-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Jht7/wFxbi1/8GpbU2tDExtgzdE4ykXtnRcAPW+lOrNqyqeCSGQFobhbKvSRxRmJ vaCkMjMA0FZfI+Hc2p2U+A== 0000893877-98-000238.txt : 19980330 0000893877-98-000238.hdr.sgml : 19980330 ACCESSION NUMBER: 0000893877-98-000238 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 21 CONFORMED PERIOD OF REPORT: 19971227 FILED AS OF DATE: 19980327 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: QUALITY FOOD CENTERS INC CENTRAL INDEX KEY: 0000804333 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [5411] IRS NUMBER: 911330075 STATE OF INCORPORATION: WA FISCAL YEAR END: 1228 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-12741 FILM NUMBER: 98576926 BUSINESS ADDRESS: STREET 1: 10116 NE 8TH ST CITY: BELLEVUE STATE: WA ZIP: 98004 BUSINESS PHONE: 2064622210 MAIL ADDRESS: STREET 1: 10116 NE 8TH ST CITY: BELLEVUE STATE: WA ZIP: 98004 FORMER COMPANY: FORMER CONFORMED NAME: QUALITY FOOD CENTER DATE OF NAME CHANGE: 19870726 10-K405 1 ANNUAL REPORT SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Fiscal Year Ended: December 27, 1997 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period From ____ To _____ -------------------------------------------- Commission File Number: 0-15590 QUALITY FOOD CENTERS, INC. (Exact name of registrant as specified in its charter) Washington 91-1330075 ------------------------------ ---------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 10112 N.E. 10th Street, Bellevue, Washington 98004 - --------------------------------------------- -------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (425) 455-3761 ------------- Securities Registered Pursuant to Section 12(b) of the Act: NONE Securities Registered Pursuant to Section 12(g) of the Act: NONE Name of each Exchange on which Registered: NONE Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Quality Food Centers, Inc. meets the conditions set forth in General Instruction I (1) (a) and (b) of Form 10-K and is therefore filing this Form 10-K with the reduced disclosure format specified in General Instruction I (2) to such Form 10-K. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the voting stock held by nonaffiliates of the Registrant, computed by reference to the price at which the stock was sold as of the close of business on March 26, 1998: $ 0. Number of shares of Registrant's common stock, $.01 par value, outstanding as of March 26, 1998: 100. CONTENTS -------- Page ---- PART I Item 1. Business 3 Item 2. Properties 8 Item 3. Legal Proceedings 9 PART II Item 5. Market for the Company's Common Stock and Related 9 Shareholder Matters Item 7. Management's Discussion and Analysis of Financial 10 Condition and Results of Operations Item 7A. Quantitative and Qualitative Disclosures about Market Price 11 Item 8. Financial Statements and Supplementary Data 11 Item 9. Changes in and Disagreements with Accountants on Accounting and 12 Financial Disclosure PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 13 NOTE: Items 4, 6, 10, 11, 12 and 13 are omitted pursuant to General Instruction I(2) of Form 10-K. 2 PART I ITEM 1 - BUSINESS Special Note Regarding Forward-Looking Statements The information contained herein contains forward-looking statements that involve a number of risks and uncertainties. A number of factors could cause results to differ materially from those anticipated by such forward-looking statements. These factors include, but are not limited to, the competitive environment in the supermarket industry in general and in the Company's specific market areas, changes in prevailing interest rates and the availability of financing, inflation, changes in costs of goods and services, economic conditions in general and in the Company's specific market areas, labor disturbances, demands placed on management by the substantial increase in the size of the Company because of the acquisitions, and changes in the Company's acquisition plans. In addition, such forward-looking statements are necessarily dependent upon assumptions, estimates and data that may be incorrect or imprecise. Accordingly, any forward-looking statements included herein do not purport to be predictions of future events or circumstances and may not be realized. Forward-looking statements can be identified by, among other things, the use of forward-looking terminology such as "believes," "expects," "may," "will," "should," "seeks," "pro forma" or "anticipates," or the negative thereof, or other variations thereon or comparable terminology, or by discussions of strategy or intentions. Overview / Recent Developments Quality Food Centers, Inc. (the "Company" or "QFC") is an operator of 89 premium supermarkets in the Seattle/Puget Sound region of Washington state and 56 stores under the "Hughes Family Market" banner in Southern California. Since commencing operations in 1954, QFC has developed a modern store base in many prime locations, strong name recognition and a reputation for superior quality and service. On February 14, 1997, the principal operations of Keith Uddenberg, Inc. ("KUI"), were merged into a subsidiary of QFC, including assets and liabilities related to 22 stores under the "Stock Market" name and three under the "Thriftway" name located in the Seattle/Puget Sound region of Washington. During 1997, the Company sold two Stock Market stores. As consideration for the operations being merged, QFC paid $34.5 million in cash, issued 904,646 shares of QFC's common stock and assumed $23.8 million of KUI indebtedness. The KUI acquisition provided QFC with desirable store locations primarily in the southern Puget Sound region and the Olympic Peninsula of the State of Washington, areas in which QFC previously had a limited presence. Prior to its acquisition by QFC, KUI operated supermarkets in the Seattle/Puget Sound region for more than 40 years. The Stock Market stores are generally larger stores (averaging approximately 46,000 square feet) and are price-oriented, with warehouse-type dry grocery shelving and a full complement of service departments, including delicatessens and seafood and bakery departments. The Thriftway stores are generally smaller, conventional format stores (averaging approximately 22,000 square feet). Currently, twelve of the stores have been converted to the QFC name, ten of which have been remodeled in order to implement QFC's merchandising and operating practices. Management believes that the KUI acquisition provided QFC with additional critical mass in the Seattle/Puget Sound region, which has improved purchasing and distribution and helped to create economies of scale. On March 19, 1997, QFC acquired Hughes Markets, Inc. ("Hughes"), a supermarket operator in Southern California. Consideration for the merger consisted of $360.5 million in cash, and the assumption of $33.2 million of indebtedness of Hughes. Management believes that Hughes, which commenced operations in 3 1952 with one store, has developed a strong reputation in Southern California for providing high levels of customer service together with a broad selection of high-quality meat, produce and other perishables. Hughes' stores average approximately 37,000 square feet in size and are generally located near residential areas. Hughes supplies the majority of its stores' inventory from its own centrally located 600,000 square foot warehousing and distribution facility built in 1993. Hughes also owns a 50% interest in Santee Dairies, Inc. ("Santee"), one of the largest dairy plants in California, which provides dairy and other products to Hughes, as well as to certain other third parties, under the well-known "Knudsen," "Foremost" and other labels. See "Hughes Markets, Inc.," below. On March 9, 1998, QFC was merged with a wholly owned subsidiary of Fred Meyer, Inc. ("Fred Meyer"), thereby becoming a wholly owned subsidiary of Fred Meyer (the "Fred Meyer Merger"). The Fred Meyer Merger, as contemplated by the Agreement and Plan of Merger dated November 6, 1997, as amended on January 20, 1998, between Fred Meyer, QFC and a wholly owned subsidiary of Fred Meyer, was approved by the shareholders of QFC at a shareholders meeting held on March 6, 1998. Proxies for the meeting were solicited pursuant to Section 14(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). On March 10, 1998, Food 4 Less Holdings, Inc. ("Food 4 Less") was merged with a wholly owned subsidiary of Fred Meyer, thereby becoming a wholly owned subsidiary of Fred Meyer (the "Food 4 Less Merger"). On February 10, 1998, Fred Meyer, QFC and Food 4 Less entered into a settlement agreement (the "Settlement Agreement") with the State of California to settle potential antitrust and unfair competition claims that the State of California asserted against Fred Meyer, QFC and Food 4 Less relating to the effects of the proposed Fred Meyer and Food 4 Less Mergers on supermarket competition in Southern California (the "State Claims"). Without admitting any liability in connection with the State Claims, Fred Meyer, QFC and Food 4 Less agreed in the Settlement Agreement to divest 19 specific stores in Southern California, including three Hughes stores. Under the Settlement Agreement, Fred Meyer must divest 13 stores by September 10, 1998 and the balance of six stores by December 10, 1998. Fred Meyer also agreed not to acquire new stores from third parties in the Southern California areas specified in the Settlement Agreement (covering substantially all of the Los Angeles metropolitan area) for five years following the date of the Settlement Agreement without providing prior notice to the State of California. If Fred Meyer fails to divest the required stores by the two dates set forth in the Settlement Agreement, Fred Meyer has agreed not to object to the appointment of a trustee to effect the required sales. On March 11, 1998, Fred Meyer completed the refinancing of the outstanding bank and public indebtedness of QFC and Food 4 Less. Fred Meyer entered into senior credit facilities in an aggregate principal amount of $3.5 billion, consisting of a $1.875 billion five-year revolving credit facility and a $1.625 billion five-year term loan facility. Fred Meyer also entered into a $500 million lease facility. In addition, Fred Meyer sold (i) $250.0 million of 7.150% Notes due March 1, 2003, (ii) $750.0 million of 7.375% Notes due March 1, 2005 and (iii) $750.0 million of 7.450% Notes due March 1, 2008 in a registered offering. One use of the proceeds generated by these transactions was to finance QFC's offer to purchase $150.0 million of the principal amount of its outstanding senior subordinated notes. Pursuant to this offer, $146.9 million principal amount of the tendered notes were purchased and cancelled at a premium of $19.3 million. $3.1 million of the notes remain outstanding. In addition, substantially all of the restrictive covenants and certain other provisions contained in the indenture were eliminated or modified by the vote of the noteholders. The proceeds were also used to repay the $174.0 million outstanding under QFC's revolving credit facility. These mergers will result in two in-market consolidations. In Southern California, Hughes will be converted to the format of the Food 4 Less' Ralphs stores and will utilize the existing Food 4 Less administrative, distribution and manufacturing infrastructure. In the Seattle/Puget Sound Region, the stores will continue to operate under the QFC name and format but will convert from third party 4 distribution to utilize Fred Meyer's warehousing and distribution infrastructure and will consolidate certain other support functions over time to reduce QFC's general and administrative overhead. Further, management of the merged companies has identified several areas of opportunity to enhance revenues and improve profitability by applying merchandising "best practices" across store formats. For example, management intends to apply Fred Meyer's experience and expertise in general merchandising to Ralphs' store base, utilize Food 4 Less' and Fred Meyer's private-label expertise in QFC's store base and apply QFC's successful home meal replacement and prepared food concepts in Fred Meyer's, Smith's Food and Drug Centers' and Ralphs' store bases. Further, the merged companies will operate a number of complementary operating formats which will provide enhanced opportunities for in-market new store growth. Management of the merged companies believes that its experience in operating these multiple formats will allow the companies to appeal to an expanded customer base among a wider range of income brackets and increase its market share, thereby leveraging infrastructure and reducing operating costs. The disclosures in this Report relate only to QFC and its subsidiaries. For information on Fred Meyer and any of its other subsidiaries, reference is made to the periodic reports of Fred Meyer, Food 4 Less and Ralphs Grocery Company. The Company has only one industry segment - the operation of retail supermarkets. QFC Management believes that the Company's QFC stores offer customers superior value by emphasizing an extensive selection of high quality perishable items, excellent customer service, convenient store locations and hours, a variety of specialty departments and competitive prices. The Company's merchandising goals are to attract new customers, become the primary source for its customers' weekly grocery needs and capture a greater portion of their supermarket spending. In order to achieve these goals, QFC's merchandising strategy emphasizes: (i) superior customer service, (ii) a wide variety of high quality meat, seafood, produce and other perishables, (iii) high quality convenience-oriented specialty departments and services and (iv) a broad assortment of higher-margin proprietary brands. Management believes that QFC's strengths in merchandising, combined with its competitive pricing, have earned QFC stores a reputation for providing superior "value" to their customers and have resulted in a loyal customer base. QFC stores, which average approximately 31,000 square feet in size, are open seven days a week, 24 hours a day, and feature a number of specialty departments such as full service delicatessens, seafood departments, bakery departments with coffee/espresso bars, and floral departments. Many QFC stores also offer natural food sections, video rentals, fresh juice bars and pharmacies. In addition, QFC leases space within its stores to branded specialty food operators, including Starbucks Coffee, Cinnabon World Famous Cinnamon Rolls and Noah's New York Bagels, as well as to full service banks such as Seafirst Bank. The Company has significantly expanded its selection of prepared foods and "home meal replacement" items, which management believes appeal to the increasing convenience orientation of consumers. Examples include complete hot meals which are ready to serve, pre-cooked dinners which are ready to heat and eat, "Chef's Express" gourmet entrees which are specially prepared and ready to cook, and "Northwest Sandwich Bars" which feature a variety of pasta dishes, specialty and made-to-order hot and cold sandwiches, pre-made salads and self-serve soup and salad bars. Management believes that QFC has developed a modern and well-maintained base of stores in many prime locations in the Seattle/Puget Sound area. The Company currently operates 78 QFC supermarkets, ten Stock Markets and one Thriftway, generally in or near residential areas. 5 Of the 25 KUI stores acquired, twelve have been converted to the QFC name, ten of which have been significantly remodeled as part of QFC's plan to implement its merchandising and operating practices in its new stores. Two of the acquired Stock Markets were sold during 1997. During the fiscal year ended December 27, 1997, QFC invested approximately $42.0 million in capital expenditures, primarily allocated toward building new stores and expanding and remodeling existing stores. During such period, QFC opened its Harvard Market store located in Seattle, Washington in April of 1997 and acquired a store in Port Hadlock Washington in June 1997, in addition to the acquisitions of KUI and Hughes. Additionally, 20 existing stores were remodeled. At the end of fiscal 1997, the total square footage of all 89 stores was approximately 3,140,000 square feet with an average store size of approximately 35,276 square feet, and a range in size from 14,000 to 68,000 square feet. QFC increased its total square footage by 46%, 6% and 54% in fiscal 1995, 1996, and 1997 respectively. The following table sets forth certain information with respect to store size: Number of Stores at December 27, 1997 ------------------- Store Size: Less than 20,000 square feet.................................. 7 Between 20,000 and 30,000 square feet......................... 28 Between 30,000 and 40,000 square feet......................... 26 Between 40,000 and 50,000 square feet......................... 19 Over 50,000 square feet....................................... 9 -- 89 == The following table sets forth additional information concerning QFC, Stock Market and Thriftway stores for the periods indicated:
Fiscal Year Ended ------------------------------------------------------------------------------- Total Stores: December 25, December 31, December 30, December 28, December 27, 1993 1994 1995 1996 1997 ----------- ----------- ----------- ----------- ----------- Beginning of period 33 38 45 62 64 Newly Constructed 3 1 1 0 1 Acquired 2 6 16 2 26 Sold 0 0 0 0 (2) ----- ----- ----- ----- ----- End of period 38 45 62 64 89 ===== ===== ===== ===== ===== Remodels................... 3 4 7 13 20
Prior to the Fred Meyer Merger, QFC purchased the majority of its groceries, meat and some seafood, deli and produce from wholesale suppliers. In connection with the Fred Meyer Merger, QFC will convert the purchasing and distribution of the majority of the items it primarily purchased from these wholesalers to utilize Fred Meyer's warehousing and distribution infrastructure. 6 Hughes Markets, Inc. Hughes' merchandising strategy emphasizes: (i) superior customer service, (ii) a wide selection of high quality products, (iii) competitive pricing and promotions and (iv) the development of proprietary brands. Hughes has invested approximately $18.6 million in capital expenditures during the 41 weeks ended December 27, 1997, which have been primarily allocated toward replacement stores and expanding or remodeling existing stores. At December 27, 1997, the total square footage of all 56 Hughes stores was approximately 2,099,000 square feet with an average store size of 37,000 square feet, and a range in size of 22,000 to 55,000 square feet. The following table sets forth certain information with respect to Hughes' store size: Number of Stores at December 27, 1997 ------------------- Store size: Between 20,000 and 30,000 square feet................. 5 Between 30,000 and 40,000 square feet................. 37 Between 40,000 and 50,000 square feet................. 12 Over 50,000 square feet............................... 2 -- 56 == The following table sets forth additional information concerning Hughes stores for the periods indicated:
Fiscal Year Ended -------------------------------------------------------------- March 4, March 21, 1997 through through February 29, February 27, February 26, March 3, March 21, December 27, 1993 1994 1995 1996 1997 1997 ----------- ----------- ----------- ----------- ----------- -------------- Total Stores Beginning of period 52 51 51 53 54 57 Newly Constructed 0 0 2 1 4 0 Acquired 0 0 0 0 0 0 Closed (1) 0 0 0 (1) (1) ----- ----- ----- ----- ----- ----- End of period 51 51 53 54 57 56 ===== ===== ===== ===== ===== ===== Remodels.................. 3 6 4 4 2 2
Hughes owns a 600,000 square foot distribution facility in Irwindale, California that is centrally located an average of 44 miles from each of Hughes' stores and is serviced by a fleet of 36 tractors and approximately 70 trailers, including approximately 60 refrigerated trailers, all of which are owned by Hughes. Hughes purchases its merchandise directly from manufacturers as well as from distributors. As a result of the Fred Meyer and the Food 4 Less Mergers, Hughes will utilize Food 4 Less' administrative, distribution and 7 manufacturing infrastructure. Accordingly, Hughes' distribution facility and administrative offices will be closed, sold or otherwise disposed of. Hughes owns a 50% interest in Santee, which operates one of the largest dairy plants in California. Santee processes, packages and distributes fluid whole, 2%, 1% and skim milk, as well as orange juice, fruit drinks and certain cultured products under the Knudsen, Foremost and certain store brand names. During 1997, Santee sold approximately 40% of its fluid product volume to Hughes and Stater Brothers, the other 50 % owner. During calendar 1996 and 1997, Stater Brothers purchased more than twice as much fluid milk from Santee than Hughes. Santee also sells to various non-owner grocery supermarkets, independent food distributors, military bases and food service providers in Southern California and surrounding areas. In 1997, Santee completed construction of a new dairy plant in the City of Industry, California. Hughes' management believes that the new facility will increase Santee's capacity to process milk from approximately 250,000 gallons per day to approximately 350,000 gallons per day, with the ability to expand capacity to approximately 500,000 gallons per day. The new plant began testing water through the system in November 1997 and by the end of December 1997 processed over 20,000 gallons of salable milk. Santee is currently processing and servicing Stater Brothers out of the new plant and management expects the remaining production volume will be transferred to the new plant soon. Construction costs of the new dairy were approximately $102.0 million, including capitalized expenses of approximately $11.0 million and equipment costs. To provide the funds necessary to finance the construction. Santee issued $80.0 million of secured senior notes (the "Santee Notes") in a private placement. In addition, Hughes and Stater Brothers agreed to purchase their fluid milk requirements from Santee on terms that would require them to pay increased milk prices in order for Santee to maintain a specified debt service ratio. During 1997, Santee consummated a sale leaseback of equipment from its old plant that would not be needed at the new facility. The lease at the old plant expires April 30, 1998. ITEM 2 - PROPERTIES QFC At December 27, 1997, QFC leased 80 of its 89 supermarkets and its administrative facilities under non-cancelable operating leases with various terms expiring through February 2055, including renewal periods. The average remaining term of QFC's leases (including all renewal options) is approximately 31 years, with only three of these leases subject to expiration within five years. All 89 stores are located in the Puget Sound region of Washington state. QFC owns most of the equipment, furniture and fixtures at its retail and administrative locations and has made leasehold improvements at most locations. At December 27, 1997, QFC owned the real estate at nine of its store facilities in operation, one of which is part of a small shopping center owned by QFC. In March 1998, QFC sold the shopping center, but retained ownership of its store building and pad. During 1995, 1996 and 1997, QFC sold three of the centers it previously operated. QFC retained ownership of its store buildings and pads in the centers that were sold. There are no mortgages on QFC's owned stores. QFC has entered into option agreements for, and purchased, real estate within its existing Seattle/Puget Sound market areas where it plans to locate stores in the future. Certain of these store locations are in the entitlement process or subject to other contingencies. 8 Hughes Hughes currently operates a total of 56 stores in Southern California. Thirty stores are located in Los Angeles County, 13 in Orange County, six in San Bernardino County, four in Ventura County and three in Riverside County. Of these 56 stores, 53 stores are leased, including four stores that are leased to partnerships in which ownership interests are held by various members of the Hughes family. The Company believes that these leases are on terms not less favorable to Hughes than could have been obtained had the properties been leased from unrelated parties. Hughes' leases generally provide for a 25 year initial term and for contingent rent based on sales. At December 27, 1997, the average remaining term on Hughes' leases, including unexercised options to extend, was approximately 25 years. Two of these leases are due to expire in the next five years. In addition, Hughes directly owns three of its stores. Hughes also owns its 600,000 square foot distribution facility and its headquarters, both of which are located on a 38 acre parcel of land in Irwindale, California. ITEM 3 - LEGAL PROCEEDINGS The Company (including QFC and Hughes) is currently involved in a number of legal proceedings which have arisen in the ordinary course of business. Management believes these proceedings will not, in the aggregate, have a material impact on the Company's operations or financial condition. However, the Company is unable to predict whether the outcome of such actions may or may not have a material adverse effect on the Company's results of operations in a particular future period as the timing and amount of any resolution of such actions and their relationship to future results of operations are not known. PART II ITEM 5 - MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS On March 9, 1998, QFC became a wholly owned subsidiary of Fred Meyer. Accordingly, there is no longer a public market for the Company's common stock. Prior to the Company's merger with Fred Meyer, the common stock of the Company was traded on the New York Stock Exchange under the symbol "XQ". Prior to February 20, 1997, the Company's stock was traded on the Nasdaq National Market, under the symbol "QFCI". Presented below are quarterly closing sale price ranges for the Company's common stock. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily reflect actual transactions.
Fiscal Year Ended Fiscal Year Ended 12/27/97 12/28/96 ------------------- ------------------- High Low High Low ------- ------- ------- ------- First Quarter $42 1/2 $33 1/4 $23 1/4 $20 1/4 Second Quarter 43 1/2 30 3/4 29 1/4 22 1/4 Third Quarter 43 5/8 37 1/4 31 1/2 25 1/2 Fourth Quarter 68 1/2 38 1/16 39 1/2 30 1/16
9 In February 1995, QFC paid a cash dividend of $.05 per share, or an aggregate of $1.0 million, to its shareholders, but subsequently discontinued the payment of dividends as the result of prohibitions set forth in the Company's prior credit facility. ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Sales - ----- Sales for the year ended December 27, 1997 increased approximately $1.1 billion, or 133.2%, compared with the same period in 1996. The increase in total sales reflects the inclusion of the 23 KUI stores for 45 weeks and 56 Hughes stores for 41 weeks, sales from the 45,000 square-foot Harvard Market store which opened April 30, 1997, sales from two Food Giant stores acquired in October 1996, sales from the Port Hadlock store acquired in June 1997, and an increase in same store sales (which exclude sales in stores opened or acquired during the previous 12 months) of approximately 2% for the year. The increase in same store sales is due to improved merchandising and strong sales in remodeled and replacement stores, despite a decrease of slightly more than 0.5% in retail food prices. Sales increases were offset in part by lower sales in certain existing stores due to the opening and remodeling of competitors' stores located near QFC stores. In addition, sales growth has been impacted by new and acquired stores, which have lower sales volumes, becoming a more significant part of the Company's sales, the maturing of older stores to a level where substantial sales growth is more difficult, and the Company's strategy of opening and acquiring stores in certain locations that enhance the Company's competitive position and protect its market share but reduce sales in nearby existing stores. Additionally, the supermarket industry continues to be highly competitive. Operating Income - ---------------- The Company's cost of sales and related occupancy expenses increased to 75.5% of sales for the year ended December 27, 1997, from 75.0% in 1996 due to lower margins in the stores acquired in the first quarter of 1997 offset, in part, by improved buying and merchandising, a greater mix of sales in higher margin service departments in the QFC stores and lower occupancy expenses as a percentage of sales. Marketing, general and administrative expenses increased to 19.6% of sales for the year ended December 27, 1997, from 18.9% of sales in 1996. The increase was attributable to additional expenses associated with the initial integration and a higher operating expense ratio of the acquired stores, including an increase in acquisition related amortization of $9.6 million for the year ended December 27, 1997, contractual rate increases from union contracts effective in May 1997 and August 1997 and a 10% increase in the union benefit contributions rate effective in July 1996, and $1.0 million of expenses related to the Fred Meyer Merger incurred in 1997. As a result of the above factors, operating margins declined to 4.9% of sales for the year ended December 27, 1997, compared to 6.1% of sales for 1996. Pursuant to General Instruction I(1)(a) and (b) of Form 10-K, the Company is substituting a management's narrative analysis of results of operations for Item 7. 10 Interest - -------- Interest income increased to $2.6 million for the year ended December 27, 1997, compared to $0.5 million in 1996, reflecting the increase in the Company's cash balances and higher interest rates. Interest expense increased to $29.2 million for the year ended December 27, 1997, as compared to $9.9 million in 1996, reflecting interest on the additional debt incurred in connection with the acquisitions, offset by lower debt balances than in the comparable year prior to such borrowings. Interest expense is net of approximately $0.8 million of interest capitalized in connection with store construction and remodeling costs incurred during the year ended December 27, 1997, and $1.3 million of interest capitalized during the year ended December 28, 1996. Income Taxes - ------------ The Company's effective federal income tax rate increased to 39.4% for the year ended December 27, 1997, compared to 35.8% for 1996, due to an increase in non-deductible goodwill resulting from the KUI and Hughes acquisitions and the addition of state of California income taxes as a result of the Hughes acquisition. The difference between the Company's effective income tax rate and the federal and state statutory rates is primarily due to non-deductible amortization of goodwill resulting from the various acquisitions by the Company in 1997, principally the KUI and Hughes acquisitions, which resulted in $1.1 million and $3.6 million of goodwill expense, respectively. Net Earnings - ------------ The 88.9% increase in operating income for the year ended December 27, 1997, offset by the $17.2 million increase in the net interest expense and the increase in the effective tax rate, resulted in an increase in net earnings to $40.0 million compared with $25.4 million for the year ended December 28, 1996. The Company adopted Statement of Accounting Standard ("SFAS") No. 128, "Earnings Per Share," for the year ended December 31, 1997. As required by this statement, all prior periods presented have been restated in accordance with the provisions of SFAS No. 128. Basic earnings per share for 1997 were $2.04 on 19.7 million weighted average shares outstanding, compared with $1.75 on 14.5 million weighted average shares outstanding in 1996. Diluted earnings per share for 1997 were $1.95 on 20.5 million weighted average shares outstanding, compared with $1.71 on 14.9 million weighted average shares outstanding in 1996. ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Reference is made to the Index to Financial Statements on page 15 of the Company's financial statements and notes thereto. All other schedules have been omitted as not required or not applicable or because the information required to be presented is included in the financial statements and related notes. 11 ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There has been no change in independent auditors during the past two fiscal years, and there has been no disagreement with the Company's independent auditors on any matter of accounting principles or practices or financial statement disclosure. 12 PART IV ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Financial Statements, Financial Statement Schedules and Exhibits 1. Financial Statements Reference is made to the Index to Consolidated Financial Statements on page 15. 2. Financial Statement Schedules None required. 3. Exhibits A list of the exhibits required to be filed as part of this report is set forth in the Index to Exhibits following page F-17 hereof. The Index to Exhibits indicates each management contract, compensatory plan, or arrangement required to be filed as an exhibit to this report. (b) Reports on Form 8-K The Company filed: (i) a report on Form 8-K dated November 6, 1997; (ii) a report on Form 8-K dated February 4, 1998; and (iii) a report on Form 8-K dated March 9, 1998. 13 Signatures - ---------- Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Quality Food Centers, Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. QUALITY FOOD CENTERS, INC. /s/ MARC W. EVANGER ----------------------------------------- Marc W. Evanger, Senior Vice President, Chief Financial Officer, and Assistant Secretary Date: March 27, 1998 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on March 27, 1998. Signature Capacity --------- -------- /s/ DAN KOURKOUMELIS President and Chief Executive Officer - ----------------------------- (Principal Executive Officer) Dan Kourkoumelis /s/ MARC W. EVANGER Senior Vice President, Chief Financial - ----------------------------- Officer and Assistant Secretary Marc W. Evanger (Principal Financial and Accounting Officer) /s/ ROGER A. COOKE* Director - ----------------------------- Roger A. Cooke /s/ ROBERT G. MILLER* Director - ----------------------------- Robert G. Miller /s/ KENNETH THRASHER* Director - ----------------------------- Kenneth Thrasher *By: /s/ MARC W. EVANGER ------------------------- Marc W. Evanger Attorney-In-Fact 14 QUALITY FOOD CENTERS, INC. AND SUBSIDIARIES Index to Consolidated Financial Statements Filed with the Annual Report on Form 10-K for the Fiscal Year Ended December 27, 1997 F - 1 Consolidated Statements of Earnings for the Fiscal Years ended December 27, 1997, December 28, 1996 and December 30, 1995. F - 2 Consolidated Statements of Shareholders' Equity for the Fiscal Years ended December 27, 1997, December 28, 1996 and December 30, 1995. F - 3 Consolidated Balance Sheets at December 27, 1997 and December 28, 1996. F - 4 Consolidated Statements of Cash Flows for the Fiscal Years ended December 27, 1997, December 28, 1996 and December 30, 1995. F - 5 Notes to Consolidated Financial Statements. F - 17 Independent Auditors' Report. 15
QUALITY FOOD CENTERS, INC. AND SUBSIDIARIES Consolidated Statements of Earnings - ---------------------------------------------------------------------------------------------------------------- Years Ended December 27, 1997, December 28, 1996 and December 30, 1995 In thousands, except per share data 1997 1996 1995 - ---------------------------------------------------------------------------------------------------------------- Sales $1,878,115 $805,281 $729,856 Cost of sales and related occupancy expenses 1,417,038 603,947 550,434 Marketing, general and administrative expenses 368,500 152,337 136,645 - ---------------------------------------------------------------------------------------------------------------- OPERATING INCOME 92,577 48,997 42,777 Interest income 2,591 467 501 Interest expense 29,181 9,890 9,639 Other expense - - 1,400 - ---------------------------------------------------------------------------------------------------------------- EARNINGS BEFORE INCOME TAXES 65,987 39,574 32,239 Taxes on income: Current 25,180 12,790 10,087 Deferred 800 1,366 1,936 - ---------------------------------------------------------------------------------------------------------------- Total taxes on income 25,980 14,156 12,023 - ---------------------------------------------------------------------------------------------------------------- NET EARNINGS $ 40,007 $ 25,418 $ 20,216 ================================================================================================================ Basic earnings per common share: Net Earnings $ 2.04 $ 1.75 $ 1.29 Weighted average shares outstanding 19,659 14,547 15,706 Diluted earnings per common share: Net Earnings $ 1.95 $ 1.71 $ 1.28 Weighted average shares outstanding 20,517 14,888 15,830 Dividends per common share -- -- $ .05 - ---------------------------------------------------------------------------------------------------------------- See notes to consolidated financial statements.
F - 1
QUALITY FOOD CENTERS, INC. AND SUBSIDIARIES Consolidated Statements of Shareholders' Equity - ---------------------------------------------------------------------------------------------------------------- Common Stock ------------------------ Retained In thousands, except per share data Shares Amount Earnings Total - ---------------------------------------------------------------------------------------------------------------- Balance at December 31, 1994 19,481 $ 26,645 $ 131,533 $ 158,178 Net earnings - - 20,216 20,216 Common stock issued 1,951 45,130 - 45,130 Common stock repurchased (including offering fees and expenses aggregating $2,850) (7,000) (43,510) (134,340) (177,850) Tax benefit related to stock options - 667 - 667 Cash dividend ($.05 per share) - - (974) (974) - ---------------------------------------------------------------------------------------------------------------- Balance at December 30, 1995 14,432 28,932 16,435 45,367 Net earnings - - 25,418 25,418 Common stock issued 214 5,773 - 5,773 Tax benefit related to stock options - 240 - 240 - ---------------------------------------------------------------------------------------------------------------- Balance at December 28, 1996 14,646 34,945 41,853 76,798 Net earnings - - 40,007 40,007 Common stock issued 6,417 233,410 - 233,410 Tax benefit related to stock options - 1,570 - 1,570 - ---------------------------------------------------------------------------------------------------------------- Balance at December 27, 1997 21,063 $ 269,925 $ 81,860 $ 351,785 ================================================================================================================ See notes to consolidated financial statements.
F - 2
QUALITY FOOD CENTERS, INC. AND SUBSIDIARIES Consolidated Balance Sheets - ----------------------------------------------------------------------------------------------------------------- In thousands December 27, 1997 December 28, 1996 - ----------------------------------------------------------------------------------------------------------------- ASSETS CURRENT ASSETS Cash and cash equivalents $ 44,702 $ 14,571 Accounts receivable 24,478 10,754 Federal income taxes receivable 824 -- Inventories 122,877 36,954 Prepaid expenses 20,502 6,208 - ----------------------------------------------------------------------------------------------------------------- TOTAL CURRENT ASSETS 213,383 68,487 - ----------------------------------------------------------------------------------------------------------------- PROPERTIES Land 43,705 15,025 Buildings, fixtures and equipment 298,537 155,038 Leasehold improvements 83,383 41,511 Property under capital leases 25,421 -- Construction in progress 15,863 9,910 - ----------------------------------------------------------------------------------------------------------------- 466,909 221,484 Accumulated depreciation and amortization (93,095) (60,821) - ----------------------------------------------------------------------------------------------------------------- 373,814 160,663 Leasehold interest, net of accumulated amortization of $15,082 and $11,257 100,754 27,585 Real estate held for investment 5,722 6,048 Goodwill, net of accumulated amortization of $7,990 and $2,084 273,654 33,691 Other assets 24,803 7,543 - ----------------------------------------------------------------------------------------------------------------- $992,130 $304,017 ================================================================================================================= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 85,662 $ 35,548 Accrued payroll and related benefits 41,680 15,884 Accrued business and sales taxes 8,630 5,413 Store closure reserve 11,988 -- Other accrued expenses 30,228 7,240 Federal income taxes payable -- 945 Current portion of long-term debt 14,667 -- Current portion of capital lease obligations 701 -- - ----------------------------------------------------------------------------------------------------------------- TOTAL CURRENT LIABILITIES 193,556 65,030 - ----------------------------------------------------------------------------------------------------------------- DEFERRED INCOME TAXES 41,933 12,142 OTHER LIABILITIES 24,833 5,047 CAPITAL LEASE OBLIGATIONS 30,397 -- LONG-TERM DEBT 349,626 145,000 COMMITMENTS AND CONTINGENCIES (Note G) SHAREHOLDERS' EQUITY Common stock, at stated value - authorized 60,000 shares issued and outstanding 21,063 shares and 14,646 shares 269,925 34,945 Retained earnings 81,860 41,853 - ----------------------------------------------------------------------------------------------------------------- Total shareholders' equity 351,785 76,798 - ----------------------------------------------------------------------------------------------------------------- $992,130 $304,017 ================================================================================================================= See notes to consolidated financial statements.
F - 3
QUALITY FOOD CENTERS, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows - ---------------------------------------------------------------------------------------------------------------- In thousands Years Ended December 27, 1997, December 28, 1996, and December 30, 1995 1997 1996 1995 - ---------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net earnings $40,007 $25,418 $20,216 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization of properties 32,410 15,823 12,892 Amortization of leasehold interest and other 10,666 3,654 3,278 Amortization of debt issuance costs 703 185 143 Deferred income taxes 786 1,366 1,936 CHANGES IN OPERATING ASSETS AND LIABILITIES Accounts receivable (1,724) (2,207) (5,292) Inventories (4,897) 514 (4,550) Prepaid expenses (749) (870) (2,878) Accounts payable (3,370) 1,374 297 Accrued payroll and related benefits 470 2,206 3,040 Accrued business and sales taxes (594) 377 1,121 Other accrued expenses 3,909 1,520 2,108 Federal income taxes payable (3,294) 1,564 1,385 - ---------------------------------------------------------------------------------------------------------------- Net Cash Provided by Operating Activities 74,323 50,924 33,696 - ---------------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES Capital expenditures, net (60,524) (32,556) (28,639) Acquisition of KUI (34,511) -- -- Acquisition of Hughes (346,732) -- -- Receivable from Santee 5,375 -- -- Proceeds from sale of fixed assets 11,256 2,650 1,340 Cash portion of Olson's merger -- - (18,000) Real estate held for investment 326 (425) (407) Other (135) (994) (531) - ---------------------------------------------------------------------------------------------------------------- Net Cash Used by Investing Activities (424,945) (31,325) (46,237) - ---------------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES Proceeds from issuances of common stock 5,108 2,417 27,061 Common stock repurchased -- - (177,850) Net proceeds from March 19, 1997 financings Issuance of common stock 192,199 -- -- Issuance of senior subordinated notes 146,250 -- Proceeds under credit facility 248,001 -- -- Payment of outstanding credit facility (197,000) -- -- Proceeds from (repayment of) long-term debt (13,805) (19,500) 140,500 Cash dividends paid -- - (974) - ---------------------------------------------------------------------------------------------------------------- Net Cash Provided (Used) by Financing Activities 380,753 (17,083) (11,263) - ---------------------------------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 30,131 2,516 (23,804) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 14,571 12,055 35,859 - ---------------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $44,702 $14,571 $12,055 ================================================================================================================ See notes to consolidated financial statements.
F - 4 QUALITY FOOD CENTERS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- Years Ended December 27, 1997, December 28, 1996 and December 30, 1995 - -------------------------------------------------------------------------------- A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations: Quality Food Centers, Inc. and subsidiaries (the "Company" or "QFC") is a multi-regional operator of premium supermarkets, operating 145 stores and employing more than 11,000 people. The Company has been in operation since 1954 and currently operates 89 stores in the Puget Sound region of Washington state primarily under the names QFC and Stock Market and 56 stores in Southern California under the Hughes Family Market name. Basis of Presentation: The Company's consolidated financial statements are prepared in conformity with generally accepted accounting principles which 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 revenue and expenses during the reporting period. Actual results could differ from the estimates. All significant intercompany transactions and account balances with the Company's subsidiaries, Hughes Markets, Inc. ("Hughes") and KU Acquisitions, Inc. ("KUA"), have been eliminated in consolidation. Earnings Per Share: The Company adopted Statement of Financial Accounting Standard ("SFAS") No. 128, "Earnings Per Share," for the year ended December 31, 1997. As required by this statement, all prior periods presented have been restated in accordance with the provisions of SFAS No. 128. Basic earnings per share is calculated based upon the weighted average number of common shares, excluding common share equivalents outstanding during the period. Diluted earnings per share is calculated based upon the weighted average number of shares plus common share equivalents outstanding during the period. Fiscal Year: The Company's fiscal year ends on the last Saturday in December (except for Hughes which ends on the last Sunday in December). The years ended December 27, 1997, December 28, 1996 and December 30, 1995 represent 52-week fiscal years. Cash and Cash Equivalents: The Company considers all highly liquid investments with a maturity of three months or less at the time of purchase to be cash equivalents. The Company's investment portfolio is diversified and consists of investment grade securities, recorded at cost which approximates market value. The Company's cash management system provides for reimbursement of bank disbursement accounts on a daily basis. Checks issued but not presented for payment to the bank in the aggregate amount of $35.0 million and $4.0 million, at December 27, 1997 and December 28, 1996, respectively, are included in accounts payable. Construction in Progress: Costs associated with acquiring land, buildings, fixtures and equipment while a store is under construction are recorded as construction in progress. Additionally, the Company capitalizes interest on debt incurred during the construction of a new store. When a store opens, all costs are then transferred to the appropriate property account. Depreciation and Amortization: Depreciation is provided on the straight-line method over the shorter of the estimated useful lives or 311/2 years for buildings and three to ten years for fixtures and equipment. Amortization of leasehold improvements is computed on the straight-line method over the term of the lease or useful life of the assets, whichever is shorter. Goodwill: Goodwill arises primarily from business acquisitions and represents the cost of purchased businesses in excess of amounts assigned to tangible and identified intangible assets. Goodwill is being amortized over estimated lives of up to 40 years. F - 5 Start-up and Promotional Expenses: Costs incurred in connection with the start-up and promotion of new store openings and major store remodels are expensed as incurred. Leasehold Interest: Leasehold interests from acquired operating lease rights are amortized over the term of the respective leases, including renewal periods exercisable at the option of the Company. Management believes that exercise of renewal options is probable. Real Estate Held for Investment: Real estate held for investment includes land and buildings the Company has acquired where it plans to either operate a store in the future or sell the real estate, and is recorded at the lower of cost or market. Upon commencement of construction, costs are transferred to construction in progress. Long-lived Assets: The Company periodically reviews long-lived assets, including identified intangible assets and goodwill, for impairment to determine whether events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Such review includes estimating expected future cash flows. No such events or circumstances have occurred through December 27, 1997. Stock-Based Compensation: The Company accounts for stock-based awards to employees using the intrinsic value method in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." SFAS No. 123, "Accounting for Stock-Based Compensation," has been adopted by the Company for the disclosure of certain additional information related to its stock options and employee stock purchase plan. Fair Value of Financial Instruments: Financial instruments of the Company for which the recorded amounts approximates the fair value include cash equivalents, receivables, prepaid expenses, other long-term assets, accounts payable and long-term debt from the Company's credit facility. The Company's $150 million Senior Subordinated Notes had a fair value of approximately $163 million at December 27, 1997. Reclassifications: Certain prior years' balances have been reclassified to conform to classifications used in the current year. B. SUPPLEMENTAL CASH FLOW INFORMATION Cash paid for income taxes and interest for the last three years was as follows:
In thousands 1997 1996 1995 - ---------------------------------------------------------------------------------------------------------------- Cash payments made: Income taxes $28,837 $11,226 $8,872 Interest (net of $783, $1,261 and $167 of interest capitalized) 24,764 8,996 9,328 Non-cash transactions: Capital lease obligations incurred 4,230 -- -- - ----------------------------------------------------------------------------------------------------------------
On March 19, 1997, the Company completed (i) the sale of 5,175,000 shares on the Company's common stock to the public for net proceeds of the $192.2 million, (ii) the private placement of $150.0 million of 8.7% senior subordinated notes for net proceeds of $146.3 million [which Notes were exchanged for the Exchange Notes (as hereinafter defined)], and (iii) entered into an agreement to amend and restate its existing credit facility resulting in net proceeds of $248.0 million. The Company utilized $360.5 million of the proceeds to finance the acquisition of Hughes (see note N) and $197.0 million to refinance the Company's bank indebtedness outstanding at the time of the financings [including $59.1 million incurred in connection with the acquisition of Keith Uddenberg, Inc. ("KUI"), (see note M)], leaving approximately $29.7 million of cash for general corporate purposes. During the year ended December 27, 1997, the Company also entered into two separate capital leases in conjunction with the sale and leaseback of two of its stores. No gain or loss was recorded as a result of these transactions. In the fourth quarter of 1996, the Company issued shares of common stock to finance the acquisition of two stores from an independent local retailer. During the first quarter of 1995, the Company acquired all of the outstanding shares of Olson's Food Stores, Inc. in a merger transaction for $60.1 million (see note L). During the first quarter of 1995, the Company recorded $4.0 million as an increase in goodwill and F - 6 deferred income tax liability to record deferred income taxes arising from the Olson's merger. Further, as part of the merger agreement, the Company agreed to remit certain of the benefits, if any, of Olson's net operating loss carryforwards, totaling approximately $12.0 million, and certain other tax credit carryforwards, totaling approximately $1.2 million, to the former shareholders of Olson's when utilized. The Company is entitled to keep the first $1.1 million of such benefits utilized. Accordingly, a deferred tax asset of $5.4 million and corresponding liability of $4.3 million were recorded to reflect amounts due the former shareholders of Olson's when tax loss and tax credit carryforwards are utilized by the Company. The Company utilized $0.9 million, $0.9 million and $0.7 million of the tax asset during 1997, 1996, and 1995, respectively, to reduce current taxes payable. The net operating loss and tax credit carryforwards expire through the year 2009. C. INVENTORIES Substantially all merchandise inventories are valued at the lower of last-in, first-out (LIFO) cost or market. The LIFO method results in a better matching of costs and revenues, as current merchandise cost is recognized in cost of merchandise sold instead of in ending inventories as is the practice under the first-in, first-out (FIFO) method. Information related to the FIFO method may be useful in comparing operating results to those of companies not on LIFO. On a supplemental basis, if inventories had been valued at the lower of FIFO cost or market, inventories would have increased by $3.3 million and $2.7 million as of December 27, 1997 and December 28, 1996, respectively, and net earnings would have increased $0.4 million in both 1997 and 1996. D. FEDERAL INCOME TAXES Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes and result from differences in the timing of recognition of revenue and expenses for tax and financial statement reporting. The tax effects of significant items comprising the Company's deferred tax liability as of December 27, 1997 and December 28, 1996 are as follows:
In thousands 1997 1996 - --------------------------------------------------------------------------------------- Deferred tax assets: Compensated absences $ 2,397 $ 884 Self insurance 7,171 233 Inventory -- 655 Other accrued expenses 8,060 365 Tax credits 2,957 3,963 Capital leases 1,833 -- State taxes 1,030 -- Other 3,637 -- - --------------------------------------------------------------------------------------- Total deferred tax asset 27,085 6,100 - --------------------------------------------------------------------------------------- Deferred tax liabilities: Accelerated depreciation 22,473 15,762 Inventory 8,410 -- Multi-employer pension contribution 1,069 733 Leasehold interest 31,278 -- Other 1,181 1,747 - --------------------------------------------------------------------------------------- Total deferred tax liability 64,411 18,242 - --------------------------------------------------------------------------------------- Valuation Allowance 4,607 -- - --------------------------------------------------------------------------------------- Net deferred tax liability $41,933 $12,142 =======================================================================================
The Company has recorded a valuation allowance at December 27, 1997 related to future capital losses associated with property acquired in the acquisition of Hughes. F - 7 The differences between the Company's effective income tax rates and the federal statutory rates are summarized as follows:
1997 1996 1995 - ------------------------------------------------------------------------------------------------------------ Statutory rate 35.0% 35.0% 35.0% Nondeductible goodwill 3.0 0.9 0.9 Nondeductible recapitalization fees (Note K) -- -- 1.6 State income taxes, net of federal tax benefit 2.0 -- -- Other (primarily interest on tax-free municipal securities) (0.6) (0.1) (0.2) - ------------------------------------------------------------------------------------------------------------ Effective tax rate 39.4% 35.8% 37.3% - ------------------------------------------------------------------------------------------------------------
E. LONG-TERM DEBT On March 19, 1997, in connection with the Hughes merger, the Company entered into a new credit facility which replaced the credit facility it entered into in connection with its 1995 recapitalization. During 1997, the Company made voluntary pre-payments on a portion of the loans under the facility and reduced certain commitment levels. As of December 27, 1997, the new credit facility consisted of (I) a $214 million term loan facility (the "Term Loan Facility"), (ii) a $125 million revolving credit facility (the "Revolving Credit Facility") and (iii) a $75 million reducing revolving credit facility (the "Acquisition Facility"). On March 19, 1997, the Company also issued $150 million aggregate principal amount of Senior Subordinated Notes in a private offering [which Notes were exchanged for the Exchange Notes (as hereinafter defined)]. The Notes will mature on March 15, 2007. The Notes bear interest at 8.70% per annum with interest payable in cash semi-annually on March 15 and September 15 of each year, commencing September 15, 1997. The Notes are redeemable, in whole or in part, at the option of the Company beginning March 15, 2002, at redemption prices declining over time from 104.35% of the principal amount in the year 2002 to 100% of the principal amount in the year 2005 and thereafter, in each case plus accrued and unpaid interest to the redemption date. In addition, at any time prior to March 15, 2000, the Company may redeem up to 20% of the aggregate principal amount of the Notes originally issued at a redemption price of 108% of the principal amount thereof, plus accrued and unpaid interest to the date of redemption, with the net cash proceeds of one or more public offerings of common stock of the Company, provided that at least 80% of the aggregate principal amount of the Notes originally issued remains outstanding immediately after the occurrence of such redemption. The obligations of the Company pursuant to the Notes are fully and unconditionally guaranteed on a joint and several basis by certain of QFC's existing subsidiaries (the "Guarantors"). The Notes are general unsecured obligations of the Company and the Guarantors, respectively, subordinated in right of payment to all existing and future senior debt of the Company and the Guarantors, as applicable, including borrowings and guarantees under the new credit facility. Upon a change of control, the Company will be required to offer to repurchase all outstanding Notes at 101% of the principal amount thereof, plus accrued and unpaid interest to the date of repurchase. The Company will also be obligated in certain circumstances to offer to repurchase Notes at a purchase price of 100% of the principal amount thereof, plus accrued interest, with the net cash proceeds of certain sales or other dispositions of assets. The Indenture relating to the Notes contains certain covenants that limit, subject to certain significant exceptions, the ability of the Company and its subsidiaries to, among other things, incur additional indebtedness and issue disqualified stock; pay dividends or make certain other distributions; cause or permit to exist any consensual restriction on the ability of certain parties to pay dividends or make certain other distributions; layer indebtedness; create certain liens securing indebtedness other than senior debt; enter into certain transactions with affiliates; enter into certain mergers and consolidations or engage in new lines of business. On May 20, 1997, the Company filed a Registration Statement for the purpose of offering to exchange (the "Exchange Offer") up to $150 million aggregate principal amount of 8.70% Series B Senior Subordinated Notes due 2007 (the "Exchange Notes") for a like aggregate principal amount of the Notes (the "Exchange Offer Registration Statement"). The terms of the Exchange Notes are identical in all material respects (including principal amount, interest rate and maturity) to the terms of the Notes for which they may be exchanged, except that the Exchange Notes will be freely transferable by the F - 8 holders thereof. The Exchange Offer Registration Statement was declared effective on July 23, 1997. The Exchange Offer was consummated on September 4, 1997, with all of the Notes being exchanged for the Exchange Notes. On March 11, 1998, in connection with the Fred Meyer merger (As defined in Note Q), all amounts outstanding under the March 19, 1997, credit facility were repaid and the credit facility was terminated. On March 12, 1998, also in connection with the Fred Meyer merger and under the terms of a tender offer dated March 12, 1998, $146.9 million principal amount of the $150,000,000 8.70% Series B Senior Subordinated Notes due 2007 (the "Exchange Notes") were tendered and repaid at a premium of $19.3 million. The remaining $3.1 million in Exchanged Notes are due and payable in 2007. In addition, substantially all of the restrictive covenants and certain other provisions contained in the indenture were eliminated or modified by the vote of the noteholders. F. LEASES The Company leases its administrative offices and 133 of its 145 store facilities in operation under noncancelable operating leases expiring through 2023. Certain of the leases include renewal provisions at the Company's option. The Company has also capitalized certain leases in accordance with the requirements of No. 13. Future minimum obligations on capital and operating leases, which exclude stores to be added in 1998, as of December 27, 1997, are as follows:
- -------------------------------------------------------------------------------------------- In thousands Capital Operating Leases Leases --------- --------- Due in fiscal year: 1998 $ 4,094 $ 32,485 1999 4,094 32,495 2000 4,094 32,165 2001 4,094 32,502 2002 4,013 31,935 Thereafter 52,183 355,813 --------- --------- Minimum lease payments 72,572 $ 517,395 ========= Less - Amount representing interest 41,474 --------- Present value 31,098 Current portion (701) --------- Long-term portion $ 30,397 ========= - -----------------------------------------------------------------------------------------------
A majority of the store facility leases provide for contingent rentals based upon specified percentages of sales, real estate tax escalation clauses and executory costs. Space in several store facilities has been sublet. A summary of rental expense under operating leases is as follows:
- ---------------------------------------------------------------------------------------------------------------- In thousands 1997 1996 1995 - ---------------------------------------------------------------------------------------------------------------- Minimum rent $29,449 $14,462 $12,417 Contingent rentals 2,993 1,495 1,820 Real estate taxes and executory costs 8,329 3,532 3,566 Less sublease rentals (1,746) (806) (570) - ---------------------------------------------------------------------------------------------------------------- $39,025 $18,683 $17,233 - ----------------------------------------------------------------------------------------------------------------
G. COMMITMENTS AND CONTINGENCIES Litigation: The Company is involved in various matters of litigation, all arising in the ordinary course of business. In the opinion of management, the ultimate outcome of such matters will not have a material adverse effect on the financial position or results of operations of the Company. Employment Agreements: During 1996, the Company entered into employment agreements with certain F - 9 members of management (one of which was amended in 1997) which extend through various dates in September 1999. H. RELATED PARTY TRANSACTIONS During 1997, the Company paid monthly management fees which, in aggregate, totaled $150,000 for management advisory services to its chairman, plus a bonus payment of $0.5 million. For the period of December 31, 1995 through June 16, 1996, $0.7 million was paid to the Company's chairman pursuant to an agreement to pay a management fee of up to 0.2% of sales as compensation for management advisory services, which agreement expired on June 16, 1996. Upon expiration of the agreement, the Company agreed to pay its chairman a monthly fee aggregating $0.3 million, for June 17, 1996 through December 28, 1996, plus a bonus payment of $0.2 million. For the fourth quarter of 1995, in lieu of the management fee, which would have been approximately $0.5 million, the Company granted stock options for 58,900 shares of its stock under the Company's 1993 Executive Stock Option (Note J) to its chairman. Management fee expense for 1997, 1996 and 1995 was $0.7 million, $1.2 million and $1.0 million, respectively. During 1997, the Company paid $4.2 million to Equity Group Investments, Inc. ("EGI") and its affiliated companies for management services and insurance premiums. A director of the Company is chairman of the board of EGI. Another director of the Company is president and chief executive officer of EGI. During 1997, the Company paid $1.1 million in legal fees to Rosenberg & Liebentritt, PC ("R&L"), an affiliate of EGI. A director of the Company was a principal of R&L from 1980 to September 1997. A director of the Company is a member of the board of directors of the Associated Grocers, Inc. ("A.G.") cooperative, which became one of the Company's major suppliers in 1995. Amounts paid to A.G. for products and services totaled $191.6 million, $57.7 million and $43.8 million for 1997, 1996 and 1995, respectively. As a result of the KUI merger, the Company now owns approximately 20% of the non-voting equity of A.G. During 1995, the Company assumed a lease for one of its stores included in the Olson's merger (Note L) for which the landlord is an entity that is controlled by a member of the Company's Board of Directors. Rental payments for the store, which include reimbursements for common area maintenance and real estate taxes, totaled $0.2 million, $0.2 million and $0.1 million during 1997, 1996 and 1995, respectively. The lease terminates in April 2001, with options to renew through April 2035. In addition, during 1997, 1996 and 1995, the Company purchased approximately $3.2 million, $1.8 million and $1.7 million, respectively, of products from an entity owned by certain family members of the same member of its Board of Directors. In August 1993, two partnerships which include the Company's chairman acquired the 24-acre University Village Shopping Center, (the "Center"), where the Company was leasing space for one of its stores and owned an adjacent 8.8 acre parcel of land. The Company negotiated with the partnerships for certain property rights and lease modifications, which included a 15-year lease term extension, the right to be the exclusive grocery store in the Center and the right to relocate its store to the adjacent site. The Company paid approximately $5.0 million for these rights, which amount is included in Leasehold Interests and is being amortized over a period of 29 years. In August, 1996, the Company completed construction of its flagship store on the adjacent property, moved its store and terminated the existing lease agreement, paying the partnerships a $0.3 million lease termination fee. The Company retained all other property rights. Rentals, common area maintenance and real estate tax reimbursements paid to the partnerships were at the same rates paid to the previous owner of the Center, and totaled approximately $16,000, $0.5 million and $0.7 million for 1997, 1996 and 1995, respectively. I. RETIREMENT PLANS The Company participates in a union administered multi-employer defined benefit pension plan for employees covered by collective bargaining agreements. The contributions under this plan were $22.8 million, $3.2 million and $3.1 million for 1997, 1996 and 1995, respectively. The Company's defined contribution profit-sharing plan includes employees not covered by collective bargaining agreements who meet certain service requirements. Contributions to the plan are based on a percentage of gross wages and are made at the discretion of the Company. The Company's profit-sharing expense was $0.9 million, $0.6 million and $0.5 million for 1997, 1996 and 1995, respectively. F - 10 The Company maintains a voluntary defined contribution retirement plan qualified under Section 401(k) of the Internal Revenue Code of 1986, available to all eligible employees not covered by collective bargaining agreements. The Company does not currently match employee contributions to the plan. J. SHAREHOLDERS' EQUITY In March 1987, the Company adopted an Incentive Stock Option Plan, as amended in 1996, under which options vest ratably over five years and expire after 10 years from the date of grant. In December 1989, the Company adopted its Directors' Nonqualified Stock Option Plan for non-employee (non-affiliated) directors of the Company, under which nonqualified options vest ratably over three years and expire, with certain exceptions, ten years after the date of grant. In 1993, the Company's shareholders approved the 1993 Executive Stock Option Plan (the "Exec Plan") as amended in 1997 to reserve an additional 1.0 million shares for issuance under the plan, under which nonqualified options generally vest ratably over five years and expire after 10 years. Options issued under the Exec Plan automatically became fully vested and exercisable as a result of the Fred Meyer Merger (defined in Note Q).In 1997, the Company's shareholders also approved the 1997 stock option plan under which incentive stock options vest ratably over five years and expire after 10 years from the date of grant. For all the plans, the exercise price must not be less than the fair market value of the common stock at the date of grant. During 1996, the Company granted its then Chief Executive Officer options at fair market value which vested subject to continued employment and were 100% exercisable at the earlier of seven years or at such time as the Company's common stock traded at $40.00 per share for any consecutive 10 trading days. Such options became exercisable in January 1997. These plans provide for the grant of options to acquire up to 4.5 million shares of common stock to officers, directors and employees. Options for 2.7 million shares granted to 1,057 employees and 6 directors were outstanding at December 27, 1997. Stock option activity under these plans for the last three years was as follows:
Weighted Number Average of Shares Exercise Price - ---------------------------------------------------------------------------------------------------------------- Outstanding, December 31, 1994 (487,393 exercisable at a weighted average price of $15.18) 985,453 $20.27 Granted (weighted average grant date fair value - $13.71) 514,950 20.64 Forfeited (20,730) 27.02 Exercised (113,895) 5.57 - ---------------------------------------------------------------------------------------------------------------- Outstanding, December 30, 1995 (582,089 exercisable at a weighted average price of $19.80) 1,365,778 21.51 Granted (weighted average grant date fair value - $18.17) 785,800 30.46 Forfeited (15,490) 24.34 Exercised (68,057) 10.99 - ---------------------------------------------------------------------------------------------------------------- Outstanding, December 28, 1996 (717,555 exercisable at a weighted average prices of $ 21.81) 2,068,031 25.25 Granted (weighted average grant date fair value - $24.38) 799,503 38.29 Forfeited (18,580) 24.45 Exercised (177,411) 19.70 - ---------------------------------------------------------------------------------------------------------------- Outstanding, December 27, 1997 (1,281,010 exercisable at a weighted average price of $26.47) 2,671,543 $29.51 - ----------------------------------------------------------------------------------------------------------------
In 1990, the Company adopted an Employee Stock Purchase Plan ("ESPP"), as amended in 1996, under which 800,000 shares of the Company's common stock are reserved for issuance to employees. Employees are eligible to participate through payroll deductions in amounts related to their basic compensation. At the end of each offering period, shares are purchased by the participants at 85% of the lower of the fair market value at the beginning or the end of the offering period. Under the plan, 79,669, 93,967 and 84,283 shares were issued to 1,240, 1,236 and 956 employees, in 1997, 1996 and 1995 respectively. As of December 27, 1997, payroll deductions totaling $3.2 million on behalf of F - 11 approximately 4,600 employees were accrued for purchase of shares on March 5, 1998. Following such purchase of shares, the ESPP was terminated. At December 27, 1997, the weighted average remaining contractual life of options outstanding was 7 years, with an exercise price of $6.06 to $39.75. Of the 2,671,543 options outstanding at December 27, 1997, no options have an exercise price above the quoted market price of the Company's stock of $63.69 at December 27, 1997. The Company has applied APB No. 25. Accordingly, no compensation cost has been recognized for its stock option grants. The fair value of each option granted is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used for grants in 1997, 1996 and 1995, respectively: one to ten year expected life from date of grant for all years; stock volatility of 43.5%, 44.7% and 44.7%; risk free interest rates from 5.28 to 5.72%, 3.91% to 6.32% and 3.91% to 6.29%; and no dividends during the expected term for all years. Had compensation costs for the Company's stock-based compensation plans been determined based on the fair value at the grant dates for awards under those plans consistent with the method prescribed in SFAS No. 123, the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below:
In thousands except per share data 1997 1996 1995 - ---------------------------------------------------------------------------------------------------------------- Net earnings as reported $40,007 $25,418 $20,216 Pro forma net earnings under SFAS No. 123 25,619 22,285 18,420 Earnings per share as reported Basic 2.04 1.75 1.29 Diluted 1.95 1.71 1.28 Pro forma earnings per share under SFAS No. 123 Basic 1.30 1.53 1.17 Diluted 1.27 1.52 1.16 - ----------------------------------------------------------------------------------------------------------------
K. RECAPITALIZATION On March 29, 1995, the Company completed a recapitalization plan, including a self-tender offer under which the Company purchased 7.0 million shares of its common stock at a price of $25.00 per share payable in cash, and entered into a $220.0 million credit facility to finance the tender offer, Olson's merger and provide additional capital. Additionally, the Company sold 1.0 million newly issued shares of its common stock to Zell/Chilmark Fund L.P. (Zell/Chilmark) at $25.00 per share on March 29, 1995. Zell/Chilmark acquired an additional approximately 3.0 million shares at $25.00 per share, plus an amount equal to a 5% annual return on such amount from March 17, 1995 through January 16, 1996, directly from the Company's chairman in a separate transaction that closed on January 16, 1996. To reflect the net reduction in shareholders' equity resulting from the recapitalization, the Company reduced retained earnings to zero at the beginning of the second quarter of 1995 and allocated the remaining amount as a reduction to common stock. Fees paid in connection with the recapitalization aggregated approximately $4.3 million. During the first quarter of 1995, $1.4 million of these fees were recorded as a one-time expense, which was not deductible for federal income tax purposes. The remaining costs of $2.9 million were recorded as a direct reduction to shareholders' equity. F - 12 L. OLSON'S FOOD STORES, INC. ACQUISITION On March 2, 1995 the principal operations of Olson's acquisition were merged into the Company, including assets and liabilities related to 12 of its grocery stores and its interest in certain grocery stores in various stages of development, and its rights to several other future sites. The merger was effected through an acquisition of 100% of the outstanding voting securities of Olson's for $18.0 million cash, 752,941 shares of the Company's common stock, which as of March 2, 1995 had a value of $18.1 million, and the assumption by the Company of approximately $24.0 million of indebtedness of Olson's. The merger has been accounted for under the purchase method of accounting. In connection with the Olson's merger, liabilities assumed were as follows (in thousands): Fair value of assets acquired $ 69,246 Cash paid (18,000) Long-term debt assumed (24,000) Common stock issued (18,070) -------- Current liabilities assumed $ 9,176 ======== M. KEITH UDDENBERG, INC. ACQUISITION On February 14, 1997, the principal operations of KUI, including assets and liabilities related to 25 grocery stores in the western and southern Puget Sound region of Washington, were merged into KUA. The merger, which has been accounted for under the purchase method of accounting, was effected through the acquisition of 100% of the outstanding voting securities of KUI for consideration consisting of $34.5 million cash, 904,646 shares of the Company's common stock, (which as of February 14, 1997 had a value of $36.0 million) and the assumption by the Company of approximately $23.8 million of indebtedness of KUI. For financial reporting purposes, the consideration paid for the operations of KUI has been allocated to the fair value of assets acquired and liabilities assumed. Goodwill of $48.8 million has been recorded as a result of the merger and is being amortized over 40 years. Because the transaction was a statutory merger, the Company has a carryover tax basis and amortization of the excess of the book value over the tax basis of the assets included in the merger is not deductible for federal income tax purposes. Following is a summary of the assets and liabilities recorded as a result of the KUI merger (in thousands): Cash $ 1,177 Inventories 15,985 Other current assets 5,699 -------- Total current assets 22,861 Property, plant and equipment 22,898 Leasehold interest 20,000 Goodwill 48,776 Other assets 12,429 Current liabilities (18,236) Deferred income taxes (10,757) Other liabilities (3,733) Long-term debt (23,768) -------- $ 70,470 ======== Long-term debt of $23.8 million assumed in connection with the merger was subsequently repaid. F - 13 N. HUGHES MARKETS, INC. ACQUISITION On March 19, 1997, the Company acquired the principal operations of Hughes, including the assets and liabilities related to 57 grocery stores located in Southern California and a 50% interest in Santee Dairies, Inc., one of the largest dairy plants in California. The acquisition, which has been accounted for under the purchase method of accounting, was effected through the acquisition of 100% of the outstanding voting securities of Hughes, for cash consideration of approximately $360.5 million, and the assumption by the Company of approximately $33.2 million of indebtedness (including $6.1 million of current indebtedness) of Hughes, consisting primarily of capitalized store leases. For financial reporting purposes, the consideration paid for Hughes has been allocated to the fair value of assets acquired and liabilities assumed. The final determination of such fair values was completed in the Company's fourth quarter with resulting adjustments to certain assets and liabilities, including goodwill. Goodwill of $191.9 million has been recorded as a result of the acquisition and is being amortized over 40 years. Current liabilities assumed include a reserve for store closures of $13.1 million. This reserve was established in accordance with Emerging Issues Task Force Bulletin 95-3. Because the transaction was a statutory merger, the Company has a carryover tax basis and amortization of the excess of the book value over the tax basis of the assets included in the merger is not deductible for federal income tax purposes. Following is a summary of the assets and liabilities recorded as a result of the Hughes merger (in thousands): Cash $ 13,767 Inventories 65,042 Other current assets 20,782 ----------- Total current assets 99,591 Property, plant and equipment 148,997 Property under capital leases 21,191 Leasehold interest 56,950 Goodwill 191,922 Other assets 4,553 Current liabilities (106,546) Deferred income taxes (14,027) Other liabilities (15,080) Long-term debt (278) Capital lease obligation (26,774) ----------- $ 360,499 =========== Hughes has a 50% interest in Santee Dairies, Inc. ("Santee"), one of the largest dairy plants in California. During 1997, the Company purchased $13.2 million in products from Santee Dairies, Inc. O. PRO FORMA FINANCIAL INFORMATION (UNAUDITED) The following pro forma financial information assumes that the acquisitions of KUI and Hughes and the related financings each occurred as of the beginning of each period presented.
In thousands, except per share data: 1997 1996 - ------------------------------------------------------------------------------------------ Sales $2,159,535 $2,111,663 Net earnings 41,810 23,557 Earnings per share Basic 2.00 1.14 Diluted 1.92 1.12 - ------------------------------------------------------------------------------------------
F - 14 P. SUMMARIZED FINANCIAL INFORMATION - SUBSIDIARY GUARANTORS The $150.0 million aggregate principal amount of 8.70% Senior Subordinated Notes, which are described in Note E, are fully and unconditionally guaranteed, jointly and severally on a senior subordinated basis, by Hughes, KUA and Quality Food Holdings, Inc. ("Holdings"), all of which are existing subsidiaries of the Company. Summarized financial information for subsidiary guarantors of the Notes is set forth below. Separate financial statements for the subsidiary guarantors of the Notes are not presented because the Company has determined that such financial statements would not be material to investors. The subsidiary guarantors comprise all of the direct and indirect subsidiaries of the Company, other than the non-guarantor subsidiaries which individually, and in the aggregate, are inconsequential. The following table presents combined summarized financial information for subsidiary guarantors of the Notes. The statement of earnings data represent the combined results of operations for the period from February 15, 1997 through December 27, 1997 for KUA, from March 20, 1997 through December 28, 1997 for Hughes, and from February 18, 1997 (date of inception) through December 27, 1997 for Holdings. December 27, 1997 ----------------- Balance Sheet Data (in thousands): Current assets $ 99,862 Noncurrent assets 537,052 Current liabilities 104,321 Noncurrent liabilities 327,068 Shareholders' equity 205,525 For the period ended December 27, 1997 ----------------------- Statement of Earnings Data (in thousands): Sales $ 1,021,844 Operating income 38,924 Earnings before income taxes 20,064 Net earnings 5,932 Q. SUBSEQUENT EVENTS On March 9, 1998, QFC was merged with a wholly owned subsidiary of Fred Meyer, Inc. ("Fred Meyer"), thereby becoming a wholly owned subsidiary of Fred Meyer (the "Fred Meyer Merger"). The Fred Meyer Merger, as contemplated by the Agreement and Plan of Merger dated November 6, 1997, as amended on January 20, 1998, between Fred Meyer, QFC and a wholly owned subsidiary of Fred Meyer, was approved by the shareholders of QFC at a shareholders meeting held on March 6, 1998. The terms of the Fred Meyer Merger provide for a tax-free stock-for-stock transaction at an exchange ratio whereby each QFC shareholder received 1.9 shares of Fred Meyer common stock for each outstanding share of QFC common stock. On March 10, 1998, Food 4 Less Holdings, Inc. ("Food 4 Less") was merged with a wholly owned subsidiary of Fred Meyer, thereby becoming a wholly owned subsidiary of Fred Meyer (the "Food 4 Less Merger"). F - 15 R. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) Following is a presentation of selected financial data for each of the four quarters of 1997 and 1996.
First Second Third Fourth In thousands Quarter Quarter Quarter Quarter Except earnings per share (12 weeks) (12 weeks) (12 weeks) (16 weeks) - ---------------------------------------------------------------------------------------------------------------- 1997 Sales $233,154 $501,128 $490,979 $652,854 Cost of sales and related occupancy expenses 174,913 380,674 370,875 490,576 Gross margin 58,241 120,454 120,104 162,278 Operating income 12,867 24,006 23,861 31,843 Interest income 189 704 708 990 Interest expense 2,777 7,990 8,019 10,395 Net earnings 6,420 9,762 10,147 13,678 Earnings per share Basic .42 .47 .48 .65 Diluted .40 .45 .47 .62 Weighted average shares outstanding Basic 15,295 20,908 20,956 21,022 Diluted 16,017 21,633 21,701 22,169 - ---------------------------------------------------------------------------------------------------------------- 1996 Sales $176,627 $184,397 $186,142 $258,115 Cost of sales and related occupancy expenses 133,313 138,221 139,015 193,398 Gross margin 43,314 46,176 47,127 64,717 Operating income 9,828 11,654 11,285 16,230 Interest income 72 112 117 165 Interest expense 2,588 2,165 2,148 2,989 Net earnings 4,683 6,167 5,945 8,623 Earnings per share Basic .32 .42 .41 .59 Diluted .32 .42 .40 .57 Weighted Average shares outstanding Basic 14,436 14,543 14,576 14,614 Diluted 14,554 14,798 14,893 15,140 - ----------------------------------------------------------------------------------------------------------------
F - 16 - -------------------------------------------------------------------------------- Independent Auditors' Report - -------------------------------------------------------------------------------- Board of Directors and Shareholders Quality Food Centers, Inc. Bellevue, Washington We have audited the accompanying consolidated balance sheets of Quality Food Centers, Inc. and subsidiaries (the "Company") as of December 27, 1997 and December 28, 1996, and the related consolidated statements of earnings, shareholders' equity, and cash flows for each of the three years in the period ended December 27, 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, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 27, 1997 and December 28, 1996, and the results of its operations and its cash flows for each of the three years in the period ended December 27, 1997, in conformity with generally accepted accounting principles. As described in Note Q, the Company completed a merger with Fred Meyer, Inc. on March 9, 1998. /s / DELOITTE & TOUCHE LLP Seattle, Washington March 23, 1998 F - 17 QUALITY FOOD CENTERS, INC. Index to Exhibits Filed with the Annual Report on Form 10-K for the Fiscal Year Ended December 27, 1997 Exhibit Number Description - ------- ----------- 3.1 Amended and Restated Articles of Incorporation of the Company. 3.2 Restated Bylaws of the Company. 4.1a Guarantee, dated as of March 11, 1998, made by the Guarantors referred to therein (including the Company) in favor of Bankers Trust Company, as Administrative Agent and Collateral Agent, The Chase Manhattan Bank, as Syndication Agent, The Various Financial Institutions Identified as Lenders in the Participation Agreement, as Lenders, and The Various Financial Institutions Identified as Investors in the Participation Agreement, as Investors. 4.1b Participation Agreement among Fred Meyer, Inc., as Lessee and as Construction Agent, FMS Trust 1997-1, a Delaware business trust, as Lessor, Wilmington Trust Company, not in its individual capacity, except as expressly specified therein, but solely as Owner Trustee under the FMS Trust 1997-1, the Investors party to the Trust Agreement, Bankers Trust Company, as Administrative Agent, The Chase Manhattan Bank, as Syndication Agent, and the Lenders Parties thereto, dated as of March 11, 1998; Chase Securities Inc. and BT Alex. Brown, as Arrangers. 4.1c Lease, Security Agreement and Financing Statement between Wilmington Trust Company, not in its individual capacity, but solely as Owner Trustee under the FMS Trust 1997-1, as Lessor, and Fred Meyer, Inc., dated as of March 11, 1998. 4.1d Construction Agency Agreement, dated as of March 11, 1998, between FMS Trust 1997-1, a Delaware business trust, and Fred Meyer, Inc., a Delaware corporation. 4.1e Credit Agreement among FMS Trust 1997-1, as Borrower, The Several Lenders from Time to Time Parties Thereto, Bankers Trust Company, as Administrative Agent, and The Chase Manhattan Bank, as Syndication Agent, dated as of March 11, 1998. 4.1f Lessee Guarantee, dated as of March 11, 1998, made by Fred Meyer, Inc., as Lessee Guarantor, in favor of FMS Trust 1997-1, as Lessor, Bankers Trust Company, as Administrative Agent, The Chase Manhattan Bank, as Syndication Agent, The Various Financial Institutions Identified as Lenders in the Participation Agreement, as Lenders, and The Various Financial Institutions Identified as Investors in the Participation Agreement Therein, as Investors. 4.1g Pledge Agreement, dated as of March 11, 1998, entered into by Fred Meyer, Inc., a Delaware corporation, and each of the undersigned subsidiaries of Fred Meyer, Inc. (including the Company) in favor of Bankers Trust Company, as administrative agent and collateral agent, for the Beneficiaries. Exhibit Number Description - ------- ----------- 4.1h Intercreditor and Collateral Agency Agreement, dated as of March 11, 1998, among Bankers Trust Company, as Administrative Agent under the Loan Agreement, as Administrative Agent under the Synthetic Lease Facility, and as Collateral Agent, Fred Meyer, Inc. and the Subsidiary Pledgors. 4.1i Subsidiary Guarantee, dated as of March 11, 1998, executed by each of the Guarantors listed on the signature page thereof (including the Company) for the benefit of Bankers Trust Company, as Administrative Agent under the Loan Agreement, and each Lender named therein. 4.1j $3,500,000,000 Loan Agreement, dated as of March 11, 1998, among Fred Meyer, Inc., as Borrower, and The Lenders Party Thereto; Bankers Trust Company, as Administrative Agent, and The Chase Manhattan Bank, as Syndication Agent; Chase Securities Inc. and BT Alex. Brown, as Arrangers. 4.2a Notes Indenture, dated as of March 11, 1998, among Fred Meyer, Inc., the Guarantors named therein (including the Company) and First National Bank of Chicago, Trustee (Incorporated by reference to Exhibit 4 to Fred Meyer's Registration Statement on Form S-3, as amended, No. 333-44537, filed January 20, 1998. 4.2b Notes First Supplemental Indenture, dated as of March 11, 1998, among Fred Meyer, Inc., the Guarantors named therein (including the Company) and First National Bank of Chicago, Trustee (Incorporated by reference to Exhibit 4.2 to Fred Meyer's Current Report on Form 8-K, filed March 9, 1998). 10.1 Quality Food Centers, Inc. Amended and Restated 1987 Incentive Stock Option Plan. (Incorporated by reference to Exhibit 10.1 to the Company's Registration Statement on Form S-8, No. 333-19913, filed January 16, 1997.)* 10.2 Form of Stock Option Agreement under Quality Food Centers, Inc. 1987 Incentive Stock Option Plan. (Incorporated by reference to Exhibit 10.29 to the Company's Registration Statement on Form S-1, No. 33-12474, filed March 9, 1987.)* 10.3 Director's Nonqualified Stock Option Plan. (Incorporated by reference to Exhibit 10.1 to the Company's Registration Statement on Form S-8, No. 33-38736, filed January 25, 1991.)* 10.4 Quality Food Centers, Inc. 1993 Executive Stock Option Plan. (Incorporated by reference to Exhibit 10.1 to the Company's Registration Statement on Form S-8, No. 33-69514, filed September 28, 1993.)* 10.5a First Amendment to Shopping Center Lease, dated August 15, 1993, between Quality Food Centers, Inc. and University Village, Inc. (Incorporated by reference to Exhibit 10.15a to the Company's Form 10-K filed March 24, 1994.) 10.5b Declaration of Restrictions and Easements, dated August 15, 1993, between Quality Food Centers, Inc. and University Village, Inc. (Incorporated by reference to Exhibit 10.15b to the Company's Form 10-K filed March 24, 1994.) Exhibit Number Description - ------- ----------- 10.5c Development Agreement, dated August 25, 1993, among Quality Food Centers, Inc., U Village Land Limited Partnership and U Village Imp. Limited Partnership. (Incorporated by reference to Exhibit 10.15c to the Company's Form 10-K filed March 24, 1994.) 10.5d Franchise Agreement, dated August 25, 1993, between Quality Food Centers, Inc., and University Village, Inc. (Incorporated by reference to Exhibit 10.15d to the Company's Form 10-K filed March 24, 1994.) 10.5e Tenant Estoppel Certificate, dated as of August 9, 1993, from Quality Food Centers, Inc. to Principal Mutual Life Insurance Company, U Village Land Limited Partnership and U Village Imp. Limited Partnership. (Incorporated by reference to Exhibit 10.15e to the Company's Form 10-K filed March 24, 1994.) 10.5f Subordination, Forbearance and Attornment Agreement, dated as of August 9, 1993, among Quality Food Centers, Inc., Principal Mutual Life Insurance Company, U Village Land Limited Partnership and U Village Imp. Limited Partnership. (Incorporated by reference to Exhibit 10.15f to the Company's Form 10-K filed March 24, 1994.) 10.6 Right of First Refusal among the Company and Signature Bakery LLC, North Snohomish Enterprises, Inc., and Olson's Management Group LLC, dated as of March 1, 1995. (Incorporated by reference to Exhibit 10.15d to the Company's Form 10-K filed March 31, 1995.) 10.7 Employment Agreement, dated as of September 1, 1996, between Quality Food Centers, Inc. and Marc Evanger (Incorporated by reference to Exhibit 99.7 to the Company's Current Report on Form 8-K/A, filed on February 18, 1997.)* 10.8 Employment Agreement, dated as of September 1, 1996, by and between Quality Food Centers, Inc. and Dan Kourkoumelis (Incorporated by reference to Exhibit 99.8 to the Company's Current Report on Form 8-K/A, filed on February 18, 1997.)* 10.8a Amended Exployment Agreement, dated as of October 15, 1997 , by an between Quality Food Centers, Inc. and Dan Kourkoumelis.* 10.9 Agreement and Plan of Merger, dated as of November 6, 1997, as amended as of January 20, 1998, among Quality Food Centers, Inc., Q-Acquisition Corp. and Fred Meyer, Inc. (Incorporated by reference to Appendix A to the Joint Proxy and Consent Solicitation Statement/Prospectus contained in Fred Meyer's Registration Statement on Form S-4, No. 333-44871, filed on January 26, 1998.) 10.10 Quality Food Centers, Inc. 1997 Stock Option Plan* 11 Statement re computation of per share earnings. (Reference is made to Note A to the Consolidated Financial Statements included in this report.) Exhibit Number Description - ------- ----------- 23 Independent Auditor's Consent to incorporation by reference of its report on financial statements in Registration Statements on Form S-8 and Form S-3. 24 Powers of Attorney. 27.1 Financial Data Schedule 27.2 Restated Financial Data Schedule for fiscal years 1996 and 1995 27.3 Restated Financial Data Schedule for each fiscal quarter of 1996 27.4 Restated Financial Data Schedule for each fiscal quarter of 1997 - -------------------------------------------------------------------------------- * Management contract, compensatory plan or arrangement required to be filed as an exhibit to this report. EX-3.1 2 ARTICLES OF INCORPORATION AMENDED AND RESTATED ARTICLES OF INCORPORATION OF QUALITY FOOD CENTERS, INC. ARTICLE I Name The name of the Corporation is QUALITY FOOD CENTERS, INC. ARTICLE II Purpose The purpose of the Corporation shall be to transact any lawful business permitted under Chapter 23B of the Revised Code of Washington. ARTICLE III Capital Stock The total number of shares of stock that the Corporation shall have authority to issue is one hundred (100) shares of Common Stock having a par value of $.01 per share, which shall be the only class of shares of this Corporation. ARTICLE IV No Preemptive Rights Except as may otherwise be provided by the Board of Directors, no holder of any shares of this Corporation shall have any preemptive right to purchase, subscribe for or otherwise acquire any securities of this Corporation of any class or kind now or hereafter authorized. ARTICLE V Cumulative Voting There shall be no cumulative voting of shares in this Corporation. ARTICLE VI Number of Directors The number of directors constituting the entire Board of Directors of the Corporation shall be not less than one nor more than five as fixed from time to time by the Board of Directors, provided, however, that the number of directors shall not be reduced so as to shorten the term of any director at the time in office. The initial Board of Directors shall consist of two directors. ARTICLE VII Shareholder Voting on Significant Corporate Action Any corporate action for which the Washington Business Corporation Act, as then in effect, would otherwise require approval by either a two-thirds vote of the shareholders of the Corporation or by a two-thirds vote of one or more voting groups shall be deemed approved by the shareholders or the voting group(s) if it is approved by the affirmative vote of the holders of a majority of shares entitled to vote or, if approval by voting groups is required, by the holders of a majority of shares within each voting group entitled to vote separately. Notwithstanding this Article, effect shall be given to any other provision of these Articles that specifically requires a greater vote for approval of any particular corporate action. ARTICLE VIII Indemnification of Directors, Officers and Agents The Corporation shall indemnify, to the fullest extent then permitted by the Corporation's Bylaws and Washington law, any person who is made, or threatened to be made, a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative, investigative or otherwise (including an action, suit or proceeding by or in the right of the Corporation) by reason of the fact that the person is or was a director or officer of the Corporation, or serves or served at the request of the Corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, against all expenses (including attorneys' fees), judgments, fines and amounts paid in settlement, actually and reasonably incurred in connection therewith. Expenses incurred by an officer or director in defending a civil or criminal action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the Corporation as authorized in this Article. The indemnification provided hereby shall not be deemed exclusive of any other rights to which those indemnified may be entitled under any statute, bylaw, agreement, vote of shareholders or directors or otherwise, both as to action in any official capacity and as to action in another capacity while holding an office, and shall continue as to a person who has ceased to be a director or officer and shall inure to the benefit of the heirs, executors and administrators of such person. The foregoing right to indemnification shall not apply in respect of actions, suits or proceedings (or parts thereof) against the Corporation unless such action, suit or proceeding shall have been approved by the Board of Directors. Any amendment to or repeal of this Article shall not adversely affect any right of an individual with respect to any right to indemnification arising prior to such amendment or repeal. Any person other than a director or officer who is or was an employee or agent of the Corporation, or fiduciary within the meaning of the Employee Retirement Income Security Act of 1974 with respect to any employee benefit plan of the Corporation, or is or was serving at the request of the Corporation as an employee or agent of another corporation, partnership, joint venture, trust or other enterprise, may be indemnified to such extent as the Board of Directors in its discretion at any time or from time to time may authorize. ARTICLE IX Limitation on Director Liability No director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for his or her conduct as a director, except to the extent such exemption from liability or limitation thereof is not permitted under Washington law or the Corporation's Bylaws. Any amendment, modification or repeal of this Article shall not adversely affect any right or protection of a director of the Corporation hereunder in respect of any act or omission occurring prior to the time of such amendment, modification or repeal. ARTICLE X The name of the registered agent of this Corporation and the street address of its registered office are as follows: CT CORPORATION SYSTEM 520 Pike Street, 26th Floor Seattle, Washington 98101 Effective as of the date of filing. QUALITY FOOD CENTERS, INC. By: DAN KOURKOUMELIS ------------------------------------- Dan Kourkoumelis Its President EX-3.2 3 BYLAWS RESTATED BYLAWS OF QUALITY FOOD CENTERS, INC. SECTION 1. SHAREHOLDERS AND SHAREHOLDERS' MEETINGS 1.1 Annual Meeting. The annual meeting of the shareholders of this corporation (the "Corporation") for the election of directors and for the transaction of such other business as may properly come before the meeting shall be held each year at the principal office of the Corporation, or at some other place either within or without the State of Washington as designated by the Board of Directors, on the day and at the time as fixed by the Board of Directors, which is attached hereto and incorporated herein by this reference, or on such other day and time as may be set by the Board of Directors. If the specified day is a Sunday or a legal holiday, then the meeting will take place on the next business day at the same time or on such other day and time as may be set by the Board of Directors. 1.2 Special Meetings. Special meetings of the shareholders for any purpose or purposes may be called at any time by the Board of Directors, the Chairman of the Board, the President, a majority of the Board of Directors, or any shareholder or shareholders holding in the aggregate one-fourth of the voting power of all shareholders. The meetings shall be held at such time and place as the Board of Directors may prescribe, or, if not held upon the request of the Board of Directors, at such time and place as may be established by the President or by the Secretary in the President's absence. Only business within the purpose or purposes described in the meeting notice may be conducted. 1.3 Notice of Meetings. Written notice of the place, date and time of the annual shareholders' meeting and written notice of the place, date, time and purpose or purposes of special shareholders' meetings shall be delivered not less than 10 (or, if required by Washington law, 20) or more than 60 days before the date of the meeting, either personally, by facsimile, or by mail, or in any other manner approved by law, by or at the direction of the President or the Secretary, to each shareholder of record entitled to notice of such meeting. Mailed notices shall be deemed to be delivered when deposited in the mail, first-class postage prepaid, correctly addressed to the shareholder's address shown in the Corporation's current record of shareholders. 1.4 Waiver of Notice. Except where expressly prohibited by law or the Articles of Incorporation, notice of the place, date, time and purpose or purposes of any shareholders' meeting may be waived in a signed writing delivered to the Corporation by any shareholder at any time, either before or after the meeting. Attendance at the meeting in person or by proxy waives objection to lack of notice or defective notice of the meeting unless the shareholder at the beginning of the meeting objects to holding the meeting or transacting business at the meeting. A shareholder waives objection to consideration of a particular matter at a meeting that is not within the purpose or purposes described in the meeting notice, unless the shareholder objects to considering the matter when it is presented. 1.5 Shareholders' Action Without a Meeting. The shareholders may take any action without a meeting that they could properly take at a meeting, if one or more written consents setting forth the action so taken are signed by all of the shareholders entitled to vote with respect to the subject matter and are delivered to the Corporation for inclusion in the minutes or filing with the corporate records. If required by Washington law, all nonvoting shareholders must be given written notice of the proposed action at least ten days before the action is taken, unless such notice is waived in a manner consistent with these Bylaws. Actions taken under this section are effective when all consents are in the possession of the Corporation, unless otherwise specified in the consent. A shareholder may withdraw consent only by delivering a written notice of withdrawal to the Corporation prior to the time that all consents are in the possession of the Corporation. 1.6 Telephone Meetings. Shareholders may participate in a meeting of shareholders by means of a conference telephone or any similar communications equipment that enables all persons participating in the meeting to hear each other during the meeting. Participation by such means shall constitute presence in person at a meeting. 1.7 List of Shareholders. At least ten days before any shareholders' meeting, the Secretary of the Corporation or the agent having charge of the stock transfer books of the Corporation shall have compiled a complete list of the shareholders entitled to notice of a shareholders' meeting, arranged in alphabetical order and by voting group, with the address of each shareholder and the number, class, and series, if any, of shares owned by each. 1.8 Quorum and Voting. The presence in person or by proxy of the holders of a majority of the votes entitled to be cast on a matter at a meeting shall constitute a quorum of shareholders for that matter. If a quorum exists, action on a matter shall be approved by a voting group if the votes cast within a voting group favoring the action exceed the votes cast within the voting group opposing the action, unless a greater number of affirmative votes is required by the Articles of Incorporation or by law. If the Articles of Incorporation or Washington law provide for voting by two or more voting groups on a matter, action on 2 a matter is taken only when voted upon by each of those voting groups counted separately. Action may be taken by one voting group on a matter even though no action is taken by another voting group. 1.9 Adjourned Meetings. If a shareholders' meeting is adjourned to a different place, date or time, whether for failure to achieve a quorum or otherwise, notice need not be given of the new place, date or time if the new place, date or time is announced at the meeting before adjournment. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in these Bylaws, that determination shall apply to any adjournment thereof, unless Washington law requires fixing a new record date. If Washington law requires that a new record date be set for the adjourned meeting, notice of the adjourned meeting must be given to shareholders as of the new record date. Any business may be transacted at an adjourned meeting that could have been transacted at the meeting as originally called. 1.10 Proxies. A shareholder may appoint a proxy to vote or otherwise act for the shareholder by signing an appointment form, either personally or by an agent. No appointment shall be valid after 11 months from the date of its execution unless the appointment form expressly so provides. An appointment of a proxy is revocable unless the appointment is coupled with an interest. No revocation shall be effective until written notice thereof has actually been received by the Secretary of the Corporation or any other person authorized to tabulate votes. SECTION 2. BOARD OF DIRECTORS 2.1 Number and Qualification. The business affairs and property of the Corporation shall be managed under the direction of a Board of Directors, the number of members of which shall be three unless and until changed by resolution of the Board of Directors. The Board of Directors may increase or decrease this number by resolution. A decrease in the number of directors shall not shorten the term of an incumbent director. 2.2 Election - Term of Office. The directors shall be elected by the shareholders at each annual shareholders' meeting or at a special shareholders' meeting called for such purpose. Despite the expiration of a director's term, the director continues to serve until his or her successor is elected and qualified or until there is a decrease in the authorized number of directors. 2.3 Vacancies. Except as otherwise provided by law, vacancies in the Board of Directors, whether caused by resignation, death, retirement, disqualification, removal, increase in the number of directors, or otherwise, may be filled for the remainder of the term by the Board of Directors, by the shareholders, or, if the directors in office constitute less than a quorum of the Board of Directors, by an affirmative vote of a majority of the 3 remaining directors. The term of a director elected to fill a vacancy expires at the next shareholders' meeting at which directors are elected. A vacancy that will occur at a specific later date may be filled before the vacancy occurs, but the new director may not take office until the vacancy occurs. 2.4 Quorum and Voting. At any meeting of the Board of Directors, the presence in person (including presence by electronic means such as a telephone conference call) of a majority of the number of directors presently in office shall constitute a quorum for the transaction of business. Notwithstanding the foregoing, in no case shall a quorum be less than one-third of the authorized number of directors. If a quorum is present at the time of a vote, the affirmative vote of a majority of the directors present at the time of the vote shall be the act of the Board of Directors and of the Corporation except as may be otherwise specifically provided by the Articles of Incorporation, by these Bylaws, or by law. A director who is present at a meeting of the Board of Directors when action is taken is deemed to have assented to the action taken unless: (a) the director objects at the beginning of the meeting, or promptly upon his or her arrival, to holding it or to transacting business at the meeting; (b) the director's dissent or abstention from the action taken is entered in the minutes of the meeting; or (c) the director delivers written notice of his or her dissent or abstention to the presiding officer of the meeting before its adjournment or to the Corporation within a reasonable time after adjournment of the meeting. The right of dissent or abstention is not available to a director who votes in favor of the action taken. 2.5 Regular Meetings. Regular meetings of the Board of Directors shall be held at such place, date and time as shall from time to time be fixed by resolution of the Board. 2.6 Special Meetings. Special meetings of the Board of Directors may be held at any place and at any time and may be called by the Chairman of the Board, the President, Vice President, Secretary or Treasurer, or any two or more directors. 2.7 Notice of Meetings. Unless the Articles of Incorporation provide otherwise, any regular meeting of the Board of Directors may be held without notice of the date, time, place, or purpose of the meeting. Any special meeting of the Board of Directors must be preceded by at least two days' notice of the date, time, and place of the meeting, but not of its purpose, unless the Articles of Incorporation or these Bylaws require otherwise. Notice may be given personally, by facsimile, by mail, or in any other manner allowed by law. Oral notice shall be sufficient only if a written record of such notice is included in the Corporation's minute book. Notice shall be deemed effective at the earliest of: (a) receipt; (b) delivery to the proper address or telephone number of the director as shown in the Corporation's records; or (c) five days after its deposit in the United States mail, as evidenced by the postmark, if correctly addressed and mailed with first-class postage prepaid. Notice of any meeting of the Board of Directors may be waived by any director at any time, by a signed writing, delivered to the Corporation for inclusion in the minutes, either before or after the meeting. Attendance or participation by a director at a meeting shall constitute a waiver of any required notice of the meeting unless the director promptly objects to holding 4 the meeting or to the transaction of any business on the grounds that the meeting was not lawfully convened and the director does not thereafter vote for or assent to action taken at the meeting. 2.8 Directors' Action Without A Meeting. The Board of Directors or a committee thereof may take any action without a meeting that it could properly take at a meeting if one or more written consents setting forth the action are signed by all of the directors, or all of the members of the committee, as the case may be, either before or after the action is taken, and if the consents are delivered to the Corporation for inclusion in the minutes or filing with the corporate records. Such action shall be effective upon the signing of a consent by the last director to sign, unless the consent specifies a later effective date. 2.9 Committees of the Board of Directors. The Board of Directors, by resolutions adopted by a majority of the members of the Board of Directors in office, may create from among its members one or more committees and shall appoint the members thereof. Each such committee must have two or more members, who shall be directors and who shall serve at the pleasure of the Board of Directors. Each committee of the Board of Directors may exercise the authority of the Board of Directors to the extent provided in its enabling resolution and any pertinent subsequent resolutions adopted in like manner, provided that the authority of each such committee shall be subject to applicable law. Each committee of the Board of Directors shall keep regular minutes of its proceedings and shall report to the Board of Directors when requested to do so. 2.10 Telephone Meetings. Members of the Board of Directors or of any committee appointed by the Board of Directors may participate in a meeting of the Board of Directors or committee by means of a conference telephone or similar communications equipment that enables all persons participating in the meeting to hear each other during the meeting. Participation by such means shall constitute presence in person at a meeting. 2.11 Compensation of Directors. The Board of Directors may fix the compensation of directors as such and may authorize the reimbursement of their expenses. SECTION 3. OFFICERS 3.1 Officers Enumerated - Election. The officers of the Corporation shall consist of such officers and assistant officers as may be designated by resolution of the Board of Directors. The officers may include a Chairman of the Board, a President, one or more Vice Presidents, a Secretary, a Treasurer, and any assistant officers. The officers shall hold office at the pleasure of the Board of Directors. Unless otherwise restricted by the Board of Directors, the President may appoint any assistant officer, the Secretary may appoint one or 5 more Assistant Secretaries, and the Treasurer may appoint one or more Assistant Treasurers; provided that any such appointments shall be recorded in writing in the corporate records. 3.2 Qualifications. None of the officers of the Corporation need be a director. Any two or more corporate offices may be held by the same person. 3.3 Duties of the Officers. Unless otherwise prescribed by the Board of Directors, the duties of the officers shall be as follows: Chairman of the Board. The Chairman of the Board, if one is elected, shall preside at meetings of the Board of Directors and of the shareholders, shall be responsible for carrying out the plans and directives of the Board of Directors, shall report to and consult with the Board of Directors and, if the Board so resolves, shall be the Chief Executive Officer. The Chairman of the Board shall have such other powers and duties as the Board of Directors may from time to time prescribe. President. The President shall exercise the usual executive powers pertaining to the office of President. In the absence of a Chairman of the Board, the President shall preside at meetings of the Board of Directors and of the shareholders, perform the other duties of the Chairman of the Board prescribed in this Section, and perform such other duties as the Board of Directors may from time to time designate. In addition, if there is no Secretary in office, the President shall perform the duties of the Secretary. Vice President. Each Vice President shall perform such duties as the Board of Directors may from time to time designate. In addition, the Vice President, or if there is more than one, the most senior Vice President available, shall act as President in the absence or disability of the President. Secretary. The Secretary shall be responsible for and shall keep, personally or with the assistance of others, records of the proceedings of the directors and shareholders; authenticate records of the Corporation; attest all certificates of stock in the name of the Corporation; keep the corporate seal, if any, and affix the same to certificates of stock and other proper documents; keep a record of the issuance of certificates of stock and the transfers of the same; and perform such other duties as the Board of Directors may from time to time designate. Treasurer. The Treasurer shall have the care and custody of, and be responsible for, all funds and securities of the Corporation and shall cause to be kept regular books of account. The Treasurer shall cause to be deposited all funds and other valuable effects in the name of the Corporation in such depositories as may be designated by the Board of Directors. In general, the Treasurer shall perform all of the duties incident to the office of Treasurer, and such other duties as from time to time may be assigned by the Board of Directors. 6 Assistant Officers. Assistant officers may consist of one or more Assistant Vice Presidents, one or more Assistant Secretaries, and one or more Assistant Treasurers. Each assistant officer shall perform those duties assigned to him or her from time to time by the Board of Directors, the President, or the officer who appointed him or her. 3.4 Vacancies. Vacancies in any office arising from any cause may be filled by the Board of Directors at any regular or special meeting. 3.5 Removal. Any officer or agent may be removed by action of the Board of Directors with or without cause, but any removal shall be without prejudice to the contract rights, if any, of the person removed. Election or appointment of an officer or agent shall not of itself create any contract rights. 3.6 Compensation. The compensation of all officers of the Corporation shall be fixed by the Board of Directors. SECTION 4. SHARES AND CERTIFICATES OF SHARES 4.1 Share Certificates. Share certificates shall be issued in numerical order, and each shareholder shall be entitled to a certificate signed by the President or a Vice President, and attested by the Secretary or an Assistant Secretary. Share certificates may be sealed with the corporate seal, if any. Facsimiles of the signatures and seal may be used as permitted by law. Every share certificate shall state: (a) the name of the Corporation; (b) that the Corporation is organized under the laws of the State of Washington; (c) the name of the person to whom the share certificate is issued; (d) the number, class and series (if any) of shares that the certificate represents; and (e) if the Corporation is authorized to issue shares of more than one class or series, that upon written request and without charge, the Corporation will furnish any shareholder with a full statement of the designations, preferences, limitations and relative rights of the shares of each class or series, and the authority of the Board of Directors to determine variations for future series. 7 4.2 Consideration for Shares. Shares of the Corporation may be issued for such consideration as shall be determined by the Board of Directors to be adequate. The consideration for the issuance of shares may be paid in whole or in part in cash, or in any tangible or intangible property or benefit to the Corporation, including but not limited to promissory notes, services performed, contracts for services to be performed, or other securities of the Corporation. Establishment by the Board of Directors of the amount of consideration received or to be received for shares of the Corporation shall be deemed to be a determination that the consideration so established is adequate. 4.3 Transfers. Shares may be transferred by delivery of the certificate, accompanied either by an assignment in writing on the back of the certificate, or by a written power of attorney to sell, assign and transfer the same, signed by the record holder of the certificate. Except as otherwise specifically provided in these Bylaws, no shares of stock shall be transferred on the books of the Corporation until the outstanding certificate therefor has been surrendered to the Corporation. 4.4 Loss or Destruction of Certificates. In the event of the loss or destruction of any certificate, a new certificate may be issued in lieu thereof upon satisfactory proof of such loss or destruction, and upon the giving of security against loss to the Corporation by bond, indemnity or otherwise, to the extent deemed necessary by the Board of Directors, the Secretary, or the Treasurer. 4.5 Fixing Record Date. The Board of Directors may fix in advance a date as the record date for determining shareholders entitled: (i) to notice of or to vote at any shareholders' meeting or any adjournment thereof; (ii) to receive payment of any share dividend; or (iii) to receive payment of any distribution. The Board of Directors may in addition fix record dates with respect to any allotment of rights or conversion or exchange of any securities by their terms, or for any other proper purpose, as determined by the Board of Directors and by law. The record date shall be not more than 70 days and, in case of a meeting of shareholders, not less than 10 days (or such longer period as may be required by Washington law) prior to the date on which the particular action requiring determination of shareholders is to be taken. If no record date is fixed for determining the shareholders entitled to notice of or to vote at a meeting of shareholders, the record date shall be the date before the day on which notice of the meeting is mailed. If no record date is fixed for the determination of shareholders entitled to a distribution (other than one involving a purchase, redemption, or other acquisition of the Corporation's own shares), the record date shall be the date on which the Board adopted the resolution declaring the distribution. If no record date is fixed for determining shareholders entitled to a share dividend, the record date shall be the date on which the Board of Directors authorized the dividend. 8 SECTION 5. BOOKS, RECORDS AND REPORTS 5.1 Records of Corporate Meetings, Accounting Records and Share Registers. The Corporation shall keep, as permanent records, minutes of all meetings of the Board of Directors and shareholders, and all actions taken without a meeting, and all actions taken by a committee exercising the authority of the Board of Directors. The Corporation or its agent shall maintain, in a form that permits preparation of a list, a list of the names and addresses of its shareholders, in alphabetical order by class of shares, and the number, class, and series, if any, of shares held by each. The Corporation shall also maintain appropriate accounting records, and at its principal place of business shall keep copies of: (a) its Articles of Incorporation or restated Articles of Incorporation and all amendments in effect; (b) its Bylaws or restated Bylaws and all amendments in effect; (c) minutes of all shareholders' meetings and records of all actions taken without meetings for the past three years; (d) the year-end balance sheets and income statements for the past three fiscal years, prepared as required by Washington law; (e) all written communications to shareholders generally in the past three years; (f) a list of the names and business addresses of its current officers and directors; and (g) its most recent annual report to the Secretary of State. 5.2 Copies of Corporate Records. Any person dealing with the Corporation may rely upon a copy of any of the records of the proceedings, resolutions, or votes of the Board of Directors or shareholders, when certified by the Chairman of the Board, President, Vice President, Secretary or Assistant Secretary. 5.3 Examination of Records. A shareholder shall have the right to inspect and copy, during regular business hours at the principal office of the Corporation, in person or by his or her attorney or agent, the corporate records referred to in the last sentence of Section 5.1 of these Bylaws if the shareholder gives the Corporation written notice of the demand at least five business days before the date on which the shareholder wishes to make such inspection. In addition, if a shareholder's demand is made in good faith and for a proper purpose, a shareholder may inspect and copy, during regular business hours at a reasonable location specified by the Corporation, excerpts from minutes of any meeting of the Board of Directors, records of any action of a committee of the Board of Directors, records of actions taken by the Board of Directors without a meeting, minutes of shareholders' meetings held or records of action taken by shareholders without a meeting not within the past three years, accounting records of the Corporation, or the record of shareholders; provided that the shareholder shall have made a demand describing with reasonable particularity the shareholder's purpose and the records the shareholder desires to inspect, and provided further that the records are directly connected to the shareholder's purpose. This section shall not affect any right of shareholders to inspect records of the Corporation that may be otherwise granted to the shareholders by law. 9 5.4 Financial Statements. Not later than four months after the end of each fiscal year, or in any event prior to its annual meeting of shareholders, the Corporation shall prepare a balance sheet and income statement in accordance with Washington law. The Corporation shall furnish a copy of each to any shareholder upon written request. SECTION 6. FISCAL YEAR The fiscal year of the Corporation shall be the same as Fred Meyer, Inc. SECTION 7. MISCELLANEOUS PROCEDURAL PROVISIONS The Board of Directors may adopt rules of procedure to govern any meetings of shareholders or directors to the extent not inconsistent with law, the Corporation's Articles of Incorporation, or these Bylaws, as they are in effect from time to time. In the absence of any rules of procedure adopted by the Board of Directors, the chairman of the meeting shall make all decisions regarding the procedures for any meeting. SECTION 8. AMENDMENT OF BYLAWS The Board of Directors is expressly authorized to make, alter and repeal the Bylaws of the Corporation, subject to the power of the shareholders of the Corporation to change or repeal the Bylaws. SECTION 9. INDEMNIFICATION OF DIRECTORS AND OTHERS 9.1 Definitions. For purposes of this Section: (1) "Corporation" includes any domestic or foreign predecessor entity of the Corporation in a merger or other transaction in which the predecessor's existence ceased upon consummation of the transaction. (2) "Director" means an individual who is or was a director of the Corporation or an individual who, while a director of the Corporation, is or was serving at the Corporation's request as a director, officer, partner, trustee, employee, or agent of another foreign or domestic corporation, partnership, joint venture, trust, employee benefit plan, or other enterprise. A director is considered to be serving an employee benefit plan at 10 the Corporation's request if the director's duties to the Corporation also impose duties on, or otherwise involve services by, the director to the plan or to participants in or beneficiaries of the plan. "Director" includes, unless the context requires otherwise, the estate or personal representative of a director. (3) "Expenses" include counsel fees. (4) "Liability" means the obligation to pay a judgment, settlement, penalty, fine, including an excise tax assessed with respect to an employee benefit plan, or reasonable expenses incurred with respect to a proceeding. (5) "Official capacity" means: (i) When used with respect to a director, the office of director in the Corporation; and (ii) when used with respect to an individual other than a director, as contemplated in Section 9.8 of this Section 9, the office in the Corporation held by the officer or the employment or agency relationship undertaken by the employee or agent on behalf of the Corporation. "Official capacity" does not include service for any other foreign or domestic corporation or any partnership, joint venture, trust, employee benefit plan, or other enterprise. (6) "Party" includes an individual who was, is, or is threatened to be made or named a defendant or respondent in a proceeding. (7) "Proceeding" means any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative or investigative and whether formal or informal. 9.2 Right of Indemnification. (1) The Corporation shall indemnify any person (or the estate of any person) who was or is a party to any proceeding, whether or not brought by or in the right of the Corporation, by reason of the fact that such person is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise (all such persons, hereinafter "Agent"), against reasonable expenses incurred by such person in connection with the proceeding. (2) Except as provided in subsection (5) of this Section 9.2, the Corporation shall indemnify an individual made a party to a proceeding because the individual is or was an Agent (as defined above) against liability incurred in the proceeding if: (i) The individual acted in good faith; and (ii) The individual reasonably believed: 11 (a) In the case of conduct in the individual's official capacity with the Corporation, that the individual's conduct was in the Corporation's best interests; (b) In all other cases, the individual's conduct was at least not opposed to the Corporation's best interests; and (iii) In the case of any criminal proceeding, the individual had no reasonable cause to believe the individual's conduct was unlawful. (3) A director's conduct with respect to an employee benefit plan for a purpose the director reasonably believed to be in the interests of the participants in and beneficiaries of the plan is conduct that satisfies the requirement of subsection (2)(ii) of this Section 9. (4) The termination of a proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent is not, of itself, determinative that the director did not meet the standard of conduct described in this Section. (5) The Corporation shall not indemnify an Agent under this Section 9.2: (i) In connection with a proceeding by or in the right of the Corporation in which the Agent was adjudged liable to the Corporation; or (ii) In connection with any other proceeding charging improper personal benefit to the Agent, whether or not involving action in the Agent's official capacity, in which the director was adjudged liable on the basis that personal benefit was improperly received by the Agent. (6) Indemnification under this Section 9.2 in connection with a proceeding by or in the right of the Corporation is limited to reasonable expenses incurred in connection with the proceeding. 9.3 Advance for Expenses. (1) The Corporation shall pay for or reimburse the reasonable expenses incurred by an Agent who is a party to a proceeding in advance of final disposition of the proceeding if: (i) The Agent furnishes the Corporation a written affirmation of the Agent's good faith belief that the director has met the standard of conduct described in Section 9.2 herein; and 12 (ii) The Agent furnishes the Corporation a written undertaking, executed personally or on the Agent's behalf, to repay the advance if it is ultimately determined that the Agent did not meet the standard of conduct. (2) The undertaking required by subsection (1)(i) of this Section 9.3 must be an unlimited general obligation of the Agent but need not be secured and may be accepted without reference to financial ability to make repayment. 9.4 Court-Ordered Indemnification. An Agent of the Corporation who is a party to a proceeding may apply for indemnification or advance of expenses to the court conducting the proceeding or to another court of competent jurisdiction. On receipt of an application, the court after giving any notice the court considers necessary, may order indemnification or advance of expenses if it determines: (1) The Agent is entitled to mandatory indemnification pursuant to RCW 23B.08.520, in which case the court shall also order the Corporation to pay indemnification; (2) The Agent is fairly and reasonably entitled to indemnification in view of all the relevant circumstances, whether or not the director met the standard of conduct set forth in section 9.2 herein, or was adjudged liable as described in Section 9.2(5) herein, but if the Agent was adjudged so liable, the Agent's indemnification is limited to reasonable expenses incurred; or (3) In the case of an advance of expenses, the Agent is entitled pursuant to the Articles of Incorporation, Bylaws, or any applicable resolution or contract, to payment or reimbursement of the Agent's reasonable expenses incurred as a party to the proceeding in advance of final disposition of the proceeding. 9.5 Determination and Authorization of Indemnification. (1) The Corporation shall not indemnify an Agent under this Section 9 unless authorized in the specific case after a determination has been made that indemnification of the Agent is permissible in the circumstances because the Agent has met the standard of conduct set forth in section 9.2(2) herein. (2) The determination shall be made: (i) By the Board of Directors by majority vote of a quorum consisting of directors not at the time parties to the proceeding; (ii) If a quorum cannot be obtained under (i) of this subsection, by majority vote of a committee duly designated by the Board of Directors, in which designation 13 directors who are parties may participate, consisting solely of two or more directors not at the time parties to the proceeding; (iii) By special legal counsel: (a) Selected by the Board of Directors or its committee in the manner prescribed in (i) or (ii) of this subsection; or (b) If a quorum of the Board of Directors cannot be obtained under (i) of this subsection and a committee cannot be designated under (ii) of this subsection, selected by majority vote of the full Board of Directors, in which selection directors who are parties may participate; or (iv) By the shareholders, but shares owned by or voted under the control of directors who are at the time parties to the proceeding may not be voted on the determination. (3) Authorization of indemnification and evaluation as to reasonableness of expenses shall be made in the same manner as the determination that indemnification is permissible, except that if the determination is made by special legal counsel, authorization of indemnification and evaluation as to reasonableness of expenses shall be made by those entitled under subsection (2)(iii) of this Section to select counsel. 9.6 Insurance. The Corporation may purchase and maintain insurance on behalf of an individual who is or was a director, officer, employee, or agent of the Corporation, or who, while a director, officer, employee, or agent of the Corporation, is or was serving at the request of the Corporation as a director, officer, partner, trustee, employee, or agent of another foreign or domestic corporation, partnership, joint venture, trust, employee benefit plan, or other enterprise, against liability asserted against or incurred by the individual in that capacity or arising from the individual's status as a director, officer, employee, or agent, whether or not the Corporation would have power to indemnify the individual against the same liability under this Section 9. 9.7 Indemnification as a Witness. This Section 9 does not limit a Corporation's power to pay or reimburse expenses incurred by an Agent in connection with the Agent's appearance as a witness in a proceeding at a time when the Agent has not been made a named defendant or respondent to the proceeding. 9.8 Report to Shareholders. If the Corporation indemnifies or advances expenses to a director pursuant to this Section 9 in connection with a proceeding by or in the right of the Corporation, the Corporation shall report the indemnification or advance in writing to the shareholders with or before the notice of the next shareholders' meeting. 14 9.9 Shareholder Authorized Indemnification. (1) If authorized by a resolution adopted or ratified, before or after the event, by the shareholders of the Corporation, the Corporation shall have the power to indemnify or agree to indemnify a director made a party to a proceeding, or obligate itself to advance or reimburse expenses incurred in a proceeding, without regard to the limitations contained in this Section 9 (other than this section 9.9); provided that no such indemnity shall indemnify any director from or on account of: (i) Acts or omissions of the director finally adjudged to be intentional misconduct or a knowing violation of law; (ii) Conduct of the director finally adjudged to be an unlawful distribution under RCW 23B.08.310; or (iii) Any transaction with respect to which it was finally adjudged that such director personally received a benefit in money, property, or services to which the director was not legally entitled. (2) Unless a resolution adopted or ratified by the shareholders of the Corporation provides otherwise, any determination as to any indemnity or advance of expenses under subsection (1) of this Section 9.9 shall be made in accordance with Section 9.5 herein. 9.10 Savings Clause. If this Section 9 or any portion thereof shall be invalidated on any ground by any court of competent jurisdiction, the Corporation shall nevertheless indemnify each Agent as to expenses (including attorneys' fees), judgements, fines and amounts paid in settlement with respect to any proceeding whether or not brought by or in the right of the Corporation, to the full extent permitted by any applicable portion of this Section 9 that shall not have been invalidated, or by any other applicable law. SECTION 10. REPRESENTATION OF SHARES OF OTHER CORPORATIONS Unless otherwise restricted by the Board of Directors, the Chairman, President, and any Vice President of the Corporation are each authorized to vote, represent and exercise on behalf of the Corporation all rights incident to any and all shares of other corporations standing in the name of the Corporation. This authority may be exercised by such officers either in person or by a duly executed proxy or power of attorney. 15 EX-4.1A 4 GUARANTEE GUARANTEE dated as of March 11, 1998 made by the GUARANTORS referred to herein in favor of BANKERS TRUST COMPANY, as Administrative Agent and Collateral Agent THE CHASE MANHATTAN BANK, as Syndication Agent THE VARIOUS FINANCIAL INSTITUTIONS IDENTIFIED AS LENDERS IN THE PARTICIPATION AGREEMENT, as Lenders and THE VARIOUS FINANCIAL INSTITUTIONS IDENTIFIED AS INVESTORS IN THE PARTICIPATION AGREEMENT, as Investors GUARANTEE THIS GUARANTEE (this "Guarantee"), dated as of March 11, 1998, is made by each of the Guarantors listed on the signature pages hereof under the caption "Guarantors" (collectively, the "Guarantors"), in favor of FMS TRUST 1997-1, as Lessor; BANKERS TRUST COMPANY, as Administrative Agent and Collateral Agent (the "Administrative Agent") under the Participation Agreement (as defined below); THE CHASE MANHATTAN BANK, as Syndication Agent (the "Syndication Agent"); each of the financial institutions as are or may from time to time become Lenders pursuant to the terms of the Participation Agreement (the "Lenders"); and each of the financial institutions as are or may from time to time become Investors pursuant to the terms of the Participation Agreement, as Investors (the "Investors") (each of the Lenders, the Lessor, the Investors, the Administrative Agent and the Syndication Agent being referred to herein collec tively as the "Guaranteed Parties"). W I T N E S S E T H: WHEREAS, as a condition to the occurrence of the Initial Closing Date under the Participation Agreement dated as of the date hereof (together with all amendments, supplements, amendments and restatements and other modifications, if any, from time to time thereafter made thereto, the "Participation Agreement"), among the Lessee and Construction Agent, the Lessor, the Owner Trustee, the Investors, the Administrative Agent, the Syndication Agent and the Lenders, the Guarantors are required to execute and deliver this Guarantee in favor of the Guaranteed Parties; WHEREAS, each of the Guarantors has duly authorized the execution, delivery and performance of this Guarantee; and WHEREAS, it is in the best interests of the Guarantors to execute this Guarantee inasmuch as the Guarantors will derive substantial benefits from the transactions contemplated by the Participation Agreement and the other Operative Agreements; NOW, THEREFORE, for good and valuable consideration the receipt of which is hereby acknowledged, and in order to induce the Guaranteed Parties to enter into the Participation Agreement, each of the Guarantors agrees, for the benefit of the Guaranteed Parties, as follows: ARTICLE I DEFINITIONS SECTION 1.1. Definitions. Capitalized terms used but not otherwise defined in this Guarantee have the respective meanings specified in Annex A to the Participation Agreement (as such Annex A may be amended, supplemented, amended and restated or otherwise modified from time to time, "Annex A"); and the rules of interpretation set forth therein shall apply to this Guarantee. SECTION 1.2. U.C.C. Definitions. Unless otherwise defined herein or the context otherwise requires, terms for which meanings are provided in the Uniform Commercial Code as in affect in the State of New York are used in this Guarantee, including its preamble and recitals, with such meanings. ARTICLE II GUARANTEE PROVISIONS SECTION 2.1. Guarantee. The Guarantors, as primary obligors and not as sureties, hereby jointly, severally, absolutely, unconditionally and irrevocably guarantee to each of the Guaranteed Parties the following obligations (collectively, the "Guaranteed Obligations"): (a) the due, punctual and full payment by each Loan Party, the Lessor and the Owner Trustee (for purposes of this Guarantee, each an "Obligor" and collectively the "Obligors"), whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise, of all Obligations and amounts to be paid by such Obligor pursuant to any Operative Agreement to which such Obligor (except to the extent such payment is to be made by the Trust Company in its individual capacity) is or is to be a party, whether for Investor Contributions, Investor Yield, principal, interest, fees, expenses or otherwise (including all such amounts which would become due but for the operation of the automatic stay under Section 362(a) of the United States Bankruptcy Code, 11 U.S.C. ss.362(a), and the operation of Sections 502(b) and 506(b) of the United States Bankruptcy Code, 11 U.S.C. ss.502(b) and ss.506 (b)); and (b) the due, prompt and faithful performance of, and compliance with, all other obligations, covenants, terms, conditions and undertakings of each Obligor (except to the extent such performance and/or compliance is to be made by the Trust Company in its individual capacity) contained in each Operative Agreement to which such Obligor is or is to be a party in accordance with the terms thereof. 2 SUBSIDIARY GUARANTEE Notwithstanding the foregoing, the Guarantors shall not be obligated to (i) make any payment hereunder in respect of principal of any Tranche B Loans or outstanding fundings of Investor Contribution unless at such time a Default or Event of Default has occurred and is continuing or (ii) pay under this Guarantee any amounts due under the Lease on behalf of any Lessee other than such amount as such Lessee would be obligated to pay under the Lease assuming the Lease were enforced in accordance with its terms (and without giving effect to any discharge or limitation thereon resulting or arising by reason of the bankruptcy or insolvency of such Lessee). The Guarantors further agree that they shall jointly and severally indemnify and hold harmless each Guaranteed Party for any and all costs and expenses (including reasonable attorney's fees and expenses) incurred by such Guaranteed Party in enforcing any rights under this Guarantee after the occurrence of an Event of Default. This Guarantee constitutes a guarantee of payment when due and not of collection, and each of the Guarantors specifically agrees that it shall not be necessary or required that any Guaranteed Party exercise any right, assert any claim or demand or enforce any remedy whatsoever against any Loan Party (or any other Person) before or as a condition to the enforcement of its obligations hereunder. SECTION 2.2. Guarantee Absolute, etc. This Guarantee shall in all respects be a continuing, absolute, unconditional and irrevocable guarantee of payment, and shall remain in full force and effect until all Guaranteed Obligations have been paid in full and all obligations of each Guarantor hereunder shall have been paid in full. Each of the Guarantors guarantees that the Guaranteed Obliga tions will be paid strictly in accordance with the terms of the Lease and each other Operative Agreement under which they arise, in each case regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of any Guaranteed Party. The liability of the Guarantors under this Guarantee shall be joint, several, absolute, unconditional and irrevoca ble irrespective of: (a) any lack of validity, legality or enforceability of any Operative Agreement; (b) the failure of any Guaranteed Party: 3 SUBSIDIARY GUARANTEE (i) to assert any claim or demand or to enforce any right or remedy against the Lessee or any other Person (including any other Guarantor) under the provisions of any Operative Agreement or otherwise, or (ii) to exercise any right or remedy against any other guar antor of, or collateral securing, any Guaranteed Obligations; (c) any change in the time, manner or place of payment of, or in any other term of, all or any of the Guaranteed Obligations, or any other extension, compromise or renewal of any of the Guaranteed Obligations; (d) any reduction, limitation, impairment or termination of the Guaranteed Obligations for any reason, including any claim of waiver, release, surrender, alteration or compromise, and shall not be subject to (and each Guarantor hereby waives any right to or claim of) any defense or setoff, counterclaim, recoupment or termination whatsoever by reason of the invalidity, illegality, nongenuineness, irregularity, compromise, unenforceability of, or any other event or occurrence affecting, the Guaran teed Obligations; (e) any amendment to, rescission, waiver, or other modification of, or any consent to departure from, any of the terms of any Operative Agreement; (f) any addition, exchange, release, surrender or nonperfection of any collateral, or any amendment to or waiver or release or addition of, or consent to departure from, any other guarantee, held by any Guaranteed Party securing any of the Guaranteed Obligations; or (g) any other circumstance which might otherwise constitute a defense available to, or a legal or equitable discharge of, any Loan Party, any surety or any guarantor. SECTION 2.3. Reinstatement, etc. (a) Each of the Guarantors agrees that this Guarantee shall continue to be effective or be reinstated, as the case may be, if at any time any payment (in whole or in part) of any of the Guaranteed Obligations is rescinded or must otherwise be restored by any Guaranteed Party, upon the insolvency, bankruptcy or reorganization of the Lessee or otherwise, as though such payment had not been made. 4 SUBSIDIARY GUARANTEE (b) This Guarantee shall be automatically and unconditionally released and discharged, without any further action required on the part of the beneficiary hereof or any other party hereto, upon: (i) the release of the Guarantors from their Subsidiary Guarantees dated as of March 11, 1998 to Bankers Trust Company, as Administrative Agent in respect of the $3,750,000,000 Loan Agreement dated as of March 11, 1998 among FMI, the lenders set forth on the signature pages thereof, Bankers Trust Company, as Administrative Agent, and The Chase Manhattan Bank, as Syndication Agent (the "Loan Agreement"), as such Loan Agreement may be hereafter amended and any successor facilities thereto; or (ii) any sale or other disposition (by merger or otherwise) to any Person which is not a subsidiary of FMI of all of the capital stock in, or all or substantially all of the assets of, the Guarantors, provided that such sale or disposition of such capital stock or assets is otherwise in compliance with the terms of the Operative Agree ments. The parties hereto agree that the foregoing is for the benefit of the lenders party to the Loan Agreement and may not be amended, modified or waived (and no provision inconsistent therewith adopted) without the consent of such lenders. SECTION 2.4. Waiver, etc. Each of the Guarantors hereby waives (i) promptness, diligence, notice of acceptance and any other notice (other than those provided for in the Operative Agreements) with respect to any of the Guaranteed Obligations and this Guarantee and (ii) any requirement that any Guaranteed Party protect, secure, perfect or insure any security interest or Lien, or any property subject thereto, or exhaust any right or take any action against any Loan Party or any other Person (including any other guarantor or entity or any collateral securing the Guaranteed Obligations). SECTION 2.5. Waiver of Subrogation. So long as any of the Guaranteed Obligations remain unpaid, each of the Guarantors hereby agrees that it will not claim and hereby irrevocably waives for such period any claim or other rights which it may now or hereafter acquire against any Loan Party that arise from the existence, payment, performance or enforcement of the Guarantors' obligations under this Guarantee or any other Operative Agreement, including any right of subrogation, reimbursement, exoneration, or indemnification, any right to partici pate in the claim or remedy of the Guaranteed Parties against any Lessee or any collateral which the Administrative Agent or the Lessor now has or hereafter acquires, whether or not such claim, remedy or right arises in equity, or under contract, statute or common law, including the right to take or receive from such Loan Party, directly or indirectly, in cash or other property or by set-off or in any manner, payment or security on account of such claim or other rights until all Guaranteed Obligations are satisfied. If any amount shall be paid to any of the Guarantors in violation of the preceding sentence and the Guaranteed Obligations 5 SUBSIDIARY GUARANTEE shall not have been paid in cash in full until all Guaranteed Obligations are satisfied, such amount shall be deemed to have been paid to such Guarantor for the benefit of, and held in trust for, the Guaranteed Parties, and shall forthwith be paid to the Guaranteed Parties to be credited and applied upon the Guaranteed Obliga tions, whether matured or unmatured. Each of the Guarantors acknowledges that it will receive benefits from the financing and other arrangements contemplated by the Operative Agreements and that the waiver set forth in this Section is knowingly made in contemplation of such benefits. SECTION 2.6. Subordination. Any rights of any Guarantor, whether now existing or later arising, to receive payment on account of any indebtedness (including interest) owed to it by FMI or to receive any payment from FMI shall at all times be subordinate as to lien and time of payment and in all other respects to the full and prior repayment of the Obligations and any obligations under the Corporate Loan Documents. The Guarantors shall not be entitled to enforce or receive payment of any sums hereby subordinated until the Obligations have been paid and performed in full and any such sums received in violation of this Guaran tee shall be received by the Guarantors in trust for the Guaranteed Parties and immediately turned over to same. SECTION 2.7. Consent to Jurisdiction; Waiver of Immunities. Each of the Guarantors hereby acknowledges and agrees that: (a) It irrevocably submits to the jurisdiction of any federal court sitting in the Southern District of New York in any action or proceeding arising out of or relating to this Guarantee, and each Guarantor hereby irrevocably agrees that all claims in respect of such action or proceeding may be heard and determined in such federal court. Each Guarantor hereby irrevocably waives, to the fullest extent it may effectively do so, the defense of an inconvenient forum to the maintenance of such action or proceeding. Each Guarantor agrees that a final, unappealable judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. (b) Nothing in this Section shall affect the right of any Guaranteed Party to serve legal process in any manner permitted by law or affect the right of any Guaranteed Party to bring any action or proceeding against any Guarantor or its property in the courts of any other jurisdictions. 6 SUBSIDIARY GUARANTEE SECTION 2.8. Obligations Independent. The obligations of each Guaran tor hereunder are independent of the obligations of any other Guarantor, any other guarantor or any other Loan Party, and a separate action or actions may be brought and prosecuted against each Guarantor whether or not action is brought against any other Guarantor, any other guarantor or any other Loan Party, and whether or not any other Guarantor, any other guarantor or any other Loan Party be joined in any such action or actions. SECTION 2.9. Bankruptcy. In the event of a rejection of the Lease or any Lease Supplement in a bankruptcy or insolvency proceeding of the Lessee, each Guarantor agrees that it will pay forthwith all payments required to be made by such Lessee under the Lease and Lease Supplements as though such rejection had not occurred. Each Guarantor confirms that it is the intention of all of the Partici pants that neither the guarantee by such Guarantor pursuant to this Guarantee nor any liability or payment by it hereunder shall (i) render such Guarantor "insol vent," or (ii) constitute a fraudulent transfer or conveyance, or (iii) constitute a transaction at an undervalue or preference, or (iv) give rise to any similar or analogous event, thing or circumstance, in each case, for purposes of the Bank ruptcy Code, the Uniform Fraudulent Conveyances Act, the Uniform Fraudulent Transfer Act or any similar federal or state law. To effectuate the foregoing intention, the Guaranteed Parties and each Guarantor hereby irrevocably agrees that the Guaranteed Obligations of such Guarantor shall be limited to the maximum amount as will, after giving effect to all other contingent and fixed liabilities of such Guarantor and after giving effect to any collections from or payments made by or on behalf of any other Guarantor in respect of the Guaranteed Obligations of such other Guarantor under this Guarantee, result in the Guaranteed Obligations of such Guarantor hereunder neither rendering the Guarantor "insolvent" nor consti tuting such fraudulent transfer or conveyance, such transaction at an undervalue or preference or such other event, thing or circumstance, in each case, under any such law. SECTION 2.10. Contribution. In order to provide for just and equitable contribution among the Guarantors, the Guarantor agrees, that in the event any payment or distribution is made by any other Guarantor (a "Funding Guarantor") under its Guarantee, such Funding Guarantor shall be entitled to a contribution from all other Guarantors, including the Guarantor, in a pro rata amount based on the Adjusted Net Assets of each Guarantor (including the Funding Guarantor) for all payments, damages and expenses incurred by that Funding Guarantor in discharging the Obligations of the Borrower, and the Guarantor agrees (i) to cooperate with the other Guarantors to determine whether such contributions are required and (ii) to make such contribution, if the Guarantors agree that such 7 SUBSIDIARY GUARANTEE contribution is required by the Guarantor. "Adjusted Net Assets" of such Guaran tor at any date shall mean the lesser of (x) the amount by which the fair value of the property of such 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 Guarantor subject to a Subordination Agreement)), but excluding liabilities under the Guarantee, of such Guarantor at such date and (y) the amount by which the present fair salable value of the assets of such Guarantor at such date exceeds the amount that will be required to pay the probable liabilities of such Guarantor on its debts, excluding debt in respect of the Guaranty of such Guarantor, as they become absolute and matured. ARTICLE III REPRESENTATIONS AND WARRANTIES SECTION 3.1. Representations and Warranties. Each of the Guarantors hereby affirms the representations and warranties set forth in Section 7.3 of the Participation Agreement, which representations and warranties are hereby incorpo rated by reference. ARTICLE IV MISCELLANEOUS PROVISIONS SECTION 4.1. Operative Agreement. This Guarantee is an Operative Agreement executed pursuant to the Participation Agreement and shall (unless expressly indicated herein) be construed, administered and applied in accordance with the terms and provisions of the Participation Agreement, including, without limitation, Section 13 thereof. SECTION 4.2. Binding on Successors, Transferees and Assigns; Assign ment of Guarantee. This Guarantee shall be binding upon each of the Guarantors and its successors, transferees and assigns and shall inure to the benefit of and be enforceable by each Guaranteed Party and their respective, permitted successors and assigns; provided, however, that no Guarantor may assign any of its obliga tions hereunder without the prior written consent of each Participant. 8 SUBSIDIARY GUARANTEE SECTION 4.3. Amendments, etc. No amendment to or waiver of any provision of this Guarantee, nor consent to any departure by any of the Guarantors herefrom, shall in any event be effective unless the same shall be in writing and signed by the Administrative Agent and the Lessor, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. SECTION 4.4. Addresses for Notices to the Guarantor. All notices, demands, requests, consents, approvals and other communications hereunder shall be in writing and directed to the address described in, and deemed received in accordance with the provisions of, Section 13.2 of the Participation Agreement. SECTION 4.5. No Waiver; Remedies. In addition to, and not in limita tion of, Section 2.2 and Section 2.4, no failure on the part of any Guaranteed Party to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. SECTION 4.6. Section Captions. Section captions used in this Guarantee are for convenience of reference only, and shall not affect the construction of this Guarantee. SECTION 4.7. Setoff. In addition to, and not in limitation of, any rights of any Guaranteed Party under applicable law, each Guaranteed Party shall, upon the occurrence of any Lease Event of Default or any Construction Agency Agree ment Event of Default, have the right to appropriate and apply to the payment of the obligations of the Guarantors owing to it hereunder, to the extent then due, and each of the Guarantors hereby grants to each Guaranteed Party a continuing security interest in, any and all balances, credits, deposits, accounts or moneys of such Guarantor then or thereafter maintained with such Guaranteed Party; pro vided, however, that any such appropriation and application shall be subject to the provisions of the Participation Agreement. SECTION 4.8. Severability. Wherever possible each provision of this Guarantee shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Guarantee shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Guarantee. 9 SUBSIDIARY GUARANTEE SECTION 4.9. Termination of Guarantee. The Guarantors' obligations under this Guarantee shall terminate on the date upon which all Guaranteed Obligations have been paid in full, and all other Obligations shall have been fully and finally discharged. SECTION 4.10. Governing Law. THIS GUARANTEE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK. SECTION 4.11. Waiver of Jury Trial. EACH OF THE GUARANTORS HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RE SPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS GUARANTEE. EACH OF THE GUARANTORS ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION AND THAT THIS PROVISION IS A MATERIAL INDUCE MENT FOR THE PARTICIPANTS ENTERING INTO THE PARTICIPATION AGREEMENT. 10 SUBSIDIARY GUARANTEE IN WITNESS WHEREOF, each Guarantor has caused this Guarantee to be executed and delivered as of the date first above written. Fred Meyer Stores, Inc. Roundup Co. Fred Meyer of Alaska, Inc. Fred Meyer of California, Inc. Distribution Trucking Company B & B Stores, Inc. B&B Pharmacy, Inc. CB&S Advertising Agency, Inc. FM Holding Corporation. Grand Central, Inc. F M Retail Services, Inc. Fred Meyer Jewelers, Inc. Merksamer Jewelers, Inc. FM Inc. J H Properties, Inc. Compare, Inc. Richie's, Inc. Quality Food Centers, Inc. Hughes Markets, Inc. Hughes Realty, Inc. KU Acquisition Corporation Second Story, Inc. Quality Food, Inc. Quality Food Holdings, Inc. QFC Sub, Inc. Natur Glo, Inc. Western Property Investment Group, Inc. By: ROGER A. COOKE --------------------------------- Name: Roger A. Cooke Title: Vice President and Secretary S-1 SUBSIDIARY GUARANTEE Smith's Food & Drug Centers, Inc. Smith's Beverage of Wyoming Smitty's Supermarkets, Inc. Smitty's Super Valu, Inc. Saint Lawrence Holding Company Smitty's Equipment Leasing, Inc. Food 4 Less Holdngs, Inc. Ralphs Gorcery Company Falley's, Inc. Cala Co. Bay Area Warehouse Stores, Inc. Cala Foods, Inc. Bell Markets, Inc. Food 4 Less of Southern California, Inc. Alpha Beta Company Food 4 Less GM, Inc. Food 4 Less Merchandising, Inc. Food 4 Less of California, Inc. Crawford Stores, Inc. All By: ROGER A. COOKE --------------------------------- Name: Roger A. Cooke Title: Vice President and Secretary S-2 SUBSIDIARY GUARANTEE Treasure Valley Land Company, L.C. By Smith's Food and Drug Centers, Inc., member By: ROGER A. COOKE --------------------------------- Name: Roger A. Cooke Title: Vice President and Secretary S-3 EX-4.1B 5 PARTICIPATION AGREEMENT PARTICIPATION AGREEMENT among FRED MEYER, INC., as Lessee and as Construction Agent, FMS TRUST 1997-1, a Delaware business trust, as Lessor, WILMINGTON TRUST COMPANY, not in its individual capacity, except as expressly specified herein, but solely as Owner Trustee under the FMS Trust 1997-1, THE INVESTORS PARTY TO THE TRUST AGREEMENT, BANKERS TRUST COMPANY, as Administrative Agent, THE CHASE MANHATTAN BANK, as Syndication Agent and THE LENDERS PARTIES HERETO Dated as of March 11, 1998 ------------------------------ CHASE SECURITIES INC. and BT ALEX. BROWN, as Arrangers TABLE OF CONTENTS Page SECTION 1. SUMMARY OF THE TRANSACTIONS..................................... 1 1.1. Operative Agreements............................................ 1 1.2. Property Purchase and Lease..................................... 1 1.3. Construction of Improvements; Lease of Improvements................................................. 2 1.4. Aggregate Tranche A Percentage; Tranche A Percentage.................................................... 3 1.5. Amounts Outstanding............................................. 3 SECTION 2. THE LOANS....................................................... 4 2.1. Making of Loans.......................................... 4 2.2. Timing of Loans................................................. 4 2.3. Security................................................. 4 2.4. Guarantees............................................... 5 SECTION 3. INVESTOR CONTRIBUTION........................................... 5 3.1. Investor Contribution........................................... 5 SECTION 4. THE CLOSINGS.................................................... 5 SECTION 5. FUNDING OF ADVANCES............................................. 5 5.1. General......................................................... 5 5.2. Procedures for Funding.......................................... 6 SECTION 6. CONDITIONS OF THE CLOSINGS AND ADVANCES......................... 6 6.1. General Conditions to Investors' and Lenders' Obligations to make Advances.................................... 6 6.2. Conditions to the Investors' and the Lenders' Obligations to Make Advances to pay Property Acquisition Costs..............11 6.3. Conditions to the Investors' and the Lenders' Obligations to Make Advances to pay Project Costs for Construction on any Property.................................................17 i SECTION 7. REPRESENTATIONS AND WARRANTIES..................................17 7.1. Representations and Warranties of the Investors on the Initial Closing Date........................................17 7.2. Representations and Warranties of Lessor on the Initial Closing Date............................................19 7.3. Representations and Warranties of the Loan Parties on the Initial Closing Date.....................................21 7.4. Representations and Warranties of the Trust Company on the Initial Closing Date.....................................29 7.5. Representations and Warranties of the Loan Parties on Property Closing Dates.......................................31 7.6. Representations and Warranties of the Lessor on Property Closing Dates..........................................34 7.7. Representations and Warranties of the Loan Parties upon each Funding Date..........................................35 7.8. Representations and Warranties of the Lessor Upon each Funding Date...............................................37 7.9. Representations and Warranties of the Investors Upon Funding Dates...................................................38 SECTION 8. PAYMENT OF CERTAIN EXPENSES.....................................39 8.1. Transaction Expenses............................................39 8.2. Brokers' Fees and Stamp Taxes...................................39 8.3. Certain Fees and Expenses.......................................39 8.4. Credit Agreement and Related Obligations........................40 8.5. Trust Agreement and Related Obligations.........................40 8.6. Facility Fees...................................................40 8.7. Overdue Rate....................................................40 SECTION 9. OTHER COVENANTS AND AGREEMENTS..................................41 9.1. Covenants of the Owner Trustee and the Investors................41 9.2. Amendment of Certain Documents..................................43 9.3. Proceeds of Casualty............................................43 SECTION 10. CREDIT AGREEMENT AND TRUST AGREEMENT............................44 10.1. Lessee's Credit Agreement Rights................................44 10.2. Lessee's Trust Agreement Rights.................................45 10.3 Representative of Lessee........................................46 10.4 Financial Information...........................................46 SECTION 11. TRANSFER OF INTEREST............................................46 ii 11.1. Restrictions on Transfer........................................46 11.2. Effect of Transfer..............................................47 SECTION 12. INDEMNIFICATION.................................................47 12.1. General Indemnity...............................................47 12.2. General Tax Indemnity...........................................48 SECTION 13. MISCELLANEOUS...................................................54 13.1. Survival of Agreements..........................................54 13.2. Notices.........................................................54 13.3. Counterparts....................................................56 13.4. Amendments and Termination......................................56 13.5. Headings, etc...................................................56 13.6. Parties in Interest.............................................56 13.7. GOVERNING LAW...................................................56 13.8. Jurisdiction; Consent to Service of Process.....................56 13.9. WAIVER OF JURY TRIAL............................................57 13.10. Severability....................................................58 13.11. Liability Limited...............................................58 13.12. Rights of Lessee................................................58 13.13. Further Assurances..............................................58 13.14. Successors and Assigns..........................................59 13.15. No Representation or Warranty...................................59 13.16. OREGON LEGAL NOTICE.............................................59 13.17. WASHINGTON STATUTORY NOTICE.....................................59 Appendix A Definitions Schedule 1 Existing Properties Schedule 7.3(h) Litigation Schedule 7.3(n) Brokers' Fees Schedule 7.3(o) Environmental Schedule 7.3(v) Permits Schedule 7.3(w) Subsidiaries Schedule 9.5(a) Indebtedness Schedule 9.5(b) Liens Schedule 9.5(e) Investments Exhibit A Form of Assignment of Leases and Consent to Assignment Exhibit B-1 Form of Mortgage (Fee Simple) iii Exhibit B-2 Form of Mortgage (Ground Lease) Exhibit C Form of Requisition Exhibit D-1 Form of Lessee Guarantee Exhibit D-2 Form of Subsidiary Guarantee Exhibit E Guarantee Language iv PARTICIPATION AGREEMENT PARTICIPATION AGREEMENT, dated as of March 11, 1998 (this "Agreement"), among FRED MEYER, INC., a Delaware corporation ("FMI"; in its capacity as lessee, the "Lessee"; and in its capacity as Construction Agent, the "Construction Agent"); FMS TRUST 1997-1, a Delaware business trust (the "Trust" or the "Lessor"); WILMINGTON TRUST COMPANY, not individually (in its individual capacity, the "Trust Company"), except as expressly stated herein, but solely as Owner Trustee under the FMS Trust 1997-1 (the "Owner Trustee"); BANKERS TRUST COMPANY, a New York banking corporation, as administrative agent (in such capacity, the "Administrative Agent") for the Lenders; THE CHASE MANHATTAN BANK, a New York banking corporation, as syndication agent (in such capacity, the "Syndication Agent"); NATIONSBANK OF TEXAS, N.A., a national banking association, and SALOMON BROTHERS HOLDING CO INC. as co-documentation agents (in such capacity, the "Co-Documentation Agents");each of the financial institutions listed as an Investor on the signature pages of the Trust Agreement (each an "Investor"; collectively, the "Investors"); and each of the financial institutions listed as a Lender on the signature pages hereof (each, a "Lender"; collectively, the "Lenders"). Capitalized terms used but not otherwise defined in this Agreement shall have the meanings set forth in Annex A hereto. Preliminary Statement In consideration of the mutual agreements herein contained and other good and valuable consideration, receipt of which is hereby acknowledged, the parties hereto hereby agree as follows: SECTION 1. SUMMARY OF THE TRANSACTIONS. 1.1. Operative Agreements. On the Initial Closing Date, each of the respective parties thereto shall execute and deliver this Agreement, the Lease, the Construction Agency Agreement, the Credit Agreement, any Notes, the Guarantees, the Intercreditor Agreement, the Pledge Agreement, the Assignment of Lease, the Contract Assignment, the Consent to Assignment, the Consent to Contract Assignment and such other documents, instruments, certificates and opinions of counsel as agreed to by the parties hereto. PARTICIPATION AGREEMENT 1.2. Property Purchase and Lease. (a) On the Initial Closing Date, the Investors will make the Investor Contributions in accordance with Section 3 hereof. (b) On each Property Closing Date and subject to the terms and conditions of this Agreement, the Credit Agreement and the Trust Agreement, (i) the Lenders will make loans in accordance with Section 2 hereof, (ii) the Lessor will purchase all right, title and interest in and to (or lease under a Ground Lease, as applicable) (A) on the Initial Closing Date, the Existing Properties, and (B) on each Property Closing Date, each Property identified by the Construction Agent pursuant to the Construction Agency Agreement (including Lease-Purchased Properties) with respect to such Property Closing Date, and (iii) the Lessor will simultaneously lease (or sublease, as the case may be) all of its right, title and interest in the Property (and any Improvements to be constructed thereon) to the Lessee by delivering a Lease Supplement. (c) With respect to any Property which is not a Store Land Property, on each Property Closing Date, the Lessee shall certify to the Administrative Agent on the Property Closing Certificate, the Maximum Residual Guarantee Amount for each Property being acquired on such Property Closing Date. With respect to any Store Land Property, the Lessee shall certify to the Administrative Agent, not less than thirty (30) days prior to the Construction Commencement Date for such Property, the Maximum Residual Guarantee Amount for such Property. The Maximum Residual Guarantee Amount so certified shall be the Maximum Residual Guarantee Amount for such Property for the duration of the Term. 1.3. Construction of Improvements; Lease of Improvements. (a) On each Property Closing Date (provided such Property is not a Completed Property or a Store Land Property), the Lessor and Lessee (i) will execute and deliver a Construction Agency Agreement Supplement, dated as of such Property Closing Date, pursuant to which FMI will agree to act as Construction Agent in connection with the completion of the construction of the Improvements on the Property described on the relevant Requisition and (ii) except in the case of a Twenty-Five Percent Property, described below, will execute and deliver a Memorandum of Lease which will be recorded in the real estate records in the county where such Property is located. 2 PARTICIPATION AGREEMENT (b) On each Property Closing Date or the Construction Commencement Date, if later, provided that the applicable Appraisal indicates that the value of the Land is greater than or equal to 25% of the Property Cost for such Land and the Improvements to be constructed thereon (a "Twenty-Five Percent Property"), it being understood and agreed that any Property which is a Store Land Property shall be deemed to be a Twenty-Five Percent Property until such time as the Lessee notifies the Lessor that it intends to commence construc tion of Improvements on such Property, the Lessor and the Lessee shall execute and deliver (i) a Lease Supplement pursuant to which the Lessor will lease (or sublease, as the case may be) all of its right, title and interest in such Land to the Lessee and (ii) an additional Lease Supplement pursuant to which the Lessor will lease (or sublease, as the case may be) all of its right, title and interest in such Improvements to the Lessee. Notwithstanding that the Improvements on a Twenty-Five Percent Property (whether existing on the date of acquisition of the Land or to be constructed pursuant to the Construction Agency Agreement) may be leased by a separate Lease Supplement, the term "Property" shall include the Land and the Improvements located thereon. (c) On each Property Closing Date with regard to the acquisition of a Twenty-Five Percent Property, the Lessor and Lessee will execute and deliver (i) a Memorandum of Lease with respect to the relevant Land and (ii) an additional Memorandum of Lease with respect to the relevant Improvements, each of which will be recorded in the real estate records in the county where such Property is located. 1.4. Aggregate Tranche A Percentage; Tranche A Percentage. (a) Notwithstanding any other provision of this Agreement or the other Operative Agreements, the Lessee agrees that in no event shall the Lessee specify a Property for the Lessor to acquire and lease pursuant to the execution and delivery of a Lease Supplement if the Aggregate Tranche A Percentage after giving effect to the acquisition and lease of such Property pursuant to the execu tion and delivery of a Lease Supplement, would be less than 87.6%. (b) Notwithstanding any other provision of this Agreement or the other Operative Agreements, the Lessee agrees that in no event shall the Lessee specify a Property for the Lessor to acquire and lease pursuant to the 3 PARTICIPATION AGREEMENT execution and delivery of a Lease Supplement if the Tranche A Percentage with respect to such Property would be less than 85%. 1.5. Amounts Outstanding. The parties hereto agree that there shall be no limit on the number of Properties or the value or the cost of acquisition or construction thereof; provided that (i) at no time shall the aggregate amount of Advances outstanding with respect to Store Land Property exceed $50,000,000; (ii) the aggregate Property Cost of all the Properties must at all times equal (x) the aggregate principal amount of the Loans outstanding plus (y) the aggregate Investor Contribution; (iii) at no time shall the aggregate principal amount of the Loans outstanding exceed the aggregate Commitments; and (iv) at no time shall the aggregate Investor Contributions outstanding exceed the aggre gate Investor Commitments. SECTION 2. THE LOANS. 2.1. Making of Loans. Subject to the terms and conditions of this Agreement and the Credit Agreement, and in reliance on the representations and warranties of each of the parties hereto contained herein or made pursuant hereto, on each Funding Date, the Lenders shall make loans to the Lessor in an aggregate principal amount at any time outstanding of up to $485,000,000 in order for the Lessor to (i) acquire Existing Properties and Store Land Properties, (ii) complete Improvements on Existing Properties which are not Completed Properties as of the Initial Closing Date, (iii) acquire, develop, construct and (as to leased properties acquired from third parties) refurbish Properties in accor dance with the Construction Agency Agreement, (iv) pay Transaction Expenses, and (v) pay other Project Costs. 2.2. Timing of Loans. The Loans shall be made pursuant to the Credit Agreement. Pursuant to this Agreement and the Credit Agreement, the Loans will be made to the Lessor from time to time from and after the Initial Closing Date until the Construction Period Termination Date at the request of the Construction Agent in consideration for the Construction Agent's agreeing for the benefit of the Lessor, pursuant to the Construction Agency Agreement, to (i) acquire parcels of Land or other Property (including the Existing Properties, Lease-Purchased Properties and Store Land Properties) and, if such Property is not a Completed Property, to construct Improvements in accordance with the Plans and Specifications or (ii) to construct Improvements in accordance with the Plans and 4 PARTICIPATION AGREEMENT Specifications on Properties which are not Completed Properties and which are owned by the Lessor as of the Funding Date with respect to such Improvements. 2.3. Security. The Loans and the obligations of the Lessor under the Credit Agreement shall be secured by, inter alia, (i) a first priority assignment of the Lease, granted pursuant to the Assignment of Leases and consented to by the Lessee pursuant to the Consent to Assignment (in each case in the respective forms set forth on Exhibit A hereto); (ii) a first priority assignment of the Construction Agency Agreement, granted pursuant to the Contract Assignment and consented to by the Construction Agent pursuant to the Consent to Contract Assignment; (iii) a first priority mortgage lien on each Property pursuant to a Mortgage in the form set forth on Exhibit B-1 or Exhibit B-2 hereto, as applicable; and (iv) a first priority pledge of the stock of Subsid iaries of FMI and each of its Subsidiaries (other than Insignificant Subsidiaries), granted pursuant to the Pledge Agreement in the form set forth on Exhibit E hereto. 2.4. Guarantees. The obligations of the Lessor under the Credit Agreement shall be guaranteed by the Guarantors to the extent provided in the Guarantees. SECTION 3. INVESTOR CONTRIBUTION. 3.1. Investor Contribution. Subject to the terms and conditions of this Agreement and the Trust Agreement, and in reliance on the representations and warranties of each of the parties hereto contained herein or made pursuant hereto, on the Initial Closing Date, each Investor shall make an investment in the Lessor (each, an "Investor Contribution") in an amount equal to the product of (i) such Investor's Investor Commitment Percentage and (ii) $15,000,000. The Lessor shall use the Investor Contributions to pay Project Costs. Such Investor Contributions shall accrue yield ("Investor Yield") as set forth in the Trust Agreement. 5 PARTICIPATION AGREEMENT SECTION 4. THE CLOSINGS. All documents and instruments required to be delivered on each Closing Date and each Funding Date shall be delivered at the offices of Skadden, Arps, Slate, Meagher & Flom LLP, 300 South Grand Avenue, Los Angeles, California, or at such other location as may be determined by the Administrative Agent and the Lessee. SECTION 5. FUNDING OF ADVANCES. 5.1. General. To the extent funds have been made available to the Lessor as Loans and Investor Contributions, the Lessor will make advances of such funds to the Construction Agent from time to time during the Construction Period in accordance with the terms and conditions of this Agreement and the other Operative Agreements. 5.2. Procedures for Funding. (a) In accordance with the provisions of the Credit Agreement and the Trust Agreement, in order to request Advances, the Construction Agent shall deliver to the Investors and the Administrative Agent a requisition (each a "Requisition"), appropriately completed, in the form of Exhibit C hereto. (b) Each Requisition shall: (i) be irrevocable; (ii) request funds in an amount of at least $1,000,000 (or such lesser amount as shall be equal to the total aggregate of the Available Commitments at such time) for the payment of Property Acquisition Costs or other Project Costs, including any of the foregoing which have previously been incurred and were not the subject of and funded pursuant to a prior Requisition, in each case as specified in the Requisition; and (iii) comply with the terms and conditions of Section 2.3 of the Credit Agreement and Section 3 of the Trust Agreement. (c) So long as no Default or Event of Default has occurred and is continuing and subject to the Lessor and the Administrative Agent having each received the materials required by Section 6.1, 6.2 and/or 6.3, as applicable, on each Funding Date (i) the Lenders shall make Loans to the Lessor in an aggregate amount equal to (x) in the case of the Initial Closing Date, the amount 6 PARTICIPATION AGREEMENT of funds specified in the Requisition therefor minus the Investor Contributions contributed pursuant to Section 3.1, and (y) thereafter in an amount equal to the amount specified in a Requisition, up to an aggregate principal amount equal to the Available Commitments; (ii) in the case of the Initial Closing Date, the Investors shall make Investor Contributions pursuant to Section 3.1; and (iii) the total amount of such Loans and Investor Contributions, if any, made on such date shall be paid to the Construction Agent to pay the Project Costs specified in such Requisition. SECTION 6. CONDITIONS OF THE CLOSINGS AND ADVANCES. 6.1. General Conditions to Investors' and Lenders' Obligations to make Advances. The obligations of the Investors to make Investor Contributions, and the Lenders to make Loans to the Lessor, are subject to the satisfaction or waiver, immediately prior to or concurrently with the making of such Loans and Investor Contributions, of the following conditions precedent: (a) Operative Agreements. Each of the Operative Agreements entered into on the Initial Closing Date shall have been duly authorized, executed, acknowledged and delivered by the parties thereto and shall be in full force and effect, and no Default or Event of Default shall exist thereun der (both before and after giving effect to the transactions contemplated by the Operative Agreements), and the Administrative Agent and the Investors shall have received a fully executed copy of each of the Operative Agreements (other than the Notes, of which the Administrative Agent shall have received the originals in the event Notes are requested by any Lender); (b) Taxes. All taxes, fees and other charges in connection with the execution, delivery, and, where applicable, recording, filing and registration of the Operative Agreements shall have been paid or provisions for such payment shall have been made to the satisfaction of the Administrative Agent and the Investors; (c) Governmental Approvals. All necessary (or, in the reasonable opinion of the Administrative Agent, the Investors and their respective counsel, advisable) Governmental Actions, in each case required by any law or 7 PARTICIPATION AGREEMENT regulation enacted, imposed or adopted on or after the date hereof or by any change in fact or circumstances since the date hereof, shall have been obtained or made and be in full force and effect; (d) Litigation. No action or proceeding shall have been instituted before any Governmental Authority, nor shall any order, judgment or decree have been issued or proposed to be issued by any Governmental Authority (i) to set aside, restrain, enjoin or prevent the full performance of this Agreement, any other Operative Agreement or any of the transactions contem plated hereby or thereby or (ii) which is reasonably likely to have a Material Adverse Effect; (e) Legal Requirements. In the opinion of the Administrative Agent, the Investors and their respective counsel, the transactions contemplated by the Operative Agreements do not and will not violate in any respect any Legal Requirements and do not and will not subject the Administrative Agent, the Syndication Agent, any Lender or any Investor to any adverse regulatory prohibitions or constraints; (f) Corporate Proceedings of the Loan Parties. On the Initial Closing Date, the Administrative Agent and the Investors shall have received a copy of the resolutions or minutes, in form and substance satisfactory to the Administrative Agent and the Investors, of the Board of Directors of each of the Loan Parties authorizing the execution, delivery and performance of this Agreement, the Guarantee (if applicable) and the other Operative Agreements to which it is a party, certified by the Secretary or an Assistant Secretary of each of the Loan Parties, as applicable, as of the Initial Closing Date, which certificate shall be in form and substance satisfactory to the Administrative Agent and the Investors and shall state that the resolutions or minutes thereby certified have not been amended, modified, revoked or rescinded; (g) Loan Parties Incumbency Certificate. On the Initial Closing Date, the Administrative Agent and the Investors shall have received a certificate of each of the Loan Parties, dated the Initial Closing Date, as to the incumbency and signature of the officers of such Loan Party executing any Operative Agreement satisfactory in form and substance to the Administrative Agent and the Investors, executed by the President or any Vice President and the Secretary or any Assistant Secretary of such Loan Party; 8 PARTICIPATION AGREEMENT (h) Corporate Proceedings of the Trust Company. On the Initial Closing Date, the Administrative Agent, the Investors and the Lessee shall have received a copy of the resolutions, in form and substance satisfactory to the Administrative Agent, the Investors and the Lessee, of the Board of Directors of the Trust Company authorizing the execution, delivery and performance of the Operative Agreements to which it is a party, certified by the Secretary or an Assistant Secretary of the Trust Company as of the Initial Closing Date, which certificate shall be in form and substance satisfactory to the Administrative Agent, the Investors and the Lessee and shall state that the resolutions thereby certified have not been amended, modified, revoked or rescinded; (i) Trust Company Incumbency Certificates. On the Initial Closing Date, the Administrative Agent, the Investors and the Lessee shall have received a certificate of the Trust Company, dated the Initial Closing Date, as to the incumbency and signature of the officers of the Trust Company executing any Operative Agreement, satisfactory in form and substance to the Administrative Agent, the Investors and the Lessee, executed by any Responsible Officer of the Trust Company; (j) Corporate Documents. (1) The Administrative Agent and the Investors shall have received true and complete copies of the certificate or articles of incorporation and by-laws of each of the Loan Parties, certified as of the Initial Closing Date as complete and correct copies thereof by the Secretary or an Assistant Secretary of such Loan Party; (2) Consents, Licenses and Approvals. The Administrative Agent and the Investors shall have received a certificate of the chief financial officer of each of the Loan Parties (i) attaching copies of all consents, authorizations and filings required to consummate the transaction contemplated by this Agreement, and (ii) stating that such consents, licenses and filings are in full force and effect, and each such consent, authorization and filing shall be in form and substance satisfactory to the Administrative Agent and the Investors; (k) Fees. The Administrative Agent and the Arrangers shall have received the fees to be paid on the Initial Closing Date pursuant to the Fee Letter which fees shall not be paid using the proceeds of the Loans or Investor Contributions; 9 PARTICIPATION AGREEMENT (l) Legal Opinions. (1) The Administrative Agent and the Investors shall have received the executed legal opinion of Stoel Rives LLP, counsel to the Loan Parties, in form and substance satisfactory to the Administra tive Agent and the Investors; (2) The Administrative Agent, the Lessee and the Investors shall have received the executed legal opinion of Morris, James, Hitchens & Williams, counsel to the Trust and the Trust Company, in form and substance satisfactory to the Administrative Agent and the Investors; (m) Actions to Perfect Liens. The Administrative Agent shall have received evidence in form and substance satisfactory to it that all filings, recordings, registrations and other actions, including the filing of duly executed Lender Financing Statements and Lessor Financing Statements, the Assignment of Lease, the Mortgages, and the Memoranda of Lease, necessary or, in the opinion of the Administrative Agent, desirable to perfect the Liens created by the Security Documents shall have been completed; (n) Lien Searches. The Administrative Agent and the Investors shall have received the results of a recent search by a Person reasonably satisfactory to the Administrative Agent, of the Uniform Commercial Code, judgement and tax lien filings which may have been filed in the States of Alaska, Idaho, Washington, Oregon and Utah with respect to personal property of the Lessee, and the results of such search shall be satisfactory to the Administrative Agent and the Investors; (o) Insurance. The Administrative Agent and the Investors shall have received evidence in form and substance satisfactory to them that all of the requirements of Section 14 of the Lease shall have been satisfied; (p) Representations and Warranties. The representations and warranties of the Lessor, the Investors and the Loan Parties contained herein and in each of the other Operative Agreements shall be true and correct on and as of each Funding Date as if made on and as of each Funding Date; (q) Performance of Operative Agreements. The parties hereto (other than the Investors or the Lenders) shall have performed their respec- 10 PARTICIPATION AGREEMENT tive agreements contained herein and in the other Operative Agreements on or prior to each such Funding Date; (r) Default. There shall not have occurred and be continuing any Default or Event of Default under any of the Operative Agreements and no Default or Event of Default under any of the Operative Agreements will have occurred after giving effect to the Advance requested by such Requisition; (s) Material Adverse Change. As of such Funding Date, there shall not have occurred any event, act or condition with respect to the consolidated assets, liabilities, operations, business or financial condition of any of the Loan Parties which has had, or could have, a Material Adverse Effect; (t) Mergers. Each of the Mergers shall have been consummated (or in the case of the Initial Closing Date shall be consummated contemporaneously therewith) in accordance with the relevant Merger Document, and no provision of the Merger Documents shall have been amended, modified or otherwise supplemented without the prior written consent of the Administrative Agent, the Lenders and the Investors; (u) Corporate Loan Documents. The transactions contemplated by the Corporate Loan Documents shall have been consummated in accordance with the terms of the Corporate Loan Documents, or the Administrative Agent shall have received satisfactory evidence that such transactions will close on the Initial Closing Date; (v) Officer's Certificates. The Administrative Agent shall have received Officer's Certificates as to the matters set forth in clauses (p) and (r) of this Section 6.1 and such other documents as are reasonably requested by the Administrative Agent; (w) Financial Information. The Investors, the Administrative Agent and the Lenders shall have received the following, in form and substance satisfactory to each of them: (i) the financial statements required to be delivered by the Loan Parties pursuant to Section 7.3(e); (ii) a pro forma consolidated balance sheet of FMI and its Subsidiaries, giving effect to the Mergers; and (iii) financial projections prepared by FMI demonstrating the projected consoli- 11 PARTICIPATION AGREEMENT dated financial condition and results of operations of FMI and its Subsidiaries after giving effect to the Mergers, for the period commencing on the Initial Closing Date and ending on the Maturity Date, which projections shall be accompanied by a written statement of the assumptions underlying the projec- tions; (x) Certain Payments. The Administrative Agent shall have received evidence satisfactory to it of the prior or simultaneous (i) repay ment or refinancing of the Indebtedness of FMI and its Subsidiaries set forth on Schedule 6.1(x) hereto (except as otherwise agreed to the satisfaction of the Administrative Agent); (ii) making of the Investor Contributions by the Investors; and (iii) receipt of not less than $1,500,000,000 (net of underwriting and other expenses in connection with such issuance) by FMI from the issuance of senior unsecured bonds on terms satisfactory to the Lenders; and (y) Pledged Stock. The Administrative Agent shall have received the original stock certificates evidencing the stock pledged pursuant to the Pledge Agreement, together with undated stock powers duly executed in blank in connection therewith. 6.2. Conditions to the Investors' and the Lenders' Obligations to Make Advances to pay Property Acquisition Costs. The obligations of the Investors to make Investor Contributions, and of the Lenders to make Loans to the Lessor, on a Property Closing Date (it being understood that the Investors shall not be obligated to make Investor Contributions on any Property Closing Date other than the Initial Closing Date) for the purpose of providing funds to the Lessor necessary to acquire a Property are subject to the satisfaction or waiver of the following additional conditions precedent (except that the conditions precedent set forth in clause (e) (Construction Agency Agreement Supplement); clause (o) (Construction Schedule); clause (p) (Budget); clause (q) (Budget in Balance); and clause (r) (Plans and Specifications) shall not apply with respect to the making of Advances in connection with a Store Land Property): (a) Requisition. The Administrative Agent and the Investors shall have received a fully executed counterpart of a Requisition dated as of the Property Closing Date (but delivered at least three Business Days prior to the Property Closing Date), appropriately completed; 12 PARTICIPATION AGREEMENT (b) Deed. There shall have been delivered to the Lessor a special warranty deed (the "Deed") (or, with respect to Properties subject to a Ground Lease, a good and sufficient assignment thereof), in form and substance appropriate for recording with the applicable Governmental Authorities, with respect to each Property (and all Improvements located thereon) being purchased on such Property Closing Date, conveying fee simple title (or a leasehold estate, with respect to Properties subject to a Ground Lease) to such Property to the Lessor, subject only to the Permitted Exceptions; (c) Title. Title to all of the Properties shall conform to the representations and warranties set forth in Section 7.5(k); (d) Lease Supplement and Memorandum of Lease. The Lessee shall have delivered a Lease Supplement and a Memorandum of Lease executed by the Lessee and the Lessor with respect to each Property being acquired on such Property Closing Date to the Administrative Agent (and, with respect to a Twenty-Five Percent Property, shall have delivered one Memorandum of Lease and one Lease Supplement each in respect of the Land and the Improvements, as set forth in Sections 1.3(b) and (c)); (e) Construction Agency Agreement Supplement. The Construction Agent shall have delivered a Construction Agency Agreement Supplement executed by the Construction Agent and the Lessor with respect to each Property being acquired on such Property Closing Date to the Administrative Agent; (f) Mortgage. The Lessee shall have recorded in the real estate records of the county where the Property is located an original of the Mortgage executed by the Lessor and Lessee with respect to each Property being acquired on such Property Closing Date and the Lien of the Mortgage shall conform to the representations and warranties set forth in Section 7.5(d); (g) Assignment of Lease. The Lessee shall have recorded in the real estate records of the county where the Property is located an original of the Assignment of Lease executed by the Lessor with respect to each Property being acquired on such Property Closing Date; 13 PARTICIPATION AGREEMENT (h) Consent to Assignment of Lease. The Lessee shall have delivered to the Administrative Agent a consent to the Assignment of Lease executed by the Lessee with respect to each Property being acquired on such Property Closing Date; (i) Environmental Audit. The Administrative Agent and the Investors shall have received not less than 10 days prior to such Property Closing Date an Environmental Audit with respect to each Property being acquired on such Property Closing Date, and the results of the Environmental Audit shall be in form and substance satisfactory to the Administrative Agent and the Investors; (j) Appraisal. The Administrative Agent and the Investors shall have received not less than 10 days prior to such Property Closing Date an Appraisal of each Property being acquired on such Property Closing Date and such Appraisal shall be in form and substance acceptable to the Administrative Agent and the Investors; (k) Survey. (i) With respect to each Property previ ously owned by the lessor under an Existing Synthetic Lease Facility, each of the Administrative Agent and the Title Company shall have received on or prior to such Property Closing Date, a certificate from a Responsible Officer of the Lessee certifying that the survey delivered in connection with such Existing Synthetic Lease Facility remains true and correct in all respects as of such Property Closing Date. (ii) With respect to each Property not owned by the lessor under an Existing Synthetic Lease Facility, each of the Administrative Agent and the Title Company shall have received, not less than 10 days prior to such Property Closing Date, a survey of each Property being acquired (or leased under a under a Ground Lease) on such Property Closing Date (each a "Survey"), complying with the following requirements: a survey of such Property certified to the Administrative Agent, the Investors, the Lessor and the Title Company in a manner satisfactory to them, dated as of a date within ninety days of the Property Closing Date, by an independent professionally licensed land surveyor satisfactory to the Administrative Agent, which survey shall be made in accordance with the Minimum Standard Detail Requirements for Land Title Surveys jointly established and adopted by the American Land Title Association and the American Congress 14 PARTICIPATION AGREEMENT on Surveying and Mapping in 1992, and, without limiting the generality of the foregoing, there shall be surveyed and shown on such survey the following, all in form and substance reasonably satisfactory to the Administrative Agent: (i) the locations on such Property of all the buildings, structures and other improvements, if any, and the established building setback lines; (ii) the lines of streets abutting such Property; (iii) all access and other easements appurtenant to such Property; (iv) all roadways, paths, driveways, easements, encroachments and overhanging projections and similar encumbrances affecting such Property, whether recorded, apparent from a physical inspection of such Property or otherwise known to the surveyor; (v) any encroachments on any adjoining property by the building, structures and improvements on such Property; and (vi) if such Property is described as being on a filed map, a legend relating the survey to said map; (l) Mortgagee's Title Insurance Policy. With respect to each Property being acquired (or leased under a Ground Lease) on such Property Closing Date, the Administrative Agent shall have received, with respect to the Mortgage, extended coverage mortgagees' title policies or marked up unconditional binder for such insurance dated the Property Closing Date; such policies shall (i) be in an amount equal to the aggregate amount shown on the Budget for such Property (with a pending disbursements clause); (ii) insure that the Mortgage insured thereby creates valid first Liens on such Property, free and clear of all defects and encumbrances, except Permitted Exceptions; (iii) name the Administrative Agent for the benefit of the Lenders as the insured thereunder; (iv) be in the form of ALTA Loan Policy - 1970 (Amended 10/17/70), if avail able, or if unavailable, such other form as may be reasonably acceptable to the Administrative Agent; (v) contain such endorsements and affirmative coverage as the Administrative Agent may reasonably request; (vi) be issued without general exceptions; and (vii) be issued by the Title Company; the Administrative Agent shall have received evidence reasonably satisfactory to it that all premiums in respect of such policy, and all charges for mortgage recording tax with respect to the Mortgage and/or the Deed of Trust have been paid or provision made therefor; (m) Owner's Title Insurance Policy. The Lessor shall have received an extended coverage owner's title policy with general exceptions and subject only to Permitted Encumbrances, in form and substance reasonably satisfactory to the Lessor, or marked up unconditional binder for such insurance, dated the Closing Date for each Property being acquired on such Property Closing 15 PARTICIPATION AGREEMENT Date; and the Lessor shall have received evidence reasonably satisfactory to it that all premiums in respect of such policy have been paid or provision made therefor; such owner's title insurance policy will be in the same amount as the Mortgagee's title insurance policy described in clause (l) above and will be issued on a simultaneous issue basis; (n) Recorded Documents. The Administrative Agent and the Investors shall have received, not less than 10 days prior to such Property Closing Date, a copy of all recorded documents referred to, or listed as exceptions to title in, the title policy referred to above; (o) Construction Schedule. The Administrative Agent shall have received a copy of the schedule prepared by or at the direction of the Construction Agent showing the estimated (i) timetable for completion of the Improvements to be constructed on each Property being acquired on such Property Closing Date, which timetable will project (A) commencement of construction of such Improvements within nine months of the acquisition or leasing under a Ground Lease, as the case may be, by the Lessor of such Prop erty and (B) completion of such Improvements within 12 months of the Construction Commencement Date for each such Property; and (ii) timetable for the making of Loans and Investor Contributions in respect of such Property; (p) Budget. The Administrative Agent and the Lessor shall have received a copy of the Budget with respect to the construction of the Improvements to be constructed on each Property, and such Budget shall be in form and substance satisfactory to the Administrative Agent and the Lessor; (q) Budget in Balance. Based upon the Budget, the Available Commitments and the Available Investor Commitments will be sufficient to complete the Improvements (if any) for which the Requisition relates on such Properties; (r) Plans and Specifications. The Administrative Agent and the Lessor shall have received a copy of the Plans and Specifications with respect to the Improvements to be constructed on each Property being acquired on such Property Closing Date, if available (and to the extent such Plans and Specifications are not available, the Lessee hereby covenants and agrees to provide them 16 PARTICIPATION AGREEMENT to the Administrative Agent and the Lessor promptly after they become available); and (s) Additional Survey and Title Matters. In addition to the other representations and warranties of the Loan Parties, the Loan Parties represent and warrant as to such Property on the Property Closing Date that each Survey, including, without limitation, the information, courses and distances shown thereon, is accurate; the legal description of each Property "closes" by mathematical calculation; the Property depicted on each Survey forms one contiguous parcel, uninterrupted by any strips, gaps or gores; each Survey correctly shows the size, location and type of all buildings, structures and other improvements on the Property and all are within the boundary lines and applicable setback lines (whether established by subdivision plat, recorded restrictions or applicable zoning or building codes) affecting such Property; municipal water, sanitary sewer, telephone, electric and gas services for the operation of each Property are present on such Property or within adjacent public rights-of-way or recorded easements in the locations shown on each Survey; there are no party walls with or encroachments upon adjoining premises, streets or alleys by any of the buildings, structures or other improvements located or to be located on any Property, or encroachments upon or party walls with any Property by any building, structure or other improvements situated upon any adjoining premises; the buildings and other improvements on each Property do not overhang or encroach upon any easements or rights-of-way of others; all public streets necessary for access to each Property have been completed and dedicated and there is direct access between such streets and such Property; each Property complies with all applicable zoning requirements and regulations, has a validly issued certificate of occupancy and contains sufficient number of parking spaces as required by law or otherwise necessary for the proper use and operation thereof; no Property lies within a flood hazard area designated as a Flood Zone on any flood hazard map published by the Federal Emergency Management Agency; each Property shown on a Survey is the same property described in the corresponding owner's and lender's title insurance policy or commitment delivered to the Administrative Agent; no Property serves any adjoining property for drainage utilities, parking, ingress or egress; there are no unpaid bills for work performed upon or materials delivered to any Property for the construction or improvement of any Property (or any part thereof) during the preceding 12 months; there are no unrecorded tenancies, leases or other occupancies on any Property and no Person has any options to purchase, rights of first 17 PARTICIPATION AGREEMENT refusal, rights of first offer or similar rights in connection with any Property; no Person is in possession of any Property other than the Lessee; and there are no unpaid charges for taxes, water and/or sewer services or other utility charges or unpaid special assessments for items such as sidewalks, curbs, gutters, sewers, storm water assessments affecting any Property. 6.3. Conditions to the Investors' and the Lenders' Obligations to Make Advances to pay Project Costs for Construction on any Property. The obligations of the Investors to make Investor Contributions, and of the Lenders to make Loans to the Lessor, on a Funding Date (it being understood that the Investors shall not be obligated to make Investor Contributions on any Funding Date other than the Initial Closing Date) for the purpose of providing funds to the Lessor necessary to pay for the construction of the Improvements or the payment of Transaction Costs or other Project Costs (other than Property Acquisition Costs) are subject to the satisfaction or waiver of the following additional conditions precedent: (a) Requisition. The Administrative Agent and the Investors shall have received a fully executed counterpart of a Requisition, appropriately completed; (b) Title. Title to all of the Properties shall conform to the representations set forth in Section 7.5(k); and (c) Budget in Balance. Based upon the Budget, the Available Commitments and the Available Investor Commitments will be sufficient to complete the Improvements on such Properties for which the Requi sition relates. SECTION 7. REPRESENTATIONS AND WARRANTIES. 7.1. Representations and Warranties of the Investors on the Initial Closing Date. Each of the Investors hereby represents and warrants on its own behalf to each of the other parties hereto as of the Initial Closing Date as follows: (a) Due Organization, etc. It is a duly organized and validly existing corporation in good standing under the laws of the State of its 18 PARTICIPATION AGREEMENT incorporation and has the power and authority to carry on its business as now conducted and to enter into and perform its obligations under this Agreement, each Operative Agreement to which it is a party and each other agreement, instrument and document executed and delivered by it on the Closing Date in connection with or as contemplated by each such Operative Agreement to which it is or will be a party. (b) Authorization; No Conflict. The execution, delivery and performance of each Operative Agreement to which it is a party has been duly authorized by all necessary action on its part and neither the execution and delivery thereof by such Investor, nor the consummation of the transactions contemplated thereby by such Investor, nor compliance by it with any of the terms and provisions thereof (i) requires or will require any approval of (which approval has not been obtained) the shareholders of, or approval or consent of any trustee or holders of any indebtedness or obligations of such Investor, (ii) contravenes or will contravene any Legal Requirement applicable to or binding on it as of the date hereof, (iii) does or will contravene or result in any breach of or constitute any default under, or result in the creation of any Lessor Lien upon any of the Properties or any of the Improvements, its articles of incorporation or by-laws, any indenture, mortgage, chattel mortgage, deed of trust, conditional sales contract, bank loan or credit agreement or other agreement or instrument to which it or its properties may be bound or (iv) does or will require any Governmental Action by any Governmental Authority. (c) Enforceability, etc. Each Operative Agreement to which it is a party has been duly executed and delivered by it and constitutes, or upon execution and delivery will constitute, a legal, valid and binding obligation enforceable against it in accordance with the terms thereof. (d) ERISA. Such Investor is making the Investor Contributions contemplated to be made by it hereunder for its own account and with its general corporate assets in the ordinary course of its business, and no part of such amount constitutes the assets of any Employee Benefit Plan. (e) Litigation. No litigation, investigation or proceeding of or before any arbitrator or Governmental Authority is pending or threatened by 19 PARTICIPATION AGREEMENT or against such Investor with respect to any of the Operative Agreements or any of the transactions contemplated hereby or thereby. 7.2. Representations and Warranties of Lessor on the Initial Closing Date. The Lessor represents and warrants to each of the other parties hereto as of the Initial Closing Date as follows: (a) Due Organization, etc. The Lessor is a duly organized and validly existing business trust in good standing under the laws of the State of Delaware and has the power and authority to carry on its business as now conducted and to enter into and perform its obligations under this Agreement, each Operative Agreement to which it is a party and each other agreement, instrument and document executed and delivered by it on the Closing Date in connection with or as contemplated by each such Operative Agreement. (b) Authorization; No Conflict. The execution, delivery and performance of each Operative Agreement to which it is a party has been duly authorized by all necessary action on its part and neither the execution and delivery thereof by the Lessor, nor the consummation of the transactions contemplated thereby by the Lessor, nor compliance by it with any of the terms and provisions thereof (i) requires or will require any approval (which approval has not been obtained) of any party or approval or consent of any trustee or holders of any indebtedness or obligations of the Lessor (ii) contravenes or will contravene any Legal Requirement applicable to or binding on it as of the date hereof, (iii) does or will contravene or result in any breach of or constitute any default under, or result in the creation of any Lessor Lien upon any of the Properties or any of the Improvements or the Trust Agreement, any indenture, mortgage, chattel mortgage, deed of trust, conditional sales contract, bank loan or credit agreement or other agreement or instrument to which it or its properties may be bound or (iv) does or will require any Governmental Action by any Governmental Authority. (c) Enforceability, etc. Each Operative Agreement to which it is a party has been duly executed and delivered by it and constitutes, or upon execution and delivery will constitute, a legal, valid and binding obligation enforceable against it in accordance with the terms thereof. 20 PARTICIPATION AGREEMENT (d) Litigation. No litigation, investigation or proceeding of or before any arbitrator or Governmental Authority is pending or threatened by or against the Lessor (a) with respect to any of the Operative Agreements or any of the transactions contemplated hereby or thereby, or (b) which could reasonably be expected to have a material adverse effect on the assets, liabilities, operations, business or financial condition of the Lessor. (e) Assignment. The Lessor has not assigned or transferred any of its right, title or interest in or under the Lease, any Operative Document or any of the Properties, except in accordance with the Operative Agreements. (f) No Default. The Lessor is not in default under or with respect to any of its Contractual Obligations in any respect which could have a material adverse effect on the assets, liabilities, operations, business or financial condition of the Lessor. No Default or Event of Default attributable to it has occurred and is continuing. (g) Use of Proceeds. The proceeds of the Loans and the Investor Contributions shall be applied by the Lessor solely in accordance with the provisions of the Operative Agreements. (h) Chief Place of Business. The Lessor's chief place of business, chief executive office and office where the documents, accounts and records relating to the transactions contemplated by this Agreement and each other Operative Agreement are kept are located at Wilmington Trust Company, Rodney Square North, 1100 North Market Street, Wilmington, Delaware, 19890- 0001. (i) Securities Act. Neither the Lessor nor any Person authorized by the Lessor to act on its behalf has offered or sold any interest in the Properties or the Notes, or in any similar security or interest relating to the Properties, or in any security the offering of which for the purposes of the Securities Act would be deemed to be part of the same offering as the offering of the aforementioned securities to, or solicited any offer to acquire any of the same from, any Person other than, in the case of the Notes, the Administrative Agent, and neither the Lessor nor any Person authorized by the Lessor to act on its behalf will take any action which would subject the issuance or sale of any interest in any 21 PARTICIPATION AGREEMENT of the Properties or the Notes to the provisions of Section 5 of the Securities Act or require the qualification of any Operative Agreement under the Trust Indenture Act of 1939, as amended. (j) Lessor Liens. Each of the Properties is free and clear of all Lessor Liens attributable to the Lessor or the Owner Trustee. 7.3. Representations and Warranties of the Loan Parties on the Initial Closing Date. Each Loan Party represents and warrants to each of the other parties hereto as of the Initial Closing Date as follows: (a) Organization; Powers. Each Loan Party (i) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (ii) has all requisite power and authority to own its property and assets and to carry on its business as now conducted and as proposed to be conducted, (iii) is qualified to do business in every jurisdiction where such qualification is required, except where the failure so to qualify would not result in a Material Adverse Effect, and (iv) has the power and authority to execute, deliver and perform its obligations under each of the Operative Agreements and each other agreement or instrument contemplated thereby to which it is or will be a party. (b) Authorization. The execution, delivery and performance by each Loan Party of the Operative Agreements to which it is a party (a) have been duly authorized by all requisite corporate action on the part of such Loan Party and (b) do not and will not (i) violate any Legal Requirements applicable to such Loan Party, the certificate or articles of incorporation or bylaws of such Loan Party or any order, judgment or decree of any court or other agency of government binding on it, (ii) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any Contractual Obligation of such Loan Party 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 such Loan Party (other than any Liens created under any of the Operative Agreements), or (iv) require any approval of stockholders or any approval or consent of any Person under any Contractual Obligation of such Loan Party, except for such approvals or consents which will be obtained on or before the Initial Closing Date (or, in the case of any Operative Agreement executed and delivered after the Initial Closing Date, on or before such 22 PARTICIPATION AGREEMENT date of execution and delivery) and disclosed in writing to the Administrative Agent and the Investors or such approvals or consents the failure to obtain could not reasonably be expected to individually or in the aggregate result in a Material Adverse Effect. (c) Enforceability. This Agreement and each of the other Operative Agreements to which each Loan Party is a party has been duly executed and delivered by such Loan Party and constitutes a legal, valid and binding obligation of such Loan Party enforceable against such Loan Party in accordance with its 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. (d) Governmental Approvals. No action, consent or approval of, registration or filing with or any other action by any Governmental Authority is or will be required by any of the Loan Parties in connection with the sale, leasing or financing of any of the Properties, except such as have been made or obtained and are in full force and effect. (e) Financial Condition. The Lessee has heretofore furnished to the Investors, the Administrative Agent and the Lenders consolidated balance sheet and statements of income, stockholders equity and cash flows for (i) FMI and its Subsidiaries, as of and for the fiscal year ended Febru ary 1, 1997, reported on by Deloitte & Touche, independent public accountants of FMI, and the fiscal quarter and the portion of the fiscal year ended November 8, 1997, certified by the chief financial officer of FMI; (ii) QFC and its Subsidiaries, as of and for the fiscal year ended December 28, 1996, reported on by Deloitte & Touche, independent public accountants of QFC, and the fiscal quarter and the portion of the fiscal year ended September 6, 1997, certified by the chief financial officer of QFC; and (iii) Food 4 Less and its Subsidiaries, as of and for the fiscal year ended February 2, 1997, reported on by Arthur Ander son, independent public accountants of Food 4 Less, and the fiscal quarter and the portion of the fiscal year ended October 12, 1997, certified by the chief financial officer of Food 4 Less. Such financial statements present fairly, in all material respects, the financial position and results of operations and cash flows of each of FMI, QFC, Food 4 Less and their respective Subsidiaries as of such dates and for such periods in accordance 23 PARTICIPATION AGREEMENT with GAAP, subject to year-end audit adjustments and the absence of footnotes in the case of the statements for the interim periods. (f) No Material Adverse Change. There has been no material adverse change in the business, assets, operations, prospects or condition, financial or otherwise, of (i) FMI and its subsidiaries, taken as a whole, since February 1, 1997; (ii) QFC and its subsidiaries, taken as a whole, since December 28, 1996; or (iii) Food 4 Less and its subsidiaries, taken as a whole, since February 2, 1997. (g) Title to Properties; Liens Each Loan Party has (i) good, sufficient and legal title to (in the case of fee interests in real property), (ii) valid leasehold interests 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 paragraph (e) above except for assets disposed of since the date of such financial statements in the ordinary course of business. Except as permitted by the Operative Agreements and the Corporate Loan Documents, all such properties and assets are free and clear of Liens. (h) Litigation; Adverse Facts. Except as described in Schedule 7.3(h) annexed hereto, 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 of the Loan Parties, threatened against or affecting any of the Loan Parties or any of their Subsidiaries or any property of any of the Loan Parties or any of their Subsidiaries that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. Neither any of the Loan Parties nor any of their Subsidiaries 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. 24 PARTICIPATION AGREEMENT (i) Payment of Taxes. All material tax returns and reports of each of the Loan Parties required to be filed have been timely filed, and all material taxes, assessments, fees and other governmental charges upon each of the Loan Parties and upon their respective properties, assets, income, businesses and franchises which are due and 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 such 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. (j) Performance of Agreements; Materially Adverse Agreements. (1) No Loan Party is in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any of its 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, would not have a Material Adverse Effect. (2) No Loan Party is a party to or is otherwise subject to any agreements or instruments or any charter or other internal restrictions which, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. (k) Governmental Regulation. Neither any Loan Party nor any of their Subsidiaries 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 or which may otherwise render all or any portion of the Obligations unenforceable. (l) Securities Activities. Neither any Loan Party nor any of their Subsidiaries 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. 25 PARTICIPATION AGREEMENT (m) Employee Benefit Plans. (1) Each of the Loan Parties and each of their respective ERISA Affiliates is 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 has performed all its material obligations under each Employee Benefit Plan. (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 in excess of $10,000,000 during the term of this Agreement. (n) Certain Fees. Except as disclosed on Schedule 7.3(n) annexed hereto, no broker's or finder's fee or commission will be payable with respect to this Agreement or any of the transactions contemplated hereby. (o) Environmental Protection. Except as set forth in Schedule 7.3(o) annexed hereto: (1) the operations of each of the Loan Parties and each of their Subsidiaries (including, without limitation, all operations and conditions at or in the Facilities) comply in all material respects with all Environmental Laws; (2) each of the Loan Parties and each of their Subsidiaries has obtained all Governmental Approvals under Environmental Laws necessary to its respective operations, and all such Governmental Approvals are in good standing, and each of the Loan Parties and each of their Subsidiaries is in compliance with all material terms and conditions of such Governmental Approvals; (3) neither any Loan Party nor any of their Subsidiaries 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 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. ss. 9604) or 26 PARTICIPATION AGREEMENT comparable state laws regarding any matter which could reasonably be expected to result in a Material Adverse Effect, and, to the best of each of the Loan Parties' knowledge, none of the operations of any of the Loan Parties or any of their Subsidiaries 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; (4) none of the operations of any of the Loan Parties or any of their Subsidiaries 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; (5) neither any Loan Party nor any of their Subsidiaries nor any of their respective Facilities or operations is 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 either Lessee or any of its Subsidiaries in excess of $10,000,000 individually or in the aggregate; (6) neither any Loan Party nor any of their Subsidiaries has any contingent liability in connection with any Release of any Hazardous Materials by any of the Loan Parties or any of their Subsidiaries which could reasonably be expected to result in Material Adverse Effect (7) neither any Loan Party nor any of their Subsidiaries or, to the best knowledge of any Loan Party, any predecessor of any of the Loan Parties or any of their Subsidiaries 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 the Loan Parties' or any of their Subsidiar ies' 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 Environmental Laws; 27 PARTICIPATION AGREEMENT (8) no Hazardous Materials exist on, under or about any Facility in a manner that has a reasonably possibility of giving rise to an Environmental Claim having a Material Adverse Effect, and neither any Loan Party nor any of their Subsidiaries 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; (9) neither any Loan Party nor any of their Subsidiaries or, to the best knowledge of any Loan Party, 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; (10) no unpermitted underground storage tanks or surface impoundments are on or at any Facility; and (11) 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. Notwithstanding anything in this paragraph (o) to the contrary, no event or condition has occurred with respect to any of the Loan Parties or any of their Subsidiaries 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 7.3(o) annexed hereto, which, individually, or in the aggregate, has had a Material Adverse Effect. (p) Employee Matters. There is no strike or work stoppage in existence or threatened involving any of the Loan Parties or any of their Subsidiaries that could reasonably be expected to have a Material Adverse Effect. (q) Solvency. Each of the Loan Parties is and, upon the incurrence of any Obligations by the Lessee on any date on which this representation is made, will be, Solvent. 28 PARTICIPATION AGREEMENT (r) Disclosure. No representation or warranty of any of the Loan Parties contained in any Operative Agreement, or in any other document, certificate or written statement furnished to the Administrative Agent, the Lenders or the Investors by or at the direction of any Loan Party for use in connection with the transactions contemplated by the Operative Agreements contains any untrue statement of a material fact or omits to state a material fact (known to any of the Loan Parties, 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 any of the Loan Parties to be reasonable at the time made, it being recognized by the Administrative Agent, the Lenders and the Investors 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 any Loan Party (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 the Administrative Agent, the Lenders and the Investors for use in connection with the transactions contemplated hereby. (s) Patents, Trademarks, etc. Each Loan Party and each of their respective Subsidiaries has obtained and holds in full force and effect all patents, trademarks, servicemarks, trade names, copyrights and other such rights, free from burdensome restrictions, which are necessary for the operation of its business as presently conducted, except to the extent that failure to obtain and hold in full force and effect such patents, trademarks, servicemarks, trade names, copyrights and other such rights, free from burdensome restrictions, would not be reasonably likely to have a Material Adverse Effect. No material product, process, method, substance, part of other material presently sold by or employed by such Loan Party or any of its Subsidiaries in connection with such business infringes any patent, trademark, service mark, trade name, copyright, license or other right owned by any other Person. (t) Merger Documents. The Lessee has delivered to the Administrative Agent, the Lenders and the Investors complete and correct copies 29 PARTICIPATION AGREEMENT of the Merger Documents, in each case as in effect as of the Initial Closing Date, and of all exhibits and schedules thereto. The Merger Documents have not been amended, supplemented, restated or otherwise modified on or before the Initial Closing Date since the date the Merger Documents were first entered into. (u) Worker's Compensation Claims. There are no worker's compensation claims against or relating to any Loan Party that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. (v) Permits. Except as disclosed in Schedule 7.3(v) annexed hereto, each of the Loan Parties, prior to and after giving effect to the Mergers, has such certificates, permits, licenses, franchises, consents, approvals, authorizations and clearances that are material to the condition (financial or otherwise), business or operations of such Loan Party (collectively the "Permits") and is (and will be immediately after the consummation of the Transactions) 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 to be conducted immediately after the consummation of the Merger, and all such Permits are valid and in full force and effect and will be valid and in full force and effect immediately upon consummation of the Mergers except to the extent that the failure of such Permits to be valid and in full force and effect would not be reasonably likely to have a Material Adverse Effect. Each of the Loan Parties, prior to and after giving effect to the Transactions, is and will be 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. (w) Subsidiaries. All of the Subsidiaries of FMI as of the Initial Closing Date (other than Insignificant Subsidiaries) are identified in Schedule 7.3(w) annexed hereto. The capital stock of each of the Subsidiaries of FMI identified in Schedule 7.3(w) annexed hereto is duly authorized, validly issued, fully paid and nonassessable, and free and clear of all Liens (except Permitted Liens) and none of such capital stock constitutes Margin Stock. Each of the Subsidiaries of FMI identified in Schedule 7.3(w) annexed hereto is a corporation 30 PARTICIPATION AGREEMENT 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 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. Schedule 7.3(w) annexed hereto correctly sets forth for FMI and each of its Subsidiaries (i) the ownership interest of FMI and each of its Subsidiaries in each of the Subsid iaries of FMI identified therein, (ii) the jurisdiction of incorporation of FMI and each such Subsidiary and (iii) whether any such Subsidiary is inactive. 7.4. Representations and Warranties of the Trust Company on the Initial Closing Date. The Trust Company represents and warrants to each of the other parties hereto that: (a) Due Organization, etc. It is a banking corporation duly organized and validly existing and in good standing under the laws of the State of Delaware and has the power and authority to enter into and perform its obligations under the Trust Agreement and has the corporate power and authority to act as the trustee under the Trust Agreement and to enter into and perform the obligations under each of the other Operative Agreements to which Trust Company or the Owner Trustee, as the case may be, is or will be a party and each other agreement, instrument and document to be executed and delivered by it on or before the Initial Closing Date in connection with or as contemplated by each such Operative Agreement to which the Trust Company or the Owner Trustee, as the case may be, is or will be a party. (b) Authorization; No Conflict. The execution, delivery and performance of each Operative Agreement to which it is a party, either in its individual capacity or (assuming due authorization, execution and delivery of the Trust Agreement by the Investor) as the Owner Trustee, as the case may be, has been duly authorized by all necessary action on its part and neither the execution and delivery thereof, nor the consummation of the transactions contemplated thereby, nor compliance by it with any of the terms and provisions thereof (i) does or will require any approval or consent of any trustee or holders of any of its 31 PARTICIPATION AGREEMENT indebtedness or obligations, (ii) does or will contravene any current United States federal law, governmental rule or regulation relating to its banking or trust powers, (iii) does or will contravene or result in any breach of or constitute any default under, or result in the creation of any Lien upon any of its property under, its charter or by-laws, or any indenture, mortgage, chattel mortgage, deed of trust, conditional sales contract, bank loan or credit agreement or other agreement or instrument to which it is a party or by which it or its properties may be bound or affected or (iv) does or will require any Governmental Action by any Governmental Authority of the United States or the State of Delaware regulating its banking or trust powers. (c) Trust Company Enforceability, etc. The Trust Agreement and each other Operative Agreement to which Trust Company or the Owner Trustee, as the case may be, is a party have been, or on or before the Initial Closing Date will be, duly executed and delivered by Trust Company or the Owner Trustee, as the case may be, and, assuming the Trust Agreement is the legal, valid and binding obligation of the Investors, the Trust Agreement and each such other Operative Agreement to the extent entered into by the Trust Company constitutes, or upon execution and delivery will constitute, a legal, valid and binding obligation enforceable against Trust Company in accordance with the terms thereof. (d) Litigation. No litigation, investigation or proceeding of or before any arbitrator or Governmental Authority is pending or threatened by or against the Trust Company with respect to any of the Operative Agreements or any of the transactions contemplated hereby or thereby. 7.5. Representations and Warranties of the Loan Parties on Property Closing Dates. Each of the Loan Parties hereby represents and warrants as of each Property Closing Date as follows: (a) Representations and Warranties. The representations and warranties of the Lessor and the Loan Parties set forth in Section 7.2 and 7.3, respectively, and in each of the other Operative Agreements are true and correct in all respects on and as of such Property Closing Date as if made on and as of such Property Closing Date, except to the extent such representations or warranties relate solely to an earlier date, in which case such representations and warranties shall have been true and correct on and as of such earlier date. Each of the Loan 32 PARTICIPATION AGREEMENT Parties is in compliance with its obligations under the Operative Agreements and there exists no Default or Event of Default under any of the Operative Agreements. (b) No Default. No Default or Event of Default will occur under any of the Operative Agreements as a result of, or after giving effect to, the Advance requested by the Requisition on such Property Closing Date. (c) Recording of Documents. Each of the Deed, the Lease Supplement, the Memorandum of Lease, the Assignment of Lease, the Consent to the Assignment of Lease and the Mortgage delivered on such Property Closing Date will be recorded with the appropriate Governmental Authorities in the order set forth in this paragraph, and the UCC Financing Statements with respect to the Property being acquired will be filed with the appropriate Govern mental Authorities. (d) Priority of Liens. (i) Upon proper recordation, each Mortgage, each Supplement to the Assignment of Lease and each Memorandum of Lease delivered on such Property Closing Date, will constitute a valid and perfected first lien on each applicable Property and the Improvements located thereon in an amount not less than the Tranche A/B Property Cost with respect to such Property, subject only to the Permitted Exceptions, and (ii) upon proper filing, the Lessor Financing Statements will perfect the Lessor's interest under the Lease to the extent the Lease is a security agreement governed by Article 9 of the Uniform Commercial Code. (e) Flood Zone. No portion of any Property being acquired by the Lessor on such Property Closing Date is located in an area identified as a special flood hazard area by the Federal Emergency Management Agency or other applicable agency, or if any such Property is located in an area identified as a special flood hazard area by the Federal Emergency Management Agency or other applicable agency, then flood insurance has been obtained for such Property in accordance with Section 14.2(b) of the Lease and in accordance with the National Flood Insurance Act of 1968, as amended. (f) Insurance Coverage. The Lessee maintains insurance coverage for each Property being acquired by the Lessor on such Property Closing 33 PARTICIPATION AGREEMENT Date which meets the requirements of Section 14.1 of the Lease and all of such coverage is in full force and effect. (g) Legal Requirements. Each Property being acquired by the Lessor on such Property Closing Date complies in all material respects with all Legal Requirements (including all zoning and land use laws and Environmental Laws). (h) Consents, etc. All consents, licenses and building permits required by all Legal Requirements for construction, completion, occupancy and operation of each Property being acquired on such Property Closing Date have been obtained and are in full force and effect or, as to Proper ties being constructed, will be obtained when required. (i) Utilities. All utility services and facilities necessary for the use of the Improvements existing, or to be constructed, on the Land (including gas, electrical, water and sewage services and facilities) will be available to each Property being acquired on such Property Closing Date on or prior to the Outside Completion Date for such Property. (j) Environmental Matters. (1) No Property being acquired on such Property Closing Date contains, or has previously contained, any Hazardous Materials in amounts or concentrations which (i) constitute or constituted a material violation of, or (ii) are reasonably likely to give rise to material liability under, any Environmental Law. (2) Each Property and all operations at such Property are in compliance, and have in the last ten years been in compliance, in all material respects with all applicable Environmental Laws, and there is no material contamination at, on or under such Property or material violation of any Environmental Law with respect to such Property or the business operated by FMI, Smith's or any of their Subsidiaries at the Property. (3) None of the Loan Parties or any of their Subsidiaries has received any notice of any material violation, alleged material 34 PARTICIPATION AGREEMENT violation, material non-compliance, material liability or potential material liability regarding compliance with Environmental Laws with regard to any of the Properties, nor does any Loan Party have knowledge that any such notice will be received or is being threatened. (4) Hazardous Materials have not been transported or disposed of from any of the Properties in material violation of any Environmental Law, nor have any Hazardous Materials been generated, treated, stored or disposed of at, on or under any of the Properties in material violation of any applicable Environmental Law. (5) No judicial proceeding or governmental or administrative action is pending or, to the best knowledge of the Loan Parties, threatened, under any Environmental Law to which any of the Loan Parties or any of their respective Subsidiaries is or will be named as a party with respect to any of the Properties, nor are there any consent decrees or other decrees, consent orders, administrative orders or other orders, or other administrative or judicial requirements outstanding under any Environmental Law with respect to any of the Properties which, if adversely determined, could reasonably be expected to have a Material Adverse Effect. (6) There has been no Release or threat of Release of Hazardous Materials at or from any of the Properties, or arising from or related to the operations of the Loan Parties or any of their Subsidiaries in connection with any of the Properties, in violation of or in amounts or in a manner that could reasonably be expected to give rise to any material liability under any Environmental Laws. (k) Title to the Properties. (1) Except with respect to Properties subject to Ground Leases, upon the acquisition of each Property on such Property Closing Date, the Lessor will have good and marketable title to such Property in fee simple, subject only to the Permitted Exceptions. Upon the acquisition of each Property on such Property Closing Date, the Lessor will have the right to grant the Mortgage on such Property. The Lessor will at all times have good and marketable title to the Improvements, subject only to Permitted Exceptions. 35 PARTICIPATION AGREEMENT (2) With respect to Properties leased under a Ground Lease, upon execution of such Ground Lease and other related documents on such Property Closing Date, the Lessor will have an enforceable lessee's interest enforceable against the Lessee, in accordance with the terms of such Ground Lease. (l) Location of the Properties. Each Property being acquired on such Property Closing Date is located in the continental United States. (m) Conditions Precedent in Operative Agreements. All conditions precedent contained in this Agreement and in the other Operative Agreements relating to the acquisition of a Property by the Lessor have been satisfied in full or waived. 7.6. Representations and Warranties of the Lessor on Property Closing Dates. The Lessor hereby represents and warrants as of each Property Closing Date as follows: (a) Representations and Warranties; No Default. The representations and warranties of the Lessor set forth in Section 7.2 and in each of the other Operative Agreements are true and correct in all respects on and as of such Property Closing Date as if made on and as of such Property Closing Date, except to the extent such representations and warranties relate solely to an earlier date, in which case such representations and warranties shall have been true and correct as of such earlier date. The Lessor is in compliance with its obligations under the Operative Agreements and there exists no Default or Event of Default under any of the Operative Agreements. No Default or Event of Default attributable to the Lessor will occur under any of the Operative Agreements as a result of, or after giving effect to, the Advance requested by the Requisition on such Property Closing Date. (b) Conditions Precedent in Operative Agreements. All conditions precedent contained in this Agreement and in the other Operative Agreements to be satisfied by the Lessor relating to the acquisition of a Property by the Lessor have been satisfied in full. 36 PARTICIPATION AGREEMENT 7.7. Representations and Warranties of the Loan Parties upon each Funding Date. Each Loan Party hereby represents and warrants as of each Funding Date as follows: (a) Representations and Warranties. The representations and warranties of the Loan Parties set forth in Section 7.2 and 7.3, respectively, and in each of the other Operative Agreements are true and correct in all respects on and as of such Funding Date as if made on and as of such Funding Date, except to the extent such representations or warranties relate solely to an earlier date, in which case such representations and warranties shall have been true and correct as of such earlier date. The Loan Parties are in compliance with their respective obligations under the Operative Agreements and there exists no Default or Event of Default under any of the Operative Agreements. No Default or Event of Default will occur under any of the Operative Agreements as a result of, or after giving effect to, the Advance requested by the Requisition on such date. (b) Title to Properties. The Lessor has good and marketable title to each Property in fee simple (or, with respect to Lease-Purchased Properties, has a first priority perfected leasehold interest), subject only to the Permitted Exceptions. (c) Priority of Liens. Each Mortgage, Supplement to the Assignment of Lease and Memorandum of Lease constitutes a valid and perfected first lien on each applicable Property and the Improvements located thereon in an amount not less than the Tranche A/B Property Cost with respect to such Property, subject only to Permitted Exceptions. (d) Insurance. The Construction Agent has obtained insurance coverage covering each Property which meets the requirements of the Construction Agency Agreement and the other Operative Agreements before commencing construction, repairs or Modifications, as the case may be, and such coverage is in full force and effect. (e) Property-Related Matters. Each Construction Period Property will when improved in accordance with the Plans and Specifications, comply, and each Completed Property complies in all material respects, with all Legal Requirements (including all applicable zoning and land use laws and 37 PARTICIPATION AGREEMENT Environmental Laws) and Insurance Requirements. The Plans and Specifications have been or will be prepared in accordance with all applicable Legal Requirements (including all applicable Environmental Laws and building, plan ning, zoning and fire codes) and upon completion of the applicable Improvements in accordance with the Plans and Specifications, such Improvements on the Construction Period Property will not encroach in any manner onto any adjoining land (except as permitted by express written easements or variance) and such Improvements and the use thereof by the Lessee and its agents, assignees, employees, invitees, lessees, licensees and tenants will comply with all applicable Legal Requirements (including all applicable Environmental Laws and building, planning, zoning and fire codes). Upon completion of such Improvements in accordance with the Plans and Specifications, (i) there will be material no defects to such Improvements including the plumbing, heating, air conditioning and electrical systems thereof and (ii) all water, sewer, electric, gas, telephone and drainage facilities and all other utilities required to adequately service such Improvements for their intended use will be available pursuant to adequate permits (including any that may be required under applicable Environmental Laws). There is no action, suit or proceeding (including any proceeding in condemnation or eminent domain or under any applicable Environmental Law) pending or threatened which materially adversely affects the title to, or the use, operation or value of, the Properties. No fire or other casualty with respect to the Properties has occurred which fire or other casualty has had a material adverse effect on the Lessee's ability to perform its obligations under the Construction Agency Agreement and the other Operative Agreements. All utilities serving the Properties, or proposed to serve the Properties in accordance with the Plans and Specifications, are located in, and in the future will be located in, and vehicular access to the Improvements on each of the Properties is provided by, either public rights-of-way abutting the Properties or Appurtenant Rights. All applicable licenses, approvals, authorizations, consents, permits (including, without limitation, building, demolition and environmental permits, licenses, approvals, authorizations and consents), easements and rights-of-way, including proof of dedication, required for (i) the use, treatment, storage, transport, disposal or disposition of any Hazardous Material on, at, under or from the Properties during the construction of the Improvements thereon and the use and operation of the Improvements following such construction, (ii) the construction of the Improvements in accordance with the Plans and Specifications and the Construction Agency Agreement and (iii) the use and operation of the Improvements following such construction as permitted pursuant to the Lease have been obtained 38 PARTICIPATION AGREEMENT from the appropriate Governmental Authorities having jurisdiction or from private parties. (f) Lease Requirements. The Improvements when completed, will comply with all requirements and conditions set forth in the Lease and all other conditions and requirements of the Operative Documents. (g) Conditions Precedent Contained in the Operative Agreements. All conditions precedent contained in this Agreement and in the other Operative Agreements relating to the relevant Advance have been satisfied in full. (h) Projected Completion Value. The Property Cost of all Improvements on each Property as established by the Construction Budget will not exceed an amount equal to one hundred ten percent (110%) of the Projected Completion Value. 7.8. Representations and Warranties of the Lessor Upon each Funding Date. The Lessor hereby represents and warrants as of each Funding Date as follows: (a) Representations and Warranties. The representations and warranties of the Lessor set forth in Section 7.2 and in each of the other Operative Agreements are true and correct in all respects on and as of such Funding Date as if made on and as of such Funding Date, except to the extent such representations and warranties relate solely to an earlier date, in which case such representations and warranties shall have been true and correct as of such earlier date. The Lessor is in compliance with its respective obligations under the Operative Agreements. (b) Authority of the Lessor. The execution and delivery of each Operative Agreement delivered by the Lessor on such date and the performance of the obligations of the Lessor under each Operative Agreement has been duly authorized by all requisite action of the Lessor. 39 PARTICIPATION AGREEMENT (c) Execution and Delivery by the Lessor. Each Operative Agreement required to be delivered by the Lessor on such date has been duly executed and delivered by the Lessor. (d) Valid and Binding Obligations of the Lessor. Each Operative Agreement delivered by the Lessor on such date is a legal, valid and binding obligation of the Lessor, enforceable against the Lessor in accordance with its terms. (e) Conditions Precedent contained in the Operative Agreements. All conditions precedent contained in this Agreement and in the other Operative Agreements to be satisfied by the Lessor relating to the relevant Advance have been satisfied in full. 7.9. Representations and Warranties of the Investors Upon Funding Dates. Each Investor hereby represents and warrants on its own behalf as of each Funding Date that: (a) the representations and warranties of such Investor set forth herein and in each of the other Operative Agreements are true and correct in all respects on and as of such Funding Date as if made on and as of such Funding Date, except to the extent such representations and warranties relate solely to an earlier date, in which case such representations and warranties shall have been true and correct as of such earlier date and (b) such Investor is in compliance with its obligations under the Operative Agreements. SECTION 8. PAYMENT OF CERTAIN EXPENSES. The Lessee agrees, for the benefit of the Investors, the Trust Company, the Owner Trustee, the Administrative Agent and each of the Lenders, to: 8.1. Transaction Expenses. On the Initial Closing Date, each Property Closing Date and each Funding Date, pay, or cause to be paid, all (a) reasonable fees, expenses and disbursements of each of the Lessor's, the Trust Company's, the Administrative Agent's, and the Investors' counsel in connection with the transactions contemplated by the Operative Agreements and incurred in 40 PARTICIPATION AGREEMENT connection with such Initial Closing Date and (b) all reasonable Transaction Expenses. 8.2. Brokers' Fees and Stamp Taxes. Pay or cause to be paid brokers' fees for brokers retained by the Loan Parties and any and all stamp, transfer and other similar taxes, fees and excises, if any, including any interest and penalties, which are payable in connection with the transactions contemplated by this Agreement and the other Operative Agreements. 8.3. Certain Fees and Expenses. Pay or cause to be paid (i) the initial and annual Trust Company's fee and all reasonable out-of-pocket expenses of the Trust Company and any necessary co-trustees (including reasonable counsel fees and expenses) or any successor owner trustee, for acting as trustee under the Trust Agreement, (ii) all reasonable out-of-pocket costs and expenses incurred by the Loan Parties, the Administrative Agent, the Lenders, the Investors, the Trust Company or the Lessor (A) in entering into any future amendments or supplements with respect to any of the Operative Agreements, whether or not such amendments or supplements are ultimately entered into, (B) the giving or withholding of waivers of consents hereto or thereto, which have been requested by the Lessee or (C) in connection with the enforcement or protection of its rights in connection with the Operative Agreements after the occurrence of an Event of Default, and (iii) all reasonable out-of-pocket costs and expenses incurred by the Lessor, the Loan Parties, the Lenders, the Investors, the Trust Company or the Administrative Agent in connection with any purchase of any Property by the Lessee pursuant to Section 20 of the Lease. 8.4. Credit Agreement and Related Obligations. (a) Pay, on or prior to the due date thereof, all costs, fees, indemnities, expenses and other amounts (other than principal and interest on the Loans, but including breakage costs and interest on overdue amounts pursuant to Section 2.14 of the Credit Agreement or otherwise) required to be paid by the Lessor under any Operative Agreement. (b) Pay the Administrative Agent all fees specified in the Fee Letter at the time and in the manner required by the Fee Letter, which fees may not be paid by using the proceeds of the Loans or the Investor Contribution. 41 PARTICIPATION AGREEMENT (c) Pay the Lessor promptly after receipt of notice therefor any additional amounts payable by the Lessor as Borrower under the Credit Agreement in respect of Sections 2.13, 2.14 and 2.15 of the Credit Agreement (it being agreed that the Lessor is, for purposes of this Agreement, a beneficiary of the provisions of Sections 2.13, 2.14 and 2.15 of the Credit Agreement). 8.5. Trust Agreement and Related Obligations. (a) Pay, before the due date thereof, all costs, fees, indemnities, expenses and other amounts (other than principal and interest on the Investor Contributions, but including breakage costs and interest on overdue amounts pursuant to Section 3.13 of the Trust Agreement or otherwise) required to be paid by the Owner Trustee under any Operative Agreement. (b) Pay the Owner Trustee promptly after receipt of notice therefor any additional amounts payable by the Owner Trustee in respect of Sections 3.12, 3.13 and 3.14 of the Trust Agreement (it being agreed that the Owner Trustee is, for purposes of this Agreement, a beneficiary of the provisions of Sections 3.12, 3.13 and 3.14 of the Trust Agreement). 8.6. Commitment Fees. Pay to the Administrative Agent for the account of each Lender the Commitment Fee on each Commitment Fee Payment Date. 8.7. Overdue Rate. If all or a portion of the Investor Yield or any other amount owed to the Investors shall not be paid when due, such overdue amount shall bear interest, payable on demand, at a rate per annum equal to the applicable Overdue Rate, from the date of such non-payment until such amount is paid in full (as well after as before judgment). SECTION 9. CERTAIN COVENANTS AND AGREEMENTS. 9.1. Covenants of the Owner Trustee and the Investors. Each of the Owner Trustee and the Investors hereby agrees that so long as this Agreement and the other Operative Agreements are in effect: 42 PARTICIPATION AGREEMENT (a) Discharge of Liens. Each of the Investors, the Owner Trustee and the Trust Company, in its individual capacity, will not create or permit to exist at any time, and will, at its own cost and expense, promptly take such action as may be necessary duly to discharge, or to cause to be discharged, all Lessor Liens on the Properties granted or suffered by it or any of its Affiliates; provided, however, that the Investors, the Owner Trustee and the Trust Company shall not be required to so discharge any such Lessor Lien while the same is being contested in good faith by appropriate proceedings diligently prosecuted so long as such proceedings shall not involve any material danger of impairment of the Liens of the Security Documents or of the sale, forfeiture or loss of, and shall not interfere with the use or disposition of, any Property or title thereto or any interest therein or the payment of Rent. (b) Trust Agreement. Without prejudice to any right under the Trust Agreement of the Trust Company to resign, or the Investors' right under the Trust Agreement to remove the institution acting as owner trustee, each of the Investors and the Trust Company hereby agrees with the Lessee and the Administrative Agent (i) not to terminate or revoke the trust created by the Trust Agreement except as permitted by the Trust Agreement, (ii) not to amend, supplement, terminate or revoke or otherwise modify any provision of the Trust Agreement without the prior written consent of any party adversely affected by such amendment and (iii) to comply with all of the terms of the Trust Agreement, the nonperformance of which would adversely affect such party. (c) Successor Trust Company. The Trust Company or any successor may resign or be removed by the Investors as owner trustee, a successor owner trustee may be appointed, and a corporation may become the owner trustee under the Trust Agreement, only in accordance with the provisions of Article 9 of the Trust Agreement and with the consent of the Lessee, which consent shall not be unreasonably withheld or delayed. (d) Indebtedness; Other Business. The Lessor in its capacity as the Owner Trustee shall not contract for, create, incur or assume any indebtedness, or guarantee the indebtedness of any Person, or enter into any business or other activity, other than pursuant to or under the Operative Agreements. 43 PARTICIPATION AGREEMENT (e) No Violation. The Investors will not instruct the Owner Trustee to take any action in violation of the terms of any Operative Agreement. (f) No Voluntary Bankruptcy. Neither the Investors nor the Owner Trustee shall (i) commence any case, proceeding or other action under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization, arrangement, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (ii) seek appointment of a receiver, trustee, custodian or other similar official for it or for all or any substantial benefit of its creditors; and neither the Investors nor the Owner Trustee shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in this paragraph. (g) Change of Chief Place of Business. The Owner Trustee shall give prompt notice to the Lessee and the Administrative Agent if the Owner Trustee's chief place of business or chief executive office, or the office where the records concerning the accounts or contract rights relating to the Property are kept, shall cease to be located at the Trust Company's Corporate Trust Administration office in Wilmington, Delaware or if it shall change its name. (h) Loan Documents. Provided that no Event of Default is continuing, none of the Lenders, the Owner Trustee, the Lessee, the Administrative Agent nor the Investors shall consent to any amendment, supple ment, waiver or other modification of the terms and provisions of the Credit Agreement, the Notes or the Security Documents, in each case without the prior written consent of the Lessee, which consent shall not be unreasonably withheld or delayed; provided that no such amendment, supplement, waiver or other modification shall increase the obligations of the Lessee under the Operative Agreements without the prior written consent of the Lessee. (i) Disposition of Assets. The Owner Trustee shall not convey, sell, lease, assign, transfer or otherwise dispose of any of its property, business or assets, whether now owned or hereafter acquired, except to the extent expressly authorized by the Operative Agreements. 44 PARTICIPATION AGREEMENT (j) Compliance with Operative Agreements. The Owner Trustee shall at all times observe and perform all of the covenants, conditions and obligations required to be performed by it under each Operative Agreement to which it is a party. 9.2. Amendment of Certain Documents. The Administrative Agent, for itself on behalf of the Lenders, hereby agrees for the benefit of the Owner Trustee and the Investors that it will not amend, alter or otherwise modify, or consent to any amendment, alteration or modification of, the Lease or the Credit Agreement (including the definitions of any terms used in such document) without the prior written consent of the Owner Trustee and the Investors, as the case may be, if such amendment, alteration or modification would adversely affect the interests of the Owner Trustee or the Investors. 9.3. Proceeds of Casualty. The Lessor and the Investors agree, for the benefit of the Administrative Agent and the Lenders, that if at any time either the Lessor or the Investors receive any proceeds as a result, directly or indirectly, of any Casualty with respect to the Properties which the Lessor is entitled to retain and hold in accordance with the terms of the Lease, the Lessor and the Investors agree that they will promptly deposit such amounts in an account with the Administrative Agent. The Lessor and the Investors also agree that they will execute and deliver such documents and instruments as the Administrative Agent may request in order to grant the Administrative Agent, for the benefit of the Lenders, a valid and perfected, first priority security interest in such proceeds. 9.4. Affirmative Covenants of the Lessee. The Lessee covenants that: (a) Financial Statements and Other Information. The Lessee will furnish to the Administrative Agent and each Lender: (i) within 100 days after the end of each fiscal year of the Lessee, its audited consolidated balance sheet and related statements of opera tions, stockholders' equity and cash flows as of the end of and for such year, setting forth in each case in comparative form the figures for the previous fiscal year, all reported on by Deloitte & Touche LLP or other independent public accountants of recognized national standing (without a "going concern" or like qualification or 45 PARTICIPATION AGREEMENT exception and without any qualification or exception as to the scope of such audit) to the effect that such consolidated financial statements present fairly in all material respects the financial condition and results of operations of the Lessee and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP; (ii) within 55 days after the end of each of the first three fiscal quarters of each fiscal year of the Lessee, its consolidated balance sheet and related statements of operations, stockholders' equity and cash flows as of the end of and for such fiscal quarter and the then elapsed portion of the fiscal year, setting forth in each case in comparative form the figures for the corresponding period or periods of (or, in the case of the balance sheet, as of the end of) the previous fiscal year, all certified by one of its Responsible Officers as presenting fairly in all material respects the financial condition and results of operations of the Lessee and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP, subject to normal year-end audit adjustments and the absence of footnotes; (iii) concurrently with any delivery of financial statements under clause (i) or (ii) above, a Compliance Certificate (i) certifying as to whether a Default has occurred and, if a Default has occurred, specifying the details thereof and any action taken or proposed to be taken with respect thereto, (ii) setting forth reasonably detailed calculations (x) demonstrating compliance with Section 9.5(j) and (y) establishing the Applicable Margin, and (iii) stating whether any change in GAAP or in the application thereof has occurred since the date of the audited financial statements referred to in Section 6.1(w) and, if any such change has occurred, specifying the effect of such change on the financial statements accompanying such certificate; (iv) concurrently with any delivery of financial statements under clause (i) above, a certificate of the accounting firm that reported on such financial statements stating whether they obtained knowledge during the course of their examination of such financial statements of any Default (which certificate may be limited to the extent required by accounting rules or guidelines); (v) promptly after the same become publicly available, copies of all periodic and other reports, proxy statements and other materials filed by the Lessee or any Subsidiary with the Securities and Exchange Commission, or any Governmental Authority succeeding to any or all of the functions of said Commis- 46 PARTICIPATION AGREEMENT sion, or with any national securities exchange, or distributed by the Lessee to its shareholders generally, as the case may be; and (vi) promptly following any request therefor, such other information regarding the operations, business affairs and financial condition of the Lessee or any Subsidiary, or compliance with the terms of this Agreement, as the Administrative Agent or any Lender or Investor may reasonably request. (b) Notices of Material Events. The Lessee will furnish to the Administrative Agent and each Lender and Investor prompt written notice of the following: (i) the occurrence of any Default upon actual knowledge of a Responsible Officer of the Lessee; (ii) the filing or commencement of any action, suit or proceeding by or before any arbitrator or Governmental Authority against or affecting the Lessee or any Affiliate thereof that, if adversely determined, could reasonably be expected to result in a Material Adverse Effect; (iii) the occurrence of any ERISA Event that, alone or together with any other ERISA Events that have occurred, could reasonably be expected to result in material liability of the Lessee and its Subsidiaries; and (iv) any other development that results in, or could reasonably be expected to result in, a Material Adverse Effect. Each notice delivered under this Section shall be accompanied by a statement of a Responsible Officer of the Lessee setting forth the details of the event or development requiring such notice and any action taken or proposed to be taken with respect thereto. (c) Existence; Conduct of Business. The Lessee will, and will cause each of its Subsidiaries to, do or cause to be done all things necessary to preserve, renew and keep in full force and effect its legal existence and the rights, licenses, permits, privileges and franchises material to the conduct of its business; 47 PARTICIPATION AGREEMENT provided that the foregoing shall not prohibit any merger, consolidation, liquidation or dissolution permitted under Section 9.5(d). (d) Payment of Obligations. The Lessee will, and will cause each of its Subsidiaries to, pay its obligations, including Tax liabilities, that, if not paid, could result in a Material Adverse Effect before the same shall become delinquent or in default, except where (a) the validity or amount thereof is being contested in good faith by appropriate proceedings, (b) the Lessee or such Subsidiary has set aside on its books adequate reserves with respect thereto in accordance with GAAP and (c) the failure to make payment pending such contest could not reasonably be expected to result in a Material Adverse Effect. (e) Maintenance of Properties; Insurance. The Lessee will, and will cause each of its Subsidiaries to, (a) keep and maintain all property material to the conduct of its business in good working order and condition, ordinary wear and tear excepted, and (b) maintain, with financially sound and reputable insurance companies, insurance in such amounts and against such risks (and having such deductibles and self-insurance) as are customarily maintained by companies engaged in the same or similar businesses operating in the same or similar locations. (f) Books and Records; Inspection Rights. The Lessee will, and will cause each of its Subsidiaries to, keep proper books of record and account in which full, true and correct entries are made of all dealings and transactions in relation to its business and activities. The Lessee will, and will cause each of its Subsidiaries to, permit any representatives designated by the Administrative Agent or any Lender or Investor, upon reasonable prior notice, to visit and inspect its properties, to examine and make extracts from its books and records, and to discuss its affairs, finances and condition with its officers and independent accountants, all at such reasonable times and as often as reasonably requested. (g) Compliance with Laws. The Lessee will, and will cause each of its Subsidiaries to, comply with all laws, rules, regulations and orders of any Governmental Authority applicable to it or its property, including without limitation ERISA and all Environmental Laws, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. 48 PARTICIPATION AGREEMENT (h) Use of Proceeds. The proceeds of the Loans will be used only for the purposes set forth in Section 2.1. No part of the proceeds of any Loan will be used, whether directly or indirectly, for any purpose that entails a violation of any of the Regulations of the Federal Reserve Board, including Regulations G, U and X. (i) Subsidiary Guarantees; Pledge Agreement. The Lessee shall cause each Person which becomes a Subsidiary (other than Insignificant Subsidiaries) after the Initial Closing Date to execute and deliver to the Administrative Agent a Subsidiary Guarantee and a Joinder Agreement with respect to the Pledge Agreement and the Intercreditor Agreement together with such officer's certificates, resolutions and other assurances related thereto as the Administrative Agent shall reasonably request within 10 days of such Person becoming a Subsidiary. (j) Store Land Property. The Lessee shall deliver to each of the Lessor and the Administrative Agent, not less than ten (10) days prior to the Construction Commencement Date with respect to any Store Land Property, the following: (i) the construction schedule prepared by or at the direction of the Construction Agent showing the estimated (i) timetable for completion of the Improvements to be constructed on such Property, which timetable will project (A) commencement of construction of such Improvements within twelve months of the acquisition or leasing under a Ground Lease, as the case may be, by the Lessor of such Property and (B) completion of such Improvements within 12 months of the Construction Commencement Date for such Property; and (ii) timetable for the making of Loans in respect of such Property; (ii) a copy of the Budget with respect to the construction of the Improvements to be constructed on such Property, in form and substance satisfactory to the Administrative Agent and the Lessor, based upon which Budget the Available Commitments will be sufficient to complete the Improvements contemplated to be constructed on such Property; and (iii) the Plans and Specifications with respect to the Improvements to be constructed on such Property. 49 PARTICIPATION AGREEMENT 9.5. Negative Covenants of the Lessee. The Lessee covenants that: (a) Subsidiary Indebtedness. The Lessee will not permit any Subsidiary to create, incur, assume or permit to exist any Indebtedness, except: (i) Indebtedness owed to the Lessee or to another Subsidiary; (ii) Indebtedness existing on the date hereof; provided that to the extent any item of such Indebtedness exceeds $5,000,000, or the aggregate of all such Indebtedness exceeds $25,000,000, such Indebtedness shall be identified in Schedule 9.5(a); (iii) Indebtedness secured by Permitted Liens; (iv) Capitalized Lease Obligations not to exceed $100,000,000; (v) Indebtedness outstanding when a Person becomes a Subsidiary or is merged or consolidated with another Subsidiary, provided that such Indebtedness exists at the time such Person becomes a Subsidiary and is not created in contemplation of or in connection with such Person becoming a Subsidiary; (vi) Indebtedness in respect of letters of credit issued to support the purchase of goods by the applicable Subsidiary in the ordinary course of business; (vii) Indebtedness in respect of commercial letters of credit issued to support liabilities of a Subsidiary relating to worker's compensation, judgments pending appeal (and as to which there is no Event of Default under any Operative Agreement), construction or similar liabilities in the ordinary course of business; (viii) Suretyship Liabilities constituting guarantees of the Lessee's unsecured Indebtedness, provided such Indebtedness is not senior to the obligations of the Lessee under the Corporate Loan Documents and such guarantees contain language in substantially the form attached as Exhibit E hereto; and Suretyship Liabilities constituting guarantees of the Lessee's Synthetic Lease Facilities, 50 PARTICIPATION AGREEMENT provided such guarantees contain language in substantially the form attached as Exhibit E hereto; and (ix) Indebtedness not otherwise permitted by the foregoing clauses of this Section 9.5(a) so long as the sum, without duplication, of (x) all such Indebtedness and (y) all Indebtedness secured by Liens permitted solely by Section 9.5(b)(vi) does not exceed 5.0% of Tangible Net Assets. (b) Liens. The Lessee will not, and will not permit any Subsidiary to, create, incur, assume or permit to exist any Lien on any property or asset now owned or hereafter acquired by it, or assign or sell any income or revenues (including accounts receivable) or rights in respect of any thereof, except: (i) Permitted Liens; (ii) any Lien on any property or asset of the Lessee or any Subsidiary existing on the date hereof (including Liens created pursuant to the Corporate Loan Documents and the Security Documents) and set forth in Schedule 9.5(b); provided that (i) such Lien shall not apply to any other property or asset of the Lessee or any Subsidiary and (ii) such Lien shall secure only those obligations which it secures on the date hereof; (iii) any Lien existing on any property or asset prior to the acquisition thereof by the Lessee or any Subsidiary or existing on any property or asset of any Person that becomes a Subsidiary after the date hereof prior to the time such Person becomes a Subsidiary; provided that (i) such Lien is not created in contemplation of or in connection with such acquisition or such Person becoming a Subsidiary, as the case may be, (ii) such Lien shall not apply to any other property or assets of the Lessee or any Subsidiary and (iii) such Lien shall secure only those obligations which it secures on the date of such acquisition or the date such Person becomes a Subsidiary, as the case may be; (iv) Liens on fixed or capital assets acquired, constructed or improved by the Lessee or any Subsidiary; provided that (i) such security interests and the Indebtedness secured thereby are incurred prior to or within 180 days after such acquisition or the completion of such construction or improvement, (ii) the Indebtedness secured thereby does not exceed the cost of acquiring, constructing or 51 PARTICIPATION AGREEMENT improving such fixed or capital assets and (iii) such security interests shall not apply to any other property or assets of the Lessee or any Subsidiary; (v) Liens on assets acquired after the date hereof under Synthetic Lease Facilities; and (vi) Liens not otherwise permitted by the foregoing clauses of this Section 9.5(b), securing Indebtedness of the Lessee or its Subsidiaries, so long as the sum, without duplication, of (i) all such Indebtedness and (ii) all Indebtedness permitted solely by Section 9.5(a)(ix) does not exceed 5.0% of Tangible Net Assets. (c) Modifications of Merger Documents. The Lessee shall not, and shall not permit any of its Subsidiaries to amend, modify or waive, or permit the amendment, modification or waiver of, any provision of the Merger Documents. (d) Fundamental Changes. (i) The Lessee will not, and will not permit any Material Subsidiary to, merge into or consolidate with any other Person, or permit any other Person to merge into or consolidate with it, or sell, transfer, lease or otherwise dispose of (in one transaction or in a series of transactions) all or any substantial part of its assets, or all or substantially all of the stock of any of its Material Subsidiaries (in each case, whether now owned or hereafter acquired), or liquidate or dissolve, except that, if at the time thereof and immediately after giving effect thereto no Default shall have occurred and be continuing (i) any Subsidiary may merge into the Lessee in a transaction in which the Lessee is the surviving corporation, (ii) any Subsidiary may merge into any Subsidiary in a transaction in which the surviving entity is a Subsidiary, (iii) any Subsidiary may sell, transfer, lease or otherwise dispose of its assets to the Lessee or to another Subsidiary and (iv) any Subsidiary may liquidate or dissolve if the Lessee determines in good faith that such liquidation or dissolution is in the best interests of the Lessee and is not materially disadvantageous to the Lenders and Investors. (ii) The Lessee will not, and will not permit any of its Subsidiaries to, engage to any material extent in any business other than businesses of the 52 PARTICIPATION AGREEMENT type conducted by the Lessee and its Subsidiaries on the date of execution of this Agreement and businesses reasonably related thereto. (e) Investments, Loans, Advances, Suretyship Liabilities and Acquisitions. The Lessee will not, and will not permit any of its Subsidiaries to, purchase, hold or acquire (including pursuant to any merger with any Person that was not a wholly owned Subsidiary prior to such merger) any capital stock, evidences of indebtedness or other securities (including any option, warrant or other right to acquire any of the foregoing) of, make or permit to exist any loans or advances to, incur Suretyship Liabilities in respect of any obligations of, or make or permit to exist any investment or any other interest in, any other Person, or purchase or otherwise acquire (in one transaction or a series of transactions) any assets of any other Person constituting a business unit, except: (i) Permitted Investments; (ii) investments by the Lessee and its Subsidiaries in its Subsidiaries including Persons which, as a result of such investment, become Subsidiaries; (iii) loans or advances made, or Suretyship Liabilities incurred, by the Lessee to or in respect of any Subsidiary and made or incurred by any Subsidiary to or in respect of the Lessee or any other Subsidiary; (iv) Suretyship Liabilities with respect to Hedging Agreements permitted by Section 9.5(f); (v) Suretyship Liabilities constituting Debt permitted by Section 9.5(a) which are (i) in respect of commercial paper, or (ii) Suretyship Liabilities other than in respect of commercial paper in aggregate amount not to exceed $200,000,000 at any one time; (vi) Suretyship Liabilities created under the Corporate Loan Documents; (vii) Suretyship Liabilities with respect to Surety Instruments incurred in the ordinary course of business; and 53 PARTICIPATION AGREEMENT (viii) investments existing on the date hereof; provided that to the extent any such investment exceeds $5,000,000, or the aggregate of all such investments exceeds $25,000,000, such investments shall be identified in Schedule 9.5(e); (ix) investments by the Lessee and its Subsidiaries not otherwise permitted by the foregoing clauses of this Section 9.5(e), so long as such additional investments made in reliance on this clause (e) do not exceed $200,000,000 in the aggregate at any time. (f) Hedging Agreements. The Lessee will not, and will not permit any of its Subsidiaries to, enter into any Hedging Agreement, other than Hedging Agreements entered into in the ordinary course of business to hedge or mitigate risks to which the Lessee or any Subsidiary is exposed in the conduct of its business or the management of its liabilities. (g) Restricted Payments. The Lessee will not, and will not permit any of its Subsidiaries to, declare or make, or agree to pay or make, directly or indirectly, any Restricted Payment, except that, so long as no Event of Default has occurred and is continuing, (a) the Lessee may declare and pay dividends with respect to its capital stock payable solely in additional shares of its common stock, (b) the Lessee may make Restricted Payments pursuant to and in accordance with stock option plans or other benefit plans for management or employees of the Lessee and its Subsidiaries, (c) any Subsidiary may declare and pay Restricted Payments to the Lessee or any other Subsidiary, and (d) the Lessee and its Subsidiaries may pay cash dividends and repurchase their respective stock from any Person which is not the Lessee or another Subsidiary so long as on the date of payment or repurchase (i) such cash dividends and stock repurchases do not exceed $150,000,000 in any single fiscal year, and (ii) the total of such cash dividends and stock repurchases during the Term does not exceed an aggregate amount of $200,000,000 plus 40% of the Lessee's and its Subsidiaries' aggregate net income earned commencing with the fiscal year ending January 31, 1999, and each fiscal year thereafter; provided that a payment in connection with the repurchasing of certain warrants from the shareholders of FFL in an amount not to exceed $20,000,000 shall not be counted against the amounts set forth in clauses (i) and (ii) above. 54 PARTICIPATION AGREEMENT (h) Transactions with Affiliates. Except during the continuance of an Event of Default, the Lessee will not, and will not permit any of its Subsidiaries to, sell, lease or otherwise transfer any property or assets to, or purchase, lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except (a) at prices and on terms and conditions not less favorable to the Lessee or such Subsidiary than could be obtained on an arm's-length basis from unrelated third parties, (b) transactions between or among the Lessee and its wholly owned Subsidiaries not involving any other Affiliate and (c) any Restricted Payment permitted by Section 9.5(g). (i) Restrictive Agreements. The Lessee will not, and will not permit any of its Subsidiaries to, directly or indirectly, enter into, incur or permit to exist any agreement or other arrangement that prohibits, restricts or imposes any condition upon the ability of any Subsidiary to pay dividends or other distributions with respect to any shares of its capital stock or to make or repay loans or advances to the Lessee or any other Subsidiary or to incur Suretyship Liabilities in respect of Indebtedness of the Lessee or any other Subsidiary; provided that (i) the foregoing shall not apply to restrictions and conditions imposed by law or by this Agreement and the other Operative Agreements, (ii) the foregoing shall not apply to restrictions and conditions (x) contained in the Other Corporate Loan Documents or (y) existing on the date hereof and identified on Schedule 9.5(i) (but shall apply to any extension or renewal of, or any amendment or modification expanding the scope of, any such restriction or condition) and (iii) the foregoing shall not apply to customary restrictions and conditions contained in agreements relating to the sale of a Subsidiary pending such sale, provided such restrictions and conditions apply only to the Subsidiary that is to be sold and such sale is permitted hereunder and provided further that such restrictions and conditions cannot be imposed at any time that a Default has occurred and is continuing. (j) Financial Covenants. (A) Leverage Ratio. The Lessee shall not permit its Leverage Ratio to exceed, at the end of any fiscal quarter ending on or during any period listed below, the ratio set forth opposite such period; provided that there shall be added to Consolidated EBITDA for purposes of determining the Leverage Ratio the following amounts: (i) with respect to the two fiscal quarters ended 55 PARTICIPATION AGREEMENT August 15, 1998, $25,000,000 and (ii) in addition to clause (i) above, with respect to the fiscal quarter ended November 7, 1998, $12,500,000: Period Ratio ------ ----- From and including August 15, 1998 5:00 to 1.00 to and including January 29, 1999 From and including January 30, 1999 4.50 to 1.00 to and including January 28, 2000 From and including January 29, 2000 4.00 to 1.00 and therafter (B) Fixed Charge Coverage Ratio. The Lessee shall not permit the Fixed Charge Coverage Ratio to be less than, at the end of any fiscal quarter ending on or during any period listed below, the ratio set forth opposite such period: Period Ratio ------ ----- From and including August 15, 1998 1.75 to 1.00 to and including January 29, 1999 From and including January 30, 1999 2.00 to 1.00 to and including February 2, 2001 From and including February 3, 2001 2.25 to 1.00 and thereafter (k) Unconditional Purchase Obligations. The Lessee shall not, and shall not permit any Subsidiary to, enter into or be a party to any contract for the purchase of materials, supplies or other property or services, if such contract requires that payments be made by it regardless of whether or not delivery is ever made of such materials, supplies or other property or services. 56 PARTICIPATION AGREEMENT (l) Fiscal Year; Fiscal Quarter. The Lessee shall not, and shall not permit any of its Subsidiaries to, change its fiscal year or any of its fiscal quarters. SECTION 10. CREDIT AGREEMENT AND TRUST AGREEMENT. 10.1. Lessee's Credit Agreement Rights. Notwithstanding anything to the contrary contained in the Credit Agreement, the Administrative Agent, the Lessee, the Investors and the Owner Trustee hereby agree that: (a) the Lessee shall have the right to give the notices referred to in Section 2.3 of the Credit Agreement; (b) the Lessee shall have the right to convert or continue Loans in accordance with Section 2.6 of the Credit Agreement; (c) the Lessee shall receive copies of all notices delivered to the Lessor under the Credit Agreement and the other Operative Agreements and such notices will be effective as set forth in Section 13.2; (d) the Lessee shall have the right to select Interest Periods in accordance with the terms of the Credit Agreement; (e) the Lessee shall have the right to give notice of prepayment of the Loans in accordance with the Credit Agreement; (f) the Lessee shall have the right to cure, to the extent susceptible to a cure under the terms of the applicable Operative Agreement, any Default or Event of Default of the Lessor under the Credit Agreement; (g) except during the continuance of an Event of Default, the Lessee shall have the right to approve any successor Administrative Agent pursuant to Section 7.9 of the Credit Agreement; (h) except during the continuance of an Event of Default, the Lessee shall have the right, on behalf of the Lessor, to select any person or 57 PARTICIPATION AGREEMENT persons (including the Lessee) to whom funds may be paid at the discretion of the Lessor in accordance with Sections 8.1 and 8.2 of the Credit Agreement; (i) the Lessee shall have the right to consent to any assignment by a Lender, if required pursuant to Section 9.5 of the Credit Agreement; (j) the Lessee shall have the right to designate the portion of the Loans on which interest is due and payable for purposes of the definition of "Allocated Interest"; (k) the Lessee shall have the right to request that another lending office be designated pursuant to Section 2.16 of the Credit Agreement; and (l) without limiting the foregoing clauses (a) through (k), and in addition thereto, (x) the Owner Trustee shall not exercise any right under the Credit Agreement without giving the Lessee at least ten (10) Business Days' prior written notice (or such shorter period as may be required but in no case less than three (3) Business Days) and, following such notice, the Owner Trustee shall take such action, or forbear from taking such action, as the Lessee shall direct and (y) the Lessee shall have the right to exercise any other right of the Owner Trustee under the Credit Agreement upon not less than two (2) Business Days' prior written notice from the Lessee to the Owner Trustee. Notwithstanding the foregoing, the Investors shall retain the exclusive right to direct the Owner Trustee with respect to the exercise of the Excepted Rights. 10.2. Lessee's Trust Agreement Rights. Notwithstanding anything to the contrary contained in the Trust Agreement, the Administrative Agent, the Lessee, the Investors and the Owner Trustee hereby agree that: (a) the Lessee shall have the right to give the notices referred to in Section 3.3 of the Trust Agreement; (b) the Lessee shall have the right to convert or continue Investor Contributions in accordance with Section 3.6 of the Trust Agreement; 58 PARTICIPATION AGREEMENT (c) the Lessee shall receive copies of all notices delivered to the Owner Trustee under the Trust Agreement and the other Operative Agreements and such notices shall not be effective until received; (d) the Lessee shall have the right to select Interest Periods in accordance with the terms of the Trust Agreement; (e) the Lessee shall have the right to approve any successor Owner Trustee pursuant to Section 9.1 of the Trust Agreement; (f) the Lessee shall have the right to request that another contributing office be designated pursuant to Section 3.15 of the Trust Agreement; and (g) without limiting the foregoing clauses (a) through (f), and in addition thereto, (x) the Owner Trustee shall not exercise any right under the Credit Agreement without giving the Lessee at least ten (10) Business Days' prior written notice (or such shorter period as may be required but in no case less than three (3) Business Days) and, following such notice, the Owner Trustee shall take such action, or forbear from taking such action, as the Lessee shall direct and (y) the Lessee shall have the right to exercise any other right of the Owner Trustee under the Credit Agreement upon not less than two (2) Business Days' prior written notice from the Lessee to the Owner Trustee. Notwithstanding the foregoing, the Investors shall retain the exclusive right to direct the Owner Trustee with respect to the exercise of the Excepted Rights. SECTION 11. TRANSFER OF INTEREST. 11.1. Restrictions on Transfer. The Investors may not, directly or indirectly, assign, convey or otherwise transfer any of their respective right, title or interest in or to the Trust Estate or the Trust Agreement without the consent of the Administrative Agent and the Lessee, which consent shall not be unreasonably withheld or delayed; provided that during the continuance of an Event of Default no such consent of the Lessee shall be required. Any transfer by the Investors as above provided, shall be effected pursuant to an agreement in form and substance reasonably satisfactory to the Administrative Agent, the Investors, the Trust 59 PARTICIPATION AGREEMENT Company, the Lessee and their respective counsel, and any transfer restrictions set forth on the Investor Certificate. 11.2. Effect of Transfer. From and after any transfer effected in accordance with this Section 11, the transferor shall be released, to the extent of such transfer, from its liability hereunder and under the other documents to which it is a party in respect of obligations to be performed on or after the date of such transfer; provided, however, that any transferor Investor shall remain liable under the Trust Agreement to the extent that the transferee Investor shall not have assumed the obligations of the transferor Investor thereunder. Upon any transfer by an Investor as above provided, any such transferee shall assume the obligations of the transferring Investor, and shall be deemed the "Investor" for all purposes of such documents and each reference herein to the transferor shall thereafter be deemed a reference to such transferee for all purposes, except as provided in the preceding sentence. Notwithstanding any transfer of all or a portion of the transferor's interest as provided in this Section 11, the transferor shall be entitled to all benefits accrued and all rights vested prior to such transfer including rights to indemnification under any such document. SECTION 12. INDEMNIFICATION. 12.1. General Indemnity. The Lessee, whether or not any of the transactions contemplated hereby shall be consummated, hereby assumes liability for and agrees to defend, indemnify and hold harmless each Indemnified Person on an After Tax Basis from and against any Claims which may be imposed on, incurred by or asserted against an Indemnified Person in any way relating to or arising or alleged to arise out of (a) the financing, refinancing, purchase, acceptance, rejection, ownership, design, construction, delivery, acceptance, nondelivery, leasing, subleasing, possession, use, operation, repair, modification, transportation, condition, sale, return, repossession (whether by summary proceedings or otherwise), or any other disposition of the Properties or any part thereof; (b) any latent or other defects in any Property whether or not discoverable by an Indemnified Person or the Lessee; (c) any violation of Environmental Laws, Environmental Claims or other loss of or damage relating to the Properties; (d) the Operative Agreements, or any transaction contemplated thereby; (e) any breach by the Lessee of any of its representations or warranties under the Operative Agree- 60 PARTICIPATION AGREEMENT ments or failure by the Lessee to perform or observe any covenant or agreement to be performed by it under any of the Operative Agreements; and (f) personal injury, death or property damage relating to any Property, including Claims based on strict liability in tort; but in any event excluding (x) Claims to the extent such Claims arise solely out of events occurring after the expiration of the Term (and any hold over period pursuant to Section 22 of the Lease) and after the Lessee's discharge of all obligations under the Lease or (y) any Taxes including any Claim (or any portion of a Claim) made upon an Indemnified Person by a third party that at its origin is based upon a Tax (other than amounts necessary to make any payments hereunder on an After Tax Basis, where the Lessee is otherwise specifically required to make such payments on an After Tax Basis). The Lessee shall be entitled to control, and shall assume full responsibility for the defense of, any Claim; provided, however, that any or all of the Owner Trustee, the Trust Company, the Administrative Agent and the Investors named in such Claim, may each retain separate counsel at the expense of the Lessee in the event of and to the extent of a material conflict. The Lessee and each Indemnified Person agree to give each other prompt written notice of any Claim hereby indemnified against but the giving of any such notice by an Indemnified Person shall not be a condition to the Lessee's obligations under this Section 12.1, except to the extent failure to give such notice materially prejudices the Lessee's rights hereunder. After an Indemnified Person has been fully indemnified for a Claim pursuant to this Section 12.1, and so long as no Event of Default under the Lease shall have occurred and be continuing, the Lessee shall be subrogated to any right of such Indemnified Person with respect to such Claim. None of the Indemnified Persons shall settle a Claim without the consent of the Lessee, which consent shall not be unreasonably withheld or delayed. 12.2. General Tax Indemnity. (a) The Lessee shall pay and assume liability for, and hereby agrees to indemnify, protect and defend the applicable Property and all Tax Indemnitees, and hold them harmless against, all Impositions on an After Tax Basis. (b) Provided that no Default or Event of Default has occurred and is continuing, if any Tax Indemnitee obtains a refund or a reduction in a liability (but only if such reduction relates to a Tax not otherwise indemnifiable hereunder and has not been taken into account in determining the amount of a payment on an After Tax Basis) as a result of any Imposition paid or 61 PARTICIPATION AGREEMENT reimbursed by the Lessee (in whole or in part), such Tax Indemnitee shall promptly pay to the Lessee the lesser of (x) the amount of such refund or reduction in liability and (y) the amount previously so paid or advanced by the Lessees, in each case net of reasonable expenses not already paid or reimbursed by the Lessees. (c) (i) Subject to the terms of Section 12.2(g), the Lessee shall pay or cause to be paid all Impositions directly to the taxing authorities where feasible and otherwise to the Tax Indemnitee, as appropriate, and the Lessee shall at its own expense, upon such Tax Indemnitee's reasonable request, furnish to such Tax Indemnitee copies of official receipts or other satisfactory proof evidencing such payment. (ii) In the case of Impositions for which no contest is conducted pursuant to Section 12.2(g) and which the Lessee pays directly to the taxing authorities, the Lessee shall pay such Impositions on or prior to the latest time permitted by the relevant taxing authority for timely payment. In the case of Impositions for which the Lessee reimburses a Tax Indemnitee, the Lessee shall do so within twenty (20) days after receipt by the Lessee of demand by such Tax Indemnitee describing in reasonable detail the nature of the Imposition and the basis for the demand (including the computation of the amount payable), but in no event shall the Lessee be required to pay such reimbursement prior to thirty (30) days before the latest time permitted by the relevant taxing authority for timely payment. In the case of Impositions for which a contest is conducted pursuant to Section 12.2(g), the Lessee shall pay such Impositions or reimburse such Tax Indemnitee for such Impositions, to the extent not previously paid or reimbursed pursuant to subsection (a), on or prior to the latest time permitted by the relevant taxing authority for timely payment after conclusion of all contests under Section 12.2(g). (iii) Impositions imposed with respect to a Property for a billing period during which the Lease expires or terminates with respect to such Property (unless the Lessee has exercised the Purchase Option with respect to the Property) shall be adjusted and prorated on a daily basis between the Lessee and the Lessor, whether or not such Imposition is imposed before or after such expiration or termination and each party shall pay or reimburse the other for each party's pro rata share thereof. 62 PARTICIPATION AGREEMENT (iv) At the Lessee's request, the amount of any indemnification payment by the Lessee pursuant to subsection (a) shall be verified and certified by an independent public accounting firm mutually acceptable to the Lessee and the Tax Indemnitee. The fees and expenses of such independent public accounting firm shall be paid by the Lessee. (d) The Lessee shall be responsible for preparing and filing any real and personal property or ad valorem tax returns in respect of the Properties. In case any other report or tax return shall be required to be made with respect to any obligations of the Lessee under or arising out of subsection (a) and of which the Lessee has knowledge, the Lessee, at its sole cost and expense, shall notify the relevant Tax Indemnitee of such requirement and (except if such Tax Indemnitee notifies the Lessee that such Person intends to file such report or return) (A) to the extent required or permitted by and consistent with Legal Requirements, make and file in its own name such return, statement or report; and (B) in the case of any other such return, statement or report required to be made in the name of such Tax Indemnitee, advise such Tax Indemnitee of such fact and prepare such return, statement or report for filing by such Tax Indemnitee or, where such return, statement or report shall be required to reflect items in addition to any obligations of the Lessee under or arising out of subsection (a), provide such Tax Indemnitee at the Lessee's expense with information sufficient to permit such return, statement or report to be properly made with respect to any obligations of the Lessee under or arising out of subsection (a). Such Tax Indemnitee shall, upon the Lessee's request and at the Lessee's expense, provide any data maintained by such Tax Indemnitee (and not otherwise within the control of the Lessee) with respect to the Properties which the Lessee may reasonably require to prepare any required tax returns or reports. (e) If as a result of the payment or reimbursement by the Lessee of any expenses of the Lessor or the payment of any Transaction Expenses incurred in connection with the transactions contemplated by the Operative Agreements, the Lessor, the Investors or any of their Affiliates, shall suffer a net increase in any federal, state or local income tax liability, the Lessee shall indemnify the Lessor, the Investors or their respective Affiliates (without duplication of any indemnification required by subsection (a)) on an After Tax Basis for the amount of such increase. The calculation of any such net increase shall take into account any current or future tax savings realized by the Lessor, or the Investors 63 PARTICIPATION AGREEMENT or such Affiliate, in respect thereof, as well as any interest, penalties and additions to tax payable by the Lessor, or the Investors or such Affiliate, in respect thereof. (f) As between the Lessee and the Lessor, the Lessee shall be responsible for, and the Lessee shall indemnify and hold harmless the Trust Company in its individual capacity and the Lessor (without duplication of any indemnification required by subsection (a)) on an After Tax Basis against, any obligation for United States withholding taxes imposed in respect of the interest payable on the Loans to the extent, but only to the extent, Lessor has actually paid funds to a taxing authority with respect to such withholding taxes and only to the extent the Trust Company is not entitled to withhold such funds from the payment on the Loans (and, if the Lessor receives a demand for such payment from any taxing authority, the Lessee shall discharge such demand on behalf of the Lessor); (g) (i) If a written claim is made against any Tax Indemnitee or if any proceeding shall be commenced against such Tax Indemnitee (including a written notice of such proceeding), for any Impositions, such Tax Indemnitee shall promptly notify the Lessee in writing and shall not take action with respect to such claim or proceeding without the consent of Lessee for thirty (30) days after the issuance of such notice by the Lessee; provided, that, in the case of any such claim or proceeding, if action shall be required by law or regulation to be taken prior to the end of such 30-day period, such Tax Indemnitee shall, in such notice to the Lessee, inform the Lessee, and no action shall be taken with respect to such claim or proceeding without the consent of Lessee two days before the end of such shorter period; provided, further, that the failure of such Tax Indemnitee to give the notices referred to in this sentence shall not diminish the Lessee's obligation hereunder except to the extent such failure precludes the Lessee from contesting all or part of such claim. (ii) If, within thirty (30) days of receipt of such notice from the Tax Indemnitee (or such shorter period as the Tax Indemnitee has notified Lessee is required by law or regulation for the Tax Indemnitee to commence such contest), Lessee shall request in writing that such Tax Indemnitee contest such Imposition, the Tax Indemnitee shall, at the expense of Lessee, in good faith conduct and control such contest (including, without limitation, by pursuit of appeals) relating to the validity, applicability or amount of such impositions (provided, however, that the Tax Indemnitee may request Lessee to conduct 64 PARTICIPATION AGREEMENT and control such contest if possible or permissible under applicable law or regulation) by, in the sole discretion of the Person conducting and controlling such contest, (1) resisting payment thereof, (2) not paying the same except under protest, if protest is necessary and proper, (3) if the payment be made, using reasonable efforts to obtain a refund thereof in appropriate administrative and judicial proceedings, or (4) taking such other action as is reasonably requested by Lessee from time to time. Notwithstanding the foregoing, (A) if such contest involves a tax other than a tax on net income and can be pursued independently from any other proceeding involving a tax liability of such Tax Indemnitee, the Tax Indemnitee, at the Lessee's request, shall allow the Lessee (and the Lessee shall be obligated) to conduct and control such contest and (B) in the case of any contest, the Tax Indemnitee may request the Lessee to conduct and control such contest (with Stoel Rives LLP, or other counsel to be selected by the Lessee and consented to by such Tax Indemnitee, such consent not to be unreasonably withheld; provided that any Tax Indemnitee may retain separate counsel, the reasonable fees and expenses of which will be the expense of the Lessee in the event of a material conflict) by, in the sole discretion of the Person conducting and controlling such contest, (i) resisting payment thereof, (ii) not paying the same except under protest, if protest is necessary and proper, (iii) if the payment be made, using reasonable efforts to obtain a refund thereof in appropriate administrative and judicial proceedings and (iv) taking such other action as is reasonably requested by the Lessee from time to time. (iii) The party controlling any contest shall consult in good faith with the non-controlling party and shall keep the non-controlling party reasonably informed as to the conduct of such contest; provided that all decisions ultimately shall be made in the sole discretion of the controlling party. The parties agree that a Tax Indemnitee may at any time decline to take further action with respect to the contest of any Imposition and may settle such contest if such Tax Indemnitee shall waive its rights to any indemnity from Lessee that otherwise would be payable in respect of such claim (and any future claim by any taxing authority with respect to other taxable periods that are based, in whole or in part, upon the resolution of such claim) and shall pay to Lessee any amount previously paid or advanced by Lessee pursuant to this Section 12.2 by way of indemnification or advance for the payment of an Imposition, and no other then future liability of the Lessee is likely with respect to such Imposition, other than expenses of such contest. 65 PARTICIPATION AGREEMENT (iv) Notwithstanding the foregoing provisions of this Section 12.2, a Tax Indemnitee shall not be required to take any action and Lessee shall not be permitted to contest any Impositions in its own name or that of the Tax Indemnitee unless (A) Lessee shall have agreed to pay and shall pay to such Tax Indemnitee on demand and on an After Tax Basis all reasonable costs, losses and expenses that such Tax Indemnitee may incur in connection with contesting such Impositions, including, without limitation, all reasonable legal, accounting and investigatory fees and disbursements, (B) the amount of the potential indemnity (taking into account all similar or logically related claims that have been or could be raised in any audit involving such Tax Indemnitee for which Lessee may be liable to pay an indemnity under this Section 12.2) is more than $25,000, (C) the Tax Indemnitee shall have reasonably determined that the action to be taken will not result in any material danger of sale, forfeiture or loss of any Property, or any part thereof or interest therein, and will not interfere with the payment of Rent, and will not result in risk of criminal liability, (D) if such contest shall involve the payment of the Imposition prior to the contest, Lessee shall provide to the Tax Indemnitee an interest-free advance in an amount equal to the Imposition that the Tax Indemnitee is required to pay (with no additional net after-tax cost to such Tax Indemnitee), (E) Lessee shall have provided to such Tax Indemnitee an opinion of independent tax counsel selected by the Lessee and reasonably satisfactory to such Tax Indemnitee stating that a reasonable basis exists to contest such claim (or, in the case of an appeal of an adverse determination, an opinion of such counsel to the effect that there is substantial authority for that the position asserted in such appeal), (F) no Event of Default shall have occurred and be continuing, and (G) in the case of a claim that must be pursued in the name of a Tax Indemnitee (or an Affiliate thereof), the Lessee must be financially able to pay all of its outstanding obligations, including the amount of the indemnity obligation to the Tax Indemnitee. In no event shall a Tax Indemnitee be required to appeal an adverse judicial determination to the United States Supreme Court. In addition, a Tax Indemnitee shall not be required to contest any claim in its name (or that of an Affiliate) if the subject matter thereof shall be of a continuing nature and shall have previously been decided adversely by a court of competent jurisdiction pursuant to the contest provisions of this Section 12.2, unless there shall have been a change in law (or interpretation thereof) and the Tax Indemnitee shall have received, at the Lessee's expense, an opinion of independent tax counsel selected by the Tax Indemnitee and reasonably acceptable to the Lessee stating that as a 66 PARTICIPATION AGREEMENT result of such change in law (or interpretation thereof), it is more likely than not that the Tax Indemnitee will prevail in such contest. (v) Nothing contained in this Section 12.2 shall give any Loan Party or any other Participant any right to inspect the books and records of any Lender or Investor or shall require any Lender or any Investor to disclose its books and records to any Loan Party or any other Participant. SECTION 13. MISCELLANEOUS. 13.1. Survival of Agreements. The representations, warranties, covenants, indemnities and agreements of the parties provided for in the Operative Agreements, and the parties' obligations under any and all thereof, shall survive the execution and delivery of this Agreement, the transfer of the Properties to the Trust, the construction of any Improvements, any disposition of any interest of the Trust in the Properties or the Improvements or any interest of the Investors in the Trust, the payment of the Loans and any disposition thereof and shall be and continue in effect notwithstanding any investigation made by any party and the fact that any party may waive compliance with any of the other terms, provisions or conditions of any of the Operative Agreements. Except as otherwise expressly set forth herein or in other Operative Agreements, the indemnities of the parties provided for in the Operative Agreements shall survive the expiration or termination of any thereof. 13.2. Notices. Unless otherwise specifically provided herein, all notices, consents, directions, approvals, instructions, requests and other communications required or permitted by the terms hereof to be given to any Person to be effective shall be in writing (including by facsimile transmission) and shall be deemed to have been duly given or made (a) when delivered by hand, (b) one Business Day after delivery to a nationally recognized courier service specifying overnight delivery, (c) three Business Days after being deposited in the mail, certified or registered postage prepaid or (d) in the case of facsimile notice, when received addressed to such Person as indicated: 67 PARTICIPATION AGREEMENT If to any Loan Party, to its representative at: Fred Meyer, Inc. 3800 SE 22nd Avenue PO Box 42121 Portland, Oregon 97242 Attention: James C. Aalberg Vice President and Corporate Treasurer Telecopier No.: (503) 797-5299 With a copy of any default notices to: Stoel Rives LLP 900 SW Fifth Avenue, Suite 2300 Portland, Oregon 97204 Attention: Gary R. Barnum, Esq. Telecopier No.: (503) 220-2480 If to the Owner Trustee, to it at: Wilmington Trust Company Rodney Square North 1100 North Market Street Wilmington, Delaware 19890-0001 Attn: Corporate Trust Administration Telecopier No.: (302) 651-8882 If to the Administrative Agent, to it at: Bankers Trust Company 130 Liberty Street New York, New York 10006 Telecopy: (212) 250-7351 Attn: Deal Administrator From time to time any party may designate a new address a facsimile number for purposes of notice hereunder by notice to each of the other parties hereto. It is understood and agreed that the delivery of copies of notices to counsel as set forth 68 PARTICIPATION AGREEMENT above is for courtesy purposes only and any failure to deliver such copy shall not constitute failure with respect to any obligation to provide notices hereunder. 13.3. Counterparts. This Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument. 13.4. Amendments and Termination. Except as provided in the Intercreditor Agreement, this Agreement may not be amended, terminated, supplemented, waived or modified without the prior written consent of the parties hereto, it being understood and agreed that (except as specified in the Credit Agreement) the consent of the Required Lenders shall suffice to evidence the consent of the Lenders to any such amendment, termination, supplement, waiver or modification. 13.5. Headings, etc.. The Table of Contents and headings of the various Sections and Subsections of this Agreement are for convenience of reference only and shall not modify, define, expand or limit any of the terms or provisions hereof. 13.6. Parties in Interest. Except as expressly provided herein, none of the provisions of this Agreement are intended for the benefit of any Person except the parties hereto. 13.7. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. 13.8. Jurisdiction; Consent to Service of Process. (a) Each of the Loan Parties hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of the Supreme Court of the State of New York sitting in New York County and of the United States District Court of the Southern District of New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action 69 PARTICIPATION AGREEMENT or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the Loan Parties agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that the Administrative Agent, the Investors or any Lender may otherwise have to bring any action or proceeding relating to this Agreement against any of the Loan Parties or their properties in the courts of any jurisdiction. (b) Each of the Loan Parties hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement in any court referred to in paragraph (a) of this Section. Each of the Loan Parties hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. (d) Each of the Loan Parties irrevocably consents to service of process in the manner provided for notices in Section 13.2 hereof. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law. 13.9. WAIVER OF JURY TRIAL. THE PARTIES HERETO VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS PARTICIPATION AGREEMENT OR ANY OTHER OPERATIVE AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY OF THE PARTIES HERETO. THE PARTIES HERETO HEREBY AGREE THAT THEY WILL NOT SEEK TO CONSOLIDATE ANY SUCH LITIGATION WITH ANY OTHER LITIGATION IN WHICH A JURY TRIAL HAS NOT OR CANNOT BE WAIVED. THE PROVISIONS OF THIS SECTION 13.9 HAVE BEEN FULLY NEGOTIATED BY THE PARTIES HERETO AND SHALL BE SUBJECT TO NO EXCEPTIONS. EACH LOAN PARTY ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION AND THAT THIS 70 PARTICIPATION AGREEMENT PROVISION IS A MATERIAL INDUCEMENT FOR EACH OF THE LESSOR, THE ADMINISTRATIVE AGENT, THE INVESTORS AND EACH OF THE LENDERS ENTERING INTO THIS PARTICIPATION AGREEMENT AND EACH SUCH OTHER OPERATIVE AGREEMENT. 13.10. Severability. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 13.11. Liability Limited. The Lessee and the Investors each acknowledge and agree that the Trust Company is (except as otherwise expressly provided herein or therein) entering into this Agreement and the other Operative Agreements to which it is a party (other than the Trust Agreement), solely in its capacity as trustee under the Trust Agreement and not in its individual capacity and that the Trust Company shall not be liable or accountable under any circumstances whatsoever in its individual capacity for or on account of any statements, representations, warranties, covenants or obligations stated to be those of the Owner Trustee, except for its own gross negligence or willful misconduct and as otherwise expressly provided herein or in the other Operative Agreements. 13.12. Rights of Lessee. Notwithstanding any provision of the Operative Agreements, if at any time all obligations (i) of the Owner Trustee under the Credit Agreement and the Security Documents and (ii) of the Lessee under the Operative Agreements have in each case been satisfied or discharged in full, then the Lessee shall be entitled to (a) terminate the Lease (to the extent not previously terminated) and (b) receive all amounts then held under the Operative Agreements and all proceeds with respect to any Property. Upon the fulfillment of the obligations contained in clauses (i) and (ii) above, the Lessor shall transfer to the Lessee all of its right, title and interest in and to the Properties (to the extent not previously transferred to the Lessee in accordance with the Lease) and any amounts or proceeds referred to in the foregoing clause (b) shall be paid over to the Lessee. 13.13. Further Assurances. The parties hereto shall promptly cause to be taken, executed, acknowledged or delivered, at the sole expense of the 71 PARTICIPATION AGREEMENT Lessee, all such further acts, conveyances, documents and assurances as the other parties may from time to time reasonably request in order to carry out and effectuate the intent and purposes of this Agreement, the other Operative Agreements and the transactions contemplated hereby and thereby (including, without limitation, the preparation, execution and filing of any and all Uniform Commercial Code financing statements and other filings or registrations which the parties hereto may from time to time request to be filed or effected). The Lessee, at its own expense, shall take such action as may be reasonably requested in order to maintain and protect all security interests provided for hereunder or under any other Operative Agreement. 13.14. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. 13.15. No Representation or Warranty. Nothing contained herein, in any other Operative Agreement or in any other materials delivered to the Lessee in connection with the transactions contemplated hereby or thereby shall be deemed a representation or warranty by the Investors, the Administrative Agent, any Lender or the Arrangers or any of their Affiliates as to the proper accounting treatment, legal treatment or tax treatment that should be afforded to the Lease and the Lessor's ownership of the Properties, and the Investors, the Administrative Agent and the Arrangers expressly disclaim any representation or warranty with respect to such matters. 13.16. OREGON LEGAL NOTICE. WITHOUT LIMITING THE VALIDITY OF THE CHOICE OF NEW YORK LAW PROVIDED HEREIN, UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY THE LENDERS AFTER THE RESTATEMENT DATE OF THE ACT SPECIFIED HEREIN CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT FOR PERSONAL FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE BORROWER'S RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY THE LENDERS TO BE ENFORCEABLE. THE ACT SPECIFIED HEREIN MEANS CHAPTER 967 OREGON LAWS 1989, THE EFFECTIVE DATE OF WHICH WAS OCTOBER 3, 1989. 72 PARTICIPATION AGREEMENT 13.17. WASHINGTON STATUTORY NOTICE. ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO FORBEAR FROM ENFORCING REPAYMENT OF DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW. 73 PARTICIPATION AGREEMENT IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective officers thereunto duly authorized as of the day and year first above written. FMS TRUST 1997-1, a Delaware Business Trust, as Lessor By WILMINGTON TRUST COMPANY, not individually but solely as Owner Trustee By: DAVID A. VANASKEY ------------------------------------- Name: David A. Vanaskey Title: Assistant Vice President S-1 PARTICIPATION AGREEMENT WILMINGTON TRUST COMPANY, not in its individual capacity, except to the extent expressly set forth herein, but solely as Owner Trustee By: DAVID A. VANASKEY ------------------------------------- Name: David A. Vanaskey Title: Assistant Vice President S-2 PARTICIPATION AGREEMENT FRED MEYER, INC., as Lessee and Construction Agent By: JAMES C. AALBERG ------------------------------------- Name: James C. Aalberg Title: Vice President, Treasurer S-3 PARTICIPATION AGREEMENT SOCIETE GENERALE FINANCIAL CORPORATION, as Investor By: JOHN A. CASTELLANO ------------------------------------- Name: John A. Castellano Title: Vice President S-4 PARTICIPATION AGREEMENT BANKERS TRUST COMPANY, as Administrative Agent and as a Lender By: GINA S. THOMPSON ------------------------------------- Name: Gina S. Thompson Title: Vice President S-5 PARTICIPATION AGREEMENT THE CHASE MANHATTAN BANK, as Syndication Agent and as a Lender By: LAURIE B. PERPER ------------------------------------- Name: Laurie B. Perper Title: Vice President S-6 PARTICIPATION AGREEMENT NATIONSBANK OF TEXAS, N.A., as Co- Documentation Agent and as a Lender By: CHARLES F. LILYGREN ------------------------------------- Name: Charles F. Lilygren Title: Senior Vice Pesident S-7 PARTICIPATION AGREEMENT SALOMON BROTHERS HOLDING CO INC., as Co-Documentation Agent and as a Lender By: CHAD A. LEAT ------------------------------------- Name: CHAD A. LEAT Title: Managing Director S-8 PARTICIPATION AGREEMENT ABN AMRO BANK N.V. as a Lender By: DAVID MCGINNIS ------------------------------------- Name: David McGinnis Title: Vice President By: JAMES J. RICE ------------------------------------- Name: James J. Rice Title: Vice President S-9 PARTICIPATION AGREEMENT MARINE MIDLAND BANK, as a Lender By: GINA SIDORSKY ------------------------------------- Name: Gina Sidorsky Title: Authorized Signatory S-10 PARTICIPATION AGREEMENT UNION BANK OF CALIFORNIA, N.A., as a Lender By: TIMOTHY P. STREB ------------------------------------- Name: Timothy P. Streb Title: Vice President S-11 PARTICIPATION AGREEMENT WACHOVIA BANK,N.A., as a Lender By: JOHN A. WHITNER ------------------------------------- Name: John A. Whitner Title: Senior Vice President S-12 PARTICIPATION AGREEMENT GOLDMAN SACHS CREDIT PARTNERS L.P., as a Lender By: STEPHEN J. MCGUINNESS ------------------------------------- Name: Stephen J. McGuinness Title: Authorized Signatory S-13 PARTICIPATION AGREEMENT BANK OF MONTREAL, as a Lender By: /s/ R.W. CAMM ------------------------------------- Name: R.W. Camm Title: Managing Director S-14 PARTICIPATION AGREEMENT DLJ CAPITAL FUNDING, INC., as a Lender By: STEPHEN P. HICKEY ------------------------------------- Name: Stephen P. Hickey Title: Managing Director S-15 PARTICIPATION AGREEMENT MORGAN STANLEY SENIOR FUNDING, INC., as a Lender By: MICHAEL T. MCLAUGHLIN ------------------------------------- Name: M. McLaughlin Title: Principal S-17 PARTICIPATION AGREEMENT WELLS FARGO BANK, N.A., as a Lender By: ALFRED ARTIS ------------------------------------- Name: Alfred Artis Title: VP By: DONALD A. HARTMANN, JR. ------------------------------------- Name: Donald A. Hartmann, Jr. Title: SVP S-18 PARTICIPATION AGREEMENT THE FIRST NATIONAL BANK OF CHICAGO, as a Lender By: PAUL E. RIGBY ------------------------------------- Name: Paul E. Rigby Title: Managing Director S-19 PARTICIPATION AGREEMENT TRANSAMERICA LIFE INSURANCE AND ANNUITY COMPANY, as a Lender By: JOHN M. CASPARIAN ------------------------------------- Name: John M. Casparian Title: Investment Officer S-20 PARTICIPATION AGREEMENT THE MITSUBISHI TRUST AND BANKING CORPORATION, as a Lender By: T. HAYASHI ------------------------------------- Name: Toshihiro Hayashi Title: Senior Vice President S-21 PARTICIPATION AGREEMENT ROYAL BANK OF CANADA, as a Lender By: J. BOTHAMLEY ------------------------------------- Name: Julie Bothamley Title: Senior Manager S-22 PARTICIPATION AGREEMENT THE SUMITOMO TRUST AND BANKING CO. LTD., LOS ANGELES AGENCY, as a Lender By: ELEANOR CHAN ------------------------------------- Name: Eleanor Chan Title: Manager & Vice President S-23 PARTICIPATION AGREEMENT COMPAGNIE FINANCIERE DE CIC ET DE L'UNION EUROPEENNE, as a Lender By: ANTHONY ROCK ------------------------------------- Name: Anthony Rock Title: Vice President By: BRIAN O'LEARY ------------------------------------- Name: Brian O'Leary Title: Vice President S-24 PARTICIPATION AGREEMENT KEYBANK NATIONAL ASSOCIATION, as a Lender By: MARY K. YOUNG ------------------------------------- Name: Mary K. Young Title: Commercial Banking Officer S-25 PARTICIPATION AGREEMENT FIRST SECURITY BANK, N.A., as a Lender By: JUDY CALLISTER ------------------------------------- Name: Judy Callister Title: Vice President S-26 PARTICIPATION AGREEMENT FIRSTRUST BANK, as a Lender By: EDWARD D'ANCONA ------------------------------------- Name: Edward D'Ancona Title: Chief Banking Officer S-27 PARTICIPATION AGREEMENT US BANK OF OREGON, as a Lender By: GAYLE BURGESS ------------------------------------- Name: Gayle Burgess Title: Asst. Relationship Manager S-28 PARTICIPATION AGREEMENT THE BANK OF NEW YORK, as a Lender By: CHARLOTTE SOHN ------------------------------------- Name: Charlotte Sohn Title: Vice President S-29 PARTICIPATION AGREEMENT ZIONS FIRST NATIONAL BANK, as a Lender By: RICHARD P. JACKSON ------------------------------------- Name: Richard P. Jackson Title: V.P. S-30 PARTICIPATION AGREEMENT FIRST UNION NATIONAL BANK, as a Lender By: ED ROSS ------------------------------------- Name: Ed Ross Title: Senior Vice President S-31 PARTICIPATION AGREEMENT BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as a Lender By: MARIA VICKROY-PERALTA ------------------------------------- Name: Maria Vickroy-Peralta Title: Vice President S-32 PARTICIPATION AGREEMENT BANQUE PARIBAS, as a Lender By: BRIAN A. STAPF ------------------------------------- Name: Brian A. Stapf Title: Vice President By: LEE S. BUCKNER ------------------------------------- Name: Lee S. Buckner Title: Managing Director S-33 PARTICIPATION AGREEMENT MERITA BANK, as a Lender By: ANDREW CARSTENSEN ------------------------------------- Name: Andrew Carstensen Title: VP S-34 PARTICIPATION AGREEMENT BANK LEUMI U.S.A., as a Lender By: JACQUES DELVOYE ------------------------------------- Name: Jacques Delvoye Title: Vice President S-36 Annex A Rules of Usage and Definitions Rules of Usage -------------- The following rules of usage shall apply to this Annex A and the Operative Agreements (and each appendix, schedule, exhibit and annex to the foregoing) unless otherwise required by the context or unless otherwise defined therein: (a) Except as otherwise expressly provided, any definitions defined herein or in any other document shall be equally applicable to the singular and plural forms of the terms defined. (b) Except as otherwise expressly provided, references in any document to articles, sections, paragraphs, clauses, annexes, appendices, schedules or exhibits are references to articles, sections, paragraphs, clauses, annexes, appendices, schedules or exhibits in or to such document. (c) The headings, subheadings and table of contents used in any document are solely for convenience of reference and shall not constitute a part of any such document nor shall they affect the meaning, construction or effect of any provision thereof. (d) References to any Person shall include such Person, its successors and permitted assigns and transferees. (e) Except as otherwise expressly provided, reference to any agreement means such agreement as amended, modified, extended or supplemented from time to time in accordance with the applicable provisions thereof. (f) Except as otherwise expressly provided, references to any law includes any amendment or modification to such law and any rules or regulations issued thereunder or any law enacted in substitution or replacement therefor. (g) When used in any document, words such as "hereunder", "hereto", "hereof" and "herein" and other words of like import shall, unless the context clearly indicates to the contrary, refer to the whole of the applicable document and not to any particular article, section, subsection, paragraph or clause thereof. ANNEX A - RULES OF USAGE (h) References to "including" means including without limiting the generality of any description preceding such term and for purposes hereof the rule of ejusdem generis shall not be applicable to limit a general statement, followed by or referable to an enumeration of specific matters, to matters similar to those specifically mentioned. (i) Each of the parties to the Operative Agreements and their counsel have reviewed and revised, or requested revisions to, the Operative Agreements, and the usual rule of construction that any ambiguities are to be resolved against the drafting party shall be inapplicable in the construing and interpretation of the Operative Agreements and any amendments or exhibits thereto. Definitions ----------- "ABR" means, for any day, a rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the greater of (a) the Prime Rate in effect on such day and (b) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. For purposes hereof, "Prime Rate" means the rate of interest per annum publicly announced from time to time by the Administrative Agent as its prime rate in effect at its principal office in New York City (the Prime Rate not being intended to be the lowest rate of interest charged by the Administrative Agent in connection with extensions of credit to debtors); each change in the Prime Rate shall be effective on the date such change is publicly announced as effective. "Federal Funds Effective Rate" means, for any day, 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 on the next succeeding 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 the day of such transactions received by the Administrative Agent from three Federal funds brokers of recognized national standing selected by it. If for any reason the Administrative Agent shall have determined that it is unable to ascertain the Federal Funds Effective Rate for any reason, including the inability or failure of the Administrative Agent to obtain sufficient quotations in accordance with the terms thereof, the ABR shall be determined without regard to clause (b) of the first sentence of this definition, as appropriate, until the circumstances giving rise to such inability no longer exist. Any change in the ABR due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective on the effective date of such change in the Prime Rate or the Federal Funds Effective Rate, respectively. A-2 ANNEX A - RULES OF USAGE "ABR Contributions" means Investor Contributions the rate of interest applicable to which is based upon the ABR. "ABR Loans" means Loans the rate of interest applicable to which is based upon the ABR. "Acceleration" has the meaning set forth in Section 6.1 of the Credit Agreement. "Account" has the meaning set forth in Section 8.1(a) of the Credit Agreement. "Administrative Agent" means Bankers Trust Company, a New York banking corporation, in its capacity as administrative and collateral agent for the Lenders under the Operative Agreements, or any successor administrative and collateral agent appointed in accordance with the terms of the Credit Agreement. "Advance" means an advance of Loans by the Lenders and an advance of the Investor Contribution by the Investors, in each case pursuant to the Participation Agreement, to pay Project Costs. "Affiliate" means, when used with respect to a specified person, another person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the person specified; provided that, in any event, any Person that owns, directly or indirectly, 10% or more of the securities having ordinary voting power for the election of directors or other governing body of a corporation that has more than 100 record holders of such securities, or 10% or more of the partnership or other ownership interests of any other Person that has more than 100 record holders of such interests, will be deemed to be an Affiliate of such corporation, partnership or other Person; provided further that the Trust Company shall not be considered to be an Affiliate of any of the Investors, the Trust or the Owner Trustee and none of the Investors, the Trust nor the Owner Trustee shall be considered to be an Affiliate of the Trust Company. "After Tax Basis" means, with respect to any payment to be received, the amount of such payment increased so that, after deduction of the amount of all taxes required to be paid by the recipient (less any tax savings realized and the present value of any tax savings projected to be realized by the recipient as a result of the payment of the indemnified amount) with respect to the receipt by the recipient of such amounts, such increased payment (as so reduced) is equal to the payment otherwise required to be made. A-3 ANNEX A - RULES OF USAGE "Agents" means the Syndication Agent and the Administrative Agent. "Aggregate Tranche A Percentage" means, as of any date of determination, a fraction, expressed as a percentage, equal to the sum of the aggregate of the Maximum Residual Guarantee Amounts with respect to each of the Properties as of such date divided by the aggregate of the Tranche A/B Property Cost of each of the Properties as of such date. "Allocated Interest" means, with respect to any Construction Period Property, as of any Scheduled Interest Payment Date, the amount of interest due and payable on such date with respect to a portion of the Loans (which portion shall be designated by the Borrower by written notice to the Administrative Agent (an "Allocation Notice")) having an aggregate principal amount equal to the Tranche A/B Construction Property Cost of such Property as of such date. "Allocation Notice" has the meaning defined in the definition of "Allocated Interest" above. "Applicable Level" means the level determined with reference to the following chart: Level Leverage Ratio Rating ---- -------------- ------- I less than or equal to 3.0x greater than or equal to BBB+ or Baa1 II greater than 3.0x BBB or Baa2 III greater than 3.5x BBB- or Baa3 IV greater than 4.0x BB+ or Ba1 V greater than 4.5x less than or equal to BB or Ba2 For purposes of the foregoing, (i) prior to the Compliance Certificate Date, the Applicable Level shall be Level IV; (ii) from and after the Compliance Certificate Date, the Applicable Level shall be the Level corresponding to the Leverage Ratio set forth in the Compliance Certificate then delivered; (iii) except as provided in (i) above, at any time of determination, the Applicable Level shall be the Level corresponding to the Leverage Ratio as set forth in the most recently delivered Compliance Certificate (it being understood and agreed that if the Lessee shall not have delivered the most recently due Compliance Certificate within the time period specified in Section 9.4(a)(iii), the Applicable Level shall be Level V until such Compliance Certificate is delivered) and the senior unsecured long term debt rating of the Lessee from S&P and Moody's (for purposes of this definition, the "Rating"); (iv) in the event the Leverage Ratio and the Rating do not fall within the same Level, the Applicable Level shall be A-4 ANNEX A - RULES OF USAGE the higher (Level I being the highest) of the two Levels; and (v) in the event the rating from S&P and the rating from Moody's do not fall within the same Level, the applicable Rating will be based upon the higher (Level I being the highest) of the two ratings, except that, in the event one of the two ratings is two or more Levels higher than the other, the applicable Rating shall be determined by reference to the Level next lower than the higher of the two ratings. If any rating established or deemed to be established by Moody's or S&P shall be changed (other than as a result of a change in the rating system of Moody's or S&P), such change shall be effective as of the date on which such change is first announced by the rating agency making such change. Each such change shall take effect on the effective date of such change and shall end on the date immediately preceding the effective date of the next such change. If the rating system of S&P or Moody's shall change prior to the Maturity Date, the Lessee and the Lenders shall negotiate in good faith to amend the references to specific ratings in this definition to reflect such changed rating system, and pending agreement on another Applicable Level the Rating shall be determined by reference to the rating provided by the non-changing rating agency. If the Lessee does not have a senior long term unsecured debt rating or implied rating from either Moody's or S&P, the Applicable Level shall be determined by reference to the Leverage Ratio only. "Applicable Margin" means, with respect to any Commitment Fee or Eurodollar Loan, the applicable number of basis points per annum as set forth below based on the Applicable Level: Applicable Margin Applicable Level Commitment Fee for Eurodollar Loans ---------------- -------------- -------------------- I 20.0 62.5 II 25.0 75.0 III 25.0 87.5 IV 30.0 100.0 V 37.5 125.0 The Applicable Margin for the ABR shall be 0 at any time during which the Applicable Level is Level IV or above. At any time during which the Applicable Level of the Borrower is Level V, the Applicable Margin for the ABR shall be 25 basis points. "Appraisal" means, with respect to each Property, an appraisal, prepared by a reputable independent appraiser reasonably acceptable to the Administrative Agent, of such Property both (i) as-is and (ii) as if improved in accordance with the Plans and Specifications for such Property, which in the judgment of counsel to the Agents, as of the applicable Property Closing Date, complies with all of the provisions of the A-5 ANNEX A - RULES OF USAGE Financial Institutions Reform, Recovery and Enforcement Act of 1989, as amended, the rules and regulations adopted pursuant thereto, and all other legal requirements applicable to the Lenders. The appraisal shall state the amount of the Projected Completion Value of such improvements located on such Property and an estimate of the value thereof at the end of the Term of the Lease, and the value of the Land (if any) expressed in dollars as well as a percentage of the Property Cost for such Property. "Appraisal Procedure" has the meaning given such term in Section 21.4 of the Lease. "Appurtenant Rights" means, with respect to each Property, (i) all agreements, easements, rights of way or use, rights of ingress or egress, privileges, appurtenances, tenements, hereditaments and other rights and benefits at any time belonging or pertaining to the Land or the Improvements, including, without limitation, the use of any streets, ways, alleys, vaults or strips of land adjoining, abutting, adjacent or contiguous to the Land and (ii) all permits, licenses and rights, whether or not of record, appurtenant to the Land. "Arrangers" means CSI and BTAB. "Assignment and Acceptance" means an assignment and acceptance entered into by a Lender and an assignee (with the consent of any party whose consent is required by Section 9.5 of the Credit Agreement), and accepted by the Administrative Agent, in the form of Exhibit B to the Credit Agreement. "Assignment of Lease" means the Assignment of Leases and Rents dated as of the Initial Closing Date from the Lessor in favor of the Administrative Agent for the benefit of the Lenders, as amended, supplemented or otherwise modified from time to time in accordance with the terms thereof or of any other Operative Agreement. "Available Commitment" means, as to any Lender at any time, an amount equal to the excess, if any, of (a) the amount of such Lender's Commitment over (b) the aggregate principal amount of all Loans made by such Lender and unpaid as of such date. "Basic Rent" means, the sum of (i) the Tranche A Basic Rent, (ii) the Tranche B Basic Rent and (iii) the Investor Yield, calculated as of the applicable date on which Basic Rent is due. "Benefitted Lender" has the meaning set forth in Section 9.7 of the Credit Agreement. A-6 ANNEX A - RULES OF USAGE "Board" means the Board of Governors of the Federal Reserve System of the United States (or any successor). "Borrower" means Lessor, in its capacity of borrower under the Credit Agreement. "BTAB" means BT Alex. Brown, a Delaware corporation. "Budget" means with respect to each Property, the estimated Project Cost to be incurred in connection therewith, attached as Schedule I to the Construction Agency Agreement, as modified from time to time in accordance with the terms of the Construction Agency Agreement. "Budgeted Total Property Cost" means, at any date of determination, with respect to any Construction Period Property, an amount equal to the aggregate amount which the Construction Agent in good faith expects to be expended in order to achieve Completion with respect to such Construction Period Property (including amounts expected to be expended to pay Allocated Interest with respect to such Construction Period Property). "Business Day" means any day other than a Saturday, Sunday or other day on which commercial banks in New York City or Wilmington, Delaware are authorized or required by law to close, and in the case of a Eurodollar Loan, any day on which banks are open for dealings in dollar deposits in the New York interbank market. "Capital Expenditures" means amounts paid or Debt incurred by the Borrower or any of its Subsidiaries in connection with its purchase or lease of assets that would be required to be capitalized and shown on its balance sheet in accordance with GAAP. "Capital Lease" means, as applied to any Person, any lease of any property (whether real, personal or mixed) by that Person as lessee which, in conformity with GAAP, is, or is required to be, accounted for as a capital lease on the balance sheet of that Person. "Capitalized Lease Obligations" means all obligations under Capital Leases of any Person, in each case taken at the amount thereof accounted for as liabilities in accordance with GAAP. "Casualty" means any damage or destruction of all or any portion of a Property as a result of fire or other casualty. A-7 ANNEX A - RULES OF USAGE "CERCLA" means the Comprehensive Environmental Response, Compensation, and Liability Act of-1980, 42 U.S.C. ss.ss. 9601 et seq., as amended by the Superfund Amendments and Reauthorization Act of 1986, and all rules and regulations thereunder. "Change of Control" means (a) the acquisition of ownership, directly or indirectly, beneficially or of record, by any Person or group (within the meaning of the Securities Exchange Act of 1934 and the rules of the Securities and Exchange Commission thereunder as in effect on the date hereof), of shares representing more than 331/3% of the aggregate ordinary voting power represented by the issued and outstanding capital stock of the Lessee; or (b) occupation of a majority of the seats (other than vacant seats) on the board of directors of the Lessee by Persons who were neither (i) nominated by the board of directors of the Lessee nor (ii) appointed by directors so nominated. "Claims" means any and all actions, suits, penalties, claims and demands and reasonable out-of-pocket liabilities, losses, costs and expenses (including, without limitation, reasonable attorney's fees and expenses) of any nature whatsoever arising therefrom. "Closing Date" means the Initial Closing Date and each Property Closing Date. "Code" means the Internal Revenue Code of 1986, as amended from time to time, or any successor statute thereto. "Co-Documentation Agents" means Nationsbank of Texas, N.A., and Salomon Brothers Holding Co Inc. "Collateral" means all assets of the Lessor, now owned or hereafter acquired, upon which a Lien is purported to be created by the Security Documents. "Commitment" means, as to any Lender, the obligation of such Lender to make Loans to the Borrower under the Credit Agreement in an aggregate principal amount at any one time outstanding not to exceed the amount set forth opposite such Lender's name on Schedule 1.1 of the Credit Agreement. "Commitment Fee" means (i) prior to the Compliance Certificate Date, an amount equal to 0.30% per annum, and (ii) from and after the Compliance Certificate Date, a percentage per annum determined in accordance with the definition of "Applicable Margin," in either case payable quarterly in arrears on each Commitment Fee Payment Date and calculated based on a year of 360 days by the Lessee to the A-8 ANNEX A - RULES OF USAGE Administrative Agent on the average daily unused portion of the aggregate Commitments from and including the Initial Closing Date to but excluding the Maturity Date. "Commitment Fee Payment Date" means the last Business Day of each of March, June, September and December and the Maturity Date or such earlier date as the Commitments shall terminate as provided in the Credit Agreement. "Commitment Percentage" means, as to any Lender at any time, the percentage which such Lender's Commitment then constitutes of the aggregate Commitments (or, at any time after the Commitments has expired or terminated, the percentage which the aggregate principal amount of such Lender's Loans then outstanding constitutes of the aggregate principal amount of the Loans then outstanding). "Commitment Period" means the period from and including the Closing Date to but not including the earliest of (i) the Completion Date for all of the Properties, (ii) the Outside Completion Date for all of the Properties and (iii) the date on which an Acceleration occurs. "Commonly Controlled Entity" means an entity, whether or not incorporated, which is under common control with the Lessee within the meaning of Section 4001 of ERISA or is part of a group which includes the Lessee and which is treated as a single employer under Section 414(b) or (c) of the Code or, solely for purposes of determining liability under Section 412 of the Code, which is treated as a single employer under Section 414(b), (c), (m) or (o) of the Code. "Completed Property" means a Property acquired by the Lessor which contains Improvements that are suitable as of the Property Closing Date for occupancy by the Lessee and the operation by such Lessee of its business thereon. "Completion" means, with respect to any Improvements, (x) the earlier of (i) the date on which substantial completion of the Improvements shall have been achieved in accordance with the Plans and Specifications for such Improvements and in compliance with all material Legal Requirements and Insurance Requirements and (ii) the date on which the respective Property is first opened for business; provided that the Construction Agent shall have delivered an Officer's Certificate to the Administrative Agent certifying to such Completion. "Completion Date" means, with respect to a Property, the date on which Completion has occurred. A-9 ANNEX A - RULES OF USAGE "Compliance Certificate" means a certificate signed by a Responsible Officer of the Borrower setting forth a reasonably detailed calculation of the Applicable Margin. "Compliance Certificate Date" means the date upon which the Administrative Agent receives the Compliance Certificate for the second full fiscal quarter following the Initial Closing Date. "Condemnation" means any taking or sale of the use, access, occupancy, easement rights or title to any Property or any part thereof, wholly or partially (temporarily or permanently), by or on account of any actual eminent domain proceeding or other taking of action by any Person having the power of eminent domain, including an action by a Governmental Authority to change the grade of, or widen the streets adjacent to, any Property, or alter the pedestrian or vehicular traffic flow to any Property so as to result in a change in access to such Property, or by or on account of an eviction by paramount title or any transfer made in lieu of any such proceeding or action. "Consent to Assignment" means the Lessee's Consent to Assignment dated as of the Initial Closing Date from the Lessee to the Administrative Agent, as amended, supplemented or otherwise modified from time to time in accordance with the terms thereof or of any other Operative Agreement. "Consent to Contract Assignment" means the Consent to Contract Assignment dated as of the Initial Closing Date from the Construction Agent to the Administrative Agent, as amended, supplemented or otherwise modified from time to time in accordance with the terms thereof or of any other Operative Agreement. "Consolidated EBITDA" of the Lessee and its Subsidiaries means "A" minus "B"; where: "A" equals the sum of consolidated net income plus, to the extent deducted in determining consolidated net income, without duplication, (i) extraordinary losses, (ii) interest expenses, including the interest component of rent expense under all Synthetic Lease Facilities for which the Lessee or any of its Subsidiaries has Suretyship Liability, (iii) amortization, (iv) depreciation, (v) income taxes, (vi) non-cash LIFO reserve charges and (vii) expenses incurred in connection with the Mergers, including costs relating to the sale of facilities to be disposed of in connection with the Mergers, name change costs attributable to Hughes Markets, and severance costs ; and A-10 ANNEX A - RULES OF USAGE "B" equals, to the extent included in determining consolidated pre-tax income, extraordinary gains. "Consolidated EBITDAR" of the Lessee and its Subsidiaries means "A" minus "B"; where: "A" equals the sum of consolidated net income plus, to the extent deducted in determining consolidated net income, without duplication, (i) extraordinary losses, (ii) interest expense, (iii) amortization, (iv) depreciation, (v) income taxes, (vi) non-cash LIFO reserve charges, (vii) consolidated rental expense on operating leases (including rent paid pursuant to any Synthetic Lease Facility) and (viii) expenses incurred in connection with the Mergers, including costs relating to the sale of facilities to be disposed of in connection with the Mergers, name change costs attributable to Hughes Markets, and severance costs; and "B" equals, to the extent included in determining consolidated pre-tax income, extraordinary gains. "Consolidated Interest Expense" means the consolidated interest expense of the Lessee, including the interest component of rent expense under all Synthetic Lease Facilities for which the Lessee or any of its Subsidiaries has Suretyship Liability. "Construction Agency Agreement" means the Construction Agency Agreement dated as of the Initial Closing Date between the Construction Agent and the Lessor, as amended, supplemented or otherwise modified from time to time in accordance with the terms thereof or of any other Operative Agreement. "Construction Agency Agreement Event of Default" has the meaning set forth in Section 5.1 of the Construction Agency Agreement. "Construction Agency Agreement Supplement" means a supplement to the Construction Agency Agreement executed by the Construction Agent and the Trust on each Property Closing Date. "Construction Agent" means the Lessee, as construction agent under the Construction Agency Agreement. "Construction Commencement Date" means, with respect to any Construction Period Property, the date on which construction, refurbishment and/or renovation of the Improvements thereon commences. A-11 ANNEX A - RULES OF USAGE "Construction Period" means, with respect to a Construction Period Property other than a Completed Property, the period commencing on the Property Closing Date for such Property and ending on the earlier to occur of (i) the Completion Date and (ii) the Outside Completion Date. "Construction Period Property" means, at any date of determination, any Property (excluding any Store Land Property) as to which the Construction Period has begun but not ended. "Construction Period Termination Date" means the second anniversary of the Initial Closing Date. "Contract Assignment" means the Assignment of Contracts dated as of the Initial Closing Date from the Lessor to the Administrative Agent for the benefit of the Lenders, as amended, supplemented or otherwise modified from time to time in accordance with the terms thereof or of any other Operative Agreement. "Contractual Obligation" means, as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound. "Control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. "Controlling" and "Controlled" have meanings correlative thereto. "Corporate Loan Documents" means the Loan Agreement and all other documents related to the transactions contemplated thereby. "Credit Agreement" means the Credit Agreement dated as of the Initial Closing Date among the Lessor, the Agents and the Lenders, as amended, supplemented or otherwise modified from time to time in accordance with the terms thereof or of any other Operative Agreement. "Credit Agreement Default" means any event or condition which, with the lapse of time or the giving of notice, or both, would constitute a Credit Agreement Event of Default. "Credit Agreement Event of Default" means any event or condition defined as an "Event of Default" in Section 6.1 of the Credit Agreement. A-12 ANNEX A - RULES OF USAGE "Credit Documents" means the Credit Agreement, the Guarantees, the Lease and the Security Documents. "CSI" means Chase Securities Inc., a Delaware corporation. "Current Synthetic Lease Facility" means the transactions contemplated by the Participation Agreement. "Deed" has the meaning set forth in Section 6.2(b) of the Participation Agreement. "Default" means any event or condition which, with the lapse of time or the giving of notice, or both, would constitute an Event of Default. "Defaulting Lender" has the meaning set forth in Section 2.11(b) of the Credit Agreement. "Dollars" and "$" means dollars in lawful currency of the United States of America. "Employee Benefit Plan" means an employee benefit plan (within the meaning of Section 3(3) of ERISA, including any multiemployer plan (within the meaning of Section 3(37)(A) of ERISA)), or any "plan" as defined in Section 4975(e)(1) of the Code and as interpreted by the Internal Revenue Service and the Department of Labor in rules, regulations, releases or bulletins in effect on the Initial Closing Date. "Environmental Audit" means a Phase I environmental audit of a Property and such additional environmental studies or audits recommended by such Phase I audit, prepared by an independent environmental consultant acceptable to the Agents and the Lenders. "Environmental Claim" means any claim, notice of claim, complaint, notice of violation, letter, or other assertion or inquiry of any kind concerning any asserted or actual violation of or liability under any Environmental Law or any asserted or actual violation or liability relating to any Hazardous Material. "Environmental Law" means, whenever enacted or promulgated, any federal, state, county or local law, statute, ordinance, code, rule, regulation, license, permit, authorization, approval, covenant, administrative or court order, judgment, decree, injunction, code or requirement of or any agreement with, any Governmental Authority, in any case applicable to the Properties: A-13 ANNEX A - RULES OF USAGE (x) relating to pollution (or the cleanup, removal, or remediation thereof, or any other response thereto), or the regulation or protection of human health, safety or the environment, including ambient or indoor air, water vapor, surface water, groundwater, drinking water, land (including surface or subsurface), plant, aquatic and animal life, or (y) concerning exposure to, or the use, containment, storage, recycling, treatment, generation, discharge, emission, Release or threatened Release, transportation, processing, handling, labeling, containment, production, disposal or remediation of any Hazardous Material, Hazardous Condition or Hazardous Activity, in each case as amended and as now or hereafter in effect, and any common law or equitable doctrine (including, without limitation, injunctive relief and tort doctrines such as negligence, nuisance, trespass and strict liability) that may impose liability or obligations for injuries (whether personal or property) or damages due to or threatened as a result of the presence of, exposure to, or ingestion of, any Hazardous Material, whether such common law or equitable doctrine is now or hereafter recognized or developed. Applicable laws include, but are not limited to, CERCLA; the Resource Conservation and Recovery Act of 1976, 42 U.S.C. ss.ss. 6901 et seq.; the Federal Water Pollution Control Act, 33 U.S.C. ss.ss. 1251 et seq.; the Clean Air Act, 42 U.S.C ss.ss. 7401 et seq.; the National Environmental Policy Act, 42 U.S.C. ss. 4321; the Refuse Act, 33 U.S.C. ss.ss. 401 et seq.; the Hazardous Materials Transportation Act of 1975, 49 U.S.C. ss.ss. 1801-1812; the Toxic Substances Control Act, 15 U.S.C. ss.ss. 2601 et seq.; the Federal Insecticide, Fungicide, and Rodenticide Act, 7 U.S.C. ss.ss. 136 et seq.; the Safe Drinking Water Act, 42 U.S.C. ss.ss. 300 f et seq.; and the Occupational Safety and Health Act of 1970, and any similar state or local laws. "Environmental Violation" means any activity, occurrence or condition that violates or results in non-compliance with any applicable Environmental Law or results in a written complaint or other written claim from a Governmental Authority with respect to any Environmental Law. "Equipment" means movable equipment and movable personal property of every kind and nature whatsoever used or usable in any way in connection with any operation or letting of the Property, excluding any Fixtures. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. A-14 ANNEX A - RULES OF USAGE "ERISA Affiliate" means each entity required to be aggregated with the Lessee pursuant to the requirements of Section 414(b) or (c) of the Code. "ERISA Event" means (a) any "reportable event", as defined in Section 4043 of ERISA or the regulations issued thereunder with respect to a Plan (other than an event for which the 30-day notice period is waived); (b) the existence with respect to any Plan of an "accumulated funding deficiency" (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived; (c) the filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan; (d) the incurrence by the Lessee or any of its ERISA Affiliates of any liability under Title IV of ERISA with respect to the termination of any Plan; (e) the receipt by the Lessee or any ERISA Affiliate from the PBGC or a plan administrator of any notice relating to an intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan; (f) the incurrence by the Lessee or any of its ERISA Affiliates of any liability with respect to the withdrawal or partial withdrawal from any Plan or Multiemployer Plan; or (g) the receipt by the Lessee or any ERISA Affiliate of any notice, or the receipt by any Multiemployer Plan from the Lessee or any ERISA Affiliate of any notice, concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA. "Eurocurrency Reserve Requirements" means for any day as applied to a Eurodollar Loan or Eurodollar Contribution, the aggregate (without duplication) of the rates (expressed as a decimal fraction) of reserve requirements in effect on such day (including, without limitation, basic, supplemental, marginal and emergency reserves under any regulations of the Board or other Governmental Authority having jurisdiction with respect thereto) dealing with reserve requirements prescribed for eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of the Board) maintained by a member bank of the Federal Reserve System. "Eurodollar Base Rate" means, with respect to any Eurodollar Loan or Eurodollar Contribution for any Interest Period, the offered quotation to first-class banks in the New York interbank eurodollar market by the Administrative Agent for dollar deposits of amounts in immediately available funds comparable to the outstanding principal amount of the applicable Eurodollar Loan or Eurodollar Contribution, with maturities comparable to the Interest Period applicable to such Eurodollar Loan or Eurodollar Contribution commencing two Business Days prior to the commencement of such Interest Period. A-15 ANNEX A - RULES OF USAGE "Eurodollar Contributions" means Investor Contributions the rate of interest applicable to which is based on the Eurodollar Rate. "Eurodollar Loans" means Loans the rate of interest applicable to which is based upon the Eurodollar Rate. "Eurodollar Rate" means with respect to each day during each Interest Period pertaining to a Eurodollar Loan or Eurodollar Contribution, a rate per annum determined for such day in accordance with the following formula (rounded upward to the nearest 1/100th of 1%): Eurodollar Base Rate -------------------- 1.00 - Eurocurrency Reserve Requirements. "Eurodollar Tranche" means the collective reference to Eurodollar Loans or Eurodollar Contributions the then current Interest Periods with respect to all of which begin on the same date and end on the same later date (whether or not such Loans shall originally have been made on the same day). "Event of Default" means a Lease Event of Default or a Construction Agency Event of Default. "Excepted Payments" means: (a) all indemnity payments (including indemnity payments made pursuant to Section 12 of the Participation Agreement), to which any Indemnified Person is entitled; (b) any amounts (other than Basic Rent, Termination Value, or Purchase Option Price) payable under any Operative Agreement to reimburse the Trust Company, the Investors, or any of their respective Affiliates (including the reasonable expenses of the Trust Company and the Investors incurred in connection with any such payment) for performing or complying with any of the obligations of the Lessee under and as permitted by any Operative Agreement; (c) any amount payable to the Investors by any transferee of the interest of the Investors as the purchase price of the Investors' interest in the Trust Estate (or a portion thereof); A-16 ANNEX A - RULES OF USAGE (d) any insurance proceeds (or payments with respect to risks self-insured or policy deductibles) under liability and title policies other than such proceeds or payments payable to the Lessee or the Agents; (e) any insurance proceeds under policies maintained by the Trust Company or any Investor; (f) Transaction Expenses or other amounts or expenses paid or payable to or for the benefit of the Trust Company or any Investor; (g) all right, title and interest of the Investors or the Trust Company to any of the Properties, any portion thereof or any other property to the extent any of the foregoing has been released from the Liens of the Mortgage and the Assignment of Lease pursuant to the terms thereof and not otherwise purchased by the Lessee or a third party pursuant to the terms of the Lease; (h) any payments in respect of interest to the extent attributable to payments referred to in clauses (a) through (g) above; and (i) any rights of the Investors or the Trust Company to demand, collect, sue for or otherwise receive and enforce payment of any of the foregoing amounts. "Excepted Rights" means the rights retained by the Trust Company pursuant to Section 8.3(a)(i) of the Credit Agreement and all right, title and interest of the Lessor in the Shared Rights. "Excluded Taxes" has the meaning set forth in the definition of "Impositions." "Exculpated Persons" has the meaning set forth in Section 9.14 of the Credit Agreement. "Existing Properties" means the Properties (including Properties under construction) described on Schedule 1 to the Participation Agreement. "Extended Remarketing Date" has the meaning set forth in Section 22.1(a) of the Lease. "Facility" means a facility used for the treatment, storage or disposal of Hazardous Materials. A-17 ANNEX A - RULES OF USAGE "Fair Market Sales Value" means the amount, which in any event shall not be less than zero, that would be paid in cash in an arm's-length transaction between an informed and willing purchaser and an informed and willing seller, neither of whom is under any compulsion to purchase or sell, respectively, for the ownership of the Properties. Fair Market Sales Value shall be determined based on the assumption that, except for purposes of Section 21.3 of the Lease, the Properties are in the condition and state of repair required under Section 10.1 of the Lease and that the Lessee is in compliance with the other requirements of the Operative Agreements. "FFL" means Food 4 Less Holdings, Inc., a Delaware corporation. "FFL Merger" means the merger of FFLAC with FFL in accordance with the FFL Merger Document. "FFL Merger Document" means that certain Agreement and Plan of Merger, dated as of November 6, 1997, among FFL, FFLAC and the Lessee. "FFLAC" means FFL Acquisition Corp., a wholly-owned Subsidiary of the Lessee. "Fixed Charge Coverage Ratio" means the ratio of (a) Consolidated EBITDAR to (b) the sum of (i) Consolidated Interest Expense for such period plus (ii) except as included in Consolidated Interest Expense, the Lessee's consolidated rental expense on operating leases, computed as of the last day of a fiscal quarter for the period consisting of such fiscal quarter and the immediately preceding three fiscal quarters (or such lesser number of preceding full fiscal quarters as shall have ended following the Closing Date). "Fixtures" means all fixtures relating to the structures on a Property or the other Improvements, including all components thereof, located in or on such structures or the other Improvements, together with all replacements, modifications, alterations and additions thereto. "FMI" means Fred Meyer, Inc., a Delaware corporation. "Force Majeure Event" means any event beyond the control of the Construction Agent, other than a Casualty or Condemnation, including strikes, lockouts, acts of God, adverse weather conditions, inability to obtain labor or materials, governmental activities, civil commotion and enemy action; but excluding any event, cause or condition that results from the Construction Agent's financial condition. A-18 ANNEX A - RULES OF USAGE "Foreign Lender" has the meaning set forth in Section 2.15(e) of the Credit Agreement. "Funding Date" means a Business Day on which the Construction Agent, on behalf of the Lessor requests the Lenders to make Loans and, with respect to the Initial Closing Date only, the Investors to make Investor Contributions, in each case, to the Lessor in accordance with the Participation Agreement and the Credit Agreement in order to fund Project Costs. "GAAP" means United States generally accepted accounting principles (including principles of consolidation), in effect from time to time, consistently applied. "Governmental Action" means all permits, authorizations, registrations, consents, approvals, waivers, exceptions, variances, orders, judgments, written interpretations, decrees, licenses, exemptions, publications, filings, notices to and declarations of or with, or required by, any Governmental Authority, or required by any Legal Requirement, and shall include, without limitation, all environmental and operating permits and licenses that are required for the full use, occupancy, zoning and operation of the Properties. "Governmental Authority" means any Federal, state, county, municipal or other local governmental authority or judicial or regulatory agency, board, body, commission, instrumentality, court or quasi-governmental authority. "Ground Lease" means a ground lease between the Lessor, as ground lessee, or assignee of a ground lessee, and the owner of the fee interest in the applicable parcel of Land (which may be a Subsidiary Guarantor or the Lessee), as ground lessor, as such Land is described on Schedule 1 of the Lease Supplement for each Property that is subject to a Ground Lease, which is in form and substance reasonably acceptable to the Administrative Agent, the Lessor and their respective counsel. "Guarantee" means any of the Lessee Guarantee and Subsidiary Guarantees. "Guarantor" means any of the Lessee Guarantor and Subsidiary Guarantors. "Hazardous Activity" means any activity, process, procedure or undertaking that directly or indirectly (i) produces, generates or creates any Hazardous Material, (ii) causes or results in the Release of any Hazardous Material into the environment (including ambient or indoor air, water vapor, surface water, groundwater, drinking water, land (including surface or subsurface), plant, aquatic and animal life); (iii) involves the containment or storage of any Hazardous Material, or (iv) would be A-19 ANNEX A - RULES OF USAGE regulated as hazardous waste treatment, storage or disposal within the meaning of any Environmental Law. "Hazardous Condition" means any condition that violates or that results in non compliance with any Environmental Law. "Hazardous Material" means any of the following: (i) any petroleum or petroleum product, explosives, radioactive materials, asbestos, formaldehyde, polychlorinated biphenyls, lead or radon gas; or (ii) any substance, material, product, derivative, compound or mixture, mineral, chemical, waste, gas, medical waste or pollutant that would support the assertion of any claim under any Environmental Law, whether or not defined as hazardous under any Environmental Law; in any of such cases, in concentrations that require remediation under applicable Environmental Laws. "Hedging Agreement" means any interest rate protection agreement, foreign currency exchange agreement, commodity price protection agreement or other interest or currency exchange rate or commodity price hedging arrangement. "Impositions" means, except to the extent described in the following sentence, any and all liabilities, losses, expenses and costs of any kind whatsoever for fees, taxes, levies, imposts, duties, charges, assessments or withholdings ("Taxes") (including (i) real and personal property taxes, including personal property taxes on any property covered by the Lease that is classified by Governmental Authorities as personal property, and real estate or ad valorem taxes in the nature of property taxes; (ii) sales taxes, use taxes and other similar taxes (including rent taxes and intangibles taxes); (iii) any excise taxes; (iv) real estate transfer taxes, conveyance taxes, stamp taxes and documentary recording taxes and fees; (v) taxes that are or are in the nature of franchise, income, value added, privilege and doing business taxes, license and registration fees; (vi) assessments on the Property, including all assessments for public improvements or benefits, whether or not such improvements are commenced or completed within the Term); and (vii) any tax, Lien, assessment or charge imposed or asserted by the PBGC or any Governmental Authority succeeding or performing the functions of the PBGC, and in each case all interest, additions to tax and penalties thereon, which at any time prior to, during or with respect to the Term or in respect of any period for which the Lessee shall be obligated to pay Supplemental Rent, may be levied, assessed or imposed by any Federal, state, city, county or local authority upon or with respect to (a) the Properties or any part thereof or interest therein; (b) the leasing, financing, refinancing, demolition, construction, renovation, substitution, subleasing, assignment, control, condition, occupancy, servicing, maintenance, repair, ownership, possession, activity conducted on, delivery, insuring, use, operation, improvement, transfer of title, return or other disposition of the Properties or any part A-20 ANNEX A - RULES OF USAGE thereof or interest therein; (c) the Loans or other indebtedness with respect to the Properties or any part thereof or interest therein; (d) the rentals, receipts or earnings arising from the Properties or any part thereof or interest therein; (e) the Operative Agreements or any payment made or accrued pursuant thereto; (f) the income or other proceeds received with respect to the Properties or any part thereof or interest therein upon the sale or disposition thereof; (g) the making of the Loans or issuance of any Notes; (h) any contract (including the Construction Agency Agreement) relating to the construction, acquisition or delivery of the Improvements or any part thereof or any interest therein; or (i) otherwise in connection with the transactions contemplated by the Operative Agreements. The term "Imposition" shall not mean or include: (i Taxes and impositions (other than Taxes that are, or are in the nature of, sales, use, rental, value added, transfer or property taxes) that are imposed on a Tax Indemnitee by the United States federal government that are based on or measured by the gross or net income (including taxes based on capital gains and minimum taxes) of such Person; provided that this clause (i) shall not be interpreted to prevent a payment from being made on an After Tax Basis if such payment is otherwise required to be so made; (ii Taxes and impositions (other than Taxes that are, or are in the nature of, sales, use, rental, value added, transfer or property taxes) that are imposed by any state or local jurisdiction or taxing authority within any state or local jurisdiction and that are based upon or measured by the gross or net income or gross or net receipts from rental (including any minimum taxes, withholding taxes or taxes on or measured by capital, net worth, excess profits or items of tax preference or taxes that are capital stock, franchise or doing business taxes); provided that this clause (ii) shall not be interpreted to prevent a payment from being made on an After Tax Basis if such payment is otherwise required to be so made; (iii any interest or penalties imposed on a Tax Indemnitee as a result of the failure of such Tax Indemnitee to file any return or report timely and in the form prescribed by law or to pay any Tax or imposition; provided that this clause (iii) shall not apply (x) if such interest or penalties arise as a result of a position taken (or requested to be taken) by the Lessee in a contest controlled by the Lessee under Section 12.2(g) of the Participation Agreement or (y) to any such interest or penalties that result from such Tax Indemnitee's complying with the reporting procedures set forth in Section 12.2(d) of the Participation Agreement (collectively with the Taxes excluded from the definition of "Impositions" in the immediately preceding clauses (i) and (ii), "Excluded Taxes"); A-21 ANNEX A - RULES OF USAGE (iv any Taxes or impositions imposed on the Lessor that are a result of the Lessor not being considered a "United States person" as defined in Section 7701(a) (30) of the Code; (v any Taxes which are imposed on a Tax Indemnitee solely as a result of the gross negligence or willful misconduct of such Tax Indemnitee itself (as opposed to gross negligence or willful misconduct imputed to such Tax Indemnitee), but not Taxes imposed as a result of ordinary negligence of such Tax Indemnitee; (vi any Taxes or impositions imposed upon the Lessor with respect to any voluntary transfer, sale, financing or other voluntary disposition by the Lessor (other than a transfer contemplated and permitted by the Operative Agreements, including any transfer in connection with (1) the exercise by the Lessee of its Purchase Option, (2) the occurrence of a Lease Event of Default or a Credit Agreement Event of Default, or (3) a Casualty or Condemnation affecting the Properties) of any interest in the Properties (or any interest in, or created pursuant to, the Operative Agreements) or any voluntary transfer of any interest in the Lessor (other than in connection with the existence of a Lease Event of Default or a Credit Agreement Event of Default) or any involuntary transfer of any of the foregoing interests resulting from the bankruptcy or insolvency of the Lessor (other than in connection with the existence of a Lease Event of Default or a Credit Agreement Event of Default); or (vii any gift, or inheritance, taxes. Any Tax or imposition excluded from the defined term "Imposition" in any one of the foregoing clauses (i) through (vii) shall not be construed as constituting an Imposition by any provision of any other of the aforementioned clauses. "Improvements" means, with respect to each Property, all buildings, structures, Fixtures and other improvements of every kind existing at any time and from time to time on or under the Land, together with any and all appurtenances to such buildings, structures or improvements, including sidewalks, utility pipes, conduits and lines, parking areas and roadways, and including all additions to or changes in the Improvements at any time, and also including any refurbishments with respect to Lease-Purchased Properties, but excluding all Equipment. "Indebtedness" of any Person means, without duplication, (a) all obligations of such Person for borrowed money, whether or not evidenced by bonds, debentures, notes or similar instruments, (b) all obligations of such Person as lessee under capital leases which have been recorded as liabilities on a balance sheet of such Person, (c) all obligations of such Person to pay the deferred purchase price of property or services A-22 ANNEX A - RULES OF USAGE (other than current accounts payable in the ordinary course of business), (d) all indebtedness secured by a Lien on the property of such Person, whether or not such indebtedness shall have been assumed by such Person (it being understood that if such Person has not assumed or otherwise become personally liable for any such indebtedness, the amount of the Indebtedness of such Person in connection therewith shall be limited to the lesser of the face amount of such indebtedness or the fair market value of all property of such Person securing such indebtedness), (e) all obligations, contingent or otherwise, with respect to the face amount of all letters of credit (whether or not drawn) and banker's acceptances issued for the account of such Person, (f) all obligations of such Person in respect of Hedging Agreements, (g) all Suretyship Liabilities of such Person, (h) all other obligations of such Person upon which interest charges are customarily paid (other than current accounts payable in the ordinary course of business), (i) all obligations of such Person under conditional sale or other title retention agreements relating to property acquired by such Person and (j) all Indebtedness (as defined above) of any partnership in which such Person is a general partner (except to the extent such Indebtedness is not recourse to such Person). The amount of the Indebtedness of any Person in respect of Hedging Agreements shall be deemed to be the unrealized net loss position of such Person thereunder (determined for each counterparty individually, but netted for all Hedging Agreements maintained with such counterparty). "Indebtedness for Borrowed Money" of any Person means all Indebtedness of such Person described in (without duplication) clauses (a), (b), (c), (d), (h) and, to the extent constituting a Suretyship Liability in respect of Indebtedness for Borrowed Money of another Person, (g), of the definition of Indebtedness. A Suretyship Liability arising under a Synthetic Lease Facility shall be deemed to be a Indebtedness for Borrowed Money. "Indemnified Person" means the Trust Company, in its individual and its trust capacity, the Agents, the Lessor, the Investors, the Lenders and their respective successors, assigns, directors, shareholders, partners, officers, employees, agents and Affiliates. "Indemnified Taxes" means Taxes other than Excluded Taxes. "Initial Closing Advance" means the Advance Loans made by the Lenders on the Initial Closing Date to fund the purchase by the Lessor of the Existing Properties. "Initial Closing Date" means March 11, 1998. A-23 ANNEX A - RULES OF USAGE "Insignificant Subsidiary" means any inactive or otherwise immaterial direct or indirect Subsidiaries of the Borrower; provided that the assets and pre-tax income of, and the Borrower's net investment in, such Insignificant Subsidiaries on an individual and a combined basis will not exceed three percent (3%) of the Borrower's consolidated pre-tax income or assets, as applicable; and provided further that any Subsidiary which owns the stock of another Subsidiary (other than an Insignificant Subsidiary) shall not be deemed to be an "Insignificant Subsidiary." "Insurance Requirements" means all terms and conditions of any insurance policy required by the Lease or any other Operative Agreement to be maintained by the Lessee and all requirements of the issuer of any such policy. "Insolvent" means, with respect to any Multiemployer Plan, the condition that such Plan is insolvent within the meaning of Section 4245 of ERISA. "Intercreditor Agreement" means the Intercreditor Agreement, dated as of the Initial Closing Date, among FMI, the Subsidiaries signatory thereto, the Collateral Agent, the Administrative Agent, on behalf of the Lenders, and Bankers Trust Company, as Administrative Agent under the Corporate Loan Documents, on behalf of the lenders signatory thereto, as amended, supplemented or otherwise modified from time to time in accordance with the terms thereof or of any other Operative Agreement. "Interest Period" means, with respect to any Eurodollar Loan or Eurodollar Contribution: (a) initially, the period commencing on the borrowing or conversion date, as the case may be, with respect to such Eurodollar Loan or Eurodollar Contribution and ending one, two, three or six months thereafter, as selected by the Borrower in its notice of borrowing or notice of conversion, as the case may be, given with respect thereto; and (b) thereafter, each period commencing on the last day of the immediately preceding Interest Period applicable to such Eurodollar Loan or Eurodollar Contribution and ending one, two, three or six months thereafter, as selected by the Borrower by irrevocable notice to the Administrative Agent not less than three Business Days prior to the last day of the then current Interest Period with respect thereto; provided that, the foregoing provisions relating to Interest Periods are subject to the following: A-24 ANNEX A - RULES OF USAGE (i) if any Interest Period pertaining to a Eurodollar Loan or Eurodollar Contribution would otherwise end on a day that is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless the result of such extension would be to carry such Interest Period into another calendar month in which event such Interest Period shall end on the immediately preceding Business Day; (ii) any Interest Period that would otherwise extend beyond the Maturity Date shall end on the Maturity Date; and (iii) 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 end on the last Business Day of a calendar month. "Investment Company Act" means the Investment Company Act of 1940, as amended, together with the rules and regulations promulgated thereunder. "Investor" means each of the financial institutions (other than the Trust Company) from time to time party to the Trust Agreement. "Investor Certificate" means a certificate issued pursuant to the Trust Agreement to evidence an investment in the beneficial ownership of the Trust Estate, and shall include any certificate issued in exchange therefor or replacement thereof. "Investor Commitment" means as to any Investor, the obligation of such Investor to make Investor Contributions under the Trust Agreement in an aggregate amount at any one time outstanding not to exceed the amount set forth opposite such Investor's name on Schedule 1 to the Trust Agreement. "Investor Commitment Percentage" means, as to any Investor at any time, the percentage which such Investor's Investor Commitment then constitutes of the aggregate Investor Commitments (or, at any time after the Investor Commitments shall have terminated or expired, the percentage which the aggregate principal amount of such Investor's Investor Contribution then outstanding constitutes of the aggregate principal amount of the Investor Contributions then outstanding). "Investor Contribution" has the meaning specified in Section 3.1 of the Participation Agreement. A-25 ANNEX A - RULES OF USAGE "Investor Margin" means (i) with respect to any ABR Contribution, 1.00% and (ii) with respect to any Eurodollar Contribution, 2.75%. "Investor Property Cost" means with respect to a Property an amount equal to the product of (i) the aggregate Investor Contribution outstanding and (ii) the ratio of the Tranche A/B Property Cost for such Property over the aggregate Tranche A/B Property Costs for all Properties. "Investor Yield" has the meaning specified in Section 3.1 of the Participation Agreement. "Joinder Agreement" means a Joinder Agreement substantially in the form of Exhibit F to the Participation Agreement. "Land" means a parcel of real property described on Schedule 1 of the Lease Supplement for such Land and all Appurtenant Rights attached thereto. "Lease" means the Lease, Security Agreement and Financing Statement dated as of the Initial Closing Date between the Lessor and the Lessee, together with any Lease Supplements thereto and Memoranda of Lease, as amended, supplemented or otherwise modified from time to time in accordance with the terms thereof or of any other Operative Agreement. "Lease-Purchased Property" means any Property which is subject to a Ground Lease at the time of its lease by the Lessor. "Lease Balance" means, as of any date of determination, an amount equal to the sum of the Loans, Investor Contributions and all other amounts owing by any Lessee under the Operative Documents (including without limitation, accrued and unpaid Rent and Supplemental Rent, if any). "Lease Default" means any event or condition which, with the lapse of time or the giving of notice, or both, would constitute a Lease Event of Default. "Lease Event of Default" has the meaning given to such term in Section 17.1 of the Lease. "Lease Supplement" means each Lease Supplement substantially in the form of Exhibit A to the Lease together with all attachments and schedules thereto, as such Lease Supplement may be supplemented, amended or modified from time to time. A-26 ANNEX A - RULES OF USAGE "Legal Requirements" means all Federal, state, county, municipal and other governmental statutes, laws, rules, orders, regulations, ordinances, judgments, decrees and injunctions affecting the Properties or the demolition, construction, renovation, use or alteration thereof, whether now or hereafter enacted and in force, including any that require repairs, modifications or alterations in or to the Properties or in any way limit the use and enjoyment thereof (including all building, zoning and fire codes and the Americans with Disabilities Act of 1990, 42 U.S.C. ss. 12101 et. seq. and any other similar Federal, state or local laws or ordinances and the regulations promulgated thereunder) and any that may relate to environmental requirements (including all Environmental Laws), and all permits, certificates of occupancy, licenses, authorizations and regulations relating thereto, and all covenants, agreements, restrictions and encumbrances contained in any instruments which are either of record or known to the Lessee affecting the Properties, the Appurtenant Rights and any easements, licenses or other agreements entered into pursuant to Section 12.2 of the Lease. "Lender Financing Statements" means UCC financing statements appropriately completed and executed for filing in the appropriate state and county offices in Alaska, Utah, Washington, Oregon and Idaho in order to perfect a security interest in favor of the Administrative Agent in the Improvements located on the Properties and the Contract Rights (as defined in the UCC) related thereto, as the same may be supplemented, amended or modified from time to time. "Lenders" means the several banks and other financial institutions from time to time party to the Credit Agreement. "Lending Participant" has the meaning set forth in Section 9.5(d) of the Credit Agreement. "Lessee" means FMI. "Lessee Guarantor" means the Lessee, in its capacity as Lessee Guarantor. "Lessee Guarantee" means the Guarantee, substantially in the form of Exhibit E-1 to the Participation Agreement executed and delivered by the Lessee Guarantor to the Administrative Agent for the benefit of the Owner Trustee, the Lessor, the Investors and the Lenders, as the same may be amended, supplemented or otherwise modified from time to time in accordance with the terms thereof or of any other Operative Agreement. "Lessor" means FMS Trust 1997-1, a Delaware business trust. A-27 ANNEX A - RULES OF USAGE "Lessor Financing Statements" means UCC financing statements appropriately completed and executed for filing in the appropriate state and county offices in Alaska, Utah, Washington, Idaho and Oregon in order to protect the Lessor's interest under the Lease to the extent the Lease is a security agreement, as the same may be supplemented, amended or modified from time to time. "Lessor Lien" means any Lien, true lease or sublease or disposition of title arising as a result of (a) any claim against the Lessor or the Trust Company, not resulting from the transactions contemplated by the Operative Agreements, (b) any act or omission of the Lessor or the Trust Company, which is not required by the Operative Agreements or is in violation of any of the terms of the Operative Agreements, (c) any claim against the Lessor or the Trust Company, with respect to Taxes or Transaction Expenses against which the Lessee is not required to indemnify the Lessor or the Trust Company, pursuant to the Participation Agreement or (d) any claim against the Lessor arising out of any transfer by the Lessor of all or any portion of the interest of the Lessor in the Properties, the Trust Estate or the Operative Agreements other than the transfer of title to or possession of the Properties by the Lessor pursuant to and in accordance with the Lease, the Credit Agreement or the Participation Agreement or pursuant to the exercise of the remedies set forth in Section 17 of the Lease. "Leverage Ratio" means the ratio of Indebtedness for Borrowed Money of the Lessee and its Subsidiaries determined on a consolidated basis to Consolidated EBITDA (for the most recent four consecutive fiscal quarters; provided that for the periods ended on the Compliance Certificate Date and the last day of the next succeeding fiscal quarter, the Leverage Ratio shall be calculated by reference to pro forma financial information satisfactory to the Administrative Agent with respect to the fiscal quarters ended prior to the Initial Closing Date). "Lien" means, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, encumbrance, charge or security interest in or on such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement relating to such asset and (c) in the case of securities, any purchase option, call or similar right of a third party (excluding rights of first refusal) with respect to such securities. "Limited Deficiency Amount" means, with respect to each Property, the amount equal to the sum of the Termination Value with respect to such Property on each Payment Date less the Maximum Residual Guarantee Amount as of such date with respect to such Property. A-28 ANNEX A - RULES OF USAGE "Loan Agreement" means the $3,500,000,000 Loan Agreement, dated as of March 11, 1998, among the Lessee, as borrower, the lenders identified therein, Bankers Trust Company, as administrative agent and The Chase Manhattan Bank, as syndication agent. "Loan Parties" means the Lessee and Construction Agent and each of the Guarantors. "Loans" has the meaning set forth in Section 2.1(a) of the Credit Agreement. "Material Adverse Effect" means a material adverse effect on (a) the business, operations, property, condition (financial or otherwise) or prospects of the Lessee and its Subsidiaries, taken as a whole or (b) the validity or enforceability of any of the Operative Agreements or the rights or remedies of the Agents, the Investors or the Lenders thereunder. "Material Environmental Violation" means any Environmental Violation that could reasonably be expected to have a Material Adverse Effect with respect to any Loan Party. "Material Plan" means at any time a Plan or Plans having aggregate Unfunded Liabilities in excess of $10,000,000. "Material Subsidiary" means each Subsidiary of the Lessee which either (a) has assets which constitute 5% or more of the consolidated assets of the Lessee and its Subsidiaries or (b) has revenues during its most recently-ended fiscal year which constitute more than 5% of the consolidated revenues of the Lessee and its Subsidiaries during the most recently ended fiscal year. "Maturity Date" means February 28, 2003. "Maturity Date Election Notice" has the meaning set forth in Section 20.2 of the Lease. "Maturity Date Purchase Option" means the Lessee's Purchase Option to purchase all of the Properties on the Maturity Date in accordance with Section 20.2 of the Lease. "Maximum Purchase Option Amount" means, as of any date, 75% of the highest Termination Value of all Properties held by the Lessor at any one time prior to such date. A-29 ANNEX A - RULES OF USAGE "Maximum Residual Guarantee Amount" means (i) with respect to each Property which is not a Twenty Five Percent Property, an amount equal to the maximum amount of the Tranche A/B Property Cost in respect of such Property which may be paid pursuant to Section 21.1(c) of the Lease and allocated to Tranche A Loans without causing the Lease for such Property to be treated as a Capital Lease for the purposes of Statement of Financial Accounting Standards (SFAS) No. 13, as determined in good faith by the Lessee, and certified to the Administrative Agent in accordance with Section 1.2(b) of the Participation Agreement; provided that in no event shall such amount be less than 85% of the Property Cost in respect of such Property; and (ii) with respect to each Twenty Five Percent Property, 100% of the Property Cost of such Property minus the sum of (a) the aggregate amount of prepayments of the Loans allocated to reduce the Tranche A/B Property Cost pursuant to Section 2.5 of the Credit Agreement and (b) the aggregate amount of prepayments of the Investor Contributions allocated to reduce the Investor Property Cost pursuant to Section 3.5 of the Trust Agreement. "Memorandum of Lease" has the meaning set forth in Section 30.8 of the Lease. "Mergers" means each of the FFL Merger and the QFC Merger. "Merger Documents" means each of the FFL Merger Documents and the QFC Merger Documents. "Modifications" has the meaning set forth in Section 11.1(a) of the Lease. "Moody's" means Moody's Investors Service, Inc. "Mortgage" means each (i) Mortgage and Security Agreement from the Lessor and the Lessee to the Administrative Agent, substantially in the form of Exhibit D-1 to the Participation Agreement and (ii) Deed of Trust and Security Agreement from the Lessor and the Lessee in favor of the Administrative Agent, substantially in the form of Exhibit D-2 to the Participation Agreement (in form and substance appropriate for recording), as the same may be supplemented, amended or modified from time to time. The decision to use the "Mortgage" form or the "Deed of Trust" form shall be made by the Administrative Agent with respect to each Property, and each such form shall be modified as necessary or desirable in the Administrative Agent's opinion to comply with all applicable laws and to set forth the provisions and remedies customarily used by secured lenders with respect to the applicable jurisdiction in which such instrument is to be recorded. A-30 ANNEX A - RULES OF USAGE "Multiemployer Plan" means a Plan which is a multiemployer plan as defined in Section 4001(a)(3) of ERISA. "Net Proceeds" means all amounts paid in connection with any Casualty or Condemnation, and all interest earned thereon, less the expense of claiming and collecting such amounts, including all reasonable costs and expenses in connection therewith for which the Administrative Agent or Lessor are entitled to be reimbursed pursuant to the Lease. "Net Sale Proceeds Shortfall" means the amount by which the proceeds of a sale of a Property described in Section 21.1 of the Lease (net of all expenses of sale) are less than the Limited Deficiency Amount for such Property. "Non-Defaulting Lender" has the meaning set forth in Section 2.11(b) of the Credit Agreement. "Non-Excluded Taxes" has the meaning set forth in Section 2.14(a) of the Credit Agreement. "Notes" means the collective reference to the Tranche A Notes and the Tranche B Notes. "Obligations" means the collective reference to (i) the unpaid principal of and interest on the Loans and all other obligations and liabilities of the Borrower to the Agents or the Lenders (including interest accruing at the then applicable rate provided in the Credit Agreement after the maturity of the Loans and interest accruing at the then applicable rate provided in the Credit Agreement after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to the Borrower, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding), whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter incurred, which may arise under, out of, or in connection with, the Credit Agreement, any Notes, the other Credit Documents or any other document made, delivered or given in connection therewith, whether on account of principal, interest, reimbursement obligations, fees, indemnities, costs, expenses or otherwise (including all reasonable fees and disbursements of counsel to the Agents or to the Lenders that are required to be paid by the Borrower pursuant to the terms of the Credit Agreement or any other Credit Document), (ii) the unpaid principal of and Investor Yield on the Investor Contributions and all other obligations and liabilities of the Owner Trustee to the Agents or the Investors (including Investor Yield accruing at the then applicable rate provided in the Trust Agreement after the maturity of the Investor Contributions and A-31 ANNEX A - RULES OF USAGE interest accruing at the then applicable rate provided in the Trust Agreement after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to the Owner Trustee, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding), whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter incurred, which may arise under, out of, or in connection with, the Trust Agreement or any other document made, delivered or given in connection therewith, whether on account of principal, interest, reimbursement obligations, fees, indemnities, costs, expenses or otherwise (including all reasonable fees and disbursements of counsel to the Agents or to the Investors that are required to be paid by the Owner Trustee pursuant to the terms of the Trust Agreement) and (iii) all amounts payable by the Lessee under any of the Operative Agreements (including indemnities and Commitment Fees) to the Administrative Agent and/or the Lenders and the Lessor. "Officer's Certificate" means a certificate signed by any individual holding the office of vice president or higher, which certificate shall certify as true and correct the subject matter being certified to in such certificate. "Operative Agreements" means the following: (a) the Participation Agreement; (b) the Lease, each Memorandum of Lease and each Lease Supplement; (c) the Assignment of Lease and each supplemental assignment; (d) the Consent to Assignment; (e) the Credit Agreement; (f) the Intercreditor Agreement; (g) the Mortgages; (h) the UCC Financing Statements; (i) the Contract Assignment; (j) the Consent to Contract Assignment; (k) the Construction Agency Agreement and each Construction Agency Agreement Supplement; (l) the Guarantees; (m) the Requisitions; (n) the Trust Agreement; (o) the Pledge Agreement; and (p) any Notes. "Other Plan" means an employee pension benefit plan (other than a Plan or a Multiemployer Plan) which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code. A-32 ANNEX A - RULES OF USAGE "Other Taxes" means any and all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or from the execution, delivery or enforcement of, or otherwise with respect to, any Operative Agreement. "Outside Completion Date" with respect to each Property means the date that is 12 months from the Construction Commencement Date for such Property, as such date may be extended by up to a total of 180 days due to the occurrence of one or more Force Majeure Events; provided that in no event shall such date be any later than the Construction Period Termination Date. "Overdue Interest" means any interest payable pursuant to Section 2.8(c) of the Credit Agreement. "Overdue Rate" means (i) with respect to Tranche A Basic Rent, Tranche B Basic Rent and any other amount owed under or with respect to the Credit Agreement or the Security Documents, the rate set forth in Section 2.8(c) of the Credit Agreement, (ii) with respect to Investor Yield and the Investor Contribution, 2% in excess of the Investor Yield then in effect and (iii) with respect to any other amount owing under any Operative Agreement, the rate referred to in clause (B) of Section 2.8(c)(ii) of the Credit Agreement. "Owner Trustee" means Wilmington Trust Company, not individually, but solely as Owner Trustee under the FMS Trust 1997-1. "Participants" means each of the Agents, the Lenders, the Lessor, the Investors and the Trust Company. "Participation Agreement" means the Participation Agreement dated as of the Initial Closing Date among the Lessee and Construction Agent, the Lessor, the Owner Trustee, the Investors, the Agents and the Lenders, as it may be amended, supplemented or otherwise modified from time to time in accordance with the terms thereof or of any other Operative Agreement. "Payment Date" means each Specified Interest Payment Date and any other date on which a payment is otherwise due under the terms of the Credit Agreement or the Trust Agreement or, if all amounts due under the Credit Agreement or the Trust Agreement have been paid in full and the Credit Agreement or the Trust Agreement has been terminated, the first Business Day of each calendar month during the Term. A-33 ANNEX A - RULES OF USAGE "PBGC" means the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA. "Permits" has the meaning set forth in Section 7.3(v) of the Participation Agreement. "Permitted Exceptions" means: (i) Liens of the types described in clauses (i), (ii), (v) and (viii) of the definition of Permitted Liens; (ii) Liens for Taxes not yet due; and (iii) all non-monetary encumbrances, exceptions, restrictions, easements, rights of way, servitudes, encroachments and irregularities in title, other than Liens which, in the reasonable assessment of the Administrative Agent, materially impair the use of any Property for its intended purpose. "Permitted Investments" means: (a) direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States of America (or by any agency thereof to the extent such obligations are backed by the full faith and credit of the United States of America), in each case maturing within one year from the date of acquisition thereof; (b) investments in commercial paper maturing within 270 days from the date of acquisition thereof and having, at such date of acquisition, the two highest credit ratings obtainable from S&P or from Moody's; (c) investments in certificates of deposit, banker's acceptances and time deposits maturing within 180 days from the date of acquisition thereof issued or guaranteed by or placed with, and money market deposit accounts issued or offered by, any domestic office of any commercial bank organized under the laws of the United States of America or any State thereof which has a combined capital and surplus and undivided profits of not less than $500,000,000; and (d) fully collateralized repurchase agreements with a term of not more than 30 days for securities described in clause (a) above and entered into with a financial institution satisfying the criteria described in clause (c) above. "Permitted Liens" means: (i) the respective rights and interests of the parties to the Operative Agreements as provided in the Operative Agreements; (ii) the rights of any sublessee or assignee under a sublease or an assignment expressly permitted by the terms of the Lease; (iii) Liens for Taxes that either are not yet due or are being contested in accordance with the provisions of Section 12.2 of the Participation A-34 ANNEX A - RULES OF USAGE Agreement; (iv) Liens arising by operation of law, materialmen's, mechanics', workmen's, repairmen's, employees', carriers', warehousemen's and other like Liens in connection with any Modifications or Liens arising in the ordinary course of business for amounts that either are not more than 30 days past due or are being diligently contested in good faith by appropriate proceedings, so long as such proceedings satisfy the conditions for the continuation of proceedings to contest Taxes set forth in Section 12.2(g) of the Participation Agreement; (v) Liens of any of the types referred to in clause (iv) above that have been bonded for not less than the full amount in dispute (or as to which other security arrangements satisfactory to the Lessor have been made), which bonding (or arrangements) shall comply with applicable Legal Requirements, and has effectively stayed any execution or enforcement of such Liens; (vi) Liens arising out of judgments or awards with respect to which appeals or other proceedings for review are being prosecuted in good faith and for the payment of which adequate reserves have been provided as required by GAAP or other appropriate provisions have been made, so long as such proceedings have the effect of staying the execution of such judgments or awards and satisfy the conditions for the continuation of proceedings to contest Taxes set forth in Section 12.2 of the Participation Agreement; (vii) Permitted Exceptions; and (viii) easements, rights of way and other encumbrances on title to real property pursuant to Section 12.2 of the Lease. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, limited liability company, trust, unincorporated organization, governmental authority or any other entity. "Plan" means an Employee Benefit Plan. "Plans and Specifications" means the plans and specifications for the Improvements to be constructed on any Property, as such Plans and Specifications may be amended, modified or supplemented from time to time in accordance with the terms of the Operative Agreements. "Pledge Agreement" means the Pledge Agreement, dated as of the Closing Date, by the Lessee and its Subsidiaries in favor of the Lenders and the lenders under the Corporate Loan Documents, as amended, supplemented or otherwise modified from time to time in accordance with the terms hereof or of any other Operative Agreement. "Project Costs" means, with respect to a Property, all costs and expenses incurred by the Construction Agent or otherwise expended in connection with the acquisition of Land and the design and construction of the Improvements thereon, including Property Acquisition Costs, all professional fees and other soft costs incurred in connection therewith, Transaction Expenses and other pre-closing and closing costs A-35 ANNEX A - RULES OF USAGE incurred by the Lessee in connection with the transactions contemplated by the Operative Agreements and payment of the interest on the Tranche A Loans and the Tranche B Loans and payment of the Investor Yield during the Construction Period, as the same are reflected in the Budget prepared in accordance with the Construction Agency Agreement. "Projected Completion Value" means the estimated value of any Land and Improvements, assuming the Improvements are completed in accordance with the Plans and Specifications, as established by an Appraisal. "Property" means (i) Lessor's interest in any Land, as lessee or as owner in fee simple thereof and (ii) all of the Improvements at any time located on or under such Land. "Property Acquisition Cost" means the cost to the Lessor to purchase a Property on a Property Closing Date including, without limitation, all professional fees and permitting, survey, title, freight and installation costs and other similar costs. "Property Closing Date" means each date on which the Lessor purchases any Property. "Property Cost" means with respect to a Property the aggregate amount of the Tranche A/B Property Cost allocated to such Property pursuant to the Credit Agreement, plus the Investor Property Cost for such Property, plus any interest on the Loans capitalized during the Construction Period. "Public Notes" means senior unsecured notes of the Borrower, described in the Preliminary Prospectus Supplement dated February 17, 1998, and the Prospectus, dated February 4, 1998. "Purchase Decision Date" means the day twelve months prior to the Maturity Date. "Purchase Notice" shall have the meaning set forth in Section 20.1 of the Lease. "Purchase Option" has the meaning set forth in Section 20.1 of the Lease. "Purchase Option Price" has the meaning set forth in Section 20.1 of the Lease. "QAC" means Q-Acquisition Corp., a wholly-owned Subsidiary of the Lessee. A-36 ANNEX A - RULES OF USAGE "QFC" means Quality Food Centers, Inc., a Washington corporation. "QFC Merger" means the merger of QFC and QAC in accordance with the QFC Merger Document. "QFC Merger Document" means that certain Agreement and Plan of Merger, dated as of November 6, 1997, among FMI, QFC and QAC. "Register" has the meaning set forth in Section 9.6 of the Credit Agreement. "Release" means any release, pumping, pouring, emptying, injecting, escaping, leaching, dumping, seepage, spill, leak, flow, discharge, disposal or emission of a Hazardous Material. "Remarketing Option" has the meaning set forth in Section 21.1(a) of the Lease. "Remarketing Period" means, if the Lessee has elected the Remarketing Option in accordance with Section 21.1 of the Lease, the period commencing on the Purchase Decision Date and ending on the later of (i) the Maturity Date and (ii) the Extended Remarketing Date, if applicable. "Rent" means, collectively, the Basic Rent and the Supplemental Rent, in each case payable under the Lease. "Reorganization" means, with respect to any Multiemployer Plan, the condition that such plan is in reorganization within the meaning of Section 4241 of ERISA. "Reportable Event" means any of the events set forth in Section 4043(b) of ERISA, other than those events as to which the thirty day notice period is waived under subsections .13, .14, .16, .18, .19 or .20 of PBGC Reg. ss. 2615. "Required Lenders" means, at any time, Non-Defaulting Lenders the Commitment Percentages of which aggregate more than 50%. "Required Modification" has the meaning set forth in Section 11.1 of the Lease. "Requisition" has the meaning set forth in Section 5.2 of the Participation Agreement. "Responsible Officer" means the Chairman or Vice Chairman of the Board of Directors, the Chairman or Vice Chairman of the Executive Committee of the Board of A-37 ANNEX A - RULES OF USAGE Directors, the President, any Senior Vice President or Executive Vice President, the Chief Financial Officer, the Chief Operating Officers, the Chief Accounting Officer, the Vice President/Treasurer or any Assistant Treasurer responsible for compliance with any of the Operative Agreements; except that when used with respect to the Trust Company or the Owner Trustee, "Responsible Officer" shall also include the Cashier, any Assistant Cashier, any Trust Officer or Assistant Trust Officer, the Controller and any Assistant Controller or any other officer of the Trust Company or the Owner Trustee customarily performing functions similar to those performed by any of the above designated officers and shall also mean, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his or her knowledge of and familiarity with the particular subject. "Restricted Payment" means any dividend or other distribution (whether in cash, securities or other property) with respect to any shares of any class of capital stock of the Lessee or any Subsidiary, or any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any such shares of capital stock of the Lessee or any option, warrant or other right to acquire any such shares of capital stock of the Lessee. "S&P" means Standard & Poor's Ratings Group, a division of The McGraw- Hill Companies, Inc. "Scheduled Interest Payment Date" means (a) as to any ABR Loan or ABR Contribution, the last day of each March, June, September and December to occur while such Loan or Investor Contribution is outstanding and the Maturity Date, (b) as to any Eurodollar Loan or Eurodollar Contribution having an Interest Period of three months or less, the last day of such Interest Period and (c) as to any Eurodollar Loan or Eurodollar Contribution having an Interest Period longer than three months, each day which is three months after the first day of such Interest Period and the last day of such Interest Period and, in addition, in each case the date of any refinancing or conversion of such Loan or Investor Contribution with or to a Loan or Investor Contribution of a different Type. "Securities Act" means the Securities Act of 1933, as amended, together with the rules and regulations promulgated thereunder. "Security Documents" means the collective reference to the Mortgage, the Deed of Trust, the Lease, the Pledge Agreement, the Intercreditor Agreement, the Memorandum of Lease, the Assignment of Lease and the Contract Assignment, and all other security documents hereafter delivered to the Administrative Agent granting a A-38 ANNEX A - RULES OF USAGE Lien on any asset or assets of any Person to secure the obligations and liabilities of the Lessor under the Credit Agreement and/or under any of the other Credit Documents or to secure any guarantee of any such obligations and liabilities. "Shared Rights" means the rights retained by the Lessor, but not to the exclusion of the Agents, pursuant to Section 8.3(a)(ii) of the Credit Agreement. "Single Employer Plan" means any Plan which is covered by Title IV of ERISA, but which is not a Multiemployer Plan. "Significant Casualty" means a Casualty that in the reasonable, good faith judgment of the relevant Lessee (as evidenced by an Officer's Certificate) either (a) renders the applicable Property unsuitable for continued use as commercial or retail property of the type of such Property immediately prior to such Casualty or (b) is so substantial in nature that restoration of such Property to substantially its condition as existed immediately prior to such Casualty would be impracticable or impossible. "Significant Condemnation" means a Condemnation that in the reasonable, good faith judgment of the relevant Lessee (as evidenced by an Officer's Certificate) either (a) renders the applicable Property unsuitable for continued use as commercial or retail property of the type of such Property immediately prior to such Condemnation or (b) is such that restoration of such Property to substantially its condition as existed immediately prior to such Condemnation would be impracticable or impossible. "Significant Entity" means any of the Lessee and its Material Subsidiaries. "Solvent" as to any Person means (i) the sum of the assets of such Person, both at a fair valuation and at present fair salable value, will exceed its liabilities, including contingent liabilities, (ii) such Person will have sufficient capital with which to conduct its business as presently conducted and (iii) such Person has not incurred debts, and does not intend to incur debts, beyond its ability to pay such debts as they mature. For purposes of this definition, "debt" means any liability on a claim, and "claim" means (x) a right to payment, whether or not such right is reduced to judgment, liquidated , unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured, or (y) a right to an equitable remedy for breach of performance if such breach gives rise to a payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured, or unsecured. With respect to any contingent liabilities, such liabilities shall be computed at the amount which, in light of all the facts and circumstances existing at the time, represents the amount which can reasonably be expected to become an actual or matured liability. A-39 ANNEX A - RULES OF USAGE "Specified Interest Payment Date" means (a) any Scheduled Interest Payment Date and (b) any date on which interest is payable pursuant to Section 2.7(d)(ii) of the Credit Agreement in connection with any prepayment of the Loans. "Statutory Reserves" means a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum reserve percentages (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by the Board to which the Administrative Agent is subject for eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of the Board). Such reserve percentages shall include those imposed pursuant to such Regulation D. Eurodollar Loans shall be deemed to constitute eurocurrency funding and to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under such Regulation D or any comparable regulation. The Statutory Reserve Rate shall be adjusted automatically on and as of the effective date of any change in any reserve percentage. "Store Land Property" means any Property designated by the Construction Agent as a "Store Land Property" in the Requisition in respect of such Property. "Subsidiary" means, with respect to any Person (the "parent") at any date, any corporation, limited liability company, partnership, association or other entity the accounts of which are required to be consolidated with those of the parent in the parent's consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date, as well as, with respect to any Person, any Person of which such Person and/or its subsidiaries own, directly or indirectly, such number of outstanding shares (or similar equity interest) as have more than 50% of the ordinary voting power for the election of directors. "Subsidiary Guarantor" means each Subsidiary which has executed a Subsidiary Guarantee. "Subsidiary Guarantee" means the Guarantee, substantially in the form of Exhibit E-2 to the Participation Agreement executed and delivered by each Subsidiary Guarantor to the Administrative Agent for the benefit of the Lessor and the Lenders, as the same may be amended, supplemented or otherwise modified from time to time in accordance with the terms thereof or of any other Operative Agreement. "Supplemented Amounts" has the meaning set forth in Section 9.14 of the Credit Agreement. A-40 ANNEX A - RULES OF USAGE "Supplemental Rent" means all amounts, liabilities and obligations (other than Basic Rent) which the Lessee assumes or agrees to pay to Lessor or any other Person under the Lease or under any of the other Operative Agreements (other than the Guarantees made by the Guarantors). "Surety Instruments" means all letters of credit (including standby and commercial), banker's acceptances, guaranties, shipside bonds, surety bonds and similar instruments under which Suretyship Liabilities arise. "Suretyship Liability" means any agreement, undertaking or other contractual arrangement by which any Person guarantees, endorses or otherwise becomes or is contingently liable upon (by direct or indirect agreement, contingent or otherwise, to provide funds for payment, to supply funds to or otherwise to invest in a debtor, or otherwise to assure a creditor against loss) any indebtedness, obligation or other liability (including accounts payable) of any other Person (other than by endorsements of instruments in the course of collection), or guarantees the payment of dividends or other distributions upon the shares of any other Person. Suretyship Liability shall include any liability or contingent liability of a Person under or in connection with a Synthetic Lease Facility. The amount of any Person's obligation under any Suretyship Liability shall (subject to any limitation set forth therein) be deemed to be the principal amount of the indebtedness, obligation or other liability guaranteed thereby. As of any date, the amount of any Person's obligations under any Synthetic Lease Facility shall be equal to the amount which such Person would be obligated to pay if such Synthetic Lease Facility was accelerated on such date (disregarding accrued scheduled lease payments which would be characterized as interest if such Synthetic Lease Facility were treated as a capital lease under GAAP). "Survey" has the meaning set forth in Section 6.2(k) of the Participation Agreement. "Syndication Agent" means The Chase Manhattan Bank. "Synthetic Lease Facility" means any synthetic lease, tax ownership operating lease, tax retention operating lease, off balance sheet lease or similar lease transaction where the lessee is treated as owner of the leased property for U.S. federal income tax purposes while the lease is accounted for on the financial statements of the lessee, prepared in accordance with GAAP, as an operating lease, including the Current Synthetic Lease Facility. "Tangible Net Assets" means the total consolidated assets of the Lessee and its Subsidiaries minus any amount included therein in respect of goodwill, as shown on the A-41 ANNEX A - RULES OF USAGE most recent consolidated balance sheet of the Lessee and its Subsidiaries referred to in Section 6.1(w) or delivered to the Administrative Agent, each Lender and each Investor pursuant to Section 9.4(a). "Tax Indemnitee" means the Lessor, the Investors, the Trust Company, the Agents, each Lender and their Affiliates, successors, assignees and assigns. "Taxes" has the meaning set forth in the definition of Impositions. "Term" means for each Property, the period commencing on the Property Closing Date for such Property and ending on the date immediately prior to the Maturity Date. "Termination Date" has the meaning set forth in Section 16.2(a) of the Lease. "Termination Notice" has the meaning set forth in Section 16.1(a) of the Lease. "Termination Value" means with respect to all Properties, as of any determination date, an amount equal to the sum of (i) the aggregate outstanding principal of the Loans, accrued and unpaid interest on the Loans and any other amounts due under the Credit Agreement, plus (ii) the aggregate outstanding amount of the Investor Contributions, all accrued amounts due on account of the Investor Yield and all other amounts owing to the Investors under the Operative Agreements, plus (iii) all other amounts due to the Agents, the Lenders, the Investors or the Lessor under the Operative Agreements. "Termination Value" with respect to a particular Property means an amount equal to the product of the Termination Value of all the Properties times a fraction, the numerator of which is the Property Cost allocable to the particular Property in question and the denominator of which is the aggregate Property Cost for all the Properties. "Title Company" means First American Title Company, or such other title insurance company reasonably acceptable to the Administrative Agent and the Investors. "Total Condemnation" means a Condemnation that involves a taking of Lessor's entire title to a Property. "Tranche A Basic Rent" means the interest due on the Tranche A Loans on any Specified Interest Payment Date pursuant to the Credit Agreement (but not including interest on overdue amounts under Section 2.8(c) of the Credit Agreement or otherwise). A-42 ANNEX A - RULES OF USAGE "Tranche A Loan" has the meaning set forth in Section 2.3(c) of the Credit Agreement. "Tranche A Note" has the meaning set forth in Section 2.2 of the Credit Agreement. "Tranche A Percentage" means, with respect to a Property, a fraction, expressed as a percentage, equal to (a) the Maximum Residual Guarantee Amount of such Property divided by (b) the Property Cost of such Property. "Tranche A/B Construction Property Cost" means with respect to each Construction Period Property, at any date of determination, an amount equal to (a) the aggregate principal amount of Loans made on or prior to such date with respect to such Property minus (b) the aggregate principal amount of prepayments of the Loans allocated to reduce the Tranche A/B Construction Property Cost of such Property pursuant to Section 2.5(d) of the Credit Agreement. "Tranche A/B Property Cost" means, with respect to each Property, at any date of determination, an amount equal to (a) the aggregate principal amount of Loans made on or prior to such date with respect to such Property minus (b) the aggregate amount of prepayments of the Loans allocated to reduce the Tranche A/B Property Cost of such Property pursuant to Section 2.5(d) of the Credit Agreement. "Tranche B Basic Rent" means the interest due on the Tranche B Loans on any Specified Payment Date pursuant to the Credit Agreement (but not including interest on overdue amounts under Section 2.8(c) of the Credit Agreement or otherwise). "Tranche B Loan" has the meaning set forth in Section 2.3(c) of the Credit Agreement. "Tranche B Note" has the meaning set forth in Section 2.2 of the Credit Agreement. "Tranche B Percentage" means 100% minus the Tranche A Percentage. "Transaction Expenses" means: (a) the reasonable out-of-pocket expenses, disbursement or cost of Agents and Arrangers incurred in connection with the consummation of the transactions contemplated by the Operative Agreements; A-43 ANNEX A - RULES OF USAGE (b) the reasonable fees and reasonable out-of-pocket expenses of the Trust Company in connection with the transactions contemplated by the Operative Agreements, including, without limitation, the initial and annual Trust Company's fee and all reasonable fees and reasonable out-of pocket expenses of the Trust Company and any necessary co-trustees (including reasonable counsel fees and expenses) or any successor owner trustee, for acting as owner trustee under the Trust Agreement; (c) the fee payable to Arrangers in connection with the transactions contemplated by the Operative Agreements; (d) any and all Taxes (to the extent provided in Section 11.2 of the Participation Agreement) and fees incurred in recording or filing any Operative Agreement or any other transaction document, any deed, declaration, deed of trust, security agreement, notice or financing statement with any public office, registry or governmental agency in connection with the transactions contemplated by the Operative Agreements; (e) any real estate brokers' fees, consultants' fees (including, without limitation, fees incurred in connection with Appraisals, Environmental Audits and surveys performed under the Operative Agreements) and any and all stamp, transfer and other similar taxes, fees and excises, if any, including any interest and penalties, which are payable in connection with the acquisition of any Property; (f) all reasonable out-of-pocket costs and expenses incurred in connection with the enforcement or preservation of any rights under the Operative Agreements after the occurrence of an Event of Default, including, without limitation, the fees and disbursements of counsel (including the allocated fees and expenses of in-house counsel) to the Agents, each Lender and the Investors; (g) all reasonable out-of-pocket costs and expenses incurred in connection with any amendment, supplement or modification to the Operative Agreements requested by the Lessee or the Guarantors and any other documents prepared in connection therewith, and the consummation and administration of the transactions contemplated thereby, including, without limitation, the reasonable fees and disbursements of counsel to the Agents and the Investors; and A-44 ANNEX A - RULES OF USAGE (h) all reasonable out-of-pocket costs and expenses incurred by the Lessor, the Lessee, the Investors or the Agents in connection with any purchase of the Property by the Lessee pursuant to the Lease. "Trust" means the Lessor. "Trust Agreement" means the Trust Agreement dated as of the Initial Closing Date among the Investors and the Trust Company as amended, supplemented and otherwise modified from time to time in accordance with the terms thereof and of any other Operative Agreement. "Trust Company" means Wilmington Trust Company, in its individual capacity, and any successor owner trustee under the Trust Agreement in its individual capacity. "Trust Estate" has the meaning set forth in Section 2.2 of the Trust Agreement. "Twenty Five Percent Property" has the meaning specified in Section 1.3(b) of the Participation Agreement. "Type" means, as to any Loan, its nature as an ABR Loan or a Eurodollar Loan, and as to any Investor Contribution, its nature as an ABR Contribution or a Eurodollar Contribution. "UCC Financing Statements" means collectively the Lender Financing Statements and the Lessor Financing Statements. "Undeveloped Land" means any portion of any Property consisting of Land free of any Improvements (other than de minimus site improvements) . "Unfunded Amount" has the meaning specified in Section 3.2 of the Construction Agency Agreement. "Unfunded Liabilities" of any Plan means the amount, if any, by which the actuarial present value of the accumulated plan benefits under the Plan as of the close of its most recent plan year exceeds the fair market value of the assets allocable thereto, each determined in accordance with Statement and Financial Accounting Standards No. 87, based upon the actuarial assumptions used by the Plan's actuary in the most recent annual valuation of the Plan. "Uniform Commercial Code" and "UCC" means the Uniform Commercial Code as in effect in any applicable jurisdiction. A-45 ANNEX A - RULES OF USAGE "Wear and Tear Payment" has the meaning set forth in Section 2.5(b) of the Credit Agreement. "Withdrawal Liability" means liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA. A-46 PARTICIPATION AGREEMENT SCHEDULE 1 TO PARTICIPATION AGREEMENT ----------------------- EXISTING PROPERTIES ------------------- - ------------------------------------------------------------------------------- STORE NAME STORE ADDRESS STORE COUNTY - ------------------------------------------------------------------------------- Burlingame 7555 S.W. Barbur Blvd. County of Multnomah Portland, OR 97129 - ------------------------------------------------------------------------------- Covington 16735 S.E. 272nd County of King Kent, WA 98042 - ------------------------------------------------------------------------------- Glisan 6615 N.E. Glisan County of Multnomah Portland, OR 97213 - ------------------------------------------------------------------------------- Hawthorne 3805 S.E. Hawthorne Blvd. County of Multnomah Portland, OR 97214 - ------------------------------------------------------------------------------- Hazel Dell 7700 Highway 99 County of Clark Vancouver, WA 98665 - ------------------------------------------------------------------------------- Hillsboro 23105 S.W. Tualatin Valley Hwy. County of Washington Hillsboro, OR 97123 - ------------------------------------------------------------------------------- Meridian 1850 East Fairview Ave. County of Ada Meridian, ID 83642 - ------------------------------------------------------------------------------- Puyallup 17404 Meridian East County of Pierce Puyallup, WA 98373 - ------------------------------------------------------------------------------- Raleigh Hills 7700 SW Beaverton-Hillsdale Hwy. County of Washington Portland, OR 97225 - ------------------------------------------------------------------------------- Scappoose 51500 S. Columbia River Why. County of Columbia Scappoose, OR 97056 - ------------------------------------------------------------------------------- Twin Falls 705 Blue Lakes Blvd. County of Twin Falls Twin Falls, ID 83301 - ------------------------------------------------------------------------------- Coeur d'Alene 560 W. Kathleen Ave. County of Kootenai Coeur d'Alene, ID 83814 - ------------------------------------------------------------------------------- Gresham 2497 S.E. Burnside County of Multnomah Gresham, OR 97080-1299 - ------------------------------------------------------------------------------- PARTICIPATION AGREEMENT - ------------------------------------------------------------------------------- Idaho Falls 1555 Northgate Mile County of Bonneville Idaho Falls, ID 83405 - ------------------------------------------------------------------------------- Orem 1275 South 800 East County of Utah Orem, UT - ------------------------------------------------------------------------------- Tigard 11565 SW Pacific Why. County of Washington Tigard, OR 97223 - ------------------------------------------------------------------------------- Clackamas Distri- 11500 S.E. Highway 212 County of Clackamas bution Center Clackamas, OR 97015-9002 - ------------------------------------------------------------------------------- Spokane Division Southeast Corner of Highway 395 County of Spokane and Hastings Rd. Spokane, WA - ------------------------------------------------------------------------------- Murphy's Corner Northwest Corner of State Highway County of Snohomish (Mill Creek) 527 and 132nd St. S.E. Everett, WA - ------------------------------------------------------------------------------- Thrasher's Corner S.E. Corner of State Highway 527 County of Snohomish (Bothell) and Maltby Bothell, WA - ------------------------------------------------------------------------------- Bellevue 2041 148th NE County of King Bellevue, WA 98168 - ------------------------------------------------------------------------------- Burien 14300 First Avenue S. County of King Seattle, WA 98168 - ------------------------------------------------------------------------------- Clackamas 16301 SE 82nd Dr. County of Clackamas Clackamas, OR 97015 - ------------------------------------------------------------------------------- Anchorage 1000 East Northern Lights Blvd Borough of Anchorage Anchorage, AK 99508 - ------------------------------------------------------------------------------- Midway 25250 Pacific Hwy S. County of King Kent, WA 98031 - ------------------------------------------------------------------------------- SCHEDULE 7.3(h) TO PARTICIPATION AGREEMENT ----------------------- DISCLOSED MATTERS [See Schedules to $3,500,000,000 Loan Agreement.] 2 SCHEDULE 7.3(n) TO PARTICIPATION AGREEMENT ----------------------- BROKERS / FEES As disclosed in the Merger Documents. 3 SCHEDULE 7.3(o) TO PARTICIPATION AGREEMENT ----------------------- ENVIRONMENTAL None. 4 SCHEDULE 7.3(v) TO PARTICIPATION AGREEMENT ----------------------- PERMITS None. 5 SCHEDULE 7.3(w) TO PARTICIPATION AGREEMENT ----------------------- SUBSIDIARIES [See Schedules to $3,500,000,000 Loan Agreement.] 6 SCHEDULE 9.5(a) TO ----------------------- PARTICIPATION AGREEMENT INDEBTEDNESS [See Schedules to $3,500,000,000 Loan Agreement.] 7 SCHEDULE 9.5(b) TO PARTICIPATION AGREEMENT ----------------------- LIENS [See Schedules to $3,500,000,000 Loan Agreement.] 8 SCHEDULE 9.5(e) TO PARTICIPATION AGREEMENT ----------------------- INVESTMENTS [See Schedules to $3,500,000,000 Loan Agreement.] 9 PARTICIPATION AGREEMENT EXHIBIT A TO PARTICIPATION AGREEMENT ----------------------- FORM OF ASSIGNMENT OF LEASES AND CONSENT TO ASSIGNMENT ------------------------------------------------------ ASSIGNMENT OF LEASE AND RENTS from FMS TRUST 1997-1, as Assignor to BANKERS TRUST COMPANY, as Assignee March __, 1998 This Instrument should be recorded and then returned to: Skadden, Arps, Slate, Meagher & Flom LLP 300 South Grand Avenue Los Angeles, California 90071 ATTN: John E. Mendez, Esq. ASSIGNMENT OF LEASES AND RENTS ------------------------------ THIS ASSIGNMENT OF LEASES AND RENTS dated as of March __, 1998 (this "Assignment"), made by FMS TRUST 1997-1, a Delaware business trust (the "Assignor"), to BANKERS TRUST COMPANY, a New York banking corporation, in its capacity as administrative agent and collateral agent (in such capacity, the "Assignee"), under the Credit Agreement dated as of March __, 1998 (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), among the Assignor, the Assignee and the financial institutions from time to time parties thereto (the "Lenders"). Preliminary Statement --------------------- A. On March __, 1998, the Assignor and Fred Meyer, Inc. (the "Lessee") entered into a Lease whereby the Assignor agreed to lease certain Properties to the Lessee. Pursuant to the Lease, on the date that each Property is acquired by the Assignor, the Assignor and the Lessee shall execute and deliver a Lease Supplement to subject such Property to the Lease. On the date hereof, the Assignor and the Lessee have executed a Lease Supplement for the lease of the Properties (as defined below) by the Assignor to the Lessee. B. Pursuant to the Credit Agreement, the Lenders have severally agreed to make Loans to the Assignor in an aggregate amount not to exceed the aggregate Commitments of the Lenders upon the terms and subject to the conditions set forth therein, to be evidenced by the Notes issued by the Assignor under the Credit Agreement. C. It is a condition, among others, to the obligation of the Lenders to make their respective Loans to the Assignor under the Credit Agreement that the Assignor shall have executed and delivered, and the Lessee shall have consented to, this Assignment to the Assignee for the ratable benefit of the Lenders. ASSIGNMENT OF LEASES AND RENTS D. In order to further secure payment of the all amounts advanced under the Credit Agreement and the Notes, the Assignor has agreed to execute and deliver this Assignment. NOW, THEREFORE, in consideration of the foregoing, the parties hereto agree as follows: 1. Defined Terms. Capitalized terms used but not otherwise defined in this Assignment shall have the respective meanings specified in Annex A to the Participation Agreement dated as of the date hereof among the Lessee, the Owner Trustee, the Lessor, the Investors, the Administrative Agent, the Syndication Agent and the Lenders named therein, as such Participation Agreement may be amended, supplemented or otherwise modified from time to time. The rules of usage set forth in Annex A to the Participation Agreement shall apply to this Assignment. 2. Assignment. The Assignor hereby irrevocably assigns, transfers, sets over and conveys to the Assignee, all the following-described property relating to or arising in connection with the Properties (including, without limitation, each Property described in a Supplement to this Assignment, as delivered from time to time in the form attached hereto as Exhibit A), whether now owned or held or hereafter acquired, exclusively and without any reservation thereof unto the Assignor: (a) All of the estate, right, title, interest, benefits, powers and privileges of the Assignor, as lessor, under the Lease and all Lease Supplements (hereinafter referred to collectively as the "Assigned Lease") including, without limitation, (i) the immediate and continuing right to make claim for, receive, collect and receipt for all rents, income, revenues, issues, profits, insurance proceeds, condemnation awards, sales proceeds and other sums payable to or receivable by the Assignor under the Assigned Lease, or pursuant to any provisions thereof, whether as rent or as the purchase price or termination payment for any interest in the Properties or otherwise (including, without limitation, the Maximum Residual Guarantee Amount, the Purchase Option Price, Termination Value, Basic Rent, Supplemental Rent, Investor Yield and any sales proceeds payable to the Assignor pursuant to the Assigned Lease) (collectively, the "Lease Rents"), 2 ASSIGNMENT OF LEASES AND RENTS including all cash, securities or letters of credit delivered or deposited pursuant thereto to secure performance by the Lessee of its obligations thereunder, (ii) the right and power (which right and power are coupled with an interest) upon the purchase by the Lessee of the interest of the Assignor in the Properties in accordance with the Assigned Lease to execute and deliver as irrevocable agent and attorney-in-fact of the Assignor an appropriate instrument necessary to convey the interest of the Assignor therein, or to pay over or assign to the Assignee those sums to which it is entitled if the Lessee becomes obligated to purchase the interest of the Assignor in the Properties and to perform all other necessary or appropriate acts as said agent and attorney-in-fact with respect to any such purchase and conveyance, (iii) the right to perform all other necessary or appropriate acts as said agent and attorney-in-fact with respect to any purchase or conveyance referred to in clause (ii) above, (iv) the right to declare the Lease and any Lease Supplement to be in default under Section 17.1 thereof, (v) the right to exercise remedies under or with respect to the Assigned Lease, (vi) the right to make all waivers and agreements on behalf of the Assignor under the Assigned Lease provided for or permitted under the Assigned Lease, (vii) the right to give all notices, consents, releases and other instruments provided under the Assigned Lease, (viii) the right to give all notices of default and to take all action upon the happening of a Lease Default or a Lease Event of Default, including the commencement, conduct and consummation of proceedings as shall be permitted under any provision of the Assigned Lease, or by law or in equity, (ix) the right to receive all notices sent to the Assignor under the Assigned Lease, (x) the Assignor's interest under the Assigned Lease in the Lessee's tangible and intangible property used or arising in connection with the Properties, including, but not limited to, permits, licenses, contract rights and prepaid expenses, and (xi) the right to do any and all other things whatsoever which the Assignor is or any lessor is, or may be entitled to do under the Assigned Lease; provided, that the Assignor shall retain, and the Lease Rents shall not include, the Excepted Payments and the Lessor shall retain and the rights and powers assigned herein shall in no event include the Excepted Rights and shall be subject to the Shared Rights. The Assignor hereby agrees that any action taken by Assignee (or its designee) pursuant to this Assignment shall be exclusive, and no party relying on such action of the Assignee (or such designee) pursuant hereto shall be required to 3 ASSIGNMENT OF LEASES AND RENTS obtain the concurrence or consent of the Assignor to such action or to a request for such action. (b) All of the estate, right, title, interest, benefits, powers and privileges of the Assignor, to and under all other leases, subleases or licenses of the Properties, any license, concession, management or other agreements of a similar kind that permits the use or occupancy of the Properties or any part thereof for any purpose in return for any payment, now or hereafter entered into by the Assignor (collectively, the "Other Leases" and, together with the Assigned Lease, the "Leases"), together with all estate, rights, title, interest, benefits, powers and privileges of the Assignor, as lessor, under the Other Leases including the immediate and continuing right to make claim for, receive, collect and receipt for all charges, fees, income, issues, profits, receipts, rents, revenues or royalties payable under any of the Other Leases (collectively, the "Other Lease Rents") and all estate, right, title and interest of the Assignor thereunder, including all cash, securities or letters of credit delivered or deposited thereunder to secure performance by the Lessee under Other Leases of its obligations thereunder; provided, that the Assignor shall retain, and the Lease Rents shall not include, the Excepted Payments and the Lessor shall retain and the rights and powers assigned herein shall in no event include the Excepted Rights and shall be subject to the Shared Rights. (c) All of the estate, right, title, interest, benefits, powers and privileges of the Assignor, to and under all agreements or contracts for the sale or other disposition of all or any part of the Properties, now or hereafter entered into by the Assignor (collectively, the "Contracts"), together with all estate, rights, title, interest, benefits, powers and privileges of the Assignor under the Contracts including, without limitation, the immediate and continuing right to make claim for, receive, collect and receipt for all charges, fees, income, issues, profits, receipts, rents, revenues or royalties payable under any of the Contracts (collectively, the "Contract Rents" and, together with the Lease Rents and the Other Lease Rents, the "Rents") and all right, title and interest of the Assignor thereunder, including all cash, securities or letters of credit deposited thereunder to secure performance by the obligors of their obligations thereunder; provided, that the Assignor shall retain, and the Lease Rents 4 ASSIGNMENT OF LEASES AND RENTS shall not include, the Excepted Payments and the Lessor shall retain and the rights and powers assigned herein shall in no event include the Excepted Rights and shall be subject to the Shared Rights. (d) All of the right, title and interest of the Assignor in and to all claims and rights to the payment of money at any time arising in connection with any repudiation, rejection or breach of the Assigned Lease by the Lessee or a trustee or receiver of the Lessee (or any Other Lease by any lessee thereunder, trustee or receiver of any such lessee) under any insolvency statute, law or regulation, including all rights to recover damages arising out of such breach or rejection, all rights to charges payable by the Lessee or such trustee or receiver (or by such lessee, trustee or receiver) in respect of the Properties or any portions thereof following rejection, repudiation or disaffirmance of the Assigned Lease or following the entry of an order for relief under any insolvency statute, law or regulation in respect of the Lessee (or such lessee) and all rentals and other charges outstanding under the Assigned Lease (or Other Lease) as of the date of entry of such order for relief; provided, that the Assignor shall retain and the Lease Rents shall not include, the Excepted Payments and the Lessor shall retain and the rights and powers assigned herein shall in no event include, the Excepted Rights and shall be subject to the Shared Rights. 3. Receipt of Rents. The Assignor hereby irrevocably designates the Assignee (or its designee) to receive all payments of the Lease Rents, the Other Lease Rents and the Contract Rents and any other sums payable to the Assignor under the Assigned Lease, any Other Lease or any Contract. The Assignor agrees to direct (and hereby directs) the Lessee, any other lessee and any contracting parties to deliver to the Assignee (or its designee), at its address set forth herein or at such other address or to such other Person as the Assignee shall designate, all such payments and sums on account of the Rents, and no delivery thereof by the Lessee, such other lessee or such contracting party shall be of any force or effect unless made to the Assignee (or its designee), as herein provided. The Rents shall for all purposes be considered the property of the Assignee and not of the Assignor, whether before or after the occurrence of an Event of Default. 5 ASSIGNMENT OF LEASES AND RENTS 4. Receipt of Notices. The Assignor hereby designates the Assignee (or its designee) to receive (in addition to, and not to the exclusion of, the Assignor) duplicate originals or copies of all notices, undertakings, demands, statements, documents, financial statements and other communications which the Lessee, any other lessee or any contracting party is required or permitted to give, make, deliver to or serve pursuant to the Assigned Lease, any Other Lease or any Contract. The Assignor agrees to direct (and hereby directs) the Lessee and such other lessee and contracting parties to deliver to the Assignee (or its designee), at its address set forth herein or at such other address or to such other Person as the Assignee shall designate, duplicate originals or copies of all such notices, undertakings, demands, statements, documents, financial statements and other communications, and no delivery thereof by the Lessee, such other lessee or such contracting party shall be of any force or effect unless made to the Assignor and also made to the Assignee (or its designee), as herein provided. The Assignor further agrees that upon receipt by the Assignor of any such notices, undertakings, demands, statements, documents, financial statements and other communications, the Assignor shall promptly deliver copies thereof to the Assignee unless the Assignor shall reasonably believe that the Assignee has already received such copies. 5. Irrevocability; Supplemental Instruments. The Assignor agrees that this Assignment and the designation and direction to the Lessee set forth in Sections 3 and 4 of this Assignment are irrevocable and that it will not take any action as lessor under the Assigned Lease or otherwise which is inconsistent with this Assignment and that any action, assignment, designation or direction inconsistent herewith shall be void. The Assignor will from time to time execute and deliver all instruments of further assurance and do such further acts as may be necessary or proper to carry out more effectively the purpose of this Assignment. 6. Validity. The Assignor represents and warrants (on a continuing basis) and covenants to the Assignee that (i) the Assignor has not assigned or executed any assignment of, and will not assign or execute any assignment of its interest in the Assigned Lease, of any Other Lease, of any Contract or of any Rents or of any other subject matter of this Assignment to anyone other than the Assignee and any assignment, designation or direction by the Assignor inconsistent herewith shall be void, (ii) no Lease Event of Default has 6 ASSIGNMENT OF LEASES AND RENTS occurred and is continuing and (iii) the Assignor has not done any act or executed any document that impairs the rights of the Assignee to the Assigned Lease or the Lease Rents under this Assignment. 7. The Assignor Remains Liable. While the assignment made hereby is present, direct, absolute and continuing, it has been made for the purpose of providing the Assignee with security for the performance of the Assignor's obligations under the Credit Agreement and the Notes and the execution and delivery hereof shall not impair or diminish in any way the obligations of the Assignor under the Assigned Lease or impose any of such obligations on the Assignee. This Assignment shall not operate to cause the Assignee (or its designee) to be regarded as a mortgagee in possession. Neither the Assignee nor its designee shall be responsible or liable for performing any of the obligations of the Assignor under the Assigned Lease, any Other Lease or any Contract, for any waste by the Lessee or others, for any dangerous or defective conditions of the Properties, for negligence in the management, upkeep, repair or control of the Properties or any other act or omission by any other Person. Nothing contained herein shall operate or be construed to (i) obligate the Assignee (or its designee) to assume the obligations of the Assignor under the Assigned Lease, any Other Lease or any Contract, to perform any of the terms and conditions contained in the Assigned Lease, any Other Lease or any Contract or otherwise to impose any obligation upon the Assignee with respect to the Assigned Lease, any Other Lease or any Contract or (ii) place upon the Assignee (or its designee) any responsibility for the operation, control, care, management or repair of any of the Properties or any part thereof. Subject at all times to the terms and conditions of this Assignment, the Assignor will at all times promptly and faithfully perform in all respects, or cause to be performed in all respects, all of its covenants, conditions and agreements contained in the Assigned Lease, any Other Lease or any Contract now or hereafter existing on the part of the Assignor to be kept and performed. 8. Amendments; Lessee's Consent. The Assignor will not enter into any agreement subordinating, amending, extending or terminating the Assigned Lease without the prior written consent thereto of the Assignee (the applicable standard for the giving or withholding of any such consent remaining subject to the terms of the Lease), and any such attempted subordination, amendment, modification, extension or termination without such consent shall be void. If the Assigned Lease, any Other Lease or any Contract shall be amended, it 7 ASSIGNMENT OF LEASES AND RENTS shall continue to be subject to the provisions hereof without the necessity of any further act by any of the parties hereto. The Assignor and the Assignee hereby consent to the provisions of Lessee's Consent attached to this Assignment and agree to be bound thereby. 9. Absolute Assignment. The Assignor has, subject to and in accordance with the terms and conditions of this Assignment, assigned and transferred unto the Assignee all of the Assignor's right, title and interest in and to Rents now or hereafter arising from the Assigned Lease, any Other Lease or any Contract heretofore or hereafter made or agreed to by the Assignor, it being intended to establish an absolute transfer and assignment, subject to and in accordance with the terms and conditions of this Assignment, of all such Rents, the Assigned Lease, the Other Leases and the Contracts to the Assignee and not merely to grant a security interest therein. Subject to the terms of the Assigned Lease, the Assignee (or its designee) may in the Assignor's name and stead operate the Properties and rent, lease or let all or any portion of the Properties to any party or parties at such rental and upon such terms as the Assignee (or its designee) shall, in its discretion, determine. 10. Ongoing Right to Collect Rents; Receivers. If notwithstanding the terms of this Assignment, a petition or order for sequestration of rents, or the appointment of a receiver or some similar judicial action or order is deemed required under applicable state law to allow the Assignee to continue to collect the moneys described in paragraphs 2 (a), (b), (c) and (d) of this Assignment, then it is agreed by the Assignor that any proof of claim or similar document filed by the Assignee in connection with the breach or rejection of the Assigned Lease by the Lessee thereunder or the trustee of any lessee under any federal or state insolvency statute shall for the purpose of perfecting the Assignee's rights conferred in said paragraph 2(d) be deemed to constitute action required under such state law. Upon the occurrence and during the continuance of an Event of Default, the Assignor hereby consents to the appointment of a receiver for any or all of the Properties as a matter of right and without any requirement for notice to the Assignor and without regard to the solvency of the Assignor or to the collateral that may be available for the satisfaction of the Notes and all other obligations under the Credit Agreement and the other Operative Agreements. 8 ASSIGNMENT OF LEASES AND RENTS 11. Amendment. This Assignment may not be amended or otherwise modified except by a writing signed by the Assignor and the Assignee in accordance with the terms of the Credit Agreement. 12. Notices. All notices, demands, requests, consents, approvals and other instruments under this Assignment shall be made in accordance with the notice provisions of the Participation Agreement. 13. Successors and Assigns. All covenants, agreements, representations and warranties in this Assignment by the Assignor and the Assignee shall bind, and shall inure to the benefit of and be enforceable by, their respective successors and assigns. 14. Severability. If any provision or provisions, or if any portion of any provision or provisions, in this Assignment is found by a court of law of competent jurisdiction to be in violation of any local, state or Federal ordinance, statute, law, administrative or judicial decision, or public policy, and if such court should declare such portion, provision or provisions to be illegal, invalid, unlawful, void or unenforceable as written, then it is the intent of the parties hereto that such portion, provision or provisions shall be given force to the fullest possible extent that they are legal, valid and enforceable, that the remainder of this Assignment shall be construed as if such illegal, invalid, unlawful, void or unenforceable portion, provision or provisions were not contained therein, and that the obligations of the Assignor under the remainder of this Assignment shall continue in full force and effect. 15. Governing Law. THIS ASSIGNMENT SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, EXCEPT AS TO MATTERS RELATING TO THE CREATION OF LIENS AND THE EXERCISE OF REMEDIES WITH RESPECT THERETO, WHICH SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE IN WHICH THE APPLICABLE PROPERTIES ARE LOCATED. 9 ASSIGNMENT OF LEASES AND RENTS 16. Obligations Are Without Recourse. Anything to the contrary herein notwithstanding, the Assignor's liability for any sums due hereunder shall be limited in accordance with Section 9.14 of the Credit Agreement. 17. Counterparts. This Assignment may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one and the same instrument. 18. Liens and Security Interests. The Lessor further intends and agrees that, for the purpose of securing the payment of all the amounts owing to the Lenders under the Operative Agreements, (i) this Assignment shall also be deemed to be a security agreement and financing statement within the meaning of Article 9 of the Uniform Commercial Code; (ii) the assignment provided for in Section 2 shall be deemed to be a grant by the Lessor to the Administrative Agent for the benefit of the Lenders. Lessor does hereby grant to the Administrative Agent for the benefit of the Lenders, a security interest in all of the right, title and interest of the Lessor in and to the items described in Section 2 to the Adminis trative Agent for the benefit of the Lenders to secure all Loans advanced by the Lenders, together with interest thereon, and all other amounts payable under the Operative Agreements in connection therewith; (iii) the possession by the Administrative Agent or any of its agents of notes and such other items of property as constitute instruments, money, negotiable documents or chattel paper shall be deemed to be "possession by the secured party" for purposes of perfecting the security interest pursuant to Section 9-305 of the Uniform Commercial Code; and (iv) notifications to Persons holding such property, and acknowledgements, receipts or confirmations from financial intermediaries, bankers or agents (as applicable) of the Lessor shall be deemed to have been given for the purpose of perfecting such security interest under any Legal Requirement. The Lessor, the Lessee and Holdings shall, to the extent consistent with the Operative Agreements, take such actions and execute, deliver, file and record such other documents, financing statements, mortgages and deeds of trust as may be necessary to ensure that, if this Assignment was deemed to create a security interest in the items described in Section 2 in accordance with this Section, such security interest would be deemed to be a perfected security interest and will be maintained as such throughout the Term. 10 ASSIGNMENT OF LEASES AND RENTS IN WITNESS WHEREOF, the Assignor and Assignee have caused this Assignment to be duly executed as of the day and year first above written. FMS TRUST 1997-1, as Assignor By: WILMINGTON TRUST COMPANY, not in its individual capacity but solely as Owner Trustee By: ----------------------------------------- Name: Title: S-1 ASSIGNMENT OF LEASES AND RENTS BANKERS TRUST COMPANY, as Assignee By: ---------------------------------------------- Name: Title: S-2 EXHIBIT A --------- EXHIBIT A 1/ TO ASSIGNMENT OF LEASE AND RENT [FORM OF] SUPPLEMENT NO. __ TO ASSIGNMENT OF LEASE AND RENT ([City], [State]) THIS SUPPLEMENT NO. __ (this "Supplement") , dated as of ____________ 19__, to the ASSIGNMENT OF LEASE AND RENT, dated as of March __, 1998 (the "Assignment"), made by FMS TRUST 1997-1, a Delaware business trust, as Lessor under the Lease dated as of March __, 1998 (as amended, modified, restated or supplemented from time to time, the "Lease"), among Fred Meyer, Inc., a Delaware corporation, and the Lessor, in favor of BANKERS TRUST COMPANY, as Administrative Agent (in such capacity, the "Administrative Agent") for the Lenders. Capitalized terms used herein but not otherwise defined have the meanings specified in the Assignment. The parties hereto agree as follows: 1. The Property. In accordance with the Assignment, the Lessor has executed this Supplement to subject the Lease, as supplemented by the Lease Supplement attached as Schedule 1 hereto, to the Assignment. The description of the Property is attached hereto as Schedule 2. 2. Integrated Assignment. Following the execution and delivery of this Supplement, this Supplement, and all supplements previously delivered under the Assignment, shall constitute a part of the Assignment, and the Lease, as supplemented by the Lease Supplement attached as Schedule 1 hereto, is hereby assigned to the Administrative Agent for the ratable benefit of the Lenders pursuant to the provisions of Section 2 of the Assignment. 3. Confirmation. Except as expressly supplemented hereby, the provisions of the Assignment are and shall remain in full force and effect. Further, the Lessor hereby reaffirms its obligations under the Assignment. - ------------ 1/ Note that the Supplement must be tailored to meet the requirements of the laws of the state or states in which the Properties are located. A-1 ASSIGNMENT OF LEASES AND RENTS IN WITNESS WHEREOF, the Lessor has caused this Supplement to be duly executed as of the day and year first above written. FMS TRUST 1997-1 WILMINGTON TRUST COMPANY, not in its individual capacity but solely as Owner Trustee By ____________________________________________ Name: Witness Title: [ ], as Lessor - -------------------------- print name:_______________ __________________________ By ____________________________________________ print name:_______________ Name: Title: Acknowledged and accepted this __ day of _______, 1998 S-1 ASSIGNMENT OF LEASES AND RENTS BANKERS TRUST COMPANY Witness: -------------------------- print name:_______________ By _______________________________ Name: ________________________________________ Title: print name: ____________________________ S-2 STATE OF __________ ) ) ss.: COUNTY OF _________ ) The foregoing Supplement No. ___ to the Assignment of Lease and Rent was acknowl edged before me, the undersigned Notary Public, in the County of __________, State of __________, this ____ day of __________, 199_, by __________, as ____________ of [ ] a _________________, as Lessor. [Notarial Seal) _____________________________ Notary Public My commission expires: _______________ S-3 Schedule 1 [Lease Supplement] 1 Schedule 2 [Description of Property] 2 Consent of the Lessee to Supplement to Assignment of Lease and Rent CONSENT AND ACKNOWLEDGMENT BY THE LESSEE ---------------------------------------- The undersigned hereby acknowledges receipt of a counterpart original of, and consents to, the foregoing Supplement No. __ dated as of ____________ ___, 19__ to the Assignment of Lease and Rent. The foregoing is furnished for good and valuable consideration the receipt and sufficiency of which are hereby acknowledged by the undersigned, and the undersigned understands and intends that the Administrative Agent and the Lenders will rely on the foregoing and that the undersigned will be legally bound by the foregoing. This Consent and Acknowledgment shall inure to the benefit of the Administrative Agent, the Lenders and their respective successors and assigns. IN WITNESS WHEREOF, the undersigned has executed and delivered this Consent and Acknowledgment as of ____________ ___ 19__, pursuant to proper authority duly granted. FRED MEYER, INC. By _______________________________________ Name: Title: S-1 LESSEE'S CONSENT ---------------- Fred Meyer, Inc., a Delaware corporation (the "Lessee") hereby consents and agrees to all of the terms of the Assignment of Leases and Rents dated as of March __, 1998 (the "Assignment") made by FMS TRUST 1997-1 (the "Assignor") in favor of Bankers Trust Company, as administrative and collateral agent (the "Assignee") and further agrees as follows: 1. Definitions. Each capitalized term used herein and not otherwise defined herein shall have the respective meanings ascribed thereto in the Assignment, as such Assignment may be amended, supplemented or otherwise modified from time to time. 2. Acknowledgments, Confirmations and Agreements. The Lessee acknowledges, confirms and agrees that: (a) the Lessee has the right, power and authority to enter into this consent (this "Consent"); (b) the Lease is in full force and effect and enforceable in accordance with its terms; (c) neither the Lessee nor, to the Lessee's knowledge, the Assignor is in default in the observance or performance of any condition or agreement to be observed or performed by the Lessee or the Assignor, respectively, thereunder; (d) no Lease Rents have been paid by the Lessee in advance except as provided in the Lease; (e) no Rent has been waived, released, reduced, discounted or otherwise discharged or compromised by the Assignor; and (f) the Lessee has not received notice of any other assignment of the Lessor's interest in the Lease. 3. Consent. (a) The Lessee, as lessee under the Lease, consents to the Assignment and each of the terms thereof, and agrees to pay and deliver to the Assignee (or its designee) all Lease Rents and other sums payable under the Lease without any offset, deduction, defense, abatement, deferment, diminution or counterclaim, and the Lessee will not assert any offset, deduction, defense (other than the defense of payment to the Assignee (or its designee)), abatement, deferment, diminution or counterclaim in any proceeding brought under the Assignment or with respect to the transactions contemplated therein or herein. The Lessee will not, for any reason whatsoever, seek to recover from the Assignee (or its designee) any moneys paid to the Assignee (or its designee) by virtue of the Assignment. The Lessee agrees (i) to deliver to the Assignee (or its designee) and the Assignor, at their addresses set forth in the Participation Agreement or at such other addresses as the Assignee or the Assignor, as the case may be, may designate, duplicate original or copies of all notices, undertakings, demands, statements, documents and other communications which the Lessee is required or permitted to deliver pursuant to the Lease or the Assignment; (ii) that, subject to the Excepted Rights, any notice delivered or declaration made to the Lessee by the Assignee (or its designee) pursuant to the Lease shall be effective as a notice given or declaration made to the Lessee by the Assignor as lessor under the Lease; (iii) that the Assignee (and its designee) shall not by reason of the Assignment be subject to any liability or obligation under the Lease; 1 and (iv) that, subject to the Excepted Rights, any waiver, consent or approval by the Assignor under the Lease shall not be valid unless approved in writing by the Assignee (or its designee). (b) The Lessee shall cause the Lease Rents and other sums payable to the Assignor under the Lease to be delivered to the Assignee (or its designee), as agent under the Credit Agreement, as an absolute net sum (except for any Excluded Taxes required to be withheld by applicable law), in such manner that the Assignee (or its designee) shall have "collected funds" on the date and at the time payments are due under the Lease. (c) The Lessee hereby agrees to remain obligated under the Lease and this Consent in accordance with their respective terms, and to take no action to terminate (except in accordance with the express terms of the Lease), annul, rescind or avoid the Lease or this Consent or to abate, reduce, offset, suspend or defer or make any counterclaim or raise any defense (other than the defense of payment to the Assignee (or its designee)) with respect to the Lease Rents payable thereunder or to cease paying such Lease Rents to the Assignee (or its designee) as provided herein. (d) The Lessee hereby agrees that upon the occurrence of a Lease Default or a Lease Event of Default, the Assignee (or its designee) shall have the right to deliver a notice of default under the Lease, which shall be effective for all purposes under the Lease as if sent by the Assignor. (e) The Lessee shall notify the Assignee (or its designee) at its address specified in the Participation Agreement, or such other address as the Assignee may designate, of any Lease Event of Default and agrees that no such default shall entitle the Lessee to terminate, annul, rescind or avoid the Lease or reduce or abate the Lease Rents or other sums payable thereunder. 4. Amendment or Termination of the Lease or the Assignment; Assignee's Designation. The Lessee agrees that it will not, unilaterally or by agreement, subordinate, amend, supplement, modify, extend (except in accordance with the express terms of the Lease), discharge, waive or terminate (except in accordance with the express terms of the Lease) the Lease or this Consent or any provision of any thereof without the Assignee's prior written consent (the applicable standard for the giving or withholding of any such consent remaining subject to the terms of the Lease), and that any attempted subordination, amendment, supplement, modification, extension, discharge, waiver or termination without such consent shall be null and void. In the event that the Lease shall be amended or supplemented as herein permitted, the Lease, as so amended or supplemented, shall continue to be subject to the provisions of the Assignment and this Consent without the necessity of any 2 further act by any of the parties hereto. Nothing in this Section 4 shall be construed as limiting or otherwise affecting in any way the Assignor's Excepted Rights or Shared Rights. 5. Continuing Obligations of the Assignor and the Lessee. Neither the execution and delivery of the Assignment, nor any action or inaction on the part of the Assignee shall impair or diminish any obligations of the Assignor or the Lessee under the Lease, and shall not impose on the Assignee (or its designee) any such obligations, nor shall it impose on the Assignee (or its designee) a duty to produce Rents or cause the Assignee to be a mortgagee in possession for any purpose. 6. Severability. If any provision or provisions, or if any portion of any provision or provisions, in this Consent is found by a court of law of competent jurisdiction to be in violation of any local, state or Federal ordinance, statute, law, administrative or judicial decision, or public policy, and if such court should declare such portion, provision or provisions to be illegal, invalid, unlawful, void or unenforceable as written, then it is the intent of the Lessee that such portion, provision or provisions shall be given force to the fullest possible extent that they are legal, valid and enforceable, that the remainder of this Consent shall be construed as if such illegal, invalid, unlawful, void or unenforceable portion, provision or provisions were not contained herein, and that the obligations of the Lessee under the remainder of this Consent shall continue in full force and effect. 3 IN WITNESS WHEREOF, the Lessee has caused this Consent to be duly executed as of this __ day of March, 1998. FRED MEYER, INC. By: _____________________________________ Name: Title: S-1 PARTICIPATION AGREEMENT EXHIBIT B-1 TO PARTICIPATION AGREEMENT ----------------------- FORM OF MORTGAGE (FEE SIMPLE) ----------------------------- RECORDING REQUESTED BY AND WHEN RECORDED MAIL TO: SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP 300 South Grand Avenue Los Angeles, California 90071 Attention: John E. Mendez, Esq. Space above for Recorder's use ___________ County, DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT AND FIXTURE FILING ---------------------------- This DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT AND FIXTURE FILING, is made as of March 11, 1998 (the "Deed of Trust"), by WILMINGTON TRUST COMPANY, a Delaware corporation, not in its individual capacity, but solely as Owner Trustee under the FMS TRUST 1997-1, a Delaware business trust, as trustor ("Trustor"), having its principal address at Wilmington Trust Compa ny, Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890 Attention: Corporate Trust Administration, FIRST AMERICAN TITLE INSURANCE COMPANY, as trustee ("Trustee"), in trust and with power of sale, for the benefit of BANKERS TRUST COMPANY, having its principal address at 130 Liberty Street, New York, New York, 10006, Attention: Deal Administrator, as Administrative Agent and secured party ("Secured Party") for the benefit of the Lenders under, and any other lenders from time to time party to, the Credit Agreement hereinafter referred to (such Lenders and the Secured Party and other lenders, if any, are hereinafter called the "Creditors"). Capitalized terms used but not other wise defined herein shall have the meanings provided for such terms in that certain Credit Agreement, dated as of march 11, 1997, among Trustor, as the Borrower, the Lenders named therein, Secured Party, as Administrative Agent and The Chase Manhattan Bank, as Syndica tion Agent (as amended, modified or supplemented from time to time, the "Credit Agree ment"). W I T N E S S E T H : - - - - - - - - - - THIS DEED OF TRUST is executed, acknowledged and delivered by Trustor to secure and enforce the following obligations (herein called the "Obligations"): (A) the payment and/or performance when due of (i) principal of and interest on the Notes issued, and Loans made, under the Credit Agreement, (ii) the Commit ment Fees and (iii) all other obligations and indebtedness (including, without limitation, indemnities, fees and interest thereon) of the Trustor to the Creditors now existing or hereafter incurred under, arising out of, or in connection with the Credit Agreement and the other Operative Agreements and the due performance and compliance by the Trustor with all of the terms, conditions and agreements contained in the Credit Agree ment and the other Operative Agreements (all such principal, interest, obligations and liabilities being herein collectively called the "Credit Agreement Obligations"); (B) the payment when due of any and all sums advanced by the Secured Party in order to preserve the Property or preserve its security interest in the Property; (C) in the event of any proceeding for the collection or enforcement of any indebtedness, obligations, or liabilities of the Trustor referred to in clause (A), after an Event of Default shall have occurred and be continuing, reimbursement of the reason able expenses of foreclosing, holding, preparing for sale or lease, selling or otherwise disposing of or realizing on the Property (as defined below), or of any exercise by the Secured Party or any Creditor of its rights hereunder, together with reasonable attorneys' fees and court costs; (D) all renewals, extensions, amendments and (v) all amounts paid by any Creditor as to which such Creditor has the right to reimbursement under this Deed of Trust; and (E) all renewals, extensions, amendments and changes of, or substitutions or replacements for, all or any part of the items described above; NOW, THEREFORE, with reference to the foregoing recitals, in reliance thereon and for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged: GRANTING CLAUSES TRUSTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY GRANTS, CONVEYS, ASSIGNS AND TRANSFERS: (A) To Trustee, IN TRUST, WITH POWER OF SALE AND RIGHT OF ENTRY AND POSSESSION, all of its present and future right, title and interest in and to that certain real property more particularly described in Exhibit A attached hereto and made a part hereof (the "Land"), together with all right, title and interest that Trustor now has or may hereafter acquire in: (1) all fixtures now or hereafter affixed to the Land, including any and all buildings, constructions and improvements now or hereafter erected upon the Land (the "Improvements", the Land and the Improvements being 2 hereinafter collectively called the "Premises"), together with all machinery, apparatus, equipment, fittings, fixtures, materials and supplies and all other property of every kind and nature whatsoever owned by Trustor, or in which Trustor has or shall have an interest, now or hereafter located, placed, attached, affixed or installed upon or in the Premises, or appurtenances thereto, and used or usable in connection with the present or future construction, operation or occupancy of the Premises (collectively, "Equipment"); all of the property de scribed in this subparagraph (1) whether now or hereafter placed thereon being hereby defined to be real property; (2) all deposits made with or other security given to utility compa nies by Trustor with respect to the Premises, and all advance payments of insurance premiums made by Trustor with respect thereto and all claims or demands relating to such deposits, other security and/or such insurance; (3) all leases, subleases and other agreements affecting the use or occupancy of the Premises or any portion thereof now or hereafter existing or entered into by Trustor (individually a "Lease", and collectively, the "Leases"), and all rents, additional rents, issues, profits, royalties, revenue, income, proceeds and other benefits presently or in the future derived therefrom or otherwise from the Premises (collectively, the "Rents"); subject, however, to the right, power and authority hereinafter conferred upon Secured Party or reserved to Trustor to collect or apply such rents, additional rents, issues, profits, royalties, revenue, income, proceeds and other benefits; (4) all operating, management, franchise and use agreements, licenses or contracts relating to the development, operation or use of the Premises or any portion thereof, together with all permits, authorizations or certificates required or used in connection with the ownership of, or the opera tion or maintenance of the Premises to the fullest extent Trustor can grant, convey, assign and transfer such agreements, licenses or contracts; (5) all easements, estates, rights, titles, interests, privileges, liber ties, tenements, hereditaments and appurtenances of any nature whatsoever, in any way belonging, relating or pertaining to the Premises or any portion thereof, including, without limitation, all minerals, oil, gas, other hydrocarbons and associated substances, sulphur, nitrogen, carbon dioxide, helium and other commercially valuable substances which may be in, under or produced from any part of the Premises, all development rights and credits, air rights, water, water rights and water stock, and any land lying in the streets, roads or avenues, open or proposed, in front of or adjoining the Premises;) (6) all estate, interest, right, title, claim or demand, including claims or demands with respect to the proceeds of and any unearned premiums on any 3 insurance policies covering the Premises or the Equipment, which Trustor now has or may hereafter acquire to the extent granted to Secured Party in Section 1.9, and to the extent granted in Section 1.15 herein, any and all awards made for the taking by eminent domain or condemnation, or by any proceeding or purchase in lieu thereof, of the whole or any part of the Property, including without limitation, any awards resulting from a change of grade of streets or for severance damages; (7) all governmental permits relating to construction, all names under or by which the Premises may at any time be operated or known (registered or unregistered, and without representation or warranty) for use, however, solely in connection with the Premises to the fullest extent Trustor can grant, convey, assign and transfer the same; and all rights to carry on business under any such names or any variant thereof, and, all trademarks, names, patents pending and goodwill to the fullest extent Trustor can grant, convey, assign and transfer the same; (8) all estate, right, title, claim or demand whatsoever of Trustor, either in law or in equity, in possession, reversion, remainder or expectancy, in and to the Premises or any other property described in the other paragraphs of these Granting Clauses; (9) all proceeds and avails of the conversion, voluntarily or involun tarily, of any of the foregoing into cash or liquidated claims, including, but not limited to, condemnation awards (subject to provisions of Section 1.15 herein) and proceeds of insurance (subject to the provisions of Section 1.9 herein), of any causes of action (whether arising in tort, contract, fraud or concealment of a material fact) for any damage or injury to any of the foregoing, or of any conveyance of the Premises or any part thereof; and (10) the right, in the name and on behalf of Trustor to appear in and defend any action or proceeding with respect to the Premises or any other property described in the other paragraphs of these Granting Clauses, and to commence any action or proceeding to protect the interests of Secured Party therein. All of the property conveyed or intended to be conveyed to Trustee in Paragraph (A), and (1) through (11) above, is hereinafter referred to as the "Real Property." (B) To Secured Party, as secured party, to the extent of Trustor's interest therein, a security interest in any portion of the Real Property which may be construed to be personal property and, to the extent of Trustor's right, title and interest therein, in all other personal property of every kind and description, whether now 4 existing or hereafter acquired, now or at any time hereafter attached to, erected upon, situated in or upon, forming a part of, appurtenant to, used or useful in the construc tion or operation of or in connection with, or arising from the use or enjoyment of all or any portion of, or from any lease or agreement pertaining to, the Real Property, including Trustor's right, title and interest in and to the following: (1) all water rights appurtenant to such Real Property together with all pumping plants, pipes, flumes and ditches, all rights to the use of water as well as all rights in ditches for irrigation of the Real Property, all water stock relating to the Real Property, shares of stock or other evidence of ownership of any part of the Real Property that is owned by Trustor in common with others, and all documents of membership in any owners' or members' association or similar group having responsibility for managing or operating any part of the Real Property; (2) all plans and specifications prepared for construction of the Improvements and all studies, data and drawings related thereto; and also all contracts and agreements of Trustor relating to the aforesaid plans and specifi cations or to the aforesaid studies, data and drawings, or to the construction of the Improvements; (3) all equipment, machinery, fixtures, goods, accounts, general intangibles, documents, instruments and chattel paper, and all other personal property of every kind and description; (4) all substitutions and replacements of, and accessions and addi tions to, any of the foregoing; (5) all sales agreements, deposit receipts, escrow agreements and other ancillary documents and agreements entered into with respect to the sale to any purchasers of any part of the Real Property or any buildings or structures on the Real Property, together with all deposits and other proceeds of the sale thereof; and (6) all proceeds of any of the foregoing, including, without limita tion, proceeds of any voluntary or involuntary disposition or claim respecting any part thereof (pursuant to judgment, condemnation award or otherwise) and all goods, documents, general intangibles, chattel paper and accounts, wherever located, acquired with cash proceeds of any of the foregoing or proceeds thereof. All of the property conveyed or intended to be conveyed to Secured Party in Paragraph (B), and (1) through (6) above, is hereinafter referred to as the "Personal Property." 5 All of the Real Property and the Personal Property is referred to herein collectively as the "Property." AND TRUSTOR COVENANTS AND AGREES WITH SECURED PARTY AS FOLLOWS: ARTICLE 1. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF THE TRUSTOR 1.1 Title to the Property. Trustor represents and warrants that it holds good, marketable and insurable fee title to the Property, free and clear of any Liens and encumbrances (except for Permitted Encumbrances); (ii) that this Deed of Trust is a valid first Lien upon the Property, and that it has not created any other Lien or encumbrance upon the Property which will remain undischarged after recording of this Deed of Trust (except Permitted Encumbrances); (iii) that Trustor has full power and lawful authority to encumber the Property in the manner set forth herein; and (iv) that there are no defenses or offsets to this Deed of Trust or to the Obligations which it secures. Trustor shall not, directly or indirectly, create or suffer to be created any Lien upon any portion of the Property (except for Permitted Encumbrances). Trustor shall, subject to Permitted Encumbrances, preserve such title and the validity and priority of the Lien hereof and shall forever warrant and defend the same to Secured Party against the claims of all Persons and parties whatsoever. 1.2 Deed of Trust Authorized. The execution and delivery of this Deed of Trust has been duly authorized by Trustor, and there is no provision in the charter or bylaws of Trustor requiring further consent for such action by any other Person. Trustor is duly organized and validly existing under the laws of the State of Delaware, and has all necessary material licenses, authorizations, registrations, permits and/or approvals and full power and authority to own its properties and carry on its business as presently conducted, and the execution and delivery by it of, and perfor mance by it of its obligations under this Deed of Trust will not result in Trustor being in default under any provision of its charter or bylaws or of any other material agree ment to which Trustor is a party or which materially affects the Property or any material part thereof or any other property of Trustor. 1.3 Operation of the Property. Trustor has, and with respect to the construction of any new buildings or structures upon the Premises during the term hereof will obtain, all necessary certificates, licenses, authorizations, registrations, permits and/or approvals necessary for the ownership, operation and management of the Property, including, without limitation, all required environmental permits, all of which, with respect to Improvements existing as of the date hereof, are, to the best of Trustor's knowledge, in full force and effect and not subject to any revocation, undis closed amendment, release, suspension, forfeiture or the like. The present and 6 contemplated use and occupancy of the Property does not conflict with or violate any such material certificate, license, authorization, registration, permit or approval. Trustor will promptly deliver to Secured Party, at its reasonable request, true copies of all such material certificates, licenses, authorizations, registrations, permits and approvals. 1.4 Agreements. Except as permitted hereunder and under the Credit Agreement, and except for any prior encumbrance which has been or will be dis charged upon recordation of this Deed of Trust, Trustor has not entered into any contract or other agreement providing for the transfer, conveyance or encumbrance of the Property or any part thereof or interest therein. 1.5 Payment and Performance of Obligations. Trustor shall pay all of the Obligations when due and without offset or counterclaim. Trustor shall observe and comply in all material respects with all of the terms, provisions, conditions, covenants and agreements to be observed and performed by it under this Deed of Trust. 1.6 Maintenance, Repair, Alterations, Etc. Trustor shall: (a) keep and maintain the Property in good condition and repair (subject to ordinary wear and tear); make or cause to be made, as and when necessary, all repairs, renewals and replacements, structural and nonstructural, exterior and interior, ordinary and extraor dinary, foreseen and unforeseen; (b) not construct any new Improvements or remove, demolish, change or alter any of the existing Improvements if such construction, removal, demolition, change or alteration would materially adversely affect Secured Party's Lien or security interest hereunder; (c) subject to Sections 1.9 and 1.15, promptly restore any Improvement which may be materially damaged or destroyed so that the same shall be at least equal to its value, condition, character, bulk, floor area and height immediately prior to the damage or destruction, and promptly pay when due all claims for labor performed and materials furnished therefor; (d) comply in all material respects with all laws, ordinances, regulations, covenants, conditions and restrictions now or hereafter affecting the Property or any part thereof or the use thereof or requiring any alterations or improvements; (e) not commit or permit any waste or deterioration (usual wear and tear excepted) of the Property; (f) keep and maintain the grounds, sidewalks, parking and landscape areas which are part of the Premises in good and neat order and repair; (g) comply in all material respects with the provisions of any Lease, easement or other agreement affecting all or any part of the Property; (h) not commit, suffer or permit any act to be done in or upon the Property in material violation of any law, ordinance, regulation, covenant, condition or restric tion now or hereafter affecting the Property or any parts thereof or the use thereof; and (i) not permit the Improvements or any part thereof to become deserted or unguarded. 1.7 Required Insurance. 7 Trustor shall at its expense, at all times, maintain and keep in full force and effect policies of insurance to the extent required by the terms of Section 5.3 of the Credit Agreement and the other Operative Agreements. 1.8 Policy Provisions, Etc. (a) Each policy of insurance maintained by Trustor pursuant to Section 1.7 shall (1) provide for the benefit of the Creditors that 30 days' prior written notice of suspension, cancellation, termination, modification, non-renewal or lapse or material change of coverage shall be given to the Secured Party; (2) name the Secured Party for the benefit of the Creditors as the loss payee (except for (i) instances where a landlord under a lease.has required that it be named a loss payee and (ii) errors and omissions insurance and other third party liability insurance); and (3) to the extent that neither the Secured Party nor the Creditors shall be liable for premiums or calls, name the Secured Party for the benefit of the Lenders as an additional insured. (b) Trustor shall pay as and when the same become due and payable the premiums for all insurance policies that Trustor is required to maintain hereunder, and all such policies shall be non-assessable. Trustor will deliver to Secured Party concurrently herewith certificates setting forth in reasonable detail the terms (including, without limitation, any applicable notice requirements) of all insurance policies that Trustor is required to maintain hereunder together with true and complete copies of such policies. Trustor shall also provide to Secured Party copies of such policies certified by the insurance companies issuing them promptly after Secured Party's request therefor; provided, however, that Secured Party may not request copies of such insurance policies more than once each calendar year unless an Event of Default has occurred and is continuing. Trustor will deliver to Secured Party, concurrently with each change in any such insurance policy relating to Trustor, a certificate with respect to such changed insurance policy certified by Trustor, in the same form and containing the same information as the certificates required to be delivered by Trustor pursuant to the first sentence of this subparagraph and with each renewal a certificate of Trustor certifying that all premiums then due thereon have been paid to the applicable insurers and that the same are in full force and effect. (c) Not later than thirty (30) days prior to the expiration, termination or cancellation of any insurance policy which Trustor is required to maintain hereun der, Trustor shall obtain a replacement policy or policies (or a binding commitment for such replacement policy or policies), which shall be effective no later than the date of the expiration, termination or cancellation of the previous policy, and shall deliver to Secured Party a certificate and a true and complete copy of such policy or policies which comply with the requirements of Sections 1.7 and 1.8(a), or a copy of the binding commitment for such policy or policies. Trustor shall also provide to Secured Party originals of such policies or copies thereof certified by the insurance companies issuing them as soon as reasonably possible after Secured Party's request therefor. 8 (d) Within thirty (30) days following the end of each policy period, and concurrently with the delivery of each replacement policy pursuant to Section 1.8(c), Trustor will deliver to Secured Party a report or reports by Trustor setting forth the particulars as to all insurance obtained by Trustor pursuant to Section 1.7 or Section 1.8 then in effect and stating that all premiums then due thereon have been paid to the applicable insurers, and that the same are in full force and effect. (e) From time to time, upon the occurrence of any material change in the use or operation of the Property, or in the availability of insurance required hereunder in the area in which the Property is located, Trustor will give Secured Party prompt notice of such change. Trustor will not take out separate or additional insur ance concurrent in form or contributing in the event of loss with that required to be maintained pursuant to this Deed of Trust unless such insurance complies with this Section 1.8. 1.9 Insurance Proceeds. (a) Trustor shall give prompt written notice to Secured Party of the occurrence of any damage to or destruction of the Property in an amount exceeding $500,000 to repair or replace, whether or not covered by insurance. (b) In the event of any damage to or destruction of the Property or any part thereof, all proceeds of insurance shall be payable to Secured Party, and Trustor hereby authorizes and empowers Secured Party, at Secured Party's option and in Secured Party's sole discretion as attorney-in-fact for Trustor, to make proof of loss, adjust and compromise any claim in excess of $500,000 under any policy of insurance in effect with respect to the Property, appear in and prosecute any action arising from such insurance policies, collect and receive insurance proceeds and deduct therefrom Secured Party's expenses incurred in the collection of such proceeds. (c) In the event of any damage to or destruction of the Premises or any part thereof, Secured Party shall hold the balance of all insurance proceeds received (after deducting expenses) pursuant to Section 1.9(b) above, to be used to pay or reimburse Trustor in accordance with normal construction loan funding procedures for the costs of reconstructing of the Premises if the following conditions are satisfied within sixty (60) days from the date of the damage or destruction: (i) Trustor satisfies Secured Party that after such reconstruc tion is completed, the value of the Premises, as determined by Secured Party in its sole discretion, will not be less than the appraised value of the same immediately prior to the damage or destruction; 9 (ii) in Secured Party's opinion, the amount of such proceeds is sufficient to pay all costs of such reconstruction or Trustor deposits additional funds with Secured Party sufficient to pay the additional costs; (iii) Trustor has delivered to Secured Party (A) a construction contract for the work of reconstruction in form and content acceptable to Secured Party with a contractor reasonably acceptable to Secured Party, (B) a copy of each permit and approval required by law in connection with the reconstruction, and (C) a surety bond for or guaranty to Secured Party of payment for and completion of the reconstruction, in form and substance reasonably satisfactory to Secured Party, in an amount no less than the estimated costs of the reconstruction under the construction contract; and (iv) no Default or Event of Default has occurred and is continuing hereunder, under the Credit Agreement or under any of the other Operative Agreements. If the insurance proceeds are held by Secured Party to be used to pay or reimburse Trustor for the cost of reconstruction of the Premises, the Premises shall be promptly and diligently restored by Trustor to the equivalent of their condition immediately prior to the casualty in accordance with plans and specifications approved by Secured Party or to such other condition as Secured Party may approve in writing, and disbursements of such proceeds shall be in accordance with disbursement procedures acceptable to Secured Party. (d) Any insurance proceeds not required to reconstruct the Premises or to satisfy the conditions set forth in clauses (i) through (v) of Section 1.9(c) above shall be applied in the manner set forth in Section 3.3 hereof as if the same were proceeds of sale; provided, however, that if after applying the insurance proceeds as set forth above Secured Party determines that the remaining security is inadequate to secure the remaining Obligations, Trustor shall, immediately upon demand from Secured Party, repay the principal of the Notes and Loans by an amount that will reduce the Obligations to a balance for which the Secured Party's Lien and security interest herein is adequate. (e) Provided that no Default or Event of Default has occurred (whether or not continuing), in the event that the damage to or destruction of the Property is an amount less than $500,000 to repair or replace, Trustor shall be entitled to receive all such proceeds and to apply such proceeds to the payment of the costs and expenses of repairing, restoring and operating the Property. (f) In the event of the foreclosure of this Deed of Trust pursuant to Section 4.1 or other transfer of the title to the Property in extinguishment, in whole or in part, of the Obligations secured hereby, all right, title and interest of Trustor in and to any insurance policy then in force or any proceeds thereof or any rights thereunder, 10 shall pass to the purchaser or grantee at any foreclosure sale notwithstanding the amount of any bid at such foreclosure sale. 1.10 Indemnification; Subrogation; Waivers. (a) The Trustor agrees to indemnify, reimburse and hold the Secured Party, and each of the other Creditors and their respective successors, assigns, employees, agents and servants (hereinafter in this Section 1.10 referred to individually as "Indemnitee" and collectively as "Indemnitees") harmless from any and all liabili ties, obligations, losses, damages, penalties, claims, actions, judgments, suits, costs, expenses or disbursements (including reasonable attorneys' fees and expenses) (for the purposes of this Section 1.10 the foregoing are collectively called "expenses") of whatsoever kind or nature which may be imposed on, asserted against or incurred by any of the Indemnitees in any way relating to or arising out of this Deed of Trust, any other Operative Agreement or the documents executed in connection herewith and therewith or in any other way connected with the administration of the transactions contemplated hereby and thereby or the enforcement of any of the terms of or the preservation of any rights under any thereof, or in any way relating to or arising out of the manufacture, ownership, ordering, purchase, delivery, control, acceptance, lease, financing, possession, operation, condition, sale, return or other disposition or use of the Property (including, without limitation, latent or other defects, whether or not discoverable), the violation of the laws of any country, state or other governmental body or unit, any tort (including, without limitation, claims arising or imposed under the doctrine of strict liability, or for or on account of injury to or the death of any Person (including any Indemnitee), or for property damage) or any contract claim; provided, however, that Trustor shall not be required to indemnify any Indemnitee for any expenses caused by the gross negligence or willful misconduct of such Indemnitee. Trustor agrees that upon written notice by any Indemnitee of any assertion that could give rise to an expense, Trustor shall assume full responsibility for the defense thereof. (b) Without limiting the application of Section 1.10(a), Trustor agrees to pay, indemnify and hold each Indemnitee harmless from and against any expenses which such Indemnitee may suffer, expend or incur in consequence of or growing out of any misrepresentation by Trustor in this Deed of Trust or any of the other Operative Agreements or in any statement or writing contemplated by or made or delivered pursuant to or in connection with this Deed of Trust or any of the other Operative Agreements. (c) If and to the extent that the obligations of Trustor under this Section 1.10 are unenforceable for any reason, Trustor hereby agrees to make the maximum contribution to the payment and satisfaction of such obligations (other than any such obligations caused by the gross negligence or willful misconduct of any Indemnitee) which is permissible under applicable law. 11 (d) Any amounts paid by any Indemnitee as to which such Indemni tee has the right to reimbursement shall constitute Obligations secured under this Deed of Trust. The indemnity obligations of Trustor contained in this Section 1.10 shall continue in full force and effect notwithstanding the full payment of all Obligations and notwithstanding the discharge thereof. (e) Trustor waives any and all right to claim or recover against Indemnitees for loss or damage to Trustor, the Property, Trustor's property or the property of others under Trustor's control from any cause insured against or required to be insured against by the provisions of this Deed of Trust, except any such loss or damage caused by the gross negligence of willful misconduct of any such Indemnitee. (f) All sums payable by Trustor under this Deed of Trust shall be paid without counterclaim, setoff, or deduction and without abatement, suspension, deferment, diminution or reduction, and the obligations and liabilities of Trustor hereunder shall in no way be released, discharged or otherwise affected (except as expressly provided herein) by reason of: (i) any damage to or destruction of or any condemnation or similar taking of the Property or any part thereof; (ii) any restriction or prevention of or interference with any use of the Property or any part thereof; (iii) any title defect or encumbrance or any eviction from the Property or any part thereof by title paramount or otherwise; (iv) any bankruptcy, insolvency, reorganization, composition, adjustment, dissolution, liquidation or other like proceeding relating to Secured Party, any of the Creditors or Trustor, or any action taken with respect to this Deed of Trust by any trustee or receiver of Secured Party, any of the Creditors or Trustor; (v) any claim which Trustor has or might have against Secured Party, or any of the Creditors; (vi) any default or failure on the part of Secured Party to perform or comply with any of the terms hereof; or (vii) any other occurrence whatsoever, whether similar or dissimilar to the foregoing, whether or not Trustor shall have notice or knowledge of any of the foregoing. Trustor waives to the extent permissible by law all rights now or hereafter conferred by statute or otherwise to any abatement, suspen sion, deferment, diminution or reduction of any of the Obligations. 1.11 Impositions. (a) Trustor will pay when due all real property taxes and assess ments, general and special, and all other taxes and assessments of any kind or nature whatsoever, including, without limitation, public, governmental or nongovernmental levies, assessments or charges, such as assessments on appurtenant water stock, maintenance charges, owner association dues or charges and fees, levies or charges resulting from covenants, conditions and restrictions affecting the Property, which are assessed or imposed upon any of the Property, or arising in respect of the operation, occupancy, use or possession thereof (all of which taxes, assessments and other public, governmental or nongovernmental charges of like or different nature are hereinafter referred to as "Impositions"); provided, however, that if, by law, any such Imposition 12 is payable, or may at the option of the payer be paid, in installments, Trustor may pay the same together with any accrued interest on the unpaid balance of such Imposition in installments as the same may become due. (b) If under the provisions of any law or ordinance now or hereafter in effect there shall be assessed or imposed: (i) a tax or assessment on the Property in lieu of or in addition to the Impositions payable by Trustor pursuant to subparagraph (a) hereof, or (ii) a license fee, tax or assessment imposed on Secured Party and measured by or based in whole or in part upon the amount of the outstanding Obliga tions, then all such taxes, assessments or fees shall be deemed to be included within the term "Impositions" as defined in subparagraph (a) hereof, and Trustor shall pay and discharge or cause to be paid and discharged the same as herein provided or shall reimburse or otherwise compensate Secured Party for the payment thereof. In the event any such law or ordinance specifically provides that Trustor may not pay, reimburse or otherwise compensate Secured Party for the payment of such tax, assessment or fee, then, at the option of Secured Party, Secured Party may declare all of the Obligations to be due and payable within sixty (60) days and the failure of Trustor to pay the Obligations within such period shall be an Event of Default entitling Secured Party to exercise any of the remedies set forth in this Deed of Trust. (c) Subject to the provisions of subparagraph (d) hereof, Trustor covenants to furnish to Secured Party, within thirty (30) days after the date when any interest or penalty shall accrue for nonpayment of Impositions, official receipts of the appropriate taxing or other authority, or other proof reasonably satisfactory to Secured Party, evidencing the payment thereof. (d) If an Event of Default shall occur and be continuing, at the request of Secured Party, Trustor shall pay to Secured Party on the first Business Day of each month an amount equal to one-twelfth of the annual total of Impositions estimated by Secured Party to be assessed against the Property in order to pay the installment of Impositions next due on the Property. In such event, Trustor further agrees to cause all bills, statements or other documents relating to Impositions to be sent or mailed directly to Secured Party. Provided Trustor has deposited sufficient funds with Secured Party pursuant to this Section 1.11, Secured Party shall pay on or prior to the due date thereof, such amounts as may be due thereunder out of the funds so deposited. Notwithstanding the foregoing, nothing contained herein shall cause Secured Party to be deemed a trustee of said funds or obligate Secured Party to pay any amount in excess of the amount deposited pursuant to this Section 1.11. If at any time and for any reason the funds deposited with Secured Party are or will be insufficient to pay such amounts as may then be due, Secured Party shall notify Trustor and Trustor shall immediately deposit an amount equal to such deficiency with Secured Party. Should Trustor fail to deposit with Secured Party sums sufficient to fully pay such Impositions when due, Secured Party may, at Secured Party's election, but without any obligation to do so, advance any amounts required to make up the deficiency. Trustor 13 shall, on demand, reimburse Secured Party for said amount. Should an Event of Default occur and be continuing hereunder, Secured Party may, at any time at Secured Party's option, apply any sums or amounts then held by it pursuant hereto (including, without limitation, any income earned thereon) to the payment or discharge of the Obligations in the manner set forth in Section 3.3 hereof as if the same were proceeds of sale. The receipt, use or application of any such sums paid by Trustor to Secured Party hereunder shall not be construed to affect the maturity of any of the Obligations or to otherwise affect any of the rights or powers of Secured Party hereunder or any of the obligations of Trustor hereunder. (e) Trustor will pay all taxes, charges, filing, registration and recording fees, excises and levies imposed in connection with the recording of this Deed of Trust or imposed upon Secured Party by reason of its ownership of this Deed of Trust or any mortgage supplemental hereto, and shall pay any and all Internal Revenue stamp taxes and other taxes required to be paid on any of the Obligations (other than taxes required to be paid by the Lenders pursuant to Section 2.15 of the Credit Agreement). In the event Trustor fails to make any such payment within five (5) Business Days after written notice thereof from Secured Party, then Secured Party shall have the right, but shall not be obligated to, pay the amount due and Trustor shall, on demand, reimburse Secured Party for said amount. 1.12 Utilities. Trustor will pay when due all utility charges which are incurred by Trustor for the benefit of the Property or which may become a charge or Lien against the Property for gas, electricity, steam, water or sewer services furnished to the Property and all other assessments or charges of a similar nature, whether public or private, affecting the Property whether or not such taxes, assessments or charges are Liens thereon. 1.13 Actions Affecting Property. Trustor will appear in and contest any action or proceeding purporting to affect the security hereof or the rights or powers of Secured Party hereunder; and Trustor will pay all reasonable costs and expenses incurred by Trustor, including cost of evidence of title and reasonable attorneys' fees, in any such action or proceeding. 1.14 Actions by Secured Party to Preserve Property. Should Trustor fail to pay or perform any of the Obligations, after expiration of any applicable notice and cure period, Secured Party may pay or perform the same in such manner and to such extent as it may deem necessary in its sole discretion. In connection therewith, without limiting its general powers, Secured Party shall have and is hereby given the right, but not the obligation: (a) to enter upon and take possession of the Premises; (b) to make additions, alterations, repairs and improvements to the Property which are reasonably necessary or proper to keep the Property in good condition and repair; (c) to appear and participate in any action or proceeding affecting or which may affect the security hereof or the rights or powers of Secured Party; (d) to pay, purchase, contest 14 or compromise any encumbrance, claim, charge, Lien or debt which may affect the security of this Deed of Trust or be prior or superior hereto; and (e) in exercising such powers, to pay all necessary expenses, including the reasonable fees and expenses of counsel or other necessary or desirable consultants. Trustor shall, on demand therefor by Secured Party, pay or reimburse Secured Party for all reasonable costs and expenses incurred by Secured Party in connection with the exercise by Secured Party of the foregoing rights, including, without limitation, cost of evidence of title, court costs, appraisal costs, surveys and reasonable attorneys' fees. In the event this Deed of Trust is placed in the hands of an attorney for the collection of any sum secured hereby, Trustor agrees to pay on demand all reasonable costs of collection, including reason able attorneys' fees, incurred by Secured Party, either with or without the institution of any action or proceeding, and in addition to all costs, disbursements and allowances provided by law. 1.15 Eminent Domain. (a) Should the Property or any part thereof or interest therein, be taken or damaged by reason of any public improvements or condemnation proceeding or in any other similar manner ("Condemnation"), or should Trustor receive any notice or other information thereof, Trustor shall give prompt written notice thereof to Secured Party. (b) If requested by Secured Party, Trustor shall file or otherwise defend its rights under the condemnation proceeding and prosecute the same with due diligence to its final disposition and shall cause any awards or settlements to be paid over to Secured Party for disposition pursuant to the terms of this Deed of Trust. Trustor may be the nominal party in such proceeding, but Secured Party shall be entitled to participate in and to control the same and to be represented therein by counsel of its choice, and Trustor will deliver or cause to be delivered to Secured Party such instruments as may be requested by it from time to time to permit such participa tion. If the Property or any part thereof is taken or diminished in value, or if the consent settlement is entered, by or under threat of such proceeding, the award or settlement payable to Trustor by virtue of its interest in the Property shall be and hereby is assigned, transferred and set over unto Secured Party to be held by it, in trust, subject to the Lien and security interest of this Deed of Trust. Any such award or settlement shall be first applied to reimburse Trustor and Secured Party for all costs and expenses, including, without limitation, reasonable attorneys' fees, incurred in connection with the collection of such award or settlement. The balance of such award or settlement shall be, at Secured Party's option: (i) applied in the manner set forth in Section 3.3 hereof as if the same were proceeds of sale; or 15 (ii) held by Secured Party to be used in accordance with the provisions of Section 1.10(c) above to pay or reimburse Trustor for the costs of rebuilding, reconstruction or repair of the Premises if the conditions set forth in such section are satisfied within thirty (30) days from the date of such award or settlement; provided, however, that if after applying the award or settlement as set forth above Secured Party determines that the remaining security is inadequate to secure the remaining Obligations, Trustor shall, immediately upon demand from Secured Party, repay the principal of the Notes and Loans by an amount that will reduce the Obliga tions to a balance for which the Secured Party's Lien and security interest herein is adequate. 1.16 Successors and Assigns. This Deed of Trust applies to, inures to the benefit of and binds the parties hereto and their respective successors and assigns. In the event the ownership of the Property becomes vested in a Person other than Trustor, Secured Party may, without notice to Trustor, deal with such successor or successors in interest with reference to this Deed of Trust and the Obligations in the same manner as with Trustor, and may alter the interest rate and/or alter or extend the terms of payment of any of the Obligations without notice to Trustor and such action shall not in any way affect the liability of Trustor here-under or the Lien or priority of this Deed of Trust with respect to any part of the Property covered hereby. 1.17 Liens. Trustor will pay or procure the discharge of, at Trustor's cost and expense, all Liens (other than Permitted Lien) upon the Property or any part thereof or interest therein within ten (10) Business Days after Trustor learns of the filing thereof. If Trustor shall fail to discharge any such Lien within such ten (10) Business Day period, then, in addition to any other right or remedy of Secured Party, Secured Party may, but shall not be obligated to, discharge the same, either by paying the amount claimed to be due, or by procuring the discharge of such Lien by depositing in court a bond for the amount claimed or otherwise giving security for such claim, or in such manner as is or may be prescribed by law; and all funds advanced by Secured Party to pay such obligations, liabilities, costs and expenses (together with interest thereon at the Default Rate from the date of demand until paid) shall be reimbursed by Trustor upon demand by Secured Party; and all such advances with interest thereon as aforesaid shall be secured hereby. 1.18 Secured Party's Powers. Without affecting the liability of any other Person liable for the payment of any obligation herein mentioned, and without affecting the Lien or charge of this Deed of Trust upon any portion of the Property not then or theretofore released as security for the Obligations, Secured Party may, from time to time and without notice, but subject to Section 9.1 of the Credit Agreement: (a) release any Person so liable; (b) extend the maturity or alter any of the terms of any such obligation; (c) grant other indulgences; (d) release or cause to be released at any time at Secured Party's option any parcel, portion or all of the Property; (e) take or 16 release any other or additional security for any obligation herein mentioned; (f) while an Event of Default is continuing, make compositions or other arrangements with debtors or other mortgagors in relation to this Deed of Trust; (g) advance additional funds to protect the security hereof; (h) while an Event of Default is continuing, pay or discharge any or all of the Obligations; (i) consent in writing to the making of any map or plat thereof; (j) join in granting any easement thereon; or (k) join in any extension agreement or any agreement subordinating the Lien or charge hereof; and, in any case referred to in clauses (g) or (h), all amounts so advanced, with interest thereon at the Default Rate from the date of demand until paid, shall be secured hereby. 1.19 Permitted Contests. Notwithstanding anything to the contrary contained in this Deed of Trust, Trustor at its expense may contest (after prior written notice to Secured Party), by appropriate legal, administrative or other proceedings conducted in good faith and with due diligence, the amount or validity or application, in whole or in part, of any Imposition or Lien therefor or any law, ordinance, regula tion, covenant, condition or restriction or the application of any instrument of record affecting the Property or any part thereof or any claims of mechanics, materialmen, suppliers or vendors and Lien therefor; provided that (a) in the case of any Impositions or Lien therefor or any claims of mechanics, materialmen, suppliers or vendors and Lien therefor, such proceedings shall suspend the collection thereof from Secured Party and the Property, (b) neither the Property nor any part thereof or interest therein will be sold, forfeited or lost if Trustor pays the amount or satisfies the condition being contested, and Trustor would have the opportunity to do so in the event of Trustor's failure to prevail in the contest, (c) Secured Party and the Creditors shall not, by virtue of such permitted contest, be in any danger of any criminal liability, or any civil liability, and neither the Property nor any interest therein would be subject to the imposition of any Lien which would have priority over the Lien of this Deed of Trust, and (d) Trustor shall have furnished to Secured Party a good and sufficient bond or surety as reasonably requested by and reasonably satisfactory to Secured Party if the failure to comply with such Imposition, law, ordinance, regulation, covenant, condition or restriction will result in a Lien or charge against the Property in excess of $500,000. 1.20 Continued Occupancy. If at any time the then existing use or occupancy of any part of the Property shall, pursuant to any zoning or other law, ordinance or regulation, be permitted only so long as such use or occupancy shall continue, Trustor shall not cause or permit such use or occupancy to be discontinued without the prior written consent of Secured Party. 1.21 Inspections. Subject to the provisions of any Lease or any applicable law, Trustor hereby authorizes Secured Party, its agents, representatives or workmen, to enter at any reasonable time during normal business hours after at least twenty-four (24) hours advance notice to Trustor (except that with respect to any emergency, Secured Party, its agents, representatives or workers may enter during such time of emergency) upon or in the Premises for the purpose of inspecting the 17 same, and for the purpose of performing any of the acts which Secured Party is authorized to perform under the terms of this Deed of Trust. 1.22 Actions by Trustee. At any time, or from time to time, without liability therefor and without notice, upon written request of Secured Party and presentation of this Deed of Trust, and without affecting the personal liability of any Person for payment of the Obligations secured hereby or the effect of this Deed of Trust upon the remainder of the Property, Trustee may (i) reconvey any part of the Property; (ii) consent in writing to the making of any map or plat thereof; (iii) join in granting any easement thereon; or (iv) join in any extension agreement or any agree ment subordinating the Lien or charge hereof. 1.23 Hypothecation, Transfers. Trustor shall not, except as expressly permitted by the Credit Agreement, hypothecate, convey, sell, lease or otherwise dispose of (or agree to do any of the foregoing at any future time) all or any part of the Property. ARTICLE 2. SECURITY AGREEMENT 2.1 Creation of Security Interest. This Deed of Trust creates a Lien on the Property, and to the extent the Property is not real property under applicable law (such Property hereinafter referred to as the "Secured Property"), this Deed of Trust constitutes a security agreement under the Uniform Commercial Code and any other applicable law. The grant of a security interest to Secured Party in the granting clauses of this Deed of Trust shall not be construed to derogate from or impair the Lien or provisions of or the rights of Secured Party under this Deed of Trust with respect to any property described herein which is real property or which the parties have agreed to treat as real property. The hereby stated intention of Trustor and Secured Party is that everything used in connection with the production of income from such real property or adopted for use thereon is, and at all times and for all purposes and in all proceedings, both legal and equitable, shall be regarded as real property, irrespective of whether or not the same is physically attached to the land or the improvements thereon. If required by Secured Party, at any time during the term of this Deed of Trust, Trustor will execute and deliver to Secured Party, in form satisfactory to Secured Party, additional security agreements, financing statements and/or other instruments covering all Personal Property or fixtures of Trustor which may at any time be furnished, placed on, or annexed or made appurtenant to the Real Property or used, useful or held for use, in the operation of the Improvements. 18 Trustor hereby irrevocably constitutes and appoints Secured Party the attorney-in-fact of Trustor, to execute, deliver and file with the appropriate filing officer or office such security agreements, financing statements and/or other instru ments as Secured Party may reasonably request or reasonably require in order to impose and perfect the Lien and security interest hereof more specifically on the Personal Property or any fixtures. If Trustor enters into a separate security agreement with Secured Party relating to any of the Personal Property or fixtures, the terms of such security agree ment shall govern the rights and remedies of Secured Party in the event of a default thereunder. It is understood and agreed that, in order to protect Secured Party from the effect of Uniform Commercial Code Section 9313, as amended from time to time, in the event that (i) Trustor intends to purchase any goods which may become fixtures attached to the Premises, or any part thereof, and (ii) such goods will be subject to a purchase money security interest held by a seller or any other party: (a) Except as provided in Section 7 of the Credit Agreement, Trustor shall, before executing any security agreement or other document evidencing such security interest, obtain the prior written approval of Secured Party, and all requests for such written approval shall be in writing and contain the following information: (i) a description of the fixtures to be replaced, added to, installed or substituted; (ii) the address at which the fixtures will be replaced, added to, installed or substituted: and (iii) the name and address of the proposed holder and pro posed amount of the security interest. Trustor's execution of any such security agreement or other document evidencing such security interests in contravention of this subparagraph (a) shall be a material breach of Trustor's covenants under this Deed of Trust, and shall, at the option of Secured Party, entitle Secured Party to all rights and remedies provided for herein upon the occurrence and continuance of an Event of Default. No consent by Secured Party pursuant to this subparagraph shall be deemed to constitute an agreement to subordinate any right of Secured Party in fixtures or other property covered by this Deed of Trust. (b) If at any time Trustor fails to make any payment when due and payable on an obligation secured by a purchase money security interest in any fixture, Secured Party, at its option, may at any time pay the amount secured by such security 19 interest and the amount so paid shall be payable on demand by Trustor to Secured Party. (c) Secured Party shall have the right to acquire by assignment from the holder of such security interest any and all contract rights, accounts receivable, negotiable or nonnegotiable instruments, or other evidence of Trustor's indebtedness for such Personal Property or fixtures, and, upon acquiring such interest by assign ment, shall have the right to enforce the security interest as assignee thereof, in accor dance with the terms and provisions of the Uniform Commercial Code then in effect, and in accordance with any other provisions of law. (d) Whether or not Secured Party has paid the indebtedness secured by or taken an assignment of such security interest, Trustor covenants to pay all sums when due and payable and perform all obligations secured thereby, and if Trustor at any time shall be in default under such security agreement after the exhaustion of all applicable notice and cure periods provided for herein, or such greater time as provided for in an applicable Operative Agreement, it shall be a material breach of Trustor's covenants under this Deed of Trust. 2.2 Representations, Warranties and Covenants of Trustor. Trustor hereby represents, warrants and covenants as follows: (a) Trustor is, and as to all Secured Property acquired after the date hereof will be, the sole owner of the Secured Property, free from any Lien, security interest, encumbrance or claim thereon of any kind whatsoever (other than Permitted Liens). Trustor will notify Secured Party of, and will defend the Secured Property against, all claims and demands of all Persons at any time claiming the Secured Property or any interest therein other than such interests as are permitted herein. (b) Except as otherwise provided in clauses (a) or (d) of this Section 2.2, or in the Credit Agreement, or in connection with conveyance of the Property, or a portion thereof permitted elsewhere in this Deed of Trust, Trustor will not assign, pledge, encumber, lease, sell, convey or in any manner transfer any item of the Secured Property, without the prior written consent of Secured Party. (c) The Secured Property is not used or bought for personal, family or household purposes. (d) Except as otherwise provided in clauses (a) or (b) of this Section 2.2, the Secured Property will be kept on or at the Premises or at such other location as Secured Party may approve, and Trustor will not remove any portion or item of Secured Property affixed or attached to the Premises without the prior written consent of Secured Party which consent shall not be unreasonably withheld, except such portions or items of Secured Property which are consumed or worn out in ordinary 20 usage or removed in the ordinary course of business and promptly replaced by Trustor with new items of equal or greater quality or utility. (e) Trustor maintains its principal place of business at Wilmington Trust Company, Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890. Trustor will immediately notify Secured Party in writing of any change in its principal place of business. (f) Trustor shall cause all financing and continuation statements and other instruments with respect to the Secured Property at all times to be kept recorded, filed or registered in such manner and in such places as may be required by law to fully evidence, perfect and secure the interests of Secured Party in the Secured Property, and shall pay all filing fees in connection therewith. At the request of Secured Party, Trustor will join Secured Party in executing one or more financing statements with respect to the Secured Property, and renewals, continuation statements and amendments thereof, pursuant to the Uniform Commercial Code in customary form, and will pay the cost of filing the same in all public offices wherever filing is necessary to the effectiveness thereof. Without limiting the foregoing, Trustor hereby irrevocably appoints Secured Party its attorney-in-fact to execute, deliver and file such instruments for or on behalf of Trustor upon Trustor's failure to do so within a reasonable time after demand, and Trustor will pay the cost of any such filing. 2.3 Survival of Security Agreement. Notwithstanding any release of any or all of the property included in the Property which is deemed "real property", any proceedings to foreclose this Deed of Trust or its satisfaction of record, the terms hereof shall survive as a security agreement with respect to the security interest created hereby and referred to above until the repayment or satisfaction in full of the Obliga tions. ARTICLE 3. EVENTS OF DEFAULT AND REMEDIES 3.1 Events of Default. (a) The occurrence of any of the following events shall be deemed an Event of Default hereunder (an "Event of Default"): (i) the occurrence of an Event of Default under the Credit Agreement or other Operative Agreement after the expiration of any applicable cure period; (ii) the occurrence of an Event of Default under the Lease; or 21 (iii) a default in the performance of any other covenant herein and not in the Credit Agreement. (b) Upon the occurrence of an Event of Default, Secured Party may in accordance with Section 6 of the Credit Agreement declare all sums secured hereby immediately due and payable, commence an action to foreclose this Deed of Trust as a mortgage, and/or deliver to Trustee a written declaration of default and demand for sale and of written notice of default and of election to cause to be sold the Property, which notice Trustee shall cause to be duly filed for record in case of foreclosure by exercise of the power of sale herein. Should Secured Party elect to foreclose by exercise of the power of sale herein, Secured Party shall also deposit with Trustee this Deed of Trust and such receipts and evidence of expenditures made and secured hereby as Trustee may require, and notice of sale having been given as then required by law and after lapse of such time as may then be required by law after recordation of such notice of default, Trustee, without demand on Trustor, shall sell the Property at the time and place of sale fixed by it in such notice of sale as Secured Party may direct, either as a whole or in separate parcels, as Secured Party may determine, at public auction to the highest bidder for cash (or by credit bid) in lawful money of the United States, payable at time of sale. Secured Party shall have the right to direct the order in which separate parcels shall be sold and Trustor shall have no right to direct the order in which separate parcels are sold. Trustee may postpone sale of all or any portion of the Property by public announcement at such time and place of sale, and from time to time thereafter may postpone such sale by public announcement at the time fixed by the preceding postponement. Trustee shall deliver to such purchaser its deed conveying the Property, or any portion thereof, so sold but without any covenant or warranty, express or implied. The recitals in such deed of any matters or facts shall be conclusive proof of the truthfulness thereof. Any Person, including Trustor, Trustee or Secured Party, may purchase at such sale by credit bid or otherwise. Secured Party may proceed as to the Personal Property in accordance with Secured Party's rights and remedies with respect to the Property or sell the Personal Property separately and without regard to the remainder of the Property in accordance with Secured Party's rights and remedies provided by the Uniform Com mercial Code as well as other rights and remedies available at law or in equity. Trustor waives all rights, legal and equitable, it may now or hereafter have to require marshalling of assets or to require upon foreclosure sales of assets in a particular order. Each successor and assign of Trustor, including without limitation, a holder of a Lien subordinate to the Lien-created hereby (without implying that Trustor has, except as expressly provided herein, a right to grant an interest in, or a subordi nate Lien on, the Property), by acceptance of its interest or Lien agrees that it shall be bound by the above waiver, as if it gave the waiver itself. 22 3.2 Discontinuance of Proceedings. Secured Party, from time to time before the Trustee's sale pursuant to Section 3.1, may rescind any notice of breach or default and of election to cause to be sold the Property by executing and delivering to Trustee a written notice of such rescission, which notice, when recorded, shall also constitute a cancellation of any prior declaration of default and demand for sale. The exercise by Secured Party of such right of rescission shall not constitute a waiver of any breach or default then existing or subsequently occurring or impair the right of Secured Party to execute and deliver to Trustee, as above provided, other declarations of default and demand for sale, and notices of breach or default, and of election to cause to be sold the Property to satisfy the obligations hereof, nor otherwise affect any provision, covenant or condition of this Deed of Trust or any of the rights, obligations or remedies of the parties thereunder or hereunder. 3.3 Application of Proceeds of Sale. (a) Upon a sale of all or part of the Property pursuant to Section 3.1, after deducting all reasonable costs, fees and expenses of Trustee and of this Deed of Trust, including reasonable attorneys' fees, expenses and costs of investigation, all as actually incurred and including, without limitation, reasonable attorneys' fees, costs and expenses of investigation incurred in appellate proceedings or in any action or participation in, or in connection with, any case or proceeding under Chapters 7, 11 or 13 of the Bankruptcy Code or any successor thereto, Trustee shall deliver the proceeds of sale to Secured Party for application, as follows: (i) First, to (A) any and all sums advanced by the Secured Party to preserve the Property or preserve its Lien and security interest therein, and (B) in the event of any proceeding for the collection or enforcement of any of the Obliga tions, after an Event of Default shall have occurred and be continuing, the expenses of retaking, holding, operating, managing, preparing for sale or lease, selling or other wise disposing of or realizing on the Property, or of any exercise by the Secured Party of its rights hereunder, together with reasonable attorneys' fees and court costs; (ii) Second, to the extent proceeds remain after the application pursuant to the preceding clause (i), an amount equal to the outstanding Primary Obligations shall be paid to the Creditors, with each Creditor receiving an amount equal to such outstanding Primary Obligations or, if the proceeds are insufficient to pay in full all such Primary Obligations, its Pro Rata Share of the amount remaining to be distributed; (iii) Third, to the extent proceeds remain after the application pursuant to the preceding clauses (i) and (ii), an amount equal to the outstanding Secondary Obligations shall be paid to the Creditors, with each Creditor receiving an amount equal to its outstanding Secondary Obligations or, if the proceeds are insuffi- 23 cient to pay in full all such Secondary Obligations, its Pro Rata Share of the amount remaining to be distributed; and (iv) Fourth, to the extent proceeds remain after the application pursuant to the preceding clauses (i) through (iii), inclusive, and following the recon veyance of this Deed of Trust, to the Trustor or to whomever may be lawfully entitled to receive such surplus. (b) For purposes of this Deed of Trust (i) "Pro Rata Share" shall mean, when calculating a Creditor's portion of any distribution or amount, that amount (expressed as a percentage) equal to a fraction the numerator of which is the then unpaid amount of such Creditor's Primary Obligations or Secondary Obligations, as the case may be, and the denominator of which is the then outstanding amount of all Primary Obligations or Secondary Obligations, as the case may be, (ii) "Primary Obligations" shall mean (A) in the case of the Credit Agreement Obligations, all principal of, and interest on, all Loans (together with all interest accrued thereon), and all Commitment Fees and (iii) "Secondary Obligations" shall mean all Obligations other than Primary Obligations. (c) When payments to Creditors are based upon their respective Pro Rata Shares, the amounts received by such Creditors hereunder shall be applied (for purposes of making determinations under this Section 3.3 only) (i) first, to their Primary Obligations and (ii) second, to their Secondary Obligations. If any payment to any Creditor of its Pro Rata Share of any distribution would result in overpayment to such Creditor, such excess amount shall instead be distributed in respect of the unpaid Primary Obligations or Secondary Obligations, as the case may be, of the other Creditors, with each Creditor whose Primary Obligations or Secondary Obligations, as the case may be, have not been paid in full to receive an amount equal to such excess amount multiplied by a fraction the numerator of which is the unpaid Primary Obliga tions or Secondary Obligations, as the case may be, of such Creditor and the denomi nator of which is the unpaid Primary Obligations or Secondary Obligations, as the case may be, of all Creditors entitled to such distribution. (d) All payments required to be made hereunder shall be made to the Secured Party as Administrative Agent under the Credit Agreement for the account of the Creditors. (e) Unless it has actual knowledge (including by way of written notice from a Creditor) to the contrary, the Secured Party, in acting hereunder, shall be entitled to assume that no Secondary Obligations are outstanding. 3.4 Secured Party Statement. Trustee, upon presentation to it of an affidavit signed by or on behalf of Secured Party, setting forth any fact or facts showing a default by Trustor under any of the terms or conditions of this Deed of 24 Trust, is authorized to accept as true and conclusive all facts and statements in such affidavit and to act hereunder in complete reliance thereon. 3.5 Remedies Upon Default. Trustor covenants and agrees that should an Event of Default occur, then Secured Party, or Trustee upon written instructions from Secured Party (the legality thereof to be determined solely by Secured Party), may, without notice to or demand upon Trustor, without releasing Trustor from any obligation here-under and without waiving its right to declare an Event of Default or impairing any declaration of default or election to cause the Property to be sold or any sale proceeding predicated thereon: (a) make or do the same in such manner and to such extent as either Secured Party or Trustee may deem reasonably necessary to protect the security hereof, Secured Party and Trustee being authorized to enter upon and take possession of the Premises for such purposes, and any sums reasonably expended for such purposes shall become part of the Obligations secured hereby; (b) commence, appear in and/or defend any action or proceedings purporting to affect the security hereof, and/or any additional or other security therefor, the interests, rights, powers and/or duties of Trustee and/or Secured Party hereunder, whether brought by or against Trustor, Trustee or Secured Party; (c) pay, purchase, contest or compromise any claim, debt, Lien, charge or encumbrance which in the judgment of either may affect or appear to affect the security of this Deed of Trust, the interests of Secured Party or the rights, powers and/or duties of Trustee and/or Secured Party hereunder and any sums reasonably expended for such purposes shall become part of the Obligations secured hereby; and (d) Secured Party is authorized either by itself or by its agent to be appointed by it for that purpose or by a receiver appointed by a court of competent jurisdiction, to enter into and upon and take and hold possession of any portion or all of the Property, both real and personal, and exclude Trustor and all other Persons therefrom; and to operate and manage the Property and rent and lease the same, perform such reasonable acts of repair or protection as may be reasonably necessary or proper to conserve the value thereof, and collect any and all income, rents, issues, profits and proceeds therefrom, the same being hereby assigned and transferred to Secured Party, for the benefit and protection of Secured Party, and from time to time apply and/or accumulate such income, rents, issues, profits and proceeds in the manner set forth in Section 3.3 hereof as if the same were proceeds of sale. The collection and/or receipt of income, rents, issues, profits and/or proceeds from the Property by Secured Party, its agent or receiver, after declaration of default and election to cause the Property to be sold under and pursuant to the terms of this Deed of Trust shall not affect or impair such default or declaration of default or election to cause the Property to be sold or any sale proceedings predicated thereon, but such proceedings may be 25 conducted and sale effected notwithstanding the receipt and/or collection of any such income, rents, issues, profits and/or proceeds. Neither Trustee nor Secured Party shall be under any obligation to make any of the payments or do any of the acts referred to in this Section 3.5 and any of the actions referred to in this Section 3.5 may be taken by Secured Party irrespective of whether any notice of default or election to sell has been given hereunder and without regard to the adequacy of the security for the Obligations. ARTICLE 4. FIXTURE FILING 4.1 Fixture Filing. This Deed of Trust shall be effective as a financing statement filed as a fixture filing with respect to all fixtures included in the Property and is to be filed and recorded in, among other places, the real estate records of the county where the Real Property is located as set forth on Exhibit A. ARTICLE 5. MISCELLANEOUS 5.1 Choice of Law. SECURED PARTY, TRUSTEE AND TRUS TOR AGREE THAT THE RIGHTS AND OBLIGATIONS UNDER THIS DEED OF TRUST SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK. 5.2 Amendments. etc. This Deed of Trust cannot be waived, changed, discharged or terminated orally, but only by an instrument in writing signed in accordance with Section 9.1 of the Credit Agreement. 5.3 Limitation of Interest. It is the intent of Trustor and Secured Party in the execution of this Deed of Trust and all other instruments evidencing or securing the Obligations to contract in strict compliance with the relevant usury laws. In furtherance thereof, Secured Party and Trustor stipulate and agree that none of the terms and provisions contained herein shall ever be construed to create a contract for the use, forbearance or detention of money requiring payment of interest at a rate in excess of the maximum interest rate permitted to be charged by relevant law. Trustor or any guarantor, endorser or other party now or hereafter becoming liable for the payment of any of the Obligations shall never be required to pay interest at a rate in excess of the maximum interest that may be lawfully charged under relevant law and the provisions of this Section 5.3 shall control over all other provisions of any instru- 26 ment executed in connection herewith which may be in apparent conflict herewith. In the event it is determined that any holder of any of the Obligations has collected monies which are deemed to constitute interest and are deemed to increase the effective interest rate on the Obligations to a rate in excess of that permitted to be charged by relevant law, all such sums deemed to constitute interest in excess of such legal rate shall be applied by such holder to payment of such Obligations, as such Obligations mature, or refunded to Trustor. 5.4 Notices. Except as otherwise expressly provided herein, all notices and communications shall be telecopied or delivered by messenger or overnight courier service and all such notices and communications shall, when mailed, tele graphed, telexed, telecopied, or cabled or sent by overnight courier, be effective when delivered to the telegraph company, cable company or overnight courier, as the case may be, or sent by telex or telecopier and when mailed shall be effective three (3) Business Days following deposit in the mail with proper postage, except that notices and communications to the Secured Party shall not be effective until received by the Secured Party. All notices, requests, demands or other communications shall be in writing and addressed as follows: (a) if to the Trustor, at: Wilmington Trust Company Rodney Square North 1100 North Market Street Wilmington, Delaware, 19890 Attention: Corporate Trust Administration (b) if to the Secured Party: Bankers Trust Company 130 Liberty Street New York, New York 10006 Attention: Deal Administrator (c) if to any Creditor, either (i) to the Secured Party, at the address specified above or (ii) at such address as such Creditor shall have specified in the Credit Agreement; or at such other address as shall have been furnished in writing by any Person de scribed above to the party required to give notice hereunder; except that in each case notices and communications to Secured Party shall not be effective until actually received by such party. 27 5.5 Captions. The captions or headings at the beginning of each Article and Section hereof are for the convenience of the parties and are not a part of this Deed of Trust. 5.6 Subrogation. To the extent that the proceeds of the Loans are used, or Secured Party advances any funds under this Deed of Trust (which advances are hereby deemed to have been advanced by Trustor's request), to pay any outstanding Lien, charge or encumbrance against the Property, Secured Party shall be subrogated to any and all rights and Liens held by any owner or holder of such outstanding Liens, charges and encumbrances, irrespective of whether said Liens, charges or encum brances are released. 5.7 No Merger. Upon the foreclosure of the Lien created by this Deed of Trust on the Property, any Leases then existing shall not be destroyed or terminated by application of the law of merger or as a matter of law or as a result of such foreclosure unless Secured Party or any purchaser at any such foreclosure sale shall so elect. 5.8 Non-Waiver. Except as expressly provided to the contrary herein, acceptance by Secured Party of any sum after the same is due shall not consti tute a waiver of the right either to require prompt payment, when due, of all other sums hereby secured or to declare an Event of Default. The acceptance by Secured Party of any sum in an amount less than the sum then due shall be deemed an accep tance on account only and upon condition that it shall not constitute a waiver of the obligation of Trustor to pay the entire sum then due, and Trustor's failure to pay said entire sum then due shall be and continue to be in default notwithstanding such acceptance of such amount on account, as aforesaid, and Secured Party shall be at all times thereafter and until the entire sum then due shall have been paid, and notwith standing the acceptance by Secured Party thereafter of further sums on account, or otherwise, entitled to exercise all rights in this Deed of Trust conferred upon it, upon the occurrence of an Event of Default. Consent by Secured Party to any transaction or action of Trustor which is subject to consent or approval of Secured Party hereunder shall not be deemed a waiver of the right to require such consent or approval to future or successive transactions or actions. No failure by Secured Party to insist upon the strict performance of any term hereof or to exercise any right, power or remedy consequent upon a breach thereof shall constitute a waiver of any such term or of any such breach. No waiver of any breach shall affect or alter this Deed of Trust, which shall continue in full force and effect, or the rights of Secured Party with respect to any other then existing or subsequent breach. 5.9 Further Assurances. Trustor at its own expense, will execute, acknowledge and deliver all such instruments and take all such action as may be reasonably necessary to assure to Secured Party the Lien hereof against the properties herein described and the rights intended to be provided to Secured Party herein. 28 5.10 Additional Security. Without notice to or consent of Trustor and without impairment of the Lien and rights created by this Deed of Trust, Secured Party may accept from Trustor or from any other Person, additional security for the Obliga tions. Neither the giving of this Deed of Trust nor the acceptance of any such addi tional security shall prevent Secured Party from resorting, first, to such additional security, and, second, to the security created by this Deed of Trust without affecting Secured Party's Lien and rights under this Deed of Trust. 5.11 Books and Records. Trustor shall make available to Secured Party for copying and inspection at all reasonable times during normal business hours and during the term of this Deed of Trust at Trustor's principal place of business upon receipt of one Business Day's prior written notice from Secured Party, all books and records relating to the business and operation of the Property. 5.12 Waiver of Statute of Limitations. The right to plead any and all statutes of limitation as a defense to any demand secured by or made pursuant to this Deed of Trust is hereby waived to the full extent permitted by law. 5.13 Remedies Cumulative. No remedy herein conferred upon or reserved to Trustee or Secured Party is intended to be exclusive of-any other remedy herein or by law provided or permitted, but each shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute. Every power or remedy given by this instrument to Trustee or Secured Party or to which either of them may be otherwise entitled may be exercised, concurrently or independently, from time to time and as often as may be deemed expedient by Trustee or Secured Party, and either of them may pursue inconsistent remedies. 5.14 Recordation. Trustee accepts this Deed of Trust when this Deed of Trust, duly executed and acknowledged, is made a public record as provided by law. 5.15 Substitution of Trustee. Secured Party may, from time to time, by a written instrument executed and acknowledged by Secured Party and recorded in the county or counties where the Property is located, and by otherwise complying with applicable statutory provisions, substitute a successor or successors for the Trustee named herein or acting hereunder. 5.16 Reconveyance; Releases. (a) After the Termination Date, Secured Party, at the expense of the Trustor, shall promptly request Trustee in writing to reconvey the Property, or any remaining portion thereof, and shall surrender to Trustee this Deed of Trust for cancellation and retention. Upon its receipt of the written request of Secured Party, the surrender of this Deed of Trust, and the payment of its fees, Trustee shall promptly reconvey, without warranty, the Property then held hereunder. The recitals in such reconveyance of any matters or facts shall be conclu- 29 sive proof of the truthfulness thereof. The grantee in such reconveyance may be described as "the person or persons legally entitled thereto." Neither Secured Party nor Trustee shall have any obligation or duty to determine the rights of Persons claiming to be rightful grantees of any reconveyance. As used in this Deed of Trust, "Termination Date" shall mean the date upon which the Commitments have been terminated, no Note under the Credit Agreement is outstanding (and all Loans have been repaid in full), and all Obligations then owing have been paid in full. (b) In the event that any part of the Property is sold in connection with a sale permitted by the Lease or otherwise released at the direction of the Re quired Lenders and the proceeds of such sale or sales or from such release are applied in accordance with the provisions of Section 8.2 of the Credit Agreement, to the extent required to be so applied, such Property will be sold free and clear of the Liens created by this Deed of Trust and the Secured Party, at the request and expense of the Trustor, will duly assign, transfer and deliver to the Trustor (without recourse and without any representation or warranty) such of the Property as is then being (or has been) so sold or released and has not theretofore been released pursuant to this Deed of Trust. (c) At any time that the Trustor desires that the Secured Party take any action to acknowledge or give effect to any release of Property pursuant to clause (a) above, it shall deliver to the Secured Party a certificate signed by its chief financial officer stating that the release of the respective Property is permitted pursuant to clauses (a) or (b) above. (d) The Secured Party and the Trustee shall have no liability whatsoever to any Creditor as a result of any release of Property by it in accordance with this Section 5.16. 5.17 Time of the Essence. Time is of the essence of this Deed of Trust, and the performance of all provisions hereof. 5.18 Partial Invalidity. If any of the provisions of this Deed of Trust or the application thereof to any Person, party or circumstances shall to any extent be invalid or unenforceable, the remainder of this Deed of Trust, or the application of such provision or provisions to Persons, parties or circumstances other than those as to whom or which it is held invalid or unenforceable, shall not be affected thereby, and every provision of this Deed of Trust shall be valid and enforceable to the fullest extent permitted by law. 5.19 Request For Notice. Trustor requests that a copy of any notice of default and a copy of any notice of sale hereunder be mailed to Trustor at the address of Trustor given above. 30 5.20 Irrevocable Trust. The trust created hereby is irrevocable by Trustor unless and until the Property is reconveyed to Trustor as provided in Section 5.16 hereof. 5.21 Security Agreement and Financing Statement. The mailing address of debtor (Trustor herein) and of the Secured Party from which information concerning security interests hereunder may be obtained is as set forth on page one hereof. A carbon, photographic or other reproduction of this Agreement or of any financing statement related to this Agreement shall be sufficient as a financing state ment for any of the purposes referenced herein. 5.22 State Law Recitals and Provisions. (a) Non-Residential Trust Deed; Business Purpose. Trustor warrants that this instrument, as a deed of trust or trust deed under laws of the state in which the Property is located, is not and will not at any time constitute a resid0ential trust deed, as that term is defined in ORS 86.705 or its successor statutes (if the Property is in Oregon). Trustor warrants that it is engaging in this transaction exclusively for business, commercial or investment purposes. Trustor warrants that the Property is not used principally for agricultural or farming purposes (if the Property is in Washington). Trustor warrants that the Property falls within the provisions of Idaho Code 45-1502(5) or its successor statutes (if the Property is in Idaho). (b) Statutory Notice Concerning Insurance. Effective January 1, 1996, Chapter 313 of Oregon Laws 1994 amends ORS 746.201 to require that in loans in which the lender has the right to purchase insurance in the event the borrower fails to carry insurance, the loan document must contain a warning in substantially the following form in 10-point type: "WARNING "Unless you provide us with evidence of the insurance coverage as required by our contract or loan agreement, we may purchase insurance at your expense to protect our interest. This insurance may, but need not, also protect your interest. If the collateral becomes damaged, the coverage we purchase may not pay any claim you make or any claim made against you. You may later cancel this coverage by providing evidence that you have obtained property coverage elsewhere. "You are responsible for the cost of any insurance purchased by us. The cost of this insurance may be added to your contract or loan balance. 31 If the cost is added to your contract or loan balance, the interest rate on the underlying contract or loan will apply to this added amount. The effective date of coverage may be the date your prior coverage lapsed or the date you failed to provide proof of coverage. "The coverage we purchase may be considerably more expensive than insurance you can obtain on your own and may not satisfy any need for property damage coverage or any mandatory liability insurance require ments imposed by applicable law." (c) Statutory Notice Concerning Written Agreements. UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY LENDERS AFTER OCTOBER 3, 1989 CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE BORROWER'S RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY LENDERS TO BE ENFORCEABLE. (d) Washington Statutory Notice. ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO FOR BEAR FROM ENFORCING REPAYMENT OF DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW. 5.23 Concerning the Trustor. Each party hereto acknowledges that Wilmington Trust Company is entering into this agreement solely as Owner Trustee of the FMS Trust 1997-1 and not in its individual capacity and in no case shall Wilmington Trust Company be personally liable for or on account of any of the statements, representations, warranties, covenants or obligations of the Trustor hereunder. 32 IN WITNESS WHEREOF, Trustor has caused this instrument to be duly executed as of the day and year first above written. WILMINGTON TRUST COMPANY, not in its individu al capacity but only as Owner Trustee under the FMS TRUST 1997-1, a Delaware business trust By: _____________________________________ Title: __________________________________ 33 FORM OF ACKNOWLEDGMENT ---------------------- STATE OF ) ) ss. County of ) The foregoing instrument was acknowledged before me, the undersigned notary public, on this __ day of March 11, 1998, by _____________________, the _____________________ of WILMINGTON TRUST COMPANY, a Delaware corporation, on behalf of such corporation, not in its individual capacity, but solely as Owner Trustee under the FMS TRUST 1997-1, a Delaware business trust, on behalf of such business trust. (NOTARIAL SEAL) _________________________________________ Notary Public for the State of __________ Residing at:_____________________________ 34 EXHIBIT A --------- LEGAL DESCRIPTION OF LAND ------------------------- 35 PARTICIPATION AGREEMENT EXHIBIT B-2 TO PARTICIPATION AGREEMENT ----------------------- FORM OF MORTGAGE (GROUND LEASE) ------------------------------- RECORDING REQUESTED BY AND WHEN RECORDED MAIL TO: SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP 300 South Grand Avenue Los Angeles, California 90071 Attention: John E. Mendez, Esq. Space above for Recorder's use ___________ County, __________ LEASEHOLD DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT AND FIXTURE FILING ---------------------------- This LEASEHOLD DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT AND FIXTURE FILING, is made as of March 11, 1998 (the "Deed of Trust"), by WILMINGTON TRUST COMPANY, a Delaware corporation, not in its individual capacity, but solely as Owner Trustee under the FMS TRUST 1997-1, a Delaware business trust, as trustor ("Trustor"), having its principal address at Wilmington Trust Company, Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890 Attention: Corporate Trust Administration, FIRST AMERICAN TITLE INSURANCE COMPANY, as trustee ("Trustee"), for the benefit of BANKERS TRUST COMPANY, having its principal address at 130 Liberty Street, New York, New York, 10006, Attention: Deal Administrator, as Administrative Agent and secured party ("Secured Party") for the benefit of the Lenders under, and any other lenders from time to time party to, the Credit Agreement hereinafter referred to (such Lenders and the Secured Party and other lenders, if any, are hereinafter called the "Creditors"). Capitalized terms used but not otherwise defined herein shall have the meanings provided for such terms in that certain Credit Agreement, dated as of March 11, 1998, among Trustor, as the Borrower, the Lenders named therein, Secured Party, as Administrative Agent and The Chase Manhattan Bank, as Syndication Agent (as amended, modified or supplemented from time to time, the "Credit Agreement"). W I T N E S S E T H : - - - - - - - - - - THIS DEED OF TRUST is executed, acknowledged and delivered by Trustor to secure and enforce the following obligations (herein called the "Obligations"): (A) the payment and/or performance when due of (i) principal of and interest on the Notes issued, and Loans made, under the Credit Agreement, (ii) the Commit ment Fees and (iii) all other obligations and indebtedness (including, without limitation, indemnities, fees and interest thereon) of the Trustor to the Creditors now existing or hereafter incurred under, arising out of, or in connection with the Credit Agreement and the other Operative Agreements and the due performance and compliance by the Trustor with all of the terms, conditions and agreements contained in the Credit Agree ment and the other Operative Agreements (all such principal, interest, obligations and liabilities being herein collectively called the "Credit Agreement Obligations"); (B) the payment when due of any and all sums advanced by the Secured Party in order to preserve the Property or preserve its security interest in the Property; (C) in the event of any proceeding for the collection or enforcement of any indebtedness, obligations, or liabilities of the Trustor referred to in clause (A), after an Event of Default shall have occurred and be continuing, reimbursement of the reason able expenses of foreclosing, holding, preparing for sale or lease, selling or otherwise disposing of or realizing on the Property (as defined below), or of any exercise by the Secured Party or any Creditor of its rights hereunder, together with reasonable attorneys' fees and court costs; (D) all renewals, extensions, amendments and (v) all amounts paid by any Creditor as to which such Creditor has the right to reimbursement under this Deed of Trust; and (E) all renewals, extensions, amendments and changes of, or substitutions or replacements for, all or any part of the items described above; NOW, THEREFORE, with reference to the foregoing recitals, in reliance thereon and for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged: GRANTING CLAUSES ---------------- TRUSTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY GRANTS, CONVEYS, ASSIGNS AND TRANSFERS: (A) To Trustee, IN TRUST, WITH POWER OF SALE AND RIGHT OF ENTRY AND POSSESSION, all of its present and future right, title and interest in and to that certain leasehold estate (the "Leasehold") created pursuant to that certain lease (or Sublease, if applicable), dated ____________, between Fred Meyer, Inc., as land lord, and the Trustor, as tenant (such lease together with any amendments, modifica tions, extensions, renewals or substitutions therefor is referred to herein as the "Facil ity Lease"), and affecting all or the portions of that certain real property more particu larly described in Exhibit A attached hereto and made a part hereof (the "Land"), together with all right, title and interest that Trustor now has or may hereafter acquire in: 2 (1) all fixtures now or hereafter affixed to the Land, including any and all buildings, constructions and improvements now or hereafter erected upon the Land (the "Improvements", the Land and the Improvements being hereinafter collectively called the "Premises"), together with all machinery, apparatus, equipment, fittings, fixtures, materials and supplies and all other property of every kind and nature whatsoever owned by Trustor, or in which Trustor has or shall have an interest, now or hereafter located, placed, attached, affixed or installed upon or in the Premises, or appurtenances thereto, and used or usable in connection with the present or future construction, operation or occupancy of the Premises (collectively, "Equipment"); all of the property de scribed in this subparagraph (1) whether now or hereafter placed thereon being hereby defined to be real property; (2) all deposits made with or other security given to utility compa nies by Trustor with respect to the Premises, and all advance payments of insurance premiums made by Trustor with respect thereto and all claims or demands relating to such deposits, other security and/or such insurance; (3) all present and future options of any kind, rights of first refusal, privileges and other benefits of Trustor under the Facility Lease. (4) all leases, subleases and other agreements affecting the use or occupancy of the Premises or any portion thereof now or hereafter existing or entered into by Trustor (individually a "Lease", and collectively, the "Leases"), and all rents, additional rents, issues, profits, royalties, revenue, income, proceeds and other benefits presently or in the future derived therefrom or otherwise from the Premises (collectively, the "Rents"); subject, however, to the right, power and authority hereinafter conferred upon Secured Party or reserved to Trustor to collect or apply such rents, additional rents, issues, profits, royalties, revenue, income, proceeds and other benefits; (5) all operating, management, franchise and use agreements, licenses or contracts relating to the development, operation or use of the Premises or any portion thereof, together with all permits, authorizations or certificates required or used in connection with the ownership of, or the opera tion or maintenance of the Premises to the fullest extent Trustor can grant, convey, assign and transfer such agreements, licenses or contracts; (6) all easements, estates, rights, titles, interests, privileges, liber ties, tenements, hereditaments and appurtenances of any nature whatsoever, in any way belonging, relating or pertaining to the Premises or any portion thereof; 3 (7) all estate, interest, right, title, claim or demand, including claims or demands with respect to the proceeds of and any unearned premiums on any insurance policies covering the Premises or the Equipment, which Trustor now has or may hereafter acquire to the extent granted to Secured Party in Section 1.10, and to the extent granted in Section 1.16 herein, any and all awards made for the taking by eminent domain or condemnation, or by any proceeding or purchase in lieu thereof, of the whole or any part of the Property, including without limitation, any awards resulting from a change of grade of streets or for severance damages; (8) all governmental permits relating to construction, all names under or by which the Premises may at any time be operated or known (registered or unregistered, and without representation or warranty) for use, however, solely in connection with the Premises to the fullest extent Trustor can grant, convey, assign and transfer the same; and all rights to carry on business under any such names or any variant thereof, and, all trademarks, names, patents pending and goodwill to the fullest extent Trustor can grant, convey, assign and transfer the same; (9) all estate, right, title, claim or demand whatsoever of Trustor, either in law or in equity, in possession, reversion, remainder or expectancy, in and to the Premises or any other property described in the other paragraphs of these Granting Clauses; (10) all proceeds and avails of the conversion, voluntarily or involun tarily, of any of the foregoing into cash or liquidated claims, including, but not limited to, condemnation awards (subject to provisions of Section 1.16 herein) and proceeds of insurance (subject to the provisions of Section 1.10 herein), of any causes of action (whether arising in tort, contract, fraud or concealment of a material fact) for any damage or injury to any of the foregoing, or of any conveyance of the Premises or any part thereof; and (11) the right, in the name and on behalf of Trustor to appear in and defend any action or proceeding with respect to the Premises or any other property described in the other paragraphs of these Granting Clauses, and to commence any action or proceeding to protect the interests of Secured Party therein. All of the property conveyed or intended to be conveyed to Trustee in Paragraph (A), and (1) through (11) above, is hereinafter referred to as the "Real Property." (B) To Secured Party, as secured party, to the extent of Trustor's interest therein, a security interest in any portion of the Real Property which may be 4 construed to be personal property and, to the extent of Trustor's right, title and interest therein, in all other personal property of every kind and description, whether now existing or hereafter acquired, now or at any time hereafter attached to, erected upon, situated in or upon, forming a part of, appurtenant to, used or useful in the construc tion or operation of or in connection with, or arising from the use or enjoyment of all or any portion of, or from any lease or agreement pertaining to, the Real Property. All of the property conveyed or intended to be conveyed to Secured Party in Paragraph (B) is hereinafter referred to as the "Personal Property." All of the Real Property and the Personal Property is referred to herein collectively as the "Property." AND TRUSTOR COVENANTS AND AGREES WITH SECURED PARTY AS FOLLOWS: ARTICLE 1. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF THE TRUSTOR 1.1 Title to the Property. Trustor represents and warrants that it holds good, marketable and insurable leasehold interest in the Lease Premises and good and valid right, title and interest, as tenant, in and to the Facility Lease, free and clear of any Liens and encumbrances (except for Permitted Encumbrances); (ii) that this Deed of Trust is a valid first Lien upon the Property, and that it has not created any other Lien or encumbrance upon the Property which will remain undischarged after recording of this Deed of Trust (except Permitted Encumbrances); (iii) that Trustor has full power and lawful authority to encumber the Property in the manner set forth herein; and (iv) that there are no defenses or offsets to this Deed of Trust or to the Obligations which it secures. Trustor shall not, directly or indirectly, create or suffer to be created any Lien upon any portion of the Property (except for Permitted Encum brances). Trustor shall, subject to Permitted Encumbrances, preserve such title and the validity and priority of the Lien hereof and shall forever warrant and defend the same to Secured Party against the claims of all Persons and parties whatsoever. 1.2 Leasehold. (a) The provisions contained in this Deed of Trust shall be deemed to be obligations of Trustor in addition to Trustor's obligations as tenant with respect to similar matters under which Trustor is obligated under the Facility Lease and shall not restrict or limit Trustor's duties and obligations to keep and perform promptly all of its covenants, agreements and obligations as tenant under such Facility Lease. 5 (b) Trustor shall at all times fully perform and comply with all the agreements, covenants, terms and conditions imposed upon the tenant under the Facility Lease, and if Trustor shall fail so to do, and if Secured Party's Lien on Trustor's leasehold interest under the Facility Lease shall be materially adversely affected, Secured Party may (but shall not be obligated to), and is hereby appointed by Trustor as Trustor's true and lawful attorney in fact, which appointment is coupled with an interest, to take any action Secured Party reasonably deems necessary or desirable to prevent or cure any default thereunder including, without limitation, performance of any of the tenant's covenants or obligations under such Facility Lease. Upon Secured Party's request, Trustor will submit satisfactory evidence of payment of all of its monetary obligations under the Facility Lease (including but not limited to rents, taxes, assessments, insurance premiums and operating expenses), and a statement of any such payments which Trustor is contesting or arbitrating pursuant to the terms of the Facility Lease. (c) Trustor shall promptly (i) notify Secured Party in writing of the receipt by it of any notice of default from the landlord under the Facility Lease; (ii) notify Secured Party in writing of the receipt by it of any notice under the Facility Lease of the termination of the Facility Lease ; (iii) cause a copy of each such notice received by Trustor from the landlord under the Facility Lease to be delivered to Secured Party; and (iv) cause a copy of any notice of election or the exercise of any rights of option, purchase or renewal under the Facility Lease sent by Trustor to the landlord under the Facility Lease, to be delivered to Secured Party. Upon receipt by Secured Party from the landlord under the Facility Lease of any written notice of default by Trustor or any other party as tenant thereunder, Secured Party may rely thereon and take such action as aforesaid to cure such default even though the existence of such default or the nature thereof be questioned or denied by Trustor or by any party on behalf of Trustor or the tenant under the Facility Lease. Secured Party may pay and expend such sums of money as Secured Party in its reasonable discretion deems necessary for any such purpose, and Trustor hereby agrees to pay to Secured Party, on demand, all such sums so paid and expended by Secured Party, and any failure by Trustor to so reimburse Secured Party within five (5) days after receipt of written demand shall constitute an Event of Default hereunder. All sums so paid and expended by Secured Party, and the interest thereon, shall be added to and be secured by the Lien of this Deed of Trust. (d) Without obtaining the prior written consent of the Secured Party, Trustor shall not surrender its leasehold estate and its interest created under the Facility Lease, nor modify, terminate or cancel the Facility Lease. Any attempted surrender, modification, termination or cancellation of the Facility Lease by Trustor without Secured Party's prior written consent shall be null and void. (e) If the Facility Lease is cancelled or terminated, and Secured Party or its nominee shall acquire an interest in any new lease of the property demised 6 thereby, Trustor shall have no right, title or interest in or to the new lease or to the leasehold estate created by such new lease. (f) Without obtaining the prior written consent of the Secured Party (which consent shall not be unreasonably withheld), Trustor shall not enter into any sublease under the Facility Lease or assign any interest in the Facility Lease. (g) Without obtaining the prior written consent of the Secured Party, Trustor shall not consent to the subordination of the Facility Lease to any lien on the fee estate of the landlord under the Facility Lease. (h) No release or forbearance of any of Trustor's obligations under the Facility Lease, pursuant to such Facility Lease or otherwise, including without limitation Trustor's obligations with respect to the payment of rent as provided for in the Facility Lease and the performance of all the terms, provisions, covenants, conditions and agreements contained in such Facility Lease to be kept, performed or complied with by tenant therein, shall release Trustor from any of Trustor's obligations under this Deed of Trust. The Lien of this Deed of Trust attaches to all of Trustor's rights and remedies at any time arising under or pursuant to Subsection 365(h) of the Bankruptcy Code, including, without limitation, all of Trustor's rights to remain in possession of the Property. (i) Trustor hereby unconditionally assigns, transfers and sets over to Secured Party all of Trustor's claims and rights to the payment of damages arising from any rejection by the landlord of the Facility Lease under the Bankruptcy Code. Secured Party shall have the right to proceed in its own name or in the name of Trustor with respect to any claim, suit, action or proceeding relating to the rejection of the Facility Lease, including, without limitation, the right to file and prosecute, to the exclusion of Trustor, any proofs of claim, complaints, motions, applications, notices and other documents, in any case in which landlord is debtor under the Bankruptcy Code. This assignment constitutes a present, irrevocable and unconditional assignment of the foregoing claims, rights and remedies, and shall continue in effect until all of the Obligations secured by this Deed of Trust shall have been satisfied and discharged in full. Any amounts received by Secured Party as damages arising out of the rejection of the Facility Lease as aforesaid shall be applied first to all reasonable costs and expenses of Secured Party (including, without limitation, reasonable attorneys' fees) incurred in connection with the exercise of any of its rights or remedies hereunder and then to reduce the unpaid Obligations secured by this Deed of Trust in such order as Secured Party may determine. (j) Without obtaining the prior written consent of the Secured Party, the fee title to the Property demised by the Facility Lease and the leasehold estate therein contained shall not merge but shall always remain separate and distinct, notwithstanding the union of the fee title and the leasehold estate by purchase or 7 otherwise, in landlord or tenant thereunder, or in any other party. In the event Trustor acquires the fee title or any other estate, title or interest in the property demised under the Facility Lease or any part thereof, the Lien of this Deed of Trust, without further act, deed, conveyance or deed of trust on behalf of Trustor shall attach to, cover and be a Lien upon such acquired estate, title or interest and such interest shall thereupon be and become a part of the security encumbered by this Deed of Trust with the same force and effect as if specifically encumbered in this Deed of Trust and in the event thereof, upon request of Secured Party without cost or expense to Secured Party, Trustor will execute, acknowledge and deliver all such further acts, conveyances, deeds, deeds of trust, and assurances as Secured Party shall reasonably require to ratify and confirm Secured Party's Lien on the acquired estate, title or interest. (k) If there shall be filed by or against Trustor a petition under the Bankruptcy Code, Trustor, as tenant under the Facility Lease, or any trustee appointed by the Bankruptcy Court in such proceedings, shall immediately (but in no event later than three (3) weeks after the filing of such petition) notify Secured Party in writing of Trustor's or the trustee's intent, as the case may be, to assume or reject the Facility Lease pursuant to Section 365(a) of the Bankruptcy Code. If the intent of Trustor or such trustee is to reject the Facility Lease or if such notice is for any reason not so given to Secured Party or if it reasonably appears to Secured Party that Trustor or the trustee does not intend to assume the Facility Lease, then at any time thereafter Secured Party shall have the right, but not the obligation, to serve upon Trustor or such trustee a notice stating that (i) Secured Party demands that Trustor or trustee assume and assign such Facility Lease to Secured Party or Secured Party's nominee pursuant to Section 365 of the Bankruptcy Code and (ii) Secured Party covenants to cure or provide adequate assurance of prompt cure of all defaults and provide directly or through its nominee adequate assurance of future performance under such Facility Lease. If Secured Party serves upon Trustor or such trustee the notice described in the preceding sentence, Trustor or such trustee shall not seek to reject such Facility Lease but shall forthwith (and in all events before the expiration of all applicable time periods for such assumption and assignment) seek authorization from the Bankruptcy Court to assume and assign such Facility Lease to Secured Party (subject to any higher or better offer therefor, as approved by the Bankruptcy Court) subject to the performance by Secured Party of the covenant provided for in clause (ii) of the preceding sentence. Trustor agrees that Secured Party may at any time apply to the Bankruptcy Court for a reasonable extension of any time period for the assumption of such Facility Lease by Trustor and that the protection of Secured Party's Lien in such Facility Lease shall be deemed sufficient cause for such extension and Trustor shall not oppose any application by Secured Party for such reasonable extension. If any petition, action, proceeding, motion or notice shall be commenced or filed in respect of the landlord of the leasehold estate under the Facility Lease in connection with any case (including a case com menced or filed under the Bankruptcy Code), Secured Party shall have the option, to the exclusion of Trustor, exercisable upon notice from Secured Party to Trustor, to conduct and control any such litigation with counsel of Secured Party's choice. Secured 8 Party may proceed in its own name or in the name of Trustor in connection with any such litigation, and Trustor agrees to execute any and all powers, authorizations, consents or other documents reasonably required by Secured Party in connection therewith. Trustor shall, upon demand, pay to Secured Party all reasonable costs and expenses (including reasonable attorneys' fees) paid or incurred by Secured Party in connection with the prosecution or conduct of any such proceedings. Any such reasonable costs or expenses not paid by Trustor as aforesaid shall be secured by the lien of this Deed of Trust and shall be added to the principal amount of the Obligations secured hereby. Trustor shall not commence any action, suit, proceeding or case, or file any application or make any motion, in respect of the Facility Lease in any such case without the prior written consent of Secured Party. (l) Trustor will use its best efforts to obtain and deliver to Secured Party within thirty (30) Business Days after written request by Secured Party, an estoppel certificate from any landlord under the Facility Lease setting forth (i) the name of the tenant thereunder, (ii) that such Facility Lease has not been modified or, if either has been modified, the date of each modification (together with copies of each such modification), (iii) the rent payable under such Facility Lease, (iv) the date to which all rental charges have been paid by tenant under such Facility Lease, (v) whether there are any alleged defaults by tenant under such Facility Lease and, if so, setting forth the nature thereof in reasonable detail, and (vi) as to such other matters as Secured Party may reasonably request. (m) Trustor represents and warrants to Secured Party that as of the date hereof, no default by Trustor under the Facility Lease has occurred and is continuing, and such Facility Lease is valid and subsisting for the term set forth therein. 1.3 Deed of Trust Authorized. The execution and delivery of this Deed of Trust has been duly authorized by Trustor, and there is no provision in the charter or bylaws of Trustor requiring further consent for such action by any other Person. Trustor is duly organized and validly existing under the laws of the State of Delaware, and has all necessary material licenses, authorizations, registrations, permits and/or approvals and full power and authority to own its properties and carry on its business as presently conducted, and the execution and delivery by it of, and perfor mance by it of its obligations under this Deed of Trust will not result in Trustor being in default under any provision of its charter or bylaws or of any other material agree ment to which Trustor is a party or which materially affects the Property or any material part thereof or any other property of Trustor. 1.4 Operation of the Property. Trustor has, and with respect to the construction of any new buildings or structures upon the Premises during the term hereof will obtain, all necessary certificates, licenses, authorizations, registrations, permits and/or approvals necessary for the ownership, operation and management of 9 the Property, including, without limitation, all required environmental permits, all of which, with respect to Improvements existing as of the date hereof, are, to the best of Trustor's knowledge, in full force and effect and not subject to any revocation, undis closed amendment, release, suspension, forfeiture or the like. The present and contemplated use and occupancy of the Property does not conflict with or violate any such material certificate, license, authorization, registration, permit or approval. Trustor will promptly deliver to Secured Party, at its reasonable request, true copies of all such material certificates, licenses, authorizations, registrations, permits and approvals. 1.5 Agreements. Except as permitted hereunder and under the Credit Agreement, and except for any prior encumbrance which has been or will be dis charged upon recordation of this Deed of Trust, Trustor has not entered into any contract or other agreement providing for the transfer, conveyance or encumbrance of the Property or any part thereof or interest therein. 1.6 Payment and Performance of Obligations. Trustor shall pay all of the Obligations when due and without offset or counterclaim. Trustor shall observe and comply in all material respects with all of the terms, provisions, conditions, covenants and agreements to be observed and performed by it under this Deed of Trust. 1.7 Maintenance, Repair, Alterations, Etc. Trustor shall: (a) to the extent the Trustor is obligated to do so under the Facility Lease keep and maintain the Property in good condition and repair (subject to ordinary wear and tear); make or cause to be made, as and when necessary, all repairs, renewals and replacements, structural and nonstructural, exterior and interior, ordinary and extraordinary, foreseen and unforeseen; (b) not construct any new Improvements or remove, demolish, change or alter any of the existing Improvements if such construction, removal, demolition, change or alteration would materially adversely affect Secured Party's Lien or security interest hereunder; (c) subject to Sections 1.10 and 1.16, promptly restore any Im provement which may be materially damaged or destroyed so that the same shall be at least equal to its value, condition, character, bulk, floor area and height immediately prior to the damage or destruction, and promptly pay when due all claims for labor per formed and materials furnished therefor; (d) to the extent the Trustor is obligated to do so under the Facility Lease comply in all material respects with all laws, ordinances, regulations, covenants, conditions and restrictions now or hereafter affecting the Property or any part thereof or the use thereof or requiring any alterations or improve ments; (e) not commit or permit any waste or deterioration (usual wear and tear excepted) of the Property; (f) to the extent the Trustor is obligated to do so under the Facility Lease, keep and maintain the grounds, sidewalks, parking and landscape areas which are part of the Premises in good and neat order and repair; (g) comply in all material respects with the provisions of any Lease, easement or other agreement affecting all or any part of the Property; (h) not commit, suffer or permit any act to be done in or upon the Property in material violation of any law, ordinance, regulation, 10 covenant, condition or restriction now or hereafter affecting the Property or any parts thereof or the use thereof; and (i) not permit the Improvements or any part thereof to become deserted or unguarded. 1.8 Required Insurance. Trustor shall at its expense, at all times, maintain and keep in full force and effect policies of insurance to the extent required by the terms of Section 5.3 of the Credit Agreement and the other Operative Agreements. 1.9 Policy Provisions, Etc. (a) Each policy of insurance maintained by Trustor pursuant to Section 1.8 shall (1) provide for the benefit of the Creditors that 30 days' prior written notice of suspension, cancellation, termination, modification, non-renewal or lapse or material change of coverage shall be given to the Secured Party; (2) name the Secured Party for the benefit of the Creditors as the loss payee (except for (i) instances where a landlord under a lease.has required that it be named a loss payee and (ii) errors and omissions insurance and other third party liability insurance); and (3) to the extent that neither the Secured Party nor the Creditors shall be liable for premiums or calls, name the Secured Party for the benefit of the Lenders as an additional insured. (b) Trustor shall pay as and when the same become due and payable the premiums for all insurance policies that Trustor is required to maintain hereunder, and all such policies shall be non-assessable. Trustor will deliver to Secured Party concurrently herewith certificates setting forth in reasonable detail the terms (including, without limitation, any applicable notice requirements) of all insurance policies that Trustor is required to maintain hereunder together with true and complete copies of such policies. Trustor shall also provide to Secured Party copies of such policies certified by the insurance companies issuing them promptly after Secured Party's request therefor; provided, however, that Secured Party may not request copies of such insurance policies more than once each calendar year unless an Event of Default has occurred and is continuing. Trustor will deliver to Secured Party, concurrently with each change in any such insurance policy relating to Trustor, a certificate with respect to such changed insurance policy certified by Trustor, in the same form and containing the same information as the certificates required to be delivered by Trustor pursuant to the first sentence of this subparagraph and with each renewal a certificate of Trustor certifying that all premiums then due thereon have been paid to the applicable insurers and that the same are in full force and effect. (c) Not later than thirty (30) days prior to the expiration, termination or cancellation of any insurance policy which Trustor is required to maintain hereun der, Trustor shall obtain a replacement policy or policies (or a binding commitment for such replacement policy or policies), which shall be effective no later than the date of 11 the expiration, termination or cancellation of the previous policy, and shall deliver to Secured Party a certificate and a true and complete copy of such policy or policies which comply with the requirements of Sections 1.8 and 1.9(a), or a copy of the binding commitment for such policy or policies. Trustor shall also provide to Secured Party originals of such policies or copies thereof certified by the insurance companies issuing them as soon as reasonably possible after Secured Party's request therefor. (d) Within thirty (30) days following the end of each policy period, and concurrently with the delivery of each replacement policy pursuant to Section 1.9(c), Trustor will deliver to Secured Party a report or reports by Trustor setting forth the particulars as to all insurance obtained by Trustor pursuant to Section 1.8 or Section 1.9 then in effect and stating that all premiums then due thereon have been paid to the applicable insurers, and that the same are in full force and effect. (e) From time to time, upon the occurrence of any material change in the use or operation of the Property, or in the availability of insurance required hereunder in the area in which the Property is located, Trustor will give Secured Party prompt notice of such change. Trustor will not take out separate or additional insur ance concurrent in form or contributing in the event of loss with that required to be maintained pursuant to this Deed of Trust unless such insurance complies with this Section 1.9. 1.10 Insurance Proceeds. (a) Trustor shall give prompt written notice to Secured Party of the occurrence of any damage to or destruction of the Property in an amount exceeding $500,000 to repair or replace, whether or not covered by insurance. (b) In the event of any damage to or destruction of the Property or any part thereof, all proceeds of insurance shall be payable to Secured Party, and Trustor hereby authorizes and empowers Secured Party, at Secured Party's option and in Secured Party's sole discretion as attorney-in-fact for Trustor, to make proof of loss, adjust and compromise any claim in excess of $500,000 under any policy of insurance in effect with respect to the Property, appear in and prosecute any action arising from such insurance policies, collect and receive insurance proceeds and deduct therefrom Secured Party's expenses incurred in the collection of such proceeds. (c) In the event of any damage to or destruction of the Premises or any part thereof, Secured Party shall hold the balance of all insurance proceeds received (after deducting expenses) pursuant to Section 1.10(b) above, to be used to pay or reimburse Trustor in accordance with normal construction loan funding proce dures for the costs of reconstructing of the Premises if the following conditions are satisfied within sixty (60) days from the date of the damage or destruction: 12 (i) Trustor satisfies Secured Party that after such reconstruction is completed, the value of the Premises, as determined by Secured Party in its sole discretion, will not be less than the appraised value of the same immediately prior to the damage or destruction; (ii) in Secured Party's opinion, the amount of such proceeds is sufficient to pay all costs of such reconstruction or Trustor deposits additional funds with Secured Party sufficient to pay the additional costs; (iii) Trustor has delivered to Secured Party (A) a construction contract for the work of reconstruction in form and content acceptable to Secured Party with a contractor reasonably acceptable to Secured Party, (B) a copy of each permit and approval required by law in connection with the reconstruction, and (C) a surety bond for or guaranty to Secured Party of payment for and completion of the reconstruction, in form and substance reasonably satisfactory to Secured Party, in an amount no less than the estimated costs of the reconstruction under the construction contract; and (iv) no Default or Event of Default has occurred and is continuing hereunder, under the Credit Agreement or under any of the other Operative Agreements. If the insurance proceeds are held by Secured Party to be used to pay or reimburse Trustor for the cost of reconstruction of the Premises, the Premises shall be promptly and diligently restored by Trustor to the equivalent of their condition immediately prior to the casualty in accordance with plans and specifications approved by Secured Party or to such other condition as Secured Party may approve in writing, and disbursements of such proceeds shall be in accordance with disbursement procedures acceptable to Secured Party. (d) Any insurance proceeds not required to reconstruct the Premises or to satisfy the conditions set forth in clauses (i) through (v) of Section 1.10(c) above shall be applied in the manner set forth in Section 3.3 hereof as if the same were proceeds of sale; provided, however, that if after applying the insurance proceeds as set forth above Secured Party determines that the remaining security is inadequate to secure the remaining Obligations, Trustor shall, immediately upon demand from Secured Party, repay the principal of the Notes and Loans by an amount that will reduce the Obligations to a balance for which the Secured Party's Lien and security interest herein is adequate. (e) Provided that no Default or Event of Default has occurred (whether or not continuing), in the event that the damage to or destruction of the Property is an amount less than $500,000 to repair or replace, Trustor shall be entitled to receive all such proceeds and to apply such proceeds to the payment of the costs and expenses of repairing, restoring and operating the Property. 13 (f) In the event of the foreclosure of this Deed of Trust pursuant to Section 4.1 or other transfer of the title to the Property in extinguishment, in whole or in part, of the Obligations secured hereby, all right, title and interest of Trustor in and to any insurance policy then in force or any proceeds thereof or any rights thereunder, shall pass to the purchaser or grantee at any foreclosure sale notwithstanding the amount of any bid at such foreclosure sale. 1.11 Indemnification; Subrogation; Waivers. (a) The Trustor agrees to indemnify, reimburse and hold the Secured Party, and each of the other Creditors and their respective successors, assigns, employees, agents and servants (hereinafter in this Section 1.11 referred to individually as "Indemnitee" and collectively as "Indemnitees") harmless from any and all liabili ties, obligations, losses, damages, penalties, claims, actions, judgments, suits, costs, expenses or disbursements (including reasonable attorneys' fees and expenses) (for the purposes of this Section 1.11 the foregoing are collectively called "expenses") of whatsoever kind or nature which may be imposed on, asserted against or incurred by any of the Indemnitees in any way relating to or arising out of this Deed of Trust, any other Operative Agreement or the documents executed in connection herewith and therewith or in any other way connected with the administration of the transactions contemplated hereby and thereby or the enforcement of any of the terms of or the preservation of any rights under any thereof, or in any way relating to or arising out of the manufacture, ownership, ordering, purchase, delivery, control, acceptance, lease, financing, possession, operation, condition, sale, return or other disposition or use of the Property (including, without limitation, latent or other defects, whether or not discoverable), the violation of the laws of any country, state or other governmental body or unit, any tort (including, without limitation, claims arising or imposed under the doctrine of strict liability, or for or on account of injury to or the death of any Person (including any Indemnitee), or for property damage) or any contract claim; provided, however, that Trustor shall not be required to indemnify any Indemnitee for any expenses caused by the gross negligence or willful misconduct of such Indemnitee. Trustor agrees that upon written notice by any Indemnitee of any assertion that could give rise to an expense, Trustor shall assume full responsibility for the defense thereof. (b) Without limiting the application of Section 1.11(a), Trustor agrees to pay, indemnify and hold each Indemnitee harmless from and against any expenses which such Indemnitee may suffer, expend or incur in consequence of or growing out of any misrepresentation by Trustor in this Deed of Trust or any of the other Operative Agreements or in any statement or writing contemplated by or made or delivered pursuant to or in connection with this Deed of Trust or any of the other Operative Agreements. (c) If and to the extent that the obligations of Trustor under this Section 1.11 are unenforceable for any reason, Trustor hereby agrees to make the 14 maximum contribution to the payment and satisfaction of such obligations (other than any such obligations caused by the gross negligence or willful misconduct of any Indemnitee) which is permissible under applicable law. (d) Any amounts paid by any Indemnitee as to which such Indemni tee has the right to reimbursement shall constitute Obligations secured under this Deed of Trust. The indemnity obligations of Trustor contained in this Section 1.11 shall continue in full force and effect notwithstanding the full payment of all Obligations and notwithstanding the discharge thereof. (e) Trustor waives any and all right to claim or recover against Indemnitees for loss or damage to Trustor, the Property, Trustor's property or the property of others under Trustor's control from any cause insured against or required to be insured against by the provisions of this Deed of Trust, except any such loss or damage caused by the gross negligence of willful misconduct of any such Indemnitee. (f) All sums payable by Trustor under this Deed of Trust shall be paid without counterclaim, setoff, or deduction and without abatement, suspension, deferment, diminution or reduction, and the obligations and liabilities of Trustor hereunder shall in no way be released, discharged or otherwise affected (except as expressly provided herein) by reason of: (i) any damage to or destruction of or any condemnation or similar taking of the Property or any part thereof; (ii) any restriction or prevention of or interference with any use of the Property or any part thereof; (iii) any title defect or encumbrance or any eviction from the Property or any part thereof by title paramount or otherwise; (iv) any bankruptcy, insolvency, reorganization, composition, adjustment, dissolution, liquidation or other like proceeding relating to Secured Party, any of the Creditors or Trustor, or any action taken with respect to this Deed of Trust by any trustee or receiver of Secured Party, any of the Creditors or Trustor; (v) any claim which Trustor has or might have against Secured Party, or any of the Creditors; (vi) any default or failure on the part of Secured Party to perform or comply with any of the terms hereof; or (vii) any other occurrence whatsoever, whether similar or dissimilar to the foregoing, whether or not Trustor shall have notice or knowledge of any of the foregoing. Trustor waives to the extent permissible by law all rights now or hereafter conferred by statute or otherwise to any abatement, suspen sion, deferment, diminution or reduction of any of the Obligations. 1.12 Impositions. (a) To the extent the Trustor is obligated to do so under the Facility Lease Trustor will pay when due all real property taxes and assessments, general and special, and all other taxes and assessments of any kind or nature whatsoever, includ ing, without limitation, public, governmental or nongovernmental levies, assessments or charges, such as assessments on appurtenant water stock, maintenance charges, owner association dues or charges and fees, levies or charges resulting from covenants, 15 conditions and restrictions affecting the Property, which are assessed or imposed upon any of the Property, or arising in respect of the operation, occupancy, use or posses sion thereof (all of which taxes, assessments and other public, governmental or nongovernmental charges of like or different nature are hereinafter referred to as "Impositions"); provided, however, that if, by law, any such Imposition is payable, or may at the option of the payer be paid, in installments, Trustor may pay the same together with any accrued interest on the unpaid balance of such Imposition in install ments as the same may become due. (b) If under the provisions of any law or ordinance now or hereafter in effect there shall be assessed or imposed: (i) a tax or assessment on the Property in lieu of or in addition to the Impositions payable by Trustor pursuant to subparagraph (a) hereof, or (ii) a license fee, tax or assessment imposed on Secured Party and measured by or based in whole or in part upon the amount of the outstanding Obliga tions, then all such taxes, assessments or fees shall be deemed to be included within the term "Impositions" as defined in subparagraph (a) hereof, and Trustor shall pay and discharge or cause to be paid and discharged the same as herein provided or shall reimburse or otherwise compensate Secured Party for the payment thereof. In the event any such law or ordinance specifically provides that Trustor may not pay, reimburse or otherwise compensate Secured Party for the payment of such tax, assessment or fee, then, at the option of Secured Party, Secured Party may declare all of the Obligations to be due and payable within sixty (60) days and the failure of Trustor to pay the Obligations within such period shall be an Event of Default entitling Secured Party to exercise any of the remedies set forth in this Deed of Trust. (c) Subject to the provisions of subparagraph (d) hereof, Trustor covenants to furnish to Secured Party, within thirty (30) days after the date when any interest or penalty shall accrue for nonpayment of Impositions, official receipts of the appropriate taxing or other authority, or other proof reasonably satisfactory to Secured Party, evidencing the payment thereof. (d) If an Event of Default shall occur and be continuing, at the request of Secured Party, Trustor shall pay to Secured Party on the first Business Day of each month an amount equal to one-twelfth of the annual total of Impositions estimated by Secured Party to be assessed against the Property in order to pay the installment of Impositions next due on the Property. In such event, Trustor further agrees to cause all bills, statements or other documents relating to Impositions to be sent or mailed directly to Secured Party. Provided Trustor has deposited sufficient funds with Secured Party pursuant to this Section 1.12, Secured Party shall pay on or prior to the due date thereof, such amounts as may be due thereunder out of the funds so deposited. Notwithstanding the foregoing, nothing contained herein shall cause Secured Party to be deemed a trustee of said funds or obligate Secured Party to pay any amount in excess of the amount deposited pursuant to this Section 1.12. If at any time and for any reason the funds deposited with Secured Party are or will be insufficient to 16 pay such amounts as may then be due, Secured Party shall notify Trustor and Trustor shall immediately deposit an amount equal to such deficiency with Secured Party. Should Trustor fail to deposit with Secured Party sums sufficient to fully pay such Impositions when due, Secured Party may, at Secured Party's election, but without any obligation to do so, advance any amounts required to make up the deficiency. Trustor shall, on demand, reimburse Secured Party for said amount. Should an Event of Default occur and be continuing hereunder, Secured Party may, at any time at Secured Party's option, apply any sums or amounts then held by it pursuant hereto (including, without limitation, any income earned thereon) to the payment or discharge of the Obligations in the manner set forth in Section 3.3 hereof as if the same were proceeds of sale. The receipt, use or application of any such sums paid by Trustor to Secured Party hereunder shall not be construed to affect the maturity of any of the Obligations or to otherwise affect any of the rights or powers of Secured Party hereunder or any of the obligations of Trustor hereunder. (e) Trustor will pay all taxes, charges, filing, registration and recording fees, excises and levies imposed in connection with the recording of this Deed of Trust or imposed upon Secured Party by reason of its ownership of this Deed of Trust or any mortgage supplemental hereto, and shall pay any and all Internal Revenue stamp taxes and other taxes required to be paid on any of the Obligations (other than taxes required to be paid by the Lenders pursuant to Section 2.15 of the Credit Agreement). In the event Trustor fails to make any such payment within five (5) Business Days after written notice thereof from Secured Party, then Secured Party shall have the right, but shall not be obligated to, pay the amount due and Trustor shall, on demand, reimburse Secured Party for said amount. 1.13 Utilities. To the extent the Trustor is obligated to do so under the Facility Lease Trustor will pay when due all utility charges which are incurred by Trustor for the benefit of the Property or which may become a charge or Lien against the Property for gas, electricity, steam, water or sewer services furnished to the Property and all other assessments or charges of a similar nature, whether public or private, affecting the Property whether or not such taxes, assessments or charges are Liens thereon. 1.14 Actions Affecting Property. Trustor will appear in and contest any action or proceeding purporting to affect the security hereof or the rights or powers of Secured Party hereunder; and Trustor will pay all reasonable costs and expenses incurred by Trustor, including cost of evidence of title and reasonable attorneys' fees, in any such action or proceeding. 1.15 Actions by Secured Party to Preserve Property. Should Trustor fail to pay or perform any of the Obligations, after expiration of any applicable notice and cure period, Secured Party may pay or perform the same in such manner and to such extent as it may deem necessary in its sole discretion. In connection therewith, 17 without limiting its general powers, Secured Party shall have and is hereby given the right, but not the obligation: (a) to enter upon and take possession of the Premises; (b) to make additions, alterations, repairs and improvements to the Property which are reasonably necessary or proper to keep the Property in good condition and repair; (c) to appear and participate in any action or proceeding affecting or which may affect the security hereof or the rights or powers of Secured Party; (d) to pay, purchase, contest or compromise any encumbrance, claim, charge, Lien or debt which may affect the security of this Deed of Trust or be prior or superior hereto; and (e) in exercising such powers, to pay all necessary expenses, including the reasonable fees and expenses of counsel or other necessary or desirable consultants. Trustor shall, on demand therefor by Secured Party, pay or reimburse Secured Party for all reasonable costs and expenses incurred by Secured Party in connection with the exercise by Secured Party of the foregoing rights, including, without limitation, cost of evidence of title, court costs, appraisal costs, surveys and reasonable attorneys' fees. In the event this Deed of Trust is placed in the hands of an attorney for the collection of any sum secured hereby, Trustor agrees to pay on demand all reasonable costs of collection, including reason able attorneys' fees, incurred by Secured Party, either with or without the institution of any action or proceeding, and in addition to all costs, disbursements and allowances provided by law. 1.16 Eminent Domain. (a) Should the Property or any part thereof or interest therein, be taken or damaged by reason of any public improvements or condemnation proceeding or in any other similar manner ("Condemnation"), or should Trustor receive any notice or other information thereof, Trustor shall give prompt written notice thereof to Secured Party. (b) If requested by Secured Party, Trustor shall file or otherwise defend its rights under the condemnation proceeding and prosecute the same with due diligence to its final disposition and shall cause any awards or settlements to be paid over to Secured Party for disposition pursuant to the terms of this Deed of Trust. Trustor may be the nominal party in such proceeding, but Secured Party shall be entitled to participate in and to control the same and to be represented therein by counsel of its choice, and Trustor will deliver or cause to be delivered to Secured Party such instruments as may be requested by it from time to time to permit such participa tion. If the Property or any part thereof is taken or diminished in value, or if the consent settlement is entered, by or under threat of such proceeding, the award or settlement payable to Trustor by virtue of its interest in the Property shall be and hereby is assigned, transferred and set over unto Secured Party to be held by it, in trust, subject to the Lien and security interest of this Deed of Trust. Any such award or settlement shall be first applied to reimburse Trustor and Secured Party for all costs and expenses, including, without limitation, reasonable attorneys' fees, incurred in 18 connection with the collection of such award or settlement. The balance of such award or settlement shall be, at Secured Party's option: (i) applied in the manner set forth in Section 3.3 hereof as if the same were proceeds of sale; or (ii) held by Secured Party to be used in accordance with the provisions of Section 1.10(c) above to pay or reimburse Trustor for the costs of rebuilding, reconstruction or repair of the Premises if the conditions set forth in such section are satisfied within thirty (30) days from the date of such award or settlement; provided, however, that if after applying the award or settlement as set forth above Secured Party determines that the remaining security is inadequate to secure the remaining Obligations, Trustor shall, immediately upon demand from Secured Party, repay the principal of the Notes and Loans by an amount that will reduce the Obliga tions to a balance for which the Secured Party's Lien and security interest herein is adequate. 1.17 Successors and Assigns. This Deed of Trust applies to, inures to the benefit of and binds the parties hereto and their respective successors and assigns. In the event the ownership of the Property becomes vested in a Person other than Trustor, Secured Party may, without notice to Trustor, deal with such successor or successors in interest with reference to this Deed of Trust and the Obligations in the same manner as with Trustor, and may alter the interest rate and/or alter or extend the terms of payment of any of the Obligations without notice to Trustor and such action shall not in any way affect the liability of Trustor here-under or the Lien or priority of this Deed of Trust with respect to any part of the Property covered hereby. 1.18 Liens. Trustor will pay or procure the discharge of, at Trustor's cost and expense, all Liens (other than Permitted Lien) upon the Property or any part thereof or interest therein within ten (10) Business Days after Trustor learns of the filing thereof. If Trustor shall fail to discharge any such Lien within such ten (10) Business Day period, then, in addition to any other right or remedy of Secured Party, Secured Party may, but shall not be obligated to, discharge the same, either by paying the amount claimed to be due, or by procuring the discharge of such Lien by depositing in court a bond for the amount claimed or otherwise giving security for such claim, or in such manner as is or may be prescribed by law; and all funds advanced by Secured Party to pay such obligations, liabilities, costs and expenses (together with interest thereon at the Default Rate from the date of demand until paid) shall be reimbursed by Trustor upon demand by Secured Party; and all such advances with interest thereon as aforesaid shall be secured hereby. 1.19 Secured Party's Powers. Without affecting the liability of any other Person liable for the payment of any obligation herein mentioned, and without 19 affecting the Lien or charge of this Deed of Trust upon any portion of the Property not then or theretofore released as security for the Obligations, Secured Party may, from time to time and without notice, but subject to Section 9.1 of the Credit Agreement: (a) release any Person so liable; (b) extend the maturity or alter any of the terms of any such obligation; (c) grant other indulgences; (d) release or cause to be released at any time at Secured Party's option any parcel, portion or all of the Property; (e) take or release any other or additional security for any obligation herein mentioned; (f) while an Event of Default is continuing, make compositions or other arrangements with debtors or other mortgagors in relation to this Deed of Trust; (g) advance additional funds to protect the security hereof; (h) while an Event of Default is continuing, pay or discharge any or all of the Obligations; (i) consent in writing to the making of any map or plat thereof; (j) join in granting any easement thereon; or (k) join in any extension agreement or any agreement subordinating the Lien or charge hereof; and, in any case referred to in clauses (g) or (h), all amounts so advanced, with interest thereon at the Default Rate from the date of demand until paid, shall be secured hereby. 1.20 Permitted Contests. Notwithstanding anything to the contrary contained in this Deed of Trust, Trustor at its expense may contest (after prior written notice to Secured Party), by appropriate legal, administrative or other proceedings conducted in good faith and with due diligence, the amount or validity or application, in whole or in part, of any Imposition or Lien therefor or any law, ordinance, regula tion, covenant, condition or restriction or the application of any instrument of record affecting the Property or any part thereof or any claims of mechanics, materialmen, suppliers or vendors and Lien therefor; provided that (a) in the case of any Impositions or Lien therefor or any claims of mechanics, materialmen, suppliers or vendors and Lien therefor, such proceedings shall suspend the collection thereof from Secured Party and the Property, (b) neither the Property nor any part thereof or interest therein will be sold, forfeited or lost if Trustor pays the amount or satisfies the condition being contested, and Trustor would have the opportunity to do so in the event of Trustor's failure to prevail in the contest, (c) Secured Party and the Creditors shall not, by virtue of such permitted contest, be in any danger of any criminal liability, or any civil liability, and neither the Property nor any interest therein would be subject to the imposition of any Lien which would have priority over the Lien of this Deed of Trust, and (d) Trustor shall have furnished to Secured Party a good and sufficient bond or surety as reasonably requested by and reasonably satisfactory to Secured Party if the failure to comply with such Imposition, law, ordinance, regulation, covenant, condition or restriction will result in a Lien or charge against the Property in excess of $500,000. 1.21 Continued Occupancy. If at any time the then existing use or occupancy of any part of the Property shall, pursuant to any zoning or other law, ordinance or regulation, be permitted only so long as such use or occupancy shall continue, Trustor shall not cause or permit such use or occupancy to be discontinued without the prior written consent of Secured Party. 20 1.22 Inspections. Subject to the provisions of any Lease or any applicable law, Trustor hereby authorizes Secured Party, its agents, representatives or workmen, to enter at any reasonable time during normal business hours after at least twenty-four (24) hours advance notice to Trustor (except that with respect to any emergency, Secured Party, its agents, representatives or workers may enter during such time of emergency) upon or in the Premises for the purpose of inspecting the same, and for the purpose of performing any of the acts which Secured Party is authorized to perform under the terms of this Deed of Trust. 1.23 Actions by Trustee. At any time, or from time to time, without liability therefor and without notice, upon written request of Secured Party and presentation of this Deed of Trust, and without affecting the personal liability of any Person for payment of the Obligations secured hereby or the effect of this Deed of Trust upon the remainder of the Property, Trustee may (i) reconvey any part of the Property; (ii) consent in writing to the making of any map or plat thereof; (iii) join in granting any easement thereon; or (iv) join in any extension agreement or any agree ment subordinating the Lien or charge hereof. 1.24 Hypothecation, Transfers. Trustor shall not, except as expressly permitted by the Credit Agreement, hypothecate, convey, sell, lease or otherwise dispose of (or agree to do any of the foregoing at any future time) all or any part of the Property. ARTICLE 2. SECURITY AGREEMENT 2.1 Creation of Security Interest. This Deed of Trust creates a Lien on the Property, and to the extent the Property is not real property under applicable law (such Property hereinafter referred to as the "Secured Property"), this Deed of Trust constitutes a security agreement under the Uniform Commercial Code and any other applicable law. The grant of a security interest to Secured Party in the granting clauses of this Deed of Trust shall not be construed to derogate from or impair the Lien or provisions of or the rights of Secured Party under this Deed of Trust with respect to any property described herein which is real property or which the parties have agreed to treat as real property. The hereby stated intention of Trustor and Secured Party is that everything used in connection with the production of income from such real property or adopted for use thereon is, and at all times and for all purposes and in all proceedings, both legal and equitable, shall be regarded as real property, irrespective of whether or not the same is physically attached to the land or the improvements thereon. If required by Secured Party, at any time during the term of this Deed of Trust, Trustor will execute and deliver to Secured Party, in form satisfactory to 21 Secured Party, additional security agreements, financing statements and/or other instruments covering all Personal Property or fixtures of Trustor which may at any time be furnished, placed on, or annexed or made appurtenant to the Real Property or used, useful or held for use, in the operation of the Improvements. Trustor hereby irrevocably constitutes and appoints Secured Party the attorney-in-fact of Trustor, to execute, deliver and file with the appropriate filing officer or office such security agreements, financing statements and/or other instru ments as Secured Party may reasonably request or reasonably require in order to impose and perfect the Lien and security interest hereof more specifically on the Personal Property or any fixtures. If Trustor enters into a separate security agreement with Secured Party relating to any of the Personal Property or fixtures, the terms of such security agree ment shall govern the rights and remedies of Secured Party in the event of a default thereunder. It is understood and agreed that, in order to protect Secured Party from the effect of Uniform Commercial Code Section 9313, as amended from time to time, in the event that (i) Trustor intends to purchase any goods which may become fixtures attached to the Premises, or any part thereof, and (ii) such goods will be subject to a purchase money security interest held by a seller or any other party: (a) Except as provided in Section 7 of the Credit Agreement, Trustor shall, before executing any security agreement or other document evidencing such security interest, obtain the prior written approval of Secured Party, and all requests for such written approval shall be in writing and contain the following information: (i) a description of the fixtures to be replaced, added to, installed or substituted; (ii) the address at which the fixtures will be replaced, added to, installed or substituted: and (iii) the name and address of the proposed holder and pro posed amount of the security interest. Trustor's execution of any such security agreement or other document evidencing such security interests in contravention of this subparagraph (a) shall be a material breach of Trustor's covenants under this Deed of Trust, and shall, at the option of Secured Party, entitle Secured Party to all rights and remedies provided for herein upon the occurrence and continuance of an Event of Default. No consent by Secured Party pursuant to this subparagraph shall be deemed to constitute an agreement to subordinate any right of Secured Party in fixtures or other property covered by this Deed of Trust. 22 (b) If at any time Trustor fails to make any payment when due and payable on an obligation secured by a purchase money security interest in any fixture, Secured Party, at its option, may at any time pay the amount secured by such security interest and the amount so paid shall be payable on demand by Trustor to Secured Party. (c) Secured Party shall have the right to acquire by assignment from the holder of such security interest any and all contract rights, accounts receivable, negotiable or nonnegotiable instruments, or other evidence of Trustor's indebtedness for such Personal Property or fixtures, and, upon acquiring such interest by assign ment, shall have the right to enforce the security interest as assignee thereof, in accor dance with the terms and provisions of the Uniform Commercial Code then in effect, and in accordance with any other provisions of law. (d) Whether or not Secured Party has paid the indebtedness secured by or taken an assignment of such security interest, Trustor covenants to pay all sums when due and payable and perform all obligations secured thereby, and if Trustor at any time shall be in default under such security agreement after the exhaustion of all applicable notice and cure periods provided for herein, or such greater time as provided for in an applicable Operative Agreement, it shall be a material breach of Trustor's covenants under this Deed of Trust. 2.2 Representations, Warranties and Covenants of Trustor. Trustor hereby represents, warrants and covenants as follows: (a) Trustor is, and as to all Secured Property acquired after the date hereof will be, the sole owner of the Secured Property, free from any Lien, security interest, encumbrance or claim thereon of any kind whatsoever (other than Permitted Liens). Trustor will notify Secured Party of, and will defend the Secured Property against, all claims and demands of all Persons at any time claiming the Secured Property or any interest therein other than such interests as are permitted herein. (b) Except as otherwise provided in clauses (a) or (d) of this Section 2.2, or in the Credit Agreement, or in connection with conveyance of the Property, or a portion thereof permitted elsewhere in this Deed of Trust, Trustor will not assign, pledge, encumber, lease, sell, convey or in any manner transfer any item of the Secured Property, without the prior written consent of Secured Party. (c) The Secured Property is not used or bought for personal, family or household purposes. (d) Except as otherwise provided in clauses (a) or (b) of this Section 2.2, the Secured Property will be kept on or at the Premises or at such other location as Secured Party may approve, and Trustor will not remove any portion or item of 23 Secured Property affixed or attached to the Premises without the prior written consent of Secured Party which consent shall not be unreasonably withheld, except such portions or items of Secured Property which are consumed or worn out in ordinary usage or removed in the ordinary course of business and promptly replaced by Trustor with new items of equal or greater quality or utility. (e) Trustor maintains its principal place of business at Wilmington Trust Company, Rodney Square North, 1100 Market Street, Wilmington, Delaware, 19890. Trustor will immediately notify Secured Party in writing of any change in its principal place of business. (f) Trustor shall cause all financing and continuation statements and other instruments with respect to the Secured Property at all times to be kept recorded, filed or registered in such manner and in such places as may be required by law to fully evidence, perfect and secure the interests of Secured Party in the Secured Property, and shall pay all filing fees in connection therewith. At the request of Secured Party, Trustor will join Secured Party in executing one or more financing statements with respect to the Secured Property, and renewals, continuation statements and amendments thereof, pursuant to the Uniform Commercial Code in customary form, and will pay the cost of filing the same in all public offices wherever filing is necessary to the effectiveness thereof. Without limiting the foregoing, Trustor hereby irrevocably appoints Secured Party its attorney-in-fact to execute, deliver and file such instruments for or on behalf of Trustor upon Trustor's failure to do so within a reasonable time after demand, and Trustor will pay the cost of any such filing. 2.3 Survival of Security Agreement. Notwithstanding any release of any or all of the property included in the Property which is deemed "real property", any proceedings to foreclose this Deed of Trust or its satisfaction of record, the terms hereof shall survive as a security agreement with respect to the security interest created hereby and referred to above until the repayment or satisfaction in full of the Obliga tions. ARTICLE 3. EVENTS OF DEFAULT AND REMEDIES 3.1 Events of Default. (a) The occurrence of any of the following events shall be deemed an Event of Default hereunder (an "Event of Default"): (i) the occurrence of an Event of Default under the Credit Agreement or other Operative Agreement after the expiration of any applicable cure period; 24 (ii) the occurrence of an Event of Default under the Lease; or (iii) a default in the performance of any other covenant herein and not in the Credit Agreement. (b) Upon the occurrence of an Event of Default, Secured Party may in accordance with Section 6 of the Credit Agreement declare all sums secured hereby immediately due and payable, commence an action to foreclose this Deed of Trust as a mortgage, and/or deliver to Trustee a written declaration of default and demand for sale and of written notice of default and of election to cause to be sold the Property, which notice Trustee shall cause to be duly filed for record in case of foreclosure by exercise of the power of sale herein. Should Secured Party elect to foreclose by exercise of the power of sale herein, Secured Party shall also deposit with Trustee this Deed of Trust and such receipts and evidence of expenditures made and secured hereby as Trustee may require, and notice of sale having been given as then required by law and after lapse of such time as may then be required by law after recordation of such notice of default, Trustee, without demand on Trustor, shall sell the Property at the time and place of sale fixed by it in such notice of sale as Secured Party may direct, either as a whole or in separate parcels, as Secured Party may determine, at public auction to the highest bidder for cash (or by credit bid) in lawful money of the United States, payable at time of sale. Secured Party shall have the right to direct the order in which separate parcels shall be sold and Trustor shall have no right to direct the order in which separate parcels are sold. Trustee may postpone sale of all or any portion of the Property by public announcement at such time and place of sale, and from time to time thereafter may postpone such sale by public announcement at the time fixed by the preceding postponement. Trustee shall deliver to such purchaser its deed conveying the Property, or any portion thereof, so sold but without any covenant or warranty, express or implied. The recitals in such deed of any matters or facts shall be conclusive proof of the truthfulness thereof. Any Person, including Trustor, Trustee or Secured Party, may purchase at such sale by credit bid or otherwise. Secured Party may proceed as to the Personal Property in accordance with Secured Party's rights and remedies with respect to the Property or sell the Personal Property separately and without regard to the remainder of the Property in accordance with Secured Party's rights and remedies provided by the Uniform Com mercial Code as well as other rights and remedies available at law or in equity. Trustor waives all rights, legal and equitable, it may now or hereafter have to require marshalling of assets or to require upon foreclosure sales of assets in a particular order. Each successor and assign of Trustor, including without limitation, a holder of a Lien subordinate to the Lien-created hereby (without implying that Trustor has, except as expressly provided herein, a right to grant an interest in, or a subordi nate Lien on, the Property), by acceptance of its interest or Lien agrees that it shall be bound by the above waiver, as if it gave the waiver itself. 25 3.2 Discontinuance of Proceedings. Secured Party, from time to time before the Trustee's sale pursuant to Section 3.1, may rescind any notice of breach or default and of election to cause to be sold the Property by executing and delivering to Trustee a written notice of such rescission, which notice, when recorded, shall also constitute a cancellation of any prior declaration of default and demand for sale. The exercise by Secured Party of such right of rescission shall not constitute a waiver of any breach or default then existing or subsequently occurring or impair the right of Secured Party to execute and deliver to Trustee, as above provided, other declarations of default and demand for sale, and notices of breach or default, and of election to cause to be sold the Property to satisfy the obligations hereof, nor otherwise affect any provision, covenant or condition of this Deed of Trust or any of the rights, obligations or remedies of the parties thereunder or hereunder. 3.3 Application of Proceeds of Sale. (a) Upon a sale of all or part of the Property pursuant to Section 3.1, after deducting all reasonable costs, fees and expenses of Trustee and of this Deed of Trust, including reasonable attorneys' fees, expenses and costs of investigation, all as actually incurred and including, without limitation, reasonable attorneys' fees, costs and expenses of investigation incurred in appellate proceedings or in any action or participation in, or in connection with, any case or proceeding under Chapters 7, 11 or 13 of the Bankruptcy Code or any successor thereto, Trustee shall deliver the proceeds of sale to Secured Party for application, as follows: (i) First, to (A) any and all sums advanced by the Secured Party to preserve the Property or preserve its Lien and security interest therein, and (B) in the event of any proceeding for the collection or enforcement of any of the Obliga tions, after an Event of Default shall have occurred and be continuing, the expenses of retaking, holding, operating, managing, preparing for sale or lease, selling or other wise disposing of or realizing on the Property, or of any exercise by the Secured Party of its rights hereunder, together with reasonable attorneys' fees and court costs; (ii) Second, to the extent proceeds remain after the application pursuant to the preceding clause (i), an amount equal to the outstanding Primary Obligations shall be paid to the Creditors, with each Creditor receiving an amount equal to such outstanding Primary Obligations or, if the proceeds are insufficient to pay in full all such Primary Obligations, its Pro Rata Share of the amount remaining to be distributed; (iii) Third, to the extent proceeds remain after the application pursuant to the preceding clauses (i) and (ii), an amount equal to the outstanding Secondary Obligations shall be paid to the Creditors, with each Creditor receiving an amount equal to its outstanding Secondary Obligations or, if the proceeds are insuffi- 26 cient to pay in full all such Secondary Obligations, its Pro Rata Share of the amount remaining to be distributed; and (iv) Fourth, to the extent proceeds remain after the application pursuant to the preceding clauses (i) through (iii), inclusive, and following the recon veyance of this Deed of Trust, to the Trustor or to whomever may be lawfully entitled to receive such surplus. (b) For purposes of this Deed of Trust (i) "Pro Rata Share" shall mean, when calculating a Creditor's portion of any distribution or amount, that amount (expressed as a percentage) equal to a fraction the numerator of which is the then unpaid amount of such Creditor's Primary Obligations or Secondary Obligations, as the case may be, and the denominator of which is the then outstanding amount of all Primary Obligations or Secondary Obligations, as the case may be, (ii) "Primary Obligations" shall mean (A) in the case of the Credit Agreement Obligations, all principal of, and interest on, all Loans (together with all interest accrued thereon), and all Commitment Fees and (iii) "Secondary Obligations" shall mean all Obligations other than Primary Obligations. (c) When payments to Creditors are based upon their respective Pro Rata Shares, the amounts received by such Creditors hereunder shall be applied (for purposes of making determinations under this Section 3.3 only) (i) first, to their Primary Obligations and (ii) second, to their Secondary Obligations. If any payment to any Creditor of its Pro Rata Share of any distribution would result in overpayment to such Creditor, such excess amount shall instead be distributed in respect of the unpaid Primary Obligations or Secondary Obligations, as the case may be, of the other Creditors, with each Creditor whose Primary Obligations or Secondary Obligations, as the case may be, have not been paid in full to receive an amount equal to such excess amount multiplied by a fraction the numerator of which is the unpaid Primary Obliga tions or Secondary Obligations, as the case may be, of such Creditor and the denomi nator of which is the unpaid Primary Obligations or Secondary Obligations, as the case may be, of all Creditors entitled to such distribution. (d) All payments required to be made hereunder shall be made to the Secured Party as Administrative Agent under the Credit Agreement for the account of the Creditors. (e) Unless it has actual knowledge (including by way of written notice from a Creditor) to the contrary, the Secured Party, in acting hereunder, shall be entitled to assume that no Secondary Obligations are outstanding. 3.4 Secured Party Statement. Trustee, upon presentation to it of an affidavit signed by or on behalf of Secured Party, setting forth any fact or facts showing a default by Trustor under any of the terms or conditions of this Deed of 27 Trust, is authorized to accept as true and conclusive all facts and statements in such affidavit and to act hereunder in complete reliance thereon. 3.5 Remedies Upon Default. Trustor covenants and agrees that should an Event of Default occur, then Secured Party, or Trustee upon written instructions from Secured Party (the legality thereof to be determined solely by Secured Party), may, without notice to or demand upon Trustor, without releasing Trustor from any obligation here-under and without waiving its right to declare an Event of Default or impairing any declaration of default or election to cause the Property to be sold or any sale proceeding predicated thereon: (a) make or do the same in such manner and to such extent as either Secured Party or Trustee may deem reasonably necessary to protect the security hereof, Secured Party and Trustee being authorized to enter upon and take possession of the Premises for such purposes, and any sums reasonably expended for such purposes shall become part of the Obligations secured hereby; (b) commence, appear in and/or defend any action or proceedings purporting to affect the security hereof, and/or any additional or other security therefor, the interests, rights, powers and/or duties of Trustee and/or Secured Party hereunder, whether brought by or against Trustor, Trustee or Secured Party; (c) pay, purchase, contest or compromise any claim, debt, Lien, charge or encumbrance which in the judgment of either may affect or appear to affect the security of this Deed of Trust, the interests of Secured Party or the rights, powers and/or duties of Trustee and/or Secured Party hereunder and any sums reasonably expended for such purposes shall become part of the Obligations secured hereby; and (d) Secured Party is authorized either by itself or by its agent to be appointed by it for that purpose or by a receiver appointed by a court of competent jurisdiction, to enter into and upon and take and hold possession of any portion or all of the Property, both real and personal, and exclude Trustor and all other Persons therefrom; and to operate and manage the Property and rent and lease the same, perform such reasonable acts of repair or protection as may be reasonably necessary or proper to conserve the value thereof, and collect any and all income, rents, issues, profits and proceeds therefrom, the same being hereby assigned and transferred to Secured Party, for the benefit and protection of Secured Party, and from time to time apply and/or accumulate such income, rents, issues, profits and proceeds in the manner set forth in Section 3.3 hereof as if the same were proceeds of sale. The collection and/or receipt of income, rents, issues, profits and/or proceeds from the Property by Secured Party, its agent or receiver, after declaration of default and election to cause the Property to be sold under and pursuant to the terms of this Deed of Trust shall not affect or impair such default or declaration of default or election to cause the Property to be sold or any sale proceedings predicated thereon, but such proceedings may be 28 conducted and sale effected notwithstanding the receipt and/or collection of any such income, rents, issues, profits and/or proceeds. Neither Trustee nor Secured Party shall be under any obligation to make any of the payments or do any of the acts referred to in this Section 3.5 and any of the actions referred to in this Section 3.5 may be taken by Secured Party irrespective of whether any notice of default or election to sell has been given hereunder and without regard to the adequacy of the security for the Obligations. ARTICLE 4. FIXTURE FILING 4.1 Fixture Filing. This Deed of Trust shall be effective as a financing statement filed as a fixture filing with respect to all fixtures included in the Property and is to be filed and recorded in, among other places, the real estate records of the county where the Real Property is located as set forth on Exhibit A. The record owner of the Property is Fred Meyer, Inc. ARTICLE 5. MISCELLANEOUS 5.1 Choice of Law. SECURED PARTY, TRUSTEE AND TRUS TOR AGREE THAT THE RIGHTS AND OBLIGATIONS UNDER THIS DEED OF TRUST SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK. 5.2 Amendments. etc. This Deed of Trust cannot be waived, changed, discharged or terminated orally, but only by an instrument in writing signed in accordance with Section 9.1 of the Credit Agreement. 5.3 Limitation of Interest. It is the intent of Trustor and Secured Party in the execution of this Deed of Trust and all other instruments evidencing or securing the Obligations to contract in strict compliance with the relevant usury laws. In furtherance thereof, Secured Party and Trustor stipulate and agree that none of the terms and provisions contained herein shall ever be construed to create a contract for the use, forbearance or detention of money requiring payment of interest at a rate in excess of the maximum interest rate permitted to be charged by relevant law. Trustor or any guarantor, endorser or other party now or hereafter becoming liable for the payment of any of the Obligations shall never be required to pay interest at a rate in excess of the maximum interest that may be lawfully charged under relevant law and the provisions of this Section 5.3 shall control over all other provisions of any instru ment executed in connection herewith which may be in apparent conflict herewith. In 29 the event it is determined that any holder of any of the Obligations has collected monies which are deemed to constitute interest and are deemed to increase the effective interest rate on the Obligations to a rate in excess of that permitted to be charged by relevant law, all such sums deemed to constitute interest in excess of such legal rate shall be applied by such holder to payment of such Obligations, as such Obligations mature, or refunded to Trustor. 5.4 Notices. Except as otherwise expressly provided herein, all notices and communications shall be telecopied or delivered by messenger or overnight courier service and all such notices and communications shall, when mailed, tele graphed, telexed, telecopied, or cabled or sent by overnight courier, be effective when delivered to the telegraph company, cable company or overnight courier, as the case may be, or sent by telex or telecopier and when mailed shall be effective three (3) Business Days following deposit in the mail with proper postage, except that notices and communications to the Secured Party shall not be effective until received by the Secured Party. All notices, requests, demands or other communications shall be in writing and addressed as follows: (a) if to the Trustor, at: Wilmington Trust Company Rodney Square North 1100 North Market Street Wilmington, Delaware, 19890 Attention: Corporate Trust Administration (b) if to the Secured Party: Bankers Trust Company 130 Liberty Street New York, New York 10006 Attention: Deal Administrator (c) if to any Creditor, either (i) to the Secured Party, at the address specified above or (ii) at such address as such Creditor shall have specified in the Credit Agreement; or at such other address as shall have been furnished in writing by any Person de scribed above to the party required to give notice hereunder; except that in each case notices and communications to Secured Party shall not be effective until actually received by such party. 30 5.5 Captions. The captions or headings at the beginning of each Article and Section hereof are for the convenience of the parties and are not a part of this Deed of Trust. 5.6 Subrogation. To the extent that the proceeds of the Loans are used, or Secured Party advances any funds under this Deed of Trust (which advances are hereby deemed to have been advanced by Trustor's request), to pay any outstanding Lien, charge or encumbrance against the Property, Secured Party shall be subrogated to any and all rights and Liens held by any owner or holder of such outstanding Liens, charges and encumbrances, irrespective of whether said Liens, charges or encum brances are released. 5.7 No Merger. Upon the foreclosure of the Lien created by this Deed of Trust on the Property, any Leases then existing shall not be destroyed or terminated by application of the law of merger or as a matter of law or as a result of such foreclosure unless Secured Party or any purchaser at any such foreclosure sale shall so elect. 5.8 Non-Waiver. Except as expressly provided to the contrary herein, acceptance by Secured Party of any sum after the same is due shall not consti tute a waiver of the right either to require prompt payment, when due, of all other sums hereby secured or to declare an Event of Default. The acceptance by Secured Party of any sum in an amount less than the sum then due shall be deemed an accep tance on account only and upon condition that it shall not constitute a waiver of the obligation of Trustor to pay the entire sum then due, and Trustor's failure to pay said entire sum then due shall be and continue to be in default notwithstanding such acceptance of such amount on account, as aforesaid, and Secured Party shall be at all times thereafter and until the entire sum then due shall have been paid, and notwith standing the acceptance by Secured Party thereafter of further sums on account, or otherwise, entitled to exercise all rights in this Deed of Trust conferred upon it, upon the occurrence of an Event of Default. Consent by Secured Party to any transaction or action of Trustor which is subject to consent or approval of Secured Party hereunder shall not be deemed a waiver of the right to require such consent or approval to future or successive transactions or actions. No failure by Secured Party to insist upon the strict performance of any term hereof or to exercise any right, power or remedy consequent upon a breach thereof shall constitute a waiver of any such term or of any such breach. No waiver of any breach shall affect or alter this Deed of Trust, which shall continue in full force and effect, or the rights of Secured Party with respect to any other then existing or subsequent breach. 5.9 Further Assurances. Trustor at its own expense, will execute, acknowledge and deliver all such instruments and take all such action as may be reasonably necessary to assure to Secured Party the Lien hereof against the properties herein described and the rights intended to be provided to Secured Party herein. 31 5.10 Additional Security. Without notice to or consent of Trustor and without impairment of the Lien and rights created by this Deed of Trust, Secured Party may accept from Trustor or from any other Person, additional security for the Obliga tions. Neither the giving of this Deed of Trust nor the acceptance of any such addi tional security shall prevent Secured Party from resorting, first, to such additional security, and, second, to the security created by this Deed of Trust without affecting Secured Party's Lien and rights under this Deed of Trust. 5.11 Books and Records. Trustor shall make available to Secured Party for copying and inspection at all reasonable times during normal business hours and during the term of this Deed of Trust at Trustor's principal place of business upon receipt of one Business Day's prior written notice from Secured Party, all books and records relating to the business and operation of the Property. 5.12 Waiver of Statute of Limitations. The right to plead any and all statutes of limitation as a defense to any demand secured by or made pursuant to this Deed of Trust is hereby waived to the full extent permitted by law. 5.13 Remedies Cumulative. No remedy herein conferred upon or reserved to Trustee or Secured Party is intended to be exclusive of-any other remedy herein or by law provided or permitted, but each shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute. Every power or remedy given by this instrument to Trustee or Secured Party or to which either of them may be otherwise entitled may be exercised, concurrently or independently, from time to time and as often as may be deemed expedient by Trustee or Secured Party, and either of them may pursue inconsistent remedies. 5.14 Recordation. Trustee accepts this Deed of Trust when this Deed of Trust, duly executed and acknowledged, is made a public record as provided by law. 5.15 Substitution of Trustee. Secured Party may, from time to time, by a written instrument executed and acknowledged by Secured Party and recorded in the county or counties where the Property is located, and by otherwise complying with applicable statutory provisions, substitute a successor or successors for the Trustee named herein or acting hereunder. 5.16 Reconveyance; Releases. (a) After the Termination Date, Secured Party, at the expense of the Trustor, shall promptly request Trustee in writing to reconvey the Property, or any remaining portion thereof, and shall surrender to Trustee this Deed of Trust for cancellation and retention. Upon its receipt of the written request of Secured Party, the surrender of this Deed of Trust, and the payment of its fees, Trustee shall promptly reconvey, without warranty, the Property then held hereunder. The recitals in such reconveyance of any matters or facts shall be conclu- 32 sive proof of the truthfulness thereof. The grantee in such reconveyance may be described as "the person or persons legally entitled thereto." Neither Secured Party nor Trustee shall have any obligation or duty to determine the rights of Persons claiming to be rightful grantees of any reconveyance. As used in this Deed of Trust, "Termination Date" shall mean the date upon which the Commitments have been terminated, no Note under the Credit Agreement is outstanding (and all Loans have been repaid in full), and all Obligations then owing have been paid in full. (b) In the event that any part of the Property is sold in connection with a sale permitted by the Lease or otherwise released at the direction of the Re quired Lenders and the proceeds of such sale or sales or from such release are applied in accordance with the provisions of Section 8.2 of the Credit Agreement, to the extent required to be so applied, such Property will be sold free and clear of the Liens created by this Deed of Trust and the Secured Party, at the request and expense of the Trustor, will duly assign, transfer and deliver to the Trustor (without recourse and without any representation or warranty) such of the Property as is then being (or has been) so sold or released and has not theretofore been released pursuant to this Deed of Trust. (c) At any time that the Trustor desires that the Secured Party take any action to acknowledge or give effect to any release of Property pursuant to clause (a) above, it shall deliver to the Secured Party a certificate signed by its chief financial officer stating that the release of the respective Property is permitted pursuant to clauses (a) or (b) above. (d) The Secured Party and the Trustee shall have no liability whatsoever to any Creditor as a result of any release of Property by it in accordance with this Section 5.16. 5.17 Time of the Essence. Time is of the essence of this Deed of Trust, and the performance of all provisions hereof. 5.18 Partial Invalidity. If any of the provisions of this Deed of Trust or the application thereof to any Person, party or circumstances shall to any extent be invalid or unenforceable, the remainder of this Deed of Trust, or the application of such provision or provisions to Persons, parties or circumstances other than those as to whom or which it is held invalid or unenforceable, shall not be affected thereby, and every provision of this Deed of Trust shall be valid and enforceable to the fullest extent permitted by law. 5.19 Request For Notice. Trustor requests that a copy of any notice of default and a copy of any notice of sale hereunder be mailed to Trustor at the address of Trustor given above. 33 5.20 Irrevocable Trust. The trust created hereby is irrevocable by Trustor unless and until the Property is reconveyed to Trustor as provided in Section 5.16 hereof. 5.21 Security Agreement and Financing Statement. The mailing address of debtor (Trustor herein) and of the Secured Party from which information concerning security interests hereunder may be obtained is as set forth on page one hereof. A carbon, photographic or other reproduction of this Agreement or of any financing statement related to this Agreement shall be sufficient as a financing state ment for any of the purposes referenced herein. 5.22 State Law Recitals and Provisions. (a) Non-Residential Trust Deed; Business Purpose. Trustor warrants that this instrument, as a deed of trust or trust deed under laws of the state in which the Property is located, is not and will not at any time constitute a residential trust deed, as that term is defined in ORS 86.705 or its successor statutes (if the Property is in Oregon). Trustor warrants that it is engaging in this transaction exclusively for business, commercial or investment purposes. Trustor warrants that the Property is not used principally for agricultural or farming purposes (if the Property is in Washington). Trustor warrants that the Property falls within the provisions of Idaho Code 45-1502(5) or its successor statutes (if the Property is in Idaho). (b) Statutory Notice Concerning Insurance. Effective January 1, 1996, Chapter 313 of Oregon Laws 1994 amends ORS 746.201 to require that in loans in which the lender has the right to purchase insurance in the event the borrower fails to carry insurance, the loan document must contain a warning in substantially the following form in 10-point type: "WARNING "Unless you provide us with evidence of the insurance coverage as required by our contract or loan agreement, we may purchase insurance at your expense to protect our interest. This insurance may, but need not, also protect your interest. If the collateral becomes damaged, the coverage we purchase may not pay any claim you make or any claim made against you. You may later cancel this coverage by providing evidence that you have obtained property coverage elsewhere. "You are responsible for the cost of any insurance purchased by us. The cost of this insurance may be added to your contract or loan balance. 34 If the cost is added to your contract or loan balance, the interest rate on the underlying contract or loan will apply to this added amount. The effective date of coverage may be the date your prior coverage lapsed or the date you failed to provide proof of coverage. "The coverage we purchase may be considerably more expensive than insurance you can obtain on your own and may not satisfy any need for property damage coverage or any mandatory liability insurance require ments imposed by applicable law." (c) Statutory Notice Concerning Written Agreements. UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY LENDERS AFTER OCTOBER 3, 1989 CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE BORROWER'S RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY LENDERS TO BE ENFORCEABLE. (d) Washington Statutory Notice. ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO FOR BEAR FROM ENFORCING REPAYMENT OF DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW. 35 IN WITNESS WHEREOF, Trustor has caused this instrument to be duly executed as of the day and year first above written. WILMINGTON TRUST COMPANY, not in its individu al capacity but only as Owner Trustee under the FMS TRUST 1997-1, a Delaware business trust By: _____________________________________ Title: __________________________________ 36 FORM OF ACKNOWLEDGMENT ---------------------- STATE OF ) ) ss. County of ) The foregoing instrument was acknowledged before me, the undersigned notary public, on this __ day of March, 1998, by _____________________, the _____________________ of WILMINGTON TRUST COMPANY, a Delaware corporation, on behalf of such corporation, not in its individual capacity, but solely as Owner Trustee under the FMS TRUST 1997-1, a Delaware business trust, on behalf of such business trust. (NOTARIAL SEAL) _________________________________________ Notary Public for the State of _________________ Residing at:________________________________ 37 EXHIBIT A --------- LEGAL DESCRIPTION OF LAND ------------------------- 38 EXHIBIT B --------- FACILITY LEASE -------------- 39 EXHIBIT C TO PARTICIPATION AGREEMENT -------------------------- FORM OF REQUISITION (Date) TO: The Investors and the Administrative Agent, pursuant to the Participation Agreement (the "Participation Agreement") dated as of March 11, 1998 among the Lessee, the Construction Agent, the Owner Trustee, the Lessor, the Investors, the Administrative Agent, the Syndication Agent and the Lenders as the same may be amended, supplemented, amended and restated or otherwise modified from time to time (capitalized terms used herein shall have the meanings ascribed thereto in the Participation Agreement). FROM: Fred Meyer, Inc., as Construction Agent RE: [Funding Date][Property Closing Date] ------------------------------------- 1. This irrevocable Requisition is hereby delivered by Construction Agent pursuant to Section 5.2 of the Participation Agreement. 2. The Funding Date is scheduled for _______________, 199_. 3. The aggregate amount of the Advance is $__________________. 4. The Loans and Investor Contributions comprising such Advance will be [ABR Loans/Contributions][Eurodollar Loans/Contributions]. [The initial Interest Period for such Eurodollar Loans will be ____________]. 5. The Advance will be allocated among each of the Properties listed in Schedule I attached hereto. With respect to each acquisition of Property, Schedule II specifies (i) a description of the Property, (ii) the seller or lessor of the Prop erty, (iii) the portion of the Property Costs attributable to Land and (iv) the esti mated cost for Improvements, except that only clauses (i) and (ii) hereof shall apply to Store Land Property. 6. After giving effect to the Advance requested hereby, the Property Cost for each Property in respect of which the Advance is being drawn is set forth on Schedule A hereto and such amount does not exceed the Fair Market Sales Value for such Property as set forth in the Appraisal therefor. 7. Funds shall be sent by wire transfer as follows: a. Each Lender shall transfer its Commitment Percentage of $______________, and each Investor shall transfer its Inves tor Commitment Percentage of $____1 to the following ac count of Lessor: Bank: ABA Number: Account Name: Account Number: Ref: Further Credit to: b. Construction Agent hereby instructs Lessor to distribute the funds as follows: [information to be provided by Construction Agent] 8. All of the costs being funded pursuant to this Requisition relate to the acquisition of Land and all Improvements thereon, to the construction of such other Improvements subject to the Lease and/or to the payment of other Project Costs and all moneys advanced to Construction Agent pursuant to this Requisition will be applied solely to the payment (or reimbursement) of such costs. In connection with such requested Advance, the Construction Agent hereby represents and warrants to you as follows: a. On the proposed Funding Date, both immediately before and after giving effect to the making of the requested Advance and the appli- - -------- 1 For the Initial Closing Date the Investor Contribution will be $15,000,000. Thereafter only loans may be requested. C-2 cation of the proceeds thereof, the statements made by each Loan Party in Section 7.3 of the Participation Agreement are true and correct in all material respects. b. After giving effect to the Advance requested hereby, the aggregate outstanding amounts of each of the Loans and the Investor Contribu tions does not exceed the Commitments of the Lenders or the Inves tor Commitments of the Investors, respectively. c. All of the conditions precedent set forth in Section 6 of the Partici pation Agreement applicable to the Advance requested hereby have been satisfied or waived. [9. The Property in respect of which the Advance is being drawn is hereby designated as a Store Land Property.]2 - ------------------------- 2 Add if appropriate. C-3 IN WITNESS WHEREOF, I have signed my name this ______ day of _______, 199_. MEYER-SMITH HOLDCO, INC. as Construction Agent By:________________________ Name:______________________ Title:_____________________ S-1
SCHEDULE A TO REQUISITION ALLOCATION OF ADVANCES ---------------------- - ------------------------------------------------------------------------------------------------------------------------------------ Aggregate Property Appraisal for Prop- Cost of Land and Cost (all Advances erty as of Comple- stimated cost of Property Descrip- Cost of Land (cur- Improvement costs to date, including tion Date Improvements tion (City, State) Lease Supp. rent Advance only) (current Advance current Advance) No. only) - ------------------------------------------------------------------------------------------------------------------------------------ 1._______ No. __ $________ $________ $________ $________ $________ - ------------------------------------------------------------------------------------------------------------------------------------ 2._______ No. __ $________ $________ $________ $________ $________ - ------------------------------------------------------------------------------------------------------------------------------------ 3._______ No. __ $________ $________ $________ $________ $________ - ------------------------------------------------------------------------------------------------------------------------------------ 4._______ No. __ $________ $________ $________ $________ $________ - ------------------------------------------------------------------------------------------------------------------------------------ 5._______ No. __ $________ $________ $________ $________ $________ - ------------------------------------------------------------------------------------------------------------------------------------
A-1 SCHEDULE B TO REQUISITION INFORMATION REQUIRED FOR FUNDING ACQUISITION OF LAND 1. Description of the subject Property:__________. 2. The subject Property consists of [Land only] [Land and Improve ments]. 3. The Land comprising part of the subject Property is to be [ground leased by the Lessors] [acquired by the Lessors in fee simple]. 4. [Name of Seller/Ground lessor] is the [Seller] [Ground lessor] of the Land comprising part of the subject Property. 5. *Cost of Land for the subject Property: Indicated on Schedule A. 6. Estimated Costs of Improvements for the subject Property in the aggregate are $_____________. Title:_____________________ - ------------------ */ Insert in the case of an acquisition of a fee simple interest in the applicable Land. B-1 EX-4.1C 6 LEASE, SECURITY AGREEMENT AND FINANCING STMT. ================================================================================ LEASE, SECURITY AGREEMENT AND FINANCING STATEMENT between WILMINGTON TRUST COMPANY, not in its individual capacity, but solely as Owner Trustee under the FMS TRUST 1997-1, as Lessor, and FRED MEYER, INC. --------------------------- Dated as of March 11, 1998 --------------------------- ================================================================================ This Lease is subject to a security interest in favor of Bankers Trust Company, a New York banking corporation, as administrative agent (the "Administrative Agent"), under a Credit Agreement, dated as of March 11, 1998, among Lessor, the Lenders and the Administrative Agent, as amended or supplemented. This Lease has been executed in several counterparts. To the extent, if any, that this Lease constitutes chattel paper (as such term is defined in the Uniform Commercial Code as in effect in any applicable jurisdiction), no security interest in this Lease may be created through the transfer or possession of any counterpart other than the original counterpart containing the receipt therefor executed by the Administrative Agent on the signature page hereof. TABLE OF CONTENTS Page SECTION 1. DEFINITIONS....................................................... 1 1.1 Defined Terms................................................. 1 SECTION 2. PROPERTY AND TERM................................................. 1 2.1 Property...................................................... 1 2.2 Lease Term.................................................... 1 2.3 Title......................................................... 2 2.4 Lease Supplements............................................. 2 SECTION 3. RENT.............................................................. 2 3.1 Rent.......................................................... 2 3.2 Supplemental Rent............................................. 2 3.3 Performance on a Non-Business Day............................. 3 3.4 Method of Payment............................................. 3 SECTION 4. UTILITY CHARGES................................................... 3 4.1 Utility Charges............................................... 3 SECTION 5. QUIET ENJOYMENT................................................... 4 5.1 Quiet Enjoyment............................................... 4 SECTION 6. NET LEASE......................................................... 4 6.1 Net Lease; No Setoff; Etc..................................... 4 6.2 No Termination or Abatement................................... 5 SECTION 7. OWNERSHIP OF PROPERTY............................................. 5 7.1 Ownership of the Property..................................... 5 SECTION 8. CONDITION OF PROPERTY............................................. 7 8.1 Condition of the Property..................................... 7 8.2 Possession and Use of the Property............................ 7 8.3 Risk of Loss.................................................. 7 SECTION 9. COMPLIANCE........................................................ 8 9.1 Compliance with Legal Requirements and Insurance Requirements. 8 9.2 Environmental Matters......................................... 8 SECTION 10. MAINTENANCE AND REPAIR; RETURN................................... 9 10.1 Maintenance and Repair; Return................................ 9 10.2 Right of Inspection........................................... 9 10.3 Environmental Inspection......................................10 i- Page SECTION 11. MODIFICATIONS....................................................10 11.1 Modifications, Substitutions and Replacements.................10 SECTION 12. TITLE............................................................11 12.1 Liens.........................................................11 12.2 Grants and Releases of Easements..............................12 SECTION 13. PERMITTED CONTESTS...............................................12 13.1 Permitted Contests Other Than in Respect of Impositions.......12 SECTION 14. INSURANCE........................................................13 14.1 Public Liability and Workers' Compensation Insurance..........13 14.2 Hazard and Other Insurance....................................13 14.3 Coverage......................................................14 SECTION 15. CONDEMNATION AND CASUALTY........................................15 15.1 Condemnation..................................................15 SECTION 16. LEASE TERMINATION................................................17 16.1 Termination upon Certain Events...............................17 16.2 Procedures....................................................17 SECTION 17. DEFAULT..........................................................17 17.1 Lease Events of Default.......................................17 17.2 Final Liquidated Damages......................................20 17.3 Lease Remedies................................................20 17.4 Waiver of Certain Rights......................................22 17.5 Delivery of Contracts.........................................22 17.6 Remedies Cumulative...........................................22 SECTION 18. LESSOR'S RIGHT TO CURE...........................................22 18.1 Lessor's Right to Cure Lessee's Lease Defaults................22 SECTION 19. LEASE TERMINATION; SALE OF UNDEVELOPED LAND......................23 19.1 Provisions Relating to Lessee's Termination of this Lease or Exercise of Purchase Option.....................23 19.2 Aggregate Tranche A Percentage................................23 19.3 Sale of Undeveloped Land......................................23 SECTION 20. PURCHASE OPTION..................................................24 20.1 Purchase Option...............................................24 20.2 Maturity Date Purchase Option.................................24 20.3 Obligation to Purchase All Properties.........................24 ii- Page SECTION 21. SALE OF PROPERTY.................................................24 21.1 Sale Procedure................................................24 21.2 Application of Proceeds of Sale...............................26 21.3 Indemnity for Excessive Wear..................................26 21.4 Appraisal Procedure...........................................27 21.5 Certain Obligations Continue..................................27 SECTION 22. HOLD OVER........................................................27 22.1 Hold Over.....................................................27 SECTION 23. RISK OF LOSS.....................................................28 23.1 Risk of Loss..................................................28 SECTION 24. SUBLETTING AND ASSIGNMENT........................................29 24.1 Subletting and Assignment.....................................29 24.2 Subleases.....................................................29 SECTION 25. ESTOPPEL CERTIFICATES............................................29 25.1 Estoppel Certificates.........................................29 SECTION 26. NO WAIVER........................................................30 26.1 No Waiver.....................................................30 SECTION 27. ACCEPTANCE OF SURRENDER..........................................30 27.1 Acceptance of Surrender.......................................30 SECTION 28. NO MERGER OF TITLE...............................................30 28.1 No Merger of Title............................................30 SECTION 29. NOTICES..........................................................30 29.1 Notices.......................................................30 SECTION 30. MISCELLANEOUS....................................................32 30.1 Miscellaneous.................................................32 30.2 Amendments and Modifications..................................32 30.3 Successors and Assigns........................................32 30.4 Headings and Table of Contents................................32 30.5 Counterparts..................................................32 30.6 GOVERNING LAW.................................................32 30.7 Limitations on Recourse.......................................32 30.8 Memorandum of Lease...........................................33 30.9 Ground Lease..................................................33 30.10 Security Agreement and Financial Statement....................33 30.11 State Law Recitals and Provisions.............................33 30.12 Limited Power of Attorney.....................................34 iii- Page 30.13 Estoppel Certificate..........................................35 Schedule 24.1 Existing Subleases Exhibit A Form of Lease Supplement Exhibit B Form of Memorandum of Lease iv- LEASE, Security Agreement and Financing Agreement (this "Lease"), dated as of March 11, 1998, among WILMINGTON TRUST COMPANY, a Delaware corporation, not in its individual capacity, but solely as Owner Trustee under the FMS TRUST 1997-1, a Delaware business trust, having its principal office at Wilmington Trust Company, Rodney Square North, 1100 North Market Street, Wilmington, Delaware, 19890-0001, as lessor (the "Lessor"), and FRED MEYER, INC., a Delaware corporation, as a lessee and whose principal offices are located at 3800 SE 22nd Avenue, P.O. Box 4212, Portland, Oregon 97242 ("Lessee"). For purposes of provisions of Section 7.1(b) of this Lease related to the creation and enforcement of this Agreement as a Deed of Trust, LESSEE, as grantor, hereby conveys the property to FIRST AMERICAN TITLE INSURANCE COMPANY, a corporation, as trustee, in trust and with power of sale, for the benefit of Lenders as beneficiary and senior lenders, and for the benefit of LESSOR, as beneficiary (in trust), as subordinated lender. For purposes of Section 7.1(b) of this Lease related to the creation and enforcement of this Lease as a security agreement and a fixture filing, Lessee is the debtor and Lessor is the secured party, acting for the benefit of the Lenders and the Investors. In consideration of the mutual agreements herein contained, and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: SECTION 1. DEFINITIONS 1.1 Defined Terms. Capitalized terms used herein but not otherwise defined in this Lease shall have the respective meanings specified in Annex A to the Participation Agreement, dated as of the date hereof (the "Participation Agreement"), among Lessee and Construction Agent, Lessor, the Owner Trustee, the Investors, the Administrative Agent, the Syndication Agent and the Lenders named therein, as such Participation Agreement may be amended, supplemented or otherwise modified from time to time. The rules of usage set forth in Annex A to the Participation Agreement shall apply to this Lease. Unless otherwise indicated, references in this Lease to articles, sections, paragraphs, clauses, appendices, schedules and exhibits are to the same contained in this Lease. SECTION 2. PROPERTY AND TERM 2.1 Property. Subject to the terms and conditions hereinafter set forth and contained in the respective Lease Supplement relating to each Property, Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, the Property specified in each Lease Supplement. 2.2 Lease Term. Each Property is leased for the Term, unless extended or earlier terminated in accordance with the provisions of this Lease or any of the other Operative LEASE Agreements (including, but not limited to, any termination in connection with the Acceleration of the Loans pursuant to Section 6.1 of the Credit Agreement). 2.3 Title. Each Property is leased to Lessee without any representation or warranty, express or implied, by Lessor and subject to the rights of parties in possession, the existing state of title (including, without limitation, the Permitted Exceptions) and all applicable Legal Requirements. Lessee shall not in any event have any recourse against Lessor for any defect in or exception to title to any Property. 2.4 Lease Supplements. On each Property Closing Date, or on such other date as may be required pursuant to Section 1.3 of the Participation Agreement, Lessor and Lessee shall each execute and deliver a Lease Supplement for the Property to be leased on such date in substantially the form of Exhibit A hereto and thereafter such Property shall be subject to the terms of this Lease. Lessee hereby agrees that the execution and delivery by it of a Lease Supplement shall, without further act, constitute the irrevocable acceptance by Lessee of all of the Property which is the subject of such Lease Supplement for all purposes of this Lease and the other Operative Agreements on the terms set forth therein and herein, and that such Property, together with any Improvements constructed on such Property pursuant to the Construction Agency Agreement and this Lease, shall be deemed to be included in the leasehold estate of this Lease and shall be subject to the terms and conditions of this Lease as of such Property Closing Date. SECTION 3. RENT 3.1 Rent. On each applicable Payment Date occurring (i) after (x) the termination of the Construction Period, with respect to any Property that is not a Completed Property on the Initial Closing Date and (y) the Initial Closing Date, with respect to each Existing Property which is a Completed Property on the Initial Closing Date, (ii) on the date required under Section 21.1(c) in connection with Lessee's exercise of the Remarketing Option, and (iii) on any date when this Lease shall terminate with respect to a Property, Lessee shall pay the Basic Rent attributable to such Property. 3.2 Supplemental Rent. (a) Lessee shall pay to Lessor or the Person entitled thereto any and all Supplemental Rent promptly as the same shall become due and payable, and if Lessee fails to pay any Supplemental Rent, Lessor shall have all rights, powers and remedies provided for herein or by law or equity or otherwise in the case of nonpayment of Basic Rent. Lessee shall pay to Lessor as Supplemental Rent, among other things, on demand, to the extent permitted by applicable Legal Requirements, interest at the applicable Overdue Rate on any installment of Basic Rent not paid when due for the period for which the same shall be overdue and on any payment of Supplemental Rent not paid when due or demanded by Lessor for the period from the due date or the date of any such demand, as the case may be, until the same shall be paid. The expiration or other termination of Lessee's obligations to pay Basic Rent hereunder shall not limit or modify the obligations of Lessee with respect to Supplemental Rent. Unless expressly provided otherwise in this Lease or any other Operative Agreement, in the event of any failure on the part of Lessee to pay and 2 LEASE discharge any Supplemental Rent as and when due, Lessee shall also promptly pay and discharge any fine, penalty, interest or cost which may be assessed or added for nonpayment or late payment of such Supplemental Rent, all of which shall also constitute Supplemental Rent. (b) Lessee shall make a payment of Supplemental Rent equal to the Maximum Residual Guarantee Amount in accordance with Section 21.1(c). 3.3 Performance on a Non-Business Day. If any payment is required hereunder on a day that is not a Business Day, then such payment shall be due on the next succeeding Business Day, unless, in the case of payments based on the Eurodollar Rate, the result of such extension would be to extend such payment into another calendar month, in which event such payment shall be made on the immediately preceding Business Day. 3.4 Method of Payment. (a) Each payment of Rent payable by Lessee to Lessor under this Lease or any other Operative Agreement shall be made by Lessee to the Administrative Agent as assignee of Lessor under the Assignment of Lease (or, if all Loans and all other amounts owing to the Lenders under the Credit Agreement and the other Operative Agreements have been paid in full and all Commitments of the Lenders have been permanently terminated, to Lessor) in immediately available funds consisting of Dollars on the date when such payment shall be due by wire transfer to such account or accounts at such bank or banks or to such other Person or in such other manner as Lessor shall from time to time direct. (b) Neither Lessee's inability or failure to take possession of all, or any portion, of any Property when delivered by Lessor, nor Lessor's inability or failure to deliver all or any portion of any Property to Lessee, whether or not attributable to any act or omission of Lessee or any act or omission of Lessor, or for any other reason whatsoever, shall delay or otherwise affect Lessee's obligation to pay Rent in accordance with the terms of this Lease. (c) Rent shall be paid absolutely net to each Person entitled thereto, so that this Lease shall yield to such Person the full amount thereof, without setoff, deduction or reduction. SECTION 4. UTILITY CHARGES 4.1 Utility Charges. Lessee shall pay, or cause to be paid, all charges for electricity, power, gas, oil, water, telephone, sanitary sewer service and all other rents and utilities used in or on each Property during the Term. Lessee shall be entitled to receive any credit or refund with respect to any utility charge paid by Lessee and the amount of any credit or refund received by Lessor on account of any utility charges paid by Lessee, net of the costs and expenses incurred by Lessor in obtaining such credit or refund, shall be promptly paid over to Lessee. All charges for utilities imposed with respect to any Property for a billing period during which this Lease expires or terminates shall be adjusted and prorated on a daily 3 LEASE basis between Lessor and Lessee, and each party shall pay or reimburse the other for each party's pro rata share thereof. SECTION 5. QUIET ENJOYMENT 5.1 Quiet Enjoyment. So long as no Lease Event of Default shall have occurred and be continuing, Lessee shall peaceably and quietly have, hold and enjoy the Properties for the Term, free of any claim or other action by Lessor or anyone rightfully claiming by, through or under Lessor. Such right of quiet enjoyment is independent of, and shall not affect the rights of Lessor (or anyone claiming by, through or under Lessor) otherwise to initiate legal action to enforce, the obligations of Lessee under this Lease. SECTION 6. NET LEASE 6.1 Net Lease; No Setoff; Etc. This Lease shall constitute a net lease and, notwithstanding any other provision of this Lease, it is intended that Basic Rent and Supplemental Rent shall be paid without counterclaim, setoff, deduction or defense of any kind and without abatement, suspension, deferment, diminution or reduction of any kind, and Lessee's obligation to pay all such amounts is absolute and unconditional. The obligations and liabilities of Lessee hereunder shall in no way be released, discharged or otherwise affected for any reason, including, without limitation, to the maximum extent permitted by law: (a) any defect in the condition, merchantability, design, construction, quality or fitness for use of any Property or any portion thereof, or any failure of any Property to comply with all Legal Requirements, including any inability to occupy or use any Property by reason of such non-compliance; (b) any damage to, removal, abandonment, salvage, loss, contamination of or Release from, scrapping or destruction of or any requisition or taking of any Property or any part thereof, including eviction; (c) any restriction, prevention or curtailment of or interference with any use of any Property or any part thereof, including eviction; (d) any defect in title to or rights to any Property or any Lien on such title or rights or on any Property; (e) any change, waiver, extension, indulgence or other action or omission or breach in respect of any obligation or liability of or by any Participant; (f) any bankruptcy, insolvency, reorganization, composition, adjustment, dissolution, liquidation or other like proceedings relating to any Participant, any Loan Party or any other Person, or any action taken with respect to this Lease by any trustee or receiver of any Participant, any Loan Party or any other Person, or by any court, in any such proceeding; (g) any claim that any Loan Party has or might have against any Person, including, without limitation, any Participant or any vendor, manufacturer, contractor of or for any Property; (h) any failure on the part of Lessor to perform or comply with any of the terms of this Lease, any other Operative Agreement or of any other agreement; (i) any invalidity or unenforceability or disaffirmance against or by any Loan Party of this Lease or any provision hereof or any of the other Operative Agreements or any provision of any thereof; (j) the impossibility of performance by any Participant or any Loan Party, or all of them; (k) any action by any court, administrative agency or other Governmental Authority; any restriction, prevention or curtailment of or any interference with the construction on or any use of any Property or any part thereof; or (m) any other occurrence whatsoever, whether 4 LEASE similar or dissimilar to the foregoing, whether or not Lessee shall have notice or knowledge of any of the foregoing. The parties intend that the obligations of Lessee hereunder shall be covenants and agreements that are separate and independent from any obligations of Lessor hereunder or under any other Operative Agreements, and the obligations of Lessee shall continue unaffected unless such obligations shall have been modified or terminated in accordance with an express provision of this Lease. This Lease shall be noncancellable by Lessee for any reason whatsoever except as expressly provided herein, and Lessee, to the extent permitted by Legal Requirements, waives all rights now or hereafter conferred by statute or otherwise to quit, terminate or surrender this Lease, or to any diminution, abatement or reduction of Rent payable by Lessee hereunder. If for any reason whatsoever this Lease shall be terminated in whole or in part by operation of law or otherwise, except as otherwise expressly provided herein, Lessee shall, unless prohibited by Legal Requirements, nonetheless pay to Lessor (or, in the case of Supplemental Rent, to whomever shall be entitled thereto) an amount equal to each Rent payment at the time and in the manner that such payment would have become due and payable under the terms of this Lease if it had not been terminated in whole or in part, and in such case, so long as such payments are made and no Lease Event of Default shall have occurred and be continuing, Lessor will deem this Lease to have remained in effect. Each payment of Rent made by Lessee hereunder shall be final and, absent manifest error in the computation of the amount thereof, Lessee shall not seek or have any right to recover all or any part of such payment from any Participant or any party to any agreements related thereto for any reason whatsoever. Lessee assumes the sole responsibility for the condition, use, operation, maintenance, and management of the Properties and Lessor shall have no responsibility in respect thereof and shall have no liability for damage to the property of Lessee or any subtenant of Lessee on any account or for any reason whatsoever. 6.2 No Termination or Abatement. Lessee shall remain obligated under this Lease in accordance with its terms and shall not take any action to terminate, rescind or avoid this Lease, notwithstanding any action for bankruptcy, insolvency, reorganization, liquidation, dissolution, or other proceeding affecting Lessor or any Lender, or any action with respect to this Lease which may be taken by any trustee, receiver or liquidator of Lessor or any Lender or by any court with respect to Lessor or any Lender, except as otherwise expressly provided herein. Lessee hereby waives all right (i) to terminate or surrender this Lease, except as otherwise expressly provided herein, or (ii) to avail itself of any abatement, suspension, deferment, reduction, setoff, counterclaim or defense with respect to any Rent. Lessee shall remain obligated under this Lease in accordance with its terms and Lessee hereby waives any and all rights now or hereafter conferred by statute or otherwise to modify or to avoid strict compliance with its obligations under this Lease. Notwithstanding any such statute or otherwise, Lessee shall be bound by all of the terms and conditions contained in this Lease and any Lease Supplements. SECTION 7. OWNERSHIP OF PROPERTY 7.1 Ownership of the Property. (a) Lessor and Lessee intend that (i) for financial accounting purposes with respect to Lessee (A) this Lease will be treated as an "operating lease" pursuant to Statement of Financial Accounting Standards (SFAS) No. 13, as 5 LEASE amended, (B) Lessor will be treated as the owner and lessor of the Properties and (C) Lessee will be treated as the lessee of the Properties, but (ii) for federal, state and local income tax and all other purposes (A) this Lease will be treated as a financing arrangement, (B) the Lenders will be treated as senior lenders making loans to Lessee in an amount equal to the Loans, which Loans will be secured by the Properties, (C) Lessor will be treated as a subordinated lender making a loan to Lessee in an amount equal to the Investor Contribution, which loan is secured by the Properties, and (D) Lessee will be treated as the owner of the Properties and will be entitled to all tax benefits ordinarily available to an owner of property like such Property for such tax purposes. Nevertheless, Lessee acknowledges and agrees that none of the Participants has made any representations or warranties to Lessee concerning the tax, accounting or legal characteristics of the Operative Agreements and that Lessee has obtained and relied upon such tax, accounting and legal advice concerning the Operative Agreements as it deems appropriate. The parties hereto will not take any position inconsistent with the intentions expressed herein. (b) Lessor and Lessee further intend and agree that, for the purpose of securing Lessee's obligations for the repayment of the above-described loans, (i) this Lease shall also be deemed to be a security agreement and financing statement within the meaning of Article 9 of the Uniform Commercial Code and a real property mortgage or deed of trust, as applicable; (ii) the conveyance provided for in Section 2 shall be deemed a grant of a security interest in and a mortgage lien on Lessee's right, title and interest in the Properties (including the right to exercise all remedies as are contained in the applicable Lease Supplement and Memorandum of Lease upon the occurrence of a Lease Event of Default) and all proceeds of the conversion, voluntary or involuntary, of the foregoing into cash, investments, securities or other property, whether in the form of cash, investments, securities or other property, for the benefit of Lessor to secure Lessee's payment of all amounts owed by Lessee under this Lease and the other Operative Agreements and Lessor holds title to the Properties so as to create and grant a first lien and prior security interest in each Property pursuant to this Lease for the benefit of the Administrative Agent under the Assignment of Lease, to secure to the Administrative Agent the obligations of Lessee under the Lease; (iii) the possession by Lessor or any of its agents of notes and such other items of property as constitute instruments, money, negotiable documents or chattel paper shall be deemed to be "possession by the secured party" for purposes of perfecting the security interest pursuant to Section 9-305 of the Uniform Commercial Code; and (iv) notifications to Persons holding such property, and acknowledgments, receipts or confirmations from financial intermediaries, bankers or agents (as applicable) of Lessee shall be deemed to have been given for the purpose of perfecting such security interest under applicable law. Lessor and Lessee shall, to the extent consistent with this Lease, take such actions as may be necessary to ensure that, if this Lease were deemed to create a security interest in the Properties in accordance with this Section, such security interest would be deemed to be a perfected security interest of first priority under applicable law and will be maintained as such throughout the Term. Nevertheless, Lessee acknowledges and agrees that no Participant has provided or will provide tax, accounting or legal advice to Lessee regarding this Lease, the Operative Agreements or the transactions contemplated hereby and thereby, or made any representations or warranties concerning the tax, accounting or legal characteristics of the Operative Agreements, and that Lessee has obtained and relied 6 LEASE upon such tax, accounting and legal advice concerning the Operative Agreements as it deems appropriate. (c) Lessor and Lessee further intend and agree that in the event of any insolvency or receivership proceedings or a petition under the United States bankruptcy laws or any other applicable insolvency laws or statute of the United States of America or any State or Commonwealth thereof affecting Lessee or Lessor, the transactions evidenced by this Lease shall be regarded as loans made by an unrelated third party lender to Lessee. SECTION 8. CONDITION OF PROPERTY 8.1 Condition of the Property. LESSEE ACKNOWLEDGES AND AGREES THAT ALTHOUGH LESSOR WILL OWN AND HOLD TITLE TO THE IMPROVEMENTS RELATING TO ITS PROPERTY, THE CONSTRUCTION AGENT IS SOLELY RESPONSIBLE UNDER THE TERMS OF THE CONSTRUCTION AGENCY AGREEMENT FOR THE DESIGN, DEVELOPMENT, BUDGETING AND CONSTRUCTION OF THE IMPROVEMENTS AND ANY REFURBISHMENTS, ALTERATIONS OR MODIFICATIONS. LESSEE FURTHER ACKNOWLEDGES AND AGREES THAT IT IS RENTING EACH PROPERTY "AS IS" WITHOUT REPRESENTATION, WARRANTY OR COVENANT (EXPRESS OR IMPLIED) BY ANY PARTICIPANT AND SUBJECT TO (A) THE EXISTING STATE OF TITLE, (B) THE RIGHTS OF ANY PARTIES IN POSSESSION THEREOF, (C) ANY STATE OF FACTS WHICH AN ACCURATE SURVEY OR PHYSICAL INSPECTION MIGHT SHOW AND (D) VIOLATIONS OF LEGAL REQUIREMENTS WHICH MAY EXIST ON THE DATE HEREOF OR ON THE PROPERTY CLOSING DATE FOR SUCH PROPERTY. NO PARTICIPANT HAS MADE OR SHALL BE DEEMED TO HAVE MADE ANY REPRESENTATION, WARRANTY OR COVENANT (EXPRESS OR IMPLIED, INCLUDING THE CONDITION OF ANY IMPROVEMENTS THEREON, THE SOIL CONDITION, OR ANY ENVIRONMENTAL OR HAZARDOUS MATERIAL CONDITION) OR SHALL BE DEEMED TO HAVE ANY LIABILITY WHATSOEVER AS TO THE TITLE, VALUE, SUITABILITY, HABITABILITY, USE, CONDITION, DESIGN, OPERATION, OR FITNESS FOR USE OF THE PROPERTY (OR ANY PART THEREOF), OR ANY OTHER REPRESENTATION, WARRANTY OR COVENANT WHATSOEVER, EXPRESS OR IMPLIED, WITH RESPECT TO ANY PROPERTY (OR ANY PART THEREOF) AND NO PARTICIPANT SHALL BE LIABLE FOR ANY LATENT, HIDDEN, OR PATENT DEFECT THEREIN OR THE FAILURE OF ANY PROPERTY, OR ANY PART THEREOF, TO COMPLY WITH ANY LEGAL REQUIREMENT. 8.2 Possession and Use of the Property. Each Property shall be used in a manner consistent with the Construction Agency Agreement and, after the Completion Date for the Property, as (i) a retail grocery store or supermarket or (ii) a distribution facility or office building used in connection with the foregoing, or (iii) for any other legal use consistent with Lessee's operations, and applying standards of use no lower than the standards applied by Lessee for other comparable properties owned or leased by Lessee. Lessee shall pay, or cause 7 LEASE to be paid, all charges and costs required in connection with the use of the Properties. Lessee shall not commit or permit any waste of any Property or any part thereof. 8.3 Risk of Loss. During the Term the risk of loss of or decrease in the enjoyment and beneficial use of the Properties as a result of the damage or destruction thereof by fire, the elements, casualties, thefts, wars or otherwise is assumed by Lessee, and Lessor shall not in any event be answerable or accountable therefor. SECTION 9. COMPLIANCE 9.1 Compliance with Legal Requirements and Insurance Requirements. Subject to the terms of Section 13 relating to permitted contests, the Lessee, at its sole cost and expense, shall (a) comply with all Legal Requirements (including all Environmental Laws) and Insurance Requirements relating to each Property, including the use, construction, operation, maintenance, repair and restoration thereof, and the remarketing thereof pursuant to Section 21, whether or not compliance therewith shall require structural or extraordinary changes in the Improvements or interfere with the use and enjoyment of each Property, and (b) procure, maintain and comply with all licenses, permits, orders, approvals, consents and other authorizations required for the construction, renovation, use, maintenance and operation of each Property and for the use, operation, maintenance, repair and restoration of the Improvements. 9.2 Environmental Matters. (a) Promptly upon Lessee's actual knowledge of the presence of Hazardous Materials in any portion of a Property in concentrations and conditions that constitute an Environmental Violation, Lessee shall notify Lessor and the Administrative Agent in writing of such condition. In the event of such Environmental Violation, Lessee shall, not later than thirty (30) days after Lessee has actual knowledge of such Environmental Violation, either deliver to Lessor and the Administrative Agent an Officer's Certificate and a Termination Notice with respect to such Property pursuant to Section 16.1, if applicable, or, at Lessee's sole cost and expense, promptly and diligently undertake any response, clean up, remedial or other action (or to cause third parties to do the same) necessary to remove, clean up or remediate the Environmental Violation in accordance with the terms of Section 9.1. If Lessee does not deliver a Termination Notice with respect to such Property pursuant to Section 16.1, Lessee shall, upon completion of remedial action, cause to be prepared by an environmental consultant reasonably acceptable to Lessor a report describing the Environmental Violation and the actions taken in response to such Environmental Violation, and a statement by the consultant that the Environmental Violation has been remedied in full compliance with applicable Environmental Laws. (b) In addition, Lessee shall provide to Lessor and the Administrative Agent, within five (5) Business Days of receipt, copies of all written communications with any Governmental Authority relating to any Environmental Law in connection with any Property. Lessee shall also promptly provide such detailed reports of any such environmental claims as reasonably may be requested by Lessor and the Administrative Agent. 8 LEASE SECTION 10. MAINTENANCE AND REPAIR; RETURN 10.1 Maintenance and Repair; Return. (a) Lessee, at its sole cost and expense, shall maintain each Property in good condition (ordinary wear and tear excepted) and make all necessary repairs thereto, of every kind and nature whatsoever, whether interior or exterior, ordinary or extraordinary, structural or nonstructural or foreseen or unforeseen, in each case as required by all Legal Requirements and Insurance Requirements and on a basis reasonably consistent with the operation and maintenance of retail and commercial properties comparable in type and location to the applicable Property subject, however, to the provisions of Section 15 with respect to Condemnation and Casualty. (b) Lessor shall under no circumstances be required to build any Improvements on any Property, make any repairs, replacements, alterations or renewals of any nature or description to any Property, make any expenditure whatsoever in connection with this Lease or maintain any Property in any way. Lessor shall not be required to maintain, repair or rebuild all or any part of any Property, and Lessee waives the right to (i) require Lessor to maintain, repair, or rebuild all or any part of any Property, or (ii) make repairs at the expense of Lessor pursuant to any Legal Requirement, Insurance Requirement, contract, agreement, covenants, condition or restriction at any time in effect. (c) Lessee shall, upon the expiration or earlier termination of the Term with respect to a Property and solely in accordance with the terms hereof (other than as a result of Lessee's purchase of such property from Lessor as provided herein), vacate, surrender and transfer such Property to Lessor or a purchaser, at Lessee's own expense, free and clear of all Liens other than Permitted Liens and Lessor Liens, in as good condition as they were on its Completion Date, or the date same became subject to this Lease, whichever is applicable, ordinary wear and tear excepted, and in compliance with all Legal Requirements, Insurance Requirements and the other requirements of this Lease (and in any event without (x) any asbestos installed or maintained in any part of such Property, (y) any polychlorinated byphenyls (PCBs) in, on or used, stored or located at such Property, and (z) any other Hazardous Materials). Lessee shall cooperate with any independent purchaser of such Property in order to facilitate the ownership and operation by such purchaser of such Property after such expiration or earlier termination of the Term, including providing all books, reports and records regarding the maintenance, repair and ownership of such Property and all data and technical information relating thereto, granting or assigning all licenses necessary for the operation and maintenance of such Property and cooperating in seeking and obtaining all necessary licenses, permits and approvals of Governmental Authorities. Lessee shall have also paid the total cost for the completion of all Modifications commenced prior to such expiration or earlier termination of the Term. The obligation of Lessee under this Section 10.1(c) shall survive the expiration or termination of this Lease. Nothing herein shall be construed to authorize the return of any Property unless expressly provided herein. 10.2 Right of Inspection. Each of the Administrative Agent and Lessor may, at reasonable times and with reasonable prior notice (except that no notice shall be required if a Lease Event of Default has occurred and is continuing), enter upon, inspect and examine at its own cost and expense (unless a Lease Event of Default exists, in which case the out-of- 9 LEASE pocket costs and expenses of Lessor shall be paid by Lessee), any Property. Lessee shall furnish to the Administrative Agent and Lessor statements, no more than once per year, accurate in all material respects, regarding the condition and state of repair of each Property. Neither the Administrative Agent nor Lessor shall have any duty to make any such inspection or inquiry and shall not incur any liability or obligation by reason of not making any such inspection or inquiry. 10.3 Environmental Inspection. Not less than 12 months prior to the Maturity Date (unless Lessee have previously irrevocably exercised the Purchase Option, Maturity Date Purchase Option or paid Termination Value with respect to each Property), and not more than thirty Business Days prior to surrender of possession of a Property, Lessor shall, at Lessee's sole cost and expense, obtain a report by an environmental consultant selected by Lessor certifying that each Property or any portion thereof (i) does not contain Hazardous Materials under circumstances or in concentrations that could result in a violation of or liability under any Environmental Law and (ii) is in compliance with all Environmental Laws. If such is not the case on either such date, then Lessee shall be deemed to have irrevocably exercised the Maturity Date Purchase Option pursuant to Section 20.2. SECTION 11. MODIFICATIONS 11.1 Modifications, Substitutions and Replacements. (a) So long as no Lease Event of Default has occurred and is continuing, Lessee, at its sole cost and expense, may at any time and from time to time make alterations, renovations, repairs, improvements and modifications to a Property or any part thereof and will also have the right to reconstruct or improve such Property (collectively, "Modifications"); provided, that: (i) except for any Modification required to be made pursuant to a Legal Requirement or an Insurance Requirement, no Modification, individually, or when aggregated with any (A) other Modification or (B) grant, dedication, transfer or release pursuant to Section 12.2, shall be made if it would impair the value of such Property or the utility or useful life of such Property from that which existed immediately prior to such Modification; (ii) the Modification shall be performed expeditiously and in a good and workmanlike manner; (iii) Lessee shall comply with all Legal Requirements (including all Environmental Laws) and Insurance Requirements applicable to the Modification, including the obtaining of all permits and certificates of occupancy, and the structural integrity of such Property shall not be adversely affected; (iv) Lessee shall maintain or cause to be maintained builders' risk insurance at all times when a Modification is in progress; (v) subject to the terms of Section 13 relating to permitted contests, Lessee shall pay all costs and expenses and discharge any Liens arising with respect to the Modification; (vi) such Modifications shall comply with Sections 8.2 and 10.1 and shall not change the primary character of such Property; and (vii) no Improvements shall be demolished, except to the extent such demolition does not impair the value, utility or useful life of such Property. All Modifications (other than those that may be readily removed without impairing the value, utility or remaining useful life of such Property) shall remain part of the realty and shall be subject to this Lease and Lessee's Lease Supplement and title thereto shall immediately vest in Lessor. So long as no Lease Event of Default has occurred and is continuing, Lessee may place upon a Property any inventory, trade fixtures, machinery, 10 LEASE equipment or other property belonging to Lessee or third parties and may remove the same at any time during the term of this Lease subject to the terms of Section 10.1; provided that such inventory, trade fixtures, machinery, equipment or other property, or their respective operations, do not impair the value, utility or remaining useful life of such Property. (b) Following the Completion Date with respect to any Property, Lessee shall notify Lessor of the undertaking of any Modification to the Property the cost of which is anticipated to exceed $500,000. Prior to undertaking any such Modification, Lessee shall deliver to Lessor (i) a brief narrative of the work to be done and a copy of the plans and specifications relating to such work; and (ii) an Officer's Certificate stating that such work when completed will not impair the value, utility or remaining life of such Property. Each of the Administrative Agent and Lessor, by itself or its agents, shall have the right, but not the obligation, from time to time to inspect such construction to ensure that the same is completed consistent with the plans and specifications. (c) Following the Completion Date with respect to any Property, Lessee shall not without the consent of Lessor undertake any Modification to such Property if such construction or alterations cannot, in the reasonable judgement of the Administrative Agent, be completed on or prior to the date that is eighteen months prior to the Maturity Date. (d) Lessee shall make any Modification required to be made pursuant to any Legal Requirement or any Insurance Requirement (such Modification, a "Required Modification"). SECTION 12. TITLE 12.1 Liens.(a) Lessee agrees that, except as otherwise provided herein and subject to the terms of Section 13 relating to permitted contests, Lessee shall not directly or indirectly create or allow to remain, and shall promptly discharge at its sole cost and expense, any Lien, defect, attachment, levy, title retention agreement or claim upon any Property or any Modifications or any Lien, attachment, levy or claim with respect to the Rent or with respect to any amounts held by the Administrative Agent pursuant to the Credit Agreement or the other Operative Agreements, other than Permitted Liens. Lessee shall promptly notify Lessor in the event it receives knowledge that a Lien (other than a Permitted Lien) exists with respect to any Property. (b) Nothing contained in this Lease shall be construed as constituting the consent or request of any Participant, expressed or implied, to or for the performance by any contractor, mechanic, laborer, materialman, supplier or vendor of any labor or services or for the furnishing of any materials for any construction, alteration, addition, repair or demolition of or to any Property or any part thereof. NOTICE IS HEREBY GIVEN THAT NO PARTICIPANT IS OR SHALL BE LIABLE FOR ANY LABOR, SERVICES OR MATERIALS FURNISHED OR TO BE FURNISHED TO LESSEE, OR TO ANYONE HOLDING ANY PROPERTY OR ANY PART THEREOF THROUGH OR UNDER LESSEE, AND THAT NO MECHANIC'S OR OTHER LIENS FOR ANY SUCH LABOR, 11 LEASE SERVICES OR MATERIALS SHALL ATTACH TO OR AFFECT THE INTEREST OF LESSOR IN AND TO ANY PROPERTY. 12.2 Grants and Releases of Easements. Provided that no Lease Event of Default shall have occurred and be continuing and subject to the provisions of Sections 8, 9, 10 and 11, Lessor hereby consents to the following actions by Lessee, in the name and stead of Lessor, but at Lessee's sole cost and expense: (a) the granting (prior to the Lien of the Lease Supplement) of easements, licenses, rights-of-way and other rights and privileges in the nature of easements reasonably necessary or desirable for the construction, use, repair, renovation or maintenance of any Property as herein provided; (b) the release (free and clear of the Lien of the Lease Supplement) of existing easements or other rights in the nature of easements which are for the benefit of any Property; (c) if required by applicable Governmental Authority in connection with the construction, the dedication or transfer (prior to the Lien of the Lease Supplement) of unimproved portions of any Property for road, highway or other public purposes; (d) the execution of petitions to have any Property annexed to any municipal corporation or utility district; and (e) the execution of amendments to any covenants and restrictions affecting any Property; provided, that in each case Lessee shall have delivered to Lessor an Officer's Certificate stating that: (i) such grant, release, dedication or transfer does not impair the value or utility or remaining useful life of the applicable Property, (ii) such grant, release, dedication or transfer is reasonably necessary in connection with the construction, use, maintenance, alteration, renovation or improvement of the applicable Property, (iii) such grant, release, dedication, transfer or amendment will not cause the applicable Property or any portion thereof to fail to comply with the provisions of this Lease or any other Operative Agreements and all Requirements of Law (including, without limitation, all applicable zoning, planning building and subdivision ordinances, all applicable restrictive covenants and all applicable architectural approval requirements); (iv) all governmental consents or approvals required prior to such grant, release, dedication, transfer, annexation or amendment have been obtained, and all filings required prior to such action have been made; (v) Lessee shall remain obligated under this Lease, its Lease Supplements, and under any instrument executed by Lessee consenting to the assignment of Lessor's interest in this Lease as security for indebtedness, in each such case in accordance with their terms, as though such grant, release, dedication or transfer, had not been effected and (vi) Lessee shall pay and perform any obligations of Lessor under such grant, release, dedication or transfer. Without limiting the effectiveness of the foregoing, provided that no Lease Event of Default shall have occurred and be continuing, Lessor shall, upon the request of Lessee, and at Lessee's sole cost and expense, execute and deliver any instruments necessary or appropriate to confirm any such grant, release, dedication or transfer to any Person permitted under this Section. SECTION 13. PERMITTED CONTESTS 13.1 Permitted Contests Other Than in Respect of Impositions. Except to the extent otherwise provided for in Section 12.2 of the Participation Agreement, Lessee, on its own or on Lessor's behalf but at Lessee's sole cost and expense, may contest, by appropriate administrative or judicial proceedings conducted in good faith and with due diligence, the 12 LEASE amount, validity or application, in whole or in part, of any Legal Requirement, or utility charges payable pursuant to Section 4.1 or any Lien, attachment, levy, encumbrance or encroachment, and Lessor agrees not to pay, settle or otherwise compromise any such item, provided that (a) the commencement and continuation of such proceedings shall suspend the collection thereof from, and suspend the enforcement thereof against, the applicable Properties and Participants; (b) no part of any Property nor any Rent would be in any danger of being sold, forfeited, lost or deferred; (c) at no time during the permitted contest shall there be a risk of the imposition of criminal liability or civil liability on any Participant for failure to comply therewith; (d) there shall be no risk of enjoinment of or interference with, the use, possession or disposition of such Property in any material respect; and (e) in the event that, at any time, there shall be a material risk of extending the application of such item beyond the Maturity Date for the applicable Property, then Lessee shall deliver to Lessor an Officer's Certificate certifying as to the matters set forth in clauses (a), (b), (c) and (d) of this Section 13.1. Lessor, at Lessee's sole cost and expense, shall execute and deliver to Lessee such authorizations and other documents as may reasonably be required in connection with any such contest. Lessor will not be required to join in any proceedings pursuant to this Section 13.1 unless a provision of any Requirement of Law requires that such proceedings be brought by or in the name of such party; and in that event such party will join in the proceedings or permit them or any part thereof to be brought in its name if and so long as (i) Lessee has not elected the Remarketing Option, and (ii) Lessee pays all related expenses and indemnities of such party with respect to such proceedings. SECTION 14. INSURANCE 14.1 Public Liability and Workers' Compensation Insurance. During the Term, Lessee shall procure and carry, at Lessee's sole cost and expense, commercial general liability insurance for claims for injuries or death sustained by persons or damage to property while on each Property and such other public liability coverages are ordinarily procured by Lessee or its Affiliates who own or operate similar properties and but in any case shall provide liability coverage of at least $3,000,000 per occurrence. Such insurance shall be on terms and in amounts that are no less favorable than insurance maintained by owners of similar properties and that are in accordance with normal industry practice. The policy shall be endorsed to name each Participant as an additional insured. The policy shall also specifically provide that the policy shall be considered primary insurance which shall apply to any loss or claim before any contribution by any insurance which any Participant may have in force. Lessee shall, in the operation of the Property, comply with the applicable workers' compensation laws and protect Lessor against any liability under such laws. 14.2 Hazard and Other Insurance. (a) During the Term, Lessee shall keep, or cause to be kept, each Property insured against loss or damage by fire, earthquake (unless such Property is located in the State of California), windstorm, flood (if required under Section 14.2(b) hereof) and other risks on terms and in amounts that are no less favorable than insurance maintained by owners of similar properties, that are in accordance with normal industry practice, and are in amounts equal to the actual replacement cost of the Improvements. During the construction of any Improvements Lessee shall also maintain or 13 LEASE cause to be maintained builders' risk insurance. All insurance proceeds in respect of any loss or occurrence for which the proceeds related thereto are (i) less than or equal to $1,000,000, in the absence of the occurrence and continuance of an Lease Event of Default, shall be adjusted by and paid to Lessee for application toward the reconstruction, repair or refurbishment of the applicable Property, and (ii) greater than $1,000,000 shall be adjusted jointly by Lessee and Lessor (unless an Lease Event of Default has occurred and is continuing, in which case such proceeds shall be adjusted solely by Lessor) and held by Lessor for application in accordance with Section 15. In addition, Lessee shall at all times during the Term maintain business interruption insurance covering, for a period of no less than thirty (30) days (after the waiting period provided herein), actual losses for any period during which the earnings of Lessee are impaired as a result of any property damage or other casualty. (b) If at any time during the Term the area in which any Property is located is designated a "flood-prone" area pursuant to the Flood Disaster Protection Act of 1973 or any amendments or supplements thereto, then Lessee shall comply with the National Flood Insurance Program as set forth in the Flood Disaster Protection Act of 1973, as may be amended. In addition, Lessee will fully comply with the requirements of the National Flood Insurance Act of 1968 and the Flood Disaster Protection Act of 1973, as each may be amended from time to time, and with any other Legal Requirement, concerning flood insurance to the extent that it applies to any Property. 14.3 Coverage. (a) Lessee shall furnish Lessor with certificates showing the insurance required under Sections 14.1 and 14.2 to be in effect and naming each of the Participants as an additional insured with respect to liability insurance, naming each of the Participants and Lessee as their interests may appear with respect to casualty coverage and showing the mortgagee endorsement required by Section 14.3(c). All such insurance shall be at the cost and expense of Lessee. Such certificates shall include a provision in which the insurer agrees to provide thirty (30) days' advance written notice by the insurer to Lessor and the Administrative Agent in the event of cancellation or modification of such insurance. Promptly upon request, Lessee shall deliver to Lessor, at Lessor's expense, copies of all insurance policies required by this Lease. (b) Lessee agrees that the insurance policy or policies required by this Lease shall include an appropriate clause pursuant to which such policy shall provide that it will not be invalidated should Lessee waive, in writing, prior to a loss, any or all rights of recovery against any party for losses covered by such policy, and that the insurance in favor of the Participants and their respective rights under and interests in such policies shall not be invalidated or reduced by any act or omission (including breach of warranty) or negligence of Lessee or any other Person having any interest in any Property other than Lessor and the Lenders. Lessee hereby waives any and all such rights against the Participants to the extent of payments made under such policies. (c) All insurance policies required by Section 14.2 shall include a "New York" or standard form mortgagee endorsement in favor of the Administrative Agent. 14 LEASE (d) Neither Lessor nor Lessee shall carry separate insurance concurrent in kind or form or contributing in the event of loss with any insurance required under this Lease except that Lessor may carry separate liability insurance so long as (i) Lessee's insurance is designated as primary and in no event excess or contributory to any insurance Lessor may have in force which would apply to a loss covered under Lessee's policy and (ii) each such insurance policy will not cause Lessee's insurance required under this Lease to be subject to a coinsurance exception of any kind. (e) Lessee shall pay as they become due all premiums for the insurance required by this Lease, shall renew or replace each policy prior to the expiration date thereof and shall promptly deliver to Lessor and the Administrative Agent certificates for renewal and replacement policies. (f) All such insurance shall be written by reputable insurance companies that are financially sound and solvent and otherwise reasonably appropriate considering the amount and type of insurance being provided by such companies. Any insurance company selected by Lessee which is rated in Best's Insurance Guide or any successor thereto (or if there be none, an organization having a similar national reputation) shall have a general policyholder rating of "A-" and a financial size rating of at least "VIII" or (if not) be otherwise acceptable to the Administrative Agent. (g) Notwithstanding anything to the contrary in this Lease, Lessee shall have the right to maintain reasonable deductibles and self-insured retention levels, that are reasonable in light of Lessee's net worth. The insurance program described in this Lease may be maintained by Lessee for the benefit of the parties. SECTION 15. CONDEMNATION AND CASUALTY 15.1 Condemnation and Casualty. (a) Subject to the provisions of this Section 15 and Section 16 (in the event Lessee delivers, or is obligated to deliver, a Termination Notice), and prior to the occurrence and continuation of a Lease Default, Lessee shall be entitled to receive any award, compensation or insurance proceeds to which Lessee or Lessor may become entitled by reason of their respective interests in a Property (i) if all or a portion of such Property is damaged or destroyed in whole or in part by a Casualty or (ii) if the use, access, occupancy, easement rights or title to such Property or any part thereof is the subject of a Condemnation; provided, however, if a Lease Default shall have occurred and be continuing such award, compensation or insurance proceeds shall be paid directly to Lessor or, if received by Lessee, shall be held in trust for Lessor, and shall be paid over by Lessee to Lessor, and provided further that in the event of any Casualty or Condemnation, the estimated cost of restoration of which is in excess of $1,000,000, any such award, compensation or insurance proceeds shall be paid directly to Lessor, or if received by Lessee, shall be held in trust for Lessor and shall be paid over by Lessee to Lessor. (b) So long as no Lease Event of Default has occurred and is continuing, Lessee may appear in any proceeding or action to negotiate, prosecute, adjust or appeal any 15 LEASE claim for any award, compensation or insurance payment on account of any such Casualty or Condemnation and shall pay all expenses thereof; provided that if the estimated cost of restoration of the Property or the payment on account of such Casualty or Condemnation is in excess of $1,000,000, then Lessor shall, at Lessee's sole cost and expense, be entitled to participate in any such proceeding or action. At Lessee's reasonable request, and at Lessee's sole cost and expense, Lessor and the Administrative Agent shall participate in any such proceeding, action, negotiation, prosecution or adjustment. Lessor and Lessee agree that this Lease shall control the rights of Lessor and Lessee in and to any award, compensation or insurance payment. (c) If Lessor or Lessee shall receive notice of a Casualty or a possible Condemnation of a Property or any interest therein, Lessor or Lessee, as the case may be, shall give notice thereof to the other and to the Administrative Agent promptly after the receipt of such notice. (d) In the event of a Casualty or receipt of notice by Lessee or Lessor of a Condemnation, Lessee shall, not later than thirty (30) days after such occurrence, deliver to Lessor and the Administrative Agent an Officer's Certificate stating that either (i) (x) such Casualty is not a Significant Casualty or (y) such Condemnation is neither a Total Condemnation nor a Significant Condemnation and that this Lease shall remain in full force and effect with respect to the applicable Property and, at Lessee's sole cost and expense, Lessee shall promptly and diligently restore the applicable Property in accordance with the terms of Section 15.1(e) or (ii) this Lease shall terminate with respect to the applicable Property in accordance with Section 16.1. (e) If pursuant to this Section 15.1, this Lease shall continue in full force and effect following a Casualty or Condemnation with respect to the affected Property, Lessee shall, at its sole cost and expense, promptly and diligently repair any damage to the applicable Property caused by such Casualty or Condemnation in conformity with the requirements of Sections 10.1 and 11.1 using the as-built plans and specifications for the applicable Property (as modified to give effect to any subsequent Modifications, any Condemnation affecting the Property and all applicable Legal Requirements) so as to restore the applicable Property to at least the same condition, operation, function, useful life and value as existed immediately prior to such Casualty or Condemnation. In such event, title to the applicable Property shall remain with Lessor. Upon completion of such restoration, Lessee shall furnish to Lessor and the Administrative Agent an architect's certificate of completion and an Officer's Certificate confirming that such restoration has been completed pursuant to this Lease. (f) In no event shall a Casualty or Condemnation affect Lessee's obligations to pay Rent pursuant to Section 3.1 or to perform its obligations and pay any amounts due on the Maturity Date or pursuant to Sections 20 or 21. (g) Notwithstanding anything to the contrary set forth in Section 15.1(a) or Section 15.1(e), if during the Term a Casualty occurs with respect to a Property or Lessee receives notice of a Condemnation with respect to a Property, and following such Casualty or Condemnation, such Property cannot reasonably be restored on or before the Purchase 16 LEASE Decision Date to substantially the same condition as existed immediately prior to such Casualty or Condemnation or before such day such Property is not in fact so restored, then Lessee shall exercise its Purchase Option with respect to such Property on the next Payment Date, and in such event such remaining Casualty or Condemnation proceeds shall be paid to the Administrative Agent, which shall pay such funds to Lessee upon the closing of the purchase of such Property. SECTION 16. LEASE TERMINATION 16.1 Termination upon Certain Events. (a) Lessee shall be obligated to deliver a written notice in the form described in Section 16.2(a) (a "Termination Notice") of the termination of this Lease with respect to any Property (i) within thirty (30) days after Lessee receives notice of a Total Condemnation with respect to any such Property or (ii) promptly after the occurrence of a material Environmental Violation with respect to any such Property. (b) If either: (i) Lessee or Lessor shall have received notice of a Condemnation, and Lessee shall have delivered to Lessor an Officer's Certificate that such Condemnation is a Significant Condemnation; or (ii) a Casualty occurs, and Lessee shall have delivered to Lessor an Officer's Certificate that such Casualty is a Significant Casualty; or (iii) a material Environmental Violation occurs with respect to any Property, and Lessee shall have delivered to Lessor an Officer's Certificate that this Lease shall terminate with respect to such Property, then Lessee shall, simultaneously with the delivery of the Officer's Certificate pursuant to the preceding clause (i), (ii) or (iii), deliver a Termination Notice with respect to the affected Property. 16.2 Procedures. (a) A Termination Notice shall contain: (i) notice of termination of this Lease with respect to the affected Property on a date not more than thirty (30) days after Lessor's receipt of such Termination Notice (the "Termination Date"); (ii) a binding and irrevocable agreement of Lessee to pay the Termination Value and purchase such Property on such Termination Date and (iii) the Officer's Certificate described in Section 16.1(b). (b) On the Termination Date, Lessee shall pay to Lessor as Supplemental Rent the Termination Value for the applicable Property, plus all other amounts owing in respect of such Property (including Supplemental Rent) theretofore accruing and Lessor shall convey such Property to Lessee (or Lessee's designee) all in accordance with Section 19.1. SECTION 17. DEFAULT 17.1 Lease Events of Default. If any one or more of the following events (whether such event shall be voluntary or involuntary or come about or be effected by operation of law or pursuant to or in compliance with any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body) (each a "Lease Event of Default") shall occur: 17 (a) Lessee shall fail to make payment of (i) any Basic Rent or any Supplemental Rent representing amounts with respect to interest owed under the Credit Agreement or the other Credit Documents within three (3) Business Days after the same has become due and payable or (ii) any Maximum Residual Guarantee Amount, any proceeds from the sale of any Property during the Remarketing Period, Purchase Option Price or Termination Value or any Rent representing principal owed under the Credit Agreement after the same has become due and payable; or (b) Lessee shall fail to make payment of any other Supplemental Rent due and payable within three (3) Business Days after receipt of written notice thereof from Lessor; or (c) Lessee shall fail in any material respect to maintain insurance as required by Section 14; or (d) Lessee shall fail to observe or perform any covenant, condition or agreement contained in Sections 9.4(b)(i), 9.4(c) (with respect to the existence of Lessee) or Sections 9.5(a), (b), (d), (e), (f), (g), (i), (j), (k), or (l), in each case of the Participation Agreement; or (e) any Loan Party shall fail to observe or perform any term, covenant or condition of such Loan Party under this Lease, the Participation Agreement, any Guarantee or any other Operative Agreement to which it is a party (other than those set forth in Section 17.1(a), (b), (c) or (d) hereof) and such failure shall continue for thirty (30) days after written notice thereof from Lessor; or any representation or warranty by such Loan Party set forth in this Lease or in any other Operative Agreement or in any document entered into in connection herewith or therewith or in any document, certificate or financial or other statement delivered in connection herewith or therewith shall be false or inaccurate in any material respect; or (f) a Construction Agency Agreement Event of Default shall have occurred and be continuing; or (g) an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization or other relief in respect of any Significant Entity or their respective debts, or of a substantial part of their respective assets, under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect or (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for any Significant Entity or for a substantial part of their respective assets, and, in any such case, such proceeding or petition shall continue undismissed for 60 days or an order or decree approving or ordering any of the foregoing shall be entered; or (h) any Significant Entity shall (i) voluntarily commence any proceeding or file any petition seeking liquidation, reorganization or other relief under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in 18 LEASE effect, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition described in clause (g) of this Section, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for any Significant Entity or for a substantial part of their respective assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors or (vi) take any action for the purpose of effecting any of the fore going; or (i) an event of default under the Corporate Loan Documents shall have occurred and be continuing; (j) any Operative Agreement or any Lien granted under any Operative Agreement shall, in whole or in part, terminate, cease to be effective in any material respect against, or (other than as expressly provided therein) cease to be the legal, valid, binding and enforceable obligation of any Loan Party thereto; or (k) any Loan Party shall repudiate or disavow the effectiveness, validity, binding nature or enforceability of any Operative Agreement or any Lien granted under any Operative Agreement; or any Guarantor shall repudiate, or purport to discontinue or terminate, its Guarantee; or (l) any event or condition occurs that results in any Indebtedness of any Loan Party of $10,000,000 or more in the aggregate becoming due prior to its scheduled maturity or that enables or permits (with or without the giving of notice, the lapse of time or both) the holder or holders of any Indebtedness of any Loan Party of $10,000,000 or more in the aggregate or any trustee or agent on its or their behalf to cause any such Indebtedness of any Loan Party to become due, or to require the prepayment, repurchase, redemption or defeasance thereof, prior to its scheduled maturity; provided that this clause (l) shall not apply to secured Indebtedness that becomes due as a result of the voluntary sale or transfer of the property or assets securing such Indebtedness; or (m) an ERISA Event shall have occurred that, in the opinion of Lessor and the Administrative Agent, when taken together with all other ERISA Events that have occurred, could reasonably be expected to result in liability of the Loan Parties in an aggregate amount exceeding $10,000,000; (n) one or more judgments for the payment of money in an aggregate amount in excess of $10,000,000 shall be rendered against any Significant Entity or any combination thereof and the same shall remain undischarged for a period of 30 consecutive days during which execution shall not be effectively stayed, or any action shall be legally taken by a judgment creditor to attach or levy upon any assets of any Loan Party to enforce any such judgment; or (o) a Change in Control shall occur; 19 LEASE then, in any such event, Lessor may, in addition to the other rights and remedies provided for in this Section 17 and in Section 18.1, terminate this Lease by giving Lessee five (5) Business Days notice of such termination, and this Lease shall terminate. Lessee shall, to the fullest extent permitted by law, pay as Supplemental Rent all costs and expenses incurred by or on behalf of Lessor, including fees and expenses of counsel, as a result of any Lease Event of Default hereunder; provided that Lessee may cure a default under Section 17.1(c) or 17.1(f) in the event such default relates to a specific Property by (i) purchasing such Property for its Termination Value and (ii) terminating this Lease with respect to such Property in accordance with Section 19.1 within 5 Business Days of such Lease Event of Default. 17.2 Final Liquidated Damages. If a Lease Event of Default shall have occurred and be continuing, Lessor shall have the right to recover, by demand to Lessee and at Lessor's election, and Lessee shall pay to Lessor, as and for final liquidated damages, but exclusive of the indemnities payable under Section 12 of the Participation Agreement, and in lieu of all damages beyond the date of such demand the sum of (a) the Termination Value, plus (b) all other amounts owing in respect of Rent theretofore accruing under this Lease. Upon payment of the amount specified pursuant to the first sentence of this Section 17.2, Lessor shall, at Lessee's cost, assign all of Lessor's right, title and interest in the Properties, in each case in recordable form and otherwise in conformity with local custom and free and clear of the Lien of the Lease Supplement. Lessee (or Lessee's designee) shall execute and deliver to Lessor an assumption of all of Lessor's obligations under the Ground Leases, if any. The Properties shall be transferred to Lessee (or Lessee's designee) "AS IS" and in their then present physical condition. If any statute or rule of law shall limit the amount of such final liquidated damages to less than the amount agreed upon, Lessor shall be entitled to the maximum amount allowable under such statute or rule of law; provided, that Lessee shall not be entitled to receive an assignment of Lessor's interest under the Ground Leases, if any, or in the Properties unless (a) Lessee shall have paid in full the Termination Value of each of Properties or (b) Lessor otherwise elects to make such assignment. 17.3 Lease Remedies. Lessor and Lessee intend that for commercial law and bankruptcy law purposes, this Lease will be treated as a financing arrangement, as set forth in Section 7. Lessor shall be entitled to all rights and remedies accorded a secured party or mortgagee (as appropriate) under applicable Law. If, as a result of any applicable state law that cannot be waived, this Lease is deemed to be a lease of the Properties, rather than a financing arrangement, and Lessor is unable to enforce the remedies set forth in Section 17.2, the following remedies shall be available to Lessor: (a) Surrender of Possession. If a Lease Event of Default shall have occurred and be continuing, and whether or not this Lease shall have been terminated pursuant to Section 17.1, Lessee shall, upon Lessor's written demand, surrender to Lessor possession of its Properties and Lessee shall quit the same. Lessor may enter upon and repossess the Properties by such means as are available at law or in equity, and may remove Lessee and all other Persons and any and all personal property and Lessee's equipment and personalty and severable Modifications from the Properties. Lessor shall have no liability by reason of any such entry, repossession or removal performed in accordance with applicable law. 20 LEASE (b) Reletting. If a Lease Event of Default shall have occurred and be continuing, and whether or not this Lease shall have been terminated pursuant to Section 17.1, Lessor may, but shall be under no obligation to, relet all, or any portion, of any Property, for the account of the relevant Lessee or otherwise, for such term or terms (which may be greater or less than the period which would otherwise have constituted the balance of the Term) and on such conditions (which may include concessions or free rent) and for such purposes as Lessor may determine, and Lessor may collect, receive and retain the rents resulting from such reletting. Lessor shall not be liable to the relevant Lessee for any failure to relet the Properties or for any failure to collect any rent due upon such reletting. (c) Damages. None of (i) the termination of this Lease pursuant to Section 17.1; (ii) the repossession of the Property; or (iii) except to the extent required by applicable law, the failure of Lessor to relet all, or any portion, of the Properties, the reletting of all or any portion thereof, nor the failure of Lessor to collect or receive any rentals due upon any such reletting shall relieve Lessee of its liability and obligations hereunder, all of which shall survive any such termination, repossession or reletting. If any Lease Event of Default shall have occurred and be continuing and notwithstanding any termination of this Lease pursuant to Section 17.1, Lessee shall forthwith pay to Lessor all Rent and other sums due and payable hereunder to and including the date of such termination. Thereafter, on the days on which the Basic Rent or Supplemental Rent, as applicable, are payable under this Lease or would have been payable under this Lease if the same had not been terminated pursuant to Section 17.1 and until the end of the Term or what would have been the Term in the absence of such termination, Lessee shall pay Lessor, as current liquidated damages (it being agreed that it would be impossible accurately to determine actual damages) an amount equal to the Basic Rent and Supplemental Rent that are payable under this Lease or would have been payable by Lessee hereunder if this Lease had not been terminated pursuant to Section 17.1, less the net proceeds, if any, which are actually received by Lessor with respect to the period in question of any reletting of the Property or any portion thereof; provided that Lessee's obligation to make payments of Basic Rent and Supplemental Rent under this Section 17.3 shall continue only so long as Lessor shall not have received the amounts specified in Section 17.2. In calculating the amount of such net proceeds from reletting, there shall be deducted all of the Participants' expenses in connection therewith, including repossession costs, brokerage commissions, fees and expenses for counsel and any necessary repair or alteration costs and expenses incurred in preparation for such reletting. To the extent Lessor receives any damages pursuant to this Section 17.3, such amounts shall be regarded as amounts paid on account of Rent. Any action to collect rent or damages in one action will not bar or affect Lessor's right to recover any subsequently accruing rent or other damages for any subsequent or other damages. (d) Acceleration of Rent. If a Lease Event of Default shall have occurred and be continuing, and this Lease shall not have been terminated pursuant to Section 17.1, and whether or not Lessor shall have collected any current liquidated damages pursuant to Section 17.3(c), Lessor may upon written notice to Lessee accelerate all payments of Basic Rent due hereunder and, upon such acceleration, Lessee shall immediately pay Lessor, as and for final liquidated damages and in lieu of all current liquidated damages on account of such Lease Event of Default beyond the date of such acceleration (it being agreed that it would be 21 LEASE impossible accurately to determine actual damages) an amount equal to the sum of (a) all Basic Rent (assuming interest at a rate per annum equal to the Overdue Rate), as applicable, due from the date of such acceleration until the end of the Term, plus (b) the Maximum Residual Guarantee Amount that would be payable under Section 21.1(c) assuming the proceeds of the sale pursuant to such Section 21.1(c) are equal to zero, which sum is then discounted to present value at a rate equal to the rate then being paid on United States treasury securities with maturities corresponding to the then remaining Term. Following payment of such amount by Lessee, Lessee will be permitted to stay in possession of its Property for the remainder of the Term, subject to the terms and conditions of this Lease, including the obligation to pay Supplemental Rent, provided that no further Lease Event of Default shall occur and be continuing, following which Lessor shall have all the rights and remedies set forth in this Section 17 (but not including those set forth in this Section 17.3). If any statute or rule of law shall limit the amount of such final liquidated damages to less than the amount agreed upon, Lessor shall be entitled to the maximum amount allowable under such statute or rule of law. 17.4 Waiver of Certain Rights. If this Lease shall be terminated pursuant to Section 17.1, Lessee waives, to the fullest extent permitted by law, (a) any notice of re-entry or the institution of legal proceedings to obtain re-entry or possession; (b) any right of redemption, re-entry or repossession; (c) the benefit of any laws now or hereafter in force exempting property from liability for rent or for debt; and (d) any other rights which might otherwise limit or modify any of Lessor's rights or remedies under this Section 17. 17.5 Delivery of Contracts. If a Lease Event of Default shall have occurred and be continuing, and whether or not this Lease shall have been terminated pursuant to Section 17.1, Lessee shall upon Lessor's demand immediately deliver to Lessor all of Lessee's agreements executed by Lessee in connection with the construction, renovation, development, use or operation of the Property, as and to the extent that the same relate to the construction renovation, and operation of the Property. 17.6 Remedies Cumulative. The remedies herein provided shall be cumulative and in addition to (and not in limitation of) any other remedies available at law, equity or otherwise including, without limitation, any mortgage foreclosure remedies contained in the Memorandum of Lease. SECTION 18. LESSOR'S RIGHT TO CURE 18.1 Lessor's Right to Cure Lessee's Lease Defaults. Lessor, without waiving or releasing any obligation or Lease Event of Default, may (but shall be under no obligation to) remedy any Lease Event of Default for the account and at the sole cost and expense of Lessee, including the failure by Lessee to maintain any insurance required by Section 14, and may, to the fullest extent permitted by law, and notwithstanding any right of quiet enjoyment in favor of Lessee, enter upon any Property for such purpose and take all such action thereon as may be necessary or appropriate therefor, after reasonable advance notice (except in cases of emergency in which persons or property may be injured) that Lessor intends to take such 22 LEASE actions as are reasonable under the circumstances. No such entry shall be deemed an eviction of Lessee. All out-of-pocket costs and expenses so incurred (including the fees and expenses of counsel), together with interest thereon at the Overdue Rate from the date on which such sums or expenses are paid by Lessor, shall be paid by Lessee to Lessor on demand as Supplemental Rent. SECTION 19. LEASE TERMINATION; SALE OF UNDEVELOPED LAND 19.1 Provisions Relating to Lessee's Termination of this Lease or Exercise of Purchase Option. In connection with any termination of this Lease with respect to any Property pursuant to the terms of Section 16.2 or 17.1, or in connection with Lessee's exercise of the Purchase Option or Maturity Date Purchase Option, upon the date on which this Lease is to terminate with respect to the applicable Property or upon the Maturity Date with respect to the applicable Property, and upon tender by Lessee of the amounts set forth in Sections 16.2(b) or 20, as applicable: (a) Lessor shall execute and deliver to Lessee (or to Lessee's designee) at Lessee's cost and expense an assignment of Lessor's entire interest in the applicable Properties (by a special or limited warranty deed in the case of real property), in each case in recordable form and otherwise in conformity with local custom and free and clear of the Lien of the applicable Lease Supplement and/or Deed of Trust and any Lessor Liens; (b) Lessor shall execute and deliver to Lessee any real estate tax affidavit, a FIRPTA affidavit and any other similar document required to be executed and delivered by law; and (c) The applicable Property shall be conveyed to Lessee "AS IS" and in then present physical condition. 19.2 Aggregate Tranche A Percentage. Notwithstanding any other provision of this Lease or the other Operative Agreements, Lessee shall not be permitted to terminate this Lease with respect to a Property pursuant to Section 16 or exercise its Purchase Option with respect to a Property pursuant to Section 20.1 if the Aggregate Tranche A Percentage, after giving effect to the termination of this Lease with respect to such Property, would be less than 87.6%. 19.3 Sale of Undeveloped Land. Lessee shall have the right to sell any portion of the Properties consisting of Undeveloped Land; provided that (i) such sale shall be for the Fair Market Sales Value for such Undeveloped Land, (ii) the purchaser shall be a Person that is not an Affiliate of Lessee and (iii) no Lease Event of Default shall have occurred and be continuing or result from such sale. 23 LEASE SECTION 20. PURCHASE OPTION 20.1 Purchase Option. Provided that no Lease Default or Lease Event of Default shall have occurred and be continuing, Lessee shall have the option to purchase one or more of the Properties as set forth below (the "Purchase Option"). To exercise the Purchase Option, Lessee shall provide Lessor irrevocable written notice (the "Purchase Notice") of Lessee's election to purchase one or more of the Properties on the date specified in such Purchase Notice at least ten (10) days prior to such proposed date of purchase. Such purchase must occur prior to the Purchase Decision Date, at a price equal to the Termination Value (the "Purchase Option Price") (which the parties do not intend to be a "bargain" purchase price) of such Property. If Lessee exercises its Purchase Option to purchase one or more of the Properties pursuant to this Section 20.1, Lessor shall transfer to Lessee or Lessee's designee all of Lessor's right, title and interest in and to such Property as of the date specified in the Purchase Notice upon receipt of the Purchase Option Price and all Rent and other amounts then due and payable under this Lease and any other Operative Agreement, in accordance with Section 19.1. 20.2 Maturity Date Purchase Option. On or before the Purchase Decision Date, Lessee may give Lessor and the Administrative Agent irrevocable written notice (the "Maturity Date Election Notice") that Lessee is electing to exercise the Maturity Date Purchase Option. If Lessee does not elect the Remarketing Option or the Maturity Date Purchase Option on or before the Purchase Decision Date, Lessee shall be deemed to have elected to exercise the Maturity Date Purchase Option. If Lessee has elected (or is deemed to have elected) to exercise the Maturity Date Purchase Option, then on the Maturity Date Lessee shall pay to Lessor an amount equal to the Termination Value for each of the Properties (which the parties do not intend to be a "bargain" purchase price) and, upon receipt of such amount plus all Rent and other amounts then due and payable under this Lease and any other Operative Agreement, Lessor shall transfer to Lessee or Lessee's designees all of Lessor's right, title and interest in and to the Properties in accordance with Section 19.1. 20.3 Obligation to Purchase All Properties. If on the Purchase Decision Date the then Termination Value of all the Properties is less than the Maximum Purchase Option Amount, then on the Maturity Date Lessee shall be required to exercise its Purchase Option on the Maturity Date with respect to all remaining Properties. SECTION 21. SALE OF PROPERTY 21.1 Sale Procedure. (a) With respect to the Properties, on the Maturity Date, so long as Lessee has properly elected the Remarketing Option pursuant to Section 20.2, Lessee shall have the option (the "Remarketing Option") to (i) pay to Lessor the Maximum Residual Guarantee Amount for the Properties as provided under Section 21.1(c), and (ii) sell the Properties to one or more third parties for cash in accordance with Section 21.1(b). (b) During the Remarketing Period, Lessee, as a nonexclusive broker for Lessor, shall use its best efforts to obtain bids for the cash purchase of each Property being 24 LEASE sold for the highest price available in the relevant market, shall notify Lessor promptly of the name and address of each prospective purchaser and the cash price which each prospective purchaser shall have offered to pay for such Property and shall provide Lessor with such additional information about the bids and the bid solicitation procedure as Lessor may request from time to time. Lessor may reject any and all bids and may assume sole responsibility for obtaining bids by giving Lessee written notice to that effect; provided, however, that notwithstanding the foregoing, Lessor may not reject a bid if such bid, together with any amounts to be paid pursuant to Section 21.3, is greater than or equal to the sum of the Limited Deficiency Amount and all costs and expenses referred to in Section 21.2(i) and is a bona fide offer by a third party purchaser who is not an Affiliate of Lessee. If the price which a prospective purchaser shall have offered to pay for all or any of the Properties is less than the sum of the Limited Deficiency Amount and all costs and expenses referred to in Section 21.2(i), Lessor may elect to retain the Properties by giving Lessee at least two Business Days' prior written notice of Lessor's election to retain the Properties, and upon receipt of such notice, Lessee shall surrender the Properties to Lessor pursuant to Section 10.1(c). Unless Lessor shall have elected to retain the Properties pursuant to the preceding sentence, Lessor shall sell the Properties on the Maturity Date free of any Lessor Liens attributable to it, without recourse or warranty, for cash to the purchaser or purchasers identified by Lessee or Lessor, as the case may be. Lessee shall surrender its Properties so sold to each purchaser in the condition specified in Section 10.1. (c) On the Maturity Date with respect to all Properties subject to the Remarketing Option, Lessee shall pay to the Administrative Agent (as assignee of Lessor), in addition to any Rent outstanding, the Maximum Residual Guarantee Amount for each Property. (d) Lessee's effective exercise and consummation of the Remarketing Option shall be subject to the due and timely fulfillment of each of the following provisions as to each of the Properties as of the dates set forth below. Failure by Lessee to timely satisfy any of the following provisions of this Section 21.1(d), shall be deemed to be an election by Lessee, without further act thereby, of its Purchase Option for all of the Properties and any previous election of the Remarketing Option shall automatically terminate. (i) On the Purchase Decision Date, Lessee shall give to Lessor and the Administrative Agent written notice of Lessee's exercise of the Remarketing Option, which exercise shall be irrevocable by Lessee. (ii) Not later than one hundred and twenty (120) days prior to the Maturity Date, Lessee shall deliver to Lessor an Environmental Audit for each of the Properties. Such Environmental Audit shall be prepared by an environmental consultant selected by Lessor in Lessor's discretion and shall contain conclusions satisfactory to Lessor as to the environmental status of the Properties. If any such Environmental Audit indicates any exceptions calling for a Phase Two environmental assessment, Lessee shall have also delivered prior to the Maturity Date a Phase Two environmental assessment by such environmental consultant and a written statement by 25 LEASE such environmental consultant indicating that all such exceptions have been remedied in compliance with Applicable Law. (iii) On the date of Lessee's notice to Lessor of Lessee's exercise of the Remarketing Option, no Lease Event of Default or Lease Default shall exist, and thereafter, no Lease Event of Default or Lease Default shall occur. (iv) The Completion Date shall have occurred with respect to each Property on or before the Construction Period Termination Date. (v) Lessee shall have completed all Modifications, restoration and rebuilding of the affected Properties pursuant to Sections 10, 11 and 15 (as the case may be) and shall have fulfilled all of the conditions and requirements in connection therewith pursuant to such Sections, in each case prior to the date on which Lessor receives Lessee's notice of Lessee's intention to exercise the Remarketing Option (time being of the essence), regardless of whether the same shall be within the Lessee's control. Lessee shall have also paid the cost of all Modifications commenced prior to the Maturity Date. Lessee shall not have been excused from complying with any Applicable Law that involved the extension of the ultimate imposition of such Applicable Law beyond the Maturity Date. Any Permitted Liens on any Property that were contested by Lessee shall have been removed and Lessor shall have received evidence satisfactory to it that all Liens uncontested have been removed. Each of the Properties shall be in at least as good operating condition as when possession of such Property was first delivered to Lessee (in the case of Properties subject to a Construction Period, such Properties shall be in at least as good operating condition as on such Property's Completion Date). (vi) On the date of Lessee's notice to Lessor of Lessee's exercise of the Remarketing Option, Lessee shall have executed and delivered to Lessor and Lessor's title insurance company an affidavit as to the absence of any Liens (with search results provided by Lessee verifying the same) except for Permitted Liens. 21.2 Application of Proceeds of Sale. Lessor shall apply the proceeds of sale of each Property in the following order of priority: (i) FIRST, to pay or to reimburse Lessor for the payment of all reasonable costs and expenses incurred by Lessor in connection with the sale; and (ii) SECOND, the balance shall be paid to the Administrative Agent to be applied pursuant to the provisions of the Credit Agreement. 21.3 Indemnity for Excessive Wear. If the proceeds of the sale described in Section 21.1(b) with respect to any Property, less all expenses incurred by Lessor in connection with such sale, shall be less than the Limited Deficiency Amount for such Property at the time of such sale and if it shall have been determined (pursuant to the Appraisal Procedure) that the Fair Market Sales Value of such Property shall have been impaired by 26 LEASE greater than expected wear and tear during the Term, Lessee shall pay to Lessor within ten (10) days after receipt of Lessor's written statement (i) the amount of such excess wear and tear determined by the Appraisal Procedure or (ii) the amount of the Net Sale Proceeds Shortfall, whichever amount is less. 21.4 Appraisal Procedure. For determining the Fair Market Sales Value of a Property or any other amount which may, pursuant to any provision of any Operative Agreement, be determined by an appraisal procedure, Lessor shall use the following procedure (the "Appraisal Procedure"). Lessor and Lessee shall endeavor to reach a mutual agreement as to such amount for a period of ten (10) days from commencement of the Appraisal Procedure, and if they cannot agree within ten (10) days, then two qualified appraisers, one chosen by Lessee and one chosen by Lessor, shall mutually agree thereupon, but if either party shall fail to choose an appraiser within twenty (20) days after notice from the other party of the selection of its appraiser, then the appraisal by such appointed appraiser shall be binding on Lessee and Lessor. If the two appraisers cannot agree within twenty (20) days after both shall have been appointed, then a third appraiser shall be selected by the two appraisers or, failing agreement as to such third appraiser within thirty (30) days after both shall have been appointed, by the American Arbitration Association. The decisions of the three appraisers shall be given within twenty (20) days of the appointment of the third appraiser and the decision of the appraiser most different from the average of the other two shall be discarded and such average shall be binding on Lessor and Lessee; provided that if the highest appraisal and the lowest appraisal are equidistant from the third appraisal, the third appraisal shall be binding on Lessor and Lessee. The fees and expenses of all of the appraisers shall be paid by Lessee. 21.5 Certain Obligations Continue. During the Remarketing Period, the obligation of Lessee to pay Rent with respect to each Property (including the installment of Basic Rent due on the Maturity Date) shall continue undiminished until payment in full to Lessor of the sale proceeds, the Maximum Residual Guarantee Amount, if any, the amount due under Section 21.3, if any, and all other amounts due to Lessor with respect to the Property. Lessor shall have the right, but shall be under no duty, to solicit bids, to inquire into the efforts of Lessee to obtain bids or otherwise to take action in connection with any such sale, other than as expressly provided in this Section 21. SECTION 22. HOLD OVER 22.1 Hold Over. If Lessee effectively elects the Remarketing Option and each of the conditions and requirements in Section 21 shall have been satisfied, but nevertheless Lessee is unable to obtain bids satisfactory to Lessor, and the sale of any of its Properties is not consummated on the Maturity Date, Lessor shall by written notice to Lessee choose one or both of the following remedies (which election may be changed at any time): (a) Continue Remarketing Efforts. At the request of Lessor, Lessee shall continue to market the Properties on behalf of Lessor for up to an additional six (6) months and at the sole cost and expense of Lessee, and during such extended marketing period 27 LEASE continue to comply with the requirements of this Lease at Lessee's sole cost and expense. Lessor shall by written notice to Lessee indicate the duration of such extended marketing period (the last day of such period, the "Extended Remarketing Date"), and Lessor shall have the option to accelerate or shorten such Extended Remarketing Date at any time. During such extended marketing period, Lessee's possession shall be as a tenancy at sufferance during which time Lessee shall continue to pay Supplemental Rent that would be payable by Lessee hereunder were the Lease then in full force and effect with respect to such Property and Lessee shall continue to pay Basic Rent at an annual rate equal to one hundred ten percent (110%) of the rate payable hereunder immediately preceding such expiration or earlier termination. Such Basic Rent shall be payable from time to time upon demand by Lessor. During any period of tenancy at sufferance, Lessee shall, subject to the second preceding sentence, be obligated to perform and observe all of the terms, covenants and conditions of this Lease, but shall have no rights hereunder other than the right, to the extent given by law to tenants at sufferance, to continue its occupancy and use of the Property; or (b) Return of Properties. Such Property shall be returned to Lessor, whereupon Lessee shall do each of the following at its own cost and expense: (i) execute and deliver to Lessor and Lessor's title insurance company an affidavit as to the absence of any Liens (with search results provided by Lessee verifying the same) and shall execute and deliver to Lessor a statement of termi nation of this Lease to the extent relating to such Property; (ii) transfer possession of the Properties to Lessor or any Person designated by Lessor, by surrendering the same into the possession of Lessor or such Person, as the case may be, in the condition required by Section 21.1(d)(v) and in compliance with Applicable Law; (iii) cooperate fully with Lessor and/or any Person designated by Lessor to receive the Properties, which cooperation shall include: if requested by the Lessor, Lessee hereby agrees to enter into an operating agreement and in connection therewith to serve as the operator of the relevant Properties; such agreement to be on market terms established in good faith and reasonably acceptable to the Lessor; providing copies of all books and records regarding the maintenance and ownership of the Properties and all know how, data and technical information relating thereto; providing a current copy of the applicable Plans and Specifications; to the extent permitted by any Requirement of Law, granting or assigning all assignable licenses necessary for the operation and maintenance of the Properties; and cooperating reasonably in seeking and obtaining all necessary Governmental Action. The obligations of the Lessee under this paragraph shall survive the expiration or termination of this Lease. 28 LEASE SECTION 23. RISK OF LOSS 23.1 Risk of Loss. The risk of loss of or decrease in the enjoyment and beneficial use of any Property as a result of the damage or destruction thereof by fire, the elements, casualties, thefts, riots, wars or otherwise is assumed by Lessee, and Lessor shall in no event be answerable or accountable therefor. SECTION 24. SUBLETTING AND ASSIGNMENT 24.1 Subletting and Assignment. Lessee may not assign this Lease or any of its rights or obligations hereunder in whole or in part. Lessee may sublease (i) any Property or any portion thereof to a wholly-owned Subsidiary of Lessee or (ii) up to 25% of the Fair Market Sales Value of the Properties or any portion thereof to any Person that is not an Affiliate of Lessee. Any such sublease under clause (ii) must be in the normal course of Lessee's business, on commercially reasonable terms and at market rates. Each sublease to any Person not an Affiliate of Lessee may terminate after the Maturity Date. No sublease or other relinquishment of possession of a Property shall in any way discharge or diminish any of Lessee's obligations to Lessor hereunder and Lessee shall remain directly and primarily liable under this Lease as to a Property, or any portion thereof, so sublet. Except for existing subleases set forth on Schedule 24.1, any sublease of a Property shall be subject to and subordinate to this Lease and to the rights of Lessor hereunder, and shall expressly provide for the surrender of the Property after a Lease Event of Default hereunder. 24.2 Subleases. Lessor acknowledges that the Property may be subject to existing leases or subleases (the "Existing Leases"), which will continue during the term of this Lease. Lessee will be solely responsible, during the term of this Lease, for the performance of the landlord's obligations under such Existing Leases, and, so long as no Lease Event of Default shall have occurred and be continuing, Lessee shall have the unrestricted right to collect and retain all rental and other income thereunder. So long as no Lease Event of Default shall have occurred and be continuing, no consent, joinder or approval will be required of Lessor in connection with the enforcement, modification, extension, termination or other action that Lessee may elect to take in connection with such Existing Leases. SECTION 25. ESTOPPEL CERTIFICATES 25.1 Estoppel Certificates. At any time and from time to time upon not less than twenty (20) days' prior request by Lessor, Lessee shall furnish to Lessor a certificate signed by an individual having the office of vice president or higher in the certifying Person certifying that this Lease is in full force and effect (or that this Lease is in full force and effect as modified and setting forth the modifications); the dates to which the Basic Rent and Supplemental Rent have been paid; to the best knowledge of the signer of such certificate, whether or not Lessor is in default under any of its obligations hereunder (and, if so, the nature of such alleged default); and such other matters under this Lease as Lessor may 29 LEASE reasonably request. Any such certificate furnished pursuant to this Section 25 may be relied upon by Lessor, and any existing or prospective mortgagee, purchaser or lender, and any accountant or auditor, of, from or to Lessor (or any Affiliate thereof). SECTION 26. NO WAIVER 26.1 No Waiver. No failure by Lessor or Lessee to insist upon the strict performance of any term hereof or to exercise any right, power or remedy upon a default hereunder, and no acceptance of full or partial payment of Rent during the continuance of any such default, shall constitute a waiver of any such default or of any such term. To the fullest extent permitted by law, no waiver of any default shall affect or alter this Lease, and this Lease shall continue in full force and effect with respect to any other then existing or subsequent default. SECTION 27. ACCEPTANCE OF SURRENDER 27.1 Acceptance of Surrender. Except as otherwise expressly provided in this Lease, no surrender to Lessor of this Lease or of all or any portion of any Property or of any interest therein shall be valid or effective unless agreed to and accepted in writing by Lessor and, prior to the payment or performance of all obligations under the Credit Documents, the Administrative Agent, and no act by Lessor or the Administrative Agent or any representative or agent of Lessor or the Administrative Agent, other than a written acceptance, shall constitute an acceptance of any such surrender. SECTION 28. NO MERGER OF TITLE 28.1 No Merger of Title. There shall be no merger of this Lease or of the leasehold estate created hereby by reason of the fact that the same Person may acquire, own or hold, directly or indirectly, in whole or in part, (a) this Lease or the leasehold estate created hereby or any interest in this Lease or such leasehold estate, (b) the fee estate in any Property, except as may expressly be stated in a written instrument duly executed and delivered by the appropriate Person, or (c) a beneficial interest in Lessor. SECTION 29. NOTICES 29.1 Notices. Unless otherwise specifically provided herein, all notices, consents, directions, approvals, instructions, requests and other communications required or permitted by the terms hereof to be given to any Person to be effective shall be in writing (including by facsimile transmission) and shall be deemed to have been duly given or made (a) when delivered by hand, (b) one Business Day after delivery to such nationally recognized courier service specifying overnight delivery, (c) three Business Days after being deposited in 30 LEASE the mail, certified or registered, postage prepaid or (d) in the case of facsimile notice, when received, addressed to such Person as indicated: If to Lessee: Fred Meyer, Inc. 3800 SE 22nd Avenue P.O. Box 42121 Portland, Oregon 97242 Attn: James C. Aalberg Vice President and Corporate Treasurer Telecopier No.: (503) 797-5299 With a copy of any default notices to: Stoel Rives LLP 900 SW Fifth Avenue, Suite 2300 Portland, Oregon 97204 Attn: Gary R. Barnum, Esq. Telecopier No.: (503) 220-2480 If to Lessor: Wilmington Trust Company Rodney Square North 1100 North Market Street Wilmington, Delaware 19890-0001 Attn: Corporate Trust Administration Telecopier No.: (302) 651-8882 with a copy to the Administrative Agent: Bankers Trust Company 130 Liberty Street New York, New York 10006 Attn: Deal Administrator Telecopier No.: (212) 250-7351 From time to time any party may designate a new address or facsimile number for purposes of notice hereunder by notice to each of the other parties hereto. It is understood and agreed that the delivery of copies of notices to counsel as set forth above is for courtesy purposes only and any failure to deliver such copies shall not constitute failure with respect to any obligation to provide notices hereunder. 31 LEASE SECTION 30. MISCELLANEOUS 30.1 Miscellaneous. Anything contained in this Lease to the contrary notwithstanding, all claims against and liabilities of Lessee or Lessor arising from events commencing prior to the expiration or earlier termination of this Lease shall survive such expiration or earlier termination. If any term or provision of this Lease or any application thereof shall be declared invalid or unenforceable, the remainder of this Lease and any other application of such term or provision shall not be affected thereby. If any right or option of Lessee provided in this Lease, including any right or option described in Sections 15, 16, 20 or 21, would, in the absence of the limitation imposed by this sentence, be invalid or unenforceable as being in violation of the rule against perpetuities or any other rule of law relating to the vesting of an interest in or the suspension of the power of alienation of property, then such right or option shall be exercisable only during the period which shall end twenty-one (21) years after the date of death of the last survivor of the descendants of Franklin D. Roosevelt, the former President of the United States, Henry Ford, the deceased automobile manufacturer, and John D. Rockefeller, the deceased founder of the Standard Oil Company, known to be alive on the date of the execution and delivery of this Lease. 30.2 Amendments and Modifications. Neither this Lease nor any provision hereof may be amended, waived, discharged or terminated except by an instrument in writing signed by Lessor and Lessee. 30.3 Successors and Assigns. All the terms and provisions of this Lease shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. 30.4 Headings and Table of Contents. The headings and table of contents in this Lease are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. 30.5 Counterparts. This Lease may be executed in any number of counterparts, each of which shall be an original, but all of which shall together constitute one and the same instrument. 30.6 GOVERNING LAW. THIS LEASE SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, EXCEPT AS TO MATTERS RELATING TO THE PERFECTION AND ENFORCEMENT OF LIENS AND SECURITY INTERESTS AND THE EXERCISE OF REMEDIES WITH RESPECT THERETO, WHICH SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE IN WHICH THE APPLICABLE PROPERTY IS LOCATED. 30.7 Limitations on Recourse. Except as expressly set forth in the Operative Agreements, Lessee agrees to look solely to Lessor's estate and interest in the Property, the proceeds of sale thereof, any insurance proceeds or any other award or any third party proceeds received by Lessor in connection with the Property for the collection of any judgment 32 LEASE requiring the payment of money by Lessor in the event of liability by Lessor, and no other property or assets of Lessor, the Trust Company, partner or other owner of an interest, direct or indirect, in Lessor, or any director, officer, shareholder, employee, beneficiary or Affiliate of any of the foregoing shall be subject to levy, execution or other enforcement procedure for the satisfaction of Lessee's remedies under or with respect to this Lease, the relationship of Lessor and Lessee hereunder or Lessee's use of the Property or any other liability of Lessor to Lessee; provided that nothing in this Section shall be construed to impair or limit the rights of Lessee against the Investors under the Operative Agreements. Nothing in this Section shall be interpreted so as to limit the terms of Section 6.1 or 6.2. 30.8 Memorandum of Lease. This Lease shall not be recorded, but Lessor and Lessee shall, upon the execution and delivery of each Lease Supplement, execute and deliver a memorandum of this Lease (a "Memorandum of Lease") substantially in the form of Exhibit B and otherwise in form suitable for recording under the laws of the jurisdiction in which the Property covered by such Memorandum of Lease is located, which memorandum shall be recorded at Lessee's sole cost and expense. 30.9 Ground Lease. During the Term, Lessee shall observe and perform all of the obligations of Lessor under any Ground Lease (including the payment of all rent and other amounts thereunder) and, in connection therewith, shall, prior to the occurrence and continuation of a Lease Event of Default, have the benefit of all of Lessor's rights as lessee under any Ground Lease. 30.10 Security Agreement and Financing Statement. The mailing address of debtor (Lessee herein) and of the secured party (Lessor herein) from which information concerning security interests hereunder may be obtained is as set forth on the signature pages of this Agreement. A carbon, photographic or other reproduction of this Agreement or of any financing statement related to this Agreement shall be sufficient as a financing statement for any of the purposes referenced herein. 30.11 State Law Recitals and Provisions. (a) Non-Residential Trust Deed: Business Purpose. Lessee as grantor warrants that this Agreement, as a deed of trust or trust deed under laws of the state in which the Property is located, is not and will not at anytime constitute a residential trust deed, as that term is defined in ORS 86.705 or its successor statutes (if the Property is in Oregon). Lessee warrants that it is engaging in this transaction exclusively for business, commercial or investment purposes. Lessee warrants that the Property is not used principally for agricultural or farming purposes (if the Property is in Washington). Lessee warrants that the Property falls within the provisions of Idaho Code 45-1502(5) or its successor statutes (if the Property is in Idaho) (b) Statutory Notice Concerning Insurance. Effective January 1, 1996, Chapter 313 of Oregon Laws 1995 amends ORS 746.201 to require that in loans in which the lender has the right to purchase insurance in the event the borrower fails to carry 33 LEASE insurance, the loan document must contain a warning in substantially the following form in 10- point type: "WARNING" "Unless you provide us with evidence of the insurance coverage as required by our contract or loan agreement, we may purchase insurance at your expense to protect our interest. This insurance may, but need not, also protect your interest. If the collateral becomes damaged, the coverage we purchase may not pay any claim you make or any claim made against you. You may later cancel this coverage by providing evidence that you have obtained property coverage elsewhere. "You are responsible for the cost of any insurance purchased by us. The cost of this insurance may be added to your contract or loan balance. If the cost is added to your contract or loan balance, the interest rate on the underlying contract or loan will apply to this added amount. The effective date of coverage may be the date your prior coverage lapsed or the date you failed to provide proof of coverage. "The coverage we purchase may be considerably more expensive than insurance you can obtain on your own and may not satisfy any need for property damage coverage or any mandatory liability insurance requirements imposed by applicable law. (c) Statutory Notice Concerning Written Agreements. UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY LENDERS AFTER OCTOBER 3, 1989 CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE BORROWER'S RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY LENDERS TO BE ENFORCEABLE. (d) Washington Statutory Notice. ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO FORBEAR FROM ENFORCING REPAYMENT OF DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW. 30.12 Limited Power of Attorney. To the extent required by Lessee, Lessor hereby agrees to provide Lessee with a Limited Power of Attorney permitting Lessee to act on 34 LEASE behalf of Lessor in connection with (i) consenting to all subleases referenced in this Lease; (ii) executing all easements, use, restrictive covenant, assessment or bonding agreements; and (iii) selling undeveloped Land as is more specifically described in Section 19.3 of this Lease (provided, all such sales shall be conducted in compliance with the terms of such Section 19.3, without modification of such provisions pursuant to the utilization of the Limited Power of Attorney by Lessee); provided, however, the Limited Power of Attorney may be utilized only to the extent (x) no Default of Event or Default shall have occurred or be continuing at the time of the contemplated exercise of the Limited Power of Attorney and (y) such sublease, easement, use, restrictive covenant, assessment or bonding agreement or document of sale shall be made in the normal course of Lessee's business. To the extent any Default or Event of Default has occurred and is continuing or Lessee has received written notice of the occurrence of any Default, the Limited Power of Attorney shall immediately terminate and be void and not further force or effect unless reinstated in writing by Lessor and acknowledged and agreed to by the Agent. Each action taken by Lessee under the Limited Power of Attorney shall automatically, without further action, be deemed to be a representation and warranty as of such date that the conditions set forth in the first sentence of this Section 30.12 are satisfied in full as of such date. 30.13 Estoppel Certificates. Upon twenty (20) days' prior notice of the request, either party will execute, acknowledge and deliver to the other party a certificate stating (a) that this Lease is unmodified and in full force and effect (or, if there have been modifications, that this Lease is in full force and effect as modified, and setting forth such modifications), (b) the dates to which Rent and other sums payable hereunder have been paid, and (c) either that to the knowledge of such party no Lease Event of Default exists or specifying each such default of which such party has knowledge. A party shall not be obligated, except as provided herein, to update any certificate once delivered. 35 LEASE IN WITNESS WHEREOF, the parties have caused this Lease to be duly executed and delivered as of the date first above written. FRED MEYER, INC. By: JAMES C. AALBERG ------------------------------------- Name: James C. Aalberg Title: Vice President, Treasurer S-1 LEASE FMS TRUST 1997-1 By: WILMINGTON TRUST COMPANY, not individually but solely as Owner Trustee By: PATRICIA A. EVANS ------------------------------------- Name: Patricia A. Evans Title: Financial Services Officer For purposes of this Agreement as a fixture filing, the following is applicable: Address of Lessee/debtor: Fred Meyer, Inc. 3800 SE 22nd Avenue P.O. Box 42121 Portland, Oregon 97242 Address of Lessor/secured party: FMS Trust 1997-1 Wilmington Trust Company Rodney Square North 1100 North Market Street Wilmington, Delaware 19890-0001 Attn: Corporate Trust Administration Telecopier No.: (302) 651-8882 S-2 LEASE Receipt of this original counterpart of the foregoing Lease is hereby acknowledged on this 11th day of March, 1998. BANKERS TRUST COMPANY, as the Administrative Agent for the Lenders By: GINA S. THOMPSON ------------------------------------- Name: Gina S. Thompson Title: Vice President S-3 SCHEDULE 24.1 TO LEASE EXISTING SUBLEASES None. Exhibit A LEASE SUPPLEMENT NO. __ DEED OF TRUST, SECURITY AGREEMENT AND FINANCING STATEMENT THIS LEASE SUPPLEMENT NO. __ (this "Lease Supplement") dated as of _______________, between WILMINGTON TRUST COMPANY, a Delaware corporation, not in its individual capacity, but solely as Owner Trustee under the FMS Trust 1997-1, a Delaware business trust, as lessor (the "Lessor"), and Fred Meyer, Inc., a Delaware corporation, as lessee (the "Lessee"). For purposes of provisions of this Lease Supplement related to the creation and enforcement as Deed of Trust, LESSEE, as grantor, hereby conveys the Leased Property (as defined below) to FIRST AMERICAN TITLE COMPANY, a corporation, as owner trustee ("Trustee"), in trust and with power of sale, for the benefit of Lenders (as defined in the Participating Agreement) as Beneficiary and senior lenders, and for the benefit of LESSOR, as beneficiary (in trust), as subordinated lender. The maturity date of the secured obligations shall be March __, 2003, unless extended pursuant to the terms of the Lease and the Participation Agreement. For purposes of provisions of this Lease Supplement related to the creation and enforcement of this Agreement as a security agreement and a fixture filing, Lessee is the debtor and Lessor is the secured party. WHEREAS, Lessor [is the record owner of] [has a leasehold interest in] the land described on Schedule I hereto (the "Leased Land") together with all Improvements which now exist or hereafter may be constructed on the Leased Property (the "Leased Improvements and, together with the Leased Land, the "Leased Property")and wishes to lease the same to Lessee; NOW, THEREFORE, in consideration of the premises and the mutual agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Definitions; Rules of Usage. For purposes of this Lease Supplement, capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to them in Annex A to the Participation Agreement, dated as of March __, 1998, among the Lessee and Construction Agent, Lessor, the Owner Trustee, the Investors, the Administrative Agent, the Syndication Agent and the Lenders, as it may be amended, supplemented or otherwise modified from time to time. 2. The Properties. Attached hereto as Schedule I is the description of the Leased Property. Effective upon the execution and delivery of this Lease Supplement by Lessor and Lessee, the Leased Property shall be subject to the terms and provisions of the Lease. A-1 LEASE 3. Ratification. Except as specifically modified hereby, the terms and provisions of the Lease are hereby ratified and confirmed and remain in full force and effect. 4. Original Lease Supplement. The single executed original of this Lease Supplement marked "THIS COUNTERPART IS THE ORIGINAL EXECUTED COUNTERPART" on the signature page thereof and containing the receipt of the Administrative Agent therefor on or following the signature page thereof shall be the Original Executed Counterpart of this Lease Supplement (the "Original Executed Counterpart"). To the extent that this Lease Supplement constitutes chattel paper, as such term is defined in the Uniform Commercial Code as in effect in any applicable jurisdiction, no security interest in this Lease Supplement may be created through the transfer or possession of any counterpart other than the Original Executed Counterpart. 5. Power of Sale. Without limiting any other remedies set forth herein or in the Lease, in the event that a court of competent jurisdiction rules that each of the Lease and this Lease Supplement constitutes a mortgage, deed of trust or other secured financing with respect to the Leased Property as is the intent of the parties pursuant to the Lease, then Lessor and Lessee agree that (i) Lessee hereby grants to Lessor for the benefit of Lessor and the Lenders a Lien against the Leased Property (including the fee simple estate therein) and conveys the Leased Property to Trustee, WITH POWER OF SALE to the extent permitted by law, and that, upon the occurrence and during the continuance of any Lease Event of Default, Lessor shall have the power and authority, to the extent provided by law, after proper notice and lapse of such time as may be required by law, to sell the Leased Property (including the fee simple estate therein) at the time and place of sale fixed by Lessor in such notice of sale, either as a whole, or in separate lots or parcels or items and in such order as Lessor may elect, at auction to the highest bidder for cash in lawful money of the United States payable at the time of sale; accordingly, it is acknowledged that A POWER OF SALE HAS BEEN GRANTED IN THIS INSTRUMENT; A POWER OF SALE MAY ALLOW LESSOR TO TAKE THE LEASED PROPERTY AND SELL THE LEASED PROPERTY (INCLUDING THE FEE SIMPLE ESTATE THEREIN) WITHOUT GOING TO COURT IN A FORE CLOSURE ACTION UPON THE OCCURRENCE AND CONTINUANCE OF A LEASE EVENT OF DEFAULT UNDER THE LEASE, and (ii) upon the occurrence and during the continuance of a Lease Event of Default, Lessor, in lieu of or in addition to exercising any power of sale hereinabove given, may proceed by a suit or suits in equity or at law, whether for a foreclosure hereunder, or for the sale of the Properties (including without limitation the Leased Property), or against Lessee on a recourse basis for the Lease Balance, or for the spe cific performance of any covenant or agreement contained herein or in the Lease or any other lease or in aid of the execution of any power granted herein or in the Lease or in any other lease, or for the appointment of a receiver pending any foreclosure hereunder or the sale of the Properties (including without limitation, the Leased Property), or for the enforcement of any other appropriate legal or equitable remedy. Lessee shall have all rights available to a mortgagor under the laws of the jurisdiction in which the respective Properties are located. 6. GOVERNING LAW. THIS LEASE SUPPLEMENT SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND A-2 LEASE TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, EXCEPT AS TO MATTERS RELATING TO THE PERFECTION AND ENFORCEMENT OF LIENS AND SECURITY INTERESTS AND THE EXERCISE OF REMEDIES WITH RESPECT THERETO, WHICH SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE IN WHICH THE APPLICABLE PROPERTY IS LOCATED. 7. Counterpart Execution. This Lease Supplement may be executed in any number of counterparts and by each of the parties hereto in separate counterparts, all such counterparts together constituting but one and the same instrument. 8. Recordation. Lessor and Lessee agree that a memorandum of this Lease Supplement No. __ shall be recorded at Lessee's sole cost and expense as required by the Lease. 9. Security Agreement and Financing Statement. The mailing address of debtor (Lessee herein) and of the secured party (Lessor herein) from which information concerning security interests hereunder may be obtained is as set forth on the signature pages of this Agreement. A carbon, photographic or other reproduction of this Agreement or of any financing statement related to this Agreement shall be sufficient as a financing statement for any of the purposes referenced herein. 10. State Law Recitals and Provisions. (a) Non-Residential Trust Deed; Business Purpose. Lessee as grantor warrants that this Agreement, as a deed of trust or trust deed under laws of the state in which the Property is located, is not and will not at any time constitute a residential trust deed, as that term is defined in ORS 86.705 or its successor statutes (if the Property is in Oregon). Lessee warrants that it is engaging in this transaction exclusively for business, commercial or investment purposes. Lessee warrants that the Property is not used principally for agricultural or farming purposes (if the Property is in Washington). Lessee warrants that the Property falls within the provisions of Idaho Code 45-1502(5) or its successor statutes (if the Property is in Idaho). (b) Statutory Notice Concerning Insurance. Effective January 1, 1996, Chapter 313 of Oregon Laws 1994 amends ORS 746.201 to require that in loans in which the lender has the right to purchase insurance in the event the borrower fails to carry insurance, the loan document must contain a warning in substantially the following form in 10- point type: "WARNING "Unless you provide us with evidence of the insurance coverage as required by our contract or loan agreement, we may purchase insurance at your expense to protect our interest. This insurance may, but need not, also protect your interest. If the collateral becomes damaged, the coverage A-3 LEASE we purchase may not pay any claim you make or any claim made against you. You may later cancel this coverage by providing evidence that you have obtained property coverage elsewhere. "You are responsible for the cost of any insurance purchased by us. The cost of this insurance may be added to your contract or loan balance. If the cost is added to your contract or loan balance, the interest rate on the underlying contract or loan will apply to this added amount. The effective date of coverage may be the date your prior coverage lapsed or the date you failed to provide proof of coverage. "The coverage we purchase may be considerably more expensive than insurance you can obtain on your own and may not satisfy any need for property damage coverage or any mandatory liability insurance requirements imposed by applicable law." (c) Statutory Notice Concerning Written Agreements. UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY LENDERS AFTER OCTOBER 3, 1989 CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE BORROWER'S RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY LENDERS TO BE ENFORCEABLE. (d) Washington Statutory Notice. ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO FORBEAR FROM ENFORCING REPAYMENT OF DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW. A-4 LEASE IN WITNESS WHEREOF, the parties have caused this Lease Supplement No. __ to be duly executed and delivered as of the date first above written. FRED MEYER, INC. By: ------------------------------------- Name: Title: S-5 LEASE FMS TRUST 1997-1 By: WILMINGTON TRUST COMPANY, not in its individual capacity but solely as Owner Trustee By: ------------------------------ Name: Title: S-6 LEASE Receipt of this original counterpart of the foregoing Lease Supplement is hereby acknowledged on this ___ day of ______, ____. BANKERS TRUST COMPANY, as the Administrative Agent for the Lenders By: ------------------------------------- Name: Title: S-7 EX-4.1D 7 CONSTRUCTION AGENCY AGREEMENT CONSTRUCTION AGENCY AGREEMENT ----------------------------- CONSTRUCTION AGENCY AGREEMENT, dated as of March 11, 1998 (this "Agreement"), between FMS TRUST 1997-1, a Delaware business trust (the "Lessor"), and FRED MEYER, INC., a Delaware corporation (the "Construction Agent"). PRELIMINARY STATEMENT A. The Lessor and the Construction Agent, in its capacity as lessee (the "Lessee") are parties to that certain Lease Agreement, dated as of even date herewith (as amended, supplemented or otherwise modified, the "Lease"), pursuant to which the Lessee has agreed to lease certain Land and Improvements from the Lessor (collectively, the "Properties"). B. In connection with the execution and delivery of the Participation Agreement, dated as of the date hereof, among the Lessee, the Lessor, the Owner Trustee, the Investors, the Agents and the Lenders (the "Participation Agreement"), the Lease and the other Operative Agreements, and subject to the terms and conditions hereof, (i) the Lessor desires to appoint the Construction Agent as its sole and exclusive agent in connection with the identification and acquisition of the Properties (provided title to the Properties shall be held in the name of the Lessor (except in the case of Ground Leases)) and construction of such Improvements in accordance with the Plans and Specifications and (ii) the Construction Agent desires, for the benefit of the Lessor, to identify and acquire the Properties and to cause the construction of such Improvements in accordance with the Plans and Specifications and to undertake such other liabilities and obligations as are herein set forth. NOW, THEREFORE, in consideration of the foregoing, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto covenant and agree as follows: SECTION 1. DEFINITIONS 1.1 Defined Terms. Capitalized terms used but not otherwise defined in this Agreement shall have the meanings set forth in Annex A to the Participation Agreement. The rules of usage set forth in Annex A to the Participation Agreement shall apply to this Agreement. CONSTRUCTION AGENCY AGREEMENT SECTION 2. APPOINTMENT OF CONSTRUCTION AGENT 2.1 Appointment. Subject to the terms and conditions hereof, the Lessor hereby irrevocably designates and appoints the Construction Agent as its exclusive agent, and the Construction Agent accepts such appointment, in connection with the identification and acquisition from time to time of the Properties (provided title to the Properties shall be held in the name of the Lessor or, solely in the case of Land subject to a ground lease, the Land shall be leased to the Lessor pursuant to a Ground Lease) and construction of Improvements on the Land, all in accordance with the terms of this Agreement, the Participation Agreement and the other Operative Agreements. Notwithstanding any provisions hereof or in any other Operative Agreement to the contrary, the Construction Agent acknowledges and agrees that the Lessor shall advance no more than $500,000,000 in the aggregate in regard to the Properties (including without limitation any and all Advances in the aggregate from the Lenders under the Credit Agreement and from the Investors under the Trust Agreement). 2.2 Acceptance and Undertaking. The Construction Agent hereby unconditionally accepts the agency appointment and undertakes, for the benefit of the Lessor, to identify and acquire certain Properties (provided title to the Properties shall be held in the name of the Lessor or, solely in the case of Land subject to a ground lease, the Land shall be leased to the Lessor pursuant to a Ground Lease) and to cause the construction of the Improvements in accordance with the Plans and Specifications and the Operative Agreements. 2.3 Supplements to this Agreement. On the Property Closing Date of each Property on which Improvements are to be constructed, the Lessor and the Construction Agent shall each execute and deliver a supplement to this Agreement in the form of Exhibit A to this Agreement, appropriately completed, pursuant to which the Lessor and the Construction Agent shall, among other things, each acknowledge and agree that the construction and development of such Property will be governed by the terms of this Agreement. Following the execution and delivery of a supplement to this Agreement as provided above, such supplement and all supplements previously delivered under this Agreement shall constitute a part of this Agreement. 2.4 Term. (a) This Agreement shall commence on the date hereof and shall terminate with respect to any given Property upon the earlier to occur of: (i) payment by the Lessee of the Termination Value and termination of the Lease with respect to such Property in accordance with Section 16 of the Lease; 2 CONSTRUCTION AGENCY AGREEMENT (ii) payment by the Lessee of the Purchase Option Price and termination of the Lease with respect to such Property in accordance with Section 20 of the Lease; (iii) the expiration of the Lease with respect to such Property or earlier termination of the Lease upon a sale of such Property pursuant to Section 21.1 of the Lease or otherwise; and (iv) the Completion Date with respect to such Property; provided, however, that any termination of this Agreement shall not relieve the Construction Agent of any liability for breach hereof. 2.5 Scope of Authority. (a) The Lessor hereby expressly authorizes the Construction Agent, or any agent or contractor of the Construction Agent, and the Construction Agent unconditionally agrees, for the benefit of the Lessor, to take all action necessary or desirable for the performance and satisfaction of any and all of Lessor's obligations under any construction agreement and to fulfill all of the obligations of the Construction Agent including, without limitation: (i) the identification and assistance with the acquisition of Properties in accordance with the terms and conditions of the Participation Agreement; (ii) all design and supervisory functions relating to the construction of the Improvements and performing all engineering work related to the construction, installation and testing of the Improvements; (iii) negotiating and entering into all contracts necessary to construct the Improvements, on such terms and conditions as are customary and reasonable in light of local standards and practices and the businesses in which the Lessee is engaged; (iv) obtaining all necessary permits, licenses, consents, approvals and other authorizations, including without limitation those required under applicable Environmental Laws, from all Governmental Authorities in connection with the development and construction of the Improvements on the Land in accordance with the Plans and Specifications; 3 CONSTRUCTION AGENCY AGREEMENT (v) maintaining all books and records with respect to the construction, operation and management of the Properties, including the allocation of the Advances among the Properties so as to maintain an accurate record of each Project Cost; and (vi) performing any other acts necessary in connection with the identification and acquisition of the Properties and construction and development of the Improvements in accordance with the Plans and Specifications. (b) Neither the Construction Agent nor any of its Affiliates or agents shall enter into any contract which would, directly or indirectly, impose any liability or obligation on the Lessor and for which liability or obligation the Lessor is not indemnified. (c) Subject to the terms and conditions of this Agreement, the Construction Agent shall have sole management and control over the construction means, methods, sequences and procedures with respect to the construction of the Improvements. 2.6 Delegation of Duties. The Construction Agent may execute any of its duties under this Agreement by or through agents, contractors, employees or attorneys-in-fact; provided that no such delegation shall limit or reduce in any way the Construction Agent's duties and obligations under this Agreement. 2.7 Covenants of the Construction Agent. The Construction Agent hereby covenants and agrees that it will: (a) cause construction of the Improvements on each Property to be prosecuted diligently and continuously in accordance with the Plans and Specifications for such Property and in compliance with all Legal Requirements and Insurance Requirements; (b) cause the Completion Date for each Property to occur on or prior to the earlier to occur of (i) the twelve month anniversary of the Construction Commencement Date (which period may be extended for up to six (6) additional months to the extent that a delay in construction is caused by a Force Majeure Event) and (ii) the Construction Period Termination Date, in all cases free and clear (by removal or bonding) of Liens or claims for materials supplied or labor or services performed in connection with the construction of the Improvements; 4 CONSTRUCTION AGENCY AGREEMENT (c) following the Completion Date for each Property, cause all outstanding punch list items with respect to the Improvements on such Property to be completed in a timely manner; (d) cause the Improvements on each Property to be constructed for an amount which when added to the Project Cost of the Land will be equal to or less than 110% of the Projected Completion Value with respect to such Properly; (e) upon Completion of the Improvements for a particular Property, promptly (and in any event within five (5) Business Days) deliver an Officer's Certificate to the Lessor and the Administrative Agent (i) certifying the Completion Date of such Property and (ii) certifying the aggregate Property Cost of such Property; (f) cause the sum of (i) the aggregate Property Cost for all Construction Period Properties, plus (ii) to the extent not included in Property Cost, the cost to complete the construction and development of Improvements on Construction Period Properties, plus (iii) the Property Cost for all Existing Properties to be in an amount that is not in excess of $500,000,000; and (g) procure insurance for the Properties during the Construction Period in accordance with the provisions of Article XIV of the Lease. SECTION 3. THE IMPROVEMENTS 3.1 Construction. The Construction Agent shall cause the Improvements to be constructed, equipped, maintained and used in full compliance with the Plans and Specifications therefor and all Legal Requirements and Insurance Requirements. 3.2 Amendments; Modifications. (a) The Construction Agent may at any time revise, amend or modify (i) the Plans and Specifications without the consent of the Lessor; provided that any such amendment to the Plans and Specifications does not (x) result in the Completion Date of the Improvements occurring after the earlier of the Outside Completion Date and the Construction Period Termination Date, and/or (y) result in the Project Costs of any Improvements subject to such amendment exceeding either (1) the sum of the then Available Commitments and the then Available Investor Commitments (reduced by the amount, if any, necessary to pay for the cost of construction and development of Improvements on other Properties which are currently under construction but have not yet 5 CONSTRUCTION AGENCY AGREEMENT been completed (such amount, the "Unfunded Amount")) or (2) 110% of the Projected Completion Value with respect to such Improvements, and (ii) the Budget; provided that such revisions, amendments or modifications to the Budget do not result in any increase in the Project Costs greater than either (A) the sum of the then Available Commitments and the then Available Investor Commitments (reduced by the unfunded amount) or (B) 110% of the Projected Completion Value with respect to such Property. (b) The Construction Agent agrees that it will not implement any revision, amendment or modification to the Plans and Specifications for any Property if the aggregate effect of such revision, amendment or modification would be to reduce the fair market value of the Property when completed, unless such revision, amendment or modification is required by Legal Requirements or Insurance Requirements or unless required to prevent the Improvements from being constructed in violation of Section 8.2 of the Lease. 3.3 Failure to Complete Construction Period Properties and Purchase Obligation. If at any time prior to the Completion Date with respect to any Construction Period Property there occurs a Casualty, an Environmental Violation, the commencement of a Condemnation or a Force Majeure Event, the Construction Agent shall either (a) pay to Lessor, on a date designated by Construction Agent (which date shall be not more than thirty (30) days after a Responsible Officer of the Construction Agent gains knowledge of the occurrence of the applicable event), an aggregate amount equal to the liquidated damages amount referenced in Section 5.3(a) of this Agreement regarding such Construction Period Property and on such date Lessor shall transfer and convey to the Construction Agent all right, title and interest of Lessor in and to such Construction Property or (b) other than in the event of an Environmental Violation, notify Lessor in writing it intends to proceed with construction of the Improvements with respect to such Construction Period Property (including within such notice, if a Force Majeure Event is involved, an estimate as to the delay caused by such Force Majeure Event), in which case the Construction Agent shall promptly and diligently complete the construction of such Improvements in accordance with the Plans and Specifications and with the terms hereof and cause the Completion Date with respect to such Construction Period Property to occur on or prior to the earlier of the Outside Completion Date and the Construction Period Termination Date. 6 CONSTRUCTION AGENCY AGREEMENT SECTION 4. PAYMENT OF FUNDS 4.1 Right to Receive Construction Cost. (a) In connection with the acquisition of any Property and during the course of the construction of the Improvements on any Property, the Construction Agent may request that the Lessor advance funds for the payment of Property Acquisition Costs or Property Costs, and the Lessor will comply with such request to the extent provided for under the Participation Agreement. The Construction Agent and the Lessor acknowledge and agree that the Construction Agent's right to request funds and the Lessor's obligation to advance such funds for the payment of Property Acquisition Costs or Property Costs is subject in all respects to the terms and conditions of the Participation Agreement and each of the other Operative Agreements. Without limiting the generality of the foregoing, it is specifically understood and agreed that in no event shall the aggregate amounts advanced by the Lenders or the Investors for Property Acquisition Costs or Property Costs and any other amounts due and owing hereunder or under any of the other Operative Agreements exceed $500,000,000, including without limitation such amounts owing for (a) the acquisition and development of the Properties, (b) additional amounts which accrue or become due and owing under the Credit Agreement or Trust Agreement as obligations of the Lessor prior to any Completion Date (for interest payments on the Loans or payments of the Investor Yield on the Investor Advances) or (c) any other purpose. (b) The proceeds of any funds made available to the Lessor to pay Project Costs shall be made available to the Construction Agent or its designee in accordance with the Requisition relating thereto and the terms of the Participation Agreement. The Construction Agent will use such proceeds only to pay the Project Costs set forth in the Requisition relating to such funds. SECTION 5. CONSTRUCTION AGENCY AGREEMENT EVENTS OF DEFAULT 5.1 Events of Default. If any one or more of the following events (each an "Construction Agency Agreement Event of Default") shall occur: (a) the Construction Agent fails to apply any funds paid by the Lessor to the Construction Agent for the acquisition of the Properties and the construction of the Improvements to the payment of Property Acquisition Costs or Project Costs; 7 CONSTRUCTION AGENCY AGREEMENT (b) the Construction Commencement Date with respect to any Improvements does not occur within 12 months of the Property Closing Date for the Land on which such Improvements are to be located if such Land is Store Land Property, or within 9 months of the Property Closing Date for the Land on which such Improvements are to be located, if such Land is not Store Land Property; (c) the Completion Date with respect to any Property (other than a Store Land Property) shall fail to occur for any reason on or prior to the earlier of the Outside Completion Date or the Construction Period Termination Date; (d) a Significant Casualty or a Significant Condemnation shall occur during the Construction Period; (e) any Lease Event of Default shall have occurred and not been cured within any cure period expressly permitted under the terms of the Lease; or (f) the Construction Agent shall breach any of its representations or warranties under any Operative Agreement or shall fail to observe or perform any term, covenant or condition of this Agreement or any other Operative Agreement other than as set forth in paragraphs (a), (b), (c), (d) or (e) of this Section 5.1, and such misrepresentation, breach of warranty or failure remains uncured for a period of thirty (30) days after receipt of written notice to the Construction Agent by the Lessor; then, in any such event, and subject to Section 5.3(a), the Lessor may, in addition to the other rights and remedies provided for in this Article, terminate the Construction Agent's rights under this Agreement by giving notice of such termination, and the Construction Agent's rights under this Agreement shall terminate and all rights and obligations of the Construction Agent under this Agreement shall cease. The Construction Agent shall pay all costs and expenses incurred by or on behalf of the Lessor, including reasonable fees and expenses of counsel, as a result of any Construction Agency Agreement Event of Default. 5.2 Damages. Any termination pursuant to Section 5.1 shall in no event relieve the Construction Agent of its liability and obligations hereunder, all of which shall survive any such termination. 5.3 Remedies; Remedies Cumulative. (a) If a Construction Agency Agreement Event of Default shall have occurred and be continuing, the Lessor shall have all rights available at law, equity or otherwise. Notwithstanding the foregoing, the Construction 8 CONSTRUCTION AGENCY AGREEMENT Agent shall have the right to cure a Construction Agency Agreement Event of Default hereunder with respect to any given Property by purchasing such Property from the Lessor for Termination Value for such Property. (b) No failure to exercise and no delay in exercising, on the part of the Lessor, any right, remedy, power or privilege under this Agreement or under any other Operative Agreement shall operate as a waiver thereof nor shall any single or partial exercise of any right, remedy, power or privilege under this Agreement preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges provided in this Agreement are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law. SECTION 6. INSURANCE The Construction Agent shall procure insurance for the Improvements during the Construction Period in accordance with the following provisions (provided that to the extent such requirements are satisfied by Lessee in accordance with Article XIV of the Lease, it shall be sufficient if Lessee's insurance provides coverage for both Construction Agent and Lessee): 6.1 Public Liability and Workers' Compensation Insurance. The Construction Agent shall procure and carry, at the Construction Agent's sole cost and expense, commercial general liability insurance for claims for injuries or death sustained by persons or damage to property while on the Properties. Such general liability insurance shall be on terms and in amounts that are no less favorable than insurance maintained by the Construction Agent with respect to similar properties that it constructs. The commercial general liability insurance policy shall be endorsed to name each Participant as additional insureds. Each policy shall also specifically provide that the policy shall be considered primary insurance which shall apply to any loss or claim before any contribution by any insurance which such parties may have in force. The Construction Agent shall, in the operation of the Properties, comply with the applicable workers' compensation laws and protect the Lessor against any liability under such laws. 6.2 Hazard and Other Insurance. The Construction Agent shall keep, or cause to be kept, the Improvements and building materials insured against loss or damage by fire and other risks on terms and in amounts that are no less favorable than insurance covering other similar properties constructed and developed by the Construction Agent and that are in 9 CONSTRUCTION AGENCY AGREEMENT accordance with normal industry practice, and are in amounts equal to the actual replacement cost of the Improvements. During the construction of any Improvements each Lessee shall also maintain or cause to be maintained builders' risk insurance. So long as no Construction Agency Agreement Event of Default has occurred and is continuing, any loss payable under the insurance policy required by this Section will be paid to and adjusted solely by the Construction Agent. 6.3 Coverage. The Construction Agent agrees that it shall furnish the Lessor with certificates or, if requested by the Lessor, copies of policies showing the insurance required to be in effect under Sections 6.1 and 6.2 and naming the Participants as additional insureds and showing the mortgagee endorsement in favor of the Administrative Agent required below. All such insurance shall be at the cost and expense of the Construction Agent. Such certificates shall include a provision for 30 days' advance written notice by the insurer to the Lessor in the event of a cancellation of such insurance. The Construction Agent agrees that the insurance policy or policies required by Sections 6.1 and 6.2 shall include an appropriate clause pursuant to which such policy shall provide that it will not be invalidated should the Construction Agent waive, in writing, prior to a loss, any or all rights of recovery against any party for losses covered by such policy. The Construction Agent hereby waives any and all such rights against the Participants to the extent of payments made under such policies. All property insurance policies required by Section 6.2 shall include a "New York" or standard form mortgagee endorsement in favor of the Administrative Agent. The Lessor may carry separate liability insurance, at its own expense, so long as (i) the Construction Agent's insurance is designated as primary and in no event excess or contributory to any insurance the Lessor may have in force which would apply to a loss covered under the Construction Agent's policy and (ii) each such insurance policy will not cause the Construction Agent's insurance required under Section 6 to be subject to a co-insurance exception of any kind. The Construction Agent shall pay as they become due all premiums for the insurance required by Sections 6.1 and 6.2, shall renew or replace each policy prior to the expiration date thereof and shall promptly deliver to the Lessor and the Administrative Agent certificates for renewal and replacement policies. Notwithstanding anything in this Section 6.3 to the contrary, any insurance which the Construction Agent is required to obtain and maintain pursuant to Sections 6.1 and 6.2 may be carried under "blanket" and umbrella covering other properties and liabilities of the Construction Agent. SECTION 7. LESSOR'S RIGHTS; CONSTRUCTION AGENT'S RIGHTS 10 CONSTRUCTION AGENCY AGREEMENT 7.1 Exercise of the Lessor's Rights. Subject to the terms of the Contract Assignment, the Construction Agent hereby acknowledges and agrees that the rights and powers of the Lessor under this Agreement have been assigned to the Administrative Agent. 7.2 Lessor's Right to Cure Construction Agent's Defaults. Upon written notice to the Construction Agent, except in emergencies, the Lessor, without waiving or releasing any obligation or Construction Agency Agreement Event of Default, may (but shall be under no obligation to) remedy any Construction Agency Agreement Event of Default hereunder for the account of and at the sole cost and expense of the Construction Agent. All out of pocket costs and expenses so incurred (including reasonable fees and expenses of counsel), together with interest thereon at the Overdue Rate from the date on which such sums or expenses are paid by the Lessor, shall be paid by the Construction Agent to the Lessor on demand. SECTION 8. GUARANTEE OF COMPLETION 8.1 Guarantee of Completion. The Construction Agent unconditionally and irrevocably guaranties that: (a) it shall complete, on or before the Outside Completion Date, the construction, equipping and furnishing of each of the Properties substantially in accordance with (i) the Plans and Specifications (ii) all Legal Requirements (iii) all Insurance Requirements and (iv) the terms and conditions of the Construction Contract and this Agreement; (b) it shall fully and punctually pay and discharge any and all Project Costs in connection with the Properties, including, without limitation, the costs of constructing, equipping and furnishing each of the Properties and payment of all real estate taxes, insurance premiums and other items payable prior to Completion of a Property, as the same become due and payable; (c) each Property shall be, and remain, free and clear of all Liens of any and all Persons furnishing materials, labor or services in constructing, completing, equipping or furnishing the Properties, except to the extent that such Liens are (i) being contested in good-faith if permitted in accordance with the terms of the Participation Agreement, the Lease and the other Operative Agreements or (ii) Lessor Liens; and 11 CONSTRUCTION AGENCY AGREEMENT (d) it shall comply fully and punctually with all of the terms, covenants and conditions on its part to be complied with under the Construction Contract and this Agreement. The matters described in paragraphs (a) through (d) above are sometimes collectively referred to as the "Guaranteed Obligations". 8.2 Failure to Complete the Improvements. In the event that Completion with respect to any Property has not occurred on or prior to the Outside Completion Date, (a) the Construction Agent shall indemnify the Lessor against, and save the Lessor harmless from all damages, liabilities, costs and expenses that Lessor, or anyone claiming through or on behalf of the Lessor, may suffer by reason of the Construction Agent's failure to achieve Completion of such Improvements on or prior to the Outside Completion Date; (b) in the event that the Lessor, or anyone claiming through or on behalf of the Lessor, shall pay any costs in connection with (i) completing the construction of any Improvements pursuant to the Participation Agreement or any other Operative Agreement, or (ii) removing any Liens not permitted by the terms of the Participation Agreement, the Lease and the other Operative Agreements, the Construction Agent shall reimburse the Lessor, or such Person so claiming through or on behalf of the Lessor, for all sums so paid by such Person; and (c) the Construction Agent shall pay any and all expenses (including, without limitation, all reasonable fees and disbursements of counsel) incurred by the Lessor, or anyone claiming through or on behalf of the Lessor, in (i) enforcing, or obtaining advice of counsel in respect of the enforcement of, any rights under this Article or (ii) collecting, or obtaining advice of counsel in respect of the collection of, the Guaranteed Obligations. 8.3 Specific Enforcement. The Construction Agent acknowledges and agrees that it will be impossible to measure accurately the damages to the Lessor, or anyone claiming through or on behalf of the Lessor, resulting from a breach of the covenants of the Construction Agent to complete (or to cause the completion of) the construction, equipping and furnishing of the Improvements in accordance with the Plans and Specifications, in compliance with all Legal Requirements and all Insurance Requirements and in accordance with the terms and conditions of the Construction Contract and this Agreement; that such a breach will cause irreparable injury to the Lessor and that the Lessor has no adequate remedy at law in respect of such breach and, as a consequence, agrees that such covenant shall be specifically enforceable against the Construction Agent, and the Construction Agent hereby waives and agrees not to assert any defense based on the denial of any of the foregoing in an action for specific performance of such covenant. 12 CONSTRUCTION AGENCY AGREEMENT 8.4 Right of Set-Off. Upon the occurrence and during the continuance of a Construction Agency Agreement Event of Default or a Lease Event of Default, the Construction Agent irrevocably authorizes the Lessor, or anyone claiming through or on behalf of the Lessor, at any time without notice to the Construction Agent to set-off and apply any and all deposits and any other credits or claims held or owing by the Lessor, or anyone acting through or on behalf of the Lessor, to or for the credit or the account of the Construction Agent, in such amounts as the Lessor, or anyone claiming through or on behalf of the Lessor, may elect, against and on account of the obligations and liabilities of the Construction Agent to the Lessor under this Article, whether or not the Lessor has made any demand for payment and although such obligations, liabilities and claims may be contingent or unmatured. 8.5 Amendments to Operative Agreements; Demands. The Construction Agent shall remain obligated under this Agreement notwithstanding that, without any reservation of rights against the Construction Agent and without notice to or further consent by the Construction Agent, the obligations or the liability of any other party upon or for any part of the obligations under the Operative Agreements, may, from time to time, in whole or in part, be renewed, extended, amended, modified, waived, surrendered or released by the Lessor, or anyone acting through or on behalf of the Lessor, and any of the other Operative Agreements may be amended, modified, supplemented or terminated, in whole or in part. For the purposes of this Agreement, any reference to the Operative Agreements shall mean such documents as they now exist and as they may be modified, amended, supplemented, renewed or extended from time to time. 8.6 Guarantee Absolute and Unconditional; Waivers. The Construction Agent waives any and all notice of the creation, renewal, extension or accrual of any of the obligations under this Agreement and notice of or proof of reliance by the Lessor, or anyone acting through or on behalf of the Lessor, upon this Agreement or acceptance of this Agreement. The obligations or liabilities under this Agreement shall conclusively be deemed to have been created, contracted or incurred, or renewed, extended, amended or waived, in reliance upon the guarantee contained in this Article. The Construction Agent understands and agrees that the guarantee contained in this Article shall be construed as a continuing, absolute and unconditional guarantee without regard to (a) the validity, regularity or enforceability of this Agreement or any of the other Operative Agreements, (b) any defense, set-off or counterclaim which at any time may be available to or be asserted by the Construction Agent against the Lessor, or anyone acting through or on behalf of the Lessor, or (c) any other circumstance (with or without notice to or knowledge of the Lessor or the Construction Agent) whatsoever which constitutes, or might be construed to constitute, an equitable or legal 13 CONSTRUCTION AGENCY AGREEMENT discharge of the Construction Agent for the obligations under this Agreement in bankruptcy or in any other instance, except for performance of such obligations under this Agreement. The Construction Agent waives any right to require the Lessor, or anyone acting through or on behalf of the Lessor, to proceed against any collateral security in any manner which would preserve any right of subrogation which the Construction Agent might have against the Lessor and also waives any defense arising from any action by the Lessor which may limit or affect adversely any such right of subrogation. When pursuing its rights and remedies against the Construction Agent, the Lessor, or anyone acting through or on behalf of the Lessor, may, but shall be under no obligation to, pursue such rights and remedies as it may have against the Construction Agent or any other Person or against any collateral security or guarantee for the obligations under this Agreement, and any failure by the Lessor, or anyone acting through or on behalf of the Lessor, to pursue such other rights or remedies against the Construction Agent or any such other Person or to realize upon any such collateral security or guarantee, or any release of the Construction Agent or any such other Person or any such collateral security or guarantee, shall not relieve the Construction Agent of any liability, and shall not impair or affect the rights and remedies of the Lessor, or anyone acting through or on behalf of the Lessor, against the Construction Agent. The guarantee of completion contained in this Article shall remain in full force and effect and be binding in accordance with and to the extent of its terms upon the Construction Agent until all the obligations under this Agreement shall have been satisfied by performance in full. 8.7 Reinstatement. The guarantee contained in this Article shall continue to be effective, or be reinstated, as the case may be, if at any time payment, or any part thereof, of any of the obligations of the Construction Agent under this Agreement is rescinded or otherwise must be restored or returned by the Lessor, or anyone acting through or on behalf of the Lessor, upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of the Construction Agent, or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, the Construction Agent or any substantial part of its property, or otherwise, all as though such payments had not been made. 8.8 Subordination. (a) All liabilities and obligations of the Lessor to the Construction Agent, whether secured or unsecured and whether or not evidenced by any instrument, now existing or subsequently created or incurred, are and shall be subordinate and junior in right of payment to the Obligations. (b) The Construction Agent shall not sell, assign or otherwise transfer, in whole or in part, or create, incur or suffer to exist any security interest, Lien, charge or other encumbrance with respect to any indebtedness, liabilities or obligations of the Lessor to the 14 CONSTRUCTION AGENCY AGREEMENT Construction Agent or any instrument or document evidencing or securing the same unless, in any such case, the person or entity to whom such sale, assignment or transfer is made or the beneficiary of such security interest, Lien, charge or encumbrance acknowledges the foregoing subordination and agrees to be bound thereby. (c) Should any payment or distribution or security, or any proceeds thereof, be collected or received by the Construction Agent in respect of any indebtedness, liabilities or obligations of the Lessor to the Construction Agent, and such collection or receipt is not permitted under these subordination provisions of this Agreement, the Construction Agent shall immediately turn over such payment, distribution or security or proceeds to the Administrative Agent, in the form received, and, until so turned over, the same shall be held in trust by the Construction Agent as the property of the Lenders. (d) For purposes of this Agreement "subordinate and junior in right of payment" shall mean no part of any subordinated indebtedness, liabilities or obligations shall have any claim to the assets of the Lessor on a parity with or prior to the claim of the Obligations or the principal amount of the Loans and other amounts due to the Administrative Agent, the Lenders and the Investor. Unless and until the Obligations shall have been fully paid and satisfied, the Construction Agent will not take, demand or receive, directly or indirectly, by set-off, redemption, purchase or in any manner, any payment or security for the whole or any part of any subordinated indebtedness, liabilities or obligations, and the Construction Agent will not accelerate the scheduled maturities of any amounts owing on account of such indebtedness, liabilities or obligations or demand payment thereof or enforce or take any action to enforce or collect any subordinated indebtedness, liabilities or obligations or any part thereof or to enforce any Lien or security interest securing payment or performance of subordinated indebtedness, liabilities or obligations or exercise any claims, rights, remedies or powers in connection with such indebtedness, liabilities or obligations; provided that so long as no Default or Event of Default under the Credit Agreement, the Notes or any other Operative Agreement exists or would be in existence immediately after giving effect to such payment, the Construction Agent may receive currently scheduled payments on account of such indebtedness, liabilities and obligations. 8.9 Payments. The Construction Agent hereby agrees that payments under or with respect to the guarantee contained in this Article will be paid to the Lessor, without set-off or counterclaim in U.S. Dollars, except that so long as this Agreement is subject to the Contract Assignment payments will be paid to the Administrative Agent at the office of the Administrative Agent located at 130 Liberty Street, New York, New York 10006. 15 CONSTRUCTION AGENCY AGREEMENT SECTION 9. MISCELLANEOUS 9.1 Notices. Unless otherwise specifically provided herein, all notices, consents, directions, approvals, instructions, requests and other communications required or permitted by the terms hereof to be given to any Person shall be given in writing by United States mail, by nationally recognized courier service or by hand and any such notice shall become effective five Business Days after being deposited in the mails, certified or registered with appropriate postage prepaid or one Business Day after delivery to a nationally recognized courier service specifying overnight delivery or, if delivered by hand, when received, and shall be directed to the address of such Person as indicated: If to the Lessor, to it at: FMS TRUST 1997-1 Wilmington Trust Company Rodney Square North 1100 North Market Street Wilmington, Delaware 19890-0001 Attn: Corporate Trust Administration Telecopier No.: (302) 651-1576 If to the Construction Agent, to it at: Fred Meyer, Inc. 3800 SE 22nd Avenue PO Box 42121 Portland, Oregon 97242 Attn: James C. Aalberg Vice President and Corporate Treasurer Telecopier No.: (503) 797-5299 With a copy of any default notices to: Stoel Rives LLP 900 SW Fifth Avenue, Suite 2300 Portland, Oregon 97204 Attn: Gary R. Barnum, Esq. Telecopier No.: (503) 220-2480 16 CONSTRUCTION AGENCY AGREEMENT With copies of any notices to the Administrative Agent at: Bankers Trust Company 130 Liberty Street New York, New York 10006 Attn: Deal Administrator Telecopier No.: (212) 250-7351 From time to time any party may designate a new address for purposes of notice hereunder by notice to each of the other parties hereto. It is understood and agreed that the delivery of copies of notices to counsel as set forth above is for courtesy purposes only and any failure to deliver such copy shall not constitute failure with respect to any obligation to provide notices hereunder. 9.2 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the Lessor, the Construction Agent and their respective successors and assigns. The Construction Agent may not assign this Agreement or any of its rights or obligations hereunder in whole or in part to any Person without the prior written consent of the Lessor. 9.3 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES. 9.4 Amendments and Waivers. Subject to the provisions of Section 13.4 of the Participation Agreement, the Lessor and the Construction Agent may from time to time, enter into written amendments, supplements or modifications hereto. 9.5 Counterparts. This Agreement may be executed on any number of separate counterparts and all of said counterparts taken together shall be deemed to constitute one and the same instrument. 9.6 Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and 17 CONSTRUCTION AGENCY AGREEMENT any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 9.7 Headings and Table of Contents. The headings and table of contents contained in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. 18 CONSTRUCTION AGENCY AGREEMENT IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. FRED MEYER, INC. JAMES C. AALBERG ------------------------ By: Name: James C. Aalberg Title: Vice President, Treasurer S-1 CONSTRUCTION AGENCY AGREEMENT FMS TRUST 1997-1 By: WILMINGTON TRUST COMPANY, not in its individual capacity but solely as Owner Trustee PATRICIA A. EVANS --------------------------- By: Name: Patricia A. Evans Title: Financial Services Officer S-2 CONSTRUCTION AGENCY AGREEMENT Exhibit A ---------- Supplement to Construction Agency Agreement ------------------------------------------- SUPPLEMENT to Construction Agency Agreement, dated as of _____________ __, 199__ (the "Supplement"), between FMS TRUST 1997-1, a Delaware business trust (the "Lessor"), and FRED MEYER, INC., a Delaware corporation (the "Construction Agent"). Capitalized terms used but not otherwise defined herein shall have the meanings given them in the Construction Agency Agreement. The Lessor and the Construction Agent are also parties to that certain Construction Agency Agreement dated as of March __, 1998 (as amended, supplemented or otherwise modified, the "Construction Agency Agreement"), pursuant to which the Lessor has appointed the Construction Agent as its sole and exclusive agent in connection with the acquisition of the Properties and construction of the Improvements in accordance with the Plans and Specifications. Subject to the terms and conditions of the Construction Agency Agreement, the Lessor and the Construction Agent desire that the terms of the Construction Agency Agreement apply to the Property described in Schedule 1 and wish to execute this Supplement to provide therefore. NOW, THEREFORE, in consideration of the foregoing, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto covenant and agree as follows: 1. The Construction Agent agrees to act as Construction Agent and to perform the obligations assumed under the Construction Agency Agreement in connection with the completion of construction of the Improvements on the Property in accordance with the Plans and Specifications set forth in Schedule 2, except that, if the Property described in Schedule 1 is a Store Land Property, then in accordance with the Plans and Specifications to be delivered pursuant to Section 9.4 of the Participation Agreement. 2. Each of the Lessor and the Construction Agent acknowledges and agrees that the construction and development of the Property shall be governed by the terms of the Construction Agency Agreement. A-1 CONSTRUCTION AGENCY AGREEMENT 3. The Budget relating to the construction and development of the Improvements on the Property is $[ ], except that, if the Property described in Schedule 1 is a Store Land Property, the Budget will be as provided in accordance with Section 9.4 of the Participation Agreement. 4. This Supplement shall, upon its execution and delivery, constitute a part of the Construction Agency Agreement. A-2 CONSTRUCTION AGENCY AGREEMENT IN WITNESS WHEREOF, the parties hereto have caused this Supplement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. FRED MEYER, INC. By: ____________________________________ Name: Title: S-1 CONSTRUCTION AGENCY AGREEMENT FMS TRUST 1997-1 By: WILMINGTON TRUST COMPANY, not in its individual capacity but solely as Owner Trustee By: ______________________________ Name: Title: S-2 Schedule 1 to Supplement CONSTRUCTION AGENCY AGREEMENT Description of Property ----------------------- Schedule 2 to Supplement Plans and Specifications ------------------------ EX-4.1E 8 CREDIT AGREEMENT =============================================================================== CREDIT AGREEMENT among FMS TRUST 1997-1, as Borrower The Several Lenders from Time to Time Parties Hereto, BANKERS TRUST COMPANY, as Administrative Agent and THE CHASE MANHATTAN BANK, as Syndication Agent Dated as of March 11, 1998 =============================================================================== TABLE OF CONTENTS ----------------- Page ---- SECTION 1. DEFINITIONS........................................ 1 1.1 Defined Terms.............................................................1 SECTION 2. AMOUNT AND TERMS OF COMMITMENTS.................... 1 2.1 Commitments............................................................. 1 2.2 Notes................................................................... 1 2.3 Procedure for Borrowing................................................. 2 2.4 Commitment Fees......................................................... 3 2.5 Prepayments............................................................. 3 2.6 Conversion and Continuation Options..................................... 4 2.7 Minimum Amounts of Tranches............................................. 4 2.8 Interest Rates and Payment Dates........................................ 5 2.9 Computation of Interest................................................. 5 2.10 Inability to Determine Interest Rate.................................... 5 2.11 Pro Rata Treatment and Payments......................................... 6 2.12 Illegality.............................................................. 7 2.13 Legal Requirements...................................................... 7 2.14 Indemnity............................................................... 8 2.15 Taxes................................................................... 9 2.16 Change of Lending Office................................................10 2.17 Mitigation Obligations; Replacement of Lenders..........................10 SECTION 3. REPRESENTATIONS AND WARRANTIES................... 11 SECTION 4. CONDITIONS PRECEDENT............................. 11 4.1 Conditions to Effectiveness............................................ 11 4.2 Conditions to Each Loan................................................ 12 SECTION 5. COVENANTS......................................... 12 5.1 Other Activities....................................................... 12 5.2 Ownership of Property, Indebtedness.................................... 12 5.3 Disposition of Assets.................................................. 12 5.4 Compliance with Operative Agreements................................... 12 5.5 Further Assurances..................................................... 12 i Page ---- 5.6 Notices................................................................ 13 5.7 Discharge of Liens..................................................... 13 SECTION 6. REMEDIAL PROVISIONS............................... 13 6.1 Events of Default...................................................... 13 6.2 Certain Defaults....................................................... 16 SECTION 7. THE ADMINISTRATIVE AGENT ........................ 16 7.1 Appointment............................................................ 16 7.2 Delegation of Duties................................................... 16 7.3 Exculpatory Provisions................................................. 16 7.4 Reliance by Administrative Agent....................................... 17 7.5 Notice of Default...................................................... 17 7.6 Non-Reliance on Administrative Agent and Other Lenders................. 17 7.7 Indemnification........................................................ 18 7.8 Administrative Agent in Its Individual Capacity........................ 18 7.9 Successor Administrative Agent......................................... 18 7.10 Syndication Agent...................................................... 19 SECTION 8. MATTERS RELATING TO PAYMENTS AND COLLATERAL...... 19 8.1 The Account............................................................ 19 8.2 Proceeds of Collateral; Proceeds Remaining in Account.................. 21 8.3 Certain Remedial Matters............................................... 22 8.4 Release of the Property, etc........................................... 22 SECTION 9. MISCELLANEOUS.................................... 23 9.1 Amendments and Waivers................................................. 23 9.2 Notices................................................................ 24 9.3 No Waiver; Cumulative Remedies......................................... 24 9.4 Survival of Representations and Warranties............................. 24 9.5 Successors and Assigns................................................. 24 9.6 The Register; Disclosure............................................... 26 9.7 Adjustments; Set-Off................................................... 26 9.8 Counterparts........................................................... 27 9.9 Severability........................................................... 27 ii Page ---- 9.10 Integration............................................................ 27 9.11 Governing Law; Jurisdiction; Consent of Service of Process............. 28 9.12 Acknowledgements....................................................... 28 9.13 WAIVERS OF JURY TRIAL.................................................. 29 9.14 Nonrecourse............................................................ 29 9.15 OREGON LEGAL NOTICE.................................................... 30 9.16 WASHINGTON STATUTORY NOTICE............................................ 30 EXHIBITS Exhibit A-1 Form of Tranche A Note Exhibit A-2 Form of Tranche B Note Exhibit B Form of Assignment and Acceptance SCHEDULES Schedule 2.1 Lenders and Commitments iii Schedule 1.1 Lenders and Commitments Name and Address of Lender Amount of Commitment - -------------------------- -------------------- 1 CREDIT AGREEMENT, dated as of March 11, 1998 among FMS TRUST 1997-1, a Delaware business trust (the "Borrower"), the several banks and other financial institutions from time to time parties to this Agreement (the "Lenders"), BANKERS TRUST COMPANY, a New York banking corporation, as administrative agent for the Lenders hereunder (in such capacity, the "Administrative Agent"); THE CHASE MANHATTAN BANK, a New York banking corporation, as syndication agent (the "Syndication Agent"); and NATIONSBANK OF TEXAS, N.A., a national banking association, and SALOMON BROTHERS HOLDING CO INC. as co-documentation agents (the "Co-Documentation Agents"). The parties hereto hereby agree as follows: SECTION 1. DEFINITIONS 1.1 Defined Terms. Capitalized terms used herein but not otherwise defined in this Agreement shall have the respective meanings set forth in Annex A attached to the Participation Agreement dated as of the date hereof (the "Participation Agreement"), among Lessee and Construction Agent, the Borrower, the Owner Trustee, the Investors, the Administrative Agent, the Syndication Agent and the Lenders. The rules of usage set forth in Annex A to the Participation Agreement shall apply to this Credit Agreement. Unless otherwise indicated, references in this Credit Agreement to articles, sections, paragraphs, clauses, appendices, schedules and exhibits are to the same contained in this Credit Agreement. SECTION 2. AMOUNT AND TERMS OF COMMITMENTS 2.1 Commitments. (a) Subject to the terms and conditions hereof, each Lender severally agrees to make revolving credit loans (the "Loans") to the Borrower from time to time during the Commitment Period for the purpose of enabling the Borrower to acquire the Properties and to pay Project Costs, in an aggregate principal amount at any one time outstanding not to exceed the amount of such Lender's Commitment. During the Commitment Period the Borrower may use the Commitments by borrowing, prepaying the Loans in whole or in part, and reborrowing, all in accordance with the terms and conditions hereof. (b) The Loans may from time to time be (i) Eurodollar Loans, (ii) ABR Loans, or (iii) a combination thereof, as determined by the Borrower and notified to the Administrative Agent in accordance with Sections 2.3 and 2.6. 2.2 Notes. Any Lender may request that the Loans made by it be evidenced by a promissory note of the Borrower, substantially in the form of Exhibit A-1, in the case of Tranche A Loans (each, a "Tranche A Note"), or Exhibit A-2, in the case of Tranche B Loans (each, a "Tranche B Note"). In such event the Borrower shall prepare, execute and deliver to such Lender (or, if requested by such Lender, to such Lender and its registered assigns) a 1 CREDIT AGREEMENT Tranche A Note and a Tranche B Note. Thereafter, the Loans evidenced by such Notes and interest thereon shall at all times (including after assignment pursuant to Section 9.5) be represented by Notes payable to the order of the payee named therein (or, if such Notes are registered Notes, to such payee and its registered assigns). Each Note shall (i) be dated the Effective Date (as defined in the Assignment and Acceptance), (ii) be stated to mature on the Maturity Date and (iii) provide for the payment of interest in accordance with Section 2.8. 2.3 Procedure for Borrowing. (a) The Borrower may borrow under the Commitments during the Commitment Period on any Business Day, provided that the Borrower shall deliver to the Administrative Agent an irrevocable Requisition (which Requisition must be received by the Administrative Agent prior to 12:00 p.m. (noon), New York City time, (a) three Business Days prior to the requested Borrowing Date, if all or any part of the requested Loans are to be initially Eurodollar Loans, or (b) on the requested Borrowing Date, otherwise), specifying, among other things, (i) the amount to be borrowed, (ii) the requested Borrowing Date, (iii) whether the borrowing is to be of Eurodollar Loans, ABR Loans or a combination thereof and (iv) if the borrowing is to be entirely or partly of Eurodollar Loans, the respective amounts of each such Type of Loan and the respective lengths of the initial Interest Periods therefor. Each Borrowing (other than Borrowings pursuant to Section 2.3(b)) shall be in an amount equal to (x) in the case of ABR Loans, at least $1,000,000 or a whole multiple of $500,000 in excess thereof (or, if the then Available Commitments are less than $1,000,000, such lesser amount) and (y) in the case of Eurodollar Loans, at least $1,000,000 or a whole multiple of $500,000 in excess thereof. Upon receipt of any such Requisition from the Borrower, the Administrative Agent shall promptly notify each Lender thereof. Each Lender will make the amount of its pro rata share of each borrowing available to the Administrative Agent for the account of the Borrower at the office of the Administrative Agent specified in Section 9.2 prior to 2:00 P.M., New York City time, on the Funding Date requested by the Borrower in funds immediately available to the Administrative Agent. Such borrowing will then be made available to the Borrower by the Administrative Agent crediting an account designated by the Borrower on the books of such office with the aggregate of the amounts made available to the Administrative Agent by the Lenders and in like funds as received by the Administrative Agent. (b) Notwithstanding anything in the foregoing paragraph 2.3(a) to the contrary, on each date during the Commitment Period with respect to any Construction Period Property which is one Business Day prior to any Scheduled Interest Payment Date, unless otherwise requested by the Borrower at least three Business Days prior to such Scheduled Interest Payment Date by written notice to the Administrative Agent, the Borrower shall be deemed to have requested a Borrowing pursuant to Section 2.3(a) of ABR Loans in an amount equal to the aggregate amount of Allocated Interest on the Loans due and payable on such date with respect to the Construction Period Properties; except that, to the extent such amount of Allocated Interest would cause any Lender's aggregate Loans to exceed such Lender's Commitment, such amount shall be immediately due and payable as Supplemental Rent and shall not be included in Allocated Interest. The Funding Date with respect to any such borrowing shall be the relevant Scheduled Interest Payment Date (provided, that the making of the Loans pursuant to such borrowing shall be subject to satisfaction of the applicable conditions precedent set forth in Section 4.2) and the proceeds of such borrowing shall be 2 CREDIT AGREEMENT applied to pay such interest. On each such Borrowing Date, the Tranche A/B Property Cost and the Tranche A/B Construction Property Cost of each Construction Period Property shall be increased by an amount equal to the Allocated Interest paid on such date with respect to such Property. (c) A portion of the principal amount of each Loan made by each Lender equal to the Aggregate Tranche A Percentage of the principal amount of such Loan shall be deemed to be a "Tranche A Loan" for the purposes of the Operative Agreements and the remaining portion of the principal amount of such Loan, if any, shall be deemed to be a "Tranche B Loan" for the purposes of the Operative Agreements, provided that payments in respect of the Loans shall be allocated to reduce the aggregate outstanding principal amount of Tranche A Loans and Tranche B Loans of each Lender in the manner specified in Section 2.11(a). 2.4 Commitment Fees. Promptly after receipt from the Lessee of payment of any Commitment Fees payable pursuant to the Participation Agreement, the Administrative Agent shall distribute such payment to the Lenders pro rata according to their respective Commitment Percentages. 2.5 Prepayments. (a) The Borrower may at any time and from time to time prepay the Loans, in whole or in part, without premium or penalty (other than breakage costs if due under Section 2.14), upon at least three Business Days' irrevocable notice to the Administrative Agent, specifying the date and amount of prepayment and whether the prepayment is of Eurodollar Loans, ABR Loans or a combination thereof, and, if of a combination thereof, the amount allocable to each. Upon receipt of any such notice the Administrative Agent shall promptly notify each Lender thereof. If any notice of prepayment is given, the amount specified in such notice shall be due and payable on the date specified therein, together with accrued interest to the payment date on the amount prepaid and amounts, if any, required to be paid pursuant to Section 2.14. Partial prepayments pursuant to this Section 2.5(a) shall be in an aggregate principal amount of $1,000,000 or a whole multiple of $1,000,000 in excess thereof. (b) If on any date the Administrative Agent or the Borrower shall receive, with respect to any Property, any payment in respect of excess wear and tear pursuant to Section 21.3 of the Lease (a "Wear and Tear Payment") or any Net Sales Proceeds Shortfall pursuant to Section 21.3 of the Lease, such payment shall be applied to prepay the Loans on such date in accordance with Section 8.1(b)(vi). (c)(i) On any date on which the Lessee is obligated to pay the Lessor an amount equal to (x) the Termination Value of any Property in connection with the delivery of a Termination Notice or (y) the Termination Value of any Property in connection with the exercise of a Purchase Option (including in respect of a Casualty or Condemnation as set forth in Section 15.1(g) of the Lease) or the Termination Value for all Properties in connection with the exercise of the Maturity Date Purchase Option, such amount shall be applied to prepay the Loans on such date in accordance with Section 8.1(b)(ii), and (ii) on any date on which any Property shall have been sold pursuant to Section 21 of the Lease, the Borrower shall prepay 3 CREDIT AGREEMENT the Loans on such date in an amount equal to the proceeds of such sale (net of costs and expenses described in Section 21.2(i) of the Lease) in accordance with Section 8.1(b)(iii). (d) Each prepayment of the Loans pursuant to Section 2.5(b) or 2.5(c) shall be allocated to reduce the Tranche A/B Property Cost of the affected Property. Each prepayment of the Loans pursuant to Section 2.5(a) shall be allocated to reduce the respective Tranche A/B Property Costs of all Properties, pro rata according to the Tranche A/B Property Costs of such Properties immediately before giving effect to such prepayment. Any amounts applied to reduce the Tranche A/B Property Cost of any Construction Period Property pursuant to this paragraph (d) shall also be applied to reduce the Tranche A/B Construction Property Cost of such Property until such Tranche A/B Construction Property Cost has been reduced to zero. (e) In connection with each prepayment of the Loans, the Borrower shall pay amounts, if any, required to be paid pursuant to Section 2.14. 2.6 Conversion and Continuation Options. (a) The Borrower may elect from time to time to convert Eurodollar Loans to ABR Loans by giving the Administrative Agent at least one Business Days' prior irrevocable notice of such election, provided that any such conversion of Eurodollar Loans may only be made on the last day of an Interest Period with respect thereto. The Borrower may elect from time to time to convert ABR Loans to Eurodollar Loans by giving the Administrative Agent at least three Business Days' prior irrevocable notice of such election. Any such notice of conversion to Eurodollar Loans shall specify the length of the initial Interest Period or Interest Periods therefor. Upon receipt of any such notice the Administrative Agent shall promptly notify each Lender thereof. All or any part of outstanding Eurodollar Loans or ABR Loans may be converted as provided herein, provided that no ABR Loan may be converted into a Eurodollar Loan when any Default has occurred and is continuing, or after the date that is one month prior to the Maturity Date. (b) Any Eurodollar Loans may be continued as such upon the expiration of the then current Interest Period with respect thereto by the Borrower giving notice to the Administrative Agent, in accordance with the applicable provisions of the term "Interest Period" set forth in Annex A, of the length of the next Interest Period to be applicable to such Loans, provided that no Eurodollar Loan may be continued as such when any Default has occurred and is continuing, or after the date that is one month prior to the Maturity Date and provided, further, that if the Borrower shall fail to give any required notice as described above in this paragraph or if such continuation is not permitted pursuant to the preceding proviso such Loans shall be automatically converted to ABR Loans on the last day of such then expiring Interest Period. 2.7 Minimum Amounts of Tranches. Notwithstanding anything to the contrary in this Agreement, all borrowings, conversions, continuations and prepayments of Eurodollar Loans and all selections of Interest Periods shall be in such amounts and be made pursuant to such elections so that, after giving effect thereto, (a) the aggregate principal amount of the Eurodollar Loans comprising each Eurodollar Tranche shall be equal to $5,000,000 or a whole multiple of $1,000,000 in excess thereof and (b) no more than three Eurodollar Tranches shall be outstanding at any one time. 4 CREDIT AGREEMENT 2.8 Interest Rates and Payment Dates. (a) Each Eurodollar Loan shall bear interest for each day during each Interest Period with respect thereto at a rate per annum equal to the Eurodollar Rate determined for such day plus the Applicable Margin. (b) Each ABR Loan shall bear interest at a rate per annum equal to the ABR plus the Applicable Margin. (c) If all or a portion of (i) the principal amount of any Loan, (ii) any interest payable thereon or (iii) any other amount payable hereunder shall not be paid when due (whether at the stated maturity, by acceleration or otherwise), such overdue amount shall bear interest at a rate per annum which is equal to the ABR plus 2%, from the date of such non-payment until such amount is paid in full (as well after as before judgment). (d) Interest shall be payable in arrears on each Scheduled Interest Payment Date, provided that (i) interest accruing pursuant to paragraph (c) of this Section 2.8 shall be payable from time to time on demand and (ii) each prepayment of the Loans shall be accompanied by accrued interest to the date of such prepayment on the amount prepaid and breakage costs, if any. 2.9 Computation of Interest. (a) Interest on the Loans shall be calculated on the basis of a year of 360 days, except that interest computed by reference to the ABR at times when the ABR is based on the Prime Rate shall be computed on the basis of a year of 365 days (or 366 days in a leap year), and in each case shall be payable for the actual number of days elapsed (including the first day but excluding the last day). The Administrative Agent shall as soon as practicable notify the Borrower and the Lenders of each determination of the Eurodollar Base Rate in respect of any Eurodollar Tranche. Any change in the interest rate on a Loan resulting from a change in the ABR shall become effective as of the opening of business on the day on which such change becomes effective. The Administrative Agent shall as soon as practicable notify the Borrower and the Lenders of the effective date and the amount of each such change in interest rate. (b) Each determination of an interest rate by the Administrative Agent pursuant to any provision of this Agreement shall be conclusive and binding on the Borrower and the Lenders in the absence of manifest error. 2.10 Inability to Determine Interest Rate. If prior to the first day of any Interest Period: (a) the Administrative Agent shall have determined (which determination shall be conclusive and binding upon the Borrower) that, by reason of circumstances affecting the eurodollar market, adequate and reasonable means do not exist for ascertaining the Eurodollar Base Rate for such Interest Period, or (b) the Administrative Agent shall have received notice from the Required Lenders that the Eurodollar Base Rate determined or to be determined for such Interest Period will not adequately and fairly reflect the cost to such Lenders (as conclusively 5 CREDIT AGREEMENT certified by such Lenders) of making or maintaining their affected Eurodollar Loans during such Interest Period, the Administrative Agent shall give telecopy or telephonic notice thereof to the Borrower and the Lenders as soon as practicable thereafter. If such notice is given (x) any Eurodollar Loans requested to be made on the first day of such Interest Period shall be made as ABR Loans and (y) any Loans that, on the first day of such Interest Period, were to be converted to or continued as Eurodollar Loans shall be converted to or continued as ABR Loans. Until such notice has been withdrawn by the Administrative Agent, no further Eurodollar Loans shall be made or continued as such, nor shall the Borrower have the right to convert ABR Loans to Eurodollar Loans. 2.11 Pro Rata Treatment and Payments. (a) Each borrowing by the Borrower from the Lenders hereunder and any reduction of the Commitments of the Lenders shall be made pro rata according to the respective Commitment Percentages of the Lenders. Except as otherwise provided in Section 2.5, Section 8 or Section 9.1(b), each payment (including each prepayment) by the Borrower on account of principal of and interest on the Loans shall be made pro rata according to the respective outstanding principal amounts of the Loans then held by the Lenders (it being understood that, except as otherwise provided in Section 8, any payment so made in respect of principal of any Lender's Loans shall be deemed to ratably reduce the outstanding amount of Tranche A Loans and Tranche B Loans of such Lender). All payments (including prepayments) to be made by the Borrower hereunder and under the Notes, whether on account of principal, interest or otherwise, shall be made without setoff or counterclaim and shall be made prior to 12:00 Noon, New York City time, on the due date thereof to the Administrative Agent, for the account of the Lenders, at the Administrative Agent's office specified in Section 9.2, in Dollars and in immediately available funds. The Administrative Agent shall distribute such payments to the Lenders promptly upon receipt in like funds as received. If any payment hereunder (other than payments on the Eurodollar Loans) becomes due and payable on a day other than a Business Day, such payment shall be extended to the next succeeding Business Day. If any payment on a Eurodollar Loan becomes due and payable on a day other than a Business Day, the maturity thereof shall be extended to the next succeeding Business Day unless the result of such extension would be to extend such payment into another calendar month, in which event such payment shall be made on the immediately preceding Business Day. In the case of any extension of any payment of principal pursuant to the preceding two sentences, interest thereon shall be payable at the then applicable rate during such extension. (b) The failure of any Lender (such Lender, a "Defaulting Lender") to make any Loan to be made by it on the date specified therefor shall not relieve any other Lender (each such other Lender, a "Non-Defaulting Lender") of its obligation to make its Loans on such date, but neither any Non-Defaulting Lender nor the Administrative Agent shall be responsible for the failure of any Defaulting Lender to make a Loan to be made by such Defaulting Lender, and no Defaulting Lender shall have any obligation to the Administrative Agent or any Non-Defaulting Lender (without prejudicing the rights of the Borrower against such Defaulting Lender). Notwithstanding anything set forth herein to the contrary, so long as a Lender remains a Defaulting Lender, such Lender shall not have any voting or consent rights 6 CREDIT AGREEMENT under or with respect to this Agreement or constitute a "Lender" (or be included in the calculation of "Required Lenders" hereunder) for any voting or consent rights under or with respect to this Agreement. (c) Unless the Administrative Agent shall have received notice from a Lender prior to the proposed Funding Date that such Lender will not make available to the Administrative Agent such Lender's share of such Borrowing, the Administrative Agent may assume that such Lender has made such share available on such Funding Date in accordance with paragraph (a) of this Section and may, in reliance upon such assumption, make available to the Borrower a corresponding amount. In such event, if a Lender is a Defaulting Lender, then such Defaulting Lender and the Borrower severally agree to pay to the Administrative Agent forthwith on demand such corresponding amount with interest thereon, for each day from and including the date such amount is made available to the Borrower but excluding the date of payment to the Administrative Agent, at (i) in the case of such Defaulting Lender, the greater of the Federal Funds Effective Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation or (ii) in the case of the Borrower, the interest rate applicable to ABR Loans. If such Defaulting Lender pays such amount to the Administrative Agent, then such amount shall constitute such Lender's Loan included in such Borrowing and such Lender shall cease to be a Defaulting Lender. 2.12 Illegality. Notwithstanding any other provision herein, if the adoption of or any change in any Legal Requirement or in the interpretation or application thereof shall make it unlawful for any Lender to make or maintain Eurodollar Loans as contemplated by this Agreement, (a) the commitment of such Lender hereunder to make Eurodollar Loans, continue Eurodollar Loans as such and convert ABR Loans to Eurodollar Loans shall forthwith be cancelled and (b) such Lender's Loans then outstanding as Eurodollar Loans, if any, shall be converted automatically to ABR Loans on the respective last days of the then current Interest Periods with respect to such Loans or within such earlier period as required by law. If any such conversion of a Eurodollar Loan occurs on a day which is not the last day of the then current Interest Period with respect thereto, the Borrower shall pay to such Lender such amounts, if any, as may be required pursuant to subsection 2.14. 2.13 Legal Requirements. (a) If the adoption of or any change in any Legal Requirement or in the interpretation or application thereof or compliance by any Lender with any request or directive (whether or not having the force of law) from any central bank or other Governmental Authority made subsequent to the date hereof: (i) shall subject any Lender to any tax of any kind whatsoever with respect to this Agreement, any Note or any Eurodollar Loan made by it, or change the basis of taxation of payments to such Lender in respect thereof; (ii) shall impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, deposits or other liabilities in or for the account of, advances, loans or other extensions of credit by, or any other acquisition of funds by, any office of such Lender which is not otherwise included in the determination of the Eurodollar Rate; or 7 CREDIT AGREEMENT (iii) shall impose on such Lender any other condition; and the result of any of the foregoing is to increase the cost to such Lender, by an amount which such Lender deems to be material, of making, converting into, continuing or maintaining Eurodollar Loans or to reduce any amount receivable hereunder in respect thereof, then, in any such case, the Borrower shall promptly pay such Lender, upon its demand, any additional amounts necessary to compensate such Lender for such increased cost or reduced amount receivable. (b) If any Lender shall have determined that any change in any Legal Requirement regarding capital adequacy or in the interpretation or application thereof or compliance by such Lender or any corporation controlling such Lender with any request or directive regarding capital adequacy (whether or not having the force of law) from any Governmental Authority, in each case made subsequent to the date hereof, has the effect of reducing the rate of return on such Lender's or such corporation's capital as a consequence of its obligations hereunder to a level below that which such Lender or such corporation could have achieved but for such change or compliance (taking into consideration such Lender's or such corporation's policies with respect to capital adequacy) by an amount deemed by such Lender to be material, then from time to time, the Borrower shall promptly pay to such Lender such additional amount or amounts as will compensate such Lender for such reduction. (c) If any Lender becomes entitled to claim any additional amounts pursuant to this Section 2.13, it shall promptly notify the Borrower (with a copy to the Administrative Agent) of the event by reason of which it has become so entitled. A certificate setting forth the basis of the calculation and amounts payable pursuant to this Section 2.13 submitted by such Lender to the Borrower (with a copy to the Administrative Agent) shall be conclusive in the absence of manifest error. The agreements in this Section 2.13 shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder. (d) Failure or delay on the part of any Lender to demand compensation pursuant to this Section shall not constitute a waiver of such Lender's right to demand such compensation; provided that the Borrower shall not be required to compensate a Lender pursuant to this Section for any increased costs or reductions incurred more than 180 days prior to the date that such Lender notifies the Borrower of the change in Legal Requirements giving rise to such increased costs or reductions and of such Lender's intention to claim compensation therefor; provided further that, if the change in Legal Requirements giving rise to such increased costs or reductions is retroactive, then the 180-day period referred to above shall be extended to include the period of retroactive effect thereof. 2.14 Indemnity. The Borrower shall indemnify each Lender against any loss or expense which such Lender may sustain or incur as a consequence of (a) any default by the Borrower in making a borrowing of, conversion into or continuation of Eurodollar Loans after the Borrower has given a notice requesting the same in accordance with the provisions of this Agreement, (b) default by the Borrower in making any prepayment after the Borrower has given a notice thereof in accordance with the provisions of this Agreement or (c) the making 8 CREDIT AGREEMENT of a prepayment of Eurodollar Loans on a day which is not the last day of an Interest Period with respect thereto. Such indemnification may include an amount equal to the excess, if any, of (i) the amount of interest which would have accrued on the amount so prepaid, or not so borrowed, converted or continued, for the period from the date of such prepayment or of such failure to borrow, convert or continue to the last day of such Interest Period (or, in the case of a failure to borrow, convert or continue, the Interest Period that would have commenced on the date of such failure) in each case at the applicable rate of interest for such Loans provided for herein (excluding, however, the Applicable Margin included therein, if any) over (ii) the amount of interest (as reasonably determined by such Lender) which would have accrued to such Lender on such amount by placing such amount on deposit for a comparable period with leading banks in the interbank eurodollar market. A certificate of any Lender setting forth any amount or amounts which such Lender is entitled to receive pursuant to this Section and evidencing a loss suffered by such Lender of such amount or amounts shall be delivered to the Borrower. The provisions of this Section 2.14 shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder. 2.15 Taxes. (a) Any and all payments by or on account of any obligation of the Borrower hereunder shall be made free and clear of and without deduction for any Indemnified Taxes or Other Taxes; provided that if the Borrower shall be required to deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section), the Administrative Agent or any Lender, as the case may be, receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law. (b) In addition, the Borrower shall pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law. (c) The Borrower shall indemnify the Administrative Agent and each Lender, within 10 days after written demand therefor, for the full amount of any Indemnified Taxes or Other Taxes paid by the Administrative Agent or such Lender, as the case may be, on or with respect to any payment by or on account of any obligation of the Borrower hereunder (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section) and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. The Borrower shall also indemnify the Administrative Agent and each Lender, within 10 days after written demand therefor, for the full amount of Excluded Taxes as the Administrative Agent or such Lender, as the case may be, shall determine are payable in respect of amounts paid to or on behalf of the Administrative Agent or such Lender, as the case may be, pursuant to this Section 2.15. A certificate as to the amount of such payment or liability delivered to the Borrower by a Lender or the Administrative Agent on its own behalf or on behalf of a Lender or the Administrative Agent shall be conclusive absent manifest error. 9 CREDIT AGREEMENT (d) As soon as practicable after any payment of Indemnified Taxes or Other Taxes by the Borrower to a Governmental Authority, the Borrower shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent. (e) Any Lender that is not incorporated under the United States of America or a state thereof (each a "Foreign Lender") shall: (i) on the date it becomes a Lender, deliver to the Administrative Agent (A) two completed copies of United States Internal Revenue Service Form 1001 or 4224, or successor applicable form, as the case may be, and shall certify that it is entitled to receive payments under this Agreement without deduction or withholding (or at a reduced rate of deduction or withholding) of any United States Federal income taxes and (B) an Internal Revenue Services Form W-8 or W-9, or successor applicable form, as the case may be and shall certify that it is entitled to an exemption from United States backup withholding tax; (ii) deliver to the Administrative Agent two further copies of any such form or certification on or before the date that any such certification described above expires or becomes obsolete and after the occurrence of any event requiring a change in the most recent form previously delivered to it; and (iii) obtain such extensions of time for filing and complete such forms or certifications as may reasonably be requested by the Administrative Agent; except that the forms and certificates described in clauses (ii) and (iii) above shall not be required if any Change in Law has occurred prior to the date on which any such delivery would otherwise be required which renders all such forms inapplicable or which would prevent such Lender from duly completing and delivering any such form with respect to it and such Lender so advises the Administrative Agent. 2.16 Change of Lending Office. Each Lender agrees that if it makes any demand for payment under Section 2.13 or 2.15(a), or if any adoption or change of the type described in subsection 2.12 shall occur with respect to it, it will use reasonable efforts (consistent with its internal policy and legal and regulatory restrictions and so long as such efforts would not be disadvantageous to it, as determined in its sole discretion) to designate a different lending office if the making of such a designation would reduce or obviate the need for the Borrower to make payments under Section 2.13 or 2.15(a), or would eliminate or reduce the effect of any adoption or change described in subsection 2.12. 2.17 Mitigation Obligations; Replacement of Lenders. (a) If any Lender requests compensation under Section 2.15, or if the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.13, then such Lender shall use reasonable efforts to designate a different lending office for funding or booking its Loans hereunder or to assign its rights and obligations 10 CREDIT AGREEMENT hereunder to another of its offices, branches or affiliates, if, in the judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 2.13 or 2.15, as the case may be, in the future and (ii) would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. The Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment. (b) If (i) any Lender requests compensation under Section 2.15, or (ii) the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.13, or (iii) any Lender defaults in its obligation to fund Loans hereunder, or (iv) any Lender refuses to consent to certain proposed changes, waivers, discharges or termination with respect to this Agreement which require the consent of all Lenders and have been approved by the Required Lenders as (and to the extent) provided in Section 9.1(b), then the Borrower may, at its sole expense and effort, if no Default or Event of Default then exists (or, in the case of preceding clause (iv), no Default or Event of Default will exist immediately upon giving effect to such replacement), upon notice to such Lender and the Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in Section 9.5), all its interests, rights and obligations under this Agreement to an assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment) (such Assignee a "Replacement Lender"); provided that (x) the Borrower shall have received the prior written consent of the Administrative Agent, which consent shall not unreasonably be withheld, (y) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans, accrued interest thereon, accrued fees and all other amounts payable to it hereunder, from the Replacement Lender (to the extent of such outstanding principal and accrued interest and fees) or the Borrower (in the case of all other amounts) and (z) in the case of any such assignment resulting from a claim for compensation under Section 2.15 or payments required to be made pursuant to Section 2.13, such assignment will result in a reduction in such compensation or payments. A Lender shall not be required to make any such assignment and delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply. SECTION 3. REPRESENTATIONS AND WARRANTIES To induce the Administrative Agent and the Lenders to enter into this Agreement and to make the Loans, the Borrower hereby represents and warrants to the Administrative Agent and each Lender that the applicable representations and warranties of the Lessor set forth in Section 7 of the Participation Agreement are true and correct. SECTION 4. CONDITIONS PRECEDENT 4.1 Conditions to Effectiveness. The effectiveness of this Agreement is subject to the satisfaction of all conditions precedent set forth in Section 6.1 of the 11 CREDIT AGREEMENT Participation Agreement required by said Section to be satisfied on or prior to the Initial Closing Date. 4.2 Conditions to Each Loan. The agreement of each Lender to make any Loan requested to be made by it on any date is subject to the satisfaction of the conditions precedent specified in Section 6 of the Participation Agreement. Each borrowing by the Borrower hereunder shall constitute a representation and warranty by the Borrower or the Lessee, as the case may be, as of the date of such Loan that the conditions contained in this Section 4.2 have been satisfied. SECTION 5. COVENANTS So long as the Commitments remain in effect, any Note remains outstanding and unpaid or any other amount is owing to any Lender or the Administrative Agent hereunder: 5.1 Other Activities. The Borrower shall not conduct, transact or otherwise engage in, or commit to transact, conduct or otherwise engage in, any business or operations other than the entry into, and exercise of rights and performance of obligations in respect of, the Operative Agreements and other activities incidental or related to the foregoing. 5.2 Ownership of Property, Indebtedness. The Borrower shall not own, lease, manage or otherwise operate any properties or assets other than in connection with the activities described in Section 5.1, or incur, create, assume or suffer to exist any Indebtedness or other consensual liabilities or financial obligations other than as may be incurred, created or assumed or as may exist in connection with the activities described in Section 5.1 (including the Loans and other obligations incurred by the Borrower hereunder). 5.3 Disposition of Assets. The Borrower shall not convey, sell, lease, assign, transfer or otherwise dispose of any of its property, business or assets, whether now owned or hereafter acquired, except to the extent expressly authorized by the Operative Agreements. 5.4 Compliance with Operative Agreements. The Borrower shall at all times (a) observe and perform all of the covenants, conditions and obligations required to be performed by it under each Operative Agreement to which it is a party and (b) observe and perform, or cause to be observed and performed, (i) all of the covenants, conditions and obligations of the Lessee under the Lease, even in the event the Lease is terminated at its stated expiration, following a Lease Event of Default or otherwise and (ii) all of the covenants, conditions and obligations of the Construction Agent relating to the construction of the Improvements under the Construction Agency Agreement. 5.5 Further Assurances. At any time and from time to time, upon the written request of the Administrative Agent, the Borrower will, at its own sole expense, promptly and duly execute and deliver such further instruments and documents and take such further action as the Administrative Agent or the Required Lenders may reasonably request for the purpose 12 CREDIT AGREEMENT of obtaining or preserving the full benefits of this Agreement and the other Operative Agreements and of the rights and powers herein or therein granted. 5.6 Notices. If on any date the Borrower shall obtain actual knowledge of the occurrence of a Default or Event of Default, the Borrower will give prompt written notice thereof to the Administrative Agent. 5.7 Discharge of Liens. The Borrower will not create or permit to exist at any time, and will, at its own expense, promptly take such action as may be necessary duly to discharge, or cause to be discharged, all Lessor Liens attributable to it, provided, that the Borrower shall not be required to discharge any Lessor Lien while the same is being contested in good faith by appropriate proceedings diligently prosecuted so long as such proceedings shall not involve any material danger of impairment of any of the Liens contemplated by the Security Documents or of the sale, forfeiture or loss of, and shall not materially interfere with the construction, use, operation or disposition of (including, as a result of the exercise of the Purchase Option), the Properties or title thereto or any interest therein or the payment of Rent. SECTION 6. REMEDIAL PROVISIONS 6.1 Events of Default. Upon the occurrence of any of the following specified events (each an "Event of Default"): (a) The Borrower shall (i) default in the payment when due of any principal of the Loans or (ii) default, and such default shall continue for three or more Business Days, in the payment when due of any interest on the Loans, any Commitment Fee or any other amounts owing hereunder or under any other Credit Document to which it is a party; or (b) The Borrower shall fail to observe or perform any covenant, condition or agreement contained in any Credit Document to which it is a party (other than the terms, covenants or agreements referred to in paragraph (a) above) and such default shall have continued unremedied for a period of thirty days after written notice thereof to the Borrower by the Administrative Agent or the Required Lenders; or (c) Any representation, warranty or statement made or deemed made by the Borrower or any Loan Party in the Participation Agreement or in any Credit Document, or in any statement or certificate delivered or required to be delivered pursuant hereto or thereto, shall prove to be incorrect in any material respect on the date as of which made or deemed made; or (d)(i) Any Lease Event of Default or Construction Agency Agreement Event of Default shall have occurred and be continuing or (ii) the Borrower shall default in the due performance or observance by it of any term, covenant or agreement contained in the Participation Agreement or the Owner Trustee shall default in the due performance or observance by it of any term, covenant or agreement contained in the Trust 13 CREDIT AGREEMENT Agreement, and in each case under this clause (ii), such default shall have continued unremedied for a period of at least thirty (30) days after written notice to the Borrower by the Administrative Agent or the Required Lenders; or (e) Any Guarantor or any Material Subsidiary of any Guarantor shall (i) default in making any payment of (A) any principal of or interest on any one or more items of Indebtedness in an aggregate principal amount of $10,000,000 or more or (B) any one or more items of Suretyship Liability in with an aggregate principal amount of $10,000,000 or more (but excluding the Loans) beyond the period of grace, if any, provided therefor; or (ii) default in the observance or performance of any other material agreement or condition relating to any Indebtedness or any Suretyship Liability that results in an amount of $10,000,000 or more in the aggregate becoming due prior to its scheduled maturity or that enables or permits (with or without the giving of notice, the lapse of time or both) the holder or holders of any Debt of $10,000,000 or more in the aggregate or any trustee or agent on its or their behalf to cause any such Debt to become due, or to require the prepayment, repurchase, redemption or defeasance thereof, prior to its scheduled maturity; or (f)(i) Any Significant Entity or any Investor shall commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian, conservator or other similar official for it or for all or any substantial part of its assets, or any Significant Entity or Investor shall make a general assignment for the benefit of its creditors; or (ii) there shall be commenced against any Significant Entity or Investor any case, proceeding or other action of a nature referred to in clause (i) above which (A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed, undischarged or unbonded for a period of 60 days; or (iii) there shall be commenced against any Significant Entity or Investor any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets which results in the entry of an order for any such relief which shall not have been vacated, discharged, or stayed or bonded pending appeal within 60 days from the entry thereof; or (iv) any Significant Entity or Investor shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clause (i), (ii), or (iii) above; or (v) any Significant Entity or Investor shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due; or (g) Any Security Document shall cease to be in full force and effect, or shall cease to give the Administrative Agent the Liens, rights, powers and privileges purported to be created thereby, in favor of the Administrative Agent on behalf of the Lenders, superior to and prior to the rights of all third Persons and subject to no other 14 CREDIT AGREEMENT Liens (except in each case to the extent expressly permitted herein or in the other Operative Agreements); or (h) Any Guarantor shall default in the due performance or observance by it of any term, covenant or agreement contained in any Credit Document to which it is a party (including any term, covenant or agreement incorporated by reference in any Credit Document), or any Guarantee or any material provision thereof shall cease to be in full force and effect or any Guarantor or any Person acting by or on behalf of any Guarantor shall deny or disaffirm such Guarantor's obligations under the Guarantee to which it is a party; or (i) One or more judgments or judicial decrees shall be entered against the Borrower involving a liability of $100,000 or more in the case of any one such judgment or $250,000 or more in the aggregate for all such judgments and decrees for the Borrower (to the extent not paid or fully covered by insurance, provided by a carrier that has acknowledged coverage) and any such judgments or decrees shall not have been vacated, discharged or stayed or bonded pending appeal within 90 days from the entry thereof; or (j) One or more judgments or decrees shall be entered against any Guarantor which is a Material Subsidiary involving 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) and all such judgments or decrees shall not have been vacated, discharged, stayed or bonded pending appeal within 30 days from the entry thereof; or (k) 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 in excess of $10,000,000 during the term of this Agreement; or there shall exist an amount of Unfunded Liabilities of the Loan Parties, individually or in the aggregate for all Pension Plans (excluding for purposes of such computation any Pension Plans which have a negative amount of Unfunded Liabilities of the Loan Parties), which exceeds $10,000,000. then, and in any such event, (A) if such event is an Event of Default specified in paragraph (f) (except as provided in Section 6.2 hereof), automatically the Commitments shall immediately terminate and the Loans hereunder (with accrued interest thereon) and all other amounts owing under this Agreement and the Notes shall immediately become due and payable, and (B) if such event is any other Event of Default, either or both of the following actions may be taken: (i) with the consent of the Required Lenders, the Administrative Agent may, or upon the request of the Required Lenders, the Administrative Agent shall, by notice to the Borrower declare the Commitments to be terminated forthwith, whereupon the Commitments shall immediately terminate; and (ii) with the consent of the Required Lenders, the Administrative Agent may, or upon the request of the Required Lenders, the Administrative Agent shall, by notice to the Borrower, declare the Loans hereunder (with accrued interest thereon) and all other amounts owing under this Agreement and the Notes to be due and payable forthwith, 15 CREDIT AGREEMENT whereupon the same shall immediately become due and payable (any of the foregoing occurrences or actions referred to in clause (A) or (B) above, an "Acceleration"). Except as expressly provided above in this Section 6, presentment, demand, protest and all other notices of any kind are hereby expressly waived. 6.2 Certain Defaults. Notwithstanding anything to the contrary contained in Section 6.1(f), no Event of Default shall occur under 6.1(f) with respect to any Investor so long as (i) such Event of Default does not, in the reasonable judgment of the Required Lenders, threaten to interrupt the Lenders' timely receipt of all amounts due under this Agreement and each of the other Operative Agreements whether pursuant to the Assignment of Lease or otherwise and (ii) no other Event of Default has occurred and is continuing. SECTION 7. THE ADMINISTRATIVE AGENT 7.1 Appointment. Each Lender hereby irrevocably designates and appoints Bankers Trust Company as the Administrative Agent of such Lender under this Agreement, and each such Lender irrevocably authorizes Bankers Trust Company as the Administrative Agent for such Lender, to take such action on its behalf under the provisions of this Agree ment and to exercise such powers and perform such duties as are expressly delegated to the Administrative Agent by the terms of this Agreement, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in this Agreement, the Administrative Agent shall not have any duties or responsibilities, except those expressly set forth herein, or any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities on the part of the Administrative Agent shall be read into this Agreement or otherwise exist against the Administrative Agent. The provisions of this Section 7 are solely for the benefit of the Administrative Agent and the Lenders and the Borrower shall have no rights as a third party beneficiary or otherwise under any of the provisions hereof. In performing its functions and duties hereunder, the Administrative Agent shall act solely as the agent of the Lenders and does not assume nor shall be deemed to have assumed any obligation or relationship of trust or agency with or for the Borrower or any of its successors and assigns. 7.2 Delegation of Duties. The Administrative Agent may execute any of its duties under this Agreement by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Administrative Agent shall not be responsible for the negligence or misconduct or any agents or attorneys-in-fact selected by it with reasonable care. 7.3 Exculpatory Provisions. The Administrative Agent shall not be (i) liable for any action lawfully taken or omitted to be taken by it or any Person described in Section 7.2 under or in connection with this Agreement (except for its or such Person's own gross negligence or willful misconduct), or (ii) responsible in any manner to any of the Lenders for any recitals, statements, representations or warranties made by the Borrower contained in this Agreement or in any certificate, report, statement or other document referred to or provided for in, or received under or in connection with, this Agreement or for the value, validity, 16 CREDIT AGREEMENT effectiveness, genuineness, enforceability or sufficiency of this Agreement, or for any failure of the Borrower to perform its obligations hereunder or thereunder. The Administrative Agent shall not be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement, or to inspect the properties, books or records of the Borrower. This Section is intended solely to govern the relationship between the Administrative Agent, on the one hand, and the Lenders, on the other. 7.4 Reliance by Administrative Agent. The Administrative Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to the Borrower), independent accountants and other experts selected by the Administrative Agent. The Administrative Agent shall be fully justified in failing or refusing to take any action under this Agreement unless it shall first receive such advice or concurrence of the Required Lenders as it deems appropriate or it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Administrative Agent shall in all cases be fully protected in act ing, or in refraining from acting, under this Agreement in accordance with a request of the Required Lenders, and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders. 7.5 Notice of Default. The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Default unless the Administrative Agent has received notice from a Lender or the Borrower referring to this Agreement, describing such Default and stating that such notice is a "notice of default". In the event that the Administrative Agent receives such a notice, the Administrative Agent shall promptly give notice thereof to the Lenders. The Administrative Agent shall take such action with respect to such Default as shall be directed by the Required Lenders. 7.6 Non-Reliance on Administrative Agent and Other Lenders. Each Lender expressly acknowledges that neither the Administrative Agent, nor any of its officers, directors, employees, agents, attorneys-in-fact or affiliates has made any representations or warranties to it and that no act by the Administrative Agent hereafter taken, including, without limitation, any review of the affairs of the Borrower, shall be deemed to constitute any representation or warranty by the Administrative Agent. Each Lender represents and warrants to the Administrative Agent that it has, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, opera tions, property, prospects, financial and other conditions and creditworthiness of the Borrower and made its own decision to make its Loans hereunder and enter into this Agreement. Each Lender also represents that it will, independently and without reliance upon the Administrative Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in 17 CREDIT AGREEMENT taking or not taking action under this Agreement, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, prospects, financial and other condition and creditworthiness of the Borrower. Except for notices, reports and other documents expressly required to be furnished to the Lenders by the Administrative Agent, the Administrative Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, property, prospects, financial and other condition or creditworthiness of the Borrower which may come into the possession of the Administrative Agent or any of its officers, directors, employees, agents, attorneys-in-fact or affiliates. 7.7 Indemnification. The Lenders agree to indemnify the Administrative Agent and its officers, directors, employees, representatives and agents (to the extent not reimbursed by the Borrower and without limiting the obligation of the Borrower to do so), ratably according to their Applicable Percentage, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disburse ments of any kind or nature whatsoever (including, without limitation, the fees and disbursements of counsel for the Administrative Agent or such Person in connection with any investigative, administrative or judicial proceeding commenced or threatened, whether or not the Administrative Agent or such Person shall be designated a party thereto) that may at any time (including, without limitation, at any time following the payment of the Obligations) be imposed on, incurred by or asserted against the Administrative Agent or such Person as a result of, or arising out of, or in any way related to or by reason of, any of the Transactions or the execution, delivery or performance of this Agreement (but excluding any such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting solely from the gross negligence or willful misconduct of the Administrative Agent or such Person as finally determined by a court of competent jurisdic tion). 7.8 Administrative Agent in its Individual Capacity. The Administrative Agent and its affiliates may make loans to, accept deposits from and generally engage in any kind of business with the Borrower as though the Administrative Agent were not the Administrative Agent hereunder. With respect to Loans made or renewed by it, the Administrative Agent shall have the same rights and powers under this Agreement as any Lender and may exercise the same as though it were not the Administrative Agent, and the terms "Lender" and "Lenders" shall include the Administrative Agent in its individual capacity. 7.9 Successor Administrative Agent. The Administrative Agent may resign as Administrative Agent upon 30 days' notice to the Borrower and the Lenders. If the Administrative Agent shall resign as Administrative Agent under this Agreement, then the Required Lenders during such 30-day period shall appoint from among the Lenders a successor agent, whereupon such successor agent shall succeed to the rights, powers and duties of the Administrative Agent and the term "Administrative Agent" shall mean such successor agent, effective upon its appointment, and the former Administrative Agent's rights, powers and duties as Administrative Agent shall be terminated, without any other or further act or deed on the part of such former Administrative Agent or any of the parties to this 18 CREDIT AGREEMENT Agreement. After any retiring Administrative Agent's resignation hereunder as Administrative Agent, the provisions of this Section 7 and Section 9.3 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Agreement. 7.10 Syndication Agent. Without limiting any provision contained in this Section 7, the Syndication Agent shall not have, except as to and to the limited extent expressly provided herein, any obligation, responsibility or duty under this Agreement other than those applicable to all Lenders as such. Each Lender acknowledges that it has not relied, and will not rely, on the Syndication Agent in deciding to enter into this Agreement or in taking or not taking action hereunder. 7.11 Co-Documentation Agents. Without limiting any provision contained in this Section 7, the Co-Documentation Agents shall not have, except as to and to the limited extent expressly provided herein, any obligation, responsibility or duty under this Agreement other than those applicable to all Lenders as such. Each Lender acknowledges that it has not relied, and will not rely, on the Co-Documentation Agents in deciding to enter into this Agreement or in taking or not taking action hereunder. SECTION 8. MATTERS RELATING TO PAYMENTS AND COLLATERAL 8.1 The Account. (a) The Administrative Agent shall establish an account (the "Account") into which the Administrative Agent shall deposit all payments, receipts and other consideration of any kind whatsoever (other than upon any sale or disposition of the Collateral following an Event of Default) paid under the Lease and received by the Administrative Agent pursuant to the Assignment of Lease. (b) Except as otherwise provided in Section 8.2, payments deposited from time to time in the Account shall be paid out as follows: (i) Any such payment identified by the Lessee as Basic Rent shall be paid out of the Account by the Administrative Agent on the relevant Specified Interest Payment Date, and shall be applied, first, ratably to the payment of interest then due and payable on the Loans until such amounts are paid in full, second, to the payment to the Borrower of an amount equal to the Investor Yield then due and payable under the Operative Agreements until such amount is paid in full, and, third, the remainder of such amount shall be paid out of the Account by the Administrative Agent to such Person or Persons as the Borrower may designate. (ii) Any payment identified by the Lessee as a payment in respect of the Termination Value of any Property pursuant to Section 15 or Section 20 of the Lease shall be paid out of the Account by the Administrative Agent promptly after receipt, and shall be applied, first, ratably to the payment of the principal of Tranche B Loans then outstanding in an amount not to exceed the product of (x) the Tranche A/B Property Cost in respect of such Property and (y) the Tranche B Percentage in respect 19 CREDIT AGREEMENT of such Property and all interest due and payable on such amount, second, to the payment to the Borrower of an amount not to exceed the outstanding Investor Property Cost in respect of such Property and the Investor Yield due and payable on such amount, third, ratably to the payment of the principal of Tranche A Loans then outstanding in an amount not to exceed the product of (x) the Tranche A/B Property Cost in respect of such Property and (y) the Tranche A Percentage in respect of such Property and all interest due and payable on such amount, and fourth, the remainder of such amount shall be paid out of the Account by the Administrative Agent to the Lessee. Notwithstanding the foregoing, the Investors shall not be entitled to any payment described in this clause (ii) prior to the Construction Period Termination Date unless the event causing such prepayment results in the payment of all amounts due hereunder and under the other Operative Agreements. (iii) Any payment identified by the Lessee as proceeds of the sale of any Property pursuant to Section 21 of the Lease (but in any event excluding costs and expenses described in Section 21.2(i) of the Lease) ("Net Sale Proceeds") shall be paid out of the Account by the Administrative Agent promptly after receipt, and shall be applied, first, ratably to the payment of the principal of Tranche B Loans then outstanding in an amount not to exceed the product of (x) the Tranche A/B Property Cost in respect of such Property and (y) the Tranche B Percentage in respect of such Property and all interest then due and payable on such amount, second, to the payment to the Borrower of an amount not to exceed the outstanding Investor Property Cost in respect of such Property and the Investor Yield then due and payable on such amount, third, ratably to the payment of the principal of Tranche A Loans then outstanding in an amount not to exceed the product of (x) the Tranche A/B Property Cost in respect of such Property and (y) the Tranche A Percentage in respect of such Property and all interest due and payable on such amount, and fourth, the remainder of such amount shall be paid out of the Account by the Administrative Agent to the Lessee. (iv) Any payment identified by the Lessee as the Maximum Residual Guarantee Amount in respect of any Property shall be paid out of the Account by the Administrative Agent promptly after receipt and shall be applied ratably to the payment of the principal of Tranche A Loans then outstanding in respect of such Property. (v) Any payment identified by the Lessee as a Wear and Tear Payment or any Net Sale Proceeds Shortfall pursuant to Section 21.3 of the Lease shall be paid out of the Account by the Administrative Agent promptly after receipt, and shall be applied, first, ratably to the payment of the principal of Tranche B Loans then outstanding in an amount equal to the product of the Tranche B Percentage with respect to such Property and the Tranche A/B Property Cost with respect to such Property (in each case determined as of the date of sale of such Property pursuant to Section 22 of the Lease immediately prior to giving effect thereto) and all interest due and payable on such amount, and second, the remainder of such amount shall be paid out of the Account by the Administrative Agent to the Borrower. 20 CREDIT AGREEMENT (vi) Any payment identified by the Lessee as Supplemental Rent (other than any Maximum Residual Guarantee Amount or Excepted Payment) shall be paid out of the Account by the Administrative Agent promptly after receipt, and shall be applied to the payment of any amounts then owing to the Administrative Agent, the Lenders, the Investors and the other parties to the Operative Agreements (or any of them) (other than any such amounts payable pursuant to the preceding provisions of this Section 8.1(b)) as shall be designated by the Lessee (or, in the absence of such designation, ratably according to the respective amounts so owing of which the Administrative Agent has received written notice). In the event that the Lessee shall fail to identify the nature of any payment deposited by them in the Account, or the Administrative Agent in its reasonable judgment shall determine that the identification made by the Lessee is incorrect or inappropriate, the nature of such payment shall instead be identified by the Administrative Agent in its reasonable judgment and applied in the manner specified above; provided, that in the event that the Administrative Agent identifies such payment as an Excepted Payment, such payment shall be paid out of the Account by the Administrative Agent to such Person or Persons entitled to receive such Excepted Payments. (c) Upon the termination of the Commitments and the payment in full of the Loans and all other amounts owing by the Borrower hereunder or under any other Credit Document, any moneys remaining in the Account shall be paid to the Borrower or such other Person or Persons as the Borrower may designate. 8.2 Proceeds of Collateral; Proceeds Remaining in Account. (a) All moneys collected by the Administrative Agent upon any sale or other disposition of the Collateral pursuant to any Security Document, together with all other moneys received by the Administrative Agent thereunder and (b) all moneys contained in the Account on the date of an Acceleration or on the Maturity Date, or deposited in the Account thereafter, shall be applied as follows: First, to the payment of (x) any and all sums advanced by the Administrative Agent in order to preserve the Collateral or preserve its security interest therein and (y) the expenses of retaking, holding, preparing for sale or lease, selling or otherwise disposing or realizing on the Collateral, or of any exercise by the Administrative Agent of its rights under the Security Documents, together with reasonable attorneys' fees and court costs; Second, to the payment of the amounts then due and unpaid for principal of the Tranche B Loans, according to the amounts due and payable on the Tranche B Loans in respect of principal; Third, to the payment of the amounts then due and unpaid for principal of the Tranche A Loans according to the amounts due and payable on the Tranche A Loans in respect of principal; 21 CREDIT AGREEMENT Fourth, to the payment of the amounts then due and unpaid for interest accrued on the Tranche B Loans and the Tranche A Loans, ratably, without preference or priority of any kind, according to the amounts due and payable on the Tranche B Loans and the Tranche A Loans in respect of principal; Fifth, to the payment of all amounts then due and payable on account of the Investor Yield; Sixth, to the payment of an amount equal to the aggregate outstanding Investor Contributions; and Seventh, to the extent moneys remain after application pursuant to clauses First through Sixth above, to the Lessee or to whomever may be lawfully entitled to receive such surplus. 8.3 Certain Remedial Matters. (a) Notwithstanding any other provision of this Agreement or any other Credit Document: (i) the Borrower shall at all times to the exclusion of the Administrative Agent retain (A) all rights to Excepted Payments and to demand, collect or commence an action at law to obtain such payments and to enforce any judgment with respect thereto and (B) all of its rights under the Participation Agreement; and (ii) the Borrower shall at all times retain the right, but not to the exclusion of the Administrative Agent, (A) to receive from the Lessee all notices, certificates and other documents and all information that the Lessee is permitted or required to give or furnish to the "Borrower" or the "Lessor" pursuant to the Lease, the Participation Agreement or any other Operative Agreement, (B) to inspect the Properties and otherwise exercise rights of the "Lessor" under Section 10.2 of the Lease, (C) to retain all rights with respect to insurance that Section 14 of the Lease specifically confers upon the "Lessor", (D) to provide such insurance as the Lessee shall have failed to maintain or as the Borrower may desire, (E) to enforce compliance by the Lessee with the provisions of Sections 8, 9, 10, 11, 14 and 21 of the Lease, and (F) subject to the other applicable provisions of this Agreement, including, without limitation, Section 8.3(c) hereof, to perform for the Lessee under Section 17 of the Lease. 8.4 Release of the Property, etc. (a) If the Lessee shall at any time purchase any Property pursuant to Section 15.1 of the Lease or exercise its Purchase Option with respect to the Properties under Section 20 of the Lease, or if the Properties shall be sold in accordance with Section 21 of the Lease, then, upon satisfaction by the Borrower of its obligation to prepay the Loans pursuant to Section 2.5(c) and to pay accrued interest on the Loans so prepaid pursuant to Section 2.8, the Administrative Agent shall release the relevant Properties from the Liens created by the Security Documents. In addition, upon the termination of the Commitments and the payment in full of the Loans and all other amounts owing by the Borrower or the Guarantors hereunder or under any other Operative Agreement, the Administrative Agent shall release all of the Properties from the Liens created by the 22 CREDIT AGREEMENT Security Documents. Upon request of the Borrower following any such release, the Administrative Agent shall, at the sole cost and expense of the Borrower, execute and deliver to the Borrower or the Lessee such documents as the Borrower shall reasonably request to evidence such release. (b) Notwithstanding anything to the contrary herein, upon the termination of the Commitments and the payment in full of (i) the Loans and all other amounts owing by the Borrower or any Guarantor hereunder or under any other Operative Agreement and (ii) all amounts owing by the Lessee to the Lessor or to any other Person under the Operative Agreements, all remaining moneys in the Account shall be paid out to the Lessee. SECTION 9. MISCELLANEOUS 9.1 Amendments and Waivers. (a) Except as provided in the Intercreditor Agreement, no Operative Agreement nor any terms hereof or thereof may be changed, waived, discharged or terminated, nor any Collateral released, unless such change, waiver, discharge, termination or release is in writing signed by the Required Lenders, provided that no such change, waiver, discharge, termination or release shall, without the consent of each Lender (other than a Defaulting Lender), (i) extend the final scheduled maturity of any Loan beyond the Maturity Date, or reduce the rate or extend the time of payment of interest or fees hereunder, or reduce the principal amount thereof (except to the extent repaid in cash), (ii) amend, modify or waive any provision of this Section 9.1, (iii) reduce the percentage specified in the definition of Required Lenders, (iv) consent to the assignment or transfer by the Borrower of any of its rights and obligations under this Agreement, (v) release any Guarantor from its obligations under any Guarantee to which it is a party or amend any Guarantee to materially reduce any Guarantor's obligations thereunder or (vi) release all or a substantial portion of the Collateral; provided further that no such change, waiver, discharge, termination or release shall (x) increase the Commitment of any Lender without the consent of such Lender (it being understood that waivers or modifications of conditions precedent, covenants, Defaults or Events of Default or of a mandatory reduction in the aggregate 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 of the Commitment of such Lender) or (y) without the consent of the Administrative Agent, amend, modify or waive any provision of Section 7 or any other provision as the same relates to the Administrative Agent. No failure or delay by the Administrative Agent or any Lender in exercising any right or power hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Administrative Agent and the Lenders hereunder are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of this Agreement or consent to any departure by the Borrower therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) of this Section, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. Without limiting the generality of the foregoing, the making of a Loan shall not be construed as a waiver of any 23 CREDIT AGREEMENT Default or Event of Default, regardless of whether the Administrative Agent or any Lender may have had notice or knowledge of such Default or Event of Default at the time. (b) If, in connection with any proposed change, waiver, discharge or termination to any of the provisions of this Agreement contemplated by clauses (i) through (iv), inclusive, of the first proviso of Section 9.1(a), the consent of the Required Lenders is obtained but the consent of one or more of such other Lenders whose consent is required is not obtained, then the Borrower shall have the right, so long as all non-consenting Lenders whose individual consent is required are treated as described in either clauses (A) or (B) below, to either (A) replace each such non-consenting Lender or Lenders with one or more Replacement Lenders pursuant to Section 2.17(b) so long as at the time of such replacement, each such Replacement Lender consents to the proposed change, waiver, discharge or termination or (B) terminate such non-consenting Lender's Commitment and/or repay the outstanding Loans of such Lender, provided that, unless the Commitment that is terminated and Loans repaid pursuant to preceding clause (B) 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 preceding clause (B) the Required Lenders (determined after giving effect to the proposed action) shall specifically consent thereto, provided further, that in any event the Borrower shall not have the right to replace a Lender, terminate its Commitment or repay its Loans 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 Section 9.1(a). 9.2 Notices. Unless otherwise expressly specified or permitted by the terms hereof, all notices hereunder shall be given as provided in the Participation Agreement; provided that any notice, request or demand to or upon the Administrative Agent or the Lenders pursuant to Section 2.3, 2.5, 2.6, 2.7 or 2.11(b) shall not be effective until received. 9.3 No Waiver; Cumulative Remedies. No failure to exercise and no delay in exercising, on the part of the Administrative Agent or any Lender, any right, remedy, power or privilege hereunder or under the other Operative Agreements shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law. 9.4 Survival of Representations and Warranties. All representations and warranties made hereunder, in the other Operative Agreements and in any document, certificate or statement delivered pursuant hereto or in connection herewith shall survive the execution and delivery of this Agreement and the Notes and the making of the Loans hereunder. 9.5 Successors and Assigns. (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that the Borrower may not assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of each Lender (and any 24 CREDIT AGREEMENT attempted assignment or transfer by the Borrower without such consent shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby) any legal or equitable right, remedy or claim under or by reason of this Agreement. (b) Any Lender may assign to one or more assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans at the time owing to it); provided that (i) except in the case of an assignment to a Lender or an Affiliate of a Lender, each of the Lessee and the Administrative Agent must give its prior written consent to such assignment (which consent shall not be unreasonably withheld), (ii) except in the case of an assignment to a Lender or an Affiliate of a Lender or an assignment of the entire remaining amount of the assigning Lender's Commitment, the amount of the Commitment of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Acceptance with respect to such assignment is delivered to the Administrative Agent) shall not be less than $5,000,000 unless each of the Lessee and the Administrative Agent otherwise consent, (iii) each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender's rights and obligations under this Agreement, (iv) the parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Acceptance, together with a processing and recordation fee of $3,500; and provided further that any consent of the Lessee otherwise required under this paragraph shall not be required if a Default or Event of Default has occurred and is continuing. Subject to acceptance and recording thereof pursuant to paragraph (d) of this Section, from and after the effective date specified in each Assignment and Acceptance the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Acceptance, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all of the assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 2.14 and 2.15). Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this paragraph shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with paragraph (e) of this Section. (c) Upon its receipt of a duly completed Assignment and Acceptance executed by an assigning Lender and an assignee, the processing and recordation fee referred to in paragraph (b) of this Section and any written consent to such assignment required by paragraph (b) of this Section, the Administrative Agent shall accept such Assignment and Acceptance and record the information contained therein in the Register. No assignment shall be effective for purposes of this Agreement unless it has been recorded in the Register as provided in this paragraph. (d) Any Lender may, without the consent of the Borrower or the Administrative Agent, sell participations to one or more banks or other entities (a "Lending Participant") in all or a portion of such Lender's rights and obligations under this Agreement 25 CREDIT AGREEMENT (including all or a portion of its Commitment and the Loans owing to it); provided that (i) such Lender's obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) the Borrower, the Administrative Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement. Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; and provided further that no Lender shall transfer or grant any participation under which the Lending Participants shall have rights to approve any amendment to or waiver of this Agreement except to the extent that such amendment or waiver would (i) extend the final scheduled maturity of any Revolving Loan or Note in which the Lending Participant is participating, or reduce the rate or extend the time of payment of interest or fees thereon (except in connection with a waiver of applicability of any post-default increase in interest rates) or reduce the principal amount thereof, or increase the amount of the participant's participation over the amount thereof then in effect (it being understood that a waiver of any Default or Event of Default or of a mandatory reduction in the aggregate Commitments shall not constitute a change in the terms of such participation and that an increase in any Commitment or Loan shall be permitted without the consent of any Lending Participant if the Lending Participant's participation is not increased as a result thereof, or (ii) consent to the assignment by the Borrower of any of its rights and obligations under this Agreement. (e) A Lending Participant shall not be entitled to receive any greater payment under Section 2.14 or 2.15 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Lending Participant, unless the sale of the participation to such Lending Participant is made with the Borrower's prior written consent. A Lending Participant that would be a Foreign Lender if it were a Lender shall not be entitled to the benefits of Section 2.15 unless the Borrower is notified of the participation sold to such Lending Participant and such Lending Participant agrees, for the benefit of the Borrower, to comply with Section 2.15(e) as though it were a Lender. (f) Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank, and this Section shall not apply to any such pledge or assignment of a security interest; provided that no such pledge or assignment of a security interest shall release a Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto. 9.6 The Register; Disclosure. The Administrative Agent shall maintain at its address referred to in Section 9.2 a copy of each Assignment and Acceptance delivered to it and a register (the "Register") for the recordation of the names and addresses of the Lenders, the Commitments of the Lenders, and the principal amount of the Loans owing to each Lender from time to time. The entries in the Register shall be conclusive, in the absence of clearly demonstrable error, and the Borrower, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register as the owner of the Loan recorded therein 26 CREDIT AGREEMENT for all purposes of this Agreement. The Register shall be available for inspection by the Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice. 9.7 Adjustments; Set-Off. (a) Except as provided in Sections 2.5, 8 and 9.1(b), if any Lender (a "Benefitted Lender") shall at any time receive any payment of all or part of its Loans, or interest thereon, or receive any collateral in respect thereof (whether voluntarily or involuntarily, by set-off, pursuant to events or proceedings of the nature referred to in Section 6.1(i) or 6.1(j), or otherwise), in a greater proportion than any such payment to or collateral received by any other Lender, if any, in respect of such other Lender's Loans, or interest thereon, such Benefitted Lender shall purchase for cash from the other Lenders a participating interest in such portion of each such other Lender's Loan, or shall provide such other Lenders with the benefits of any such collateral, or the proceeds thereof, as shall be necessary to cause such Benefitted Lender to share the excess payment or benefits of such collateral or proceeds ratably with each of the Lenders; provided, however, that if all or any portion of such excess payment or benefits is thereafter recovered from such Benefitted Lender, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery, but without interest. (b) In addition to any rights now or hereafter granted under applicable law or otherwise, and not by way of limitation of any such rights, upon the occurrence of an Event of Default, the Administrative Agent and each Lender is hereby authorized at any time or from time to time, without presentment, demand, protest or other notice of any kind to the Borrower or to any other Person, any such notice being hereby expressly waived, to set off and to appropriate and apply any and all deposits (general or special) and any other Indebtedness at any time held or owing by the Administrative Agent or such Lender (including, without limitation, by branches and agencies of the Administrative Agent or such Lender wherever located) to or for the credit or the account of the Borrower against and on account of the obligations and liabilities of the Borrower to the Administrative Agent or such Lender under this Agreement or under any of the other Operative Agreements, including, without limitation, all interests in obligations of the Borrower purchased by any such Lender pursuant to Section 9.7(a), and all other claims of any nature or description arising out of or connected with this Agreement or any other Operative Agreement, irrespective of whether or not the Administrative Agent or such Lender shall have made any demand hereunder and although said obligations, liabilities or claims, or any of them, shall be contingent or unmatured. 9.8 Counterparts. This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts (including by telecopy transmission of signature pages hereto), and all of said counterparts taken together shall be deemed to constitute one and the same instrument. A set of the copies of this Agreement signed by all the parties shall be lodged with the Borrower and the Administrative Agent. 9.9 Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and 27 CREDIT AGREEMENT any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 9.10 Integration. This Agreement and the other Operative Agreements represent the agreement of the Borrower, the Administrative Agent and the Lenders with respect to the subject matter hereof, and there are no promises, undertakings, representations or warranties by the Administrative Agent or any Lender relative to subject matter hereof not expressly set forth or referred to herein or in the other Operative Agreements. 9.11 Governing Law; Jurisdiction; Consent to Service of Process. (a) This Agreement shall be construed in accordance with and governed by the law of the State of New York. (b) The Borrower hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of the Supreme Court of the State of New York sitting in New York County and of the United States District Court of the Southern District of New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that the Administrative Agent or any Lender may otherwise have to bring any action or proceeding relating to this Agreement against the Borrower or its properties in the courts of any jurisdiction. (c) The Borrower hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement in any court referred to in paragraph (b) of this Section. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. (d) The Borrower hereby irrevocably designates, appoints and empowers the Process Agent, as its designee, and on its behalf, and in respect of its properties, service of any and all legal process, summons, notices and documents which may be served in any such action or proceeding. If for any reason the Process Agent shall cease to be available to act as such, the Borrower agrees to designate a new Process Agent in New York City on the terms and for the purposes of this provision satisfactory to the Administrative Agent. Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in the Participation Agreement. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law. 9.12 Acknowledgements. The Borrower hereby acknowledges that: 28 CREDIT AGREEMENT (a) it has been advised by counsel in the negotiation, execution and delivery of this Agreement and the Notes and the other Operative Agreements; (b) neither the Administrative Agent nor any Lender has any fiduciary relationship with or duty to the Borrower arising out of or in connection with this Agreement or any of the other Operative Agreements, and the relationship between Administrative Agent and Lenders, on one hand, and the Borrower, on the other hand, in connection herewith or therewith is solely that of debtor and creditor; and (c) no joint venture is created hereby or by the other Operative Agreements or otherwise exists by virtue of the transactions contemplated hereby among the Lenders or among the Borrower and the Lenders. 9.13 WAIVERS OF JURY TRIAL. THE BORROWER, THE ADMINISTRATIVE AGENT AND THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN. 9.14 Nonrecourse. Anything to the contrary contained in this Agreement or in any other Operative Agreement notwithstanding, other than in the case of fraudulent conduct or wilful misconduct by such Person, except for the obligations of the Trust Company under the Trust Agreement, Section 5 of the Lease and the representations and warranties of the Trust Company in Section 7.4 of the Participation Agreement, neither the Borrower nor any officer, director or shareholder thereof, nor any of the Borrower's successors or assigns (all such Persons being hereinafter referred to collectively as the "Exculpated Persons"), shall be personally liable in any respect for any liability or obligation hereunder or under any other Operative Agreement including the payment of the principal of, or interest on, the Notes, or for monetary damages for the breach of performance of any of the covenants contained in this Agreement, the Notes or any of the other Operative Agreements. The Administrative Agent and the Lenders agree that, in the event any of them pursues any remedies available to them under this Agreement, the Notes or any other Operative Agreement, neither the Administrative Agent nor the Lenders shall have any recourse against the Borrower, nor any other Exculpated Person, for any deficiency, loss or claim for monetary damages or otherwise resulting therefrom and recourse shall be had solely and exclusively against the Collateral and the Guarantors; but nothing contained herein shall be taken to prevent recourse against or the enforcement of remedies against the Properties or any other Collateral in respect of any and all liabilities, obligations and undertakings contained in this Agreement, the Notes or any other Operative Agreement. The Administrative Agent and the Lenders further agree that the Borrower shall not be responsible for the payment of any amounts owing hereunder (excluding principal and interest (other than Overdue Interest) in respect of the Loans) (such non-excluded amounts, "Supplemental Amounts") except to the extent that payments of Supplemental Rent applicable to such Supplemental Amounts have been made by the Lessee for application to such Supplemental Amounts (it being understood that the failure by the Lessee for any reason to pay any Supplemental Rent in respect of such Supplemental Amounts shall nevertheless be deemed to constitute a default by the Borrower for the purposes of Section 6.1(a)(ii)). 29 CREDIT AGREEMENT Notwithstanding the foregoing provisions of this Section 9.14, nothing in this Agreement or any other Operative Agreement shall (a) constitute a waiver, release or discharge of any obligation evidenced or secured by this Agreement or any other Credit Document, (b) limit the right of the Administrative Agent or any Lender to name the Borrower as a party defendant in any action or suit for judicial foreclosure and sale under any Security Document, or (c) affect in any way the validity or enforceability of the Guarantees or any other guarantee (whether of payment and/or performance) given to the Administrative Agent or the Lenders, or of any indemnity agreement given by the Borrower, in connection with the Loans made hereunder. 9.15 OREGON LEGAL NOTICE. WITHOUT LIMITING THE VALIDITY OF THE CHOICE OF NEW YORK LAW PROVIDED HEREIN, UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY THE LENDERS AFTER THE RESTATEMENT DATE OF THE ACT SPECIFIED HEREIN CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT FOR PERSONAL FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE BORROWER'S RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY THE LENDERS TO BE ENFORCEABLE. THE ACT SPECIFIED HEREIN MEANS CHAPTER 967 OREGON LAWS 1989, THE EFFECTIVE DATE OF WHICH WAS OCTOBER 3, 1989. 9.16 WASHINGTON STATUTORY NOTICE . ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR FORBEAR FROM ENFORCING REPAYMENT OF DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW. 30 CREDIT AGREEMENT IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. FMS TRUST 1997-1, as Borrower By WILMINGTON TRUST COMPANY, not in its individual capacity but solely as Owner Trustee NORMA P. CLOSS By: --------------------- Name: Norma P. Closs Title: Vice President S-1 CREDIT AGREEMENT BANKERS TRUST COMPANY, as Administrative Agent and a Lender GINA S. THOMPSON By: ----------------------- Name: Gina S. Thompson Title: Vice President S-2 CREDIT AGREEMENT THE CHASE MANHATTAN BANK, as Syndication Agent and as a Lender LAURIE B. PERPER By: -------------------------- Name: Laurie B. Perper Title: Vice President S-3 CREDIT AGREEMENT NATIONSBANK OF TEXAS, N.A., as Co-Documentation Agent and as a Lender CHARLES F. LILYGREN By: ------------------------ Name: Charles F. Lilygren Title: Senior Vice President S-4 CREDIT AGREEMENT SALOMON BROTHERS HOLDING CO INC., as Co-Documentation Agent and as a Lender CHAD A. LEAT By: ----------------------- Name: Chad A. Leat Title: Managing Director S-5 CREDIT AGREEMENT ABN ARMO BANK N.V. as a Lender DAVID MCGINNIS By: ----------------------- Name: David McGinnis Title: Vice President JAMES J. RICE By: ----------------------- Name: James J. Rice Title: Vice President S-6 CREDIT AGREEMENT MARINE MIDLAND BANK, as a Lender GINA SIDORSKY By: ----------------------- Name: Gina Sidorsky Title: Authorized Signatory S-7 CREDIT AGREEMENT UNION BANK OF CALIFORNIA, N.A., as a Lender TIMOTHY P. STREB By: ----------------------- Name: Timothy P. Streb Title: Vice President S-8 CREDIT AGREEMENT WACHOVIA BANK, N.A., as a Lender JOHN A. WHITNER By: ----------------------- Name: John A. Whitner Title: Senior Vice President S-9 CREDIT AGREEMENT GOLDMAN SACHS CREDIT PARTNERS L.P., as a Lender STEPHEN J. MCGUINNESS By: ----------------------- Name: Stephen J. McGuinness Title: Authorized Signatory S-10 CREDIT AGREEMENT BANK OF MONTREAL, as a Lender R.W. CAMM By: ----------------------- Name: R.W. Camm Title: Managing Director S-11 CREDIT AGREEMENT DLJ CAPITAL FUNDING, INC., as a Lender STEPHEN P. HICKEY By: ----------------------- Name: Stephen P. Hickey Title: Managing Director S-12 CREDIT AGREEMENT SOCIETE GENERALE FINANCIAL CORPORATION, as a Lender JOHN A. CASTELLANO By: ----------------------- Name: John A. Castellano Title: Vice President S-13 CREDIT AGREEMENT MORGAN STANLEY SENIOR FUNDING, INC., as a Lender MICHAEL T. MCLAUGHLIN By: ----------------------- Name: M. McLaughlin Title: Principal S-14 CREDIT AGREEMENT WELLS FARGO BANK, N.A., as a Lender ALFRED ARTIS By: ----------------------- Name: Alfred Artis Title: Vice President DONALD A. HARTMANN, JR. By: ----------------------- Name: Donald A. Hartmann, Jr. Title: Senior Vice President S-15 CREDIT AGREEMENT THE FIRST NATIONAL BANK OF CHICAGO, as a Lender PAUL E. RIGBY By: ----------------------- Name: Paul E. Rigby Title: Managing Director S-16 CREDIT AGREEMENT TRANSAMERICA LIFE INSURANCE AND ANNUITY COMPANY, as a Lender JOHN M. CASPARIAN By: ----------------------- Name: John M. Casparian Title: Investment Officer S-17 CREDIT AGREEMENT THE MITSUBISHI TRUST AND BANKING CORPORATION, as a Lender TOSHIHIRO HAYASHI By: ----------------------- Name: Toshihiro Hayashi Title: Senior Vice President S-18 CREDIT AGREEMENT ROYAL BANK OF CANADA, as a Lender JULIE BOTHAMLEY By: ----------------------- Name: Julie Bothamley Title: Senior Manager S-19 CREDIT AGREEMENT THE SUMITOMO TRUST AND BANKING CO. LTD., LOS ANGELES AGENCY, as a Lender ELEANOR CHAN By: ----------------------- Name: Eleanor Chan Title: Manager & Vice President S-20 CREDIT AGREEMENT COMPAGNIE FINANCIERE DE CIC ET DE L'UNION EUROPEENNE, as a Lender ANTHONY ROCK By: ----------------------- Name: Anthony Rock Title: Vice President BRIAN O'LEARY By: ----------------------- Name: Brian O'Leary Title: Vice President S-21 CREDIT AGREEMENT KEYBANK NATIONAL ASSOCIATION, as a Lender MARY K. YOUNG By: ----------------------- Name: Mary K. Young Title: Commercial Banking Officer S-22 CREDIT AGREEMENT FIRST SECURITY BANK, N.A., as a Lender JUDY CALLISTER By: ----------------------- Name: Judy Callister Title: Vice President S-23 CREDIT AGREEMENT FIRSTRUST BANK, as a Lender EDWARD D'ANCONA By: ----------------------- Name: Edward D'Ancona Title: Chief Banking Officer S-24 CREDIT AGREEMENT US BANK OF OREGON, as a Lender GAYLE BURGESS By: ----------------------- Name: Gayle Burgess Title: Asst. Relationship Manager S-25 CREDIT AGREEMENT FIRST UNION NATIONAL BANK, as a Lender ED ROSS By: ----------------------- Name: Ed Ross Title: Senior Vice President S-26 CREDIT AGREEMENT THE BANK OF NEW YORK, as a Lender CHARLOTTE SOHN By: ----------------------- Name: Charlotte Sohn Title: Vice President S-27 CREDIT AGREEMENT ZIONS FIRST NATIONAL BANK, as a Lender RICHARD P. JACKSON By: ----------------------- Name: Richard P. Jackson Title: Vice President S-28 CREDIT AGREEMENT BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as a Lender MARIA VICKROY-PERALTA By: ---------------------------- Name: Maria Vickroy-Peralta Title: Vice President S-29 CREDIT AGREEMENT BANQUE PARIBAS, as a Lender BRIAN A. STAPF By: ----------------------- Name: Brian A. Stapf Title: Vice President LEE S. BUCKNER By: ----------------------- Name: Lee S. Buckner Title: Managing Director S-30 CREDIT AGREEMENT MERITA BANK, as a Lender ANDREW CARSTENSEN By: ------------------------ Name: Andrew Carstensen Title: Vice President S-31 CREDIT AGREEMENT BANK LEUMI U.S.A., as a Lender JACQUES DELVOYE By: ----------------------- Name: Jacques Delvoye Title: Vice President S-33 CREDIT AGREEMENT EXHIBIT A-1 TO CREDIT AGREEMENT -------------------- TRANCHE A NOTE $[ ] New York, New York March --, 1998 FOR VALUE RECEIVED, the undersigned, FMS TRUST 1997- 1 (the "Borrower"), hereby unconditionally promises to pay to the order of [LENDER] (the "Lender") at the office of Bankers Trust Company, located at 130 Liberty Street, New York, New York 10006, in lawful money of the United States of America and in immediately available funds, on the Maturity Date, the principal amount of (a) [ ] DOLLARS [$ ], or, if less, (b) the aggregate unpaid principal amount of all Tranche A Loans made by the Lender to the Borrower pursuant to Section 2.1 of the Credit Agreement (as defined below). The Borrower further agrees to pay interest in like money at such office on the unpaid principal amount hereof from time to time outstanding at the rates and on the dates specified in Section 2.8 of such Credit Agreement. The holder of this Note is authorized to endorse on the schedules annexed hereto and made a part hereof, or on a continuation thereof which shall be attached hereto and made a part hereof, the date, Type and amount of each Tranche A Loan made pursuant to the Credit Agreement and the date and amount of each payment or prepayment of principal thereof, each continuation thereof, each conversion of all or a portion thereof to another Type and, in the case of Eurodollar Loans, the length of each Interest Period with respect thereto. This Note (a) is one of the Tranche A Notes referred to in the Credit Agreement dated as of the date hereof (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), among the Borrower, the Lender, the other lenders from time to time parties thereto and Bankers Trust Company, as administrative agent, (b) is subject to the provisions of the Credit Agreement and (c) is subject to optional and mandatory prepayment in whole or in part as provided in the Credit Agreement. This Note is secured and guaranteed as provided in the Credit Documents. Reference is hereby made to the Credit Documents for a description of the properties and assets in which a security interest has been granted, the nature and extent of the security and the guarantee, the terms and conditions upon which the security interests and the guarantee were granted and the rights of the holder of this Note in respect thereof. A-1-1 CREDIT AGREEMENT Upon the occurrence of any one or more of the Events of Default, all amounts then remaining unpaid on this Note shall become, or may be declared to be, immediately due and payable, all as provided in the Credit Agreement. All parties now and hereafter liable with respect to this Note, whether maker, principal, surety, guarantor, endorser or otherwise, hereby waive presentment, demand, protest and all other notices of any kind. Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. FMS TRUST 1997-1 By: WILMINGTON TRUST COMPANY, not in its individual capacity but solely as Owner Trustee By: --------------------------------- Name: Title: A-1-2 CREDIT AGREEMENT Schedule A to Tranche A Note -----------------
LOANS, CONVERSIONS AND REPAYMENTS OF ABR LOANS - ------------------------------------------------------------------------------------------------------------------------------------ Amount Amount of ABR Loans Converted to Amount of Principal Converted to Unpaid Principal Balance Date Amount of ABR Loans ABR Loans ABR Loans Repaid Eurodollar Loans of ABR Loans Notation Made By - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ A-1-3
CREDIT AGREEMENT Schedule B to Tranche A Note ----------------- LOANS, CONTINUATIONS, CONVERSIONS AND REPAYMENTS OF EURODOLLAR LOANS - ------------------------------------------------------------------------------- Interest Period and Amount of Amount Converted Eurodollar Rate with Date Eurodollar Loans to Eurodollar Loans Respect Thereto - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Amount of Principal of Amount of Eurodollar Unpaid Principal Eurodollar Loans Loans Converted to Balance of Eurodollar Notation Repaid ABR Loans Loans Made By - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- CREDIT AGREEMENT EXHIBIT A-2 TO CREDIT AGREEMENT ------------------- TRANCHE B NOTE $[ ] New York, New York March --, 1998 FOR VALUE RECEIVED, the undersigned, FMS TRUST 1997-1 (the "Borrower"), hereby unconditionally promises to pay to the order of [LENDER] (the "Lender") at the office of Bankers Trust Company, located at 130 Liberty Street, New York, New York 10006, in lawful money of the United States of America and in immediately available funds, on the Maturity Date, the principal amount of (a) [ ] DOLLARS [$ ], or, if less, (b) the aggregate unpaid principal amount of all Tranche B Loans made by the Lender to the Borrower pursuant to Section 2.1 of the Credit Agreement (as defined below). The Borrower further agrees to pay interest in like money at such office on the unpaid principal amount hereof from time to time outstanding at the rates and on the dates specified in Section 2.8 of such Credit Agreement. The holder of this Note is authorized to endorse on the schedules annexed hereto and made a part hereof, or on a continuation thereof which shall be attached hereto and made a part hereof, the date, Type and amount of each Tranche B Loan made pursuant to the Credit Agreement and the date and amount of each payment or prepayment of principal thereof, each continuation thereof, each conversion of all or a portion thereof to another Type and, in the case of Eurodollar Loans, the length of each Interest Period with respect thereto. This Note (a) is one of the Tranche B Notes referred to in the Credit Agreement dated as of the date hereof (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), among the Borrower, the Lender, the other lenders from time to time parties thereto and Bankers Trust Company, as administrative agent, (b) is subject to the provisions of the Credit Agreement and (c) is subject to optional and mandatory prepayment in whole or in part as provided in the Credit Agreement. This Note is secured and guaranteed as provided in the Credit Documents. Reference is hereby made to the Credit Documents for a description of the properties and assets in which a security interest has been granted, the nature and extent of the security and the guarantee, the terms and conditions upon which the security interests and the guarantee were granted and the rights of the holder of this Note in respect thereof. Upon the occurrence of any one or more of the Events of Default, all amounts then remaining unpaid on this Note shall become, or may be declared to be, immediately due and payable, all as provided in the Credit Agreement. A-2-2 CREDIT AGREEMENT All parties now and hereafter liable with respect to this Note, whether maker, principal, surety, guarantor, endorser or otherwise, hereby waive presentment, demand, protest and all other notices of any kind. Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. FMS TRUST 1997-1 By: WILMINGTON TRUST COMPANY, not in its individual capacity but solely as Owner Trustee By:---------------------------------------- Name: Title: A-2-3 Schedule A to Tranche B Note -----------------
LOANS, CONVERSIONS AND REPAYMENTS OF ABR LOANS - ------------------------------------------------------------------------------------------------------------------------------------ Amount Amount of ABR Loans Converted to Amount of Principal Converted to Unpaid Principal Balance Date Amount of ABR Loans ABR Loans ABR Loans Repaid Eurodollar Loans of ABR Loans Notation Made By - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------
A-2-4 Schedule B to Tranche B Note ----------------- LOANS, CONTINUATIONS, CONVERSIONS AND REPAYMENTS OF EURODOLLAR LOANS - ------------------------------------------------------------------------------- Interest Period and Amount of Amount Converted Eurodollar Rate with Date Eurodollar Loans to Eurodollar Loans Respect Thereto - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Amount of Principal of Amount of Eurodollar Unpaid Principal Eurodollar Loans Loans Converted to Balance of Eurodollar Notation Repaid ABR Loans Loans Made By - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- A-2-1 EXHIBIT B TO CREDIT AGREEMENT ---------------- FORM OF ASSIGNMENT AND ACCEPTANCE Reference is made to the Credit Agreement, dated as of March 11,1997 (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), among FMS Trust 1997-1 (the "Borrower") the Lenders named therein (the "Lenders"), Bankers Trust Company, as administrative agent for the Lenders (in such capacity, the Administrative Agent") and The Chase Manhattan Bank, as syndication agent. Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement. ------------------- (the "Assignor") and ------------------- (the "Assignee") agree as follows: 1. The Assignor hereby irrevocably sells and assigns to the As signee without recourse to the Assignor, and the Assignee hereby irrevocably purchases and assumes from the Assignor without recourse to the Assignor, as of the Effective Closing Date (as defined below), an interest (the "Assigned Inter est"), as specified on SCHEDULE 1, in and to the Assignor's rights and obligations under the Credit Agreement with respect to those credit facilities contained in the Credit Agreement as are set forth on SCHEDULE 1 (individually, an "Assigned Facility"; collectively, the "Assigned Facilities"), in a principal amount for each Assigned Facility as set forth on SCHEDULE 1. 2. The Assignor (a) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or represen tations made in or in connection with the Credit Agreement or with respect to the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement or any other instrument or document furnished pursuant thereto, other than that the Assignor has not created any adverse claim upon the interest being assigned by it hereunder and that such interest is free and clear of any such adverse claim; and (b) makes no representation or warranty and assumes no responsibility with respect to the financial condition of Borrower or any of its Subsidiaries or any other obligor or the performance or observance by Borrower or any of its Subsidiaries or any other obligor of any of their respective obligations under the Credit Agreement or any other instrument or document furnished pursuant hereto or thereto. 3. The Assignee (a) represents and warrants that it is legally authorized to enter into this Assignment and Acceptance; (b) confirms that it has received a copy of the Credit Agreement, together with copies of the financial statements delivered pursuant to the Credit Agreement and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Acceptance; (c) agrees that it will, independently and without reliance upon the Assignor, the Administrative Agent or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Agreement or any other instrument or document furnished pursuant hereto or thereto; (d) appoints and authorizes the Administra tive Agent to take such action as agent on its behalf and to exercise such powers and discretion under the Credit Agreement or any other instrument or document furnished pursuant hereto or thereto as are delegated to the Administrative Agent by the terms thereof, together with such powers as are incidental thereto; and (e) agrees that it will be bound by the provisions of the Credit Agreement and will perform in accordance with its terms all the obligations which by the terms of the Credit Agreement are required to be performed by it as a Lender including, if it is organized under the laws of a jurisdiction outside the United States, its obligation pursuant to Section 2.15(e) of the Credit Agreement. 4. The effective date of this Assignment and Acceptance shall be the date set forth on Schedule 1, (the "Effective Date"). Following the execution of this Assignment and Acceptance, it will be delivered to the Administrative Agent for acceptance by it and recording by the Administrative Agent pursuant to the Credit Agreement, effective as of the Effective Date (which shall not, unless other wise agreed to by the Administrative Agent, be earlier than five Business Days after the date of such acceptance and recording by the Administrative Agent). 5. Upon such acceptance and recording, from and after the Effective Date, the Administrative Agent shall make all payments in respect of the Assigned Interest (including payments of principal, interest, fees and other amounts) to the Assignee whether such amounts have accrued prior to the Effective Date or accrue subsequent to the Effective Date. The Assignor and the Assignee shall make all A-2 appropriate adjustments in payments by the Administrative Agent for periods prior to the Effective Date or with respect to the making of this assignment directly between themselves. 6. From and after the Effective Date, (a) the Assignee shall be a party to the Credit Agreement and, to the extent provided in this Assignment and Acceptance, have the rights and obligations of a Lender thereunder and shall be bound by the provisions thereof and (b) the Assignor shall, to the extent provided in this Assignment and Acceptance and the Credit Agreement, relinquish its rights and be released from its obligations under the Credit Agreement. 7. This Assignment and Acceptance shall be governed by and construed in accordance with the laws of the State of New York. 8. This Assignment and Acceptance may be executed by one or more of the parties to this Assignment and Acceptance on any number of separate counterparts (including by facsimile transmission), and all of said counterparts taken together shall be deemed to constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Assignment and Acceptance to be executed as of the date first above written by their respective duly authorized officers on Schedule 1 hereto. A-3 Schedule A to Tranche B Note -----------------
LOANS, CONVERSIONS AND REPAYMENTS OF ABR LOANS - ------------------------------------------------------------------------------------------------------------------------------------ Amount Amount of ABR Loans Converted to Amount of Principal Converted to Unpaid Principal Balance Date Amount of ABR Loans ABR Loans ABR Loans Repaid Eurodollar Loans of ABR Loans Notation Made By - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------
A-2-4 Schedule B to Tranche B Note ----------------- LOANS, CONTINUATIONS, CONVERSIONS AND REPAYMENTS OF EURODOLLAR LOANS - ------------------------------------------------------------------------------- Interest Period and Amount of Amount Converted Eurodollar Rate with Date Eurodollar Loans to Eurodollar Loans Respect Thereto - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Amount of Principal of Amount of Eurodollar Unpaid Principal Eurodollar Loans Loans Converted to Balance of Eurodollar Notation Repaid ABR Loans Loans Made By - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- A-2-4 SCHEDULE 1 TO ASSIGNMENT AND ACCEPTANCE RELATING TO THE CREDIT AGREEMENT, DATED AS OF MARCH 11, 1998, AMONG FMS TRUST 1997-1, THE LENDERS NAMED THEREIN, BANKERS TRUST COMPANY, AS ADMINISTRATIVE AGENT FOR THE LENDERS (IN SUCH CAPACITY, THE "ADMINISTRATIVE AGENT") AND THE CHASE MANHATTAN BANK, AS SYNDICATION AGENT - ------------------------------------------------------------------------------- Name of Assignor: Name of Assignee: Effective Date of Assignment: Credit Commitment/Term Loan Facility Assigned Amount Assigned Commitment Percentage Assigned1/ - ----------------- -------------------- -------------------------------- $______________ __._______% [NAME OF ASSIGNEE] [NAME OF ASSIGNOR] By -------------------- By -------------------- Name: Name: Title: Title: - --------------------- /1 Calculate the Commitment Percentage that is assigned to at least 15 decimal places and show as a percentage of the aggregate commitments of all Lenders S-1 Accepted for Recordation in Consented To:*/ the Register: Bankers Trust Company, FMS TRUST 1997-1, as Administrative Agent By ------------------------- By-------------------------- Name: Name: Title: Title: Bankers Trust Company as Administrative Agent By ------------------------- Name: Title: - -------------------- */ If required. S-2 Schedule 2.1 Lenders and Commitments Name and Address of Lender Commitment - -------------------------- ---------- Bankers Trust Company $38,218,946.05 One Bankers Trust Plaza 130 Liberty Street New York, New York 10006 Telecopier No.: (212) 250-7351 Attn: Deal Administrator The Chase Manhattan Bank $36,393,350.06 270 Park Avenue New York, New York 10017 Telecopier No.: (212) Attn: NationsBank of Texas, N.A. $34,607,277.29 444 South Flower, Suite 4100 Los Angeles, California 90071 Telecopier No.: (213) Attn: Salomon Brothers Holding Co Inc. $34,607,277.29 7 World Trade Center New York, New York 10048 Telecopier No.: (212) Attn: Wells Fargo Bank $30,426,599.75 420 Montgomery Street, 9th Floor San Francisco, California 94163 Telecopier No.: Attn: DLJ Capital Funding, Inc. $24,341,279.80 277 Park Avenue New York, New York 10172 Telecopier No.: Attn: Bank of America National Trust and $24,341,279.80 Savings Association 555 South California Street, 41st Floor San Francisco, California 94104 Telecopier No.: Attn: The First National Bank of Chicago $24,341,279.80 One First National Plaza Chicago, Illinois 60670 Telecopier No.: Attn: Goldman Sachs Credit Partners L.P. $24,341,279.80 85 Broad Street New York, New York 10004 Telecopier No.: Attn: Morgan Stanley Senior Funding, Inc. $24,341,279.80 1585 Broadway New York, New York 10036 Telecopier No.: Attn.: Societe Generale Financial Corporation $24,341,279.80 181 West Madison , Suite 3400 Chicago, Illinois 60657 Telecopier No.: Attn.: Union Bank of California, N.A. $24,341,279.80 350 California Street, 6th Floor San Francisco, California 94104 Telecopier No.: Attn.: U.S. Bank of Oregon $24,341,279.80 555 S.W. Oak Street, Suite 400 Portland, Oregon 97204 Telecopier No.: Attn.: 2 Wachovia $24,341,279.80 191 Peachtree Street NE, 28th Floor Atlanta, Georgia 30303 Telecopier No.: Attn.: Marine Midland Bank $15,213,299.88 140 Broadway, 5th Floor New York, New York 10005 Telecopier No.: Attn.: Gina Sidorsky Bank of Montreal $6,085,319.95 115 South La Salle Street Chicago, Illinois 60603 Telecopier No.: Attn.: Compagnie Financier de CIC et de $6,085,319.95 l'Union Europeenne, 520 Madison Avenue New York, New York 10022 Telecopier No.: Attn.: First Security Bank, N.A. $6,085,319.95 15 East 100 South , 2nd Floor Salt Lake City, Utah 84111 Telecopier No.: Attn.: Banque Paribas $6,085,319.95 101 California Street, Suite 3150 San Francisco, CA 94111 Telecopier No.: Attn.: Royal Bank of Canada $6,085,319.95 600 Wilshire Blvd., Suite 800 Los Angeles, California 90017 Telecopier No.: Attn.: 3 Transamerica Life Insurance and $6,085,319.95 Annuity Company 1150 South Olive Street, Suite 2700 Los Angeles, California 90015 Telecopier No.: Attn.: Zions First National Bank $3,651,191.97 One South Main Street Salt Lake City, Utah 8411 Telecopier No.: Attn.: ABN Amro North America, Inc. $3,042,659.97 One Union Square 600 University Street, Suite 2323 Seattle, Washington 98101-2070 Telecopier No.: Attn.: The Bank of New York $3,042,659.97 One Wall Street New York, New York 10286 Telecopier No.: Attn.: First Union National Bank $3,042,659.97 One First Union Center 301 South College Street Charlotte, North Carolina 28288-0737 Telecopier No.: Attn.: KeyBank National Association $3,042,659.97 700 Fifth Avenue, 48th Floor Seattle, Washington 98104 Telecopier No.: Attn.: The Mitsubishi Trust and Banking Corporation $3,042,659.97 520 Madison Avenue New York, New York 10286 Telecopier No.: Attn.: 4 The Sumitomo Trust and Banking Co. Ltd., $3,042,659.97 Los Angeles Agency 333 South Grand Avenue, Suite 5300 Los Angeles, California 90071 Telecopier No.: Attn.: Bank Leumi, U.S.A. $1,825,595.98 8383 Wilshire Blvd., Suite 400 Beverly Hills, California 90211 Telecopier No.: Attn.: Merita Bank $15,000,000.00 437 Madison Avenue New York, New York 10022 Telecopier No.: Attn.: FirstTrust Bank $1,217,063.99 1931 Cottman Avenue Philadelphia, Pennsylvania 19111 Telecopier No.: Attn.: 5 EX-4.1F 9 LESSEE GUARANTEE LESSEE GUARANTEE dated as of March 11, 1998 made by FRED MEYER, INC. as Lessee Guarantor in favor of FMS TRUST 1997-1, as Lessor BANKERS TRUST COMPANY, as Administrative Agent THE CHASE MANHATTAN BANK, as Syndication Agent THE VARIOUS FINANCIAL INSTITUTIONS IDENTIFIED AS LENDERS IN THE PARTICIPATION AGREEMENT, as Lenders and THE VARIOUS FINANCIAL INSTITUTIONS IDENTIFIED AS INVESTORS IN THE PARTICIPATION AGREEMENT HEREIN, as Investors LESSEE Guarantee THIS GUARANTEE (this "Guarantee"), dated as of March 11, 1998, is made by FRED MEYER, INC., a Delaware corporation (the "Lessee Guarantor"), in favor of FMS TRUST 1997-1, as Lessor; BANKERS TRUST COMPANY, as Administrative Agent (the "Administrative Agent") under the Participation Agreement (as defined below); THE CHASE MANHATTAN BANK, as Syndication Agent (the "Syndication Agent"); each of the financial institutions as are or may from time to time become Lenders pursuant to the terms of the Participation Agreement (the "Lenders"); and each of the financial institutions as are or may from time to time become Investors pursuant to the terms of the Participation Agreement, as Investors (the "Investors") (each of the Lenders, the Lessor, the Investors, the Administrative Agent and the Syndication Agent being referred to herein collectively as the "Guaranteed Parties"). W I T N E S S E T H: WHEREAS, as a condition to the occurrence of the Initial Closing Date under the Participation Agreement dated as of the date hereof (together with all amendments, supplements, amendments and restatements and other modifications, if any, from time to time thereafter made thereto, the "Participation Agreement"), among the Lessee Guarantor and Construction Agent, the Lessor, the Owner Trustee, the Investors, the Administrative Agent, the Syndication Agent and the Lenders, the Lessee Guarantor is required to execute and deliver this Guarantee in favor of the Guaranteed Parties; WHEREAS, the Lessee Guarantor has duly authorized the execution, delivery and performance of this Guarantee; and WHEREAS, it is in the best interests of the Lessee Guarantor to execute this Guarantee inasmuch as the Lessee Guarantor will derive substantial benefits from the transactions contemplated by the Participation Agreement and the other Operative Agreements; NOW, THEREFORE, for good and valuable consideration the receipt of which is hereby acknowledged, and in order to induce the Guaranteed Parties to enter into the Participation Agreement, the Lessee Guarantor agrees, for the benefit of the Guaranteed Parties, as follows: 2 LESSEE GUARANTEE ARTICLE I DEFINITIONS SECTION 1.1. Definitions. Capitalized terms used but not otherwise defined in this Guarantee have the respective meanings specified in Annex A to the Participation Agreement. The rules of usage set forth in Annex A to the Participation Agreement shall apply to this Guarantee. SECTION 1.2. U.C.C. Definitions. Unless otherwise defined herein or the context otherwise requires, terms for which meanings are provided in the Uniform Commercial Code as in affect in the State of New York are used in this Guarantee, including its preamble and recitals, with such meanings. ARTICLE II GUARANTEE PROVISIONS SECTION 2.1. Guarantee. The Lessee Guarantor, as primary obligor and not as surety, hereby absolutely, unconditionally and irrevocably guarantees to each of the Guaranteed Parties the following obligations (collectively, the "Guaranteed Obligations"): (a) the due, punctual and full payment by each Loan Party (other than the Lessee Guarantor), the Lessor and the Owner Trustee (for pur poses of this Guarantee, each an "Obligor" and collectively the "Obli gors"), whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise, of all Obligations and amounts to be paid by such Obligor (except to the extent such payment is to be made by the Trust Company in its individual capacity) pursuant to any Operative Agreement to which such Obligor is or is to be a party, whether for Inves- tor Contributions, Investor Yield, principal, interest, fees, expenses or otherwise (including all such amounts which would become due but for the operation of the automatic stay under Section 362(a) of the United States Bankruptcy Code, 11 U.S.C. ss.362(a), and the operation of Sections 502(b) and 506(b) of the United States Bankruptcy Code, 11 U.S.C. ss.502(b) and ss.506(b)); (b) the due, prompt and faithful performance of, and compliance with, all other obligations, covenants, terms, conditions and undertakings of each Obligor (except to the extent such performance and/or compliance 2 LESSEE GUARANTEE is to be made by the Trust Company in its individual capacity) contained in each Operative Agreement to which such Obligor is or is to be a party in accordance with the terms thereof. Notwithstanding the foregoing, the Lessee Guarantor shall not be obligated to make any payment hereunder in respect of principal of any Tranche B Loans or outstanding fundings of Investor Contribution unless at such time a Default or Event of Default has occurred and is continuing. The Lessee Guarantor further agrees that it shall indemnify and hold harmless each Guaranteed Party for any and all costs and expenses (including reasonable attorney's fees and expenses) incurred by such Guaranteed Party in enforcing any rights under this Guarantee after the occurrence of an Event of Default. This Guarantee constitutes a guarantee of payment when due and not of collection, and the Lessee Guarantor specifically agrees that it shall not be neces sary or required that any Guaranteed Party exercise any right, assert any claim or demand or enforce any remedy whatsoever against any Loan Party (or any other Person) before or as a condition to the obligations of the Lessee Guarantor hereun der. SECTION 2.2. Guarantee Absolute, etc. This Guarantee shall in all respects be a continuing, absolute, unconditional and irrevocable guarantee of payment, and shall remain in full force and effect until all Guaranteed Obligations have been paid in full and all obligations of the Lessee Guarantor hereunder shall have been paid in full. The Lessee Guarantor guarantees that the Guaranteed Obligations will be paid strictly in accordance with the terms of each Operative Agreement under which they arise, in each case regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of any Guaranteed Party. The liability of the Lessee Guarantor under this Guarantee shall be absolute, unconditional and irrevocable irrespective of: (a) any lack of validity, legality or enforceability of any Operative Agreement; (b) the failure of any Guaranteed Party: (i) to assert any claim or demand or to enforce any right or remedy against the Lessee, the Owner Trustee or the Lessor or any other Person (including any other guarantor) under the provisions of any Operative Agreement or otherwise, or 3 LESSEE GUARANTEE (ii) to exercise any right or remedy against any other guarantor of, or collateral securing, any Guaranteed Obligations; (c) any change in the time, manner or place of payment of, or in any other term of, all or any of the Guaranteed Obligations, or any other extension, compromise or renewal of any of the Guaranteed Obligations; (d) any reduction, limitation, impairment or termination of the Guaranteed Obligations for any reason, including any claim of waiver, release, surrender, alteration or compromise, and shall not be subject to (and the Lessee Guarantor hereby waives any right to or claim of) any defense or setoff, counterclaim, recoupment or termination whatsoever by reason of the invalidity, illegality, nongenuineness, irregularity, compro- mise, unenforceability of, or any other event or occurrence affecting, the Guaranteed Obligations; (e) any amendment to, rescission, waiver, or other modification of, or any consent to departure from, any of the terms of any Operative Agreement; (f) any addition, exchange, release, surrender or nonperfection of any collateral, or any amendment to or waiver or release or addition of, or consent to departure from, any other guarantee, held by any Guaranteed Party securing any of the Guaranteed Obligations; or (g) any other circumstance which might otherwise constitute a defense available to, or a legal or equitable discharge of, any Loan Party, any surety or any guarantor. SECTION 2.3. Reinstatement, etc. The Lessee Guarantor agrees that this Guarantee shall continue to be effective or be reinstated, as the case may be, if at any time any payment (in whole or in part) of any of the Guaranteed Obligations is rescinded or must otherwise be restored by any Guaranteed Party, upon the insolvency, bankruptcy or reorganization of any Loan Party or otherwise, as though such payment had not been made. SECTION 2.4. Waiver, etc. The Lessee Guarantor hereby waives (i) promptness, diligence, notice of acceptance and any other notice (other than those provided for in the Operative Agreements) with respect to any of the Guaranteed Obligations and this Guarantee, (ii) any requirement that any Guaranteed Party protect, secure, perfect or insure any security interest or Lien, or any property subject thereto, or exhaust any right or take any action against any Loan Party or 4 LESSEE GUARANTEE any other Person (including any other guarantor or entity or any collateral securing the Guaranteed Obligations). SECTION 2.5. Waiver of Subrogation. So long as any of the Guaranteed Obligations remain unpaid, the Lessee Guarantor hereby agrees that it will not claim and hereby irrevocably waives for such period any claim or other rights which it may now or hereafter acquire against any Loan Party that arise from the existence, payment, performance or enforcement of the Lessee Guarantor's obligations under this Guarantee or any other Operative Agreement, including any right of subrogation, reimbursement, exoneration, or indemnification, any right to participate in the claim or remedy of the Guaranteed Parties against any Lessee or any collateral which the Administrative Agent or the Lessor now has or hereafter acquires, whether or not such claim, remedy or right arises in equity, or under contract, statute or common law, including the right to take or receive from such Loan Party, directly or indirectly, in cash or other property or by set-off or in any manner, payment or security on account of such claim or other rights until all Guaranteed Obligations are satisfied. If any amount shall be paid to the Lessee Guarantor in violation of the preceding sentence and the Guaranteed Obligations shall not have been paid in cash in full until all Guaranteed Obligations are satisfied, such amount shall be deemed to have been paid to the Lessee Guarantor for the benefit of, and held in trust for, the Guaranteed Parties, and shall forthwith be paid to the Guaranteed Parties to be credited and applied upon the Guaranteed Obligations, whether matured or unmatured. The Lessee Guarantor acknowledges that it will receive benefits from the financing and other arrangements contem plated by the Operative Agreements and that the waiver set forth in this Section is knowingly made in contemplation of such benefits. SECTION 2.6. Consent to Jurisdiction; Waiver of Immunities. The Lessee Guarantor hereby acknowledges and agrees that: (a) It irrevocably submits to the jurisdiction of any federal court sitting in the Southern District of New York in any action or proceeding arising out of or relating to this Guarantee, and the Lessee Guarantor hereby irrevocably agrees that all claims in respect of such action or proceeding may be heard and determined in such federal court. The Lessee Guarantor hereby irrevocably waives, to the fullest extent it may effectively do so, the defense of an inconvenient forum to the maintenance of such action or proceeding. The Lessee Guarantor agrees that a final, unappealable judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. 5 LESSEE GUARANTEE (b) Nothing in this Section shall affect the right of any Guaranteed Party to serve legal process in any manner permitted by law or affect the right of any Guaranteed Party to bring any action or proceeding against the Lessee Guarantor or its property in the courts of any other jurisdictions. SECTION 2.7. Obligations Independent. The obligations of the Lessee Guarantor hereunder are independent of the obligations of any other guarantor or any other Loan Party, and a separate action or actions may be brought and prose cuted against the Lessee Guarantor whether or not action is brought against any other guarantor or any other Loan Party, and whether or not any other guarantor or any other Loan Party be joined in any such action or actions. SECTION 2.8. Bankruptcy. In the event of a rejection of the Lease or any Lease Supplement in a bankruptcy or insolvency proceeding of any Lessee (other than the Lessee Guarantor), the Lessee Guarantor agrees that it will pay forthwith all payments required to be made by such Lessee under the Lease and Lease Supplements as though such rejection had not occurred. Lessee Guarantor confirms that it is the intention of all of the Participants that neither the guarantee by the Lessee Guarantor pursuant to this Guarantee nor any liability or payment by it hereunder shall (i) render the Lessee Guarantor "insolvent," or (ii) constitute a fraudulent transfer or conveyance, or (iii) constitute a transaction at an undervalue or preference, or (iv) give rise to any similar or analogous event, thing or circumstance, in each case, for purposes of the Bankruptcy Code, the Uniform Fraudulent Conveyances Act, the Uniform Fraudulent Transfer Act or any similar federal or state law. To effectuate the foregoing intention, the Guaranteed Parties and Lessee Guarantor hereby irrevocably agree that the Guaranteed Obligations of Lessee Guarantor shall be limited to the maximum amount as will, after giving effect to all other contingent and fixed liabilities of Lessee Guarantor, result in the Guaranteed Obligations of Lessee Guarantor hereunder neither rendering the Lessee Guarantor "insolvent" nor constituting such fraudulent transfer or conveyance, such transaction at an undervalue or preference or such other event, thing or circumstance, in each case, under any such law. ARTICLE III REPRESENTATIONS AND WARRANTIES SECTION 3.1. Representations and Warranties. The Lessee Guarantor hereby affirms the representations and warranties set forth in Section 7.3 of the Participation Agreement, which representations and warranties are hereby incorporated by reference. 6 LESSEE GUARANTEE ARTICLE IV MISCELLANEOUS PROVISIONS SECTION 4.1. Operative Agreement. This Guarantee is an Operative Agreement executed pursuant to the Participation Agreement and shall (unless expressly indicated herein) be construed, administered and applied in accordance with the terms and provisions of the Participation Agreement, including, without limitation, Section 13 thereof. SECTION 4.2. Binding on Successors, Transferees and Assigns; Assignment of Guarantee. This Guarantee shall be binding upon the Lessee Guarantor and its successors, transferees and assigns and shall inure to the benefit of and be enforceable by each Guaranteed Party and their respective, permitted successors and assigns; provided, however, that the Lessee Guarantor may not assign any of its obligations hereunder without the prior written consent of each Participant. SECTION 4.3. Amendments, etc. No amendment to or waiver of any provision of this Guarantee, nor consent to any departure by the Lessee Guarantor herefrom, shall in any event be effective unless the same shall be in writing and signed by the Administrative Agent and the Owner Trustee, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. SECTION 4.4. Addresses for Notices to the Lessee Guarantor. All notices, demands, requests, consents, approvals and other communications hereunder shall be in writing and directed to the address described in, and deemed received in accordance with the provisions of, Section 13.2 of the Participation Agreement. SECTION 4.5. No Waiver; Remedies. In addition to, and not in limitation of, Section 2.2 and Section 2.4, no failure on the part of any Guaranteed Party to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. SECTION 4.6. Section Captions. Section captions used in this Guarantee are for convenience of reference only, and shall not affect the construction of this Guarantee. 7 LESSEE GUARANTEE SECTION 4.7. Setoff. In addition to, and not in limitation of, any rights of any Guaranteed Party under applicable law, each Guaranteed Party shall, upon the occurrence of any Lease Event of Default or any Construction Agency Agree- ment Event of Default, have the right to appropriate and apply to the payment of the obligations of the Lessee Guarantor owing to it hereunder, to the extent then due, and the Lessee Guarantor hereby grants to each Guaranteed Party a continuing security interest in, any and all balances, credits, deposits, accounts or moneys of the Lessee Guarantor then or thereafter maintained with such Guaranteed Party; provided, however, that any such appropriation and application shall be subject to the provisions of the Participation Agreement. SECTION 4.8. Severability. Wherever possible each provision of this Guarantee shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Guarantee shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Guarantee. SECTION 4.9. Termination of Guarantee. The Lessee Guarantor's obligations under this Guarantee shall terminate on the date upon which all Guaranteed Obligations have been paid in full, and all other Obligations shall have been fully and finally discharged. SECTION 4.10. Governing Law. THIS GUARANTEE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES). SECTION 4.11. Waiver of Jury Trial. THE LESSEE GUARANTOR HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS GUARANTEE. THE LESSEE GUARANTOR ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE LENDERS AND THE LESSOR ENTERING INTO THE PARTICsIPATION AGREEMENT. [THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK] 8 LESSEE GUARANTEE IN WITNESS WHEREOF, the Lessee Guarantor has caused this Guarantee to be duly executed and delivered by its officer thereunto duly authorized as of the date first above written. FRED MEYER, INC., as Lessee Guarantor By JAMES C. AALBERG -------------------------------------- Name: James C. Aalberg Title: Vice President, Treasurer S-1 EX-4.1G 10 PLEDGE AGREEMENT PLEDGE AGREEMENT PLEDGE AGREEMENT THIS PLEDGE AGREEMENT (this "Agreement"), dated as of March 11, 1998, is entered into by FRED MEYER, INC., a Delaware corporation ("FMI"), and each of the undersigned Subsidiaries of FMI (the "Subsidiary Pledgors"; FMI and the Subsidiary Pledgors are each individually referred to herein as a "Pledgor" and collectively as "Pledgors"; provided that after the Closing Date, "Pledgors" shall be deemed to include any new subsidiary of any Pledgor which executes an acknowledgment to this Agreement pursuant to Section 7 hereof agreeing to be bound by the terms hereof) in favor of BANKERS TRUST COMPANY, as administrative agent (the "Administrative Agent") and collateral agent (the "Collateral Agent") for the Beneficiaries (as hereinafter defined). RECITALS WHEREAS, FMI, as borrower, the lenders from time to time party thereto (the "Loan Agreement Lenders"), the Administrative Agent and The Chase Manhattan Bank, as syndication agent thereunder (the "Syndication Agent") are parties to that certain Loan Agreement, dated as of the date hereof (as the same shall be amended, supplemented or otherwise modified from time to time, the "Loan Agreement"); WHEREAS, FMI, as lessee, FMS Trust 1997-1, as lessor (the "Lessor"), Wilmington Trust Company, as owner trustee (the "Owner Trustee"), the investors from time to time party thereto, the lenders from time to time party thereto (the "Synthetic Lease Facility Lenders" and, collectively with the Loan Agreement Lenders, the "Lenders"), the Administrative Agent and the Syndication Agent are parties to that certain participation agreement, dated as of the date hereof (as the same may be amended, supplemented or otherwise modified from time to time, the "Participation Agreement" and, collectively with the other documents contemplated by the Participation Agreement, the "Synthetic Lease Facility") (the Synthetic Lease Facility, together with the Loan Agreement and the other documents contemplated thereby, the "Facility Documents") (the transactions contemplated by the Facility Documents being collectively referred to as the "Extensions of Credit"); WHEREAS, pursuant to a guarantee, dated as of the date hereof, the Subsidiary Pledgors have guaranteed the obligations of FMI under the transactions contemplated by the Loan Agreement (the "Loan Guarantee"); PLEDGE AGREEMENT WHEREAS, pursuant to a guarantee, dated as of the date hereof, FMI has guaranteed the obligations of each Loan Party (other than FMI), the Lessor, and the Owner Trustee under the Synthetic Lease Facility (the "Lessee Guarantee"); WHEREAS, pursuant to a guarantee, dated as of the date hereof, the Subsidiary Pledgors have guaranteed the obligations of each Loan Party, the Lessor and the Owner Trustee under the Synthetic Lease Facility (the "Synthetic Lease Guarantee" and, collectively with the Loan Guarantee and the Lessee Guarantee, the "Guarantees"); WHEREAS, FMI, the Subsidiary Pledgors, the Collateral Agent, Bankers Trust Company, as Administrative Agent under the Loan Agreement, and Bankers Trust Company, as Administrative Agent under the Synthetic Lease Facility, on behalf of the Lenders, have entered into an Intercreditor and Collateral Agency Agreement, dated as of the date hereof (the "Intercreditor Agreement"), providing for, among other things, the appointment of the Administrative Agent as Collateral Agent to administer and enforce the security interest granted pursuant to this Agreement as provided therein; WHEREAS, it is a condition precedent to the Facility Documents that the Pledgors shall have entered into this Agreement and granted the pledges provided herein; and WHEREAS, each Pledgor wishes to grant pledges and security interests in favor of Collateral Agent for the benefit of the Lenders and the persons who may in the future become beneficiaries in accordance with the terms of the Intercreditor Agreement and the Facility Documents (all such beneficially interested parties being the "Beneficiaries"); and WHEREAS, each Pledgor is the legal and beneficial owner of the shares of capital stock or similar equity securities constituting voting interests listed opposite the name of such Pledgor in Schedule I hereto (collectively, the "Pledged Shares"), which shares constitute all of the issued and outstanding shares of capital stock or similar equity securities of the corporations or equivalent entities named therein; NOW, THEREFORE, in consideration of the premises set forth herein and in order to induce the Lenders to make loans and other extensions of credit under the Facility Documents, the Pledgors hereby agree with the Collateral Agent for the ratable benefit of the Beneficiaries as follows: SECTION 1. Certain Defined Terms. Capitalized terms used herein without definition herein shall have the meanings provided in the Loan Agreement. The following terms as used herein shall have the following meanings: 2 PLEDGE AGREEMENT "Agreement" means this Pledge Agreement, as amended or supplemented from time to time. "Beneficiaries" shall have the meaning set forth in eighth WHEREAS clause of this Agreement. "Extensions of Credit" shall have the meaning set forth in the second WHEREAS clause of this Agreement. "Facility Documents" shall have the meaning set forth in the second WHEREAS clause of this Agreement. "Guarantee Obligations" shall have the meaning set forth in Section 3. "Guarantees" shall have the meaning set forth in the fifth WHEREAS clause of this Agreement. "Indemnitee" shall have the meaning set forth in Section 16. "Intercreditor Agreement" shall have the meaning set forth in the sixth WHEREAS clause of this Agreement. "Lenders" shall have the meaning set forth in the second WHEREAS clause of this Agreement. "Lessor" shall have the meaning set forth in the second WHEREAS clause of this Agreement. "Loan Agreement" shall have the meaning set forth in the first WHEREAS clause of this Agreement. "Loan Agreement Lenders" shall have the meaning set forth in the first WHEREAS clause of this Agreement. "Loan Guarantee" shall have the meaning set forth in the third WHEREAS clause of this Agreement. "Owner Trustee" shall have the meaning set forth in the second WHEREAS clause of this Agreement. "Participation Agreement" shall have the meaning set forth in the second WHEREAS clause of this Agreement. 3 PLEDGE AGREEMENT "Pledge Acknowledgment" shall have the meaning set forth in Section 7. "Pledge Amendment" shall have the meaning set forth in Section 7. "Pledged Collateral" means: (a) the Pledged Shares and the certificates representing the Pledged Shares and any interest of a Pledgor in the entries on the books of any financial intermediary pertaining to the Pledged Shares, and, subject to Section 8, all dividends, cash, warrants, rights, instruments and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Pledged Shares; (b) all additional shares of, and all securities convertible into and warrants, options and other rights to purchase, stock of any issuer of the Pledged Shares from time to time acquired by a Pledgor in any manner (which shares shall be deemed to be part of the Pledged Shares), the certificates or other instruments representing such additional shares, securities, warrants, options or other rights and any interest of a Pledgor in the entries on the books of any financial intermediary pertaining to such additional shares, and, subject to Section 8, all dividends, cash, warrants, rights, instruments and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such additional shares, securities, warrants, options or other rights; (c) all shares of, and all securities convertible into and warrants, options and other rights to purchase, stock of any Person that, after the date of this Agreement, becomes, as a result of any occurrence, a direct Subsidiary (other than an Insignificant Subsidiary) of any Pledgor (which shares shall be deemed to be part of the Pledged Shares) and the certificates or other instruments representing such shares, securities, warrants, options or other rights and any interest of a Pledgor in the entries on the books of any financial intermediary pertaining to such shares, and, subject to Section 8, all dividends, cash, warrants, rights, instruments and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such shares, securities, warrants, options or other rights; and (d) to the extent not covered above, all Proceeds thereof. "Pledged Shares" shall have the meaning set forth in the ninth WHEREAS clause of this Agreement. "Pledgor" means each of FMI and each Subsidiary Pledgor. 4 PLEDGE AGREEMENT "Proceeds" shall have the meaning assigned that term under the Uniform Commercial Code (the "Code") as in effect in any relevant jurisdiction or under relevant law and, in any event, shall include, but not be limited to, any and all (i) proceeds of any indemnity or guaranty payable to any Pledgor or any Beneficiaries from time to time with respect to any of the Pledged Collateral and (ii) any other amounts from time to time paid or payable under or in connection with any of the Pledged Collateral or otherwise receivable or received when the Pledged Collateral is or proceeds are sold, collected, exchanged or otherwise disposed of, whether such disposition is voluntary or involuntary. "Secured Obligations" shall have the meaning set forth in Section 3. "Securities Act" means the Securities Act of 1993, as from time to time amended. "Subsidiary Pledgor" shall mean each of the Subsidiaries set forth on the signature pages of this Agreement and any Subsidiary which becomes a party hereto after the date hereof. "Syndication Agent" means The Chase Manhattan Bank. "Underlying Debt" shall have the meaning set forth in Section 3. SECTION 2. Pledge of Security. Each Pledgor hereby pledges to Collateral Agent and grants to Collateral Agent, for the ratable benefit of the Lenders and any other holder of Secured Obligations, a first priority security interest in the Pledged Collateral. SECTION 3. Security for Obligations. This Agreement secures, and the Pledged Collateral is collateral security for, (i) the prompt payment and performance in full when due, whether at stated maturity, by acceleration or otherwise (including the payment of 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. ss. 362(a) and the operation of Sections 502(b) and 506(b) of the United States Bankruptcy Code, 11 U.S.C. ss.502(b) and ss.506 (b), or any successor provision thereto), of all obligations of FMI under the Facility Documents, whether now existing or hereafter arising, voluntary or involuntary, whether or not jointly owed with others, direct or indirect, absolute or contingent, liquidated or unliquidated, and whether or not from time to time decreased or extinguished and later increased, created or incurred and all or any portion of such obligations that are paid to the extent all or any part of such payment is avoided or recovered directly or indirectly from the Collateral Agent or Beneficiaries as a preference, fraudulent transfer or otherwise (all such obligations being the "Underlying Debt"), (ii) all obligations of the Pledgors under their Guarantees (the "Guarantee Obligations") and (iii) all obligations or 5 PLEDGE AGREEMENT liabilities of every nature of Pledgors now or hereafter existing under this Agreement (all such obligations of Pledgors, together with the Underlying Debt and the Guarantee Obligations, being the "Secured Obligations"). SECTION 4. Delivery of Pledged Collateral. All certificates or instruments representing or evidencing the Pledged Collateral shall be delivered to and held by or on behalf of Collateral Agent pursuant hereto and shall be in suitable form for transfer by delivery, or, as applicable, shall be accompanied by the Pledgor's endorsement, where necessary, or duly executed instruments of transfer or assignment in blank, all in form and substance satisfactory to Collateral Agent. If an Event of Default shall have occurred and be continuing, Collateral Agent shall have the right, at any time in its discretion and without notice to any Pledgor, to transfer to or to register in the name of Collateral Agent or any of its nominees any or all of the Pledged Collateral, subject only to the revocable rights specified in Section 8(a) hereof. In addition, Collateral Agent shall have the right at any time to exchange certificates or instruments representing or evidencing Pledged Collateral for certificates or instruments of smaller or larger denominations. SECTION 5. Representations and Warranties. Each Pledgor represents and warrants as follows: (a) Pledged Collateral. All of the Pledged Shares pledged by such Pledgor have been duly authorized and validly issued and are fully paid and nonassessable. The Pledged Shares constitute all of the issued and outstanding shares or membership interests, as the case may be, of each issuer thereof and there are no outstanding options, warrants, rights to subscribe, stock purchase rights or other agreements outstanding with respect to, or property that is now or hereafter convertible into, or that requires the issuance or sale of, any Pledged Shares. (b) Ownership of Pledged Collateral. Such Pledgor is the legal, record and beneficial owner of the Pledged Collateral pledged by such Pledgor free and clear of any Lien except for the security interest created by this Agreement. (c) Consents. No consent of any other party (including, without limitation, stockholders or creditors of such Pledgor or any Person under any contractual obligation of such Pledgor) and no consent, authorization, approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required either (i) for the pledge by the Pledgor of the Pledged Collateral pursuant to this Agreement and the grant by the Pledgor of the security interest granted hereby or for the execution, delivery or performance of this Agreement by the Pledgor or (ii) for the exercise by Collateral Agent of the voting or other rights provided for in this Agreement or the remedies in respect of the Pledged Collateral pursuant to this Agreement (except (x) those which have been obtained or made and (y) as may be required in connection with 6 PLEDGE AGREEMENT a disposition of Pledged Collateral by laws affecting the offering and sale of securities generally). (d) Perfection. The pledge and delivery to Collateral Agent of the Pledged Collateral pursuant to this Agreement creates a valid and perfected security interest of Collateral Agent, on behalf of the Beneficiaries, in the Pledged Collateral of such Pledgor, securing the payment and performance of the Secured Obligations, with the priority set forth herein, and all actions necessary or desirable to perfect and protect such security interest have been duly taken. (e) Regulations G, T, U and X. The pledge of the Pledged Collateral pursuant to this Agreement does not violate Regulations G, T, U or X of the Board of Governors of the Federal Reserve System. SECTION 6. Certain Covenants. Each Pledgor hereby covenants that, until the Secured Obligations have been indefeasibly paid in full, such Pledgor will: (a) not, (i) except as permitted by each of the Facility Documents, sell, assign (by operation of law or otherwise) or otherwise dispose of, or grant any option with respect to, any of the Pledged Collateral pledged hereunder by such Pledgor, (ii) create or permit to exist any Lien upon or with respect to any of the Pledged Collateral, except for the security interest under this Agreement or (iii) permit, except as permitted by each of the Facility Documents, any issuer of Pledged Shares to merge or consolidate with any Person; provided, however, that in the event any Pledged Collateral is sold, transferred or otherwise disposed of in any transaction permitted by each of the Facility Documents (as long as all such agreements are in effect, otherwise by whichever agreements remain in effect), such Pledged Collateral shall, concurrently therewith, be automatically released from the lien and security interest under this Agreement and the Collateral Agent shall, at such Pledgor's expense, execute and deliver to such Pledgor such documents as such Pledgor shall reasonably request to evidence such release; provided that arrangements satisfactory to the Collateral Agent have been made for delivery to it of the amounts, if any, required to be paid to the Beneficiaries out of the net proceeds of such disposition; (b) (i) cause each issuer of Pledged Shares not to issue any stock or other securities or membership interests in addition to or in substitution for the Pledged Shares issued by such issuer, except to the Pledgor, (ii) pledge hereunder, immediately upon its acquisition (directly or indirectly) thereof, any and all additional shares of stock, membership interests or other securities of each issuer of Pledged Shares, and (iii) pledge hereunder, immediately upon its acquisition (directly or indirectly) thereof, any and all shares of stock or membership interests of any Person which, after the date of this Agreement, becomes, as a result of any occurrence, a direct Subsidiary (other than an Insignificant Subsidiary) of Pledgor; and 7 PLEDGE AGREEMENT (c) promptly deliver to Collateral Agent all written notices received by it with respect to the Pledged Collateral. SECTION 7. Further Assurances; Pledge Amendments. (a) Each Pledgor agrees that at any time and from time to time, at the expense of the Pledgors, such Pledgor shall promptly execute and deliver all further instruments and documents, and take all further actions, that may be necessary or desirable, or that Collateral Agent may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable Collateral Agent to exercise and enforce its rights and remedies hereunder with respect to any Pledged Collateral. (b) Each Pledgor further agrees that it will, upon obtaining any additional shares of stock, membership interests or other securities required to be pledged hereunder as provided in Section 7(b) or (c) hereof, promptly (and in any event within ten days) deliver to Collateral Agent a Pledge Amendment, duly executed by such Pledgor, in substantially the form of Schedule II hereto (a "Pledge Amendment"), in respect of the additional shares of stock or membership interests to be pledged pursuant to this Agreement. Each Pledgor hereby authorizes Collateral Agent to attach each Pledge Amendment to this Agreement and agrees that all Pledged Shares listed on any Pledge Amendment delivered to Collateral Agent shall for all purposes hereunder be considered Pledged Collateral. (c) Each Pledgor further agrees that it will cause any direct or indirect Subsidiary (other than Insignificant Subsidiaries) acquired or created after the Closing Date promptly after such acquisition or creation of such new Subsidiary (and in any event within ten days after the date such acquisition or creation, as the case may be) to deliver to Collateral Agent an acknowledgment duly executed by such new Subsidiary in substantially the form of Schedule III hereto (a "Pledge Acknowledgment"). SECTION 8. Voting Rights; Dividends; Etc. (a) So long as no Event of Default (as defined below) shall have occurred and be continuing: (i) The Pledgors shall be entitled to exercise any and all voting and other consensual rights pertaining to the Pledged Collateral or any part thereof for any purpose not inconsistent with the terms of any of the Facility Documents. It is understood, however, that neither (A) the voting by Pledgors of any Pledged Shares for or the Pledgors' consent to the election of directors at a regularly scheduled annual or other meeting of stockholders or with respect to incidental matters at any such meeting nor (B) the Pledgors' consent to or approval of any 8 PLEDGE AGREEMENT action otherwise permitted under each of the Facility Documents shall be deemed inconsistent with the terms of any of the Facility Documents within the meaning of this Section 8(a)(i), and no notice of any such voting or consent need be given to Collateral Agent. (ii) The Pledgors shall be entitled to receive and retain, and to utilize free and clear of the lien of this Agreement, any and all dividends and other distributions paid in respect of the Pledged Collateral; provided, however, that any and all dividends, interest and other distributions paid or payable in additional equity securities, or warrants, options or similar rights to acquire additional equity securities shall be, and shall forthwith be delivered to Collateral Agent to hold as, Pledged Collateral and shall, if received by a Pledgor, be received in trust for the benefit of Collateral Agent, be segregated from the other property or funds of the Pledgor and be forthwith delivered to Collateral Agent as Pledged Collateral in the same form as so received (with all necessary endorsements). (iii) Collateral Agent shall promptly execute and deliver (or cause to be executed and delivered) to the appropriate Pledgor all such proxies, dividend payment orders and other instruments as such Pledgor may from time to time reasonably request for the purpose of enabling the Pledgor to exercise the voting and other consensual rights which it is entitled to exercise pursuant to paragraph (i) above and to receive the dividends, principal or interest payments which it is authorized to receive and retain pursuant to paragraph (ii) above. (b) Upon the occurrence and during the continuance of an Event of Default: (i) Upon written notice from Collateral Agent to FMI, all rights of Pledgors to exercise the voting and other consensual rights which they would otherwise be entitled to exercise pursuant to Section 8(a)(i) shall cease, and all such rights shall thereupon become vested in Collateral Agent who shall thereupon have the right to exercise such voting and other consensual rights. (ii) All rights of Pledgors to receive the dividends, interest and other payments which they would otherwise be authorized to receive and retain pursuant to Section 8(a)(ii) shall cease, and all such rights shall thereupon become vested in Collateral Agent who shall thereupon have the right to receive and hold as Pledged Collateral such dividends, interest and other payments which shall, upon written notice from Collateral Agent, be paid to Collateral Agent. (iii) All dividends, interest and other payments which are received by any Pledgor contrary to the provisions of paragraph (ii) of this Section 8(b) shall be received in trust for the benefit of Collateral Agent, shall be segregated from 9 PLEDGE AGREEMENT other funds of such Pledgor and shall forthwith be paid over to Collateral Agent as Pledged Collateral in the same form as so received (with any necessary endorsements). (c) In order to permit Collateral Agent to exercise the voting and other consensual rights which it may be entitled to exercise pursuant to Section 8(b)(i) hereof and to receive all dividends and other distributions which it may be entitled to receive under Section 8(a)(ii) hereof or Section 8(b)(ii) hereof, the Pledgors shall promptly execute and deliver (or cause to be executed and delivered) to Collateral Agent all such proxies, dividend payment orders and other instruments as Collateral Agent may from time to time reasonably request. SECTION 9. Collateral Agent Appointed Attorney-in-Fact. Each Pledgor hereby irrevocably appoints Collateral Agent as such Pledgor's attorney-in-fact, with full authority in the place and stead of such Pledgor and in the name of such Pledgor or otherwise, from time to time in Collateral Agent's reasonable discretion to take any action and to execute any instrument, including but not limited to financing and continuation statements, which Collateral Agent may deem necessary or advisable, subject to the terms and conditions of this Agreement, to accomplish the purposes of this Agreement, including, without limitation, (a) to receive, endorse and collect all instruments made payable to such Pledgor representing any dividend, principal or interest payment or other distribution in respect of the Pledged Collateral or any part thereof and to give full discharge for the same, and (b) if an Event of Default shall have occurred and be continuing, to ask, demand, collect, sue for, recover, compound, receive and give acquittance and receipts for moneys due and to become due under or in respect of any of the Pledged Collateral, and to file any claims or take any action or institute any proceedings which Collateral Agent may deem necessary or desirable for the collection of any of the Pledged Collateral or to enforce the rights of Collateral Agent with respect to any of the Pledged Collateral. SECTION 10. Collateral Agent May Perform. If a Pledgor fails to perform any agreement contained herein, Collateral Agent may, upon thirty days' notice to the Pledgor (unless otherwise expressly set forth in this Agreement or an Event of Default shall have occurred and be continuing, in which case, no notice shall be required) itself perform, or cause performance of, such agreement, and the expenses of Collateral Agent incurred in connection therewith shall be payable by the Pledgors under Section 16(b) hereof. SECTION 11. Standard of Care. The powers conferred on Collateral Agent hereunder are solely to protect its interest in the Pledged Collateral and shall not impose on it any duty to exercise such powers. Collateral Agent shall be deemed to have exercised reasonable care in the custody and preservation of the Pledged Collateral in its possession if the Pledged Collateral is accorded treatment substantially equivalent to that 10 PLEDGE AGREEMENT which Collateral Agent accords its own property consisting of negotiable securities, it being understood that Collateral Agent shall have no responsibility for (a) ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relating to any Pledged Collateral, whether or not any Beneficiary has or is deemed to have knowledge of such matters, (b) taking any necessary steps (other than steps taken in accordance with the standard of care set forth above to maintain possession of the Pledged Collateral) to preserve rights against any parties with respect to any Pledged Collateral, (c) taking any necessary steps to collect or realize upon the Secured Obligations or any guarantee therefor, or any part thereof, or any of the Pledged Collateral or (d) initiating any action to protect the Pledged Collateral against the possibility of a decline in market value. SECTION 12. Events of Default. The occurrence of any "Event of Default" as defined in any of the Facility Documents (other than a "Credit Agreement Event of Default" as defined in the Participation Agreement) shall constitute an Event of Default under this Agreement. SECTION 13. Remedies upon Default. (a) Remedies Upon Default. If any Event of Default shall have occurred and be continuing: (i) Collateral Agent may exercise in respect of the Pledged Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party on default under the Code as in effect in the State of New York (or any other state with jurisdiction over the Pledged Collateral) at that time, and Collateral Agent may also in its sole discretion, without notice (except as specified below), sell the Pledged Collateral or any part thereof in one or more parcels at public or private sale, at any exchange, broker's board or at any of Collateral Agent's offices or elsewhere, for cash, on credit or for future delivery, at such time or times and at such price or prices and upon such other terms as are commercially reasonable, irrespective of the impact of any such sales on the market price of the Pledged Collateral. Collateral Agent may be the purchaser of any or all of the Pledged Collateral at any such sale and shall be entitled, for the purpose of bidding and making settlement or payment of the purchase price for all or any portion of the Pledged Collateral sold at any such public sale, to use and apply any of the Secured Obligations as a credit on account of the purchase price of any Pledged Collateral payable by Collateral Agent at such sale. Each purchaser at any such sale shall hold the property sold absolutely free from any claim or right on the part of any Pledgor, and each Pledgor hereby waives (to the extent permitted by law) all rights of redemption, stay and/or appraisal which it now has or may at any time in the future have under any rule of law or statute now existing or hereafter enacted. 11 PLEDGE AGREEMENT Pledgors agree that, to the extent notice of sale shall be required by law, at least ten days' notice to the Pledgors of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. Collateral Agent shall not be obligated to make any sale of Pledged Collateral regardless of notice of sale having been given. Collateral Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. Each Pledgor hereby waives any claims against Collateral Agent arising by reason of the fact that the price at which any Pledged Collateral may have been sold at such a private sale was less than the price which might have been obtained at a public sale, even if Collateral Agent accepts the first offer received and does not offer such Pledged Collateral to more than one offeree. If the proceeds of any sale or other disposition of the Pledged Collateral are insufficient to pay all the Secured Obligations, the Pledgors shall be liable for the deficiency and the fees of any attorneys employed by Collateral Agent to collect such deficiency. (ii) Each Pledgor recognizes that, by reason of certain prohibitions contained in the Securities Act of 1933, as from time to time amended (the "Securities Act"), and applicable state securities laws, Collateral Agent may be compelled, with respect to any sale of all or any part of the Pledged Collateral conducted without prior registration or qualification of such Pledged Collateral under the Securities Act and/or such state securities laws, to limit purchasers to those who will agree, among other things, to acquire the Pledged Collateral for their own account, for investment and not with a view to the distribution or resale thereof. Each Pledgor acknowledges that any such private sales may be at prices and on terms less favorable to Collateral Agent than those obtainable through a public sale without such restrictions (including, without limitation, a public offering made pursuant to a registration statement under the Securities Act) and, notwithstanding such circumstances, each Pledgor agrees that any such private sale shall be deemed to have been made in a commercially reasonable manner and that Collateral Agent shall have no obligation to engage in public sales and no obligation to delay the sale of any Pledged Collateral for the period of time necessary to permit the issuer thereof to register it for a form of public sale requiring registration under the Securities Act or under applicable state securities laws, even if such issuer would, or should, agree to so register it. (iii) If Collateral Agent determines to exercise its right to sell any or all of the Pledged Collateral, upon written request, the Pledgors shall and shall cause each issuer of any Pledged Shares to be sold hereunder from time to time to furnish to Collateral Agent all such information as Collateral Agent may request in order to determine the number of shares and other instruments included in the Pledged Collateral which may be sold by Collateral Agent in exempt transactions 12 PLEDGE AGREEMENT under the Securities Act and the rules and regulations of the Securities and Exchange Commission thereunder, as the same are from time to time in effect. (b) Decisions Relating to Exercise of Remedies. Notwithstanding anything in this Agreement to the contrary, as provided in the Intercreditor Agreement, the Collateral Agent shall exercise, or shall refrain from exercising any remedy provided herein in accordance with the instructions of the Required Lenders (as defined in the Intercreditor Agreement) and the Beneficiaries shall be bound by such instructions; and the sole rights of the Beneficiaries under this Agreement shall be (i) to be secured by the Pledged Collateral as provided herein and (ii) to receive the payments provided for in Section 14 hereof. SECTION 14. Application of Proceeds. All Proceeds received by Collateral Agent in respect of any sale of, collection from, or other realization upon all or any part of the Pledged Collateral may, in the discretion of Collateral Agent, be held by Collateral Agent as Pledged Collateral for, and/or then or at any time thereafter applied in whole or in part by Collateral Agent against the Secured Obligations in the following order of priority: FIRST: To the payment of all costs and expenses of such sale, collection or other realization, and all expenses, liabilities and advances made or incurred by Collateral Agent in connection therewith and all amounts for which the Collateral Agent is entitled to indemnification hereunder and all advances made by the Collateral Agent hereunder for the account of the Pledgors or for the payment of all costs and expenses paid or incurred by the Collateral Agent in connection with the exercise of any right or remedy hereunder, all in accordance with Section 16 hereof; SECOND: To the payment in full of all Secured Obligations in accordance with Section 8 of the Intercreditor Agreement; and THIRD: To the payment to or upon the order of the Pledgors, or to whosoever may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct, of any surplus then remaining from such proceeds. SECTION 15. Collateral Agent. Collateral Agent shall be obligated and shall have the right hereunder, to make demands, to give notices, to exercise or refrain from exercising any rights, and to take or refrain from taking any action (including, without limitation, the release or substitution of Pledged Collateral) solely in accordance with the Intercreditor Agreement. Collateral Agent may resign and a successor Collateral Agent may be appointed in the manner provided for resignation and appointment of a successor in the Intercreditor Agreement. Upon the acceptance of any appointment as a Collateral Agent by a successor Collateral Agent, that successor Collateral Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties 13 PLEDGE AGREEMENT of the retiring Collateral Agent under this Agreement, and the retiring Collateral Agent shall thereupon be discharged from its duties and obligations under this Agreement and shall deliver any Pledged Collateral in its possession to the successor Collateral Agent. After any retiring Collateral Agent's resignation, the provisions of this Agreement shall inure to its benefit as to any actions taken or omitted to be taken by it under this Agreement while it was Collateral Agent. SECTION 16. Indemnity and Expenses. (a) The Pledgors jointly and severally agree to indemnify Collateral Agent, each Beneficiary and each of the officers, directors, agents, employees and affiliates of each of them (each an "Indemnitee"), from and against any and all claims, losses and liabilities in any way relating to, growing out of or resulting from this Agreement and the transactions contemplated hereby (including, without limitation, enforcement of this Agreement), except claims, losses or liabilities resulting from the gross negligence or willful misconduct of the Indemnitee seeking indemnification. (b) Pledgors will upon demand pay to Collateral Agent the amount of any and all reasonable costs and expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, which Collateral Agent may incur in connection with (i) the administration of this Agreement, (ii) the custody or preservation of, or the sale of, collection from, or other realization upon, any of the Pledged Collateral, (iii) the exercise or enforcement of any of the rights of Collateral Agent hereunder or (iv) the failure by any Pledgor to perform or observe any of the provisions hereof. SECTION 17. Waivers of Pledgor. (a) Each Pledgor hereby waives any right to require Collateral Agent to: (i) proceed against FMI, any guarantor of any of the Secured Obligations or any other person or entity; (ii) proceed against or exhaust any other security held from any other person or entity; (iii) give notice to any Pledgor of the terms, time and place of any public or private sale of the Pledged Collateral or any other security, or otherwise comply with Section 9504 of the Code (except as provided in Section 13(a)(i)); (iv) pursue any other remedy in Collateral Agent's power; or (v) except as otherwise expressly provided herein or in any other Facility Document, make or give any presentments, demands for performance, notices of nonperformance, protests, notices of protest or notices of dishonor in connection with any obligations or evidences of indebtedness which constitute in whole or in part the Secured Obligations or in connection with the creation of new or additional Secured Obligations; (b) Each Pledgor waives any defense arising by reason of: (i) any disability or other defense of FMI, any Pledgor or any other entity, including, without limitation, any defense based on or arising out of the unenforceability of any of the 14 PLEDGE AGREEMENT Secured Obligations, legal or equitable discharge of the Secured Obligations or this Agreement or any statute of limitations affecting a Pledgor's liability hereunder; (ii) the cessation from any cause whatsoever, other than payment in full, of the Secured Obligations or the release or substitution of any sureties or guarantors of the Secured Obligations; (iii) any act or omission by Collateral Agent which directly or indirectly results in or aids the discharge of any Pledgor or any of the Secured Obligations by operation of law or otherwise; (iv) the release of any other collateral securing the Secured Obligations or the failure by Collateral Agent to perfect or maintain the perfection of any such other collateral; (v) any modification of the Secured Obligations, in any form whatsoever, including, but not limited to the renewal, extension, acceleration or other change in the time for payment of the Secured Obligations, and any change in the terms of the Secured Obligations, including, but not limited to, any increase or decrease of the rate of interest on the Secured Obligations; and (vi) any law limiting the liability of or exonerating guarantors or sureties; and (c) until all the Secured Obligations shall have been paid in full, each Pledgor waives any right to enforce any remedy which Collateral Agent now has or may hereafter have against any person or entity guaranteeing or securing the Secured Obligations, and waives any benefit of, or any right to participate in any security whatsoever now or hereafter held by Collateral Agent for the Secured Obligations. SECTION 18. Continuing Security Interest; Transfer of Indebtedness. This Agreement shall create a continuing security interest in the Pledged Collateral and shall, unless released and/or terminated pursuant to Section 15 of the Intercreditor Agreement, (a) remain in full force and effect until indefeasible payment in full of all Secured Obligations, the cancellation or termination of the Commitments to extend credit under the Facility Documents and the cancellation or expiration of all outstanding letters of credit, (b) be binding upon each Pledgor, its successors and assigns, and (c) inure, together with the rights and remedies of Collateral Agent hereunder, to the benefit of Collateral Agent and each Beneficiary and their respective successors, transferees and assigns. Without limiting the generality of the foregoing clause (c), subject to the provisions of the Facility Documents, each Beneficiary may assign or otherwise transfer any Debt held by it to any other person or entity, and such other person or entity shall thereupon become vested with all the benefits in respect thereof granted to a Beneficiary herein or otherwise. Upon the earlier of (i) indefeasible payment in full of all Secured Obligations, the cancellation or termination of the Commitments to extend credit under the Facility Documents, the cancellation or expiration of all outstanding letters of credit or (ii) the release and termination of the pledge pursuant to Section 15 of the Intercreditor Agreement, each Pledgor shall be entitled to the return, upon its request and at its expense, against receipt and without recourse to Collateral Agent, of such of the Pledged Collateral pledged by such Pledgor hereunder as shall not have been sold or otherwise applied pursuant to the terms hereof. 15 PLEDGE AGREEMENT SECTION 19. Additional Beneficiaries. Each lender, or agent on behalf of each lender, which becomes a party to the Intercreditor Agreement from time to time shall thereupon be deemed a Beneficiary hereunder and shall be entitled to all of the rights and benefits of a Beneficiary hereunder subject to the terms of this Agreement and the Intercreditor Agreement. SECTION 20. No Waiver by Beneficiary; Authority of Pledgor. No failure on the part of Collateral Agent to exercise, and no course of dealing with respect to, and no delay in exercising, any right, power or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise by Collateral Agent of any right, power or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right, power or remedy. The remedies herein provided are cumulative to the fullest extent permitted by law and are not exclusive of any remedies provided by law. It is not necessary for Collateral Agent to inquire into the powers of any Pledgor or the officers, directors or agents acting or purporting to act on behalf of any of them. SECTION 21. Amendment, Etc. No amendment or waiver of any provision of this Agreement, nor consent to any departure by any Pledgor herefrom, shall in any event be effective unless the same shall be in writing and signed by Collateral Agent on behalf of the Required Lenders (as defined in the Intercreditor Agreement), and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. SECTION 22. Addresses for 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, telecopied, telexed or sent by United States mail or courier service and shall be deemed to have been given when delivered in person, upon receipt (in the case of telecopy or telex) or four business days after depositing it in the United States mail, registered or certified, with postage prepaid and properly addressed; provided that any notice sent to Collateral Agent shall not be effective until received. For purposes hereof, the addresses of the parties hereto (until notice of a change thereof is delivered as provided in this Section 22) shall be as set forth under each party's name on the signature pages hereof. SECTION 23. Governing Law; Terms. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK, EXCEPT AS REQUIRED BY MANDATORY PROVISIONS OF LAW AND EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR PLEDGED COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK. Unless otherwise defined herein, terms defined in Article 9 of the Code are used herein as therein defined. 16 PLEDGE AGREEMENT SECTION 24. Severability. Any provisions of this Agreement which are prohibited or unenforceable in any jurisdiction shall, as to such jurisdictions, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. SECTION 25. Consent to Jurisdiction and Service of Process. All judicial proceedings brought against any Pledgor with respect to this Agreement may be brought in any state or federal court of competent jurisdiction sitting in New York, New York, and by execution and delivery of this Agreement, each Pledgor accepts for itself and in connection with its properties, generally and unconditionally, the nonexclusive jurisdiction of the aforesaid courts, and irrevocably agrees to be bound by any judgment rendered thereby in connection with this Agreement. Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 22. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law. A copy of any such process so served shall be mailed by registered mail to such Pledgor at its address referred to in Section 22 hereof, except that unless otherwise provided by applicable law, any failure to mail such copy shall not affect the validity of service of process. If any agent appointed by any Pledgor refuses to accept service, such Pledgor hereby agrees that service upon it by mail shall constitute sufficient notice. Nothing herein shall affect the right to serve process in any other manner permitted by law or shall limit the right of the Collateral Agent to bring proceedings against any Pledgor in the courts of any other jurisdiction. SECTION 26. Waiver of Jury Trial. Each Pledgor and Collateral Agent hereby agree to waive their respective rights to jury trial of any claim or cause of action based upon or arising out of this Agreement. 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 Pledgor and Collateral Agent acknowledge that this waiver is a material inducement for each Pledgor and Collateral Agent to enter into a business relationship, that each Pledgor and Collateral Agent have already relied on the waiver in entering into this Agreement and that each will continue to rely on the waiver in their related future dealings. Each Pledgor and Collateral Agent further warrant and represent that each has reviewed this waiver with its legal counsel, and that each 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 THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS 17 PLEDGE AGREEMENT AGREEMENT. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO TRIAL BY THE COURT. SECTION 27. Marshaling; Payments Set Aside. Collateral Agent shall not be under any obligation to marshal any assets in favor of any Pledgor or any other party or against or in payment of any or all of the Secured Obligations. To the extent that any Pledgor makes a payment or payments to Collateral Agent or Collateral Agent enforces its security interests or exercises its rights of setoff, and such payment or payments or 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, state or federal law, common law or 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, shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred. SECTION 28. 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 or be given any substantive effect. SECTION 29. Counterparts. This Agreement and any amendments, waivers, consents or supplements may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original and all of which together shall constitute one and the same Agreement. [Remainder of page intentionally left blank.] 18 PLEDGE AGREEMENT IN WITNESS WHEREOF, Pledgors have caused this Agreement to be duly executed and delivered by their officers thereunto duly authorized as of the date first above written. "PLEDGORS" FRED MEYER, INC., FRED MEYER STORES, INC. SMITH'S FOOD & DRUG CENTERS, INC. B&B STORES, INC., FM HOLDING CORPORATION, ROUNDUP CO., QUALITY FOOD CENTERS, INC. HUGHES MARKETS, INC. FOOD 4 LESS HOLDINGS, INC. FRED MEYER JEWELERS, INC. SMITTY'S SUPERMARKETS, INC. SMITTY'S SUPER VALU, INC. QUALITY FOOD, INC. QUALITY FOOD HOLDINGS, INC. RALPHS GROCERY COMPANY CALA CO. FOOD 4 LESS OF SOUTHERN CALIFORNIA, INC. ALPHA BETA COMPANY By: ROGER A. COOKE ------------------------------------- Title: Vice President & Secretary 1 PLEDGE AGREEMENT Notice Address for Pledgors: [ ] Attention: With copies to: [ ] 2 PLEDGE AGREEMENT "Administrative Agent" and "Collateral Agent" BANKERS TRUST COMPANY By: ------------------------------------- Title: ---------------------------------- Notice Address: 3 PLEDGE AGREEMENT SCHEDULE I to the Pledge Agreement Attached to and forming a part of the Pledge Agreement dated as of March 11, 1998 between Pledgors and Bankers Trust Company, as Administrative Agent and Collateral Agent. Pledgor: Fred Meyer, Inc.
Class Stock Par Number Stock Issuer of Stock Certificate Nos. Value of Shares ------------ -------- ---------------- ----- --------- Fred Meyer Stores, Inc. Common 1A $.01 100 Quality Food Centers, Common QF 20005 $.0001 100 Inc. Food 4 Less Holdings, Common 263 $.01 100 Inc. Smith's Food & Drug Common 1A $.01 100 Centers, Inc. - ----------------------------------------------------------------------------------------------------------- Pledgor: Fred Meyer Stores, Inc.
Class Stock Par Number Stock Issuer of Stock Certificate Nos. Value of Shares ------------ -------- ---------------- ----- --------- Roundup Co. Common 2 $1.00 1,000 Fred Meyer of Alaska, Common 2 $1.00 1,000 Inc. Fred Meyer of Common 2 $1.00 1,000 California, Inc. Distribution Trucking Common 3 npv 100 Company B&B Stores, Inc. Common 3 $1.00 1,000 CB&S Advertising Common 3 $100.00 100 Agency, Inc. - ----------------------------------------------------------------------------------------------------------- I-1 PLEDGE AGREEMENT FM Holding Common 2 $.50 1,000 Corporation FM Retail Services, Inc. Common 2 npv 100 Fred Meyer Jewelers, Common 2 $.01 100 Inc. FM Inc. Common 2 npv 100 - ----------------------------------------------------------------------------------------------------------- Pledgor: Smith's Food & Drug Centers, Inc.
Class Stock Par Number Stock Issuer of Stock Certificate Nos. Value of Shares ------------ -------- ---------------- ----- --------- Smith's Beverage of Common 11 $10.00 500 Wyoming Western Property Common 11 npv 10,000 Investment Group, Inc. Smitty's Supermarkets, Common 1 $.01 1,000 Inc. Richies, Inc. Common 3 npv 1,000 Treasure Valley Land N/A 1 N/A 100% Company, L.C. interest - ----------------------------------------------------------------------------------------------------------- Pledgor: B&B Stores, Inc.
Class Stock Par Number Stock Issuer of Stock Certificate Nos. Value of Shares ------------ -------- ---------------- ----- --------- B&B Pharmacy, Inc. Common 2 $10.00 5,000 - ----------------------------------------------------------------------------------------------------------- Pledgor: FM Holding Corporation
Class Stock Par Number Stock Issuer of Stock Certificate Nos. Value of Shares ------------ -------- ---------------- ----- --------- Grand Central, Inc. Common 2 $1.00 2,172,561 - ----------------------------------------------------------------------------------------------------------- I-2 PLEDGE AGREEMENT Pledgor: Roundup Co.
Class Stock Par Number Stock Issuer of Stock Certificate Nos. Value of Shares ------------ -------- ---------------- ----- --------- J H Properties, Inc. Common 1 npv 100 - ----------------------------------------------------------------------------------------------------------- Pledgor: Fred Meyer Jewelers, Inc.
Class Stock Par Number Stock Issuer of Stock Certificate Nos. Value of Shares ------------ -------- ---------------- ----- --------- Merksamer Jewlers, Common 8 npv 40,030 Inc. - ----------------------------------------------------------------------------------------------------------- Pledgor: Quality Food Centers, Inc.
Class Stock Par Number Stock Issuer of Stock Certificate Nos. Value of Shares ------------ -------- ---------------- ----- --------- Hughes Markets, Inc. Common C-3101 $.01 1 Second Story, Inc. Common 1 npv 1,000 Quality Food, Inc. Common 1 $.001 100 KU Acquisition Common 1 npv 100 Corporation - ----------------------------------------------------------------------------------------------------------- Pledgor: Hughes Markets, Inc.
Class Stock Par Number Stock Issuer of Stock Certificate Nos. Value of Shares ------------ -------- ---------------- ----- --------- Hughes Realty, Inc. Common 2 $100.00 200 - ----------------------------------------------------------------------------------------------------------- Pledgor: Food 4 Less Holdings, Inc.
Class Stock Par Number Stock Issuer of Stock Certificate Nos. Value of Shares ------------ -------- ---------------- ----- --------- Ralphs Grocery Common 1 $.01 1,513,938 Company - ----------------------------------------------------------------------------------------------------------- I-3 Pledgor: Ralphs Grocery Company
Class Stock Par Number Stock Issuer of Stock Certificate Nos. Value of Shares ------------ -------- ---------------- ----- --------- Falley's, Inc. Common 4 $.50 1,000 Cala Co. Common 3 $.01 1,000 Food 4 Less of Southern Common 1 $.01 1,000 California, Inc. Crawford Stores, Inc. Common 1 npv 100 - ----------------------------------------------------------------------------------------------------------- Pledgor: Cala Co.
Class Stock Par Number Stock Issuer of Stock Certificate Nos. Value of Shares ------------ -------- ---------------- ----- --------- Bay Area Warehouse Common 1 npv 1,000 Stores, Inc. Cala Foods, Inc. Common 179 $1.00 400,000 Bell Markets, Inc. Common I $10.00 7,520 Bell Markets, Inc. Common J $10.00 7,200 - ----------------------------------------------------------------------------------------------------------- Pledgor: Food 4 Less of Southern California, Inc.
Class Stock Par Number Stock Issuer of Stock Certificate Nos. Value of Shares ------------ -------- ---------------- ----- --------- Alpha Beta Company Common 4 npv 1,000 - ----------------------------------------------------------------------------------------------------------- Pledgor: Alpha Beta Company
Class Stock Par Number Stock Issuer of Stock Certificate Nos. Value of Shares ------------ -------- ---------------- ----- --------- Food 4 Less GM, Inc. Common 1 npv 1,000 Food 4 Less Common 1 npv 1,000 Merchandising, Inc. - ----------------------------------------------------------------------------------------------------------- I-4 PLEDGE AGREEMENT Food 4 Less of Common 4 npv 1,000 California, Inc. - ----------------------------------------------------------------------------------------------------------- Pledgor: Smitty's Supermarkets, Inc.
Class Stock Par Number Stock Issuer of Stock Certificate Nos. Value of Shares ------------ -------- ---------------- ----- --------- Smitty's Super Valu, Common 5 $.01 1,000 Inc. - ----------------------------------------------------------------------------------------------------------- Pledgor: Smitty's Super Valu, Inc.
Class Stock Par Number Stock Issuer of Stock Certificate Nos. Value of Shares ------------ -------- ---------------- ----- --------- Saint Lawrence Holding Common 4 $100.00 2,010 Company Compare, Inc. Common 2 npv 100 Smitty's Equipment Common 2 npv 1,000 Leasing, Inc. - ----------------------------------------------------------------------------------------------------------- Pledgor: Quality Food, Inc.
Class Stock Par Number Stock Issuer of Stock Certificate Nos. Value of Shares ------------ -------- ---------------- ----- --------- Quality Food Holdings, Common 1 $1.00 100 Inc. - ----------------------------------------------------------------------------------------------------------- Pledgor: Quality Food Holdings, Inc.
Class Stock Par Number Stock Issuer of Stock Certificate Nos. Value of Shares ------------ -------- ---------------- ----- --------- QFC Sub, Inc. Common 1 $.001 100 - -----------------------------------------------------------------------------------------------------------
I-5 PLEDGE AGREEMENT SCHEDULE II to the Pledge Agreement [FORM OF PLEDGE AMENDMENT] This Pledge Amendment, dated March __, 1998, is delivered pursuant to Section 8 of the Pledge Agreement referred to below. The undersigned hereby agrees that this Pledge Amendment may be attached to the Pledge Agreement dated March __, 1998, between Fred Meyer, Inc. and its Subsidiaries who are signatories thereto and Bankers Trust Company, as Administrative Agent and Collateral Agent (the "Pledge Agreement"; capitalized terms defined therein being used herein as therein defined) and that the Pledged Shares listed on this Pledge Amendment shall be deemed to be part of the Pledged Shares and shall become part of the Pledged Collateral and shall secure the Secured Obligations as provided in the Pledge Agreement. [PLEDGOR] By: ------------------------------------- Title: ----------------------------------
Class Stock Par Number Stock Issuer of Stock Certificate Nos. Value of Shares ------------ -------- ---------------- ----- ---------
II-1 PLEDGE AGREEMENT SCHEDULE III to the Pledge Agreement [FORM OF ACKNOWLEDGMENT OF NEW SUBSIDIARY] Reference is hereby made to the Pledge Agreement dated as of March __, 1998 (the "Pledge Agreement") among Fred Meyer, Inc. and its Subsidiaries who are signatories thereto and Bankers Trust Company, as Administrative Agent and Collateral Agent in which this Acknowledgment and its attachments are incorporated. The undersigned is a new Subsidiary (which is not an Insignificant Subsidiary) and, as such, is required to pledge its Pledged Shares to secure the Secured Obligations (all as defined in the Pledge Agreement) as provided in the Pledge Agreement. The undersigned hereby represents and warrants that it is the legal and beneficial owner of the shares of capital stock or similar equity securities described in Schedule 1 hereto which shares constitute all of the issued and outstanding shares of all classes of capital stock or similar equity securities of the Subsidiary or Subsidiary so listed. The undersigned acknowledges the terms of the Pledge Agreement and agrees to be bound thereby. [NEW SUBSIDIARY] By: ------------------------------------- Name: ------------------------------- Title: ------------------------------ Notice Address: ----------------------------------------- ----------------------------------------- ----------------------------------------- III-1 PLEDGE AGREEMENT SCHEDULE 1 to the Acknowledgment to New Subsidiary Capital Stock (or similar equity securities) of Subsidiaries 1-1 EX-4.1H 11 INTERCREDITOR AND COLLATERAL AGENCY AGREEMENT INTERCREDITOR AGREEMENT INTERCREDITOR AND COLLATERAL AGENCY AGREEMENT --------------------------- This INTERCREDITOR AND COLLATERAL AGENCY AGREEMENT, dated as of March 11, 1998 (as modified, supplemented or amended from time to time, the "Agreement"), is entered into among BANKERS TRUST COMPANY ("BTCo."), as Administrative Agent under the Loan Agreement (as hereinafter defined) on behalf of the lenders party thereto (BTCo. and any successor Administrative Agent, the "Loan Administrative Agent"), BTCo., as Administrative Agent under the Synthetic Lease Facility (as hereinafter defined) on behalf of the lenders party thereto (BTCo. and any successor Administrative Agent, the "Lease Administrative Agent") (the Loan Administrative Agent and the Lease Administrative Agent, individually, an "Agent" and collectively, the "Agents"), BTCo., as Collateral Agent, FMI and the Subsidiary Pledgors (as hereinafter defined). Capitalized terms used herein without definition herein shall have the meanings provided in the Loan Agreement. RECITALS WHEREAS, FMI, as borrower, the lenders from time to time party thereto (the "Loan Agreement Lenders"), the Loan Administrative Agent and The Chase Manhattan Bank, as syndication agent thereunder (the "Syndication Agent") are parties to that certain Loan Agreement, dated as of the date hereof (as the same shall be amended, supplemented or otherwise modified from time to time, the "Loan Agreement"); WHEREAS, FMI, as lessee, FMS Trust 1997-1, as lessor (the "Lessor"), Wilmington Trust Company, as owner trustee (the "Owner Trustee"), the investors from time to time party thereto, the Lenders from time to time party thereto (as the same shall be amended, supplemented or otherwise modified from time to time, the "Synthetic Lease Facility Lenders" and, collectively with the Loan Agreement Lenders, the "Lenders"), the Lease Administrative Agent and the Syndication Agent are parties to that certain participation agreement, dated as of INTERCREDITOR AGREEMENT the date hereof (the "Participation Agreement" and, collectively with the other documents contemplated by the Participation Agreement, the "Synthetic Lease Facility") (the Synthetic Lease Facility, together with the Loan Agreement and the other documents contemplated thereby, the "Facility Documents") (the transac tions contemplated by the Facility Documents being collectively referred to as the "Extensions of Credit"); WHEREAS, FMI and each of the Subsidiaries listed on the signa ture pages thereof (the "Subsidiary Pledgors") are parties to that certain pledge agreement, dated as of the date hereof (the "Pledge Agreement"), in favor of the Collateral Agent for the benefit of the Lenders and the persons who may in the future become beneficiaries in accordance with the terms of this Agreement and the Facility Documents (all such beneficially interested parties being the "Beneficiaries"); WHEREAS, it is a condition precedent to the Extensions of Credit to FMI that FMI, the Subsidiary Pledgors and the Agents, on behalf of the Lenders, shall have executed and delivered this Agreement to the Agents; and WHEREAS, FMI, the Subsidiary Pledgors and the Agents, on behalf of the Lenders, desire to execute this Agreement to satisfy the condition described in the preceding paragraph; NOW, THEREFORE, it is agreed: 1. Appointment. The Agents, on behalf of the Lenders, by their acceptance of the benefits of the Pledge Agreement, hereby irrevocably designate BTCo. as Collateral Agent to act as specified herein. The Agents hereby irrevocably authorize the Collateral Agent to take such action on their behalf under the provisions of the Pledge Agreement and any other instruments and agreements referred to herein or therein and to exercise such powers and to perform such duties hereunder and thereunder as are specifically delegated to or required of the Collateral Agent by the terms hereof and thereof and such other powers as are reasonably incidental thereto. The Collateral Agent may perform any of its duties hereunder by or through its agents or employees. 2 INTERCREDITOR AGREEMENT 2. Nature of Duties. The Collateral Agent shall have no duties or responsibilities except those expressly set forth herein and in the Pledge Agreement. Neither the Collateral Agent nor any of its officers, directors, employees or agents shall be liable for any action taken or omitted by it as such under the Pledge Agreement or hereunder or in connection herewith or therewith, unless caused by its or their gross negligence or willful misconduct. The duties of the Collateral Agent shall be mechanical and administrative in nature; the Collateral Agent shall not have by reason of this Agreement or the Pledge Agreement a fiduciary relationship in respect of any Agent or Lender; and nothing in this Agreement or the Pledge Agreement, expressed or implied, is intended to or shall be so construed as to impose upon the Collateral Agent any obligations in respect of the Pledge Agreement except as expressly set forth herein or therein. 3. Lack of Reliance on the Collateral Agent. Independently and without reliance upon the Collateral Agent, each Lender, to the extent it deems appropriate, has made and shall continue to make (i) its own independent investigation of the financial condition and affairs of FMI and its Subsidiaries in connection with the Extensions of Credit and the taking or not taking of any action in connection therewith, and (ii) its own appraisal of the creditworthiness of FMI and its Subsidiaries, and the Collateral Agent shall have no duty or responsibility, either initially or on a continuing basis, to provide any Agent or Lender with any credit or other information with respect thereto, whether coming into its possession before the extension of any credit under the Facility Documents, or at any time or times thereafter. The Collateral Agent shall not be responsible to any Agent or Lender for any recitals, statements, information, representations or warranties herein or in any document, certificate or other writing delivered in connection herewith or for the execution, effectiveness, genuineness, validity, enforceability, perfection, collectibility, priority or sufficiency of this Agreement, the Pledge Agreement or the financial condition of FMI and its Subsidiaries or be required to make any inquiry concerning either the performance or observance of any of the terms, provisions or conditions of the Pledge Agreement, or the financial condition of FMI and its Subsidiaries, or the existence or possible existence of any Event of Default. 4. Certain Rights of the Collateral Agent. No Agent shall have the right to cause the Collateral Agent to take any action with respect to the Collateral, with only the Required Lenders (as hereinafter defined) having the right 3 INTERCREDITOR AGREEMENT to direct the Collateral Agent to take any such action. If the Collateral Agent shall request instructions from the Required Lenders with respect to any act or action (including failure to act) in connection with the Pledge Agreement, the Collateral Agent shall be entitled to refrain from such act or taking such action unless and until it shall have received instructions from the Required Lenders, and to the extent requested, appropriate indemnification in respect of actions to be taken; and the Collateral Agent shall not incur liability to any Person by reason of so refraining. Without limiting the foregoing, no Agent shall have any right of action whatsoever against the Collateral Agent as a result of the Collateral Agent acting or refraining from acting (x) hereunder in accordance with the instructions of the Required Lenders or (y) under the Pledge Agreement as provided for therein. As used herein, the term "Required Lenders" shall mean Lenders the sum of whose drawn loans and undrawn commitments represent greater than 50% of the total Extensions of Credit (both drawn and undrawn); provided, however, that upon termination of any Lender's Commitment, such Lender may only vote with respect to drawn loans outstanding; provided, further, that any request to act or refrain from acting which would affect only the rights and benefits of any Class of Lenders (and not all Lenders in a like or similar manner) shall require the written authorization of the Lenders of the affected Class. For the purpose of this Agreement, the term "Class" shall mean each class of Lenders, i.e., whether (x) Loan Agreement Lenders or (y) the Synthetic Lease Facility Lenders. 5. Reliance. The Collateral Agent shall be entitled to rely, and shall be fully protected in relying, upon any note, writing, resolution, notice, statement, certificate, telex, teletype or telecopier message, cablegram, radiogram, order or other document or telephone message signed, sent or made by the proper Person or entity, and, with respect to all legal matters pertaining to the Pledge Agreement and its duties thereunder and hereunder, upon advice of counsel selected by it. 6. Indemnification. To the extent the Collateral Agent is not reimbursed and indemnified by FMI, the Agents, on behalf of the Lenders and solely to the extent of actual receipt of such amounts from the Lenders, will reimburse and indemnify the Collateral Agent, in proportion to the Lenders' respective principal amounts of Extensions of Credit (both drawn and undrawn), for and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature 4 whatsoever which may be imposed on, incurred by or asserted against the Collat- eral Agent in performing its duties hereunder or under the Pledge Agreement, or in any way relating to or arising out of this Agreement or the Pledge Agreement except for those resulting solely from the Collateral Agent's own gross negligence or willful misconduct. The indemnities set forth in this Section 6 shall survive the repayment of all Extensions of Credit. 7. The Collateral Agent in its Individual Capacity. With respect to its obligations as a lender under the Facility Documents, the Collateral Agent shall have the rights and powers specified therein and herein for a "Lender" or "Agent," as the case may be, and may exercise the same rights and powers as though it were not performing the duties specified herein; and the term "Lender" or any similar term shall, unless the context clearly otherwise indicates, include the Collateral Agent in its individual capacity. The Collateral Agent may accept deposits from, lend money to, and generally engage in any kind of banking, trust or other business with FMI or any of its affiliates as if it were not performing the duties specified herein or in the Pledge Agreement, and may accept fees and other consideration from them for services in connection with the Facility Documents and otherwise without having to account for the same to the Agents. 8. Application of Proceeds. (a) Any and all amounts actually received by the Collateral Agent in connection with the enforcement of the Pledge Agreement, including the proceeds of any collection, sale or other disposition of the Collateral or any portion thereof (collectively, "Proceeds") shall first be applied to the payment of all costs and expenses of such sale, collection or other realization, and all expenses, liabilities and advances made or incurred by Collateral Agent in connection therewith and all amounts for which the Collateral Agent is entitled to indemnification under this Agreement or the Pledge Agreement and all advances made by the Collateral Agent under the Pledge Agreement for the account of the Pledgors or for the payment of all costs and expenses paid or incurred by the Collateral Agent in connection with the exercise of any right or remedy under the Pledge Agreement, all in accordance with Section 6 hereof and/or Section 16 of the Pledge Agreement. Until Proceeds are so applied, the Collateral Agent shall hold such Proceeds in its custody in accordance with regular procedures for handling deposited funds. 5 INTERCREDITOR AGREEMENT (b) Any Proceeds remaining after application in accordance with clause (a) above shall be paid to the Agents pro rata in accordance with the aggregate Extensions of Credit then outstanding under the respective Facility Documents and the Agents shall apply such Proceeds so that each Lender shall receive payment of its proportionate amount of all such Proceeds. For the purposes of determining the proportionate amounts of all Extensions of Credit at the time any Proceeds are due to be distributed under this Section 8, the amount of the outstanding Extensions of Credit shall be deemed to be the principal and interest then due and payable under the Facility Documents. For purposes of determining the amount payable to each Agent, the Collateral Agent shall be entitled to request each Agent to furnish it with written notice of the amount of Extensions of Credit then owed to each Lender under its respective Facility Documents and shall be entitled to rely upon the amounts stated therein in making such distribution. (c) For purposes of applying payments received in accordance with this Section 8, the Collateral Agent shall be entitled to rely upon the Agents for a determination (which the Agents by their acceptance of the benefits of this Agreement shall be obligated to provide upon request of the Collateral Agent) of the outstanding Extensions of Credit owed to the Lenders. Unless they have actual knowledge (including by way of written notice from a Lender) to the contrary, the Agents, in furnishing information pursuant to the preceding sentence, and the Collateral Agent, in acting hereunder, shall be entitled to assume that no obliga tions other than principal, interest and regularly accruing fees are owing to any Lender. 9. Joinder of New Subsidiaries. FMI agrees that, promptly after the acquisition or creation of any new Subsidiary (and in any event within ten days after the date of such acquisition or creation, as the case may be) it will cause any such Subsidiary (other than an Insignificant Subsidiary) required to pledge its capital stock pursuant to the Pledge Agreement to deliver to the Agents and the Collateral Agent an acknowledgment duly executed by such new Subsidiary in substantially the form of Exhibit A hereto (an "Intercreditor Acknowledgment"). 10. Definitions. The following terms shall have the meanings herein specified unless the context otherwise requires. Such definitions shall be equally applicable to the singular and plural forms of the terms defined. 6 INTERCREDITOR AGREEMENT "Agents" shall have the meaning provided in the first paragraph of this Agreement. "Agreement" shall mean this Intercreditor and Collateral Agency Agreement as modified, supplemented or amended from time to time. "Beneficiaries" shall have the meaning provided in the third WHEREAS clause of this Agreement. "BTCo." means Bankers Trust Company. "Class" shall have the meaning provided in Section 4. "Collateral" shall mean the "Pledged Collateral" under, and as defined in, the Pledge Agreement. "Collateral Agent" shall mean Bankers Trust Company acting in its capacity as collateral agent hereunder. "Event of Default" shall mean any Event of Default under, and as defined in, the Facility Documents. "Extensions of Credit" shall have the meaning provided in the second WHEREAS clause of this Agreement. "Facility Documents" shall have the meaning provided in the second WHEREAS clause of this Agreement. "Intercreditor Acknowledgment" shall have the meaning provided in Section 10. "Lease Administrative Agent" shall have the meaning provided in the first paragraph of this Agreement. "Lenders" shall have the meaning provided in the second WHEREAS clause of this Agreement. 7 INTERCREDITOR AGREEMENT "Lessor" shall mean FMS Trust 1997-1, as lessor under the Partici- pation Agreement. "Loan Administrative Agent" shall have the meaning provided in the first paragraph of this Agreement. "Loan Agreement" shall have the meaning provided in the first WHEREAS clause of this Agreement. "Loan Agreement Lenders" shall have the meaning provided in the first WHEREAS clause of this Agreement. "Owner Trustee" shall mean Wilmington Trust Company, as owner trustee under the Participation Agreement. "Participation Agreement" shall have the meaning provided in the second WHEREAS clause of this Agreement. "Pledge Agreement" shall have the meaning provided in the third WHEREAS clause of this Agreement. "Pledgor" shall mean each "Pledgor" under, and as defined in, the Pledge Agreement. "Proceeds" shall have the meaning provided in Section 8. "Required Lenders" shall have the meaning provided in Section 4. "Subsidiary Pledgors" shall have the meaning provided in the third WHEREAS clause of this Agreement. "Syndication Agent" shall mean The Chase Manhattan Bank, as syndication agent under the Loan Agreement. "Synthetic Lease Facility" shall have the meaning provided in the second WHEREAS clause of this Agreement. 8 INTERCREDITOR AGREEMENT "Synthetic Lease Facility Lenders" shall have the meaning provided in the second WHEREAS clause of this Agreement. 11. Resignation by the Collateral Agent. (a) The Collateral Agent may resign from the performance of all its functions and duties hereunder and under the Pledge Agreement at any time by giving 30 days' prior written notice to FMI, the Subsidiary Pledgors and the Agents. Such resignation shall take effect upon the appointment of a successor Collateral Agent pursuant to clauses (b) and (c) below. (b) Upon any such notice of resignation, the Required Lenders shall appoint a successor Collateral Agent hereunder who shall be a commercial bank or trust company; provided that so long as no Default under any of the Facility Documents shall be in existence such appointment shall be reasonably acceptable to FMI. (c) If a successor Collateral Agent shall not have been so appointed within said 30-day period, the Collateral Agent shall then appoint a successor Collateral Agent who shall serve as Collateral Agent hereunder or thereunder until such time, if any, as the Required Lenders appoint a successor Collateral Agent as provided above. 12. Governing Law. This Agreement and the rights and obligations of FMI, the Subsidiary Pledgors and the Agents hereunder shall be construed in accordance with and be governed by the law of the State of New York. 13. Miscellaneous. This Agreement shall be binding upon FMI, each Subsidiary Pledgor and each Agent, on behalf of the Lenders, and shall inure to the benefit of and be enforceable by the successors and assigns of the parties hereto. The headings in this Agreement are for purposes of reference only and shall not limit or define the meaning hereof. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which shall constitute one instrument. In the event that any provision of this Agreement shall prove to be invalid or unenforceable, such provision shall be deemed to be severable from the other provisions of this Agreement which shall remain binding on all parties hereto. 9 INTERCREDITOR AGREEMENT 14. Amendment or Waiver of this Agreement and the Pledge Agreement. None of the terms and conditions of this Agreement or the Pledge Agreement may be changed, waived, modified or varied in any manner whatsoever unless in writing duly signed by (i) with respect to this Agreement, the parties hereto and (ii) with respect to the Pledge Agreement, the Pledgors and the Collateral Agent thereunder, in each case with the consent of the Required Lenders; provided, however, that any change, waiver, modification or variance affecting the rights and benefits of a single Class of Lenders (and not all Lenders in a like or similar manner) shall require the written consent of the Required Lenders of such affected Class. 15. Termination; Release of Collateral and Pledge Agreement. (a) This Agreement shall terminate on the date upon which the total commitments under the Facility Documents are terminated, all Letters of Credit issued under the Loan Agreement are terminated, and when all Extensions of Credit have been indefeasibly paid in full (other than Extensions of Credit relating to indemnities to the extent not previously requested at the time of the termination of the other Extensions of Credit); (b) The Collateral Agent shall, upon at least ten days' prior notice and at the request of a Pledgor, release (without recourse and without any representation or warranty) any or all of the Collateral in accordance with the terms of the Facility Documents; provided that (x) the sale of the respective Collateral is permitted under the Facility Documents or such release has been approved in writing by the requisite Lenders under the Facility Documents and (y) the proceeds of such Collateral are applied in a manner consistent herewith and with the Facility Documents. Prior to the release of any Collateral pursuant to this Section 15, the Collateral Agent shall be entitled to receive a certificate signed by the chief financial officer or other authorized representative of the Pledgor (i) identifying any and all financing statements or other filings or registrations that must be amended or terminated in order to consummate the sale contemplated in clause (x) of the immediately preceding sentence and (ii) certifying that the financing statements or other filings or registrations identified in immediately preceding clause (i) relate exclusively to the Collateral then being sold. (c) Not more than ten days after receipt by the Agents from FMI of evidence satisfactory to it that FMI has received a rating on its senior unsecured 10 INTERCREDITOR AGREEMENT long-term debt of Baa3 or higher from Moody's and BBB- from S&P, and pro vided that no Event of Default shall be in existence, the Pledge Agreement shall terminate and, at the request and sole expense of FMI, the Agents shall take all steps necessary to release the Pledged Collateral. Upon such termination any and all obligations of FMI or the Subsidiaries with respect to such Pledge Agreement and the transactions contemplated thereby shall terminate. 16. Inconsistent Provisions. If any provision of this Agreement shall be inconsistent with, or contrary to, any provision in the Facility Documents or the Pledge Agreement, the provision in this Agreement shall be controlling, and shall supersede such inconsistent provision to the extent necessary to give full effect to all provisions contained in this Agreement. IN WITNESS WHEREOF, the parties hereto have caused their duly authorized officers to execute and deliver this Agreement as of the date first above written. Address: - -------- One Bankers Trust Plaza BANKERS TRUST COMPANY, 130 Liberty Street as Loan Administrative Agent New York, NY 10006 Attn: Deal Administrator ANTHONY LO GRIPPO Telephone: (212) By ------------------------ Telecopy: (212) 250-7351 Anthony Lo Grippo Title: Vice President BANKERS TRUST COMPANY, as Lease Administrative Agent ANTHONY LO GRIPPO By ------------------------ Anthony Lo Grippo Title: Vice President 11 BANKERS TRUST COMPANY, as Collateral Agent DAVID J. BELL By ------------------------ Title: Vice President Acknowledged and Agreed to this 11th day of March, 1998: FRED MEYER, INC., a Delaware corporation ROGER A. COOKE By: ---------------------------- Title: Sr. Vice President & Secretary FRED MEYER STORES, INC., a Delaware corporation ROGER A. COOKE By: ---------------------------- Title: Sr. Vice President & Secretary SMITH'S FOOD & DRUG CEN TERS, INC., a Delaware corporation ROGER A. COOKE By: ---------------------------- Title: Sr. Vice President & Secretary B&B STORES, INC., a Montana corporation ROGER A. COOKE By: ---------------------------- Title: Vice President & Secretary 12 FM HOLDING CORPORATION, a Delaware corporation ROGER A. COOKE By: ---------------------------- Title: Vice President & Secretary ROUNDUP CO., a Washington corporation ROGER A. COOKE By: ---------------------------- Title: Vice President & Secretary QUALITY FOOD CENTERS, INC. a Washington corporation ROGER A. COOKE By: ---------------------------- Title: Sr. Vice President & Secretary HUGHES MARKETS, INC. a California corporation ROGER A. COOKE By: ---------------------------- Title: Vice President & Secretary FOOD 4 LESS HOLDINGS, INC. a Delaware corporation ROGER A. COOKE By: ---------------------------- Title: Sr. Vice President & Secretary 13 EXHIBIT A to the Intercreditor Agreement [FORM OF INTERCREDITOR ACKNOWLEDGMENT OF NEW SUBSIDIARY] Reference is hereby made to the Intercreditor and Collateral Agency Agreement dated as of March __, 1998 (the "Intercreditor Agreement") among Fred Meyer, Inc. and its Subsidiaries who are signatories thereto and Bankers Trust Company, as Loan Administrative Agent, Lease Administrative Agent and Collateral Agent in which this Acknowledgment and its attachments are incorporated. The undersigned is a new Subsidiary (other than an Insignificant Subsidiary) which is required to pledge capital stock pursuant to the Pledge Agreement and, as such, is required to join the Intercreditor Agreement. The undersigned acknowledges the terms of the Intercreditor Agreement and agrees to be bound thereby. [NEW SUBSIDIARY] By: ---------------------- Name:_______________ Title:______________ Notice Address: ------------------------- ------------------------- ------------------------- 14 EX-4.1I 12 SUBSIDIARY GUARANTEE SUBSIDIARY GUARANTEE SUBSIDIARY GUARANTEE (this "Subsidiary Guarantee"), dated as of March 11, 198, is executed by each of the Guarantors listed on the signature pages hereof (collectively the "Guarantors"), for the benefit of BANKERS TRUST COMPANY, as administrative agent (the "Administrative Agent") under the Loan Agreement (as defined below) and each Lender named therein (collectively, the "Lenders"). Capitalized terms used but not otherwise defined herein shall have the meanings provided for such terms in the Loan Agreement. RECITALS : -------- WHEREAS, it is a condition to the effectiveness of that certain Loan Agreement (as amended, supplemented or otherwise modified from time to time, the "Loan Agreement"), dated as of March 11, 1998, among FRED MEYER, INC., as borrower (the "Borrower"), the Lenders, the Administrative Agent and The Chase Manhattan Bank, as Syndication Agent, that the Guarantors execute and deliver this Subsidiary Guarantee; and WHEREAS, it is in the best interests of the Guarantors to execute this Guarantee inasmuch as the Guarantors will derive substantial benefits from the transactions contemplated by the Loan Agreement. NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Guarantors hereby agree as follows: 1. Each Guarantor hereby jointly, severally, irrevocably and unconditionally guarantees: (a) the full and prompt payment when due (whether at maturity, by optional or mandatory prepayment, upon acceleration or otherwise) of the principal and interest payable on the Loans; (b) the payment of all other obligations and indebtedness (including, without limitation, indemnities, fees and interest thereon and all obligations which, but for the automatic stay under Section 362(a) of the Bankruptcy Code and the operation of Sections 502(b) and 506(b) of the SUBSIDIARY GUARANTEE Bankruptcy Code, 11 U.S.C. ss.502(b) and ss.506 (b), would become due) of the Borrower now existing or hereafter incurred under, arising out of, or in connection with the Loan Agreement; (c) the due performance and compliance by the Borrower with all of the terms, conditions and agreements contained in the Loan Agreement; (d) the payment of all sums advanced by the Lenders under or pursuant hereto, with interest thereon from the due date thereof, until paid, at the rate specified in Section 2.13(c) of the Loan Agreement; and (e) all renewals, extensions, amendments and changes of, or substitutions or replacements for, all or any part of the foregoing (all such principal, premiums, interest, obligations, indebtedness, performance, compliance and payments, collectively, the "Guaranteed Obligations"). All payments by the Guarantors under this Subsidiary Guarantee shall be made on the same basis as payments by the Borrower under Section 2.17 of the Loan Agreement. This guarantee is a primary obligation of each Guarantor and is a guarantee of payment, and not merely of collection. 2. The Lenders may, at any time and from time to time, without the consent of, or notice to, the Guarantors, without incurring responsibility to the Guarantors and without impairing or releasing the obligations of the Guarantors hereunder, upon or without any terms or conditions and in whole or in part: (a) change the manner, place or terms of payment of, and/or change or extend the time of payment of, renew or alter, any of the Guaranteed Obligations, any security therefor, or any liability incurred directly or indirectly in respect thereof, and the guarantee herein made shall apply to the Guaranteed Obligations as so changed, extended, renewed or altered; (b) sell, exchange, release, surrender, realize upon or otherwise deal with in any manner and in any order any property by whomsoever at any time pledged or mortgaged to secure, or howsoever securing, the Guaranteed Obligations or any liabilities (including any of those hereunder) incurred directly or indirectly in respect thereof or hereof, and/or any offset thereagainst; 2 SUBSIDIARY GUARANTEE (c) exercise or refrain from exercising any rights against the Borrower, any other Guarantor or others, or otherwise act or refrain from acting; (d) settle or compromise any of the Guaranteed Obligations, any security therefor or any liability (including any of those hereunder) incurred directly or indirectly in respect thereof or hereof, and may subordinate the payment of all or any part thereof to the payment of any liability (whether due or not) of the Borrower to creditors of the Borrower other than the Lenders and the Guarantors; (e) apply any sums by whomsoever paid or howsoever realized to any liability or liabilities of the Borrower to the Lenders regardless of what liabilities or liabilities of the Borrower remain unpaid; (f) consent to or waive any breach of, or any act, omission or default under, the Loan Agreement, or otherwise amend, modify or supplement the Loan Agreement; (g) act or fail to act in any manner referred to in this Subsidiary Guarantee which may deprive the Guarantors of their right to subrogation against the Borrower to recover full indemnity for any payments made pursuant to this Subsidiary Guarantee. 3. The liability of each Guarantor hereunder is exclusive and independent of any security for or other guarantee of the indebtedness of the Borrower whether executed by such Guarantor, any other Guarantor or by any other Person, and the liability of each Guarantor hereunder shall not be affected or impaired by any circumstance or occurrence whatsoever, including, without limitation: (a) any direction as to the application of payment by the Borrower or any other Person; (b) any other continuing or other guarantee, undertaking or maximum liability of a Guarantor or of any other Person as to the indebtedness of the Borrower; (c) any payment on or in reduction of any such other guarantee or undertaking; (d) any dissolution, termination or increase, decrease or change in personnel by the Borrower; (e) any payment made to any Lender in respect of the Guaranteed Obligations which any Lender repays the Borrower or any Guarantor pursuant to court order in any bankruptcy, reorganization, arrangement, moratorium or other debtor relief proceeding, and each Guarantor waives any right to the deferral or modification of its obligations hereunder by reason of any such proceeding; (f) any action or inaction by any of the Lenders as contemplated by Section 2 hereof; or (g) any invalidity, irregularity or unenforceability of all or part of the Guaranteed 3 SUBSIDIARY GUARANTEE Obligations or any security therefor. Notwithstanding the foregoing, each of the Guarantors agrees that this Guarantee shall continue to be effective or be reinstated, as the case may be, if at any time any payment (in whole or in part) of any of the Guaranteed Obligations is rescinded or must otherwise be restored by any Guaranteed Party, upon the insolvency, bankruptcy or reorganization of the Borrower or otherwise, as though such payment had not been made. 4. The obligations of each Guarantor hereunder are independent of the obligations of any other Guarantor, any other guarantor or the Borrower, and a separate action or actions may be brought and prosecuted against each Guarantor whether or not action is brought against any other Guarantor, any other guarantor or the Borrower, and whether or not any other Guarantor, any other guarantor or the Borrower be joined in any such action or actions. 5. In order to induce the Lenders to make Loans pursuant to the Loan Agreement, each Guarantor makes the following representations, warranties and agreements: 5.1 Such Guarantor (a) is a duly organized and validly existing corporation in good standing under the laws of the jurisdiction of its incorporation, (b) has the corporate power and authority to own its property and assets and to transact the business in which it is engaged and (c) is duly qualified as a foreign corporation and in good standing in each jurisdiction where the ownership, leasing or operation of property or the conduct of its business requires such qualification, except where failure to so qualify does not have a Material Adverse Effect with respect to such Guarantor. 5.2 Such Guarantor has the corporate power to execute, deliver and perform the terms and provisions of this Subsidiary Guarantee and has taken all necessary corporate action to authorize the execution, delivery and performance by it of this Subsidiary Guarantee. Such Guarantor has duly executed and delivered this Subsidiary Guarantee, and this Subsidiary Guarantee constitutes the legal, valid and binding obligation of such Guarantor enforceable in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally and by general equitable principles (regardless of whether the issue of enforceability is considered in a proceeding in equity or at law). 5.3 Neither the execution, delivery or performance by such Guarantor of this Subsidiary Guarantee, nor compliance by any with the terms and provisions hereof, (a) will contravene any provision of any law, statute, rule or 4 SUBSIDIARY GUARANTEE regulation or any order, writ, injunction or decree of any court or governmental instrumentality, (b) will conflict or be inconsistent with or result in any breach of any of the terms, covenants, conditions or provisions of, or constitute a default under, or result in the creation or imposition of (or the obligation to create or impose) any Lien upon any of the property or assets of such Guarantor pursuant to the terms of any indenture, mortgage, deed of trust, credit agreement, loan agreement or any other agreement, contract or instrument to which such Guarantor is a party or by which it or any of its property or assets is bound or to which it may be subject or (c) will violate any provision of the Certificate of Incorporation, Articles of Incorporation (as applicable) or By-Laws of such Guarantor. 5.4 No order, consent, approval, license, authorization or validation of, or filing, recording or registration with (except as have been obtained or made prior to the Closing Date), or exemption by, any governmental or public body or authority, or any subdivision thereof, is required to authorize, or is required in connection with, (a) the execution, delivery and performance of this Subsidiary Guarantee or (b) the legality, validity, binding effect or enforceability of this Subsidiary Guarantee. 5.5 There are no actions, suits or proceedings pending or, to the best knowledge of such Guarantor, threatened that are reasonably likely to have a Material Adverse Effect with respect to such Guarantor. 5.6 All factual information (taken as a whole) heretofore or contemporaneously furnished by or on behalf of the Subsidiary Guarantor in writing to the Administrative Agent (including, without limitation, all information contained herein) for purposes of or in connection with this Subsidiary Guarantee or any transaction contemplated herein is, and all other such factual information (taken as a whole) hereafter furnished by or on behalf of such Guarantor in writing to any Lender will be, true and accurate in all material respects on the date as of which such information is dated or certified and not incomplete by omitting to state any material fact necessary to make such information (taken as a whole) not misleading at such time in light of the circumstances under which such information was provided. 5.7 Such Guarantor has filed all tax returns required to be filed by it and has paid all income taxes payable by it which have become due pursuant to such tax returns and all other taxes and assessments payable by it which have become due, other than those not yet delinquent and except for those contested in good faith and for which adequate reserves have been established. Such Guarantor has paid, or has provided adequate reserves (in the good faith judgment of the management of the Subsidiary Guarantor) for the payment of, all federal and state income taxes 5 SUBSIDIARY GUARANTEE applicable for all prior fiscal years and for the current fiscal year to the date hereof, if any. 5.8 On the date hereof, all outstanding shares of capital stock of such Guarantor have been duly and validly issued, are fully paid and non-assessable. Such Guarantor has no outstanding any securities convertible into or exchangeable for its capital stock or outstanding any rights to subscribe for or to purchase, or any options for the purchase of, or any agreements providing for the issuance (contingent or otherwise) of, or any calls, commitments or claims of any character relating to, its capital stock. 5.9 Such Guarantor is in compliance with all applicable statutes, regulations and orders of, and all applicable restrictions imposed by, all governmental bodies, domestic or foreign, in respect of the conduct of its business and the ownership of its property (including applicable statutes, regulations, orders and restrictions relating to environmental standards and controls) except where such noncompliance could not reasonably be expected to have a Material Adverse Effect. 5.10 Such Guarantor is not an "investment company" within the meaning of the Investment Company Act of 1940, as amended. 5.11 Such Guarantor is not a "holding company," or a "subsidiary company" of a "holding company," or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company" within the meaning of the Public Utility Holding Company Act of 1935, as amended. 5.12 Such Guarantor has good and marketable title to, or valid leasehold interests in, all its properties and assets. Such Guarantor is in compliance in all respects with all obligations under all leases to which it is a party, except where such non-compliance could not reasonably be expected to have a Material Adverse Effect. All such leases are in full force and effect and such Guarantor enjoys peaceful and undisturbed possession under all such leases, except where the lack of force or effect or the failure to enjoy peaceful and undisturbed possession could not reasonably be expected to have a Material Adverse Effect. 5.13 No event has occurred or has failed to occur which, with the giving of notice, lapse of time or both, would constitute an event of default, default, violation or breach of or under any indenture, mortgage, deed of trust, franchise or other agreement or instrument to which such Guarantor is a party or by which such Guarantor or any of its properties or assets may be bound. 6 SUBSIDIARY GUARANTEE 6. Each Guarantor covenants and agrees that on and after the date hereof and until the termination of this Subsidiary Guarantee: 6.1 Except as otherwise permitted under the Loan Agreement, it will maintain its existence and rights as a corporation in full force and effect so long as this Subsidiary Guarantee is outstanding, and will perform all of its obligations under the terms of each indenture, mortgage, deed of trust, credit agreement, loan agreement or any other agreement, contract or instrument by which it is bound. 6.2 It will, at any time and from time to time, upon the request of a Lender and at such Guarantor's expense, promptly and duly execute and deliver or cause to be executed and delivered any and all further instruments and documents and take such further action as such Lender may reasonably request to effect the purposes of this Subsidiary Guarantee. 7. This Subsidiary Guarantee is a continuing one and all liabilities to which it applies or may apply under the terms hereof shall be conclusively presumed to have been created in reliance hereon. No failure or delay on the part of any Lender in exercising any right, power or privilege hereunder and no course of dealing between any Guarantor and any Lender shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights, powers and remedies herein expressly provided are cumulative and not exclusive of any rights, powers or remedies which any Lender would otherwise have. No notice to or demand on any Guarantor in any case shall entitle any Guarantor to any other further notice or demand in similar or other circumstances or constitute a waiver of the rights of any Lender to any other or further action in any circumstances without notice or demand. 8. This Subsidiary Guarantee shall be binding upon each Guarantor and its successors and assigns and shall inure to the benefit of the Administrative Agent, the Lenders and their respective successors and assigns. 9. This Subsidiary Guarantee will terminate upon the occurrence of all of the following: (a) the Commitments have expired and been terminated; (b) the principal and interest on each Loan and all fees, indemnities, costs, expenses and other amounts payable under the Loan Agreement shall have been paid in full, without respect to any termination of the Loan Agreement; (c) all Letters of Credit shall have expired or terminated; and (d) all LC Disbursements shall have been paid in full. Neither this Subsidiary Guarantee nor any provision hereof may be changed, 7 SUBSIDIARY GUARANTEE waived, discharged or terminated except as provided in Section 9.2 of the Loan Agreement. 10. Each Guarantor acknowledges that an executed (or conformed) copy of the Loan Agreement has been made available to its principal executive officers and such officers are familiar with the contents thereof. 11. All notices and other communications hereunder shall be made at the addresses, in the manner and with the effect provided in Section 9.1 of the Loan Agreement, provided that, for this purpose, the address of each Guarantor shall be in care of the Borrower or as otherwise specified in writing by any Guarantor to each of the parties to this Subsidiary Guarantee. 12. If claim is ever made upon any Lender for repayment or recovery of any amount or amounts received in payment or on account of any of the Guaranteed Obligations and any of the aforesaid payees repays all or part of said amount by reason of (a) any judgment, decree or order of any court or administrative body having jurisdiction over such payee or any of its property or (b) any settlement or compromise of any such claim effected by such payee with any such claimant (including the Borrower), then and in such event each Guarantor agrees that any such judgment, decree, order, settlement or compromise shall be binding upon it, notwithstanding any revocation hereof or the cancellation of the Loan Agreement or other instrument evidencing any liability of the Borrower, and each Guarantor shall be and remain liable to the aforesaid payees hereunder for the amount so repaid or recovered to the same extent as if such amount had never originally been received by any such payee. 13. Any acknowledgment or new promise, whether by payment of principal or interest or otherwise and whether by the Borrower or others (including each Guarantor), with respect to any of the Guaranteed Obligations shall, if the statute of limitations in favor of such Guarantor against any Lender shall have commenced to run, toll the running of such statute of limitations, and if the period of such statute of limitations shall have expired, prevent the operation of such statute of limitations. 14. Each Guarantor confirms that it is the intention of all parties to the Loan Agreement that neither the guarantee by such Guarantor pursuant to this Subsidiary Guarantee nor any liability or payment by it hereunder shall (i) render such Guarantor "insolvent," or (ii) constitute a fraudulent transfer or conveyance, or (iii) constitute a transaction at an undervalue or preference, or (iv) give rise to any similar or analogous event, thing or circumstance, in each case, for purposes of the Bankruptcy Code, the Uniform Fraudulent Conveyances Act, the Uniform Fraudulent 8 SUBSIDIARY GUARANTEE Transfer Act or any similar federal or state law. To effectuate the foregoing intention, the Lenders and each Guarantor hereby irrevocably agree that the Guaranteed Obligations of such Guarantor shall be limited to the maximum amount as will, after giving effect to all other contingent and fixed liabilities of such Guarantor and after giving effect to any collections from or payments made by or on behalf of any other Guarantor in respect of the Guaranteed Obligations of such other Guarantor under this Guarantee, result in the Guaranteed Obligations of such Guarantor hereunder neither rendering the Guarantor "insolvent" nor constituting such fraudulent transfer or conveyance, such transaction at an undervalue or preference or such other event, thing or circumstance, in each case, under any such law. 15. This Subsidiary Guarantee and the rights and obligations of the Lenders and each Guarantor hereunder shall be construed in accordance with and governed by the law of the State of New York. 15.1 Any legal action or proceeding with respect to this Subsidiary Guarantee may be brought in the courts of the State of New York or of the United States for the Southern District of New York, and, by execution and delivery of this Agreement, each Guarantor hereby irrevocably accepts for itself and in respect of its property, generally and unconditionally, the jurisdiction of the aforesaid courts. 15.2 Each Guarantor further irrevocably consents to the service of process out of any of the aforementioned courts in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to each Guarantor at its address set forth opposite its signature below, such service to become effective 5 days after such mailing. Nothing herein shall affect the right of any Lender to serve process in any other manner permitted by law or to commence legal proceedings or otherwise proceed against any Guarantor in any other jurisdiction. 15.3 Each Guarantor hereby irrevocably waives any objection it may now or hereafter have to the laying of venue of any of the aforesaid actions or proceedings arising out of or in connection with this Subsidiary Guarantee brought in the courts referred to above and hereby further irrevocably waives and agrees not to plead or claim in any such court that any such action or proceeding brought in any such court has been brought in an inconvenient forum. 16. Each Guarantor hereby: (a) waives any right to require any Lender to (i) proceed against the Borrower, any other guarantor or any other party, (ii) proceed against or 9 SUBSIDIARY GUARANTEE exhaust any security held from the Borrower, any other guarantor or any other party or (iii) pursue any other remedy in the Lenders' power whatsoever; (b) waives any defense based on or arising out of any defense of the Borrower, any other guarantor or any other party other than payment in full of the Guaranteed Obligations, including, without limitation, any defense based on or arising out of the disability of the Borrower, any other guarantor or any other party, the absence of any other party in any proceeding or the unenforceability of the Guaranteed Obligations or any part thereof from any cause, or the cessation from any cause of the liability of the Borrower other than payment in full of the Guaranteed Obligations; (c) agrees that the Lenders may, at their election, foreclose on any security held by them by one or more judicial or nonjudicial sales, whether or not every aspect of any such sale is commercially reasonable (to the extent such sale is permitted by applicable law), or exercise any other right or remedy the Lenders may have against the Borrower or any other party, or any security, without affecting or impairing in any way the liability of any Guarantor hereunder, and waives any defense arising out of any such election by the Lenders, even though such election operates to impair or extinguish any right of reimbursement or subrogation or other right or remedy of any Guarantor against the Borrower or any other party or any security; (d) waives all presentments, demands for performance, protests and notices, including, without limitation, notices of nonperformance, notices of protest, notices of dishonor, notices of acceptance of this Subsidiary Guarantee, and notices of the existence, creation or incurring of new or additional indebtedness; (e) assumes all responsibility for being and keeping itself informed of the financial condition and assets of the Borrower, and of all other circumstances bearing upon the risk of non-payment of the Guaranteed Obligations and the nature, scope and extent of the risks such Guarantor assumes and incurs hereunder, and agrees that the Lenders shall have no duty to advise the Guarantors of information known to it regarding such circumstances or risks; (f) so long as any of the Guaranteed Obligations remain unpaid, each Guarantor hereby agrees that it will not claim and hereby irrevocably waives for such period all rights of subrogation it may at any time otherwise have as a result of this Subsidiary Guarantee (whether contractual, under 10 SUBSIDIARY GUARANTEE Section 509 of the United States Bankruptcy Code, or otherwise) to the claims of the Lenders against the Borrower or any other guarantor of the Guaranteed Obligations (collectively, the "Other Parties") and all contractual, statutory or common law rights of reimbursement, contribution or indemnity from any Other Party it may at any time otherwise have as a result of this Subsidiary Guarantee; (g) waives any right to enforce any other remedy that the Lenders now have or may hereafter have against any Other Party, any endorser or any other guarantor of all or any part of the Guaranteed Obligations and any benefit of, and any right to participate in, any security or collateral given to or for the benefit of the Lenders to secure payment of Guaranteed Obligations; and (h) waives all claims (as such term is defined in the United States Bankruptcy Code) it may at any time otherwise have against the Borrower arising from any transaction whatsoever, including, without limitation, its right to assert or enforce any such claims. Each Guarantor warrants and agrees that each of the waivers set forth in this Subsidiary Guarantee is made with full knowledge of its significance and consequences and that if any of such waivers are determined to be contrary to any applicable law or public policy, such waivers shall be effective only to the maximum extent permitted by law. 17. Any rights of any Guarantor, whether now existing or later arising, to receive payment on account of any indebtedness (including interest) owed to it by Borrower or to receive any payment from Borrower shall at all times be subordinate as to lien and time of payment and in all other respects to the full and prior repayment of the Guaranteed Obligations and any obligations under the Other Corporate Loan Documents. The Guarantors shall not be entitled to enforce or receive payment of any sums hereby subordinated until the Guaranteed Obligations and any obligations under the Other Corporate Loan Documents have been paid and performed in full and any such sums received in violation of this Guarantee shall be received by the Guarantors in trust for the Administrative Agent and the Lenders. 18. In order to provide for just and equitable contribution among the Guarantors, the Guarantor agrees, that in the event any payment or distribution is made by any other Guarantor (a "Funding Guarantor") under its Guarantee, such Funding Guarantor shall be entitled to a contribution from all other Guarantors, including the Guarantor, in a pro rata amount based on the Adjusted Net Assets of 11 SUBSIDIARY GUARANTEE each Guarantor (including the Funding Guarantor) for all payments, damages and expenses incurred by that Funding Guarantor in discharging the Obligations of the Borrower, and the Guarantor agrees (i) to cooperate with the other Guarantors to determine whether such contributions are required and (ii) to make such contribution, if the Guarantors agree that such contribution is required by the Guarantor. "Adjusted Net Assets" of such Guarantor at any date shall mean the lesser of (x) the amount by which the fair value of the property of such 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 Guarantor subject to a Subordination Agreement)), but excluding liabilities under the Guarantee, of such Guarantor at such date and (y) the amount by which the present fair salable value of the assets of such Guarantor at such date exceeds the amount that will be required to pay the probable liabilities of such Guarantor on its debts, excluding debt in respect of the Guaranty of such Guarantor, as they become absolute and matured. 12 SUBSIDIARY GUARANTEE IN WITNESS WHEREOF, each Guarantor has caused this Subsidiary Guarantee to be executed and delivered as of the date first above written. Fred Meyer Stores, Inc. Roundup Co. Fred Meyer of Alaska, Inc. Fred Meyer of California, Inc. Distribution Trucking Company B & B Stores, Inc. B&B Pharmacy, Inc. CB&S Advertising Agency, Inc. FM Holding Corporation. Grand Central, Inc. F M Retail Services, Inc. Fred Meyer Jewelers, Inc. Merksamer Jewelers, Inc. FM Inc. J H Properties, Inc. Compare, Inc. Richie's, Inc. Quality Food Centers, Inc. Hughes Markets, Inc. Hughes Realty, Inc. KU Acquisition Corporation Second Story, Inc. Quality Food, Inc. Quality Food Holdings, Inc. QFC Sub, Inc. Natur Glo, Inc. Western Property Investment Group, Inc. ROGER A. COOKE By: ------------------------------ Name: Roger A. Cooke Title: Vice President and Secretary S-1 SUBSIDIARY GUARANTEE Smith's Food & Drug Centers, Inc. Smith's Beverage of Wyoming Smitty's Supermarkets, Inc. Smitty's Super Valu, Inc. Saint Lawrence Holding Company Smitty's Equipment Leasing, Inc. Food 4 Less Holdngs, Inc. Ralphs Gorcery Company Falley's, Inc. Cala Co. Bay Area Warehouse Stores, Inc. Cala Foods, Inc. Bell Markets, Inc. Food 4 Less of Southern California, Inc. Alpha Beta Company Food 4 Less GM, Inc. Food 4 Less Merchandising, Inc. Food 4 Less of California, Inc. Crawford Stores, Inc. ROGER A. COOKE All By: ------------------------------ Name: Roger A. Cooke Title: Vice President and Secretary S-2 SUBSIDIARY GUARANTEE Treasure Valley Land Company, L.C. By Smith's Food and Drug Centers, Inc., member ROGER A. COOKE By: ------------------------------ Name: Roger A. Cooke Title: Vice President and Secretary S-3 EX-4.1 13 LOAN AGREEMENT =============================================================================== $3,500,000,000 LOAN AGREEMENT dated as of March 11, 1998 among FRED MEYER, INC., as Borrower and The Lenders Party Hereto BANKERS TRUST COMPANY, as Administrative Agent and THE CHASE MANHATTAN BANK, as Syndication Agent --------------------------- CHASE SECURITIES INC. and BT ALEX. BROWN, as Arrangers =============================================================================== TABLE OF CONTENTS Page ---- ARTICLE I Definitions ----------- SECTION 1.1. Defined Terms................................................. 1 SECTION 1.2. Classification of Loans and Borrowings........................20 SECTION 1.3. Terms Generally...............................................20 SECTION 1.4. Accounting Terms; GAAP........................................20 ARTICLE II The Credits ----------- SECTION 2.1. Term Loans....................................................21 SECTION 2.2. Revolving Loans...............................................21 SECTION 2.3 Loans and Borrowings..........................................21 SECTION 2.4. Requests for Borrowings.......................................22 SECTION 2.5. Letters of Credit.............................................23 SECTION 2.6. Funding of Borrowings.........................................28 SECTION 2.7 Notes.........................................................29 SECTION 2.8. Interest Elections............................................29 SECTION 2.9. Termination and Reduction of Commitments......................31 SECTION 2.10. Repayment of Loans; Evidence of Debt..........................31 SECTION 2.11. Optional Prepayment of Loans..................................32 SECTION 2.12. Fees..........................................................32 SECTION 2.13. Interest......................................................33 SECTION 2.14. Alternate Rate of Interest....................................34 SECTION 2.15. Increased Costs...............................................34 SECTION 2.16. Break Funding Payments........................................36 SECTION 2.17. Taxes.........................................................36 SECTION 2.18. Payments Generally; Pro Rata Treatment; Sharing of Set-offs...........................................38 SECTION 2.19. Mitigation Obligations; Replacement of Lenders....................................................40 SECTION 2.20. Mandatory Prepayment..........................................41 i ARTICLE III Representations and Warranties ------------------------------ SECTION 3.1. Organization; Powers......................................... 42 SECTION 3.2. Authorization; Enforceability................................ 42 SECTION 3.3. Governmental Approvals; No Conflicts......................... 43 SECTION 3.4. Financial Condition; No Material Adverse Change............................................... 43 SECTION 3.5. Properties................................................... 44 SECTION 3.6. Litigation and Environmental Matters......................... 44 SECTION 3.7. Compliance with Laws and Agreements.......................... 44 SECTION 3.8. Investment and Holding Company Status........................ 45 SECTION 3.9. Taxes........................................................ 45 SECTION 3.10. ERISA........................................................ 45 SECTION 3.11. Disclosure................................................... 45 SECTION 3.12. Solvency..................................................... 45 SECTION 3.13. Use of Proceeds; Margin Regulations.......................... 45 SECTION 3.14. No Default................................................... 46 SECTION 3.15. Subsidiaries..................................................46 SECTION 3.16 Employee Benefit Plans........................................46 SECTION 3.17 Security Interests............................................47 ARTICLE IV Conditions ---------- SECTION 4.1. Effective Date............................................... 47 SECTION 4.2. Each Credit Event.............................................49 ARTICLE V Affirmative Covenants --------------------- SECTION 5.1. Financial Statements and Other Information................... 50 SECTION 5.2. Notices of Material Events................................... 50 SECTION 5.3. Existence; Conduct of Business............................... 52 SECTION 5.4. Payment of Obligations....................................... 52 SECTION 5.5. Maintenance of Properties; Insurance......................... 52 SECTION 5.6. Books and Records; Inspection Rights......................... 52 SECTION 5.7. Compliance with Laws......................................... 52 SECTION 5.8. Use of Proceeds and Letters of Credit........................ 53 SECTION 5.9. Subsidiary Guaranties........................................ 53 ii SECTION 5.10 Further Assurances............................................ 53 ARTICLE VI Negative Covenants ------------------ SECTION 6.1. Subsidiary Debt.............................................. 54 SECTION 6.2. Liens........................................................ 55 SECTION 6.3. Modifications of Merger Documents............................ 55 SECTION 6.4. Fundamental Changes.......................................... 56 SECTION 6.5. Investments, Loans, Advances, Suretyship Liabilities and Acquisitions................................. 56 SECTION 6.6. Hedging Agreements........................................... 57 SECTION 6.7. Restricted Payments.......................................... 57 SECTION 6.8. Transactions with Affiliates................................. 58 SECTION 6.9. Restrictive Agreements....................................... 58 SECTION 6.10. Financial Covenants.......................................... 58 SECTION 6.11. Unconditional Purchase Obligations........................... 59 SECTION 6.12. Fiscal Year; Fiscal Quarter.................................. 59 ARTICLE VII Events of Default.......................... 59 ----------------- ARTICLE VIII The Administrative Agent ------------------------ SECTION 8.1. Appointment.................................................. 62 SECTION 8.2. Delegation of Duties......................................... 63 SECTION 8.3. Exculpatory Provisions....................................... 63 SECTION 8.4. Reliance by Administrative Agent............................. 63 SECTION 8.5. Notice of Default............................................ 63 SECTION 8.6. Non-Reliance on Administrative Agent and Other Lenders....... 64 SECTION 8.7. Indemnification ............................................. 64 SECTION 8.8. Administrative Agent in Its Individual Capacity ............. 65 SECTION 8.9. Successor Administrative Agent............................... 65 SECTION 8.10. Syndication Agent............................................ 65 iii ARTICLE IX Miscellaneous ------------- SECTION 9.1. Notices....................................................... 66 SECTION 9.2. Waivers; Amendments........................................... 67 SECTION 9.3. Expenses; Indemnity; Damage Waiver............................ 68 SECTION 9.4. Successors and Assigns........................................ 69 SECTION 9.5. Survival...................................................... 72 SECTION 9.6. Counterparts; Integration; Effectiveness...................... 72 SECTION 9.7 Marshalling; Recapture........................................ 73 SECTION 9.8. Severability.................................................. 73 SECTION 9.9. Right of Setoff............................................... 73 SECTION 9.10. Governing Law; Jurisdiction; Consent to Service of Process......................................... 74 SECTION 9.11. WAIVER OF JURY TRIAL.......................................... 74 SECTION 9.12. Headings...................................................... 75 SECTION 9.13. Confidentiality............................................... 75 SECTION 9.14. OREGON LEGAL NOTICE........................................... 75 SCHEDULES AND EXHIBITS Schedule 2.1 Lenders and Commitments Schedule 2.5 Existing Letters of Credit Schedule 2.20(a) Store Property Acquired in Mergers and Distribution Center Schedule 2.20(e) Tendered Bonds Schedule 3.6 Disclosed Matters Schedule 3.15 Subsidiaries Schedule 4.1 Refinancing of Existing Debt Schedule 6.1 Debt Schedule 6.2 Liens Schedule 6.5 Investments Schedule 6.9 Restrictive Agreements Schedule A Term Loan Amortization Exhibit A Assignment and Acceptance Exhibit B Note Exhibit C Opinion of Stoel Rives, Counsel to the Borrower Exhibit D Subsidiary Guarantee Exhibit E Guarantee Language iv LOAN AGREEMENT dated as of March 11, 1998, among FRED MEYER, INC., as Borrower, the LENDERS party hereto, BANKERS TRUST COMPANY, as Administrative Agent, THE CHASE MANHATTAN BANK, as Syndication Agent, and NATIONSBANK OF TEXAS, N.A., a national banking association, and SALOMON BROTHERS HOLDING CO INC. as Co-Documentation Agents. The parties hereto agree as follows: ARTICLE I Definitions ----------- Section 1.1 Defined Terms. As used in this Agreement, the following terms have the meanings specified below: "ABR" means, for any day, a rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the greater of (a) the Prime Rate in effect on such day and (b) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. For purposes hereof, "Prime Rate" means the rate of interest per annum publicly announced from time to time by the Administrative Agent as its prime rate in effect at its principal office in New York City (the Prime Rate not being intended to be the lowest rate of interest charged by the Administrative Agent in connection with extensions of credit to debtors); each change in the Prime Rate shall be effective on the date such change is publicly announced as effective. "Federal Funds Effective Rate" means, for any day, 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 on the next succeeding 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 the day of such transactions received by the Administrative Agent from three Federal funds brokers of recognized national standing selected by it. If for any reason the Administrative Agent shall have determined that it is unable to ascertain the Federal Funds Effective Rate, including the inability or failure of the Administrative Agent to obtain sufficient quotations in accordance with the terms thereof, the ABR shall be determined without regard to clause (b) of the first sentence of this definition, as appropriate, until the circumstances giving rise to such inability no longer exist. Any change in the ABR due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective on the effective date of such change in the Prime Rate or the Federal Funds Effective Rate, respectively. "ABR Loans" means Loans made and/or being maintained at a rate of interest based upon the ABR. LOAN AGREEMENT "Adjusted LIBO Rate" means, with respect to any Eurodollar Borrowing for any Interest Period, an interest rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to (a) the LIBO Rate for such Interest Period multiplied by (b) the Statutory Reserve Rate. "Administrative Agent" means Bankers Trust Company, in its capacity as administrative agent for the Lenders hereunder. "Affiliate" means, with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified. "Agents" means the Administrative Agent, the Co-Documentation Agents and the Syndication Agent. "Agreement" means this $3,500,000,000 Loan Agreement dated as of March __, 1998 among the Borrower, the Lenders, the Administrative Agent and the Syndication Agent. "Applicable Level" means the level determined with reference to the following chart: Level Leverage Ratio Rating - ----- -------------- ------ I greater than or equal to 3.0x less than or equal to BBB+ or Baa1 II less than 3.0x BBB or Baa2 III less than 3.5x BBB- or Baa3 IV less than 4.0x BB+ or Ba1 V less than 4.5x greater than or equal to BB or Ba2 For purposes of the foregoing, (i) prior to the Compliance Certificate Date, the Applicable Level shall be Level IV; (ii) except as provided in (i) above, at any time of determination, the Applicable Level shall be the Level corresponding to the Leverage Ratio as set forth in the most recently delivered Compliance Certificate (it being understood and agreed that if the Borrower shall not have delivered the most recently due Compliance Certificate within the time period specified in Section 5.1(c), the Applicable Level shall be Level V until such Compliance Certificate is delivered) and the senior unsecured long term debt rating of the Borrower from S&P and Moody's (for purposes of this definition, the "Rating"); (iii) in the event the Leverage Ratio and the Rating do not fall within the same Level, the Applicable Level shall be the higher (Level I being the highest) of the two Levels; and (iv) in the event the rating from S&P and the rating from Moody's do not fall within the same Level, the 2 LOAN AGREEMENT applicable Rating will be based upon the higher (Level I being the highest) of the two ratings, except that, in the event one of the two ratings is two or more Levels higher than the other, the applicable Rating shall be determined by reference to the Level next lower than the higher of the two ratings. If any rating established or deemed to be established by Moody's or S&P shall be changed (other than as a result of a change in the rating system of Moody's or S&P), such change shall be effective as of the date on which such change is first announced by the rating agency making such change. Each such change shall take effect on the effective date of such change and shall end on the date immediately preceding the effective date of the next such change. If the rating system of S&P or Moody's shall change prior to the Maturity Date, the Borrower and the Lenders shall negotiate in good faith to amend the references to specific ratings in this definition to reflect such changed rating system, and pending agreement on another Applicable Level the Rating shall be determined by reference to the rating provided by the non-changing rating agency. If the Borrower does not have a senior long term unsecured debt rating or implied rating from either Moody's or S&P, the Applicable Level shall be determined by reference to the Leverage Ratio only. "Applicable Margin" means, with respect to any Commitment Fee or Eurodollar Loan, the applicable number of basis points per annum as set forth below based on the Applicable Level: Applicable Margin for Applicable Level Commitment Fee Eurodollar Loans - ---------------- -------------- --------------------- I 20.0 62.5 II 25.0 75.0 III 25.0 87.5 IV 30.0 100.0 V 37.5 125.0 The Applicable Margin for ABR Loans shall be 0 at any time during which the Applicable Level is Level IV or above. At any time during which the Applicable Level of the Borrower is Level V, the Applicable Margin for ABR Loans shall be 25 basis points. "Applicable Percentage" means, at any time and with respect to any Lender, the percentage of the total Commitments represented by such Lender's Commitment (or after the termination thereof, the percentage of the total outstanding Credit Exposure represented by such Lender's outstanding Credit Exposure at such time). "Assignment and Acceptance" means an assignment and acceptance entered into by a Lender and an assignee (with the consent of any party whose consent is required by Section 9.4), and accepted by the Administrative Agent, substantially in the form of Exhibit A. 3 LOAN AGREEMENT "Availability Period" means the period from and including the Effective Date to but excluding the earlier of the Maturity Date and the date of termination of the Commitments. "Board" means the Board of Governors of the Federal Reserve System of the United States of America. "Borrower" means Fred Meyer, Inc., a Delaware corporation. "Borrowing" means Loans of the same Type, made, converted or continued on the same date and, in the case of Eurodollar Loans, as to which a single Interest Period is in effect. "Borrowing Request" means a request by the Borrower for a Borrowing in accordance with Section 2.4. "Business Day" means any day that is not a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to remain closed; provided that, when used in connection with a Eurodollar Loan, the term "Business Day" shall also exclude any day on which banks are not open for dealings in dollar deposits in the New York interbank market. "Capital Lease Obligations" of any Person means the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP. "Change in Control" means (a) the acquisition of ownership, directly or indirectly, beneficially or of record, by any Person or group (within the meaning of the Securities Exchange Act of 1934 and the rules of the Securities and Exchange Commission thereunder as in effect on the date hereof), of shares representing more than 33 1/3% of the aggregate ordinary voting power represented by the issued and outstanding capital stock of the Borrower; or (b) occupation of a majority of the seats (other than vacant seats) on the board of directors of the Borrower by Persons who were neither (i) nominated by the board of directors of the Borrower nor (ii) appointed by directors so nominated. "Change in Law" means (a) the adoption of any law, rule or regulation after the date of this Agreement, (b) any change in any law, rule or regulation or in the interpretation or application thereof by any Governmental Authority after the date of this Agreement or (c) compliance by any Lender or Issuing Bank (or, for purposes of Section 2.15(b), by any 4 LOAN AGREEMENT lending office of such Lender or by such Lender's or the Issuing Bank's holding company, if any) with any request, guideline or directive (whether or not having the force of law) of any Governmental Authority made or issued after the date of this Agreement. "Closing Date" means March 11, 1998, or such later date as the parties hereto shall mutually agree in writing. "Code" means the Internal Revenue Code of 1986, as amended from time to time. "Co-Documentation Agents" means NationsBank of Texas, N.A. and Salomon Brothers Holding Co Inc. "Collateral" means the capital stock of each Subsidiary pledged under the Pledge Agreement. "Collateral Agent" has the meaning given thereto under the Intercreditor Agreement. "Commitment" means, with respect to each Lender, the commitment of such Lender to make Loans and to acquire participations in Letters of Credit hereunder, expressed as an amount representing the maximum aggregate amount of such Lender's Credit Exposure hereunder, as such commitment may be (a) reduced from time to time pursuant to Section 2.9 and (b) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to Section 9.4. The initial amount of each Lender's Commitment is set forth on Schedule 2.1, or in the Assignment and Acceptance pursuant to which such Lender shall have assumed its Commitment, as applicable. The initial aggregate amount of the Lenders' Commitments is $3,500,000,000. "Commitment Fee" means (i) prior to the Compliance Certificate Date, an amount equal to 0.30% per annum, and (ii) from and after the Compliance Certificate Date, a percentage per annum determined in accordance with the definition of "Applicable Margin," in either case payable quarterly in arrears on the last Business Day of each March, June, September and December and calculated based on a year of 360 days by the Borrower to the Administrative Agent on the average daily unused portion of the aggregate Commitments from and including the Closing Date to but excluding the Maturity Date. "Compliance Certificate" means a certificate signed by a Responsible Officer of the Borrower certifying as to the matters set forth in Section 5.1(c). 5 LOAN AGREEMENT "Compliance Certificate Date" means the date upon which the Administrative Agent receives the Compliance Certificate for the second full fiscal quarter following the Closing Date. "Consolidated EBITDA" of the Borrower and its Subsidiaries means "A" minus "B"; where: "A" equals the sum of consolidated net income plus, to the extent deducted in determining consolidated net income, without duplication, (i) extraordinary losses, (ii) interest expenses, including the interest component of rent expense under all Synthetic Lease Facilities for which the Borrower or any of its Subsidiaries has Suretyship Liability, (iii) amortization, (iv) depreciation, (v) income taxes, (vi) non-cash LIFO reserve charges and (vii) expenses incurred in connection with the Mergers, including costs relating to the sale of facilities to be disposed of in connection with the Mergers, name change costs attributable to Hughes Markets, and severance costs; and "B" equals, to the extent included in determining consolidated pre-tax income, extraordinary gains. "Consolidated EBITDAR" of the Borrower and its Subsidiaries means "A" minus "B"; where: "A" equals the sum of consolidated net income plus, to the extent deducted in determining consolidated net income, without duplication, (i) extraordinary losses, (ii) interest expense, (iii) amortization, (iv) depreciation, (v) income taxes, (vi) non-cash LIFO reserve charges, (vii) consolidated rental expense on operating leases (including rent paid pursuant to any Synthetic Lease Facility) and (vii) expenses incurred in connection with the Mergers, including costs relating to the sale of facilities to be disposed of in connection with the Mergers, name change costs attributable to Hughes Markets, and severance costs; and "B" equals, to the extent included in determining consolidated pre-tax income, extraordinary gains. "Consolidated Interest Expense" means the consolidated interest expense of the Borrower, including the interest component of rent expense under all Synthetic Lease Facilities for which the Borrower or any of its Subsidiaries has Suretyship Liability. 6 LOAN AGREEMENT "Control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. "Controlling" and "Controlled" have meanings correlative thereto. "Credit Exposure" means, with respect to any Lender at any time, the sum of the outstanding principal amount of such Lender's Loans and its LC Exposure at such time. "Current Synthetic Lease Facility" means the transactions contemplated by the Participation Agreement, dated the date hereof, among the Borrower, Wilmington Trust Company, as owner trustee, FMS Trust 1997-1, as lessor, the investors named therein, the Administrative Agent, the Syndication Agent, and the lenders named therein. "Debt" of any Person means, without duplication, (a) all obligations of such Person for borrowed money, whether or not evidenced by bonds, debentures, notes or similar instruments, (b) all Capital Lease Obligations of such Person, (c) all obligations of such Person to pay the deferred purchase price of property or services (other than current accounts payable in the ordinary course of business), (d) all indebtedness secured by a Lien on the property of such Person, whether or not such indebtedness shall have been assumed by such Person (it being understood that if such Person has not assumed or otherwise become personally liable for any such indebtedness, the amount of the Debt of such Person in connection therewith shall be limited to the lesser of the face amount of such indebtedness or the fair market value of all property of such Person securing such indebtedness), (e) all obligations, contingent or otherwise, with respect to the face amount of all letters of credit (whether or not drawn) and banker's acceptances issued for the account of such Person, (f) all obligations of such Person in respect of Hedging Agreements, (g) all Suretyship Liabilities of such Person, (h) all other obligations of such Person upon which interest charges are customarily paid (other than current accounts payable in the ordinary course of business), (i) all obligations of such Person under conditional sale or other title retention agreements relating to property acquired by such Person and (j) all Debt (as defined above) of any partnership in which such Person is a general partner (except to the extent such Debt is not recourse to such Person). The amount of the Debt of any Person in respect of Hedging Agreements shall be deemed to be the unrealized net loss position of such Person thereunder (determined for each counterparty individually, but netted for all Hedging Agreements maintained with such counterparty). "Debt for Borrowed Money" of any Person means all Debt of such Person described in (without duplication) clauses (a), (b), (c), (d), (h) and, to the extent constituting a Suretyship Liability in respect of Debt for Borrowed Money of another Person, (g), of the definition of Debt. A Suretyship Liability arising under a Synthetic Lease Facility shall be deemed to be a Debt for Borrowed Money. 7 LOAN AGREEMENT "Default" means any event or condition which constitutes an Event of Default or which upon notice, lapse of time or both would, unless cured or waived, become an Event of Default. "Defaulting Lenders" has the meaning set forth in Section 2.6(b). "Disclosed Matters" means the actions, suits and proceedings and the environmental matters disclosed in Schedule 3.6. "dollars" or "$" refers to lawful money of the United States of America. "Effective Date" means the date on which the conditions specified in Section 4.1 are satisfied (or waived in accordance with Section 9.2). "Employee Benefit Plan" means any employee benefit plan within the meaning of Section 3(3) of ERISA maintained or contributed to by any of the Borrower or any ERISA Affiliate, other than a Multiemployer Plan. "Environmental Laws" means all laws, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions, notices or binding agreements issued, promulgated or entered into by any Governmental Authority, relating in any way to the environment, preservation or reclamation of natural resources, the management, release or threatened release of any Hazardous Material or to health and safety matters. "Environmental Liability" means any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of the Borrower or any Subsidiary directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials into the environment or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. "ERISA Affiliate" means any trade or business (whether or not incorporated) that, together with the Borrower, is treated as a single employer under Section 414(b) or (c) of the Code or, solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the Code. 8 LOAN AGREEMENT "ERISA Event" means (a) any "reportable event", as defined in Section 4043 of ERISA or the regulations issued thereunder with respect to a Plan (other than an event for which the 30-day notice period is waived); (b) the existence with respect to any Plan of an "accumulated funding deficiency" (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived; (c) the filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan; (d) the incurrence by the Borrower or any of its ERISA Affiliates of any liability under Title IV of ERISA with respect to the termination of any Plan; (e) the receipt by the Borrower or any ERISA Affiliate from the PBGC or a plan administrator of any notice relating to an intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan; (f) the incurrence by the Borrower or any of its ERISA Affiliates of any liability with respect to the withdrawal or partial withdrawal from any Plan or Multiemployer Plan; or (g) the receipt by the Borrower or any ERISA Affiliate of any notice, or the receipt by any Multiemployer Plan from the Borrower or any ERISA Affiliate of any notice, concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA. "Eurodollar", when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Adjusted LIBO Rate. "Event of Default" has the meaning assigned to such term in Article VII. "Excess Cash Flow" means, with respect to each fiscal year of the Borrower, a positive number, if any, equal to (i) consolidated net income for such fiscal year, plus (ii) depreciation and amortization expense to the extent deducted in determining consolidated net income for such fiscal year, plus (iii) any other non-cash expenses (except that, with respect to reserve items, only to the extent of any increase of such items) to the extent deducted in determining consolidated net income for such fiscal year, plus (or minus) (iv) any extraordinary gains (losses), plus (or minus) (v) decreases (or increases) in the consolidated working capital of the Borrower and its Subsidiaries from the last day of the preceding fiscal year to the last day of such fiscal year, minus (vi) the aggregate amount actually paid in cash by the Borrower and its Subsidiaries during such fiscal year for capital expenditures, minus (vii) all principal repayments and prepayments of the Loans made during such fiscal year, provided that repayments or prepayments of Revolving Loans other than pursuant to Section 2.20(g) shall not be included in the computation of Excess Cash Flow, minus (viii) all regularly scheduled principal payments made during such fiscal year in respect of other Debt to the extent such Indebtedness and payments are permitted to be incurred and made hereunder. 9 LOAN AGREEMENT "Excluded Taxes" means, with respect to the Administrative Agent, any Lender, the Issuing Bank or any other recipient of any payment to be made by or on account of any obligation of the Borrower hereunder, (a) income or franchise taxes imposed on (or measured by) its net income by the United States of America, or by the jurisdiction under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its applicable lending office is located, (b) any branch profits taxes imposed by the United States of America or any similar tax imposed by any other jurisdiction in which the Borrower is located and (c) in the case of a Foreign Lender (other than an assignee pursuant to a request by the Borrower under Section 2.19(b)), any withholding tax that is imposed on amounts payable to such Foreign Lender at the time such Foreign Lender becomes a party to this Agreement (or designates a new lending office) or is attributable to such Foreign Lender's failure to comply with Section 2.17(e), except to the extent that such Foreign Lender (or its assignor, if any) was entitled, at the time of designation of a new lending office (or assignment), to receive additional amounts from the Borrower with respect to such withholding tax pursuant to Section 2.17(a). "Existing Letters of Credit" means the letters of credit issued pursuant to Section 2.5(l) and set forth on Schedule 2.5 which will, as of the Closing Date, be deemed outstanding as Letters of Credit issued pursuant to Section 2.5. "Financial Officer" means the chief financial officer, principal accounting officer, treasurer or controller of the Borrower. "Fixed Charge Coverage Ratio" means the ratio of (a) Consolidated EBITDAR to (b) the sum of (i) the Borrower's Consolidated Interest Expense plus (ii) except as included in Consolidated Interest Expense, the Borrower's consolidated rental expense on operating leases, computed as of the last day of a fiscal quarter for the period consisting of such fiscal quarter and the immediately preceding three fiscal quarters (or such lesser number of preceding full fiscal quarters as shall have ended following the Closing Date). "FFL" means Food 4 Less. "FMI" means Fred Meyer, Inc. and its successors and assigns. "Foreign Lender" has the meaning provided in Section 2.17(e). "GAAP" means generally accepted accounting principles in the United States of America. "Governmental Authority" means the government of the United States of America, any other nation or any political subdivision thereof, whether state or local, and any 10 LOAN AGREEMENT agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government. "Guaranteed Pension Plan" means any employee pension benefit plan within the meaning of Section 3(2) of ERISA that is maintained or contributed to by any of the Borrower or any ERISA Affiliate or that was so maintained or contributed to and in respect of which the Borrower or any ERISA Affiliate could have liability under Section 4064 or 4069 of ERISA in the event that such plan has been or were to be terminated, the benefits of which are guaranteed on termination in full or in part by the PBGC pursuant to Title IV of ERISA, other than a Multiemployer Plan. "Hazardous Materials" means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law. "Hedging Agreement" means any interest rate protection agreement, foreign currency exchange agreement, commodity price protection agreement or other interest or currency exchange rate or commodity price hedging arrangement. "Indemnified Taxes" means Taxes other than Excluded Taxes. "Indemnitee" has the meaning provided in Section 9.3(b). "Information" has the meaning provided in Section 9.13. "Insignificant Subsidiary" means any inactive or otherwise immaterial direct or indirect Subsidiaries of the Borrower; provided that the assets and pre-tax income of, and the Borrower's net investment in, such Insignificant Subsidiaries on an individual and a combined basis will not exceed three percent (3%) of the Borrower's consolidated pre-tax income or assets, as applicable; and provided further that any Subsidiary which owns the stock of another Subsidiary (other than an Insignificant Subsidiary) shall not be deemed to be an "Insignificant Subsidiary." "Intercreditor Agreement" means the Intercreditor and Collateral Agency Agreement dated the date hereof, among FMI, the Subsidiaries party to the Pledge Agreement, the Administrative Agent, the Collateral Agent and Bankers Trust Company, as Administrative Agent under the Other Corporate Loan Documents. 11 LOAN AGREEMENT "Interest Election Request" means a request by the Borrower to convert or continue a Borrowing in accordance with Section 2.8. "Interest Payment Date" means (a) with respect to any ABR Loan, the last day of each March, June, September and December and (b) with respect to any Eurodollar Loan, the last day of the Interest Period applicable to the Borrowing of which such Loan is a part and, in the case of a Eurodollar Borrowing with an Interest Period of more than three months' duration, each day prior to the last day of such Interest Period that occurs at intervals of three months' duration after the first day of such Interest Period. "Interest Period" means, with respect to any Eurodollar Borrowing, the period commencing on the date of such Borrowing and ending on the numerically corresponding day in the calendar month that is one, two, three or six months thereafter, as the Borrower may elect; provided, that (i) if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless, in the case of a Eurodollar Borrowing only, such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day and (ii) any Interest Period pertaining to a Eurodollar Borrowing that commences on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the last calendar month of such Interest Period) shall end on the last Business Day of the last calendar month of such Interest Period. For purposes hereof, the date of a Borrowing initially shall be the date on which such Borrowing is made and, in the case of a Borrowing, thereafter shall be the effective date of the most recent conversion or continuation of such Borrowing. "Issuing Bank" means Bankers Trust Company, in its capacity as the issuer of Letters of Credit hereunder and its successors in such capacity as provided in Section 2.5(i). In addition, the Borrower and the Issuing Banks may from time to time agree (which agreement shall not be unreasonably withheld or delayed) that one or more Lenders shall issue Letters of Credit, in which case the term "Issuing Bank" shall include any such Lenders. Any Issuing Bank may, in its discretion, arrange for one or more Letters of Credit to be issued by Affiliates of such Issuing Bank, in which case the term "Issuing Bank" shall include any such Affiliate with respect to Letters of Credit issued by such Affiliate. "LC Deposit" has the meaning set forth in Section 2.5(j). "LC Disbursement" means a payment made by the Issuing Bank pursuant to a Letter of Credit. "LC Exposure" means, at any time, the sum of (a) the aggregate undrawn amount of all outstanding Letters of Credit at such time plus (b) the aggregate amount of all 12 LOAN AGREEMENT LC Disbursements that have not yet been reimbursed by or on behalf of the Borrower at such time. The LC Exposure of any Lender at any time shall be its Applicable Percentage of the total LC Exposure at such time. "Lenders" means the Persons listed on Schedule 2.1 and any other Person that shall have become a party hereto pursuant to an Assignment and Acceptance, other than any such Person that ceases to be a party hereto pursuant to an Assignment and Acceptance. "Letter of Credit" means any letter of credit issued pursuant to this Agreement. "Leverage Ratio" means the ratio of Debt for Borrowed Money of the Borrower and its Subsidiaries determined on a consolidated basis to Consolidated EBITDA (for the most recent four consecutive fiscal quarters; provided that for the periods ended on the Compliance Certificate Date and the last day of the next succeeding fiscal quarter, the Leverage Ratio shall be calculated by reference to pro forma financial information provided by the Borrower (in form and substance satisfactory to the Administrative Agent) with respect to the fiscal quarters ended prior to the Closing Date). "LIBO Rate" means, with respect to any Eurodollar Borrowing for any Interest Period, the offered quotation to first-class banks in the New York interbank eurodollar market by the Administrative Agent for dollar deposits of amounts in immediately available funds comparable to the outstanding principal amount of the applicable Eurodollar Loan, with maturities comparable to the Interest Period applicable to such Eurodollar Loan commencing two Business Days prior to the commencement of such Interest Period. "Lien" means, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, hypothecation, encumbrance, charge or security interest in, on or of such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement (or any financing lease having substantially the same economic effect as any of the foregoing) relating to such asset and (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities. "Loan Documents" means this Agreement, the Notes, the Subsidiary Guarantees, the Pledge Agreement and the Intercreditor Agreement. "Loans" means the Term Loans and the Revolving Loans. "Margin Stock" shall have the meaning provided such term in Regulation U and Regulation G of the Federal Reserve Board. 13 LOAN AGREEMENT "Material Adverse Effect" means a material adverse effect on (a) the business, assets, operations, prospects or condition, financial or otherwise, of the Borrower and its Subsidiaries taken as a whole, (b) the ability of the Borrower to perform any of its obligations under this Agreement or (c) the rights of or benefits available to the Lenders under this Agreement. "Material Subsidiary" means a Subsidiary which either (a) has assets which constitute 5% or more of the consolidated assets of the Borrower and its Subsidiaries or (b) has revenues as of the end of the Borrower's most recently-ended fiscal year which constitute more than 5% of the consolidated revenues of the Borrower and its Subsidiaries during the Borrower's most recently ended fiscal year. "Maturity Date" means February 28, 2003. "Mergers" means the mergers of (i) FMI and Quality Food Centers, Inc. and (ii) FMI and Food 4 Less as contemplated by the Merger Documents. "Merger Documents" means (i) that certain Agreement and Plan of Merger, dated as of November 6, 1997, among QFC, FMI and Q-Acquisition Corp., and (ii) that certain Agreement and Plan of Merger, dated as of November 6, 1997, among FFL, FMI and FFL Acquisition Corp. "Moody's" means Moody's Investors Service, Inc. "Multiemployer Plan" means a multiemployer plan as defined in Section 4001(a)(3) of ERISA. "Net Cash Proceeds" means all cash proceeds of each Debt issuance or sale or other disposition of assets by the Borrower or a Subsidiary, in each case net of (if applicable) (i) reasonable expenses incurred or reasonably expected to be incurred in connection with such sale or disposition, (ii) any income, franchise, transfer or other tax payable by the Borrower or a Subsidiary in connection with such sale or disposition and (iii) any Debt secured by a Lien on such property or assets and required to be repaid as a result of such sale or other disposition. "Non-Defaulting Lender" has the meaning specified in Section 2.6(b). "Notes" means each Revolving Note and each Term Note. "Obligations" means all obligations, liabilities and indebtedness of every nature of the Borrower and the Subsidiaries from time to time owing to the Administrative Agent or 14 LOAN AGREEMENT any Lender under or in connection with any Loan Documents or any Other Corporate Loan Document. "Other Corporate Loan Documents" means all of the documents contemplated to be executed in connection with the Current Synthetic Lease Facility, as such documents are amended, supplemented or otherwise modified from time to time. "Other Taxes" means any and all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement. "Participant" has the meaning provided in Section 9.4(e). "PBGC" means the Pension Benefit Guaranty Corporation referred to and defined in ERISA and any successor entity performing similar functions. "Permitted Encumbrances" means: (a) Liens imposed by law for taxes that are not yet due or are being contested in compliance with Section 5.4; (b) carriers', warehousemen's, mechanics', materialmen's, repairmen's and other like Liens imposed by law, arising in the ordinary course of business and securing obligations that are not overdue by more than 30 days or are being contested in compliance with Section 5.4; (c) pledges and deposits made in the ordinary course of business in compliance with workers' compensation, unemployment insurance and other social security laws or regulations; (d) deposits to secure the performance of bids, trade contracts, leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature, in each case in the ordinary course of business; and (e) easements, zoning restrictions, rights-of-way and similar encumbrances on real property imposed by law or arising in the ordinary course of business that do not secure any monetary obligations and do not materially detract from the value of the affected property or interfere with the ordinary conduct of business of the Borrower or any Subsidiary; 15 LOAN AGREEMENT provided that the term "Permitted Encumbrances" shall not include any Lien securing Debt for Borrowed Money. "Permitted Investments" means: (a) direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States of America (or by any agency thereof to the extent such obligations are backed by the full faith and credit of the United States of America), in each case maturing within one year from the date of acquisition thereof; (b) investments in commercial paper maturing within 270 days from the date of acquisition thereof and having, at such date of acquisition, the two highest credit ratings obtainable from S&P or from Moody's; (c) investments in certificates of deposit, banker's acceptances and time deposits maturing within 180 days from the date of acquisition thereof issued or guaranteed by or placed with, and money market deposit accounts issued or offered by, any domestic office of any commercial bank organized under the laws of the United States of America or any State thereof which has a combined capital and surplus and undivided profits of not less than $500,000,000; and (d) fully collateralized repurchase agreements with a term of not more than 30 days for securities described in clause (a) above and entered into with a financial institution satisfying the criteria described in clause (c) above. "Person" means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity. "Plan" means any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA, and in respect of which the Borrower or any ERISA Affiliate is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA. "Pledge Agreement" means the Pledge Agreement, dated as of the Closing Date, by the Borrower and its Subsidiaries in favor of the Lenders and the lenders under the Other Corporate Loan Documents, as amended, supplemented or otherwise modified from time to time in accordance with the terms hereof. 16 LOAN AGREEMENT "Public Notes" means senior unsecured notes of the Borrower, described in the Preliminary Prospectus Supplement dated February 17, 1998, and the Prospectus, dated February 4, 1998. "QFC" means Quality Food Centers, Inc. "Register" has the meaning set forth in Section 9.4. "Related Parties" means, with respect to any specified Person, such Person's Affiliates and the respective directors, officers, employees, agents and advisors of such Person and such Person's Affiliates. "Replacement Lender" has the meaning provided in Section 2.19(b). "Required Lenders" means, at any time, Non-Defaulting Lenders the sum of whose Commitments (or after the termination thereof, outstanding Loans and LC Exposures at such time) represents an amount greater than 50% of the sum of (i) the aggregate Commitments of all Lenders less (ii) the aggregate Commitments of all Defaulting Lenders (or after the termination thereof, the sum of the then total outstanding Loans and LC Exposures of Defaulting Lenders at such time). "Responsible Officer" means the Chairman or Vice Chairman of the Board of Directors, the Chairman or Vice Chairman of the Executive Committee of the Board of Directors, the President, any Senior Vice President or Executive Vice President, the Chief Financial Officer, the Chief Operating Officers, the Chief Accounting Officer, the Vice President/Treasurer or any Assistant Treasurer responsible for compliance with this Agreement. "Restricted Payment" means any dividend or other distribution (whether in cash, securities or other property) with respect to any shares of any class of capital stock of the Borrower or any Subsidiary, or any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any such shares of capital stock of the Borrower or any option, warrant or other right to acquire any such shares of capital stock of the Borrower. "Revolving Loan Commitment" means at any time, for any Lender, the amount set forth opposite such Lender's name on Schedule 2.1 hereto under the heading "Revolving Loan Commitment," as such amount may be reduced from time to time pursuant to Sections 2.9 or 9.4(b). 17 LOAN AGREEMENT "Revolving Loans" has the meaning provided in Section 2.2(a). "Revolving Notes" has the meaning provided in Section 2.7(a). "Smith's" means Smith's Food and Drug Centers Inc. "Solvent" as to any Person means (i) the sum of the assets of such Person, both at a fair valuation and at present fair salable value, will exceed its liabilities, including contingent liabilities, (ii) such Person will have sufficient capital with which to conduct its business as presently conducted and (iii) such Person has not incurred debts, and does not intend to incur debts, beyond its ability to pay such debts as they mature. For purposes of this definition, "debt" means any liability on a claim, and "claim" means (x) a right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured, or (y) a right to an equitable remedy for breach of performance if such breach gives rise to a payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured, or unsecured. With respect to any contingent liabilities, such liabilities shall be computed at the amount which, in light of all the facts and circumstances existing at the time, represents the amount which can reasonably be expected to become an actual or matured liability. "S&P" means Standard & Poor's Corporation. "Statutory Reserve Rate" means a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum reserve percentages (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by the Board to which the Administrative Agent is subject for eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of the Board). Such reserve percentages shall include those imposed pursuant to such Regulation D. Eurodollar Loans shall be deemed to constitute eurocurrency funding and to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under such Regulation D or any comparable regulation. The Statutory Reserve Rate shall be adjusted automatically on and as of the effective date of any change in any reserve percentage. "subsidiary" means, with respect to any Person (the "parent") at any date, any corporation, limited liability company, partnership, association or other entity the accounts of which are required to be consolidated with those of the parent in the parent's consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date, as well as, with respect to any Person, any Person of which such Person and/or its 18 LOAN AGREEMENT subsidiaries own, directly or indirectly, such number of outstanding shares (or similar equity interest) as have more than 50% of the ordinary voting power for the election of directors. "Subsidiary" means any subsidiary of the Borrower. "Subsidiary Guarantee" shall have the meaning set forth in Section 4.1(h). "Surety Instruments" means all letters of credit (including standby and commercial), banker's acceptances, guaranties, shipside bonds, surety bonds and similar instruments under which Suretyship Liabilities arise. "Suretyship Liability" means any agreement, undertaking or other contractual arrangement by which any Person guarantees, endorses or otherwise becomes or is contingently liable upon (by direct or indirect agreement, contingent or otherwise, to provide funds for payment, to supply funds to or otherwise to invest in a debtor, or otherwise to assure a creditor against loss) any indebtedness, obligation or other liability (including accounts payable) of any other Person (other than by endorsements of instruments in the course of collection), or guarantees the payment of dividends or other distributions upon the shares of any other Person. Suretyship Liability shall include any liability or contingent liability of a Person under or in connection with a Synthetic Lease Facility. The amount of any Person's obligation under any Suretyship Liability shall (subject to any limitation set forth therein) be deemed to be the principal amount of the indebtedness, obligation or other liability guaranteed thereby. As of any date, the amount of any Person's obligations under any Synthetic Lease Facility shall be equal to the amount which such Person would be obligated to pay if such Synthetic Lease Facility was accelerated on such date (disregarding accrued scheduled lease payments which would be characterized as interest if such Synthetic Lease Facility were treated as a capital lease under GAAP). "Syndication Agent" means The Chase Manhattan Bank. "Synthetic Lease Facility" means any synthetic lease, tax ownership operating lease, tax retention operating lease, off balance sheet lease or similar lease transaction where the lessee is treated as owner of the leased property for U.S. federal income tax purposes while the lease is accounted for on the financial statements of the lessee, prepared in accordance with GAAP, as an operating lease, including the Current Synthetic Lease Facility. "Tangible Net Assets" means the total consolidated assets of the Borrower and its Subsidiaries minus any amount included therein in respect of goodwill, as shown on the most recent consolidated balance sheet of the Borrower and its Subsidiaries referred to in Section 3.4 or delivered to the Administrative Agent and each Lender pursuant to Section 5.1. 19 LOAN AGREEMENT "Taxes" means any and all present or future taxes, levies, imposts, duties, deductions, charges or withholdings imposed by any Governmental Authority. "Tendered Bonds" has the meaning provided in Section 2.20(e). "Term Loan" has the meaning provided in Section 2.1. "Term Loan Commitment" means at any time, for any Lender, the amount set forth opposite such Lender's name in Schedule 2.1 hereto under the heading "Term Loan Commitment". "Term Note" has the meaning provided in Section 2.7(a). "Total Commitment" means, at any time, the sum of the Commitments of all of the Lenders at such time. "Total Revolving Loan Commitment" has the meaning provided in Section 2.2(a). "Total Term Loan Commitment" has the meaning provided in Section 2.1. "Transactions" means the execution, delivery and performance by the Borrower of this Agreement, the borrowing of Loans, the use of the proceeds thereof and the issuance of Letters of Credit hereunder. "Type", when used in reference to any Loan or Borrowing, refers to whether the rate of interest on such Loan, or on the Loans comprising such Borrowing, is determined by reference to the Adjusted LIBO Rate or the ABR. "Withdrawal Liability" means liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA. Section 1.2 Classification of Loans and Borrowings. For purposes of this Agreement, Loans may be classified and referred to by Type (e.g., a "Eurodollar Loan"). Borrowings also may be classified and referred to by Type (e.g., a "Eurodollar Borrowing"). Section 1.3 Terms Generally. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include", "includes" and "including" shall be deemed to be followed by the phrase 20 LOAN AGREEMENT "without limitation". The word "will" shall be construed to have the same meaning and effect as the word "shall". Unless the context requires otherwise (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (b) any reference herein to any Person shall be construed to include such Person's successors and assigns, (c) the words "herein", "hereof" and "hereunder", and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (d) all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement and (e) the words "asset" and "property" shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights. Section 1.4 Accounting Terms; GAAP. Except as otherwise expressly provided herein, all terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time; provided that for purposes of determining compliance with any covenant set forth in Article VI, such terms shall be construed in accordance with GAAP as in effect on the date of this Agreement applied on a basis consistent with the application used in preparing the Borrower's audited financial statements referred to in Section 5.1. If any change in accounting principles from those used in the preparation of the audited financial statements referred to in Section 5.1 hereafter occasioned by the promulgation of any rule, regulation, pronouncement or opinion by or required by the Financial Accounting Standards Board of the American Institute of Certified Public Accountants (or successors thereto or agencies with similar functions) would result in a change in the method of calculation of financial covenants, standards or terms found in Article I or Article VI, 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 the Borrower's financial condition shall be the same after such change as if such change had not been made. ARTICLE II The Credits ----------- Section 2.1 Term Loans. Subject to the terms and conditions set forth herein, each Lender severally and not jointly agrees to make a single loan to the Borrower on the Closing Date of a sum not to exceed the Term Loan Commitment of such Lender (each such loan, a "Term Loan"). The aggregate principal amount of the Term Loan Commitments shall not exceed $1,625,000,000 (the "Total Term Loan Commitment"). The Term Loan 21 LOAN AGREEMENT Commitments shall expire on April 10, 1998 if not utilized on or prior to such date. All unutilized Term Loan Commitments shall expire simultaneously with the making of the Term Loans on the Closing Date. Once repaid, Term Loans may not be reborrowed. The Term Loans shall mature on the Maturity Date and shall be repaid, without premium or penalty, by the Borrower, on the dates and in the amounts set forth on Schedule A hereto. Section 2.2 Revolving Loans. (a) Subject to the terms and conditions set forth herein, each Lender severally and not jointly agrees to make revolving loans (collectively, "Revolving Loans") to the Borrower from time to time during the Availability Period, which Revolving Loans (when added to the LC Exposure of such Lender) shall not exceed in aggregate principal amount at any time outstanding the Revolving Loan Commitment of such Lender at such time. The sum of the Revolving Loan Commitments of all of the Lenders (the "Total Revolving Loan Commitment") on the Closing Date shall be $1,875,000,000. The Revolving Loan Commitments shall expire on April 10, 1998 if the Closing Date has not occurred on or prior to such date. (b) Revolving Loans may be voluntarily prepaid pursuant to Section 2.11, and, subject to the other provisions of this Agreement, any amounts so prepaid may be reborrowed. Each Lender's Revolving Loan Commitment shall expire, and each Revolving Loan shall mature on, the Maturity Date, without further action on the part of the Lenders or the Administrative Agent. Section 2.3 Loans and Borrowings. (a) Each Loan shall be made as part of a Borrowing consisting of Loans made by the Lenders ratably in accordance with their respective Commitments. The failure of any Lender to make any Loan required to be made by it shall not relieve any other Lender of its obligations hereunder; provided that the Commitments of the Lenders are several and no Lender shall be responsible for any other Lender's failure to make Loans as required. (b) Subject to Section 2.13, each Borrowing shall be comprised entirely of ABR Loans or Eurodollar Loans as the Borrower may request in accordance herewith. Each Lender at its option may make any Eurodollar Loan by causing any domestic or foreign branch or Affiliate of such Lender to make such Loan; provided that any exercise of such option shall not affect the obligation of the Borrower to repay such Loan in accordance with the terms of this Agreement. (c) At the commencement of each Interest Period for any Eurodollar Borrowing, such Borrowing shall be in an aggregate amount that is an integral multiple of $1,000,000 and not less than $10,000,000. At the time that each ABR Borrowing is made, such Borrowing shall be in an aggregate amount that is an integral multiple of $1,000,000 and not less than $10,000,000; provided that an ABR Borrowing may be in an aggregate amount 22 LOAN AGREEMENT that is equal to the entire unused balance of the Total Commitment or that is required to finance the reimbursement of an LC Disbursement as contemplated by Section 2.5(e). Borrowings of more than one Type may be outstanding at the same time; provided that there shall not at any time be more than a total of 8 Eurodollar Borrowings outstanding. (d) Notwithstanding any other provision of this Agreement, the Borrower shall not be entitled to request, or to elect to convert or continue, any Borrowing if the Interest Period requested with respect thereto would end after the Maturity Date. Section 2.4 Requests for Borrowings. To request a Borrowing, the Borrower shall notify the Administrative Agent of such request by telephone (a) in the case of a Eurodollar Borrowing, not later than 12:00 p.m. (noon), New York City time, three Business Days before the date of the proposed Borrowing or (b) in the case of an ABR Borrowing, not later than 12:00 p.m. (noon), New York City time, on the day of the proposed Borrowing; provided that any such notice of an ABR Borrowing to finance the reimbursement of an LC Disbursement as contemplated by Section 2.5(e) shall be given not later than 10:00 a.m., New York City time, on the date of the proposed Borrowing. Each such telephonic Borrowing Request shall be irrevocable and shall be confirmed promptly by hand delivery or telecopy to the Administrative Agent of a written Borrowing Request in a form approved by the Administrative Agent and signed by the Borrower. Each such telephonic and written Borrowing Request shall specify the following information in compliance with Section 2.3: (i) the aggregate amount of the requested Borrowing; (ii) whether such Borrowing shall be a Term Loan or a Revolving Loan; (iii) the date of such Borrowing, which shall be a Business Day; (iv) whether such Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing; (v) in the case of a Eurodollar Borrowing, the initial Interest Period to be applicable thereto, which shall be a period contemplated by the definition of the term "Interest Period"; and (vi) the location and number of the Borrower's account to which funds are to be disbursed, which shall comply with the requirements of Section 2.6. 23 LOAN AGREEMENT If no election as to the Type of Borrowing is specified, then the requested Borrowing shall be an ABR Borrowing. If no Interest Period is specified with respect to any requested Eurodollar Borrowing, then the Borrower shall be deemed to have selected an Interest Period of one month's duration. Promptly following receipt of a Borrowing Request in accordance with this Section, the Administrative Agent shall advise each Lender of the details thereof and of the amount of such Lender's Loan to be made as part of the requested Borrowing. Section 2.5 Letters of Credit. (a) General. Subject to the terms and conditions set forth herein, the Borrower may request the issuance of Letters of Credit for its own account, in dollars and on a sight basis and in a form reasonably acceptable to the Administrative Agent and the Issuing Bank, at any time and from time to time during the Availability Period (but in no event later than 30 days prior to the Maturity Date). In the event of any inconsistency between the terms and conditions of this Agreement and the terms and conditions of any form of letter of credit application or other agreement submitted by the Borrower to, or entered into by the Borrower with, the Issuing Bank relating to any Letter of Credit, the terms and conditions of this Agreement shall control. (b) Notice of Issuance, Amendment, Extension; Certain Conditions. To request the issuance of a Letter of Credit (or the amendment or extension of an outstanding Letter of Credit), the Borrower shall hand deliver or telecopy (or transmit by electronic communication, if arrangements for doing so have been approved by the Issuing Bank) to the Issuing Bank and the Administrative Agent (reasonably in advance of the requested date of issuance, amendment or extension) a notice requesting the issuance of a Letter of Credit, or identifying the Letter of Credit to be amended or extended, the date of issuance, amendment or extension, the date on which such Letter of Credit is to expire (which shall comply with paragraph (c) of this Section), the amount of such Letter of Credit, the name and address of the beneficiary thereof and such other information as shall be necessary to prepare, amend or extend such Letter of Credit. A Letter of Credit shall be issued, amended or extended only if (and upon issuance, amendment or extension of each Letter of Credit the Borrower shall be deemed to represent and warrant that), after giving effect to such issuance, amendment or extension (i) the LC Exposure shall not exceed $200,000,000 and (ii) the total Credit Exposures shall not exceed the Total Commitment. (c) Expiration Date. Each standby Letter of Credit shall have an expiry date occurring not later than one year from the date of issuance, provided that any standby Letter of Credit may be extended for successive periods of up to one year, so long as no such period ends later than five Business Days prior to the Maturity Date, on terms acceptable to the Issuing Bank. Each trade Letter of Credit shall have an expiry date occurring not later than the earlier of (i) 180 days from the date of issuance and (ii) the date which is 30 days prior to the Maturity Date. 24 LOAN AGREEMENT (d) Participations. By the issuance of a Letter of Credit and without any further action on the part of the Issuing Bank or the Lenders, the Issuing Bank hereby grants to each Lender, and each Lender hereby acquires from the Issuing Bank, a participation in such Letter of Credit equal to such Lender's Applicable Percentage of the aggregate amount available to be drawn under such Letter of Credit. In consideration and in furtherance of the foregoing, each Lender hereby absolutely and unconditionally agrees to pay to the Administrative Agent, for the account of the Issuing Bank, such Lender's Applicable Percentage of each LC Disbursement made by the Issuing Bank and not reimbursed by the Borrower on the date due as provided in paragraph (e) of this Section, or of any reimbursement payment required to be refunded to the Borrower for any reason. Each Lender acknowledges and agrees that its obligation to acquire participations pursuant to this paragraph in respect of Letters of Credit is absolute and unconditional and shall not be affected by any circumstance whatsoever, including any amendment or extension of any Letter of Credit or the occurrence and continuance of a Default or reduction or termination of the Commitments, and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever. (e) Reimbursement. If Issuing Bank shall make any LC Disbursement in respect of a Letter of Credit, the Borrower shall reimburse such LC Disbursement by paying to the Issuing Bank (with notice to the Administrative Agent) an amount equal to such LC Disbursement not later than 12:00 noon, local time (with respect to such Issuing Bank), on the date that such LC Disbursement is made, if the Borrower shall have received notice of such LC Disbursement prior to 10:00 a.m., local time (with respect to such Issuing Bank), on such date, or, if such notice has not been received by the Borrower prior to such time on such date, then not later than 12:00 noon, local time (with respect to such Issuing Bank), on the Business Day immediately following the day that the Borrower receives such notice, if such notice is not received prior to such time on the day of receipt; provided that the Borrower may, subject to the conditions to borrowing set forth herein, request in accordance with Section 2.4 that such payment be financed with an ABR Borrowing in an equivalent amount and, to the extent so financed, the Borrower's obligation to make such payment shall be discharged and replaced by the resulting ABR Borrowing. If the Borrower fails to make such payment when due, the Administrative Agent shall notify each Lender of the applicable LC Disbursement, the payment then due from the Borrower in respect thereof and such Lender's Applicable Percentage thereof. Promptly following receipt of such notice, each Lender shall pay to the Administrative Agent its Applicable Percentage of the payment then due from the Borrower, in the same manner as provided in Section 2.6 with respect to Loans made by such Lender (and Section 2.6 shall apply, mutatis mutandis, to the payment obligations of the Lenders), and the Administrative Agent shall promptly pay to the Issuing Bank the amounts so received by it from the Lenders. Promptly following receipt by the Administrative Agent of any payment from the Borrower pursuant to this paragraph, the Administrative Agent shall distribute such payment to the Issuing Bank or, to the extent that Lenders have made payments 25 LOAN AGREEMENT pursuant to this paragraph to reimburse the Issuing Bank, then to such Lenders and the Issuing Bank as their interests may appear. Any payment made by a Lender pursuant to this paragraph to reimburse the Issuing Bank for any LC Disbursement (other than the funding of ABR Loans as contemplated above) shall not constitute a Loan and shall not relieve the Borrower of its obligation to reimburse such LC Disbursement. (f) Obligations Absolute. The Borrower's obligation to reimburse LC Disbursements as provided in paragraph (e) of this Section shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement under any and all circumstances whatsoever and irrespective of (i) any lack of validity or enforceability of any Letter of Credit or this Agreement, or any term or provision therein, (ii) any draft or other document presented under a Letter of Credit proving to be forged, fraudulent or invalid in any respect or any statement therein being untrue or inaccurate in any respect, (iii) payment by the Issuing Bank under a Letter of Credit against presentation of a draft or other document that does not comply with the terms of such Letter of Credit, or (iv) any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of this Section, constitute a legal or equitable discharge of, or provide a right of setoff against, the Borrower's obligations hereunder. Neither the Administrative Agent, the Lenders nor the Issuing Bank, nor any of their Related Parties, shall have any liability or responsibility by reason of or in connection with the issuance or transfer of any Letter of Credit or any payment or failure to make any payment thereunder (irrespective of any of the circumstances referred to in the preceding sentence), or any error, omission, interruption, loss or delay in transmission or delivery of any draft, notice or other communication under or relating to any Letter of Credit (including any document required to make a drawing thereunder), any error in interpretation of technical terms or any consequence arising from causes beyond the control of the Issuing Bank; provided that the foregoing shall not be construed to excuse the Issuing Bank from liability to the Borrower to the extent of any direct damages (as opposed to consequential damages, claims in respect of which are hereby waived by the Borrower to the extent permitted by applicable law) suffered by the Borrower that are caused by the Issuing Bank's failure to exercise care when determining whether drafts and other documents presented under a Letter of Credit comply with the terms thereof. The parties hereto expressly agree that, in the absence of gross negligence or wilful misconduct on the part of the Issuing Bank, (as finally determined by a court of competent jurisdiction) the Issuing Bank shall be deemed to have exercised care in each such determination. In furtherance of the foregoing and without limiting the generality thereof, the parties agree that, with respect to documents presented which appear on their face to be in substantial compliance with the terms of a Letter of Credit, the Issuing Bank may, in its sole discretion, either accept and make payment upon such documents without responsibility for further investigation, regardless of any notice or information to the contrary, or refuse to accept and make payment upon such documents if such documents are not in strict compliance with the terms of such Letter of Credit. 26 LOAN AGREEMENT (g) Disbursement Procedures. The Issuing Bank shall, promptly following its receipt thereof, examine all documents purporting to represent a demand for payment under a Letter of Credit. The Issuing Bank shall promptly notify the Administrative Agent and the Borrower by telephone (confirmed by telecopy) of such demand for payment and whether the Issuing Bank has made or will make an LC Disbursement thereunder; provided that any failure to give or delay in giving such notice shall not relieve the Borrower of its obligation to reimburse the Issuing Bank and the Lenders with respect to any such LC Disbursement. (h) Interim Interest. If the Issuing Bank shall make any LC Disbursement, then, unless the Borrower shall reimburse such LC Disbursement in full on the date such LC Disbursement is made, the unpaid amount thereof shall bear interest, for each day from and including the date such LC Disbursement is made to but excluding the date that the Borrower reimburses such LC Disbursement, at the rate per annum then applicable to ABR Loans; provided that, if the Borrower fails to reimburse such LC Disbursement when due pursuant to paragraph (e) of this Section, then Section 2.13(c) shall apply. Interest accrued pursuant to this paragraph shall be for the account of the Issuing Bank, except that interest accrued on and after the date of payment by any Lender pursuant to paragraph (e) of this Section to reimburse the Issuing Bank shall be for the account of such Lender to the extent of such payment. (i) Replacement or Removal of the Issuing Bank. (A) Any Issuing Bank (other than Bankers Trust Company) may be removed as an Issuing Bank at any time by written agreement among the Borrower, the Administrative Agent and the Issuing Bank, subject to clause (C) below. (B) Bankers Trust Company (or any successor to Bankers Trust Company as Issuing Bank) may be replaced as Issuing Bank at any time by written agreement among the Borrower, the Administrative Agent, Bankers Trust Company and the successor Issuing Bank. From and after the effective date of any such replacement, (i) the successor Issuing Bank shall have all the rights and obligations of the removed Issuing Bank under this Agreement with respect to Letters of Credit to be issued thereafter and (ii) references herein to the term "Issuing Bank" shall be deemed to include such successor or such previous Issuing Bank, or such successor and all previous Issuing Banks, as the context shall require. (C) The Administrative Agent shall notify the Lenders of any removal or replacement of an Issuing Bank under clause (A) or (B) above. At the time any such removal or replacement shall become effective, the Borrower shall pay all unpaid fees accrued for the account of the removed Issuing Bank pursuant to Section 2.12(b). After the removal of an Issuing Bank hereunder, the removed Issuing Bank shall remain a party hereto and shall continue to have all the rights and obligations of an Issuing Bank under this Agreement with 27 LOAN AGREEMENT respect to Letters of Credit issued by it prior to such removal, but shall not be required to issue additional Letters of Credit. (j) Cash Collateralization. If any Event of Default shall occur and be continuing, on the Business Day that the Borrower receives notice from the Administrative Agent or the Required Lenders (or, if the maturity of the Loans has been accelerated, Lenders with LC Exposure representing greater than 50% of the total LC Exposure) demanding the deposit of cash collateral pursuant to this paragraph, the Borrower shall deposit in an account with the Administrative Agent, in the name of the Administrative Agent and for the benefit of the Lenders, an amount in cash equal to the LC Exposure as of such date plus any accrued and unpaid interest thereon (the "LC Deposit"); provided that the obligation to deposit such cash collateral shall become effective immediately, and such deposit shall become immediately due and payable, without demand or other notice of any kind, upon the occurrence of any Event of Default with respect to the Borrower described in clause (h) or (i) of Article VII. Such deposit shall be held by the Administrative Agent as collateral for the payment and performance of the obligations of the Borrower under this Agreement. The Administrative Agent shall have exclusive dominion and control, including the exclusive right of withdrawal, over such account. Other than any interest earned on the investment of such deposits, which investments shall be made at the option and sole discretion of the Administrative Agent and at the Borrower's risk and expense, such deposits shall not bear interest. Interest or profits, if any, on such investments shall accumulate in such account. Moneys in such account shall be applied by the Administrative Agent to reimburse the Issuing Banks for LC Disbursements for which it has not been reimbursed and, to the extent not so applied, shall be held for the satisfaction of the reimbursement obligations of the Borrower for the LC Exposure at such time or, if the maturity of the Loans has been accelerated (but subject to the consent of Lenders with LC Exposure representing greater than 50% of the total LC Exposure), be applied to satisfy other obligations of the Borrower under this Agreement. If the Borrower is required to provide an amount of cash collateral hereunder as a result of the occurrence of an Event of Default, such amount (to the extent not applied as aforesaid) shall be returned to the Borrower within three Business Days after all Events of Default have been cured or waived. (k) Reporting of Outstanding LC Exposure. The Issuing Bank (unless the Issuing Bank is also serving as Administrative Agent) shall provide written notice to the Administrative Agent: (i) promptly after the issuance of or amendment to any standby Letter of Credit, of such issuance or amendment, which notice shall be accompanied by a copy of such standby Letter of Credit or amendment thereof; (ii) if any trade Letters of Credit are outstanding, on the first Business Day of each week, by facsimile, a report of the aggregate daily amount available to be drawn under such trade Letters of Credit during the previous week; (iii) on or before the fifth Business Day of each month, a report setting forth, for each type of Letter of Credit outstanding, the daily aggregate outstanding amounts for the previous month; and (iv) the Administrative Agent shall deliver to each Lender, on the last Business 28 LOAN AGREEMENT Day of each calendar month and upon each Letter of Credit fee payment, a report setting forth for such period the daily aggregate amount available to be drawn under the Letters of Credit issued by each Issuing Bank during such period. (l) Existing Letters of Credit. Notwithstanding anything to the contrary contained herein, as of the Closing Date, all of the Existing Letters of Credit shall be deemed to be Letters of Credit issued hereunder and shall be subject to all of the terms and provisions of this Agreement, including all terms and provisions applicable to Letters of Credit hereunder. Each Lender agrees that its obligations with respect to Letters of Credit pursuant to Section 2.5(d) shall include the Existing Letters of Credit as of the Closing Date. With respect to each Existing Letter of Credit, for the period commencing on the Closing Date to and including the expiration date of any such Existing Letter of Credit, the Borrower shall pay all fees and commissions set forth in Section 2.12(b) at the times and in the manner set forth therein. Section 2.6 Funding of Borrowings. (a) Each Lender shall make each Loan to be made by it hereunder on the proposed date thereof by wire transfer of immediately available funds by 2:00 p.m., New York City time, to the account of the Administrative Agent most recently designated by it for such purpose by notice to the Lenders. The Administrative Agent will make such Loans available to the Borrower by promptly crediting the amounts so received, in like funds, to an account of the Borrower maintained with the Administrative Agent in New York City and designated by the Borrower in the applicable Borrowing Request; provided that ABR Loans made to finance the reimbursement of an LC Disbursement as provided in Section 2.5(e) shall be remitted by the Administrative Agent to the Issuing Bank. (b) The failure of any Lender (such Lender, a "Defaulting Lender") to make any Loan to be made by it on the date specified therefor shall not relieve any other Lender (each such other Lender, a "Non-Defaulting Lender") of its obligation to make its Loans on such date, but neither any Non-Defaulting Lender nor the Administrative Agent shall be responsible for the failure of any Defaulting Lender to make a Loan to be made by such Defaulting Lender, and no Defaulting Lender shall have any obligation to the Administrative Agent or any Non-Defaulting Lender (without prejudicing the rights of the Borrower against such Defaulting Lender). Notwithstanding anything set forth herein to the contrary, so long as a Lender remains a Defaulting Lender, such Lender shall not have any voting or consent rights under or with respect to this Agreement or constitute a "Lender" (or be included in the calculation of "Required Lenders" hereunder) for any voting or consent rights under or with respect to this Agreement. (c) Unless the Administrative Agent shall have received notice from a Lender prior to the proposed date of any Borrowing that such Lender will not make available to the Administrative Agent such Lender's share of such Borrowing, the Administrative Agent 29 LOAN AGREEMENT may assume that such Lender has made such share available on such date in accordance with paragraph (a) of this Section and may, in reliance upon such assumption, make available to the Borrower a corresponding amount. In such event, if a Lender is a Defaulting Lender, then such Defaulting Lender and the Borrower severally agree to pay to the Administrative Agent forthwith on demand such corresponding amount with interest thereon, for each day from and including the date such amount is made available to the Borrower but excluding the date of payment to the Administrative Agent, at (i) in the case of such Defaulting Lender, the greater of the Federal Funds Effective Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation or (ii) in the case of the Borrower, the interest rate applicable to ABR Loans. If such Defaulting Lender pays such amount to the Administrative Agent, then such amount shall constitute such Lender's Loan included in such Borrowing and such Lender shall cease to be a Defaulting Lender. Section 2.7 Notes. (a) Any Lender may request that Loans made by it be evidenced by a promissory note (with respect to a Revolving Loan, a "Revolving Note" and with respect to a Term Loan, a "Term Note"). In such event, the Borrower shall prepare, execute and deliver to such Lender a Revolving Note or Term Note, as applicable, payable to the order of such Lender (or, if requested by such Lender, to such Lender and its registered assigns) and in the form of Exhibit B. Thereafter, the Loans evidenced by such Notes and interest thereon shall at all times (including after assignment pursuant to Section 9.4) be represented by one or more Notes in such form payable to the order of the payee named therein (or, if a Note is a registered note, to such payee and its registered assigns). Each Note issued to a Lender shall be dated the Closing Date and mature on the Maturity Date. (b) Each Lender is hereby authorized, at its option, either (i) to endorse on the schedule attached to its Revolving Note (or on a continuation of such schedule attached to such Note and made a part thereof) an appropriate notation evidencing the date and amount of each Revolving Loan evidenced thereby and the date and amount of each principal and interest payment in respect thereof, or (ii) to record such Revolving Loans and such payments in its books and records. Such schedule or such books and records, as the case may be, shall constitute prima facie evidence of the accuracy of the information contained therein; provided that any errors with respect to such schedule, books or records shall not affect the Borrower's obligation to repay amounts owing hereunder. Section 2.8 Interest Elections. (a) Each Borrowing initially shall be of the Type specified in the applicable Borrowing Request and, in the case of a Eurodollar Borrowing, shall have an initial Interest Period as specified in such Borrowing Request. Thereafter, the Borrower may elect to convert such Borrowing to a different Type or to continue such Borrowing and, in the case of a Eurodollar Borrowing, may elect Interest Periods therefor, all as provided in this Section. The Borrower may elect different options with respect to different portions of the affected Borrowing, in which case each such portion 30 LOAN AGREEMENT shall be allocated ratably among the Lenders holding the Loans comprising such Borrowing, and the Loans comprising each such portion shall be considered a separate Borrowing. (b) To make an election pursuant to this Section, the Borrower shall notify the Administrative Agent of such election by telephone by the time that a Borrowing Request would be required under Section 2.4 if the Borrower were requesting a Borrowing of the Type resulting from such election to be made on the effective date of such election. Each such telephonic Interest Election Request shall be irrevocable and shall be confirmed promptly by hand delivery or telecopy to the Administrative Agent of a written Interest Election Request in a form approved by the Administrative Agent and signed by the Borrower. (c) Each telephonic and written Interest Election Request shall specify the following information in compliance with Section 2.3: (i) the Borrowing to which such Interest Election Request applies and, if different options are being elected with respect to different portions thereof, the portions thereof to be allocated to each resulting Borrowing (in which case the information to be specified pursuant to clauses (iv) and (v) below shall be specified for each resulting Borrowing); (ii) whether such Borrowing is a Term Loan or a Revolving Loan; (iii) the effective date of the election made pursuant to such Interest Election Request, which shall be a Business Day; (iv) whether the resulting Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing; and (v) if the resulting Borrowing is a Eurodollar Borrowing, the Interest Period to be applicable thereto after giving effect to such election, which shall be a period contemplated by the definition of the term "Interest Period". If any such Interest Election Request requests a Eurodollar Borrowing but does not specify an Interest Period, then the Borrower shall be deemed to have selected an Interest Period of one month's duration. (d) Promptly following receipt of an Interest Election Request, the Administrative Agent shall advise each Lender of the details thereof and of such Lender's portion of each resulting Borrowing. 31 LOAN AGREEMENT (e) If the Borrower fails to deliver a timely Interest Election Request with respect to a Eurodollar Borrowing prior to the end of the Interest Period applicable thereto, then, unless such Borrowing is repaid as provided herein, at the end of such Interest Period such Borrowing shall be converted to an ABR Borrowing. Notwithstanding any contrary provision hereof, if an Event of Default has occurred and is continuing and the Administrative Agent, at the request of the Required Lenders, so notifies the Borrower, then, so long as an Event of Default is continuing (i) no outstanding Borrowing may be converted to or continued as a Eurodollar Borrowing and (ii) unless repaid, each Eurodollar Borrowing shall be converted to an ABR Borrowing at the end of the Interest Period applicable thereto. Section 2.9 Termination and Reduction of Commitments. (a) Unless previously terminated, the Commitments shall terminate on the Maturity Date. (b) The Borrower may at any time terminate, or from time to time reduce, the Total Revolving Loan Commitment; provided that (i) each reduction of the Total Revolving Loan Commitment shall be in an amount that is an integral multiple of $1,000,000 and not less than $10,000,000 and (ii) the Borrower shall not terminate or reduce the Total Revolving Loan Commitment if, after giving effect to any concurrent prepayment of the Loans in accordance with Section 2.11, the Credit Exposures would exceed the Total Commitment. (c) The Borrower shall notify the Administrative Agent of any election to terminate or reduce the Total Revolving Loan Commitment under paragraph (b) of this Section at least three Business Days prior to the effective date of such termination or reduction, specifying such election and the effective date thereof. Promptly following receipt of any notice, the Administrative Agent shall advise the Lenders of the contents thereof. Each notice delivered by the Borrower pursuant to this Section shall be irrevocable; provided that a notice of termination of the Total Revolving Loan Commitment delivered by the Borrower may state that such notice is conditioned upon the effectiveness of other credit facilities, in which case such notice may be revoked by the Borrower (by notice to the Administrative Agent on or prior to the specified effective date). Any termination or reduction of the Total Revolving Loan Commitment shall be permanent. Each reduction of the Total Revolving Loan Commitment shall be made ratably among the Lenders in accordance with their respective Revolving Loan Commitments. Section 2.10 Repayment of Loans; Evidence of Debt. (a) The Borrower hereby unconditionally promises to pay to the Administrative Agent for the account of each Lender thereof the then unpaid principal amount of each Loan on the Maturity Date. (b) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrower to such Lender resulting 32 LOAN AGREEMENT from each Loan made by such Lender, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder. (c) The Administrative Agent shall maintain accounts in which it shall record (i) the amount of each Loan made hereunder, the Type thereof and the Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder and (iii) the amount of any sum received by the Administrative Agent hereunder for the account of the Lenders and each Lender's share thereof. (d) The entries made in the accounts maintained pursuant to paragraph (b) or (c) of this Section shall be prima facie evidence of the existence and amounts of the obligations recorded therein; provided that the failure of any Lender or the Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligation of the Borrower to repay the Loans in accordance with the terms of this Agreement. Section 2.11 Optional Prepayment of Loans. (a) The Borrower shall have the right at any time and from time to time to prepay any Borrowing in whole or in part, subject to prior notice in accordance with paragraph (b) of this Section and any break funding payments under Section 2.16. (b) The Borrower shall notify the Administrative Agent by telephone (confirmed by telecopy) of any prepayment hereunder (i) in the case of prepayment of a Eurodollar Borrowing, not later than 12:00 p.m. (noon), New York City time, three Business Days before the date of prepayment or (ii) in the case of prepayment of an ABR Borrowing, not later than 12:00 p.m. (noon), New York City time, one Business Day before the date of prepayment. Each such notice shall be irrevocable and shall specify the prepayment date, the Type of Borrowing and the principal amount of each Borrowing or portion thereof to be prepaid; provided that, if a notice of prepayment is given in connection with a conditional notice of termination of the Total Revolving Loan Commitment as contemplated by Section 2.9, then such notice of prepayment may be revoked if such notice of termination is revoked in accordance with Section 2.9. Promptly following receipt of any such notice relating to a Borrowing, the Administrative Agent shall advise the Lenders of the contents thereof. Each partial prepayment of any Borrowing shall be in an amount that would be permitted in the case of an advance of a Borrowing of the same Type as provided in Section 2.3. Each prepayment of a Borrowing shall be applied ratably to the Loans included in the prepaid Borrowing. Prepayments shall be accompanied by accrued interest to the extent required by Section 2.13. Section 2.12 Fees. (a) The Borrower agrees to pay the Commitment Fee to the Administrative Agent for the account of each Lender. 33 LOAN AGREEMENT (b) The Borrower agrees to pay (i) to the Administrative Agent for the account of each Lender a participation fee with respect to its participations in Letters of Credit, which shall accrue at a rate equal to (i) with respect to any import Letters of Credit, one half (50%) of the Applicable Margin on Eurodollar Loans, and (ii) with respect to any other Letters of Credit, the Applicable Margin on Eurodollar Loans, in each case based on the daily amount of such Lender's LC Exposure (excluding any portion thereof attributable to unreimbursed LC Disbursements) during the period from and including the Effective Date to but excluding the later of the date on which such Lender's Revolving Loan Commitment terminates and the date on which such Lender ceases to have any LC Exposure, and (ii) to the Issuing Bank a fronting fee, which shall accrue at a rate to be agreed by the Borrower and the Issuing Bank on the daily amount of the LC Exposure (excluding any portion thereof attributable to unreimbursed LC Disbursements) during the period from and including the Effective Date to but excluding the later of the date of termination of the Total Revolving Loan Commitment and the date on which there ceases to be any LC Exposure, as well as the Issuing Bank's standard fees (other than the fronting fee described above) with respect to the issuance, amendment or extension of any Letter of Credit or payment of drawings thereunder. Participation fees and fronting fees accrued through and including the last Business Day of March, June, September and December of each year shall be payable on such day, commencing on the first such date to occur after the Effective Date; provided that all such fees shall be payable on the date on which the Total Revolving Loan Commitment terminates and any such fees accruing after the date on which the Total Revolving Loan Commitment terminates shall be payable on demand. Any other fees payable to the Issuing Bank pursuant to this paragraph shall be payable within 10 days after demand. All participation fees and fronting fees shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day of the period covered). (c) The Borrower agrees to pay to the Administrative Agent, for its own account, fees payable in the amounts and at the times separately agreed upon between the Borrower and the Administrative Agent. (d) All fees payable hereunder shall be paid on the dates due, in immediately available funds, to the Administrative Agent (or to The Issuing Bank, in the case of fees payable to it) for distribution, in the case of facility fees, to the Lenders. Fees paid shall not be refundable under any circumstances. Section 2.13 Interest. (a) The Loans comprising each ABR Borrowing shall bear interest at the ABR plus the Applicable Margin. 34 LOAN AGREEMENT (b) The Loans comprising each Eurodollar Borrowing shall bear interest at the Adjusted LIBO Rate for the Interest Period in effect for such Borrowing plus the Applicable Margin. (c) Notwithstanding the foregoing, if any principal of or interest on any Loan or any fee or other amount payable by the Borrower hereunder is not paid when due, whether at stated maturity, upon acceleration or otherwise, such overdue amount shall bear interest, after as well as before judgment, at a rate per annum equal to (i) in the case of overdue principal of any Loan, the greater of (A) 2% plus the rate otherwise applicable to such Loan as provided in the preceding paragraphs of this Section and (B) 2% plus the rate applicable to ABR Loans or (ii) in the case of any other amount, 2% plus the rate applicable to ABR Loans. (d) Accrued interest on each Loan shall be payable in arrears on each Interest Payment Date for such Loan and, in the case of Loans, upon termination of the Commitments; provided that (i) interest accrued pursuant to paragraph (c) of this Section shall be payable on demand, (ii) in the event of any repayment or prepayment of any Loan (other than a prepayment of an ABR Loan prior to the end of the Availability Period), accrued interest on the principal amount repaid or prepaid shall be payable on the date of such repayment or prepayment and (iii) in the event of any conversion of any Eurodollar Loan prior to the end of the current Interest Period therefor, accrued interest on such Loan shall be payable on the effective date of such conversion. (e) All interest hereunder shall be computed on the basis of a year of 360 days, except that interest computed by reference to the ABR at times when the ABR is based on the Prime Rate shall be computed on the basis of a year of 365 days (or 366 days in a leap year), and in each case shall be payable for the actual number of days elapsed (including the first day but excluding the last day). The applicable ABR, Adjusted LIBO Rate or LIBO Rate shall be determined by the Administrative Agent, and such determination shall be conclusive absent manifest error. Section 2.14 Alternate Rate of Interest. If prior to the commencement of any Interest Period for a Eurodollar Borrowing: (a) the Administrative Agent determines (which determination shall be conclusive absent manifest error) that adequate and reasonable means do not exist for ascertaining the Adjusted LIBO Rate or the LIBO Rate, as applicable, for such Interest Period; or (b) the Administrative Agent is advised by the Required Lenders that the Adjusted LIBO Rate or the LIBO Rate, as applicable, for such Interest Period will not 35 LOAN AGREEMENT adequately and fairly reflect the cost to such Lenders (or Lender) of making or maintaining their Loans (or its Loan) included in such Borrowing for such Interest Period; then the Administrative Agent shall give notice thereof to the Borrower and the Lenders by telephone or telecopy as promptly as practicable thereafter and, until the Administrative Agent notifies the Borrower and the Lenders that the circumstances giving rise to such notice no longer exist, (i) any Interest Election Request that requests the conversion of any Borrowing to, or continuation of any Borrowing as, a Eurodollar Borrowing shall be ineffective and (ii) if any Borrowing Request requests a Eurodollar Borrowing, such Borrowing shall be made as an ABR Borrowing; provided that if the circumstances giving rise to such notice affect only one Type of Borrowing, then the other Type of Borrowings shall be permitted. Section 2.15 Increased Costs. (a) If any Change in Law shall: (i) impose, modify or deem applicable any reserve, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender (except any such reserve requirement reflected in the Adjusted LIBO Rate) or the Issuing Bank; or (ii) impose on any Lender or the Issuing Bank or the London interbank market any other condition affecting this Agreement or Eurodollar Loans made by such Lender or any Letter of Credit or participation therein; and the result of any of the foregoing shall be to increase the cost to such Lender of making or maintaining any Eurodollar Loan (or of maintaining its obligation to make any such Loan) or to increase the cost to such Lender or the Issuing Bank of participating in, issuing or maintaining any Letter of Credit or to reduce the amount of any sum received or receivable by such Lender or such Bank hereunder (whether of principal, interest or otherwise), then the Borrower will pay to such Lender or the Issuing Bank, as the case may be, such additional amount or amounts as will compensate such Lender or the Issuing Bank, as the case may be, for such additional costs incurred or reduction suffered. (b) If any Lender or the Issuing Bank determines that any Change in Law regarding capital requirements has or would have the effect of reducing the rate of return on such Lender's or the Issuing Bank's capital or on the capital of such Lender's or the Issuing Bank's holding company, if any, as a consequence of this Agreement or the Loans made by, or participations in Letters of Credit held by, such Lender, or the Letters of Credit issued by the Issuing Bank, to a level below that which such Lender or the Issuing Bank or such Lender's or the Issuing Bank's holding company could have achieved but for such Change in Law (taking into consideration such Lender's or the Issuing Bank's policies and the policies of 36 LOAN AGREEMENT such Lender's or the Issuing Bank's holding company with respect to capital adequacy), then from time to time the Borrower will pay to such Lender or the Issuing Bank, as the case may be, such additional amount or amounts as will compensate such Lender or the Issuing Bank or such Lender's or the Issuing Bank's holding company for any such reduction suffered. (c) A certificate of a Lender or the Issuing Bank setting forth the basis of the calculations and the amount or amounts necessary to compensate such Lender or the Issuing Bank or its holding company, as the case may be, as specified in paragraph (a) or (b) of this Section shall be delivered to the Borrower and shall be conclusive absent manifest error. The Borrower shall pay such Lender or the Issuing Bank, as the case may be, the amount shown as due on any such certificate within 10 days after receipt thereof. (d) Failure or delay on the part of any Lender or the Issuing Bank to demand compensation pursuant to this Section shall not constitute a waiver of such Lender's or the Issuing Bank's right to demand such compensation; provided that the Borrower shall not be required to compensate a Lender or the Issuing Bank pursuant to this Section for any increased costs or reductions incurred more than 180 days prior to the date that such Lender or the Issuing Bank, as the case may be, notifies the Borrower of the Change in Law giving rise to such increased costs or reductions and of such Lender's or the Issuing Bank's intention to claim compensation therefor; provided further that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the 180-day period referred to above shall be extended to include the period of retroactive effect thereof. Section 2.16 Break Funding Payments. In the event of (a) the payment of any principal of any Eurodollar Loan other than on the last day of an Interest Period applicable thereto (including as a result of an Event of Default), (b) the conversion of any Eurodollar Loan other than on the last day of the Interest Period applicable thereto, (c) the failure to borrow, convert, continue or prepay any Loan on the date specified in any notice delivered pursuant hereto (regardless of whether such notice may be revoked under Section 2.11(b) and is revoked in accordance therewith) or (d) the assignment of any Eurodollar Loan other than on the last day of the Interest Period applicable thereto as a result of a request by the Borrower pursuant to Section 2.19, then, in any such event, the Borrower shall compensate each Lender for the loss, cost and expense attributable to such event (excluding loss of Applicable Margin after the date of such event). In the case of a Eurodollar Loan, such loss, cost or expense to any Lender shall be deemed to include an amount determined by such Lender to be the excess, if any, of (i) the amount of interest which would have accrued on the principal amount of such Loan had such event not occurred, at the Adjusted LIBO Rate (excluding loss of Applicable Margin) that would have been applicable to such Loan, for the period from the date of such event to the last day of the then current Interest Period therefor (or, in the case of a failure to borrow, convert or continue, for the period that would have been the Interest Period for such Loan), over (ii) the amount of interest which would accrue on such principal amount for such 37 LOAN AGREEMENT period at the interest rate which such Lender would bid were it to bid, at the commencement of such period, for dollar deposits of a comparable amount and period from other banks in the eurodollar market. A certificate of any Lender setting forth any amount or amounts that such Lender is entitled to receive pursuant to this Section shall be delivered to the Borrower and shall be conclusive absent manifest error. The Borrower shall pay such Lender the amount shown as due on any such certificate within 10 days after receipt thereof. Section 2.17 Taxes. (a) Any and all payments by or on account of any obligation of the Borrower hereunder shall be made free and clear of and without deduction for any Indemnified Taxes or Other Taxes; provided that if the Borrower shall be required to deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section) to the Administrative Agent, Lender or Issuing Bank (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law. (b) In addition, the Borrower shall pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law. (c) The Borrower shall indemnify the Administrative Agent, each Lender and the Issuing Bank, within 10 days after written demand therefor, for the full amount of any Indemnified Taxes or Other Taxes paid by the Administrative Agent, such Lender or the Issuing Bank, as the case may be, on or with respect to any payment by or on account of any obligation of the Borrower hereunder (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section) and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. The Borrower shall also indemnify the Administrative Agent, each Lender and the Issuing Bank, within 10 days after written demand therefor, for the full amount of Excluded Taxes as the Administrative Agent, such Lender or the Issuing Bank, as the case may be, shall determine are payable in respect of amounts paid to or on behalf of the Administrative Agent, such Lender or the Issuing Bank, as the case may be, pursuant to this Section 2.17. A certificate as to the amount of such payment or liability delivered to the Borrower by a Lender or the Issuing Bank, or by the Administrative Agent on its own behalf or on behalf of a Lender or the Issuing Bank, shall be conclusive absent manifest error. (d) As soon as practicable after any payment of Indemnified Taxes or Other Taxes by the Borrower to a Governmental Authority, the Borrower shall deliver to the 38 LOAN AGREEMENT Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent. (e) Any Lender that is not incorporated under the United States of America or a state thereof (each a "Foreign Lender") shall: (i) on the date it becomes a Lender, deliver to the Administrative Agent (A) two completed copies of United States Internal Revenue Service Form 1001 or 4224, or successor applicable form, as the case may be, and shall certify that it is entitled to receive payments under this Agreement without deduction or withholding (or at a reduced rate of deduction or withholding) of any United States Federal income taxes and (B) an Internal Revenue Services Form W-8 or W-9, or successor applicable form, as the case may be and shall certify that it is entitled to an exemption from United States backup withholding tax; (ii) deliver to the Administrative Agent two further copies of any such form or certification on or before the date that any such certification described above expires or becomes obsolete and after the occurrence of any event requiring a change in the most recent form previously delivered to it; and (iii) obtain such extensions of time for filing and complete such forms or certifications as may reasonably be requested by the Administrative Agent; except that the forms and certificates described in clauses (ii) and (iii) above shall not be required if any Change in Law has occurred prior to the date on which any such delivery would otherwise be required which renders all such forms inapplicable or which would prevent such Lender from duly completing and delivering any such form with respect to it and such Lender so advises the Administrative Agent. Section 2.18 Payments Generally; Pro Rata Treatment; Sharing of Set-offs. (a) The Borrower shall make each payment required to be made by it hereunder (whether of principal, interest, fees or reimbursement of LC Disbursements, or of amounts payable under Section 2.15, 2.16 or 2.17, or otherwise) prior to 12:00 noon, New York City time, on the date when due, in immediately available funds, without set-off or counterclaim. Any amounts received after such time on any date may, in the discretion of the Administrative Agent, be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon. All such payments shall be made to the Administrative Agent at its offices at 39 LOAN AGREEMENT 130 Liberty Street, New York, New York, 10006, except payments to be made directly to the Issuing Bank as expressly provided herein and except that payments pursuant to Sections 2.15, 2.16, 2.17 and 9.3 shall be made directly to the Persons entitled thereto. The Administrative Agent shall distribute any such payments received by it for the account of any other Person to the appropriate recipient promptly following receipt thereof. If any payment hereunder shall be due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day, and, in the case of any payment accruing interest, interest thereon shall be payable for the period of such extension. All payments hereunder shall be made in dollars. (b) If at any time insufficient funds are received by and available to the Administrative Agent to pay fully all amounts of principal, unreimbursed LC Disbursements, interest and fees then due hereunder, such funds shall be applied (i) first, towards payment of interest and fees then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of interest and fees then due to such parties, and (ii) second, towards payment of principal and unreimbursed LC Disbursements then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of principal and unreimbursed LC Disbursements then due to such parties. (c) If any Lender shall, by exercising any right of set-off or counterclaim or otherwise, obtain payment in respect of any principal of or interest on any of its Loans or participations in LC Disbursements resulting in such Lender receiving payment of a greater proportion of the aggregate amount of its Loans and participations in LC Disbursements and accrued interest thereon than the proportion received by any other Lender, then the Lender receiving such greater proportion shall purchase (for cash at face value) participations in the Loans and participations in LC Disbursements of other Lenders to the extent necessary so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on their respective Loans and participations in LC Disbursements; provided that (i) if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest, and (ii) the provisions of this paragraph shall not be construed to apply to any payment made by the Borrower pursuant to and in accordance with the express terms of this Agreement or any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Loans or participations in LC Disbursements to any assignee or participant, other than to the Borrower or any Subsidiary or Affiliate thereof (as to which the provisions of this paragraph shall apply). The Borrower consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against the Borrower rights of set-off and counterclaim with respect to such 40 LOAN AGREEMENT participation as fully as if such Lender were a direct creditor of the Borrower in the amount of such participation. (d) Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Administrative Agent for the account of the Lenders or the Issuing Bank hereunder that the Borrower will not make such payment, the Administrative Agent may assume that the Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders or the Issuing Bank, as the case may be, the amount due. In such event, if the Borrower has not in fact made such payment, then each of the Lenders or the Issuing Bank, as the case may be, severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender or the Issuing Bank with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the greater of the Federal Funds Effective Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation. (e) If any Lender shall fail to make any payment required to be made by it pursuant to Section 2.5(d) or (e), 2.6(a) or 2.18(d), then the Administrative Agent may, in its discretion (notwithstanding any contrary provision hereof), apply any amounts thereafter received by the Administrative Agent for the account of such Lender to satisfy such Lender's obligations under such Sections until all such unsatisfied obligations are fully paid. Section 2.19 Mitigation Obligations; Replacement of Lenders. (a) If any Lender requests compensation under Section 2.15, or if the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.17, then such Lender shall use reasonable efforts to designate a different lending office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 2.15 or 2.17, as the case may be, in the future and (ii) would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. The Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment. (b) If (i) any Lender requests compensation under Section 2.15, or (ii) the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.17, or (iii) any Lender defaults in its obligation to fund Loans hereunder, or (iv) any Lender refuses to consent to certain proposed changes, waivers, discharges or termination with respect to this Agreement which require the consent of all Lenders and have been approved by the Required Lenders as (and to 41 LOAN AGREEMENT the extent) provided in Section 9.2(b), then the Borrower may, at its sole expense and effort, if no Default then exists (or, in the case of preceding clause (iv), no Default will exist immediately upon giving effect to such replacement), upon notice to such Lender and the Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in Section 9.4), all its interests, rights and obligations under this Agreement to an assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment) (such Assignee a "Replacement Lender"); provided that (x) the Borrower shall have received the prior written consent of the Administrative Agent (and, if a Commitment is being assigned, the Issuing Bank), which consent shall not unreasonably be withheld, (y) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans and participations in LC Disbursements, accrued interest thereon, accrued fees and all other amounts payable to it hereunder, from the Replacement Lender (to the extent of such outstanding principal and accrued interest and fees) or the Borrower (in the case of all other amounts) and (z) in the case of any such assignment resulting from a claim for compensation under Section 2.15 or payments required to be made pursuant to Section 2.17, such assignment will result in a reduction in such compensation or payments. A Lender shall not be required to make any such assignment and delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply. Section 2.20 Mandatory Prepayment. Subject to the terms of Section 2.20(g) below, the Borrower shall prepay the outstanding Loans as follows: (a) Subject to Section 2.20(f), in an amount equal to 100% of the Net Cash Proceeds in excess of $150,000,000 received by the Borrower or its Subsidiaries from the conveyance, sale, transfer or other disposition of its property or assets during the term of this Agreement; provided that such prepayment obligation shall not be incurred in connection with the conveyance, sale, transfer or other disposal of (i) property or assets in the case of sales of inventory in the ordinary course of business, (ii) sales of equipment which is uneconomic, obsolete or no longer useful in its business, or (iii) stores and related property acquired pursuant to the Mergers, and certain distribution center, in each case set forth on Schedule 2.20(a). (b) Subject to Section 2.20(f), in an amount equal to 100% of the Net Cash Proceeds of the fair market value received by the Borrower or any of its Subsidiaries in excess of $50,000,000 in any one year period from any transaction in which the Borrower or any of its Subsidiaries becomes liable, directly or indirectly, with respect to any lease, whether an operating lease or a capital lease, of any property (whether real or personal or mixed) whether now owned or hereafter acquired, (i) which the Borrower or such Subsidiary has sold or transferred or is to sell or transfer to any other Person, or (ii) which the Borrower or such 42 LOAN AGREEMENT Subsidiary intends to use for substantially the same purposes as any other property which has been or is to be sold or transferred by the Borrower or such Subsidiary to any other Person in connection with such lease. (c) In an amount equal to 50% of the Borrower's Excess Cash Flow for any fiscal year, within 100 days after the end of such fiscal year. (d) Subject to Section 2.20(e), in an amount equal to 100% of the Net Cash Proceeds received by the Borrower or its Subsidiaries from the issuance of any Debt described in (without duplication) clauses (a), (d) and, to the extent constituting a Suretyship Liability in respect of such Debt for Borrowed Money of another Person, clause (g) of the definition of Debt) (other than (i) commercial paper issued by the Borrower in the ordinary course of business, (ii) Debt with a maturity of less than one year (regardless of how it is accounted for by the Borrower), (iii) the Public Notes, (iv) any Synthetic Lease Facility and (v) any Debt issued to refinance Debt (other than the Public Notes) outstanding as of the date hereof. (e) In the event any tender for bonds or similar debt instruments of the Borrower or its Subsidiaries in connection with the Mergers ("Tendered Bonds", as set forth on Schedule 2.20(e)) results in more than $25,000,000 of such Tendered Bonds remaining outstanding, in an amount equal to the face amount of such Tendered Bonds remaining outstanding after the consummation of such offer. (f) Any Net Cash Proceeds received by the Borrower or any of its Subsidiaries under clauses (a) or (b) of this Section 2.20 which are reinvested by the Borrower or any of its Subsidiaries within 270 days of the receipt thereof shall be excluded from the prepayment obligations set forth in such clauses and shall not be counted in calculating such $150,000,000 or $50,000,000 amounts. (g) Notwithstanding the foregoing, any Net Cash Proceeds otherwise required to be paid to the Lenders under this Section 2.20 shall be applied first, to prepay the Term Loans until such Term Loans shall have been repaid in full, together with accrued and unpaid interest thereon, second, to prepay the Revolving Loans until such Revolving Loans shall have been repaid, together with accrued and unpaid interest thereon, and third, to all other outstanding Obligations. All prepayments of the Loans required by this Section 2.20 shall be made in accordance with Section 2.11(b) and shall be applied on a pro rata basis among the Lenders to prepay the Loans until such Loans have been repaid in full, together with accrued and unpaid interest thereon. Prepayments of the Term Loans shall reduce the quarterly payments required under Section 2.1, pro rata. Simultaneously with any prepayment of the principal amount of the Loans pursuant to the preceding sentence, each Lender's Commitment shall be permanently reduced by such Lender's Applicable Percentage of such prepayment. 43 LOAN AGREEMENT ARTICLE III Representations and Warranties ------------------------------ The Borrower represents and warrants to the Lenders that: Section 3.1 Organization; Powers. Each of the Borrower and its Subsidiaries is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, has all requisite power and authority to carry on its business as now conducted and, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, is qualified to do business in, and is in good standing in, every jurisdiction where such qualification is required. Section 3.2 Authorization; Enforceability. The Transactions are within the Borrower's corporate powers and have been duly authorized by all necessary corporate and, if required, stockholder action, and the use of proceeds of the Loans will be, in each instance, within the Borrower's corporate powers and will have been duly authorized by all necessary corporate and, if required, stockholder action, as of the time of such use. Each Loan Document to which it is a party has been duly executed and delivered by the Borrower and constitutes a legal, valid and binding obligation of the Borrower, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors' rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law. Section 3.3 Governmental Approvals; No Conflicts. The Transactions (a) do not require any consent or approval of, registration or filing with, or any other action by, any Governmental Authority, except such as have been obtained or made and are in full force and effect, (b) will not violate any applicable law or regulation or the charter, by-laws or other organizational documents of the Borrower or any of its Subsidiaries or any order of any Governmental Authority, (c) will not violate or result in a default under any indenture, agreement or other instrument binding upon the Borrower or any of its Subsidiaries or any of their respective assets, or give rise to a right thereunder to require any payment to be made by the Borrower or any of its Subsidiaries, and (d) will not result in the creation or imposition of any Lien on any asset of the Borrower or any of its Subsidiaries. Section 3.4 Financial Condition; No Material Adverse Change. (a) The Borrower has heretofore furnished to the Lenders consolidated balance sheets and statements of income, stockholders equity and cash flows for (i) FMI and its subsidiaries, as of and for the fiscal year ended February 1, 1997, reported on by Deloitte & Touche, independent public accountants of FMI, and the fiscal quarter and the portion of the fiscal year ended November 44 LOAN AGREEMENT 8, 1997, certified by the chief financial officer of FMI, (ii) Smith's and its subsidiaries, as of and for the fiscal year ended December 28, 1996, reported on by Deloitte & Touche, independent public accountants of Smith's, certified by the chief financial officer of Smith's, (iii) QFC and its subsidiaries, as of and for the fiscal year ended December 28, 1996, reported on by Deloitte & Touche, independent public accountants of QFC, and the fiscal quarter and the portion of the fiscal year ended September 6, 1997, certified by the chief financial officer of QFC and (iv) FFL and its subsidiaries, as of and for the fiscal year ended February 2, 1997, reported on by Arthur Andersen, independent public accountants of FFL, and the fiscal quarter and the portion of the fiscal year ended October 12, 1997, certified by the chief financial officer of FFL. Such financial statements present fairly, in all material respects, the financial position and results of operations and cash flows of FMI, Smith's, QFC, FFL and their respective subsidiaries as of such dates and for such periods in accordance with GAAP, subject to year-end audit adjustments and the absence of footnotes in the case of the statements for the fiscal quarters. (b) There has been no material adverse change in the business, assets, operations, prospects or condition, financial or otherwise, of (i) FMI and its subsidiaries, taken as a whole, since February 1, 1997, (ii) Smith's and its subsidiaries, taken as a whole, since December 28, 1996, (iii) QFC and its subsidiaries, taken as a whole, since December 28, 1996 or (iv) FFL and its subsidiaries, taken as a whole, since February 2, 1997. Section 3.5 Properties. (a) Each of the Borrower and its Subsidiaries has good title to, or valid leasehold interests in, all its real and personal property material to its business, except for minor defects in title that do not interfere with its ability to conduct its business as currently conducted or to utilize such properties for their intended purposes, subject to no Lien of any kind except Liens permitted hereby. (b) Each of the Borrower and its Subsidiaries owns, or is licensed to use, all trademarks, tradenames, copyrights, patents and other intellectual property material to its business, and the use thereof by the Borrower and its Subsidiaries does not infringe upon the rights of any other Person, except for any such infringements that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. Section 3.6 Litigation and Environmental Matters. (a) There are no actions, suits or proceedings by or before any arbitrator or Governmental Authority pending against or, to the knowledge of the Borrower, threatened against or affecting the Borrower or any of its Subsidiaries (i) as to which there is a reasonable possibility of an adverse determination and that, if adversely determined, could reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect (other than the Disclosed Matters) or (ii) that involve this Agreement or the Transactions. 45 LOAN AGREEMENT (b) Except for the Disclosed Matters and except with respect to any other matters that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, neither the Borrower nor any of its Subsidiaries (i) has failed to comply with any Environmental Law or to obtain, maintain or comply with any permit, license or other approval required under any Environmental Law, (ii) has become subject to any Environmental Liability, (iii) has received notice of any claim with respect to any Environmental Liability or (iv) knows of any basis for any Environmental Liability. (c) Since the date of this Agreement, there has been no change in the status of the Disclosed Matters that, individually or in the aggregate, has resulted in, or materially increased the likelihood of, a Material Adverse Effect. Section 3.7 Compliance with Laws and Agreements. Each of the Borrower and its Subsidiaries is in compliance with all laws, regulations and orders of any Governmental Authority applicable to it or its property and all indentures, agreements and other instruments binding upon it or its property, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. No Default has occurred and is continuing. Section 3.8 Investment and Holding Company Status. Neither the Borrower nor any of its Subsidiaries is (a) an "investment company" as defined in, or subject to regulation under, the Investment Company Act of 1940 or (b) a "holding company" as defined in, or subject to regulation under, the Public Utility Holding Company Act of 1935. Section 3.9 Taxes. Each of the Borrower and its Subsidiaries has timely filed or caused to be filed all Tax returns and reports required to have been filed and has paid or caused to be paid all Taxes required to have been paid by it, except (a) Taxes that are being contested in good faith by appropriate proceedings and for which the Borrower or such Subsidiary, as applicable, has set aside on its books adequate reserves or (b) to the extent that the failure to do so could not reasonably be expected to result in a Material Adverse Effect. Section 3.10 ERISA. No ERISA Event has occurred or is reasonably expected to occur that, when taken together with all other such ERISA Events for which liability is reasonably expected to occur, could reasonably be expected to result in a Material Adverse Effect. Section 3.11 Disclosure. The Borrower has disclosed to the Lenders all agreements, instruments and corporate or other restrictions to which it or any of its Subsidiaries is subject, and all other matters known to it, that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. None of the reports, financial statements, certificates or other information furnished by or on behalf of the 46 LOAN AGREEMENT Borrower to the Administrative Agent or any Lender in connection with the negotiation of this Agreement or delivered hereunder (as modified or supplemented by other information so furnished) contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that, with respect to projected financial information, the Borrower represents only that such information was prepared in good faith based upon assumptions believed to be reasonable at the time. Section 3.12 Solvency. On the Closing Date and after giving effect to the Transactions, the Borrower and each of its Material Subsidiaries will be Solvent. Section 3.13 Use of Proceeds; Margin Regulations. All proceeds of each of the Loans will be used by the Borrower only in accordance with the provisions of Section 5.8. No part of the proceeds of any of the Loans will be used by the Borrower to purchase or carry any Margin Stock or to extend credit to others for the purpose of purchasing or carrying any Margin Stock. Neither the making of any of the Loans nor the use of the proceeds thereof will violate or be inconsistent with the provisions of Regulations G, T, U or X of the Federal Reserve Board. Section 3.14 No Default. The Borrower is not in default under or with respect to any agreement, instrument or undertaking to which it is a party or by which it or any of its property is bound in any respect which could result in a Material Adverse Effect. No Default or Event of Default exists. Section 3.15 Subsidiaries. After giving effect to the Mergers, the Persons listed on Schedule 3.15 are the only Subsidiaries of the Borrower. Schedule 3.15 correctly sets forth, after giving effect to the Mergers, the percentage ownership (direct and indirect) of the Borrower in each class of capital stock of each of its Subsidiaries and also identifies the direct owner thereof and identifies each Material Subsidiary as of the Closing Date. Section 3.16 Employee Benefit Plans. (a) Each Employee Benefit Plan and each Plan has been maintained and operated in compliance in all material respects with the provisions of ERISA and, to the extent applicable, the Code, including the provisions thereunder respecting prohibited transactions. The Borrower has made all required contributions to each Employee Benefit Plan and each Multiemployer Plan. To the extent applicable, the Borrower has heretofore delivered to the Administrative Agent the most recently completed annual report, Form 5500, with all required attachments, and actuarial statement required to be submitted under Section 103(d) of ERISA, with respect to each Guaranteed Pension Plan. 47 LOAN AGREEMENT (b) The Borrower or an ERISA Affiliate, as appropriate, may terminate each such Plan at any time (or at any time subsequent to the expiration of any applicable bargaining agreement) in the discretion of any of the Borrower or such ERISA Affiliate without liability to any Person. (c) Each contribution required to be made to a Guaranteed Pension Plan, whether required to be made to avoid the incurrence of an accumulated funding deficiency, the notice or lien provisions of Section 302(f) of ERISA, or otherwise, has been timely made. No waiver of minimum funding standards or extension of amortization periods has been requested or received with respect to any Guaranteed Pension Plan. No liability to the PBGC (other than required insurance premiums, all of which have been paid) has been incurred by the Borrower or any ERISA Affiliate with respect to any Guaranteed Pension Plan and there has not been any ERISA Event, or any other event or condition that presents a material risk of termination of any Guaranteed Pension Plan by the PBGC. Neither the Borrower nor any ERISA Affiliate has instituted or intends to institute proceedings to terminate a Guaranteed Pension Plan. No event requiring notice to the PBGC under Section 302(f)(4)(A) of ERISA has occurred with respect to any Guaranteed Pension Plan and no amendment with respect to which security is required under Section 307 of ERISA has been made or is reasonably expected to be made to any Guaranteed Pension Plan. (d) Neither the Borrower nor any ERISA Affiliate has incurred or expects to incur any material liability (including secondary liability) to any Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan under Section 4201 of ERISA or as a result of a sale of assets described in Section 4204 of ERISA. Neither the Borrower nor any ERISA Affiliate has been notified that any Multiemployer Plan is in reorganization or insolvent under and within the meaning of Section 4241 or Section 4245 of ERISA or that any Multiemployer Plan intends to terminate or has been terminated under Section 4041A of ERISA. Section 3.17 Security Interests. The security interests granted under the Pledge Agreement constitute valid, binding and continuing duly perfected first-priority Liens in and to the Collateral (except for Permitted Encumbrances that have priority under applicable law) in favor of the Collateral Agent, for the benefit of the Administrative Agents and the Lenders, as well as the lenders under the Other Corporate Loan Documents. 48 LOAN AGREEMENT ARTICLE IV Conditions ---------- Section 4.1 Effective Date. The obligations of the Lenders to make Loans and of the Issuing Bank to issue Letters of Credit hereunder shall not become effective until the date on which each of the following conditions is satisfied (or waived in accordance with Section 9.2): (a) The Administrative Agent (or its counsel) shall have received from each party hereto (A) either (i) a counterpart of this Agreement signed on behalf of such party or (ii) written evidence satisfactory to the Administrative Agent (which may include telecopy transmission of a signed signature page of this Agreement) that such party has signed a counterpart of this Agreement and (B) such other documents, in form and substance satisfactory to the Administrative agent, as the Administrative Agent may reasonably request. (b) The Administrative Agent shall have received a favorable written opinion (addressed to the Administrative Agent and the Lenders and dated the Effective Date) of Stoel Rives LLP, counsel for the Borrower, substantially in the form of Exhibit C, and covering such other matters relating to the Borrower, this Agreement or the Transactions as the Required Lenders shall reasonably request. The Borrower hereby requests such counsel to deliver such opinion. (c) The Administrative Agent shall have received such documents and certificates as the Administrative Agent or its counsel may reasonably request relating to the organization, existence and good standing of the Borrower, the authorization of the Transactions and any other legal matters relating to the Borrower, this Agreement or the Transactions, all in form and substance satisfactory to the Administrative Agent and its counsel. (d) The Administrative Agent shall have received a certificate, dated the Effective Date and signed by the President, a Vice President or a Financial Officer of the Borrower, confirming compliance with the conditions set forth in paragraphs (b) and (c) of Section 4.2. (e) The Administrative Agent shall have received all fees and other amounts due and payable on or prior to the Effective Date, including, to the extent invoiced, reimbursement or payment of all out-of-pocket expenses required to be reimbursed or paid by the Borrower hereunder. 49 LOAN AGREEMENT (f) The Mergers shall have been completed in accordance with the Merger Documents, or on other terms reasonably satisfactory to the Lenders. (g) The Loan Documents and the Other Corporate Loan Documents shall have been executed and delivered and shall be in full force and effect. (h) Each Subsidiary (other than Insignificant Subsidiaries) shall have executed and delivered to the Administrative Agent a guarantee substantially in the form set forth as Exhibit D (each such guarantee, as amended, supplemented or otherwise modified, a "Subsidiary Guarantee"). (i) The Administrative Agent shall have received evidence satisfactory to it of prior or simultaneous repayment or refinancing of the Debt of the Borrower and its Subsidiaries set forth on Schedule 4.1 hereto (except as otherwise agreed to the satisfaction of the Agents). (j) The Administrative Agent shall have received evidence satisfactory to it of the prior or simultaneous receipt of not less than $1,500,000,000 (net of underwriting and other expenses in connection with such issuance) by FMI from the issuance of senior unsecured bonds on terms satisfactory to the Lenders. (k) The Administrative Agent shall have received the financial information required under Section 3.4(a), including a pro forma balance sheet giving effect to the Mergers, in form and substance satisfactory to the Administrative Agent. (l) The Administrative Agent shall have received financial projections prepared by FMI demonstrating the projected consolidated financial condition and results of operations of FMI and its Subsidiaries after giving effect to the Mergers, for the period commencing on the Closing Date and ending on the Maturity Date. (m) The Administrative Agent shall have received acknowledgment copies (or other evidence of filing) of each filed UCC-1 financing statement signed by the Borrower as debtor naming the Administrative Agent as secured party. (n) The Administrative Agent shall have received the original stock certificates evidencing the stock pledged pursuant to the Pledge Agreement, together with undated stock powers duly executed in blank in connection therewith. The Administrative Agent shall notify the Borrower and the Lenders of the Effective Date, and such notice shall be conclusive and binding. Notwithstanding the foregoing, the obligations of the Lenders to make Loans and of the Issuing Bank to issue Letters of Credit hereunder shall 50 LOAN AGREEMENT not become effective unless each of the foregoing conditions is satisfied (or waived pursuant to Section 9.2) at or prior to 3:00 p.m., New York City time, on April 10, 1998 (and, in the event such conditions are not so satisfied or waived, the Commitments shall terminate at such time). Section 4.2 Each Credit Event. The obligation of each Lender to make a Loan on the occasion of any Borrowing, and of the Issuing Bank to issue, amend, renew or extend any Letter of Credit, is subject to the satisfaction of the following conditions: (a) The Administrative Agent shall have received a fully executed Borrowing Request in respect of the Loans to be made on such date. (b) The representations and warranties of the Borrower set forth in this Agreement (other than the representations and warranties set forth in Section 3.4) shall be true and correct on and as of the date of such Borrowing or the date of issuance, amendment, renewal or extension of such Letter of Credit, as applicable. (c) At the time of and immediately after giving effect to such Borrowing or the issuance, amendment, renewal or extension of such Letter of Credit, as applicable, no Default shall have occurred and be continuing. Each Borrowing and each issuance, amendment, renewal or extension of a Letter of Credit shall be deemed to constitute a representation and warranty by the Borrower on the date thereof as to the matters specified in paragraphs (b) and (c) of this Section. ARTICLE V Affirmative Covenants --------------------- Until the Commitments have expired or been terminated and the principal of and interest on each Loan and all fees payable hereunder shall have been paid in full and all Letters of Credit shall have expired or terminated and all LC Disbursements shall have been reimbursed, the Borrower covenants and agrees with the Lenders that: Section 5.1 Financial Statements and Other Information. The Borrower will furnish to the Administrative Agent and each Lender: (a) within 100 days after the end of each fiscal year of the Borrower, its audited consolidated balance sheet and related statements of operations, stockholders' equity and cash flows as of the end of and for such year, setting forth in each case in comparative 51 LOAN AGREEMENT form the figures for the previous fiscal year, all reported on by Deloitte & Touche LLP or other independent public accountants of recognized national standing (without a "going concern" or like qualification or exception and without any qualification or exception as to the scope of such audit) to the effect that such consolidated financial statements present fairly in all material respects the financial condition and results of operations of the Borrower and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP. (b) within 55 days after the end of each of the first three fiscal quarters of each fiscal year of the Borrower, its consolidated balance sheet and related statements of operations, stockholders' equity and cash flows as of the end of and for such fiscal quarter and the then elapsed portion of the fiscal year, setting forth in each case in comparative form the figures for the corresponding period or periods of (or, in the case of the balance sheet, as of the end of) the previous fiscal year, all certified by one of its Financial Officers as presenting fairly in all material respects the financial condition and results of operations of the Borrower and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP, subject to normal year-end audit adjustments and the absence of footnotes; (c) concurrently with any delivery of financial statements under clause (a) or (b) above, a Compliance Certificate (i) certifying as to whether a Default has occurred and, if a Default has occurred, specifying the details thereof and any action taken or proposed to be taken with respect thereto, (ii) setting forth reasonably detailed calculations (x) demonstrating compliance with Section 6.10(a) and (b) and (y) establishing the Applicable Margin, and (iii) stating whether any change in GAAP or in the application thereof has occurred since the date of the audited financial statements referred to in Section 3.4 and, if any such change has occurred, specifying the effect of such change on the financial statements accompanying such certificate; (d) concurrently with any delivery of financial statements under clause (a) above, a certificate of the accounting firm that reported on such financial statements stating whether they obtained knowledge during the course of their examination of such financial statements of any Default (which certificate may be limited to the extent required by accounting rules or guidelines); (e) promptly after the same become publicly available, copies of all periodic and other reports, proxy statements and other materials filed by the Borrower or any Subsidiary with the Securities and Exchange Commission, or any Governmental Authority succeeding to any or all of the functions of said Commission, or with any national securities exchange, or distributed by the Borrower to its shareholders generally, as the case may be; and 52 LOAN AGREEMENT (f) promptly following any request therefor, such other information regarding the operations, business affairs and financial condition of the Borrower or any Subsidiary, or compliance with the terms of this Agreement, as the Administrative Agent or any Lender may reasonably request. Section 5.2 Notices of Material Events. The Borrower will furnish to the Administrative Agent and each Lender prompt written notice of the following: (a) the occurrence of any Default upon actual knowledge of a Responsible Officer of the Borrower; (b) the filing or commencement of any action, suit or proceeding by or before any arbitrator or Governmental Authority against or affecting the Borrower or any Affiliate thereof that, if adversely determined, could reasonably be expected to result in a Material Adverse Effect; (c) the occurrence of any ERISA Event that, alone or together with any other ERISA Events that have occurred, could reasonably be expected to result in material liability of the Borrower and its Subsidiaries; and (d) any other development that results in, or could reasonably be expected to result in, a Material Adverse Effect. Each notice delivered under this Section shall be accompanied by a statement of a Financial Officer or other executive officer of the Borrower setting forth the details of the event or development requiring such notice and any action taken or proposed to be taken with respect thereto. Section 5.3 Existence; Conduct of Business. The Borrower will, and will cause each of its Subsidiaries to, do or cause to be done all things necessary to preserve, renew and keep in full force and effect its legal existence and the rights, licenses, permits, privileges and franchises material to the conduct of its business; provided that the foregoing shall not prohibit any merger, consolidation, liquidation or dissolution permitted under Section 6.5. Section 5.4 Payment of Obligations. The Borrower will, and will cause each of its Subsidiaries to, pay its obligations, including Tax liabilities, that, if not paid, could result in a Material Adverse Effect before the same shall become delinquent or in default, except where (a) the validity or amount thereof is being contested in good faith by appropriate proceedings, (b) the Borrower or such Subsidiary has set aside on its books adequate reserves 53 LOAN AGREEMENT with respect thereto in accordance with GAAP and (c) the failure to make payment pending such contest could not reasonably be expected to result in a Material Adverse Effect. Section 5.5 Maintenance of Properties; Insurance. The Borrower will, and will cause each of its Subsidiaries to, (a) keep and maintain all property material to the conduct of its business in good working order and condition, ordinary wear and tear excepted, and (b) maintain, with financially sound and reputable insurance companies, insurance in such amounts and against such risks (and having such deductibles and self-insurance) as are customarily maintained by companies engaged in the same or similar businesses operating in the same or similar locations. Section 5.6 Books and Records; Inspection Rights. The Borrower will, and will cause each of its Subsidiaries to, keep proper books of record and account in which full, true and correct entries are made of all dealings and transactions in relation to its business and activities. The Borrower will, and will cause each of its Subsidiaries to, permit any representatives designated by the Administrative Agent or any Lender, upon reasonable prior notice, to visit and inspect its properties, to examine and make extracts from its books and records, and to discuss its affairs, finances and condition with its officers and independent accountants, all at such reasonable times and as often as reasonably requested. Section 5.7 Compliance with Laws. The Borrower will, and will cause each of its Subsidiaries to, comply with all laws, rules, regulations and orders of any Governmental Authority applicable to it or its property, including without limitation ERISA and all Environmental Laws, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. Section 5.8 Use of Proceeds and Letters of Credit. The proceeds of the Loans will be used only to finance certain costs and expenses associated with the Mergers, refinance existing indebtedness (including related prepayment premiums) and for general corporate purposes. No part of the proceeds of any Loan will be used, whether directly or indirectly, for any purpose that entails a violation of any of the Regulations of the Board, including Regulations G, U and X. Standby Letters of Credit will be issued only to support on a standby basis, liabilities relating to worker's compensation, judgments pending appeal, construction or similar liabilities in the ordinary course of business, and trade Letters of Credit will be issued only to support liabilities for the purchase of goods upon delivery or against invoice. Section 5.9 Subsidiary Guarantees and Pledge. (a) The Borrower shall cause each Person which becomes a Subsidiary after the Closing Date (other than Insignificant Subsidiaries) to execute and deliver to the Administrative Agent a Subsidiary Guarantee together with such officer's certificates, resolutions and other assurances related thereto as the 54 LOAN AGREEMENT Administrative Agent shall reasonably request within 10 days of such Person becoming a Subsidiary. Furthermore, the Borrower shall within such 10 day period deliver to the Collateral Agent the stock certificates or other evidence of ownership interest in such Subsidiary, together with stock powers duly executed in blank, and execute such other documents in connection therewith as the Collateral Agent may reasonably request. (b) The Borrower shall cause each Subsidiary and each Person which becomes a Subsidiary after the Closing Date (other than Insignificant Subsidiaries) to include in any guarantee issued to any lender or creditor other than the parties to this Agreement and the Other Corporate Loan Documents the language in substantially the form attached as Exhibit E. Section 5.10 Further Assurances. The Borrower shall, and cause each of its Subsidiaries to, cooperate with the Lenders and the Administrative Agent and shall execute and pay for the filing of all such further instruments and documents, including UCC financing statements and other security documents, as the Required Lenders or the Administrative Agent shall reasonably deem appropriate in order to effectuate the grant of the Liens and security interests to the Collateral Agent contemplated by the Intercreditor Agreement, this Agreement and the Other Corporate Loan Documents and to carry out to their satisfaction the transactions contemplated by such agreements. ARTICLE VI Negative Covenants ------------------ Until the Commitments have expired or been terminated and the principal of and interest on each Loan and all fees payable hereunder shall have been paid in full and all Letters of Credit shall have expired or terminated and all LC Disbursements shall have been reimbursed, the Borrower covenants and agrees with the Lenders that: Section 6.1 Subsidiary Debt. The Borrower will not permit any Subsidiary to create, incur, assume or permit to exist any Debt, except: (a) Debt owed to the Borrower or to another Subsidiary; (b) Debt existing on the date hereof; provided that to the extent any item of such Debt exceeds $5,000,000, or the aggregate of all such Debt exceeds $25,000,000, such Debt shall be identified in Schedule 6.1; (c) Debt secured by Permitted Encumbrances; (d) Capital Lease Obligations not to exceed $100,000,000; 55 LOAN AGREEMENT (e) Debt outstanding when a Person becomes a Subsidiary or is merged or consolidated with another Subsidiary, provided that such Debt exists at the time such Person becomes a Subsidiary and is not created in contemplation of or in connection with such Person becoming a Subsidiary; (f) Debt in respect of letters of credit issued to support the purchase of goods by the applicable Subsidiary in the ordinary course of business; (g) Debt in respect of commercial letters of credit issued to support liabilities of a Subsidiary relating to worker's compensation, judgments pending appeal (and as to which there is no Event of Default under clause (k) of Article VII), construction or similar liabilities in the ordinary course of business; (h) Suretyship Liabilities constituting guarantees of the Borrower's unsecured Debt; provided that such Debt is not senior to the obligations of the Borrower hereunder and such guarantees contain language in substantially the form attached as Exhibit E; and Suretyship Liabilities constituting guarantees of the Borrower's Synthetic Lease Facilities; provided that such guarantees contain language in substantially the form attached as Exhibit E; and (i) Debt not otherwise permitted by the foregoing clauses of this Section 6.1 so long as the sum, without duplication, of (x) all such Debt and (y) all Debt secured by Liens permitted solely by clause (f) of Section 6.2 does not exceed 5.0% of Tangible Net Assets. Section 6.2 Liens. The Borrower will not, and will not permit any Subsidiary to, create, incur, assume or permit to exist any Lien on any property or asset now owned or hereafter acquired by it, or assign or sell any income or revenues (including accounts receivable) or rights in respect of any thereof, except: (a) Permitted Encumbrances; (b) any Lien on any property or asset of the Borrower or any Subsidiary existing on the date hereof (including Liens created pursuant to the Other Corporate Loan Documents and the Pledge Agreement) and set forth in Schedule 6.2; provided that (i) such Lien shall not apply to any other property or asset of the Borrower or any Subsidiary and (ii) such Lien shall secure only those obligations which it secures on the date hereof; (c) any Lien existing on any property or asset prior to the acquisition thereof by the Borrower or any Subsidiary or existing on any property or asset of any Person that becomes a Subsidiary after the date hereof prior to the time such Person becomes a 56 LOAN AGREEMENT Subsidiary; provided that (i) such Lien is not created in contemplation of or in connection with such acquisition or such Person becoming a Subsidiary, as the case may be, (ii) such Lien shall not apply to any other property or assets of the Borrower or any Subsidiary and (iii) such Lien shall secure only those obligations which it secures on the date of such acquisition or the date such Person becomes a Subsidiary, as the case may be; (d) Liens on fixed or capital assets acquired, constructed or improved by the Borrower or any Subsidiary; provided that (i) such security interests and the Indebtedness secured thereby are incurred prior to or within 180 days after such acquisition or the completion of such construction or improvement, (ii) the Debt secured thereby does not exceed the cost of acquiring, constructing or improving such fixed or capital assets and (iii) such security interests shall not apply to any other property or assets of the Borrower or any Subsidiary; (e) Liens on assets acquired after the date hereof under Synthetic Lease Facilities; and (f) Liens not otherwise permitted by the foregoing clauses of this Section 6.2, securing Debt of the Borrower or its Subsidiaries, so long as the sum, without duplication, of (i) all such Debt and (ii) all Debt permitted solely by clause (i) of Section 6.1 does not exceed 5.0% of Tangible Net Assets. Section 6.3 Modifications of Merger Documents. The Borrower shall not, and shall not permit any of its Subsidiaries to amend, modify or waive, or permit the amendment, modification or waiver of, any provision of the Merger Documents. Section 6.4 Fundamental Changes. (a) The Borrower will not, and will not permit any Material Subsidiary to, merge into or consolidate with any other Person, or permit any other Person to merge into or consolidate with it, or sell, transfer, lease or otherwise dispose of (in one transaction or in a series of transactions) all or any substantial part of its assets, or all or substantially all of the stock of any of its Material Subsidiaries (in each case, whether now owned or hereafter acquired), or liquidate or dissolve, except that, if at the time thereof and immediately after giving effect thereto no Default shall have occurred and be continuing (i) any Subsidiary may merge into the Borrower in a transaction in which the Borrower is the surviving corporation, (ii) any Subsidiary may merge into any Subsidiary in a transaction in which the surviving entity is a Subsidiary, (iii) any Subsidiary may sell, transfer, lease or otherwise dispose of its assets to the Borrower or to another Subsidiary and (iv) any Subsidiary may liquidate or dissolve if the Borrower determines in good faith that such liquidation or dissolution is in the best interests of the Borrower and is not materially disadvantageous to the Lenders. 57 LOAN AGREEMENT (b) The Borrower will not, and will not permit any of its Subsidiaries to, engage to any material extent in any business other than businesses of the type conducted by the Borrower and its Subsidiaries on the date of execution of this Agreement and businesses reasonably related thereto. Section 6.5 Investments, Loans, Advances, Suretyship Liabilities and Acquisitions. The Borrower will not, and will not permit any of its Subsidiaries to, purchase, hold or acquire (including pursuant to any merger with any Person that was not a wholly owned Subsidiary prior to such merger) any capital stock, evidences of indebtedness or other securities (including any option, warrant or other right to acquire any of the foregoing) of, make or permit to exist any loans or advances to, incur Suretyship Liabilities in respect of any obligations of, or make or permit to exist any investment or any other interest in, any other Person, or purchase or otherwise acquire (in one transaction or a series of transactions) any assets of any other Person constituting a business unit, except: (a) Permitted Investments; (b) investments by the Borrower and its Subsidiaries in its Subsidiaries including Persons which, as a result of such investment, become Subsidiaries; (c) loans or advances made, or Suretyship Liabilities incurred, by the Borrower to or in respect of any Subsidiary and made or incurred by any Subsidiary to or in respect of the Borrower or any other Subsidiary; (d) Suretyship Liabilities with respect to Hedging Agreements permitted by Section 6.6; (e) Suretyship Liabilities constituting Debt permitted by Section 6.1 which are (i) in respect of commercial paper, or (ii) Suretyship Liabilities other than in respect of commercial paper in aggregate amount not to exceed $200,000,000 at any one time; (f) Suretyship Liabilities created under the Other Corporate Loan Documents; (g) Suretyship Liabilities with respect to Surety Instruments incurred in the ordinary course of business; (h) investments existing on the date hereof; provided that to the extent any such investment exceeds $5,000,000, or the aggregate of all such investments exceeds $25,000,000, such investments shall be identified in Schedule 6.5; and 58 LOAN AGREEMENT (i) investments by the Borrower and its Subsidiaries not otherwise permitted by the foregoing clauses of this Section 6.5, so long as such additional investments made in reliance on this clause (i) do not exceed $200,000,000 in the aggregate at any time. Section 6.6 Hedging Agreements. The Borrower will not, and will not permit any of its Subsidiaries to, enter into any Hedging Agreement, other than Hedging Agreements entered into in the ordinary course of business to hedge or mitigate risks to which the Borrower or any Subsidiary is exposed in the conduct of its business or the management of its liabilities. Section 6.7 Restricted Payments. The Borrower will not, and will not permit any of its Subsidiaries to, declare or make, or agree to pay or make, directly or indirectly, any Restricted Payment, except that, so long as no Event of Default has occurred and is continuing, (a) the Borrower may declare and pay dividends with respect to its capital stock payable solely in additional shares of its common stock, (b) the Borrower may make Restricted Payments pursuant to and in accordance with stock option plans or other benefit plans for management or employees of the Borrower and its Subsidiaries, (c) any Subsidiary may declare and pay Restricted Payments to the Borrower or any other Subsidiary, and (d) the Borrower and its Subsidiaries may pay cash dividends and repurchase their respective stock from any Person which is not the Borrower or another Subsidiary so long as on the date of payment or repurchase (i) such cash dividends and stock repurchases do not exceed $150,000,000 in any single fiscal year, and (ii) the total of such cash dividends and stock repurchases during the term of this Agreement do not exceed an aggregate amount of $200,000,000 plus 40% of the Borrower's and its Subsidiaries' aggregate net income earned commencing with the fiscal year ending January 31, 1999, and each fiscal year thereafter; provided that a payment in connection with the repurchasing of certain warrants from the shareholders of FFL in an amount not to exceed $20,000,000 shall not be counted against the amounts set forth in clauses (i) and (ii) above. Section 6.8 Transactions with Affiliates. Except during the continuance of an Event of Default, the Borrower will not, and will not permit any of its Subsidiaries to, sell, lease or otherwise transfer any property or assets to, or purchase, lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except (a) at prices and on terms and conditions not less favorable to the Borrower or such Subsidiary than could be obtained on an arm's-length basis from unrelated third parties, (b) transactions between or among the Borrower and its wholly owned Subsidiaries not involving any other Affiliate and (c) any Restricted Payment permitted by Section 6.7. Section 6.9 Restrictive Agreements. The Borrower will not, and will not permit any of its Subsidiaries to, directly or indirectly, enter into, incur or permit to exist any agreement or other arrangement that prohibits, restricts or imposes any condition upon the 59 LOAN AGREEMENT ability of any Subsidiary to pay dividends or other distributions with respect to any shares of its capital stock or to make or repay loans or advances to the Borrower or any other Subsidiary or to incur Suretyship Liabilities in respect of Debt of the Borrower or any other Subsidiary; provided that (i) the foregoing shall not apply to restrictions and conditions imposed by law or by this Agreement, (ii) the foregoing shall not apply to restrictions and conditions (x) contained in the Other Corporate Loan Documents or (y) existing on the date hereof and identified on Schedule 6.9 (but shall apply to any extension or renewal of, or any amendment or modification expanding the scope of, any such restriction or condition) and (iii) the foregoing shall not apply to customary restrictions and conditions contained in agreements relating to the sale of a Subsidiary pending such sale, provided that such restrictions and conditions apply only to the Subsidiary that is to be sold and such sale is permitted hereunder and provided further that such restrictions and conditions cannot be imposed at any time that a Default has occurred and is continuing. Section 6.10 Financial Covenants. (a) Leverage Ratio. The Borrower shall not permit its Leverage Ratio to exceed, at the end of any fiscal quarter ending on or during any period listed below, the ratio set forth opposite such period; provided that there shall be added to Consolidated EBITDA for purposes of determining the Leverage Ratio the following amounts: (i) with respect to the two fiscal quarters ended August 15, 1998, $25,000,000 and (ii) in addition to clause (i) above, with respect to the fiscal quarter ended November 7, 1998, $12,500,000: Period Ratio ------ ----- From and including August 15, 1998 5:00 to 1.00 to and including January 29, 1999 From and including January 30, 1999 4.50 to 1.00 to and including January 28, 2000 From and including January 29, 2000 4.00 to 1.00 and therafter (b) Fixed Charge Coverage Ratio. The Borrower shall not permit the Fixed Charge Coverage Ratio to be less than, at the end of any fiscal quarter ending on or during any period listed below, the ratio set forth opposite such period: Period Ratio ------ ----- From and including August 15, 1998 1.75 to 1.00 60 LOAN AGREEMENT to and including January 29, 1999 From and including January 30, 1999 2.00 to 1.00 to and including February 2, 2001 From and including February 3, 2001 2.25 to 1.00 and thereafter Section 6.11 Unconditional Purchase Obligations. The Borrower shall not, and shall not permit any Subsidiary to, enter into or be a party to any contract for the purchase of materials, supplies or other property or services, if such contract requires that payments be made by it regardless of whether or not delivery is ever made of such materials, supplies or other property or services. Section 6.12 Fiscal Year; Fiscal Quarter. The Borrower shall not, and shall not permit any of its Subsidiaries to, change its fiscal year or any of its fiscal quarters. ARTICLE VII Events of Default ----------------- If any of the following events ("Events of Default") shall occur: (a) the Borrower shall fail to pay any principal of any Loan or any reimbursement obligation in respect of any LC Disbursement when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or otherwise; or (b) the Borrower shall fail to pay any interest on any Loan or any fee or any other amount (other than an amount referred to in clause (a) of this Article) payable under this Agreement, when and as the same shall become due and payable, and such failure shall continue unremedied for a period of three (3) Business Days; or (c) any representation or warranty made or deemed made by or on behalf of the Borrower or any Subsidiary in or in connection with this Agreement or any amendment or modification hereof or waiver hereunder, or in any report, certificate, financial statement or other document furnished pursuant to or in connection with this Agreement or any amendment or modification hereof or waiver hereunder, shall prove to have been incorrect in any material respect when made or deemed made; or 61 LOAN AGREEMENT (d) the Borrower shall fail to observe or perform any covenant, condition or agreement contained in Sections 5.2(a), 5.3 (with respect to the Borrower's existence) or 5.8 or in Sections 6.1, 6.2, 6.4, 6.5, 6.6, 6.7, 6.9, 6.10, 6.11 or 6.12; or (e) the Borrower shall fail to observe or perform any covenant, condition or agreement contained in this Agreement (other than those specified in clauses (a), (b), (c) or (d) of this Article), and such failure shall continue unremedied for a period of 30 days after notice thereof from the Administrative Agent to the Borrower (which notice will be given at the request of any Lender); or (f) the Borrower or any Material Subsidiary shall default in any obligation (payment or otherwise) that results in any Debt of $10,000,000 or more in the aggregate becoming due prior to its scheduled maturity or that enables or permits (with or without the giving of notice, the lapse of time or both) the holder or holders of any Debt of $10,000,000 or more in the aggregate or any trustee or agent on its or their behalf to cause any such Debt to become due, or to require the prepayment, repurchase, redemption or defeasance thereof, prior to its scheduled maturity; or (g) an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization or other relief in respect of the Borrower or any Material Subsidiary or their respective debts, or of a substantial part of their respective assets, under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect or (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Borrower or any Material Subsidiary or for a substantial part of their respective assets, and, in any such case, such proceeding or petition shall continue undismissed for 60 days or an order or decree approving or ordering any of the foregoing shall be entered; or (h) the Borrower or any Material Subsidiary shall (i) voluntarily commence any proceeding or file any petition seeking liquidation, reorganization or other relief under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition described in clause (g) of this Article, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Borrower or any Material Subsidiary or for a substantial part of their respective assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors or (vi) take any action for the purpose of effecting any of the foregoing; or (i) the Borrower or any Material Subsidiary shall become unable, admit in writing or fail generally to pay its debts as they become due; or 62 LOAN AGREEMENT (j) one or more judgments for the payment of money in an aggregate amount in excess of $10,000,000 shall be rendered against the Borrower, any Subsidiary or any combination thereof and the same shall remain undischarged for a period of 30 consecutive days during which execution shall not be effectively stayed, or any action shall be legally taken by a judgment creditor to attach or levy upon any assets of the Borrower or any Subsidiary to enforce any such judgment; or (k) an ERISA Event shall have occurred that, in the opinion of the Required Lenders, when taken together with all other ERISA Events that have occurred, could reasonably be expected to result in liability of the Borrower and its Subsidiaries in an aggregate amount exceeding $10,000,000; or (l) a Change in Control shall occur; or (m) any Subsidiary Guarantee shall cease to be in full force and effect (other than in accordance with its terms), or any guarantor under any Subsidiary Guarantee or any Person acting by or on behalf of such guarantor shall deny or disaffirm all or any portion of the guarantor's obligation under such Subsidiary Guarantee; or (n) the Pledge Agreement shall for any reason cease to be in full force and effect (other than in accordance with its terms), or shall cease to give the Collateral Agent the Liens, rights, powers and privileges purported to be created thereby including, without limitation, a perfected first priority security interest in, and Lien on, all of the Collateral in accordance with the terms thereof; then, and in every such event (other than an event with respect to the Borrower described in clause (g) or (h) of this Article), and at any time thereafter during the continuance of such event, the Administrative Agent shall, at the request of the Required Lenders, by notice to the Borrower, take any or all of the following actions, at the same or different times: (i) terminate the Commitments, and thereupon the Commitments shall terminate immediately, (ii) terminate any Letter of Credit that may be terminated under its terms, (iii) direct the Borrower to make (and the Borrower agrees that upon receipt of such notice it will make) the LC Deposit and (iv) declare the Loans then outstanding to be due and payable in whole or in part (in which case any principal not so declared to be due and payable may thereafter be declared to be due and payable), and thereupon the principal of the Loans so declared to be due and payable, together with accrued interest thereon and all fees and other obligations of the Borrower accrued hereunder, shall become due and payable immediately, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower; and in case of any event with respect to the Borrower described in clause (g) or (h) of this Article, the Commitments shall automatically terminate and the principal of the Loans then outstanding, together with accrued interest thereon, the LC Deposit and all fees and other 63 LOAN AGREEMENT obligations of the Borrower accrued hereunder, shall automatically become due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower. ARTICLE VIII The Administrative Agent ------------------------ Section 8.1 Appointment. Each Lender hereby irrevocably designates and appoints Bankers Trust Company as the Administrative Agent and Collateral Agent of such Lender under the Loan Documents, and each such Lender irrevocably authorizes Bankers Trust Company as the Administrative Agent and Collateral Agent for such Lender, to enter into the Loan Documents and take such action on its behalf under the provisions of the Loan Documents and to exercise such powers and perform such duties as are expressly delegated to the Administrative Agent and the Collateral Agent by the terms of the Loan Documents, respectively, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in the Loan Documents, the Administrative Agent and Collateral Agent shall not have any duties or responsibilities, except those expressly set forth herein, or any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities on the part of the Administrative Agent or Collateral Agent shall be read into the Loan Documents or otherwise exist against the Administrative Agent or Collateral Agent. The provisions of this Article VIII are solely for the benefit of the Administrative Agent and Collateral Agent, and the Lenders and the Borrower shall have no rights as a third party beneficiary or otherwise under any of the provisions in the Loan Documents. In performing its functions and duties under the Loan Documents, the Administrative Agent and Collateral Agent shall act solely as the agent of the Lenders and does not assume nor shall be deemed to have assumed any obligation or relationship of trust or agency with or for the Borrower or any of its successors and assigns. Section 8.2 Delegation of Duties. The Administrative Agent may execute any of its duties under this Agreement by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Administrative Agent shall not be responsible for the negligence or misconduct or any agents or attorneys-in-fact selected by it with reasonable care. Section 8.3 Exculpatory Provisions. The Administrative Agent shall not be (i) liable for any action lawfully taken or omitted to be taken by it or any Person described in Section 8.2 under or in connection with this Agreement (except for its or such Person's own gross negligence or willful misconduct), or (ii) responsible in any manner to any of the Lenders for any recitals, statements, representations or warranties made by the Borrower 64 LOAN AGREEMENT contained in this Agreement or in any certificate, report, statement or other document referred to or provided for in, or received under or in connection with, this Agreement or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement, or for any failure of the Borrower to perform its obligations hereunder or thereunder. The Administrative Agent shall not be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement, or to inspect the properties, books or records of the Borrower. This Section is intended solely to govern the relationship between the Administrative Agent, on the one hand, and the Lenders, on the other. Section 8.4 Reliance by Administrative Agent. The Administrative Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to the Borrower), independent accountants and other experts selected by the Administrative Agent. The Administrative Agent shall be fully justified in failing or refusing to take any action under this Agreement unless it shall first receive such advice or concurrence of the Required Lenders as it deems appropriate or it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Administrative Agent shall in all cases be fully protected in act ing, or in refraining from acting, under this Agreement in accordance with a request of the Required Lenders, and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders. Section 8.5 Notice of Default. The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Default unless the Administrative Agent has received notice from a Lender or the Borrower referring to this Agreement, describing such Default and stating that such notice is a "notice of default". In the event that the Administrative Agent receives such a notice, the Administrative Agent shall promptly give notice thereof to the Lenders. The Administrative Agent shall take such action with respect to such Default as shall be directed by the Required Lenders. Section 8.6 Non-Reliance on Administrative Agent and Other Lenders. Each Lender expressly acknowledges that neither the Administrative Agent, nor any of its officers, directors, employees, agents, attorneys-in-fact or affiliates has made any representations or warranties to it and that no act by the Administrative Agent hereafter taken, including, without limitation, any review of the affairs of the Borrower, shall be deemed to constitute any representation or warranty by the Administrative Agent. Each Lender represents and warrants to the Administrative Agent that it has, independently and without reliance upon the 65 LOAN AGREEMENT Administrative Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, opera tions, property, prospects, financial and other conditions and creditworthiness of the Borrower and made its own decision to make its Loans hereunder and enter into this Agreement. Each Lender also represents that it will, independently and without reliance upon the Administrative Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, prospects, financial and other condition and creditworthiness of the Borrower. Except for notices, reports and other documents expressly required under this Agreement to be furnished to the Lenders by the Administrative Agent, the Administrative Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, property, prospects, financial and other condition or creditworthiness of the Borrower which may come into the possession of the Administrative Agent or any of its officers, directors, employees, agents, attorneys-in-fact or affiliates. Section 8.7 Indemnification. The Lenders agree to indemnify the Administrative Agent, the Syndication Agent and each of their respective officers, directors, employees, representatives and agents (to the extent not reimbursed by the Borrower and without limiting the obligation of the Borrower to do so), ratably according to their Applicable Percentage, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever (including, without limitation, the fees and disbursements of counsel for the Administrative Agent, Syndication Agent or such Person in connection with any investigative, administrative or judicial proceeding commenced or threatened, whether or not the Administrative Agent or such Person shall be designated a party thereto) that may at any time (including, without limitation, at any time following the payment of the Obligations) be imposed on, incurred by or asserted against the Administrative Agent, Syndication Agent or such Person as a result of, or arising out of, or in any way related to or by reason of, any of the Transactions or the execution, delivery or performance of this Agreement (but excluding any such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting solely from the gross negligence or willful misconduct of the Administrative Agent, Syndication Agent or such Person as finally determined by a court of competent jurisdiction). Section 8.8 Administrative Agent in its Individual Capacity. The Administrative Agent and its affiliates may make loans to, accept deposits from and generally engage in any kind of business with the Borrower as though the Administrative Agent were not the Administrative Agent hereunder. With respect to Loans made or renewed by it, the Administrative Agent shall have the same rights and powers under this Agreement as any 66 LOAN AGREEMENT Lender and may exercise the same as though it were not the Administrative Agent, and the terms "Lender" and "Lenders" shall include the Administrative Agent in its individual capacity. Section 8.9 Successor Administrative Agent. The Administrative Agent may resign as Administrative Agent upon 30 days' notice to the Borrower and the Lenders. If the Administrative Agent shall resign as Administrative Agent under this Agreement, then the Required Lenders during such 30-day period shall appoint from among the Lenders a successor agent, whereupon such successor agent shall succeed to the rights, powers and duties of the Administrative Agent and the term "Administrative Agent" shall mean such successor agent, effective upon its appointment, and the former Administrative Agent's rights, powers and duties as Administrative Agent shall be terminated, without any other or further act or deed on the part of such former Administrative Agent or any of the parties to this Agreement. After any retiring Administrative Agent's resignation hereunder as Administrative Agent, the provisions of this Article VIII and Section 9.3 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Agreement. Section 8.10 Syndication Agent. Without limiting any provision contained in this Article VIII, the Syndication Agent shall not have, except as to and to the limited extent expressly provided herein, any obligation, responsibility or duty under this Agreement other than those applicable to all Lenders as such. Each Lender acknowledges that it has not relied, and will not rely, on the Syndication Agent in deciding to enter into this Agreement or in taking or not taking action hereunder. Section 8.11 Co-Documentation Agents. Without limiting any provision contained in this Article VIII, the Co-Documentation Agents shall not have, except as to and to the limited extent expressly provided herein, any obligation, responsibility or duty under this Agreement other than those applicable to all Lenders as such. Each Lender acknowledges that it has not relied, and will not rely, on the Co-Documentation Agents in deciding to enter into this Agreement or in taking or not taking action hereunder. ARTICLE IX Miscellaneous ------------- Section 9.1 Notices. Except in the case of notices and other communications expressly permitted to be given by telephone, all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopy, as follows: 67 LOAN AGREEMENT (a) if to the Borrower, to it at: Fred Meyer, Inc. P.O. Box 42121 3800 SE 22nd Avenue Portland, Oregon 97242-0121 Telecopy: (503) 797-5299 Attn: Mr. James C. Aalberg; with a copy of notices pursuant to Article VII to: Stoel Rives LLP 900 SW Fifth Avenue, Suite 2300 Portland, Oregon 97204-1268 Telecopy: (503) 220-2480 Attn: Mr. Gary R. Barnum (b) if to the Administrative Agent, to it at: Bankers Trust Company 130 Liberty Street New York, New York 10006 Telecopy: (212) 250-7351 Attn: Deal Administrator (c) if to any Issuing Bank, to it at the address specified in writing to the Administrative Agent from time to time by the Issuing Bank; except that, if to Bankers Trust as Issuing Bank, to it at: Bankers Trust Company 130 Liberty Street New York, New York 10006 Telecopy: (212) 250-5817 Attn: Letter of Credit Unit (d) if to any other Lender, to it at its address (or telecopy number) set forth opposite its signature below. 68 LOAN AGREEMENT Any party hereto may change its address or telecopy number for notices and other communications hereunder by notice to the other parties hereto. All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt. It is understood and agreed that the delivery of copies of notices to counsel as set forth above is for courtesy purposes only and any failure to deliver such copy shall not constitute failure with respect to any obligation to provide notices hereunder. Section 9.2 Waivers; Amendments. (a) Except as provided in the Intercreditor Agreement, neither this Agreement nor any terms hereof may be changed, waived, discharged, or terminated, nor any Collateral released, unless such change, waiver, discharge, termination or release is in writing signed by the Required Lenders, provided that no such change, waiver, discharge, termination or release shall, without the consent of each Lender (other than a Defaulting Lender), (i) extend the final scheduled maturity of any Loan or extend the stated expiration date of any Letter of Credit beyond the Maturity Date, or reduce the rate or extend the time of payment of interest of fees thereon, or reduce the principal amount thereof (except to the extent repaid in cash), (ii) amend, modify or waive any provision of this Section 9.2, (iii) reduce the percentage specified in the definition of Required Lenders, (iv) release all or a substantial portion of the Collateral, (iv) consent to the assignment or transfer by the Borrower of any of its rights and obligations under this Agreement or (v) release any Subsidiary which is party to a Subsidiary Guarantee from its obligations under such Subsidiary Guarantee or amend any Subsidiary Guarantee to materially reduce any Subsidiary's obligations thereunder; provided further that no such change, waiver, discharge, termination or release shall (w) increase the Commitment of any Lender without the consent of such Lender (it being understood that waivers or modifications of conditions precedent, covenants, Defaults or of a mandatory reduction in the aggregate 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 of the Commitment of such Lender), (x) without the consent of the Issuing Bank, amend, modify or waive any provision of Section 2.5 or alter its rights or obligations with respect to Letters of Credit, or (y) without the consent of the Administrative Agent, amend, modify or waive any provision of Article VIII or any other provision as the same relates to the Administrative Agent. No failure or delay by the Administrative Agent, the Issuing Bank or any Lender in exercising any right or power hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Administrative Agent, the Issuing Bank and the Lenders hereunder are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of this Agreement or consent to any departure by the Borrower therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) of this Section, and then such waiver or consent shall be effective 69 LOAN AGREEMENT only in the specific instance and for the purpose for which given. Without limiting the generality of the foregoing, the making of a Loan or issuance of a Letter of Credit shall not be construed as a waiver of any Default, regardless of whether the Administrative Agent, any Lender or the Issuing Bank may have had notice or knowledge of such Default at the time. (b) If, in connection with any proposed change, waiver, discharge or termination to any of the provisions of this Agreement contemplated by clauses (i) through (v), inclusive, of the first proviso of Section 9.2(a), the consent of the Required Lenders is obtained but the consent of one or more of such other Lenders whose consent is required is not obtained, then the Borrower shall have the right, so long as all non-consenting Lenders whose individual consent is required are treated as described in either clauses (A) or (B) below, to either (A) replace each such non-consenting Lender or Lenders with one or more Replacement Lenders pursuant to Section 2.19(b) so long as at the time of such replacement each such Replacement Lender consents to the proposed change, waiver, discharge or termination or (B) terminate such non-consenting Lender's Commitment and repay any outstanding Loans of such Lender and cash collateralize its applicable LC Exposure in accordance with Section 2.5(j), provided that, unless the Commitment that is terminated and Loans repaid pursuant to preceding clause (B) 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 preceding clause (B) the Required Lenders (determined after giving effect to the proposed action) shall specifically consent thereto, provided further, that in any event the Borrower shall not have the right to replace a Lender, terminate its Commitment or repay its Loans 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 Section 9.2(a). Section 9.3 Expenses; Indemnity; Damage Waiver. (a) The Borrower shall pay (i) all reasonable out-of-pocket expenses incurred by the Administrative Agent and its Affiliates, including the reasonable fees, charges and disbursements of counsel for the Administrative Agent, in connection with the syndication of the credit facilities provided for herein, the preparation and administration of this Agreement or any amendments, modifications or waivers of the provisions hereof (whether or not the transactions contemplated hereby or thereby shall be consummated), (ii) all reasonable out-of-pocket expenses incurred by the Issuing Bank in connection with the issuance, amendment, renewal or extension of any Letter of Credit or any demand for payment thereunder and (iii) all out-of-pocket expenses incurred by the Administrative Agent, the Issuing Bank or any Lender, including the fees, charges and disbursements of any counsel for the Administrative Agent, the Issuing Bank or any Lender, in connection with the enforcement or protection of its rights in connection with this Agreement after the occurrence of an Event of Default, including its rights under this Section, or in connection with the Loans made or Letters of Credit issued 70 LOAN AGREEMENT hereunder, including all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans or Letters of Credit. (b) The Borrower shall indemnify the Administrative Agent, the Issuing Bank and each Lender, and each Related Party of any of the foregoing Persons (each such Person being called an "Indemnitee") against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses, including the fees, charges and disbursements of any counsel for any Indemnitee, incurred by or asserted against any Indemnitee arising out of, in connection with, or as a result of (i) the execution or delivery of this Agreement or any agreement or instrument contemplated hereby, the performance by the parties hereto of their respective obligations hereunder or the consummation of the Transactions or any other transactions contemplated hereby, (ii) any Loan or Letter of Credit or the use of the proceeds therefrom (including any refusal by the Issuing Bank to honor a demand for payment under a Letter of Credit if the documents presented in connection with such demand do not strictly comply with the terms of such Letter of Credit), (iii) any actual or alleged presence or release of Hazardous Materials on or from any property owned or operated by the Borrower or any of its Subsidiaries, or any Environmental Liability related in any way to the Borrower or any of its Subsidiaries, or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory and regardless of whether any Indemnitee is a party thereto; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or wilful misconduct of such Indemnitee. (c) To the extent permitted by applicable law, the Borrower shall not assert, and hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement or any agreement or instrument contemplated hereby, the Transactions, any Loan or Letter of Credit or the use of the proceeds thereof. (d) All amounts due under this Section shall be payable not later than 10 days after written demand therefor. Section 9.4 Successors and Assigns. (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby (including any Affiliate of the Issuing Bank that issues any Letter of Credit), except that the Borrower may not assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of each Lender (and any attempted assignment or transfer by the Borrower without such consent shall be null and void). 71 LOAN AGREEMENT Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby (including any Affiliate of the Issuing Bank that issues any Letter of Credit) and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent, the Issuing Bank and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement. (b) Any Lender may assign to one or more assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans and a corresponding amount of its LC Exposure at the time owing to it); provided that (i) except in the case of an assignment to a Lender or an Affiliate of a Lender, each of the Borrower, the Administrative Agent and (with respect to Revolving Loans only) the Issuing Bank must give its prior written consent to such assignment (which consent shall not be unreasonably withheld), (ii) except in the case of an assignment to a Lender or an Affiliate of a Lender or an assignment of the entire remaining amount of the assigning Lender's Commitment, the amount of the Commitment of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Acceptance with respect to such assignment is delivered to the Administrative Agent) shall not be less than $10,000,000 unless each of the Borrower and the Administrative Agent otherwise consent and (iii) the parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Acceptance, together with a processing and recordation fee of $3,500; and provided further that any consent of the Borrower otherwise required under this paragraph shall not be required if a Default has occurred and is continuing. Subject to acceptance and recording thereof pursuant to paragraph (d) of this Section, from and after the effective date specified in each Assignment and Acceptance the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Acceptance, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all of the assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 2.15, 2.16, 2.17 and 9.3). Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this paragraph shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with paragraph (e) of this Section. (c) The Administrative Agent, acting for this purpose as an agent of the Borrower, shall maintain at one of its offices in The City of New York a copy of each Assignment and Acceptance delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitment of, and principal amount of the Loans and LC Disbursements owing to, each Lender pursuant to the terms hereof from time to time (the 72 LOAN AGREEMENT "Register"). The entries in the Register shall be conclusive (absent manifest error), and the Borrower, the Administrative Agent, the Issuing Bank and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Borrower, the Issuing Bank and any Lender, at any reasonable time and from time to time upon reasonable prior notice. (d) Upon its receipt of a duly completed Assignment and Acceptance executed by an assigning Lender and an assignee, the processing and recordation fee referred to in paragraph (b) of this Section and any written consent to such assignment required by paragraph (b) of this Section, the Administrative Agent shall accept such Assignment and Acceptance and record the information contained therein in the Register. No assignment shall be effective for purposes of this Agreement unless it has been recorded in the Register as provided in this paragraph. (e) Any Lender may, without the consent of the Borrower, the Administrative Agent or the Issuing Bank, sell participations to one or more banks or other entities (a "Participant") in all or a portion of such Lender's rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans owing to it); provided that (i) such Lender's obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) the Borrower, the Administrative Agent, the Issuing Bank and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement. Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; and provided further that no Lender shall transfer or grant any participation under which the Participants shall have rights to approve any amendment to or waiver of this Agreement except to the extent that such amendment or waiver would (i) extend the final scheduled maturity of any Loan, Note or Letter of Credit (unless such Letter of Credit is not extended beyond the Maturity Date) in which the Participant is participating, or reduce the rate or extend the time of payment of interest or fees thereon (except in connection with a waiver of applicability of any post-default increase in interest rates) or reduce the principal amount thereof, or increase the amount of the Participant's participation over the amount thereof then in effect (it being understood that a waiver of any Default or of a mandatory reduction in the aggregate Commitments shall not constitute a change in the terms of such participation and that an increase in any Commitment or Loan shall be permitted without the consent of any participant if the Participant's participation is not increased as a result thereof), or (ii) consent to the assignment by the Borrower of any of its rights and obligations under this Agreement. 73 LOAN AGREEMENT (f) A Participant shall not be entitled to receive any greater payment under Section 2.15 or 2.17 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Borrower's prior written consent. A Participant that, subject to the foregoing, would be a Foreign Lender if it were a Lender shall not be entitled to the benefits of Section 2.17 unless the Borrower is notified of the participation sold to such Participant and such Participant agrees, for the benefit of the Borrower, to comply with Section 2.17(e) as though it were a Lender. (g) Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank, and this Section shall not apply to any such pledge or assignment of a security interest; provided that no such pledge or assignment of a security interest shall release a Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto. Section 9.5 Survival. All covenants, agreements, representations and warranties made by the Borrower herein and in the certificates or other instruments delivered in connection with or pursuant to this Agreement shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of this Agreement and the making of any Loans and issuance of any Letters of Credit, regardless of any investigation made by any such other party or on its behalf and notwithstanding that the Administrative Agent, the Issuing Bank or any Lender may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any fee or any other amount payable under this Agreement is outstanding and unpaid or any Letter of Credit is outstanding and so long as the Commitments have not expired or terminated. The provisions of Sections 2.15, 2.16, 2.17 and 9.3 and Article VIII shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Loans, the expiration or termination of the Letters of Credit and the Commitments or the termination of this Agreement or any provision hereof. Section 9.6 Counterparts; Integration; Effectiveness. This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement and any separate letter agreements with respect to fees payable to the Administrative Agent constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. Except as provided in Section 4.1, this Agreement shall become effective when it shall have been executed by the Administrative 74 LOAN AGREEMENT Agent and when the Administrative Agent shall have received counterparts hereof which, when taken together, bear the signatures of each of the other parties hereto, and thereafter shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Delivery of an executed counterpart of a signature page of this Agreement by telecopy shall be effective as delivery of a manually executed counterpart of this Agreement. Section 9.7 Marshalling; Recapture. Neither the Administrative Agent nor any Lender shall be under any obligation to marshall any assets in favor of the Borrower or the Subsidiaries or any other party or against or in payment of any or all of the obligations, liabilities and indebtedness of every nature of the Borrower or any Subsidiary from time to time owing to the Administrative Agent or any Lender under or in connection with this Agreement, the Other Corporate Loan Documents or the Loan Documents. To the extent any Lender receives any payment by or on behalf of the Borrower or the Subsidiaries, which payment or any part thereof is subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to such Borrower or Subsidiary or its estate, trustee, receiver, custodian or any other party under any bankruptcy law, state or federal law, common law or equitable cause, then to the extent of such payment or repayment, the obligation or part thereof which has been paid, reduced or satisfied by the amount so repaid shall be reinstated by the amount so repaid and shall be included within the liabilities of the Borrower or Subsidiary to such Lender as of the date such initial payment, reduction or satisfaction occurred. Section 9.8 Severability. Any provision of this Agreement held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction. Section 9.9 Right of Setoff. If an Event of Default shall have occurred and be continuing, each Lender and each of its Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other obligations at any time owing by such Lender or Affiliate to or for the credit or the account of the Borrower against any and all of the obligations of the Borrower now or hereafter existing under this Agreement held by such Lender, irrespective of whether or not such Lender shall have made any demand under this Agreement and although such obligations may be unmatured. The rights of each Lender under this Section are in addition to other rights and remedies (including other rights of setoff) which such Lender may have. 75 LOAN AGREEMENT Section 9.10 Governing Law; Jurisdiction; Consent to Service of Process. (a) This Agreement shall be construed in accordance with and governed by the law of the State of New York. (b) The Borrower hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of the Supreme Court of the State of New York sitting in New York County and of the United States District Court of the Southern District of New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that the Administrative Agent, the Issuing Bank or any Lender may otherwise have to bring any action or proceeding relating to this Agreement against the Borrower or its properties in the courts of any jurisdiction. (c) The Borrower hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement in any court referred to in paragraph (b) of this Section. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. (d) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 9.1. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law. Section 9.11 WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER 76 LOAN AGREEMENT PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION. Section 9.12 Headings. Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement. Section 9.13 Confidentiality. Each of the Administrative Agent, the Issuing Bank and the Lenders agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its and its Affiliates' directors, officers, employees and agents, including accountants, legal counsel and other advisors (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (b) to the extent requested by any regulatory authority, (c) to the extent required by applicable laws or regulations or by any subpoena or similar legal process, (d) to any other party to this Agreement, (e) in connection with the exercise of any remedies hereunder or any suit, action or proceeding relating to this Agreement or the enforcement of rights hereunder, (f) to any participant or prospective participant in or assignee or prospective assignee of any of the rights and obligations under this Agreement, provided that such participant, prospective participant, assignee or prospective assignee agrees to be bound by the confidentiality provisions contained in this Section 9.13, (g) with the consent of the Borrower or (h) to the extent such Information (i) becomes publicly available other than as a result of a breach of this Section or (ii) becomes available to the Administrative Agent, the Issuing Bank or any Lender on a nonconfidential basis from a source other than the Borrower. For the purposes of this Section, "Information" means all information received from the Borrower relating to the Borrower or its business, other than any such information that is available to the Administrative Agent, the Issuing Bank or any Lender on a nonconfidential basis prior to disclosure by the Borrower; provided that, in the case of information received from the Borrower after the date hereof, such information is clearly identified at the time of delivery as confidential. Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information. Section 9.14 OREGON LEGAL NOTICE. WITHOUT LIMITING THE VALIDITY OF THE CHOICE OF NEW YORK LAW PROVIDED HEREIN, UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY THE LENDERS AFTER THE RESTATEMENT DATE OF THE ACT SPECIFIED HEREIN CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT FOR PERSONAL FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE 77 LOAN AGREEMENT BORROWER'S RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY THE LENDERS TO BE ENFORCEABLE. THE ACT SPECIFIED HEREIN MEANS CHAPTER 967 OREGON LAWS 1989, THE EFFECTIVE DATE OF WHICH WAS OCTOBER 3, 1989. 78 LOAN AGREEMENT IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. FRED MEYER, INC. as Borrower JAMES C. AALBERG By: -------------------------------- Name: James C. Aalberg Title: Vice President, Treasurer S-1 LOAN AGREEMENT BANKERS TRUST COMPANY, as Administrative Agent and as a Lender GINA S. THOMPSON By: -------------------------------- Name: Gina S. Thompson Title: Vice President S-2 LOAN AGREEMENT THE CHASE MANHATTAN BANK, as Syndication Agent and as a Lender LAURIE B. PERPER By: -------------------------------- Name: Laurie B. Perper Title: Vice President S-3 LOAN AGREEMENT NATIONSBANK OF TEXAS, N.A., as Co-Documentation Agent and as a Lender CHARLES F. LILYGREN By: -------------------------------- Name: Charles F. Lilygren Title: Senior Vice President S-4 LOAN AGREEMENT SALOMON BROTHERS HOLDING CO INC., as Co-Documentation Agent and as a Lender CHAD A. LEAT By: -------------------------------- Name: Chad A. Leat Title: Managing Director S-5 LOAN AGREEMENT ABN AMRO BANK N.V., as a Lender DAVID MCGINNIS By: -------------------------------- Name: David McGinnis Title: Vice President JAMES J. RICE By: -------------------------------- Name: James J. Rice Title: Vice President S-6 LOAN AGREEMENT MARINE MIDLAND BANK, as a Lender GINA SIDORSKY By: -------------------------------- Name: Gina Sidorsky Title: Authorized Signatory S-7 LOAN AGREEMENT UNION BANK OF CALIFORNIA, N.A., as a Lender TIMOTHY P. STREB By: -------------------------------- Name: Timothy P. Streb Title: Vice President S-8 LOAN AGREEMENT WACHOVIA BANK, N.A., as a Lender JOHN A. WHITNER By: ----------------------- Name: John A. Whitner Title: Senior Vice President S-9 LOAN AGREEMENT GOLDMAN SACHS CREDIT PARTNERS L.P., as a Lender STEPHEN J. MCGUINNESS By: ----------------------- Name: Stephen J. McGuinness Title: Authorized Signatory S-10 LOAN AGREEMENT BANK OF MONTREAL, as a Lender R.W. CAMM By: ----------------------- Name: R.W. Camm Title: Managing Director S-11 LOAN AGREEMENT DLJ CAPITAL FUNDING, INC., as a Lender STEPHEN P. HICKEY By: ----------------------- Name: Stephen P. Hickey Title: Managing Director S-12 LOAN AGREEMENT SOCIETE GENERALE, as a Lender J. BLAINE SHAUM By: ----------------------- Name: J. Blaine Shaum Title: Regional Manager S-13 LOAN AGREEMENT MORGAN STANLEY SENIOR FUNDING, INC., as a Lender MICHAEL T. MCLAUGHLIN By: ----------------------- Name: M. McLaughlin Title: Principal S-14 LOAN AGREEMENT WELLS FARGO BANK, N.A., as a Lender ALFRED ARTIS By: ----------------------- Name: Alfred Artis Title: Vice President DONALD A. HARTMANN, JR. By: ----------------------- Name: Donald A. Hartmann, Jr. Title: Senior Vice President S-15 LOAN AGREEMENT THE FIRST NATIONAL BANK OF CHICAGO, as a Lender PAUL E. RIGBY By: ----------------------- Name: Paul E. Rigby Title: Managing Director S-16 LOAN AGREEMENT TRANSAMERICA LIFE INSURANCE AND ANNUITY COMPANY, as a Lender JOHN M. CASPARIAN By: ----------------------- Name: John M. Casparian Title: Investment Officer S-17 LOAN AGREEMENT THE MITSUBISHI TRUST AND BANKING CORPORATION, as a Lender TOSHIHIRO HAYASHI By: ----------------------- Name: Toshihiro Hayashi Title: Senior Vice President S-18 LOAN AGREEMENT ROYAL BANK OF CANADA, as a Lender JULIE BOTHAMLEY By: ----------------------- Name: Julie Bothamley Title: Senior Manager S-19 LOAN AGREEMENT THE SUMITOMO TRUST AND BANKING CO. LTD., LOS ANGELES AGENCY, as a Lender ELEANOR CHAN By: ----------------------- Name: Eleanor Chan Title: Manager & Vice President S-20 LOAN AGREEMENT COMPAGNIE FINANCIERE DE CIC ET DE L'UNION EUROPEENNE, as a Lender ANTHONY ROCK By: ----------------------- Name: Anthony Rock Title: Vice President BRIAN O'LEARY By: ----------------------- Name: Brian O'Leary Title: Vice President S-21 LOAN AGREEMENT KEYBANK NATIONAL ASSOCIATION, as a Lender MARY K. YOUNG By: ----------------------- Name: Mary K. Young Title: Commercial Banking Officer S-22 LOAN AGREEMENT FIRST SECURITY BANK, N.A., as a Lender JUDY CALLISTER By: ----------------------- Name: Judy Callister Title: Vice President S-23 LOAN AGREEMENT FIRSTRUST BANK, as a Lender EDWARD D'ANCONA By: ----------------------- Name: Edward D'Ancona Title: Chief Banking Officer S-24 LOAN AGREEMENT US BANK OF OREGON, as a Lender GAYLE BURGESS By: ----------------------- Name: Gayle Burgess Title: Asst. Relationship Manager S-25 LOAN AGREEMENT FIRST UNION NATIONAL BANK, as a Lender ED ROSS By: ----------------------- Name: Ed Ross Title: Senior Vice President S-26 LOAN AGREEMENT THE BANK OF NEW YORK, as a Lender CHARLOTTE SOHN By: ----------------------- Name: Charlotte Sohn Title: Vice president S-27 LOAN AGREEMENT ZIONS FIRST NATIONAL BANK, as a Lender RICHARD P. JACKSON By: ----------------------- Name: Richard P. Jackson Title: Vice President S-28 LOAN AGREEMENT BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as a Lender MARIA VICKROY-PERALTA By: ---------------------------- Name: Maria Vickroy-Peralta Title: Vice President S-29 LOAN AGREEMENT BANQUE PARIBAS, as a Lender BRIAN A. STAPF By: ----------------------- Name: Brian A. Stapf Title: Vice President LEE S. BUCKNER By: ----------------------- Name: Lee S. Buckner Title: Managing Director S-30 LOAN AGREEMENT FIRST HAWAIIAN BANK, as a Lender TRAVIS RUETENIK By: ----------------------- Name: Travis Ruetenik Title: Corporate Banking Officer National Corporate Banking S-32 LOAN AGREEMENT BANK LEUMI U.S.A., as a Lender JACQUES DELVOYE By: ----------------------- Name: Jacques Delvoye Title: Vice President S-33 Schedule 2.1 Lenders and Commitments Revolving Loan Term Loan Name and Address of Lender Commitment Commitment - -------------------------- -------------- ---------- Bankers Trust Company $157,114,850.33 $136,166,203.62 One Bankers Trust Plaza 130 Liberty Street New York, New York 10006 Telecopier No.: (212) 250-7351 Attn: Deal Administrator The Chase Manhattan Bank $158,092,848.18 $137,013,801.76 270 Park Avenue New York, New York 10017 Telecopier No.: (212) Attn: NationsBank of Texas, N.A. $145,388,958.59 $126,003,764.12 444 South Flower, Suite 4100 Los Angeles, California 90071 Telecopier No.: (213) Attn: Salomon Brothers Holding Co Inc. $145,388,958.59 $126,003,764.12 7 World Trade Center New York, New York 10048 Telecopier No.: (212) Attn: Wells Fargo Bank $117,628,607.28 $101,944,792.97 420 Montgomery Street, 9th Floor San Francisco, California 94163 Telecopier No.: Attn: DLJ Capital Funding, Inc. $94,102,885.82 $81,555,834.38 277 Park Avenue New York, New York 10172 Telecopier No.: Attn: Bank of America National Trust and $94,102,885.82 $81,555,834.38 Savings Association 555 South California Street, 41st Floor San Francisco, California 94104 Telecopier No.: Attn: The First National Bank of Chicago $94,102,885.82 $81,555,834.38 One First National Plaza Chicago, Illinois 60670 Telecopier No.: Attn: Goldman Sachs Credit Partners L.P. $94,102,885.82 $81,555,834.38 85 Broad Street New York, New York 10004 Telecopier No.: Attn: Morgan Stanley Senior Funding, Inc. $94,102,885.82 $81,555,834.38 1585 Broadway New York, New York 10036 Telecopier No.: Attn.: Societe Generale $94,102,885.82 $81,555,834.38 2029 Century Park East, Suite 2900 Los Angeles, California 90067 Telecopier No.: Attn.: Union Bank of California, N.A. $94,102,885.82 $81,555,834.38 350 California Street, 6th Floor San Francisco, California 94104 Telecopier No.: Attn.: U.S. Bank of Oregon $94,102,885.82 $81,555,834.38 555 S.W. Oak Street, Suite 400 Portland, Oregon 97204 Telecopier No.: Attn.: 2 Wachovia $94,102,885.82 $81,555,834.38 191 Peachtree Street NE, 28th Floor Atlanta, Georgia 30303 Telecopier No.: Attn.: Marine Midland Bank $58,814,303.64 $50,972,396.49 140 Broadway, 5th Floor New York, New York 10005 Telecopier No.: Attn.: Gina Sidorsky Bank of Montreal $23,525,721.46 $20,388,958.59 115 South La Salle Street Chicago, Illinois 60603 Telecopier No.: Attn.: Compagnie Financier de CIC et de $23,525,721.46 $20,388,958.59 l'Union Europeenne, 520 Madison Avenue New York, New York 10022 Telecopier No.: Attn.: First Security Bank, N.A. $23,525,721.46 $20,388,958.59 15 East 100 South , 2nd Floor Salt Lake City, Utah 84111 Telecopier No.: Attn.: Banque Paribas $23,525,721.46 $20,388,958.59 101 California Street, Suite 3150 San Francisco, CA 94111 Telecopier No.: Attn.: Royal Bank of Canada $23,525,721.46 $20,388,958.59 600 Wilshire Blvd., Suite 800 Los Angeles, California 90017 Telecopier No.: Attn.: 3 Transamerica Life Insurance and $23,525,721.46 $20,388,958.59 Annuity Company 1150 South Olive Street, Suite 2700 Los Angeles, California 90015 Telecopier No.: Attn.: Zions First National Bank $14,115,432.87 $12,233,375.16 One South Main Street Salt Lake City, Utah 8411 Telecopier No.: Attn.: ABN Amro North America, Inc. $11,762,860.73 $10,194,479.30 One Union Square 600 University Street, Suite 2323 Seattle, Washington 98101-2070 Telecopier No.: Attn.: The Bank of New York $11,762,860.73 $10,194,479.30 One Wall Street New York, New York 10286 Telecopier No.: Attn.: First Union National Bank $11,762,860.73 $10,194,479.30 One First Union Center 301 South College Street Charlotte, North Carolina 28288-0737 Telecopier No.: Attn.: KeyBank National Association $11,762,860.73 $10,194,479.30 700 Fifth Avenue, 48th Floor Seattle, Washington 98104 Telecopier No.: Attn.: The Mitsubishi Trust and Banking $11,762,860.73 $10,194,479.30 Corporation 520 Madison Avenue New York, New York 10286 Telecopier No.: Attn.: 4 The Sumitomo Trust and Banking Co. $11,762,860.73 $10,194,479.30 Ltd., Los Angeles Agency 333 South Grand Avenue, Suite 5300 Los Angeles, California 90071 Telecopier No.: Attn.: Bank Leumi, U.S.A. $7,057,716.44 $6,116,687.58 8383 Wilshire Blvd., Suite 400 Beverly Hills, California 90211 Telecopier No.: Attn.: First Hawaiian Bank $8,035,714.29 $6,964,285.71 999 Bishop Street, 11th Floor Honolulu, Hawaii 96813 Telecopier No.: Attn.: FirstTrust Bank $4,705,144.29 $4,077,791.72 1931 Cottman Avenue Philadelphia, Pennsylvania 19111 Telecopier No.: Attn.: 5 SCHEDULE 2.5 TO LOAN AGREEMENT -------------- EXISTING LETTERS OF CREDIT Union Bank as Issuing Bank: Letter of Stated Credit Number Beneficiary Amount Maturity - ------------- ----------- ------ -------- Issued under Hughes Market, Inc. S006588 Reliance Insurance Co. $8,879,626 12/31/98 S008016 City of Los Angeles Dept. of Transportation $103,000 8/1/98 Issued under Alpha Beta Company S001078 Lou Jones & Assoc. $365,000 5/31/98 S068494 Calif. Dept. of Ind. Rel. Self Ins. Plans (Workers Comp.) $4,688,363 6/17/98 S068504 Calif. Dept. of Ind. Rel. Self Ins. Plans (Workers Comp.) $34,889,886 6/17/98 S230034 Riverside County Waste Services $12,400 8/7/98 S230713 Amwest Surety Insurance Company $166,000 7/30/98 Issued under Falleys Inc. S011828 The Travelers Companies $695,000 4/18/98 1 Bankers Trust Company as Issuing Bank: Letter of Stated Credit Number Beneficiary Amount Maturity - ------------- ----------- ------ -------- Issued under Ralphs Grocery Company S05520 U.S. Trust Co. of CA, N.A. $771,057 9/30/98 S11504 American Food and Drug Inc. (Alpha Beta Promissory Note) $2,200,000 10/28/98 S11560 CA Dept. of Fish & Game, Dept. Army, City of Riverside (Riverside Warehouse) $177,000 10/21/98 2 Bank of America as Issuing Bank: Letter of Stated Credit Number Beneficiary Amount Maturity - ------------- ----------- ------ -------- Issued Under Ralphs Grocery Company LASB - 216214 Calif. Dept. of Ind. Rel. (910091718678LA) Self Ins. Plans (Workers Comp.) $31,507,241 5/16/98 3 SCHEDULE 2.20(a) TO LOAN AGREEMENT ------------------- STORE PROPERTY AND DISTRIBUTION CENTER ACQUIRED IN MERGERS 1. Hughes Distribution Center (Irwindale, California) 2. Hughes office building (Irwindale, California) 3. Hughes Stores: a. Santa Clarita (#18) b. Sherman Oaks (#7) c. N. Mission Viejo (#58) 4. Ralphs Stores: a. Studio City (#150) b. Devonshire (#45) c. Northridge (#153) d. Santa Monica (#290) e. University Park (#226) f. San Marino (#43) g. N. Fountain Valley (#230) h. Hastings Ranch (#204) i. Camarillo (#98) j. Canoga Park (#122) k. West Hills (#640) l. South Torrance (#259) m. Laguna Niguel (#222) n. El Toro (#225) o. Canyon Country (#184) p. Triangle Square (#228) 5. Four (4) Stock Market stores 4 SCHEDULE 2.20(e) TO LOAN AGREEMENT ------------------- TENDERED BONDS A. Food 4 Less Holdings, Inc. 1. Indenture dated as of June 1, 1995 among Food 4 Less Holdings, Inc. and United States Trust Company (13.625% Senior Discount Debentures due 2005) ($193,363,000 at maturity). 2. Indenture dated as of June 1, 1995 among Food 4 Less Holdings, Inc. and Norwest Bank Minnesota, N.A. (13.625% Senior Subordinated Pay-in-Kind Debentures due 2007) ($182,889,850). B. Ralphs Grocery Company, Inc. 1. Indenture dated as of June 1, 1995 among Food 4 Less Supermarkets, Inc. (now Ralphs), Subsidiary Guarantors, and Norwest Bank Minnesota, N.A. ($520,326,000 10.45% Senior Notes Due 2004). 2. Indenture dated as of June 6, 1996 among Ralphs Grocery Company, Subsidiary Guarantors and Norwest Bank Minnesota, N.A. ($100,000,000 10.45% Senior Notes Due 2004). 3. Indenture dated as of June 1, 1995 among Food 4 Less Supermarkets, Inc. (to be merged with and into Ralphs Grocery Company), Subsidiary Guarantors and United States Trust Company of New York ($524,055,000 11% Senior Subordinated Notes due 2005). 4. Indenture dated as of March 26, 1997 among Ralphs Grocery Company, Subsidiary Guarantors and United States Trust Company of New York ($155,000,000 11% Senior Subordinated Notes Due 2005). C. Quality Food Centers, Inc. 1. Indenture dated as of March 19, 1997 among Quality Food Centers, Inc., Certain Guarantors and First Trust National Association ($150,000,000 of 8.70% Senior Subordinated Notes due 2007). 5 SCHEDULE 3.6 TO LOAN AGREEMENT --------------- DISCLOSED MATTERS None. 6 SCHEDULE 3.15 TO LOAN AGREEMENT ----------------
SUBSIDIARIES Percent Subsidiary1 Ownership Direct Owner - ----------------------------------------------------------------------------------------- Fred Meyer Stores, Inc. 100% (direct) Fred Meyer, Inc. B&B Stores, Inc. 100% (indirect) Fred Meyer Stores, Inc. B&B Pharmacy, Inc.2 100% (indirect) B&B Stores, Inc. CB&S Advertising Agency, Inc. 100% (indirect) Fred Meyer Stores, Inc. Distribution Trucking Company 100% (indirect) Fred Meyer Stores, Inc. FM Retail Services, Inc. 100% (indirect) Fred Meyer Stores, Inc. FM, Inc.2 100% (indirect) Fred Meyer Stores, Inc. FM Holding Corporation 100% (indirect) Fred Meyer Stores, Inc. Fred Meyer of Alaska, Inc. 100% (indirect) Fred Meyer Stores, Inc. Fred Meyer of California, Inc. 100% (indirect) Fred Meyer Stores, Inc. Fred Meyer (HK) Limited3 80% (indirect) Fred Meyer Stores, Inc. Fred Meyer Jewelers, Inc. 100% (indirect) Fred Meyer Stores, Inc. Fred Meyer, Inc. a 100% (indirect) Fred Meyer Stores, Inc. Washington corporation3 Grand Central, Inc. 100% (indirect) FM Holding Corporation JH Properties, Inc. 100% (indirect) Roundup Co. Merksamer Jewelers, Inc. 100% (indirect) Fred Meyer Jewelers, Inc. Natur Glo, Inc.3 100% (indirect) Fred Meyer Stores, Inc. Roundup Co. 100% (indirect) Fred Meyer Stores, Inc. Smith's Food & Drug Centers, Inc. 100% (direct) Fred Meyer, Inc. Compare, Inc. 100% (indirect) Smitty's Super Valu, Inc. Richie's, Inc. 100% (indirect) Smith's Food & Drug Centers, Inc. Saint Lawrence Holding Company 100% (indirect) Smitty's Super Valu, Inc. SLHC 2, Inc.3 100% (indirect) Smith's Food & Drug Centers, Inc. Smith's Beverage of Wyoming, Inc. 100% (indirect) Smith's Food & Drug Centers, Inc. Smitty's Super Valu, Inc. 100% (indirect) Smitty's Supermarkets, Inc. Smitty's Equipment Leasing, Inc. 100% (indirect) Smitty's Super Valu, Inc. Smitty's Supermarkets, Inc. 100% (indirect) Smith's Food & Drug Centers, Inc. Treasure Valley Land Company, L.C. 100% (indirect) Smith's Food & Drug Centers, Inc. Western Property Investment 100% (indirect) Smith's Food & Drug Centers, Inc. Group, Inc.2 Quality Food Centers, Inc. 100% (direct) Fred Meyer, Inc. Hughes Markets, Inc. 100% (indirect) Quality Food Centers, Inc. Hughes Realty, Inc. 100% (indirect) Hughes Markets, Inc. KU Acquisition Corporation 100% (indirect) Quality Food Centers, Inc. QFC Sub, Inc.2 100% (indirect) Quality Food Holdings, Inc. Quality Food, Inc.2 100% (indirect) Quality Food Centers, Inc. Quality Food Holdings, Inc.2 100% (indirect) Quality Food, Inc. Second Story, Inc. 100% (indirect) Quality Food Centers, Inc.
7
Food 4 Less Holdings, Inc. 100% (direct) Fred Meyer, Inc. Alpha Beta Company 100% (indirect) Food 4 Less of S. California, Inc. Bay Area Warehouse Stores, Inc. 100% (indirect) Cala Co. Bell Markets, Inc. 100% (indirect) Cala Co. Cala Co. 100% (indirect) Ralphs Grocery Company Cala Foods, Inc. 100% (indirect) Cala Co. Crawford Stores, Inc. 100% (indirect) Ralphs Grocery Company Falley's, Inc. 100% (indirect) Ralphs Grocery Company Food 4 Less of Southern 100% (indirect) Ralphs Grocery Company California, Inc. Food 4 Less GM, Inc 100% (indirect) Alpha Beta Company Food 4 Less Merchandising, Inc. 100% (indirect) Alpha Beta Company Food 4 Less of California, Inc. 100% (indirect) Alpha Beta Company Ralphs Grocery Company 100% (indirect) Food 4 Less Holdings, Inc. - ---------------------- 1 Unless otherwise indicated, each Subsidiary is a Material Subsidiary and is a party to the Subsidiary Guarantee. 2 Not a Material Subsidiary. 3 Not a Material Subsidiary and not a party to the Subsidiary Guarantee.
8 SCHEDULE 4.1 TO LOAN AGREEMENT --------------- REFINANCED DEBT1/ A. Refinanced Debt -- Fred Meyer: 1. $1,030,000,000 Credit Agreement, dated as of September 9, 1997, among Fred Meyer, Bankers Trust Company, as Administrative Agent, The Chase Manhattan Bank, as Syndication Agent, and the lenders named therein ($820,000,000). 2. $500,000,000 364-Day Credit Agreement, dated as of September 9, 1997, among Fred Meyer, Bankers Trust Company, as Administrative Agent, The Chase Manhattan Bank, as Syndication Agent, and the lenders named therein (zero). 3. $500,000,000 Bridge Credit Agreement, dated as of September 9, 1997, among Fred Meyer, Bankers Trust Company, as Administrative Agent, The Chase Manhattan Bank, as Syndication Agent, and the lenders named therein ($500,000,000). 4. Participation Agreement, dated as of September 9, 1997, among Fred Meyer Stores, as lessee, FMS Trust 1997-1, as lessor, Wilmington Trust Company, not individually but solely as the Owner Trustee under the FMS 1997-1 Trust, Bankers Trust Company, as Administrative Agent, The Chase Manhattan Bank, as Syndication Agent, and the lenders named therein ($251,000,000). 5. Participation Agreement, dated as of January 27, 1998, among Fred Meyer Stores, as lessee, FMS Trust 1998-1, as lessor, Wilmington Trust Company, not individually but solely as the Owner Trustee under the FMS 1998-1 Trust, The Chase Manhattan Bank, as Administrative Agent, and the lenders named therein ($52,000,000). ----------------- 1/ Estimated payoff amounts at Closing are indicated in parentheses. 9 B. Refinanced Debt -- Food 4 Less: 1. $875,000,000 Amended and Restated Credit Agreement dated as of April 17, 1997 among Ralphs Grocery Company, Food 4 Less Holdings, Inc., Various Lenders and Bankers Trust Company ($685,000,000). 2. Indenture dated as of June 1, 1995 among Food 4 Less Holdings, Inc. and United States Trust Company (13.375% Senior Discount Debentures due 2005), as amended by the First Supplemental Indenture, dated February 26, 1998.2 3. Indenture dated as of June 1, 1995 among Food 4 Less Holdings, Inc. and Norwest Bank Minnesota, N.A. (13.375% Senior Subordinated Pay-in-Kind Debentures due 2007), as amended by the First Supplemental Indenture, dated February 26, 1998.2 4. Indenture dated as of June 1, 1995 among Food 4 Less Supermarkets, Inc. (now Ralphs), Subsidiary Guarantors, and Norwest Bank Minnesota, N.A. ($520,326,000 10.45% Senior Notes due 2004); as amended by First Supplemental Indenture for 10.45% Senior Notes due 2004, dated as of June 14, 1995, as amended by the First Supplemental Indenture, dated February 26, 1998.2 5. Indenture dated as of June 6, 1996 among Ralphs Grocery Company, Subsidiary Guarantors and Norwest Bank Minnesota, N.A. ($100,000,000 10.45% Senior Notes Due 2004), as amended by the First Supplemental Indenture, dated February 26, 1998.2 6. Indenture dated as of June 1, 1995 among Food 4 Less Supermarkets, Inc. (to be merged with and into Ralphs Grocery Company), Subsidiary Guarantors and United States Trust Company of New York ($524,055,000 11% Senior Subordinated Notes due 2005), as amended by the First Supplemental Indenture, dated February 26, 1998.2 7. Indenture dated as of March 26, 1997 among Ralphs Grocery Company, Subsidiary Guarantors and United States Trust Company of New York ($155,000,000 11% Senior Subordinated Notes Due 2005), as amended by the First Supplemental Indenture, dated February 26, 1998.2 - ------------------- 2/ Subject of $1,675,583,850 Offer to Purchase and Consent Solicitation Statement dated January 22, 1998. 10 C. Refinanced Debt -- QFC: 1. Amended and Restated Credit Agreement dated as of March 14, 1997 among Quality Food Centers, Inc., Quality Food Holdings, Inc., Quality Food, Inc., Bank of America National Trust and Savings Association and Various Financial Institutions ($184,000,000). 2. Indenture dated as of March 19, 1997 among Quality Food Centers, Inc., Certain Guarantors and First Trust National Association ($150,000,000 of 8.70% Senior Subordinated Notes due 2007), as amended by the First Supplemental Indenture, dated [ ], 1998.3 - -------------- 3 Subject of $150,000,000 Offer to Purchase and Consent Solicitation Statement dated January 26, 1998. 11 SCHEDULE 6.1 TO LOAN AGREEMENT --------------- EXISTING DEBT/1 A. Outstanding Debt -- Fred Meyer: 1. Commercial Paper (unsecured notes; approximately $367,000,000 with various maturities through 180 days).2 2. Aircraft Lease Agreement, dated as of February 5, 1997, between NationsBanc Leasing Corporation of North Carolina, as lessor, and Fred Meyer, as lessee. 3. Long-term Notes, secured by trust deeds, due through 2012, fixed interest rates from 9.0% to 9.52% ($40,972,061 as of 2/25/98). 4. Continuing Guaranty, dated October 23, 1996, from Fred Meyer for the benefit of Monogram Credit Card Bank of Georgia, relating to Consumer Credit Card Program Agreement, dated as of October 23, 1996, by and among Merksamer Jewelers, Inc., Fred Meyer Jewelers, Inc. and Monogram Credit Card Bank of Georgia. 5. Indenture dated as of May 23, 1996 by and between Smith's Food & Drug Centers, Inc. and Fleet National Bank of Connecticut, as trustee, with respect to the 11.25% Senior Subordinated Notes due 2007 ($5,045,000 as of 2/25/98). 6. Smith's Food & Drug Centers, Inc. Full Recourse Notes with Wilmington Trust Company as Pass Thru Trustee. Series E 8.64% and 9.20% due July 2, 2012 and July 2, 2018; Series F 8.64% and 9.20% due July 2, 2012 and July 2, 2018; and Series H 8.64% and 9.20% due July 2, 2012 and July 2, 2018 ($24,164,000 as of 2/25/98). - ----------------------- 1 Debt of Material Subsidiaries exceeding $5,000,000; aggregate of debt less than $5,000,000 and not set forth herein does not exceed $25,000,000. Debt to be refinanced at Closing separately reported on Schedule 4.1. 2 Fred Meyer commercial paper issued pursuant to programs in place with United States National Bank, N.A., Wells Fargo Bank, N.A., and Bank of America NW, N.A., doing business as SeaFirst Bank (the "Placement Agents"). Commercial paper of Fred Meyer is not subject to prepayment and will be paid as it becomes due. 12 7. Indenture, dated as of July 16, 1986, between Saint Lawrence Holding Company and First Interstate Bank of Arizona, N.A., as Trustee, as supplemented by the First Supplemental Indenture, dated as of July 16, 1986 ($13,000,000 10.5% First Mortgage Sinking Fund Bonds, Series 1986, due July 31, 2016) ($11,579,893 as of 2/25/98). B. Outstanding Debt -- F4L: 1. Debt identified on Schedule 2.20(e) Sections A and B, to the extent not tendered pursuant to Offer to Purchase and Consent Solicitation Statement dated January 22, 1998. 2. Indenture dated as of April 15, 1992 among Food 4 Less Supermarkets, Inc., the Subsidiary Guarantors and Norwest Bank Minnesota, N.A.($175,000,000 10.45% Senior Notes due 2000); as amended by the First Supplemental Indenture for 10.45% Notes due 2000, dated as of July 24, 1992; as amended by the Second Supplemental Indenture for 10.45% Notes due 2000, dated as of June 14, 1995; as amended by the Third Supplemental Indenture for 10.45% Notes due 2000, dated as of June 14, 1995. 3. Indenture Dated as of July 29, 1992 among Ralphs Grocery Company and United States Trust Company of New York (10.25% Senior Subordinated Notes due 2002); as amended by the First Supplemental Indenture for 10.25% Senior Subordinated Notes due 2002, dated as of May 30, 1995; as amended by the Second Supplemental Indenture for 10.25% Senior Subordinated Notes due 2002, dated as of June 14, 1995. 4. Indenture Dated as of March 30, 1993 among Ralphs Grocery Company and United States Trust Company of New York (9% Senior Subordinated Notes due 2003); as amended by the First Supplemental Indenture for 9% Senior Subordinated Notes due 2003, dated as of June 23, 1993; as amended by the Second Supplemental Indenture for 9% Senior Subordinated Notes due 2003, dated as of May 30, 1995; as amended by the Third Supplemental Indenture for 9% Senior Subordinated Notes due 2003, dated as of June 14, 1995. 5. Long-term notes secured by trust deeds with respect to the Adams and Vermont Renaissance Plaza and Falley's store # 5 in St. Joseph, MO (approx. $7,200,000 as of 3/11/98). 6. Capital leases with respect to equipment installed at numerous property locations (approx. $156,000,000 as of 3/11/98). 13 7. Note payable to IBM Credit for mainframe computer system and related store equipment ($5,631,000). C. Outstanding Debt -- QFC: 1. Debt identified on Schedule 2.20(e) Section C, to the extent not tendered pursuant to Offer to Purchase and Consent Solicitation Statement dated January 26, 1998. 2. Note Purchase Agreements dated as of July 30, 1997 among Santee Dairies, Inc. and Various Purchasers, as amended by that certain Waiver, Amendment and Guaranty, dated as of March 6, 1998, among Santee Dairies, Inc., Hughes Markets, Inc., various Noteholders, Union Bank of California, as trustee, and Fred Meyer, Inc. ($80,000,000 Senior Subordinated Notes due 2008). 14 SCHEDULE 6.2 TO LOAN AGREEMENT --------------- LIENS A. Liens - Fred Meyer: 1. Trust deeds, securing long-term notes, due through 2012, fixed interest rates from 9.0% to 9.52% (aggregate of $40,972,061 as of 2/25/98): a. Lien on Auburn, Washington Store, in connection with financing from Nationwide Life Insurance. b. Lien on Walker Road Store, Portland, Oregon, in connection with financing from Nationwide Life Insurance ($10,306,000 remaining outstanding as of 2/1/97) and Employers Life Insurance. c. Lien on West Fairbanks, Alaska Store, in connection with financing from Nationwide Life Insurance. 2. Lien on Brigham City Utah Store (Store No. #78), in connection with IRB financing (approximately $512,000 remaining outstanding as of 2/25/98). 3. Lien on North Ogden, Utah Store (Store No. #79), in connection with IRB financing (approximately $1,908,000 remaining outstanding as of 2/25/98). 4. Lien on Provo City, Utah Store (Store No. #136), in connection with IRB financing (approximately $3,262,000 remaining outstanding as of 2/25/98). 5. Lien on Riverside, California Store (Store No. #706), in connection with promissory note to Marilyn & Gilbert Smith (approximately $2,700,000 remaining outstanding as of 2/25/98). 6. Lien on Almagordo, New Mexico Store (Store No. #434), in connection with promissory note to Joe & Flo Erwin (approximately $39,000 remaining outstanding as of 2/25/98). 7. Lien on Scottsdale, Arizona Store and Mesa, Arizona Store (Store Nos. #621 and 622), in connection with 10.5% Sinking Fund Bonds (approximately $11,580,000 remaining outstanding as of 2/25/98). 15 B. Liens - Food 4 Less: 1. Liens on Falley's store #5 in St. Joseph, MO in favor of Business Men's Assurance Company of America; Falley's store #989 in Topeka, KS in favor of Falger's, Inc.; and the Adams and Vermont Renaissance Plaza (approx. $7,200,000 aggregate). 2. Those Liens on assets of Ralphs Grocery Company in favor of Future Systems Development, Inc., arising under Sales Agreement dated Dec. 15, 1989 between Future Systems Development Inc. and Ralphs Grocery Co. and as set forth in UCC-1 financing statement filed December 19, 1989 (file no. 89320805) with the California Secretary of State (specifically identified accounts, contract rights, chattel paper, instruments, equipment, proceeds). 3. Those Liens on certain Patronage Refund Certificates issued by Associated Wholesale Grocers, Inc. to Falley's. 4. Those liens on assets of Adams & Vermont Renaissance Plaza in favor of Tokai Bank of California, as set forth on UCC-1 financing statement filed May 16, 1996 (file no. 9613860421) with the California Secretary of State (accounts, equipment, fixtures, chattel paper, general intangibles, contract rights, and negotiable instruments). 5. Those liens on assets of Falley's, Inc. in favor of Associated Wholesale Grocers, Inc., as set forth on numerous UCC-1 financing statements filed with the Kansas Secretary of State (all inventory, equipment and fixtures at specified store sites). C. Liens - Quality Food Centers: 1. Mechanic's lien in amount of approximately $900,000 as to Store No. 847; QFC is being indemnified by title company with respect to thereto. 2. Liens on Sherman Oaks, CA store (Hughes store #2) in favor of Fidelity Mutual Life Insurance Company and Her-Dek Corporation. 3. Lien on Granada Hills, CA store (Hughes store #4) in favor of Geraldine Russell Family Trust. 16 SCHEDULE 6.5 TO LOAN AGREEMENT --------------- INVESTMENTS A. Fred Meyer: None. B. Quality Food Centers: 1. Quality Food Centers, Inc. holds a 22% interest in Associated Grocers, Inc., with a book value of $14,305,000. 2. Hughes Markets, Inc. holds a 50% interest in Santee Dairies, LLC, with a book value of $9,295,000. C. Food 4 Less: 1. Alpha Beta, as successor to The Boys Markets, Inc., owns 12.2% of the shares of Hawthorne Center Parking Company, which owns the common area in a shopping center located in Hawthorne, California. 2. Ralphs Grocery Company has loaned an aggregate of $9,300,000 to developers of the following three stores: Beverwill (store #198), $2,800,000; Westwood (store #203) $5,000,000; Santa Barbara (store #208), $1,500,000. 3. F4L holds interests in the following joint ventures and partnerships: Adams West Associates, Ltd. 33.3% Adams West Supermarket Associates, Ltd. Adams/Vermont Renaissance Plaza, Ltd. 75% Beverage Partners, LP 18.18% Cathedral City Marketplace, Ltd. 15% La Brea Marketplace, LP 33% Mid Valley Dairy - Turlock 6.66% Pacoima Plaza Partnership 40% RGC Partners, LP 5% Sunnyside Partners 27.92% Price Enterprise, Inc. 4. Food 4 Less has outstanding investments in suppliers and supplier cooperatives made in the ordinary course of business and consistent with past practice, 17 including Certified Grocers of California, Ltd. and Associated Wholesale Grocers, Inc. (Kansas). 18 SCHEDULE 6.9 TO LOAN AGREEMENT --------------- RESTRICTIVE AGREEMENTS None. 19 Schedule A Amortization Schedule The Borrower shall make equal quarterly payments in respect of the Term Loans and in accordance with Section 2.1 of the Loan Agreement, as follows: Date Amount August 15, 1998 $6,250,000.00 November 7, 1998 $6,250,000.00 January 30, 1999 $6,250,000.00 May 22, 1999 $6,250,000.00 August 14, 1999 $37,500,000.00 November 6, 1999 $37,500,000.00 January 29, 2000 $37,500,000.00 May 20, 2000 $37,500,000.00 August 12, 2000 $62,500,000.00 November 4, 2000 $62,500,000.00 February 3, 2001 $62,500,000.00 May 26, 2001 $62,500,000.00 August 18, 2001 $100,000,000.00 November 10, 2001 $100,000,000.00 February 2, 2002 $100,000,000.00 May 25, 2002 $100,000,000.00 August 17, 2002 $125,000,000.00 November 9, 2002 $125,000,000.00 February 1, 2003 $125,000,000.00 Maturity Date Outstanding principal balance 1 EXHIBIT A TO LOAN AGREEMENT -------------- FORM OF ASSIGNMENT AND ACCEPTANCE Reference is made to the Loan Agreement, dated as of March __, 1998 (as amended, supplemented or otherwise modified from time to time, the "Loan Agreement"), among Fred Meyer, Inc. (the "Borrower") the Lenders named therein (the "Lenders"), Bankers Trust Company, as administrative agent for the Lenders (in such capacity, the Administrative Agent") and The Chase Manhattan Bank, as syndication agent. Unless otherwise defined herein, terms defined in the Loan Agreement and used herein shall have the meanings given to them in the Loan Agreement. _________________ (the "Assignor") and _____________(the "Assignee") agree as follows: 1. The Assignor hereby irrevocably sells and assigns to the As signee without recourse to the Assignor, and the Assignee hereby irrevocably purchases and assumes from the Assignor without recourse to the Assignor, as of the Effective Closing Date (as defined below), an interest (the "Assigned Inter est"), as specified on SCHEDULE 1, in and to the Assignor's rights and obligations under the Loan Agreement with respect to those credit facilities contained in the Loan Agreement as are set forth on SCHEDULE 1 (individually, an "Assigned Facility"; collectively, the "Assigned Facilities"), in a principal amount for each Assigned Facility as set forth on SCHEDULE 1. 2. The Assignor (a) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or represen tations made in or in connection with the Loan Agreement or with respect to the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Loan Agreement or any other instrument or document furnished pursuant thereto, other than that the Assignor has not created any adverse claim upon the interest being assigned by it hereunder and that such interest is free and clear of any such adverse claim; and (b) makes no representation or warranty and assumes no responsibility with respect to the financial condition of Borrower or any of its Subsidiaries or any other obligor or the performance or observance by Borrower or any of its Subsidiaries or any other obligor of any of their respective obligations under the Loan Agreement or any other instrument or document furnished pursuant hereto or thereto. 3. The Assignee (a) represents and warrants that it is legally authorized to enter into this Assignment and Acceptance; (b) confirms that it has received a copy of the Loan Agreement, together with copies of the financial statements delivered pursuant to the Loan Agreement and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Acceptance; (c) agrees that it will, independently and without reliance upon the Assignor, the Administrative Agent or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Loan Agreement or any other instrument or document furnished pursuant hereto or thereto; (d) appoints and authorizes the Administra tive Agent to take such action as agent on its behalf and to exercise such powers and discretion under the Loan Agreement or any other instrument or document furnished pursuant hereto or thereto as are delegated to the Administrative Agent by the terms thereof, together with such powers as are incidental thereto; and (e) agrees that it will be bound by the provisions of the Loan Agreement and will perform in accordance with its terms all the obligations which by the terms of the Loan Agreement are required to be performed by it as a Lender including, if it is organized under the laws of a jurisdiction outside the United States, its obligation pursuant to Section 2.17(e) of the Loan Agreement. 4. The effective date of this Assignment and Acceptance shall be the date set forth on Schedule 1, (the "Effective Date"). Following the execution of this Assignment and Acceptance, it will be delivered to the Administrative Agent for acceptance by it and recording by the Administrative Agent pursuant to the Loan Agreement, effective as of the Effective Date (which shall not, unless other wise agreed to by the Administrative Agent, be earlier than five Business Days after the date of such acceptance and recording by the Administrative Agent). 5. Upon such acceptance and recording, from and after the Effective Date, the Administrative Agent shall make all payments in respect of the Assigned Interest (including payments of principal, interest, fees and other amounts) to the Assignee whether such amounts have accrued prior to the Effective Date or accrue subsequent to the Effective Date. The Assignor and the Assignee shall make all A-2 appropriate adjustments in payments by the Administrative Agent for periods prior to the Effective Date or with respect to the making of this assignment directly between themselves. 6. From and after the Effective Date, (a) the Assignee shall be a party to the Loan Agreement and, to the extent provided in this Assignment and Acceptance, have the rights and obligations of a Lender thereunder and shall be bound by the provisions thereof and (b) the Assignor shall, to the extent provided in this Assignment and Acceptance and the Loan Agreement, relinquish its rights and be released from its obligations under the Credit Agreement. 7. This Assignment and Acceptance shall be governed by and construed in accordance with the laws of the State of New York. 8. This Assignment and Acceptance may be executed by one or more of the parties to this Assignment and Acceptance on any number of separate counterparts (including by facsimile transmission), and all of said counterparts taken together shall be deemed to constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Assignment and Acceptance to be executed as of the date first above written by their respective duly authorized officers on Schedule 1 hereto. A-3 SCHEDULE 1 TO ASSIGNMENT AND ACCEPTANCE RELATING TO THE 364 LOAN AGREEMENT, DATED AS OF MARCH , 1997, AMONG FRED MEYER, INC. THE LENDERS NAMED THEREIN, BANKERS TRUST COMPANY, AS ADMINISTRATIVE AGENT FOR THE LENDERS (IN SUCH CAPACITY, THE "ADMINISTRATIVE AGENT") AND THE CHASE MANHATTAN BANK, AS SYNDICATION AGENT - ------------------------------------------------------------------------------- Name of Assignor: Name of Assignee: Effective Date of Assignment: Credit Commitment/Term Loan Facility Assigned Amount Assigned Commitment Percentage Assigned1/ - --------------------- -------------------- -------------------------------- $___________ __.__________% [NAME OF ASSIGNEE] [NAME OF ASSIGNOR] By ------------------- By ----------------- Name: Name: Title: Title: ------------------ 1/ Calculate the Commitment Percentage that is assigned to at least 15 decimal places and show as a percentage of the aggregate commitments of all Lenders. S-1 Accepted for Recordation in Consented To:*/ the Register: Bankers Trust Company, FRED MEYER, INC. as Administrative Agent By ---------------------- By -------------------- Name: Name: Title: Title: Bankers Trust Company as Administrative Agent By ---------------------- Name: Title: - ------------------------ */ If required. S-2 EXHIBIT B TO LOAN AGREEMENT -------------- TERM NOTE New York, New York March _, 1998 $[ ] FOR VALUE RECEIVED, Fred Meyer, Inc., a Delaware corporation (the "Borrower") promises to pay to the order of [LENDER] (the "Payee") or its registered assigns, (x) the principal sum of [ ] U.S. Dollars [$], less (y) any principal payments made in accordance with the Loan Agreement. The Borrower also promises to pay interest on the unpaid principal amount hereof, from the date hereof until paid in full, at the rates and at the times which shall be determined in accordance with the provisions of that certain Loan Agreement, dated as of March 11, 1998 (as amended, supplemented or otherwise modified from time to time, the "Loan Agreement"), the terms defined therein and not otherwise defined herein being used herein as therein defined, by and among the Borrower, the financial institutions listed therein as Lenders, Bankers Trust Company, as Administrative Agent and The Chase Manhattan Bank, as Syndication Agent. This Note is one of the promissory notes referred to in Section 2.7(a) of the Loan Agreement and is issued pursuant to and entitled to the benefits of the Loan Agreement, to which reference is hereby made for a more complete statement of the terms and conditions under which the Loans evidenced hereby were made and are to be repaid. All payments of principal and interest in respect of this Note shall be made in lawful money of the United States of America in same day funds at the office of the Administrative Agent located at 130 Liberty Street, New York, New York, or at such other place as shall be designated in writing for such purpose in accordance with the terms of the Loan Agreement. Unless and until an Assignment and Acceptance effecting the assignment or transfer of this Note shall have been accepted by the Administrative Agent, and the Borrower has either executed a consent to such assignment (if consent is required under Section 9.4(b) of the Loan Agreement) or been notified in writing of such assignment, and recorded in the Register as provided in Section 9.4 of the Loan Agreement, the Borrower and the Administrative Agent shall be entitled to deem and treat Payee as the owner and holder of this Note and the Loans evidenced hereby. Payee hereby agrees, by its acceptance hereof, that before disposing of this Note or any part hereof it will make a notation hereon of all principal payments previously made hereunder and of the date to which interest hereon has been paid; provided, however, that the failure to make a notation of any payment made on this Note shall not limit or otherwise affect the obligations of the Borrower hereunder with respect to payments of principal of or interest on this Note. Whenever any payment on this Note shall be stated to be due on a day which 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 on this Note. THE LOAN AGREEMENT AND THIS NOTE 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. Upon the occurrence of an Event of Default, the unpaid balance of the principal amount of this Note, together with all accrued and unpaid interest thereon, may become, or may be declared to be, due and payable in the manner, upon the conditions and with the effect provided in the Loan Agreement. The terms of this Note are subject to amendment only in the manner provided in the Loan Agreement. This Note is subject to restrictions on transfer or assignment as provided in Section 9.4 of the Loan Agreement. No reference herein to the Loan Agreement and no provision of this Note or the Loan Agreement shall alter or impair the obligations of the Borrower, which are absolute and unconditional, to pay the principal of and interest on this Note at the place, at the respective times, and in the currency herein prescribed. The Borrower promises to pay all costs and expenses, including reasonable attorneys' fees, all as provided in the Loan Agreement, incurred in the collection and enforcement of this Note. The Borrower and any endorsers of this Note hereby consent to renewals and extensions of time at or after the maturity hereof, without notice, and hereby waive diligence, presentment, protest, demand and notice of every kind and, to the full extent permitted by law, the right to plead any statute of limitations as a defense to any demand hereunder. B-2 IN WITNESS WHEREOF, the Borrower has caused this Note to be duly executed and delivered by its officer thereunto duly authorized as of the date and at the place first written above. FRED MEYER, INC. By:-------------------------- Name: Title: S-1 TRANSACTIONS ON NOTE Outstanding Type of Amount of Amount of Principal Loan Made Loan Made Principal Paid Balance Notation Date This Date This Date This Date This Date Made By - ---- --------- --------- --------------- ------------ -------- EXHIBIT B TO LOAN AGREEMENT -------------- REVOLVING NOTE REVOLVING NOTE New York, New York March _, 1998 $[ ] FOR VALUE RECEIVED, FRED MEYER, INC., a Delaware corporation (the "Borrower") promises to pay to the order of [LENDER] (the "Payee") or its registered assigns, the lesser of (x) [ ] U.S. Dollars [$] and (y) the unpaid principal amount of all advances made by Payee to the Borrower as Revolving Loans under the Loan Agreement referred to below. The Borrower also promises to pay interest on the unpaid principal amount hereof, from the date hereof until paid in full, at the rates and at the times which shall be determined in accordance with the provisions of that certain Loan Agreement, dated as of March 11, 1998 (as amended, supplemented or otherwise modified from time to time, the "Loan Agreement"), the terms defined therein and not otherwise defined herein being used herein as therein defined, by and among the Borrower, the financial institutions listed therein as Lenders, Bankers Trust Company, as Administrative Agent and The Chase Manhattan Bank, as Syndication Agent. This Note is one of the promissory notes referred to in Section 2.7(a) of the Loan Agreement and is issued pursuant to and entitled to the benefits of the Loan Agreement, to which reference is hereby made for a more complete statement of the terms and conditions under which the Loans evidenced hereby were made and are to be repaid. All payments of principal and interest in respect of this Note shall be made in lawful money of the United States of America in same day funds at the office of the Administrative Agent located at 130 Liberty Street, New York, New York, or at such other place as shall be designated in writing for such purpose in accordance with the terms of the Loan Agreement. Unless and until an Assignment and Acceptance effecting the assignment or transfer of this Note shall have been accepted by the Administrative Agent, and the Borrower has either executed a consent to such assignment (if consent is required under Section 9.4(b) of the Loan Agreement) or been notified in writing of such assignment, and recorded in the Register as provided in Section 9.4 of the Loan Agreement, the Borrower and the Adminis trative Agent shall be entitled to deem and treat Payee as the owner and holder of this Note and the Loans evidenced hereby. Payee hereby agrees, by its acceptance hereof, that before B-1 disposing of this Note or any part hereof it will make a notation hereon of all principal payments previously made hereunder and of the date to which interest hereon has been paid; provided, however, that the failure to make a notation of any payment made on this Note shall not limit or otherwise affect the obligations of the Borrower hereunder with respect to payments of principal of or interest on this Note. Whenever any payment on this Note shall be stated to be due on a day which 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 on this Note. THE LOAN AGREEMENT AND THIS NOTE 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. Upon the occurrence of an Event of Default, the unpaid balance of the principal amount of this Note, together with all accrued and unpaid interest thereon, may become, or may be declared to be, due and payable in the manner, upon the conditions and with the effect provided in the Loan Agreement. The terms of this Note are subject to amendment only in the manner provided in the Loan Agreement. This Note is subject to restrictions on transfer or assignment as provided in Section 9.4 of the Loan Agreement. No reference herein to the Loan Agreement and no provision of this Note or the Loan Agreement shall alter or impair the obligations of the Borrower, which are absolute and unconditional, to pay the principal of and interest on this Note at the place, at the respective times, and in the currency herein prescribed. The Borrower promises to pay all costs and expenses, including reasonable attorneys' fees, all as provided in the Loan Agreement, incurred in the collection and enforcement of this Note. The Borrower and any endorsers of this Note hereby consent to renewals and extensions of time at or after the maturity hereof, without notice, and hereby waive diligence, presentment, protest, demand and notice of every kind and, to the full extent permitted by law, the right to plead any statute of limitations as a defense to any demand hereunder. B-2 IN WITNESS WHEREOF, the Borrower has caused this Note to be duly executed and delivered by its officer thereunto duly authorized as of the date and at the place first written above. FRED MEYER, INC. By:---------------------- Name: Title: S-1 TRANSACTIONS ON NOTE Outstanding Type of Amount of Amount of Principal Loan Made Loan Made Principal Paid Balance Notation Date This Date This Date This Date This Date Made By - ---- --------- --------- --------------- ------------ -------- EXHIBIT C TO LOAN AGREEMENT -------------- FORM OF OPINION LETTER, STOEL RIVES LLP March 11, 1998 TO EACH OF THE PARTIES SET FORTH IN SCHEDULE I ATTACHED HERETO Re: $3,500,000,000 Loan Agreement, dated as of March 11, 1998 Dear Administrative Agent, Syndication Agent and Lenders: We have acted as counsel to Fred Meyer, Inc., a Delaware corporation ("Borrower"), and the guarantors listed on attached Schedule II ("Guarantors"), in connection with the Loan Agreement, dated as of March 11, 1998 (the "Loan Agreement"), among Borrower, Bankers Trust Company, as administrative agent ("Administrative Agent"), The Chase Manhattan Bank, as syndication agent ("Syndication Agent"), and the lenders party thereto ("Lenders"). This opinion is delivered pursuant to Section 4.1(b) of the Loan Agreement. Unless otherwise defined in the opinion, all capitalized terms used in this opinion shall have the meanings assigned to them in the Loan Agreement. For the purpose of rendering our opinions herein, we have examined (i) the Loan Agreement, the Notes, the Subsidiary Guaranty, the Pledge Agreement and the Intercreditor Agreement (such agreements sometimes collectively referred to as the "Loan Documents"), (ii) certificates of public officials and officers of Borrower, (iii) certified copies of Borrower's Restated Certificate of Incorporation and Amended and Restated Bylaws, (iv) Board of Directors' resolutions of Borrower authorizing Borrower's participation in the transactions contemplated by the Loan Agreement, (v) certified copies of Articles or Certificate of Incorporation or other charter documents, as the case may be, and Bylaws for each Guarantor, (vi) Board of Directors' resolutions of each Guarantor authorizing such Guarantor's participation in the transactions contemplated by the Loan Agreement, and (vii) the agreements referred to as "material agreements" in the Officer's Certificate of Borrower (the "Officer's Certificate"), attached hereto as Exhibit A. To Each of the Parties Set Forth in Schedule I Attached Hereto Page 2 March 11, 1998 With respect to such examination, we have assumed: (i) the statements of fact made in all such certificates, documents, and instruments are true, accurate, and complete; (ii) the due authorization, execution, and delivery of the Loan Documents by the parties thereto (other than Borrower and Guarantors); (iii) the genuineness of all signatures (other than the signatures of persons signing on behalf of Borrower and Guarantors); (iv) the authenticity and completeness of all documents, certificates, instruments, records, and corporate records submitted to us as originals, the conformity to the original instruments of all documents submitted to us as copies, and the authenticity and completeness of the originals of such copies; (v) that all parties other than Borrower and Guarantors have all requisite corporate power and authority to execute, deliver, and perform the Loan Documents; and (vi) the enforceability of the Loan Documents against all parties thereto other than Borrower and Guarantors. Our opinions in paragraph (1) through (3) below as to qualification, current status and good standing are based solely upon certificates of public officials. Our opinion in paragraph (3) below as to valid existence is based solely upon our review of certified copies of the Articles or Certificate of Incorporation, as the case may be, and Bylaws for each Guarantor and the factual representations made by Borrower within the Loan Agreement. In rendering the opinions set forth in paragraphs (3) and (4) below, we have assumed that the Subsidiary Guaranty executed by each Guarantor may reasonably be expected to benefit, directly or indirectly, such Guarantor. In rendering the opinions set forth in paragraph (5) below, we have assumed that the indebtedness listed as "Refinanced Debt" is being repaid simultaneously with the closing of the transactions contemplated hereunder. We have also examined such other documents and records and have made such investigations of law, as we have deemed necessary to enable us to render this opinion. As to the accuracy of certain factual matters, we have relied on certificates and written statements of officers of Borrower and Guarantors and factual representations made by Borrower within the Loan Agreement. To Each of the Parties Set Forth in Schedule I Attached Hereto Page 3 March 11, 1998 For purposes of this opinion, "actual knowledge" means the conscious awareness of facts or other information by Gary R. Barnum and Kris Ormseth, being the persons at this firm principally involved with the transactions contemplated by the Loan Agreement, except that in the case of numbered paragraph (8) herein, "actual knowledge" shall include the above-named persons and the other persons at our firm who have worked on matters pertaining to Borrower since February 1, 1997. Based on the foregoing and subject to the qualifications below, we are of the opinion that: (1) Borrower is a corporation duly organized, validly existing, and in good standing under the laws of the state of Delaware and has all requisite corporate power and authority (a) to execute, deliver, and perform its obligations under the Loan Agreement, and (b) to own and operate its properties and to carry on its business as a holding company of Fred Meyer Stores, Inc. ("Fred Meyer"), Smith's Food & Drug Centers, Inc. ("Smiths"), Quality Food Centers, Inc. ("QFC"), Food 4 Less Holdings, Inc. ("FFL"), and their respective subsidiaries, as described in the "1934 Act Documents" referenced in the Officer's Certificate. (2) Borrower is duly qualified as a foreign corporation to do business and is of current status in the state of Oregon. (3) Each Guarantor is a corporation (or, in the case of Treasure Valley Land Company, L.C., a limited liability company) validly existing and in good standing or of current status, as the case may be, under the laws of its respective state of incorporation and has all requisite corporate power and authority (a) to execute, deliver, and perform its obligations under the Loan Documents to which it is a party, and (b) to own and operate its properties and to carry on its business as described in the "1934 Act Documents" referenced in the Officer's Certificate. (4) The Loan Documents to which Borrower or any Guarantor, as the case may be, is a party have been duly authorized by all necessary corporate action on the part of Borrower or such Guarantor, as the case may be, and the Loan Documents to which Borrower or such Guarantor, as the case may be, is a party have been duly executed and delivered by Borrower or such Guarantor, as the case may be, and constitute legal, valid, and binding To Each of the Parties Set Forth in Schedule I Attached Hereto Page 4 March 11, 1998 obligations of Borrower or such Guarantor, as the case may be, enforceable against Borrower or such Guarantor, as the case may be, in accordance with their respective terms. (5) Neither the execution and delivery by Borrower or any Guarantor, as the case may be, of the Loan Documents to which it is a party, the consummation by Borrower or any Guarantor of the transactions contemplated by the Loan Documents, nor the compliance by Borrower or any Guarantor with the terms and conditions of the Loan Documents conflicts with, results in a breach of, or constitutes a default under any of the terms, conditions, or provisions of (a) the Restated Certificate of Incorporation or the Amended and Restated Bylaws of Borrower, or (b) the Articles or Certificate of Incorporation or other charter document, as the case may be, or Bylaws of any Guarantor, or (c) any "material agreement" set forth in the Officer's Certificate or, to our actual knowledge, any judicial order by which Borrower or any Guarantor is bound, or, (d) except as specifically contemplated under the Loan Documents, results in the creation of any Lien on any of the properties or assets of Borrower or any Guarantor under any such agreement or, to our actual knowledge, any such order. (6) Neither the execution and delivery by Borrower or any Guarantor, as the case may be, of the Loan Documents to which it is a party, the consummation by Borrower and any Guarantor of the transactions contemplated by the Loan Documents, nor the compliance by Borrower or any Guarantor with the terms and conditions of the Loan Documents conflicts with (a) any present federal or Oregon statute, rule or regulation binding on Borrower or any Guarantor (including, without limitation, Regulations G, T, U and X of the Board of Governors of the Federal Reserve System), or (b) any Delaware statute, rule, or regulation contained in or promulgated under the General Corporation Law of the state of Delaware binding on Borrower or any Guarantor. (7) No order, consent, approval, license, authorization or validation of, or filing, recording or registration with, or exemption by, any governmental or public body or authority, or any subdivision thereof, is required to authorize, or is required to be obtained by Borrower or any Guarantor in connection with, (i) the execution, delivery and performance by Borrower or any Guarantor of any Credit Document to which it is a party or (ii) the legality, validity, To Each of the Parties Set Forth in Schedule I Attached Hereto Page 5 March 11, 1998 binding effect or enforceability of any such Credit Document against Borrower or any Guarantor. (8) To our actual knowledge after due inquiry, except as set forth under "Legal Proceedings" in the "1934 Act Documents" referenced in the Officer's Certificate, there are no actions, suits, or proceedings pending or threatened against Borrower or any Guarantor in any court or before any Governmental Authority that could reasonably be expected to result in a Material Adverse Effect. (9) The provisions in the Loan Documents concerning interest, fees, prepayment premiums and other similar charges do not violate the usury laws or other similar laws regulating the use or forbearance of money of the State of Oregon. (10) The Lenders are not required under the laws of the State of Oregon to qualify as a foreign corporation solely as a result of the execution, delivery and performance of the Loan Documents to which they are a party. (11) None of Borrower, Guarantors, or their respective Subsidiaries is an "investment company" within the meaning of the Investment Company Act of 1940, as amended. (12) None of Borrower, Guarantors, or their respective Subsidiaries is a "holding company," or a "subsidiary company" of a "holding company," or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company" within the meaning of the Public Utility Holding Company Act of 1935, as amended. The opinions set forth in paragraph (4) above are subject to (a) the effect of bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium, and other similar laws affecting creditors' rights generally (including, without limitation, the effectiveness of waivers of defenses and legal rights), and (b) the application of general principles of equity (regardless of whether enforcement is considered in a proceeding at law or equity), including, without limitation, the right to specific performance. A court might not enforce certain covenants or allow acceleration of the amounts due from Borrower or any Guarantor under the Loan Documents to which Borrower or any Guarantor is a party if it concludes that such enforcement or acceleration would be unreasonable or not undertaken To Each of the Parties Set Forth in Schedule I Attached Hereto Page 6 March 11, 1998 in good faith under the then existing circumstances, but the inclusion of such remedies does not, in our opinion, affect the validity of the Loan Documents to which Borrower or any Guarantor is a party. In addition, no opinion is expressed herein as to Section 9.3 of the Loan Agreement (to the extent indemnification provided for therein is for the negligence of any Person, any violation of law or might otherwise be determined as violative of public policy). The opinion set forth in paragraph (4) above is subject to the further qualification that the enforceability of any Guarantor's obligations under the Subsidiary Guaranty may be limited by certain rights and defenses at law and in equity which are available to a guarantor. In certain circumstances, a guarantor may be exonerated if the creditor materially alters the original obligation of the principal without the consent of the guarantor, elects remedies for default which impair the subrogation rights of the guarantor against the principal, or otherwise takes any action without notifying the guarantor which materially prejudices the guarantor. However, there is also authority to the effect that a guarantor may validly waive such rights if such waivers are expressly set forth in the guaranty. While we believe that a court should enforce language contained in the Subsidiary Guaranty waiving notice, limiting subrogation rights of each Guarantor, and making the obligations of each Guarantor unconditional, irrespective of any amendment to the obligations guaranteed by such Subsidiary Guaranty, the issue is not free from doubt and a court might conclude otherwise. The opinions expressed herein are limited to matters governed by the laws of the United States of America and the state of Oregon, and, as to the opinions expressed in paragraphs (1) and (3) through (6) above, the General Corporation Law of the state of Delaware, in each case as it exists at the date of this opinion, and we express no opinion as to the law of any other jurisdiction. The opinion expressed in paragraph (4), above, is given as if the Loan Documents were governed by the laws of the State of Oregon. Our opinion is limited to the matters expressly stated herein, and no other opinions may be implied or inferred. We are not undertaking any duty to advise you of changes which hereafter may be brought to our attention with respect to the laws covered by this opinion. In giving the opinions set forth in paragraphs (3), (4) (as to authorization), (5) and (8), in each case as they pertain to the FFL Companies listed on attached Schedule II, with your consent we have relied upon the opinion of Latham & Watkins, special counsel to FFL, and the opinion of Clutter, Hinkel & Aadalen, LLP, special Kansas counsel to Falley's, Inc., attached hereto as Exhibits B and C. To Each of the Parties Set Forth in Schedule I Attached Hereto Page 7 March 11, 1998 We express no opinion as to (a) the enforceability under certain circumstances of any provision imposing penalties, late payment charges or increases in interest rate upon delinquency in payment or the occurrence of Events of Default, (b) the enforceability of any choice-of-law provision, (c) the compliance with certain financial covenants under the "material agreements" set forth in the Officer's Certificate or (d) the compliance with applicable federal or state securities laws. This opinion is rendered only to Administrative Agent, Syndication Agent and Lenders (and their respective permitted successors and assigns) and is solely for their benefit in connection with the above transactions. This opinion may not be relied upon by Administrative Agent, Syndication Agent and Lenders for any other purpose or quoted to, copies given to or relied upon by any other person, firm, or corporation for any purpose without our prior written consent, except that copies may be given or made available to governmental bodies or regulators in accordance with the ordinary course of business and may be provided to prospective permitted assigns. Very truly yours, STOEL RIVES, LLP By:------------------------ Gary R. Barnum SCHEDULE I Addressees Bankers Trust Company, as Administrative Agent The Chase Manhattan Bank, as Syndication Agent The Lenders, party to the Loan Agreement SCHEDULE II Guarantors Percent Subsidiary Ownership Direct Owner [Fred Meyer/Smith's Companies] Fred Meyer Stores, Inc. 100% (indirect) Fred Meyer, Inc. Roundup Co. 100% (indirect) Fred Meyer Stores, Inc. JH Properties, Inc. 100% (indirect) Roundup Co. Fred Meyer of Alaska, Inc. 100% (indirect) Fred Meyer Stores, Inc. Fred Meyer of California, Inc. 100% (indirect) Fred Meyer Stores, Inc. Distribution Trucking Company 100% (indirect) Fred Meyer Stores, Inc. B&B Stores, Inc. 100% (indirect) Fred Meyer Stores, Inc. B&B Pharmacy, Inc. 100% (indirect) B&B Stores, Inc. CB&S Advertising Agency, Inc. 100% (indirect) Fred Meyer Stores, Inc. FM Holding Corporation 100% (indirect) Fred Meyer Stores, Inc. Grand Central, Inc. 100% (indirect) FM Holding Corporation FM Retail Services, Inc. 100% (indirect) Fred Meyer Stores, Inc. Fred Meyer Jewelers, Inc. 100% (indirect) Fred Meyer Stores, Inc. Merksamer Jewelers, Inc. 100% (indirect) Fred Meyer Jewelers, Inc. FM, Inc. 100% (indirect) Fred Meyer Stores, Inc. Smith's Food & Drug Centers, Inc. 100% (direct) Fred Meyer, Inc. Smith's Beverage of Wyoming, Inc. 100% (indirect) Smith's Food & Drug Centers, Inc. Western Property Investment 100% (indirect) Smith's Food & Drug Group, Inc. Centers, Inc. Smitty's Supermarkets, Inc. 100% (indirect) Smith's Food & Drug Centers, Inc. Smitty's Super Valu, Inc. 100% (indirect) Smitty's Supermarkets, Inc. Saint Lawrence Holding Company 100% (indirect) Smitty's Super Valu, Inc. Smitty's Equipment Leasing, Inc. 100% (indirect) Smitty's Super Valu, Inc. Compare, Inc. 100% (indirect) Smith's Food & Drug Centers, Inc Richie's, Inc. 100% (indirect) Smith's Food & Drug Centers, Inc Treasure Valley Land 100% (indirect) Smith's Food & Drug Company, L.C. Centers, Inc [QFC Companies] Quality Food Centers, Inc. 100% (direct) Fred Meyer, Inc. Hughes Markets, Inc. 100% (indirect) Quality Food Centers, Inc. Hughes Realty, Inc. 100% (indirect) Hughes Markets, Inc. KU Acquisition Corporation 100% (indirect) Quality Food Centers, Inc. Second Story, Inc. 100% (indirect) Quality Food Centers, Inc. Quality Food, Inc. 100% (indirect) Quality Food Centers, Inc. Quality Food Holdings, Inc. 100% (indirect) Quality Food, Inc. QFC Sub, Inc. 100% (indirect) Quality Food Holdings, Inc. [FFL Companies] Food 4 Less Holdings, Inc. 100% (direct) Fred Meyer, Inc. Ralphs Grocery Company 100% (indirect) Food 4 Less Holdings, Inc. Falley's, Inc. 100% (indirect) Ralphs Grocery Company Cala Co. 100% (indirect) Ralphs Grocery Company Bay Area Warehouse Stores, Inc. 100% (indirect) Cala Co. Cala Foods, Inc. 100% (indirect) Cala Co. Bell Markets, Inc. 100% (indirect) Cala Co. Food 4 Less of Southern 100% (indirect) Ralphs Grocery Company California, Inc. Alpha Beta Company 100% (indirect) Food 4 Less of S. California, Inc. Food 4 Less GM, Inc 100% (indirect) Alpha Beta Company Food 4 Less Merchandising, Inc. 100% (indirect) Alpha Beta Company Food 4 Less of California, Inc. 100% (indirect) Alpha Beta Company Crawford Stores, Inc. 100% (indirect) Ralphs Grocery Company EXHIBIT A OFFICER'S CERTIFICATE EXHIBIT B OPINION OF LATHAM & WATKINS EXHIBIT C OPINION OF CLUTTER, HINKEL & AADALEN, LLP EXHIBIT D TO LOAN AGREEMENT -------------- SUBSIDIARY GUARANTEE See Tab 2. EXHIBIT E TO LOAN AGREEMENT -------------- Guarantee Language The guarantee language described in that certain Prospectus Supple ment, dated March 4, 1998, to the Prospectus, dated February 4, 1998 (collectively, the "Prospectus"), for (i) the offering of senior unsecured notes of the Borrower in the aggregate principal amount of $1,750,000,000 and (ii) any subsequent offering of such notes under the Indenture described in such Prospectus. As to any other Debt, guarantee language in substantially the follow- ing form: This Guarantee shall be automatically and unconditionally released and discharged, without any further action required on the part of the beneficiary hereof or any other party hereto, upon: (i) the release of the Guarantor from its Bank Credit Facility Guarantee and its Bank Lease Facility Guarantee (as defined below); or (ii) any sale or other disposition (by merger or otherwise) to any Person which is not a subsidiary of Fred Meyer, Inc. of all of the Capital Stock in, or all or substan tially all of the assets of, the Guarantor, provided that such sale or disposition of such Capital Stock or assets is otherwise in compliance with the terms of the Bank Credit Facility or Bank Lease Facility, as the case may be. The parties hereto agree that the foregoing is for the benefit of the lenders party to the Bank Credit Facility and may not be amended, modified or waived (and no provision inconsistent therewith adopted) without the consent of such lenders. Certain Definitions "Bank Credit Facility" means the transactions contemplated by the $3,500,000,000 Loan Agreement, dated as of March 11, 1998, among Fred Meyer Inc., as borrower, the lenders identified therein, Bankers Trust Company, as administrative agent, and The Chase Manhattan Bank, as syndication agent, as such agreement and related agreements may by amended (including any amendment and restatement), supplemented or modified from time to time, including any replacement or refinancing thereof in the commercial bank market (including any such replacement or refinancing that increases the amount thereof). "Bank Credit Facility Guarantee" means the guarantee of the guarantor, dated March 11, 1998, in respect of the Bank Credit Facility, as such guarantee may by amended (including any amendment and restatement), supplemented or modified from time to time, including any replacement guarantee issued in connection with the replacement or refinancing of the Bank Credit Facility in the commercial bank market (including any such replacement or refinancing that increases the amount thereof). "Bank Lease Facility" means the transactions contemplated by the Participation Agreement, dated as of March 11, 1998, among Fred Meyer, Inc., Wilmington Trust Company, FMS Trust 1997-1, the investors named therein, the lenders identified therein, Bankers Trust Company, as administrative agent, The Chase Manhattan Bank, as syndication agent, as such agreement and related agreements may by amended (including any amendment and restatement), supplemented or modified from time to time, including any replacement or refinancing thereof in the commercial bank market (including any such replacement or refinancing that increases the amount thereof). "Bank Lease Facility Guarantee" means the guarantee of the guarantor, dated March 11, 1998, in respect of the Bank Lease Facility, as such guarantee may by amended (including any amendment and restatement), supplemented or modified from time to time, including any replacement guarantee issued in connection with the replacement or refinancing of the Bank Lease Facility in the commercial bank market (including any such replacement or refinancing that increases the amount thereof). 2 EX-10.8A 14 AMENDMENT TO DON KOURKOUMELIS EMPLOYMENT AGREEMENT Quality Food Centers, Inc. 300 Atlantic Street Suite 1001 Stamford, Connecticut 06901 October 15, 1997 Mr. Dan Kourkoumelis 6016 N.E. Bothell Way, F-144 Seattle, Washington, 98155 Dear Dan: This letter will serve to formalize our previous discussions regarding a change in your responsibilities within the Company and its subsidiaries. As we discussed, while you will continue to serve as President and Chief Executive Officer of Hughes, effective immediately, you will also be assigned substantial responsibilities with respect to QFC's Seattle/Puget Sound operations. As a result, your principal place of employment will be the Seattle/Puget Sound area. You will, of course, be reimbursed for the travel, lodging and other expenses which you incur in connection with your trips to and from Seattle. With respect to your current Employment Agreement, it will remain in effect in all respects except that your duties will be modified as set forth above. To the extent that this letter conflicts with your current Employment Agreement, it should be considered as a modification to the agreement. If you agree with the foregoing, please sign and return the enclosed copy of this letter, which countersigned letter shall constitute our agreement regarding the matters addressed herein. Sincerely, CHRISTOPHER A. SINCLAIR ----------------------------------------- Christopher A. Sinclair, Chief Executive Officer Agreed and Accepted: DAN KOURKOUMELIS - ----------------------------------------- Dan Kourkoumelis EX-10.10 15 1997 STOCK OPTION PLAN QUALITY FOOD CENTERS, INC. 1997 STOCK OPTION PLAN ---------------------- This 1997 Stock Option Plan (the "Plan") provides for the grant of options to acquire shares of common stock, $.001 par value (the "Common Stock"), of Quality Food Centers, Inc., a Washington corporation (the "Company"). Stock options granted under this Plan may be either options that qualify under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code") ("Incentive Stock Options"), or options that do not qualify under Section 422 of the Code ("Non-Qualified Stock Options"). Incentive Stock Options and Non-Qualified Stock Options granted under this Plan are referred to herein collectively as "Options." 1. PURPOSES. The purposes of this Plan are to retain the services of valued key employees and consultants of the Company and such other persons as the Plan Administrator shall select in accordance with Section 3 below, to encourage such persons to acquire a greater proprietary interest in the Company, thereby strengthening their incentive to achieve the objectives of the shareholders of the Company, and to serve as an aid and inducement in the hiring of new employees and to provide an equity incentive to consultants and other persons selected by the Plan Administrator. 2. ADMINISTRATION. This Plan shall be administered initially by the Board of Directors of the Company (the "Board"), except that the Board may, in its discretion, establish a committee composed of two (2) or more members of the Board or two (2) or more other persons to administer the Plan, which committee (the "Committee") may be an executive, compensation or other committee, including a separate committee especially created for this purpose. The Committee shall have the powers and authority vested in the Board hereunder (including the power and authority to interpret any provision of the Plan or of any Option). The members of any such Committee shall serve at the pleasure of the Board. A majority of the members of the Committee shall constitute a quorum, and all actions of the Committee shall be taken by a majority of the members present. Any action may be taken by a written instrument signed by all of the members of the Committee and any action so taken shall be fully effective as if it had been taken at a meeting. The Board or, if applicable, the Committee is referred to herein as the "Plan Administrator." The Plan shall be administered by the Board if each director is an "outside director" (as defined below) or by the Committee which, for the purposes hereof, shall be composed of two (2) or more members of the Board who are "Non-Employee Directors" (as defined below), and, as applicable, outside directors. The term "outside director" shall have the meaning assigned to it under Section 162(m) of the Code (as amended from time to time) and the regulations (or any successor regulations) promulgated thereunder ("Section 162(m) of the Code"). The term "Non-Employee Director" shall have the meaning assigned to it under Rule 16b-3 (as amended from time to time) promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act") or any successor rule or regulatory requirement. Subject to the provisions of this Plan, and with a view to effecting its purpose, the Plan Administrator shall have sole authority, in its absolute discretion, to (i) construe and interpret this Plan; (ii) define the terms used in the Plan; (iii) prescribe, amend and rescind the rules and regulations relating to this Plan; (iv) correct any defect, supply any omission or reconcile any inconsistency in this Plan; (v) grant Options under this Plan; (vi) determine the individuals to whom Options shall be granted under this Plan and whether the Option is an Incentive Stock Option or a Non-Qualified Stock Option; (vii) determine the time or times at which Options shall be granted under this Plan; (viii) determine the number of shares of Common Stock subject to each Option, the exercise price of each Option, the duration of each Option and the times at which each Option shall become exercisable; (ix) determine all other terms and conditions of the Options; and (x) make all other determinations and interpretations necessary and advisable for the administration of the Plan. All decisions, determinations and interpretations made by the Plan Administrator shall be binding and conclusive on all participants in the Plan and their legal representatives, heirs and beneficiaries. The Board or, if applicable, the Committee may delegate to one or more executive officers of the Company the authority to grant Options under this Plan to employees of the Company who, on the Date of Grant (as defined in Section 5(c) below), are not subject to Section 16 of the Exchange Act with respect to the Common Stock ("Non-Insiders"), and are not "covered employees" as such term is defined for purposes of Section 162(m) of the Code ("Non-Covered Employees"), and in connection therewith the authority to determine: (i) the number of shares of Common Stock subject to such Options; (ii) the duration of the Option; (iii) the vesting schedule for determining the times at which such Option shall become exercisable; and (iv) all other terms and conditions of such Options. The exercise price for any Option granted by action of an executive officer or officers pursuant to such delegation of authority shall not be less than the fair market value per share of the Common Stock on the Date of Grant. Unless expressly approved in advance by the Board or the Committee, such delegation of authority shall not include the authority to accelerate vesting, extend the period for exercise or otherwise alter the terms of outstanding Options. The term "Plan Administrator" when used in any provision of this Plan other than Section 2, 5(f), 5(m), and 11 shall be deemed to refer to the Board or the Committee, as the case may be, and an executive officer who has been authorized to grant Options pursuant thereto, insofar as such provisions may be applied to persons that are Non-Insiders and Non-Covered Employees and Options granted to such persons. 3. ELIGIBILITY. Incentive Stock Options may be granted to any individual who, at the time the Option is granted, is an employee of the Company or any Related Corporation (as defined below) ("Employees"). Non-Qualified Stock Options may be granted to Employees and to such other persons other than directors who are not Employees as the Plan Administrator shall select. Options may be granted in substitution for outstanding Options of another corporation in connection with the merger, consolidation, acquisition of property or stock or other reorganization between such other corporation and the Company or any subsidiary of the Company. Options also may be granted in exchange for outstanding Options. No person - 2 - shall be eligible to receive in any fiscal year Options to purchase more than 50,000 shares of Common Stock (subject to adjustment as set forth in Section 5(m) hereof). Any person to whom an Option is granted under this Plan is referred to as an "Optionee." Any person who is the owner of an Option is referred to as a "Holder." As used in this Plan, the term "Related Corporation" shall mean any corporation (other than the Company) that is a "Parent Corporation" of the Company or "Subsidiary Corporation" of the Company, as those terms are defined in Sections 424(e) and 424(f), respectively, of the Code (or any successor provisions) and the regulations thereunder (as amended from time to time). 4. STOCK. The Plan Administrator is authorized to grant Options to acquire up to a total of 1,000,000 shares of the Company's authorized but unissued, or reacquired, Common Stock. The number of shares with respect to which Options may be granted hereunder is subject to adjustment as set forth in Section 5(m) hereof. In the event that any outstanding Option expires or is terminated for any reason, the shares of Common Stock allocable to the unexercised portion of such Option may again be subject to an Option granted to the same Optionee or to a different person eligible under Section 3 of this Plan; provided however, that any canceled Options will be counted against the maximum number of shares with respect to which Options may be granted to any particular person as set forth in Section 3 hereof. 5. TERMS AND CONDITIONS OF OPTIONS. Each Option granted under this Plan shall be evidenced by a written agreement approved by the Plan Administrator (the "Agreement"). Agreements may contain such provisions, not inconsistent with this Plan, as the Plan Administrator in its discretion may deem advisable. All Options also shall comply with the following requirements: (a) Number of Shares and Type of Option. Each Agreement shall state the number of shares of Common Stock to which it pertains and whether the Option is intended to be an Incentive Stock Option or a Non-Qualified Stock Option. In the absence of action to the contrary by the Plan Administrator in connection with the grant of an Option, all Options shall be Non-Qualified Stock Options. The aggregate fair market value (determined at the Date of Grant, as defined below) of the stock with respect to which Incentive Stock Options are exercisable for the first time by the Optionee during any calendar year (granted under this Plan and all other Incentive Stock Option plans of the Company, a Related Corporation or a predecessor corporation) shall not exceed $100,000, or such other limit as may be prescribed by the Code. Any portion of an Option which exceeds the annual limit shall not be void but rather shall be a Non-Qualified Stock Option. - 3 - (b) Date of Grant. Each Agreement shall state the date the Plan Administrator has deemed to be the effective date of the Option for purposes of this Plan (the "Date of Grant"). (c) Option Price. Each Agreement shall state the price per share of Common Stock at which it is exercisable. The exercise price shall be fixed by the Plan Administrator at whatever price the Plan Administrator may determine in the exercise of its sole discretion; provided that the per share exercise price for an Incentive Stock Option or any Option granted to a "covered employee" as such term is defined for purposes of Section 162(m) of the Code ("Covered Employee") shall not be less than the fair market value per share of the Common Stock at the Date of Grant as determined by the Plan Administrator in good faith; provide further, that with respect to Incentive Stock Options granted to greater-than-ten percent (greater than 10%) shareholders of the Company (as determined with reference to Section 424(d) of the Code), the exercise price per share shall not be less than one hundred ten percent (110%) of the fair market value per share of the Common Stock at the Date of Grant as determined by the Plan Administrator in good faith; and provided further, that Options granted in substitution for outstanding options of another corporation in connection with the merger, consolidation, acquisition of property or stock or other reorganization involving such other corporation and the Company or any subsidiary of the Company may be granted with an exercise price equal to the exercise price for the substituted option of the other corporation, subject to any adjustment consistent with the terms of the transaction pursuant to which the substitution is to occur. (d) Duration of Options. At the time of the grant of the Option, the Plan Administrator shall designate, subject to paragraph 5(g) below, the expiration date of the Option, which date shall not be later than ten (10) years from the Date of Grant in the case of Incentive Stock Options; provided, that the expiration date of any Incentive Stock Option granted to a greater-than-ten percent (greater than 10%) shareholder of the Company (as determined with reference to Section 424(d) of the Code) shall not be later than five (5) years from the Date of Grant. In the absence of action to the contrary by the Plan Administrator in connection with the grant of a particular Option, and except in the case of Incentive Stock Options as described above, all Options granted under this Section 5 shall expire ten (10) years from the Date of Grant. (e) Vesting Schedule. No Option shall be exercisable until it has vested. The vesting schedule for each Option shall be specified by the Plan Administrator at the time of grant of the Option prior to the provision of services with respect to which such Option is granted; provided, that - 4 - if no vesting schedule is specified at the time of grant, the Option shall vest according to the following schedule: Number of Years Percentage of Total Following Date of Grant Option Vested ----------------------- ------------------- One 20% Two 40% Three 60% Four 80% Five 100% The Plan Administrator may specify a vesting schedule for all or any portion of an Option based on the achievement of performance objectives established in advance of the commencement by the Optionee of services related to the achievement of the performance objectives. Performance objectives shall be expressed in terms of one or more of the following: return on equity, return on assets, share price, market share, sales, earnings per share, costs, net earnings, net worth, inventories, cash and cash equivalents, gross margin or the Company's performance relative to its internal business plan. Performance objectives may be in respect of the performance of the Company as a whole (whether on a consolidated or unconsolidated basis), a Related Corporation, or a subdivision, operating unit, product or product line of either of the foregoing. Performance objectives may be absolute or relative and may be expressed in terms of a progression or a range. An Option that is exercisable (in full or in part) upon the achievement of one or more performance objectives may be exercised only following written notice to the Optionee and the Company by the Plan Administrator that the performance objective has been achieved. (f) Acceleration of Vesting. The vesting of one or more outstanding Options may be accelerated by the Plan Administrator at such times and in such amounts as it shall determine in its sole discretion, including under the circumstances described in Section 5(g) below. (g) Term of Option. Vested Options shall terminate, to the extent not previously exercised, upon the occurrence of the first of the following events: (i) the expiration of the Option, as designated by the Plan Administrator in accordance with Section 5(d) above; (ii) the date on an Optionee's termination of employment or contractual relationship with the Company or any Related Corporation for cause (as determined in the sole discretion of the Plan Administrator); (iii) the expiration of three (3) months from the date of an Optionee's termination of employment or contractual relationship with the Company or any Related - 5 - Corporation for any reason whatsoever other than cause, death or Disability (as defined below) unless, in the case of a Non-Qualified Stock Option, the exercise period is extended by the Plan Administrator until a date not later than the expiration date of the Option; or (iv) the expiration of one year from termination of an Optionee's employment or contractual relationship by reason of death or Disability (as defined below) unless, in the case of a Non-Qualified Stock Option, the exercise period is extended by the Plan Administrator until a date not later than the expiration date of the Option. Upon the death of an Optionee, any vested Options held by the Optionee shall be exercisable only by the person or persons to whom such Optionee's rights under such Option shall pass by the Optionee's will or by the laws of descent and distribution of the state or county of the Optionee's domicile at the time of death and only until such Options terminate as provided above. For purposes of the Plan, unless otherwise defined in the Agreement, "Disability" shall mean medically determinable physical or mental impairment which has lasted or can be expected to last for a continuous period of not less than twelve (12) months or that can be expected to result in death. The Plan Administrator shall determine whether an Optionee has incurred a Disability on the basis of medical evidence acceptable to the Plan Administrator. Upon making a determination of Disability, the Plan Administrator shall, for purposes of the Plan, determine the date of an Optionee's termination of employment or contractual relationship. Unless accelerated in accordance with Section 5(f) above, unvested Options shall terminate immediately upon termination of employment of the Optionee by the Company for any reason whatsoever, including death or Disability. For purposes of this Plan, transfer of employment between or among the Company and/or any Related Corporation shall not be deemed to constitute a termination of employment with the Company or any Related Corporation. For purposes of this subsection, employment shall be deemed to continue while the Optionee is on military leave, sick leave or other bona fide leave of absence (as determined by the Plan Administrator). The foregoing notwithstanding, employment shall not be deemed to continue beyond the first ninety (90) days of such leave, unless the Optionee's re-employment rights are guaranteed by statute or by contract. In addition, if an Optionee is demoted (whether voluntarily or involuntarily), such Optionee shall be entitled to exercise all vested Options not otherwise terminated until such Options expire in accordance with the terms of the Option Plan. Each unvested Option granted to the demoted Optionee shall terminate on the date of demotion; provided, however, that the Plan Administrator may, in its discretion, accelerate the vesting of any unvested options to increase the number of vested options to that number which would be granted to an employee in the position to which the Optionee has been demoted. Notwithstanding anything contained herein to the contrary, if an Employee should have attained the age of sixty-two (62) years or more by the date on which such Employee's employment by the Company is terminated by the Company for reasons other than death, Disability or cause, all Incentive Stock Option held by such Employee shall accelerate and become fully vested and immediately exercisable for a period of one (1) month beginning on the date of such termination. - 6 - (h) Exercise of Options. Options shall be exercisable, in full or in part, at any time after vesting, until termination. If less than all of the shares included in the vested portion of any Option are purchased, the remainder may be purchased at any subsequent time prior to the expiration of the Option term. No portion of any Option for less than fifty (50) shares (as adjusted pursuant to Section 5(m) below) may be exercised; provided, that if the vested portion of any Option is less than fifty (50) shares, it may be exercised with respect to all shares for which it is vested. Only whole shares may be issued pursuant to an Option, and to the extent that an Option covers less than one (1) share, it is unexercisable. Options or portions thereof may be exercised by giving written notice to the Company, which notice shall specify the number of shares to be purchased, and be accompanied by payment in the amount of the aggregate exercise for the Common Stock so purchased, which payment shall be in the form specified in Section 5(i) below. The Company shall not be obligated to issue, transfer or deliver a certificate of Common Stock to the Holder of any Option, until provision has been made by the Holder, to the satisfaction of the Company, for the payment of the aggregate exercise price for all shares for which the Option shall have been exercised and for satisfaction of any tax withholding obligations associated with such exercise. During the lifetime of an Optionee, Options are exercisable only by the Optionee or in the case of a Non-Qualified, transferee who takes title to such Option in the manner permitted by subsection 5(k) hereof. (i) Payment upon Exercise of Option. Upon the exercise of any Option, the aggregate exercise price shall be paid to the Company in cash or by certified or cashier's check. In addition, the Holder may pay for all or any portion of the aggregate exercise price by complying with one or more of the following alternatives: (1) by delivering to the Company shares of Common stock previously held by such Holder, or by the Company withholding shares of Common Stock otherwise deliverable pursuant to exercise of the Option which shares of Common Stock received or withheld shall have a fair market value at the date of exercise (as determined by the Plan Administrator) equal to the aggregate exercise price to be paid by the Optionee upon such exercise; (2) by delivering a properly executed exercise notice together with irrevocable instructions to a broker promptly to sell or margin a sufficient portion of the shares and deliver directly to the Company the amount of sale or margin loan proceeds to pay the exercise price; or (3) by complying with any other payment mechanism approved by the Plan Administrator at the time of exercise. - 7 - (j) Rights as a Shareholder. A Holder shall have no rights as a shareholder with respect to any shares covered by an Option until such Holder becomes a record holder of such shares, irrespective of whether such Holder has given notice of exercise. Subject to the provisions of Section 5(m) hereof, no rights shall accrue to a Holder and no adjustments shall be made on account of dividends (ordinary or extraordinary, whether in cash, securities or other property) or distributions or other rights declared on, or created in, the Common Stock for which the record date is prior to the date the Holder becomes a record holder of the shares of common Stock covered by the Option, irrespective of whether such Holder has given notice of exercise. (k) Transfer of Option. Options granted under this Plan and the rights and privileges conferred by this Plan may not be transferred, assigned, pledged or hypothecated in any manner (whether by operation of law or otherwise) other than by will, by applicable laws of descent and distribution or (except in the case of an Incentive Stock Option) pursuant to a qualified domestic relations order, and shall not be subject to execution, attachment or similar process; provided however, that any Agreement may provide or be amended to provide that a NonQualified Stock Option to which it relates is transferable without payment of consideration to immediate family members of the Optionee or to trusts or partnerships or limited liability companies established exclusively for the benefit of the Optionee and the Optionee's immediate family members. Upon any attempt to transfer, assign, pledge, hypothecate or otherwise dispose of any Option or of any right or privilege conferred by this Plan contrary to the provisions hereof, or upon the sale, levy or any attachment or similar process upon the rights and privileges conferred by this Plan, such Option shall thereupon terminate and become null and void. (l) Securities Regulation and Tax Withholding. (1) Shares shall not be issued with respect to an Option unless the exercise of such Option and the issuance and delivery of such shares shall comply with all relevant provisions of law, including, without limitation, Section 162(m) of the Code, any applicable state securities laws, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations thereunder and the requirements of any stock exchange or automated inter-dealer quotation system of a registered national securities association upon which such shares may then be listed, and such issuance shall be further subject to the approval of counsel for the Company with respect to such compliance, including the availability of an exemption from registration for the issuance and sale of such shares. The inability of the Company to obtain from any regulatory body the authority deemed by the Company to be necessary for the lawful issuance and sale of any shares under this Plan, or the unavailability of an exemption from registration for the issuance and sale of any shares under this Plan, shall relieve the Company of any liability with respect to the non-issuance or sale of such shares. - 8 - As a condition to the exercise of an Option, the Plan Administrator may require the Holder to represent and warrant in writing at the time of such exercise that the shares are being purchased only for investment and without any then-present intention to sell or distribute such shares. At the option of the Plan Administrator, a stop-transfer order against such shares may be placed on the stock books and records of the Company, and a legend indicating that the stock may not be pledged, sold or otherwise transferred unless an opinion of counsel is provided stating that such transfer is not in violation of any application law or regulation, may be stamped on the certificates representing such shares in order to that an exemption from registration. The Plan Administrator also may require such other documentation as may from time to time be necessary to comply with federal and state securities laws. THE COMPANY HAS NO OBLIGATION TO UNDERTAKE REGISTRATION OF OPTIONS OR THE SHARES OF STOCK ISSUABLE UPON THE EXERCISE OPTIONS. (2) The Holder shall pay to the Company by certified or cashier's check, promptly upon exercise of an Option or, if later, the date that the amount of such obligations becomes determinable, all applicable federal, state, local and foreign withholding taxes that the Plan Administrator, in its discretion, determines to result upon exercise of an Option or from a transfer or other disposition of shares of Common Stock acquired upon exercise of an Option or otherwise related to an Option or shares of Common Stock acquired in connection with an Option. Upon approval of the Plan Administrator, a Holder may satisfy such obligation by complying with one or more of the following alternatives selected by the Plan Administrator. (A) by delivering to the Company shares of Common Stock previously held by such Holder or by the Company withholding shares of Common Stock otherwise deliverable pursuant to the exercise of the Option, which shares of Common Stock received or withheld shall have a fair market value at the date of exercise (as determined by the Plan Administrator) equal to any withholding tax obligations arising as a result of such exercise, transfer or other disposition; (B) by executing appropriate loan documents approved by the Plan Administrator by which the Holder borrows funds from the Company to pay any withholding taxes due under this Paragraph 2, with such repayment terms as the Plan Administrator shall select; or (C) by complying with any other payment mechanism approved by the Plan Administrator from time to time. (3) The issuance transfer or delivery of certificates of Common Stock pursuant to the exercise of Options may be delayed, at the discretion of the Plan Administrator, until the Plan Administrator is satisfied that the applicable requirements of the federal and state securities laws and the withholding provisions of the Code have been met and that the Holder has paid or otherwise satisfied any withholding tax obligation as described in (2) above. - 9 - (m) Stock Dividend or Reorganization. (1) If (i) the Company shall at any time be involved in a transaction described in Section 424(a) of the Code (or any successor provision) or any "corporate transaction" described in the regulations thereunder; (ii) the Company shall declare a dividend payable in, or shall subdivide or combine, its Common Stock or (iii) any other event with substantially the same effect shall occur, the Plan Administrator shall, subject to applicable law, with respect to each outstanding Option, proportionately adjust the number of shares of Common Stock subject to such Option and/or the exercise price per share so as to preserve the rights of the Holder substantially proportionate to the rights of the Holder prior to such event, and to the extent that such action shall include an increase or decrease in the number of shares of Common Stock subject to outstanding Options, the number of shares available under Section 4 of this Plan shall automatically be increased or decreased, as the case may be, proportionately, without further action on the part of the Plan Administrator, the Company, the Company's shareholders, or any Holder. (2) In the event that the presently authorized capital stock of the Company is changed into the same number of shares with a different par value, or without par value, the stock resulting from any such change shall be deemed to be Common Stock within the meaning of the Plan, and each Option shall apply to the same number of shares of such new stock as it applied to old shares immediately prior to such change. (3) If the Company shall at any time declare an extraordinary dividend with respect to the Common Stock, whether payable in cash or other property, the Plan Administrator may, subject to applicable law, in the exercise of its sole discretion and with respect to each outstanding Option, proportionately adjust the number of shares of Common Stock subject to such Option and/or adjust the exercise price per share so as to preserve the rights of the Holder substantially proportionate to the rights of the Holder prior to such event, and to the extent that such action shall include an increase or decrease in the number of shares of Common Stock subject to outstanding Options, the number of shares available under Section 4 of this Plan shall automatically be increased or decreased, as the case may be, proportionately, without further action on the part of the Plan Administrator, the Company, the Company's shareholders, or any Holder. (4) The foregoing adjustments in the shares subject to Options shall be made by the Plan Administrator, or by any successor administrator of this Plan, or by the applicable terms of any assumption or substitution document. (5) The grant of an Option shall no affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structure, to merge, consolidate or dissolve, to liquidate or to sell or transfer all or any part of its business or assets. - 10 - 6. EFFECTIVE DATE; TERM. Incentive Stock Options may be granted by the Plan Administrator from time to time on or after the date on which this Plan is adopted (the "Effective Date") through the day immediately preceding the tenth anniversary of the Effective Date. Non-Qualified Stock Options may be granted by the Plan Administrator on or after the Effective Date and until this Plan is terminated by the Board in its sole discretion. Termination of this Plan shall not terminate any Option granted prior to such termination. Any Incentive Stock Options granted by the Plan Administrator prior to the approval of this Plan by the shareholders of the Company in accordance with Section 422 of the Code shall be granted subject to ratification of this Plan by the shareholders of the Company within twelve (12) months before or after the Effective Date. Any Option granted by the Plan Administrator to any Covered Employee prior to the approval of this Plan by the shareholders of the Company in accordance with such Code provision shall be granted subject to ratification of this Plan by the shareholders of the Company within twelve (12) months before or after the Effective Date. If such shareholder ratification is sought and not obtained, all Options granted prior thereto and thereafter shall be considered Non-Qualified Stock Options and any Options granted to Covered Employees will not be eligible for the exclusion set forth in Section 162(m) of the Code with respect to the deductibility by the Company of certain compensation. 7. NO OBLIGATIONS TO EXERCISE OPTION. The grant of an Option shall impose no obligation upon the Optionee to exercise such Option. 8. NO RIGHT TO OPTIONS OR TO EMPLOYMENT. Whether or not any Options are to be granted under this Plan shall be exclusively within the discretion of the Plan Administrator, and nothing contained in this Plan shall be construed as giving any person any right to participate under this Plan. The grant of an Option shall in no way constitute any form of agreement or understanding binding on the Company or any Related Company, express or implied, that the Company or any Related Company will employ or contract with an Optionee for any length of time, nor shall it interfere in any way with the Company's or, where applicable, a Related Company's right to terminate Optionee's employment at any time, which right is hereby reserved. 9. APPLICATION OF FUNDS. The proceeds received by the Company from the sale of Common Stock issued upon the exercise of Options shall be used for general corporate purposes, unless otherwise directed by the Board. - 11 - 10. INDEMNIFICATION OF PLAN ADMINISTRATOR. In addition to all other rights of indemnification they may have as members of the Board, members of the Plan Administrator shall be indemnified by the Company for all reasonable expenses and liabilities of any type or nature, including attorneys' fees, incurred in connection with any action, suit or proceeding to which they or any of them are a party by reason of, or in connection with, this Plan or any Option granted under this Plan, and against all amounts paid by them in settlement thereof (provided that such settlement is approved by independent legal counsel selected by the Company), except to the extent that such expenses related to matters for which it is adjudged that such Plan Administrator member is liable for willful misconduct; provided, that within fifteen (15) days after the institution of any such action, suit or proceeding, the Plan Administrator member involved therein shall, in writing notify the Company of such action, suit or proceeding, so that the Company may have the opportunity to make appropriate arrangements to prosecute or defend the same. 11. AMENDMENT OF PLAN. The Plan Administrator may, at any time, modify, amend or terminate this Plan or modify or amend Options granted under this Plan, including, without limitation, such modifications or amendments as are necessary to maintain compliance with applicable statutes, rules or regulations; provided however, no amendment with respect to an outstanding Option which has the effect of reducing the benefits afforded to the Holder thereof shall be made over the objection of such Holder, further provided, that the events triggering acceleration of vesting of outstanding Options may be modified, expanded or eliminated without the consent of Holders. The Plan Administrator may condition the effectiveness of any such amendment on the receipt of shareholder approval at such time and in such manner as the Plan Administrator may consider necessary for the Company to comply with or to avail the Company and/or the Optionees of the benefits of any securities, tax, market listing or other administrative or regulatory requirement. Without limiting the generality of the foregoing, the Plan Administrator may modify grants to persons who are eligible to receive Options under this Plan who are foreign nationals or employed outside the United States to recognize differences in local law, tax policy or custom. 12. REORGANIZATION OF THE COMPANY. It is the present intention of the Board of Directors of the Company to adopt a holding company structure such that the Company would become a wholly-owned subsidiary of another corporation ("Parent"). Upon effectiveness of any such holding company structure, the rights and obligations of the Company hereunder shall become the rights and obligations of Parent and options outstanding, as well as, as those that may in the future be granted hereunder, shall be exercisable for shares of common stock of Parent. Effective Date: __________________ - 12 - EX-23 16 INDEPENDENT AUDITOR'S CONSENT INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement Nos. 333-44537 and 333-46835, of Fred Meyer, Inc. on Forms S-3 and Registration Statement No. 333-47523 of Fred Meyer, Inc. on Form S-8 of our report dated March 23, 1998, included in this Annual Report on Form 10-K of Quality Food Centers, Inc. for the year ended December 27, 1997. DELOITTE & TOUCHE LLP Seattle, Washington March 23, 1998 EX-24 17 POWERS OF ATTORNEY POWER OF ATTORNEY ----------------- (QFC Form 10-K) The undersigned, an officer and/or director of Quality Food Centers, Inc., a Washington corporation (the "Company"), does hereby constitute and appoint Kenneth Thrasher, Marc W. Evanger, David R. Jessick and James C. Aalberg, and each of them, the undersigned's true and lawful attorney and agent, to do any and all acts and things and execute in the undersigned's name as an officer or director of the Company the Annual Report on Form 10-K and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission; and the undersigned does hereby ratify and confirm all that said attorneys and agents and each of them shall do or cause to be done by virtue hereof. Any one of said attorneys or agents shall have, and may exercise, all powers conferred. Dated: March 27, 1998. ROGER A. COOKE ------------------------------------------- Roger A. Cooke POWER OF ATTORNEY ----------------- (QFC Form 10-K) The undersigned, an officer and/or director of Quality Food Centers, Inc., a Washington corporation (the "Company"), does hereby constitute and appoint Kenneth Thrasher, Marc W. Evanger, Roger A. Cooke, David R. Jessick and James C. Aalberg, and each of them, the undersigned's true and lawful attorney and agent, to do any and all acts and things and execute in the undersigned's name as an officer or director of the Company the Annual Report on Form 10-K and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission; and the undersigned does hereby ratify and confirm all that said attorneys and agents and each of them shall do or cause to be done by virtue hereof. Any one of said attorneys or agents shall have, and may exercise, all powers conferred. Dated: March 27, 1998. ROBERT G. MILLER ------------------------------------------- Robert G. Miller POWER OF ATTORNEY ----------------- (QFC Form 10-K) The undersigned, an officer and/or director of Quality Food Centers, Inc., a Washington corporation (the "Company"), does hereby constitute and appoint Marc W. Evanger, Roger A. Cooke, David R. Jessick and James C. Aalberg, and each of them, the undersigned's true and lawful attorney and agent, to do any and all acts and things and execute in the undersigned's name as an officer or director of the Company the Annual Report on Form 10-K and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission; and the undersigned does hereby ratify and confirm all that said attorneys and agents and each of them shall do or cause to be done by virtue hereof. Any one of said attorneys or agents shall have, and may exercise, all powers conferred. Dated: March 27, 1998. KENNETH THRASHER ------------------------------------------- Kenneth Thrasher EX-27.1 18 FINANCIAL DATA SCHEDULE
5 1,000 YEAR DEC-27-1997 DEC-29-1996 DEC-27-1997 44,702 0 24,478 0 122,877 213,383 466,909 (93,095) 992,130 193,556 0 0 0 269,925 81,860 992,130 1,878,115 1,878,115 1,417,038 1,785,538 0 0 29,181 65,987 25,980 40,007 0 0 0 40,007 2.04 1.95
EX-27.2 19 RESTATED FINANCIAL DATA SCHEDULE FYE 1996 AND 1995
5 1,000 YEAR YEAR DEC-30-1995 DEC-28-1996 JAN-01-1995 DEC-31-1995 DEC-30-1995 DEC-28-1996 12,055 14,571 0 0 9,031 10,754 0 0 36,706 36,954 63,316 68,487 195,891 221,484 (48,810) (60,821) 284,000 304,017 58,013 65,030 0 0 0 0 0 0 28,932 34,945 16,435 41,853 284,000 304,017 729,856 805,281 729,856 805,281 550,434 603,947 687,079 756,284 1,400 0 0 0 (9,639) (9,890) 32,239 39,574 12,023 14,156 20,216 25,418 0 0 0 0 0 0 20,216 25,418 1.29 1.75 1.28 1.71
EX-27.3 20 RESTATED FINANCIAL DATA SCHEDULE QTRS ENDED 1996
5 1,000 3-MOS 6-MOS 9-MOS DEC-28-1996 DEC-28-1996 DEC-28-1996 DEC-31-1995 DEC-31-1995 DEC-31-1995 MAR-23-1996 JUN-15-1996 SEP-07-1996 11,146 8,727 11,570 0 0 0 8,574 8,887 9,655 0 0 0 35,824 34,843 35,670 61,706 58,983 63,337 201,096 209,631 217,367 (52,543) (56,256) (59,878) 287,049 288,584 293,610 63,117 72,053 80,240 0 0 0 0 0 0 0 0 0 29,088 31,103 31,176 21,119 27,286 33,231 287,049 288,584 293,610 176,627 361,024 547,166 176,627 361,024 547,166 133,313 271,534 410,549 166,799 339,542 514,399 0 0 0 0 0 0 (2,588) (4,753) (6,901) 7,312 16,913 26,167 2,629 6,063 9,372 4,683 10,850 16,795 0 0 0 0 0 0 0 0 0 4,683 10,850 16,795 0.32 0.75 1.16 0.32 0.74 1.14
EX-27.4 21 RESTATED FINANCIAL DATA SCHEDULE FYE 1997
5 1,000 3-MOS 6-MOS 9-MOS DEC-27-1997 DEC-27-1997 DEC-27-1997 DEC-29-1996 DEC-29-1996 DEC-29-1996 MAR-22-1997 JUN-14-1997 SEP-06-1997 66,349 78,280 90,088 0 0 0 19,320 23,148 25,324 0 0 0 121,324 117,146 119,021 231,850 245,023 257,781 455,834 463,465 480,030 (64,965) (73,884) (82,666) 997,379 1,006,602 1,025,264 183,120 178,551 193,466 0 0 0 0 0 0 0 0 0 263,427 265,569 266,618 48,273 58,035 68,182 997,379 1,006,602 1,025,264 233,154 734,282 1,225,261 233,154 734,282 1,225,261 174,913 555,587 926,462 220,287 697,409 1,164,527 0 0 0 0 0 0 (2,777) (10,767) (18,786) 10,279 26,999 43,549 3,859 10,817 17,220 6,420 16,182 26,329 0 0 0 0 0 0 0 0 0 6,420 16,182 26,329 0.42 0.89 1.38 0.40 0.86 1.33
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