-----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, SdMWHqzcCQ2NkrAnASsjl7LwKTgPq2Twa7CkHse0tSEhW7UfQwD3U5KWyhl3nSc4 nPWAvFNHdzz/Y7tUVpMD0Q== 0000912057-97-031540.txt : 19970925 0000912057-97-031540.hdr.sgml : 19970925 ACCESSION NUMBER: 0000912057-97-031540 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 34 CONFORMED PERIOD OF REPORT: 19970628 FILED AS OF DATE: 19970924 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: RYKOFF SEXTON INC CENTRAL INDEX KEY: 0000085973 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-GROCERIES & RELATED PRODUCTS [5140] IRS NUMBER: 952134693 STATE OF INCORPORATION: DE FISCAL YEAR END: 0629 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-08105 FILM NUMBER: 97684638 BUSINESS ADDRESS: STREET 1: 613 BALITIMORE DRIVE CITY: WILHES-BARRE STATE: PA ZIP: 18702-7944 BUSINESS PHONE: 7178307100 MAIL ADDRESS: STREET 1: 613 BALTMORE DRIVE CITY: WILKES-BARRE STATE: PA ZIP: 18702-7944 FORMER COMPANY: FORMER CONFORMED NAME: RYKOFF S E & CO DATE OF NAME CHANGE: 19850124 10-K 1 FORM 10-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES 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 JUNE 28, 1997 OR / / 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 0-8105 ------------------------ RYKOFF-SEXTON, INC. (Exact name of registrant as specified in its charter) ------------------------ DELAWARE 95-2134693 (State or other jurisdiction (I.R.S. Employer of Identification incorporation or organization) No.) 613 BALTIMORE DRIVE 18702 EAST MOUNTAIN CORPORATE CENTER (Zip Code) WILKES-BARRE, PENNSYLVANIA (Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (717) 831-7500 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED Common Stock New York Stock Exchange Preferred Stock Purchase Rights New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: 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 / / 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. / / The aggregate market value of the voting stock of the registrant held by non-affiliates of the registrant, based on the closing price of such stock on the New York Stock Exchange on August 29, 1997 was $432,628,273. At August 31, 1997, 28,249,077 shares of the registrant's common stock were outstanding. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- RYKOFF-SEXTON, INC. FORM 10-K ANNUAL REPORT--1997 PART I................................................................................ 1 Item 1--Business.................................................................... 1 Item 2--Properties.................................................................. 6 Item 3--Legal Proceedings........................................................... 6 Item 4--Submission of Matters to a Vote of Security Holders......................... 7 PART II............................................................................... 7 Item 5--Market for the Registrant's Common Equity and Related Stockholder Matters... 7 Item 6--Selected Financial Data..................................................... 8 Item 7-- Management's Discussion and Analysis of Financial Condition and Results of Operations.................................................................. 9 Item 7A--Quantitative and Qualitative Disclosure about Market Risk.................. 13 Item 8--Financial Statements and Supplementary Data................................. 13 Item 9-- Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................................................................. 13 PART III.............................................................................. 13 Item 10--Directors and Executive Officers of the Company............................ 13 Item 11--Executive Compensation..................................................... 19 Item 12--Security Ownership of Certain Beneficial Owners and Management............. 31 Item 13--Certain Relationships and Related Transactions............................. 33 PART IV............................................................................... 36 Item 14--Exhibits, Financial Statement Schedules, and Reports on Form 8-K........... 36 Signatures............................................................................ 42 Index to Financial Statements......................................................... F-1
i PART I Unless the context otherwise requires, references herein to the "Company" refer to Rykoff- Sexton, Inc. and its consolidated entities. ITEM 1--BUSINESS RECENT DEVELOPMENTS On June 30, 1997, Rykoff-Sexton, Inc. (the "Company") announced that it has entered into an Agreement and Plan of Merger (as amended, the "Merger Agreement") with JP Foodservice, Inc. ("JP Foodservice") and a wholly-owned subsidiary of JP Foodservice, Hudson Acquisition Corp. ("Hudson"), pursuant to which the Company will be merged with and into Hudson (the "Merger"). As a result of the Merger, each outstanding share of the Company's Common Stock, par value $.10 per share (the "Common Stock") will be converted into the right to receive 0.84 of one share of JP Foodservice Common Stock (the "Exchange Ratio"). The Merger is conditioned upon, among other things, approval by stockholders of each of the Company and JP Foodservice, regulatory approvals and certain customary conditions. The Merger is expected to be completed before the end of calendar 1997. For additional information regarding the Merger, see the Company's Reports on Form 8-K dated June 30, 1997 and September 3, 1997. GENERAL Established in 1911, the Company is a leading distributor and manufacturer of high-quality foods and related non-food products and services for the foodservice industry throughout the United States. The Company's products and services are sold wherever food is prepared and consumed away from home. The Company distributes its product line of more than 40,000 items to restaurants, industrial cafeterias, health care facilities, schools and colleges, supermarket service delicatessen departments, lodging establishments and other segments of the travel and leisure markets. It also offers equipment and supplies and design and engineering services for all types of foodservice operations. The Company's products consist of a broad line of private label and national branded food and foodservice equipment and supplies. The Company's proprietary private branded products accounted for approximately 33% of its net sales in the fiscal year ended June 28, 1997. The Company develops and manufactures many of its private branded products, and also manufactures other products for certain customers under the customers' own brand labels. The Company's principal operations are conducted through the US Foodservice Distribution Division (the "Distribution Division"), Targeted Specialty Services, Inc. ("TSSI") and the Rykoff-Sexton Manufacturing Division (the "Manufacturing Division"). The Distribution Division is comprised of 32 distribution centers that are largely located in major metropolitan areas throughout the United States. In fiscal 1997, sales of the Distribution Division (including products sold through this division by TSSI and the Manufacturing Division) generated approximately 97% of the Company's net sales. TSSI provides restaurant design and engineering services for all types of foodservice operations through its contract/design offices. In addition, this division offers foodservice equipment and supplies as well as specialty and gourmet imported products and manages the Company's consolidation and in-transit warehouses. The Manufacturing Division manufactures products primarily under the Company's proprietary private brands and also manufactures products for other manufacturers, distributors, restaurant chains and other large users under their own brand labels at its three manufacturing plants. Approximately 90% of the Manufacturing Division's products are sold through the Distribution Division and the remainder are sold directly to customers. The Company, which was organized under the laws of the state of Delaware in 1961, is the successor to a business founded in 1911. The Company's principal executive offices are located at 613 Baltimore 1 Drive, East Mountain Corporate Center, Wilkes-Barre, Pennsylvania 18702, and the Company's telephone number is (717) 831-7500. ACQUISITIONS Effective May 17, 1996, the Company consummated the acquisition of US Foodservice Inc. ("US Foodservice"), a privately held broadline foodservice distribution company. Holders of US Foodservice common stock received approximately 12.9 million shares of Common Stock in exchange for the outstanding shares of US Foodservice common stock. Options and warrants to acquire US Foodservice common stock were converted into options and warrants to acquire shares of Common Stock on the same basis. In addition, the Company repaid and refinanced all of the outstanding bank and subordinated debt of US Foodservice and purchased all of the outstanding shares of US Foodservice preferred stock. In connection with the acquisition of US Foodservice, the Company changed its fiscal year to the Saturday closest to June 30 from the Saturday closest to April 30. Prior to the Company's acquisition, US Foodservice was a distributor of food and non-food products to the foodservice industry, serving more than 40,000 customers in over 30 states, primarily in the Southeastern, Southwestern and Mid-Atlantic regions. US Foodservice currently operates as a wholly-owned subsidiary of the Company and its primary operations have been integrated with the Distribution Division and TSSI. Over the past two years, the Company also has pursued strategic business combinations as part of its effort to sharpen its strategic focus, improve operational efficiency and position itself for sustained, profitable growth. In the fourth quarter of fiscal 1995, the Company extended the scope of its distribution network in the Mid-Atlantic region through the acquisition of substantially all of the assets of Continental Foods, Inc., a broadline distributor located in Maryland serving the metropolitan Baltimore and Washington, D.C. markets. In the first quarter of fiscal 1996, the Company increased its penetration of the Midwestern region through the acquisition of the Specialty Foods Division of Olfisco, Inc., a Minneapolis-based subsidiary of Noon Hour Food Products. In the third quarter of fiscal 1996, the Company enhanced its distribution network throughout the State of Nevada when it acquired substantially all of the assets of H&O Foods, Inc., a regional, broadline institutional foodservice distributor. The Company's acquisition of US Foodservice significantly expanded the geographic coverage of its distribution network in the Southeastern, Southwestern and Mid-Atlantic regions. The acquisition of US Foodservice also enabled the Company to enhance its product mix and decentralize the management of the Company's distribution centers. Prior to the Company's acquisition of US Foodservice, US Foodservice had enhanced its distribution network in the Southeastern region through the 1994 and 1995 acquisitions of certain divisions of Clark Foodservice, Inc. in Florida for an aggregate purchase price of approximately $27.3 million (including costs of acquisition), the assets of Fort Myers Meat & Seafood Company Inc. in Fort Myers, Florida for an aggregate purchase price of approximately $2.1 million (including costs of acquisition), the assets of City Provisioners, Inc. in Ormond Beach, Florida for an aggregate purchase price of approximately $36.6 million (including costs of acquisition) and Goode Foodservice, Inc. in Georgia for an aggregate purchase price of approximately $8.9 million (including costs of acquisition). See Note Two in the accompanying consolidated financial statements for further information regarding certain of these acquisitions. PRODUCTS In fiscal 1997, the Company offered to the foodservice industry a single source of supply for more than 40,000 private label and national branded items that were distributed to approximately 100,000 foodservice establishments. 2 DISTRIBUTION DIVISION FOOD PRODUCTS The Company's food products include canned fruits and vegetables, tomatoes and tomato products, juices, syrups, dressings and salad oils, baking supplies, spices, condiments, sauces, jellies and preserves, coffee, tea and fountain goods, prepared convenience entrees, fresh produce, meats, seafood, poultry, desserts, dietary foods, imported and domestic cheeses and specialty and gourmet imported items. Frozen foods include soups, prepared convenience entrees, bakery products, fruits and vegetables, desserts, meat, poultry, seafood and other frozen products customarily distributed to the foodservice industry. JANITORIAL AND PAPER PRODUCTS The Company's non-food products include janitorial supplies such as detergents and cleaning compounds; plastic products such as refuse container liners, cutlery, straws and sandwich bags; and paper products such as napkins, cups, hats, placemats and coasters. EQUIPMENT AND SUPPLIES The Company also distributes smallware restaurant equipment and supply items, including cookware, glassware, dinnerware and other commercial kitchen equipment. TSSI TSSI maintains three consolidation warehouses from which it manages the Company's stock of specialty and gourmet imported products and foodservice equipment and supply items. Through its four regional offices, TSSI provides design, engineering and installation services to foodservice establishments. TSSI currently maintains a sales presence in over half of the Distribution Division facilities. MANUFACTURING DIVISION The Company's products include approximately 1,200 food and 550 non-food items that are manufactured, processed and packaged at its three plants located in Los Angeles, California; Indianapolis, Indiana and Englewood, New Jersey. These products are primarily manufactured under the Company's private labels. The Company also manufactures products for certain customers such as other manufacturers, distributors, restaurant chains and other large users under their own brand labels. The Manufacturing Division's food products include mayonnaise and salad dressings, oils, margarine and shortenings, gelatins and dessert powders, vinegars, sauces, pancake and waffle mixes, biscuit and flour mixes, soup bases, jams and jellies, canned and frozen soups, canned and frozen entrees, relishes and tea. Its non-food products include detergents, cleaning compounds, refuse container liners, cutlery, straws and sandwich bags, paper napkins, placemats, chefs' hats, coasters and a line of low temperature dishwashers. MARKETING AND DISTRIBUTION The Company markets its products and contract/design services to customers in the foodservice industry, including restaurants, industrial cafeterias, healthcare facilities, schools and colleges, supermarket service delicatessen departments, lodging establishments and other segments of the travel and leisure markets. 3 The following table sets forth the approximate customer base of the Company for the fiscal year ended June 28, 1997:
APPROXIMATE PERCENTAGE OF TYPE OF CUSTOMER NET SALES - -------------------------------------------------------------------------------- --------------- Restaurants (including chain and independent, limited and full menu)............ 59% Hospitals, nursing home, long term care and other healthcare facilities......... 12% Schools and colleges............................................................ 10% Lodging establishments.......................................................... 8% Business and industry (including in-plant commercial and industrial food centers)...................................................................... 6% Other........................................................................... 5% --- 100% --- ---
No single customer of the Company accounted for three percent or more of the Company's sales for the fiscal year ended June 28, 1997. No product distributed by the Company accounts for a material part of the Company's sales volume. The Company believes that product quality, close contact with customers, prompt and accurate delivery of orders, and the ability to provide related services are of primary importance in the distribution of products to the foodservice industry. In fiscal 1997, sales offices were maintained at each of the Company's 32 distribution centers. The Company's sales force of over 2,000 employees in fiscal 1997 included foodservice specialists at each distribution center. The sales force also included national account executives who handled multi-unit accounts such as restaurant chains and other large users. During fiscal 1997, products were distributed to customers nationwide through the Company's 32 distribution centers, as well as through independent distributors. Each center stocks between approximately 5,000 and 14,000 items for sale in its marketing area. Customer orders are usually processed and shipped within 24 hours of receipt and are delivered directly to the customer. The Company uses its TSSI warehouse facilities in Los Angeles, Indianapolis and Dorsey, Maryland to store and consolidate product orders from vendors of specialty and equipment and supply items, for subsequent shipment to the distribution centers. The following table sets forth the Company's facilities:
DISTRIBUTION CENTERS - ---------------------------------- Atlanta, Georgia** Fresno, California** Philadelphia, Pennsylvania Austin, Texas** Hurricane, West Virginia** Phoenix, Arizona Baltimore, Maryland** Knoxville, Tennessee** Pittsburgh, Pennsylvania Boston, Massachusetts Las Vegas, Nevada** Pittston, Pennsylvania** Charlotte, North Carolina** Los Angeles, California** Portland, Oregon Chicago, Illinois** Lubbock, Texas** Reno, Nevada** Cincinnati, Ohio** Mesquite, Texas** Riviera Beach, Florida** Columbus, Ohio Minneapolis, Minnesota St. Louis, Missouri** Dallas, Texas Oklahoma City, Oklahoma** Salem, Virginia** Detroit, Michigan** Orlando, Florida** San Francisco, California Englewood, New Jersey** Ormond Beach, Florida**
- ------------------------ ** Indicates facility owned by the Company; all other facilities are leased. 4
CONTRACT AND DESIGN OFFICES - ------------------------------------ Austin, Texas* Clearwater, Florida Pittston, Pennsylvania* Berlin, Connecticut Dallas, Texas* Portland, Oregon* Boston, Massachusetts* Las Vegas, Nevada* Sacramento, California Brunswick, Maine Los Angeles, California* San Francisco, California* Charlotte, North Carolina* Minneapolis, St. Paul, Minnesota* Seattle, Washington Chicago, Illinois* Oklahoma City, Oklahoma* Spokane, Washington Cincinnati, Ohio* Phoenix, Arizona*
- ------------------------ * Indicates office within a distribution center; all others are leased.
INTRANSIT WAREHOUSES MANUFACTURING FACILITIES - ---------------------------------- ---------------------------------- Dorsey, Maryland Englewood, New Jersey** Indianapolis, Indiana Indianapolis, Indiana** Modesto, California Los Angeles, California**
- ------------------------ ** Indicates facility owned by the Company; all other facilities are leased. SOURCES OF SUPPLY In fiscal 1997, the Company purchased from approximately 5,500 suppliers; no supplier represented more than three percent of the Company's purchases. The Company selects suppliers, which include both large multi-line and smaller specialty processors and packagers, primarily on the basis of their ability to meet quality and service standards. The Company has no significant long-term purchasing obligations and the Company believes that it has adequate alternative sources of supply for almost all of the purchased items and raw materials used in its manufacturing operations. The Company's BRB Holdings, Inc. and WS Holdings, Inc. subsidiaries each have a purchase agreement with Sara Lee Corporation which requires a minimum level of purchases of Sara Lee products for every three years. Each of the original agreements was for six years (two three-year periods) which began in September 1992. Each agreement was extended for an additional three-year period. The Company's liability for not meeting the purchase requirements is capped at $1.9 million under each of the agreements. QUALITY CONTROL AND REGULATION The Manufacturing Division maintains quality control laboratories in its Los Angeles, Indianapolis and Englewood facilities. These laboratories are staffed by chemists and food technologists who are trained to control product quality for both self-manufactured and purchased private label products and to provide research and development support for the Company's manufactured products. Quality control procedures include the sampling and testing of raw materials, purchased private label products and Company-manufactured items for quality, taste and appearance and the microbiological testing of Company-manufactured food items. The distribution centers regularly incur inspections performed by independent foodservice organizations and the manufacturing facilities receive daily USDA inspections. EMPLOYEES As of June 28, 1997, the Company employed a total of approximately 8,500 people, of whom approximately 1,700 were covered by collective bargaining agreements. These agreements expire at various times over the next several years. The Company currently is negotiating to renew collective bargaining agreements that cover approximately 300 employees. In addition, approximately ten collective bargaining agreements that cover approximately 450 employees expire at various times during fiscal 1998. The Company believes its labor relations are good. 5 COMPETITION The Company operates on a nationwide basis and encounters significant competition from a number of sources in each of its marketing areas. The Company competes with two other large national distribution companies, Sysco Corporation and Alliant Foodservice, Inc. of which Sysco has substantially greater financial and other resources than the Company. The Company also competes with numerous regional and local distributors that offer broad lines of products. The foodservice distribution industry continues to be characterized by significant consolidation and the emergence of larger competitors, principally through acquisitions. There can be no assurances that the Company will not encounter increased competition in the future, which could adversely affect the Company's business. The Company believes that although price is a consideration, competition in the foodservice industry is generally on the basis of product quality, customer relations and service. As one of the leading national broadline distributors to the foodservice industry, the Company believes that it carries a wider selection of food products of superior quality and value and a greater variety of package sizes than many of its competitors. The Company attributes its ability to compete effectively in its markets to this wide food product selection and its broad line of related non-food products, which are offered through a dedicated, highly skilled and customer-oriented sales force. Further, the Company differentiates itself in part from its competitors by (i) providing many specialty products that have been developed specifically for the foodservice industry or for particular foodservice customers, (ii) maintaining an extensive selection of imported and specialty products, equipment and supplies and (iii) offering its design and engineering services for all types of foodservice operations. ITEM 2--PROPERTIES The Company currently operates 32 distribution centers located throughout the United States. In response to the Company's growing business, new state of the art distribution centers of 248,000 and 550,000 square feet respectively are currently under construction in North Las Vegas, Nevada and York County, South Carolina (just south of Charlotte, North Carolina). The Distribution Division headquarters is located in Wilkes-Barre, Pennsylvania. See "Business--Marketing and Distribution" for a list of the Company's distribution facilities. The Company's Manufacturing Division is headquartered at the Company's owned property in Los Angeles, California. This facility houses a large manufacturing plant and warehouse space. Portions of this facility are currently idle. This facility has been written down to net realizable value. See Note Three in the accompanying consolidated financial statements. In addition to the Los Angeles facility, the Manufacturing Division owns and operates manufacturing facilities in Indianapolis, Indiana, and Englewood, New Jersey. Through TSSI, the Company maintains 20 contract and design office (most within distribution centers) that provide design and engineering services, as well as equipment installation, for restaurants and other foodservice establishments. See "Business--Marketing and Distribution" for a list of contract and design offices. The Company's corporate headquarters is located in a leased facility in Wilkes-Barre, Pennsylvania. Regional offices supporting the Distribution Division are located in Lisle, Illinois and Hurst, Texas. Equipment and machinery owned by the Company and used in its operations consist principally of electronic data processing equipment, food and non-food processing and packaging equipment and chemical compounding, blending and product handling equipment. The Company owns a fleet of approximately 475 vehicles that are used for long hauls and local deliveries. In addition, the Company leases approximately 1,200 delivery vehicles under terms which expire at various dates through 2002. ITEM 3--LEGAL PROCEEDINGS The Company and its subsidiaries are defendants in a number of cases currently in litigation or have potential claims encountered in the normal course of business that are being vigorously defended. In the 6 opinion of management, the resolution of these matters will not, individually or in the aggregate, have a material effect on the Company's financial condition or results of operations. ITEM 4--SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this Annual Report on Form 10-K. PART II ITEM 5-- MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Common Stock is listed on the New York Stock Exchange (the "NYSE"), under the symbol "RYK." The table below sets forth, for the periods indicated, the reported high and low sale prices of the Common Stock on the NYSE Composite tape and the semi-annual cash dividends per share paid by the Company on such shares. In December 1994, the Company's Board of Directors declared a five-for-four stock split, payable January 24, 1995, to stockholders of record on December 21, 1994. Share prices shown below have been adjusted to give effect to this stock split. Effective May 17, 1996, the Company changed its fiscal year-end from the Saturday closest to April 30 to the Saturday closest to June 30. Accordingly, the information presented in the table below for the First Quarter of the Fiscal Year Ended June 28, 1997 represents information from April 29, 1996 through September 27, 1996.
CASH DIVIDENDS HIGH LOW PER SHARE --------- --------- ----------- Fiscal Year Ended April 29, 1995 First Quarter................................................ $ 16.88 $ 14.38 -- Second Quarter............................................... 17.88 15.00 -- Third Quarter................................................ 16.75 15.88 -- Fourth Quarter............................................... 17.88 14.88 $ 0.03 Fiscal Year Ended April 27, 1996 First Quarter................................................ $ 20.63 $ 17.25 $ 0.03 Second Quarter............................................... 24.63 19.63 -- Third Quarter................................................ 22.50 15.63 0.03 Fourth Quarter............................................... 16.25 13.88 -- Fiscal Year Ended June 28, 1997 First Quarter (from April 29, 1996 through September 27, 1996)...................................................... $ 16.38 $ 13.50 $ 0.03 Second Quarter............................................... 16.00 13.38 -- Third Quarter................................................ 18.50 15.13 0.03 Fourth Quarter............................................... 20.00 17.00 --
In December 1994, the Company announced the reinstatement of its cash dividend on a semi-annual basis in the amount of $0.03 per share of Common Stock. The Company's policy to declare a dividend is based on a decision made by the Company's Board of Directors from time to time following consideration of the results of operations and financial condition of the Company, terms of debt instruments that may restrict the Company's ability to pay dividends and such other factors as the Board of Directors considers relevant. The Board of Directors decided not to declare a dividend for the first quarter of fiscal 1998 in the light of the pending Merger. There were 1,077 holders of record of Common Stock, including banks, brokers, fiduciaries and other nominees, as of August 31, 1997. 7 ITEM 6--SELECTED FINANCIAL DATA The following summary of consolidated financial data for the Company should be read in conjunction with the consolidated financial statements of the Company as of and for the fiscal years ended April 29, 1995, April 27, 1996 and June 28, 1997 and the nine-week transition period ended June 29, 1996 presented elsewhere herein. The consolidated statement of operations and balance sheet data have been derived from the Company's audited consolidated financial statements and notes thereto.
NINE-WEEK FISCAL YEAR ENDED TRANSITION FISCAL YEAR ------------------------------------------ PERIOD ENDED ENDED MAY 1, APRIL 30, APRIL 29, APRIL 27, JUNE 29, JUNE 28, 1993(1) 1994(1) 1995 1996 1996(7)(8) 1997(9) --------- --------- --------- --------- ------------ ----------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) STATEMENT OF OPERATIONS DATA: Net sales............................ $1,412,943 $1,444,226 $1,569,019 $1,789,478 $ 519,903 $3,477,493 Gross profit......................... 348,016 352,247 375,694 402,179 93,417 707,384 Warehouse, selling, delivery, general and administrative expenses........ 342,967 333,375 348,672 387,493 114,187 609,466 Amortization of goodwill and other intangibles........................ 460 156 529 1,906 1,162 12,431 Interest expense, net of interest income............................. 12,401 11,946 10,867 17,340 6,930 46,423 Income (loss) from continuing operations before provision (benefit) for income taxes and extraordinary item(2)(3)........... (38,352) 6,926 15,626 (27,819) (96,375) 25,946 Provision (benefit) for income taxes Federal............................ (12,465) 2,175 4,672 (10,868) (32,195) 10,105 State.............................. (1,737) 630 1,578 (171) (4,000) (197) Income (loss) from continuing operations before extraordinary item............................... (24,150) 4,121 9,376 (16,780) (60,180) 16,038 Income (loss) before extraordinary item............................... (19,692) 7,362 32,872 (16,780) (60,180) 16,038 Net income (loss)(4)................. (18,960) 5,918 32,872 (16,780) (60,180) 16,038 Earnings (loss) per share(5) Income (loss) from continuing operations before extraordinary item(2)(3)....................... $ (1.66) $ 0.28 $ 0.64 $ (1.12) $ (2.51) $ 0.56 Income (loss) before extraordinary item............................. (1.35) 0.50 2.24 (1.12) $ (2.51) $ 0.56 Net income (loss)(4)............... (1.30) 0.40 2.24 (1.12) $ (2.51) $ 0.56 Cash dividends....................... 3,771 -- 437 884 -- 1,670 Cash dividends per share(6).......... $ 0.26 $ -- $ 0.03 $ 0.06 $ -- $ 0.06 Weighted average shares outstanding(5)..................... 14,508 14,601 14,730 14,941 23,972 28,644 BALANCE SHEET DATA (END OF PERIOD): Total assets......................... $ 448,411 $ 470,018 $ 524,068 $ 611,856 -- $1,219,022 Working capital...................... 143,372 154,641 161,616 90,307 -- 84,422 Current ratio........................ 2.2:1 2.2:1 2.0:1 1.3:1 -- 1.24:1 Long-term debt, less current portion............................ 144,669 151,227 146,536 135,081 -- 486,731 Shareholders' equity................. 166,704 173,307 206,540 192,500 -- 354,173 Shareholders' equity per share(5).... $ 11.50 $ 11.91 $ 14.15 $ 12.99 -- $ 12.64 Common shares outstanding(5)......... 14,490 14,547 14,598 14,817 -- 28,014
- ------------------------------ (1) Amounts restated to reflect sale of discontinued Tone Brothers, Inc. subsidiary in October 1994. (2) For 1993, this item incudes a one-time pre-tax restructuring charge of $31 million ($1.34 per share on an after tax basis). For 1996, the remaining unutilized restructuring reserve of $6.4 million was credited into income ($.26 per share on an after tax basis). For the transition period this includes a one-time pre-tax restructuring charge of $57.6 million ($35.7 million after tax), of which $4.0 million was subsequently reversed in fiscal 1997. (3) For 1996, this item includes the effect of the adoption of Statement of Financial Accounting Standards No. 121 of $29.7 million ($1.19 per share on an after tax basis). (4) For 1994, this item includes the write-off of deferred finance costs of $2,447,000 ($1,444,000, net of income tax benefit of $1,003,000 or $.10 per share) and, for 1993, the cumulative effect of a change in accounting for income taxes for $732,000 or $.05 per share. (5) Adjusted to reflect 5-for-4 stock split distributed on January 24, 1995. (6) The cash dividends per share amounts have been adjusted to give effect to the 5-for-4 stock splits discussed in note (5). (7) Effective May 17, 1996, the Company changed its fiscal year end from the 52 or 53 week period ended the Saturday closest to April 30 to the 52 or 53 week period ended the Saturday closest to June 30. This period represents the nine-week transition period to the new year end. (8) Includes results for US Foodservice from May 17, 1996 to June 29, 1996. (9) Includes results for US Foodservice for the full fiscal year. 8 ITEM 7-- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's discussion and analysis of the Company's results of operations and financial condition includes the accompanying consolidated financial statements and notes thereto and the following additional information. RESULTS OF OPERATIONS--THE 52 WEEKS ENDED JUNE 28, 1997 ("FISCAL 1997") COMPARED TO THE 52 WEEKS ENDED APRIL 27, 1996 ("FISCAL 1996") The Company has pursued strategic business combinations as part of its effort to sharpen its strategic focus, improve operational efficiency and position itself for sustained, profitable growth. The Company significantly expanded the geographic coverage of its distribution network in the Southeastern, Southwestern and Mid-Atlantic regions through the acquisition of US Foodservice, Inc. ("US Foodservice") effective May 17, 1996. This merger placed the Company among the top three foodservice distribution companies regarding market share in the majority of respective markets served. This acquisition also enabled the Company to enhance its product mix and to decentralize the management of the distribution centers, a long-standing objective of the Company. There are no directly comparable prior period financial statements because of the Company's merger with US Foodservice on May 17, 1996 and the change in its fiscal year-end from the 52 or 53 week period ended the Saturday closest to April 30 to the 52 or 53 week period ended the Saturday closest to June 30. Performance in fiscal 1997 is therefore compared to the 52 weeks ended April 27, 1996. Earnings for fiscal 1997 were $16.0 million, or $0.56 per share, on sales of $3.5 billion. The loss in fiscal 1996 was $(16.8) million, or $(1.12) per share, on $1.8 billion in sales. For comparative purposes, estimated sales of the same 52-week period of fiscal 1996 would have been approximately $3.6 billion had US Foodservice and H&O Foods, Inc. ("H&O Foods") (which was acquired in fiscal 1996) been part of the Company's operations for the entire 1996 fiscal year. Excluding acquisitions and the closure of nine divisions and four sales offices, consolidations or other significant changes, "same-division" sales increased 6%. The divisions' sales that were effected by closure, consolidation or other significant changes (which include customer account rationalization and territorial realignments) represent approximately 50% of the Company's fiscal 1997 sales. The gross profit for fiscal 1997 was $707.4 million, an increase of $305.2 million from fiscal 1996. The gross profit margin in fiscal 1997 was 20.3% versus 22.5% in fiscal 1996. The acquisition of US Foodservice, as well as a full year's inclusion of the results for H&O Foods were the primary reason for the reduction. Both of these companies operate as broadline distributors, which typically have lower gross margins than the historical Rykoff-Sexton divisions. The Company has also continued its transition among its historical Rykoff-Sexton divisions from a niche distributor to a broadline distributor; providing customers with an expanded selection of product categories, including fresh meats, produce and seafood, that typically carry lower margins. The Company, in its drive towards broadline distribution, has increased sales to customers under special program pricing arrangements such as national accounts. The synergies achieved through the effective integration of the acquisitions and improved pricing of food and non-food related products from enhanced purchasing programs negotiated by the Company resulted in an improvement in gross profit of approximately $6.0 million. Offsetting this improvement was $2.0 million in non-recurring inventory or promotional related charges incurred in the integration of US Foodservice. In fiscal 1997 the Company incurred $609.5 million in Warehouse, selling, delivery and general and administrative expenses (operating expenses) which represent 17.5% of net sales. Operating expenses for fiscal 1996 were $387.5 million or 21.7% of net sales. The primary reason for the increase in the amount of operating expenses from fiscal 1996 to fiscal 1997 is due to the merger with US Foodservice. The 9 improvement in operating expenses as a percentage of net sales from fiscal 1996 to fiscal 1997 is attributable to the closure, consolidation or other significant changes at certain divisions, realignment of the management structure, consolidation of several corporate functions, insurance reductions and other integration efforts. The Company estimates the impact of these efforts approximates an $11 million improvement. Because claims activity in fiscal 1997 was more favorable than previously estimated, the Company reversed $3.4 million of insurance reserves related to prior period programs. This adjustment represents 31% of the $11 million improvement. This improvement is also due to the transition to broadline distribution discussed above which generally produces lower operating expense levels. This decrease was offset by approximately $2.0 million in non-recurring charges, attributable to the integration plan for the Company and US Foodservice. Also included in operating expenses are net gains totaling $1.5 million related to sales of certain assets. The operating expenses for fiscal 1996 were negatively impacted by the move to the Company's new Los Angeles distribution center. The Los Angeles division represented 21.0% of the Company's total sales in fiscal 1996. It was also effected by higher than expected bad debt and insurance expense, as well as the initial impact of the operational restructuring to facilitate the acquisition of US Foodservice. Goodwill and other intangible amortization was $12.4 million in fiscal 1997 versus $1.9 million in fiscal 1996. The increase is attributable to the goodwill arising from the US Foodservice merger which was accounted for as a purchase business combination. Earnings per share is net of non-cash goodwill amortization of approximately $0.37 for fiscal 1997. In connection with the US Foodservice merger, the Company recorded a restructuring charge of $57.6 million ($35.7 million after tax) in the nine-week period ended June 29, 1996 ("1996 transition period"). Approximately $10.7 million related to severance and termination benefit costs, $20.2 million related to lease related costs and $26.7 million related to other exit costs, including the closure of duplicate facilities and other integration activities. During fiscal 1997, the Company charged $27.7 million consisting of $4.1 million related to severance and termination benefit costs, $2.7 million for lease related costs and $20.9 million related to other exit costs. During fiscal 1997, $4.0 million of the restructuring liability was reversed into income, upon the determination that such liability was no longer required. The remaining balance of the restructuring charge is $25.5 million of which it is expected that $9.0 million will be utilized in fiscal 1998 and is classified as current within Accrued liabilities in the accompanying consolidated financial statements. The remaining balance of $16.5 million is classified as long-term within Other liabilities and primarily consists of future payments of leasehold obligations. During fiscal 1997, the employment of two senior executives was terminated and the present value of severance compensation and related benefits, aggregating $4.0 million, was charged to expense. In the fourth quarter of fiscal 1996, the Company adopted the requirements of SFAS 121, "Accounting for the Impairment of Long-Lived Assets to Be Disposed Of" ("SFAS 121"). The adoption of SFAS 121 resulted in the Company recording a non-cash pretax charge of $29.7 million. There are no comparable charges in fiscal 1997. Interest expense, net increased to $46.4 million in fiscal 1997 from $17.3 million in fiscal 1996. The primary reason for the increase was the assumption of the outstanding debt from the US Foodservice merger and the subsequent refinancing. The level of debt as of the end of fiscal 1997 was $505.5 million and at the end of fiscal 1996 was $248.8 million. Other expenses were $13.1 million for fiscal 1997 and $0 for fiscal 1996. The expenses represent the loss on the sale of accounts receivable sold pursuant to the securitization facility and related charges. The Company did not have an accounts receivable securitization facility in fiscal 1996. 10 The effective income tax rate for fiscal 1997 was 38.2% versus an effective income tax benefit of (40.0)% for fiscal 1996. During the fourth quarter of fiscal 1997, the Company recorded a reduction in the valuation allowance of $2.8 million based on an analysis of expected combined operating results including US Foodservice. Management believes it is more likely than not that the deferred tax assets as of June 28, 1997, including net operating loss carryforwards, will be realizable through the combination of future taxable earnings, the corresponding realization of net operating loss carryforwards, alternative tax planning strategies and the reversal of existing taxable temporary differences. RESULTS OF OPERATIONS--THE NINE-WEEK PERIOD ENDED JUNE 29, 1996 ("1996 TRANSITION PERIOD") COMPARED TO THE NINE-WEEK PERIOD ENDED JULY 1, 1995 In anticipation of the Company's merger with US Foodservice, the Company decided to change its fiscal year-end from the 52 or 53 week period ended the Saturday closest to April 30 to the 52 or 53 week period ended the Saturday closest to June 30. This change resulted in a nine-week transition period covering the period from April 28, 1996 to June 29, 1996. For comparative purposes, the nine-week period ended July 1, 1995 is discussed herein. Given the significance of the US Foodservice merger, the operating results of the 1996 transition period are not comparable to the comparable nine-week period in 1995. Net sales for the 1996 transition period were $519.9 million. This is an increase over net sales for the comparable nine-week period in 1995 of $292.6 million. The increase is almost entirely attributable to the merger with US Foodservice. In connection with the US Foodservice merger the Company recorded a restructuring charge of $57.6 million ($35.7 million after tax) in the 1996 transition period as previously discussed. The Company utilized $0.4 million of the restructuring reserve, primarily for severance, during the 1996 transition period. Operating results in the 1996 transition period were also negatively impacted by one-time charges to Cost of sales of $9.4 million relating to product consolidations and realignment of inventory in accordance with the Company's integration plan as well as the recording of one-time operating expense charges by various distribution centers relating to operational consolidations arising from the merger amounting to $8.3 million. Net income (loss) was $(60.2) million or $(2.51) per share in the 1996 transition period compared to $1.1 million or $0.08 per share in the comparable nine-week period in 1995 primarily due to the restructuring charge and the other merger related items discussed above. RESULTS OF OPERATIONS--FISCAL 1996 COMPARED TO FISCAL 1995 In the fourth quarter of fiscal 1995, the Company extended the scope of its distribution network in the Mid-Atlantic region through the acquisition of substantially all of the assets of Continental Foods, Inc. ("Continental"), a broadline distributor located in Maryland serving the metropolitan Baltimore and Washington, D.C. markets. In the first quarter of fiscal 1996, the Company increased its penetration of the Midwestern region through the acquisition of the Specialty Foods Division of Olfisco, Inc., a Minneapolis-based subsidiary of Noon Hour Food Products. In the third quarter of fiscal 1996, the Company enhanced its distribution network throughout the State of Nevada when it acquired substantially all of the assets of H&O Foods, a regional, broadline institutional foodservice distributor. Sales for fiscal 1996 advanced 14.1% to $1.8 billion from $1.6 billion in fiscal 1995. Excluding acquisitions, sales on a same division basis for the fiscal year advanced 4%. Growth of same branch sales was hampered by the move to the new Los Angeles distribution center, by a slowdown in sales growth at various locations throughout the country, and by severe winter weather conditions throughout the East and Midwest regions. Sales of Continental and H&O contributed significantly to the overall sales growth in fiscal 1996. 11 The gross profit margin declined to 22.5% in fiscal 1996 from 23.9% in fiscal 1995. This decline is due to the above acquisitions which involve broadline distributors and the Company's continued transition from a niche distributor to a broadline distributor. Gross margins were also affected by inventory realignments from the continued transition from a centralized to a decentralized structure. Operating expenses as a percentage of net sales for fiscal 1996 were 21.7% versus 22.2% for fiscal 1995. The decrease in operating expenses as a percentage of net sales did not decrease as much as expected due to the impact of the move to the Company's new Los Angeles distribution center. The start-up of this facility, which accounted for approximately 21% of the Company's total sales volume in fiscal 1996, took longer, and was more costly, than originally anticipated. The Company also experienced higher than expected bad debt and insurance expenses in the fourth quarter of fiscal 1996. The Company recorded a restructuring charge of $31.0 million in fiscal 1993 to cover costs associated with a planned business reorganization. The reorganization was completed in fiscal 1996 and the remaining unused portion of the initial charge of $6.4 million was reversed to operating income. In the fourth quarter of fiscal 1996, the Company adopted the requirements of SFAS 121, which is intended to establish more consistent accounting standards for measuring the recoverability of long-lived assets. To comply with this new accounting requirement, the Company identified all owned properties where there had been, or was expected to be, a change in use in the recent past or foreseeable future which could affect the net recoverability of these assets. The net book values of these identified assets were compared to estimated current market values and future cash flows (for long-lived assets in use), to determine whether there may have been impairment in values. The adoption of SFAS 121 resulted in the Company recording a non-cash pretax charge of $29.7 million. Interest expense, net for fiscal 1996 increased $6.5 million from fiscal 1995. The increase is from higher borrowing levels and due to the reduction of capitalized interest resulting from placing into service the Los Angeles and Cincinnati facilities. Higher borrowing levels resulted from capital expenditures for these facilities, the acquisitions of Continental and H&O Foods and increased receivables and inventory levels due to sales growth. The effective income tax rate for fiscal 1996 and fiscal 1995 was 40.0% LIQUIDITY AND CAPITAL RESOURCES In fiscal 1997, the Company financed its operations primarily with cash flows from operating activities, borrowings under its bank credit facility and the securitization of its trade accounts receivable (see Note Ten to the accompanying consolidated financial statements). The Company also issued $25.9 million in industrial revenue bonds (see Note Five to the accompanying consolidated financial statements) in November 1996. The Company's cash flows provided by (used in) operating activities was $88.8 million in fiscal 1997, $106.5 million in the 1996 transition period, ($15.3) million in fiscal 1996 and $12.0 million in fiscal 1995. Cash flows provided by operating activities in fiscal 1997 were primarily impacted by net income of $16.0 million, adjusted by depreciation and amortization charges of $42.7 million, as well as a decrease in inventory levels of $26.1 million. Cash flows provided by operating activities in the transition period includes the impact of the $110.0 million receivables securitization, the net loss of $(60.1) million, the $57.6 million non-cash restructuring charge and a $34.0 million non-cash deferred tax benefit. Cash flows used in operating activities in fiscal 1996 included a non-cash charge of $29.7 million resulting from the adoption of SFAS 121. As of June 28, 1997, the Company's total indebtedness, including current portion, was $505.5 million. Under the bank credit facility, the Company had $330.1 million term debt outstanding at June 28, 1997 and a commitment for a revolving line of credit of up to $150 million, none of which was outstanding. Letters of credit outstanding as of June 28, 1997, which reduce availability under the revolving line of credit, were $27.3 million leaving $122.7 million in availability. 12 The Company incurred capital expenditures of $63.4 million in fiscal 1997, $3.9 million in the transition period, $43.9 million in fiscal 1996 and $52.9 million in fiscal 1995. In fiscal 1997, approximately $31.9 million was spent on the start up of construction on new state-of-the-art distribution centers in Fort Mill, South Carolina and Las Vegas, Nevada, and the completion of a new state-of-the-art distribution center in Reno, Nevada. Other capital expenditures of $6.0 million in fiscal 1997 were made to expand existing distribution centers in Boston, Massachusetts and Philadelphia, Pennsylvania. The balance of capital expenditures in fiscal 1997 consisted of purchases of warehouse and office equipment, computer hardware and software and upgrades to the Company's existing distribution centers. The construction of the Los Angeles distribution center amounted to approximately $45.0 million over the course of fiscal 1995 and fiscal 1996. The Company had commitments for capital expenditures of approximately $35.0 million at June 28, 1997. The Company believes that cash generated from operations and borrowings under its revolving line of credit will be sufficient to fund short-term and long-term cash requirements, including capital expenditures, during fiscal 1998 and into the foreseeable future. ITEM 7A--QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK Not required for fiscal 1997 because the Company's market capitalization was less than $2.5 billion as of January 28, 1997. ITEM 8--FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements required by Regulation S-X and the supplementary data required by Item 302 of Regulation S-K are included in this Report on Form 10-K commencing on Page F-1. ITEM 9-- CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10--DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY Set forth below is certain information about each person who is a director or an executive officer of the Company.
TERM AS YEAR BECAME YEAR BECAME A DIRECTOR EXECUTIVE NAME DIRECTOR EXPIRES OFFICER AGE - ------------------------------------------------------------------------ --------------- ----------- ----------- --------- Mark Van Stekelenburg .................................................. 1992 1998 1991 46 (Chairman of the Board of Directors since December 1995, Chief Executive Officer since December 1992 and President of the Company since August 1997 and from December 1992 to May 17, 1996. Mr. Van Stekelenburg joined the Company in 1991 and was Executive Vice President until December 1992. He was previously President and Chief Executive Officer of Grootverbruik Ahold, the foodservice division of Royal Ahold, N.V., The Netherlands.)
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TERM AS YEAR BECAME YEAR BECAME A DIRECTOR EXECUTIVE NAME DIRECTOR EXPIRES OFFICER AGE - ------------------------------------------------------------------------ --------------- ----------- ----------- --------- Matthias B. Bowman ..................................................... 1996 1999 -- 49 (Vice Chairman of Investment Banking at Merrill Lynch & Co., Inc. ("Merrill Lynch") since 1993 and President of Merrill Lynch Capital Partners, Inc. ("MLCP") since 1994. Mr. Bowman has been employed by Merrill Lynch in various capacities since 1978 and currently serves as an officer or director of several affiliates of Merrill Lynch. Mr. Bowman also serves as a director of SMG II Holdings Corporation.) Richard M. Fink ........................................................ 1996 1997 -- 67 (Chairman of G&K Services, Inc. ("G&K"), a Minneapolis-based company that provides and maintains work garments and other related textile products to a wide variety of businesses and institutions, since 1997. Mr. Fink was President and CEO of G&K from 1970 through 1996.) Albert J. Fitzgibbons, III ............................................. 1996 1998 -- 52 (Partner of Stonington Partners, Inc. ("Stonington"), a private investment firm, a position that he has held since June 1994. Mr. Fitzgibbons has been a consultant to MLCP since June 1994 and Executive Vice President of MLCP from 1988 to June 1994. Mr. Fitzgibbons is also a director of Borg-Warner Automotive, Inc., Borg-Warner Security Corporation, Dictaphone Corporation and United Artists Theatre Circuit, Inc.) Jan W. Jeurgens ........................................................ 1995 1997 -- 76 (Retired since 1983. From 1968-1983, Mr. Jeurgens served as Chief Executive Officer of Netherlands-based Makro International, a world-wide wholesaler of food and non-food products. Mr. Jeurgens continues an active involvement in the international distribution industry.) Sunil C. Khanna ........................................................ 1996 1997 -- 40 (Consultant to MLCP since 1994. Mr. Khanna was a Principal of Stonington from June 1994 through March 1997. Mr. Khanna was a principal of MLCP from 1989 to 1993 and a vice president of MLCP from 1993 to June 1994. Mr. Khanna is a director of Pathmark Stores, Inc. and Supermarkets General Holdings Corporation.) James I. Maslon ........................................................ 1962 1999 -- 70 (Retired since 1992. Mr. Maslon was previously Vice President--Manufacturing of the Company's S.E. Rykoff & Co. division.) James P. Miscoll ....................................................... 1992 1998 -- 62 (Retired since 1992. Mr. Miscoll was previously Vice Chairman of BankAmerica Corporation. He is a director of American International Group, Inc., Coast Federal Financial, Inc., MK Gold Company, MotivePower Industries, Inc. and U.S. Rentals, Inc.)
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TERM AS YEAR BECAME YEAR BECAME A DIRECTOR EXECUTIVE NAME DIRECTOR EXPIRES OFFICER AGE - ------------------------------------------------------------------------ --------------- ----------- ----------- --------- Neil I. Sell ........................................................... 1982 1999 -- 56 (Partner since 1968 in the law firm of Maslon Edelman Borman & Brand, L.L.P. Mr. Sell is a director of Grand Casinos, Inc.) Bernard Sweet .......................................................... 1978 1998 -- 73 (Retired since 1985. Mr. Sweet previously was President and Chief Executive Officer of Republic Airlines, Inc. He is a director of G&K.) Robert W. Williamson ................................................... 1996 1997 -- 54 (President and Chief Executive Officer of Merrill Lynch International Bank since November 1996. Mr. Williamson previously was Chief Credit Officer of Merrill Lynch. Mr. Williamson has been employed by Merrill Lynch or its affiliates in various capacities since 1976.) Timothy Buckley ........................................................ -- -- 1996 49 (Vice President of the Company and President of TSSI since May 1996. Mr. Buckley joined Rykoff-Sexton in 1975 and served as Director of Purchasing from 1985 until May 1996.) William J. Caskey ...................................................... -- -- 1997 47 (Executive Vice President and Chief Executive Officer of the Company's Manufacturing Division since August 1997. Mr. Caskey was Vice President, Sales and Administration of the Foodservice Division of Campbell Soup Company from August 1994 through June 1997 and Director, Sales and Marketing of Campbell UK from September 1992 through July 1994.) Harold E. Feather ...................................................... -- -- 1992 58 (Executive Vice President, Strategic Planning since January 1997 and Executive Vice President, Operations of the Company's US Foodservice Division since July 1997. Mr. Feather joined the Company in 1983 and served as President of the Company's Distribution Division from 1992 until 1994 and Executive Vice President, Corporate Planning from 1994 until January 1997. Before then, he worked for John Sexton & Co. for over 19 years.) Robert J. Harter, Jr. .................................................. -- -- 1989 52 (Senior Vice President, Administration and General Counsel since 1996, Senior Vice President, Human Resources and General Counsel from 1993 to 1996 and Secretary since 1995. Mr. Harter joined the Company in October 1989 and served as Vice President and General Counsel from 1989 until 1993. He previously was Senior Vice President and General Counsel for Tiger International, Inc.)
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TERM AS YEAR BECAME YEAR BECAME A DIRECTOR EXECUTIVE NAME DIRECTOR EXPIRES OFFICER AGE - ------------------------------------------------------------------------ --------------- ----------- ----------- --------- Kenneth Kozel .......................................................... -- -- 1996 49 (Vice President and Treasurer since November 1996. Mr. Kozel joined the Company in May 1996 upon the completion of the Company's acquisition of US Foodservice and served as Assistant Treasurer from May 1996 until November 1996. Mr. Kozel joined Unifax, the predecessor of US Foodservice, in 1988 and served as Treasurer from 1991 until May 1996.) Richard J. Martin ...................................................... -- -- 1988 51 (Executive Vice President and Chief Financial Officer since September 1997 and Senior Vice President, Corporate Development from January to September 1997. Mr. Martin joined the Company in August 1988 and served as Vice President from 1988 until 1993 and Senior Vice President and Chief Financial Officer from 1993 through 1996. He previously was a partner with the accounting firm of Arthur Andersen LLP and was associated with that firm for 21 years.) Christopher Mellon ..................................................... -- -- 1997 33 (Vice President and Controller since February 1997. Mr. Mellon previously was Executive Vice President and Chief Operating Officer of Pioneer American Bank from September 1993 to February 1997. He also was Senior Vice President of Operations of Franklin First Savings Bank from January 1991 to March 1993 and Corporate Director of Strategic Planning for US Foodservice from March to September 1993.)
STANDSTILL AGREEMENT MLCP, a Delaware corporation and an affiliate of Merrill Lynch, initiates and structures transactions commonly referred to as leveraged or management buyouts involving publicly-owned companies, privately-owned companies and subsidiaries and divisions of both publicly- and privately-owned companies, and manages a fund of equity capital committed by institutional investors for investment in the equity portion of leveraged buyout transactions. MLCP or one of its affiliates is the direct or indirect managing partner of Merrill Lynch Capital Appreciation Partnership No. B-XVIII, L.P., ML Offshore LBO Partnership No. B-XVIII, ML IBK Positions, Inc., MLCP Associates L.P. No. II, MLCP Associates L.P. No. IV, Merrill Lynch KECALP L.P. 1994, Merrill Lynch KECALP L.P. 1991, Merrill Lynch Capital Appreciation Partnership No. XIII, L.P., ML Offshore LBO Partnership No. XIII, ML Employees LBO Partnership No. I, L.P., Merrill Lynch KECALP L.P. 1987 and Merchant Banking L.P. No. II. (each an "ML Entity" and collectively, the "ML Entities"). Each of the ML Entities is a stockholder of the Company. See "Security Ownership of Certain Beneficial Owners and Management." 16 On May 17, 1996, in connection with the consummation of the merger of US Foodservice with and into a wholly owned subsidiary of the Company (the "US Foodservice Merger"), pursuant to that certain Agreement and Plan of Merger, dated February 2, 1996, by and among the Company, US Foodservice and USF Acquisition Corporation, a Delaware corporation and a wholly-owned subsidiary of the Company, the Company entered into a Standstill Agreement (the "Standstill Agreement") with the ML Entities. The Standstill Agreement provides, among other things, (1) for the designation by the ML Entities of four nominees to the Company's Board of Directors, with such number of nominees and the total number of directors decreasing if the percentage of outstanding shares of Common Stock held by the ML Entities falls below certain percentage levels, (2) that, for a period of ten years, the ML Entities will not acquire beneficial ownership of additional voting securities of the Company representing voting power in excess of 36.4% of the outstanding voting securities of the Company and will not take certain other actions relating to the control of the Company, (3) that, subject to certain conditions, the ML Entities will vote in favor of the Company's nominees for the Board of Directors, (4) for certain restrictions on transfer of Company voting securities held by the ML Entities and (5) for a right of first refusal, under specified circumstances, for the Company in respect of certain transfers by the ML Entities of the Common Stock. Pursuant to the Standstill Agreement, the Company increased the size of its Board of Directors to 12 persons and filled four of the vacancies thereby created with directors designated by a representative of the ML Entities (each an "ML Director"). Of the four initial ML Directors, Mr. Matthias B. Bowman was appointed to Class A (current term expiring in 1999), Mr. Albert J. Fitzgibbons, III was appointed to Class B (current term expiring in 1998) and Messrs. Sunil C. Khanna and Robert W. Williamson were appointed to Class C (current terms expiring in 1997). Until such time as the ML Entities no longer beneficially own Company voting securities representing at least 10% of the total voting power, and except as otherwise contemplated by the Standstill Agreement or otherwise agreed to by a majority of ML Directors, the Company can not take or recommend to its stockholders any action that would (1) cause the Board of Directors to consist of any number of directors other than 12 directors divided into three classes of four directors each or (2) result in any amendment to its by-laws or the by-laws or regulations of any subsidiary of the Company in effect at the effective time of the US Foodservice Merger that would impose any qualifications to the eligibility of directors of the Company or on the Board of Directors (or any committee thereof) of any subsidiary of the Company, except as may be required by applicable law. In addition, the Company must use its best efforts to cause the Nominating Committee of its Board of Directors (or if the Nominating Committee makes no such recommendations, the Company's Board of Directors) to recommend for election in the applicable year in which the respective class term expires, in each case as designated by the ML Entities, (1) four ML Directors, consisting of one ML Director in each of Class A and Class B and two ML Directors in Class C, so long as the ML Entities beneficially own Company voting securities representing at least 34% of total voting power; (2) three ML Directors, consisting of one ML Director in each of Class A, Class B and Class C, so long as the ML Entities beneficially own Company voting securities representing less than 34%, but at least 27%, of the total voting power; (3) two ML Directors, consisting of one ML Director in Class A and one ML Director in Class B or Class C, so long as the ML Entities beneficially own Company voting securities representing less than 27%, but at least 16%, of the total voting power and (4) one ML Director in Class A, so long as the ML Entities beneficially own Company voting securities representing less than 16%, but at least 10%, of the total voting power. Until such time as the ML Entities no longer beneficially own Company voting securities representing at least 16% of the total voting power, to the extent that, and for so long as, any of the ML Directors is qualified under the then-current rules of the NYSE, the rules and regulations under the Internal Revenue Code of 1986, as amended (the "Code") relating to the qualification of employee stock benefit plans, the rules and regulations under Section 16(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and the Company's by-laws, the Company will use its best efforts to cause its Board of Directors to designate one of the ML Directors to serve on each of the committees of the Board of 17 Directors to the same extent, and on the same basis, as the other members of the Board of Directors. In addition, subject to the same director qualification requirements, in the event that, and for so long as, the ML Entities own Company voting securities representing less than 16% but at least 10% of the total voting power, the Company will use its best efforts to cause the Board of Directors to designate one of the ML Directors to serve on the Nominating Committee and the Management Development -- Compensation and Stock Option Committee of the Board of Directors, to the same extent, and on the same basis, as the other members of the Board of Directors. The Standstill Agreement also provides that so long as the ML Entities beneficially own Company voting securities representing at least 10% of the total voting power, the ML Directors will have representation on the Board of Directors (and any committees thereof) of any subsidiaries of the Company in a manner similar to their rights to representation on the Company's Board of Directors, but only to the extent that any directors of the Company who are not officers or employees of the Company are members of the board of directors of any such subsidiary. The ML Entities also have the right, with cause, to request the removal of any ML Director from the Company's Board of Directors, subject to the applicable provisions of the Company's charter and by-laws, as well as applicable statutory provisions, and the Company will use its best efforts to have such removal approved by the Company's Board of Directors. The ML Entities also have the right to designate nominees for vacancies caused by an ML Director ceasing to serve as a member of the Board of Directors, subject to certain restrictions, provided that the filling of the vacancy is to be made by action of the Board of Directors in accordance with the terms of the Company's charter. In addition, in the event that the percentage of total voting power represented by the Company's voting securities beneficially owned in the aggregate by the ML Entities at any time decreases below any of the minimum percentages specified above entitling the ML Entities to Board of Director and committee representation, the ML Entities will cause such number of ML Directors to resign as is necessary to adjust the number of remaining ML Directors to the number (if any) to which the ML Entities would have otherwise been entitled under the Standstill Agreement if the nominations to the Board of Directors (or any committee thereof) of the Company or any subsidiary of the Company were made at such time. Any subsequent increase in the percentage of the total voting power represented in the aggregate by Company voting securities beneficially owned by the ML Entities above any such minimum percentage will not entitle the ML Entities to have any additional ML Directors named or elected. Nothing in the Standstill Agreement requires the ML Entities to designate any ML Directors or requires an ML Director to serve in office. Until such time as the ML Entities no longer beneficially own Company voting securities representing, in the aggregate, at least 10% of the total voting power, in the event there is a vacancy created on the Board of Directors by the resignation or removal of an ML Director or the failure of the ML Entities to designate an ML Director (other than a resignation as a result of a decrease in the percentage of the aggregate number of votes of all outstanding Company voting securities represented by Company voting securities owned by the ML Entities below the minimum percentages specified above for representation on the Board of Directors) upon the written request of the ML Entities, the Company will reduce the size of its Board of Directors by the number of such vacancies and thereafter, the ML Entities will have no right to designate any ML Directors to the extent of such reduction. The Standstill Agreement provides that the rights to Board of Director and committee representation described above will extend only to those ML Entities that are controlled by Merrill Lynch and in the event of any transaction resulting in Merrill Lynch no longer controlling such ML Entity, such ML Entity will no longer have any rights to such Board of Director and committee representation, but will be bound by the other terms of the Standstill Agreement. The Company's obligations described above regarding Board of Director and committee representation are subject to compliance with the provisions of the Company's charter and by-laws and the fiduciary 18 duties of the Company's Board of Directors and Nominating Committee to the stockholders of the Company. Nothing set forth in such provisions will require the Company to violate any such provisions or require any director of the Company to breach any such fiduciary duty. SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Exchange Act requires the Company's officers and directors, and persons who beneficially own more than ten percent of a registered class of the Company's equity securities, to file reports of ownership and changes in ownership with the SEC. Officers, directors and greater than ten percent beneficial owners are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms filed by them. Based solely on its review of copies of such forms furnished to the Company, or written representations that no filings of Form 5 reports were required, the Company believes that during the fiscal year ended June 28, 1997, the Company's officers, directors and greater than ten percent beneficial owners complied with all Section 16(a) filing requirements applicable to them except that Mr. Buckley filed late a Form 5 that reported six transactions that should have been reported earlier on Forms 4. ITEM 11--EXECUTIVE COMPENSATION COMPENSATION OF DIRECTORS During fiscal 1997, directors who were neither ML Directors nor employees of the Company received an annual retainer of $32,000, but were not separately compensated for Board of Director or committee meeting participation. The 1993 Director Stock Option Plan provides for an annual grant to non-employee directors of options to purchase 1,000 shares at an option exercise price equal to the fair market value of such shares on the grant date. Each such option has a ten year term and generally becomes exercisable on the first anniversary of the grant date. Messrs. Jeurgens, Maslon, Miscoll, Sell and Sweet each were granted options to purchase 1,000 shares at an exercise price of $14.375 on September 5, 1996. These options have ten year terms and became fully exercisable on September 5, 1997. Eligible directors also have the opportunity to participate in the Rykoff-Sexton, Inc. Convertible Award Plan (Director Edition) (the "Director Plan"). The Director Plan is effective as of June 19, 1995, and was amended in January 1996 and April 1996. The April and June amendments were effected to conform the Director Plan to the Company's new fiscal year and to suspend the Director Plan during the 1996 transition period. The Director Plan was designed to grant eligible Directors restricted shares of Common Stock ("Premium Shares") as a bonus to those Directors who purchase Common Stock from the Company. This purchase may be made with any part of the annual retainer fee earned by an eligible Director during the Company's fiscal year (the "Annual Retainer"). Any Director of the Company who is eligible to receive an Annual Retainer is eligible to participate in the Director Plan. Any eligible Director may elect, during the first month of a fiscal year, to defer until the last quarterly Board meeting of that fiscal year payment of any part of his Annual Retainer for that fiscal year and to receive that payment in the form of Common Stock ("Purchased Shares"). The number of Purchased Shares acquired by that election equals (1) the dollar amount of Annual Retainer being converted, divided by (2) the Conversion Price for the fiscal year. The "Conversion Price" for a fiscal year is the average of the closing prices of the Common Stock, at the end of each week during the three month period ending on the last day of the seventh month of the fiscal year. If an eligible participant ceases to be a Director before the last quarterly Board meeting of a fiscal year, any Annual Retainer fees not earned will not be converted into Purchased Shares. For purposes of the Director Plan, a Director is considered to earn 25% of his Annual Retainer on the date of each quarterly Board meeting. Any Purchased Shares acquired under the Director Plan will vest and become transferable as soon as they are delivered. Purchased Shares will not be forfeited for any reason. 19 The Company also grants one Premium Share for each three Purchased Shares acquired by a Director. All Premium Shares are non-transferable and subject to possible forfeiture, as explained below, during the two year period beginning on the date a Director is scheduled to receive those shares (the "Holding Period"). The Holding Period may be shortened if a Director's Board membership ends without an event that would cause a forfeiture of Premium Shares. Until the end of the Holding Period for Premium Shares, a Director may not sell or otherwise transfer such shares, except for a transfer resulting from death. Also, if a Director sells or otherwise voluntarily transfers any Purchased Shares before the end of the Holding Period for those shares, he forfeits all of the Premium Shares he received with such Purchased Shares, unless the Holding Period has been shortened as described below. If a Director who bought Purchased Shares ceases to be a member of the Board of Directors before the end of the Holding Period for any of the related Premium Shares, the Premium Shares will be forfeited unless the Director has left the Board for one or more of the following reasons: (1) death or long-term disability (as determined in the discretion of the majority of the other Directors); (2) removal from the Board without cause; (3) failure to be re-nominated or re-elected as a Director; (4) a "change in control" of the Company, as defined in any existing agreements between the Company and its senior officers (including the Merger) or (5) the Director's voluntary resignation from the Board, accompanied by the vote of a majority of the Board (excluding such Director) agreeing to waive the balance of the Holding Period and determining in good faith that the waiver is in the best interest of the Company. If an eligible Director's membership on the Board terminates for any of those five reasons during the Holding Period of any of his or her Purchased Shares, then the related Holding Period will end, and all related Premium Shares will be freed from any further risk of forfeiture and will become fully transferable, subject to applicable securities laws, as of the effective date of the termination. During the Holding Period for Purchased Shares and Premium Shares, a Director is entitled to vote all of those shares and is entitled to receive any dividends paid with respect to those shares. However, such rights terminate with respect to Premium Shares if they are forfeited as described above. 20 SUMMARY COMPENSATION TABLE The table below sets forth annual and long-term compensation for each of the last three fiscal years awarded to or earned by the Chairman of the Board, President and Chief Executive Officer of the Company and the four other most highly compensated executive officers (determined by reference to the 1997 fiscal year) (the "Named Executive Officers") of the Company.
LONG TERM COMPENSATION AWARD(S) ANNUAL COMPENSATION ------------------------------ ----------------------------------- SECURITIES OTHER ANNUAL RESTRICTED UNDERLYING ALL OTHER FISCAL YEAR SALARY BONUS COMPENSATION STOCK AWARD(S) OPTIONS COMPENSATION (1) ($)(2) ($)(3) ($) ($)(4) (#) ($)(5) ----------- --------- --------- ------------- --------------- ------------- --------------- Mark Van Stekelenburg ........... 1997 500,000 187,513 775,456(6)(7) 166,634 50,000 38,634 Chairman of the Board and 1996 450,000 0 159,306(6)(7) 0 50,000 2,749 Chief Executive Officer 1995 449,366 354,855 318,940(6)(7) 76,876 77,500 3,348 Frank H. Bevevino(8) ............ 1997 400,000 294,751 0 99,963 35,000 4,600 Former President Harold E. Feather ............... 1997 275,000 192,423 0 91,640 15,000 72,500 Executive Vice President, 1996 272,000 0 0 0 15,000 0 Strategic Planning 1995 287,087 81,444 0 21,709 37,500 0 Thomas G. McMullen(9) ........... 1997 230,528 169,608 0 0 20,000 4,600 Former Executive Vice President David F. McAnally(10) ........... 1997 194,769 125,835 0 0 25,000 4,600 Former Senior Vice President and Chief Financial Officer
- ------------------------------ (1) Information furnished is for the 52-week fiscal years ended June 28, 1997, April 27, 1996 and April 29, 1995. Effective May 17, 1996, the Company changed its fiscal year-end from the Saturday closest to April 30 to the Saturday closest to June 30. During the 1996 transition period, the Company paid the Named Executive Officers the following salaries: Mr. Van Stekelenburg $69,231; Mr. Bevevino $57,962; Mr. Feather $42,308; Mr. McMullen $33,077; and Mr. McAnally $27,962. During the 1996 transition period, the following matching contributions under the Company's 401(k) Savings Plan were made for the Named Executive Officers: Mr. Bevevino $1,731; Mr. McMullen $992; and Mr. McAnally $831. (2) Includes amounts deferred by the Named Executive Officers under the Company's 401(k) Savings Plan. (3) Does not include the portion of a participant's bonus which the participant elected to receive in the form of restricted shares of Common Stock of the Company. (4) The amount presented is the value of the shares awarded under the Company's convertible award plan based on the closing price of the Common Stock on the NYSE on the date of grant. For fiscal 1997, the number of restricted shares awarded to Named Executive Officers, including the one-for-three matching, were as follows: Mr. Van Stekelenburg 11,492; Mr. Bevevino 6,894; and Mr. Feather 6,320. For fiscal 1996, no Named Executive Officer was awarded any restricted shares. For fiscal 1995, the number of restricted shares awarded to Named Executive Officers, including the one-for-five matching, were as follows: Mr. Van Stekelenburg 4,331 and Mr. Feather 1,223. The number of shares earned is calculated by dividing the amount of annual incentive bonus deferred by the Named Executive Officer by the price of the Company's Common Stock on the NYSE on the fourth day following the announcement of the Company's annual earnings for the year preceding the year in which the annual incentive bonus was earned. The shares awarded under the plan are not transferable by the recipient for three years following receipt thereof; however, any dividends that the Company may declare will be paid to the recipient during the three-year restriction period. The shares will vest in full upon stockholder approval of the Merger. The value of the Named Executive Officers' restricted stock holdings as of June 28, 1997, based on a closing sale price of $19.63 for the Common Stock on June 27, 1997, are as follows: Mr. Van Stekelenburg $349,827; Mr. Bevevino, $135,329; and Mr. Feather, $148,030. (5) Represents premiums for split dollar life insurance policies on the lives of Messrs. Van Stekelenburg and Feather in fiscal 1997 and term life insurance premiums for Mr. Van Stekelenburg in fiscal 1996 and 1995. Represents matching contributions under the Company's 401(k) Savings Plan for Messrs. Bevevino, McMullen and McAnally. The cash surrender value of the split dollar life insurance policies on the lives of Messrs. Van Stekelenburg and Feather were $30,933 and $61,913, respectively, as of June 28, 1997. (6) Includes $28,945 as the aggregate amount of imputed interest during fiscal 1997 on Mr. Van Stekelenburg's interest-free demand mortgage loan. See "Certain Relationships and Related Transactions--Other Management Indebtedness." The imputed interest for prior years is also shown in this column. Such loan had a principal balance of $350,000 at June 28, 1997. The imputed rate of interest is based on the interest charged by commercial banks on short-term residential mortgage loans during each of the fiscal years, and is calculated for informational purposes only. The Company believes that the mortgage loans to Mr. Van Stekelenburg meet the conditions set forth in Treasury Regulation 1.7872-5T(c) and, therefore, no interest need be imputed for income tax purposes. 21 (7) Includes payments totaling $352,389 in fiscal 1997 to Mr. Van Stekelenburg relating to his relocation to Wilkes-Barre, Pennsylvania and $116,561 in fiscal 1996 and $277,561 in fiscal 1995 to Mr. Van Stekelenburg relating to his relocation to Chicago, Illinois. (8) In July 1997, Mr. Bevevino resigned as President of the Company. See "--Agreements with Messrs. Bevevino and McMullen." Mr. Bevevino became an executive officer of the Company in May 1996. Accordingly, compensation amounts are not given for 1995 or 1996. See "Certain Relationships and Related Transactions--US Foodservice Inc. Loan Forgiveness" for a description of a loan to Mr. Bevevino that was forgiven in connection with the Company's acquisition of US Foodservice. (9) In July 1997, Mr. McMullen resigned as Executive Vice President of the Company. See "--Agreements with Messrs. Bevevino and McMullen." Mr. McMullen became an executive officer of the Company in May 1996. Accordingly, compensation amounts are not given for 1995 or 1996. See "Certain Relationships and Related Transactions--US Foodservice Inc. Loan Forgiveness" for a description of a loan to Mr. McMullen that was forgiven in connection with the Company's acquisition of US Foodservice. (10) In September 1997, Mr. McAnally's employment as Senior Vice President and Chief Financial Officer of the Company was terminated. See "--Employment Agreements and Change in Control Agreements." Mr. McAnally became an executive officer of the Company in May 1996. Accordingly, compensation amounts are not given for 1995 or 1996. See "Certain Relationships and Related Transactions--US Foodservice Inc. Loan Forgiveness" for a description of a loan to Mr. McAnally that was forgiven in connection with the Company's acquisition of US Foodservice. OPTION GRANTS IN LAST FISCAL YEAR The table below sets forth information on grants of stock options from the end of fiscal 1996 through fiscal 1997 to the Named Executive Officers:
POTENTIAL REALIZABLE VALUE AT ASSUMED INDIVIDUAL GRANTS ANNUAL RATES OF ---------------------------------------------------------------------------- STOCK PRICE NUMBER OF % OF TOTAL OPTIONS APPRECIATION FOR SECURITIES GRANTED TO OPTION TERM(2) UNDERLYING OPTIONS EMPLOYEES IN FISCAL EXERCISE OF BASE -------------------- NAME GRANTED (#)(1) YEAR PRICE ($/SH) EXPIRATION DATE 5% 10% - --------------------------- ------------------- ------------------- ----------------- --------------- --------- --------- Mark Van Stekelenburg...... 50,000 11.58 14.125 6/24/06 444,150 1,125,550 Frank H. Bevevino.......... 35,000(3) 8.11 14.125 6/24/06 310,905 787,885 Harold E. Feather.......... 15,000 3.48 14.125 6/24/06 133,245 337,665 Thomas G. McMullen......... 20,000(3) 4.63 14.125 6/24/06 177,660 450,220 David F. McAnally.......... 25,000(3) 5.79 14.125 6/24/06 222,075 562,775
- ------------------------------ (1) All of these non-qualified stock options were granted at a price equal to the fair market value of the Common Stock on June 24, 1996, the grant date, and will expire ten years from such date of grant or earlier pursuant to the terms thereof. These options become exercisable by their terms in equal quarterly installments commencing on the first anniversary of such grant date and become exercisable in full upon a change in control (which includes stockholder approval of the Merger). (2) Based on a ten-year option term and annual compounding, the 5% and 10% calculations are set forth in compliance with Securities and Exchange Commission rules. The appreciation calculations are not necessarily indicative of future values of stock options or of the Common Stock. (3) Upon the respective date of termination of employment of Messrs. Bevevino, McMullen and McAnally, all stock options held by such individuals (including the stock options described in this table) became immediately exercisable in full. See "--Employment Agreements and Change in Control Agreements" and "--Agreements with Messrs. Bevevino and McMullen." Such options will expire as follows: Mr. Bevevino, on October 22, 1997; Mr. McMullen, on October 22, 1997; and Mr. McAnally, on December 2, 1997. 22 AGGREGATE OPTION EXERCISES AND YEAR-END OPTION VALUES The following table sets forth information on stock options exercised by the Named Executive Officers from the end of fiscal 1996 through the end of fiscal 1997 and held by the Named Executive Officers at the end of fiscal 1997: AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
SECURITIES UNDERLYING VALUE OF UNEXERCISED UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS VALUE AT FISCAL YEAR END (#) AT FISCAL YEAR END ($) SHARES ACQUIRED REALIZED -------------------------- ------------------------- NAME ON EXERCISE (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ---------------------------------- --------------- ----------- ----------- ------------- ---------- ------------- Mark Van Stekelenburg............. 0 0 333,125 62,500 1,111,891 253,125 Frank H. Bevevino................. 62,251 269,366 79,075 28,487 672,486 155,325 Harold E. Feather................. 0 0 131,563 18,750 682,071 75,938 Thomas G. McMullen................ 15,289 69,190 16,750 15,874 132,229 86,778 David F. McAnally................. 0 0 26,461 26,461 197,544 118,539
LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR The table below sets forth information on long-term incentive plan awards from the end of fiscal 1996 through the end of fiscal 1997 to the Named Executive Officers:
ESTIMATED FUTURE PAYOUTS UNDER NON-STOCK PRICE BASED PLANS NUMBER OF SHARES PERFORMANCE OR OTHER ----------------------------------- UNITS OR OTHER PERIOD UNTIL THRESHOLD TARGET MAXIMUM RIGHTS(#) MATURATION OR PAYOUT (#) (#) (#) ------------------- -------------------- ----------- --------- ----------- Mark Van Stekelenburg................... 20,000(2) 6/24/99 5,000 10,000 20,000 Frank H. Bevevino....................... 92,000(1) 6/24/99 23,000 46,000 92,000 Harold E. Feather....................... 6,000(2) 6/24/99 1,500 3,000 6,000 Thomas G. McMullen...................... 56,000(1) 6/24/99 14,000 28,000 56,000 David F. McAnally....................... 6,000(2) 6/24/99 1,500 3,000 6,000 David F. McAnally....................... 50,000(2) 1/1/00 12,500 25,000 50,000
- ------------------------ (1) Such "performance shares" were canceled upon Mr. Bevevino and Mr. McMullen's resignation as President and a director of the Company, and as Executive Vice President of the Company, respectively. See "--Agreements with Messrs. Bevevino and McMullen." (2) Such "performance shares" vest upon shareholder approval of the Merger. See "--Employment Agreements and Change in Control Agreements." Each Named Executive Officer has been granted the number of "performance shares" indicated above, which will be converted into an equivalent number of shares of Common Stock or, at the election of the Management Development--Compensation and Stock Option Committee, to the cash value of such shares of Common Stock, in respect of a three-year performance period, provided that the financial performance of the Company meets specified objectives established by the Management Development-- Compensation and Stock Option Committee. RETIREMENT BENEFITS The Company and one of its subsidiaries, John Sexton & Co., maintain a tax-qualified noncontributory defined benefit pension plan (the "Pension Plan") for eligible employees who are not covered by a union sponsored retirement plan. Generally, only those individuals who became employees of the 23 Company prior to its acquisition of US Foodservice are eligible for benefits under the Pension Plan. The Pension Plan does not cover employees of US Foodservice or its subsidiaries, except for those Pension Plan participants who are transferred to US Foodservice or one of its subsidiaries from employment with the Company or John Sexton & Co. The Pension Plan covers eligible employees of the Company for periods after April 29, 1989. Full vesting under the Pension Plan occurs after five years of service with the Company and its subsidiaries. The Pension Plan provides an annual lifetime benefit equal to one percent (1%) of a participant's final average pay for each year of participation. This annual benefit is subject to actuarial reduction if the pension is payable before age sixty five. Final average pay means the average of the participant's eligible compensation for the highest five calendar years during the participant's final fifteen years of participation. Eligible compensation generally includes all cash compensation, and for fiscal years beginning after 1993 excludes amounts exceeding $150,000 annually pursuant to Section 401(a)(17) of the Code. The $150,000 limit will be adjusted by the Internal Revenue Service for cost of living and in 1997 stands at $160,000. However, the limit for compensation earned in the 1993 calendar year was $235,840, and pension benefits based on that compensation will not be reduced below the level accrued as of April 30, 1994. Benefits under the Pension Plan are not subject to reduction for Social Security or other offset amounts. Effective October 1, 1995, the Company established a non qualified supplemental excess retirement plan to restore benefits to a select group of management and highly compensated employees who contribute materially to the continued growth, development and future business success of the Company (the "Restoration Plan"). The Restoration Plan restores lost benefits to those participants whose retirement benefits under the Pension Plan have been limited by Section 401(a)(17) of the Code by reason of the fact that amounts deferred into the Company's non qualified plans are not used in the formula for calculating retirement benefits under the Pension Plan. The Pension Plan and Restoration Plan Table below contains the estimated annual retirement benefits payable on a single life annuity basis under the Pension Plan and Restoration Plan to participating employees based on average earning and years of participation at retirement. PENSION PLAN AND RESTORATION PLAN TABLE
YEARS OF SERVICE ------------------------------------------ REMUNERATION 5 10 15 20 - ---------------- --------- --------- --------- --------- 225,000 11,250 22,500 33,750 45,000 250,000 12,500 25,000 37,500 50,000 300,000 15,000 30,000 45,000 60,000 350,000 17,500 35,000 52,500 70,000 400,000 20,000 40,000 60,000 80,000 450,000 22,500 45,000 67,500 90,000 500,000 25,000 50,000 75,000 100,000
Effective October 1, 1995, Rykoff-Sexton established a non-qualified supplemental executive retirement plan for Mr. Feather and certain other executive officers of the Company individually referred to as an "executive" (the "SERPs"). The SERPs do not cover the Chairman of the Board, President and Chief Executive Officer. An executive who has at least fifteen years of service and retires at or after age sixty-two (the "Normal Retirement Age") is entitled, provided he has participated in his SERP for at least five plan years or has otherwise become fully vested in his SERP, to an annual SERP retirement benefit for life equal to fifty percent of his final average earnings, reduced by the actuarial equivalent of any benefits he is entitled to receive under the Pension Plan, the Restoration Plan, certain other nonqualified retirement plans of the Company and its subsidiaries, Social Security, and all qualified and non-qualified plans of all prior 24 employers (the "Executive's Other Benefits"). Final average earnings are defined as the executive's highest average annual base compensation plus bonus during any consecutive three-year period within the five year period preceding termination of employment. An executive who has at least ten years of service and retires prior to Normal Retirement Age but at or after age fifty-five is entitled, provided he has participated in his SERP for at least five plan years or has otherwise become fully vested in his SERP, to an annual early retirement benefit for life equal to the fifty percent benefit payable at Normal Retirement Age (as reduced by the Executive's Other Benefits), reduced on account of the early payment of benefits. The early payment reduction is six percent for each year that the date of the commencement of benefits precedes his normal retirement at age sixty-two (the "Six Percent Annual Early Payment Reduction"). An executive will become fully vested in his SERP at age fifty-five and upon completion of five plan years of participation in the SERP, or earlier if he is terminated without cause under his Severance Agreement or following a "change in control." "Change in control" has substantially the same meaning as described under "--Change in Control Agreements and Golden Parachute Tax Exemption" and includes the Merger. An executive who becomes fully vested in his SERP will be entitled, upon termination prior to the date the executive would have both attained age fifty-five and completed ten years of service, to a lifetime annual retirement benefit payable commencing at the date he would have had ten years of service had his employment continued with Rykoff-Sexton and attained age fifty-five. The benefit will be determined in the same manner as an early retirement benefit. If an executive dies prior to his termination of employment, his surviving spouse, if he has been married to such spouse for at least one year prior to death, is entitled to an annual survivor benefit for life equal to fifty percent of the benefit to which the executive would have been entitled had he then retired (but without reduction by the benefits the executive would have been entitled to receive under the Pension Plan), reduced by the survivor benefits paid under the Pension Plan. If an executive dies after the commencement of benefits under the SERP, his surviving spouse, if he has been married to such spouse for at least one year prior to death, is entitled to an annual survivor benefit equal to fifty percent of the benefit actually then being paid to the executive, adjusted, in a manner similar to that described above, to take into account the survivor benefits paid under the Pension Plan. An executive who becomes disabled with less than ten years of service is entitled to an annual disability benefit for life equal to twenty-five percent of his final average earnings, reduced by the Executive's Other Benefits. An executive who becomes disabled with ten or more years of service is entitled to a disability benefit calculated by (A) multiplying his final average earnings by a percentage that equals his years of service times two and one-half percent (but in no event more than fifty percent), and (B) subtracting therefrom an amount equal to the Executive's Other Benefits. Disability benefits shall commence after the end of the salary continuation period under the Company's non-insured salary continuation plan. Disability benefits are not subject to the Six Percent Annual Early Payment Reduction. Effective July 20, 1994, Rykoff-Sexton established a non-qualified supplemental executive retirement plan for Mr. Van Stekelenburg (the "CEO SERP"). If Mr. Van Stekelenburg has at least twenty years of service and retires at or after age sixty (the "CEO's Normal Retirement Age"), Mr. Van Stekelenburg is entitled under the CEO SERP to an annual retirement benefit for life equal to sixty percent of his final average earnings, reduced by the actuarial equivalent of any benefits he is entitled to receive under the Pension Plan (the "CEO's Other Benefits"). Mr. Van Stekelenburg is not a participant in the Restoration Plan. Final average earnings are defined as Mr. Van Stekelenburg's average annual base compensation plus bonus during the three year period preceding termination of employment. If Mr. Van Stekelenburg retires prior to the CEO's Normal Retirement Age but at or after age fifty-five, he is entitled to an early retirement benefit equal to the sixty percent benefit payable at the CEO's Normal Retirement Age (as reduced by the CEO's Other Benefits), 25 reduced by six percent for each year that the date of commencement of benefits precedes the CEO's Normal Retirement Age. In all cases, the retirement benefits payable to Mr. Van Stekelenburg will be reduced by the amount of retirement benefits paid to him under Social Security. Mr. Van Stekelenburg became fully vested in the CEO SERP upon completing five years of service. As a result, if Mr. Van Stekelenburg terminates prior to age fifty-five, he will be entitled to an annual retirement benefit for life payable commencing at age fifty-five which is equal to the actuarial equivalent of the sixty percent benefit payable at the CEO's Normal Retirement Age (as reduced by the CEO's Other Benefits). The retirement benefit will be reduced by the amount of retirement benefits paid to him under Social Security. If Mr. Van Stekelenburg dies prior to his termination of employment, his surviving spouse is entitled, if he has been married to such spouse for at least one year prior to death, to an annual survivor benefit for life equal to sixty percent of the benefit to which he would have been entitled had he then retired (but without reduction by the benefits the executive would have been entitled to receive under the Pension Plan), reduced by the survivor benefits paid under the Pension Plan. If Mr. Van Stekelenburg dies after the commencement of benefits under the CEO SERP, his surviving spouse, if he has been married to such spouse for at least one year prior to his death, is entitled to an annual survivor benefit equal to sixty percent of the benefit actually then being paid to him, adjusted in a manner similar to that described above to take into account the survivor benefits paid under the Pension Plan. If Mr. Van Stekelenburg becomes disabled with less than ten years of service, he is entitled to an annual disability benefit for life equal to thirty percent of his final average earnings, reduced by the CEO's Other Benefits. If Mr. Van Stekelenburg becomes disabled with ten or more years of service, he is entitled to a disability benefit calculated by (A) multiplying his final average earnings by a percentage that equals his years of service times three percent (but in no event more than sixty percent), and (B) subtracting therefrom an amount equal to the CEO's Other Benefits. Disability benefits shall commence after the end of the salary continuation period under the Company's non-insured salary continuation plan, are reduced by the amount of retirement benefits paid under Social Security, and are not subject to the six percent annual early payment reduction. EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL AGREEMENTS EMPLOYMENT AGREEMENTS AND RELATED MATTERS. The Company is a party to an amended and restated employment agreement dated February 2, 1996, as amended on June 9, 1997, with Mark Van Stekelenburg (the "Van Stekelenburg Employment Agreement"). The Van Stekelenburg Employment Agreement provides for a minimum annual base salary, which is currently $500,000, for a five-year term which began on February 2, 1996 (with automatic one-year renewals commencing at the end of the fifth year unless either party gives advance notice to the contrary), with a guaranteed minimum bonus of 50% of annual base salary for the Company's 1997 fiscal year and 25% of annual base salary for the Company's 1998 fiscal year. Mr. Van Stekelenburg's annual bonus opportunity under the Company's existing senior management incentive plan is 150% of his base salary. The Van Stekelenburg Employment Agreement provides term life insurance of not less than $1,000,000 and a corresponding tax reimbursement. If Mr. Van Stekelenburg's employment is involuntarily terminated without "cause" during the term of the Van Stekelenburg Employment Agreement, he will receive termination payments for the greater of two years or the remaining term of such Employment Agreement. Termination benefits include salary and welfare benefit continuation, bonus (equal to the average amount of his incentive bonus during the three years preceding termination), immediate exercisability of any outstanding stock options, the lapse of any restrictions on other equity awards, and if termination occurs before July 20, 1999, two additional years of service credit for the CEO SERP (as defined in "--Retirement Benefits." Termination payments will be offset by any severance payments (other than tax reimbursements) made under Mr. Van Stekelenburg's change in control agreement. See "--Change in Control Agreements and Golden Parachute Tax Exemption." If the Merger is approved by Rykoff-Sexton's stockholders, Mr. Van Stekelenburg's unvested stock 26 options covering 62,500 shares of Common Stock will vest according to their terms and restrictions on his 137,821 shares of Common Stock that are the subject of other equity awards will lapse according to their terms. No payment will be made to Mr. Van Stekelenburg under the Van Stekelenburg Employment Agreement as a result of the Merger with respect to salary and bonus because amounts being paid under his change in control agreement completely offset these payments. See "--Change in Control Agreements and Golden Parachute Tax Exemption." The Company also has obligations under employment agreements with David F. McAnally, Former Senior Vice President and Chief Financial Officer, and Harold E. Feather, Executive Vice President, Strategic Planning. The Company's employment agreement with Mr. McAnally generally parallels the Van Stekelenburg Employment Agreement. Mr. McAnally's employment agreement provides an annual base salary, most recently $205,000, for a two year term commencing on May 17, 1996, with a guaranteed minimum bonus of 50% of annual base salary for the Company's 1997 fiscal year and 25% of annual base salary for the Company's 1998 fiscal year. In the event that Mr. McAnally is involuntarily terminated by the Company without "cause" during the term of his employment agreement, he will receive termination payments for the greater of one year or the period remaining in the term. Termination benefits for Mr. McAnally include salary and welfare benefit continuation, bonus (equal to the average amount of his incentive bonus during the three years preceding termination), immediate exercisability of any outstanding stock options, and the lapse of certain specified restrictions on other equity awards. Mr. McAnally's employment was terminated pursuant to his employment agreement effective September 2, 1997. Pursuant to the terms of Mr. McAnally's employment agreement, Mr. McAnally currently is receiving $30,521 per month, which will cease to be payable upon the earlier to occur of September 2, 1998 or the date, if any, when amounts are paid under his change-in-control agreement. In addition, upon termination of Mr. McAnally's employment, unvested stock options covering 21,899 shares of Common Stock vested and the restrictions on 56,000 shares of Common Stock that are the subject of other equity awards will lapse upon shareholder approval of the Merger. See "--Change in Control Agreements and Golden Parachute Tax Exemption." The employment agreement with Mr. Feather became effective June 20, 1994 and provides that Mr. Feather will be paid a minimum annual base salary, which is currently $290,000, and an annual car allowance (currently $9,000), through December 31, 1998 (after which time, either Mr. Feather or the Company may terminate his employment at any time with or without cause and with or without notice). Mr. Feather's employment agreement permits him to participate in the Company's employee benefit, stock option, and incentive plans, subject to the terms of such plans. If Mr. Feather is terminated by the Company for any reason other than Mr. Feather's death, disability, or for cause (as defined), Mr. Feather will receive termination payments equal to his continued base salary through December 31, 1998, provided that Mr. Feather does not directly or indirectly compete with the Company. Any payments made pursuant to Mr. Feather's change in control agreement will reduce, dollar for dollar, the amount of the termination payments made pursuant to Mr. Feather's employment agreement. If termination payments were to become due to Mr. Feather under both his employment agreement and his change in control agreement it is anticipated that any amounts paid under his change in control agreement would completely offset any amounts payable under his employment agreement. See "--Change in Control Agreements and Golden Parachute Tax Exemption." CHANGE IN CONTROL AGREEMENTS AND GOLDEN PARACHUTE TAX EXEMPTION. The Company is a party to a third amended and restated change in control agreement with Mr. Van Stekelenburg, second amended and restated change in control agreements with Mr. Feather and certain other executive officers and a change in control agreement with Mr. McAnally (each dated June 10, 1997, and collectively referred to as the "change in control agreements"). Prior to a "change in control", each of the change in control agreements provides for a base term ending on December 31, 1999, with automatic one-year renewals unless the Company gives advance notice to the contrary. Each of the change in control agreements provides for the payment of specified benefits under the circumstances described below after the occurrence of a "change 27 in control." In general, a "change in control" is deemed to occur under these agreements if: (1) any person becomes the beneficial owner of 25% or more of the combined voting power of the Company's outstanding securities, (2) the membership of the Company's Board of Directors changes within any 12-month period, with the result that the incumbent members thereof do not constitute a majority of the Board of Directors of the Company, (3) a reorganization, merger, or consolidation of the Company is consummated or all or substantially all of the assets of the Company are sold (each a "Business Combination"), unless, in each case, immediately following such Business Combination, (a) all or substantially all of the beneficial owners of the voting stock of the Company ("Voting Securities") immediately prior to the Business Combination beneficially own, directly or indirectly, more than two-thirds of the then outstanding shares of common stock and the combined voting power of the then outstanding Voting Securities of the entity resulting from such Business Combination (including, without limitation, an entity which, as a result of such transaction, owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions relative to each other as their ownership, immediately prior to such Business Combination, of the Voting Securities of the Company, (b) no person (other than an "Excluded Person", the Company, an entity resulting from a Business Combination, or any employee benefit plan (or related trust) sponsored or maintained by the Company, any subsidiary or such entity resulting from such Business Combination) beneficially owns (directly or indirectly) 25% or more of the then outstanding Voting Securities of the entity resulting from the Business Combination, (c) at least a majority of the Board of Directors of the entity resulting from the Business Combination were members of the Board of Directors of the Company at the time of the execution of the initial agreement and board approval relating to the Business Combination, and (d) the Chief Executive Officer of the Company immediately prior to the commencement of discussions with the third party that results in the Business Combination remains the Chief Executive Officer of the Company and the entity resulting from such Business Combination (unless such Chief Executive Officer ceases to constitute such as a result of death, disability, termination for "cause" (as defined in the Chief Executive Officer's employment agreement), or voluntary termination of such Chief Executive Officer under circumstances not deemed to be an "involuntary termination" (as defined in the Chief Executive Officer's employment agreement)) for at least twelve months after the consummation of the Business Combination, or (4) approval by the stockholders of the Company of a complete liquidation or dissolution of the Company (except pursuant to a Business Combination described in (a), (b), (c), and (d) of this sentence). For purposes of the change in control agreements, the term "Excluded Person" means (1) the ML Entities, so long as the Standstill Agreement continues to be in effect and the ML Entities are in compliance with the terms of the Standstill Agreement, or (2) any person who acquires Voting Securities from an ML Entity if (a) such Voting Securities were acquired by an ML Entity pursuant to the US Foodservice Merger, and (b) prior to such acquisition by such other person, a majority of the Board of Directors of the Company, other than directors nominated by, or affiliated or associated with, the ML Entities, has determined in good faith that such transaction does not constitute a "change in control" for purposes of the change in control agreements. For purposes of the change in control agreements, the consummation of the Merger will constitute a "change in control." If a "change in control" occurs, the change in control agreements (other than Mr. Van Stekelenburg's) will provide an executive with an amount equal to 2.99 times the sum of his base salary plus the amount that would otherwise be earned under any executive compensation plan (assuming all amounts that could be earned were earned) if, within two years subsequent to the "change in control", the executive's employment is involuntarily terminated by the Company other than for death, disability or "cause" (defined generally as the executive's willful and continued failure to substantially perform his duties, after specific demand for substantial performance has been made by the Company, or the executive's willful engagement in misconduct that is materially injurious to the Company) or if the executive terminates his employment for "good reason" (defined as (1) certain changes to the executive's duties, titles, offices or positions, (2) a salary reduction or a failure to increase salary by certain amounts, (3) failure to maintain, or certain adverse effects on the executive's participation in, certain benefit, incentive or stock option 28 plans, (4) a relocation subsequent to a "change in control" of the Company's principal executive offices to a location more than 40 miles from the location of such principal executive offices immediately prior to the "change in control", provided that such relocation will have no effect under the executive's change in control agreement unless prior to the "change in control", the executive performed the executive's duties at such principal offices; or the executive's relocation to any place other than the location at which the executive performed the executive's duties prior to a "change in control", except for required travel by the executive on the Company's business to an extent substantially consistent with the executive's business travel obligations at the time of a "change in control", (5) a reduction in the executive's vacation days, (6) a material breach of, or failure by a successor or assign of the Company to assume, the executive's change in control agreement, or (7) a purported termination of the executive's employment that is not implemented in accordance with the terms of the executive's change in control agreement). Additionally, if a "change in control" occurs and the executive's employment with the Company is terminated by the Company or the executive terminates his employment for "good reason" prior to the date on which the "change in control" occurs, such termination will be deemed to be a termination of employment after a "change in control" for purposes of the change in control agreement if the executive can reasonably demonstrate that such termination (1) was at the request of a third party who took steps reasonably calculated to effect a "change in control," or (2) otherwise arose in connection with or in anticipation of a "change in control." The consummation of the Merger will constitute a "change in control" of the Company. Pursuant to Mr. Van Stekelenburg's change in control agreement, Mr. Van Stekelenburg will receive an amount equal to 2.99 times the sum of his base salary plus the amount that would otherwise be earned under any executive compensation plan (assuming all such amounts had been earned) if within two years subsequent to the "change in control", his employment is terminated by the Company for any reason or no reason (other than death) or if Mr. Van Stekelenburg elects to terminate his employment for any or no reason. Termination benefits for each of the executives who is a party to a change in control agreement also include outplacement expense reimbursement and welfare benefit continuation for two years after the executive's termination of employment. Mr. Van Stekelenburg will receive $2,616,250 and 62,168 shares of Common Stock at or prior to the effective time of the Merger in payment of amounts owing under his change in control agreements. If the Merger is consummated by September 2, 1998, Mr. McAnally will receive $919,425 and 21,041 shares of Common Stock at or prior to the effective time of the Merger in payment of amounts owing under his change in control agreement. If the employment of Mr. Feather is terminated under circumstances giving rise to benefits under his change in control agreement, it is anticipated, based on current compensation levels, that Mr. Feather would receive $1,300,650 and 29,012 shares of Common Stock. Mr. Feather is expected to become an executive officer of JP Foodservice as of the effective time of the Merger and he will not receive benefits under his change in control agreement unless his employment is terminated under circumstances described above. Any shares of Common Stock to be received by such executive officers in payment of amounts owing under their change in control agreements will be converted into the right to receive or will be paid directly as shares of JP Foodservice Common Stock at the Exchange Ratio at the effective time of the Merger. The change in control agreements with Messrs. Van Stekelenburg and Feather also provide for payment of an amount necessary to restore any benefit diminution if the 20% excise tax imposed under Section 4999 of the Code is applicable to payments made or benefits provided under their agreements. SEVERANCE AGREEMENTS. As of February 2, 1996, the Company entered into individual severance agreements with Mr. Feather and certain other executive officers (the "Severance Agreements"). The individual Severance Agreements provide for termination benefits if an executive is involuntarily terminated by the Company other than for death, disability or "cause", or terminates employment voluntarily after a reduction in pay (other than a general reduction), or notice of the non-renewal of the agreement, during the Severance Agreement's three-year term. These Severance Agreements also provide for automatic one-year renewals unless either party gives advance notice to the contrary. "Cause" under the 29 Severance Agreements is defined as a failure by the executive consistently to meet applicable performance appraisal standards; an intentional act of fraud, embezzlement or theft; intentional wrongful damage to the Company's property; intentional misconduct that is materially injurious to the Company; or a breach of the confidentiality/nonsolicitation provisions of the Severance Agreement. Termination benefits include salary and welfare benefit continuation for two years, bonus (based on actual performance results during the applicable performance period and calculated as though the executive had remained employed throughout the period, but prorated to reflect the period of actual service), full vesting in any stock options and in each individual's SERP and crediting of benefits under the Company's Deferred Compensation Plan at a "preferred" rate. Termination payments will be offset by any payments made under an individual executive's employment agreement or change in control agreement. If payments were to become due to Mr. Feather under both his severance and change in control agreements, it is anticipated that any amounts paid under his change in control agreement under those circumstances would offset completely any termination benefits in respect of salary, bonus or welfare continuation under his severance agreement. DEFERRED COMPENSATION PLAN AND MASTER TRUST AGREEMENT. The Company's Deferred Compensation Plan permits specified Company executives and members of the Company's Board of Directors to elect to defer portions of annual base salary, annual bonus and/or directors' fees. The minimum deferral for any year is $2,000 of base salary, bonus or fees, and the maximum annual deferral is 50% of annual base salary and 100% of each of annual bonus and director's fees. Interest is credited to an individual's account on the amount deferred at specified rates. A higher interest rate is generally applied for payments due to death, disability or retirement after age 62 (or for employees only, after age 55 with five years service), or for payments made to a participant with at least five years of participation in the Plan. The higher interest rate is also applied after a "change in control" occurs. The Master Trust Agreement for Executive Deferral Plans provides a means of securing payment for various of the Company's deferred compensation plans for executives, including the Deferred Compensation Plan and the SERPs. Certain provisions of the Master Trust Agreement take effect only after a "change in control" occurs. On June 9, 1997, the Company amended the Deferred Compensation Plan and the Master Trust Agreement to conform the definition of "change in control" under both documents to the definition set forth in the change in control agreements. See "--Change in Control Agreements and Golden Parachute Tax Exemption." For purposes of the Deferred Compensation Plan and the Master Trust Agreement, the consummation of the Merger will constitute a "change in control." At or prior to the effective time of the Merger, the Company may transfer funds to the trust established pursuant to the Master Trust Agreement in an amount sufficient to provide for all obligations secured by the trust and accrued through the Effective Time and for the fees and expenses of the trust. AGREEMENTS WITH MESSRS. BEVEVINO AND MCMULLEN In July 1997, Frank H. Bevevino resigned as President of the Company and Thomas G. McMullen resigned as Executive Vice President of the Company. Pursuant to release and settlement agreements with each of Messrs. Bevevino and McMullen (each an "Agreement" and together, the "Agreements"), the Company agreed to pay (a) Mr. Bevevino $600,000 per year until May 2001 and (b) Mr. McMullen a one- time payment of $350,000 plus $175,000 per year until July 2000. The Agreements provide for various other benefits, including the continuance of all welfare plan benefits and perquisites until the earlier to occur of (i) May 2001 for Mr. Bevevino and July 2000 for Mr. McMullen, or (ii) the date upon which such former executive becomes eligible to be covered by similar benefit plans of another employer. Pursuant to the Agreements, all unvested options to purchase Common Stock held by the former executives became immediately exercisable upon their resignation and all restricted unvested shares held by Mr. Bevevino vested in full upon his resignation. The Agreements provide for the forgiveness of certain promissory notes (and accrued interest thereon) which have a current balance of $275,000 and $300,000 for Messrs. Bevevino and McMullen respectively (collectively, the "Notes") issued by the former executives to the Company, if Messrs. Bevevino and McMullen individually comply with the non-competition, non- 30 solicitation and confidentiality provisions (described below) of the applicable Agreement. In connection with the agreements, the company has entered into employment agreements with two of Mr. Bevevino's sons and his son-in-law providing for continued base salary and benefits for a period of one year upon a non-cause/good reason termination and agreed to contribute at least $100,000 annually, in each year from 1997 through 2001, to a specified charitable foundation. In return for such payments and benefits, each of Messrs. Bevevino and McMullen have agreed: (a) during the Restricted Period (as defined below), (i) not to own, manage, operate, join or control a competitive business, (ii) not to solicit from any customer of the Company any orders for products sold by the Company during the three-year period preceding his resignation, (iii) not to solicit for employment or hire any person (other than as specified) who was an employee of the Company at any time during the three-month period preceding the former executives' resignations, and (iv) to maintain the confidentiality of confidential or proprietary information concerning the Company or its business, suppliers and customers and (b) to waive any benefits that would otherwise be payable to them under their respective employment agreement, change in control agreement or any other agreement with the Company. The "Restricted Period" is defined as (i) for Mr. Bevevino, the period from the date of his resignation until May 2001, and (ii) for Mr. McMullen, the period from the date of execution of his Agreement until July 2000. Mr. McMullen has also agreed to provide certain consulting services to the Company. Each of the Agreements contains mutual releases of certain claims, liabilities or causes of action that one party may have against the other party. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION During fiscal 1997, the Management Development -- Compensation and Stock Option Committee (the "Committee") was comprised of the following individuals: Richard Fink, Jan W. Jeurgens, James P. Miscoll and Bernard Sweet. There were no "interlocks" with other companies within the meaning of the SEC disclosure rules. ITEM 12--SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth all persons known by the Company to be the beneficial owners of more than five percent (5%) of the outstanding Common Stock of the Company as of August 31, 1997:
SHARES BENEFICIALLY PERCENT OF NAME AND ADDRESS OF BENEFICIAL OWNER OWNED (1) CLASS - --------------------------------------------------------------------------- --------------- ----------- ML Entities................................................................ 10,076,004(2) 35.7% c/o Merrill Lynch Capital Partners, Inc. 225 Liberty Street New York, New York 10080
- ------------------------ (1) Based upon the most recent Schedule 13D or 13G on file with the Securities and Exchange Commission (the "SEC"). (2) The ML Entities consist of the following entities, each of which beneficially own the percentage of outstanding Common Stock indicated after its name: Merrill Lynch Capital Appreciation Partnership No. B-XVIII, L.P. (15.74%), ML Offshore LBO Partnership No. B-XVIII (7.92%), ML IBK Positions, Inc. (5.20%), MLCP Associates L.P. No. II (*), MLCP Associates L.P. No. IV (*), Merrill Lynch KECALP L.P. 1994 (*), Merrill Lynch KECALP L.P. 1991 (*), Merrill Lynch Capital Appreciation Partnership No. XIII, L.P. (5.85%), ML Offshore LBO Partnership No. XIII, L.P. (*), ML Employees LBO Partnership No. I, L.P. (*), Merrill Lynch KECALP L.P. 1987 (*) and Merchant Banking L.P. No. II (*). The ML Entities are affiliates of ML & Co. and ML & Co. disclaims beneficial ownership of all such shares for all purposes. * Less than 1%. 31 The following table sets forth beneficial ownership of Common Stock as of August 31, 1997 for each director of the Company, each of the Named Executive Officers and all directors and executive officers as a group. Unless otherwise stated and subject to applicable community property laws, each beneficial owner has sole voting and investment powers with respect to the shares shown.
SHARES BENEFICIALLY PERCENT NAME OWNED (1) OF CLASS - ----------------------------------------------------------------------- ------------ ----------- Mark Van Stekelenburg.................................................. 376,008(2) 1.3% Frank H. Bevevino...................................................... 448,119(3) 1.6 Matthias B. Bowman..................................................... 8,578,803(4) 30.4 Albert J. Fitzgibbons, III............................................. 8,221,178(5) 29.1 Harold E. Feather...................................................... 130,882(6) * Richard Fink........................................................... 500(7) * Jan W. Jeurgens........................................................ 3,628(8) * Sunil C. Khanna........................................................ 0 0 James I. Maslon........................................................ 348,150(9) 1.2 David F. McAnally...................................................... 66,534 10) * Thomas G. McMullen..................................................... 140,246 11) * James P. Miscoll....................................................... 13,250 12) * Neil I. Sell........................................................... 17,817 13) * Bernard Sweet.......................................................... 21,074 14) * Robert W. Williamson................................................... 0 0 All Named Executive Officers, directors and other executive officers as a group (twenty persons)............................................. 18,609,234 (15 64.0%
- ------------------------ * Less than 1%. (1) Except as otherwise noted, all persons have sole voting and investment power with respect to their shares. (2) Includes options exercisable within 60 days to purchase 333,125 shares of Common Stock. Also includes 62 shares owned by one of his children. (3) Includes 135,578 shares held by a limited partnership the partners of which are trusts of which Mr. Bevevino is trustee and includes options exercisable within 60 days to purchase 107,562 shares of Common Stock. (4) Mr. Bowman is a director of MLCP, the ultimate general partner of certain of the ML Entities, and thus, under the rules and regulations of the SEC may be deemed to be the beneficial owner of the shares of Common Stock beneficially owned by such ML Entities. Accordingly, such shares are included in the table as beneficially owned by Mr. Bowman and for directors and officers as a group. Except with respect to 50,000 shares which he owns directly, Mr. Bowman disclaims beneficial ownership of all other shares. (5) Mr. Fitzgibbons is a limited partner of certain of the ML Entities, and thus, under the rules and regulations of the SEC may be deemed to be the beneficial owner of the shares of Common Stock beneficially owned by such ML Entities. Accordingly, such shares are included in the table as beneficially owned by Mr. Fitzgibbons and for directors and officers as a group. Except with respect to 10,000 shares which he owns directly, Mr. Fitzgibbons disclaims beneficial ownership of all other shares. (6) Includes options exercisable within 60 days to purchase 108,125 shares of Common Stock. (7) Includes 500 shares owned by his spouse. 32 (8) Includes options exercisable within 60 days to purchase 2,000 shares of Common Stock. (9) Includes 13,569 shares held of record by Mr. Maslon as trustee for his children, 203,460 shares held of record by Mr. Maslon as co-trustee for his mother and 125 shares owned by his spouse. Includes options exercisable within 60 days to purchase 10,750 shares of Common Stock. (10) Includes options exercisable within 60 days to purchase 26,461 shares of Common Stock. (11) Includes options exercisable within 60 days to purchase 32,624 shares of Common Stock. (12) Includes options exercisable within 60 days to purchase 10,750 shares of Common Stock. (13) Includes options exercisable within 60 days to purchase 10,750 shares of Common Stock. (14) Includes 1,406 shares owned by his spouse. Includes options exercisable within 60 days to purchase 10,750 shares of Common Stock. (15) Includes options exercisable within 60 days to purchase an aggregate of 829,973 shares of Common Stock. The information contained in the foregoing footnotes is for explanatory purposes only and each of the persons named therein disclaims beneficial ownership of shares designated as beneficially owned by or held in trust for any other person, including family members. ITEM 13--CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS US FOODSERVICE INC. LOAN FORGIVENESS Pursuant to the Company's acquisition of US Foodservice, the Company forgave an aggregate of $4.9 million of previously outstanding loans made by US Foodservice to certain key employees, including $650,329, $702,725, $158,712 and $270,000 owing by Messrs. Frank H. Bevevino (the former President of the Company), Thomas G. McMullen (the former Executive Vice President of the Company), David F. McAnally (the former Senior Vice President and Chief Financial Officer of the Company) and Kenneth B. Kozel (the Vice President and Treasurer of the Company), respectively, and $912,268 and $841,521 owing by Messrs. John R. and Thomas J. Bevevino, respectively, sons of Mr. Frank Bevevino, to enable them to purchase shares of US Foodservice Common Stock. Such loans were forgiven, subject to each employee's agreement that the shares of Common Stock issued in connection with the US Foodservice Merger would not be sold for a period of one year from the effective time of the US Foodservice Merger or such earlier date on which such individual ceased to be an employee of the Company and its subsidiaries due to resignation, retirement or termination. In connection with such loan forgiveness, the Company extended loans to various US Foodservice employees, including the following persons in the amounts indicated, to cover the federal and state income tax due from such employees as a result of such loan forgiveness: Frank Bevevino, $216,429.48; Thomas McMullen, $233,866.85; David McAnally, $52,819.46; Kenneth Kozel, $100,858.04; John Bevevino, $270,710.84; and Thomas Bevevino, $282,262.48. Such loans bear interest at 6% per annum. David McAnally, Kenneth Kozel and Thomas and John Bevevino's loans had been repaid as of August 15, 1997 and the amounts set forth in the preceding sentence represent the largest aggregate amount of indebtedness outstanding during fiscal 1997 under each such loan and the amounts outstanding under Messrs. Frank Bevevino and Thomas McMullen's loans as of August 31, 1997. Frank Bevevino and Thomas McMullen's tax forgiveness loans may be forgiven. See "Executive Compensation--Agreements with Messrs. Bevevino and McMullen Agreements." REDEMPTION AND PURCHASE OF PREFERRED STOCK It was a condition precedent to the Company's acquisition of US Foodservice that all shares of US Foodservice's previously outstanding $15 Cumulative Redeemable Exchangeable Preferred Stock (the "Exchangeable Preferred Stock") be purchased by the Company. The redemption of the Exchangeable 33 Preferred Stock pursuant to the merger agreement governing the US Foodservice Merger was deemed to have occurred immediately prior to the effective time of the US Foodservice Merger. ML IBK Positions, Inc. and Merchant Banking L.P. No. IV, each of which is an affiliate of Merrill Lynch, previously held all of the issued and outstanding shares of Exchangeable Preferred Stock, and in connection therewith, received a total of approximately $24.4 million (representing approximately $16.8 million in redemption price plus approximately $7.6 million in accrued but unpaid dividends) plus accrued interest at the rate of 15% per annum from October 15, 1995 to the date of redemption. Such interest totaled approximately $2.2 million as of May 17, 1996, resulting in a total redemption price on such date of approximately $26.6 million. REGISTRATION RIGHTS In connection with the Company's acquisition of US Foodservice, the Company entered into a Registration Rights Agreement, which provides for certain rights to the ML Entities, Frank H. Bevevino and the other stockholders named therein (collectively, the "Holders") with respect to the Common Stock owned by them (the "Registrable Securities"). Under the Registration Rights Agreement, the ML Entities may make a written demand of the Company to effect the registration of all or part of the ML Entities' Registrable Securities. The Company will not be required to take any action if, among other things, (1) four demand registrations have been previously effected or (2) the Registrable Securities requested to be registered have a then current market value of less than $50 million, unless such demand is for registration of all remaining Registrable Securities held by the ML Entities. The Company will be required to file the Registration Statement within 30 business days of exercise of any demand right, but will not be required to effect a registration during certain "blackout periods" during which the Company has determined in good faith that such registration (1) could materially impair or delay a pending transaction (up to 180 days) or (2) would require disclosure of confidential information (up to 90 days). Additionally, if the Company seeks to register, in a proposed public offering for its own account or for the account of any holder of Common Stock (other than pursuant to a Registration Statement on Form S-4 or Form S-8 or any successor form under the Securities Act, or filed in connection with an exchange offer or an offering of securities solely to existing stockholders or employees of the Company) any Common Stock while the Registration Rights Agreement is in effect, the Holders will have the right to request that the Company include any or all of their Registrable Securities in the proposed offering. Each Holder will pay all underwriting discounts, commissions, transfer taxes and documentary stamp taxes related to the Registrable Securities offered for sale by such Holder as well as the fees and disbursements of its counsel (other than counsel representing the Holders as a group). All other fees and expenses in connection with the registration of Registrable Securities, including those of counsel representing the Holders as a group, will be borne by the Company. The Company has agreed to indemnify the Holders and the prospective underwriters of registrations of Registrable Securities for liabilities for material misstatements and omissions, other than any material misstatements or omissions based on information provided by the Holders, included in the Registration Statement. Likewise, each Holder has agreed to indemnify the Company, all other Holders or any underwriter for liabilities for material misstatements and omissions made in the Registration Statement in reliance on information provided to the Company by such Holders, subject to certain limitations. To the extent that indemnification from an indemnifying party is unavailable, contribution will also be available, with certain limitations, to any of the above parties in relation to relative fault. REAL ESTATE MATTERS On February 28, 1996, US Foodservice entered into a twelve-year lease (which lease commenced on July 27, 1996) for approximately 25,000 square feet of office space located in Plains Township, Pennsylvania. The lease provides for a base rental rate of $12.50 per square foot, subject to certain increases, plus payment of the tenant's pro rata share of building expenses, including utilities, real estate taxes and insurance. Effective July 1, 1997, the US Foodservice lease was amended to cover an additional 2,653 34 square feet of office space. In addition, the Company entered into a twelve-year lease on substantially identical terms and conditions as the US Foodservice lease for approximately 3,634 square feet of office space in the same building. The owner and lessor of the office building is Paul-Francis Realty, L.P., a Pennsylvania limited partnership whose principals include entities controlled by Paul S. Siegel and Frank H. Bevevino. From July 27, 1996 through June 28, 1997, the Company paid Paul-Francis Realty, L.P. $559,936 in rent for this space. The Company expects to pay Paul-Francis Realty, L.P. approximately $700,000 in rent for the space during fiscal 1998. OTHER MANAGEMENT INDEBTEDNESS During fiscal 1997, Mr. Mark Van Stekelenburg, Chairman of the Board, President and Chief Executive Officer of the Company, was indebted to the Company in the amount of $350,000 in connection with an interest-free, secured demand loan made to Mr. Van Stekelenburg in connection with the purchase of a residence following the Company's relocation to Illinois in 1995 (the "1995 Loan"). The largest aggregate amount of indebtedness outstanding during fiscal 1997 was $350,000, which also is the amount of such indebtedness that was outstanding as of August 31, 1997. The 1995 Loan is evidenced by a secured, non-interest bearing demand promissory note. In addition, during 1997, Mr. Christopher Mellon, Vice President and Controller of the Company, was indebted to the Company in the amount of $210,000 in connection with a loan made to Mr. Mellon, the proceeds of which were used to exercise an option to purchase shares of his previous employer's common stock. The largest aggregate amount of Mr. Mellon's indebtedness during 1997 was $210,000, which is also the amount of such indebtedness that was outstanding as of August 31, 1997. Mr. Mellon's loan bears interest at 9% per annum. LEGAL SERVICES The law firm of Maslon Edelman Borman & Brand, L.L.P., of which Mr. Neil I. Sell is a partner, provided legal services to the Company during fiscal 1997. INVESTMENT BANKING The Company retained Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S") to act as one of the Company's financial advisors in connection with the Merger with JP Foodservice. Pursuant to a letter agreement dated April 15, 1997, among the Company, MLPF&S and Wasserstein Perella & Co., Inc. ("Wasserstein Perella" and, together with MLPF&S, the "Investment Bankers"), the Company agreed to pay the Investment Bankers (such fee to be divided equally between MLPF&S and Wasserstein Perella) 0.52% of the implied transaction value of the Merger minus the amount paid to the Investment Bankers pursuant to the succeeding sentence. In addition, if in certain circumstances, the Company is entitled to a break-up or similar fee or payment or obtains any profit resulting from any option on any shares of JP Foodservice, the Investment Bankers shall be entitled to 20% of the excess (if any) of such fees, payments and profits over the Company's direct out-of-pocket expenses incurred in connection with the business combination giving rise to such fees, payments or profits, subject to a cap of the maximum amount that would have been payable to the Investment Bankers had the Merger been consummated. The Company has also agreed to reimburse the Investment Bankers for their reasonable out-of-pocket expenses, including the reasonable fees and disbursements of their legal counsel, and to indemnify the Investment Bankers and certain related persons for certain liabilities related to or arising out of their engagement, including certain liabilities under the Federal securities laws. MLPF&S is an affiliate of the ML Entities, which collectively own 36.4% of the Common Stock. Each of Messrs. Bowman, Fitzgibbons, Khanna and Williamson are affiliates of the ML Entities and were appointed to the Board of Directors pursuant to the Standstill Agreement. See "Directors and Executive Officers of the Company." 35 PART IV ITEM 14--EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) (1) See Index to Financial Statements on Page F-1. (2) See Index to Financial Statements on Page F-1. (3) The following exhibits, as required by Item 601 of Regulation S-K, are filed as part of this report: 2.1.1 Agreement and Plan of Merger, dated as of June 30, 1997, by and among JP Foodservice, Inc., Hudson Acquisition Corp. and Rykoff-Sexton, Inc. (incorporated by reference from Rykoff-Sexton, Inc.'s Current Report on Form 8-K dated June 30, 1997 (the "June 1997 8-K")) 2.1.2 Amendment No. 1 to Agreement and Plan of Merger, dated as of September 3, 1997, by and among Rykoff-Sexton, Inc., JP Foodservice, Inc. and Hudson Acquisition Corp. (incorporated by reference from Rykoff-Sexton's Current Report on Form 8-K dated September 3, 1997) (the "September 1997 8-K") 2.1.3 Stock Option Agreement, dated as of June 30, 1997, between JP Foodservice, Inc. and Rykoff-Sexton, Inc. (incorporated by reference from the June 1997 8-K) 2.1.4 Stock Option Agreement, dated as of June 30, 1997, between Rykoff- Sexton, Inc. and JP Foodservice, Inc. (incorporated by reference from the June 1997 8-K) 2.1.5 Amended and Restated Support Agreement, dated as of June 30, 1997, by and between JP Foodservice, Inc., on the one hand, and those stockholders of Rykoff-Sexton, Inc. set forth on the signature pages thereto, and acknowledged by Rykoff-Sexton, Inc. (incorporated by reference from the September 1997 8-K) 3.1 Restated Certificate of Incorporation of Rykoff-Sexton, Inc. 3.2 Amended and Restated By-Laws of Rykoff-Sexton, Inc. (incorporated by reference from Rykoff-Sexton, Inc.'s Registration Statement on Form S-4 (the "S-4"), as filed with the Commission on April 2, 1996, Registration No. 333-02715) 4.1 Specimen of Certificate representing Rykoff-Sexton, Inc. Common Stock, $.10 par value (incorporated by reference from the Form S-4) 4.2 Indenture, dated as of November 1, 1993, between Rykoff-Sexton, Inc. and Norwest Bank Minnesota, N.A., as trustee (incorporated by reference from Rykoff-Sexton, Inc.'s Report on Form 10-Q for the quarter ended October 30, 1993) 4.3.1 Amended and Restated Rights Agreement, dated as of May 15, 1996, by Rykoff-Sexton, Inc. and Chemical Bank (incorporated by reference from Rykoff-Sexton's Report on Form 10-K for the fiscal year ended April 27, 1996 (the "1996 10-K"))
36 4.3.2 Amendment to Rights Agreement, dated as of June 30, 1997, by Rykoff-Sexton, Inc. and Chase Mellon Shareholder Services, L.L.C. as successor in interest to Chemical Bank (incorporated by reference from the June 1997 8-K) 4.4 Form of Common Stock Purchase Warrant expiring September 30, 2005 (incorporated by reference from the S-4) 4.5 Credit Agreement dated as of May 17, 1996 among Rykoff-Sexton, Inc., Bank of America National Trust and Savings Association, as Administrative Agent, The Chase Manhattan Bank, N.A., as Documentation Agent, BA Securities, Inc., as Co-Arranger, Chase Securities, Inc., as Co-Arranger and the Other Financial Institutions Party Thereto (incorporated by reference from Rykoff- Sexton, Inc.'s Report on Form 8-K dated May 16, 1996) 10.1.1 1980 Stock Option Plan (incorporated by reference from Rykoff- Sexton, Inc.'s Report on Form 10-K for the fiscal year ended May 1, 1993, as amended (the "1993 10-K"))* 10.1.2 Form of Incentive Stock Option Agreement (incorporated by reference from the S-4)* 10.2.1 1988 Stock Option and Compensation Plan, as amended on September 13, 1991 (incorporated by reference from the 1993 10-K)* 10.2.2 Form of Restricted Stock Agreement (incorporated by reference from the 1993 10-K)* 10.2.3 Form of Non-Qualified Stock Option Agreement (incorporated by reference from the 1993 10-K)* 10.2.4 Form of Converging Non-Qualified Stock Option Agreement (incorporated by reference from the 1993 10-K)* 10.2.5 Form of Performance Share Plan Agreement (incorporated by reference from the S-4)* 10.2.6 Form of Performance Share Award Agreement (incorporated by reference from the 1996 10-K)* 10.3.1 Rykoff-Sexton, Inc. 1989 Director Stock Option Plan (incorporated by reference from Rykoff-Sexton, Inc.'s Report on Form 10-K for the fiscal year ended April 28, 1990, Commission File No. 0-7380 (the "1990 10-K"))* 10.3.2 Form of Non-Qualified Stock Option Agreement (incorporated by reference from the S-4)* 10.4.1 Rykoff-Sexton, Inc. 1993 Director Stock Option Plan (incorporated by reference from Rykoff-Sexton, Inc.'s Report on Form 10-Q for the quarter ended October 30, 1993)* 10.4.2 First Amendment to the Rykoff-Sexton, Inc. 1993 Director Stock Option Plan (incorporated by reference from the S-4)* 10.4.3 Form of Non-Qualified Stock Option Agreement (incorporated by reference from the S-4)* 10.5 1995 Key Employees Stock Option and Compensation Plan (incorporated by reference from the S-4)* 10.6 Rykoff-Sexton, Inc. Convertible Award Plan (Officer and Key Employee Edition) (incorporated by reference from the S-4)*
37 10.7 Rykoff-Sexton, Inc. Convertible Award Plan (Director Edition) (incorporated by reference from the S-4)* 10.8.1 Amended and Restated Management Stock Option Plan of WS Holdings Corporation (incorporated by reference from Rykoff-Sexton, Inc.'s Registration Statement on Form S-8 dated May 17, 1996, as amended (the "S-8"))* 10.8.2 Forms of Normal Option Agreement (Management Stock Option Plan) (incorporated by reference from the 1996 10-K)* 10.8.3 Forms of Performance Option Agreement (incorporated by reference from the 1996 10-K)* 10.9.1 Amended and Restated US Foodservice Inc. 1992 Stock Option Plan (incorporated by reference from the S-8)* 10.9.2 Forms of Normal Option Agreement (US Foodservice 1992 Stock Option Plan) (incorporated by reference from the 1996 10-K)* 10.9.3 Forms of Performance Option Agreement (US Foodservice Inc. 1992 Stock Option Plan) (incorporated by reference from the 1996 10-K)* 10.10.1 Amended and Restated US Foodservice Inc. 1993 Stock Option Plan (incorporated by reference from the S-8)* 10.10.2 Forms of Normal Option Agreement (US Foodservice Inc. 1993 Stock Option Plan) (incorporated by reference from the 1996 10-K)* 10.11.1 Amended and Restated Employment Agreement, dated as of February 2, 1996, between Mark Van Stekelenburg and Rykoff-Sexton, Inc. (incorporated by reference from the S-4)* 10.11.2 Letter Amendment to Employment Agreement, dated June 9, 1997, between Mark Van Stekelenburg and Rykoff-Sexton, Inc. 10.12 Letter Agreement between Harold E. Feather and Rykoff-Sexton, Inc. dated as of June 20, 1994 (incorporated by reference from Rykoff-Sexton, Inc.'s Report on Form 10-K for the fiscal year ended April 30, 1994)* 10.13 Letter Agreement dated July 18, 1994 between Harold E. Feather and Rykoff-Sexton, Inc. (incorporated by reference from the S-4)* 10.14 Employment Agreement dated May 17, 1996, between David F. McAnally and Rykoff-Sexton, Inc. (incorporated by reference from the 1996 10-K)* 10.15 Third Amended and Restated Change in Control Agreement, dated as of June 9, 1997, by Mark Van Stekelenburg and Rykoff-Sexton, Inc. 10.16 Form of Second Amended and Restated Change in Control Agreement, dated as of June 10, 1997, for Harold E. Feather, Alan V. Giuliani, Robert J. Harter, Jr. and Richard J. Martin* 10.17 Form of Change in Control Agreement, dated as of June 10, 1997, by David McAnally and Rykoff-Sexton, Inc.* 10.18 Form of Change in Control Agreements for Victor B. Chavez and Thomas R. Rykoff (incorporated by reference from the 1990 10-K)* 10.19 Change in Control Agreement, dated December 11, 1989, by Chris G. Adams and Rykoff-Sexton, Inc. (incorporated by reference from the 1990 10-K)* 10.20 Change in Control Agreement, dated June 22, 1992, by Rykoff-Sexton, Inc. and Andre Mills (incorporated by reference from the S-4)*
38 10.21 Release and Settlement Agreement, dated July 18, 1997, between Rykoff- Sexton, Inc., and Frank H. Bevevino 10.22 Release and Settlement Agreement, dated July 18, 1997, between Rykoff-Sexton, Inc. and Thomas G. McMullen 10.23 Form of Fiduciary Indemnity Agreement (incorporated by reference from the 1993 10-K) 10.24 Rykoff-Sexton, Inc. Supplemental Executive Retirement Plan for Mark Van Stekelenburg as of July 20, 1994, as amended June 19, 1995 (incorporated by reference from the S-4)* 10.25.1 Form of Amended and Restated Supplemental Executive Retirement Plan for Robert J. Harter, Jr., Harold E. Feather, Richard J. Martin and Alan V. Giuliani (incorporated by reference from the S-4)* 10.25.2 Form of Amendment to Supplemental Executive Retirement Plan for Robert J. Harter, Jr., Harold E. Feather, Richard J. Martin and Alan V. Giuliani.* 10.26 Form of Severance Agreement dated as of February 2, 1996 for Harold E. Feather, Alan V. Giuliani, Robert J. Harter, Jr. and Richard J. Martin (incorporated by reference from the S-4)* 10.27.1 Deferred Compensation Plan Master Plan Document (incorporated by reference from the S-4)* 10.27.2 Amendment to Rykoff-Sexton, Inc. Deferred Compensation Plan (incorporated by reference from the S-4)* 10.27.3 Second Amendment to Rykoff-Sexton, Inc. Deferred Compensation Plan 10.28.1 Rykoff-Sexton, Inc. Master Trust Document for Executive Deferral Plans (incorporated by reference from the S-4) 10.28.2 Amendment to Rykoff-Sexton, Inc. Master Trust Document (incorporated by reference from the S-4) 10.28.3 Second Amendment to Rykoff-Sexton, Inc. Master Trust Document 10.29 Junior Demand Promissory Note dated March 31, 1995 by Mark Van Stekelenburg and Mirjam Van Stekelenburg (incorporated by reference from the 1995 10-K) 10.30 Form of Fiduciary Indemnity Agreement (incorporated by reference from the 1993 10-K) 10.31.1 Agreement of Lease, dated February 28, 1996, by and between Paul-Francis Realty, L.P. and US Foodservice Inc. (incorporated by reference from the S-4) 10.31.2 Lease Letter Amendment, dated February 28, 1997, by and between Paul-Francis Realty, L.P. and US Foodservice Inc. 10.31.3 Second Amendment to Agreement of Lease, dated July 1, 1997, by and between Paul-Francis Realty, L.P. and US Foodservice Inc. 10.31.4 Agreement of Lease, dated November 28, 1996, by and between Paul-Francis Realty, L.P. and Rykoff-Sexton, Inc. 10.32 Agreement and Plan of Merger dated February 2, 1996 among Rykoff- Sexton, Inc., USF Acquisition Corporation and US Foodservice Inc. (incorporated by reference from the S-4)
39 10.33.1 Participation Agreement, entered into among Rykoff-Sexton, Inc., as Lessee ("Lessee"), Tone Brothers, Inc., as Sublessee ("Sublessee"), BA Leasing & Capital Corporation, as Agent ("Agent"), Manufacturers Bank and Pitney Bowes Credit Corporation, as Lessors (the "Lessors"), dated as of April 29, 1994 (incorporated by reference from the 1994 10-K) 10.33.2 Lease Intended as Security, among Lessee, Agent and the Lessors, dated as of April 29, 1994 (incorporated by reference from the 1994 10-K) 10.33.3 Sublease, between Lessee and Sublessee, dated as of April 29, 1994 (incorporated by reference from the 1994 10-K) 10.33.4 Lease supplement, among Lessee and the Lessors, dated as of April 29, 1994 (incorporated by reference from the 1995 10-K) 10.33.5 Lease supplement, among Lessee and the Lessors, dated as of January 27, 1995 (incorporated by reference from the 1995 10-K) 10.33.6 Lease supplement, among Lessee and the Lessors, dated as of April 18, 1995 (incorporated by reference from the 1995 10-K) 10.33.7 Waiver, Consent and Fourth Amendment to Participation Agreement and Lease Amendment, among Lessee, Agent and the Lessors, dated as of May 17, 1996 (incorporated by reference from the 1996 10-K) 10.34.1 Commitment Agreement dated as August 10, 1992 between BRB Holdings, Inc. and its subsidiaries and Sara Lee Corporation (incorporated by reference from the S-4) 10.34.2 Amendment Number One to BRB Holdings Commitment Agreement dated as of September 27, 1995 by Sara Lee Corporation and BRB Holdings, Inc. and guaranteed by US Foodservice Inc. (incorporated by reference from the S-4) 10.35.1 Commitment Agreement dated as of August 10, 1992 between WS Holdings Corporation and its subsidiaries and Sara Lee Corporation (incorporated by reference from the S-4) 10.35.2 Amendment Number One to WS Holdings Commitment Agreement dated as of September 27, 1995 by Sara Lee Corporation and WS Holdings Corporation (incorporated by reference from the S-4) 10.36.1 Agreement dated as of February 2, 1996 by and among Rykoff-Sexton, Inc. and the persons set forth on the signature pages thereto (incorporated by reference from the S-4) 10.36.2 Amendment No. 1 to Agreement dated as of April 8, 1996 by and among Rykoff-Sexton, Inc. and the other persons set forth on the signature pages thereto (incorporated by reference from the 1996 10-K) 10.37 Registration Rights Agreement dated May 17, 1996 by Rykoff-Sexton, Inc. and the other signatories listed on the signature pages thereto (incorporated by reference from the 1996 10-K) 10.38 Standstill Agreement dated May 17, 1996 by Rykoff-Sexton, Inc. and the persons set forth on the signature pages thereto (incorporated by reference from the 1996 10-K) 10.39.1 Tax Agreement dated May 17, 1996 by Rykoff-Sexton, Inc. and the persons listed on the signature pages thereto (incorporated by reference from the 1996 10-K)
40 10.39.2 Addendum to Tax Agreement dated July 12, 1996, among Rykoff-Sexton, Inc., Frank H. Bevevino and Bevevino Unitrust Partners Limited Partnership (incorporated by reference from the 1996 10-K) 10.40.1 Receivables Sale Agreement, dated as of November 15, 1996, among Rykoff-Sexton, Inc., John Sexton & Co., Biggers Brothers, Inc., White Swan, Inc., F.H. Bevevino & Company, Inc., Roanoke Restaurant Service, Inc., King's Foodservice, Inc., US Foodservice of Florida, Inc., US Foodservice of Atlanta, Inc., RS Funding Inc. and US Foodservice Inc., as Servicer 10.40.2 Servicing Agreement, dated as of November 15, 1996, among RS Funding Inc., as Company, US Foodservice Inc., as Servicer, Rykoff-Sexton, Inc. and its other subsidiaries named therein as Sub-Servicers and The Chase Manhattan Bank, as Trustee 10.40.3 Pooling Agreement, dated as of November 15, 1996, among RS Funding Inc., as Company, US Foodservice Inc., as Servicer, and The Chase Manhattan Bank, as Trustee 10.40.4 Series 1996-1 Supplement to Pooling Agreement among RS Funding Inc., as Company, US Foodservice Inc., as Servicer, and The Chase Manhattan Bank, as Trustee 10.41 Indenture of Trust, dated as of November 1, 1996, between La Mirada Industrial Development Authority and Bankers Trust Company of California, N.A. 10.42 Loan Agreement, dated as of November 1, 1996, among La Mirada Industrial Development Authority and Bankers Trust Company of California, N.A. 10.43 Reimbursement Agreement, dated as of November 1, 1996, by and between Rykoff-Sexton, Inc. and the First National Bank of Chicago. 21 Subsidiaries of Rykoff-Sexton, Inc. 23 Consent of Arthur Andersen LLP 24.1 Power of Attorney of Matthias B. Bowman 24.2 Power of Attorney of Richard M. Fink 24.3 Power of Attorney of Albert J. Fitzgibbons, III 24.4 Power of Attorney of Jan W. Jeurgens 24.5 Power of Attorney of Sunil C. Khanna 24.6 Power of Attorney of James I. Maslon 24.7 Power of Attorney of James P. Miscoll 24.8 Power of Attorney of Neil I. Sell 24.9 Power of Attorney of Bernard Sweet 24.10 Power of Attorney of Robert W. Williamson 27 Financial Data Schedule
- ------------------------ * Management contract or compensatory plan (b) Reports on Form 8-K
During the fourth quarter of fiscal year 1997, the Company did not file any Reports on Form 8-K. 41 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: September 23, 1997 RYKOFF-SEXTON, INC. /S/ MARK VAN STEKELENBURG -------------------------- Mark Van Stekelenburg Chairman and Chief Executive Officer (Principal Executive Officer) /s/ RICHARD J. MARTIN -------------------------- Richard J. Martin Executive Vice President and Chief Financial Officer (Principal Financial Officer) /s/ CHRISTOPHER MELLON -------------------------- Christopher Mellon Vice President and Controller (Principal Accounting Officer) 42 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following directors on behalf of the Registrant on the date indicated. Matthias B. Bowman Richard M. Fink Albert J. Fitzgibbons, III Jan W. Jeurgens Sunil C. Khanna James I. Maslon James P. Miscoll Neil I. Sell /s/ MARK VAN STEKELENBURG -------------------------- Bernard Sweet Mark Van Stekelenburg, signing personally as a director and as attorney Robert W. Williamson in fact for the directors whose names appear opposite. September 23, 1997 Powers of attorney authorizing Mark Van Stekelenburg to sign this Annual Report on Form 10-K on behalf of the above named directors of Rykoff-Sexton, Inc. have been filed as exhibits to this report. 43 RYKOFF-SEXTON, INC. AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS (ITEM 14(A)) Financial Statements Report of Independent Public Accountants......................................... F-2 Consolidated Balance Sheets as of June 28, 1997 and April 27, 1996............... F-3 Consolidated Statements of Operations for the fiscal years ended June 28, 1997, April 27, 1996 and April 29, 1995, and the nine-week transition period ended June 29, 1996................................................................... F-4 Consolidated Statements of Changes in Shareholders' Equity for the fiscal years ended June 28, 1997, April 27, 1996 and April 29, 1995, and the nine-week transition period ended June 29, 1996........................................... F-5 Consolidated Statements of Cash Flows for the fiscal years ended June 28, 1997, April 27, 1996 and April 29, 1995, and the nine-week transition period ended June 29, 1996................................................................... F-6 Notes to Consolidated Financial Statements....................................... F-7 Financial Statement Schedules Schedule II-- Valuation and Qualifying Accounts for the fiscal years ended June 28, 1997, April 27, 1996 and April 29, 1995, and the nine-week transition period ended June 29, 1996............................... S-1 Schedules, other than as listed above, are omitted for the reason that they are not applicable or equivalent information has been included elsewhere herein.
F-1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Rykoff-Sexton, Inc.: We have audited the accompanying consolidated balance sheets of Rykoff-Sexton, Inc. (a Delaware Corporation) and subsidiaries as of June 28, 1997 and April 27, 1996, and the related consolidated statements of operations, shareholders' equity and cash flows for the fiscal years ended June 28, 1997, April 27, 1996 and April 29, 1995, and the nine-week transition period ended June 29, 1996. These financial statements and the schedule referred to below 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 our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Rykoff-Sexton, Inc. and subsidiaries as of June 28, 1997 and April 27, 1996 and the results of their operations and their cash flows for the fiscal years ended June 28, 1997, April 27, 1996 and April 29, 1995, and the nine-week transition period ended June 29, 1996, in conformity with generally accepted accounting principles. As discussed in Note Three to the consolidated financial statements, the Company adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" in fiscal 1996. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in the index to financial statements is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Philadelphia, PA August 14, 1997 F-2 RYKOFF-SEXTON, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
APRIL 27, JUNE 28, 1997 1996 ------------- ------------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) ASSETS Current Assets: Cash and cash equivalents......................................................... $ 63,293 $ 10,825 Accounts receivable, less reserves of $13,517 in 1997 and $5,401 in 1996.......... 122,963 182,312 Inventories....................................................................... 210,547 152,805 Prepaid expenses and other current assets......................................... 19,755 19,893 Deferred tax assets............................................................... 24,797 7,211 ------------- ------------- Total Current Assets.......................................................... 441,355 373,046 Property, plant and equipment, at cost: Land, buildings and improvements.................................................... 227,132 139,481 Transportation equipment............................................................ 23,222 30,220 Office, warehouse and manufacturing equipment....................................... 196,246 142,347 ------------- ------------- 446,600 312,048 Less: accumulated depreciation and amortization..................................... (150,588 ) (134,130 ) ------------- ------------- 296,012 177,918 Goodwill, net....................................................................... 437,361 41,188 Deferred tax assets................................................................. 21,337 4,881 Other assets, net................................................................... 22,957 14,823 ------------- ------------- Total Assets.................................................................. $ 1,219,022 $ 611,856 ------------- ------------- ------------- ------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Short-term debt................................................................... $ -- $ 94,000 Accounts payable.................................................................. 231,791 120,828 Accrued compensation.............................................................. 20,815 10,919 Accrued liabilities............................................................... 85,556 37,284 Current portion of long-term debt................................................. 18,771 19,708 ------------- ------------- Total Current Liabilities..................................................... 356,933 282,739 Long-term debt, less current portion................................................ 486,731 135,081 Other long-term liabilities......................................................... 21,185 1,536 ------------- ------------- Total Liabilities............................................................. 864,849 419,356 Shareholders' equity: Preferred stock, $.10 par value, Authorized--10,000,000 shares; Outstanding--none... -- -- Common stock, $.10 par value, Authorized--40,000,000 shares; Outstanding--28,014,305 shares in 1997 and 14,817,247 shares in 1996....................................... 2,829 1,513 Additional paid-in capital.......................................................... 300,757 95,236 Retained earnings................................................................... 53,685 99,497 ------------- ------------- 357,271 196,246 Less: Treasury stock, at cost....................................................... (3,098 ) (3,746 ) ------------- ------------- 354,173 192,500 ------------- ------------- Total Liabilities and Shareholders' Equity.................................... $ 1,219,022 $ 611,856 ------------- ------------- ------------- -------------
The accompanying notes are an integral part of these statements. F-3 RYKOFF-SEXTON, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
PERIODS ENDED ---------------------------------------------------------- APRIL 27, APRIL 29, JUNE 28, 1997 JUNE 29, 1996 1996 1995 (52 WEEKS) (9 WEEKS) (52 WEEKS) (52 WEEKS) ------------- ------------- ------------- ------------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Net Sales............................................. $ 3,477,493 $ 519,903 $ 1,789,478 $ 1,569,019 Cost of Sales......................................... 2,770,109 426,486 1,387,299 1,193,325 ------------- ------------- ------------- ------------- Gross Profit.......................................... 707,384 93,417 402,179 375,694 Warehouse, Selling, Delivery and General and Administrative Expenses............................. 609,466 114,187 387,493 348,672 Amortization of Goodwill and Other Intangibles........ 12,431 1,162 1,906 529 Restructuring Charges (Reversals)..................... (4,000) 57,600 (6,441) -- Executive Severance Compensation...................... 4,000 -- -- -- Impairment of Long-Lived Assets....................... -- -- 29,700 -- ------------- ------------- ------------- ------------- Income (Loss) from Operations......................... 85,487 (79,532) (10,479) 26,493 Interest Expense, net................................. 46,423 6,930 17,340 10,867 Other Expenses........................................ 13,118 9,913 -- -- ------------- ------------- ------------- ------------- Income (Loss) from Continuing Operations before Provision (Benefit) for Income Taxes............................................... 25,946 (96,375) (27,819) 15,626 Provision (Benefit) for Income Taxes.................. 9,908 (36,195) (11,039) 6,250 ------------- ------------- ------------- ------------- Income (Loss) from Continuing Operations.............. 16,038 (60,180) (16,780) 9,376 Discontinued Operations: Income from Discontinued Operations, Net of Income Taxes of $95...................................... -- -- -- 137 Gain on Disposal of Discontinued Operations, Net of Income Taxes of $15,687........................... -- -- -- 23,359 ------------- ------------- ------------- ------------- Net Income (Loss)..................................... $ 16,038 $ (60,180) $ (16,780) $ 32,872 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- Earnings (Loss) per Share: Income (Loss) from Continuing Operations............ $ 0.56 $ (2.51) $ (1.12) $ 0.64 Income from Discontinued Operations................. -- -- -- 0.01 Gain on Disposal of Discontinued Operations......... -- -- -- 1.59 ------------- ------------- ------------- ------------- Earnings (Loss) per Share........................... $ 0.56 $ (2.51) $ (1.12) $ 2.24 ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
The accompanying notes are an integral part of these statements. F-4 RYKOFF-SEXTON, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
COMMON STOCK ----------------------- ADDITIONAL NUMBER OF PAID IN TREASURY RETAINED PERIODS ENDED SHARES AMOUNT CAPITAL STOCK EARNINGS - ------------------------------------------------------- ------------ --------- ---------- --------- ---------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Balance, April 30, 1994................................ 11,637,460 $ 1,194 $ 92,008 $ (4,621) $ 84,726 Net income........................................... -- -- -- -- 32,872 Stock split.......................................... 2,909,039 298 (305) -- -- Cash dividend ($.03 per share)....................... -- -- -- -- (437) Stock options exercised.............................. 58,037 6 804 -- -- Treasury stock purchased............................. (6,937) -- -- (5) -- ------------ --------- ---------- --------- ---------- Balance, April 29, 1995................................ 14,597,599 1,498 92,507 (4,626) 117,161 Net loss............................................. -- -- -- -- (16,780) Contribution to employees' savings and profit sharing plan............................................... 19,802 -- 115 236 -- Cash dividend ($.06 per share)....................... -- -- -- -- (884) Stock options exercised.............................. 205,569 15 2,649 649 -- Treasury stock purchased............................. (5,723) -- (35) (5) -- ------------ --------- ---------- --------- ---------- Balance, April 27, 1996................................ 14,817,247 1,513 95,236 (3,746) 99,497 Net loss............................................. -- -- -- -- (60,180) Purchase of US Foodservice........................... 12,880,548 1,288 202,384 -- -- Stock options exercised.............................. 4,802 -- -- 54 -- Treasury stock purchased............................. (1,152) -- -- (1) -- ------------ --------- ---------- --------- ---------- Balance, June 29, 1996................................. 27,701,445 2,801 297,620 (3,693) 39,317 Net income........................................... -- -- -- -- 16,038 Stock award issuances................................ 37,074 4 527 23 -- Cash dividend ($.06 per share)....................... -- -- -- -- (1,670) Stock options exercised.............................. 289,060 24 2,610 584 -- Treasury stock purchased............................. (13,274) -- -- (12) -- ------------ --------- ---------- --------- ---------- Balance, June 27, 1997................................. 28,014,305 $ 2,829 $ 300,757 $ (3,098) $ 53,685 ------------ --------- ---------- --------- ---------- ------------ --------- ---------- --------- ----------
The accompanying notes are an integral part of these statements. F-5 RYKOFF-SEXTON, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
PERIODS ENDED ---------------------------------------------------------- APRIL 27, APRIL 29, JUNE 28, 1997 JUNE 29, 1996 1996 1995 (52 WEEKS) (9 WEEKS) (52 WEEKS) (52 WEEKS) ------------- ------------- ------------- ------------- (IN THOUSANDS) Cash Flows from Operating Activities: Net income (loss)............................................... $ 16,038 $ (60,180) $ (16,780) $ 32,872 Adjustments to reconcile Net income (loss) to net cash provided by (used in) operating activities: Impairment of long-lived assets............................... -- -- 29,700 -- Net income from discontinued operations....................... -- -- -- (137) Depreciation and amortization................................. 42,679 6,542 20,089 16,863 Gain on disposal of discontinued operations................... -- -- -- (23,359) (Gain) loss on sale of property, plant and equipment.......... (1,585) 281 (1,304) (597) Deferred income taxes......................................... 11,105 (34,026) (4,477) (2,823) Restructuring costs........................................... -- 57,600 -- -- Proceeds from initial sale of receivables..................... -- 110,000 -- -- Other......................................................... (1,439) (97) (561) (475) Changes in assets and liabilities, net of working capital acquired: (Increase) decrease in accounts receivable, net............. (8,606) 23,178 (22,001) (4,717) (Increase) decrease in inventories.......................... 26,101 (2,420) (6,474) (13,245) (Increase) decrease in prepaid expenses and other........... 10,493 (7,403) (13,289) (1,287) Increase (decrease) in accounts payable, accrued and other liabilities............................................... (5,989) 13,067 (183) 8,921 ------------- ------------- ------------- ------------- Net Cash Provided by (Used in) Operating Activities............... 88,797 106,542 (15,280) 12,016 ------------- ------------- ------------- ------------- Cash Flows from Investing Activities: Capital expenditures.......................................... (63,373) (3,945) (43,927) (52,935) Proceeds from asset sales transactions........................ 9,924 159 2,247 2,955 Net cash used in discontinued operations...................... -- -- -- (30,002) Proceeds from sale of assets of discontinued operations....... -- -- -- 96,000 Cost of acquisitions/merger fees.............................. -- (13,330) (8,726) (24,836) Cash acquired in US Foodservice acquisition................... 21,601 -- -- (Increase) decrease in other assets........................... 1,816 329 (6,255) (956) ------------- ------------- ------------- ------------- Net Cash (Used in) Provided by Investing Activities............... (51,633) 4,814 (56,661) (9,774) Cash Flows from Financing Activities: Net increase (decrease) under revolvers......................... (15,000) 37,000 80,000 (7,000) Principal payments of long-term debt............................ (8,959) (135,136) (3,433) (226) Repayment of acquired company debt and preferred stock.......... -- (328,071) -- -- Proceeds from issuance of long-term debt........................ 25,953 335,000 -- -- Payment of finance costs........................................ -- (8,901) (1,500) (249) Stock option and award activity................................. 3,772 53 3,629 804 Dividends paid.................................................. (1,670) -- (884) (437) Other........................................................... (12) (81) (5) (5) ------------- ------------- ------------- ------------- Net Cash Provided by (Used in) Financing Activities............... 4,084 (100,136) 77,807 (7,113) ------------- ------------- ------------- ------------- Net Increase (Decrease) in Cash and Cash Equivalents.............. 41,248 11,220 5,866 (4,871) Cash and Cash Equivalents at Beginning of Period.................. 22,045 10,825 4,959 9,830 ------------- ------------- ------------- ------------- Cash and Cash Equivalents at End of Period........................ $ 63,293 $ 22,045 $ 10,825 $ 4,959 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- Supplemental Disclosures of Cash Flow Information: Cash paid (refunded) during the period for: Interest, net................................................. $ 45,381 $ 11,606 $ 18,305 $ 13,220 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- Income taxes, net............................................. $ (1,845) $ -- $ 1,583 $ 26,830 ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
The accompanying notes are an integral part of these statements. F-6 RYKOFF-SEXTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE ONE--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES LINE OF BUSINESS. Rykoff-Sexton, Inc. and subsidiaries ("the Company") distributes a broad line of food and related non-food products to various establishments in the foodservice industry. The Company also manufactures certain food and non-food related products and provides contract and design services. The Company's market area includes most of the United States, with a concentration in the Southeast and Mid-Atlantic regions. Although the Company is not dependent on any single customer, the majority of its customers are concentrated in the restaurant industry, with less significant concentrations in the health care and education industries. No single customer accounts for more than 10% of the Company's trade receivables or sales for any of the periods presented. PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include the accounts of Rykoff-Sexton, Inc., its wholly owned distribution subsidiary, US Foodservice, Inc. ("US Foodservice"), and its other wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. FISCAL YEAR-END. Effective April 28, 1996, the Company changed its fiscal year-end from the 52 or 53 week period ended the Saturday closest to April 30 to the 52 or 53 week period ended the Saturday closest to June 30. Included in the consolidated statements of operations, cash flows and shareholders' equity is the nine-week transition period beginning April 28, 1996 and ending June 29, 1996 (the "transition period"). In the comparable nine-week period in 1995 (unaudited), net sales were $292.6 million, net income was $1.1 million and net earnings per share was $0.08. The 1997 fiscal year ended on June 28, 1997 ("fiscal 1997"), whereas the previous two fiscal years ended on April 27, 1996 ("fiscal 1996") and April 29, 1995 ("fiscal 1995"), respectively. EARNINGS PER SHARE. Earnings per share of common stock have been computed based on the weighted average number of shares of common stock outstanding and dilutive common stock equivalents outstanding. The shares used in such calculations were 28,644,000 for fiscal 1997, 23,972,000 for the transition period, 14,941,000 for fiscal 1996 and 14,730,000 for fiscal 1995. STOCK SPLIT. In December 1994, the Board of Directors declared a 5-for-4 stock split payable January 24, 1995, to shareholders of record on December 21, 1994. Earnings per share, weighted average shares outstanding and stock option information included in the accompanying financial statements and related notes have been adjusted to reflect this stock split. INVENTORIES. Inventories consist principally of food products and related non-food products held for sale. Inventories are priced at the lower of cost or market, and include the cost of purchased merchandise and, for manufactured goods, the cost of material, labor and factory overhead. The cost of approximately 7% of the inventories at June 28, 1997 has been determined using the last-in, first-out (LIFO) method. The remaining inventories are valued using the first-in, first-out (FIFO) method. Had the FIFO method been used to value all inventories, at June 28, 1997 inventories would have been higher by approximately $290,000. F-7 RYKOFF-SEXTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE ONE--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Inventories are summarized as follows:
APRIL 27, JUNE 28, 1997 1996 ------------- ------------- (DOLLARS IN THOUSANDS) Finished goods.................................................. $ 204,576 $ 145,899 Raw materials................................................... 5,971 6,906 ------------- ------------- $ 210,547 $ 152,805 ------------- ------------- ------------- -------------
DEPRECIATION, AMORTIZATION, RETIREMENT AND MAINTENANCE POLICIES. Depreciation is provided using the straight-line method, based upon the following estimated useful lives: Buildings and improvements................................. 15 to 40 years Leasehold improvements..................................... Life of the lease Transportation equipment................................... 3 to 8 years Office, warehouse and manufacturing equipment.............. 3 to 15 years
Costs of normal maintenance and repairs are charged to expense when incurred. Replacements or betterments of properties are capitalized. When assets are retired or otherwise disposed of, the cost and related applicable accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in income. Construction-in-process at June 28, 1997 was $27.4 million. Such amount was not significant at April 27, 1996. The Company has facilities available for sale, largely resulting from the restructuring discussed in Note Four, with a carrying value of approximately $39 million at June 28, 1997 which management estimates approximates fair value. COMPUTER SYSTEMS DEVELOPMENT COSTS. The Company has incurred certain costs in connection with internal computer systems development projects, primarily external consulting and internal labor costs. Capitalization of these costs begins once it is determined that the related systems will be completed and operate as intended. Such costs are included in Office, warehouse and manufacturing equipment in the accompanying consolidated balance sheets. Costs of $4.9 million were capitalized during fiscal 1997 and at June 28, 1997 total capitalized costs were $7.2 million. Capitalized costs are being amortized over 3-5 years as completed portions of the projects are put into service. Amortization expense for fiscal 1997 was $297,000. GOODWILL. The excess of purchase price over fair value of net assets acquired (Goodwill) is amortized on a straight-line basis over 40 years. In accordance with SFAS No. 121 ("SFAS 121") (see Note Three), the Company evaluates goodwill for impairment at least annually. In completing this evaluation, the Company compares its best estimate of future cash flows, excluding interest costs, with the carrying value of goodwill. Goodwill amortization for fiscal 1997, the transition period, fiscal 1996 and fiscal 1995 was $11,254,000, $1,037,000, $1,393,000 and $114,000, respectively. Accumulated amortization was $14,077,000 and $1,786,000 at June 28, 1997 and April 27, 1996, respectively. F-8 RYKOFF-SEXTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE ONE--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) OTHER ASSETS. Other assets are amortized using the straight-line or effective interest method over the following periods: Noncompetition and consulting agreements................. Term of agreement Deferred finance costs................................... Term of debt
Amortization expense for fiscal 1997, the transition period, fiscal 1996 and fiscal 1995 was $3,597,000, $416,000, $989,000 and $846,000, respectively. The amortization of deferred finance costs is reflected within interest expense in the consolidated statements of operations. Accumulated amortization was $6,231,000 and $7,348,000 as of June 28, 1997 and April 27, 1996, respectively. INCOME TAXES. The Company files a consolidated federal income tax return. Under SFAS No. 109, "Accounting for Income Taxes," ("SFAS 109") a deferred tax liability or asset is recognized for the estimated future tax effects attributable to temporary differences and carryforwards. Deferred income taxes result from temporary differences in the recognition of revenue and expense items for tax and financial statement purposes. The measurement of deferred income tax assets is adjusted by a valuation reserve, if necessary, so that the net tax benefits are recognized only to the extent that they are expected to be realized. STATEMENTS OF CASH FLOWS. The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. The merger with US Foodservice (see Note Two) is presented as a non-cash investing activity. CAPITALIZED INTEREST. The Company capitalizes interest costs as part of the cost of major asset construction projects. Capitalized interest was $1,071,000, $55,000, $1,077,000 and $2,667,000 in fiscal 1997, the transition period, fiscal 1996 and fiscal 1995, respectively. USE OF ESTIMATES. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. FAIR VALUE OF FINANCIAL INSTRUMENTS. Cash and cash equivalents, accounts receivable (including the Company's participation in the accounts receivable securitization facility; see Note Ten), accounts payable and accrued liabilities are reflected in the financial statements at carrying amounts which approximate fair value because of the short-term nature of those items. The fair value of the Company's fixed rate debt is described in Note Five. RECENTLY ENACTED ACCOUNTING PRONOUNCEMENTS. In February 1997, SFAS No. 128, "Earnings per Share," was issued which is effective for the Company's fiscal 1998. This statement specifies the computation, presentation and disclosure requirements for earnings per share (EPS). In fiscal 1998, the Company will also be required to adopt SFAS No. 129, "Disclosure of Information about Capital Structure", which was issued in conjunction with the earnings per share statement and was intended to centralize capital structure disclosure requirements. In June 1997, SFAS No. 130, "Reporting Comprehensive Income," was released and effective in fiscal 1998, the Company will be required to disclose comprehensive income and its components within the financial statements. SFAS No. 131, "Disclosures about Segments of an F-9 RYKOFF-SEXTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE ONE--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Enterprise and Related Information," was also issued in June of 1997. Beginning in fiscal 1998, disclosures will be based on the way management organizes business segments to make decisions about resource allocation and to measure performance. Based upon management's initial review of the above statements, the reporting and disclosure requirements are not expected to have a material impact on the Company's consolidated financial statements. RECLASSIFICATIONS. The financial statements for prior periods reflect certain reclassifications to conform with classifications adopted in the current year. NOTE TWO--ACQUISITIONS On May 17, 1996, the Company merged with US Foodservice, a privately held broadline foodservice distribution company. As part of the merger, US Foodservice stockholders received 1.457 shares of the Company's common stock for each outstanding share of Class A and Class B common stock of US Foodservice. Options and warrants to acquire approximately one million shares of US Foodservice were converted into options and warrants to acquire the Company's common stock on the same basis. The number of shares issued in connection with the merger was approximately 12.9 million. The shares issued have been recorded at $15.40 per share, which represents the closing market price as defined in the merger agreement. The aggregate purchase price was approximately $217 million, which includes acquisition costs. In addition, all outstanding shares of US Foodservice $15 cumulative redeemable exchangeable preferred stock were purchased by the Company for $26.6 million. The merger was accounted for as a purchase and, accordingly, US Foodservice's results are included in the consolidated financial statements from the date of acquisition. The aggregate purchase price was allocated to the assets and liabilities of US Foodservice based upon the respective fair values, and the excess of the purchase price over the fair value of net assets acquired (approximately $409 million) was recorded as goodwill. In connection with the merger, the Company entered into a new bank credit facility with a syndicate of financial institutions providing for loans and other credit facilities equal to $485 million (see Note Five). The Company also entered into a $110 million standalone revolving receivables securitization facility, as discussed in Note Ten. The initial net proceeds of the new credit facility and the receivables securitization were used to refinance and pay off existing bank debt and certain other indebtedness of the Company, refinance substantially all of US Foodservice's outstanding debt, repurchase US Foodservice's preferred stock, provide financing for the Company's ongoing working capital needs and pay related fees and expenses. On February 21, 1995, the Company acquired substantially all of the assets of Continental Foods, Inc., a privately owned Maryland corporation. Continental is a regional, full line institutional foodservice distributor. The acquisition was accounted for as a purchase and, accordingly, Continental's results are included in the consolidated financial statements from the date of acquisition. The aggregate purchase price was approximately $27.0 million, which includes costs of acquisition. The purchase price, which was financed through available cash resources and issuance of a promissory note, has been allocated to the net assets acquired, based upon the respective fair values. The excess of the purchase price over the net assets acquired approximated $21.2 million. On November 1, 1995, the Company acquired substantially all of the assets of H&O Foods, Inc., a privately owned Nevada corporation. H&O is a regional, institutional distributor. The acquisition was F-10 RYKOFF-SEXTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE TWO--ACQUISITIONS (CONTINUED) accounted for as a purchase and, accordingly, H&O's results are included in the consolidated financial statements from the date of acquisition. The aggregate purchase price was approximately $29.6 million, which includes the costs of acquisition. The consideration, which included the issuance of unsecured promissory notes totaling $24.8 million and the Company's assumption of certain H&O liabilities, has been allocated to the net assets acquired based upon the respective fair values. The excess of the purchase price over the net assets acquired approximated $18.4 million. In connection with the above acquisitions, liabilities were assumed as follows:
US FOODSERVICE CONTINENTAL H&O -------------- ----------- ---------- (IN THOUSANDS) Fair value of assets acquired........................ $ 707,491 $ 39,647 $ 39,948 Unsecured notes issued at acquisition date........... -- (2,425) (24,831) Value of shares and options issued at acquisition date............................................... (203,672) -- -- Cash paid............................................ -- (24,836) (4,737) Liabilities assumed.................................. $ 503,819(a) $ 12,386 $ 10,380
- ------------------------ (a) Includes assumption of $301.5 million of US Foodservice debt and purchase of $26.6 million of the US Foodservice $15 cumulative redeemable exchangeable preferred stock. The following unaudited pro forma consolidated results of operations have been prepared as if the acquisitions of US Foodservice, Continental and H&O had occurred as of the beginning of the period of acquisition and the period preceding such acquisition:
TRANSITION PERIOD FISCAL 1996 FISCAL 1995 ----------------- ------------ ------------ (IN THOUSANDS, EXCEPT PER SHARE DATA) Net sales.......................................................... $ 621,159 $ 3,553,180 $ 1,772,425 Income (loss) from continuing operations........................... (62,364) (14,316) 10,247 Earnings (loss) per share from continuing operations............... $ (2.23) $ (0.51) $ 0.69
The pro forma consolidated results do not purport to be indicative of results that would have occurred had the acquisitions been in effect for the periods presented, nor do they purport to be indicative of the results that will be obtained in the future. NOTE THREE--SFAS 121 ACCOUNTING CHANGE In the fourth quarter of fiscal 1996, the Company adopted SFAS No. 121--"Accounting for Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of." This statement requires that long-lived assets and certain intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. When such events or changes in circumstances indicate an asset may not be recoverable, a company must estimate the future cash flows expected to result from the use of the asset and its eventual disposition. If the sum of such expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset, an impairment loss is required to be recognized in an amount by which the asset's net book value exceeds its fair market value. For purposes of assessing impairment under this F-11 RYKOFF-SEXTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE THREE--SFAS 121 ACCOUNTING CHANGE (CONTINUED) standard, assets are required to be grouped at the lowest level for which there are separately identifiable cash flows. To comply with this standard, the Company identified all long-lived assets where there had been, or was expected to be, a change in use in the recent past or foreseeable future which could affect the recoverability of such long-lived assets. As of the fourth quarter of fiscal 1996 the Company had recently relocated or closed certain of its distribution centers. If future undiscounted cash flows estimated to be derived from such assets indicated an impairment existed, the Company recognized an impairment loss for the amount by which the estimated net book values of the assets exceeded their estimated fair values. The fair values estimated by the Company were determined by using the present value of expected future cash flows and/or market evaluations by qualified real estate brokers in the related cities. The adoption of this accounting standard resulted in the Company recording a pre-tax charge of $29.7 million and was principally reflected as a reduction in the net carrying value of land, buildings and improvements. NOTE FOUR--RESTRUCTURING COSTS In connection with the US Foodservice merger, the Company recorded a restructuring charge of $57.6 million ($35.7 million after tax) in the transition period. Approximately $10.7 million related to severance and termination benefit costs, $20.2 million related to lease related costs and $26.7 million related to other exit costs, including the closure of duplicate facilities and other integration activities. During the 1997 fiscal year and the transition period, the Company charged $27.7 million and $0.4 million against the restructuring liability, respectively, for such costs incurred. These charges included $4.5 million related to severance and termination benefit costs, $2.7 million for lease related costs and $20.9 million related to the closure of duplicate facilities and other related exit costs (including $8.0 million of non-cash asset writeoffs). Related restructuring activities are substantially complete with respect to the consolidation and closing of facilities as of June 28, 1997. The remaining liability at June 28, 1997 is approximately $25.5 million consisting of $2.2 million for severance benefits, $17.5 million for lease commitments and $5.8 million for other exit costs. Approximately $9.0 million is expected to be paid in fiscal 1998 with the remaining cash outlays estimated to be paid in subsequent years (primarily related to non-cancelable operating lease commitments). During the fourth quarter of fiscal 1997, $4.0 million of the restructuring liability was reversed into income, upon the determination that such liability was no longer required. During fiscal 1993, the Company recorded a restructuring charge of $31.0 million or, on an after tax basis, $19.5 million or $1.34 per share. This charge was established to provide for a business reorganization which included facility closures, relocation and consolidation of distribution centers into more efficient facilities including severance costs, elimination of redundancies between the Company's two principal operating divisions at the time, workforce reductions and write down of facilities to their estimated net realizable value. In fiscal 1995 and fiscal 1996, the Company aggressively continued its plan to close and consolidate its under-performing distribution centers and sublease space in those centers with excess capacity. Additionally, severance and relocation costs were paid in connection with the consolidation, relocation and downsizing of distribution centers. These payments totaled $3.3 million in 1996. In October 1995, the Company concluded this restructuring plan and credited the remaining unutilized restructuring reserve of $6.4 million into income. F-12 RYKOFF-SEXTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE FIVE--LONG-TERM DEBT AND BORROWING ARRANGEMENTS Borrowings of the Company as of June 28, 1997 and April 27, 1996 are summarized as follows:
1997 1996 ---------- ---------- (IN THOUSANDS) 8 7/8% Senior Subordinated Notes due in 2003, net of unamortized discount of $713 in 1997 and $843 in 1996........................... $ 129,287 $ 129,157 Bank credit revolver.................................................. -- 94,000 Notes payable......................................................... -- 24,572 Mortgage notes........................................................ -- 1,060 Term Loan A........................................................... 146,250 -- Term Loan B........................................................... 124,250 -- Term Loan C........................................................... 59,625 -- La Mirada Bond offering............................................... 25,900 -- H&O Note payable...................................................... 3,595 -- Capital lease obligations............................................. 14,871 -- Other................................................................. 1,724 -- ---------- ---------- Total debt............................................................ 505,502 248,789 Less-current portion.................................................. 18,771 113,708 ---------- ---------- Long-term debt, less current portion.................................. $ 486,731 $ 135,081 ---------- ---------- ---------- ----------
In conjunction with the merger with US Foodservice (see Note Two), the Company entered into a new credit facility (New Credit Facility). The New Credit Facility provided $485 million of financing comprised of three term loan facilities, Tranche A, Tranche B and Tranche C ($335 million in aggregate) and a $150 million revolving credit facility (the "Revolver"). The initial term loans had the following principal amounts: $150 million for the Tranche A Term Loan, $125 million for the Tranche B Term Loan and $60 million for the Tranche C Term Loan. The amount available under the Revolver includes a letter of credit sublimit of $45 million. Under the New Credit Facility, substantially all of the Company's assets have been pledged. The notes bear interest based upon the bank's reference rate or LIBOR plus 2.5% for Tranche A, LIBOR plus 3.0% for Tranche B and LIBOR plus 3.25% for Tranche C, at the option of the Company. There was no outstanding balance under the Revolver at June 28, 1997. Part of the proceeds were used to pay off the balance outstanding on the Company's existing bank credit agreement and other outstanding debt. As part of the above financing the Company agreed to enter into interest rate protection agreements for a period of three years to insure that the weighted average interest rate on at least 50 percent of the variable rate debt will not exceed 9.5%. Three collars and one cap were purchased to fix the rate on $400 million of variable rate debt at an interest rate no higher than 9.5%. The cost of these instruments is being amortized over the three year term. Outstanding borrowings during fiscal 1997 and the transition period were LIBOR based. LIBOR ranged from 5.5% to 5.9% during fiscal 1997 and during the transition period. The Tranche A Term Loan, Tranche B Term Loan, Tranche C Term Loan and the Revolver will mature on October 31, 2001, October 31, 2002, April 30, 2003 and October 31, 2001, respectively. F-13 RYKOFF-SEXTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE FIVE--LONG-TERM DEBT AND BORROWING ARRANGEMENTS (CONTINUED) Covenants and other restrictions contained in the New Credit Facility require the Company to meet certain financial tests and restrict its ability to borrow additional funds, make capital expenditures, dispose of assets and pay cash dividends. In November 1996 the Company entered into a loan agreement with the La Mirada Industrial Development Authority ("La Mirada IDA") for $25.9 million under which La Mirada IDA issued Taxable Variable/Fixed Rate Demand Industrial Development Revenue Bonds, the proceeds of which were used to finance a portion of the costs of the La Mirada Distribution Center. The bonds are secured by a letter of credit issued on behalf of the Company by a commercial bank that holds a lien against the La Mirada facility. The bonds will mature on December 1, 2026 and from time to time bear and pay interest under Daily, Weekly, Commercial Paper or Long-Term Interest Rate modes at the election of the Company. Interest rates on this facility approximated LIBOR plus 210 basis points during fiscal 1997. In November 1993, the Company issued $130 million principal amount of 8 7/8% Senior Subordinated Notes (the "8 7/8% Notes") due November 1, 2003 with interest payable semiannually commencing May 1, 1994. The 8 7/8% Notes were sold at a discount for an aggregate price of $128.9 million. Provisions of the 8 7/8% Notes include, without limitation, restrictions on liens, indebtedness, asset sales, and dividends and other restricted payments. The 8 7/8% Notes are redeemable at the option of the Company, in whole or in part, at 104.44% of their principal amount beginning November 1998, and thereafter at prices declining annually to 100% on and after November 2001. In addition, upon the occurrence of an event that constitutes a Change of Control (as defined in the indenture for such notes), each holder of the 8 7/8% Notes may require the Company to repurchase all or a portion of such holder's 8 7/8% Notes at a purchase price equal to 101% of the principal amount thereof, together with accrued and unpaid interest, if any, to the date of the repurchase. The 8 7/8% Notes are not subject to any sinking fund requirements. In connection with the acquisition of H&O Foods (see Note Two), the Company has an outstanding note due November 1, 1997. Interest is paid on the note at the rate of seventy-five (75) basis points per annum above the LIBOR rate. Scheduled aggregate annual payments of long-term debt, excluding capital leases (see Note Six) (in thousands), as of June 28, 1997 are $17,898 for 1998, $24,168 for 1999, $34,145 for 2000, $44,153 for 2001, $37,912 for 2002 and $332,355 thereafter. Based on the borrowing rates currently available to the Company for debt with similar terms and maturities, the fair value of its fixed rate debt is $129.4 million as of June 28, 1997. The carrying value of the Company's variable rate debt approximates fair value. NOTE SIX--LEASE ARRANGEMENTS The Company leases a substantial portion of its office and warehouse facilities, as well as transportation vehicles at certain facilities, under long-term operating leases. Rental expense under operating leases F-14 RYKOFF-SEXTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE SIX--LEASE ARRANGEMENTS (CONTINUED) for fiscal 1997, the transition period, fiscal 1996 and fiscal 1995 was $42,821,000, $6,222,000, $28,821,000, and $23,714,000, respectively. The approximate minimum future rentals are payable as follows:
FISCAL YEAR CAPITAL OPERATING - ----------------------------------------------------------------------- --------- ---------- (IN THOUSANDS) 1998................................................................... $ 2,792 $ 30,354 1999................................................................... 2,335 26,971 2000................................................................... 2,318 24,427 2001................................................................... 2,318 21,042 2002................................................................... 2,234 18,092 Thereafter............................................................. 36,946 37,182 --------- ---------- Total.................................................................. 48,943 $ 158,068 ---------- ---------- Less interest.......................................................... 34,072 --------- Present value of minimum lease payments................................ $ 14,871 --------- ---------
NOTE SEVEN--INCOME TAXES The provision (benefit) for income taxes consists of the following (amounts in thousands):
FISCAL TRANSITION FISCAL FISCAL 1997 PERIOD 1996 1995 --------- ---------- ---------- --------- CURRENT TAXES: Federal.......................................... $ (2,190) $ (550) $ (5,816) $ 3,851 State............................................ 993 (1,619) 381 1,395 --------- ---------- ---------- --------- $ (1,197) $ (2,169) $ (5,435) $ 5,246 DEFERRED TAXES: Federal.......................................... $ 12,295 $ (31,645) $ (5,052) $ 821 State............................................ (1,190) (2,381) (552) 183 --------- ---------- ---------- --------- 11,105 (34,026) (5,604) 1,004 --------- ---------- ---------- --------- Provision (benefit) for income taxes............. $ 9,908 $ (36,195) $ (11,039) $ 6,250 --------- ---------- ---------- --------- --------- ---------- ---------- ---------
F-15 RYKOFF-SEXTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE SEVEN--INCOME TAXES (CONTINUED) Deferred tax assets (liabilities) are comprised of the following:
APRIL 27, JUNE 28, 1997 1996 ------------- ------------- (IN THOUSANDS) Loss carryforwards.............................................. $ 25,474 $ 569 Restructuring reserves.......................................... 10,206 -- SFAS 121 write-down............................................. 12,177 12,177 Allowance for bad debts......................................... 5,199 1,253 Capital leases.................................................. 4,331 -- Accrued pension................................................. 4,105 2,717 Self insurance reserves......................................... 1,759 2,533 Accrued vacation................................................ 1,061 1,150 Discontinued operations......................................... -- 1,340 Other........................................................... 8,067 995 Valuation allowance............................................. (1,398) (1,460) ------------- ------------- Total deferred tax assets....................................... 70,981 21,274 ------------- ------------- Depreciation.................................................... (23,304) (6,785) Other........................................................... (1,543) (2,397) ------------- ------------- Total deferred tax liabilities.................................. (24,847) (9,182) ------------- ------------- Net deferred tax assets......................................... $ 46,134 $ 12,092 ------------- ------------- ------------- -------------
Reconciliation of the statutory federal income tax rate to the effective income tax rate is as follows:
FISCAL TRANSITION FISCAL 1997 PERIOD 1996 FISCAL 1995 --------- ----------- --------- ----------- Statutory federal income tax......................... 34.0% (35.0)% (35.0)% 35.0% State income taxes, net of federal income taxes...... 1.9 (5.5) (6.9) 4.2 Recording (reversal) of valuation allowance.......... (10.8) 2.2 3.3 (0.7) Goodwill amortization................................ 12.6 0.8 1.1 1.5 Other................................................ 0.5 (0.1) (2.5) -- --------- ----- --------- --- Effective tax rate................................... 38.2% (37.6)% (40.0)% 40.0% --------- ----- --------- --- --------- ----- --------- ---
During the fourth quarter of fiscal 1997, the Company recorded a reduction in the valuation allowance of $2.8 million based on an analysis of expected combined operating results including US Foodservice. Management believes it is more likely than not that the deferred tax assets as of June 28, 1997, including net operating loss carryforwards, will be realizable through the combination of future taxable earnings, the corresponding realization of net operating loss carryforwards, alternative tax planning strategies and the reversal of existing taxable temporary differences. The amount of cumulative federal net operating loss carryforwards as of June 28, 1997 is $53,270,000 with expiration dates through fiscal 2011. Included in this total are net operating losses incurred prior to the US Foodservice merger. The use of pre-merger net operating losses is subject to certain limitations imposed by the Internal Revenue Code. The Company does not anticipate these limitations will impact F-16 RYKOFF-SEXTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE SEVEN--INCOME TAXES (CONTINUED) utilization of the carryforwards prior to their expiration date. Various subsidiaries have state net operating loss carryforwards of $143,229,000 with expiration dates through fiscal 2011. NOTE EIGHT--STOCK OPTION AND COMPENSATION PLANS 1995 RYKOFF-SEXTON KEY EMPLOYEES STOCK OPTION AND COMPENSATION PLAN (THE "1995 PLAN") The 1995 Plan authorizes the issuance of up to 400,000 shares of common stock through various stock incentives to executive officers of the Company, including options, stock appreciation rights (SAR's), stock awards, restricted stock, performance shares and cash awards. Stock options allow for the purchase of common stock at prices determined by the Stock Option Committee (the "Committee") except for incentive stock options, which must be purchased at prices not less than the fair market value at the date of grant. These options expire 10 years from the date of grant and are exercisable as defined by the Stock Option Committee. 1993 US FOODSERVICE STOCK OPTION PLAN (THE "1993 US FOODSERVICE PLAN") This plan was amended subsequent to the US Foodservice acquisition. Under the terms of the amended plan, 319,700 options have been authorized for grant to officers and certain employees of US Foodservice. At the time of the merger, there were 316,793 equivalent Rykoff-Sexton options granted and outstanding under this plan. There have been no additional awards under this plan in fiscal 1997. The exercisability of the options under this plan is determined at the time of award by the Committee. As of June 28, 1997, of the remaining 278,846 outstanding options, 229,978 were exercisable. The 48,868 remaining options will be exercisable on January 1, 1998. 1992 US FOODSERVICE STOCK OPTION PLAN (THE "1992 US FOODSERVICE PLAN") This plan was also amended in conjunction with the US Foodservice acquisition. Under the terms of the amended plan, 429,100 options have been authorized for grant to the management of US Foodservice. At the time of the merger there were 428,039 equivalent Rykoff-Sexton options granted and outstanding under this plan. No additional awards have been granted. As of June 28, 1997, all of the remaining 310,411 options are exercisable. 1988 RYKOFF-SEXTON STOCK OPTION PLAN (THE "1988 PLAN") The 1988 Plan authorizes the issuance of up to 2,876,470 shares of common stock through various stock incentives to officers and employees, including options, stock appreciation rights, stock awards, restricted stock, performance shares and cash awards. The number of shares authorized was increased in the current year. Stock options allow for the purchase of common stock at prices determined by the Committee except for incentive stock options, which must be purchased at prices not less than the fair market value at the date of grant. These options expire 10 years from the date of grant and are exercisable as defined by the Stock Option Committee. 1988 WHITE SWAN STOCK OPTION PLAN (THE "1988 WHITE SWAN PLAN") White Swan, Inc. ("White Swan") is a subsidiary of US Foodservice. Under the 1988 White Swan Plan, options for the Rykoff-Sexton equivalent shares of 332,513 shares of common stock were authorized and granted to the management of White Swan. The options under this plan became 100% exercisable upon the merger with US Foodservice. F-17 RYKOFF-SEXTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE EIGHT--STOCK OPTION AND COMPENSATION PLANS (CONTINUED) 1980 RYKOFF-SEXTON STOCK OPTION PLAN AND 1993 DIRECTOR STOCK OPTION PLAN (THE "1980 PLAN" AND THE "DIRECTOR PLAN") The 1980 Plan authorized awards of stock options and stock appreciation rights; options expire 10 years from the date of grant. No further grants may be made under the 1980 Plan. The Company also maintains the Director Plan which authorizes the issuance of up to 125,000 shares of common stock. Under the Director Plan, each director who is not a full-time officer or employee of the Company will receive annually a non-qualified option to purchase 1,000 shares of common stock. Options under the 1993 Director Plan expire 10 years from the date of grant. The exercise price of each share granted under options for the plans listed above was not less than 100% of the fair market value per share at the respective grant date. Accordingly, no compensation expense was recorded with respect to these option grants. SAR'S AND RESTRICTED STOCK GRANTS SAR's, which may be issued in conjunction with the grant of options under the 1995 Plan, the 1988 Plan and 1980 Plan, permit the optionee to receive shares of stock, cash or a combination of shares and cash. Compensation expense is measured by the difference between the option price and the market value of the stock on the date of exercise. Upon exercise of a SAR, the option is canceled. As of June 28, 1997, there were 10,938 SAR's outstanding. Compensation expense was not significant for any of the periods presented herein. Restricted stock grants for 2,000 and 49,600 shares were issued under the 1995 Plan in fiscal years 1997 and 1996, respectively and grants for 6,250 shares were issued under the 1988 Plan in fiscal year 1995. These shares vest either ratably over a four year period or in full, four years from the respective grant dates. Deferred compensation equivalent to the difference between the market value at date of grant and the option price was credited to additional paid-in-capital and is being amortized to compensation expense over the vesting period. The amounts amortized in fiscal 1997, the transition period, fiscal 1996 and fiscal 1995 were $500,000, $66,000, $436,000 and $251,000, respectively. OTHER PLANS The Performance Share Plan authorizes awards of cash or stock, at the election of the Stock Option Committee, to designated key executives based on the attainment of certain financial performance objectives by the Company. In fiscal 1996, 300,000 performance shares were granted, 203,000 shares were granted in the transition period and 50,000 shares were granted in fiscal 1997. No compensation expense has been recorded under this plan as the defined performance criteria have not been attained. The Convertible Award Plan entitles certain employees to elect, at the start of the fiscal year, to have a certain portion of their annual bonus paid in the form of Company stock. The price of the stock is based on the Company's closing stock price on a specified date following the date the Company releases its earnings for the prior fiscal year. Individuals electing this option receive a Company match of shares based on the attainment of defined performance levels which then vest ratably over a three year period. Compensation expense for awards under this plan was not significant for any of the periods presented herein. The vesting of options and awards under the various plans is subject to acceleration in the event of a change in control (see Note Fourteen). F-18 RYKOFF-SEXTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE EIGHT--STOCK OPTION AND COMPENSATION PLANS (CONTINUED) A summary of stock option activity is presented below.
WEIGHTED AVERAGE EXERCISE SHARES PRICE ---------- ------------- 1995 Outstanding, beginning of year.................................... 1,281,237 $ 22.75 Granted........................................................... 333,125 $ 15.86 Exercised (a)..................................................... (50,537) $ 14.25 Forfeited, canceled............................................... (426,328) $ 13.20 Outstanding, end of year.......................................... 1,137,497 $ 15.90 Exercisable, end of year.......................................... 649,759 $ 17.42 Available for grant, end of year.................................. 347,806 1996 Outstanding, beginning of year.................................... 1,137,497 $ 15.90 Granted........................................................... 142,250 $ 17.98 Exercised (a)..................................................... (133,000) $ 15.11 Forfeited, canceled............................................... (33,572) $ 14.96 Outstanding, end of year.......................................... 1,113,175 $ 16.26 Exercisable, end of year.......................................... 704,553 $ 16.86 Available for grant, end of year.................................. 214,514 TRANSITION PERIOD Outstanding, beginning of year.................................... 1,113,175 $ 16.26 Granted (c)....................................................... 1,495,595 $ 11.89 Exercised (a)..................................................... (4,802) $ 3.72 Forfeited, canceled............................................... (84,663) $ 16.40 Outstanding, end of year.......................................... 2,519,305 $ 13.69 Exercisable, end of year.......................................... 1,489,399 $ 13.77 Available for grant, end of period................................ 1,319,649 1997 Outstanding, beginning of year.................................... 2,519,305 $ 13.69 Granted........................................................... 19,400 $ 16.34 Exercised (a)..................................................... (289,060) $ 9.47 Forfeited, canceled............................................... (56,274) $ 14.04 Outstanding, end of year (b)...................................... 2,193,371 $ 14.25 Exercisable, end of year.......................................... 1,717,738 $ 14.09 Available for grant, end of year.................................. 954,915
- ------------------------ (a) Options were exercised at prices ranging from $0.10 to $15.77 during fiscal 1997; from $0.10 to $12.90 during the transition period; from $0.80 to $19.76 in fiscal 1996; and $0.80 to $19.25 in fiscal 1995. (b) For outstanding options at June 29, 1997, option prices ranged from $0.10 to $24.00. The expiration date for these options ranged from September 1997 to May 2007. (c) Includes the issuance of 1,077,345 equivalent options associated with the US Foodservice merger under the 1993 US Foodservice, 1992 US Foodservice and the 1988 White Swan Plans. F-19 RYKOFF-SEXTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE EIGHT--STOCK OPTION AND COMPENSATION PLANS (CONTINUED) During fiscal 1997, the Company adopted SFAS 123, the new stock-based compensation accounting standard. As provided for in the statement, the Company elected to continue the intrinsic-value method of expense recognition. If compensation expense for these plans had been determined using the fair value method prescribed by SFAS 123, the pro forma net income and earnings (loss) per share in fiscal 1997, the transition period and fiscal 1996 would have been approximately $15,600,000 and $0.54; $(60,400,000) and $(2.52); and $(16,800,000) and $(1.12), respectively. The pro forma effect on results may not be representative of the impact in future years because the fair-value method was not applied to options granted before fiscal 1996. NOTE NINE--PENSION AND PROFIT SHARING PLANS The Company maintains non-contributory pension plans for its salaried, commissioned and certain of its hourly employees. Under the plans, the Company is required to make annual contributions that are determined by the plans' consulting actuary, using participant data that is supplied by the Company. It is the Company's policy to fund pension costs currently. Pension benefits are based on length of service and either a percentage of final average annual compensation or a dollar amount for each year of service. The Company also assumed a frozen defined benefit plan related to White Swan in the US Foodservice merger. Net pension expense for fiscal 1997, the transition period, fiscal 1996 and fiscal 1995 are included in the following components:
TRANSITION 1997 PERIOD 1996 1995 ---------- ----------- --------- --------- (IN THOUSANDS) Service cost-benefits earned during the period....................... $ 4,824 $ 732 $ 3,489 $ 3,339 Interest cost on projected benefit obligation........................ 5,692 784 4,133 4,037 Actual return on plan assets......................................... (13,812) (97) (5,055) (4,886) Net amortization and deferral...................................... 7,520 (746) (149) (71) ---------- ----- --------- --------- Net pension expense................................................ $ 4,224 $ 673 $ 2,418 $ 2,419 ---------- ----- --------- --------- ---------- ----- --------- ---------
F-20 RYKOFF-SEXTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE NINE--PENSION AND PROFIT SHARING PLANS (CONTINUED) The following table reconciles the pension plans' funded status to accrued expense as of June 28, 1997 and April 27, 1996.
1997 1996 ---------- --------- (IN THOUSANDS) Market value of plan assets in equities and bonds...................... $ 83,803 $ 61,886 ---------- --------- Actuarial present value of accumulated benefits: Vested............................................................... 64,851 49,307 Non-vested........................................................... 4,071 3,235 Additional benefits based on estimated future salary levels............ 7,151 9,809 ---------- --------- Projected benefit obligation........................................... 76,073 62,351 ---------- --------- Plan assets more (less) than projected benefit obligation.............. 7,730 (465) Unrecognized net obligation to be amortized over 10 years.............. 2,673 3,497 Unrecognized net (gain)................................................ (23,101) (9,659) ---------- --------- Accrued pension liability.............................................. $ (12,698) $ (6,627) ---------- --------- ---------- ---------
The weighted average discount rate was 8.10% and 7.75%, the expected long-term rate of return on plan assets was 9.6% and 9.5% and the rate of increase in future compensation levels was 3% and 4% as of June 28, 1997 and April 27, 1996, respectively. The Company has supplemental retirement plans for certain executives and certain other employees, which provide enhanced retirement and disability benefits for these participants. The expense and liabilities associated with these plans are reflected in the net pension expense and accrued pension liability reconciliation shown in the above tables. For collectively bargained, multi-employer pension plans, contributions are made in accordance with negotiated labor contracts and generally are based on the number of hours worked. With the passage of the Multi-Employer Pension Plan Amendments Act of 1980 (the "Act"), the Company may, under certain circumstances, become subject to liabilities in excess of contributions made under collective bargaining agreements. Generally, these liabilities are contingent upon the termination, withdrawal, or partial withdrawal from these plans which would result in any material liability. The amount of accumulated benefits and net assets of such plans is not currently available to the Company. Total contributions charged to expense under these plans were $5,981,000, $6,130,000 and $5,786,000 for the fiscal years 1997, 1996 and 1995, respectively. Related contributions for the transition period were $1,064,000. The Company provides postretirement health care benefits to certain former salaried employees of Biggers Brothers, Inc., a wholly owned subsidiary of US Foodservice, who retired prior to November 1, 1990. Such benefits are not provided to subsequent retirees or any current employees of the Company. In accordance with SFAS 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" ("SFAS 106"), the present value of future benefits to be paid to eligible retirees amounted to $762,000 at June 28, 1997 and is included in other noncurrent liabilities in the accompanying consolidated balance sheets. As the obligation for these benefits is unfunded, the interest component of this expense will be recognized in future periods. The postretirement benefit expense was not significant in fiscal 1997. The Company sponsors two defined contribution plans (including one plan assumed in connection with the US Foodservice merger) under Section 401(k) of the Internal Revenue Code for employees F-21 RYKOFF-SEXTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE NINE--PENSION AND PROFIT SHARING PLANS (CONTINUED) meeting certain age and service requirements. The Company matches contributions of participating employees in these plans on the basis of established percentages as specified in each of the respective plans. Employer contributions were $2.1 million in fiscal 1997 and $0.2 million in the transition period. Contributions in fiscal 1996 and 1995 were not significant. NOTE TEN--RECEIVABLES SECURITIZATION FACILITY The Company is party to a $200 million accounts receivable revolving securitization facility. Through November 1996, this facility consisted of a stand-alone $110 million Rykoff-Sexton revolving receivables securitization facility (entered into in conjunction with the US Foodservice merger; see Note Two) and a $90 million US Foodservice revolving receivables securitization facility (in existence at the time of the merger). In November 1996, the two facilities were replaced by the new $200 million revolving facility. The securitization involves a two step transfer: the sale of the receivables to a bankruptcy remote wholly owned subsidiary and the subsequent sale of the receivables to a master trust. The master trust sells certificates of beneficial ownership to third parties. All customer accounts receivable of the participating operating divisions are sold to the trust and the Company acquires a participation interest in the trust equal to the amount in excess of the $200 million third party interest ($101.3 million at June 28, 1997). This amount is included in accounts receivable in the accompanying consolidated balance sheets. The Company is required to maintain a minimum participation interest as calculated ($37.7 million at June 28, 1997) to serve as collateral for this facility. Other expenses of $13.1 million and $9.9 million in fiscal 1997 and the transition period, respectively, related to charges incurred in connection with this securitization program. The transfer of receivables to the master trust qualified as a sale transaction in accordance with SFAS No. 77, "Reporting by Transferors for Transfers of Receivables with Recourse" ("SFAS 77") through December 31, 1996. Effective January 1, 1997, the Company adopted SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities" ("SFAS 125") for receivables sold into the facility after December 31, 1996 and sale accounting treatment continues to be appropriate under this new pronouncement. NOTE ELEVEN--COMMITMENTS AND CONTINGENCIES The Company has change in control agreements with various officers which provide, among other things, that if, within two years after a change in control (as defined), the Company terminates the employment of the officer, other than for death, disability, or cause, or with respect to the Chief Executive Officer, for any or no reason (other than death) or if the officer elects to terminate his employment for good reason (as defined), or with respect to the Chief Executive Officer, for any or no reason, the officer will receive 2.99 times the sum of the officer's base salary plus the amount that would otherwise be earned under any executive compensation plan (see Note Eight). The Company has severance agreements with various officers which provide, among other things, that if, within the three-year term of the agreements (with automatic one-year renewal unless either party gives advance notice to the contrary), the Company involuntarily terminates the officer, other than for death, F-22 RYKOFF-SEXTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE ELEVEN--COMMITMENTS AND CONTINGENCIES (CONTINUED) disability or cause (as defined), or if the officer elects to terminate his employment after a reduction in base pay (other than a general reduction) or notice of the non-renewal of the agreement, the officer will receive certain termination benefits. Such termination benefits include salary and welfare benefit continuation for two years, bonus (based on actual performance results during the applicable performance period and calculated as though the officer has remained employed throughout such applicable performance period, but prorated to reflect the period of the officer's actual service), full vesting in any stock options and in each individual's Supplemental Executive Retirement Plan and crediting of benefits under the Company's Deferred Compensation Plan at a preferred rate. Any termination payments made to an officer under a severance agreement will generally be offset by any payments made under such officer's employment agreement or change in control agreement. During the fourth quarter of fiscal 1997, the employment of two senior executives was terminated and the present value of severance compensation and related benefits, aggregating $4 million, was expensed. The Company or its subsidiaries are defendants in a number of cases currently in litigation or have potential claims encountered in the normal course of business which are being vigorously defended. In the opinion of management, the resolution of these matters, individually or in the aggregate, will not have a material effect on the Company's consolidated financial position or results of operations. The Company utilizes standby letters of credit to satisfy worker's compensation self-insurance security deposit requirements. These letters of credit are irrevocable and have one-year renewable terms. Outstanding standby letters of credit as of June 28, 1997 and April 27, 1996 were $27.3 million and $17.1 million, respectively. Additionally, the Company had outstanding irrevocable commercial letters of credit of $1.2 million and $4.0 million as of June 28, 1997 and April 27, 1996, respectively. These letters of credit, which are payable at sight, collateralize the Company's obligations to third parties for the purchase of inventory. The contract amounts of these letters of credit approximate their fair value. As of June 28, 1997, certain of the Company's subsidiaries have a purchase agreement with a food vendor requiring a minimum level of purchases over a six year period through 2001. The Company is required under these agreements to pay a penalty of up to $3.8 million if the minimum purchase requirements are not satisfied. NOTE TWELVE--PREFERRED STOCK PURCHASE RIGHTS Each outstanding share of common stock is accompanied by 0.64 preferred share purchase rights to purchase Series A Junior Participating Preferred Stock. As of June 28, 1997, there were 17,929,155 rights outstanding. Each right entitles the holder to purchase a unit consisting of one two-hundredth of a share of Series A Junior Participating Preferred Stock, $.10 par value, at $100 per unit, subject to adjustment. The rights are not exercisable or transferable apart from the common stock until 10 days after a person or group, with certain exceptions, has acquired 15 percent or more, or makes a tender offer for 30 percent or more, of the Company's common stock. Each right will entitle the holder, under certain circumstances (a merger, acquisition of 15 percent or more of common stock of the Company by an acquiring entity, self-dealing transactions by an acquiring entity, or sale of 50 percent or more of the Company's assets or earning power), to acquire at half the value, either common stock of the Company, a combination of certain assets, or securities of the Company, or common stock of the acquiring entity. Any such event would also result in any rights owned beneficially by the acquiring entity or its affiliates to become null and void. The rights expire May 15, 2006 and are redeemable prior to the time an acquiring entity acquires F-23 RYKOFF-SEXTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE TWELVE--PREFERRED STOCK PURCHASE RIGHTS (CONTINUED) 15 percent or more of the Company's common stock at one cent per right. At June 28, 1997, 125,000 shares of Series A Junior Participating Preferred Stock were authorized but unissued and were reserved for issuance upon exercise of the rights. NOTE THIRTEEN--QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The unaudited results of operations by quarter for fiscal 1997 and fiscal 1996 are summarized below:
FIRST SECOND THIRD FOURTH ---------- ---------- ---------- ----------- (IN THOUSANDS, EXCEPT PER SHARE DATA) 1997 Net Sales....................................................... $ 904,827 $ 882,381 $ 831,272 $ 859,013 Cost of sales................................................... 727,440 701,800 658,981 681,888 Net income...................................................... 2,046 3,917 4,009 6,066* ---------- ---------- ---------- ----------- Earnings per share.............................................. $ 0.07 $ 0.14 $ 0.14 $ 0.21* ---------- ---------- ---------- ----------- ---------- ---------- ---------- -----------
- ------------------------ * Includes adjustment to income tax valuation allowance (see Note Seven).
FIRST SECOND THIRD FOURTH ---------- ---------- ---------- ------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) 1996 Net Sales..................................................... $ 421,771 $ 440,545 $ 452,379 $ 474,783 Cost of sales................................................. 324,540 339,745 351,406 371,608 Net income (loss)............................................. 2,645 2,877 544 (22,846)** ---------- ---------- ---------- ------------- Earnings (loss) per share..................................... $ 0.18 $ 0.19 $ 0.04 $ (1.53)** ---------- ---------- ---------- ------------- ---------- ---------- ---------- -------------
- ------------------------ ** Includes asset impairment loss (see Note Three). NOTE FOURTEEN--SUBSEQUENT EVENT On June 30, 1997, JP Foodservice, Inc. ("JP") of Columbia, Maryland, and the Company announced the signing of a definitive merger agreement under which the Company will be merged with a wholly-owned subsidiary of JP. Under the terms of the agreement, which was unanimously approved by the boards of directors of both companies, JP and the Company will merge into a wholly owned subsidiary of JP in an exchange of stock in which the Company's shareholders will receive 0.84 of a share of JP common stock for each share of the Company's common stock held. The transaction is expected to be accounted for using the pooling-of-interests method and is intended to qualify as a tax-free reorganization. Completion of the transaction is subject to shareholder and regulatory approval, and other customary closing conditions, and is expected to occur before the end of calendar 1997. F-24 RYKOFF-SEXTON, INC. AND SUBSIDIARIES SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS FOR THE FISCAL YEARS ENDED JUNE 28, 1997, APRIL 27, 1996, AND APRIL 29, 1995, AND THE NINE-WEEK TRANSITION PERIOD ENDED JUNE 29, 1996
1996 TRANSITION FISCAL 1997 PERIOD FISCAL 1996 FISCAL 1995 ------------- ---------------- ------------- ------------- Reserve for doubtful accounts: Balance, beginning of period...................... $ 14,398,000 $ 5,401,000 $ 3,996,000 $ 3,701,000 Add (deduct)-- Additions charged to income..................... 5,601,000 7,462,000 3,552,000 1,310,000 Reserve balance of acquired company............. -- 6,928,000 108,000 479,000 Accounts written off............................ (6,482,000) (5,393,000) (2,255,000) (1,494,000) ------------- ---------------- ------------- ------------- Balance, end of period............................ $ 13,517,000 $ 14,398,000 $ 5,401,000 $ 3,996,000 ------------- ---------------- ------------- ------------- ------------- ---------------- ------------- -------------
S-1 EX-3.1 2 EXHIBIT 3.1 RESTATED CERT OF INCORP. EXHIBIT 3.1 RESTATED CERTIFICATE OF INCORPORATION OF RYKOFF-SEXTON, INC. RYKOFF-SEXTON, INC., a corporation (the "Corporation") organized and existing under the laws of the State of Delaware, hereby certifies as follows: 1. The name of the Corporation is Rykoff-Sexton, Inc., and the name under which the Corporation was originally incorporated is S.E. Rykoff & Co. The date of filing its original Certificate of Incorporation with the Secretary of State of Delaware was June 9, 1961. 2. This Restated Certificate of Incorporation restates and integrates all previous amendments and supplements to the Certificate of Incorporation of the Corporation. 3. This Restated Certificate of Incorporation was duly adopted by vote of the board of directors of the Corporation in accordance with Section 245 of the General Corporation Law of the State of Delaware, and only restates and integrates and does not further amend the provisions of the Corporation's Certificate of Incorporation as heretofore amended or supplemented, and there is no discrepancy between those provisions and the provisions of this Restated Certificate of Incorporation. 4. The text of the Certificate of Incorporation shall read as herein set forth in full: FIRST: The name of the corporation is RYKOFF-SEXTON, INC. SECOND: The address of the registered office of the Corporation in the State of Delaware is Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company. THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation law of Delaware. FOURTH: The total number of shares of capital stock which the corporation has authority to issue is 50,000,000 shares, consisting of: (a) 10,000,000 shares shall be Preferred Stock, issuable in series, of the par value of $.10 per share; and (b) 40,000,000 shares shall be Common Stock of the par value of $.10 per share. The designations, powers, preferences and rights, and the qualifications, limitations or restrictions of the Preferred Stock and the Common Stock are as follows: A. PREFERRED STOCK. The Preferred Stock may be issued from time to time in one or more series and with such designation for each such series as shall be stated and expressed in the resolution or resolutions providing for the issue of each such series adopted by the Board of Directors. The Board of Directors in any such resolution or resolutions is expressly authorized to state and express for each such series: 1. Voting rights, if any, including, without limitation, the authority to confer multiple votes per share, voting rights as to specified matters or issues or, subject to the provisions of this Restated Certificate of Incorporation, as amended, voting rights to be exercised either together with holders of Common Stock as a single class, or independently as a separate class; 2. The rate per annum and the times at and conditions upon which the holders of shares of such series shall be entitled to receive dividends, the conditions and the dates upon which such dividends shall be payable and whether such dividends shall be cumulative or noncumulative, and, if cumulative, the terms upon which such dividends shall be cumulative; 3. Redemption, repurchase, retirement and sinking fund rights, preferences and limitations, if any, the amount payable on shares of such series in the event of such redemption, repurchase or retirement, the terms and conditions of any sinking fund, the manner of creating such fund or funds and whether any of the foregoing shall be cumulative or noncumulative; 4. The rights to which the holders of the shares of such series shall be entitled upon any voluntary or involuntary liquidation, dissolution or winding up of the Corporation; 5. The terms, if any, upon which the shares of such series shall be convertible into, or exchangeable for, shares of stock of any other class or classes or of any other series of the same or any other class or classes, including the price or prices or the rate or rates of conversion or exchange and the terms of adjustment, if any; and 6. Any other designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof so far as they are not inconsistent with the provisions of this Restated Certificate of Incorporation, as amended, and to the full extent now or hereafter permitted by the laws of the State of Delaware. All shares of the Preferred Stock of any one series shall be identical to each other in all respects, except that shares of any one series issued at different times may differ as to the dates from which dividends thereon, if cumulative, shall be cumulative. 2 B. COMMON STOCK 1. Whenever dividends upon the Preferred Stock at the time outstanding shall have been paid in full for all past dividend periods or declared and set apart for payment, such dividends as may be determined by the Board of Directors may be declared by the Board of Directors and paid from time to time to the holders of the Common Stock. 2. In the event of any liquidation, dissolution or winding up of the affairs of the Corporation, whether voluntary or involuntary, the assets and funds of the Corporation remaining after the payment to the holders of the Preferred stock at the time outstanding of the full amounts to which they shall be entitled shall be distributed among the holders of the Common Stock according to their respective shares. 3. The shares of Common Stock shall entitle the holders of record thereof to one vote for each share upon all matters upon which stockholders have the right to vote, subject only to any exclusive voting rights which may vest in holders of the Preferred Stock under the provisions of any series of the Preferred Stock established by the Board of Directors pursuant to the authority provided in this Article FOURTH. C. SERIES A JUNIOR PARTICIPATING PREFERRED STOCK 1. DESIGNATION AND AMOUNT. The shares of such series shall be designated as "Series A Junior Participating Preferred Stock" and the number of shares constituting such series shall be one hundred twenty-five thousand (125,000). 2. DIVIDENDS AND DISTRIBUTIONS. (A) Subject to the prior and superior rights of the holders of any shares of any series of Preferred Stock ranking prior and superior to the shares of Series A Junior Participating Preferred Stock with respect to dividends, the holders of shares of Series A Junior Participating Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the last day of February, May, August and November in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Junior Participating Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $20 or (b) subject to the provision for adjustment hereinafter set forth, 200 times the aggregate per share amount of all cash dividends, and 200 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock by reclassification or 3 otherwise), declared on the Common Stock, $.10 par value, of the Corporation (the "Common Stock") since the immediately preceding Quarterly Dividend Payment Date, or, with rest to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Junior Participating Preferred Stock. In the event the Corporation shall at any time declare or pay any dividend on Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount to which holders of shares of Series A Junior Participating Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) The Corporation shall declare a dividend or distribution on the Series A Junior Participating Preferred Stock as provided in paragraph (A) above immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided that, in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $20 per share on the Series A Junior Participating Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date. (C) Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Junior Participating Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares of Series A Junior Participating Preferred Stock, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Junior Participating Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series A Junior Participating Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series A Junior Participating Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be no more than 30 days prior to the date fixed for the payment thereof. 4 3. VOTING RIGHTS. The holders of shares of Series A Junior Participating Preferred Stock shall have the following voting rights: (A) Subject to the provision for adjustment hereinafter set forth, each share of Series A Junior Participating Preferred Stock shall entitle the holder thereof to 200 votes on all matters submitted to a vote of the stockholders of the Corporation. In the event the Corporation shall at any time declare or pay any dividend on Common Stock payable in shares of Common Stock; or effect a subdivision or combination of the outstanding shares of Common Stock (by reclassification or otherwise) into a greater or lesser number of shares of Common Stock, then in each such case the number of votes per share to which holders of shares of Series A Junior Participating Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) Except as otherwise provided herein or by law, the holders of shares of Series A Junior Participating Preferred Stock and the holders of shares of Common Stock shall vote together as one class on all matters submitted to a vote of stockholders of the Corporation. (C) Except as set forth herein, holders of Series A Junior Participating Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action. 4. CERTAIN RESTRICTIONS. (A) Whenever quarterly dividends or other dividends or distributions payable on the Series A Junior Participating Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series A Junior Participating Preferred Stock outstanding shall have been paid in full, the Corporation shall not (i) declare or pay dividends on, make any other distributions on, or redeem or purchase or otherwise acquire for consideration any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Junior Participating Preferred Stock; (ii) declare or pay dividends on or make any other distributions on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Junior 5 Participating Preferred Stock, except dividends paid ratably on the Series A Junior Participating Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; (iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Junior Participating Preferred Stock, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such parity stock in exchange for shares of any stock of the Corporation ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Series A Junior Participating Preferred Stock; or (iv) purchase or otherwise acquire for consideration any shares of Series A Junior Participating Preferred Stock, or any shares of stock ranking on a parity with the Series A Junior Participating Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (B) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. 5. REACQUIRED SHARES. Any shares of Series A Junior Participating Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and canceled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock to be created by resolution or resolutions of the Board of Directors, subject to the conditions and restrictions on issuance set forth herein. 6. LIQUIDATION, DISSOLUTION OR WINDING UP. Upon any voluntary liquidation, dissolution or winding up of the Corporation, no distribution shall be made (a) to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Junior Participating Preferred Stock unless, prior thereto, the holders of shares of Series A Junior Participating Preferred Stock shall have received $200 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment, provided that the holders of shares of Series A Junior Participating Preferred Stock shall be entitled to receive an aggregate amount 6 per share, subject to the provision for adjustment hereinafter set forth, equal to 200 times the aggregate amount to be distributed per share to holders of Common Stock, or (b) to the holders of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Junior Participating Preferred Stock, except distributions made ratably on the Series A Junior Participating Preferred Stock and all other such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up. In the event the Corporation shall at any time declare or pay any dividend on Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the aggregate amount to which holders of shares of Series A Junior Participating Preferred Stock were entitled immediately prior to such event under the proviso in clause (a) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. 7. CONSOLIDATION, MERGER, ETC. In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case the shares of Series A Junior Participating Preferred Stock shall at the same time be similarly exchanged or changed in an amount per share (subject to the provision for adjustment hereinafter set forth) equal to 200 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. In the event the Corporation shall at any time declare or pay any dividend on Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series A Junior Participating Preferred Stock shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. 8. NO REDEMPTION. The shares of Series A Junior Participating Preferred Stock shall not be redeemable. 9. RANKING. The Series A Junior Participating Preferred Stock shall rank junior to all other series of the Corporation's Preferred Stock as to the payment of dividends and the distribution of assets, unless the terms of any such series shall provide otherwise. 10. AMENDMENT. The Certificate of Incorporation of the Corporation shall not be amended in any manner which would materially alter or change the powers, preferences or 7 special rights of the Series A Junior Participating Preferred Stock so as to affect them adversely without the affirmative vote of the holders of a majority or more of the outstanding shares of Series A Junior Participating Preferred Stock, voting separately as a class. 11. FRACTIONAL SHARES. Series A Junior Participating Preferred Stock may be issued in fractions of a share which shall entitle the holder, in proportion to such holder's fractional shares, to exercise voting rights, receive dividends, participate in liquidating distributions and to have the benefit of all other rights of holders of Series A Junior Participating Preferred Stock. FIFTH: The Corporation is to have perpetual existence. SIXTH: The private property of the stockholders shall not be subject to the payment of corporate debts to any extent whatever. SEVENTH: In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized: To make, alter or repeal the by-laws of the Corporation. To authorize and cause to be executed mortgages and liens upon the real and personal property of the Corporation. To set apart out of any of the funds of the Corporation available for dividends a reserve or reserves for any proper purpose and to abolish any such reserve in the manner in which it was created. By a majority of the whole Board, to designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. The by-laws may provide that in the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board of Directors, or in the by-laws of the Corporation, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to amending the Restated Certificate of Incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, recommending to the stockholders a dissolution of the Corporation or a revocation or a dissolution, or amending the by-laws of the Corporation; and, unless the resolution or by-laws, 8 expressly so provide no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock. The Board of Directors shall have the power, from time to time to issue shares of the authorized and unissued capital stock of the Corporation, for such consideration, on such terms, in such manner, and to such person or persons, as the Board of Directors may, from time to time, determine. In addition to the powers and authorities herein or by statute expressly conferred upon it, the Board of Directors may exercise all such powers and do all such acts and things as may be exercised or done by the Corporation, subject, however, to the provisions of the laws of the State of Delaware, of this certificate, and of the by-laws of the Corporation. EIGHTH: Insofar as the same is not contrary to the laws of the State of Delaware no contract or other transaction between this Corporation and any other corporation shall be affected or invalidated by reason of the fact that any one or more of the directors of this Corporation is or are interested in, or is a director or officer, or are directors or officers of such other corporation, and any director or directors of this Corporation individually or jointly, may be a party or parties to, or may be interested in, any contract or transaction of this Corporation or in which this Corporation is interested; and no contract, act or transaction of this Corporation with any person or persons, firm, association or corporation, shall be affected or invalidated by reason of the fact that any director or directors of this Corporation is a party or parties to, or interested in such contract, act or transaction or is, or are, in any way connected with such person or persons, firm, association or corporation, if such fact is known to the Board of Directors of this Corporation, and each and every person who may become a director of this Corporation is hereby relieved from any liability that might otherwise exist from contracting with this Corporation for the benefit of himself, or any firm, association or corporation in which he may be in anywise interested. NINTH: The Corporation shall indemnify its officers, directors, employees and agents to the full extent permitted by the General Corporation Law of the State of Delaware, as now in effect or as the same may be hereafter amended. No director of the Corporation shall be personally liable to the Corporation or any stockholder for monetary damages for breach of fiduciary duty as a director. Notwithstanding the foregoing sentence, a director shall be liable to the extent provided by applicable law (i) for breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the General Corporation Law of Delaware or (iv) for any transaction from which the director derived an improper personal benefit. Neither the amendment nor repeal of this paragraph, nor the adoption of any provision of this Restated Certificate of Incorporation inconsistent with this paragraph, shall apply to or have any effect upon the liability or alleged liability of any director of the Corporation for or with respect to any acts or omissions of such director occurring prior to such amendment, repeal, or adoption of any inconsistent provision. 9 TENTH: Meetings of stockholders may be held within or without the State of Delaware, as the by-laws may provide. The books of the Corporation may be kept (subject to any provision contained in the statutes) outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the by-laws of the Corporation. Elections of directors need not be by written ballot unless the by-laws of the Corporation shall so provide. Any action by the stockholders of the Corporation shall be taken at a meeting of stockholders and no corporate action may be taken by written consent of the stockholders entitled to vote upon such action. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute, may be called by the Chairman of the Board or the President and shall be called by the Chairman of the Board or President at the request in writing of seventy-five percent (75%) of the directors then in office. Such request shall state the purpose or purposes of the proposed meeting. Stockholders of the Corporation shall not have the right to request or call a special meeting of the stockholders. The vote required for any amendment to, or repeal of, all or any portion of this Article TENTH shall be the affirmative vote of the holders of at least eighty percent (80%) of the outstanding shares of Common Stock of the Corporation; provided, however, that if the Continuing Directors of the Corporation shall by a majority vote at a meeting at which a Continuing Director Quorum was present have adopted a resolution approving the amendment or repeal proposal and have determined to recommend it for approval by the holders of Common Stock of the Corporation, then the vote required shall be the affirmative vote of the holders of at least a majority of the outstanding Common Stock of the Corporation. The term "Continuing Director" shall mean, with respect to a vote of the Board of Directors of the Corporation governed by this Article TENTH, all members of the Board except any director who (a) while serving as a member of the Board is a Related Person who is a party to or beneficiary of or has proposed the transaction or matter to be voted upon, or any Affiliate or Associate of such a Related Person, or any representative of such persons; or (b) became a member of the Board following the date upon which such a Related Person became a Related Person, unless such director is recommended or elected to succeed a Continuing Director by a majority of the Continuing Directors. The term "Continuing Director Quorum" shall mean a majority of the Continuing Directors capable of exercising the powers conferred upon them under the provisions of the Certificate of Incorporation or the by-laws of the Corporation or by law. The term "Related Person" shall mean any Person who beneficially owns a number of shares of Common Stock of the Corporation, whether or not such number includes shares not then issued, which exceeds a number equal to five percent (5%) of the outstanding shares of the Common Stock of the Corporation. 10 The term "Person" shall mean an individual, corporation, partnership, association, joint-stock company, trust, any unincorporated organization, and any other entity or group. The term "Affiliate" shall mean a Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with another Person. The term "Associate" shall mean: (a) any corporation or organization of which a Person is an officer or partner or is, directly or indirectly, the Beneficial Owner of five percent (5%) or more of any class of equity securities; (b) any trust or other estate in which a Person has a five percent (5%) or larger beneficial interest of any nature or as to which a Person serves as trustee or in a similar fiduciary capacity; or (c) the immediate family of a Person, including without limitation, a spouse, parents, children (even if of legal age and living independently), siblings, fathers and mothers-in-law, sons and daughters-in-law, and brothers and sisters-in-law. ELEVENTH: The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Restated Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. TWELFTH: A. Except as set forth in paragraph B of this Article, the affirmative vote or consent of the holders of not less than eighty percent (80%) of the outstanding shares of stock of this Corporation entitled to vote shall be required: 1. to adopt any agreement for, or to approve, the merger or consolidation of the Corporation or any Subsidiary (as hereinafter defined) with or into any Related Person (as hereinafter defined), or 2. to authorize any sale, lease, transfer, exchange, mortgage, pledge or other disposition to any Related Person of all or substantially all of the assets of the corporation or any subsidiary, or 3. to authorize the issuance or transfer by the Corporation or any Subsidiary of any voting securities of the Corporation or any Subsidiary in exchange or payment for the securities or assets of any Related Person, if such authorization is otherwise required by law or by any agreement between the Corporation and any national securities exchange or by any other agreement to which the Corporation or any Subsidiary is a party, or, 4. to adopt any plan for the dissolution of the Corporation, or 5. to adopt any amendment, change or repeal of any of the provisions of this Article TWELFTH. 11 B. The provisions of paragraph A of this Article shall not apply, and the provisions of the laws of the State of Delaware shall apply to any transaction described therein if the Board of Directors by resolution shall have approved a memorandum of understanding with such Related Person setting forth the principal terms of such transaction and such transaction is substantially consistent therewith, provided that the resolution approving such memorandum of understanding is adopted by eighty percent (80%) of those members of the Board of Directors who were duly elected and acting members of the Board of Directors prior to the time such Related Person became the beneficial owner of five percent (5%) or more of the outstanding shares of stock of the Corporation entitled to vote in elections of directors. C. For purposes of this Article: 1. a "Subsidiary" is any corporation more than forty-nine percent (49%) of the voting securities of which are owned, directly or indirectly, by the Corporation; 2. a "Person" is any individual, corporation, partnership or other entity; 3. an "Affiliate" of a specified person is any person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with the specified person; and 4. a Person is a "Related Person" if, as of the record date for the determination of stockholders entitled to notice thereof and to vote or consent to proposed action, such person is, or at any time within the preceding twelve months has been, directly or indirectly through any affiliate, the beneficial owner of five percent (5%) or more of the outstanding shares of stock of the corporation entitled to vote in elections of directors. D. The Board of Directors shall have the power and duty to determine, for purposes of this Article, on the basis of information known to such Board, 1. whether any Person is a Related Person; and 2. whether a proposed transaction is substantially consistent with any memorandum of understanding of the character referred to in paragraph B of this Article. Any such determination shall be conclusive and binding for all purposes of this Article. THIRTEENTH: The management of the corporation shall be vested in a Board of Directors consisting of not less than three nor more than fifteen directors, the exact number of directors to be determined from time to time, after the 1984 Annual Meeting of 12 Stockholders, by the Board of Directors by the affirmative vote of a majority of the entire Board. The directors shall be divided into three classes, designated Class A, Class B, and Class C. Each class shall consist as nearly as may be possible, of one-third of the total number of directors constituting the entire Board of Directors. At the 1984 Annual Meeting of Stockholders, a Board of Directors consisting of seven directors shall be elected consisting of three Class C directors who shall be elected for one year, two Class B directors who shall be elected for a two-year term, and two Class A directors who shall be elected for a three-year term. At each succeeding Annual Meeting of Stockholders beginning in 1985, successors to the class of directors whose term expires at that annual meeting shall be elected for a three-year term. If the number of directors is changed, any increase or decrease shall be apportioned among the classes so as to maintain the number of directors in each class as nearly equal as possible, and any additional director of any class elected to fill a vacancy resulting from an increase in such class shall hold office for a term that shall coincide with the remaining term of that class, but in no case will a decrease in the number of directors shorten the term of any incumbent director. A director shall hold office until the Annual Meeting for the year in which his term expires and until his successor shall be elected and shall qualify, subject, however, to prior death, resignation, retirement, disqualification, or removal for cause. A director may be removed from office only for cause and by the vote of a majority of the outstanding stock of the Corporation entitled to vote at an election of directors, at a meeting of stockholders called expressly for that purpose. Any vacancy occurring on the Board of Directors for whatever reason, including any vacancy resulting from an increase in the number of directors, shall be filled by the affirmative vote of a majority of the Continuing Directors at which a Continuing Director Quorum shall have been present. Any director elected to fill a vacancy not resulting from an increase in the number of directors shall have the same remaining term as that of his predecessor. Advance notice of stockholder nominations for the election of directors shall be given in the manner provided in the by-laws of the Corporation. The vote required for any amendment to, or repeal of, all or any portion of this Article THIRTEENTH shall be the affirmative vote of the holders of at least eighty percent (80%) of the outstanding shares of Common Stock of the Corporation; provided, however, that if the Continuing Directors of the Corporation shall by majority vote at a meeting at which a Continuing Director Quorum was present have adopted a resolution approving the amendment or repeal proposal and have determined to recommend it for approval by the holders of Common Stock of the Corporation, then the vote required shall be the affirmative vote of the holders of at least a majority of the outstanding Common Stock of the Corporation. The term "Continuing Director" shall mean, with respect to a vote of the Board of Directors of the Corporation governed by this Article THIRTEENTH, all members of the Board except any director who (a) while serving as a member of the Board is a Related Person who is a party to or beneficiary of or has proposed the transaction or matter to be voted upon, or any Affiliate or Associate of such a Related Person, or any representative of such persons; or (b) became a member of the Board following the date upon which such a Related Person became a Related Person, unless such director is recommended or elected to succeed a Continuing Director by a majority of the Continuing Directors. 13 The term "Continuing Director Quorum" shall mean a majority of the Continuing Directors capable of exercising the powers conferred upon them under the provisions of the Certificate of Incorporation or the by-laws of the Corporation or by law. The term "Related Person" shall mean any Person who beneficially owns a number of shares of Common Stock of the Corporation, whether or not such number includes shares not then issued, which exceeds a number equal to five percent (5%) of the outstanding shares of Common Stock of the Corporation. The term "Person" shall mean an individual, corporation, partnership, association, joint-stock company, trust, any unincorporated organization, and any other entity or group. The term "Affiliate" shall mean a Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with another Person. The term "Associate" shall mean: (a) any corporation or organization of which a Person is an officer or partner or is, directly or indirectly, the Beneficial Owner of five percent (5%) or more of any class of equity securities; (b) any trust or other estate in which a Person has a five percent (5%) or larger beneficial interest of any nature or as to which a Person serves as trustee or in a similar fiduciary capacity; or (c) the immediate family of a Person, including without limitation, a spouse, parents, children (even if of legal age and living independently), siblings, fathers and mothers-in-law, sons and daughters-in-law, and brothers and sisters-in-law. FOURTEENTH: A. The affirmative vote of the holders of at least eighty percent (80%) of the outstanding shares of Common Stock not beneficially owned by any Related Person who is a party to or beneficiary of or has proposed the transaction or matter to be voted upon, shall be required for the approval of a Business Combination unless: 1. all of the following conditions have been met: (a) the Business Combination will result in an involuntary sale, redemption, cancellation, or other termination of ownership of all shares of Common Stock of the Corporation owned by stockholders who do not vote in favor of the Business Combination; (b) the consideration to be received by such stockholders for such shares shall be in cash or in the same form as the Related Person, Affiliate of a Related Person, or Associate of a Related Person, has previously paid for such shares or if the Related Person, Affiliate of a Related Person, or Associate of a Related Person, has paid for such shares with varying forms of consideration, the form of consideration for such shares shall be either cash or the form used to acquire the largest number of such shares previously acquired by it; 14 (c) the cash or Fair Market Value as of the date of consummation of the Business Combination of consideration other than cash to be received by such stockholders for such shares shall be at least equal to the Minimum Price Per Share; and (d) a proxy or information statement responsive to the requirements of the Securities Exchange Act of 1934 shall be mailed to all stockholders of the Corporation at least 30 days prior to the consummation of such Business Combination for the purpose of soliciting stockholder approval of the Business Combination; or 2. the Continuing Directors of the Corporation shall by a majority vote at a meeting at which a Continuing Director Quorum was present have adopted a resolution approving the Business Combination as being in the best interests of the Corporation. B. Solely for the purposes of this Article, the following definitions shall apply: 1. "Affiliate" shall mean a Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with another Person. 2. "Associate" shall mean: (a) any corporation or organization of which a Person is an officer or partner or is, directly or indirectly, the Beneficial Owner of five percent (5%) or more of any class of equity securities; (b) any trust or other estate in which a Person has a five percent (5%) or larger beneficial interest of any nature or as to which a Person serves as trustee or in a similar fiduciary capacity; or (c) the immediate family of a Person, including without limitation, a spouse, parents, children (even if legal age and living independently), siblings, fathers and mothers-in-law, sons and daughters-in-law, and brothers and sisters-in-law. 3. "Beneficial Ownership" shall include without limitation: (a) all shares directly or indirectly owned by a Person, by an Affiliate of a Person or, by an Associate of a Person, (b) all shares which such Person, Affiliate, or Associate has the right to acquire (i) through the exercise of any option, warrant or right (whether or not currently exercisable), (ii) through the conversion of a security, (iii) pursuant to the power to revoke a trust, discretionary account, or similar arrangement, or (iv) pursuant to the automatic termination of a trust, discretionary account, or similar arrangement; and (c) all shares as to which such Person, Affiliate, or Associate, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise (including without limitation any written or unwritten agreement to act in concert but specifically excluding any participation agreement, arrangement, understanding or relationship between or among any two or more commercial banks made or established in connection with and in furtherance of a bona fide 15 lending arrangement with the Corporation and/or one or more Subsidiaries) has or shares voting power (which includes the power to vote or to direct the voting of such shares) or investment power (which includes the power to dispose or to direct the disposition of such shares) or both. 4. "Business Combination" shall mean: (a) any merger or consolidation of this Corporation with or into a Related Person, Affiliate of a Related Person, or Associate of a Related Person; (b) any sale, lease, exchange, transfer, or other disposition, including without limitation a mortgage or any other security device, of all or any Substantial Part of the assets of the Corporation or a Subsidiary, including without limitation any voting securities of a Subsidiary, to or with a Related Person, Affiliate of a Related Person, or Associate of a Related Person; (c) any merger into or consolidation with the Corporation or a Subsidiary, of a Related Person, an Affiliate of a Related Person, or Associate of a Related Person; (d) any sale, lease, exchange, transfer, or other disposition to the Corporation or a Subsidiary of all or any part of the assets of a Related Person, Affiliate of a Related Person, or Associate of a Related Person; (e) any reclassification of Common Stock of the Corporation or any recapitalization involving Common Stock of the Corporation, consummated within three years after a Related Person becomes a Related Person that would have the effect of increasing the voting power of a Related Person, Affiliate of a Related Person, or Associate of a Related Person; and (f) any agreement, contract, or other arrangement providing for any of the transactions described in this definition of Business Combination, but, notwithstanding anything to the contrary herein, Business Combination shall not include any Section 253 Merger, or any transaction involving a Related Person, Affiliate of a Related Person, or Associate of a Related Person, which is to be consummated or become effective after a Related Person has been a Related Person for at least three years. 5. "Control" shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract, or otherwise. 6. "Minimum Price Per Share" shall mean the sum of (a) the higher of (i) the highest gross per share price paid or agreed to be paid to acquire any shares of Common Stock of the Corporation beneficially owned by a Related Person, provided such payment or agreement to make payment was made within three years immediately prior to the record date set to determine the stockholders entitled to vote on the Business Combination in question, or, in the case of a Section 253 Merger, three years immediately prior to the effective date of such Section 253 Merger, or (ii) the highest per share public market asked price, last, or closing price in the event the shares are not listed on a national securities exchange or the highest per share closing public market price in the event the shares are listed on a national securities exchange for such 16 shares during such three year period, plus (b) the aggregate amount, if any, by which five percent (5%) for each year, beginning on the date on which such Related Person became a Related Person, of such higher per share price exceeds the aggregate amount of all Common Stock dividends per share paid in cash since the date on which such person became a Related Person. The calculation of the Minimum Price Per Share shall require appropriate adjustments for capital changes, including without limitation stock splits, stock dividends, reverse stock splits, and stock distributions. 7. "Person" shall mean an individual, corporation, partnership, association, joint-stock company, trust, any unincorporated organization, and any other entity or group. 8. "Related Person" shall mean any Person who beneficially owns a number of shares of Common Stock of the Corporation, whether or not such number includes shares not then issued, which exceeds a number equal to five percent (5%) of the outstanding shares of Common Stock of the Corporation. 9. "Securities Exchange Act of 1934" shall mean the Securities Exchange Act of 1934, as amended from time to time, as well as any successor or replacement statute. 10. "Subsidiary" shall mean any corporation, forty-nine percent (49%) or more of whose outstanding securities representing the right to vote for the election of directors is beneficially owned by the Corporation and/or one or more Subsidiaries. 11. "Substantial Part" shall mean more than ten percent (10%) of the total assets of the Corporation in question, as shown on its certified balance sheet as of the end of the most recent fiscal year prior to the time the determination is being made. 12. "Section 253 Merger" shall mean any Merger of the Corporation into another corporation which is a Related Person, Affiliate of a Related Person, or Associate of a Related Person, or an Affiliate pursuant to Section 253 of the Delaware General Corporation Laws, as amended from time to time, or any successor or replacement statute, provided that such amended, successor or replacement statute does not give voting rights to the stockholders of the Corporation with respect to the merger. While such voting rights are part of Section 253, a merger under such section shall not be a Section 253 Merger for purposes of this Article FOURTEENTH. 13. "Continuing Director" shall mean, with respect to a vote of the Board of Directors of the Corporation governed by this Article FOURTEENTH, all members of the Board except any director who (a) while serving as a member of the Board is a Related Person who is a party to or 17 beneficiary of or has proposed the transaction or matter to be voted upon, or any Affiliate or Associate of such a Related Person, or any representative of such persons; or (b) became a member of the Board following the date upon which such a Related Person became a Related Person, unless such director is recommended or elected to succeed a Continuing Director by a majority of the Continuing Directors. 14. "Continuing Director Quorum" shall mean a majority of the Continuing Directors capable of exercising the powers conferred upon them under the provisions of the Certificate of Incorporation or the by-laws of the Corporation or by law. 15. "Fair Market Value" shall mean: (a) in the case of stock, the highest per share public market asked price, last, or closing price in the event the shares of stock are not listed on a national securities exchange or the highest per share closing public market price in the event the shares of stock are listed on a national securities exchange during the 30-day period immediately preceding the date in question or if no such quoted prices are available, the fair market value on the date in question of a share of such stock as determined by a majority of the Continuing Directors in good faith at a meeting at which a Continuing Director Quorum was present; and (b) in the case of property other than cash or stock, the fair market value of such property on the date in question as determined by a majority of the Continuing Directors in good faith at a meeting at which a Continuing Director Quorum was present. C. In the event of a Section 253 Merger, a Related Person shall pay or cause to be paid for each share of Common Stock of the Corporation as to which share ownership is being sold, redeemed, canceled, or otherwise terminated by means of the Section 253 Merger, cash or other readily marketable consideration having a fair value at least equal to the Minimum Price Per Share; provided, however, that this requirement shall not apply to any Section 253 Merger involving a Related Person, Affiliate of a Related Person, or Associate of a Related Person, to become effective after such Related Person has been a Related Person for at least three years. D. Nothing contained in this Article FOURTEENTH shall be construed to relieve any Related Person, Affiliate of a Related Person, or Associate of a Related Person, from any fiduciary obligation imposed by law. E. A majority of the Continuing Directors, at a meeting at which a Continuing Director Quorum is present, shall have the power and duty to determine in good faith, on the basis of information known to them after reasonable inquiry, all facts necessary to determine compliance with this paragraph. F. The vote required for any amendment to, or repeal of, all or any portion of this Article FOURTEENTH shall be the affirmative vote of the holders of at least eighty percent (80%) of the outstanding shares of Common Stock of the Corporation not beneficially owned 18 by Related Persons; provided, however, that if the Continuing Directors of the Corporation shall by a majority vote at a meeting at which a Continuing Director Quorum was present have adopted a resolution approving the amendment or repeal proposal and have determined to recommend it for approval by the holders of Common Stock of the Corporation, then the vote required shall be the affirmative vote of the holders of at least a majority of the outstanding shares of Common Stock of the Corporation. 19 IN WITNESS WHEREOF, said Corporation has caused this Restated Certificate of Incorporation to be signed by Mark Van Stekelenburg, its Chairman of the Board and Chief Executive Officer and attested by Robert J. Harter, Jr., Senior Vice President-Administration, General Counsel and Secretary, this 24th day of September, 1996. RYKOFF-SEXTON, INC. By: /s/ Mark Van Stekelenburg ------------------------------ Mark Van Stekelenburg Chairman of the Board and Chief Executive Officer ATTEST: By: /s/ Robert J. Harter, Jr. - ----------------------------- Robert J. Harter, Jr. Senior Vice President Administration General Counsel and Secretary 20 EX-10.11-2 3 EXHIBIT 10.11.2 AMENDMENT TO EMPLOY AGREEMENT EXHIBIT 10.11.2 AMENDMENT TO EMPLOYMENT AGREEMENT June 9, 1997 Mr. Mark Van Stekelenburg RR #3 Box 294-3 Dallas, PA 18612 Dear Mark: This letter, when signed by you, will constitute an amendment to your Employment Agreement with Rykoff-Sexton, Inc. (the "Company"), dated February 2, 1996 (the "Employment Agreement"). The principal purposes of this amendment are (1) to clarify the effect severance payments made to you under your Third Amended and Restated Change in Control Agreement with the Company, dated as of June 10, 1997, as it may be amended and restated from time to time (the "Change in Control Agreement"), will have on termination payments made to you under your Employment Agreement, and (2) to eliminate the 30-day notice period you were required to provide to the Company in the event the Company breaches your Employment Agreement in order to ensure, INTER ALIA, your continued employment with the Company. Accordingly, the phrase appearing in Section 9(f) of your Employment Agreement which reads "in any given year" shall be deleted therefrom. Section 8(a)(i) of your Employment Agreement which reads "the Company has breached any material provision of this Agreement and within 30 days after notice thereof from the Executive, the Company fails to cure such breach;" shall be deleted therefrom and the following shall be inserted in lieu thereof: "the Company has breached any material provision of this Agreement;". Very truly yours, Attest: RYKOFF-SEXTON, INC. By: /s/ Robert J. Harter, Jr. By: /s/ Richard J. Martin -------------------------- --------------------- Robert J. Harter, Jr. Richard J. Martin Senior Vice President Senior Vice President Administration, General Corporate Development Counsel & Secretary Accepted and agreed as of the date first written above: /s/ Mark Van Stekelenburg - ----------------------------- Mark Van Stekelenburg EX-10.15 4 EXHIBIT 10.15 THIRD AMEND & RESTATED CHANGE IN CON EXHIBIT 10.15 THIRD AMENDED AND RESTATED CHANGE IN CONTROL AGREEMENT THIRD AMENDED AND RESTATED CHANGE IN CONTROL AGREEMENT, dated as of the 10th day of June, 1997 (this "Agreement"), between Rykoff-Sexton, Inc., a Delaware corporation (the "Company"), and Mark Van Stekelenburg (the "Executive"). WITNESSETH: WHEREAS, the Board of Directors of the Company (the "Board") recognizes that the Executive's contribution to the growth and success of the Company and its subsidiaries has been and is expected to continue to be substantial; WHEREAS, the Company recognizes that, as is the case for most publicly-held companies, the possibility of a Change in Control (as defined below) exists; WHEREAS, the Company desires to assure itself of both present and future continuity of management and desires to establish certain minimum severance benefits for certain of its senior executives and key employees, including the Executive, applicable in the event of a Change in Control; WHEREAS, the Company wishes to ensure that its senior executives and key employees are not practically disabled from discharging their duties in respect of a proposed or actual transaction involving a Change in Control; WHEREAS, the Board has determined that it is appropriate and in the best interests of the Company and its stockholders to reinforce and encourage the continued attention and dedication of members of the Company's management, including the Executive, to their assigned duties; WHEREAS, the Company and the Executive have entered into the Second Amended and Restated Change in Control Agreement, dated as of February 2, 1996 (as amended by a letter agreement, dated as of May 9, 1997, the "Prior Change in Control Agreement"); and WHEREAS, the Company desires to modify and make certain clarifying changes to the definition of "Change in Control" set forth in the Prior Change in Control Agreement and certain other changes as hereinafter provided. NOW, THEREFORE, in consideration of the mutual covenants and conditions herein contained and in further consideration of services performed and to be performed by the Executive for the Company, the Company and the Executive do hereby amend and restate the Prior Change in Control Agreement in its entirety as follows: 1. CERTAIN DEFINITIONS. For purposes of this Agreement, the following terms have the meanings indicated: (a) CHANGE IN CONTROL. A "Change in Control" of the Company shall occur upon: (i) any person (as defined in Sections 3(a)(9) and 13(d)(3) of the '34 Act) ("Person") (other than an Excluded Person (as hereinafter defined), the Company or any employee benefit plan (or related trust) sponsored or maintained by the Company or any subsidiary of the Company) becoming the "beneficial owner" (as defined in Rule 13d-3 promulgated pursuant to the '34 Act), directly or indirectly, of 25% or more of combined voting power of the then outstanding securities entitled to vote generally in the election of directors ("Voting Securities") of the Company, other than pursuant to a Business Combination (as hereinafter defined) that complies with clauses (I), (II), (III) and (IV) of subsection (iii) of this Section 1(a); or (ii) the occurrence within any twelve-month period during the term of the Agreement of a change in the Board with the result that the Incumbent Members do not constitute a majority of the Board; or (iii) consummation of (A) a reorganization, merger or consolidation of the Company or any subsidiary of the Company, or (B) a sale or other disposition of all or substantially all of the assets of the Company (each, a "Business Combination"), unless, in each case, immediately following such Business Combination, (I) all or substantially all of the individuals and entities who were the beneficial owners of Voting Securities of the Company immediately prior to such Business Combination beneficially own, directly or indirectly, more than two-thirds of the then outstanding shares of common stock and the combined voting power of the then outstanding Voting Securities of the entity resulting from such Business Combination (including, without limitation, an entity which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions relative to each other as their ownership, immediately prior to such Business Combination, of the Voting Securities of the Company, (II) no Person (other than an Excluded Person, the Company, such entity resulting from such Business Combination, or any employee benefit plan (or related 2 trust) sponsored or maintained by the Company, any subsidiary or such entity resulting from such Business Combination), beneficially owns, directly or indirectly, 25% or more of the then outstanding shares of Voting Securities of the entity resulting from such Business Combination, (III) at least a majority of the members of the Board of Directors of the entity resulting from such Business Combination were Incumbent Members of the Board at the time of the execution of the initial agreement and of the action of the Board providing for such Business Combination, and (IV) the Chief Executive Officer of the Company immediately prior to the commencement of discussions (the "Commencement Date") with the third party that results in the Business Combination remains the Chief Executive Officer of the Company and the entity resulting from such Business Combination (unless such Chief Executive Officer ceases to constitute such by reason of death, Disability (as defined in such Chief Executive Officer's Employment Agreement with the Company, as it may be amended and restated from time to time (the "Employment Agreement")), termination for Cause (as defined in the Employment Agreement) or voluntary termination by such Chief Executive Officer under circumstances that are not treated as an involuntary termination under the Employment Agreement) during the period commencing on the Commencement Date and throughout the twelve- month period following the consummation of the Business Combination (any Change in Control that may arise from the failure to satisfy the condition specified in this clause (IV) to be effective as of the date the Chief Executive Officer ceases to constitute such); or (iv) approval by the shareholders of the Company of a complete liquidation or dissolution of the Company, except pursuant to a Business Combination that complies with clauses (I), (II), (III) and (IV) of subsection (iii) of this Section 1(a). "Excluded Person" shall mean (x) Merrill Lynch Capital Partners, Inc., Merrill Lynch Capital Appreciation Partnership No. B-XVIII, L.P., Merrill Lynch Kecalp L.P. 1994, ML Offshore LBO Partnership No. B-XVIII, ML IBK Positions, Inc., MLCP Associates L.P. No. II, MLCP Associates L.P. No. IV, Merrill Lynch Kecalp L.P. 1991, Merrill Lynch Capital Appreciation Partnership No. XIII, L.P., ML Offshore LBO Partnership No. XIII, ML Employees LBO Partnership No. I, L.P., Merrill Lynch Kecalp L.P. 1987, and Merchant Banking L.P. No. II (each, an "ML Entity" and collectively the "ML Entities"), if the ML Entities shall have executed a written agreement with the Company (and approved by the Company's Board of Directors) on or prior to the 3 date on which the ML Entities (together with its Affiliates) became the beneficial owner of 25% or more of the shares of Voting Securities then outstanding (the "Standstill Agreement"), which Standstill Agreement imposes one or more limitations on the amount of the ML Entities' beneficial ownership of shares of Common Stock, and if, and so long as, such Standstill Agreement (or any amendment thereto approved by the Company's Board of Directors by the vote of a majority of the Present Directors) continues to be in effect and binding on the ML Entities and the ML Entities are in compliance (as determined by the Company's Board of Directors in its discretion by the vote of a majority of the Present Directors) with the terms of such Standstill Agreement (including any such amendment); or (y) any other Person acquiring Voting Securities from an ML Entity if (i) such Voting Securities were acquired by an ML Entity pursuant to the transactions contemplated by the Letter of Intent dated December 5, 1995 ("Letter of Intent") from the Company to US Foodservice Inc. ("Excluded Shares") and (ii) if, prior to such acquisition by such other Person, a majority of the Present Directors has expressly determined in good faith that such acquisition is not a "Change in Control" for purposes of this Agreement ("ML Successor"); PROVIDED, HOWEVER, that a Change in Control shall occur if, prior to July 17, 1997, either (A) the Chief Executive Officer of the Company immediately prior to the execution of the Letter of Intent ceases to constitute the Chief Executive Officer of the Company (or any successor to the Company) ("CEO Termination") (unless such Chief Executive Officer ceases to constitute the Chief Executive Officer of the Company by reason of death, Disability (as defined in the Employment Agreement), termination for Cause (as defined in the Employment Agreement) or voluntary termination by such Chief Executive Officer under circumstances that are not treated as an involuntary termination under the Employment Agreement), or (B) the directors of the Company in office immediately prior to the execution of the Letter of Intent, together with any successors of such directors (provided that any such successors qualify as Present Directors), cease to constitute at least a majority of the Board ("Board Change"), such Change in Control to be effective as of the date of the CEO Termination or Board Change, as the case may be. "Present Director" shall mean a member of the Board who (1) is not designated as a member of the Board by any ML Entity or ML Successor, (2) does not otherwise have any agreement, arrangement or understanding with any ML Entity or ML Successor for the purpose of serving as a member of the Board, and 4 (3) is not an Affiliate or an Associate (as hereinafter defined) of any ML Entity or ML Successor. "Affiliate" and "Associate" shall have the meanings set forth in Rule 12b-2 of the '34 Act. The Board shall have the power to determine, for purposes of this Agreement, on the basis of information known to the Board by a vote taken in good faith by a majority of Present Directors, (1) whether any Person is an Excluded Person, (2) the percentage of the Company's Voting Securities beneficially owned by an Excluded Person, and (3) any determination to be made pursuant to clause (x) of the definition of Excluded Person. Any such determination shall be conclusive and binding for all purposes of this Agreement. (b) CODE. "Code" shall mean the Internal Revenue Code of 1986, as amended. (c) DATE OF TERMINATION. "Date of Termination" shall mean the date on which the Executive's employment is terminated by the Company or the Executive. (d) INCUMBENT MEMBERS. "Incumbent Members" shall mean (i) in respect of any twelve-month period the members of the Board on the date immediately preceding the commencement of such twelve-month period, PROVIDED THAT any person becoming a Director during such twelve-month period whose election or nomination for election was supported by a majority of the Directors who, on the date of such election or nomination for election, comprised the Incumbent Members shall be considered one of the Incumbent Members in respect of such twelve-month period, and (ii) in respect of Clause (III) of Section 1(b)(iii), members of the Board on the date hereof, provided that any person (other than an Affiliate, Associate, nominee, representative or employee of any person (other than the Company) that is a party to a Business Combination) becoming a Director and whose election or nomination for election was supported by a majority of the Directors who, on the date of such election or nomination for election, comprised the Incumbent Members shall be considered one of the Incumbent Members. (e) '34 ACT. "'34 Act" shall mean the Securities Exchange Act of 1934, as amended. 2. TERM. This Agreement shall commence on the date first above written and shall continue in effect until December 31, 1999; provided, however, that on December 31, 1997 and on each December 31 (the "anniversary date") thereafter, the term of this Agreement shall automatically be extended for one additional year unless, not later than 90 days prior to such anniversary date, the Company shall have given the Executive written notice that 5 the Company does not wish to extend the term of this Agreement (by way of illustration, on December 31, 1997, assuming no notice to the contrary has been given, the term will automatically be extended to December 31, 2000); and provided further that this Agreement shall continue in effect beyond the term provided herein if such continuation is provided for in a contract of employment between the Company and the Executive, or if a Change of Control shall have occurred during such term or if any obligation of the Company hereunder remains unpaid as of such time. 3. SEVERANCE COMPENSATION UPON A CHANGE IN CONTROL AND TERMINATION OF EMPLOYMENT. If (a) a Change in Control of the Company shall have occurred while the Executive is an employee of the Company, and (b) within two (2) years from the date of such Change in Control (i) the Company shall terminate the Executive's employment for any or no reason (except for the death of the Executive) or (ii) the Executive shall elect to terminate his employment for any or no reason, then (A) the Company shall pay the Executive any earned and accrued but unpaid installment of base salary through the Date of Termination at the rate in effect on the Date of Termination and all other unpaid amounts to which the Executive is entitled as of the Date of Termination under any compensation plan or program of the Company, including, without limitation, all accrued vacation time; all such payments shall be made in a lump sum on or before the fifth day following the Date of Termination; (B) in lieu of any further salary payments to the Executive for periods subsequent to the Date of Termination, the Company shall pay to the Executive an amount equal to the product of (i) the sum of (a) the Executive's annual base salary in effect as of the Date of Termination and (b) the amount that otherwise would be earned under the Senior Management Incentive Plan and any other executive compensation plan in which the Executive is then participating for the year in which such Date of Termination occurs (assuming all such amounts under such plan had been earned) and (ii) the number 2.99; such payment shall be made in a lump sum on or before the fifth calendar day following the Date of Termination; (C) for a period of not less than twenty-four (24) months following the Executive's Date of Termination, the Company will reimburse the Executive for all reasonable expenses incurred by him (but not including any arrangement by which the Executive prepays expenses for a period of greater than thirty (30) days) in seeking employment with another employer including the fees of a reputable outplacement organization; 6 (D) if the payment provided under paragraph (B) above (the "Contract Payment") or any other portion of the Total Payments (as defined below) will be subject to the tax (the "Excise Tax") imposed by Section 4999 of the Code, the Company shall pay the Executive on or before the fifth calendar day following the Date of Termination, an additional amount (the "Gross-Up Payment") such that the net amount retained by the Executive, after deduction of any Excise Tax on the Contract Payment and such other Total Payments and any federal and state and local income tax and Excise Tax upon the payment provided for by this paragraph, shall be equal to the Contract Payment and such other Total Payments. For purposes of determining whether any of the payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) any other payments or benefits received or to be received by the Executive in connection with a Change in Control of the Company or the Executive's termination of employment, whether payable pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, its successors, any person whose actions result in a Change in Control of the Company or any corporation affiliated (or which, as a result of the completion of a transaction causing a Change in Control, will become affiliated) with the Company within the meaning of Section 1504 of the Code (together with the Contract Payment, the "Total Payments") shall be treated as "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of Section 280G(b)(1) shall be treated as subject to the Excise Tax, unless in the opinion of tax counsel selected by the Company's independent auditors and acceptable to the Executive the Total Payments (in whole or in part) do not constitute parachute payments, or such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4) of the Code either in their entirety or in excess of the base amount within the meaning of Section 280G(b)(3) of the Code, or are otherwise not subject to the Excise Tax, (ii) the amount of the Total Payments that shall be treated as subject to the Excise Tax shall be equal to the lesser of (a) the total amount of the Total Payments or (b) the amount of excess parachute payments within the meaning of Section 280G(b)(1) (after applying clause (i), above), and (iii) the value of any non-cash benefits or any deferred payment or benefit shall be determined by the Company's independent auditors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal income taxes at the highest marginal rate of taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of the Executive's residence on the Date of Termination, net 7 of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of the Executive's employment, the Executive shall repay to the Company at the time that the amount of such reduction in Excise Tax is finally determined the portion of the Gross-Up Payment attributable to such reduction (plus the portion of the Gross-Up Payment attributable to the Excise Tax and federal and state and local income tax imposed on the Gross-Up Payment being repaid by the Executive of such repayment results in a reduction in Excise Tax and/or a federal and state and local income tax deduction) plus interest on the amount of such repayment at the rate provided in Section 1274(d) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of the Executive's employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall made an additional gross-up payment in respect of such excess at the time that the amount of such excess is finally determined; and (E) for two (2) years following the Executive's Date of Termination, the Company shall maintain in full force and effect for the continued benefit of the Executive, all employee welfare benefit plans and perquisite programs in which the Executive was entitled to participate immediately prior to the Date of Termination (provided that the Executive's continued participation is possible under the general terms and provisions of such plans and programs). In the event that the Executive's participation in any such plan or program is barred, the Company shall, at its sole cost and expense, arrange to provide the Executive with benefits substantially similar to those which the Executive would otherwise have been entitled to receive under such plans and programs from which his continued participation is barred. Anything in this Agreement to the contrary notwithstanding, if a Change in Control occurs and the Executive's employment with the Company is terminated by the Company or the Executive terminates his employment for any or no reason prior to the date on which the Change in Control occurs, such termination of employment shall be deemed to be a termination of employment after a Change in Control for purposes of this Agreement, including, without limitation, this Section 3, if the Executive shall have reasonably demonstrated that such termination of employment (i) was at the request of a third party who has taken steps reasonably calculated to effect a Change in Control, or (ii) otherwise arose in connection with or in anticipation of a Change in Control. 8 4. NO OBLIGATIONS TO MITIGATE DAMAGES; NO EFFECT ON OTHER CONTRACTUAL RIGHTS. (a) The Executive shall not be required to mitigate damages or the amount of any payment provided for under this Agreement by seeking other employment or otherwise, nor shall the amount of any payment provided for under this Agreement be reduced by any compensation earned by the Executive as the result of employment by another employer after the Date of Termination, or otherwise. (b) The provisions of this Agreement, and any payment provided for hereunder, shall not reduce any amounts otherwise payable, or in any way diminish the Executive's existing rights, or rights which would accrue solely as a result of the passage of time, under any benefit plan, incentive plan or securities plan, employment agreement or other contract, plan or arrangement, except to the extent that such other contract, plan or arrangement expressly provides that amounts paid hereunder shall be offset against the amounts otherwise payable under such contract, plan or arrangement. 5. SUCCESSOR TO THE COMPANY. (a) The Company will require any successor or assign (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance satisfactory to the Executive, expressly, absolutely and unconditionally to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession or assignment had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor or assign to its business and/or assets as aforesaid which executes and delivers the agreement provided for in this Section 5 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. If at any time during the term of the Agreement the Executive is employed by any corporation, a majority of the voting securities of which is then owned by the Company, "Company" as used in this Agreement shall in addition include such employer. In such event, the Company agrees that it shall pay or shall cause such employer to pay any amounts owed to the Executive pursuant to Section 3 hereof. (b) This Agreement shall inure to the benefit of and be enforceable by the Executive's personal and legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amounts are still payable to him hereunder, all such amounts unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Executive's devisee, legatee, or other designee or, if there be no such designee, to the Executive's estate. 6. NOTICE. For purposes of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when 9 delivered or mailed by United States registered mail, return receipt requested, postage prepaid, as follows: If to the Company: Rykoff-Sexton, Inc. 613 Baltimore Drive East Mountain Corporate Center Wilkes-Barre, Pennsylvania 18702-6980 If to the Executive: Mr. Mark Van Stekelenburg RR #3 Box 294-3 Dallas, PA 18612 or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 7. MISCELLANEOUS. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Executive and such officer of the Company as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of any similar or dissimilar provision or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware. 8. VALIDITY. The invalidity or unenforceability of any provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 9. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 10. FEES AND EXPENSES. The Company shall pay all reasonable fees and expenses (including attorneys' fees) that the Executive may incur as a result of the Company's contesting the validity, enforceability or the Executive's interpretation of, or determinations under, this Agreement. 11. CONFIDENTIALITY. The Executive shall retain in confidence any and all confidential information known to the 10 Executive concerning the Company and its business so long as such information is not otherwise publicly disclosed. 12. COMPANY'S RIGHT TO TERMINATE. Notwithstanding anything contained in this Agreement to the contrary, except to the extent that the Executive has a written employment agreement with the Company, or as otherwise provided in the final sentence of Section 3, the Company may terminate the Executive's employment at any time, for any reason or no reason, and no provision contained herein shall affect the Company's ability to terminate the Executive's employment at any time, with or without cause. Except as provided in the final sentence of Section 3, (a) nothing in this Agreement shall in any way require the Company to provide any of the benefits specified in this Agreement prior to a Change in Control, and (b) this Agreement shall not be construed in any way to establish any policies or other benefits for the Executive or any other employee of the Company whose employment with the Company is terminated prior to a Change in Control. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first above written. Attest: RYKOFF-SEXTON, INC. By: /s/ Robert J. Harter, Jr. By: /s/ Richard J. Martin ------------------------- ------------------------- Robert J. Harter, Jr. Richard J. Martin Senior Vice President Senior Vice President Administration, General Corporate Development Counsel & Secretary /s/ Mark Van Stekelenburg ------------------------------- Mark Van Stekelenburg 11 EX-10.16 5 EXHIBIT 10.16 SECOND AMEND & RESTATED CHANGE IN CO EXHIBIT 10.16 FORM OF SECOND AMENDED AND RESTATED CHANGE IN CONTROL AGREEMENT SECOND AMENDED AND RESTATED CHANGE IN CONTROL AGREEMENT dated as of the 10th day of June, 1997, (this "Agreement") between Rykoff-Sexton, Inc., a Delaware corporation (the "Company"), and ________________ (the "Executive"). WITNESSETH: WHEREAS, the Executive is a senior executive or a key employee of the Company or one or more of its subsidiaries and has made and is expected to continue to make major contributions to the short- and long-term profitability, growth and financial strength of the Company; WHEREAS, the Company recognizes that, as is the case for most publicly-held companies, the possibility of a Change in Control (as defined below) exists; WHEREAS, the Company desires to assure itself of both present and future continuity of management and desires to establish certain minimum severance benefits for certain of its senior executives and key employees, including the Executive, applicable in the event of a Change in Control; WHEREAS, the Company wishes to ensure that its senior executives and key employees are not practically disabled from discharging their duties in respect of a proposed or actual transaction involving a Change in Control; WHEREAS, the Board of Directors of the Company (the "Board") has determined that it is appropriate and in the best interests of the Company and its stockholders to reinforce and encourage the continued attention and dedication of members of the Company's management, including the Executive, to their assigned duties; WHEREAS, the Executive is a party to an Amended and Restated Change in Control Agreement with the Company, dated as of February 2, 1996 (as amended by a letter agreement, dated as of May 9, 1997, the "Prior Change in Control Agreement"); and WHEREAS, the Company desires to modify and make certain clarifying changes to the definition of "Change in Control" set forth in the Prior Change in Control Agreement and certain other changes as hereinafter provided. NOW, THEREFORE, in consideration of the mutual covenants and conditions herein contained and in further consideration of services performed and to be performed by the Executive for the Company, the Company and the Executive do hereby amend and restate the Prior Change in Control Agreement in its entirety as follows: 1. CERTAIN DEFINITIONS. For purposes of this Agreement, the following terms have the meanings indicated: (a) CAUSE. Termination for "Cause" shall mean: (i) the willful and continued failure by the Executive to substantially perform his duties hereunder (other than any such failure resulting from the Executive's incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance of a Notice of Termination by the Executive for Good Reason), after demand for substantial performance is delivered by the Company that specifically identifies the manner in which the Company believes the Executive `has not substantially performed his duties, or (ii) the willful engaging by the Executive in misconduct which is materially injurious to the Company, monetarily or otherwise. No act, or failure to act, on the Executive's part shall be considered "willful" unless done, or omitted to be done, by him not in good faith and without reasonable belief that his action or omission was in the best interest of the Company. Notwithstanding the foregoing, the Executive shall not be deemed to have been terminated for Cause without (x) reasonable notice to the Executive setting forth the reasons for the Company's intention to terminate for Cause, (y) an opportunity for the Executive, together with his counsel, to be heard before the Board, and (z) delivery to the Executive of a Notice of Termination from the Board finding that in the good faith opinion of the Board the Executive was guilty of conduct set forth above in clause (i) or (ii) hereof, and specifying the particulars thereof in detail. (b) CHANGE IN CONTROL. A "Change in Control" of the Company shall occur upon: (i) any person (as defined in Sections 3(a)(9) and 13(d)(3) of the '34 Act) ("Person") (other than an Excluded Person (as hereinafter defined), the Company or any employee benefit plan (or related trust) sponsored or maintained by the Company or any subsidiary of the Company) becoming the "beneficial owner" (as defined in Rule 13d-3 promulgated pursuant to the '34 Act), directly or indirectly, of 25% or more of combined voting power of the then outstanding securities entitled to vote generally in the election of directors ("Voting Securities") of the Company, other than pursuant to a Business Combination (as -2- hereinafter defined) that complies with clauses (I), (II), (III) and (IV) of subsection (iii) of this Section 1(b); or (ii) the occurrence within any twelve-month period during the term of the Agreement of a change in the Board with the result that the Incumbent Members do not constitute a majority of the Board; or (iii) consummation of (A) a reorganization, merger or consolidation of the Company or any subsidiary of the Company, or (B) a sale or other disposition of all or substantially all of the assets of the Company (each, a "Business Combination"), unless, in each case, immediately following such Business Combination, (I) all or substantially all of the individuals and entities who were the beneficial owners of Voting Securities of the Company immediately prior to such Business Combination beneficially own, directly or indirectly, more than two-thirds of the then outstanding shares of common stock and the combined voting power of the then outstanding Voting Securities of the entity resulting from such Business Combination (including, without limitation, an entity which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions relative to each other as their ownership, immediately prior to such Business Combination, of the Voting Securities of the Company, (II) no Person (other than an Excluded Person, the Company, such entity resulting from such Business Combination, or any employee benefit plan (or related trust) sponsored or maintained by the Company, any subsidiary or such entity resulting from such Business Combination), beneficially owns, directly or indirectly, 25% or more of the then outstanding shares of Voting Securities of the entity resulting from such Business Combination, (III) at least a majority of the members of the Board of Directors of the entity resulting from such Business Combination were Incumbent Members of the Board at the time of the execution of the initial agreement and of the action of the Board providing for such Business Combination, and (IV) the Chief Executive Officer of the Company immediately prior to the commencement of discussions (the "Commencement Date") with the third party that results in the Business Combination remains the Chief Executive Officer of the Company and the entity resulting from such Business Combination (unless such Chief Executive Officer ceases to constitute such by reason of death, Disability (as defined in such Chief Executive Officer's Employment Agreement with the Company, as it may be amended and restated from time to time (the -3- "Employment Agreement")), termination for Cause (as defined in the Employment Agreement) or voluntary termination by such Chief Executive Officer under circumstances that are not treated as an involuntary termination under the Employment Agreement) during the period commencing on the Commencement Date and throughout the twelve-month period following the consummation of the Business Combination (any Change in Control that may arise from the failure to satisfy the condition specified in this clause (IV) to be effective as of the date the Chief Executive Officer ceases to constitute such); or (iv) approval by the shareholders of the Company of a complete liquidation or dissolution of the Company, except pursuant to a Business Combination that complies with clauses (I), (II), (III) and (IV) of subsection (iii) of this Section 1(b). "Excluded Person" shall mean (x) Merrill Lynch Capital Partners, Inc., Merrill Lynch Capital Appreciation Partnership No. B-XVIII, L.P., Merrill Lynch Kecalp L.P. 1994, ML Offshore LBO Partnership No. B-XVIII, ML IBK Positions, Inc., MLCP Associates L.P. No. II, MLCP Associates L.P. No. IV, Merrill Lynch Kecalp L.P. 1991, Merrill Lynch Capital Appreciation Partnership No. XIII, L.P., ML Offshore LBO Partnership No. XIII, ML Employees LBO Partnership No. I, L.P., Merrill Lynch Kecalp L.P. 1987, and Merchant Banking L.P. No. II (each, an "ML Entity" and collectively the "ML Entities"), if the ML Entities shall have executed a written agreement with the Company (and approved by the Company's Board of Directors) on or prior to the date on which the ML Entities (together with its Affiliates) became the beneficial owner of 25% or more of the shares of Voting Securities then outstanding (the "Standstill Agreement"), which Standstill Agreement imposes one or more limitations on the amount of the ML Entities' beneficial ownership of shares of Common Stock, and if, and so long as, such Standstill Agreement (or any amendment thereto approved by the Company's Board of Directors by the vote of a majority of the Present Directors) continues to be in effect and binding on the ML Entities and the ML Entities are in compliance (as determined by the Company's Board of Directors in its discretion by the vote of a majority of the Present Directors) with the terms of such Standstill Agreement (including any such amendment); or (y) any other Person acquiring Voting Securities from an ML Entity if (i) such Voting Securities were acquired by an ML Entity pursuant to the transactions contemplated by the Letter of Intent dated December 5, 1995 ("Letter of Intent") from the Company to US Foodservice Inc. ("Excluded Shares") and (ii) if, prior to such acquisition by such other Person, a majority of the Present Directors has expressly determined in good faith that such acquisition is not a "Change in -4- Control" for purposes of this Agreement ("ML Successor"); PROVIDED, HOWEVER, that a Change in Control shall occur if, prior to July 17, 1997, either (A) the Chief Executive Officer of the Company immediately prior to the execution of the Letter of Intent ceases to constitute the Chief Executive Officer of the Company (or any successor to the Company) ("CEO Termination") (unless such Chief Executive Officer ceases to constitute the Chief Executive Officer of the Company by reason of death, Disability (as defined in the Employment Agreement), termination for Cause (as defined in the Employment Agreement) or voluntary termination by such Chief Executive Officer under circumstances that are not treated as an involuntary termination under the Employment Agreement), or (B) the directors of the Company in office immediately prior to the execution of the Letter of Intent, together with any successors of such directors (provided that any such successors qualify as Present Directors), cease to constitute at least a majority of the Board ("Board Change"), such Change in Control to be effective as of the date of the CEO Termination or Board Change, as the case may be. "Present Director" shall mean a member of the Board who (1) is not designated as a member of the Board by any ML Entity or ML Successor, (2) does not otherwise have any agreement, arrangement or understanding with any ML Entity or ML Successor for the purpose of serving as a member of the Board, and (3) is not an Affiliate or an Associate (as hereinafter defined) of any ML Entity or ML Successor. "Affiliate" and "Associate" shall have the meanings set forth in Rule 12b-2 of the '34 Act. The Board shall have the power to determine, for purposes of this Agreement, on the basis of information known to the Board by a vote taken in good faith by a majority of Present Directors, (1) whether any Person is an Excluded Person, (2) the percentage of the Company's Voting Securities beneficially owned by an Excluded Person, and (3) any determination to be made pursuant to clause (x) of the definition of Excluded Person. Any such determination shall be conclusive and binding for all purposes of this Agreement. (c) CODE. "Code" shall mean the Internal Revenue Code of 1986, as amended. (d) DATE OF TERMINATION. "Date of Termination" shall mean: (i) if this Agreement is terminated by the Company for Disability, 30 days after Notice of Termination is given to the Executive (provided that the Executive shall not have returned to the -5- performance of the Executive's duties on a full-time basis during such 30-day period); or (ii) if the Executive's employment is terminated by the Company for any other reason, the date on which a Notice of Termination is delivered to the Executive; provided that if within 30 days after any Notice of Termination is delivered to the Executive by the Company the Executive notifies the Company that a dispute exists concerning the termination, the Date of Termination shall be the date the dispute is finally determined, whether by mutual agreement by the parties, by one or more qualified medical doctors in the case of Disability, or upon final judgment, order or decree of a court of competent jurisdiction (the time for appeal therefrom having expired and no appeal having been perfected). (e) DISABILITY. "Disability" shall mean the Executive's incapacity due to physical or mental illness to substantially perform his duties on a full-time basis for six consecutive months and within 30 days after Notice of Termination is thereafter given by the Company the Executive shall not have returned to the full-time performance of the Executive's duties; provided, however, that if Executive shall not agree with a determination to terminate him because of Disability, the question of Executive's ability shall be subject to the certification of a qualified medical doctor agreed to by the Company and the Executive or, in the event of the Executive's incapacity to designate a doctor, the Executive's legal representative. In the absence of agreement between the Company and the Executive, each party shall nominate a qualified medical doctor and the two doctors shall select a third doctor, who shall make the determination as to Disability. (f) GOOD REASON. Termination for "Good Reason" shall mean: (i) the assignment to the Executive by the Company of titles, offices or duties which are not at least commensurate in all material respects with the most significant position, title, office, duties, responsibilities and status with the Company held and exercised by the Executive immediately prior to a Change in Control of the Company, or other action (including removal from office) by the Company which results in a diminution in such position, title, office, duties, responsibilities or status; or (ii) a reduction by the Company in the Executive's base salary as in effect on the date hereof or as the same may be increased from time to time during the term of this Agreement or the Company's failure to increase -6- (within 12 months of the Executive's last increase in base salary) the Executive's base salary after a Change in Control of the Company in the amount which at least equals, on a percentage basis, the average percentage increase in base salary for all officers of the Company effected in the preceding 12 months; or (iii) any failure by the Company to continue in effect any benefit plan or arrangement (including, without limitation, the Company's Profit Sharing Plan, group life insurance plan, and medical, dental, accident and disability plans) in which the Executive is participating at the time of a Change in Control of the Company (or any other plans providing the Executive with substantially similar benefits) (hereinafter referred to as "Benefit Plans"), or the taking of any action by the Company which would adversely affect the Executive's participation in or materially reduce the Executive's benefits under any such Benefit Plan or deprive the Executive of any material fringe benefit enjoyed by the Executive at the time of a Change in Control of the Company; or (iv) any failure by the Company to continue in effect any incentive plan or arrangement (including, without limitation, the Company's Senior Management Incentive Plan, bonus and contingent bonus arrangements and credits and the right to receive performance awards and similar incentive compensation benefits) in which the Executive is participating at the time of a Change in Control of the Company (or any other plans or arrangements providing him with substantially similar benefits) (hereinafter referred to as "Incentive Plans") or the taking of any action by the Company which would adversely affect the Executive's participation in any such Incentive Plan or reduce the Executive's benefits under any such Incentive Plan; or (v) any failure by the Company to continue in effect any plan or arrangement to receive securities of the Company (including, without limitation, the Company's 1980 Stock Option Plan, 1988 Stock Option and Compensation Plan and any other plan or arrangement to receive and exercise stock options, stock appreciation rights, restricted stock or grants thereof) in which the Executive is participating at the time of a Change in Control of the Company (or plans or arrangements providing him with substantially similar benefits) (hereinafter referred to as "Securities Plans") or the taking of any action by the Company which would adversely affect the Executive's participation in or materially reduce the Executive's benefits under any such Securities Plan; or -7- (vi) a relocation subsequent to a Change in Control of the Company's principal executive offices to a location more than 40 miles from the location of such principal executive offices immediately prior to the Change in Control, provided that such relocation shall have no effect under this Agreement unless prior to the Change in Control the Executive performed the Executive's duties at such principal executive offices; or the Executive's relocation to any place other than the location at which the Executive performed the Executive's duties prior to a Change in Control, except for required travel by the Executive on the Company's business to an extent substantially consistent with the Executive's business travel obligations at the time of a Change in Control; or (vii) any failure by the Company to provide the Executive with the number of paid vacation days to which the Executive is entitled at the time of a Change in Control of the Company; or (viii) any material breach by the Company of any provision of this Agreement; or (ix) any failure by the Company to obtain the assumption of this Agreement by any successor or assign of the Company; or (x) any purported termination of the Executive's employment which is not effected pursuant to a Notice of Termination and for purposes of this Agreement, no such purported termination shall be effective. (g) INCUMBENT MEMBERS. "Incumbent Members" shall mean (i) in respect of any twelve-month period, the members of the Board on the date immediately preceding the commencement of such twelve-month period, PROVIDED THAT any person becoming a Director during such twelve-month period whose election or nomination for election was supported by a majority of the Directors who, on the date of such election or nomination for election, comprised the Incumbent Members shall be considered one of the Incumbent Members in respect of such twelve-month period, and (ii) in respect of Clause (III) of Section 1(b)(iii), members of the Board on the date hereof, provided that any person (other than an Affiliate, Associate, nominee, representative or employee of any person (other than the Company) that is a party to a Business Combination) becoming a Director and whose election or nomination for election was supported by a majority of the Directors who, on the date of such election or nomination for election, comprised the Incumbent Members shall be considered one of the Incumbent Members. -8- (h) NOTICE OF TERMINATION. A "Notice of Termination" shall mean a written notice which shall indicate those specific termination provisions in this Agreement relied upon and which sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. Any termination by the Company shall be communicated by a Notice of Termination. (i) '34 ACT. "'34 Act" shall mean the Securities Exchange Act of 1934, as amended. 2. TERM. This Agreement shall commence on the date first above written and shall continue in effect until December 31, 1999; provided, however, that on December 31, 1997 and on each December 31 (the "anniversary date") thereafter, the term of this Agreement shall automatically be extended for one additional year unless, not later than 90 days prior to such anniversary date, the Company shall have given the Executive written notice that the Company does not wish to extend the term of this Agreement (by way of illustration, on December 31, 1997, assuming no notice to the contrary has been given, the term will automatically be extended to December 31, 2000); and provided further that this Agreement shall continue in effect beyond the term provided herein if such continuation is provided for in a contract of employment between the Company and the Executive, or if a Change of Control shall have occurred during such term or if any obligation of the Company hereunder remains unpaid as of such time. 3. SEVERANCE COMPENSATION UPON A CHANGE IN CONTROL AND TERMINATION OF EMPLOYMENT. If (a) a Change in Control of the Company shall have occurred while the Executive is an employee of the Company, and (b) within two (2) years from the date of such Change in Control (i) the Company shall terminate the Executive's employment other than for death, Disability, or Cause (it being understood that a purported termination for Disability or for Cause which is finally determined not to have been proper shall not be a termination for Disability or for Cause), or (ii) the Executive shall terminate his employment for Good Reason, then (A) the Company shall pay the Executive any earned and accrued but unpaid installment of base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given and all other unpaid amounts to which the Executive is entitled as of the Date of Termination under any compensation plan or program of the Company, including, without limitation, all accrued vacation time; such payments to be made in a lump sum on or before the fifth day following the Date of Termination; (B) in lieu of any further salary payments to the Executive for periods subsequent to the Date of Termination, the Company shall pay to the Executive an amount equal to -9- the product of (i) the sum of (a) the Executive's annual base salary in effect as of the Date of Termination and (b) the amount that otherwise would be earned under the Senior Management Incentive Plan and any other executive compensation plan in which the Executive is then participating for the year in which such Date of Termination occurs (assuming all such amounts under such plan had been earned) and (ii) the number 2.99; such payment to be made in a lump sum on or before the fifth calendar day following the Date of Termination; (C) for a period of not less than twenty-four (24) months following the Executive's Date of Termination, the Company will reimburse the Executive for all reasonable expenses incurred by him (but not including any arrangement by which the Executive prepays expenses for a period of greater than thirty (30) days) in seeking employment with another employer including the fees of a reputable outplacement organization; (D) if the payment provided under paragraph (B) above (the "Contract Payment") or any other portion of the Total Payments (as defined below) will be subject to the tax (the "Excise Tax") imposed by Section 4999 of the Code, the Company shall pay the Executive on or before the fifth calendar day following the Date of Termination, an additional amount (the "Gross-Up Payment") such that the net amount retained by the Executive, after deduction of any Excise Tax on the Contract Payment and such other Total Payments and any federal and state and local income tax and Excise Tax upon the payment provided for by this paragraph, shall be equal to the Contract Payment and such other Total Payments. For purposes of determining whether any of the payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) any other payments or benefits received or to be received by the Executive in connection with a Change in Control of the Company or the Executive's termination of employment, whether payable pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, its successors, any person whose actions result in a Change in Control of the Company or any corporation affiliated (or which, as a result of the completion of a transaction causing a Change in Control, will become affiliated) with the Company within the meaning of Section 1504 of the Code (together with the Contract Payment, the "Total Payments") shall be treated as "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of Section 280G(b)(1) shall be treated as subject to the Excise Tax, unless in the opinion of tax counsel selected by the Company's independent auditors and acceptable to the Executive the Total Payments (in whole or in part) do not constitute parachute payments, or such excess parachute payments (in whole or in part) -10- represent reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4) of the Code either in their entirety or in excess of the base amount within the meaning of Section 280G(b)(3) of the Code, or are otherwise not subject to the Excise Tax, (ii) the amount of the Total Payments that shall be treated as subject to the Excise Tax shall be equal to the lesser of (a) the total amount of the Total Payments or (b) the amount of excess parachute payments within the meaning of Section 280G(b)(1) (after applying clause (i), above), and (iii) the value of any non-cash benefits or any deferred payment or benefit shall be determined by the Company's independent auditors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of the Executive's residence on the Date of Termination, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of the Executive's employment, the Executive shall repay to the Company at the time that the amount of such reduction in Excise Tax is finally determined the portion of the Gross-Up Payment attributable to such reduction (plus the portion of the Gross-Up Payment attributable to the Excise Tax and federal and state and local income tax imposed on the Gross-Up Payment being repaid by the Executive if such repayment results in a reduction in Excise Tax and/or a federal and state and local income tax deduction) plus interest on the amount of such repayment at the rate provided in Section 1274(d) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of the Executive's employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional gross-up payment in respect of such excess at the time that the amount of such excess is finally determined; and (E) for two (2) years following the Executive's Date of Termination, the Company shall maintain in full force and effect for the continued benefit of the Executive, all employee welfare benefit plans and perquisite programs in which the Executive was entitled to participate immediately prior to the Date of Termination (provided that the Executive's continued participation is possible under the general terms and provisions of such plans and programs). In the event that the Executive's participation in any such -11- plan or program is barred, the Company shall, at its sole cost and expense, arrange to provide the Executive with benefits substantially similar to those which the Executive would otherwise have been entitled to receive under such plans and programs from which his continued participation is barred. Anything in this Agreement to the contrary notwithstanding, if a Change in Control occurs and the Executive's employment with the Company is terminated by the Company or the Executive terminates his employment for Good Reason prior to the date on which the Change in Control occurs, such termination of employment shall be deemed to be a termination of employment after a Change in Control for purposes of this Agreement, including, without limitation, this Section 3, if the Executive shall have reasonably demonstrated that such termination of employment (i) was at the request of a third party who has taken steps reasonably calculated to effect a Change in Control, or (ii) otherwise arose in connection with or in anticipation of a Change in Control. 4. NO OBLIGATION TO MITIGATE DAMAGES; NO EFFECT ON OTHER CONTRACTUAL RIGHTS. (a) The Executive shall not be required to mitigate damages or the amount of any payment provided for under this Agreement by seeking other employment or otherwise, nor shall the amount of any payment provided for under this Agreement be reduced by any compensation earned by the Executive as the result of employment by another employer after the Date of Termination, or otherwise. (b) The provisions of this Agreement, and any payment provided for hereunder, shall not reduce any amounts otherwise payable, or in any way diminish the Executive's existing rights, or rights which would accrue solely as a result of the passage of time, under any benefit plan, incentive plan or securities plan, employment agreement or other contract, plan or arrangement, except to the extent that such other contract, plan or arrangement expressly provides that amounts paid hereunder shall be offset against the amounts otherwise payable under such contract, plan or arrangement. 5. SUCCESSOR TO THE COMPANY. (a) The Company will require any successor or assign (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance satisfactory to the Executive, expressly, absolutely and unconditionally to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession or assignment had taken place. Any failure of the Company to obtain such agreement prior to the effectiveness of any such succession or assignment shall be a material breach of this Agreement and shall entitle the Executive to terminate the Executive's employment for Good Reason. As used in this Agreement, "Company" -12- shall mean the Company as hereinbefore defined and any successor or assign to its business and/or assets as aforesaid which executes and delivers the agreement provided for in this Section 5 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. If at any time during the term of this Agreement the Executive is employed by any corporation a majority of the voting securities of which is then owned by the Company, "Company" as used in this Agreement shall in addition include such employer. In such event, the Company agrees that it shall pay or shall cause such employer to pay any amounts owed to the Executive pursuant to Section 3 hereof. (b) This Agreement shall inure to the benefit of and be enforceable by the Executive's personal and legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amounts are still payable to him hereunder, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Executive's devisee, legatee, or other designee or, if there be no such designee, to the Executive's estate. 6. NOTICE. For purposes of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, as follows: If to the Company: Rykoff-Sexton, Inc. 613 Baltimore Drive East Mountain Corporate Center Wilkes-Barre, Pennsylvania 18702-6980 Attn: Chairman of the Board and Chief Executive Officer With copy to: Rykoff-Sexton, Inc. 613 Baltimore Drive East Mountain Corporate Center Wilkes-Barre, Pennsylvania 18702-6980 Attn: General Counsel If to the Executive: [Executive's Address] or such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. -13- 7. MISCELLANEOUS. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Executive and such officer of the Company as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed to be a waiver of similar or dissimilar provision or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware. This Agreement shall be interpreted and applied as though entered into immediately prior to the date of the Merger. 8. VALIDITY. The invalidity or unenforceability of any provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 9. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 10. FEES AND EXPENSES. The Company shall pay all reasonable fees and expenses (including attorneys' fees) that the Executive may incur as a result of the Company's contesting the validity, enforceability or the Executive's interpretation of, or determinations under, this Agreement. 11. CONFIDENTIALITY. The Executive shall retain in confidence any and all confidential information known to the Executive concerning the Company and its business so long as such information is not otherwise publicly disclosed. 12. COMPANY'S RIGHT TO TERMINATE. Notwithstanding anything contained in this Agreement to the contrary, except to the extent that the Executive has a written employment agreement with the Company or as otherwise provided in the final sentence of Section 3, the Company may terminate the Executive's employment at any time, for any reason or no reason, and no provision contained herein shall affect the Company's ability to terminate the Executive's employment at any time, with or without Cause. Except as provided in the final sentence of Section 3, (a) nothing in this Agreement shall in any way require the Company to provide any of the benefits specified in this Agreement prior to a Change in Control, and (b) this Agreement shall not be construed in any way to establish any policies or other benefits for the Executive or any other employee of the Company whose employment with the Company is terminated prior to a Change in Control. -14- IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first above written. RYKOFF-SEXTON, INC. By: ----------------------------------- Mark Van Stekelenburg Chief Executive Officer and Chairman of the Board ---------------------------------------- [Executive] -15- EX-10.17 6 EXHIBIT 10.17 CHANGE IN CONTROL AGREEMENT EXHIBIT 10.17 CHANGE IN CONTROL AGREEMENT CHANGE IN CONTROL AGREEMENT dated as of the 10th day of June, 1997, (this "Agreement") between Rykoff-Sexton, Inc., a Delaware corporation (the "Company"), and David McAnally (the "Executive"). WITNESSETH: WHEREAS, the Executive is a senior executive or a key employee of the Company or one or more of its subsidiaries and has made and is expected to continue to make major contributions to the short- and long-term profitability, growth and financial strength of the Company; WHEREAS, the Company recognizes that, as is the case for most publicly-held companies, the possibility of a Change in Control (as defined below) exists; WHEREAS, the Company desires to assure itself of both present and future continuity of management and desires to establish certain minimum severance benefits for certain of its senior executives and key employees, including the Executive, applicable in the event of a Change in Control; WHEREAS, the Company wishes to ensure that its senior executives and key employees are not practically disabled from discharging their duties in respect of a proposed or actual transaction involving a Change in Control; WHEREAS, the Board of Directors of the Company (the "Board") has determined that it is appropriate and in the best interests of the Company and its stockholders to reinforce and encourage the continued attention and dedication of members of the Company's management, including the Executive, to their assigned duties; NOW, THEREFORE, in consideration of the mutual covenants and conditions herein contained and in further consideration of services performed and to be performed by the Executive for the Company, the Company and the Executive do hereby agree as follows: 1. CERTAIN DEFINITIONS. For purposes of this Agreement, the following terms have the meanings indicated: (a) CAUSE. Termination for "Cause" shall mean: (i) the willful and continued failure by the Executive to substantially perform his duties hereunder (other than any such failure resulting from the Executive's incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance of a Notice of Termination by the Executive for Good Reason), after demand for substantial performance is delivered by the Company that specifically identifies the manner in which the Company believes the Executive has not substantially performed his duties, or (ii) the willful engaging by the Executive in misconduct which is materially injurious to the Company, monetarily or otherwise. No act, or failure to act, on the Executive's part shall be considered "willful" unless done, or omitted to be done, by him not in good faith and without reasonable belief that his action or omission was in the best interest of the Company. Notwithstanding the foregoing, the Executive shall not be deemed to have been terminated for Cause without (x) reasonable notice to the Executive setting forth the reasons for the Company's intention to terminate for Cause, (y) an opportunity for the Executive, together with his counsel, to be heard before the Board, and (z) delivery to the Executive of a Notice of Termination from the Board finding that in the good faith opinion of the Board the Executive was guilty of conduct set forth above in clause (i) or (ii) hereof, and specifying the particulars thereof in detail. (b) CHANGE IN CONTROL. A "Change in Control" of the Company shall occur upon: (i) any person (as defined in Sections 3(a)(9) and 13(d)(3) of the '34 Act) ("Person") (other than an Excluded Person (as hereinafter defined), the Company or any employee benefit plan (or related trust) sponsored or maintained by the Company or any subsidiary of the Company) becoming the "beneficial owner" (as defined in Rule 13d-3 promulgated pursuant to the '34 Act), directly or indirectly, of 25% or more of combined voting power of the then outstanding securities entitled to vote generally in the election of directors ("Voting Securities") of the Company, other than pursuant to a Business Combination (as hereinafter defined) that complies with clauses (I), (II), (III) and (IV) of subsection (iii) of this Section 1(b); or (ii) the occurrence within any twelve-month period during the term of the Agreement of a change in the Board with the result that the Incumbent Members do not constitute a majority of the Board; or (iii) consummation of (A) a reorganization, merger or consolidation of the Company or any subsidiary of the Company, or (B) a sale or other disposition of all or substantially all of the assets -2- of the Company (each, a "Business Combination"), unless, in each case, immediately following such Business Combination, (I) all or substantially all of the individuals and entities who were the beneficial owners of Voting Securities of the Company immediately prior to such Business Combination beneficially own, directly or indirectly, more than two-thirds of the then outstanding shares of common stock and the combined voting power of the then outstanding Voting Securities of the entity resulting from such Business Combination (including, without limitation, an entity which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions relative to each other as their ownership, immediately prior to such Business Combination, of the Voting Securities of the Company, (II) no Person (other than an Excluded Person, the Company, such entity resulting from such Business Combination, or any employee benefit plan (or related trust) sponsored or maintained by the Company, any subsidiary or such entity resulting from such Business Combination), beneficially owns, directly or indirectly, 25% or more of the then outstanding shares of Voting Securities of the entity resulting from such Business Combination, (III) at least a majority of the members of the Board of Directors of the entity resulting from such Business Combination were Incumbent Members of the Board at the time of the execution of the initial agreement and of the action of the Board providing for such Business Combination, and (IV) the Chief Executive Officer of the Company immediately prior to the commencement of discussions (the "Commencement Date") with the third party that results in the Business Combination remains the Chief Executive Officer of the Company and the entity resulting from such Business Combination (unless such Chief Executive Officer ceases to constitute such by reason of death, Disability (as defined in such Chief Executive Officer's Employment Agreement with the Company, as it may be amended and restated from time to time (the "Employment Agreement")), termination for Cause (as defined in the Employment Agreement) or voluntary termination by such Chief Executive Officer under circumstances that are not treated as an involuntary termination under the Employment Agreement) during the period commencing on the Commencement Date and throughout the twelve- month period following the consummation of the Business Combination (any Change in Control that may arise from the failure to satisfy the condition specified in this clause (IV) to be effective as of the date the Chief Executive Officer ceases to constitute such); or -3- (iv) approval by the shareholders of the Company of a complete liquidation or dissolution of the Company, except pursuant to a Business Combination that complies with clauses (I), (II), (III) and (IV) of subsection (iii) of this Section 1(b). "Excluded Person" shall mean (x) Merrill Lynch Capital Partners, Inc., Merrill Lynch Capital Appreciation Partnership No. B-XVIII, L.P., Merrill Lynch Kecalp L.P. 1994, ML Offshore LBO Partnership No. B-XVIII, ML IBK Positions, Inc., MLCP Associates L.P. No. II, MLCP Associates L.P. No. IV, Merrill Lynch Kecalp L.P. 1991, Merrill Lynch Capital Appreciation Partnership No. XIII, L.P., ML Offshore LBO Partnership No. XIII, ML Employees LBO Partnership No. I, L.P., Merrill Lynch Kecalp L.P. 1987, and Merchant Banking L.P. No. II (each, an "ML Entity" and collectively the "ML Entities"), if the ML Entities shall have executed a written agreement with the Company (and approved by the Company's Board of Directors) on or prior to the date on which the ML Entities (together with its Affiliates) became the beneficial owner of 25% or more of the shares of Voting Securities then outstanding (the "Standstill Agreement"), which Standstill Agreement imposes one or more limitations on the amount of the ML Entities' beneficial ownership of shares of Common Stock, and if, and so long as, such Standstill Agreement (or any amendment thereto approved by the Company's Board of Directors by the vote of a majority of the Present Directors) continues to be in effect and binding on the ML Entities and the ML Entities are in compliance (as determined by the Company's Board of Directors in its discretion by the vote of a majority of the Present Directors) with the terms of such Standstill Agreement (including any such amendment); or (y) any other Person acquiring Voting Securities from an ML Entity if (i) such Voting Securities were acquired by an ML Entity pursuant to the transactions contemplated by the Letter of Intent dated December 5, 1995 ("Letter of Intent") from the Company to US Foodservice Inc. ("Excluded Shares") and (ii) if, prior to such acquisition by such other Person, a majority of the Present Directors has expressly determined in good faith that such acquisition is not a "Change in Control" for purposes of this Agreement ("ML Successor"). "Present Director" shall mean a member of the Board who (1) is not designated as a member of the Board by any ML Entity or ML Successor, (2) does not otherwise have any agreement, arrangement or understanding with any ML Entity or ML Successor for the purpose of serving as a member of the Board, and (3) is not an Affiliate or an Associate (as hereinafter defined) of any ML Entity or ML Successor. "Affiliate" and "Associate" shall have the meanings set forth in Rule 12b-2 of the '34 Act. -4- The Board shall have the power to determine, for purposes of this Agreement, on the basis of information known to the Board by a vote taken in good faith by a majority of Present Directors, (1) whether any Person is an Excluded Person, (2) the percentage of the Company's Voting Securities beneficially owned by an Excluded Person, and (3) any determination to be made pursuant to clause (x) of the definition of Excluded Person. Any such determination shall be conclusive and binding for all purposes of this Agreement. (c) CODE. "Code" shall mean the Internal Revenue Code of 1986, as amended. (d) DATE OF TERMINATION. "Date of Termination" shall mean: (i) if this Agreement is terminated by the Company for Disability, 30 days after Notice of Termination is given to the Executive (provided that the Executive shall not have returned to the performance of the Executive's duties on a full-time basis during such 30-day period); or (ii) if the Executive's employment is terminated by the Company for any other reason, the date on which a Notice of Termination is delivered to the Executive; provided that if within 30 days after any Notice of Termination is delivered to the Executive by the Company the Executive notifies the Company that a dispute exists concerning the termination, the Date of Termination shall be the date the dispute is finally determined, whether by mutual agreement by the parties, by one or more qualified medical doctors in the case of Disability, or upon final judgment, order or decree of a court of competent jurisdiction (the time for appeal therefrom having expired and no appeal having been perfected). (e) DISABILITY. "Disability" shall mean the Executive's incapacity due to physical or mental illness to substantially perform his duties on a full-time basis for six consecutive months and within 30 days after Notice of Termination is thereafter given by the Company the Executive shall not have returned to the full-time performance of the Executive's duties; provided, however, that if Executive shall not agree with a determination to terminate him because of Disability, the question of Executive's ability shall be subject to the certification of a qualified medical doctor agreed to by the Company and the Executive or, in the event of the Executive's incapacity to designate a doctor, the Executive's legal representative. In the absence of agreement between the Company and the Executive, each party shall nominate a qualified medical doctor and the two -5- doctors shall select a third doctor, who shall make the determination as to Disability. (f) GOOD REASON. Termination for "Good Reason" shall mean: (i) the assignment to the Executive by the Company of titles, offices or duties which are not at least commensurate in all material respects with the most significant position, title, office, duties, responsibilities and status with the Company held and exercised by the Executive immediately prior to a Change in Control of the Company, or other action (including removal from office) by the Company which results in a diminution in such position, title, office, duties, responsibilities or status; or (ii) a reduction by the Company in the Executive's base salary as in effect on the date hereof or as the same may be increased from time to time during the term of this Agreement or the Company's failure to increase (within 12 months of the Executive's last increase in base salary) the Executive's base salary after a Change in Control of the Company in the amount which at least equals, on a percentage basis, the average percentage increase in base salary for all officers of the Company effected in the preceding 12 months; or (iii) any failure by the Company to continue in effect any benefit plan or arrangement (including, without limitation, the Company's Profit Sharing Plan, group life insurance plan, and medical, dental, accident and disability plans) in which the Executive is participating at the time of a Change in Control of the Company (or any other plans providing the Executive with substantially similar benefits) (hereinafter referred to as "Benefit Plans"), or the taking of any action by the Company which would adversely affect the Executive's participation in or materially reduce the Executive's benefits under any such Benefit Plan or deprive the Executive of any material fringe benefit enjoyed by the Executive at the time of a Change in Control of the Company; or (iv) any failure by the Company to continue in effect any incentive plan or arrangement (including, without limitation, the Company's Senior Management Incentive Plan, bonus and contingent bonus arrangements and credits and the right to receive performance awards and similar incentive compensation benefits) in which the Executive is participating at the time of a Change in Control of the Company (or any other plans or arrangements providing him with substantially similar benefits) (hereinafter referred to as "Incentive -6- Plans") or the taking of any action by the Company which would adversely affect the Executive's participation in any such Incentive Plan or reduce the Executive's benefits under any such Incentive Plan; or (v) any failure by the Company to continue in effect any plan or arrangement to receive securities of the Company (including, without limitation, the Company's 1980 Stock Option Plan, 1988 Stock Option and Compensation Plan and any other plan or arrangement to receive and exercise stock options, stock appreciation rights, restricted stock or grants thereof) in which the Executive is participating at the time of a Change in Control of the Company (or plans or arrangements providing him with substantially similar benefits) (hereinafter referred to as "Securities Plans") or the taking of any action by the Company which would adversely affect the Executive's participation in or materially reduce the Executive's benefits under any such Securities Plan; or (vi) a relocation subsequent to a Change in Control of the Company's principal executive offices to a location more than 40 miles from the location of such principal executive offices immediately prior to the Change in Control, provided that such relocation shall have no effect under this Agreement unless prior to the Change in Control the Executive performed the Executive's duties at such principal executive offices; or the Executive's relocation to any place other than the location at which the Executive performed the Executive's duties prior to a Change in Control, except for required travel by the Executive on the Company's business to an extent substantially consistent with the Executive's business travel obligations at the time of a Change in Control; or (vii) any failure by the Company to provide the Executive with the number of paid vacation days to which the Executive is entitled at the time of a Change in Control of the Company; or (viii) any material breach by the Company of any provision of this Agreement; or (ix) any failure by the Company to obtain the assumption of this Agreement by any successor or assign of the Company; or (x) any purported termination of the Executive's employment which is not effected pursuant to a Notice of Termination and for purposes of this Agreement, no such purported termination shall be effective. -7- (g) INCUMBENT MEMBERS. "Incumbent Members" shall mean (i) in respect of any twelve-month period, the members of the Board on the date immediately preceding the commencement of such twelve-month period, PROVIDED THAT any person becoming a Director during such twelve-month period whose election or nomination for election was supported by a majority of the Directors who, on the date of such election or nomination for election, comprised the Incumbent Members shall be considered one of the Incumbent Members in respect of such twelve-month period, and (ii) in respect of Clause (III) of Section 1(b)(iii), members of the Board on the date hereof, provided that any person (other than an Affiliate, Associate, nominee, representative or employee of any person (other than the Company) that is a party to a Business Combination) becoming a Director and whose election or nomination for election was supported by a majority of the Directors who, on the date of such election or nomination for election, comprised the Incumbent Members shall be considered one of the Incumbent Members. (h) NOTICE OF TERMINATION. A "Notice of Termination" shall mean a written notice which shall indicate those specific termination provisions in this Agreement relied upon and which sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. Any termination by the Company shall be communicated by a Notice of Termination. (i) '34 ACT. "'34 Act" shall mean the Securities Exchange Act of 1934, as amended. 2. TERM. This Agreement shall commence on the date first above written and shall continue in effect until December 31, 1999; provided, however, that on December 31, 1997 and on each December 31 (the "anniversary date") thereafter, the term of this Agreement shall automatically be extended for one additional year unless, not later than 90 days prior to such anniversary date, the Company shall have given the Executive written notice that the Company does not wish to extend the term of this Agreement (by way of illustration, on December 31, 1997, assuming no notice to the contrary has been given, the term will automatically be extended to December 31, 2000); and provided further that this Agreement shall continue in effect beyond the term provided herein if such continuation is provided for in a contract of employment between the Company and the Executive, or if a Change of Control shall have occurred during such term or if any obligation of the Company hereunder remains unpaid as of such time. 3. SEVERANCE COMPENSATION UPON A CHANGE IN CONTROL AND TERMINATION OF EMPLOYMENT. If (a) a Change in Control of the Company shall have occurred while the Executive is an employee of the Company, and (b) within two (2) years from the date of such -8- Change in Control (i) the Company shall terminate the Executive's employment other than for death, Disability, or Cause (it being understood that a purported termination for Disability or for Cause which is finally determined not to have been proper shall not be a termination for Disability or for Cause), or (ii) the Executive shall terminate his employment for Good Reason, then (A) the Company shall pay the Executive any earned and accrued but unpaid installment of base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given and all other unpaid amounts to which the Executive is entitled as of the Date of Termination under any compensation plan or program of the Company, including, without limitation, all accrued vacation time; such payments to be made in a lump sum on or before the fifth day following the Date of Termination; (B) in lieu of any further salary payments to the Executive for periods subsequent to the Date of Termination, the Company shall pay to the Executive an amount equal to the product of (i) the sum of (a) the Executive's annual base salary in effect as of the Date of Termination and (b) the amount that otherwise would be earned under the Senior Management Incentive Plan and any other executive compensation plan in which the Executive is then participating for the year in which such Date of Termination occurs (assuming all such amounts under such plan had been earned) and (ii) the number 2.99; such payment to be made in a lump sum on or before the fifth calendar day following the Date of Termination; (C) for a period of not less than twenty-four (24) months following the Executive's Date of Termination, the Company will reimburse the Executive for all reasonable expenses incurred by him (but not including any arrangement by which the Executive prepays expenses for a period of greater than thirty (30) days) in seeking employment with another employer including the fees of a reputable outplacement organization; and (D) for two (2) years following the Executive's Date of Termination, the Company shall maintain in full force and effect for the continued benefit of the Executive, all employee welfare benefit plans and perquisite programs in which the Executive was entitled to participate immediately prior to the Date of Termination (provided that the Executive's continued participation is possible under the general terms and provisions of such plans and programs). In the event that the Executive's participation in any such plan or program is barred, the Company shall, at its sole cost and expense, arrange to provide the Executive with benefits substantially similar to those which the Executive would otherwise have been entitled to receive under such -9- plans and programs from which his continued participation is barred. Anything in this Agreement to the contrary notwithstanding, if a Change in Control occurs and the Executive's employment with the Company is terminated by the Company or the Executive terminates his employment for Good Reason prior to the date on which the Change in Control occurs, such termination of employment shall be deemed to be a termination of employment after a Change in Control for purposes of this Agreement, including, without limitation, this Section 3, if the Executive shall have reasonably demonstrated that such termination of employment (i) was at the request of a third party who has taken steps reasonably calculated to effect a Change in Control, or (ii) otherwise arose in connection with or in anticipation of a Change in Control. 4. NO OBLIGATION TO MITIGATE DAMAGES; EFFECT ON OTHER CONTRACTUAL RIGHTS. (a) The Executive shall not be required to mitigate damages or the amount of any payment provided for under this Agreement by seeking other employment or otherwise, nor shall the amount of any payment provided for under this Agreement be reduced by any compensation earned by the Executive as the result of employment by another employer after the Date of Termination, or otherwise. (b) The provisions of this Agreement, and any payment provided for hereunder, shall not reduce any amounts otherwise payable, or in any way diminish the Executive's existing rights, or rights which would accrue solely as a result of the passage of time, under any benefit plan, incentive plan or securities plan, employment agreement or other contract, plan or arrangement, except to the extent that such other contract, plan or arrangement expressly provides that amounts paid hereunder shall be offset against the amounts otherwise payable under such contract, plan or arrangement; PROVIDED, HOWEVER, that if Executive becomes entitled to receive severance payments hereunder and termination payments under Executive's Employment Agreement dated May 17, 1996 with the Company ("Executive's Employment Agreement"), then Executive's termination payments under Executive's Employment Agreement shall be reduced by the amount of severance payments payable under Section 3(B) of this Agreement, but in no event shall such termination payments be reduced to an amount less than zero. 5. SUCCESSOR TO THE COMPANY. (a) The Company will require any successor or assign (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance satisfactory to the Executive, expressly, absolutely and unconditionally to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession or assignment had taken place. Any failure of the Company to obtain -10- such agreement prior to the effectiveness of any such succession or assignment shall be a material breach of this Agreement and shall entitle the Executive to terminate the Executive's employment for Good Reason. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor or assign to its business and/or assets as aforesaid which executes and delivers the agreement provided for in this Section 5 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. If at any time during the term of this Agreement the Executive is employed by any corporation a majority of the voting securities of which is then owned by the Company, "Company" as used in this Agreement shall in addition include such employer. In such event, the Company agrees that it shall pay or shall cause such employer to pay any amounts owed to the Executive pursuant to Section 3 hereof. (b) This Agreement shall inure to the benefit of and be enforceable by the Executive's personal and legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amounts are still payable to him hereunder, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Executive's devisee, legatee, or other designee or, if there be no such designee, to the Executive's estate. 6. NOTICE. For purposes of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, as follows: If to the Company: Rykoff-Sexton, Inc. 613 Baltimore Drive East Mountain Corporate Center Wilkes-Barre, Pennsylvania 18702-6980 Attn: Chairman of the Board and Chief Executive Officer With copy to: Rykoff-Sexton, Inc. 613 Baltimore Drive East Mountain Corporate Center Wilkes-Barre, Pennsylvania 18702-6980 Attn: General Counsel -11- If to the Executive: Mr. David McAnally 111 Whitetail Dr. Mountaintop, PA 18707 or such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 7. MISCELLANEOUS. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Executive and such officer of the Company as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed to be a waiver of similar or dissimilar provision or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware. 8. VALIDITY. The invalidity or unenforceability of any provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 9. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 10. FEES AND EXPENSES. The Company shall pay all reasonable fees and expenses (including attorneys' fees) that the Executive may incur as a result of the Company's contesting the validity, enforceability or the Executive's interpretation of, or determinations under, this Agreement. 11. CONFIDENTIALITY. The Executive shall retain in confidence any and all confidential information known to the Executive concerning the Company and its business so long as such information is not otherwise publicly disclosed. 12. COMPANY'S RIGHT TO TERMINATE. Notwithstanding anything contained in this Agreement to the contrary, except to the extent that the Executive has a written employment agreement with the Company or as otherwise provided in the final sentence of Section 3, the Company may terminate the -12- Executive's employment at any time, for any reason or no reason, and no provision contained herein shall affect the Company's ability to terminate the Executive's employment at any time, with or without Cause. Except as provided in the final sentence of Section 3, (a) nothing in this Agreement shall in any way require the Company to provide any of the benefits specified in this Agreement prior to a Change in Control, and (b) this Agreement shall not be construed in any way to establish any policies or other benefits for the Executive or any other employee of the Company whose employment with the Company is terminated prior to a Change in Control. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first above written. RYKOFF-SEXTON, INC. By: /s/ Mark Van Stekelenburg ----------------------------------- Mark Van Stekelenburg Chief Executive Officer and Chairman of the Board /s/ David McAnally ----------------------------------- David McAnally -13- EX-10.21 7 EXHIBIT 10.21 RELEASE AND SETTLEMENT AGREEMENT EXHIBIT 10.21 RELEASE AND SETTLEMENT AGREEMENT THIS RELEASE AND SETTLEMENT AGREEMENT ("Agreement") is made and entered into this 18th day of July, 1997 by and between Rykoff-Sexton, Inc. (hereinafter "the Company") and Frank H. Bevevino (hereinafter "Mr. Bevevino"). WITNESSETH: WHEREAS, the Company and Mr. Bevevino entered into a certain Employment Agreement dated as of May 17, 1996 ("Employment Agreement"); and WHEREAS, the Company and Mr. Bevevino entered into a certain Change In Control Agreement dated as of June 10, 1997 ("Change In Control Agreement"); and WHEREAS, Mr. Bevevino has tendered his resignation as President of the Company; and WHEREAS, the Company and Mr. Bevevino have agreed to resolve all matters between them, except as otherwise expressly set forth herein; and WHEREAS, the Company and Mr. Bevevino wish to enter into an agreement that is binding on each of them; and WHEREAS, Mr. Bevevino understands and agrees that the Company's willingness to enter into this Agreement is conditioned on Mr. Bevevino's agreement to be bound by various provisions, including, but not limited to, non-competition, non-solicitation, non-disparagement and release provisions; and WHEREAS, the parties intend and agree that various provisions, including but not limited to, non-competition, non-solicitation, non-disparagement and release provisions, inure to the benefit of and may be enforced by the Company's successors and assigns; and WHEREAS, the Company has accepted Mr. Bevevino's resignation; NOW, THEREFORE, in consideration of the mutual covenants and promises of the parties to this Agreement, including but not limited to the Company's agreement to pay Mr. Bevevino, subsequent to his resignation, the payments described in this Agreement, the Company and Mr. Bevevino agree as follows: 1 RESIGNATIONS. Mr. Bevevino hereby submits and the Company hereby accepts his irrevocable written resignation as President, as an employee of the Company, and as a director and officer of the Company's subsidiaries and affiliates (except that Mr. Bevevino has not resigned as a member of the Board of Directors of the Company), effective as of July 22, 1997 (hereinafter the "Termination Date"). From and after the Termination Date, Mr. Bevevino shall no longer be an elected officer of the Company or an officer or director of any of its subsidiaries or affiliates and, except for the purposes of the indemnification set forth in Section 13 of this Agreement, shall not for any purpose be considered to be or treated as an elected officer of the Company or an officer or director of any of its subsidiaries or affiliates. For purposes of the exercise by Mr. Bevevino of stock options under the Company's stock option plans, Mr. Bevevino's employment with the Company shall be deemed to have been terminated without cause (as defined in the applicable plan). 2 SEVERANCE PAYMENTS. (a) The Company and Mr. Bevevino agree that he shall receive the following in connection with his termination: (i) Severance payments in the amount of $600,000 per year, less applicable withholding, payable in accordance with the Company's regular payroll schedule, for a period beginning on the Termination Date and ending on May 17, 2001. In the event of Mr. Bevevino's death prior to May 17, 2001, the remaining payments shall be paid to Mr. Bevevino's designated beneficiary or, if none, then to his estate; (ii) Continuation, until May 17, 2001, of (A) benefits from all employee welfare benefit plans in which Mr. Bevevino was entitled to participate immediately prior to the Termination Date, as such plans may be amended and replaced from time to time, (B) his car allowance in the current amount and membership in the Fox Hill Country Club and the Westmoreland County Club, and (C) after May 17, 2001 Mr. Bevevino may elect to continue health coverage at his cost and to the extent available under the Consolidated Omnibus Reconciliation Act of 1985 ("COBRA"); (iii) As of the Termination Date, all of Mr. Bevevino's outstanding stock options as set forth in Exhibit A shall become immediately exercisable and shall be honored by the Company in accordance with their respective terms and Mr. Bevevino's converted bonus shares and premium shares listed on Exhibit A shall vest; (iv) Extension by the Company by one year of the maturity date on that certain Tax Note with a current balance of approximately $275,000; (v) The forgiveness by the Company of the Tax Note together with accrued interest thereon one year from the date hereof, provided that Mr. Bevevino has fulfilled his obligations pursuant to Section 6 below; (vi) The Company's agreement to execute employment agreements in the form attached hereto as Exhibit B, with John Bevevino, Thomas Bevevino and Michael Cramton which provide for continued base salary and benefits for a period of one year upon a non-cause/good reason termination of their employment; 2 (vii) The Company's agreement to make charitable contributions, in cash or in kind, directly to the Luzerne Foundation for administrative support at an annual rate of at least $100,000 in value in 1997, 1998, 1999, 2000 and 2001, which agreement shall be evidenced by the Company's delivery of a letter to the Luzerne Foundation which in substance provides for the benefits set forth in Exhibit C; (viii) Mr. Bevevino shall be entitled to continue to use an aircraft owned by the Company for twenty hours per year, until May 17, 2001, to the extent that the Company continues to own and operate an aircraft provided, however, that the Company reserves the right to provide Mr. Bevevino with the economic equivalent of use of the aircraft instead of use of the aircraft. For purposes of this Section 2(a)(vii), "economic equivalent" shall mean the cost to the Company of operating its own aircraft; (ix) Access to the secretarial services of Ms. Peggy Hamilton for a period of ninety days after execution of this Agreement; and (x) Payment of Mr. Bevevino's Fourth Quarter Bonus for the time period ending on June 27, 1997. (b) With respect to the payments and benefits described in (i) through (x) above, Mr. Bevevino acknowledges that to the extent any of those benefits constitute income, they shall be treated as such by the Company through issuance of appropriate notices, including Forms 1099, and Mr. Bevevino agrees that he shall be solely responsible for any tax liability that is imposed in connection with these payments and benefits. The parties agree that the payments and benefits described in (i) through (x) above are not subject to any special excise tax, and the Company agrees that it is its current understanding and intent that the charitable contributions described in (vii) above are not taxable income to Mr. Bevevino, and intends to file all related documents consistent with those positions, provided, however, that the Company, its successors and assigns, shall not have liability to or be required to indemnify Mr. Bevevino under any circumstances for any special excise tax or other withholding obligations. If the Company, or its successors or assigns, later determines that the payments described in (vii) above constitute taxable income to Mr. Bevevino, the Company will notify Mr. Bevevino of such determination, and upon Mr. Bevevino's written request, discontinue such payments. (c) From and after the Termination Date, Mr. Bevevino shall have no obligation to mitigate damages, to seek or obtain other employment, or to provide services on a self-employed basis, nor shall the amounts payable to Mr. Bevevino under this Agreement be reduced by any amounts earned by Mr. Bevevino; provided, however, that Mr. Bevevino's coverage under the Company's welfare benefit plans will terminate when Mr. Bevevino becomes eligible to be covered under any employee benefit plan made available by another employer and covering the same type of benefits (without exclusion for pre-existing conditions). Mr. Bevevino shall notify the Company within thirty (30) days after the commencement of any such benefits. 3 3 RELEASE. (a) As a condition to the Company's performance of this Agreement, except as provided in subsection (c) of this Section 3, Mr. Bevevino, on behalf of himself, and his heirs, executors, administrators, successors, agents and assigns, hereby (i) acknowledges that the payments and continuing benefits set forth in Section 2(a) constitute valid consideration for this Agreement, satisfy in full any and all of Mr. Bevevino's rights with respect to the Employment Agreement, the Change In Control Agreement, the Performance Share Plan Agreement under the Company's Long Term Performance Compensation Program (Amended and Restated as of June 24, 1996), the Performance Share Award Agreement, all other agreements between Mr. Bevevino and the Company, made on or prior to the Termination Date, Mr. Bevevino's employment with the Company, its successors and assigns, accrued through the Termination Date, the termination of such employment, and the discharge in full of all of the obligations of the Company, its successors and assigns, to Mr. Bevevino including, without limitation, salary or vested or accrued vacation pay, bonuses, benefits, perquisites and any amounts payable under any other plan, policy or agreement entered into, provided by or relating to the Company, its successors and assigns; and (ii) fully releases and forever discharges the Company, JP Foodservice, Inc. and their respective past, present and future affiliates, divisions, subsidiaries, facilities, parents, predecessors, successors and assigns, and each of their officers, directors, managers, shareholders, agents, representatives, attorneys and employees, (hereinafter collectively referred to as the "Released Parties"), from any claims, demands, liabilities, obligations, charges, damages and causes of action, known or unknown, fixed or contingent, suspected or unsuspected, which occurred or arose or which relate to, are in connection with, or are in consequence of, any act, failure to act, decision, matter, event, occurrence, or thing whatsoever arising from the beginning of time up to and including the Effective Date set forth in Section 9 with respect to Mr. Bevevino's position as an employee, stockholder, officer, director, member of the Board of Directors of the Company, and every other capacity of Mr. Bevevino whatsoever, or with respect to his employment or termination of employment with the Company, its successors and assigns, or any policy, practice, plan or program of the Company, its successors or assigns, or which may be based upon, related to, or connected therewith, including, but not limited to, any claim or action under any of the following (as amended): Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1866, the National Labor Relations Act, the Fair Labor Standards Act, the Employee Retirement Income Security Act, the Labor Management Relations Act, the Age Discrimination in Employment Act ("ADEA"), the Older Workers Benefit Protection Act, the Civil Rights Act of 1991, the Worker Adjustment and Retraining Notification Act, the Americans with Disabilities Act, the Pennsylvania Human Rights Act, the Pennsylvania Wage Payment and Collection Act, all federal, state and local antidiscrimination statutes, federal common law, state common law, and/or any federal, state or local statute, law, ordinance, regulation or order, and claims under any express or implied contract which Mr. Bevevino or his heirs, executors, administrators, successors, agents or assigns may 4 claim exist or existed with the Company, its successors or assigns, or against any of the Released Parties. (iii) agrees that the release set forth in this Section 3(a)(ii) shall also specifically and expressly apply to and forever discharge any claims, demands, liabilities, obligations, charges, damages and causes of action, known or unknown, fixed or contingent, suspected or unsuspected, whether as an employee, shareholder, officer, director, or member of the Board of Directors of the Company, and every other capacity, relating in any way to: (a) the Approval of the Board of Directors of the Company to merge with JP Foodservice, Inc. ("Company Merger Approval"); (b) the Approval by the Board of Directors of JP Foodservice, Inc. to merge with the Company ("JP Merger Approval"); (c) the Agreement and Plan of Merger by and among JP Foodservice, Inc., Hudson Acquisition Corp. and Rykoff-Sexton, Inc. dated as of June 30, 1997 ("Merger Agreement"); (d) the merger between the Company and JP Foodservice, Inc. ("Merger"); (e) the Exchange of Stock between the Company and JP Foodservice, Inc. in connection with the Merger; and (f) any act, failure to act, decision, approval, rejection, denial, matter, event, occurrence or thing whatsoever by the Company, its successors or assigns, arising from, related to, resulting from, as a consequence of, or in connection with the Company Merger Approval, JP Merger Approval, the Merger Agreement, the Merger or the Exchange of Stock, provided, however that nothing herein shall affect Mr. Bevevino's rights to receive the consideration provided in the Merger Agreement in respect of his shares upon the closing of the Merger on the same basis as all other stockholders. (b) Mr. Bevevino covenants and agrees never to commence, voluntarily aid in any way, prosecute, or authorize to be commenced against any other party, any action or other proceeding based upon any claims, demands, causes of action, obligations, damages, or liabilities which are being released by this Agreement. Mr. Bevevino declares that, prior to the execution of this Agreement, he has apprised himself of sufficient relevant data, either through experts or other sources of his own selection, in order that he might intelligently exercise his judgment in deciding whether to execute, and in deciding on the contents of, this Agreement. Mr. Bevevino further declares that his decision is not predicated on or influenced by any declaration or representations of the Company, its successors or assigns, or any predecessors in interest. Mr. Bevevino states that the contents of this Agreement have been explained to him by his counsel and that this document is executed voluntarily with full knowledge of its significance. (c) Except as expressly set forth herein, this Agreement supersedes the Employment Agreement, the Change In Control Agreement, the Performance Share Plan Agreement under the Company's Long Term Performance Compensation Program (Amended and Restated as of June 24, 1996), the Performance Share Award Agreement, and all other agreements between Mr. Bevevino and the Company, its successors or assigns made on or prior to the Termination Date, provided, however, that this release does not affect any rights that Mr. Bevevino may have (i) under applicable law which cannot be waived pursuant to this Agreement; or (ii) pursuant to this Agreement. 5 (d) Subject to the provisions of Section 13(b), the Company and its subsidiaries hereby fully release and forever discharge Mr. Bevevino, and his heirs, executors, administrators, successors and assigns, from any and all claims, demands, liabilities, obligations, charges, damages and causes of action, known or unknown, fixed or contingent, suspected or unsuspected, with respect to Mr. Bevevino's employment or directorship with the Company or its subsidiaries arising from the beginning of time up to and including the Effective Date set forth in Section 9, including, notwithstanding the exclusions set forth below, those arising from disclosures, if any, made by Mr. Bevevino relating to the existence and terms of the Merger. This release shall not include or extend to (i) any liability for presently unknown acts of Mr. Bevevino finally determined by a court to violate federal, state or local law, including, but not limited to, state and federal securities laws; (ii) any liability for presently unknown acts of Mr. Bevevino which constitute fraud; (iii) any rights or obligations under applicable law which cannot be waived or released pursuant to this Agreement; or (iv) any rights or remedies the Company, its successors or assigns, may have under this Agreement. When used herein, and in Section 13(b) below, the phrase "presently unknown acts" shall mean the specific acts for which the majority of either the Executive Committee (excluding Mr. Bevevino) or the Board of Directors of the Company (excluding Mr. Bevevino) did not have actual knowledge on or before July 18, 1997, but does not include the specific acts described in the letter from Mark Van Stekelenburg to Phillip H. Werner dated July 18, 1997, identified as a letter pursuant to Section 3(d) of Release and Settlement Agreement dated July 18, 1997. 4 NO ADMISSION. Nothing in this Agreement shall be construed as an admission by any party as to any liability. 5 NON-DISPARAGEMENT AND OTHER MATTERS. (a) Except as may be required by law, Mr. Bevevino agrees that he shall: (i) not waive any privileges or confidences that the Company, its successors or assigns may have with respect to any information or communications with its attorneys or accountants; (ii) not disclose to any person the terms of this Agreement excepting disclosures to (A) Mr. Bevevino's immediate family members; (B) persons undertaking an evaluation of Mr. Bevevino for purposes of extending credit to him; and (C) Mr. Bevevino's attorneys, accountants and financial advisors; and (D) as may be necessary to enforce the terms of this Agreement. (iii) not encourage or promote litigation against the Company, its successors or assigns; (iv) not communicate with any person, or the attorney or representative of any person, who Mr. Bevevino reasonably believes to be contemplating or pursuing litigation against the Company, its successors or assigns. Nothing contained herein shall be deemed to prohibit Mr. Bevevino from communicating (A) with any attorney 6 regarding his personal affairs; and (B) responding to, and complying with, any subpoena served upon Mr. Bevevino; provided, however, that Mr. Bevevino shall first notify the Company immediately of his receipt of any such subpoena pursuant to Section 14(f) by facsimile and overnight carrier; (v) cooperate with the Company, its successors and assigns, in: (A) its investigation, defense or prosecution of any potential or actual claim, charge or suit, or investigation by or against the Company, its successors or assigns; and (B) any inquiry, review or investigation of business matters or undertakings of the Company, its successors or assigns. As used herein, the term "cooperate" means: (A) making himself available from time to time for meetings with counsel to the Company, its successors and assigns at the Company's reasonable request; (B) not communicating with parties known to be adverse to the Company, its successors or assigns, or their counsel, except by way of deposition or trial testimony, or purely social communications; (C) making himself available for depositions and trial testimony upon the reasonable instruction of counsel to the Company, it successors or assigns; and (D) executing those documents and truthful affidavits requested from time to time by counsel to the Company, its successors or assigns. The Company agrees to reimburse Mr. Bevevino for reasonable out of pocket expenses including for travel, hotel and meal expenses, incurred in connection with his cooperation under this Section 5(a)(v); and (vi) to take affirmative steps at the reasonable request of the Company (such steps to be specified by the Company and reasonably acceptable to Mr. Bevevino) (i) to encourage key employees of the Company, its successors and assigns, to remain with the Company, its successors or assigns, despite Mr. Bevevino's departure, and (ii) to negate any negative impact that his departure may cause. (b) From and after the date of this Agreement, neither party shall make any public statements, whether written or oral, or any other statements which such party reasonably believes are likely to become public, which statements disparage or defame the other party. 6 ADDITIONAL COVENANTS OF MR. BEVEVINO. (a) ACKNOWLEDGEMENT. Mr. Bevevino recognizes and acknowledges that his employment relationship with the Company has been extraordinary in that, among other things, he has been President of the Company since May 17, 1996, and prior to that time, he was Chief Executive Officer and Chairman of the Board of Directors of U.S. Foodservice, Inc., which was acquired by the Company on or about May, 1996. In those positions, Mr. Bevevino had primary responsibility for the management of the food service distribution and manufacturing operations of the Company and its predecessor. Mr. Bevevino acknowledges that, in those positions, he had access to and developed confidential or proprietary business information; customer information and lists; costs; prices; earnings; systems; operating procedures; merchandising and marketing plans; and methods; the terms of agreement with employees, customers and/or suppliers; personal training and development programs; prospective and executed contracts and other 7 business information of the Company, its successors and assigns methods and strategies; product development ideas and strategies; financial results; strategic plans; proprietary computer and systems software; and other important information relating to the Company and JP Foodservice Inc. Because of that extraordinary relationship and in consideration of the covenants, undertakings and promises of the Company set forth in this Agreement, Mr. Bevevino accepts and agrees to be bound by the covenants set forth in this Agreement including but not limited to the promises of this Section 6. Mr. Bevevino understands that the Company would not enter into this Agreement if Mr. Bevevino did not expressly agree to each of the covenants, undertakings and promises set forth herein, including but not limited to the provisions of this Section 6. Mr. Bevevino acknowledges the broad scope of the covenants in this Section 6, but agrees that such covenants are reasonable in light of the scope of the duties he performed for the Company and the extraordinary relationship he had with the Company and its predecessor. Mr. Bevevino further acknowledges and agrees that the covenants contained in this Agreement do not unreasonably restrict his employment opportunities or unduly burden or deprive him financially. (b) COMPETITION. During the period from the Termination Date through May 17, 2001 (hereinafter referred to as the "Restricted Period"), Mr. Bevevino shall not, directly or indirectly, own, manage, operate, join or control, or participate in the ownership, management, operation or control of, or be a proprietor, director, officer, stockholder, member, partner or an employee or agent of, or a consultant to, any business, firm, corporation, partnership or other entity anywhere in the United States of America (including, without limitation, SYSCO Corporation, Alliant (formerly Kraft) Corporation, JP Foodservice, Inc., PYA/Monarch, MBM Corporation, ProSource, Inc., Ameriserve, Inc. and Marriott Distribution Services) which engages in the Restricted Business as defined in Section 10 of the Employment Agreement, including but not limited to the current business conducted by JP Foodservice, Inc. For purposes of this Section, the term "ownership" does not include ownership of less than a 5% passive interest in such business, firm, corporation, partnership or other entity. (c) SOLICITATION OF CUSTOMERS. During the Restricted Period, Mr. Bevevino shall not, directly or indirectly, for his own account or as proprietor, stockholder, member, partner, director, officer, employee, agent or otherwise for or on behalf of any person, business, firm, corporation, partnership or other entity other than the Company, its successors or assigns, sell, broker or solicit or assist in the offer to sell, broker or solicit, any orders for the purchase of any foodstuffs or other products sold by the Company, its successors or assigns during the "Measuring Period", which is the three year period preceding the date of termination of employment with the Company (hereinafter referred to as "Products") to or from any person, corporation or other entity which was a customer of the Company, its successors or assigns at any time during the Measuring Period. For purposes of this Agreement, "customer of the Company" means and includes: (i) any and all persons, business, corporations, partnerships or other entities which during the Measuring Period and/or the Restricted Period (A) have done business with the Company, its successors or assigns, as a customer, (B) have been contacted by the Company, its successors or assigns, for the purpose of purchasing 8 products or services, or (C) have preexisting business relationships and/or dealings with Mr. Bevevino when his employment with the Company terminates; and (ii) all persons, businesses, corporations, partnerships or other business, entities which control, or are controlled by the same person, corporation, partnership or other entity which controls any such customer of the Company, its successors or assigns. For purposes of this Agreement, "customers" includes food service brokers, prospective customers and referral sources of customers. (d) SOLICITATION OF EMPLOYEES. During the Restricted Period, Mr. Bevevino shall not, directly or indirectly, for his own account or as proprietor, stockholder, partner, director, officer, employee, agent or otherwise for or on behalf of any person, business, firm, corporation, partnership or other entity other than the Company, solicit any person who, at any time during the three-month period prior to the Effective Date and at any time thereafter was or is an employee of the Company, its successors or assigns (with the exception of Thomas McMullen, John Bevevino, Thomas Bevevino, Michael Cramton and the employee acting as Mr. Bevevino's secretary as of the Termination Date), for employment with any person, business, firm, corporation, partnership or other entity other than the Company or hire any employee of the Company, its successors or assigns, either directly or for or on behalf of any person, business, firm or corporation, partnership or other entity other than the Company. (e) CONFIDENTIAL INFORMATION. From and after the date of this Agreement, Mr. Bevevino shall not at any time, directly or indirectly, use or disclose, make known, divulge, reveal or furnish to any person, business, firm, corporation, partnership or other entity, any confidential or proprietary information concerning the Company, its successor and assigns or their business, suppliers or customers except as required by law or to personal advisors, who are not in the food service industry and who are not customers, suppliers or employees of the Company, its successors or assigns, for purposes of enforcing or interpreting this Agreement, provided that such advisors (other than legal counsel) execute a confidentiality agreement in form and substance agreeable to the Company, its successors or assigns, prior to disclosure of such confidential information. All information, except public information, whether written or otherwise, regarding the business of Company, its successors and assigns, including but not limited to, information regarding customers, customer information and lists; costs, prices, earnings, systems, operating procedures, merchandising and marketing plans and methods; the terms of agreement with employees, customers and/or suppliers; personal training and development programs, prospective and executed contracts and other business information of the Company, its successors and assigns methods and strategies; product development ideas and strategies; financial results; strategic plans; proprietary computer and systems software; and other non-public important information relating to the Company arrangements, and sources of supply are presumed to be confidential information of the Company, its successors and assigns for purposes of this Agreement. Mr. Bevevino agrees to return to the Company all books, records, lists and other written, typed or printed materials, whether furnished by the Company or prepared by Mr. Bevevino, which contain any confidential information relating to the Company, its successors and assigns, or their business, suppliers or customers, promptly upon execution 9 of ths Agreement, and Mr. Bevevino shall neither make nor retain any copies of such materials without the prior written consent of the Board of Directors of the Company. (f) NOTICE OF OBLIGATIONS. Mr. Bevevino hereby consents to the notification of persons or entities of Mr. Bevevino's obligations under this Agreement when the Company, its successors or assigns, reasonably believe that Mr. Bevevino's activities are likely to be restricted by this Agreement. The Company's rights under this Section 6(f) shall be in addition to and not in preemption of all other rights and privileges the Company, its successors and assigns, may have under general legal and equitable principles, or by statute or common law. (g) CUMULATIVE PROVISIONS. The covenants and agreements contained in this Section 6 are independent of each other and cumulative. (h) BINDING EFFECT: THIRD PARTY BENEFICIARIES. The provisions of this Section 6 shall inure to the benefit of the Company, its successors and assigns. The provisions of this Section 6 shall inure to the benefit of and be binding upon Mr. Bevevino, his heirs, personal representatives, successor and assigns. (i) REMEDIES FOR BREACH. Mr. Bevevino further acknowledges and agrees that his obligations under this Agreement are unique and that any breach or threatened breach of such obligations may result in irreparable harm and substantial damages to the Company, its successors and assigns. Accordingly, in the event of a breach or threatened breach by Mr. Bevevino of any of the provisions of this Agreement, the Company, its successors and assigns shall have the right, in addition to exercising any other remedies at law or equity which may be available to it under this Agreement or otherwise to: (i) obtain EX PARTE, preliminary, interlocutory, temporary or permanent injunctive relief, specific performance and other equitable remedies in any court of competent jurisdiction to prevent Mr. Bevevino from violating such provision or provisions or to prevent the continuance of any violation thereof, TOGETHER WITH an award or judgment for any and all damages, losses, liabilities, expenses and costs incurred by the Company, its successors and assigns as a result of such breach or threatened breach including, but not limited to attorneys' fees incurred by the Company, its successors and assigns in connection with, or as a result of, the enforcement of this Agreement; and (ii) discontinue any or all of the consideration provided in Section 2 of this Agreement. The parties expressly agree that the arbitration provision set forth in Section 13 of the Employment Agreement is no longer binding on the parties and has been superseded by this Agreement. (j) DIVISIBILITY. Mr. Bevevino agrees that the provisions of this Section 6 are divisible and separable so that if any provision or provisions hereof shall be held to be unreasonable, unlawful or unenforceable, such holding shall not impair the remaining provisions hereof. If any provision hereof is held to be unreasonable, unlawful or unenforceable in duration, geographical scope or character of restriction by any court of competent jurisdiction, it is the express desire and agreement of Mr. Bevevino that such provision shall be modified to the extent necessary in order that any such provision or 10 portion nthereof shall be legally enforceable to the fullest extent permitted by law, and the parties hereto do hereby expressly authorize any court of competent jurisdiction to enforce any such provision or portion thereof or to modify any such provision or portion thereof in order that any such provision or portion thereof shall be enforced by such court to the fullest extent permitted by applicable law. (k) NONIMPAIRMENT OF OBLIGATIONS. Mr. Bevevino agrees that his obligations under Sections 5 and 6 are in addition to, and not in limitation or preemption of, all other obligations which Mr. Bevevino may have to the Company, its successors and assigns, under general legal and equitable principles or by statute or common law. 7 ASSERTION OF CLAIMS. Mr. Bevevino represents and warrants, with the understanding that such representation and warranty is material to this transaction, that (a) he is not aware of a person having asserted or having a valid basis to assert, with any federal, state or local judicial or administrative agency or body any claim against the Company, its successors or assigns, of any kind or character based on or arising out of or alleged to be suffered in or as a consequence of Mr. Bevevino's employment with the Company, its termination, or his contacts or relationships with the Company or any Released Party, and (b) Mr. Bevevino has no current intention to assert, in any manner or by any means, any such claim before any federal, state or local judicial or administrative agency or body. If any such claim is asserted in the future by Mr. Bevevino or any person or entity authorized by Mr. Bevevino to do so, Mr. Bevevino agrees and acknowledges that this Agreement and release set forth in Section 3 hereof shall act as a total and complete bar to his reemployment or to recovery of any sum or amount whatsoever from the Company, its successors or assigns, whether labeled "award, liability, damages, judgment, back pay, wages, or fine" or otherwise resulting directly or indirectly from any lawsuit, remedy, charge or complaint whether brought privately by him or by any one else, including any federal, state or local agency, whether or not on his behalf or at his request. 8 REEMPLOYMENT. Mr. Bevevino hereby releases and waives any and all rights or claims he may have to reemployment by the Company, its successors and assigns, and agrees that he shall not reapply for any position with the Company, its successors or assigns. 9 CONSIDERATION OF TERMS AND EFFECTIVE DATE. MR. BEVEVINO ACKNOWLEDGES THAT HE HAS CAREFULLY READ THIS AGREEMENT, THAT HE KNOWS AND UNDERSTANDS THE CONTENTS THEREOF AND THAT HE EXECUTES THE SAME AS HIS OWN FREE, KNOWING AND VOLUNTARY ACT AND DEED. MR. BEVEVINO FURTHER REPRESENTS AND ACKNOWLEDGES THAT HE HAS BEEN ADVISED BY THE COMPANY IN WRITING TO CONSULT WITH AN ATTORNEY PRIOR TO EXECUTING THIS AGREEMENT IF HE CHOSE TO DO SO, THAT HE HAS HAD AN OPPORTUNITY TO CONSULT FULLY WITH HIS 11 PERSONAL ATTORNEY REGARDING THE TERMS OF THIS AGREEMENT, THAT HE FULLY UNDERSTANDS THE TERMS, CONDITIONS, AND FINAL BINDING EFFECT OF THIS AGREEMENT, AND THAT THE RELEASE CONTAINED HEREIN IS A RELEASE OF ALL CLAIMS WITH FINAL AND BINDING EFFECT. MR. BEVEVINO ACKNOWLEDGES THAT HE HAS BEEN GIVEN A PERIOD OF AT LEAST 21 DAYS WITHIN WHICH TO CONSIDER THIS AGREEMENT PRIOR TO HIS EXECUTION HEREOF. FURTHERMORE, IT IS AGREED THAT MR. BEVEVINO SHALL HAVE THE RIGHT TO REVOKE THIS AGREEMENT BY WRITTEN NOTICE TO THE COMPANY WITHIN SEVEN DAYS FOLLOWING ITS EXECUTION. FOR THIS REVOCATION TO BE EFFECTIVE, WRITTEN NOTICE MUST BE RECEIVED BY THE COMPANY'S CHIEF EXECUTIVE OFFICER NO LATER THAN THE CLOSE OF BUSINESS ON THE SEVENTH DAY AFTER MR. BEVEVINO SIGNS THIS AGREEMENT. IF MR. BEVEVINO DOES SO REVOKE, THIS AGREEMENT WILL BE NULL AND VOID AND, SUBJECT TO APPLICABLE LAW, THE COMPANY SHALL HAVE NO OBLIGATION WHATSOEVER TO MR. BEVEVINO, AND MR. BEVEVINO WILL NOT RECEIVE THE CONSIDERATION DESCRIBED IN SECTION 2. THIS AGREEMENT SHALL NOT BECOME EFFECTIVE AND ENFORCEABLE UNTIL AFTER THE EXPIRATION OF THIS SEVEN-DAY REVOCATION PERIOD; AFTER SUCH TIME, IF THERE AHS BEEN NO REVOCATION, THIS AGREEMENT SHALL BE FULLY EFFECTIVE AND ENFORCEABLE. IF THIS AGREEMENT IS REVOKED BY MR. BEVEVINO IN ACCORDANCE WITH THIS SECTION 9, MR. BEVEVINO SHALL RETURN TO THE COMPANY ALL CONSIDERATION AND BENEFITS PROVIDED BY THE COMPANY TO WHICH MR. BEVEVINO WOULD NOT BE ENTITLED ABSENT THIS AGREEMENT. 10 ACKNOWLEDGEMENT AND CONSIDERATION. The consideration described in Section 2 is being provided in return for Mr. Bevevino's accepting the terms of this Agreement, including but not limited to the covenants set forth in Section 6 as well as the giving of a release, a covenant not to sue, and not revoking under Section 9 so that this Agreement becomes effective. Mr. Bevevino acknowledges that the payments and agreements set forth in Section 2 constitute adequate consideration supporting his obligations and releases given under this Agreement. 11 LEGAL FEES AND EXPENSES. In the event of litigation between the parties regarding interpretation or enforcement of this Agreement, the parties agree that the prevailing party shall be entitled to recover reasonable attorneys' and related fees and expenses incurred in connection with the litigation. The parties expressly agree that this provision modifies and supersedes Section 21 of the Employment Agreement. 12 12 NO AUTHORITY OR RESPONSIBILITY. Mr. Bevevino acknowledges that he shall have no supervisory, managerial or agency responsibility or authority from and after the Termination Date and agrees not to involve himself in any activities of the Company, except as may be requested by the Chairman and Chief Executive Officer of the Company. Mr. Bevevino also acknowledges that effective as of the Termination Date, he does not have authority to bind the Company to any contracts or commitments and agrees that he shall not create any obligation for or bind or attempt to bind the Company, its successors or assigns, in any manner whatsoever. 13 INDEMNIFICATION. (a) This Agreement shall not affect Mr. Bevevino's rights to coverage or indemnification under the charter or by-laws of the Company or policies of insurance as in effect on or prior to the Termination Date, with respect to acts of commission or omission or events occurring on or prior to the Termination Date; and (b) Mr. Bevevino shall indemnify the Company, its successors or assigns, for monetary expense or loss arising out of a claim brought by a third party or governmental investigation based upon any breach of the confidentiality provisions of his Employment Agreement, to the extent that such claim or investigation arises directly from facts in existence prior to the Termination Date but not known to the Company (defined as "presently unknown acts" in Section 3(d) above), and are not otherwise covered by the Company's insurance policies, except policies of self-insurance or risk retention. 14 MISCELLANEOUS. (a) AFFILIATE DEFINITION. "Affiliate" shall mean any person, firm or corporation which directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, the persons specified. (b) COMPANY, SUCCESSORS AND ASSIGNS DEFINITIONS. "The Company, its successors and assigns" shall mean the Company and its past, present and future affiliates, divisions, subsidiaries, facilities, parents, successors, predecessors and assigns, and their respective past, present and future officers, directors, managers, shareholders, agents, representatives, attorneys and employees. "The Company, its successors or assigns" shall mean the Company and/or its past, present and future affiliates, divisions, subsidiaries, facilities, parents, successors, predecessors and assigns, and their respective past, present and future officers, directors, managers, shareholders, agents, representatives, attorneys and employees. (c) AMENDMENTS. This Agreement may be amended only by a writing executed by each of the parties hereto. (d) ENTIRE AGREEMENT. This Agreement sets forth the entire understanding of the parties hereto with respect to the subject matter hereof, and supersedes all prior contracts, agreements, arrangements, communications, discussions, 13 representations and warranties, whether oral or written, between the parties other than any confidentiality agreement executed by Mr. Bevevino while an employee of the Company. (e) LAW AND INTERPRETATION. This Agreement shall be governed by, construed and interpreted in accordance with the laws of the State of Pennsylvania. With respect to each and every term and condition in this Agreement, the parties understand and agree that the same have or has been mutually negotiated, prepared and drafted, and that if at any time the parties hereto desire or are required to interpret or construe any such term or condition or any agreement or instrument subject hereto, no consideration shall be given to the issue of which party hereto actually prepared, drafted or requested any term or condition of this Agreement or any agreement or instrument subject hereto. (f) NOTICES. Any notice, request or other communication required or permitted hereunder shall be in writing and shall be deemed to have been duly given (i) when received if personally delivered, (ii) within 12 hours after being sent by telecopy, with telecopy confirmation, and (iii) when received (as established by written receipt) if sent by established overnight courier to the parties (and to the persons to whom copies shall be sent) at: To the Company: Rykoff-Sexton, Inc. 613 Baltimore Drive East Mountain Corporate Center Wilkes-Barre, Pennsylvania 18702-6980 Attention: Mark Van Stekelenburg Telecopy No.: (717) 830-7112 With a copy to: Jones, Day, Reavis & Pogue 77 West Wacker Chicago, Illinois 60601-1692 Attention: Elizabeth C. Kitslaar Telecopy No.: (312) 782-8585 To Mr. Bevevino: 375 W. Center Road Dallas, Pennsylvania 18612 With a copy to: Morgan, Lewis & Bockius LLP 101 Park Avenue New York, NY 10178-0060 Attention: Philip H. Werner Telecopy No.: 212/309-6080 Any party by notice given to the other party in accordance with this Section 14(f) may change the address or the persons to whom notices or copies thereof shall be directed. 14
(g) COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, and all of which together shall constitute one and the same instrument. (h) ASSIGNMENT. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors, assigns and heirs, as set forth herein, but no rights, obligations or liabilities hereunder shall be assignable by Mr. Bevevino without the prior written consent of the Company, its successors and assigns. (i) WAIVERS AND AMENDMENTS. This Agreement may be amended, superseded, canceled, renewed or extended, and the terms hereof may be waived, only by a written instrument signed by the parties or, in the case of a waiver, by the party waiving compliance. No delay on the part of either party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any waiver on the part of either party of such right, power or privilege nor any single or partial exercise of any such right, power or privilege, preclude any other further exercise thereof or the exercise of any other such right, power or privilege. (j) HEADINGS. The headings in this Agreement are solely for convenience of reference and shall not be given any effect in the construction or interpretation of this Agreement. (k) EXPENSE REIMBURSEMENT. The Company will reimburse Mr. Bevevino for the reasonable fees of Mr. Bevevino's attorney in connection with his resignation, including such attorney's review of this Agreement and consultation with Mr. Bevevino on its implications; provided, however, that such fees not exceed $40,000. IN WITNESS WHEREOF, Mr. Bevevino has executed, and the Company has caused its duly authorized representative to execute, this Agreement as of the date first above written. Rykoff-Sexton, Inc. By: /s/ -------------------------------- /s/ Frank H. Bevevino --------------------------------- Frank H. Bevevino 15 EXHIBIT A [RYKOFF SEXTON LOGO] - ------------------------------------------------------------------------------ STOCK OPTION REPORT - FRANK H. BEVEVINO 25-JUN-97 - ------------------------------------------------------------------------------
EXERCISED GRANT EXERCISE VESTED -------------------------------------------------- DATE PRICE SHARES SHARES SHARES DATE SHARES DATE SHARES DATE ----------------------------- --------- -------------------------------------------------- RSI 1988 STOCK OPTION AND COMPENSATION PLAN 6/24/96 $14.125 35,000 8,750 -------- --------- -------- -------- -------- 35,000 8,750 USFI 1992 STOCK OPTION PLAN 9/4/92 $10.540 86,146 86,146 -34,458 11/25/96 3/24/95 $3.470 3,814 3,814 -3,814 11/25/96 3/24/95 $10.540 17,402 17,402 -6,960 11/25/96 -------- --------- -------- -------- -------- 107,362 107,362 -45,232 USFI 1993 STOCK OPTION PLAN 3/24/95 $14.730 6,711 4,474 -------- --------- -------- -------- -------- 6,711 4,474 USFI MANAGEMENT STOCK OPTION PLAN 3/24/95 $9.410 17,019 17,019 -17,019 11/25/96 3/24/95 $9.410 3,721 3,721 -------- --------- -------- -------- -------- 20,740 20,740 -17,019 CANCELLED -------------- SHARES SHARES DATE OUTSTANDING -------------- ----------- RSI 1988 STOCK OPTION AND COMPENSATION PLAN 35,000 --------- ----------- 35,000 USFI 1992 STOCK OPTION PLAN 51,688 0 10,442 --------- ----------- 62,130 USFI 1993 STOCK OPTION PLAN 6,711 --------- ----------- 6,711 USFI MANAGEMENT STOCK OPTION PLAN 0 3,721 --------- ----------- 3,721 -------- --------- -------- -------- -------- TOTAL FOR FRANK H. BEVEVINO: 169,813 141,326 -62,251 -------- --------- -------- -------- -------- -------- --------- -------- -------- -------- --------- ----------- TOTAL FOR FRANK H. BEVEVINO: 107,582 --------- ----------- --------- -----------
[RYKOFF SEXTON LOGO] - ------------------------------------------------------------------------------ ESTRICTED STOCK REPORT - FRANK H. BEVEVINO 25-JUN-97 - ------------------------------------------------------------------------------
PRICE PER VESTING VESTED UNVESTED REPURCHASED CANCELLED SHARES SHARE DATE SHARES SHARES SHARES SHARES ---------------------------------------------------------------------------------------- RSI CONVERTIBLE AWARD PLAN (FISCAL YEAR 1997) GRANT DATE: 3,448 (2) 14.50 (2) 3,448 1,724 (2) 14.50 (2) 1,724 574 (3) 0.00 (3) 574 1,148 (3) 0.00 (3) 1,148 -------- -------- -------- --------- -------- 6,894 6,894 -------- -------- -------- --------- -------- TOTAL FOR FRANK H. BEVEVINO: 6,894 6,894 -------- -------- -------- --------- -------- -------- -------- -------- --------- --------
2) Converted Bonus Shares - Convertible Award Plan. 3) Premium Shares - Convertible Award Plan. EXHIBIT B EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into this __th day of ____, 1997 by and between Rykoff-Sexton, Inc. (hereinafter "the Company") and ____________________ (hereinafter "Employee"). In consideration of the mutual covenants contained herein, it is agreed as follows: 1 EMPLOYMENT. The Company hereby agrees to employ the Employee and the Employee hereby agrees to be employed by the Company upon the terms and conditions set forth herein. 2 TERM. Employment shall be continued until terminated pursuant to Section 4. 3 COMPENSATION. During the term of this Agreement, the Company shall pay to the Employee a base salary of $__________ per annum, [equal to current base salary] which base salary may be adjusted from time to time by the Company, payable at the times and in the manner consistent with the Company's general policies regarding compensation of executive employees. Such base salary shall include any salary reduction contributions to (i) any Company-sponsored plan that includes a cash-or-deferred arrangement under Section 401(k) of the Code, (ii) any other plan of deferred compensation sponsored by the Company, or (iii) any Company-sponsored "cafeteria plan" under Section 125 of the Code. 4 TERMINATION (a) INVOLUNTARY TERMINATION. The Employee's employment hereunder may be terminated by the Company, its successors or assigns, for any reason. The Employee will be treated for purposes of this Agreement as having been involuntarily terminated by the Company, its successors and assigns, if the Employee terminates his employment within 90 days of a reduction in the Employee's base salary, unless such reduction in base salary is part of a reduction applicable generally to employees at his level. (b) VOLUNTARY TERMINATION. The Employee may voluntarily terminate the Agreement at any time by written notice to the Company, its successors and assigns. The Employee's death or disability during the term of the Agreement shall constitute a voluntary termination of employment for purposes of eligibility for Termination Payments and Benefits as provided in Section 5. (c) VOLUNTARY AND INVOLUNTARY TERMINATION. Subject to Section 5 and any benefit continuation requirements of applicable law, in the event the Employee's 1 employment hereunder is voluntarily or involuntarily terminated for any reason whatsoever, the compensation obligations of the Company, its successors and assigns, under Section 3 shall cease as of the effective date of such termination, except for any compensation earned or accrued but unpaid through such date. The Employee shall be entitled to receive any other compensation or benefits accrued by unpaid through such date. In the event that the Employee's employment with the Company, its successors or assigns, is terminated voluntarily by the Employee, or is terminated by the Company, its successors or assigns, for Cause as defined in Section 5(e) below, then the Company, its successors and assigns, shall have no obligation to provide termination payments or benefits to the Employee pursuant to Section 5. 5 TERMINATION PAYMENTS AND BENEFITS. If the Employee's employment hereunder is involuntarily terminated by the Company, its successors and assigns, other than for Cause (as defined herein) prior to the end of the term of this Agreement, subject to the condition precedent that the Employee execute a valid Release and Settlement Agreement in the form attached hereto as Exhibit 1, then Company shall be obligated to provide for the termination payments and benefits set forth below: (i) Severance payments in the amount equivalent to the Employee's annual base salary, less applicable withholding, payable in accordance with the Company's regular payroll schedule, for a one-year period beginning on the Termination Date (the "Termination Period"). In the event of Employee's death during the Termination Period, the remaining payments shall be paid to Employee's designated beneficiary, or, if none, then to his estate; and (ii) Continuation of benefits from all employee welfare benefit plans in which Employee was entitled to participate immediately prior to the Termination Date, during the Termination Period, as such plans may be amended or replaced from time to time. (b) With respect to the payments and benefits described in (i) and (ii) above, Employee acknowledges that to the extent any of those benefits constitute income, they shall be treated as such by the Company, its successors and assigns, through issuance of appropriate notices, and Employee agrees that he shall be solely responsible for any tax liability that is imposed in connection with these payments and benefits. (c) Notwithstanding the foregoing, any right of the Employee to receive termination payments hereunder, shall be forfeited to the extent of any amounts payable after any breach of Section 6 by the Employee. (d) From and after the Termination Date, Employee shall have no obligation to mitigate damages or to seek or obtain other employment; provided, however, that Employee's coverage under the Company's welfare benefit plans will terminate when Employee becomes covered under any employee benefit plan made available by another employer and covering the same type of benefits. Employee shall notify the Company, its successors and assigns, within thirty (30) days after the commencement of any such benefits. 2 (e) For purposes of this Agreement, "Cause" shall mean either: (i) that the Employee shall have failed, after 30 days notice to cure deficiencies, to meet the objectives set forth in the Company's, its successors and assigns, performance appraisal standards as applied to the Employee; or (ii) that the Employee shall have committed: (A) an intentional act of fraud, embezzlement or theft in connection with his duties or in the course of his employment with the Company, its successors and assigns; (B) intentional wrongful damage to property of the Company, its successors and assigns; (C) intentional misconduct that is materially injurious to the Company, its successors and assigns, monetarily or otherwise; or (D) an intentional breach of the confidentiality, non- competition and non-solicitation covenants set forth in Section 6. (E) the Employee shall have committed a felony or any crime punishable by imprisonment (other than minor traffic violations). 6 ADDITIONAL COVENANTS OF EMPLOYEE. (a) ACKNOWLEDGEMENT. Employee recognizes and acknowledges in the course of his employment with the Company, its successors and assigns, he had access to and developed confidential or proprietary business information; customer information and lists; costs; prices; earnings; systems; operating procedures; merchandising and marketing plans; methods and strategies; product development ideas and strategies; financial results; strategic plans; proprietary computer and systems software; and other important information relating to the Company, its successors and assigns. Because of that relationship and in consideration of the covenants, undertakings and promises of the Company, its successors and assigns, set forth in this Agreement, Employee accepts and agrees to be bound by the covenants set forth in this Agreement including but not limited to the promises of this Section 6. Employee understands that the Company, its successors and assigns, would not enter into this Agreement if Employee did not expressly agree to each of the covenants, undertakings and promises set forth herein, including but not limited to the provisions of this Section 6. Employee acknowledges the broad scope of the covenants in this Section 6, but agrees that such covenants are reasonable. Employee further acknowledges and agrees that the covenants contained in this Agreement do not unreasonably restrict his employment opportunities or unduly burden or deprive him financially. 3 (b) COMPETITION. During his employment with the Company, its successors and assigns, and for a period of one year after the Termination Date (hereinafter referred to as the "Restricted Period"), the Employee shall not, directly or indirectly, own, manage, operate, join or control, or participate in the ownership, management, operation or control of, or be a proprietor, director, officer, stockholder, member, partner or an employee or agent of, or a consultant to, any business, firm, corporation, partnership or other entity anywhere in the United States of America (including, without limitation, SYSCO Corporation, Alliant (formerly Kraft) Corporation, JP Foodservice, Inc., PYA/Monarch, MBM Corporation, ProSource, Inc., Ameriserve, Inc. and Marriott Distribution Services) which engages in (i) the current business of the Company and/or JP Foodservice, Inc. or (ii) any other principal line of business developed or acquired by the Company, its successors or assigns, prior to the Termination Date. For purposes of this Section, the term "ownership" does not include ownership of less than a 5% passive interest in such business, firm, corporation, partnership or other entity. (c) SOLICITATION OF CUSTOMERS. During his employment with the Company, its successors and assigns, and during the Restricted Period, the Employee shall not, directly or indirectly, for his own account or as proprietor, stockholder, member, partner, director, officer, employee, agent or otherwise for or on behalf of any person, business, firm, corporation, partnership or other entity other than the Company, its successors or assigns, sell, broker or solicit or assist in the offer to sell, broker or solicit, any orders for the purchase of any foodstuffs or other products sold by the Company, its successors or assigns during the "Measuring Period", which is the three year period preceding the date of termination of employment with the Company (hereinafter referred to as "Products") to or from any person, corporation or other entity which was a customer of the Company, its successors and assigns, at any time during the Measuring Period. For purposes of this Agreement, "customer of the Company" means and includes: (i) any and all persons, business, corporations, partnerships or other entities which during the Measuring Period and/or the Restricted Period (A) have done business with the Company, its successors or assigns, as a customer, (B) have been contacted by the Company, its successors or assigns, for the purpose of purchasing products or services, or (C) have preexisting business relationships and/or dealings with the Employee when his employment with the Company, its successors and assigns, terminates; and (ii) all persons, businesses, corporations, partnerships or other business, entities which control, or are controlled by the same person, corporation, partnership or other entity which controls any such customer of the Company, its successors or assigns. For purposes of this Agreement, "customers" includes food service brokers, prospective customers and referral sources of customers. (d) SOLICITATION OF SUPPLIERS. During his employment with the Company, its successors and assigns, and during the Restricted Period, Employee shall not, directly or indirectly, for his own account or as proprietor, stockholder, partner, director, officer, employee, agent or otherwise for or on behalf of any business, firm, corporation, partnership or other entity other than the Company, purchase or broker or offer to purchase or broker any Products from any person, corporation or other entity which was or is a supplier or vendor to the Company, its successors or assigns, at any time during 4 the Measuring Period. For purposes of this Agreement, "suppliers and vendors to the Company" means and includes any and all persons, businesses, corporations, partnerships, or other entities which have done or do business with the Company, its successors or assigns, as a supplier or vendor during the Measuring Period and/or Restricted Period, and all persons, businesses, corporations, partnerships or other entities which control, or are controlled by, the same person, business, corporation, partnership or other entity which controls, any such supplier or vendor to the Company, its successors or assigns. (e) SOLICITATION OF EMPLOYEES. During his employment with the Company, its successors and assigns, and during the Restricted Period, Employee shall not, directly or indirectly, for his own account or as proprietor, stockholder, partner, director, officer, employee, agent or otherwise for or on behalf of any person, business, firm, corporation, partnership or other entity other than the Company solicit any person who was or is an employee of the Company, its successors or assigns, at any time during the Measuring Period and/or Restricted Period for employment with any person, business, firm, corporation, partnership or other entity other than the Company or hire any employee of the Company, its successors or assigns, either directly or for or on behalf of any person, business, firm or corporation, partnership or other entity other than the Company. (f) CONFIDENTIAL INFORMATION. From and after the date of this Agreement, Employee shall not at any time, directly or indirectly, use or disclose, make known, divulge, reveal or furnish to any person, business, firm, corporation, partnership or other entity, any confidential or proprietary information concerning the Company, its successor and assigns or their business, suppliers or customers. All information, whether written or otherwise, regarding the business of Company, its successors and assigns, including but not limited to, information regarding customers, customer lists, costs, prices, earnings, systems, operating procedures, prospective and executed contracts and other business arrangements, and sources of supply are presumed to be confidential information of the Company, its successors and assigns for purposes of this Agreement. Employee agrees to return to the Company, its successors and assigns, all books, records, lists and other written, typed or printed materials, whether furnished by the Company, its successors and assigns, or prepared by Employee, which contain any information relating to the Company, its successors and assigns, or their business, suppliers or customers, promptly upon execution of this Agreement, and Employee shall neither make nor retain any copies of such materials without the prior written consent of the Board of Directors of the Company. (g) NOTICE OF OBLIGATIONS. Employee hereby consents to the notification of persons or entities of Employee's obligations under this Agreement when the Company, its successors or assigns, reasonably believe that Employee's activities are likely to be restricted by this Agreement. The Company's rights under this Section 6(g) shall be in addition to and not in preemption of all other rights and privileges the Company, its successors and assigns, may have under general legal and equitable principles, or by statute or common law. 5 (h) CUMULATIVE PROVISIONS. The covenants and agreements contained in this Section 6 are independent of each other and cumulative. (i) BINDING EFFECT: THIRD PARTY BENEFICIARIES. The provisions of this Section 6 shall inure to the benefit of the Company, its successors and assigns. The provisions of this Section 6 shall inure to the benefit of and be binding upon Employee, his heirs, personal representatives, successor and assigns. (j) REMEDIES FOR BREACH. Employee further acknowledges and agrees that his obligations under this Agreement are unique and that any breach or threatened breach of such obligations may result in irreparable harm and substantial damages to the Company, its successors and assigns. Accordingly, in the event of a breach or threatened breach by Employee of any of the provisions of this Agreement, the Company, its successors and assigns shall have the right, in addition to exercising any other remedies at law or equity which may be available to it under this Agreement or otherwise to: (i) obtain EX PARTE, preliminary, interlocutory, temporary or permanent injunctive relief, specific performance and other equitable remedies in any court of competent jurisdiction to prevent Employee from violating such provision or provisions or to prevent the continuance of any violation thereof, TOGETHER WITH an award or judgment for any and all damages, losses, liabilities, expenses and costs incurred by the Company, its successors and assigns as a result of such breach or threatened breach including, but not limited to attorneys' fees incurred by the Company, its successors and assigns in connection with, or as a result of, the enforcement of this Agreement; and (ii) discontinue any or all of the consideration provided in Sections 3 and 5 of this Agreement, other than unpaid compensation or benefits already earned or accrued. Employee expressly waives any requirement based on any statute, rule or procedure, or other source, that the Company, its successors or assigns post a bond as a condition to obtaining any of the above described remedies. (k) DIVISIBILITY. Employee agrees that the provisions of this Section 6 are divisible and separable so that if any provision or provisions hereof shall be held to be unreasonable, unlawful or unenforceable, such holding shall not impair the remaining provisions hereof. If any provision hereof is held to be unreasonable, unlawful or unenforceable in duration, geographical scope or character of restriction by any court of competent jurisdiction, it is the express desire and agreement of Employee that such provision shall be modified to the extent necessary in order that any such provision or portion thereof shall be legally enforceable to the fullest extent permitted by law, and the parties hereto do hereby expressly authorize any court of competent jurisdiction to enforce any such provision or portion thereof or to modify any such provision or portion thereof in order that any such provision or portion thereof shall be enforced by such court to the fullest extent permitted by applicable law. 7 COOPERATION AND OTHER MATTERS. Except as may be required by law, Employee agrees that he shall: 6 (a) not make any public statements, whether written or oral, or any other statements which Employee reasonably believes are likely to become public, which statements disparage the Company, its successors and assigns; (b) not waive any privileges or confidences that the Company, its successors and assigns may have with respect to any information or communications with its attorneys or accountants; (c) not disclose to any person the terms of this Agreement excepting disclosures to (i) Employee's immediate family members; (ii) persons undertaking an evaluation of Employee for purposes of extending credit to him; and (iii) Employee's attorneys and accountants and personal advisors, and (iv) as may be necessary to enforce the terms of this Agreement; (d) not encourage or promote litigation against the Company, its successors and assigns; (e) not communicate with any person, or the attorney or representative of any person, who Employee reasonably believes to be contemplating or pursuing litigation against the Company, its successors or assigns. Nothing contained herein shall be deemed to prohibit Employee from communicating (i) with any attorney regarding his personal affairs; and (ii) responding to, and complying with, any subpoena served upon Employee; provided, however, that Employee shall first notify the Company, its successors and assigns, immediately of his receipt of any such subpoena; and (f) cooperate with the Company, its successors and assigns, in: (A) its investigation, defense or prosecution of any potential or actual claim, charge or suit, or investigation by or against the Company, its successors or assigns; and (B) any inquiry, review or investigation of business matters or undertakings of the Company, its successors or assigns. As used herein, the term "cooperate" means: (A) making himself available from time to time for meetings with counsel to the Company, its successors and assigns at the Company's reasonable request; (B) not communicating with parties known to be adverse to the Company, its successors or assigns, or their counsel, except by way of deposition or trial testimony, or purely social communications; (C) making himself available for depositions and trial testimony upon the reasonable instruction of counsel to the Company, it successors or assigns; and (D) executing those documents and truthful affidavits requested from time to time by counsel to the Company, its successors or assigns. The Company agrees to reimburse the Employee for reasonable out of pocket expenses including for travel, hotel and meal expenses, incurred in connection with his cooperation under this subsection (f); and (g) agrees that the obligations under Sections 6 and 7 are in addition to, and not in limitation or preemption of, all other obligations which Employee may have to the Company, its successors and assigns under general legal and equitable principals or by statute or common law. 7 8 MISCELLANEOUS. (a) AFFILIATE DEFINITION. "Affiliate" shall mean any person, firm or corporation which directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, the persons specified. (b) COMPANY, SUCCESSORS AND ASSIGNS DEFINITIONS. "The Company, its successors and assigns" shall mean the Company and its past, present and future affiliates, divisions, subsidiaries, facilities, parents, successors, predecessors and assigns, and their respective past, present and future officers, directors, managers, shareholders, agents, representatives, attorneys and employees. "The Company, its successors or assigns" shall mean the Company and/or its past, present and future affiliates, divisions, subsidiaries, facilities, parents, successors, predecessors and assigns, and their respective past, present and future officers, directors, managers, shareholders, agents, representatives, attorneys and employees. (c) AMENDMENTS. This Agreement may be amended only by a writing executed by each of the parties hereto. (d) ENTIRE AGREEMENT. This Agreement sets forth the entire understanding of the parties hereto with respect to the subject matter hereof, and supersedes all prior contracts, agreements, arrangements, communications, discussions, representations and warranties, whether oral or written, between the parties other than any confidentiality agreement executed by Employee while an employee of the Company. (e) LAW AND INTERPRETATION. This Agreement shall be governed by, construed and interpreted in accordance with the laws of the State of Pennsylvania. With respect to each and every term and condition in this Agreement, the parties understand and agree that the same have or has been mutually negotiated, prepared and drafted, and that if at any time the parties hereto desire or are required to interpret or construe any such term or condition or any agreement or instrument subject hereto, no consideration shall be given to the issue of which party hereto actually prepared, drafted or requested any term or condition of this Agreement or any agreement or instrument subject hereto. (f) NOTICES. Any notice, request or other communication required or permitted hereunder shall be in writing and shall be deemed to have been duly given (a) when received if personally delivered, (b) within 12 hours after being sent by telecopy, with telecopy confirmation, and (c) when received (as established by written receipt) if sent by established overnight courier to the parties (and to the persons to whom copies shall be sent) at: Rykoff-Sexton, Inc. 613 Baltimore Drive East Mountain Corporate Center Wilkes-Barre, Pennsylvania 18702-6980 Attention: Mark Van Stekelenburg 8 Telecopy No.: (717) 830-7112 (g) COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, and all of which together shall constitute one and the same instrument. (h) ASSIGNMENT. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors, assigns and heirs, as set forth herein, but no rights, obligations or liabilities hereunder shall be assignable by Employee without the prior written consent of the Company, its successors and assigns. (i) WAIVERS AND AMENDMENTS. This Agreement may be amended, superseded, canceled, renewed or extended, and the terms hereof may be waived, only by a written instrument signed by the parties or, in the case of a waiver, by the party waiving compliance. No delay on the part of either party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any waiver on the part of either party of such right, power or privilege nor any single or partial exercise of any such right, power or privilege, preclude any other further exercise thereof or the exercise of any other such right, power or privilege. (k) HEADINGS. The headings in this Agreement are solely for convenience of reference and shall not be given any effect in the construction or interpretation of this Agreement. (l) EXPENSE REIMBURSEMENT. The Company will reimburse Employee for the reasonable fees of Employee's attorney in connection with such attorney's review of this Agreement and consultation with Employee on its implications. IN WITNESS WHEREOF, Employee has executed, and the Company has caused its duly authorized representative to execute, this Agreement as of the date first above written. Rykoff-Sexton, Inc. By------------------------------------- --------------------------------------- [TO COME] 9 EXHIBIT 1 RELEASE AND SETTLEMENT AGREEMENT This Release and Settlement Agreement is entered into as of the __ day of ____, ____ (hereinafter "Effective Date") by and between Rykoff-Sexton, Inc. (hereinafter "Company") and ___________________ (hereinafter "Employee"). WHEREAS, the Employee has terminated his employment with the Company and the Company and Employee have agreed to resolve all matters between them; NOW, THEREFORE, in consideration of the promises of the parties to this Agreement, including but not limited the Company's agreement to pay Employee, subsequent to his termination, the Termination Payments set forth in Section 3 of his Employment Agreement, the Company and Employee agree as follows: 1 RELEASE (a) As a condition to receipt of the Termination Payments and Benefits set forth in Section 5 of the Employment Agreement dated as of _____________ ("Employment Agreement"), except as provided in subsection (c) of this Section 1, Employee, on behalf of himself, and his heirs, executors, administrators, successors, agents and assigns, hereby (i) acknowledges that the payments and continuing benefits set forth in Section 4(c) and 5 of the Employment Agreement constitute valid consideration for this Agreement, satisfy in full any and all of Employee's rights with respect Employee's employment with the Company, and termination of such employment, and discharge in full all of the Company's obligations to Employee including, without limitation, salary or vested or accrued vacation pay, bonuses, benefits, perquisites and any amounts payable under any other plan, policy or agreement entered into, provided by or relating to the Company; and (ii) fully releases and forever discharges the Company, JP Foodservice, Inc. and their respective past, present and future affiliates, divisions, subsidiaries, facilities, parents, predecessors, successors, and assigns, and each of their officers, directors, managers, shareholders, agents, representatives, attorneys and employees, (hereinafter collectively referred to as the "Released Parties"), from any claims, demands, liabilities, obligations, charges, damages and causes of action, known or unknown, fixed or contingent, suspected or unsuspected, arising prior to the Effective Date, with respect to Employee's position as a stockholder, officer or director, or with respect to his employment or termination of employment with the Company, or any policy, practice, plan or program of the Company, its successors or assigns, or which may be based upon, related to, or connected therewith, including, but not limited to, any claim or action under any of the following (as amended): Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1866, the National Labor Relations Act, the Fair Labor Standards Act, the Employee Retirement Income Security Act, the Labor Management Relations Act, the Age Discrimination in Employment Act ("ADEA"), the Older Workers Benefit 1 Protection Act, the Civil Rights Act of 1991, the Worker Adjustment and Retraining Notification Act, the Americans with Disabilities Act, the Pennsylvania Human Rights Act, the Pennsylvania Wage Payment and Collection Act, all federal, state and local antidiscrimination statutes, federal common law, state common law, and/or any federal, state or local statute, law, ordinance, regulation or order, and claims under any express or implied contract which Employee or his heirs, executors, administrators, successors, agents or assigns may claim exist or existed with the Company or against any of the Released Parties. (iii) agrees that the release set forth in this Section 1(a)(ii) shall also specifically and expressly apply to and forever discharge any claims, demands, liabilities, obligations, charges, damages and causes of action, known or unknown, fixed or contingent, suspected or unsuspected, whether as an employee or shareholder, and every other capacity, relating in any way to: (a) the Approval of the Board of Directors of the Company to merge with JP Foodservice, Inc. ("Company Merger Approval"); (b) the Approval by the Board of Directors of JP Foodservice, Inc. to merge with the Company ("JP Merger Approval"); (c) the Agreement and Plan of Merger by and among JP Foodservice, Inc., Hudson Acquisition Corp. and Rykoff-Sexton, Inc. dated as of June 30, 1997 ("Merger Agreement"); (d) the merger between the Company and JP Foodservice, Inc. ("Merger"); (e) the Exchange of Stock between the Company and JP Foodservice, Inc. in connection with the Merger; and (f) any act, failure to act, decision, approval, rejection, denial, matter, event, occurrence or thing whatsoever by the Company, its successors or assigns, arising from, related to, resulting from, as a consequence of, or in connection with the Company Merger Approval, JP Merger Approval, the Merger Agreement, the Merger or the Exchange of Stock, provided, however that nothing herein shall affect the Employee's rights to receive the consideration provided in the Merger Agreement in respect of his shares upon the closing of the Merger on the same basis as all other stockholders. (b) Employee covenants and agrees never to commence, voluntarily aid in any way, prosecute, or authorize to be commenced against any other party, any action or other proceeding based upon any claims, demands, causes of action, obligations, damages, or liabilities which are being released by this Agreement. Employee declares that, prior to the execution of this Agreement, he has apprised himself of sufficient relevant data, either through experts or other sources of his own selection, in order that he might intelligently exercise his judgment in deciding whether to execute, and in deciding on the contents of, this Agreement. Employee further declares that his decision is not predicated on or influenced by any declaration or representations of the Company, its successors and assigns, or any predecessors in interest. Employee states that the contents of this Agreement have been explained to him by his counsel and that this document is executed voluntarily with full knowledge of its significance. (c) Except as expressly set forth herein, this Agreement supersedes any other agreement between Employee and the Company, provided, however, that this release does not effect any waiver by Employee of any rights that he may have (i) under applicable law which cannot be waived pursuant to this Agreement, or (ii) pursuant to this Agreement. Furthermore, this Agreement does not affect or supersede Employee's 2 Covenants to the Company made in the Employment Agreement, including but not limited to Covenants set forth in Section 6 of the Employment Agreement. (d) Nothing in this Agreement shall be construed as an admission by any party as to any liability. 2 REAFFIRMATION OF COVENANTS. Employee hereby reaffirms his obligations to the Company, its successors and assigns, under the Employment Agreement, including but not limited to, the applicability and validity of Sections 6, 7 and 8 of the Employment Agreement. 3 ASSERTION OF CLAIMS. Employee represents and warrants, with the understanding that such representation and warranty is material to this transaction, that (a) he is not aware of a person having asserted or having a valid basis to assert, with any federal, state or local judicial or administrative agency or body any claim against the Company, its successors or assigns, of any kind or character based on or arising out of or alleged to be suffered in or as a consequence of Employee's employment with the Company, its termination, or his contacts or relationships with the Company or any Released Party, and (b) Employee has no current intention to assert, in any manner or by any means, any such claim before any federal, state or local judicial or administrative agency or body. If any such claim is asserted in the future by Employee or any person or entity authorized by Employee to do so, Employee agrees and acknowledges that this Agreement and release set forth in Section 3 hereof shall act as a total and complete bar to his reemployment or to recovery of any sum or amount whatsoever from the Company, its successors or assigns, whether labeled "award, liability, damages, judgment, back pay, wages, or fine" or otherwise resulting directly or indirectly from any lawsuit, remedy, charge or complaint whether brought privately by him or by any one else, including any federal, state or local agency, whether or not on his behalf or at his request. 4 REEMPLOYMENT. Employee hereby releases and waives any and all rights or claims he may have to reemployment by the Company, its successors and assigns, and agrees that he shall not reapply for any position with the Company, its successors or assigns. 5 CONSIDERATION OF TERMS AND EFFECTIVE DATE. EMPLOYEE ACKNOWLEDGES THAT HE HAS CAREFULLY READ THIS AGREEMENT, THAT HE KNOWS AND UNDERSTANDS THE CONTENTS THEREOF AND THAT HE EXECUTES THE SAME AS HIS OWN FREE, KNOWING AND VOLUNTARY ACT AND DEED. EMPLOYEE FURTHER REPRESENTS AND ACKNOWLEDGES THAT HE HAS BEEN ADVISED BY THE COMPANY IN WRITING TO CONSULT WITH AN ATTORNEY PRIOR TO EXECUTING THIS AGREEMENT IF HE CHOSE TO DO SO, THAT HE HAS HAD AN OPPORTUNITY TO CONSULT FULLY WITH HIS PERSONAL ATTORNEY REGARDING THE TERMS OF THIS AGREEMENT, THAT HE FULLY UNDERSTANDS THE TERMS, CONDITIONS, AND FINAL BINDING 3 EFFECT OF THIS AGREEMENT, AND THAT THE RELEASE CONTAINED HEREIN IS A RELEASE OF ALL CLAIMS WITH FINAL AND BINDING EFFECT. EMPLOYEE ACKNOWLEDGES THAT HE HAS BEEN GIVEN A PERIOD OF AT LEAST 21 DAYS WITHIN WHICH TO CONSIDER THIS AGREEMENT PRIOR TO HIS EXECUTION HEREOF. FURTHERMORE, IT IS AGREED THAT EMPLOYEE SHALL HAVE THE RIGHT TO REVOKE THIS AGREEMENT BY WRITTEN NOTICE TO THE COMPANY WITHIN SEVEN DAYS FOLLOWING ITS EXECUTION. FOR THIS REVOCATION TO BE EFFECTIVE, WRITTEN NOTICE MUST BE RECEIVED BY THE COMPANY'S CHIEF EMPLOYEE OFFICER NO LATER THAN THE CLOSE OF BUSINESS ON THE SEVENTH DAY AFTER EMPLOYEE SIGNS THIS AGREEMENT. IF EMPLOYEE DOES SO REVOKE, THIS AGREEMENT WILL BE NULL AND VOID AND, SUBJECT TO APPLICABLE LAW, THE COMPANY SHALL HAVE NO OBLIGATION WHATSOEVER TO EMPLOYEE, AND EMPLOYEE WILL NOT RECEIVE THE CONSIDERATION DESCRIBED IN SECTION 1. THIS AGREEMENT SHALL NOT BECOME EFFECTIVE AND ENFORCEABLE UNTIL AFTER THE EXPIRATION OF THIS SEVEN-DAY REVOCATION PERIOD; AFTER SUCH TIME, IF THERE HAS BEEN NO REVOCATION, THIS AGREEMENT SHALL BE FULLY EFFECTIVE AND ENFORCEABLE. IF THIS AGREEMENT IS REVOKED BY EMPLOYEE IN ACCORDANCE WITH THIS SECTION 5, EMPLOYEE SHALL RETURN TO THE COMPANY ALL CONSIDERATION AND BENEFITS PROVIDED BY THE COMPANY TO WHICH EMPLOYEE WOULD NOT BE ENTITLED ABSENT THIS AGREEMENT. 6 ACKNOWLEDGEMENT AND CONSIDERATION. The consideration described in Section 1 is being provided in return for Employee's providing this release and not revoking under Section 5 so that this release becomes effective. Employee acknowledges that the payments set forth in Section 1 is more than the Company is required to provide under its normal policies and procedures, and any existing agreements between Employee and the Company or its successors or assigns, and is an amount to which he would not otherwise be entitled by virtue of any contract, Company policy or practice, or any federal, state or local statute, ordinance, order or law. 7 LEGAL FEES AND EXPENSES. In the event of litigation between the parties regarding interpretation or enforcement of this release, the parties agree that the prevailing party shall be entitled to recover reasonable attorneys' and related fees and expenses incurred in connection with the litigation. 8 NO AUTHORITY OR RESPONSIBILITY. Employee acknowledges that he shall have no supervisory, managerial or agency responsibility or authority from and after the Termination Date and agrees not to involve himself in any activities of the Company, except as may be requested below by the Chairman, President and Chief Employee 4 Officer of the Company. Employee also acknowledges that effective as of the termination of his employment, he does not have authority to bind the Company to any contracts or commitments and agrees that he shall not create any obligation for or bind or attempt to bind the Company, its successors or assigns, in any manner whatsoever. 9 MISCELLANEOUS. (a) AFFILIATE DEFINITION. "Affiliate" shall mean any person, firm or corporation which directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, the persons specified. (b) LAW AND INTERPRETATION. This release shall be governed by, construed and interpreted in accordance with the laws of the State of Pennsylvania. With respect to each and every term and condition in this release, the parties understand and agree that the same have or has been mutually negotiated, prepared and drafted, and that if at any time the parties hereto desire or are required to interpret or construe any such term or condition or any agreement or instrument subject hereto, no consideration shall be given to the issue of which party hereto actually prepared, drafted or requested any term or condition of this Agreement or any agreement or instrument subject hereto. IN WITNESS WHEREOF, Employee has executed this release as of the date first above written. --------------------------------------- [NAME OF EMPLOYEE] 5 EXHIBIT C July__,1997 Daylene Burnside Executive Director The Luzerne Foundation [ADDRESS] Dear Ms. Burnside: Rykoff-Sexton, Inc. is pleased to announce that it has decided to make a $100,000 per year contribution of cash or in-kind services (valued at cost) to The Luzerne Foundation ("Foundation") for each of 1997, 1998, 1999, 2000, and 2001. In-kind services may include office space, salary and benefits for an Executive Director and/or other such positions as the Foundation may need, and payment of reasonable expenses associated with travel or other Foundation business. We look forward our continued relationship with the Foundation. Very truly yours, Mark Van Stekelenburg Rykoff-Sexton, Inc. EX-10.22 8 EXHIBIT 10.22 RELEASE AND SETTLEMENT AGREEMENT EXHIBIT 10.22 RELEASE AND SETTLEMENT AGREEMENT THIS RELEASE AND SETTLEMENT AGREEMENT ("Agreement") is made and entered into this 18th day of July, 1997 by and between Rykoff-Sexton, Inc. (hereinafter "the Company") and Thomas G. McMullen (hereinafter "Mr. McMullen"). WITNESSETH: WHEREAS, the Company and Mr. McMullen entered into a certain Employment Agreement dated as of May 17, 1996 ("Employment Agreement"); and WHEREAS, the Company and Mr. McMullen entered into a certain Change In Control Agreement dated as of June 10, 1997 ("Change In Control Agreement"); and WHEREAS, Mr. McMullen has tendered his resignation as Executive Vice President of the Company; and WHEREAS, the Company and Mr. McMullen have agreed to resolve all matters between them, except as otherwise expressly set forth herein; and WHEREAS, the Company and Mr. McMullen wish to enter into an agreement that is binding on each of them; and WHEREAS, Mr. McMullen understands and agrees that the Company's willingness to enter into this Agreement is conditioned on Mr. McMullen's agreement to be bound by various provisions, including, but not limited to, non- competition, non-solicitation, non-disparagement and release provisions; and WHEREAS, the parties intend and agree that various provisions, including but not limited to, non-competition, non-solicitation, non- disparagement and release provisions, inure to the benefit of and may be enforced by the Company's successors and assigns; and WHEREAS, the Company has accepted Mr. McMullen's resignation; NOW, THEREFORE, in consideration of the mutual covenants and promises of the parties to this Agreement, including but not limited to the Company's agreement to pay Mr. McMullen, subsequent to his resignation, the payments described in this Agreement, the Company and Mr. McMullen agree as follows: 1 RESIGNATIONS. Mr. McMullen hereby submits and the Company hereby accepts his irrevocable written resignation as Executive Vice President, as an employee of the Company, and as a director and officer of the Company's subsidiaries and affiliates, effective as of July 22, 1997 (hereinafter the "Termination Date"). From and after the Termination Date, Mr. McMullen shall no longer be an elected officer of the Company or an officer or director of any of its subsidiaries or affiliates and, except for the purposes of the indemnification set forth in Section 13 of this Agreement, shall not for any purpose be considered to be or treated as an elected officer of the Company or an officer or director of any of its subsidiaries or affiliates. For purposes of the exercise by Mr. McMullen of stock options under the Company's stock option plans, Mr. McMullen's employment with the Company shall be deemed to have been terminated without cause (as defined in the applicable plan). 2 SEVERANCE PAYMENTS. (a) The Company and Mr. McMullen agree that he shall receive the following in connection with his termination: (i) A severance payment in the amount of $350,000, less applicable withholding, upon expiration of the seven day revocation period set forth in Section 9 below; (ii) Payment of $175,000 per year for three years subsequent to the execution of this Agreement, less applicable withholding, payable in accordance with the Company's regular payroll schedule. In the event of Mr. McMullen's death prior to the expiration of this three-year period, the remaining payments shall be paid to Mr. McMullen's designated beneficiary, or, if none, then to his estate; (iii) Continuation, for the three-year period referenced in (ii) above, of (A) benefits from all employee welfare benefit plans in which Mr. McMullen was entitled to participate immediately prior to the Termination Date, as such plans may be amended and replaced from time to time, (B) his car allowance in the current amount, and (C) after expiration of the three-year period referenced in (ii) above, Mr. McMullen may elect to continue health coverage at his cost and to the extent available under the Consolidated Omnibus Reconciliation Act of 1985 ("COBRA"); (iv) As of the Termination Date, all of Mr. McMullen's outstanding stock options as set forth in Exhibit A shall become immediately exercisable and shall be honored by the Company in accordance with their respective terms; (v) Extension by the Company by one year of the maturity date on that certain Tax Note with a current balance of $300,000; (vi) The forgiveness by the Company of the Tax Note together with accrued interest thereon one year from the date hereof, provided that Mr. McMullen has fulfilled his obligations pursuant to Section 6 below; (vii) Access to the secretarial services of Ms. Peggy Hamilton for a period of ninety days after execution of this Agreement; and 2 (viii) Payment of Mr. McMullen's Fourth Quarter Bonus for the time period ending on June 27, 1997. (b) With respect to the payments and benefits described in (i) through (viii) above, Mr. McMullen acknowledges that to the extent any of those benefits constitute income, they shall be treated as such by the Company through issuance of appropriate notices, including Forms 1099, and Mr. McMullen agrees that he shall be solely responsible for any tax liability that is imposed in connection with these payments and benefits. The parties agree that the payments and benefits described in (i) through (vii) above are not subject to any special excise tax and the Company intends to file all related documents consistent with that position, provided, however, that the Company, its successors and assigns, shall not have liability to or be required to indemnify Mr. McMullen under any circumstances for any special excise tax or other withholding obligations; (c) From and after the Termination Date, Mr. McMullen shall have no obligation to mitigate damages, to seek or obtain other employment, or to provide services on a self-employed basis, nor shall the amounts payable to Mr. McMullen under this Agreement be reduced by any amounts earned by Mr. McMullen; provided, however, that Mr. McMullen's coverage under the Company's welfare benefit plans will terminate when Mr. McMullen becomes eligible to be covered under any employee benefit plan made available by another employer and covering the same type of benefits (without exclusion for pre-existing conditions). Mr. McMullen shall notify the Company within thirty (30) days after the commencement of any such benefits. 3 RELEASE. (a) As a condition to the Company's performance of this Agreement, except as provided in subsection (c) of this Section 3, Mr. McMullen, on behalf of himself, and his heirs, executors, administrators, successors, agents and assigns, hereby (i) acknowledges that the payments and continuing benefits set forth in Section 2(a) constitute valid consideration for this Agreement, satisfy in full any and all of Mr. McMullen's rights with respect to the Employment Agreement, the Change In Control Agreement, the Performance Share Plan Agreement under the Company's Long Term Performance Compensation Program (Amended and Restated as of June 24, 1996), the Performance Share Award Agreement, all other agreements between Mr. McMullen and the Company, made on or prior to the Terminate Date, Mr. McMullen's employment with the Company, its successors and assigns, accrued through the Termination Date, the termination of such employment, and the discharge in full of all of the obligations of the Company, its successors and assigns, to Mr. McMullen including, without limitation, salary or vested or accrued vacation pay, bonuses, benefits, perquisites and any amounts payable under any other plan, policy or agreement entered into, provided by or relating to the Company, its successors and assigns; and (ii) fully releases and forever discharges the Company, JP Foodservice, Inc. and their respective past, present and future affiliates, divisions, 3 subsidiaries, facilities, parents, predecessors, successors and assigns, and each of their officers, directors, managers, shareholders, agents, representatives, attorneys and employees, (hereinafter collectively referred to as the "Released Parties"), from any claims, demands, liabilities, obligations, charges, damages and causes of action, known or unknown, fixed or contingent, suspected or unsuspected, which occurred or arose or which relate to, are in connection with, or are in consequence of, any act, failure to act, decision, matter, event, occurrence, or thing whatsoever arising from the beginning of time up to and including the Effective Date set forth in Section 9 with respect to Mr. McMullen's position as an employee, stockholder, officer or director, and every other capacity of Mr. McMullen whatsoever, or with respect to his employment or termination of employment with the Company, its successors and assigns, or any policy, practice, plan or program of the Company, its successors or assigns, or which may be based upon, related to, or connected therewith, including, but not limited to, any claim or action under any of the following (as amended): Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1866, the National Labor Relations Act, the Fair Labor Standards Act, the Employee Retirement Income Security Act, the Labor Management Relations Act, the Age Discrimination in Employment Act ("ADEA"), the Older Workers Benefit Protection Act, the Civil Rights Act of 1991, the Worker Adjustment and Retraining Notification Act, the Americans with Disabilities Act, the Pennsylvania Human Rights Act, the Pennsylvania Wage Payment and Collection Act, all federal, state and local antidiscrimination statutes, federal common law, state common law, and/or any federal, state or local statute, law, ordinance, regulation or order, and claims under any express or implied contract which Mr. McMullen or his heirs, executors, administrators, successors, agents or assigns may claim exist or existed with the Company, its successors or assigns, or against any of the Released Parties. (iii) agrees that the release set forth in this Section 3(a)(ii) shall also specifically and expressly apply to and forever discharge any claims, demands, liabilities, obligations, charges, damages and causes of action, known or unknown, fixed or contingent, suspected or unsuspected, whether as an employee, shareholder, officer, director, and every other capacity, relating in any way to: (a) the Approval of the Board of Directors of the Company to merge with JP Foodservice, Inc. ("Company Merger Approval"); (b) the Approval by the Board of Directors of JP Foodservice, Inc. to merge with the Company ("JP Merger Approval"); (c) the Agreement and Plan of Merger by and among JP Foodservice, Inc., Hudson Acquisition Corp. and Rykoff-Sexton, Inc. dated as of June 30, 1997 ("Merger Agreement"); (d) the merger between the Company and JP Foodservice, Inc. ("Merger"); (e) the Exchange of Stock between the Company and JP Foodservice, Inc. in connection with the Merger; and (f) any act, failure to act, decision, approval, rejection, denial, matter, event, occurrence or thing whatsoever by the Company, its successors or assigns, arising from, related to, resulting from, as a consequence of, or in connection with the Company Merger Approval, JP Merger Approval, the Merger Agreement, the Merger or the Exchange of Stock, provided, however that nothing herein shall affect Mr. McMullen's rights to receive the consideration provided in the Merger Agreement in respect of his shares upon the closing of the Merger on the same basis as all other stockholders. 4 (b) Mr. McMullen covenants and agrees never to commence, voluntarily aid in any way, prosecute, or authorize to be commenced against any other party, any action or other proceeding based upon any claims, demands, causes of action, obligations, damages, or liabilities which are being released by this Agreement. Mr. McMullen declares that, prior to the execution of this Agreement, he has apprised himself of sufficient relevant data, either through experts or other sources of his own selection, in order that he might intelligently exercise his judgment in deciding whether to execute, and in deciding on the contents of, this Agreement. Mr. McMullen further declares that his decision is not predicated on or influenced by any declaration or representations of the Company, its successors or assigns, or any predecessors in interest. Mr. McMullen states that the contents of this Agreement have been explained to him by his counsel and that this document is executed voluntarily with full knowledge of its significance. (c) Except as expressly set forth herein, this Agreement supersedes the Employment Agreement, the Change In Control Agreement, the Performance Share Plan Agreement under the Company's Long Term Performance Compensation Program (Amended and Restated as of June 24, 1996), the Performance Share Award Agreement, and all other agreements between Mr. McMullen and the Company, its successors or assigns made on or prior to the Termination Date, provided, however, that this release does not affect any rights that Mr. McMullen may have (i) under applicable law which cannot be waived pursuant to this Agreement; or (ii) pursuant to this Agreement. (d) Subject to the provisions of Section 13(b), the Company and its subsidiaries hereby fully release and forever discharge Mr. McMullen, and his heirs, executors, administrators, successors and assigns, from any and all claims, demands, liabilities, obligations, charges, damages and causes of action, known or unknown, fixed or contingent, suspected or unsuspected, with respect to Mr. McMullen's employment or directorship with the Company or its subsidiaries arising from the beginning of time up to and including the Effective Date set forth in Section 9, including, notwithstanding the exclusions set forth below, those arising from disclosures, if any, made by Mr. McMullen of information relating to the existence of and terms of the Merger. This release shall not include or extend to (i) any liability for presently unknown acts of Mr. McMullen finally determined by a court to violate federal, state or local law, including, but not limited to, state and federal securities laws; (ii) any liability for presently unknown acts of Mr. McMullen which constitute fraud; (iii) any rights or obligations under applicable law which cannot be waived or released pursuant to this Agreement; or (iv) any rights or remedies the Company, its successors or assigns, may have under this Agreement. When used herein, the phrase "presently unknown acts" shall mean the specific acts for which the majority of either the Executive Committee (excluding Frank Bevevino) or the Board of Directors of the Company (excluding Frank Bevevino) did not have actual knowledge on or before July 18, 1997, but does not include the specific enumerated acts described in the letter from Mark Van Stekelenburg to Phillip H. Werner dated as of July 18, 1997, identified as a letter pursuant to Section 3(d) of Release and Settlement Agreements dated July 18, 1997. 5 4 NO ADMISSION. Nothing in this Agreement shall be construed as an admission by any party as to any liability. 5 NON-DISPARAGEMENT AND OTHER MATTERS. (a) Except as may be required by law, Mr. McMullen agrees that he shall: (i) not waive any privileges or confidences that the Company, its successors or assigns may have with respect to any information or communications with its attorneys or accountants; (ii) not disclose to any person the terms of this Agreement excepting disclosures to (A) Mr. McMullen's immediate family members; (B) persons undertaking an evaluation of Mr. McMullen for purposes of extending credit to him; and (C) Mr. McMullen's attorneys, accountants and financial advisors; and (D) as may be necessary to enforce the terms of this Agreement. (iii) not encourage or promote litigation against the Company, its successors or assigns; (iv) not communicate with any person, or the attorney or representative of any person, who Mr. McMullen reasonably believes to be contemplating or pursuing litigation against the Company, its successors or assigns. Nothing contained herein shall be deemed to prohibit Mr. McMullen from communicating (A) with any attorney regarding his personal affairs; and (B) responding to, and complying with, any subpoena served upon Mr. McMullen; provided, however, that Mr. McMullen shall first notify the Company immediately of his receipt of any such subpoena pursuant to Section 14(f) by facsimile and overnight carrier; (v) Mr. McMullen acknowledges that his obligation to provide assistance to the Company, consistent with Section 11 of the Employment Agreement, is in effect and will continue to be in effect subsequent to the execution of this Agreement. The Company and Mr. McMullen agree that Mr. McMullen shall be available to render consulting services upon the request of the Company, provided that Mr. McMullen shall not be obligated to render such services for more than five days during any six-week period. Mr. McMullen shall be entitled to reimbursement for all out-of-pocket expenses. Fees for this consulting services will be negotiated on a basis consistent with the services provided; however, Mr. McMullen expressly agrees that he will not seek fees for the first five days of consulting he is requested to perform by the Company, its successors or assigns; (vi) cooperate with the Company, its successors and assigns, in: (A) its investigation, defense or prosecution of any potential or actual claim, charge or suit, or investigation by or against the Company, its successors or assigns; and (B) any inquiry, review or investigation of business matters or undertakings of the Company, its successors or assigns. As used herein, the term "cooperate" means: (A) making himself available from time to time for meetings with counsel to the Company, its successors and 6 assigns at the Company's reasonable request; (B) not communicating with parties known to be adverse to the Company, its successors or assigns, or their counsel, except by way of deposition or trial testimony, or purely social communications; (C) making himself available for depositions and trial testimony upon the reasonable instruction of counsel to the Company, it successors or assigns; and (D) executing those documents and truthful affidavits requested from time to time by counsel to the Company, its successors or assigns. The Company agrees to reimburse Mr. McMullen for reasonable out of pocket expenses including for travel, hotel and meal expenses, incurred in connection with his cooperation under this Section 5(a)(vi); and (vii) to take affirmative steps at the reasonable request of the Company (such steps to be specified by the Company and reasonably acceptable to Mr. McMullen) (i) to encourage key employees of the Company, its successors and assigns, to remain with the Company, its successors or assigns, despite Mr. McMullen's departure, and (ii) to negate any negative impact that his departure may cause. (b) From and after the date of this Agreement, neither party shall make any public statements, whether written or oral, or any other statements which such party reasonably believes are likely to become public, which statements disparage or defame the other party. 6 ADDITIONAL COVENANTS OF MR. MCMULLEN. (a) ACKNOWLEDGEMENT. Mr. McMullen recognizes and acknowledges that his employment relationship with the Company has been extraordinary in that, among other things, he has been Executive Vice President of the Company since May 17, 1996. In that position, he had access to and developed confidential or proprietary business information; customer information and lists; costs; prices; earnings; systems; operating procedures; merchandising and marketing plans and methods; the terms of agreement with employees, customers and/or suppliers; personal training and development programs; prospective and executed contracts and other business information of the Company, its successors and assigns methods and strategies; product development ideas and strategies; financial results; strategic plans; proprietary computer and systems software; and other important information relating to the Company and JP Foodservice Inc. Because of that extraordinary relationship and in consideration of the covenants, undertakings and promises of the Company set forth in this Agreement, Mr. McMullen accepts and agrees to be bound by the covenants set forth in this Agreement including but not limited to the promises of this Section 6. Mr. McMullen understands that the Company would not enter into this Agreement if Mr. McMullen did not expressly agree to each of the covenants, undertakings and promises set forth herein, including but not limited to the provisions of this Section 6. Mr. McMullen acknowledges the broad scope of the covenants in this Section 6, but agrees that such covenants are reasonable in light of the scope of the duties he performed for the Company and the extraordinary relationship he had with the Company and its predecessor. Mr. McMullen further acknowledges and agrees that the covenants 7 contained in this Agreement do not unreasonably restrict his employment opportunities or unduly burden or deprive him financially. (b) COMPETITION. During the period from the Termination Date through the three-year period referenced in Section 2(a)(ii) (hereinafter referred to as the "Restricted Period"), Mr. McMullen shall not, directly or indirectly, own, manage, operate, join or control, or participate in the ownership, management, operation or control of, or be a proprietor, director, officer, stockholder, member, partner or an employee or agent of, or a consultant to, any business, firm, corporation, partnership or other entity anywhere in the United States of America (including, without limitation, SYSCO Corporation, Alliant (formerly Kraft) Corporation, JP Foodservice Inc., PYA/Monarch, MBM Corporation, ProSource, Inc., Ameriserve, Inc. and Marriott Distribution Services) which engages in the Restricted Business as defined in Section 10 of the Employment Agreement, including but not limited to the current business conducted by JP Foodservice Inc. For purposes of this Section, the term "ownership" does not include ownership of less than a 5% passive interest in such business, firm, corporation, partnership or other entity. (c) SOLICITATION OF CUSTOMERS. During the Restricted Period, Mr. McMullen shall not, directly or indirectly, for his own account or as proprietor, stockholder, member, partner, director, officer, employee, agent or otherwise for or on behalf of any person, business, firm, corporation, partnership or other entity other than the Company, its successors or assigns, sell, broker or solicit or assist in the offer to sell, broker or solicit, any orders for the purchase of any foodstuffs or other products sold by the Company, its successors or assigns during the "Measuring Period", which is the three year period preceding the date of termination of employment with the Company (hereinafter referred to as "Products") to or from any person, corporation or other entity which was a customer of the Company, its successors or assigns at any time during the Measuring Period. For purposes of this Agreement, "customer of the Company" means and includes: (i) any and all persons, business, corporations, partnerships or other entities which during the Measuring Period and/or the Restricted Period (A) have done business with the Company, its successors or assigns, as a customer, (B) have been contacted by the Company, its successors or assigns, for the purpose of purchasing products or services, or (C) have preexisting business relationships and/or dealings with Mr. McMullen when his employment with the Company terminates; and (ii) all persons, businesses, corporations, partnerships or other business, entities which control, or are controlled by the same person, corporation, partnership or other entity which controls any such customer of the Company, its successors or assigns. For purposes of this Agreement, "customers" includes food service brokers, prospective customers and referral sources of customers. (d) SOLICITATION OF EMPLOYEES. During the Restricted Period, Mr. McMullen shall not, directly or indirectly, for his own account or as proprietor, stockholder, partner, director, officer, employee, agent or otherwise for or on behalf of any person, business, firm, corporation, partnership or other entity other than the Company solicit any person who at any time during the three-month period prior to the 8 Effective Date and at any time thereafter was or is an employee of the Company, its successors or assigns (with the exception of Frank Bevevino and the employee acting as Mr. McMullen's secretary as of the Termination Date), for employment with any person, business, firm, corporation, partnership or other entity other than the Company or hire any employee of the Company, its successors or assigns, either directly or for or on behalf of any person, business, firm or corporation, partnership or other entity other than the Company. (e) CONFIDENTIAL INFORMATION. From and after the date of this Agreement, Mr. McMullen shall not at any time, directly or indirectly, use or disclose, make known, divulge, reveal or furnish to any person, business, firm, corporation, partnership or other entity, any confidential or proprietary information concerning the Company, its successor and assigns or their business, suppliers or customers except as required by law or to personal advisors, who are not in the food service industry and who are not customers, suppliers or employees of the Company, its successors or assigns, for purposes of enforcing or interpreting this Agreement, provided that such advisors (other than legal counsel) execute a confidentiality agreement in form and substance agreeable to the Company, its successors or assigns, prior to disclosure of such confidential information. All information, except public information, whether written or otherwise, regarding the business of Company, its successors and assigns, including but not limited to, information regarding customers, customer information and lists; costs, prices, earnings, systems, operating procedures, merchandising and marketing plans and methods; the terms of agreement with employees, customers and/or suppliers; personal training and development programs, prospective and executed contracts and other business information of the Company, its successors and assigns methods and strategies; product development ideas and strategies; financial results; strategic plans; proprietary computer and systems software; and other non-public important information relating to the Company arrangements, and sources of supply are presumed to be confidential information of the Company, its successors and assigns for purposes of this Agreement. Mr. McMullen agrees to return to the Company all books, records, lists and other written, typed or printed materials, whether furnished by the Company or prepared by Mr. McMullen, which contain any confidential information relating to the Company, its successors and assigns, or their business, suppliers or customers, promptly upon execution of this Agreement, and Mr. McMullen shall neither make nor retain any copies of such materials without the prior written consent of the Board of Directors of the Company. (f) NOTICE OF OBLIGATIONS. Mr. McMullen hereby consents to the notification of persons or entities of Mr. McMullen's obligations under this Agreement when the Company, its successors or assigns, reasonably believe that Mr. McMullen's activities are likely to be restricted by this Agreement. The Company's rights under this Section 6(f) shall be in addition to and not in preemption of all other rights and privileges the Company, its successors and assigns, may have under general legal and equitable principles, or by statute or common law. (g) CUMULATIVE PROVISIONS. The covenants and agreements contained in this Section 6 are independent of each other and cumulative. 9 (h) BINDING EFFECT: THIRD PARTY BENEFICIARIES. The provisions of this Section 6 shall inure to the benefit of the Company, its successors and assigns. The provisions of this Section 6 shall inure to the benefit of and be binding upon Mr. McMullen, his heirs, personal representatives, successor and assigns. (i) REMEDIES FOR BREACH. Mr. McMullen further acknowledges and agrees that his obligations under this Agreement are unique and that any breach or threatened breach of such obligations may result in irreparable harm and substantial damages to the Company, its successors and assigns. Accordingly, in the event of a breach or threatened breach by Mr. McMullen of any of the provisions of this Agreement, the Company, its successors and assigns shall have the right, in addition to exercising any other remedies at law or equity which may be available to it under this Agreement or otherwise to: (i) obtain EX PARTE, preliminary, interlocutory, temporary or permanent injunctive relief, specific performance and other equitable remedies in any court of competent jurisdiction to prevent Mr. McMullen from violating such provision or provisions or to prevent the continuance of any violation thereof, TOGETHER WITH an award or judgment for any and all damages, losses, liabilities, expenses and costs incurred by the Company, its successors and assigns as a result of such breach or threatened breach including, but not limited to attorneys' fees incurred by the Company, its successors and assigns in connection with, or as a result of, the enforcement of this Agreement; and (ii) discontinue any or all of the consideration provided in Section 2 of this Agreement. The parties expressly agree that the arbitration provision set forth in Section 13 of the Employment Agreement is no longer binding on the parties and has been superseded by this Agreement. (j) DIVISIBILITY. Mr. McMullen agrees that the provisions of this Section 6 are divisible and separable so that if any provision or provisions hereof shall be held to be unreasonable, unlawful or unenforceable, such holding shall not impair the remaining provisions hereof. If any provision hereof is held to be unreasonable, unlawful or unenforceable in duration, geographical scope or character of restriction by any court of competent jurisdiction, it is the express desire and agreement of Mr. McMullen that such provision shall be modified to the extent necessary in order that any such provision or portion thereof shall be legally enforceable to the fullest extent permitted by law, and the parties hereto do hereby expressly authorize any court of competent jurisdiction to enforce any such provision or portion thereof or to modify any such provision or portion thereof in order that any such provision or portion thereof shall be enforced by such court to the fullest extent permitted by applicable law. (k) NONIMPAIRMENT OF OBLIGATIONS. Mr. McMullen agrees that his obligations under Sections 5 and 6 are in addition to, and not in limitation or preemption of, all other obligations which Mr. McMullen may have to the Company, its successors and assigns, under general legal and equitable principles or by statute or common law. 7 ASSERTION OF CLAIMS. Mr. McMullen represents and warrants, with the understanding that such representation and warranty is material to this transaction, 10 that (a) he is not aware of a person having asserted or having a valid basis to assert, with any federal, state or local judicial or administrative agency or body any claim against the Company, its successors or assigns, of any kind or character based on or arising out of or alleged to be suffered in or as a consequence of Mr. McMullen's employment with the Company, its termination, or his contacts or relationships with the Company or any Released Party, and (b) Mr. McMullen has no current intention to assert, in any manner or by any means, any such claim before any federal, state or local judicial or administrative agency or body. If any such claim is asserted in the future by Mr. McMullen or any person or entity authorized by Mr. McMullen to do so, Mr. McMullen agrees and acknowledges that this Agreement and release set forth in Section 3 hereof shall act as a total and complete bar to his reemployment or to recovery of any sum or amount whatsoever from the Company, its successors or assigns, whether labeled "award, liability, damages, judgment, back pay, wages, or fine" or otherwise resulting directly or indirectly from any lawsuit, remedy, charge or complaint whether brought privately by him or by any one else, including any federal, state or local agency, whether or not on his behalf or at his request. 8 REEMPLOYMENT. Mr. McMullen hereby releases and waives any and all rights or claims he may have to reemployment by the Company, its successors and assigns, and agrees that he shall not reapply for any position with the Company, its successors or assigns. 9 CONSIDERATION OF TERMS AND EFFECTIVE DATE. MR. MCMULLEN ACKNOWLEDGES THAT HE HAS CAREFULLY READ THIS AGREEMENT, THAT HE KNOWS AND UNDERSTANDS THE CONTENTS THEREOF AND THAT HE EXECUTES THE SAME AS HIS OWN FREE, KNOWING AND VOLUNTARY ACT AND DEED. MR. MCMULLEN FURTHER REPRESENTS AND ACKNOWLEDGES THAT HE HAS BEEN ADVISED BY THE COMPANY IN WRITING TO CONSULT WITH AN ATTORNEY PRIOR TO EXECUTING THIS AGREEMENT IF HE CHOSE TO DO SO, THAT HE HAS HAD AN OPPORTUNITY TO CONSULT FULLY WITH HIS PERSONAL ATTORNEY REGARDING THE TERMS OF THIS AGREEMENT, THAT HE FULLY UNDERSTANDS THE TERMS, CONDITIONS, AND FINAL BINDING EFFECT OF THIS AGREEMENT, AND THAT THE RELEASE CONTAINED HEREIN IS A RELEASE OF ALL CLAIMS WITH FINAL AND BINDING EFFECT. MR. MCMULLEN ACKNOWLEDGES THAT HE HAS BEEN GIVEN A PERIOD OF AT LEAST 21 DAYS WITHIN WHICH TO CONSIDER THIS AGREEMENT PRIOR TO HIS EXECUTION HEREOF. FURTHERMORE, IT IS AGREED THAT MR. MCMULLEN SHALL HAVE THE RIGHT TO REVOKE THIS AGREEMENT BY WRITTEN NOTICE TO THE COMPANY WITHIN SEVEN DAYS FOLLOWING ITS EXECUTION. FOR THIS REVOCATION TO BE EFFECTIVE, WRITTEN NOTICE MUST BE RECEIVED BY THE COMPANY'S 11 CHIEF EXECUTIVE OFFICER NO LATER THAN THE CLOSE OF BUSINESS ON THE SEVENTH DAY AFTER MR. MCMULLEN SIGNS THIS AGREEMENT. IF MR. MCMULLEN DOES SO REVOKE, THIS AGREEMENT WILL BE NULL AND VOID AND, SUBJECT TO APPLICABLE LAW, THE COMPANY SHALL HAVE NO OBLIGATION WHATSOEVER TO MR. MCMULLEN, AND MR. MCMULLEN WILL NOT RECEIVE THE CONSIDERATION DESCRIBED IN SECTION 2. THIS AGREEMENT SHALL NOT BECOME EFFECTIVE AND ENFORCEABLE UNTIL AFTER THE EXPIRATION OF THIS SEVEN-DAY REVOCATION PERIOD; AFTER SUCH TIME, IF THERE HAS BEEN NO REVOCATION, THIS AGREEMENT SHALL BE FULLY EFFECTIVE AND ENFORCEABLE. IF THIS AGREEMENT IS REVOKED BY MR. MCMULLEN IN ACCORDANCE WITH THIS SECTION 9, MR. MCMULLEN SHALL RETURN TO THE COMPANY ALL CONSIDERATION AND BENEFITS PROVIDED BY THE COMPANY TO WHICH MR. MCMULLEN WOULD NOT BE ENTITLED ABSENT THIS AGREEMENT. 10 ACKNOWLEDGEMENT AND CONSIDERATION. The consideration described in Section 2 is being provided in return for Mr. McMullen's accepting the terms of this Agreement, including but not limited to the covenants set forth in Section 6 as well as the giving of a release, a covenant not to sue, and not revoking under Section 9 so that this Agreement becomes effective. Mr. McMullen acknowledges that the payments and agreements set forth in Section 2 constitute adequate consideration supporting his obligations and releases given under this Agreement. 11 LEGAL FEES AND EXPENSES. In the event of litigation between the parties regarding interpretation or enforcement of this Agreement, the parties agree that the prevailing party shall be entitled to recover reasonable attorneys' and related fees and expenses incurred in connection with the litigation. The parties expressly agree that this provision modifies and supersedes Section 21 of the Employment Agreement. 12 NO AUTHORITY OR RESPONSIBILITY. Mr. McMullen acknowledges that he shall have no supervisory, managerial or agency responsibility or authority from and after the Termination Date and agrees not to involve himself in any activities of the Company, except as may be requested by the Chairman and Chief Executive Officer of the Company. Mr. McMullen also acknowledges that effective as of the Termination Date, he does not have authority to bind the Company, its successors or assigns to any contracts or commitments and agrees that he shall not create any obligation for or bind or attempt to bind the Company, its successors or assigns, in any manner whatsoever. 13 INDEMNIFICATION. (a) This Agreement shall not affect Mr. McMullen's rights to coverage or indemnification under the charter or by-laws of the Company or policies of insurance as in effect on or prior to the Termination Date, with 12 respect to acts of commission or omission or events occurring on or prior to the Termination Date; and (b) Mr. McMullen shall indemnify the Company, its successors or assigns, for monetary expense or loss arising out of a claim brought by a third party or governmental investigation based upon any breach of the confidentiality provisions of his Employment Agreement, to the extent that such claim or investigation arises directly from facts in existence prior to the Termination Date but not known to the Company (defined as "presently unknown acts" in Section 3(d) above), and are not otherwise covered by the Company's insurance policies, except policies of self-insurance or risk retention. 14 MISCELLANEOUS. (a) AFFILIATE DEFINITION. "Affiliate" shall mean any person, firm or corporation which directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, the persons specified. (b) COMPANY, SUCCESSORS AND ASSIGNS DEFINITIONS. "The Company, its successors and assigns" shall mean the Company and its past, present and future affiliates, divisions, subsidiaries, facilities, parents, successors, predecessors and assigns, and their respective past, present and future officers, directors, managers, shareholders, agents, representatives, attorneys and employees. "The Company, its successors or assigns" shall mean the Company and/or its past, present and future affiliates, divisions, subsidiaries, facilities, parents, successors, predecessors and assigns, and their respective past, present and future officers, directors, managers, shareholders, agents, representatives, attorneys and employees. (c) AMENDMENTS. This Agreement may be amended only by a writing executed by each of the parties hereto. (d) ENTIRE AGREEMENT. This Agreement sets forth the entire understanding of the parties hereto with respect to the subject matter hereof, and supersedes all prior contracts, agreements, arrangements, communications, discussions, representations and warranties, whether oral or written, between the parties other than any confidentiality agreement executed by Mr. McMullen while an employee of the Company. (e) LAW AND INTERPRETATION. This Agreement shall be governed by, construed and interpreted in accordance with the laws of the State of Pennsylvania. With respect to each and every term and condition in this Agreement, the parties understand and agree that the same have or has been mutually negotiated, prepared and drafted, and that if at any time the parties hereto desire or are required to interpret or construe any such term or condition or any agreement or instrument subject hereto, no consideration shall be given to the issue of which party hereto actually prepared, drafted 13 or requested any term or condition of this Agreement or any agreement or instrument subject hereto. (f) NOTICES. Any notice, request or other communication required or permitted hereunder shall be in writing and shall be deemed to have been duly given (i) when received if personally delivered, (ii) within 12 hours after being sent by telecopy, with telecopy confirmation, and (iii) when received (as established by written receipt) if sent by established overnight courier to the parties (and to the persons to whom copies shall be sent) at: To the Company: Rykoff-Sexton, Inc. 613 Baltimore Drive East Mountain Corporate Center Wilkes-Barre, Pennsylvania 18702-6980 Attention: Mark Van Stekelenburg Telecopy No.: (717) 830-7112 With a copy to: Jones, Day, Reavis & Pogue 77 West Wacker Chicago, Illinois 60601-1692 Attention: Elizabeth C. Kitslaar Telecopy No.: (312) 782-8585 To Mr. McMullen: 10 Raeder Avenue Nuangola, PA 18707 With a copy to: Morgan, Lewis & Bockius LLP 101 Park Avenue New York, NY 10178-0060 Attention: Philip H. Werner Telecopy No.: 212/309-6080 Any party by notice given to the other party in accordance with this Section 14(e) may change the address or the persons to whom notices or copies thereof shall be directed. (g) COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, and all of which together shall constitute one and the same instrument. (h) ASSIGNMENT. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors, assigns and heirs, as set forth herein, but no rights, obligations or liabilities hereunder shall be assignable by Mr. McMullen without the prior written consent of the Company, its successors and assigns. 14 (i) WAIVERS AND AMENDMENTS. This Agreement may be amended, superseded, canceled, renewed or extended, and the terms hereof may be waived, only by a written instrument signed by the parties or, in the case of a waiver, by the party waiving compliance. No delay on the part of either party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any waiver on the part of either party of such right, power or privilege nor any single or partial exercise of any such right, power or privilege, preclude any other further exercise thereof or the exercise of any other such right, power or privilege. (j) HEADINGS. The headings in this Agreement are solely for convenience of reference and shall not be given any effect in the construction or interpretation of this Agreement. (k) EXPENSE REIMBURSEMENT. The Company will reimburse Mr. McMullen for the reasonable fees of Mr. McMullen's attorney in connection with his resignation, including such attorney's review of this Agreement and consultation with Mr. McMullen on its implications; provided, however, that such fees when combined with those fees incurred by Mr. Bevevino, do not exceed $40,000. IN WITNESS WHEREOF, Mr. McMullen has executed, and the Company has caused its duly authorized representative to execute, this Agreement as of the date first above written. Rykoff-Sexton, Inc. By /s/ --------------------------------- /s/ Thomas G. McMullen --------------------------------- Thomas G. McMullen 15
EXHIBIT A [LOGO] - ----------------------------------------------------------------------------------------------------------------------------------- STOCK OPTION REPORT - THOMAS G. MCMULLEN 25-JUNE-97 - ----------------------------------------------------------------------------------------------------------------------------------- EXERCISED CANCELLED GRANT EXERCISE VESTED -------------------------------------------- -------------- SHARES DATE PRICE SHARES SHARES SHARES DATE SHARES DATE SHARES DATE SHARES DATE OUTSTANDING ----------------------------- ------ -------------------------------------------- -------------- ----------- RSI 1988 STOCK OPTION AND COMPENSATION PLAN 6/24/96 $14,125 20,000 5,000 20,000 ------ ------ ------ ------ ------ ------ ------- 20,000 5,000 20,000 ------ ------ ------ ------ ------ ------ ------- USFI 1992 STOCK OPTION PLAN 9/4/92 $10,540 8,908 8,908 -3,563 11/25/96 5,345 3/24/95 $3,470 1,489 1,489 -1,489 11/25/96 0 3/24/95 $10,540 6,796 6,796 -2,718 11/25/96 4,078 ------ ------ ------ ------ ------ ------ ------- 17,193 17,193 -7,770 9,423 USFI 1993 STOCK OPTION PLAN 3/24/95 $14,730 2,621 1,747 -873 11/25/96 1,748 ------ ------ ------ ------ ------ ------ ------- 2,621 1,747 -873 11/25/96 1,748 USFI MANAGEMENT STOCK OPTION PLAN 3/24/95 $9,410 6,646 6,646 -6,646 11/25/96 0 3/24/95 $9,410 1,453 1,453 1,453 ------ ------ ------ ------ ------ ------ ------- 8,099 8,099 -6,646 1,453
------ ------ ------ ------ ------ ------ ------ TOTAL FOR THOMAS G. MCMULLEN: 47,913 32,039 -15,289 32,624 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
EX-10.25-2 9 EXHIBIT 10.25.2 SECOND AMENDMENT TO SUPP RET. PLAN EXHIBIT 10.25.2 FORM OF SECOND AMENDMENT TO RYKOFF-SEXTON, INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN Second Amendment dated as of the ____ day of June, 1997 (the "Amendment") to the Rykoff-Sexton, Inc. Supplemental Executive Retirement Plan For Robert J. Harter, Jr., effective October 1, 1995 and as heretofore amended (the "Plan"), established by Rykoff-Sexton, Inc., a Delaware corporation (the "Employer"), for the benefit of ___________________ (the "Employee"). WITNESSETH: WHEREAS, the Employer has established the Plan for the benefit of the Employee, effective October 1, 1995; WHEREAS, the Plan was modified by a letter agreement dated May 9, 1997; WHEREAS, certain provisions of the Plan utilize the term "Change in Control," as defined in the Plan; WHEREAS, it has become necessary to revise the definition of "Change in Control" as used in the Plan; NOW, THEREFORE, the Employer and Employee agree to amend and modify the Plan as follows: 1. Section 2.6 of the Plan is hereby amended and restated in its entirety as follows: "2.6 Change in Control. A "Change in Control" of the Company shall occur upon: (a) any person (as defined in Sections 3(a)(9) and 13(d)(3) of the '34 Act) ("Person") (other than an Excluded Person (as hereinafter defined), the Company or any employee benefit plan (or related trust) sponsored or maintained by the Company or any subsidiary of the Company) becoming the "beneficial owner" (as defined in Rule 13d-3 promulgated pursuant to the '34 Act), directly or indirectly, of 25% or more of combined voting power of the then outstanding securities entitled to vote generally in the election of directors ("Voting Securities") of the Company, other than pursuant to a Business Combination (as hereinafter defined) that complies with clauses (I), (II), (III) and (IV) of subsection (c) of this Section 2.6; or (b) the occurrence within any twelve-month period during the term of the Agreement of a change in the Board with the result that the Incumbent Members do not constitute a majority of the Board; or (c) consummation of (A) a reorganization, merger or consolidation of the Company or any subsidiary of the Company, or (B) a sale or other disposition of all or substantially all of the assets of the Company (each, a "Business Combination"), unless, in each case, immediately following such Business Combination, (I) all or substantially all of the individuals and entities who were the beneficial owners of Voting Securities of the Company immediately prior to such Business Combination beneficially own, directly or indirectly, more than two-thirds of the then outstanding shares of common stock and the combined voting power of the then outstanding Voting Securities of the entity resulting from such Business Combination (including, without limitation, an entity which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions relative to each other as their ownership, immediately prior to such Business Combination, of the Voting Securities of the Company, (II) no Person (other than an Excluded Person, the Company, such entity resulting from such Business Combination, or any employee benefit plan (or related trust) sponsored or maintained by the Company, any subsidiary or such entity resulting from such Business Combination), beneficially owns, directly or indirectly, 25% or more of the then outstanding shares of Voting Securities of the entity resulting from such Business Combination, (III) at least a majority of the members of the Board of Directors of the entity resulting from such Business Combination were Incumbent Members of the Board at the time of the execution of the initial agreement and of the action of the Board providing for such Business Combination, and (IV) the Chief Executive Officer of the Company immediately prior to the commencement of discussions (the "Commencement Date") with the third party that results in the Business Combination remains the Chief Executive Officer of the Company and the entity resulting from such Business Combination (unless such Chief Executive Officer ceases to constitute such by reason of death, Disability (as defined in such Chief Executive Officer's Employment Agreement with the Company, as it may be amended and restated from time to time (the "Employment -2- Agreement")), termination for Cause (as defined in the Employment Agreement) or voluntary termination by such Chief Executive Officer under circumstances that are not treated as an involuntary termination under the Employment Agreement) during the period commencing on the Commencement Date and throughout the twelve-month period following the consummation of the Business Combination (any Change in Control that may arise from the failure to satisfy the condition specified in this clause (IV) to be effective as of the date the Chief Executive Officer ceases to constitute such); or (d) approval by the shareholders of the Company of a complete liquidation or dissolution of the Company, except pursuant to a Business Combination that complies with clauses (I), (II), (III) and (IV) of subsection (c) of this Section 2.6. "Excluded Person" shall mean (x) Merrill Lynch Capital Partners, Inc., Merrill Lynch Capital Appreciation Partnership No. B-XVIII, L.P., Merrill Lynch Kecalp L.P. 1994, ML Offshore LBO Partnership No. B-XVIII, ML IBK Positions, Inc., MLCP Associates L.P. No. II, MLCP Associates L.P. No. IV, Merrill Lynch Kecalp L.P. 1991, Merrill Lynch Capital Appreciation Partnership No. XIII, L.P., ML Offshore LBO Partnership No. XIII, ML Employees LBO Partnership No. I, L.P., Merrill Lynch Kecalp L.P. 1987, and Merchant Banking L.P. No. II (each, an "ML Entity" and collectively the "ML Entities"), if the ML Entities shall have executed a written agreement with the Company (and approved by the Company's Board of Directors) on or prior to the date on which the ML Entities (together with its Affiliates) became the beneficial owner of 25% or more of the shares of Voting Securities then outstanding (the "Standstill Agreement"), which Standstill Agreement imposes one or more limitations on the amount of the ML Entities' beneficial ownership of shares of Common Stock, and if, and so long as, such Standstill Agreement (or any amendment thereto approved by the Company's Board of Directors by the vote of a majority of the Present Directors) continues to be in effect and binding on the ML Entities and the ML Entities are in compliance (as determined by the Company's Board of Directors in its discretion by the vote of a majority of the Present Directors) with the terms of such Standstill Agreement (including any such amendment); or (y) any other Person acquiring Voting Securities from an ML Entity if (i) such Voting Securities were acquired by an ML Entity pursuant to the transactions contemplated by the Letter of Intent dated December 5, 1995 ("Letter of Intent") from the Company to US -3- Foodservice Inc. ("Excluded Shares") and (ii) if, prior to such acquisition by such other Person, a majority of the Present Directors has expressly determined in good faith that such acquisition is not a "Change in Control" for purposes of this Agreement ("ML Successor"); PROVIDED, HOWEVER, that a Change in Control shall occur if, prior to July 17, 1997, either (A) the Chief Executive Officer of the Company immediately prior to the execution of the Letter of Intent ceases to constitute the Chief Executive Officer of the Company (or any successor to the Company) ("CEO Termination") (unless such Chief Executive Officer ceases to constitute the Chief Executive Officer of the Company by reason of death, Disability (as defined in the Employment Agreement), termination for Cause (as defined in the Employment Agreement) or voluntary termination by such Chief Executive Officer under circumstances that are not treated as an involuntary termination under the Employment Agreement), or (B) the directors of the Company in office immediately prior to the execution of the Letter of Intent, together with any successors of such directors (provided that any such successors qualify as Present Directors), cease to constitute at least a majority of the Board ("Board Change"), such Change in Control to be effective as of the date of the CEO Termination or Board Change, as the case may be. "Present Director" shall mean a member of the Board who (1) is not designated as a member of the Board by any ML Entity or ML Successor, (2) does not otherwise have any agreement, arrangement or understanding with any ML Entity or ML Successor for the purpose of serving as a member of the Board, and (3) is not an Affiliate or an Associate (as hereinafter defined) of any ML Entity or ML Successor. "Affiliate" and "Associate" shall have the meanings set forth in Rule 12b-2 of the '34 Act. The Board shall have the power to determine, for purposes of this Agreement, on the basis of information known to the Board by a vote taken in good faith by a majority of Present Directors, (1) whether any Person is an Excluded Person, (2) the percentage of the Company's Voting Securities beneficially owned by an Excluded Person, and (3) any determination to be made pursuant to clause (x) of the definition of Excluded Person. Any such determination shall be conclusive and binding for all purposes of this Agreement." 2. Except as specifically amended hereby, all provisions of the Plan shall remain in full force and effect and the Plan, as amended hereby, shall from and after the date of -4- this Amendment be read as a single, integrated document incorporating the change effected hereby. IN WITNESS WHEREOF, this document is executed as of the date and year first above written. RYKOFF-SEXTON, INC. By: -------------------------------------------- Mark Van Stekelenburg Chief Executive Officer and Chairman of the Board -5- EX-10.27-3 10 EXHIBIT 10.27.3 2ND AMEND TO RYKOFF DEF COMP PLAN EXHIBIT 10.27.3 SECOND AMENDMENT TO RYKOFF-SEXTON, INC. DEFERRED COMPENSATION PLAN The Rykoff-Sexton, Inc. Deferred Compensation Plan, as heretofore amended (the "Plan"), is hereby amended effective as of June ___, 1997, by Rykoff-Sexton, Inc., a Delaware corporation (the "Company"), in the following respects: 1. Section 1.9 of the Plan shall be amended and restated in its entirety to read as follows: A "Change in Control" of the Company shall occur upon: (i) any person (as defined in Sections 3(a)(9) and 13(d)(3) of the '34 Act) ("Person") (other than an Excluded Person (as hereinafter defined), the Company or any employee benefit plan (or related trust) sponsored or maintained by the Company or any subsidiary of the Company) becoming the "beneficial owner" (as defined in Rule 13d-3 promulgated pursuant to the '34 Act), directly or indirectly, of 25% or more of combined voting power of the then outstanding securities entitled to vote generally in the election of directors ("Voting Securities") of the Company, other than pursuant to a Business Combination (as hereinafter defined) that complies with clauses (I), (II), (III) and (IV) of subsection (iii) of this Section 1.9; or (ii) the occurrence within any twelve-month period during the term of the Agreement of a change in the Board with the result that the Incumbent Members do not constitute a majority of the Board; or (iii) consummation of (A) a reorganization, merger or consolidation of the Company or any subsidiary of the Company, or (B) a sale or other disposition of all or substantially all of the assets of the Company (each, a "Business Combination"), unless, in each case, immediately following such Business Combination, (I) all or substantially all of the individuals and entities who were the beneficial owners of Voting Securities of the Company immediately prior to such Business Combination beneficially own, directly or indirectly, more than two-thirds of the then outstanding shares of common stock and the combined voting power of the then outstanding Voting Securities of the entity resulting from such Business Combination (including, without limitation, an entity which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions relative to each other as their ownership, immediately prior to such Business Combination, of the Voting Securities of the Company, (II) no Person (other than an Excluded Person, the Company, such entity resulting from such Business Combination, or any employee benefit plan (or related trust) sponsored or maintained by the Company, any subsidiary or such entity resulting from such Business Combination), beneficially owns, directly or indirectly, 25% or more of the then outstanding shares of Voting Securities of the entity resulting from such Business Combination, (III) at least a majority of the members of the Board of Directors of the entity resulting from such Business Combination were Incumbent Members of the Board at the time of the execution of the initial agreement and of the action of the Board providing for such Business Combination, and (IV) the Chief Executive Officer of the Company immediately prior to the commencement of discussions (the "Commencement Date") with the third party that results in the Business Combination remains the Chief Executive Officer of the Company and the entity resulting from such Business Combination (unless such Chief Executive Officer ceases to constitute such by reason of death, Disability (as defined in such Chief Executive Officer's Employment Agreement with the Company, as it may be amended and restated from time to time (the "Employment Agreement")), termination for Cause (as defined in the Employment Agreement) or voluntary termination by such Chief Executive Officer under circumstances that are not treated as an involuntary termination under the Employment Agreement) during the period commencing on the Commencement Date and throughout the twelve-month period following the consummation of the Business Combination (any Change in Control that may arise from the failure to satisfy the condition specified in this clause (IV) to be effective as of the date the Chief Executive Officer ceases to constitute such); or (iv) approval by the shareholders of the Company of a complete liquidation or dissolution of the Company, except pursuant to a Business Combination that complies with clauses (I), (II), (III) and (IV) of subsection (iii) of this Section 1.9. 2 "Excluded Person" shall mean (x) Merrill Lynch Capital Partners, Inc., Merrill Lynch Capital Appreciation Partnership No. B-XVIII, L.P., Merrill Lynch Kecalp L.P. 1994, ML Offshore LBO Partnership No. B-XVIII, ML IBK Positions, Inc., MLCP Associates L.P. No. II, MLCP Associates L.P. No. IV, Merrill Lynch Kecalp L.P. 1991, Merrill Lynch Capital Appreciation Partnership No. XIII, L.P., ML Offshore LBO Partnership No. XIII, ML Employees LBO Partnership No. I, L.P., Merrill Lynch Kecalp L.P. 1987, and Merchant Banking L.P. No. II (each, an "ML Entity" and collectively the "ML Entities"), if the ML Entities shall have executed a written agreement with the Company (and approved by the Company's Board of Directors) on or prior to the date on which the ML Entities (together with its Affiliates) became the beneficial owner of 25% or more of the shares of Voting Securities then outstanding (the "Standstill Agreement"), which Standstill Agreement imposes one or more limitations on the amount of the ML Entities' beneficial ownership of shares of Common Stock, and if, and so long as, such Standstill Agreement (or any amendment thereto approved by the Company's Board of Directors by the vote of a majority of the Present Directors) continues to be in effect and binding on the ML Entities and the ML Entities are in compliance (as determined by the Company's Board of Directors in its discretion by the vote of a majority of the Present Directors) with the terms of such Standstill Agreement (including any such amendment); or (y) any other Person acquiring Voting Securities from an ML Entity if (i) such Voting Securities were acquired by an ML Entity pursuant to the transactions contemplated by the Letter of Intent dated December 5, 1995 ("Letter of Intent") from the Company to US Foodservice Inc. ("Excluded Shares") and (ii) if, prior to such acquisition by such other Person, a majority of the Present Directors has expressly determined in good faith that such acquisition is not a "Change in Control" for purposes of this Agreement ("ML Successor"); PROVIDED, HOWEVER, that a Change in Control shall occur if, prior to July 17, 1997, either (A) the Chief Executive Officer of the Company immediately prior to the execution of the Letter of Intent ceases to constitute the Chief Executive Officer of the Company (or any successor to the Company) ("CEO Termination") (unless such Chief Executive Officer ceases to constitute the Chief Executive Officer of the Company by reason of death, Disability (as defined in the Employment Agreement), termination for Cause (as defined in the Employment Agreement) or voluntary termination by such Chief Executive Officer under circumstances that are not treated as an involuntary termination under the Employment Agreement), or (B) the directors of the Company in office immediately prior to 3 the execution of the Letter of Intent, together with any successors of such directors (provided that any such successors qualify as Present Directors), cease to constitute at least a majority of the Board ("Board Change"), such Change in Control to be effective as of the date of the CEO Termination or Board Change, as the case may be. "Present Director" shall mean a member of the Board who (1) is not designated as a member of the Board by any ML Entity or ML Successor, (2) does not otherwise have any agreement, arrangement or understanding with any ML Entity or ML Successor for the purpose of serving as a member of the Board, and (3) is not an Affiliate or an Associate (as hereinafter defined) of any ML Entity or ML Successor. "Affiliate" and "Associate" shall have the meanings set forth in Rule 12b-2 of the '34 Act. The Board shall have the power to determine, for purposes of this Agreement, on the basis of information known to the Board by a vote taken in good faith by a majority of Present Directors, (1) whether any Person is an Excluded Person, (2) the percentage of the Company's Voting Securities beneficially owned by an Excluded Person, and (3) any determination to be made pursuant to clause (x) of the definition of Excluded Person. Any such determination shall be conclusive and binding for all purposes of this Agreement. IN WITNESS WHEREOF, the Company has executed this Second Amendment to the Plan as of the date and year first above written. RYKOFF-SEXTON, INC. By: ----------------------------------- Mark Van Stekelenburg Chief Executive Officer and Chairman of the Board 4 EX-10.28-3 11 EXHIBIT 10.28.3 2ND AMEND TO RYKOFF TRUST AGREEMEN EXHIBIT 10.28.3 SECOND AMENDMENT TO RYKOFF-SEXTON, INC. MASTER TRUST AGREEMENT The Rykoff-Sexton, Inc. Master Trust Agreement For Executive Deferral Plans, as heretofore amended (the "Trust"), between Rykoff-Sexton, Inc., a Delaware corporation (the "Company"), and Norwest Bank Minnesota, N.A. (the "Trustee"), is hereby amended effective as of June ___, 1997, in the following respects: 1. Section 1.5(c) of the Trust shall be amended and restated in its entirety to read as follows: (c) A "Change in Control" of the Company shall occur upon: (i) any person (as defined in Sections 3(a)(9) and 13(d)(3) of the '34 Act) ("Person") (other than an Excluded Person (as hereinafter defined), the Company or any employee benefit plan (or related trust) sponsored or maintained by the Company or any subsidiary of the Company) becoming the "beneficial owner" (as defined in Rule 13d-3 promulgated pursuant to the '34 Act), directly or indirectly, of 25% or more of combined voting power of the then outstanding securities entitled to vote generally in the election of directors ("Voting Securities") of the Company, other than pursuant to a Business Combination (as hereinafter defined) that complies with clauses (I), (II), (III) and (IV) of subsection (iii) of this Section 1.5(c); or (ii) the occurrence within any twelve-month period during the term of the Agreement of a change in the Board with the result that the Incumbent Members do not constitute a majority of the Board; or (iii) consummation of (A) a reorganization, merger or consolidation of the Company or any subsidiary of the Company, or (B) a sale or other disposition of all or substantially all of the assets of the Company (each, a "Business Combination"), unless, in each case, immediately following such Business Combination, (I) all or substantially all of the individuals and entities who were the beneficial owners of Voting Securities of the Company immediately prior to such Business Combination beneficially own, directly or indirectly, more than two-thirds of the then outstanding shares of common stock and the combined voting power of the then outstanding Voting Securities of the entity resulting from such Business Combination (including, without limitation, an entity which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions relative to each other as their ownership, immediately prior to such Business Combination, of the Voting Securities of the Company, (II) no Person (other than an Excluded Person, the Company, such entity resulting from such Business Combination, or any employee benefit plan (or related trust) sponsored or maintained by the Company, any subsidiary or such entity resulting from such Business Combination), beneficially owns, directly or indirectly, 25% or more of the then outstanding shares of Voting Securities of the entity resulting from such Business Combination, (III) at least a majority of the members of the Board of Directors of the entity resulting from such Business Combination were Incumbent Members of the Board at the time of the execution of the initial agreement and of the action of the Board providing for such Business Combination, and (IV) the Chief Executive Officer of the Company immediately prior to the commencement of discussions (the "Commencement Date") with the third party that results in the Business Combination remains the Chief Executive Officer of the Company and the entity resulting from such Business Combination (unless such Chief Executive Officer ceases to constitute such by reason of death, Disability (as defined in such Chief Executive Officer's Employment Agreement with the Company, as it may be amended and restated from time to time (the "Employment Agreement")), termination for Cause (as defined in the Employment Agreement) or voluntary termination by such Chief Executive Officer under circumstances that are not treated as an involuntary termination under the Employment Agreement) during the period commencing on the Commencement Date and throughout the twelve-month period following the consummation of the Business Combination (any Change in Control that may arise from the failure to satisfy the condition specified in this clause (IV) to be effective as of the date the Chief Executive Officer ceases to constitute such); or (iv) approval by the shareholders of the Company of a complete liquidation or dissolution of the Company, except pursuant to a Business Combination 2 that complies with clauses (I), (II), (III) and (IV) of subsection (iii) of this Section 1.5(c). "Excluded Person" shall mean (x) Merrill Lynch Capital Partners, Inc., Merrill Lynch Capital Appreciation Partnership No. B-XVIII, L.P., Merrill Lynch Kecalp L.P. 1994, ML Offshore LBO Partnership No. B-XVIII, ML IBK Positions, Inc., MLCP Associates L.P. No. II, MLCP Associates L.P. No. IV, Merrill Lynch Kecalp L.P. 1991, Merrill Lynch Capital Appreciation Partnership No. XIII, L.P., ML Offshore LBO Partnership No. XIII, ML Employees LBO Partnership No. I, L.P., Merrill Lynch Kecalp L.P. 1987, and Merchant Banking L.P. No. II (each, an "ML Entity" and collectively the "ML Entities"), if the ML Entities shall have executed a written agreement with the Company (and approved by the Company's Board of Directors) on or prior to the date on which the ML Entities (together with its Affiliates) became the beneficial owner of 25% or more of the shares of Voting Securities then outstanding (the "Standstill Agreement"), which Standstill Agreement imposes one or more limitations on the amount of the ML Entities' beneficial ownership of shares of Common Stock, and if, and so long as, such Standstill Agreement (or any amendment thereto approved by the Company's Board of Directors by the vote of a majority of the Present Directors) continues to be in effect and binding on the ML Entities and the ML Entities are in compliance (as determined by the Company's Board of Directors in its discretion by the vote of a majority of the Present Directors) with the terms of such Standstill Agreement (including any such amendment); or (y) any other Person acquiring Voting Securities from an ML Entity if (i) such Voting Securities were acquired by an ML Entity pursuant to the transactions contemplated by the Letter of Intent dated December 5, 1995 ("Letter of Intent") from the Company to US Foodservice Inc. ("Excluded Shares") and (ii) if, prior to such acquisition by such other Person, a majority of the Present Directors has expressly determined in good faith that such acquisition is not a "Change in Control" for purposes of this Agreement ("ML Successor"); PROVIDED, HOWEVER, that a Change in Control shall occur if, prior to July 17, 1997, either (A) the Chief Executive Officer of the Company immediately prior to the execution of the Letter of Intent ceases to constitute the Chief Executive Officer of the Company (or any successor to the Company) ("CEO Termination") (unless such Chief Executive Officer ceases to constitute the Chief Executive Officer of the Company by reason of death, Disability (as defined in the Employment Agreement), termination for Cause (as defined in the Employment Agreement) or voluntary termination by such Chief Executive Officer under 3 circumstances that are not treated as an involuntary termination under the Employment Agreement), or (B) the directors of the Company in office immediately prior to the execution of the Letter of Intent, together with any successors of such directors (provided that any such successors qualify as Present Directors), cease to constitute at least a majority of the Board ("Board Change"), such Change in Control to be effective as of the date of the CEO Termination or Board Change, as the case may be. "Present Director" shall mean a member of the Board who (1) is not designated as a member of the Board by any ML Entity or ML Successor, (2) does not otherwise have any agreement, arrangement or understanding with any ML Entity or ML Successor for the purpose of serving as a member of the Board, and (3) is not an Affiliate or an Associate (as hereinafter defined) of any ML Entity or ML Successor. "Affiliate" and "Associate" shall have the meanings set forth in Rule 12b-2 of the '34 Act. The Board shall have the power to determine, for purposes of this Agreement, on the basis of information known to the Board by a vote taken in good faith by a majority of Present Directors, (1) whether any Person is an Excluded Person, (2) the percentage of the Company's Voting Securities beneficially owned by an Excluded Person, and (3) any determination to be made pursuant to clause (x) of the definition of Excluded Person. Any such determination shall be conclusive and binding for all purposes of this Agreement. IN WITNESS WHEREOF, the Company and the Trustee have executed this Second Amendment to the Trust as of the date and year first above written. RYKOFF-SEXTON, INC. By: _____________________________________ Mark Van Stekelenburg Chief Executive Officer and Chairman of the Board NORWEST BANK MINNESOTA, N.A., as TRUSTEE By:_______________________________ 4 EX-10.31-2 12 EXHIBIT 10.31.2 LEASE LETTER AMENDMENT DTD 2/28/97 EXHIBIT 10.31.2 [Mericle Letterhead] February 18, 1997 VIA HAND DELIVERY US FoodService, Inc. Paul-Francis Realty, L.P. 613 Baltimore Drive c/o Eastern Insurance Group East Mountain Corporate Center 613 Baltimore Drive Wilkes-Barre, PA 18702 East Mountain Corporate Center Attn: William Griffin, Vice President Wilkes-Barre, PA 18702 Attn: Paul J. Siegel, Jr. Managing General Partner RE: Amendment to Agreement of Lease, Dated February 28, 1996, by and between Paul-Francis Realty, L.P. and US FoodService, Inc. Gentlemen: With respect to the above-referenced Lease (the "Lease"), reference was made therein to the Leased Premises containing approximately 25,000 rentable square feet of space. Upon the final completion of the Building and the final measurement of all of the tenant spaces by the Building architect, it has been determined that the total number of rentable square feet of space actually contained in the Leased Premises leased to US FoodService, Inc. is actually (i) 4,497 square feet on the first (1st) floor, (ii) 7,550 square feet on the second (2nd) floor, and (iii) 21,519 square feet on the third (3rd) floor for a total of 33,566 square feet. Accordingly, pursuant to PARAGRAPH 2 of the Lease, the Minimum Rent, as set forth in PARAGRAPH 5(a) of the Lease, shall be adjusted according to the actual number of square feet of space contained in the Leased Premises as determined by the Building architect as set forth herein. The Minimum Rent for each of the first thirty-six (36) months of the Term is, therefore, $34,964.58 (i.e., $419,575.00 per annum). In addition, the Lessee's Proportionate Share, as set forth in PARAGRAPH 7 of the Lease, shall also be adjusted accordingly and, therefore, the Lessee's "Proportionate Share" shall be 56.7% (determined by dividing 33,566 (the actual square footage contained in the Leased Premises) by 59,206 (the actual total number of rentable square feet contained in the Building)). For your information, I am providing herewith a copy of the Building architect's calculations with respect to the re-measurement of your Leased Premises and the Building. This letter shall serve as an Amendment to the Lease and all other terms and provisions of the Lease shall remain in full force and effect and shall not be affected hereby. Further, the terms and provisions of the Lease, as are being amended hereby, shall be deemed to have been so amended as of the Commencement Date of the lease as set forth therein. US FoodService, Inc. Paul-Francis Realty, L.P. February 18, 1997 Page 2 Please indicate your acceptance of the terms of this letter by executing in the space provided below, whereupon this letter shall be deemed to be an amendment to your Lease. Sincerely, /s/ Lewis A. Sebia ---------------------------------- LEWIS A. SEBIA Chief Operating Officer AGREED AND ACCEPTED TO on this 18th day of February, 1997: LESSOR: PAUL-FRANCIS REALTY, L.P., a Pennsylvania limited partnership BY: /s/ Paul J. Siegel, Jr. ---------------------------------- PAUL J. SIEGEL, JR. Its: Managing General Partner LESSEE: US FOODSERVICE, INC., a Delaware corporation BY: /s/ William Griffin ---------------------------------- WILLIAM GRIFFIN Its: Vice-President EX-10.31-3 13 EXHIBIT 10.31.3 2ND AMENDMENT TO AGMNT OF LEASE EXHIBIT 10.31.3 SECOND AMENDMENT TO AGREEMENT OF LEASE THIS SECOND AMENDMENT TO AGREEMENT OF LEASE (the "Second Amendment") is made and is effective as of the 1st day of July, 1997, by and between PAUL-FRANCIS REALTY, L.P., a Pennsylvania limited partnership, with offices located at 613 Baltimore Drive, East Mountain Corporate Center, Wilkes-Barre, Pennsylvania 18702 (the "Lessor") and U.S. FOODSERVICE, INC., a Delaware corporation, with offices located at 613 Baltimore Drive, East Mountain Corporate Center, Wilkes-Barre, Pennsylvania 18702 (the "Lessee"). WITNESSETH: WHEREAS, Lessor and Lessee entered into an Agreement of Lease (the "Lease") on February 28, 1996, regarding commercial office space as described therein; and WHEREAS, Lessor and Lessee amended the Lease Letter Amendment on February 18, 1997; and WHEREAS, Lessor and Lessee desire to further modify the Lease by, among other things, increasing the space that the Lessee is leasing from Lessor. NOW, THEREFORE, in consideration of increased rent, and the mutual covenants, promises and agreements herein set forth and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Lessor and Lessee, intending to be legally bound, hereby agree as follows: 1. INCREASE OF LEASED SPACE. Lessor does hereby demise and let unto the Lessee and the Lessee does hereby hire and rent from the Lessor an additional twenty-six hundred fifty-three (2,653) square feet of space as more particularly delineated on the map attached hereto as Exhibit "A" and incorporated herein and which, for the purposes of the Lease shall be considered part of the Leased Premises. 2. PARKING. Subject to the terms of the Lease, the Lessee is entitled to parking privileges with respect to ten (10) additional parking spaces, bringing the total number of spaces available to Lessee to 110. 3. TERM. The term of this Second Amendment (the "Term") shall be coincidental with the term for the Lease. 4. ADDITIONAL RENT. Subject to the terms and conditions of the Lease, commencing July 1, 1997, Lessee shall pay to Lessor increased rent for the additional space leased, in the annual amount of Twelve and 50/100 Dollars ($12.50) per square foot (i.e., Thirty-Three Thousand One Hundred Sixty-Two and 50/100 Dollars ($33,162.50) per annum). The additional rent shall be payable in equal monthly installments of Two Thousand Seven Hundred Sixty-Three and 54/100 ($2,763.54). 5. PROPERTY TAXES. The Lessee's Proportionate Share, as set forth in Paragraph 7 of the Agreement of Lease shall also be adjusted accordingly and, therefore, the Lessee's "Proportionate Share" shall be sixty-one and two-tenths percent (61.2%) (determined by dividing the actual square footage leased, thirty-six thousand two hundred nineteen (36,219) square feet by the actual total number of rentable square feet contained in the building, Fifty-Nine Thousand Two Hundred Six (59,206) square feet. 6. OTHER LEASE TERMS. All other terms and provisions of the Lease shall remain in full force and effect and shall not be affected hereby. IN WITNESS WHEREOF, and intending to be legally bound hereby, the parties have caused this Second Amendment to the Agreement of Lease to be duly executed as of the day and year first above written. ATTEST: LESSOR: PAUL-FRANCIS REALTY, L.P. a Pennsylvania limited partnership, by Paul-Francis Equities, Inc., General Partner /s/ BY: /s/ Paul J. Siegel - ------------------------ -------------------------------------------- PAUL J. SIEGEL, JR. Its: PRESIDENT ATTEST: LESSEE: US FOODSERVICE INC., a Delaware corporation /s/ BY: /s/ William Griffin - ------------------------ -------------------------------------------- Title: VP & SEC. WILLIAM GRIFFIN Its: VICE PRESIDENT - ADMINISTRATION (CORP SEAL) EXHIBIT "A" [Map that illustrates additional 2,653 square feet of office space.] EX-10.31-4 14 EXHIBIT 10.31.4 AGREEMENT OF LEASE EXHIBIT 10.31.4 AGREEMENT OF LEASE THIS AGREEMENT OF LEASE (the "Lease") made as of the 28th day of November, 1996, by and between PAUL-FRANCIS REALTY, L.P., A Pennsylvania limited partnership, with offices located at 613 Baltimore Drive, East Mountain Corporate Center, Wilkes-Barre, Pennsylvania 18702-7944 (the "Lessor") and RYKOFF-SEXTON, INC., a Delaware corporation, with offices located at 613 Baltimore Drive, East Mountain Corporate Center, Wilkes-Barre, Pennsylvania 18702-7944 (the "Lessee") W I T N E S S E T H: WHEREAS, Lessor is fee simple owner of certain real property consisting of approximately 5.34 acres of land known as Parcel 17 situated in the East Mountain Corporate Center, Township of Plains, Luzerne County, Pennsylvania, as more particularly described on EXHIBIT "A" attached hereto and made a part hereof (the "Real Property"); and WHEREAS, the Real Property will be improved with, INTER ALIA, a commercial office building containing fifty-nine thousand two hundred six (59,206) square feet of space, as shown by the shaded area on EXHIBIT "B" attached hereto and made a part hereof (the "Building"); and WHEREAS, the Lessor desires to lease to the Lessee (i) a portion of the Building, said portion containing three thousand six hundred thirty-four rentable square feet of space, located on the second (2nd) floor of the Building, as shown by the shaded area on EXHIBIT "C" attached hereto and made a part hereof (the "Leased Premises"), (ii) a portion of the Real Property as shown by the shaded area on EXHIBIT "D" attached hereto and made a part hereof for the Lessee's NON-EXCLUSIVE USE for the parkingof vehicles as hereinafter set forth (the "Parking Area"), and (iii) another portion of the Real Property as shown by the shaded area on EXHIBIT "E" attached hereto and made a part hereof for the Lessee's NON-EXCLUSIVE USE for purposes of vehicular and pedestrian ingress and egress as hereinafter set forth (the "Access Area"), all upon the terms and provisions hereinafter contained; and WHEREAS, the Lessee desires to lease the Leased Premises, the Parking Area and the Access Area from Lessor, all upon the terms and provisions hereinafter contained. -1- NOW, THEREFORE, in consideration of the sum of One Dollar ($1.00) to each in hand paid, the receipt whereof is hereby acknowledged, and the mutual covenants, promises and agreements herein set forth, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged between the parties, the Lessor and the Lessee, intending to be legally bound, hereby agree as follows: 1. LEASE OF LEASED PREMISES; USE. Lessor does hereby demise and let unto the Lessee the Leased Premises and the Lessee does hereby hire and rent from the Lessor the Leased Premises, all upon the terms and conditions set forth in this Lease. The use of the Leased Premises by Lessee shall be FOR GENERAL OFFICE SPACE, provided, further, that no retail uses shall be conducted from the Leased Premises and all of such uses shall be subject to all applicable local zoning regulations, the Declaration of Covenants, Conditions, and Restrictions for the East Mountain Corporation Center (as the same are, or may be, recorded in the Office of the Recorder of Deeds in and for Luzerne County, Pennsylvania and as the same may, from time to time, be amended or modified), the covenants, terms and conditions hereinafter contained and the Rules and Regulations (hereinafter defined). It is understood that, unless the Lessor otherwise expressly agrees in writing, the Leased Premises will be occupied by the Lessee. The Lessee shall continuously occupy the Leased Premises from and after the Commencement Date (hereinafter defined) through the Termination Date (hereinafter defined) except for any periods during which the Lessee has subleased the Leased Premises or assigned this Lease pursuant to, and in accordance with, the terms and provisions of this Lease. The Lessee acknowledges and agrees that the Leased Premises constitute only a portion of the Building and, therefore, the Lessor and/or other tenant(s) will occupy other portions of the Building and utilize the Parking Area, the Access Area, the Common Areas (hereinafter defined) and other portions of the Real Property. Accordingly, the Lessee covenants and agrees that its use of the Leased Premises, the Parking Area, the Access Area and the Common Areas shall not in any way unreasonably disturb or interfere with the use and enjoyment by the Lessor or such other tenant(s) of the remaining portions of the Building, the Access Area, the Common Areas and such other portions of the Real Property. Without the Lessor's prior consent, Lessee shall not utilize within the Leased Premises any equipment or machinery which would generate noise or vibration which could be heard or felt outside of the Leased Premises. 2. FINAL MEASUREMENT OF THE LEASED PREMISES AND THE BUILDING. The rentable area of the Leased Premises is 3634 rentable square feet and the rentable area of the Building is 59,206 rentable square feet, as calculated by the Lessor's architect in accordance with the Building Owners and Management Association (BOMA) Method (ANSI-Z 65.1 - 1989) (the "BOMA Method"). -2- 3. PARKING AREA; ACCESS AREA; AND COMMON AREAS. The Lessee, its agents, employees, licensees, and invitees are entitled, at no additional cost or expense and subject to the Rules and Regulations, to parking privileges with respect to one hundred (100) parking spaces located within the Parking Area. In addition, the Lessee, its agents, employees, licensees, and invitees are entitled to the non-exclusive use, at no additional cost or expense and subject to the Rules and Regulations, for vehicular and pedestrian traffic through the Access Area. The Lessee may not park, nor authorize, nor, to the extent reasonably possible, allow, its agents, employees, visitors or invitees to park within the Access Area at any time and the Lessee shall, to the extent reasonably possible, cause the Access Area to be kept open and accessible at all times to provide vehicular and pedestrian access to and through the Real Property for other lessees of the Building and their respective agents, employees, visitors or invitees or any others that are given permission therefor by the Lessor. Finally, the Lessee, its agents, employees, licensees, and invitees are entitled to the non-exclusive use, at no additional cost or expense, but only for the purposes for which they were designed, constructed and intended and subject to the Rules and Regulations, of those certain portions of, and facilities and improvements on, the Building and the Real Property which are, from time to time, provided and made available by the Lessor for the use or benefit of all lessees of the Building and their employees, clients, customers, licensees and invitees or for the use or benefit by the public in general, which facilities and improvements include any and all public access corridors, elevators and cabs, foyers and lobbies, public vending areas, public restrooms (as opposed to any restrooms located entirely within an individual lessee's leased premises), electrical and telephone rooms, mechanical rooms and all grounds, parks, landscape areas, plazas, sidewalks, pedestrian ways, loading docks and other facilities and improvements as are specifically so designated as common areas, from time to time, by the Lessor (collectively, the "Common Areas"). The Common Areas shall also include, without limitation, that certain area of the Building which the Lessor has designated, or may, from time to time, designate as the health and fitness facility (the "Health Facility"). The Lessor reserves the right, at any time and from time to time, to alter, relocate or eliminate the Health Facility. So long as the Lessor provides the Health Facility within the Building, however, then all lessees of the Building, including, without limitation, the Lessee and all of their respective employees may utilize the Health Facility; provided, however, the use thereof shall be in accordance with, and subject to, all rules and regulations as may be established therefor, from time to time, by the Lessor and provided, further, that prior to the use of the Health Facility, each lessee and all of their respective employees who will utilize the Health Facility shall be required to execute and deliver to the Lessor a waiver and release of liability in favor of the Lessor and its Management Agent, which release and waiver shall be in form and substance acceptable to the Lessor. Anything contained in this PARAGRAPH 3 to the contrary notwithstanding, the Lessor may, at any time and from time to time, promulgate rules and regulations governing the use of the Health Facility, if any, including, without limitation, the operating hours therefor. Any and all costs and expenses associated with the furnishing, operation, maintenance, cleaning and insuring of the Health -3- Facility (including, without limitation, all utilities thereto) shall be included in the Additional Rent and, therefore, the Lessee shall be responsible for the payment of its Proportionate Share (hereinafter defined) thereof. 4. TERM. The term of this Lease (the "Term") shall be period of TWELVE (12) years commencing on the date hereof (the "Commencement Date") and expiring on that date which is the day immediately preceding the TWELFTH (12TH) anniversary of the Commencement Date (the "Termination Date"), unless the Lease is sooner terminated or otherwise extended as expressly provided in this Lease. Upon the Termination Date, this Lease shall terminate and the Lessee shall surrender the Leased Premises, the Parking Area and its non-exclusive use of the Access Area and the Common Areas to the Lessor in accordance with the terms and conditions of this Lease. 5. MINIMUM RENT. Subject to the terms and conditions of this Lease, Lessee shall pay to Lessor as minimum rent (the "Minimum Rent") for the Leased Premises, and its use of the Parking Area, the Access Area and the Common Areas the following: (a) Commencing on the Commencement Date, and continuing thereafter during the next THIRTY-SIX (36) months, the annual Minimum Rent shall be Twelve and 50/100 Dollars ($12.50) per rentable square foot contained in the Leased Premises for a total annual Minimum Rent of Forty-five Thousand Four Hundred Twenty-five and 00/100 Dollars ($45,425.00) which shall be payable in equal monthly installments of Three Thousand Seven Hundred Eighty-five and 42/100 Dollars ($3,785.42) each, based upon an annual Minimum Rent of Twelve and 50/100 Dollars ($12.50) multiplied by the total number of rentable square feet contained in the Leased Premises. On the third (3rd) anniversary of the Commencement Date (the "First Adjustment Date"), the Minimum Rent shall be adjusted by an amount equal to the percentage change in the CPI (hereinafter defined) for the period from the Commencement Date to the First Adjustment Date. Commencing on the fourth (4th) anniversary of the Commencement Date and continuing thereafter on the same day of each year through the Termination Date (each of said dates is hereinafter referred to as a "Subsequent Adjustment Date") (the First Adjustment Date and each Subsequent Adjustment Date is hereinafter referred to singularly as an "Adjustment Date"), the Minimum Rent shall be adjusted by an amount equal to the percentage change in the CPI which has occurred in the one (1) year period since the last annual Adjustment Date. For purposes of this Lease, the "CPI" shall be Consumer Price Index (U.S. City Average, All Items 1982-84 = 100) published by the United States Department of Labor, Bureau of Labor Statistics. (b) In each instance, the Minimum Rent, and all Additional Rent (hereinafter defined) (the Minimum Rent and the Additional Rent are hereinafter collectively referred to as the "Rent") shall be payable in advance, on the first day of each month, the first of such monthly installments to be payable on the Commencement Date (and if any month of the Term is less than a full calendar month, then the Minimum Rent shall be pro-rated for the actual number of days in such -4- month). The Rent shall be payable without prior notice or demand, at the address of the Lessor. In the event that any Rent is not received by Lessor by no later than five (5) days after the date set forth for payment, then Lessee shall pay to Lessor (i) a late fee equal to five percent (5%) of the delinquent installment of Rent (the "Late Fee"), and (ii) interest on such delinquent installment of Rent that is not received by the Lessor on the date set forth for such payment (the "Delinquent Interest") at a rate equal to the Prime Rate of interest published, from time to time, in the "Money Mart" Section of the WALL STREET JOURNAL plus two percent (2%) from the date that such installment was due through the date that such installment is actually received by the Lessor; provided, however, in no event shall the Delinquent Interest be greater than the highest rate of interest permitted by applicable law. 6. SECURITY DEPOSIT. The Lessee has delivered to the Lessor on or before the date of this Lease the aggregate sum of Four Thousand Nine Hundred Ninety- six and 75/100 Dollars ($4,996.75) [which amount is equal to the sum of ONE (1) monthly payment of Minimum Rent PLUS 1/12 of the initial Annual Estimated Operating Expenses (hereinafter defined)] as the security deposit under this Lease (together with any interest earned thereon, the "Deposit"). The Deposit shall be held by Lessor as security for the full and faithful performance by Lessee of Lessee's obligations under this Lease and for the payment of repairing any damages to the Leased Premises, the Parking Area, the Access Area or the Common Areas which arise during this Lease and for which the Lessee is liable hereunder. The Deposit shall be held in an interest-bearing account in a financial institution of Lessor's choice, and shall be deposited by Lessor in such account within thirty (30) days of receipt thereof. Lessor and Lessee further agree that any interest accruing while the Deposit is in the account shall be charged to Employer Identification Number 52-177-6750, said Employer Identification Number being the Employer Identification Number of the Lessee. Lessor shall inform Lessee of the name of said institution and the account number under which the Deposit is being held within ten (10) days from the date of the deposit thereof. 7. PROPERTY TAXES. The Lessee shall pay to the Lessor its Proportionate Share of any and all real property taxes and assessments attributable to the Building and the Real Property payable for the Term of this Lease including, but not limited to, taxes resulting from any increases in the assessed value of, or for improvements made to, the Building and the Real Property. So long as the Lessee pays to the Lessor its Proportionate Share of all real property taxes and assessments on the date that such payment thereof is due from the Lessee to the Lessor, the Lessor covenants and agrees to pay all real property taxes and assessments attributable to the Building and the Real Property during the rebate/discount period for the payment thereof. The Lessee's "Proportionate Share" shall be that percentage derived by dividing the rentable area of the Leased Premises by the total rentable area of the Building and, therefore, the Lessee's Proportionate Share is 6.14%. The Lessee's Proportionate Share of such property taxes and assessments shall be payable by Lessee, as Additional Rent to Lessor. The Lessor shall provide to the Lessee a copy of the bill or invoice for such taxes or -5- assessments which Lessor receives from the applicable taxing authority, together with a written explanation indicating in reasonable detail the manner in which the Lessor calculated the amount of taxes and assessments due by the Lessee pursuant to this PARAGRAPH 7. If, at any time during the Term, (1) a surcharge, fee, excise or tax is levied or imposed upon utilities consumed at, or waste discharged from, the Leased Premises, or upon parking spaces which are a part of the Parking Area, or for any governmental service furnished to the Building or the Real Property or persons visiting or occupying the same; or (2) the method of taxation of real property is changed from the method in existence on the date of this Lease, so that real estate taxes are replaced by one or more other types of alternative tax (collectively hereinafter referred to as "replacement taxes"); then, the Lessee shall pay either to the governmental body involved or to the Lessor, as determined by the Lessor, as Additional Rent, its Proportionate Share of the amount of such (1) surcharge, fee, excise or tax on utilities, waste, parking spaces or governmental services; and (2) such replacement taxes. Nothing herein contained is intended to require the Lessee to pay any tax levied, assessed or imposed upon Lessor based upon Lessor's net income, excise profits or net taxable revenues or receipts. 8. UTILITIES; MECHANICS' LIENS. The Lessee agrees to pay all bills, when due, which may be incurred for all utilities to the Leased Premises and the Parking Area and to pay its Proportionate Share of all bills, when due, which may be incurred for all utilities to the Access Area and the Common Areas including, without limitation, all light, electric power, gas, heat and any and all other utilities used or consumed upon the Leased Premises (all of which shall be separately metered if reasonably possible), the Parking Area, the Access Area and the Common Areas during the Term and also all bills for water, sewer and trash removal which may accrue during the Term and any and all other fees, costs, expenses or charges applicable to any other utilities consumed by the Lessee or applicable to the Leased Premises, the Parking Area, the Access Area and the Common Areas. Should the Lessee fail to pay any bills as aforesaid, the Lessor shall have the right, after providing written notice to the Lessee and Lessee's failure to pay the same within ten (10) days after the date of Lessor's notice, to pay the same, and the amount so paid, together with interest thereon at the rate set forth in PARAGRAPH 5(b)(ii), shall be chargeable to the Lessee as Additional Rent, to be paid at the time of the next installment of Minimum Rent falling due hereunder, with interest allowable at the maximum rate permitted under the laws of the Commonwealth of Pennsylvania from the date of such payment by the Lessor. All of the utilities to the Leased Premises shall be separately metered if reasonably practicable; provided, however, if, in the Lessor's reasonable judgment, any such utilities to the Leased Premises cannot be separately metered in a reasonably practicable manner, then the Lessee shall be responsible for the payment of its Proportionate Share of the total cost and expense of all the utilities incurred with respect to the entire Building and the entire Parking Area, Access Area and Common Areas. If any mechanics' liens are placed upon the Leased Premises or the Real Property as a result of Lessee's act or omission, -6- Lessee will, upon being notified of same, promptly remove them either by payment or by bonding at Lessee's option. 9. QUIET ENJOYMENT. If the Lessee faithfully and diligently performs the terms of this Lease imposed on Lessee, the Lessee shall have exclusive, peaceful possession, use, and quiet enjoyment of the Leased Premises during the Term, as well as the continued use of the Parking Area, the Access Area and the Common Areas, on a non-exclusive basis, during the Term. 10. ADDITIONAL RENT. It is the agreement and intention of the Lessor and the Lessee that the Minimum Rent to Lessor shall be net, net, net of any and all utility costs, property taxes, insurance costs and any and all other costs, expenses and fees associated in any way with the Leased Premises, the Parking Area, the Access Area, the Common Areas and/or the Building and/or the Real Property and the management, maintenance, insuring and operation thereof provided that such costs, expenses and fees are commercially reasonable and are customarily payable by lessees under triple net leases. The Lessor and the Lessee acknowledge and agree that pursuant to the Budget (hereinafter defined) for the first year of the Term, the estimate of all of the Operating Expenses (hereinafter defined) for the Leased Premises for the first year of the Term is Four and 00/100 Dollars ($4.00) per rentable square foot of space contained in the Leased Premises (i.e., $14,536.00 based upon $4.00 per rentable square foot multiplied by 3,634 square feet contained in the Leased Premises) (the "Annual Estimated Operating Expenses"). Accordingly, the Lessee shall pay for (i) all utility costs to the Leased Premises and the Parking Area or its Proportionate Share of all utilities costs to the entire Building and the Real Property if such utilities to the Leased Premises are not separately metered, (ii) its Proportionate Share of all utility costs to the Access Area and the Common Areas, as hereinbefore set forth in Paragraph 8 of this Lease), (iii) its Proportionate Share of all property taxes as hereinabove set forth in PARAGRAPH 7 of this Lease, and (iv) its Proportionate Share of all Grounds Maintenance Costs (hereinafter defined) of the Real Property, and (v) its Proportionate Share of any and all other fees, costs and expenses attributable to the management, maintenance, insuring and operation of the Building, the Parking Area, the Access Area, the Common Areas and the Real Property (all of the aforesaid items are hereinafter collectively referred to as the "Operating Expenses"). Anything contained in this Lease to the contrary notwithstanding, the standard business hours for the operation of the Building shall be 7:00 a.m. to 7:00 p.m. Mondays through Fridays and 8:00 a.m. to 1:00 p.m. on Saturdays excluding all legal holidays (collectively, the "Building Standard Hours"). All utilities, if not separately metered for the Leased Premises, applicable to the Leased Premises during Building Standard Hours shall be billed to, and paid by, the Lessee based upon the Lessee's Proportionate Share of the aggregate cost and expense thereof attributable to the entire Building. If, however, the Lessee is desirous of utilizing HVAC services or other utilities within the Building or the Leased Premises during hours other than during Building Standard Hours, then the Lessee shall coordinate such after-hours use of the same with the Lessor, or the Lessor's -7- management agent, and the Lessee shall be responsible for the payment of an additional charge therefor equal to Twenty-Five Dollars ($25.00) per hour for each floor (or portions of a floor) within the Leased Premises which are the subject of the Lessee's after-hours use. For purposes of this PARAGRAPH 10, "Grounds Maintenance Costs" shall be all costs and expenses incurred by the Lessor with respect to the grounds maintenance and upkeep of the Real Property including, without limitation, all landscape maintenance and replacement costs, such as grass cutting, the upkeep, maintenance and replacement of all shrubs, plantings and other landscape materials, snow and ice removal from all exterior portions of the Building including all sidewalks, stairways, entrances and exits with respect to all areas of the Building and the Real Property including, without limitation, the Parking Area, the Access Area and the Common Areas and all cleaning and sweeping of the Parking Area, the Access Area and the Common Areas and all other items of maintenance and upkeep associated therewith. Accordingly, all costs, expenses and obligations relating to the Leased Premises, the Parking Area, the Access Area and the Common Areas which may arise or become due during the Term including, but not limited to, any and all costs for utilities, heat, repairs (except for structural repairs to the Leased Premises which shall be the Lessor's sole responsibility as hereinafter provided for) and maintenance costs relating to the Leased Premises, the Parking Area, the Access Area and the Common Areas (other than those maintenance obligations and costs expressly required to be performed, and paid for, respectively, by the Lessor under this Lease), shall be borne, and paid for, by the Lessee as Additional Rent. Any and all sums which may become due and payable by Lessee under the terms of this Lease (other than the Minimum Rent), together with any late fees, penalties or additional interest thereon for non-payment shall hereinafter collectively be referred to as "Additional Rent." The Lessor shall be indemnified, defended and held harmless by Lessee against any such costs, expenses and obligations which Lessor may be called upon to pay; provided, however, such costs, expenses and obligations shall be limited to those costs, expenses and obligations directly applying to the Leased Premises, the Parking Area, the Access Area and the Common Areas during the Term which the Lessee shall be required to pay pursuant to the terms of this Lease. 11. ANNUAL BUDGETS. The Lessor has, prior to the execution of this Lease, provided to the Lessee, and shall, as soon as reasonably practicable after the end of each calendar year during the Term, provide to the Lessee, an annual budget (as the same may be amended at any time and from time to time by the Lessor, the "Budget") setting forth the Lessor's projection of the Lessee's Operating Expenses for the current calendar year of the Term. Anything contained in this Lease to the contrary notwithstanding, the Lessor's preparation of the Budget shall be Lessor's good faith estimate of such Operating Expenses only and the Lessor shall have no liability for any errors or omissions therein and the Lessee shall be responsible for the full payment of any and all actual Operating Expenses incurred irrespective of the amounts therefor set forth in the Budget. The Lessee shall pay to the Lessor on the first (1st) day of each calendar month during the Term of this Lease one-twelfth (1/12th) of the amount set -8- forth in the applicable Budget for the Operating Expenses, the first of such monthly installments to be payable on the Commencement Date. As soon as reasonably practicable after the expiration of each calendar year, the Lessor shall provide the Lessee with an invoice indicating the difference between the amounts actually incurred for the Operating Expenses for such calendar year and the amounts paid thereon by the Lessee. The Lessee shall, within thirty (30) days after the Lessee's receipt of such invoice, pay to the Lessor any amount set forth therein which represents an underpayment of the amount actually incurred therefor during such calendar year or, if the amount paid by the Lessee toward such Operating Expenses exceeds the actual amounts incurred therefor during such calendar year, then the Lessor shall credit to the Lessee's next monthly payment(s) of such Operating Expenses such excess amounts. In the Event that the Lessor does not so credit the Lessee, the Lessee may, after providing thirty (30) days' prior written notice to the Lessor, set off such excess amounts against the Rent due to the Lessor. The foregoing notwithstanding, if at any time during the Term, the Lessor determines that the Budget is inaccurate, the Lessor may amend such Budget by providing written notice thereof to the Lessee, together with an explanation (including accompanying calculations) of the reason why the Lessor has determined that the Budget is inaccurate. In addition, the Lessor may at any time during the Term provide the Lessee with an additional invoice for any significant amounts of Operating Expenses not included in the Budget, whereupon the Lessee shall, within thirty (30) days after the Lessee's receipt of such invoice, pay to the Lessor any amount set forth therein. 12. LIABILITY INSURANCE. The Lessee, at its sole cost and expense, shall secure and maintain throughout the Term general public liability insurance, insuring both Lessor and Lessee against death and personal injuries to one or more persons in the amount equal to that which prudent owners of property similar to the Leased Premises using the same for the purposes as herein provided and in the manner actually used by Lessee would, from time to time, reasonably procure and maintain, but in no event less than Two Million Dollars ($2,000,000.00) with respect to property damage/bodily injury or death to more than one person in any one occurrence in connection with Lessee's use and occupancy of the Leased Premises, the Parking Area, the Access Area, the Common Areas, and the Real Property, except for such liability which arises as a consequence of the negligence of Lessor, its agents, servants or employees. Lessee shall, prior to the Commencement Date, furnish to Lessor a certificate of the insurance company issuing such insurance evidencing such coverage with the Lessor included as an additional insured, which certificate shall contain a provision to the effect that such coverage may not be canceled, materially changed or not renewed without at least thirty (30) days' prior written notice to Lessor. 13. CASUALTY INSURANCE. The Lessor shall secure and maintain throughout the Term, or any extension or renewal thereof, fire, casualty and extended coverage insurance, covering the Building, the Leased Premises, the Parking Area, the Access Area and the Common Areas including all improvements now or hereafter made, for at least -9- one hundred percent (100%) of the replacement cost thereof. Lessee shall, however, be responsible for and pay to the Lessor, as Additional Rent, within thirty (30) days following notice of the amount due from Lessor to Lessee, the premiums for any such insurance which are attributable to the Leased Premises if separately identified on any invoice therefor received by the Lessor from the insurer or, if the premium attributable to the Leased Premises is not separately identified on any invoice received by the Lessor from the insurer, then the Lessee shall be responsible for paying to the Lessor the Lessee's Proportionate Share of the total premium due for such insurance with respect to the entire Building. The Lessee, at its sole cost and expense, shall be responsible for and pay the cost of fire and extended coverage insurance on all contents located within the Leased Premises including, but not limited to, trade fixtures and equipment. Lessee further agrees to install in the Leased Premises, such fire extinguishing equipment, or any other devices, as is reasonably required by Lessor's insurance carrier and local building codes prior to the occupancy of the Leased Premises and further agrees that in the event the insurance company or local building codes should require reasonable change in the nature of this equipment, Lessee will effect such changes at Lessee's sole cost and expense; provided, however, the Lessee shall not be required to install any such equipment if such equipment would be considered to be a capital expenditure under generally accepted accounting principles consistently applied. 14. WAIVER OF SUBROGATION. Each party hereby waives any and every claim which arises or may arise in its favor and against the other party hereto during the Term for any and all loss or damage to any of its property located within or upon or constituting a part of the Leased Premises, which loss or damage is or is to be covered, by the terms of this Lease, by valid and collectible fire and extended coverage insurance policies, and if and to the extent reimbursement is made, even if such loss or damage shall be brought about by default or negligence of the other party or by its employees, agents, servants or any persons claiming under them. 15. DAMAGE OR DESTRUCTION OF THE LEASED PREMISES. Except as otherwise hereinafter set forth, in the event the Leased Premises (or any other portion of the Building, the use of which is reasonably necessary for Lessee's use of the Leased Premises) or the Parking Area, the Access Area or the Common Areas are damaged or partially destroyed by fire or other casualty, Lessor, utilizing the insurance proceeds, if any, shall restore the same to substantially the same condition as existed prior to the occurrence of such fire or other casualty. However, in the event the Leased Premises, the Parking Area, the Access Area or the Common Areas, as the case may be, shall be damaged or destroyed by fire or other casualty to such extent as to preclude the repair and replacement thereof within ninety (90) days subsequent to the date of such event, Lessor shall have the right to either utilize the insurance proceeds, if any, to reconstruct the Leased Premises, the Parking Area, the Access Area or the Common Areas, as the case may be, or, in the alternative, elect to receive payment of the insurance proceeds and terminate this Lease. In addition, if the Lessor elects to restore -10- any such damage to the Leased Premises (or any such other portions of the Building, the use of which is reasonably necessary for the Lessee's use of the Leased Premises) and the Lessor has not substantially completed the restoration thereof within six (6) months of the date of the occurrence of such fire or other casualty, then the Lessee may, at its option by providing written notice thereof to the Lessor, elect to terminate this Lease, whereupon this Lease shall terminate and, thereafter, the parties shall be relieved of all further liability hereunder. Lessee shall not be obligated to pay any rentals or other amounts under this Lease applicable to any period when the Leased Premises, or any material part thereof are untenantable due to any such damage or destruction of any part of the Leased Premises. 16. MAINTENANCE OF LEASED PREMISES; PARKING AREA AND ACCESS AREA AND COMMON AREAS. (a) The Lessor shall be responsible for the exterior landscape maintenance of the Real Property, the Parking Area, the Access Area and the Common Areas (including grass cutting, the upkeep, maintenance and replacement of all shrubs, plantings and other landscape materials), and snow and ice removal from the Parking Area, the Access Area and the Common Areas, and all sidewalks, stairways, entrances and exits on the Real Property serving the Leased Premisses; provided, however, the Lessee shall reimburse to the Lessor, within thirty (30) days after its receipt of an invoice therefor, its Proportionate Share of all Grounds Maintenance Costs as set forth in PARAGRAPH 10 of this Lease and its Proportionate Share with respect to all of the maintenance and upkeep of the Parking Area, the Access Area and Common Areas also as set forth in PARAGRAPH 10 of this Lease. Security services, if any, provided by Lessor for the Building are as a convenience only and Lessor shall have no liability whatsoever for any damages to person or property of the Lessee, its agents, employees or invitees for any failure of such security, unless such damages are the result of an intentional act or negligence on the part of the Lessor or its agents or employees. The Lessee shall take such reasonable precautions as it may deem necessary for the protection of its property, agents, employees and invitees in a manner that will not interfere with any other lessee of the Building. (b) The Lessee shall, during the Term of this Lease, at Lessee's own cost and expense, keep in good order, condition and repair the interior of the Leased Premises including, without limitation, the interior portions of all doors, windows, plate glass, all plumbing and heating and air conditioning equipment and apparatus within, and directly serving, the Leased Premises, all of the fixtures, lighting and bulbs and other equipment therein (exclusive of the Building's structural items, which shall include only the roof (including the gutters, downspouts and flashing in connection therewith), foundation and exterior walls of the Building, for which the Lessor shall be responsible). The Lessor shall, however, regularly service and maintain the heating, ventilation and air conditioning equipment within the Leased Premises; provided, however, all of the costs and expenses associated therewith shall be included in the Operating Expenses and, therefore, shall be paid for by the Lessee. If the Lessee fails -11- to keep in good order or repair the interior of the Leased Premises, as provided herein, the Lessor shall have the right, after notifying the Lessee of Lessee's failure and allowing ten (10) days for the Lessee to remedy the condition, or if such remedy shall take the Lessee longer than ten (10) days to effectuate, and within such ten (10) day period, the Lessee has not commenced such remedy or is not diligently pursuing such remedy, then the Lessor shall have the right, to remedy the Lessee's failure and bill the Lessee for the actual and reasonable cost of such remedy. The amount of the bill shall be due and payable by the Lessee within ten (10) days of receipt and shall be considered as Additional Rent under this Lease. The Lessee shall be responsible for all repairs to the Leased Premises (excluding structural repairs, which shall include only the roof, foundation, and outside walls of the Building for which the Lessor shall be responsible) and shall maintain the same in good condition and repair, normal wear and tear excepted, and shall furnish Lessor prompt written notice of any and all accidents, fires or other damage occurring on or to the Leased Premises. The Lessor, or its management agent, shall retain a reputable office cleaning company to provide routine office cleaning and janitorial services to the Building including to the Leased Premises. All of the costs and expenses associated with such office cleaning and janitorial services shall be included in the Operating Expenses and, therefore, shall be paid for by the Lessee. In addition, the Lessee shall be solely responsible for any extraordinary cleaning services which it may request. All refuse of any kind shall be removed from the Leased Premises at reasonable intervals by such office cleaning company; provided, however, the cost and expense thereof shall also be included in the Operating Expenses and, therefore, shall be paid for by the Lessee. The Lessor shall make or cause to be made, but the Lessee shall be responsible for the payment of any and all costs and expenses associated with making, any and all other repairs to the Leased Premises and the Parking Area. 17. NO WASTE. No waste shall be committed by the Lessee, and at the end of the Term, the Leased Premises shall be delivered in substantially as good condition as on the commencement Date, ordinary wear and tear and damage by casualty excepted. 18. HAZARDOUS SUBSTANCES. The Lessee represents and warrants to the Lessor that the Leased Premises, the Parking Area, the Access Area, the Common Areas and the Real Property shall be kept free from contamination by or from any hazardous substances or hazardous waste (as such terms are defined and/or used in applicable state or federal law or in the regulations issued thereunder including, without limitation, the Federal Comprehensive Environmental Response, Compensation and Lability Act) except for such minor quantities of ordinary office supplies and materials as are incidental to Lessee's ordinary business pursuits and its operation and occupancy of the Leased Premises in connection therewith. Except as otherwise expressly set forth herein, the Lessee also agrees that it will not store, utilize or engage in operations at or upon the Leased Premises, the Parking Area, the Access Area, the Common Areas and the Real Property or affecting the Leased Premises, the Parking Area, the Access -12- Area, the Common Areas and the Real Property which involve the generation, manufacture, refining, transportation, treatment, storage, handling or disposal of hazardous substances or hazardous waste, medical waste or medical waste products or environmentally deleterious material and the Lessee will at all times comply with and conform to all laws, statutes, ordinances, rules, regulations, notices and orders of all governmental and regulating authorities or any board of fire underwriters, or any insurance organization or company with respect to the treatment of any hazardous substances or waste on or which affect the Leased Premises, the Parking Area, the Access Area, the Common Areas and the Real Property. The Lessee shall not cause or permit to exist as a result of an intentional or unintentional action or omission on its part or on the part of any of the Lessee's agents of releasing, spilling, leaking, pumping, pouring, emitting, emptying or dumping from, on or about the Leased Premises or the Real Property of any such hazardous substances or waste. The Lessee shall indemnify, defend and hold harmless, the Lessor, its successors and assigns, any officer, director, shareholder, employee or any agent of Lessor from any and all liability, damages, costs, claims, suits, actions, legal or administrative proceedings, interests, losses, expenses, and attorney's fees and appellate attorneys' fees (including any such fees and expenses incurred in enforcing this indemnity) resulting from or arising out of, or in any way connected with, injury to, or the death of, any person (including any indemnified party) or physical damage to property of any kind wherever located and by whomever owned (including that of any indemnified party) arising out of, or in any way connected with, the presence on, in or under the Leased Premises, the Parking Area, the Access Area, the Common Areas and the Real Property of any hazardous substances or hazardous waste; provided, however, that it must be shown that such hazardous substance or hazardous waste were introduced in or under the Leased Premises, the Parking Area, the Access Area, the Common Areas and the Real Property during the Term, or any extension or renewal thereof or at any other time by the Lessee, or its employees, contractors, agents, invitees, guests, or its successors, assigns or sublessees, if any. Lessee will not be liable in any way for any environmental contamination occurring prior to the Commencement Date or resulting from acts or omissions that took place prior thereto unless caused by the acts or omissions of the Lessee. This indemnification is an independent covenant and shall survive the expiration or earlier termination of this Lease. 19. COMPLIANCE WITH LAWS. Lessee and Lessor shall each comply with all requirements of duly constituted public authorities, and with the terms of any state or federal statute, regulation, and of any local ordinance, applicable to them or to the use of the Leased Premises, the Parking Area and the Access Area and the Common Areas and each party shall indemnify, defend and save the other party harmless from any and all penalties, fines costs or other damages resulting from its failure to do so. The foregoing notwithstanding, the Lessee and the Lessor shall each comply with all enforcement actions or other actions brought against them to enforce its compliance -13- with all requirements of duly constituted public authorities or any statute, regulation, ordinance or law irrespective of the materiality thereof. The Lessee shall not carry on any unlawful business in or about the Leased Premises, and shall not carry on any business which shall endanger the Leased Premises or any portion thereof from fire or cause a forfeiture of any fire insurance that the Lessor has or may hereafter have on the Leased Premises or any improvements thereof. 20. HOLD OVER. Except as Lessor may otherwise consent in writing, Lessee agrees, without further notice or demand, to promptly surrender possession of the Leased Premises to Lessor at the expiration, or earlier termination, of this Lease. Any holding over by Lessee beyond the Term shall be under and subject to the same terms and provisions as contained herein, except, however, that the Minimum Rent shall: (i) for the first thirty (30) days following the end of the Term to be equal to one hundred and twenty-five percent (125%) of the Minimum Rent as existed in the immediately preceding month and (ii) thereafter, be equal to one hundred and fifty percent (150%) of the Minimum Rent as existed in the immediately preceding month and, in all such events, the term of any such hold over shall be on a month-to-month basis and shall be terminable upon thirty (30) days notice to either party by the other. 21. IMPROVEMENTS TO LEASED PREMISES; ALTERATIONS. The Lessor shall, prior to the Commencement Date, substantially complete those improvements to the Leased Premises as are more particularly described on the Plans and Specifications set forth on EXHIBIT "F" attached hereto and made a part hereof (the "Lessor's Improvements"). The Lessor shall construct the Lessor's improvements in a good and workmanlike manner. The Lessee shall, prior to the Commencement Date, substantially complete, or cause the substantial completion of, those improvements to the Leased Premises as are more particularly described on the Plans and Specifications set forth on EXHIBIT "G" attached hereto and made a part hereof (the "Lessee's Improvements"); provided, however, the Lessee's failure or inability to substantially complete the construction of the Lessee's Improvements by the Commencement Date shall in no way impact upon the Commencement Date or the establishment thereof. The Lessee may commence construction of the Lessee's Improvements only after providing reasonable prior notice to the Lessor and/or coordinating with the Lessor so as not to interfere with the Lessor's construction of the Lessor's Improvements. The Lessee shall construct, or cause to be constructed, the Lessee's Improvements in a good and workmanlike manner. The Lessee may not make any structural alterations or any improvements (other than the Lessee's Improvements as hereinabove defined) to the Leased Premises without Lessor's prior written consent, which consent shall be in the sole and absolute discretion of the Lessor. All such alterations and improvements made with the Lessor's prior written consent as hereinabove set forth shall become the property of the Lessor upon the termination of this Lease unless otherwise provided in Lessor's consent therefor; provided, however, that, notwithstanding the foregoing, so long as the Lessee is not in default under this Lease, the Lessor shall not have title to, and Lessee -14- shall have the right to remove, trade fixtures, moveable office equipment and furniture. The Lessee may, however, at its sole cost and expense, decorate the Leased Premises. Anything contained herein to the contrary notwithstanding, the Lessee shall, at its own cost and expense, immediately upon the expiration or earlier termination of this Lease, restore the Leased Premises to the condition as existed as of the Commencement Date and, in the event that the Lessee does not do so in a good and workmanlike manner, the Lessor may do so and, in such event, the Lessee shall be responsible for all costs and expenses associated therewith and the Lessor may, in addition to all other rights and remedies available to it in law or at equity, apply the Deposit toward the same. The foregoing notwithstanding, the Lessee shall not be obligated to remove any of the Lessor's Improvements or those portions of the Lessee's Improvements which were constructed in the Leased Premises with the prior written approval of the Lessor and to which the Lessor did not indicate in writing, at the time of its providing such prior written approval for the construction thereof, that the Lessee would be under an obligation to remove the same at the expiration or earlier termination of this Lease; provided, however, the Lessor's Improvements and such Lessee's Improvements shall immediately and automatically become the property of the Lessor upon the expiration or earlier termination of this Lease without the necessity of any further notice or action on the part of the Lessor or the Lessee and without any reimbursement or compensation therefor by the Lessor to the Lessee. Any Lessee's Improvements or other alterations made to the Leased Premises either without the Lessor's prior written consent, or with such prior written consent of the Lessor but to which the Lessor indicated must be removed upon the expiration or earlier termination of this Lease, shall be removed by the Lessee upon the expiration or earlier termination of this Lease and the Leased Premises shall be restored by the Lessee to the same condition as existed as of the Commencement Date; all at the Lessee's sole cost and expense. 22. SIGNAGE. Except as hereinafter expressly set forth, the Lessee hereby agrees that it will not place or suffer to be placed or maintained on any exterior door, exterior wall or window of the Leased Premises any sign, awning or canopy, or advertising matter or other thing of any kind, and will not place or maintain any decoration, lettering or advertising matter on the glass of any window or exterior door of the Leased Premises which is not in conformity with the Rules and Regulations of the Leased Premises as set forth by Lessor from time to time and further, without first obtaining Lessor's prior written approval and consent. Lessee further agrees to maintain such sign, awning, canopy, decoration, lettering, advertising matter or other thing as may be approved by Lessor in good condition and repair at all times. Lessee acknowledges that Lessor, at its option, may regulate the lettering size, style and color of signs so that all signs within the Leased Premises and the Building and on the Real Property are of a coordinated and complementary size, color, style of lettering and material. The foregoing notwithstanding, the Lessor and the Lessee acknowledge and -15- agree that so long as the Lessee continues to lease and occupy a significant portion of the rentable space in the Building, the Lessee shall have the exclusive right, at its sole cost and expense, to install a sign on the exterior of the Building to identify the Lessee's presence within the Building; provided, however, the size, style, color and method of installation of any such signage shall be subject to the prior written approval thereof by the Lessor, such approval not to be unreasonably withheld, conditioned or delayed. Upon the termination of this Lease, or the Lessee's failure to lease and occupy a significant portion of the rentable space in the Building, the Lessee shall, at its sole cost and expense, remove any such signage from the Building and shall restore the Building to the condition as existed immediately prior to the installation of any such signage. 23. LIABILITY. The Lessor shall not be liable for any injury to any person while on the Leased Premises or the Real Property or for damage to property while located on the Leased Premises or the Real Property, whether owned by Lessor, Lessee or third parties, whether caused by or resulting from any act, omission, or negligence of Lessor or any of its respective agents, servants or employees, or by fire, or by any other casualty or condition existing on or resulting to the Leased Premises or the Real Property during the Term (except for acts caused intentionally or by the negligence of Lessor), and the Lessee shall maintain all of the insurance policies and coverages referred to in this Lease to insure Lessor against any loss or liability on account of any such claim. Lessor shall not be liable for any damage to any property at any time located within or about the Leased Premises or the Real Property including, but not limited to, property of Lessee, by whatsoever cause (except for acts caused intentionally or by the negligence of Lessor), nor shall Lessor be liable in any claim for damages by reason of inconvenience or interruption to the business of Lessee, irrespective of the cause therefor (except for acts caused intentionally or by the negligence of Lessor). 24. ASSIGNMENT AND SUBLEASE. Except as hereinafter expressly set forth, the Lessee may not assign this Lease or sublet the Leased Premises or any portion thereof without the prior written consent of the Lessor, such consent not to be unreasonably withheld, conditioned or delayed. The foregoing notwithstanding, the Lessee may assign this Lease or sublet the Leased Premises or a portion thereof to any entity which is owned and controlled by the Lessee provided that the Lessee shall, in the event of any such subletting or assignment, continue to remain fully liable to Lessor for all sums due under this Lease and for the performance of all of the covenants and duties of the Lessee hereunder. Anything contained in this Lease to the contrary notwithstanding, any approval or consent of the Lessor with respect to any such requested assignment of subletting of the Leased Premises by the Lessee shall not be deemed to be the approval or the consent of the Lessor with respect to any such other or future assignment or subletting request of the Lessee with respect to the Leased Premises. -16- 25. INSPECTION OF LEASED PREMISES. It is further agreed and understood that the Lessor may enter the Leased Premises at any time during the Term, upon reasonable advance notice to Lessee, in the presence of the Lessee and during Lessee's business hours for the purposes of (a) ascertaining whether the Leased Premises are kept in good order and repair; except, however, in an emergency situation, in which event, the Lessor shall have the right to enter in and upon the Leased Premises absolutely and without notice, (b) accessing, tying into, repairing or replacing all plumbing, electrical, heating and air conditioning facilities in the Leased Premises, and (c) showing the Leased Premises and/or the Building for the Lessor's marketing purposes to other prospective tenants, purchasers, lenders or other parties with whom the Lessor conducts, or is interested in conducting, business. Lessee agrees that Lessor shall have the right to enter upon the Leased Premises at any time during the last six (6) months of the Term in the presence of the Lessee and during Lessee's business hours in order to show the Leased Premises to prospective tenants. 26. DEFAULT. If the Lessee (a) does not pay in full any installment of Rent, and/or other charge or payment herein agreed to be paid by Lessee, within the period of ten (10) days after notice thereof from the Lessor to the Lessee, or (b) violates or fails to perform or otherwise breaches any covenant or agreement herein contained, which violation, failure or breach remains uncured for a period of thirty (30) days after written notice has been given by Lessor to Lessee, or if such violation, failure or breach is of such a nature that the same cannot be completely cured or remedied during such thirty (30) day period, and Lessee fails to promptly commence and diligently and in good faith pursue curing such violation, failure or breach within such thirty (30) day period, or (c) makes an assignment for the benefit of creditors, or if a petition is filed by (and granted) or filed against Lessee for the appointment of a receiver, resulting in an order or decree which continues unstayed and in effect for a period in excess of sixty (60) days, or a bill in equity or other proceeding for the appointment of a receiver of Lessee is filed and granted, resulting in an order or decree which continues unstayed and in effect for a period in excess of sixty (60) days or if proceedings for reorganization or composition of creditors under any state or federal law is instituted by or against Lessee, resulting in an order or decree which continues unstayed and in effect for a period in excess of sixty (60) days, THEN, and in any of said events, there shall be deemed to be by virtue thereof, a breach of this Lease and Lessor may: (a) assert such remedies against Lessee for breach of this Lease as Lessor is entitled to assert by applicable law and/or in a court of equity; and/or (b) terminate the Term of this Lease as to all future periods of time and retain the Deposit pursuant to the terms of this Lease; and/or -17- (c) collect from Lessee any and all costs and expenses incurred by Lessor or as a result of the Lessee's breach including, without limitation, reasonable attorneys' fees which Lessor was required to incur in enforcing the terms of this Lease and utilize the Deposit, if any, toward paying the same. 27. REPRESENTATIONS AND WARRANTIES. (a) LESSEE'S REPRESENTATIONS AND WARRANTIES. The Lessee hereby represents and warrants to the Lessor as follows: (i) the Lessee is a corporation legally organized and validly existing and qualified to do business under the laws of the STATE of DELAWARE AND HAS QUALIFIED TO DO BUSINESS IN THE COMMONWEALTH OF PENNSYLVANIA; (ii) the Lessee has the full legal authority and power to enter into, and to perform its obligations under, this Agreement; (iii) all requisite corporate action has been taken by the Lessee to legally authorize the execution and delivery of this Agreement and the performance of its obligations hereunder; and (iv) this Agreement is, and shall be, legally binding upon, and enforceable against, the Lessee in accordance with its terms. (b) LESSOR'S REPRESENTATIONS AND WARRANTIES. The Lessor hereby represents and warrants to the Lessee as follows: (i) the Lessor is limited partnership legally organized and validly existing and qualified to do business under the laws of the Commonwealth of Pennsylvania; (ii) the Lessor has the full legal authority and power to enter into, and to perform its obligations under, this Agreement; (iii) all requisite action has been taken by the Lessor to legally authorize the execution and delivery of this Agreement and the performance of its obligations hereunder; and (iv) this Agreement is, and shall be, legally binding upon, and enforceable against, the Lessor in accordance with its terms. -18- 28. CONDEMNATION. In the event that all or five percent (5%) or more of the Leased Premises is taken by any condemnation or eminent domain proceedings, then either the Lessee or Lessor shall have the right to terminate this Lease by delivering written notice of such election to the other party, and, in such event, all obligations of Lessee and Lessor hereunder with respect to the period of time subsequent to such taking, shall, thereafter, terminate and this Lease shall be null and void and of no further force and effect. If, however, less than ten percent (10%) of the Leased Premises is taken by the exercise of the right of condemnation or eminent domain, this Lease shall continue with respect to the remaining portion of the Leased Premises, and the Minimum Rent herein specified to be paid by Lessee shall be ratably reduced according to the area of the Leased Premises which is taken. Lessor and Lessee shall separately be entitled to assert and receive any damages due to either of them from the condemning governmental unit or other corporation or entity exercising any such right of condemnation or eminent domain. 29. CUMULATIVE REMEDIES. All of the remedies hereinbefore given to Lessor and Lessee and all rights and remedies given to them by law or equity shall be cumulative and concurrent. The exercise by either Lessor or Lessee of any particular right shall not be a waiver by either party of any other right herein granted to Lessor and/or Lessee. If Lessor, at any time or times, shall accept the Rent or the payment of other charges due from Lessee hereunder after the same shall become due and payable, such acceptance shall not excuse delay upon subsequent occasion or constitute or be construed as a waiver of any of Lessor's rights. 30. BINDING UPON SUCCESSORS AND ASSIGNS. All rights and liabilities herein given to or imposed upon the respective parties hereto shall extend to, and be binding upon, their respective heirs, personal representatives, successors and permitted assigns. 31. MORTGAGES. Subject to the provisions of PARAGRAPH 9 hereof, this Lease shall be subject and subordinate to all mortgages which now or hereafter affect this Lease or the Leased Premises, and to all renewals, modifications, consolidations, replacements and extensions thereof. In confirmation of such subordination, non-disturbance and attornment, the Lessee shall execute promptly any reasonable certificate that Lessor, or its mortgagee(s), may request pursuant thereto. Lessor agrees to perform the terms imposed upon Lessor by all mortgages and renewals, modifications, consolidations, replacements and extensions thereof in order that the rights, occupancy and use of the Leased Premises by Lessee under this Lease will not be interrupted or adversely affected. 32. SEVERABLE. The terms, covenants and provisions of this Lease are severable and divisible and, if any of the said terms, covenants and provisions shall be invalidated by law or for other reason, the force and effect of the other terms, covenants and provisions shall be deemed to be unaffected and be legally enforceable as though the provisions invalidated had not been herein set forth. -19- 33. NOTICE. Any notice required to be given hereunder shall be given to parties hereto as follows or at such other addresses as the parties hereto, or either of them, may from time to time designate by notification to the other in writing by registered or certified mail, postage prepaid: If to Lessor: Paul-Francis Realty, L.P. 613 Baltimore Drive East Mountain Corporate Center Wilkes-Barre, PA 18702-7944 Attention: Paul J. Siegel, Jr. With a copy to: Rosenn Jenkins & Greenwald, L.L.P. 15 South Franklin Street Wilkes-Barre, PA 18711 Attention: Joseph L. Persico, Esquire If to Lessee: Rykoff-Sexton, Inc. 613 Baltimore Drive East Mountain Corporate Center Wilkes-Barre, PA 18702-7944 34. NO RECORDING. This Lease shall not be recorded with the Recorder of Deeds or in any other public office for the recording of documents. Both Lessor and Lessee agree that this Lease is binding upon each of them and is enforceable with respect to all of the Leased Premises without such recording. 35. NO BROKER. This Lease was brought about by direct negotiations between Lessor and Lessee, and neither party has any responsibility to compensate any broker in connection with the execution of this Lease. Each party hereby agrees to indemnify, defend and hold the other harmless from and against any liability, obligation, cost, fee or expenses arising as a result of any claim or through the indemnitor. 36. FORCE MAJEURE. Whenever a period of time is prescribed in this Lease for action to be taken by the Lessor regarding the substantial completion of the construction of the Lessor's improvements, the Lessor shall not be liable or responsible for, and there shall be excluded from the computation for any such period of time, any delays due to force majeure, which term shall include strikes, riots, acts of God, shortages of labor or materials, war, governmental approvals, laws, regulations or restrictions or any other cause of any kind whatsoever which is beyond the reasonable control of the Lessor. -20- 37. ESTOPPEL CERTIFICATES. The Lessee agrees at any time, within ten (10) days of Lessor's written request, to execute, acknowledge and deliver to Lessor a written statement certifying that this Lease is unmodified and in full force and effect (or, if there have been modifications), and the dates to which the Minimum Rent. Additional Rent and other charges have been paid in advance, if any, it being intended that any such statement pursuant to this PARAGRAPH 37 may be relied upon by any prospective purchaser or mortgagee of the Building or Real Property. 38. RULES AND REGULATIONS. The Lessee, its agents, employees, invitees, servants and guests shall abide by and observe such reasonable rules and regulations from the time of actual notice thereof, as may be promulgated from time to time by the Lessor for the operation and maintenance of the Building (collectively, the "Rules and Regulations"), provided a copy of such Rules and Regulations is sent to the Lessee. Nothing contained in this Lease shall be construed to impose upon the Lessor any duty or obligation to enforce such Rules and Regulations, or the terms, conditions or covenants contained in any other lease as against any other lessee, and the Lessor shall not be liable to the Lessee for violation of the same by any other lessee, any other lessee's employees, agents, business invitees, licensees, customers, clients, family members or guests. The Lessor shall use reasonable efforts to apply and enforce the Rules and Regulations uniformly and consistently with respect to all of the lessees in the Building. 39. FINANCIAL INFORMATION. Upon the request of the Lessor, the Lessee shall deliver to the Lessor's designated lender(s), from time to time, the most recent financial statements of the Lessee as the Lessor's lender(s) may request in connection with any financing or re-financing being conducted by the Lessor, all of which shall be prepared in accordance with generally accepted accounting principles consistently applied (collectively, the "Financial Information"). 40. LIMITED LIABILITY OF LESSOR. Notwithstanding any provision to the contrary contained herein, Lessee shall look solely to the estate of Lessor in and to the Real Property and the Building only (the "Specified Assets") in the event of any claim against Lessor arising out of or in connection with this Lease, the relationship of Lessor and Lessee or Lessee's use of the Leased Premises (collectively, "Lessee's Claims"), and Lessee agrees that the liability of Lessor arising out of or in connection therewith shall be limited to the Specified Assets. No properties or assets of Lessor, other than the Specified Assets, shall be subject to levy, execution or other enforcement procedures for the satisfaction of any judgment (or other judicial process) or for the satisfaction of any other remedy of Lessee arising out of or in connection with the Lessee's Claims. -21- IN WITNESS WHEREOF, and intending to be legally bound hereby, the parties have caused this Lease to be duly executed as of the day and year first above written. ATTEST: LESSOR: PAUL-FRANCIS REALTY, L.P. A Pennsylvania limited partnership, by its General Partner, Paul-Francis Equities, Inc. /s/ BY: /s/ - ------------------------------- ----------------------------------- Paul J. Siegel, Secretary Paul J. Siegel, President ATTEST: LESSEE: RYKOFF-SEXTON, INC., a Delaware corporation /s/ BY: /s/ - ------------------------------- ----------------------------------- Title: Its: ------------------------ ---------------------------------- (CORP SEAL) -22- EXHIBIT "A" ----------- (REAL PROPERTY) -23- EXHIBIT "B" ----------- (BUILDING) -24- EXHIBIT "C" ----------- (LEASED PREMISES) -25- EXHIBIT "D" ----------- (PARKING AREA) -26- EXHIBIT "E" ----------- (ACCESS AREA) -27- EXHIBIT "F" ----------- (LESSOR'S IMPROVEMENTS) -28- EXHIBIT "G" ----------- (LESSEE'S IMPROVEMENTS) -29- EX-10.40-1 15 EXHIBIT 10.40.1 RECEIVABLE SALE AGREEMENT EXHIBIT 10.40.1 EXECUTION COPY RECEIVABLES SALE AGREEMENT RECEIVABLES SALE AGREEMENT, dated as of November 15, 1996 (this "AGREEMENT"), among RYKOFF-SEXTON, INC., a Delaware corporation ("RS"), JOHN SEXTON & CO., a Delaware corporation ("SEXTON"), BIGGERS BROTHERS, INC., a Delaware corporation, WHITE SWAN, INC., a Delaware corporation, F.H BEVEVINO & COMPANY, INC., a Pennsylvania corporation, ROANOKE RESTAURANT SERVICE, INC., a Virginia corporation, KING'S FOODSERVICE, INC., a Kentucky corporation, US FOODSERVICE OF FLORIDA, INC., a Delaware corporation, and US FOODSERVICE OF ATLANTA, INC., a Delaware corporation (collectively and together with each other Subsidiary of RS from time to time added as a seller hereunder pursuant to Section 9.13, the "SELLERS"); RS FUNDING INC., a Nevada corporation (the "COMPANY"); and US FOODSERVICE INC., a Delaware corporation ("US FOODSERVICE"), in its capacity as servicer (the "SERVICER"). W I T N E S S E T H: WHEREAS, the Sellers intend to sell Receivables and Receivables Property (both as hereinafter defined) to the Company on the terms and subject to the conditions set forth in this Agreement; WHEREAS, the Company desires to purchase Receivables and Receivables Property from the Sellers on the terms and subject to the conditions set forth in this Agreement; WHEREAS, the Sellers and the Company desire the sale of Receivables and Receivables Property from the Sellers to the Company to be a true sale providing the Company with the full benefits of ownership of the Receivables; and WHEREAS, to obtain a portion of the necessary funds to purchase such Receivables and Receivables Property, the Company has entered into the Pooling Agreement and the Series 1996-1 Supplement (both as hereinafter defined). NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements contained herein, the parties hereto agree as follows: 2 ARTICLE I DEFINITIONS Section 1.01 CERTAIN DEFINED TERMS. (a) As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "ABR" means, for any day, a rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the greatest 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" shall mean, for any day, a rate of interest per annum equal to the rate published in the WALL STREET JOURNAL on the immediately following Business Day under the heading "Money Rates" and "FEDERAL FUNDS EFFECTIVE RATE" shall mean, 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 Chase Manhattan Bank from three federal funds brokers of recognized standing selected by it. Any change in the ABR due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective as of the opening of business on the effective day of such change in the Prime Rate or the Federal Funds Effective Rate, respectively. "ADDITIONAL SELLER SUPPLEMENT" means an instrument substantially in the form of Exhibit B hereto pursuant to which a Subsidiary of RS becomes a Seller party hereto. "AUTHORIZED OFFICERS" means those officers of the Sellers designated in Schedule I hereto (or in such other Schedule as may be delivered by the Sellers to the other parties hereto from time to time) as duly authorized to execute and deliver this Agreement and any instruments or documents in connection herewith on behalf of the Sellers and to take, from time to time, all other actions on behalf of the Sellers in connection herewith. "CLOSING DATE" means the date of the initial issuance of the Investor Certificates. "CODE" means the Internal Revenue Code of 1986, and regulations promulgated thereunder or any successor statute and related regulations. "CONTRACT" means a contract between any Seller and any Person pursuant to or under which such Person shall be obligated to make payments to such Seller. "DISCOUNTED PERCENTAGE" has the meaning specified in Schedule VII hereto. "EARLY TERMINATION" has the meaning specified in Section 6.01. 3 "EFFECTIVE DATE" means (i) with respect to each Seller on the date hereof, November __, 1996 and (ii) with respect to each Subsidiary of RS added as a Seller pursuant to Section 9.13 hereof, the Seller Addition Date with respect to each such Subsidiary. "ERISA AFFILIATE" means, with respect to any Person, any trade or business (whether or not incorporated) that is a member of a group of which such Person is a member and which is treated as a single employer under Section 414 of the Internal Revenue Code. "EXCLUDED RECEIVABLE" means, subject to Section 10.21 of the Pooling Agreement, the indebtedness and payment obligations of any Person (i) to either RS or Sexton arising from a sale of merchandise or the provision of services by such Seller from its contract and design business, (ii) to the manufacturing division of either RS or Sexton at the manufacturing facilities thereof located in Los Angeles, California, Indianapolis, Indiana or Englewood, New Jersey arising from the sale of products manufactured by such division directly to unaffiliated third parties, (iii) to the Continental Foods operation of Sexton, located in Baltimore, Maryland, (iv) to the Lake Mills, Wisconsin operation or the San Francisco International Cheese Imports operation (located in San Francisco, California) of the San Francisco International Cheese Imports division of RS and (v) to the Olfisco Specialty Products division of Sexton located in Minneapolis, Minnesota; PROVIDED that in the event any Excluded Receivable is included in a Daily Report, for the purposes of Section 2.01 hereof, Section 2.1 of the Pooling Agreement and the definition of "Collections", such receivable shall not be an Excluded Receivable. "EXISTING RYKOFF SUBORDINATED NOTE" means the Existing Rykoff Subordinated Note (as defined in the SPC Receivables Sale Agreement). "EXISTING RYKOFF SUBORDINATED NOTE AMOUNT" means the sum of (i) the aggregate outstanding principal amount of the Existing Rykoff Subordinated Note and (ii) the amount of accrued and unpaid interest thereon, in each case as of the initial Effective Date. "EXISTING USFAR SUBORDINATED NOTE" means the Existing USFAR Subordinated Note (as defined in the SPC Receivables Sale Agreement). "EXISTING USFAR SUBORDINATED NOTE AMOUNT" means the sum of (i) the aggregate outstanding principal amount of the Existing USFAR Subordinated Note and (ii) the amount of accrued and unpaid interest thereon, in each case as of the initial Effective 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 (including, without limitation, any lien which may arise under PACA, the Packers and Stockyards Act of 1921, as amended, or the Poultry Producers Financial Protection Act of 1987, as amended), (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 other similar right of a third party with respect to such securities; PROVIDED, HOWEVER, that if a lien is imposed under Section 412(n) of the Internal Revenue Code or Section 302(f) of ERISA for a failure to make a required installment or other payment to a plan to which Section 412(n) of the Internal Revenue Code or Section 302(f) of ERISA applies, then such lien shall not be treated as a "Lien" from and 4 after the time any Person who is obligated to make such payment pays to such plan the amount of such lien determined under Section 412(n)(3) of the Internal Revenue Code or Section 302(f)(3) of ERISA, as the case may be, and provides to the Trustee, any Agent and each Rating Agency written evidence reasonably satisfactory to the Rating Agencies of the release of such lien, or such lien expires pursuant to Section 412(n)(4)(B) of the Internal Revenue Code or Section 302(f)(4)(B) of ERISA. "MULTIEMPLOYER PLAN" means a "multiemployer plan" (within the meaning of Section 4001(a)(3) of ERISA) and to which such Person or any ERISA Affiliate of such Person (other than one considered an ERISA Affiliate only pursuant to subsection (m) or (o) of Section 414 of the Internal Revenue Code) is making or accruing an obligation to make contributions, or has within any of the preceding five years made or accrued an obligation to make contributions. "NEW DIVISION" has the meaning specified in Section 9.13. "OUTSTANDING SALE PRICE AMOUNT" means, at any time with respect to any Seller, the sum of (i) the aggregate purchase price received by Rykoff Funding or USFAR, as the case may be, from the Company with respect to the aggregate outstanding Principal Amount at such time of the Receivables of such Seller sold to the Company by Rykoff Funding or USFAR, as the case may be, on the initial Effective Date and (ii) the aggregate Purchase Price received by such Seller from the Company with respect to the aggregate outstanding Principal Amount at such time of the Purchased Receivables of such Seller. "PAYMENT DATE" has the meaning specified in subsection 2.03(a). "PLAN" means, with respect to any Person, any pension plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Internal Revenue Code which is maintained for employees of such Person or any ERISA Affiliate of such Person. "POOLING AGREEMENT" means the Pooling Agreement, dated as of the date hereof, among the Company, the Servicer and the Trustee on behalf of the Holders, as such agreement may be amended, supplemented, waived, or otherwise modified from time to time, including, without limitation, the Series 1996-1 Supplement. "POTENTIAL PURCHASE TERMINATION EVENT" means any condition or act specified in Section 6.01 that, with the giving of notice or the lapse of time or both, would become a Purchase Termination Event. "PURCHASED RECEIVABLE" means, at any time, any Receivable sold to the Company by any Seller pursuant to, and in accordance with the terms of, this Agreement and not theretofore resold to such Seller pursuant to subsection 2.01(b) or Section 2.06. 5 "PURCHASED RECEIVABLES PERCENTAGE" means, with respect to any Seller as to which RS has submitted a Seller Termination Request, the percentage equivalent of a fraction, the numerator of which is an amount equal to the aggregate outstanding Principal Amount of Purchased Receivables sold by such Seller as of the applicable Seller Termination Request Date, and the denominator of which is an amount equal to the aggregate outstanding Principal Amount of all Purchased Receivables as of such date. "PURCHASE PRICE" has the meaning specified in Section 2.02. "PURCHASE TERMINATION DATE" means, with respect to any Seller, the date on which the Company's obligation to purchase Receivables from such Seller shall terminate, which shall be the date on which an Early Termination occurs with respect to such Seller. "PURCHASE TERMINATION EVENT" has the meaning specified in Section 6.01. "RECEIVABLE" means the indebtedness and payment obligations of any Person to a Seller (including, without limitation, obligations constituting an account or general intangible or evidenced by a note, instrument, contract, security agreement, chattel paper or other evidence of indebtedness or security) arising from a sale of merchandise or the provision of services by such Seller, including, without limitation, any right to payment for goods sold or for services rendered, and including the right to payment of any interest, sales taxes, finance charges, returned check or late charges and other obligations of such Person with respect thereto; PROVIDED that, except as otherwise expressly provided, for all purposes hereunder "RECEIVABLES" shall not include Excluded Receivables. "RECEIVABLES LIST" has the meaning specified in subsection 2.01(e). "RECEIVABLES POOL" means at any time all then outstanding Receivables and Receivables Property. "RECEIVABLES PROPERTY" has the meaning specified in Section 2.01. "RELATED PROPERTY" means, with respect to each Receivable: (a) all of the applicable Seller's interest in the goods (including returned goods), if any, relating to the sale which gave rise to such Receivable; (b) all other security interests or Liens, and the applicable Seller's interest in the property subject thereto from time to time purporting to secure payment of such Receivable, together with all financing statements signed by an Obligor describing any collateral securing such Receivable; and (c) all guarantees, insurance, letters of credit and other agreements or arrangements of whatever character from time to time supporting or securing payment of such Receivable; 6 in the case of clauses (b) and (c), whether pursuant to the contract related to such Receivable or otherwise or including without limitation, pursuant to any obligations evidenced by a note, instrument, contract, security agreement, chattel paper or other evidence of indebtedness or security and the proceeds thereof. "RELEVANT UCC STATE" means each jurisdiction in which the filing of a UCC financing statement is necessary or desirable to perfect the Company's interest in the Receivables. "REPORTABLE EVENT" means any reportable event as defined in Section 4043(b) of ERISA or the regulations issued thereunder with respect to a Plan (other than a Plan maintained by an ERISA Affiliate which is considered an ERISA Affiliate only pursuant to subsection (m) or (o) of Section 414 of the Internal Revenue Code). "RS PERSONS" means each Seller and each of its Affiliates other than the Company. "RS TRANSITION AGREEMENT" means the RS Transition Agreement (as defined in the SPC Receivables Sale Agreement). "SEC" means the United States Securities and Exchange Commission. "SELLER ADDITION DATE" has the meaning specified in Section 3.02. "SELLER ADJUSTMENT PAYMENT" has the meaning specified in Section 2.05. "SELLER DIVISION" has the meaning specified in Section 9.13. "SELLER REPURCHASE PAYMENT" has the meaning specified in Section 2.06. "SELLER TERMINATION REQUEST" has the meaning specified in subsection 9.14(b). "SELLER TERMINATION REQUEST DATE" has the meaning specified in subsection 9.14(b). "SERIES 1996-1 SUPPLEMENT" means the Series 1996-1 Supplement, dated as of the date hereof, among the Company, the Servicer and the Trustee, to the Pooling Agreement, as each such agreement may be amended, supplemented or otherwise modified from time to time. "SUBORDINATED NOTE" has the meaning specified in Section 8.01. "UCC CERTIFICATE" means a certificate substantially in the form of Exhibit C hereto. "USFAR TRANSITION AGREEMENT" means the USFAR Transition Agreement (as defined in the SPC Receivables Sale Agreement). "WITHDRAWAL LIABILITIES" 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. 7 (b) All capitalized terms used herein and not otherwise defined have the meanings assigned such terms in Section 1.1 of the Pooling Agreement. Section 1.02. ACCOUNTING AND UCC TERMS. All accounting terms not specifically defined herein shall be construed in accordance with GAAP; and all terms used in Article 9 of the UCC that are used but not specifically defined herein are used herein as defined therein. ARTICLE II PURCHASE AND SALE OF RECEIVABLES Section 2.01. PURCHASE AND SALE OF RECEIVABLES. (a) Each of the Sellers hereby sells, assigns, transfers and conveys to the Company, without recourse (except to the limited extent provided herein), all its respective right, title and interest in, to and under (i) all Receivables now existing and hereafter arising from time to time, (ii) all payment and enforcement rights (but none of the obligations) with respect to such Receivables, (iii) all Related Property in respect of such Receivables and (iv) all Collections with respect to the foregoing clauses (i), (ii) and (iii) (the payment and enforcement rights, Related Property and Collections referred to in clauses (ii), (iii) and (iv) above are hereinafter collectively referred to as the "RECEIVABLES PROPERTY"). (b) On each applicable Effective Date and on the date of creation of each newly created Receivable (but only so long as no Early Termination with respect to the Seller which created such Receivable shall have occurred and be continuing), all of the applicable Seller's right, title and interest in, to and under (i) in the case of each such Effective Date, all then existing Receivables and all Receivables Property in respect of such Receivables and (ii) in the case of each such date of creation, all such newly created Receivables and all Receivables Property in respect of such Receivables shall be immediately and automatically sold, assigned, transferred and conveyed to the Company pursuant to paragraph (a) above without any further action by such Seller or any other Person. If any Seller shall not have received payment from the Company of the Purchase Price for any newly created Receivable and the related Receivables Property on the Payment Date therefor in accordance with the terms of subsection 2.03(b), such newly created Receivable and the Receivables Property with respect thereto shall, upon receipt of notice from the applicable Seller of such failure to receive payment, immediately and automatically be sold, assigned, transferred and reconveyed by the Company to such Seller without any further action by the Company or any other Person. (c) The parties to this Agreement intend that the transactions contemplated by subsections 2.01(a) and (b) hereby shall be, and shall be treated as, a purchase by the Company and a sale by the applicable Seller of the Purchased Receivables and the Receivables Property in respect thereof and not a lending transaction. All sales of Receivables and Receivables Property by any Seller hereunder shall be without recourse to, or representation or warranty of any kind (express or implied) by, any Seller, except as otherwise specifically provided herein. The foregoing sale, assignment, transfer and conveyance does not constitute and is not intended to result in a creation or assumption by the Company of any obligation of any Seller or any other Person in connection with the Receivables, the Receivables Property or any agreement or instrument relating thereto, including any obligation to any Obligor. If this Agreement does not 8 constitute a valid sale, assignment, transfer and conveyance of all right, title and interest of each Seller in, to and under the Purchased Receivables and the Receivables Property in respect thereof despite the intent of the parties hereto, such Seller hereby grants a "security interest" (as defined in the UCC as in effect in the State of New York) in the Purchased Receivables, the Receivables Property in respect thereof and all proceeds thereof to the Company and the parties agree that this Agreement shall constitute a security agreement under the UCC in effect in New York. (d) In connection with the foregoing conveyances, each Seller agrees to record and file, at its own expense, financing statements (and continuation statements with respect to such financing statements when applicable) with respect to the Receivables and Receivables Property now existing and hereafter acquired by the Company from the Sellers meeting the requirements of applicable state law in such manner and in such jurisdictions as are necessary to perfect the Company's ownership or security interest in the Receivables and Receivables Property, and to deliver evidence of such filings to the Company on or prior to the related Effective Date. (e) In connection with the foregoing conveyances, each Seller agrees at its own expense, as agent of the Company, (i) to indicate on the computer files containing a master database of Receivables that all Receivables included in such files and all Receivables Property have been sold to the Company in accordance with this Agreement and (ii) to deliver to the Company computer files, microfiche lists, a typed or printed list or other tangible evidence reasonably acceptable to the Company (the "RECEIVABLES LIST") containing true and complete lists, as of the Cut-Off Date, of the Obligors whose Receivables are to be transferred to the Company on the Effective Date and the balance of the Receivables originated by each such Obligor as of the Cut-Off Date (including the Receivables transferred by USFAR and Rykoff Funding to the Company pursuant to the SPC Receivables Sale Agreement). Section 2.02. PURCHASE PRICE. The amount payable by the Company to a Seller (the "PURCHASE PRICE") for Receivables and Receivables Property on any Payment Date under this Agreement shall be equal to the product of (a) the aggregate outstanding Principal Amount of such Receivables as set forth in the applicable Daily Report TIMES (b) the Discounted Percentage with respect to such Seller. Section 2.03. PAYMENT OF PURCHASE PRICE. (a) Upon the fulfillment of the conditions set forth in Article III, the Purchase Price for Receivables and the Receivables Property shall be paid or provided for by the Company in the manner provided below on each day for which a Daily Report is delivered to the Company (each such day, a "PAYMENT DATE") in respect of a Reported Day (which Daily Report shall specify, by Seller, the Principal Amount of Receivables being sold on such Payment Date, the aggregate Purchase Price for such Receivables and the components of payment as provided in paragraph (b) below). The Sellers hereby appoint the Servicer as their agent to receive, for allocation by the Servicer to the Sellers, payments of the Purchase Price of the Receivables and the Receivables Property sold to the Company and hereby authorize the Company to make all such payments due to any Seller directly to an account of, or as otherwise directed by, the Servicer. The Servicer hereby accepts and agrees to such appointment. All payments under this Agreement shall be made not later than 3:00 p.m (New York City time) on the date specified therefor in Dollars in same day funds or by check, as the 9 Servicer shall elect, and to the bank account designated in writing by the Servicer to the Company. (b) The Purchase Price for Receivables and Receivables Property shall be paid by the Company on each Payment Date as follows: (i) by netting the amount of any Seller Adjustment Payments or Seller Repurchase Payments pursuant to Section 2.05 or 2.06 against such Purchase Price; (ii) to the extent available for such purpose, in cash from Collections released to the Company pursuant to the Pooling Agreement; (iii) to the extent available for such purpose, in cash from the net proceeds of a transfer of interests in Purchased Receivables by the Company to other Persons; (iv) at the option of the Company, by means of an addition to the principal amount of the Subordinated Note in an aggregate amount equal to the remaining portion of the Purchase Price; PROVIDED, HOWEVER, that with respect to any Seller, the outstanding principal amount of such Seller's interest in the Subordinated Note shall not at any time exceed 25% of the Outstanding Sale Price Amount with respect to such Seller; PROVIDED FURTHER that the Company may pay the Purchase Price by means of additions to the principal amount of the Subordinated Note only if, at the time of such payment and after giving effect thereto, the fair market value of the Company's assets, including, without limitation, any beneficial interests in or indebtedness of a trust and all Receivables and Receivables Property the Company owns, is greater than the amount of its liabilities including its liabilities on the Subordinated Note and all interest and other fees due and payable under the Pooling Agreement and the other Transaction Documents. Any such addition to the principal amount of the Subordinated Note shall be allocated among the Sellers (PRO RATA according to the Principal Amount of Receivables sold by each Seller) by the Servicer in accordance with the provisions of this subsection 2.03(b)(iv) and Section 8.01. The Servicer may evidence such additional principal amounts by recording the date and amount thereof on the grid attached to such Subordinated Note; PROVIDED that the failure to make any such recordation or any error in such grid shall not adversely affect any Seller's rights; and (v) in cash from the proceeds of capital contributed by RS to the Company, if any, in respect of its equity interest in the Company. (c) The Servicer shall be responsible, in its sole discretion but in accordance with the preceding subsection 2.03(b), for allocating among the Sellers the payment of the Purchase Price for Receivables and any amounts netted therefrom pursuant to subsection 2.03(b)(i), which allocation shall be, subject to the first proviso contained in subsection 2.03(b)(iv), either in the form of cash received from the Company or as an addition to the principal amount of a Seller's interest in the Subordinated Note. 10 (d) Whenever any payment to be made under this Agreement shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day. Amounts not paid when due in accordance with the terms of this Agreement shall bear interest at a rate equal at all times to the ABR PLUS 4%, payable on demand. Section 2.04. NO REPURCHASE. Except to the extent expressly set forth herein, no Seller shall have any right or obligation under this Agreement, by implication or otherwise, to repurchase from the Company any Purchased Receivables or Receivables Property or to rescind or otherwise retroactively affect any purchase of any Purchased Receivables or Receivables Property after the Payment Date relating thereto. Section 2.05. REBATES, ADJUSTMENTS, RETURNS AND REDUCTIONS; MODIFICATIONS. From time to time, a Seller may make Dilution Adjustments to Receivables in accordance with this Section 2.05 and subsection 5.03(c). The Sellers, jointly and severally, agree to pay to the Company in cash, on the first Business Day immediately succeeding the date of the grant of any Dilution Adjustment (regardless of which Seller shall have granted such Dilution Adjustment), the amount of any such Dilution Adjustment (a "SELLER ADJUSTMENT PAYMENT"); PROVIDED that, prior to the occurrence of any Early Termination with respect to all Sellers, any such Seller Adjustment Payment due to the Company on any Payment Date shall, on such Payment Date, be netted against the Purchase Price of newly created Receivables in accordance with subsection 2.03(b)(i) to the extent of such Purchase Price and the remaining amount of such Seller Adjustment Payment due to the Company after such netting, if any, shall be paid to the Company on such date in cash. The amount of any Dilution Adjustment made on any Reported Day shall be set forth on the Daily Report prepared with respect to such Reported Day. Section 2.06. LIMITED REPURCHASE OBLIGATION. In the event that (i) any representation or warranty contained in Section 4.02 in respect of any Receivable transferred to the Company is not true and correct in any material respect on the applicable Payment Date, or (ii) there is a breach of any covenant contained in subsection 5.01(d), (g) or (h) or Section 5.03 with respect to any Receivable and such breach has a material adverse effect on the Company's interest in such Receivable or (iii) the Company's interest in any Receivable is not a first priority perfected ownership or security interest at any time as a result of any action taken by, or any failure to take action by, any Seller, then the Sellers, jointly and severally, agree to pay to the Company in cash an amount equal to the Purchase Price of such Receivable (whether the Company paid such Purchase Price in cash or otherwise) less Collections received by the Company in respect of such Receivable, regardless of which Seller shall have been responsible for such incorrectness or breach, such payment to occur no later than the Payment Date occurring on the 30th day (or, if such 30th day is not a Payment Date, on the Payment Date immediately succeeding such 30th day) after the day such breach or incorrectness becomes known (or should have become known with due diligence) to any Seller (unless such breach or incorrectness shall have been cured on or before such day); PROVIDED that, prior to any Early Termination with respect to all Sellers, any such payment due and owing to the Company on such Payment Date shall be netted against the Purchase Price of newly created Receivables in accordance with subsection 2.03(b)(i) to the extent of such Purchase Price and the remaining amount of such payment due to the Company after such netting, if any, shall be paid to the Company in cash to the extent still unpaid on such Payment Date. Any payment by any Seller pursuant to this Section 11 2.06 is referred to as a "SELLER REPURCHASE PAYMENT". The obligation to reacquire any Receivable shall, upon satisfaction thereof, constitute the sole remedy respecting the event giving rise to such obligation available to the Company. Simultaneously with any Seller Repurchase Payment with respect to any Receivable, such Receivable and the Receivables Property with respect thereto shall immediately and automatically be sold, assigned, transferred and conveyed by the Company to the applicable Seller without any further action by the Company or any other Person. Section 2.07. OBLIGATIONS UNAFFECTED. The obligations of the Sellers to the Company under this Agreement shall not be affected by reason of any invalidity, illegality or irregularity of any Receivable or any sale of a Receivable. Section 2.08. CERTAIN CHARGES. Each Seller and the Company agree that late charge revenue, reversals of discounts, other fees and charges and other similar items, whenever created, accrued in respect of Purchased Receivables shall be the property of the Company notwithstanding the occurrence of an Early Termination and all Collections with respect thereto shall continue to be allocated and treated as Collections in respect of Purchased Receivables. Section 2.09. CERTAIN ALLOCATIONS. The Sellers hereby agree that, following the occurrence of an Early Termination, all Collections and other proceeds received in respect of Receivables generated by the Sellers shall be applied, FIRST, to pay the outstanding Principal Amount of Purchased Receivables (as of the date of such Early Termination) of the Obligor to whom such Collections are attributable until such Purchased Receivables are paid in full and, SECOND, to the related Seller to pay Receivables of such Obligor not sold to the Company; PROVIDED, HOWEVER, that notwithstanding the foregoing, if an Obligor indicates that a particular Collection be applied to a specific Receivable of such Obligor, then such Collection shall be applied to pay such Receivable. Section 2.10. FURTHER ASSURANCES. From time to time at the request of a Seller, the Company shall deliver to such Seller such documents, assignments, releases and instruments of termination as such Seller may reasonably request to evidence the reconveyance by the Company to such Seller of a Receivable pursuant to the terms of Section 2.01(b) or 2.06, PROVIDED that the Company shall have been paid all amounts due thereunder; and the Company and the Servicer shall take such action as such Seller may reasonably request, at the expense of such Seller, to assure that any such Receivable, the Related Property and Collections with respect thereto do not remain commingled with other Collections hereunder. 12 Section 2.11. PURCHASE OF SELLERS' INTEREST IN RECEIVABLES AND RECEIVABLES PROPERTY. (a) In the event of any breach of any of the representations and warranties set forth in subsection 4.02(a), (b), (c), (e), (f) or (g), as of the date made, which breach has a material adverse effect on the interests of the Company in the Receivables or the Receivables Property, then the Company, by notice then given in writing to the Sellers, may direct the Sellers to purchase all Receivables and Receivables Property and the Sellers, jointly and severally, shall be obligated to make such purchase on the next Distribution Date occurring at least five Business Days after receipt of such notice on the terms and conditions set forth in subsection 2.11(b) below; PROVIDED, HOWEVER, that no such purchase shall be required to be made if, by such Distribution Date, the representations and warranties contained in subsections 4.02(a), (b), (c), (e), (f) or (g) shall be true and correct in all material respects, and any material adverse effect on the Company caused thereby has been cured. (b) The Sellers, jointly and severally, shall, as the purchase price for the Receivables and Receivables Property to be purchased pursuant to subsection 2.11(a) above, pay to the Company, on the Business Day preceding such Distribution Date, an amount equal to the purchase price of the Purchased Receivables, less Collections received by the Company in respect of such Purchased Receivables, as of such Distribution Date. Upon payment of such amount, in immediately available funds, to the Company, the Company's rights with respect to the Purchased Receivables shall terminate and such interest therein will be transferred to the Sellers and the Company shall have no further rights with respect thereto. If the Company gives notice directing the Sellers to purchase the Purchased Receivables as provided above, the obligation of the Sellers to purchase the Purchased Receivables pursuant to this Section 2.11 shall upon satisfaction thereof constitute the sole remedy respecting an event of the type specified in the first sentence of this Section 2.11 available to the Company. ARTICLE III CONDITIONS TO PURCHASES Section 3.01. CONDITIONS PRECEDENT TO COMPANY'S INITIAL PURCHASE. The obligation of the Company to purchase Receivables and Receivables Property hereunder on the Effective Date from the Sellers is subject to the conditions precedent that the Company shall have received on or before the date of such purchase the following, each (unless otherwise indicated) dated the day of such sale and in form and substance satisfactory to the Company: (a) RESOLUTIONS. Copies of the resolutions of the Board of Directors of each Seller approving this Agreement and the other Transaction Documents to be delivered by such Seller and the transactions contemplated thereby, certified by the Secretary or Assistant Secretary of such Seller; (b) SECRETARY'S CERTIFICATE. A certificate of the Secretary or Assistant Secretary of each Seller certifying the names and true signatures of the officers authorized on behalf of such Seller to sign this Agreement and the other Transaction Documents to be delivered by it (on which certificates the Company may conclusively rely until such time as the 13 Company shall receive from any such Seller a revised certificate with respect to such Seller meeting the requirements of this subsection (b)); (c) CORPORATE DOCUMENTS. The certificate or articles of incorporation of each Seller, duly certified by the secretary of state of such Seller's jurisdiction of incorporation, as of a recent date acceptable to the Company, together with a copy of the by-laws of such Seller, duly certified by the Secretary or an Assistant Secretary of such Seller; (d) UCC CERTIFICATE; UCC FINANCING STATEMENTS. (i) A UCC Certificate duly executed by a Responsible Officer of the applicable Seller and dated such date of purchase and (ii) executed copies of such proper financing statements, filed prior to the Closing Date, naming the applicable Seller as the seller and the Company as the purchaser of the Receivables and the Receivables Property, in proper form for filing in each jurisdiction in which the Company (or any of its assignees) deems it necessary or desirable to perfect the Company's ownership interest in all Receivables and Receivables Property under the UCC or any comparable law of such jurisdiction; (e) UCC SEARCHES. A written search report listing all effective financing statements that name the applicable Seller as debtor or assignor and that are filed in the jurisdictions in which filings were made pursuant to subsection 3.01(d) and in any other jurisdictions that the Company determines are necessary or appropriate, together with copies of such financing statements (none of which, except for those described in subsection 3.01(d) and those filed prior to the date hereof pursuant to the Original Rykoff RSA or the USFAR RSA, shall cover any Receivables or Receivables Property), and tax and judgment lien searches showing no such liens that are not permitted by the Transaction Documents; (f) OTHER TRANSACTION DOCUMENTS. Original copies, executed by each of the parties thereto, of each of the other Transaction Documents to be executed and delivered in connection herewith; (g) BACK-UP SERVICING ARRANGEMENTS. Evidence that each Seller maintains disaster recovery systems and back-up computer and other information management systems that, in the Company's reasonable judgment, are sufficient to protect such Seller's business against material interruption or loss or destruction of its primary computer and information management systems. (h) CONSENTS. Copies of all consents, if any (including, without limitation, consents under loan agreements and indentures to which any Seller or its Affiliates are parties), necessary to consummate the transactions contemplated by the Transaction Documents; (i) LEGAL OPINIONS. (i) One or more legal opinions from counsel to the Sellers and counsel to the Company to the effect that: 14 (A) the sales of Receivables by each Seller to the Company pursuant to this Agreement are true sales and that such Receivables would not be property of such Seller's bankruptcy estate; and (B) a court should not order the substantive consolidation of the assets and liabilities of the Company with those of any Seller. (ii) One or more legal opinions from counsel to the Sellers and counsel to the Company: (A) to the effect that each Seller and the Company, as applicable, has all approvals, judicial, regulatory, legal or otherwise, needed to execute, deliver and perform each Transaction Document to which it is a party and that no conflict or default will occur as a result of the execution, delivery and performance thereof; (B) to the effect that the Company has a perfected, first priority ownership or security interest in the Receivables and Receivables Property; and (C) addressing other customary matters. All of the legal opinions referred to in this subsection 3.01(i) shall be addressed to the Trustee and any other Person reasonably requested by the Company. (j) LOCKBOX AGREEMENT. With respect to each Lockbox Processor, a Lockbox Agreement (or, in the case of the initial Effective Date, an amendment to the applicable existing lockbox agreement) signed by the Servicer, the Company, the Trustee and such Lockbox Processor, such Lockbox Agreement (or amended lockbox agreement, as the case may be) to be in substantially the form of Exhibit A-1, A-2A or A-2B to the Pooling Agreement. (k) LIST OF OBLIGORS. A Receivables List. Section 3.02. CONDITIONS PRECEDENT TO THE ADDITION OF A SELLER. No Subsidiary of RS approved by the Company as an additional Seller pursuant to Section 9.13 shall be added as a Seller hereunder unless the conditions set forth below shall have been satisfied on or before the date designated for the addition of such Seller (the "SELLER ADDITION DATE"): (a) ADDITIONAL SELLER SUPPLEMENT; UCC CERTIFICATE. The Company shall have received (with a copy for the Trustee) (i) an Additional Seller Supplement duly executed and delivered by such Seller and (ii) a UCC Certificate duly executed by a Responsible Officer of such Seller and dated the related Seller Addition Date. (b) RESOLUTIONS. The Company shall have received copies of duly adopted resolutions of the Board of Directors of such Seller as in effect on the related Seller Addition Date and in form and substance reasonably satisfactory to the Company, authorizing this Agreement, the documents to be delivered by such Seller hereunder and 15 the transactions contemplated hereby, certified by the Secretary or Assistant Secretary of such Seller. (c) SECRETARY'S CERTIFICATE. The Company shall have received duly executed certificates of the Secretary or an Assistant Secretary of such Seller, dated the related Seller Addition Date and in form and substance reasonably satisfactory to the Company, certifying the names and true signatures of the officers authorized on behalf of such Seller to sign the Additional Seller Supplement or any instruments or documents in connection with this Agreement. (d) CORPORATE DOCUMENTS. The Company shall have received the certificate or articles of incorporation of such Seller, duly certified by the secretary of state of such Seller's jurisdiction of incorporation, as of a recent date acceptable to the Company, together with a copy of the by- laws of such Seller, duly certified by the Secretary or an Assistant Secretary of such Seller; (e) LOCKBOX AGREEMENT. A Lockbox Account with respect to Receivables to be sold by such Seller shall have been established in the name of the Company, and the Servicer shall have delivered with respect to such Lockbox Account a Lockbox Agreement signed by it, the Company and the Trustee to the applicable Lockbox Processor, such Lockbox Agreement to be in substantially the form of Exhibit A-1, A-2A or A-2B to the Pooling Agreement. (f) UCC SEARCHES. The Company shall have received reports of UCC and other searches of such Seller with respect to the Receivables and the Receivables Property reflecting the absence of Liens thereon, except Liens created in connection with a transfer by the Company of such Purchased Receivables and except for Liens as to which the Company has received UCC termination statements to be filed on or prior to the related Seller Addition Date. (g) UCC FINANCING STATEMENTS. Such Seller shall have filed and recorded, at its own expense, UCC-1 financing statements naming the Company as purchaser and such Seller as seller with respect to the Receivables and the Receivables Property (excluding returned merchandise) in such manner and in such jurisdictions as are necessary or desirable to perfect the Company's ownership or security interest therein under the UCC and delivered evidence of such filings to the Company; and all other action necessary or desirable, in the opinion of the Company, to perfect the Company's ownership or security interest in the Receivables shall have been duly taken. (h) LIST OF OBLIGORS. Such Seller shall have delivered to the Company a microfiche, a typed or printed list or other tangible evidence reasonably acceptable to the Company showing as of a date acceptable to the Company prior to the related Seller Addition Date the Obligors whose Receivables are to be transferred to the Company and the balance of the Receivables with respect to each such Obligor as of such date. 16 (i) OPINIONS. The Company shall have received (i) legal opinions on behalf of such Seller as to general corporate matters of such Seller (including, without limitation, an opinion as to the perfection and priority of the Company's interest in the Purchased Receivables) and (ii) confirmation (A) as to the "true sale" nature of the sale of Receivables of such Seller hereunder and (B) as to the absence of substantive consolidation issues between such Seller, US Foodservice and RS on the one hand and the Company on the other hand, all in form and substance reasonably satisfactory to the Company. Such legal opinions and confirmation shall be addressed to the Trustee and any other Person reasonably requested by the Company. (j) BACK-UP SERVICING ARRANGEMENTS. The Company shall have received evidence that such Seller maintains disaster recovery systems and back-up computer and other information management systems that, in the Company's reasonable judgment, are sufficient to protect such Seller's business against material interruption or loss or destruction of its primary computer and information management systems. (k) CONSENTS. The Company shall have received copies of all consents with respect to such Seller, if any (including, without limitation, consents under loan agreements and indentures to which such Seller or its Affiliates are parties), necessary to consummate the transactions contemplated by the Transaction Documents; (l) PARTY TO SERVICING AGREEMENT. Such additional Seller shall have become a party to the Servicing Agreement in its capacity as a Sub-Servicer thereunder. Section 3.03. CONDITIONS PRECEDENT TO ALL THE COMPANY'S PURCHASES OF RECEIVABLES. The obligation of the Company to pay for any Receivable and the Receivables Property with respect thereto on each Payment Date (including the Effective Date) shall be subject to the further conditions precedent that, on and as of such Payment Date: (a) the following statements shall be true (and the acceptance by the relevant Seller of the Purchase Price for such Receivable on such Payment Date shall constitute a representation and warranty by such Seller that on such Payment Date such statements are true): (i) the representations and warranties of such Seller contained in Section 4.02 shall be true and correct in all material respects on and as of such Payment Date as though made on and as of such date except to the extent any such representation or warranty is expressly made only as of another date (in which case it shall be true and correct in all material respects on and as of such other date); (ii) after giving effect to such purchase, no (A) Early Termination with respect to such Seller or (B) Potential Purchase Termination Event with respect to a Purchase Termination Event set forth in clause (g)(ii) of Section 6.01 shall have occurred and be continuing; and 17 (iii) there has been no material adverse change since the date of this Agreement in the collectibility of the Receivables taken as a whole (other than due to a change in the creditworthiness of the Obligors); (b) the Company and the Trustee shall be satisfied that such Seller's systems, procedures and record keeping relating to the Purchased Receivables remain in all material respects sufficient and satisfactory in order to permit the purchase and administration of the Purchased Receivables in accordance with the terms and intent of this Agreement; (c) the Company shall have received payment in full of all amounts for which payment is due from such Seller pursuant to Sections 2.05, 2.06 or 7.01; (d) the Company shall have received such other approvals, opinions or documents as the Company may reasonably request; and (e) such Seller shall have complied with all of its covenants in all material respects and satisfied all of its obligations in all material respects under this Agreement required to be complied with or satisfied as of such date; PROVIDED, HOWEVER, that the failure of such Seller to satisfy any of the foregoing conditions shall not prevent such Seller from subsequently selling Receivables upon satisfaction of all such conditions or exercising its rights under subsection 2.01(b). Section 3.04. CONDITION PRECEDENT TO EACH SELLER'S OBLIGATIONS. The obligation of a Seller on each Payment Date (including on the Effective Date) shall be subject to the condition precedent that, on such date, the following statement shall be true (and the payment by the Company of the Purchase Price for such Receivable on such date shall constitute a representation and warranty by the Company that on such Payment Date such statement is true): no Early Amortization Event or Potential Early Amortization Event of a type, with respect to the Company, set forth in subsection 7.1(a) of the Pooling Agreement shall have occurred and be continuing. ARTICLE IV REPRESENTATIONS AND WARRANTIES Section 4.01. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants as to itself for the benefit of the Sellers as follows: (a) It (i) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, and is duly qualified as a foreign corporation and is in good standing in each jurisdiction in which the failure to so qualify would have a Material Adverse Effect, (ii) has the requisite corporate power and authority to effect the transactions contemplated hereby, and (iii) has all requisite corporate power and authority and the legal right to own, pledge, mortgage and operate its properties, and to conduct its business as now or currently proposed to be conducted. 18 (b) The execution, delivery and performance by it of this Agreement and all instruments and documents to be delivered hereunder by it, and the transactions contemplated hereby and thereby, (i) are within its corporate powers, have been duly authorized by all necessary corporate action, including the consent of shareholders where required, and do not (A) contravene its charter or by-laws, (B) violate any law or regulation or any order or decree of any court or governmental instrumentality, (C) conflict with or result in the breach of, or constitute a default under, any indenture, mortgage or deed of trust or any material lease, agreement or other instrument binding on or affecting it or any of its respective subsidiaries or any of its properties or (D) result in or require the creation or imposition of any Lien EXCEPT as created or imposed hereunder or under the Pooling Agreement, and no transaction contemplated hereby requires compliance on its part with any bulk sales act or similar law, and (ii) do not require the consent of, authorization by or approval of or notice to or filing or registration with, any governmental body, agency, authority, regulatory body or any other Person other than those which have been obtained or made EXCEPT for the filing of the Financing Statements referred to in ARTICLE III hereof, which filings the Sellers hereby represent shall have been duly made prior to or substantially contemporaneously with any purchases of Receivables and other Receivables Property and shall at all times be in full force and effect (except as they may be terminated by the Company). This Agreement has been duly executed and delivered by the Company and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms except (A) as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect affecting the enforcement of creditors' rights in general, and (B) as such enforceability may be limited by general principles of equity (whether considered in a suit at law or in equity). Section 4.02. REPRESENTATIONS AND WARRANTIES OF THE SELLERS. Each Seller hereby represents and warrants for the benefit of the Company and its assigns on the Closing Date and on each Payment Date, as follows: (a) ORGANIZATION AND GOOD STANDING. Such Seller (i) is a corporation duly organized and validly existing as a corporation in good standing under the laws of the state of its incorporation, (ii) is duly qualified as a foreign corporation and is in good standing in each jurisdiction in which the failure to so qualify would have a Material Adverse Effect and (iii) and has full corporate power, authority and legal right to own its properties and conduct its business as such properties are presently owned and such business is presently conducted, and to execute, deliver and perform its obligations under this Agreement. (b) DUE QUALIFICATION. Such Seller has obtained all necessary licenses and approvals in all jurisdictions in which the ownership or lease of property or the conduct of its business requires such qualification, licenses or approvals and where the failure to preserve and maintain such qualification, licenses or approvals is reasonably likely to have a Material Adverse Effect. 19 (c) DUE AUTHORIZATION. The execution and delivery of this Agreement and the other Transaction Documents to which it is a party and the consummation of the transactions provided for therein have been duly authorized by such Seller by all necessary corporate action on its part. (d) NO DEFAULT. Such Seller is not in default under or with respect to any of its Contractual Obligations in any respect which would be reasonably likely to have a Material Adverse Effect with respect to such Seller. No (i) Early Termination or (ii) Potential Purchase Termination Event with respect to a Purchase Termination Event set forth in clause (g)(ii) of Section 6.01, in each case with respect to such Seller, has occurred and is continuing. (e) VALID SALE; BINDING OBLIGATIONS. Each transfer of Receivables and Receivables Property made pursuant to this Agreement shall constitute a valid sale, transfer and assignment of the Receivables and the Receivables Property to the Company which is perfected and of first priority under applicable law, enforceable against creditors of, and purchasers from, such Seller; and this Agreement constitutes, and each other Transaction Document to be signed by such Seller when duly executed and delivered will constitute, an enforceable obligation of such Seller in accordance with its terms, except (A) as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect affecting the enforcement of creditors' rights in general, and (B) as such enforceability may be limited by general principles of equity (whether considered in a suit at law or in equity). (f) NO VIOLATION. The execution, delivery and performance of, and the consummation of the transactions contemplated by, this Agreement and the other Transaction Documents and the fulfillment of the terms hereof and thereof will not (i) conflict with, result in any breach of any of the terms and provisions of, or constitute (with or without notice or lapse of time or both) a default under, the articles or certificate of incorporation or by-laws of such Seller or any contract, indenture, loan agreement, mortgage, deed of trust, or other agreement or instrument to which such Seller is a party or by which such Seller or any of its properties is bound, (ii) result in the creation or imposition of any Lien upon any of its properties pursuant to the terms of any such contract, indenture, loan agreement, mortgage, deed of trust, or other agreement or instrument, other than this Agreement and the other Transaction Documents, or (iii) violate any law or any order, rule, or regulation of any court or of any federal, state, local or other regulatory body, administrative agency, or other governmental instrumentality of the United States of America having jurisdiction over such Seller or any of its properties. (g) NO PROCEEDINGS. There are no proceedings or investigations pending or, to the knowledge of such Seller, threatened against such Seller before any court, regulatory body, administrative agency, or other tribunal or governmental instrumentality (i) asserting the invalidity of this Agreement or any other Transaction Document, (ii) seeking to prevent the consummation of any of the transactions contemplated by this Agreement or any other Transaction Document, (iii) seeking any determination or ruling that, in the 20 reasonable judgment of such Seller, would materially and adversely affect the performance by such Seller of its obligations under this Agreement or any other Transaction Document or (iv) seeking any determination or ruling that would materially and adversely affect the validity or enforceability of this Agreement or any other Transaction Document. (h) BULK SALES ACT. No transaction contemplated by this Agreement or any other Transaction Document with respect to such Seller requires compliance with, or will be subject to avoidance under, any bulk sales act or similar law. (i) GOVERNMENT APPROVALS. No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body in the United States of America is required for the due execution, delivery and performance by such Seller of this Agreement or any other Transaction Document to which it is a party EXCEPT for the filing of the UCC financing statements referred to in Article III, all of which, at the time required in Article III, shall have been duly made and shall be in full force and effect. (j) BONA FIDE RECEIVABLES. Each Receivable of such Seller is or will be an account receivable arising out of such Seller's performance in accordance with the terms of the Contract, if any, giving rise to such Receivable. Such Seller has no knowledge of any fact which should have led it to expect at the time of its classification of any Receivable as an Eligible Receivable hereunder that such Eligible Receivable would not be paid in full when due. Each Receivable sold by it hereunder and designated on a Daily Report to be an Eligible Receivable will be, at its respective Payment Date, an Eligible Receivable. The aggregate outstanding Principal Amount of Receivables so sold by it on any Payment Date and so designated as Eligible Receivables is correctly set forth on the Daily Report with respect to such Payment Date. (k) OFFICE. The principal place of business and the chief executive office of such Seller are as indicated for such Seller on Schedule II hereto and have not changed during the period of four consecutive months ending on such date (unless otherwise indicated on the UCC Certificate delivered by such Seller pursuant to subsection 3.01(d) or 3.02(a), as the case may be), and the offices where such Seller keeps its records concerning the Receivables and related Contracts and all purchase orders and other agreements related to the Receivables are as indicated for such Seller on Schedule II hereto (or at such other locations, notified to the Company in accordance with Section 5.01(i), in jurisdictions where all action required by subsection 5.01(p) has been taken and completed). (l) MARGIN REGULATIONS. No use of any funds obtained by such Seller under this Agreement or the other Transaction Documents will conflict with or contravene any of Regulations G, T, U and X promulgated by the Board of Governors of the Federal Reserve System from time to time. (m) QUALITY OF TITLE. Each Seller is the legal and beneficial owner of each Receivable and all Receivables Property which is to be transferred to the Company by 21 such Seller, and such Receivables and Receivables Property shall be transferred by such Seller free and clear of any Lien (other than any Lien arising under any other Transaction Document, the Original Rykoff RSA or the USFAR RSA, or arising solely as the result of any action taken by the Company hereunder); prior to such transfer such Seller shall have made all filings under applicable law in each relevant jurisdiction in order to protect and perfect the Company's ownership or security interest in all Receivables and Receivables Property against all creditors of, and purchasers from, such Seller; and the Company shall have acquired and shall continue to have maintained a valid and perfected first priority ownership or security interest in each Receivable and the Receivables Property free and clear of any Lien (other than any Lien arising under the Original Rykoff RSA or the USFAR RSA, or arising solely as the result of any action taken by the Company hereunder or by the Trustee); and no effective financing statement or other instrument similar in effect covering any Receivable, any interest therein or any Receivables Property with respect thereto is on file in any recording office except such as may be filed in favor of (i) such Seller in accordance with the Contracts, (ii) Rykoff Funding pursuant to the Original Rykoff RSA and the Trustee (as defined therein) pursuant to the Pooling Agreement (as defined in the Original Rykoff RSA), (iii) USFAR pursuant to the USFAR RSA and the Trustee (as defined therein) pursuant to the Pooling Agreement (as defined in the USFAR RSA), (iv) the Company pursuant to this Agreement and (v) the Trustee pursuant to the Pooling Agreement. (n) ACCURACY OF INFORMATION. All factual written information heretofore or contemporaneously furnished by such Seller or its Affiliates (other than the Company) to the Company for purposes of or in connection with any Transaction Document or any transaction contemplated hereby or thereby is, and all other such factual, written information hereafter furnished (if prepared by such Seller or any Affiliate or, if not prepared by such Seller or any Affiliate, to the extent that information contained therein was supplied by such Seller or any Affiliate) by such Seller or any Affiliate (other than the Company) to the Company pursuant to or in connection with any Transaction Document shall be, true and accurate in every material respect on the date as of which such information is or will be furnished (unless such information relates to another date), and such information is not, and shall not be (as the case may be) incomplete by omitting to state a material fact or any fact necessary to make the statements contained therein not misleading as of such date. (o) PROCEEDS BANKS; PAYMENT INSTRUCTIONS. The names and addresses of all the Lockbox Processors, together with the account numbers of the Lockbox Accounts into which collections are deposited at such institutions, are specified in Schedule III. The Sellers have transferred all of their right, title and interest in each Lockbox Account to the Company. Each Lockbox Processor has executed and delivered to the Company a Lockbox Agreement. Each Seller, or the Servicer on its behalf, will instruct all Obligors to make all payments in respect of the Receivables and Related Property in accordance with subsection 2.3(a) of the Servicing Agreement. (p) VALID TRANSFERS. No transfer of any Receivables or any Receivables Property to the Company by such Seller constitutes a fraudulent transfer or fraudulent 22 conveyance or is otherwise void or voidable under similar laws or principles, the doctrine of equitable subordination or for any other reason. The transfers of Receivables and Receivables Property by such Seller to the Company pursuant to this Agreement, and all other transactions between such Seller and the Company, have been and will be made in good faith and without intent to hinder, delay or defraud creditors of such Seller, and such Seller acknowledges that it has received and will receive fair consideration and reasonably equivalent value for the purchases by the Company of Receivables and Receivables Property hereunder. The purchase of Receivables and Receivables Property by the Company from such Seller constitutes a true sale of such Receivables and Receivables Property under applicable state law. (q) TRADE NAMES. Such Seller uses no trade name in the furnishing of its products or services which generate Receivables other than its actual corporate name and the trade names set forth for such Seller in Schedule II and in the case of trade names, only in the jurisdictions indicated on Schedule II. During the five years preceding the date hereof, except as set forth in Schedule II and in the case of trade names, only in the jurisdictions indicated on Schedule II, (i) such Seller has not been known by any legal name or trade name other than its corporate name, (ii) nor has such Seller been the subject of any merger or other corporate reorganization within the last five years. (r) COMPLIANCE WITH APPLICABLE LAWS. Such Seller is in compliance with the requirements of all applicable laws, rules, regulations, and orders of all governmental authorities (federal, state, local or foreign, and including, without limitation, environmental laws), a breach of any of which, individually or in the aggregate, would be reasonably likely either (i) to have a material adverse effect on (A) the business, operations, business prospects or condition (financial or other) of such Seller or (B) the ability of such Seller to perform its obligations under this Agreement and the other Transaction Documents, or (ii) to impair the collectibility of any Receivables or any Receivables Property or the enforceability or validity of any Contract. (s) TAXES. Such Seller has filed all tax returns (federal, state and local) required by law to be filed and has paid or made adequate provision for the payment of all taxes, assessments and other governmental charges due from such Seller or is contesting any such tax, assessment or other governmental charge in good faith through appropriate proceedings. Such Seller knows of no basis for any material additional tax assessment for any fiscal year for which adequate reserves have not been established. (t) ACCOUNTING TREATMENT. Such Seller will not prepare any financial statements that shall account for the transactions contemplated hereby in a manner which is, nor will it in any other respect (except for tax purposes) account for the transactions contemplated hereby in a manner which is, inconsistent with the Company's ownership interest in the Receivables and Receivables Property. (u) ERISA MATTERS. 23 (i) Except as specifically disclosed in Schedule VIII hereto, such Seller and each of its ERISA Affiliates are in compliance in all material respects with the applicable provisions of ERISA and the regulations and published interpretations thereunder with respect to each Plan of such Seller or any of its ERISA Affiliates, except for such noncompliance which could not reasonably be expected to result in a Material Adverse Effect with respect to such Seller. (ii) No Reportable Event has occurred as to which such Seller or any of its ERISA Affiliates was required to file a report with the PBGC, other than reports for which the 30-day notice requirement is waived, reports that have been filed and reports the failure of which to file would not reasonably be expected to result in a Material Adverse Effect with respect to such Seller. (iii) Except as specifically disclosed in Schedule VIII hereto, as of the Effective Date, the present value of all benefit liabilities under each Plan of such Seller or any of its ERISA Affiliates (on an ongoing basis and based on those assumptions used to fund such Plan) did not, as of the last valuation report applicable thereto, exceed the value of the assets of such Plan, except to the extent that such excess would not have a Material Adverse Effect with respect to such Seller. (iv) Neither such Seller nor any of its ERISA Affiliates has incurred any Withdrawal Liability that could reasonably be expected to result in a Material Adverse Effect with respect to such Seller. (v) Neither such Seller nor any of its ERISA Affiliates has received any notification that any Multiemployer Plan is in reorganization or has been terminated within the meaning of Title IV of ERISA, or that a reorganization or termination has resulted or could reasonably be expected to result, through increases in the contributions required to be made to such Plan or otherwise, in a Material Adverse Effect with respect to such Seller. (v) CREDIT AND COLLECTION POLICIES. Schedule IV accurately describes such Seller's Policies relating to Contracts and Receivables in effect on the Closing Date. (w) SOLVENCY. Both prior to and after giving effect to the transactions contemplated by the Transaction Documents, (i) the assets of such Seller, at fair valuation, will exceed its liabilities (including contingent liabilities), (ii) the capital of such Seller will not be unreasonably small to conduct its business, and (iii) such Seller will not have incurred debts, and does not intend to incur debts, beyond its ability to pay such debts as they mature. (x) INVESTMENT COMPANY ACT. Neither such Seller nor any of such Seller's Subsidiaries is (i) an "investment company" registered or required to be registered under the 1940 Act, or (ii) a "holding company", or a "subsidiary company" or an "affiliate" of a 24 "holding company" within the meaning of the Public Utility Holding Company Act of 1935, as amended. (y) OWNERSHIP. All of the issued and outstanding capital stock of such Seller (other than RS) is owned, directly or indirectly, by RS. (z) INDEBTEDNESS TO COMPANY. Immediately prior to consummation of the transactions contemplated hereby on the Effective Date, such Seller had no outstanding Indebtedness to the Company other than amounts permitted by this Agreement or amounts outstanding under the Subordinated Note. (aa) RECEIVABLES DOCUMENTS. Upon the delivery, if any, by such Seller to the Company of licenses, rights, computer programs, related materials, computer tapes, disks, cassettes and data relating to the administration of the Purchased Receivables pursuant to subsection 5.01(r), the Company shall have been furnished with all materials and data necessary to permit immediate collection of the Purchased Receivables without the participation of such Seller in such collection. (bb) RECEIVABLES LISTS. The Receivables Lists set forth in all material respects an accurate and complete listing as of the Cut-Off Date of all Receivables to be transferred to the Company on the Effective Date and the information contained therein with respect to the identity and Principal Amount of each such Receivable is true and correct in all material respects as of the Cut-Off Date. (cc) BUSINESS OF SELLERS. Such Seller (i) is not engaged in the business of purchasing "livestock" in "cash sales" (each as defined in the Packers and Stockyards Act of 1921, as amended) and (ii) is not a "live poultry dealer" that obtains "poultry" by purchase in "cash sales" or by "poultry growing arrangement" (each as defined in the Poultry Producers Financial Protection Act of 1987). The representations and warranties set forth in this Section 4.02 shall survive the transfer and assignment of the respective Receivables to the Company pursuant to this Agreement. Each Seller hereby represents and warrants to the Company, as of the Effective Date and each Payment Date, that the representations and warranties of such Seller set forth in Section 4.02 are true and correct as of such date. Upon discovery by any Seller or the Company of a breach of any of the foregoing representations and warranties, the party discovering such breach shall give prompt written notice to the other. ARTICLE V GENERAL COVENANTS Section 5.01. AFFIRMATIVE COVENANTS OF THE SELLERS. Each Seller covenants that, until the Purchase Termination Date shall have occurred with respect to such Seller and there are no amounts outstanding with respect to the Purchased Receivables previously sold by such Seller to the Company (other than Charged-off Receivables): 25 (a) PRESERVATION OF CORPORATE EXISTENCE AND NAME. Such Seller will preserve and maintain in all material respects its corporate existence, rights, franchises and privileges in the jurisdiction of its incorporation, and qualify and remain qualified in good standing as a foreign corporation in each jurisdiction where the failure to preserve and maintain such existence, rights, franchises, privileges and qualification could have a Material Adverse Effect with respect to such Seller. (b) MAINTENANCE OF PROPERTY. Such Seller will keep all property and assets useful and necessary in its business in good working order and condition (normal wear and tear excepted). (c) DELIVERY OF COLLECTIONS. In the event that such Seller receives Collections, such Seller agrees to pay to the applicable Lockbox Account, the Collection Concentration Account or the Collection Account all payments received by such Seller in respect of the Receivables as soon as practicable after receipt thereof by such Seller. (d) COMPLIANCE WITH LAWS, ETC. Such Seller shall comply in all material respects with all applicable laws, rules, regulations and orders applicable to the Receivables and the Receivables Property, including, without limitation, rules and regulations relating to truth in lending, fair credit billing, fair credit reporting, equal credit opportunity, fair debt collection practices and privacy, where failure to so comply could reasonably be expected to have a materially adverse impact on the amount of Collections thereunder. (e) VISITATION RIGHTS. At any reasonable time during normal business hours and from time to time, such Seller shall permit (i) the Company, or any of its agents or representatives, (A) to examine and make copies of and abstracts from the records, books of account and documents (including, without limitation, computer tapes and disks) of such Seller relating to Receivables and Related Property owned or to be purchased by the Company hereunder, including, without limitation, the related Contracts and purchase orders and other agreements and (B) following the termination of the appointment of US Foodservice as Servicer or of such Seller as a Servicing Party with respect to the Receivables, to be present at the offices and properties of such Seller to administer and control the collection of amounts owing on the Purchased Receivables and (ii) the Company, or any of its agents or representatives, or the Trustee (upon the giving of appropriate notice to the Company) to visit the properties of such Seller for the purpose of examining such records, books of account and documents, and to discuss the affairs, finances and accounts of such Seller relating to the Receivables or such Seller's performance hereunder with any of its officers or directors and with its independent certified public accountants. (f) KEEPING OF RECORDS AND BOOKS OF ACCOUNT. Such Seller will maintain and implement administrative and operating procedures (including, without limitation, an ability to recreate records evidencing Receivables and the Receivables Property in the event of the destruction of the originals thereof), and keep and maintain all documents, books, records and other information which, in each case, in the reasonable discretion of 26 the Company, are necessary or advisable for the collection of all Receivables and the Receivables Property (including, without limitation, records adequate to permit the daily identification of each new Receivable and all Collections of and adjustments to each existing Receivable). (g) PERFORMANCE AND COMPLIANCE WITH POLICIES, RECEIVABLES AND CONTRACTS. Such Seller will (i) perform its obligations in accordance with and comply in all material respects with the Policies, as amended from time to time in accordance with the Transaction Documents and (ii) at its expense, timely and fully perform and comply with all material provisions, covenants and other promises required to be observed by it under the Receivables and the Contracts related to the Receivables and Related Property and all purchase orders and other agreements related to such Receivables and Related Property. (h) OBLIGATIONS. Such Seller shall pay, discharge or otherwise satisfy at or before maturity or before they become delinquent, as the case may be, all its other obligations of whatever nature, except where (a) the amount or validity thereof is currently being contested in good faith by appropriate proceedings and reserves in conformity with GAAP with respect thereto have been provided on its books, or (b) the failure to so pay, discharge or satisfy all such obligations would not, in the aggregate, be reasonably likely to have a Material Adverse Effect in respect of such Seller and would not subject any of its properties to any Lien prohibited by subsection 5.03(b). (i) LOCATION OF RECORDS. Such Seller will keep its principal place of business and chief executive office, and the offices where it keeps its records concerning the Receivables, all Receivables Property, all Contracts and purchase orders and other agreements related to such Receivables (and all original documents relating thereto), at the address(es) of such Seller referred to in Schedule II or, upon 30 days' prior written notice to the Company, at such other locations in jurisdictions where all action required by subsection 5.01(r) shall have been taken and completed; PROVIDED, HOWEVER, that the Rating Agency Condition shall have been satisfied with respect to any changes in location of such Seller's principal place of business or chief executive office and such location is not in a state which is within the Tenth Circuit unless it delivers an opinion of counsel reasonably acceptable to the Rating Agencies to the effect that OCTAGON GAS SYSTEMS, INC. V. RIMMER, 995 F.2d 948 (10th Cir. 1993), is no longer controlling precedent in the Tenth Circuit. (j) FURNISHING COPIES, ETC. Such Seller shall furnish to the Company (i) upon the Company's request, a certificate of the chief financial officer of such Seller certifying, as of the date thereof, that no Purchase Termination Event has occurred and is continuing and setting forth the computations used by the chief financial officer of such Seller in making such determination; (ii) as soon as possible and in any event within two Business Days after a Responsible Officer of such Seller becomes aware of the occurrence of any Purchase Termination Event or Potential Purchase Termination Event, a statement of a Responsible Officer of such Seller setting forth details of such Purchase Termination Event or Potential Purchase Termination Event and the action that such Seller proposes to take or has taken with respect thereto; (iii) promptly after obtaining knowledge that a 27 Receivable was, at the time of the Company's purchase thereof, not an Eligible Receivable, notice thereof; (iv) promptly after obtaining knowledge of any threatened action or proceeding affecting such Seller or its Subsidiaries before any court, governmental agency or arbitrator that may reasonably be expected to materially and adversely affect the enforceability of this Agreement and the other Transaction Documents, notice of such action or proceeding; and (v) promptly following the Company's request therefor, such other information, documents, records or reports with respect to the Receivables or the related Contracts or the conditions or operations, financial or otherwise, of such Seller, as the Company may from time to time reasonably request. (k) OBLIGATION TO RECORD AND REPORT. Such Seller shall, to the fullest extent permitted by GAAP and by applicable law, record each purchase of the Purchased Receivables as a sale on its books and records, reflect each purchase of Purchased Receivables in its financial statements and tax returns as a sale and recognize gain or loss, as the case may be, on each purchase of Purchased Receivables. (l) CONTINUING COMPLIANCE WITH THE UNIFORM COMMERCIAL CODE. Such Seller shall, without limiting the requirements of subsection 5.01(r), at its expense, preserve, continue, and maintain or cause to be preserved, continued, and maintained the Company's valid and properly perfected title to each Receivable and the Receivables Property purchased hereunder, including, without limitation, filing or recording UCC financing statements in each relevant jurisdiction. (m) PROCEEDS OF RECEIVABLES. Such Seller shall use all reasonable efforts to cause all payments made by Obligors in respect of Purchased Receivables and Related Property to be made in accordance with subsection 2.3(a) of the Servicing Agreement. (n) LOCKBOX AGREEMENTS. Such Seller shall, on or prior to the date of this Agreement, deliver to the Company a Lockbox Agreement, duly countersigned and agreed to by each bank holding a Lockbox Account of such Seller or, if any such bank fails to agree to the terms thereof, by such other bank as shall agree to become a Lockbox Processor for such Seller on the terms and conditions set forth in such Lockbox Agreement. (o) TAXES. Such Seller will file all tax returns and reports required by law to be filed by it and will pay all taxes and governmental charges thereby shown to be owing, except any such taxes or charges which are being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP have been set aside on its books. (p) SEPARATE CORPORATE EXISTENCE OF THE COMPANY. Such Seller hereby acknowledges that the Trustee and the Investor Certificateholders are entering into the transactions contemplated by the Transaction Documents in reliance upon the Company's identity as a legal entity separate from the Sellers and all other RS Persons and that the Trustee and the Investor Certificateholders would be prejudiced by any substantive consolidation of the Company with any Seller. Therefore, from and after the date hereof, 28 such Seller will take (or refrain from taking, as the case may be) such actions, and will cause each other RS Person it controls to take (or refrain from taking, as the case may be) such actions, as shall be required in order that: (i) No RS Person will pay the Company's operating expenses and liabilities, recognizing, however, that certain organizational expenses of the Company and expenses relating to creation and initial implementation of the securitization program contemplated by the Transaction Documents have been or shall be paid by such Seller. (ii) Each RS Person will conduct its business at offices segregated from the Company's offices. If office space is leased from any RS Person, a separate written lease on arm's-length terms will be in effect at a market rental rate. (iii) Each RS Person will maintain corporate records and books of account separate from those of the Company and telephone numbers, mailing addresses, stationery and other business forms that are separate and distinct from those of the Company. (iv) Any financial statements of any RS Person which are consolidated to include the Company will contain a detailed note substantially in the form, and to the effect, of the note set forth on Annex 1. (v) The Company's assets will be maintained in a manner that facilitates their identification and segregation from those of such Seller and the other RS Persons. (vi) Each RS Person will strictly observe corporate formalities in its dealings with the Company, and funds or other assets of the Company will not be commingled or pooled with those of any RS Person. No RS Person will maintain joint bank accounts with the Company or other depository accounts with the Company to which any RS Person has independent access. (vii) Any transaction between the Company and any RS Person will be fair and equitable to the Company, will be the type of transaction which would be entered into by a prudent Person in the position of the Company with an RS Person, and will be on terms which are at least as favorable to the Company as may be obtained from a Person which is not an RS Person, it being understood and agreed that the transactions contemplated in the Transaction Documents meet the requirements of this clause (vii). (viii) No RS Person will hold itself out, or permit itself to be held out, as having agreed to pay or be liable for the debts of the Company. 29 (ix) The duly elected Board of Directors of the Company and the Company's duly appointed officers shall at all times have sole authority to control decisions and actions with respect to the daily business affairs of the Company. (x) such Seller shall comply with those procedures described in the Specified Bankruptcy Opinion Provisions which are applicable to such Seller, except, in each case above, for such failure to take actions or refrain from taking actions that are, in the aggregate, not material. (q) DEPOSITS IN PROGRAM ACCOUNTS. Such Seller shall use all reasonable efforts to minimize the deposit of any funds other than Collections in any of the Lockbox Accounts, any of the Eligible Segregated Accounts, the Collection Concentration Account and the Collection Account. (r) FURTHER ACTION EVIDENCING PURCHASES. (i) Such Seller agrees that from time to time, at its expense, it will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or desirable or that the Company may reasonably request, to protect or more fully evidence the Company's ownership, right, title and interest in the Receivables and Receivables Property sold by such Seller and its rights under the Contracts with respect thereto, or to enable the Company to exercise or enforce any of its rights hereunder or under any other Transaction Document. Without limiting the generality of the foregoing, such Seller will upon the request of the Company (A) execute and file, in accordance with the provisions of the UCC of the applicable jurisdiction, continuation statements with respect to all financing statements filed in connection with the transactions contemplated hereby, as well as such financing or continuation statements, or amendments thereto, and such other instruments or notices, as may be necessary or, in the reasonable opinion of the Company, desirable, (B) indicate on its books and records (including, without limitation, master data processing records) that the Receivables and Receivables Property have been sold and assigned to the Company and, in turn, the Company has sold and assigned its interest therein to the Trustee, and provide to the Company, upon request, copies of any such records, (C) contact customers to confirm and verify Receivables and (D) obtain the agreement of any Person having a Lien on any Receivables owned by such Seller (other than any Lien created or imposed hereunder or under the Pooling Agreement or any Permitted Lien) to release such Lien upon the purchase of any such Receivables by the Company. (ii) Such Seller hereby irrevocably authorizes the Company and the Trustee to file one or more financing or continuation statements, and amendments thereto, relative to all or any part of the Receivables and Receivables Property sold or to be sold by such Seller, without the signature of such Seller where permitted by law. 30 (iii) If such Seller fails to perform any of its agreements or obligations under this Agreement, the Company or its assignees may (but shall not be required to) perform, or cause performance of, such agreements or obligations, and the expenses of the Company incurred in connection therewith shall be payable by such Seller as provided in Section 9.06. (iv) Such Seller agrees that, whether or not a Purchase Termination Event has occurred: (A) the Company (and its assignees) shall have the right at any time to notify, or require that such Seller at its own expense notify, the respective Obligors of the Company's ownership of the Purchased Receivables and Receivables Property and may direct that payment of all amounts due or to become due under the Purchased Receivables be made directly to the Company or its designee; (B) such Seller shall, upon the Company's written request and at such Seller's expense, (I) assemble all of such Seller's documents, instruments and other records (including credit files and computer tapes or disks) that (A) evidence or will evidence or record Receivables sold by such Seller and (B) are otherwise necessary or desirable to effect Collections of such Purchased Receivables (collectively, the "DOCUMENTS") and (II) deliver the Documents to the Company or its designee at a place designated by the Company. In recognition of such Seller's need to have access to any Documents which may be transferred to the Company hereunder, whether as a result of its continuing business relationship with any Obligor for Receivables purchased hereunder or as a result of its responsibilities as a Sub-Servicer, the Company hereby grants to such Seller an irrevocable license to access the Documents transferred by such Seller to the Company and to access any such transferred computer software in connection with any activity arising in the ordinary course of such Seller's business or in performance of such Seller's duties as a Servicing Party, PROVIDED that such Seller shall not disrupt or otherwise interfere with the Company's use of and access to the Documents and its computer software during such license period; (C) such Seller hereby grants to the Company an irrevocable power of attorney (coupled with an interest) to take any and all steps in such Seller's name necessary or desirable, in the reasonable opinion of the Company, to collect all amounts due under the Purchased Receivables, including, without limitation, endorsing such Seller's name on checks and other instruments representing Collections, enforcing the Purchased Receivables and exercising all rights and remedies in respect thereof; and (D) upon written request of the Company, such Seller will (I) deliver to the Company or a party designated by the Company all licenses, 31 rights, computer programs, related material, computer tapes, disks, cassettes and data necessary to the immediate collection of the Purchased Receivables by the Company, with or without the participation of such Seller (excluding software licenses which by their terms are not permitted to be so delivered, PROVIDED that such Seller shall use reasonable efforts to obtain consent of the relevant licensor to such delivery) and (II) make such arrangements with respect to the collection of the Purchased Receivables as may be reasonably required by the Company. (s) LEGEND REQUIREMENT FOR CHATTEL PAPER. Such Seller agrees (i) at all times, with respect to chattel paper, to comply with the procedures set forth in Schedule 3 to the Pooling Agreement and (ii) that any Receivable that constitutes or is evidenced by "chattel paper" as defined in Article 9 of the UCC as in effect in the Relevant UCC State shall bear a legend stating that such Receivable has been sold to the Company and conveyed to the Trust. (t) COMPUTER FILES. Such Seller shall, at its own cost and expense, retain the ledger used by such Seller as a master record of the Obligors and retain copies of all documents relating to each Obligor as custodian and agent for the Company and other Persons with interests in the Purchased Receivables and mark the computer tape or other physical records of the Purchased Receivables to the effect that interests in the Purchased Receivables existing with respect to the Obligors listed thereon have been sold to the Company and that the Company has sold an interest therein and, subsidiarily, has granted a security interest therein. Section 5.02. REPORTING REQUIREMENTS. Each Seller shall furnish to the Company and its assigns from the date hereof until the Purchase Termination Date shall have occurred with respect to such Seller and until there are no amounts outstanding with respect to Purchased Receivables previously sold by such Seller to the Company: (a) COMPLIANCE CERTIFICATE. Not later than 95 days after the end of each fiscal year and not later than 50 days after the end of each of the first three fiscal quarters of each fiscal year, a certificate of a Responsible Officer of such Seller stating that, to the best of such Responsible Officer's knowledge, such Seller during such period, has observed or performed all of its covenants and other agreements, and satisfied every condition, contained in the Transaction Documents to which it is a party to be observed, performed or satisfied by it, and that such Responsible Officer has obtained no knowledge of any Purchase Termination Event or Potential Purchase Termination Event except as specified in such certificate; (b) ERISA. Promptly after the filing or receiving thereof, copies of all reports and notices with respect to any Reportable Event which such Seller files under ERISA with the Internal Revenue Service, the Pension Benefit Guaranty Corporation or the U.S. Department of Labor or which such Seller receives from the Pension Benefit Guaranty Corporation if, in each case, such report or notice relates to an event or condition that 32 could reasonably be expected to give rise to a Termination Notice, an Early Amortization Event or a Material Adverse Effect; (c) TERMINATION EVENTS: OTHER MATERIAL EVENTS. As soon as possible and in any event within two Business Days after a Responsible Officer of such Seller obtains knowledge of each Purchase Termination Event, Potential Purchase Termination Event, Servicer Default, Potential Servicer Default or any other event that has a material likelihood of having a Material Adverse Effect with respect to a Seller, a written statement of a Responsible Officer of such Seller setting forth details of such event and the action that such Seller proposes to take with respect thereto; and (d) OTHER. Promptly, from time to time, such other information, documents, records or reports respecting the Receivables or the condition or operations, financial or otherwise, of such Seller as the Company may from time to time reasonably request in order to protect the interests of the Company under or as contemplated by the Transaction Documents. Section 5.03. NEGATIVE COVENANTS. Each Seller covenants that, until the Purchase Termination Date shall have occurred with respect to such Seller and there are no amounts outstanding with respect to Purchased Receivables previously sold by such Seller to the Company: (a) RECEIVABLES TO BE ACCOUNTS, GENERAL INTANGIBLES OR CHATTEL PAPER. Such Seller will take no action to cause any Receivable to be evidenced by any "instrument" other than, provided that the procedures set forth in Schedule 3 to the Pooling Agreement are fully implemented with respect thereto, an instrument which together with a security agreement constitutes "chattel paper" (each as defined in the UCC as in effect in the Relevant UCC State). Such Seller will take no action to cause any Receivable to be anything other than an "account", "general intangible" or "chattel paper" (each as defined in the UCC as in effect in the Relevant UCC State). (b) SECURITY INTERESTS. Except for the conveyances hereunder and as provided below, such Seller will not sell, pledge, assign or transfer to any other Person, or grant, create, incur, assume or suffer to exist any other Lien on any Receivable or Receivables Property, whether now existing or hereafter created, or any interest therein; such Seller will immediately notify the Company of the existence of any other Lien on any Receivable or Receivables Property; and such Seller shall defend the right, title and interest of the Company in, to and under the Receivables or Receivables Property, whether now existing or hereafter created, against all claims of third parties claiming through or under such Seller; PROVIDED, HOWEVER, that nothing in this subsection 5.03(b) shall prevent or be deemed to prohibit such Seller from suffering to exist upon any of the Receivables any Permitted Lien or any security interest granted prior to the date hereof pursuant to the Original Rykoff RSA or the USFAR RSA. (c) EXTENSION OR AMENDMENT OF RECEIVABLES; INELIGIBLE RECEIVABLES. Such Seller will not extend, rescind, cancel, make any Dilution Adjustment to, amend or 33 otherwise modify, or attempt or purport to extend, rescind, cancel, make any Dilution Adjustment to, amend or otherwise modify, the terms of any Purchased Receivables, or otherwise take any action to cause, or which would permit, a Receivable that was designated as an Eligible Receivable on the Payment Date relating to such Receivable to cease to be an Eligible Receivable, except in any such case (a) in accordance with the terms of the Policies, (b) as required by any Requirement of Law or (c) in the case of Dilution Adjustments (whether or not permitted by any other clause of this sentence), upon making a Seller Adjustment Payment pursuant to Section 2.05. (d) CHANGE IN CREDIT AND COLLECTION POLICIES. Such Seller will not make or permit to be made any change in its Policies in any material respect that is materially adverse to the interests of the Company or its assigns (including the Trustee and the Investor Certificateholders). (e) PLACE OF BUSINESS, ETC. Such Seller will not change its principal place of business or chief executive office from the location listed in subsection 4.02(k) or change the location of its records relating to the Receivables and Receivables Property from those specified on Schedule II, unless in any such event such Seller shall have given the Company at least thirty days' prior written notice thereof fully in accordance with the terms and provisions of subsection 5.01(i) and shall have taken all action necessary or reasonably requested by the Company to amend its existing financing statements and continuation statements so that they are not misleading and to file additional financing statements in all applicable jurisdictions to perfect the interests of the Company in all of the Receivables and Receivables Property. (f) CHANGE IN NAME. Such Seller will not change its name, identity or corporate structure in any manner which would or might make any financing statement or continuation statement (or other similar instrument) relating to this Agreement seriously misleading within the meaning of Section 9-402(7) of the UCC, or impair the perfection of the Company's interest in any Receivable under any other similar law, without having (i) delivered 30 days' prior written notice to the Company, the Servicer and the Trustee and (ii) taken all action required by subsection 5.01(a). (g) CHANGE IN PAYMENT INSTRUCTIONS TO OBLIGORS. Such Seller shall not instruct the Obligor on any Receivables to make payments with respect to such Receivables and the Receivables Property with respect thereto other than to the places listed in Schedule III (or to the Collection Concentration Account or the Collection Account). (h) ACCOUNTING CHANGES. Such Seller shall not make any material change (i) in accounting treatment and reporting practices except as permitted or required by GAAP, (ii) in tax reporting treatment except as permitted or required by law, in any case, as disclosed in the notes to the financial statements delivered pursuant to Section 5.02, or otherwise, (iii) in the calculation or presentation of financial and other information contained in other reports delivered hereunder, or (iv) in any financial policy of such Seller if such change could have a material adverse effect on the Receivables taken as a whole or the collection thereof. 34 (i) BUSINESS OF SELLERS. Such Seller shall not fail to maintain and operate the business currently conducted by such Seller and business activities reasonably incidental or related thereto in substantially the manner in which it is presently conducted and operated if such failure would change in any material respect the character of its business and such change would be adverse to the interest of the Company or its assigns (including the Trustee and the Investor Certificateholders), except (x) if such change is necessary under any Requirement of Law, (y) if such change would not reasonably be expected to have a Material Adverse Effect with respect to the Servicer or (z) the Rating Agency Condition is satisfied with respect thereto. Without limiting the generality of the foregoing, such Seller (A) shall not engage in the business of purchasing "livestock" in "cash sales" (each as defined in the Packers and Stockyards Act of 1921, as amended) and (B) shall not become a "live poultry dealer" that obtains "poultry" by purchase in "cash sales" or by "poultry growing arrangement" (each as defined in the Poultry Producers Financial Protection Act of 1987). ARTICLE VI PURCHASE TERMINATION EVENTS Section 6.01. PURCHASE TERMINATION EVENTS. If, with respect to any Seller, any of the following events (each, a "PURCHASE TERMINATION EVENT" with respect to such Seller) shall have occurred and be continuing: (a) The Seller shall fail to make any payment or deposit to be made by it hereunder when due and such failure shall remain unremedied for two Business Days; or (b) There shall have occurred (i) an Early Amortization Event set forth in Section 7.1 of the Pooling Agreement or (ii) the Amortization Period with respect to all outstanding Series shall have occurred and be continuing; or (c) Any representation or warranty made or deemed to be made by such Seller or any of its officers under or in connection with any Transaction Document, Monthly Settlement Statement or other information, statement, record, certificate, document or report delivered pursuant to a Transaction Document shall prove to have been false or incorrect in any material respect when made or deemed made (including in each case by omission of material information necessary to make such representation, warranty, certificate or statement not misleading); PROVIDED, that no such event shall constitute a Purchase Termination Event unless such event shall continue unremedied for a period of 30 days from the earlier of (A) the date any Responsible Officer of such Seller obtains knowledge thereof and (B) the date such Seller receives notice of the incorrectness of such representation or warranty from the Company, the Servicer or the Trustee; PROVIDED, FURTHER, that a Purchase Termination Event shall not be deemed to have occurred under this paragraph (c) based upon a breach of any representation or warranty set forth in Section 4.02 with respect to any Receivable if the Sellers shall have complied with the provisions of subsection 2.06, as the case may be, with respect to such Receivable; or 35 (d) Such Seller shall fail to perform or observe any other term, covenant or agreement contained in subsection 5.01(d), (g) or (h) or Section 5.03 of this Agreement on its part to be performed or observed and any such failure shall remain unremedied for five Business Days; PROVIDED, that a Purchase Termination Event shall not be deemed to have occurred under this paragraph (d) based upon a breach of any covenant set forth in subsection 5.01(d), (g) or (h) or Section 5.03 with respect to any Receivable if the Sellers shall have complied with the provisions of subsection 2.06, as the case may be, with respect to such Receivable; or (e) Such Seller shall fail to perform or observe any other term, covenant or agreement contained in any Transaction Document on its part to be performed or observed and any such failure shall remain unremedied for a period of 30 days from the earlier of (A) the date any Responsible Officer of such Seller obtains knowledge of such failure and (B) the date such Seller receives notice thereof from the Company, the Servicer or the Trustee; or (f) Any Transaction Document to which such Seller is a party shall cease, for any reason, to be in full force and effect, or RS, US Foodservice or such Seller shall so assert in writing, or the Company shall fail to have a valid and perfected first priority ownership or security interest in the Receivables and the Receivables Property; or (g) (i) such Seller 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 or other similar official for it or for all or any substantial part of its assets, or such Seller shall make a general assignment for the benefit of its creditors; or (ii) there shall be commenced against such Seller 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 such Seller or any of its Subsidiaries 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) such Seller or any of its respective Subsidiaries 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) such Seller shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due; or (h) US Foodservice has been terminated as Servicer following a Servicer Default with respect to US Foodservice under the Servicing Agreement; or 36 (i) a Responsible Officer of RS receives notice or becomes aware that a notice of Lien has been filed by the PBGC against any Seller, the Company or the Trust under Section 412(n) of the Code or Section 302(f) of ERISA for a failure to make a required installment or other payment to a plan to which Section 412(n) of the Code or Section 302(f) of ERISA applies; then, (x) in the case of any Purchase Termination Event with respect to any Seller described in paragraph (b)(i), (g) and (i) above, the obligation of the Company to purchase Receivables from such Seller shall thereupon automatically terminate without further notice of any kind, which is hereby waived by such Seller, (y) in the case of any Purchase Termination Event with respect to any Seller described in paragraph (b)(ii) above, the obligation of the Company to purchase Receivables from such Seller shall thereupon terminate without notice of any kind, which is hereby waived by such Seller, unless both the Company and such Seller agree in writing that such event shall not trigger an Early Termination hereunder and (z) in the case of any other Purchase Termination Event with respect to any Seller, so long as such Purchase Termination Event shall be continuing, the Company may terminate its obligation to purchase Receivables from such Seller by written notice to such Seller (any termination with respect to any Seller pursuant to clause (x), (y) or (z) of this Article VI is herein called an "EARLY TERMINATION" with respect to such Seller); PROVIDED, HOWEVER, that in the event of an involuntary petition or proceeding as described in paragraphs (g)(ii) and (g)(iii) above, the Company shall not purchase Receivables from such Seller until such time, if any, as such involuntary petition or proceeding has been dismissed, PROVIDED that such dismissal shall have occurred within 60 days of the filing of such petition or the commencement of such proceeding. Section 6.02. ADDITIONAL REMEDIES. Upon the occurrence of any Purchase Termination Event, the Company shall have, in addition to all other rights and remedies under this Agreement or otherwise, all other rights and remedies provided under the UCC of each applicable jurisdiction and other applicable laws, which rights shall be cumulative. Without limiting the foregoing, the occurrence of a Purchase Termination Event shall not deny to the Company any remedy (in addition to termination of the Company's obligation to purchase Receivables from any relevant Seller or Sellers) to which the Company may be otherwise appropriately entitled, whether by statute or other applicable law, at law or in equity. ARTICLE VII INDEMNIFICATION Section 7.01. INDEMNITIES BY THE SELLERS. Without limiting any other rights that the Company may have hereunder or under applicable law and subject to Section 2.06, each Seller hereby agrees to pay, indemnify and hold the Company harmless from and against any and all claims, losses, liabilities, obligations, damages, penalties, actions, judgments, suits, costs (including reasonable attorneys' fees), expenses and disbursements of any kind or nature whatsoever (a) which may at any time be imposed on, incurred by or asserted against the Company in any way relating to, arising out of or resulting from this Agreement or any other Transaction Document or the transactions contemplated hereby or thereby or any action taken or omitted by the Company under or in connection with any of the foregoing or in respect of any 37 Receivable or (b) which would not have been imposed on, incurred by or asserted against the Company but for its having purchased the Receivables hereunder (all such claims, losses, liabilities, obligations, damages, penalties, actions, judgments, suits, costs, expenses and disbursements being collectively referred to as "INDEMNIFIED AMOUNTS"), PROVIDED that the Sellers shall have no obligation under this Section 7.01 to the Company with respect to Indemnified Amounts (i) to the extent resulting from gross negligence or willful misconduct on the part of the Company, its agents or its assignees or (ii) resulting from any Obligor's inability to pay an amount due and payable with respect to a Receivable for credit reasons (it being understood that this clause (ii) shall not limit Section 2.05). Without limiting or being limited by the foregoing and subject to Section 2.06, each Seller shall pay on demand to the Company any and all amounts necessary to indemnify the Company from and against any and all Indemnified Amounts relating to or resulting from: (a) the transfer by any Seller of any interest in any Receivable or Receivables Property or proceeds thereof; (b) reliance on any representation or warranty or statement made or deemed made by any Seller (or any of its officers) under or in connection with this Agreement or in any certificate or report delivered pursuant hereto that, in either case, shall have been false or incorrect in any material respect when made or deemed made; (c) the failure by any Seller to comply with any applicable law, rule or regulation of any governmental authority with respect to any Receivable or Receivables Property, or the nonconformity of any Receivable or Receivables Property with any such applicable law, rule or regulation; (d) the failure to vest and maintain vested in the Company an ownership interest in any Receivable or Receivables Property, free and clear of any Lien, other than a Lien arising under the Transaction Documents, whether existing at the time of the purchase of such Receivable or Receivables Property or at any time thereafter; (e) the failure to file, or any delay in filing, financing statements or other similar instruments or documents under the UCC of any applicable jurisdiction or other applicable laws with respect to any Receivables or Receivables Property of any Seller; (f) any dispute, claim, offset or defense (other than discharge in bankruptcy of a Seller) of the Obligor to the payment of any Receivable of any Seller (including, without limitation, a defense based on such Receivable or the related Contract not being fully enforceable against the Obligor in accordance with its terms), or any other claim resulting from the sale of the merchandise or services related to any such Receivable or the furnishing or failure to furnish such merchandise or services; (g) any failure of any Seller to perform its duties or obligations under this Agreement or the Transaction Documents; 38 (h) any products liability claim arising out of or in connection with merchandise, insurance or services that are the subject of any Receivable or Receivables Property; (i) the commingling of Collections of Receivables at any time with other funds of any Seller; (j) any claim involving environmental liability that relates to any property that has been, is now or hereafter will be owned, leased, operated or otherwise used by any Seller; (k) any tax or governmental fee or charge (but not including franchise taxes and taxes upon or measured by net income of the Company), all interest and penalties thereon or with respect thereto, and all out-of- pocket costs and expenses, including the reasonable fees and expenses of counsel in defending against the same, which may arise by reason of the purchase or ownership of any Receivable or Receivables Property, or any interest therein or in any goods which secure any such Receivables, any Receivables Property or any other rights or assets transferred hereunder; and (l) any investigation, litigation or proceeding related to this Agreement or in respect of any Receivable or Receivables Property of any Seller. Notwithstanding the foregoing, no Seller shall under any circumstances be required to indemnify the Company for any Indemnified Amounts that result from any delay in the collection of any Receivables or any default by an Obligor with respect to any Receivables. The agreements set forth in this Section 7.01 shall survive the collection of all Receivables, the termination of this Agreement and the payment of all amounts payable hereunder. Section 7.02. INDEMNITIES BY THE COMPANY. Without limiting any other rights that the Sellers may have hereunder or under applicable law, the Company hereby agrees to indemnify each Seller from and against any and all claims, losses and liabilities (including reasonable attorneys' fees) arising out of or resulting from such Seller's reliance on any representation or warranty made by the Company in this Agreement or in any certificate delivered pursuant hereto that, in either case, shall have been false or incorrect in any material respect when made or deemed made. 39 ARTICLE VIII SUBORDINATED NOTE Section 8.01. SUBORDINATED NOTE. (a) On the initial Effective Date, contemporaneously with the sale of Receivables by Rykoff Funding and USFAR to the Company provided for in subsection 2.01 of the SPC Receivables Sale Agreement and the assumption by the Company of Rykoff Funding's and USFAR's obligations under the Existing Rykoff Subordinated Note and the Existing USFAR Subordinated Note, respectively, pursuant to the RS Transition Agreement and the USFAR Transition Agreement, respectively, the Company shall issue to the Sellers a subordinated note substantially in the form of Exhibit A hereto (as amended, supplemented or otherwise modified from time to time, the "SUBORDINATED NOTE"). (b) The initial aggregate principal amount of the Subordinated Note (the "INITIAL SUBORDINATED NOTE AMOUNT") shall be equal to the sum of the Existing Rykoff Subordinated Note Amount and the Existing USFAR Subordinated Note Amount. The portion of the Subordinated Note representing the assumption of the Existing Rykoff Subordinated Note Amount shall be allocated among the RS Sellers in the same proportion that the aggregate outstanding principal amount of the Existing Rykoff Subordinated Note had been allocated among such RS Sellers immediately prior to the cancellation thereof pursuant to the RS Transition Agreement, and the portion of the Subordinated Note representing the assumption of the Existing USFAR Subordinated Note Amount shall be allocated among the USFAR Sellers in the same proportion that the aggregate outstanding principal amount of the Existing USFAR Subordinated Note had been allocated among such USFAR Sellers immediately prior to the cancellation thereof pursuant to the USFAR Transition Agreement, in each case by the Servicer. The Servicer may evidence such allocations by recording the amount thereof on the grid attached to the Subordinated Note; PROVIDED that the failure to make any such recordation or any error in such grid shall not adversely affect any Seller's rights thereunder. (c) Following the initial Effective Date, the aggregate principal amount of the Subordinated Note at any time shall be equal to the difference between (i) the sum of the Initial Subordinated Note Amount and each addition to the principal amount of the Subordinated Note with respect to each Seller pursuant to Section 2.03 as of such time and (ii) the aggregate amount of all payments made in respect of the principal of the Subordinated Note as of such time. All payments made in respect of the Subordinated Note shall be allocated among the Sellers by the Servicer and shall be allocated FIRST, to pay accrued and unpaid interest thereon, and SECOND, to pay the outstanding principal amount thereof. (d) Each Seller's interest in the Subordinated Note shall be equal to the sum of (i) the initial allocation to such Seller of the Existing Rykoff Subordinated Note Amount or the Existing USFAR Subordinated Note Amount, as the case may be, made by the Servicer in accordance with subsection 8.01(b) and (ii) each addition to the Subordinated Note allocated to such Seller pursuant to subsection 2.03(c), LESS (iii) the sum of each repayment thereof allocated to such Seller by the Servicer in accordance with subsection 8.01(c). Interest on the outstanding principal amount of the Subordinated Note shall accrue on the last day of each Settlement Period at a rate per annum equal to the ABR plus 2% from and including the initial Effective Date to but excluding the last day of each Settlement Period and shall be paid (x) on each Distribution Date 40 with respect to the principal amount of the Subordinated Note outstanding from time to time during the Settlement Period immediately preceding such Distribution Date and/or (y) on the maturity date thereof. Principal thereunder not paid or prepaid pursuant to the terms thereof shall be payable on the maturity date of the Subordinated Note. Default in the payment of principal or interest under the Subordinated Note shall not constitute a Purchase Termination Event under this Agreement, a Servicer Default under any Servicing Agreement or an Early Amortization Event under the Pooling Agreement or any Supplement thereto. Section 8.02. RESTRICTIONS ON TRANSFER OF SUBORDINATED NOTE. Neither the Subordinated Note, nor any right of any Seller to receive payments thereunder, shall be assigned, transferred, exchanged, pledged, hypothecated, participated or otherwise conveyed. ARTICLE IX MISCELLANEOUS Section 9.01. AMENDMENT. Neither this Agreement nor any of the terms hereof may be amended, supplemented or modified except in a writing signed by the Company and the Sellers. Any amendment, supplement or modification shall not be effective until the Rating Agency Condition, if applicable, has been satisfied. Section 9.02. NOTICES, ETC. All notices and other communications provided for hereunder shall, unless otherwise stated herein, be in writing (including facsimile communication) and shall be personally delivered or sent by certified mail, postage-prepaid, by facsimile or by overnight courier, (a) in the case of the Company, to it at the address or facsimile number set forth under its name on the signature pages hereof and (b) in the case of all other parties, to such party at the address or facsimile number of the Servicer set forth under its name on the signature pages hereof, or, in the case of the foregoing clause (a) or (b), at such other address or facsimile number as shall be designated by the relevant party in a written notice to the other parties hereto given in accordance with this Section 9.02. All notices and communications provided for hereunder shall be effective, (a) if personally delivered by express mail or courier, when received, (b) if sent by certified mail, three Business Days after having been deposited in the mail, postage prepaid and (c) if transmitted by facsimile, when sent, receipt confirmed by telephone or electronic means. Section 9.03. NO WAIVER; REMEDIES. No failure on the part of the Company to exercise, and no delay in exercising, any right under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any such right 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 9.04. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the Sellers and the Company and their respective successors (whether by merger, consolidation or otherwise) and assigns. Each Seller agrees that it will not assign or transfer all or any portion of its rights or obligations hereunder without the prior written consent of the Company. The Sellers acknowledge that the Company shall assign all of its rights 41 hereunder to the Trustee. Each Seller consents to such assignment and agrees that the Trustee and the Holders, to the extent provided in the Pooling Agreement, shall be entitled to enforce the terms of this Agreement and the rights (including, without limitation, the right to grant or withhold any consent or waiver) of the Company directly against such Seller, whether or not a Purchase Termination Event or a Potential Purchase Termination Event has occurred. Each Seller further agrees that, in respect of its obligations hereunder, it will act at the direction of and in accordance with all requests and instructions from the Trustee until all amounts due to the Investor Certificateholders are paid in full. The Trustee, on behalf of the Investor Certificateholders, shall have the rights of a third-party beneficiary under this Agreement. Section 9.05. 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. Section 9.06. COSTS, EXPENSES AND TAXES. In addition to the limited rights of indemnification granted to the Company under Article VII hereof, each Seller agrees to pay on demand all reasonable out-of-pocket costs and expenses of the Company in connection with the negotiation, preparation, execution and delivery of, and any amendment, supplement or other modification to, this Agreement, the other Transaction Documents and any other documents prepared in connection herewith and therewith, and the consummation and administration of the transactions contemplated hereby and thereby, including, without limitation, the reasonable fees and out-of-pocket expenses of counsel for the Company with respect thereto and with respect to advising the Company as to its rights and remedies under this Agreement, the other Transaction Documents and any such other documents, and all costs and expenses (including, without limitation, reasonable counsel fees and expenses), in connection with the enforcement (whether through negotiations, legal proceedings or otherwise) of this Agreement, the other Transaction Documents and any such other documents. In addition, each Seller agrees to pay any and all stamp and other taxes and governmental fees payable or determined to be payable in connection with the execution, delivery, filing and recording of this Agreement or the other Transaction Documents to be delivered hereunder, and agree to hold the Company harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omitting to pay such taxes and fees. Section 9.07. WAIVER OF JURY TRIAL; SUBMISSION TO JURISDICTION; OTHER WAIVERS. (a) EACH PARTY HERETO WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER OR RELATING TO THIS AGREEMENT, ANY OTHER TRANSACTION DOCUMENT, OR ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH OR ARISING FROM ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN), ACTIONS OF ANY OF THE PARTIES HERETO OR ANY OTHER RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. 42 (b) Each of the Company and the Sellers hereby irrevocably and unconditionally: (i) submits itself and its property in any legal action or proceeding relating to this Agreement and the other Transaction Documents to which it is a party, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the courts of the State of New York, the courts of the United States of America for the Southern District of New York, and appellate courts from any thereof; (ii) consents that any such action or proceeding may be brought in such courts and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same; (iii) agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to such Person at its address referred to in Section 9.02 or at such other address of which the relevant Seller or the Company, as the case may be, shall have been notified pursuant thereto; (iv) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law or shall limit the right to sue in any other jurisdiction; and (v) waives, to the maximum extent not prohibited by law, any right it may have to claim or recover in any legal action or proceeding referred to in this subsection 9.07(b) any special, exemplary, punitive or consequential damages. Section 9.08. INTEGRATION. This Agreement and the other Transaction Documents contain a final and complete integration of all prior expressions by the parties hereto with respect to the subject matter hereof and thereof and shall together constitute the entire agreement among the parties hereto with respect to the subject matter hereof and thereof, superseding all prior oral or written understandings. Section 9.09. CAPTIONS AND CROSS REFERENCES. The various captions (including, without limitation, the table of contents) in this Agreement are provided solely for convenience of reference and shall not affect the meaning or interpretation of any provision of this Agreement. Unless otherwise provided herein, references in this Agreement to any "Section," "Exhibit," "Annex" or "Schedule" are to such Section of or Exhibit or Annex or Schedule to this Agreement, as the case may be. Section 9.10. EXECUTION IN COUNTERPARTS. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement. 43 Section 9.11. ACKNOWLEDGMENT OF ASSIGNMENTS. Each Seller hereby acknowledges and consents to the assignment by the Company of Receivables and Receivables Property and the rights of the Company under this Agreement pursuant to the Pooling and Servicing Agreements. Each Seller acknowledges that the Company will grant a security interest in the Lockbox Accounts, the Eligible Segregated Accounts, the Collection Concentration Account and the Collection Account to the Trust for the benefit of the Holders. Each Seller agrees to take any action that the Company or the Trust may reasonably request in connection with such assignment or security interest. Section 9.12. NO PETITION IN BANKRUPTCY. Each Seller covenants and agrees that prior to the date which is one year and one day after the date of termination of this Agreement pursuant to Section 9.15, it will not institute against or join any other Person in instituting against the Company any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings or other similar proceeding under the laws of the United States or any State of the United States. Section 9.13. ADDITION OF SELLERS AND SELLER DIVISIONS. Subject to the terms and conditions hereof, from time to time (a) one or more wholly-owned Subsidiaries of RS may become additional Sellers parties hereto and (b) one or more divisions (each, a "NEW DIVISION") acquired by any Seller after the Closing Date in a transaction with a Person which is not an Affiliate of such Seller may become a division (a "SELLER DIVISION") the receivables originated by which may constitute Eligible Receivables of such Seller. If any such Subsidiary or New Division, as the case may be, wishes to become an additional Seller or a Seller Division, as the case may be, it shall submit a request to such effect in writing to the Company. The Company, in its sole and absolute discretion, may, subject to the terms and provisions of the Pooling and Servicing Agreements, agree to or deny any such request, PROVIDED that, if the Company shall have failed to respond to any such request within 30 days after receipt thereof, such request shall be deemed to have been denied. If the Company shall have agreed to any such request, then (x) in the case of a wholly-owned Subsidiary of RS, such wholly-owned Subsidiary shall become an additional Seller party hereto on the related Seller Addition Date upon satisfaction of the conditions set forth in Section 3.02 and the conditions, if any, set forth in the Pooling and Servicing Agreements and (y) in the case of a New Division, such New Division shall become a Seller Division upon satisfaction of the conditions set forth in subsections 3.02(a)(ii), (e), (f), (g), (h), (j), (k) and (l) (in each case, applied to such New Division as if it were an additional Seller) and the conditions set forth in the Pooling and Servicing Agreements (including, without limitation, those referred to in the definition of "Excluded Receivables" contained herein). Section 9.14. TREATMENT OF SELLERS OTHER THAN RS; TERMINATION THEREOF. (a) RS hereby covenants and agrees with the Company that RS shall not permit any Seller (other than RS) at any time to cease to be a wholly-owned Subsidiary of RS, except as provided in the following paragraph (b). (b) If RS wishes to permit any Seller (other than RS) to cease to be a wholly-owned Subsidiary of RS, then RS shall submit a request (a "SELLER TERMINATION REQUEST") to such effect in writing to the Company, which request shall be accompanied by a certificate prepared by a Responsible Officer of the Servicer indicating the Purchased Receivables Percentage applicable to such Seller as of the date of submission of such request (the "SELLER TERMINATION REQUEST 44 DATE"). The Company, in its sole and absolute discretion, may, subject to the terms and provisions of the Pooling and Servicing Agreements, consent to or deny any such Seller Termination Request, PROVIDED that, if the Company shall have failed to respond to any such Seller Termination Request within 30 days after receipt thereof, such Seller Termination Request shall be deemed to have been denied. If the Company shall have consented to any such Seller Termination Request, and such consent shall not be in violation of any applicable provision of the Pooling and Servicing Agreements, then the relevant Seller shall be terminated as a Seller hereunder on the date of the consummation of the transaction in connection with which such Seller ceases to be a wholly-owned Subsidiary of RS or, if RS requests in writing that the termination date be a date prior to the consummation of such transaction, such earlier requested date (but in no event more than 30 days prior to the consummation of such transaction); PROVIDED that if an earlier date is so requested, RS or any Subsidiary of RS shall have entered into a valid and legally binding agreement to effect such transaction on or before a date certain; PROVIDED FURTHER that, if the Purchased Receivables Percentage applicable to such Seller as of the relevant Seller Termination Request Date is less than 10%, then the Company shall consent to such Seller Termination Request unless such consent would violate the terms and provisions of the Pooling and Servicing Agreements. From and after the date any such Seller is terminated as a Seller pursuant to this subsection, the Company shall cease buying Receivables and Receivables Property from such Seller. Each such Seller shall be released as a Seller party hereto for all other purposes and shall cease to be a party hereto on such termination date. (c) A terminated Seller shall have no further obligation under any Transaction Document, other than to repurchase Receivables previously sold by it to the Company pursuant to Section 2.06. Section 9.15. TERMINATION. This Agreement will terminate at such time as (a) an Early Termination shall have occurred with respect to all Sellers hereunder and (b) all Receivables purchased hereunder have been collected, and the proceeds thereof turned over to the Company and all other amounts owing to the Company hereunder shall have been paid in full or, if Receivables sold hereunder have not been collected, such Receivables have become Defaulted Receivables and the Company shall have completed its collection efforts with respect thereto; PROVIDED, HOWEVER, that the indemnities of the Sellers to the Company set forth in this Agreement shall survive such termination and PROVIDED FURTHER that the Company shall remain entitled to receive any collections on Receivables sold hereunder which have become Defaulted Receivables. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. THE SELLERS: RYKOFF-SEXTION, INC. By: /s/ -------------------------------------- Name: ------------------------------------ Title: ----------------------------------- JOHN SEXTON & CO. By: /s/ -------------------------------------- Name: ------------------------------------ Title: ----------------------------------- BIGGERS BROTHERS, INC. By: /s/ -------------------------------------- Name: ------------------------------------ Title: ----------------------------------- WHITE SWAN, INC. By: /s/ -------------------------------------- Name: ------------------------------------ Title: ----------------------------------- F.H. BEVEVINO & COMPANY, INC. By: /s/ -------------------------------------- Name: ------------------------------------ Title: ----------------------------------- ROANOKE RESTAURANT SERVICE, INC. By: /s/ -------------------------------------- Name: ------------------------------------ Title: ----------------------------------- KING'S FOODSERVICE, INC. By: /s/ -------------------------------------- Name: ------------------------------------ Title: ----------------------------------- US FOODSERVICE OF FLORIDA, INC. By: /s/ -------------------------------------- Name: ------------------------------------ Title: ----------------------------------- US FOODSERVICE OF ATLANTA, INC. By: /s/ -------------------------------------- Name: ------------------------------------ Title: ----------------------------------- THE COMPANY: RS FUNDING INC. By: /s/ -------------------------------------- Name: ------------------------------------ Title: ----------------------------------- Address: 3773 Howard Hughes Parkway Suite 300N Las Vegas, Nevada 89109 Telephone: (702) 866-2231 Facsimile: (702) 866-2244 THE SERVICER: US FOODSERVICE INC. By: /s/ -------------------------------------- Name: ------------------------------------ Title: ----------------------------------- Address: East Mountain Corporate Center 613 Baltimore Drive Wilkes-Barre, Pennsylvania 18702 Telephone: (717) 831-7500 Facsimile: (717) 822-3719 EX-10.40-2 16 EXHIBIT 10-40-2 SERVICING AGREEMENT EXHIBIT 10.40.2 EXECUTION COPY - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ------------------ RS FUNDING INC., as Company, US FOODSERVICE INC., as Servicer, RYKOFF SEXTON, INC. AND ITS OTHER SUBSIDIARIES NAMED HEREIN, as Sub-Servicers and THE CHASE MANHATTAN BANK, as Trustee ------------------ SERVICING AGREEMENT Dated as of November 15, 1996 ------------------ - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TABLE OF CONTENTS PAGE ---- ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . 1 1.1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2. Other Definitional Provisions . . . . . . . . . . . . . . . . . . 2 ARTICLE II ADMINISTRATION AND SERVICING OF RECEIVABLES. . . . . . . . . . . . . . . 2 2.1. Appointment of Servicer and Sub-Servicers . . . . . . . . . . . . 2 2.2. Servicing Procedures. . . . . . . . . . . . . . . . . . . . . . . 3 2.3. Collections . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 2.4. Reconciliation of Deposits. . . . . . . . . . . . . . . . . . . . 7 2.5. Servicing Compensation. . . . . . . . . . . . . . . . . . . . . . 8 ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE SERVICER AND THE SUB-SERVICERS. . . . . . . . . . 9 3.1. Corporate Existence; Compliance with Law. . . . . . . . . . . . . 9 3.2. Corporate Power; Authorization. . . . . . . . . . . . . . . . . . 9 3.3. Enforceability. . . . . . . . . . . . . . . . . . . . . . . . . . 10 3.4. No Legal Bar. . . . . . . . . . . . . . . . . . . . . . . . . . . 10 3.5. No Material Litigation. . . . . . . . . . . . . . . . . . . . . . 10 3.6. No Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 3.7. Servicing Ability . . . . . . . . . . . . . . . . . . . . . . . . 11 3.8. Location of Records . . . . . . . . . . . . . . . . . . . . . . . 11 ARTICLE IV COVENANTS OF THE SERVICER. . . . . . . . . . . . 11 4.1. Delivery of Daily Reports . . . . . . . . . . . . . . . . . . . . 11 4.2. Delivery of Monthly Settlement Statement. . . . . . . . . . . . . 11 4.3. Delivery of Quarterly Servicer's Certificate. . . . . . . . . . . 12 4.4. Delivery of Independent Public Accountants' -i- PAGE ---- Servicing Reports . . . . . . . . . . . . . . . . . . . . . . 12 4.5. No Guarantee or Assumption of Company's Liabilities.. . . . . . . 12 4.6. Extension, Amendment and Adjustment of Receivables; Amendment of and Compliance with Policies . . . . . . . . . . 13 4.7. Protection of Investor Certificateholders' Rights . . . . . . . . 13 4.8. Security Interest . . . . . . . . . . . . . . . . . . . . . . . . 13 4.9. Location of Records . . . . . . . . . . . . . . . . . . . . . . . 14 4.10. Visitation Rights . . . . . . . . . . . . . . . . . . . . . . . . 14 4.11. Lockbox Agreement; Lockbox Accounts . . . . . . . . . . . . . . . 14 4.12. Delivery of Financial Statements. . . . . . . . . . . . . . . . . 15 4.13. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 ARTICLE V OTHER MATTERS RELATING TO THE SERVICER AND THE SUB-SERVICERS . . . . . . . . . . . . 16 5.1. Merger, Consolidation, etc. . . . . . . . . . . . . . . . . . . . 16 5.2. Indemnification of the Trust and the Trustee. . . . . . . . . . . 16 5.3. Servicer Not to Resign. . . . . . . . . . . . . . . . . . . . . . 17 5.4. Access to Certain Documentation and Information Regarding the Receivables . . . . . . . . . . . . . . . . . . . . . . . 18 ARTICLE VI SERVICER DEFAULTS. . . . . . . . . . . . . . 18 6.1. Servicer Defaults . . . . . . . . . . . . . . . . . . . . . . . . 18 6.2. Trustee to Act; Appointment of Successor. . . . . . . . . . . . . 21 6.3. Waiver of Past Defaults . . . . . . . . . . . . . . . . . . . . . 23 ARTICLE VII MISCELLANEOUS PROVISIONS . . . . . . . . . . . . 23 7.1. Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 7.2. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 7.3. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . 23 7.4. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 7.5. Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . 24 7.6. Third-Party Beneficiaries . . . . . . . . . . . . . . . . . . . . 24 7.7. Merger and Integration. . . . . . . . . . . . . . . . . . . . . . 24 7.8. Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 7.9. No Set-Off. . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 -ii- 7.10. No Bankruptcy Petition. . . . . . . . . . . . . . . . . . . . . . 24 7.11. Consequential Damages . . . . . . . . . . . . . . . . . . . . . . 24 EXHIBITS Exhibit A Form of Quarterly Servicer's Certificate Exhibit B Form of Agreed Upon Procedures (312) 269-4076 5-4076 -iii- SERVICING AGREEMENT, dated as of November 15, 1996, among RS Funding Inc., a Nevada corporation (the "COMPANY"); US Foodservice Inc., a Delaware corporation ("US FOODSERVICE"), as servicer (in such capacity, the "SERVICER"); Rykoff-Sexton, Inc., a Delaware corporation, and each of its other subsidiaries from time to time parties hereto (each, a "SUB-SERVICER") and The Chase Manhattan Bank, a New York banking corporation, not in its individual capacity, but solely as trustee (in such capacity, the "TRUSTEE"). W I T N E S S E T H : WHEREAS, the Company and the Sellers (as defined in the Pooling Agreement referred to below) have entered into a Receivables Sale Agreement, dated as of the date hereof (as amended, supplemented or otherwise modified from time to time, the "RECEIVABLES SALE AGREEMENT"); WHEREAS, pursuant to the Receivables Sale Agreement, the Sellers sell to the Company, and the Company purchases from the Sellers, all of the Sellers' right, title and interest in, to and under the Receivables (as defined in the Pooling Agreement referred to below) now existing or hereafter created and in the rights of the Seller in, to and under all Related Property related thereto; WHEREAS, the Company in turn has transferred the Receivables now existing or hereafter created and the rights of the Company in, to and under all Related Property related thereto to a master trust pursuant to a Pooling Agreement, dated as of the date hereof (as amended, supplemented or otherwise modified from time to time, the "POOLING AGREEMENT"), among the Company, the Servicer and the Trustee; and WHEREAS, the parties hereto wish to enter into this Agreement. NOW, THEREFORE, in consideration of the premises and of the mutual covenants herein contained, the parties hereto agree as follows: ARTICLE I DEFINITIONS 1.1. DEFINITIONS. Unless otherwise defined herein, capitalized terms which are used herein shall have the meanings assigned to such terms in Section 1.1 of the Pooling Agreement and each Supplement thereto, including, without limitation, the Series 1996-1 Supplement, dated as of the date hereof, among the Company, the Servicer and the Trustee. SERVICING AGREEMENT 3 1.2. OTHER DEFINITIONAL PROVISIONS. (a) All terms defined herein or in the Pooling Agreement shall have their defined meanings when used in any certificate or other document made or delivered pursuant hereto unless otherwise defined therein. (b) As used herein and in any certificate or other document made or delivered pursuant hereto or thereto, accounting terms not defined in Section 1.1 of the Pooling Agreement, and accounting terms partly defined in Section 1.1 of the Pooling Agreement to the extent not defined, shall have the respective meanings given to them under GAAP. To the extent that the definitions of accounting terms herein are inconsistent with the meanings of such terms under GAAP, the definitions contained herein shall control. (c) The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section, subsection, Schedule and Exhibit references contained in this agreement are references to Sections, subsections, Schedules and Exhibits in or to this Agreement unless otherwise specified. (d) The definitions contained in Section 1.1 of the Agreement are applicable to the singular as well as the plural forms of such terms and to the masculine, the feminine and the neuter genders of such terms. (e) Where reference is made in this Agreement or the Pooling Agreement to the principal amount of Receivables, such reference shall, unless explicitly stated otherwise, be deemed a reference to the Principal Amount (as such term is defined in Section 1.1 of the Pooling Agreement) of such Receivables. (f) Any reference herein or in any other Transaction Document to a provision of the Internal Revenue Code or ERISA shall be deemed a reference to any successor provision thereto. (g) All references herein to any agreement or instrument shall be deemed references to such agreement or instrument as amended, supplemented or otherwise modified from time to time unless there are any restrictions herein on the amendment, supplementation or modification of such agreement or instrument. ARTICLE II ADMINISTRATION AND SERVICING OF RECEIVABLES 2.1. APPOINTMENT OF SERVICER AND SUB-SERVICERS. US Foodservice hereby agrees to act as the Servicer under the Pooling and Servicing Agreements, the Company and the Trustee hereby consent to US Foodservice's acting as the Servicer, and the Investor Certificateholders by their acceptance of the Certificates consent to US Foodservice's acting as 4 the Servicer. In addition, US Foodservice hereby agrees to act as, the Company and the Trustee hereby consent to US Foodservice's being appointed to act as, and the Investor Certificateholders by their acceptance of the Certificates consent to US Foodservice's being appointed to act as, such parties' agent to coordinate the servicing of the Receivables by the Sub-Servicers. In such agency capacities, the Servicer will have responsibility for the management of the servicing and receipt of Collections in respect of the Receivables and will have the authority to make any management decisions relating to the Receivables to the extent such authority is granted to the Servicer under any Pooling and Servicing Agreement. The Company, the Trustee and the Investor Certificateholders shall treat US Foodservice as the Servicer and may conclusively rely on the instructions, notices and reports of US Foodservice as Servicer for so long as US Foodservice is the Servicer. In addition, (x) each Sub-Servicer agrees to act as a Sub-Servicer under each Pooling and Servicing Agreement, (y) the Company and the Trustee hereby consent to such Sub-Servicer's acting as a Sub-Servicer and being appointed their agent to service and administer the Receivables originated by it, and (z) the Investor Certificateholders by their acceptance of the Certificates consent to such Sub-Servicer's acting as a Sub-Servicer and being appointed their agent to service and administer the Receivables originated by it. Each Sub-Servicer will be responsible, as directed by the Servicer, for the servicing and administration of the Receivables originated by such Sub-Servicer. RS has executed and delivered the Servicer Guarantee which, among other things, guarantees the obligations and responsibilities of US Foodservice as Servicer hereunder and under the other Transaction Documents. At any time upon at least 10 days' prior written notice to the Trustee, each Rating Agency, each Agent, the Company, and each Sub-Servicer, US Foodservice may assign and RS may accept and assume all rights, titles, interests, responsibilities and obligations of US Foodservice as Servicer hereunder and under the other Transaction Documents. Upon the effectiveness of such assignment, acceptance and assumption (which shall not require compliance with any other provisions hereunder), RS shall be the Servicer hereunder and under the other Transaction Documents and US Foodservice, without any further action, shall automatically be released from its obligations and responsibilities as Servicer hereunder and under the other Transaction Documents. The Trustee hereby consents and the Investor Certificateholders by their acceptance of the Certificates consent to RS acting as Servicer upon such assignment, acceptance and assumption. 2.2. SERVICING PROCEDURES. (a) The Servicer shall manage the servicing and administration of the Receivables, the collection of payments due under the Receivables and the charging off of any Receivables as uncollectible, all in accordance with the Policies and all the terms and provisions of the Pooling and Servicing Agreements. The Servicer shall have full power and authority, acting alone or through any party properly designated by it hereunder, to do any and all things in connection with such servicing and administration which it may deem necessary or desirable, but at all times subject to the terms of this Agreement and the other Transaction Documents. Without limiting the generality of the foregoing and subject to Section 6.1, the Servicer or its designee is hereby authorized and empowered (i) to give direction to the Trustee with respect to withdrawals from, and payments to, the Collection Account and/or the Collection Concentration Account in accordance with the Daily Report and as otherwise specified in the Pooling and Servicing Agreements, (ii) to execute and deliver, on behalf of the Trust for the 5 benefit of the Investor Certificateholders, any and all instruments of satisfaction or cancellation, or of partial or full release or discharge, and all other comparable instruments, with respect to the Receivables and, after the delinquency of any Receivable and to the extent permitted under and in compliance with applicable Requirements of Law, to commence enforcement proceedings with respect to such Receivables and (iii) to make any filings, refilings, reports, notices, applications and registrations with, and to seek any consents or authorizations from, the Securities and Exchange Commission and any state securities authority on behalf of the Trust as may be necessary or advisable to comply with any federal or state securities or reporting requirements or laws. (b) Each Servicing Party will, at its cost and expense and as agent for the Company, the Trust and the Investor Certificateholders, use its best efforts to collect, consistent with its past practices, as and when the same becomes due, the amount owing on each Receivable with respect to which it is the Servicing Party. No Servicing Party will make any material changes that deviate from the Policies in its administrative, servicing and collection systems except (i) as expressly permitted by the terms of any Pooling and Servicing Agreement and (ii) after giving written notice to the Trustee and the Rating Agencies of any such change. In the event of default under any Receivable, the responsible Servicing Party shall have the power and authority, on behalf of the Company and the Trust for the benefit of the Investor Certificateholders, to take such action in respect of such Receivable as such Servicing Party may deem advisable. In the enforcement or collection of any Receivable, the relevant Servicing Party shall be entitled to sue thereon (i) in its own name or (ii) if, but only if, the Company consents in writing (which consent shall not be unreasonably withheld), as agent for the Company. In no event shall any Servicing Party be entitled to take any action which would make the Company, the Trustee or the Investor Certificateholders a party to any litigation without the express prior written consent of such Person. (c) Without limiting the generality of the foregoing and subject to Section 6.2, each Servicing Party is hereby authorized and empowered to delegate any or all of its servicing, collection, enforcement and administrative duties hereunder with respect to the Receivables to a Person who agrees to conduct such duties in accordance with the Policies. Such Servicing Party shall notify the Company, the Trustee and any Rating Agency of the appointment of a designee as provided for herein; PROVIDED, HOWEVER, that, in the event that such delegation would reasonably be expected to adversely affect the ability of such Servicing Party or the Servicer to perform its obligations in the manner contemplated by any Pooling and Servicing Agreement, or otherwise to have a material adverse effect upon the Receivables taken as a whole, such Servicing Party shall give prior written notice to the Company, the Trustee, each Agent and the Rating Agencies of any such delegation, and prior to such delegation's being effective, such Servicing Party and the Servicer shall have received notice that the Rating Agency Condition shall be satisfied after giving effect to such delegation and shall have obtained the consent of the Company and each Agent to such delegation. No delegation of duties by a Servicing Party permitted hereunder will relieve such Servicing Party or the Servicer of its liability and responsibility with respect to such duties. (d) Except as provided in any Pooling and Servicing Agreement, neither any Servicing Party nor any Successor Servicer shall be obligated to use servicing procedures, offices, 6 employees or accounts for servicing the Receivables transferred to the Company and, subsequently, to the Trust, which are separate from the procedures, offices, employees and accounts used by such Servicing Party or such Successor Servicer, as the case may be, in connection with servicing other receivables. (e) Each Servicing Party shall maintain reasonable and customary fidelity bond coverage insuring against losses through wrongdoing of its officers and employees who are involved in the servicing of the Receivables, including, without limitation, depositor's forgery. (f) Each Servicing Party shall comply with and perform its servicing obligations with respect to the Receivables in accordance with the contracts, if any, relating to the Receivables and the Policies, except insofar as any failure to so comply or perform would not have a Material Adverse Effect with respect to the Servicer. (g) No Servicing Party shall take any action to cause any Receivable to be evidenced by any "instrument" (other than an instrument which constitutes or together with a security agreement constitutes "chattel paper" (each as defined in the UCC as in effect in any state in which the Company's or the applicable Seller's chief executive office or books and records relating to such Receivable are located)) or any title in bearer form except in connection with its enforcement or collection of a Defaulted Receivable, in which event such Servicing Party shall deliver such instrument to the Trustee as soon as reasonably practicable but in no event more than 5 days after the execution thereof. Each Servicing Party shall hold any chattel paper evidencing a Receivable as custodian for the Trustee. 2.3. COLLECTIONS. (a) As of the Initial Closing Date, the Sub- Servicers, or the Servicer on their behalf, shall have instructed all Obligors to make all payments in respect of the Receivables to a Lockbox, a Lockbox Account, the Collection Concentration Account or the Collection Account (except to the extent that any Servicing Party, as of such date, in the normal course of its business and consistent with past practices has permitted such Obligors to remit payments to a Collector), and such instructions thereafter shall continue to be in full force and effect. Each Servicing Party is hereby authorized to collect payments in accordance with the foregoing sentence. Each Servicing Party, as applicable, also shall have established separate collection systems that ensure that payments in respect of Excluded Receivables shall at all times remain separate from payments in respect of the Receivables. Any payments collected by a Collector shall be deposited (i) in the case of payments collected by a Daily Collector, into a Lockbox Account within one Business Day following receipt thereof and (ii) in the case of payments collected by a Remote Collector, into an Eligible Segregated Account of the related Seller within two Business Days following receipt thereof; PROVIDED that if the aggregate amount of Collections made by Remote Collectors during any Settlement Period exceeds an amount equal to 25% of the aggregate amount of all Collections made during such Settlement Period, then the Servicer shall take all actions reasonably necessary to reduce the aggregate amount of Collections made by Remote Collectors during each subsequent Settlement Period below an amount equal to 25% of the aggregate amount of all Collections made during such subsequent Settlement Period. The amounts on deposit in each Eligible Segregated Account shall be transferred, in accordance with the instructions set forth in the applicable Eligible Segregated Account Bank 7 Acknowledgement delivered pursuant to subsection 2.3(b)(ii), to the Collection Concentration Account or to the designated Lockbox Account, as the case may be, (x) on any Business Day on which the amount on deposit in such Eligible Segregated Account exceeds $25,000 and (y) in any event, no less frequently than once each week on the same Business Day (as to each Eligible Segregated Account Bank) of each calendar week (unless, in the case of this clause (y), as of such day there has been a transfer pursuant to clause (x) within the past six Business Days). All Collections received in a Lockbox shall, within one Business Day of receipt thereof, be deposited in a Lockbox Account. All immediately available funds deposited in a Lockbox Account shall be transferred by the relevant Lockbox Processor within one Business Day of receipt thereof to the Collection Concentration Account. Except as permitted in the first sentence of this subsection 2.3(a), in the event that any payments in respect of the Receivables are made directly to any Servicing Party (including, without limitation, any employees thereof or independent contractors employed thereby), such Servicing Party shall, within one Business Day of receipt thereof, forward such amounts to a Lockbox, a Lockbox Account or the Collection Concentration Account (including by depositing instruments evidencing any such amounts into any such account) and, prior to forwarding such amounts, such Servicing Party shall hold such payments in trust as custodian for the Trustee. Each of the Company and each Servicing Party represents, warrants and agrees that all Collections shall be collected, processed and deposited by it pursuant to, and in accordance with the terms of, the Pooling and Servicing Agreements. (b) (i) Each Lockbox Agreement shall provide that the Lockbox Processor thereunder is irrevocably directed, and such Lockbox Processor irrevocably agrees, to (i) deposit funds received in the Lockbox directly into the Lockbox Account and (ii) transfer immediately available funds on deposit in the Lockbox Account within one Business Day of receipt thereof to the Trustee for deposit in the Collection Account. Each Lockbox Agreement shall be substantially in the form of either Exhibit A-1 or Exhibit A-2 to the Pooling Agreement or in such form as the Lockbox Processor party thereto employs in the ordinary course of its business for transactions of a type similar to the one contemplated by this Agreement. A new Lockbox Account may be designated by the Company and the Servicer; PROVIDED that the Lockbox Processor chosen to maintain such new Lockbox Account shall have entered into a Lockbox Agreement with the Company, the Servicer and the Trustee. The Company or the Servicer shall notify each Rating Agency of the designation of a new Lockbox Account. Prior to any resignation of the Lockbox Processor or termination of the Lockbox Processor by the Company or the Trustee, the Servicer hereby agrees to obtain a replacement Lockbox Processor, the unsecured and uncollateralized obligations of which (or of its holding company parent) are rated in one of the three highest long-term or short-term rating categories by each Rating Agency rating such replacement Lockbox Processor, to serve under a Lockbox Agreement which is reasonably acceptable to the Trustee. (ii) As of the Initial Closing Date, there shall have been established by the applicable Sub-Servicers and the Company one or more segregated bank accounts (each, an "ELIGIBLE SEGREGATED ACCOUNT") in the name of the Company, in respect of which each of the following shall apply: (A) the Company shall have given the Eligible Segregated Account Bank maintaining each such Eligible Segregated Account, with a copy to the Trustee, standing irrevocable instructions governing the transfer of available funds on 8 deposit in such Eligible Segregated Account, which instructions, at the option of the Company, either shall direct transfer to the Collection Concentration Account or shall direct transfer to a designated Lockbox Account, in each case (x) on any Business Day on which the amount on deposit in such Eligible Segregated Account exceeds $25,000 and (y) in any event, no less frequently than once each week on the same Business Day (as to each Eligible Segregated Account Bank) of each calendar week (unless, in the case of this clause (y), as of such day there has been a transfer pursuant to clause (x) within the past six Business Days); and (B) each such Eligible Segregated Account Bank shall have executed an acknowledgement substantially in the form of Exhibit D to the Pooling Agreement (each an "ELIGIBLE SEGREGATED ACCOUNT BANK ACKNOWLEDGEMENT"), prepared by the Servicer or the relevant Sub-Servicer, as the case may be, and delivered to the Trustee, acknowledging the establishment of such Eligible Segregated Account and its receipt of irrevocable standing instructions as set forth above, subject solely to modification upon written instructions of the Trustee. (c) The Trustee shall administer amounts on deposit in the Collection Concentration Account and the Collection Account, and the Servicer, on behalf of the Trust, shall administer amounts on deposit in the Lockbox Accounts, in each case in accordance with the terms of the Pooling and Servicing Agreements. Each of the Company and each Servicing Party acknowledges and agrees that (i) it shall not have any right to withdraw any funds on deposit in the Collection Account, the Collection Concentration Account or any Lockbox Account and (ii) all amounts deposited in the Collection Account, the Collection Concentration Account or any Lockbox Account shall be under the sole dominion and control of the Trustee (subject to the Servicer's right to direct the application of such amounts as provided by the terms of any Pooling and Servicing Agreement). (d) As soon as practicable but in any event not later than the Business Day following the date that the Servicer determines, identifies and certifies in writing to the Trustee that any of the collected funds received in any of the Lockboxes, the Lockbox Accounts, the Collection Concentration Account or the Collection Account do not constitute Collections on account of the Receivables, such monies which do not constitute such Collections shall be remitted to the applicable Seller to the extent such determination and identification is reasonably satisfactory to the Trustee. (e) All collections received or deposited in the Collection Account as "Collections" shall be deemed, for purposes of the Transaction Documents, to have been received or deposited as of the Business Day Received (as defined in the immediately succeeding sentence). As used herein, the term "BUSINESS DAY RECEIVED" shall mean (i) if funds are deposited in the Collection Account by 3:00 p.m., New York City time, such day of deposit and (ii) if funds are deposited in the Collection Account after 3:00 p.m., New York City time, the Business Day next following such day of deposit. (f) Unless otherwise required by law or unless an Obligor designates that a payment be applied to a specific Receivable, all Collections received from an Obligor shall be applied to the oldest Receivables of such Obligor. 9 2.4. RECONCILIATION OF DEPOSITS. If in respect of a Collection of a Receivable any Servicing Party deposits into the Collection Account (a) a check received in respect of such Collection which check is not honored for any reason or (b) an amount that is less than or more than the actual amount of such Collection, such Servicing Party or the Servicer shall, in lieu of making a reconciling withdrawal or deposit, as the case may be, adjust the amount subsequently deposited into such Collection Account to reflect such dishonored check or mistake and notify the Trustee in writing of such adjustment. Any Receivable in respect of which a dishonored check is received shall be deemed not to have been paid; PROVIDED that no adjustments made pursuant to this Section 2.4 will change any amount previously reported pursuant to Section 4.2. 2.5. SERVICING COMPENSATION. (a) As full compensation for its servicing activities hereunder and reimbursement for its expenses as set forth in subsection 2.5(b), the Servicer shall be entitled to receive on each Distribution Date for the preceding Settlement Period prior to the termination of the Trust pursuant to Section 9.1 of the Pooling Agreement a servicing fee (the "SERVICING FEE"). The Servicing Fee shall be an amount equal to (i) the product of (A) the Servicing Fee Percentage and (B) the daily average aggregate Principal Amount of the Receivables in the Trust for the Settlement Period immediately preceding such Settlement Period (or, if such later Settlement Period is the initial Settlement Period, the aggregate Principal Amount of the Receivables at November 15, 1996) and (C) the number of days in such Settlement Period, DIVIDED BY (ii) 360. Except as otherwise set forth in the related Supplement, the share of the Servicing Fee allocable to each Outstanding Series for any Settlement Period shall be an amount equal to the product of (i) the Servicing Fee for such Settlement Period and (ii) a fraction (expressed as a percentage) (A) the numerator of which is the daily average Invested Amount for such Settlement Period with respect to such Series and (B) the denominator of which is the daily average Aggregate Invested Amount for such Settlement Period (with respect to any such Series, the "MONTHLY SERVICING FEE"); PROVIDED, HOWEVER, that if on any day US Foodservice or any Affiliate thereof is acting as the Servicer and an Early Amortization Event has occurred and is continuing with respect to any Outstanding Series, payment of the Monthly Servicing Fee with respect to such Series shall be deferred until all amounts due under the Investor Certificates of such Series have been paid in full. The Servicing Fee shall be payable to the Servicer solely pursuant to the terms of, and to the extent amounts are available for payment under, Article III of the Pooling Agreement. (b) The Company hereby directs the Servicer, and the Servicer hereby agrees, to pay amounts due to the Trustee pursuant to Section 8.5 of the Pooling Agreement and the reasonable fees and disbursements of independent accountants and counsel, including the Trustee's reasonable out-of-pocket expenses relating to the Trustee's inspections, if any, of the Servicer's servicing facility in connection with the Trustee's role as potential Successor Servicer, which inspections shall occur not more frequently than once per calendar year, and all other fees and expenses of the Trust (including counsel fees, if any) not expressly stated herein to be for the account of the Investor Certificateholders; PROVIDED, HOWEVER, that in no event shall the Servicer be liable for any federal, state or local income or franchise tax, or any interest or penalties with respect thereto, assessed on the Trust, the Trustee or the Investor Certificateholders except in accordance with Section 5.2 and as otherwise expressly provided herein. Notwithstanding anything to the contrary herein or in any other Pooling and Servicing Agreement, in the event that 10 the Servicer fails to pay any amount due to the Trustee pursuant to Section 8.5 of the Pooling Agreement, or following the commencement and continuance of an Early Amortization Period, the Trustee shall be entitled, in addition to any other rights it may have under law and under the Pooling Agreement, to receive directly such amounts owing to it under the Pooling and Servicing Agreements from, and in the same order of priority as, the Servicing Fee before payment to the Servicer of any portion thereof; PROVIDED, that in the event the Servicer shall have elected to waive its rights to payment of the Servicing Fee or the Servicing Fee is deferred pursuant to subsection 2.5(a), the Trustee shall nonetheless be entitled to receive such amounts from payments which would ordinarily be applied to the payment of the Servicing Fee, in the same order of priority as though such Servicing Fee were payable. The Servicer shall be required to pay expenses for its own account, and shall not be entitled to any payment therefor other than the Servicing Fee. Nothing contained herein shall be construed to limit the obligation of the Servicer or the Company to pay any amounts due the Trustee pursuant to Section 8.5 of the Pooling Agreement or pursuant to the terms of any applicable Supplement. ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE SERVICER AND THE SUB-SERVICERS As of (a) the Initial Closing Date and (b) each Issuance Date, each Servicing Party hereby makes the following representations and warranties to each of the other parties hereto: 3.1. CORPORATE EXISTENCE; COMPLIANCE WITH LAW. Such Servicing Party (i) is a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its organization, (ii) has all requisite corporate power and authority, and all legal right, to own and operate its properties, to lease the properties it operates as lessee and to conduct its business as now conducted, (iii) is duly qualified as a foreign corporation to do business and in good standing (or is exempt from such requirements) under the laws of each jurisdiction in which the servicing of Receivables as required by this Agreement requires such qualification and (iv) is in compliance with all Requirements of Law, except, in the case of clauses (ii), (iii) and (iv), to the extent that a failure to have such power, authority or right, to qualify and be in good standing or to comply, as the case may be, would not be reasonably likely to have a Material Adverse Effect with respect to such Servicing Party or the Servicer. 3.2. CORPORATE POWER; AUTHORIZATION. Such Servicing Party has the corporate power and authority, and the legal right, to execute, deliver and perform this Agreement and the other Transaction Documents to which it is a party and has taken all necessary corporate action to authorize the execution, delivery and performance of this Agreement and the other Transaction Documents to which it is a party. No consent or authorization of, filing with, notice to or other act by or in respect of, any Governmental Authority or any other Person is required in connection with the execution, delivery, performance, validity or enforceability of this Agreement and the other Transaction Documents to which it is a party by or against such Servicing Party other than (i) those consents which have duly been obtained or made and are in full force and effect on the 11 Initial Closing Date or the relevant Issuance Date, as the case may be, (ii) any filings of UCC-1 financing statements necessary to perfect the Company's or the Trust's interest in the Receivables and the Related Property, (iii) those that may be required under state securities or "blue sky" laws in connection with the offering or sale of Certificates and (iv) any such consent, authorization, filing, notice or other act, the absence of which would not be reasonably likely to have a Material Adverse Effect with respect to such Servicing Party or the Servicer. This Agreement and each other Transaction Document to which it is a party have been duly executed and delivered on behalf of such Servicing Party. 3.3. ENFORCEABILITY. This Agreement and each other Transaction Document to which it is a party constitute the legal, valid and binding obligation of such Servicing Party enforceable against it in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect affecting the enforcement of creditors' rights generally and except as such enforceability may be limited by general principles of equity (whether considered in a proceeding at law or in equity). 3.4. NO LEGAL BAR. The execution, delivery and performance of this Agreement and each other Transaction Document to which it is a party will not violate any Requirement of Law or Contractual Obligation of such Servicing Party (other than any violation which would not be reasonably likely to have a Material Adverse Effect with respect to such Servicing Party or the Servicer), and will not result in, or require, the creation or imposition of any Lien (other than Permitted Liens) on any of its properties or revenues pursuant to any such Requirement of Law or Contractual Obligation. 3.5. NO MATERIAL LITIGATION. (a) Except as disclosed in RS's Form 10-Q for the quarter ended September 28, 1996, there are no actions, suits, investigations or proceedings at law or in equity or by or before any arbitrator, court or Governmental Authority now pending or, to the knowledge of such Servicing Party, threatened against or affecting it or any of its properties, revenues or rights which (i) involve this Agreement, any of the other Transaction Documents to which such Servicing Party is a party or any of the transactions contemplated hereby or thereby or (ii) if adversely determined, could individually or in the aggregate result in a Material Adverse Effect with respect to such Servicing Party or the Servicer. (b) Such Servicing Party is not in default under or with respect to any Requirement of Law where such default would be reasonably likely to have a Material Adverse Effect with respect to such Servicing Party or the Servicer. The transactions hereunder and the use of the proceeds thereof will not violate any Requirement of Law. 3.6. NO DEFAULT. Such Servicing Party is not in default under or with respect to any of its Contractual Obligations in any respect which would be reasonably likely to have a Material Adverse Effect with respect to such Servicing Party or the Servicer. No Servicer Default or Potential Servicer Default has occurred and is continuing. 12 3.7. SERVICING ABILITY. As of the related Issuance Date, there has not been since the date of this Agreement any material adverse change in the ability of such Servicing Party to perform its obligations as Servicer under any Transaction Document. 3.8. LOCATION OF RECORDS. The offices at which such Servicing Party keeps its records concerning the Receivables serviced by it either (i) are located at the addresses set forth on Schedule II to the Receivables Sale Agreement or (ii) have been notified to the Company and the Trustee in accordance with the provisions of Section 4.9. The chief executive office of such Servicing Party is located at one of such locations and is the place where such Servicing Party is "located" for the purposes of Section 9-103(3)(d) of the UCC as in effect in the State of New York. ARTICLE IV COVENANTS OF THE SERVICER AND THE SUB-SERVICERS 4.1. DELIVERY OF DAILY REPORTS. Unless otherwise specified in the Supplement with respect to any Series, for each Business Day (a "REPORTED DAY") and with respect to each Outstanding Series, the Servicer shall submit to the Trustee and the relevant Agent, if any, no later than 1:00 p.m., New York City time, on the second Business Day following each Reported Day, a written report substantially in the form attached to the related Supplement of each such Series (the "DAILY REPORT") setting forth for the Reported Day total Collections, Receivables and Eligible Receivables created, and such other information as the Trustee or such Agent may reasonably request. The Daily Report may be delivered in an electronic format mutually agreed upon by the Servicer and the Trustee, or pending such agreement, by facsimile. By delivery of a Daily Report, the Servicer shall be deemed to have made a representation and warranty that all information set forth therein is true and correct. 4.2. DELIVERY OF MONTHLY SETTLEMENT STATEMENT. Unless otherwise specified in the Supplement with respect to any Outstanding Series, the Servicer hereby covenants and agrees that it shall deliver to the Trustee, each Agent and each Rating Agency by 11:00 a.m., New York City time, on each Settlement Report Date, a certificate of a Responsible Officer of the Servicer substantially in the form attached to the related Supplement of each such Series (a "MONTHLY SETTLEMENT STATEMENT") setting forth, as of the last day of the Settlement Period most recently ended and for such Settlement Period, (a) the information described in the form of such Monthly Settlement Statement, with such changes as may be agreed to by the Servicer and the Trustee, subject to satisfaction of the Rating Agency Condition (unless a Responsible Officer of the Servicer certifies that such changes could not reasonably be expected to have a materially adverse effect on the interests of the Trust or the Investor Certificateholders for the applicable Series under the Transaction Documents) and (b) such other information as the Trustee may reasonably request. Such certificate shall include a certification by a Responsible Officer of the Servicer that, to the best of such Responsible Officer's knowledge, the information contained therein is true and correct and the Servicer has performed in all material respects all of its obligations under each Transaction Document throughout such preceding Settlement Period (or, if there has been a 13 material default in the performance of any such obligation, specifying each such default known to such officer and the nature and status thereof). A copy of each Monthly Settlement Statement may be obtained by any Investor Certificateholder upon a request in writing to the Trustee addressed to the Corporate Trust Office. 4.3. DELIVERY OF QUARTERLY SERVICER'S CERTIFICATE. The Servicer agrees that it shall deliver to the Trustee, each Agent and each Rating Agency, a certificate of a Responsible Officer of the Servicer, substantially in the form of Exhibit A hereto, stating that: (a) a review of the activities of each of the Company and the Servicer during the preceding calendar quarter (or in the case of the first such certificate issued after the Initial Closing Date, during the period from the Initial Closing Date) and of its performance under each Transaction Document was made under the supervision of such Responsible Officer; and (b) to the best of such Responsible Officer's knowledge, based on such review, (i) each of the Company and the Servicer has performed in all material respects its obligations under each Transaction Document throughout the period covered by such certificate (or, if there has been a material default in the performance of any such obligation, specifying each such default known to such Responsible Officer and the nature and status thereof) and (ii) each Daily Report and Monthly Settlement Statement delivered during such period was accurate and correct in all material respects, except as specified in such certificate. Such certificate shall be delivered by the Servicer within 45 days after the end of each calendar quarter commencing with the quarter ending on or about December 31, 1996. A copy of such certificate may be obtained by any Investor Certificateholder by a request in writing to the Trustee addressed to the Corporate Trust Office. 4.4. DELIVERY OF INDEPENDENT PUBLIC ACCOUNTANTS' SERVICING REPORTS. The Servicer shall cause Independent Public Accountants to furnish to the Company, the Trustee and each Rating Agency within 75 days following the last day of each fiscal year of the Servicer (commencing with the fiscal year ending on or about June 30, 1997) a letter to the effect that such firm has performed certain agreed upon procedures (as set forth in Exhibit B hereto) relating to the Servicer and each Sub-Servicer with respect to the Receivables and each such Person's performance hereunder during the preceding fiscal year and describing such firm's findings with respect to such procedures. A copy of such report may be obtained by any Investor Certificateholder upon a request in writing to the Trustee addressed to the Corporate Trust Office. 4.5. NO GUARANTEE OR ASSUMPTION OF COMPANY'S LIABILITIES. Each Servicing Party hereby covenants and agrees that it will not guarantee or assume the obligations or liabilities of the Company under the Pooling and Servicing Agreements, or any other obligations or liabilities of the Company, in an aggregate amount exceeding $25,000 at any one time outstanding. 14 4.6. EXTENSION, AMENDMENT AND ADJUSTMENT OF RECEIVABLES; AMENDMENT OF AND COMPLIANCE WITH POLICIES. (a) Each Servicing Party hereby covenants and agrees with the Trustee that it shall not extend, rescind, cancel, amend or otherwise modify, or attempt or purport to extend, rescind, cancel, amend or otherwise modify, the terms of, or grant any Dilution Adjustment to, any Receivable, or otherwise take any action which is intended to cause or permit an Eligible Receivable to cease to be an Eligible Receivable, except in any such case (i) in accordance with the terms of the Policies, (ii) as required by any Requirement of Law or (iii) in the case of any Dilution Adjustments (whether or not permitted by any other clause of this sentence), upon the payment by or on behalf of the applicable Seller of a Seller Adjustment Payment pursuant to Section 2.05 of the Receivables Sale Agreement. Any Dilution Adjustment authorized to be made pursuant to the preceding sentence shall result in the reduction, on the Business Day on which such Dilution Adjustment arises or is identified, in the aggregate Principal Amount of Receivables used to calculate the Aggregate Receivables Amount. If, as a result of such a reduction, the Aggregate Receivables Amount is less than the Aggregate Target Receivables Amount, the Company (in addition to the obligation of the applicable Seller under the Receivables Sale Agreement in respect of such Dilution Adjustment) shall be required to pay into the Series Principal Collection Sub-subaccount with respect to each Outstanding Series in immediately available funds within one Business Day of such determination such Series' PRO RATA share of the amount (the "CASH DILUTION PAYMENT") by which the Aggregate Target Receivables Amount exceeds the Aggregate Receivables Amount. (b) No Servicing Party shall make or permit to be made any change or modification to the Policies in any material respect, except (i) if such changes or modifications are necessary under any Requirement of Law, (ii) if such changes or modifications would not reasonably be expected to have a Material Adverse Effect with respect to the Servicer or (iii) if the Rating Agency Condition is satisfied with respect thereto. The Servicer shall provide notice to the Company, the Trustee and each Rating Agency of any modification of the Policies. (c) Each Servicing Party shall perform its obligations in accordance with and comply in all material respects with the Policies. 4.7. PROTECTION OF INVESTOR CERTIFICATEHOLDERS' RIGHTS. Each Servicing Party hereby agrees with the Trustee that it shall take no action, nor intentionally omit to take any action, which could reasonably be expected to materially adversely impair the rights, remedies or interests of the Investor Certificateholders under the Transaction Documents in respect of the Receivables, nor shall it reschedule, revise or defer payments due on any Receivable except in accordance with the Policies or Section 4.6 above. 4.8. SECURITY INTEREST. Each Servicing Party hereby covenants and agrees that it shall not sell, pledge, assign or transfer to any other Person, or grant, create, incur, assume or suffer to exist any Lien on, any Receivable sold and assigned to the Company or the Trust, whether now existing or hereafter created, or any interest therein, and such Servicing Party shall defend the right, title and interest of the Company and the Trust in, to and under any Receivable sold and assigned to the Company or the Trust, whether now existing or hereafter created, against all claims of third parties claiming through or under such Servicing Party or the Company; 15 PROVIDED, HOWEVER, that nothing in this Section 4.8 shall prevent or be deemed to prohibit any Servicing Party from suffering to exist upon any of the Receivables any Permitted Liens described in clauses (i) and (v) of the definition thereof or any security interests granted prior to the date hereof pursuant to the Original Rykoff RSA or the USFAR RSA. 4.9. LOCATION OF RECORDS. Each Servicing Party hereby covenants and agrees that it (a) shall not move its chief executive office or any of the offices where it keeps its records with respect to the Receivables outside of the location specified in respect thereof on Schedule II to the Receivables Sale Agreement, in any such case, without giving 30 days' prior written notice to the Company, the Trustee and the Rating Agencies and (b) shall promptly take all actions reasonably required (including but not limited to all filings and other acts necessary or reasonably requested by the Trustee as being advisable under the UCC) in order to continue the valid and enforceable interest of the Trust in all Receivables now owned or hereafter created. 4.10. VISITATION RIGHTS. (a) Each Servicing Party shall, at any reasonable time during normal business hours on any Business Day and from time to time, upon reasonable prior notice, according to such Servicing Party's normal security and confidentiality requirements, permit (i) the Company, the Trustee, any Agent or any of their respective agents or representatives (A) to examine and make copies of and abstracts from the records, books of account and documents (including computer tapes and disks) of such Servicing Party relating to the Receivables and (B) following the termination of the appointment of such Servicing Party, to be present at the offices and properties of such Servicing Party to administer and control the Collection of the Receivables and (ii) the Company, the Trustee, any Agent or any of their respective agents or representatives to visit the properties of such Servicing Party to discuss the affairs, finances and accounts of such Servicing Party relating to the Receivables or such Servicing Party's performance hereunder or under any of the other Transaction Documents to which it is a party with any of its officers or directors and with its independent certified public accountants; PROVIDED that the Company, the Trustee or such Agent, as the case may be, shall notify such Servicing Party prior to any contact with such accountants and shall give such Servicing Party the opportunity to participate in such discussions. (b) Each Servicing Party shall provide the Trustee with such other information as the Trustee may reasonably request in connection with the fulfillment of the Trustee's obligations under any Pooling and Servicing Agreement. 4.11. LOCKBOX AGREEMENT; LOCKBOX ACCOUNTS. The Servicer shall (a) maintain, and keep in full force and effect, each Lockbox Agreement, except to the extent otherwise permitted under the terms of the Transaction Documents, and (b) ensure that each related Lockbox Account shall be free and clear of, and defend each such Lockbox Account against, any writ, order, stay, judgment, warrant of attachment or execution or similar process. 4.12. DELIVERY OF FINANCIAL STATEMENTS. The Servicer shall furnish to the Trustee and the Rating Agencies: 16 (a) as soon as available, but in any event not later than 95 days after the end of each fiscal year of RS, and so long as US Foodservice is the Servicer, a copy of the audited consolidated balance sheets of RS as at the end of such fiscal year and the related consolidated statements of operations, shareholders' equity and cash flows of RS for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year (except, in the case of the audited financial statements for the 1997 fiscal year, such financial statements will include a footnote describing revenues and operating income for the preceding fiscal year (which shall reflect any significant acquisitions occurring during such year)), and accompanied by the opinion of Arthur Andersen & Co. LLP or another nationally-recognized independent public accounting firm, which report shall state that such consolidated financial statements present fairly the financial position and results of operations and changes in cash flow for the periods indicated in conformity with GAAP applied on a basis consistent with prior years. Such opinion shall not be qualified or limited because of a restricted or limited examination by such accountant of any material portion of RS's or any of its Subsidiaries' records; and (b) as soon as practicable, but in any event not later than 50 days after the end of each fiscal quarter, a copy of the unaudited consolidated balance sheets of RS and the Sellers as at the end of such quarter and the related consolidated statements of operations, shareholders' equity and cash flows of RS and the Sellers for such fiscal quarter, and for the elapsed portion of the fiscal year then ended, certified by an appropriate Responsible Officer as being complete and correct and fairly presenting the financial position and the results of operations of RS and the Sellers, setting forth in each case in comparative form the figures as of and for the corresponding dates and periods in the previous fiscal year (accompanied in the case of the fiscal 1997 quarterly financial statements by a footnote describing revenues and operating income for the prior periods (which shall reflect any significant acquisitions occurring during such prior periods)). All such financial statements shall be complete and correct in all material respects and shall be prepared in reasonable detail and in accordance with GAAP applied consistently throughout the periods reflected therein and with prior periods (except as approved by such accountants or officer, as the case may be, and disclosed therein). 4.13. NOTICES. The Servicer shall furnish to the Company, the Trustee and each Rating Agency, promptly upon a Responsible Officer of the Servicer obtaining knowledge of the occurrence of any Purchase Termination Event, Potential Purchase Termination Event (each as defined in the Receivables Sale Agreement), Early Amortization Event, Potential Early Amortization Event, Servicer Default or Potential Servicer Default, written notice thereof. 17 ARTICLE V OTHER MATTERS RELATING TO THE SERVICER AND THE SUB-SERVICERS 5.1. MERGER, CONSOLIDATION, ETC. No Servicing Party shall consolidate with or merge into any other corporation or convey or transfer its properties and assets substantially as an entirety to any Person (other than the Servicer or another Servicing Party), unless: (a) the corporation formed by such consolidation or into which such Servicing Party is merged or the Person which acquires by conveyance or transfer the properties and assets of such Servicing Party substantially as an entirety shall be a corporation organized and existing under the laws of the United States of America or any State thereof or the District of Columbia, and, if such Servicing Party is not the surviving entity, such corporation shall assume, without the execution or filing of any paper or any further act on the part of any of the parties hereto (except as may be required in the context of an acquisition by conveyance or transfer of the properties and assets of such Servicing Party substantially as an entirety to such other Person), the performance of every covenant and obligation of such Servicing Party hereunder; and (b) such Servicing Party has delivered to the Trustee an officer's certificate executed by a Vice President or more senior officer and an Opinion of Counsel addressed to the Trust and the Trustee, each stating (i) that such consolidation, merger, conveyance or transfer complies with this Section 5.1 and (ii) that all conditions precedent herein provided for relating to such transaction have been complied with; PROVIDED that such Opinion of Counsel, in the case of clause (ii) above, may, to the extent that such opinion concerns questions of fact, rely on such officer's certificate with respect to such questions of fact. 5.2. INDEMNIFICATION OF THE TRUST AND THE TRUSTEE. (a) The Servicer hereby agrees to indemnify and hold harmless the Trust and the Trustee, for the benefit of the Investor Certificateholders and the Trustee and its directors, officers, agents and employees (each of the foregoing, an "INDEMNIFIED PERSON"), from and against any loss, liability, expense, damage or injury suffered or sustained by reason of any acts, omissions or alleged acts or omissions arising out of, or relating to, activities of the Servicer pursuant to the Pooling and Servicing Agreements, including but not limited to any judgment, award, settlement, reasonable attorneys' fees and other reasonable costs or expenses incurred in connection with the defense of any actual or threatened action, proceeding or claim; PROVIDED that the Servicer shall not so indemnify any Indemnified Person for any loss, liability, damage, injury, cost or expense of such Indemnified Person (i) arising solely from a default by an Obligor with respect to any Receivable (other than arising out of (A) any discharge, claim, offset or defense (other than discharge in bankruptcy of the Obligor) of the Obligor to the payment of any Purchased Receivable (as defined in the Receivables Sale Agreement) arising from the actions of the Servicer (including, without limitation, a defense based on such Purchased Receivable's not being a legal, valid and binding obligation of such Obligor enforceable against it in accordance with its terms), or (B) a failure by the Servicer to perform its duties or obligations under this Agreement), or (ii) to the extent that such liability, cost or expense 18 arises from the gross negligence (or, in the case of the Trustee, negligence), bad faith or wilful misconduct of such Indemnified Person or any other Indemnified Person (or any of their respective directors, officers, agents or employees). The provisions of this indemnity shall run directly to, and be enforceable by, an injured party and shall survive the termination of this Agreement and the resignation of the Servicer. (b) In addition to and without giving effect to any limitations set forth in subsection (a) above, the Servicer agrees to pay, indemnify and hold each Indemnified Person harmless from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may at any time be imposed on, incurred by or asserted against such Indemnified Person in any way relating to or arising out of any Servicing Party's breach of any covenant contained in subsections 2.2(f), 2.2(g), 4.6, 4.7 or 4.8 with respect to any Receivable which materially and adversely affects the interest of the Trust or the Investor Certificateholders pursuant to the Transaction Documents in any Receivable or the collectibility of any Receivable (an "INDEMNIFICATION EVENT"). (c) The Servicer shall indemnify the relevant Indemnified Person for such affected Receivable pursuant to subsection 5.2(b) by depositing into the Collection Account in immediately available funds no later than the next Settlement Report Date occurring at least 30 days after receipt by the Servicer of written notice of an Indemnification Event given by the applicable Seller, the Company or the Trustee or upon a Responsible Officer of the Servicer obtaining knowledge of an Indemnification Event, an amount equal to the outstanding Principal Amount of such Receivable (the "SERVICER INDEMNIFICATION AMOUNT"). Upon each such indemnification by the Servicer, the Trust shall automatically and without further action be deemed to transfer, assign, and set over, and otherwise convey to the Servicer, without recourse, representation or warranty, all right, title and interest of the Trust in and to such Receivable, all monies due or to become due with respect thereto and all proceeds thereof; and such Receivable shall be treated by the Trust as collected in full as of the date on which it was transferred. The Trustee shall execute such documents and instruments of transfer or assignment and take such other actions as shall be reasonably requested by the Servicer to effect the conveyance of any Receivable pursuant to this subsection. The obligation of the Servicer to indemnify the Trust for any such Receivables shall constitute the sole remedy respecting any breach of the covenants set forth in subsection 2.2(f), 2.2(g), 4.6, 4.7 or 4.8 with respect to such Receivables available to Investor Certificateholders. 5.3. SERVICER NOT TO RESIGN. The Servicer shall not resign from the obligations and duties hereby imposed on it except (a) upon determination that (i) the performance of its duties hereunder is no longer permissible under applicable law and (ii) there is no reasonable action which the Servicer could take to make the performance of its duties hereunder permissible under applicable law or (b) if the Servicer is terminated as Servicer pursuant to Section 6.1. Any such determination permitting the resignation of the Servicer shall be evidenced as to clause (a)(i) above by an Opinion of Counsel to such effect delivered to the Trustee. No such resignation shall become effective until a Successor Servicer or the Trustee shall have assumed the responsibilities and obligations of the Servicer in accordance with Section 6.2. The Trustee, the Company and each Rating Agency shall be notified of such resignation in writing. 19 5.4. ACCESS TO CERTAIN DOCUMENTATION AND INFORMATION REGARDING THE RECEIVABLES. The Servicer and the other Servicing Parties will hold in trust for the Trustee at their respective offices such computer programs, books of account and other records as are reasonably necessary to enable the Trustee to determine at any time the status of the Receivables and all collections and payments in respect thereof (including, without limitation, an ability to recreate records evidencing Receivables in the event of the destruction of the originals thereof). ARTICLE VI SERVICER DEFAULTS 6.1. SERVICER DEFAULTS. If, with respect to any Servicing Party, any one of the following events (a "SERVICER DEFAULT") shall occur and be continuing: (a) failure by the Servicer to deliver, within two Business Days of the earlier date set forth below in clause (i) or (ii), any Daily Report or, within three Business Days of the earlier date set forth below in clause (i) or (ii), any Monthly Settlement Statement, in each case conforming in all material respects to the requirements of Section 4.1 or 4.2, as the case may be, after the earlier to occur of, in each case, (i) the date upon which a Responsible Officer of the Servicer obtains knowledge of the Servicer's failure to deliver such a conforming Daily Report or Monthly Settlement Statement when due under Section 4.1 or 4.2 and (ii) the date on which written notice of the Servicer's failure to deliver such a conforming Daily Report or Monthly Settlement Statement when due under Section 4.1 or 4.2, requiring the same to be remedied, shall have been given to the Servicer by the Company or the Trustee, or to the Company, the Servicer and the Trustee by holders of Investor Certificates evidencing 25% or more of the Aggregate Invested Amount or by any Agent; (b) failure by such Servicing Party to pay any amount required to be paid by it under the Agreement or to give any direction with respect to the allocation or transfer of funds under any Pooling and Servicing Agreement, in each case on or before the date occurring five Business Days after the earlier to occur of (i) the date upon which a Responsible Officer of such Servicing Party obtains knowledge of such failure and (ii) the date on which written notice of such failure, requiring the same to be remedied, shall have been given to such Servicing Party by the Company or the Trustee, or to the Company, the Servicer and the Trustee by holders of Investor Certificates evidencing 25% or more of the Aggregate Invested Amount or by any Agent; (c) failure on the part of such Servicing Party duly to observe or perform in any material respect any other covenants or agreements of such Servicing Party set forth in any Pooling and Servicing Agreement, which failure has a material adverse effect on the holders of any Outstanding Series or on the collectibility of the Receivables as a whole and which material adverse effect continues unremedied for 30 days after the earlier to occur of (i) the date upon which a Responsible Officer of such Servicing Party obtains 20 knowledge of such failure or (ii) the date on which written notice of such failure, requiring the same to be remedied, shall have been given to the Company and the Servicer by the Trustee, or to the Company, the Servicer and the Trustee by holders of Investor Certificates evidencing 25% or more of the Aggregate Invested Amount or by any Agent; PROVIDED that no Servicer Default shall be deemed to occur under this subsection (c) if any Servicing Party shall have complied with the provisions of subsections 5.2(b) and (c) with respect thereto; (d) any representation, warranty or certification made by such Servicing Party in any Pooling and Servicing Agreement or in any certificate delivered pursuant thereto shall prove to have been incorrect when made or deemed made, which incorrectness has a material adverse effect on the holders of any Outstanding Series or on the collectibility of the Receivables as a whole and which material adverse effect continues unremedied for 30 days after the earlier to occur of (i) the date upon which a Responsible Officer of such Servicing Party obtains knowledge of such failure or (ii) the date on which written notice of such failure, requiring the same to be remedied, shall have been given to the Company and the Servicer by the Trustee, or to the Company, the Servicer and the Trustee by holders of Investor Certificates evidencing 25% or more of the Aggregate Invested Amount or by any Agent; PROVIDED that no Servicer Default shall be deemed to occur under this subsection (d) if any Servicing Party shall have complied with the provisions of subsections 5.2(b) and (c) with respect thereto; (e) (i) such Servicing Party 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 or other similar official for it or for all or any substantial part of its assets, or such Servicing Party shall make a general assignment for the benefit of its creditors; or (ii) there shall be commenced against such Servicing Party 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 such Servicing Party 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 such days from the entry thereof; or (iv) such Servicing Party shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clauses (i), (ii), or (iii) above; or (v) such Servicing Party shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due; or 21 (f) there shall have occurred and be continuing a Purchase Termination Event under the Receivables Sale Agreement; then, in the event of any Servicer Default, so long as the Servicer Default shall not have been remedied (or waived in accordance with the terms of the Transaction Documents), the Trustee may, and at the written direction of the holders of Investor Certificates evidencing more than 50% of the Aggregate Invested Amount voting as a single class, the Trustee shall, by notice then given in writing to such Servicing Party, each Agent and each Rating Agency (a "TERMINATION NOTICE"), terminate all or any part of the rights and obligations of such Servicing Party as Servicer or as a Sub-Servicer, as the case may be, under the Pooling and Servicing Agreements. Notwithstanding anything to the contrary in this Section 6.1, a delay in or failure of performance referred to under clause (b) above for a period of 10 Business Days after the applicable grace period or a delay in or failure of performance referred to under clauses (a), (c) or (d) above for a period of 30 Business Days after the applicable grace period shall not constitute a Servicer Default, if such delay or failure could not have been prevented by the exercise of reasonable diligence by such Servicing Party and such delay or failure was caused by a Force Majeure Delay. After receipt by a Servicing Party of a Termination Notice, and on the date that a Successor Servicer shall have been appointed by the Trustee pursuant to Section 6.2, all authority and power of such Servicing Party under any Pooling and Servicing Agreement to the extent specified in such Termination Notice shall pass to and be vested in a Successor Servicer (a "SERVICE TRANSFER"); and, without limitation, the Trustee is hereby authorized and empowered (upon the failure of a Servicing Party to cooperate) to execute and deliver, on behalf of such Servicing Party, as attorney-in-fact or otherwise, all documents and other instruments upon the failure of such Servicing Party to execute or deliver such documents or instruments, and to do and accomplish all other acts or things necessary or appropriate to effect the purposes of such Service Transfer. Each Servicing Party agrees to cooperate with the Trustee and such Successor Servicer in effecting the termination of the responsibilities and rights of a Servicing Party to conduct servicing hereunder, including, without limitation, the transfer to such Successor Servicer of all authority of a Servicing Party to service the Receivables provided for under the Pooling and Servicing Agreements, including, without limitation, all authority over all Collections which shall on the date of transfer be held by a Servicing Party for deposit, or which have been deposited by a Servicing Party, in the Collection Account, or which shall thereafter be received with respect to the Receivables, and in assisting the Successor Servicer. Upon a Service Transfer, the relevant Servicing Party shall promptly (x) assemble all of its documents, instruments and other records (including credit files, licenses, rights, copies of all relevant computer programs and any necessary licenses for the use thereof, related material, computer tapes, disks, cassettes and data) that (i) evidence or will evidence or record Receivables sold and assigned to the Trust and (ii) are otherwise necessary or desirable to enable a Successor Servicer to effect the immediate Collection of such Receivables, with or without the participation of the applicable Seller and Servicing Party or the Servicer and (y) deliver or license the use of all of the foregoing documents, instruments and other records to the Successor Servicer at a place designated thereby. In recognition of such Servicing Party's need to have access to any such documents, instruments and other records which may be transferred to such Successor Servicer hereunder, whether as a result of its continuing responsibility as a servicer of accounts receivable which are not sold and assigned to the Trust or otherwise, such Successor Servicer shall provide to such Servicing Party reasonable access to 22 such documents, instruments and other records transferred by such Servicing Party to it in connection with any activity arising in the ordinary course of such Servicing Party's business; PROVIDED that such Servicing Party shall not disrupt or otherwise interfere with the Successor Servicer's use of and access to such documents, instruments and other records. To the extent that compliance with this Section 6.1 shall require a Servicing Party to disclose to the Successor Servicer information of any kind which such Servicing Party reasonably deems to be confidential, the Successor Servicer shall be required to enter into such customary licensing and confidentiality agreements as such Servicing Party shall deem necessary to protect its interest. All costs and expenses incurred by the defaulting Servicing Party, the Successor Servicer and the Trustee in connection with any Service Transfer shall be for the account of such defaulting Servicing Party. 6.2. TRUSTEE TO ACT; APPOINTMENT OF SUCCESSOR. (a) On and after (i) the receipt by a Servicing Party of a Termination Notice pursuant to Section 6.1 or (ii) the date on which such Servicing Party notifies the Trustee, the Company, each Agent and each Rating Agency in writing of its resignation pursuant to Section 5.3 (the "RESIGNATION NOTICE"), such Servicing Party shall continue to perform all servicing functions under the Pooling and Servicing Agreements until the earlier of (x) the date on which a Successor Servicer is appointed and (y) 60 days after the delivery of such Termination Notice or Resignation Notice, as the case may be. The Trustee shall, as promptly as reasonably possible after the giving of or receipt of a Termination Notice or Resignation Notice, as the case may be, appoint an Eligible Successor Servicer as successor servicer (the "SUCCESSOR SERVICER"); PROVIDED that in the event that any Sub-Servicer shall cease to be a Servicing Party for any reason, the Servicer shall be the Successor Servicer with respect to such terminated Sub- Servicer for so long as the Servicer shall continue to serve in its capacity as Servicer under the Pooling and Servicing Agreements. The Successor Servicer shall accept its appointment by a written assumption in a form acceptable to the Trustee. (b) In the event that a Successor Servicer has not been appointed or has not accepted its appointment at the time that the relevant Servicing Party ceases to act as such, the Trustee without further action shall be appointed Successor Servicer, PROVIDED that the Trustee shall only be responsible for the duties and liabilities of such Successor Servicer which are consistent with an orderly collection and liquidation of the Receivables and other Trust Assets in the manner contemplated for such liquidations in Section 7.2 of the Pooling Agreement and the application of such funds in accordance with the Pooling and Servicing Agreements. Consistent with the foregoing, in the event that the Trustee becomes Successor Servicer, the Successor Servicer shall take such collection actions as are commercially reasonable under the circumstances, including, without limitation, electing not to pursue legal collection efforts with respect to Receivables that it reasonably determines to be uncollectible. The Trustee, as Successor Servicer, shall have no liability to the Investor Certificateholders, the Company or the predecessor Servicer in electing such actions. The Trustee may delegate any of its servicing obligations to an affiliate or agent in accordance with subsection 2.2(c). Notwithstanding the above, the Trustee shall, if the Trustee is legally unable so to act, petition a court of competent jurisdiction to appoint any Person qualifying as an Eligible Successor Servicer as the Successor Servicer hereunder. The Servicer shall immediately give notice to each Rating Agency of the receipt of any Termination Notice and the appointment of a Successor Servicer. 23 (c) Upon its appointment, the Successor Servicer shall be the successor in all respects to the Servicing Party to which it is successor with respect to servicing functions under the Pooling and Servicing Agreements (with such changes as are agreed to between such Successor Servicer and the Trustee) and shall be subject to all the responsibilities, duties and liabilities relating thereto placed on such Servicing Party by the terms and provisions hereof, and all references in any Pooling and Servicing Agreement to the Servicer or the Sub-Servicer, as the case may be, shall be deemed to refer to the Successor Servicer. The Successor Servicer shall manage the servicing and administration of the Receivables, the collection of payments due under the Receivables and the charging off of any Receivables as uncollectible, with reasonable care, using that degree of skill and attention that is the customary and usual standard of practice of prudent receivables servicers with respect to all comparable receivables serviced for itself or others. The Successor Servicer shall not be liable for, and the Servicer shall indemnify the Successor Servicer against costs incurred by the Successor Servicer as a result of, any acts or omissions of any Servicing Party or any events or occurrences occurring prior to the Successor Servicer's acceptance of its appointment as Successor Servicer. (d) The Company and the Trustee will review any bids obtained from Eligible Successor Servicers and the Company and the Trustee, or the Company (with the consent of the Trustee), may appoint any Eligible Successor Servicer submitting such a bid as a Successor Servicer for servicing compensation not in excess of the Servicing Fee. (e) All authority and power granted to the Successor Servicer under any Pooling and Servicing Agreement shall automatically cease and terminate on the Trust Termination Date, and shall pass to and be vested in the Company and, without limitation, the Company is hereby authorized and empowered to execute and deliver, on behalf of the Successor Servicer, as attorney-in-fact or otherwise, all documents and other instruments, and to do and accomplish all other acts or things necessary or appropriate to effect the purposes of such transfer of servicing rights from and after the Trust Termination Date. The Successor Servicer agrees to cooperate with the Company in effecting the termination of the responsibilities and rights of the Successor Servicer to conduct servicing on the Receivables. The Successor Servicer shall transfer all of its records relating to the Receivables to the Company in such form as the Company may reasonably request and shall transfer all other records, correspondence and documents to the Company in the manner and at such times as the Company shall reasonably request. To the extent that compliance with this Section 6.2 shall require the Successor Servicer to disclose to the Company information of any kind which the Successor Servicer deems to be confidential, the Company shall be required to enter into such customary licensing and confidentiality agreements as the Successor Servicer shall reasonably deem necessary to protect its interests. 6.3. WAIVER OF PAST DEFAULTS. Holders of Investor Certificates evidencing more than 50% of the Aggregate Invested Amount may waive any continuing default by any Servicing Party or the Company in the performance of their respective obligations hereunder and its consequences, except a default in the failure to make any required deposits or payments in respect of any Series of Certificates, which shall require a waiver by the holders of all of the affected Investor Certificates. Upon any such waiver of a past default, such default shall cease to exist, and any default arising therefrom shall be deemed to have been remedied for every purpose of the 24 Pooling and Servicing Agreements. No such waiver shall extend to any subsequent or other default or impair any right consequent thereon except to the extent expressly so waived. Either the Company or the Servicer shall provide notice to each Rating Agency of any such waiver. ARTICLE VII MISCELLANEOUS PROVISIONS 7.1. AMENDMENT. (a) This Agreement may only be amended, supplemented or otherwise modified from time to time if such amendment, supplement or modification is effected in accordance with the provisions of Section 10.1 of the Pooling Agreement. 7.2. TERMINATION. The respective obligations and responsibilities of the parties hereto shall terminate on the Trust Termination Date (unless such obligations or responsibilities are expressly stated to survive the termination of this Agreement). 7.3. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, AND THE RIGHTS, OBLIGATIONS AND REMEDIES OF EACH OF THE PARTIES HERETO SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS. 7.4. NOTICES. All notices, requests and demands to or upon the respective parties hereto to be effective shall be in writing (including by facsimile), and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made when delivered by hand, or three days after being deposited in the mail, postage prepaid, or, in the case of facsimile notice, when received, addressed as set forth in Section 10.5 of the Pooling Agreement, or to such other address as may be hereafter notified by the respective parties hereto. 7.5. COUNTERPARTS. This Agreement may be executed in two or more counterparts (and by different parties on separate counterparts), each of which shall be an original, but all of which together shall constitute one and the same instrument. Delivery of an executed counterpart of a signature page to this Agreement by facsimile transmission shall be effective as delivery of a manually executed counterpart of this Agreement. 7.6. THIRD-PARTY BENEFICIARIES. This Agreement will inure to the benefit of and be binding upon the parties hereto and the Investor Certificateholders and their respective successors and permitted assigns. Except as otherwise provided in this Article VII, no other person will have any right or obligation hereunder. 7.7. MERGER AND INTEGRATION. Except as specifically stated otherwise herein, this Agreement and the other Transaction Documents set forth the entire understanding of the parties relating to the subject matter hereof, and all prior understandings, written or oral, are superseded 25 by this Agreement and the other Transaction Documents. This Agreement may not be modified, amended, waived, or supplemented except as provided herein. 7.8. HEADINGS. The headings herein are for purposes of reference only and shall not otherwise affect the meaning or interpretation of any provision hereof. 7.9. NO SET-OFF. Except as expressly provided in this Agreement or any other Transaction Document, each Servicing Party agrees that it shall have no right of set-off or banker's lien against, and no right to otherwise deduct from, any funds held in the Collection Account for any amount owed to it by the Company, the Trust, the Trustee or any Investor Certificateholder. 7.10. NO BANKRUPTCY PETITION. Each Servicing Party hereby covenants and agrees that, prior to the date which is one year and one day after the Trust Termination Date, it will not institute against, or join any other Person in instituting against, the Company any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings, or other proceedings under any federal or state bankruptcy or similar law. 7.11. CONSEQUENTIAL DAMAGES. In no event shall The Chase Manhattan Bank, in its capacity as Successor Servicer (if applicable), be liable for special, indirect or consequential loss or damage of any kind whatsoever (including, but not limited to, lost profits), even if it has been advised of the likelihood of such loss or damage and regardless of the form of action. IN WITNESS WHEREOF, the Company, the Servicer, the Sub-Servicers and the Trustee have caused this Agreement to be duly executed by their respective officers as of the day and year first above written. RS FUNDING INC., as Company By: /s/ _________________________ Name: Title: US FOODSERVICE INC., as Servicer By: /s/ ___________________________ Name: Title: RYKOFF-SEXTON, INC., as a Sub-Servicer By: /s/ ___________________________ Name: Title: JOHN SEXTON & CO., as a Sub-Servicer By: /s/ ___________________________ Name: Title: BIGGERS BROTHERS, INC., as a Sub-Servicer By: /s/ ___________________________ Name: Title: WHITE SWAN, INC., as a Sub-Servicer 27 By: /s/ ___________________________ Name: Title: F.H. BEVEVINO & COMPANY, INC., as a Sub- Servicer By: /s/ ___________________________ Name: Title: ROANOKE RESTAURANT SERVICE, INC., as a Sub- Servicer By: /s/ ___________________________ Name: Title: KING'S FOODSERVICE, INC., as a Sub-Servicer By: /s/ ___________________________ Name: Title: US FOODSERVICE OF FLORIDA, INC., as a Sub- Servicer By: /s/ ___________________________ Name: Title: US FOODSERVICE OF ATLANTA, INC., as a Sub- Servicer By: /s/ ___________________________ 28 Name: Title: THE CHASE MANHATTAN BANK, not in its individual capacity but solely as Trustee By: /s/ ___________________________ Name: Title: EX-10.40-3 17 EXHIBIT 10.40.3 POOLING AGREEMENT EXHIBIT 10.40.3 EXECUTION COPY - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- RS FUNDING INC., as Company, US FOODSERVICE INC., as Servicer, and THE CHASE MANHATTAN BANK, as Trustee on behalf of the Holders RYKOFF-SEXTON RECEIVABLES MASTER TRUST POOLING AGREEMENT Dated as of November 15, 1996 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- TABLE OF CONTENTS PAGE ---- ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . 1 1.1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2. Other Definitional Provisions . . . . . . . . . . . . . . . . . . 25 ARTICLE II CONVEYANCE OF RECEIVABLES; ISSUANCE OF CERTIFICATES . . . . . . . . . . . . 26 2.1. Conveyance of Receivables . . . . . . . . . . . . . . . . . . . . 26 2.2. Acceptance by Trustee . . . . . . . . . . . . . . . . . . . . . . 28 2.3. Representations and Warranties of the Company Relating to the Company . . . . . . . . . . . . . . . . . . . 29 2.4. Representations and Warranties of the Company Relating to the Receivables . . . . . . . . . . . . . . . . . 32 2.5. Repurchase of Ineligible Receivables. . . . . . . . . . . . . . . 33 2.6. Purchase of Investor Certificateholders' Interest in Trust Portfolio . . . . . . . . . . . . . . . . . 34 2.7. Affirmative Covenants of the Company. . . . . . . . . . . . . . . 35 2.8. Negative Covenants of the Company . . . . . . . . . . . . . . . . 38 ARTICLE III RIGHTS OF HOLDERS AND ALLOCATION AND APPLICATION OF COLLECTIONS. . . . . . . . 42 3.1. Establishment of Collection Account and Collection Concentration Account; Certain Allocations. . . . . . . . . . 42 ARTICLE IV ARTICLE IV IS RESERVED AND MAY BE SPECIFIED IN ANY SUPPLEMENT WITH RESPECT TO THE SERIES RELATING THERETO . . . . . . . 47 ARTICLE V THE CERTIFICATES AND INTERESTS. . . . . . . . . . . 47 5.1. The Certificates. . . . . . . . . . . . . . . . . . . . . . . . . 47 5.2. Authentication of Certificates. . . . . . . . . . . . . . . . . . 48 -i- PAGE ---- 5.3. Registration of Transfer and Exchange of Certificates. . . . . . . . . . . . . . . . . . . . . . . . . 48 5.4. Mutilated, Destroyed, Lost or Stolen Certificates . . . . . . . . 51 5.5. Persons Deemed Owners . . . . . . . . . . . . . . . . . . . . . . 52 5.6. Appointment of Paying Agent . . . . . . . . . . . . . . . . . . . 52 5.7. Access to List of Investor Certificateholders' Names and Addresses . . . . . . . . . . . . . . . . . . . . . 53 5.8. Authenticating Agent. . . . . . . . . . . . . . . . . . . . . . . 53 5.9. Tax Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . 55 5.10. Company Exchanges . . . . . . . . . . . . . . . . . . . . . . . . 55 5.11. Book-Entry Certificates . . . . . . . . . . . . . . . . . . . . . 57 5.12. Notices to Clearing Agency. . . . . . . . . . . . . . . . . . . . 58 5.13. Definitive Certificates . . . . . . . . . . . . . . . . . . . . . 58 ARTICLE VI OTHER MATTERS RELATING TO THE COMPANY. . . . . . . . . . . . . . . 59 6.1. Liability of the Company. . . . . . . . . . . . . . . . . . . . . 59 6.2. Limitation on Liability of the Company. . . . . . . . . . . . . . 59 6.3. Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 ARTICLE VII EARLY AMORTIZATION EVENTS. . . . . . . . . . . . 60 7.1. Early Amortization Events . . . . . . . . . . . . . . . . . . . . 60 7.2. Additional Rights Upon the Occurrence of Certain Events. . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 ARTICLE VIII THE TRUSTEE . . . . . . . . . . . . . . . 62 8.1. Duties of Trustee . . . . . . . . . . . . . . . . . . . . . . . . 62 8.2. Rights of the Trustee . . . . . . . . . . . . . . . . . . . . . . 64 8.3. Trustee Not Liable for Recitals in Certificates . . . . . . . . . 66 8.4. Trustee May Own Certificates. . . . . . . . . . . . . . . . . . . 66 8.5. Trustee's Fees and Expenses . . . . . . . . . . . . . . . . . . . 66 8.6. Eligibility Requirements for Trustee. . . . . . . . . . . . . . . 67 8.7. Resignation or Removal of Trustee . . . . . . . . . . . . . . . . 67 8.8. Successor Trustee . . . . . . . . . . . . . . . . . . . . . . . . 68 8.9. Merger or Consolidation of Trustee. . . . . . . . . . . . . . . . 69 8.10. Appointment of Co-Trustee or Separate Trustee . . . . . . . . . . 69 8.11. Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 8.12. Trustee May Enforce Claims Without Possession of Certificates . . . . . . . . . . . . . . . . . . . . . . . 70 8.13. Suits for Enforcement . . . . . . . . . . . . . . . . . . . . . . 71 -ii- PAGE ---- 8.14. Rights of Investor Certificateholders to Direct Trustee. . . . . . . . . . . . . . . . . . . . . . . . 71 8.15. Representations and Warranties of Trustee . . . . . . . . . . . . 71 8.16. Maintenance of Office or Agency . . . . . . . . . . . . . . . . . 72 8.17. Limitation of Liability . . . . . . . . . . . . . . . . . . . . . 72 ARTICLE IX TERMINATION . . . . . . . . . . . . . . . 72 9.1. Termination of Trust; Liquidation of Receivables . . . . . . . . . . . . . . . . . . . . . . . . . 72 9.2. Clean-Up Call and Final Termination Date of Investor Certificates of any Series . . . . . . . . . . . . . 73 9.3. Final Payment with Respect to Any Series. . . . . . . . . . . . . 74 9.4. Company's Termination Rights. . . . . . . . . . . . . . . . . . . 75 ARTICLE X MISCELLANEOUS PROVISIONS . . . . . . . . . . . . 75 10.1. Amendment. . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 10.2. Protection of Right, Title and Interest to Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 10.3. Limitation on Rights of Holders. . . . . . . . . . . . . . . . . 77 10.4. Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . 78 10.5. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 10.6. Severability of Provisions . . . . . . . . . . . . . . . . . . . 79 10.7. Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 10.8. Certificates Nonassessable and Fully Paid. . . . . . . . . . . . 79 10.9. Further Assurances . . . . . . . . . . . . . . . . . . . . . . . 79 10.10. No Waiver; Cumulative Remedies . . . . . . . . . . . . . . . . . 80 10.11. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . 80 10.12. Third-Party Beneficiaries. . . . . . . . . . . . . . . . . . . . 80 10.13. Actions by Holders . . . . . . . . . . . . . . . . . . . . . . . 80 10.14. Merger and Integration . . . . . . . . . . . . . . . . . . . . . 80 10.15. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 10.16. Construction of Agreement. . . . . . . . . . . . . . . . . . . . 80 10.17. No Set-Off . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 10.18. No Bankruptcy Petition . . . . . . . . . . . . . . . . . . . . . 81 10.19. Limitation of Liability. . . . . . . . . . . . . . . . . . . . . 81 10.20. Certain Information. . . . . . . . . . . . . . . . . . . . . . . 82 10.21. Inclusion of Excluded Receivables. . . . . . . . . . . . . . . . 82 -iii- EXHIBITS Exhibit A-1 Form of Lockbox Agreement Exhibit A-2 Alternative Form of Lockbox Agreement Exhibit B Form of Annual Opinion of Counsel Exhibit C Internal Operating Procedures Memorandum Exhibit D Form of Eligible Segregated Account Bank Acknowledgement SCHEDULES Schedule 1 Receivables Schedule 2 Identification of the Trust Accounts Schedule 3 Actions with respect to Chattel Paper Schedule 4 Location of Chief Executive Office Schedule 5 Contractual Obligations APPENDICES Appendix A Description of Servicer Site Review Procedures Appendix B Description of Standby Liquidation System -iv- POOLING AGREEMENT, dated as of November 15, 1996, among RS Funding Inc., a Nevada corporation (the "COMPANY"); US Foodservice Inc., a Delaware corporation ("US FOODSERVICE"), in its capacity as servicer (the "SERVICER"); and The Chase Manhattan Bank, a New York banking corporation, not in its individual capacity, but solely as trustee (in such capacity, the "TRUSTEE"). W I T N E S S E T H : WHEREAS, as of the date hereof, (i) Rykoff-Sexton Funding Corporation, a Nevada corporation ("RYKOFF FUNDING"), USFAR Inc., a Nevada corporation ("USFAR"), and the Company are entering into an SPC Receivables Sale Agreement (as amended, supplemented or otherwise modified from time to time, the "SPC RECEIVABLES SALE AGREEMENT"), (ii) the Company, the Servicer and the Sellers (as hereinafter defined) are entering into a Receivables Sale Agreement (as amended, supplemented or otherwise modified from time to time, the "RECEIVABLES SALE AGREEMENT") and (iii) the Company, the Servicer, the Sellers, in their capacities as servicers of the Receivables (in such capacities, the "SUB-SERVICERS"), and the Trustee are entering into a Servicing Agreement (as amended, supplemented or otherwise modified from time to time, the "SERVICING AGREEMENT"); and WHEREAS, the parties hereto wish to enter into this Agreement in order to create a master trust to which the Company will transfer all of its right, title and interest in, to and under the Receivables and other Trust Assets now or hereafter owned by the Company and such master trust shall, from time to time at the direction of the Company, issue one or more Series of Investor Certificates which shall represent interests in the Receivables and such other Trust Assets as specified herein and in the Supplement related to such Series. NOW, THEREFORE, in consideration of the premises and of the mutual covenants herein contained, the parties hereto agree as follows: ARTICLE I DEFINITIONS Section 1.1. DEFINITIONS. Whenever used in this Agreement, the following words and phrases shall have the following meanings: "ACCOUNTS" shall have the meaning specified in subsection 2.1(a)(v) of this Agreement. "ADJUSTED INVESTED AMOUNT" shall have, with respect to any Outstanding Series, the meaning assigned to such term in the related Supplement for such Series. POOLING AGREEMENT 2 "AFFILIATE" shall mean, with respect to any specified Person, any other Person which, directly or indirectly, is in control of, is controlled by, or is under common control with, such Person; PROVIDED that a Person shall not be deemed an Affiliate of another Person solely by reason of an individual serving as an officer or director of such other Person. For purposes of this definition, "control" of a Person means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or otherwise, and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "AGENT" shall mean, with respect to any Series, the Person or Persons, if any, so designated in the related Supplement. "AGGREGATE ADJUSTED INVESTED AMOUNT" shall mean, with respect to any date of determination, the sum of the Adjusted Invested Amounts with respect to all Outstanding Series on such date of determination. "AGGREGATE ALLOCATED RECEIVABLES AMOUNT" shall mean, with respect to any date of determination, the sum of the Allocated Receivables Amounts with respect to all Outstanding Series on such date of determination. "AGGREGATE DAILY COLLECTIONS" shall mean, with respect to any Business Day, the aggregate amount of all Collections deposited into the Collection Account on such day. "AGGREGATE INVESTED AMOUNT" shall mean, at any date of determination, the sum of the Invested Amounts with respect to all Outstanding Series on such date of determination. "AGGREGATE OVERCONCENTRATION AMOUNT" shall mean, with respect to any date of determination, the sum of the Overconcentration Amounts of all Eligible Obligors at the end of the preceding Business Day. "AGGREGATE RECEIVABLES AMOUNT" shall mean, with respect to any date of determination, (i) the aggregate Principal Amount of all Eligible Receivables in the Trust at the end of the Business Day immediately preceding such date less the Aggregate Overconcentration Amount for such date MINUS (ii) the product of the amount calculated pursuant to the foregoing clause (i) and the PACA Percentage on such date. "AGGREGATE TARGET RECEIVABLES AMOUNT" shall mean, with respect to any date of determination, the sum of the Target Receivables Amounts with respect to all Outstanding Series on such date of determination. "AGREEMENT" shall mean this Pooling Agreement and all amendments and modifications hereof and supplements hereto, and including, unless expressly stated otherwise, each Supplement. 3 "ALLOCABLE CHARGED-OFF AMOUNT" shall have, with respect to any Series, the meaning specified in subsection 3.1(e) and in any Supplement for such Series. "ALLOCABLE RECOVERIES AMOUNT" shall have, with respect to any Series, the meaning specified in subsection 3.1(e) and in any Supplement for such Series. "ALLOCATED RECEIVABLES AMOUNT" shall mean, with respect to any Outstanding Series, the meaning assigned to such term in the related Supplement for such Series. "AMORTIZATION PERIOD" shall mean, with respect to any Outstanding Series, the meaning assigned to such term in the related Supplement for such Series. "BOOK-ENTRY CERTIFICATES" shall mean the Certificates issued to a Clearing Agency to facilitate the use of book entries by such Clearing Agency to evidence ownership of beneficial interests in the Certificates, transfers of which beneficial interests shall be made through book entries by such Clearing Agency, all as described in Section 5.11; PROVIDED, HOWEVER, that after the occurrence of a condition whereupon book-entry registration and transfer are no longer permitted and Definitive Certificates are issued to the Certificate Book-Entry Holders, such Certificates shall no longer be "Book-Entry Certificates". "BUSINESS DAY" shall mean any day other than (i) a Saturday or a Sunday or (ii) another day on which commercial banking institutions or trust companies in the State of New York or in the city where the Corporate Trust Office is located, are authorized or obligated by law, executive order or governmental decree to be closed; PROVIDED that, when used in connection with the calculation of Certificate Rates which are determined by reference to LIBOR, "Business Day" shall mean any Business Day on which dealings in Dollars between banks may be carried on in both London, England and New York, New York. "BUSINESS DAY RECEIVED" shall have the meaning specified in subsection 2.3(e) of the Servicing Agreement. "CASH DILUTION PAYMENT" shall have the meaning specified in subsection 4.6(a) of the Servicing Agreement. "CERTIFICATE" shall mean one of any Series of Investor Certificates. "CERTIFICATE BOOK-ENTRY HOLDER" shall mean, with respect to a Book-Entry Certificate, the Person who is listed on the books of the Clearing Agency, or on the books of a Person maintaining an account with such Clearing Agency, as the beneficial owner of such Book-Entry Certificate (directly or as an indirect participant, in accordance with the rules of such Clearing Agency). 4 "CERTIFICATE RATE" shall mean, with respect to any Series and Class of Certificates, the percentage interest rate (or formula on the basis of which such interest rate shall be determined) stated in the applicable Supplement. "CERTIFICATE REGISTER" shall mean the register maintained pursuant to Section 5.3, providing for the registration of the Certificates and transfers and exchanges thereof. "CERTIFICATEHOLDERS' INTEREST" shall have the meaning specified in subsection 3.1(b). "CHARGED-OFF RECEIVABLES" shall mean all Receivables (or portions thereof) which, in accordance with the Policies of the applicable Seller, have or should have been written off as uncollectible, including without limitation the Receivables of any Obligor which becomes the subject of any voluntary or involuntary bankruptcy proceeding. "CLASS" shall mean, with respect to any Series, any one of the classes of Certificates of that Series as specified in the related Supplement. "CLEAN-UP CALL PERCENTAGE" shall have, with respect to any Series, the meaning specified in the related Supplement for such Series. "CLEAN-UP CALL REPURCHASE PRICE" shall have the meaning specified in Section 9.2. "CLEARING AGENCY" shall mean each organization registered as a "clearing agency" pursuant to Section 17A of the Securities Exchange Act of 1934, as amended. "CLEARING AGENCY PARTICIPANT" shall mean a broker, dealer, bank, other financial institution or other Person for whom from time to time a Clearing Agency effects book-entry transfers and pledges of securities deposited with such Clearing Agency. "COLLECTION ACCOUNT" shall have the meaning specified in subsection 3.1(a). "COLLECTION CONCENTRATION ACCOUNT" shall have the meaning specified in subsection 3.1(a). "COLLECTIONS" shall mean all collections and all amounts received in respect of the Receivables, including Recoveries, Seller Repurchase Payments, Seller Adjustment Payments, Servicer Indemnification Amounts paid by the Servicer and any other payments received in respect of Dilution Adjustments, together with all collections received in respect of the Related Property in the form of cash, checks, wire transfers or any other form of cash payment, and all proceeds of Receivables and collections thereof (including, without limitation, collections constituting an account or general intangible or evidenced by a note, instrument, security, contract, security agreement, chattel paper or other evidence of indebtedness or security, whatever is received upon the sale, exchange, collection or other disposition of, or any indemnity, warranty or guaranty payable in 5 respect of, the foregoing and all "proceeds", as defined in Section 9-306 of the UCC as in effect in the State of New York, of the foregoing). "COLLECTOR" shall mean any employee employed by the Servicer or any Sub-Servicer to collect payments in respect of Receivables in accordance with the Policies of the Seller which generated such Receivables. "COMPANY" shall mean RS Funding Inc., a Nevada corporation. "COMPANY COLLECTION SUBACCOUNT" shall have the meaning specified in subsection 3.1(a). "COMPANY EXCHANGE" shall have the meaning specified in subsection 5.10(a). "COMPANY INTEREST" shall have the meaning specified in subsection 3.1(b). "CONTRACTUAL OBLIGATION" shall mean, 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. "CORPORATE TRUST OFFICE" shall mean the principal office of the Trustee at which at any particular time its corporate trust business shall be administered, which office at the date of the execution of this Agreement is located at 450 West 33rd St., 15th Floor, New York, New York 10001 (Attention: Advanced Structured Products). "CREDIT AGREEMENT" shall mean the Credit Agreement, dated as of May 17, 1996, among RS, the various financial institutions parties thereto, Bank of America National Trust and Savings Association, as Administrative Agent, Swing Line Lender and Issuing Bank and The Chase Manhattan Bank, N.A., as Documentation Agent, as the same may be amended, supplemented or otherwise modified from time to time. "CREDIT ENHANCER" shall mean, with respect to any Outstanding Series, that Person, if any, designated as such in the applicable Supplement. "CUT-OFF DATE" shall mean the close of business on November 7, 1996. "DAILY COLLECTOR" shall mean any Collector who, in accordance with the Policies of the Seller/Sub-Servicer employing such Collector, remits Collections on a daily basis for deposit in a Lockbox Account. "DAILY REPORT" shall have the meaning specified in subsection 4.1 of the Servicing Agreement. "DCR" shall mean Duff & Phelps Credit Rating Co. or any successor thereto. 6 "DEFAULTED RECEIVABLE" shall mean, as of any date of determination, any Receivable (a) which is unpaid in whole or in part for more than 91 days after its original invoice date or (b) which is, as of such date of determination, a Charged-Off Receivable. "DEFINITIVE CERTIFICATES" shall have the meaning specified in Section 5.11. "DEPOSIT DATE" shall have the meaning specified in subsection 3.1(d). "DEPOSITORY" shall mean, with respect to any Series, the Clearing Agency designated as the "Depository" in the related Supplement. "DEPOSITORY AGREEMENT" shall mean, with respect to any Series, an agreement among the Company, the Trustee and a Clearing Agency, or a letter of undertaking by the Company and the Trustee, in each case in a form reasonably satisfactory to the Trustee and the Company. "DILUTION ADJUSTMENTS" shall mean any rebates, discounts, refunds, payments or other adjustments (including, without limitation, as a result of the application of any special or other discounts or any reconciliations) in respect of any Receivable, the amount owing for any returns (including, without limitation, as a result of the return of any defective goods) or cancellations and the amount of any other reduction of any payment under any Receivable, in each case granted or made by the applicable Seller or the Servicer to the related Obligor, PROVIDED that a "Dilution Adjustment" does not include any Charged-Off Receivable. "DISTRIBUTION DATE" shall mean, except as otherwise set forth in the applicable Supplement, the 20th day of each calendar month, beginning on December 20, 1996, or if such 20th day is not a Business Day, the next succeeding Business Day. "DOLLARS," "U.S. DOLLARS", "U.S. $" and "$" shall mean dollars in lawful currency of the United States of America. "EARLY AMORTIZATION EVENT" shall have, with respect to any Series, the meaning specified in Section 7.1 of this Agreement (without taking into account any Supplements) and in any Supplement for such Series. "EARLY AMORTIZATION PERIOD" shall have, with respect to any Series, the definition assigned to such term in Section 7.1 of this Agreement and in any Supplement for such Series. "EARLY TERMINATION" shall have the meaning assigned to such term in the Receivables Sale Agreement. "ELIGIBLE INSTITUTION" shall mean a depositary institution or trust company (which may include the Trustee and its affiliates) organized under the laws of the United States of 7 America or any one of the states thereof or the District of Columbia; PROVIDED, HOWEVER, that at all times (i) such depositary institution or trust company is a member of the Federal Deposit Insurance Corporation, the certificates of deposit or unsecured and uncollateralized debt obligations of such depositary institution or trust company are rated in one of the two highest long-term or highest short-term rating category by each Rating Agency and (ii) such depositary institution or trust company has a combined capital and surplus of at least $100,000,000. "ELIGIBLE INVESTMENTS" shall mean any deposit accounts, book- entry securities, negotiable instruments or securities represented by instruments in bearer or registered form which evidence: (a) direct obligations of, and obligations fully guaranteed as to timely payment by, the United States of America; (b) federal funds, demand deposits, time deposits or certificates of deposit of any depository institution or trust company incorporated under the laws of the United States of America or any state thereof (or any domestic branch of a foreign bank) and subject to supervision and examination by Federal or State banking or depository institution authorities; PROVIDED, HOWEVER, that at the time of the investment or contractual commitment to invest therein the commercial paper or other short-term unsecured debt obligations (other than such obligations the rating of which is based on the credit of a Person other than such depository institution or trust company) thereof shall have a credit rating from each of the Rating Agencies rating such investment in the highest investment category granted thereby; (c) commercial paper rated, at the time of the investment or contractual commitment to invest therein, in the highest rating category by each Rating Agency rating such commercial paper; (d) investments in money market funds (including funds for which the Trustee or any of its Affiliates is investment manager or adviser) rated in the highest rating category by each Rating Agency rating such money market fund (PROVIDED, that if such Rating Agency is S&P, such rating shall be AAAm-G); (e) bankers' acceptances issued by any depository institution or trust company referred to in clause (b) above; (f) repurchase obligations with respect to any security that is a direct obligation of, or fully guaranteed by, the United States of America or any agency or instrumentality thereof the obligations of which are backed by the full faith and credit of the United States of America, in either case entered into with a depository institution or trust company (acting as principal) described in clause (b) above; or 8 (g) any other investment upon satisfaction of the Rating Agency Condition with respect thereto. "ELIGIBLE OBLIGOR" shall mean, as of any date of determination, each Obligor in respect of a Receivable that satisfies the following eligibility criteria: (a) it is a resident of the United States, its territories or possessions; (b) if it is the United States federal government, or any subdivision thereof, or any agency, department or instrumentality thereof (a "FEDERAL GOVERNMENT OBLIGOR"), or if it is a state or local government, or any subdivision thereof, or any agency, department, or instrumentality thereof (a "STATE/LOCAL GOVERNMENT OBLIGOR"; each Federal Government Obligor and each State/Local Government Obligor being a "GOVERNMENT OBLIGOR"), then such Obligor shall be subject to the first proviso contained in the definition of "Overconcentration Amount"; (c) it is not a Seller or an Affiliate of a Seller; and (d) it is not the subject of any voluntary or involuntar bankruptcy proceeding; PROVIDED, HOWEVER, that if 35% or more of the Principal Amount of Receivables of an Obligor (measured by the Principal Amount of Receivables of such Obligor in the Trust) is reported as being aged 121 days or more after the respective original invoice dates of such Receivables as at the end of the Settlement Period immediately preceding the most recent Settlement Report Date (commencing with the Settlement Report Date occurring on November 15, 1996), such Obligor shall not be deemed an Eligible Obligor until such time as the Servicer furnishes the Rating Agencies with a report (which may be part of a Daily Report or a Monthly Settlement Statement) indicating that less than 35% of the Principal Amount of Receivables of such Obligor then in the Trust are aged 121 days or more after the respective original invoice dates of such Receivables. "ELIGIBLE RECEIVABLE" shall mean, as of any date of determination, each Receivable owing by an Eligible Obligor that as of such date satisfies the following eligibility criteria: (a) it constitutes either (i) an account within the meaning of Section 9-106 of the UCC of the State the law of which governs the perfection of the interest granted in it, (ii) chattel paper within the meaning of Section 9-105 of such UCC, subject, in the case of chattel paper, to compliance with the procedures set forth in Schedule 3 hereto; or (iii) a general intangible (including, without limitation, to the extent that such Receivable includes interest, finance charges, returned check or late charges on sales or similar taxes) within the meaning of Section 9-106 of such UCC; (b) it is not a Defaulted Receivable; 9 (c) the goods related to it shall have been shipped or the services related to it shall have been performed and such Receivable shall have been billed to the related Obligor; (d) it is denominated and payable only in U.S. Dollars in the United States; (e) it arose in the ordinary course of business from the sale of goods, products or services of the relevant Seller and in accordance with the Policies of such Seller and, at such date of determination, no Early Termination has occurred with respect to such Seller; (f) (i) it does not contravene any applicable law, rule or regulation and the applicable Seller is not in violation of any law, rule or regulation in connection with it, in each case which in any way renders such Receivable unenforceable or would otherwise impair in any material respect the collectibility of such Receivable and (ii) it is not subject to any investigation or proceeding known by such Seller that would reasonably be expected to adversely affect the payment or enforceability thereof; (g) if the Company or the Trust is not excluded from the definition of "investment company" pursuant to Rule 3a-7 under the 1940 Act, it is an account receivable representing all or part of the sales price of merchandise, insurance or services within the meaning of Section 3(c)(5) of the 1940 Act; (h) it is not a Receivable purchased by a Seller from any Person and is not an Excluded Receivable or a Receivable originated by a New Division which has not become a Seller Division; (i) it is not a Receivable for which the applicable Seller has established an offsetting specific reserve; PROVIDED that a Receivable subject only in part to the foregoing shall be an Eligible Receivable to the extent not so subject; (j) it is not a Receivable with original payment terms in excess of 60 days from its original invoice date, or in respect of which the applicable Seller has (i) entered into an arrangement with the Obligor pursuant to which payment of any portion of the purchase price has been extended or deferred, whether by means of a promissory note or by any other means, to a date more than 60 days from its original invoice date or (ii) altered the basis of the aging from the initial due date for payment such that the final due date extends to a date more than 60 days from its original invoice date or (iii) otherwise made any modification except in the ordinary course of business and consistent with the Policies of such Seller; (k) all required consents, approvals or authorizations necessary for the creation and enforceability of such Receivable and the effective assignment and sale thereof by the applicable Seller (or by Rykoff Funding or USFAR, as the case may be) to the Company and by the Company to the Trust shall have been obtained with respect to such Receivable, PROVIDED that with respect to Receivables owing by Federal Government Obligors or State/Local Government Obligors, such Receivables shall constitute Eligible 10 Receivables notwithstanding the failure of such Receivables to satisfy this clause (k) except to the extent such failure adversely affects the collectibility of such Receivables by the Company or the Trust; (l) the applicable Seller is not in default in any material respect under the terms of the contract, if any, from which such Receivable arose; (m) all right, title and interest in it has been validly sold to the Company (i) by Rykoff Funding or USFAR, as the case may be, pursuant to the SPC Receivables Sales Agreement or (ii) by the applicable Seller pursuant to the Receivables Sales Agreement; (n) the Company or the Trust will have legal and beneficial ownership therein free and clear of all Liens other than such Liens described in clauses (i) and (v) of the definition of Permitted Liens and such Receivable has been the subject of either a valid transfer from the Company to the Trust or, alternatively, the grant of a first priority perfected security interest therein to the Trust free and clear of all Liens other than such Liens described in clauses (i) and (v) of the definition of Permitted Liens; (o) it is not subject to any dispute in whole or in part or to any offset, counterclaim, defense, rescission, recoupment or subordination; PROVIDED that a Receivable subject only in part to any of the foregoing shall be an Eligible Receivable to the extent not so subject; (p) it is at all times the legal, valid and binding obligation of the Obligor thereon, enforceable against such Obligor to pay the full Principal Amount thereof in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or law); (q) as of the related Receivables Purchase Date, neither the Company nor the applicable Seller has (i) taken any action that would impair the rights of the Trustee or the Investor Certificateholders therein or (ii) failed to take any action that was necessary to avoid impairing the rights therein of the Trustee or Investor Certificateholders; (r) each of the representations and warranties made in the Receivables Sale Agreement by the applicable Seller with respect to such Receivable is true and correct in all material respects; and (s) at the time such Receivable was sold by the applicable Seller to the Company under the Receivables Sale Agreement, no event described in subsection 6.01(g) of the Receivables Sale Agreement (without giving effect to any requirement as to the passage of time) had occurred with respect to such Seller; 11 "ELIGIBLE SEGREGATED ACCOUNT" shall have the meaning specified in subsection 2.3(b) of the Servicing Agreement. "ELIGIBLE SEGREGATED ACCOUNT BANK" shall mean any bank or depositary institution with which an Eligible Segregated Account has been established. "ELIGIBLE SEGREGATED ACCOUNT BANK ACKNOWLEDGEMENT" shall have the meaning specified in subsection 2.3(b)(ii) of the Servicing Agreement. "ELIGIBLE SUCCESSOR SERVICER" shall mean a Person which, at the time of its appointment as Servicer, (i) is legally qualified and has the corporate power and authority to service the Receivables transferred to the Trust, (ii) has demonstrated the ability to service a portfolio of similar receivables in accordance with the standards set forth in subsection 6.2(c) of the Servicing Agreement and (iii) has a combined capital and surplus of at least $5,000,000. "ENHANCEMENT" shall mean, with respect to any Series, (i) the funds on deposit in or credited to any bank account (or subaccount thereof) of the Trust, (ii) any surety arrangement, any letter of credit, guaranteed rate agreement, maturity guaranty facility, tax protection agreement, interest rate swap, currency swap or other contract, agreement or arrangement, in each case for the benefit of any Holders of such Series, as designated in the applicable Supplement and (iii) the subordination of one Class of Certificates in a Series to another class in such Series or the subordination of any Certificate held or interest owned by the Company to the Investor Certificates of such Series. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. "EXCHANGEABLE COMPANY INTEREST" shall have the meaning specified in subsection 3.1(b) and shall be exchangeable as provided in Section 5.10. "EXCHANGE DATE" shall have the meaning, with respect to any Series issued pursuant to a Company Exchange, specified in Section 5.10. "EXCHANGE NOTICE" shall have the meaning, with respect to any Series issued pursuant to a Company Exchange, specified in Section 5.10. "EXCLUDED RECEIVABLE" shall mean, subject to Section 10.21 hereof, the indebtedness and payment obligations of any Person (i) to either RS or Sexton arising from a sale of merchandise or the provision of services by such Seller from its contract and design business, (ii) to the manufacturing division of either RS or Sexton at the manufacturing facilities thereof located in Los Angeles, California, Indianapolis, Indiana or Englewood, New Jersey arising from the sale of products manufactured by such division directly to unaffiliated third parties, (iii) to the Continental Foods operation of Sexton, located in Baltimore, Maryland, (iv) to the Lake Mills, Wisconsin operation or the San 12 Francisco International Cheese Imports operation (located in San Francisco, California) of the San Francisco International Cheese Imports division of RS and (v) to the Olfisco Specialty Products division of Sexton located in Minneapolis, Minnesota; PROVIDED that in the event that any Excluded Receivable is included in a Daily Report, for purposes of Section 2.1 hereof and the definition of Collections, such receivable shall not be an Excluded Receivable. "FEDERAL GOVERNMENT OBLIGOR" shall have the meaning specified in the definition of "Eligible Obligor" hereunder. "FORCE MAJEURE DELAY" shall mean, with respect to any Servicing Party, any cause or event which is beyond the control and not due to the negligence of such Servicing Party which delays, prevents or prohibits the Servicer's delivery of Daily Reports and/or Monthly Settlement Statements, including, without limitation, acts of God or the elements and fire, but excluding strikes by any Servicing Party's employees; PROVIDED that no such cause or event shall be deemed to be a Force Majeure Delay unless the Servicer shall have given the Company and the Trustee written notice promptly after the beginning of such delay. "FRACTIONAL UNDIVIDED INTEREST" shall mean the fractional undivided interest in the Certificateholders' Interest evidenced by an Investor Certificate. "GAAP" shall mean generally accepted accounting principles in the United States of America as in effect from time to time. "GENERAL OPINION" shall mean, with respect to any action, an Opinion of Counsel to the effect that (A) such action has been duly authorized by all necessary corporate action on the part of the Servicer, the applicable Seller or Sellers or the Company, as the case may be, (B) any agreement executed in connection with such action constitutes a legal, valid and binding obligation of the Servicer, the applicable Seller or Sellers or the Company, as the case may be, enforceable in accordance with the terms thereof, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereinafter in effect, affecting the enforcement of creditors' rights and except as such enforceability may be limited by general principles of equity (whether considered in a proceeding at law or in equity) and (C) any condition precedent to any such action specified in the applicable agreement, if any, has been complied with, which opinion in the case of this clause (C) may, to the extent that such opinion concerns questions of fact, rely on an Officer's Certificate with respect to such questions of fact. "GOVERNMENTAL AUTHORITY" shall mean any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. 13 "GOVERNMENT OBLIGOR" shall have the meaning specified in the definition of "Eligible Obligor" hereunder. "HOLDERS" shall mean the collective reference to (i) the Persons in whose names the Certificates are registered in the Certificate Register, (ii) the owner of the Exchangeable Company Interest and (iii) if applicable, the owner of each Series Subordinated Interest. "INDEBTEDNESS" shall mean, with respect to any Person at any date, (a) all indebtedness of such Person for borrowed money, (b) any obligation owed for the deferred purchase price of property or services which purchase price is evidenced by a note or similar written instrument, (c) notes payable and drafts accepted representing extensions of credit whether or not representing obligations for borrowed money, (d) that portion of obligations of such Person under capital leases which is properly classified as a liability on a balance sheet in conformity with GAAP and (e) all Indebtedness referred to in clauses (a) through (d) above of another Person secured by any Lien on any property owned by such Person even though such Person has not assumed or otherwise become liable for the payment thereof. "INDEPENDENT PUBLIC ACCOUNTANTS" means any independent certified public accountants of nationally recognized standing which constitute one of the accounting firms commonly referred to as the "big six" accounting firms (or any successor thereto); PROVIDED that such firm is independent with respect to the Servicer within the meaning of Rule 2-01(b) of Regulation S-X under the Securities Act. "INELIGIBLE RECEIVABLE" shall have the meaning specified in Section 2.5. "INITIAL CLOSING DATE" shall mean November 15, 1996. "INITIAL INVESTED AMOUNT" shall mean, with respect to any Outstanding Series, the meaning assigned to such term in the related Supplement for such Series. "INSOLVENCY EVENT" shall mean the occurrence of any one or more of the Early Amortization Events specified in paragraph (a) of Section 7.1. "INTERNAL OPERATING PROCEDURES MEMORANDUM" shall mean the internal operating procedures memorandum prepared by the Trustee as set forth in Exhibit C hereto. "INTERNAL REVENUE CODE" shall mean the Internal Revenue Code of 1986, as amended from time to time. "INVESTED AMOUNT" shall mean, with respect to any Outstanding Series, the meaning assigned to such term in the related Supplement for such Series. "INVESTED PERCENTAGE" shall mean, with respect to any Outstanding Series, the meaning assigned to such term in the related Supplement for such Series. 14 "INVESTMENT EARNINGS" shall have the meaning specified in subsection 3.1(c). "INVESTOR CERTIFICATEHOLDER" shall mean the holder of record of, or the bearer of, an Investor Certificate. "INVESTOR CERTIFICATES" shall mean the Certificates executed by the Company and authenticated by or on behalf of the Trustee, substantially in the form attached to the applicable Supplement, but shall not include any Certificate held by the Company. "ISSUANCE DATE" shall mean, with respect to any Series, the date of issuance of such Series, or the date of any increase to the Invested Amount of such Series, as specified in the related Supplement. "LIEN" shall mean, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, encumbrance, charge or security interest in or on such asset (including, without limitation, any lien which may arise under PACA, the Packers and Stockyards Act of 1921, as amended, or the Poultry Producers Financial Protection Act of 1987, as amended), (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 other similar right of a third party with respect to such securities; PROVIDED, HOWEVER, that if a lien is imposed under Section 412(n) of the Internal Revenue Code or Section 302(f) of ERISA for a failure to make a required installment or other payment to a plan to which Section 412(n) of the Internal Revenue Code or Section 302(f) of ERISA applies, then such lien shall not be treated as a "Lien" from and after the time any Person who is obligated to make such payment pays to such plan the amount of such lien determined under Section 412(n)(3) of the Internal Revenue Code or Section 302(f)(3) of ERISA, as the case may be, and provides to the Trustee, any Agent and each Rating Agency written evidence reasonably satisfactory to the Rating Agencies of the release of such lien, or such lien expires pursuant to Section 412(n)(4)(B) of the Internal Revenue Code or Section 302(f)(4)(B) of ERISA. "LOCKBOX" shall mean the post office boxes listed on Schedule III to the Receivables Sale Agreement to which the Obligors are instructed to remit payments on the Receivables and/or such other post office boxes as may be established pursuant to Section 2.3 of the Servicing Agreement. "LOCKBOX ACCOUNT" shall mean the intervening account used by a Lockbox Processor for deposit of funds received in a Lockbox prior to their transfer to the Collection Concentration Account. "LOCKBOX AGREEMENT" shall mean, with respect to each Lockbox Processor, a lockbox agreement in either of the forms set forth as Exhibits A-1 and A-2 hereto. 15 "LOCKBOX PROCESSOR" shall mean the depositary institution or processing company (which may be the Trustee) which processes payments on the Receivables sent by the Obligors thereon forwarded to a Lockbox. "MATERIAL ADVERSE EFFECT" shall mean (i) with respect to a Seller or a Servicing Party, (a) a material impairment of the ability of such Seller or such Servicing Party, as the case may be, to perform its obligations under the Transaction Documents, (b) a material impairment of the validity or enforceability of any of the Transaction Documents against such Seller or such Servicing Party, (c) a material impairment of the collectibility of the Receivables taken as a whole or (d) a material impairment of the interests, rights or remedies of the Trustee or the Investor Certificateholders under or with respect to the Transaction Documents or the Receivables taken as a whole and (ii) with respect to the Company, (a) a material impairment of the ability of the Company to perform its obligations under any Transaction Document to which it is a party, (b) a material impairment of the validity or enforceability of any of the Transaction Documents against the Company, (c) a material impairment of the collectibility of the Receivables taken as a whole or (d) a material impairment of the interests, rights or remedies of the Trustee or the Investor Certificateholders under or with respect to the Transaction Documents or the Receivables taken as a whole. "MONTHLY SERVICING FEE" shall have the meaning specified in subsection 2.5(a) of the Servicing Agreement. "MONTHLY SETTLEMENT STATEMENT" shall have the meaning specified in Section 4.2 of the Servicing Agreement. "NEW DIVISION" shall have the meaning specified in Section 9.13 of the Receivables Sale Agreement. "1940 ACT" shall mean the Investment Company Act of 1940, as amended. "OBLIGOR" shall mean, with respect to any Receivable, the party obligated to make payments with respect to such Receivable, including any guarantor thereof. "OFFICER'S CERTIFICATE" shall mean, unless otherwise specified in this Agreement, a certificate signed by the Chairman of the Board, Vice Chairman of the Board, President, Chief Financial Officer, any Vice President, any Secretary or any Treasurer of the Servicer or the Company, as the case may be, or, in the case of a Successor Servicer, a certificate signed by a Vice President and the financial controller (or an officer holding an office with equivalent or more senior responsibilities) of such Successor Servicer. "OPINION OF COUNSEL" shall mean a written opinion or opinions of one or more counsel (who may be internal counsel) to the Company or the Servicer, designated by the Company or the Servicer, as the case may be, which is reasonably acceptable to the Trustee. 16 "OPTIONAL TERMINATION NOTICE" shall have, with respect to any Series, the meaning specified in the related Supplement for such Series. "ORIGINAL RYKOFF RSA" shall mean the Receivables Sale Agreement, dated as of May 16, 1996, among RS, Sexton, Rykoff Funding and RS, in its capacity as servicer. "OUTSTANDING SERIES" shall mean, at any time, a Series issued pursuant to an effective Supplement for which the Series Termination Date for such Series has not occurred. "OVERCONCENTRATION AMOUNT" shall mean, at any date with respect to an Eligible Obligor, the Principal Amount of Eligible Receivables due from such Obligor at such date which, expressed as a percentage of the Principal Amount of all Eligible Receivables in the Trust at such date, exceeds the percentage set forth below for the applicable category of that Obligor at such date (or such higher percentage after giving effect to which the Rating Agency Condition is satisfied): MINIMUM RATING S&P DCR Percentage --- --- ---------- A-1+ or AA- D-1+ or AA- 15.00% A-1 or A+ D-1 or A+ 7.50% A-2 or BBB+ D-2 or BBB+ 5.00% A-3 or BBB- D-3 or BBB- 3.75% Not rated/other Less than D-3 or BBB- 2.50% /Not rated
; PROVIDED, HOWEVER, (i) that all Eligible Obligors that are Affiliates of each other shall be deemed to be a single Eligible Obligor to the extent the Servicer knows or has reason to know of the affiliation and in that case, the applicable debt rating for such group of Obligors shall be the debt rating of the ultimate parent of the group and (ii) with respect to all Eligible Obligors that are Government Obligors, the Overconcentration Amount shall mean the aggregate Principal Amount of Eligible Receivables due from all such Obligors which exceeds 1.75% of the Principal Amount of all Eligible Receivables; PROVIDED FURTHER that the debt ratings set forth under the column headed "DCR" in the above table and the 17 references in the immediately succeeding paragraph to DCR shall apply only if DCR is a Rating Agency under any Supplement for an Outstanding Series. The percentage applicable to any Obligor (or the ultimate parent of the affiliated group of which such Obligor is a member, as the case may be) will be the percentage associated with the lower of such Obligor's (or such ultimate parent's, as the case may be) short-term senior debt rating issued by S&P and DCR; PROVIDED THAT: (i) if such short-term debt is rated only by S&P, the applicable percentage will be the percentage associated with the rating issued by S&P and (ii) if S&P issues no short-term rating with respect to such Obligor (or such ultimate parent, as the case may be), then the percentage applicable to such Obligor (or such ultimate parent, as the case may be) shall be the percentage associated with the categories "Not rated/other" and "Less than D-3 or BBB-/Not rated." The ratings specified in the table are minimums for each percentage category, so that a rating not shown in the table falls in the category associated with the highest rating shown in the table that is lower than that rating. "PACA" shall mean the Federal Perishable Agricultural Commodities Act of 1930, as amended. "PACA" PERCENTAGE" shall mean (i) initially, 2.57%, and (ii) as of any Settlement Report Date (commencing with the April 15, 1997 Settlement Report Date) and continuing until (but not including) the next Settlement Report Date, the percentage equivalent (as determined by the Servicer and set forth on the related Monthly Settlement Statement) of a fraction, the numerator of which is the average monthly aggregate dollar amount of sales (other than sales resulting in the generation of Excluded Receivables) by the Sellers to Obligors of "perishable agricultural commodities" (as defined under PACA) during the period of three consecutive Settlement Periods (excluding the most recently ended Settlement Period) immediately preceding such earlier Settlement Report Date, and the denominator of which is the average monthly aggregate dollar amount of all sales (other than sales resulting in the generation of Excluded Receivables) by the Sellers to Obligors during such period. "PAYING AGENT" shall mean any paying agent and co-paying agent appointed pursuant to Section 5.6 and, unless otherwise specified in the related Supplement of any Outstanding Series and with respect to such Series, shall initially be the Trustee. "PERMITTED LIENS" shall mean, at any time, for any Person: (i) Liens created pursuant to this Agreement or the Receivables Sale Agreement; (ii) Liens for taxes, assessments or other governmental charges or levies not yet due and payable or if such Person shall currently be contesting the validity thereof in good faith by appropriate proceedings and with respect to which 18 reserves in conformity with GAAP have been provided on the books of such Person; (iii) Liens on a Receivable arising as a result of offsetting specific reserves and rights of set-off, counterclaim or other defenses with respect to such Receivable; (iv) Liens that may arise under PACA; and (v) Any other Liens securing obligations not in excess of $50,000 in the aggregate at any one time outstanding. "PERSON" shall mean any individual, partnership, limited liability company, corporation, business trust, joint stock company, trust, unincorporated association, joint venture, Governmental Authority or other entity of whatever nature. "POLICIES" shall mean, with respect to each Seller, the credit and collection policies of such Seller, copies of which have been delivered to the Trustee, as the same may be amended, supplemented or otherwise modified from time to time in accordance with the Transaction Documents. "POOLING AND SERVICING AGREEMENTS" shall mean, collectively, this Agreement, the Servicing Agreement and each Supplement for an Outstanding Series. "POTENTIAL EARLY AMORTIZATION EVENT" shall mean an event which, with the giving of notice and/or the lapse of time, would constitute an Early Amortization Event hereunder or under any Supplement. "POTENTIAL SERVICER DEFAULT" shall mean an event which, with the giving of notice and/or the lapse of time, would constitute a Servicer Default hereunder or under any Supplement. "PREPAYMENT REQUEST" shall have, with respect to any Series, the meaning specified in the related Supplement. "PRINCIPAL AMOUNT" shall mean, with respect to any Receivable, the amount due thereunder. "PRINCIPAL TERMS" shall have the meaning, with respect to any Series issued pursuant to a Company Exchange, specified in subsection 5.10(c). "RATING AGENCY" shall mean, with respect to each Outstanding Series, any rating agency or agencies designated as such in the related Supplement; PROVIDED that in the event that no Outstanding Series has been rated, then for purposes of the definitions of 19 "Eligible Institution" and "Eligible Investments", "RATING AGENCY" shall mean S&P and references to "each Rating Agency" shall refer solely to S&P. "RATING AGENCY CONDITION" shall mean, subject to the applicable Supplement, with respect to any action, that each Rating Agency shall have notified the Company, the Servicer, any Agent and the Trustee in writing that such action will not result in a reduction or withdrawal of the rating of any Outstanding Series or any Class of any such Outstanding Series with respect to which it is a Rating Agency. "RECEIVABLE" shall mean the indebtedness and payment obligations of any Person to a Seller (including, without limitation, obligations constituting an account or general intangible or evidenced by a note, instrument, contract, security agreement, chattel paper or other evidence of indebtedness or security) arising from a sale of merchandise or the provision of services by such Seller, including, without limitation, any right to payment for goods sold or for services rendered, and including the right to payment of any interest, sales taxes, finance charges, returned check or late charges and other obligations of such Person with respect thereto; PROVIDED that, except as otherwise expressly provided, for all purposes hereunder and under the other Transaction Documents, "RECEIVABLES" shall not include Excluded Receivables. "RECEIVABLES PURCHASE DATE" shall mean, with respect to any Receivable, the Business Day on which the Company purchases such Receivable from the applicable Seller and transfers such Receivable to the Trust. "RECEIVABLES SALE AGREEMENT" shall have the meaning specified in the recitals hereto. "RECORD DATE" shall mean, with respect to any Series, the date specified as such in the applicable Supplement. "RECOVERIES" shall mean all amounts collected (net of out-of-pocket costs of collection) in respect of Charged-Off Receivables. "RELATED PROPERTY" shall mean, with respect to each Receivable: (a) all of the applicable Seller's interest in the goods (including returned goods), if any, relating to the sale which gave rise to such Receivable; (b) all other security interests or Liens, and the applicable Seller's interest in the property subject thereto, from time to time purporting to secure payment of such Receivable, together with all financing statements signed by an Obligor describing any collateral securing such Receivable; and 20 (c) all guarantees, insurance, letters of credit and other agreements or arrangements of whatever character from time to time supporting or securing payment of such Receivable; in the case of clauses (b) and (c), without limitation, whether pursuant to the contract related to such Receivable or otherwise or pursuant to any obligations evidenced by a note, instrument, contract, security agreement, chattel paper or other evidence of indebtedness or security and the proceeds thereof. "REMOTE COLLECTOR" shall mean any Collector other than a Daily Collector. "REPORTED DAY" shall have the meaning specified in Section 4.1 of the Servicing Agreement. "REPURCHASE OBLIGATION DATE" shall have the meaning specified in subsection 2.5(a). "REQUIREMENT OF LAW" for any Person shall mean the certificate or articles of incorporation and by-laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation, or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. "RESPONSIBLE OFFICER" shall mean (i) when used with respect to the Trustee, any officer within the Corporate Trust Office of the Trustee including any Vice President, any Assistant Vice President, Trust Officer or Assistant Trust Officer or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and (ii) when used with respect to any other Person, the Chairman or Vice Chairman of the Board, President, Chief Financial Officer, any Vice President, Treasurer, Assistant Treasurer, Secretary or Assistant Secretary of such Person. "REVOLVING PERIOD" shall mean, with respect to any Outstanding Series, the meaning assigned to such term in the related Supplement for such Series. "RS" shall mean Rykoff-Sexton, Inc., a Delaware corporation. "RS LOAN" shall mean the demand note issued by RS to the Company on the Initial Closing Date in an aggregate principal amount of $7,500,000. "RYKOFF FUNDING" shall have the meaning specified in the recitals hereto. "S&P" shall mean Standard & Poor's Ratings Services, or any successor thereto. "SECURITIES ACT" shall mean the United States Securities Act of 1933, as amended. 21 "SECURITY AGREEMENT" shall mean the Security Agreement, dated as of the date hereof, among the Company, RS and Sexton, as the same may be amended, supplemented or otherwise modified from time to time. "SELLERS" shall mean the collective reference to RS, in its capacity as a Seller under the Receivables Sale Agreement, the wholly-owned Subsidiaries of RS listed as Sellers on the signature pages thereof and any wholly-owned Subsidiaries of RS which have been added as Sellers in accordance with the provisions of the Receivables Sale Agreement and the other Transaction Documents (but, in each case, excluding any such Subsidiaries which have been terminated as Sellers in accordance with the provisions thereof and of the other Transaction Documents), all of the foregoing in their capacities as Sellers under the Receivables Sale Agreement; each, individually, a "SELLER". "SELLER ADJUSTMENT PAYMENTS" shall have the meaning specified in Section 2.05 of the Receivables Sale Agreement. "SELLER DIVISION" shall have the meaning specified in Section 9.13 of the Receivables Sale Agreement. "SELLER REPURCHASE PAYMENTS" shall have the meaning specified in Section 2.06 of the Receivables Sale Agreement. "SERIES" shall mean any series of Investor Certificates, the terms of which are set forth in a Supplement. "SERIES ACCOUNT" shall mean any deposit, trust, escrow, reserve or similar account maintained for the benefit of the Investor Certificateholders of any Series or Class, as specified in any Supplement. "SERIES COLLECTION SUBACCOUNT" shall have the meaning specified in subsection 3.1(a). "SERIES COLLECTION SUB-SUBACCOUNT" shall have the meaning specified in subsection 3.1(a). "SERIES NON-PRINCIPAL COLLECTION SUB-SUBACCOUNT" shall have the meaning specified in subsection 3.1(a). "SERIES PRINCIPAL COLLECTION SUB-SUBACCOUNT" shall have the meaning specified in subsection 3.1(a). "SERIES SUBORDINATED INTEREST" shall mean, with respect to any Series, the interest of the Company in the Trust Assets, if any, which is subordinated to the Certificateholders' Interest of such Series, as set forth in the Supplement for such Series. 22 "SERIES TERMINATION DATE" shall mean, with respect to any Outstanding Series, the meaning assigned to such term in the related Supplement for such Series. "SERVICE TRANSFER" shall have the meaning specified in Section 6.1 of the Servicing Agreement. "SERVICER" shall initially mean US Foodservice in its capacity as Servicer under the Transaction Documents and, after any Service Transfer, the Successor Servicer. "SERVICER DEFAULT" shall have, with respect to any Series, the meaning specified in Section 6.1 of the Servicing Agreement and, if applicable, as supplemented by the related Supplement for such Series. "SERVICER GUARANTEE" shall mean the Servicer Guarantee, dated as of the date hereof, made by RS in favor of the Trustee, for the benefit of the Holders. "SERVICER INDEMNIFICATION AMOUNTS" shall have the meaning specified in Section 5.2(c) of the Servicing Agreement. "SERVICER SITE REVIEW" shall mean a review performed by the Trustee of the servicing operations of the Servicer at its offices, as described in Appendix A. "SERVICING AGREEMENT" shall have the meaning specified in the recitals hereto. "SERVICING FEE" shall have the meaning specified in subsection 2.5(a) of the Servicing Agreement. "SERVICING FEE PERCENTAGE" shall mean 1% per annum. "SERVICING PARTY" shall mean the collective reference to the Servicer and each Sub-Servicer. "SETTLEMENT PERIOD" shall mean (i) initially, the period commencing November 15, 1996 and ending on the last day of the November 1996 fiscal month of the Servicer, and (ii) thereafter, each fiscal month of the Servicer. "SETTLEMENT REPORT DATE" shall mean, except as otherwise set forth in the applicable Supplement, the 15th day of each calendar month (or if such 15th day is not a Business Day, the next succeeding Business Day). "SEXTON" shall mean John Sexton & Co., a Delaware corporation. "SPC RECEIVABLES SALE AGREEMENT" shall have the meaning specified in the recitals hereto. 23 "SPECIAL ALLOCATION SETTLEMENT REPORT DATE" shall have the meaning specified in subsection 3.1(e). "SPECIFIED BANKRUPTCY OPINION PROVISIONS" shall mean the factual assumptions and the actions to be taken by any Seller or the Company, in each case as specified in the legal opinion of Richards & O'Neil, LLP relating to certain bankruptcy matters and delivered on the Initial Closing Date. "STANDBY LIQUIDATION SYSTEM" shall mean a system by which the Trustee will receive and store electronic information regarding Receivables from the Servicer and each Sub-Servicer which may be utilized in the event of a liquidation of the Receivables to be carried out by the Trustee, as described in Appendix B. "STATE/LOCAL GOVERNMENT OBLIGOR" shall have the meaning specified in the definition of "Eligible Obligor" hereunder. "SUBORDINATED NOTE" shall have the meaning specified in Section 8.01 of the Receivables Sale Agreement. "SUB-SERVICER" shall have the meaning specified in the recitals hereto. "SUBSIDIARY" shall mean, as to any Person, a corporation, partnership or other entity of which shares of stock or other ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership or other entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by such Person. "SUCCESSOR SERVICER" shall have the meaning specified in Section 6.2 of the Servicing Agreement. "SUPPLEMENT" shall mean, with respect to any Series, a supplement to this Agreement complying with the terms of Section 5.10(c), executed in conjunction with the issuance of any Series. "TARGET RECEIVABLES AMOUNT" shall mean, with respect to any Outstanding Series, the meaning assigned to such term in the related Supplement for such Series. "TAX OPINION" shall mean, with respect to any action, an Opinion of Counsel (a) to the effect that, for federal income tax purposes, (i) such action will not adversely affect the characterization as debt or as an interest in a partnership (other than a partnership taxable as a corporation), as the case may be, of any Investor Certificates of any Outstanding Series or Class not retained by the Company, (ii) following such action, the Trust will not be classified as an association or a publicly traded partnership taxable as a corporation, 24 (iii) such action will not cause or constitute a taxable event in which gain or loss would be recognized by any Investor Certificateholder or the Trust and (iv) in the case of Section 5.9, the Investor Certificates of the new Series which are not retained by the Company will be characterized as debt or as an interest in a partnership (other than a partnership taxable as a corporation) and (b) with respect to state taxation issues, in substantially the form delivered on the Initial Closing Date. "TERMINATION NOTICE" shall have the meaning specified in Section 6.1 of the Servicing Agreement. "TRANSACTION DOCUMENTS" shall mean the collective reference to this Agreement, the Servicing Agreement, each Supplement with respect to any Outstanding Series, the Receivables Sale Agreement, the SPC Receivables Sale Agreement, the Lockbox Agreements, the Eligible Segregated Account Bank Acknowledgements, the Certificates and any other documents delivered pursuant to or in connection therewith. "TRANSFER AGENT AND REGISTRAR" shall have the meaning specified in Section 5.3 and shall initially be the Trustee. "TRANSFER DEPOSIT AMOUNT" shall have the meaning specified in subsection 2.5(b). "TRANSFERRED AGREEMENTS" shall have the meaning specified in subsection 2.1(b). "TRUST" shall mean the Rykoff-Sexton Receivables Master Trust created by this Agreement. "TRUST ACCOUNT" shall have the meaning, with respect to any Series, specified in the applicable Supplement for such Series. "TRUST ASSETS" shall have the meaning specified in Section 2.1. "TRUST TERMINATION DATE" shall have the meaning specified in subsection 9.1(a). "TRUSTEE" shall mean the institution executing this Agreement as trustee, or its successor in interest, or any successor trustee appointed as herein provided. "UCC" shall mean the Uniform Commercial Code, as amended from time to time, as in effect in any specified jurisdiction or if no jurisdiction is specified, as in effect in the State of New York. "USFAR" shall have the meaning specified in the recitals hereto. "USFAR RSA" shall mean the Amended and Restated Receivables Purchase Agreement, dated as of October 27, 1994, as heretofore amended, supplemented and otherwise modified, among the subsidiaries of US Foodservice from time to time parties 25 thereto as sellers thereunder, USFAR and US Foodservice, in its capacity as master servicer. Section 1.2. OTHER DEFINITIONAL PROVISIONS. (a) All terms defined in this Agreement, the Servicing Agreement or in any Supplement shall have such defined meanings when used in any certificate or other document made or delivered pursuant hereto unless otherwise defined therein. (b) As used herein and in any certificate or other document made or delivered pursuant hereto or thereto, accounting terms not defined in Section 1.1, and accounting terms partly defined in Section 1.1 to the extent not defined, shall have the respective meanings given to them under GAAP. To the extent that the definitions of accounting terms herein are inconsistent with the meanings of such terms under GAAP, the definitions contained herein shall control. (c) The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement; and Section, subsection, Schedule and Exhibit references contained in this Agreement are references to Sections, subsections, Schedules and Exhibits in or to this Agreement unless otherwise specified. (d) The definitions contained in Section 1.1 are applicable to the singular as well as the plural forms of such terms and to the masculine as well as to the feminine and neuter genders of such terms. (e) Where a definition contained in Section 1.1 specifies that such term shall have the meaning set forth in the related Supplement, the definition of such term set forth in the related Supplement may be preceded by a prefix indicating (or include in its definition) the specific Series or Class to which such definition shall apply. (f) Where reference is made in this Agreement or any related Supplement to the principal amount of Receivables, such reference shall, unless explicitly stated otherwise, be deemed a reference to the Principal Amount (as such term is defined in Section 1.1) of such Receivables. (g) Any reference herein or in any other Transaction Document to a provision of the Internal Revenue Code or ERISA shall be deemed a reference to any successor provision thereto. (h) To the extent that any provision of this Agreement or any other Transaction Document requires that a calculation be performed with respect to a date occurring prior to the effective date of such Transaction Document, such calculation shall be performed as provided therein as though such Transaction Document had been effective on and as of such prior date. 26 ARTICLE II CONVEYANCE OF RECEIVABLES; ISSUANCE OF CERTIFICATES Section 2.1. CONVEYANCE OF RECEIVABLES. (a) By execution and delivery of this Agreement, the Company does hereby transfer, assign, set over and otherwise convey to the Trust for the benefit of the Holders, without recourse (except as specifically provided herein), all of its present and future right, title and interest in, to and under: (i) all Receivables, including those existing at the close of business on the Initial Closing Date and all Receivables thereafter arising from time to time until but not including the Trust Termination Date; (ii) the Related Property; (iii) all Collections; (iv) all rights (including rescission, replevin or reclamation) relating to any Receivable or arising therefrom; (v) the Collection Account, the Collection Concentration Account, each Eligible Segregated Account, each Lockbox and each Lockbox Account (collectively, the "ACCOUNTS"), including (A) all funds and other evidences of payment held therein and all certificates and instruments, if any, from time to time representing or evidencing any of such Accounts or any funds and other evidences of payment held therein, (B) all investments of such funds held in such Accounts and all certificates and instruments from time to time representing or evidencing such investments, (C) all notes, certificates of deposit and other instruments from time to time hereafter delivered or transferred to, or otherwise possessed by, the Trustee for and on behalf of the Company in substitution for any of the then existing Accounts and (D) all interest, dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any and all of the then existing Accounts; and (vi) all monies due or to become due and all amounts received with respect to the items listed in clauses (i) through (v) and all proceeds (including, without limitation, whatever is received upon the sale, exchange, collection or other disposition of the foregoing and all "proceeds" as defined in Section 9-306 of the UCC as in effect in the State of New York) thereof, including all Recoveries relating thereto; (b) The Company hereby transfers, assigns, sets over and otherwise conveys to the Trustee for the benefit of the Holders, and grants to the Trustee, for the benefit of the Holders, a first priority perfected security interest in, all its right, title and interest in, to and under 27 the following: each of the Receivables Sale Agreement, the SPC Receivables Sale Agreement, the Servicing Agreement and the Security Agreement, including in respect of each agreement, (A) all property assigned thereunder and all rights of the Company to receive monies due and to become due under or pursuant to such agreement, whether payable as fees, expenses, costs or otherwise, (B) all rights of the Company to receive proceeds of any insurance, indemnity, warranty or guaranty with respect to such agreement, (C) claims of the Company for damages arising out of or for breach of or default under such agreement, (D) the right of the Company to amend, waive or terminate such agreement, to perform thereunder and to compel performance and otherwise exercise all remedies thereunder, (E) all other rights, remedies, powers, privileges and claims of the Company under or in connection with such agreement (whether arising pursuant to such agreement or otherwise available to the Company at law or in equity), including the rights of the Company to enforce such agreement and to give or withhold any and all consents, requests, notices, directions, approvals, extensions or waivers under or in connection therewith and (F) all monies due or to become due and all amounts received with respect to the items listed in clauses (A) through (F) and all proceeds (including, without limitation, whatever is received upon the sale, exchange, collection or other disposition of the foregoing and all "proceeds" as defined in Section 9-306 of the UCC as in effect in the State of New York) thereof, including all Recoveries relating thereto (all of the foregoing set forth in subclauses (A)-(F), inclusive, the "TRANSFERRED AGREEMENTS"); Such property described in the foregoing paragraphs (a) and (b), together with all investments and all monies on deposit in any other bank account or accounts maintained for the benefit of any Holders for payment to Holders shall constitute the assets of the Trust (the "TRUST ASSETS"). Subject to Section 5.9, although it is the intent of the parties to this Agreement that the conveyance of the Company's right, title and interest in, to and under the Receivables and the other Trust Assets described in paragraph (a) pursuant to this Agreement shall constitute a purchase and sale and not a loan, in the event that such conveyance is deemed to create a loan, the Company hereby grants to the Trustee, for the benefit of the Holders, a perfected first priority security interest in all of the Company's present and future right, title and interest in, to and under the Receivables and such other Trust Assets to secure the payment of the applicable Invested Amounts, interest thereon and the other fees and expenses due to the Holders, and that this Agreement shall constitute a security agreement under applicable law in favor of the Trustee, for the benefit of the Holders. (c) The assignment, set over and conveyance to the Trust pursuant to Section 2.1(a) shall be made to the Trustee, on behalf of the Trust, and each reference in this Agreement to such assignment, set over and conveyance shall be construed accordingly. In connection with the foregoing assignment, except as expressly provided otherwise in the Transaction Documents, the Company, the Servicer and each Sub-Servicer agree to deliver to the Trustee each Trust Asset (including any original documents or instruments included in the Trust Assets as are necessary to effect such assignment) in which the transfer of an interest is perfected under the UCC or otherwise solely by possession and not by filing a financing statement or similar document. 28 Notwithstanding the assignment of the Transferred Agreements set forth in Section 2.1(b), the Company does not hereby assign or delegate any of its duties or obligations under the Receivables Sale Agreement to the Trust or the Trustee and neither the Trust nor the Trustee accepts such duties or obligations, and the Company shall continue to have the right and the obligation to purchase Receivables from the Sellers thereunder from time to time. The foregoing assignment, set-over and conveyance does not constitute and is not intended to result in a creation or an assumption by the Trust, the Trustee, any Investor Certificateholder or the Company, in its capacity as a Holder, of any obligation of the Servicer, the Company, any Seller or any other Person in connection with the Receivables or under any agreement or instrument relating thereto, including, without limitation, any obligation to any Obligor. In connection with such assignment, the Company agrees to record and file, at its own expense, any financing statements (and continuation statements with respect to such financing statements when applicable) or, where applicable, registrations in the appropriate records, (i) with respect to the Receivables now existing and hereafter created and (ii) with respect to any other Trust Assets a security interest in which may be perfected under the relevant UCC, legislation or similar statute by such filing or registration, as the case may be, in each case meeting the requirements of applicable law in such manner and in such jurisdictions as are necessary to perfect and maintain perfection of the assignment of the Receivables and such other Trust Assets (excluding returned merchandise) to the Trust, and to deliver a file-stamped copy or certified statement of such financing statement or registration or other evidence of such filing or registration to the Trustee on or prior to the date of issuance of any Certificates. The Trustee shall be under no obligation whatsoever to file such financing statement, or a continuation statement to such financing statement, or to make any other filing or other registration under the UCC, other relevant legislation or similar statute in connection with such transfer. The Trustee shall be entitled to conclusively rely on the filings or registrations made by or on behalf of the Company without any independent investigation and the Company's obligation to make such filings as evidence that such filings have been made. In connection with such assignment, the Company further agrees, at its own expense, on or prior to the Initial Closing Date (a) to indicate, or to cause to be indicated, in its computer files containing its master database of Receivables and to cause each Seller to indicate in its records containing its master database of Receivables that Receivables have been conveyed to the Company or the Trust, as the case may be, pursuant to the Receivables Sale Agreement or this Agreement, respectively, for the benefit of the Holders and (b) to deliver, or cause to be delivered, to the Trustee computer tapes or disks containing a true and complete list of all Receivables transferred to the Trust specifying for each such Receivable, as of the Cut-Off Date, (i) the identification or reference number assigned to such Receivables by the Company and (ii) the Principal Amount of such Receivables. Such tapes or disks shall be marked as Schedule 1 to this Agreement and are hereby incorporated into and made a part of this Agreement. Section 2.2. ACCEPTANCE BY TRUSTEE. (a) The Trustee hereby acknowledges its acceptance on behalf of the Trust of all right, title and interest to the property, now existing and hereafter created, assigned to the Trust pursuant to Section 2.1 and declares that it shall maintain such right, title and interest, upon the trust herein set forth, for the benefit of all Holders. 29 (b) The Trustee shall have no power to create, assume or incur indebtedness or other liabilities in the name of the Trust other than as contemplated in this Agreement. Section 2.3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY RELATING TO THE COMPANY. The Company hereby represents and warrants to the Trustee and the Trust, for the benefit of the holders of Certificates of each Outstanding Series, as of the Issuance Date of such Series, that: (a) CORPORATE EXISTENCE; COMPLIANCE WITH LAW. The Company (i) is a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its organization, (ii) has all requisite corporate power and authority and all legal right to own and operate its properties, to lease the properties it operates as lessee and to conduct its business as now conducted, (iii) is duly qualified as a foreign corporation to do business and in good standing under the laws of each jurisdiction where such qualification is necessary and (iv) is in compliance with all Requirements of Law. The Company does not engage in activities prohibited by the Transaction Documents or its certificate of incorporation. (b) CORPORATE POWER; AUTHORIZATION. The Company has the corporate power and authority, and the legal right, to execute, deliver and perform this Agreement and the other Transaction Documents to which it is a party and has taken all necessary corporate action to authorize the execution, delivery and performance of this Agreement and the other Transaction Documents to which it is a party. No consent or authorization of, filing with, notice to or other act by or in respect of, any Governmental Authority or any other Person is required in connection with the execution, delivery, performance, validity or enforceability of this Agreement and the other Transaction Documents to which it is a party by or against the Company other than (i) those which have duly been obtained or made and are in full force and effect on the Initial Closing Date, (ii) any filings of UCC-1 financing statements or similar documents necessary to perfect the Company's or the Trust's interest in the Trust Assets and (iii) those that may be required under the state securities or "blue sky" laws in connection with the offering or sale of certificates. This Agreement and each other Transaction Document to which the Company is a party have been duly executed and delivered on behalf of the Company. (c) ENFORCEABILITY. This Agreement and each of the other Transaction Documents to which the Company is a party (i) constitute the legal, valid and binding obligations of the Company enforceable against it in accordance with their terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect affecting the enforcement of creditors' rights generally and except as such enforceability may be limited by general principles of equity (whether considered in a proceeding at law or in equity) and (ii) are effective and all action has been taken to cause compliance with paragraph (n) of the definition of Eligible Receivables. 30 (d) NO LEGAL BAR. The execution, delivery and performance of this Agreement and the other Transaction Documents to which the Company is a party will not violate any Requirement of Law, and will not result in, or require, the creation or imposition of any Lien (other than Liens contemplated or permitted hereby) on any of its properties or revenues pursuant to any such Requirement of Law or Contractual Obligation. (e) NO MATERIAL LITIGATION. There are no actions, suits, investigations or proceedings at law or in equity (including, without limitation, injunctions, writs or restraining orders) by or before any arbitrator, court or Governmental Authority now pending or, to the knowledge of the Company, threatened against or affecting the Company or any properties, revenues or rights of the Company which (i) involve this Agreement or any of the other Transaction Documents or any of the transactions contemplated hereby or thereby, or (ii) would be reasonably likely to have a Material Adverse Effect with respect to the Company. The transactions contemplated hereunder and the use of the proceeds thereof will not violate any Requirement of Law. (f) NO DEFAULT. The Company is not in default under or with respect to any of its Contractual Obligations. No Early Amortization Event or Potential Early Amortization Event has occurred and is continuing. (g) TAX RETURNS. The Company has filed or caused to be filed all tax returns which are required to have been filed by it and has paid or caused to be paid all taxes shown thereon to be due and payable, and any assessments made against it or any of its property. No tax Lien has been filed, and, to the best knowledge of the Company, no claim is being asserted, with respect to any taxes. For purposes of this paragraph, "taxes" shall mean any present or future tax, levy, impost, duty, charge, assessment or fee of any nature (including interest, penalties and additions thereto) that is imposed by any Governmental Authority. (h) LOCATION OF RECORDS; CHIEF EXECUTIVE OFFICE. The offices at which the Company keeps its records concerning the Receivables either (x) are located at the addresses set forth for the Sellers on Schedule II of the Receivables Sale Agreement or (y) have been reported to the Trustee in accordance with the provisions of subsection 2.8(l) of this Agreement. The chief executive office of the Company is located at one of the addresses set forth on Schedule 4 and is the place where the Company is "located" for the purposes of Section 9-103(3)(d) of the UCC as in effect in the State of New York. The state and county where the chief executive office of the Company is "located" for the purposes of Section 9-103(3)(d) of the UCC as in effect in the State of New York has not changed in the past four months. (i) SOLVENCY. Both prior to and after giving effect to the transactions occurring on each Issuance Date, (i) the fair value of the assets of the Company at a fair valuation will exceed the debts and liabilities, subordinated, contingent or otherwise, of the Company; (ii) the present fair salable value of the property of the Company will be greater than the amount that will be required to pay the probable liability of the Company on its 31 debts and other liabilities, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured; (iii) the Company will be able to pay its debts and liabilities, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured; and (iv) the Company will not have unreasonably small capital with which to conduct the business in which it is engaged as such business is now conducted and is proposed to be conducted. For all purposes of clauses (i) through (iv) above, the amount of contingent liabilities at any time shall be computed as the amount that, in the light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability. The Company does not intend to, nor does it believe that it will, incur debts beyond its ability to pay such debts as they mature, taking into account the timing of and amounts of cash to be received by it and the timing of and amounts of cash to be payable in respect of its Indebtedness. (j) INVESTMENT COMPANY. Neither the Company nor the Trust is an "investment company" within the meaning of the Investment Company Act of 1940, as amended, or is exempt from all provisions of such act. (k) OWNERSHIP; SUBSIDIARIES. All of the issued and outstanding capital stock of the Company is owned, legally and beneficially, by RS. The Company has no Subsidiaries. (l) NAMES. The legal name of the Company is as set forth in this Agreement. The Company has not had, nor has, any trade names, fictitious names, assumed names or "doing business as" names. (m) LIABILITIES. Other than, (i) the liabilities, commitments or obligations (whether absolute, accrued, contingent or otherwise) arising under or in respect of the Transaction Documents and (ii) immaterial amounts due and payable in the ordinary course of business of a special- purpose company, the Company does not have any liabilities, commitments or obligations (whether absolute, accrued, contingent or otherwise), whether due or to become due. (n) USE OF PROCEEDS; FEDERAL RESERVE BOARD REGULATION. No proceeds of the issuance of any Investor Certificates will be used by the Company to purchase or carry any margin stock (as defined in Regulation U of the Board of Governors of the Federal Reserve System, as in effect from time to time). The Company is in compliance with all applicable regulations of the Board of Governors of the Federal Reserve System (including, without limitation, Regulations U and G with respect to "margin stock"). (o) COLLECTION PROCEDURES. The Company and each Seller have in place procedures pursuant to the Transaction Documents which are either necessary or advisable to ensure the timely collection of Receivables. (p) LOCKBOX ACCOUNTS; ELIGIBLE SEGREGATED ACCOUNTS. Except to the extent otherwise permitted under the terms of this Agreement, (i) each Lockbox Agreement to which the Company is party is in full force and effect, (ii) each Lockbox Account set forth 32 in Schedule III to the Receivables Sales Agreement is free and clear of any Lien (other than any right of set-off expressly provided for in the applicable Lockbox Agreement), (iii) each Eligible Segregated Account Bank Acknowledgement to which the Company is party is in full force and effect and (iv) each Eligible Segregated Account established pursuant to subsection 2.3(b) of the Servicing Agreement is free and clear of any Lien. (q) NO CONFLICT. The execution and delivery of this Agreement and the Receivables Sale Agreement, the performance of the transactions contemplated hereby and thereby and the fulfillment of the terms hereof and thereof will not conflict with, result in any breach of any of the material terms and provisions of, or constitute (with or without notice or lapse of time or both) a default under, any indenture, contract, agreement, mortgage, deed of trust, or other instrument to which the Company is a party or by which it or any of its property is bound. (r) ALL CONSENTS REQUIRED. All appraisals, authorizations, consents, orders or other similar actions of any Person or of any governmental body or official required in connection with the execution and delivery of this Agreement, the Receivables Sale Agreement and the Certificates, the performance of the transactions contemplated hereby and thereby, and the fulfillment of or terms hereof and thereof, have been obtained. (s) BULK SALES. The execution, delivery and performance of this Agreement do not require compliance with any "bulk sales" law by the Company. The representations and warranties set forth in this Section 2.3 shall survive after the date made and the transfer and assignment of the Trust Assets to the Trust. Upon discovery by a Responsible Officer of the Company or the Servicer or by a Responsible Officer of the Trustee of a breach of any of the foregoing representations and warranties with respect to any Outstanding Series as of the Issuance Date of such Series, the party discovering such breach shall give prompt written notice to the other parties and to each Agent with respect to all Outstanding Series. The Trustee's obligations in respect of any breach are limited as provided in subsection 8.2(g). Section 2.4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY RELATING TO THE RECEIVABLES. The Company hereby represents and warrants to the Trustee and the Trust, for the benefit of the holders of Certificates of each Outstanding Series, (x) as of the Issuance Date of such Series, and (y) with respect to each Receivable transferred to the Trust after such Issuance Date, as of the related Receivables Purchase Date, unless, in either case, otherwise stated in the applicable Supplement or unless such representation or warranty expressly relates only to a prior date, that: (a) Schedule 1 to this Agreement sets forth in all material respects an accurate and complete listing as of the Cut-Off Date of all Receivables to be transferred to the Trust as of the Initial Closing Date and the information contained therein with respect to the identity and Principal Amount of each such Receivable is true and correct in all material 33 respects as of the Cut-Off Date. As of the Cut-Off Date, the aggregate amount of Receivables owned by the Company is accurately set forth in Schedule 1 hereto. (b) Each Receivable existing on the Initial Closing Date or, in the case of Receivables transferred to the Trust after the Initial Closing Date, on the date that each such Receivable shall have been transferred to the Trust, has been conveyed to the Trust free and clear of any Lien, except for Permitted Liens specified in clauses (i) and (v) of the definition thereof. (c) On the Initial Closing Date, each Receivable transferred to the Trust that is included in the calculation of the initial Aggregate Receivables Amount is an Eligible Receivable and, in the case of Receivables transferred to the Trust after the Initial Closing Date, on the date such Receivable shall have been transferred to the Trust, each such Receivable that is included in the calculation of the Aggregate Receivables Amount on such date is an Eligible Receivable. Each Receivable classified as an "Eligible Receivable" by the Company in any document or report delivered hereunder satisfies the requirements of eligibility contained in the definition of Eligible Receivable. The representations and warranties set forth in this Section 2.4 shall survive after the date made and the transfer and assignment of the Trust Assets to the Trust. Upon discovery by a Responsible Officer of the Company or the Servicer or a Responsible Officer of the Trustee of a breach of any of the representations and warranties with respect to each Outstanding Series as of the Issuance Date of such Series, the party discovering such breach shall give prompt written notice to the other parties and to each Agent with respect to all Outstanding Series. The Trustee's obligations in respect of any breach are limited as provided in Section 8.2(g). Section 2.5. REPURCHASE OF INELIGIBLE RECEIVABLES. (a) REPURCHASE OBLIGATION. If (i) any representation or warranty under subsections 2.4(a), (b) or (c) is not true and correct in any material respect as of the date specified therein with respect to any Receivable transferred to the Trust, (ii) there is a breach of any covenant under subsection 2.8(c) with respect to any Receivable and such breach has a material adverse effect on the Certificateholders' Interest in such Receivable or (iii) the Trust's interest in any Receivable is not a first priority perfected ownership or security interest at any time as a result of any action taken by, or any failure to take action by, the Company (any Receivable as to which the conditions specified in any of clauses (i), (ii) or (iii) of this subsection 2.5(a) exists is referred to herein as an "INELIGIBLE RECEIVABLE") then, upon the earlier (the date on which such earlier event occurs, the "REPURCHASE OBLIGATION DATE") of the discovery by the Company of any such event which continues unremedied or receipt by the Company of written notice given by the Trustee or the Servicer of any such event which continues unremedied, the Company shall become obligated to repurchase or cause to be repurchased such Ineligible Receivable on the terms and conditions set forth in subsection 2.5(b). (b) REPURCHASE OF RECEIVABLES. Subject to the last sentence of this subsection 2.5(b), the Company shall repurchase, or cause to be repurchased, each Ineligible Receivable required to be repurchased pursuant to subsection 2.5(a) by depositing in the Collection Account in immediately available funds on the Business Day following the related Repurchase Obligation 34 Date an amount equal to the lesser of (x) the amount by which the Aggregate Target Receivables Amount exceeds the Aggregate Receivables Amount (after giving effect to the reduction thereof by the Principal Amount of such Ineligible Receivable) and (y) the aggregate outstanding Principal Amount of each such Ineligible Receivable (the "TRANSFER DEPOSIT AMOUNT"). Upon transfer or deposit of the Transfer Deposit Amount, the Trust shall automatically and without further action be deemed to sell, transfer, assign, set over and otherwise convey to the Company, without recourse, representation or warranty, all the right, title and interest of the Trust in and to such Ineligible Receivable, all monies due or to become due with respect thereto and all proceeds thereof; and such repurchased Ineligible Receivable shall be treated by the Trust as collected in full as of the date on which it was transferred. The Trustee shall execute such documents and instruments of transfer or assignment and take such other actions as shall reasonably be requested by the Company to effect the conveyance of such Receivables pursuant to this subsection. Except as otherwise specified in any Supplement, the obligation of the Company to repurchase any Ineligible Receivable shall constitute the sole remedy respecting the event giving rise to such obligation available to Investor Certificateholders (or the Trustee on behalf of Investor Certificateholders). Section 2.6. PURCHASE OF INVESTOR CERTIFICATEHOLDERS' INTEREST IN TRUST PORTFOLIO. (a) In the event of any breach of any of the representations and warranties set forth in paragraphs (a), (b), (c), (d), (e)(i) or (q) of Section 2.3, which breach has a material adverse effect on the interests of the holders of an Outstanding Series (without giving effect to any Enhancement) under or with respect to the Transaction Documents, then the Trustee, at the written direction of holders evidencing more than 50% of the Invested Amount of such Outstanding Series, subject to Section 8.2 hereof, shall notify the Company to purchase such Outstanding Series and the Company shall be obligated to make such purchase on the next Distribution Date occurring at least five Business Days after receipt of such notice on the terms and conditions set forth in subsection 2.6(b) below; PROVIDED, HOWEVER, that no such purchase shall be required to be made if, by such Distribution Date, the representations and warranties contained in Section 2.3 shall be satisfied in all material respects and any material adverse effect on the holders of such Outstanding Series caused thereby shall have been cured. (b) As required under subsection 2.6(a) above, the Company shall deposit into the Collection Account for credit to the applicable subaccount of the Collection Account on the Business Day preceding such Distribution Date an amount equal to the purchase price (as described in the next succeeding sentence) for the Certificateholders' Interest for such Outstanding Series on such day. The purchase price for any such purchase will be equal to (i) the Adjusted Invested Amount of such Outstanding Series on the date on which the purchase is made plus (ii) an amount equal to all interest accrued but unpaid on such Series up to the Distribution Date on which the distribution of such deposit is scheduled to be made pursuant to Section 9.2 plus (iii) any other amount required to be paid in connection therewith pursuant to any Supplement. Notwithstanding anything to the contrary in this Agreement, the entire amount of the purchase price deposited in the Collection Account shall be distributed to the related Investor Certificateholders on such Distribution Date pursuant to Section 9.2. If the Trustee gives notice directing the Company to purchase the Certificates of an Outstanding Series as provided above, except as otherwise specified in any Supplement, the obligation of the Company to purchase such 35 Certificates pursuant to this Section 2.6 shall constitute the sole remedy respecting an event of the type specified in the first sentence of this Section 2.6 available to the applicable Investor Certificateholders (or the Trustee on behalf of such Investor Certificateholders). Section 2.7. AFFIRMATIVE COVENANTS OF THE COMPANY. The Company hereby covenants that, until the Trust Termination Date occurs, the Company shall: (a) FINANCIAL STATEMENTS. Furnish to the Trustee, each Agent and the Rating Agencies, as soon as available, but in any event within 95 days after the end of each fiscal year of the Company, a copy of the audited balance sheet and statement of operations of the Company as at the end of such year, all in reasonable detail and certified by an appropriate Responsible Officer as correct and fairly presenting the financial position and results of operations of the Company. (b) ANNUAL OPINION. Deliver to the Trustee an Opinion of Counsel, substantially in the form of Exhibit B, by January 31st of each year, the first such delivery hereunder to occur in January 1998. (c) PAYMENT OF OBLIGATIONS; COMPLIANCE WITH OBLIGATIONS. Pay, discharge or otherwise satisfy at or before maturity or before they become delinquent, as the case may be, all its obligations of whatever nature (including, without limitation, all taxes, assessments, levies and other governmental charges imposed on it), except where the amount or validity thereof is currently being contested in good faith by appropriate proceedings and reserves in conformity with GAAP with respect thereto have been provided on the books of the Company. The Company shall defend the right, title and interest of the Holders in, to and under the Receivables and the other Trust Assets, whether now existing or hereafter created, against all claims of third parties claiming through or under the Company, any Seller, any Sub-Servicer or the Servicer. The Company will duly fulfill all material obligations on its part to be fulfilled under or in connection with each Receivable and will do nothing to impair the rights of the Holders in such Receivable. (d) INSPECTION OF PROPERTY; BOOKS AND RECORDS; DISCUSSIONS. Keep proper books of records and accounts in which full, true and correct entries in conformity in all material respects with GAAP and all Requirements of Law shall be made of all dealings and transactions in relation to its business and activities; and permit representatives of the Trustee upon reasonable advance notice to visit and inspect any of its properties and examine and make abstracts from any of its books and records during normal business hours on any Business Day and as often as may reasonably be desired according to the Company's normal security and confidentiality requirements and to discuss the business, operations, properties and financial and other condition of the Company with officers and employees of the Company and with its Independent Public Accountants; PROVIDED, that the Trustee shall notify the Company prior to any contact with such Independent Public Accountants and shall give the Company the opportunity to participate in such discussions. 36 (e) COMPLIANCE WITH LAW AND POLICIES. (i) Comply in all material respects with all Requirements of Law applicable to the Company. (ii) Cause each Seller to perform its obligations in accordance with, and comply in all material respects with, the Policies, as amended from time to time in accordance with the Transaction Documents, in regard to the Receivables and the Related Property. (f) PURCHASE OF RECEIVABLES. Purchase Receivables solely pursuant to (i) the SPC Receivables Sale Agreement (but only on the Initial Closing Date), (ii) the Receivables Sale Agreement or (iii) this Agreement. (g) DELIVERY OF COLLECTIONS. In the event that the Company receives Collections directly from Obligors, deposit such Collections into the applicable Lockbox Account, the Collection Concentration Account or the Collection Account within one Business Day after receipt thereof by the Company. (h) NOTICES. Promptly (and, in any event, within five Business Days after a Responsible Officer of the Company becomes aware of such event) give written notice to the Trustee, each Rating Agency and each Agent for any Outstanding Series of: (i) the occurrence of any Early Amortization Event or Potential Early Amortization Event; and (ii) any Lien not permitted by subsection 2.8(c) on any Receivable or any other Trust Assets. (i) LOCKBOXES. (i) Maintain, and keep in full force and effect, each Lockbox Agreement to which the Company is a party, except to the extent otherwise permitted under the terms of this Agreement and the other Transaction Documents and (ii) ensure that each related Lockbox Account shall be free and clear of, and defend each such Lockbox Account against, any writ, order, stay, judgment, warrant of attachment or execution or similar process. (j) SEPARATE CORPORATE EXISTENCE. (i) Maintain its own deposit account or accounts, separate from those of any Affiliate, with commercial banking institutions and ensure that the funds of the Company will not be diverted to any other Person or for other than corporate uses of the Company, nor will such funds be commingled with the funds of any Seller or any other Subsidiary or Affiliate of any Seller; (ii) To the extent that it shares the same officers or other employees as any of its stockholders or Affiliates, the salaries of and the expenses related to providing benefits to such officers and other employees shall be fairly allocated 37 among such entities, and each such entity shall bear its fair share of the salary and benefit costs associated with all such common officers and employees; (iii) To the extent that it jointly contracts with any of its stockholders or Affiliates to do business with vendors or service providers or to share overhead expenses, the costs incurred in so doing shall be allocated fairly among such entities, and each such entity shall bear its fair share of such costs. To the extent that the Company contracts or does business with vendors or service providers where the goods and services provided are partially for the benefit of any other Person, the costs incurred in so doing shall be fairly allocated to or among such entities for whose benefit the goods or services are provided, and each such entity shall bear its fair share of such costs. All material transactions between the Company and any of its Affiliates, whether currently existing or hereafter entered into, shall be only on an arm's-length basis, it being understood and agreed that the transactions contemplated in the Transaction Documents meet the requirements of this clause (iii); (iv) Maintain a principal executive office at a separate address from the address of RS and its Affiliates; PROVIDED that segregated offices in the same building shall constitute separate addresses for purposes of this clause (iv). To the extent that the Company and any of its stockholders or Affiliates have offices in the same location, there shall be a fair and appropriate allocation of overhead costs among them, and each such entity shall bear its fair share of such expenses; (v) Issue separate financial statements prepared not less frequently than quarterly and prepared in accordance with GAAP; (vi) Conduct its affairs in its own name and strictly in accordance with its articles of incorporation and observe all necessary, appropriate and customary corporate formalities, including, but not limited to, holding all regular and special stockholders' and directors' meetings appropriate to authorize all corporate action, keeping separate and accurate minutes of its meetings, passing all resolutions or consents necessary to authorize actions taken or to be taken, and maintaining accurate and separate books, records and accounts, including, but not limited to, payroll and intercompany transaction accounts; (vii) Not assume or guarantee any of the liabilities of any Seller, any Servicing Party or any Affiliate of any thereof; and (viii) Take, or refrain from taking, as the case may be, all other actions that are necessary to be taken or not to be taken in order to (x) ensure that the assumptions and factual recitations set forth in the Specified Bankruptcy Opinion Provisions remain true and correct in all material respects with respect to the Company and (y) comply with those procedures described in such provisions which are applicable to the Company. 38 (k) PRESERVATION OF CORPORATE EXISTENCE. (i) Preserve and maintain its corporate existence, rights, franchises and privileges in the jurisdiction of its incorporation and (ii) qualify and remain qualified in good standing as a foreign corporation in each jurisdiction where the failure to preserve and maintain such existence, rights, franchises, privileges and qualification would, if not remedied within 30 days, be reasonably likely to have a Material Adverse Effect with respect to the Company. (l) NET WORTH. Maintain at all times a consolidated net worth (exclusive of the RS Loan), as determined in accordance with GAAP, of at least $43,000,000. (m) OPTIONAL TERMINATION. If the Company shall deliver an Optional Termination Notice to the Trustee with respect to any Outstanding Series, the Company shall deliver an Optional Termination Notice to the Trustee with respect to all Outstanding Series. (n) MAINTENANCE OF PROPERTY. Keep all material tangible property useful and necessary in its business in good working order and condition (normal wear and tear excepted), except to the extent that the failure to do any of the foregoing with respect to any such property would not be reasonably likely to have a Material Adverse Effect with respect to the Company. (o) FURTHER ASSURANCES. File, or cause to be filed, at the applicable Seller's expense and in accordance with the provisions of the UCC of the applicable jurisdiction, duly completed and executed continuation statements with respect to all financing statements filed in connection with the transactions contemplated by the Receivables Sale Agreement. Section 2.8. NEGATIVE COVENANTS OF THE COMPANY. The Company hereby covenants that, until the Trust Termination Date occurs, it shall not directly or indirectly: (a) ACCOUNTING OF TRANSFERS. Prepare any financial statements which shall account for the transactions contemplated hereby in any manner other than as a sale of Receivables and the other Trust Assets by the Company to the Trust or in any other respect account for or treat the transactions under this Agreement (including for financial accounting purposes, except as required by law) in any manner other than as transfers of Receivables and the other Trust Assets by the Company to the Trust; PROVIDED, HOWEVER, that this subsection shall not apply for any tax or tax accounting purposes. (b) LIMITATION ON INDEBTEDNESS. Create, incur, assume or suffer to exist any Indebtedness, except: (i) Indebtedness evidenced by the Subordinated Note; (ii) Indebtedness representing fees, expenses and indemnities payable pursuant to and in accordance with the Transaction Documents; and (iii) Indebtedness for services supplied or furnished to the Company in an amount not to exceed $10,000 at any one time outstanding; PROVIDED that any Indebtedness permitted hereunder and described in clauses (i) and (iii) shall be payable by the Company solely from funds available to the Company which are not otherwise needed to be applied to the payment of any amounts by the 39 Company pursuant to any Pooling and Servicing Agreements and shall be non-recourse other than with respect to proceeds in excess of the proceeds needed to be so applied. (c) LIMITATION ON LIENS. Create, incur, assume or suffer to exist any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired, except for Permitted Liens, it being understood that no Permitted Lien under clause (ii) of the definition thereof shall cover any of the Trust Assets (except to the limited extent permitted by clause (v) of such definition). (d) LIMITATION ON GUARANTEE OBLIGATIONS. Become or remain liable, directly or contingently, in connection with any Indebtedness or other liability of any other Person, whether by guarantee, endorsement (other than endorsements of negotiable instruments for deposit or collection in the ordinary course of business), agreement to purchase or repurchase, agreement to supply or advance funds, or otherwise, except in connection with indemnification obligations of the Company to the limited extent provided in the Company's articles of incorporation and by-laws; PROVIDED that any such indemnification shall be paid solely from funds available to the Company which are not otherwise needed to be applied to the payment of any amounts pursuant to any Pooling and Servicing Agreements, shall be non- recourse other than with respect to proceeds in excess of the proceeds necessary to make such payment, and shall not constitute a claim against the Company to the extent that insufficient proceeds exist to make such payment. (e) LIMITATION ON FUNDAMENTAL CHANGES. Enter into any merger, consolidation or amalgamation, or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution), or make any material change in its present method of conducting business, or convey, sell, lease, assign, transfer or otherwise dispose of, all or substantially all of its property, business or assets other than the assignments and transfers contemplated hereby. (f) LIMITATION ON DIVIDENDS AND OTHER PAYMENTS. Declare or pay any dividend on, or make any payment on account of, or set apart assets for a sinking or other analogous fund for, the purchase, redemption, defeasance, retirement or other acquisition of, any shares of any class of capital stock of the Company, whether now or hereafter outstanding, or make any other distribution in respect thereof, either directly or indirectly, whether in cash or property or in obligations of the Company (any of the foregoing, a "restricted payment"), unless (i) at the date such restricted payment is made, the Company shall have made all payments in respect of its repurchase obligations pursuant to this Agreement outstanding at such date and (ii) such restricted payment is made no more frequently than on a monthly basis and is effected in accordance with all corporate and legal formalities applicable to the Company; PROVIDED, HOWEVER, that (A) no restricted payment shall be made on any date if (x) a Potential Early Amortization Event of a type referred to in clause (a)(ii) or (iii) of Section 7.1 or (y) an Early Amortization Event has occurred and is continuing (or would occur as a result of such payment) on such date and (B) all restricted payments made on any date shall be payable by the Company solely from funds available to the Company which are not otherwise needed on such date to be applied 40 to the payment of any amounts by the Company pursuant to any Pooling and Servicing Agreement. (g) BUSINESS OF THE COMPANY. Engage at any time in any business or business activity other than the acquisition of Receivables pursuant to the Receivables Sale Agreement (or, on the Initial Closing Date, the SPC Receivables Sale Agreement), the assignments and transfers hereunder and the other transactions contemplated by the Transaction Documents, and any activity incidental to the foregoing and necessary or convenient to accomplish the foregoing, or enter into or be a party to any agreement or instrument other than in connection with the foregoing, except those agreements or instruments permitted under subsection 2.8(i) or set forth on Schedule 5. (h) LIMITATION ON INVESTMENTS, LOANS AND ADVANCES. Make any advance, loan, extension of credit or capital contribution to, or purchase any stock, bonds, notes, debentures or other securities of or any assets constituting a business unit of, or make any other investment in, any Person, except for (i) any Exchangeable Company Interest, any Series Subordinated Interest, the Receivables and the other Trust Assets, (ii) the Subordinated Note and (iii) any other advance or loan made to any Seller, PROVIDED, HOWEVER, that in the case of the preceding clause (iii), (A) no (x) Potential Early Amortization Event of a type referred to in clause (a)(ii) or (iii) of Section 7.1 or (y) Early Amortization Event has occurred and is continuing at the time any such investment is made (or would occur as a result of such investment), (B) no amounts are outstanding under the Subordinated Note, (C) the loan made is a demand loan at a market rate of interest and (D) any such investment shall be made by the Company solely from funds available to the Company which are not otherwise needed to be applied to the payment of any amounts by the Company pursuant to any Pooling and Servicing Agreement. (i) AGREEMENTS. (i) Become a party to, or permit any of its properties to be bound by, any indenture, mortgage, instrument, contract, agreement, lease or other undertaking, except the Transaction Documents, leases of office space, equipment or other facilities for use by the Company in its ordinary course of business, employment agreements, service agreements, agreements relating to shared employees and the other Transaction Documents and agreements necessary to perform its obligations under the Transaction Documents, (ii) issue any power of attorney (except to the Trustee or the Servicer or except for the purpose of permitting any Person to perform any ministerial functions on behalf of the Company that are not prohibited by or inconsistent with the terms of the Transaction Documents), or (iii) amend, supplement, modify or waive any of the provisions of the Receivables Sale Agreement or any Lockbox Agreement or request, consent or agree to or suffer to exist or permit any such amendment, supplement, modification or waiver or exercise any consent rights granted to it thereunder unless such amendment, supplement, modification or waiver or such exercise of consent rights would not be reasonably likely to have a Material Adverse Effect and, in the case of the Receivables Sale Agreement, the Rating Agency Condition shall have been satisfied with respect to any such amendments, supplements, modifications or waivers. 41 (j) POLICIES. Make any change or modification (or permit any change or modification to be made) in any material respect to the Policies, except (i) if such changes or modifications are necessary under any Requirement of Law, (ii) if such changes or modifications would not reasonably be likely to have a Material Adverse Effect with respect to the Company or (iii) if the Rating Agency Condition is satisfied with respect thereto; PROVIDED, HOWEVER, that if any change or modification, other than a change or modification permitted pursuant to clause (i) or (ii) above, would be reasonably likely to have a Material Adverse Effect on the interests of the Investor Certificateholders of a Series which is not rated by a Rating Agency, the consent of the applicable Agent (or as specified in the related Supplement) shall be required to effect such change or modification. (k) RECEIVABLES NOT TO BE EVIDENCED BY PROMISSORY NOTES. Subject to the delivery requirement set forth in subsection 2.1(c), take any action to cause any Receivable to be evidenced by any "instrument" other than, provided that the procedures set forth in Schedule 3 are fully implemented with respect thereto, an instrument which alone or together with a security agreement constitutes "chattel paper" (each as defined in the UCC as in effect in any state in which the Company's or the applicable Seller's chief executive office or books and records relating to such Receivable are located), except in connection with its enforcement or collection of a Defaulted Receivable. (l) OFFICES. Move outside or within the state where such office is now located the location of its chief executive office or of any of the offices where it keeps its records with respect to the Receivables without (i) in the case of moves outside such state, giving 30 days' prior written notice to the Trustee and each Rating Agency, (ii) in the case of moves within such state, giving the Trustee prompt notice of a change within the state where such office is now located of the location of its chief executive office or any office where it keeps its records with respect to the Receivables and (iii) taking all actions reasonably requested by the Trustee (including but not limited to all filings and other acts necessary or advisable under the UCC or similar statute of each relevant jurisdiction) in order to continue the Trust's first priority perfected ownership or security interest in all Receivables now owned or hereafter created; PROVIDED, HOWEVER, that the Company shall not change the location of its chief executive office to outside of the United States, or to a state which is within the Tenth Circuit unless it delivers an Opinion of Counsel reasonably acceptable to the Rating Agencies to the effect that OCTAGON GAS SYSTEMS, INC. V. RIMMER, 995 F.2d 948 (10th Cir. 1993) is no longer controlling precedent in the Tenth Circuit. (m) CHANGE IN NAME. Change its name, identity or corporate structure in any manner which would or might make any financing statement or continuation statement (or other similar instrument) filed in accordance with subsection 10.2(a) seriously misleading within the meaning of Section 9-402(7) of the UCC as in effect in any applicable jurisdiction in which UCC filings have been made in respect of the Trust Assets without 30 days' prior written notice to the Trustee and each Rating Agency. 42 (n) CHARTER. Amend or make any change or modification to its certificate of incorporation or by-laws without first satisfying the Rating Agency Condition (other than an amendment, change or modification made pursuant to changes in law of the state of its incorporation or amendments to change the Company's name (subject to compliance with clause (m) above), resident agent or address of resident agent). (o) ADDITION OF SELLERS. Agree to the addition of any Subsidiary of RS as an additional Seller pursuant to Section 9.13 of the Receivables Sale Agreement without such Subsidiary's being simultaneously added as a Sub- Servicer (or without another Subsidiary's simultaneously agreeing to act as a Sub-Servicer in respect of such additional Seller) under the Transaction Documents pursuant to Section 2.6 of the Servicing Agreement. ARTICLE III RIGHTS OF HOLDERS AND ALLOCATION AND APPLICATION OF COLLECTIONS THE FOLLOWING PORTION OF THIS ARTICLE III IS APPLICABLE TO ALL SERIES. Section 3.1. ESTABLISHMENT OF COLLECTION ACCOUNT AND COLLECTION CONCENTRATION ACCOUNT; CERTAIN ALLOCATIONS. (a)(i) The Trustee, for the benefit of the Holders as their interests appear in this Agreement, shall cause to be established and maintained in the name of the Trust with an Eligible Institution or with the corporate trust department of the Trustee or an affiliate of the Trustee, a segregated trust account (the "COLLECTION ACCOUNT"), bearing a designation clearly indicating that the funds deposited therein are held for the benefit of the Holders. Schedule 2, which is hereby incorporated into and made a part of this Agreement, identifies the Collection Account by setting forth the account number of such account, the account designation of such account and the name of the institution with which such account has been established. The Collection Account shall be divided into individual subaccounts for each Outstanding Series (each, respectively, a "SERIES COLLECTION SUBACCOUNT" and, collectively, the "SERIES COLLECTION SUBACCOUNTS") and for the Company (the "COMPANY COLLECTION SUBACCOUNT"). For administrative purposes only, the Trustee shall establish or cause to be established for each Series, so long as such Series is an Outstanding Series, sub-subaccounts of the Series Collection Subaccounts with respect to such Series (respectively, the "SERIES PRINCIPAL COLLECTION SUB-SUBACCOUNT" and "SERIES NON-PRINCIPAL COLLECTION SUB-SUBACCOUNT" and, collectively, the "SERIES COLLECTION SUB- SUBACCOUNTS"). (ii) The Trustee also shall establish, for the benefit of the Holders as their interests appear in this Agreement, an intervening deposit account with an Eligible Institution or with the corporate trust department of the Trustee or an affiliate of the Trustee (the "COLLECTION CONCENTRATION ACCOUNT") in the name of the Trust, which account shall be used for the receipt of Collections transferred from the Lockbox Accounts and the Eligible 43 Segregated Accounts (to the extent so provided in the Servicing Agreement) prior to the deposit of such Collections into the Collection Account. (b) AUTHORITY OF THE TRUSTEE IN RESPECT OF THE COLLECTION ACCOUNT AND THE COLLECTION CONCENTRATION ACCOUNT AND HOLDERS' INTERESTS THEREIN. (i) The Trustee, on behalf of the Holders, shall possess all right, title and interest in all funds on deposit from time to time in the Collection Account and the Collection Concentration Account and in all proceeds thereof. The Collection Account and the Collection Concentration Account shall be under the sole dominion and control of the Trustee for the benefit of the Investor Certificateholders and, to the extent set forth in any Supplement, any owner of any Series Subordinated Interest. If, at any time, the Servicer has actual notice or knowledge that any institution holding the Collection Account is other than the corporate trust department of the Trustee or an affiliate of the Trustee, or that the institution holding the Collection Account or the Collection Concentration Account has ceased to be an Eligible Institution, the Servicer shall direct the Trustee in writing to establish within 30 days a substitute account therefor with an Eligible Institution, transfer any cash and/or any Eligible Investments to such new account and from the date any such substitute accounts are established, such account shall be the Collection Account (or the Collection Concentration Account, as the case may be). Neither the Company nor the Servicer, nor any person or entity claiming by, through or under the Company or Servicer, shall have any right, title or interest in, except to the extent expressly provided under the Transaction Documents, or any right to withdraw any amount from, the Collection Account or the Collection Concentration Account. Pursuant to the authority granted to the Servicer in subsection 2.2(a) of the Servicing Agreement, the Servicer shall have the power, revocable by the Trustee, to instruct the Trustee in writing to make withdrawals from and payments to the Collection Account and/or the Collection Concentration Account for the purposes of carrying out the Servicer's or the Trustee's duties hereunder. (ii) Each Series of Investor Certificates shall represent Fractional Undivided Interests in the Trust as indicated in the Supplement (including any Enhancement applicable to such Series as specified in the related Supplement) relating to such Series and the right to receive Collections and other amounts at the times and in the amounts specified in this Article III (as supplemented by the Supplement related to such Series) to be deposited in the Collection Account and any other accounts maintained for the benefit of the Investor Certificateholders or paid to the Investor Certificateholders (with respect to each outstanding Series, the "CERTIFICATEHOLDERS' INTEREST"). The "EXCHANGEABLE COMPANY INTEREST" shall be the interest in the Trust not represented by any Series of Investor Certificates then outstanding or Series Subordinated Interests then in existence, including the right to receive Collections and other amounts at the times and in the amounts specified in this Article III to be paid to the Company (the "COMPANY INTEREST"), and each Series Subordinated Interest, if any, shall be the interest specified as such pursuant to the related Supplement; PROVIDED, HOWEVER, that no such Exchangeable Company Interest or Series Subordinated Interest shall include any interest in any Trust Account or any other accounts maintained for the benefit of the Investor Certificateholders, except as specifically provided in Article III. 44 (c) ADMINISTRATION OF THE COLLECTION ACCOUNT. At the written direction of the Servicer, funds on deposit in the Collection Account available for investment shall be invested by the Trustee in Eligible Investments selected by the Company. All such Eligible Investments shall be held by the Trustee for the benefit of the Investor Certificateholders. Amounts on deposit in each Series Non-Principal Collection Sub-subaccount shall, if applicable, be invested in Eligible Investments that will mature, or that are payable or redeemable upon demand of the holder thereof, so that such funds will be available on or before the Business Day immediately preceding the next Distribution Date. None of such Eligible Investments shall be disposed of prior to the maturity date with respect thereto unless such disposition is reasonably necessary to prevent a loss. All interest and investment earnings (net of losses and investment expenses) (the "INVESTMENT EARNINGS") on funds deposited in a Series Non- Principal Collection Sub-subaccount shall be deposited in such sub-subaccount. Amounts on deposit in the Series Principal Collection Sub-subaccounts and any other sub-subaccounts as specified in the related Supplement shall be invested in Eligible Investments that mature, or that are payable or redeemable upon demand of the holder thereof, so that such funds will be available not later than the date which is specified in any Supplement. The Trustee, or its nominee or custodian, shall maintain possession of the instruments or securities, if any, evidencing any Eligible Investments from the time of purchase thereof until the time of sale or maturity. Any Investment Earnings on such invested funds in a Series Principal Collection Sub-subaccount and any other sub-subaccounts as specified in the related Supplement will be deposited in the related Series Non- Principal Collection Sub-subaccount. (d) DAILY COLLECTIONS. (i) Promptly following its receipt of Collections in the form of available funds in the Lockbox Accounts, but in no event later than the Business Day following such receipt, the Servicer shall transfer, or cause to be transferred, all Collections on deposit (less the aggregate amount of set-offs permitted to be retained pursuant to any applicable Lockbox Agreement) in the form of available funds in the Lockbox Accounts directly to the Collection Concentration Account. In addition, in accordance with subsection 2.3(a) of the Servicing Agreement, funds on deposit in certain Eligible Segregated Accounts and certain funds received directly by a Servicing Party from an Obligor may be transferred to the Collection Concentration Account. (ii) Promptly, but in no event later than the date of deposit (unless received after 3:00 p.m., New York City time, on such date, then on the next Business Day) (the "DEPOSIT DATE"), the Trustee shall transfer amounts on deposit in the Collection Concentration Account into the Collection Account. (iii) Until an Early Termination has occurred with respect to all Sellers, no later than the Business Day following each Deposit Date, the Trustee shall (in accordance with the written directions received from the Servicer pursuant to subsection (h) below, upon which the Trustee may conclusively rely) transfer from Aggregate Daily Collections deposited into the Collection Account pursuant to subsection (d)(ii) above on such Deposit Date, to the Company Collection Subaccount, an amount equal to the product of (x) the PACA Percentage on such date and (y) such Aggregate Daily Collections. 45 (iv) No later than the Business Day following each Deposit Date, following the transfer, if any, made pursuant to Subsection (d)(iii) above, the Trustee shall (in accordance with the written directions received from the Servicer pursuant to subsection (h) below, upon which the Trustee may conclusively rely) transfer from Aggregate Daily Collections deposited into the Collection Account pursuant to subsection (d)(ii) above on such Deposit Date, to the respective Series Collection Subaccount, an amount equal to the product of (x) the applicable Invested Percentage for such Outstanding Series and (y) such Aggregate Daily Collections (after giving effect to the transfer, if any, made pursuant to subsection (d)(iii) above). (v) No later than the Business Day following each Deposit Date, the Trustee shall (in accordance with the written directions received from the Servicer pursuant to subsection (h) below, upon which the Trustee may conclusively rely) allocate funds transferred to the Series Collection Subaccount for each Outstanding Series pursuant to subsection (d)(iv) above to the Series Non-Principal Collection Sub-subaccount, the Series Principal Collection Sub-subaccount and such other Sub-subaccounts of each such Series in accordance with the related Supplement for such Series. (vi) No later than the Business Day following each Deposit Date, except as otherwise provided in a Supplement, the Trustee shall (in accordance with the written directions received from the Servicer pursuant to subsection (h) below, upon which the Trustee may conclusively rely) transfer to the Company Collection Subaccount from Aggregate Daily Collections deposited into the Collection Account pursuant to subsection (d)(ii) above on such Deposit Date, the remaining funds (less an amount equal to the costs and expenses, if any, incurred by the Trustee with respect to the sale of the Receivables pursuant to subsection 7.2(a) or 9.1(b) and reimbursable to the Trustee as provided in Section 8.5), if any, on deposit in the Collection Account on such date after giving effect to transfers to be made pursuant to subsections (d)(iii) and (d)(iv) above. (e) CERTAIN ALLOCATIONS FOLLOWING AN AMORTIZATION PERIOD. (i) If, on any Settlement Report Date, an Amortization Period has occurred and is continuing with respect to any Outstanding Series and at such Settlement Report Date, a Revolving Period is still in effect with respect to any other Outstanding Series (a "SPECIAL ALLOCATION SETTLEMENT REPORT DATE"), then the Servicer shall make the following calculations: (A) the amount (the "ALLOCABLE CHARGED-OFF AMOUNT") equal to the excess, if any, of (I) the aggregate Principal Amount of Charged-Off Receivables for the related Settlement Period over (II) the aggregate Principal Amount of Recoveries received during the related Settlement Period; (B) the amount (the "ALLOCABLE RECOVERIES AMOUNT") equal to the excess, if any, of (I) the aggregate Principal Amount of Recoveries received during the related Settlement Period over (II) the aggregate Principal Amount of Charged-Off Receivables for the related Settlement Period; and 46 (ii) If, on any Special Allocation Settlement Report Date, any of the Allocable Charged-Off Amount or the Allocable Recoveries Amount is greater than zero for the related Settlement Period, the Trustee shall (in accordance with written directions received pursuant to subsection (b)(i) above, upon which the Trustee may conclusively rely) make (A) a pro rata allocation to each Outstanding Series (based on the Invested Percentage for such Series) of a portion (as determined in clause (iii) below) of each such positive amount and (B) an allocation to the Exchangeable Company Interest of the remaining portion of each such positive amount. (iii) With respect to each portion of the Allocable Charged-Off Amount and the Allocable Recoveries Amount which is allocated to an Outstanding Series pursuant to subsection 3.1(e)(ii), the Trustee shall apply each such amount to such Series in accordance with the related Supplement for such Series. (f) DAILY PACA-RELATED TRANSFER; ALLOCATIONS FOR THE EXCHANGEABLE COMPANY INTEREST. (i) If, on any Business Day, funds have been deposited in the Company Collection Subaccount pursuant to subsection 3.1(d)(iii), then after making all allocations required pursuant to subsection 3.1(d), the Trustee shall (in accordance with the written direction of the Servicer, upon which the Trustee may conclusively rely) transfer to the Company from funds on deposit in the Company Collection Subaccount the amount calculated pursuant to subsection 3.1(d)(iii). (ii) In addition, until the occurrence and continuance of an Early Amortization Period, on each Business Day and, after the occurrence and continuance of an Early Amortization Period and until the Trust Termination Date, on each Distribution Date, after making all allocations required pursuant to subsection 3.1(d), the Trustee shall (in accordance with the written direction of the Servicer, upon which the Trustee may conclusively rely) transfer to the owner of the Exchangeable Company Interest the remaining amount on deposit in the Company Collection Subaccount. (g) SET-OFF. (i) In addition to the provisions of Section 8.5, if the Company shall fail to make a payment as provided in this Agreement or any Supplement, the Servicer or the Trustee may set off and apply any amounts otherwise payable to the Company under any Pooling and Servicing Agreement. The Company hereby waives demand, notice or declaration of such set-off and application; PROVIDED that notice will promptly be given to the Company of such set-off; PROVIDED FURTHER that failure to give such notice shall not affect the validity of such set-off. (ii) In addition to the provisions of Section 8.5, in the event the Servicer shall fail to make a payment as provided in any Pooling and Servicing Agreement, the Trustee may set off and apply any amounts otherwise payable to the Servicer in its capacity as Servicer under the Transaction Documents on account of such obligation. The Servicer hereby waives demand, notice or declaration of such set-off and application; PROVIDED that notice will promptly be given to the Servicer of such set-off; PROVIDED FURTHER that failure to give such notice shall not affect the validity of such set-off. (h) ALLOCATION AND APPLICATION OF FUNDS. The Servicer shall direct the Trustee in writing in a timely manner to apply all Collections with respect to the Receivables as described 47 in this Article III and in the Supplement with respect to each Outstanding Series. The Servicer shall direct the Trustee in writing to pay Collections to the owner of the Exchangeable Company Interest to the extent such Collections are allocated to the Exchangeable Company Interest under subsection 3.1(f) and as otherwise provided in Article III. Notwithstanding anything in this Agreement, any Supplement or any other Transaction Document to the contrary, to the extent that the Trustee receives any Daily Report prior to 2:00 p.m., New York City time, on any Business Day, the Trustee shall make any applications of funds required thereby on the same Business Day and otherwise on the next succeeding Business Day. THE REMAINDER OF ARTICLE III SHALL BE SPECIFIED IN THE SUPPLEMENT WITH RESPECT TO EACH SERIES. SUCH REMAINDER SHALL BE APPLICABLE ONLY TO THE SERIES RELATING TO THE SUPPLEMENT IN WHICH SUCH REMAINDER APPEARS. ARTICLE IV ARTICLE IV IS RESERVED AND MAY BE SPECIFIED IN ANY SUPPLEMENT WITH RESPECT TO THE SERIES RELATING THERETO ARTICLE V THE CERTIFICATES AND INTERESTS Section 5.1. THE CERTIFICATES. The Investor Certificates of each Series and any Class thereof shall be in fully registered form and shall be substantially in the form of the exhibits with respect thereto attached to the applicable Supplement. The Certificates shall, upon issue, be executed and delivered by the Company to the Trustee for authentication and redelivery as provided in Section 5.2. Except as otherwise set forth in the related Supplement, the Investor Certificates shall be issued in minimum denominations of $1,000,000 and in integral multiples of $100,000 in excess thereof unless otherwise specified in any Supplement for any Series and Class. Unless otherwise specified in any Supplement for any Series, the Investor Certificates shall be issued upon initial issuance as a single global certificate in an original principal amount equal to the Initial Invested Amount with respect to such Series. The Company is hereby authorized to execute and deliver each Certificate on behalf of the Trust. Each Certificate shall be executed by manual or facsimile signature on behalf of the Company by a Responsible Officer. Certificates bearing the manual or facsimile signature of the individual who was, at the time when such signature was affixed, authorized to sign on behalf of the Company or the Trustee shall not be rendered invalid, notwithstanding that such individual has ceased to be so authorized prior to or on the date of the authentication and delivery of such Certificates or does not hold such office at the date of such Certificates. No Certificate shall be entitled to any benefit under this Agreement, 48 or be valid for any purpose, unless there appears on such Certificate a certificate of authentication substantially in the form provided for herein executed by or on behalf of the Trustee by the manual signature of a duly authorized signatory, and such certificate of authentication upon any Certificate shall be conclusive evidence, and the only evidence, that such Certificate has been duly authenticated and delivered hereunder. All Certificates shall be dated the date of their authentication but failure to do so shall not render them invalid. Section 5.2. AUTHENTICATION OF CERTIFICATES. The Trustee shall authenticate and deliver the initial Series of the Investor Certificates that is issued upon original issuance, upon the written order of the Company in a form reasonably satisfactory to the Trustee, to the holders of the initial Series of Investor Certificates, against payment to the Company of the Initial Invested Amount. The Investor Certificates shall be duly authenticated by or on behalf of the Trustee in authorized denominations equal to (in the aggregate) the Initial Invested Amount and the interests evidenced thereby, together with any Series Subordinated Interest and the Exchangeable Company Interest, shall constitute the entire ownership of the Trust. Upon a Company Exchange as provided in Section 5.10 and the satisfaction of certain other conditions specified therein, the Trustee shall authenticate and deliver the Certificates of additional Series (with the designation provided in the applicable Supplement) (or, if provided in any Supplement, the additional Investor Certificates of an existing Series), upon the written order of the Company, to the Persons designated in such Supplement. Upon the order of the Company, the Investor Certificates of any Series shall be duly authenticated by or on behalf of the Trustee, in authorized denominations equal to (in the aggregate) the Initial Invested Amount of such Series of Investor Certificates. Section 5.3. REGISTRATION OF TRANSFER AND EXCHANGE OF CERTIFICATES. (a) The Trustee shall cause to be kept at the office or agency to be maintained by a transfer agent and registrar (which may be the Trustee) (the "TRANSFER AGENT AND REGISTRAR") in accordance with the provisions of Section 8.16 a register (the "CERTIFICATE REGISTER") in which, subject to such reasonable regulations as the Trustee may prescribe, the Transfer Agent and Registrar shall provide for the registration of the Investor Certificates and of transfers and exchanges of the Investor Certificates as herein provided. The Company hereby appoints the Trustee as Transfer Agent and Registrar for the purpose of registering the Investor Certificates and transfers and exchanges of the Investor Certificates as herein provided. The Trustee shall be permitted to resign as Transfer Agent and Registrar upon 30 days' written notice to the Company and the Servicer; PROVIDED, HOWEVER, that such resignation shall not be effective and the Trustee shall continue to perform its duties as Transfer Agent and Registrar until the Trustee has appointed a successor Transfer Agent and Registrar reasonably acceptable to the Company and such successor Transfer Agent and Registrar has accepted such appointment. The provisions of Sections 8.1, 8.2, 8.3, 8.5 and 10.19 shall apply to the Trustee also in its role as Transfer Agent or Registrar, as the case may be, for so long as the Trustee shall act as Transfer Agent or Registrar, as the case may be. The Company hereby agrees to provide the Trustee from time to time sufficient funds, on a timely basis and in accordance with and subject to Section 8.5, for the payment of any reasonable compensation payable to the Transfer Agent and Registrar for their services under this 49 Section 5.3. The Trustee hereby agrees that, upon the receipt of such funds from the Company, it shall pay the Transfer Agent and Registrar such amounts. Upon surrender for registration of transfer of any Investor Certificate at any office or agency of the Transfer Agent and Registrar maintained for such purpose, the Company shall execute, and, upon the written request of the Company, the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Investor Certificates in authorized denominations of the same Series representing like aggregate Fractional Undivided Interests and which bear numbers that are not contemporaneously outstanding. At the option of an Investor Certificateholder, Investor Certificates may be exchanged for other Investor Certificates of the same Series in authorized denominations of like aggregate Fractional Undivided Interests, bearing numbers that are not contemporaneously outstanding, upon surrender of the Investor Certificates to be exchanged at any such office or agency of the Transfer Agent and Registrar maintained for such purpose. Whenever any Investor Certificates of any Series are so surrendered for exchange, the Company shall execute, and, upon the written request of the Company, the Trustee shall authenticate and (unless the Transfer Agent and Registrar is different from the Trustee, in which case the Transfer Agent and Registrar shall) deliver, the Investor Certificates of such Series which the Investor Certificateholder making the exchange is entitled to receive. Every Investor Certificate presented or surrendered for registration of transfer or exchange shall be accompanied by a written instrument of transfer substantially in the form attached to the form of such Investor Certificate and duly executed by the holder thereof or his attorney-in-fact duly authorized in writing delivered to the Trustee (unless the Transfer Agent and Registrar is different from the Trustee, in which case to the Transfer Agent and Registrar) and complying with any requirements set forth in the applicable Supplement. No service charge shall be made for any registration of transfer or exchange of Investor Certificates, but the Transfer Agent and Registrar may require any Investor Certificateholder that is transferring or exchanging one or more Certificates to pay a sum sufficient to cover any tax or governmental charge that may be imposed in connection with any transfer or exchange of Investor Certificates. All Investor Certificates surrendered for registration of transfer and exchange shall be cancelled and disposed of in a customary manner satisfactory to the Trustee. The Company shall execute and deliver Certificates to the Trustee or the Transfer Agent and Registrar in such amounts and at such times as are necessary to enable the Trustee and the Transfer Agent and Registrar to fulfill their respective responsibilities under this Agreement and the Certificates. (b) The Transfer Agent and Registrar will maintain at its expense in the Borough of Manhattan, The City of New York and, subject to subsection 5.3(a), if specified in the related Supplement for any Series, any other city designated in such Supplement, an office or offices or 50 agency or agencies where Investor Certificates may be surrendered for registration or transfer or exchange. (c) Unless otherwise stated in any related Supplements, registration of transfer of Certificates containing a legend relating to restrictions on transfer of such Certificates (which legend shall be set forth in the Supplement relating to such Investor Certificates) shall be effected only if the conditions set forth in the related Supplement are complied with. Certificates issued upon registration or transfer of, or in exchange for, Certificates bearing the legend referred to above shall also bear such legend unless the Company, the Servicer, the Trustee and the Transfer Agent and Registrar receive an Opinion of Counsel satisfactory to each of them, to the effect that such legend may be removed. (d) (i) The Company may not transfer, assign, exchange or otherwise pledge or convey the Series Subordinated Interest of any Series or the Exchangeable Company Interest except, with respect to the Exchangeable Company Interest, pursuant to Section 5.10. (ii) Neither the Company nor the Servicer shall at any time participate in the listing of any Targeted Investor Certificate (as defined below) on an "established securities market" within the meaning of Section 7704(b)(1) of the Internal Revenue Code and any proposed, temporary or final treasury regulation thereunder as of the date hereof, including, without limitation, an over-the-counter or interdealer quotation system that regularly disseminates firm buy or sell quotations. "TARGETED INVESTOR CERTIFICATE" shall mean any Certificate representing a right to receive interest or principal with respect to any Class or Series of Investor Certificates with respect to which an Opinion of Counsel has not been rendered that such Certificates will be treated as debt for federal income tax purposes (it being understood that any Certificate with respect to which an Opinion of Counsel has been rendered that such Certificate will be treated either as debt or as an interest in a partnership for federal income tax purposes shall be a Targeted Investor Certificate). (e)(i) No transfer of a Targeted Investor Certificate or grant of a participation therein shall be permitted if (A) such transfer or grant would cause the number of Targeted Holders (as defined below) to exceed 75 or (B) the transferee or grantee, as the case may be, is a trust, partnership or "S corporation" (within the meaning of Section 1361(a) of the Code) (a "FLOW-THROUGH ENTITY"), unless such flow-through entity represents that less than 50% of the aggregate value of such flow-through entity's assets consist of Targeted Investor Certificates. "TARGETED HOLDER" shall mean each holder of a Targeted Investor Certificate; PROVIDED, HOWEVER, that any Person holding more than one interest with respect to the Investor Certificates or the Trust, each of which separately would cause such Person to be a Targeted Holder, shall be treated as a single Targeted Holder. (ii) The Company and the Servicer hereby jointly and severally agree not to permit the sum of (x) the number of Persons holding a right to receive any amount in respect of the 51 Exchangeable Company Interest or any Series Subordinated Interest and (y) the number of Servicing Parties that receive any portion of the Servicing Fee to exceed 25. (iii) Any determination by the Transfer Agent and Registrar (in accordance with the information contained in the Certificate Register and the certifications made by each transferee and participant pursuant to the applicable Supplement, upon which information the Transfer Agent and Registrar may conclusively rely) that the event described in either clause (i)(A) or (i)(B) of this subsection 5.3(e) would occur as the result of a transfer of a Targeted Investor Certificate or the grant of a participation therein shall be (X) communicated in writing to the transferring or granting Investor Certificateholder prior to the effective date set out in the notice of transfer or participation required by, or otherwise provided for under, the related Supplement and (Y) binding upon the parties absent manifest error. Section 5.4. MUTILATED, DESTROYED, LOST OR STOLEN CERTIFICATES. If (a) any mutilated Certificate is surrendered to the Transfer Agent and Registrar, or the Transfer Agent and Registrar receives evidence in the form of a certification by the holder thereof of the destruction, loss or theft of any Certificate and (b) there is delivered to the Transfer Agent and Registrar and the Trustee such security or indemnity as may be required by them to save the Trust and each of them harmless, then, in the absence of actual notice to the Trustee or Transfer Agent and Registrar that such Certificate has been acquired by a bona fide purchaser, the Company shall execute and, upon the written request of the Company, the Trustee shall authenticate and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Certificate, a new Certificate of like tenor and aggregate Fractional Undivided Interest and bearing a number that is not contemporaneously outstanding. In connection with the issuance of any new Certificate under this Section 5.4, the Trustee or the Transfer Agent and Registrar may require the payment by the Holder of a sum sufficient to cover any tax or other governmental expenses (including the fees and expenses of the Trustee and Transfer Agent and Registrar) connected therewith. Any duplicate Certificate issued pursuant to this Section 5.4 shall constitute complete and indefeasible evidence of ownership in the Trust, as if originally issued, whether or not the lost, stolen or destroyed Certificate shall be found at any time. Section 5.5. PERSONS DEEMED OWNERS. At all times prior to due presentation of a Certificate for registration of transfer, the Company, the Trustee, the Paying Agent, the Transfer Agent and Registrar, any Agent and any agent of any of them may treat the Person in whose name any Certificate is registered as the owner of such Certificate for the purpose of receiving distributions pursuant to Article IV of the related Supplement and for all other purposes whatsoever, and neither the Trustee, the Paying Agent, the Transfer Agent and Registrar, any Agent nor any agent of any of them shall be affected by any notice to the contrary. Notwithstanding the foregoing provisions of this Section 5.5, in determining whether the holders of the requisite Fractional Undivided Interests have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Certificates owned by the Company, the Servicer or any Affiliate thereof shall be disregarded and deemed not to be outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Certificates which a Responsible Officer of the Trustee actually knows to be so owned shall be so disregarded. Certificates so owned by 52 the Company, the Servicer or any Affiliate thereof which have been pledged in good faith shall not be disregarded and may be regarded as outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Certificates and that the pledgee is not the Company, the Servicer or an Affiliate thereof. Section 5.6. APPOINTMENT OF PAYING AGENT. The Paying Agent shall make distributions to Investor Certificateholders from the Collection Account (and/or any other account or accounts maintained for the benefit of Holders as specified in the related Supplement for any Series) pursuant to Articles III and IV. The Trustee may revoke such power and remove the Paying Agent if the Trustee determines in its sole discretion that the Paying Agent shall have failed to perform its obligations under this Agreement in any material respect. Unless otherwise specified in the related Supplement for any Series and with respect to such Series, the Paying Agent shall initially be the Trustee and, if the Trustee so chooses, any co-paying agent chosen by the Trustee. Each Paying Agent shall have a combined capital and surplus of at least $50,000,000. The Paying Agent shall be permitted to resign upon 30 days' written notice to the Trustee. In the event that the Paying Agent shall so resign, the Trustee shall appoint a successor to act as Paying Agent (which shall be a depositary institution or trust company) reasonably acceptable to the Company which appointment shall be effective on the date on which the Person so appointed gives the Trustee written notice that it accepts the appointment. Any resignation or removal of the Paying Agent and appointment of successor Paying Agent pursuant to this Section 5.6 shall not become effective until acceptance of appointment by the successor Paying Agent, as provided in this Section 5.6. The Trustee shall cause such successor Paying Agent or any additional Paying Agent appointed by the Trustee to execute and deliver to the Trustee an instrument in which such successor Paying Agent or additional Paying Agent shall agree with the Trustee that as Paying Agent, such successor Paying Agent or additional Paying Agent will hold all sums, if any, held by it for payment to the Investor Certificateholders in trust for the benefit of the Investor Certificateholders entitled thereto until such sums shall be paid to such Holders. The Paying Agent shall return all unclaimed funds to the Trustee and upon removal of a Paying Agent such Paying Agent shall also return all funds in its possession to the Trustee. The provisions of Sections 8.1, 8.2, 8.3, 8.5 and 10.19 shall apply to the Trustee also in its role as Paying Agent, for so long as the Trustee shall act as Paying Agent. Any reference in this Agreement to the Paying Agent shall include any co-paying agent, if any, unless the context requires otherwise. The Company hereby agrees to provide the Trustee from time to time sufficient funds, on a timely basis and in accordance with and subject to Section 8.5, for the payment of any reasonable compensation payable to the Paying Agent for its services under this Section 5.6. The Trustee hereby agrees that, upon the receipt of such funds from the Company, it shall pay the Paying Agent such amounts. Section 5.7. ACCESS TO LIST OF INVESTOR CERTIFICATEHOLDERS' NAMES AND ADDRESSES. The Trustee will furnish or cause to be furnished by the Transfer Agent and Registrar to the Company, the Servicer or the Paying Agent, within ten Business Days after receipt by the Trustee of a request therefor from the Company, the Servicer or the Paying Agent, respectively, in writing, a list of the names and addresses of the Investor Certificateholders as then recorded by or on behalf of the Trustee. If three or more Investor Certificateholders of record or any Investor 53 Certificateholder of any Series or a group of Investor Certificateholders of record representing Fractional Undivided Interests aggregating not less than 10% of the Invested Amount of the related Outstanding Series (the "APPLICANTS") apply in writing to the Trustee, and such application states that the Applicants desire to communicate with other Investor Certificateholders of any Series with respect to their rights under this Agreement or under the Investor Certificates and is accompanied by a copy of the communication which such Applicants propose to transmit, then the Trustee, after having been adequately indemnified by such Applicants for its costs and expenses, shall transmit or shall cause the Transfer Agent and Registrar to transmit, such communication to the Investor Certificateholders reasonably promptly after the receipt of such application. Every Investor Certificateholder, by receiving and holding an Investor Certificate, agrees with the Trustee that neither the Trustee, the Transfer Agent and Registrar, nor any of their respective agents, officers, directors or employees shall be held accountable by reason of the disclosure or mailing of any such information as to the names and addresses of the Investor Certificateholders hereunder, regardless of the sources from which such information was derived. As soon as practicable following each Record Date, the Trustee shall provide to the Paying Agent or its designee, a list of Investor Certificateholders in such form as the Paying Agent may reasonably request. Section 5.8. AUTHENTICATING AGENT. (a) The Trustee may appoint one or more authenticating agents with respect to the Certificates which shall be authorized to act on behalf of the Trustee in authenticating the Certificates in connection with the issuance, delivery, registration of transfer, exchange or repayment of the Certificates. Whenever reference is made in this Agreement to the authentication of Certificates by the Trustee or the Trustee's certificate of authentication, such reference shall be deemed to include authentication on behalf of the Trustee by an authenticating agent and a certificate of authentication executed on behalf of the Trustee by an authenticating agent. Each authenticating agent must be acceptable to the Company. (b) Any institution succeeding to the corporate trust business of an authenticating agent shall continue to be an authenticating agent without the execution or filing of any paper or any further act on the part of the Trustee or such authenticating agent. (c) An authenticating agent may at any time resign by giving written notice of resignation to the Trustee. Upon the receipt by the Trustee of any such notice of resignation and upon the giving of any such notice of termination by the Trustee, the Trustee shall immediately give notice of such resignation or termination to the Company. Any resignation of an authenticating agent shall not become effective until acceptance of appointment by the successor authenticating agent as provided in this Section 5.8. The Trustee may at any time terminate the agency of an authenticating agent by giving notice of termination to such authenticating agent. Upon receiving such a notice of resignation or upon such a termination, or in case at any time an authenticating agent shall cease to be acceptable to the Trustee, the Trustee promptly may appoint a successor authenticating agent. Any successor authenticating agent upon acceptance of its appointment hereunder shall become vested with all the rights, powers and duties of its 54 predecessor hereunder, with like effect as if originally named as an authenticating agent. No successor authenticating agent (other than an Affiliate of the Trustee) shall be appointed unless reasonably acceptable to the Trustee and the Company. (d) The Company hereby agrees to provide the Trustee from time to time sufficient funds, on a timely basis and in accordance with and subject to Section 8.5, for the payment of any reasonable compensation payable to each authenticating agent for its services under this Section 5.8. The Trustee hereby agrees that, upon the receipt of such funds from the Company it shall pay each authenticating agent such amounts. (e) The provisions of Sections 8.1, 8.2, 8.3 and 8.5 shall be applicable to any authenticating agent. (f) Pursuant to an appointment made under this Section 5.8, the Certificates may have endorsed thereon, in lieu of the Trustee's certificate of authentication, an alternate certificate of authentication in substantially the following form: "This is one of the Certificates described in the Pooling Agreement dated as of November 15, 1996, among RS Funding Inc., US Foodservice Inc., as Servicer, and The Chase Manhattan Bank, as Trustee. _________________________ as Authenticating Agent for the Trustee By ------------ Authorized Signatory" Section 5.9. TAX TREATMENT. It is the intent of the Servicer, the Company, the Investor Certificateholders and the Trustee that, for federal, state and local income and franchise tax purposes, the Investor Certificates be treated as evidence of indebtedness secured by the Trust Assets and the Trust not be characterized as an association taxable as a corporation. The Company and the Trustee, by entering into this Agreement, and each Investor Certificateholder, by its acceptance of its Investor Certificate, agree to treat the Investor Certificates for federal, state and local income and franchise tax purposes as indebtedness. The provisions of this Agreement and all related Transaction Documents shall be construed to further these intentions of the parties. This Section 5.9 shall survive the termination of this Agreement and shall be binding on all transferees of any of the foregoing persons. Section 5.10. COMPANY EXCHANGES. (a) The Company may, in accordance with the procedures set forth below, call for an adjustment of the Exchangeable Company Interest in exchange for (i) an increase in the Invested Amount of a Class of Investor Certificates of an 55 Outstanding Series and an increase in the related Series Subordinated Interest or (ii) one or more newly issued Series of Investor Certificates and the related newly created Series Subordinated Interest (a "NEW SERIES") (any such exchange, a "COMPANY EXCHANGE"). The Company may perform a Company Exchange by notifying the Trustee, in writing at least six days in advance (an "EXCHANGE NOTICE") of the date upon which the Company Exchange is to occur (an "EXCHANGE DATE"). Any Exchange Notice shall state the designation of any Series (and/or Class, if applicable) to be issued (or supplemented) on the Exchange Date and, with respect to each such Series (and/or Class, if applicable): (a) its additional or Initial Invested Amount, as the case may be, if any, which in the aggregate at any time may not be greater than the current value of the Exchangeable Company Interest, if any, at such time, (b) its Certificate Rate (or the method for allocating interest payments or other cash flow to such Series), if any, and (c) whether such New Series will be a companion series to an Outstanding Series (an "EXISTING COMPANION SERIES"; and together with the New Series, a "COMPANION SERIES"). On the Exchange Date, the Trustee shall, upon the written order of the Company, authenticate and deliver any Certificates evidencing an increase in the Invested Amount of a Class of Investor Certificates or a newly issued Series only upon delivery by the Company to the Trustee of the following (together with the delivery by the Company to the Trustee of any additional agreements, instruments or other documents as are specified in the related Supplement): (a) a Supplement executed by the Company and specifying the Principal Terms of such Series (provided that no such Supplement shall be required for any increase in the Invested Amount of a Class of Investor Certificates unless it is so required by the related Supplement), (b) a Tax Opinion addressed to the Trustee and the Trust, (c) a General Opinion addressed to the Trustee and the Trust and (d) written confirmation from each Rating Agency that the Company Exchange will not result in the Rating Agency's reducing or withdrawing its rating on any then Outstanding Series rated by it. Upon the delivery of the items listed in clauses (a) through (d) above, the existing Exchangeable Company Interest and the applicable Series Subordinated Interests, as the case may be, shall be deemed cancelled, the Trustee shall issue the applicable Series of Investor Certificates, dated the Exchange Date, and the applicable Series Subordinated Interests and the new Exchangeable Company Interest shall be deemed duly created, in each case as provided above. There is no limit to the number of Company Exchanges that the Company may perform under this Agreement. If the Company shall, on any Exchange Date, retain any Investor Certificates issued on such Exchange Date, it shall, prior to transferring any such Certificates to another Person, obtain a Tax Opinion. Additional restrictions relating to a Company Exchange may be set forth in any Supplement. (b) Upon any Company Exchange, the Trustee, in accordance with the written directions of the Company, shall issue to the Company under Section 5.1, for execution and redelivery to the Trustee for authentication under Section 5.2, (i) one or more Certificates representing an increase in the Invested Amount of an Outstanding Series or (ii) one or more new Series of Investor Certificates. Any such Certificates shall be substantially in the form specified in the applicable Supplement and each shall bear, upon its face, the designation for such Series to which each such certificate belongs so selected by the Company. (c) In conjunction with a Company Exchange, the parties hereto shall, except as otherwise provided in subsection (a) above, execute a supplement to this Agreement, which shall define, with respect to any additional Investor Certificates or newly issued Series, as the case may 56 be: (i) its name or designation, (ii) its additional or initial principal amount, as the case may be (or method for calculating such amount), (iii) its coupon rate (or formula for the determination thereof), (iv) the interest payment date or dates and the date or dates from which interest shall accrue, (v) the method for allocating Collections to Holders, including the applicable Investor Percentage, (vi) the names of any accounts to be used by such Series and the terms governing the operation of any such accounts, (vii) the issue and terms of a letter of credit or other form of Enhancement, if any, with respect thereto, (viii) the terms, if any, on which the Certificates of such Series may be repurchased by the Company or may be remarketed to other investors, (ix) the Series Termination Date, (x) any deposit account maintained for the benefit of Holders, (xi) the number of Classes of such Series, and if more than one Class, the rights and priorities of each such Class, (xii) the rights of the owner of the Exchangeable Company Interest that have been transferred to the holders of such Series, (xiii) the designation of any Series Accounts and the terms governing the operation of any such Series Accounts, (xiv) provisions acceptable to the Trustee concerning the payment of the Trustee's fees and expenses and (xv) other relevant terms (all such terms, the "PRINCIPAL TERMS" of such Series). The Supplement executed in connection with the Company Exchange shall contain administrative provisions which are reasonably acceptable to the Trustee. (d) In order for a New Series to be part of a Companion Series, the Supplement for the related Existing Companion Series must provide for or permit the Amortization Period to commence on the Issuance Date for such New Series, and on or prior to the Issuance Date for the New Series the Servicer and the Company shall take all actions, if any, necessary to cause the Amortization Period for such Existing Companion Series to commence on such Issuance Date. The proceeds from the issuance of the New Series shall be deposited in the applicable Series Principal Collection Sub-subaccount and the Company shall, on the Issuance Date for such New Series, deposit into the applicable Series Non-Principal Sub-subaccount the amount of interest that will accrue on the New Series over a period specified in the related Supplement for such New Series. On each day on which principal is paid to the holders of the Existing Companion Series, the Trustee shall distribute to the Company from the applicable Series Principal Collection Sub-subaccount of the New Series an amount (up to the amount of available funds in such account) equal to the amount distributed on such day to the Investor Certificateholders of any Existing Companion Series; PROVIDED that, after giving effect to such distributions, the Aggregate Receivables Amount shall equal or exceed the sum of (i) the Target Receivables Amount with respect to such Existing Companion Series on such day, PLUS (ii) the Target Receivables Amount with respect to the New Series on such day, PLUS (iii) the Target Receivables Amount with respect to any other Outstanding Series on such day; PROVIDED FURTHER that the Trustee may conclusively rely on the calculations of the Servicer of such amounts. (e) Except as specified in any Supplement for a related Series, all Investor Certificates of any Series shall be equally and ratably entitled as provided herein to the benefits hereof without preference, priority or distinction on account of the actual time or times of authentication and delivery, all in accordance with the terms and provisions of this Agreement and the applicable Supplement. 57 Section 5.11. BOOK-ENTRY CERTIFICATES. If specified in any related Supplement, the Investor Certificates, or any portion thereof, upon original issuance, shall be issued in the form of one or more typewritten Certificates representing the Book-Entry Certificates, to be delivered to the depository specified in such Supplement (the "DEPOSITORY") which shall be the Clearing Agency, specified by, or on behalf of, the Company for such Series. The Investor Certificates shall initially be registered on the Certificate Register in the name of the nominee of such Clearing Agency, and no Certificate Book-Entry Holder will receive a definitive certificate representing such Certificate Book-Entry Holder's interest in the Investor Certificates, except as provided in Section 5.13. Unless and until definitive, fully registered Investor Certificates ("DEFINITIVE CERTIFICATES") have been issued to Holders pursuant to Section 5.13 or the related Supplement: (a) the provisions of this Section 5.11 shall be in full force and effect; (b) the Company, the Servicer and the Trustee may deal with each Clearing Agency for all purposes (including the making of distributions on the Investor Certificates) as the Holder without respect to whether there has been any actual authorization of such actions by the Certificate Book- Entry Holders with respect to such actions; (c) to the extent that the provisions of this Section 5.11 conflict with any other provisions of this Agreement, the provisions of this Section 5.11 shall control; and (d) the rights of Certificate Book-Entry Holders shall be exercised only through the Clearing Agency and the related Clearing Agency Participants and shall be limited to those established by law and agreements between such related Certificate Book-Entry Holders and the Clearing Agency and/or the Clearing Agency Participants. Pursuant to the Depository Agreement, the initial Clearing Agency will make book-entry transfers among the Clearing Agency Participants and receive and transmit distributions of principal and interest on the Investor Certificates to such Clearing Agency Participants. Notwithstanding the foregoing, no Class or Series of Investor Certificates may be issued as Book Entry Certificates (but, instead, shall be issued as Definitive Certificates) unless at the time of issuance of such Class or Series the Company and the Trustee receive an opinion of independent counsel that the Certificates of such Class or Series will be treated as indebtedness for federal income tax purposes. Section 5.12. NOTICES TO CLEARING AGENCY. Whenever notice or other communication to the Holders is required under this Agreement, unless and until Definitive Certificates shall have been issued to Certificate Book-Entry Holders pursuant to Section 5.13, the Trustee shall give all such notices and communications specified herein to be given to the Investor Certificateholders to the Clearing Agencies. Section 5.13. DEFINITIVE CERTIFICATES. If (a)(i) the Company advises the Trustee in writing that any Clearing Agency is no longer willing or able to properly discharge its responsibilities under the applicable Depository Agreement, and (ii) the Company is unable to locate a qualified successor, (b) the Company, at its option, advises the Trustee in writing that it 58 elects to terminate the book-entry system through the Clearing Agency or (c) after the occurrence of a Servicer Default, Certificate Book-Entry Holders representing Fractional Undivided Interests aggregating more than 50% of the Invested Amount held by such Certificate Book-Entry Holders of each affected Series then issued and outstanding advise the Clearing Agency through the Clearing Agency Participants in writing, and the Clearing Agency shall so notify the Trustee, that the continuation of a book-entry system through the Clearing Agency is no longer in the best interests of the Certificate Book-Entry Holders, the Trustee shall notify the Clearing Agency, which shall be responsible to notify the Certificate Book-Entry Holders, of the occurrence of any such event and of the availability of Definitive Certificates to Certificate Book-Entry Holders requesting the same. Upon surrender to the Trustee of the Book-Entry Certificates by the Clearing Agency, accompanied by registration instructions from the Clearing Agency for registration, the Trustee shall issue the Definitive Certificates. Neither the Company nor the Trustee shall be liable for any delay in delivery of such instructions and may conclusively rely on, and shall be protected in relying on, such instructions. ARTICLE VI OTHER MATTERS RELATING TO THE COMPANY Section 6.1. LIABILITY OF THE COMPANY. The Company shall be liable for all obligations, covenants, representations and warranties of the Company arising under or related to this Agreement or any Supplement. Except as provided in the preceding sentence and otherwise herein, the Company shall be liable only to the extent of the obligations specifically undertaken by it hereunder. Section 6.2. LIMITATION ON LIABILITY OF THE COMPANY. Except as provided in Sections 6.1 and 6.3 or otherwise provided herein, neither the Company nor any of its directors or officers or employees or agents, in their capacity as transferor of, or in connection with the transfer of, Receivables and Related Property hereunder, shall be under any liability to the Trust, the Trustee, the Holders or any other Person for any action taken or for refraining from the taking of any action pursuant to this Agreement, whether or not such action or inaction arises from express or implied duties under this Agreement; PROVIDED, HOWEVER, that this provision shall not protect the Company against any liability which would otherwise be imposed by reason of wilful misconduct, bad faith or negligence in the performance of any duties or by reason of reckless disregard of any obligations and duties hereunder; PROVIDED, FURTHER, that this provision shall not protect any such director, officer, employee or agent against any liability which would otherwise be imposed on such Person by reason of wilful misconduct, bad faith or gross negligence in the performance of such Person's duties or by reason of reckless disregard of such Person's obligations and duties hereunder. The Company and any director or officer or employee or agent of the Company may rely in good faith on any document of any kind PRIMA FACIE properly executed and submitted by any Person (other than, in the case of the Company, the Company or the Servicer) respecting any matters arising hereunder. 59 Section 6.3. LIABILITIES. By entering into this Agreement, the Company agrees to be liable, directly to the injured party, for the entire amount of any losses, claims, damages or liabilities, arising out of or based on the arrangement created by any Pooling and Servicing Agreement or the actions of the Servicer taken pursuant hereto or thereto (except those losses, claims, damages or liabilities incurred by an Investor Certificateholder in the capacity of an investor in the Investor Certificates as a result of the performance of the Receivables, market fluctuations or other similar market or investment risks) as though the Pooling and Servicing Agreements created a partnership under the New York Uniform Limited Partnership Act with the Company as a general partner thereof. The Company agrees to pay, indemnify and hold harmless each Investor Certificateholder against and from any and all such losses, claims, damages and liabilities, except to the extent they arise from any action or omission by such Investor Certificateholder. In the event of a Service Transfer, the Successor Servicer (except for the Trustee in its capacity as Successor Servicer) will indemnify and hold harmless the Company for any losses, claims, damages and liabilities of the Company arising under this Section 6.3 from the actions or omissions of such Successor Servicer. ARTICLE VII EARLY AMORTIZATION EVENTS Section 7.1. EARLY AMORTIZATION EVENTS. Unless modified with respect to any Series of Investor Certificates by any related Supplement, if any one of the following events (each, an "EARLY AMORTIZATION EVENT") shall occur: (a) (i) the Company 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 or other similar official for it or for all or any substantial part of its assets, or the Company shall make a general assignment for the benefit of its creditors; or (ii) there shall be commenced against the Company 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 the Company 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 such days from the entry thereof; or (iv) the Company 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) the Company shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due; 60 (b) the Trust or the Company shall become an "investment company" within the meaning of the Investment Company Act of 1940, as amended; (c) the Trust is characterized for federal income tax purposes as a "publicly traded partnership" or as an association taxable as a corporation; or (d) the Trustee shall be appointed as Successor Servicer pursuant to subsection 6.2(b) of the Servicing Agreement; then, an "EARLY AMORTIZATION PERIOD" with respect to all Outstanding Series shall commence without any notice or other action on the part of the Trustee or any Investor Certificateholder immediately upon the occurrence of such event. The Servicer shall notify each Rating Agency and the Trustee in writing of the occurrence of any Early Amortization Period, specifying the cause thereof. Further, upon the commencement against the Company of a case, proceeding or other action described in clause (a)(ii) or (iii) above, the Company shall not purchase Receivables from any Seller, or transfer Receivables to the Trust, until such time, if any, as such case, proceeding or other action is vacated, discharged, or stayed or bonded pending appeal. Additional Early Amortization Events and the consequences thereof may be set forth in each Supplement with respect to the Series relating thereto. Section 7.2. ADDITIONAL RIGHTS UPON THE OCCURRENCE OF CERTAIN EVENTS. (a) If an Insolvency Event with respect to the Company occurs, the Company shall immediately cease to transfer Receivables to the Trust and shall promptly give notice to the Trustee of such occurrence. Notwithstanding any cessation of the transfer to the Trust of additional Receivables, Receivables transferred to the Trust prior to the occurrence of such Insolvency Event and Collections in respect of such Receivables and interest, whenever created, accrued in respect of such Receivables, shall continue to be a part of the Trust. Within 15 days of the Trustee's receipt of notice of the occurrence of an Insolvency Event in accordance with Section 7.1, if the Aggregate Invested Amount and all accrued and unpaid interest thereon have not been paid to the Investor Certificateholders, then the Trustee shall (i) publish a notice in a newspaper with a national circulation (an "AUTHORIZED NEWSPAPER") that an Insolvency Event has occurred and that the Trustee intends to sell, dispose of or otherwise liquidate the Receivables and the other Trust Assets in a commercially reasonable manner and (ii) send written notice to the Investor Certificateholders and request instructions from such holders, which notice shall request each Investor Certificateholder to advise the Trustee in writing that it elects one of the following options: (A) the Investor Certificateholder wishes the Trustee to instruct the Servicer not to sell, dispose of or otherwise liquidate the Receivables and the other Trust Assets, or (B) the Investor Certificateholder wishes the Trustee to instruct the Servicer to sell, dispose of or otherwise liquidate the Receivables and the other Trust Assets and to instruct the Servicer to reconstitute the Trust upon the same terms and conditions set forth herein, or (C) the Investor Certificateholder refuses to advise the Trustee as to the specific action the Trustee shall instruct the Servicer to take. If after 60 days from the day notice pursuant to clause (i) above is first published (the "PUBLICATION DATE"), the Trustee shall not have received written instructions of (x) holders of Certificates representing undivided interests in the Trust aggregating in excess of 50% 61 of the related Invested Amount of each Series (or in the case of a series having more than one Class of Investor Certificates, each Class of such series) selecting option (A) above and (y) if the owners of the Exchangeable Company Interest do not include the Company (and following the delivery of written notice in the form referred to above by the Company to such owners), the owners thereof representing undivided interests in the Trust aggregating in excess of 50% of the Company Interest, the Trustee shall instruct the Servicer to proceed to sell, dispose of, or otherwise liquidate the Receivables and the other Trust Assets in a commercially reasonable manner and on commercially reasonable terms, which shall include the solicitation of competitive bids, and the Servicer shall proceed to consummate the sale, liquidation or disposition of the Receivables and the other Trust Assets as provided above with the highest bidder therefor; PROVIDED, HOWEVER, that if the allocable sale price, less all reasonable fees, expenses and other amounts due hereunder to the Trustee, its agents and counsel to the Trustee, to be realized from such sale, liquidation or disposition would be less than the Aggregate Invested Amount plus accrued and unpaid interest thereon through the Distribution Date next succeeding the date of such sale, the Trustee must receive the prior unanimous consent of all the Investor Certificateholders to such sale, liquidation or disposition. The Company or any of its Affiliates shall be permitted to bid for the Receivables and the other Trust Assets. In addition, the Company or any of its Affiliates shall have the right to match any bid by a third person and be granted the right to purchase the Receivables and the other Trust Assets at such matched bid price. The Trustee may obtain a prior determination from any such conservator, receiver or liquidator that the terms and manner of any proposed sale, disposition or liquidation are commercially reasonable. The provisions of Sections 7.1 and 7.2 shall be cumulative. The costs and expenses incurred by the Trustee in such sale shall be reimbursable to the Trustee as provided in Section 8.5. (b) The proceeds from the sale, liquidation or disposition of the Receivables and the other Trust Assets pursuant to subsection (a) above shall be treated as Collections on the Receivables and such proceeds will be distributed to holders of each Series after immediately being deposited in the Collection Account, in accordance with the provisions of subsection 3.1(d) and the related Supplement for such Series. After giving effect to all such deposits, the remaining funds, if any, shall be (i) paid to the Trustee in an amount equal to the amount of any expenses incurred by the Trustee acting in its capacity either as Trustee or as liquidating agent pursuant to subsection 7.2(a) above which have not otherwise been reimbursed prior thereto and (ii) after giving effect to the transfer to be made pursuant to the preceding clause (i), if applicable, the remainder, if any, shall be allocated to the Company Interest and shall be released to the owner of the Exchangeable Company Interest upon cancellation thereof. ARTICLE VIII THE TRUSTEE Section 8.1. DUTIES OF TRUSTEE. (a) The Trustee, prior to the occurrence of a Servicer Default or Early Amortization Event of which a Responsible Officer of the Trustee has actual knowledge and after the curing of all Servicer Defaults and Early Amortization Events 62 which may have occurred, undertakes to perform such duties and only such duties as are specifically set forth in the Pooling and Servicing Agreements or any Supplement and no implied covenants or obligations shall be read into such Pooling and Servicing Agreements against the Trustee. If a Servicer Default or Early Amortization Event to the actual knowledge of a Responsible Officer of the Trustee has occurred (which has not been cured or waived), the Trustee shall exercise the rights and powers vested in it in its capacity as Trustee by any Pooling and Servicing Agreement and any Supplement and shall use the same degree of care and skill in their exercise as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs. The provisions of this Section shall be applicable to the Trustee in its capacity as Trustee hereunder. If the Trustee shall have succeeded to the obligations of the Servicer, the provisions of the Servicing Agreement shall govern the actions of the Trustee as Successor Servicer. (b) The Trustee may conclusively rely as to the truth of the statements and the correctness of the opinions expressed therein upon resolutions, certificates, statements, opinions, reports, documents, orders or other instruments furnished to the Trustee and believed by it to be genuine and to have been signed or presented to it pursuant to any Pooling and Servicing Agreement by the proper party or parties; but in the case of any of the above which are specifically required to be furnished to the Trustee pursuant to any provision of the Pooling and Servicing Agreements, the Trustee shall, subject to Section 8.2, examine them to determine whether they substantially conform to the requirements of this Agreement. (c) Subject to subsection 8.1(a), no provision of this Agreement or any Supplement shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act or its own misconduct; PROVIDED, HOWEVER, that: (i) The Trustee shall not be liable for an error of judgment unless it shall be proved that the Trustee was negligent, or acted in bad faith, in ascertaining the pertinent facts; (ii) The Trustee shall not be liable with respect to any action taken, suffered or omitted to be taken by it in good faith in accordance with the direction of the Servicer or the holders of Investor Certificates evidencing in excess of 50% (or such lesser percentage as set forth in any applicable provision) of the Aggregate Invested Amount; (iii) The Trustee shall not be charged with knowledge of any failure by the Servicer to comply with any of its obligations, unless a Responsible Officer of the Trustee obtains actual knowledge of such failure or the Trustee receives written notice of such failure from the Servicer, any Agent or any Investor Certificateholder; (iv) The Trustee shall not be charged with knowledge of a Servicer Default or Early Amortization Event unless a Responsible Officer obtains actual knowledge of such event or the Trustee receives written notice of such default or event from the Servicer, any Agent or any Investor Certificateholder; 63 (v) The Trustee shall not be liable for any investment losses resulting from any investments of funds on deposit in the Accounts or any subaccounts thereof; and (vi) The Trustee shall have no duty to monitor the performance of the Servicer, nor shall it have any liability in connection with malfeasance or nonfeasance by the Servicer. The Trustee shall have no liability in connection with compliance of the Servicer or the Company with statutory or regulatory requirements related to the Receivables. (d) The Trustee shall not be required to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties under any Pooling and Servicing Agreement or in the exercise of any of its rights or powers, if there is reasonable ground for believing that the repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it, and none of the provisions contained in any Pooling and Servicing Agreement shall in any event require the Trustee to perform, or be responsible for the manner of performance of, any obligations of the Servicer under such Agreement except during such time, if any, as the Trustee shall be the successor to, and be vested with the rights, duties, powers and privileges of, the Servicer in accordance with the terms of such Agreement. (e) Except as expressly provided in any Pooling and Servicing Agreement, the Trustee shall have no power to vary the corpus of the Trust. (f) Provided that the Servicer and the Company shall have provided to the Trustee promptly upon request all books, records and other information reasonably requested by the Trustee and shall have provided the Trustee with all necessary access to the properties, books and records of the Servicer and the Company which the Trustee may reasonably require, then within 90 days following the Initial Closing Date, the Trustee shall have (i) completed the Servicer Site Review and (ii) established the Standby Liquidation System, and shall have notified the Servicer, each Rating Agency and each Investor Certificateholder of such events. (g) The Trustee shall deliver the Internal Operating Procedures Memorandum to the Company and the Servicer on the Initial Closing Date. From and after such date, the Trustee shall take such actions as are set forth in the Internal Operating Procedures Memorandum unless prevented from doing so through no fault of the Trustee. Section 8.2. RIGHTS OF THE TRUSTEE. Except as otherwise provided in Section 8.1: (a) The Trustee may conclusively rely on and shall be protected in acting on, or in refraining from acting in accord with, any resolution, Officer's Certificate, certificate of auditors or any other certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, appraisal, bond, note or other paper or document believed by it to be genuine and to have been signed or presented to it pursuant to any Pooling and Servicing Agreement by the proper party or parties; 64 (b) The Trustee may consult with counsel (at the Company's expense) and any Opinion of Counsel or any advice of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered or omitted by it hereunder in good faith and in accordance with such Opinion of Counsel; (c) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by any Pooling and Servicing Agreement, or to institute, conduct or defend any litigation hereunder or in relation hereto, at the request, order or direction of any of the Holders, pursuant to the provisions of any Pooling and Servicing Agreement, unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which may be incurred therein or thereby; PROVIDED, HOWEVER, that nothing contained herein shall relieve the Trustee of the obligations, upon the occurrence of a Servicer Default or Early Amortization Event (which has not been cured), to exercise such of the rights and powers vested in it by any Pooling and Servicing Agreement, and to use the same degree of care and skill in their exercise as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs. The right of the Trustee to perform any discretionary act enumerated in this Agreement shall not be construed as a duty, and the Trustee shall not be answerable for other than its negligence or wilful misconduct in the performance of any such act; (d) The Trustee shall not be personally liable for any action taken, suffered or omitted by it in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it by any Pooling and Servicing Agreement; PROVIDED that the Trustee shall be liable for its negligence or willful misconduct; (e) The Trustee shall not be bound to make any investigation into the facts of matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, direction, order, approval, bond, note or other paper or document, or to recompute the amount of any allocations or distributions contained in any direction from the Servicer provided for under the Agreement, unless requested in writing so to do by the holders of Investor Certificates evidencing Fractional Undivided Interests aggregating more than 50% of the Invested Amount of any Series which could be adversely affected if the Trustee does not perform such acts; PROVIDED, HOWEVER, that such holders of Investor Certificates shall reimburse the Trustee for any expense resulting from any such investigation requested by them; PROVIDED, FURTHER, that the Trustee shall be entitled to make such further inquiry or investigation into such facts or matters as it may reasonably see fit, and if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books and records of the Company, personally or by agent or attorney, at the sole cost and expense of the Company; (f) The Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through affiliates, agents or attorneys or a custodian or nominee, and the Trustee shall not be responsible for any misconduct or 65 negligence on the part of, or for the supervision of, any such affiliate, agent, attorney, custodian or nominee appointed with due care by it hereunder; (g) The Trustee shall not be required to make any initial or periodic examination of any documents or records related to the Receivables or the Accounts for the purpose of establishing the presence or absence of defects, the compliance by the Company with its representations and warranties or for any other purpose; and (h) In the event that the Trustee is also acting as Paying Agent or Transfer Agent and Registrar hereunder, the rights and protections afforded to the Trustee pursuant to this Article VIII shall also be afforded to such Paying Agent or Transfer Agent and Registrar. Section 8.3. TRUSTEE NOT LIABLE FOR RECITALS IN CERTIFICATES. The Trustee assumes no responsibility for the correctness of the recitals contained herein and in the Certificates (other than the certificate of authentication on the Certificates). Except as set forth in Section 8.15, the Trustee makes no representations as to the validity or sufficiency of any Pooling and Servicing Agreement or of the Certificates (other than the certificate of authentication on the Certificates) or of any Receivable or related document. The Trustee shall not be accountable for the use or application by the Company of any of the Certificates or of the proceeds of such Certificates, or for the use or application of any funds paid to the Company in respect of the Receivables or deposited in or withdrawn from the Accounts or other accounts hereafter established to effectuate the transactions contemplated herein and in accordance with the terms of any Pooling and Servicing Agreement. The Trustee shall not be accountable for the use or application by the Servicer of any of the Certificates or of the proceeds of such Certificates, or for the use or application of any funds paid to the Servicer or any Sub-Servicer in respect of the Receivables or deposited in or withdrawn from the Accounts or any Lockbox by or at the direction of the Servicer, any Sub-Servicer or the Lockbox Processor, in each case unless the Trustee, acting in its capacity as Successor Servicer, itself makes such use or application. The Trustee shall at no time have any responsibility or liability for or with respect to the legality, validity and enforceability of any Receivable. Section 8.4. TRUSTEE MAY OWN CERTIFICATES. The Trustee in its individual or any other capacity (a) may become the owner or pledgee of Investor Certificates with the same rights as it would have if it were not the Trustee and (b) may transact any banking and trust business with the Company, the Servicer, any Sub-Servicer or any Seller as it would were it not the Trustee. Section 8.5. TRUSTEE'S FEES AND EXPENSES. The Servicer covenants and agrees to pay, but only from funds available to it as the Servicing Fee paid under the Servicing Agreement, to the Trustee an annual fee agreed upon in writing between the Servicer and the Trustee, payable in advance on the Initial Closing Date and on each one-year anniversary thereof. The Trustee also shall be entitled to reimbursement from the Servicer or the Company upon the Trustee's request 66 for all reasonable expenses (including, without limitation, expenses incurred in connection with notices, requests for documentation or other communications to or directions from Holders), disbursements, losses, liabilities, damages and advances incurred or made by the Trustee in accordance with any of the provisions of any Pooling and Servicing Agreement or by reason of its status as Trustee under any Pooling and Servicing Agreement (including the reasonable fees and expenses of its agents, any co-trustee and counsel) except any such expense, disbursement, loss, liability, damage or advance as may arise from its negligence or bad faith or willful misconduct; PROVIDED that any payments made by the Company in respect of any of the foregoing items shall be made solely from funds available to the Company which are not otherwise needed to be applied to the payment of any amounts pursuant to any Pooling and Servicing Agreements, shall be non-recourse other than with respect to proceeds in excess of the proceeds necessary to make such payment, and shall not constitute a claim against the Company to the extent that insufficient proceeds exist to make such payment. To the extent that the Trustee has not been paid for any of the foregoing items (including pursuant to the first sentence of this Section 8.5), the Trustee shall be entitled to be paid for such items from amounts which otherwise would be distributable to the Company under Article III of this Agreement. The Trustee shall be entitled to reimbursement for any reasonable out-of-pocket costs or expenses incurred in connection with the review, negotiation, preparation, execution and delivery of any of the Transaction Documents or in connection with the issuance of any Certificates on the Initial Closing Date. If the Trustee is appointed Successor Servicer in accordance with the Servicing Agreement, the Trustee, in its capacity as Successor Servicer, shall also be entitled to be paid the Servicing Fee and any other compensation to which the Servicer is expressly entitled hereunder. The provisions of this Section 8.5 shall apply to the reasonable expenses, disbursements and advances made or incurred by the Trustee, or any other Person, in its capacity as liquidating agent, to the extent not otherwise paid. The covenants and agreements contained in this Section 8.5 (including, without limitation, the covenants to pay the expenses, disbursements, losses, liabilities, damages and advances provided for in this Section 8.5) shall survive the termination of any Pooling and Servicing Agreement and shall be binding, as applicable, on (i) the Servicer and any Successor Servicer and (ii) the Company. Section 8.6. ELIGIBILITY REQUIREMENTS FOR TRUSTEE. The Trustee hereunder shall at all times be a corporation organized and doing business under the laws of the United States of America or any state thereof and authorized under such laws to exercise corporate trust powers, having (or having a holding company parent with) a combined capital and surplus of at least $50,000,000 and subject to supervision or examination by Federal or State authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then, for the purpose of this Section 8.6, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. In case at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section 8.6, the Trustee shall resign immediately in the manner and with the effect specified in Section 8.7. Section 8.7. RESIGNATION OR REMOVAL OF TRUSTEE. (a) Subject to paragraph (c) below, the Trustee may at any time resign and be discharged from the trust hereby created by 67 giving written notice thereof to the Company, the Servicer and the Rating Agencies. Upon receiving such notice of resignation, the Company shall promptly appoint a successor trustee by written instrument, in duplicate, one copy of which instrument shall be delivered to the resigning Trustee and one copy to the successor trustee. If no successor trustee shall have been so appointed and have accepted appointment within 30 days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor trustee. (b) If at any time the Trustee shall cease to be eligible in accordance with the provisions of Section 8.6 hereof and shall fail to resign after written request therefor by the Servicer, or if at any time the Trustee shall be legally unable to act, or shall be adjudged a bankrupt or insolvent, or if a receiver of the Trustee or of its property shall be appointed, or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then the Company may remove the Trustee and promptly appoint a successor trustee by written instrument, in duplicate, one copy of which instrument shall be delivered to the Trustee so removed and one copy to the successor trustee. (c) Any resignation or removal of the Trustee and appointment of a successor trustee pursuant to any of the provisions of this Section 8.7 shall not become effective until acceptance of appointment by the successor trustee as provided in Section 8.8. (d) The obligations of the Company described in Sections 6.3 and 8.5 hereof and the obligations of the Servicer described in Section 8.5 hereof and Section 5.1 of the Servicing Agreement shall survive the removal or resignation of the Trustee as provided in this Agreement. (e) No Trustee under this Agreement shall be personally liable for any action or omission of any successor trustee. Section 8.8. SUCCESSOR TRUSTEE. (a) Any successor trustee appointed as provided in Section 8.7 shall execute, acknowledge and deliver to the Company and to its predecessor Trustee an instrument accepting such appointment hereunder, and thereupon the resignation or removal of the predecessor Trustee shall become effective and such successor trustee, without any further act, deed or conveyance, shall become fully vested with all the rights, powers, duties and obligations of its predecessor hereunder, with like effect as if originally named as Trustee herein. The predecessor Trustee shall deliver to the successor trustee all documents or copies thereof, at the expense of the Servicer, and statements held by it hereunder; and the Company and the predecessor Trustee shall execute and deliver such instruments and do such other things as may reasonably be required for fully and certainly vesting and confirming in the successor trustee all such rights, power, duties and obligations. The Servicer shall immediately and, in any event, no less than ten days prior to any such resignation or removal, give notice to each Rating Agency upon the appointment of a successor trustee. (b) No successor trustee shall accept appointment as provided in this Section 8.8 unless at the time of such acceptance such successor trustee shall be eligible under the provisions of Section 8.6. 68 (c) Upon acceptance of appointment by a successor trustee as provided in this Section 8.8, such successor trustee shall mail notice of such succession hereunder to all Holders at their addresses as shown in the Certificate Register. Section 8.9. MERGER OR CONSOLIDATION OF TRUSTEE. Any Person into which the Trustee may be merged or converted or with which it may be consolidated, or any Person resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any Person succeeding to the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be eligible under the provisions of Section 8.6, without the execution or filing of any paper or any further act on the part of any of the parties hereto, anything herein to the contrary notwithstanding. The Trustee shall promptly give notice (except to the extent prohibited under any Requirement of Law or Contractual Obligation), but in no event less than ten days prior to any such merger or consolidation, to the Company, the Servicer and the Rating Agencies upon any such merger or consolidation of the Trustee. Section 8.10. APPOINTMENT OF CO-TRUSTEE OR SEPARATE TRUSTEE. (a) Notwithstanding any other provisions of any Pooling and Servicing Agreement, at any time, for the purpose of meeting any legal requirements of any jurisdiction in which any part of the Trust may at the time be located, the Trustee shall have the power and may execute and deliver all instruments to appoint one or more persons to act as a co-trustee or co-trustees, or separate trustee or separate trustees, of all or any part of the Trust, and to vest in such Person or Persons, in such capacity and for the benefit of the Holders, such title to the Trust, or any part thereof, and, subject to the other provisions of this Section 8.10, such powers, duties, obligations, rights and trusts as the Trustee may consider necessary or desirable. No co-trustee or separate trustee hereunder shall be required to meet the terms of eligibility as a successor trustee under Section 8.6 and no notice to Holders of the appointment of any co- trustee or separate trustee shall be required under Section 8.8. The Trustee shall promptly notify each Rating Agency of the appointment of any co-trustee. (b) Every separate trustee and co-trustee shall, to the extent permitted by law, be appointed and act subject to the following provisions and conditions: (i) all rights, powers, duties and obligations conferred or imposed upon the Trustee shall be conferred or imposed upon and exercised or performed by the Trustee and such separate trustee or co-trustee jointly (it being understood that such separate trustee or co-trustee is not authorized to act separately without the Trustee joining in such act), except to the extent that under any statute of any jurisdiction in which any particular act or acts are to be performed (whether as Trustee hereunder or as successor to the Servicer hereunder), the Trustee shall be incompetent or unqualified to perform such act or acts, in which event such rights, powers, duties and obligations (including the holding of title to the Trust or any portion thereof in any such jurisdiction) shall be exercised and performed singly by such separate trustee or co-trustee, but solely at the direction of the Trustee; 69 (ii) no trustee hereunder shall be personally liable by reason of any act or omission of any other trustee hereunder; and (iii) the Trustee may at any time accept the resignation of or remove any separate trustee or co-trustee. (c) Any notice, request or other writing given to the Trustee shall be deemed to have been given to each of the then separate trustees and co-trustees, as effectively as if given to each of them. Every instrument appointing any separate trustee or co-trustee shall refer to this Agreement and the conditions of this Article VIII. Each separate trustee and co-trustee, upon its acceptance of the trusts conferred, shall be vested with the estates or property specified in its instrument of appointment, either jointly with the Trustee or separately, as may be provided therein, subject to all the provisions of any Pooling and Servicing Agreement, specifically including every provision of any Pooling and Servicing Agreement relating to the conduct of, affecting the liability of, or affording protection to, the Trustee. Every such instrument shall be filed with the Trustee and a copy thereof given to the Servicer and the Company. (d) Any separate trustee or co-trustee may at any time constitute the Trustee, its agent or attorney-in-fact with full power and authority, to the extent not prohibited by law, to do any lawful act under or in respect to any Pooling and Servicing Agreement on its behalf and in its name. If any separate trustee or co-trustee shall die, become incapable of acting, resign or be removed, all of its estates, properties, rights, remedies and trusts shall vest in and be exercised by the Trustee, to the extent permitted by law, without the appointment of a new or successor trustee. Section 8.11. TAX RETURNS. In the event the Trust shall be required to file tax returns, the Company shall prepare and file or shall cause to be prepared and filed (including, without limitation, by the Servicer) any tax returns required to be filed by the Trust and shall remit such returns to the Trustee for signature at least five Business Days before such returns are due to be filed. The Trustee is hereby authorized to sign any such return on behalf of the Trust. The Company shall also prepare or shall cause to be prepared (including, without limitation, by the Servicer) all tax information required by law to be distributed to Holders and shall deliver such information to the Trustee at least five Business Days prior to the date it is required by law to be distributed to the Holders. The Trustee, upon written request, will furnish the Company, or the Company's designee, with all such information known to the Trustee as may be reasonably required in connection with the preparation of all tax returns of the Trust, and shall, upon request, execute such returns. In no event shall the Trustee in its individual capacity be liable for any liabilities, costs or expenses of the Trust, the Holders, the Company or the Servicer arising under any tax law or regulation, including, without limitation, federal, state or local income or excise taxes or any other tax imposed on or measured by income (or any interest or penalty with respect thereto or arising from any failure to comply therewith). Section 8.12. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF CERTIFICATES. All rights of action and claims under any Pooling and Servicing Agreement or the Certificates may be prosecuted and enforced by the Trustee without the possession of any of the Certificates or the 70 production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee. Any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders in respect of which such judgment has been obtained. Section 8.13. SUITS FOR ENFORCEMENT. If a Servicer Default shall occur and be continuing, the Trustee may, as provided in Section 6.1 of the Servicing Agreement, proceed to protect and enforce its rights and the rights of the Holders under this Agreement or any other Transaction Document by suit, action or proceeding in equity or at law or otherwise, whether for the specific performance of any covenant or agreement contained in this Agreement or any other Transaction Document or in aid of the execution of any power granted in this Agreement or any other Transaction Document or for the enforcement of any other legal, equitable or other remedy as the Trustee, being advised by counsel, shall deem most effectual to protect and enforce any of the rights of the Trustee or the Holders. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Investor Certificateholder any plan of reorganization, arrangement, adjustment or composition affecting the Certificates or the rights of any holder thereof, or authorize the Trustee to vote in respect of the claim of any Investor Certificateholder in any such proceeding. Section 8.14. RIGHTS OF INVESTOR CERTIFICATEHOLDERS TO DIRECT TRUSTEE. Investor Certificateholders evidencing more than 50% of the Invested Amount of any Series affected by the conduct of any proceeding or the exercise of any right conferred on the Trustee shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee; PROVIDED, HOWEVER, that, subject to Section 8.1, the Trustee shall have the right to decline to follow any such direction if the Trustee being advised by counsel determines that the action so directed may not lawfully be taken, or if the Trustee in good faith shall, by a Responsible Officer or Responsible Officers of the Trustee, determine that the proceedings so directed would be illegal or expose it to personal liability or be unduly prejudicial to the rights of Investor Certificateholders not party to such direction; and PROVIDED, FURTHER, that nothing in any Pooling and Servicing Agreement shall impair the right of the Trustee to take any action deemed proper by the Trustee and which is not inconsistent with such direction of the Investor Certificateholders. Section 8.15. REPRESENTATIONS AND WARRANTIES OF TRUSTEE. The Trustee represents and warrants that: (a) the Trustee is a banking corporation organized, existing and in good standing under the laws of the United States or any of its fifty states and is duly authorized and empowered to exercise trust powers under applicable law; (b) the Trustee has the power and authority to enter into this Agreement and any Supplement, and has taken all necessary action to authorize the execution, delivery and performance by it of this Agreement and any Supplement; and 71 (c) each Pooling and Servicing Agreement and each of the Transaction Documents executed by it have been duly executed and delivered by the Trustee and, in the case of all such Transaction Documents, are legal, valid and binding obligations of the Trustee, enforceable in accordance with their respective terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect affecting the enforcement of creditors' rights generally and except as such enforceability may be limited by general principles of equity (whether considered in a suit at law or in equity). Section 8.16. MAINTENANCE OF OFFICE OR AGENCY. The Trustee will maintain at its expense in the Borough of Manhattan, The City of New York, an office or offices or agency or agencies where notices and demands to or upon the Trustee in respect of the Certificates and the Pooling and Servicing Agreements may be served. The Trustee will give prompt written notice to the Company, the Servicer and the Holders of any change in the location of the Certificate Register or any such office or agency. Section 8.17. LIMITATION OF LIABILITY. The Certificates are executed by the Trustee, not in its individual capacity but solely as Trustee of the Trust, in the exercise of the powers and authority conferred and vested in it by this Agreement. Each of the undertaking and agreements made on the part of the Trustee in the Certificates is made and intended not as a personal undertaking or agreement by the Trustee but is made and intended for the purpose of binding only the Trust. ARTICLE IX TERMINATION Section 9.1. TERMINATION OF TRUST; LIQUIDATION OF RECEIVABLES. (a) The Trust and the respective obligations and responsibilities of the Company, the Servicer, the Sub-Servicers and the Trustee created hereby (other than the obligation of the Trustee to make payments to Holders as hereafter set forth) shall terminate, except with respect to any such obligations or responsibilities expressly stated to survive such termination, on the earliest of (i) September 1, 2014, (ii) at the option of the Company, at any time where the Aggregate Invested Amount is zero (unless an Early Amortization Event as specified in Section 7.1 of this Agreement shall have occurred and be continuing, in which case the Company shall be deemed to elect to terminate the Trust pursuant to this clause (ii)) and (iii) upon completion of distribution of the amounts referred to in subsection 7.2(b) (the "TRUST TERMINATION DATE"). (b) If on the Distribution Date in the month immediately preceding the month in which the Trust Termination Date occurs (after giving effect to all transfers, withdrawals, deposits and drawings to occur on such date and the payment of principal on any Series of Certificates to be made on the related Distribution Date pursuant to Article III) the Invested Amount of any Series would be greater than zero, the Trustee, at the written direction of the Servicer, shall sell within 30 days of such Distribution Date all of the Receivables and other Trust Assets. The 72 proceeds of such sale shall be treated as Collections on the Receivables and shall be allocated in accordance with Article III. During such 30-day period, the Servicer shall continue to collect Collections on the Receivables and allocate Collections in accordance with the provisions of Article III. The costs and expenses incurred by the Trustee in such sale shall be reimbursable to the Trustee as provided in Section 8.5. Section 9.2. CLEAN-UP CALL AND FINAL TERMINATION DATE OF INVESTOR CERTIFICATES OF ANY SERIES. (a) On the Distribution Date during the Amortization Period with respect to any Series on which the Invested Amount (or such other amount as may be set forth in the related Supplement) of such Series is reduced to an amount equal to or less than the Clean-Up Call Percentage of the Invested Amount for such Series as of the day preceding the beginning of such Amortization Period (or such other amount as may be set forth in the related Supplement), the Company shall have the option to repurchase, and to the extent set forth in the related Supplement, shall repurchase, the entire Certificateholders' Interest of such Series, at a purchase price equal to (i) the outstanding Invested Amount of the Investor Certificates of such Series PLUS (ii) accrued and unpaid interest through the date of such purchase (after giving effect to any payment of principal and monthly interest on such date of purchase) PLUS (iii) all other amounts payable to all Investor Certificateholders of such Series under the related Supplement (such purchase price, the "CLEAN-UP CALL REPURCHASE PRICE"). The amount of the Clean-Up Call Repurchase Price will be deposited into the Collection Account for credit to the Series Collection Subaccount for such Series on the Business Day prior to such Distribution Date in immediately available funds and will be passed through in full to the applicable Investor Certificateholders. Following any such repurchase, such Certificateholders' Interest in the Trust Assets shall terminate and such interest therein will be allocated to the Company Interest and such Holders will have no further rights with respect thereto. In the event that the Company fails for any reason to deposit the Clean-Up Call Repurchase Price for such Receivables, the Certificateholders' Interest in the Receivables and the other Trust Assets will continue and monthly payments will continue to be made to the Holders. (b) The amount deposited pursuant to subsection 9.2(a) shall be paid to the Investor Certificateholders of the related Series pursuant to Article III on the Distribution Date following the date of such deposit. All Certificates of a Series which are purchased by the Company pursuant to subsection 9.2(a) shall be delivered by the Company upon such purchase to, and be canceled by (in accordance with the written directions of the Company), the Transfer Agent and Registrar and be disposed of in a manner satisfactory to the Trustee and the Company. (c) All principal or interest with respect to any Series of Investor Certificates shall be due and payable no later than the Series Termination Date with respect to such Series. Unless otherwise provided in a Supplement, in the event that the Invested Amount of any Series of Certificates is greater than zero on its Series Termination Date (after giving effect to all transfers, withdrawals, deposits and drawings to occur on such date and the payment of principal to be made on such Series on such date), the Trustee will sell or cause to be sold, in accordance with the directions of Investor Certificateholders representing more than 50% of the Invested Amount of such Series, and pay the proceeds to all Holders of such Series PRO RATA (except that unless expressly provided to the contrary in the related Supplement, no payment shall be made to 73 Holders of any Class of any Series that is by its terms subordinated to any other Class until such senior Class of Certificates has been paid in full) in final payment of all principal of and accrued interest on such Series of Certificates, an amount of Receivables or interests in Receivables up to the Invested Amount of such Series at the close of business on such date. Absent such direction from Investor Certificateholders representing more than 50% of the Invested Amount of such Series, the Trustee shall continue to hold the Trust Assets in respect of such Series in accordance with the terms of the Pooling and Servicing Agreements until the Trust Termination Date (or until Investor Certificateholders representing more than 50% of the Invested Amount of such Series shall otherwise direct the Trustee); PROVIDED that the terms of this Agreement, the related Supplement and the Servicing Agreement shall be deemed to remain in full force and effect, except that no additional Receivables shall be allocated with respect to such Series. The reasonable costs and expenses incurred by the Trustee in such sale shall be reimbursable to the Trustee as provided in Section 8.5. Any proceeds of such sale in excess of such principal and interest paid shall be paid to the owner of the Exchangeable Company Interest, unless and to the extent otherwise specified in any applicable Supplement. Upon such Series Termination Date with respect to the applicable Series of Certificates, final payment of all amounts allocable to any Investor Certificates of such Series shall be made in the manner provided in this Section 9.2. Section 9.3. FINAL PAYMENT WITH RESPECT TO ANY SERIES. (a) Written notice of any termination, specifying the Distribution Date upon which the Investor Certificateholders of any Series may surrender their Investor Certificates for payment of the final distribution with respect to such Series and cancellation, shall be given (subject to at least 30 days' (or such shorter period as is acceptable to the Trustee) prior written notice from the Servicer to the Trustee containing all information required for the Trustee's notice) by the Trustee to Investor Certificateholders of such Series, mailed not later than the fifth day of the month of such final distribution and specifying (i) the Distribution Date upon which final payment of the Investor Certificates will be made upon presentation and surrender of Investor Certificates at the office or offices therein designated, (ii) the amount of any such final payment and (iii) that the Record Date otherwise applicable to such Distribution Date is not applicable, payments being made only upon presentation and surrender of the Investor Certificates at the office or offices therein specified. The Servicer's notice to the Trustee in accordance with the preceding sentence shall be accompanied by an Officer's Certificate setting forth the information specified in Section 4.3 of the Servicing Agreement covering the period during the then current calendar year through the date of such notice. The Trustee shall give such notice to the Transfer Agent and Registrar and the Paying Agent at the time such notice is given to such Investor Certificateholders. (b) Notwithstanding the termination of the Trust pursuant to subsection 9.1(a) or the occurrence of the Series Termination Date with respect to any Series pursuant to Section 9.2, all funds then on deposit in the Collection Account (but only to the extent necessary to pay all outstanding and unpaid amounts to Holders) shall continue to be held in trust for the benefit of the Holders, and the Paying Agent or the Trustee shall pay such funds to the Holders upon surrender of their Certificates in accordance with the terms hereof. Any Certificate not surrendered on the date specified in subsection 9.3(a)(i) shall cease to accrue any interest provided for such Certificate from and after such date. In the event that all of the Investor Certificateholders shall not surrender their Certificates for cancellation within six months after the 74 date specified in the above-mentioned written notice, the Trustee shall give a second written notice to the remaining Investor Certificateholders of such Series to surrender their Certificates for cancellation and receive the final distribution with respect thereto. If within one year after the second notice all the Investor Certificates of such Series shall not have been surrendered for cancellation, the Trustee may take appropriate steps, or may appoint an agent to take appropriate steps, to contact the remaining Investor Certificateholders of such Series concerning surrender of their Certificates, and the cost thereof shall be paid out of the funds in the Collection Account held for the benefit of such Investor Certificateholders. The Trustee and the Paying Agent shall pay to the Company upon request any monies held by them for the payment of principal or interest that remains unclaimed for two years. After payment to the Company, Holders entitled to the money must look to the Company for payment as general creditors unless an applicable abandoned property law designates another Person. (c) All Certificates surrendered for payment of the final distribution with respect to such Certificates and cancellation shall be canceled by the Transfer Agent and Registrar and be disposed of in a customary manner satisfactory to the Trustee. Section 9.4. COMPANY'S TERMINATION RIGHTS. Upon the termination of the Trust pursuant to Section 9.1 and the surrender of the Exchangeable Company Interest and payment to the Trustee (in its capacity as such and/or in its capacity as Successor Servicer) of all amounts owed to it under any Pooling and Servicing Agreement, the Trustee shall assign and convey to the Company (without recourse, representation or warranty) in exchange for the Exchangeable Company Interest all right, title and interest of the Trust in the Trust Assets, whether then existing or thereafter created, and all proceeds thereof except for amounts held by the Trustee pursuant to subsection 9.3(b). The Trustee shall execute and deliver such instruments of transfer and assignment, in each case without recourse, representation or warranty, as shall be reasonably requested by the Company to vest in the Company all right, title and interest which the Trust had in the Trust Assets. ARTICLE X MISCELLANEOUS PROVISIONS Section 10.1. AMENDMENT. (a) Any Pooling and Servicing Agreement, including any schedule or exhibit thereto, may be amended in writing from time to time by the Servicer, the Company and the Trustee, without the consent of any holder of any outstanding Certificate, to cure any ambiguity, to correct or supplement any provisions herein or therein which may be inconsistent with any other provisions herein or therein or to add any other provisions hereto to change in any manner or eliminate any of the provisions with respect to matters or questions raised under any Pooling and Servicing Agreement which shall not be inconsistent with the provisions of any Pooling and Servicing Agreement; PROVIDED, HOWEVER, that such action shall not, as evidenced by an Officer's Certificate from the Company and, to the extent, in the reasonable view of the Company, a question of law exists, supported by an Opinion of Counsel delivered to the Trustee, adversely affect in any material respect the interests of the Investor 75 Certificateholders. The Trustee may, but shall not be obligated to, enter into any such amendment pursuant to this paragraph or paragraph (b) below which affects the Trustee's rights, duties or immunities under any Pooling and Servicing Agreement or otherwise. (b) Any Pooling and Servicing Agreement and any schedule or exhibit thereto may also be amended in writing from time to time by the Servicer, the Company and the Trustee with the consent of Investor Certificateholders evidencing more than 50% of the Invested Amount of any Series adversely affected by the amendment (or, if any such Series shall have more than one Class of Investor Certificates adversely affected by the amendment, 50% or more of the Invested Amount of each such Class) for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of such Pooling and Servicing Agreement or of modifying in any manner the rights of holders of any Series then issued and outstanding; PROVIDED, HOWEVER, that no such amendment shall (i) reduce in any manner the amount of, or delay the timing of, distributions which are required to be made on any Investor Certificate of such Series without the consent of such Investor Certificateholder of such Series; (ii) change the definition of or the manner of calculating the interest of any Investor Certificateholder of such Series without the consent of such Investor Certificateholder; or (iii) reduce the aforesaid percentage of Fractional Undivided Interests the holders of which are required to consent to any such amendment, in each case without the consent of all Holders of each Series adversely affected in any material respect. (c) Notwithstanding anything in this Section 10.1 to the contrary, the Supplement with respect to any Series may be amended on the terms and with the procedures provided in such Supplement. (d) The Company or the Servicer shall deliver any proposed amendment to each Agent at least five days prior to the execution and delivery thereof. (e) Promptly after the execution of any such amendment or consent the Trustee shall furnish written notification of the substance of such amendment to each Holder of each Outstanding Series (or with respect to an amendment of a Supplement, of the applicable Series), and the Servicer shall furnish written notification of the substance of such amendment to each Rating Agency. No such amendment (including, without limitation, the amendment of any Supplement, notwithstanding anything to the contrary contained in any Supplement) shall be effective until the Rating Agency Condition has been satisfied with respect thereto. (f) It shall not be necessary for the consent of Investor Certificateholders under this Section 10.1 to approve the particular form of any proposed amendment, but it shall be sufficient if such consent shall approve the substance thereof. The manner of obtaining such consents and of evidencing the authorization of the execution thereof by Investor Certificateholders shall be subject to such reasonable requirements as the Trustee may prescribe. (g) In executing or accepting any amendment pursuant to this Section 10.1, the Trustee shall, upon request, be entitled to receive and rely upon (i) an Opinion of Counsel (A) stating that such amendment is authorized pursuant to a specific provision of a Pooling and 76 Servicing Agreement and complies with such provision, and (B) stating that all conditions precedent to the execution and delivery of such amendment shall have been satisfied in full, which opinion in the case of this clause (B) may, to the extent that such opinion concerns questions of fact, rely on an Officer's Certificate with respect to such questions of fact, (ii) a certificate from a Responsible Officer of the Company stating that such amendment shall not adversely affect the interests of the holders of any outstanding Certificates in any material respect except for holders of the Series whose consent to such amendment has been obtained in accordance with clause (b) of this Section 10.1 and (iii) a Tax Opinion. Section 10.2. PROTECTION OF RIGHT, TITLE AND INTEREST TO TRUST. (a) The Servicer shall cause this Agreement, any Supplement, all amendments hereto and/or all financing statements and continuation statements and any other necessary documents covering the Certificateholders' and the Trustee's right, title and interest to the Trust to be promptly recorded, registered and filed, and at all times to be kept recorded, registered and filed, all in such manner and in such places as may be required by law fully to preserve and protect the right, title and interest of the Trustee hereunder to all property comprising the Trust. The Servicer shall deliver to the Trustee file-stamped copies of, or filing receipts for, any document recorded, registered or filed as provided above, as soon as available following such recording, registration or filing. The Company shall cooperate fully with the Servicer in connection with the obligations set forth above and will execute any and all documents reasonably required to fulfill the intent of this subsection 10.2(a). (b) With respect to any prospective change in its name, identity or corporate structure, the Company shall comply fully with subsection 2.8(m) hereof and shall file such financing statements or amendments as may be necessary to continue the perfection of the Trust's security interest in the Receivables and the proceeds thereof. If the Company determines that no refiling is required, it shall provide to the Trustee an Opinion of Counsel so stating. Section 10.3. LIMITATION ON RIGHTS OF HOLDERS. (a) The death or incapacity of any Holder shall not operate to terminate this Agreement or the Trust, nor shall such death or incapacity entitle such Holder's legal representatives or heirs to claim an accounting or to take any action or commence any proceeding in any court for a partition or winding up of the Trust, nor otherwise affect the rights, obligations and liabilities of the parties hereto or any of them. (b) Except with respect to the Investor Certificateholders as expressly provided in any Pooling and Servicing Agreement, no Investor Certificateholder shall have any right to vote or in any manner otherwise control the operation and management of the Trust, or the obligations of the parties hereto. Nor shall any Investor Certificateholder be under any liability to any third person by reason of any action taken by the parties to this Agreement pursuant to any provision hereof. (c) No Investor Certificateholder shall have any right by virtue of any provisions of this Agreement to institute any suit, action or proceeding in equity or at law upon or under or with respect to this Agreement, unless such Investor Certificateholder previously shall have given to the Trustee written request to institute such action, suit or proceeding in its own name as 77 Trustee hereunder and shall have offered to the Trustee such reasonable indemnity as it may require against the costs, expenses and liabilities to be incurred therein or thereby, and the Trustee, for 60 days after its receipt of such notice, request and offer of indemnity, shall have neglected or refused to institute any such action, suit or proceeding; it being understood and intended, and being expressly covenanted by each Investor Certificateholder with every other Investor Certificateholder and the Trustee, that no one or more Holders shall have any right in any manner whatever by virtue of or by availing itself or themselves of any provisions of the Pooling and Servicing Agreements to affect, disturb or prejudice the rights of any other of the Investor Certificateholders, or to obtain or seek to obtain priority over or preference to any other such Investor Certificateholder, or to enforce any right under this Agreement, except in the manner herein provided and for the equal, ratable and common benefit of all Investor Certificateholders. For the protection and enforcement of the provisions of this Section 10.3, each and every Investor Certificateholder and the Trustee shall be entitled to such relief as can be given either at law or in equity. (d) By their acceptance of Certificates pursuant to this Agreement and the applicable Supplement, the Holders agree to the provisions of this Section 10.3. Section 10.4. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS. Section 10.5. NOTICES. All notices, requests and demands to or upon the respective parties hereto to be effective shall be in writing (including by facsimile), and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made when delivered by hand, or three days after being deposited in the mail, postage prepaid, or, in the case of facsimile notice, when received, (i) addressed as follows in the case of the Company, the Servicer and the Trustee and (ii) in the case of the Sub-Servicers, as set forth under their signatures in the Receivables Sale Agreement, or, in either case, to such other address as may be hereafter notified by the respective parties hereto: The Company: RS Funding Inc. 3773 Howard Hughes Parkway, Suite 300N Las Vegas, Nevada 89109 Attention: Russell Ungerman Facsimile: (702) 866-2244 78 with a copy to the Servicer: The Servicer: US Foodservice Inc. East Mountain Corporate Center 613 Baltimore Drive Wilkes-Barre, Pennsylvania 18702-6980 Attention: Kenneth Kozel Facsimile: (717) 822-3719 The Trustee: The Chase Manhattan Bank 450 West 33rd Street, 15th Floor New York, New York 10001 Attention: Advanced Structured Products Facsimile: 212-946-3916 Any notice required or permitted to be mailed to an Investor Certificateholder shall be given by first-class mail, postage prepaid, at the address of such Investor Certificateholder as shown in the Certificate Register. Any notice so mailed within the time prescribed in any Pooling and Servicing Agreement shall be conclusively presumed to have been duly given, whether or not the Investor Certificateholder receives such notice. Section 10.6. SEVERABILITY OF PROVISIONS. If any one or more of the covenants, agreements, provisions or terms of any Pooling and Servicing Agreement shall for any reason whatsoever be held invalid, then such covenants, agreements, provisions or terms shall be deemed severable from the remaining covenants, agreements, provisions or terms of such Pooling and Servicing Agreement and shall in no way affect the validity or enforceability of the other provisions of any Pooling and Servicing Agreement or of the Certificates or rights of the Holders. Section 10.7. ASSIGNMENT. Notwithstanding anything to the contrary contained herein, except as provided in Section 5.3 of the Servicing Agreement, no Pooling and Servicing Agreement may be assigned by the Company or the Servicer without the prior written consent of the Trustee acting at the direction of the holders of 66-2/3% of the Invested Amount of each Outstanding Series and without the Rating Agency Condition's having been satisfied with respect to such assignment. Section 10.8. CERTIFICATES NONASSESSABLE AND FULLY PAID. It is the intention of the parties to each Pooling and Servicing Agreement that the Investor Certificateholders shall not be personally liable for obligations of the Trust, that the interests in the Trust represented by the Investor Certificates shall be nonassessable for any losses or expenses of the Trust or for any reason whatsoever and that Investor Certificates upon authentication thereof by the Trustee pursuant to Section 5.2 are and shall be deemed fully paid. Section 10.9. FURTHER ASSURANCES. The Company and the Servicer agree to do and perform, from time to time, any and all acts and to execute any and all further instruments required or reasonably requested by the Trustee more fully to effect the purposes of each Pooling 79 and Servicing Agreement, including, without limitation, the execution of any financing statements or continuation statements relating to the Receivables for filing under the provisions of the UCC of any applicable jurisdiction. Section 10.10. NO WAIVER; CUMULATIVE REMEDIES. No failure to exercise and no delay in exercising, on the part of the Trustee or the Investor Certificateholders, any right, remedy, power or privilege hereunder 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 exhaustive of any rights, remedies, powers and privileges provided by law. Section 10.11. COUNTERPARTS. This Agreement may be executed in two or more counterparts (and by different parties on separate counterparts), each of which shall be an original, but all of which together shall constitute one and the same instrument. Section 10.12. THIRD-PARTY BENEFICIARIES. This Agreement will inure to the benefit of and be binding upon the parties hereto, the Holders and their respective successors and permitted assigns. Except as otherwise provided in Section 6.3 and this Article X, no other Person will have any right or obligation hereunder. Section 10.13. ACTIONS BY HOLDERS. (a) Wherever in any Pooling and Servicing Agreement a provision is made that an action may be taken or a notice, demand or instruction given by Investor Certificateholders, such action, notice or instruction may be taken or given by any Investor Certificateholders of any Series, unless such provision requires a specific percentage of Investor Certificateholders of a certain Series or all Series. (b) Any request, demand, authorization, direction, notice, consent, waiver or other act by a Investor Certificateholder shall bind such Investor Certificateholder and every subsequent holder of such Certificate issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done or omitted to be done by the Trustee, the Company or the Servicer in reliance thereon, whether or not notation of such action is made upon such Certificate. Section 10.14. MERGER AND INTEGRATION. Except as specifically stated otherwise herein, this Agreement sets forth the entire understanding of the parties relating to the subject matter hereof, and all prior understandings, written or oral, are superseded by this Agreement and the Servicing Agreement. This Agreement and the Servicing Agreement may not be modified, amended, waived, or supplemented except as provided herein. Section 10.15. HEADINGS. The headings herein are for purposes of reference only and shall not otherwise affect the meaning or interpretation of any provision hereof. Section 10.16. CONSTRUCTION OF AGREEMENT. (a) The Company hereby grants to the Trustee, for the benefit of the Holders, a perfected first priority security interest in all of the 80 Company's right, title and interest in, to and under the Receivables and the other Trust Assets now existing and hereafter created, all monies due or to become due and all amounts received with respect thereto and all "proceeds" thereof (including Recoveries), to secure all of the Company's and the Servicer's obligations hereunder, including, without limitation, the Company's obligation to sell or transfer Receivables hereafter created to the Trust. (b) This Agreement shall constitute a security agreement under applicable law. Section 10.17. NO SET-OFF. Except as expressly provided in this Agreement, the Trustee agrees that it shall have no right of set-off or banker's lien against, and no right to otherwise deduct from, any funds held in the Collection Concentration Account or the Collection Account for any amount owed to it by the Company, the Servicer or any Investor Certificateholder. Section 10.18. NO BANKRUPTCY PETITION. Each of the Trustee and the Servicer hereby covenants and agrees that, prior to the date which is one year and one day after the date of the end of the Amortization Period with respect to all Outstanding Series, it will not institute against, or join any other Person in instituting against, the Company any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings, or other proceedings under any federal or state bankruptcy or similar law. Section 10.19. LIMITATION OF LIABILITY. It is expressly understood and agreed by the parties hereto that (a) each Pooling and Servicing Agreement is executed and delivered by the Trustee, not individually or personally but solely as Trustee of the Trust, in the exercise of the powers and authority conferred and vested in it, (b) except with respect to Section 8.15 hereof the representations, undertakings and agreements herein made on the part of the Trust are made and intended not as personal representations, undertakings and agreements by the Trustee, but are made and intended for the purpose of binding only the Trust, (c) nothing herein contained shall be construed as creating any liability of the Trustee, individually or personally, to perform any covenant either expressed or implied contained herein, all such liability, if any, being expressly waived by the parties who are signatories to this Agreement and by any Person claiming by, through or under such parties; PROVIDED, HOWEVER, the Trustee shall be liable in its individual capacity for its own willful misconduct or negligence and (d) under no circumstances shall the Trustee be personally liable for the payment of any indebtedness or expenses of the Trust or be liable for the breach or failure of any obligation, representation, warranty or covenant made or undertaken by the Trust under any Pooling and Servicing Agreement; PROVIDED FURTHER, that the foregoing clauses (a) through (d) shall survive the resignation or removal of the Trustee. The Company hereby agrees to indemnify and hold harmless the Trustee and the Trust for the benefit of the Holders (each, an "INDEMNIFIED PERSON") from and against any loss, liability, expense, damage or injury suffered or sustained by reason of any acts, omissions or alleged acts or omissions arising out of, or relating to, activities of the Company pursuant to any Pooling and Servicing Agreement to which it is a party, including but not limited to any judgment, award, settlement, reasonable attorneys' fees and other reasonable costs or expenses incurred in connection with the defense of any actual or threatened action, proceeding or claim, except to the 81 extent such loss, liability, expense, damage or injury resulted from the negligence, bad faith or wilful misconduct of an indemnified person; PROVIDED that any payments made by the Company pursuant to this subsection shall be made solely from funds available to the Company which are not otherwise needed to be applied to the payment of any amounts pursuant to any Pooling and Servicing Agreements, shall be non-recourse other than with respect to proceeds in excess of the proceeds to make such payment, and shall not constitute a claim against the Company to the extent that insufficient proceeds exist to make such payment. Section 10.20. CERTAIN INFORMATION. The Servicer and the Company shall promptly provide to the Trustee such information in computer tape, hard copy or other form regarding the Receivables as the Trustee may reasonably request to perform its obligations hereunder. Section 10.21. INCLUSION OF EXCLUDED RECEIVABLES. If any Seller shall satisfy the Servicer that a particular class of Excluded Receivables originated by such Seller can be properly accounted for so as to permit a complete and accurate determination of the Principal Amount thereof (and Collections with respect thereto) which may be set forth on each Daily Report of the Servicer, then such Seller and the Servicer shall deliver a written notification to the Company, the Trustee and each Rating Agency to that effect requesting that such Excluded Receivables be included as Receivables from and after a date specified therein, which date shall be no earlier than 30 days after the date such notification is sent (such later date, the "RECEIVABLES INCLUSION DATE"). From and after the related Receivables Inclusion Date, the Receivables shall be deemed to include such Excluded Receivables for all purposes hereunder and under the other Transaction Documents; PROVIDED that, except as otherwise provided in any Supplement, no such inclusion shall occur unless the Rating Agency Condition has been satisfied with respect thereto. IN WITNESS WHEREOF, the Company, the Servicer and the Trustee have caused this Agreement to be duly executed by their respective officers as of the day and year first above written. RS FUNDING INC., as Company By: /s/ ___________________________ Name: Title: US FOODSERVICE INC., as Servicer By: /s/ ___________________________ Name: Title: THE CHASE MANHATTAN BANK, not in its individual capacity but solely as Trustee By: /s/ ___________________________ Name: Title: SCHEDULE 1 TO POOLING AGREEMENT RECEIVABLES Tape to be delivered by the Company to the Trustee. SCHEDULE 2 TO POOLING AGREEMENT [TO BE PROVIDED BY THE TRUSTEE] IDENTIFICATION OF TRUST ACCOUNTS The following accounts have been established by and at The Chase Manhattan Bank: Name Number ---- ------ RS Funding Inc. Collection Account _________ RS Funding Inc. Company Collection Subaccount _________ RS Funding Inc. Series 1996-1 Collection Subaccount _________ RS Funding Inc. Series 1996-1 Principal Collection Sub-subaccount _________ RS Funding Inc. Series 1996-1 Non-Principal Collection Sub-subaccount _________ RS Funding Inc. Series 1996-1 Accrued Interest Sub-subaccount _________ RS Funding Inc. Series 1996-1 Collection Subordinated Sub-subaccount _________ SCHEDULE 3 TO POOLING AGREEMENT ACTIONS WITH RESPECT TO CHATTEL PAPER Each Seller and the Servicer, in each case acting as custodian for the Company, and the Company, shall immediately take all of the following actions (in addition to all other actions set forth or reasonably requested as described in the Transaction Documents and in all documents executed in connection with the sale of an interest in the Receivables and the grant of a security interest therein to other Persons) to protect or more fully evidence the security interest granted by the Company in chattel paper evidencing Receivables pursuant to agreements and documents entered into after the initial Issuance Date (such chattel paper being the "CHATTEL PAPER"): (a) Wherever it is located, maintain all Chattel Paper in segregated storage cabinets, which cabinets will contain no other documents; (b) Conspicuously mark each such storage cabinet to indicate that the documents contained therein are Chattel Paper evidencing Receivables of the Company; (c) Stamp in red the original of the each document constituting Chattel Paper with a legend to read as follows: "THIS DOCUMENT AND ALL RIGHTS HEREUNDER HAVE BEEN SOLD TO RS FUNDING INC. AND ARE SUBJECT TO A SECURITY INTEREST IN FAVOR OF THE CHASE MANHATTAN BANK, AS TRUSTEE." or such other legend that is reasonably acceptable to the Trustee; PROVIDED that at any time that an Early Amortization Event has occurred and is continuing, such Seller or the Servicer shall, at the request of the Trustee, stamp any Chattel Paper with the above legend prior to sending it to other parties for execution. SCHEDULE 4 TO POOLING AGREEMENT [TO BE PROVIDED BY RICHARDS & O'NEIL] LOCATION OF CHIEF EXECUTIVE OFFICE OF THE COMPANY SCHEDULE 5 TO POOLING AGREEMENT CONTRACTUAL OBLIGATIONS None EX-10.40-4 18 EXHIBIT 10.40.4 RECEIVABLES MASTER TRUST EXHIBIT 10.40.4 EXECUTION COPY - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- RS FUNDING INC., as Company, US FOODSERVICE INC., as Servicer and THE CHASE MANHATTAN BANK, as Trustee ------------------ SERIES 1996-1 SUPPLEMENT Dated as of November 15, 1996 to POOLING AGREEMENT Dated as of November 15, 1996 ------------------ RYKOFF-SEXTON RECEIVABLES MASTER TRUST - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 1996-1 SUPPLEMENT TABLE OF CONTENTS Page ARTICLE I DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 SECTION 1.1. Definitions. . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE II DESIGNATION OF CERTIFICATES AND INTERESTS; PURCHASE AND SALE OF THE TERM CERTIFICATES . . . . . . . . . . . . . . . . . . . . . . 16 SECTION 2.1. Designation . . . . . . . . . . . . . . . . . . . . . . . 16 SECTION 2.2. The Series 1996-1 Certificates. . . . . . . . . . . . . . 16 SECTION 2.3. Delivery. . . . . . . . . . . . . . . . . . . . . . . . . 16 SECTION 2.4. Restrictions on Transfer. . . . . . . . . . . . . . . . . 17 SECTION 2.5. Application of Proceeds . . . . . . . . . . . . . . . . . 22 SECTION 2.6. Procedure for Decreasing the Series 1996-1 Invested Amount; Optional Termination . . . . . . . . . . . . . 22 SECTION 2.7. Sale of Additional Term Certificates. . . . . . . . . . . 23 ARTICLE III OF THE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . 25 SECTION 3A.2. Establishment of Trust Accounts. . . . . . . . . . . . . 25 SECTION 3A.3. Daily Allocations. . . . . . . . . . . . . . . . . . . . 26 SECTION 3A.4. Determination of Interest. . . . . . . . . . . . . . . . 29 SECTION 3A.5. Determination of Series 1996-1 Monthly Principal . . . . 31 SECTION 3A.6. Applications . . . . . . . . . . . . . . . . . . . . . . 32 ARTICLE IV DISTRIBUTIONS AND REPORTS . . . . . . . . . . . . . . . . . . . . 34 SECTION 4A.1. Distributions. . . . . . . . . . . . . . . . . . . . . . 34 SECTION 4A.2. Statements and Notices . . . . . . . . . . . . . . . . . 35 SECTION 4A.3. Notice Procedures. . . . . . . . . . . . . . . . . . . . 36 ARTICLE V ADDITIONAL EARLY AMORTIZATION EVENTS . . . . . . . . . . . . . . . 36 SECTION 5.1. Additional Early Amortization Events. . . . . . . . . . . 36 ARTICLE VI SERVICING FEE . . . . . . . . . . . . . . . . . . . . . . . . . . 39 SECTION 6.1. Servicing Compensation. . . . . . . . . . . . . . . . . . 39 ARTICLE VII REPRESENTATIONS AND WARRANTIES, COVENANTS. . . . . . . . . . . . 39 SECTION 7.1. Representations and Warranties of the Company and the Servicer. . . . . . . . . . . . . . . . . . . . . . 39 SECTION 7.2. Covenants of the Company and the Servicer . . . . . . . . 39 SECTION 7.3. Covenants of the Servicer . . . . . . . . . . . . . . . . 40 SECTION 7.4. Covenant of the Trustee . . . . . . . . . . . . . . . . . 40 ARTICLE VIII MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . 40 SECTION 8.1. Ratification of Agreement . . . . . . . . . . . . . . . . 40 SECTION 8.2. Governing Law . . . . . . . . . . . . . . . . . . . . . . 40 SECTION 8.3. Further Assurances. . . . . . . . . . . . . . . . . . . . 41 SECTION 8.4. No Waiver; Cumulative Remedies. . . . . . . . . . . . . . 41 SECTION 8.5. Amendments. . . . . . . . . . . . . . . . . . . . . . . . 41 SECTION 8.6. Severability. . . . . . . . . . . . . . . . . . . . . . . 41 SECTION 8.7. Notices . . . . . . . . . . . . . . . . . . . . . . . . . 41 SECTION 8.8. Counterparts. . . . . . . . . . . . . . . . . . . . . . . 42 SECTION 8.9. Limitation on Addition and Termination of Sellers.. . . . 42 ARTICLE IX FINAL DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . 44 SECTION 9.1. Certain Distributions . . . . . . . . . . . . . . . . . . 44 EXHIBITS Exhibit A Form of Class A Certificate, Series 1996-1 Exhibit B Form of Class B Certificate, Series 1996-1 Exhibit C Form of Daily Report Exhibit D Form of Monthly Settlement Statement Exhibit E Form of Purchaser Letter Exhibit F Form of Class B Transferee Tax Letter Exhibit G Form of Definitive Certificate Conversion Letter SCHEDULES Schedule 1 Trust Accounts SERIES 1996-1 SUPPLEMENT, dated as of November 15, 1996 (as amended, supplemented or otherwise modified from time to time, this "SUPPLEMENT"), among RS Funding Inc., a Nevada corporation (the "COMPANY"), US Foodservice Inc., a Delaware corporation ("US FOODSERVICE"), as servicer (except where otherwise noted) (in such capacity, the "SERVICER"), and The Chase Manhattan Bank, a New York banking corporation, in its capacity as Trustee (the "TRUSTEE") under the Agreement (as defined below). W I T N E S S E T H : WHEREAS, the Company, the Servicer and the Trustee have entered into a Pooling Agreement, dated as of the date hereof (as amended, supplemented or otherwise modified from time to time, the "AGREEMENT"); WHEREAS, the Agreement provides, among other things, that the Company, the Servicer and the Trustee may at any time and from time to time enter into supplements to the Agreement for the purpose of authorizing the issuance on behalf of the Trust by the Company for execution and redelivery to the Trustee for authentication of one or more Series of Investor Certificates; and WHEREAS, the Company, the Servicer and the Trustee wish to supplement the Agreement as hereinafter set forth. NOW, THEREFORE, in consideration of the premises and of the mutual covenants herein contained, and other good and valuable consideration, the receipt and sufficiency of which are hereby expressly acknowledged, the parties hereto agree as follows: ARTICLE I DEFINITIONS SECTION 1.1.DEFINITIONS. (a) The following words and phrases shall have the following meanings with respect to Series 1996-1 and the definitions of such terms are applicable to the singular as well as the plural form of such terms and to the masculine as well as the feminine and neuter genders of such terms: "ACCRUAL PERIOD" shall mean the period from and including a Distribution Date, or, in the case of the initial Accrual Period, the Issuance Date, to but excluding the immediately succeeding Distribution Date. "ACCRUED EXPENSE AMOUNT" shall mean, for each Business Day during an Accrual Period, the sum of (i) the Series 1996-1 Daily Interest Expense for such Business Day, (ii) for each of the first ten of such Business Days, one-tenth of the Series 1996-1 Monthly Servicing Fee due and payable on the immediately succeeding Distribution Date and zero on each Business Day thereafter (until such immediately succeeding Distribution Date) and 2 (iii) all Program Costs which have accrued since the preceding Business Day; PROVIDED, HOWEVER, that if by the tenth Business Day of an Accrual Period, the entire amount of (A) the Series 1996-1 Monthly Interest, (B) the Series 1996-1 Monthly Servicing Fee and (C) all accrued Program Costs, in each case for such Accrual Period, shall not have been transferred to the applicable Series Collection Subaccount (or subaccount thereof), the Accrued Expense Amount for such tenth Business Day (and each Business Day thereafter until paid) shall also include the amount of such shortfall. "AGED RECEIVABLES RATIO" shall mean, as of the last day of each Settlement Period, the percentage equivalent of a fraction, (i) the numerator of which shall be the sum of (A) the aggregate unpaid balance of Receivables that were 91-120 days past their respective original invoice dates as of such last day and (B) the aggregate amount of Receivables of the Sellers which were charged off as uncollectible prior to the day which is 91 days after their respective original invoice dates during such Settlement Period, and (ii) the denominator of which shall be the aggregate Principal Amount of Receivables originated by the Sellers during the third prior Settlement Period (including the Settlement Period ended on such day). "CARRYING COST RESERVE RATIO" shall mean, as of any Settlement Report Date and continuing until (but not including) the next Settlement Report Date, an amount (expressed as a percentage) equal to the product of (a) 2.00 TIMES Days Sales Outstanding as of such day and (b) (i) 1.50 TIMES a rate per annum equal to the weighted average Class A Certificate Rate and Class B Certificate Rate in effect with respect to the outstanding Class A Certificates and Class B Certificates, respectively, as of the end of the Settlement Period immediately preceding such earlier Settlement Report Date, DIVIDED BY (ii) 360. "CHANGE IN CONTROL" shall mean the occurrence of any event the result of which causes the Company not to be a direct, wholly-owned Subsidiary of RS. "CLASS A ADDITIONAL INTEREST" shall have the meaning specified in subsection 3A.4(b)(i). "CLASS A ADJUSTED INVESTED AMOUNT" shall mean, on any date of determination, the Class A Invested Amount MINUS the amount on deposit in the Series 1996-1 Principal Collection Sub-subaccount on such date (up to a maximum of the Class A Invested Amount). "CLASS A CERTIFICATE" shall mean a Class A Certificate, Series 1996-1, executed by the Company and authenticated by or on behalf of the Trustee, substantially in the form of Exhibit A. "CLASS A CERTIFICATEHOLDER" shall mean each holder of a Class A Certificate. "CLASS A CERTIFICATE RATE" shall mean, (a) in the case of the initial Class A Certificates, with respect to (i) the initial Accrual Period, 5.575% per annum, and (ii) any 3 Accrual Period thereafter, One-Month LIBOR for such Accrual Period PLUS 0.20% per annum, and (b) in the case of any additional Class A Certificates issued pursuant to Section 2.7, the rate per annum set forth in the written direction delivered by the Company to the Trustee pursuant to subsection 2.7(c). "CLASS A INITIAL INVESTED AMOUNT" shall mean $175,000,000. "CLASS A INTEREST SHORTFALL" shall have the meaning specified in subsection 3A.4(b)(i). "CLASS A INVESTED AMOUNT" shall mean, with respect to any date of determination, an amount equal to (i) the Class A Initial Invested Amount (plus the Initial Invested Amount of any Class A Certificate issued subsequent to the Issuance Date) MINUS (ii) the aggregate amount of distributions to the Class A Certificateholders (including the holders of any such subsequently issued Class A Certificates) made in respect of principal on or prior to such date MINUS (iii) the aggregate Series 1996-1 Allocable Charged-Off Amount applied to the Class A Certificates on or prior to such date pursuant to subsection 3A.5(b)(iii) PLUS (iv) (but only to the extent of any unreimbursed reductions made pursuant to clause (iii) above) the aggregate Series 1996-1 Allocable Recoveries Amount applied to the Class A Certificates on or prior to such date pursuant to subsection 3A.5(c)(i). "CLASS A MONTHLY INTEREST" shall have the meaning specified in subsection 3A.4(a)(i). "CLASS A RATIO" shall mean, on any date of determination with respect to the Class A Certificates, the greatest of (a) the sum of the Loss Reserve Ratio I and the Dilution Reserve Ratio I, (b) the sum of the Loss Reserve Ratio II and the Dilution Reserve Ratio II and (c) the Minimum Ratio, in each case applicable to the Class A Certificates. "CLASS B ADDITIONAL INTEREST" shall have the meaning assigned in subsection 3A.4(b)(ii). "CLASS B ADJUSTED INVESTED AMOUNT" shall mean, on any date of determination, the Class B Invested Amount MINUS the excess, if any, of the amount on deposit on such date in the Series 1996-1 Principal Collection Sub-subaccount over the Class A Invested Amount (up to a maximum of the Class B Invested Amount). "CLASS B CERTIFICATE" shall mean a Class B Certificate, Series 1996-1, executed by the Company and authenticated by or on behalf of the Trustee, substantially in the form of Exhibit B. "CLASS B CERTIFICATEHOLDER" shall mean each holder of a Class B Certificate. "CLASS B CERTIFICATE RATE" shall mean, (a) in the case of the initial Class B Certificates, with respect to (i) the initial Accrual Period, 5.975% per annum, and (ii) any 4 Accrual Period thereafter, One-Month LIBOR for such Accrual Period PLUS 0.60% per annum, and (b) in the case of any additional Class B Certificates issued pursuant to Section 2.7, the rate per annum set forth in the written direction delivered by the Company to the Trustee pursuant to subsection 2.7(c). "CLASS B INITIAL INVESTED AMOUNT" shall mean $25,000,000. "CLASS B INTEREST SHORTFALL" shall have the meaning assigned in subsection 3A.4(b)(ii). "CLASS B INVESTED AMOUNT" shall mean, with respect to any date of determination, an amount equal to (i) the Class B Initial Invested Amount (plus the Initial Invested Amount of any Class B Certificates issued subsequent to the Issuance Date) MINUS (ii) the aggregate amount of distributions to the Class B Certificateholders (including the holders of any such subsequently issued Class B Certificates) made in respect of principal on or prior to such date MINUS (iii) the aggregate Series 1996-1 Allocable Charged-Off Amount applied to the Class B Certificates on or prior to such date pursuant to subsection 3A.5(b)(ii) PLUS (iv) (but only to the extent of any unreimbursed reductions made pursuant to clause (iii) above) the aggregate Series 1996-1 Allocable Recoveries Amount applied to the Class B Certificates on or prior to such date pursuant to subsection 3A.5(c)(ii). "CLASS B MONTHLY INTEREST" shall have the meaning assigned in subsection 3A.4(a)(ii). "CLASS B RATIO" shall mean, on any date of determination with respect to the Class B Certificates, the greatest of (a) the sum of the Loss Reserve Ratio I and the Dilution Reserve Ratio I, (b) the sum of the Loss Reserve Ratio II and the Dilution Reserve Ratio II and (c) the Minimum Ratio, in each case applicable to the Class B Certificates. "CLASS B TRANSFEREE TAX LETTER" shall mean a Class B Transferee Tax Letter in substantially the form attached hereto as Exhibit F. "CLEAN-UP CALL AMOUNT" shall mean the product of (i) the Clean-Up Call Percentage and (ii) the Series 1996-1 Initial Invested Amount. "CLEAN-UP CALL PERCENTAGE" shall mean 10%. "DAILY REPORT" shall mean a report prepared by the Servicer on each Business Day for the period specified therein, in substantially the form of Exhibit C. "DAYS SALES OUTSTANDING" shall mean, as of any Settlement Report Date and continuing until (but not including) the next Settlement Report Date, the number of days equal to the product of (a) 91 and (b) the amount obtained by dividing (i) the aggregate Principal Amount of Eligible Receivables as of the last day of the immediately preceding Settlement Period by (ii) the aggregate Principal Amount of Receivables generated by the 5 Sellers for the three Settlement Periods immediately preceding such earlier Settlement Report Date. "DCR" shall mean Duff & Phelps Credit Rating Co. or any successor thereto. "DEFINITIVE CERTIFICATE CONVERSION LETTER" shall mean a Definitive Certificate Conversion Letter in substantially the form attached hereto as Exhibit G. "DEPOSITORY" shall mean The Depository Trust Company, the nominee of which is Cede & Co., or any successor thereto. "DEPOSITORY PARTICIPANT" shall mean a broker, dealer, bank, other financial institution or other Person for whom from time to time the Depository effects book-entry transfers and pledges of securities deposited with the Depository. "DILUTION HORIZON" shall mean, (i) for the period from the Issuance Date until the sixth Settlement Report Date to occur thereafter, seven days, and (ii) for each six-month period (beginning and ending on a Settlement Report Date) to occur after such initial period, as determined by the Servicer by selecting a random sample of approximately 1,000 Dilution Adjustment memos created during such period, the number of days (expressed as a dollar weighted average based upon the Dilution Adjustments for such period) from the occurrence of any event which gives rise to a Dilution Adjustment until a Dilution Adjustment memo is issued by the Servicer in accordance with the Policies; PROVIDED that in no event shall the Dilution Horizon be less than 3.5 days. "DILUTION HORIZON FACTOR" shall mean (a) for the period from the Issuance Date until the sixth Settlement Report Date to occur thereafter, 0.233, and (b) for each six-month period (beginning and ending on a Settlement Report Date) to occur after such initial period, a fraction, (i) the numerator of which is the Dilution Horizon for such period and (ii) the denominator of which is 30; PROVIDED, HOWEVER, that if the Dilution Horizon Factor for any period would be less than the Dilution Horizon Factor for the immediately preceding period, then the actual Dilution Horizon Factor for such current period shall be recalculated to equal a fraction, the numerator of which is equal to the average of the numerators used to calculate the Dilution Horizon Factor for such immediately preceding period and such current period and the denominator of which is 30. "DILUTION PERIOD" shall mean, as of any Settlement Report Date and continuing until (but not including) the next Settlement Report Date, the quotient of (i) the product of (A) the aggregate Principal Amount of Receivables which were originated by the Sellers during the Settlement Period immediately preceding such earlier Settlement Report Date and (B) the Dilution Horizon Factor then in effect and (ii) the Aggregate Receivables Amount as of the last day of the Settlement Period preceding such earlier Settlement Report Date. 6 "DILUTION RATIO" shall mean, for each Settlement Period, an amount (expressed as a percentage) equal to the aggregate amount of Dilution Adjustments made during such Settlement Period DIVIDED BY the aggregate Principal Amount of Receivables which were originated by the Sellers during such Settlement Period. "DILUTION RESERVE RATIO I" shall mean, as of any Settlement Report Date and continuing until (but not including) the next Settlement Report Date, an amount (expressed as a percentage) which is calculated for either the Class A Certificates or the Class B Certificates, as the case may be, as follows: DRR = [(c * d) + [(e-d) * (e/d)]] * f Where: DRR = Dilution Reserve Ratio I; c = with respect to the Class A Certificates, 2.50, and with respect to the Class B Certificates, 1.50; d = the average of the Dilution Ratio during the period of twelve consecutive Settlement Periods ending prior to such earlier Settlement Report Date; e = the highest Dilution Ratio for any Settlement Period during the period of twelve consecutive Settlement Periods ending prior to such earlier Settlement Report Date; and f = the Dilution Period. "DILUTION RESERVE RATIO II" shall mean, as of any Settlement Report Date and continuing until (but not including) the next Settlement Report Date, an amount (expressed as a percentage) which is calculated for either the Class A Certificates or the Class B Certificates, as the case may be, as follows: DRR = [(c * d) + e] * f Where: DRR = Dilution Reserve Ratio II c = with respect to the Class A Certificates, 2.50, and with respect to the Class B Certificates, 1.50; d = the average of the Dilution Ratio during the period of twelve consecutive Settlement Periods ending prior to such earlier Settlement Report Date; 7 e = the product of (i) the twelve-month sample standard deviation of the Dilution Ratio as of the end of each of the twelve consecutive Settlement Periods immediately preceding such earlier Settlement Report Date and (ii) either (A) for calculations with respect to Class A Certificates, 2.58, or (b) for calculations with respect to Class B Certificates, 1.96; and f = the Dilution Period. "EARLY AMORTIZATION EVENT" shall have the meanings assigned in Section 5.1 of this Supplement and Section 7.1 of the Agreement. "EARLY AMORTIZATION PERIOD" shall have the meaning assigned in Section 5.1 of this Supplement and Section 7.1 of the Agreement. "ELIGIBLE RECEIVABLES PERCENTAGE" shall mean a percentage equal to (a) 100 percent, MINUS (b) the Ineligible Receivables Percentage. "ERISA ENTITY" shall mean (i) an "employee benefit plan" within the meaning of Section 3(3) of ERISA or other retirement arrangement, individual retirement account or Keogh plan, whether or not it is subject to the provisions of Title I of ERISA, (ii) any plan described in Section 4975(e)(1) of the Internal Revenue Code or (iii) any other entity that would be deemed to be a "benefit plan investor" within the meaning of Department of Labor regulation Section 2510.3-101(f)(2). "INELIGIBLE RECEIVABLES PERCENTAGE" shall mean the percentage equivalent of a fraction the numerator of which is the excess of the aggregate Principal Amount of Receivables (excluding Charged-Off Receivables) on the last Business Day of the Series 1996-1 Revolving Period over the Aggregate Receivables Amount, as determined at the opening of business of the first Business Day of the Series 1996-1 Amortization Period, and the denominator of which is the aggregate Principal Amount of Receivables (excluding Charged-Off Receivables) on the last Business Day of the Series 1996-1 Revolving Period. "INITIAL PURCHASERS" shall mean Chase Securities Inc. and BA Securities, Inc., who are purchasing the Term Certificates on the Issuance Date pursuant to the Purchase Agreement. "INSTITUTIONAL ACCREDITED INVESTOR" shall mean an "accredited investor" within the meaning of Rule 501(a)(1),(2),(3) or (7) of Regulation D under the Securities Act. "INVESTED PERCENTAGE" shall mean, with respect to any Business Day (i) during the Series 1996-1 Revolving Period, the percentage equivalent of a fraction, the numerator of which is the Series 1996-1 Allocated Receivables Amount as of the end of the immediately preceding Business Day and the denominator of which is the Aggregate Receivables Amount as of the end of the immediately preceding Business Day and (ii) during the Series 8 1996-1 Amortization Period, the percentage equivalent of a fraction, the numerator of which is the Series 1996-1 Allocated Receivables Amount as of the end of the last Business Day of the Series 1996-1 Revolving Period (PROVIDED THAT if during the Series 1996-1 Amortization Period, the amortization periods of all other Outstanding Series which were outstanding prior to the commencement of the Series 1996-1 Amortization Period commence, then, from and after the date the last of such Series commences its Amortization Period, the numerator shall be the Series 1996-1 Allocated Receivables Amount as of the end of the Business Day preceding such date) and the denominator of which is the greater of (A) the Aggregate Receivables Amount as of the end of the immediately preceding Business Day and (B) the sum of the numerators used to calculate the Invested Percentage for all Outstanding Series on the Business Day for which such percentage is determined. "ISSUANCE DATE" shall mean November 15, 1996. "LOSS RESERVE RATIO I" shall mean, as of any Settlement Report Date and continuing until (but not including) the next Settlement Report Date, an amount (expressed as a percentage) which is calculated for either the Class A Certificates or the Class B Certificates, as the case may be, as follows: LRR = [(a * b)/c] * d Where: LRR = Loss Reserve Ratio I; a = the aggregate Principal Amount of Receivables originated by the Sellers during the three Settlement Periods immediately preceding such earlier Settlement Report Date; b = the highest three-month rolling average of the Aged Receivables Ratio that occurred during the period of twelve consecutive Settlement Periods preceding such earlier Settlement Report Date; c = for the period prior to the first Settlement Report Date, the difference between (i) the aggregate outstanding Principal Amount of all Receivables and (ii) the aggregate outstanding Principal Amount of all Defaulted Receivables, in each case, originated by the Sellers as of the last day of the Settlement Period preceding such earlier Settlement Report Date; and thereafter, the Aggregate Receivables Amount as of the last day of the Settlement Period preceding such earlier Settlement Report Date; and d = with respect to Class A Certificates, 2.50, and with respect to Class B Certificates, 1.50. 9 "LOSS RESERVE RATIO II" shall mean, as of any Settlement Report Date and continuing until (but not including) the next Settlement Report Date, an amount (expressed as a percentage) which is calculated for either the Class A Certificates or the Class B Certificates, as the case may be, as follows: LRR = [[(a * b)/c] * d] + e Where: LRR = Loss Reserve Ratio II; a = the aggregate Principal Amount of Receivables originated by the Sellers during the three Settlement Periods immediately preceding such earlier Settlement Report Date; b = the highest three-month rolling average of the Aged Receivables Ratio that occurred during the period of twelve consecutive Settlement Periods preceding such earlier Settlement Report Date; c = for the period prior to the first Settlement Report Date, the difference between (i) the aggregate outstanding Principal Amount of all Receivables and (ii) the aggregate outstanding Principal Amount of all Defaulted Receivables, in each case, originated by the Sellers as of the last day of the Settlement Period preceding such earlier Settlement Report Date; and thereafter, the Aggregate Receivables Amount as of the last day of the Settlement Period preceding such earlier Settlement Report Date; d = with respect to Class A Certificates, 2.50, and with respect to Class B Certificates, 1.50; and e = the product of (i) the twelve-month sample standard deviation of the Aged Receivables Ratio as of the end of each of the twelve consecutive Settlement Periods preceding such earlier Settlement Report Date and (ii) either (A) for calculations with respect to Class A Certificates, 2.58, or (b) for calculations with respect to Class B Certificates, 1.96. "MAJORITY TERM CERTIFICATEHOLDERS" shall mean, on any day, Term Certificateholders representing, in the aggregate, more than 50% of the Series 1996-1 Invested Amount. "MINIMUM RATIO" shall mean, as of any Settlement Report Date and continuing until (but not including) the next Settlement Report Date, an amount (expressed as a percentage) which is calculated for either the Class A Certificates or the Class B Certificates, as the case may be, as follows: 10 MR = (a * b) + c Where: MR = Minimum Ratio; a = the average of the Dilution Ratio during the period of the twelve consecutive Settlement Periods ending prior to such earlier Settlement Report Date; b = the Dilution Period; and c = with respect to Class A Certificates, 16.75%, and with respect to Class B Certificates, 9.25%. "ONE-MONTH LIBOR" shall mean, for any Accrual Period after the initial Accrual Period, the rate per annum, as recorded by the Trustee, which is the arithmetic mean (rounded to the nearest 1/100th of 1%) of the offered rates for Dollar deposits having a maturity of one month commencing on the first day of such Accrual Period that appears on the Telerate British Bankers Assoc. Interest Settlement Rates Page (as defined below) at approximately 11:00 a.m., London time, on the second full Business Day prior to such date; PROVIDED, HOWEVER, that if there shall at any time no longer exist a Telerate British Bankers Assoc. Interest Settlement Rates Page, "One-Month LIBOR" shall mean with respect to each day during each Accrual Period, the rate per annum equal to the rate at which The Chase Manhattan Bank is offered Dollar deposits at or about 10:00 a.m., New York City time, two Business Days prior to the beginning of such Accrual Period in the London interbank eurodollar market for delivery on the first day of such Accrual Period for one month and in a principal amount equal to an amount of not less than $1,000,000. "TELERATE BRITISH BANKERS ASSOC. INTEREST SETTLEMENT RATES PAGE" shall mean the display designated as Page 3750 on the Telerate System Incorporated Service (or such other page as may replace such page on such service for the purpose of displaying the rates at which Dollar deposits are offered by leading banks in the London interbank deposit market). "OPTIONAL TERMINATION DATE" shall have the meaning assigned in subsection 2.6(b). "OPTIONAL TERMINATION NOTICE" shall have the meaning assigned in subsection 2.6(b). "PBGC" shall mean the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA. "PROGRAM COSTS" shall mean, for any Business Day, the sum of (a) the product of (i) all unpaid fees and expenses due and payable to counsel to, and independent auditors of, the Company (other than fees and expenses payable on or in connection with the closing of any issuance of the Term Certificates) on such Business Day and (ii) a fraction, 11 the numerator of which is the Series 1996-1 Invested Amount on such Business Day and the denominator of which is the Aggregate Invested Amount on such Business Day and (b) all unpaid fees and expenses due and payable to Rating Agencies rating the Term Certificates; PROVIDED, HOWEVER, that Program Costs shall not exceed $100,000 in the aggregate in any fiscal year of the Company. "PURCHASE AGREEMENT" shall mean the agreement to be entered into on the Issuance Date among the Company, RS, US Foodservice and each Initial Purchaser pursuant to which the Company agrees to sell, and the Initial Purchasers agree to purchase, the principal amounts and Classes of Term Certificates set forth therein. "PURCHASER LETTER" shall mean a Purchaser Letter in substantially the form attached hereto as Exhibit E. "QUALIFIED INSTITUTIONAL BUYER" has the meaning ascribed to such term in Rule 144A(a) under the Securities Act. "RATING AGENCY" shall mean the collective reference to S&P and DCR. "RECORD DATE" shall mean, with respect to any Distribution Date, the last Business Day of the immediately preceding Settlement Period. "REDUCTION" shall have the meaning specified in subsection 2.6(a). "REDUCTION AMOUNT" shall have the meaning specified in subsection 2.6(a). "REDUCTION THRESHOLD" shall mean, at any date of determination, $15,000,000. "RS" shall mean Rykoff-Sexton, Inc., a Delaware corporation. "SCHEDULED REVOLVING TERMINATION DATE" shall mean the last day of the Settlement Period ending in July 2001. "SERIES 1996-1" shall mean Series 1996-1, the Principal Terms of which are set forth in this Supplement. "SERIES 1996-1 ACCRUED INTEREST SUB-SUBACCOUNT" shall have the meaning assigned in subsection 3A.2(a). "SERIES 1996-1 ADJUSTED INVESTED AMOUNT" shall mean, as of any date of determination, (i) the Series 1996-1 Invested Amount on such date, MINUS (ii) the amount on deposit in the Series 1996-1 Principal Collection Sub- subaccount on such date. 12 "SERIES 1996-1 ALLOCABLE CHARGED-OFF AMOUNT" shall mean, with respect to any Special Allocation Settlement Report Date, the "Allocable Charged- Off Amount", if any, which has been allocated to Series 1996-1. "SERIES 1996-1 ALLOCABLE RECOVERIES AMOUNT" shall mean, with respect to any Special Allocation Settlement Report Date, the "Allocable Recoveries Amount", if any, which has been allocated to Series 1996-1. "SERIES 1996-1 ALLOCATED RECEIVABLES AMOUNT" shall mean, on any date of determination, the lower of (i) the Series 1996-1 Target Receivables Amount on such day and (ii) the product of (x) the Aggregate Receivables Amount on such day and (y) the percentage equivalent of a fraction the numerator of which is the Series 1996-1 Target Receivables Amount on such day and the denominator of which is the Aggregate Target Receivables Amount on such day. "SERIES 1996-1 AMORTIZATION PERIOD" shall mean the period commencing on the Business Day following the earliest to occur of (i) the date on which an Early Amortization Period is declared to commence or automatically commences, (ii) the Optional Termination Date and (iii) the Scheduled Revolving Termination Date and ending on the earlier of (x) the date when the Series 1996-1 Invested Amount shall have been reduced to zero and all accrued interest on the Term Certificates shall have been paid in full and (y) the Series 1996-1 Termination Date. "SERIES 1996-1 CERTIFICATEHOLDERS' INTEREST" shall have the meaning assigned in subsection 2.2(a). "SERIES 1996-1 COLLECTIONS" shall mean, on any Business Day, an amount equal to (i) the product of (a) the Aggregate Daily Collections on such day, TIMES (b) the Invested Percentage on such day MINUS (ii) the amounts transferred on such day from the Series 1996-1 Collection Subaccount pursuant to Section 3A.3(a)(i). "SERIES 1996-1 COLLECTION SUBACCOUNT" shall have the meaning assigned in subsection 3A.2(a). "SERIES 1996-1 COLLECTION SUBORDINATED SUB-SUBACCOUNT" shall have the meaning assigned in subsection 3A.2(a). "SERIES 1996-1 DAILY INTEREST EXPENSE" shall mean, for each Business Day during an Accrual Period, the sum of (a) for each of the first ten of such Business Days, one-tenth of the Series 1996-1 Monthly Interest due and payable on the immediately succeeding Distribution Date and zero on each Business Day thereafter (until such immediately succeeding Distribution Date), (b) the aggregate amount of all previously accrued and unpaid Series 1996-1 Daily Interest Expense (up to but not exceeding the full amount thereof) and (c) the aggregate amount of all accrued and unpaid Class A Additional 13 Interest and Class B Additional Interest for each day since the preceding Business Day (up to but not exceeding the full amount thereof). "SERIES 1996-1 INITIAL INVESTED AMOUNT" shall mean, collectively, the Class A Initial Invested Amount and the Class B Initial Invested Amount. "SERIES 1996-1 INTERESTS" shall mean, collectively, the Class A Certificates, the Class B Certificates and the Series 1996-1 Subordinated Interest. "SERIES 1996-1 INVESTED AMOUNT" shall mean, collectively, the Class A Invested Amount and the Class B Invested Amount. "SERIES 1996-1 MONTHLY INTEREST" shall mean, collectively, the Class A Monthly Interest and the Class B Monthly Interest. "SERIES 1996-1 MONTHLY PRINCIPAL PAYMENT" shall have the meaning assigned in Section 3A.5. "SERIES 1996-1 MONTHLY SERVICING FEE" shall have the meaning assigned in Section 6.1. "SERIES 1996-1 NON-PRINCIPAL COLLECTION SUB-SUBACCOUNT" shall have the meaning assigned in subsection 3A.2(a). "SERIES 1996-1 NON-SUBORDINATED PERCENTAGE" shall mean a percentage equal to (a) 100 percent, MINUS (b) the Series 1996-1 Subordinated Percentage. "SERIES 1996-1 PRINCIPAL COLLECTION SUB-SUBACCOUNT" shall have the meaning assigned in subsection 3A.2(a). "SERIES 1996-1 REQUIRED RESERVES" shall mean, subject to Section 8.9, (x) on any date of determination during the Series 1996-1 Revolving Period, an amount equal to the sum of: (a) an amount equal to the greater of (i) the difference between (A) the product of (1) the Class A Adjusted Invested Amount on such day and (2) the percentage equivalent of (x) a fraction, the numerator of which is one, and the denominator of which is one MINUS the Class A Ratio, MINUS (y) one and (B) the Class B Adjusted Invested Amount and (ii) the product of (A) the Series 1996-1 Adjusted Invested Amount and (B) the percentage equivalent of (1) a fraction, the numerator of which is one, and the denominator of which is one MINUS the Class B Ratio, MINUS (2) one; PROVIDED that whichever method of calculation pursuant to clause (i) or (ii) results in the greater amount on any Settlement Report Date shall continue to be used as the method for the calculations to be made under this 14 paragraph (a) on each day from and after such Settlement Report Date until (but not including) the immediately succeeding Settlement Report Date; and (b) the product of (i) the Series 1996-1 Invested Amount on such day and (ii) a fraction, the numerator of which is the Carrying Cost Reserve Ratio, and the denominator of which is one MINUS the Class A Ratio; and (c) the product of (i) the aggregate Principal Amount of Receivables in the Trust on such day, (ii) a fraction, the numerator of which is the Series 1996-1 Invested Amount on such day, and the denominator of which is the Aggregate Invested Amount on such day, and (iii) a fraction, the numerator of which is the Servicing Reserve Ratio, and the denominator of which is one MINUS the Class A Ratio; and (d) the amount of any Accrued Expense Amount in respect of which sufficient Aggregate Daily Collections have not been transferred to the Series 1996-1 Non-Principal Collection Sub-subaccount; and (y) on any date of determination during the Series 1996-1 Amortization Period, an amount equal to the Series 1996-1 Required Reserves on the last Business Day of the Series 1996-1 Revolving Period; PROVIDED, in the case of this clause (y), that such amount shall be adjusted on each Special Allocation Settlement Report Date, if any, to the extent required as set forth in Section 3A.5(b)(i) and Section 3A.5(c)(iii). "SERIES 1996-1 REVOLVING PERIOD" shall mean the period commencing on the Issuance Date and terminating on the earliest to occur of the close of business on (i) the date on which an Early Amortization Period is declared to commence or automatically commences, (ii) the Optional Termination Date and (iii) the Scheduled Revolving Termination Date. "SERIES 1996-1 SUBORDINATED INTEREST" shall have the meaning assigned in subsection 2.2(b). "SERIES 1996-1 SUBORDINATED PERCENTAGE" shall mean the percentage equivalent of a fraction, the numerator of which is the Series 1996-1 Required Reserves on the last Business Day of the Series 1996-1 Revolving Period, and the denominator of which is the sum of the Series 1996-1 Adjusted Invested Amount and the Series 1996-1 Required Reserves, in each case on the last Business Day of the Series 1996-1 Revolving Period. "SERIES 1996-1 TARGET RECEIVABLES AMOUNT" shall mean, on any date of determination, the sum of (i) the Series 1996-1 Adjusted Invested Amount on such day and (ii) the Series 1996-1 Required Reserves for such day. 15 "SERIES 1996-1 TERMINATION DATE" shall mean the Distribution Date that occurs in May 2002. "SERVICING RESERVE RATIO" shall mean, as of any Settlement Report Date and continuing until (but not including) the next Settlement Report Date, an amount (expressed as a percentage) equal to (i) the product of (A) the Servicing Fee Percentage and (B) 2.0 TIMES Days Sales Outstanding as of such earlier Settlement Report Date, DIVIDED BY (ii) 360. "SPECIAL DISTRIBUTION DATE" shall have the meaning assigned in subsection 2.6(a). "SUBSEQUENT ISSUANCE DATE" shall mean each Distribution Date, if any, on which the Trustee issues additional Class A Certificates and/or Class B Certificates pursuant to Section 2.7. "TERM CERTIFICATES" shall mean, collectively, those Certificates designated as the Class A Certificates and Class B Certificates. "TERM CERTIFICATEHOLDERS" shall mean, collectively, the Class A Certificateholders and the Class B Certificateholders. "TRUST ACCOUNTS" shall have the meaning specified in subsection 3A.2(a). "US FOODSERVICE" shall have the meaning specified in the preamble hereto. (b) If any term or provision contained herein conflicts with or is inconsistent with any term, definition or provision contained in the Agreement, the terms and provisions of this Supplement shall govern. All capitalized terms not otherwise defined herein are defined in the Agreement. All Article, Section or subsection references herein shall mean Article, Section or subsections of this Supplement, except as otherwise provided herein. Unless otherwise stated herein, the context otherwise requires or such term is otherwise defined in the Agreement, each capitalized term used or defined herein shall relate only to the Series 1996-1 Certificates and no other Series of Investor Certificates issued by the Trust. ARTICLE II DESIGNATION OF CERTIFICATES AND INTERESTS; PURCHASE AND SALE OF THE TERM CERTIFICATES SECTION 2.1. DESIGNATION. The Certificates and interests created and authorized pursuant to the Agreement and this Supplement shall be divided into (i) two Classes, which shall be designated as the "Class A Certificates, Series 1996-1" and the "Class B Certificates, Series 1996-1", respectively, and (ii) an interest designated as the "Series 1996-1 Subordinated Interest". 16 SECTION 2.2. THE SERIES 1996-1 CERTIFICATES. (a) The Term Certificates shall represent fractional undivided interests in the Trust, consisting of the right to receive (i) the Invested Percentage (expressed as a decimal) of Collections received with respect to the Receivables and all other funds on deposit in the Collection Account and (ii) all other funds on deposit in the Series Collection Subaccounts and any subaccounts thereof (collectively, the "SERIES 1996-1 CERTIFICATEHOLDERS' INTEREST"). (b) The "SERIES 1996-1 SUBORDINATED INTEREST" shall be a fractional undivided interest in the Trust, consisting of the right to receive Collections with respect to the Receivables allocated to the Series 1996-1 Certificateholders' Interest and not required to be distributed to or for the benefit of the Term Certificateholders. The Exchangeable Company Interest and any Series of Investor Certificates outstanding shall represent the ownership interest in the remainder of the Trust not allocated pursuant hereto to the Series 1996-1 Certificateholders' Interest or the Series 1996-1 Subordinated Interest. (c) The Class A Certificates and the Class B Certificates shall be issued in registered form substantially in the forms of Exhibits A and B, respectively, and shall, upon issue, be executed and delivered by the Company to the Trustee for authentication and redelivery as provided in Section 2.4 hereof and Section 5.2 of the Agreement. SECTION 2.3. DELIVERY. (a) On the Issuance Date, the Company shall sign, on behalf of the Trust, and shall direct the Trustee in writing pursuant to Section 5.2 of the Agreement to duly authenticate, and the Trustee, upon receiving such direction, shall so authenticate (i) subject to the provisions set forth in subsection 2.3(b), the Class A Certificates in such names and such denominations and deliver such Class A Certificates to the Initial Purchasers in accordance with such written directions and (ii) the Class B Certificates in such names and such denominations and deliver such Class B Certificates to the Initial Purchasers in accordance with such written directions. The Term Certificates shall be issued in minimum denominations of $1,000,000 and in integral multiples of $100,000 in excess thereof. (b) Except with respect to any Class A Certificates purchased on the Issuance Date by an entity described in subsection 2.4(a)(ii), which will be issued in the form of Definitive Certificates, the Class A Certificates initially shall be issued in the form of one or more global Certificates, representing the Book-Entry Certificates, to be delivered to the Depository. Except as provided in Section 5.13 of the Agreement or Section 2.4 of this Supplement, such Book-Entry Certificates shall at all times remain registered in the name of the Depository or its nominee and at all times: (i) registration of such Book-Entry Certificates may not be transferred by the Trustee except to a successor to the Depository; (ii) ownership and transfers of registration of such Book-Entry Certificates on the books of the Depository shall be governed by applicable rules established by the Depository and by Section 2.4; (iii) the Depository may collect its usual and customary fees, charges and expenses from its Depository Participants; (iv) the Trustee shall deal with the Depository, Depository Participants and indirect participating firms as representatives of such Certificate Book-Entry Holders of such Book-Entry Certificates for purposes of exercising the rights of such Certificate Book-Entry Holders under the Agreement and this Supplement, and requests and directions for and votes of such representatives shall not be deemed to be 17 inconsistent if they are made with respect to different Certificate Book-Entry Holders; and (v) the Trustee may rely and shall be fully protected in relying upon information furnished by the Depository with respect to its Depository Participants and furnished by the Depository Participants with respect to indirect participating firms and Persons shown on the books of such indirect participating firms as direct or indirect Certificate Book-Entry Holders. All transfers by Certificate Book-Entry Holders of interest in Class A Certificates shall be made in accordance with the procedures established by the Depository Participant or brokerage firm representing such Book-Entry Certificate Holders and, notwithstanding any other provision herein to the contrary, the Trustee shall have no responsibility with respect to any such transfers (except as set forth in subsection 2.4(d) below). Each Depository Participant shall only transfer Class A Certificates of Certificate Book-Entry Holders it represents or of brokerage firms for which it acts as agent in accordance with the Depository's normal procedures and in accordance with applicable law. (c) The Class B Certificates shall be issued only as Definitive Certificates. SECTION 2.4. RESTRICTIONS ON TRANSFER. (a) On the Issuance Date, the Company shall sell the Term Certificates to the Initial Purchasers pursuant to the Purchase Agreement and deliver the Term Certificates in the form specified therein. Thereafter, the Term Certificates may not be transferred except in accordance with any applicable state securities laws, in amounts of at least U.S. $1,000,000 each and otherwise as follows: (i) with respect to Term Certificates evidenced by Book-Entry Certificates, to Qualified Institutional Buyers in reliance on the exemption from the registration requirements of the Securities Act provided by Rule 144A promulgated thereunder ("Rule 144A"); and (ii) with respect to Term Certificates evidenced by Definitive Certificates, (A) to Qualified Institutional Buyers in reliance on the exemption from the registration requirements of the Securities Act provided by Rule 144A thereunder, (B) to other Institutional Accredited Investors who deliver a Purchaser Letter to the Trustee or (C) to a person who is taking delivery of such Certificate in definitive form pursuant to a transaction that is otherwise exempt from the registration requirements of the Securities Act, as confirmed in an Opinion of Counsel addressed to the Trustee and the Company, which counsel and opinion are satisfactory to the Trustee and the Company. The Trustee shall have no obligations or duties with respect to determining whether any transfers of the Certificates are made in accordance with the Securities Act or any other Requirements of Law; PROVIDED that with respect to Definitive Certificates, the Trustee shall enforce such transfer restrictions in accordance with the terms set forth on the related Certificate and the provisions of the Agreement and this Supplement. 18 (b) Each purchaser (other than the Initial Purchasers) of the Term Certificates (including, without limitation, any purchaser of an interest in the Book-Entry Certificates) will be deemed to have represented and agreed as follows: (i) It is (A) a Qualified Institutional Buyer as defined in Rule 144A(a) and is acquiring the Term Certificates for its own institutional account or for the account or accounts of a Qualified Institutional Buyer or (B) purchasing Term Certificates being delivered in the form of Definitive Certificates in a transaction exempt from registration under the Securities Act and in compliance with the provisions of the Agreement and in compliance with the legend set forth in clause (v) below; (ii) It is purchasing one or more Term Certificates in an amount of at least U.S. $1,000,000 and it understands that such Term Certificates may be resold, pledged or otherwise transferred only in an amount of at least U.S. $1,000,000; (iii) It is not an ERISA Entity and it is not acquiring or holding any Term Certificate, directly or indirectly, for or on behalf of an ERISA Entity; (iv) It understands that the Term Certificates are being transferred to it in a transaction not involving any public offering within the meaning of the Securities Act, and that, if in the future it decides to resell, pledge or otherwise transfer any Term Certificates, such Term Certificates may be resold, pledged or transferred only (A) in a transaction meeting the requirements of Rule 144A to a person who the seller reasonably believes is a Qualified Institutional Buyer that purchases for its own account or for the account or accounts of a Qualified Institutional Buyer to whom notice is given that the resale, pledge or transfer is being made in reliance on Rule 144A or (B) to purchasers of Term Certificates being delivered in the form of Definitive Certificates, pursuant to a transaction otherwise exempt from registration under the Securities Act and in compliance with the provisions of the Agreement and in compliance with the legend set forth in clause (v) below; (v) It understands that each Term Certificate will bear a legend substantially to the following effect: [FOR BOOK-ENTRY CERTIFICATES ONLY: "UNLESS THIS TERM CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR 19 OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. INTERESTS IN THIS TERM CERTIFICATE MAY ONLY BE HELD BY QUALIFIED INSTITUTIONAL BUYERS (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT OF 1933, AS AMENDED).] THIS TERM CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE HOLDER HEREOF, BY PURCHASING THIS TERM CERTIFICATE, AGREES THAT SUCH TERM CERTIFICATE MAY BE RESOLD, PLEDGED OR TRANSFERRED ONLY IN ACCORDANCE WITH ANY APPLICABLE STATE SECURITIES LAWS, IN AN AMOUNT OF AT LEAST U.S. $1,000,000 AND (1) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A UNDER THE ACT ("RULE 144A"), TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OR ACCOUNTS OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A OR (2) TO A PERSON (A) WHO IS AN INSTITUTIONAL "ACCREDITED INVESTOR", WITHIN THE MEANING OF RULE 501(a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f)(2) (ANY OF THE FOREGOING, AN "ERISA ENTITY"). 20 THIS TERM CERTIFICATE IS NOT GUARANTEED OR INSURED BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY ANY OTHER PERSON. [FOR CLASS B CERTIFICATES ONLY: THE CLASS B CERTIFICATES MAY NOT BE SOLD, ASSIGNED, PLEDGED OR OTHERWISE TRANSFERRED UNLESS THE TRANSFEREE THEREOF DELIVERS A LETTER, IN THE FORM ATTACHED TO THE SERIES 1996-1 SUPPLEMENT, TO THE EFFECT THAT EITHER (i) SUCH TRANSFEREE IS NOT A TRUST, PARTNERSHIP OR "S CORPORATION" (WITHIN THE MEANING OF SECTION 1361(A) OF THE CODE) FOR UNITED STATES FEDERAL INCOME TAX PURPOSES OR (ii) SUCH TRANSFEREE IS A TRUST, PARTNERSHIP OR "S CORPORATION" (WITHIN THE MEANING OF SECTION 1361(A) OF THE CODE) FOR UNITED STATES FEDERAL INCOME TAX PURPOSES, BUT AFTER GIVING EFFECT TO SUCH TRANSFER OF CLASS B CERTIFICATES TO SUCH TRANSFEREE, LESS THAN 50 PERCENT OF THE AGGREGATE VALUE OF SUCH TRANSFEREE'S ASSETS WOULD CONSIST OF CLASS B CERTIFICATES. THE CLASS B CERTIFICATES ARE SUBORDINATED IN RIGHT OF PAYMENT TO THE CLASS A CERTIFICATES AS PROVIDED IN THE POOLING AGREEMENT AND THE SERIES 1996-1 SUPPLEMENT. THE TRUSTEE INTENDS TO WITHHOLD PURSUANT TO SECTION 1446 OF THE CODE ON PAYMENTS OF INTEREST ALLOCABLE TO CLASS B CERTIFICATEHOLDERS WHO ARE FOREIGN INVESTORS. AS A RESULT, THE CASH RECEIVED ON A CURRENT BASIS BY FOREIGN INVESTORS WHO OWN CLASS B CERTIFICATES WILL BE LESS THAN THE FULL INTEREST PAYMENTS. FOR THESE PURPOSES, A FOREIGN INVESTOR IS A PERSON OR ENTITY OTHER THAN AN INDIVIDUAL WHO IS A CITIZEN OR RESIDENT OF THE UNITED STATES, A CORPORATION, PARTNERSHIP OR OTHER ENTITY CREATED OR ORGANIZED IN OR UNDER THE LAWS OF THE UNITED STATES OR ANY POLITICAL SUBDIVISION THEREOF (A "U.S. COMPANY"), OR AN ESTATE OR TRUST THE INCOME OF WHICH IS SUBJECT TO U.S. FEDERAL INCOME TAXATION REGARDLESS OF ITS SOURCE. A U.S. COMPANY WHICH IS A SUBSIDIARY OF A FOREIGN INVESTOR IS NOT ITSELF CONSIDERED A FOREIGN INVESTOR BUT A U.S. BRANCH OF A FOREIGN INVESTOR WOULD BE CONSIDERED A FOREIGN INVESTOR.] (c) The Transfer Agent and Registrar shall not permit the transfer of any Term Certificates unless such transfer complies with the terms of the foregoing legends and, in the case of a transfer (i) to an Institutional Accredited Investor (other than a Qualified Institutional Buyer), the transferee delivers a completed Purchaser Letter or (ii) to a Person other than a Qualified Institutional Buyer or an Institutional Accredited Investor, upon delivery of an opinion of counsel (which counsel may include Richards & O'Neil, LLP), satisfactory to the Trustee and the 21 Company, to the effect that the transferee is taking delivery of the Term Certificates in a transaction that is otherwise exempt from the registration requirements of the Securities Act and, in the case of a transfer of a Class B Certificate to any Person, the transferee delivers to the Company and the Trustee a completed Class B Transferee Tax Letter. (d) If a Certificate Book-Entry Holder of Class A Certificates wishes at any time to transfer its interest therein to one or more Institutional Accredited Investors or persons described in subsection 2.4(a)(ii)(C) above, such interest may be so transferred only if, in addition to satisfaction of any other applicable requirements pursuant hereto and to the Agreement, the transferor has delivered to the Trustee and the Transfer Agent and Registrar a Definitive Certificate Conversion Letter. Upon (i) receipt by the Trustee and the Transfer Agent and Registrar of (x) such Definitive Certificate Conversion Letter and (y) instructions given in accordance with the Depository's procedures therefor and (ii) satisfaction of any other applicable requirements pursuant hereto and to the Agreement, the Transfer Agent and Registrar shall reflect on the Certificate Register the date and a decrease in the principal amount of the applicable Book-Entry Certificate in an amount equal to the principal amount of the beneficial interest in such Book-Entry Certificate to be transferred, and the Company shall sign, on behalf of the Trust, and shall direct the Trustee in writing to duly authenticate, and the Trustee, upon receiving such direction, shall so authenticate and deliver one or more Definitive Certificates of like tenor and amount to the transferee or transferees indicated in the related Definitive Certificate Conversion Letter. SECTION 2.5. APPLICATION OF PROCEEDS. On the Issuance Date, the Trustee shall remit to the Company the cash proceeds received by it upon the issuance of the Term Certificates. SECTION 2.6. PROCEDURE FOR DECREASING THE SERIES 1996-1 INVESTED AMOUNT; OPTIONAL TERMINATION. (a) If as of the last day of any period of three consecutive Settlement Periods the daily average excess during such period of the Series 1996-1 Invested Amount over the Series 1996-1 Adjusted Invested Amount equals or exceeds the Reduction Threshold, as of the last day of any Settlement Period, the Company shall reduce the Class A Invested Amount and the Class B Invested Amount (a "REDUCTION"), by causing the Trustee to distribute to the Term Certificateholders in accordance with this subsection 2.6(a) an amount (the "REDUCTION AMOUNT") at least equal to such Reduction Threshold, PROVIDED that in no event shall a Reduction be made if it would cause the Series 1996-1 Invested Amount to be reduced below $100,000,000. The Company shall direct the Trustee in writing to make such distribution and shall specify the amount of the Reduction to be distributed as specified below. The distribution of the Reduction Amount shall be made to the Term Certificateholders PRO RATA based on the Initial Invested Amount of each Class, from the funds on deposit in the Series 1996-1 Principal Collection Sub-subaccount on the immediately succeeding Distribution Date (a "SPECIAL DISTRIBUTION DATE"); PROVIDED that no Early Amortization Event or Potential Early Amortization Event has occurred and is continuing and the Servicer on behalf of the Company shall have given the Trustee written notice of such Reduction and the related Reduction Amount (which amount shall not exceed the available funds on deposit in the Series 1996-1 Principal Collection Sub-subaccount as of the date of such notice) at least five Business Days prior to the related Special Distribution Date setting forth the amount of such Reduction and, in the case of such notice to the Trustee, instructions not to distribute to 22 the Company any amounts pursuant to subsection 3A.3(b)(i) until the condition set forth in the second proviso in such subsection is satisfied. The Trustee shall send written notice of any proposed Reduction to the Term Certificateholders and each Rating Agency as promptly as reasonably practicable. (b) (i) On any Business Day, the Company shall have the right to deliver an irrevocable written notice (an "OPTIONAL TERMINATION NOTICE") to the Trustee and the Servicer in which the Company declares that the Series 1996-1 Revolving Period shall terminate on the date (the "OPTIONAL TERMINATION DATE") set forth in such notice (which date, in any event, shall not be less than 10 days from the date on which such notice is delivered); PROVIDED that if the Optional Termination Date occurs prior to the second anniversary of the Issuance Date, the Company shall pay to the Term Certificateholders, in addition to the Invested Amount (and interest accrued thereon) to which such holders are entitled, an amount calculated by the Company equal to the present value of a series of payments equal to the product of (i) the Series 1996-1 Invested Amount and (ii) the spread over One-Month LIBOR applicable to the Certificate Rates for each Class of Term Certificates, payable monthly on each Distribution Date in arrears from the Optional Termination Date through the second anniversary of the Issuance Date and discounted at a rate equal to One-Month LIBOR being used to calculate the Certificate Rates on the Optional Termination Date (the "PREPAYMENT PREMIUM"); PROVIDED FURTHER that the Prepayment Premium shall be paid in accordance with the following sentence. On the Distribution Date on which the Series 1996-1 Invested Amount has been repaid in full, the Company shall pay, solely from funds available to the Company which are not otherwise needed to be applied to the payment of any amounts by the Company pursuant to any Pooling and Servicing Agreement, FIRST, to the Class A Certificateholders, and SECOND, to the Class B Certificateholders, the applicable Prepayment Premium. (ii) From and after the Optional Termination Date, the Series 1996-1 Amortization Period shall commence for all purposes under this Agreement and the other Transaction Documents. The Trustee shall give prompt written notice of its receipt of an Optional Termination Notice to the Term Certificateholders and each Rating Agency. SECTION 2.7. SALE OF ADDITIONAL TERM CERTIFICATES. (a) The Company may, upon written notice to the Trustee, the Servicer and the Term Certificateholders and upon satisfaction of each of the conditions set forth in subsection (b) of this Section 2.7, direct the Trustee in writing to issue on the following Distribution Date (each such date a "SUBSEQUENT ISSUANCE DATE") additional Class A Certificates and Class B Certificates, identical to the existing Class A Certificates and Class B Certificates (except that the Certificate Rate applicable to such additional Class A Certificates or Class B Certificates, as the case may be, may differ from the Certificate Rate applicable to such existing Class A Certificates or Class B Certificates, as the case may be) (such issuance to be made PRO rata based on the Initial Invested Amount of each such Class), in an aggregate principal amount and in such names and denominations as specified by the Company in accordance with subsection 2.7(c) below; PROVIDED that the Series 1996-1 Target Receivables Amount shall not exceed the Series 1996-1 Allocated Receivables Amount after giving effect to any increase in the Invested Amount on such Subsequent Issuance Date. 23 The Company may arrange for the sale of such additional Class A Certificates and Class B Certificates pursuant to a private placement or any other sale arrangement; PROVIDED that the Company agrees that it shall first offer to the existing Term Certificateholders the opportunity to purchase such additional Class A Certificates and Class B Certificates on substantially the same terms and conditions that such additional Certificates are to be offered to other purchasers. If existing Class A Certificateholders or Class B Certificateholders, as the case may be, elect not to purchase all such additional Class A Certificates or Class B Certificates within 10 Business Days following their receipt of an offer therefor, the Company may proceed with its arrangements to sell all such additional Class A Certificates or Class B Certificates, as the case may be, to any other eligible purchasers. In the event that the existing Class A Certificateholders or Class B Certificateholders, as the case may be, subscribe to purchase more additional Class A Certificates or Class B Certificates than are being offered by the Company at such time, then each such existing Class A Certificateholder or Class B Certificateholder shall be entitled to purchase a PRO RATA portion of such additional Class A Certificates or Class B Certificates based on the aggregate principal amount of Class A Certificates or Class B Certificates then held by such holder. On each Subsequent Issuance Date, if any, the Series 1996-1 Invested Amount (and each other amount set forth herein, the calculation of which is based on such amount) shall be recalculated by the Servicer to include the additional Initial Invested Amounts with respect to the Class A Certificates and Class B Certificates issued on such date. (b) On any Subsequent Issuance Date, the Trustee shall only authenticate and deliver any additional Class A Certificates and Class B Certificates upon satisfaction of the following conditions on or prior to such Subsequent Issuance Date: (i) the Rating Agencies shall have been notified by the Company of the proposed issuance of additional Class A Certificates and Class B Certificates at least 10 days prior to the proposed Subsequent Issuance Date, each Rating Agency shall have issued a rating (as confirmed in a letter delivered to the Trustee) on the additional Class A Certificates and Class B Certificates that is equivalent to that rating issued by such Rating Agency on the Issuance Date and the Rating Agency Condition shall have been satisfied on or prior to such Subsequent Issuance Date with respect to such issuance; (ii) the Trustee shall have received from the Company an Officer's Certificate certifying that no Early Amortization Event or Potential Early Amortization Event has occurred and is continuing with respect to Series 1996-1 or would occur as a result of such issuance; (iii) a Tax Opinion addressed to the Trust and the Trustee shall have been delivered to the Trustee; and (iv) an Opinion of Counsel addressed to the Trust and the Trustee shall have been delivered to the Trustee stating that all of the conditions to the issuance of such additional Class A Certificates and Class B Certificates shall have been satisfied (which opinion may, to the extent it concerns questions of fact, rely on an Officer's Certificate with respect to such questions of fact). 24 (c) On each Subsequent Issuance Date, the Company shall sign, on behalf of the Trust, and shall direct the Trustee in a written communication signed by a Responsible Officer to duly authenticate, and the Trustee, upon receiving such direction, shall so authenticate and deliver (i) the related additional Class A Certificates in such names and such denominations and deliver such additional Class A Certificates in accordance with such written directions and (ii) the related additional Class B Certificates in such names and such denominations and deliver such additional Class B Certificates in accordance with such written directions. ARTICLE III ARTICLE III OF THE AGREEMENT Section 3.1 of the Agreement and each other section of Article III of the Agreement relating to another Series shall read in their entirety as provided in the Agreement. Article III of the Agreement (except for Section 3.1 thereof and any portion thereof relating to another Series) shall read in its entirety as follows and shall be exclusively applicable to the Series 1996-1 Certificates: SECTION 3A.2. ESTABLISHMENT OF TRUST ACCOUNTS. (a) The Trustee shall cause to be established and maintained in the name of the Trustee, on behalf of the Trust, (i) for the benefit of the Class A Certificateholders, (ii) for the benefit, subject to the prior and senior interest of the Class A Certificateholders, of the Class B Certificateholders and (iii) in the case of clauses (A), (B) and (C) below, for the benefit, subject to the prior and senior interest of the Term Certificateholders, of the owner of the Series 1996-1 Subordinated Interest, (A) a subaccount of the Collection Account (the "SERIES 1996-1 COLLECTION SUBACCOUNT"), which subaccount is the Series Collection Subaccount with respect to Series 1996-1; (B) two subaccounts of the Series 1996-1 Collection Subaccount: (1) the Series 1996-1 Principal Collection Sub- subaccount and (2) the Series 1996-1 Non-Principal Collection Sub-subaccount (respectively, the "SERIES 1996-1 PRINCIPAL COLLECTION SUB-SUBACCOUNT" and the "SERIES 1996-1 NON-PRINCIPAL COLLECTION SUB-SUBACCOUNT"), (C) a subaccount of the Series 1996-1 Principal Collection Sub-subaccount (the "SERIES 1996-1 COLLECTION SUBORDINATED SUB-SUBACCOUNT"), and (D) a subaccount of the Series 1996-1 Non-Principal Collection Sub-subaccount (the "SERIES 1996-1 ACCRUED INTEREST SUB-SUBACCOUNT"; all accounts established pursuant to this subsection 3A.2(a) and listed on Schedule 1, collectively, the "TRUST ACCOUNTS"), each Trust Account to bear a designation indicating that the funds deposited therein are held for the benefit of the Persons (and, for each such Person, to the extent) set forth in clauses (i), (ii) and (iii) above. The Trustee, on behalf of the Holders, shall possess all right, title and interest in all funds from time to time on deposit in, and all Eligible Investments credited to, the Trust Accounts and in all proceeds thereof. The Trust Accounts shall be under the sole dominion and control of the Trustee for the exclusive benefit of the Persons (and, for each such Person, to the extent) set forth in clauses (i), (ii) and (iii) above. (b) All Eligible Investments in the Trust Accounts shall be held by the Trustee, on behalf of the Holders, for the exclusive benefit of the Persons (and, for each such Person, to the extent) set forth in clauses (A), (B), (C) and (D) of subsection 3A.2(a) and, subject to the prior 25 interest of such Persons, the owner of the Series 1996-1 Subordinated Interest; PROVIDED, HOWEVER, that funds on deposit in a Trust Account which is a Sub-subaccount of a Collection Account may, at the direction of the Company, be invested together with funds held in other Sub-subaccounts of the Collection Account. After giving effect to any distribution to the Company pursuant to subsection 3A.3(b), amounts on deposit and available for investment in the Series 1996-1 Principal Collection Sub-subaccount and the Series 1996-1 Collection Subordinated Sub-subaccount shall be invested by the Trustee at the written direction of the Company in Eligible Investments that mature, or that are payable or redeemable upon demand of the holder thereof, (i) in the case of any such investment made during the Series 1996-1 Revolving Period, on or prior to the next Business Day and (ii) in the case of any such investment made during the Series 1996-1 Amortization Period, on or prior to the Business Day immediately preceding the next Distribution Date. Amounts on deposit and available for investment in the Series 1996-1 Non-Principal Collection Sub-subaccount and the Series 1996-1 Accrued Interest Sub-subaccount shall be invested by the Trustee at the written direction of the Company in Eligible Investments that mature, or that are payable or redeemable upon demand of the holder thereof, on or prior to the Business Day immediately preceding the next Distribution Date. As of the Business Day immediately preceding such next Distribution Date, (x) all interest and other investment earnings (net of losses and investment expenses) on funds deposited in the Series 1996-1 Accrued Interest Sub-subaccount shall be deposited in the Series 1996-1 Non-Principal Collection Sub-subaccount and (y) all interest and investment earnings (net of losses and investment expenses) on funds deposited in the Series 1996-1 Principal Collection Sub-subaccount and the Series 1996-1 Collection Subordinated Sub-subaccount shall be deposited in the Series 1996-1 Non-Principal Collection Sub-subaccount. SECTION 3A.3. DAILY ALLOCATIONS. In accordance with the written direction of the Servicer, upon which the Trustee may conclusively rely: (a) The portion of the Aggregate Daily Collections allocated to the Series 1996-1 Certificates pursuant to Article III of the Agreement shall be allocated and distributed as set forth in this Article III by the Trustee as follows: (i) on each Business Day, an amount equal to the Accrued Expense Amount for such day (or, during the Series 1996-1 Revolving Period, such greater amount as the Company may request in writing) shall be transferred from the Series 1996-1 Collection Subaccount to the Series 1996-1 Non-Principal Collection Sub-subaccount; PROVIDED, HOWEVER, that during the Series 1996-1 Amortization Period, to the extent of funds on deposit (after giving effect to deposits on such Business Day) in the Series 1996-1 Collection Subordinated Sub-subaccount, such transfer shall be made from funds on deposit in the Series 1996-1 Collection Subordinated Sub-subaccount prior to any transfer from the Series 1996-1 Collection Subaccount, in each case to the Series 1996-1 Non-Principal Collection Sub-subaccount; (ii) following the transfers pursuant to clause (i) above, during the Series 1996-1 Revolving Period, any remaining funds on deposit in the Series 1996-1 Collection 26 Subaccount shall be transferred by the Trustee to the Series 1996-1 Principal Collection Sub-subaccount; (iii) if the Series 1996-1 Amortization Period commences prior to March 31, 1997, then, during the Series 1996-1 Amortization Period, following the transfers made pursuant to clause (i) above, any remaining funds on deposit in the Series 1996-1 Collection Subaccount shall be allocated and transferred by the Trustee as follows: (A) an amount equal to the sum of (I) the product of (x) the Series 1996-1 Collections, TIMES (y) the Ineligible Receivables Percentage, PLUS (II) the product of (x) the Series 1996-1 Collections, TIMES (y) the Eligible Receivables Percentage, TIMES (z) the Series 1996-1 Subordinated Percentage, shall be transferred to the Series 1996-1 Collection Subordinated Sub-subaccount; and (B) following the transfer made pursuant to clause (A) above, any remaining funds on deposit in the Series 1996-1 Collection Subaccount shall be transferred to the Series 1996-1 Principal Collection Sub-subaccount; and (iv) if the Series 1996-1 Amortization Period commences on or after March 31, 1997, then, during the Series 1996-1 Amortization Period, following the transfers pursuant to clause (i) above, any remaining funds on deposit in the Series 1996-1 Collection Subaccount shall be transferred by the Trustee to the Series 1996-1 Principal Collection Sub-subaccount. (b)(i) On each Business Day during the Series 1996-1 Revolving Period (including Distribution Dates), after giving effect to all allocations of Aggregate Daily Collections on such Business Day, amounts on deposit in the Series 1996-1 Principal Collection Sub-subaccount shall be distributed by the Trustee to the Company (but only to the extent that the Trustee has received a Daily Report which reflects the receipt of the Collections on deposit therein) in accordance with directions contained in such Daily Report; PROVIDED that such distribution shall be made only if no Potential Early Amortization Event or Early Amortization Event, in each case pursuant to Section 7.1 of the Agreement or subsections (a), (d) (but only with respect to a Servicer Default set forth in subsection 6.1(e) of the Servicing Agreement), (g) or (i) of Section 5.1 of this Supplement, has occurred and is continuing and only to the extent that, after giving effect to such distribution, the Series 1996-1 Target Receivables Amount would not exceed the Series 1996-1 Allocated Receivables Amount; PROVIDED FURTHER that if the Company or the Servicer, on behalf of the Company, shall have given a notice of a Reduction and the related Reduction Amount to the Trustee and the Servicer pursuant to subsection 2.6(a) (and the Trustee shall have received such notice), the Trustee shall retain, until the related Special Distribution Date, aggregate amounts on deposit in the Series 1996-1 Principal Collection Sub-subaccount equal to the sum of the Reduction Amount in respect thereof; PROVIDED STILL FURTHER that in the event that an amount less than the Accrued Expense Amount for such day was transferred from the Series 1996-1 Collection Subaccount to the Series 1996-1 Non-Principal Collection Sub- subaccount on such day pursuant to subsection 3A.3(a)(i), the amount on deposit in the Series 1996-1 Principal Collection Sub-subaccount, up to the amount of such deficiency, shall be transferred to the Series 27 1996-1 Non-Principal Collection Sub-subaccount. Amounts distributed to the Company hereunder shall be deemed to be paid first from Collections received directly by the Servicer and second from Collections received in the Lockboxes. (ii) On each Business Day during the Series 1996-1 Amortization Period (including Distribution Dates), funds deposited in the Series 1996-1 Principal Collection Sub-subaccount and the Series 1996-1 Collection Subordinated Sub-subaccount shall be invested in Eligible Investments that mature on or prior to the Business Day immediately preceding the next Distribution Date and shall be distributed on such Distribution Date in accordance with subsection 3A.6(c). No amounts on deposit in the Series 1996-1 Principal Collection Sub-subaccount or the Series 1996-1 Collection Subordinated Sub-subaccount shall be distributed by the Trustee to the Company or the owner of the Series 1996-1 Subordinated Interest during the Series 1996-1 Amortization Period. (c) On each Business Day, an amount equal to the Series 1996-1 Daily Interest Expense for such day shall be transferred by the Trustee from the Series 1996-1 Non-Principal Collection Sub-subaccount to the Series 1996-1 Accrued Interest Sub-subaccount. (d) On each Business Day during the Series 1996-1 Amortization Period (including Distribution Dates), so long as there are any amounts on deposit in the Series 1996-1 Collection Subordinated Sub-subaccount, after giving effect to the transfers pursuant to subsection 3A.3(a), the Trustee shall also transfer from the Series 1996-1 Collection Subordinated Sub-subaccount to the Series 1996-1 Principal Collection Sub-subaccount an amount equal to the lesser of (i) the sum of (A) the product of (1) the Series 1996-1 Non-Subordinated Percentage, TIMES (2) the Invested Percentage, TIMES (3) the Eligible Receivables Percentage, TIMES (4) the excess of (x) the sum of Dilution Adjustments arising or identified, and the outstanding Principal Amount of Ineligible Receivables for which the Repurchase Obligation Date has occurred, in each case since the preceding Business Day, OVER (y) the amount specified in the Daily Report as having been deposited by the Company in respect of such Dilution Adjustments and Ineligible Receivables (either from the deposit in the Collection Account of cash payments made in respect thereof by the Sellers or from other cash Collections in respect thereof) in the Series 1996-1 Principal Collection Sub- subaccount since the preceding Business Day, (B) the product of (1) the Series 1996-1 Non-Subordinated Percentage, TIMES (2) the Invested Percentage, TIMES (3) the Eligible Receivables Percentage, TIMES (4) the Principal Amount of Receivables which became Defaulted Receivables since the preceding Business Day, and (C) (x) the Series 1996-1 Unreimbursed Amount (as defined in the following sentence) for the prior Business Day MINUS (y) the amount specified in the Daily Report as having been deposited by the Company on such Business Day in respect of such Series 1996-1 Unreimbursed Amount (either from the deposit in the Collection Account of cash payments made in respect thereof by the Sellers or from other cash Collections in respect thereof) in the Series 1996-1 Principal Collection Sub-subaccount and (ii) the amount on deposit in the Series 1996-1 Collection Subordinated Sub-subaccount on such Business Day. If on any Business Day the amount calculated pursuant to clause (i) exceeds the amount calculated pursuant to clause (ii), such excess shall be referred to as the "SERIES 1996-1 UNREIMBURSED AMOUNT" for such Business Day. 28 (e) In addition to the foregoing, on the Distribution Date during the Series 1996-1 Amortization Period following the Settlement Report Date on which (i) the Series 1996-1 Invested Amount has been reduced to an amount which is equal to or less than the Clean-Up Call Amount and (ii) the sum of (x) the amount on deposit in the Series 1996-1 Collection Subordinated Sub-subaccount, if any, PLUS (y) the amount on deposit in the Series 1996-1 Principal Collection Sub-subaccount, equals or exceeds the Clean-Up Call Repurchase Price, the Trustee shall transfer from the Series 1996-1 Collection Subordinated Sub- subaccount to the Series 1996-1 Principal Collection Sub-subaccount (which amount shall be used to pay the Clean-Up Call Repurchase Price in full) the lesser of (i) the Clean-Up Call Repurchase Price MINUS the amount on deposit in the Series 1996-1 Principal Collection Sub-subaccount on such day and (ii) the amount on deposit in the Series 1996-1 Collection Subordinated Sub-subaccount. In addition, on the Distribution Date during the Series 1996-1 Amortization Period on which the Company has exercised its clean-up option pursuant to Section 9.2 of the Pooling Agreement to repurchase the Series 1996-1 Certificates, the Trustee shall, upon the written request of the Company, transfer from the Series 1996-1 Collection Subordinated Sub-subaccount to the Series 1996-1 Principal Collection Sub-subaccount (which amount shall be applied towards payment of the Clean-Up Call Repurchase Price) the lesser of (i) the Series 1996-1 Invested Amount MINUS the amount on deposit in the Series 1996-1 Principal Collection Sub-subaccount on such day and (ii) the amount on deposit in the Series 1996-1 Collection Subordinated Sub-subaccount, if any. Further, (i) if the Amortization Period has commenced with respect to all Outstanding Series, then, on the date that is six months after the latest date on which the last Amortization Period for an Outstanding Series commenced or (ii) if the Receivables have been disposed of pursuant to subsection 7.2(b) of the Agreement, on the Distribution Date following the date of such disposition, the Trustee shall transfer from the Series 1996-1 Collection Subordinated Sub- subaccount to the Series 1996-1 Principal Collection Sub-subaccount (which amount shall be applied towards payment of the Series 1996-1 Invested Amount) the remaining amount on deposit in the Series 1996-1 Collection Subordinated Sub-subaccount, if any. The provisions of the foregoing paragraph (e) and this paragraph (f) shall in no event be construed to affect any other financial obligations of any Seller, any Servicing Party or the Company under any of the Transaction Documents. (f) The allocations to be made pursuant to this Section 3A.3 are subject to the provisions of Sections 2.5, 2.6, 7.2 and 9.1 of the Agreement. SECTION 3A.4. DETERMINATION OF INTEREST. (a) The amount of interest distributable with respect to the Term Certificates on each Distribution Date for the Accrual Period ending on such Distribution Date shall be determined as follows: (i) for the Class A Certificates, an amount (the "CLASS A MONTHLY INTEREST") equal to the product of (A) the Class A Certificate Rate for such Accrual Period, (B) the Class A Invested Amount on the first day of such Accrual Period (after giving effect to any distributions of principal on such date) and (C) the actual number of days in such Accrual Period DIVIDED BY 360; PROVIDED that if any additional Class A Certificates have been issued on any Subsequent Issuance Date, the Class A Monthly Interest shall equal the sum of the monthly interest amount for each outstanding tranche of Class A Certificates 29 (based on the outstanding Invested Amount and the applicable Class A Certificate Rate in respect of such tranche); (ii) for the Class B Certificates, an amount (the "CLASS B MONTHLY INTEREST") equal to the product of (A) the Class B Certificate Rate for such Accrual Period, (B) the Class B Invested Amount on the first day of such Accrual Period (after giving effect to any distributions of principal on such date) and (C) the actual number of days in such Accrual Period DIVIDED BY 360; PROVIDED that if any additional Class B Certificates have been issued on any Subsequent Issuance Date, the Class B Monthly Interest shall equal the sum of the monthly interest amount for each outstanding tranche of Class B Certificates (based on the outstanding Invested Amount and the applicable Class B Certificate Rate in respect of such tranche); and (iii) The Servicer shall notify the Trustee in writing (upon which the Trustee may conclusively rely) on each Settlement Report Date of the amounts calculated pursuant to clauses (i) and (ii) above. (b) (i) On each Distribution Date, the Servicer shall determine the excess, if any (the "CLASS A INTEREST SHORTFALL"), of (A) the Class A Monthly Interest for the Accrual Period ending on such Distribution Date OVER (B) the amount which will be available to be distributed to the Class A Certificateholders on such Distribution Date in respect thereof pursuant to this Supplement. If the Class A Interest Shortfall with respect to any Distribution Date is greater than zero, an additional amount ("CLASS A ADDITIONAL INTEREST") equal to the product, for the next Accrual Period (or portion thereof) until such Class A Interest Shortfall is repaid, of (A) a rate per annum equal to the sum of (x) the Class A Certificate Rate for the next Accrual Period and (y) 1%, (B) such Class A Interest Shortfall (or the portion thereof which has not been paid to the Class A Certificateholders) and (C) the actual number of days in the next Accrual Period (or portion thereof) DIVIDED BY 360, shall be payable as provided herein with respect to the Class A Certificates on each Distribution Date following such Distribution Date, to but excluding the Distribution Date on which such Class A Interest Shortfall is paid in full to the Class A Certificateholders. (ii) On each Distribution Date, the Servicer shall determine the excess, if any (the "CLASS B INTEREST SHORTFALL"), of (A) the Class B Monthly Interest for the Accrual Period ending on such Distribution Date OVER (B) the amount which is available to be distributed to the Class B Certificateholders on such Distribution Date in respect thereof pursuant to this Supplement. If the Class B Interest Shortfall with respect to any Distribution Date is greater than zero, an additional amount ("CLASS B ADDITIONAL INTEREST") equal to the product, for the next Accrual Period (or portion thereof) until such Class B Interest Shortfall is repaid, of (A) a rate per annum equal to the sum of (x) the Class B Certificate Rate for the next Accrual Period and (y) 1%, (B) such Class B Interest Shortfall (or the portion thereof which has not been paid to the Class B Certificateholders) and (C) the actual number of days in such Accrual Period (or portion thereof) DIVIDED BY 360, shall be payable as provided herein with respect to the Class B Certificates on each Distribution Date following such Distribution Date, to but excluding the Distribution Date on which such Class B Interest Shortfall is paid in full to the Class B Certificateholders. 30 SECTION 3A.5. DETERMINATION OF SERIES 1996-1 MONTHLY PRINCIPAL. (a) PAYMENTS OF SERIES 1996-1 PRINCIPAL. The amount (the "SERIES 1996-1 MONTHLY PRINCIPAL PAYMENT") distributable from the Series 1996-1 Principal Collection Sub-subaccount on each Distribution Date during the Series 1996-1 Amortization Period shall be equal to the amount on deposit in such account on the immediately preceding Settlement Report Date; PROVIDED, HOWEVER, that the Series 1996-1 Monthly Principal Payment on any Distribution Date shall not exceed the Series 1996-1 Invested Amount on such Distribution Date after giving effect to the reductions and increases pursuant to paragraphs (b) and (c) below. (b) REDUCTIONS TO SERIES 1996-1 PRINCIPAL. If, on any Special Allocation Settlement Report Date, the Series 1996-1 Allocable Charged-Off Amount is greater than zero for the related Settlement Period, the Trustee shall (in accordance with written directions from the Servicer, upon which the Trustee may conclusively rely) make the following applications of such amounts in the following order of priority: (i) the Series 1996-1 Required Reserves shall be reduced (but not below zero) by an amount equal to the Series 1996-1 Allocable Charged- Off Amount (which shall also be reduced by the amount so applied); (ii) then, to the extent that the Series 1996-1 Allocable Charged-Off Amount is greater than zero following the application in clause (i) above, the Class B Invested Amount shall be reduced (but not below zero) by an amount equal to such remaining Series 1996-1 Allocable Charged-Off Amount (which shall also be reduced by the amount so applied); and (iii) then, to the extent that the Series 1996-1 Allocable Charged-Off Amount is greater than zero following the applications in clauses (i) and (ii) above, the Class A Invested Amount shall be reduced (but not below zero) by an amount equal to such remaining Series 1996-1 Allocable Charged-Off Amount (which shall also be reduced by the amount so applied). (c) INCREASES TO SERIES 1996-1 PRINCIPAL. If, on any Special Allocation Settlement Report Date, the Series 1996-1 Allocable Recoveries Amount is greater than zero for the related Settlement Period, the Trustee shall (in accordance with written directions from the Servicer upon which the Trustee may conclusively rely) make the following applications (after giving effect to the applications in paragraph (b) of such amount in the following order of priority): (i) the Class A Invested Amount shall be increased (but only to the extent of any previous reductions of the Class A Invested Amount pursuant to subsection 3A.5(b)(iii)) by the amount of the Series 1996-1 Allocable Recoveries Amount (which shall also be reduced by the amount so applied); (ii) then, to the extent that the Series 1996-1 Allocable Recoveries Amount is greater than zero following the applications in clause (i) above, the Class B Invested Amount shall be increased (but only to the extent of any previous reductions of the Class 31 B Invested Amount pursuant to subsection 3A.5(b)(ii)) by such remaining Series 1996-1 Allocable Recoveries Amount (which shall also be reduced by the amount so applied); and (iii) then, to the extent that the Series 1996-1 Allocable Recoveries Amount is greater than zero following the applications in clauses (i) and (ii) above, the Series 1996-1 Required Reserves shall be increased (but only to the extent of any previous reductions of the Series 1996-1 Required Reserves pursuant to subsection 3A.5(b)(i)) by such remaining Series 1996-1 Allocable Recoveries Amount (which shall also be reduced by the amount so applied). SECTION 3A.6. APPLICATIONS. (a) On each Distribution Date, the Trustee shall distribute from amounts on deposit in the Series 1996-1 Accrued Interest Sub-subaccount in the following order of priority to the extent funds are available: (i) to the Class A Certificateholders, an amount equal to the Class A Monthly Interest payable on such Distribution Date, PLUS the amount of any Class A Monthly Interest previously due but not distributed to the Class A Certificateholders on a prior Distribution Date, PLUS the amount of any Class A Additional Interest for such Distribution Date and any Class A Additional Interest previously due but not distributed to the Class A Certificateholders on a prior Distribution Date; PROVIDED, HOWEVER, that during the Series 1996-1 Amortization Period, no Class A Additional Interest will be paid until repayment in full of the Series 1996-1 Invested Amount and payment in full of all Class A Monthly Interest and Class B Monthly Interest; and (ii) to the Class B Certificateholders, an amount equal to the Class B Monthly Interest payable on such Distribution Date, PLUS the amount of any Class B Monthly Interest previously due but not distributed to the Class B Certificateholders on a prior Distribution Date, PLUS the amount of any Class B Additional Interest for such Distribution Date and any Class B Additional Interest previously due but not distributed to the Class B Certificateholders on a prior Distribution Date; PROVIDED, HOWEVER, that during the Series 1996-1 Amortization Period, no Class B Additional Interest will be paid until repayment in full of the Series 1996-1 Invested Amount and payment in full of all Class A Monthly Interest and Class B Monthly Interest. (b) On each Distribution Date, the Trustee shall apply funds on deposit in the Series 1996-1 Non-Principal Collection Sub-subaccount in the following order of priority to the extent funds are available: (i) an amount equal to the Series 1996-1 Monthly Servicing Fee for the Accrual Period ending on such Distribution Date shall be withdrawn from the Series 1996-1 Non-Principal Collection Sub-subaccount by the Trustee and paid to the Servicer or the Successor Servicer, as the case may be (less any amounts payable to the Trustee pursuant to Section 8.5 of the Agreement, which shall be paid to the Trustee); and 32 (ii) an amount equal to any unpaid Program Costs due and payable shall be withdrawn from the Series 1996-1 Non-Principal Collection Sub-subaccount by the Trustee and paid to the Persons owed such amounts. Any remaining amounts on deposit in the Series 1996-1 Non-Principal Collection Sub-subaccount on any Distribution Date (in excess of the Accrued Expense Amount as of such day) not allocated pursuant to clauses (i) and (ii) above shall be paid to the owner of the Series 1996-1 Subordinated Interest; PROVIDED, HOWEVER, that during the Series 1996-1 Amortization Period, such remaining amounts shall be deposited in the Series 1996-1 Principal Collection Sub-subaccount for distribution in accordance with subsection 3A.6(c). (c) During the Series 1996-1 Amortization Period, the Trustee shall apply, on each Distribution Date, amounts on deposit in the Series 1996-1 Principal Collection Sub-subaccount and, to the extent set forth in clauses (ii) and (iii) below, in the Series 1996-1 Collection Subordinated Sub-subaccount in the following order of priority: (i) an amount equal to the Series 1996-1 Monthly Principal Payment for such Distribution Date shall be distributed from the Series 1996-1 Principal Collection Sub-subaccount: (A) first, PRO RATA to the Class A Certificateholders until the repayment in full of the Class A Invested Amount; and (B) second, PRO RATA to the Class B Certificateholders until the repayment in full of the Class B Invested Amount; and (ii) following the repayment in full of the Series 1996-1 Invested Amount, (x) if any amounts are owed to the Trustee or any other Person, on account of its expenses, advances and disbursements incurred in respect of the performance of its responsibilities hereunder or as Successor Servicer, such amounts shall be transferred from the Series 1996-1 Principal Collection Sub-subaccount and, if applicable, the Series 1996-1 Collection Subordinated Sub-subaccount and paid to the Trustee or such other Person and (y) if the Optional Termination Date has occurred and any portion of the Prepayment Premium payable to the Term Certificateholders pursuant to subsection 2.6(b) has not been paid, then funds in an amount equal to the unpaid portion of such Prepayment Premium shall be transferred from the Series 1996-1 Principal Collection Sub- subaccount and, if applicable, the Series 1996-1 Collection Subordinated Sub-subaccount and paid, FIRST, to the Class A Certificateholders and, SECOND, to the Class B Certificateholders; and (iii) following the repayment in full of the Series 1996-1 Invested Amount and of all of the amounts set forth in clause (ii), the remaining amount on deposit in the Series 1996-1 Principal Collection Sub- subaccount and the Series 1996-1 Collection Subordinated Sub-subaccount on such Distribution Date, if any, shall be treated as follows: (x) upon delivery by the Servicer to the Trustee of an Officer's Certificate certifying that as of such date, no Seller has any obligations outstanding to any Person that 33 may be entitled to make a claim for payment thereof pursuant to PACA, such amount on deposit shall be distributed to the owner of the Series 1996-1 Subordinated Interest or (y) if any such obligations remain outstanding on such date, the Servicer shall deliver to the Trustee an Officer's Certificate setting forth the amount thereof (the "OUTSTANDING PACA AMOUNT"), and upon receipt thereof the Trustee (A) shall distribute any funds on deposit in the Series 1996-1 Principal Collection Sub-subaccount and the Series 1996-1 Collection Subordinated Sub- subaccount, as the case may be, in excess of the Outstanding PACA Amount to the owner of the Series 1996-1 Subordinated Interest and (B) shall maintain on deposit in the Series 1996-1 Principal Collection Sub- subaccount and the Series 1996-1 Collection Subordinated Sub-subaccount, as the case may be, funds in an aggregate amount equal to the Outstanding PACA Amount until the Servicer has delivered an Officer's Certificate certifying that such Outstanding PACA Amount has been paid in full, in which case the Trustee shall distribute any remaining amount of such funds pursuant to clause (x) above. In addition, the Trust shall not be terminated pursuant to subsection 9.1(a)(ii) of the Pooling Agreement except upon receipt by the Trustee of an Officer's Certificate delivered by the Servicer certifying that as of the proposed Trust Termination Date, no Seller has any obligations outstanding to any Person that may be entitled to make a claim for payment thereof pursuant to PACA. (d) On each Special Distribution Date occurring in respect of a Reduction hereunder, the Trustee shall distribute to the Term Certificateholders on such Special Distribution Date (PRO RATA based on the Initial Invested Amount of each Class and PRO RATA within each Class), from amounts on deposit in the Series 1996-1 Principal Collection Sub-subaccount an amount equal to the Reduction Amount to be made on such Special Distribution Date. ARTICLE IV DISTRIBUTIONS AND REPORTS Article IV of the Agreement (except for any portion thereof relating to another Series) shall read in its entirety as follows and the following shall be exclusively applicable to the Term Certificates: SECTION 4A.1. DISTRIBUTIONS. (a) The final distribution of principal in respect of the Term Certificates will be made after due notice by the Trustee of the pendency of such distribution (subject to at least five Business Days' prior written notice from the Servicer to the Trustee containing all information required for the Trustee's notice, upon which the Trustee may conclusively rely) and only upon presentation and surrender of such Term Certificates at the office of the Paying Agent or at the Corporate Trust Office of the Trustee, by check drawn on, or by transfer to an account maintained by the holder with, a bank in New York City. Any other distribution of principal in respect of the Term Certificates or on account of interest or fees on the Term Certificates on each Distribution Date will be made or caused to be made by the Paying Agent or the Trustee to the persons in whose name the Term Certificates are registered at the close of business on the related Record Date. Such payment will be made by a check mailed to 34 the Term Certificateholders at such Term Certificateholders' registered addresses or, upon application by any Term Certificateholder of at least $5,000,000 in original principal amount thereof to the Trustee not later than five Business Days prior to the related Distribution Date, by transfer to an account maintained by the Term Certificateholder with a bank in New York City. (b) All allocations and distributions hereunder shall be in accordance with the Daily Report and the Monthly Settlement Statement and subject to subsection 3.1(h) of the Agreement. SECTION 4A.2. STATEMENTS AND NOTICES. (a) MONTHLY SETTLEMENT STATEMENTS. On each Settlement Report Date, the Servicer shall deliver to the Trustee and each Rating Agency (commencing with the Settlement Report Date occurring on December 16, 1996) a Monthly Settlement Statement in the Form of Exhibit D setting forth, among other things, the Loss Reserve Ratio I, the Loss Reserve Ratio II, the Dilution Reserve Ratio I, the Dilution Reserve Ratio II, the Minimum Ratio, in each case, where applicable, with respect to the Class A Certificates and the Class B Certificates, the Carrying Cost Reserve Ratio and the Servicing Reserve Ratio and the components of the calculation thereof, each as recalculated for the period until the next succeeding Settlement Report Date. The Trustee shall forward a copy of each Monthly Settlement Statement to any Term Certificateholder upon request by such Term Certificateholder. The Company and the Servicer will deliver copies of all notices, reports, statements and other documents delivered by it pursuant to the Pooling and Servicing Agreements to each Rating Agency. A copy of any such items may be obtained by any Certificateholder upon a written request delivered to the Trustee at the Corporate Trust Office. (b) ANNUAL HOLDERS' TAX STATEMENT. On or before April 1 of each calendar year (or such earlier date as required by applicable law), beginning with calendar year 1997, the Company on behalf of the Trustee shall furnish, or cause to be furnished, to each Person who at any time during the preceding calendar year was a Term Certificateholder, a statement prepared by the Company containing the aggregate amount distributed to such Person for such calendar year or the applicable portion thereof during which such Person was a Term Certificateholder, together with such other information as is required to be provided by an issuer of indebtedness under the Internal Revenue Code and such other customary information as the Company deems necessary or desirable to enable the Term Certificateholders to prepare their tax returns. Such obligation of the Company shall be deemed to have been satisfied to the extent that substantially comparable information shall have been prepared by the Servicer and provided to the Trustee and to the Term Certificateholders, in each case pursuant to any requirements of the Internal Revenue Code as from time to time in effect. (c) EARLY AMORTIZATION EVENT/DISTRIBUTION OF PRINCIPAL NOTICES. Upon the occurrence of an Early Amortization Event with respect to Series 1996-1, the Company or the Servicer, as the case may be, shall give prompt written notice thereof to the Trustee. As promptly as reasonably practicable after its receipt of notice of the occurrence of an Early Amortization Event with respect to Series 1996-1, the Trustee shall give notice thereof (i) to each Rating Agency (which notice shall be given in writing not later than the second Business Day after such receipt) and (ii) each Term Certificateholder. 35 SECTION 4A.3. NOTICE PROCEDURES. Notices required to be given to the Term Certificateholders hereunder will be delivered by first class mail to the addresses of such holders as they appear in the Certificate Register. Each of the Company and the Servicer will deliver copies of all notices, reports, statements and other documents delivered by it pursuant to the Pooling and Servicing Agreements to each Rating Agency. ARTICLE V ADDITIONAL EARLY AMORTIZATION EVENTS SECTION 5.1. ADDITIONAL EARLY AMORTIZATION EVENTS. If any one of the events specified in Section 7.1 of the Agreement (after any grace periods or consents applicable thereto) or any one of the following events (each, an "EARLY AMORTIZATION EVENT") shall occur during the Series 1996-1 Revolving Period with respect to the Series 1996-1 Certificates: (a) (i) failure on the part of the Servicer to direct any payment or deposit to be made or failure of any payment or deposit to be made in respect of interest owing on any Term Certificates within two Business Days of the date such interest is due or (ii) failure on the part of the Servicer to direct any payment or deposit to be made or of the Company to make any payment or deposit in respect of any other amounts owing by the Company under any Pooling and Servicing Agreement within five Business Days of the date such other amount is due or such deposit is required to be made; (b) (i) failure on the part of the Company duly to observe or perform in any material respect any of the covenants or agreements of the Company set forth in Section 2.8 of the Agreement or (ii) failure on the part of the Company duly to observe or perform in any material respect any other covenants or agreements of the Company set forth in any Pooling and Servicing Agreement, which failure continues unremedied 30 days after the earlier of the date on which a Responsible Officer of the Company or the Servicer has knowledge thereof and the date on which written notice of such failure, requiring the same to be remedied, shall have been given to the Company by the Trustee, or to the Company and the Trustee by Term Certificateholders representing 25% or more of the Series 1996-1 Invested Amount; (c) any representation or warranty made or deemed made by the Company in any Pooling and Servicing Agreement to or for the benefit of the Term Certificateholders (i) proves to have been incorrect in any material respect when made or when deemed made and (ii) continues to be incorrect 30 days after the earlier of the date on which a Responsible Officer of the Company or the Servicer has knowledge thereof and the date on which notice of such failure, requiring the same to be remedied, has been given by the Trustee to the Company or by Term Certificateholders representing 25% or more of the Series 1996-1 Invested Amount to the Company and the Trustee; PROVIDED, HOWEVER, that an Early Amortization Event with respect to the Series 1996-1 Certificates shall not be deemed to have occurred under this paragraph if the incorrectness of such representation 36 or warranty gives rise to an obligation to repurchase the related Receivables and the Company has repurchased the related Receivable or all such Receivables, if applicable, in accordance with the provisions of any Pooling and Servicing Agreement within ten Business Days of the day on which the Company was obligated to do so; (d) a Servicer Default with respect to the Servicer shall have occurred and be continuing; (e) a Purchase Termination Event (as defined in the Receivables Sale Agreement) shall have occurred and be continuing under the Receivables Sale Agreement; (f) a Change in Control shall have occurred; (g) the Series 1996-1 Allocated Receivables Amount shall be less than the Series 1996-1 Target Receivables Amount for a period of five consecutive Business Days; (h) any of the Agreement, the Servicing Agreement, this Supplement, the Receivables Sale Agreement or the Servicer Guarantee shall cease, for any reason, to be in full force and effect, or the Company, any Seller, the Servicer, any Sub-Servicer or any Affiliate of any thereof shall so assert in writing; (i) the Trust shall for any reason cease to have a valid and perfected first priority undivided ownership or security interest in the Trust Assets (subject to no other Liens other than Permitted Liens described in clauses (i) and (v) of the definition thereof), or any of RS, US Foodservice, the Company or any Affiliate of any thereof shall so assert; (j) there shall have been filed against RS, US Foodservice, the Company or the Trust (i) a notice of federal tax Lien from the Internal Revenue Service, (ii) a notice of Lien from the PBGC under Section 412(n) of the Internal Revenue Code or Section 302(f) of ERISA for a failure to make a required installment or other payment to a plan to which either of such sections applies or (iii) a notice of any other Lien the existence of which could reasonably be expected to have a material adverse effect on the business, operations or financial condition of such Person, and, in each case, 40 days shall have elapsed without such notice having been effectively withdrawn or such Lien having been released or discharged; (k) a Reduction shall have occurred and, as a result thereof, the Series 1996-1 Invested Amount shall have been reduced to an amount below $100,000,000; or (l) any action, suit, investigation or proceeding at law or in equity (including, without limitation, injunctions, writs or restraining orders) shall be brought or commenced or filed by or before any arbitrator, court or Governmental Authority against the Company or the Servicer or any properties, revenues or rights of either thereof which could reasonably be expected to have a Material Adverse Effect with respect to such Person; 37 then, in the case of (x) any event described in Section 7.1 of the Agreement, after the applicable grace period (if any) set forth in such Section, automatically without any notice or action on the part of the Trustee or the Term Certificateholders, an early amortization period shall immediately commence or (y) any other event described above, after the applicable grace period (if any) set forth in such subsections, the Trustee may, and at the written direction of the Majority Term Certificateholders voting as a single class shall, by written notice then given to the Company and the Servicer, declare that an early amortization period has commenced as of the date of such notice with respect to Series 1996-1 (any such period under clause (x) or (y) above, an "EARLY AMORTIZATION PERIOD"); PROVIDED, HOWEVER, that in the case of the event described in clause (g) above, if an Early Amortization Period has not been declared within ten Business Days after the occurrence of such event, then an Early Amortization Period shall occur automatically unless, (i) prior to the end of such ten Business Day period, the Series 1996-1 Allocated Receivables Amount shall no longer be less than the Series 1996-1 Target Receivables Amount and (ii) so long as the Series 1996-1 Allocated Receivables Amount continues to be equal to or greater than the Series 1996-1 Target Receivables Amount, Term Certificateholders representing 66-2/3% or more of the Series 1996-1 Invested Amount voting as a single class shall have waived the occurrence of such event. Notwithstanding the foregoing, a delay or failure in performance referred to in clause (a) or (b)(i) above for a period of up to five Business Days after the applicable grace period, or in clause (b)(ii) above for a period of up to 30 Business Days after the applicable grace period, will not constitute an Early Amortization Event if such delay or failure could not have been prevented by the exercise of reasonable diligence by the Company and such delay or failure was caused by a Force Majeure Delay. The Company nevertheless will be required to use its best efforts to perform its obligations in a timely manner in accordance with the terms of the Transaction Documents, and the Company shall promptly give the Trustee an Officer's Certificate notifying it of any such failure or delay by the Company. ARTICLE VI SERVICING FEE SECTION 6.1. SERVICING COMPENSATION. A monthly servicing fee (the "SERIES 1996-1 MONTHLY SERVICING FEE") shall be payable to the Servicer on each Distribution Date for the immediately preceding Settlement Period in an amount equal to the product of (a) the Servicing Fee and (b) a fraction the numerator of which is the Series 1996-1 Invested Amount as of the end of such Settlement Period and the denominator of which is the Aggregate Invested Amount as of the end of such Settlement Period; PROVIDED, HOWEVER, that if an Early Amortization Event has occurred and is continuing and US Foodservice or any Affiliate thereof is acting as Servicer, payment of the Series 1996-1 Monthly Servicing Fee shall be deferred until the Series 1996-1 Invested Amount has been paid in full. 38 ARTICLE VII REPRESENTATIONS AND WARRANTIES, COVENANTS SECTION 7.1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SERVICER. The Company and the Servicer each hereby represents and warrants to the Trustee and each of the Term Certificateholders that each and every of their respective representations and warranties contained in the Agreement is true and correct in all material respects as of the Issuance Date. SECTION 7.2. COVENANTS OF THE COMPANY AND THE SERVICER. The Company and the Servicer hereby agree, in addition to their obligations under the Agreement and the Servicing Agreement, that: (a) they shall not terminate the Agreement unless in strict compliance with the terms of the Agreement and each Supplement relating to an Outstanding Series; (b) no later than 30 days after the date hereof, they will (i) deliver to the Trustee executed copies of software licenses or sublicenses, in a form reasonably acceptable to the Trustee, which grant to the Trustee the right to utilize any of the software owned or licensed by the Servicer that is necessary to perform the collection and administrative functions to be performed by the Trustee under the Transaction Documents, (ii) deliver to the Trustee executed copies of any landlord waivers, in a form reasonably acceptable to the Trustee, that may be necessary to grant to the Trustee access to any leased premises of the Servicer for which the Trustee may require access to perform the collection and administrative functions to be performed by the Trustee under the Transaction Documents, except to the extent the Company or the Servicer, as the case may be, owns such property and (iii) have taken all actions reasonably requested by the Trustee in connection with, and to ensure completion of, each of the Servicer Site Review and the Standby Liquidation System; (c) for so long as any Term Certificates are outstanding and are "restricted securities" within the meaning of Rule 144(a)(3) under the Securities Act, the Company will cause to be provided to any holder of Term Certificates and any prospective purchaser of Term Certificates or an interest therein (which prospective purchaser is designated by any holder of Term Certificates), upon the request of such holder or prospective purchaser, the information required to be provided to such holder or prospective purchaser by Rule 144A(d)(4) under the Securities Act; and (d) they shall observe in all material respects each and every of their respective covenants (both affirmative and negative) contained in the Agreement, the Servicing Agreement, this Supplement and all other Transaction Documents to which each is a party. 39 SECTION 7.3. COVENANTS OF THE SERVICER. The Servicer hereby agrees that: (a) it shall observe each and all of its respective covenants (both affirmative and negative) contained in the Pooling and Servicing Agreements in all material respects; and (b) it shall operate in good faith to allow the Trustee to use the Servicer's available facilities and expertise upon the Servicer's termination or default. SECTION 7.4. COVENANT OF THE TRUSTEE. Neither the Trustee nor any agent of the Trustee (including the Authenticating Agent and the Paying Agent) will knowingly take any action with the intent of facilitating (i) the registration, listing or trading of the Class B Certificates on any national, foreign, regional, local or other stock exchange or PORTAL or (ii) the development or existence of an "over the counter" market for the Class B Certificates (including an interdealer quotation system that regularly disseminates firm buy or sell quotations by identified brokers or dealers by electronic means or otherwise). ARTICLE VIII MISCELLANEOUS SECTION 8.1. RATIFICATION OF AGREEMENT. As supplemented by this Supplement, the Agreement is in all respects ratified and confirmed and the Agreement as so supplemented by this Supplement shall be read, taken and construed as one and the same instrument. SECTION 8.2. GOVERNING LAW. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS. SECTION 8.3. FURTHER ASSURANCES. Each of the Company, the Servicer and the Trustee agrees, from time to time, to do and perform any and all acts and to execute any and all further instruments required or reasonably requested by the other more fully to effect the purposes of this Supplement and the sale of the Term Certificates hereunder, including, without limitation, in the case of the Company and the Servicer, the execution of any financing or registration statements or similar documents or notices or continuation statements relating to the Receivables and the other Trust Assets for filing or registration under the provisions of the UCC or similar legislation of any applicable jurisdiction. SECTION 8.4. NO WAIVER; CUMULATIVE REMEDIES. No failure to exercise and no delay in exercising, on the part of the Trustee or any Term Certificateholder, any right, remedy, power or privilege hereunder 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, 40 powers and privileges herein provided are cumulative and not exhaustive of any rights, remedies, powers and privileges provided by law. SECTION 8.5. AMENDMENTS. (a) This Supplement may be amended, supplemented or otherwise modified in writing from time to time only if such amendment, supplement or modification is effected in accordance with the provisions of Section 10.1 of the Agreement. SECTION 8.6. SEVERABILITY. If any provision hereof is void or unenforceable in any jurisdiction, such voidness or unenforceability shall not affect the validity or enforceability of (i) such provision in any other jurisdiction or (ii) any other provision hereof in such or any other jurisdiction. SECTION 8.7. NOTICES. All notices, requests and demands to or upon any party hereto to be effective shall be given (i) in the case of the Company, the Servicer and the Trustee, in the manner set forth in Section 10.5 of the Agreement and (ii) in the case of any other party, in writing (including a confirmed transmission by telecopy), and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made when delivered by hand or three days after being deposited in the mail, postage prepaid, or, in the case of telecopy notice, when received, addressed as follows in the case of the Rating Agencies or to such other address as may be hereafter notified by the respective parties hereto: DCR: Duff & Phelps Credit Rating Co. 55 East Monroe Street Chicago, Illinois 60603 Attention: Asset-Backed Research and Monitoring Group Telecopier: (312) 263-2852 S&P: Standard & Poor's Ratings Services 25 Broadway New York, New York 10004 Attention: Asset-Backed Surveillance Group Telecopier: (212) 412-0225 Any notice required or permitted to be mailed to a Term Certificateholder shall be given as provided in Section 4A.3. SECTION 8.8. COUNTERPARTS. This Supplement may be executed in any number of counterparts and by the different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original, and all of which taken together shall constitute one and the same agreement. 41 SECTION 8.9. LIMITATION ON ADDITION AND TERMINATION OF SELLERS. (a) Notwithstanding anything to the contrary contained in the Receivables Sale Agreement, the Company shall not consent to the addition of a Seller or a Seller Division thereunder unless (subject to the proviso contained in clause (iv) below) each of the following conditions shall have been satisfied: (i) (x) in the case of a proposed addition of a Seller, each of the conditions set forth in Section 3.02 of the Receivables Sale Agreement, and (y) in the case of a proposed addition of a Seller Division, the conditions set forth in subsections 3.02(a)(ii), (e), (f), (g), (h), (j) and (k) (in each case, applied to the applicable New Division as if it were a proposed additional Seller) of the Receivables Sale Agreement, shall have been satisfied. (ii) The Company shall have received copies of the Policies of such additional Seller (or such Seller Division, as the case may be, if different from the Policies of the Seller of which it is a New Division), which Policies shall be in form and substance satisfactory to the Company. (iii) The Company shall have received confirmation (A) that there is no pending or, to its knowledge after due inquiry, threatened action or proceeding affecting such additional Seller (or such Seller Division, as the case may be) before any Governmental Authority (I) that could reasonably be expected to have a Material Adverse Effect with respect to such additional Seller (or such Seller Division, as the case may be, as if it were an additional Seller) or (II) that purports to affect the legality, validity or enforceability of this Supplement, the Agreement or any other Transaction Document or any of the transactions contemplated hereby or thereby. (iv) The Company and the Trustee shall have received evidence that the Rating Agency Condition shall have been satisfied with respect to the addition of such Seller (or addition of such Seller Division, as the case may be); PROVIDED that such satisfaction of the Rating Agency Condition (and such receipt of evidence thereof) shall not be required with respect to the addition of up to three Subsidiaries of RS (and/or New Divisions) as Sellers (or Seller Divisions) during any calendar year, each of which Subsidiaries (or New Divisions) meets the following criteria: (x) such Subsidiary (or New Division) is in the same line of business as the existing Sellers as of the related Seller Addition Date (as defined in the Receivables Sale Agreement) and (y) as of such date, immediately prior to giving effect to such addition (the "MEASUREMENT DATE"), the ratio (expressed as a percentage) of (I) (A) the aggregate Principal Amount of what would constitute all Eligible Receivables of such Subsidiary (or New Division) at the end of the Business Day immediately preceding the Measurement Date if it were a Seller (or Seller Division) MINUS the amount which would consitute the Overconcentration Amount applicable to such Receivables on the Measurement Date if such Subsidiary (or New Division) were a Seller (or Seller Division) MINUS (B) the product of the amount calculated pursuant to the foregoing clause (A) and the PACA Percentage which would be applicable on such date to such Subsidiary (or New Division) if it were a Seller (or Seller Division), calculated solely 42 with respect to it, to (II) the Aggregate Receivables Amount on such date (before giving effect to such addition), is less than five percent. (v) The Company and the Trustee shall have received a certificate prepared by a Responsible Officer of the Servicer certifying that after giving effect to the addition of such Seller (or such Seller Division, as the case may be), the Aggregate Target Receivables Amount shall equal the Aggregate Allocated Receivables Amount on the related Seller Addition Date. (b) Notwithstanding anything to the contrary contained in the Receivables Sale Agreement, the Company shall not consent to any request made pursuant to Section 9.14 thereof, nor shall any Seller which is the subject of such request be terminated under the Receivables Sale Agreement, in each case unless (i) no Early Amortization Event, Potential Early Amortization Event or Potential Purchase Termination Event (as defined in the Receivables Sale Agreement) (other than with respect to the Seller to be so terminated) will have occurred and be continuing after giving effect to such termination and (ii) the Trustee shall have received prior notice of such termination (which notice shall be accompanied by a PRO FORMA Daily Report confirming that the Aggregate Target Receivables Amount equals the Aggregate Allocated Receivables Amount, each calculated after giving effect to such termination and excluding all Receivables originated by the Seller to be terminated). (c) Upon the termination of a Seller pursuant to Section 9.14 of the Receivables Sale Agreement and the foregoing paragraph (b), the calculation (including, without limitation, for purposes of the PRO FORMA calculations pursuant to paragraph (b) above) of the Aggregate Target Receivables Amount, the Aggregate Allocated Receivables Amount, the Series 1996-1 Required Reserves and all other amounts from which each such amount is directly or indirectly derived shall exclude in each case the Receivables originated by such terminated Seller. ARTICLE IX FINAL DISTRIBUTIONS SECTION 9.1. CERTAIN DISTRIBUTIONS. (a) Not later than 2:00 p.m., New York City time, on the Distribution Date following the date on which the proceeds from the disposition of the Receivables pursuant to subsection 7.2(b) of the Agreement are deposited into the Series 1996-1 Non-Principal Collection Sub-subaccount and the Series 1996-1 Principal Collection Sub-subaccount, the Trustee shall distribute such amounts pursuant to Article III of this Supplement. (b) Notwithstanding anything to the contrary in this Supplement or the Agreement, any distribution made pursuant to this Section 9.1 shall be deemed to be a final distribution pursuant to Section 9.3 of the Agreement with respect to the Term Certificates. IN WITNESS WHEREOF, the Company, the Servicer and the Trustee have caused this Series 1996-1 Supplement to be duly executed by their respective officers as of the day and year first above written. RS FUNDING INC. By: /s/ _______________________________ Name: Title: US FOODSERVICE INC., in its individual capacity and as Servicer By: /s/ _______________________________ Name: Title: THE CHASE MANHATTAN BANK, not in its individual capacity but solely as Trustee By: /s/ ________________________________ Name: Title: Schedule 1 TO SERIES 1996-1 SUPPLEMENT [TO BE PROVIDED BY THE TRUSTEE] TRUST ACCOUNTS ACCOUNT ACCOUNT NUMBER Series 1996-1 Collection Subaccount ---------- Series 1996-1 Principal Collection Sub-subaccount ---------- Series 1996-1 Non-Principal Collection Sub-subaccount ---------- Series 1996-1 Accrued Interest Sub-subaccount ---------- Series 1996-1 Collection Subordinated Sub-subaccount ---------- Exhibit C TO SERIES 1996-1 SUPPLEMENT [TO BE PROVIDED BY CHASE SECURITIES INC.] FORM OF DAILY REPORT Exhibit D TO SERIES 1996-1 SUPPLEMENT [TO BE PROVIDED BY CHASE SECURITIES INC.] FORM OF MONTHLY SETTLEMENT STATEMENT Exhibit F TO SERIES 1996-1 SUPPLEMENT FORM OF CLASS B TRANSFEREE TAX LETTER We are delivering this letter in connection with the transfer of $---- of the Floating Rate Class B Trade Receivables Participation Certificates, Series 1996-1 (the "CERTIFICATES") issued by the Rykoff-Sexton Receivables Master Trust (the "TRUST") created under the Pooling Agreement, dated as of November --, 1996 (as amended, supplemented or otherwise modified from time to time, the "POOLING AGREEMENT"), among RS Funding Inc., a Nevada corporation (the "COMPANY"), US Foodservice Inc., a Delaware corporation, as servicer (the "SERVICER"), and The Chase Manhattan Bank, a New York banking corporation, as trustee (the "TRUSTEE"), and the Series 1996-1 Supplement thereto, dated as of November --, 1996 (as amended, supplemented or otherwise modified from time to time, the "SERIES 1996-1 SUPPLEMENT"), among the Company, the Servicer and the Trustee. Capitalized terms used herein without definition shall have the meanings given to them in the Pooling Agreement and the Series 1996-1 Supplement. We hereby confirm and represent that [we are not a trust, partnership or "S Corporation" (within the meaning of Section 1361(a) of the Code) for United States federal income tax purposes] [we are a trust, partnership or "S Corporation" (within the meaning of Section 1361(a) of the Code) for United States federal income tax purposes, but after giving to the transfer referred to above, less than 50 percent of the aggregate value of our assets would consist of Certificates]. We acknowledge that the Transfer Agent, the Registrar and the Company will rely upon our confirmation and representation set forth herein. THIS LETTER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. ________________________________ (Name of Purchaser) By:______________________________ Name: Title: Address: Exhibit G TO SERIES 1996-1 SUPPLEMENT FORM OF DEFINITIVE CERTIFICATE CONVERSION LETTER Reference is made to the Rykoff-Sexton Receivables Master Trust (the "TRUST") created under the Pooling Agreement, dated as of November --, 1996 (the "POOLING AGREEMENT"), among RS Funding Inc., a Nevada corporation (the "COMPANY"), US Foodservice Inc., a Delaware corporation, as servicer (the "SERVICER"), and The Chase Manhattan Bank, a New York banking corporation, as trustee (the "TRUSTEE"), and the Series 1996-1 Supplement thereto, dated as of November --, 1996 (the "SERIES 1996-1 SUPPLEMENT"), among the Company, the Servicer and the Trustee. Capitalized terms used herein without definition shall have the meanings given to them in the Pooling Agreement and the Series 1996-1 Supplement. We are delivering this letter in connection with the transfer of $--- of the Floating Rate Class A Trade Receivables Participation Certificates, Series 1996-1 (the "CERTIFICATES") issued by the Trust pursuant to the Series 1996-1 Supplement which are registered to CEDE & CO. and held thereby in the name of [insert name of transferor] (the "TRANSFEROR"). The Transferor hereby requests an exchange of its beneficial interest in the Certificates for an aggregate amount of $----- in Definitive Certificate[s] to be issued to [insert name(s) of transferee(s)], [[each of] which is an Institutional Accredited Investor and has delivered a Purchaser Letter pursuant to the Series 1996-1 Supplement] [[each of] which is a person who is taking delivery of such Definitive Certificate pursuant to a transaction that is exempt from the registration requirements of the Securities Act and has delivered to the Trustee and the Company an Opinion of Counsel satisfactory to the Trustee and the Company]. THIS LETTER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. ____________________________ (Name of Transferor) By:__________________________ Name: Title: Address: EX-10.41 19 EXHIBIT 10.41 INDENTURE OF TRUST EXHIBIT 10.41 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- INDENTURE OF TRUST Dated as of November 1, 1996 between LA MIRADA INDUSTRIAL DEVELOPMENT AUTHORITY and BANKERS TRUST COMPANY OF CALIFORNIA, N.A., as trustee La Mirada Industrial Development Authority Taxable Variable/Fixed Rate Demand Industrial Development Revenue Bonds (Rykoff-Sexton, Inc. Project) Series 1996 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TABLE OF CONTENTS ARTICLE I DEFINITIONS AND RULES OF CONSTRUCTION Section 1.01. Definitions . . . . . . . . . . . . . . . . . . . . . . . . 2 Section 1.02. Rules of Construction . . . . . . . . . . . . . . . . . . . 12 ARTICLE II THE BONDS Section 2.01. Issuance of Bonds; Form; Dating . . . . . . . . . . . . . . 13 Section 2.02. Interest on the Bonds . . . . . . . . . . . . . . . . . . . 13 Section 2.03. Optional and Mandatory Tender of Bonds . . . . . . . . . . 19 Section 2.04. Execution and Authentication. . . . . . . . . . . . . . . . 21 Section 2.05. Bond Register . . . . . . . . . . . . . . . . . . . . . . . 22 Section 2.07. Mutilated, Lost, Stolen, Destroyed or Undelivered Bonds . . 22 Section 2.08. Cancellation of Bonds . . . . . . . . . . . . . . . . . . . 23 Section 2.09. Temporary Bonds . . . . . . . . . . . . . . . . . . . . . . 23 Section 2.10. Book-Entry System . . . . . . . . . . . . . . . . . . . . . 23 Section 2.11. Additional Bonds. . . . . . . . . . . . . . . . . . . . . . 24 ARTICLE III REDEMPTION, PURCHASE AND REMARKETING OF BONDS Section 3.01. Circumstances of Redemption . . . . . . . . . . . . . . . . 27 Section 3.02. Notices to Trustee. . . . . . . . . . . . . . . . . . . . . 29 Section 3.03. Selection of Bonds to Be Redeemed . . . . . . . . . . . . . 29 Section 3.04. Redemption Notices. . . . . . . . . . . . . . . . . . . . . 29 Section 3.05. Payment of Bonds Called for Redemption. . . . . . . . . . . 29 Section 3.06. Bonds Redeemed in Part. . . . . . . . . . . . . . . . . . . 30 Section 3.07. Remarketing of Bonds. . . . . . . . . . . . . . . . . . . . 30 Section 3.08. Purchase of Bonds . . . . . . . . . . . . . . . . . . . . . 31 Section 3.09. Delivery of Purchased Bonds . . . . . . . . . . . . . . . . 31 ARTICLE IV APPLICATION OF PROCEEDS AND PAYMENT OF BONDS Section 4.01. Application of Proceeds . . . . . . . . . . . . . . . . . . 33 Section 4.02. Bond Fund . . . . . . . . . . . . . . . . . . . . . . . . . 33 Section 4.03. Investments of Moneys . . . . . . . . . . . . . . . . . . . 34 Section 4.04. Moneys Held in Trust. . . . . . . . . . . . . . . . . . . . 35 ARTICLE V LETTER OF CREDIT Section 5.01. Requirements for Letter of Credit . . . . . . . . . . . . . 36 Section 5.02. Draws . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 i ARTICLE VI PLEDGE OF REVENUES; COVENANTS Section 6.01. Pledge of Revenues. . . . . . . . . . . . . . . . . . . . . 39 Section 6.02. Payment of Bonds. . . . . . . . . . . . . . . . . . . . . . 39 Section 6.03. Further Assurances. . . . . . . . . . . . . . . . . . . . . 39 Section 6.04. Continuing Disclosure . . . . . . . . . . . . . . . . . . . 39 ARTICLE VII DISCHARGE OF INDENTURE Section 7.01. Bonds Deemed Paid . . . . . . . . . . . . . . . . . . . . . 40 Section 7.02. Application of Trust Moneys . . . . . . . . . . . . . . . . 40 Section 7.03. Repayment to Credit Bank and Company. . . . . . . . . . . . 40 ARTICLE VIII DEFAULTS AND REMEDIES Section 8.01. Events of Default . . . . . . . . . . . . . . . . . . . . . 42 Section 8.02. Acceleration. . . . . . . . . . . . . . . . . . . . . . . . 43 Section 8.03. Other Remedies. . . . . . . . . . . . . . . . . . . . . . . 43 Section 8.04. Waiver of Past Defaults . . . . . . . . . . . . . . . . . . 43 Section 8.05. Control by Majority . . . . . . . . . . . . . . . . . . . . 44 Section 8.06. Limitation on Suits . . . . . . . . . . . . . . . . . . . . 44 Section 8.07. Rights of Owners to Receive Payment . . . . . . . . . . . . 44 Section 8.08. Collection Suit by Trustee. . . . . . . . . . . . . . . . . 44 Section 8.09. Trustee May File Proofs of Claim. . . . . . . . . . . . . . 44 Section 8.10. Priorities. . . . . . . . . . . . . . . . . . . . . . . . . 44 Section 8.11. Undertaking for Costs . . . . . . . . . . . . . . . . . . . 45 ARTICLE IX TRUSTEE, TENDER AGENT AND REMARKETING AGENT Section 9.01. Duties of Trustee . . . . . . . . . . . . . . . . . . . . . 46 Section 9.02. Rights of Trustee . . . . . . . . . . . . . . . . . . . . . 47 Section 9.03. Individual Rights of Trustee. . . . . . . . . . . . . . . . 47 Section 9.04. Trustee's Disclaimer. . . . . . . . . . . . . . . . . . . . 47 Section 9.05. Notice of Defaults. . . . . . . . . . . . . . . . . . . . . 47 Section 9.06. Compensation of Trustee . . . . . . . . . . . . . . . . . . 47 Section 9.07. Eligibility of Trustee. . . . . . . . . . . . . . . . . . . 48 Section 9.08. Replacement of Trustee. . . . . . . . . . . . . . . . . . . 48 Section 9.09. Acceptance of Trust by Successor Trustee. . . . . . . . . . 49 Section 9.10. Duties of Remarketing Agent . . . . . . . . . . . . . . . . 49 Section 9.11. Eligibility of Remarketing Agent. . . . . . . . . . . . . . 49 Section 9.12. Replacement of Remarketing Agent. . . . . . . . . . . . . . 50 Section 9.13. Compensation of Remarketing Agent . . . . . . . . . . . . . 50 Section 9.14. Successor Trustee or Remarketing Agent by Merger. . . . . . 50 Section 9.15. Separate or Co-Trustee. . . . . . . . . . . . . . . . . . . 50 Section 9.16. Tender Agent. . . . . . . . . . . . . . . . . . . . . . . . 51 Section 9.17. Qualifications of Tender Agent. . . . . . . . . . . . . . . 52 ii ARTICLE X AMENDMENTS OF AND SUPPLEMENTS TO INDENTURE Section 10.01. Without Consent of Bondholders. . . . . . . . . . . . . . . 53 Section 10.02. With Consent of Bondholders . . . . . . . . . . . . . . . . 54 Section 10.03. Effect of Consents. . . . . . . . . . . . . . . . . . . . . 54 Section 10.04. Notation on or Exchange of Bonds. . . . . . . . . . . . . . 54 Section 10.05. Signing by Trustee of Amendments and Supplements. . . . . . 54 Section 10.06. Company and Credit Bank Consent Required. . . . . . . . . . 54 Section 10.07. Notice to Bondholders . . . . . . . . . . . . . . . . . . . 55 ARTICLE XI AMENDMENTS OF AND SUPPLEMENTS TO LOAN AGREEMENT Section 11.01. Without Consent of Bondholders. . . . . . . . . . . . . . . 56 Section 11.02. With Consent of Bondholders . . . . . . . . . . . . . . . . 56 Section 11.03. Consents by Trustee to Amendments or Supplements. . . . . . 56 ARTICLE XII MISCELLANEOUS Section 12.01. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Section 12.02. Bondholders' Consents . . . . . . . . . . . . . . . . . . . 57 Section 12.03. Limitation of Rights. . . . . . . . . . . . . . . . . . . . 57 Section 12.04. Severability. . . . . . . . . . . . . . . . . . . . . . . . 58 Section 12.05. Payments Due on Non-Business Days . . . . . . . . . . . . . 58 Section 12.06. Governing Law . . . . . . . . . . . . . . . . . . . . . . . 58 Section 12.07. Captions. . . . . . . . . . . . . . . . . . . . . . . . . . 58 Section 12.08. No Recourse Against Issuer's Officers . . . . . . . . . . . 58 Section 12.09. Limitation of Liability . . . . . . . . . . . . . . . . . . 58 Section 12.10. Counterparts. . . . . . . . . . . . . . . . . . . . . . . . 58 Section 12.11. Notice to Rating Agencies . . . . . . . . . . . . . . . . . 58 EXHIBIT A - FORM OF BOND iii INDENTURE OF TRUST THIS INDENTURE OF TRUST, made and entered into as of the first day of November, 1996, by and between the La Mirada Industrial Development Authority, a public body, corporate and politic, organized and existing under the laws of the State of California (the "Issuer"), and BANKERS TRUST COMPANY OF CALIFORNIA, N.A., a national banking association duly organized and in good standing, existing and authorized to accept and execute trusts of the character herein set out under and by virtue of the laws of the United States of America with its principal office located in Irvine, California as trustee (the "Trustee"). W I T N E S S E T H: WHEREAS, the Issuer is empowered by the provisions of the laws of the State of California, including without limitation Chapter 1 of Title 10 of the Government Code of the State of California (the "Act"), to issue bonds for the purpose of facilitating the financing of certain capital projects consisting of industrial facilities; and WHEREAS, pursuant to and in accordance with the provisions of the Act, the Issuer now intends to issue its Taxable Variable/Fixed Rate Demand Industrial Development Revenue Bonds (Rykoff-Sexton, Inc. Project) Series 1996 in the aggregate principal amount of $25,900,000 (the "Bonds") and loan the proceeds to Rykoff-Sexton, Inc. (the "Company") for the purpose of financing the acquisition, construction, installation and equipping of a warehouse and distribution center located in the City of La Mirada, California; and WHEREAS, the execution and delivery of this Indenture, as hereinafter defined, and the issuance of the Bonds under the Act as herein provided have been in all respects duly and validly authorized by proceedings duly passed on and approved by the Issuer; and WHEREAS, the Bonds will be payable from payments to be made by the Company pursuant to the Agreement, as hereinafter defined and will be secured by a pledge of the Revenues, as hereinafter defined, received by the Trustee hereunder; NOW, THEREFORE, the Issuer and the Trustee agree as follows for the benefit of the other and for the benefit of the Owners, as hereinafter defined, of the Bonds issued pursuant to this Indenture. GRANTING CLAUSE To secure the payment of the Bonds, the Issuer assigns to the Trustee and grants to the Trustee a security interest in all right, title and interest of the Issuer in and to (a) the Revenues (as defined in this Indenture) (b) the Loan Agreement, including the current and continuing right to claim, collect, receive and give receipts for all amounts payable by or receivable from the Company under the Loan Agreement, to bring actions and proceedings under the Loan Agreement for the enforcement of the Loan Agreement and to do all things that the Issuer is entitled to under the Loan Agreement, but excluding the Unassigned Rights, as hereinafter defined, and (c) all moneys and securities held from time to time by the Trustee as provided in this Indenture for the equal and proportionate benefit of all Owners of the Bonds without priority or distinction as to lien or otherwise of any Bonds over any other Bonds, except as otherwise provided in this Indenture. 1 ARTICLE I DEFINITIONS AND RULES OF CONSTRUCTION Section 1.01. DEFINITIONS. For all purposes of this Indenture, unless the context requires otherwise, the following terms shall have the following meanings: "Act" is defined in the first recital clause of this Indenture. "Additional Bonds" means Bonds, other than Series 1996 Bonds, authorized to be issued and delivered pursuant to Sections 2.01 and 2.10 hereof. "Alternate Credit Facility" means an irrevocable letter of credit, bank bond purchase agreement, bond insurance policy, revolving credit agreement, surety bond or other agreement or instrument under which any person or entity (other than the Issuer or the Company) undertakes to make or provide to make payments of the principal and purchase price of, and interest on the Bonds, as and when due and delivered pursuant to the Indenture in substitution for a Letter of Credit. "Authorized Bank Representative" means any person who at the time and from time to time may be designated as such, by written certificate furnished to the Issuer and the Trustee containing the specimen signature of such person and signed on behalf of the Credit Bank, by any officer or agent of the Credit Bank, which certificate may designate an alternate or alternates. "Authorized Denominations" means $100,000 and any integral multiple of $5,000 in excess thereof. "Authorized Issuer Representative" means the Chairman, Executive Director and Treasurer of the La Mirada Industrial Development Authority or any other person designated to act in such capacity by a Certificate of the Issuer containing the specimen signature of any of such persons, which certificate may designate an alternate or alternates. "Available Moneys" means (1) during any period a Letter of Credit is in effect: (a) proceeds from the remarketing of any Bonds tendered for purchase pursuant to the Indenture to any person other than the Issuer or the Company or any "insider" (as defined in the Bankruptcy Code) of the Issuer or the Company; (b) moneys derived from any draw on the Letter of Credit; (c) any other moneys or securities if there is delivered to the Trustee an opinion of an attorney-at-law, who is not a full-time employee of the Company, the Bank, the Issuer or the Remarketing Agent, having expertise in bankruptcy matters (which opinion may assume that no Bondholder is an "insider" as defined in the Bankruptcy Code) to the effect that the use of such moneys or securities to pay the principal or purchase price of, premium, if any, or interest on such Bonds would not be voidable as preferential payments under Section 547 of the Bankruptcy Code or recoverable under Section 550 of the Bankruptcy Code should the Company become a debtor in a proceeding commenced thereunder, which opinion shall also be addressed to and acceptable to any Rating Agency then rating the Bonds; or (d) earnings derived from the investment of any of the foregoing; or 2 (2) during any period a Letter of Credit is not in effect, any moneys held by the Trustee in any fund or account under the Indenture used to pay principal of, premium, if any, or interest on, or the purchase price of, the Bonds. "Bankruptcy Filing" means the filing of a petition by or against the Issuer or the Company under any Bankruptcy act or similar act. If the petition has been dismissed and the dismissal is final and not subject to appeal at the relevant time, the filing will not be considered to have occurred. "Bankruptcy Law" means Title 11 of the United States Code or any similar federal or state law for the relief of debtors. "Custodian" means any receiver, trustee, assignee, liquidator, custodian or similar official under any Bankruptcy Law. "Beneficial Owner" is defined in Section 2.10 when the Bonds are in the Book-Entry System and otherwise means the Bondholder. "Bond Fund" means the fund of that name created pursuant to Section 4.02 hereof. "Bondholder" or "Owner" means the registered owner of any Bond. "Bonds" is defined in the second recital clause of this Indenture. "Book-Entry System" means the system maintained by the Securities Depository and described in Section 2.10. "Business Day" means any day which is not (i) a Saturday or Sunday, (ii) a day on which banking institutions in the cities of New York, New York or Chicago, Illinois, (or if different, in the cities in which the principal corporate trust office of the Trustee, the principal office of the Remarketing Agent and the office of the Credit Bank at which demands for payment under the Letter of Credit are to be honored are located) are authorized or required by law or executive order to close or (iii) a day on which the New York Stock Exchange is closed. "Closing Date" means November 20, 1996. "Commercial Paper Mode" means each period of time, comprised of Commercial Paper Periods, during which Commercial Paper Rates are in effect. "Commercial Paper Period" means, with respect to any Bond, each period established pursuant to Section 2.02(a)(3). "Commercial Paper Rate" means, with respect to any Bond, the interest rate on such Bond established pursuant to Section 2.02(a)(3). "Commercial Paper Rate Conversion Date" means each Interest Payment Date on which the Bonds first begin to bear interest at a Commercial Paper Rate pursuant to the provisions of this Indenture. "Commercial Paper Rate Reset Date" means each Interest Payment Date on which commences a new Commercial Paper Period, upon which a new Commercial Paper Rate established pursuant to this Indenture becomes effective. "Company" means Rykoff-Sexton, Inc., a Delaware corporation, and its permitted successors and assigns as provided in Section 5.2 of the Loan Agreement. 3 "Company Representative" means the Chief Financial Officer or Treasurer of the Company or any other person at the time designated by a written certificate furnished to the Trustee and the Issuer containing the specimen signature of such person and signed on behalf of the Company by any of its Officers. The certificate may designate an alternate or alternates. "Conversion Date" means a Daily Rate Conversion Date, a Weekly Rate Conversion Date, a Commercial Paper Rate Conversion Date or a Long-Term Interest Rate Conversion Date, as appropriate. "Credit Bank" means the issuer of a Letter of Credit, or the issuer of any substitution thereof, and its successors and assigns, or the issuer of any Alternate Credit Facility, and its successors and assigns, and initially shall be The First National Bank of Chicago. "Daily Rate" means any interest rate on the Bonds established pursuant to Section 2.02(a)(1) hereof. "Daily Rate Conversion Date" means each Interest Payment Date on which the Bonds first begin to bear interest at a Daily Rate pursuant to the provisions of this Indenture. "Daily Rate Period" means each period established pursuant to Section 2.02(a)(1) hereof. "Daily Rate Mode" means each period of time, comprised of a Daily Rate Interest Period, during which a Daily Rate is in effect. "Deed of Trust" shall mean any deed of trust securing the obligations of the Company under the Reimbursement Agreement, as such deed of trust may be originally executed or as from time to time supplemented and amended. "Event of Default" is defined in Section 8.01. "Government Obligations" means direct obligations of, or obligations the timely payment of the principal of, and interest on, which are not subject to prepayment or call for redemption and are fully and unconditionally guaranteed by the United States of America, which, at the time of investment, are legal investments under the law of the State for the moneys proposed to be invested therein. "Indenture" means this Indenture of Trust, as amended or supplemented from time to time in accordance with its terms. "Interest Mode" means the Daily Rate Mode, the Weekly Rate Mode, the Commercial Paper Mode or the Long-Term Interest Rate Mode, as appropriate. "Interest Payment Date" means (a) for interest accrued during any Daily Rate Period, the first Business Day of each month, commencing with the first Business Day of the month next succeeding each Daily Rate Conversion Date, or, if applicable, the Closing Date, any Purchase Date established pursuant to Section 2.03(b) or any date upon which the outstanding principal amount of Bonds becomes due, (b) for interest accrued during any Weekly Rate Period, the first Business Day of each month, commencing with the first Business Day of the month next succeeding each Weekly Rate Conversion Date, or, if applicable, the Closing Date, any Purchase Date established pursuant to Section 2.03(b) or any date upon which the outstanding principal amount of Bonds becomes due, (c) for interest accrued during any Long-Term Interest Rate Period, the first date of the sixth calendar month following the Long-Term Interest Rate Conversion Date and the first day of each successive sixth calendar month, if any, of such Long-Term Interest Rate Period; provided, however, the final Interest Payment Date with respect to 4 any such Long-Term Interest Rate Period shall be the first Business Day of the calendar month immediately following the expiration of such Long-Term Interest Rate Period, or the maturity date of the Bonds and (d) for interest accrued during any Commercial Paper Period, the Business Day which immediately succeeds the last date of any Commercial Paper Period applicable to any Bond. "Interest Period" means a Daily Rate Interest Period, a Weekly Rate Interest Period, a Commercial Paper Rate Interest Period or a Long-Term Interest Rate Period, as appropriate. "Issuer" means the La Mirada Industrial Development Authority, or its successors and assigns. "Letter of Credit" means the Letter of Credit delivered on the Closing Date, any substitute letter of credit issued in substitution thereof, or any extension or renewal thereof, and, if an Alternate Credit Facility is issued, the Alternate Credit Facility, as extended or amended from time to time. All references to "Letter of Credit" shall be of no effect at any time that no Letter of Credit secures the Bonds, except with respect to rights of any Credit Bank created under the Indenture which do not, by their terms, expire upon the termination of the Letter of Credit issued by such Credit Bank. "LIBOR" means a rate of interest equal to: (a) the offered rate for deposits in United States Dollars which appears on Telerate Page 3750 as of 11:00 a.m., London time, on the second full Business Day next preceding the first of each date a rate is set (unless such date is not a Business Day, in which event the next succeeding Business Day will be used). (b) a number equal to 1.0 MINUS the aggregate (but without duplication) of the rates (expressed a decimal fraction) of reserve requirements in effect on the day which is two (2) Business Days prior to the beginning of such date a rate is set (including, without limitation, basic, supplemental, marginal and emergency reserves under any regulations of the Board of Governors of the Federal Reserve system or other governmental authority having jurisdiction with respect thereto, as now and from time to time in effect) for Eurocurrency funding (currently referred to as "Eurocurrency liabilities" in Regulation D of such Board), which are required to be maintained by a member bank of the Federal Reserve System. If such interest rates shall cease to be available from Telerate News Service, the LIBOR rate shall be determined from such financial reporting service. "Loan Agreement" means the Loan Agreement, dated as of the date of this Indenture, between the Issuer and the Company, as amended or supplemented from time to time in accordance with its terms. "Long-Term Interest Rate" means any interest rate on the Bonds established pursuant to Section 2.02(a)(4). "Long-Term Interest Rate Conversion Date" means each Interest Payment Date on which the Bonds first begin to bear interest at a Long-Term Interest Rate pursuant to the provisions of this Indenture. "Long-Term Interest Rate Mode" means each period of time, comprise of a Long-Term Interest Rate Period, during which a Long-Term Interest Rate is in effect. 5 "Long-Term Interest Rate Period " means each period established pursuant to Section 2.02(a)(4), which period shall extend for greater than 270 days. "Long-Term Interest Rate Reset Date" means each Interest Payment Date on which commences a new Long Term Interest Rate Period, upon which a new Long Term Interest Rate established pursuant to the Indenture becomes effective. "Maturity Date" means December 1, 2026. "Maximum Rate" means the rate per annum equal to the lesser of (a) 12% per annum, or (b) if a Letter of Credit is then in effect, the maximum interest rate for purposes of calculating the interest portion of the stated amount of such Letter of Credit. "Net Proceeds" when used with respect to any insurance proceeds or condemnation award, shall mean the amount remaining after deducting from the gross proceeds thereof all expenses (including attorneys' fees) incurred in the collection of such proceeds or award. "Opinion of Counsel" means a written opinion of counsel who is reasonably acceptable to the Issuer, the Trustee and the Credit Bank. The counsel may be an employee of or counsel to the Issuer, the Trustee or the Company. "Outstanding" or "outstanding" when used with reference to Bonds, means all Bonds which have been authenticated and delivered by the Trustee under this Indenture, except the following: a. Bonds canceled or purchased by or delivered to the Trustee for cancellation; b. Bonds that have become due (at maturity or on redemption, acceleration or otherwise) and for the payment, including premium and interest accrued to the due date, of which sufficient moneys are held by the Trustee; c. Bonds deemed paid by Section 7.01; and d. Bonds in lieu of which others have been authenticated under Section 2.05 (relating to registration and exchange of Bonds) or 2.06 (relating to mutilated, lost, stolen, destroyed or Undelivered Bonds). Bonds purchased pursuant to tenders under Article III will continue to be Outstanding until the Company or the Credit Bank, as applicable, directs the Trustee to cancel them. Undelivered Bonds are not Outstanding, but Bonds authenticated and delivered in lieu of Undelivered Bonds as provided in the second paragraph of Section 2.06 will be Outstanding. "Participant" means one of the entities which deposit securities, directly or indirectly, in the Book-Entry System. "Permitted Investments" means any of the following obligations if and to the extent that, at the time of making the investment, they are permitted by law: (1) Direct obligations of, or obligations the interest on and principal of which are unconditionally guaranteed by, the United States of America, including obligations issued or held in book-entry form on the books of the Department of the Treasury of the United States of America and including any receipt, certificate or any other evidence of 6 an ownership interest in such an obligation or in specified portions thereof (which may consist of specified portions of interest thereon); (2) Obligations issued by the Resolution Fund Corporation, the Student Loan Marketing Association, the Federal National Mortgage Association, the Federal Home Loan Bank Board, the Federal Farm Credit Bank or the Federal Home Loan Mortgage Association, or obligations, participation's or other instruments or issued by, or fully guaranteed as to interest and principal by, the Government National Mortgage Association (excluding stripped mortgage backed securities which are valued at greater than par on the unpaid principal); (3) Bills of exchange or time drafts drawn on and accepted by a commercial bank, otherwise known as bankers acceptances, which are eligible for purchase through a bank that is a member of the Federal Reserve System and which are drawn on any commercial bank the short-term obligations of which commercial bank are rated in the highest letter and numerical rating category as provided by each of the Rating Agencies; provided, that purchases of eligible bankers' acceptances may not exceed two hundred seventy (270) days' maturity; (4) Commercial paper of "prime" quality of the highest rating category as provided by each of the Rating Agencies, which commercial paper is limited to issuing corporations that are organized and operating within the United States of America and that have total assets in excess of five hundred million dollars ($500,000,000) and that have an "A" or higher rating for the issuer's unsecured debentures, other than commercial paper, as provided by each of the Rating Agencies; provided, that purchases of eligible commercial paper may not exceed one hundred eighty (180) days' maturity nor represent more than ten percent (10%) of the outstanding commercial paper of any issuing corporation; or medium-term notes with a maximum maturity of five (5) years that are subject to the credit qualifications listed above; (5) Negotiable and non-negotiable certificates of deposit or bank notes issued by a state or national bank or a state-licensed bank of a foreign bank that have maturities of not more than three hundred sixty-five (365) days and that are fully insured by the Federal Deposit Insurance Corporation or the short term obligations of which state or national bank or state-licensed branch of a foreign bank are rated no lower than "A+" or "A1" (or the equivalent); (6) Any repurchase agreement or reverse repurchase agreement of any securities enumerated in subdivisions (1) and (2) of this definition with any state or national bank or government bond dealer reporting to, trading with, and recognized as a primary dealer by the Federal Reserve Bank of New York, and with respect to which repurchase agreement or reverse repurchase agreement, it is either: (A) with any institution which has debt rated no lower than "A+" or "A1" (or the equivalent) or whose commercial paper is rated no lower than "A-1" or "P-1" (or the equivalent); (B) with any corporation or other entity that falls under the jurisdiction of the Federal Bankruptcy Code; provided, that (1) the term of such repurchase agreement or reverse repurchase agreement is less than one (1) year or due on demand; (2) a third party acting solely as agent has possession of the collateral; (3) the market value of the collateral (as determined at least once every seven (7) days) exceeds the principal amount of the repurchase agreement or reverse repurchase agreement plus accrued interest and the market value of the collateral is maintained at levels acceptable to each of the Rating Agencies; (4) failure to maintain the requisite collateral levels will require an immediate liquidation of collateral; and (5) the repurchase agreement or reverse repurchase agreement securities are free and clear of any third-party lien or claim; or (C) with 7 financial institutions insured by the Federal Deposit Insurance Corporation or any broker-dealer with "retail customers" that falls under the jurisdiction of the Securities Investors Protection Corporation; provided, that (1) the market value of the collateral (as determined at least once every seven (7) days) exceeds the principal amount of the repurchase agreement or reverse repurchase agreement plus accrued interest and the market value of the collateral is maintained at levels acceptable to each of the Rating Agencies; (2) a third party acting solely as agent has possession of the collateral; (3) the agent has a perfected first priority security interest in the collateral; (4) the collateral is free and clear of third-party liens and, in the case of a Securities Investors Protection Corporation broker, was not acquired pursuant to repurchase agreement or reverse repurchase agreement; and (5) failure to maintain the requisite collateral percentage will require an immediate liquidation of the collateral; and with respect to any reverse repurchase agreement, the investment is solely done to supplement the income normally received from such securities; (7) Certificates, notes, warrants, bonds or other evidence of indebtedness of the State of California or any local agency therein which are rated in the highest short-term rating category or within one of the three highest long-term rating categories by each of the Rating Agencies (excluding securities that do not have a fixed par value and/or the terms of which do not provide a fixed dollar amount at the maturity or call date); (8) For amounts less than one hundred thousand dollars ($100,000), interest-bearing demand or time deposits (including certificates of deposit) in a state or national bank fully insured by the Federal Deposit Insurance Corporation; provided, that not greater than one hundred thousand dollars ($100,000) in the aggregate shall be deposited in any one such financial institution; (9) Investments in units of a money-market fund portfolio that is rated in the highest letter and numerical rating category by the Rating Agencies then providing a rating on the Bonds and that is composed of obligations guaranteed by the full faith and credit of the United States of America repurchase agreements collateralized by such obligations; (10) Upon prior notification to the Rating Agencies then providing a rating on the Bonds, investment agreements with entities that meet and maintain the following credit and collateral requirements (A) If a corporation, they are initially rated "Aaa" or "AAA" (or its equivalent); if a domestic bank, they are initially rated "B/C" or better; and if a state-licensed branch of a foreign bank, they are initially rated "B" or better; (B) If the credit quality reaches "Aa3" of "AA-" or its equivalent for corporations, "C" for domestic banks, or "B/C" for state-licensed branches of foreign banks, the provider (1) Will respond with adequate collateralization within ten (10) Business Days, (2) will value assets weekly, and (3) will present collateral at one hundred two percent (102%) on U.S. Government Treasury securities and one hundred five percent (105%) on U.S. Government Agency securities; (C) The provider must maintain minimum credit quality of "A2" or "A" or its equivalent for corporations, "C" for domestic banks, or "B/C" for state-licensed branches of foreign banks; and (D) The investment agreement must be terminated if credit ratings reach "A3" or "A-" or its equivalent for corporations, "C/D" for domestic banks of "C" for state-licensed branches of foreign banks; and (11) Other obligations approved in writing by the Bank. "Placement Agreement" means the Placement Agreement, dated November 19, 1996, among the Issuer, the Company and The First National Bank of Chicago, relating to the placement of the Bonds upon the original issuance thereof. 8 "Pledge Agreement" means the Pledge Agreement, dated as of November 1, 1996, by and between the Company and the Credit Bank. "Private Placement Memorandum" means the Private Placement Memorandum dated November 19, 1996, relating to the Bonds and the Project. "Project" means the facilities described in Exhibit B to the Loan Agreement. "Project Certificate" means the Project Certificate executed and delivered by the Company on the date of issuance of the Bonds. "Project Costs" means all costs properly chargeable to the acquisition, construction, installation or equipping of the Project or to its financing, including, without limitation, the following: (a) The cost of construction and acquisition of all lands, structures, real or personal property, rights, rights-of-way, franchises, easements and interests acquired or used for the Project. (b) The cost of demolishing or removing any buildings or structures on land so acquired, including the cost of acquiring any lands to which such buildings or structures may be moved. (c) The cost of all machinery and equipment. (d) Interest during construction of the Project. (e) Reserves for extensions, enlargements, additions, replacements, renovations and improvements. (f) The cost of architectural, engineering, financial and legal services, plans, specifications, studies, surveys, estimates, administrative expenses and other expenses necessary or incident to determining the feasibility of constructing the Project or incident to its construction, acquisition or financing. "Project Fund" means the fund of that name created pursuant to Section 4.01. "Purchase Date" means any date Bonds are to be purchased as a result of an optional or mandatory tender by the owners thereof pursuant to the provisions of Section 2.03 of the Indenture. "Purchase Price" means 100% of the principal amount of Bonds to be purchased, plus interest accrued thereon, if any, to the Purchase Date; provided, however, in the event Bonds are manditorily tendered for purchase on a Substitution Date, any Rating Event Date, upon release, expiration or termination of the then existing Letter of Credit for any reason or upon purchase of the Bonds in lieu of optional redemption, any of which occurring while the Bonds are in a Long Term Interest Rate Mode, the Purchase Price shall mean the principal amount of Bonds to be purchased, plus interest accrued thereon, if any, to the Purchase Date, plus a premium equal to the redemption premium, if any, at the time payable pursuant to Section 3.01(c) hereof. "Purchased Bonds" means Bonds purchased from amounts drawn on the Letter of Credit pursuant to the provisions of Section 2.03 hereof. 9 "Rating Agency" means Moody's Investors Service, Inc., a corporation duly organized and existing under and by virtue of the laws of the State of Delaware, and its successors and assigns, or Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc., a corporation duly organized and existing under and by virtue of the laws of the State of New York, and its successors and assigns, except that if either such entity shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, then the term "Rating Agency" shall be deemed to include any other nationally recognized securities rating agency selected by the Company and approved by the Trustee and the Credit Bank, if any (which shall not be subject to any liability by reason of such approval). "Rating Event Date" means any date upon which the Company elects to have the Bonds no longer secured by a Letter of Credit or Alternate Letter of Credit pursuant to the provisions of Section 5.01(c) hereof, which date shall be (i) a Conversion Date on which the interest rate on all outstanding Bonds is being converted to a new Interest Mode, (ii) any day during any Long-Term Interest Rate Mode, but only a day on or after a date the Bonds are then permitted to be optionally redeemed pursuant to Section 3.01(c) hereof and only to the extent that the principal portion of the stated amount of the then-existing Letter of Credit includes, in addition to an amount equal to the principal amount of Bonds outstanding, an amount equal to any premium then payable, (iii) any Commercial Paper Rate Reset Date on which the interest rate on all Bonds in a Commercial Paper Mode shall be reset, or (iv) any day during any Daily Period, or Weekly Period. "Record Date" means the close of business on the Business Day next preceding any Interest Payment Date; provided, however, with respect to any Interest Payment Date for a Long-Term Interest Rate Period, the "Record Date" shall be the close of business on the fifteenth day of the calendar month next preceding such Interest Payment Date. "Reimbursement Agreement" means the Reimbursement Agreement executed and delivered on the Closing Date, by and between the Company and the Credit Bank, and, with respect to each subsequent Alternate Credit Facility, the agreement pursuant to which such Alternate Credit Facility is issued. All references to "Reimbursement Agreement" shall be of no effect at any time that no Letter of Credit is issued and secures the Bonds, except with respect to rights of any Credit Bank which do not by their terms expire upon the expiration of the Letter of Credit issued by such Credit Bank. "Remarketing Agent" means The First National Bank of Chicago and its successors acting in such capacity under this Indenture. "Remarketing Agreement" means the Remarketing Agreement, dated as of the date of this Indenture, between the Company and the Remarketing Agent, or any similar agreement between the Company and the Remarketing Agent, as amended or supplemented from time to time in accordance with its terms. "Responsible Officer" means the Chairman of the Board, the President or any other officer or assistant officer of the Trustee assigned by the Trustee to administer its corporate trust matters. "Revenues" means all amounts pledged hereunder to the payment of principal of, premium, if any, and interest on the Bonds, consisting of the following: (i) all moneys drawn by or paid to the Trustee under the Letter of Credit, (ii) any portion of the proceeds of the Bonds deposited with the Trustee under Section 4.01 hereof, (iii) any income earned on investments pursuant to Section 4.03 hereof, (iv) all moneys or securities held from time to time by the Trustee hereunder (excluding moneys held to pay the Purchase Price of Bonds tendered 10 pursuant hereto), and (v) any repayments of the Loan made by the Company pursuant to Section 4.2 or 8.1 of the Loan Agreement and any amounts derived from or in connection with the Company or the Loan Agreement, including all amounts obtained through the exercise of the remedies provided in the Loan Agreement upon the occurrence of an event of default thereunder. "Securities Depository" means The Depository Trust Company, New York, New York, or its nominee and the successors and assigns of such nominee, or any successor appointed under Section 2.10. "Series 1996 Bonds" means Bonds issued in the aggregate principal amount of $25,900,000 and dated November 20, 1996 "State " means the State of California. "Substitution Date" means (i) any Conversion Date on which the interest rate on all outstanding Bonds is being converted to a new Interest Mode; (ii) any day during any Long-Term Interest Rate Mode, but only a day on or after a date the Bonds are then permitted to be optionally redeemed pursuant to Section 3.01(c) hereof and only to the extent that the principal portion of the stated amount of the then-existing Letter of Credit includes, in addition to an amount equal to the principal amount of Bonds outstanding, an amount equal to any premium then payable; (iii) any Commercial Paper Rate Reset Date on which the interest rate on all outstanding Bonds in the Commercial Paper Mode is subject to reset; or (iv) any day during any Daily Period or Weekly Period, in each case on which an Alternate Credit Facility delivered pursuant to the provisions of Section 5.01(b) hereof becomes effective "Tender Agent" means Bankers Trust Company of California, N.A., and its successors acting in such capacity under the Indenture. "Tender Notice" has the meaning provided in Section 2.03(a) hereof. "Trustee" means Bankers Trust Company of California, N.A., and its successors acting in such capacity under this Indenture. "Unassigned Rights" means the rights of the Issuer under Sections 4.2(c), (d) and (e), 7.3, 9.2 and 9.3 of the Loan Agreement. "Undelivered Bond" means any Bond purchased pursuant to tender or in lieu of redemption and which is not delivered to the Trustee for payment of the purchase price thereof and is subject to the second paragraph of Section 2.07. "U.S. Government Obligations" means (i) noncallable direct obligations of the United States of America for which its full faith and credit are pledged or (ii) noncallable obligations of a person controlled or supervised by and acting as an agency or instrumentality of the United States of America, the payment of which is unconditionally guaranteed as a full faith and credit obligation of the United States of America. "Weekly Interest Period" means while the Bonds are in a Weekly Rate Mode, each period from and including Wednesday of each week (and if the first day of any Weekly Rate Period is not a Wednesday, the Weekly Rate Conversion Date on which such Weekly Rate Period commences) through and including the following Tuesday, whether or not such days are Business Days. 11 "Weekly Rate" means any interest rate on the Bonds established pursuant to Section 2.02(a)(2) hereof. "Weekly Rate Conversion Date" means each Interest Payment Date on which the Bonds first begin to bear interest at a Weekly Rate pursuant to the provisions of this Indenture. "Weekly Rate Mode" means each period of time, comprising of a Weekly Rate Period, during which a Weekly Rate is in effect. "Weekly Rate Period" means each period established pursuant to Section 2.02(a)(2) hereof. Section 1.02. RULES OF CONSTRUCTION. Unless the context otherwise requires: (a) an accounting term not otherwise defined has the meaning assigned to it in accordance with generally accepted accounting principles; (b) references to Articles and Sections are to the Articles and Sections of this Indenture; and (c) the singular form of any word, including the terms defined in Section 1.01, includes the plural, and vice versa, and a word of any gender includes all genders. 12 ARTICLE II THE BONDS Section 2.01. ISSUANCE OF BONDS; FORM; DATING. The Bonds shall be designated "La Mirada Industrial Development Authority Taxable Variable/Fixed Rate Demand Industrial Development Revenue Bonds (Rykoff-Sexton, Inc. Project) and the first series of Bonds issued hereunder shall be designated "La Mirada Industrial Development Authority "Taxable Variable/Fixed Rate Demand Industrial Development Revenue Bonds (Rykoff-Sexton, Inc. Project) Series 1996". The total aggregate principal amount of Bonds that may be Outstanding shall not exceed $45,000,000, except as provided in Section 2.07 with respect to the replacement of lost, stolen, destroyed or Undelivered Bonds. The total aggregate principal amount of Series 1996 Bonds that may be issued and delivered shall be $25,900,000. The Bonds may be issued in separate series pursuant to the provision hereof and any subsequent series of Bonds shall only be issued upon compliance with the provision of Section 2.11 hereof. The Bonds shall be substantially in the form of Exhibit A to this Indenture, which is hereby incorporated by reference and made a part hereof, and in Authorized Denominations as provided for in the Bonds. The Bonds may have notations, legends or endorsements required by law or usage, including, but not limited to, restrictions on the transfer of Bonds to the extent required by securities laws. Each series of Bonds shall be dated the date of the original issuance and delivery of such series of Bonds and shall mature, subject to prior redemption, on the Maturity Date as established for such series of Bonds. Bonds issued in exchange for Bonds surrendered for transfer or exchange or in replacement of mutilated, lost, stolen, destroyed or Undelivered Bonds shall bear interest from the last date to which interest has been paid on the Bonds being transferred, exchanged or replaced or, if no interest has been paid, from the date of the original issuance and delivery of the Bonds. Bonds shall be numbered as determined by the Trustee. The principal or redemption price of Bonds will be payable, upon surrender of such Bonds, at the corporate trust office of the Trustee. Interest on the Bonds will be payable to the registered owner as of the close of business on the Record Date with respect to an Interest Payment Date, by check mailed by first class mail on the applicable Interest Payment Date; provided that payment of interest at a Daily Rate, Weekly Rate or Commercial Paper Rate will be made by the Trustee by wire transfer to the owner of $1,000,000 or more in aggregate principal amount of Bonds upon such owner providing the Trustee with written wire transfer instructions acceptable to the Trustee at least two Business Days before the applicable Record Date. If and to the extent there shall be a default in the payment of the interest due with respect to Bonds on such Interest Payment Date, such defaulted interest shall be paid to the Bondholders in whose names any such Bonds (or any Bond or Bonds issued upon registration of transfer or exchange thereof) are registered at the close of business on the Business Day next preceding the date of payment of such defaulted interest. Upon the execution and delivery of this Indenture, the Issuer shall execute and deliver to the Trustee and, upon receipt by the Trustee of a Letter of Credit satisfying the requirements of Article V, the Trustee shall authenticate the Series 1996 Bonds and deliver them to the purchaser or purchasers as directed by the Issuer. Section 2.02. INTEREST ON THE BONDS. Interest on the Bonds shall be payable as provided in this Section 2.02. Interest on the Series 1996 Bonds shall initially be payable at the Weekly Rate established at the time of original issuance and delivery of the Series 1996 Bonds, but in no event shall the interest rate on the Bonds exceed the Maximum Rate. The Bonds will initially bear interest from the Closing Date at the Weekly Rate, and thereafter will bear interest from the Interest Payment Date next preceding the date of authentication; unless (i) authenticated prior 13 to the first Interest Payment Date, in which event such Bonds will bear interest from the Closing Date, (ii) authenticated on an Interest Payment Date, in which event the Bonds shall bear interest from the date of authentication; or (iii) authenticated after a Record Date and before the following Interest Payment Date, in which event the Bonds shall bear interest from the following Interest Payment Date. The interest rate determination method for the Bonds may be changed by the Company as described in the following subsection (b). The effective date of any such change in the interest rate determination method shall be the first day of the first Interest Period during which the Bonds shall bear interest at a rate determined by the new method. The methods of determining the interest rate on the Bonds are as provided in the following subsection (a). Interest will be computed during any Daily Rate Period, Weekly Rate Period or Commercial Paper Period on the basis of the actual number of days elapsed over a year of 365 days (366 days in leap years) and during any Long-Term Interest Rate Period on the basis of a 360-day year of twelve 30-day months. (a) Interest Rate Determination Methods. While there exists an Event of Default, the interest rate on each Bond shall be the interest rate on such Bond on the day before the Event of Default occurred. (1) Daily Rate. When interest on the Bonds is payable at a Daily Rate, the Remarketing Agent shall set the Daily Rate on or before 10:30 a.m., New York City time, on each Business Day for that Business Day. Each Daily Rate shall be the minimum rate necessary as determined by the Remarketing Agent under then-prevailing market conditions for the Remarketing Agent to sell the Bonds on the effective date of such Daily Rate at their principal amount (without regard to accrued interest). The Daily Rate for any non-Business Day shall be the Daily Rate for the last day on which a Daily Rate was set. On the Business Day preceding each Interest Payment Date during each Daily Rate Period, the Remarketing Agent will furnish to the Trustee, and the Trustee will furnish to the Credit Bank, the Company and the Tender Agent, if any, the Daily Rates applicable to the Bonds during such Daily Rate Period. Should any Bondholder or Beneficial Owner request in writing the Daily Rate applicable to its Bonds for any particular day, the Remarketing Agent will furnish such Daily Rate to such requesting Bondholder or Beneficial Owner. (2) Weekly Rate. The Remarketing Agent shall set a Weekly Rate on the last Business Day before the commencement of a period during which the Bonds will bear interest at a Weekly Rate and on each Tuesday thereafter so long as interest on the Bonds is to be payable at a Weekly Rate (unless any Tuesday is not a Business Day, then on the preceding Monday, unless Monday and Tuesday are not a Business Day, then on the next succeeding Wednesday, whether or not a Business Day). Each Weekly Rate shall be the minimum rate necessary (as determined by the Remarketing Agent under then-prevailing market conditions for the Remarketing Agent to sell the Bonds on the effective date of such Weekly Rate at their principal amount (without regard to accrued interest). The first Weekly Rate shall apply to the period beginning on the date of original issuance and delivery of the Bonds and ending on the next Tuesday. Thereafter, each Weekly Rate shall apply to (i) the period beginning on the Wednesday of the week in which such Weekly Rate is set and ending on the following Tuesday or, if earlier, ending on the day before the effective date of a new method of determining the interest rate on the Bonds or (ii) the period beginning on the effective date of a change to a Weekly Rate and ending on the next Tuesday. 14 On the Business Day preceding each Weekly Rate Interest Payment Date, the Remarketing Agent will furnish to the Trustee, and the Trustee will furnish to the Company, the Credit Bank and, if the Bonds are not in a Book-Entry System, to the Tender Agent, if any, the Weekly Rates applicable to the Bonds from the time of the prior notice of such rates. Should any Bondholder or Beneficial Owner request such in writing, the Remarketing Agent shall furnish (by first class mail, postage prepaid) the Weekly Rate for the Bonds to such requesting Bondholder or Beneficial Owner. (3) Commercial Paper Rate. During a Commercial Paper Mode, each Bond shall bear interest during the Commercial Paper Period then applicable to such Bond at the then applicable Commercial Paper Rate for such Bond. Different Commercial Paper Periods may apply to different Bonds at any time and from time to time. Except as otherwise described in this subdivision (3), the Commercial Paper Period and Commercial Paper Rate for each Bond shall be determined by the Remarketing Agent on the first day of a Commercial Paper Period with respect to any Bond. (i) Determination of Commercial Paper Periods. Each Commercial Paper Period with respect to any Bond shall be a period of at least thirty (30) days and not more than 270 days, determined by the Remarketing Agent to be the period which, together with all other Commercial Paper Periods for all Bonds then Outstanding, will result in the lowest overall interest expense on the Bonds over the next 270 days. Each Commercial Paper Period with respect to any Bond shall end on either the day before a Business Day or on the day before the Maturity Date. However, any Bond purchased on behalf of the Company and remaining unsold by the Remarketing Agent as of the close of business on the first day of a Commercial Paper Period for such Bond shall have a Commercial Paper Period of one day or, if that Commercial Paper Period would not end on a day before a Business Day, a Commercial Paper Period of the shortest possible duration greater than one day and ending on a day before a Business Day. In determining the number of days in a Commercial Paper Period with respect to any Bond, the Remarketing Agent shall take into account the following factors: (A) foreseeable changes to prevailing financial market conditions, (B) the anticipated duration of the period the Bonds may remain in the Commercial Paper Mode and (C) such other facts, circumstances and conditions as the Remarketing Agent, in its sole discretion, shall determine to be relevant and economically advantageous to consider. At any time, if (A) the Remarketing Agent shall certify to the Trustee, the Company and the Credit Bank that the Book-Entry System in which the Bonds are then deposited can accommodate a Commercial Paper Period of less than 30 days, or (B) the Bonds shall not then be in a Book-Entry System, the Remarketing Agent may determine the duration of a Commercial Paper Period to be at least one (1) days and not more than 270 days. At any time that the Company has given notice of conversion from the Commercial Paper Mode to another Interest Mode, the Remarketing Agent shall thereafter determine Commercial Paper Periods of such duration so that, as soon as possible, all Commercial Paper Periods shall end on the same date, which date shall be the day preceding the Conversion Date. (ii) Determination of Commercial Paper Rates. The Commercial Paper Rate for each Commercial Paper Period for each Bond shall be the minimum rate 15 necessary (as determined by the Remarketing Agent based on the examination of obligations comparable to the Bonds known by the Remarketing Agent to have been priced or traded under the then- prevailing market conditions) for the Remarketing Agent to sell such Bond on the effective date of such Commercial Paper Rate at its principal amount (without regard to accrued interest). On the first day of each Commercial Paper Period, the Remarketing Agent will furnish to the Trustee, and the Trustee will furnish to the Credit Bank, the Company and, if the Bonds are not in a Book-Entry System, the Tender Agent, notice of the duration of such Commercial Paper Period and the Commercial Paper Rate to be effective during such Commercial Paper Period. Should any Bondholder or Beneficial Owner request notice of such items in writing, the Remarketing Agent will provide such notice (by first class mail, postage prepaid) to such requesting Bondholder or Beneficial Owner. Notwithstanding anything in this Indenture to the contrary, no Commercial Paper Period may be established unless the Letter of Credit, if any, terminates no earlier than 20 days after the last day of such Commercial Paper Rate Period. (4) Long-Term Interest Rate. The Remarketing Agent shall set a Long-Term Interest Rate on a date no later than the day before the beginning of any Long-Term Interest Rate Period. Each Long-Term Interest Rate shall be the minimum rate necessary (as determined by the Remarketing Agent based on the examination of obligations comparable to the Bonds known by the Remarketing Agent to have been priced or traded under then-prevailing market conditions) for the Remarketing Agent to sell the Bonds on the effective date of such Long-Term Interest Rate at their principal amount (without regard to accrued interest). (5) Failure of Remarketing Agent to Announce Interest Rates on the Bonds. In the event that the appropriate interest rate is not or cannot be determined for whatever reason, the method of determining interest on the Bonds shall be converted automatically, if necessary, to the Weekly Rate (without the necessity of complying with the requirements of Section 2.02(b)). Such Bonds may not thereafter be converted from the Weekly Rate Mode until such time as all Bonds outstanding are in the Weekly Rate Mode. Upon such automatic Conversion of a portion of the Bonds to the Weekly Rate Mode, any Bond then remaining in the Commercial Paper Mode shall be automatically converted to the Weekly Rate Mode upon the expiration of the Commercial Paper Mode applicable to such Bond without further action on the part of any person (and notwithstanding any attempted act to the contrary on the part of any person). Upon such event the Trustee shall promptly notify the affected Bondholders, the Company, the Remarketing Agent, the Tender Agent, if any, and the Credit Bank of such automatic conversion. Each determination by the Remarking Agent of the duration of any Commercial Paper Period and the Commercial Paper Rate applicable to each Bond during such Commercial Paper Period will be conclusive and binding. In the event that the Remarketing Agent fails to determined a Weekly Rate as described herein, then, until a Weekly Rate has been set as described herein, the Weekly Rate will be 110% of LIBOR for a thirty (30) day period. If LIBOR is unable to be established, the Weekly Rate will be the interest rate from time to time established by use of such other index as may be selected by the Company upon notice to the Trustee. The Trustee shall promptly notify the Bondholders of any such automatic change as set forth in Section 2.02(c). While any Bonds are in a Commercial Paper Mode, during any transition period caused by an automatic conversion of any such Bonds to a Weekly Rate in accordance with this subdivision (5), Bonds bearing interest at a Weekly Rate and Bonds bearing interest at a 16 Commercial Paper Rate, as applicable, shall be governed by the provisions of this Indenture applicable to such methods of determining interest on the Bonds, respectively. (b) (1) Change in Interest Rate Determination Method. The Company may change the method of determining the interest rate on the Bonds by notifying the Issuer, the Trustee, the Credit Bank, the Remarketing Agent and, if the Book-Entry System is then in effect for the Bonds, the Securities Depository. Such notice shall be delivered to such parties at least thirty (30) days prior to the Conversion Date and shall contain (a) the effective date of the change (which date shall be an Interest Payment Date), (b) the new interest rate determination method and (c) if the change is to a Long-Term Interest Rate, the last day of the first Long-Term Interest Rate Period. If the Company's notice complies with this subsection (b), the interest rate on the Bonds shall be determined in accordance with the method specified therein, to become effective on the date specified therein; and such new method shall continue in effect until there is another change as provided in this Section 2.02. (2) Limitations. Any change in the method of determining the interest rate on the Bonds pursuant to subdivision (1) above must also comply with the following: (i) if a Daily Rate or Weekly Rate is then in effect, the effective date of the change shall be an Interest Payment Date which is at least 15 days following receipt by the Trustee of the Company's notice of change; (ii) if a Long-Term Interest Rate is then in effect, the effective date of any change must be a Business Day which is the day after the last day of the then current Long-Term Interest Rate Period; (iii) if a Commercial Paper Mode is then in effect with respect to all outstanding Bonds, the effective date of any change must be a Business Day which is the day after the last day of the then current Commercial Paper Mode or, as to any particular Bond, a Business Day which is the day after the last day of the Commercial Paper Period then in effect (or to be in effect) with respect to such Bond; (iv) if any Bonds have been called for redemption and the redemption has not yet been effected, the effective date of the change cannot occur before the redemption date; (v) if a Commercial Paper Mode is then in effect, the Remarketing Agent shall determine Commercial Paper Periods of such duration as will, in the judgment of the Remarketing Agent, best promote an orderly transition to the new method; and after the receipt by the Trustee of the Company's notice of such change, the day after the last day of the then current Commercial Paper Period for each Bond shall be, with respect to such Bond, the effective date of such change; and the Remarketing Agent shall promptly give written notice of each such last day and each such effective date with respect to each Bond to the Issuer, the Company and the Trustee; (vi) if a Letter of Credit is then in effect, the number of days of interest covered by the Letter of Credit shall be as set forth in Article V; (vii) if the Company elects to change the method of determining the interest rate on the Bonds to a Long-Term Interest Rate, such change shall be applicable to all outstanding Bonds; and 17 (viii) only in the event that a Commercial Paper Mode is applicable to a portion of the principal amount of Bonds may the remaining portion of the principal amount of Bonds be in a different Mode; and (ix) if the Company elects to change the method of determining the interest rate on the Bonds to a Commercial Paper Rate or a Long-Term Interest Rate, the Company shall deliver a letter from each Rating Agency then rating the Bonds that the Bonds will be rated at least "A-1"/"P-1" (or its equivalent) or A-/A3 (or its equivalent), respectively, after the Conversion Date. During any transition period, Bonds bearing interest at a Commercial Paper Rate shall be governed by the provisions of this Indenture applicable to a Commercial Paper Mode and Bonds bearing interest at a Daily Rate, Weekly Rate or Long-Term Interest Rate, as applicable, shall be governed by the provisions of this Indenture applicable to such methods of determining the interest rate on the Bonds. (c) Notice to Bondholders of Change in Interest Rate Determination Method. When a change in the method of determining the interest rate on the Bonds is to be made, or upon the commencement of any new Long-Term Interest Rate Period, the Trustee will notify the Bondholders by first-class mail at least twenty (20) days before the effective date (or each effective date in the case of a change from a Commercial Paper Mode) of such change or new period. The notice shall state: (1) that the interest rate determination method for the Bonds will be changed and what the new method will be; (2) the effective date of the change; and (3) that a mandatory tender for purchase of the Bonds will result on the effective date of the change. (d) Calculation of Interest. The Remarketing Agent shall provide the Trustee, the Credit Bank and the Company with notice in writing or by telephone (promptly confirmed by facsimile transmission): (1) by 12:00 noon, New York City time, on the first Business Day after each month during which interest on the Bonds is payable at a Daily Rate, the Daily Rate for each day in such month; (2) by 9:00 a.m., New York City time, on the Business Day after each day on which a Weekly Rate is set, such Weekly Rate; (3) by 9:00 a.m., New York City time, on the Business Day after the first Business Day of each Commercial Paper Period, the duration thereof and the related Commercial Paper Rate; (4) on the first Business Day of each Long-Term Interest Rate Period, the duration thereof and the related Long-Term Interest Rate; and (5) on a Business Day preceding any redemption date, any interest rate required by the Trustee in order to enable it to calculate the accrued interest, if any, due on such redemption date. 18 Using the interest rates supplied by such notices, the Trustee shall calculate on the first Business Day of each month the amount of interest payable on the Bonds. The Remarketing Agent shall inform the Trustee, the Credit Bank and the Company orally (promptly confirmed by facsimile, if requested) at the oral request of any of them of any interest rate set by the Remarketing Agent. The Remarketing Agent shall confirm the current interest rate by telephone or in writing to any Bondholder who requests it in any manner. The setting of interest rates and the calculation of the amount of interest payable on the Bonds, as provided in this Indenture, shall be conclusive and binding on the parties to the Indenture, the Company, the Credit Bank, the Remarketing Agent and the Bondholders. Section 2.03. OPTIONAL AND MANDATORY TENDER OF BONDS. (a) Optional Tender. Any Bond, or any units of principal amount thereof in Authorized Denominations, shall be subject to optional tender for purchase, from the sources prescribed in Section 3.08 hereof, on any Business Day during a Weekly Period or a Daily Period, at a Purchase Price equal to the principal amount thereof, or of any units thereof purchased in Authorized Denominations, plus interest accrued thereon, if any, to the date of purchase, in the event that the Bonds are not then held in a book-entry only system, upon (a) delivery, not later than 10:00 a.m., New York City time on a Business Day, to the Tender Agent and the Trustee, with a copy provided by the Tender Agent to the Remarketing Agent, of a written notice (a "Tender Notice") which notice shall upon receipt by the Tender Agent and the Trustee be irrevocable, and states (i) the principal amount of such Bond for which payment is demanded, and (ii) the date on which such Bond or units of principal amount thereof in Authorized Denominations shall be purchased pursuant to this Section 2.03(a), which date with respect to an optional tender during a Weekly Period shall be a Business Day not prior to the seventh (7th) day, or which date with respect to an optional tender during a Daily Period, shall be the date of the receipt of the Tender Notice by the Tender Agent and the Trustee, and (b) delivery to the Tender Agent, at or prior to 11:00 a.m., New York City time, on the Purchase Date, of such Bond (with an appropriate transfer of registration form executed in blank and in form satisfactory to the Tender Agent). Notwithstanding the foregoing, if the Bonds in the Weekly Rate Mode are held in a Book-Entry System, a Beneficial Owner shall have the right to optionally tender for purchase its beneficial interest in any Outstanding Bonds (or portion thereof in an Authorized Denomination) at the Purchase Price, which right may be exercised by delivery by the Beneficial Owner to the Remarketing Agent at its Principal Office of a notice identifying the name and address of such Beneficial Owner and stating that such Beneficial Owner will cause its beneficial interest (or portion thereof in an Authorized Denomination) to be purchased, the amount of such interest to be purchased, the date on which such interest will be purchased (which date shall be a Business Day at least seven days after delivery of such notice to the Remarketing Agent) and specifying the Remarketing Agent as the Participant through which the Beneficial Owner maintains its interest. Upon delivery of such notice, the Beneficial Owner shall cause its beneficial ownership interest in the Bonds (or the portion thereof specified in the foregoing notice) being purchased to be transferred to the Remarketing Agent at or prior to 11:00 a.m., New York time, on the Purchase Date, in accordance with the rules and procedures of the applicable Securities Depository. Notwithstanding the foregoing, during a Daily Period, if Bonds are held in a Book-Entry System, a Beneficial owner shall have the right to optionally tender for purchase its beneficial interest in any Outstanding Bonds (or portion thereof in an Authorized Denomination) at the Purchase Price, which right may be exercised by delivery, by the Beneficial Owner to the Remarketing Agent at its Principal Office no later than 10:30 a.m., New York time, on the date on which the beneficial interest of such Beneficial Owner is to be purchased, of a notice identifying the name and address of such Beneficial Owner and stating that such Beneficial Owner will cause its beneficial interest (or portion thereof in an Authorized Denomination) to 19 be purchased, the amount of such interest to be purchased, and specifying the Remarketing Agent as the Participant through which the Beneficial Owner maintains its interest. Upon delivery of such notice, the Beneficial Owner shall cause its beneficial ownership interest in the Bonds (or the portion thereof specified in the foregoing notice) being purchased to be transferred to the Remarketing Agent at or prior to 11:00 a.m., New York time, on the Purchase Date, in accordance with the rules and procedures of the applicable Securities Depository. In the event that Bonds are subject to tender as set forth above to the Remarketing Agent, if the Bonds are in a Daily Mode, the Remarketing Agent shall notify the Trustee and the Tender Agent of the principal amount of Bonds to be purchased and the date of purchase of any optional tender of Bonds prior to 11:00 a.m., New York time, on the day of receipt of any such tender notice, and in the event that the Bonds are in a Weekly Mode, the Remarketing Agent shall notify the Trustee and Tender Agent of the principal amount of Bonds to be purchased and the date of purchase on the date of receipt of any such tender notice. Anything herein to the contrary notwithstanding, no Bonds shall be purchased pursuant to this Section 2.03(a) or remarketed pursuant to Section 3.07 if an Event of Default under Sections 8.01(a), (b) or (c) shall have occurred and be continuing, and no Bonds shall be purchased pursuant to this Section 2.03(a) or remarketed pursuant to Section 3.07 during a Commercial Paper Period or a Long-Term Interest Rate Period; nor shall any Bond be purchased pursuant to this Section 2.03(a) if such Bond is known by the Trustee to be registered in the name of the Issuer, the Credit Bank, or the Company. Any Bond optionally tendered by the owner thereof pursuant to the provisions of this Section 2.03(a) from the date notice of mandatory purchase pursuant to subsection (b) is given through the mandatory purchase date, shall not be remarketed except to a purchaser who, at the time of such purchase, agrees that such Bond will be deemed tendered on such mandatory purchase date. (b) Mandatory Tender. The beneficial interests of the Beneficial Owners of all Outstanding Bonds are subject to mandatory tender for purchase in whole (or if such Bonds are not then in the Book-Entry System, all Bonds are subject to mandatory tender in whole by the holders thereof to the Tender Agent at its Principal Office) on each date described below (a "Mandatory Purchase Date") at the Purchase Price: (a) On each Conversion Date (provided that, in the event less than all of the Bonds are being converted, only the Bonds being converted will be subject to mandatory tender); (b) On each Commercial Paper Rate Reset Date and Long-Term Interest Rate Reset Date with respect to any Bond (provided that only those Bonds whose interest rates are being reset on such date shall be subject to mandatory tender); (c) On (i) a Substitution Date (provided that with respect to Bonds in the Commercial Paper Mode, the date of substitution or release may not be prior to the expiration date of the then applicable Interest Period for all then applicable Commercial Paper Periods), (ii) any Rating Event Date or (iii) on the second Business Day prior to the release, expiration or termination of the then existing Letter of Credit for any other reason; (d) On each optional redemption date pursuant to Sections 3.01(a), (b) or (c) for which the Company has elected to purchase bonds in lieu of optional redemption; and 20 (e) Not more than five (5) days subsequent to receipt by the Trustee of a written notice from the Credit Bank that an Event of Default under the Reimbursement Agreement has occurred and is continuing and directing a mandatory tender for purchase of the Bonds. Not later than 7 days prior to a Purchase Date described in (b) or (c) above, and not later than 2 days prior to a Purchase Date as described in (e) above, the Trustee will mail notice to all owners of the Bonds stating that (1) due to the occurrence of one of the events described above (which event will be specified), such Owners' Bonds will be subject to mandatory tender on the Mandatory Purchase Date (which date shall be specified); (2) that, subject to clause (4) below, all such owners who fail to tender their Bonds for purchase on the Mandatory Purchase Date will nonetheless be deemed to have tendered their Bonds for purchase on such date; (3) that, subject to clause (4) below, any such Bonds not delivered to the Tender Agent on or prior to the Mandatory Purchase Date, for which there has been irrevocably deposited in trust with the Trustee or the Tender Agent on or prior to the Mandatory Purchase Date Available Moneys sufficient to pay the Purchase Price of such Undelivered Bonds on the Mandatory Purchase Date, shall be deemed to have been so purchased at the Purchase Price, and such Bonds shall no longer be considered to be outstanding for purposes of the Indenture and shall no longer be entitled to the benefits of the Indenture, except for the payment of the Purchase Price thereof (and no interest shall accrue thereon subsequent to the Mandatory Purchase Date); and (4) that notwithstanding the foregoing, while the Bonds are held in the Book-Entry System, Bonds need not be physically tendered on the Mandatory Purchase Date, and transfers of beneficial ownership interests will be effected by the Securities Depository in accordance with its rules and procedures. With respect to mandatory purchases described in (a) or (d) above, such notice will be given as part of the notice of conversion or optional redemption, as the case may be. No failure on the part of the Trustee to give such notice will affect the requirement that Bonds be purchased or tendered for purchase on the Mandatory Purchase Date. While Bonds are not in a Book-Entry System, owners of Undelivered Bonds will have no rights or benefits under the Indenture with respect to such Bonds other than to receive the Purchase Price for such Bonds upon surrender of such Bonds to the Tender Agent. While Bonds are held in the Book-Entry System, no physical tender of Bonds need be made on the Mandatory Purchase Date. Transfers of beneficial interests will be effected by the Securities Depository in accordance with its rules and procedures. Payment of the Purchase Price of any Bond shall be made by check or by wire transfer (if requested in writing by the registered owner of $1,000,000 or more in aggregate principal amount of Bonds) or as designated in the Tender Notice with respect to such Bond, but only upon delivery and surrender of such Bond to the Tender Agent on the Purchase Date. Section 2.04. EXECUTION AND AUTHENTICATION. The Bonds shall be signed on behalf of the Issuer by the manual or facsimile signature of its Chairman and attested by the manual or facsimile signature of its Secretary. All authorized facsimile signatures shall have the same effect as if manually signed. If an officer of the Issuer whose signature is on a Bond no longer holds that office at the time the Trustee authenticates the Bond, the Bond shall nevertheless be valid. Also, if a person signing a Bond is the proper officer on the actual date of execution, the Bond shall be valid even if that person is not the proper officer on the nominal date of action. A Bond shall not be valid or become obligatory for any purpose or be entitled to any security or benefit under this Indenture until the Trustee manually signs the certificate of authentication on such Bond. Such signature shall be conclusive evidence that such Bond has been authenticated under this Indenture. 21 Section 2.05. BOND REGISTER. Bonds must be presented at the principal corporate trust office of the Trustee for registration of transfer, exchange and payment. Bonds tendered by their Owners must be delivered as specified in Section 2.03 hereof and in the Bonds. The Trustee shall keep a register of Bonds and of their transfer and exchange, which register shall be open to inspection by the Issuer and the Company during normal business hours. Section 2.06. REGISTRATION AND EXCHANGE OF BONDS; Persons Treated as Owners. Bonds may be transferred upon surrender of such Bonds at the principal corporate trust office of, and as designated by, the Trustee or in the case of tenders as described herein, at any time when the Bonds are not in a Book-Entry System, at the office designated by the Tender Agent, together with an assignment satisfactory to the Trustee or the Tender Agent, as the case may be, duly executed by such holder or such holder's duly authorized attorney. Bonds may be exchanged at the principal corporate trust office of the Trustee for a like aggregate principal amount of Bonds in authorized denominations. Except in connection with the purchase of Bonds tendered for purchase, the Trustee shall not be required to make any such transfer of exchange of any Bond during the period beginning 15 days before the mailing of notice calling the Bonds for redemption and ending on the redemption date. Notwithstanding the foregoing, the Trustee or, at any time when the Bonds are not in a Book-Entry System, the Tender Agent shall authenticate and make available for receipt by the purchaser or purchasers of any Bond tendered or deemed to be tendered in accordance herewith, against payment therefor, a new fully registered Bond or Bonds, in Authorized Denominations, in an aggregate principal amount equal to the principal amount of the Bonds so deemed to have been tendered. The Trustee will charge to the owner for every such transfer and every exchange of a Bond sufficient to reimburse it for any tax or other governmental charge required to be paid with respect to such transfer or exchange. Notwithstanding the foregoing, when the Bonds are held in the Book-Entry System, transfers of beneficial ownership for Bonds will be make pursuant to rules and procedures established by the Securities Depository. The Trustee has been appointed the initial Tender Agent. The Owner of a Bond shall be the absolute owner of such Bond for all purposes, and all payments of principal, premium, if any, interest or purchase price shall be made only to or upon the written order of such Owner or such Owner's legal representative. Section 2.07. MUTILATED, LOST, STOLEN, DESTROYED OR UNDELIVERED BONDS. If any Bond is mutilated, lost, stolen or destroyed, the Issuer shall execute and the Trustee shall authenticate and deliver a new Bond of the same series and denomination if any mutilated Bond shall first be surrendered to the Trustee, and if, in the case of any lost, stolen or destroyed Bond, there shall first be furnished to the Issuer, the Trustee, the Credit Bank and the Company evidence of such loss, theft or destruction, together with an indemnity satisfactory to them. If such Bond has matured, instead of issuing a replacement Bond, the Trustee may with the consent of the Company pay such Bond without requiring surrender of such Bond upon satisfaction of such requirements as the Trustee deems fit for the protection of the Issuer, the Company and the Trustee, including a lost instrument bond. The Issuer, the Company and the Trustee may charge reasonable fees and expenses in this connection. If a Bond is called for redemption, or if the Owner of a Bond gives irrevocable notice of tender to the Remarketing Agent, or if the Bonds are subject to mandatory tender for purchase pursuant to Section 2.03(b) hereof and in each case if funds are deposited with the Trustee sufficient to pay the redemption price or Purchase Price, as applicable, upon request of the Company or the Remarketing Agent, the Issuer shall execute and the Trustee shall authenticate a new Bond in the same series and denomination registered as the Company or the Remarketing Agent may direct and deliver it to the Company or its order, whether the Bond so purchased is ever delivered, but if the funds are obtained by a drawing on the Letter of Credit, the Trustee must comply with Section 3.09. From and after the purchase date, interest on the 22 purchased Bond shall cease to be payable to the prior Owner thereof; such Owner shall cease to be entitled to the benefits or security of this Indenture and shall have recourse solely to the funds held by the Trustee for the purchase of such Bond, and the Trustee shall not register any further transfer of such Bond by such prior Owner. Section 2.08. CANCELLATION OF BONDS. Whenever a Bond is delivered to the Trustee for cancellation (upon payment, redemption or otherwise), or for transfer, exchange or replacement pursuant to Section 2.06 or 2.07, the Trustee shall promptly cancel and destroy such Bond and deliver a certificate of destruction to the Company and the Issuer. Section 2.09. TEMPORARY BONDS. Until definitive Bonds are ready for delivery, the Issuer may execute and the Trustee shall authenticate and deliver temporary Bonds substantially in the form of the definitive Bonds, with appropriate variations. The Issuer shall, without unreasonable delay, prepare and execute and the Trustee shall authenticate and deliver definitive Bonds in exchange for the temporary Bonds. Such exchange shall be made by the Trustee without charge. Section 2.10. BOOK-ENTRY SYSTEM. Notwithstanding any provision of this Indenture to the contrary: The Bonds shall be initially registered in the name of Cede & Co., as nominee for The Depository Trust Company as the initial Securities Depository, and held in the custody of the Securities Depository. A single certificate shall be issued and delivered to the Securities Depository for the Bonds. The actual purchasers of the Bonds (the "BENEFICIAL OWNERS") will not receive physical delivery of Bond certificates except as provided herein. So long as there exists a Securities Depository as provided herein, all transfers of beneficial ownership interests in the Bonds shall be made by book-entry only, and no person purchasing, selling or otherwise transferring beneficial ownership interests in the Bonds will be permitted to receive, hold or deliver any Bond certificate. The Issuer, the Company and the Trustee shall treat the Securities Depository or its nominee as the sole and exclusive Bondholder for all purposes, including payments of principal of, premium, if any, and interest on the Bonds, notices and voting. The Issuer and the Trustee covenant and agree, so long as The Depository Trust Company shall continue to serve as Securities Depository for the Bonds, to meet the requirements of The Depository Trust Company with respect to required notices and other provisions of the Letter of Representations executed by the Issuer, the Trustee and the Remarketing Agent with respect to the Bonds. The Issuer, the Trustee and the Remarketing Agent may conclusively rely upon (i) a certificate of the Securities Depository as to the identity of the Participants in the Book-Entry System with respect to the Bonds and (ii) a certificate of any such Participant as to the identity of, and the respective principal amount of Bonds beneficially owned by, the Beneficial Owners. Whenever Bonds remain Outstanding and the beneficial ownership thereof must be determined by the books of the Securities Depository, the requirements in this Indenture for holding, delivering, tendering or transferring Bonds shall be deemed modified to require the appropriate person to meet the requirements of the Securities Depository with respect to such actions to produce the same effect. Any provision hereof permitting or requiring delivery of Bonds shall, while the Bonds are in the Book-Entry System, be satisfied by notation on the books of the Securities Depository in accordance with state law. The Trustee and the Issuer, at the direction and expense of the Company and with the consent of the Remarketing Agent, may from time to time appoint a successor Securities Depository and enter into any agreement with such Securities Depository to establish 23 procedures with respect to the Bonds not inconsistent with the provisions of this Indenture. Any successor Securities Depository shall be a "clearing agency" registered under Section 17A of the Securities Exchange Act of 1934, as amended. None of the Issuer, the Company, the Trustee and the Remarketing Agent shall have any responsibility or obligation to any Securities Depository, any Participant in the Book-Entry System or the Beneficial Owners with respect to (i) the accuracy of any records maintained by the Securities Depository or any Participant; (ii) the payment by the Securities Depository or by any Participant of any amount due to any Beneficial Owner in respect of the principal amount (including premium) or redemption or purchase price of, or interest on, any Bonds; (iii) the delivery of any notice by the Securities Depository or any Participant; (iv) the selection of the Beneficial Owners to receive payment in the event of any partial redemption of the Bonds; or (v) any other action taken by the Securities Depository or any Participant in connection with the Bonds. Bond certificates shall be delivered to and registered in the name of the Beneficial Owners only under the following circumstances: (a) The Securities Depository determines to discontinue providing its service with respect to the Bonds and no successor Securities Depository is appointed as described above. Such a determination may be made at any time by giving reasonable notice to the Issuer or the Trustee and discharging its responsibilities with respect thereto under applicable law. (b) The Company determines not to continue the Book-Entry System through any Securities Depository. If at any time the Securities Depository ceases to hold the Bonds, all references herein to the Securities Depository shall be of no further force or effect. Notwithstanding any provision herein to the contrary, so long as the Bonds are subject to a system of book-entry-only transfers pursuant to this Section, any requirement for the delivery of Bonds to the Trustee or the Tender Agent in connection with an optional or mandatory tender pursuant to Section 2.03 shall be deemed satisfied upon the transfer, on the registration books of DTC, of the beneficial ownership interests in such Bonds tendered for purchase to the account of the Tender Agent, or a Direct Participant acting on behalf of the Tender Agent. So long as The First National Bank of Chicago is acting as the Remarketing Agent, The First National Bank of Chicago shall act as the sole Direct Participant for purposes of this Indenture. Section 2.11. ADDITIONAL BONDS. Additional Bonds may be issued for the purposes set forth in Section 4.6 of the Loan Agreement. The Issuer and the Company may from time to time agree upon and approve the issuance and delivery of Additional Bonds in such amount as shall be determined by said parties as permitted by law in effect at the time thereof. All Additional Bonds shall rank pari passu with, and shall have such interest payment dates, maturity date, redemption dates and redemption premiums as the Series 1996 Bonds, but shall bear such date or dates and be sold at such prices as shall be approved in writing by the Issuer and the Company. Upon the execution and delivery in each instance of appropriate supplements to this Indenture and to the Loan Agreement, the Issuer shall execute Additional Bonds and deliver them to the Trustee, and the Trustee shall authenticate such Additional Bonds and deliver them to the purchasers as may be directed by the Issuer, as hereinafter in this Section provided. Prior 24 to the authentication and delivery by the Trustee of any of such Additional Bonds there shall be delivered to the Trustee: 1. A written statement by an Company Representative approving (a) the issuance and delivery of such Additional Bonds and (b) any other matters to be approved by the Company pursuant to Section 4.6 of the Loan Agreement and this Section. 2. A certified resolution of the Issuer authorizing the execution and delivery of such supplement to the Loan Agreement and such supplemental indenture and the issuance of such Additional Bonds. 3. A certificate of the Issuer stating that all conditions precedent provided for in this Indenture relating to the issuance of such Additional Bonds have been complied with, that no Event of Default with respect to the Series 1996 Bonds or any Additional Bonds outstanding has occurred and is continuing and that the issuance of such Additional Bonds will not be or result in an Event of Default or an event or condition which, upon the giving of notice (or the acquisition of knowledge) or the lapse of time or both, would become an Event of Default. 4. A written order of the Issuer to the Trustee to authenticate and deliver such Additional Bonds to the purchasers therein identified upon payment to the Issuer of a sum specified in such written order. 5. An opinion of Bond Counsel to the effect that the issuance and sale of the Additional Bonds is permitted by this Indenture and by the Act. 6. Original executed counterparts of the supplements to the Indenture and to the Loan Agreement. 7. A description of the facilities to be financed form the proceeds of such series of Additional Bonds. 8. The written consent of the Credit Bank providing the Letter of Credit, if any, upon and after the issuance of such Additional Bonds. 9. An Alternate Credit Facility, or an increase in the outstanding Letter of Credit, in an amount sufficient to satisfy the requirements of this Indenture unless the Additional Bonds are rated by a Rating Agency without regard to the existence of a Letter of Credit securing the Bonds. 10. An additional or substitute Remarketing Agreement providing for the remarketing of such Additional Bonds unless such Additional Bonds are to be in a Long-Term Interest Rate Mode and the Long-Term Interest Rated Period with respect thereto expires on the maturity date of the Bonds. 11. An opinion of a nationally recognized securities counsel stating that the offering and sale of such Additional Bonds will be exempt from the registration requirements of the Securities Act of 1933 and applicable state securities laws or that the offering and sale of such Additional Bonds has been registered pursuant to the requirements of the Securities Act of 1933. The Trustee shall have the right to decline to authenticate and deliver any Additional Bonds under this Section 2.11 if the Trustee, being advised by counsel, determines that such 25 action may not lawfully be taken, or if the Trustee in good faith shall determine that such action would expose the Trustee to personal liability to existing Bondholders. 26 ARTICLE III REDEMPTION, PURCHASE AND REMARKETING OF BONDS Section 3.01. CIRCUMSTANCES OF REDEMPTION. The Bonds are subject to optional redemption, mandatory redemption and extraordinary optional redemption upon the circumstances, on the dates and at the prices set forth as follows: (a) WEEKLY RATE MODE AND DAILY RATE MODE. While the Bonds are in the Weekly Rate Mode or the Daily Rate Mode, the Bonds will be subject to optional redemption, in whole or in part, on any Business Day upon at least 45 days' prior written notice delivered to the Trustee, the Credit Bank and the Remarketing Agent by the Company, at a redemption price equal to 100% of the aggregate principal amount of the Bonds to be redeemed, plus accrued interest thereon to the redemption date, without premium. (b) CP RATE MODE. While the Bonds are in the Commercial Paper Mode, the Bonds in any given Commercial Paper Period will be subject to optional redemption, in whole or in part, on the Interest Payment Date with respect to such Commercial Paper Period, upon at least 45 days' prior written notice delivered to the Trustee, the Credit Bank and the Remarketing Agent by the Company, at a redemption price equal to 100% of the aggregate principal amount of the Bonds to be redeemed, plus accrued interest thereon to the redemption date, without premium. (c) LONG-TERM INTEREST RATE MODE. While the Bonds are in the Long-Term Interest Rate Mode, the Bonds are subject to optional redemption, in whole or in part, at any time, upon at least 45 days' prior written notice by the Company to the Trustee, the Credit Bank and the Remarketing Agent, at the applicable redemption price (expressed as a percentage of the principal amount to be redeemed) set forth below, plus accrued interest thereon to the date of redemption: Length of Currently Applicable Dates after Which Redemption Long Term Interest Rate Period Is Allowed and (Expressed in Whole Years) Redemption Prices (1) ------------------------------ ---------------------------- greater than 10 after 10 years at 102%, declining by 1% annually to 100% less than or equal to 10 and after 5 years at 102%, declining greater than 7 by 1% annually to 100% less than or equal to 7 and after 3 years at 102%, greater than 4 declining by 1% annually to 100% less than or equal to 4 not callable (1) Measured from the start of the currently applicable Long-Term Interest Rate Period. Notwithstanding the foregoing, the Bonds when in a Long-Term Interest Rate Period may be subject to optional redemption upon terms different than those set forth above (or not subject to optional redemption during such period) if the Company delivers to the Trustee on or before the first day of such Long-Term Interest Rate Period a certificate specifying different optional redemption dates or prices to be in effect during such period (or that the Bonds will not be subject to optional redemption during such Period). 27 PURCHASE IN LIEU OF OPTIONAL REDEMPTION. The Company has the option to cause the Bonds to be subject to mandatory tender for purchase in lieu of an optional redemption of Bonds. Such option may be exercised by delivery by the Company to the Trustee and Remarketing Agent on or prior to the Business Day preceding the optional redemption date of a written notice specifying that the Bonds shall not be redeemed, but instead shall be subject to mandatory tender for purchase pursuant to the Indenture. Upon delivery of such notice, the Bonds will not be redeemed but will instead be subject to mandatory tender as described in Section 2.03(a) hereof at a tender price equal to the price at which the Bonds would have been redeemed on the date which would have been the optional redemption date. (d) The Bonds shall be subject to mandatory redemption, in whole, on a date not later than three (3) days after receipt of the notice and direction described below, a price equal to the principal amount of Bonds to be redeemed, plus accrued interest thereon to the date fixed for redemption, without premium, following an event of default under the Reimbursement Agreement as so notified by the Credit Bank together with a direction by the Credit Bank that the Bonds be redeemed. (e) While the Bonds are in the Commercial Paper Mode or the Long-Term Interest Rate Mode, the Bonds are subject to extraordinary optional redemption in whole or in part on any date at a redemption price equal to 100% of the aggregate outstanding principal amount of the Bonds, plus accrued interest thereon to the redemption date, without premium, at the direction of the Company as a result of the occurrence of any of the events described below: (1) the Project has been damaged or destroyed to such an extent that, in the judgment of the Company, (i) it cannot be reasonably restored to substantially the condition thereof immediately preceding such damage or destruction, (ii) the Company is thereby prevented from carrying on normal operations at the Project for a period of nine or more consecutive months following such damage or destruction, or (iii) it would not be economically feasible for the Company to replace, repair, rebuild or restore the same; (2) title in and to, or the temporary use of, all or a material portion of the Project has been taken under the exercise of the power of eminent domain (or sold in lieu of such a taking) by any governmental authority, or person acting under governmental authority and such a taking or sale as, in the judgment of the Company may result in the Company being prevented thereby from carrying on normal operations at the Project for a period of nine or more consecutive months; (3) as a result of any changes in the Constitution of the State or the Constitution of the United States of America or by legislative or administrative action (whether State or Federal) or by final decree, judgment, decision or order of any court or administrative body (whether State or Federal), the Agreement has become void or unenforceable or impossible of performance in accordance with the intent and purposes of the parties as expressed therein. To exercise its option to effect an extraordinary optional redemption, the Company must deliver to the Trustee written notice of the occurrence of any such event and of its election to cause the Bonds to be redeemed as a result thereof. Such notice will specify the redemption date which shall be at least 40 days after the date of delivery of such notice to the Trustee. 28 Section 3.02. NOTICES TO TRUSTEE. If the Company elects to redeem any Bonds pursuant to any optional redemption provision in the Bonds, the Company shall notify the Trustee and the Credit Bank of the applicable provision, the redemption date, the principal amount of Bonds to be redeemed, the redemption price and other necessary particulars. The Company shall give such notice at least 45 days before the redemption date. Section 3.03. SELECTION OF BONDS TO BE REDEEMED. Except as otherwise provided in the Bonds, and while a Book-Entry System is not in effect, if fewer than all the Bonds are to be redeemed, the Trustee shall select the Bonds to be redeemed by lot or other method it deems fair and appropriate, in Authorized Denominations, except that the Trustee shall select, first, any Bonds owned by the Credit Bank or any of its nominees or held by the Trustee for the account of the Credit Bank or any of its nominees and, second, any Undelivered Bonds if the Company has offered to purchase such Bonds in lieu of redemption. The Trustee shall make its selection from Bonds not previously called for redemption. Provisions of this Indenture that apply to Bonds called for redemption shall also apply to portions of Bonds called for redemption. While a Book-Entry System is in effect, the procedures of the Securities Depository shall control with respect to the selection of Bonds to be redeemed. Section 3.04. REDEMPTION NOTICES. (a) Official Notice of Redemption. The Trustee shall give notice of each redemption pursuant to Sections 3.01(a), (b), (c) and (e) not less than thirty (30) days prior to the date of redemption, and with respect to Section 3.01(d) not greater than two (2) days prior to the date of redemption and shall at the same time give a copy of such notice to the Credit Bank, the Company and the Remarketing Agent. The notice shall identify the Bonds to be redeemed and shall state (1) the date of said notice and the redemption date, (2) the redemption price, (3) the original date of execution and delivery of the Bonds to be redeemed, (4) the rate of interest borne by the Bonds to be redeemed, (5) the date of maturity of the Bonds, (6) the numbers and CUSIP numbers of the Bonds to be redeemed, (7) that the redemption price of any Bond is payable only upon the surrender of the Bond to the Trustee at its principal corporate trust office, (8) the address at which the Bonds must be surrendered, (9) that interest on the Bonds called for redemption ceases to accrue on the redemption date provided that on such date Available Moneys are on deposit in the Bond Fund sufficient to pay the redemption price of the Bonds in full, and (10) such additional descriptive information identifying the Bonds to be redeemed, including their interest rate and stated maturity date as may be deemed appropriate by the Trustee to effect the redemption. With respect to any redemption of the Bonds under the paragraphs 3.01(c), unless Available Moneys sufficient to pay the principal of, and the premium, if any, and interest on the Bonds to be redeemed shall have been received by the Trustee prior to the giving of such notice of redemption, such notice may state that said redemption shall be conditional upon the receipt of such Available Moneys by the Trustee on or prior to the date fixed for redemption. If such Available Moneys are not received by the redemption date, such notice shall be of no force and effect, the Issuer shall not redeem such Bonds, the redemption price shall not be due and payable and the Trustee shall give notice, in the same manner in which the notice of redemption was given, that such moneys were not so received and that such Bonds will not be redeemed. Failure to give any required notice of redemption as to any particular Bonds shall not affect the validity of the call for redemption of any Bonds in respect of which no such failure has occurred. Any notice mailed as provided in the Bonds shall be conclusively presumed to have been given, whether or not actually received by the addressee Owner. Section 3.05. PAYMENT OF BONDS CALLED FOR REDEMPTION. Upon surrender to the Trustee, Bonds called for redemption shall be paid as provided in this Article III and the Bonds at the redemption price stated in the notice, plus accrued interest, if any, to the redemption date, or at a purchase price calculated as set forth in the Bonds, plus accrued interest, if any, to the 29 purchase date; provided, however, that while a Book-Entry System is in effect, the Bond held by the Securities Depository need not be surrendered for a partial redemption. Section 3.06. BONDS REDEEMED IN PART. Any partial redemption of Bonds will be made only in Authorized Denominations. If fewer than all of the Bonds are called for redemption, the portion of Bonds to be redeemed will be selected by lot by the Trustee from among all Outstanding Bonds; however, the Trustee will first select Purchased Bonds for redemption. For this purpose, each Bond will be considered a separate Bond in Authorized Denominations for purposes of selecting the Bonds to be redeemed. If it is determined that one or more, but not all, of the increments of principal amount represented by any Bond is to be called for redemption, then the Owner of such Bonds, upon surrender of such Bond to the Trustee for payment, will be entitled to receive a new Bond or Bonds in the aggregate principal amount of the unredeemed balance of the principal amount of such Bond without charge therefore. Upon surrender of a Bond to be redeemed or purchased in lieu of redemption in part, the Issuer shall execute and the Trustee shall authenticate and deliver to the Owner a new Bond or Bonds in Authorized Denominations of the same series equal in aggregate principal amount to the unredeemed or unpurchased portion of the Bond surrendered. If the Owner of any Bond which is called for redemption only in part, fails to present such Bond to the Trustee for payment and exchange, such Bond will, nevertheless, become due and payable on the date fixed for redemption to the extent of the increments of principal amount called for redemption (and to that extent only). Section 3.07. REMARKETING OF BONDS. Upon the receipt by the Remarketing Agent of any notice from the Trustee or the Tender Agent that any Bondholder has delivered a Tender Notice or Bonds are subject to mandatory purchase pursuant to Section 2.03(b) hereof, the Remarketing Agent shall offer for sale and use its best efforts to market the Bonds referred to in such Tender Notice or such notice from the Trustee (which shall be deemed to be a Tender Notice as provided in Section 2.03) at a price of par plus accrued interest to the Purchase Date, in accordance with the Remarketing Agreement; provided, however, that the Remarketing Agent shall not offer for sale or sell (i) Purchased Bonds until such time as the Letter of Credit or an Alternate Credit Facility meets the requirements of Section 5.01 hereof (including delivery of the requisite Opinion of Counsel, if any, pursuant to Section 5.01(d)), or (ii) any Bonds to the Issuer or the Company. The Remarketing Agent shall give telegraphic or telephonic notice, promptly confirmed in writing, to the Trustee, the Tender Agent and the Credit Bank by 1:00 p.m., New York City time, on the Business Day (or such lesser period of time as to which the Trustee, the Credit Bank and the Tender Agent shall agree) prior to each Purchase Date, specifying the names, addresses, and taxpayer identification numbers of the purchasers of, and the principal amount and denominations of, such Bonds, if any, for which it has found purchasers as of such Remarketing Date, the purchase price at which the Bonds are to be sold (which shall be par plus accrued interest to the Purchase Date) and the Purchase Date. The Remarketing Agent shall instruct such purchasers to deliver to it, no later than 10:00 a.m., New York City time, on the Purchase Date, in same day funds, the amount required to purchase such Bonds. Upon receipt by the Remarketing Agent of such amount from such purchasers and receipt by the Tender Agent, of the Bonds tendered for purchase at or prior to 11:00 a.m., New York City time, on such Purchase Date in good form for delivery, the Remarketing Agent will give written instructions to the Tender Agent, as bond co-authenticating agent, to transfer the registered ownership of the Bonds to the respective purchasers, and to deliver such Bonds to such purchasers. The Remarketing Agent shall remit the proceeds of the remarketing of such Bonds to the Tender Agent, (or, during any period the Bonds are in the Book-Entry System, such money shall be transferred to the account of the Remarketing Agent or such other applicable Direct Participant if the Remarketing Agent is not the Direct Participant) no later than 10:30 a.m., New York City time, on the Purchase Date, for payment of the Bonds to be purchased upon tender on such date. In the event that any purchaser which shall have been identified by the Remarketing Agent to the Trustee and the Tender Agent shall fail to pay the purchase price for any remarketed Bonds prior to 10:30 a.m., New York City time, on the Purchase Date, the 30 Remarketing Agent shall not be obligated to accept delivery of such amount after such time. The Remarketing Agent will immediately notify the Trustee, the Credit Bank and the Tender Agent of any such failure to receive funds in the amount of the purchase price for such remarketed Bonds. Not later than 10:45 a.m., New York City time, on the Purchase Date, the Tender Agent shall notify the Trustee, the Credit Bank and the Remarketing Agent of the amount of funds held by the Tender Agent as of 10:30 a.m., New York City time, on the Purchase Date constituting the purchase price of the Bonds remarketed by the Remarketing Agent. Section 3.08. PURCHASE OF BONDS. On each Purchase Date the Trustee promptly shall pay to the Tender Agent (or, if the Bonds are in a Book-Entry System, to the appropriate payee on the records of the Securities Depository), but only from amounts drawn under the Letter of Credit, the Purchase Price of any Bonds for which it has received a Tender Notice (or which are subject to mandatory tender for purchase pursuant to the provisions of Section 2.03 of this Indenture) for which remarketing proceeds have not been received by the Tender Agent, pursuant to Section 3.07 hereof, or arrange to have such amounts drawn under the Letter of Credit, to be paid directly to the Tender Agent. Upon receipt of amounts drawn under the Letter of Credit and any remarketing proceeds for the payment of the Purchase Price of Bonds and upon receipt of the Bonds tendered for purchase pursuant to Section 2.03 hereof, the Tender Agent shall pay such Purchase Price to the registered owners thereof (or, if the Bonds are in a Book-Entry System, to the appropriate payee on the records of the Securities Depository). Any amounts drawn under the Letter of Credit to purchase Bonds shall be used solely for such purpose. Bonds purchased from amounts drawn on the Letter of Credit shall be purchased for the account of the Credit Bank. Amounts drawn under the Letter of Credit which are not used to purchase Bonds pursuant to this Section 3.08 shall be remitted by the Trustee or the Tender Agent to the Credit Bank, on the Business Day after each Purchase Date. Section 3.09. DELIVERY OF PURCHASED BONDS. (a) Bonds remarketed by the Remarketing Agent pursuant to Section 3.07 hereof shall be canceled by the Tender Agent and new Bonds in a like aggregate principal amount shall be registered by the Tender Agent in the names and shall be in the denominations set forth in the written notice given to the Trustee and the Tender Agent by the Remarketing Agent pursuant to Section 3.07 hereof, and the Tender Agent shall deliver (or make available for pickup) such Bonds to the purchasers thereof at the written direction of the Remarketing Agent and shall promptly notify the Trustee in writing of such cancellation and registration. (b) Purchased Bonds shall be registered by the Trustee in the name or at the written direction of the Credit Bank to the extent amounts drawn under the Letter of Credit were applied to the purchase of Purchased Bonds and shall be delivered by the Trustee to (or made available for pickup by) the Credit Bank, or held by the Trustee (or, if the Bonds are held in the Book-Entry System, such Bonds shall be recorded in the books of the Securities Depository) for the benefit of the Credit Bank as required by the Reimbursement Agreement and Pledge Agreement, as directed in writing by the Credit Bank. So long as any Bonds are registered in the name of the Credit Bank or its nominee or held by the entity holding the Bonds for the benefit of the Credit Bank, such Purchased Bonds shall be subordinate as to principal to all other Bonds outstanding hereunder, shall bear interest at an interest rate as determined pursuant to the provisions of the Reimbursement Agreement, and may not be tendered for purchase pursuant to Section 2.03(a) hereof. The Remarketing Agent shall, however, continue its efforts to remarket such Purchased Bonds on behalf of the Credit Bank; provided, however, unless a Letter of Credit or Alternate Credit Facility meeting the requirements of Section 5.01 hereof, is provided, Purchased Bonds shall not be remarketed. Bonds 31 registered in the name or at the direction of the Credit Bank or its nominee or held for benefit of the Credit Bank, shall not, upon remarketing, be reregistered or delivered to the purchaser of such Bonds until the Trustee or the Securities Depository, depending on the entity holding the Bonds for the benefit of the Bank has received written evidence from the Credit Bank that the Letter of Credit has been reinstated to amount equal to the principal amount of Bonds outstanding plus an amount equal to interest on the outstanding Bonds or an Alternate Credit Facility has been provided pursuant to the provisions of this Indenture. 32 ARTICLE IV APPLICATION OF PROCEEDS AND PAYMENT OF BONDS Section 4.01. APPLICATION OF PROCEEDS. (a) The Issuer will cause the proceeds of the initial sale of any series of Bonds to be deposited with the Trustee as described below. The Trustee will hold those proceeds in trust for the benefit of the Company and the Bondholders and will apply the proceeds in accordance with this Section. The Trustee will deposit all proceeds from the sale of the Series 1996 Bonds and any additional series of Bonds into the "Project Fund," which is hereby created with the Trustee. Moneys in the Project Fund will be disbursed to pay the Project Costs, or to reimburse the Company for Project Costs paid by it, upon receipt of a requisition signed by a Company Representative, and consented to in writing by the Credit Bank, stating with respect to each disbursement to be made, the following: (1) that the costs of an aggregate amount set forth in such requisition have been made or incurred in connection with the Project and were made or incurred in accordance with the construction contracts, plans and specifications and building permits therefor; (2) that no part of the Project Costs reimbursed pursuant thereto was included within the costs referred to in any requisition previously filed with the Trustee under the provisions of this Indenture; and (3) that the amounts paid or to be paid as set forth in the requisition are properly payable under the terms of this Indenture and that all conditions precedent to payment as prescribed in this Indenture have been satisfied. Any and all fees, expenses or costs incurred in connection with the issuance and delivery of the Bonds shall be paid by the Company upon receipt of a written invoice therefor. The Trustee will maintain adequate records pertaining to the proceeds of the Bonds held by it and all disbursement from them made by the Trustee. (b) Disposition of Project Fund Moneys. On the date on which all Project Costs to be financed with the proceeds of a series of Bonds have been paid as determined in writing by a Company Representative and provided to the Trustee under the provisions of subparagraph (a) above, any balance of moneys in the Project Fund at such time shall, at the option and direction of the Company, be either (i) withdrawn by the Trustee from the Project Fund and used to reimburse the Credit Bank for draws under the Letter of Credit to pay the principal portion of the redemption price of any Bonds on the earliest redemption date on which no redemption premium must be paid, for draws under the Letter of Credit to pay the Purchase Price of any Bond tendered for purchase or the principal portion due on a maturity date; or (ii) used by the Company for any other purpose permitted by the Act and the Loan Agreement. (c) Investment of Project Fund Moneys. Moneys on deposit in the Project Fund may be invested only in accordance with the provisions of Section 4.03 hereof, and income resulting therefrom shall be credited to the Project Fund. Section 4.02. BOND FUND. There is hereby created and established with the Trustee a separate trust fund which shall be designated the "Bond Fund", which shall be applied only as provided in this Section. 33 The Trustee shall deposit in the Bond Fund from time to time, upon receipt thereof, (i) all amounts drawn by the Trustee under the Letter of Credit as provided in Section 5.02 hereof; (ii) income received from the investment of moneys on deposit in the Bond Fund; and (iii) any other Revenues, including insurance proceeds, condemnation awards and Loan repayment or prepayment amounts received from or for the account of the Company. Amounts drawn under the Letter of Credit and other Available Moneys shall not be commingled with other moneys in the Bond Fund and the Trustee shall set up separate sub-accounts in the Bond Fund for amounts drawn under the Letter of Credit to pay the principal of and interest on the Bonds, amounts drawn on the Letter of Credit to pay the Purchase Price of Bonds or the principal portion of the redemption price of any Bonds called for redemption, income received from the investment of proceeds of amounts drawn under the Letter of Credit on deposit in the Bond Fund, and other Available Moneys. The Trustee shall have the sole right of withdrawal from the sub-accounts of the Bond Fund in which amounts drawn under the Letter of Credit, income received from the investment of proceeds of amounts drawn under the Letter of Credit on deposit in the Bond Fund, and other Available Moneys are deposited and neither the Issuer nor the Company shall have any legal, equitable or beneficial right, title or interest in amounts on deposit therein. Except as provided below and in Article VII, moneys in the Bond Fund shall be used solely for the payment of the principal of, Purchase Price and premium, if any, and interest on the Bonds as the same shall become due, whether at maturity or upon redemption or acceleration or otherwise. In making such payments, the Trustee shall (a) use amounts drawn by the Trustee under the Letter of Credit, (b) then use Available Moneys held hereunder (except proceeds of a draw under the Letter of Credit), and (c) then use any other Revenues received by the Trustee. Amounts on deposit in the subaccount of the Bond Fund representing income received from the investment of proceeds of amounts drawn under the Letter of Credit shall be held in a separate subaccount of the Bond Fund and shall be used solely for the reimbursement of amounts drawn under the Letter of Credit pursuant to the Reimbursement Agreement; the Trustee shall transfer such amounts to the Credit Bank on the second Business Day immediately succeeding the corresponding Interest Payment Date on which such amounts drawn under the Letter of Credit are applied. The Trustee will provide the Tender Agent funds, to the extent available from amounts drawn under the Letter of Credit, needed by the Tender Agent to purchase Bonds pursuant to tenders, and the Tender Agent will pay the purchase price of Bonds previously delivered to it pursuant to tenders. The Trustee shall make payments of the principal of, and premium, if any, and interest on, the Bonds only from moneys available to the Trustee under this Indenture for that purpose. If the Remarketing Agent has been removed or has resigned and no successor Remarketing Agent has been appointed, the Trustee will pay the purchase price of tendered Bonds with any moneys available to it under this Indenture for such purpose. Section 4.03. INVESTMENTS OF MONEYS. Except as provided below, the Trustee shall invest and reinvest moneys held by the Trustee as directed by the Company Representative in any Qualified Investment. In the absence of any such direction, the Company Representative hereby directs the Trustee to invest and reinvest moneys held by the Trustee in a money market funds meeting the requirements of subparagraph (10) of the definition of "Permitted Investments". Notwithstanding anything in this Indenture to the contrary, moneys held by the Trustee which are proceeds of a drawing under the Letter of Credit shall be invested prior to the application thereof in U.S. Government Obligations which mature in a principal amount not less than the aggregate amount invested therein and prior to the date of application thereof pursuant to the terms of this Indenture. 34 The Trustee may make investments permitted by this Article IV through its own bond department or the bond department of any Credit Bank or trust company under common control with the Trustee. Investments shall be made so as to mature or be subject to redemption at the option of the holder on or before the date or dates on which the Trustee anticipates that moneys from the investments will be required. Investments shall be registered in the name of the Trustee and held by or under the control of the Trustee. The Trustee shall sell and reduce to cash a sufficient amount of investments whenever the cash held by the Trustee is insufficient. The Trustee shall not be liable for any loss from such investments to the extent directed by the Company Representative and to the extent such directions have been complied with by the Trustee. Section 4.04. MONEYS HELD IN TRUST. The Trustee shall hold in trust for the benefit of the Bondholders all moneys held by it for any payment on the Bonds. Moneys in the Bond Fund and the Project Fund shall be held by the Trustee for the benefit of the owners and holders of the Bonds and invested in accordance with Section 4.03 until disbursed as described in Section 4.01. Money received by the Remarketing Agent, Tender Agent or the Trustee from the sale of any Bond under Section 3.07 or for the purchase of any Bond shall be held segregated from other funds of the Remarketing Agent, Tender Agent or the Trustee in trust for the benefit of the Bondholder from whom such Bond was purchased or the person delivering such purchase money, as the case may be, and shall not be invested. The Trustee shall promptly, but in no event later than 30 days after their original deposit, apply moneys received from the Company in accordance with this Indenture as directed by the Company Representative. After the payment in full of the principal or Purchase Price of, premium, if any, and interest on the Bonds and any other amounts required to be paid hereunder, or after provision has been made therefor pursuant to the provisions of this Indenture, the Trustee shall pay any amounts remaining in any fund or account established pursuant hereto, to the Credit Bank to the extent any amounts are owed to the Credit Bank pursuant to the provisions of the Reimbursement Agreement, as certified in writing by the Credit Bank, and thereafter to the Company. 35 ARTICLE V LETTER OF CREDIT Section 5.01. REQUIREMENTS FOR LETTER OF CREDIT; ALTERNATE CREDIT FACILITY; RATING EVENT DATE; REQUIRED OPINIONS. (a) The initial letter of credit will be an irrevocable letter of credit of the Credit Bank providing for direct payments to or upon the order of the Trustee of amounts up to (1) the principal of the Bonds when due, at maturity or upon acceleration, redemption, purchase pursuant to a tender or otherwise; (2) interest on the Bonds for such number of days as may be required by any Rating Agency then rating the Bonds (which number of days shall be 41 with respect to the initial Letter of Credit) days at the Maximum Rate; provided, however that (A) if the Letter of Credit will be in effect during a Commercial Paper Mode, the stated coverage amount of the Letter of Credit will include an amount equal to interest on the Bonds for such number of days as may be required by any Rating Agency then rating the Bonds at the Maximum Rate; and (B) if the Letter of Credit will be in effect during a Long-Term Interest Rate Period, the stated coverage amount of the Letter of Credit will include an amount equal to interest on the Bonds for such number of days as may be required by any Rating Agency then rating the Bonds at the Long-Term Interest Rate. The Letter of Credit will expire at its stated expiration date, which shall be no earlier than 20 days after an Interest Payment Date that, is one year from its date of issuance. (b) Replacement Letter of Credit; Alternate Credit Facility. The Company may, subject to compliance with the provisions of the Reimbursement Agreement, elect to replace any Letter of Credit with a new Letter of Credit or provide an Alternate Credit Facility conforming to the requirements of Section 5.01(a) on any Substitution Date. The Company shall promptly notify the Trustee of its intention to deliver an Alternate Credit Facility not less than thirty (30) days prior to the expected delivery date thereof. Upon receipt of such notice, the Trustee will promptly mail a notice of the anticipated delivery of such replacement Letter of Credit or Alternate Credit Facility, by first class mail to the Issuer and the Remarketing Agent, and to each Bondholder at the holder's registered address and the Bonds shall be subject to mandatory tender for purchase upon delivery of such Alternate Credit Facility pursuant to the provisions of Section 2.03 hereof, and will promptly telecopy such notice to the current Credit Bank. Unless the Credit Bank issuing an Alternate Credit Facility in the form of a letter of credit is the same Credit Bank that issued the then existing Letter of Credit, each Letter of Credit to be in effect after the initial Letter of Credit must be accompanied by the Rating Agency letter and Opinions of Counsel described in (d). (c) In addition, the Company may, subject to compliance with the provisions of the Reimbursement Agreement, elect to terminate the existing Letter of Credit (or elect not to replace an expiring Letter of Credit or Alternate Credit Facility) on any Rating Event Date by delivering to the Trustee, the Remarketing Agent and the Issuer at least 30 days before the end of the last full Interest Period before the termination or expiration of the Letter of Credit or Alternate Credit Facility, (i) a letter from each Rating Agency then rating the Bonds that the Bonds will be rated at least "A-1/P-1" (or its equivalent) or "A-/A3" (or its equivalent) in the event the Bonds are in a Long-Term Interest Rate Mode after the termination or expiration of the Letter of Credit or Alternate Credit Facility, (ii) an opinion of counsel from nationally recognized securities counsel stating that the offering and sale (or remarketing) of the Bonds on each Rating Event Date will be exempt from the registration requirements of the Securities Act of 1933 and applicable State securities laws or that the Bonds have been registered in compliance therewith. If such election is made, the Bonds will be subject to mandatory tender for purchase on the next succeeding Rating Event Date pursuant to the provisions of Section 36 2.03 hereof, prior to the termination or expiration of the Letter of Credit or Alternate Credit Facility. (d) Opinions of Counsel. After the initial Letter of Credit and any extensions or amendments thereof, any Alternate Credit Facility delivered to the Trustee must be accompanied by (1) an Opinion of Counsel stating that delivery of such Alternate Credit Facility is authorized under this Indenture and complies with its terms; (2) an opinion of counsel to the issuer or provider of such Alternate Credit Facility stating that such Alternate Credit Facility is a legal, valid, binding and enforceable obligation of such issuer or obligor in accordance with its terms and is exempt from registration requirements of the Securities Act of 1933 and applicable State securities laws; (3) an Opinion of Counsel that payments made under such Alternate Credit Facility will not be recoverable from the Bondholders as voidable preferences under the provisions of the U.S. Credit Bankruptcy Code; (4) an Opinion of Counsel from nationally recognized securities counsel stating that the offering and sale (or remarketing) of the Bonds will be exempt from the registration requirements of the Securities Act of 1933 and applicable State securities laws or stating that the offering and sale (or remarketing) of the Bonds have been registered pursuant to the requirements of the Securities Act of 1933 and applicable State securities laws; and (5) evidence satisfactory to the Trustee that the unsecured indebtedness of the provider of such Alternate Credit Facility (or parent company of the such provider) is rated by a Rating Agency at "A-1/P-1" (or its equivalent) or "A-/A3" (or its equivalent) in the event the Bonds are in a Long-Term Interest Rate Mode. Subsequent to a Rating Event Date and during any period the principal of and interest on the Bonds are not secured by a letter of credit issued by a national banking association, if the Bonds are in a Long-Term Interest Rate Mode or a Commercial Paper Mode, at least five (5) days prior to any remarketing of Bonds as a result of any Purchase Date or a Long-Term Interest Rate Reset Date or Commercial Paper Rate Reset Date, as applicable, the Company shall deliver to the Trustee, the Remarketing Agent and the Issuer an opinion of counsel from a nationally recognized securities counsel stating that the remarketing of the Bonds on any such applicable date will be exempt from the registration requirements of the Securities Act of 1933 and applicable State securities laws or that the Bonds have been registered in compliance therewith. Section 5.02. DRAWS. The Issuer hereby authorizes and directs the Trustee, and the Trustee hereby agrees, to draw on the Letter of Credit, if any, in accordance with its terms, in order to receive payment thereunder on the following dates in the following amounts: (a) During any period in which Bonds bear interest at a Commercial Paper Rate or Long-Term Interest Rate on the first Business Day of each month in an amount which would be sufficient to pay interest accrued on all outstanding Bonds to such first Business Day; (b) On each Interest Payment Date, in an amount which will be sufficient to pay, together with amounts previously drawn on the Letter of Credit pursuant to (a) above, the interest due and payable on such Interest Payment Date on all outstanding Bonds; (c) On any date fixed for redemption of Bonds, in an amount which will be sufficient to pay, together with amounts previously drawn on the Letter of Credit pursuant to (a) above, the redemption price, including accrued interest to the date of redemption (but excluding premium, if any, unless the stated amount of the Letter of Credit then in effect includes such premium); (d) On the date fixed for payment of the Bonds in connection with any declaration of the acceleration of the maturity of the Bonds following an Event of Default, as provided in Section 8.01 hereof, in an amount which will be sufficient to pay, 37 together with amounts previously drawn on the Letter of Credit pursuant to (a) above, all principal and interest due on the Bonds as a result of such declaration on the date fixed for such payment; (e) On each Purchase Date, in an amount sufficient to pay the Purchase Price of any Bonds tendered pursuant to Section 2.03 hereof and for which the Tender Agent (or, in the event the Bonds are in a Book-Entry System, the Remarketing Agent) has not received remarketing proceeds for the payment of the Purchase Price thereof; and (f) On the final maturity date of the Bonds, in an amount which will be sufficient to pay, together with amounts previously drawn on the Letter of Credit pursuant to (a) above, the principal and interest due on all outstanding Bonds on such final maturity date. Each such drawing shall be made not later than the time required by the Letter of Credit in order to receive payment thereunder (i) with respect to 5.02(a), on the first Business Day of each month, and (ii) with respect to all other drawings, on the day on which payment of the amount of such drawing is required to be made to the holders of the Bonds pursuant to this Indenture. The Trustee shall give notice of each such drawing to the Company at the time of each draw. The Trustee shall comply with all provisions of the Letter of Credit in order to realize upon any drawing thereunder, and will not draw upon the Letter of Credit for payment of the principal or Purchase Price of and interest on any Bonds registered in the name of the Credit Bank, the Issuer or the Company. 38 ARTICLE VI PLEDGE OF REVENUES; COVENANTS Section 6.01. PLEDGE OF REVENUES. All of the Revenues are hereby irrevocably pledged to the punctual payment of the principal of, premium, if any, and interest on the Bonds, subject to the provisions of this Indenture permitting the application of such Revenues for the purposes and on the terms and conditions set forth herein. The Issuer also hereby transfers in trust, grants a security interest in and assigns to the Trustee, for the benefit of the holders from time to time of the Bonds, all of its right, title and interest in the Revenues and under the Loan Agreement (but excluding the Unassigned Rights). All Revenues shall be held in trust for the benefit of the holders from time to time of the Bonds, but shall nevertheless be disbursed, allocated and applied solely for the uses and purposes hereinafter in this Article V set forth. Neither the Issuer nor any person executing the Bonds is liable personally on the Bonds or subject to any personal liability or accountability by reason of their issuance. The Bonds and the interest thereon are limited obligations of the Issuer, payable solely from the Revenues. No property of the Company has been pledged to the Trustee as collateral for the Bonds. Neither the faith and credit nor the taxing power of the City of La Mirada (the "City") nor the State is pledged to the payment of the principal of or interest on the Bonds. None of the State, the City, any other political subdivision of the State (except the Issuer, to the limited extent set forth in the Indenture) shall in any event be liable for the payment of the principal of, premium (if any) or interest on the Bonds or for the performance of any pledge, obligation or agreement of any kind whatsoever of the Issuer, and none of the Bonds or any of the Issuer's agreements or obligations shall be construed to constitute an indebtedness of or a pledge of the faith and credit of or a loan of the credit of any of the foregoing within the meaning of any constitutional or statutory provisions whatsoever. Section 6.02. PAYMENT OF BONDS. The Issuer shall promptly pay the principal and Purchase Price of, and the premium, if any, and interest on, the Bonds on the dates and in the manner provided in the Bonds, but only from the amounts assigned to and held by the Trustee under this Indenture. Section 6.03. FURTHER ASSURANCES. The Issuer shall execute and deliver such supplemental indentures and such further instruments, and do such further acts, as the Trustee may reasonably require for the better assuring, assigning and confirming to the Trustee the amounts assigned under this Indenture for the payment of the Bonds. Section 6.04. CONTINUING DISCLOSURE. Pursuant to Section 5.15 of the Loan Agreement, the Company has undertaken responsibility for compliance with continuing disclosure requirements under Rule 15c2-12 promulgated and amended by the Securities and Exchange Commission under the Securities Exchange Act of 1934, and the Issuer shall have no liability to the holders of the Bonds or any other person with respect to such disclosure matters. Notwithstanding any other provision of this Indenture, failure of the Company to comply with any continuing disclosure agreement or certificate shall not be considered an Event of Default, however, the Trustee, at the written request of the Remarketing Agent or the holders of at least 25% aggregate principal amount of Outstanding Bonds, shall, but only to the extent funds or other indemnity in an amount satisfactory to the Trustee shall have been furnished to it to hold the Trustee harmless from any, loss, cost, expense or liability, including, without limitation, fees and expenses of its attorneys and additional fees of the Trustee, take such actions as may be necessary and appropriate to compel performance of this covenant, including seeking mandate or specific performance by court order. 39 ARTICLE VII DISCHARGE OF INDENTURE Section 7.01. BONDS DEEMED PAID; DISCHARGE OF INDENTURE. Any Bond shall be deemed paid for all purposes of this Indenture when (a) payment of the principal of and premium, if any, and interest on such Bond to the due date of such principal and interest (whether at maturity, upon redemption or otherwise) either (1) has been made in accordance with the terms of the Bonds or (2) during any Commercial Paper Period or Long-Term Interest Rate Period, has been provided for by irrevocably depositing with the Trustee (A) moneys sufficient to make such payment (provided that while a Letter of Credit is in effect, such moneys shall have been derived from the proceeds of a draw under such Letter of Credit or shall be other Available Moneys) and/or (B) U.S. Government Obligations (provided that they have been purchased with moneys derived from the proceeds of a draw under such Letter of Credit or from other Available Moneys) maturing as to principal and interest in such amounts and at such times as will, in the opinion of an independent certified public accountant delivered to the Trustee, ensure the availability of sufficient moneys to make such payment, and (b) all compensation and reasonable expenses of the Trustee pertaining to such Bond have been paid or provided for to the Trustee's satisfaction. When a Bond is deemed paid, it will no longer be secured by or entitled to the benefits of this Indenture or be an obligation of the Issuer, except for payment from moneys or U.S. Government Obligations under clause (a)(2) above and except that it may be tendered as provided in the Bonds and transferred, exchanged or replaced as provided in Article II. Notwithstanding the foregoing, no deposit described in clause (a)(2) of the preceding paragraph will be deemed a payment of a Bond until either (A) notice of redemption of the Bond is given in accordance with the Indenture or, if the Bond is not to be redeemed or paid within the next 60 days, until the Company has given the Trustee, in form satisfactory to the Trustee, irrevocable instructions (1) to notify, as soon as practicable, the Owner of the Bonds in accordance with this Indenture, that the deposit required by clause (a)(2) above has been made with the Trustee and that the Bonds are deemed to be paid under the Indenture and stating the maturity or redemption as provided herein for such Bonds, or (B) the maturity of the Bonds. In addition, notwithstanding the foregoing, if the Bonds are then in the Daily Rate Mode or the Weekly Rate Mode, no deposit described in clause (a)(ii) of the preceding paragraph will be deemed a payment of a Bond unless the Trustee receives written evidence from each Rating Agency then rating the Bonds that such deposit would not result in a reduction or withdrawal of the ratings then maintained on the Bonds. When all Outstanding Bonds are deemed paid under the provisions of this Section, the Trustee shall, upon request, acknowledge the discharge of the lien of this Indenture; provided, however, that the obligations under Article II in respect of the transfer, exchange and replacement of Bonds shall survive the discharge of the lien of this Indenture. Section 7.02. APPLICATION OF TRUST MONEYS. The Trustee shall hold in trust moneys or U.S. Government Obligations deposited with it pursuant to Section 7.01 and shall apply such moneys and the money derived from such U.S. Government Obligations in accordance with this Indenture only to the payment of the principal of, and the premium, if any, and interest on, the Bonds. Section 7.03. REPAYMENT TO CREDIT BANK AND COMPANY. The Trustee shall promptly pay to the Credit Bank (to the extent the Credit Bank certifies to the Trustee that the Company is indebted to it under the Reimbursement Agreement) and then to the Company, upon request, any excess moneys or securities held by the Trustee at any time under this Article VII and any 40 money held by the Trustee under any other provision of this Indenture for the payment of principal, premium, if any, or interest on the Bonds that remains unclaimed for two years. 41 ARTICLE VIII DEFAULTS AND REMEDIES Section 8.01. EVENTS OF DEFAULT. An "Event of Default" is any of the following: (a) Default in the payment of any interest on any Bond when due and payable. (b) Default in the payment of principal or premium on any Bond when due and payable, whether at maturity, upon redemption, by declaration or otherwise. (c) Default in the due and punctual payment of the Purchase Price of any Bond tendered by its Beneficial Owner pursuant to Section 2.03 hereof. (d) The Issuer fails to perform any of its agreements in this Indenture or the Bonds (except a failure that results in an Event of Default under clause (a), (b) or (c) above), the performance of which is material to the Bondholders, and the failure continues after the notice and for the period specified in this Section. (e) The Company fails to perform any of its agreements in the Loan Agreement (except a failure that results in an Event of Default under clause (a), (b) or (c) of this Section) and the failure continues after the notice and for the period specified in this Section, provided that such a failure (other than a failure to perform an agreement in Section 5.2 of the Loan Agreement, relating to maintenance of the Company's existence) is not an Event of Default if it is a result of any cause or event not reasonably within the Company's control. (f) The Company pursuant to or within the meaning of any Bankruptcy Law (1) commences a voluntary case, (2) consents to the entry of an order for relief against it in an involuntary case, (3) consents to the appointment of a Custodian for the Company or any substantial part of its property or (4) makes a general assignment for the benefit of its creditors. (g) A court of competent jurisdiction enters an order or decree under any Bankruptcy Law that (1) is for relief against the Company in an involuntary case, (2) appoints a Custodian for the Company or any substantial part of its property or (3) orders the winding up or liquidation of the Company, and the decree or order remains unstayed and in effect for 60 days. (h) The Trustee receives from the Credit Bank by tested telex within ten (10) calendar days of the date of any interest drawing on the Letter of Credit notice that the Letter of Credit will not be reinstated. A default under clause (d) or (e) of this Section is not an Event of Default until the Trustee or the holders of at least 25% in principal amount of the Bonds then outstanding give the Issuer, the Credit Bank and the Company a notice specifying the default, demanding that it be remedied and stating that the notice is a "Notice of Default," and the Issuer (if the default is under clause (d)) or the Company (if the default is under clause (e) or if the default is under clause (d) and the Company has elected to perform the Issuer's agreements under this Indenture and the Bonds as described in the last sentence of this paragraph) does not cure the default within 90 days after receipt of the notice, or within such longer period as the Trustee shall agree to. The Trustee shall not unreasonably refuse to agree to a longer period if the default cannot reasonably be cured within 90 days after receipt of the notice and the Issuer or the Company has 42 begun within 90 days and continued diligent efforts to correct the default. The Issuer authorizes the Company to perform, in the name and on behalf of the Issuer and for the purpose of preventing the occurrence of an Event of Default, any agreement of the Issuer in this Indenture or the Bonds. Section 8.02. ACCELERATION. If an Event of Default occurs and is continuing, the Trustee by notice to the Issuer, the Credit Bank and the Company, or the holders of at least 25% in principal amount of the Bonds then outstanding by notice to the Issuer, the Company, the Credit Bank and the Trustee (except for an Event of Default under clause (f) or (g) of the foregoing Section, for which a declaration can be made without any notice) may declare the principal of and accrued interest on the Bonds to the date of declaration of acceleration of the Bonds to be due and payable immediately. Upon any declaration of acceleration, the Trustee shall immediately exercise such rights as it may have under the Loan Agreement. If a Letter of Credit is in effect, the Trustee will not declare the Bonds to be due and payable as a result of an Event of Default under subparagraphs (d), (e), (f) and (g) above without first obtaining the Credit Bank's consent. Upon an Event of Default under Section 8.01(h) hereof, the Trustee immediately shall declare that the principal of and accrued interest on the Bonds is due and payable. Upon a declaration that the principal of and accrued interest on the Bonds shall be due and payable, interest on the Bonds immediately shall cease to accrue and the Trustee shall immediately draw on the Letter of Credit pursuant to Section 5.02(d) hereof to pay the principal of and accrued interest on the Bonds. The Trustee shall immediately give notice of acceleration to the Bondholders. The Trustee may, and upon the request of holders of a majority in principal amount of the Bonds then outstanding shall, rescind an acceleration and its consequences if all existing Events of Default have been cured or waived, and (a) if, when a Letter of Credit is in effect, the Credit Bank gives its written consent to the waiver of the event of default under the Reimbursement Agreement and gives notice in writing to the Trustee that the Letter of Credit has not expired in accordance with its terms and that the Letter of Credit is reinstated; (b) the rescission would not conflict with any judgment or decree; and (c) all payments due the Trustee and any predecessor Trustee under Section 9.06 have been made. Section 8.03. OTHER REMEDIES. If an Event of Default has occurred and is continuing, the Trustee may pursue any available remedy by proceeding at law or in equity to collect the principal of, and the premium, if any, and interest on, the Bonds or to enforce the performance of any provision of the Bonds, this Indenture or the Loan Agreement. The Trustee, as the assignee of certain rights, titles and interests of the Issuer in and to the Loan Agreement, may enforce each and every right, title and interest so assigned. The Trustee may maintain a proceeding even if it does not possess any of the Bonds or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Bondholder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in such Event of Default. No remedy is exclusive of any other remedy. All available remedies are cumulative. Section 8.04. WAIVER OF PAST DEFAULTS. The Owners of not less than a majority in aggregate principal amount of the Bonds then Outstanding together, when a Letter of Credit is in effect, with the Credit Bank, by notice to the Trustee and the Company, may waive an Event of Default and its consequences if the Letter of Credit is reinstated up to the full amount available under it. When an Event of Default is waived, it is cured and stops continuing, but no such waiver shall extend to any subsequent or other Event of Default or impair any right consequent to it. 43 Section 8.05. CONTROL BY MAJORITY. Subject to Section 9.01, the Owners of not less than a majority in aggregate principal amount of the Bonds then Outstanding may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or of exercising any trust or power conferred on it. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture or that the Trustee determines is unduly prejudicial to the rights of other Bondholders, or would involve the Trustee in personal liability. Section 8.06. LIMITATION ON SUITS. A Bondholder may not pursue any remedy with respect to this Indenture or the Bonds unless (a) such Owner gives the Trustee notice stating that an Event of Default is continuing, (b) the Owners of at least 25% in aggregate principal amount of the Bonds then Outstanding make a written request to the Trustee to pursue such remedy, (c) such Owner or Owners offer to the Trustee indemnity satisfactory to the Trustee against any loss, liability or expense incurred in connection therewith and (d) the Trustee does not comply with such request within 60 days after receipt of such request and offer of indemnity. A Bondholder may not use this Indenture to prejudice the rights of another Bondholder or to obtain a preference or priority over any other Bondholder. Section 8.07. RIGHTS OF OWNERS TO RECEIVE PAYMENT. Notwithstanding any other provision of this Indenture, the right of any Owner to receive payment of the principal of, and premium, if any, and interest on, a Bond, on or after the due dates expressed in such Bond, or the purchase price of a Bond on or after the date for its purchase as provided in such Bond, or to bring suit for the enforcement of any such payment on or after such dates, shall not be impaired or affected without the consent of such Owner. Section 8.08. COLLECTION SUIT BY TRUSTEE. If an Event of Default under Section 8.01(a), (b) or (c) has occurred and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the Company for the whole amount remaining unpaid. Section 8.09. TRUSTEE MAY FILE PROOFS OF CLAIM. The Trustee may file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee and the Bondholders allowed in any judicial proceedings relative to the Company or the Credit Bank, their creditors or their property and, unless prohibited by law or applicable regulations, may vote on behalf of the Owners in any election of a trustee in Bankruptcy or other person performing similar functions. In the event of a Bankruptcy or reorganization of the Company, the Trustee may file a proof of claim on behalf of all Bondholders with respect to the obligations of the Company pursuant to the Loan Agreement. Section 8.10. PRIORITIES. If the Trustee collects any money pursuant to this Article VIII, it shall pay out such money as soon as practicable in the following order: FIRST: To the Trustee for amounts to which it is entitled under Section 9.06, but the Trustee may not pay itself for such amount from moneys drawn under the Letter of Credit; SECOND: To the Bondholders for amounts due and unpaid on the Bonds for principal, premium, if any, and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Bonds for principal, premium, if any, and interest, respectively; 44 THIRD: To the Credit Bank to the extent the Credit Bank certifies to the Trustee that the Company is indebted to the Credit Bank under the Reimbursement Agreement; and FOURTH: To the Issuer and the Trustee amounts payable pursuant to Section 7.3 of the Loan Agreement. FIFTH: To the Company. The Trustee may fix a payment date for any payment to the Bondholders. Section 8.11. UNDERTAKING FOR COSTS. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, a court in its discretion may require the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section does not apply to a suit by the Trustee, a suit by an Owner pursuant to Section 8.07 or a suit by Owners of more than 10% in aggregate principal amount of the Bonds then Outstanding. 45 ARTICLE IX TRUSTEE, TENDER AGENT AND REMARKETING AGENT Section 9.01. DUTIES OF TRUSTEE. (a) If an Event of Default has occurred and is continuing, the Trustee shall exercise its rights and powers and use the same degree of care and skill in their exercise as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs. (b) Except during the continuance of an Event of Default: (1) the Trustee need perform only those duties that are specifically set forth in this Indenture and applicable laws and regulations and no others and no implied duties or covenants shall be read into this Indenture against the Trustee, and (2) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed, upon certificates, opinions, requisitions or any other writing furnished to the Trustee and conforming to the requirements of this Indenture. However, the Trustee shall examine the same to determine whether they conform to the requirements of this Indenture. (c) The Trustee shall not be relieved from liability for its own negligent action, its own negligent failure to act or its own willful misconduct, except that: (1) this subsection (c) shall not limit the effect of subsection (b) of this Section 9.01; (2) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; (3) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 8.05; and (4) no provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers hereunder, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. (d) Every provision of this Indenture that in any way relates to the Trustee is subject to all the provisions of this Section 9.01. (e) The Trustee may refuse to perform any duty or exercise any right or power unless it receives indemnity satisfactory to it against any loss, liability or expense, but the Trustee may not require indemnity as a condition to declaring the principal of and interest on the Bonds to be due immediately under Section 8.02, to drawing on the Letter of Credit or to making any payment of principal, premium or interest on the Bonds. (f) The Trustee shall not be liable for interest on any cash held by it, except as the Trustee may agree with the Company or the Issuer with the consent of the Company. 46 (g) The Trustee may rely on a Company Representative's certificate as to whether a Credit Bankruptcy Filing has occurred. (h) In addition to the funds and accounts established by this Indenture, the Trustee may establish such funds and accounts as it deems necessary and appropriate in order to discharge its duties under this Indenture. (i) The Trustee, on behalf of the Issuer, shall appoint an authenticating agent acceptable to the Company to authenticate Bonds if required pursuant to Section 9.07. An authenticating agent may authenticate Bonds whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee shall include authentication by such authenticating agent. Section 9.02. RIGHTS OF TRUSTEE. Subject to Section 9.01: (a) The Trustee may rely on any document believed by it to be genuine and to have been signed or presented by the proper person. The Trustee need not investigate any fact or matter stated in such document. (b) The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on any certificate of an appropriate officer or officers of the Issuer or the Company or any Opinion of Counsel. (c) The Trustee may act through agents or, as provided in Section 9.16, through co-trustees so long as each such co-trustee shall agree in writing to be bound by the standards of conduct for the Trustee specified in this Indenture, and the Trustee shall not be responsible for the willful misconduct or negligence of any agent or co-trustee appointed by it with due care. Section 9.03. INDIVIDUAL RIGHTS OF TRUSTEE. The Trustee in its individual or any other capacity may become the Owner or a pledgee of Bonds and may otherwise deal with the Issuer or with the Company or its affiliates with the same rights it would have if it were not the Trustee. Section 9.04. TRUSTEE'S DISCLAIMER. The Trustee makes no representation as to the validity or adequacy of this Indenture, the Loan Agreement or the Bonds, except for its execution hereof and its authentication of any Bond hereunder. The Trustee shall not be accountable for the Company's use of Bond proceeds, nor shall it be responsible for any statement in the Bonds other than its certificate of authentication. Section 9.05. NOTICE OF DEFAULTS. If an event occurs which, with the giving of notice or lapse of time or both, would become an Event of Default, and if such event is continuing and is known to the Trustee, the Trustee shall mail to each Bondholder and the Credit Bank notice of such event within 30 days after it occurs. Except in the case of a default in the payment or purchase on any Bonds, the Trustee may withhold such notice if and so long as a committee of its Responsible Officers and the Credit Bank in good faith determine that withholding such notice is in the best interests of the Bondholders. Section 9.06. COMPENSATION OF TRUSTEE. For acting under this Indenture, the Trustee shall be entitled to payment as previously agreed upon in writing by the Company and the Trustee. To secure the payment or reimbursement to the Trustee provided for in this Indenture and in the Loan Agreement, the Trustee shall have a senior claim, to which the Bonds are made subordinate, on all money or property held or collected by the Trustee, except any money or 47 property held in trust to pay the principal of, and the premium, if any, and interest on, or the Purchase Price of, particular Bonds and except amounts drawn under the Letter of Credit. Section 9.07. ELIGIBILITY OF TRUSTEE. This Indenture shall always have a Trustee that is a corporation or association organized and doing business under the laws of the United States of America or any state or the District of Columbia, is authorized under such laws to exercise corporate trust powers, is subject to supervision or examination by United States of America, state or District of Columbia authority and has a combined capital, surplus and undivided profits of at least $10,000,000 as set forth in its most recent published annual report of condition. If at any time the Trustee ceases to be eligible in accordance with this Section, the Trustee shall resign immediately as set forth in Section 9.08. Section 9.08. REPLACEMENT OF TRUSTEE. (a) The Trustee may resign by notifying the Issuer, the Credit Bank and the Company in writing and by mailing notice thereof by first-class mail to the Bondholders. Upon receiving such notice of resignation, the Company shall, with the consent of the Credit Bank, promptly appoint a successor trustee by an instrument in writing; provided that the Company may not make such appointment if an Event of Default has occurred and is continuing, or if an event has occurred and is continuing which, with the giving of notice or lapse of time or both, would become an Event of Default. If no successor trustee shall have been so appointed and have accepted appointment within 30 days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor trustee or any Bondholder who has been a bona fide Owner of a Bond for at least six months may, on behalf of himself and all others similarly situated, petition any such court for the appointment of a successor trustee. Such court may thereupon, after such notice, if any, as it may deem proper and may prescribe, appoint a successor trustee. (b) In case at any time either of the following shall occur: (1) the Trustee shall cease to be eligible in accordance with the provisions of Section 9.07 and shall fail to resign after written request therefor by the Company, the Credit Bank, the Issuer or any Bondholder who has been a bona fide Owner of a Bond for at least six months, or (2) the Trustee shall become incapable of acting, or shall be adjudged a bankrupt or insolvent, or a receiver of the Trustee or of its property shall be appointed, or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, or the Trustee otherwise becomes incapable of acting, then, in any such case, the Company shall remove the Trustee and, with the consent of the Credit Bank, appoint a successor trustee by an instrument in writing; provided that the Company may not make such appointment if an Event of Default has occurred and is continuing, or if an event has occurred and is continuing which, with the giving of notice or lapse of time or both, would become an Event of Default, in which case the successor trustee shall be appointed by a court as provided in subsection (a) of this Section. (c) Owners of a majority in aggregate principal amount of the Bonds at the time Outstanding may at any time remove the Trustee by an instrument or concurrent instruments in writing signed by such Bondholders and delivered to the Trustee, the Credit Bank and the Company. Upon receiving such notice of removal, the Company shall, with the consent of the Credit Bank, promptly appoint a successor trustee by an instrument in writing; provided that the Company may not make such appointment if an Event of Default has occurred and is 48 continuing, or if an event has occurred and is continuing which, with the giving of notice or lapse of time or both, would become an Event of Default, in which case the successor trustee shall be appointed by a court as provided in subsection (a) of this Section. (d) Any resignation or removal of the Trustee and the appointment of a successor trustee pursuant to any of the provisions of this Section shall become effective only upon acceptance of appointment by the successor trustee as provided in Section 9.09. The Company shall give written notification to any Rating Agency then rating the Bonds if a successor trustee shall be appointed pursuant to this Section. Section 9.09. ACCEPTANCE OF TRUST BY SUCCESSOR TRUSTEE. Any successor trustee appointed as provided in Section 9.08 shall execute, acknowledge and deliver to the Issuer and to its predecessor trustee and the Credit Bank an instrument accepting such appointment hereunder, and thereupon the resignation or removal of the predecessor trustee shall become effective and such successor trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts, duties and obligations of its predecessor in the trusts hereunder, with like effect as if originally named as Trustee herein; but, nevertheless, on the written request of the Issuer or the written request of the successor trustee, the Trustee ceasing to act shall execute and deliver an instrument transferring to such successor trustee, upon the trusts herein expressed, all the rights, powers and trusts of the Trustee so ceasing to act. Upon request of any such successor trustee, the Issuer shall execute any and all instruments in writing necessary or desirable for more fully and certainly vesting in and confirming to such successor trustee all such rights, powers and trusts. Any Trustee ceasing to act shall, nevertheless, retain a lien upon all property or funds held or collected by such Trustee to secure the amounts due it as compensation, reimbursement, expenses and indemnity afforded to it by Section 9.06. No successor trustee shall accept appointment as provided in this Section unless at the time of such acceptance such successor trustee shall be eligible under the provisions of Section 9.07. At the time of appointment, the Company and the successor trustee shall execute an agreement with respect to the compensation of the successor trustee. Upon acceptance of appointment by a successor trustee as provided in this Section, the Issuer or such successor trustee shall give the Bondholders notice of the succession of such trustee to the trusts hereunder in the manner prescribed in Section 9.08 for the giving of notice of resignation of the Trustee. Section 9.10. DUTIES OF REMARKETING AGENT. The Remarketing Agent shall set the interest rates on the Bonds and perform the other duties provided for in Section 2.02 and will remarket Bonds as provided in Section 3.07, subject to any provisions of the Remarketing Agreement, which shall control in the case of any conflict with this Indenture. So long as the Bonds are held in the Book-Entry System, the Remarketing Agent must be Participant in such system with respect to the Bonds, except under the circumstances described in Section 3.07. The Remarketing Agent may for its own account or as broker or agent for others deal in the Bonds and may do anything any other Bondholder may do to the same extent as if the Remarketing Agent were not serving as such. Section 9.11. ELIGIBILITY OF REMARKETING AGENT. The initial Remarketing Agent appointed under this Indenture is The First National Bank of Chicago, Chicago, Illinois. The Remarketing Agent shall be a Credit Bank, trust company or member of the National Association of Securities Dealers, Inc. organized and doing business under the laws of the United States of America or any state or the District of Columbia, shall have a combined capital stock, surplus and undivided profits of at least $15,000,000 as set forth in its most recent published annual 49 report and shall be authorized by law to perform all the duties imposed upon the Remarketing Agent by this Indenture and the Remarketing Agreement. Section 9.12. REPLACEMENT OF REMARKETING AGENT. The Remarketing Agent may resign and be discharged of its duties hereunder by giving at least thirty (30) days written notice to the Issuer, the Trustee, the Tender Agent, the Credit Bank and the Company. The Company may remove the Remarketing Agent at any time by an instrument signed by the Company and delivered to the Remarketing Agent, the Issuer, the Credit Bank and the Trustee at least 30 days prior to the effective date of such removal (which shall not in any event occur prior to the appointment of a successor Remarketing Agent). Notwithstanding the above, the resignation or removal of the Remarketing Agent as set forth above shall not become effective until a successor Remarketing Agent has accepted the duties of the Remarketing Agent hereunder. A new Remarketing Agent may be appointed by the Company, with the consent of the Credit Bank, upon the resignation or removal of the Remarketing Agent. The Trustee shall promptly notify the Bondholders and all Rating Agencies of any change in the Remarketing Agent. Section 9.13. COMPENSATION OF REMARKETING AGENT. The Remarketing Agent shall not be entitled to any compensation from the Issuer, the Trustee, the Tender Agent or any property held under this Indenture but must make separate arrangements with the Company for compensation. Section 9.14. SUCCESSOR TRUSTEE OR REMARKETING AGENT BY MERGER. If the Trustee or the Remarketing Agent consolidates with, merges or converts into, or transfers all or substantially all its assets (or, in the case of a Credit Bank or trust company, its corporate trust assets) to, another corporation, the resulting, surviving or transferee corporation without any further act shall be the successor Trustee or Remarketing Agent, provided that such successor shall be eligible under the applicable provisions of this Article IX. Section 9.15. SEPARATE OR CO-TRUSTEE. It is the purpose of this Indenture that there shall be no violation of any law of any jurisdiction (including particularly the laws of the State) denying or restricting the right of Credit Banking corporations or associations to transact business as trustee in such jurisdiction. It is recognized that in the case of litigation under this Indenture, and in particular in the case of the enforcement of this Indenture upon the occurrence of an Event of Default, or in case the Trustee deems that by reason of any present or future law of any jurisdiction it may not exercise any of the rights, powers, trusts or remedies herein granted to the Trustee or hold title to the trust estate, as herein granted and described in the Granting Clause, or take any other action which may be desirable or necessary in connection therewith, it may be necessary or desirable for the Trustee to appoint an individual or institution as a separate or co-trustee. The Trustee is hereby authorized to appoint a separate or co-trustee under such circumstances, and the following provisions of this Section shall apply to any separate or co-trustee so appointed. In the event that the Trustee appoints an individual or institution as a separate or cotrustee, each and every right, power, trust, remedy, estate, title, interest, claim, cause of action and lien expressed or intended by this Indenture to be exercised by or vested in or conveyed to the Trustee shall be exercisable by and vested in such separate or co-trustee, but only to the extent necessary to enable the separate or co-trustee to exercise such rights, powers, trusts and remedies. Should any deed, conveyance or instrument in writing from the Issuer be required by any separate trustee or co-trustee so appointed by the Trustee for more fully and certainly vesting in and confirming to him or it such estates, rights, powers, trusts, duties and obligations, any and all such deeds, conveyances and instruments in writing shall, on request, be executed, acknowledged and delivered by the Issuer. In case any separate trustee or cotrustee, or a 50 successor to either, shall die, become incapable of acting, resign or be removed, all the estates, rights, powers, trusts, duties and obligations of such separate trustee or cotrustee, so far as permitted by law, shall vest in and be exercised by the Trustee until the appointment of a successor, separate or co-trustee. Except as otherwise required by applicable law, no right or power granted by this Indenture to any separate or co-trustee shall be exercised by such separate or co-trustee alone unless such separate or co-trustee shall have obtained the written consent of the Trustee to do so. The Trustee may at any time, by an instrument in writing executed by it, remove any separate or co-trustee, and in such event may, in its discretion, by an instrument in writing executed by it, appoint a successor to such separate or co-trustee. Section 9.16. TENDER AGENT. The Issuer shall appoint the Tender Agent for the Bonds, subject to the conditions set forth in Section 9.17 hereof. The Tender Agent initially appointed hereunder shall be Bankers Trust Company. The Tender Agent shall designate to the Trustee its principal office and signify its acceptance of the duties and obligations imposed upon it hereunder by a written instrument of acceptance delivered to the Issuer, the Trustee and the Remarketing Agent under which the Tender Agent acknowledges its qualifications to act as Tender Agent under this Indenture and agrees, particularly, as follows: (1) The Tender Agent shall, upon receipt of a Tender Notice from any Bondholder, give prompt telephonic notice thereof to the Trustee and the Remarketing Agent, specifying the amount of Bonds to be purchased and the Purchase Date, and shall, not later than the following Business Day, confirm such telephonic notice in writing and deliver to the Remarketing Agent, the Trustee and the Credit Bank a copy of such Tender Notice. (2) On each Purchase Date, the Tender Agent shall give the Remarketing Agent and the Trustee telephonic notice, confirmed in writing by the following Business Day, of the aggregate principal amount of Bonds delivered pursuant to Section 2.03. (3) The Tender Agent shall hold all Bonds delivered to it pursuant to Section 2.03 in trust for the benefit of the respective Bondholders which shall have so delivered such Bonds until such Bonds are required by this Indenture to be delivered to the respective purchasers thereof. (4) The Tender Agent shall cancel all Bonds for which it has received written notice of remarketing from the Remarketing Agent and shall register and authenticate new Bonds in a like aggregate principal amount in the names and in the denominations set forth in the written notice given to the Tender Agent by the Remarketing Agent pursuant to Section 3.07 hereof. (5) The Tender Agent shall remit the Purchase Price of tendered Bonds to the tendering Bondholders in accordance with Section 3.07 hereof. (6) The Tender Agent shall deliver to the Trustee all tendered Bonds. (7) The Tender Agent shall keep such books and records as shall be consistent with prudent industry practice and shall make such books and records available for inspection by the Issuer, the Trustee and the Credit Bank at all reasonable times. 51 (8) The Tender Agent shall hold all monies representing the Purchase Price of Bonds tendered for purchase in a segregated account and such monies shall be held uninvested prior to the application thereof. Notwithstanding the above provisions, so long as the Bonds are subject to a system of book-entry only transfers pursuant to Section 2.09 hereof, any requirement for the delivery of Bonds to the Tender Agent in connection with an optional or mandatory tender pursuant to Section 2.03 hereof and the payment of the Purchase Price thereof shall be deemed satisfied upon the transfer, on the registration books of DTC, of the beneficial ownership interests in such Bonds tendered for purchase to the account of the Tender Agent, or a Direct Participant acting on behalf of the Tender Agent and the payment of such Purchase Price through the operations of such book-entry only system. Section 9.17. QUALIFICATIONS OF TENDER AGENT. The Tender Agent shall be a commercial bank or trust company with trust powers with a principal office, or an affiliate with a principal office, in New York, New York, having a combined capital and surplus of at least $50,000,000 and authorized by law to perform all the duties imposed upon it by this Indenture. The Tender Agent shall be an affiliate of the Trustee (unless the Trustee is the Tender Agent) unless the Trustee has no affiliate meeting the requirements of the first sentence of this Section, in which case the selection of the Tender Agent shall be subject to the approval of the Credit Bank. The Tender Agent initially appointed hereunder, in the event that the Bonds cease to be in a Book-Entry System, is Bankers Trust Company of California, N.A. The Tender Agent may at any time resign and be discharged by giving at least thirty (30) days' notice to the Trustee, the Issuer and the Credit Bank. The Tender Agent may be removed at any time, with the approval of the Credit Bank, by an instrument signed by the Trustee and filed with the Tender Agent, the Remarketing Agent and the Issuer. In the event of the resignation or removal of the Tender Agent, the Tender Agent shall pay over, assign and deliver any moneys and Bonds held by it in such capacity, and shall deliver all books and records relating thereto, to its successor or, if there be no successor, to the Trustee. In the event that the initial Tender Agent shall resign or be removed, or be dissolved, or if the property or affairs of the Tender Agent shall be taken under the control of any state or federal court or administrative body because of bankruptcy or insolvency, or for any other reason, and the Issuer shall not have appointed its successor as Tender Agent, the Trustee, notwithstanding the provisions of the first paragraph of this Section 9.17, shall be deemed to be the Tender Agent for all purposes of this Indenture until the appointment by the Trustee of the Tender Agent or a successor Tender Agent, as the case may be, notwithstanding the fact that the Trustee may not meet the qualifications set forth in the first paragraph of this Section 9.17. The Tender Agent shall pay to tendering Bondholders the Purchase Price of any Bonds for which it has received a Tender Notice and which have not been remarketed pursuant to Section 3.07 hereof, but solely from amounts received pursuant to a draw under the Letter of Credit; and the Tender Agent shall pay to tendering Bondholders the Purchase Price of any Bonds for which it has received a Tender Notice and which have been remarketed pursuant to Section 3.07 hereof, but solely from amounts received from the Remarketing Agent. Insofar as such provisions may be applicable, the Tender Agent shall enjoy the same protective provisions in the performance of its duties hereunder with respect to the Trustee. The Tender Agent shall perform such duties, and only such duties, as are specifically set forth in this Indenture and the Agreement and no implied duties or covenants shall be read into this Indenture or the Agreement against the Tender Agent. 52 ARTICLE X AMENDMENTS OF AND SUPPLEMENTS TO INDENTURE Section 10.01. WITHOUT CONSENT OF BONDHOLDERS. The Issuer and the Trustee may amend or supplement this Indenture or the Bonds without notice to or the consent of any Bondholder: (a) to make such provisions for the purpose of curing any ambiguity, inconsistency or omission, or of curing, correcting or supplementing any defective provision contained in this Indenture, or in regard to matters or questions arising under this Indenture, or in any other respect whatsoever as the Issuer may deem necessary or desirable and which shall not materially adversely affect the interests of the holders of the Bonds; (b) to grant to the Trustee for the benefit of the Bondholders additional rights, remedies, powers or authority; (c) to subject to this Indenture additional collateral or to add other agreements of the Issuer; (d) to modify this Indenture or the Bonds to permit qualification under the Trust Indenture Act of 1939 or any similar federal statute at the time in effect, or to permit the qualification of the Bonds for sale under the securities laws of any state of the United States of America; (e) to authorize different authorized denominations of the Bonds and to make correlative amendments and modifications to this Indenture regarding exchangeability of Bonds of different authorized denominations, redemptions of portions of Bonds of particular authorized denominations and similar amendments and modifications of a technical nature; (f) to increase or decrease the number of days specified for the giving of notices under Sections 2.02 or 2.03 and to make corresponding changes to the period for notice of redemption of the Bonds; provided that no decreases in any such number of days shall become effective except while the Bonds bear interest at a Daily Rate or a Weekly Rate and until 30 days after the Trustee has given notice to the Owners of the Bonds; (g) to provide for an uncertificated system of registering the Bonds or to provide for the change to or from the Book-Entry System for the Bonds; (h) to evidence the succession of a new Trustee or the appointment by the Trustee or the Issuer of a co-trustee; (i) to make any change necessary (1) to secure from a Rating Agency a rating on the Bonds equal to the rating on the unsecured indebtedness of the Credit Bank (or parent company of the Credit Bank) or the issuer of any Alternate Credit Facility (2) to provide for, or necessitated by, the issuance of Additional Bonds which does not have any material adverse affect on the interests of any Bondholders or (3) in connection with a Rating Event Date; or (j) to modify, alter, amend or supplement this Indenture in any other respect, including amendments which would otherwise be described in Section 10.02 hereof, if notice of the proposed supplemental indenture is given to Bondholders (in the same 53 manner as notices of redemption are given) at least thirty (30) days before the effective date thereof and, on or before such effective date, the Bondholders have the right to optionally tender their Bonds pursuant to Section 2.03 hereof. Prior to consenting to such amendment or supplement, the Trustee may request, and may conclusively rely, on an Opinion of Counsel that such amendment or supplement complies with this Indenture. Section 10.02. WITH CONSENT OF BONDHOLDERS. If an amendment of or supplement to this Indenture or the Bonds without the consent of Bondholders is not permitted by Section 10.01, the Issuer and the Trustee may enter into such amendment or supplement with the consent of the Owners of at least a majority in the aggregate principal amount of the Bonds then Outstanding. However, without the consent of each Bondholder affected, no amendment or supplement may (a) extend the maturity of the principal of, or interest on, any Bond, (b) reduce the principal amount of, or rate of interest on, any Bond, (c) effect a privilege or priority of any Bond or Bonds over any other Bond or Bonds, (d) reduce the percentage of the aggregate principal amount of the Bonds the Owners of which are required to consent to such amendment or supplement, (e) eliminate the Owners' rights to tender the Bonds or any mandatory redemption of the Bonds, or extend the due date for the purchase of Bonds tendered by the Owners thereof or any call date for mandatory redemption, or reduce the purchase or redemption price of the Bonds, (f) create a lien ranking prior to or on a parity with the lien of this Indenture (except for the issuance of Additional Bonds pursuant to Section 2.11 hereof) on the property described in the Granting Clause of this Indenture or (g) deprive any Bondholder of the lien created by this Indenture on such property. In addition, if moneys or U.S. Government Obligations have been deposited or set aside with the Trustee pursuant to Article VII for the payment of Bonds and such Bonds shall not have in fact been actually paid in full, no amendment to the provisions of such Article VII shall be made without the consent of the Owner of each affected Bond. Section 10.03. EFFECT OF CONSENTS. After an amendment or supplement becomes effective, it will bind every Bondholder unless it makes a change described in clauses (a) through (g) of the second sentence of Section 10.02, in which case the amendment or supplement will bind each Bondholder who consented to it and each subsequent Owner of a Bond or portion of a Bond evidencing the same debt as the consenting Owner's Bond. Section 10.04. NOTATION ON OR EXCHANGE OF BONDS. If an amendment or supplement changes the terms of a Bond, the Trustee may require the Owner to deliver such Bond to the Trustee. The Trustee may place an appropriate notation on such Bond about the changed terms and return it to the Owner. Alternatively, if the Trustee, the Issuer and the Company so determine, the Issuer, in exchange for such Bond, shall execute and the Trustee shall authenticate and deliver a new Bond that reflects the changed terms. Section 10.05. SIGNING BY TRUSTEE OF AMENDMENTS AND SUPPLEMENTS. The Trustee shall sign any amendment or supplement to this Indenture or the Bonds authorized by this Article X if such amendment or supplement does not adversely affect the rights, duties, liabilities or immunities of the Trustee. If such amendment or supplement has such an adverse effect, the Trustee may, but need not, sign it. In signing such an amendment or supplement, the Trustee shall be entitled to receive and (subject to Section 9.01) shall be fully protected in relying on an Opinion of Counsel stating that such amendment or supplement is authorized by this Indenture and that all conditions precedent contained herein have been complied with. Section 10.06. COMPANY AND CREDIT BANK CONSENT REQUIRED. No amendment or supplement to this Indenture or the Bonds shall become effective unless the Company and, when a Letter of Credit is in effect or any amounts are owed to the Credit Bank under the 54 Reimbursement Agreement, the Credit Bank deliver to the Trustee their written consents to the amendment or supplement. Section 10.07. NOTICE TO BONDHOLDERS. The Trustee shall cause notice of the execution of each amendment or supplement to this Indenture or the Loan Agreement to be mailed to the Bondholders by first-class mail. The notice shall, at the option of the Trustee, either (i) briefly state the nature of the amendment or supplement and that copies of it are on file with the Trustee for inspection by the Bondholders or (ii) enclose a copy of such amendment or supplement. 55 ARTICLE XI AMENDMENTS OF AND SUPPLEMENTS TO LOAN AGREEMENT Section 11.01. WITHOUT CONSENT OF BONDHOLDERS. The Issuer may enter into, and the Trustee may consent to, any amendment of or supplement to the Loan Agreement without notice to or the consent of any Bondholder if such amendment or supplement is required or permitted (a) by the provisions of the Loan Agreement or this Indenture (including, in connection with transactions permitted by Section 5.02 of the Loan Agreement, relating to maintenance of the Company' s existence), (b) to cure any ambiguity, inconsistency or formal defect or omission, (c) to identify more precisely the Project, (d) in connection with any authorized amendment of or supplement to this Indenture, (e) to make any change that does not materially adversely affect the rights of any Bondholder, or (f) to make any change necessary to secure from a Rating Agency a rating on the Bonds (i) equal to the rating on the unsecured indebtedness of the Credit Bank (or the parent company of the Credit Bank) or the issuer of any Alternate Credit Facility, or (ii) in the event of a Rating Event Date. Prior to consenting to such amendment or supplement, the Trustee shall request the written consent of the Credit Bank to such amendment or supplement and may request, and may conclusively rely, on an Opinion of Counsel that such amendment or supplement complies with this Section. Section 11.02. WITH CONSENT OF BONDHOLDERS. If an amendment of or supplement to the Loan Agreement without the consent of Bondholders is not permitted by Section 11.01, the Issuer may enter into, and the Trustee may consent to, such amendment or supplement with the consent of the Owners of at least a majority in the aggregate principal amount of the Bonds then Outstanding. However, without the consent of each Bondholder affected, no amendment or supplement may result in any occurrence described in clauses (a) through (g) of the second sentence of Section 10.02. Section 11.03. CONSENTS BY TRUSTEE TO AMENDMENTS OR SUPPLEMENTS. The Trustee shall consent to any amendment or supplement to the Loan Agreement authorized by this Article XI if such amendment or supplement does not adversely affect the rights, duties, liabilities or immunities of the Trustee. If such amendment or supplement has such an adverse effect, the Trustee may, but need not, sign it. In signing a consent to such an amendment or supplement, the Trustee shall be entitled to receive and (subject to Section 9.01) shall be fully protected in relying on an Opinion of Counsel stating that such amendment or supplement is authorized by this Indenture. No Letter of Credit may be modified without the prior written consent of 100% of the holders of the Bonds, except to (a) correct any formal defects therein, (b) effect transfers thereof, (c) effect extensions thereof, (d) effect reductions and reinstatements thereof, (e) increase the stated amount thereof, (f) effect any change which does not have a material adverse effect upon the interests of the holders of the Bonds, or (g) make any amendment to be effective from and after a mandatory tender date. Pursuant to this Indenture, however, the Company has the right to obtain an Alternate Credit Facility, subject to the requirements set forth therein, without the consent of the Bondholders. 56 ARTICLE XII MISCELLANEOUS Section 12.01. NOTICES. (a) Any notice, request, direction, designation, consent, acknowledgment, certification, appointment, waiver or other communication required or permitted by this Indenture or the Bonds must be in writing except as expressly provided otherwise in this Indenture or the Bonds. (b) Any notice or other communication shall be sufficiently given and deemed given when delivered by hand or mailed by first-class mail, postage prepaid, addressed as follows: if to the Issuer, to La Mirada Industrial Development Authority, 13700 S. La Mirada Boulevard, La Mirada, California 90638, Attn: Treasurer; if to the Trustee, to Bankers Trust Company of California, N.A., 3 Park Plaza, 16th Floor, Irvine, California 92714, Attn: Corporate Trust Department, with a copy to Bankers Trust Company of California, N.A.., Four Albany Street, New York, New York 10006, Attn: Corporate Trust Department; if to the Company, to Rykoff-Sexton, Inc., 1050 Warrenville Road, Lisle, Illinois 60532, Attn: Chief Financial Officer; if to the Remarketing Agent, to First National Bank of Chicago, One First National Plaza, Suite 0463, Chicago, Illinois 60670, Attention: Municipal Department; if to the Credit Bank, to First National Bank of Chicago, One First National Plaza, Suite 0463, Chicago, Illinois 60670, Attention: Municipal Department, and if to the Bondholders, as provided in the Bond registration books kept pursuant to this Indenture. Any addressee may designate additional or different addresses for purposes of this Section 12.01. Section 12.02. BONDHOLDERS' CONSENTS. Any consent or other instrument required by this Indenture to be signed by Bondholders may be in any number of concurrent documents and may be signed by a Bondholder or by the Bondholder's agent appointed in writing. Proof of the execution of such document or of the instrument appointing an agent and of the ownership of Bonds, if made in the following manner, shall be conclusive for any purposes of this Indenture with regard to any action taken by the Trustee under such document or instrument: (a) The fact and date of a person's signing any document or instrument may be proved by the certificate of any officer in any jurisdiction who by law has power to take acknowledgments within that jurisdiction that the person signing such document or instrument acknowledged before such officer the execution of such document or instrument, or by an affidavit of any witness to the signing. (b) The fact of ownership of any Bond, the principal amount thereof, the number and other identification thereof and the date of holding shall be proved by the registration books kept pursuant to this Indenture. In determining whether the Owners of the required aggregate principal amount of Bonds Outstanding have taken any action under this Indenture, Bonds owned by the Company or any person controlling, controlled by or under common control with the Company shall be disregarded and deemed not to be Outstanding. In determining whether the Trustee shall be protected in relying on any such action, only Bonds which the Trustee knows to be so owned shall be disregarded. Any consent or other instrument shall be irrevocable and shall bind any subsequent Owner of a Bond or of any Bond delivered in substitution therefor. Section 12.03. LIMITATION OF RIGHTS. Nothing expressed or implied in this Indenture or the Bonds shall give to any person other than the Trustee, the Issuer, the Credit Bank, the Company, 57 the Remarketing Agent and the Bondholders any right, remedy or claim under or with respect to this Indenture. Section 12.04. SEVERABILITY. If any provision of this Indenture shall be determined to be unenforceable, such unenforceability shall not affect the enforceability of any other provision of this Indenture. Section 12.05. PAYMENTS DUE ON NON-BUSINESS DAYS. If a payment date is not a Business Day at the place of payment, then payment may be made at that place on the next Business Day, and no interest shall accrue for the intervening period. Section 12.06. GOVERNING LAW. This Indenture shall be governed exclusively by and construed in accordance with the applicable laws of the State. Section 12.07. CAPTIONS. The captions in this Indenture are for convenience only and do not define or limit the scope or intent of any provisions or Sections of this Indenture. Section 12.08. NO RECOURSE AGAINST ISSUER'S OFFICERS. No officer, member, director, agent or employee of the Issuer shall be individually or personally liable for any payment on the Bonds or be subject to any personal liability or accountability by reason of the issuance of the Bonds, but this Section shall not relieve an officer, member, director, agent or employee of the Issuer from the performance of any official duty provided by law or this Indenture. Section 12.09. LIMITATION OF LIABILITY. Notwithstanding anything contained in this Indenture to the contrary, the Bonds shall be limited obligations of the Issuer and shall be payable solely from the revenues and receipts and other amounts received by or on behalf of the Issuer pursuant to the Loan Agreement. Section 12.10. COUNTERPARTS. This Indenture may be signed in several counterparts, each of which shall be an original, but all of which together shall constitute the same instrument. Section 12.11. NOTICE TO RATING AGENCIES. The Trustee will promptly notify in writing each Rating Agency then rating the Bonds of the following events: (1) the expiration, termination, substitution or extension of the Letter of Credit; (2) the redemption, purchase or payment of all outstanding Bonds; (3) changes in the Loan Agreement, this Indenture, the Letter of Credit, the Reimbursement Agreement or any other legal agreements relating to the Bonds of which the Trustee has notice; (4) a change in the method of determining interest on the Bonds; (5) any contemplated change in the Trustee or the Remarketing Agreement; and (6) any defeasance of the Bonds. 58 IN WITNESS WHEREOF, the La Mirada Industrial Development Authority has caused this Indenture to be signed in its name and its corporate seal to be hereunto affixed and attested by its duly authorized officers, and BANKERS TRUST COMPANY OF CALIFORNIA, N.A., in token of its acceptance of the trust created hereunder, has caused this Indenture to be signed in its name by its duly authorized officer, all as of the day and year first above written. LA MIRADA INDUSTRIAL DEVELOPMENT AUTHORITY By /s/ --------------------------- Treasurer ATTEST: /s/ - --------------------------- Secretary BANKERS TRUST COMPANY OF CALIFORNIA, N.A., as Trustee By /s/ --------------------------- Vice President 59 EXHIBIT A [FORM OF BOND] UNLESS THIS BOND IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC") TO THE ISSUER OR THE REGISTRAR FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY BOND ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR THE SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. No. R-1 $25,900,000 LA MIRADA INDUSTRIAL DEVELOPMENT AUTHORITY TAXABLE VARIABLE/FIXED RATE DEMAND INDUSTRIAL DEVELOPMENT REVENUE BOND (RYKOFF-SEXTON, INC. PROJECT) SERIES 1996 MATURITY DATE DATED DATE CUSIP INTEREST RATE - ------------- ---------- ----- ------------- December 1, 2026 November 20, 1996 503681 AA6 Variable REGISTERED OWNER: CEDE & CO. PRINCIPAL AMOUNT: **TWENTY-FIVE MILLION NINE HUNDRED THOUSAND DOLLARS** The La Mirada Industrial Development Authority, a public body, corporate and politic, organized and existing under the laws of the State of California, hereby promises to pay, solely from the sources described in this Bond, to the Registered Owner identified above, or registered assigns, on the Maturity Date stated above (or if this Bond is called for earlier redemption as described herein, on the redemption date) the principal amount identified above and to pay interest and premium, if any, as provided in this Bond. This Bond is one of the bonds (the "Bonds"), limited to $45,000,000 in aggregate principal amount, issued under the Indenture of Trust dated as of November 1, 1996 (the "Indenture") between the La Mirada Industrial Development Authority (the "Issuer") and Bankers Trust Company of California, N.A., as trustee (the "Trustee"). The initial series of Bonds is issued in the aggregate principal amount of $25,900,000 and is designated as Series 1996. The terms of the Bonds include those in the Indenture. Bondholders are referred to the Indenture for a statement of those terms. Capitalized terms used herein and not otherwise defined shall have the meanings ascribed to them in the Indenture. Additional Bonds may be issued for the purposes set forth in the Loan Agreement pursuant to the provisions of the Loan Agreement and the Indenture. The Issuer and the Company may from time to time agree upon and approve the issuance and delivery of A-1 Additional Bonds in such amount as shall be determined by said parties as permitted by law in effect at the time thereof. All Additional Bonds shall rank pari passu with, and shall have such interest payment dates, maturity date, redemption dates and redemption premiums as this Bond, but shall bear such date or dates and be sold at such prices as shall be approved in writing by the Issuer and the Company. The Bonds and the interest thereon are limited obligations of the Issuer, payable solely from the Revenues. No property of the Company has been pledged to the Trustee as collateral for the Bonds. Neither the faith and credit nor the taxing power of the City of La Mirada (the "City") nor the State of California is pledged to the payment of the principal of or interest on the Bonds. None of the State, the City, any other political subdivision of the State (except the Issuer, to the limited extent set forth in the Indenture) shall in any event be liable for the payment of the principal of, premium (if any) or interest on the Bonds or for the performance of any pledge, obligation or agreement of any kind whatsoever of the Issuer, and none of the Bonds or any of the Issuer's agreements or obligations shall be construed to constitute an indebtedness of or a pledge of the faith and credit of or a loan of the credit of any of the foregoing within the meaning of any constitutional or statutory provisions whatsoever. The Issuer will lend the proceeds of the Bonds to Rykoff-Sexton Inc., a Delaware corporation (the "Company"), pursuant to a Loan Agreement dated as of November 1, 1996 (the "Loan Agreement") between the Issuer, the Trustee and the Company. The Company will use the proceeds of the Bonds to finance the acquisition, construction, installation and equipping of a warehouse and distribution facility located in the City of La Mirada, California (the "Project"). The Company has agreed in the Loan Agreement to pay the Issuer amounts sufficient to pay all amounts coming due on the Bonds, and the Issuer has assigned its right to such payments under the Loan Agreement to the Trustee as security for the Bonds. The Indenture and the Loan Agreement may be amended, and references to them include any amendments. The Bonds are issued pursuant to and in full compliance with the laws of the State of California, particularly Chapter 1 of Title 10 of the Government Code of the State of California (the "Act"), and pursuant to a resolution adopted by the Issuer on November 12, 1996, which resolution authorizes the execution and delivery of the Loan Agreement and the Indenture. The Bonds are limited obligations of the Issuer and, as provided in the Indenture, is payable solely from payments to be made by the Company under the Loan Agreement, from a Letter of Credit as described below (but only so long as a Letter of Credit is in effect) and from any other moneys held by the Trustee under the Indenture for such purpose, and other than as provided in the Loan Agreement, there shall be no recourse against the Issuer or any other property now or hereafter owned by it. The Bonds are initially secured by a letter of credit (the "Letter of Credit") issued by The First National Bank of Chicago in favor of the Trustee. The Letter of Credit entitles the Trustee to draw an amount sufficient to pay the principal of the Bonds, plus an amount equal to 41 days' interest accrued on the Bonds at the Maximum Rate. In addition, the Letter of Credit entitles the Trustee to draw an amount sufficient to pay the Purchase Price (as defined in the Indenture) of Bonds tendered for purchase pursuant to the Indenture and not remarketed. It expires December 1, 1999, or on the earlier occurrence of events specified in it. On its expiration, unless the Company has provided another credit facility meeting the requirements of the Indenture, the Bonds will be purchased pursuant to the provisions of the Indenture. The Issuer has established a book-entry only system of registration for the Bonds (the "Book-Entry System"). Except as specifically provided otherwise in the Indenture, the Securities Depository (or its nominee) will be the Registered Owner of this Bond. By acceptance of a confirmation of purchase, delivery or transfer, the Beneficial Owner of this Bond shall be A-2 deemed to have agreed to this arrangement. The Securities Depository (or its nominee), as Registered Owner of this Bond, shall be treated as its owner for all purposes. Interest on this Bond will be paid at a Daily Rate, a Weekly Rate, a Commercial Paper Rate or a Long-Term Interest Rate, as selected by the Company and as determined in accordance with the Indenture, but in no event shall the interest rate exceed the Maximum Rate. The "Maximum Rate" is defined in the Indenture to mean the rate per annum equal to the lesser of (a) 12% per annum, or (b) if a Letter of Credit is then in effect, the maximum interest rate for purposes of calculating the interest portion of the stated amount of such Letter of Credit. The interest rate and the Interest Mode applicable to this Bond shall be determined pursuant to and as set forth in the Indenture. In the event that the appropriate interest rate, Commercial Paper Period or Long-Term Interest Rate Period is not or can not be determined for whatever reason, the method of determining interest on the Bonds shall be converted automatically to the Weekly Rate or as otherwise set forth in the Indenture. Interest will initially be payable at a Weekly Rate as set forth in the Indenture. The Company may change the interest rate determination method from time to time pursuant to the provisions of the Indenture. A change in the interest rate determination method results in mandatory tender for purchase of the Bonds as set forth below. While there exists an Event of Default under the Indenture, the interest rate on the Bonds will be the interest rate on the Bonds in effect on the day before the Event of Default occurred. When interest is payable at a Daily, Weekly or Commercial Paper Rate, it will be computed on the basis of the actual number of days elapsed over a year of 365 days (366 in leap years), and when payable at a Long-Term Interest Rate, it will be computed on the basis of a 360-day year of twelve 30-day months. Interest on overdue principal and, to the extent lawful, on overdue premium and interest will be payable at the interest rate on each Bond in effect on the day before the default occurred. Interest will accrue on the unpaid portion of the principal of this Bond from the last date to which interest was paid or, if no interest has been paid, from the date of the original issuance of the Bonds until the entire principal amount of this Bond is paid. The Bonds will initially bear interest from the Closing Date at the Weekly Rate, and thereafter will bear interest from the Interest Payment Date next preceding the date of authentication; unless (i) authenticated prior to the first Interest Payment Date, in which event such Bonds will bear interest from the Closing Date, (ii) authenticated on an Interest Payment Date, in which event the Bonds shall bear interest from the date of authentication; or (iii) authenticated after a Record Date and before the following Interest Payment Date, in which event the Bonds shall bear interest from the following Interest Payment Date. "Interest Payment Date" is defined in the Indenture to mean (a) for interest accrued during any Daily Rate Period, the first Business Day of each month, commencing with the first Business Day of the month next succeeding each Daily Rate Conversion Date, or, if applicable, the Closing Date, any Purchase Date established pursuant to the Indenture or any date upon which the outstanding principal amount of Bonds becomes due, (b) for interest accrued during any Weekly Rate Period, the first Business Day of each month, commencing with the first Business Day of the month next succeeding each Weekly Rate Conversion Date, or, if applicable, the Closing Date, any Purchase Date established pursuant to the Indenture or any date upon which the outstanding principal amount of Bonds becomes due, (c) for interest accrued during any Long-Term Interest Rate Period, the first date of the sixth calendar month following the Long-Term Interest Rate Conversion Date and the first day of each successive sixth calendar month, if any, of such Long-Term Interest Rate Period; provided, however, the final Interest Payment Date with respect to any such Long-Term Interest Rate Period shall be the first Business Day of the calendar month immediately following the expiration of such Long-Term Interest Rate Period, or the maturity date of the Bonds (if such Long-Term Interest Rate A-3 Period extends to the final maturity of the Bonds), and (d) for interest accrued during any Commercial Paper Period, the Business Day which immediately succeeds the last date of any Commercial Paper Period applicable to any Bond. "Record Date" is defined in the Indenture to mean the close of business on the Business Day next preceding any Interest Payment Date; provided, however, with respect to any Interest Payment Date for a Long-Term Interest Rate Period, the "Record Date" shall be the close of business on the fifteenth day of the calendar month next preceding such Interest Payment Date. The principal or redemption price of this Bond will be payable, upon surrender of such Bonds, at the corporate trust office of the Trustee. Interest on this Bond will be payable to the registered owner as of the close of business on the Record Date with respect to an Interest Payment Date, by check mailed by first class mail on the applicable Interest Payment Date; provided that payment of interest at a Daily Rate, Weekly Rate or Commercial Paper Rate will be made by the Trustee by wire transfer to the owner of $1,000,000 or more in aggregate principal amount of Bonds upon such owner providing the Trustee with written wire transfer instructions acceptable to the Trustee at least two Business Days before the applicable Record Date. If and to the extent there shall be a default in the payment of the interest due with respect to Bonds on such Interest Payment Date, such defaulted interest shall be paid to the Bondholders in whose names any such Bonds (or any Bond or Bonds issued upon registration of transfer or exchange thereof) are registered at the close of business on the Business Day next preceding the date of payment of such defaulted interest. Bonds may be transferred upon surrender of such Bonds at the principal corporate trust office of the Trustee in Irvine, California or in the case of tenders as described herein, at any time when the Bonds are not in a Book-Entry System, at the office designated by the Tender Agent, together with an assignment satisfactory to the Trustee or the Tender Agent, as the case may be, duly executed by such holder or such holder's duly authorized attorney. Bonds may be exchanged at the principal corporate trust office of the Trustee for a like aggregate principal amount of Bonds in authorized denominations. Except in connection with the purchase of Bonds tendered for purchase, the Trustee shall not be required to make any such transfer of exchange of any Bond during the period beginning 15 days before the mailing of notice calling the Bonds for redemption and ending on the redemption date. Notwithstanding the foregoing, the Trustee or, at any time when the Bonds are not in a Book-Entry System, the Tender Agent shall authenticate and make available for receipt by the purchaser or purchasers of any Bond tendered or deemed to be tendered in accordance herewith, against payment therefor, a new fully registered Bond or Bonds, in Authorized Denominations, in an aggregate principal amount equal to the principal amount of the Bonds so deemed to have been tendered. The Trustee will charge to the owner for every such transfer and every exchange of a Bond sufficient to reimburse it for any tax or other governmental charge required to be paid with respect to such transfer or exchange. Notwithstanding the foregoing, when the Bonds are held in the Book-Entry System, transfers of beneficial ownership for Bonds will be made pursuant to rules and procedures established by the Securities Depository. The Trustee has been appointed the initial Tender Agent. When interest on the Bonds is payable at a Daily Rate and the Book-Entry System is in effect, a Beneficial Owner of a Bond may tender such Bond (or any portion thereof in an authorized denomination) by delivering an irrevocable written notice, promptly confirmed in writing, to the Remarketing Agent by 10:30 a.m., New York City time, on any Business Day, stating the principal amount of the Bond (or portion thereof) being tendered, the name, address and taxpayer identification number of such Beneficial Owner, payment instructions for the purchase price and the Business Day (which may be the date the notice is delivered) on which such Bond (or portion thereof) is to be purchased. A-4 When interest on the Bonds is payable at a Daily Rate and the Book-Entry System is not in effect, an Owner of a Bond may tender such Bond (or any portion thereof in an Authorized Denomination) by delivering a notice as described above (which shall include the certificate number of such Bond), and shall also deliver such Bond to the Tender Agent by 11:00 a.m. New York City time, on the date of purchase. When interest on the Bonds is payable at a Weekly Rate and the Book-Entry System is in effect, a Beneficial Owner of a Bond may tender such Bond (or any portion thereof in an authorized denomination) by delivering an irrevocable written notice, promptly confirmed in writing, to the Remarketing Agent on any Business Day, stating the principal amount of the Bond (or portion thereof) being tendered, the name, address and taxpayer identification number of such Beneficial Owner, payment instructions for the Purchase Price and the Purchase Date (which must be a Business Day at least seven days after the notice is delivered) on which such Bond (or portion thereof) is to be purchased. When interest on the Bonds is payable at a Weekly Rate and the Book-Entry System is not in effect, an Owner of a Bond may tender such Bond (or any portion thereof in an authorized denomination) by delivering a notice as described above (which shall include the certificate number of such Bond), and shall also deliver such Bond to the Remarketing Agent by 11:00 a.m., New York City time, on the date of purchase. The beneficial interests of the Beneficial Owners of all Outstanding Bonds are subject to mandatory purchase in whole (or if such Bonds are not then in the Book-Entry System, all Bonds are subject to mandatory tender in whole by the holders thereof to the Tender Agent at its Principal Office) on each date described below (a "Mandatory Purchase Date") at the Purchase Price. (a) On each Conversion Date (provided that, in the event less than all of the Bonds are being converted, only the Bonds being converted will be subject to mandatory tender); (b) On each Commercial Paper Rate Reset Date and Long-Term Interest Rate Reset Date with respect to any Bond (provided that only those Bonds whose interest rates are being reset on such date shall be subject to mandatory tender); (c) On (i) a Substitution Date (provided that with respect to Bonds in the Commercial Paper Mode, the date of substitution or release may not be prior to the expiration date of the then applicable Interest Period for all then applicable Commercial Paper Periods), (ii) the Rating Event Date or (iii) on the second Business Day prior to the release, expiration or termination of the then existing Letter of Credit for any other reason; (d) On each optional redemption date pursuant to the Indenture for which the Company has elected to purchase bonds in lieu of optional redemption; and (e) Not more than five (5) days subsequent to receipt of a written notice from the Credit Bank that an Event of Default under the Reimbursement Agreement has occurred and is continuing and directing a mandatory tender for purchase of the Bonds. Not later than 7 days prior to a Mandatory Purchase Date described in (b) or (c) above, and not later than 2 days prior to a Mandatory Purchase Date described in (e) above, the Trustee will mail notice to all owners of the Bonds stating that (1) due to the occurrence of one of the events described above (which event will be specified), such Owners' Bonds will be subject to mandatory tender on the Mandatory Purchase Date (which date shall be specified); A-5 (2) that, subject to clause (4) below, all such owners who fail to tender their Bonds for purchase on the Mandatory Purchase Date will nonetheless be deemed to have tendered their Bonds for purchase on such date; (3) that, subject to clause (4) below, any such Bonds not delivered to the Tender Agent on or prior to the Mandatory Purchase Date, for which there has been irrevocably deposited in trust with the Trustee or the Tender Agent on or prior to the Mandatory Purchase Date Available Moneys sufficient to pay the Purchase Price of such Undelivered Bonds on the Mandatory Purchase Date, shall be deemed to have been so purchased at the Purchase Price, and such Bonds shall no longer be considered to be outstanding for purposes of the Indenture and shall no longer be entitled to the benefits of the Indenture, except for the payment of the Purchase Price thereof (and no interest shall accrue thereon subsequent to the Mandatory Purchase Date); and (4) that notwithstanding the foregoing, while the Bonds are held in the Book-Entry System, Bonds need not be physically tendered on the Mandatory Purchase Date, and transfers of beneficial ownership interests will be effected by the Securities Depository in accordance with its rules and procedures. With respect to mandatory purchases described in (a) or (d) above, such notice will be given as part of the notice of conversion or optional redemption, as the case may be. No failure on the part of the Trustee to give such notice will affect the requirement that Bonds be purchased or tendered for purchase on the Mandatory Purchase Date. While Bonds are not in a Book-Entry System, owners of Undelivered Bonds will have no rights or benefits under the Indenture with respect to such Bonds other than to receive the Purchase Price for such Bonds upon surrender of such Bonds to the Tender Agent. Anything herein to the contrary notwithstanding, no Bonds shall be purchased pursuant to the optional tender provisions included in the Indenture or remarketed pursuant to the Indenture if an Event of Default regarding amounts due and payable with respect to the Bond shall have occurred and be continuing, and no Bonds shall be purchased pursuant to the optional tender provisions included in the Indenture or remarketed pursuant to the Indenture during a Commercial Paper Period or a Long-Term Interest Rate Period; nor shall any Bond by purchased pursuant to the optional tender provisions included in the Indenture if such Bond is known by the Trustee to be registered in the name of the Issuer, the Credit Bank, or the Company. Notwithstanding any provision herein to the contrary, so long as the Bonds are subject to a system of book-entry-only transfers pursuant to the Indenture, any requirement for the delivery of Bonds to the Trustee or the Tender Agent in connection with an optional or mandatory tender pursuant to the Indenture shall be deemed satisfied upon the transfer, on the registration books of DTC, of the beneficial ownership interests in such Bonds tendered for purchase to the account of the Tender Agent, or a Direct Participant acting on behalf of the Tender Agent, including the Remarketing Agent. "Purchase Price" is defined in the Indenture to mean 100% of the principal amount of Bonds to be purchased, plus interest accrued thereon, if any, to the Purchase Date; provided, however, in the event Bonds are manditorily tendered for purchase on a Substitution Date, the or Rating Event Date, upon release, expiration or termination of the existing Letter of Credit for any reason or upon purchase of the Bonds in lieu of redemption, any of which occurring while the Bonds are in a Long Term Interest Rate Mode, the Purchase Price shall mean the principal amount of Bonds to be purchased, plus interest accrued thereon, if any, to the Purchase Date, plus a premium equal to the redemption premium at the time payable pursuant to Section 3.01(c) hereof. The Bonds are subject to optional redemption, mandatory redemption and extraordinary optional redemption upon the circumstances, on the dates and at the prices set forth as follows: A-6 (a) WEEKLY RATE MODE AND DAILY RATE MODE. While the Bonds are in the Weekly Rate Mode or the Daily Rate Mode, the Bonds will be subject to optional redemption, in whole or in part, on any Business Date upon at least 45 days' prior written notice delivered to the Trustee, the Credit Bank and the Remarketing Agent by the Company, at a redemption price equal to 100% of the aggregate principal amount of the Bonds to be redeemed, plus accrued interest thereon to the redemption date, without premium. (b) COMMERCIAL PAPER RATE MODE. While the Bonds are in the Commercial Paper Mode, the Bonds in any given Commercial Paper Period will be subject to optional redemption, in whole or in part, on the Interest Payment Date with respect to such Commercial Paper Period, upon at least 45 days' prior written notice delivered to the Trustee, the Credit Bank and the Remarketing Agent by the Company, at a redemption price equal to 100% of the aggregate principal amount of the Bonds to be redeemed, plus accrued interest thereon to the redemption date, without premium. (c) LONG-TERM INTEREST RATE MODE. While the Bonds are in the Long-Term Interest Rate Mode, the Bonds are subject to optional redemption, in whole or in part, at any time, upon at least 45 days' prior written notice by the Company delivered to the Trustee, the Credit Bank and the Remarketing Agent, at the applicable redemption price (expressed as a percentage of the principal amount to be redeemed) set forth below, plus accrued interest thereon the date of redemption: Length of Currently Applicable Dates after Which Redemption Long Term Interest Rate Period Is Allowed and (Expressed in Whole Years) Redemption Prices (1) -------------------------- --------------------- greater than 10 after 10 years at 102%, declining by 1% annually to 100% less than or equal to 10 and greater after 5 years at 102%, declining than 7 by 1% annually to 100% less than or equal to 7 and greater after 3 years at 102%, declining than 4 by 1% annually to 100% less than or equal to 4 not callable (1) Measured from the start of the currently applicable Long-Term Interest Rate Period. Notwithstanding the foregoing, the Bonds when in a Long-Term Interest Rate Period may be subject to optional redemption upon terms different than those set forth above (or not subject to optional redemption during such period) if the Company delivers to the Trustee on or before the first day of such Long-Term Interest Rate Period a certificate specifying different optional redemption dates or prices to be in effect during such period (or that the Bonds will not be subject to optional redemption during such Period). The Company has the option to cause the Bonds to be subject to mandatory tender for purchase in lieu of an optional redemption of Bonds as set forth above. Such option may be exercised by delivery by the Company to the Trustee and Remarketing Agent on or prior to the Business Day preceding the optional redemption date of a written notice specifying that the Bonds shall not be redeemed, but instead shall be subject to mandatory tender for purchase A-7 pursuant to the Indenture. Upon delivery of such notice, the Bonds will not be redeemed but will instead be subject to mandatory tender as described in the Indenture at a tender price equal to the price at which the Bonds would have been redeemed on the date which would have been the optional redemption date. (d) The Bonds shall be subject to mandatory redemption, in whole, on a date not later than three (3) days after receipt of the notice and direction described below, a price equal to the principal amount of Bonds to be redeemed, plus accrued interest thereon to the date fixed for redemption, without premium, following an event of default under the Reimbursement Agreement as so notified by the Credit Bank together with a direction by the Credit Bank that the Bonds be redeemed. (e) While the Bonds are in the Commercial Paper Mode or the Long-Term Interest Rate Mode, the Bonds are subject to extraordinary optional redemption in whole or in part on any date at a redemption price equal to 100% of the aggregate outstanding principal amount of the Bonds, plus accrued interest thereon to the redemption date, without premium, at the direction of the Company as a result of the occurrence of any of the events described below: (1) the Project has been damaged or destroyed to such an extent that, in the judgment of the Company, (i) it cannot be reasonably restored to substantially the condition thereof immediately preceding such damage or destruction, (ii) the Company is thereby prevented from carrying on normal operations at the Project for a period of nine or more consecutive months following such damage or destruction, or (iii) it would not be economically feasible for the Company to replace, repair, rebuild, or restore the same; (2) title in and to, or the temporary use of, all or a material portion of the Project has been taken under the exercise of the power of eminent domain (or sold in lieu of such a taking) by any governmental authority, or person acting under governmental authority and such a taking or sale as, in the judgment of the Company may result in the Company being prevented thereby from carrying on normal operations at the Project for a period of none or more consecutive months; (3) as a result of any changes in the Constitution of the State or the Constitution of the United States of America or by legislative or administrative action (whether State or Federal) or by final decree, judgment, decision or order of any court or administrative body (whether State or Federal), the Agreement has become void or unenforceable or impossible of performance in accordance with the intent and purposes of the parties as expressed therein. To exercise its option to effect an extraordinary optional redemption, the Company must deliver to the Trustee written notice of the occurrence of any such event and of its election to cause the Bonds to be redeemed as a result thereof. Such notice will specify the redemption date which shall be at least 40 days after the date of delivery of such notice to the Trustee. The Registered Owner of this Bond will be treated as the owner for all purposes, and all payments of principal, premium, interest and purchase price shall be made only to or upon the written order of the Registered Owner or the Registered Owner's legal representative. If the Company at any time deposits with the Trustee moneys or U.S. Government Obligations as described in the Indenture sufficient to pay at maturity or on redemption the principal of and premium, if any, and interest on the Outstanding Bonds, and if the Company A-8 also pays all other sums then payable by the Company under the Indenture, the lien of the Indenture will be discharged. After discharge, Bondholders must look only to the deposited moneys and securities for payment. U.S. Government Obligations means (i) noncallable direct obligations of the United States of America for which its full faith and credit are pledged, (ii) noncallable obligations of a person controlled or supervised by and acting as an agency or instrumentality of the United States of America, the payment of which is unconditionally guaranteed as a full faith and credit obligations of the United States of America, or (iii) securities or receipts evidencing ownership interests in obligations or specified portions (such as principal or interest) of obligations described in clause (i) or (ii). This Bond shall not be valid or become obligatory for any purpose or be entitled to any security or benefit under the Indenture until the certificate of authentication hereon shall have been duly executed by the Trustee. IT IS HEREBY CERTIFIED, RECITED AND DECLARED that all acts, conditions and things required to exist, happen and be performed precedent to and in the execution and delivery of the Indenture and the issuance of this Bond do exist, have happened and have been performed in due time, form and manner as required by law; and the issuance of this Bond and the issue of which it forms a part, together with all other obligations of the Issuer, does not exceed or violate any constitutional or statutory limitation. A-9 IN WITNESS WHEREOF, the LA MIRADA INDUSTRIAL DEVELOPMENT AUTHORITY has caused this Bond to be executed in its name by its Chairman by his manual or facsimile signature and attested by the manual or facsimile signature of its Secretary. LA MIRADA INDUSTRIAL DEVELOPMENT AUTHORITY By _____________________________ Chairman ATTEST: __________________________ Secretary A-10 [TRUSTEE'S CERTIFICATE OF AUTHENTICATION] Date of Authentication: _______________________, ___. BANKERS TRUST COMPANY OF CALIFORNIA, N.A., Trustee, certifies that this is one of the Bonds referred to in the Indenture. By _________________________________ Authorized Signatory A-11 The following abbreviations, when used in the inscription on the face of the within Bond, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM- as tenants in UNIF GIFT MIN ACT- ________ Custodian _________ common (Cust) (Minor) TEN ENT- as tenants by the entireties under Uniform Gifts to Minors JT TEN- as joint tenants with right of Act ___________________________ survivorship and (State) not as tenants in common Additional abbreviations may also be used though not in list above. ASSIGNMENT FOR VALUE RECEIVED, the undersigned sells, assigns and transfers unto ________ ______________________________________________________________________________ PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE ______________________________________________ ______________________________________________ ______________________________________________________________________________ (Name and Address of Assignee) ______________________________________________________________________________ the within Bond and does hereby irrevocably constitute and appoint ______________________________________________________________________________ attorney to transfer the said Bond on the books kept for registration thereof with full power of substitution in the premises. Date:_______________________________ Signature guaranteed: ____________________________________ ________________________________________ NOTICE: The signature to this assignment must correspond with the name of the registered owner as it appears upon the face of the within Bond in every particular, without alteration or enlargement or any change whatever. Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Trustee, which requirements include membership or participation in the Securities Transfer Agents Medallion Program ("STAMP"), the Stock Exchange Medallion Program ("SEMP") or the New York Stock Exchange, Inc. Medallion Signature Program ("MSP"). A-12 EX-10.42 20 EXHIBIT 10.42 LOAN AGREEMENT EXHIBIT 10.42 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- LOAN AGREEMENT BY AND AMONG THE LA MIRADA INDUSTRIAL DEVELOPMENT AUTHORITY, BANKERS TRUST COMPANY OF CALIFORNIA, N.A., AS TRUSTEE AND RYKOFF-SEXTON, INC., A DELAWARE CORPORATION WITH RESPECT TO LA MIRADA INDUSTRIAL DEVELOPMENT AUTHORITY TAXABLE VARIABLE/FIXED RATE DEMAND INDUSTRIAL DEVELOPMENT REVENUE BONDS (RYKOFF-SEXTON, INC. PROJECT) SERIES 1996 DATED AS OF NOVEMBER 1, 1996 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TABLE OF CONTENTS ARTICLE I DEFINITIONS AND CONSTRUCTION Section 1.1. Definition of Terms. . . . . . . . . . . . . . . . . . . . . .2 Section 1.2. Rules of Construction. . . . . . . . . . . . . . . . . . . . .2 ARTICLE II GENERAL REPRESENTATIONS AND AGREEMENTS Section 2.1. Representations and Agreements of the Issuer . . . . . . . . .3 Section 2.2. Representations and Agreements of the Trustee. . . . . . . . .3 Section 2.3. Representations and Agreements of the Company. . . . . . . . .3 ARTICLE III FINANCING OF THE PROJECT; ISSUANCE OF THE BONDS Section 3.1. Agreement to Issue Bonds . . . . . . . . . . . . . . . . . . .6 Section 3.2. Disbursement From the Project Fund . . . . . . . . . . . . . .6 Section 3.3. Investment of Moneys.. . . . . . . . . . . . . . . . . . . . 6 ARTICLE IV LOAN OF PROCEEDS; PAYMENT PROVISIONS Section 4.1. Loan of Bond Proceeds. . . . . . . . . . . . . . . . . . . . .7 Section 4.2. Loan Repayment and Payment of Other Amounts. . . . . . . . . .7 Section 4.3. Unconditional Obligation . . . . . . . . . . . . . . . . . . .8 Section 4.4. Assignment of Issuer's Rights. . . . . . . . . . . . . . . . .8 Section 4.5. Amounts Remaining in Funds and Accounts. . . . . . . . . . . .9 Section 4.6. Additional Bonds . . . . . . . . . . . . . . . . . . . . . . .9 ARTICLE V SPECIAL COVENANTS AND AGREEMENTS Section 5.1. Right of Access to the Project and Records.. . . . . . . . . 10 Section 5.2. Maintenance of Existence . . . . . . . . . . . . . . . . . . 10 Section 5.3. Statement of Compliance. . . . . . . . . . . . . . . . . . . 11 Section 5.4. Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . 11 Section 5.5. Additional Instruments . . . . . . . . . . . . . . . . . . . 11 Section 5.6. Environmental Matters. . . . . . . . . . . . . . . . . . . . 12 Section 5.7. Letter of Credit . . . . . . . . . . . . . . . . . . . . . . 13 Section 5.8. Indenture. . . . . . . . . . . . . . . . . . . . . . . . . . 13 Section 5.9. Title to and Completion of the Project . . . . . . . . . . . 13 Section 5.10. Design of the Project. . . . . . . . . . . . . . . . . . . . 13 Section 5.11. No Untrue Statements . . . . . . . . . . . . . . . . . . . . 14 Section 5.12. Date of Construction . . . . . . . . . . . . . . . . . . . . 14 Section 5.13. Employment and Other Reports . . . . . . . . . . . . . . . . 14 Section 5.14. Prevailing Wage Clause . . . . . . . . . . . . . . . . . . . 14 i Section 5.15. Continuing Disclosure. . . . . . . . . . . . . . . . . . . . 14 ARTICLE VI DAMAGE, DESTRUCTION AND CONDEMNATION; USE OF PROCEEDS Section 6.1. Obligation to Continue Payments. . . . . . . . . . . . . . . 15 Section 6.2. Application of Net Proceeds. . . . . . . . . . . . . . . . . 15 Section 6.3. Insufficiency of Net Proceeds. . . . . . . . . . . . . . . . 15 ARTICLE VII EVENTS OF DEFAULT AND REMEDIES Section 7.1. Events of Default. . . . . . . . . . . . . . . . . . . . . . 16 Section 7.2. Remedies on Default. . . . . . . . . . . . . . . . . . . . . 16 Section 7.3. Agreement to Pay Attorneys' Fees and Expenses. . . . . . . . 18 Section 7.4. No Remedy Exclusive. . . . . . . . . . . . . . . . . . . . . 18 Section 7.5. No Additional Waiver Implied by One Waiver . . . . . . . . . 18 ARTICLE VIII PREPAYMENT Section 8.1. Prepayment of Loan . . . . . . . . . . . . . . . . . . . . . 19 Section 8.2. Redemption of Bonds Upon Prepayment. . . . . . . . . . . . . 19 Section 8.3. Amount of Prepayment.. . . . . . . . . . . . . . . . . . . . 19 ARTICLE IX LIMITATION ON LIABILITY OF ISSUER; EXPENSES; INDEMNIFICATION Section 9.1. Limitation on Liability of Issuer. . . . . . . . . . . . . . 20 Section 9.2. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Section 9.3. Indemnification. . . . . . . . . . . . . . . . . . . . . . . 20 ARTICLE X MISCELLANEOUS Section 10.1. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Section 10.2. Severability . . . . . . . . . . . . . . . . . . . . . . . . 22 Section 10.3. Execution of Counterparts. . . . . . . . . . . . . . . . . . 22 Section 10.4. Amendments, Changes and Modifications. . . . . . . . . . . . 22 Section 10.5. Governing Law. . . . . . . . . . . . . . . . . . . . . . . . 22 Section 10.6. Authorized Representatives . . . . . . . . . . . . . . . . . 22 Section 10.7. Term of the Agreement. . . . . . . . . . . . . . . . . . . . 22 Section 10.8. Binding Effect . . . . . . . . . . . . . . . . . . . . . . . 23 Section 10.9. Capacity of Trustee. . . . . . . . . . . . . . . . . . . . . 23 EXHIBIT A - FORM OF FUNDING REQUISITION EXHIBIT B - FACILITIES FINANCED FROM BOND PROCEEDS ii LOAN AGREEMENT THIS LOAN AGREEMENT, dated as of November 1, 1996, by and among the LA MIRADA INDUSTRIAL DEVELOPMENT AUTHORITY, a public body, corporate and politic, organized and existing under the laws of the State of California (the "Issuer"), BANKERS TRUST COMPANY OF CALIFORNIA, N.A., a national banking association organized and existing under the laws of the United States of America, as trustee under that certain Indenture of Trust, dated as of November 1, 1996 (the "Indenture"), by and between the Issuer and said trustee (the "Trustee"), and RYKOFF-SEXTON, INC., a corporation organized and existing under the laws of the State of Delaware (the "Company"). W I T N E S S E T H : WHEREAS, the Issuer is organized and existing under the laws of the State (capitalized terms used herein and not otherwise defined shall have the meanings given such terms pursuant to Section 1.1) and is empowered under the provisions of the Act to make and execute contracts and other instruments and documents necessary or convenient for the purpose of facilitating the financing of certain capital projects consisting of industrial facilities; and WHEREAS, the Issuer is further authorized to issue its bonds for the purpose of paying all or any part of the costs of a project, and for any other authorized purpose; to acquire and hold property, including funds, project agreements and other obligations of any kind, and pledge, encumber or assign the same, or the revenues therefrom or any portion of such revenues, or other rights, whether then owned or possessed, or thereafter acquired, for the benefit of the owners, and as security or additional security for any bonds or the performance of obligations under an indenture; to provide for the advance of bond proceeds and other funds pursuant to project agreements as necessary to pay or reimburse for project costs and to enter into loan agreements; and WHEREAS, in furtherance of the purposes of the Act and in order to protect the health, welfare and safety of the citizens of the State, the Issuer proposes to finance the acquisition, construction or equipping of the Project to be owned by the Company; and WHEREAS, pursuant to and in accordance with the provisions of the Act, and pursuant to a resolution duly adopted by the Issuer, the Issuer has authorized and undertaken the issuance of its industrial development revenue bonds (the "Bonds") in the aggregate principal amount of not to exceed $45,000,000 to provide funds to pay the cost of the Project; and WHEREAS, the Issuer proposes to loan the proceeds of the Bonds to the Company, and the Company desires to borrow the proceeds of the Bonds upon the terms and conditions set forth herein; and WHEREAS, the loan repayments payable by the Company and the purchase price of the Bonds as set forth herein will be secured by an irrevocable letter of credit issued by the Credit Bank pursuant to the Reimbursement Agreement; NOW THEREFORE, for and in consideration of the promises and the mutual covenants hereinafter contained, for good and other valuable consideration, the receipt and sufficiency of which are hereby mutually acknowledged, the parties hereto agree as follows: 1 ARTICLE I DEFINITIONS AND CONSTRUCTION Section 1.1. DEFINITION OF TERMS. Unless the context otherwise requires, the capitalized terms used in this Agreement shall have the meanings specified in Section 1.01 of the Indenture , as such Indenture is originally executed or as it may from time to time be supplemented or amended as provided therein. Section 1.2. RULES OF CONSTRUCTION. (a) The singular form of any word used herein, including the terms defined in Section 1.01 of the Indenture, shall include the plural, and vice versa. The use herein of a word of any gender shall include correlative words of all genders. (b) Unless otherwise specified, references to Articles, Sections and other subdivisions of this Agreement are to the designated Articles, Sections and other subdivisions of this Agreement as originally executed. The words "hereof," "herein," "hereunder" and words of similar import refer to this Agreement as a whole. (c) The headings or titles of the several articles and sections, and the table of contents appended to copies hereof, shall be solely for convenience of reference and shall not affect the meaning, construction or effect of the provisions hereof. 2 ARTICLE II GENERAL REPRESENTATIONS AND AGREEMENTS Section 2.1. REPRESENTATIONS AND AGREEMENTS OF THE ISSUER. The Issuer makes the following representations and agreements as the basis for its undertakings herein contained: (a) The Issuer is a public body, corporate and politic, duly organized and existing under the laws of the State. By proper action, the Issuer has authorized the execution, delivery and due performance by it of this Agreement. (b) To finance the Project, the Issuer will issue the Bonds, which will mature, bear interest and be subject to redemption as set forth in the Indenture. (c) The Bonds will be issued under and secured by the Indenture, pursuant to which the Issuer's interest in this Agreement (except certain rights of the Issuer to payment for fees, expenses and indemnification and certain rights of enforcement) will be pledged to the Trustee as security for payment of the principal of, premium, if any, and interest on the Bonds. (d) The Issuer has not pledged and will not pledge its interest in this Agreement for any purpose other than to secure the Bonds under the Indenture. (e) The Issuer is not in default under any of the provisions of the laws of the State which default would affect its existence or its powers referred to in this Section 2.1. (f) No officer or other official of the Issuer has any interest whatsoever in the Project or the Company or in the transactions contemplated by this Agreement. Section 2.2. REPRESENTATIONS AND AGREEMENTS OF THE TRUSTEE. The Trustee makes the following representations and agreements as the basis for its undertakings herein contained: (a) The Trustee has been duly organized under the laws of the United States of America and is validly existing as a national banking association under the laws governing its creation and is qualified under 9.07 of the Indenture. (b) This Agreement has been duly authorized, executed and delivered by the Trustee and when duly executed and delivered by the Company and the Issuer, will constitute the legal, valid and binding obligation of the Trustee enforceable in accordance with its terms except as enforcement may be limited by bankruptcy, insolvency, reorganization, or other laws or equitable principles limiting creditors' rights generally. The Trustee makes no representation as to the availability of specific performance or other equitable remedies. Section 2.3. REPRESENTATIONS AND AGREEMENTS OF THE COMPANY. The Company makes the following representations and agreements as the basis for its undertakings herein contained: (a) The Company is a corporation duly organized under the laws of the State of Delaware, is qualified as a foreign corporation and in good standing in the State of California, has the power and authority to own its properties and assets and to carry on its business as now conducted and as contemplated to be conducted hereunder and has the power to execute and deliver and has duly authorized, by proper action, the 3 execution and delivery of this Agreement and all other documents contemplated hereby to be executed by the Company. (b) Neither the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby, nor the fulfillment of or compliance with the terms and conditions hereof, conflict with or result in a breach of any of the terms, conditions or provisions of any agreement or instrument to which the Company is now a party or by which the Company is bound, or constitute a default (with due notice or the passage of time or both) under any of the foregoing, or results in the creation or imposition of any prohibited lien, charge or encumbrance whatsoever upon any of the property or assets of the Company under the terms of any instrument or agreement to which the Company is now a party or by which it is bound. (c) The Project is located wholly within the geographic boundaries of the City of La Mirada, California. (d) The Company has title to the Project sufficient to carry out the purposes of this Agreement and the acquisition and construction of the portions of the Project to be financed with the proceeds of Bonds has been fully completed in accordance with the plans and specifications therefor. (e) There is no action, suit or proceeding at law or in equity or by or before any governmental instrumentality or other agency now pending, or, to the best knowledge of the Company threatened against or affecting the Company or any of its properties or rights, which, if adversely determined, would materially impair its right to carry on business substantially as now conducted or as now contemplated to be conducted, or would materially adversely affect its financial condition. After consummation of the financing transaction, the Company will not be in material default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any material agreement or instrument to which the Company is a party. (f) The operation of the Project in the manner presently contemplated and as described herein, to the best knowledge of the Company, does not conflict with any zoning, water or air pollution, hazardous waste, water disposal or other environmental matters or other ordinance, order, law or regulation applicable thereto. The Company has caused the Project to be designed and built in accordance with all applicable federal, state and local laws or ordinances (including rules and regulations) relating to zoning, building, safety and environmental quality. (g) The Company has filed or caused to be filed all federal, state and local tax returns which are required to be filed, and has paid or caused to be paid all taxes as shown on said returns or on any assessment received by it, to the extent that such taxes have become due, except such, if any, as are being actively contested by the Company in good faith or for which adequate reserves in accordance with generally accepted accounting principles have been set aside for the payment thereof. (h) No officer or other official of the Issuer has any interest whatsoever in the Project or in the transactions contemplated by this Agreement. (i) To the knowledge of the Company, the Company has obtained all necessary certificates, approvals, permits and authorizations with respect to the construction of the Project from applicable local governmental agencies and agencies of the State and the federal government. 4 (j) The information contained in the Private Placement Memorandum, insofar as such information relates to the Company and the Project is accurate in all material respects and does not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances under which they were made, not misleading. (k) The Company acknowledges, represents and warrants that it understands the risks inherent in the issuance of the Bonds and the other transactions contemplated thereby, including without limitation the risk of loss of the Project; and that it has not relied on the Issuer for any guidance or expertise in analyzing the financial or other consequences of the issuance of the Bonds and the other transactions contemplated thereby or otherwise relied on the Issuer in any manner except to issue the Bonds in order to provide funds for the Loan. (l) The Company intends to hold the Project for its own account, has no current plans to sell and has not entered into any agreement to sell the Project. 5 ARTICLE III FINANCING OF THE PROJECT; ISSUANCE OF THE BONDS Section 3.1. AGREEMENT TO ISSUE BONDS; APPLICATION OF BOND PROCEEDS. To provide funds to finance the Project, the Issuer agrees that it will issue under the Indenture, sell and cause to be delivered to the purchasers thereof, the Bonds in multiple series, bearing interest at the rates and payable as to principal and interest at the times as set forth in the Indenture. The Issuer will thereupon deposit the proceeds received from the sale of any series of Bonds with the Trustee for use by the Borrower to pay Project Costs as provided in Section 3.2 hereof and in the Indenture. Section 3.2. DISBURSEMENT FROM THE PROJECT FUND. The Issuer has authorized and directed the Trustee to disburse moneys from the Project Fund created pursuant to the Indenture to pay or to reimburse the Company for Project Costs, but only if, except as otherwise provided in Section 4.01 of the Indenture, the Trustee shall have received a requisition executed by a Company Representative and approved in writing by an Authorized Bank Representative, with respect to each requested disbursement. Each requisition shall be signed by a Company Representative and state with respect to each disbursement to be made: (a) the requisition number, (b) the amount to be disbursed, (c) that each obligation mentioned therein is a Project Cost, has been properly incurred, is a proper charge against the Project Fund and has not been the basis of any previous disbursement, and (d) that the full amount of such disbursement will be applied to reimburse the Company for the payment of Project Costs. Upon receipt of a requisition properly executed by a Company Representative and approved in writing by an Authorized Bank Representative, the Trustee shall disburse moneys from the Project Fund in accordance with such requisition. All disbursements shall be as directed in the requisition as consented to in writing by the Credit Bank. Upon receipt of a properly-signed requisition, the Trustee is authorized to act thereon without further inquiry and, except for the negligence or willful misconduct of the Trustee, the Company shall hold the Trustee harmless against any and all losses, claims or liability incurred in connection with the Trustee directly making such disbursements from the Project Fund. Neither the Trustee nor the Issuer shall be responsible for the accuracy of any representation made in such requisition or for the application by the Credit Bank or the Company of moneys disbursed in accordance with this Section 3.2. Section 3.3. INVESTMENT OF MONEYS. Upon written direction of the Company, approved in writing by the Credit Bank, any moneys in any fund or account held by the Trustee shall be invested or reinvested by the Trustee as provided in the Indenture, and the Company hereby approves such provisions of the Indenture and directs the Trustee to make such investments. 6 ARTICLE IV LOAN OF PROCEEDS; PAYMENT PROVISIONS Section 4.1. LOAN OF BOND PROCEEDS. The Issuer and the Trustee agree, upon the terms and conditions in this Agreement, to make a loan to the Company in a series of amounts aggregately equal to the aggregate principal amount of the Bonds issued, delivered and outstanding at any particular time, for the purpose of financing the Project. Pursuant to said covenant and agreement, the Issuer will issue the Bonds upon the terms and conditions contained in this Agreement and the Indenture and will cause the proceeds of each series of Bonds to be applied by the Trustee as provided in Article IV of the Indenture and Section 3.2 hereof. Section 4.2. LOAN REPAYMENT AND PAYMENT OF OTHER AMOUNTS. (a) The Company hereby acknowledges its indebtedness to the Issuer and agrees to repay the Loan in the amounts and at the times necessary to enable the Trustee, on behalf of the Issuer, to pay all amounts payable with respect to the Bonds when due, including the principal and Purchase Price of, premium, if any, and interest on the Bonds, whether on regularly scheduled Interest Payment Dates, at maturity, on any Purchase Date, or upon redemption or acceleration or otherwise. The Company hereby agrees to cause the Letter of Credit to be delivered to the Trustee in accordance with the terms of the Reimbursement Agreement and Section 5.7 hereof. To the extent Loan repayments are made with the proceeds of a draw or draws on the Letter of Credit, amounts paid by the Company to repay the Loan shall be paid to the Credit Bank for repayment of the Company's obligations under the Reimbursement Agreement. (b) The Company agrees: (1) to pay to the Trustee from time to time all amounts referred to in Section 9.06 of the Indenture, including but not limited to reasonable compensation for all services rendered by it under this Agreement, the Indenture and the other agreements relating to the Bonds to which the Trustee is a party; (2) except as otherwise expressly provided herein, the Indenture or such other agreements, to reimburse each of the Trustee and the Tender Agent upon its request for all reasonable expenses, disbursements and advances (including reasonable counsel fees and disbursements) incurred or made by the Trustee or the Tender Agent in accordance with any provision of the Indenture or other agreements to which the Trustee or the Tender Agent is a party or pursuant to which it is required to act (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence or willful misconduct; (3) to indemnify the Trustee and the Tender Agent for, and hold each harmless against, any loss, liability or expense (including reasonable counsel fees and disbursements) incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of the trust under this Agreement, the Indenture or any other agreement relating to the Bonds to which the Trustee or the Tender Agent is a party or pursuant to which it is required to act, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder or thereunder, including, without limitation, any costs, liabilities and expenses arising in connection with environmental matters referred to in Section 5.6 hereof; and (4) to pay any fee of any Rating Agency then rating the Bonds, the fees of the Remarketing Agent, the Tender Agent and any paying agents, and any other amounts referred to the Indenture. 7 (c) The Company also agrees to pay, within thirty (30) days after receipt of a request for payment thereof, all reasonable fees and expenses of the Issuer or any other party incurred in connection with the financing of the Project pursuant hereto and the Indenture which are not otherwise required to be paid by the Company under the terms of this Agreement; including, without limitation, all legal fees and expenses incurred by the Issuer and the Trustee in connection with the issuance and delivery of the Bonds and the amendment, interpretation and enforcement of any documents relating to the Project or the Bonds. (d) The Company also agrees to pay, on the Closing Date, the administrative fee of the Issuer, if any, plus the reasonable fees of counsel or other advisors to the Issuer, if any, related to the issuance of the Bonds. (e) The Issuer, the Trustee and the Company acknowledge that the Credit Bank is not liable for the payment of amounts due under the preceding paragraphs (a) through (d) other than as provided in the Letter of Credit and herein. Section 4.3. UNCONDITIONAL OBLIGATION. The obligations of the Company to make the payments required by Section 4.2 hereof and to perform and observe the other agreements on its part contained herein shall be absolute and unconditional, irrespective of any defense or any rights of set-off, recoupment or counterclaim it might otherwise have against the Issuer or the Trustee, and during the term of this Agreement, the Company shall pay absolutely all payments required hereunder, free of any deductions and without abatement, diminution or set-off. Until such time as the principal and Purchase Price of, premium, if any, and interest on the Bonds shall have been fully paid, or provision for the payment thereof shall have been made as required by the Indenture, the Company (i) will not suspend or discontinue any payments provided for in Section 4.2 hereof; (ii) will perform and observe all of its other covenants contained in this Agreement; and (iii) except as provided in Article VIII hereof, will not terminate this Agreement for any cause, including, without limitation, the occurrence of any act or circumstances that may constitute failure of consideration, destruction of or damage to the Project, commercial frustration of purpose, any change in any laws of the United States of America or of the State or any political subdivision or either of these, or any failure of the Issuer or the Trustee to perform and observe any covenant, whether express or implied, or any duty, liability or obligation arising out of or connected with this Agreement or the Indenture, except to the extent permitted by this Agreement. Section 4.4. ASSIGNMENT OF ISSUER'S RIGHTS. As security for the payment of the Bonds, the Issuer, in the Indenture, assigns to the Trustee certain of the Issuer's rights under this Agreement, including the right to receive payments hereunder (except for the right of the Issuer to receive certain payments, if any, with respect to fees, expenses and indemnification under Sections 4.2(c) and (d), 7.3, 9.2 and 9.3 hereof), and the Issuer hereby directs the Company to make the payments required hereunder (except such payments for Issuer fees, expenses and indemnification) directly to the Trustee. The Company hereby assents to such assignment and agrees to make payments directly to the Trustee without defense or set-off by reason of any dispute between the Company and the Issuer or the Trustee. By virtue of such assignment, the Trustee shall have the right to enforce the obligations of the Company hereunder. In consideration for the undertaking by the Company to reimburse the Credit Bank for amounts drawn under the Letter of Credit to purchase Bonds which are tendered for purchase and not remarketed pursuant to Section 3.08 of the Indenture by causing the Bonds so purchased to be held for the account of and registered in the name of the Credit Bank, the Issuer hereby assigns to the Credit Bank, as assignee of the Company, all of the Issuer's right, title and interest in and to any and all proceeds of any subsequent remarketing of any such Bonds so 8 purchased, and hereby agrees to direct the Remarketing Agent to pay any such proceeds to the Credit Bank. Section 4.5. AMOUNTS REMAINING IN FUNDS AND ACCOUNTS. It is agreed by the parties hereto that after (i) payment in full of the Bonds, or provision for such payment having been made as provided in the Indenture, (ii) payment of all fees, charges and expenses of the Trustee and any paying agents in accordance with the terms of the Indenture, and (iii) payment of all other amounts required to be paid under this Agreement and the Indenture, any amounts remaining in any fund or account held by the Trustee under the Indenture, subject to the application of amounts in the Bond Fund to the payment of particular Bonds, shall be paid by the Trustee as provided in Section 7.03 of the Indenture , and the Issuer shall have no claim to such amounts. Section 4.6. ADDITIONAL BONDS. If the Company is not in default hereunder, the Issuer may, in its sole discretion, by the adoption of an appropriate resolution or resolutions, at the request of the Company and with the consent of the Credit Bank (unless there shall be a Rating Event Date in connection with the issuance of Additional Bonds), authorize the issuance of Additional Bonds upon the terms and conditions provided herein and in Section 2.11 of the Indenture, but in no event shall the Issuer be liable for not issuing such Additional Bonds. Additional Bonds may be issued only to provide funds to pay any one or more of the following: (i) reimbursement of Project Costs not financed with the proceeds of a prior series of Bonds; (ii) the costs of making at any time or from time to time such substitutions, additions, modifications and improvements to the Project or any portion thereof, as authorized by the Act, as the Company may deem necessary or desirable; (iii) to refund any outstanding Bonds; and (iv) the costs of the issuance and sale of the Additional Bonds, and other costs reasonably related to the financing as shall be agreed upon by the Company and the Issuer. Prior to the issuance of such Additional Bonds, the terms thereof, the purchase price to be paid therefor and the manner in which the proceeds therefrom are to be disbursed shall have been approved in writing by the Company; the Company and the Issuer shall have entered into an amendment to this Agreement to provide that, for all purposes of this Agreement, the Project shall include any facilities being financed by the Additional Bonds, which facilities shall be described in an amendment to Exhibit B hereto, and to provide for an increase in the amount payable under Section 4.2 hereof as shall be necessary to pay the principal of, premium, if any, and interest on the Additional Bonds as provided in the supplemental indenture to be paid with respect to such Additional Bonds; and the Issuer shall have otherwise complied with the provisions of Section 2.11 of the Indenture with respect to the issuance of such Additional Bonds The Company shall pay, or cause to be paid by persons other than the Issuer, all costs of issuance of any Additional Bonds not paid from the proceeds of sale thereof. 9 ARTICLE V SPECIAL COVENANTS AND AGREEMENTS Section 5.1. RIGHT OF ACCESS TO THE PROJECT AND RECORDS. The Company agrees that, during the term of this Agreement, the Issuer, the Trustee and the duly authorized agents of either of them shall have the right at all reasonable times and upon reasonable notice during normal business hours to enter upon the site of the Project to examine and inspect the Project and to have access to the books and records of the Company with respect to the Project. Section 5.2. MAINTENANCE OF EXISTENCE; ASSIGNMENTS. (a) The Company agrees that during the term of this Agreement it will not dispose of all or substantially all of its assets or will not combine or consolidate with or merge with or into another entity; provided, however, that the Company may consolidate with, or merge into another entity existing under the laws of one of the states of the United States, or permit one or more other entities to consolidate with or merge the assets with such entity's assets; or sell or otherwise transfer to another entity all or substantially all of its assets as an entirety, provided that (i) the surviving, resulting or transferee entity, as the case may be, assumes and agrees in writing to pay and perform all of the obligations of the Company hereunder, and (ii) the Company shall have obtained the written approval of the Credit Bank, if any. (b) The rights and obligations of the Company under this Agreement may be assigned by the Company to any person in whole or in part, in connection with and in proportion to, any conveyance of all or part of the Project permitted by the Reimbursement Agreement; provided that (i) the assignee shall assume in writing the obligations of the Company hereunder to the extent of the interest assigned, and a copy of such instrument of assumption shall be delivered to the Issuer and the Trustee within ten (10) days after the execution thereof; (ii) the Company shall have obtained the written consent of the Credit Bank, if any; and (iii) the Company shall remain liable for its obligations hereunder to the extent of any interest not so assigned. (c) The rights and obligations of the Company under this Agreement may also be assigned by the Company to any person in whole or in part, subject, however, to each of the following conditions: (i) No assignment other than pursuant to subsection (a) or (b) of this Section 5.2 shall relieve the Company from primary liability for any of its obligations hereunder, and in the event of any assignment not pursuant to subsection (a) or (b) of this Section 5.2 the Company shall continue to remain primarily liable for the payments specified in Section 4.2 hereof and for performance and observance of the other agreements on its part herein provided to be performed and observed by the Company. (ii) Any assignment from the Company shall retain for the Company such rights and interests as will permit it to perform its obligations under this Agreement, and any assignee from the Company shall assume the obligations of the Company hereunder to the extent of the interest assigned. (iii) The Company shall, within thirty days after delivery thereof, furnish or cause to be furnished to the Issuer and the Trustee a true and complete copy 10 of each such assignment together with an instrument of assumption and the written consent of the Credit Bank to such assignment. Section 5.3. STATEMENT OF COMPLIANCE; NOTICE OF EVENT OF DEFAULT AND CERTAIN EVENTS. (a) The Company will deliver to the Issuer and the Trustee, within 120 days after the end of each fiscal year, a written statement signed by a Company Representative stating, as to the signer thereof, that (1) a review of the activities of the Company during such year and of performance under this Agreement has been made under his supervision, and (2) to the best of the knowledge of such Company Representative, based on such review, the Company has fulfilled all its obligations under this Agreement throughout such year, or, if there has been a default in the fulfillment of any such obligation, specifying each such default known to such Company Representative and the nature and status thereof. (b) The Company hereby covenants to notify the Issuer and the Trustee in writing of the occurrence of any Event of Default hereunder or any event which, with the passage of time or service of notice, or both, would constitute an Event of Default hereunder, specifying the nature and period of existence of such event and the actions being taken or proposed to be taken with respect thereto. Such notice shall be given promptly, and in no event less than ten (10) Business Days after the Company receives notice or knowledge of the occurrence of any such event. The Company further agrees that it will give prompt written notice to the Trustee if insurance proceeds or condemnation awards are received with respect to the Project and are not used to repair or replace the Project, which notice shall state the amount of such proceeds or award. Section 5.4. INSURANCE; MAINTENANCE AND REPAIR. The Company agrees to insure the Project or cause the Project to be insured (including through self-insurance) during the term of this Agreement for such amounts and for such occurrences as are required under the Reimbursement Agreement, or to the extent that no Reimbursement Agreement exists, for such amounts and for such occurrences as are generally carried by persons engaged in similar businesses as the Company and for facilities substantially similar to the Project. The Company further agrees to provide the Trustee and the Credit Bank with evidence of such insurance and to certify compliance with the insurance requirements by not later than October 1 of each year, or any other date that the Company determines as its insurance policy renewal date end year. The Company further agrees to maintain the Project, or cause the Project to be maintained, during the term of this Agreement (i) in a reasonably safe condition and (ii) in reasonably good repair and in reasonably good operating condition, ordinary wear and tear excepted, making from time to time all necessary repairs thereto and renewals and replacements thereof. Section 5.5. ADDITIONAL INSTRUMENTS; DEED OF TRUST. The Company hereby covenants to execute and deliver such additional instruments and to perform such additional acts as may be necessary, in the opinion of the Issuer or the Trustee, to carry out the intent hereof or to perfect or give further assurances of any of the rights granted or provided for herein or contemplated hereby. The Company shall incur no obligations in addition to the obligations created hereby in connection with the execution and delivery of such additional instruments except as may be set forth in such additional instruments. The Company hereby agrees to execute and deliver to the Trustee, and cause to be properly recorded, a Deed of Trust in a form acceptable to the Issuer and the Trustee on or prior to the date on which the Bonds are remarketed as a result of the occurrence of a Rating Event Date. 11 Section 5.6. ENVIRONMENTAL MATTERS. The Company hereby agrees to not engage in any activity in any part of the Project, and shall use best efforts to prevent others from engaging in any activity therein, which will result in the Project, or any part thereof, containing any of the following in concentrations or under conditions in violation of Hazardous Materials Laws (as defined below): (a) any oil, or Hazardous Materials, as defined below (excepting only minor quantities of household and cleaning materials customarily used in the ordinary course of prudent household or business purposes, as applicable, and maintained in accordance with all applicable Hazardous Materials Laws); (b) asbestos in any form which is or could be friable; (c) urea formaldehyde foam insulation; (d) transformers or other equipment which contain dielectric fluid containing levels of polychlorinated biphenyls in excess of fifty (50) parts per million. Notwithstanding the foregoing, the possession by the Company of minor quantities of a Hazardous Material, the presence of which does not violate any Hazardous Materials Laws and the removal of which is not mandated by such Hazardous Materials Laws shall not be a violation of this Section 5.6. If at any time it is determined that the provisions of this Section 5.6 have been violated, then unless the Company provides a Hazardous Materials Report (as defined below) certifying that the Project does not contain Hazardous Materials in quantities which require removal or remediation under any Hazardous Materials Laws, the Company shall be solely responsible for and shall pay for all costs incurred in connection with the removal of said equipment and/or substances, and the reasonable cost thereof shall be deemed to be an operating expense. If the Issuer reasonably believes that the value of its security interest in the Project has been or may be impaired by the presence, use, generation, treatment, storage or disposal of any Hazardous Material(s) on, under or about all or a portion of the Project in violation of any Hazardous Materials Laws, then the Issuer may request and the Company agrees to submit, if requested by the Issuer, a report (the "Hazardous Materials Report"), satisfactory to the Issuer certifying that the Project does not contain any Hazardous Materials in quantities which require removal or remediation under any Hazardous Materials Laws nor is any part of the Project currently being used for any Environmental Activities. The expense of the Hazardous Materials Report shall be deemed to be an operating expense of the Company. Upon the discovery by the Company of the Issuer that any part of the Project contains any Hazardous Materials in quantities which require removal or remediation under any Hazardous Materials Laws or is being used to conduct Environmental Activities, the Issuer may, in its sole and absolute discretion and at the Company's expense, retain an independent professional consultant to review any Hazardous Materials Report prepared by the Company and/or to conduct its own investigation of the Project, and the reasonable expense thereof shall be deemed to be an operating expense of the Company. The Company hereby grants to the Issuer, its agents, employees, consultants and contractors the rights to enter upon the Project, during normal business hours after notice and in a manner than will not unreasonably disturb the use and enjoyment of the Project, and to perform such tests on the Project as are reasonably necessary to conduct such a review and/or investigation. Any liability of the Company arising out of this Section 5.6 shall survive the Company's satisfaction of its obligations hereunder, including, without limitation, a transfer of the Project or any portion thereof, by foreclosure, by deed in lieu of foreclosure or otherwise. As used herein, "Environmental Activities" means the use, generation, transportation, treatment, storage or disposal of any Hazardous Materials at any time located on or present on or under the Project. As used herein, "Hazardous Materials" means (a) any oil, flammable substances, explosives, radioactive materials, hazardous wastes or substances, toxic wastes or substances or any other materials or pollutants which (i) post a hazard to the Project or to persons on or about the Project or (ii) cause the Project to be in violation of any Hazardous Materials Laws; (b) asbestos in any form which is or could become friable, urea folmaldehyde foam insulation, transformers or other equipment which contain dielectric fluid containing levels of 12 polychlorinated biphenyls in excess of fifty (50) parts per million; (c) any chemical, materials or substance defined as or included in the definition of "hazardous substances," "hazardous wastes," "hazardous materials," "extremely hazardous waste," "restricted hazardous waste," or "toxic substances" or words of similar import under any applicable local, state or federal law or under the regulations adopted or publications promulgated pursuant thereto, including, but not limited to, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq.; the Hazardous Materials Transportation Act, as amended, 49 U.S.C. Section 1801 et seq.; the Resource Conservation and Recovery Act, as amended, 42 U.S.C. Section 6901, et seq.; the Federal Water Pollution Control Act, as amended, 33 U.S.C. Section 1251, et seq.; Sections 25115, 25117, 25122.7, 25140, 25281, 25316, 25501 of the California Health and Safety Code; and Article 9 or Article 11 of Title 22 of the California Administrative Code, Division 4, Chapter 20; and (d) any other chemical, material or substance, exposure to which is prohibited, limited or regulated by any governmental authority or may or could pose a hazard to the health and safety of the occupants of the Project or the owners and/or occupants of property adjacent to or surrounding the Project. As used herein, "Hazardous Materials Laws" shall mean any federal, state or local laws, ordinances, regulations, or policies relating to the environment, health and safety, Environmental Activities and Hazardous Materials (including, without limitation, the use, handling, transportation, production, disposal, discharge or storage thereof) including, without limitation, soil or ground water conditions. Section 5.7. LETTER OF CREDIT. In order to provide for the payments required by the Company pursuant to Section 4.2(a) hereof, the Company shall cause to be provided on the Closing Date, and be continuously available to the Trustee, as beneficiary, at all times prior to a Rating Event Date, an irrevocable Letter of Credit (whether in the form of a letter of credit or any other credit instrument) meeting the requirements of Section 5.01 of the Indenture. The Company shall have the right, subject to the provisions of the Reimbursement Agreement, to provide to the Trustee a substitute Letter of Credit which meets the requirements of Section 5.01(b) of the Indenture. Section 5.8. INDENTURE. The Company hereby agrees to all of the terms and provisions of the Indenture and accepts each of his obligations expressed or implied thereunder. The Company hereby approves the initial appointment under the Indenture of the Trustee, the Remarketing Agent and the Tender Agent for the Bonds. The Company hereby agrees that it will not, and will not permit any affiliate of the Company to, purchase any Bonds from the Remarketing Agent. Section 5.9. TITLE TO AND COMPLETION OF THE PROJECT. The Company shall have fee title to the Project free and clear of any lien or encumbrance except for (i) liens for nondelinquent assessments and taxes not yet due or which are being contested in good faith by appropriate proceedings; and (ii) any other encumbrances approved by the Credit Bank. Section 5.10. DESIGN OF THE PROJECT. To the best of the Company's knowledge the design, construction and operation of the Project in the manner completed and as described herein does not conflict with any zoning, water or air pollution or other resolution, order, law or regulation applicable thereto; the Company has caused the Project to be designed and constructed in accordance with all the applicable federal state and local laws or resolutions (including rules and regulations) relating to zoning, building, safety and environmental quality; and the Company has not failed, or will not fail, to obtain and maintain in effect any licenses, permits, franchises or other governmental authorizations necessary for the construction, operation and conduct of the Project to date. The Company hereby agrees to operate the Project, or cause any 13 lessee or other user of the Project, to operate the Project as a "project" as contemplated by the Act Section 5.11. NO UNTRUE STATEMENTS. Neither this Agreement or any other document or certificate furnished to the Trustee, the Credit Bank, the Remarketing Agent or the Issuer by the Company or any Company Representative on or after the Closing Date, contains, to the best of the Company's knowledge, any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein and therein not misleading as of the date of submittal thereof, the date of execution hereof and as of the Closing Date. It is specifically understood by the Company that all statements, representations and warranties made in the Agreement or any other document, certificate or statement furnished to the Trustee, the Credit Bank, the Remarketing Agent or the Issuer by the Company or any Company Representative shall be deemed to have been relied upon by the Issuer as an inducement to make the Loan and that if any such statements, representations and warranties were materially incorrect at the time they were made or as of the Closing Date, the Issuer may consider any such misrepresentation or breach an Event of Default. Section 5.12. DATE OF CONSTRUCTION. The Company hereby represents and warrants that the acquisition, construction, equipping, furnishing and improvement of all portions of the Project to be financed with proceeds from the sale of the Bonds has been completed. Section 5.13. EMPLOYMENT AND OTHER REPORTS. Within sixty (60) days following the end of the Company's fiscal year, the Company shall furnish a written report to the Issuer, and upon request, to the California Industrial Development Financing Advisory Commission, stating the number of full-time and part-time employees of the Company employed at the Project during such fiscal year, and supplying, copies of financial statements and reports required to be delivered to the Credit Bank pursuant to the Reimbursement Agreement. Section 5.14. PREVAILING WAGE CLAUSE. All workers employed by the Company with respect to the acquisition and construction of the Project, exclusive of those engaged to do strictly maintenance work, shall have been paid not less than the general prevailing rate of per diem wages for work of a similar character in the locality in which the work is performed, and not less than the general prevailing rate of per diem wages for holiday and overtime work. Those rates shall be determined by the Director of the Department of Industrial Relations in accordance with the standards set forth in section 1773 of the California Labor Code. The Director's determination shall be final, the sections 1773.5, 1774 and 1776 (excepting subdivision (f)) of the California Labor Code shall apply. Section 5.15. CONTINUING DISCLOSURE. In the event that any of the continuing disclosure provisions set forth in Rule 15(c)(2)-12 as promulgated and amended by the Securities and Exchange Commission under the Securities Exchange Act of 1934, creates any disclosure obligations with respect to the Bonds, the Company or the Project, the Company hereby agrees to take such actions as may reasonably be requested by the Remarketing Agent or the Issuer so as to meet the Issuer's or Company's obligations thereunder. The Company hereby agrees to pay all costs, fees or expenses arising from the compliance by the Issuer or the Company with the provisions of this Section 5.15. ARTICLE VI 14 ARTICLE VI DAMAGE, DESTRUCTION AND CONDEMNATION; USE OF PROCEEDS Section 6.1. OBLIGATION TO CONTINUE PAYMENTS. If prior to full payment of the Bonds (or provision for payment thereof in accordance with the provisions of the Indenture) the Project or any portion thereof is destroyed (in whole or in part) or is damaged by fire or other casualty, or title to, or the temporary use of, the Project or any portion thereof shall be taken under the exercise of the power of eminent domain by any governmental body or by any person, firm or corporation acting under governmental authority, the Company shall nevertheless be obligated to continue to pay the amounts specified in Article IV hereof, to the extent not prepaid in accordance with Article VIII hereof. Section 6.2. APPLICATION OF NET PROCEEDS. The Net Proceeds, if any, of any insurance or condemnation award resulting from the damage, destruction or condemnation of the Project or any portion thereof shall be applied in one or more of the following ways at the election of the Company, such election to be subject to any conditions set forth in the Reimbursement Agreement, by written notice to Issuer, the Credit Bank and the Trustee: (a) The prompt repair, restoration, relocation, modification or improvement of the damaged, destroyed or condemned portion of the Project to enable such portion of the Project to accomplish at least the same function as such portion of the Project was designed to accomplish prior to such damage or destruction or exercise of such power of eminent domain. (b) Prepayment of all or a portion of the Loan, subject to and in accordance with Article VIII hereof, and redemption of Bonds; provided that no part of the Net Proceeds may be applied for such purpose unless (1) the entire amount of the Loan is so prepaid and all of the Outstanding Bonds are to be redeemed in accordance with the Indenture, or (2) in the event that only a portion of the Loan is so prepaid, the Company shall furnish to the Issuer, the Credit Bank and the Trustee a certificate of the Company Representative acceptable to the Issuer and the Credit Bank stating (i) that the property forming part of the portion of the Project that was damaged or destroyed by such casualty or was taken by such condemnation proceedings is not essential to the Company's use or possession of such portion of the Project or (ii) that such part of the portion of the Project has been repaired, replaced, restored, relocated, modified or improved to enable such portion of the Project to accomplish at least the same function as such portion of the Project was designed to accomplish prior to such damage or destruction or the taking by such condemnation proceedings. Section 6.3. INSUFFICIENCY OF NET PROCEEDS. If the Project or a portion thereof is to be repaired, restored, relocated, modified or improved pursuant to Section 6.2 hereof, and if the Net Proceeds are insufficient to pay in full the cost of such repair, restoration, relocation, modification or improvement, the Company will nonetheless complete the work or cause the work to be completed and will pay or cause to be paid any cost in excess of the amount of the Net Proceeds. 15 ARTICLE VII EVENTS OF DEFAULT AND REMEDIES Section 7.1. EVENTS OF DEFAULT. Any one of the following which occurs and continues shall constitute an Event of Default: (a) failure by the Company to pay any amounts required to be paid under Section 4.2(a) hereof at the times specified therein; (b) failure by the Company to observe and perform any other covenant, condition or agreement on its part required to be observed or performed by this Agreement, and which continues for a period of thirty (30) days after written notice, specifying such failure and requesting that it be remedied, given to the Company by the Issuer or the Trustee, unless the Issuer and the Trustee shall, with the consent of the Credit Bank, agree in writing to an extension of such time prior to its expiration; provided, however, that if the failure stated in the notice cannot be corrected within such period, the Issuer and the Trustee will not unreasonably withhold their consent to an extension of such time if corrective action is instituted within such period and diligently pursued until the default is corrected; (c) the making of any representation or warranty by the Company in this Agreement or in any document executed in connection with this Agreement which is false or misleading in any material adverse respect when made; or (d) an event of default pursuant to and as defined in the provisions of the Indenture which has occurred and is continuing. The provisions of subsection (b) of this Section 7.1 are subject to the limitation that the Company shall not be deemed in default if and so long as the Company is unable to carry out its agreements hereunder by reason of strikes, lockouts or other industrial disturbances; acts of public enemies; orders of any kind of the government of the United States or of the State or any of their departments, agencies, or officials, or any civil or military authority; insurrections, riots, epidemics, landslides; lightning; earthquake; fire; hurricanes; storms; floods; washouts; droughts; restraint of government and people; civil disturbances; explosions; breakage or accident to machinery, transmission pipes or canals; partial or entire failure of utilities; or any other cause or event not reasonably within the control of the Company; it being agreed that the settlement of strikes, lockouts and other industrial disturbances shall be entirely within the discretion of the Company, and the Company shall not be required to make settlement of strikes, lockouts and other industrial disturbances by acceding to the demands of the opposing party or parties when such course is, in the judgment of the Company, unfavorable to the Company. This limitation shall not apply to any default except under subsection (b) of this Section 7.1. Section 7.2. REMEDIES ON DEFAULT. (a) Whenever any Event of Default shall have occurred and shall continue, after giving notice to the Credit Bank and subject to any right of the Credit Bank to cure any such default, the Issuer and the Trustee may take any one or more of the following remedial steps: (1) The Trustee upon the occurrence of an Event of Default under Section 7.1(a) hereof or upon an acceleration of the principal of and interest on 16 the Bonds pursuant to the Indenture shall immediately declare to be due and payable immediately the unpaid balance of the amount loaned hereunder. (2) The Issuer, the Credit Bank and the Trustee may have access to and may inspect, examine and make copies of the books and records and any and all accounts and data of the Company. (3) Subject to the provisions of subsection (b) of this Section 7.2, the Issuer or the Trustee may take whatever action at law or in equity as may be necessary or desirable to collect the payments and other amounts then due and thereafter to become due or to enforce performance and observance of any obligation, agreement or covenant of the Company under this Agreement. (4) Subject to the provisions of subsection (b) of this Section 7.2, the Trustee may institute any action or proceeding at law or in equity for the collection of any sums due and unpaid, and may prosecute any such action or proceeding to judgment or final decree, and may enforce any such judgment or final decree against the Company and collect in the manner provided by law the moneys adjudged or decreed to be payable. (b) Notwithstanding anything to the contrary set forth in this Agreement, neither the Issuer nor the Trustee shall take any enforcement action pursuant to subsection (a)(3) or (4) above until twenty 20 days after written notice to the Credit Bank of the intent by the Issuer or the Trustee to exercise rights pursuant to either or both of such subsections and provided that the Credit Bank shall not have provided to the Issuer and the Trustee, within said 20-day period, an Opinion of Counsel selected by the Credit Bank and reasonably acceptable to the Issuer that such enforcement will impair the security of the Credit Bank under the Deed of Trust by reason of section 726 of the California Code of Civil Procedure (the so-called "one form of action rule") or otherwise. (c) In case the Trustee or the Issuer shall have proceeded to enforce its rights under this Agreement and such proceedings shall have been discontinued or abandoned for any reason or shall have been determined adversely to the Trustee or the Issuer, then, and in every such case, the Company, the Trustee, the Credit Bank and the Issuer shall be restored respectively to their several positions and rights hereunder, and all rights, remedies and powers of the Company, the Trustee, the Credit Bank and the Issuer shall continue as though no such action had been taken. (d) In case proceedings shall be pending for the bankruptcy or for the reorganization of the Company under the federal bankruptcy laws or any other applicable law, or in case a receiver or trustee shall have been appointed for the property of the Company or in the case of any other similar judicial proceedings relative to the Company, or the creditors or property of the Company, then the Trustee shall be entitled and empowered, by intervention in such proceedings or otherwise, to file and prove a claim or claims for the whole amount owing and unpaid pursuant to this Agreement and, in case of any judicial proceedings, to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee allowed in such judicial proceedings relative to the Company, its creditors or its property, and to collect and receive any moneys or other property payable or deliverable on any such claims, and to distribute such amounts as provided in the Indenture after the deduction of its charges and expenses. Any receiver, assignee or trustee in bankruptcy or reorganization is hereby authorized to make such payments to the Trustee, and to pay to the Trustee any reasonable amount due it for compensation 17 and expenses, including expenses and fees of counsel incurred by it up to the date of such distribution. Section 7.3. AGREEMENT TO PAY ATTORNEYS' FEES AND EXPENSES. In the event the Company should default under any of the provisions of this Agreement and the Issuer or the Trustee should employ attorneys or incur other expenses for the collection of the payments due under this Agreement or the enforcement of performance or observance of any obligation or agreement on the part of the Company herein contained, the Company agrees to pay to the Issuer or the Trustee the reasonable fees of such attorneys and such other expenses so incurred by the Issuer or the Trustee. Section 7.4. NO REMEDY EXCLUSIVE. No remedy herein conferred upon or reserved to the Issuer or the Trustee is intended to be exclusive of any other available remedy or remedies, but each and every such remedy shall be cumulative and shall be in addition to every other remedy given under this Agreement or now or hereafter existing at law or in equity or by statute. No delay or omission to exercise any right or power accruing upon any default shall impair any such right or power or shall be construed to be a waiver thereof, but any such right and power may be exercised from time to time and as often as may be deemed expedient. In order to entitle the Issuer or the Trustee to exercise any remedy reserved to it in this Article VII, it shall not be necessary to give any notice, other than such notice as may be herein expressly required or required by law to be given. Such rights and remedies as are given the Issuer hereunder shall also extend to the Trustee, and the Trustee and the holders of the Bonds shall be deemed third party beneficiaries of all covenants and agreements herein contained. Section 7.5. NO ADDITIONAL WAIVER IMPLIED BY ONE WAIVER. In the event any agreement or covenant contained in this Agreement should be breached by the Company and thereafter waived by the Issuer or the Trustee with the consent of the Credit Bank, such waiver shall be limited to the particular breach so waived and shall not be deemed to waive any other breach hereunder. 18 ARTICLE VIII PREPAYMENT Section 8.1. PREPAYMENT OF LOAN. The Loan may be prepaid by the Company in whole or in part at any time, and shall be prepaid by the Company in whole upon an event of default under the Reimbursement Agreement and the direction of the Credit Bank to effect a mandatory redemption of Bonds as a result thereof. Any prepayment of the Loan as set forth above shall be applied to effect the optional redemption or mandatory redemption, of the Bonds solely as provided in the Indenture and in the Bonds. The Company shall be permitted or required to prepay, or shall be deemed to have prepaid, the Loan, in whole or in part, and the principal amount thereof shall be reduced accordingly, in an amount equal to the principal amount of Bonds redeemed and on the date of such redemption, in such amounts as will enable the Issuer to redeem the Bonds called for redemption pursuant to the Indenture. Section 8.2. REDEMPTION OF BONDS UPON PREPAYMENT. Upon any prepayment of the Loan as provided in Section 8.1, the Trustee is required by the Indenture to call all or part of the Bonds for redemption and to draw upon the Letter of Credit in the respective amounts set forth in Section 5.02 of the Indenture. Section 8.3. AMOUNT OF PREPAYMENT. In the event of any prepayment pursuant to Section 8.1, the amount of the Loan deemed to be prepaid shall be equal to the principal amount of Bonds redeemed as described in Section 8.2. In the case of prepayment of the Loan in full, the Company shall pay to the Trustee an amount sufficient, together with other funds held by the Trustee and available for such purpose, to pay all reasonable and necessary fees and expenses of the Issuer, the Trustee and any paying agent accrued and to accrue through final payment of the Bonds and all other liabilities of the Company accrued and to accrue under this Agreement, and shall pay to the Issuer any amount required by Section 4.2(c). In the case of partial prepayment of the Loan, the Company shall pay or cause to be paid to the Trustee an amount sufficient, together with other funds held by the Trustee and available for such purpose, to pay expenses of redemption of the Bonds to be redeemed upon such prepayment. The Company agrees that it will not voluntarily prepay the Loan or any part thereof, except in amounts sufficient to redeem Bonds in Authorized Denominations, and to pay any applicable redemption premium and accrued interest to the redemption date. 19 ARTICLE IX LIMITATION ON LIABILITY OF ISSUER; EXPENSES; INDEMNIFICATION Section 9.1. LIMITATION ON LIABILITY OF ISSUER. The Issuer shall not be obligated to pay the principal of, or premium, if any, or interest on the Bonds, except from Revenues. The Company hereby acknowledges that the Issuer's sole source of moneys to repay the Bonds and to pay expenses related thereto will be provided by the payments made by the Company pursuant to this Agreement, together with other Revenues, including any drawings under the Letter of Credit or investment income on certain funds and accounts held by the Trustee under the Indenture, and hereby confirms that amounts available to pay all principal of, and premium, if any, and interest on the Bonds as the same shall become due (whether by maturity, redemption, acceleration or otherwise), have been calculated to be at all times sufficient for such purpose. Any obligation or liability of the Issuer created by or arising out of this Agreement (including, without limitation, any liability created by or arising out of the representations, warranties or covenants set forth herein or otherwise) shall not impose a debt or pecuniary liability upon the Issuer or a charge upon its general credit, but shall be payable solely out of the Revenues. Neither the issuance of the Bonds nor the delivery of this Agreement shall, directly or indirectly or contingently, obligate the Issuer to make any appropriation for their payment. Nothing in the Bonds or in the Indenture or this Agreement or the proceedings of the Issuer authorizing the Bonds or in the Act or in any other related document shall be construed to authorize the Issuer to create a debt of the Issuer within the meaning of any constitutional or statutory provision of the State. No breach of any pledge, obligation or agreement of the Issuer hereunder may impose any pecuniary liability upon the Issuer or any charge upon its general credit. Section 9.2. EXPENSES. The Company covenants and agrees to pay and to indemnify the Issuer and the Trustee against all costs and charges, including reasonable fees and disbursements of attorneys, accountants, consultants and other experts, incurred in good faith in connection with this Agreement, the Bonds or the Indenture. Section 9.3. INDEMNIFICATION. (a) The Company releases the Issuer from, and covenants and agrees that the Issuer shall not be liable for, and covenants and agrees, to the extent permitted by law, to indemnify and hold harmless the Issuer and its officers, employees and agents from and against, any and all losses, claims, damages, liabilities or expenses, of every conceivable kind, character and nature whatsoever arising out of, resulting from or in any way connected with (1) the Project, or the conditions, occupancy, use, possession, conduct or management of, or work done in or about, or from the planning, design, acquisition, installation or construction of the Project or any part thereof; (2) the issuance and sale, resale or remarketing of any Bonds or any certifications or representations made by anyone other than the Issuer in connection therewith and the carrying out of any of the transactions contemplated by the Bonds and this Agreement; (3) the Trustee's acceptance or administration of the trusts under the Indenture, or the exercise or performance of any of its powers or duties under the Indenture; (4) any untrue statement or alleged untrue statement of any material fact or omission or alleged omission to state a material fact necessary to make the statements made, in the light of the circumstances under which they were made, not misleading, in the Private Placement Memorandum or other offering circular utilized by the Issuer or any underwriter or placement agent in connection with the sale or remarketing of any Bonds; (5) any event 20 or occurrence with respect to the Hazardous Materials Laws; or (6) any statement or information provided by the Company in connection with its compliance under Section 5.15 hereof; provided that such indemnity shall not be required for damages that result from the negligence or willful misconduct on the part of the party seeking such indemnity. The Company further covenants and agrees, to the extent permitted by law, to pay or to reimburse the Issuer and its officers, employees and agents for its any and all costs, reasonable attorneys, fees, liabilities or expenses incurred in connection with investigating, defending against or otherwise in connection with any such losses, claims, damages, liabilities, expenses or actions, except to the extent that the same arise out of the gross negligence or willful misconduct of the party claiming such payment or reimbursement. The provisions of this Section 9.3 shall survive the final payment and the defeasance of the Bonds, or the discharge of the Bonds, or the defeasance of the lien of the Indenture and the termination of this Agreement. (b) The Company releases the Trustee from, and covenants and agrees that the Trustee shall not be liable for, and covenants and agrees, to the extent permitted by law, to indemnify and hold harmless the Trustee and its officers, employees and agents from and against any and all losses, claims, damages, liabilities or expenses, of every conceivable kind, character and nature whatsoever arising out of, resulting from or in any way connected with (1) the Project, or the conditions, occupancy, use, possession, conduct or management of, or work done in or about, or from the planning, design, acquisition, installation or construction of the Project or any part thereof; (2) the issuance, sale, resale or remarketing of any Bonds or any certifications or representations made by any one other than the Trustee in connection therewith and the carrying out by anyone of any of the transactions contemplated by the Bonds and this Agreement; (3) the Trustee's acceptance or administration of the trusts under the Indenture, or the exercise or performance of any of its powers or duties under the Indenture; or (4) any untrue statement or alleged untrue statement of any material fact or omission or alleged omission to state a material fact necessary to make the statements made, in the light of the circumstances under which they were made, not misleading, in the Official Statement or other offering circular utilized by the Issuer or any underwriter or placement agent in connection with the sale or remarketing of any Bonds; provided that such indemnity shall not be required for damages that result from negligence or willful misconduct on the part of the party seeking such indemnity. The Company further covenants and agrees, to the extent permitted by law, to pay or to reimburse the Trustee and its officers, employees and agents for any and all costs, reasonable attorneys, fees, liabilities or expenses incurred in connection with investigating, defending against or otherwise in connection with any such losses, claims, damages, liabilities, expenses or actions, except to the extent that the same arise out of the negligence or willful misconduct of the party claiming such payment or reimbursement. The provisions of Sections 4.2, 7.3, 9.2 and 9.3 shall survive the Trustee's resignation or removal, the final payment and defeasance of the lien of the Indenture and the termination of this Agreement. Nothing contained herein shall in any way be construed to impose any duties upon the Trustee beyond those contained in the Indenture. All immunities, indemnities, exceptions from liability and other provisions of the Indenture insofar as they relate to the Trustee shall apply to this Agreement. The immunities of the Trustee also extend to its directors, officers, employees and agents. 21 ARTICLE X MISCELLANEOUS Section 10.1. NOTICES. All notices, certificates or other communications shall be deemed sufficiently given on the third day following the day on which the same have been mailed by first class mail, postage prepaid, addressed to the Issuer, the Company, the Trustee or the Credit Bank at the respective addresses set forth in Section 12.01 of the Indenture. A duplicate copy of each notice, certificate or other communication given hereunder by either the Issuer or the Company to the other shall also be given to the Trustee and the Credit Bank. The Issuer, the Company, the Trustee and the Credit Bank may, by notice given hereunder, designate any different addresses to which subsequent notices, certificates or other communications shall be sent. Section 10.2. SEVERABILITY. If any provision of this Agreement shall be held or deemed to be, or shall in fact be, illegal, inoperative or unenforceable, the same shall not affect any other provision or provisions herein contained or render the same invalid, inoperative, or unenforceable to any extent whatever. Section 10.3. EXECUTION OF COUNTERPARTS. This Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument; provided, however, that for purposes of perfecting a security interest in this Agreement by the Trustee under Article 9 of the California Uniform Commercial Code, only the counterpart delivered, pledged, and assigned to the Trustee shall be deemed the original. Section 10.4. AMENDMENTS, CHANGES AND MODIFICATIONS. Except as otherwise provided in this Agreement or the Indenture, subsequent to the initial issuance of Bonds and prior to their payment in full, or provision for such payment having been made as provided in the Indenture, this Agreement may be effectively amended, changed, modified, altered or terminated only by written instrument executed by the parties hereto and only with the written consent of the Credit Bank; provided, however, written consent of the Credit Bank shall not be required in connection with any amendment, change, modification, alternation or termination effected in connection with a Rating Event Date. The Company hereby agrees to amend this Agreement as may reasonably be required by the Rating Agency in connection with a Rating Event Date. Section 10.5. GOVERNING LAW. This Agreement shall be governed exclusively by and construed in accordance with the applicable laws of the State. Section 10.6. AUTHORIZED REPRESENTATIVES. Whenever under the provisions of this Agreement the approval of the Company, the Issuer or the Credit Bank is required for any action, and whenever the Company, the Issuer or the Credit Bank is required to deliver any notice or other writing, such approval or such notice or other writing shall be given, respectively, on behalf of the Company by the Company Representative, on behalf of the Issuer by the Authorized Issuer Representative and on behalf of the Credit Bank by the Authorized Bank Representative, and the Issuer, the Trustee, the Credit Bank and the Company shall be authorized to act on any such approval or notice or other writing and none of the parties hereto nor the Credit Bank shall have any complaint against the other or against the Trustee as a result of any such action taken. Section 10.7. TERM OF THE AGREEMENT. This Agreement shall be in full force and effect from the date hereof and shall continue in effect as long as any of the Bonds are outstanding or the Trustee holds any moneys under the Indenture, whichever is later. The provisions of Section 9.3 hereof shall survive the termination of this Agreement. 22 Section 10.8. BINDING EFFECT; THIRD PARTY BENEFICIARY. This Agreement shall inure to the benefit of and shall be binding upon the Issuer, the Trustee, the Company and their respective successors and assigns; subject, however, to the limitations contained in Section 5.2 hereof. The Credit Bank is intended to be a third party beneficiary of this Agreement to the extent the provisions hereof are expressly for the benefit of the Credit Bank. Section 10.9. CAPACITY OF TRUSTEE. The Trustee is entering into this Agreement solely in its capacity as Trustee under the Indenture and the duties, powers and liabilities of the Trustee in acting hereunder shall be subject to the provisions of the Indenture, including, without limitation, the provisions of Article VIII thereof. 23 IN WITNESS WHEREOF, the Issuer has caused this Agreement to be executed in its name and its seal to be hereunto affixed and attested by its duly authorized officer, the Trustee has caused this Agreement to be executed in its name by its duly authorized officer, and the Company has caused this Agreement to be executed in its name by its duly authorized officer, all as of the date first above written. LA MIRADA INDUSTRIAL DEVELOPMENT AUTHORITY By: /s/ ------------------------------- Treasurer BANKERS TRUST COMPANY OF CALIFORNIA, N. A. By: /s/ ------------------------------- Vice President RYKOFF-SEXTON, INC. By: /s/ ------------------------------- Senior Vice President & Chief Financial Officer 24 EXHIBIT A FORM OF FUNDING REQUISITION Date ________________, 19___ Requisition No.____________ 1. We hereby request that the sum of $______________________ be disbursed from the Project Fund for the items described on Exhibit A hereto, to be paid to the Company as reimbursement for amounts paid in connection with the acquisition and construction of the Project. 2. The undersigned hereby represents that: (a) the full amount of such disbursement will be applied to pay or reimburse the Company for the payment of Project Costs. (b) that reimbursements being made to the Company pursuant hereto relate to Project Costs, have been properly incurred, are a proper charge against the Project Fund pursuant to the Indenture and have not been the basis of any previous disbursement; and RYKOFF-SEXTON, INC. By: ------------------------------- Company Representative DISBURSEMENT CONSENTED TO BY: THE FIRST NATIONAL BANK OF CHICAGO By: ------------------------------- Authorized Bank Representative Capitalized terms used herein shall have the meanings given to them in the Indenture of Trust, dated as of November 1, 1996, by and between the La Mirada Industrial Development Authority and Bankers Trust Company, as trustee. A-1 EXHIBIT B FACILITIES FINANCED FROM BOND PROCEEDS The Project consists of a single-story, 413,200 square-foot building on a 26.7-acre site in La Mirada, California. The Project includes a dry storage area, a freezer/cooler area with 100,000 square feet, and administrative offices. The legal description of the real property on which the Project is located is described as follows: PARCEL 11, IN THE CITY OF LA MIRADA, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA AS SHOWN ON THE MAP OF PARCEL MAP NO. 23208, FILED IN BOOK 263 PAGES 35 THROUGH 42 INCLUSIVE OF PARCEL MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. EXCEPT FROM THAT PORTION OF SAID LAND LYING WITHIN LOTS 17, 18, 23, 24, 37 AND 38, ALL OIL, GAS, ASPHALTUM, OTHER HYDROCARBON SUBSTANCES AND ALL OTHER MINERAL RIGHTS AND OTHER SUBSTANCES LYING IN AND UNDER SAID PROPERTY AT A DEPTH BELOW 500 FEET OF THE SURFACE THEREOF, WITH NO RIGHT OF ENTRY TO THE SURFACE THEREOF OR WITHIN SAID 500 FEET, AS RESERVED BY C. VANDERHAM AND AARTJE VANDERHAM, HUSBAND AND WIFE, IN DEED RECORDED MAY 24, 1957 AS INSTRUMENT NO. 2236 IN BOOK 54593 PAGE 382, OFFICIAL RECORDS, BY MYRLE G. MC COMBER, A WIDOW, IN DEED RECORDED MAY 24, 1957 AS INSTRUMENT NO. 2233, IN BOOK 54593 PAGE 442, OFFICIAL RECORDS, BY C. GARNER MC COMBER, ALSO KNOWN AS GARNER MC COMBER, A MARRIED MAN AND ELOISE M. MC COMBER, HIS WIFE AND GERALDINE M. CHEWNING, A MARRIED WOMAN, IN DEED RECORDED MAY 24, 1957 AS INSTRUMENT NO. 2234, IN BOOK 54593 PAGE 386, OFFICIAL RECORDS AND BY LINNIE H. MC COMBER, SURVIVING TRUSTEE UNDER DECLARATION OF TRUST RECORDED IN BOOK 15114 PAGE 126 OF OFFICIAL RECORDS OF LOS ANGELES COUNTY, IN DEED RECORDED MAY 24, 1957 AS INSTRUMENT NO. 2231 IN BOOK 54593 PAGE 376, OFFICIAL RECORDS. SAID DEED ALL RECITES: "THE ABOVE EXCEPTION SHALL NOT BE CONSTRUED TO INCLUDE WATER, WATER RIGHTS OR CLAIMS FOR THE USE THEREOF EXCEPT SUCH WATER AS IS USED, DIVERTED, INTERFERED WITH, NECESSARY FOR, INCIDENTAL TO OR WHICH ARISES FROM THE DRILLING, MINING, REMOVAL PRODUCTION, RECOVERY OR EXTRACTION THEREFROM OF SAID OIL, MINERALS, MINERAL RIGHTS OR OTHER SUBSTANCES AS HEREINBEFORE SET FORTH. ALSO EXCEPT FROM THE REMAINDER OF SAID LAND ALL OIL, GAS, ASPHALTUM, OTHER HYDROCARBON SUBSTANCES AND ALL OTHER MINERALS AND MINERAL RIGHTS AND OTHER SUBSTANCES LYING IN AND UNDER SAID PUBLIC UTILITY AT A DEPTH BELOW 500 FEET OF THE SURFACE THEREOF, WITH NO RIGHT OF ENTRY TO THE SURFACE THEREOF OR WITHIN SAID 500 FEET, AS RESERVED BY G. D. MC COMBER, A WIDOWER AND G. DONALD MC COMBER, AS TRUSTEE UNDER THE WILL OF ELLYNE HASKELL MC COMBER, DECEASED, AND THE DECREE OF THE DISTRIBUTION OF HER ESTATE, IN DEED RECORDED MAY 24, 1957 AS INSTRUMENT NO. 2230 IN BOOK 54593 PAGE 384, OFFICIAL RECORDS. SAID DEED RECITES: "THE ABOVE EXCEPTION SHALL NOT BE CONSTRUED TO INCLUDE WATER, RIGHTS OR CLAIMS FOR THE USE THEREOF EXCEPT SUCH WATER B-1 IS USED, DIVERTED, INTERFERED WITH, NECESSARY FOR, INCIDENTAL TO OR WHICH ARISES FROM THE DRILLING, MINING, REMOVAL PRODUCTION, RECOVERY OR EXTRACTION THEREFROM OR SAID OIL, MINERALS, MINERAL RIGHTS OR OTHER SUBSTANCES AS HEREINBEFORE SET FORTH. ALSO EXCEPT ALL MINERALS CONTAINED IN THE ABOVE DESCRIBED LAND, INCLUDING WITHOUT LIMITING THE GENERALITY THEREOF, OIL, GAS AND OTHER HYDROCARBON SUBSTANCES, AS WELL AS METALLIC OR OTHER SOLID MINERALS, PROVIDED, THAT SANTA FE SHALL NOT HAVE THE RIGHT TO GO UPON OR USE THE SURFACE OF SAID LAND, OR ANY PART THEREOF, FOR THE PURPOSE OF DRILLING FOR, MINING, OR OTHERWISE REMOVING ANY OF SAID MINERALS, SANTA FE MAY HOWEVER, AND HEREBY RESERVES THE RIGHT TO, REMOVE ANY OF SAID MINERALS FROM SAID LAND BY MEANS OF WELLS, SHAFTS, TUNNELS, OR OTHER MEANS OF ACCESS TO SAID MINERALS WHICH MAY BE CONSTRUCTED, DRILLED OR DUG FROM OTHER LAND, PROVIDED THAT THE EXERCISE OF SUCH RIGHTS BY SANTA FE SHALL IN NO WAY INTERFERE WITH OR IMPAIR THE USE OF THE SURFACE OF THE LAND HEREBY CONVEYED OR OF ANY IMPROVEMENTS THEREON, AS RESERVED BY THE ATCHISON, TOPEKA AND SANTA FE RAILWAY COMPANY, BY DEED RECORDED DECEMBER 28, 1990 AS INSTRUMENT NO. 90-2127299. B-2 EX-10.43 21 EXHIBIT 10.43 REIMBURSEMENT AGREEMENT EXHIBIT 10.43 REIMBURSEMENT AGREEMENT between RYKOFF-SEXTON, INC. and THE FIRST NATIONAL BANK OF CHICAGO dated as of November 1, 1996 TABLE OF CONTENTS ----------------- Section Page - ------- ----- ARTICLE 1. DEFINITIONS . . . . . . . . . . . . . . . . 2 1.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 ARTICLE 2. AMOUNT AND TERMS OF THE LETTER OF CREDIT . . . . . . . . 13 2.1 The Letter of Credit . . . . . . . . . . . . . . . . . . . . . . . . . 13 2.2 Reimbursement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 2.3 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 2.4 Increased Costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 2.5 Bank Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 2.6 Payments and Computations. . . . . . . . . . . . . . . . . . . . . . . 18 2.7 Obligations Absolute . . . . . . . . . . . . . . . . . . . . . . . . . 19 2.8 Participations; Confidentiality. . . . . . . . . . . . . . . . . . . . 19 2.9 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 2.10 Extension of the Letter of Credit and Replacement. . . . . . . . . . . 21 2.11 Receipt of Certain Funds by the Bank . . . . . . . . . . . . . . . . . 22 ARTICLE 3. CONDITIONS OF ISSUANCE . . . . . . . . . . . . . 22 3.1 Conditions Precedent to Issuance of the Letter of Credit . . . . . . . 22 3.2 Additional Conditions Precedent to Issuance of the Letter of Credit. . 24 ARTICLE 4. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . 25 4.1 Representations and Warranties . . . . . . . . . . . . . . . . . . . . 25 ARTICLE 5. COVENANTS OF THE COMPANY . . . . . . . . . . . . 31 5.1 Affirmative Covenants. . . . . . . . . . . . . . . . . . . . . . . . . 31 5.2 Negative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . 35 5.3 Compliance with ERISA . . . . . . . . . . . . . . . . . . . . . . . . 37 ARTICLE 6. EVENTS OF DEFAULT . . . . . . . . . . . . . . 38 6.1 Events of Default. . . . . . . . . . . . . . . . . . . . . . . . . . . 38 6.2 Upon an Event of Default . . . . . . . . . . . . . . . . . . . . . . . 39 i Section Page - ------- ----- ARTICLE 7. MISCELLANEOUS . . . . . . . . . . . . . . . 40 7.1 Amendments, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 7.2 Notice, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 7.3 No Waiver; Remedies . . . . . . . . . . . . . . . . . . . . . . . . . 41 7.4 Accounting Terms; Change in Accounting Principles. . . . . . . . . . . 41 7.5 Indemnification of the Bank. . . . . . . . . . . . . . . . . . . . . . 41 7.6 Liability of the Bank. . . . . . . . . . . . . . . . . . . . . . . . . 43 7.7 Costs, Expenses and Taxes. . . . . . . . . . . . . . . . . . . . . . . 44 7.8 Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 7.9 Independence of Covenants. . . . . . . . . . . . . . . . . . . . . . . 44 7.10 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 7.11 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 7.12 Governing Law; Terms . . . . . . . . . . . . . . . . . . . . . . . . . 45 7.13 Consent to Jurisdiction and Service of Process . . . . . . . . . . . . 45 7.14 Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . . . . . 45 7.15 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 Exhibit A - Form of Irrevocable Letter of Credit Exhibit B - Form of Pledge Agreement Exhibit C - Form of Custody Agreement Exhibit D - Form of Opinion of Jones, Day, Reavis & Pogue Exhibit E - Description of Premises Schedule I - Certain Existing Liens Schedule II - Certain Indebtedness Schedule III - Certain Regulatory Matters Schedule IV - Certain Environmental Matters Schedule V - ERISA Appendix I - Covenants and Disbursement Procedures Regarding Insurance or Condemnation Proceeds ii REIMBURSEMENT AGREEMENT THIS REIMBURSEMENT AGREEMENT dated as of November 1, 1996, between RYKOFF-SEXTON, INC., a corporation duly organized under the laws of the State of Delaware (the "Company") and THE FIRST NATIONAL BANK OF CHICAGO (the "Bank"). Unless otherwise indicated, all capitalized terms used herein without definition shall have the meanings referred to or set forth in Article One hereof. R E C I T A L S A. The Company proposes to undertake the financing of the acquisition, construction, installation and equipping of a warehouse and distribution facility located in the City of La Mirada, California (the "Project"). B. The Company has requested the financial assistance of the La Mirada Industrial Development Authority (the "Issuer"), in connection with such financing. C. The Issuer and Bankers Trust Company of California, N.A., as trustee (the "Trustee"), propose to enter into an Indenture of Trust dated as of November 1, 1996 (the "Indenture") pursuant to which the Issuer will issue and sell $25,900,000 in aggregate principal amount of its Taxable Variable/Fixed Rate Demand Industrial Development Revenue Bonds (Rykoff-Sexton, Inc. Project) Series 1996 (the "Bonds"). D. The Issuer, the Trustee and the Company propose to enter into a Loan Agreement dated as of November 1, 1996 (the "Loan Agreement") pursuant to which the Issuer will loan the Company the proceeds of the issuance and sale of the Bonds to finance the acquisition and construction of the Project and for other purposes. E. The Company has requested the Bank to issue its irrevocable direct pay letter of credit in substantially the form of Exhibit A annexed hereto (such letter of credit and any successor letter of credit as provided in such letter of credit being the "Letter of Credit") in an amount not to exceed $26,250,000 to secure payment of amounts payable on the Bonds or for their purchase as provided in the Indenture, which amount is equal to the principal amount of the Bonds ($25,900,000) plus an amount equal to 41 days interest on the Bonds at a maximum rate of 12% ($350,000). NOW THEREFORE, in consideration of the premises and in order to induce the Bank to issue the Letter of Credit, the parties hereto agree as follows: 1 ARTICLE 1. DEFINITIONS SECTION 1.1 DEFINITIONS. Unless otherwise indicated in this Agreement, the capitalized terms used herein without definition shall have the following meanings: "AFFECTED LOANS" has the meaning set forth in Section 2.2(g) of this Agreement. "AFFILIATE," as applied to any Person, means any other Person directly or indirectly controlling, controlled by, or under common control with, that Person. For purposes of this definition, "control" (including with correlative meaning, the terms "controlling," "controlled by" and "under common control with"), as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of that Person, whether through the ownership of voting securities or memberships or by contract or otherwise. "AGREEMENT" or "REIMBURSEMENT AGREEMENT" means this Reimbursement Agreement as it may be amended, supplemented or otherwise modified from time to time. "ALTERNATE CREDIT FACILITY" means an irrevocable letter of credit, bank bond purchase agreement, bond insurance policy, revolving credit agreement, surety bond or other agreement or instrument under which any Person (other than the Issuer or the Company) undertakes to make or provide to make payments of the principal and purchase price of and interest on the Bonds, as and when due and delivered pursuant to the Indenture in substitution for the Letter of Credit. "APPLICABLE MARGIN" has the meaning provided in the Bank Facility for loans then in effect on the date of any determination of Applicable Margin. "BANK" has the meaning set forth in the introductory paragraph of this Agreement. "BANK BONDS" has the meaning set forth in Section 2.5. "BANK FACILITY" means the Credit Agreement dated as of May 17, 1996 among Rykoff-Sexton, Inc., Bank of America National Trust and Savings Association, as administrative agent, The Chase Manhattan Bank, N.A. as documentation agent, BA Securities, Inc., as co-arranger, Chase Securities, Inc., as co-arranger and certain other financial institutions. "BANK INFORMATION" has the meaning set forth in Section 7.5(a) hereof. 2 "BANK SECURITY DOCUMENTS" means, collectively, the Deed of Trust, the Security Agreement, the Financing Statement, the Pledge Agreement, the Custody Agreement and any other agreement or instrument which recites that it secures the obligation of the Company under this Agreement. "BASE RATE" means, for any day, the rate of interest per annum (calculated on a 360-day year basis for the actual number of days elapsed) equal to the greater of (a) the rate per annum equal to the corporate base rate of interest announced by the Bank from time to time (such rate not necessarily being the lowest rate which the Bank charges to a borrower or group of borrowers) in effect on such day or (b) (i) the rate on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, the next succeeding Business Day) by the Federal Reserve Bank of New York, or (ii) if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Bank from three Federal funds brokers of recognized standing selected by it plus in each case specified in (i) and (ii) 0.5% per annum, each change in the Base Rate to be effective as of the opening of business on the day such change occurs. If for any reason the Bank shall have determined that it is unable to ascertain the rate on overnight Federal funds transactions, including, without limitation, the inability or failure of the Bank to obtain sufficient bids or publications in accordance with the terms hereof, the Base Rate shall be the prime lending rate of the Bank until the circumstances giving rise to such inability no longer exist. "BONDS" has the meaning set forth in Recital C of this Agreement. "BUSINESS DAY" means a day which is not (i) a Saturday, Sunday or day on which banking institutions in the State of Illinois or the State of New York or in any jurisdiction in which the principal office of the Tender Agent or the Trustee or the office of the Bank at which drawings under the Letter of Credit must be presented are authorized or required to be closed, or (ii) a day on which the New York Stock Exchange is authorized or required to be closed. "CODE" means the Internal Revenue Code of 1986, and the regulations promulgated thereunder and any amendment thereto or any successor statute and related regulations. "COMPANY" has the meaning set forth in the introductory paragraph of this Agreement. "CONTROLLED GROUP" means the Company and all Persons (whether or not incorporated) under common control or treated as a single employer with the Company pursuant to Section 414(b),(c),(m) or (o) of the Code. 3 "CREDIT TERMINATION DATE" means the earliest of (i) the date on which the Final Drawing is honored by the Bank, (ii) the date on which the Bank is notified by the Trustee as the date on which there are no longer any Bonds Outstanding, (iii) the date on which any Alternate Credit Facility becomes effective, and (iv) the Stated Termination Date. "CUSTODY AGREEMENT" means the Custody Agreement dated as of November 1, 1996 between Bank and the Trustee in form and substance satisfactory to the Bank substantially in the form of Exhibit E hereto. "DEED OF TRUST" means the Deed of Trust, Assignment of Rents and Fixture Filing with respect to the Project, dated of even date herewith, executed by the Company, as trustor, to the Chicago Title Company, as trustee, for the benefit of Bank, as beneficiary. "DEFAULT" means any condition or event which constitutes an Event of Default or which with the giving of notice or lapse of time or both would, unless cured or waived, become an Event of Default. "DISBURSEMENT ACCOUNT" has the meaning set forth in Appendix I. "ENVIRONMENTAL ACTIVITIES" means the use, generation, transportation, treatment, storage or disposal of any Hazardous Materials at any time located on or present on or under the Premises. "ENVIRONMENTAL INDEMNITY" means the Environmental Indemnity dated as of November 1, 1996, executed by the Company in favor of Bank. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and regulations promulgated thereunder. "ERISA AFFILIATE" means any trade or business (whether or not incorporated) under common control with the Company within the meaning of Section 414(b), 414(c) or 414(m) of the Code. "ERISA EVENT" means (a) a Reportable Event with respect to a Qualified Plan or a Multiemployer Plan subject to Title IV of ERISA; (b) a withdrawal by the Company or any ERISA Affiliate from a Qualified Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer (as defined in Section 4001(a)(2) of ERISA); (c) a complete or partial withdrawal by the Company or any ERISA Affiliate from a Multiemployer Plan; (d) the filing of a notice of intent to terminate, the treatment of a plan amendment as a termination under Section 4041 or 4041A of ERISA or the commencement of proceedings by the PBGC to terminate a Qualified Plan or Multiemployer Plan subject to Title IV of ERISA; (e) a failure by the Company or any member of the 4 Controlled Group to make required contributions to a Qualified Plan or Multiemployer Plan; (f) an event or condition which would constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Qualified Plan or Multiemployer Plan; (g) the imposition of any liability under Title IV of ERISA, other than PBGC premiums due but not delinquent under Section 4007 of ERISA, upon the Company or any ERISA Affiliate; (h) an application for a funding waiver or an extension of any amortization period pursuant to Section 412 of the Code with respect to any Plan; (i) a non-exempt prohibited transaction occurs with respect to any Plan for which the Company or any Subsidiary of the Company may be directly or indirectly liable; or (j) a violation of the applicable requirements of Section 404 or 405 of ERISA or the exclusive benefit rule under Section 401(a) of the Code by any fiduciary or disqualified person with respect to any Plan for which the Company or any member of the Controlled Group may be directly or indirectly liable. "EURODOLLAR RATE LOAN" has the meaning set forth in 2.2(b) of this Agreement. "EVENT OF DEFAULT" has the meaning set forth in Section 6.1 of this Agreement. "EXCLUDED COLLATERAL" has the meaning set forth in the Security Agreement. "FINAL DRAWING" has the meaning set forth in the Letter of Credit. "FINANCIAL COVENANT DEFAULT" means a Default or failure to satisfy any of the requirements set forth in Section 5.2(g) of this Agreement in any Fiscal Year. "FINANCING STATEMENT" means the UCC-1 financing statement executed by the Company, as debtor, pursuant to the Security Agreement, and naming Bank as the secured party. "FISCAL YEAR" means the period ending on the Saturday of each year closest to June 30 and beginning on the next day, or any other 12-month period hereafter selected and designated as the official fiscal year of the Company. "GAAP" means, subject to the provisions of Section 7.4, generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession, which are applicable to the circumstances as of the date of determination; PROVIDED, HOWEVER, that with respect to the use of the term GAAP in sections incorporated 5 from the Bank Facility, GAAP shall have the meaning set forth in the Bank Facility. "GUARANTY", as applied to any Person, means all loan commitments of that Person and all obligations of that Person guaranteeing in any manner, whether directly or indirectly, any obligation of any other Person for the payment of principal or interest with respect to borrowed money. "HAZARDOUS MATERIALS" means (a) any oil, flammable substances, explosives, radioactive materials, hazardous wastes or substances, toxic wastes or substances or any other materials or pollutants which (i) pose a hazard to the Premises or to persons on or about the Premises or (ii) cause the Premises to be in violation of any Hazardous Materials Laws; (b) asbestos in any form which is or could become friable, urea formaldehyde foam insulation, transformers or other equipment which contain dielectric fluid containing levels of polychlorinated biphenyls in excess of fifty (50) parts per million; (c) any chemical, material or substance defined as or included in the definition of "hazardous substances," hazardous wastes," "hazardous materials," "extremely hazardous waste," "restricted hazardous waste," or "toxic substances" or words of similar import under any applicable local, state or federal law or under the regulations adopted or publications promulgated pursuant thereto, including, but not limited to, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq.; the Hazardous Materials Transportation Act, as amended, 49 U.S.C. Section 1801, et seq.; the Resource Conservation and Recovery Act, as amended, 42 U.S.C. Section 6901, et seq.; the Federal Water Pollution Control Act, as amended, 33 U.S.C. Section 1251, et seq.; Sections 25115, 25117, 25122.7, 25140, 25281, 25316, and 25501 of the California Health and Safety Code; and Article 9 or Article 11 of Title 22 of the California Administrative Code, Division 4, Chapter 20; and (d) any other chemical, material or substance, exposure to which is prohibited, limited or regulated by any governmental authority or may or could pose a hazard to the health and safety of the occupants of the Premises or the owners and/or occupants of property adjacent to or surrounding the Premises. "HAZARDOUS MATERIALS LAWS" shall mean any federal, state or local laws, ordinances, regulations, or policies relating to the environment, health and safety, Environmental Activities and Hazardous Materials (including, without limitation, the use, handling, transportation, production, disposal, discharge or storage thereof) including, without limitation, soil or ground water conditions. "INDEBTEDNESS", as applied to any Person, means (i) any Guaranty, (ii) any indebtedness or obligation of that Person for the payment of principal or interest with respect to borrowed moneys or which otherwise constitutes indebtedness, as determined in accordance with GAAP, including obligations under conditional sales contracts or other title retention contracts and rental obligations under 6 leases which are considered capital leases under GAAP, (iii) notes payable and drafts accepted representing extensions of credit to such Person whether or not representing obligations for borrowed money, (iv) any obligation owed by that Person for all or any part of the deferred purchase price of property or services which purchase price is due more than six months from the date of incurrence of the obligation in respect thereof or evidenced by a note or other instrument and (v) all indebtedness secured by a Lien on property of that Person, whether or not with recourse to that person. "INDEMNITEE" has the meaning set forth in Section 7.5 of this Agreement. "INDENTURE" means the Indenture of Trust dated as of November 1, 1996 between the Issuer and the Trustee pursuant to which the Bonds are to be executed and delivered. "INITIAL STATED AMOUNT" has the meaning set forth in Section 2.1 of this Agreement. "INTEREST DRAWING" has the meaning set forth in the Letter of Credit. "INTEREST PERIOD" has the meaning set forth in Section 2.2(c) of this Agreement. "ISSUANCE DATE" means November 20, 1996. "ISSUER" has the meaning set forth in Recital B of this Agreement. "L/C DOCUMENTS" means this Agreement, the Bank Security Documents, and any and all other agreements, instruments, certificates, or other documents now or hereafter given by the Company to Bank pursuant thereto or in connection therewith, or given to evidence, guaranty, or secure any of the Company's obligations under the foregoing documents. "LETTER OF CREDIT" has the meaning set forth in Recital E of this Agreement. "LETTER OF CREDIT FEE" has the meaning set forth in Section 2.3(b) of this Agreement. "LIBOR" means the rate of interest equal to: (a) the offered rate for deposits in United States Dollars which appears on Telerate Page 3750 as of 11:00 a.m. London time, on the second full Business Day next preceding the first of each date a rate is set (unless such day is not a Business Day, in which event the next succeeding Business Day will be used). 7 (b) a number equal to 1.0 minus the aggregate (but without duplication) of the rates (expressed as a decimal fraction) of reserve requirements than in effect on the day which is two (2) Business Days prior to the beginning of such date a rate is set (including, without limitation, basic, supplemental, marginal and emergency reserves under any regulations of the Board of Directors of the Federal Reserve System or other governmental authority having jurisdiction with respect thereto, as now and from time to time in effect) for Eurocurrency funding (currently referred to a "Eurocurrency Liabilities" in Regulation D of such Board), which are required to be maintained by a member bank of the Federal Reserve System. If such interest rates shall cease to be available from Telerate News Service, the LIBOR rate shall be determined from such financial service selected by the Company and acceptable to the Bank. "LIEN" means any lien, mortgage, deed of trust, pledge, security interest, charge or encumbrance of any kind (including any conditional sale or other title retention agreement, any lease in nature thereof, and any agreement to give any lien or security interest). "LIQUIDITY DRAWING" has the meaning set forth in the Letter of Credit. "LIQUIDITY DRAWING PREMIUM" means a rate of interest per annum with respect to a Liquidity Drawing equal to 0% for the first 180 days after the Liquidity Drawing and 1.00% thereafter. "LIQUIDITY DRAWING REPAYMENT" means the amount to be paid by the Company to the Bank in the event of (i) a payment made under the Letter of Credit in respect of a Liquidity Drawing to pay all or any part of the principal portion of the purchase price of the Bonds tendered for purchase in accordance with Section 2.03(a) of the Indenture, which shall be equal to the amount of such drawing or (ii) a payment made under the Letter of Credit in respect of an Interest Drawing relating to a Liquidity Drawing to pay accrued interest with respect to such Bonds, which shall be equal to the amount of such drawing; PROVIDED, HOWEVER, that, at the Company's option, payment of the amounts set forth in clause (i) related to the principal amount of the Bonds above may be made on or prior to 18 months after such drawing and payment of the amounts set forth in clause (ii) with respect to the interest portion of any such drawing shall be made on or before the first calendar day of the next succeeding month (but in any event not later than the Credit Termination Date) and on the Credit Termination Date. "LOAN AGREEMENT" has the meaning set forth in Recital D of this Agreement. 8 "MOODY'S" means Moody's Investors Service, a corporation organized and existing under the laws of the State of Delaware, its successors and assigns, or, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, any other nationally recognized securities rating agency designated by the Issuer, with the approval of the Company and the Bank. "MULTIEMPLOYER PLAN" means a "multiemployer plan" (within the meaning of Section 4001(a)(3) of ERISA) and to which any member of the Controlled Group makes, is making, or is obligated to make contributions or, during the preceding six calendar years, has made, or been obligated to make, contributions. "NOTICE OF CONVERSION/CONTINUATION" has the meaning set forth in Section 2.2(f) of this Agreement. "OBLIGATIONS" means all obligations of the Company to the Bank of every kind and description (whether or not evidenced by a note or other instrument and whether or not for the payment of money), direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising pursuant to the terms of this Agreement and the other Related Documents. "ORIGINATION FEE" has the meaning set forth in Section 2.3(a) of this Agreement. "OUTSTANDING," when used as of any particular time in reference to the Bonds, means all Bonds theretofore, or thereupon being, authenticated and delivered by the Trustee under the Indenture except: (a) Bonds theretofore canceled by the Trustee or surrendered to the Trustee for cancellation; (b) Bonds with respect to which all liability of the Issuer shall have been discharged in accordance with Article VII of the Indenture; (c) Bonds for the transfer or exchange of or in lieu of or in substitution for which other Bonds shall have been authenticated and delivered by the Trustee pursuant to the Indenture; and (d) Bank Bonds. "PARTICIPANT" has the meaning set forth in Section 2.8 of this Agreement. "PAYMENT DATE" means the date when interest and/or principal with respect to the Bonds due, whether by scheduled payment, redemption or acceleration and also means the date on which interest with respect to the Bonds is converted 9 to bear interest at a different rate than the rate at which the Bonds are then bearing interest. "PAYMENT REQUEST DOCUMENTS" has the meaning set forth in Section A.5(c) of Appendix I. "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to any of its principal functions under ERISA. "PENSION PLAN" means any Employee Benefit Plan, other than a Multiemployer Plan, which is subject to Section 412 of the Internal Revenue Code or Section 302 or ERISA. "PERMITTED LIENS" means and includes: (1) Liens permitted pursuant to the Deed of Trust and the Bank Facility; (2) Liens existing as of the date of original delivery of the Bonds and which are identified on SCHEDULE I hereto; (3) Liens granted to Bank of America National Trust and Savings Association, as administrative agent, under the Bank Facility; and (4) any other Liens permitted in writing by the Bank. "PERSON" means an individual, a corporation, a partnership, an association, a trust or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. "PLACEMENT AGREEMENT" means the Placement Agreement dated November 19, 1996, among The First National Bank of Chicago, as placement agent, the Issuer and the Company. "PLAN" means an employee benefit plan (as defined in Section 3(3) of ERISA) which the Company or any member of the Controlled Group sponsors or maintains or to which the Company or any member of the Controlled Group makes, its making or is obligated to make contributions, and includes any Multiemployer Plan or Qualified Plan. "PLEDGE AGREEMENT" means the Pledge Agreement dated as of even date herewith between the Company and the Bank substantially in the form of Exhibit B to this Agreement. "PRELIMINARY PRIVATE PLACEMENT MEMORANDUM" has the meaning set forth in Section 4.1(i). "PREMISES" means the real property on which the Project is located in the City of La Mirada, County of Los Angeles as more particularly described in Exhibit E and all personal property located on or affixed to such real property or otherwise used in connection with the business of the Company conducted on such 10 real property; PROVIDE, HOWEVER, that the Premises shall not include the Excluded Collateral. "PRINCIPAL OFFICE" means the principal office of the Bank in Chicago, Illinois. "PRIVATE PLACEMENT MEMORANDUM" has the meaning set forth in Section 4.1(i) of this Agreement. "PROJECT" has the meaning set forth in Recital A of this Agreement. "QUALIFIED PLAN" means a pension plan (as defined in Section 3(2) of ERISA) intended to be tax-qualified under Section 401(a) of the Code and which any member of the Controlled Group sponsors, maintains, or to which it makes, is making or is obligated to make contributions, or in the case of a multiple employer plan (as described in Section 4064(a) of ERISA) has made contributions at any time during the immediately preceding period covering five (5) plan years, but excluding any Multiemployer Plan. "RATING AGENCIES" means Moody's and/or S&P. "RELATED DOCUMENTS" means the Indenture, the Loan Agreement, the Bonds, the Letter of Credit, this Agreement, the Bank Security Documents, the Placement Agreement, the Remarketing Agreement, the Environmental Indemnity, the Preliminary Private Placement Memorandum, the Private Placement Memorandum and any instrument, document or agreement relating thereto. "REMARKETING AGREEMENT" means the Remarketing Agreement dated as of November 1, 1996 among the Issuer, the Company and The First National Bank of Chicago, as remarketing agent. "SECURITY AGREEMENT" means the Security Agreement with respect to the Project dated as of November 1, 1996, executed by the Company, as debtor, in favor of Bank, as secured party. "S&P" means Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc., a corporation organized and existing under the laws of the State of New York, its successors and assigns, or, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, any other nationally recognized securities rating agency designated by the Issuer, with the approval of the Company and the Bank. "STATED TERMINATION DATE" has the meaning given thereto in the Letter of Credit or such later date as may be agreed upon in writing by the Bank and the Company in accordance with Section 2.10 hereof. 11 "SUBSIDIARY" means any corporation, association, partnership or joint venture or other business entity of which more than 50% of the voting stock (other than equity interests in the case of Persons other than corporations) is owned or controlled, directly or indirectly, by any Person or one or more of the other Subsidiaries of that Person or a combination thereof. "TAX" or "TAXES" means any present or future tax, levy, impost, duty, charge, fee, deduction or withholding of any nature and whatever called, by whomsoever, on whomsoever and wherever imposed, levied, collected, withheld or assessed. "Tax on overall net income" of a Person shall be construed as a reference to tax imposed by the jurisdiction in which its principal office (and/or, in the case of the Bank, its lending office) is located on all or part of the net income, profits or gains of that Person (whether worldwide, or only insofar as such income, profits or gains are considered to arise in or to relate to a particular jurisdiction, or otherwise). "TERMINATION DATE" means the date the Letter of Credit terminates. "TITLE COMPANY" means Chicago Title Insurance Company. "TITLE POLICY" means the title policy described below which shall not contain any survey exceptions or exceptions for rights of parties in possession, easements not of record, or unpaid installments of special assessments, or any other exceptions to coverage, except as expressly provided herein or as otherwise approved by Bank in writing: an ALTA Loan Policy - 1970 (without revision, modification or amendment) issued by the Title Company and such direct access reinsurance agreements as Bank may require, naming Bank as the insured, with liability in the amount of the Initial Stated Amount, insuring the validity and priority of the lien of the Deed of Trust subject only to such exceptions as are approved in writing by Bank, and including CLTA endorsements 100 (unmodified), 103.1, 103.7, 104.6, 104.7, 111.5, 116 and such other endorsements as Bank may require. "TRUSTEE" means Bankers Trust Company of California, N.A., and any successor thereto, as Trustee under the Indenture. "UNFUNDED PENSION LIABILITIES" means the excess of a Plan's benefit liabilities under Section 4001(a)(16) of ERISA, over the current value of that Plan's assets (exclusive of any contribution due), determined as of the most recent valuation date for which a valuation is available in accordance with the assumptions used by the Plan's actuaries for funding the Plan on an ongoing basis pursuant to Section 412 of ERISA for the applicable plan year. 12 "USF" means US Foodservice, Inc., A Delaware corporation. ARTICLE 2. AMOUNT AND TERMS OF THE LETTER OF CREDIT SECTION 2.1 THE LETTER OF CREDIT. On the terms and conditions hereinafter set forth, the Bank agrees, upon 24 hours' prior request of the Company and satisfaction of the conditions precedent set forth in Section 3.1, to issue the Letter of Credit in an amount not exceeding $26,250,000 (the "INITIAL STATED AMOUNT") and expiring on or before the Stated Termination Date. SECTION 2.2 REIMBURSEMENT. (a) REIMBURSEMENT. The Company hereby agrees to pay to the Bank (i) immediately and without demand on the date that any amount is drawn under the Letter of Credit by the Trustee, other than with respect to a Liquidity Drawing or an Interest Drawing with respect to any Liquidity Drawing effected pursuant to Section 2.03(a) of the Indenture, a sum equal to such amount; (ii) the Liquidity Drawing Repayment at such times and in such amounts as shall be specified in the definition of such term; (iii) on demand, interest on any amounts unpaid by the Company when due under this Agreement other than as specified in clause (iv) of this Section 2.2, whether at maturity, by acceleration, on the date demanded or otherwise, including post-petition interest in any proceeding under the United States Bankruptcy Code or other applicable bankruptcy laws, from and including the date such amounts become due until payment in full, whether before or after judgment, at a fluctuating interest rate per annum equal to the interest rate then in effect under this Agreement plus 2.00%; PROVIDED that, in the case of a Eurodollar Rate Loan, upon the expiration of the Interest Period then in effect at the time any such increase in interest rate is effective such Eurodollar Rate Loan shall terminate and thereafter bear interest payable upon demand at the Base Rate plus Applicable Margin and Liquidity Drawing Premium then in effect plus 2.25%; (iv) interest on any and all unpaid amounts payable by the Company under clause (ii) of this Section 2.2, from and including the date of drawing on the Letter of Credit until payment in full, at a fluctuating interest rate per annum equal to the Base Rate or LIBOR (as provided in Section 2.2(b)) plus .25% and the Applicable Margin and the Liquidity Drawing Premium, if any, payable in arrears on the earlier of the date of repayment of such unpaid amounts or the first Business Day of each calendar month; and (v) on demand, any other amounts expressly payable by the Company to the Bank under this Agreement. Payment by the Company or acceptance by the Bank of interest provided for herein is not a permitted alternative to timely payment and shall not constitute a waiver of any Event of Default or otherwise prejudice or limit any rights or remedies of the Bank. (b) EURODOLLAR RATE LOAN. At the option of the Company, subject to the provisions of subsection 2.2(c), unpaid amounts with respect to the principal portion 13 of a Liquidity Drawing shall bear interest at LIBOR plus .25% and the Applicable Margin and the Liquidity Drawing Premium payable in arrears on the earlier of the date of repayment of such unpaid amounts or the first Business Day of each calendar month (such selection is hereinafter referred to as a "EURODOLLAR RATE LOAN"). (c) INTEREST PERIODS FOR LIBOR RATE. In connection with each Eurodollar Rate Loan, the Company may, pursuant to the applicable Notice of Conversion/Continuation select an interest period (each an "INTEREST PERIOD") to be applicable to such Loan, which Interest Period shall be, at the Company's option, either a one, two, three or six month period; PROVIDED that: (i) in the case of immediately successive Interest Periods applicable to a Eurodollar Rate Loan continued as such pursuant to a Notice of Conversion/Continuation, each successive Interest Period shall commence on the day on which the next preceding Interest Period expires; (ii) no Interest Period shall extend beyond the Stated Termination Date; (iii) no Interest Period shall extend beyond a date on which the Company is required to make repayment of the Liquidity Drawing related to such Eurodollar Rate Loan; (iv) if an Interest Period would otherwise expire on a day that is not a Business Day, such Interest Period shall expire on the next succeeding Business Day; PROVIDED that, if any Interest Period would otherwise expire on a day that is not a Business Day but is a day of the month after which no further Business Day occurs in such month, such Interest Period shall expire on the next preceding Business Day; (v) 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 the succeeding calendar month; and (vi) in the event the Company fails to specify an Interest Period for any Eurodollar Rate Loan in the applicable Notice of Conversion/Continuation, the Company shall be deemed to have selected an Interest Period of one month. (d) DETERMINATION OF LIBOR INTEREST RATE. As soon as practicable after 10:00 A.M. (Chicago time) on the date specified in the Notice of Conversion/Continuation, Bank shall determine the interest rate that shall apply to the Eurodollar Rate Loan for which an interest rate is then being determined for the applicable Interest 14 Period and shall promptly give notice thereof (in writing by facsimile or by telephone confirmed in writing by facsimile) to the Company. (e) EURODOLLAR RATE LOANS AFTER DEFAULT. After the occurrence of and during the continuation of an Event of Default, (i) the Company may not elect to have an unpaid Liquidity Drawing be maintained as, or converted to, a Eurodollar Rate Loan after the expiration of any Interest Period then in effect for such unpaid drawing and (ii) subject to the provisions of subsection (j), any Notice of Conversion/Continuation given by the Company with respect to a requested conversion/continuation that has not yet occurred shall be deemed to be rescinded by the Company. (f) CONVERSION OR CONTINUATION. The Company shall deliver a notice regarding such conversion or continuation ( "NOTICE OF CONVERSION/CONTINUATION") to the Bank no later than 10:00 A.M. (Chicago time) at least three Business Days in advance of the proposed conversion/continuation date (in writing by facsimile or by telephone confirmed in writing by facsimile). A Notice of Conversion/Continuation shall specify (i) the proposed conversion/continuation date (which shall be a Business Day), (ii) the amount of the unpaid reimbursement relating to a Liquidity Drawing to be converted/continued, (iii) the requested Interest Period, and (iv) that no Event of Default has occurred and is continuing. (g) ILLEGALITY OR IMPRACTICABILITY OF EURODOLLAR RATE LOANS. In the event that on any date the Bank shall have determined that the making, maintaining or continuation of its Eurodollar Rate Loans (i) has become unlawful as a result of compliance by the Bank in good faith with any law, treaty, governmental rule, regulation, guideline or order (or would conflict with any such treaty, governmental rule, regulation, guideline or order not having the force of law even though the failure to comply therewith would not be unlawful) or (ii) has become impracticable, or would cause the Bank material hardship, as a result of contingencies occurring after the date of this Agreement which materially and adversely affect the London interbank market or the position of the Bank in that market, then, and in any such event, the Bank shall give notice (by telefacsimile or by telephone confirmed in writing) to the Company of such determination. Thereafter (a) the obligation of the Bank to convert to Eurodollar Rate Loans shall be suspended until such notice shall be withdrawn by the Bank, (b) to the extent such determination by the Bank relates to a Eurodollar Rate Loan then being requested by the Company pursuant to a Notice of Conversion/Continuation, such unpaid reimbursement shall bear interest as otherwise provided hereunder, (c) the Bank's obligation to maintain its outstanding Eurodollar Rate Loans (the "AFFECTED LOANS") shall be terminated at the earlier to occur of the expiration of the Interest Period then in effect with respect to the Affected Loans or when required by law, and (d) the Affected Loans shall automatically bear interest as provided under the Base Rate option on the date of such termination. (h) COMPENSATION FOR BREAKAGE OR NON-COMMENCEMENT OF INTEREST PERIODS. The Company shall compensate the Bank, upon written request by the Bank. 15 (which request shall set forth the basis for requesting such amounts), for all reasonable losses, expenses and liabilities (including any interest paid by the Bank to lenders of funds borrowed by it to make or carry its Eurodollar Rate Loans and any loss, expense or liability sustained by the Bank in connection with the liquidation or re-employment of such funds) which the Bank may sustain: (i) if for any reason (other than a default by the Bank) a conversion to or continuation of any Eurodollar Rate Loan does not occur on a date specified therefor in a Notice of Conversion/Continuation, (ii) if any repayment or other principal payment or any conversion of any of its Eurodollar Rate Loans occurs on a date prior to the last day of an Interest Period applicable to such loan, (iii) if any repayment of any of its Eurodollar Rate Loans is not made on any date specified in a notice of repayment given by the Company, or (iv) as a consequence of any other default by the Company in the repayment of its Eurodollar Rate Loans when required by the terms of this Agreement. SECTION 2.3 FEES. (a) The Company hereby agrees to pay the Bank an origination fee (the "ORIGINATION FEE") computed at the rate of one quarter of one percent (.25%) per annum, on the basis of a 360-day year for the actual number of days elapsed, of the amount available to be drawn under the Letter of Credit from and including the Issuance Date to but excluding the Termination Date, payable quarterly in arrears on the 15th day of each March, June, September and December thereafter commencing March 15, 1997. (b) The Company hereby agrees to pay to the Bank a letter of credit fee (the "LETTER OF CREDIT FEE"), computed at the rate of one and three-quarters percent (1.75%) per annum, on the basis of a 360-day year for the actual number of days elapsed, of the amount available to be drawn under the Letter of Credit from and including the Issuance Date to but excluding the Termination Date, payable quarterly in arrears on the 15th day of each March, June, September and December thereafter commencing March 15, 1997. (c) The Company hereby agrees to pay to the Bank, upon each drawing by the Trustee under the Letter of Credit, a drawing fee equal to $200 (not to exceed $400 per month). (d) The Company hereby agrees to pay to the Bank a transfer fee equal to one-quarter of one percent (.25%) of the Stated Amount of the Letter of Credit transferred to any successor trustee under the Indenture, with a minimum fee of one hundred and fifty dollars ($150) and a maximum fee of eight thousand dollars ($8,000), per transfer payable upon transfer of the Letter of Credit in accordance with its terms to a successor trustee under the Indenture. 16 SECTION 2.3 INCREASED COSTS. If the Bank determines (which determination shall, in the absence of demonstrable error, be final and conclusive and binding on all parties) that compliance with any law, rule or regulation, or any request or directive (whether or not having the force of law) of any governmental authority, court, central bank or comparable agency shall: (A) subject the Bank to any additional Tax with respect to the Letter of Credit, or shall change the amounts due under this Agreement or any of the Related Documents or its obligation to make any payment under the Letter of Credit (except for changes in the rate of Tax on the overall net income of the Bank imposed by the jurisdiction in which the Bank's Principal Office is located); or (B) impose, modify or deem applicable any reserve, capital adequacy, special deposit, insurance or similar requirement (including, without limitation, any such requirement imposed by the Board of Governors of the Federal Reserve System) against letters of credit issued by or assets held by, deposits with or for the account of, or credit extended by, the Bank or shall impose on the Bank any condition with respect to the Agreement, the Letter of Credit or any of the Related Documents; and the result of any of the foregoing is to increase the cost to the Bank of the issuance or maintenance of the Letter of Credit, or to reduce the amount of any sum received or receivable by the Bank under this Agreement or under any of the Related Documents with respect thereto, by an amount deemed by the Bank to be material, or to reduce the rate of return on the Bank's capital as a consequence of it obligations hereunder to a level below which the Bank could have achieved, but for such compliance, taking into account the Bank's policies with respect to capital adequacy, then, within ten days after demand by the Bank, the Company shall pay for the Bank's account such additional amount or amounts as will compensate the Bank for such increased cost or reduction together with interest on each such amount at a rate equal to the Base Rate from the date of such demand by the Bank until payment is full thereof. The Bank will promptly notify the Company of any event occurring after the date hereof of which the Bank has knowledge which will entitle the Bank to compensation pursuant to this Section. A certificate of the Bank claiming compensation under this Section and setting forth in reasonable detail the calculation of the additional amount or amounts to be paid to it hereunder and the basis therefor shall be conclusive in the absence of demonstrable error. In determining such amount, the Bank may use any reasonable averaging and attribution methods. The provisions of this Section shall apply equally to any Person acting as a Participant in the Letter of Credit, as if such Person were the Bank hereunder. 17 In the event any payment is due under this Section 2.4, the Company may, within 30 days after notice thereof from the Bank to the Company, give notice of seeking an Alternate Credit Facility and that such Alternate Credit Facility shall replace the Letter of Credit within 120 days after such demand from the Bank. The election by this Company to seek an Alternate Credit Facility shall not release the Company from its obligation to make payments as provided in this Section 2.4. SECTION 2.5 BANK BONDS. As security for the payment of the Obligations the Company will pledge and grant to the Bank a security interest in, its right, title and interest in and to Bonds delivered to the Bank or its designated agent in connection with Liquidity Drawings and Interest Drawings related to Liquidity Drawings under the Letter of Credit pursuant to the Pledge Agreement ("Bank Bonds"). Upon failure to remarket Bonds purchased in accordance with Section 3.08 of the Indenture with funds derived from a Liquidity Drawing and an Interest Drawing related to such Liquidity Drawing under the Letter of Credit, such Bonds shall become Bank Bonds and shall accrue interest at a rate of 0%. Any amounts from time to time owing to the Bank pursuant to clause (ii) of Section 2.2 may be paid (A) at any time by the Company stating the amount to be paid (which shall be an amount not less than $100,000), and (B) at any time on behalf of the Company on one Business Day's notice from the Company directing the Bank (or the custodian of the Bank Bonds under the Custody Agreement) to deliver a specified principal amount of Bank Bonds held by the Bank (or the custodian of the Bank Bonds under the Custody Agreement) to the Remarketing Agent for sale by it pursuant to the Indenture and the Remarketing Agreement. Upon payment to the Bank of the amount to be paid pursuant to clause (A) or (B) above, together with accrued interest, as set forth in clause (iv) of Section 2.2, to the date of such payment on the amount to be paid, the outstanding Obligations of the Company under clause (ii) of Section 2.2 shall be reduced by the amount of such payment, interest shall cease to accrue on the amount paid and the Bank or its desigated agent shall release to the Company, the Trustee, or the Remarketing Agent, as the case may be, for sale, from the pledge and security interest created by the Pledge Agreement a principal amount of Bank Bonds equal to the amount of such payment. SECTION 2.6 PAYMENTS AND COMPUTATIONS. All payments by the Company to the Bank hereunder shall be made in lawful currency of the United States and in immediately available funds at the Principal Office of the Bank or at such other address as the Bank may designate in writing to the Company. Whenever any payment under this Agreement shall be due on a day which is not a Business Day, the date for payment thereof shall be extended to the next succeeding Business Day. If the date for any payment of principal is extended by operation of law or otherwise, interest thereon shall be payable for such extended time. Computations of interest hereunder shall be made by the Bank on the basis of a year of 360 days for the actual number of days elapsed (including the first day but excluding the last day) and shall be conclusive with respect to the amount of interest owed by the Company absent manifest error. Any payments of principal or interest received by the Bank with respect to the Bank Bonds shall be credited against the amount payable by the Company from time to time 18 pursuant to Section 2.2; PROVIDED that receipt and application of such payments shall not relieve the Company from its payment obligations under Section 2.2 to the extent of any deficiency in the amount so received by the Bank and the Company shall be obligated to make all of the payments required from time to time pursuant to Section 2.2 without deduction or offset except to the extent expressly permitted by the Bank in writing. The Company agrees that if any amount owing to the Bank under this Agreement is not paid when due, whether at maturity, by acceleration, on the date demanded or otherwise including, without limitation, any amount due under Section 2.2, 2.3, 2.4, 7.5 or 7.7 hereof, such amount shall thereafter until paid in full (after as well as before judgment) bear interest payable on demand at a fluctuating rate per annum equal to the rate otherwise due under this Agreement plus 2.00%. SECTION 2.7 OBLIGATIONS ABSOLUTE. The payment Obligations of the Company under this Agreement shall be absolute, unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement under all circumstances whatsoever, including, without limitation, the following circumstances: (i) any lack of validity or enforceability of the Letter of Credit, this Agreement or any other Related Document except if the Letter of Credit is not enforceable or the Bank has willfully refused to make payments under the Letter of Credit, in which case this Section 2.7 shall apply only to such amounts as have been actually drawn under the Letter of Credit plus interest and fees accrued thereon prior to the date of determination of unenforceability or willful refusal; (ii) any amendment or waiver of or any consent to departure from all or any of the Related Documents; (iii) the existence of any claim, set-off, defense or other rights which the Company or any other Person may have at any time against the Trustee, any beneficiary or any transferee of the Letter of Credit (or any Persons for whom the Trustee, any such beneficiary or any such transferee may be acting), the Bank or any other Person, whether in connection with this Agreement, the transactions contemplated herein or in the Related Documents or any unrelated transaction; (iv) any statement or any other document presented under the Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect whatsoever; (v) payment by the Bank under the Letter of Credit against presentation of a draft or certificate which does not comply with the terms of the Letter of Credit; or (vi) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing. 19 Notwithstanding anything to the contrary in this Section 2.7, the Company shall be entitled to bring a separate action against the Bank with respect to any claims it may have against the Bank arising out of or otherwise relating to this Agreement or the Letter of Credit. SECTION 2.8 PARTICIPATIONS: CONFIDENTIALITY. The Bank shall have the right to grant participation rights in this Agreement and the Security Documents and the Bank's obligations under the Letter of Credit at any time and from time to time to one or more financial institutions (each a "PARTICIPANT"); PROVIDED HOWEVER, that, except as provided to the contrary in this Agreement, such participation rights shall be obligations only of the Bank and shall not create any direct obligation of the Company to any such Participant under this Agreement or create any direct liability of any such Participant under the Letter of Credit. The grant of participation rights shall not affect or diminish the rights of the Bank to reimbursement or other payments under Article 2 of this Agreement, such reimbursement or payments to be calculated as if the Bank had not granted any such participation rights. The Company acknowledges and agrees that each Participant may be provided with the right to approve amendments, modifications or waivers affecting such Participant with respect to this Agreement, including, without limitation, any decrease in the fees payable hereunder, any change in the stated amount of the Letter of Credit (other than as set forth in the Letter of Credit), any change in the rate at which interest is payable on the Obligations hereunder, any extension of the Stated Termination Date and any release of any collateral securing the Obligations. The Bank and any Participant shall hold all non-public information obtained pursuant to the requirements of this Agreement which has been identified in writing as confidential by the Company in accordance with their respective customary procedures for handling confidential information of this nature and in accordance with safe and sound banking practices; PROVIDED that the Bank and any Participant in any event may disclose such information to any Participant in connection with its participation or as required or requested by any governmental agency or representative thereof or pursuant to legal process; PROVIDED FURTHER that in no event shall the Bank or a Participant be obligated or required to return any materials furnished by the Company. SECTION 2.9 TAXES. All sums payable by the Company under this Agreement and the Related Documents shall be paid (i) free of any restriction or condition, (ii) free and clear of and (except to the extent required by law) without any deduction or withholding on account of any Tax imposed, levied, collected, withheld or assessed by or within the United States of America or any political subdivision in or of the United States of America or any other jurisdiction from or to which a payment is made by or on behalf of the Company or by any federation or organization of which the United States of America or any such jurisdiction is a member at the time of payment and (iii) without deduction or withholding (except to the extent required by law) on account of any other amount, whether by way of set-off or otherwise. If the Company or any other Person making a payment to the Bank is required by law to make any deduction or withholding on account of any such Tax or 20 other amount as is referred to in the immediately preceding paragraph from any sum paid or payable by the Company to the Bank under this Agreement or the Related Documents: (i) the Company shall notify the Bank of any such requirement or any change in any such requirement as soon as the Company becomes aware of it; (ii) the Company shall pay any such tax or other amount before the date on which penalties attach thereto, such payment to be made (if the liability to pay is imposed on the Company) for its own account or (if that liability is imposed on the Bank) on behalf of and in the name of the Bank (it being understood that the Company shall not be required to pay any such tax to both the Bank and a taxing authority); (iii) the sum payable by the Company in respect of which the relevant deduction, withholding or payment is required shall be increased to the extent necessary to ensure that, after the making of that deduction, withholding or payment, the Bank or any other party receives on the due date and retains (free from any liability in respect of any such deduction, withholding or payment) a net sum equal to what it would have received and so retained had no such deduction, withholding or payment been required or made; and (iv) within 30 days after paying any sum from which it is required by law to make any deduction or withholding, and within 30 days after the due date of payment of any Tax or other amount which it is required by clause (ii) above to pay, the Company shall deliver to the Bank evidence satisfactory to the Bank of such deduction, withholding or payment and of the remittance thereof to the relevant taxing or other authority; PROVIDED that no such additional amount shall be required to be paid to the Bank under clause (iii) above except to the extent that any change after the date hereof in any such requirement for a deduction, withholding or payment as is mentioned therein shall result in an increase in the rate of such deduction, withholding or payment from that in effect at the date of this Agreement in respect of payments to the Bank. SECTION 2.10 EXTENSION OF THE LETTER OF CREDIT AND REPLACEMENT. At least 120 (but not more than 455) days before any Stated Termination Date (including any subsequent Stated Termination Date) the Company may request the Bank in writing (each such request being irrevocable and binding) to extend for a one or two year period the Stated Termination Date of the Letter of Credit. Each such request shall be accompanied or preceded by the financial statements, certificate and statement called for by Section 5.1(g) to the extent not previously provided by the Company on a timely basis and such other information as shall be requested by the Bank. No later than 90 days from the date on which the Bank shall have received notice from the Company pursuant to the second preceding sentence, the Bank shall notify the Company in writing 21 of its consent or nonconsent to such extension request (which consent or nonconsent shall be in the Bank's sole discretion), together with the terms and conditions, including the Letter of Credit Fee and the interest rate with respect to the unreimbursed drawings thereunder to be applicable to such extension required by the Bank in connection with the giving of its consent; provided that the failure of the Bank to so notify the Company of the Bank's consent or nonconsent shall be deemed to be a nonconsent. If the Bank shall have consented to such extension request, and the Company shall have agreed to the terms and conditions that the Bank may have required in connection with the giving of its consent, the Bank shall deliver to the Trustee an amendment of the Letter of Credit which extends the Stated Termination Date thereof for such one or two year period, as applicable. The Bank's consent shall be conditional upon the preparation, execution and delivery of legal documentation in form and substance satisfactory to the Bank and its counsel incorporating substantially the terms and conditions contained in the extension request and the Bank's consent thereto. SECTION 2.11 RECEIPT OF CERTAIN FUNDS BY THE BANK. The Trustee has agreed that it will transfer the moneys required to be transferred to the Bank pursuant to the Indenture. All such moneys received by the Bank shall be credited by the Bank against any Obligations of the Company to the Bank and any other amounts owing hereunder. The Bank shall also be entitled to retain all or a portion of such moneys received equal to an amount which it reasonably anticipates may be necessary to reimburse the Bank for the Obligations and any other amounts which may be incurred by the Bank in the future that are then due and payable by the Company. The Bank shall transfer all such moneys not required to be so credited or retained to the Company or to whomever may be lawfully entitled to receive the same. ARTICLE 3. CONDITIONS OF ISSUANCE SECTION 3.1 CONDITIONS PRECEDENT TO ISSUANCE OF THE LETTER OF CREDIT. The obligation of the Bank to issue the Letter of Credit is subject to the condition precedent that the Bank shall have received on or before the Issuance Date all of the following, and, in the case of documents, each dated such day (or such other date as may be specified), in form and substance satisfactory to the Bank and its counsel: (a) Copies of each resolution or similar instrument adopted by the Board of Directors of the Company authorizing the execution, delivery and performance of this Agreement and each of the other Related Documents to which the Company is a party, the form and content of the Letter of Credit and authorizing and approving the other matters contemplated hereby, certified by the Secretary or an Assistant Secretary of the Company (which certificate shall state that such resolution or similar instrument is in full force and effect on the Issuance Date). 22 (b) Copies, certified by the Secretary of the State of Delaware as of a recent date, of the articles of incorporation of the Company together with copies of the bylaws of the Company certified by the Secretary or Assistant Secretary of the Company and good standing certificates for the Company from the Secretary of State of the States of Delaware, Illinois and California. (c) A certificate of the Secretary or Assistant Secretary of the Company certifying the names and true signatures of the officer or officers of the Company authorized to sign this Agreement and the other documents to be delivered by it hereunder. (d) Opinions of Jones, Day, Reavis & Pogue and Maslon, Edelman, Borman and Brand, a Professional Limited Liability Partnership, counsel for the Company; in form and substance satisfactory to the Bank and its counsel, substantially in the form attached as Exhibit G to this Agreement, including written advice from such counsel that all Participants may rely on such opinions. (e) An executed copy of this Agreement and each Related Document (other than the Letter of Credit). (f) An opinion of Jones Hall Hill & White, a Professional Corporation, Bond Counsel, in form and substance satisfactory to the Bank, including written advice from such counsel that the Bank and all Participants may rely on such opinion. (g) An opinion of counsel for the Trustee, in form and substance satisfactory to the Bank, including written advice from such counsel to the Bank that the Bank and all Participants may rely on such opinion. (h) Evidence satisfactory to the Bank of a search of the records of the filing offices of the Secretary of State of the State of California and the State of Illinois showing all financing statements against the Company. (i) Evidence satisfactory to the Bank of a search of the records of the County of Los Angeles showing all Liens against the Premises and the Project. (j) Certificates or other writing acceptable in form and substance to the Bank evidencing that the Company has complied with all of its obligations to obtain and maintain the insurance required by Section 5.1(c) hereof. (k) A commitment satisfactory to Bank that the Title Company is prepared to issue the Title Policy; 23 (l) A certification from the Company that the Company has no knowledge of any pending or threatened condemnation proceedings which would impair in any way the full utilization of the Project; (m) Evidence, which may be in the form of a letter from an insurance broker or municipal engineer or a certificate from a civil engineer set forth on a survey of the Premises, as to whether the Premises is located in an area designated by the U.S. Department of Housing and Urban Development as having special flood hazards; (n) Certified copies of the resolution or resolutions of the Issuer authorizing the execution and delivery of, and performance by the Issuer under the Indenture, the Loan Agreement and the other Related Documents to which the Issuer is a party. (o) The results of the Bank's continuing financial and legal due diligence investigations with respect to the Company, the issuance of the Bonds, the issuance of the Letter of Credit and the other transactions contemplated hereby shall be satisfactory in all respects to the Bank, and any supplemental business or financial due diligence that the Bank reasonably determines has become necessary shall not have disclosed information not previously disclosed to the Bank which causes the results of such diligence not to be satisfactory in all respects to the Bank. The Bank shall also have received any information reasonably necessary to conduct its due diligence. SECTION 3.2 ADDITIONAL CONDITIONS PRECEDENT TO ISSUANCE OF THE LETTER OF CREDIT. The obligation of the Bank to issue the Letter of Credit shall be subject to the further conditions precedent that on the Issuance Date: (a) the following statements shall be true and the Bank shall have received a certificate signed by a duly authorized officer of the Company, dated the Issuance Date, stating that: (i) The representations and warranties contained in Section 4.1 of this Agreement and Section 8 of the Pledge Agreement are correct on and as of the Issuance Date as though made on and as of such date; and (ii) No event has occurred and is continuing, or would result from the issuance of the Letter of Credit, which constitutes a Default or an Event of Default; (b) the definitive documentation evidencing the issuance and sale of the Bonds shall have been executed and delivered in form and substance satisfactory to the Bank; 24 (c) the Bank shall have received such other approvals, opinions or documents as the Bank may reasonably request; and (d) no legislation, rule, order or decree shall, in the opinion of counsel for the Bank, prohibit or restrain the issuance of the Letter of Credit as provided in this Agreement. ARTICLE 4. REPRESENTATIONS AND WARRANTIES SECTION 4.1 REPRESENTATIONS AND WARRANTIES. The Company represents and warrants as follows: (a) The Company is a corporation duly organized and validly existing under the laws of the State of Delaware; the Company has the power and authority to own its properties and to carry on its business as now conducted; the Company has the power and authority to execute, deliver and perform its obligations under this Agreement and the Related Documents to which it is a party; the Company is qualified as a foreign corporation and in good standing under the laws of such jurisdictions where the conduct of its present business and operations requires such qualification, except in jurisdictions in which the failure to be in good standing has and will have no material adverse effect on the operations, business, properties, condition (financial or otherwise) or prospects of the Company; the Company, by appropriate corporate action, has duly authorized the execution, delivery and performance of this Agreement and the Related Documents to which it is a party; the Company's chief executive office is located at 1050 Warrenville Road, Lisle, Illinois 60532; the Company is not a "foreign corporation," "foreign partnership," "foreign trust," or "foreign estate" as those terms are defined in the Code; and the Company's United States employer identification number is 95-2134693; (b) The individual or individuals executing this Agreement and the Related Documents to which the Company is a party are duly and properly in office and fully authorized to execute the same on behalf of the Company. (c) This Agreement and each Related Document to which the Company is a party are the legal, valid and binding operations of the Company, enforceable against the Company in accordance with their respective terms, subject, however, to the application by a court of general principles of equity and to the effect of any applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights generally. (d) The execution, delivery and performance by the Company of this Agreement and the Related Documents to which the Company is a party, the 25 consummation of the transactions herein and therein contemplated and the fulfillment of or compliance with the terms and conditions hereof and thereof will not in any material respect conflict with or constitute a violation or breach of or default (with due notice or the passage of time or both) under the certificate of incorporation or bylaws of the Company or any applicable law or administrative rule or regulation, or any applicable court or administrative decree or order, or any trust agreement, mortgage, deed or trust, loan agreement, lease, contract or other agreement or instrument to which the Company is a party or by which it or its properties are otherwise subject or bound, or result in the creation or imposition of any Lien of any nature whatsoever, other than a Permitted Lien, upon any of the property or assets of the Company. The Company is not in violation of or default under any of the foregoing to the extent that any such violation or default would materially or adversely affect the Company's ability to perform its obligations hereunder, and no condition exists that would, with the giving of notice or lapse of time or both, constitute such a violation or default. (e) No consent or approval of any trustee, holder of any indebtedness of the Company or any other Person, and no consent, permission, authorization, order or license of, or filing or registration with, any governmental authority, except for the recording and filings in connection with the Liens granted to the Bank hereunder and under the Bank Security Documents is necessary in connection with the execution, delivery and performance of the Agreement or the Related Documents, the consummation of any transaction herein or therein contemplated, or the fulfillment of or compliance with the terms and conditions hereof or thereof, except as have been obtained or made and as are in full force and effect. (f) There is no action, suit, proceeding, inquiry or investigation before or by any court or federal, state, municipal or other governmental authority or arbitrator or other Person, pending or, to the best knowledge of the Company after reasonable inquiry and investigation, threatened against or affecting the Project, the Company or the assets, properties or operations of the Company which, if determined adversely to the Company or its respective interests, could have a material adverse effect upon the Project or the consummation of the transactions contemplated by or the fulfillment or compliance with the terms and conditions, or the legality, validity or enforceability, or this Agreement or the Related Documents, or upon the operations, business, properties, condition (financial or otherwise) or prospects of the Company. The Company is not in in default (and no event has occurred and is continuing which with the giving of notice or the passage of time or both could constitute a default) with respect to any order or decree of any court or any order, regulation or demand of any federal, state, municipal or other governmental authority or arbitrator or other Person, which default could have a material adverse effect upon the Project or the consummation of the transactions contemplated by or the fulfillment or compliance with the terms and conditions, or the legality, validity or enforceability 26 of this Agreement or the Related Documents, or upon the operations, business, properties condition (financial or otherwise) or prospects of the Company, or its respective properties. The Company is not in violation of any applicable law, which violation materially adversely affects or may materially adversely affect the operations, business, properties, condition (financial or otherwise) or prospects of the Company. (g) The Company has filed all Federal and other material tax returns and reports and has paid all Federal and other material taxes, except such, if any, as are being actively contested by the Company in good faith, for which adequate reserves in accordance with GAAP have been made for the payment thereof, which reserves, if any, are reflected in the financial statements described in subsection (h) of this Section. (h) The audited consolidated balance sheets of each of (i) the Company (other than USF) as at April 26, 1996, and (ii) USF as of December 31, 1995, and, in each case, the related consolidated statements of operations, shareholders' equity and cash flows, together with the notes thereto (copies of which have been furnished to the Bank) present fairly the consolidated financial position of the Company (other than USF) and USF as of the respective dates, and the consolidated results of operations and changes in cash flow for the annual periods covered by such financial statements and ending on such date. Since June 29, 1996, the date of the unaudited financial statements of the Company for the transition period then ending and which are included in the Company's Form 10-Q filed August 12, 1996 with the Securities and Exchange Commission (the "FORM 10-Q"), there has been no material adverse change in the operations, business, properties, condition (financial or otherwise) or prospects of the Company. Except as disclosed on Schedule II hereof, the Form 10-Q or in the Bank Facility, the Company has no material Guaranty or Indebtedness, contingent obligation, contingent liability or liability for taxes, long term lease or unusual forward or long-term commitment that is not reflected in the foregoing financial statements or the notes thereto and that in any case is material in relation to the operations, business, properties, condition (financial or otherwise) or prospects of the Company, or which would materially and adversely affect the Company's ability to perform fully and timely its obligations under the L/C Documents. (i) The information contained in the Private Placement Memorandum (such Private Placement Memorandum together with the documents incorporated therein by reference, being the "PRIVATE PLACEMENT MEMORANDUM") relating to the Bonds is, and the information contained in the Preliminary Private Placement Memorandum (such Preliminary Private Placement Memorandum, together with the documents incorporated therein by reference, being the "PRELIMINARY PRIVATE PLACEMENT MEMORANDUM") relating to the Bonds as of their date of issue was, and any supplement or amendment to either thereof with respect to the Company, the use of proceeds of the Bonds and the Company's obligations, covenants and 27 agreements under the Loan Agreement and the Reimbursement Agreement and the descriptions of information contained in the Private Placement Memorandum and the Preliminary Private Placement Memorandum under the captions "INTRODUCTORY STATEMENT," "THE COMPANY," "THE PROJECT" and, to the extent applicable to the Company, "NO LITIGATION" shall on the date thereof be, accurate in all material respects for the purposes for which its use is, was or shall be, authorized and do not and shall not, contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements made therein, in the light of the circumstances under which they are, were or shall be made, not misleading. (j) (i) SCHEDULE V hereto lists all Plans and separately identifies Plans intended to be Qualified Plans and Multiemployer Plans. (ii) Except as disclosed in SCHEDULE V hereto, each Plan sponsored or maintained by the Company or an ERISA Affiliate is in compliance in all material respects with the applicable provisions of ERISA, the Code and other Federal or state law, including all requirements under the Code or ERISA for filing reports (which are true and correct in all material respects as of the date filed), and benefits have been paid in all material respects in accordance with the provisions of the Plan. (iii) Each Qualified Plan sponsored or maintained by the Company or an ERISA Affiliate has been determined by the Internal Revenue Service to qualify under Section 401 of the Code, and the trusts created thereunder have been determined to be exempt from tax under the provisions of Section 501 of the Code, or an application for determination of qualified status has been or will be made to the Internal Revenue Service prior to the end of the remedial amendment period under Section 401(b) of the Code, and to the best knowledge of the Company nothing has occurred which would cause the loss of such qualification or tax-exempt status. (iv) Except as specifically disclosed in SCHEDULE V, no Plan subject to Title IV of ERISA that is sponsored or maintained by the Company or an ERISA Affiliate has any Unfunded Pension Liability. (v) Except as specifically disclosed in SCHEDULE V, no member of the Controlled Group has ever represented, promised or contracted (whether in oral or written form) to any current or former employee (either individually or to employees as a group) that such current or former employee(s) would be provided, at any cost to any member of the Controlled Group, with life insurance or employee welfare plan benefits (within the meaning of section 3(1) of ERISA) following retirement or 28 termination of employment. Except as specifically disclosed on SCHEDULE V, to the extent that any member of the Controlled Group has made any such representation, promise or contract, such member has expressly reserved the right to amend or terminate such life insurance or employee welfare plan benefits with respect to claims not yet incurred. (vi) All members of the Controlled Group have complied in all material respects with the notice and continuation coverage requirements of Section 4980B of the Code. (vii) Except as specifically disclosed in SCHEDULE V, no ERISA Event has occurred or is reasonably expected by the Company or any ERISA Affiliate to occur with respect to any Plan. (viii) Except as specifically disclosed in SCHEDULE V, there are no pending or, to the best knowledge of the Company, threatened claims, actions or lawsuits, other than routine claims for benefits in the usual and ordinary course, asserted or instituted against (i) any Plan maintained or sponsored by the Company or its assets, (ii) any member of the Controlled Group with respect to any Qualified Plan, or (iii) any fiduciary with respect to any Plan for which the Company may be directly or indirectly liable, through indemnification obligations or otherwise. (ix) Except as specifically disclosed in SCHEDULE V, neither the Company nor any ERISA Affiliate has incurred nor reasonably expects to incur (i) any liability (and no event has occurred which, with the giving of notice under Section 4219 of ERISA, would result in such liability) under Section 4201 or 4243 of ERISA with respect to a Multiemployer Plan or (ii) any liability under Title IV of ERISA (other than premiums due and not delinquent under Section 4007 of ERISA) with respect to a Plan. (x) Except as specifically disclosed in SCHEDULE V, neither the Company nor any ERISA Affiliate has transferred any Unfunded Pension Liability to a Person other than the Company or an ERISA Affiliate or otherwise engaged in a transaction that could be subject to Section 4069 or 4212(c) or ERISA. (xi) To the best knowledge of the Company, no member of the Controlled Group has engaged, directly or indirectly, in a non-exempt prohibited transaction (as defined in Section 4975 of the Code or Section 406 of ERISA) in connection with any Plan which could reasonably be expected to have a material adverse effect on the operations, business, properties, condition (financial or otherwise) or prospects of the Company. 29 (k) Except as disclosed on Schedule III, the ongoing operations of the Company with respect solely to the Premises or the Project comply in all material respects with all statutes, regulations and other laws of all governmental authorities, including environmental laws and regulations, applicable to the Premises or the Project, the Company has obtained all governmental or regulatory orders, consents, permits, authorizations, approvals, variances for applicable zoning ordinances and easements or licenses with respect to the ownership, operation and use of the Project as contemplated in the Private Placement Memorandum and the Loan Agreement necessary to own and operate the Project. (l) The Company is not subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act, the Investment Company Act of 1940 or any other federal or state statute or regulation that may render all or any portion of the Obligations unenforceable. The Company is not engaged principally, or as one of its important activities, in the business of extending credit for the purchase of stock or other securities. (m) The Company possesses all necessary trade names and licenses that are reasonably necessary and material to conduct its business as now operated without any known conflict with the valid trademarks, tradenames, copyrights, patents, patent rights and licenses or other intangible property rights of others. (n) The Company has good and marketable title to the fee interest of the Premises and the Project (other than the Excluded Collateral) free from any adverse Lien of any kind whatsoever, excepting only the Permitted Liens. (o) Except as set forth on Schedule IV, neither the Company nor, to the best of the Company's knowledge, any previous owner, tenant, occupant or user of the Premises has engaged in any material Environmental Activities on, under, in or about the Premises in violation of any Hazardous Materials Laws. The Company shall not cause or knowingly permit any material Environmental Activities on, under, in or about the Premises in violation of any Hazardous Materials Laws. (p) Except as set forth on Schedule IV, the Premises and its use comply in all material respects with all applicable laws and governmental regulations including, without limitation, all Hazardous Materials Laws, all applicable federal, state and local laws pertaining to air and water quality, hazardous waste, waste disposal and other environmental matters, including, but not limited to, the Clean Water, Clean Air, Federal Water Pollution Control, Solid Waste Disposal, Resource Conservation Recovery and Comprehensive Environmental Response Compensation and Liability Acts, and the California Environmental Quality Act, and the rules, regulations and ordinances of the County, the California Department of Health Services, the Regional Water Quality Control Board, the State Water Resources Control Board, the Environmental Protection Agency and 30 all applicable federal, state and local agencies and bureaus. Notwithstanding the foregoing, the possession by the Company or a tenant of the Project of minor quantities of Hazardous Material, the presence of which does not violate any Hazardous Materials Laws and the removal of which is not mandated by such Hazardous Materials Laws, shall not be a violation of this Section. ARTICLE 5. COVENANTS OF THE COMPANY SECTION 5.1 AFFIRMATIVE COVENANTS. In consideration of the Bank entering into this Agreement, the Company agrees that, unless the Bank shall otherwise consent in writing, it will: (a) MAINTENANCE OF EXISTENCE. Except as otherwise permitted under Section 5.2(a) or under the Bank Facility, maintain and preserve its corporate existence and all rights, privileges, licenses, franchises and other authority for the conduct of its business in an orderly manner without voluntary interruption. (b) COMPLIANCE WITH LAWS. Comply in all material respects with all applicable laws, rules, regulations and orders of any governmental authority, the non-compliance with which would have a material and adverse effect on the business, operations, properties, condition (financial or otherwise) or prospects of the Company, except such as may be contested in good faith or as to which a bona fide dispute may exist. (c) MAINTENANCE OF INSURANCE. The Company shall maintain, and shall cause each of its Subsidiaries to maintain, with financially sound and reputable independent insurers (or through self-insurance programs), insurance with respect to its properties and business against loss or damage of the kinds customarily insured against by Persons engaged in the same or similar business, of such types and in such amounts as are customarily carried under similar circumstances by such other Persons; including workers' compensation insurance, general liability and property and casualty insurance. All such insurance with respect to the Premises and the Project (except for workers' compensation insurance) shall name the Bank as loss payee/mortgagee and as additional insured (in the case of general liability), for the benefit of itself and the Participants, as their interests may appear. Upon request of the Bank, the Company shall furnish the Bank, at reasonable intervals (but not more than once per policy year), a certificate of an officer of the Company (and, if requested by the Bank, any insurance broker of the Company) setting forth the nature and extent of all insurance maintained by the Company and its Subsidiaries in accordance with this Section or any Bank Security Documents (and which, in the case of a certificate of a broker, were placed through such broker). 31 (d) INSPECTION RIGHTS. At any reasonable time and from time to time during normal business hours, permit the Bank or any agents or representatives thereof to examine and make copies of and abstracts from the financial and operating records and books of account of, and visit the properties of, the Company and to discuss the affairs, finances and accounts of the Company with any of its officers or directors upon reasonable advance written notice to the Company. (e) KEEPING OF BOOKS. Keep proper books of record and account, in which entries shall be made of all financial transactions and matters involving the assets and business of the Company, in accordance with GAAP. (f) MAINTENANCE OF PROPERTIES. Maintain and preserve the Premises and the Project in good working order and condition, ordinary wear and tear excepted. (g) REPORTING REQUIREMENTS. Furnish to the Bank (and any Participant requested in writing by the Bank) those reports and items required by Sections 6.01, 6.02 and 6.03 of the Bank Facility and the following: (i) Concurrently with the delivery of the financial statements referred to in subsection 6.01(a) of the Bank Facility, a certificate of the independent certified public accountants reporting on such financial statements stating that in making the examination necessary therefor no knowledge was obtained of any Default or Event of Default, except as specified in such certificate; (ii) Concurrently with the delivery of the financial statements referred to in subsections 6.01(a) of the Bank Facility, a certificate of an officer of the Company (i) stating that, to the best of such officer's knowledge, the Company, during such period, has observed and performed all of its covenants and other agreements, and satisfied every condition contained in this Agreement and the other Related Documents to which the Company is a party to be observed, performed or satisfied by it, and that such officer has obtained no knowledge of any Default or Event of Default except as specified (by applicable subsection reference) in such certificate; (ii) setting forth in detail the calculations supporting such statement in respect of Sections 5.2(g), and, commencing with the fiscal year ended on or about June 30, 1997, the calculation of "Excess Cash Flow" under the Bank Facility for such year; and (iii) comparing, for the most recent fiscal quarter, the actual results of such quarter with the budgeted forecast figures for such quarter previously furnished to the Lenders (as such term is defined in the Bank Facility), together with a narrative discussion and analysis of the actual versus budgeted forecast results; 32 (iii) Promptly after the same are sent, copies of all financial statements and reports which the Company sends to its shareholders; and promptly after the same are filed, copies of all financial statements, proxy statements and regular, periodical or special reports which the Company may make to, or file with, the Securities and Exchange Commission or any successor or similar governmental authority; (iv) Forthwith upon the occurrence of any Default or Event of Default (and in any event within 10 days after the chief financial officer of the Company knows of the occurrence thereof), a certificate of the chief financial officer of the Company setting forth the details thereof and the action which the Company is taking or proposes to take with respect thereto; (v) To the extent requested by the Bank, simultaneously with the delivery of all notices required to be sent by the Company to the Trustee or the Issuer under the Indenture or the Loan Agreement, a copy or copies of all such notices; (vi) Promptly, and in any event within 30 days after receipt thereof, a copy of any notice, summons, citation, directive, letter or other form of communication from any governmental authority or court in any way concerning any action or omission on the part of the Company in connection with any substance defined as toxic or hazardous by any applicable federal, state or local law, rule, regulation, order or directive or any waste or by-product thereof, or concerning the filing of a Lien upon, against or in connection with the Premises, in connection with a Hazardous Substance Superfund as maintained pursuant to Section 9507 of the Code; and (vii) From time to time, such additional information regarding the business, operations, properties, prospects or condition (financial or otherwise) of the Company as the Bank may reasonably request. (h) PAYMENT OF TAXES. Promptly pay all lawful taxes, governmental charges and assessments at any time levied or assessed upon or against it or the Project and the Premises; PROVIDED, HOWEVER, that it shall have the right to contest in good faith and by appropriate proceedings diligently pursued any such sums and pending such contest may delay or defer payment thereof for which adequate reserves in accordance with GAAP have been established. (i) CLAIMS. Promptly pay or otherwise satisfy and discharge all of its material obligations and all material demands and claims against it as and when the same become due and payable, other than any of the foregoing whose validity, amount of collectibility is being contested in good faith and by appropriate pro- 33 ceedings diligently pursued and for which adequate reserves in accordance with GAAP have been established; PROVIDED, HOWEVER, that no such contest shall forgive the requirement of prompt payment and fulfillment of all Obligations under this Agreement or pursuant to the Bonds or the other Related Documents. (j) LICENSES. Procure and maintain all necessary licenses and permits necessary or advisable in connection with the Company's business. (k) ENVIRONMENTAL MATTERS. Except as set forth on SCHEDULE IV not engage in any activity in any part of the Premises or the Project, and shall use best efforts to prevent others from engaging in any activity therein, which will result in the Premises or the Project, or any part thereof, containing any of the following in concentrations or under conditions in violation of Hazardous Materials Laws: (a) any oil, or Hazardous Materials (excepting only minor quantities of household and cleaning materials customarily used in the ordinary course of prudent household or business purposes, as applicable, and maintained in accordance with all applicable Hazardous Materials Laws); (b) asbestos in any form which is or could become friable; (c) urea formaldehyde foam insulation; (d) transformers or other equipment which contain dielectric fluid containing levels of polychlorinated biphenyls in excess of fifty (50) parts per million. Notwithstanding the foregoing, the possession by the Company of minor quantities of a Hazardous Material, the presence of which does not violate any Hazardous Materials Laws and the removal of which is not mandated by such Hazardous Materials Laws shall not be a violation of this Subsection (k). If at any time it is determined that the provisions of this Subsection (k) have been violated, then unless the Company provides a Hazardous Materials Report (as hereinafter defined) certifying that the Project does not contain Hazardous Materials in quantities which require removal or remediation under any Hazardous Materials Laws, the Company shall be solely responsible for and shall pay for all costs incurred in connection with the removal of said equipment and/or substances, and the reasonable cost thereof shall be deemed to be an operating expense. If Bank reasonably believes that the value of its security interest in the Premises or the Project has been or may be impaired by the presence, use, generation, treatment, storage or disposal of any Hazardous Material(s) on, under or about all or a portion of the Premises in violation of any Hazardous Materials Laws, then Bank may request and the Company agrees to submit, if requested by Bank, a report (the "Hazardous Materials Report"), satisfactory to Bank in its sole and absolute discretion, prepared by a consultant approved by Bank, certifying that the Project does not contain any Hazardous Materials in quantities which require removal or remediation under any Hazardous Materials Laws nor is any part of the Project currently being used for any Environmental Activities. The expense of the Hazardous Materials Report shall be deemed to be an operating expense of the Company. Upon the discovery by the Company or Bank that any part of the Project contains any Hazardous Materials in quantities which require removal or remediation under any Hazardous Materials Laws or is being used to conduct Environmental Activities, 34 Bank may, in its sole and absolute discretion and at the Company's expense, retain an independent professional consultant to review any Hazardous Materials Report prepared by the Company and/or to conduct its own investigation of the Premises and/or the Project, and the reasonable expense thereof shall be deemed to be an operating expense of the Company. The Company hereby grants to Bank, its agents, employees, consultants and contractors the right to enter upon the Project, during normal business hours after notice and in a manner that will not unreasonably disturb the use and enjoyment of the Project, and to perform such tests on the Premises and the Project as are reasonably necessary to conduct such a review and/or investigation. Any liability of the Company arising out of this Subsection (k) shall survive the Company's satisfaction of the Obligations or the exercise by Bank of any of its remedies under any of the Related Documents, including, without limitation, a transfer of the Premises or any portion thereof, by foreclosure, by deed in lieu of foreclosure or otherwise. (l) FURTHER ASSURANCES. From time to time, execute (in a recordable form) acknowledge, deliver, record, register and file all such notices, statements and other documents and take such other steps, including, but not limited to, such permitted amendments of the Related Documents and any instruments perfecting interests thereunder, as may be necessary or advisable to render fully valid and enforceable under all applicable laws the rights, Liens and priorities of the Bank with respect to all security from time to time furnished under this Agreement or the Security Documents or intended to be so furnished, in each case in such form and at such times as shall be satisfactory to the Bank and pay all reasonable fees and expenses (including reasonable attorneys' fees and expenses) incident to compliance with this paragraph. (m) NOTICES. Deliver to Bank notice and a copy of any amendment, consent or waiver to the Bank Facility. (n) CONVERSION. Not initiate an interest rate conversion with respect to the Bonds without prior written consent of Bank. (o) APPENDIX. Duly, timely and diligently comply with each and every term, condition and covenant set forth in Appendix I. SECTION 5.2 NEGATIVE COVENANTS. In consideration of the Bank entering into this Agreement, the Company agrees that, without the written consent of the Bank, it will not: (a) SALES, ASSETS, MERGERS, ETC. Except to a wholly-owned Subsidiary, sell, lease, transfer or otherwise dispose of (or pledge or otherwise encumber) all or substantially all of its assets or merge with or into or consolidate with or into any other corporation or entity, unless (i) immediately after giving effect thereto, no event shall occur or shall have occurred and be continuing which constitutes a 35 Default or an Event of Default, (ii) the surviving, resulting, or transferee Person shall be the Company or a wholly-owned Subsidiary of the Company which has assumed the Obligations of the Company, and (iii) such sale, lease, transfer, disposition merger or consolidation shall not result in an event of default hereunder or under any of the Related Documents or the Bank Facility. (b) AMENDMENT OF RELATED DOCUMENTS. Enter into or consent to any amendment of this Agreement or any Related Document without prior written consent of the Bank. (c) REQUISITIONS. Fail to satisfy any condition precedent to a disbursement set forth in Appendix I to the Bank's satisfaction for more than [60] days after notice from Bank. (d) LIENS AND ENCUMBRANCES. Create, incur, assume or permit to exist any Lien upon any of the Premises or the Project or any other collateral subject to the Bank Security Documents other than Permitted Liens. (e) TRANSFER OF PREMISES. Cause nor permit any "transfer" (as that term is defined in SECTION 1.19 of the Deed of Trust) of all or any portion of the Premises or the Project or any other property granted under the Deed of Trust (collectively, the "TRUST ESTATE") without the prior written consent of Bank. Consent by the Bank to one such transaction shall not be deemed to be a waiver of the Bank's right to require its separate written consent to future or successive transactions. The Bank may grant or deny such consent in its sole discretion, and if such consent is given, any such transferee shall assume all of the obligations of the transferor under this Agreement and the other Related Documents and agree to be bound by all provisions contained in all such documents, and the Company and such transferee shall comply in all other respects with any requirements set forth in the Related Documents relating to such transfer. Such assumption shall not, however, release the transferor or any other party from any liability to the Bank under this Agreement or any other Related Documents except as otherwise expressly agreed in writing by the Bank. (f) RELATED DOCUMENT COVENANTS. Violate any of the covenants of the Company contained in any Related Document; PROVIDED, HOWEVER that the covenants of the Company contained herein shall be controlling to the extent that they apply to the same subject matter as, and are more restrictive than, any of the covenants contained in any Related Document. 36 (g) FINANCIAL COVENANTS. Violate Sections 7.14, 7.15, 7.16 or 7.17 (the "Financial Covenants") of the Bank Facility, as the same may be amended from time to time; PROVIDED, HOWEVER that if the Bank Facility terminates, the Company shall give the Bank notice of such termination and the Financial Covenants as in effect immediately before such termination shall be incorporated herein by reference unless the Bank and Caisse Nationale De Credit Agricole are participating in any senior bank facility replacing the Bank Facility in which case the financial covenants comparable to the Financial Covenants contained in such facility shall be incorporated herein by reference; PROVIDED, FURTHER, that with the written consent of the Bank, if the Bank Facility is replaced by another senior bank credit facility to which the Bank and Caisse Nationale De Credit Agricole are not a party, the financial covenants comparable to the Financial Covenants contained in such facility shall replace the Financial Covenants and shall be incorporated herein by reference. (h) LIMITATION ON OPTIONAL REDEMPTION OF BONDS. Permit or cause the Bonds to be redeemed at the option of the Company pursuant to Article III of the Indenture except to the extent that the redemption price for any Bonds so redeemed is paid by the Trustee and moneys that are not derived from drawings under the Letter of Credit which can be applied under the terms of the Indenture for such redemption. (i) ALTERNATE CREDIT FACILITY. In the event an Alternate Credit Facility is obtained and the Letter of Credit shall be returned to the Bank prior to the Termination Date for cancellation by the Bank, the Company shall immediately pay to the Bank all amounts owing or to become due and payable hereunder through the date of such cancellation. SECTION 5.3 COMPLIANCE WITH ERISA. The Company shall not, and shall not suffer or permit any of its Subsidiaries to, (i) terminate any Plan subject to Title IV of ERISA so as to result in any material liability to the Company or any ERISA Affiliate, (ii) permit to exist any ERISA Event or any other event or condition with respect to a Plan, which presents the risk of a material liability to any member of the Controlled Group, (iii) make a complete or partial withdrawal (within the meaning of ERISA Section 4201) from any Multiemployer Plan so as to result in any material liability to the Company or any ERISA Affiliate, (iv) enter into any new Plan or modify any existing Plan so as to increase its obligations thereunder which could result in any material liability to any member of the Controlled Group, or (v) permit the excess (if any) of (x) the present value of all liabilities (determined by using the actuarial assumptions utilized by the PBGC upon termination of a single employer plan) under any Plan sponsored or maintained by the Company or any of its Subsidiaries that is subject to Title IV of ERISA OVER (y) the fair market value of Plan assets allocable to such benefit liabilities, to exceed an aggregate amount of $10,000,000 for all such Plans of the Company and its Subsidiaries, all determined as of the most recent valuation date for each such Plan for which a valuation is available. 37 ARTICLE 6. EVENTS OF DEFAULT SECTION 6.1 EVENTS OF DEFAULT The occurrence of any of the following events shall be an "EVENT OF DEFAULT:" (i) The Company shall fail to pay any amount payable hereunder when due; or (ii) Any representation or warranty made by the Company herein, or by the Company in connection with this Agreement or any Related Document shall prove to have been incorrect in any material respect when made; or (iii) The Company shall fail to perform or observe any material terms, covenants or agreements contained in Sections 5.1(a) or 5.2 hereof; or (iv) The Company shall fail to perform or observe any other material term, covenant or agreement contained in this Agreement or any Bank Security Document and any such failure shall remain unremedied for 30 days after written notice thereof shall have been given to the Company by the Bank; or (v) Any material provision of this Agreement shall at any time for any reason cease to be in full force and effect or shall be declared to be null and void, or the validity or enforceability thereof shall be contested by the Company or any government agency or authority, or the Company shall deny that it has any or further liability or obligation under this Agreement; or (vi) The Company shall (A) fail to pay when due (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) any payment of any Indebtedness in an individual principal amount of $5,000,000 and such failure shall continue after the applicable grace period, if any, specified in such agreements or instruments relating to such Indebtedness, or (B) fail to perform or observe any other term, covenant or condition on its part to be performed or observed under any agreement or instrument relating to any Indebtedness when required to be performed or observed, and such failure shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such failure to perform or observe is to accelerate, or to permit the acceleration of, the maturity of such Indebtedness, the unpaid principal amount of which then equals or exceeds $5,000,000; or 38 (vii) The Company shall (A) apply for or consent to the appointment of a receiver, trustee, liquidator or custodian or the like of itself or of its property, (B) admit in writing its inability to pay its debts generally as they become due, (C) make a general assignment for the benefit of creditors, (D) be adjudicated a bankrupt or insolvent, or (E) commence a voluntary case under the federal bankruptcy laws of the United States of America or file a voluntary petition or answer seeking reorganization, an arrangement with creditors or an order for relief or seeking to take advantage of any insolvency law or file an answer admitting the material allegations of a petition filed against it in any bankruptcy, reorganization or insolvency proceeding; or corporate action shall be taken by it for the purpose of effecting any of the foregoing; or if without the application, approval or consent of the Company, a proceeding shall be instituted in any court of competent jurisdiction, seeking in respect of the Company, an adjudication in bankruptcy, reorganization, dissolution, winding up, liquidation, a composition or arrangement with creditors, a readjustment of debts, the appointment of a trustee, receiver, liquidator or custodian or the like of the Company, or of all or any substantial part of the assets of the Company, or other like relief in respect thereof under any bankruptcy, insolvency or similar law, and, if such proceeding is being contested by the Company, in good faith, the same shall (1) result in the entry of an order for relief of any such adjudication or appointment or (2) continue undismissed, or pending and unstayed, for any period of 60 consecutive days; or (viii) Any event of default or event which, with the passage of time or giving of notice or both, would constitute an event of default with respect to the Company shall occur under any Related Document or the Bank Facility (except as such event of default has been waived or modified); or (ix) (A) On and after the date hereof, a judgment creditor of the Company shall obtain possession of any material amount of the collateral by any lawful means under any of the Bank Security Documents by any means, including, but without limitation, levy, distraint, replevin or self-help; or (B) on and after the Issuance Date, any of the Bank Security Documents shall cease for any reason to be in full force and effect, or any party thereto (other than the Bank) shall purport to disavow its obligations thereunder or shall declare that it does not have any further obligation thereunder or shall contest the validity or enforceability thereof; or (C) on and after the Issuance Date, the security interest created in favor of the Bank on any portion of the collateral under any of the Bank Security Documents shall become otherwise impaired or unenforceable. SECTION 6.2 UPON AN EVENT OF DEFAULT. (a) If an Event of Default described under Section 6.1(vii) occurs, any and all Obligations then owing or which would become owing upon a drawing of the full amount available under the Letter of Credit shall automatically become 39 due and payable (which sum, upon receipt thereof by the Bank, shall be held by the Bank as collateral security for the reimbursement of drawings under the Letter of Credit and the payment of any other amounts due and payable hereunder and under any of the other L/C Documents) and the commitment of the Bank to issue the Letter of Credit (or any execution or replacement thereof) shall be automatically terminated. (b) If any Event of Default shall have occurred and be continuing (including under Section 6.1(vii) with respect to clauses (ii), (iv) and (v) below), the Bank may, in its sole discretion, but shall not be obligated to, (i) by notice to the Company, declare the commitment of the Bank to issue the Letter of Credit to be terminated, whereupon the same shall forthwith terminate, or (ii) if the Letter of Credit shall have been issued, give written notice to the Trustee pursuant to Section 2.03(b)(e) of the Indenture directing the Trustee to effect a mandatory tender of the Bonds or pursuant to Section 3.01(d) of the Indenture directing the Trustee to effect a mandatory redemption, or (iii) exercise the remedies available to it under the Bank Security Documents, or (iv) exercise any other remedy available to it at law, in equity or otherwise. ARTICLE 7. MISCELLANEOUS SECTION 7.1 AMENDMENTS, ETC. No amendment or waiver of any provision of this Agreement, nor consent to any departure by the Company therefrom, shall in any event be effective unless the same shall be in writing and signed by the Bank and the Company and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. SECTION 7.2 NOTICE, ETC. All notices, demands and other communications provided for hereunder shall, unless otherwise stated herein, be in writing (including telex or facsimile notice with telephonic confirmation) and mailed, sent or delivered, if to the Company at 1050 Warrenville Road, Lisle, Illinois 60532, to the attention of the Chief Financial Officer, in the case of telecopy to telecopy no.: (630) 964-0355; if to the Bank, in the case of deliveries or mailings, at its address at 777 South Figueroa Street, 4th Floor, Los Angeles, California 90071, in the case of telecopy, to telecopy no.: (213) 683-4999, in each case Attention: Jim Moore; and if to the Trustee, at its address at 3 Park Plaza, Sixteenth Floor, Irvine, California 92714, with a copy to: Bankers Trust Company of California, N.A. 4 Albany Street, 4th Floor, New York, New York 10006, and in the case of telecopy, to telecopy no.: (212) 250-6727, in each case Attention: Corporate Trust Department or, as to each party, to such other Person and/or at such other address or number as shall be designated by such party in a written notice to each other party. All such notices and communications shall be effective when mailed or sent, addressed as aforesaid, except that notices to the Bank pursuant to the provisions of Article 2 shall not be effective until received by the Bank, 40 and any notice to the Trustee pursuant to Section 6.2 shall not be effective until received by the Trustee. Notices of any Default shall be sent by the Company to the Bank by telex or telecopy (with immediate telephonic confirmation). SECTION 7.3 NO WAIVER; REMEDIES. No failure or delay on the part of Bank in the exercise of any power, right or privilege hereunder shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude any other or further exercise thereof or of any other power, right or privilege. All rights and remedies existing under this Agreement are cumulative to, and not exclusive of, any rights or remedies otherwise available. SECTION 7.4 ACCOUNTING TERMS; CHANGE IN ACCOUNTING PRINCIPLES. All accounting terms not specifically defined herein shall be construed in accordance with GAAP consistently applied, except as otherwise stated herein. If (i) any changes in accounting principles from those used in the preparation of the financial statements referred to in Section 4.1(h) hereafter occasioned by the promulgation of rules, regulations, pronouncements and opinions 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) result in a change in the standards or terms found herein or (ii) there is any change in the Company's fiscal quarter or the Fiscal Year, the parties hereto agree to enter into negotiations in order to amend this Agreement so as to equitably reflect such changes with the desired result that the criteria for evaluating the Company's financial condition shall be the same after such changes as if such changes had not been made. SECTION 7.5 INDEMNIFICATION OF THE BANK. The Company hereby indemnifies and holds the Bank and the officers, directors, employees, agents and Affiliates of Bank (the "INDEMNITEES") harmless from and against any and all claims, damages, losses, liabilities, costs or expenses (including reasonable attorneys' fees and expenses) which the Indemnitees may incur or which may be claimed against the Indemnitees by any Person: (a) by reason of any inaccuracy, or any untrue statement or alleged untrue statement of any material fact, contained in the Preliminary Private Placement Memorandum or the Private Placement Memorandum or any amendment or supplement thereto, or by reason of the omission or alleged omission to state therein a material fact necessary to make such statements, in the light of the circumstances under which they were made, not misleading; PROVIDED, HOWEVER, that, in the case of any action or proceeding alleging an inaccuracy, or an untrue statement, with respect to information supplied by and describing the Bank in the Preliminary Private Placement Memorandum or the Private Placement Memorandum (the "BANK INFORMATION"), or an omission or alleged omission to state therein a material fact necessary to make the statements in the Bank Information, in the light of the circumstances under which they were made, 41 not misleading, (i) indemnification by the Company pursuant to this Section shall be limited to the costs and expenses of the Indemnitees (including reasonable fees and expenses of the Indemnitees' counsel) of defending itself against such allegation, (ii) if in any such action or proceeding it is finally determined that the Bank Information contained a material inaccuracy or an untrue statement of a material fact or omitted to state therein a material fact necessary to make the statements contained therein, in the light of the circumstances under which they were made, not misleading, then the Company shall not be required to indemnify the Indemnitees pursuant to this Section for any claims, damages, losses, liabilities, costs or expenses to the extent caused by such inaccuracy, untrue statement or omission, and (iii) if any such action or proceeding shall be settled by the Indemnitees without there being a final determination to the effect described in the preceding clause (ii), then the Company shall be required to indemnify the Indemnitees pursuant to this Section only if such action or proceeding is settled with the Company's express written consent; provided that such consent shall not be unreasonably withheld and no consent shall be required if an Event of Default has occurred and is continuing hereunder; or (b) by reason of or in connection with the execution, delivery, performance, restructuring, renegotiation or enforcement of this Agreement or any Related Document, or any transaction contemplated herein or therein (including the issuance of the Letter of Credit); PROVIDED, HOWEVER, that the Company shall not be liable under this Section to indemnify the Indemnitees for any claims, damages, losses, liabilities, costs or expenses resulting solely from the Bank's gross negligence or willful misconduct or from other contracts, agreements or instruments to which the Bank is a party, not related to this Agreement; or (c) by reason of or in connection with the execution and delivery or transfer of, or payment or failure to make lawful payment under, the Letter of Credit; PROVIDED, HOWEVER, that the Company shall not be required to indemnify the Indemnitees pursuant to this Section for any claims, damages, losses, liabilities, costs or expenses to the extent, but only to the extent, caused by (i) the willful misconduct or gross negligence of the Bank in determining whether a draft or certificate presented under the Letter of Credit complied with the terms of the Letter of Credit or (ii) the Bank's willful failure to make lawful payment under the Letter of Credit after the presentation to it by the Trustee or a successor trustee under the Indenture of a draft and certificate strictly complying with the terms and conditions of the Letter of Credit; or (d) the failure of the Bank to honor a drawing under the Letter of Credit as a result of any act or omission, whether rightful or wrongful, of any present or future de jure or de facto government or governmental authority (all such acts or omissions herein called "GOVERNMENTAL ACTS"). 42 Nothing in this Section is intended to limit the other Obligations of the Company hereunder. Without prejudice to the survival of any other Obligation hereunder, the Obligations contained in this Section shall survive the payment in full of all amounts payable pursuant to Article 2 and the termination of the Letter of Credit and this Agreement. SECTION 7.6 LIABILITY OF THE BANK. Except as otherwise expressly set forth in this Agreement, the Company assumes all risks of the acts or omissions of the Trustee and any beneficiary or transferee of the Letter of Credit with respect to its use of the Letter of Credit. Neither the Bank nor any of its officers or directors shall be liable or responsible for: (a) the use or misuse which may be made of the Letter of Credit or any acts or omissions of the Trustee and any beneficiary or transferee in connection therewith; (b) the validity, accuracy, sufficiency or genuineness of documents, or of any endorsement thereon, even if such documents shall prove to be in any or all respects invalid, inaccurate, insufficient, fraudulent or forged; (c) payment by the Bank against presentation of documents which do not comply with the terms of the Letter of Credit, including failure of any documents to bear any reference or adequate reference to the Letter of Credit; or (d) failure of the beneficiary of the Letter of Credit to comply fully with conditions required in order to draw upon the Letter of Credit; or (e) omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable telegraph, telex or otherwise, whether or not they be in cipher; or (f) errors in interpretation of technical terms; or (g) any loss or delay in the transmission or otherwise of any document required in order to make a drawing under the Letter of Credit or of the proceeds thereof; or (h) the misapplication by the beneficiary of the Letter of Credit of the proceeds of any drawing thereunder; or (i) any consequences arising from causes beyond the control of the Bank, including, without limitation, any Governmental Acts (as defined in Section 7.6); or 43 (j) any other circumstances whatsoever in making or failing to make payment under the Letter of Credit, EXCEPT that the Company shall have a claim against the Bank, and the Bank shall be liable to the Company to the extent of any direct, as opposed to consequential, damages suffered by the Company which the Company proves were caused by the willful misconduct or gross negligence of the Bank in determining whether a draft or certificate presented under the Letter of Credit complied with the terms of the Letter of Credit. In furtherance and not in limitation of the foregoing, the Bank may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary. SECTION 7.7 COSTS, EXPENSES AND TAXES. The Company hereby agrees to pay on demand all reasonable costs and expenses incurred in connection with the preparation, execution, delivery, filing, recording, administration of this Agreement and the other Related Documents, including, without limitation, the reasonable fees and expenses of counsel for the Bank, with respect to advising the Bank as to its rights and responsibilities under this Agreement whether or not the Letter of Credit is issued (unless failure to issue the Letter of Credit is solely the fault of the Bank). The Company also agrees to pay all reasonable costs and expenses (including reasonable counsel fees and expenses) incurred in connection with (i) the enforcement, restructuring or amendment of this Agreement or any Related Document or any insolvency or bankruptcy proceeding, or (ii) any action or proceeding relating to a court order, injunction or other process or decree restraining or seeking to restrain the Bank from paying any amount under the Letter of Credit. In addition, the Company shall pay any and all stamp and other taxes and fees payable or determined to be payable in connection with the execution, delivery, filing and recording of this Agreement and Related Documents (except as otherwise provided herein), and agrees to save the Bank harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omitting to pay such taxes and fees, except to the extent that such liability results from the gross negligence or willful misconduct of the Bank. SECTION 7.8 BINDING EFFECT. This Agreement shall become effective when it shall have been executed by the Company and the Bank and thereafter shall be binding upon and inure to the benefit of the Company and the Bank and their respective successors and assigns, except that the Company shall not have the right to assign its rights hereunder or any interest herein to any Person (other than by operation of law or as part of a transaction permitted under Section 5.2(a)) without the prior written consent of the Bank. The Bank may assign to any Participant all or any part of, or any interest (undivided or divided) in, the Bank's rights and benefits under this Agreement in accordance with Section 2.8. SECTION 7.9 INDEPENDENCE OF COVENANTS. All covenants hereunder shall be given independent effect so that if a particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception 44 to, or would otherwise be within the limitations of, another covenant should not avoid the occurrence of a Default or Event of Default if such action is taken or condition exists. SECTION 7.10 SEVERABILITY. In case any provision in or obligation under this Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. SECTION 7.11 HEADINGS. Section and subsection headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose or be given any substantive effect. SECTION 7.12 GOVERNING LAW: TERMS. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES. SECTION 7.13 CONSENT TO JURISDICTION AND SERVICE OF PROCESS. ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST THE COMPANY ARISING OUT OF OR RELATING TO THIS AGREEMENT MAY BE BROUGHT IN ANY FEDERAL OR STATE COURT OF COMPETENT JURISDICTION IN THE STATE OF CALIFORNIA, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, THE COMPANY ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT. The Company hereby agrees that service of all process in any such proceeding in any such court may be made by registered or certified mail, return receipt requested, to the Company at its address provided in Section 7.2, such service being hereby acknowledged by the company to be sufficient for personal jurisdiction in any action against the Company in any such court and to be otherwise effective and binding service in every respect. Nothing herein shall affect the right to serve process in any other manner permitted by law or shall limit the right of the Bank to bring proceedings against the Company in the courts of any other jurisdiction. SECTION 7.14 WAIVER OF JURY TRIAL. THE COMPANY AND THE BANK HEREBY AGREE TO WAIVE THEIR RESPECTIVE RIGHTS TO A 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 45 duty claims, and all other common law and statutory claims. The Company and the Bank each acknowledge that this waiver is a material inducement for the Company and the Bank to enter into a business relationship, that the Company and the Bank have already relied on this waiver in entering into this Agreement and that each will continue to rely on this waiver in their related future dealings. The Company and the Bank 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 (OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY REFERRING TO THIS SECTION 7.14 AND EXECUTED BY EACH OF THE PARTIES HERETO), AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT. In the event of litigation, this Agreement may be filed as a written consent to a trial by the court. SECTION 7.15 COUNTERPARTS. This Agreement may be executed in one or more counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document. [Remainder of page intentionally left blank] 46 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first above written. RYKOFF-SEXTON, INC. By: /s/ Richard J. Martin --------------------------------- Title: Chief Financial Officer ------------------------------ THE FIRST NATIONAL BANK OF CHICAGO By: /s/ L. Gene Beuhn --------------------------------- Title: Senior Vice President ------------------------------ S-1 EXHIBIT A TO REIMBURSEMENT AGREEMENT FORM OF IRREVOCABLE DIRECT PAY LETTER OF CREDIT Date: November 20, 1996 **U.S. $26,250,000.00** Credit No. 00320293 Bankers Trust Company of California, N.A., as Trustee (the "Trustee") under the Indenture of Trust dated as of November 1, 1996, between La Mirada Industrial Development Financing Authority and the Trustee. Attention: Corporate Trust Department Ladies and Gentlemen: We hereby establish in your favor as Trustee for the benefit of the holders of the Bonds (as hereinafter defined), our irrevocable Letter of Credit No. 00320293 for the account of Rykoff-Sexton, Inc. (the "Company"), in the amount of $26,250,000, whereby we hereby irrevocably authorize you to draw on us from time to time, from and after the date hereof to and including the earliest to occur of: (i) our close of business in Chicago, Illinois on December 1, 1999 (the "Stated Termination Date"), or (ii) our close of business in Chicago, Illinois on the date which is five Business Days following receipt from you of a certificate in the form set forth as Annex A hereto, or (iii) the date on which an Acceleration Drawing is honored by us, or (iv) our close of business in Chicago, Illinois on the date which is ten (10) days after your receipt of written notice from us specifying the occurrence of an Event of Default under the Reimbursement Agreement (the "Reimbursement Agreement") dated as of November 1, 1996 between the Company and us and directing a mandatory tender or redemption of the Bonds, A-1 (the "Expiration Date"), a maximum aggregate amount not exceeding Twenty-Six Million Two Hundred and Fifty Thousand Dollars (U.S. $26,250,000.00) the "Initial Stated Amount"), which amount is equal to the sum of (x) the principal amount of the Bonds ($25,900,000) and (ii) 41 days interest at a rate of 12% ($350,000), to pay principal of and accrued interest on, or the purchase price of, the $25,900,000 Taxable Variable/Fixed Rate Demand Industrial Development Revenue Bonds (Rykoff-Sexton, Inc. Project) Series 1996 (the "Bonds"), which Bonds were issued pursuant to the Indenture of Trust dated as of November 1, 1996 (the "Indenture") between you and the Company, in accordance with the terms hereof. Payments hereunder are available against the following documents (the "Payment Documents") presented to The First National Bank of Chicago (the "Bank") at our Chicago offices at One First National Plaza, Suite 0236, Chicago, Illinois 60670, telecopier: (312) 954-1963 (or such other place as we may from time to time specify), attention: Global Trade Services (or such other person as we may from time to time specify): A certificate (i) in the form attached as Annex B hereto to pay accrued interest on the Bonds as provided for under Section 2.02 and 2.03 of the Indenture (an "Interest Drawing"), (ii) in the form attached as Annex C hereto to pay the principal amount of and, in the event the redemption date does not coincide with the regularly scheduled Interest Payment Date, accrued interest on the Bonds in respect of any redemption of the Bonds as provided for in Section 3.01 of the Indenture (a "Redemption Drawing"), (iii) in the form attached as Annex D hereto, to pay the tender price of Bonds for which you have not received notice that the Remarketing Agent has delivered the proceeds of the remarketing therefor by 9:30 a.m., Chicago time, on the tender date, as the case may be, as provided for in Section 2.03 of the Indenture (a "Liquidity Drawing"), (iv) in the form attached as Annex E hereto, to pay the principal of and accrued interest in respect of any Bonds the payment of which has been accelerated pursuant to Section 8.02 of the Indenture (an "Acceleration Drawing"), or (v) in the form attached as Annex F hereto to pay the principal amount of the Bonds on the date specified in such Bonds as the date on which the principal of such Bonds is due and payable as provided for under Article II of the Indenture (a "Stated Maturity Drawing"); each such certificate to state therein that it is given by your duly authorized officer and dated the date such certificate is presented hereunder. No drawings shall be made under this Letter of Credit for the purpose of making payments on Bank Bonds (as such terms are defined in the Reimbursement Agreement). A-2 All drawings made by you shall be made by tested telex, telecopier or other facsimile telecommunication without further need of documentation, including the original of this Letter of Credit, it being understood that each Payment Document submitted via such telex, telecopier or other facsimile telecommunications is to be the sole operative instrument of drawing. We agree to honor and pay the amount of any Interest, Redemption, Liquidity, Acceleration or Stated Maturity Drawing if presented in compliance with all of the terms of this Letter of Credit. If such drawing is presented at or prior to 11:00 A.m., Chicago time, on a Business Day, payment shall be made of the amount specified, in immediately available funds, before 2:00 p.m., Chicago time, on the same Business Day. If any drawing is presented after 11:00 a.m., Chicago time, on a Business Day, payment shall be made of the amount specified, in immediately available funds, by 11:00 a.m., Chicago time, of the following Business Day. "Business Day" means a day which is not (a) a Saturday or Sunday, (b) a day on which banking institutions in Chicago Illinois or the State of New York or in any other city where the principal corporate trust office of the Trustee, or the Chicago office of the Bank is located are required or authorized by law (including executive order) to be closed or on which the principal corporate trust office of the Trustee, or the Chicago office of the Bank is closed for a reason not related to financial condition, or (c) a day on which the New York Stock Exchange is closed. The Available Amount of this Letter of Credit will be reduced automatically by the amount of any drawing hereunder: PROVIDED, HOWEVER, that the amount of any Interest Drawing hereunder shall be automatically reinstated effective the 6th calendar day from the date of such drawing unless you shall have received written notice from the Bank by tested telex within five (5) calendar days of the date of any Interest Drawing that the Letter of Credit will not be so reinstated; and PROVIDED FURTHER, however, that the portion of any Interest Drawing (as indicated on the related certificate in the form of Annex B) effected to pay interest on Bonds being concurrently redeemed through a Redemption Drawing shall not be reinstated; and PROVIDED FURTHER that the Available Amount of this Letter of Credit will be reduced upon receipt of a Reduction Certificate in the form of Annex G. Also, to the extent the Available Amount is reduced as contemplated in the preceding sentence due to payment by us of a Liquidity Drawing, the obligation of the Bank to honor drawings hereunder will be automatically reinstated, concurrently with the receipt by the Bank of the purchase price of Bonds (or portions thereof) previously purchased with the proceeds of a Liquidity Drawing and which have been resold, by an amount equal to the Original Purchase Price of such Bonds (or portions thereof) as have been resold. "Original Purchase Price" shall mean the principal amount of any Bond purchased with the proceeds of a Liquidity Drawing plus the amount of accrued interest thereon paid upon the purchase of such Bond with the proceeds of any such Drawing. Upon receipt by us of a certificate of the Trustee in the form of Annex G hereto, the Bank will automatically and permanently reduce the amount available to be drawn hereunder by the amount specified in such certificate. Such reduction shall be A-3 effective as of the second Business Day following the date of delivery of such certificate. Also, upon receipt by us of a certificate of the Trustee in the form of Annex C to this Letter of Credit in connection with a Redemption Drawing, the Bank will automatically and permanently reduce the amount available to be drawn hereunder by the amount (if any) specified in such certificate as a decline in the amount of necessary excess interest coverage resulting from the partial redemption of Bonds affected through such Redemption Drawing (and taking into account the nonreinstatement, as provided in the immediately preceding paragraph, of that portion of any Interest Drawing which may have been effected to pay interest on Bonds being redeemed through such Redemption Drawing). Upon any permanent reduction of the amounts available to be drawn under this Letter of Credit, as provided herein, we may deliver to you a new Letter of Credit in exchange for this Letter of Credit or an amendment to this Letter of Credit substantially in the form of Annex H hereto to reflect any such reduction. The "Stated Amount" of this Letter of Credit shall be its Initial Stated Amount as such amount may from time to time be reduced by the Trustee. The "Available Amount" shall mean the Initial Stated Amount (i) less the amount of all prior reductions pursuant to Interest, Redemption, Purchase, Acceleration or Stated Maturity Drawings, (ii) less any reduction in the Stated Amount pursuant to a reduction certificate in the form of Annex G hereto to the extent such reduction is not already accounted for by a reduction in the Available Amount pursuant to clause (i) above, (iii) plus the amount of all reinstatements as above provided. Prior to the Expiration Date, we may extend the Stated Termination Date from time to time at the request of the Company for a period of one or two years (or such greater period as we may agree with the Company) by delivering to you an amendment to this Letter of Credit in the form of Annex I hereto designating the date to which the Stated Termination Date is being extended. Each such extension of the Stated Termination Date shall become effective on the Business Day following delivery of such notice to you and thereafter all references in this Letter of Credit to the Stated Termination Date shall be deemed to be references to the date designated as such in such notice. Any date to which the Stated Termination Date has been extended as herein provided may be extended in a like manner. Upon the Expiration Date this Letter of Credit shall automatically terminate and you agree to promptly deliver the same to the Bank for cancellation. This Letter of Credit is transferable in whole only to your successor as Trustee. Any such transfer (including any successive transfer) shall be effective upon receipt by us of a signed copy of the instrument effecting each such transfer signed by the transferor and by the transferee in the form of Annex J hereto (which shall be conclusive evidence of such transfer) and, in such case, the transferee instead of the transferor shall, without the necessity of further action, be entitled to all the benefits of and rights under this Letter of Credit in the transferor's place, provided that, in such A-4 case, any certificates of the Trustee to be provided hereunder shall be signed by one who states therein that he is a duly authorized officer or agent of the transferee. Communications with respect to this Letter of Credit shall be addressed to us at The First National Bank of Chicago, One First National Plaza, Suite 0236, Chicago, Illinois 60670, attention: Global Trade Services, specifically referring to the number of this Letter of Credit. To the extent not inconsistent with the express terms hereof, this Letter of Credit shall be governed by, and construed in accordance with, the terms of the Uniform Customs and Practice for Documentary Credits (1993 Revision), International Chamber of Commerce Publication No. 500 (the "Uniform Customs") which terms are incorporated herein; that this Letter of Credit will not terminate because of a failure to make a permitted drawing hereunder as provided in Article 44; and for purposes of Article 48(g), this Letter of Credit may be transferred in accordance with its terms more than once. As to matters not governed by the Uniform Customs, this Letter of Credit shall be governed by and construed in accordance with the laws of the State of Illinois. All payments made by us hereunder shall be made from our funds; in no event shall such payment be made with funds obtained from the Company. This Letter of Credit sets forth in full the terms of our undertaking, and such undertaking shall not in any way be modified or amended by reference to any other document whatsoever. THE FIRST NATIONAL BANK OF CHICAGO By ------------------------ Title -------------------- A-5 ANNEX A to THE FIRST NATIONAL BANK OF CHICAGO LETTER OF CREDIT ___________, 19__ Credit No. 00320293 NOTICE OF TERMINATION The First National Bank of Chicago One First National Plaza, Suite 0236 Chicago, Illinois 60670 Attention: Global Trade Services Dear Sirs: Reference is hereby made to that certain Irrevocable Letter of Credit No. 00320293 dated November 20, 1996 (the "Letter of Credit"), which has been established for the account of Rykoff-Sexton, Inc. Each of the undersigned hereby certify and confirm that [(i) no Bonds (as defined in the Letter of Credit) remain Outstanding within the meaning of the Indenture (as defined in said Letter of Credit) or (ii) an Alternate Credit Facility (as such term is defined in the Indenture) has been delivered to the Trustee to replace the Letter of Credit in accordance with the Indenture]* and, accordingly, said Letter of Credit shall be terminated in accordance with its terms. RYKOFF-SEXTON, INC. By ------------------------------- [Title of Authorized Officer] BANKERS TRUST COMPANY OF CALIFORNIA, N.A. as Trustee ------------------------------- [Title of Authorized Officer] - ----------------------------------- *insert appropriate statement A-A-1 ANNEX B to THE FIRST NATIONAL BANK OF CHICAGO LETTER OF CREDIT ___________, 19__ Credit No. 00320293 INTEREST DRAWING CERTIFICATE The undersigned individual, a duly authorized officer of Bankers Trust Company of California, N.A. (the "Beneficiary") hereby CERTIFIES on behalf of the Beneficiary as follows with respect to (i) that certain Letter of Credit No. 00320293 dated November 20, 1996 (the "Letter of Credit"), issued by The First National Bank of Chicago in favor of the Beneficiary; (ii) those certain Bonds (as defined in the Letter of Credit); and (iii) that certain Indenture (as defined in the Letter of Credit): 1. The Beneficiary is the Trustee under the Indenture. 2. The Beneficiary is entitled to make this drawing in the amount of $________ under the Letter of Credit pursuant to the Indenture with respect to the payment of interest due on all Bonds outstanding on the Interest Payment Date occurring on [insert applicable date] (the "Payment Date") other than Bank Bonds (as such terms are defined in the Letter of Credit). 3. The amount of the drawing is equal to the amount required to be drawn by the Trustee pursuant to Section 2.02, 2.03, and 3.01 of the Indenture. 4. The amount of the drawing made by this Certificate was computed in compliance with the terms of the Indenture and, when added to the amount of any other drawing under the Letter of Credit made simultaneously herewith, does not exceed the Available Amount of the Letter of Credit as presently in effect. 5. $________ of the amount of the drawing made by this Certificate is to be applied to the payment of interest due on a portion of the outstanding Bonds being redeemed pursuant to a concurrent Redemption Drawing, the redemption date of which coincides with the Interest Payment Date referred to in paragraph (2) above and attached hereto is our reduction certificate.* - ------------------------------------------------------------------------------- *To be included in Certificate only if applicable in the circumstances described. A-B-1 In WITNESS WHEREOF, this Certificate has been executed this ___________ day of _______________, 19__. BANKERS TRUST COMPANY OF CALIFORNIA, N.A., as Trustee By ------------------------------- [Title of Authorized Officer] A-B-2 Annex C to THE FIRST NATIONAL BANK OF CHICAGO LETTER OF CREDIT , 19 --------- -- Credit No. 00320293 REDEMPTION DRAWING CERTIFICATE The undersigned individual, a duly authorized officer of Bankers Trust Company of California, N.A. (the "Beneficiary"), hereby CERTIFIES on behalf of the Beneficiary as follows with respect to (i) that certain Letter of Credit No. 00320293 dated November 20, 1996 (the "Letter of Credit"), issued by The First National Bank of Chicago in favor of the Beneficiary; (ii) those certain Bonds (as defined in the Letter of Credit); and (iii) that certain Indenture (as defined in the Letter of Credit): 1. The Beneficiary is the Trustee under the Indenture. 2. The Beneficiary is entitled to make this drawing in the amount of $________under the Letter of Credit pursuant to Section 3.01 of the Indenture. 3. (a) The amount of this drawing is equal to (i) the principal amount of Bonds other than Bank Bonds (as such terms are defined in the Letter of Credit) to be redeemed by the Company (as defined in the Letter of Credit) pursuant to Section [insert applicable section] of the Indenture on [INSERT APPLICABLE DATE] (the "Redemption Date"), plus (ii) in the event such Redemption Date does not coincide with a regularly scheduled Interest Payment Date, interest accrued on such Bonds from the immediately preceding Interest Payment Date (as defined in the Indenture) to the Redemption Date. (b) Of the amount stated in paragraph 2 above: (i) $_________is demanded in respect of the principal amount of the Bonds referred to in subparagraph (a) above; and (ii) $_________is demanded in respect of accrued interest on such Bonds. 4. The amount of the drawing made by this Certificate was computed in compliance with the terms and conditions of the Indenture and, when added to the amount of any other drawing under the Letter of Credit made simultaneously herewith, does not exceed the Available Amount of the Letter of Credit as presently in effect. 5. Attached hereto is a reduction certificate. A-C-1 In WITNESS WHEREOF, this Certificate has been executed this______________day of____________, 19___. BANKERS TRUST COMPANY OF CALIFORNIA, N.A., as Trustee By ----------------------------- [Title of Authorized Officer] A-C-2 (i) $______is demanded in respect of the principal portion of the purchase price of the Bonds referred to in subparagraph (2) above; and (ii) $______is demanded in respect of payment of the interest portion of the purchase price of such Bonds. (4) The amount of the drawing made by this Certificate was computed in compliance with the terms and conditions of the Indenture and, when added to the amount of any other drawing under the Letter of Credit made simultaneously herewith, does not exceed the Available Amount of the Letter of Credit as presently in effect. (5) The Beneficiary will register or cause to be registered in the name of the Company (as defined in the Letter of Credit), but with the Bank registered as pledgee, upon payment of the amount drawn hereunder, Bonds in the principal amount of the Bonds being purchased with the amounts drawn hereunder and will deliver such Bonds to the Custodian (as defined in the Custody Agreement dated as of November 1, 1996 between Trustee and Bank) or as the Bank may otherwise direct; PROVIDED, HOWEVER, if DTC (as such term is defined in the Indenture) or its nominee is the registered owner of all Bonds, the Beneficiary acknowledges that it will cause the security interest of the Bank to be recorded by DTC or its nominee on its books. IN WITNESS WHEREOF, this Certificate has been executed this______________day of___________, 19___. BANKERS TRUST COMPANY OF CALIFORNIA, N.A., as Trustee By: ------------------------------- [Title of Authorized Officer] A-D-2 Annex E to THE FIRST NATIONAL BANK OF CHICAGO LETTER OF CREDIT , 19 ------------- -- Credit No. 00320293 ACCELERATION DRAWING CERTIFICATE The undersigned individual, a duly authorize officer of Bankers Trust Company of California, N.A. (the "Beneficiary"), hereby CERTIFIES on behalf of the Beneficiary as follows with respect to (i) that certain Letter of Credit No. 00320293 dated November 20, 1996 (the "Letter of Credit"), issued by The First National Bank of Chicago in favor of the Beneficiary; (ii) those certain Bonds (as defined in the Letter of Credit); and (iii) that certain Indenture (as defined in the Letter of Credit): 1. The Beneficiary is the Trustee under the Indenture. 2. An Event of Default has occurred under subsection [INSERT SUBSECTION] of the Indenture and the Trustee has declared the principal of and accrued interest on all Bonds then outstanding immediately due and payable. The Beneficiary is entitled to make this drawing in the amount of $_________under the Letter of Credit pursuant to Section 8.02 of the Indenture. 3. (a) The amount of this drawing is equal to (i) the principal amount of Bonds, other than Bank Bonds (as such terms are defined in the Letter of Credit), outstanding on [INSERT DATE OF ACCELERATION] (the "Acceleration Date") plus (ii) interest on such Bonds accrued from the immediately preceding Interest Payment Date to the Acceleration Date. (b) Of the amount stated in paragraph 2 above: (i) $___________is demanded in respect of the principal of the Bonds referred to in subparagraph (a) above; and (ii) $___________is demanded in respect of accrued interest on such Bonds. A-E-1 IN WITNESS WHEREOF, this Certificate has been executed this______________day of________________,19__ . BANKERS TRUST COMPANY OF CALIFORNIA, N.A., as Trustee By: ------------------------------- [Title of Authorized Officer] A-E-2 Annex F to THE FIRST NATIONAL BANK OF CHICAGO LETTER OF CREDIT ,19 -------------- -- Credit No. 00320293 STATED MATURITY DRAWING CERTIFICATE The undersigned individual, a duly authorized officer of Bankers Trust Company of California, N.A. (the "Beneficiary"), hereby CERTIFIES on behalf of the Beneficiary as follows with respect to (i) that certain Letter of Credit No. 00320293 dated November 20, 1996 (the "Letter of Credit"), issued by The First National Bank of Chicago in favor of the Beneficiary; (ii) those certain Bonds (as defined in the Letter of Credit); and (iii) that certain Indenture (as defined in the Letter of Credit): 1. The Beneficiary is the Trustee under the Indenture. 2. The Beneficiary is entitled to make this drawing in the amount of $______________under the Letter of Credit pursuant to Article II of the Indenture. The amount of this drawing is equal to the principal amount of Bonds with a stated maturity on [INSERT DATE], other than Bank Bonds (as such terms are defined in the Letter of Credit). 3. The amount of the drawing made by this Certificate was computed in compliance with the terms and conditions of the Indenture and, when added to the amount of any other drawing under the Letter of Credit made simultaneously herewith, does not exceed the Available Amount of the Letter of Credit as presently in effect. 4. Attached hereto is a reduction certificate. In WITNESS WHEREOF, this Certificate has been executed this______________day of________________ , 19__ . BANKERS TRUST COMPANY OF CALIFORNIA, N.A., as Trustee By: ------------------------------- [Title of Authorized Officer] A-F-1 Annex G to THE FIRST NATIONAL BANK OF CHICAGO LETTER OF CREDIT , 19 ------------- -- Credit No. 00320293 REDUCTION CERTIFICATE Each of the undersigned hereby certifies as follows with respect to (i) that certain Letter of Credit No. 00320293 dated November 20, 1996 (the "Letter of Credit"), issued by The First National Bank of Chicago in favor of the Beneficiary; (ii) those certain Bonds (as defined in the Letter of Credit); and (iii) that certain Indenture (as defined in the Letter of Credit): 1. The Beneficiary is the Trustee under the Indenture. 2. Upon receipt by the Bank of this Certificate, the Stated Amount (as defined in the Letter of Credit) shall be reduced by $____________(effective the second Business Day following the date of delivery of this Certificate) and the Stated Amount shall thereupon equal $_____________, all in accordance with the provisions of the Indenture. In WITNESS WHEREOF, this Certificate has been executed this______________day of__________________, 19__ . BANKERS TRUST COMPANY OF CALIFORNIA, N.A., as Trustee By: ------------------------------- [Title of Authorized Officer] A-G-1 Annex H to THE FIRST NATIONAL BANK OF CHICAGO LETTER OF CREDIT , 19 ------------ -- Credit No. 00320293 NOTICE OF AMENDMENT Bankers Trust Company of California, N.A. Attention: Corporate Trust Department Dear Sirs: Reference is hereby made to that certain Irrevocable Letter of Credit No. 00320293 dated November 20, 1996 (the "Letter of Credit"), established by us in your favor as Beneficiary. We hereby notify you that, in accordance with the terms of the Letter of Credit and that certain Reimbursement Agreement dated as of November 1, 1996, between Rykoff-Sexton, Inc. and us, the Stated Amount of the Letter of Credit has been reduced to $____________________. This letter should be attached to the Letter of Credit and made a part thereof. The First National Bank of Chicago By ------------------------------- [Title of Authorized Officer] A-H-1 Annex I to THE FIRST NATIONAL BANK OF CHICAGO LETTER OF CREDIT , 19 ------------ -- Credit No. 00320293 NOTICE OF AMENDMENT Bankers Trust Company of California, N.A. Attention: Corporate Trust Department Dear Sirs: Reference is hereby made to that certain irrevocable Letter of Credit No. 00320293 dated November 20, 1996 (the "Letter of Credit"), established by us in your favor as Beneficiary. We hereby notify you that, in accordance with the terms of the Letter of Credit and that certain Reimbursement Agreement dated as of November 1, 1996, between Rykoff-Sexton, Inc. and us, the Stated Termination Date of the Letter of Credit has been extended to______________, _____. This letter should be attached to the Letter of Credit and made a part thereof. THE FIRST NATIONAL BANK OF CHICAGO By: ------------------------------ [Title of Authorized Officer] A-I-1 Annex J to THE FIRST NATIONAL BANK OF CHICAGO LETTER OF CREDIT ,19 ----------- -- Credit No. 00320293 TRANSFER CERTIFICATE The First National Bank of Chicago One First National Plaza, Suite 0236 Chicago, Illinois 60670 Attention: Global Trade Services Dear Sirs: Reference is made to that certain irrevocable Letter of Credit No. 00320293 dated November 20, 1996 which has been established by you in favor of Bankers Trust Company of California, N.A. The undersigned [Name of Transferor] has transferred and assigned (and hereby confirms to you said transfer and assignment) all of it rights in and under said Letter of Credit to [Name of Transferee] and confirms that [Name of Transferor] no longer has any rights under or interest in said Letter of Credit. Transferor and Transferee have indicated on the face of said Letter of Credit that it has been transferred and assigned to Transferee. A-J-1 Transferee hereby certifies that it is a duly authorized Transferee under the terms of said Letter of Credit and is accordingly entitled, upon presentation of the documents called for therein, to receive payment thereunder. ------------------------------ Name of Transferor By ------------------------------ [Name and Title of Authorized Officer of Transferor] ------------------------------ Name of Transferee ------------------------------ [Name and Title of Authorized Officer of Transferee] A-J-2 Exhibit B PLEDGE AGREEMENT THIS PLEDGE AGREEMENT (this "Pledge Agreement") is dated as of November 1, 1996, and is entered into by and among Rykoff-Sexton, Inc., a Delaware corporation, as pledgor (the "Pledgor") and The First National Bank of Chicago, as pledgee (the "Pledgee"). W I T N E S S E T H: WHEREAS, the La Mirada Industrial Development Authority (the "Issuer") has entered into the Loan Agreement with the Pledgor pursuant to which the Issuer has agreed to make certain loans to the Pledgor as provided therein, and the Issuer and Bankers Trust Company of California, N.A. (the "Trustee") have entered into the Indenture of Trust dated as of November 1, 1996 (the "Indenture") pursuant to which the Issuer's Taxable Variable/Fixed Rate Demand Industrial Development Revenue Bonds (Rykoff-Sexton, Inc. Project) Series 1996 (the "Bonds") will be executed and delivered; WHEREAS, The Indenture requires the Pledgor to purchase or arrange for the purchase of, from the owners thereof, Bonds tendered or required to be tendered for purchase in certain circumstances set forth in the Indenture (the "Purchased Bonds"), and the Remarketing Agent named in the Indenture (or successor remarking agent appointed in accordance with the provisions of the Indenture), as remarketing agent under the Indenture (the "Remarketing Agent") has agreed to use its best efforts to remarket such Purchased Bonds under specified terms and conditions; WHEREAS, in connection with the issuance of the Bonds, the Pledgor has agreed to enter into the Reimbursement Agreement dated as of November 1, 1996 with the Pledgee (the "Reimbursement Agreement") in order to cause the Pledgee to issue a letter of credit thereunder (the "Letter of Credit") which may be used, INTER ALIA, to pay the purchase price of the Purchased Bonds); WHEREAS, the Bonds will be issued initially in a book-entry only system with 100% of the Bonds held by The Depository Trust Company ("DTC") in the name of Cede & Co.; and, when the Bonds are in DTC book-entry systems, it is intended that transfers of the Purchased Bonds to the account of the Pledgee as Bank Bonds (being collateral security for the payment of amounts due to the Pledgee under the Reimbursement Agreement) will be shown as such on the books and records of the Trustee in its capacity as a participant in DTC's central depository system; and WHEREAS, it is a condition precedent to the obligation of the Pledgee to enter into the Reimbursement Agreement that the parties hereto shall have executed and delivered this Pledge Agreement, 1 NOW, THEREFORE, in consideration of the premises and in order to induce the Pledgee to enter into the Reimbursement Agreement and issue the Letter of Credit thereunder and for other good and valuable consideration, receipt of which is hereby acknowledged, the parties hereby agree as follows: 1. DEFINED TERMS. Unless otherwise defined herein, terms defined in the Reimbursement Agreement shall have such defined meanings when used herein. 2. PLEDGE OF THE BONDS. The Pledgor hereby pledges, assigns, hypothecates, transfers, and delivers to the Pledgee the following: all its right, title and interest to the Bank Bonds as the same may be from time to time held (i) by the Trustee for the benefit of the Pledgee or for the account of the Pledgor subject to the Pledgee's rights hereunder, or (ii) in the event 100% of the Bonds are held by a depository in a book-entry only system, held by the depository for the benefit of the Trustee on whose books and records such Bank Bonds are being held for the benefit of the Pledgee or for the account of the Pledgor, subject to the Pledgee's rights hereunder. The Pledgor hereby grants to the Pledgee, a first lien on, and security interest in, its right, title and interest in and to the Bank Bonds, the interest thereon and all proceeds thereof, as collateral security for the prompt and complete payment when due of all amounts owning from the Pledgor to the Pledgee under the Reimbursement Agreement, including interest on such amounts as set forth therein (all the foregoing being hereinafter called the "Obligations"). 3. INTEREST ON THE BANK BONDS. If, while this Pledge Agreement is in effect, the Pledgor shall become entitled to receive or shall receive any interest payment in respect of the Bank Bonds, the Pledgor agrees to accept the same as Pledgee's agent and to hold the same in trust on behalf of the Pledgee and to deliver the same forthwith to the Pledgee to be applied in accordance with Section 7 below. All sums of money so paid in respect of the Bank Bonds which are received by the Pledgor and paid to the Pledgee shall be credited against the obligation of the Pledgor to pay interest to the Pledgee as set forth in the Reimbursement Agreement. 4. COLLATERAL. All property at any time pledged to the Banks hereunder and all income therefrom and proceeds thereof, are herein collectively sometimes called the "Collateral." 5. RELEASE OF BANK BONDS. If the Pledgor makes or causes to be made to the Pledgee a repayment in respect of its reimbursement obligation under Section 2.2(ii) of the Reimbursement Agreement pursuant to Section 2.5 thereof, then the Pledgee shall release from the lien of this Pledge Agreement the principal amount of the Bank Bonds which is equal to either the principal component of the drawing made under the Letter of Credit, as provided in Section 2.5 of the Reimbursement Agreement; PROVIDED, HOWEVER, that the Bank Bonds shall not be delivered or released from the lien of this Pledge Agreement prior to the receipt of written notice by the holder of such Bank Bonds of reinstatement by the Pledgee of its obligations to honor drawing under the Letter of Credit with respect to such Bank Bonds. 2 6. RIGHTS OF THE PLEDGEE. The Pledgee shall not be liable for failure to collect or realize upon the Collateral or any collateral security or guaranty therefor, or any part thereof, or for any delay in so doing nor shall the Pledgee be under any obligation to take any action whatsoever with regard thereto. If an Event of Default has occurred and is continuing under the Reimbursement Agreement, the Pledgee may, with any notice by the Pledgee as provided for in the Reimbursement Agreement, exercise all rights, privileges or options pertaining to any Bank Bonds as if it were the absolute owner thereof, upon such terms and conditions as it may determine, all without liability except to account for property actually received by it, but the Pledgee shall have no duty to exercise any of the aforesaid rights, privileges or options and shall not be responsible for any failure to do so or delay in so doing. 7. REMEDIES. In the event that any portion of the Obligations has been declared due and payable pursuant to the Reimbursement Agreement as the result of an Event of Default under the Reimbursement Agreement, the Pledgee, without demand of performance or other demand, advertisement or notice of any kind (except the notice specified below of time and place of public or private sale) to or upon the Pledgor or any other person (all and each of which demands, advertisements and/or notices are hereby expressly waived), may forthwith collect, receive, appropriate and realize upon the Collateral, or any part thereof, and/or may forthwith sell, assign, give options or options to purchase, contract to sell or otherwise dispose of and deliver said Collateral, or any part thereof, in one or more parcels at public or private sale or sales, at any exchange, broker's board or at the Pledgee's office or elsewhere upon such terms and conditions as it may deem advisable and at such prices as it may deem commercially reasonable, for cash or on credit or for future delivery without assumption of any credit risk, with the right to the Pledgee, upon any such sale or sales, public or private, to purchase the whole or any part of said Collateral so sold, free of any right or equity of redemption in the Pledgor, which right or equity is hereby expressly waived or released. The Pledgee shall apply the net proceeds of any such collection, recovery, receipt, appropriation, realization or sale, after deducting all reasonable costs and expenses of every kind incurred therein or incidental to the care, safekeeping or otherwise of any and all of the Collateral or in any way relating to the rights of the Pledgee hereunder, including reasonable attorneys fees and legal expenses, to the payment in whole or in part of the Obligations, the Pledgor remaining liable for any deficiency remaining unpaid after such application, and only after so applying such net proceeds and after the payment by the Pledgee of any other amount required to be paid by any provision of law, including, without limitation Section 9504(1)(c) of the California Uniform Commercial Code, need the Pledgee account for the surplus, if any, to the Pledgor. The Pledgor agrees that the Pledgee need not give more than ten days' notice of the time and place of any public sale or of the time after which a private sale or other intended disposition is to take place and that such notice is reasonable notification of such matters. No notification need be given to the Pledgor if it has signed after default a statement renouncing or modifying any right to notification of sale or other intended disposition. In addition to the rights and remedies granted to it in this Pledge Agreement and in any other instrument or agreement securing, evidencing or relating to any of the Obligations, the Pledgee shall have all the rights and remedies of a secured 3 party under the Uniform Commercial Code of the State of California. The Pledgor further agrees to waive and agrees not to assert any rights or privileges which it may acquire under Section 9112 of the Uniform Commercial Code and the Pledgor shall be liable for the deficiency if the proceeds of any sale or other disposition of the Collateral are insufficient to pay all amounts to which the Pledgee is entitled, and the fees of any attorneys employed by the Banks to collect such deficiency. Notwithstanding anything to the contrary in this Section 7, the Pledgee shall not sell or otherwise dispose of Bank Bonds pursuant to this Section 7 for a purchase price which is less than the par value of such Bank Bonds without obtaining the prior consent of the Pledgor. 8. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PLEDGOR. The Pledgor represents and warrants that (a)(i) on the date of delivery to the Pledgee, or to the Trustee for the account of the Pledgee, of any Bank Bonds or (ii) in the event 100% of the Bonds are held by a depository in a book-entry only system, on the date of transfer by the Trustee or the depository to the account of the Pledgee or to the account of the Pledgor, expressly subject to the rights of the Pledgee hereunder, of any Bank Bonds, none of the Issuer, the Remarketing Agent or the Trustee will have any right, title or interest in or to the Bank Bonds which would adversely affect the Pledgee; (b) on the date of delivery to the Pledgee or to the Trustee for the account of the Pledgee of any Bank Bonds or, in the event of 100% of the Bonds are held by a depository in a book-entry only system, on the date of transfer by the Trustee or the depository to the account of the Pledgee or the Pledgor, expressly subject to the rights of the Pledgee hereunder, of any Bank Bonds, it will have full power, authority and legal right to pledge all of its right, title and interest in and to the Bank Bonds pursuant to this Pledge Agreement; (c) this Pledge Agreement has been duly authorized, executed and delivered by the Pledgor and constitutes a legal, valid and binding obligation of the Pledgor, enforceable in accordance with its terms except as such enforceability may be limited by insolvency, reorganization, moratorium or other similar laws relating to or limiting creditor's rights; (d) no consent of any other party (including, without limitation, creditors of the Pledgor) and no consent, license, permit, approval or authorization of, exemption by, notice or report to, or registration, filing or declaration with, any governmental authority, domestic or foreign, is required to be obtained by the Pledgor in connection with the execution, delivery or performance of this Pledge Agreement; (e) the execution, delivery and performance of this Pledge Agreement will not violate any provision of any applicable law or regulation or of any order, judgment, writ, award or decree of any court, arbitrator or governmental authority, domestic or foreign, or of any material mortgage, indenture, lease, contract, or other agreement, instrument or undertaking to which the Pledgor is a party or which purports to be binding upon the Pledgor or upon its assets and will not result in the creation or imposition of any lien, charge or encumbrance on or security interest in any of the assets of the Pledgor except as contemplated by this Pledge Agreement; and (f) the pledge, assignment and delivery of such Bank Bonds pursuant to this Pledge Agreement will create a valid first lien on and a security interest in, all right, title or interest of the Pledgor in or to such Bank Bonds, and the proceeds thereof, subject to no prior pledge, lien, mortgage, hypothecation, security interest, charge, option or encumbrance or to any agreement purporting to grant to any third party a security interest in the property or assets of the 4 Pledgor which would include the Bank Bonds. The Pledgor covenants and agrees that it will defend the Pledgee's right, title and security interest in and to the Bank Bonds and the proceeds thereof against the claims and demands of all persons whomsoever; and covenants and agrees that it will have like title to and right to pledge any other property at any time hereafter pledged to the Pledgee as Collateral hereunder and will likewise defend the Bank's right thereto and security interest therein. 9. NO DISPOSITION, ETC. Without the prior written consent of the Pledgee, the Pledgor agrees that it will not sell, assign, transfer, exchange or otherwise dispose of, or grant any option with respect to, the Collateral, nor will it create, incur or permit to exist any pledge, lien, mortgage, hypothecation, security interest, charge, option or any other encumbrance with respect to any of the Collateral, or any interest therein, or any proceeds thereof, except for the lien and security interest provided for by this Pledge Agreement. 10. SALE OF COLLATERAL. (a) The Pledgor recognizes that the the Pledgee may be unable to effect a public sale of any or all of the Bank Bonds by reason of certain prohibitions contained in the Securities Act of 1933, as amended (the "Securities Act"), and applicable state securities laws, but may be compelled to resort to one or more private sales thereof to a restricted group of purchasers who will be obliged to agree, among other things, to acquire such securities for their own account for investment and not with a view to the distribution or resale thereof. The Pledgor acknowledges and agrees that any such private sale may result in prices and other terms less favorable to the seller than if such sale were a public sale and, notwithstanding such circumstances, agrees that any such private sale shall be deemed to have been made in a commercially reasonable manner. The Pledgee shall be under no obligation to delay a sale of any of the Bank Bonds for the period of time necessary to permit the issuer of such securities to register such securities for public sale under the Securities Act, or under applicable state securities laws, even if the issuer would agree to do so. (b) The Pledgor further agrees to do or cause to be done all such other acts and things as may be necessary to make such sale or sales of any portion or all of the Bank Bonds valid and binding and in compliance with any and all applicable laws, regulations, orders, writs, injuctions, decrees or awards of any and all courts, arbitrators or governmental instrumentalities, domestic or foreign, having jurisdiction over any such sale or sales, all at the Pledgor's expense. The Pledgor further agrees that a breach of any of the covenants contained in this paragraph 10 will cause irreparable injury to the Pledgee, that the Pledgee has no adequate remedy at law in respect of such breach and, as a consequence, agrees that each and every covenant contained in this paragraph shall be specifically enforceable against the Pledgor, and the Pledgor hereby waives and agrees not to assert any defenses against an action for specific performance of such covenants except for a defense that no Event of Default has occurred under the Reimbursement Agreement. The Pledgor further acknowledges the impossibility of ascertaining the amount of damages which would be suffered by the Pledgee by reason of a breach of any of such covenants and, consequently, agrees that, if the Pledgee shall sue for damages for breach, the Pledgor shall pay, as liquidated damages and not as a penalty, an amount 5 equal to the par value plus accrued premium, if any, and accrued interest on the Bank Bonds and all amounts payable pursuant to the Reimbursement Agreement on the date the Pledgee shall demand compliance with this paragraph. 11. TRUSTEE AS AGENT. The parties hereto acknowledge that the Pledgee may designate the Trustee, or any successor trustee under the Indenture, its agent for the purpose of holding the Bank Bonds on behalf of the Pledgee and with such authority for taking actions with respect to the Bank Bonds as may be directed by, and on behalf of, the Pledgee. 12. FURTHER ASSURANCES. The Pledgor agrees that at any time and from time to time upon the written request of the Pledgee, the Pledgor will execute and deliver such further documents and do such further acts and things as the Pledgee may reasonably request in order to effect the purposes of this Pledge Agreement. 13. AMENDMENTS: ETC. No amendment, modification, termination or waiver of any provision of this Pledge Agreement, and no consent to any departure by Pledgor therefrom, shall in any event be effective unless the same shall be in writing and signed by the Pledgee and, in the case of any such amendment or modification, by Pledgor. Any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which it was given. 14. NOTICES. All notices and other communications provided for in hereunder shall be made and delivered as set forth in Section 7.2 of the Reimbursement Agreement. 15. FAILURE OR INDULGENCE NOT WAIVER: REMEDIES CUMULATIVE. No failure or delay on the part of the Pledgee in the exercise of any power, right or privilege hereunder shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude any other or further exercise thereof or of any other power, right or privilege. All rights and remedies existing under this Pledge Agreement are cumulative to, and not exclusive of, any rights or remedies otherwise available. 16. SEVERABILITY. In case any provision in or obligation under this Pledge Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. 17. HEADINGS. Section and subsection headings in this Pledge Agreement are included herein for convenience of reference only and shall not constitute a part of this Pledge Agreement for any other purpose or be given any substantive effect. 18. GOVERNING LAW: TERMS. THIS PLEDGE AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE 6 GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA. WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES, EXCEPT TO THE EXTENT THAT THE CODE PROVIDES THAT THE PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF CALIFORNIA. Unless otherwise defined herein or in the Reimbursement Agreement, terms used in Article 8 and 9 of the Uniform Commercial Code in the State of California are used herein as therein defined. 19. CONSENT TO JURISDICTION AND SERVICE OF PROCESS. ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST PLEDGOR ARISING OUT OF OR RELATING TO THIS PLEDGE AGREEMENT MAY BE BROUGHT IN ANY FEDERAL OR STATE COURT OF COMPETENT JURISDICTION IN THE STATE OF CALIFORNIA, AND BY EXECUTION AND DELIVERY OF THIS PLEDGE AGREEMENT PLEDGOR ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGEMENT RENDERED THEREBY IN CONNECTION WITH THIS PLEDGE AGREEMENT. The Pledgor hereby agrees that service of all process in any such proceeding in any such court may be made by registered or certified mail, return receipt requested, to the Pledgor at its address provided in Section 7.2 of the Reimbursement Agreement, such service being hereby acknowledged by the Pledgor to be sufficient for personal jurisdiction in any action against the Pledgor in any such court and to be otherwise effective and binding service in every respect. Nothing herein shall affect the right to serve process in any other manner permitted by law or shall limit the right of the Pledgee to bring proceedings against the Pledgor in the courts of any other jurisdiction. 20. WAIVER OF JURY TRIAL. THE PLEDGOR AND THE PLEDGEE HEREBY AGREE TO WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS PLEDGE 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. The Pledgor and the Pledgee each acknowledge that this waiver is a material inducement for the Pledgor and the Pledgee to enter into a business relationship, that the Pledgor and the Pledgee have already relied on this waiver in entering into this Pledge Agreement and that each will continue to rely on this waiver in their related future dealings. The Pledgor and the Pledgee further warrant and represent that each has reviewed this waiver with its legal counsel, and that each knowingly and voluntarily waive 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. 7 (OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY REFERRING TO THIS SECTION 20 AND EXECUTED BY EACH OF THE PARTIES HERETO), AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS PLEDGE AGREEMENT. In the event of litigation, this Pledge Agreement may be filed as a written consent to a trial by the court. 21. COUNTERPARTS. This Pledge Agreement may be executed in one or more counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document. [remainder of page intentionally left blank] 8 IN WITNESS WHEREOF, the parties have caused this Pledge Agreement to be duly executed and delivered on the day and year first above written. PLEDGOR: RYKOFF-SEXTON, INC. as Pledgor By: --------------------------- Title: PLEDGEE: THE FIRST NATIONAL BANK OF CHICAGO, as Pledgee By: --------------------------- Title: S-1 Exhibit C CUSTODY AGREEMENT This CUSTODY AGREEMENT is made as of this 1st day of November, 1996, by and among Bankers Trust Company of California, N.A. (the "Custodian") and The First National Bank of Chicago ("FNBC"). RECITALS Pursuant to the terms and conditions set forth in the Reimbursement Agreement dated as of November 1, 1996 (the "Reimbursement Agreement") between FNBC and Rykoff-Sexton, Inc. (the "Company"), FNBC has agreed to issue its irrevocable Letter of Credit (as defined in the Reimbursement Agreement) for the account of the Company in connection with the La Mirada Industrial Development Authority's Taxable Variable Rate Demand Industrial Development Revenue Bonds (Rykoff-Sexton, Inc. Project) Series 1996 (the "Bonds"). All other terms used herein which are defined in the Reimbursement Agreement and not defined herein shall have the same meanings assigned them in the Reimbursement Agreement unless the context otherwise requires. As security for payment of the obligations of the Company owed to the FNBC under the Reimbursement Agreement, including those in respect of Purchase Drawings, the Corporation has agreed to pledge to FNBC and grant to FNBC a security interest in, its right, title and interest in and to Bonds delivered to or held for the account of FNBC in connection with such drawings (the "Bank Bonds") pursuant to the Pledge Agreement dated as of November 1, 1996 among the Company and the FNBC (the "Pledge Agreement"). FNBC wishes to appoint the Custodian as its agent to take possession and hold the Bank Bonds on behalf of and for the benefit of FNBC, on the terms and under the conditions set forth in this Custody Agreement and the Custodian is willing to do so. Therefore, in consideration of mutual covenants recited herein, it is hereby agreed as follows: 1. FNBC hereby appoints the Custodian as its agent and bailee for the purpose of receiving Bank Bonds from Bankers Trust Company of California, N.A., as Trustee and holding such Bank Bonds for and on behalf of FNBC. The Custodian hereby agrees to hold the Bank Bonds for such purpose, as the FNBC's agent and bailee. 2. Except at the written direction of FNBC, the Custodian shall not pledge, hypothecate, transfer or release possession of any Bank Bonds held by the Custodian on behalf of FNBC to any person or in any manner not in accordance 1 with this Custody Agreement and shall not enter into any other agreement regarding possession of the Bank Bonds without the prior written consent of FNBC. 3. This Custody Agreement cannot be amended or modified except in a writing signed by FNBC and the Custodian. 4. This Custody Agreement shall inure to the benefit of and shall be binding upon the Custodian and FNBC and their respective successors and assigns. 5. Upon written notice to FNBC and release to FNBC or its designee of any Bank Bonds then held by the Custodian pursuant to this Custody Agreement the Custodian shall have the right to terminate its obligations under this Custody Agreement. 6. In acting under this Custody Agreement, the Custodian shall not be liable to the Banks except for negligence or willful misconduct in the performance of its obligations hereunder. 7. In acting under this Custody Agreement, the Custodian shall have no duties or obligations other than as specifically set forth herein. (Remainder of page intentionally left blank) 2 IN WITNESS WHEREOF, the parties have hereto set their hands by their authorized representatives, all as of the date first above written. BANKERS TRUST COMPANY OF CALIFORNIA, N.A., as Custodian By: --------------------------- THE FIRST NATIONAL BANK OF CHICAGO By: --------------------------- S-1 Exhibit D [LETTERHEAD] November 20, 1996 The First National Bank of Chicago, as issuer under the Reimbursement Agreement referred to below One First National Plaza Chicago, Illinois 60670 Re: Reimbursement Agreement between Rykoff-Sexton, Inc. and The First National Bank and Trust Company of Chicago ------------------------------------------------------- Ladies and Gentlemen: We have acted as special counsel to Rykoff-Sexton, Inc., a Delaware corporation (the "Company"), in connection with the Reimbursement Agreement dated as of November 1, 1996 (the "Reimbursement Agreement"), between the Company and The First National Bank of Chicago (the "Bank"). This opinion is delivered to you under Section 3.1(d) of the Reimbursement Agreement. Capitalized terms used in this opinion and not otherwise defined have the meanings assigned to such terms in the Reimbursement Agreement; PROVIDED, HOWEVER, that the term "Trust Estate" has the meaning assigned to such term in the Deed of Trust (as defined below). With your permission, all assumptions and statements of reliance in this opinion have been made without any independent investigation or verification on our part except to the extent otherwise expressly stated, and we express no opinion with respect to the subject matter or accuracy of such assumptions or items upon which we have relied; PROVIDED, HOWEVER, that although we have made no independent investigation or inquiry, we have no reason to believe that any of such assumption is untrue or that such reliance is unfounded. In connection with the opinions expressed below, we have (i) investigated such questions of law, (ii) examined originals or certified, conformed or reproduction copies of such corporate agreements, instruments, documents and records of the Company, such certificates of public officials and such other documents as we have deemed necessary or appropriate for the purposes of this opinion and (iii) obtained such information from officers and representatives of the Company as we have deemed necessary or appropriate for the purposes of this opinion. We November 20, 1996 Page 2 advise you that this opinion is based upon a consideration of legal principles that would be applicable in judicial proceedings. We have examined, among other documents, the following: (A) an executed copy of the Reimbursement Agreement; (B) an executed copy of the Pledge Agreement dated as of November 1, 1996, made by the Company in favor of the Bank; (C) an executed copy of the Deed of Trust, Assignment of Rents and Fixture Filing dated as of November 1, 1996 (the "Deed of Trust"), made by the Company in favor of the Bank; (D) an executed copy of the Security Agreement dated as of November 1, 1996, made by the Company in favor of the Bank; (E) an executed copy of the Environmental Indemnity dated as of November 1, 1996, made by the Company in favor of the Bank; (F) the Officer's Certificate of the Company delivered to us in connection with this opinion, a copy of which is attached as Annex A (the "Officer's Certificate"); and (G) unfiled copies of the financing statements naming the Company as debtor and the Bank as secured party (collectively, the "Financing Statements"), which Financing Statements we understand will be filed in the filing offices of the Secretary of State for the States of California, Delaware and Illinois. The documents referred to in items (B) through (D) above are referred to in this opinion collectively as the "Collateral Documents" and the documents referred to in items (A) through (E) above are referred to individually as a "Reviewed Document" and collectively as the "Reviewed Documents". In all such examinations, we have assumed the legal capacity of all natural persons executing documents, the genuineness of all signatures, the authenticity of original and certified documents and the conformity to original or certified copies of all copies submitted to us as conformed or reproduction copies. As to various questions of fact relevant to the opinions expressed in this opinion, we have relied upon, and assume the November 20, 1996 Page 3 accuracy of, representations and warranties contained in the Reviewed Documents and certificates and written statements and other information of or from representatives of the Company and others and assume compliance on the part of all parties to the Reviewed Documents with their covenants and agreements contained in the Reviewed Documents. With respect to the opinions expressed in clause (iii) (A) of paragraph 2 below, our opinions are limited to our review of only those laws and regulations that, in our experience, could reasonably be expected to be applicable to transactions of the type contemplated by the Reviewed Documents. To the extent it may be relevant to the opinions expressed in this opinion, we have assumed that the parties to the Reviewed Documents other than the Company have the power to enter into and perform such documents and to consummate the transactions contemplated by the Reviewed Documents and that such documents have been duly authorized, executed and delivered by, and constitute legal, valid and binding obligations of, such parties. Based upon the foregoing, and subject to the limitations, qualifications and assumptions set forth in this opinion, we are of the opinion that: 1. The Company has executed and delivered each Reviewed Document to which it is a party and the Financing Statements. Each Reviewed Document constitutes an enforceable obligation of the Company. 2. The execution and delivery by the Company of each of the Reviewed Documents to which it is a party, the performance by the Company of its obligations under such Reviewed Documents and the granting by the Company of the security interests to be granted by it under the Collateral Documents (i) have been authorized by all necessary corporate action by the Company (including the execution and delivery of the Financing Statements), (ii) do not contravene any provision of the certificate of incorporation or by-laws of the Company and (iii) do not violate (A) any present law or present regulation of any governmental agency or authority applicable to the Company or its property, (B) any material agreement binding upon the Company or its property (this opinion being limited to those agreements that have been identified to us as material in the Officer's Certificate and being further limited in that we express no opinion with respect to any violation arising under or based upon any covenant of a financial or numerical nature or requiring computation) or (C) any judicial or arbitral decree or order of a November 20, 1996 Page 4 material nature binding upon the Company or its property (this opinion being limited to those decrees and orders that have been identified to us in the Officer's Certificate). 3. The execution and delivery by the Company of each of the Reviewed Documents to which it is a party, the performance by the Company of its obligations under such Reviewed Documents and the granting by the Company of the security interests to be granted by it under the Collateral Documents do not require under present law any filing or registration by the Company with, or approval or consent of, any governmental agency or authority of the State of California or of the United States of America that has not been made or obtained except (i) those required in the ordinary course of business in connection with the performance by the Company of its obligations under certain covenants contained in the Reviewed Documents to which it is a party, (ii) to perfect the security interests granted under the Collateral Documents and (iii) under securities and other laws that may be applicable to the disposition of any collateral subject to such laws. 4. The Deed of Trust, when accepted for recordation by the Los Angeles County Recorder's Office, creates a valid transfer of the Trust Estate described in the Deed of Trust that constitutes real property or fixtures under California law in favor of the trustee named in the Deed of Trust for the benefit of the Bank to secure the obligations described in the Deed of Trust. The opinions set forth above are subject to the following qualifications: (A) Our opinions above as to enforceability are subject to: (i) applicable bankruptcy, insolvency, reorganization, voidable preference, fraudulent transfer, moratorium or similar laws, and related judicial doctrines, affecting creditors' rights and remedies generally, as in effect from time to time; (ii) general principles of equity (including, without limitation, standards of materiality, good faith, fair dealing and reasonableness, equitable defenses and limits on the availability of equitable remedies, including, without limitation, the remedies of specific performance and nonjudicial foreclosure), whether such principles are considered in a proceeding at law or in equity; and November 20, 1996 Page 5 (iii) the qualification that certain provisions of the Reviewed Documents may be invalid, not binding or unenforceable in whole or in part under the laws (including judicial decisions) of the State of California or the United States of America, but the inclusion of such provisions does not affect the validity, binding effect or enforceability as against the Company of the Reviewed Documents as a whole, and the Reviewed Documents contain provisions adequate to permit enforcement of the obligations created thereby, subject to the other qualifications contained in this letter. (B) We express no opinion as to the enforceability of any provision in the Reviewed Documents: (i) permitting the Bank or any other person or entity to sell or otherwise dispose of, or purchase, any collateral subject thereto, or enforce any other right or remedy thereunder (including without limitation any self-help or taking-possession remedy), except in compliance with the Uniform Commercial Code of the State of California ("UCC") and other applicable federal, state, local and foreign laws; (ii) establishing standards for the performance of the obligations of good faith, diligence, reasonableness and care prescribed by the UCC or of any of the obligations referred to in Section 9501(3) of the UCC; (iii) establishing standards for compliance with the requirements of Section 9501(4) of the UCC; (iv) relating to indemnification, contribution or exculpation in connection with violations of securities laws or statutory duties or public policy; (v) purporting to, either directly or indirectly, indemnify against the consequences of willful, reckless or unlawful acts or gross negligence of the indemnified party; (vi) relating to exculpation of any party in connection with its own negligence that a court would determine in the circumstances under applicable law to be unfair or insufficiently explicit; (vii) providing that the Bank or any other person or entity may exercise set-off rights other than in accordance with and pursuant to applicable law; November 20, 1996 Page 6 (viii) relating to forum selection to the extent the forum is a federal court; (ix) relating to choice of governing law; (x) relating to forum selection to the extent that any relevant action or proceeding does not arise out of or relate to such Reviewed Document or to the extent that the enforceability of any such provision is to be determined by any court other than a court of the State of California or to the extent such choice of law may be limited or affected by receivership, conservatorship or other similar laws and regulations applicable to federally insured depository institutions; (xi) waiving any rights to trial by jury; (xii) requiring or relating to payment of interest (or discount or equivalent amounts) or any premium or "make whole" payment at a rate or in an amount, after the maturity or after or upon acceleration of the respective liabilities evidenced or secured thereby, or upon prepayment, that a court would determine in the circumstances under applicable law to be commercially unreasonable or a penalty or a forfeiture; (xiii) creating a trust or other fiduciary relationship; (xiv) specifying that provisions of such Reviewed Documents may be waived only in writing, to the extent that an oral agreement or an implied agreement by trade practice or course of conduct has been created that modifies any provision of such Reviewed Documents; (xv) giving any person or entity the power to accelerate obligations without any notice to the obligor; (xvi) limiting the ability of the Company or any other person or entity to transfer voluntarily or involuntarily (by way of sale, creation of a security interest, attachment, levy, garnishment or other judicial process) its right, title or interest in or to any collateral subject thereto or other property, except to the extent such provisions are made enforceable pursuant to the Garn-St. Germain Depository Institutions Act of 1982 (12 U.S.C. Section 1701j-3); November 20, 1996 Page 7 (xvii) waiving any statute of limitations; (xviii) relating to the enforceability of any provision or accumulation of provisions that may be deemed to be unconscionable; (xix) relating to any tax laws; (xx) establishing evidentiary standards; or (xxi) restricting the Company's access to legal or equitable remedies. (C) Our opinions as to enforceability are subject to the effect of generally applicable rules of law that: (i) provide that forum selection clauses in contracts are not necessarily binding on the court(s) in the forum selected; (ii) limit the availability of a remedy under certain circumstances when another remedy has been elected; (iii) may, where less than all of a contract may be invalid, not binding or unenforceable, limit the validity, binding effect and enforceability of the balance of the contract to circumstances in which the invalid, not binding or unenforceable portion is not an essential part of the agreed exchange; (iv) govern and afford judicial discretion regarding the determination of damages and entitlement to attorneys' fees and other costs; and (v) may permit a party that has materially failed to render or offer performance required by the contract to cure that failure unless (a) permitting a cure would unreasonably hinder the aggrieved party from making substitute arrangements for performance or (b) it was important in the circumstances to the aggrieved party that performance occur by the date stated in the contract. (D) We express no opinion as to the validity, binding effect or enforceability of any purported waiver, release, variation, disclaimer, consent or other agreement to similar effect (all of the foregoing, collectively, a "Waiver") by the Company under any of the Reviewed Documents to the extent limited by Sections 1102(3) or 9501(3) of the UCC or other provisions of November 20, 1996 Page 8 applicable law (including judicial decisions), or to the extent that such a Waiver applies to a right, claim, duty, defense or ground for discharge otherwise existing or occurring as a matter of law (including judicial decisions), except to the extent that such a Waiver is effective under and is not prohibited by or void, invalid or unenforceable under the UCC or other provisions of applicable law (including judicial decisions). (E) We express no opinion as to the perfection of the security interests granted under the Reviewed Documents. (F) Our security interest opinions are subject to the effect of Sections 9307, 9308, 9309, 9314 and 9315 of the UCC on such opinions and do not apply to any collateral constituting "consumer goods" or "farm products." (G) We have assumed, with your permission, that the Bank is either (i) a foreign (other nation) bank or a foreign (other state) bank which meets the requirements of Section 1716 of the California Financial Code or (ii) a bank created and operating under and pursuant to the laws of the State of California or of the United States of America within the meaning of Section 1 of Article XV of the Constitution of the State of California. (H) We express no opinion as to (i) the sufficiency or accuracy of the descriptions of the property described in the Collateral Documents, (ii) the state of title to any real or personal property which may be the subject of the Collateral Documents (rather, we assume title for the purpose of the opinion expressed in paragraph 4 above) or (iii) the priority or the perfection of any lien or security interest created, or purported to be created, by the Collateral Documents. (I) We have not been requested to express and with your permission we do not express an opinion as to the application of, and our opinions above are subject to the effect, if any, of, any applicable fraudulent conveyance, fraudulent transfer, fraudulent obligation or preferential transfer law and any law governing the liquidation or dissolution of, or the distribution of assets of, any person or entity. (J) We express no opinion with respect to whether or not the property subject to the Deed of Trust (a) is zoned for any particular use, (b) complies with applicable law pertaining to environmental and land use regulation (including, without limitation, the California Environmental Quality Act, as amended) or (c) complies with laws pertaining to land division (including, November 20, 1996 Page 9 without limitation, the California Subdivision Map Act), and we qualify our opinions above to the extent of non-compliance with any of the same. (K) We express no opinion with respect to the validity, binding effect or enforceability of any environmental indemnity except to the extent such indemnity, and the enforcement of such indemnity, conforms with Sections 726.5 and 736 of the Civil Code of California, subject to the qualifications set forth in this opinion. (L) We assume the Deed of Trust is not granted for purposes of construction of improvements on the real property described in the Deed of Trust. (M) We assume the Bank in the enforcement of any of their security interests will conform with the applicable requirements of California law including, without limitation, the obligations to exercise good faith, fair dealing and commercial reasonableness. (N) The opinions expressed above are subject to the assumption that (i) the Company is a corporation duly incorporated, validly existing and in good standing under the laws of its state of incorporation and (ii) the Company has the corporate power and authority to execute, deliver and perform its obligations under the Reviewed Documents. (O) The opinions expressed in this opinion are limited to the federal laws of the United States of America and the laws of the State of California. (P) We note (and you should be aware) that any obligation secured in whole or in part by California real property is subject to application of various statutes protecting the interests of mortgagors and restricting the procedures and means of enforcement employed by mortgagees which enforce such obligations. In particular: (i) The exercise of the power of sale in a deed of trust is a matter of contract and, as such, may be enforced by the parties in accordance with its terms, subject to applicable law. If there is a dispute over the existence of a default or the amount due and payable which results in the issuance of a temporary restraining order or preliminary injunction, or if the default involves a breach of a non-monetary obligation, you may have no practical alternative other than to pursue a judicial action for foreclosure. November 20, 1996 Page 10 (ii) Section 726 of the California Code of Civil Procedure ("Section 726") and Subdivision 9501(4) of the California Uniform Commercial Code contain provisions relating to the enforcement of obligations secured by real or real and personal property, including provisions that relate to and specify the procedures for the sale of encumbered property, the application of proceeds, the calculation, availability and procedures pertaining to the rendition in certain cases of a deficiency judgment and other related matters. We advise you that in an action or proceeding to recover on a debt or other obligation secured by real or real and personal property, the debtor may require the creditor to exhaust all of its security before a personal judgment may be obtained against the debtor for a deficiency. We also advise you that failure to comply with those provisions (including any attempt to exercise any statutory, equitable or contractual right of set-off with respect to any funds or other property of the Company that may be deposited with the Bank from time to time with respect to the obligations secured by the Deed of Trust) may result in the loss of the collateral encumbered by a deed of trust or mortgage on real property. SEE, e.g. WALKER v. COMMUNITY BANK, 10 Cal. 3d 729, 111 Cal. Rptr. 897 (1974); BANK OF AMERICA v. DAILY, 152 Cal. App. 3d 767, 199 Cal. Rptr. 557 (1984) IN RE KRISTAL, 37 B.R. 659 ( Bankr. App. 1984), aff'd, 758 F.2d 454 (9th Cir. 1985); SECURITY PACIFIC NATIONAL BANK v. WOZAB, 51 Cal. 3d 991, 275 Cal. Rptr 201 (1990); O'NEIL v. GENERAL SECURITY CORP., 4 Cal. App. 4th 587, 5 Cal. Rptr. 2d 712 (1992); SHIN v. SUPERIOR COURT, 26 Cal. App. 4th 542, 31 Cal. Rptr. 2d 587, modified, reh'g denied 26 Cal. App. 4th 1788a (1994). We further advise you that although no California court, to our knowledge, has so far expressly held that violation of Section 726 would result in extinguishment of the secured obligation, several decisions have raised the possibility that following a violation of Section 726 the secured obligation itself may not be enforceable. SEE , E.G., WOZAB (last paragraph of majority opinion) and the result in DAILY. (iii) Section 580d of the California Code of Civil Procedure provides that no deficiency judgment shall be rendered under California law upon an obligation secured by a deed of trust or mortgage on real property after sale of the real property under the power of sale contained in such deed of trust or mortgage. (iv) The provisions of Sections 726, 580a and 580d of the California Code of Civil Procedure and Section 2924 of November 20, 1996 Page 11 the California Civil Code have been held by courts in California to be imbued with various public purposes. Devices that have the substantive effect of circumventing such public purposes may be held to be invalid as against public policy notwithstanding attempted express or implied waivers obtained from a borrower contemporaneously with the making of or renewing a loan. (v) Section 2924c of the California Civil Code provides that whenever the maturity of an obligation secured by a deed of trust or mortgage on real property is accelerated by reason of a default in the payment of interest or in the payment of any installment of principal or other sums secured thereby, or by reason of failure of the trustor or mortgagor to pay taxes, assessments, or insurance premiums, the trustor or mortgagor and certain other entitled persons have the right, to be exercised at any time within the reinstatement period described in such Section, to cure such default by paying the entire amount then due (including certain reasonable costs and expenses incurred in enforcing such obligations but excluding any principal amount that would not then be due had no default occurred) and thereby cure the default and reinstate such deed of trust or mortgage and the obligations secured thereby to the same effect as if no such acceleration had occurred. If the power of sale in the deed of trust or mortgage is not to be exercised, such reinstatement right may be exercised at any time prior to entry of the decree of foreclosure. (vi) Our opinions are subject to the effect of provisions of California law that grant certain redemption rights during certain times to persons having an interest in property subject to a lien and which prevent the parties to the contract from restraining the right of redemption from a lien, including, without limitation, California Civil Code Sections 2889 and 2903 through 2905 and California Code of Civil Procedure Sections 729.010 through 729.090. (vii) You should be aware that a California court may not strictly enforce certain covenants contained in the Deed of Trust if a determination is made that the security therefor has not been impaired, that the Bank has violated the implied covenant of good faith and fair dealing or that enforcement or acceleration would otherwise be unreasonable under the then existing circumstances. In addition, our opinion that the Reviewed Documents are enforceable does not mean that any particular legal or equitable remedy (such as November 20, 1996 Page 12 specific enforcement, etc.) would necessarily be available or precluded, even if specifically stated in such agreement to be available, or precluded, as the case may be. We do believe, however, that notwithstanding the limitations expressed in the preceding sentence (but subject to the other assumptions, qualifications and limitations set forth in this opinion), (a) the laws and judicial decisions referred to in this paragraph do not render the Reviewed Documents invalid, not binding or unenforceable as a whole and (b) enforcement or acceleration of the liens and the security interests evidenced by the Reviewed Documents would be available if an event of default occurs as a result of a material breach of any obligation secured by the Reviewed Documents, which breach results in a material impairment of the Bank's security interests, provided such enforcement or acceleration is accomplished in accordance with California law. (viii) We express no opinion as to the effect of any of the foregoing on any existing obligation in favor of the Bank which may be held to be also secured by the real property encumbered by virtue of the Reviewed Documents. (Q) The opinions expressed above are limited to the matters expressly set forth in this opinion, and no opinion is implied or may be inferred beyond the matters expressly stated in this opinion. The opinions expressed above are rendered as of the date of this letter and do not take into account any event, action, interpretation, change of law or similar item that occurs after the date of this letter; and we disclaim any undertaking to advise you of any changes which may be brought to our attention subsequent to the date of this letter. (R) We express no opinion as to the enforceability of any provision in the Reviewed Documents relating to the appointment of a receiver, to the extent the appointment of a receiver is governed by applicable statutory requirements, and to the extent such provision may not be in compliance with said statutory requirements. You understand that the scope of our representation does not include providing legal services with regard to the statutory and regulatory requirements and restrictions (including, without limitation, the policies, procedures, guidelines or practices of any federal or state regulator with respect thereto) applicable to or actually applied to financial institutions or, in their capacities as such, financial institution-affiliated parties. We express no opinion regarding November 20, 1996 Page 13 the compliance by the addressees of this opinion or the transactions contemplated by the Reviewed Documents with any such financial institutions regulatory matters. The opinions expressed in this opinion are solely for the benefit of the Bank and Caisse Nationale De Credit Agricole and may not be relied on in any manner or for any purpose by any other person or entity. The Bank is authorized to provide this opinion to a Participant; provided that such Participant is not entitled to rely on this opinion, even as of the date of this opinion, without our prior written consent. Very truly yours, /s/ Jones, Day, Reavis & Pogue ------------------------------- JONES, DAY, REAVIS & POGUE ANNEX A RYKOFF-SEXTON, INC. OFFICER'S CERTIFICATE Reference is made to the opinion letter of Jones, Day, Reavis & Pogue (the "Opinion") delivered in connection with the Reimbursement Agreement dated as of November 1, 1996 (the "Reimbursement Agreement"), between the Company and The First National Bank of Chicago. Capitalized terms used in this opinion and not otherwise defined have the meanings assigned such terms in the Opinion. The undersigned officer of the Company certifies, in connection with the Company's execution, delivery and performance of the Placement Agreement, that attached as SCHEDULE I to this certificate is a list of (i) material agreements binding upon the Company or its property and (ii) any judicial or arbitral decree or order of a material nature binding upon the Company or its property. A true and complete copy of each of the above material agreements, decrees and orders has previously been furnished to Jones, Day, Reavis & Pogue. No default or event of default or violation of any such agreements, decrees or orders exists or, immediately after giving effect to entry into the Reviewed Documents or consummation of any of the transactions contemplated by the Reviewed Documents, will exist. The agreements, decrees and orders listed on the attached SCHEDULE I and the agreements listed on Exhibit A to the opinion letter of Maslon Edelman Borman & Brand issued in connection with the Reimbursement Agreement constitute all material agreements binding upon the Company or its property. IN WITNESS WHEREOF, I have hereunto set my hand this 20th day of November, 1996. RYKOFF-SEXTON, INC. By: /s/ Thomas F. Flanagan -------------------------------- Thomas F. Flanagan Assistant Secretary EXHIBIT E TO COME FROM JONES DAY SCHEDULE I 1. Rights Agreement dated as of December 8, 1986, between Chemical Bank, as successor Rights Agent, and the Company, as amended by First Amendment thereto dated as of October 5, 1989, Second Amendment thereto dated as of December 4, 1995, and Third Amendment thereto dated as of January 31, 1996. 2. Indenture dated as of November 1, 1993, between the Company and Norwest Bank Minnesota, N.A., as trustee, [XXXXXXXXXX] the Company's $130,000,000 8-7/8% Senior Subordinated [XXXXXXXXXX] due 2003, as supplemented. 3. Stock Purchase Agreement dated September 8, [XXXXXXXXXX] Company, Tone Brothers, Inc. and Burns Philp Food Inc. 4. Agreement Not to Compete dated as of October [XXXXXXXXXX] between the Company and Burns Philp Food Inc. 5. Supply Agreement dated October 27, 1994, between the Company and Tone Brothers, Inc. 6. Supply Agreement dated October 27, 1994, between the Company and Burns Philp Food Inc. 7. Standstill Agreement among the Company and Merrill Lynch Capital Partners, Inc., Merrill Lynch Capital Appreciation Partnership No. B-XVIII, L.P.,Merrill Lynch Kecalp, L.P. 1994, ML Offshore Partnership No. B-XVIII, ML IBK Positions, Inc., MLCP Associates L.P. No. II, MLCP Associates L.P. No. IV, Merrill Lynch Kecalp L.P. 1991,, Merrill Lynch Capital Appreciation Partnership No. XIII, L.P., ML Offshore Partnership No. XIII, ML Employees LBO Partnership No. I, L.P., Merrill Lynch Kecalp, L.P. 1987 and Merchant Banking L.P. No. II (collectively, the "ML Entities"). 8. Registration Rights Agreement dated as of May 17, 1996, among the Company, the ML Entities (other than Merrill Lynch Capital Partners, Inc.), The Equitable Life Assurance Society of the United States, Equitable Deal Flow Fund, L.P., Equitable Variable Life Insurance Company and Frank H. Bevevino. 9. The Agreement and Plan of Merger dated February 2, 1996, among the Company, US Foodservice Inc., f/k/a USF Acquisition Corporation ("USF"), and US Foodservice Inc. (predecessor corporation of USF). 10. Tax Agreement among the Company and certain stockholders. 11. Credit Agreement dated as of May 17, 1996, among the Company, Bank of America National Trust and Savings Association, as administrative agent (in such capacity, the "Administrative Agent"), The Chase Manhattan Bank, N.A., as documentation agent, BA Securities, Inc., as co-arranger, Chase Securities, Inc., as co-arranger, and the other financial institutions party thereto, as lenders. 12. Company Security Agreement dated as of May 17, 1996, made by the Company in favor of the Administrative Agent. 13. Company Note and Stock Pledge Agreement dated as of May 17, 1996, made by the Company in favor of the Administrative Agent. 14. Receivables Sale Agreement dated as of May 16, 1996, among the Company, John Sexton & Co. ("Sexton"), Rykoff-Sexton Funding Corporation ("RSFC") and the Company, as servicer. 15. Pooling Agreement dated as of May 16, 1996, among RSFC, the Company, as servicer, and Chemical Bank, as trustee (the "Trustee"), as supplemented by Series 1996-1 Supplement to Pooling Agreement dated as of May 16, 1996. 16. Servicing Agreement dated as of May 16, 1996, among RSFC, the Company, as servicer, certain wholly-owned subsidiaries of the Company parties thereto, as subservicers, and the Trustee. 17. Security Agreement dated as of May 16, 1996, among the Company, Sexton and RSFC. 18. Receivables Sale Agreement dated as of November 15, 1996, among the Company, Sexton, Biggers Brothers, Inc., White Swan, Inc., F.H. Bevevino & Company, Inc., Roanoke Restaurant Service, Inc., King's Foodservice, Inc., US Foodservice of Florida, Inc., US Foodservice of Atlanta, RS Funding Inc. and US Foodservice Inc., as servicer. 19. Common Stock Purchase Warrant dated May 17, 1996, issued by the Company to Dresder Bank AG, New York Branch//Grand Cayman Branch. 20. Common Stock Purchase Warrant dated May 17, 1996, issued by the Company to The Nippon Credit Bank, Ltd. 21. Common Stock Purchase Warrant dated as of May 17, 1996, issued by the Company to Teachers Insurance and Annuity Association of America. SCHEDULE I CERTAIN EXISTING LIENS Liens granted under the Receivables Sale Agreement dated as of November 15, 1996, among the Company, Sexton, Biggers Brothers, Inc., White Swan, Inc., F.H. Bevevino & Company, Inc., Roanoke Restaurant Service, Inc., King's Foodservice, Inc., US Foodservice of Florida, Inc., US Foodservice of Atlanta, RS Funding Inc. and US Foodservice Inc., as servicer. Those exceptions to title listed on Schedule B of Chicago Title Insurance Company's Commitment No. 006135273-x55 dated October 24, 1996 as items AG, G, I, J, K, L, M, N, O, P, Q, R and S. SCHEDULE II CERTAIN INDEBTEDNESS Receivables Sale Agreement dated as of November 15, 1996, among the Company, Sexton, Biggers Brothers, Inc., White Swan, Inc., F.H. Bevevino & Company, Inc., Roanoke Restaurant Service, Inc., King's Foodservice, Inc., US Foodservice of Florida, Inc., US Foodservice of Atlanta, RS Funding Inc. and US Foodservice Inc., as servicer. Under a guaranty dated as of October 30, 1996, the Company guaranteed the obligations of Biggers Brothers, Inc. under the Master Lease dated September 1994, between Biggers Brothers, Inc. and First Fleet Corporation. SCHEDULE III CERTAIN REGULATORY MATTERS None. SCHEDULE IV (k) ENVIRONMENTAL MATTERS: (a) oils, or Hazardous Materials: (i) Ongoing soil and ground water remediation at the Premises due to the previous use of the site by Ford Motor Company as a distribution facility for Ford automobiles. By letter dated May 3, 1994 at the Los Angeles County Public Works, Waste Management Division, Ford Motor Company accepted financial responsibility for such remediation. Pursuant to the Hazardous Materials Agreement between the Catellus Development Corporation, Predelivery Service Corporation (collectively, the "Seller") and the Company, dated December 25, 1993, Seller has accepted the obligation to remove and remediate all hazardous materials from the Premises and has agreed to indemnify the Company for any and all liability relating to such contamination. (ii) Four underground storage tanks (containing diesel, new oil, waste oil, and empty but used as neutralizing tank), five clarifiers, seven aboveground storage tanks (containing ammonia (3), diesel (2) and water) and many containers of Hazardous Materials are located on the Premises, most of which are associated with the on-site maintenance and fueling of a fleet of trucks, and others which are routine, janitorial and maintenance supplies, refrigeration, battery storage and charging. The operations of all appear to be in compliance with Hazardous Materials Laws. (iii) During the normal course of the Company's business it distributes products such as detergents and other cleaning materials used in restaurants, institutions, schools, colleges and the like that are deemed to be Hazardous Materials and so labelled. (b) asbestos: Suspect asbestos-containing materials have been observed in the roofing and flooring at the Premises. All are in good condition. (c) urea formaldehyde foam insulation: none. (d) pcbs: Based upon the age of the Project, the utility owned transformers, lighting ballasts, hydraulic elevator and three hydraulic trash compactors are not likely to contain polychlorinated biphenyls. SCHEDULE V TO REIMBURSEMENT AGREEMENT OF RYKOFF-SEXTON, INC. ERISA A. LIST OF QUALIFIED PLANS REQUIRED BY SECTION 4.1(j)(i): 1. QUALIFIED PLANS SPONSORED ONLY BY THE COMPANY AND/OR JOHN SEXTON & CO.: Rykoff-Sexton Value Plan (a savings plan and trust). Rykoff-Sexton, Inc. Pension Plan (a defined benefit pension plan and trust). John Sexton & Co. Union Employee Pension Plan (a defined benefit pension plan and trust). Rykoff-Sexton, Inc. U.S. Lace Paperworks Division Pension Plan (a money purchase pension plan and trust, which has been terminated and liquidated in 1996). 2. QUALIFIED PLANS SPONSORED ONLY BY USF AND/OR ITS SUBSIDIARIES: US Foodservice Inc. 401(k) Retirement Savings Plan (a savings plan and trust). Retirement Plan for White Swan, Inc. (a defined benefit pension plan and trust "frozen" since 1993, without further accrual of increased benefits) Liquidating Trust of Retirement Plan for Employees of Biggers Brothers, Inc. (The related Plan was terminated more than five years ago and all benefits were paid to participants. The few remaining assets are not liquid, their proceeds will likely be needed to pay expenses, and any net proceeds will revert to the sponsoring employer.) B. LIST OF MULTIEMPLOYER PLANS REQUIRED BY SECTION 4.1(j)(i): 1. MULTIEMPLOYER PLANS TO WHICH THE COMPANY AND/OR JOHN SEXTON & CO. CONTRIBUTE: Central States Southeast and Southwest Areas Pension Fund New York State Teamsters Conference Pension Fund Southern States Conference of Teamsters Pension Fund Western States Conference of Teamsters Pension Trust Fund O.P.E.I.U. Local 153 Pension Fund (Englewood, NJ) I.B.T. Local 202 Pension Fund (Englewood, NJ) I.B.T. Local 282 Pension Fund (Englewood, NJ) I.B.T. Local 852 Pension Fund (Englewood, NJ) I.B.T. Local 705 Pension Trust (Glendale Heights, IL) I.B.T. Local 738 Pension Fund (Glendale Heights, IL) I.B.T. Local 745 Pension Fund (Dallas, TX) I.B.T. Local 829 Pension Fund (Norwood, MA) Teamsters Pension Trust of Philadelphia Warehouse Employees Union Local 169 and Employers Joint Pension Fund (Philadelphia, PA) Western Pennsylvania Teamsters and Employers Pension Fund (Pittsburgh, PA) Retail, Wholesale and Department Store International Union and Industry Pension Fund (Indianapolis, Indiana) Industrial Employers and Distributors Association and Warehouse Union Locals 6 and 17 I.L.W.U. Pension Trust (Sacramento, CA) Central States Southeast and Southwest Areas Health and Welfare Fund Northern California General Teamsters Security Trust Fund, Plan A Teamsters and Food Employers Security Trust Fund I.B.T. Local 202 Union Welfare Plan (Englewood, NJ) I.B.T. Local 738 Welfare Fund (Glendale Heights, IL) I.B.T. Local 738 Special Clinic Trust Fund (Glendale Heights, IL) Teamsters Health and Welfare Plan (Local 705) (Glendale Heights, IL) Teamsters Health and Welfare Plan 5 (Local 781) (Glendale Heights, IL) -2- Teamsters Health and Welfare Fund of Philadelphia, PA and Vicinity (Philadelphia, PA) Western Pennsylvania Teamsters and Motor Carriers Welfare Fund (Pittsburgh, PA) Michigan Conference of Teamsters Welfare Fund (Detroit, MI) Minnesota Local 544 Health and Welfare Fund (Minneapolis, MN) I.B.T. Local No. 638 Joint Administered Fund (Olfisco Division at Minneapolis, MN) Southwestern Teamsters Security Fund Plan 4 (Phoenix, AZ) Oregon Teamsters Employers Trust Plan F-W (Portland, OR) Teamsters Local 533 Health and Welfare Trust Fund (Reno, NV) ILWU Warehousemen's Welfare Fund (Sacramento, CA) Western Teamsters Welfare Trust (Salinas, CA) Teamsters and Employers Trust (San Francisco, CA) San Francisco Local 85 Drayage Drivers and Helpers Security Fund (San Francisco, CA) Local 856 Health and Welfare Trust Fund (San Francisco, CA) Washington Teamsters Welfare Trust (Seattle, WA) North Coast Trust Fund Plan #9 (Sonoma Co., CA) Inland Empire Teamsters Trust (Spokane, WA) Southwest Areas Health and Welfare Fund (St. Louis, MO) 2. MULTIEMPLOYER PLANS TO WHICH USF AND/OR ITS SUBSIDIARIES CONTRIBUTE: Central States Southeast and Southwest Areas Health and Welfare Fund C. LIST OF "PENSION PLANS" AS DEFINED IN ERISA SECTION 3(2) THAT ARE NEITHER QUALIFIED PLANS NOR MULTIEMPLOYER PLANS AS REQUIRED BY SECTION 4.1(j)(i): -3- 1. "PENSION PLANS" AS DEFINED IN ERISA SECTION 3(2), THAT ARE NEITHER QUALIFIED PLANS NOR MULTIEMPLOYER PLANS AND ARE SPONSORED ONLY BY THE COMPANY AND/OR JOHN SEXTON & CO.: Rykoff-Sexton, Inc., makes specified contributions to union employees' individual retirement accounts pursuant to contract at Sacramento, California (no plan document has been located, other than the collective bargaining agreement) Rykoff-Sexton, Inc. Deferred Compensation Plan (an unfunded executive savings plan, which is funded in part by a grantor trust held by a bank trustee, hereinafter referred to as the "grantor trust"). Rykoff-Sexton, Inc. Supplemental Executive Retirement Plan (an unfunded executive pension plan, which is included in the grantor trust and provides for individual agreements with certain executives). Rykoff-Sexton, Inc. Supplemental Excess Retirement Plan (an unfunded executive pension plan, which is also funded in part by the grantor trust). John Sexton & Co. Supplemental Executive Retirement Plan (an unfunded executive pension plan, which is not funded by the grantor trust). Other Supplemental Executive Retirement Agreements for certain officers of the Company and John Sexton & Co. (unfunded executive pension arrangements, some of which are included in the grantor trust). 2. "PENSION PLANS," AS DEFINED IN ERISA SECTION 3(2), THAT ARE NEITHER QUALIFIED PLANS NOR MULTIEMPLOYER PLANS AND ARE SPONSORED ONLY BY USF AND/OR ITS SUBSIDIARIES: The following arrangements may contain provisions constituting such plans: US Foodservice Executive Management Bonus Plan Severance Agreement for Royce Ellison Employment Agreements for the following employees: Harvey Frank Robert Zahler Joseph Bendix Richard Rogers Frank Brigman James Crenshaw -4- Miscellaneous Employee Bonus Plans applicable to employees of USF Subsidiaries D. LIST OF "WELFARE PLANS" AS DEFINED IN ERISA SECTION 3(1) AS REQUIRED BY SECTION 4.1(j)(i): 1. "WELFARE PLANS." AS DEFINED ERISA SECTION 3(1), THAT ARE SPONSORED ONLY BY THE COMPANY AND/OR JOHN SEXTON & CO.: Rykoff-Sexton Health and Dental Benefits Plan and Trust (including its own trust and a pre-tax salary reduction premium contribution arrangement under Internal Revenue Code 125). John Sexton & Co. Retiree Health and Dental Benefits Plan (included in the trust last identified above). Rykoff-Sexton Employee Vacation Plan and Trust (including its own trust). S. E. Rykoff & Co. Group Life Insurance Plan S. E. Rykoff & Co. Long Term Disability Insurance Program S. E. Rykoff & Co. Accidental Death & Dismemberment Plan S. E. Rykoff & Co. Group Travel Accident Plan John Sexton & Co. Group Life and Long Term Disability Plan John Sexton & Co. Accidental Death & Dismemberment Plan John Sexton & Co. Travel Accident Plan Rykoff-Sexton Short Term Disability Plan Discretionary Severance Pay Policy 2. "WELFARE PLANS" AS DEFINED IN ERISA SECTION 3(1), THAT ARE SPONSORED ONLY BY USF AND/OR ITS SUBSIDIARIES: Employee Benefit Plan (including major medical benefits, dental benefits, short term disability benefits and a prescription program). Business Travel Accident Plan Long Term Disability Insurance Plan -5- Group Basic and Supplemental Life and AD&D and Dependent Life Insurance Plan Flex Spending Plan (including medical and dependent care spending account options). White Swan, Inc. Employee Injury Benefit Plan Certain divisions and Subsidiaries of USF have provided limited employee assistance benefits and severance benefits, which may be treated as welfare plans under ERISA (the "Ancillary Benefits") 3. "WELFARE PLANS" AS DEFINED ERISA SECTION 3(1), THAT ARE SPONSORED BY BOTH THE COMPANY AND USF: Individual Life and Disability Insurance Policy Program for Executive Management Committee members. E. EXCEPTIONS TO REPRESENTATIONS IN SECTION 4.1(j)(ii): 1. Each of the following Plans (as defined for this Agreement) are being administered pursuant to an unsigned plan document or amendment, which is described below after the name of the respective Plan or Trust: (a) Rykoff & Sexton Pension Plans Master Trust - A restated draft Trust Agreement, as last submitted to the Internal Revenue Service on April 3, 1995. A prior Trust Agreement, First Amendment and Schedule A thereto were signed. (b) The Retirement Plan for White Swan, Inc. - A proposed restated plan document submitted to the Internal Revenue Service for a determination letter on June 30, 1995. (c) The Company and/or John Sexton & Co. are currently obligated to contribute to the Multiemployer Plans identified as such in the list of Plans set forth above. However, the provision for pension contributions to the I.B.T. Local 282 Pension Fund was inadvertently left out of the last collective bargaining agreement; and a letter of agreement confirming contributions to that fund is being obtained. (d) John Sexton & Co. Supplemental Executive Retirement Plan - A draft Plan document was last revised on September 6, 1990. (e) Rykoff-Sexton Employee Vacation Plan and Trust - Employees have received notice of a vacation plan change that has not been formally reflected in the -6- Plan document (f) Rykoff-Sexton "Cafeteria" Plan under Code Section 125 - The premium conversion arrangement document has not been located. The Forms 5500 filed for the Rykoff-Sexton Health and Dental Benefits Plan and Trust did not include Schedule F describing the premium conversion arrangement. (g) Because USF is not sure whether the Ancillary Benefits described above have been provided as part of an welfare plan under ERISA, such Ancillary Benefits may not be set forth in plan documents or summary plan descriptions, nor have any annual reports been filed with respect to such Ancillary Benefits. 2. The summary plan description ("SPD") of each of the following Plans (as defined for this Agreement) does not reflect the plan document that is currently used for plan administration: (a) Rykoff-Sexton, Inc. Pension Plan (A restated SPD was prepared in draft form as of July 11, 1995; and has been revised in draft form as of October 18, 1996). (b) John Sexton & Co. Union Employee Pension Plan (A restated SPD was prepared in draft form as of July 11, 1995, and has been revised in draft form as of April 11, 1996). (c) Rykoff-Sexton Value Plan (A restated SPD was prepared in draft form as of July 11, 1995, and has been revised in draft form as of April 19, 1996). (d) John Sexton & Co. Retiree Health and Dental Benefits Plan (A current SPD exists, but may not have been distributed to employees or filed with DOL). F. EXCEPTIONS TO REPRESENTATIONS IN SECTION 4.1(j)(iv): The John Sexton & Co. Union Employee Pension Plan has an "Unfunded Pension Liability" amounting to $4,147 as of May 1, 1995. The Retirement Plan for White Swan, Inc. had an "Unfunded Pension Liability" amounting to $2,266,937 as of December 31, 1995; and its actuary estimates that such amount has decreased to approximately $1,650,000 as of July 1, 1996. G. EXCEPTIONS TO REPRESENTATIONS IN SECTION 4.1(j)(v): John Sexton & Co., a Subsidiary of the Company, maintains the John Sexton & Co. Retiree Health and Dental Benefits Plan, which provides health and dental benefits to a limited group -7- of employees of that Subsidiary who meet certain eligibility requirements for this Plan and retire under the Rykoff-Sexton, Inc. Pension Plan (formerly the John Sexton & Co. Pension Plan). The S. E. Rykoff & Co. Group Life Insurance Plan and the John Sexton & Co. Group Life and Long Term Disability Plan include limited post-retirement life insurance benefits. The Employment Agreement of Mark Van Stekelenburg provides for health and other welfare benefits after his employment termination. Approximately 52 employees of Biggers Brothers, Inc. who retired prior to November 1, 1990, are entitled to participate in the US Foodservice Employee Medical Plan. H. EXCEPTIONS TO REPRESENTATIONS IN SECTIONS 4.1(j)(vii) AND (ix): As a result of the merger with USF, most or all of the locations with union employees covered by the John Sexton & Co. Union Employee Pension Plan will be shut down and the employees terminated. These actions are expected to result in the full vesting of affected participants, a partial termination of that plan and, if all participants are terminated, the "freezing" of future benefit accruals or termination of that plan. The plan's actuary estimates that a plan termination would require a final cash contribution of between $300,000 and $400,000. I. EXCEPTION TO REPRESENTATIONS IN SECTION 4.1(j)(viii): As of January 1, 1990, the John Sexton & Co. Savings Plan was merged into the S. E. Rykoff & Co. Profit Sharing Plan, both of which had previously been operated under the same Master Trust Agreement. The merged Plan and Trust was then designated the Rykoff-Sexton Value Plan. By letter received by the Company on March 24, 1995, the Pension and Welfare Administration of the U.S. Department of Labor (the "DOL") made an inquiry with respect to the John Sexton & Co. Savings Plan. The Company responded to the inquiry by letters dated July 26, 1995, and March 28, 1996, each of which transmitted certain documents to DOL. Since the date of the Company's last response, the Company has not received any additional inquiries from DOL with respect to this matter. J. EXCEPTION TO REPRESENTATIONS IN SECTION 4.1(j)(x): The Company owned all of the capital stock of Tone Brothers, Inc. ("Tone") during the period from April 11, 1989 through October 27, 1994; and sold that stock on the latter date to Burns Philp Food Inc. for a cash price of $96,000,000, subject to certain post-closing adjustments. During that entire period and at the time of the sale, Tone maintained a Qualified Plan that was a defined benefit pension plan subject to Title IV of ERISA (the -8- "Tone Plan"). Based on the Actuarial Valuation Report for the Tone Plan, which was prepared by Principal Mutual Life Insurance Company as of September 1, 1994 (the last valuation date before the sale), the Company's actuarial consultant estimates that Tone's unfunded pension liability (on a plan termination basis) with respect to the Tone Plan was then approximately $400,000. -9- APPENDIX I to Reimbursement Agreement dated as of November 1, 1996 between THE FIRST NATIONAL BANK OF CHICAGO and RYKOFF-SEXTON, INC. A DELAWARE COMPANY COVENANTS AND DISBURSEMENT PROCEDURES REGARDING INSURANCE OR CONDEMNATION PROCEEDS This APPENDIX I (Covenants and Disbursement Procedures regarding Insurance of Condemnation Proceeds) is attached to and forms an integral part of that certain Reimbursement Agreement dated as of November 1, 1996 between RYKOFF-SEXTON, INC., a Delaware Corporation and THE FIRST NATIONAL BANK OF CHICAGO (the "Reimbursement Agreement"). All terms defined in such Reimbursement Agreement shall have the same meanings when used in this APPENDIX I. Part A: DISBURSEMENTS A.1 INSURANCE OR CONDEMNATION PROCEEDS. (a) CONDITIONS. Disbursement of Cash Proceeds (as hereinafter defined) for restoration of the Project shall be made pursuant to the following procedures and conditions: (i) In the event of a casualty or a condemnation which results in damage to the Project in excess of $1,000,000, as determined by or on behalf of the Company and reasonably approved by Bank: (1) Within sixty (60) days following the date of such casualty or condemnation (the "Election Period"), the Company shall notify Bank in writing of the Company's election either (x) to redeem the Bonds in whole pursuant to the provisions of the Indenture and the Reimbursement Agreement, or (y) to restore the Project to a condition substantially the same as the condition of the Project immediately prior to such casualty or condemnation (the "Prior Condition"). (2) Within thirty (30) days after the expiration of the Election Period, the Company shall deliver to Bank collateral, in the form of cash I-1 and/or an irrevocable, clean "sight draft" standby letter of credit issued by a financial institution and otherwise in form and substance reasonably satisfactory to Bank (any such letter of credit, together with any amendments thereto or substitutions thereof approved by Bank, shall be a "Collateral Letter of Credit" hereunder) in an aggregate sum equal to the difference (if a positive number) between (x) the lesser of: (I) the Initial Stated Amount or (II) the total costs of restoring the Project to the Prior Condition, as determined by or on behalf of the Company and reasonably approved by Bank; PROVIDED, HOWEVER, that in the event the Company has elected to redeem the Bonds in whole in accordance with SUBPARAGRAPH A.1(a)(i)(1) above, the Initial Stated Amount shall be used regardless of whether or not such Amount is higher or lower than the total costs of restoring the Project to the Prior Condition; AND (y) the amount of insurance or condemnation proceeds actually delivered to Bank as a result of such casualty or condemnation, or, if acceptable to Bank in its sole discretion, the amount of insurance or condemnation proceeds reasonably anticipated by the Company to be delivered to Bank as a result of such casualty or condemnation. (3) If the Company has elected to restore the Project to the Prior Condition in accordance with SUBPARAGRAPH A.1(a)(i)(1) above, then, within thirty (30) days after the expiration of the Election Period, the Company shall deliver to Bank (x) an estimated budget of all costs of restoring the Project to the Prior Condition (which budget, together with any modifications thereto thereafter reasonably approved by Bank in accordance with PARAGRAPH B.2 hereof, shall be the "Restoration Budget" hereunder) and (y) a construction time line (which construction time line, together with any modifications thereto thereafter reasonably approved by Bank, shall be the "Construction Schedule" hereunder) setting forth, among other things, the dates upon which each of the following will occur: the plans and specifications for the restoration of the Project will be completed, a construction contract, in form and substance reasonably acceptable to Bank, will be executed, all necessary governmental approvals will be obtained and phases of construction will be commenced and completed. The initial Reconstruction Budget and Construction Schedule shall be subject to Bank's approval, which approval shall not be unreasonably withheld or delayed. (4) If the Company has elected to restore the Project to the Prior Condition in accordance with SUBPARAGRAPH A.1(a)(i)(1) above, all costs of restoring the Project to the Prior Condition in excess of the sum of cash delivered to Bank in accordance with SUBPARAGRAPH A.1(a)(i)(2) above (collectively, the "Cash Proceeds") shall be paid by the Company with its own funds first before any Cash Proceeds are disbursed for payment or reimbursement of any such costs. I-2 (5) Any failure by the Company to satisfy in a timely manner the conditions to disbursement set forth in this SUBPARAGRAPH A.1(a)(i) shall, after the expiration of any applicable notice and/or cure period set forth in the Reimbursement Agreement, constitute an Event of Default under the Reimbursement Agreement. Upon the occurrence of an Event of Default under the Reimbursement Agreement, Bank may, at its option, draw upon any Collateral Letter of Credit and deposit such proceeds into the Disbursement Account (as hereinafter defined). In such case, the term "Cash Proceeds" as used herein shall include the proceeds that are drawn from any Collateral Letter of Credit and are deposited into the Disbursement Account. (ii) In the event of a casualty or a condemnation which results in damage to the Project of $1,000,000 or less, as determined by or on behalf of the Company and reasonably approved by Bank: (1) Bank will promptly release to the Company the insurance or condemnation proceeds delivered to Bank as a result of such casualty or condemnation so long as, within (60) days following the date of such casualty or condemnation, the Company delivers to Bank a certificate, signed by a responsible officer of the Company, which states either (x) that the Company will restore the Project to the Prior Condition, or (y) that the portion of the Project damaged by such casualty or condemnation will have no significant adverse impact upon the use and operation of the Project; in which case the Bank shall have the right, at the Bank's sole discretion but at the Company's sole cost and expense, to cause an appraisal of the Project to be prepared and, if the Bank determines, in its sole discretion, that the value of the Project has been materially and adversely impacted as a result of such casualty or condemnation (such appraisal to be based upon the value of the Project immediately prior to such casualty or condemnation versus the value of the Project immediately after such casualty or condemnation (such difference to be referred to as the "Reduced Value")), the Company shall either (I) deliver to Bank additional collateral, in form and substance and pursuant to documentation reasonably acceptable to Bank, to secure the performance by the Company of the Obligations in an amount equal to the Reduced Value or (II) partially redeem the Bonds in an amount equal to the Reduced Value. In the event that the Company elects to partially redeem the Bonds, the Stated Amount (as defined in the Letter of Credit) of the Letter of Credit shall be reduced by the amount set forth in the reduction certificate delivered in connection with such partial redemption and the condition set forth in CLAUSE (II) of this SUBPARAGRAPH A.1(a)(ii)(1)(y) shall not be satisfied until the Company has reimbursed Bank for the amount of the draw on the Letter of Credit in connection with such partial redemption in accordance with the provisions of the Reimbursement Agreement. I-3 (2) If the Company has elected to restore the Project to the Prior Condition in accordance with SUBPARAGRAPH A.1(a)(ii)(1)(x) above, then the Company shall promptly commence and thereafter diligently continue to pursue such restoration to completion. (3) Any failure by the Company to satisfy in a timely manner the conditions to disbursement set forth in this SUBPARAGRAPH A.1(a)(ii) shall, after the expiration of any applicable notice and/or cure period set forth in the Reimbursement Agreement, constitute an Event of Default under the Reimbursement Agreement. (b) Any Cash Proceeds delivered by or on behalf of the Company to Bank shall be deposited in an account with Bank or another financial institution acceptable to Bank (the "Disbursement Account") for disbursement as hereafter provided. Any funds on deposit in the Disbursement Account may, with the prior written consent of the Bank be invested, from time to time, in investments approved by Bank in writing. Any and all earnings on such investments shall, so long as no Event of Default exists under the Reimbursement Agreement, be disbursed to the Company at the Company's request not more frequently than once per calendar month. A.2 BANK'S CONSENT TO DISBURSEMENTS. The Company shall complete, execute, and forward to Bank its funding requisition for each requested disbursement of Cash Proceeds, together with a complete set of Payment Request Documents (as hereinafter defined) with respect thereto, as described in PARAGRAPH A.5 of this APPENDIX I. Bank's approval of a funding requisition shall not be construed as representation by Bank that it has reviewed, considered, approved or joined in any of the representations of the Company contained therein. Bank shall not be required to give its consent to more than two disbursements during each calendar month. A.3 DISBURSEMENT METHOD. Each disbursement of Cash Proceeds for the payment of restoration costs shall be made by the Bank or, following the occurrence of an Event of Default, in such manner as Bank may direct. Upon satisfaction by the Company of the conditions to disbursement set forth in PARAGRAPH A.5, Bank shall promptly authorize disbursement of such funds for the payment of the restoration costs described in the approved Payment Request Documents for such disbursement, or to reimburse the Company therefor; PROVIDED, HOWEVER, upon the occurrence of an Event of Default Bank, at its sole option, may make disbursements directly to any contractors, subcontractors, laborers, materialmen, or other persons providing services or materials to the Project (collectively, "Claimants") by issuing and delivering to the Company cashier's checks payable to such Claimants, in accordance with a "Request for Cashier's Checks" which shall be submitted by the Company and approved by Bank as part of the Payment Request Documents for such disbursement. The Company agrees to cause all payments or reimbursements from the Disbursement Account to be made by checks drawn upon such account. I-4 A.4 BALANCING. (a) As a material condition to Bank's consent to any disbursement of Cash Proceeds, the Company hereby agrees to provide sufficient funds for the payment of restoration costs so that, in Bank's reasonable judgment, the aggregate sum of (i) the undisbursed portion of the Cash Proceeds available to the Company for the payment or reimbursement of restoration costs, PLUS (ii) the undrawn portion of any Collateral Letter of Credit available for the payment or reimbursement of restoration costs, PLUS (iii) any undisbursed amounts deposited pursuant to SUBPARAGRAPH A.4(b), is at least equal to the amount that will need to be expended in order to complete the restoration work in accordance with the plans therefor approved by Bank. Categories listed as "contingencies" on the Reconstruction Budget shall be deemed to be actual restoration costs for the purposes of balancing. (b) The determination as to whether sufficient funds are or will be available to complete the restoration work may be made by Bank at any time, including in connection with any request for Bank's consent to a disbursement. Within ten (10) days following notice from Bank that insufficient funds exist, the Company shall deliver to Bank for deposit in the Disbursement Account cash or other security reasonably acceptable to Bank (including another Collateral Letter of Credit) in such amount as Bank deems necessary to complete the restoration work in accordance with the plans approved by Bank. Any such amounts delivered to Bank for deposit in the Disbursement Account shall be the next funds authorized for disbursement by Bank hereunder, subject to the terms and conditions of this Agreement. A.5 CONDITIONS TO DISBURSEMENTS. Bank's consent to any disbursement of Cash Proceeds shall be subject to satisfaction of each of the following conditions precedent: (a) REPRESENTATIONS AND WARRANTS CORRECT: NO DEFAULT. As of the date of such disbursement, the representations and warranties of the Company contained in the Reimbursement Agreement and Related Documents shall be correct as though made on and as of that date, no Event of Default shall have occurred and no Default shall exist on such date. (b) BALANCING. As of the date of such disbursement, in Bank's reasonable judgment, the Company shall be in compliance with the provisions of PARAGRAPH A.4 of this APPENDIX I, and the making of the disbursement in question would not cause the Company to be out of compliance therewith immediately following such disbursement. (c) PAYMENT REQUEST DOCUMENTS. The Company shall have submitted to Bank, and Bank shall have approved, the following documents (collectively, the "PAYMENT REQUEST DOCUMENTS") with request to such disbursement, each of which shall be in form and substance satisfactory to Bank and duly executed by the appropriate parties: I-5 (i) a certificate, signed by a responsible officer of the Company, confirming the satisfaction of each of the conditions set forth in SUBPARAGRAPH A.5(a) of this APPENDIX I; (ii) a "PAYMENT REQUEST," in duplicate, in such form as Bank shall from time to time require, together with a report, certified as true and correct by a responsible officer of the Company, setting forth such details concerning the progress of the reconstruction work as Bank may require, including without limitation: (A) a detailed breakdown of all restoration costs covered by the Reconstruction Budget, including an itemization of (1) all costs accrued as of the date of such Payment Request, (2) all costs accrued and unpaid as of such date, (3) all costs projected to be necessary to complete the restoration work, and (4) the application of all past disbursements; (B) a current Construction Schedule (any revisions shown thereon from the previous Construction Schedule shall be subject to Bank's reasonable approval); and (C) all changes from the previous report which are known or reasonably anticipated by the Company; (iii) evidence of proper application of all past disbursements, including without limitation the following: an unconditional partial waiver of lien from each contractor and subcontractor, in form and substance satisfactory to Bank, covering the full amount of all past disbursements for direct construction costs through the date of the most recent disbursement; and an unconditional final waiver of lien, in form and substance satisfactory to Bank, from each contractor and each subcontractor who, as of the most recent disbursement, had completed the work covered by its contract or subcontract, covering the full amount due each such contractor or subcontractor; (iv) if Bank, upon the occurrence of an Event of Default, is requiring that Disbursements to Claimants be made by the cashier's check, a completed "Request for Cashier's Checks," in form and substance acceptable to Bank; (v) specific assignments to Bank of all agreements, permits and licenses issued in connection with or required for the restoration work for which such specific assignments shall not have previously been delivered to Bank, together with signed consents to such assignments where deemed appropriate by Bank; (vi) if any part of the disbursement is for site preparation and grading, a certificate from a soils engineer acceptable to Bank that such work and all grading and site preparation then in process or completed are in compliance with the recommendations specified in such soils engineer's soils test report; (vii) such title insurance endorsements to the Title Policy as Bank may require, including, without limitation, endorsements reflecting the date and the amount of the requested disbursement and insuring the continued priority of the I-6 liens of the Deed of Trust over mechanics' and other liens, subject to no exceptions to title other than those which have been approved by Bank; and (ix) such other documents and information as Bank may reasonably require, including, without limitation, invoices, purchase orders and lien releases from all Claimants covering the amount of each disbursement thereto. (d) INSPECTION BY BANK. With respect to disbursements for direct reconstruction costs, the work of reconstruction shall be progressing or shall have been completed to Bank's satisfaction, based on the inspection and findings of Bank's inspector. (e) TECH. Each disbursement for direct construction costs of the reconstruction work shall be subject to a holdback (the "TECH") of ten percent (10%) of the amount of all direct construction costs incurred through the date of such disbursement; PROVIDED, HOWEVER, that no Tech shall be required for (i) contracts or subcontracts of less than $10,000, or (ii) for materials and supplies purchased directly from vendors and suppliers. The amount of such Tech shall be disbursed by Bank to the Disbursement Account upon Bank's determination that each of the following additional conditions has been satisfied: (i) The renovation work shall have been completed in accordance with the plans approved by Bank and all legal requirements, and the Company shall have furnished to Bank, at the Company's expense, a standard AIA form of Certificate of Project Completion, signed by the contractor and Company's architect, certifying that the renovation work has been completed in a good and workmanlike manner and in accordance with such plans; (ii) A valid notice of completion shall have been recorded and the applicable lien periods shall have expired, or, in lieu thereof, Bank shall have received and approved final lien waivers and releases, in form and substance satisfactory to Bank, from all contractors, subcontractors, laborers and materialmen employed or furnishing materials in connection with the reconstruction work; (iii) All claims of lien and stop notices that may have been recorded or notice thereof served on Bank, the Issuer or the Trustee shall have either been paid in full and released or the Company shall have posted a surety bond sufficient to discharge the same; (iv) The Company shall have delivered or caused to be delivered to Bank a complete set of "as built" working drawings for the restoration work; (v) Bank shall have received satisfactory evidence that no Uniform Commercial Code financing statements or fixture filings are recorded or filed in the Office of the California Secretary of State (or in the Office of the Secretary of I-7 State of the state in which the Company's principal business office is located, if other than California), or in the Official Records of Los Angeles County, against the Company's interest in the Premises of the Project, or which purport to cover any collateral described in the Bank Security Documents, except those which may have been filed in favor of Bank in connection herewith and with the Related Documents and except those previously approved by Bank in writing; (vi) Bank shall have received appropriate approvals from (A) all governmental authorities regarding completion of the reconstruction work, which approvals shall be evidenced by an irrevocable certificate for the permanent occupancy thereof to the extent such approval is a condition to the lawful use and occupancy of the Project; (B) the local board of fire underwriters or its equivalent; and (C) all other governmental authorities having jurisdiction over the contemplated uses, operation and occupancy of the Project; and (vii) The Company shall have submitted to Bank copies of all agreements, permits and licenses issued in connection with or required for the restoration work, and all insurance policies or certificates required under the Reimbursement Agreement, to the extent not previously delivered to Bank. (f) STORED MATERIALS. Bank shall have the right, in its sole discretion, to withhold its consent to any disbursement for materials (other than lumber or drywall in reasonable quantities as determined by Bank) purchased or to be purchased but not yet installed or incorporated into the Project ("STORED MATERIALS"). Without limiting the generality of the foregoing, Bank, as a condition to its consent to any requested disbursement relating to Stored Materials (including, but not limited to, such lumber and drywall), may require that the Company supply Bank with the following: (i) Evidence satisfactory to Bank that the Stored Materials requested are included within the coverage of the insurance policies required by SECTION 5.1 (c) of the Reimbursement Agreement; (ii) A certificate satisfactory to Bank from the seller or fabricator of the Stored Materials that upon payment, ownership of the Stored Materials will vest in the Company free of liens and claims of third parties; and (iii) Evidence satisfactory to Bank that the Stored Materials are stored on the Premises and adequately protected from theft and damage, or, if not so stored, (A) evidence that the Stored Materials are stored in a bonded warehouse or storage yard approved by Bank, which warehouse or yard has been notified that the Trustee and Bank have a security interest in said Stored Materials, and (B) the original warehouse receipt. I-8 PART B: RECONSTRUCTION OF THE IMPROVEMENTS B.1 RECONSTRUCTION PERIOD. The Company shall commence construction of the renovation work and shall cause such construction to continue with diligence and continuity in compliance with the plans and the Construction Schedule approved by Bank in order that the renovation work shall be completed on or before the completion date approved by Bank based upon the approved Construction Schedule (the "Required Completion Date"); PROVIDED HOWEVER, that the Required Completion Date may be extended for a period equal to proven delays caused by fire, earthquake or other acts of God, acts of public enemies, riot, insurrection, governmental regulation of the sale of materials and supplies or the transportation thereof, strikes directly affecting the work of construction or shortages of material or labor resulting directly from governmental control or diversion (collectively, "Force Majeure Events"). If the Required Completion Date is extended by ninety (90) days or more as a result of the occurrence of one or more Force Majeure Events, the Company shall deliver to Bank a revised Reconstruction Budget every ninety (90) days that the Required Completion Date is extended and Bank shall have the right to approve such Reconstruction Budget in accordance with SUBPARAGRAPH B.2(b) hereof. B.2 APPROVAL OF CHANGES IN PROJECT AGREEMENTS AND RECONSTRUCTION BUDGET. (a) The Company shall strictly enforce all contracts and agreements entered into in connection with the renovation work and shall not agree to any material change order or any changes in the Reconstruction Budget, except pursuant to a written change order and in accordance with this PARAGRAPH B.2. Each change order shall be submitted to Bank for its prior written approval if such change order (i) would result in a material change in plans and specifications previously approved by Bank, the Construction Schedule or the general contract; (ii) would increase or decrease the Reconstruction Budget by more than the amount specified by Bank in connection with its approval of the Reconstruction Budget in the case of an individual change order, or (iii) would cause the aggregate of all change orders (whether proposed or executed) to exceed the amount specified by Bank in connection with its approval of the Reconstruction Budget. (b) If any change order would increase the Reconstruction Budget, Bank may, in its sole discretion, condition its approval upon the Company depositing with Bank, pursuant to PARAGRAPH A.4 of this APPENDIX I. such amount as Bank may reasonably require in order to provide sufficient funds for the payment of the restoration costs. (c) The Company acknowledges that the process of obtaining the information and confirmations needed to put Bank in a position to approve change orders may cause delays, and the Company consents to such delays and agrees to I-9 cooperate diligently with Bank in the gathering of the information required. In addition, the Company acknowledges and agrees that Bank is under no duty to review, advise or inform the Company of, and Bank's approval or disapproval shall not constitute a warranty or representation about, the quality or suitability of the plans or any modification, amendment or supplement thereto. All contracts relating to the renovation work shall, to the extent reasonably possible, contain provisions implementing the provisions of this PARAGRAPH B.2. B.3 PURCHASE OF MATERIALS UNDER CONDITIONAL SALES CONTRACT. Except as expressly authorized by Bank in writing, no materials, equipment, fixtures for the renovation work, or articles of personal property placed in the Project, shall be purchased, installed or affixed under any security agreement or other arrangements however denominated whereby the right is reserved or accrues to anyone to remove or to repossess any such item or to consider them personal property after their incorporation in the work of construction or whereby any person other than Bank reserves, acquires or creates a lien upon or security interest in such items, except as expressly authorized by Bank in writing; PROVIDED, HOWEVER, that the Company may utilize leased construction equipment in connection with the reconstruction of the Project. B.4 INSPECTION (a) During the construction period, Bank and its agents and representatives shall have the right: (i) of free entry and access to the Project and to all sites away from the Project where materials that are to be incorporated into the Project are stored; (ii) at the Company's expense, to inspect all work done, labor performed and materials furnished for use in the Project; (iii) if Company does not provide satisfactory information, to contact directly or otherwise communicate with any contractor, subcontractor and other Claimant to verify any matters disclosed in any Payment Request Documents submitted to Bank; and (iv) to examine, copy and make extracts of, all books, records, accounting data, subcontracts and other documents pertaining to the Company or the Project and all contractors and subcontractors supplying goods or services in connection with the construction of the Project. The Company shall cooperate with and shall use commercially reasonable efforts to cause all contractors and all subcontractors to cooperate with Bank and its agents and representatives. Said books, records, accounting data, subcontracts and documents shall be made available to Bank promptly upon written demand therefor. The Company shall require or cause its contractors to require that all contracts relating to the Project contain an acknowledgement of the foregoing inspection rights, except where such rights have been waived by Bank in writing. (b) The Company acknowledges that Bank is under no duty to supervise or to inspect the work of construction, the labor performed therefor, the materials used therein or any books and records. The Company agrees that any inspections by Bank are for the sole purpose of preserving Bank's rights hereunder that the Company is I-10 not entitled to rely upon the same with respect to materials, workmanship, compliance with the approved plans or otherwise. The Company intends and agrees to conduct its own investigations and inspections of the construction, the labor performed and materials supplied to determine that the quality of the Project and all other requirements of the construction are being performed in a manner satisfactory to the Company. The Company agrees to immediately notify Bank, in writing, should the same be in any manner unsatisfactory. A failure to inspect the construction of the Project, any part thereof or any books and records relating thereto, shall not constitute a waiver of any of Bank's rights hereunder. Inspection not followed by notice of default shall not constitute a waiver of any default then existing; nor shall it constitute an acknowledgment that there has been or will be compliance with the plans and specifications approved by Bank or that the construction is free from defective materials or workmanship. B.5 PROTECTION AGAINST CLAIMS (a) The Company shall promptly discharge or cause to be discharged any mechanics' or materialmen's liens or claims of lien filed or otherwise asserted against the Premises, the Project or any funds due any contractor and any proceedings for the enforcement thereof and shall promptly discharge or cause to be discharged any stop notices received by Bank, the Issuer, or the Trustee; PROVIDED, HOWEVER, that so long as no proceedings shall have been commenced for the enforcement of such claims or liens, the Company shall have the right to contest in good faith and with reasonable diligence the validity of any such liens or claims upon furnishing to the Title Company such security or indemnity as the latter may require to induce it to issue the Title Policy, or an interim endorsement thereto, insuring against all such claims or liens and, provided further, that Bank will not be required to consent to any further disbursements until all such mechanics' or materialmen's liens or claims of lien have been so insured against by the Title Company to Bank's satisfaction. In the case of stop notices, the Company shall have the right to contest, in good faith and with reasonable diligence, the validity of any stop notice, provided that the Company shall immediately file with Bank and the Trustee a bond in the form and amount required by law in order to release such stop notice. Bank shall have no obligation to consent to any further disbursements until all stop notices have been fully released, bonded or discharged. (b) If (i) the Company fails promptly to discharge or contest liens, claims of lien or stop notices and provided the security or indemnity in the manner provided in CLAUSE (a) above, or (ii) after having complied with the provisions of CLAUSE (a) above there is an adverse conclusion to any such contest and the Company does not cause any final judgment or decree to be immediately satisfied and the lien or stop notice to be discharged, then Bank may, but shall not be required to, procure the release and discharge of any such lien or stop notice and any judgment or decree thereon, and in furtherance thereof may, in its sole discretion, effect any settlement or compromise or furnish any security or indemnity as may be required by the Title Company. All amounts expended by Bank in connection with the provisions of this SUBPARAGRAPH B.5(b), together with interest thereon at the Bank Rate from the date of such expenditure until I-11 Bank has been repaid and, until paid, said sums shall be secured by the Bank Security Documents. In settling, compromising or arranging for the discharge of any liens or stop notices under this SUBPARAGRAPH B.5(b), Bank shall not be required to establish or confirm the validity or amount of the lien to stop notice. (c) The Company will designate Bank as the "Construction Lender" on any application for building permits for reconstruction work affecting the Project in accordance with California Civil Code Section 3097(i). B.6 CONFORMITY WITH APPROVED PLANS. The Company agrees to perform all renovation work in conformity in all material respects with the plans approved by Bank and, if applicable, the recommendations contained in the soils report made in connection with such renovation work. If any portion of the renovation work is not in conformity with the approved plans and such recommendations in any material respect, or if any materials or workmanship on the renovation work shall appear to Bank to be defective, or in the event of any encroachment to which Bank shall not have previously consented, Bank, in addition to its other rights and remedies, shall have the right (a) to direct that the Company stop the work (or such portion thereof as Bank deems necessary) and repair, reconstruct or correct such matter in accordance with the approved plans and such recommendations, and (b) to withhold its consent to all further disbursements until the work is in satisfactory compliance with the approved plans and such recommendations, and any such defect or encroachment is eliminated. After the issuance of any such direction by Bank, no further renovation work shall be done on the Project without the prior written consent of Bank until the work is in satisfactory compliance with the approved plans and such recommendations. Upon notice from Bank to the Company, or the Company's discovery irrespective of such notice, that the work is not in conformity with the approved plans and such recommendations, the Company shall commence correcting the deviation, as promptly as is practicable and in any event within five days after the notice, and shall prosecute such work diligently to completion, which in no event shall be later than thirty (30) days after such notice or discovery unless the Company shall provide written notice to Bank that the correction shall take longer and Bank shall reasonably consent thereto. If corrective action satisfactory to Bank is not commenced and thereafter diligently pursued in accordance with the provisions of the immediately preceding sentence, Bank shall have the right (but not the obligation or the duty) to undertake such action at the Company's expense and such expense shall be deemed to be included in the Approved Budget. Furthermore, if Bank determines that the corrective work is not proceeding satisfactorily, Bank shall have the right (but not the obligation or the duty), upon not less than five (5) days' notice to the Company, to take over such corrective work itself and prosecute it to completion at the Company's expense and such expense shall be deemed to be included in the Approved Budget. B.7 ENCROACHMENTS. Except for off-site improvements designated in the approved plans, the Company agrees that the reconstructed improvements shall be constructed entirely within the lot lines of the Premises and will not encroach upon any I-12 easements, right of way, any other real estate, building lines or set-back requirements. The Company will furnish, from time to time upon demand, satisfactory evidence of compliance with the requirements of this PARAGRAPH B.7. B.8 WARRANTIES. Upon request of Bank, the Company shall furnish or otherwise make available to Bank copies of all warranties and guaranties received from any laborer or supplier furnishing labor, materials, equipment, fixtures or furnishings in connection with the renovation work. B.9 AUTHORITY TO FILE NOTICES. The Company irrevocably appoints, designates, and authorizes Bank as its agent (said agency being coupled with an interest) to file for record any notice of completion, cessation of labor, or any other notice that Bank deems necessary or desirable to protect its rights and interests hereunder or under any of the other Related Documents. B.10 THIRD-PARTY CONSULTANTS. Bank may hire such third party consultants as it deems necessary, the reasonable costs of which prior to the occurrence of an Event of Default and the costs of which after an Event of Default, in either case, shall be paid by the Company in accordance with the Reimbursement Agreement, to provide the following services: (a) to review the reconstruction plans; (b) to review the final construction cost breakdown and the construction schedule; (c) to conduct compliance inspections with respect to the progress of construction of the renovated improvements and to review each element of any request for disbursement submitted by the Company; and (d) to perform such other services as may from time to time, be required by Bank in connection with the administration of the transactions contemplated hereby. B.11 DISCLAIMER BY BANK. Bank shall not be liable to any contractor, subcontractor, supplier, laborer, architect, engineer, or any other person for services performed or materials supplied in connection with the Project, or for any debts or claims accruing in favor of any such person against the Company or others or against the Premises or the Project. The Company is not and shall not be an agent of Bank for any purpose. Bank is not a joint venture partner with the Company in any manner whatsoever. Prior to default by the Company under this Agreement and the exercise by Bank of the remedies granted herein, Bank shall not be deemed to be in privity of contract with any contractor, subcontractor, or provider of services to the Project, nor shall any payment of funds directly to any such person be deemed to create any third party beneficiary status or recognition of same by Bank. Approvals granted by Bank for any matter covered by this Agreement shall be narrowly construed to cover only the parties and facts identified in any written approval, and shall be solely for the benefit of the Company. I-13 EX-21 22 EXHIBIT 21 SUBSIDIARIES OF RYKOFF EXHIBIT 21 SUBSIDIARIES OF RYKOFF-SEXTON, INC. 1. John Sexton & Co., a Delaware corporation. John Sexton & Co. either has done business or presently does business under the following names: "White River Canning Co.," Burbank-Douglas, "Continental Foods, Inc.," "Continental Foods" and "Continental Foods, Inc., a division of Rykoff-Sexton, Inc." 2. Rykoff-Sexton Funding Corporation, a Nevada corporation 3. US Foodservice Inc., a Delaware corporation. 4. WS Holdings Corporation, a Delaware corporation. 5. White Swan, Inc., a Delaware corporation. White Swan, Inc., either has done business or presently does business under the following names: "Standard Food Service," "Watson Food Service," "Wm. E. Davis & Sons," "Restaurant Food Supply," "RFS," "US Foodservice - Austin Division," "US Foodservice - Davis Davision," "US Foodservice - Dallas Division," "US Foodservice - Standard Division," "US Foodservice - Lubbock Division," "US Foodservice - Ohio and "US Foodservice - Watson Division." 6. Mom's Produce & Food, Inc., a Texas corporation. Mom's Produce & Food, Inc. either has done business or presently does business under the name "Mom's." 7. BRB Holdings, Inc., a Delaware corporation. 8. Biggers Brothers, Inc., a Delaware corporation. Biggers Brothers, Inc. either has done business or presently does business under the following names: "BBI" and "US Foodservice - Biggers Division." 9. King's Foodservice, Inc., a Kentucky corporation. King's Foodservice, Inc. either has done business or presently does business under the name "US Foodservice - King's Division." 10. US Foodservice of Atlanta, Inc., a Delaware corporation. US Foodservice of Atlanta, Inc. either has done business or presently does business under the name "Goode." 11. Roanoke Restaurant Service, Inc., a Virginia corporation. Roanoke Restaurant Service, Inc. either has done business or presently does business under the following names: "RRS" and "US Foodservice - Roanoke Division." 12. F.H. Bevevino & Company, Inc., a Pennsylvania corporation. F.H. Beveino & Company, Inc. either has done business or presently does business under the following names: "Bevaco Food Service," "MPS," "Midwest Packer Sales," "US Foodservice - Bevaco Division," "Bevaco," "EMBCO" and "E.M. Bartikowsky." 13. US Foodservice of Florida, Inc., a Delaware corporation. US Foodservice of Florida, Inc. either has done business or presently does business under the following names: "CP,""Daniel's," "US Foodservice - Riviera Beach Division," "US Foodservice - Orlando Division," "US Foodservice - Ft. Myers Division" and "US Foodservice - Daniel's Division." 14. USFAR Inc., a Nevada corporation. 15. UFTM, Inc., a Delaware corporation. EX-23.1 23 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS To Rykoff-Sexton, Inc.: As independent public accountants, we hereby consent to the incorporation of our report included in this Form 10-K into the Company's previously filed Registration Statements on Forms S-8 (File Nos. 33-04049 and 333-31799). ARTHUR ANDERSEN LLP Philadelphia, PA September 22, 1997 EX-24.1 24 EXHIBIT 24.1 POWER OF ATTY-MATTHIAS BOWMAN Exhibit 24.1 POWER OF ATTORNEY The undersigned, as a director of Rykoff-Sexton, Inc. (the "Company"), does hereby constitute and appoint Mark Van Stekelenburg, David F. McAnally and Robert J. Harter, Jr., and each of them, as his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign the Company's Annual Report on Form 10-K for the fiscal year ended June 28, 1997 and any and all amendments thereto, and to file the same, with exhibits and schedules thereto, and other documents therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact, full power and authority to do and perform each and every act and thing necessary or desirable to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, thereby ratifying and confirming all that said attorney-in-fact, or his substitute, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, I have hereunto set my hand this 29th day of August, 1997. /s/ Matthias B. Bowman ------------------------------------ Matthias B. Bowman EX-24.2 25 EXHIBIT 24.2 POWER OF ATTY-RICHARD FINK Exhibit 24.2 POWER OF ATTORNEY The undersigned, as a director of Rykoff-Sexton, Inc. (the "Company"), does hereby constitute and appoint Mark Van Stekelenburg, David F. McAnally and Robert J. Harter, Jr., and each of them, as his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign the Company's Annual Report on Form 10-K for the fiscal year ended June 28, 1997 and any and all amendments thereto, and to file the same, with exhibits and schedules thereto, and other documents therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact, full power and authority to do and perform each and every act and thing necessary or desirable to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, thereby ratifying and confirming all that said attorney-in-fact, or his substitute, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, I have hereunto set my hand this 25th day of August, 1997. /s/ Richard M. Fink ------------------------------------ Richard M. Fink EX-24.3 26 EXHIBIT 24.3 POWER OF ATTY-ALBERT FITZGIBBONS Exhibit 24.3 POWER OF ATTORNEY The undersigned, as a director of Rykoff-Sexton, Inc. (the "Company"), does hereby constitute and appoint Mark Van Stekelenburg, David F. McAnally and Robert J. Harter, Jr., and each of them, as his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign the Company's Annual Report on Form 10-K for the fiscal year ended June 28, 1997 and any and all amendments thereto, and to file the same, with exhibits and schedules thereto, and other documents therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact, full power and authority to do and perform each and every act and thing necessary or desirable to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, thereby ratifying and confirming all that said attorney-in-fact, or his substitute, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, I have hereunto set my hand this 29th day of August, 1997. /s/ Albert J. Fitzgibbons, III ------------------------------------ Albert J. Fitzgibbons, III EX-24.4 27 EXHIBIT 24.3 POWER OF ATTY-JAN JEURGENS Exhibit 24.4 POWER OF ATTORNEY The undersigned, as a director of Rykoff-Sexton, Inc. (the "Company"), does hereby constitute and appoint Mark Van Stekelenburg, David F. McAnally and Robert J. Harter, Jr., and each of them, as his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign the Company's Annual Report on Form 10-K for the fiscal year ended June 28, 1997 and any and all amendments thereto, and to file the same, with exhibits and schedules thereto, and other documents therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact, full power and authority to do and perform each and every act and thing necessary or desirable to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, thereby ratifying and confirming all that said attorney-in-fact, or his substitute, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, I have hereunto set my hand this 26th day of August, 1997. /s/ Jan W. Jeurgens ------------------------------------ Jan W. Jeurgens EX-24.5 28 EXHIBIT 24.5 POWER OF ATTY-SUNIL KHANNA Exhibit 24.5 POWER OF ATTORNEY The undersigned, as a director of Rykoff-Sexton, Inc. (the "Company"), does hereby constitute and appoint Mark Van Stekelenburg, David F. McAnally and Robert J. Harter, Jr., and each of them, as his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign the Company's Annual Report on Form 10-K for the fiscal year ended June 28, 1997 and any and all amendments thereto, and to file the same, with exhibits and schedules thereto, and other documents therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact, full power and authority to do and perform each and every act and thing necessary or desirable to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, thereby ratifying and confirming all that said attorney-in-fact, or his substitute, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, I have hereunto set my hand this 29th day of August, 1997. /s/ Sunil C. Khanna ------------------------------------ Sunil C. Khanna EX-24.6 29 EXHIBIT 24.6 POWER OF ATTY-JAMES MASLON Exhibit 24.6 POWER OF ATTORNEY The undersigned, as a director of Rykoff-Sexton, Inc. (the "Company"), does hereby constitute and appoint Mark Van Stekelenburg, David F. McAnally and Robert J. Harter, Jr., and each of them, as his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign the Company's Annual Report on Form 10-K for the fiscal year ended June 28, 1997 and any and all amendments thereto, and to file the same, with exhibits and schedules thereto, and other documents therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact, full power and authority to do and perform each and every act and thing necessary or desirable to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, thereby ratifying and confirming all that said attorney-in-fact, or his substitute, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, I have hereunto set my hand this 3rd day of September, 1997. /s/ James I. Maslon ------------------------------------ James I. Maslon EX-24.7 30 EXHIBIT 24.7 POWER OF ATTY-JAMES MISCOLL Exhibit 24.7 POWER OF ATTORNEY The undersigned, as a director of Rykoff-Sexton, Inc. (the "Company"), does hereby constitute and appoint Mark Van Stekelenburg, David F. McAnally and Robert J. Harter, Jr., and each of them, as his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign the Company's Annual Report on Form 10-K for the fiscal year ended June 28, 1997 and any and all amendments thereto, and to file the same, with exhibits and schedules thereto, and other documents therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact, full power and authority to do and perform each and every act and thing necessary or desirable to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, thereby ratifying and confirming all that said attorney-in-fact, or his substitute, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, I have hereunto set my hand this 25th day of August, 1997. /s/ James P. Miscoll ------------------------------------ James P. Miscoll EX-24.8 31 EXHIBIT 24.8 POWER OF ATTY-NEIL SELL Exhibit 24.8 POWER OF ATTORNEY The undersigned, as a director of Rykoff-Sexton, Inc. (the "Company"), does hereby constitute and appoint Mark Van Stekelenburg, David F. McAnally and Robert J. Harter, Jr., and each of them, as his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign the Company's Annual Report on Form 10-K for the fiscal year ended June 28, 1997 and any and all amendments thereto, and to file the same, with exhibits and schedules thereto, and other documents therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact, full power and authority to do and perform each and every act and thing necessary or desirable to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, thereby ratifying and confirming all that said attorney-in-fact, or his substitute, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, I have hereunto set my hand this 22nd day of August, 1997. /s/ Neil I. Sell ------------------------------------ Neil I. Sell EX-24.9 32 EXHIBIT 24.9 POWER OF ATTY-BERNARD SWEET Exhibit 24.9 POWER OF ATTORNEY The undersigned, as a director of Rykoff-Sexton, Inc. (the "Company"), does hereby constitute and appoint Mark Van Stekelenburg, David F. McAnally and Robert J. Harter, Jr., and each of them, as his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign the Company's Annual Report on Form 10-K for the fiscal year ended June 28, 1997 and any and all amendments thereto, and to file the same, with exhibits and schedules thereto, and other documents therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact, full power and authority to do and perform each and every act and thing necessary or desirable to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, thereby ratifying and confirming all that said attorney-in-fact, or his substitute, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, I have hereunto set my hand this 26th day of August, 1997. /s/ Bernard Sweet ------------------------------------ Bernard Sweet EX-24.10 33 EXHIBIT 24.10 POWER OF ATTY-ROBERT WILLIAMSON Exhibit 24.10 POWER OF ATTORNEY The undersigned, as a director of Rykoff-Sexton, Inc. (the "Company"), does hereby constitute and appoint Mark Van Stekelenburg, David F. McAnally and Robert J. Harter, Jr., and each of them, as his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign the Company's Annual Report on Form 10-K for the fiscal year ended June 28, 1997 and any and all amendments thereto, and to file the same, with exhibits and schedules thereto, and other documents therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact, full power and authority to do and perform each and every act and thing necessary or desirable to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, thereby ratifying and confirming all that said attorney-in-fact, or his substitute, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, I have hereunto set my hand this day of September, 1997. /s/ Robert W. Williamson ------------------------------------ Robert W. Williamson EX-27 34 FINANCIAL DATA SCHEDULE
5 1,000 YEAR JUN-28-1997 JUN-30-1996 JUN-28-1997 63,293 0 136,480 13,517 210,547 441,355 446,600 150,588 1,219,022 356,933 486,731 0 0 2,829 351,344 1,219,022 3,477,493 3,477,493 2,770,109 621,897 13,118 0 46,423 25,946 9,908 16,038 0 0 0 16,038 0.56 0.56
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