additional amount or amounts as will compensate such Lender or such
controlling corporation on an after-tax basis for such reduction; provided that
a Lender shall not be entitled to avail itself of the benefit of this
subsection 2.7C to the extent that any such reduction in return was incurred
more than six months prior to the time it gives notice to Company (as provided
in the next sentence) of the relevant circumstance, unless such circumstance
arose or became applicable retrospectively, in which case such Lender shall not
be limited to such six month period so long as such Lender has given such
notice to Company no later than six months from the time such circumstance
became applicable to such Lender. Such Lender shall deliver to Company (with a
copy to Agent) a written statement, setting forth in reasonable detail the
basis of the calculation of such additional amounts, which statement shall be
conclusive and binding upon all parties hereto absent manifest error.

H. OBLIGATION OF LENDERS AND ISSUING LENDERS TO MITIGATE; REPLACEMENT OF
LENDER.

A. Each Lender and Issuing Lender agrees that, as promptly as
practicable after the officer of such Lender or Issuing Lender responsible for
administering the Loans or Letters of Credit of such Lender or Issuing Lender,
as the case may be, becomes aware of the occurrence of an event or the
existence of a condition that would cause such Lender to become an Affected
Lender or that would entitle such Lender or Issuing Lender to receive payments
under subsection 2.7 or subsection 3.6, it will, to the extent not inconsistent
with the internal policies of such Lender or Issuing Lender and any applicable
legal or regulatory restrictions, use reasonable efforts (i) to make, issue,
fund or maintain the Commitments of such Lender or the affected Loans or
Letters of Credit of such Lender or Issuing Lender through another lending or
letter of credit office of such Lender or Issuing Lender, or (ii) take such
other measures as such Lender or Issuing Lender may deem reasonable, if as a
result thereof the circumstances which would cause such Lender to be an
Affected Lender would cease to exist or the additional amounts which would
otherwise be required to be paid to such Lender or Issuing Lender pursuant to
subsection 2.7 or subsection 3.6 would be materially reduced and if, as
determined by such Lender or Issuing Lender in its sole discretion, the making,
issuing, funding or maintaining of such Commitments or Loans or Letters of
Credit through such other lending or letter of credit office or in accordance
with such other measures, as the case may be, would not otherwise materially
adversely affect such Commitments or Loans or Letters of Credit or the
interests of such Lender or Issuing Lender; provided that such Lender or
Issuing Lender will not be obligated to utilize such other lending or letter of
credit office pursuant to this subsection 2.8 unless Company agrees to pay all
incremental expenses incurred by such Lender or Issuing Lender as a result of
utilizing such other lending or letter of credit office as described in clause
(i) above. A certificate as to the amount of any such expenses payable by
Company pursuant to this subsection 2.8 (setting forth in reasonable detail the
basis for requesting such amount) submitted by such Lender or Issuing Lender to
Company (with a copy to Agent) shall be conclusive absent manifest error.
<PAGE> 77
B. If Company receives a notice pursuant to subsection 2.7A, 2.7C
or 3.6 or in the event a Lender has not consented to a proposed change, waiver,
discharge or termination with respect to this Agreement which has been approved
by the Requisite Lenders as provided in subsection 11.6, Company shall have the
right, if no Potential Event of Default or Event of Default then exists, to
replace such Lender (a "REPLACED LENDER") with one or more Eligible Assignees
(collectively, the "REPLACEMENT LENDER") acceptable to Agent, provided that (i)
at the time of any replacement pursuant to this subsection 2.8, the Replacement
Lender shall enter into one or more Assignment Agreements pursuant to
subsection 11.1B (and with all fees payable pursuant to such subsection 11.1B
to be paid by the Replacement Lender) pursuant to which the Replacement Lender
shall acquire all of the outstanding Loans and Commitments of, and in each case
participations in Letters of Credit and Swing Line Loans by, the Replaced
Lender and, in connection therewith, shall pay to (x) the Replaced Lender in
respect thereof an amount equal to the sum of (A) an amount equal to the
principal of, and all accrued interest on, all outstanding Loans of the
Replaced Lender, (B) an amount equal to all unpaid drawings with respect to
Letters of Credit that have been funded by (and not reimbursed to) such
Replaced Lender, together with all then unpaid interest with respect thereto at
such time and (C) an amount equal to all accrued, but theretofore unpaid, fees
owing to the Replaced Lender with respect thereto, (y) the appropriate Issuing
Lender an amount equal to such Replaced Lender's Pro Rata Share of any unpaid
drawings with respect to Letters of Credit (which at such time remains an
unpaid drawing) issued by it to the extent such amount was not theretofore
funded by such Replaced Lender, and (z) Swing Line Lender an amount equal to
such Replaced Lender's Pro Rata Share of any Refunded Swing Line Loans to the
extent such amount was not theretofore funded by such Replaced Lender, and (ii)
all obligations (including without limitation all such amounts, if any, owing
under subsection 2.6D) of Company owing to the Replaced Lender (other than
those specifically described in clause (i) above in respect of which the
assignment purchase price has been, or is concurrently being, paid), shall be
paid in full to such Replaced Lender concurrently with such replacement. Upon
the execution of the respective Assignment Agreements, recordation of such
assignment in the Register by Agent pursuant to subsection 2.1D, the payment of
amounts referred to in clauses (i) and (ii) above and delivery to the
Replacement Lender of the appropriate Note or Notes executed by Company, the
Replacement Lender shall become a Lender hereunder and the Replaced Lender
shall cease to constitute a Lender hereunder except with respect to
indemnification provisions under this Agreement which by the terms of this
Agreement survive the termination of this Agreement, which indemnification
provisions shall survive as to such Replaced Lender. Notwithstanding anything
to the contrary contained above, no Issuing Lender may be replaced hereunder at
any time while it has Letters of Credit outstanding hereunder unless
arrangements satisfactory to such Issuing Lender (including the furnishing of a
Standby Letter of Credit in form and substance, and issued by an issuer,
satisfactory to such Issuing Lender or the furnishing of cash collateral in
amounts and pursuant to arrangements satisfactory to such Issuing Lender) have
been made with respect to such outstanding Letters of Credit.
<PAGE> 78
SECTION II. LETTERS OF CREDIT

A. ISSUANCE OF LETTERS OF CREDIT AND LENDERS' PURCHASE OF PARTICIPATIONS
THEREIN.

1. LETTERS OF CREDIT. In addition to Company requesting that
Revolving Lenders make Revolving Loans pursuant to subsection 2.1A(iii) and
that Swing Line Lender make Swing Line Loans pursuant to subsection 2.1A(iv),
Company may request, in accordance with the provisions of this subsection 3.1,
from time to time during the period from the Closing Date to but excluding the
Revolving Loan Commitment Termination Date, that one or more Revolving Lenders
issue Letters of Credit payable on a sight basis for the account of Company or
any wholly-owned Subsidiary of Company for the purposes specified in the
definitions of Commercial Letters of Credit and Standby Letters of Credit;
provided, that if any such Letter of Credit is issued for the account of any
such Subsidiary, Company shall execute jointly with such Subsidiary all letter
of credit documentation as may be required by the applicable Issuing Lender.
Subject to the terms and conditions of this Agreement and in reliance upon the
representations and warranties of Holdings and Company herein set forth, any
one or more Revolving Lenders may, but (except as provided in subsection
3.1B(ii)) shall not be obligated to, issue such Letters of Credit in accordance
with the provisions of this subsection 3.1; provided that Company shall not
request that any Revolving Lender issue (and no Revolving Lender shall issue):

a. any Letter of Credit if, after giving effect to such
issuance, the Total Utilization of Revolving Loan Commitments would
exceed the Revolving Loan Commitments then in effect;

b. any Letter of Credit if, after giving effect to such
issuance, the Letter of Credit Usage would exceed $150,000,000;

c. any Standby Letter of Credit having an expiration
date later than the earlier of (a) the date which is 30 days prior to
the Revolving Loan Commitment Termination Date and (b) the date which
is one year from the date of issuance of such Standby Letter of
Credit; provided that the immediately preceding clause (b) shall not
prevent any Issuing Lender from agreeing that a Standby Letter of
Credit will automatically be extended for one or more successive
periods not to exceed one year each unless such Issuing Lender elects
not to extend for any such additional period; provided further that
such Issuing Lender shall give notice that it will not extend such
Standby Letter of Credit if it has knowledge that an Event of Default
has occurred and is continuing at the time at which such Issuing
Lender may give notice that it will not extend such Standby Letter of
Credit, unless such Event of Default has been waived in accordance
with the provisions of subsection 11.6;

d. any Commercial Letter of Credit having an expiration
date (a) later than the earlier of (X) the date which is 30 days prior
to the Revolving Loan Commitment Termination Date and (Y) the date
which is 180 days from the date of issuance of such Commercial Letter
of Credit or (b) that is otherwise unacceptable to the applicable
Issuing Lender in its reasonable discretion; or
<PAGE> 79
e. any Letter of Credit denominated in a currency other
than Dollars and payable on a sight basis.

2. MECHANICS OF ISSUANCE.

a. Request for Letter of Credit. Whenever Company
desires the issuance of a Letter of Credit, it shall deliver to the
proposed Issuing Lender (with a copy to Agent if Agent is not the
proposed Issuing Lender) a Request for Letter of Credit substantially
in the form of Exhibit III annexed hereto no later than 1:00 P.M. (New
York City time) at least five Business Days (or such shorter period as
may be agreed to by the Issuing Lender in any particular instance) in
advance of the proposed date of issuance. The Request for Letter of
Credit shall specify (a) the Revolving Lender requested to issue the
Letter of Credit, (b) the proposed date of issuance (which shall be a
Business Day), (c) the face amount of the Letter of Credit, (d) the
expiration date of the Letter of Credit, (e) the name and address of
the beneficiary, (f) if such Letter of Credit is proposed to be issued
for the account of a wholly-owned Subsidiary of Company, the name of
such Subsidiary, and (g) the verbatim text of the proposed Letter of
Credit or the proposed terms and conditions thereof, including a
precise description of any documents and the verbatim text of any
certificates to be presented by the beneficiary which, if presented by
the beneficiary in substantial compliance with the terms and
conditions and on or before the expiration date of the Letter of
Credit, would require the Issuing Lender to make payment under the
Letter of Credit; provided that the Issuing Lender, in its reasonable
discretion, may require changes in the text of the proposed Letter of
Credit or any such documents or certificates.

Company shall notify the applicable Issuing Lender (and Agent,
if Agent is not such Issuing Lender) prior to the issuance of any
Letter of Credit in the event that any of the matters to which Company
is required to certify in the applicable Request for Letter of Credit
is no longer true and correct as of the proposed date of issuance of
such Letter of Credit, and upon the issuance of any Letter of Credit
Company shall be deemed to have re-certified, as of the date of such
issuance, as to the matters to which Company is required to certify in
the applicable Request for Letter of Credit.

b. Determination of Issuing Lender. Upon receipt by a
proposed Issuing Lender of a Request for Letter of Credit pursuant to
subsection 3.1B(i) requesting the issuance of a Letter of Credit, (a)
in the event Agent is the proposed Issuing Lender, (1) if Agent elects
to issue such Letter of Credit, Agent shall promptly so notify Company
and Agent shall be the Issuing Lender with respect thereto and (2) if
Agent, in its sole discretion, elects not to issue such Letter of
Credit, Agent shall promptly so notify Company, whereupon Company may
request any Co-Agent to issue such Letter of Credit by delivering to
such Co-Agent a copy of the applicable Request for Letter of Credit
and any Co-Agent so requested to issue such Letter of Credit shall
promptly notify Company and Agent whether or not, in its sole
discretion, it has elected to issue such Letter of Credit, and any
such Co-Agent which so elects to issue such Letter of Credit shall be
the Issuing Lender with respect thereto; provided that in the event
that five Co-Agents which in the ordinary course of their business
customarily issue letters of credit shall have declined to issue such
Letter of Credit,
<PAGE> 80
notwithstanding the prior election of Agent not to issue such Letter
of Credit, Agent shall be obligated to issue such Letter of Credit and
shall be the Issuing Lender with respect to such Letter of Credit,
notwithstanding the fact that the Letter of Credit Usage with respect
to such Letter of Credit and with respect to all other Letters of
Credit issued by Agent, when aggregated with Agent's outstanding
Revolving Loans and Swing Line Loans, may exceed Agent's Revolving
Loan Commitment then in effect; and (b) in the event any other
Revolving Lender is the proposed Issuing Lender, such Revolving Lender
shall promptly notify Company and Agent whether or not, in its sole
discretion, it has elected to issue such Letter of Credit, and (1) if
such Revolving Lender so elects to issue such Letter of Credit, it
shall be the Issuing Lender with respect thereto and (2) if such
Revolving Lender fails to so promptly notify Company and Agent or
declines to issue such Letter of Credit, Company may request Agent or
another Revolving Lender to be the Issuing Lender with respect to such
Letter of Credit in accordance with the provisions of this subsection
3.1B.

c. Issuance of Letter of Credit. Upon satisfaction or
waiver (in accordance with subsection 11.6) of the conditions set
forth in subsection 4.3, the Issuing Lender shall issue the requested
Letter of Credit in accordance with the Issuing Lender's standard
operating procedures.

d. Notification to Revolving Lenders. Upon the issuance
of any Standby Letter of Credit the applicable Issuing Lender shall
promptly notify Agent and each other Revolving Lender of such
issuance, which notice shall be accompanied by a copy of such Standby
Letter of Credit. Promptly after receipt of such notice, Agent shall
notify each Revolving Lender of the amount of such Revolving Lender's
respective participation in such Standby Letter of Credit, determined
in accordance with subsection 3.1C.

e. Reports to Revolving Lenders. Within 15 days after
the end of each calendar quarter ending after the Closing Date, so
long as any Standby Letter of Credit shall have been outstanding
during such calendar quarter, each Issuing Lender shall deliver to
each other Revolving Lender and Agent a report setting forth the daily
maximum amount available to be drawn under the Standby Letters of
Credit issued by such Issuing Lender that were outstanding during such
calendar quarter. In the case of Commercial Letters of Credit, in the
event that the Issuing Lender is other than the Agent, such Issuing
Lender will send by facsimile transmission to the Agent, promptly on
the first Business Day of each week, its daily aggregate maximum
amount available for drawing under Commercial Letters of Credit for
the previous week. The Agent shall deliver to each Revolving Lender,
upon each calendar month end, a report setting forth for such period
the daily aggregate maximum amount available for drawing under the
Commercial Letters of Credit issued by all the Issuing Lenders during
such period.

3. REVOLVING LENDERS' PURCHASE OF PARTICIPATIONS IN LETTERS OF
CREDIT. Immediately upon the issuance of each Letter of Credit, each
Revolving Lender shall be deemed to, and hereby agrees to, have irrevocably
purchased from the Issuing Lender a participation in such Letter of Credit and
drawings thereunder in an amount equal to such Revolving Lender's Pro Rata
Share (calculated without giving effect to clauses (b) and (c) of
<PAGE> 81
the definition of Revolving Loan Exposure) of the maximum amount which is or at
any time may become available to be drawn thereunder. Upon satisfaction of the
conditions set forth in subsection 4.1, the Existing Letters of Credit shall,
effective as of the Effective Date, become Letters of Credit under this
Agreement to the same extent as if initially issued hereunder and each
Revolving Lender shall be deemed to have irrevocably purchased from the Issuing
Lender(s) of such Existing Letters of Credit a participation in such Letters of
Credit and drawings thereunder in an amount equal to such Revolving Lender's
Pro Rata Share of the maximum amount which is or at any time may become
available to be drawn thereunder. All such Existing Letters of Credit which
become Letters of Credit under this Agreement shall be fully secured by the
Collateral commencing on the Effective Date to the same extent as if initially
issued hereunder on such date.

B. LETTER OF CREDIT FEES.

Company agrees to pay the following amounts with respect to Letters of
Credit:

a. with respect to each Standby Letter of Credit, (a) to
the applicable Issuing Lender, a fronting fee equal to 0.25% per annum
of the daily amount available to be drawn under such Standby Letter of
Credit, but in any event not less than $500 per year per Standby
Letter of Credit and (b) to Agent a letter of credit fee equal to (x)
the Applicable Tranche A Eurodollar Margin minus the Commitment Fee
Percentage multiplied by (y) the daily amount available to be drawn
under such Standby Letter of Credit, in each case payable in arrears
on and to (but excluding) each March 15, June 15, September 15 and
December 15 of each year and computed on the basis of a 360-day year
for the actual number of days elapsed;

b. with respect to each Commercial Letter of Credit, (a)
to the applicable Issuing Lender, a fronting fee equal to 0.25% per
annum of the daily amount available to be drawn under such Commercial
Letter of Credit, but in any event not less than $500 per year per
Commercial Letter of Credit and (b) to Agent a letter of credit fee
equal to (x) the Applicable Tranche A Eurodollar Margin minus the sum
of (A) 1.0% per annum and (B) the Commitment Fee Percentage multiplied
by (y) the daily amount available to be drawn under such Commercial
Letter of Credit, in each case payable in arrears on and to (but
excluding) each March 15, June 15, September 15 and December 15 of
each year and computed on the basis of a 360-day year for the actual
number of days elapsed; and

c. to the applicable Issuing Lender, with respect to the
issuance, amendment, assignment or transfer of each Letter of Credit
and each drawing made thereunder (without duplication of the fees
payable under clauses (i) and (ii) above), documentary and processing
charges in accordance with such Issuing Lender's standard schedule for
such charges in effect at the time of such issuance, amendment,
assignment, transfer or drawing, as the case may be.

Promptly upon receipt by Agent of any amount described in clause (i)(b) or
(ii)(b) of this subsection 3.2, Agent shall distribute to each Revolving Lender
such Revolving Lender's Pro Rata Share of such amount. With respect to
Existing Letters of Credit, the fees described in clauses (i) and (ii) above
shall accrue from and including the Effective Date.
<PAGE> 82
C. DRAWINGS AND REIMBURSEMENT OF AMOUNTS DRAWN UNDER LETTERS OF CREDIT.

1. RESPONSIBILITY OF ISSUING LENDER WITH RESPECT TO DRAWINGS. In
determining whether to honor any drawing under any Letter of Credit by the
beneficiary thereof, the Issuing Lender shall be responsible only to determine
that the documents and certificates required to be delivered under such Letter
of Credit have been delivered and that they substantially comply on their face
with the requirements of such Letter of Credit.

2. REIMBURSEMENT BY COMPANY OF AMOUNTS DRAWN UNDER LETTERS OF
CREDIT. In the event an Issuing Lender has determined to honor a drawing
under a Letter of Credit issued by it, such Issuing Lender shall immediately
notify Company and Agent, and Company shall reimburse such Issuing Lender on or
before the Business Day immediately following the date on which such drawing is
honored (the "REIMBURSEMENT DATE") in an amount in Dollars and in same day
funds equal to the amount of such drawing (whether or not Company is the
account party under such Letter of Credit); provided that, anything contained
in this Agreement to the contrary notwithstanding, (i) unless Company shall
have notified Agent and such Issuing Lender prior to 12:00 Noon (New York City
time) on the date of such drawing that Company intends to reimburse such
Issuing Lender for the amount of such drawing with funds other than the
proceeds of Revolving Loans, Company shall be deemed to have given a timely
Notice of Borrowing (it being understood, however, that such deemed Notice of
Borrowing shall not be deemed to be a representation of Company that the
representations and warranties contained in the Loan Documents are true,
correct and complete in all material respects on and as of the date of such
deemed Notice of Borrowing) to Agent requesting Revolving Lenders to make
Revolving Loans that are Base Rate Loans on the Reimbursement Date in an amount
in Dollars equal to the amount of such drawing and (ii) subject to satisfaction
or waiver of the conditions specified in subsection 4.2B, Revolving Lenders
shall, on the Reimbursement Date, make Revolving Loans that are Base Rate Loans
in the amount of such drawing, the proceeds of which shall be applied directly
by Agent to reimburse such Issuing Lender for the amount of such drawing; and
provided further that if for any reason proceeds of Revolving Loans are not
received by such Issuing Lender on the Reimbursement Date in an amount equal to
the amount of such drawing, Company shall reimburse such Issuing Lender, on
demand, in an amount in same day funds equal to the excess of the amount of
such drawing over the aggregate amount of such Revolving Loans, if any, which
are so received. Nothing in this subsection 3.3B shall be deemed to relieve
any Revolving Lender from its obligation to make Revolving Loans on the terms
and conditions set forth in this Agreement, and Company shall retain any and
all rights it may have against any Revolving Lender resulting from the failure
of such Revolving Lender to make such Revolving Loans under this subsection
3.3B.

3. PAYMENT BY REVOLVING LENDERS OF UNREIMBURSED DRAWINGS UNDER
LETTERS OF CREDIT.

a. Payment by Revolving Lenders. In the event that
Company shall fail for any reason to reimburse any Issuing Lender as
provided in subsection 3.3B in an amount equal to the amount of any
drawing honored by such Issuing Lender under a Letter of Credit issued
by it, such Issuing Lender shall promptly notify each other Revolving
Lender of the unreimbursed amount of such drawing and of such other
Revolving Lender's respective participation therein based on such
Revolving Lender's
<PAGE> 83
Pro Rata Share. Each Revolving Lender shall make available to such
Issuing Lender an amount equal to its respective participation, in
Dollars and in same day funds, at the office of such Issuing Lender
specified in such notice, not later than 1:00 P.M. (New York City
time) on the first business day (under the laws of the jurisdiction in
which such office of such Issuing Lender is located) after the date
notified by such Issuing Lender. In the event that any Revolving
Lender fails to make available to such Issuing Lender on such business
day the amount of such Revolving Lender's participation in such Letter
of Credit as provided in this subsection 3.3C, such Issuing Lender
shall be entitled to recover such amount on demand from such Revolving
Lender together with interest thereon at the rate customarily used by
such Issuing Lender for the correction of errors among banks for three
Business Days and thereafter at the Base Rate. Nothing in this
subsection 3.3C shall be deemed to prejudice the right of any
Revolving Lender to recover from any Issuing Lender any amounts made
available by such Revolving Lender to such Issuing Lender pursuant to
this subsection 3.3C in the event that it is determined by the final
judgment of a court of competent jurisdiction that the payment with
respect to a Letter of Credit by such Issuing Lender in respect of
which payment was made by such Revolving Lender constituted gross
negligence or willful misconduct on the part of such Issuing Lender.

b. Distribution to Revolving Lenders of Reimbursements
Received From Company. In the event any Issuing Lender shall have
been reimbursed by other Revolving Lenders pursuant to subsection
3.3C(i) for all or any portion of any drawing honored by such Issuing
Lender under a Letter of Credit issued by it, such Issuing Lender
shall distribute to each other Revolving Lender which has paid all
amounts payable by it under subsection 3.3C(i) with respect to such
drawing such other Revolving Lender's Pro Rata Share of all payments
subsequently received by such Issuing Lender from Company in
reimbursement of such drawing when such payments are received. Any
such distribution shall be made to a Revolving Lender at its primary
address set forth below its name on the appropriate signature page
hereof or at such other address as such Revolving Lender may request.

4. INTEREST ON AMOUNTS DRAWN UNDER LETTERS OF CREDIT.

a. Payment of Interest by Company. Company agrees to
pay to each Issuing Lender, with respect to drawings made under any
Letters of Credit issued by it (whether or not Company is the account
party thereunder), interest on the amount paid by such Issuing Lender
in respect of each such drawing from the date of such drawing to but
excluding the date such amount is reimbursed by Company (including any
such reimbursement out of the proceeds of Revolving Loans pursuant to
subsection 3.3B) at a rate equal to (a) for the period from the date
of such drawing to but excluding the Reimbursement Date, the rate then
in effect under this Agreement with respect to Revolving Loans that
are Base Rate Loans and (b) thereafter, a rate which is 2% per annum
in excess of the rate of interest otherwise payable under this
Agreement with respect to Revolving Loans that are Base Rate Loans.
Interest payable pursuant to this subsection 3.3D(i) shall be computed
on the basis of a 360-day year for the actual number of days elapsed
in the period during which it accrues and shall be payable on demand
or, if no demand is made, on the date on which the related drawing
under a Letter of Credit is reimbursed in full.
<PAGE> 84
b. Distribution of Interest Payments by Issuing Lender.
Promptly upon receipt by any Issuing Lender of any payment of interest
pursuant to subsection 3.3D(i) with respect to a drawing under a
Letter of Credit issued by it, (a) such Issuing Lender shall
distribute to each other Revolving Lender, out of the interest
received by such Issuing Lender in respect of the period from the date
of such drawing to but excluding the date on which such Issuing Lender
is reimbursed for the amount of such drawing (including any such
reimbursement out of the proceeds of Revolving Loans pursuant to
subsection 3.3B), the amount that such other Revolving Lender would
have been entitled to receive in respect of the letter of credit fee
that would have been payable in respect of such Letter of Credit for
such period pursuant to subsection 3.2 if no drawing had been made
under such Letter of Credit, and (b) in the event such Issuing Lender
shall have been reimbursed by other Revolving Lenders pursuant to
subsection 3.3C(i) for all or any portion of such drawing, such
Issuing Lender shall distribute to each other Revolving Lender which
has paid all amounts payable by it under subsection 3.3C(i) with
respect to such drawing such other Revolving Lender's Pro Rata Share
of any interest received by such Issuing Lender in respect of that
portion of such drawing so reimbursed by other Revolving Lenders for
the period from the date on which such Issuing Lender was so
reimbursed by other Revolving Lenders to and including the date on
which such portion of such drawing is reimbursed by Company. Any such
distribution shall be made to a Revolving Lender at its primary
address set forth below its name on the appropriate signature page
hereof or at such other address as such Revolving Lender may request.

D. OBLIGATIONS ABSOLUTE.

The obligation of Company to reimburse each Issuing Lender for
drawings made under the Letters of Credit issued by it (whether or not Company
is the account party thereunder) and to repay any Revolving Loans made by
Revolving Lenders pursuant to subsection 3.3B and the obligations of Revolving
Lenders under subsection 3.3C(i) shall be unconditional and irrevocable and
shall be paid strictly in accordance with the terms of this Agreement under all
circumstances including, without limitation, any of the following
circumstances:

a. any lack of validity or enforceability of any Letter
of Credit;

b. the existence of any claim, set-off, defense or other
right which Company, any Subsidiary that is an account party
thereunder or any Revolving Lender may have at any time against a
beneficiary or any transferee of any Letter of Credit (or any Persons
for whom any such transferee may be acting), any Issuing Lender or
other Revolving Lender or any other Person or, in the case of a
Revolving Lender, against Company or any Subsidiary that is an account
party under a Letter of Credit, whether in connection with this
Agreement, the transactions contemplated herein or any unrelated
transaction (including any underlying transaction between Company or
one of its Subsidiaries and the beneficiary for which any Letter of
Credit was procured) other than the defense of payment in accordance
with the terms of this Agreement;
<PAGE> 85
c. any draft, demand, certificate or other document
presented under any Letter of Credit proving to be forged, fraudulent,
invalid or insufficient in any respect or any statement therein being
untrue or inaccurate in any respect;

d. payment to the beneficiary of such Letter of Credit
by the applicable Issuing Lender under any Letter of Credit against
presentation of a demand, draft or certificate or other document which
does not comply with the terms of such Letter of Credit;

e. any adverse change in the business, operations,
properties, assets, condition (financial or otherwise) or prospects of
Holdings or any of its Subsidiaries;

f. any breach of this Agreement or any other Loan
Document by any party thereto (other than a breach by the applicable
Issuing Lender relating to the Letter of Credit in question);

g. any other circumstance or happening whatsoever,
whether or not similar to any of the foregoing; or

h. the fact that an Event of Default or a Potential
Event of Default shall have occurred and be continuing;

provided, in each case, that payment by the applicable Issuing Lender under the
applicable Letter of Credit shall not have constituted gross negligence or
willful misconduct of such Issuing Lender under the circumstances in question
(as determined by a final judgment of a court of competent jurisdiction).

E. INDEMNIFICATION; NATURE OF ISSUING LENDERS' DUTIES.

1. INDEMNIFICATION. In addition to amounts payable as provided
in subsection 3.6, Company hereby agrees to protect, indemnify, pay and save
harmless each Issuing Lender from and against any and all claims, demands,
liabilities, damages, losses, costs, charges and expenses (including reasonable
fees, expenses and disbursements of counsel and of internal counsel) which such
Issuing Lender may incur or be subject to as a consequence, direct or indirect,
of (i) the issuance of any Letter of Credit by such Issuing Lender, other than
as a result of (a) the gross negligence or willful misconduct of such Issuing
Lender as determined by a final judgment of a court of competent jurisdiction
or (b) subject to the following clause (ii), the wrongful dishonor by such
Issuing Lender of a proper demand for payment made under any Letter of Credit
issued by it or (ii) the failure of such Issuing Lender to honor a drawing
under any such Letter of Credit as a result of any act or omission, whether
rightful or wrongful, of any present or future de jure or de facto government
or governmental authority (all such acts or omissions herein called
"GOVERNMENTAL ACTS").

2. NATURE OF ISSUING LENDERS' DUTIES. As between Company and any
Issuing Lender, Company assumes all risks of the acts and omissions of, or
misuse of the Letters of Credit issued by such Issuing Lender by, the
respective beneficiaries of such Letters of Credit. In furtherance and not in
limitation of the foregoing, such Issuing Lender shall not
<PAGE> 86
be responsible for: (i) the form, validity, sufficiency, accuracy, genuineness
or legal effect of any document submitted by any party in connection with the
application for and issuance of any such Letter of Credit, even if it should in
fact prove to be in any or all respects invalid, insufficient, inaccurate,
fraudulent or forged; (ii) the validity or sufficiency of any instrument
transferring or assigning or purporting to transfer or assign any such Letter
of Credit or the rights or benefits thereunder or proceeds thereof, in whole or
in part, which may prove to be invalid or ineffective for any reason; (iii)
failure of the beneficiary of any such Letter of Credit to substantially comply
with any conditions required in order to draw upon such Letter of Credit; (iv)
errors, omissions, interruptions or delays in transmission or delivery of any
messages, by mail, cable, telegraph, telex or otherwise, whether or not they
are in cipher; (v) errors in interpretation of technical terms; (vi) any loss
or delay in the transmission or otherwise of any document required in order to
make a drawing or amendment under any such Letter of Credit or of the proceeds
thereof; (vii) the misapplication by the beneficiary of any such Letter of
Credit of the proceeds of any drawing under such Letter of Credit; or (viii)
any consequences arising from causes beyond the control of such Issuing Lender,
including without limitation any Governmental Acts, and none of the above shall
affect or impair, or prevent the vesting of, any of such Issuing Lender's
rights or powers hereunder.

In furtherance and extension and not in limitation of the
specific provisions set forth in the first paragraph of this subsection 3.5B,
any action taken or omitted by any Issuing Lender under or in connection with
the Letters of Credit issued by it or any documents and certificates delivered
thereunder, if taken or omitted in good faith, shall not put such Issuing
Lender under any resulting liability to Company.

Notwithstanding anything to the contrary contained in this
subsection 3.5, Company shall retain any and all rights it may have against any
Issuing Lender for any liability directly attributable to the gross negligence
or willful misconduct of such Issuing Lender or to the wrongful dishonor by any
Issuing Lender of a proper demand for payment made under any Letter of Credit
issued by it, in each case, as determined by a final judgment of a court of
competent jurisdiction.

F. INCREASED COSTS AND TAXES RELATING TO LETTERS OF CREDIT.

In the event that any Issuing Lender or any Revolving Lender shall
determine (which determination shall, absent manifest error, be final and
conclusive and binding upon all parties hereto) that any law, treaty or
governmental rule, regulation or order, or any change therein or in the
interpretation, administration or application thereof (including the
introduction of any new law, treaty or governmental rule, regulation or order),
or any determination of a court or governmental authority, in each case that
becomes effective after the date hereof (other than any change in such law,
treaty or governmental rule, regulation or order which was promulgated prior to
the date hereof and which becomes effective in accordance with its terms after
the date hereof), or the compliance by any Issuing Lender or any Revolving
Lender with any guideline, request or directive issued or made after the date
hereof by any central bank or other governmental or quasi-governmental
authority (whether or not having the force of law):

a. subjects such Issuing Lender or such Revolving Lender
(or its applicable lending or letter of credit office) to any
additional Tax (other than any Tax
<PAGE> 87
on the overall income of such Issuing Lender or Revolving Lender) with
respect to the issuing or maintaining of any Letters of Credit or the
purchasing or maintaining of any participations therein or any other
obligations under this Section 3, whether directly or by such being
imposed on or suffered by any particular Issuing Lender;

b. imposes, modifies or holds applicable any reserve
(including without limitation any marginal, emergency, supplemental,
special or other reserve), special deposit, compulsory loan, FDIC
insurance or similar requirement in respect of any Letters of Credit
issued by any Issuing Lender or participations therein purchased by
any Revolving Lender; or

c. imposes any other condition (other than with respect
to a Tax matter) on or affecting such Issuing Lender or such Revolving
Lender (or its applicable lending or letter of credit office)
regarding this Section 3 or any Letter of Credit or any participation
therein;

and the result of any of the foregoing is to increase the cost to such Issuing
Lender or such Revolving Lender of agreeing to issue, issuing or maintaining
any Letter of Credit or agreeing to purchase, purchasing or maintaining any
participation therein or to reduce any amount received or receivable by such
Issuing Lender or such Revolving Lender (or its applicable lending or letter of
credit office) with respect thereto; then, in any case, Company shall promptly
pay to such Issuing Lender or such Revolving Lender, upon receipt of the
statement referred to in the next sentence, such additional amount or amounts
as may be necessary to compensate such Issuing Lender or such Revolving Lender
for any such increased cost or reduction in amounts received or receivable
hereunder; provided that a Lender shall not be entitled to avail itself of the
benefit of this subsection 3.6 to the extent that any such increased cost or
reduction in amounts was incurred more than six months prior to the time it
gives notice to Company (as provided in the next sentence) of the relevant
circumstance, unless such circumstance arose or became applicable
retrospectively, in which case such Lender shall not be limited to such six
month period so long as such Lender has given such notice to Company no later
than six months from the time such circumstance became applicable to such
Lender. Such Issuing Lender or such Revolving Lender shall deliver to Company
a written statement, setting forth in reasonable detail the basis for
calculating the additional amounts owed to such Issuing Lender or such
Revolving Lender under this subsection 3.6, which statement shall be conclusive
and binding upon all parties hereto absent manifest error.

SECTION III. CONDITIONS TO LOANS AND LETTERS OF CREDIT

The obligations of Lenders to purchase or make Loans and the
issuance of Letters of Credit hereunder are subject to the satisfaction of the
following conditions.

A. CONDITIONS TO INITIAL EFFECTIVENESS.

The obligations of Lenders to purchase the Term Loans and to purchase
and/or make any Revolving Loans and Swing Line Loans on the Effective Date are,
in addition to the
<PAGE> 88
conditions precedent specified in subsection 4.2, subject to prior or
concurrent satisfaction of the following conditions:

1. LOAN PARTY DOCUMENTS. On or before the Effective Date,
Company shall deliver or cause to be delivered to Lenders (or to Agent for
Lenders with sufficient originally executed copies, where appropriate, for each
Lender) the following with respect to each Loan Party, each, unless otherwise
noted, dated the Effective Date:

a. Certified copies of its Certificate or Articles of
Incorporation, together with a good standing certificate from the
Secretary of State of the jurisdiction of its incorporation and each
other state in which it is qualified as a foreign corporation to do
business and, to the extent generally available, a certificate or
other evidence of good standing as to payment of any applicable
franchise or similar taxes from the appropriate taxing authority of
each of such states, each dated a recent date prior to the Effective
Date;

b. Copies of its Bylaws, certified as of the Effective
Date by its corporate secretary or an assistant secretary;

c. Resolutions of its Board of Directors approving and
authorizing the execution, delivery and performance of each of the
Loan Documents to which it is a party to be executed on the Effective
Date, and all transactions related thereto, certified as of the
Effective Date by its corporate secretary or an assistant secretary as
being in full force and effect without modification or amendment;

d. Signature and incumbency certificates of its officers
executing each of the Loan Documents to which it is a party;

e. Executed originals of this Agreement, the Notes (duly
executed in accordance with subsection 2.1E, drawn to the order of
each Lender and Swing Line Lender and with appropriate insertions) and
the other Loan Documents to be executed on the Effective Date,
including without limitation the Master Assignment Agreement executed
by the Company and the Acknowledgement and Consent, substantially in
the form of Exhibit XXI annexed hereto, executed by the Company and
each of the other Loan Parties; and

f. Such other documents as Agent may reasonably request.

2. YUCAIPA INVESTMENT. Holdings shall have delivered to Agent an
Officers' Certificate in form and substance reasonably satisfactory to Agent
setting forth in reasonable detail (i) the percentage of issued and outstanding
shares of Holdings Voting Stock beneficially owned, directly or indirectly
(including through his ownership interest in the Yucaipa Investors) by Ronald
W. Burkle on the Closing Date and the Effective Date and (ii) the percentage of
the issued and outstanding Holdings Voting Stock beneficially owned and
controlled, directly or indirectly, by Yucaipa and the Yucaipa Investors
collectively on the Closing Date and the Effective Date.
<PAGE> 89
3. OTHER EXISTING INDEBTEDNESS. Agent shall have received an
Officers' Certificate of Company certifying that as of the Effective Date,
after giving effect to the transactions contemplated by this Agreement, the
Indebtedness of the Loan Parties (other than the Indebtedness under the Loan
Documents) consists of (i) the outstanding principal amount of existing Funded
Debt described in Schedule 7.1 annexed hereto, (ii) obligations under existing
Capital Leases of all Loan Parties as of the Effective Date (which shall be
described in Schedule 7.1 annexed hereto) and reflected as capital lease
obligations on the consolidated balance sheets of Company prepared in
accordance with GAAP, and (iii) the Indebtedness under the Related Financing
Documents which shall not exceed the amounts permitted pursuant to subsections
7.1(v) and 7.1(vi).

4. EXISTING CREDIT AGREEMENT PAYMENTS AND ASSIGNMENTS.

(1) With respect to the Existing Credit Agreement,
Company shall have paid to Bankers, as agent under the Existing Credit
Agreement, for distribution to lenders and issuing lenders, as applicable,
under the Existing Credit Agreement all unpaid accrued interest on all loans,
all unpaid accrued commitment fees and all unpaid accrued fees on all Letters
of Credit, in each case through but excluding the Effective Date.

(2) On or before the Effective Date, Company, each lender
under the Existing Credit Agreement, Bankers, as agent under the Existing
Credit Agreement, each Lender and Agent under this Agreement shall have
executed and delivered the Master Assignment Agreement, substantially in the
form of Exhibit XX annexed hereto, and on the Effective Date, each such lender,
Bankers, Lender and Agent shall have sold, purchased and/or assigned such loans
and/or revolving loan commitments pursuant to the Master Assignment Agreement
such that each Lender's Pro Rata Share of the Loans and/or Revolving Loan
Commitments upon consummation of the closing shall be as set forth on Schedule
2.1 annexed hereto.

5. SECURITY INTERESTS. To the extent not otherwise satisfied
pursuant to subsection 4.1F, each Loan Party shall have taken or caused to be
taken (and Agent shall have received satisfactory evidence thereof) all such
actions, executed and delivered or caused to be executed and delivered all such
agreements, documents and instruments and made or caused to be made all such
filings and recordings (other than the filing or recording of items described
in clauses (ii), (iii) and (iv) below) that may be necessary or, in the opinion
of Agent, desirable in order to make or to continue in favor of Agent for the
benefit of Lenders a valid and perfected first priority security interest in
the entire Collateral (subject to Permitted Encumbrances and Liens set forth in
Schedule 7.2 annexed hereto on specific property described in such Schedule and
except to the extent any such security interest cannot be granted under
applicable laws). Such actions shall include, without limitation, (i) delivery
to Agent of certificates (which certificates shall be properly endorsed in
blank for transfer or accompanied by irrevocable undated stock powers duly
endorsed in blank, all in form and substance satisfactory to Agent)
representing the capital stock pledged pursuant to the Holdings Pledge
Agreement and the Pledge Agreements, and delivery to Agent of all other
instruments (duly endorsed where appropriate) evidencing the Collateral, (ii)
delivery to Agent of Uniform Commercial Code financing statements as to the
Collateral for all jurisdictions as may be necessary or desirable to perfect or
continue the perfection of the security interests granted to Agent in the
Collateral, (iii) delivery to Agent of all cover
<PAGE> 90
sheets, documents or other instruments required to perfect or continue the
perfection of the Liens with the United States Patent and Trademark Office and
(iv) delivery to Agent of such other documents and instruments that Agent deems
necessary or advisable to establish, preserve and perfect or continue the
perfection of the first priority Liens granted to Agent on behalf of Lenders
under the Collateral Documents.

6. REAL PROPERTY ASSETS. Schedule 4.1F annexed hereto sets forth
all Real Property Assets of Company or any of its Subsidiaries as of the
Effective Date and identifies each such Real Property Asset which is subject to
a Deed of Trust as of the Effective Date. Subject to subsection 6.11, Agent
shall have received from Company and each of its Subsidiaries having Real
Property Assets required to be subject to a Deed of Trust pursuant to this
Agreement and which were not made subject to a Deed of Trust on the Closing
Date, fully executed counterparts of such amendments to Deeds of Trust, or
Deeds of Trust, in either case in form and substance satisfactory to Agent and
in recordable form, together with evidence that such counterparts of such
amendments to Deeds of Trust or Deeds of Trust have been recorded, or as soon
as practicable following the Effective Date will be recorded, in all places to
the extent necessary or desirable, in the judgment of Agent, so as to
effectively amend the Deeds of Trust to the extent necessary or appropriate to
encumber any Real Property Assets required to be subject to a Deed of Trust
pursuant to this Agreement which were not made subject to a Deed of Trust on
the Closing Date, subject only to Permitted Encumbrances. In addition, Agent
shall have received such endorsements to the Title Insurance Policies as are
reasonably required by Agent to insure that execution of this Agreement does
not impair the validity of the Deeds of Trust with respect to the Real Property
Assets insured thereunder recorded on the Closing Date.

7. OPINIONS OF LOAN PARTIES' COUNSEL. Lenders and their
respective counsel shall have received (i) originally executed copies of one or
more favorable written opinions of Latham & Watkins, counsel for the Loan
Parties, in form and substance reasonably satisfactory to Agent and its
counsel, dated the Effective Date and setting forth substantially the matters
in the opinions designated in Exhibit XV-A annexed hereto and as to such other
matters as Agent acting on behalf of Lenders may reasonably request, (ii)
originally executed copies of one or more favorable written opinions of Wayne
Bell, Esq., Senior Counsel of Company, in form and substance satisfactory to
Agent and its counsel, dated the Effective Date and setting forth substantially
the matters in the opinions designated in Exhibit XV-B annexed hereto and as to
such other matters as Agent acting on behalf of Lenders may reasonably request,
(iii) originally executed copies of one or more favorable written opinions of
Irwin, Clutter & Severson, counsel for Falley's, in form and substance
reasonably satisfactory to Agent and its counsel, dated the Effective Date and
setting forth substantially the matters in the opinions designated in Exhibit
XV-C annexed hereto and as to such other matters as Agent acting on behalf of
Lenders may reasonably request.

8. OPINIONS OF AGENT'S COUNSEL. Lenders shall have received
originally executed copies of one or more favorable written opinions of
O'Melveny & Myers LLP, counsel to Agent, dated as of the Effective Date,
substantially in the form of Exhibit XVI annexed hereto and as to such other
matters as Agent acting on behalf of Lenders may reasonably request.
<PAGE> 91
9. NO MATERIAL ADVERSE CHANGE. Since October 6, 1996 there shall
have occurred no material adverse change in the condition (financial or
otherwise), business, assets, liabilities, properties, results of operations or
prospects of Company and its Subsidiaries, taken as a whole.

10. NO DISRUPTION OF FINANCIAL AND CAPITAL MARKETS. There shall
have been no material adverse change after March 19, 1997, to the syndication
markets for credit facilities similar in nature to the credit facilities
provided herein and there shall not have occurred and be continuing a material
disruption of or material adverse change in financial, banking or capital
markets that would have an adverse effect on such syndication market, in each
case as determined by Agent in its sole discretion.

11. FINANCIAL STATEMENTS. Agent shall have received on behalf of
Lenders (a) the unaudited financial statements for Company and its Subsidiaries
referred to in clauses (ii) and (iii) of subsection 5.3, all in reasonable
detail and certified by the chief financial officer of Company that they fairly
present the financial condition of Company and its Subsidiaries as at the dates
indicated and the results of their operations and their cash flows for the
periods indicated, subject to changes resulting from audit and normal year-end
adjustments, (b) a pro forma balance sheet as of the Effective Date for Company
and its Subsidiaries, prepared in accordance with GAAP (except as otherwise
noted therein) and giving effect to the transactions contemplated by this
Agreement, and (c) projected financial statements (including balance sheets and
statements of operations and cash flows) of Company and its Subsidiaries for
the eight-year period after the Effective Date, all of the foregoing to be (x)
substantially consistent with any financial statements for the same periods
delivered to the Agent prior to March 19, 1997, and in the case of any such
financial statements for subsequent periods, substantially consistent with any
projected financial results for such periods delivered to the Agent prior to
such date and (y) otherwise in form and substance satisfactory to the Agent and
the Lenders.

12. SOLVENCY ASSURANCES. Agent and Lenders shall have received a
certificate from the chief financial officer of Company substantially in the
form of Exhibit XIX annexed hereto, supporting the conclusions that, after
giving effect to the transactions contemplated by this Agreement, Company will
not be insolvent or will not be rendered insolvent by the indebtedness incurred
in connection with the transactions contemplated by this Agreement, or be left
with unreasonably small capital with which to engage in its businesses or have
incurred debts beyond its ability to pay such debts as they mature.

13. AUDITOR'S LETTER. Agent shall have received executed copies
of the Auditor's Letter.

14. FEES. Company shall have paid to Agent, for distribution (as
appropriate) to Agent and Lenders, the fees payable on the Effective Date
referred to in subsection 2.3.

15. REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF AGREEMENTS.
Each of Holdings and Company shall have delivered to Agent an Officers'
Certificate, in form and substance satisfactory to Agent, to the effect that
the representations and warranties in Section 5 hereof are true, correct and
complete in all material respects on and as of the Effective Date to the same
extent as though made on and as of that date and that each Loan
<PAGE> 92
Party shall have performed in all material respects all agreements and
satisfied all conditions which this Agreement provides shall be performed or
satisfied by it on or before the Effective Date except as otherwise disclosed
to and agreed to in writing by Agent and Requisite Lenders.

16. CONSENTS. Company shall have delivered to Agent such
consents, waivers, amendments or approvals as may be required to be obtained in
connection with any material agreement in order to enter into and carry out its
obligations under this Agreement, including, without limitation, a consent from
each lender to any of the Loan Parties as may be required, in each case in form
and substance satisfactory to Agent.

17. COMPLETION OF PROCEEDINGS. All corporate and other
proceedings taken or to be taken in connection with the transactions
contemplated hereby and all documents incidental thereto not previously found
acceptable by Agent, acting on behalf of Lenders, and its counsel shall be
satisfactory in form and substance to Agent and such counsel, and Agent and
such counsel shall have received all such counterpart originals or certified
copies of such documents as Agent may reasonably request.

Each Lender hereby agrees that by its execution and delivery
of its signature page hereto and by the funding of its Loans to be made on the
Effective Date, such Lender approves of and consents to each of the matters set
forth in this subsection 4.1 which must be approved by, or which must be
satisfactory to, Requisite Lenders; provided that, in the case of any agreement
or document which must be approved by, or which must be satisfactory to,
Requisite Lenders, Agent or Company shall have delivered a copy of such
agreement or document to such Lender on or prior to the Effective Date.

B. CONDITIONS TO ALL LOANS.

The obligations of each Lender to make Loans on each Funding
Date (other than any Funding Date relating to any Refunded Swing Line Loans)
are subject to the following further conditions precedent:

1. Agent shall have received before that Funding Date, in
accordance with the provisions of subsection 2.1B, an originally executed
Notice of Borrowing, in each case signed by the chief executive officer, the
chief financial officer or the treasurer of Company or by any executive officer
of Company designated by any of the above-described officers on behalf of
Company in a writing delivered to Agent.

2. As of that Funding Date:

a. The representations and warranties contained herein
and in the other Loan Documents shall be true, correct and complete in
all material respects on and as of that Funding Date to the same
extent as though made on and as of that date, except to the extent
such representations and warranties specifically relate to an earlier
date, in which case such representations and warranties shall have
been true, correct and complete in all material respects on and as of
such earlier date;
<PAGE> 93
b. No event shall have occurred and be continuing or
would result from the consummation of the borrowing contemplated by
such Notice of Borrowing that would constitute an Event of Default or
a Potential Event of Default;

c. Each Loan Party shall have performed in all material
respects all agreements and satisfied all conditions which this
Agreement provides shall be performed or satisfied by it on or before
that Funding Date;

d. No order, judgment or decree of any court, arbitrator
or governmental authority shall purport to enjoin or restrain any
Lender from making the Loans to be made by it on that Funding Date;

e. The making of the Loans requested on such Funding
Date shall not violate any law including, without limitation,
Regulation G, Regulation T, Regulation U or Regulation X of the Board
of Governors of the Federal Reserve System; and

f. There shall not be pending or, to the knowledge of
any of the Loan Parties, threatened, any action, suit, proceeding,
governmental investigation or arbitration against or affecting the
Loan Parties or any property of any of the Loan Parties that has not
been disclosed by Company in writing pursuant to subsection 5.6 or
6.1(x) prior to the making of the last preceding Loans (or, in the
case of the initial Loans, prior to the execution of this Agreement),
and there shall have occurred no development not so disclosed in any
such action, suit, proceeding, governmental investigation or
arbitration so disclosed, that, in either event, in the opinion of
Agent or of Requisite Lenders, could reasonably be expected to have a
Material Adverse Effect; and no injunction or other restraining order
shall have been issued and no hearing to cause an injunction or other
restraining order to be issued shall be pending or noticed with
respect to any action, suit or proceeding seeking to enjoin or
otherwise prevent the consummation of, or to recover any damages or
obtain relief as a result of, the transactions contemplated by this
Agreement or the making of Loans hereunder.

C. CONDITIONS TO LETTERS OF CREDIT.

The issuance of any Letter of Credit hereunder (whether or not
the applicable Issuing Lender is obligated to issue such Letter of Credit) is
subject to the following conditions precedent:

1. On or before the date of issuance of the initial Letter of
Credit pursuant to this Agreement, the initial Loans shall have been made.

2. On or before the date of issuance of such Letter of Credit,
Agent shall have received, in accordance with the provisions of subsection
3.1B(i), an originally executed Request for Letter of Credit, in each case
signed by the chief executive officer, the chief financial officer or the
treasurer of Company or by any executive officer of Company designated by any
of the above-described officers on behalf of Company in a writing delivered to
Agent, together with all other information specified in subsection 3.1B(i) and
<PAGE> 94
such other documents or information as the applicable Issuing Lender may
reasonably require in connection with the issuance of such Letter of Credit.

3. On the date of issuance of such Letter of Credit, all
conditions precedent described in subsection 4.2B shall be satisfied to the
same extent as if the issuance of such Letter of Credit were the making of a
Loan and the date of issuance of such Letter of Credit were a Funding Date.

SECTION IV. REPRESENTATIONS AND WARRANTIES

In order to induce Lenders to enter into this Agreement and to
make the Loans, to induce Issuing Lenders to issue Letters of Credit and to
induce other Lenders to purchase participations therein, each of Holdings and
Company represents and warrants to each Lender, on the date of this Agreement,
on each Funding Date and on the date of issuance of each Letter of Credit, that
the following statements are true, correct and complete:

A. ORGANIZATION, POWERS, QUALIFICATION, GOOD STANDING, BUSINESS AND
SUBSIDIARIES.

1. ORGANIZATION AND POWERS. Each Loan Party is a corporation
duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation. Each Loan Party has all requisite corporate
power and authority to own and operate its properties, to carry on its business
as now conducted and as proposed to be conducted, to enter into the Loan
Documents to which it is a party and to carry out the transactions contemplated
thereby.

2. QUALIFICATION AND GOOD STANDING. Each Loan Party is qualified
to do business and in good standing in every jurisdiction where its assets are
located and wherever necessary to carry out its present business and
operations, except in jurisdictions where the failure to be so qualified or in
good standing has not had and will not have, either individually or in the
aggregate for all such jurisdictions, a Material Adverse Effect.

3. CONDUCT OF BUSINESS. Each Loan Party is engaged only in the
businesses permitted to be engaged in pursuant to subsection 7.14.

4. SUBSIDIARIES. All of the Subsidiaries of Holdings are
identified in Schedule 5.1 annexed hereto, as said Schedule 5.1 may be
supplemented from time to time pursuant to the provisions of subsection
6.1(xvii). Notwithstanding anything to the contrary set forth in Schedule 5.1
annexed hereto, Golden Alliance is not and will not become a Subsidiary of
Company and the financial results of the operations of Golden Alliance are not
and will not be included in the consolidated financial reports of Company and
its Subsidiaries. The capital stock of each of the Subsidiaries of Holdings
identified in Schedule 5.1 annexed hereto is duly authorized, validly issued,
fully paid and nonassessable and none of such capital stock constitutes Margin
Stock. Each of the Subsidiaries of Holdings identified in Schedule 5.1 annexed
hereto is a corporation duly organized, validly existing and in good standing
under the laws of its respective jurisdiction of incorporation set forth
therein, has all requisite corporate power and authority to own and operate its
properties and to carry on its
<PAGE> 95
business as now conducted and as proposed to be conducted, and is qualified to
do business and in good standing in every jurisdiction where its assets are
located and wherever necessary to carry out its business and operations, in
each case except where failure to be so qualified or in good standing or to
have such corporate power and authority has not had and will not have, either
individually or in the aggregate for all such failures, a Material Adverse
Effect. Other than listing Subsidiaries of Company which may have been sold,
merged, dissolved, transferred or otherwise disposed of after the Effective
Date in accordance with the terms of this Agreement, Schedule 5.1 annexed
hereto correctly sets forth for Holdings and each of its Subsidiaries (i) the
ownership interest of Holdings and each of its Subsidiaries in each of the
Subsidiaries of Holdings identified therein, (ii) the jurisdiction of
incorporation of Holdings and each such Subsidiary, (iii) the number of issued
and outstanding shares of capital stock of Holdings and each such Subsidiary,
and (iv) whether any such Subsidiary is inactive. The aggregate assets and the
annual revenues of all Subsidiaries identified as inactive on Schedule 5.1 does
not and will not exceed $5,000,000 and $5,000,000, respectively.

B. AUTHORIZATION OF BORROWING, ETC.

1. AUTHORIZATION OF BORROWING. The execution, delivery and
performance of each Loan Document have been duly authorized by all necessary
corporate action on the part of each Loan Party which is a party to such Loan
Document.

2. NO CONFLICT. The execution, delivery and performance by each
Loan Party of the Loan Documents to which such Loan Party is a party and the
consummation of the transactions contemplated by the Loan Documents do not and
will not (i) violate any provision of any law or any governmental rule or
regulation applicable to any of the Loan Parties, the Certificate or Articles
of Incorporation or Bylaws of any of the Loan Parties, or any material order,
judgment or decree of any court or other agency of government binding on any of
the Loan Parties, (ii) conflict with, result in a breach of or constitute (with
due notice or lapse of time or both) a default under any material Contractual
Obligation of any of the Loan Parties which could reasonably be expected to
result in a Material Adverse Effect, (iii) result in or require the creation or
imposition of any Lien upon any of the properties or assets of any of the Loan
Parties (other than any Liens created under any of the Loan Documents in favor
of Agent on behalf of Lenders), or (iv) require any approval of stockholders or
any approval or consent of any Person under any Contractual Obligation of any
of the Loan Parties, except for such approvals or consents which will be
obtained on or before the Effective Date (or, in the case of any Loan Document
executed and delivered after the Effective Date, on or before such date of
execution and delivery) and disclosed in writing to Lenders or such approvals
or consents the failure to obtain could not reasonably be expected individually
or in the aggregate to result in a Material Adverse Effect.

3. CREATION, PERFECTION AND PRIORITY OF LIENS. The execution and
delivery of the Collateral Documents by Loan Parties, together with (i) the
actions taken on or prior to the date hereof pursuant to subsection 4.1, 6.10
and 6.11 and (ii) the delivery to Agent of any pledged Collateral not delivered
to Agent at the time of execution and delivery of the applicable Collateral
Document (all of which pledged Collateral has been so delivered) are effective
to create in favor of Agent for the benefit of Lenders, as security for the
respective Secured Obligations (as defined in the applicable Collateral
Document in respect of any
<PAGE> 96
Collateral), a valid and perfected first priority Lien on all of the Collateral
(subject to Permitted Encumbrances and Liens set forth on Schedule 7.2 annexed
hereto on specific property described in such Schedule and except to the extent
any such security interest cannot be granted under applicable laws), and all
filings and other actions necessary or desirable to perfect and maintain the
perfection and such first priority status of such Liens have been duly made or
taken and remain in full force and effect, other than the filing of any UCC
financing statements delivered to Agent for filing (but not yet filed) and the
periodic filing of UCC continuation statements in respect of UCC financing
statements filed by or on behalf of Agent.

4. GOVERNMENTAL CONSENTS. The execution, delivery and
performance by each Loan Party of the Loan Documents to which such Loan Party
is a party and the consummation of the transactions contemplated by the Loan
Documents do not and will not require any registration with, consent or
approval of, or notice to, or other action to, with or by, any federal, state
or other governmental authority or regulatory body, except for (i) filings and
recordings required in connection with the perfection of the security interests
granted pursuant to the Loan Documents, (ii) such registrations, consents,
approvals, notices or other actions which have been obtained on or before the
Effective Date, and (iii) notices or other actions required to be taken after
the Effective Date relating to operating licenses, which notices or other
actions will be given or taken as required in due course (or, in the case of
any Loan Document executed and delivered after the Effective Date, on or before
such date of execution and delivery).

5. BINDING OBLIGATION. Each of the Loan Documents to which any
Loan Party is a party has been duly executed and delivered by each Loan Party
thereto and is the legally valid and binding obligation of such Loan Party,
enforceable against such Loan Party in accordance with their respective terms,
except as may be limited by bankruptcy, insolvency, reorganization, moratorium
or similar laws relating to or limiting creditors' rights generally or by
equitable principles relating to enforceability.

6. VALID ISSUANCE OF HOLDINGS COMMON STOCK, HOLDINGS PREFERRED
STOCK AND NEW INDEBTEDNESS OF HOLDINGS AND COMPANY.

a. (a) Holdings Common Stock. As of the Effective
Date, the number of shares of issued and outstanding Common
Stock of Holdings and the number of shares of issued and
outstanding Non-Voting Common Stock of Holdings are as set
forth in Schedule 5.1 annexed hereto. Such shares of Holdings
Common Stock have been duly and validly issued, fully paid and
nonassessable. Any issuance and sale of Holdings Common
Stock, upon such issuance and sale, will either (a) have been
registered or qualified under applicable federal and state
securities laws or (b) be exempt therefrom.

(b) Holdings Preferred Stock. As of the
Effective Date the number of shares of issued and outstanding
Series A Holdings Preferred Stock and the number of shares of
issued and outstanding Series B Holdings Preferred Stock are
as set forth in Schedule 5.1 annexed hereto. Such shares of
Holdings Preferred Stock have been duly and validly issued,
fully paid and nonassessable. Any issuance and sale of
Holdings Preferred Stock, upon such
<PAGE> 97
issuance and sale, will either (a) have been registered and
qualified under applicable federal and state securities laws or
(b) be exempt therefrom.

(c) Pre-emptive Rights. Except as set forth in
Schedule 5.1, no stockholder of Holdings has or will have any
preemptive rights to subscribe for any additional equity
Securities of Holdings.

b. Certain Other Indebtedness of Holdings and Company.
The Senior Debt Indentures, the Senior Indebtedness, the Subordinated
Debt Indentures and the Subordinated Indebtedness, are the legally
valid and binding obligations of Holdings or Company, as the case may
be, enforceable against Holdings or Company, as the case may be, in
accordance with their respective terms, except as may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws
relating to or limiting creditors' rights or by equitable principles
relating to enforceability. Each of Holdings and Company represents
and warrants that the Loans and all other monetary Obligations
hereunder are (i) a refunding or refinancing of the Indebtedness under
the "Credit Agreement", as defined in the 1992 13.75% Senior
Subordinated Note Indenture and (ii) a refinancing or replacement of
the "1992 Credit Agreement", as defined in the 1993 9% Senior
Subordinated Note Indenture and the 1992 10-1/4% Senior Subordinated
Note Indenture. The subordination provisions of each of the
Subordinated Notes and each of the Subordinated Debt Indentures are
enforceable against the holders thereof and the Loans and all other
monetary Obligations hereunder are within the definition of "SENIOR
INDEBTEDNESS" included in such provisions.

C. FINANCIAL CONDITION.

Company has heretofore delivered to Lenders, at Lenders'
request, the following financial statements and information: (i) the audited
consolidated balance sheets of Company and its Subsidiaries as at January 28,
1996 and the related consolidated statements of operations, stockholders'
equity and cash flows of Company and its Subsidiaries for the fiscal year then
ended, (ii) the unaudited consolidated balance sheets of Company and its
Subsidiaries as at April 21, 1996, July 14, 1996 and October 6, 1996, and the
related consolidated statements of operations, stockholders' equity and cash
flows of Company and its Subsidiaries for the fiscal quarters then ended, and
(iii) the unaudited consolidated balance sheets of Company and its Subsidiaries
as at November 3, 1996, December 1, 1996, December 29, 1996, and March 2, 1997
and the related consolidated statements of operations, stockholders' equity and
cash flows of Company and its Subsidiaries for the fiscal month then ended and
for the fiscal year-to-date fiscal periods then ended. All such statements
were prepared in conformity with GAAP and fairly present the financial position
(on a consolidated basis) of the entities described in such financial
statements as at the respective dates thereof and the results of operations and
cash flows (on a consolidated basis) of the entities described therein for each
of the periods then ended, subject, in the case of any such unaudited financial
statements, to changes resulting from audit and normal year-end adjustments.
None of the Loan Parties has any Contingent Obligation, contingent liability or
liability for taxes, long-term lease or unusual forward or long-term commitment
that is not reflected in the foregoing financial statements or the notes
thereto and which in any such case is material in relation to the business,
operations, properties, assets, condition (financial or
<PAGE> 98
otherwise) or prospects of the Loan Parties, taken as a whole, other than (i)
the incurrence of the Obligations and (ii) contingent obligations or
liabilities for taxes, long-term leases or forward or long-term commitments
disclosed on Schedule 5.3 annexed hereto.

D. NO MATERIAL ADVERSE CHANGE.

Since January 28, 1996, no event or change has occurred that
has caused or evidences, either in any case or in the aggregate, a Material
Adverse Effect.

E. TITLE TO PROPERTIES; LIENS.

Each Loan Party has (i) good, sufficient and legal title,
subject only to Permitted Encumbrances and, with respect to Real Property
Assets acquired after the Effective Date by such Loan Party from a Person other
than a Loan Party, such defects in title as existed prior to such acquisition,
to (in the case of fee interests in real property), (ii) valid leasehold
interests, subject only to Permitted Encumbrances and, with respect to Real
Property Assets acquired after the Effective Date by such Loan Party from a
Person other than a Loan Party, such defects in title as existed prior to such
acquisition, in (in the case of leasehold interests in real or personal
property), or (iii) good title to (in the case of all other personal property),
all of its properties and assets reflected in the financial statements referred
to in subsection 5.3 or in the most recent financial statements delivered
pursuant to subsection 6.1, in each case except for assets disposed of since
the date of such financial statements in the ordinary course of business or as
otherwise permitted under subsection 7.7. Except as permitted by this
Agreement, all such properties and assets are free and clear of Liens.

F. LITIGATION; ADVERSE FACTS.

There are no actions, suits, proceedings, arbitrations or
governmental investigations (whether or not purportedly on behalf of any of the
Loan Parties) at law or in equity or before or by any federal, state, municipal
or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, pending or, to the knowledge of any Loan
Party, threatened against or affecting any of the Loan Parties or any property
of any of the Loan Parties that, individually or in the aggregate, could
reasonably be expected to result in a Material Adverse Effect. No Loan Party
is (i) in violation of any applicable laws that, individually or in the
aggregate, could reasonably be expected to result in a Material Adverse Effect
or (ii) subject to or in default with respect to any final judgments, writs,
injunctions, decrees, rules or regulations of any court or any federal, state,
municipal or other governmental department, commission, board, bureau, agency
or instrumentality, domestic or foreign, that, individually or in the
aggregate, could reasonably be expected to result in a Material Adverse Effect.

G. PAYMENT OF TAXES.

Except to the extent permitted by subsection 6.3, all material tax
returns and reports of the Loan Parties required to be filed by any of them
have been timely filed, and all material taxes, assessments, fees and other
governmental charges upon the Loan Parties and upon their respective
properties, assets, income, businesses and franchises which are due and
<PAGE> 99
payable have been paid when due and payable. No Loan Party knows of any
material proposed tax assessment against any of the Loan Parties which is not
being actively contested by the relevant Loan Party in good faith and by
appropriate proceedings; provided that such reserves or other appropriate
provisions, if any, as shall be required in conformity with GAAP shall have
been made or provided therefor.

H. PERFORMANCE OF AGREEMENTS; MATERIALLY ADVERSE AGREEMENTS.

1. No Loan Party is in default in the performance, observance or
fulfillment of any of the material obligations, covenants or conditions
contained in any of its material Contractual Obligations, and no condition
exists that, with the giving of notice or the lapse of time or both, would
constitute such a default, except where the consequences, direct or indirect,
of such default or defaults, if any, individually or in the aggregate, could
not reasonably be expected to result in a Material Adverse Effect.

2. No Loan Party is a party to or is otherwise subject to any
agreements or instruments the performance of which, individually or in the
aggregate, could reasonably be expected to result in a Material Adverse Effect,
or any charter or other internal restrictions which, individually or in the
aggregate, could reasonably be expected to result in a Material Adverse Effect.

I. GOVERNMENTAL REGULATION.

No Loan Party is subject to regulation under the Public Utility
Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act
or the Investment Company Act of 1940 or under any other federal or state
statute or regulation which may limit its ability to incur Indebtedness for
borrowed money or which may otherwise render all or any portion of the
Obligations unenforceable.

J. SECURITIES ACTIVITIES.

1. No Loan Party is engaged principally, or as one of its
important activities, in the business of extending credit for the purpose of
purchasing or carrying any Margin Stock.

2. Following application of the proceeds of each Loan, not more
than 25% of the value of the assets (either of Holdings only or of the Loan
Parties on a consolidated basis) subject to the provisions of subsection 7.2 or
7.7 or subject to any restriction contained in any agreement or instrument,
between Holdings or any other Loan Party and any Lender or any Affiliate of any
Lender, relating to Indebtedness and within the scope of subsection 8.2, will
be Margin Stock.

K. EMPLOYEE BENEFIT PLANS.

1. Each of the Loan Parties and each of their respective ERISA
Affiliates are in material compliance with all applicable provisions and
requirements of ERISA and the regulations and published interpretations
thereunder with respect to each Employee Benefit Plan, and have performed all
their material obligations under each Employee Benefit Plan.
<PAGE> 100
2. No ERISA Events have occurred or are reasonably expected to
occur which individually or in the aggregate resulted in or might reasonably be
expected to result in a liability of any of the Loan Parties or any of their
respective ERISA Affiliates (unless no Loan Parties shall be jointly and
severally liable therefor) in excess of $3,000,000 during the term of this
Agreement.

3. Except as disclosed on Schedule 5.11 annexed hereto and except
to the extent required under Section 4980B of the Internal Revenue Code, no
Employee Benefit Plan provides health or welfare benefits (through the purchase
of insurance or otherwise) for any retired or former employees of any of the
Loan Parties or any of their respective ERISA Affiliates (unless no Loan
Parties shall be jointly and severally liable therefor). There are no material
liabilities of any Loan Party under any of the plans listed on Schedule 5.11
annexed hereto that are not reflected in the consolidated financial statements
of Company.

4. As of the most recent valuation date for any Pension Plan, the
Amount of Unfunded Benefit Liabilities, individually or in the aggregate for
all Pension Plans (excluding for purposes of such computation (1) any Pension
Plans which have a negative Amount of Unfunded Benefit Liabilities and (2) any
Pension Plan for which neither Company nor any other Loan Party would have any
liability if the Pension Plan then terminated), does not exceed $6,000,000.

L. CERTAIN FEES.

Except as disclosed on Schedule 5.12 annexed hereto, no material
broker's or finder's fee or commission will be payable with respect to this
Agreement or any of the transactions contemplated hereby, and each of Holdings
and Company hereby indemnifies Lenders against, and agrees that it will hold
Lenders harmless from, any claim, demand or liability for any such broker's or
finder's fees alleged to have been incurred in connection herewith or therewith
and any expenses (including reasonable fees, expenses and disbursements of
counsel) arising in connection with any such claim, demand or liability.

M. ENVIRONMENTAL PROTECTION.

1. Except as set forth in Schedule 5.13 annexed hereto:

a. the operations of the Loan Parties (including,
without limitation, all operations and conditions at or in the
Facilities) comply in all material respects with all Environmental
Laws;

b. each of the Loan Parties has obtained all
Governmental Authorizations under Environmental Laws necessary to
their respective operations, and all such Governmental Authorizations
are in good standing, and each of the Loan Parties is in compliance
with all material terms and conditions of such Governmental
Authorizations;

c. no Loan Party has received (a) any notice or claim to
the effect that it is or may be liable to any Person as a result of or
in connection with any Hazardous Materials except as would not
reasonably be expected to have a Material Adverse
<PAGE> 101
Effect or (b) any letter or request for information under Section 104
of the Comprehensive Environmental Response, Compensation, and
Liability Act (42 U.S.C. Section 9604) or comparable state laws
regarding any matter which could reasonably be expected to result in a
Material Adverse Effect, and, to the best of Holdings' and Company's
knowledge, none of the operations of any of the Loan Parties is the
subject of any federal or state investigation relating to or in
connection with any Hazardous Materials at any Facility or at any
other location;

d. none of the operations of any of the Loan Parties is
subject to any judicial or administrative proceeding alleging the
violation of or liability under any Environmental Laws which if
adversely determined could reasonably be expected to have a Material
Adverse Effect;

e. none of the Loan Parties or, to the best knowledge of
Holdings or Company, any predecessor of the Loan Parties has filed any
notice under any Environmental Law indicating past or present
treatment or Release of Hazardous Materials at any Facility except as
would not reasonably be expected to have a Material Adverse Effect,
and none of Loan Parties' operations involves the generation,
transportation, treatment, storage or disposal of hazardous waste, as
defined under 40 C.F.R. Parts 260-270 or any state equivalent other
than in compliance in all material respects with all applicable
Environmental Laws;

f. no Hazardous Materials exist on, under or about any
Facility in a manner that has a reasonable possibility of giving rise
to an Environmental Claim having a Material Adverse Effect, and no
Loan Party has filed any notice or report of a Release of any
Hazardous Materials that has a reasonable possibility of giving rise
to an Environmental Claim having a Material Adverse Effect;

g. none of the Loan Parties or, to the best knowledge of
Holdings or Company, any of their respective predecessors has disposed
of any Hazardous Materials in a manner that has a reasonable
possibility of giving rise to an Environmental Claim having a Material
Adverse Effect;

h. no unpermitted underground storage tanks or surface
impoundments are on or at any Facility; and

i. no material Lien in favor of any Person relating to
or in connection with any Environmental Claim has been filed or has
been attached to any Facility.

2. None of the Loan Parties or any of their respective Facilities
or operations are subject to any outstanding written order or agreement with
any governmental authority or private party relating to (a) any Environmental
Laws or (b) any Environmental Claims which could reasonably be expected to
result in a liability to Company or any of its Subsidiaries, after giving
effect to indemnification payable to Company or any Subsidiary with respect to
the LaHabra Complex (Alpha Beta Store No. 1900), in excess of $12,000,000
individually or in the aggregate.
<PAGE> 102
3. None of the Loan Parties has any contingent liability in
connection with any Release of any Hazardous Materials by the Loan Parties
which could reasonably be expected to result in a liability to Company or any
of its Subsidiaries, after giving effect to indemnification payable to Company
or any Subsidiary with respect to the LaHabra Complex (Alpha Beta Store No.
1900), in excess of $12,000,000 individually or in the aggregate.

4. Notwithstanding anything in this subsection 5.13 to the
contrary, no event or condition has occurred with respect to the Loan Parties
relating to any Environmental Laws or any Release of Hazardous Materials at any
Facility or any other location, including, without limitation, any matter
disclosed on Schedule 5.13 annexed hereto, which, individually, or in the
aggregate, has had a Material Adverse Effect.

N. EMPLOYEE MATTERS.

There is no strike or work stoppage in existence or threatened
involving any of the Loan Parties that could reasonably be expected to have a
Material Adverse Effect.

O. SOLVENCY.

Each of the Loan Parties is and, upon the incurrence of any
Obligations by Company on any date on which this representation is made, will
be, Solvent.

P. DISCLOSURE.

No representation or warranty of the Loan Parties contained in
any Loan Document, or in any other document, certificate or written statement
furnished to Lenders by or at the direction of any Loan Party for use in
connection with the transactions contemplated by this Agreement contains any
untrue statement of a material fact or omits to state a material fact (known to
Holdings or Company, in the case of any document not furnished by it) necessary
in order to make the statements contained herein or therein not misleading in
light of the circumstances in which the same were made. Any projections and
pro forma financial information contained in such materials are based upon good
faith estimates and assumptions believed by Holdings or Company, as the case
may be, to be reasonable at the time made, it being recognized by Lenders that
such projections as to future events are not to be viewed as facts and that
actual results during the period or periods covered by any such projections may
differ from the projected results. There are no facts known (or which should
upon the reasonable exercise of diligence be known) to Holdings or Company
(other than matters of a general economic nature) that, individually or in the
aggregate, could reasonably be expected to result in a Material Adverse Effect
and that have not been disclosed herein or in such other documents,
certificates and statements furnished to Lenders for use in connection with the
transactions contemplated hereby.

Q. INTELLECTUAL PROPERTY.

1. All Intellectual Property as of the Effective Date is
identified on Schedule 5.17 annexed hereto. Company and its Subsidiaries own,
or are licensed (to the extent required to be so licensed) to use, the
Intellectual Property and all such Intellectual Property is fully protected and
duly and properly registered, filed or issued in the appropriate office and
<PAGE> 103
jurisdictions for such registrations, filings or issuances, and the Loan
Parties own all of the right, title and interest in and to such Intellectual
Property under the applicable laws of the United States free and clear of any
Lien (other than Liens permitted under this Agreement), in each case except
where the failure to do or have the foregoing could not reasonably be expected
to result in a Material Adverse Effect.

2. No material claim has been asserted by any Person with respect
to the use of any such Intellectual Property, or challenging or questioning the
validity or effectiveness of any such Intellectual Property. The use of such
Intellectual Property by Company or any of its Subsidiaries does not infringe
on the rights of any Person, subject to such claims and infringements as do
not, individually or in the aggregate, give rise to any liabilities on the part
of Company or any of its Subsidiaries that are material to Company and its
Subsidiaries, taken as a whole. The consummation of the transactions
contemplated by this Agreement will not in any material manner or to any
material extent impair the ownership of (or the license to use, as the case may
be) any of such Intellectual Property by Company or any of its Subsidiaries.

R. PERMITS.

Except as disclosed in Schedule 5.18 annexed hereto, each of
the Loan Parties has such certificates, permits, licenses, franchises,
consents, approvals, authorizations and clearances that are material to the
condition (financial or otherwise), business or operations of any Loan Party
("PERMITS") and is in compliance in all material respects with all applicable
laws as are necessary to own, lease or operate its properties and to conduct
its businesses in the manner as presently conducted, and all such Permits are
valid and in full force and effect. Each of the Loan Parties is in compliance
in all material respects with its obligations under such Permits and no event
has occurred that allows, or after notice or lapse of time would allow,
revocation or termination of such Permits, except for any such revocation or
termination which could not reasonably be expected to individually or in the
aggregate have a Material Adverse Effect.

SECTION V. AFFIRMATIVE COVENANTS

Each of Holdings and Company covenants and agrees that, so
long as any of the Commitments hereunder shall remain in effect and until
payment in full of all of the Loans and other Obligations and the cancellation
or expiration of all Letters of Credit, unless Requisite Lenders shall
otherwise give prior written consent, each of Holdings and Company shall
perform, and shall cause each of its Subsidiaries to perform, all covenants in
this Section 6.

A. FINANCIAL STATEMENTS AND OTHER REPORTS.

Company will maintain, and cause each of its Subsidiaries to
maintain, a system of accounting established and administered in accordance
with sound business practices to permit preparation of financial statements in
conformity with GAAP. Company will deliver to Agent and Lenders:
<PAGE> 104
a. Fiscal Period Financials: as soon as practicable and
in any event within 30 days (or, in the case of the last Fiscal Period
in any Fiscal Quarter (other than the last Fiscal Quarter in any
Fiscal Year), 45 days or, in the case of the last Fiscal Period in any
Fiscal Year, 90 days) after the end of each Fiscal Period ending after
the Effective Date, (a) the balance sheets of each Reporting Division
as at the end of such Fiscal Period, (b) the related statements of
operations and cash flows of such Reporting Division and (c) a
schedule containing a summary of comparable store sales growth for
such Reporting Division and for the conventional store businesses of
Company and the Subsidiaries included in clause (d) of the definition
of "Reporting Division" on a consolidated basis and for the warehouse
store businesses of Company and the Subsidiaries included in clause
(d) of the definition of "Reporting Division" on a consolidated basis,
in each case for such Fiscal Period and for the period from the
beginning of the then current Fiscal Year to the end of such Fiscal
Period, setting forth in each case in comparative form the
corresponding figures for (1) the corresponding periods of the
previous Fiscal Year and (2) the corresponding figures from the plan
and financial forecast for the current Fiscal Year delivered pursuant
to subsection 6.1(xiii), all in reasonable detail and certified by the
chief financial officer of Company that they fairly present the
financial condition of such Reporting Division as at the dates
indicated and the results of its operations and its cash flows for the
periods indicated, subject to changes resulting from audit and normal
year-end adjustments;

b. Quarterly Financials: as soon as available and in
any event within 45 days after the end of each of the first three
Fiscal Quarters of each Fiscal Year and within 90 days after the end
of the fourth Fiscal Quarter of each Fiscal Year, the consolidated
balance sheets of each of Holdings and its Subsidiaries and Company
and its Subsidiaries as at the end of such Fiscal Quarter and the
related consolidated statements of operations, stockholders' equity
and cash flows of each of Holdings and its Subsidiaries and Company
and its Subsidiaries for such Fiscal Quarter and for the period from
the beginning of the then current Fiscal Year to the end of such
Fiscal Quarter, setting forth in each case in comparative form the
corresponding figures for the corresponding periods of the previous
Fiscal Year, all as set forth in Holdings' or Company's report on Form
10-Q, as the case may be, and the corresponding figures from the
consolidated plan and financial forecast for the current Fiscal Year
delivered pursuant to subsection 6.1(xiii), all in reasonable detail
and certified by the chief financial officer of Company that they
fairly present the financial condition of Holdings and its
Subsidiaries and Company and its Subsidiaries, as the case may be, as
at the dates indicated and the results of their operations and their
cash flows for the periods indicated, subject to changes resulting
from audit and normal year-end adjustments;

c. Year-End Financials: as soon as available and in any
event (a) within 90 days after the end of each Fiscal Year, the
consolidated balance sheets of each of Holdings and its Subsidiaries
and Company and its Subsidiaries as at the end of such Fiscal Year and
the related consolidated statements of operations, stockholders'
equity and cash flows of each of Holdings and its Subsidiaries and
Company and its Subsidiaries for such Fiscal Year, setting forth in
each case in comparative form the corresponding figures for the
previous Fiscal Year, all as set forth in Holdings' or
<PAGE> 105
Company's report on Form 10-K, as the case may be, and the
corresponding figures from the consolidated plan and financial
forecast delivered pursuant to subsection 6.1(xiii) for the Fiscal
Year covered by such financial statements, all in reasonable detail
and certified by the chief financial officer of Company that they
fairly present the financial condition of each of Holdings and its
Subsidiaries and Company and its Subsidiaries, as the case may be, as
at the dates indicated and the results of their operations and their
cash flows for the periods indicated, and (b) within 90 days after the
end of each Fiscal Year (or, if an extension has been obtained from
the Securities and Exchange Commission for filing such report after
such 90th day, then on the date of delivery of such report to the
Securities and Exchange Commission and in any event within 105 days
after the end of such Fiscal Year) in the case of such consolidated
financial statements, (1) a report thereon of Arthur Andersen LLP or
other independent certified public accountants of recognized national
standing selected by Company and satisfactory to Agent, which report
shall be unqualified as to scope of audit, shall express no doubts
about the ability of each of Holdings and its Subsidiaries and Company
and its Subsidiaries to continue as a going concern, and shall state
that such consolidated financial statements fairly present the
consolidated financial position of each of Holdings and its
Subsidiaries and Company and its Subsidiaries as at the dates
indicated and the results of their operations and their cash flows for
the periods indicated in conformity with GAAP applied on a basis
consistent with prior years (except as otherwise disclosed in such
financial statements) and that the examination by such accountants in
connection with such consolidated financial statements has been made
in accordance with generally accepted auditing standards and (2) a
letter from Arthur Andersen LLP or other independent certified public
accountants, substantially in the form of Exhibit XVIII annexed hereto
with such changes as are approved by Agent, acknowledging that Lenders
will receive such consolidated financial statements and such report
and will use such financial statements and report in their credit
analyses of Holdings and its Subsidiaries and Company and its
Subsidiaries;

d. Officers' and Compliance Certificates: (a) together
with each delivery of financial statements of Holdings and its
Subsidiaries and Company and its Subsidiaries pursuant to subdivisions
(ii) and (iii) above, (1) an Officers' Certificate of Company stating
that the signers have reviewed the terms of this Agreement and have
made, or caused to be made under their supervision, a review in
reasonable detail of the transactions and condition of each of
Holdings and its Subsidiaries and Company and its Subsidiaries during
the accounting period covered by such financial statements and that
such review has not disclosed the existence during or at the end of
such accounting period, and that the signers do not have knowledge of
the existence as at the date of such Officers' Certificate, of any
condition or event that constitutes an Event of Default or Potential
Event of Default, or, if any such condition or event existed or
exists, specifying the nature and period of existence thereof and what
action Company has taken, is taking and proposes to take with respect
thereto; and (2) a Compliance Certificate duly executed and duly
completed in all respects provided that with respect to the delivery
of financial statements for Company's Fiscal Year ended February 2,
1997, such Compliance Certificate shall be completed with reference to
the Company's compliance with the covenants contained in the Existing
Credit Agreement; and (b) within 100 days after the beginning of each
Fiscal Year and in
<PAGE> 106
any event on or prior to the date of any mandatory prepayments made
pursuant to subsection 2.4B(iii)(e) during such Fiscal Year, an
Officers' Certificate of Company setting forth the Consolidated Excess
Cash Flow for the Fiscal Year covered by such financial statements and
demonstrating in reasonable detail the derivation of such Consolidated
Excess Cash Flow;

e. Reconciliation Statements: if, as a result of any
change in accounting principles and policies from those used in the
preparation of the audited financial statements referred to in
subsection 5.3, the financial statements of Holdings and its
Subsidiaries or any Reporting Division delivered pursuant to
subdivisions (i), (ii), (iii) or (xiii) of this subsection 6.1 will
differ in any material respect from the consolidated financial
statements that would have been delivered pursuant to such
subdivisions had no such change in accounting principles and policies
been made, then, subject to subsection 1.2, (a) together with the
first delivery of financial statements pursuant to subdivision (i),
(ii), (iii) or (xiii) of this subsection 6.1 following such change,
financial statements of Holdings and its Subsidiaries or any Reporting
Division for the current Fiscal Year to the effective date of such
change, in each case prepared on a pro forma basis as if such change
had been in effect during such periods, and (b) together with each
delivery of financial statements pursuant to subdivision (i), (ii),
(iii) or (xiii) of this subsection 6.1 following such change, such
financial statements prepared on a basis consistent with the
accounting principles and policies used in the preparation of the
financial statements delivered immediately prior to such change;

f. Accountants' Certification: together with each
delivery of consolidated financial statements of each of Holdings and
its Subsidiaries and Company and its Subsidiaries pursuant to
subdivision (iii) above, a written statement by the independent
certified public accountants giving the report thereon (a) stating
whether, in connection with their audit examination, any condition or
event that constitutes an Event of Default or Potential Event of
Default that relates to accounting matters has come to their attention
and, if such a condition or event has come to their attention,
specifying the nature and period of existence thereof; provided that
such accountants shall not be liable by reason of any failure to
obtain knowledge of any such Event of Default or Potential Event of
Default that would not be disclosed in the course of their audit
examination, and (b) stating that based on their audit examination
nothing has come to their attention that causes them to believe that
the information contained in the certificates delivered therewith
pursuant to subdivision (iv) above is not correct;

g. Accountants' Reports: promptly upon receipt thereof
(unless restricted by applicable professional standards), copies of
any comment letter submitted to the management of Holdings or Company
by independent certified public accountants in connection with each
annual audit of the financial statements of Holdings and its
Subsidiaries or Company and its Subsidiaries, as the case may be, made
by such accountants;

h. SEC Filings and Press Releases: promptly upon the
sending or filing thereof, copies of (a) all financial statements,
reports, notices and proxy statements sent or made available generally
by any Loan Party to its public security holders, (b) all regular and
periodic reports and all registration statements (other than on Form
S-8
<PAGE> 107
or a similar form) and prospectuses, if any, filed by Holdings or any
of its Subsidiaries with any securities exchange or with the
Securities and Exchange Commission or any governmental or private
regulatory authority (other than reports of a routine or ministerial
nature which are not material), and (c) all press releases and other
statements made available generally by Holdings or any of its
Subsidiaries to the public concerning material developments in the
business of Holdings or any of its Subsidiaries;

i. Events of Default, etc.: promptly upon any Specified
Officer of any Loan Party obtaining knowledge (a) that a condition or
event that constitutes an Event of Default or Potential Event of
Default has occurred and is continuing, or becoming aware that any
Lender or Agent has given any notice (other than to Agent) or taken
any other action with respect to a claimed Event of Default or
Potential Event of Default, (b) that any Person has given any notice
to Holdings or any of its Subsidiaries or taken any other action with
respect to a claimed default or event or condition of the type
referred to in subsection 8.2 or (c) of the occurrence of any event or
change that has caused or evidences, either in any case or in the
aggregate, a Material Adverse Effect, an Officers' Certificate
specifying the nature and period of existence of such condition, event
or change, or specifying the notice given or action taken by any such
Person and the nature of such claimed Event of Default, Potential
Event of Default, default, event or condition, and what action the
relevant Loan Party has taken, is taking and proposes to take with
respect thereto;

j. Litigation or Other Proceedings: promptly upon any
Specified Officer of any Loan Party obtaining knowledge of (X) the
institution of, or nonfrivolous threat of, any action, suit,
proceeding (whether administrative, judicial or otherwise),
governmental investigation or arbitration against or affecting
Holdings or any of its Subsidiaries or any property of Holdings or any
of its Subsidiaries (collectively, "PROCEEDINGS") not previously
disclosed in writing by Company to Lenders or (Y) any material
development in any Proceeding that, in any case:

(1) if adversely determined, has a reasonable
possibility of giving rise to a Material Adverse Effect; or

(2) seeks to enjoin or otherwise prevent the
consummation of, or to recover any damages or obtain relief as
a result of, the transactions to occur or which have occurred
pursuant to the Loan Documents;

written notice thereof together with such other information as
may be reasonably available to Company to enable Lenders and
their counsel to evaluate such matters;

k. ERISA Events: promptly upon any Specified Officer of
any Loan Party becoming aware of the occurrence of or forthcoming
occurrence of any ERISA Event, a written notice specifying the nature
thereof, what action Holdings or any of its Subsidiaries or any of
their respective ERISA Affiliates has taken, is taking or proposes to
take with respect thereto and, when known, any action taken or
<PAGE> 108
threatened by the Internal Revenue Service, the Department of Labor or
the PBGC with respect thereto;

l. ERISA Notices: with reasonable promptness, copies of
(a) each Schedule B (Actuarial Information) to the annual report (Form
5500 Series) filed by Holdings or any of its Subsidiaries or any of
their respective ERISA Affiliates with the Internal Revenue Service
with respect to each Pension Plan; (b) all notices received by
Holdings or any of its Subsidiaries or any of their respective ERISA
Affiliates from a Multiemployer Plan sponsor concerning an ERISA
Event; and (c) such other documents or governmental reports or filings
relating to any Employee Benefit Plan as Agent shall reasonably
request;

m. Financial Plans: as soon as practicable and in any
event no later than 30 days after the beginning of each Fiscal Year, a
consolidated plan and financial forecast for such Fiscal Year as
customarily prepared by Holdings and Company, including without
limitation (a) forecasted balance sheets and forecasted statements of
operations and cash flows of Holdings and its Subsidiaries on a
consolidated basis and each Reporting Division for such Fiscal Year,
together with an explanation of the assumptions on which such
forecasts are based, (b) forecasted statements of operations and cash
flows of each Reporting Division for each Fiscal Period of such Fiscal
Year, together with an explanation of the assumptions on which such
forecasts are based, and (c) such other information and projections as
any Lender may reasonably request;

n. Insurance: as soon as practicable and in any event
by the last day of each Fiscal Year, an Officers' Certificate or other
report, in each case in form and substance satisfactory to Agent
outlining all material insurance coverage maintained as of the date of
such Officers' Certificate or report by Holdings and its Subsidiaries
and all material insurance coverage planned to be maintained by
Holdings and its Subsidiaries in the immediately succeeding Fiscal
Year;

o. Environmental Audits and Reports: as soon as
practicable following receipt thereof, copies of all environmental
audits and reports (other than routine follow-up reports to matters
previously disclosed to Lenders), whether prepared by personnel of
Holdings or any of its Subsidiaries or by independent consultants,
with respect to significant environmental matters at any Facility or
which relate to an Environmental Claim which could reasonably be
expected to result in a Material Adverse Effect;

p. Board of Directors: with reasonable promptness,
written notice of any change in the Board of Directors of Holdings or
Company;

q. Changes Regarding Subsidiaries: (a) promptly upon
any Person becoming a Subsidiary of Holdings, a written notice setting
forth with respect to such Person (1) the date on which such Person
became a Subsidiary of Holdings and (2) all of the data required to be
set forth in Schedule 5.1 annexed hereto with respect to all
Subsidiaries of Holdings (it being understood that such written notice
shall be deemed to supplement Schedule 5.1 annexed hereto for all
purposes of this Agreement) and (b) together with each delivery of
financial statements of Holdings and its Subsidiaries
<PAGE> 109
and Company and its Subsidiaries pursuant to subdivision (ii) above, a
written notice setting forth with respect to each Subsidiary of
Holdings which was sold, merged, dissolved, transferred or otherwise
disposed of during the Fiscal Quarter covered by such financial
statements the circumstances of such transaction in reasonable detail;

r. Margin Determination Certificate: concurrently with
the delivery of the financial statements required under subsections
6.1(ii) and 6.1(iii), Company shall deliver a Margin Determination
Certificate;

s. Amendments to Certain Documents: within five
Business Days of entering into any amendment to or modification of any
of the tax sharing agreements referred to in subsection 7.12(viii) or
the warrant referred to in subsection 7.12(ix), a copy of such
amendment or modification; and

t. Other Information: with reasonable promptness, such
other information and data with respect to Holdings or any of its
Subsidiaries as from time to time may be reasonably requested by any
Lender.

B. CORPORATE EXISTENCE, ETC.

Except as permitted under subsection 7.7, each of Holdings and Company
will, and will cause each of its Subsidiaries to, at all times preserve and
keep in full force and effect its corporate existence and all rights and
franchises material to its business; provided that the corporate existence and
rights and franchises of those Subsidiaries of Holdings identified on Schedule
5.1 annexed hereto as inactive (so long as such Subsidiary owns assets in an
aggregate fair market value (without netting any such fair market value against
any liabilities of such Subsidiary) not exceeding $1,000,000) may be
terminated.

C. PAYMENT OF TAXES AND CLAIMS; TAX CONSOLIDATION.

1. Each of Holdings and Company will, and will cause each of its
Subsidiaries to, pay all material taxes, assessments and other governmental
charges imposed upon it or any of its material properties or assets or in
respect of any of its income, businesses or franchises before any material
penalty accrues thereon, and all claims (including, without limitation, claims
for labor, services, materials and supplies) for sums that have become due and
payable and that by law have or may become a Lien upon any of its properties or
assets, prior to the time when any material penalty or fine shall be incurred
with respect thereto; provided that no such charge or claim need be paid if
being contested in good faith by appropriate proceedings promptly instituted
and diligently conducted and if such reserve or other appropriate provision, if
any, as shall be required in conformity with GAAP shall have been made
therefor.

2. Each of Holdings and Company will not, nor will it permit any
of its Subsidiaries to, file or consent to the filing of any consolidated
income tax return with any Person (other than Holdings or any of its
Subsidiaries).
<PAGE> 110
D. MAINTENANCE OF PROPERTIES; INSURANCE.

1. Each of Holdings and Company will, and will cause each of its
Subsidiaries to, maintain or cause to be maintained in good repair, working
order and condition, ordinary wear and tear excepted, all of the Collateral
(without limiting any obligations under the Collateral Documents) and all other
material properties used or useful in the business of Holdings and its
Subsidiaries (including, without limitation, Intellectual Property) and from
time to time will make or cause to be made all appropriate repairs, renewals
and replacements thereof. Each of Holdings and Company will maintain or cause
to be maintained, with financially sound and reputable insurance companies or
associations or with self-insurance programs, in each case to the extent
consistent with prudent business practices and customary in their respective
industries, insurance with respect to its properties and business and the
properties and businesses of its Subsidiaries against loss or damage of the
kinds (including, in any event, business interruption insurance and, to the
extent commercially reasonable, earthquake insurance) and in the amounts
customarily carried or maintained under similar circumstances by corporations
of established reputation engaged in similar businesses and owning similar
properties in the same general geographic areas in which Holdings, Company or
any of their respective Subsidiaries, as the case may be, operates. In
addition, each of Holdings and Company will maintain or cause to be maintained
flood insurance with respect to each Flood Hazard Property included in the
Collateral and located in a community that participates in the National Flood
Insurance Program. All insurance relating to the Collateral shall comply with
the insurance provisions of the Collateral Documents.

2. In the event that Company or any of its Subsidiaries, in
connection with any casualty or casualties involving assets of Company or any
of its Subsidiaries, receives (a) proceeds of insurance in excess of $5,000,000
in connection with any one casualty, or (b) aggregate proceeds of insurance in
excess of $15,000,000 from all such casualties (on a cumulative basis, net of
any proceeds already used to restore the assets affected by such casualty or
casualties or to make prepayments in accordance with subsection 2.4B(iii)(a)),
Company shall immediately pay all such insurance proceeds (and not just such
excess) over to Agent, and Agent shall hold such proceeds in an interest
bearing account. Agent shall (i) so long as no Event of Default has occurred
and is continuing, disburse all such insurance proceeds (and any earnings on
amounts held in such interest bearing account) held by it to Company, in
accordance with and subject to such customary terms, conditions and procedures
as Agent shall require, for the sole purpose of restoring (or reimbursing
Company or any of its Subsidiaries for restoration costs previously expended
and for costs expended in obtaining such proceeds with respect to) the affected
assets, or, (ii) at Company's option (or if otherwise required by subsection
2.4B(iii)(a)), apply such proceeds and such earnings for the purpose of making
a prepayment in accordance with subsection 2.4. Company hereby authorizes
Agent to make such prepayments with such proceeds and such earnings. If an
Event of Default has occurred and is continuing, Agent may elect, in its sole
and absolute discretion, (i) to apply all or any portion of such insurance
proceeds and such earnings to the restoration of any of the Collateral, subject
to conditions determined by Agent, (ii) to disburse any such insurance proceeds
and such earnings to Company for the purposes set forth in the immediately
preceding sentence, (iii) to hold such insurance proceeds and such earnings as
additional Collateral under the Collateral Documents or (iv) to apply such
insurance proceeds and such earnings as provided for in the Loan Documents.
<PAGE> 111
E. INSPECTION; LENDER MEETING.

Each of Holdings and Company shall, and shall cause each of its
Subsidiaries to, permit any authorized representatives designated by any Lender
to visit and inspect any of the properties of Holdings or any of its
Subsidiaries, including its and their financial and accounting records, and to
make copies and take extracts therefrom, and to discuss its and their affairs,
finances and accounts with its and their officers and independent public
accountants (provided that representatives of Holdings or any of its
Subsidiaries may, if it so chooses, be present at or participate in any such
discussion), all upon reasonable notice and at such reasonable times during
normal business hours and as often as may be reasonably requested. Without in
any way limiting the foregoing, each of Holdings and Company will, upon the
request of Agent or Requisite Lenders, participate in a meeting of Agent and
Lenders once during each Fiscal Year to be held at Company's corporate offices
(or such other location as may be agreed to by Company and Agent) at such time
as may be agreed to by Company and Agent.

F. COMPLIANCE WITH LAWS, ETC.

Each of Holdings and Company shall, and shall cause each of
its Subsidiaries to, comply with the requirements of all applicable laws,
rules, regulations and orders of any governmental authority, noncompliance with
which could reasonably be expected to cause a Material Adverse Effect.

G. ENVIRONMENTAL DISCLOSURE AND INSPECTION.

1. Each of Holdings and Company shall, and shall cause each of
its Subsidiaries to, exercise all due diligence in order to comply and cause
(i) all tenants under any leases or occupancy agreements affecting any portion
of the Facilities and (ii) all other Persons on or occupying such property, to
comply with all Environmental Laws.

2. Each of Holdings and Company agrees that Agent may, from time
to time and in its sole and absolute discretion, retain, at Company's expense,
an independent professional consultant to review any report relating to
Hazardous Materials prepared by or for Holdings or any of its Subsidiaries and
to conduct its own investigation of any Facility currently owned, leased,
operated or used by Holdings or any of its Subsidiaries, and each of Holdings
and Company agrees to use its best efforts to obtain permission for Agent's
professional consultant to conduct its own investigation of any Facility
previously owned, leased, operated or used by Holdings or any of its
Subsidiaries. Each of Holdings and Company hereby grants (to the extent it is
authorized to do so) to Agent and its agents, employees, consultants and
contractors the right to enter into or on to the Facilities currently owned,
leased, operated or used by Holdings or any of its Subsidiaries to perform such
tests on such property as are reasonably necessary to conduct such a review
and/or investigation. Any such investigation of any Facility shall be
conducted, unless otherwise agreed to by such Person and Agent, during normal
business hours and, to the extent reasonably practicable, shall be conducted so
as not to interfere with the ongoing operations at any such Facility or to
cause any damage or loss to any property at such Facility. Each of Holdings
and Company and Agent hereby acknowledge and agree that any report of any
investigation conducted at the request of Agent pursuant to this subsection
6.7B will be obtained and shall
<PAGE> 112
only be used by Agent and Lenders for the purposes of Lenders' internal credit
decisions, to monitor and police the Loans and to protect Lenders' security
interests, if any, created by the Loan Documents. Agent agrees to deliver a
copy of any such report to Company with the understanding that Company
acknowledges and agrees that (i) it will indemnify and hold harmless Agent and
each Lender from any costs, losses or liabilities relating to Holdings' or any
of its Subsidiaries' use of or reliance on such report, (ii) neither Agent nor
any Lender makes any representation or warranty with respect to such report,
and (iii) by delivering such report to Company, neither Agent nor any Lender is
requiring or recommending the implementation of any suggestions or
recommendations contained in such report.

3. Company shall promptly advise Lenders in writing and in
reasonable detail of (i) any Release of any Hazardous Materials at any Facility
required to be reported to any federal, state or local governmental or
regulatory agency under any applicable Environmental Laws, (ii) any and all
written communications with any governmental authority or any adverse party
with respect to any Environmental Claims that have a reasonable possibility of
giving rise to a Material Adverse Effect or with respect to any Release of
Hazardous Materials at any Facility required to be reported to any federal,
state or local governmental or regulatory agency, (iii) any remedial action
taken by Holdings or any of its Subsidiaries or any other Person in response to
(x) any Hazardous Materials on, under or about any Facility, the existence of
which has a reasonable possibility of resulting in an Environmental Claim
having a Material Adverse Effect, or (y) any Environmental Claim that could
reasonably be expected to result in a Material Adverse Effect, (iv) Holdings'
or any of its Subsidiaries' discovery of any occurrence or condition on any
real property adjoining or in the vicinity of any Facility that could cause
such Facility or any part thereof to be subject to any material restrictions on
the ownership, occupancy, transferability or use thereof under any
Environmental Laws, and (v) any request for information from any governmental
agency that suggests such agency is investigating whether Holdings or any of
its Subsidiaries may be potentially responsible for a Release of Hazardous
Materials.

4. Company shall promptly notify Lenders of (i) any proposed
acquisition of stock, assets, or property by Holdings or any of its
Subsidiaries that could reasonably be expected to expose Holdings or any of its
Subsidiaries to, or result in, Environmental Claims that could reasonably be
expected to have a Material Adverse Effect or that could reasonably be expected
to have a material adverse effect on any Governmental Authorization then held
by Holdings or any of its Subsidiaries and (ii) any proposed action to be taken
by Holdings or any of its Subsidiaries to commence manufacturing, industrial or
other operations that could reasonably be expected to subject Holdings or any
of its Subsidiaries to additional laws, rules or regulations which could
reasonably be expected to have a Material Adverse Effect, including, without
limitation, laws, rules and regulations requiring additional environmental
permits or licenses.

5. Each of Holdings and Company shall, at its own expense,
provide copies of such documents or information as Agent may reasonably request
in relation to any matters disclosed pursuant to this subsection 6.7.
<PAGE> 113
H. LOAN PARTIES' REMEDIAL ACTION REGARDING HAZARDOUS MATERIALS.

Each of Holdings and Company shall promptly take, and shall
cause each of its Subsidiaries promptly to take, any and all necessary remedial
action in connection with the presence, storage, use, disposal, transportation
or Release of any Hazardous Materials on, under or about any Facility in order
to comply with all applicable Environmental Laws and Governmental
Authorizations. In the event Holdings or any of its Subsidiaries undertakes
any remedial action with respect to any Hazardous Materials on, under or about
any Facility, Holdings or such Subsidiary shall conduct and complete such
remedial action in compliance with all applicable Environmental Laws, and in
accordance with the policies, orders and directives of all federal, state and
local governmental authorities except when, and only to the extent that,
Holdings' or such Subsidiary's liability for such presence, storage, use,
disposal, transportation or discharge of any Hazardous Materials is being
contested in good faith by Holdings or such Subsidiary.

I. INTEREST RATE PROTECTION.

Within 120 days of the Closing Date, Company shall obtain, and
shall thereafter cause to be maintained for a period of not less than two
years, one or more Interest Rate Agreements with respect to the Loans, in an
aggregate notional principal amount of not less than $300,000,000, each such
Interest Rate Agreement to be in form and substance satisfactory to Agent.

J. EXECUTION OF GUARANTY AND COLLATERAL DOCUMENTS BY FUTURE SUBSIDIARIES.

In the event that any Person becomes a Subsidiary of Company
after the date hereof, Company will promptly notify Agent of that fact and
cause (i) such Subsidiary to execute and deliver to Agent a counterpart of the
Guaranty, the Security Agreement, the Trademark Security Agreement, Deeds of
Trust, the Deposit Accounts Security Agreement and the Pledge Agreement and to
take all such further action and execute all such further documents and
instruments as may be required to grant and perfect in favor of Agent, for the
benefit of Lenders, a first-priority security interest (subject only to Liens
permitted under this Agreement) in all of the real, personal and mixed property
assets of such Subsidiary (other than with respect to Excluded Sites and other
than any such assets which are subject to Liens permitted under subsection
7.2A(v) and other Real Property Assets that such Subsidiary would not be
obligated to pledge to Agent pursuant to subsection 6.11 (it being understood
and agreed that all of the requirements of subsection 6.11 are applicable to
the Real Property Assets of such Subsidiary, with the date such Subsidiary
became a Subsidiary of the Company being treated for purposes of subsection
6.11 as the date on which such Subsidiary acquired all of its Real Property
Assets)) and (ii) the parent of such Subsidiary to execute and deliver to Agent
a counterpart of the Pledge Agreement or a Pledge Amendment to the Pledge
Agreement previously executed by such parent effecting the pledge by such
parent to Agent of all of the capital stock of, or any other equity interest
in, such Subsidiary. Company shall deliver to Agent, together with such
Guaranty and such Collateral Documents, (i) certified copies of such
Subsidiary's Articles or Certificate of Incorporation, together with a good
standing certificate from the Secretary of State of the jurisdiction of its
incorporation, each to be dated a recent date prior to their delivery to Agent,
(ii) a copy of such Subsidiary's Bylaws, certified by its corporate secretary
or an assistant corporate
<PAGE> 114
secretary as of a recent date prior to their delivery to Agent, (iii) a
certificate executed by the Secretary or an assistant secretary of such
Subsidiary as to (a) the incumbency and signatures of the officers of such
Subsidiary executing the Guaranty and the Collateral Documents to which such
Subsidiary is a party and (b) the fact that the attached resolutions of the
Board of Directors of such Subsidiary authorizing the execution, delivery and
performance of the Guaranty and such Collateral Documents are in full force and
effect and have not been modified or rescinded, (iv) the certificate or
certificates evidencing all of the capital stock of (or, if certificated, any
other equity interest in) such Subsidiary, and (v) if requested by Agent, a
favorable opinion of counsel to such Subsidiary, in form and substance
satisfactory to Agent and its counsel, as to (a) the due organization and good
standing of such Subsidiary, (b) the due authorization, execution and delivery
by such Subsidiary of the Guaranty and such Collateral Documents, (c) the
enforceability of the Guaranty, and such Collateral Documents against such
Subsidiary, and (d) such other matters as Agent may reasonably request, all of
the foregoing to be satisfactory in form and substance to Agent and its
counsel. Upon the repayment of the indebtedness which is secured by the
capital stock of Bell Markets, Inc. as described in Schedule 7.2 annexed
hereto, Company shall cause Cala to pledge all of the capital stock of Bell
Markets, Inc. to Secured Party (as defined in the Pledge Agreement) pursuant to
the Pledge Agreement.

K. ADDITIONAL REAL PROPERTY.

After the Effective Date, each of Holdings and Company shall,
and shall cause its Subsidiaries to, with respect to each Real Property Asset
listed in Schedule 4.1F annexed hereto (to the extent the items listed below
have not been obtained or delivered to Agent on the Closing Date or the
Effective Date and can, using reasonable commercial efforts, be obtained) and
each Real Property Asset in which Company or such Subsidiary acquires fee title
or a leasehold interest after the Effective Date (in each case excluding any
Real Property Asset which is and so long as it remains (A) an Excluded Site, or
(B) a leasehold interest as to which encumbrancing requires the consent of the
lessor, where Company and its Subsidiaries have been unable to obtain the
applicable lessor's consent thereto, or (C) an asset subject to a Lien
permitted under subsection 7.2A(iv) or (v)) (such non-excluded Real Property
Assets collectively, "COVERED REAL PROPERTY"), as soon as practicable and in
any event within three months after the applicable Real Property Asset becomes
Covered Real Property (or within one month after the Effective Date, with
respect to the Real Property Assets identified with a "PC" in the "Mortgage"
column listed on Schedule 4.1F), deliver:

(1) fully executed counterparts of a Deed of
Trust, or an amendment to a Deed of Trust, in form
satisfactory to Agent, which Deed of Trust or amendment shall
encumber such Covered Real Property, together with evidence
that counterparts of such Deed of Trust or amendment have been
recorded in all places to the extent necessary or desirable,
in the reasonable judgment of Agent, so as to effectively
create a valid and enforceable first priority lien (subject
only to Permitted Encumbrances) on such Covered Real Property
in favor of Agent (or such other trustee as may be required or
desired under local law) for the benefit of Lenders,
<PAGE> 115
(2) if requested by Agent, a title report, title
commitment or other title search satisfactory to Agent
obtained by such Person in respect of such Covered Real
Property,

(3) if requested by Agent, an opinion of counsel
(which counsel shall be reasonably satisfactory to Agent) in
the state in which such Covered Real Property is located with
respect to the enforceability of the Deeds of Trust recorded
in such state and such other matters as Agent may request, in
form and substance satisfactory to Agent,

(4) in the case of each such Covered Real
Property consisting of a leasehold interest, a copy of the
lease (including all amendments thereto), together with such
estoppel letters, consents, waivers, recorded memoranda and
agreements from the lessor on such real property as are
reasonably required by Agent,

(5) environmental audits prepared by professional
consultants mutually acceptable to Company and Agent, in form,
scope and substance satisfactory to Agent in its reasonable
discretion,

(6) if Company or any of its Subsidiaries obtains
an owner's or lessee's policy of title insurance with respect
to such Covered Real Property, or if requested by Agent with
respect to any other Covered Real Property having an
acquisition cost or value (as estimated by Agent) in excess of
$2,000,000, a Title Insurance Policy, in an amount reasonably
satisfactory to Agent, with respect to Agent's lien thereon,

(7) information sufficient for Agent to determine
whether (1) any such Real Property Asset is Flood Hazard
Property and (2) the community in which each Flood Hazard
Property is located is participating in the National Flood
Insurance Program,

(8) upon Company's or such Subsidiary's receipt
of written notification from Agent (1) as to the existence of
each such Flood Hazard Property and (2) as to whether the
community in which each such Flood Hazard Property is located
is participating in the National Flood Insurance Program,
written acknowledgment of the receipt of such notification;
and

(9) the evidence of insurance with respect to
such Real Property Asset required to be provided to Agent
pursuant to the terms of the Deeds of Trust, including flood
insurance with respect to each Flood Hazard Property located
in a community that is participating in the National Flood
Insurance Program.

Company shall, and shall cause each of its Subsidiaries to,
permit any authorized representatives designated by Agent to visit and inspect
any Real Property Asset for the purpose of obtaining an appraisal of value,
conducted by consultants retained by Agent in compliance with all applicable
banking regulations.
<PAGE> 116
L. REDEMPTION OF CERTAIN INDEBTEDNESS.

On or prior to April 28, 1997, the Company shall have called
for redemption, and shall have redeemed, all of its outstanding 1992 13.75%
Senior Subordinated Notes and 1995 13.75% Senior Subordinated Notes at a
redemption price which does not exceed 106.111% of the principal amount thereof
plus accrued interest to the date of redemption.

SECTION VI. NEGATIVE COVENANTS

A. INDEBTEDNESS.

Each of Holdings and Company shall not, and shall not permit
any of its Subsidiaries to, directly or indirectly, create, incur, assume or
guaranty, or otherwise become or remain directly or indirectly liable with
respect to, any Indebtedness, except:

a. the Loan Parties may become and remain liable with
respect to Indebtedness which is included among the Obligations;

b. Holdings and its Subsidiaries may become and remain
liable with respect to Contingent Obligations permitted by subsection
7.4 and, upon any matured obligations actually arising pursuant
thereto, the Indebtedness corresponding to the Contingent Obligations
so extinguished;

c. Company and its Subsidiaries may become and remain
liable with respect to Indebtedness in respect of Capital Leases;
provided that such Capital Leases are permitted under the terms of
subsection 7.9;

d. Company may become and remain liable with respect to
Indebtedness to any of its wholly-owned Subsidiaries, and any
wholly-owned Subsidiary of Company may become and remain liable with
respect to Indebtedness to Company or any other wholly-owned
Subsidiary of Company; provided that (a) all such intercompany
Indebtedness shall be evidenced by promissory notes that are pledged
to Agent pursuant to the terms of the applicable Collateral Document,
(b) all such intercompany Indebtedness owed by Company to any of its
Subsidiaries shall be subordinated in right of payment to the payment
in full of the Obligations pursuant to the terms of the applicable
promissory notes or an intercompany subordination agreement, in each
case approved by Agent, and (c) any payment by any Subsidiary of
Company under any guaranty of the Obligations shall result in a pro
tanto reduction of the amount of any intercompany Indebtedness owed by
such Subsidiary to Company or to any of its Subsidiaries for whose
benefit such payment is made;
<PAGE> 117
e. Holdings may become and remain liable with respect to
Indebtedness evidenced by the Seller Debentures in an aggregate
principal amount not to exceed $131,500,000 and the Holdings Discount
Debentures in an aggregate principal amount not to exceed (at
maturity) $193,363,750, minus the aggregate principal amount thereof
from time to time repurchased, redeemed or prepaid;

f. Company may become and remain liable with respect to
Indebtedness evidenced by its 1995 11% Senior Subordinated Notes in an
aggregate principal amount not to exceed $524,005,000, its 1997 11%
Senior Subordinated Notes in an aggregate principal amount not to
exceed $155,000,000, its 1993 9% Senior Subordinated Notes in an
aggregate principal amount not to exceed $145,000, its 1992 10-1/4%
Senior Subordinated Notes in an aggregate principal amount not to
exceed $2,100,000, its 1992 13.75% Senior Subordinated Notes in an
aggregate principal amount not to exceed $4,816,000, its 1995 13.75%
Senior Subordinated Notes in an aggregate principal amount not to
exceed $140,200,000, its 1992 10.45% Senior Notes in an aggregate
principal amount not to exceed $4,700,000, its 1995 10.45% Senior
Notes in an aggregate principal amount not to exceed $520,326,000 and
its 1996 10.45% Senior Notes in an aggregate principal amount not to
exceed $100,000,000, minus in each case the aggregate principal amount
thereof from time to time repurchased, redeemed or prepaid;

g. Company and its Subsidiaries, as applicable, may
remain liable with respect to each of the items of existing
Indebtedness described in Schedule 7.1 annexed hereto and any
Indebtedness incurred to refinance such existing Indebtedness;
provided that after giving effect to such refinancing Indebtedness and
the repayment of the corresponding existing Indebtedness with the
proceeds thereof, (a) the aggregate principal amount of the
refinancing Indebtedness and the corresponding existing Indebtedness
so refinanced shall not be greater than the outstanding principal
amount of such existing Indebtedness immediately prior to such
refinancing, (b) the weighted average life to maturity of such
refinancing Indebtedness shall be no shorter than the existing
Indebtedness being refinanced and (c) such refinancing Indebtedness
shall not be secured by any additional property than that which
secures the existing Indebtedness being refinanced;

h. Company and its Subsidiaries may become and remain
liable with respect to Indebtedness incurred to finance (or may assume
Indebtedness originally incurred to finance) (a) the purchase price of
equipment, fixtures and any other similar property or the remodeling
or other improvement costs of any facility of Company or any of its
Subsidiaries or (b) the purchase price of any Real Property Assets
consisting of fee interests in stores; provided that the aggregate
principal amount of such Indebtedness when incurred (and, in the case
of assumed Indebtedness, when originally incurred) shall not be less
than 80% or more than 100% of the fair market value of (a) the
equipment, fixtures and any other similar property acquired plus the
reasonable installation and delivery charges associated therewith or
the remodeling or other improvement costs relating to such facility or
(b) such Real Property Assets, as applicable; provided further that
(1) the aggregate principal amount of all such Indebtedness incurred
or assumed during any Fiscal Year for purposes described in the first
clause (a) of this subsection 7.1(viii) shall not
<PAGE> 118
exceed $20,000,000 and (2) the aggregate principal amount of all
Indebtedness incurred to finance the purchase price of any such Real
Property Assets (together with assumed Indebtedness originally
incurred to finance the purchase price of any such Real Property
Assets) shall not exceed $10,000,000 at any time;

i. Subsidiaries of Company acquired after the Closing
Date, the acquisition of which is permitted under subsection 7.3(v)
and subsection 7.7(ii), may remain liable with respect to Indebtedness
existing immediately prior to the time any such entity became a
Subsidiary of Company in an aggregate amount for all such Subsidiaries
not to exceed $4,000,000 at any time outstanding; provided that such
Indebtedness is not incurred in contemplation of such acquisition;

j. Company and its Subsidiaries may become and remain
liable with respect to Indebtedness represented by Deferred Trade
Payables in an aggregate amount for all such Indebtedness not to
exceed $5,000,000 at any time outstanding;

k. Food 4 Less GM, Inc. may become and remain liable
with respect to Indebtedness incurred by Golden Alliance in an
aggregate amount not to exceed $2,000,000 at any time outstanding;
provided that such Indebtedness of Food 4 Less GM, Inc. arises solely
as a result of its status as a general partner of Golden Alliance;

l. Company may become and remain liable with respect to
Indebtedness evidenced by promissory notes and issued to employees or
former employees of Company and its Subsidiaries in lieu of cash
payments for stock of Holdings required to be repurchased pursuant to
Company's employee stock ownership plan; provided that the aggregate
amount of such Indebtedness does not exceed $4,000,000 at any time
outstanding;

m. Holdings and Company may become during Fiscal Year
1997 and remain liable with respect to unsecured senior Indebtedness
and/or unsecured senior subordinated Indebtedness in an aggregate
principal amount which shall not exceed $150,000,000, the terms of
which Indebtedness shall be in form and substance satisfactory to
Agent and Requisite Lenders; provided, that Holdings shall contribute
the proceeds from the issuance of such Indebtedness to Company in the
form of an equity contribution; provided further, that in either case,
the Company shall apply such proceeds in accordance with subsection
2.4B(iii)(b);

n. Company and its Subsidiaries may become and remain
liable with respect to Non-Recourse Indebtedness incurred principally
to finance the remodeling, expansion, renovation or other improvement
of a store located on any Planned Improvement Property; provided that
(a) the initial principal amount of such Non-Recourse Indebtedness
shall not be less than 70% of the fair market value of such Planned
Improvement Property, (b) the proceeds of such Non-Recourse
Indebtedness are applied to prepay Loans and/or permanently reduce
Revolving Loan Commitments to the extent required by subsection
2.4B(iii)(b) or to remodel, expand, renovate or improve such store
within two years of the incurrence of such Non-Recourse Indebtedness
and (c) after giving effect to the incurrence of such Non-Recourse
Indebtedness, the aggregate amount of all Planned Improvement
<PAGE> 119
Financed Amounts received by Company and its Subsidiaries pursuant to
this subsection 7.1(xiv) or clause (b) of subsection 7.10 shall not
exceed $80,000,000; and

o. Company and its Subsidiaries may become and remain
liable with respect to other unsecured Indebtedness in an aggregate
principal amount not to exceed $15,000,000 at any time outstanding.

B. LIENS AND RELATED MATTERS.

1. PROHIBITION ON LIENS. Each of Holdings and Company shall not,
and shall not permit any of its Subsidiaries to, directly or indirectly,
create, incur, assume or permit to exist any Lien on or with respect to any
property or asset of any kind (including any document or instrument in respect
of goods or accounts receivable) of Holdings or any of its Subsidiaries,
whether now owned or hereafter acquired, or any income or profits therefrom, or
file or permit the filing of, or permit to remain in effect, any financing
statement or other similar notice of any Lien with respect to any such
property, asset, income or profits under the Uniform Commercial Code of any
State or under any similar recording or notice statute, except:

a. Permitted Encumbrances;

b. Liens granted pursuant to the Collateral Documents,
including Liens securing its obligations to a Lender or an Affiliate
of such Lender which is a counterparty to an Interest Rate Agreement
permitted under subsection 7.4(ii);

c. existing Liens described in Schedule 7.2 annexed
hereto;

d. Liens on (a) Real Property Assets consisting of fee
interests in stores or (b) equipment, fixtures and other similar
property of Company or any of its Subsidiaries, in each case securing
Indebtedness described in subsections 7.1(iii) and 7.1(viii) and Liens
on inventory of Company and its Subsidiaries, securing Indebtedness
described in subsection 7.1(x); provided that such Liens shall extend
only to the equipment, fixtures and other similar property and
inventory so financed and the proceeds thereof; provided further, that
with respect to any such Lien described in clause (a) above, (1) no
Event of Default or Potential Event of Default shall have occurred and
be continuing at the time of incurrence or assumption of such Lien,
(2) such Lien is limited to such Real Property Assets (and equipment
located in or on such Real Property Assets), (3) the Indebtedness
secured by such Lien is Non-Recourse Indebtedness, and (4) the
aggregate principal amount of all Indebtedness secured by all such
Liens shall not at any time exceed $10,000,000;

e. Liens securing Indebtedness permitted under
subsection 7.1(ix), which Liens are existing prior to the time the
entity which incurred such Indebtedness became a Subsidiary of
Company; provided that such Liens were not incurred in connection
with, or in contemplation of, the acquisition of such Subsidiary and
such Liens extend to or cover only the property and assets of such
entity which were covered by such Liens and which were owned by such
entity, in each case at the time such entity became a Subsidiary of
Company;
<PAGE> 120
f. Liens in favor of third parties as consignors (or as
creditors of such consignors) in goods which are delivered to Company
or any of its Subsidiaries by such third parties on consignment in the
ordinary course of business, the value of which goods so held on
consignment shall at no time exceed $10,000,000 in the aggregate for
Company and its Subsidiaries;

g. Liens on Planned Improvement Properties securing
Planned Improvement Financed Amounts permitted pursuant to subsection
7.1(xiv) and clause (b) of subsection 7.10; provided that such Liens
shall extend only to the Planned Improvement Properties which are
encumbered under subsection 7.1(xiv) or clause (b) of subsection 7.10,
as the case may be, including the stores located thereon and the
equipment and fixtures located in such stores, and the proceeds
thereof;

h. Liens not otherwise permitted by clauses (i) through
(vii) above securing Indebtedness of Company or any of its
Subsidiaries; provided that (a) the aggregate principal amount of
Indebtedness secured by Liens permitted by this clause (viii) shall
not exceed $6,000,000 at any time outstanding, (b) any such
Indebtedness shall be permitted under subsection 7.1 and (c) such
Liens shall not attach to any Collateral; and

i. the replacement, extension or renewal of any Lien
permitted by this subsection 7.2A upon or in the same property subject
to such Lien and as security for the same obligations or any
refinancings thereof; provided that such Lien does not extend to or
cover any property other than the property covered by such Lien
immediately prior to such replacement, extension or renewal of such
Lien and the principal of the obligations secured thereby is not
increased.

2. EQUITABLE LIEN IN FAVOR OF LENDERS. If any of Holdings or any
of its Subsidiaries shall create or assume any Lien upon any of its properties
or assets, whether now owned or hereafter acquired, other than Liens excepted
by the provisions of subsection 7.2A, it shall make or cause to be made
effective provision whereby the Obligations will be secured by such Lien
equally and ratably with any and all other Indebtedness secured thereby as long
as any such Indebtedness shall be so secured; provided that, notwithstanding
the foregoing, this covenant shall not be construed as a consent by Requisite
Lenders to the creation or assumption of any such Lien not permitted by the
provisions of subsection 7.2A.

3. NO FURTHER NEGATIVE PLEDGES. Except with respect to specific
property encumbered to secure payment of particular Indebtedness or to be sold
pursuant to an executed agreement with respect to an Asset Sale and except as
provided in the Senior Debt Indentures and the Subordinated Debt Indentures,
neither Holdings nor any of its Subsidiaries shall enter into any agreement
prohibiting the creation or assumption of any Lien upon any of its properties
or assets, whether now owned or hereafter acquired. The foregoing shall not
prohibit the execution or renewal of a store lease which by its term prohibits
the hypothecation of the leasehold interest thereunder (but does not prohibit
the incurrence of liens on any property of Holdings and its Subsidiaries other
than such leasehold interest and equipment related thereto) if, despite the
best efforts of Holdings
<PAGE> 121
and its Subsidiaries in accordance with subsection 6.11, the lessor will not
agree to permit such hypothecation.

C. INVESTMENTS; JOINT VENTURES.

Each of Holdings and Company shall not, and shall not permit
any of its Subsidiaries to, directly or indirectly, make or own any Investment
in any Person, including any Joint Venture, except:

a. Company and its Subsidiaries may make and own
Investments in Cash Equivalents;

b. Holdings and its Subsidiaries may continue to own the
Investments owned by them as of the Effective Date in any Subsidiaries
of Holdings and described on Schedule 5.1 annexed hereto as in effect
on the Effective Date and Holdings may make additional capital
contributions to Company;

c. Company and its Subsidiaries may make intercompany
loans to the extent permitted under subsection 7.1(iv);

d. Company and its Subsidiaries may continue to own the
existing Investments owned by them and described in Schedule 7.3
annexed hereto;

e. Company and its Subsidiaries may create or acquire
new Subsidiaries to the extent otherwise permitted under this
Agreement; provided that (a) any such new Subsidiary is wholly-owned
by Company or one of its wholly-owned Subsidiaries and the provisions
of subsections 6.10 and 6.11 have been complied with and (b) to the
extent such creation or acquisition constitutes a Consolidated Capital
Expenditure, such Consolidated Capital Expenditure is permitted under
subsection 7.8;

f. Food 4 Less GM, Inc. may continue to own the
Investments owned by it as of the Closing Date in Golden Alliance and
may make and own additional Investments in Golden Alliance in an
aggregate amount not to exceed $4,000,000 at any time; provided that
all such Investments are made pursuant to the provisions of the Golden
Alliance Agreement;

g. Company or any of its Subsidiaries may, so long as no
Potential Event of Default or Event of Default has occurred and is
continuing or occurs as a result thereof, make Development Investments
in or to any Developer or make loans or incur other liabilities with
respect to the Adams/Vermont Partnership; provided that (a) no such
Development Investment shall be permitted unless, at the time of the
making of such Development Investment, the Development Site and the
store located or to be located at the Development Site have been
leased or irrevocably committed by the Developer to be leased to
Company or one of its Subsidiaries, (b) neither Company nor any of its
Subsidiaries may be or become a general partner of any Developer or
otherwise be liable in any manner for any Indebtedness or any other
obligations of any Developer (other than pursuant to customary
provisions contained in any lease pertaining to a Development Site or
a store leased to Company or one of
<PAGE> 122
its Subsidiaries) and (c) the aggregate Development Investments,
together with the aggregate outstanding loans and other liabilities to
the Adams/Vermont Partnership and the maximum aggregate liability,
contingent or otherwise, of Company and its Subsidiaries in respect of
all Contingent Obligations under subsection 7.4(ix), shall not exceed
$35,000,000 at any time outstanding;

h. Company and its Subsidiaries may accept promissory
notes or capital stock received in consideration of, or the deferral
of a portion of the sales price accepted with respect to, Asset Sales;
provided that (a) not more than 25% of the aggregate sales price for
all Planned Dispositions in any Fiscal Year (other than the Fiscal
Year in which the aggregate cash proceeds from all Planned
Dispositions on a cumulative basis after the Effective Date first
exceeds $10,000,000 (the "SPECIFIED FISCAL YEAR") and any Fiscal Year
thereafter), and not more than 50% of the aggregate sales price for
all Planned Dispositions in the Specified Fiscal Year or any Fiscal
Year thereafter, may be in the form of promissory notes or a deferred
portion of such sales price, (b) Company and its Subsidiaries may
accept promissory notes, capital stock or defer a portion of the sales
price for sales of Cala and Falley's up to 100% of such sales prices
provided that the amount of such non-cash consideration or such
deferred portion of such sales prices in excess of 15% of the
aggregate sales prices for Cala and Falley's shall immediately effect
a permanent reduction in the Revolving Loan Commitments pursuant to
subsection 2.4B(iii)(a) in an amount equal to such non-cash
consideration and such deferred portion of such sales prices in excess
of 15% of such aggregate sales prices, (c) the aggregate principal
amount of such promissory notes and the deferred portion of such sales
prices related to all other Asset Sales shall not at any time exceed
$10,000,000 and (d) any such promissory notes or capital stock so
accepted shall be pledged as security for the Obligations pursuant to
the applicable Collateral Document;

i. Company and its Subsidiaries may make and own
Investments received in connection with the bankruptcy of suppliers
and customers or received pursuant to a plan of reorganization of any
supplier or customer, in each case in settlement of delinquent
obligations or disputes with such suppliers or customers;

j. So long as no Event of Default or Potential Event of
Default shall have occurred and be continuing, Company or any of its
Subsidiaries may make loans to its employees for the purpose of
purchasing common stock of Holdings; provided that the aggregate
amount of such loans shall not exceed $4,000,000 at any time
outstanding;

k. Company and its Subsidiaries may make loans to
redevelopment agencies for business purposes consistent with past
practices in an aggregate amount not to exceed $10,000,000 at any time
outstanding;

l. Company and its Subsidiaries may make and own
Investments (a) in suppliers in anticipation of becoming a customer of
such suppliers and in lieu of deposits, cash discounts or concessions
and (b) in connection with joint ventures with suppliers entered into
in the ordinary course of business; provided that the aggregate amount
of all such Investments under clauses (a) and (b), together with the
amount of
<PAGE> 123
guarantees permitted under subsection 7.4(v), shall not exceed
$5,000,000 at any time outstanding;

m. Company may make and maintain loans to Holdings for
the purposes described in subsection 7.5A(iv) in an aggregate amount
at any time outstanding which, together with the amount of Restricted
Junior Payments made for such purposes, shall not exceed the amount of
Restricted Junior Payments Company may make to Holdings under
subsection 7.5A(iv) at the time any such loan is made;

n. Company and its Subsidiaries may purchase common
stock of Holdings from an employee stock ownership plan of any Loan
Party or from participants or former participants in any such plan or
from any employee or former employee of any Loan Party as required
pursuant to the applicable plan or agreement; provided that the cash
portion of such purchases and the cash payments with respect to
promissory notes issued to such participants or holders shall not
exceed the sum of (a) $5,000,000 in any Fiscal Year plus (b) the
aggregate amount of cash proceeds received by Holdings in such Fiscal
Year from its sale of shares of its common stock to an employee stock
ownership plan of any Loan Party or to participants in any such plan
or to any employee of any Loan Party during such Fiscal Year; provided
further, that no such purchase or cash payment will be permitted if it
is prohibited under any Senior Debt Indenture or any Subordinated Debt
Indenture; and

o. Company and its Subsidiaries may make and own other
Investments in an aggregate amount not to exceed at any time
$5,000,000.

D. CONTINGENT OBLIGATIONS.

Each of Holdings and Company shall not, and shall not permit
any of its Subsidiaries to, directly or indirectly, create or become or remain
liable with respect to any Contingent Obligation, except:

a. Company may become and remain liable with respect to
Contingent Obligations in respect of Letters of Credit; provided that
no Loan Party shall have granted any Lien securing any obligations
(including any reimbursement obligations) relating to any Existing
Letters of Credit (other than pursuant to the Loan Documents);

b. Company may become and remain liable with respect to
Contingent Obligations under Interest Rate Agreements required under
subsection 6.9 and under other Interest Rate Agreements with respect
to Indebtedness, which Interest Rate Agreements are in form and
substance satisfactory to Agent;

c. Holdings may become and remain liable with respect to
Contingent Obligations in respect of the Holdings Guaranty and
Company's Subsidiaries may become and remain liable with respect to
Contingent Obligations in respect of the Guaranty, including
Contingent Obligations thereunder for the benefit of a Lender or an
Affiliate of such Lender which is a counterparty to an Interest Rate
Agreement permitted under subsection 7.4(ii);
<PAGE> 124
d. Company and its Subsidiaries may become and remain
liable with respect to Contingent Obligations in respect of customary
indemnification and purchase price adjustment obligations incurred in
connection with Asset Sales or other sales of assets other than
guaranties of Indebtedness incurred by any Person acquiring all or any
portion of such assets for the purpose of financing such acquisition;
provided that the maximum assumable liability in respect of all such
obligations shall at no time exceed the gross proceeds actually
received by Company and its Subsidiaries in connection with such Asset
Sales and other sales;

e. Company and its Subsidiaries may become and remain
liable with respect to Contingent Obligations under guarantees in the
ordinary course of business of the obligations of suppliers,
customers, franchisees and licensees of Company and its Subsidiaries
in an aggregate amount which, together with the amount of Investments
permitted under subsection 7.3(xii), shall not exceed at any time
$5,000,000;

f. Subsidiaries of Company may become and remain liable
with respect to Contingent Obligations in respect of any Indebtedness
of Company permitted by subsection 7.1(vi) or subsection 7.1(xiii)
pursuant to guarantees entered into by any Subsidiary of Company;
provided that any such guarantee entered into by any Subsidiary of
Company after the Closing Date either shall be in the form of such
guarantee as in effect and delivered to Agent on the Closing Date, as
such form may be amended from time to time to the extent permitted
under subsection 7.15B, or shall be in form and substance satisfactory
to Agent and Requisite Lenders;

g. Company and its Subsidiaries, as applicable, may
remain liable with respect to existing Contingent Obligations
described in Schedule 7.4 annexed hereto;

h. Holdings and Company may become and remain liable
with respect to Contingent Obligations under guarantees in respect of
Capital Leases and Operating Leases entered into by Company or any of
Company's Subsidiaries which are permitted under subsection 7.9;

i. Company and its Subsidiaries may, so long as no
Potential Event of Default or Event of Default has occurred and is
continuing at the time of becoming liable therefor or occurs as a
result thereof, become and remain liable with respect to Contingent
Obligations that are (x) guaranties of Development Investments
described in clause (a) of the term "Development Investments" or (y)
commitments by Company or any of its Subsidiaries to make a
Development Investment; provided that, with respect to both clause (x)
and clause (y) above, (1) no such Contingent Obligations shall be
permitted unless, at the time of becoming liable with respect to such
Contingent Obligations, the Development Site and the store located or
to be located at the Development Site have been leased or irrevocably
committed by the Developer to be leased to Company or one of its
Subsidiaries, (2) neither Company nor any of its Subsidiaries may be
or become a general partner of any Developer or otherwise be liable in
any manner for any Indebtedness or any other obligations of any
Developer (other than pursuant to customary provisions contained in
any lease pertaining to a Development Site or a store leased to
Company or one of its Subsidiaries) and (3) the
<PAGE> 125
maximum aggregate liability, contingent or otherwise, of Company and
its Subsidiaries in respect of all Contingent Obligations under this
subsection 7.4(ix), together with the aggregate Development
Investments and the aggregate outstanding loans and other liabilities
to the Adams/Vermont Partnership under subsection 7.3(vii), shall not
exceed $35,000,000 at any time outstanding; and

j. Company and its Subsidiaries may become and remain
liable with respect to other Contingent Obligations; provided that the
maximum aggregate liability, contingent or otherwise, of Company and
its Subsidiaries in respect of all such Contingent Obligations shall
at no time exceed $8,000,000.

E. RESTRICTED JUNIOR PAYMENTS; OTHER RESTRICTED PAYMENTS.

1. Each of Holdings and Company shall not, and shall not permit
any of its Subsidiaries to, directly or indirectly, declare, order, pay, make
or set apart any sum for any Restricted Junior Payment; provided that, so long
as no Event of Default or Potential Event of Default shall have occurred and be
continuing or occurs as a result thereof, (i) Holdings may make cash interest
payments to the holders of the Seller Debentures to the extent required by the
terms of the Seller Debenture Indenture and to the holders of the Holdings
Discount Debentures to the extent required by the terms of the Holdings
Discount Debenture Indenture and to the holders of Indebtedness permitted under
subsection 7.1(xiii) to the extent required by the terms of, and subject to any
subordination provisions contained in, the indenture pursuant to which such
Indebtedness is issued; (ii) Company may make cash dividends on the capital
stock of Company to the extent necessary to provide Holdings with funds to make
required cash interest payments with respect to the Holdings Discount
Debentures, the Seller Debentures and any Indebtedness permitted under
subsection 7.1(xiii); (iii) Company may make payments of regularly scheduled
interest and regularly scheduled payments of principal in respect of the 1993
9% Senior Subordinated Notes, the 1992 10-1/4% Senior Subordinated Notes and
the 1992 13.75% Senior Subordinated Notes, and Company may make payments of
regularly scheduled interest in respect of the 1995 11% Senior Subordinated
Notes, the 1997 11% Senior Subordinated Notes and the 1995 13.75% Senior
Subordinated Notes, in each case in accordance with the terms of, and to the
extent required by, and subject to the subordination provisions contained in
the applicable Subordinated Debt Indenture; (iv) Company may make cash
dividends to Holdings for the purpose of paying Holdings' general operating
expenses, franchise tax obligations, accounting, legal, corporate reporting and
administrative expenses incurred in the ordinary course of their respective
businesses in an amount not to exceed $500,000 in the aggregate in any Fiscal
Year, and to pay Holdings' and its Subsidiaries' income taxes and the costs and
expenses of registration of securities and securities related filings under
applicable laws by Holdings; (v) Company may redeem, repurchase or retire
Subordinated Indebtedness in the amounts and with the proceeds and to the
extent permitted by the provisions of subsections 2.4B(iii)(c) and
2.4B(iii)(e); (vi) Company and its Subsidiaries may purchase shares of common
stock of Holdings from an employee stock ownership plan of any Loan Party or
from participants or former participants in such plan and from employees or
former employees of any Loan Party as required pursuant to the provisions of
agreements and plans permitted under subsection 7.12 in an aggregate amount not
to exceed the amount permitted under subsection 7.3(xiv) in any Fiscal Year;
(vii) Company may make cash dividends to Holdings to enable Holdings to make
payments permitted pursuant to subsection 7.12(iv);
<PAGE> 126
(viii) Company and its Subsidiaries may dividend to Holdings any Holdings
Common Stock purchased by Company or any such Subsidiary from any employee
stock ownership plan of Company or such Subsidiary or from participants or
former participants in such plan or employees or former employees of Company or
such Subsidiary as required pursuant to the provisions of agreements and plans
permitted under subsection 7.12 in amounts permitted under subsection 7.3(xiv);
(ix) Company may make payments of regularly scheduled interest in respect of
subordinated Indebtedness permitted pursuant to subsection 7.1(xiii), in each
case in accordance with the terms of, and to the extent required by, and
subject to the subordination provisions contained in, the applicable
Subordinated Debt Indenture; (x) so long as no default exists under the
Subordinated Debt Indentures, or would occur as a result therefrom, Holdings
and Company may at any time repurchase or redeem Subordinated Indebtedness and
shares of Holdings' capital stock in an aggregate amount since the Effective
Date, together with the aggregate amount of all repurchases or redemptions of
Senior Indebtedness made pursuant to subsection 7.5B(iv) on or after the
Effective Date, not to exceed the Redemption Amount; and (xi) Company may make
the payments required to redeem the 1992 13.75% Senior Subordinated Notes and
the 1995 13.75% Senior Subordinated Notes as required pursuant to subsection
6.12. Neither Holdings nor Company nor any of their Subsidiaries will directly
or indirectly declare, order, pay or make, or set apart any sum or property
for, any Restricted Junior Payment or agree to do so except as permitted by
this subsection 7.5.

2. Each of Holdings and Company shall not, and shall not permit
any of its Subsidiaries to, directly or indirectly, declare, order, pay, make
or set apart any sum for any payment or prepayment of principal of, premium, if
any, or interest on, or redemption, purchase, retirement, defeasance (including
in-substance or legal defeasance), sinking fund or similar payment with respect
to, any Senior Indebtedness; provided that, so long as no Event of Default or
Potential Event of Default shall have occurred and be continuing or occurs as a
result thereof, (i) Company may make payments of regularly scheduled interest
and regularly scheduled payments of principal in respect of any Senior
Indebtedness in accordance with the terms of and to the extent required by the
applicable Senior Debt Indenture, (ii) Company may redeem, repurchase or retire
Senior Indebtedness (other than the Loans) in the amounts and with the proceeds
and to the extent permitted by the provisions of subsections 2.4B(iii)(c) and
2.4B(iii)(e), (iii) Holdings may make cash interest payments to the holders of
senior Indebtedness permitted under subsection 7.1(xiii) in accordance with the
terms of and to the extent required by the terms of the indenture pursuant to
which such Indebtedness is issued, and (iv) so long as no default exists under
the Senior Debt Indentures, or would result therefrom, Holdings and Company may
at any time repurchase or redeem its Senior Indebtedness in an aggregate amount
since the Effective Date, together with the aggregate amount of all repurchases
or redemption of Subordinated Indebtedness and shares of Holdings' capital
stock made pursuant to subsection 7.5A(x) on or after the Effective Date, not
to exceed the Redemption Amount.

F. FINANCIAL COVENANTS.

Immediately upon the sale by Company or any of its
Subsidiaries of all or a majority of its existing Northern California
operations (the "NORTHERN CALIFORNIA SALE") or all or a majority of its
existing Midwestern operations (the "MIDWESTERN SALE"), Company and Agent, on
behalf of Lenders, shall enter into negotiations on adjustments to be made to
<PAGE> 127
the Consolidated Adjusted EBITDA numbers set forth in this subsection 7.6 to
take into account the effect of such disposition. Agent shall provide Lenders
notice of the adjustments agreed upon between Company and Agent with respect to
the Northern California Sale or the Midwestern Sale, as the case may be, such
notice to be given immediately upon such agreement. From and after the date of
such notice, this subsection 7.6 will be amended as set forth in such notice.

1. MINIMUM FIXED CHARGE COVERAGE RATIO. Company shall not permit
the ratio of (i) Consolidated Adjusted EBITDA plus Consolidated Rental Payments
to (ii) Consolidated Fixed Charges for any consecutive four-Fiscal Quarter
period ending as of the last day of any Fiscal Quarter occurring during any of
the periods set forth below to be less than the correlative ratio indicated:

<TABLE>
<CAPTION>
MINIMUM FIXED
PERIOD CHARGE COVERAGE RATIO
------ ---------------------
<S> <C>
1st Fiscal Quarter, 1997 1.15:1.00
2nd Fiscal Quarter, 1997 1.15:1.00
3rd Fiscal Quarter, 1997 1.15:1.00
4th Fiscal Quarter, 1997 1.20:1.00
1st Fiscal Quarter, 1998 1.20:1.00
2nd Fiscal Quarter, 1998 1.25:1.00
3rd Fiscal Quarter, 1998 1.25:1.00
4th Fiscal Quarter, 1998 1.30:1.00
1st Fiscal Quarter, 1999 1.30:1.00
2nd Fiscal Quarter, 1999 1.35:1.00
3rd Fiscal Quarter, 1999 1.35:1.00
4th Fiscal Quarter, 1999
through 4th Fiscal Quarter, 2002 1.40:1.00
1st Fiscal Quarter, 2003
and each Fiscal Quarter thereafter 1.50:1.00
</TABLE>
<PAGE> 128
2. MAXIMUM LEVERAGE RATIO. Company shall not at any time permit
the ratio of (A) Consolidated Total Debt as of the last day of any Fiscal
Quarter occurring during any of the periods set forth below to (B) Consolidated
Adjusted EBITDA for the consecutive four-Fiscal Quarter period ending on such
last day, to exceed the correlative ratio indicated:

<TABLE>
<CAPTION>
PERIOD MAXIMUM LEVERAGE RATIO
------ ----------------------
<S> <C>
1st Fiscal Quarter, 1997 6.50:1.00
2nd Fiscal Quarter, 1997 6.50:1.00
3rd Fiscal Quarter, 1997 6.50:1.00
4th Fiscal Quarter, 1997 6.25:1.00
1st Fiscal Quarter, 1998 6.25:1.00
2nd Fiscal Quarter, 1998 6.00:1.00
3rd Fiscal Quarter, 1998 5.75:1.00
4th Fiscal Quarter, 1998 5.75:1.00
1st Fiscal Quarter, 1999 5.50:1.00
2nd Fiscal Quarter, 1999 5.25:1.00
3rd Fiscal Quarter, 1999 5.00:1.00
4th Fiscal Quarter, 1999 4.75:1.00
1st Fiscal Quarter, 2000 4.50:1.00
2nd Fiscal Quarter, 2000 4.50:1.00
3rd Fiscal Quarter, 2000 4.25:1.00
4th Fiscal Quarter, 2000 4.25:1.00
1st Fiscal Quarter, 2001 4.25:1.00
2nd Fiscal Quarter, 2001 4.00:1.00
3rd Fiscal Quarter, 2001 3.75:1.00
4th Fiscal Quarter, 2001 3.75:1.00
1st Fiscal Quarter, 2002 3.50:1.00
2nd Fiscal Quarter, 2002 3.50:1.00
3rd Fiscal Quarter, 2002 3.50:1.00
4th Fiscal Quarter, 2002 3.50:1.00
1st Fiscal Quarter, 2003 3.25:1.00
2nd Fiscal Quarter, 2003 3.25:1.00
3rd Fiscal Quarter, 2003 3.25:1.00
4th Fiscal Quarter, 2003 3.25:1.00
1st Fiscal Quarter, 2004 3.00:1.00
</TABLE>
<PAGE> 129
3. MINIMUM CONSOLIDATED ADJUSTED EBITDA. Company shall not
permit Consolidated Adjusted EBITDA for any consecutive four-Fiscal Quarter
period ending as of the last day of any Fiscal Quarter occurring during any of
the periods set forth below to be less than the correlative amount indicated:

<TABLE>
<CAPTION>
MINIMUM CONSOLIDATED
PERIOD ADJUSTED EBITDA
------ ---------------
<S> <C>
1st Fiscal Quarter, 1997 $315,000,000
2nd Fiscal Quarter, 1997 $320,000,000
3rd Fiscal Quarter, 1997 $330,000,000
4th Fiscal Quarter, 1997 $340,000,000
1st Fiscal Quarter, 1998 $345,000,000
2nd Fiscal Quarter, 1998 $350,000,000
3rd Fiscal Quarter, 1998 $365,000,000
4th Fiscal Quarter, 1998 $380,000,000
1st Fiscal Quarter, 1999 $400,000,000
2nd Fiscal Quarter, 1999 $412,000,000
3rd Fiscal Quarter, 1999 $425,000,000
4th Fiscal Quarter, 1999 $445,000,000
1st Fiscal Quarter, 2000 $455,000,000
2nd Fiscal Quarter, 2000 $460,000,000
3rd Fiscal Quarter, 2000 $470,000,000
4th Fiscal Quarter, 2000 $480,000,000
1st Fiscal Quarter, 2001 $490,000,000
2nd Fiscal Quarter, 2001 $495,000,000
3rd Fiscal Quarter, 2001 $505,000,000
4th Fiscal Quarter, 2001 $520,000,000
1st Fiscal Quarter, 2002 $530,000,000
2nd Fiscal Quarter, 2002 $540,000,000
3rd Fiscal Quarter, 2002 $550,000,000
4th Fiscal Quarter, 2002 $560,000,000
1st Fiscal Quarter, 2003 $570,000,000
2nd Fiscal Quarter, 2003 $580,000,000
3rd Fiscal Quarter, 2003 $590,000,000
4th Fiscal Quarter, 2003 $600,000,000
</TABLE>
<PAGE> 130
4. MINIMUM CONSOLIDATED NET WORTH. Company shall not permit
Consolidated Net Worth at any time during the period commencing on the day
immediately preceding the first day of any of the periods set forth below and
ending on the day immediately preceding the last day of such period set forth
below to be less than the correlative amount indicated below for such period
set forth below:

<TABLE>
<CAPTION>
MINIMUM
CONSOLIDATED
PERIOD NET WORTH
------ ------------
<S> <C>
One day after the Effective Date through
4th Fiscal Quarter, 1997 ($75,000,000)
1st Fiscal Quarter, 1998 through
4th Fiscal Quarter, 1998 ($95,000,000)
1st Fiscal Quarter, 1999 through
4th Fiscal Quarter, 1999 ($75,000,000)
1st Fiscal Quarter, 2000 through
4th Fiscal Quarter, 2001 ($50,000,000)
1st Fiscal Quarter, 2002 through
4th Fiscal Quarter, 2002 -0-
1st Fiscal Quarter, 2003 and thereafter $25,000,000
</TABLE>

G. RESTRICTION ON FUNDAMENTAL CHANGES; ASSET SALES AND ACQUISITIONS.

Holdings shall not, and shall not permit any of its
Subsidiaries to, alter the corporate, capital or legal structure of Holdings or
any of its Subsidiaries, including the creation or acquisition of any
Subsidiaries, or enter into any transaction of merger or consolidation, or
liquidate, wind-up or dissolve itself (or suffer any liquidation or
dissolution), or convey, sell, lease, sub-lease, transfer or otherwise dispose
of, in one transaction or a series of transactions, all or any part of its
business, property or assets, whether now owned or hereafter acquired, or
acquire by purchase or otherwise all or a substantial portion of the business,
property or assets of, or stock or other evidence of beneficial ownership of,
any Person or any division or line of business of any Person, except:

a. Alpha Beta may merge into Company with Company being
the surviving corporation;

b. Company and its Subsidiaries may make Consolidated
Capital Expenditures permitted under subsection 7.8 and Development
Investments (to the extent such Development Investments do not
constitute Consolidated Capital Expenditures) permitted under
subsection 7.3(vii);

c. Company and its Subsidiaries may sell or otherwise
dispose of assets in transactions that do not constitute Asset Sales;
provided that the consideration
<PAGE> 131
received for such assets shall be in an amount at least equal to the
fair market value thereof;

d. Company and its Subsidiaries may sell or otherwise
dispose of damaged, worn-out or obsolete assets that are no longer
necessary for the proper conduct of their respective business for fair
market value in the ordinary course of business;

e. Company and its Subsidiaries may sell (a) furniture,
fixtures and/or equipment acquired after December 14, 1994 and (b)
grocery stores (including furniture, fixtures and equipment located
therein and acquired after December 14, 1994) opened or acquired after
December 14, 1994, in each case in connection with a concurrent
lease-back of such furniture, fixtures and/or equipment and/or of such
grocery stores to the extent such transactions are permitted under
subsection 7.10 and Agent shall release any security interests in
favor of Agent for the benefit of Lenders in such furniture, fixtures
and/or equipment and/or such grocery stores;

f. (a) Company and its Subsidiaries may sell up to eight
grocery stores in any Fiscal Year, plus a number of stores equal to
the difference between eight and the number of stores sold under this
clause (vi) in the immediately preceding Fiscal Year, which stores are
no longer useful to the businesses of Company and its Subsidiaries;
and (B) with the approval of Agent, Company and its Subsidiaries may
terminate the leases on up to six (6) grocery stores or other
facilities in any Fiscal Year, which grocery stores or other
facilities are no longer useful to the businesses of Company and its
Subsidiaries and Agent shall release any security interests in favor
of Agent for the benefit of Lenders in Company's or its Subsidiaries'
leasehold interests in such stores or other facilities and any
personal property remaining on any such premises;

g. Company and its Subsidiaries may make any of the
Planned Dispositions; provided that, in each case, the consideration
received for each of such stores is in an amount at least equal to the
fair market value thereof;

h. Company or any of its Subsidiaries may sell any class
of stock of Certified Grocers of California, Ltd., a California
corporation ("Certified") owned by it pursuant to a redemption of such
stock by Certified;

i. Company and its Subsidiaries may lease or sublease
any of their respective real or personal property in the ordinary
course of business;

j. (a) any wholly-owned Subsidiary of Company (other
than Cala and its Subsidiaries, and Falley's) may be merged or
consolidated with or into Company or any wholly-owned Subsidiary of
Company (other than Bell Markets, Inc.), or all or any part of its
business, property or assets may be conveyed, sold, leased,
transferred or otherwise disposed of, in one transaction or a series
of transactions, to Company or any wholly-owned Subsidiary of Company
(other than Bell Markets, Inc.); provided that, in the case of such a
merger or consolidation involving Company, Company shall be the
continuing or surviving corporation and in the case of such a merger
or consolidation involving two wholly-owned Subsidiaries of Company,
the
<PAGE> 132
surviving corporation shall be a party to the Guaranty and its capital
stock shall be pledged to Secured Party (as defined in the Pledge
Agreement) pursuant to the Pledge Agreement; and (B) the corporate
existence of those Subsidiaries of Holdings identified as inactive on
Schedule 5.1 annexed hereto may be terminated to the extent permitted
under subsection 6.2;

k. Company and its Subsidiaries may make Asset Sales of
the Selected Assets pursuant to this subsection 7.7(xi) through the
end of Fiscal Year 1998; provided that the consideration received for
such assets shall be in an amount at least equal to the fair market
value thereof, provided that for any individual transaction or series
of related transactions for which the aggregate consideration equals
or exceeds $25,000,000, Company shall provide to Agent a fairness
opinion from an investment bank acceptable to Agent that the amount of
the consideration is not less than the fair market value of such
assets;

l. subject to subsection 7.13, Company and its
Subsidiaries may make Asset Sales of assets having an aggregate fair
market value not in excess of $5,000,000 in the aggregate for all such
Asset Sales; provided that the consideration received for such assets
shall be in an amount at least equal to the fair market value thereof;
and

m. so long as no Event of Default or Potential Event of
Default shall have occurred and be continuing at the time of such
incurrence or sale, Company and its Subsidiaries may incur
Non-Recourse Indebtedness with respect to Planned Improvement
Properties to the extent permitted under subsection 7.1(xiv) and may
sell and concurrently lease-back Planned Improvement Properties to the
extent permitted under clause (b) of subsection 7.10 and Agent shall
release any Liens in favor of Agent for the benefit of Lenders on such
Planned Improvement Properties, including any stores located thereon
and any equipment or fixtures located in such stores.

H. CONSOLIDATED CAPITAL EXPENDITURES.

Holdings shall not make or incur any Consolidated Capital
Expenditures and Company shall not, and shall not permit its Subsidiaries to,
make or incur Consolidated Capital Expenditures, in any Fiscal Year indicated
below, in an aggregate amount in excess of the corresponding amount (the
"MAXIMUM CONSOLIDATED CAPITAL EXPENDITURES AMOUNT") set forth below opposite
such Fiscal Year; provided that the Maximum Consolidated Capital Expenditures
Amount shall be increased (i) by an amount equal to the excess, if any (but in
no event more than 20% of the Maximum Consolidated Capital Expenditures Amount
for the immediately preceding Fiscal Year, as set forth in the table below) of
the Maximum Consolidated Capital Expenditures Amount for the previous Fiscal
Year over the actual amount of Consolidated Capital Expenditures for such
previous Fiscal Year; (ii) by an amount up to, but in no event greater than,
15% of the Maximum Consolidated Capital Expenditures Amount for the immediately
following Fiscal Year, as set forth in the table below, which amount described
in this clause (ii) shall reduce the Maximum Consolidated Capital Expenditures
Amount for the immediately following Fiscal Year; (iii) by an amount equal to
(but in no event greater than $15,000,000 for any Fiscal
<PAGE> 133
Year) the aggregate amount of proceeds (other than insurance proceeds,
condemnation awards and indemnity payments) received by Company and its
Subsidiaries from Asset Sales during such Fiscal Year (other than Asset Sales
covered by clause (B) of subsection 2.4B(iii)(a)) to the extent such proceeds
have been reinvested in new stores or the construction or remodeling of stores
of Company and its Subsidiaries within 270 days of receipt; and (iv) by an
amount equal to the Planned Improvement Financed Amount which has been applied
by Company and its Subsidiaries during such Fiscal Year to remodel, expand,
renovate or otherwise improve the stores located on the Planned Improvement
Properties and which was not required to be used to prepay the Loans and/or
permanently reduce Revolving Loan Commitments pursuant to subsections
2.4B(iii)(a) or (b); provided, however, that the amount which may be added to
the Maximum Consolidated Capital Expenditures Amount pursuant to clauses (i)
and (ii) of the immediately preceding proviso shall not exceed for any Fiscal
Year 20% of the Maximum Consolidated Capital Expenditures Amount for such
Fiscal Year as set forth in the table below:

<TABLE>
<CAPTION>
MAXIMUM CONSOLIDATED
FISCAL YEAR CAPITAL EXPENDITURES AMOUNT
----------- ---------------------------
<S> <C>
Fiscal Year 1996 $ 95,000,000
Fiscal Year 1997 $150,000,000
Fiscal Year 1998 $135,000,000
Fiscal Year 1999 $135,000,000
Fiscal Year 2000
and each Fiscal Year thereafter $100,000,000
</TABLE>

I. RESTRICTION ON LEASES.

Holdings shall not become liable in any way, whether directly
or by assignment or as a guarantor or other surety, for the obligations of the
lessee under any lease, whether an Operating Lease or a Capital Lease, and
Company shall not, and shall not permit any of its Subsidiaries to, become
liable in any way, whether directly or by assignment or as a guarantor or other
surety, for the obligations of the lessee under any lease, whether an Operating
Lease or a Capital Lease (other than intercompany leases between Company and
its wholly-owned Subsidiaries), unless, immediately after giving effect to the
incurrence of liability with respect to such lease, all amounts paid or payable
under all Capital Leases and Operating Leases (net of sublease income) at the
time in effect during the then current Fiscal Year shall not exceed the
corresponding amount set forth below opposite such Fiscal Year:
<PAGE> 134
<TABLE>
<CAPTION>
PERIOD MAXIMUM LEASE
------ PAYMENTS
<S> <C>
Fiscal Year 1997 $234,800,000
Fiscal Year 1998 $261,600,000
Fiscal Year 1999 $289,100,000
Fiscal Year 2000 $315,500,000
Fiscal Year 2001 $342,500,000
Fiscal Year 2002 $369,800,000
Fiscal Year 2003
and each Fiscal Year thereafter $389,900,000
</TABLE>

J. SALES AND LEASE-BACKS.

Each of Holdings and Company shall not, and shall not permit
any of its Subsidiaries to, directly or indirectly, become or remain liable as
lessee or as a guarantor or other surety with respect to any lease, whether an
Operating Lease or a Capital Lease, of any property (whether real, personal or
mixed), whether now owned or hereafter acquired, (i) which Holdings or any of
its Subsidiaries has sold or transferred or is to sell or transfer to any other
Person (other than Holdings or any of its Subsidiaries) or (ii) which Holdings
or any of its Subsidiaries intends to use for substantially the same purpose as
any other property which has been or is to be sold or transferred by Holdings
or any of its Subsidiaries to any Person (other than Holdings or any of its
Subsidiaries) in connection with such lease; provided that (a) each of Holdings
and Company and its Subsidiaries may become and remain liable as lessee,
guarantor or other surety with respect to any such lease if and to the extent
that Holdings, Company or any of their Subsidiaries would be permitted to enter
into, and remain liable under, such lease under subsection 7.9 and (b)
additionally, with respect to any such lease with respect to a Planned
Improvement Property, the proceeds of which are to be principally used to
remodel, expand, renovate or otherwise improve a store located on such Planned
Improvement Property, (i) the amount of the sales price for such Planned
Improvement Property shall not be less than 70% of the fair market value of
such Planned Improvement Property, (ii) the proceeds of such sales price shall
be applied to prepay Loans and/or permanently reduce Revolving Loan Commitments
to the extent required by subsection 2.4B(iii)(a) or to remodel, expand,
renovate or improve such store within two years of such sale and (iii) after
giving effect to such sale, the aggregate amount of all Planned Improvement
Financed Amounts received by Company and its Subsidiaries pursuant to this
clause (b) or subsection 7.1(xiv) shall not exceed $80,000,000.

K. SALE OR DISCOUNT OF RECEIVABLES.

Each of Holdings and Company shall not, and shall not permit
any of its Subsidiaries to, directly or indirectly, sell with recourse, or
discount or otherwise sell for less than the face value thereof, any of its
notes receivable or accounts receivable.
<PAGE> 135
L. TRANSACTIONS WITH SHAREHOLDERS AND AFFILIATES.

Each of Holdings and Company shall not, and shall not permit
any of its Subsidiaries to, directly or indirectly, enter into or permit to
exist any transaction (including, without limitation, the purchase, sale, lease
or exchange of any property or the rendering of any service) with any Affiliate
of such Person, on terms that are less favorable to such Person or that
Subsidiary, as the case may be, than those that might be obtained at the time
from Persons who are not such an Affiliate; provided that the foregoing
restriction shall not apply to (i) any transaction between Company and any of
its wholly-owned Subsidiaries or between any of its wholly-owned Subsidiaries;
(ii) reasonable and customary fees paid to members of the Boards of Directors
of Holdings and its Subsidiaries; (iii) issuances of stock, payments of bonuses
and other transactions pursuant to employment or compensation agreements, stock
option agreements, indemnification agreements and other arrangements, in each
case satisfactory in form and substance to Agent and as in effect as of the
Closing Date and unamended, and substantially similar agreements as may
hereafter become effective, in each case with officers or directors who are
Affiliates of Holdings or any of its Subsidiaries; (iv) payment of consulting
and other fees and expenses and the reimbursement of losses, costs and expenses
under the Consulting Agreement, as amended in accordance with subsection 7.15A,
and in form and substance satisfactory to Agent; (v) transactions between
Company and/or any of its Subsidiaries and Golden Alliance that are otherwise
permitted under this Agreement; (vi) to the extent permitted under subsection
7.3(xiv), any repurchase of stock of Holdings from Company's employee stock
ownership plan or participants or former participants in such plan, in each
case to the extent such repurchases are required by the terms of such plan;
(vii) payments by Holdings and its Subsidiaries pursuant to tax sharing
agreements in effect from time to time among Holdings and its Subsidiaries;
(viii) the issuance by Holdings of common stock to Yucaipa pursuant to
Yucaipa's exercise of the warrant issued to it on the Closing Date by Holdings
in connection with the acquisition of Company; (ix) transactions between
Company and Holdings entered into pursuant to and in accordance with the
Transfer and Assumption Agreement, and (x) a loan made by Company to RGC
Investment Co., on the Closing Date in the original principal amount of
$5,000,000, all of the proceeds of which loan will immediately be invested by
RGC Investment Co. in RGC Partners, L.P.

M. DISPOSAL OF SUBSIDIARY STOCK; RESTRICTIONS ON SUBSIDIARIES.

1. Except for any sale of 100% of the capital stock or other
equity Securities of any of Company's Subsidiaries in compliance with the
provisions of subsection 7.7(x) and except pursuant to the Collateral
Documents, Holdings shall not and shall not permit any of its Subsidiaries to
directly or indirectly sell, assign, pledge or otherwise encumber or dispose of
any shares of capital stock or other equity Securities of any of its
Subsidiaries, except to qualify directors if required by applicable law, or in
the case of Company's Subsidiaries, to Company or to a wholly-owned Subsidiary
of Company (other than Bell Markets, Inc.).

2. Except as otherwise provided herein or in any other Loan
Document, Holdings will not, and will not permit any of its Subsidiaries to,
create or otherwise cause or suffer to exist or become effective any consensual
encumbrance or restriction of any kind on the ability of any Subsidiary of
Company to (i) pay dividends or make any other distributions on any of such
Subsidiary's capital stock owned by Company or any other Subsidiary of
<PAGE> 136
Company, (ii) repay or prepay any Indebtedness owed by such Subsidiary to
Company or any other Subsidiary of Company, (iii) make loans or advances to
Company or any other Subsidiary of Company, or (iv) transfer any of its
property or assets to Company or any other Subsidiary of Company.

3. The Adams/Vermont Partnership shall not engage in any
business, own or hold any assets or incur any Indebtedness, Contingent
Obligations or other liabilities other than those reasonably related to the
development of a shopping center located at Adams and Vermont Streets in Los
Angeles, California. Neither Holdings, Company nor any other Loan Party shall
incur any Indebtedness, Contingent Obligations or other liabilities on behalf
of, or with respect to, the Adams/Vermont Partnership other than Company's
liabilities as a general partner under the partnership agreement governing the
Adams/Vermont Partnership substantially as in effect on the Effective Date to
the extent permitted pursuant to subsections 7.3(vii) and 7.4(ix).
Notwithstanding anything to the contrary contained herein or in the other Loan
Documents, the Adams/Vermont Partnership shall not be required to execute a
Guaranty or other Collateral Documents.

N. CONDUCT OF BUSINESS.

From and after the Closing Date, Company shall not, and shall
not permit any of its Subsidiaries to, engage in any business other than (i)
the businesses engaged in by Company and its Subsidiaries on the Closing Date
and similar or related businesses and (ii) such other lines of business as may
be consented to by Requisite Lenders. From and after the Closing Date,
Holdings shall not engage in any business other than owning the capital stock
of Company and entering into and performing its obligations under and in
accordance with the Loan Documents, the Related Financing Documents to which it
is a party and such other documents entered into by Holdings on or prior to the
Closing Date and made available to Agent and shall not own any assets other
than (a) the capital stock of Company and (b) Cash which has been paid to
Holdings for the purpose of allowing Holdings to make the payments described in
clauses (i), (iv) and (vii) of subsection 7.5A; provided that Holdings shall
make such payments immediately upon (and in any event on the date of) receipt
of such Cash.

O. AMENDMENTS OF CERTAIN DOCUMENTS; NO PREPAYMENTS OF CERTAIN
INDEBTEDNESS.

1. Holdings shall not, and shall not permit any of its
Subsidiaries to, amend, waive any of its rights under, or otherwise change the
terms of any of the Shareholders Agreement, the Indemnification Agreement, the
Reimbursement Agreement, the Consulting Agreement, the Tax Election Agreement,
the Transfer and Assumption Agreement, the Subscription Agreement or the
certificate of designations with respect to the Holdings Preferred Stock, in
each case as in effect on the Closing Date, without the prior written consent
of the Requisite Lenders, if such amendment, waiver or change would increase
materially the obligations of Holdings or any of its Subsidiaries or confer
additional rights on any other party to any such agreement which would be
adverse to Holdings or any of its Subsidiaries.

2. Other than the redemption of the 1995 13.75% Senior
Subordinated Notes and the 1992 13.75% Senior Subordinated Notes from the
proceeds of the 1997 11% Senior
<PAGE> 137
Subordinated Notes, Holdings shall not, and shall not permit any of its
Subsidiaries to, amend or otherwise change the terms of any of the Senior
Indebtedness, the Subordinated Indebtedness, the Senior Debt Indentures, the
Subordinated Debt Indentures, the Golden Alliance Agreement or any of the
guarantees entered into by any Subsidiary of Company permitted under subsection
7.4(vi) (collectively, "RESTRICTED AGREEMENTS"), or make any payment consistent
with an amendment thereof or change thereto, if the effect of such amendment or
change is to increase the interest rate on any such Restricted Agreements,
change any dates upon which payments of principal or interest are due thereon,
change any of the covenants with respect thereto in a manner which is more
restrictive to Holdings or any of its Subsidiaries, change any event of default
or condition to an event of default with respect thereto, change the
redemption, prepayment or defeasance provisions thereof, change the
subordination provisions (if any) thereof (or of any guaranty thereof, or
change any collateral therefor (other than to release such collateral), or if
the effect of such amendment or change, together with all other amendments or
changes made, is to increase the obligations of the obligor thereunder or to
confer any additional rights on the holders of any such Restricted Agreements
(or a trustee or other representative on their behalf) which would be adverse
to any Loan Party or Lenders.

P. FISCAL YEAR.

Company shall not change its Fiscal Year-end from the Sunday
closest to January 31 of the following calendar year.

SECTION VII. EVENTS OF DEFAULT

IF any of the following conditions or events ("Events of
Default") shall occur:

A. FAILURE TO MAKE PAYMENTS WHEN DUE.

Failure by Company to pay any installment of principal of any
Loan when due, whether at stated maturity, by acceleration, by notice of
voluntary prepayment, by mandatory prepayment or otherwise; failure by Company
to pay when due any amount payable to an Issuing Lender in reimbursement of any
drawing under a Letter of Credit; or failure by Company to pay any interest on
any Loan or any fee or any other amount due under this Agreement within five
days after the date due; or

B. DEFAULT IN OTHER AGREEMENTS.

a. Failure of Holdings or any of its Subsidiaries to pay
when due (a) any principal of or interest on any Indebtedness (other than
Indebtedness referred to in subsection 8.1) in an individual principal amount
of $5,000,000 or more or any items of Indebtedness with an aggregate principal
amount of $10,000,000 or more or (b) any Contingent Obligation in an individual
principal amount of $5,000,000 or more or any Contingent Obligations with an
aggregate principal amount of $10,000,000 or more, in each case beyond the end
of any grace period provided therefor; or (ii) breach or default by Holdings or
any of its Subsidiaries with respect to any other material term of (a) any
evidence of any Indebtedness in an individual principal amount of $5,000,000 or
more or any items of Indebtedness with
<PAGE> 138
an aggregate principal amount of $10,000,000 or more or any Contingent
Obligation in an individual principal amount of $5,000,000 or more or any
Contingent Obligations with an aggregate principal amount of $10,000,000 or
more or (b) any loan agreement, mortgage, indenture or other agreement relating
to such Indebtedness or Contingent Obligation(s), if the effect of such breach
or default is to cause, or to permit the holder or holders of that Indebtedness
or Contingent Obligation(s) (or a trustee on behalf of such holder or holders)
to cause, that Indebtedness or Contingent Obligation(s) to become or be
declared due and payable prior to its stated maturity or the stated maturity of
any underlying obligation, as the case may be (upon the giving or receiving of
notice, lapse of time, both, or otherwise); or

C. BREACH OF CERTAIN COVENANTS.

Failure of Holdings or Company to perform or comply with any
term or condition contained in subsection 2.5 or 6.2 or Section 7 of this
Agreement; or

D. BREACH OF WARRANTY.

Any representation, warranty, certification or other statement
made by the Loan Parties in any Loan Document or in any statement or
certificate at any time given by any of the Loan Parties in writing pursuant
hereto or thereto or in connection herewith or therewith shall be false in any
material respect on the date as of which made; or

E. OTHER DEFAULTS UNDER LOAN DOCUMENTS.

Any Loan Party shall default in the performance of or
compliance with any term contained in this Agreement or any of the other Loan
Documents, other than any such term referred to in any other subsection of this
Section 8, and such default shall not have been remedied or waived within 30
days after the receipt by Company of notice from Agent or any Lender of such
default; or

F. INVOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC.

a. A court having jurisdiction in the premises shall
enter a decree or order for relief in respect of Holdings or any of its
Subsidiaries (other than an inactive Subsidiary identified as such in Schedule
5.1 annexed hereto whose aggregate assets and annual revenues do not exceed
$1,000,000 and $1,000,000, respectively, and whose financial condition does not
adversely affect any other Loan Party ("INSIGNIFICANT SUBSIDIARY")) in an
involuntary case under the Bankruptcy Code or under any other applicable
bankruptcy, insolvency or similar law now or hereafter in effect, which decree
or order is not stayed; or any other similar relief shall be granted under any
applicable federal or state law; or (ii) an involuntary case shall be commenced
against Holdings or any of its Subsidiaries (other than an Insignificant
Subsidiary) under the Bankruptcy Code or under any other applicable bankruptcy,
insolvency or similar law now or hereafter in effect; or a decree or order of a
court having jurisdiction in the premises for the appointment of a receiver,
liquidator, sequestrator, trustee, custodian or other officer having similar
powers over Holdings or any of its Subsidiaries (other than an Insignificant
Subsidiary), or over all or a substantial part of its property, shall have been
entered; or there shall have occurred the involuntary appointment of an interim
receiver, trustee or other custodian of Holdings or any of its
<PAGE> 139
Subsidiaries (other than an Insignificant Subsidiary) for all or a substantial
part of its property; or a warrant of attachment, execution or similar process
shall have been issued against any substantial part of the property of Holdings
or any of its Subsidiaries (other than an Insignificant Subsidiary), and any
such event described in this clause (ii) shall continue for 60 days unless
dismissed, bonded or discharged; or

G. VOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC.

a. Holdings or any of its Subsidiaries shall have an
order for relief entered with respect to it or commence a voluntary case under
the Bankruptcy Code or under any other applicable bankruptcy, insolvency or
similar law now or hereafter in effect, or shall consent to the entry of an
order for relief in an involuntary case, or to the conversion of an involuntary
case to a voluntary case, under any such law, or shall consent to the
appointment of or taking possession by a receiver, trustee or other custodian
for all or a substantial part of its property; or Holdings or any of its
Subsidiaries shall make any assignment for the benefit of creditors; or (ii)
Holdings or any of its Subsidiaries shall be unable, or shall fail generally,
or shall admit in writing its inability, to pay its debts as such debts become
due; or the Board of Directors of Holdings or any of its Subsidiaries (or any
committee thereof) shall adopt any resolution or otherwise authorize any action
to approve any of the actions referred to in clause (i) above or this clause
(ii); or

H. JUDGMENTS AND ATTACHMENTS.

Any money judgment, writ or warrant of attachment or similar
process involving (i) in any individual case an amount in excess of $5,000,000
or (ii) in the aggregate at any time an amount in excess of $10,000,000 (in
either case not adequately covered by insurance as to which a solvent and
unaffiliated insurance company has acknowledged coverage) shall be entered or
filed against Holdings or any of its Subsidiaries or any of their respective
assets and shall remain undischarged, unvacated, unbonded or unstayed for a
period of 60 days (or in any event later than five days prior to the date of
any proposed sale thereunder); or

I. DISSOLUTION.

Any order, judgment or decree shall be entered against
Holdings or any of its Subsidiaries decreeing the dissolution or split up of
such Person and such order shall remain undischarged or unstayed for a period
in excess of 30 days; or

J. EMPLOYEE BENEFIT PLANS.

There shall occur one or more ERISA Events which individually
or in the aggregate results in or could reasonably be expected to result in
liability of any of the Loan Parties or any of their respective ERISA
Affiliates (unless no Loan Party shall be jointly and severally liable
therefor) in excess of $5,000,000 during the term of this Agreement; or there
shall exist an Amount of Unfunded Benefit Liabilities, individually or in the
aggregate for all Pension Plans (excluding for purposes of such computation (1)
any Pension Plans which have a negative Amount of Unfunded Benefit Liabilities
and (2) any Pension Plan for which
<PAGE> 140
neither Company nor any other Loan Party would have liability if the Pension
Plan then terminated), which exceeds $10,000,000; or

K. CHANGE IN CONTROL.

A Change of Control shall have occurred; or

L. INVALIDITY OF GUARANTIES.

Either of the Holdings Guaranty or, upon execution and
delivery thereof, the Guaranty for any reason, other than the satisfaction in
full of all Obligations, ceases to be in full force and effect (other than in
accordance with its terms) or is declared to be null and void, or any Loan
Party denies that it has any further liability, including without limitation
with respect to future advances by Lenders, under any Loan Document to which it
is a party, or gives notice to such effect; or

M. FAILURE OF SECURITY.

Any Collateral Document shall, at any time, cease to be in
full force and effect (other than by reason of a release of Collateral in
accordance with the terms thereof) or shall be declared null and void, or the
validity or enforceability thereof shall be contested by any Loan Party, or
Agent shall not have or cease to have a valid and perfected first priority
security interest in any significant part of the Collateral (other than as a
direct result of a breach by Agent of any obligation imposed on Agent under the
Collateral Documents); or

N. ACTION UNDER RELATED FINANCING DOCUMENTS.

Any holder of any Indebtedness evidenced by the Related
Financing Documents shall file an action seeking the rescission thereof or
damages or injunctive relief relating thereto; or any event shall occur which,
under the terms of any Related Financing Documents, shall require Holdings or
any of its Subsidiaries to purchase, redeem or otherwise acquire or offer to
purchase, redeem or otherwise acquire all or any portion of any Indebtedness
evidenced by the Related Financing Documents; or Holdings or any of its
Subsidiaries shall for any other reason purchase, redeem or otherwise acquire
or offer to purchase, redeem or otherwise acquire, or make any other payments
in respect of, all or any portion of any Indebtedness evidenced by the Related
Financing Documents, except to the extent expressly permitted by subsection
7.5:

THEN (i) upon the occurrence of any Event of Default described in subsection
8.6 or 8.7, each of (a) the unpaid principal amount of and accrued interest on
the Loans, (b) an amount equal to the maximum amount that may at any time be
drawn under all Letters of Credit then outstanding (whether or not any
beneficiary under any such Letter of Credit shall have presented, or shall be
entitled at such time to present, the drafts or other documents or certificates
required to draw under such Letter of Credit), and (c) all other Obligations
shall automatically become immediately due and payable, without presentment,
demand, protest or other requirements of any kind, all of which are hereby
expressly waived by Holdings and Company, and the obligation of each Lender to
make any Loan (including the obligation of
<PAGE> 141
Swing Line Lender to make any Swing Line Loan), the obligation of Agent to
issue any Letter of Credit and the right of any Lender to issue any Letter of
Credit hereunder shall thereupon terminate, and (ii) upon the occurrence and
during the continuation of any other Event of Default, Agent shall, upon the
written request or with the written consent of Requisite Lenders, by written
notice to Company, declare all or any portion of the amounts described in
clauses (a) through (c) above to be, and the same shall forthwith become,
immediately due and payable, and the obligation of each Lender to make any Loan
(including the obligation of Swing Line Lender to make any Swing Line Loan),
the obligation of Agent to issue any Letter of Credit and the right of any
Lender to issue any Letter of Credit hereunder shall thereupon terminate;
provided that the foregoing shall not affect in any way the obligations of
Revolving Lenders to purchase participations in Letters of Credit as provided
in subsection 3.3C or the obligations of Lenders to purchase participations in
any unpaid Swing Line Loans as provided in subsection 2.1A(iv).

Any amounts described in clause (b) above, when received by
Agent, shall be held by Agent pursuant to the terms of the Collateral Account
Agreement and shall be applied as therein provided.

Notwithstanding anything contained in the second preceding
paragraph, if at any time within 60 days after an acceleration of the Loans
pursuant to such paragraph Company shall pay all arrears of interest and all
payments on account of principal which shall have become due otherwise than as
a result of such acceleration (with interest on principal and, to the extent
permitted by law, on overdue interest, at the rates specified in this
Agreement) and all Events of Default and Potential Events of Default (other
than non-payment of the principal of and accrued interest on the Loans, in each
case which is due and payable solely by virtue of acceleration) shall be
remedied or waived pursuant to subsection 11.6, then Requisite Lenders, by
written notice to Company, may at their option rescind and annul such
acceleration and its consequences; but such action shall not affect any
subsequent Event of Default or Potential Event of Default or impair any right
consequent thereon. The provisions of this paragraph are intended merely to
bind Lenders to a decision which may be made at the election of Requisite
Lenders and are not intended to benefit Company and do not grant Company the
right to require Lenders to rescind or annul any acceleration hereunder, even
if the conditions set forth herein are met.

SECTION VIII. HOLDINGS GUARANTY

Holdings hereby consents to and confirms its guaranty of all
Obligations of Company and all obligations of Company under Interest Rate
Agreements permitted under subsection 7.4(ii) to which a Lender or an Affiliate
of such Lender is a counterparty. In furtherance of the foregoing, Holdings
hereby agrees as follows:

A. GUARANTIED OBLIGATIONS.

As consideration for Lenders agreeing to enter into this
Agreement and extend the Commitments, make the Loans hereunder and issue the
Letters of Credit, Holdings hereby unconditionally and irrevocably guaranties,
as a primary obligor and not merely as a surety, the due and punctual payment
when due (whether at stated maturity, by required
<PAGE> 142
prepayment, declaration, demand or otherwise) (including amounts that would
become due but for the operation of the automatic stay under Section 362(a) of
the Bankruptcy Code, 11 U.S.C. Section 362(a)) of all Obligations of Company
(including, without limitation, interest which, but for the filing of a
petition in bankruptcy with respect to Company would accrue on such
Obligations, whether or not allowable as a claim) and all obligations of
Company under Interest Rate Agreements (collectively, the "LENDER INTEREST RATE
AGREEMENTS") permitted under subsection 7.4(ii) to which a Lender or an
Affiliate of such Lender (in such capacity, collectively, "INTEREST RATE
EXCHANGERS") is a counterparty (the "GUARANTIED OBLIGATIONS"). For purposes of
this Section 9, Holdings is referred to as a "GUARANTOR". Lenders and Interest
Rate Exchangers are each referred to herein as a "GUARANTIED PARTY" and
collectively as the "GUARANTIED PARTIES".

B. TERMS OF HOLDINGS GUARANTY.

Guarantor agrees that the Guarantied Obligations may be
extended or renewed, and the Loans repaid and reborrowed in whole or in part,
without notice or further assent from it, and that it will remain bound upon
this Holdings Guaranty notwithstanding any extension, renewal or other
alteration of any such Guarantied Obligation or repayment and reborrowing of
the Loans.

Guarantor waives presentation of, demand of, payment from and
protest of any Guarantied Obligation and also waives notice of protest for
nonpayment. The obligations of Guarantor under this Holdings Guaranty shall
not be affected by, and Guarantor hereby waives its rights (to the extent
permitted by law) in connection with:

(1) the failure of Agent or any Guarantied Party to
assert any claim or demand or to enforce any right or remedy against
Company under the provisions of this Agreement, any Loan Documents or
the Lender Interest Rate Agreements or any other agreement or
otherwise,

(2) any extension or renewal of any provision thereof,

(3) any rescission, waiver, amendment or modification of
any of the terms or provisions of this Agreement or any instrument
executed pursuant hereto or the Lender Interest Rate Agreements,

(4) the release of any of the security held by Agent for
any of the Guarantied Obligations,

(5) the failure of Agent or any Guarantied Party to
exercise any right or remedy against any other guarantor of any of the
Guarantied Obligations,

(6) Agent or any Guarantied Party taking and holding
security or collateral for the payment of this Holdings Guaranty, any
other guaranties of the Guarantied Obligations or other liabilities of
Company, and exchanging, enforcing, waiving and releasing any such
security or collateral,
<PAGE> 143
(7) Agent or any Guarantied Party applying any such
security or collateral and directing the order or manner of sale
thereof as Agent in its discretion may determine, or

(8) Agent or any Guarantied Party settling, releasing,
compromising, collecting or otherwise liquidating the Guarantied
Obligations and any security or collateral therefor in any manner
determined by Agent or such Guarantied Party.

Guarantor further agrees that this Holdings Guaranty
constitutes a guaranty of payment when due and not of collection and waives any
right to require that any resort be had by Agent or any other Person to any
security held for payment of the Guarantied Obligations or to any balance of
any deposit account or credit on the books of Agent or any other Person in
favor of Company or any other Person.

The obligations of Guarantor under this Holdings Guaranty
shall not be subject to any reduction, limitation, impairment or termination
for any reason, including, without limitation, any claim of waiver, release,
surrender, alteration or compromise, and shall not be subject to any defense or
setoff, counterclaim, recoupment or termination whatsoever by reason of the
invalidity, illegality or unenforceability of the Guarantied Obligations,
discharge of Company from such Guarantied Obligations in a bankruptcy or
similar proceeding or otherwise. Without limiting the generality of the
foregoing, the obligations of Guarantor under this Holdings Guaranty shall not
be discharged or impaired or otherwise affected by the failure of Agent or any
Guarantied Party to assert any claim or demand or to enforce any remedy under
this Agreement or any other agreement, by any waiver or modification of any
provision thereof, by any default, failure or delay, willful or otherwise, in
the performance of the Guarantied Obligations, or by any other act or thing or
omission or delay to do any other act or thing that may or might in any manner
or to any extent vary the risk of Guarantor or would otherwise operate as a
discharge of Guarantor as a matter of law or equity.

Agent may, at its election, foreclose on any security held by Agent by
one or more judicial or nonjudicial sales, or exercise any other right or
remedy Agent may have against Company or any security without affecting or
impairing in any way the liability of Guarantor hereunder except to the extent
the Guarantied Obligations have been paid. Guarantor waives any defense
arising out of such election by Agent, even though such election operates to
impair or extinguish any right of reimbursement or subrogation or other right
or remedy of Guarantor against Company or any security, so long as Agent has
acted in a commercially reasonable manner.

Guarantor further agrees that this Holdings Guaranty shall continue to
be effective or be reinstated, as the case may be, if at any time payment, or
any part thereof, of principal of or interest on any Guarantied Obligation is
rescinded or must otherwise be restored by Agent upon the bankruptcy or
reorganization of Company or otherwise.

Guarantor further agrees, in furtherance of the foregoing and not in
limitation of any other right that Agent may have at law or in equity against
Guarantor by virtue hereof, upon the failure of Company to pay any of its
Guarantied Obligations when and as the same shall become due (whether by
required prepayment, declaration, demand or otherwise), Guarantor
<PAGE> 144
will forthwith pay, or cause to be paid, in cash, to Agent an amount equal to
the sum of the unpaid principal amount of such Guarantied Obligations, accrued
and unpaid interest on such Guarantied Obligations and all other Obligations of
Company to Agent.

Guarantor further agrees as follows:

a. Guarantor hereby waives (i) any claim, right or
remedy, direct or indirect, that Guarantor now has or may hereafter
have against Company or any of its assets in connection with this
Holdings Guaranty or the performance by Guarantor of its obligations
hereunder, in each case whether such claim, right or remedy arises in
equity, under contract, by statute (including without limitation under
California Civil Code Section 2847, 2848 or 2849), under common law or
otherwise and including without limitation (a) any right of
subrogation, reimbursement or indemnification that Guarantor now has
or may hereafter have against Company, (b) any right to enforce, or to
participate in, any claim, right or remedy that Agent or any
Guarantied Party now has or may hereafter have against Company, and
(c) any benefit of, and any right to participate in, any collateral or
security now or hereafter held by Agent or any Guarantied Party, and
(ii) any right of contribution Guarantor may have against any other
guarantor of any of the Guarantied Obligations (including without
limitation any such right of contribution under California Civil Code
Section 2848);

b. In accordance with Section 2856 of the California
Civil Code, Guarantor waives any and all other rights and defenses
available to Guarantor by reason of Sections 2787 to 2855, inclusive,
2899 and 3433 of the California Civil Code, including without
limitation any and all rights or defenses Guarantor may have by reason
of protection afforded to the principal with respect to any of the
Guarantied Obligations, or to any other guarantor (including any other
guarantor under the Guaranty) of any of the Guarantied Obligations
with respect to any of such guarantor's obligations under its
guaranty, in either case pursuant to the antideficiency or other laws
of the State of California limiting or discharging the principal's
indebtedness or such guarantor's obligations, including without
limitation Section 580a, 580b, 580d, or 726 of the California Code of
Civil Procedure; and

c. In accordance with Section 2856 of the California
Civil Code, Guarantor waives all rights and defenses arising out of an
election of remedies by the creditor, even though that election of
remedies, such as a nonjudicial foreclosure with respect to security
for a Guarantied Obligation, has destroyed Guarantor's rights of
subrogation and reimbursement against the principal by the operation
of Section 580d of the Code of Civil Procedure or otherwise; and even
though that election of remedies by the creditor, such as nonjudicial
foreclosure with respect to security for an obligation of any other
guarantor (including any other guarantor under the Guaranty) of any of
the Guarantied Obligations, has destroyed Guarantor's rights of
contribution against such other guarantor.

The foregoing California waivers are included solely out of an
abundance of caution, and shall not be construed to mean that any of the
above-referenced provisions of California law are in any way applicable to this
Guaranty or to any of the Guarantied Obligations. As used in the foregoing
paragraph, any reference to "the principal" includes
<PAGE> 145
Company, and any reference to "the creditor" includes Agent, each Lender and
each Interest Rate Exchanger.

Guarantor hereby waives and relinquishes any duty on the part
of Agent or any Lender to disclose any matter, fact or thing relating to the
business, operations or conditions of Company or any of its Subsidiaries now
known or hereafter known by Agent or any Lender.

Guarantor further agrees that, to the extent the agreement to
waive its rights of subrogation, reimbursement, indemnification and
contribution as set forth herein is found by a court of competent jurisdiction
to be void or voidable for any reason, any rights or subrogation, reimbursement
or indemnification Guarantor may have against Company or against any collateral
or security, and any rights of contribution Guarantor may have against any such
other guarantor, shall be junior and subordinate to any rights Agent or
Guarantied Parties may have against Company, to all rights, title and interest
Agent or Guarantied Parties may have in any such collateral or security, and to
any right Agent or Guarantied Parties may have against such other guarantor.
Agent, on behalf of Guarantied Parties, may use, sell or dispose of any item of
collateral or security as it sees fit without regard to any subrogation rights
Guarantor may have, and upon any such disposition or sale any rights of
subrogation Guarantor may have shall terminate. If any amount shall be paid to
Guarantor on account of any such subrogation, reimbursement or indemnification
rights at any time when all Guarantied Obligations (other than Guarantied
Obligations which are contingent and unliquidated and not due and owing on such
date and which pursuant to the provisions of the Credit Agreement survive the
termination of the Credit Agreement, the repayment of the Guarantied
Obligations, the termination of the Commitments and the expiration or
cancellation of all Letters of Credit) shall not have been paid in full, such
amount shall be held in trust for Agent on behalf of Guarantied Parties and
shall forthwith be paid over to Agent for the benefit of Guarantied Parties to
be credited and applied against the Guarantied Obligations, whether matured or
unmatured, in accordance with the terms hereof.

In addition to any rights now or hereafter granted under
applicable law and not by way of limitation of any such rights, upon failure of
Company to pay its Guarantied Obligations when due (whether by required
prepayment, declaration, demand or otherwise) and consequent acceleration of
the Obligations pursuant to Section 8, Agent is hereby authorized by Guarantor
at any time or from time to time, without notice to Guarantor or to any other
Person, any such notice being hereby expressly waived to the extent permitted
by applicable law, to set off and to appropriate and to apply any and all
deposits (general or special, including, not limited to, Indebtedness evidenced
by certificates of deposit, whether matured or unmatured, but not including
trust accounts) and any other Indebtedness at any time owing by Agent to or for
the credit or the account of Guarantor against and on account of the
obligations and liabilities of Guarantor to Agent under this Holdings Guaranty,
including, but not limited to, all such obligations and liabilities with
respect to all claims of any nature or description arising out of or connected
with this Agreement, this Holdings Guaranty or the Letters of Credit or any of
the other Loan Documents, irrespective of whether or not Agent, with respect to
any Obligation owed under the Letters of Credit or this Agreement, shall have
made any demand hereunder. Agent agrees promptly to notify Guarantor after any
such set-off and application is made by Agent.
<PAGE> 146
Notwithstanding anything contained in this Section 9 to the
contrary, this Holdings Guaranty shall not be effective or in full force and
effect until the Closing Date.

SECTION IX. AGENT

A. APPOINTMENT.

Each Lender hereby appoints, and each Interest Rate Exchanger,
by its acceptance of the benefits of this Agreement and the other Loan
Documents, shall be deemed to have appointed, Bankers as Agent hereunder and
under the other Loan Documents and each Lender hereby authorizes, and each
Interest Rate Exchanger, by its acceptance of the benefits of this Agreement
and the other Loan Documents, shall be deemed to have authorized, Agent to act
as its agent in accordance with the terms of this Agreement and the other Loan
Documents, and each Interest Rate Exchanger is considered to be a "Lender" for
purposes of this Section 10. Each Lender hereby appoints the Co-Agents listed
as such on the signature pages hereto as Co-Agents hereunder. Agent agrees to
act upon the express conditions contained in this Agreement and the other Loan
Documents, as applicable. The provisions of this Section 10 are solely for the
benefit of Agent, Co-Agents and Lenders and no Loan Party shall have any rights
as a third party beneficiary of any of the provisions thereof. In performing
its functions and duties under this Agreement and other than as expressly
provided for in subsection 2.1D(v), Agent shall act solely as an agent of
Lenders and does not assume and shall not be deemed to have assumed any
obligation towards or relationship of agency or trust with or for any Loan
Party. Each Lender named as a Co-Agent hereunder shall have no duties or
responsibilities under this Agreement or any other Loan Document to any Person,
other than as a Lender hereunder or thereunder.

B. POWERS; GENERAL IMMUNITY.

1. DUTIES SPECIFIED. Each Lender irrevocably authorizes Agent to
take such action on such Lender's behalf and to exercise such powers hereunder
and under the other Loan Documents as are specifically delegated to Agent by
the terms hereof and thereof, together with such powers as are reasonably
incidental thereto. Agent shall have only those duties and responsibilities
that are expressly specified in this Agreement and the other Loan Documents and
it may perform such duties by or through its agents or employees. Agent shall
not have, by reason of this Agreement or any of the other Loan Documents, a
fiduciary relationship in respect of any Lender; and nothing in this Agreement
or any of the other Loan Documents, expressed or implied, is intended to or
shall be so construed as to impose upon Agent any obligations in respect of
this Agreement or any of the other Loan Documents except as expressly set forth
herein or therein.

2. NO RESPONSIBILITY FOR CERTAIN MATTERS. Agent shall not be
responsible to any Lender for the execution, effectiveness, genuineness,
validity, enforceability, collectibility or sufficiency of this Agreement or
any other Loan Document or for any representations, warranties, recitals or
statements made herein or therein or made in any written or oral statements or
in any financial or other statements, instruments, reports or certificates or
any other documents furnished or made by Agent to Lenders or by or on behalf of
any Loan Party to Agent or any Lender in connection with the Loan Documents and
the transactions
<PAGE> 147
contemplated thereby or for the financial condition or business affairs of any
Loan Party or any other Person liable for the payment of any Obligations, nor
shall Agent be required to ascertain or inquire as to the performance or
observance of any of the terms, conditions, provisions, covenants or agreements
contained in any of the Loan Documents or as to the use of the proceeds of the
Loans or the use of the Letters of Credit or as to the existence or possible
existence of any Event of Default or Potential Event of Default. Agent shall
not have any liability arising from confirmations of the amount of outstanding
Loans or the Letter of Credit Usage or the component amounts thereof.

3. EXCULPATORY PROVISIONS. Neither Agent nor any of its
officers, directors, employees or agents shall be liable to Lenders for any
action taken or omitted by Agent under or in connection with any of the Loan
Documents except to the extent caused by Agent's gross negligence or willful
misconduct. If Agent shall request instructions from Lenders with respect to
any act or action (including the failure to take an action) in connection with
this Agreement or any of the other Loan Documents, Agent shall be entitled to
refrain from such act or taking such action unless and until Agent shall have
received instructions from Requisite Lenders. Without prejudice to the
generality of the foregoing, (i) Agent shall be entitled to rely, and shall be
fully protected in relying, upon any communication, instrument or document
believed by it to be genuine and correct and to have been signed or sent by the
proper person or persons, and shall be entitled to rely and shall be protected
in relying on opinions and judgments of attorneys (who may be attorneys for
Loan Parties), accountants, experts and other professional advisors selected by
it; and (ii) no Lender shall have any right of action whatsoever against Agent
as a result of Agent acting or (where so instructed) refraining from acting
under this Agreement or any of the other Loan Documents in accordance with the
instructions of Requisite Lenders. Agent shall be entitled to refrain from
exercising any power, discretion or authority vested in it under this Agreement
or any of the other Loan Documents unless and until it has obtained the
instructions of Requisite Lenders.

4. AGENT ENTITLED TO ACT AS LENDER. The agency hereby created
shall in no way impair or affect any of the rights and powers of, or impose any
duties or obligations upon, Agent in its individual capacity as a Lender
hereunder. With respect to its participation in the Loans and the Letters of
Credit, Agent shall have the same rights and powers hereunder as any other
Lender and may exercise the same as though it were not performing the duties
and functions delegated to it hereunder, and the term "Lender" or "Lenders" or
any similar term shall, unless the context clearly otherwise indicates, include
Agent in its individual capacity. Agent and its Affiliates may accept deposits
from, lend money to and generally engage in any kind of banking, trust,
financial advisory or other business with Holdings or any of its Affiliates as
if it were not performing the duties specified herein, and may accept fees and
other consideration from any Loan Party for services in connection with this
Agreement and otherwise without having to account for the same to Lenders.

C. REPRESENTATIONS AND WARRANTIES; NO RESPONSIBILITY FOR APPRAISAL OF
CREDITWORTHINESS.

Each Lender represents and warrants that it has made its own
independent investigation of the financial condition and affairs of the Loan
Parties in connection with the making of the Loans and the issuance of Letters
of Credit hereunder and that it has made and
<PAGE> 148
shall continue to make its own appraisal of the creditworthiness of the Loan
Parties. Agent shall not have any duty or responsibility, either initially or
on a continuing basis, to make any such investigation or any such appraisal on
behalf of Lenders or to provide any Lender with any credit or other information
with respect thereto, whether coming into its possession before the making of
the Loans or at any time or times thereafter, and Agent shall not have any
responsibility with respect to the accuracy of or the completeness of any
information provided to Lenders.

D. RIGHT TO INDEMNITY.

Each Lender, in proportion to its Pro Rata Share, severally
agrees to indemnify Agent, to the extent that Agent shall not have been
reimbursed by any Loan Party, for and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses (including, without limitation, reasonable counsel fees and
disbursements) or disbursements of any kind or nature whatsoever which may be
imposed on, incurred by or asserted against Agent in performing its duties
hereunder or under the other Loan Documents or otherwise in its capacity as
Agent in any way relating to or arising out of this Agreement or the other Loan
Documents; provided that no Lender shall be liable for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements resulting from Agent's gross negligence
or willful misconduct. If any indemnity furnished to Agent for any purpose
shall, in the opinion of Agent, be insufficient or become impaired, Agent may
call for additional indemnity and cease, or not commence, to do the acts
indemnified against until such additional indemnity is furnished. If
indemnification payments made by Lenders pursuant to this subsection 10.4 are
subsequently recovered by Agent from any Loan Party, Agent shall promptly
refund such previously paid indemnification payments to Lenders.

E. SUCCESSOR AGENT AND SWING LINE LENDER.

1. SUCCESSOR AGENT. Agent may resign at any time by giving 30
days' prior written notice thereof to Lenders and Company, and Agent may be
removed at any time with or without cause by an instrument or concurrent
instruments in writing delivered to Company and Agent and signed by Requisite
Lenders. Upon any such notice of resignation or any such removal, Requisite
Lenders shall have the right, upon five Business Days' notice to Company, to
appoint a successor Agent. Upon the acceptance of any appointment as Agent
hereunder by a successor Agent, that successor Agent shall thereupon succeed to
and become vested with all the rights, powers, privileges and duties of the
retiring or removed Agent and the retiring or removed Agent shall be discharged
from its duties and obligations under this Agreement. After any retiring or
removed Agent's resignation or removal hereunder as Agent, the provisions of
this Section 10 shall inure to its benefit as to any actions taken or omitted
to be taken by it while it was Agent under this Agreement.

2. SUCCESSOR SWING LINE LENDER. Any resignation or removal of
Agent pursuant to subsection 10.5A shall also constitute the resignation or
removal of Bankers or its successor as Swing Line Lender, and any successor
Agent appointed pursuant to subsection 10.5A shall, upon its acceptance of such
appointment, become the successor Swing Line Lender for all purposes hereunder.
In such event (i) Company shall prepay any outstanding Swing Line Loans made by
the retiring or removed Agent in its capacity as Swing Line
<PAGE> 149
Lender, (ii) upon such prepayment, the retiring or removed Agent and Swing Line
Lender shall surrender the Swing Line Note held by it to Company for
cancellation, and (iii) Company shall issue a new Swing Line Note to the
successor Agent and Swing Line Lender substantially in the form of Exhibit VII
annexed hereto, in the principal amount of the Swing Line Loan Commitment then
in effect and with other appropriate insertions.

F. GUARANTIES AND COLLATERAL DOCUMENTS.

Each Lender hereby further authorizes Agent to enter into the
Collateral Documents as secured party on behalf of and for the benefit of
Lenders and agrees to be bound by the terms of the Collateral Documents;
provided that, except as otherwise provided in subsection 11.6, Agent shall not
enter into or consent to any amendment, modification, termination or waiver of
any provision contained in the Collateral Documents without the prior consent
of Requisite Lenders. Anything contained in any of the Loan Documents to the
contrary notwithstanding, each Lender agrees that no Lender shall have any
right individually to realize upon any of the Holdings Guaranty, the Guaranty
or any of the Collateral under the Collateral Documents, it being understood
and agreed that all rights and remedies under the Collateral Documents may be
exercised solely by Agent for the benefit of Lenders and the other beneficially
interested parties under the Collateral Documents and the other Loan Documents
in accordance with the terms thereof.

SECTION X. MISCELLANEOUS

A. ASSIGNMENTS AND PARTICIPATIONS IN LOANS AND LETTERS OF CREDIT.

1. GENERAL. Subject to subsection 11.1B, each Lender shall have
the right at any time to (i) sell, assign or transfer to any Eligible Assignee,
or (ii) sell participations to any Person in, all or any part of its
Commitments or any Loan or Loans made by it or its Letters of Credit or
participations therein or any other interest herein or in any other Obligations
owed to it; provided that no such sale, assignment, transfer or participation
shall, without the consent of Company, require Company to file a registration
statement with the Securities and Exchange Commission or apply to qualify such
sale, assignment, transfer or participation under the securities laws of any
state; provided further that no such sale, assignment or transfer described in
clause (i) above shall be effective unless and until an Assignment Agreement
effecting such sale, assignment or transfer shall have been accepted by Agent
and recorded in the Register as provided in subsection 11.1B(ii); provided
further that no such sale, assignment, transfer or participation of any Letter
of Credit or any participation therein may be made separately from a sale,
assignment, transfer or participation of a corresponding interest in the
Revolving Loan Commitment and the Revolving Loans of the Lender effecting such
sale, assignment, transfer or participation; and provided further that,
anything contained herein to the contrary notwithstanding, the Swing Line Loan
Commitment and the Swing Line Loans of Swing Line Lender may not be sold,
assigned or transferred as described in clause (i) above to any Person other
than a successor Agent and Swing Line Lender to the extent contemplated by
subsection 10.5. Except as otherwise provided in this subsection 11.1, no
Lender shall, as between Company and such Lender, be relieved of any of its
obligations hereunder as a result of any sale, assignment or transfer of, or
any granting of
<PAGE> 150
participations in, all or any part of its Commitments or the Loans, the Letters
of Credit or participations therein, or the other Obligations owed to such
Lender.

2. ASSIGNMENTS.

a. Amounts and Terms of Assignments. Each Commitment,
Loan, Letter of Credit or participation in any Letter of Credit or in
any Swing Line Loan, or other Obligation may (a) be assigned in any
amount to another Lender, or to an Affiliate of the assigning Lender
or another Lender, with the giving of notice to Company and Agent or
(b) be assigned in an aggregate amount of not less than $5,000,000 (or
such lesser amount as shall constitute the aggregate amount of the
Commitments, Loans, Letters of Credit and participations in any Letter
of Credit or in any Swing Line Loan, and other Obligations of the
assigning Lender) to any other Eligible Assignee with the giving of
notice to Company and with the consent of Company and Agent (which
consent of Company and Agent shall not be unreasonably withheld or
delayed and provided that Company hereby consents to any assignment to
any Eligible Assignee which immediately prior to the effectiveness of
the Master Assignment Agreement was a Lender under the Existing Credit
Agreement). To the extent of any such assignment in accordance with
either clause (a) or (b) above, the assigning Lender shall be relieved
of its obligations with respect to its Commitments, Loans, Letters of
Credit or participations therein, or other Obligations or the portion
thereof so assigned. The parties to each such assignment shall
execute and deliver to Agent, for its acceptance and recording in the
Register, an Assignment Agreement, together with a processing and
recordation fee of, in the case of assignments to a Lender or an
Affiliate of a Lender, $1,500 and, in the case of assignments to any
other Eligible Assignee, $3,500 and such forms, certificates or other
evidence, if any, with respect to United States federal income tax
withholding matters as the assignee under such Assignment Agreement
may be required to deliver to Agent pursuant to subsection
2.7B(iii)(a). Upon such execution, delivery, acceptance and
recordation, from and after the effective date specified in such
Assignment Agreement, (y) the assignee thereunder shall be a party
hereto and, to the extent that rights and obligations hereunder have
been assigned to it pursuant to such Assignment Agreement, shall have
the rights and obligations of a Lender hereunder and (z) the assigning
Lender thereunder shall, to the extent that rights and obligations
hereunder have been assigned by it pursuant to such Assignment
Agreement, relinquish its rights and be released from its obligations
under this Agreement (and, in the case of an Assignment Agreement
covering all or the remaining portion of an assigning Lender's rights
and obligations under this Agreement, such Lender shall cease to be a
party hereto); provided that the assigning Lender shall retain its
rights (concurrently with assignee) under subsections 2.6D, 2.7, 3.5A,
3.6, 11.2, 11.3 and 11.4. The Commitments hereunder shall be modified
to reflect the Commitment of such assignee and any remaining
Commitment of such assigning Lender and, if any such assignment occurs
after the issuance of the Notes hereunder, the assigning Lender shall,
upon the effectiveness of such assignment or as promptly thereafter as
practicable, surrender its applicable Notes to Agent for cancellation,
and thereupon new Notes shall be issued to the assignee and to the
assigning Lender, substantially in the form of Exhibit IV, Exhibit V
or Exhibit VI annexed hereto, as the case may be, with appropriate
<PAGE> 151
insertions, to reflect the new Commitments and/or outstanding Term
Loans, as the case may be, of the assignee and/or the assigning
Lender.

b. Acceptance by Agent; Recordation in Register. Upon
its receipt of an Assignment Agreement executed by an assigning Lender
and an assignee representing that it is an Eligible Assignee, together
with the processing and recordation fee referred to in subsection
11.1B(i) and any forms, certificates or other evidence with respect to
United States federal income tax withholding matters that such
assignee may be required to deliver to Agent pursuant to subsection
2.7B(iii)(a), Agent shall, if such Assignment Agreement has been
completed and is in substantially the form of Exhibit XVII hereto and
if Agent and Company have consented to the assignment evidenced
thereby (in each case to the extent such consent is required pursuant
to subsection 11.1B(i)), (a) accept such Assignment Agreement by
executing a counterpart thereof as provided therein (which acceptance
shall evidence any required consent of Agent to such assignment), (b)
record the information contained therein in the Register, and (c) give
prompt notice thereof to Company. Agent shall maintain a copy of each
Assignment Agreement delivered to and accepted by it as provided in
this subsection 11.1B(ii).

3. PARTICIPATIONS. The holder of any participation, other than
an Affiliate of the Lender granting such participation, shall not be entitled
to require such Lender to take or omit to take any action hereunder except
action directly affecting (i) the extension of the scheduled final maturity
date of any Loan allocated to such participation, (ii) a reduction of the
principal amount of or the rate of interest payable on any Loan allocated to
such participation, (iii) the release of the Liens held by Agent on behalf of
Lenders with respect to all or substantially all of the Collateral or (iv) a
reduction of the amount of any fees payable hereunder to the extent subject to
such participation, and all amounts payable by Company hereunder (including
without limitation amounts payable to such Lender pursuant to subsections 2.6D,
2.7 and 3.6) shall be determined as if such Lender had not sold such
participation. Holdings, Company and each Lender hereby acknowledge and agree
that, solely for purposes of subsections 11.4 and 11.5, (a) any participation
will give rise to a direct obligation of Holdings or Company, as applicable, to
the participant and (b) the participant shall be considered to be a "Lender".

4. ASSIGNMENTS TO FEDERAL RESERVE BANKS. In addition to the
assignments and participations permitted under the foregoing provisions of this
subsection 11.1, any Lender may assign and pledge all or any portion of its
Loans, the other Obligations owed to such Lender, and its Notes to any Federal
Reserve Bank as collateral security pursuant to Regulation A of the Board of
Governors of the Federal Reserve System and any operating circular issued by
such Federal Reserve Bank and with the consent of Company and Agent, any Lender
which is a fund may pledge all or any portion of its Notes or Loans to its
trustee in support of its obligations to its trustee; provided that (i) no
Lender shall, as between Company and such Lender, be relieved of any of its
obligations hereunder as a result of any such assignment and pledge and (ii) in
no event shall such Federal Reserve Bank be considered to be a "Lender" or be
entitled to require the assigning Lender to take or omit to take any action
hereunder.
<PAGE> 152
5. INFORMATION. Each Lender may furnish any information
concerning Holdings and its Subsidiaries in the possession of that Lender from
time to time to assignees and participants (including prospective assignees and
participants), subject to subsection 11.19.

B. EXPENSES.

Whether or not the transactions contemplated hereby shall be
consummated, each of Holdings and Company agrees to pay promptly (i) all the
actual and reasonable costs and expenses of preparation of the Loan Documents;
(ii) all the costs of furnishing all opinions by counsel for Holdings and its
Subsidiaries (including without limitation any opinions requested by Lenders as
to any legal matters arising hereunder) and of each Loan Party's performance of
and compliance with all agreements and conditions on its part to be performed
or complied with under this Agreement and the other Loan Documents including,
without limitation, with respect to confirming compliance with environmental
and insurance requirements; (iii) the reasonable fees, expenses and
disbursements of counsel to Agent (including internal counsel) in connection
with the negotiation, preparation, execution and administration of the Loan
Documents and the Loans and any consents, amendments, waivers or other
modifications hereto or thereto and any other documents or matters requested by
any Loan Party; (iv) all the reasonable costs and expenses of creating and
perfecting Liens in favor of Agent on behalf of Lenders pursuant to any Loan
Document, including filing and recording fees and expenses, title insurance,
and reasonable fees and expenses of counsel for providing such opinions as
Agent or Requisite Lenders may reasonably request and reasonable fees and
expenses of legal counsel to Agent; (v) all the reasonable costs and expenses
of obtaining and reviewing any appraisals or environmental reports provided for
under subsection 4.1F or 6.11; (vi) all other actual and reasonable costs and
expenses incurred by Agent in connection with the syndication of the
Commitments and the negotiation, preparation and execution of the Loan
Documents and the transactions contemplated hereby and thereby; and (vii) after
the occurrence of an Event of Default, all reasonable costs and expenses,
including reasonable attorneys' fees (including internal counsel) and costs of
settlement, incurred by Agent and Lenders in enforcing any Obligations of or in
collecting any payments due from any Loan Party hereunder or under the other
Loan Documents by reason of such Event of Default or in connection with any
refinancing or restructuring of the credit arrangements provided under this
Agreement in the nature of a "work-out" or pursuant to any insolvency or
bankruptcy proceedings.

C. INDEMNITY.

In addition to the payment of expenses pursuant to subsection
11.2, whether or not the transactions contemplated hereby shall be consummated,
each of Holdings and Company agrees to defend, indemnify, pay and hold harmless
Agent and Lenders, and the officers, directors, trustees, employees, agents and
affiliates of Agent and Lenders (collectively called the "INDEMNITEES") from
and against any and all other liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, claims, costs, expenses and disbursements
of any kind or nature whatsoever (including without limitation the reasonable
fees and disbursements of counsel for such Indemnitees in connection with any
investigative, administrative or judicial proceeding commenced or threatened by
any Person, whether or not any such Indemnitee shall be designated as a party
or a potential party thereto), whether direct, indirect or consequential and
whether based on any federal, state or foreign laws,
<PAGE> 153
statutes, rules or regulations (including without limitation securities and
commercial laws, statutes, rules or regulations and Environmental Laws), on
common law or equitable cause or on contract or otherwise, that may be imposed
on, incurred by, or asserted against any such Indemnitee, in any manner
relating to or arising out of this Agreement or the other Loan Documents or any
other Transaction Documents or the transactions contemplated hereby or thereby
(including without limitation Lenders' agreement to make the Loans hereunder or
the use or intended use of the proceeds of any of the Loans or the issuance of
Letters of Credit hereunder or the use or intended use of any of the Letters of
Credit) or the statements contained in the commitment letter delivered by any
Lender to any Loan Party with respect thereto (collectively called the
"INDEMNIFIED LIABILITIES"); provided that each of Holdings and Company shall
not have any obligation to any Indemnitee hereunder with respect to any
Indemnified Liabilities to the extent such Indemnified Liabilities are directly
attributable to the gross negligence or willful misconduct of that Indemnitee
as determined by a final judgment of a court of competent jurisdiction. To the
extent that the undertaking to defend, indemnify, pay and hold harmless set
forth in the preceding sentence may be unenforceable because it is violative of
any law or public policy, each of Holdings and Company shall contribute the
maximum portion that it is permitted to pay and satisfy under applicable law to
the payment and satisfaction of all Indemnified Liabilities incurred by the
Indemnitees or any of them.

D. SET-OFF.

In addition to any rights now or hereafter granted under
applicable law and not by way of limitation of any such rights, upon the
occurrence of any Event of Default and consultation with Agent each Lender is
hereby authorized by each of Holdings and Company at any time or from time to
time, without notice to Holdings or Company or to any other Person, any such
notice being hereby expressly waived, to set off and to appropriate and to
apply any and all deposits (general or special, including, but not limited to,
Indebtedness evidenced by certificates of deposit, whether matured or
unmatured, but not including trust accounts) and any other Indebtedness at any
time held or owing by that Lender to or for the credit or the account of
Holdings or Company against and on account of the obligations and liabilities
of Holdings or Company to that Lender under this Agreement, the Notes, the
Letters of Credit and participations therein and the other Loan Documents,
including, but not limited to, all claims of any nature or description arising
out of or connected with this Agreement, the Notes, the Letters of Credit and
participations therein or any other Loan Document, irrespective of whether or
not (i) that Lender shall have made any demand hereunder or (ii) the principal
of or the interest on the Loans or any amounts in respect of the Letters of
Credit or any other amounts due hereunder shall have become due and payable
pursuant to Section 8 and although said obligations and liabilities, or any of
them, may be contingent or unmatured. Company hereby further grants to Agent
and each Lender a security interest in all deposits and accounts maintained
with Agent or such Lender as security for the Obligations.

E. RATABLE SHARING.

Lenders hereby agree among themselves that if any of them
shall, whether by voluntary payment, by realization upon security, through the
exercise of any right of set-off or banker's lien, by counterclaim or cross
action or by the enforcement of any right under
<PAGE> 154
the Loan Documents or otherwise, or as adequate protection of a deposit treated
as cash collateral under the Bankruptcy Code, receive payment or reduction of a
proportion of the aggregate amount of principal, interest, amounts payable in
respect of Letters of Credit, fees and other amounts (excluding amounts due and
owing pursuant to subsections 2.6D, 2.7, 3.2(i)(a) and 3.2(ii)(a)) then due and
owing to that Lender hereunder or under the other Loan Documents (collectively,
the "AGGREGATE AMOUNTS DUE" to such Lender) which is greater than the
proportion received by any other Lender in respect of the Aggregate Amounts Due
to such other Lender, then the Lender receiving such proportionately greater
payment shall (i) notify Agent and each other Lender of the receipt of such
payment and (ii) apply a portion of such payment to purchase participations
(which it shall be deemed to have purchased from each seller of a participation
simultaneously upon the receipt by such seller of its portion of such payment)
in the Aggregate Amounts Due to the other Lenders so that all such recoveries
of Aggregate Amounts Due shall be shared by all Lenders in proportion to the
Aggregate Amounts Due to them; provided that if all or part of such
proportionately greater payment received by such purchasing Lender is
thereafter recovered from such Lender upon the bankruptcy or reorganization of
Holdings or any of its Subsidiaries or otherwise, those purchases shall be
rescinded and the purchase prices paid for such participations shall be
returned to such purchasing Lender ratably to the extent of such recovery, but
without interest. Each of Holdings and Company expressly consents to the
foregoing arrangement and agrees that any holder of a participation so
purchased may exercise any and all rights of banker's lien, set-off or
counterclaim with respect to any and all monies owing by Holdings or any of its
Subsidiaries to that holder with respect thereto as fully as if that holder
were owed the amount of the participation held by that holder.

F. AMENDMENTS AND WAIVERS.

1. No amendment, modification, termination or waiver of any
provision of this Agreement or of the Notes, or consent to any departure by
Holdings or Company therefrom, shall in any event be effective without the
written concurrence of Requisite Lenders; provided that no such amendment,
modification, termination, waiver or consent shall, without the consent of each
Lender (with Obligations directly affected in the case of the following clause
(i)): (i) extend the scheduled final maturity of any Loan or Note, or extend
the stated expiration date of any Letter of Credit beyond the Revolving Loan
Commitment Termination Date, or reduce the rate of interest (other than any
waiver of any increase in the interest rate applicable to any of the Loans
pursuant to subsection 2.2E) or fees thereon, or extend the time of payment of
interest or fees thereon, or reduce the principal amount thereof, (ii) release
all or substantially all of the Collateral, release all or substantially all of
the Loan Parties that are party to the Subsidiary Guaranty from the Subsidiary
Guaranty or release Holdings from the Holdings Guaranty, in each case except as
expressly provided in the Loan Documents, (iii) amend, modify, terminate or
waive any provision of this subsection 11.6, (iv) reduce the percentage
specified in the definition of Requisite Lenders (it being understood that,
with the consent of the Requisite Lenders, additional extensions of credit
pursuant to this Agreement may be included in the determination of the
Requisite Lenders on substantially the same basis as the extensions of Term
Loans and Revolving Loan Commitments are included on the Effective Date) or (v)
consent to the assignment or transfer by Holdings or Company of any of their
respective rights and obligations under this Agreement; provided further that
no such amendment, modification, termination or waiver shall (1) increase the
Commitments of any Lender over the amount thereof then in effect
<PAGE> 155
without the consent of such Lender (it being understood that amendments,
modifications or waivers of conditions precedent, covenants, Potential Events
of Default or Events of Default or of a mandatory reduction in the Commitments
shall not constitute an increase of the Commitment of any Lender, and that an
increase in the available portion of any Commitment of any Lender shall not
constitute an increase in the Commitment of such Lender); (2) without the
consent of the Swing Line Lender, amend, modify, terminate or waive any
provision of subsection 2.1A(iv) or any other provision of this Agreement
relating to the Swing Line Loan Commitment or the Swing Line Loans; (3) without
the consent of the Requisite Class Lenders of each Class which is being
allocated a lesser prepayment, repayment or commitment reduction as a result of
the actions described below (or without the consent of the Requisite Class
Lenders of each Class in the case of an amendment to the definition of
Requisite Class Lenders), amend the definition of Requisite Class Lenders or
alter the required application of any prepayments or repayments (or commitment
reduction), as between the Classes pursuant to subsection 2.4B(iv) (although
the Requisite Lenders may waive, in whole or in part, any such prepayment,
repayment or commitment reduction so long as the application, as between the
Classes, of any such prepayment, repayment or commitment reduction which is
still required to be made is not altered); (4) without the consent of Requisite
Class Lenders of the respective Class, waive or reduce any scheduled repayment
set forth in subsections 2.4A(i) and (ii) of such affected Class; (5) amend,
modify, terminate or waive any obligations of Revolving Lenders relating to the
purchase of participations in Letters of Credit shall be effective without the
written concurrence of each Issuing Lender having a Letter of Credit then
outstanding or which has not been reimbursed for a drawing under a Letter of
Credit issued by it and of Agent; or (6) without the consent of Agent or any
applicable Co-Agent, amend, modify, terminate or waive any provision of Section
10 as the same applies to Agent or any Co-Agent or of any other provision of
this Agreement as the same applies to the rights or obligations of Agent or any
Co-Agent.

2. If, in connection with any proposed amendment, modification,
termination or waiver to any of the provisions of this Agreement or the Notes
which requires the consent of all Lenders, the consent of the Requisite Lenders
is obtained but the consent of one or more of such other Lenders whose consent
is required is not obtained, then Company shall have the right, so long as all
non-consenting Lenders whose individual consent is required are treated as
described in either clause (i) or (ii) below, to either (i) replace each such
non-consenting Lender or Lenders with one or more Replacement Lenders pursuant
to subsection 2.8 so long as at the time of such replacement, each such
Replacement Lender consents to the proposed amendment, modification,
termination or waiver, or (ii) terminate such non-consenting Lender's
Commitments and repay in full its outstanding Loans in accordance with
subsections 2.4B(i)(b) and 2.4B(ii)(b); provided that unless the Commitments
that are terminated and the Loans that are repaid pursuant to the preceding
clause (ii) are immediately replaced in full at such time through the addition
of new Lenders or the increase of the Commitments and/or outstanding Loans of
existing Lenders (who in each case must specifically consent thereto), then in
the case of any action pursuant to the preceding clause (ii), the Requisite
Lenders (determined before giving effect to the proposed action) shall
specifically consent thereto; provided further that Company shall not have the
right to terminate such non-consenting Lender's Commitment and repay in full
its outstanding Loans pursuant to clause (ii) of this subsection 11.6B if,
immediately after the termination of such Lender's Revolving Loan Commitment in
accordance with subsection 2.4B(ii)(b), the Revolving Loan Exposure of all
Lenders would exceed the Revolving Loan Commitments of
<PAGE> 156
all Lenders; provided still further that Company shall not have the right to
replace a Lender solely as a result of the exercise of such Lender's rights
(and the withholding of any required consent by such Lender) pursuant to the
second proviso to subsection 11.6A.

3. Agent may, but shall have no obligation to, with the
concurrence of any Lender, execute amendments, modifications, waivers or
consents on behalf of that Lender. Any waiver or consent shall be effective
only in the specific instance and for the specific purpose for which it was
given. No notice to or demand on Company in any case shall entitle Company to
any other or further notice or demand in similar or other circumstances. Any
amendment, modification, termination, waiver or consent effected in accordance
with this subsection 11.6 shall be binding upon each Lender at the time
outstanding, each future Lender and, if signed by Company, on Company.

G. INDEPENDENCE OF COVENANTS.

All covenants hereunder shall be given independent effect so
that if a particular action or condition is not permitted by any of such
covenants, the fact that it would be permitted by an exception to, or would
otherwise be within the limitations of, another covenant shall not avoid the
occurrence of an Event of Default or Potential Event of Default if such action
is taken or condition exists.

H. NOTICES.

Unless otherwise specifically provided herein, any notice or
other communication herein required or permitted to be given shall be in
writing and may be personally served, telexed or sent by telefacsimile or
United States mail or courier service and shall be deemed to have been given
when delivered in person or by courier service, upon receipt of telefacsimile
or telex, or three Business Days after depositing it in the United States mail
with postage prepaid and properly addressed; provided that notices to Agent
shall not be effective until received. For the purposes hereof, the address of
each party hereto shall be as set forth under such party's name on the
signature pages hereof or (i) as to Holdings, Company and Agent, such other
address as shall be designated by such Person in a written notice delivered to
the other parties hereto and (ii) as to each other party, such other address as
shall be designated by such party in a written notice delivered to Agent.

I. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.

1. All representations, warranties and agreements made herein
shall survive the execution and delivery of this Agreement and the making of
the Loans and the issuance of the Letters of Credit hereunder.

2. Notwithstanding anything in this Agreement or implied by law
to the contrary, the agreements of Holdings and Company set forth in
subsections 2.6D, 2.7, 3.5A, 3.6, 11.2, 11.3 and 11.4 and the agreements of
Lenders set forth in subsections 10.2C, 10.4 and 11.5 shall survive the payment
of the Loans, the cancellation or expiration of the Letters of Credit and the
reimbursement of any amounts drawn thereunder, and the termination of this
Agreement.
<PAGE> 157
J. FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE.

No failure or delay on the part of Agent or any Lender in the
exercise of any power, right or privilege hereunder or under any other Loan
Document shall impair such power, right or privilege or be construed to be a
waiver of any default or acquiescence therein, nor shall any single or partial
exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other power, right or privilege. All rights and
remedies existing under this Agreement and the other Loan Documents are
cumulative to, and not exclusive of, any rights or remedies otherwise
available.

K. MARSHALLING; PAYMENTS SET ASIDE.

Neither Agent nor any Lender shall be under any obligation to
marshal any assets in favor of Holdings, Company or any other party or against
or in payment of any or all of the Obligations. To the extent that any Loan
Party makes a payment or payments to Agent or Lenders (or to Agent for the
benefit of Lenders), or Agent or Lenders enforce any security interests or
exercise their rights of setoff, and such payment or payments or the proceeds
of such enforcement or setoff or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside and/or required to be
repaid to a trustee, receiver or any other party under any bankruptcy law, any
other state or federal law, common law or any equitable cause, then, to the
extent of such recovery, the obligation or part thereof originally intended to
be satisfied, and all Liens, rights and remedies therefor or related thereto,
shall be revived and continued in full force and effect as if such payment or
payments had not been made or such enforcement or setoff had not occurred.

L. SEVERABILITY.

In case any provision in or obligation under this Agreement or
the Notes shall be invalid, illegal or unenforceable in any jurisdiction, the
validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction,
shall not in any way be affected or impaired thereby.

M. OBLIGATIONS SEVERAL; INDEPENDENT NATURE OF LENDERS' RIGHTS.

The obligations of Lenders hereunder are several and no Lender
shall be responsible for the obligations or Commitments of any other Lender
hereunder. Nothing contained herein or in any other Loan Document, and no
action taken by Lenders pursuant hereto or thereto, shall be deemed to
constitute Lenders as a partnership, an association, a joint venture or any
other kind of entity. The amounts payable at any time hereunder to each Lender
shall be a separate and independent debt, and each Lender shall be entitled to
protect and enforce its rights arising out of this Agreement and it shall not
be necessary for any other Lender to be joined as an additional party in any
proceeding for such purpose.

N. HEADINGS.

Section and subsection headings in this Agreement are included
herein for convenience of reference only and shall not constitute a part of
this Agreement for any other purpose or be given any substantive effect.
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O. APPLICABLE LAW.

THIS AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED
AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK,
WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.

P. SUCCESSORS AND ASSIGNS.

This Agreement shall be binding upon the parties hereto and
their respective successors and assigns and shall inure to the benefit of the
parties hereto and the successors and assigns of Lenders (it being understood
that Lenders' rights of assignment are subject to subsection 11.1). The terms
and provisions of this Agreement shall enure to the benefit of any assignee or
transferee of any of the Loans, and in the event of any such transfer or
assignment the rights and privileges herein conferred upon Lenders shall
automatically extend to and be vested in such transferee or assignee, all
subject to the terms and conditions hereof. Neither Holdings' or Company's
rights or obligations hereunder nor any interest therein may be assigned or
delegated by Holdings or Company without the prior written consent of all
Lenders.

Q. CONSENT TO JURISDICTION AND SERVICE OF PROCESS.

ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST HOLDINGS OR COMPANY ARISING
OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR ANY
OBLIGATION MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT
JURISDICTION IN THE STATE OF NEW YORK, AND BY EXECUTION AND DELIVERY OF THIS
AGREEMENT EACH OF HOLDINGS AND COMPANY ACCEPTS FOR ITSELF AND IN CONNECTION
WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE
JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON
CONVENIENS AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY
IN CONNECTION WITH THIS AGREEMENT, SUCH OTHER LOAN DOCUMENT OR SUCH OBLIGATION.
Each of Holdings and Company hereby agrees that service of all process in any
such proceeding in any such court may be made by registered or certified mail,
return receipt requested, to Holdings or Company, as the case may be, at its
address provided in subsection 11.8, such service being hereby acknowledged by
Holdings or Company, as the case may be, to be sufficient for personal
jurisdiction in any action against Holdings or Company, as the case may be, in
any such court and to be otherwise effective and binding service in every
respect. Nothing herein shall affect the right to serve process in any other
manner permitted by law or shall limit the right of any Lender to bring
proceedings against Holdings or Company in the courts of any other
jurisdiction.

R. WAIVER OF JURY TRIAL.

EACH OF THE PARTIES TO THIS AGREEMENT HEREBY AGREES TO WAIVE
ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED
UPON OR ARISING OUT OF THIS AGREEMENT OR
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ANY OF THE OTHER LOAN DOCUMENTS OR ANY DEALINGS BETWEEN THEM RELATING TO THE
SUBJECT MATTER OF THIS LOAN TRANSACTION OR THE LENDER/BORROWER RELATIONSHIP
THAT IS BEING ESTABLISHED. The scope of this waiver is intended to be
all-encompassing of any and all disputes that may be filed in any court and
that relate to the subject matter of this transaction, including without
limitation contract claims, tort claims, breach of duty claims and all other
common law and statutory claims. Each party hereto acknowledges that this
waiver is a material inducement to enter into a business relationship, that
each has already relied on this waiver in entering into this Agreement, and
that each will continue to rely on this waiver in their related future
dealings. Each party hereto further warrants and represents that it has
reviewed this waiver with its legal counsel and that it knowingly and
voluntarily waives its jury trial rights following consultation with legal
counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED
EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT
AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT OR ANY OF
THE OTHER LOAN DOCUMENTS OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO
THE LOANS MADE HEREUNDER. In the event of litigation, this Agreement may be
filed as a written consent to a trial by the court.

S. CONFIDENTIALITY.

Each Lender shall hold all non-public information obtained
pursuant to the requirements of or in connection with this Agreement which has
been identified as confidential by Company in accordance with such Lender's
customary procedures for handling confidential information of this nature and
in accordance with safe and sound banking practices, it being understood and
agreed by Holdings and Company that in any event a Lender may make disclosures
reasonably required by any bona fide assignee, transferee or participant in
connection with the contemplated assignment or transfer by such Lender of any
Loans or any participation therein or to any direct or indirect contractual
counterparties in swap agreements or such contractual counterparties'
professional advisors provided that such contractual counterparties or their
professional advisors agree to handle the above-described confidential
information in accordance with safe and sound practices which are substantially
the same as those followed by banking institutions or as required or requested
by any governmental agency (including, without limitation, any regulatory body
having jurisdiction over such Lender) or representative thereof or the NAIC or
pursuant to legal process; provided that, unless specifically prohibited by
applicable law or court order, each Lender shall notify Company of any request
by any governmental agency or representative thereof (other than any such
request in connection with any examination of the financial condition of such
Lender by such governmental agency) for disclosure of any such non-public
information prior to disclosure of such information; and provided further that
in no event shall any Lender be obligated or required to return any materials
furnished by Holdings or any of its Subsidiaries; provided still further that
expressly excluded from such non-public information referred to in this
subsection 11.19 is information that, prior to such information being disclosed
by a Lender, is made available by any Loan Party to the public.
<PAGE> 160
T. COUNTERPARTS; EFFECTIVENESS.

This Agreement and any amendments, waivers, consents or
supplements hereto or in connection herewith may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument;
signature pages may be detached from multiple separate counterparts and
attached to a single counterpart so that all signature pages are physically
attached to the same document. This Agreement shall become effective upon the
execution of a counterpart hereof by each of the parties hereto and receipt by
Company and Agent of written or telephonic notification of such execution and
authorization of delivery thereof.
<PAGE> 161
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered by their respective officers
thereunto duly authorized as of the date first written above.

S-1
<PAGE> 162
COMPANY: RALPHS GROCERY COMPANY