-----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, UiMcwUpt4SvCaDkRTIC0CJ90swAzyDfrkQvsXvcpJyIuftBJ52tn5LcoAqEMeQCF a8GZ57xlpKyHTQeBAoUCEA== 0000893877-97-000739.txt : 19971222 0000893877-97-000739.hdr.sgml : 19971222 ACCESSION NUMBER: 0000893877-97-000739 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19971108 FILED AS OF DATE: 19971219 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FRED MEYER INC CENTRAL INDEX KEY: 0001043273 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-DEPARTMENT STORES [5311] IRS NUMBER: 911826443 STATE OF INCORPORATION: DE FISCAL YEAR END: 0201 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-13339 FILM NUMBER: 97741145 BUSINESS ADDRESS: STREET 1: 3800 SE 22ND AVENUE CITY: PORTLAND STATE: OR ZIP: 97202 BUSINESS PHONE: 5032328844 MAIL ADDRESS: STREET 1: 3800 SE 22ND AVENUE CITY: PORTLAND STATE: OR ZIP: 97202 FORMER COMPANY: FORMER CONFORMED NAME: MEYER SMITH HOLDCO INC DATE OF NAME CHANGE: 19970730 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended November 8, 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 No. 1-13339 FRED MEYER, INC. (Exact name of registrant as specified in its charter) Delaware 91-1826443 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 3800 S.E. 22nd Avenue Portland, Oregon 97202 (Address of principal executive offices) (Zip Code) (503) 232-8844 (Registrant's telephone number, including area code) Not applicable. (Former name, former address and former fiscal year, if changed since last report.) 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 [ XX ] No [ ] Shares of Common Stock Outstanding at November 8, 1997: 88,052,304 PART I - FINANCIAL INFORMATION FRED MEYER, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited and in thousands)
November 8, February 1, 1997 1997 ---------- ---------- ASSETS CURRENT ASSETS: Cash and cash equivalents.......................................... $ 117,375 $ 48,769 Receivables-net.................................................... 109,912 23,729 Inventories........................................................ 1,200,557 604,910 Prepaid expenses and other......................................... 52,207 43,149 Current portion of deferred income taxes........................... 81,610 17,226 ---------- ----------- Total current assets............................................ 1,561,661 737,783 ---------- ----------- PROPERTY AND EQUIPMENT-NET............................................ 1,941,983 929,765 ---------- ----------- GOODWILL AND OTHER INTANGIBLES - NET.................................. 1,026,514 4,599 OTHER ASSETS.......................................................... 43,103 19,873 ---------- ----------- TOTAL........................................................ $4,573,261 $ 1,692,020 ========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable and outstanding checks............................. $ 830,429 $ 398,430 Current portion of long-term debt and capital lease obligations.................................... 3,364 1,038 Income taxes payable................................................ --- 5,115 Accrued expenses and other.......................................... 332,020 99,998 ---------- ---------- Total current liabilities........................................ 1,165,813 504,581 ---------- ---------- LONG-TERM DEBT AND MORTGAGES........................................... 1,900,504 521,512 ---------- ---------- CAPITAL LEASE OBLIGATIONS.............................................. 53,238 13,227 ---------- ---------- DEFERRED LEASE TRANSACTIONS............................................ 45,456 46,318 ---------- ---------- DEFERRED INCOME TAXES.................................................. 23,150 35,176 ---------- ---------- OTHER LONG-TERM LIABILITIES............................................ 100,075 5,302 ---------- ---------- STOCKHOLDERS' EQUITY: Common stock........................................................ 440 287 Additional paid-in capital.......................................... 891,798 203,314 Retained earnings................................................... 393,568 434,122 Treasury stock...................................................... --- (69,773) Notes receivable from officers...................................... (299) (1,394) Unearned compensation............................................... (482) (652) ---------- ---------- Total stockholders' equity....................................... 1,285,025 565,904 ---------- ---------- TOTAL......................................................... $4,573,261 $1,692,020 ========== ==========
See notes to consolidated financial statements. 2 FRED MEYER, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) (Unaudited)
12 Weeks Ended ------------------------------ November 8, November 9, 1997 1996 ---------- ---------- NET SALES................................................................$ 1,460,372 $ 835,142 COST OF MERCHANDISE SOLD ................................................ 1,027,847 590,715 ----------- ----------- GROSS MARGIN ............................................................ 432,525 244,427 OPERATING AND ADMINISTRATIVE EXPENSES ................................... 372,610 225,884 ----------- ----------- INCOME FROM OPERATIONS .................................................. 59,915 18,543 INTEREST EXPENSE-NET .................................................... 22,863 8,324 AMORTIZATION OF GOODWILL ................................................ 4,430 71 ----------- ----------- INCOME BEFORE INCOME TAXES AND EXTRAORDINARY LOSS ....................... 32,622 10,148 PROVISION FOR INCOME TAXES .............................................. 14,345 3,856 ----------- ----------- INCOME BEFORE EXTRAORDINARY LOSS ........................................ 18,277 6,292 EXTRAORDINARY LOSS, NET OF TAXES ........................................ (91,210) --- ----------- ----------- NET INCOME(LOSS) ........................................................$ (72,933) $ 6,292 =========== =========== EARNINGS (LOSS) PER COMMON SHARE: INCOME BEFORE EXTRAORDINARY LOSS ...................................$ .22 $ .11 EXTRAORDINARY LOSS ................................................. (1.10) --- ----------- ----------- NET INCOME (LOSS) ..................................................$ (.88) $ .11 =========== =========== WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING ................................................... 83,336 55,386 =========== ===========
See notes to consolidated financial statements. 3 FRED MEYER, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) (Unaudited)
40 Weeks Ended ----------------------------- November 8, November 9, 1997 1996 ---------- ---------- NET SALES ....................................... $ 3,611,323 $ 2,729,084 COST OF MERCHANDISE SOLD ........................ 2,534,718 1,927,199 ----------- ----------- GROSS MARGIN .................................... 1,076,605 801,885 OPERATING AND ADMINISTRATIVE EXPENSES ........... 940,723 721,189 ----------- ----------- INCOME FROM OPERATIONS .......................... 135,882 80,696 INTEREST EXPENSE-NET ............................ 46,440 30,606 AMORTIZATION OF GOODWILL ........................ 4,596 237 ----------- ----------- INCOME BEFORE INCOME TAXES AND EXTRAORDINARY LOSS 84,846 49,853 PROVISION FOR INCOME TAXES ...................... 34,190 18,944 ----------- ----------- INCOME BEFORE EXTRAORDINARY LOSS ................ 50,656 30,909 EXTRAORDINARY LOSS .............................. (91,210) --- ----------- ----------- NET INCOME (LOSS) ............................... $ (40,554) $ 30,909 =========== =========== EARNINGS (LOSS) PER COMMON SHARE: INCOME BEFORE EXTRAORDINARY LOSS ........... $ .79 $ .55 EXTRAORDINARY LOSS ......................... (1.42) --- ----------- ----------- NET INCOME (LOSS) .......................... $ (.63) $ .55 =========== =========== WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING ........................... 64,117 56,670 =========== ===========
See notes to consolidated financial statements. 4 FRED MEYER, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited and in thousands)
40 Weeks Ended ---------------------------- November 8, November 9, 1997 1996 ---------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Income before extraordinary loss ................................ $ 50,656 $ 30,909 Adjustments to reconcile income before extraordinary loss to net cash provided by operating activities: Depreciation and amortization of property and equipment .................................... 113,629 89,444 Amortization of goodwill ..................................... 4,596 237 Deferred lease transactions .................................. (8,884) (3,699) Deferred income taxes ........................................ (1,040) (1,384) Changes in operating assets and liabilities, net of acquisitions: Inventories .................................................. (186,708) (158,875) Other current assets ......................................... 7,107 (11,898) Accounts payable and outstanding checks ...................... 143,396 192,558 Accrued expenses ............................................. (6,816) 4,797 Income taxes ................................................. 7,821 7,805 Other liabilities ............................................ (4,593) (1,089) Other ........................................................ (532) (9,237) ----------- ----------- Net cash provided by operating activities ....................... 118,632 139,568 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Cash acquired in acquisitions ................................... 57,709 --- Other acquisition costs ......................................... (25,052) --- Purchases of property and equipment ............................. (208,185) (124,185) Net proceeds from sale of real property ......................... 54,794 121,161 Net maturities of investment securities ......................... --- 12,340 ----------- ----------- Net cash provided by (used for) investing activities .................................................... (120,734) 9,316 ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of common stock-net .................................... 27,953 1,466 Stock repurchase and related expenses ........................... --- (69,773) Decrease (increase)in notes receivable .......................... 928 (149) Long-term financing: Borrowings ................................................... 1,572,562 90 Repayments ................................................... (1,530,735) (79,533) ----------- ----------- Net cash provided by (used for) financing activities ......................................... 70,708 (147,899) ----------- ----------- CASH AND CASH EQUIVALENTS: Net increase for the period ..................................... 68,606 985 Beginning of period ............................................. 48,769 41,849 ----------- ----------- End of period ................................................... $ 117,375 $ 42,834 =========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest ..................................................... $ 35,680 $ 30,364 Income taxes ................................................. 20,339 12,279 Noncash capital lease obligations ............................. 761 --- Details of acquisitions (Note 10): Fair value of assets acquired .............................. $ 2,624,917 --- Liabilities assumed ........................................ 1,869,685 --- Stock issued ............................................... 730,180 --- ----------- ----------- Cash Paid .................................................. 25,052 --- Less cash acquired ......................................... 57,709 --- ----------- ----------- Net cash received from acquisitions ........................ $ 32,657 --- =========== ===========
See notes to consolidated financial statements. 5 FRED MEYER, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Interim Reporting Periods ------------------------- The Company's interim reporting periods for reports to stockholders are the 16th, 28th, and 40th weeks of its fiscal year. 2. Reclassifications ----------------- Certain prior year balances have been reclassified to conform to current year presentation. 3. Inventories ----------- Inventories consist mainly of merchandise held for sale. Substantially all of the inventories are valued at the lower of last-in, first-out (LIFO) cost or market. The Company has recorded a LIFO charge of $1,926,000 for the quarter ended November 8, 1997 and a charge of $5,160,000 for the first 40 weeks of 1997 versus a charge of $1,220,000 for the third quarter of the prior year and a charge of $4,220,000 for the first 40 weeks of the prior year. Inventories on a first in, first out (FIFO) basis would have been higher by $57,934,000 and $58,160,000 at November 8, 1997 and November 9, 1996, respectively. Estimated gross margins have been used for determining the cost of merchandise sold for those operating departments not taking physical inventories at the end of the interim periods. 4. Goodwill -------- Goodwill is being amortized on a straight-line basis over 15 to 40 years. Goodwill recorded in connection with the Smith's Food & Drug Centers, Inc. (Smith's) and Fox Jewelry Company (Fox) acquisitions is being amortized over 40 and 15 years, respectively. Other previously recorded goodwill continues to be amortized over 30 years. 5. Income Taxes ------------ Income taxes have been provided for based upon the current estimate of the Company's annual effective tax rate. 6. Stockholders' Equity -------------------- Changes in stockholders' equity for the 40 weeks ended November 8, 1997 were: (In thousands) -------------- Stockholders' equity, February 1, 1997 $565,904 Shares issued in Smith's acquisition 720,976 Shares issued in Fox acquisition 9,204 Issuance of common stock, net 27,953 Amortization of discount on stock options 277 Net loss (40,554) Decrease in notes receivable - officers 1,095 Unearned compensation, net of amortization 170 ---------- Stockholders' equity, November 8, 1997 $1,285,025 ========== 7. Earnings Per Common Share ------------------------- Shares outstanding and earnings per share amounts have been adjusted for the two-for-one stock split, effected as a 100 percent stock dividend, which was effective September 30, 1997. Fully diluted earnings per common share are computed by dividing net income by the weighted average number of common and common equivalent shares outstanding. Weighted average shares reflect the dilutive effect of outstanding stock options (ranging in exercise price from $6.063 to $28.125 per share) which was determined by using the "treasury stock" method. 6 In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 128, Earnings Per Share, which establishes new standards for computing and presenting earnings per share (EPS) and applies to entities with publicly held common stock or potential common stock. SFAS No. 128 replaces the presentation of primary EPS with a presentation of basic EPS, requires dual presentation of basic and diluted EPS on the face of the income statement, and requires additional disclosures regarding EPS. SFAS No. 128 will require changes in the computation and presentation of the Company's EPS commencing with the financial statements for the year ending January 31, 1998 and require restatement of all prior periods presented. Earlier application of this statement is not permitted. However, if the Company computed its EPS for the 12 and 40 weeks ended November 8, 1997 in a manner consistent with SFAS No. 128, the pro forma amounts would have been as follows:
12 Weeks 40 Weeks Ended Ended November 8, 1997 November 8, 1997 ---------------- ---------------- Basic income per share before extraordinary loss $ .23 $ .83 Basic loss per share after extraordinary loss $ (.93) $ (.67) Diluted income per share before extraordinary loss $ .22 $ .80 Diluted loss per share after extraordinary loss $ (.89) $ (.64) Basic weighted average number of common shares outstanding to the nearest thousand 78,517 60,805 Diluted weighted average number of common and common equivalent shares outstanding to the nearest thousand 82,315 63,624
8. New Accounting Pronouncements ----------------------------- In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 130, Reporting Comprehensive Income, which requires that all items of comprehensive income be reported in a financial statement for the period in which they are recognized. Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events from nonowner sources. SFAS No. 130 will be effective for the fiscal year ending January 30, 1999. The Company does not expect adoption of this statement to have a material effect on the Company's financial statement disclosure. Additionally in June 1997, the Financial Accounting Standards Board issued SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, which requires public enterprises to disclose financial and descriptive information about their operating segments. SFAS No. 131 will be effective for the fiscal year ending January 30, 1999. At this time, the Company has not completed its analysis of the effects of implementing SFAS No. 131, but does not believe that SFAS No. 131 will have a material effect on the current presentation of the financial statements. 9. Commitments and Contingencies ----------------------------- The Company and its subsidiaries are parties to various legal claims, actions, and complaints, certain of which involve material amounts. Although the Company is unable to predict with certainty whether or not it will ultimately be successful in these legal proceedings or, if not, what the impact might be, management presently believes that disposition of these matters will not have a material adverse effect on the Company's consolidated financial statements. 7 10. Acquisitions ------------ On September 9, 1997 the Company succeeded to the businesses of Fred Meyer, Inc., now known as Fred Meyer Stores, Inc. (Fred Meyer Stores), and Smith's, as a result of mergers pursuant to the Agreement and Plan of Reorganization and Merger, dated as of May 11, 1997 (the Smith's Acquisition). At the closing on September 9, 1997: (i) Fred Meyer Stores and Smith's became wholly owned subsidiaries of the Company, (ii) each outstanding share of Class A Common Stock and Class B Common Stock of Smith's was converted into 1.05 shares of Common Stock of the Company; (iii) each outstanding share of Series I Preferred Stock of Smith's was converted into the right to receive in cash the amount of $.33 1/3; and (iv) each outstanding share of Common Stock of Fred Meyer Stores was converted into one share of Common Stock of the Company. The Smith's Acquisition was accounted for under the purchase method of accounting as a purchase by Fred Meyer and, accordingly, the operating results of Smith's from the date of acquisition are included in the Company's financial statements. 16.6 million shares of Common Stock of the Company (with a value of $720,976,000) were issued to Smith's shareholders in the Smith's Acquisition. The estimated value of goodwill assigned to Smith's amounted to approximately $1,021,000,000. The final goodwill amount will be determined when appraisals of assets and liabilities are completed which is expected to occur in the fourth quarter. The following unaudited pro forma results of operations assume the Smith's Acquisition occurred on February 4, 1996 (in thousands, except per share data): 40 Weeks Ended ---------------------------------- November 8, November 9, 1997 1996 ----------- ----------- Net sales $ 5,471,428 $ 5,037,288 Net income before extraordinary loss 79,785 54,269 Net loss (11,425) (36,941) Earnings per share: Income before extraordinary loss .88 .60 Net loss (.13) (.41) The pro forma financial information is not necessarily indicative of the operating results that would have occurred had the Smith's Acquisition been consummated as of February 4, 1996 nor is it necessarily indicative of future operating results. On August 17, 1997, the Company acquired substantially all of the assets and liabilities of Fox in exchange for common stock with a fair value of $9,204,000. The Fox acquisition was accounted for under the purchase method of accounting. The value of goodwill assigned to Fox amounted to approximately $5,300,000. The results of operations of Fox do not have a material effect on the consolidated operating results, and therefore are not included in the pro forma data presented. 11. Refinancing ----------- In connection with the Smith's Acquisition, the Company refinanced a substantial portion of the indebtedness of Fred Meyer Stores and Smith's. At the closing of the Smith's Acquisition, the Company entered into a five year $1.03 billion revolving credit facility, a $500.0 million 364-day revolving credit facility and a five year $500.0 million bridge facility (the "Senior Credit Facilities"), each guaranteed by certain of the Company's subsidiaries (including Smith's and Fred Meyer Stores). The Senior Credit Facilities were used to refinance the 11 1/4 percent Senior Subordinated Notes of Smith's and certain bank and insurance company loans of Fred Meyer Stores and Smith's. The revolving portion of the Senior Credit Facilities is available for general corporate purposes, including the support of the commercial paper program of the Company. The revolving credit facility and the bridge facility mature on September 9, 2002. The 364-day facility matures on September 9, 1998 with a one year extension available upon the request of the Company. The debt covenants associated with the new facility are similar to previous debt covenants required under agreements outstanding at February 1, 1997. The Senior Credit Facilities 8 carry a floating interest rate that is more favorable than the rate in the previous Fred Meyer credit facility. The rate on outstanding debt at November 8, 1997 ranged from 5.8 percent to 6.2 percent. In addition to the Senior Credit Facilities, Fred Meyer Stores entered into a lease refinancing program of up to $270.0 million, which refinanced its tax retention operating lease programs. The obligations under the lease finance program were guaranteed by the Company and certain of the subsidiaries (including Smith's and Fred Meyer Stores). The premiums paid and the write-off of deferred financing costs of $148,309,000 relating to the debt refinanced has been reported as an extraordinary loss, net of the $57,099,000 tax benefit, in the 12 and 40 week periods ended November 8, 1997. 12. Subsequent Events ----------------- On November 6, 1997 the Company entered into separate merger agreements with Quality Food Centers, Inc. (QFC) and Food 4 Less Holdings, Inc. (FFL). Pursuant to the merger agreement with QFC, QFC will become a wholly owned subsidiary of the Company and each outstanding share of QFC common stock will be converted into the greater of (a) 1.9 shares of common stock of the Company or (b) the number of shares of common stock of the Company having a value equal to $55.00, but in no event will an outstanding share of QFC common stock be converted into more than 2.3 shares of common stock of the Company. Pursuant to the merger agreement with FFL, FFL will become a wholly owned subsidiary of the Company and stockholders and warrant holders of FFL in the aggregate will receive the greater of (a) 22.5 million shares of common stock of the Company or (b) the number of shares of common stock of the Company having a value equal to $600 million, but in no event will FFL stockholders and warrant holders receive more than 24 million shares of common stock of the Company. The number of shares of common stock of the Company to be received by stockholders of QFC and FFL may be reduced under certain circumstances as a result of store divestitures in California which may be required by state or federal regulatory authorities. In addition, the number of shares of common stock of the Company to be received by FFL stockholders will be subject to a net downward adjustment based on the cash settlement of FFL options and new issuances of FFL stock to employee stock ownership plans of FFL prior to the merger. The mergers are subject to regulatory and stockholder approval. The QFC merger is expected to be accounted for as a pooling-of-interests and the FFL merger will be accounted for as a purchase. These transactions are independent of each other and the completion of one merger is not a condition to the completion of the other merger. If the shareholders of the Company approve either the QFC merger or the FFL merger but not both, the Company intends to proceed with the merger that is approved. In connection with the above transactions, the Company intends to refinance certain outstanding indebtedness. --------------------- The financial information furnished in this Form 10-Q reflects all adjustments of a normal recurring nature which, in the opinion of management, are necessary for a fair presentation of the results for the 12 and 40 weeks ended November 8, 1997 and November 9, 1996. The consolidated results of operations presented herein are not necessarily indicative of the results to be expected for the year due to the seasonality of the Company's business. These consolidated financial statements should be read in conjunction with the financial statements and related notes incorporated by reference in the Company's latest annual report filed on Form 10-K. 9 FRED MEYER, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FINANCIAL CONDITION The Company funded its working capital and capital expenditure needs in 1996 and the first three quarters of 1997 through internally generated cash flow and the issuance of unrated commercial paper, supplemented by borrowings under committed and uncommitted bank lines of credit, and sale/leaseback proceeds. In conjunction with the Smith's acquisition, the Company entered into a new bank credit facility on September 9, 1997 that refinanced a substantial portion of the indebtedness of its Fred Meyer Stores and Smith's subsidiaries. The Company entered into a 5-year $1.03 billion revolving credit facility, a $500.0 million 364-day revolving credit facility, and a 5-year $500.0 million bridge facility (the Senior Credit Facilities), each guaranteed by the accompanying subsidiaries (including Smith's and Fred Meyer Stores). In addition to the committed Senior Credit Facilities, at November 8, 1997, the Company had $125.0 million of uncommitted money market lines with four banks. The bank lines and unrated commercial paper are used primarily for seasonal inventory requirements, new store construction and financing, existing store remodeling, acquisition of land, and major projects such as management information systems. At November 8, 1997, the Company had borrowings under the Senior Credit Facilities of $1.42 billion and unrated commercial paper outstanding in the amount of $370.4 million. In addition, the Company had borrowings under uncommitted borrowing facilities of $20.0 million. A total of approximately $239.6 million was available for borrowings under the Senior Credit Facilities, and $105.0 million was available for borrowings from the uncommitted money market lines. In addition to the Senior Credit Facilities, on September 9, 1997 Fred Meyer Stores entered into a lease financing arrangement of up to $270.0 million, which refinanced approximately $235.0 million in existing tax retention operating leases. The balance of this facility will be used to cover construction costs on three new stores. The Company has entered into interest rate swap, cap and collar agreements to reduce the impact of changes in interest rates on its floating rate long-term debt and rent expense on its lease lines of credit. At November 8, 1997, the Company had outstanding four interest rate contracts for a total notional amount of $180.0 million, and seven rent rate contracts, for a total notional amount of $80.0 million. All contracts are with commercial banks. The interest rate contracts effectively fix the Company's interest rates between 5.00 percent and 9.00 percent on the notional amount, and expire through 1999. The rent rate contracts effectively fix the Company's rental rates between 6.28 percent and 7.25 percent on the notional amount, and expire through 2000. The Company is exposed to credit loss in the event of nonperformance by the counterparties to the interest rate and rent rate swap and cap agreements. The Company requires an A or better rating of the counter parties and, accordingly, does not anticipate nonperformance by the counter parties. The Company believes that a combination of cash flow from operations and borrowings under its credit facilities will permit it to finance its capital expenditure requirements for 1997, currently budgeted to be approximately $300.0 million, net of estimated real estate sales and stores financed on leases. If the Company determines that it is preferable, it may fund its capital expenditure requirements by mortgaging facilities, entering into sale/leaseback transactions, or by issuing additional debt or equity. The Company currently owns real estate with a net book value of approximately $1.0 billion. 10 RESULTS OF OPERATIONS Results include Smith's from September 9, 1997, the date of the Smith's acquisition. Comparison of the 12 weeks ended November 8, 1997 with the 12 weeks ended November 9, 1996. Net sales for the third quarter of 1997 increased $625.2 million or 74.9 percent over the corresponding quarter in 1996. The 1997 increase includes $513.1 million in sales from Smith's. Without Smith's, sales increased 13.4 percent. This increase was due to openings of new stores, the acquisition of mall jewelry stores and strong food and nonfood sales. Comparable store sales, without Smith's, increased 8.6 percent with food comparable sales increasing 7.8 percent and nonfood comparable sales increasing 9.9 percent. The Company's food operations accounted for 73.8 percent of the overall sales in 1997 and 60.2 percent in 1996. Gross margin as a percent of net sales was 29.6 percent for the third quarter of 1997, compared with 29.3 percent for 1996's third quarter. Gross margins increased in the third quarter of 1997 primarily due to the impact on margins of multi-store jewelry acquisitions. Operating and administrative expenses as a percent of net sales were 25.5 percent for the third quarter of 1997, compared with 27.1 percent for 1996's third quarter. Expenses as a percent of sales decreased in 1997's third quarter primarily due to the impact of the acquisition of Smith's on expenses. Net interest expense in the third quarter of 1997 was $22.9 million, an increase of 174.7 percent from the $8.3 million reported for 1996. The increase reflects higher borrowings related to the Smith's acquisition, partially offset by lower interest rates achieved due to the refinancing of a majority of the Company's debt. The effective tax rate for the third quarter of 1997 was 44.0 percent and 38.0 percent for 1996's third quarter. The higher rate is due primarily to the effect of non-deductible goodwill amortization resulting from the Smith's acquisition. Income before the extraordinary loss increased 190.5 percent to $18.3 million in the third quarter of 1997 from $6.3 million in the third quarter of 1996. The extraordinary loss of $91.2 million, net of taxes, is for early extinguishment of debt. This charge covers premiums paid and the write-off of financing costs relating to debt refinanced in the Smith's acquisition. After the extraordinary loss, a net loss of $72.9 million was reported in the third quarter of 1997. Earnings per share before the extraordinary loss were $.22 in 1997's third quarter, an increase of 100 percent over the $.11 reported in 1996's third quarter. Including the effect of the extraordinary loss, a net loss per share of $.88 was reported in 1997's third quarter. Income before net interest expense, income taxes, depreciation and amortization expense and LIFO expense (EBITDA) for the third quarter of 1997 was $107.9 million or 7.4 percent of sales, compared with $46.6 million or 5.6 percent of sales for the comparable quarter in 1996. Comparison of the 40 weeks ended November 8, 1997 with the 40 weeks ended November 9, 1996. Net sales for the first 40 weeks of 1997 increased $882.2 million or 32.3 percent to $3.61 billion. This increase includes $513.1 million in sales for Smith's. Without Smith's, sales increased 13.5 percent. This increase is due to openings of new stores, strong food and nonfood sales, and the acquisition of mall jewelry stores. Comparable store sales, without Smith's, increased 7.2 percent, with food comparable sales increasing 6.2 percent and nonfood comparable store sales increasing 8.9 percent. The Company's food operations accounted for 65.1 percent of the overall sales for the first 40 weeks of 1997, compared with 60.2 percent for the first 40 weeks of 1996. 11 Gross margin as a percent of net sales was 29.8 percent for the first 40 weeks of 1997 compared with 29.4 percent for 1996. Gross margins increased in the first 40 weeks of 1997 due to the impact on margins of the multi-store jewelry acquisitions and lower markdowns. Operating and administrative expenses as a percent of net sales were 26.1 percent for the first 40 weeks of 1997 compared with 26.4 percent for the first 40 weeks of 1996. Expenses as a percent of net sales decreased in 1997's first 40 weeks primarily due to the impact of the acquisition of Smith's on expenses. Net interest expense in the first 40 weeks of 1997 was $46.4 million, an increase of 51.7 percent from the $30.6 million for 1996. The increase reflects higher borrowings relating to the acquisition of Smith's, partially offset by lower interest rates. The effective tax rate for the first 40 weeks of 1997 was 40.3 percent and 38.0 percent for the first 40 weeks of 1996. The higher rate is due primarily to the effect of non-deductible goodwill amortization resulting from the Smith's acquisition. Income before the extraordinary loss increased 63.9 percent to $50.7 million in the first 40 weeks of 1997 from $30.9 million in the first 40 weeks of 1996. The extraordinary loss of $91.2 million, net of taxes, is for early extinguishment of debt. This charge covers premiums paid and the write-off of financing costs related to debt refinanced in the Smith's acquisition. After the extraordinary loss a net loss of $40.6 million was reported in the first 40 weeks of 1997. Earnings per share before the extraordinary loss were $.79 in 1997's first 40 weeks, an increase of 43.6 percent over the $.55 reported in 1996's first 40 weeks. Including the effect of the extraordinary loss, a net loss per share of $.63 was reported in 1997's first 40 weeks. Income before net interest expense, income taxes, depreciation and amortization expense and LIFO expense (EBITDA) for the first 40 weeks for 1997 was $254.7 million or 7.1 percent of sales, compared with $174.4 million or 6.4 percent of sales for the first 40 weeks in 1996. EFFECT OF LIFO Each year, the Company estimates the LIFO adjustment for the year based on estimates of three factors: inflation rates (calculated by reference to the Department Stores Inventory Price Index published by the Bureau of Labor Statistics for softgoods and jewelry, and to internally generated indices based on Company purchases during the year for all other departments), expected inventory levels, and expected markup levels (after reflecting permanent markdowns and cash discounts). The Company reviewed these year-to-date indices at the end of the third quarter and adjusted its LIFO reserve on a year-to-date basis to reflect the Company's overall product mix, anticipated year-end inventory levels, and the Company's expectations of the indices for the remainder of the year. At year-end, the Company makes the final adjustment reflecting the difference between its prior quarterly estimates and actual LIFO amount for the year. 12 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits -------- 2.1 Agreement and Plan of Merger among Quality Food Centers, Inc., Q Acquisition Corp. and Fred Meyer, Inc. dated as of November 6, 1997. Incorporated by reference to Exhibit 99.1 to Fred Meyer's Current Report on Form 8-K dated November 6, 1997. 2.2 Agreement and Plan of Merger among Food 4 Less Holdings, Inc., FFL Acquisition Corp. and Fred Meyer, Inc. dated as of November 6, 1997. Incorporated by reference to Exhibit 99.2 to Fred Meyer's Current Report on Form 8-K dated November 6, 1997. 3.1 Restated Certificate of Incorporation of Fred Meyer, Inc. 3.2 Bylaws of Fred Meyer, Inc. 4.1 Specimen Stock Certificate. Incorporated by reference to Exhibit 4.1 to Fred Meyer's Registration Statement on Form S-4 (No. 333- 32927). 4.2 $1,030,000,000 Credit Agreement dated as of September 9, 1997 among Fred Meyer, Inc., as Borrower, and The Lenders Party Thereto, Bankers Trust Company, as Administrative Agent, and The Chase Manhattan Bank, as Syndication Agent. 4.3 $500,000,000 364-Day Credit Agreement dated as of September 9, 1997 among Fred Meyer, Inc., as Borrower, and The Lenders Party Thereto, Bankers Trust Company, as Administrative Agent, and The Chase Manhattan Bank, as Syndication Agent. 4.4 $500,000,000 Bridge Credit Agreement dated as of September 9, 1997 among Fred Meyer, Inc., as Borrower, and The Lenders Party Thereto, Bankers Trust Company, as Administrative Agent, and The Chase Manhattan Bank, as Syndication Agent. 4.5 Form of Registration Rights Agreement for Fred Meyer, Inc. Incorporated by reference to Exhibit C to Exhibit 99.1 to Fred Meyer's Current Report on Form 8-K dated May 11, 1997. Pursuant to Item 601(b)(4)(iii) of Regulation S-K, the registrant agrees to furnish to the Commission upon request copies of agreements relating to other indebtedness. 10.1 Form of Executive Severance Agreement among Fred Meyer, Inc. and each executive officer. 10.2 Form of Management Services Agreement. Incorporated by reference to Exhibit D to Exhibit 99.1 to Fred Meyer's Current Report on Form 8-K dated May 11, 1997. 10.3 Yucaipa Warrant Agreement. Incorporated by reference to Exhibit 10.3 to Smith's Registration Statement on Form S-3 (No. 333-14953). Supplemental Warrant, dated as of September 9, 1997 among Fred Meyer, Inc. (formerly Meyer-Smith Holdco, Inc.) and The Yucaipa Companies. 10.4 Fred Meyer, Inc. 1997 Stock Incentive Plan. Incorporated by reference to Appendix I to Exhibit 99.1 to Fred Meyer's Current Report on Form 8-K dated September 9, 1997. 10.5-1 Fred Meyer, Inc. 1983 Stock Option Plan, as amended. Incorporated by reference to Exhibit 10D to Fred Meyer's Quarterly Report on Form 10-K for the year ended January 28, 1989 (File No. 0-15023). 10.5-2 Amended Fred Meyer, Inc. 1990 Stock Incentive Plan. Incorporated by reference to Exhibit 22 to Fred Meyer's Quarterly Report on Form 10-Q for the quarter ended August 12, 1995 (File No. 1-11274). 13 10.6 Fred Meyer, Inc. Bonus Plan Description, as amended. Incorporated by reference to Exhibit 10B to Fred Meyer's Annual Report on Form 10-K for the year ended February 1, 1997 (File No. 1-11274). 10.7 Assumption Agreement and Unconditional Guaranty of Certain Obligations, dated December 11, 1981, among Fred Meyer, Inc., The Predecessor Company, DTC Acquisition Corporation, and Real Estate Properties Limited Partnership (formerly Fred Meyer Real Estate Properties, Ltd.). Incorporated by reference to Exhibit 10FF to Fred Meyer's Registration Statement on Form S-1, Registration No. 2-87139. 10.8 Non-Employee Directors' Deferred Compensation Plan. Incorporated by reference to Appendix J to Exhibit 99.1 to Fred Meyer's Current Report on Form 8-K, dated September 9, 1997. 10.9 Form of contract for Senior Executive Long-Term Disability Program. Incorporated by reference to Exhibit 10G to Fred Meyer's Annual Report on Form 10-K for the year ended January 30, 1993. 10.10 Fred Meyer Supplemental Income Plan dated January 1, 1994. Incorporated by reference to Exhibit 10H to Fred Meyer's Annual Report on Form 10-K for the year ended January 29, 1994. 10.11 Employment Agreement between Fred Meyer Stores, Inc. and Robert G. Miller, as amended. 10.12 Form of Lease Agreement for substantially identical leases covering 36 stores and other locations leased by Fred Meyer, Inc. (or a wholly owned subsidiary) from Real Estate Properties Limited Partnership (formerly Fred Meyer Real Estate Properties, Ltd.) including form of Assignment of Master Lease wherein Fred Meyer Real Estate Properties, Ltd. (now Real Estate Properties Limited Partnership) assigned its interest to Metropolitan Life Insurance Company and a First Amendment to Lease Agreement, dated November 25, 1985, with appendices containing certain nonstandard provisions of the Lease Agreement and the First Amendment; Collateral Matters Agreement and Indemnification Agreement, each dated November 25, 1986, between Fred Meyer, Inc. and Metropolitan Life Insurance Company. Incorporated by reference to Exhibit 101 to Fred Meyer's Annual Report on Form 10-K for the year ended January 31, 1987 (File No. 0-15023). Memorandum of First Amendment to Lease Agreement, dated March 6, 1987, between Metropolitan Life Insurance Company ("Metropolitan"), Landlord and Fred Meyer, Inc., Tenant; and Assignment of Master Lease, dated March 6, 1987, between Real Estate Properties Limited Partnership (formerly Fred Meyer Real Estate Properties, Ltd.) (Assignor) and Metropolitan (Assignee) for Nampa, Idaho. Incorporated by reference to Exhibit 10I to Fred Meyer's Annual Report on Form 10-K for the year ended January 30, 1988 (File No. 0-15023). Form of Modification to Master Lease Agreement entered into as of February 4, 1997 between Metropolitan, as Landlord and Fred Meyer, as Tenant/Lessee relating to 29 leases with nonstandard provisions attached as appendices and form of Termination of Master Lease entered into as of February 4, 1997 with respect to six Premises and one distribution center. See appendices. Incorporated by reference to Exhibit 101 to Fred Meyer's Quarterly Report on Form 10-Q for the quarter ended May 24, 1997 (File No. 1-11274). 10.13 Form of Lease Agreement for substantially identical leases covering 27 stores and other locations subleased by Fred Meyer, Inc. (or a wholly owned subsidiary) from Real Estate Properties Limited Partnership (formerly Fred Meyer Real Estate Properties, Ltd.) with appendices containing certain nonstandard provisions contained in the Lease Agreement. Incorporated by reference to Exhibit 10J to Fred Meyer's Annual Report on Form 10-K for the year ended January 31, 1987 (File No. 0-15023). Appendices containing certain additional nonstandard Provisions. Incorporated by reference to Exhibit 10J to Fred Meyer's Annual Reports on Form 10-K for the years ended January 28, 1989, February 3, 1990, and February 2, 1991 (File No. 0-15023). Certain lease modifications for Burien, 14 Washington facility. Incorporated by reference to Exhibit 10K to Fred Meyer's Annual Report on Form 10-K for the year ended January 30, 1993. Second Lease Modification Agreement for Cornelius store, dated as of August 16, 1994; and Second Lease Modification Agreement for Fairbanks store, dated as of March 18, 1994. Incorporated by reference to Exhibit 10J to Fred Meyer's Annual Report on Form 10-K for the year ended January 28, 1995. Lease Amendment No. 2 (AN- Northern Lights, Boulevard Store) between Fred Meyer and Real Estate Properties Limited Partnership, and Memorandum of Modification to Lease/Short-Form Lease (AN-Northern Lights, Anchorage, Alaska) between Fred Meyer and Real Estate Properties Limited Partnership dated December 20, 1996; Lease Amendment No. 4 (Burien, Washington) by and between Real Estate Properties Limited Partnership and Roundup Co., a Washington corporation ("Roundup"), and Memorandum of Modification to Lease/Short-Form Lease (Burien, Washington) by and between Real Estate Properties Limited Partnership and Roundup, dated December 20, 1996; Lease Amendment No. 3 (Clackamas, Oregon) by and between Real Estate Properties Limited Partnership and Fred Meyer, and Memorandum of Modification to Lease/Short-Form Lease (CK- Clackamas, Oregon) by and between Real Estate Properties Limited Partnership and Fred Meyer dated December 20, 1996; Lease Amendment No. 3 (Cornelius, Oregon) by and between Real Estate Properties Limited Partnership and Fred Meyer, and Memorandum of Modification to Lease/Modification to Lease/Short-Form Lease (CN-Cornelius, Oregon) by and between Real Estate Properties Limited Partnership, Fred Meyer Real Estate Properties and Fred Meyer dated December 20, 1996; Lease Amendment No. 3 (Fairbanks, Alaska) by and between Real Estate Properties Limited Partnership and Fred Meyer of Alaska, Inc., an Alaska corporation ("Fred Meyer-Alaska"), and Memorandum of Modification to Lease/Short-Form Lease (FB Fairbanks, Alaska) by and between Real Estate Properties Limited Partnership and Fred Meyer- Alaska, dated December 20, 1996 and Lease Assignment Agreement (Stark Street, Portland) between Fred Meyer, Inc., a Delaware corporation and Real Estate Properties Limited Partnership, an Oregon limited partnership and made as of December 16, 1996 and Agreement and Supplement to Leasehold Assignment and Modification Agreement (Stark Street, Portland, Oregon). Incorporated by reference to Exhibit 10J to Fred Meyer's Annual Report on Form 10-K for the year ended February 1, 1997. 10.14 Form of Sublease, dated May 1, 1984, Fred Meyer Real Estate Properties Ltd. (now Real Estate Properties Limited Partnership), Lessor to Roundup Co., Lessee for Photo Plant Parking Lot. Incorporated by reference to Exhibit 10J(7) to Fred Meyer's Registration Statement on Form S-1, Registration No. 33-8574. 10.15 Lease Agreement, dated October 22, 1986, including Amendment, dated April 30, 1987, between Fred Meyer Real Estate Properties, Ltd. (now Real Estate Properties Limited Partnership) and Roundup Co. for Midway store. Incorporated by reference to Exhibit 10N to Fred Meyer's Annual Report on Form 10-K for the year ended January 31, 1987 (File No. 0-15023). 10.16 Lease Agreement, dated February 19, 1987, including Addendum, dated September 16, 1987, between Fred Meyer, Inc., as Lessee, and REC Resolution Co. as successor in interest to Duane Company, as Lessor, for the Gateway store. Incorporated by reference to Exhibit 10Q to Fred Meyer's Annual Report on Form 10-K for the year ended January 30, 1988 (File No. 0-15023). Addendum No. 2 to Lease Agreement. Incorporated by reference to Exhibit 10Q to Fred Meyer's Annual Report on Form 10-K for the year ended February 2, 1991 (File No. 0-15023). 10.17 Lease Cancellation Agreement between Fred Meyer and Real Estate Properties Limited Partnership, regarding termination of the lease of the photo plant facility, dated as of January 17, 1995. Incorporated by reference to Exhibit 10Q to Fred Meyer's Annual Report on Form 10-K for the year ended January 28, 1995. 15 10.18 Lease for Swan Island Parking Lot between Fred Meyer as lessee and Real Estate Properties Limited Partnership as lessor, dated November 16, 1994. Incorporated by reference to Exhibit 10R to Fred Meyer's Annual Report on Form 10-K for the year ended January 28, 1995. Rider to Lease dated as of November 1, 1994. Incorporated by reference to Exhibit 10R to Fred Meyer's Annual Report on Form 10-K for the year ended February 3, 1996 (File No. 1-11274). 10.19 Fred Meyer Excess Deferral and Benefit Equalization Plan. 1994 Restatement dated as of January 1, 1994. Incorporated by reference to Exhibit 10T to Fred Meyer's Annual Report on Form 10-Q for the quarter ended November 4, 1995 (File No. 1-11274). 10.20 Settlement Agreement and Mutual Release dated as of August 10, 1995 between REPL, REC Resolution Co., and Fred Meyer and certain of its subsidiaries and restated Second Lease Modification Agreement dated October 12, 1995 between Fred Meyer and REPL, with respect to the Gresham, Oregon store, and Second Lease Modification Agreement dated October 12, 1995 between Fred Meyer and REPL with respect to the Clackamas, Oregon store. Incorporated by reference to Exhibit 10W to Fred Meyer's Annual Report on Form 10-K for the year ended February 3, 1996 (File No. 1-11274). 10.21 Sale Agreement between Metropolitan, as Seller, and Fred Meyer, as Purchaser, dated as of February 3, 1997 for Juneau. Incorporated by reference to Exhibit 10R to Fred Meyer's Quarterly Report on Form 10-Q for the quarter ended May 24, 1997 (File No. 1-11274). 10.22 Sale Agreement between Metropolitan, as Seller, and Fred Meyer, as Purchaser, dated as of February 3, 1997 for Columbia Falls and Kalispell. Incorporated by reference to Exhibit 10S to Fred Meyer's Quarterly Report on Form 10-Q for the quarter ended May 24, 1997 (File No. 1-11274). 10.23 Sale Agreement between Metropolitan, as Seller, and Fred Meyer, as Purchaser, dated as of February 3, 1997 for Clackamas Distribution Center. Incorporated by reference to Exhibit 10T to Fred Meyer's Quarterly Report on Form 10-Q for the quarter ended May 24, 1997 (File No. 1-11274). 10.24 Sale Agreement between Metropolitan, as Seller, and Fred Meyer, as Purchaser, dated as of February 3, 1997 for Roseburg. Incorporated by reference to Exhibit 10U to Fred Meyer's Quarterly Report on Form 10-Q for the quarter ended May 24, 1997 (File No. 1-11274). 10.25 Sale Agreement between Metropolitan, as Seller, and Fred Meyer, as Purchaser, dated as of February 3, 1997 for Fourth Plain and Tacoma Lakewood. Incorporated by reference to Exhibit 10V to Fred Meyer's Quarterly Report on Form 10-Q for the quarter ended May 24, 1997 (File No. 1-11274). 10.26 Agreement Concerning Miscellaneous Parcels dated as of February 4, 1997 between Metropolitan and Fred Meyer (Pad Agreements). Incorporated by reference to Exhibit 10W to Fred Meyer's Quarterly Report on Form 10-Q for the quarter ended May 24, 1997 (File No. 1- 11274). 11 Computation of Earnings Per Share 21.1 List of subsidiaries of Fred Meyer, Inc. Incorporated by reference to Exhibit 21.1 to Form S-4. 27 Financial Data Schedule (b) Reports on Form 8-K The Company filed a Current Report on Form 8-K dated November 6, 1997 to report under Item 5 that it had entered into merger agreements with Quality Food Centers, Inc. and Food 4 Less Holdings, Inc. 16 SIGNATURES Pursuant to the requirements 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. FRED MEYER, INC. (Registrant) Dated: December 18, 1997 DAVID R. JESSICK --------------------------------------- David R. Jessick Senior Vice President - Finance Chief Financial Officer 17 EXHIBIT INDEX Exhibit Sequential Number Document Description Page Number 2.1 Agreement and Plan of Merger among Quality Food Centers, Inc., Q Acquisition Corp. and Fred Meyer, Inc. dated as of November 6, 1997. Incorporated by reference to Exhibit 99.1 to Fred Meyer's Current Report on Form 8-K dated November 6, 1997. 2.2 Agreement and Plan of Merger among Food 4 Less Holdings, Inc., FFL Acquisition Corp. and Fred Meyer, Inc. dated as of November 6, 1997. Incorporated by reference to Exhibit 99.2 to Fred Meyer's Current Report on Form 8-K dated November 6, 1997. 3.1 Restated Certificate of Incorporation of Fred Meyer, Inc. 3.2 Bylaws of Fred Meyer, Inc. 4.1 Specimen Stock Certificate. Incorporated by reference to Exhibit 4.1 to Fred Meyer's Registration Statement on Form S-4 (No. 333- 32927). 4.2 $1,030,000,000 Credit Agreement dated as of September 9, 1997 among Fred Meyer, Inc., as Borrower, and The Lenders Party Thereto, Bankers Trust Company, as Administrative Agent, and The Chase Manhattan Bank, as Syndication Agent. 4.3 $500,000,000 364-Day Credit Agreement dated as of September 9, 1997 among Fred Meyer, Inc., as Borrower, and The Lenders Party Thereto, Bankers Trust Company, as Administrative Agent, and The Chase Manhattan Bank, as Syndication Agent. 4.4 $500,000,000 Bridge Credit Agreement dated as of September 9, 1997 among Fred Meyer, Inc., as Borrower, and The Lenders Party Thereto, Bankers Trust Company, as Administrative Agent, and The Chase Manhattan Bank, as Syndication Agent. 4.5 Form of Registration Rights Agreement for Fred Meyer, Inc. Incorporated by reference to Exhibit C to Exhibit 99.1 to Fred Meyer's Current Report on Form 8-K dated May 11, 1997. Pursuant to Item 601(b)(4)(iii) of Regulation S-K, the registrant agrees to furnish to the Commission upon request copies of agreements relating to other indebtedness. 10.1 Form of Executive Severance Agreement among Fred Meyer, Inc. and each executive officer. 10.2 Form of Management Services Agreement. Incorporated by reference to Exhibit D to Exhibit 99.1 to Fred Meyer's Current Report on Form 8-K dated May 11, 1997. 10.3 Yucaipa Warrant Agreement. Incorporated by reference to Exhibit 10.3 to Smith's Registration Statement on Form S-3 (No. 333-14953). Supplemental Warrant, dated as of September 9, 1997 among Fred Meyer, Inc. (formerly Meyer-Smith Holdco, Inc.) and The Yucaipa Companies. 10.4 Fred Meyer, Inc. 1997 Stock Incentive Plan. Incorporated by reference to Appendix I to Exhibit 99.1 to Fred Meyer's Current Report on Form 8-K dated September 9, 1997. 10.5-1 Fred Meyer, Inc. 1983 Stock Option Plan, as amended. Incorporated by reference to Exhibit 10D to Fred Meyer's Quarterly Report on Form 10-K for the year ended January 28, 1989 (File No. 0-15023). 10.5-2 Amended Fred Meyer, Inc. 1990 Stock Incentive Plan. Incorporated by reference to Exhibit 22 to Fred Meyer's Quarterly Report on Form 10-Q for the quarter ended August 12, 1995 (File No. 1-11274). 10.6 Fred Meyer, Inc. Bonus Plan Description, as amended. Incorporated by reference to Exhibit 10B to Fred Meyer's Annual Report on Form 10-K for the year ended February 1, 1997 (File No. 1-11274). 10.7 Assumption Agreement and Unconditional Guaranty of Certain Obligations, dated December 11, 1981, among Fred Meyer, Inc., The Predecessor Company, DTC Acquisition Corporation, and Real Estate Properties Limited Partnership (formerly Fred Meyer Real Estate Properties, Ltd.). Incorporated by reference to Exhibit 10FF to Fred Meyer's Registration Statement on Form S-1, Registration No. 2-87139. 10.8 Non-Employee Directors' Deferred Compensation Plan. Incorporated by reference to Appendix J to Exhibit 99.1 to Fred Meyer's Current Report on Form 8-K, dated September 9, 1997. 10.9 Form of contract for Senior Executive Long-Term Disability Program. Incorporated by reference to Exhibit 10G to Fred Meyer's Annual Report on Form 10-K for the year ended January 30, 1993. 10.10 Fred Meyer Supplemental Income Plan dated January 1, 1994. Incorporated by reference to Exhibit 10H to Fred Meyer's Annual Report on Form 10-K for the year ended January 29, 1994. 10.11 Employment Agreement between Fred Meyer Stores, Inc. and Robert G. Miller, as amended. 10.12 Form of Lease Agreement for substantially identical leases covering 36 stores and other locations leased by Fred Meyer, Inc. (or a wholly owned subsidiary) from Real Estate Properties Limited Partnership (formerly Fred Meyer Real Estate Properties, Ltd.) including form of Assignment of Master Lease wherein Fred Meyer Real Estate Properties, Ltd. (now Real Estate Properties Limited Partnership) assigned its interest to Metropolitan Life Insurance Company and a First Amendment to Lease Agreement, dated November 25, 1985, with appendices containing certain nonstandard provisions of the Lease Agreement and the First Amendment; Collateral Matters Agreement and Indemnification Agreement, each dated November 25, 1986, between Fred Meyer, Inc. and Metropolitan Life Insurance Company. Incorporated by reference to Exhibit 101 to Fred Meyer's Annual Report on Form 10-K for the year ended January 31, 1987 (File No. 0-15023). Memorandum of First Amendment to Lease Agreement, dated March 6, 1987, between Metropolitan Life Insurance Company ("Metropolitan"), Landlord and Fred Meyer, Inc., Tenant; and Assignment of Master Lease, dated March 6, 1987, between Real Estate Properties Limited Partnership (formerly Fred Meyer Real Estate Properties, Ltd.) (Assignor) and Metropolitan (Assignee) for Nampa, Idaho. Incorporated by reference to Exhibit 10I to Fred Meyer's Annual Report on Form 10-K for the year ended January 30, 1988 (File No. 0-15023). Form of Modification to Master Lease Agreement entered into as of February 4, 1997 between Metropolitan, as Landlord and Fred Meyer, as Tenant/Lessee relating to 29 leases with nonstandard provisions attached as appendices and form of Termination of Master Lease entered into as of February 4, 1997 with respect to six Premises and one distribution center. See appendices. Incorporated by reference to Exhibit 101 to Fred Meyer's Quarterly Report on Form 10-Q for the quarter ended May 24, 1997 (File No. 1-11274). 10.13 Form of Lease Agreement for substantially identical leases covering 27 stores and other locations subleased by Fred Meyer, Inc. (or a wholly owned subsidiary) from Real Estate Properties Limited Partnership (formerly Fred Meyer Real Estate Properties, Ltd.) with appendices containing certain nonstandard provisions contained in the Lease Agreement. Incorporated by reference to Exhibit 10J to Fred Meyer's Annual Report on Form 10-K for the year ended January 31, 1987 (File No. 0-15023). Appendices containing certain additional nonstandard Provisions. Incorporated by reference to Exhibit 10J to Fred Meyer's Annual Reports on Form 10-K for the years ended January 28, 1989, February 3, 1990, and February 2, 1991 (File No. 0-15023). Certain lease modifications for Burien, Washington facility. Incorporated by reference to Exhibit 10K to Fred Meyer's Annual Report on Form 10-K for the year ended January 30, 1993. Second Lease Modification Agreement for Cornelius store, dated as of August 16, 1994; and Second Lease Modification Agreement for Fairbanks store, dated as of March 18, 1994. Incorporated by reference to Exhibit 10J to Fred Meyer's Annual Report on Form 10-K for the year ended January 28, 1995. Lease Amendment No. 2 (AN- Northern Lights, Boulevard Store) between Fred Meyer and Real Estate Properties Limited Partnership, and Memorandum of Modification to Lease/Short-Form Lease (AN-Northern Lights, Anchorage, Alaska) between Fred Meyer and Real Estate Properties Limited Partnership dated December 20, 1996; Lease Amendment No. 4 (Burien, Washington) by and between Real Estate Properties Limited Partnership and Roundup Co., a Washington corporation ("Roundup"), and Memorandum of Modification to Lease/Short-Form Lease (Burien, Washington) by and between Real Estate Properties Limited Partnership and Roundup, dated December 20, 1996; Lease Amendment No. 3 (Clackamas, Oregon) by and between Real Estate Properties Limited Partnership and Fred Meyer, and Memorandum of Modification to Lease/Short-Form Lease (CK- Clackamas, Oregon) by and between Real Estate Properties Limited Partnership and Fred Meyer dated December 20, 1996; Lease Amendment No. 3 (Cornelius, Oregon) by and between Real Estate Properties Limited Partnership and Fred Meyer, and Memorandum of Modification to Lease/Modification to Lease/Short-Form Lease (CN-Cornelius, Oregon) by and between Real Estate Properties Limited Partnership, Fred Meyer Real Estate Properties and Fred Meyer dated December 20, 1996; Lease Amendment No. 3 (Fairbanks, Alaska) by and between Real Estate Properties Limited Partnership and Fred Meyer of Alaska, Inc., an Alaska corporation ("Fred Meyer-Alaska"), and Memorandum of Modification to Lease/Short-Form Lease (FB Fairbanks, Alaska) by and between Real Estate Properties Limited Partnership and Fred Meyer- Alaska, dated December 20, 1996 and Lease Assignment Agreement (Stark Street, Portland) between Fred Meyer, Inc., a Delaware corporation and Real Estate Properties Limited Partnership, an Oregon limited partnership and made as of December 16, 1996 and Agreement and Supplement to Leasehold Assignment and Modification Agreement (Stark Street, Portland, Oregon). Incorporated by reference to Exhibit 10J to Fred Meyer's Annual Report on Form 10-K for the year ended February 1, 1997. 10.14 Form of Sublease, dated May 1, 1984, Fred Meyer Real Estate Properties Ltd. (now Real Estate Properties Limited Partnership), Lessor to Roundup Co., Lessee for Photo Plant Parking Lot. Incorporated by reference to Exhibit 10J(7) to Fred Meyer's Registration Statement on Form S-1, Registration No. 33-8574. 10.15 Lease Agreement, dated October 22, 1986, including Amendment, dated April 30, 1987, between Fred Meyer Real Estate Properties, Ltd. (now Real Estate Properties Limited Partnership) and Roundup Co. for Midway store. Incorporated by reference to Exhibit 10N to Fred Meyer's Annual Report on Form 10-K for the year ended January 31, 1987 (File No. 0-15023). 10.16 Lease Agreement, dated February 19, 1987, including Addendum, dated September 16, 1987, between Fred Meyer, Inc., as Lessee, and REC Resolution Co. as successor in interest to Duane Company, as Lessor, for the Gateway store. Incorporated by reference to Exhibit 10Q to Fred Meyer's Annual Report on Form 10-K for the year ended January 30, 1988 (File No. 0-15023). Addendum No. 2 to Lease Agreement. Incorporated by reference to Exhibit 10Q to Fred Meyer's Annual Report on Form 10-K for the year ended February 2, 1991 (File No. 0-15023). 10.17 Lease Cancellation Agreement between Fred Meyer and Real Estate Properties Limited Partnership, regarding termination of the lease of the photo plant facility, dated as of January 17, 1995. Incorporated by reference to Exhibit 10Q to Fred Meyer's Annual Report on Form 10-K for the year ended January 28, 1995. 10.18 Lease for Swan Island Parking Lot between Fred Meyer as lessee and Real Estate Properties Limited Partnership as lessor, dated November 16, 1994. Incorporated by reference to Exhibit 10R to Fred Meyer's Annual Report on Form 10-K for the year ended January 28, 1995. Rider to Lease dated as of November 1, 1994. Incorporated by reference to Exhibit 10R to Fred Meyer's Annual Report on Form 10-K for the year ended February 3, 1996 (File No. 1-11274). 10.19 Fred Meyer Excess Deferral and Benefit Equalization Plan. 1994 Restatement dated as of January 1, 1994. Incorporated by reference to Exhibit 10T to Fred Meyer's Annual Report on Form 10-Q for the quarter ended November 4, 1995 (File No. 1-11274). 10.20 Settlement Agreement and Mutual Release dated as of August 10, 1995 between REPL, REC Resolution Co., and Fred Meyer and certain of its subsidiaries and restated Second Lease Modification Agreement dated October 12, 1995 between Fred Meyer and REPL, with respect to the Gresham, Oregon store, and Second Lease Modification Agreement dated October 12, 1995 between Fred Meyer and REPL with respect to the Clackamas, Oregon store. Incorporated by reference to Exhibit 10W to Fred Meyer's Annual Report on Form 10-K for the year ended February 3, 1996 (File No. 1-11274). 10.21 Sale Agreement between Metropolitan, as Seller, and Fred Meyer, as Purchaser, dated as of February 3, 1997 for Juneau. Incorporated by reference to Exhibit 10R to Fred Meyer's Quarterly Report on Form 10-Q for the quarter ended May 24, 1997 (File No. 1-11274). 10.22 Sale Agreement between Metropolitan, as Seller, and Fred Meyer, as Purchaser, dated as of February 3, 1997 for Columbia Falls and Kalispell. Incorporated by reference to Exhibit 10S to Fred Meyer's Quarterly Report on Form 10-Q for the quarter ended May 24, 1997 (File No. 1-11274). 10.23 Sale Agreement between Metropolitan, as Seller, and Fred Meyer, as Purchaser, dated as of February 3, 1997 for Clackamas Distribution Center. Incorporated by reference to Exhibit 10T to Fred Meyer's Quarterly Report on Form 10-Q for the quarter ended May 24, 1997 (File No. 1-11274). 10.24 Sale Agreement between Metropolitan, as Seller, and Fred Meyer, as Purchaser, dated as of February 3, 1997 for Roseburg. Incorporated by reference to Exhibit 10U to Fred Meyer's Quarterly Report on Form 10-Q for the quarter ended May 24, 1997 (File No. 1-11274). 10.25 Sale Agreement between Metropolitan, as Seller, and Fred Meyer, as Purchaser, dated as of February 3, 1997 for Fourth Plain and Tacoma Lakewood. Incorporated by reference to Exhibit 10V to Fred Meyer's Quarterly Report on Form 10-Q for the quarter ended May 24, 1997 (File No. 1-11274). 10.26 Agreement Concerning Miscellaneous Parcels dated as of February 4, 1997 between Metropolitan and Fred Meyer (Pad Agreements). Incorporated by reference to Exhibit 10W to Fred Meyer's Quarterly Report on Form 10-Q for the quarter ended May 24, 1997 (File No. 1- 11274). 11 Computation of Earnings Per Share 21.1 List of subsidiaries of Fred Meyer, Inc. Incorporated by reference to Exhibit 21.1 to Form S-4. 27 Financial Data Schedule EX-3.1 2 RESTATED CERTIFICATE OF INCORPORATION RESTATED CERTIFICATE OF INCORPORATION OF MEYER-SMITH HOLDCO, INC. A DELAWARE CORPORATION (Originally incorporated on July 7, 1997) Pursuant to Sections 242 and 245 of the Delaware General Corporation Law, the undersigned hereby makes this Restated Certificate of Incorporation of the Delaware corporation MEYER-SMITH HOLDCO, INC., whose Certificate of Incorporation was filed in the office of the Secretary of State of Delaware on July 7, 1997, and certifies as follows: ARTICLE I The name of the Corporation is FRED MEYER, INC. ARTICLE II The registered office and registered agent of the Corporation is The Corporation Trust Company, 1209 Orange Street, Wilmington, New Castle County, Delaware 19801. ARTICLE III 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. ARTICLE IV A. The total number of shares of stock that the Corporation shall have authority to issue is five hundred million (500,000,000) shares, consisting of four hundred million (400,000,000) shares of Common Stock having a par value of $.01 per share and one hundred million (100,000,000) shares of Preferred Stock having a par value of $.01 per share. B. The Board of Directors is authorized, subject to limitations prescribed by law and the provisions of this Article IV, to provide for the issuance of the shares of Preferred Stock in series, and by filing a certificate pursuant to the applicable law of the State of Delaware, to establish from time to time the number of shares to be included in each such series, and to fix the designation, powers, preferences and rights of the shares of each such series and the qualifications, limitations or restrictions thereof. The authority of the Board of Directors with respect to each series shall include determination of the following: (1) The number of shares constituting that series and the distinctive designation of that series; (2) The dividend rate, if any, on the shares of that series, whether dividends shall be cumulative, and, if so, from which date or dates, and the relative rights of priority, if any, of payment of dividends on shares of that series; (3) Whether that series shall have voting rights, in addition to the voting rights provided by law, and, if so, the terms of such voting rights and the voting powers, if any, of the holders of such series; (4) Whether that series shall have conversion privileges, and, if so, the terms and conditions of such conversion, including provision for adjustment of the conversion rate in such events as the Board of Directors shall determine; (5) Whether or not the shares of that series shall be redeemable, and, if so, the terms and conditions of such redemption, including the date or dates upon or after which they shall be redeemable, and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates; (6) Whether that series shall have a sinking fund for the redemption or purchase of shares of that series, and, if so, the terms and amount of such sinking fund; (7) The rights of the shares of that series in the event of voluntary or involuntary liquidation, dissolution or winding up of the corporation, and the relative rights of priority, if any, of payment of shares of that series; and (8) Any other relative rights, preferences and limitations of that series. If upon any voluntary or involuntary liquidation, dissolution or winding up of the corporation, the assets available for distribution to holders of shares of Preferred Stock of all series shall be insufficient to pay such holders the full preferential amount to which they are entitled, then such assets shall be distributed ratably among the shares of all series of Preferred Stock in accordance with the respective preferential amounts (including unpaid cumulative dividends, if any) payable with respect thereto. ARTICLE V The Board of Directors of the Corporation may alter, amend or repeal the Bylaws of the Corporation. 2 ARTICLE VI No action may be taken by stockholders of this Corporation other than at an annual or special meeting of stockholders and the ability of stockholders to act by written consent is specifically denied. ARTICLE VII A. The Corporation shall indemnify to the fullest extent then permitted by law any person who is made, or threatened to be made, a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative, investigative or otherwise (including an action, suit or proceeding by or in the right of the Corporation) by reason of the fact that the person is or was a director or officer of the Corporation, or serves or served at the request of the Corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, against all expenses (including attorneys' fees), judgments, fines and amounts paid in settlement, actually and reasonably incurred in connection therewith. Expenses incurred by an officer or director in defending a civil or criminal action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the Corporation as authorized in this Article. The indemnification provided hereby shall not be deemed exclusive of any other rights to which those indemnified may be entitled under any statute, bylaw, agreement, vote of shareholders or directors or otherwise, both as to action in any official capacity and as to action in another capacity while holding an office, and shall continue as to a person who has ceased to be a director or officer and shall inure to the benefit of the heirs, executors and administrators of such person. The foregoing right to indemnification shall not apply in respect of actions, suits or proceedings (or parts thereof) against the Corporation unless such action, suit or proceeding shall have been approved by the Board of Directors. Any person other than a director or officer who is or was an employee or agent of the Corporation, or fiduciary within the meaning of the Employee Retirement Income Security Act of 1974 with respect to any employee benefit plan of the Corporation, or is or was serving at the request of the Corporation as an employee or agent of another corporation, partnership, joint venture, trust or other enterprise, may be indemnified to such extent as the Board of Directors in its discretion at any time or from time to time may authorize. B. No director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except to the extent such exemption from liability or limitation thereof is not permitted under the General Corporation Law of the State of Delaware as the same exists or may hereafter be amended. Any amendment, modification or repeal of the foregoing sentence shall not adversely affect any right or protection of a director of the Corporation hereunder in respect of any act or omission occurring prior to the time of such amendment, modification or repeal. 3 ARTICLE VIII A. The number of directors constituting the entire Board of Directors of the Corporation shall be not less than three nor more than 15 as fixed from time to time by the Board of Directors, provided, however, that the number of directors shall not be reduced so as to shorten the term of any director at the time in office, and provided further, that the number of directors constituting the entire Board of Directors shall be eleven until otherwise fixed by a majority of the entire Board of Directors. B. The Board of Directors, other than those who may be elected by the holders of any class or series of stock having a preference over the Common Stock as to dividend or upon liquidation, shall be divided into three classes, as nearly equal in number as the then total number of directors constituting the entire Board of Directors permits with the term of office of one class expiring each year. Directors of the first class shall be elected to hold office for a term expiring at the 1998 annual meeting, directors of the second class shall be elected to hold office for a term expiring at the 1999 annual meeting and directors of the third class shall be elected to hold office for a term expiring at the 2000 annual meeting. Any vacancies in the Board of Directors for any reason, and any directorships resulting from any increase in the number of directors, may be filled by the Board of Directors, acting by a majority of the directors then in office, although less than a quorum, and any directors so chosen shall hold office until the next election of the class for which such directors shall have been chosen and until their successors shall be elected and qualified. Subject to the foregoing, at each annual meeting of stockholders the successors to the class of directors whose term shall then expire shall be elected to hold office for a term expiring at the third succeeding annual meeting. Despite the expiration of a director's term, the director shall continue to serve until the director's successor is elected and qualified or the number of directors is decreased. Directors need not be residents of the State of Delaware or stockholders of the Corporation. C. Notwithstanding any other provisions of this Restated Certificate of Incorporation or the Bylaws of the Corporation (and notwithstanding the fact that some lesser percentage may be specified by law, this Restated Certificate of Incorporation or the Bylaws of the Corporation), any director or the entire Board of Directors of the Corporation may be removed at any time, but only for cause and only by the affirmative vote of the holders of 75% or more of the voting power of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class) cast at a meeting of the stockholders called for that purpose. D. Notwithstanding any other provisions of this Restated Certificate of Incorporation or the Bylaws of the Corporation (and notwithstanding the fact that some lesser percentage may be specified by law, this Restated Certificate of Incorporation or the Bylaws of the Corporation), the provisions set forth in this Article VIII may not be amended, altered, changed or repealed in any respect, nor may any provision be adopted which is inconsistent with this Article VIII, unless such action is approved by the affirmative vote of the holders of not less than 75% of the voting power of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class) cast at a meeting of the stockholders called for that purpose. 4 E. Notwithstanding any other provisions of this Restated Certificate of Incorporation or the Bylaws of the Corporation (and notwithstanding the fact that some lesser percentage may be specified by law, this Restated Certificate of Incorporation or the Bylaws of the Corporation), the provisions set forth in Section 1.11 of the Bylaws of the Corporation may not be amended, altered, changed or repealed in any respect, nor may any provision be adopted which is inconsistent with Section 1.11 of the Bylaws, unless such action is approved by the Board of Directors or by the affirmative vote of the holders of not less than 75% of the voting power of the outstanding shares of capital stock of the Corporation entitled to vote generally at an annual or special meeting of stockholders (considered for this purpose as one class) cast at a meeting of the stockholders called for that purpose. IN WITNESS WHEREOF, this Restated Certificate of Incorporation, which restates, integrates and further amends the provisions of the Certificate of Incorporation of the Corporation, and which has been duly adopted in accordance with Sections 242 and 245 of the Delaware General Corporation Law, has been executed by a duly authorized officer of the Corporation this 9th day of September, 1997. MEYER-SMITH HOLDCO, INC. By ROGER A. COOKE -------------------------------------- Roger A. Cooke, Senior Vice President 5 EX-3.2 3 BYLAWS BYLAWS OF FRED MEYER, INC. ARTICLE I STOCKHOLDERS 1.1 Annual Meeting. The annual meeting of the stockholders shall be held at a date and time fixed by the Board of Directors and stated in the notice of the meeting. Failure to hold an annual meeting an the designated date shall not affect the validity of any corporate action. 1.2 Special Meetings. Special meetings of the stockholders, for any 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, the President or the Secretary upon direction by the Board of Directors. 1.3 Place of Meetings. Meetings of the stockholders shall be hold at any place in or out of the State of Delaware designated by the Board of Directors. If a meeting place is not designated by the Board of Directors, the meeting shall be held at the Corporation's principal office. 1.4 Notice of Meetings. Written or printed notice stating the date, time and place of the meeting of the stockholders and, in the case of a special meeting or a meeting for which special notice is required by law, the purposes for which the meeting is called shall be given by the corporation to each stockholder entitled to vote at the meeting and, if required by law, to any other stockholders entitled to receive notice, not more than 60 days nor less than 10 days before the meeting date. If mailed, the notice shall be deemed given when deposited in the United States mail, postage prepaid, directed to each stockholder at the stockholder's address shown in the Corporation's record of stockholders. Any previously scheduled meeting of the shareholders may be postponed and any special meeting of the shareholders may be canceled by resolution of the Board of Directors upon public announcement given prior to the date previously scheduled for such meeting of shareholders. 1.5 Waiver of Notice. A stockholder may at any time waive any notice required by law, these Bylaws or the Certificate of Incorporation. The waiver shall be in writing, be signed by the stockholder entitled to the notice and be delivered to the Corporation for inclusion in the minutes for filing with the corporate records. A stockholder's attendance at a meeting constitutes a waiver of notice of such meeting, except when the person attends for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. 1.6 Fixing of Record Date. (1) In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of the stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be (i) more than 60 nor less than 10 days before the date of such meeting nor (ii) more than 10 days after the date upon which the resolution fixing the record date is adopted by the Board of Directors nor (iii) more than 60 days prior to any other action. (2) If no record date is fixed: (i) The record date for determining stockholders entitled to notice of or to vote at a meeting of the stockholders shall be at the close of business on the day next preceding the day on which notice is given or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is hold. (ii) The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. (3) A determination of stockholders of record entitled to notice of or to vote at a meeting of the stockholders shall apply to any adjournment of the meeting, provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. 1.7 List of Stockholders for Meeting. After a record date for a meeting of the stockholders is fixed and at least 10 days before any such meeting, the Corporation shall prepare an alphabetical list of all stockholders entitled to vote at the meeting of the stockholders showing the address of each stockholder and the number of shares registered in the name of each stockholder. The list of stockholders shall be available for inspection by any stockholder, upon proper demand as may be required by law, for any purpose germane to the meeting, during ordinary business hours for a period of at least 10 days prior to the meeting, at the Corporation's principal office or at a place identified in the meeting notice in the city where the meeting will be held. The Corporation shall make the list of stockholders available at the meeting, and any stockholder or the stockholder's agent or attorney shall be entitled to inspect the list at any time during the meeting or any adjournment. Refusal or failure to prepare or make available the list of stockholders does not affect the validity of action taken at the meeting except that upon the willful neglect or refusal of the directors to produce such a list at any meeting for the election of directors they shall be ineligible for election to any office at such meeting. 2 1.8 Quorum; Adjournment. (1) A majority of the voting power present in person or represented by proxy, shall constitute a quorum at a meeting of stockholders. (2) The chair of the meeting or a majority of voting power represented at the meeting, may adjourn the meeting from time to time to a different time and place without further notice to any stockholder of any adjournment, except that notice is required if a new record date is or must be set for the adjourned meeting or if the adjournment is for more than 30 days. At an adjourned meeting at which a quorum is present, any business may be transacted that might have been transacted at the meeting originally hold. (3) Once a share is represented for any purpose at a meeting, it shall be present for quorum purposes for the remainder of the meeting and for any adjournment of that meeting unless a new record date is or must be set for the adjourned meeting. 1.9 Voting Requirements. If a quorum exists, action on a matter, other than the election of directors, is approved by the affirmative vote of a majority of the shares present in person or represented by proxy at the meeting and entitled to vote on the matter. Unless otherwise provided in the Certificate of Incorporation, directors are elected by a plurality of the votes cast by the shares entitled to vote in the election at a meeting at which a quorum is present. 1.10 Proxies. A stockholder may vote shares in person or by proxy. A stockholder may appoint a proxy either by personally executing an appointment form or by causing the stockholder's agent or attorney-in-fact to execute such form, or by such other means as is specifically authorized by law. An appointment of a proxy is effective when received by the Secretary or other officer of the Corporation authorized to tabulate votes, but no proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. An appointment is revocable by the stockholder unless the appointment form conspicuously states that it is irrevocable and the appointment is coupled with an interest sufficient in law to support an irrevocable power. 1.11 Notice of Stockholder Business and Nominations. (1) Annual Meetings of Stockholders. (a) Nominations of persons for election to the Board of Directors of the Corporation and the proposal of business to be considered by the stockholders may be made at an annual meeting of stockholders (i) pursuant to the Corporation's notice of meeting, (b) by or at the direction of the Board of Directors or (ii) by any stockholder of the Corporation who was a stockholder of record at the time of giving of notice as provided for in this Section 1.11 and on the date of the annual meeting, who is entitled to vote at the meeting and who complies with the notice procedures set forth in this Section 1.11. 3 (b) For nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to this Section 1.11, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation and such other business must otherwise be a proper matter for stockholder action. To be timely, a stockholder's notice shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the 60th day nor earlier than the close of business on the 90th day prior to the first anniversary of the preceding year's annual meeting; provided, however, that in the event that the date of the annual meeting is more than 30 days before or more than 60 days after such anniversary date, notice by the stockholder to be timely must be so delivered not earlier than the close of business on the 90th day prior to such annual meeting and not later than the close of business on the later of the 60th day prior to such annual meeting or the 10th day following the day on which public announcement of the date of such meeting is first made by the Corporation. In no event shall the public announcement of an adjournment of an annual meeting commence a new time period for the giving of a stockholder's notice as described above. Such stockholder's notice shall set forth (i) as to each person whom the stockholder proposes to nominate for election or reelection as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act") (including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected); (ii) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and (iii) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (a) the name and address of such stockholder, as they appear on the Corporation's books, and of such beneficial owner and (b) the class and number of shares of the Corporation which are owned beneficially and of record by such stockholder and such beneficial owner. (c) Notwithstanding anything in this Section 1.11 to the contrary, in the event that the number of directors to be elected to the Board of Directors of the Corporation is increased and there is no public announcement by the Corporation naming all of the nominees for director or specifying the size of the increased Board of Directors at least 70 days prior to the first anniversary of the preceding year's annual meeting, a stockholder's notice required by this Section 1.11 shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the secretary at the principal executive offices of the Corporation not later than the close of business on the 10th day following the day on which such public announcement is first made by the Corporation. (2) Special Meetings of Stockholders. Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the Corporation's notice of meeting. Nominations of persons for election to the Board of Directors may be made at a special meeting of stockholders at which directors are to 4 be elected pursuant to the Corporation's notice of meeting (a) by or at the direction of the Board of Directors or (b) provided that the Board of Directors has determined that directors shall be elected at such meeting, by any stockholder of the Corporation who is a stockholder of record at the time of giving of notice provided for in this Section 1.11, who shall be entitled to vote at the meeting and who complies with the notice procedures set forth in this Section 1.11. In the event the Corporation calls a special meeting of stockholders for the purpose of electing one or more directors to the Board of Directors, any such stockholder may nominate a person or persons (as the case may be), for election to such position(s) as specified in the Corporation's notice of meeting, if the stockholder's notice required by this Section 1.11 shall be delivered to the Secretary at the principal executive offices of the Corporation not earlier than the close of business on the 90th day prior to such special meeting and not later than the close of business on the later of the 60th day prior to such special meeting or the 10th day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. In no event shall the public announcement of an adjournment of a special meeting commence a new time period for the giving of a stockholder's notice as described above. (3) General. (a) Only such persons who are nominated in accordance with the procedures set forth in this Section 1.11 shall be eligible to serve as directors and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this Section 1.11. Except as otherwise provided by law, the Certificate of Incorporation or these Bylaws, the Chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with the procedures set forth in this Section 1.11, and, if any proposed nomination or business is not in compliance with this Section 1.11, to declare that such defective proposal or nomination shall be disregarded. (b) For the purposes of these Bylaws, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission. (c) Notwithstanding the foregoing provisions of Section 1.11, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in Section 1.11. Nothing in Section 1.11 shall be deemed to affect any rights of stockholders to request inclusion of proposals in the Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act. 5 ARTICLE II BOARD OF DIRECTORS 2.1 Duties of Board of Directors. All corporate powers of the Corporation shall be exercised by or under the authority of its Board of Directors; the business and affairs of the Corporation shall be managed under the direction of its Board of Directors. The Board of Directors shall appoint a Chairman, who shall preside at meetings of the Board of Directors and of the stockholders and who shall exercise the usual powers pertaining to that office. The Chairman of the Board shall not be an officer of the Corporation. 2.2 Number, Term, Qualification and Classification. The number, term, qualification and classification of the directors of the Board of Directors shall be as set forth in the Corporation's Certificate of Incorporation. 2.3 Regular Meetings. A regular meeting of the Board of Directors may be held without notice other than this Bylaw immediately after, and at the same place as, the annual meeting of the stockholders. Regular meetings of the Board of Directors shall be held at such times and places as may be from time to time fixed by the Board of Directors or as may be specified in a notice of meeting. Notice need not be given of regular meetings of the Board of Directors. 2.4 Special Meetings. Special meetings of the Board of Directors may be called at any time by the Chairman of the Board, the President or a majority of the directors then serving and shall be called by the Chairman of the Board, the President or the Secretary upon direction by the Board of Directors. 2.5 Notice. Notice of the date, time and place of any special meeting of the Board of Directors shall be given at least 24 hours prior to the meeting by notice communicated in person, by telephone, telegraph, teletype, facsimile transmission, other form of wire or wireless communication, mail or courier service sent to director's business or home address. If mailed, notice shall be effective at the earliest of (a) when received, (b) five days after its deposit in the United States mail, as evidenced by the postmark, if mailed postpaid and correctly addressed, (c) on the date shown on the return receipt, if sent by registered or certified mail, return receipt requested and the receipt is signed by or on behalf of the addresses, (d) if given by teletype or facsimile, upon transmission of the message, or (e) if given by overnight mail or courier, one day after delivery to the overnight mail or courier service company. Notice by all other means shall be deemed effective when received by or on behalf of the director. Notice or waiver of notice of any regular or special meeting need not describe the purposes of, or the business to be transacted at, the meeting unless required by law or the Certificate of Incorporation. 2.6 Waiver of Notice. A director may at any time waive any notice required by law, these Bylaws or the Certificate of Incorporation. Except as set forth below, the waiver 6 must be in writing, be signed by the director entitled to the notice, specify the meeting for which notice is waived and be filed with the minutes or corporate records. A director's attendance at or participation in a meeting waives any required notice to the director of the meeting unless the director at the beginning of the meeting, or promptly upon the director's arrival, objects to holding the meeting or transacting business at the meeting and does not thereafter vote for or assent to action taken at the meeting. 2.7 Quorum. One-third of the total number of directors fixed in accordance with the Certificate of Incorporation shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, except that, if the total number of directors fixed in accordance with the provisions of the Certificate of Incorporation is one, then one director shall constitute a quorum. If less than a quorum is present at a meeting, a majority of the directors present may adjourn the meeting from time to time without further notice. 2.8 Manner of Acting. The act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors, unless a different number is provided by law, the Certificate of Incorporation or these Bylaws. 2.9 Meeting by Telephone Conference; Action Without Meeting. (1) Directors may participate in a regular or special meeting by, or conduct the meeting through, use of any means of communications by which all directors participating may simultaneously hear each other during the meeting. Participation in a meeting by this means shall constitute presence in person at the meeting. (2) Any action that is required or permitted to be taken at a meeting of the Board of Directors may be taken without a meeting if one or more written consents describing the action taken are signed by all of the directors entitled to vote on the matter and included in the minutes of proceedings of the Board of Directors. The action shall be effective when the last director signs the consent, unless the consent specifies an earlier or liter effective date. 2.10 Vacancies. Any vacancy on the Board of Directors may be filled by the Board of Directors as set forth in the Corporation's Certificate of Incorporation. Any vacancy not filled by the directors shall be filled by election at an annual meeting or at a special meeting of stockholders called for that purpose. A vacancy that will occur at a specified later date, by reason of a resignation or otherwise, may be filled before the vacancy occurs, but the new director may not take office until the vacancy occurs. 2.11 Compensation. By resolution of the Board of Directors, the directors may be paid reasonable compensation for services as directors and their expenses of attending meetings of the Board of Directors. 2.12 Presumption of Assent. A director who is present at a meeting of the Board of Directors or a committee of the Board of Directors shall be deemed to have assented to the 7 action taken at the meeting unless (a) the director's dissent or abstention from the action is entered in the minutes of the meeting, (b) the director delivers a written notice of dissent or abstention to the action to the presiding officer of the meeting before any adjournment or to the Corporation immediately after the adjournment of the meeting or (c) the director objects at the beginning of the meeting or promptly upon the director's arrival to the holding of the meeting or transacting business at the meeting. The right to dissent or abstain is not available to a director who voted in favor of the action. 2.13 Resignation. Any director may resign by delivering written notice to the Board of Directors, the Chairman of the Board or the Corporation. Unless the notice specifies a later effective date, a resignation notice shall be effective upon the earlier of (a) receipt, (b) five days after its deposit in the United States mail, if mailed postpaid and correctly addressed, or (c) on the date shown on the return receipt, if sent by registered or certified mail, return receipt requested, and the receipt is signed by addressee. once delivered, a resignation notice is irrevocable unless revocation is permitted by the Board of Directors. ARTICLE III COMMITTEES OF THE BOARD 3.1 Committees. The Board of Directors may, by resolution passed by a majority of the whole Board, create one or more committees and appoint members of the Board of Directors to serve on them. Each committee shall have one or more members. The creation of a committee and appointment of members to it must be approved by a majority of all directors in office when the action is taken. Subject to any limitation imposed by the Board of Directors or by law, each committee may exercise all the authority of the Board of Directors in the management of the Corporation. A committee may not take any action that a committee is prohibited from taking by the General Corporation Law of Delaware. 3.2 Changes of Size and Function. Subject to the provisions of the General Corporation Law of Delaware, the Board of Directors shall have the power at any time to change the number of committee members, fill committee vacancies, change any committee members and change the functions and terminate the existence of a committee. 3.3 Conduct of Meetings. Each committee shall conduct its meetings in accordance with the applicable provisions of these Bylaws relating to meetings and action without meetings of the Board of Directors. Each committee shall adopt any further rules regarding its conduct, keep minutes and other records and appoint subcommittees and assistants as it deems appropriate. 3.4 Compensation. By resolution of the Board of Directors, Committee members may be paid reasonable compensation for services on committees and their expenses of attending committee meetings. 8 ARTICLE IV OFFICERS 4.1 Appointment. The Board of Directors shall appoint a President and Chief Executive Officer, such Vice Presidents as the Board of Directors may determine, a Secretary and a Treasurer. The Board of Directors may appoint such other officers, assistant officers and agents as the Board of Directors may determine. Any two or more offices may be held by the same person. 4.2 Term. The term of office of all officers commences upon their appointment and continues until their successors are appointed or until their resignation or removal. 4.3 Removal. Any officer or agent appointed by the Board of Directors may be removed by the Board of Directors at any time with or without cause. 4.4 President. The President shall be the Chief Executive Officer and exercise the usual powers pertaining to that office. Subject to the control of the Board of Directors, the President shall be in general charge of the Corporation's business and affairs. The President shall report to and consult with the Board of Directors. Unless otherwise determined by the Board of Directors, the President shall have authority to vote any shares of stock of another corporation owned by the Corporation and to delegate this authority to any other officer. The President shall have such other powers and duties as the Board of Directors may from time to time prescribe. In the absence of the Chairman of the Board, the President shall preside at meetings of the Board of Directors and the stockholders. 4.5 Vice Presidents. Each Vice President shall perform the duties and responsibilities prescribed by the Board of Directors or as may be assigned from time to time by the President. The Board of Directors may confer a special title upon a Vice President. 4.6 Secretary. (1) The Secretary shall record and keep the minutes of all meetings of the directors and the stockholders in one or more books provided for that purpose and perform any other duties prescribed by the Board of Directors. (2) Any assistant secretary shall have the duties prescribed from time to time by the Board of Directors or the secretary. In the absence or disability of the Secretary, the Secretary's duties shall be performed by an assistant secretary. 4.7 Treasurer. The Treasurer shall be responsible for such financial matters of the Corporation and shall have such other duties as are prescribed from time to time by the Board of Directors. 9 ARTICLE V INDEMNIFICATION The Corporation shall indemnify any current or former director or officer and may indemnify any current or former employee or agent of the Corporation to the fullest extent not prohibited by law who is made, or threatened to be made, a party to an action, suit or proceeding, whether civil, criminal, administrative, investigative or other (including an action, suit or proceeding by or in the right of the Corporation), by reason of the fact that such person is or was a director, officer, employee or agent of the Corporation, or serves or served at the request of the Corporation as a director, officer, employee or agent of another corporation partnership, joint venture, trust or other enterprise. To the extent that a director, officer, employee or agent of the Corporation has been successful on the merits or otherwise in defense of any such action, suit or proceeding, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. The corporation shall pay for or reimburse the reasonable expenses incurred by any such current or former director or officer and may pay for or reimburse the reasonable expenses of any such current or former employee or agent in any such proceeding in advance of the final disposition of the proceeding if such person sets forth in writing (i) the person's good faith belief that the person is entitled to indemnification under this Article and (ii) the person's agreement to repay all advances if it is ultimately determined that the person is not entitled to indemnification under this Article. No amendment to these Bylaws that limits the corporation's obligation to indemnify any person shall have any effect on such obligation for any act or omission that occurs prior to the later to occur of the effective date of the amendment or the date notice of the amendment is given to the person. This Article shall not be deemed exclusive of any other provisions for indemnification or advancement of expenses of directors, officers, employees, agents and fiduciaries that may be included in the Certificate of incorporation or any statute, Bylaw, agreement, general or specific action of the Board of Directors, vote of stockholders or other document or arrangement. The foregoing right to indemnification shall not apply in respect of actions, suits or proceedings (or parts thereof) against the Corporation unless such action, suit or proceeding shall have been approved by the Board of Directors. ARTICLE VI ISSUANCE OF SHARES 6.1 Adequacy of Consideration. Before the Corporation issues shares, the Board of Directors shall determine that the consideration received or to be received for the shares to be issued is adequate. The authorization by the Board of Directors of the issuance of shares for stated consideration shall evidence a determination by the Board that such consideration is adequate. 10 6.2 Certificates for Shares. (1) Certificates representing shares of the Corporation shall be in any form determined by the Board of Directors consistent with the requirements of the General Corporation Law of Delaware and these Bylaws. The certificates shall be signed, either manually or in facsimile, by two officers of the corporation, who shall be the Chairman of the Board, the President or a Vice President and the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary, and may be sealed with the seal of the Corporation, if any, or a facsimile thereof. All certificates for shares shall be consecutively numbered or otherwise identified. Any or all of the signatures upon a certificate may be facsimiles. (2) Every certificate for shares of stock that are subject to any restriction on transfer or registration of transfer pursuant to the Certificate of Incorporation, the Bylaws, securities laws, a stockholders' agreement or any agreement to which the Corporation is a party shall have conspicuously noted on the face or back of the certificate either the full text of the restriction or a statement of the existence of the restriction and that the corporation retains a copy of the full text. Every certificate issued when the corporation is authorized to issue more than one class or series within a class of shares shall set forth on its face or back either (a) a summary of the designations, relative rights, preferences and limitations of the shares of each class and the variations in rights, preferences and limitations for each series authorized to be issued and the authority of the Board of Directors to determine variations for future series or (b) a statement of the existence of those designations, relative rights, preferences and limitations and a statement that the Corporation will furnish a copy thereof to the holder of the certificate upon written request and without charge. (3) All certificates surrendered to the Corporation for transfer shall be canceled. The Corporation shall not issue a new certificate for previously issued shares until the former certificate or certificates for those shares are surrendered and canceled, except that in case of a lost, destroyed or mutilated certificate a new certificate may be issued upon receipt by the Corporation of security against loss (by bond, indemnity or otherwise) to the extent deemed necessary by the Board of Directors. 6.3 Transfer of Shares. Transfer of shares of the Corporation shall be made only on the stock transfer books of the Corporation by the holder of record thereof or by the holder's legal representative, who shall furnish proper evidence of authority to transfer, or by the holder's attorney thereunto authorized by power of attorney duly executed and filed with the Secretary of the Corporation. The person in whose name shares stand on the books of the Corporation shall be deemed by the corporation to the owner thereof for all purposes. 6.4 Transfer Agent and Registrar. The Board of Directors may from time to time appoint one or more transfer agents and one or more registrars for the shares of the Corporation, with powers and duties determined by the Board of Directors. 11 6.5 Officer Ceasing to Act. If the person who signed a share certificate, either manually or in facsimile, no longer holds office when the certificate is issued, the certificate is nevertheless valid. 6.6 Fractional Shares. The Corporation shall not issue certificates for fractional shares. ARTICLE VII CONTRACTS, CHECKS AND OTHER INSTRUMENTS 7.1 Contracts. Except as otherwise provided by law, the Board of Directors may authorize any officers or agents to execute and deliver any contract or other instrument in the name of and on behalf of the Corporation, and this authority may be general or confined to specific instances. 7.2 Checks, Drafts, Etc. All checks, drafts or other orders for the payment of money and notes or other evidences of indebtedness issued in the name of the Corporation shall be signed in the manner and by the officers or agents of the Corporation designated by the Board of Directors, the Chairman of the Board or the President. 7.3 Deposits. All funds of the Corporation not otherwise employed shall be deposited to the credit of the Corporation in those banks, trust companies or other depositories as the Board of Directors or officers of the Corporation designated by the Board of Directors select, or be invested as authorized by the Board of Directors. ARTICLE VIII MISCELLANEOUS PROVISIONS 8.1 Severability. A determination that any provision of these Bylaws is for any reason inapplicable, invalid, illegal or otherwise ineffective shall not affect or invalidate any other provision of these Bylaws. 8.2 Amendments. Subject to the provisions of the Certificate of Incorporation, these Bylaws may be amended or repealed and new Bylaws may be adopted by the Board of Directors or the stockholders of the Corporation. Adopted: July 14, 1997 12 EX-4.2 4 CREDIT AGREEMENT ================================================================================ $1,030,000,000 CREDIT AGREEMENT dated as of September 9, 1997 among MEYER-SMITH HOLDCO, INC., as Borrower and The Lenders Party Hereto BANKERS TRUST COMPANY, as Administrative Agent and THE CHASE MANHATTAN BANK, as Syndication Agent --------------------------- CHASE SECURITIES INC. and BT SECURITIES CORPORATION, as Arrangers ================================================================================ TABLE OF CONTENTS Page ARTICLE I Definitions SECTION 1.1. Defined Terms................................................. 1 SECTION 1.2. Classification of Loans and Borrowings........................18 SECTION 1.3. Terms Generally...............................................19 SECTION 1.4. Accounting Terms; GAAP........................................19 SECTION 1.5. Change of Names...............................................19 ARTICLE II The Credits SECTION 2.1. Commitments...................................................20 SECTION 2.2. Loans and Borrowings..........................................20 SECTION 2.3. Requests for Revolving Borrowings.............................21 SECTION 2.4. Competitive Bid Procedure.....................................22 SECTION 2.5. Letters of Credit.............................................24 SECTION 2.6. Funding of Borrowings.........................................29 SECTION 2.7. Interest Elections............................................30 SECTION 2.8. Termination and Reduction of Commitments......................31 SECTION 2.9. Repayment of Loans; Evidence of Debt..........................32 SECTION 2.10. Prepayment of Loans...........................................33 SECTION 2.11. Fees..........................................................33 SECTION 2.12. Interest......................................................34 SECTION 2.13. Alternate Rate of Interest....................................35 SECTION 2.14. Increased Costs...............................................36 SECTION 2.15. Break Funding Payments........................................37 SECTION 2.16. Taxes.........................................................38 SECTION 2.17. Payments Generally; Pro Rata Treatment; Sharing of Set-offs...........................................40 SECTION 2.18. Mitigation Obligations; Replacement of Lenders....................................................41 SECTION 2.19. Extension of Maturity Date....................................42 i ARTICLE III Representations and Warranties SECTION 3.1. Organization; Powers..........................................45 SECTION 3.2. Authorization; Enforceability.................................45 SECTION 3.3. Governmental Approvals; No Conflicts..........................46 SECTION 3.4. Financial Condition; No Material Adverse Change................................................46 SECTION 3.5. Properties....................................................46 SECTION 3.6. Litigation and Environmental Matters..........................47 SECTION 3.7. Compliance with Laws and Agreements...........................47 SECTION 3.8. Investment and Holding Company Status.........................47 SECTION 3.9. Taxes.........................................................47 SECTION 3.10. ERISA.........................................................47 SECTION 3.11. Disclosure....................................................48 SECTION 3.12. Solvency......................................................48 SECTION 3.13. Use of Proceeds; Margin Regulations...........................48 SECTION 3.14. No Default....................................................48 SECTION 3.15. Subsidiaries..................................................48 ARTICLE IV Conditions SECTION 4.1. Effective Date................................................49 SECTION 4.2. Each Credit Event.............................................50 ARTICLE V Affirmative Covenants SECTION 5.1. Financial Statements and Other Information....................51 SECTION 5.2. Notices of Material Events....................................52 SECTION 5.3. Existence; Conduct of Business................................53 SECTION 5.4. Payment of Obligations........................................53 SECTION 5.5. Maintenance of Properties; Insurance..........................53 SECTION 5.6. Books and Records; Inspection Rights..........................53 SECTION 5.7. Compliance with Laws..........................................53 SECTION 5.8. Use of Proceeds and Letters of Credit.........................54 SECTION 5.9. Subsidiary Guaranties.........................................54 ii ARTICLE VI Negative Covenants SECTION 6.1. Material Subsidiary Debt......................................54 SECTION 6.2. Liens.........................................................55 SECTION 6.3. Modifications of Merger Document..............................56 SECTION 6.4. Fundamental Changes...........................................56 SECTION 6.5. Investments, Loans, Advances, Suretyship Liabilities and Acquisitions..................................57 SECTION 6.6. Hedging Agreements............................................58 SECTION 6.7. Restricted Payments...........................................58 SECTION 6.8. Transactions with Affiliates..................................58 SECTION 6.9. Restrictive Agreements........................................58 SECTION 6.10. Financial Covenants...........................................59 SECTION 6.11. Unconditional Purchase Obligations............................60 SECTION 6.12. Sale of Assets; Sale and Leaseback Transactions...............60 SECTION 6.13. Fiscal Year; Fiscal Quarter...................................61 ARTICLE VII Events of Default...................................................62 ARTICLE VIII The Administrative Agent SECTION 8.1. Appointment...................................................64 SECTION 8.2. Delegation of Duties..........................................65 SECTION 8.3. Exculpatory Provisions........................................65 SECTION 8.4. Reliance by Administrative Agent..............................65 SECTION 8.5. Notice of Default.............................................66 SECTION 8.6. Non-Reliance on Administrative Agent and Other Lenders........66 SECTION 8.7. Indemnification ..............................................66 SECTION 8.8. Administrative Agent in Its Individual Capacity ..............67 SECTION 8.9. Successor Administrative Agent................................67 SECTION 8.10. Syndication Agent.............................................67 iii ARTICLE IX Miscellaneous SECTION 9.1. Notices.......................................................68 SECTION 9.2. Waivers; Amendments...........................................69 SECTION 9.3. Expenses; Indemnity; Damage Waiver............................70 SECTION 9.4. Successors and Assigns........................................71 SECTION 9.5. Survival......................................................74 SECTION 9.6. Counterparts; Integration; Effectiveness......................74 SECTION 9.7. Severability..................................................75 SECTION 9.8. Right of Setoff...............................................75 SECTION 9.9. Governing Law; Jurisdiction; Consent to Service of Process.........................................75 SECTION 9.10. WAIVER OF JURY TRIAL..........................................76 SECTION 9.11. Headings......................................................76 SECTION 9.12. Confidentiality...............................................76 SECTION 9.13. OREGON LEGAL NOTICE...........................................77 SCHEDULES AND EXHIBITS Schedule 2.1 Lenders and Commitments Schedule 3.6 Disclosed Matters Schedule 3.15 Subsidiaries Schedule 4.1 Refinancing of Existing Debt Schedule 6.1 Debt Schedule 6.2 Liens Schedule 6.10 Restrictive Agreements Exhibit A Assignment and Acceptance Exhibit B Note Exhibit C Opinion of Stoel Rives, Counsel to the Borrower Exhibit D Subsidiary Guaranty iv CREDIT AGREEMENT dated as of September 9, 1997, among MEYER-SMITH HOLDCO., INC., as Borrower, the LENDERS party hereto, BANKERS TRUST COMPANY, as Administrative Agent and THE CHASE MANHATTAN BANK, as Syndication Agent. The parties hereto agree as follows: ARTICLE I Definitions Section 1.1 Defined Terms. As used in this Agreement, the following terms have the meanings specified below: "ABR" means, for any day, a rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the greater of (a) the Prime Rate in effect on such day and (b) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. For purposes hereof, "Prime Rate" means the rate of interest per annum publicly announced from time to time by the Administrative Agent as its prime rate in effect at its principal office in New York City (the Prime Rate not being intended to be the lowest rate of interest charged by the Administrative Agent in connection with extensions of credit to debtors); each change in the Prime Rate shall be effective on the date such change is publicly announced as effective. "Federal Funds Effective Rate" means, for any day, the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for the day of such transactions received by the Administrative Agent from three Federal funds brokers of recognized national standing selected by it. If for any reason the Administrative Agent shall have determined that it is unable to ascertain the Federal Funds Effective Rate for any reason, including the inability or failure of the Administrative Agent to obtain sufficient quotations in accordance with the terms thereof, the ABR shall be determined without regard to clause (b) of the first sentence of this definition, as appropriate, until the circumstances giving rise to such inability no longer exist. Any change in the ABR due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective on the effective date of such change in the Prime Rate or the Federal Funds Effective Rate, respectively. "Adjusted Interest Coverage Ratio" means the ratio of (a) Consolidated EBITDAR to (b) the sum of (i) the Borrower's Consolidated Interest Expense for such period plus (ii) except as included in Consolidated Interest Expense, the Borrower's consolidated rental expense on operating leases, computed as of the last day of a fiscal quarter for the period consisting of such fiscal quarter and the immediately preceding three fiscal quarters. CREDIT AGREEMENT "Adjusted LIBO Rate" means, with respect to any Eurodollar Borrowing for any Interest Period, an interest rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to (a) the LIBO Rate for such Interest Period multiplied by (b) the Statutory Reserve Rate. "Administrative Agent" means Bankers Trust Company, in its capacity as administrative agent for the Lenders hereunder. "Affiliate" means, with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified. "Agents" means the Administrative Agent and the Syndication Agent. "Applicable Level" means the level determined with reference to the following chart: Level Ratio Rating - ----- ----- ------ I greater than or equal to 7.5x greater than or equal to A-/A3 II greater than 6.5x BBB+/Baa1 III greater than 5.5x BBB/Baa2 IV greater than 4.5x BBB-/Baa3 V greater than or equal to 3.5x BB+/Ba1 VI lesser than 3.5x lesser than BB+/Ba1 For purposes of the foregoing, (i) for the six month period following from and after the Closing Date, the Applicable Level shall be Level IV; (ii) on the date that is six months after the Closing Date, the Borrower shall provide the Administrative Agent with a Compliance Certificate showing the ratio of Applicable EBITDA to Applicable Interest Expense of the Borrower for the fiscal quarter ended January 31, 1998 (and in the event the Borrower fails timely to provide such Compliance Certificate, the Applicable Level shall be Level V until such Compliance Certificate is provided), and from such date until May 23, 1998, the Applicable Level shall be the Level corresponding to such ratio; (iii) except as provided in (i) and (ii) above, at any time of determination, the Applicable Level shall be the Level corresponding to the ratio of Applicable EBITDA to Applicable Interest Expense (for the most recent four consecutive fiscal quarters; provided that for the periods ended May 23, 1998 and August 15, 1998, Applicable EBITDA and Applicable Interest Expense shall be calculated by reference to the full fiscal quarters then ended since the Closing Date) as set forth in the most recently delivered Compliance Certificate (it being understood and agreed that if the Borrower shall not have delivered the most recently due Compliance Certificate within the time period specified in Section 5.1(c), the Applicable Level shall be Level V until 2 CREDIT AGREEMENT such Compliance Certificate is delivered) (for purposes of this definition, the "Ratio") and the senior unsecured long term debt rating of the Borrower from S&P and Moody's (for purposes of this definition, the "Rating"); (iv) in the event the Ratio and the Rating do not fall within the same Level, the Applicable Level shall be the higher (Level I being the highest) of the two Levels; and (v) in the event the rating from S&P and the rating from Moody's do not fall within the same Level, the applicable Rating will be based upon the higher (Level I being the highest) of the two ratings, except that, in the event one of the two ratings is two or more Levels higher than the other, the applicable Rating shall be determined by reference to the Level next lower than the higher of the two ratings. If any rating established or deemed to be established by Moody's or S&P shall be changed (other than as a result of a change in the rating system of Moody's or S&P), such change shall be effective as of the date on which such change is first announced by the rating agency making such change. Each such change shall take effect on the effective date of such change and shall end on the date immediately preceding the effective date of the next such change. If the rating system of S&P or Moody's shall change prior to the Maturity Date, the Borrower and the Lenders shall negotiate in good faith to amend the references to specific ratings in this definition to reflect such changed rating system, and pending agreement on another Applicable Level the Rating shall be determined by reference to the rating provided by the non-changing rating agency. If the Borrower does not have a senior long term unsecured debt rating or implied rating from either Moody's or S&P, the Applicable Level shall be determined by reference to the Ratio only. For purposes of this definition, "Applicable EBITDA" of the Borrower and its Subsidiaries means "A" minus "B"; where: "A" equals the sum of consolidated net income plus, to the extent deducted in determining consolidated pre-tax net income (i) extraordinary losses, (ii) interest expenses, (iii) amortization, (iv) depreciation, (v) income taxes, (vi) non-cash LIFO reserve charges; and "B" equals, to the extent included in determining consolidated pre-tax income, extraordinary gains; and "Applicable Interest Expense" means the consolidated interest expense of the Borrower and its Subsidiaries. "Applicable Margin" means, with respect to any facility fee or Eurodollar Loan, the applicable number of basis points per annum as set forth below based on the Applicable Level: Applicable Margin for Applicable Level Facility Fee Eurodollar Loans - ---------------- ------------ ---------------- I 7.5 12.5 3 CREDIT AGREEMENT II 8.5 14.0 III 9.0 16.0 IV 10.0 20.0 V 12.5 25.0 VI 17.5 32.5 "Applicable Percentage" means, at any time and with respect to any Lender, the percentage of the total Commitments represented by such Lender's Commitment (or after the termination thereof, the percentage of the total outstanding Loans represented by such Lender's outstanding Loans at such time). "Assignment and Acceptance" means an assignment and acceptance entered into by a Lender and an assignee (with the consent of any party whose consent is required by Section 9.4), and accepted by the Administrative Agent, in the form of Exhibit A. "Availability Period" means the period from and including the Effective Date to but excluding the earlier of the Maturity Date and the date of termination of the Commitments. "Board" means the Board of Governors of the Federal Reserve System of the United States of America. "Borrower" means Meyer-Smith Holdco, Inc., a Delaware corporation. "Borrowing" means (a) Revolving Loans of the same Type, made, converted or continued on the same date and, in the case of Eurodollar Loans, as to which a single Interest Period is in effect or (b) a Competitive Loan or group of Competitive Loans of the same Type made on the same date and as to which a single Interest Period is in effect. "Borrowing Request" means a request by the Borrower for a Revolving Borrowing in accordance with Section 2.3. "Bridge Facility" means the $500,000,000 Bridge Credit Agreement, of even date herewith, among Meyer-Smith Holdco, Inc. as Borrower, the Lenders identified therein, Bankers Trust Company as Administrative Agent and The Chase Manhattan Bank as Syndication Agent. "Business Day" means any day that is not a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to remain closed; provided that, when used in connection with a Eurodollar Loan, the term "Business Day" shall also exclude any day on which banks are not open for dealings in dollar deposits in the New York interbank market. 4 CREDIT AGREEMENT "Capital Lease Obligations" of any Person means the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP. "Change in Control" means (a) the acquisition of ownership, directly or indirectly, beneficially or of record, by any Person or group (within the meaning of the Securities Exchange Act of 1934 and the rules of the Securities and Exchange Commission thereunder as in effect on the date hereof), of shares representing more than 33 1/3% of the aggregate ordinary voting power represented by the issued and outstanding capital stock of the Borrower; or (b) occupation of a majority of the seats (other than vacant seats) on the board of directors of the Borrower by Persons who were neither (i) nominated by the board of directors of the Borrower nor (ii) appointed by directors so nominated. "Change in Law" means (a) the adoption of any law, rule or regulation after the date of this Agreement, (b) any change in any law, rule or regulation or in the interpretation or application thereof by any Governmental Authority after the date of this Agreement or (c) compliance by any Lender or the Issuing Bank (or, for purposes of Section 2.14(b), by any lending office of such Lender or by such Lender's or the Issuing Bank's holding company, if any) with any request, guideline or directive (whether or not having the force of law) of any Governmental Authority made or issued after the date of this Agreement. "Class", when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are Revolving Loans or Competitive Loans. "Closing Date" means September 9, 1997. "Code" means the Internal Revenue Code of 1986, as amended from time to time. "Commitment" means, with respect to each Lender, the commitment of such Lender to make Revolving Loans and to acquire participations in Letters of Credit hereunder, expressed as an amount representing the maximum aggregate amount of such Lender's Revolving Credit Exposure hereunder, as such commitment may be (a) reduced from time to time pursuant to Section 2.8 and (b) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to Section 9.4. The initial amount of each Lender's Commitment is set forth on Schedule 2.1, or in the Assignment and Acceptance pursuant to which such Lender shall have assumed its Commitment, as applicable. Each 5 CREDIT AGREEMENT Lender's Commitment shall not be affected by any Competitive Loans made by such Lender; provided that such Competitive Loans shall be included in any calculation of the aggregate amount of Loans outstanding hereunder for purposes of determining whether the aggregate of the Commitments has been or would be exceeded by outstanding Loans. The initial aggregate amount of the Lenders' Commitments is $1,030,000,000. "Competitive Bid" means an offer by a Lender to make a Competitive Loan in accordance with Section 2.4. "Competitive Bid Rate" means, with respect to any Competitive Bid, the Margin or the Fixed Rate, as applicable, offered by the Lender making such Competitive Bid. "Competitive Bid Request" means a request by the Borrower for Competitive Bids in accordance with Section 2.4. "Competitive Loan" means a Loan made pursuant to Section 2.4. "Compliance Certificate" means a certificate signed by a Responsible Officer of the Borrower certifying as to the matters set forth in Section 5.1(c). "Consenting Lender" has the meaning specified in Section 2.19(b). "Consolidated EBITDA" of the Borrower and its Subsidiaries means "A" minus "B"; where: "A" equals the sum of consolidated net income plus, to the extent deducted in determining consolidated pre-tax net income (i) extraordinary losses, (ii) interest expenses, including the interest component of rent expense under all Synthetic Lease Facilities for which the Borrower or any of its Subsidiaries has Suretyship Liability, (iii) amortization, (iv) depreciation, (v) income taxes, (vi) non-cash LIFO reserve charges; and "B" equals, to the extent included in determining consolidated pre-tax income, extraordinary gains. "Consolidated EBITDAR" of the Borrower and its Subsidiaries means "A" minus "B"; where: "A" equals the sum of consolidated net income plus, to the extent deducted in determining consolidated pre-tax net income (i) extraordinary losses, (ii) interest expense, (iii) amortization, (iv) depreciation, (v) income taxes, (vi) 6 CREDIT AGREEMENT non-cash LIFO reserve charges and (vii) consolidated rental expense on operating leases (including rent paid pursuant to any Synthetic Lease Facility); and "B" equals, to the extent included in determining consolidated pre-tax income, extraordinary gains. "Consolidated Interest Expense" means the consolidated interest expense of the Borrower, including the interest component of rent expense under all Synthetic Lease Facilities for which the Borrower or any of its Subsidiaries has Suretyship Liability. "Consolidated Total Assets" means the total consolidated assets of the Borrower and its Subsidiaries as shown on the most recent consolidated balance sheet of the Borrower and its Subsidiaries referred to in Section 3.4 or delivered to the Administrative Agent and each Lender pursuant to Section 5.1. "Control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. "Controlling" and "Controlled" have meanings correlative thereto. "Current Synthetic Lease Facility" means the transactions contemplated by the Participation Agreement, dated the date hereof, among FMI, the Borrower, Wilmington Trust Company, as owner trustee, FMS Trust 1997-1, as lessor, the investors named therein, the Administrative Agent, the Syndication Agent, and the lenders named therein. "Debt" of any Person means, without duplication, (a) all obligations of such Person for borrowed money, whether or not evidenced by bonds, debentures, notes or similar instruments, (b) all Capital Lease Obligations of such Person, (c) all obligations of such Person to pay the deferred purchase price of property or services (other than current accounts payable in the ordinary course of business), (d) all indebtedness secured by a Lien on the property of such Person, whether or not such indebtedness shall have been assumed by such Person (it being understood that if such Person has not assumed or otherwise become personally liable for any such indebtedness, the amount of the Debt of such Person in connection therewith shall be limited to the lesser of the face amount of such indebtedness or the fair market value of all property of such Person securing such indebtedness), (e) all obligations, contingent or otherwise, with respect to the face amount of all letters of credit (whether or not drawn) and banker's acceptances issued for the account of such Person, (f) all obligations of such Person in respect of Hedging Agreements, (g) all Suretyship Liabilities of such Person, (h) all other obligations of such Person upon which interest charges are customarily paid (other than current accounts payable in the ordinary course of business), (i) all obligations of such Person under conditional sale or other title retention agreements 7 CREDIT AGREEMENT relating to property acquired by such Person and (j) all Debt (as defined above) of any partnership in which such Person is a general partner. The amount of the Debt of any Person in respect of Hedging Agreements shall be deemed to be the unrealized net loss position of such Person thereunder (determined for each counterparty individually, but netted for all Hedging Agreements maintained with such counterparty). "Debt for Borrowed Money" of any Person means all Debt of such Person described in (without duplication) clauses (a), (b), (c), (d), (h) and, to the extent constituting a Suretyship Liability in respect of Debt for Borrowed Money of another Person, (g), of the definition of Debt. A Suretyship Liability arising under a Synthetic Lease Facility shall be deemed to be a Debt for Borrowed Money. "Default" means any event or condition which constitutes an Event of Default or which upon notice, lapse of time or both would, unless cured or waived, become an Event of Default. "Defaulting Lenders" has the meaning set forth in Section 2.6(b). "Disclosed Matters" means the actions, suits and proceedings and the environmental matters disclosed in Schedule 3.6. "dollars" or "$" refers to lawful money of the United States of America. "Effective Date" means the date on which the conditions specified in Section 4.1 are satisfied (or waived in accordance with Section 9.2). "Environmental Laws" means all laws, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions, notices or binding agreements issued, promulgated or entered into by any Governmental Authority, relating in any way to the environment, preservation or reclamation of natural resources, the management, release or threatened release of any Hazardous Material or to health and safety matters. "Environmental Liability" means any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of the Borrower or any Subsidiary directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials into the environment or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing. 8 CREDIT AGREEMENT "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. "ERISA Affiliate" means any trade or business (whether or not incorporated) that, together with the Borrower, is treated as a single employer under Section 414(b) or (c) of the Code or, solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the Code. "ERISA Event" means (a) any "reportable event", as defined in Section 4043 of ERISA or the regulations issued thereunder with respect to a Plan (other than an event for which the 30-day notice period is waived); (b) the existence with respect to any Plan of an "accumulated funding deficiency" (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived; (c) the filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan; (d) the incurrence by the Borrower or any of its ERISA Affiliates of any liability under Title IV of ERISA with respect to the termination of any Plan; (e) the receipt by the Borrower or any ERISA Affiliate from the PBGC or a plan administrator of any notice relating to an intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan; (f) the incurrence by the Borrower or any of its ERISA Affiliates of any liability with respect to the withdrawal or partial withdrawal from any Plan or Multiemployer Plan; or (g) the receipt by the Borrower or any ERISA Affiliate of any notice, or the receipt by any Multiemployer Plan from the Borrower or any ERISA Affiliate of any notice, concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA. "Eurodollar", when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Adjusted LIBO Rate (or, in the case of a Competitive Loan, the LIBO Rate). "Event of Default" has the meaning assigned to such term in Article VII. "Excluded Taxes" means, with respect to the Administrative Agent, any Lender, the Issuing Bank or any other recipient of any payment to be made by or on account of any obligation of the Borrower hereunder, (a) income or franchise taxes imposed on (or measured by) its net income by the United States of America, or by the jurisdiction under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its applicable lending office is located, (b) any branch profits taxes imposed by the United States of America or any similar tax imposed by any other jurisdiction in which the Borrower is located and (c) in the case of a Foreign Lender (other than an assignee pursuant to a request by the Borrower under Section 2.18(b)), any 9 CREDIT AGREEMENT withholding tax that is imposed on amounts payable to such Foreign Lender at the time such Foreign Lender becomes a party to this Agreement (or designates a new lending office) or is attributable to such Foreign Lender's failure to comply with Section 2.16(e), except to the extent that such Foreign Lender (or its assignor, if any) was entitled, at the time of designation of a new lending office (or assignment), to receive additional amounts from the Borrower with respect to such withholding tax pursuant to Section 2.16(a). "Extension Date" has the meaning specified in Section 2.19(b). "Financial Officer" means the chief financial officer, principal accounting officer, treasurer or controller of the Borrower. "Fixed Rate" means, with respect to any Competitive Loan (other than a Eurodollar Competitive Loan), the fixed rate of interest per annum specified by the Lender making such Competitive Loan in its related Competitive Bid. "Fixed Rate Loan" means a Competitive Loan bearing interest at a Fixed Rate. "FMI" means Fred Meyer, Inc. and its successors and assigns. "Foreign Lender" has the meaning provided in Section 2.16(e). "GAAP" means generally accepted accounting principles in the United States of America. "Governmental Authority" means the government of the United States of America, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government. "Hazardous Materials" means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law. "Hedging Agreement" means any interest rate protection agreement, foreign currency exchange agreement, commodity price protection agreement or other interest or currency exchange rate or commodity price hedging arrangement. "Indemnified Taxes" means Taxes other than Excluded Taxes. 10 CREDIT AGREEMENT "Interest Election Request" means a request by the Borrower to convert or continue a Revolving Borrowing in accordance with Section 2.7. "Interest Payment Date" means (a) with respect to any ABR Loan, the last day of each March, June, September and December, (b) with respect to any Eurodollar Loan, the last day of the Interest Period applicable to the Borrowing of which such Loan is a part and, in the case of a Eurodollar Borrowing with an Interest Period of more than three months' duration, each day prior to the last day of such Interest Period that occurs at intervals of three months' duration after the first day of such Interest Period and (c) with respect to any Fixed Rate Loan, the last day of the Interest Period applicable to the Borrowing of which such Loan is a part and, in the case of a Fixed Rate Borrowing with an Interest Period of more than 90 days' duration (unless otherwise specified in the applicable Competitive Bid Request), each day prior to the last day of such Interest Period that occurs at intervals of 90 days' duration after the first day of such Interest Period, and any other dates that are specified in the applicable Competitive Bid Request as Interest Payment Dates with respect to such Borrowing. "Interest Period" means (a) with respect to any Eurodollar Borrowing, the period commencing on the date of such Borrowing and ending on the numerically corresponding day in the calendar month that is one, two, three or six months thereafter, as the Borrower may elect, and (b) with respect to any Fixed Rate Borrowing, the period (which shall not be less than seven days or more than 180 days) commencing on the date of such Borrowing and ending on the date specified in the applicable Competitive Bid Request; provided, that (i) if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless, in the case of a Eurodollar Borrowing only, such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day and (ii) any Interest Period pertaining to a Eurodollar Borrowing that commences on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the last calendar month of such Interest Period) shall end on the last Business Day of the last calendar month of such Interest Period. For purposes hereof, the date of a Borrowing initially shall be the date on which such Borrowing is made and, in the case of a Revolving Borrowing, thereafter shall be the effective date of the most recent conversion or continuation of such Borrowing. "Issuing Bank" means Bankers Trust Company, in its capacity as the issuer of Letters of Credit hereunder, and its successors in such capacity as provided in Section 2.5(i). The Issuing Bank may, in its discretion, arrange for one or more Letters of Credit to be issued by Affiliates of the Issuing Bank, in which case the term "Issuing Bank" shall include any such Affiliate with respect to Letters of Credit issued by such Affiliate. "LC Deposit" has the meaning set forth in Section 2.5(j). 11 CREDIT AGREEMENT "LC Disbursement" means a payment made by the Issuing Bank pursuant to a Letter of Credit. "LC Exposure" means, at any time, the sum of (a) the aggregate undrawn amount of all outstanding Letters of Credit at such time plus (b) the aggregate amount of all LC Disbursements that have not yet been reimbursed by or on behalf of the Borrower at such time. The LC Exposure of any Lender at any time shall be its Applicable Percentage of the total LC Exposure at such time. "Lenders" means the Persons listed on Schedule 2.1 and any other Person that shall have become a party hereto pursuant to an Assignment and Acceptance, other than any such Person that ceases to be a party hereto pursuant to an Assignment and Acceptance. "Letter of Credit" means any letter of credit issued pursuant to this Agreement. "LIBO Rate" means, with respect to any Eurodollar Borrowing for any Interest Period, the offered quotation to first-class banks in the New York interbank eurodollar market by the Administrative Agent for dollar deposits of amounts in immediately available funds comparable to the outstanding principal amount of the applicable Eurodollar Loan, with maturities comparable to the Interest Period applicable to such Eurodollar Loan commencing two Business Days prior to the commencement of such Interest Period. "Lien" means, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, hypothecation, encumbrance, charge or security interest in, on or of such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement (or any financing lease having substantially the same economic effect as any of the foregoing) relating to such asset and (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities. "Loans" means the loans made by the Lenders to the Borrower pursuant to this Agreement. "Margin" means, with respect to any Competitive Loan bearing interest at a rate based on the LIBO Rate, the marginal rate of interest, if any, to be added to or subtracted from the LIBO Rate to determine the rate of interest applicable to such Loan, as specified by the Lender making such Loan in its related Competitive Bid. "Margin Stock" shall have the meaning provided such term in Regulation U and Regulation G of the Federal Reserve Board. 12 CREDIT AGREEMENT "Material Adverse Effect" means a material adverse effect on (a) the business, assets, operations, prospects or condition, financial or otherwise, of the Borrower and its Subsidiaries taken as a whole, (b) the ability of the Borrower to perform any of its obligations under this Agreement or (c) the rights of or benefits available to the Lenders under this Agreement. "Material Debt" means Debt (other than the Loans and Letters of Credit) of any one or more of the Borrower and its Subsidiaries in an aggregate principal amount equal to or exceeding $5,000,000. "Material Subsidiary" means a Subsidiary which either (a) has assets which constitute 5% or more of the consolidated assets of the Borrower and its Subsidiaries or (b) has revenues as of the end of the Borrower's most recently-ended fiscal year which constitute more than 5% of the consolidated revenues of the Borrower and its Subsidiaries during the Borrower's most recently ended fiscal year. "Maturity Date" means September 9, 2002 or a later date determined in accordance with Section 2.19. "Merger" means the merger of FMI and Smith's as contemplated by the Merger Document. "Merger Document" means that certain Agreement and Plan of Reorganization and Merger, dated as of May 11, 1997, by and between FMI and Smith's. "Moody's" means Moody's Investors Service, Inc. "Multiemployer Plan" means a multiemployer plan as defined in Section 4001(a)(3) of ERISA. "Non-Consenting Lender" has the meaning specified in Section 2.19(b). "Non-Defaulting Lender" has the meaning specified in Section 2.6(b). "Other Corporate Loan Documents" means the following documents, as such documents are amended, supplemented or otherwise modified from time to time: (i) all of the documents contemplated to be executed in connection with the Current Synthetic Lease Facility; (ii) the $500,000,000 364-day Credit Agreement, of even date herewith, among Meyer-Smith Holdco, Inc. as Borrower, the Lenders identified therein, Bankers Trust Company as Administrative Agent and The Chase Manhattan Bank as Syndication Agent; and (iii) the Bridge Facility. 13 CREDIT AGREEMENT "Other Taxes" means any and all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement. "PBGC" means the Pension Benefit Guaranty Corporation referred to and defined in ERISA and any successor entity performing similar functions. "Permitted Encumbrances" means: (a) Liens imposed by law for taxes that are not yet due or are being contested in compliance with Section 5.4; (b) carriers', warehousemen's, mechanics', materialmen's, repairmen's and other like Liens imposed by law, arising in the ordinary course of business and securing obligations that are not overdue by more than 30 days or are being contested in compliance with Section 5.4; (c) pledges and deposits made in the ordinary course of business in compliance with workers' compensation, unemployment insurance and other social security laws or regulations; (d) deposits to secure the performance of bids, trade contracts, leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature, in each case in the ordinary course of business; and (e) easements, zoning restrictions, rights-of-way and similar encumbrances on real property imposed by law or arising in the ordinary course of business that do not secure any monetary obligations and do not materially detract from the value of the affected property or interfere with the ordinary conduct of business of the Borrower or any Subsidiary; provided that the term "Permitted Encumbrances" shall not include any Lien securing Debt for Borrowed Money. "Permitted Investments" means: (a) direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States of America (or by any agency thereof to the extent such obligations are backed by the full faith and credit of the United States of America), in each case maturing within one year from the date of acquisition thereof; 14 CREDIT AGREEMENT (b) investments in commercial paper maturing within 270 days from the date of acquisition thereof and having, at such date of acquisition, the two highest credit ratings obtainable from S&P or from Moody's; (c) investments in certificates of deposit, banker's acceptances and time deposits maturing within 180 days from the date of acquisition thereof issued or guaranteed by or placed with, and money market deposit accounts issued or offered by, any domestic office of any commercial bank organized under the laws of the United States of America or any State thereof which has a combined capital and surplus and undivided profits of not less than $500,000,000; and (d) fully collateralized repurchase agreements with a term of not more than 30 days for securities described in clause (a) above and entered into with a financial institution satisfying the criteria described in clause (c) above. "Person" means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity. "Plan" means any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA, and in respect of which the Borrower or any ERISA Affiliate is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA. "Register" has the meaning set forth in Section 9.4. "Related Parties" means, with respect to any specified Person, such Person's Affiliates and the respective directors, officers, employees, agents and advisors of such Person and such Person's Affiliates. "Required Lenders" means, at any time, Non-Defaulting Lenders the sum of whose Commitments (or after the termination thereof, outstanding Revolving Loans and LC Exposures at such time) represents an amount greater than 50% of the sum of (i) the aggregate Commitments of all Lenders less (ii) the aggregate Commitments of all Defaulting Lenders (or after the termination thereof, the sum of the then total outstanding Revolving Loans and LC Exposures of Defaulting Lenders at such time). "Responsible Officer" means the Chairman or Vice Chairman of the Board of Directors, the Chairman or Vice Chairman of the Executive Committee of the Board of Directors, the President, any Senior Vice President or Executive Vice President, the Chief Financial Officer, the Chief Operating Officers, the Chief Accounting Officer, the Vice 15 CREDIT AGREEMENT President/Treasurer or any Assistant Treasurer responsible for compliance with this Agreement. "Restricted Payment" means any dividend or other distribution (whether in cash, securities or other property) with respect to any shares of any class of capital stock of the Borrower or any Subsidiary, or any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any such shares of capital stock of the Borrower or any option, warrant or other right to acquire any such shares of capital stock of the Borrower. "Revolving Credit Exposure" means, with respect to any Lender at any time, the sum of the outstanding principal amount of such Lender's Revolving Loans and its LC Exposure at such time. "Revolving Loan" means a Loan made pursuant to Section 2.3. "Sale and Leaseback Transaction" has the meaning given in Section 6.12 hereof. "Smith's" means Smith's Food and Drug Centers Inc. and its successors and assigns. "Solvent" as to any Person means (i) the sum of the assets of such Person, both at a fair valuation and at present fair salable value, will exceed its liabilities, including contingent liabilities, (ii) such Person will have sufficient capital with which to conduct its business as presently conducted and (iii) such Person has not incurred debts, and does not intend to incur debts, beyond its ability to pay such debts as they mature. For purposes of this definition, "debt" means any liability on a claim, and "claim" means (x) a right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured, or (y) a right to an equitable remedy for breach of performance if such breach gives rise to a payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured, or unsecured. With respect to any contingent liabilities, such liabilities shall be computed at the amount which, in light of all the facts and circumstances existing at the time, represents the amount which can reasonably be expected to become an actual or matured liability. "S&P" means Standard & Poor's Corporation. "Statutory Reserve Rate" means a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one 16 CREDIT AGREEMENT minus the aggregate of the maximum reserve percentages (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by the Board to which the Administrative Agent is subject for eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of the Board). Such reserve percentages shall include those imposed pursuant to such Regulation D. Eurodollar Loans shall be deemed to constitute eurocurrency funding and to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under such Regulation D or any comparable regulation. The Statutory Reserve Rate shall be adjusted automatically on and as of the effective date of any change in any reserve percentage. "subsidiary" means, with respect to any Person (the "parent") at any date, any corporation, limited liability company, partnership, association or other entity the accounts of which are required to be consolidated with those of the parent in the parent's consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date, as well as, with respect to any Person, any Person of which such Person and/or its subsidiaries own, directly or indirectly, such number of outstanding shares (or similar equity interest) as have more than 50% of the ordinary voting power for the election of directors. "Subsidiary" means any subsidiary of the Borrower. "Subsidiary Guaranty" shall have the meaning set forth in Section 4.1(h). "Supermajority Lenders" means, at any time, Non-Defaulting Lenders the sum of whose Commitments (or after the termination thereof, outstanding Revolving Loans and LC Exposures at such time) represents an amount greater than 66 2/3% of the sum of (i) the aggregate Commitments of all Lenders less (ii) the aggregate Commitments of all Defaulting Lenders (or after the termination thereof, the sum of the then total outstanding Revolving Loans and LC Exposures of Defaulting Lenders at such time). "Surety Instruments" means all letters of credit (including standby and commercial), banker's acceptances, guaranties, shipside bonds, surety bonds and similar instruments under which Suretyship Liabilities arise. "Suretyship Liability" means any agreement, undertaking or other contractual arrangement by which any Person guarantees, endorses or otherwise becomes or is contingently liable upon (by direct or indirect agreement, contingent or otherwise, to provide funds for payment, to supply funds to or otherwise to invest in a debtor, or otherwise to assure a creditor against loss) any indebtedness, obligation or other liability (including accounts payable) of any other Person (other than by endorsements of instruments in the course of collection), or guarantees the payment of dividends or other distributions upon the shares of any other Person. Suretyship Liability shall include any liability or contingent 17 CREDIT AGREEMENT liability of a Person under or in connection with a Synthetic Lease Facility. The amount of any Person's obligation under any Suretyship Liability shall (subject to any limitation set forth therein) be deemed to be the principal amount of the indebtedness, obligation or other liability guaranteed thereby. As of any date, the amount of any Person's obligations under any Synthetic Lease Facility shall be equal to the amount which such Person would be obligated to pay if such Synthetic Lease Facility was accelerated on such date (disregarding accrued scheduled lease payments which would be characterized as interest if such Synthetic Lease Facility were treated as a capital lease under GAAP). "Syndication Agent" means The Chase Manhattan Bank. "Synthetic Lease Facility" means any synthetic lease, tax ownership operating lease, tax retention operating lease, off balance sheet lease or similar lease transaction where the lessee is treated as owner of the leased property for U.S. federal income tax purposes while the lease is accounted for on the financial statements of the lessee, prepared in accordance with GAAP, as an operating lease, including the Current Synthetic Lease Facility. "Taxes" means any and all present or future taxes, levies, imposts, duties, deductions, charges or withholdings imposed by any Governmental Authority. "Transactions" means the execution, delivery and performance by the Borrower of this Agreement, the borrowing of Loans, the use of the proceeds thereof and the issuance of Letters of Credit hereunder. "Type", when used in reference to any Loan or Borrowing, refers to whether the rate of interest on such Loan, or on the Loans comprising such Borrowing, is determined by reference to the Adjusted LIBO Rate, the ABR or, in the case of a Competitive Loan or Borrowing, the LIBO Rate or a Fixed Rate. "Withdrawal Liability" means liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA. Section 1.2 Classification of Loans and Borrowings. For purposes of this Agreement, Loans may be classified and referred to by Class (e.g., a "Revolving Loan") or by Type (e.g., a "Eurodollar Loan") or by Class and Type (e.g., a "Eurodollar Revolving Loan"). Borrowings also may be classified and referred to by Class (e.g., a "Revolving Borrowing") or by Type (e.g., a "Eurodollar Borrowing") or by Class and Type (e.g., a "Eurodollar Revolving Borrowing"). 18 CREDIT AGREEMENT Section 1.3 Terms Generally. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation". The word "will" shall be construed to have the same meaning and effect as the word "shall". Unless the context requires otherwise (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (b) any reference herein to any Person shall be construed to include such Person's successors and assigns, (c) the words "herein", "hereof" and "hereunder", and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (d) all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement and (e) the words "asset" and "property" shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights. Section 1.4 Accounting Terms; GAAP. Except as otherwise expressly provided herein, all terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time; provided that for purposes of determining compliance with any covenant set forth in Article VI, such terms shall be construed in accordance with GAAP as in effect on the date of this Agreement applied on a basis consistent with the application used in preparing the Borrower's audited financial statements referred to in Section 5.1. If any change in accounting principles from those used in the preparation of the audited financial statements referred to in Section 5.1 hereafter occasioned by the promulgation of any rule, regulation, pronouncement or opinion by or required by the Financial Accounting Standards Board of the American Institute of Certified Public Accountants (or successors thereto or agencies with similar functions) would result in a change in the method of calculation of financial covenants, standards or terms found in Article 1 or Article VI, the parties hereto agree to enter into negotiations in order to amend such provisions so as to equitably reflect such changes with the desired result that the criteria for evaluating the Borrower's financial condition shall be the same after such change as if such change had not been made. Section 1.5 Change of Names. It is understood and agreed that following the consummation of the Merger, Meyer-Smith Holdco, Inc. will change its corporate name to "Fred Meyer, Inc." and FMI will change its corporate name to "Fred Meyer Stores, Inc." From and after the time at which such changes take effect all references to "Meyer-Smith Holdco, Inc." or the "Borrower" contained herein shall be construed to refer to "Fred 19 CREDIT AGREEMENT Meyer, Inc.," and all references to "FMI" shall be construed to refer to "Fred Meyer Stores, Inc." ARTICLE II The Credits Section 2.1 Commitments. Subject to the terms and conditions set forth herein, each Lender agrees to make Revolving Loans to the Borrower from time to time during the Availability Period in an aggregate principal amount that will not result in (a) such Lender's Revolving Credit Exposure exceeding such Lender's Commitment or (b) the sum of the total Revolving Credit Exposures plus the aggregate principal amount of outstanding Competitive Loans exceeding the total Commitments. Within the foregoing limits and subject to the terms and conditions set forth herein, the Borrower may borrow, prepay and reborrow Revolving Loans. Section 2.2 Loans and Borrowings. (a) Each Revolving Loan shall be made as part of a Borrowing consisting of Revolving Loans made by the Lenders ratably in accordance with their respective Commitments. Each Competitive Loan shall be made in accordance with the procedures set forth in Section 2.4. The failure of any Lender to make any Loan required to be made by it shall not relieve any other Lender of its obligations hereunder; provided that the Commitments and Competitive Bids of the Lenders are several and no Lender shall be responsible for any other Lender's failure to make Loans as required. (b) Subject to Section 2.13, (i) each Revolving Borrowing shall be comprised entirely of ABR Loans or Eurodollar Loans as the Borrower may request in accordance herewith, and (ii) each Competitive Borrowing shall be comprised entirely of Eurodollar Loans or Fixed Rate Loans as the Borrower may request in accordance herewith. Each Lender at its option may make any Eurodollar Loan by causing any domestic or foreign branch or Affiliate of such Lender to make such Loan; provided that any exercise of such option shall not affect the obligation of the Borrower to repay such Loan in accordance with the terms of this Agreement. (c) At the commencement of each Interest Period for any Eurodollar Revolving Borrowing, such Borrowing shall be in an aggregate amount that is an integral multiple of $1,000,000 and not less than $10,000,000. At the time that each ABR Revolving Borrowing is made, such Borrowing shall be in an aggregate amount that is an integral multiple of $1,000,000 and not less than $10,000,000; provided that an ABR Revolving Borrowing may be in an aggregate amount that is equal to the entire unused balance of the total Commitments or that is required to finance the reimbursement of an LC Disbursement as contemplated by Section 2.5(e). Each Competitive Borrowing shall be in an aggregate 20 CREDIT AGREEMENT amount that is an integral multiple of $1,000,000 and not less than $5,000,000. Borrowings of more than one Type and Class may be outstanding at the same time; provided that there shall not at any time be more than a total of 8 Eurodollar Revolving Borrowings outstanding. (d) Notwithstanding any other provision of this Agreement, the Borrower shall not be entitled to request, or to elect to convert or continue, any Borrowing if the Interest Period requested with respect thereto would end after the Maturity Date. Section 2.3 Requests for Revolving Borrowings. To request a Revolving Borrowing, the Borrower shall notify the Administrative Agent of such request by telephone (a) in the case of a Eurodollar Borrowing, not later than 12:00 p.m. (noon), New York City time, three Business Days before the date of the proposed Borrowing or (b) in the case of an ABR Borrowing, not later than 12:00 p.m. (noon), New York City time, on the day of the proposed Borrowing; provided that any such notice of an ABR Revolving Borrowing to finance the reimbursement of an LC Disbursement as contemplated by Section 2.5(e) may be given not later than 10:00 a.m., New York City time, on the date of the proposed Borrowing. Each such telephonic Borrowing Request shall be irrevocable and shall be confirmed promptly by hand delivery or telecopy to the Administrative Agent of a written Borrowing Request in a form approved by the Administrative Agent and signed by the Borrower. Each such telephonic and written Borrowing Request shall specify the following information in compliance with Section 2.2: (i) the aggregate amount of the requested Borrowing; (ii) the date of such Borrowing, which shall be a Business Day; (iii) whether such Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing; (iv) in the case of a Eurodollar Borrowing, the initial Interest Period to be applicable thereto, which shall be a period contemplated by the definition of the term "Interest Period"; and (v) the location and number of the Borrower's account to which funds are to be disbursed, which shall comply with the requirements of Section 2.6. If no election as to the Type of Revolving Borrowing is specified, then the requested Revolving Borrowing shall be an ABR Borrowing. If no Interest Period is specified with respect to any requested Eurodollar Revolving Borrowing, then the Borrower shall be deemed to have selected an Interest Period of one month's duration. Promptly following 21 CREDIT AGREEMENT receipt of a Borrowing Request in accordance with this Section, the Administrative Agent shall advise each Lender of the details thereof and of the amount of such Lender's Loan to be made as part of the requested Borrowing. Section 2.4 Competitive Bid Procedure. (a) Subject to the terms and conditions set forth herein, from time to time during the Availability Period the Borrower may request Competitive Bids and may (but shall not have any obligation to) accept Competitive Bids and borrow Competitive Loans; provided that the sum of the total Revolving Credit Exposures plus the aggregate principal amount of outstanding Competitive Loans at any time shall not exceed the total Commitments. To request Competitive Bids, the Borrower shall notify the Administrative Agent of such request by telephone, in the case of a Eurodollar Borrowing, not later than 11:00 a.m., New York City time, four Business Days before the date of the proposed Borrowing and, in the case of a Fixed Rate Borrowing, not later than 10:00 a.m., New York City time, one Business Day before the date of the proposed Borrowing; provided that the Borrower may submit up to (but not more than) 5 Competitive Bid Requests on the same day, but a Competitive Bid Request shall not be made within five Business Days after the date of any previous Competitive Bid Request, unless any and all such previous Competitive Bid Requests shall have been withdrawn or all Competitive Bids received in response thereto rejected. Each such telephonic Competitive Bid Request shall be confirmed promptly by hand delivery or telecopy to the Administrative Agent of a written Competitive Bid Request in a form approved by the Administrative Agent and signed by the Borrower. Each such telephonic and written Competitive Bid Request shall specify the following information in compliance with Section 2.2: (i) the aggregate amount of the requested Borrowing; (ii) the date of such Borrowing, which shall be a Business Day; (iii) whether such Borrowing is to be a Eurodollar Borrowing or a Fixed Rate Borrowing; (iv) the Interest Period to be applicable to such Borrowing, which shall be a period contemplated by the definition of the term "Interest Period"; and (v) the location and number of the Borrower's account to which funds are to be disbursed, which shall comply with the requirements of Section 2.6. 22 CREDIT AGREEMENT Promptly following receipt of a Competitive Bid Request in accordance with this Section, the Administrative Agent shall notify the Lenders of the details thereof by telecopy, inviting the Lenders to submit Competitive Bids. (b) Each Lender may (but shall not have any obligation to) make one or more Competitive Bids to the Borrower in response to a Competitive Bid Request. Each Competitive Bid by a Lender must be in a form approved by the Administrative Agent and must be received by the Administrative Agent by telecopy, in the case of a Eurodollar Competitive Borrowing, not later than 9:30 a.m., New York City time, three Business Days before the proposed date of such Competitive Borrowing, and in the case of a Fixed Rate Borrowing, not later than 9:30 a.m., New York City time, on the proposed date of such Competitive Borrowing. Competitive Bids that do not conform substantially to the form approved by the Administrative Agent may be rejected by the Administrative Agent, and the Administrative Agent shall notify the applicable Lender as promptly as practicable. Each Competitive Bid shall specify (i) the principal amount (which shall be a minimum of $5,000,000 and an integral multiple of $1,000,000 and which may equal the entire principal amount of the Competitive Borrowing requested by the Borrower) of the Competitive Loan or Loans that the Lender is willing to make, (ii) the Competitive Bid Rate or Rates at which the Lender is prepared to make such Loan or Loans (expressed as a percentage rate per annum in the form of a decimal to no more than four decimal places) and (iii) the Interest Period applicable to each such Loan and the last day thereof. (c) The Administrative Agent shall promptly notify the Borrower by telecopy of the Competitive Bid Rate and the principal amount specified in each Competitive Bid and the identity of the Lender that shall have made such Competitive Bid. (d) Subject only to the provisions of this paragraph, the Borrower may accept or reject any Competitive Bid. The Borrower shall notify the Administrative Agent by telephone, confirmed by telecopy in a form approved by the Administrative Agent, whether and to what extent it has decided to accept or reject each Competitive Bid, in the case of a Eurodollar Competitive Borrowing, not later than 10:30 a.m., New York City time, three Business Days before the date of the proposed Competitive Borrowing, and in the case of a Fixed Rate Borrowing, not later than 10:30 a.m., New York City time, on the proposed date of the Competitive Borrowing; provided that (i) the failure of the Borrower to give such notice shall be deemed to be a rejection of each Competitive Bid, (ii) the Borrower shall not accept a Competitive Bid made at a particular Competitive Bid Rate if the Borrower rejects a Competitive Bid made at a lower Competitive Bid Rate, (iii) the aggregate amount of the Competitive Bids accepted by the Borrower shall not exceed the aggregate amount of the requested Competitive Borrowing specified in the related Competitive Bid Request, (iv) to the extent necessary to comply with clause (iii) above, the Borrower may accept Competitive Bids at the same Competitive Bid Rate in part, which acceptance, in the case of multiple Competitive Bids at such Competitive Bid Rate, shall be made pro rata in accordance with 23 CREDIT AGREEMENT the amount of each such Competitive Bid, and (v) except pursuant to clause (iv) above, no Competitive Bid shall be accepted for a Competitive Loan unless such Competitive Loan is in a minimum principal amount of $5,000,000 and an integral multiple of $1,000,000; provided further that if a Competitive Loan must be in an amount less than $5,000,000 because of the provisions of clause (iv) above, such Competitive Loan may be for a minimum of $1,000,000 or any integral multiple thereof, and in calculating the pro rata allocation of acceptances of portions of multiple Competitive Bids at a particular Competitive Bid Rate pursuant to clause (iv) the amounts shall be rounded to integral multiples of $1,000,000 in a manner determined by the Borrower. A notice given by the Borrower pursuant to this paragraph shall be irrevocable. (e) The Administrative Agent shall promptly notify each bidding Lender by telecopy whether or not its Competitive Bid has been accepted (and, if so, the amount and Competitive Bid Rate so accepted), and each successful bidder will thereupon become bound, subject to the terms and conditions hereof, to make the Competitive Loan in respect of which its Competitive Bid has been accepted. (f) If the Administrative Agent shall elect to submit a Competitive Bid in its capacity as a Lender, it shall submit such Competitive Bid directly to the Borrower at least one quarter of an hour earlier than the time by which the other Lenders are required to submit their Competitive Bids to the Administrative Agent pursuant to paragraph (b) of this Section. Section 2.5 Letters of Credit. (a) General. Subject to the terms and conditions set forth herein, the Borrower may request the issuance of Letters of Credit for its own account, in dollars and on a sight basis and in a form reasonably acceptable to the Administrative Agent and the Issuing Bank, at any time and from time to time during the Availability Period (but in no event later than 30 days prior to the Maturity Date). In the event of any inconsistency between the terms and conditions of this Agreement and the terms and conditions of any form of letter of credit application or other agreement submitted by the Borrower to, or entered into by the Borrower with, the Issuing Bank relating to any Letter of Credit, the terms and conditions of this Agreement shall control. (b) Notice of Issuance, Amendment, Extension; Certain Conditions. To request the issuance of a Letter of Credit (or the amendment or extension of an outstanding Letter of Credit), the Borrower shall hand deliver or telecopy (or transmit by electronic communication, if arrangements for doing so have been approved by the Issuing Bank) to the Issuing Bank and the Administrative Agent (reasonably in advance of the requested date of issuance, amendment or extension) a notice requesting the issuance of a Letter of Credit, or identifying the Letter of Credit to be amended or extended, the date of issuance, amendment or extension, the date on which such Letter of Credit is to expire (which shall comply with paragraph (c) of this Section), the amount of such Letter of Credit, 24 CREDIT AGREEMENT the name and address of the beneficiary thereof and such other information as shall be necessary to prepare, amend or extend such Letter of Credit. If requested by the Issuing Bank, the Borrower also shall submit a letter of credit application on the Issuing Bank's standard form in connection with any request for a Letter of Credit. A Letter of Credit shall be issued, amended or extended only if (and upon issuance, amendment or extension of each Letter of Credit the Borrower shall be deemed to represent and warrant that), after giving effect to such issuance, amendment or extension (i) the LC Exposure shall not exceed $25,000,000 and (ii) the sum of the total Revolving Credit Exposures plus the aggregate principal amount of outstanding Competitive Loans shall not exceed the total Commitments. (c) Expiration Date. Each standby Letter of Credit shall have an expiry date occurring not later than one year from the date of issuance, provided that any standby Letter of Credit may be extended for successive periods of up to one year, so long as no such period ends later than five Business Days prior to the Maturity Date, on terms acceptable to the Issuing Bank. Each trade Letter of Credit shall have an expiry date occurring not later than the earlier of (i) 180 days from the date of issuance and (ii) the date which is 30 days prior to the Maturity Date. (d) Participations. By the issuance of a Letter of Credit and without any further action on the part of the Issuing Bank or the Lenders, the Issuing Bank hereby grants to each Lender, and each Lender hereby acquires from the Issuing Bank, a participation in such Letter of Credit equal to such Lender's Applicable Percentage of the aggregate amount available to be drawn under such Letter of Credit. In consideration and in furtherance of the foregoing, each Lender hereby absolutely and unconditionally agrees to pay to the Administrative Agent, for the account of the Issuing Bank, such Lender's Applicable Percentage of each LC Disbursement made by the Issuing Bank and not reimbursed by the Borrower on the date due as provided in paragraph (e) of this Section, or of any reimbursement payment required to be refunded to the Borrower for any reason. Each Lender acknowledges and agrees that its obligation to acquire participations pursuant to this paragraph in respect of Letters of Credit is absolute and unconditional and shall not be affected by any circumstance whatsoever, including any amendment or extension of any Letter of Credit or the occurrence and continuance of a Default or reduction or termination of the Commitments, and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever. (e) Reimbursement. If the Issuing Bank shall make any LC Disbursement in respect of a Letter of Credit, the Borrower shall reimburse such LC Disbursement by paying to the Administrative Agent an amount equal to such LC Disbursement not later than 12:00 noon, New York City time, on the date that such LC Disbursement is made, if the Borrower shall have received notice of such LC Disbursement prior to 10:00 a.m., New York City time, on such date, or, if such notice has not been received by the Borrower prior to such time on such date, then not later than 12:00 noon, 25 CREDIT AGREEMENT New York City time, on the Business Day immediately following the day that the Borrower receives such notice, if such notice is not received prior to such time on the day of receipt; provided that the Borrower may, subject to the conditions to borrowing set forth herein, request in accordance with Section 2.3 that such payment be financed with an ABR Revolving Borrowing in an equivalent amount and, to the extent so financed, the Borrower's obligation to make such payment shall be discharged and replaced by the resulting ABR Revolving Borrowing. If the Borrower fails to make such payment when due, the Administrative Agent shall notify each Lender of the applicable LC Disbursement, the payment then due from the Borrower in respect thereof and such Lender's Applicable Percentage thereof. Promptly following receipt of such notice, each Lender shall pay to the Administrative Agent its Applicable Percentage of the payment then due from the Borrower, in the same manner as provided in Section 2.6 with respect to Loans made by such Lender (and Section 2.6 shall apply, mutatis mutandis, to the payment obligations of the Lenders), and the Administrative Agent shall promptly pay to the Issuing Bank the amounts so received by it from the Lenders. Promptly following receipt by the Administrative Agent of any payment from the Borrower pursuant to this paragraph, the Administrative Agent shall distribute such payment to the Issuing Bank or, to the extent that Lenders have made payments pursuant to this paragraph to reimburse the Issuing Bank, then to such Lenders and the Issuing Bank as their interests may appear. Any payment made by a Lender pursuant to this paragraph to reimburse the Issuing Bank for any LC Disbursement (other than the funding of ABR Revolving Loans as contemplated above) shall not constitute a Loan and shall not relieve the Borrower of its obligation to reimburse such LC Disbursement. (f) Obligations Absolute. The Borrower's obligation to reimburse LC Disbursements as provided in paragraph (e) of this Section shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement under any and all circumstances whatsoever and irrespective of (i) any lack of validity or enforceability of any Letter of Credit or this Agreement, or any term or provision therein, (ii) any draft or other document presented under a Letter of Credit proving to be forged, fraudulent or invalid in any respect or any statement therein being untrue or inaccurate in any respect, (iii) payment by the Issuing Bank under a Letter of Credit against presentation of a draft or other document that does not comply with the terms of such Letter of Credit, or (iv) any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of this Section, constitute a legal or equitable discharge of, or provide a right of setoff against, the Borrower's obligations hereunder. Neither the Administrative Agent, the Lenders nor the Issuing Bank, nor any of their Related Parties, shall have any liability or responsibility by reason of or in connection with the issuance or transfer of any Letter of Credit or any payment or failure to make any payment thereunder (irrespective of any of the circumstances referred to in the preceding sentence), or any error, omission, interruption, loss or delay in transmission or delivery of any draft, notice or other communication under or relating to any Letter of Credit (including any document required to make a drawing thereunder), any error in interpretation of 26 CREDIT AGREEMENT technical terms or any consequence arising from causes beyond the control of the Issuing Bank; provided that the foregoing shall not be construed to excuse the Issuing Bank from liability to the Borrower to the extent of any direct damages (as opposed to consequential damages, claims in respect of which are hereby waived by the Borrower to the extent permitted by applicable law) suffered by the Borrower that are caused by the Issuing Bank's failure to exercise care when determining whether drafts and other documents presented under a Letter of Credit comply with the terms thereof. The parties hereto expressly agree that, in the absence of gross negligence or wilful misconduct on the part of the Issuing Bank, (as finally determined by a court of competent jurisdiction) the Issuing Bank shall be deemed to have exercised care in each such determination. In furtherance of the foregoing and without limiting the generality thereof, the parties agree that, with respect to documents presented which appear on their face to be in substantial compliance with the terms of a Letter of Credit, the Issuing Bank may, in its sole discretion, either accept and make payment upon such documents without responsibility for further investigation, regardless of any notice or information to the contrary, or refuse to accept and make payment upon such documents if such documents are not in strict compliance with the terms of such Letter of Credit. (g) Disbursement Procedures. The Issuing Bank shall, promptly following its receipt thereof, examine all documents purporting to represent a demand for payment under a Letter of Credit. The Issuing Bank shall promptly notify the Administrative Agent and the Borrower by telephone (confirmed by telecopy) of such demand for payment and whether the Issuing Bank has made or will make an LC Disbursement thereunder; provided that any failure to give or delay in giving such notice shall not relieve the Borrower of its obligation to reimburse the Issuing Bank and the Lenders with respect to any such LC Disbursement. (h) Interim Interest. If the Issuing Bank shall make any LC Disbursement, then, unless the Borrower shall reimburse such LC Disbursement in full on the date such LC Disbursement is made, the unpaid amount thereof shall bear interest, for each day from and including the date such LC Disbursement is made to but excluding the date that the Borrower reimburses such LC Disbursement, at the rate per annum then applicable to ABR Revolving Loans; provided that, if the Borrower fails to reimburse such LC Disbursement when due pursuant to paragraph (e) of this Section, then Section 2.12(e) shall apply. Interest accrued pursuant to this paragraph shall be for the account of the Issuing Bank, except that interest accrued on and after the date of payment by any Lender pursuant to paragraph (e) of this Section to reimburse the Issuing Bank shall be for the account of such Lender to the extent of such payment. (i) Replacement of the Issuing Bank. The Issuing Bank may be replaced at any time by written agreement among the Borrower, the Administrative Agent, the replaced Issuing Bank and the successor Issuing Bank. The Administrative Agent shall 27 CREDIT AGREEMENT notify the Lenders of any such replacement of the Issuing Bank. At the time any such replacement shall become effective, the Borrower shall pay all unpaid fees accrued for the account of the replaced Issuing Bank pursuant to Section 2.11(b). From and after the effective date of any such replacement, (i) the successor Issuing Bank shall have all the rights and obligations of the Issuing Bank under this Agreement with respect to Letters of Credit to be issued thereafter and (ii) references herein to the term "Issuing Bank" shall be deemed to refer to such successor or to any previous Issuing Bank, or to such successor and all previous Issuing Banks, as the context shall require. After the replacement of an Issuing Bank hereunder, the replaced Issuing Bank shall remain a party hereto and shall continue to have all the rights and obligations of an Issuing Bank under this Agreement with respect to Letters of Credit issued by it prior to such replacement, but shall not be required to issue additional Letters of Credit. (j) Cash Collateralization. If any Event of Default shall occur and be continuing, on the Business Day that the Borrower receives notice from the Administrative Agent or the Required Lenders (or, if the maturity of the Loans has been accelerated, Lenders with LC Exposure representing greater than 50% of the total LC Exposure) demanding the deposit of cash collateral pursuant to this paragraph, the Borrower shall deposit in an account with the Administrative Agent, in the name of the Administrative Agent and for the benefit of the Lenders, an amount in cash equal to the LC Exposure as of such date plus any accrued and unpaid interest thereon (the "LC Deposit"); provided that the obligation to deposit such cash collateral shall become effective immediately, and such deposit shall become immediately due and payable, without demand or other notice of any kind, upon the occurrence of any Event of Default with respect to the Borrower described in clause (h) or (i) of Article VII. Such deposit shall be held by the Administrative Agent as collateral for the payment and performance of the obligations of the Borrower under this Agreement. The Administrative Agent shall have exclusive dominion and control, including the exclusive right of withdrawal, over such account. Other than any interest earned on the investment of such deposits, which investments shall be made at the option and sole discretion of the Administrative Agent and at the Borrower's risk and expense, such deposits shall not bear interest. Interest or profits, if any, on such investments shall accumulate in such account. Moneys in such account shall be applied by the Administrative Agent to reimburse the Issuing Bank for LC Disbursements for which it has not been reimbursed and, to the extent not so applied, shall be held for the satisfaction of the reimbursement obligations of the Borrower for the LC Exposure at such time or, if the maturity of the Loans has been accelerated (but subject to the consent of Lenders with LC Exposure representing greater than 50% of the total LC Exposure), be applied to satisfy other obligations of the Borrower under this Agreement. If the Borrower is required to provide an amount of cash collateral hereunder as a result of the occurrence of an Event of Default, such amount (to the extent not applied as aforesaid) shall be returned to the Borrower within three Business Days after all Events of Default have been cured or waived. 28 CREDIT AGREEMENT (k) Reporting of Outstanding LC Exposure. Each Issuing Bank (unless the Issuing Bank is also serving as Administrative Agent) shall provide written notice to the Administrative Agent: (i) promptly after the issuance of or amendment to any standby Letter of Credit, of such issuance or amendment, which notice shall be accompanied by a copy of such standby Letter of Credit or amendment thereof; (ii) if any trade Letters of Credit are outstanding, on the first Business Day of each week, by facsimile, a report of the aggregate daily amount available to be drawn under such trade Letters of Credit during the previous week; and (iii) on or before the fifth Business Day of each month, a report setting forth, for each type of Letter of Credit outstanding, the daily aggregate outstanding amounts for the previous month. Section 2.6 Funding of Borrowings. (a) Each Lender shall make each Loan to be made by it hereunder on the proposed date thereof by wire transfer of immediately available funds by 2:00 p.m., New York City time, to the account of the Administrative Agent most recently designated by it for such purpose by notice to the Lenders. The Administrative Agent will make such Loans available to the Borrower by promptly crediting the amounts so received, in like funds, to an account of the Borrower maintained with the Administrative Agent in New York City and designated by the Borrower in the applicable Borrowing Request or Competitive Bid Request; provided that ABR Revolving Loans made to finance the reimbursement of an LC Disbursement as provided in Section 2.5(e) shall be remitted by the Administrative Agent to the Issuing Bank. (b) The failure of any Lender (such Lender, a "Defaulting Lender") to make any Loan to be made by it on the date specified therefor shall not relieve any other Lender (each such other Lender, a "Non-Defaulting Lender") of its obligation to make its Loans on such date, but neither any Non-Defaulting Lender nor the Administrative Agent shall be responsible for the failure of any Defaulting Lender to make a Loan to be made by such Defaulting Lender, and no Defaulting Lender shall have any obligation to the Administrative Agent or any Non-Defaulting Lender (without prejudicing the rights of the Borrower against such Defaulting Lender). Notwithstanding anything set forth herein to the contrary, so long as a Lender remains a Defaulting Lender, such Lender shall not have any voting or consent rights under or with respect to this Agreement or constitute a "Lender" (or be included in the calculation of "Required Lenders" hereunder) for any voting or consent rights under or with respect to this Agreement. (c) Unless the Administrative Agent shall have received notice from a Lender prior to the proposed date of any Borrowing that such Lender will not make available to the Administrative Agent such Lender's share of such Borrowing, the Administrative Agent may assume that such Lender has made such share available on such date in accordance with paragraph (a) of this Section and may, in reliance upon such assumption, make available to the Borrower a corresponding amount. In such event, if a Lender is a Defaulting Lender, then such Defaulting Lender and the Borrower severally agree to pay to 29 CREDIT AGREEMENT the Administrative Agent forthwith on demand such corresponding amount with interest thereon, for each day from and including the date such amount is made available to the Borrower but excluding the date of payment to the Administrative Agent, at (i) in the case of such Defaulting Lender, the greater of the Federal Funds Effective Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation or (ii) in the case of the Borrower, the interest rate applicable to ABR Loans. If such Defaulting Lender pays such amount to the Administrative Agent, then such amount shall constitute such Lender's Loan included in such Borrowing and such Lender shall cease to be a Defaulting Lender. Section 2.7 Interest Elections. (a) Each Revolving Borrowing initially shall be of the Type specified in the applicable Borrowing Request and, in the case of a Eurodollar Revolving Borrowing, shall have an initial Interest Period as specified in such Borrowing Request. Thereafter, the Borrower may elect to convert such Borrowing to a different Type or to continue such Borrowing and, in the case of a Eurodollar Revolving Borrowing, may elect Interest Periods therefor, all as provided in this Section. The Borrower may elect different options with respect to different portions of the affected Borrowing, in which case each such portion shall be allocated ratably among the Lenders holding the Loans comprising such Borrowing, and the Loans comprising each such portion shall be considered a separate Borrowing. This Section shall not apply to Competitive Borrowings, which may not be converted or continued. (b) To make an election pursuant to this Section, the Borrower shall notify the Administrative Agent of such election by telephone by the time that a Borrowing Request would be required under Section 2.3 if the Borrower were requesting a Revolving Borrowing of the Type resulting from such election to be made on the effective date of such election. Each such telephonic Interest Election Request shall be irrevocable and shall be confirmed promptly by hand delivery or telecopy to the Administrative Agent of a written Interest Election Request in a form approved by the Administrative Agent and signed by the Borrower. (c) Each telephonic and written Interest Election Request shall specify the following information in compliance with Section 2.2: (i) the Borrowing to which such Interest Election Request applies and, if different options are being elected with respect to different portions thereof, the portions thereof to be allocated to each resulting Borrowing (in which case the information to be specified pursuant to clauses (iii) and (iv) below shall be specified for each resulting Borrowing); (ii) the effective date of the election made pursuant to such Interest Election Request, which shall be a Business Day; 30 CREDIT AGREEMENT (iii) whether the resulting Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing; and (iv) if the resulting Borrowing is a Eurodollar Borrowing, the Interest Period to be applicable thereto after giving effect to such election, which shall be a period contemplated by the definition of the term "Interest Period". If any such Interest Election Request requests a Eurodollar Borrowing but does not specify an Interest Period, then the Borrower shall be deemed to have selected an Interest Period of one month's duration. (d) Promptly following receipt of an Interest Election Request, the Administrative Agent shall advise each Lender of the details thereof and of such Lender's portion of each resulting Borrowing. (e) If the Borrower fails to deliver a timely Interest Election Request with respect to a Eurodollar Revolving Borrowing prior to the end of the Interest Period applicable thereto, then, unless such Borrowing is repaid as provided herein, at the end of such Interest Period such Borrowing shall be converted to an ABR Borrowing. Notwithstanding any contrary provision hereof, if an Event of Default has occurred and is continuing and the Administrative Agent, at the request of the Required Lenders, so notifies the Borrower, then, so long as an Event of Default is continuing (i) no outstanding Revolving Borrowing may be converted to or continued as a Eurodollar Borrowing and (ii) unless repaid, each Eurodollar Revolving Borrowing shall be converted to an ABR Borrowing at the end of the Interest Period applicable thereto. Section 2.8 Termination and Reduction of Commitments. (a) Unless previously terminated, the Commitments shall terminate on the Maturity Date. (b) The Borrower may at any time terminate, or from time to time reduce, the Commitments; provided that (i) each reduction of the Commitments shall be in an amount that is an integral multiple of $1,000,000 and not less than $10,000,000 and (ii) the Borrower shall not terminate or reduce the Commitments if, after giving effect to any concurrent prepayment of the Loans in accordance with Section 2.10, the sum of the Revolving Credit Exposures plus the aggregate principal amount of outstanding Competitive Loans would exceed the total Commitments. (c) The Borrower shall notify the Administrative Agent of any election to terminate or reduce the Commitments under paragraph (b) of this Section at least three Business Days prior to the effective date of such termination or reduction, specifying such election and the effective date thereof. Promptly following receipt of any notice, the 31 CREDIT AGREEMENT Administrative Agent shall advise the Lenders of the contents thereof. Each notice delivered by the Borrower pursuant to this Section shall be irrevocable; provided that a notice of termination of the Commitments delivered by the Borrower may state that such notice is conditioned upon the effectiveness of other credit facilities, in which case such notice may be revoked by the Borrower (by notice to the Administrative Agent on or prior to the specified effective date). Any termination or reduction of the Commitments shall be permanent. Except as provided in Section 2.19 hereof, each reduction of the Commitments shall be made ratably among the Lenders in accordance with their respective Commitments. Section 2.9 Repayment of Loans; Evidence of Debt. (a) The Borrower hereby unconditionally promises to pay (i) to the Administrative Agent for the account of each Lender thereof the then unpaid principal amount of each Revolving Loan on the Maturity Date and (ii) to the Administrative Agent for the account of each Lender thereof the then unpaid principal amount of each Competitive Loan on the last day of the Interest Period applicable to such Loan. (b) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrower to such Lender resulting from each Loan made by such Lender, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder. (c) The Administrative Agent shall maintain accounts in which it shall record (i) the amount of each Loan made hereunder, the Class and Type thereof and the Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder and (iii) the amount of any sum received by the Administrative Agent hereunder for the account of the Lenders and each Lender's share thereof. (d) The entries made in the accounts maintained pursuant to paragraph (b) or (c) of this Section shall be prima facie evidence of the existence and amounts of the obligations recorded therein; provided that the failure of any Lender or the Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligation of the Borrower to repay the Loans in accordance with the terms of this Agreement. (e) Any Lender may request that Loans made by it be evidenced by a promissory note. In such event, the Borrower shall prepare, execute and deliver to such Lender a promissory note payable to the order of such Lender (or, if requested by such Lender, to such Lender and its registered assigns) and in the form of Exhibit B. Thereafter, the Loans evidenced by such promissory note and interest thereon shall at all times (including after assignment pursuant to Section 9.4) be represented by one or more promissory notes in 32 CREDIT AGREEMENT such form payable to the order of the payee named therein (or, if such promissory note is a registered note, to such payee and its registered assigns). Section 2.10 Prepayment of Loans. (a) The Borrower shall have the right at any time and from time to time to prepay any Borrowing in whole or in part, subject to prior notice in accordance with paragraph (b) of this Section; provided that the Borrower shall not have the right to prepay any Competitive Loan without the prior consent of the Lender thereof. (b) The Borrower shall notify the Administrative Agent by telephone (confirmed by telecopy) of any prepayment hereunder (i) in the case of prepayment of a Eurodollar Revolving Borrowing, not later than 12:00 p.m. (noon), New York City time, three Business Days before the date of prepayment or (ii) in the case of prepayment of an ABR Revolving Borrowing, not later than 12:00 p.m. (noon), New York City time, one Business Day before the date of prepayment. Each such notice shall be irrevocable and shall specify the prepayment date and the principal amount of each Borrowing or portion thereof to be prepaid; provided that, if a notice of prepayment is given in connection with a conditional notice of termination of the Commitments as contemplated by Section 2.8, then such notice of prepayment may be revoked if such notice of termination is revoked in accordance with Section 2.8. Promptly following receipt of any such notice relating to a Revolving Borrowing, the Administrative Agent shall advise the Lenders of the contents thereof. Each partial prepayment of any Revolving Borrowing shall be in an amount that would be permitted in the case of an advance of a Revolving Borrowing of the same Type as provided in Section 2.2. Except as provided in Section 2.19, each prepayment of a Revolving Borrowing shall be applied ratably to the Loans included in the prepaid Borrowing. Prepayments shall be accompanied by accrued interest to the extent required by Section 2.12. Section 2.11 Fees. (a) The Borrower agrees to pay to the Administrative Agent for the account of each Lender a facility fee, which shall accrue at the Applicable Margin on the daily amount of the Commitment of such Lender (whether used or unused) during the period from and including the Closing Date to but excluding the date on which such Commitment terminates; provided that, if such Lender continues to have any Revolving Credit Exposure after its Commitment terminates, then such facility fee shall continue to accrue on the daily amount of such Lender's Revolving Credit Exposure from and including the date on which its Commitment terminates to but excluding the date on which such Lender ceases to have any Revolving Credit Exposure. Accrued facility fees shall be payable in arrears on the last Business Day of March, June, September and December of each year and on the date on which the Commitments terminate, commencing on the first such date to occur after the date hereof; provided that any facility fees accruing after the date on which the Commitments terminate shall be payable on demand. All facility fees shall be computed 33 CREDIT AGREEMENT on the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day for the period covered). (b) The Borrower agrees to pay (i) to the Administrative Agent for the account of each Lender a participation fee with respect to its participations in Letters of Credit, which shall accrue, at a rate equal to the Applicable Margin on Eurodollar Revolving Loans, on the daily amount of such Lender's LC Exposure (excluding any portion thereof attributable to unreimbursed LC Disbursements) during the period from and including the Effective Date to but excluding the later of the date on which such Lender's Commitment terminates and the date on which such Lender ceases to have any LC Exposure, and (ii) to the Issuing Bank a fronting fee, which shall accrue at the rate of 0.10% per annum on the daily amount of the LC Exposure (excluding any portion thereof attributable to unreimbursed LC Disbursements) during the period from and including the Effective Date to but excluding the later of the date of termination of the Commitments and the date on which there ceases to be any LC Exposure, as well as the Issuing Bank's standard fees (other than the fronting fee described above) with respect to the issuance, amendment or extension of any Letter of Credit or payment of drawings thereunder. Participation fees and fronting fees accrued through and including the last Business Day of March, June, September and December of each year shall be payable on such day, commencing on the first such date to occur after the Effective Date; provided that all such fees shall be payable on the date on which the Commitments terminate and any such fees accruing after the date on which the Commitments terminate shall be payable on demand. Any other fees payable to the Issuing Bank pursuant to this paragraph shall be payable within 10 days after demand. All participation fees and fronting fees shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day of the period covered). (c) The Borrower agrees to pay to the Administrative Agent, for its own account, fees payable in the amounts and at the times separately agreed upon between the Borrower and the Administrative Agent. (d) All fees payable hereunder shall be paid on the dates due, in immediately available funds, to the Administrative Agent (or to the Issuing Bank, in the case of fees payable to it) for distribution, in the case of facility fees, to the Lenders. Fees paid shall not be refundable under any circumstances. Section 2.12 Interest. (a) The Loans comprising each ABR Borrowing shall bear interest at the ABR. (b) The Loans comprising each Eurodollar Borrowing shall bear interest (i) in the case of a Eurodollar Revolving Loan, at the Adjusted LIBO Rate for the Interest Period in effect for such Borrowing plus the Applicable Margin, or (ii) in the case of 34 CREDIT AGREEMENT a Eurodollar Competitive Loan, at the LIBO Rate for the Interest Period in effect for such Borrowing plus (or minus, as applicable) the Margin applicable to such Loan. (c) Each Fixed Rate Loan shall bear interest at the Fixed Rate applicable to such Loan. (d) Notwithstanding the foregoing, if any principal of or interest on any Loan or any fee or other amount payable by the Borrower hereunder is not paid when due, whether at stated maturity, upon acceleration or otherwise, such overdue amount shall bear interest, after as well as before judgment, at a rate per annum equal to (i) in the case of overdue principal of any Loan, the greater of (A) 2% plus the rate otherwise applicable to such Loan as provided in the preceding paragraphs of this Section and (B) 2% plus the rate applicable to ABR Loans or (ii) in the case of any other amount, 2% plus the rate applicable to ABR Loans. (e) Accrued interest on each Loan shall be payable in arrears on each Interest Payment Date for such Loan and, in the case of Revolving Loans, upon termination of the Commitments; provided that (i) interest accrued pursuant to paragraph (d) of this Section shall be payable on demand, (ii) in the event of any repayment or prepayment of any Loan (other than a prepayment of an ABR Revolving Loan prior to the end of the Availability Period), accrued interest on the principal amount repaid or prepaid shall be payable on the date of such repayment or prepayment and (iii) in the event of any conversion of any Eurodollar Revolving Loan prior to the end of the current Interest Period therefor, accrued interest on such Loan shall be payable on the effective date of such conversion. (f) All interest hereunder shall be computed on the basis of a year of 360 days, except that interest computed by reference to the ABR at times when the ABR is based on the Prime Rate shall be computed on the basis of a year of 365 days (or 366 days in a leap year), and in each case shall be payable for the actual number of days elapsed (including the first day but excluding the last day). The applicable ABR, Adjusted LIBO Rate or LIBO Rate shall be determined by the Administrative Agent, and such determination shall be conclusive absent manifest error. Section 2.13 Alternate Rate of Interest. If prior to the commencement of any Interest Period for a Eurodollar Borrowing: (a) the Administrative Agent determines (which determination shall be conclusive absent manifest error) that adequate and reasonable means do not exist for ascertaining the Adjusted LIBO Rate or the LIBO Rate, as applicable, for such Interest Period; or 35 CREDIT AGREEMENT (b) the Administrative Agent is advised by the Required Lenders (or, in the case of a Eurodollar Competitive Loan, the Lender that is required to make such Loan) that the Adjusted LIBO Rate or the LIBO Rate, as applicable, for such Interest Period will not adequately and fairly reflect the cost to such Lenders (or Lender) of making or maintaining their Loans (or its Loan) included in such Borrowing for such Interest Period; then the Administrative Agent shall give notice thereof to the Borrower and the Lenders by telephone or telecopy as promptly as practicable thereafter and, until the Administrative Agent notifies the Borrower and the Lenders that the circumstances giving rise to such notice no longer exist, (i) any Interest Election Request that requests the conversion of any Revolving Borrowing to, or continuation of any Revolving Borrowing as, a Eurodollar Borrowing shall be ineffective, (ii) if any Borrowing Request requests a Eurodollar Revolving Borrowing, such Borrowing shall be made as an ABR Borrowing and (iii) any request by the Borrower for a Eurodollar Competitive Borrowing shall be ineffective; provided that (A) if the circumstances giving rise to such notice do not affect all the Lenders, then requests by the Borrower for Eurodollar Competitive Borrowings may be made to Lenders that are not affected thereby and (B) if the circumstances giving rise to such notice affect only one Type of Borrowing, then the other Type of Borrowings shall be permitted. Section 2.14 Increased Costs. (a) If any Change in Law shall: (i) impose, modify or deem applicable any reserve, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender (except any such reserve requirement reflected in the Adjusted LIBO Rate) or the Issuing Bank; or (ii) impose on any Lender or the Issuing Bank or the London interbank market any other condition affecting this Agreement or Eurodollar Loans or Fixed Rate Loans made by such Lender or any Letter of Credit or participation therein; and the result of any of the foregoing shall be to increase the cost to such Lender of making or maintaining any Eurodollar Loan or Fixed Rate Loan (or of maintaining its obligation to make any such Loan) or to increase the cost to such Lender or the Issuing Bank of participating in, issuing or maintaining any Letter of Credit or to reduce the amount of any sum received or receivable by such Lender or the Issuing Bank hereunder (whether of principal, interest or otherwise), then the Borrower will pay to such Lender or the Issuing Bank, as the case may be, such additional amount or amounts as will compensate such Lender or the Issuing Bank, as the case may be, for such additional costs incurred or reduction suffered. 36 CREDIT AGREEMENT (b) If any Lender or the Issuing Bank determines that any Change in Law regarding capital requirements has or would have the effect of reducing the rate of return on such Lender's or the Issuing Bank's capital or on the capital of such Lender's or the Issuing Bank's holding company, if any, as a consequence of this Agreement or the Loans made by, or participations in Letters of Credit held by, such Lender, or the Letters of Credit issued by the Issuing Bank, to a level below that which such Lender or the Issuing Bank or such Lender's or the Issuing Bank's holding company could have achieved but for such Change in Law (taking into consideration such Lender's or the Issuing Bank's policies and the policies of such Lender's or the Issuing Bank's holding company with respect to capital adequacy), then from time to time the Borrower will pay to such Lender or the Issuing Bank, as the case may be, such additional amount or amounts as will compensate such Lender or the Issuing Bank or such Lender's or the Issuing Bank's holding company for any such reduction suffered. (c) A certificate of a Lender or the Issuing Bank setting forth the basis of the calculations and the amount or amounts necessary to compensate such Lender or the Issuing Bank or its holding company, as the case may be, as specified in paragraph (a) or (b) of this Section shall be delivered to the Borrower and shall be conclusive absent manifest error. The Borrower shall pay such Lender or the Issuing Bank, as the case may be, the amount shown as due on any such certificate within 10 days after receipt thereof. (d) Failure or delay on the part of any Lender or the Issuing Bank to demand compensation pursuant to this Section shall not constitute a waiver of such Lender's or the Issuing Bank's right to demand such compensation; provided that the Borrower shall not be required to compensate a Lender or the Issuing Bank pursuant to this Section for any increased costs or reductions incurred more than 180 days prior to the date that such Lender or the Issuing Bank, as the case may be, notifies the Borrower of the Change in Law giving rise to such increased costs or reductions and of such Lender's or the Issuing Bank's intention to claim compensation therefor; provided further that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the 180-day period referred to above shall be extended to include the period of retroactive effect thereof. (e) Notwithstanding the foregoing provisions of this Section, a Lender shall not be entitled to compensation pursuant to this Section in respect of any Competitive Loan if the Change in Law that would otherwise entitle it to such compensation shall have been publicly announced prior to submission of the Competitive Bid pursuant to which such Loan was made. Section 2.15 Break Funding Payments. In the event of (a) the payment of any principal of any Eurodollar Loan or Fixed Rate Loan other than on the last day of an Interest Period applicable thereto (including as a result of an Event of Default), (b) the conversion of any Eurodollar Loan other than on the last day of the Interest Period applicable thereto, (c) 37 CREDIT AGREEMENT the failure to borrow, convert, continue or prepay any Revolving Loan on the date specified in any notice delivered pursuant hereto (regardless of whether such notice may be revoked under Section 2.10(b) and is revoked in accordance therewith), (d) the failure to borrow any Competitive Loan after accepting the Competitive Bid to make such Loan, or (e) the assignment of any Eurodollar Loan or Fixed Rate Loan other than on the last day of the Interest Period applicable thereto as a result of a request by the Borrower pursuant to Section 2.18, then, in any such event, the Borrower shall compensate each Lender for the loss, cost and expense attributable to such event (excluding loss of Applicable Margin after the date of such event). In the case of a Eurodollar Loan, such loss, cost or expense to any Lender shall be deemed to include an amount determined by such Lender to be the excess, if any, of (i) the amount of interest which would have accrued on the principal amount of such Loan had such event not occurred, at the Adjusted LIBO Rate (excluding loss of Applicable Margin) that would have been applicable to such Loan, for the period from the date of such event to the last day of the then current Interest Period therefor (or, in the case of a failure to borrow, convert or continue, for the period that would have been the Interest Period for such Loan), over (ii) the amount of interest which would accrue on such principal amount for such period at the interest rate which such Lender would bid were it to bid, at the commencement of such period, for dollar deposits of a comparable amount and period from other banks in the eurodollar market. A certificate of any Lender setting forth any amount or amounts that such Lender is entitled to receive pursuant to this Section shall be delivered to the Borrower and shall be conclusive absent manifest error. The Borrower shall pay such Lender the amount shown as due on any such certificate within 10 days after receipt thereof. Section 2.16 Taxes. (a) Any and all payments by or on account of any obligation of the Borrower hereunder shall be made free and clear of and without deduction for any Indemnified Taxes or Other Taxes; provided that if the Borrower shall be required to deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section) to the Administrative Agent, Lender or Issuing Bank (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law. (b) In addition, the Borrower shall pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law. (c) The Borrower shall indemnify the Administrative Agent, each Lender and the Issuing Bank, within 10 days after written demand therefor, for the full amount of any Indemnified Taxes or Other Taxes paid by the Administrative Agent, such Lender or the Issuing Bank, as the case may be, on or with respect to any payment by or on account of any obligation of the Borrower hereunder (including Indemnified Taxes or Other 38 CREDIT AGREEMENT Taxes imposed or asserted on or attributable to amounts payable under this Section) and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. The Borrower shall also indemnify the Administrative Agent, each Lender and the Issuing Bank, within 10 days after written demand therefor, for the full amount of Excluded Taxes as the Administrative Agent, such Lender or the Issuing Bank, as the case may be, shall determine are payable in respect of amounts paid to or on behalf of the Administrative Agent, such Lender or the Issuing Bank, as the case may be, pursuant to this Section 2.16. A certificate as to the amount of such payment or liability delivered to the Borrower by a Lender or the Issuing Bank, or by the Administrative Agent on its own behalf or on behalf of a Lender or the Issuing Bank, shall be conclusive absent manifest error. (d) As soon as practicable after any payment of Indemnified Taxes or Other Taxes by the Borrower to a Governmental Authority, the Borrower shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent. (e) Any Lender that is not incorporated under the United States of America or a state thereof (each a "Foreign Lender") shall: (i) on the date it becomes a Lender, deliver to the Administrative Agent (A) two completed copies of United States Internal Revenue Service Form 1001 or 4224, or successor applicable form, as the case may be, and shall certify that it is entitled to receive payments under this Agreement without deduction or withholding (or at a reduced rate of deduction or withholding) of any United States Federal income taxes and (B) an Internal Revenue Services Form W-8 or W-9, or successor applicable form, as the case may be and shall certify that it is entitled to an exemption from United States backup withholding tax; (ii) deliver to the Administrative Agent two further copies of any such form or certification on or before the date that any such certification described above expires or becomes obsolete and after the occurrence of any event requiring a change in the most recent form previously delivered to it; and (iii) obtain such extensions of time for filing and complete such forms or certifications as may reasonably be requested by the Administrative Agent; 39 CREDIT AGREEMENT except that the forms and certificates described in clauses (ii) and (iii) above shall not be required if any Change in Law has occurred prior to the date on which any such delivery would otherwise be required which renders all such forms inapplicable or which would prevent such Lender from duly completing and delivering any such form with respect to it and such Lender so advises the Administrative Agent. Section 2.17 Payments Generally; Pro Rata Treatment; Sharing of Set-offs. (a) The Borrower shall make each payment required to be made by it hereunder (whether of principal, interest, fees or reimbursement of LC Disbursements, or of amounts payable under Section 2.14, 2.15 or 2.16, or otherwise) prior to 12:00 noon, New York City time, on the date when due, in immediately available funds, without set-off or counterclaim. Any amounts received after such time on any date may, in the discretion of the Administrative Agent, be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon. All such payments shall be made to the Administrative Agent at its offices at 130 Liberty Street, New York, New York, 10006, except payments to be made directly to the Issuing Bank as expressly provided herein and except that payments pursuant to Sections 2.14, 2.15, 2.16 and 9.3 shall be made directly to the Persons entitled thereto. The Administrative Agent shall distribute any such payments received by it for the account of any other Person to the appropriate recipient promptly following receipt thereof. If any payment hereunder shall be due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day, and, in the case of any payment accruing interest, interest thereon shall be payable for the period of such extension. All payments hereunder shall be made in dollars. (b) If at any time insufficient funds are received by and available to the Administrative Agent to pay fully all amounts of principal, unreimbursed LC Disbursements, interest and fees then due hereunder, such funds shall be applied (i) first, towards payment of interest and fees then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of interest and fees then due to such parties, and (ii) second, towards payment of principal and unreimbursed LC Disbursements then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of principal and unreimbursed LC Disbursements then due to such parties. (c) If any Lender shall, by exercising any right of set-off or counterclaim or otherwise, obtain payment in respect of any principal of or interest on any of its Revolving Loans or participations in LC Disbursements resulting in such Lender receiving payment of a greater proportion of the aggregate amount of its Revolving Loans and participations in LC Disbursements and accrued interest thereon than the proportion received by any other Lender, then the Lender receiving such greater proportion shall purchase (for cash at face value) participations in the Revolving Loans and participations in LC Disbursements of other Lenders to the extent necessary so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of 40 CREDIT AGREEMENT principal of and accrued interest on their respective Revolving Loans and participations in LC Disbursements; provided that (i) if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest, and (ii) the provisions of this paragraph shall not be construed to apply to any payment made by the Borrower pursuant to and in accordance with the express terms of this Agreement or any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Loans or participations in LC Disbursements to any assignee or participant, other than to the Borrower or any Subsidiary or Affiliate thereof (as to which the provisions of this paragraph shall apply). The Borrower consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against the Borrower rights of set-off and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of the Borrower in the amount of such participation. (d) Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Administrative Agent for the account of the Lenders or the Issuing Bank hereunder that the Borrower will not make such payment, the Administrative Agent may assume that the Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders or the Issuing Bank, as the case may be, the amount due. In such event, if the Borrower has not in fact made such payment, then each of the Lenders or the Issuing Bank, as the case may be, severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender or Issuing Bank with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the greater of the Federal Funds Effective Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation. (e) If any Lender shall fail to make any payment required to be made by it pursuant to Section 2.5(d) or (e), 2.6(a) or 2.17(d), then the Administrative Agent may, in its discretion (notwithstanding any contrary provision hereof), apply any amounts thereafter received by the Administrative Agent for the account of such Lender to satisfy such Lender's obligations under such Sections until all such unsatisfied obligations are fully paid. Section 2.18 Mitigation Obligations; Replacement of Lenders. (a) If any Lender requests compensation under Section 2.14, or if the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.16, then such Lender shall use reasonable efforts to designate a different lending office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of 41 CREDIT AGREEMENT such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 2.14 or 2.16, as the case may be, in the future and (ii) would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. The Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment. (b) If (i) any Lender requests compensation under Section 2.14, or (ii) the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.16, or (iii) any Lender defaults in its obligation to fund Loans hereunder, or (iv) any Lender refuses to consent to certain proposed changes, waivers, discharges or termination with respect to this Agreement which require the consent of all Lenders and have been approved by the Required Lenders as (and to the extent) provided in Section 9.2(b), then the Borrower may, at its sole expense and effort, if no Default then exists (or, in the case of preceding clause (iv), no Default will exist immediately upon giving effect to such replacement), upon notice to such Lender and the Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in Section 9.4), all its interests, rights and obligations under this Agreement (other than any outstanding Competitive Loans held by it) to an assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment) (such Assignee a "Replacement Lender"); provided that (x) the Borrower shall have received the prior written consent of the Administrative Agent (and, if a Commitment is being assigned, the Issuing Bank), which consent shall not unreasonably be withheld, (y) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans (other than Competitive Loans) and participations in LC Disbursements, accrued interest thereon, accrued fees and all other amounts payable to it hereunder, from the Replacement Lender (to the extent of such outstanding principal and accrued interest and fees) or the Borrower (in the case of all other amounts) and (z) in the case of any such assignment resulting from a claim for compensation under Section 2.14 or payments required to be made pursuant to Section 2.16, such assignment will result in a reduction in such compensation or payments. A Lender shall not be required to make any such assignment and delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply. Section 2.19 Extension of Maturity Date. (a) Not less than sixty (60) but not more than ninety (90) days prior to the first anniversary of the Closing Date, and each anniversary thereafter, the Borrower may deliver to the Administrative Agent and the Lenders a written request for a one year extension of the Maturity Date together with a certificate of a Financial Official on behalf of the Borrower stating that the representations and warranties contained in Article 3 (other than (i) representations and warranties which expressly speak as of a particular date or are no longer true and correct as a result of a change which is not a violation of this Agreement and (ii) as otherwise disclosed by the 42 CREDIT AGREEMENT Borrower and approved in writing by the Required Lenders) are true and correct on and as of the date of such certificate; provided that no such request shall be effective unless (A) in the case of each such request other than with respect to the first anniversary of the Closing Date, a request shall have been approved pursuant to this Section 2.19 in respect of the previous anniversary of the Closing Date, and (B) no Default shall have occurred and be continuing. Each Lender shall, on or prior to the date that is thirty (30) days after receipt of such written request, notify in writing the Administrative Agent whether (in its sole and absolute discretion) it consents to such request and the Administrative Agent shall, after receiving the notifications from all of the Lenders or the expiration of such period, whichever is earlier, notify the Borrower and the Lenders of the results thereof. If any Lender shall fail to notify the Administrative Agent and the Borrower in writing of its consent to any such request for extension of the Maturity Date within thirty (30) days after the date of such extension request, such Lender shall be deemed to be a Non-Consenting Lender (as defined below) with respect to such request. Any Non-Consenting Lender shall be deemed to be a Non-Consenting Lender with respect to all subsequent requests as well. (b) If all of the Lenders consent in writing to any such request in accordance with Section 2.19(a), the Maturity Date in effect at such time (the "Extension Date") shall be extended pursuant to a written agreement among the Borrower and the Lenders satisfactory to the Administrative Agent for one calendar year; provided that on each Extension Date, no Default shall have occurred and be continuing or shall occur as a consequence thereof. If the Supermajority Lenders but not all Lenders consent in writing to any such request in accordance with Section 2.19(a), the Maturity Date in effect at such time shall, effective as at the applicable Extension Date, be extended as to those Lenders that so consented (each a "Consenting Lender") pursuant to a written agreement among the Borrower and the Consenting Lenders satisfactory to the Administrative Agent but shall not be extended as to any other Lender (each a "Non-Consenting Lender"). To the extent that the Maturity Date is not so extended as to any Lender pursuant to this Section 2.19(b) and the Commitment of such Lender is not assumed in accordance with Section 2.19(c) on or prior to the applicable Extension Date, the Commitment of such Non-Consenting Lender shall automatically terminate in whole on such unextended Maturity Date (and all amounts due at such Non-Consenting Lender shall be due and owing on such unextended Maturity Date in accordance with the terms hereof) without any further notice or other action by the Borrower, such Lender or any other Person; provided that such Non-Consenting Lender's rights under Section 2.14, 2.15, 2.16 and 9.3, and its obligations under Section 8.7, shall survive the Maturity Date for such Lender as to matters occurring prior to such date. It is understood and agreed that no Lender shall have any obligation whatsoever to agree to any request made by the Borrower for any requested extension of the Maturity Date. (c) If less than all of the Lenders consent to any such request pursuant to Section 2.19(a), the Borrower may arrange for one or more Consenting Lenders or other assignees (in accordance with Section 9.4(b)) (x) to assume, effective as of the Extension 43 CREDIT AGREEMENT Date (or such other date as may be agreed among the Borrower, the Non-Consenting Lender, such Consenting Lenders or assignees and the Administrative Agent) any Non-Consenting Lender's Commitment and all of the obligations of such Non-Consenting Lender under this Agreement thereafter arising, without recourse to or warranty by, or expense to, such Non-Consenting Lender and (y) to accept, effective as of the Extension Date or such later date as any assignee executes and delivers an Assignment and Acceptance, the Maturity Date applicable to the Consenting Lenders; provided, however, that the amount of the Commitment of any such assignee as a result of such substitution shall in no event be less than $5,000,000 unless the amount of the Commitment of such Non-Consenting Lender is less than $5,000,000, in which case such assignee shall assume all of such lesser amount; and provided further that: (i) any such Consenting Lender or assignee shall have paid to such Non-Consenting Lender (A) the aggregate principal amount of, and any interest accrued and unpaid to the effective date of the assignment on, the outstanding Loans, if any, owing to such Non-Consenting Lender plus (B) any accrued but unpaid facility fees owing to such Non-Consenting Lender as of the effective date of such assignment; (ii) all additional costs, expenses and indemnities payable to such Non-Consenting Lender, and all other accrued and unpaid amounts owing to such Non-Consenting Lender hereunder, as of the effective date of such assignment shall have been paid to such Non-Consenting Lender; and (iii) with respect to any such assignee, the applicable recordation fee required under Section 9.4(b) shall have been paid; provided further that such Non-Consenting Lender's rights under Section 2.14, 2.15, 2.16 and 9.3, and its obligations under Section 8.7, shall survive substitution as to matters occurring prior to the date of substitution. At least three Business Days prior to any Extension Date, (A) each such assignee, if any, shall have delivered to the Borrower and the Administrative Agent an Assignment and Acceptance, duly executed by such assignee, the Non-Consenting Lender, the Borrower and the Administrative Agent, (B) any such Consenting Lender shall have delivered confirmation in writing satisfactory to the Borrower and the Administrative Agent as to the increase in the amount of its Commitment and (C) each Non-Consenting Lender being replaced pursuant to this Section 2.19 shall have delivered to the Administrative Agent the Note or Notes (if any) held by such Non-Consenting Lender. Upon the payment of all amounts payable by the assignee to the Non-Consenting Lender and the processing recordation fee set forth in Section 9.04(b), each such Consenting Lender or assignee, as of the Extension Date, will be substituted for such Non-Consenting Lender under this Agreement and shall be a Lender for all purposes of this Agreement, without any further acknowledgement by or the consent of the other Lenders, 44 CREDIT AGREEMENT and the obligations of each such Non-Consenting Lender hereunder shall, by the provisions hereof, be released and discharged. (d) If the Supermajority Lenders (before giving effect to any assignments pursuant to Section 2.19(c)) consent in writing to the Administrative Agent to a requested extension not later than one Business Day prior to such Extension Date, the Administrative Agent shall so notify the Borrower, and, so long as no Default shall have occurred and be continuing as of such Extension Date, or shall occur as a consequence thereof, the Maturity Date then in effect shall be extended for the additional one-year period as described in Section 2.19(a), and all references in this Agreement and in the Notes (if any) to the "Maturity Date" shall, with respect to each Consenting Lender and each assignee for such Extension Date, refer to the Maturity Date as so extended. Promptly following each Extension Date, the Administrative Agent shall notify the Lenders of the extension of the scheduled Maturity Date in effect immediately prior thereto and shall thereupon record in the Register the relevant information with respect to each such Consenting Lender, Non-Consenting Lender and each such assignee. ARTICLE III Representations and Warranties The Borrower represents and warrants to the Lenders that: Section 3.1 Organization; Powers. Each of the Borrower and its Subsidiaries is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, has all requisite power and authority to carry on its business as now conducted and, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, is qualified to do business in, and is in good standing in, every jurisdiction where such qualification is required. Section 3.2 Authorization; Enforceability. The Transactions are within the Borrower's corporate powers and have been duly authorized by all necessary corporate and, if required, stockholder action, and the use of proceeds of the Loans will be, in each instance, within the Borrower's corporate powers and will have been duly authorized by all necessary corporate and, if required, stockholder action, as of the time of such use. This Agreement has been duly executed and delivered by the Borrower and constitutes a legal, valid and binding obligation of the Borrower, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors' rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law. 45 CREDIT AGREEMENT Section 3.3 Governmental Approvals; No Conflicts. The Transactions (a) do not require any consent or approval of, registration or filing with, or any other action by, any Governmental Authority, except such as have been obtained or made and are in full force and effect, (b) will not violate any applicable law or regulation or the charter, by-laws or other organizational documents of the Borrower or any of its Subsidiaries or any order of any Governmental Authority, (c) will not violate or result in a default under any indenture, agreement or other instrument binding upon the Borrower or any of its Subsidiaries or any of their respective assets, or give rise to a right thereunder to require any payment to be made by the Borrower or any of its Subsidiaries, and (d) will not result in the creation or imposition of any Lien on any asset of the Borrower or any of its Subsidiaries. Section 3.4 Financial Condition; No Material Adverse Change. (a) The Borrower has heretofore furnished to the Lenders consolidated balance sheets and statements of income, stockholders equity and cash flows for (i) FMI and its subsidiaries, as of and for the fiscal year ended February 1, 1997, reported on by Deloitte & Touche, independent public accountants of FMI, and the fiscal quarter and the portion of the fiscal year ended May 24, 1997, certified by the chief financial officer of FMI and (ii) Smith's and its subsidiaries, as of and for the fiscal year ended December 28, 1996, reported on by Ernst & Young LLP, independent public accountants of Smith's, and the fiscal quarter and the portion of the fiscal year ended April 5, 1997, certified by the chief financial officer of Smith's. Such financial statements present fairly, in all material respects, the financial position and results of operations and cash flows of FMI, Smith's and their respective subsidiaries as of such dates and for such periods in accordance with GAAP, subject to year-end audit adjustments and the absence of footnotes in the case of the statements for the fiscal quarters. (b) There has been no material adverse change in the business, assets, operations, prospects or condition, financial or otherwise, of (i) FMI and its subsidiaries, taken as a whole, since February 1, 1997, or (ii) Smith's or its subsidiaries, taken as a whole, since December 28, 1996. Section 3.5 Properties. (a) Each of the Borrower and its Subsidiaries has good title to, or valid leasehold interests in, all its real and personal property material to its business, except for minor defects in title that do not interfere with its ability to conduct its business as currently conducted or to utilize such properties for their intended purposes, subject to no Lien of any kind except Liens permitted hereby. (b) Each of the Borrower and its Subsidiaries owns, or is licensed to use, all trademarks, tradenames, copyrights, patents and other intellectual property material to its business, and the use thereof by the Borrower and its Subsidiaries does not infringe upon the rights of any other Person, except for any such infringements that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. 46 CREDIT AGREEMENT Section 3.6 Litigation and Environmental Matters. (a) There are no actions, suits or proceedings by or before any arbitrator or Governmental Authority pending against or, to the knowledge of the Borrower, threatened against or affecting the Borrower or any of its Subsidiaries (i) as to which there is a reasonable possibility of an adverse determination and that, if adversely determined, could reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect (other than the Disclosed Matters) or (ii) that involve this Agreement or the Transactions. (b) Except for the Disclosed Matters and except with respect to any other matters that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, neither the Borrower nor any of its Subsidiaries (i) has failed to comply with any Environmental Law or to obtain, maintain or comply with any permit, license or other approval required under any Environmental Law, (ii) has become subject to any Environmental Liability, (iii) has received notice of any claim with respect to any Environmental Liability or (iv) knows of any basis for any Environmental Liability. (c) Since the date of this Agreement, there has been no change in the status of the Disclosed Matters that, individually or in the aggregate, has resulted in, or materially increased the likelihood of, a Material Adverse Effect. Section 3.7 Compliance with Laws and Agreements. Each of the Borrower and its Subsidiaries is in compliance with all laws, regulations and orders of any Governmental Authority applicable to it or its property and all indentures, agreements and other instruments binding upon it or its property, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. No Default has occurred and is continuing. Section 3.8 Investment and Holding Company Status. Neither the Borrower nor any of its Subsidiaries is (a) an "investment company" as defined in, or subject to regulation under, the Investment Company Act of 1940 or (b) a "holding company" as defined in, or subject to regulation under, the Public Utility Holding Company Act of 1935. Section 3.9 Taxes. Each of the Borrower and its Subsidiaries has timely filed or caused to be filed all Tax returns and reports required to have been filed and has paid or caused to be paid all Taxes required to have been paid by it, except (a) Taxes that are being contested in good faith by appropriate proceedings and for which the Borrower or such Subsidiary, as applicable, has set aside on its books adequate reserves or (b) to the extent that the failure to do so could not reasonably be expected to result in a Material Adverse Effect. Section 3.10 ERISA. No ERISA Event has occurred or is reasonably expected to occur that, when taken together with all other such ERISA Events for which 47 CREDIT AGREEMENT liability is reasonably expected to occur, could reasonably be expected to result in a Material Adverse Effect. Section 3.11 Disclosure. The Borrower has disclosed to the Lenders all agreements, instruments and corporate or other restrictions to which it or any of its Subsidiaries is subject, and all other matters known to it, that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. None of the reports, financial statements, certificates or other information furnished by or on behalf of the Borrower to the Administrative Agent or any Lender in connection with the negotiation of this Agreement or delivered hereunder (as modified or supplemented by other information so furnished) contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that, with respect to projected financial information, the Borrower represents only that such information was prepared in good faith based upon assumptions believed to be reasonable at the time. Section 3.12 Solvency. On the Closing Date and after giving effect to the Transactions, the Borrower and each of its Material Subsidiaries will be Solvent. Section 3.13 Use of Proceeds; Margin Regulations. All proceeds of each of the Loans will be used by the Borrower only in accordance with the provisions of Section 5.8. No part of the proceeds of any of the Loans will be used by the Borrower to purchase or carry any Margin Stock or to extend credit to others for the purpose of purchasing or carrying any Margin Stock. Neither the making of any of the Loans nor the use of the proceeds thereof will violate or be inconsistent with the provisions of Regulations G, T, U or X of the Federal Reserve Board. Section 3.14 No Default. The Borrower is not in default under or with respect to any agreement, instrument or undertaking to which it is a party or by which it or any of its property is bound in any respect which could result in a Material Adverse Effect. No Default or Event of Default exists. Section 3.15 Subsidiaries. After giving effect to the Merger, the Persons listed on Schedule 3.15 are the only Subsidiaries of the Borrower. Schedule 3.15 correctly sets forth, after giving effect to the Merger, the percentage ownership (direct and indirect) of the Borrower in each class of capital stock of each of its Subsidiaries and also identifies the direct owner thereof and identifies each Material Subsidiary as of the Closing Date.. 48 CREDIT AGREEMENT ARTICLE IV Conditions Section 4.1 Effective Date. The obligations of the Lenders to make Loans and of the Issuing Bank to issue Letters of Credit hereunder shall not become effective until the date on which each of the following conditions is satisfied (or waived in accordance with Section 9.2): (a) The Administrative Agent (or its counsel) shall have received from each party hereto (A) either (i) a counterpart of this Agreement signed on behalf of such party or (ii) written evidence satisfactory to the Administrative Agent (which may include telecopy transmission of a signed signature page of this Agreement) that such party has signed a counterpart of this Agreement and (B) such other documents, in form and substance satisfactory to the Administrative agent, as the Administrative Agent may reasonably request. (b) The Administrative Agent shall have received a favorable written opinion (addressed to the Administrative Agent and the Lenders and dated the Effective Date) of Stoel Rives LLP, counsel for the Borrower, substantially in the form of Exhibit C, and covering such other matters relating to the Borrower, this Agreement or the Transactions as the Required Lenders shall reasonably request. The Borrower hereby requests such counsel to deliver such opinion. (c) The Administrative Agent shall have received such documents and certificates as the Administrative Agent or its counsel may reasonably request relating to the organization, existence and good standing of the Borrower, the authorization of the Transactions and any other legal matters relating to the Borrower, this Agreement or the Transactions, all in form and substance satisfactory to the Administrative Agent and its counsel. (d) The Administrative Agent shall have received a certificate, dated the Effective Date and signed by the President, a Vice President or a Financial Officer of the Borrower, confirming compliance with the conditions set forth in paragraphs (b) and (c) of Section 4.2. (e) The Administrative Agent shall have received all fees and other amounts due and payable on or prior to the Effective Date, including, to the extent invoiced, reimbursement or payment of all out-of-pocket expenses required to be reimbursed or paid by the Borrower hereunder. (f) The Merger shall have been completed in accordance with the Merger Document, or on other terms reasonably satisfactory to the Lenders. 49 CREDIT AGREEMENT (g) The Other Corporate Loan Documents shall have been executed and delivered and shall be in full force and effect. (h) Each Material Subsidiary shall have executed and delivered to the Administrative Agent a guaranty substantially in the form set forth as Exhibit D (each such guaranty, as amended, supplemented or otherwise modified, a "Subsidiary Guaranty"). (i) The Administrative Agent shall have received evidence satisfactory to it of prior or simultaneous repayment or refinancing of the Debt of the Borrower and its Subsidiaries set forth on Schedule 4.1 hereto (except as otherwise agreed to the satisfaction of the Agents). (j) The Administrative Agent shall have received the financial information required under Section 3.4(a), including a pro forma balance sheet giving effect to the Merger, in form and substance satisfactory to the Administrative Agent. The Administrative Agent shall notify the Borrower and the Lenders of the Effective Date, and such notice shall be conclusive and binding. Notwithstanding the foregoing, the obligations of the Lenders to make Loans and of the Issuing Bank to issue Letters of Credit hereunder shall not become effective unless each of the foregoing conditions is satisfied (or waived pursuant to Section 9.2) at or prior to 3:00 p.m., New York City time, on September 30, 1997 (and, in the event such conditions are not so satisfied or waived, the Commitments shall terminate at such time). Section 4.2 Each Credit Event. The obligation of each Lender to make a Loan on the occasion of any Borrowing, and of the Issuing Bank to issue, amend, renew or extend any Letter of Credit, is subject to the satisfaction of the following conditions: (a) The Administrative Agent shall have received a fully executed Borrowing Request in respect of the Loans to be made on such date. (b) The representations and warranties of the Borrower set forth in this Agreement (other than the representations and warranties set forth in Sections 3.4 and 3.6) shall be true and correct on and as of the date of such Borrowing or the date of issuance, amendment, renewal or extension of such Letter of Credit, as applicable. (c) At the time of and immediately after giving effect to such Borrowing or the issuance, amendment, renewal or extension of such Letter of Credit, as applicable, no Default shall have occurred and be continuing. 50 CREDIT AGREEMENT Each Borrowing and each issuance, amendment, renewal or extension of a Letter of Credit shall be deemed to constitute a representation and warranty by the Borrower on the date thereof as to the matters specified in paragraphs (b) and (c) of this Section. ARTICLE V Affirmative Covenants Until the Commitments have expired or been terminated and the principal of and interest on each Loan and all fees payable hereunder shall have been paid in full and all Letters of Credit shall have expired or terminated and all LC Disbursements shall have been reimbursed, the Borrower covenants and agrees with the Lenders that: Section 5.1 Financial Statements and Other Information. The Borrower will furnish to the Administrative Agent and each Lender: (a) within 100 days after the end of each fiscal year of the Borrower, its audited consolidated balance sheet and related statements of operations, stockholders' equity and cash flows as of the end of and for such year, setting forth in each case in comparative form the figures for the previous fiscal year, all reported on by Deloitte & Touche LLP or other independent public accountants of recognized national standing (without a "going concern" or like qualification or exception and without any qualification or exception as to the scope of such audit) to the effect that such consolidated financial statements present fairly in all material respects the financial condition and results of operations of the Borrower and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP. (b) within 55 days after the end of each of the first three fiscal quarters of each fiscal year of the Borrower, its consolidated balance sheet and related statements of operations, stockholders' equity and cash flows as of the end of and for such fiscal quarter and the then elapsed portion of the fiscal year, setting forth in each case in comparative form the figures for the corresponding period or periods of (or, in the case of the balance sheet, as of the end of) the previous fiscal year, all certified by one of its Financial Officers as presenting fairly in all material respects the financial condition and results of operations of the Borrower and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP, subject to normal year-end audit adjustments and the absence of footnotes; (c) concurrently with any delivery of financial statements under clause (a) or (b) above, a Compliance Certificate (i) certifying as to whether a Default has occurred and, if a Default has occurred, specifying the details thereof and any action taken or 51 CREDIT AGREEMENT proposed to be taken with respect thereto, (ii) setting forth reasonably detailed calculations (x) demonstrating compliance with Section 6.10(a) and (b) and (y) establishing the Applicable Margin, and (iii) stating whether any change in GAAP or in the application thereof has occurred since the date of the audited financial statements referred to in Section 3.4 and, if any such change has occurred, specifying the effect of such change on the financial statements accompanying such certificate; (d) concurrently with any delivery of financial statements under clause (a) above, a certificate of the accounting firm that reported on such financial statements stating whether they obtained knowledge during the course of their examination of such financial statements of any Default (which certificate may be limited to the extent required by accounting rules or guidelines); (e) promptly after the same become publicly available, copies of all periodic and other reports, proxy statements and other materials filed by the Borrower or any Subsidiary with the Securities and Exchange Commission, or any Governmental Authority succeeding to any or all of the functions of said Commission, or with any national securities exchange, or distributed by the Borrower to its shareholders generally, as the case may be; and (f) promptly following any request therefor, such other information regarding the operations, business affairs and financial condition of the Borrower or any Subsidiary, or compliance with the terms of this Agreement, as the Administrative Agent or any Lender may reasonably request. Section 5.2 Notices of Material Events. The Borrower will furnish to the Administrative Agent and each Lender prompt written notice of the following: (a) the occurrence of any Default upon actual knowledge of a Responsible Officer of the Borrower; (b) the filing or commencement of any action, suit or proceeding by or before any arbitrator or Governmental Authority against or affecting the Borrower or any Affiliate thereof that, if adversely determined, could reasonably be expected to result in a Material Adverse Effect; (c) the occurrence of any ERISA Event that, alone or together with any other ERISA Events that have occurred, could reasonably be expected to result in material liability of the Borrower and its Subsidiaries; and (d) any other development that results in, or could reasonably be expected to result in, a Material Adverse Effect. 52 CREDIT AGREEMENT Each notice delivered under this Section shall be accompanied by a statement of a Financial Officer or other executive officer of the Borrower setting forth the details of the event or development requiring such notice and any action taken or proposed to be taken with respect thereto. Section 5.3 Existence; Conduct of Business. The Borrower will, and will cause each of its Subsidiaries to, do or cause to be done all things necessary to preserve, renew and keep in full force and effect its legal existence and the rights, licenses, permits, privileges and franchises material to the conduct of its business; provided that the foregoing shall not prohibit any merger, consolidation, liquidation or dissolution permitted under Section 6.5. Section 5.4 Payment of Obligations. The Borrower will, and will cause each of its Subsidiaries to, pay its obligations, including Tax liabilities, that, if not paid, could result in a Material Adverse Effect before the same shall become delinquent or in default, except where (a) the validity or amount thereof is being contested in good faith by appropriate proceedings, (b) the Borrower or such Subsidiary has set aside on its books adequate reserves with respect thereto in accordance with GAAP and (c) the failure to make payment pending such contest could not reasonably be expected to result in a Material Adverse Effect. Section 5.5 Maintenance of Properties; Insurance. The Borrower will, and will cause each of its Subsidiaries to, (a) keep and maintain all property material to the conduct of its business in good working order and condition, ordinary wear and tear excepted, and (b) maintain, with financially sound and reputable insurance companies, insurance in such amounts and against such risks (and having such deductibles and self-insurance) as are customarily maintained by companies engaged in the same or similar businesses operating in the same or similar locations. Section 5.6 Books and Records; Inspection Rights. The Borrower will, and will cause each of its Subsidiaries to, keep proper books of record and account in which full, true and correct entries are made of all dealings and transactions in relation to its business and activities. The Borrower will, and will cause each of its Subsidiaries to, permit any representatives designated by the Administrative Agent or any Lender, upon reasonable prior notice, to visit and inspect its properties, to examine and make extracts from its books and records, and to discuss its affairs, finances and condition with its officers and independent accountants, all at such reasonable times and as often as reasonably requested. Section 5.7 Compliance with Laws. The Borrower will, and will cause each of its Subsidiaries to, comply with all laws, rules, regulations and orders of any Governmental Authority applicable to it or its property, including without limitation ERISA and all Environmental Laws, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. 53 CREDIT AGREEMENT Section 5.8 Use of Proceeds and Letters of Credit. The proceeds of the Loans will be used only to finance certain costs and expenses associated with the Merger, refinance existing indebtedness (including related prepayment premiums) and for general corporate purposes. No part of the proceeds of any Loan will be used, whether directly or indirectly, for any purpose that entails a violation of any of the Regulations of the Board, including Regulations G, U and X. Standby Letters of Credit will be issued only to support on a standby basis, liabilities relating to worker's compensation, judgments pending appeal, construction or similar liabilities in the ordinary course of business, and (ii) trade Letters of Credit will be issued only to support liabilities for the purchase of goods upon delivery or against invoice. Section 5.9 Subsidiary Guaranties. The Borrower shall cause each Material Subsidiary, now or hereafter in existence, to execute and deliver to the Administrative Agent a Subsidiary Guaranty together with such officer's certificates, resolutions and other assurances related thereto as the Administrative Agent shall reasonably request upon the earlier of (i) with respect to any Subsidiary on the date hereof that becomes a Material Subsidiary after the date hereof, or as to any Person which, when it becomes a Subsidiary after the date hereof, is not then a Material Subsidiary, as soon as possible after the end of the fiscal quarter in which such Subsidiary becomes a Material Subsidiary, and (ii) with respect to any Material Subsidiary acquired after the date hereof not currently a Subsidiary, within 10 days of becoming a Material Subsidiary. ARTICLE VI Negative Covenants Until the Commitments have expired or been terminated and the principal of and interest on each Loan and all fees payable hereunder shall have been paid in full and all Letters of Credit shall have expired or terminated and all LC Disbursements shall have been reimbursed, the Borrower covenants and agrees with the Lenders that: Section 6.1 Material Subsidiary Debt. The Borrower will not permit any Material Subsidiary to create, incur, assume or permit to exist any Debt, except: (a) Debt owed to the Borrower or to another Material Subsidiary; (b) Debt existing on the date hereof; provided that to the extent any item of such Debt exceeds $5,000,000, or the aggregate of all such Debt exceeds $25,000,000, such Debt shall be identified in Schedule 6.1; (c) Debt secured by Permitted Encumbrances; 54 CREDIT AGREEMENT (d) Capital Lease Obligations not to exceed $100,000,000; (e) Debt outstanding when such Person becomes a Material Subsidiary or is merged or consolidated with another Material Subsidiary, provided that such Debt exists at the time such Person becomes a Material Subsidiary and is not created in contemplation of or in connection with such Person becoming a Material Subsidiary; (f) Debt in respect of commercial letters of credit issued to support the purchase of goods by the applicable Material Subsidiary in the ordinary course of business; (g) Debt in respect of commercial letters of credit issued to support liabilities of a Material Subsidiary relating to worker's compensation, judgments pending appeal (and as to which there is no Event of Default under clause (k) of Article VII), construction or similar liabilities in the ordinary course of business; (h) Debt in respect of Synthetic Lease Facilities entered into by any Material Subsidiary as lessee thereunder; (i) Suretyship Liabilities constituting guarantees of the Borrower's unsecured Debt; provided such Debt is pari passu with the obligations of the Borrower hereunder; and (j) Debt not otherwise permitted by the foregoing clauses of this Section 6.1 so long as the sum, without duplication, of (x) all such Debt and (y) all Debt secured by Liens permitted solely by clause (f) of Section 6.2 does not exceed 10% of Consolidated Total Assets. Section 6.2 Liens. The Borrower will not, and will not permit any Subsidiary to, create, incur, assume or permit to exist any Lien on any property or asset now owned or hereafter acquired by it, or assign or sell any income or revenues (including accounts receivable) or rights in respect of any thereof, except: (a) Permitted Encumbrances; (b) any Lien on any property or asset of the Borrower or any Subsidiary existing on the date hereof (including Liens created pursuant to the Current Synthetic Lease Facility) and set forth in Schedule 6.2; provided that (i) such Lien shall not apply to any other property or asset of the Borrower or any Subsidiary and (ii) such Lien shall secure only those obligations which it secures on the date hereof; (c) any Lien existing on any property or asset prior to the acquisition thereof by the Borrower or any Subsidiary or existing on any property or asset of any Person 55 CREDIT AGREEMENT that becomes a Subsidiary after the date hereof prior to the time such Person becomes a Subsidiary; provided that (i) such Lien is not created in contemplation of or in connection with such acquisition or such Person becoming a Subsidiary, as the case may be, (ii) such Lien shall not apply to any other property or assets of the Borrower or any Subsidiary and (iii) such Lien shall secure only those obligations which it secures on the date of such acquisition or the date such Person becomes a Subsidiary, as the case may be; and (d) Liens on fixed or capital assets acquired, constructed or improved by the Borrower or any Subsidiary; provided that (i) such security interests and the Indebtedness secured thereby are incurred prior to or within 180 days after such acquisition or the completion of such construction or improvement, (ii) the Debt secured thereby does not exceed the cost of acquiring, constructing or improving such fixed or capital assets and (iii) such security interests shall not apply to any other property or assets of the Borrower or any Subsidiary; (e) Liens on assets acquired after the date hereof under Synthetic Lease Facilities; and (f) Liens not otherwise permitted by the foregoing clauses of this Section 6.2, securing Debt of the Borrower or its Subsidiaries, so long as the sum, without duplication, of (i) all such Debt and (ii) all Debt permitted solely by clause (j) of Section 6.1 does not exceed 10% of Consolidated Total Assets Section 6.3 Modifications of Merger Document. The Borrower shall not, and shall not permit any of its Subsidiaries to amend, modify or waive, or permit the amendment, modification or waiver of, any provision of the Merger Document. Section 6.4 Fundamental Changes. (a) The Borrower will not, and will not permit any Material Subsidiary to, merge into or consolidate with any other Person, or permit any other Person to merge into or consolidate with it, or sell, transfer, lease or otherwise dispose of (in one transaction or in a series of transactions) all or any substantial part of its assets, or all or substantially all of the stock of any of its Subsidiaries (in each case, whether now owned or hereafter acquired), or liquidate or dissolve, except that, if at the time thereof and immediately after giving effect thereto no Default shall have occurred and be continuing (i) any Subsidiary may merge into the Borrower in a transaction in which the Borrower is the surviving corporation, (ii) any Subsidiary may merge into any Subsidiary in a transaction in which the surviving entity is a Subsidiary, (iii) any Subsidiary may sell, transfer, lease or otherwise dispose of its assets to the Borrower or to another Subsidiary and (iv) any Subsidiary may liquidate or dissolve if the Borrower determines in good faith that such liquidation or dissolution is in the best interests of the Borrower and is not materially disadvantageous to the Lenders. 56 CREDIT AGREEMENT (b) The Borrower will not, and will not permit any of its Subsidiaries to, engage to any material extent in any business other than businesses of the type conducted by the Borrower and its Subsidiaries on the date of execution of this Agreement and businesses reasonably related thereto. Section 6.5 Investments, Loans, Advances, Suretyship Liabilities and Acquisitions. The Borrower will not, and will not permit any of its Material Subsidiaries to, purchase, hold or acquire (including pursuant to any merger with any Person that was not a wholly owned Subsidiary prior to such merger) any capital stock, evidences of indebtedness or other securities (including any option, warrant or other right to acquire any of the foregoing) of, make or permit to exist any loans or advances to, incur Suretyship Liabilities in respect of any obligations of, or make or permit to exist any investment or any other interest in, any other Person, or purchase or otherwise acquire (in one transaction or a series of transactions) any assets of any other Person constituting a business unit, except: (a) Permitted Investments; (b) investments by the Borrower and its Subsidiaries in its Material Subsidiaries, or any Subsidiary which is not a Material Subsidiary so long as such non-Material Subsidiary executes and delivers a Subsidiary Guaranty in favor of the Administrative Agent; (c) loans or advances made, or Suretyship Liabilities incurred, by the Borrower to or in respect of any Subsidiary and made or incurred by any Subsidiary to or in respect of the Borrower or any other Subsidiary; (d) Suretyship Liabilities with respect to Hedging Agreements permitted by Section 6.6; (e) Suretyship Liabilities constituting Debt permitted by Section 6.1; (f) Suretyship Liabilities created under the Other Corporate Loan Documents; (g) Suretyship Liabilities with respect to Surety Instruments incurred in the ordinary course of business; and (h) investments by the Borrower and its Material Subsidiaries not otherwise permitted by the foregoing clauses of this Section 6.5, so long as such additional investments made in reliance on this clause (h) do not exceed $100,000,000 in the aggregate at any time. 57 CREDIT AGREEMENT Section 6.6 Hedging Agreements. The Borrower will not, and will not permit any of its Subsidiaries to, enter into any Hedging Agreement, other than Hedging Agreements entered into in the ordinary course of business to hedge or mitigate risks to which the Borrower or any Subsidiary is exposed in the conduct of its business or the management of its liabilities. Section 6.7 Restricted Payments. The Borrower will not, and will not permit any of its Subsidiaries to, declare or make, or agree to pay or make, directly or indirectly, any Restricted Payment, except that, so long as no Event of Default has occurred and is continuing, (a) the Borrower may declare and pay dividends with respect to its capital stock payable solely in additional shares of its common stock, (b) the Borrower may make Restricted Payments pursuant to and in accordance with stock option plans or other benefit plans for management or employees of the Borrower and its Subsidiaries, (c) any Subsidiary may declare and pay Restricted Payments to the Borrower or any other Subsidiary, and (d) from and after the fiscal year ending January 31, 1998, the Borrower and its Subsidiaries may pay cash dividends and repurchase their respective stock from any Person which is not the Borrower or another Subsidiary so long as on the date of payment or repurchase (i) such cash dividends and stock repurchases do not exceed $100,000,000 in any single fiscal year, and (ii) the total of such cash dividends and stock repurchases in all such fiscal years (beginning with the fiscal year ending January 31, 1998) does not exceed an aggregate amount of $200,000,000 plus 40% of the Borrower's and its Subsidiaries' aggregate net income earned commencing with the fiscal year ending January 31, 1998, and each fiscal year thereafter. Section 6.8 Transactions with Affiliates. Except during the continuance of an Event of Default, the Borrower will not, and will not permit any of its Subsidiaries to, sell, lease or otherwise transfer any property or assets to, or purchase, lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except (a) at prices and on terms and conditions not less favorable to the Borrower or such Subsidiary than could be obtained on an arm's-length basis from unrelated third parties, (b) transactions between or among the Borrower and its wholly owned Subsidiaries not involving any other Affiliate and (c) any Restricted Payment permitted by Section 6.7. Section 6.9 Restrictive Agreements. The Borrower will not, and will not permit any of its Subsidiaries to, directly or indirectly, enter into, incur or permit to exist any agreement or other arrangement that prohibits, restricts or imposes any condition upon the ability of any Subsidiary to pay dividends or other distributions with respect to any shares of its capital stock or to make or repay loans or advances to the Borrower or any other Subsidiary or to incur Suretyship Liabilities in respect of Debt of the Borrower or any other Subsidiary; provided that (i) the foregoing shall not apply to restrictions and conditions imposed by law or by this Agreement, (ii) the foregoing shall not apply to restrictions and conditions (x) contained in the Other Corporate Loan Documents or (y) existing on the date 58 CREDIT AGREEMENT hereof and identified on Schedule 6.9 (but shall apply to any extension or renewal of, or any amendment or modification expanding the scope of, any such restriction or condition) and (iii) the foregoing shall not apply to customary restrictions and conditions contained in agreements relating to the sale of a Subsidiary pending such sale, provided such restrictions and conditions apply only to the Subsidiary that is to be sold and such sale is permitted hereunder and provided further that such restrictions and conditions cannot be imposed at any time that a Default has occurred and is continuing. Section 6.10 Financial Covenants. (a) Debt for Borrowed Money to Consolidated EBITDA Ratio. The Borrower shall not permit the ratio of its Debt for Borrowed Money to Consolidated EBITDA (for the most recent four consecutive quarters) to exceed, at the end of any fiscal quarter ending on or during any period listed below, the ratio set forth opposite such period: Period Ratio ------ ----- From and including January 31, 1998, 4.00:1 to and including January 29, 1999 From and including January 30, 1999 3.75:1 to and including January 28, 2000 From and including January 29, 2000 3.35:1 to and including February 2, 2001 From and including February 3, 2001, 3.00:1 and thereafter provided, however, that Consolidated EBITDA of the Borrower and its Subsidiaries for the four quarter periods ended January 31, 1998, May 23, 1998 and August 15, 1998 shall be calculated by reference to (i) for each fiscal quarter ended after the Closing Date, the actual Consolidated EBITDA for such fiscal quarter, and (ii) for each fiscal quarter ended prior to the Closing Date, Consolidated EBITDA reflected in a pro-forma income statement for such fiscal quarter prepared by the Borrower in good faith using reasonable assumptions consistent with all facts known to the Borrower. (b) Adjusted Interest Coverage Ratio. The Borrower shall not permit the Adjusted Interest Coverage Ratio (for the most recent four consecutive quarters, except as specified below) to be less than, at the end of any fiscal quarter ending on or during any period listed below, the Adjusted Interest Coverage Ratio set forth opposite such period: 59 CREDIT AGREEMENT Period Ratio ------ ----- From and including January 31, 1998 2.25:1 to and including January 29, 1999 From and including January 30, 1999 2.50:1 and thereafter provided, however, that for the periods ended January 31, 1998, May 23, 1998 and August 15, 1998 the Adjusted Interest Coverage Ratio for such period shall be calculated by reference to the full fiscal quarters then ended since the Closing Date. Section 6.11 Unconditional Purchase Obligations. The Borrower shall not, and shall not permit any Material Subsidiary to, enter into or be a party to any contract for the purchase of materials, supplies or other property or services, if such contract requires that payments be made by it regardless of whether or not delivery is ever made of such materials, supplies or other property or services. Section 6.12 Sale of Assets; Sale and Leaseback Transactions. (a) Except as provided in Section 6.12(d), subject to the terms and conditions of this Agreement, the Borrower and its Subsidiaries may convey, sell, transfer or otherwise dispose of (or agree to do so at any future time) its property or assets, provided that to the extent the sum of the fair market value of such property or assets (i) conveyed, sold, transferred or otherwise disposed of and (ii) all transactions pursuant to Section 6.12(b) exceeds $350,000,000 at any time, the Borrower shall comply with the provisions of Section 6.12(c). The foregoing limitations shall not apply to the conveyance, sale, transfer or other disposal of property or assets in the case of sales of inventory in the ordinary course of business and sales of equipment which is uneconomic, obsolete or no longer useful in its business. (b) Except as provided in Section 6.12(d), the Borrower and its Subsidiaries may become liable, directly or indirectly, with respect to any lease, whether an operating lease or a capital lease, of any property (whether real or personal or mixed) whether now owned or hereafter acquired, (i) which the Borrower or such Subsidiary has sold or transferred or is to sell or transfer to any other Person, or (ii) which the Borrower or such Subsidiary intends to use for substantially the same purposes as any other property which has been or is to be sold or transferred by the Borrower or such Subsidiary to any other Person in connection with such lease (such transaction a "Sale and Leaseback Transaction"), provided that to the extent the sum of the fair market value of the property or assets (i) conveyed, sold, transferred or otherwise disposed of pursuant to Section 6.12(a) and (ii) all transactions pursuant to Section 6.12(b) exceeds $350,000,000 at any time, the Borrower shall comply with the provisions of Section 6.12(c). 60 CREDIT AGREEMENT (c) In the event that the aggregate fair market value of all assets sold in all transactions undertaken in reliance upon Sections 6.12(a) and (b) exceeds $350,000,000, (i) the Borrower shall prepay the outstanding Loans in accordance with Section 2.10, together with any breakage fees and other costs and expenses incurred hereunder in connection therewith, in an amount equal to 50% of such excess minus (x) reasonable expenses incurred or reasonably expected to be incurred in connection with such transaction and (y) any income, franchise, transfer or other tax payable in connection with such transaction and (ii) the Commitments of the Lenders hereunder shall be permanently reduced on a pro-rata basis by an amount equal to the payment made pursuant to this Section 6.12(c). The Borrower shall provide the Administrative Agent prompt written notice of any transaction entered into in reliance upon this Section 6.12(c), and shall provide evidence of compliance herewith reasonably satisfactory to the Administrator Agent on or prior to the closing date of any such transaction. (d) Notwithstanding the provisions of Section 6.12(a), (b) and (c) above, Smith's and any subsidiary of Smith's may convey, sell, transfer or dispose of, or enter into Sale and Leaseback Transactions in connection with, assets owned as of the Closing Date by Smith's or any of its subsidiaries; provided that (i) on each date on which Smith's or any such subsidiary of Smith's receives any proceeds from any such transaction, the Borrower shall prepay the outstanding Loans in accordance with Section 2.10, together with any breakage fees and other costs and expenses incurred hereunder in connection therewith, in an amount equal to 50% of the cash proceeds obtained in such transaction by Smith's or such subsidiary of Smith's minus (x) reasonable expenses incurred or reasonably expected to be incurred in connection with such transaction, (y) any income, franchise, transfer or other tax payable by Smith's or such subsidiary of Smith's in connection with such transaction and (z) any Debt secured by a Lien on such property or assets and required to be repaid as a result of such transaction, and (ii) the Commitments of the Lenders hereunder shall be permanently reduced on a pro-rata basis by an amount equal to the payment made pursuant to clause (i) above. The Borrower shall provide the Administrative Agent prompt written notice of any transaction entered into in reliance upon this Section 6.12(d), and shall provide evidence of compliance herewith reasonably satisfactory to the Administrator Agent on or prior to the closing date of any such transaction. Section 6.13 Fiscal Year; Fiscal Quarter. The Borrower shall not, and shall not permit any of its Subsidiaries to, change its fiscal year or any of its fiscal quarters. 61 CREDIT AGREEMENT ARTICLE VII Events of Default If any of the following events ("Events of Default") shall occur: (a) the Borrower shall fail to pay any principal of any Loan or any reimbursement obligation in respect of any LC Disbursement when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or otherwise; or (b) the Borrower shall fail to pay any interest on any Loan or any fee or any other amount (other than an amount referred to in clause (a) of this Article) payable under this Agreement, when and as the same shall become due and payable, and such failure shall continue unremedied for a period of three (3) Business Days; or (c) any representation or warranty made or deemed made by or on behalf of the Borrower or any Subsidiary in or in connection with this Agreement or any amendment or modification hereof or waiver hereunder, or in any report, certificate, financial statement or other document furnished pursuant to or in connection with this Agreement or any amendment or modification hereof or waiver hereunder, shall prove to have been incorrect in any material respect when made or deemed made; or (d) the Borrower shall fail to observe or perform any covenant, condition or agreement contained in Sections 5.2(a), 5.3 (with respect to the Borrower's existence) or 5.8 or in Sections 6.1, 6.2, 6.4, 6.5, 6.6, 6.7, 6.9, 6.10, 6.11 or 6.12; or (e) the Borrower shall fail to observe or perform any covenant, condition or agreement contained in this Agreement (other than those specified in clauses (a), (b), (c) or (d) of this Article), and such failure shall continue unremedied for a period of 30 days after notice thereof from the Administrative Agent to the Borrower (which notice will be given at the request of any Lender); or (f) the Borrower or any Material Subsidiary shall fail to make any payment (whether of principal or interest and regardless of amount) in respect of any Material Debt, when and as the same shall become due and payable or within any applicable grace period provided in connection with such Material Debt; or (g) the Borrower or any Material Subsidiary shall default in any other obligation that results in any Debt of $10,000,000 or more in the aggregate becoming due prior to its scheduled maturity or that enables or permits (with or without the giving of notice, the lapse of time or both) the holder or holders of any Debt of $10,000,000 or more 62 CREDIT AGREEMENT in the aggregate or any trustee or agent on its or their behalf to cause any such Debt to become due, or to require the prepayment, repurchase, redemption or defeasance thereof, prior to its scheduled maturity; or (h) an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization or other relief in respect of the Borrower or any Material Subsidiary or their respective debts, or of a substantial part of their respective assets, under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect or (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Borrower or any Material Subsidiary or for a substantial part of their respective assets, and, in any such case, such proceeding or petition shall continue undismissed for 60 days or an order or decree approving or ordering any of the foregoing shall be entered; or (i) the Borrower or any Material Subsidiary shall (i) voluntarily commence any proceeding or file any petition seeking liquidation, reorganization or other relief under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition described in clause (h) of this Article, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Borrower or any Material Subsidiary or for a substantial part of their respective assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors or (vi) take any action for the purpose of effecting any of the foregoing; or (j) the Borrower or any Material Subsidiary shall become unable, admit in writing or fail generally to pay its debts as they become due; or (k) one or more judgments for the payment of money in an aggregate amount in excess of $5,000,000 shall be rendered against the Borrower, any Subsidiary or any combination thereof and the same shall remain undischarged for a period of 30 consecutive days during which execution shall not be effectively stayed, or any action shall be legally taken by a judgment creditor to attach or levy upon any assets of the Borrower or any Subsidiary to enforce any such judgment; or (l) an ERISA Event shall have occurred that, in the opinion of the Required Lenders, when taken together with all other ERISA Events that have occurred, could reasonably be expected to result in liability of the Borrower and its Subsidiaries in an aggregate amount exceeding $5,000,000; or (m) a Change in Control shall occur; or 63 CREDIT AGREEMENT (n) any Subsidiary Guaranty shall cease to be in full force and effect, or any guarantor under any Subsidiary Guaranty or any Person acting by or on behalf of such guarantor shall deny or disaffirm all or any portion of the guarantor's obligation under such Subsidiary Guaranty; then, and in every such event (other than an event with respect to the Borrower described in clause (h) or (i) of this Article), and at any time thereafter during the continuance of such event, the Administrative Agent may, and at the request of the Required Lenders shall, by notice to the Borrower, take either or both of the following actions, at the same or different times: (i) terminate the Commitments, and thereupon the Commitments shall terminate immediately, (ii) terminate any Letter of Credit that may be terminated under its terms, (iii) direct the Borrower to make (and the Borrower agrees that upon receipt of such notice it will make) the LC Deposit and (iv) declare the Loans then outstanding to be due and payable in whole or in part (in which case any principal not so declared to be due and payable may thereafter be declared to be due and payable), and thereupon the principal of the Loans so declared to be due and payable, together with accrued interest thereon and all fees and other obligations of the Borrower accrued hereunder, shall become due and payable immediately, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower; and in case of any event with respect to the Borrower described in clause (h) or (i) of this Article, the Commitments shall automatically terminate and the principal of the Loans then outstanding, together with accrued interest thereon, the LC Deposit and all fees and other obligations of the Borrower accrued hereunder, shall automatically become due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower. ARTICLE VIII The Administrative Agent Section 8.1 Appointment. Each Lender hereby irrevocably designates and appoints Bankers Trust Company as the Administrative Agent of such Lender under this Agreement, and each such Lender irrevocably authorizes Bankers Trust Company as the Administrative Agent for such Lender, to take such action on its behalf under the provisions of this Agreement and to exercise such powers and perform such duties as are expressly delegated to the Agent by the terms of this Agreement, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in this Agreement, the Administrative Agent shall not have any duties or responsibilities, except those expressly set forth herein, or any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities on the part of the Administrative Agent shall be read into this Agreement or otherwise exist against the Administrative Agent. The provisions of this Article 8 are solely for the benefit of the 64 CREDIT AGREEMENT Administrative Agent and the Lenders and the Borrower shall have no rights as a third party beneficiary or otherwise under any of the provisions hereof. In performing its functions and duties hereunder, the Administrative Agent shall act solely as the agent of the Lenders and does not assume nor shall be deemed to have assumed any obligation or relationship of trust or agency with or for the Borrower or any of its successors and assigns. Section 8.2 Delegation of Duties. The Administrative Agent may execute any of its duties under this Agreement by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Administrative Agent shall not be responsible for the negligence or misconduct or any agents or attorneys-in-fact selected by it with reasonable care. Section 8.3 Exculpatory Provisions. The Administrative Agent shall not be (i) liable for any action lawfully taken or omitted to be taken by it or any Person described in Section 8.2 under or in connection with this Agreement (except for its or such Person's own gross negligence or willful misconduct), or (ii) responsible in any manner to any of the Lenders for any recitals, statements, representations or warranties made by the Borrower contained in this Agreement or in any certificate, report, statement or other document referred to or provided for in, or received under or in connection with, this Agreement or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement, or for any failure of the Borrower to perform its obligations hereunder or thereunder. The Administrative Agent shall not be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement, or to inspect the properties, books or records of the Borrower. This Section is intended solely to govern the relationship between the Administrative Agent, on the one hand, and the Lenders, on the other. Section 8.4 Reliance by Administrative Agent. The Administrative Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to the Borrower), independent accountants and other experts selected by the Administrative Agent. The Administrative Agent shall be fully justified in failing or refusing to take any action under this Agreement unless it shall first receive such advice or concurrence of the Required Lenders as it deems appropriate or it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement in accordance with a request of the Required Lenders, and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders. 65 CREDIT AGREEMENT Section 8.5 Notice of Default. The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Default unless the Administrative Agent has received notice from a Lender or the Borrower referring to this Agreement, describing such Default and stating that such notice is a "notice of default". In the event that the Administrative Agent receives such a notice, the Administrative Agent shall promptly give notice thereof to the Lenders. The Administrative Agent shall take such action with respect to such Default as shall be directed by the Required Lenders; provided that unless and until the Administrative Agent shall have received such directions, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default as the Administrative Agent shall deem advisable and in the best interests of the Lenders. Section 8.6 Non-Reliance on Administrative Agent and Other Lenders. Each Lender expressly acknowledges that neither the Administrative Agent, nor any of its officers, directors, employees, agents, attorneys-in-fact or affiliates has made any representations or warranties to it and that no act by the Administrative Agent hereafter taken, including, without limitation, any review of the affairs of the Borrower, shall be deemed to constitute any representation or warranty by the Administrative Agent. Each Lender represents and warrants to the Administrative Agent that it has, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, prospects, financial and other conditions and creditworthiness of the Borrower and made its own decision to make its Loans hereunder and enter into this Agreement. Each Lender also represents that it will, independently and without reliance upon the Administrative Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, prospects, financial and other condition and creditworthiness of the Borrower. Except for notices, reports and other documents expressly required under this Agreement to be furnished to the Lenders by the Administrative Agent, the Administrative Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, property, prospects, financial and other condition or creditworthiness of the Borrower which may come into the possession of the Administrative Agent or any of its officers, directors, employees, agents, attorneys-in-fact or affiliates. Section 8.7 Indemnification. The Lenders agree to indemnify the Administrative Agent, the Syndication Agent and each of their respective officers, directors, employees, representatives and agents (to the extent not reimbursed by the Borrower and without limiting the obligation of the Borrower to do so), ratably according to their Applicable Percentage, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature 66 CREDIT AGREEMENT whatsoever (including, without limitation, the fees and disbursements of counsel for the Administrative Agent, Syndication Agent or such Person in connection with any investigative, administrative or judicial proceeding commenced or threatened, whether or not the Administrative Agent or such Person shall be designated a party thereto) that may at any time (including, without limitation, at any time following the payment of the Obligations) be imposed on, incurred by or asserted against the Administrative Agent, Syndication Agent or such Person as a result of, or arising out of, or in any way related to or by reason of, any of the Transactions or the execution, delivery or performance of this Agreement (but excluding any such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting solely from the gross negligence or willful misconduct of the Administrative Agent, Syndication Agent or such Person as finally determined by a court of competent jurisdiction). Section 8.8 Administrative Agent in its Individual Capacity. The Administrative Agent and its affiliates may make loans to, accept deposits from and generally engage in any kind of business with the Borrower as though the Administrative Agent were not the Administrative Agent hereunder. With respect to Loans made or renewed by it, the Administrative Agent shall have the same rights and powers under this Agreement as any Lender and may exercise the same as though it were not the Administrative Agent, and the terms "Lender" and "Lenders" shall include the Administrative Agent in its individual capacity. Section 8.9 Successor Administrative Agent. The Administrative Agent may resign as Administrative Agent upon 30 days' notice to the Borrower and the Lenders. If the Administrative Agent shall resign as Administrative Agent under this Agreement, then the Required Lenders during such 30-day period shall appoint from among the Lenders a successor agent, whereupon such successor agent shall succeed to the rights, powers and duties of the Administrative Agent and the term "Administrative Agent" shall mean such successor agent, effective upon its appointment, and the former Administrative Agent's rights, powers and duties as Administrative Agent shall be terminated, without any other or further act or deed on the part of such former Administrative Agent or any of the parties to this Agreement. After any retiring Administrative Agent's resignation hereunder as Administrative Agent, the provisions of this Section 8 and Section 9.3 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Agreement. Section 8.10 Syndication Agent. Without limiting any provision contained in this Section 8, the Syndication Agent shall not have, except as to and to the limited extent expressly provided herein, any obligation, responsibility or duty under this Agreement other than those applicable to all Lenders as such. Each Lender acknowledges that it has not relied, and will not rely, on the Syndication Agent in deciding to enter into this Agreement or in taking or not taking action hereunder. 67 CREDIT AGREEMENT ARTICLE IX Miscellaneous Section 9.1 Notices. Except in the case of notices and other communications expressly permitted to be given by telephone, all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopy, as follows: (a) if to the Borrower, to it at: Fred Meyer, Inc. P.O. Box 42121 3800 SE 22nd Avenue Portland, Oregon 97242-0121 Telecopy: (503) 797-5299 Attn: Mr. James C. Aalberg; with a copy of notices pursuant to Article VII to: Stoel Rives LLP 700 NE Multnomah, Ste 9504 Portland, Oregon 97232 Telecopy: (503) 230-1907 Attn: Mr. Gary R. Barnum (b) if to the Administrative Agent, to it at: Bankers Trust Company 130 Liberty Street New York, New York 10006 Telecopy: (212) 250-7351 Attn: Deal Administrator (c) if to the Issuing Bank, to it at Bankers Trust Company 130 Liberty Street New York, New York 10006 Telecopy: (212) 250-5817 Attn: Letter of Credit Unit 68 CREDIT AGREEMENT (d) if to any other Lender, to it at its address (or telecopy number) set forth opposite its signature below. Any party hereto may change its address or telecopy number for notices and other communications hereunder by notice to the other parties hereto. All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt. It is understood and agreed that the delivery of copies of notices to counsel as set forth above is for courtesy purposes only and any failure to deliver such copy shall not constitute failure with respect to any obligation to provide notices hereunder. Section 9.2 Waivers; Amendments. (a) Neither this Agreement nor any terms hereof may be changed, waived, discharged or terminated unless such change, waiver, discharge or termination is in writing signed by the Required Lenders, provided that no such change, waiver, discharge or termination shall, without the consent of each Lender (other than a Defaulting Lender), (i) extend the final scheduled maturity of any Loan or extend the stated expiration date of any Letter of Credit beyond the Maturity Date, or reduce the rate or extend the time of payment of interest of fees thereon, or reduce the principal amount thereof (except to the extent repaid in cash), (ii) amend, modify or waive any provision of this Section 9.2, (iii) reduce the percentage specified in the definition of Required Lenders, (iv) consent to the assignment or transfer by the Borrower of any of its rights and obligations under this Agreement or (v) release any Subsidiary which is party to a Subsidiary Guaranty form its obligations under such Subsidiary Guaranty; provided further that no such change, waiver, discharge or termination shall (w) increase the Commitment of any Lender (it being understood that waivers or modifications of conditions precedent, covenants, Defaults or of a mandatory reduction in the aggregate Commitments shall not constitute an increase of the Commitment of any Lender, and that an increase in the available portion of any Commitment of any Lender shall not constitute an increase of the Commitment of such Lender), (x) without the consent of any Issuing Bank, amend, modify or waive any provision of Section 2.5 or alter its rights or obligations with respect to Letters of Credit, or (y) without the consent of the Administrative Agent, amend, modify or waive any provision of Section 8 or any other provision as the same relates to the Administrative Agent. No failure or delay by the Administrative Agent, the Issuing Bank or any Lender in exercising any right or power hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Administrative Agent, the Issuing Bank and the Lenders hereunder are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of this Agreement or consent to any departure by the Borrower therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) of this Section, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. Without limiting the 69 CREDIT AGREEMENT generality of the foregoing, the making of a Loan or issuance of a Letter of Credit shall not be construed as a waiver of any Default, regardless of whether the Administrative Agent, any Lender or the Issuing Bank may have had notice or knowledge of such Default at the time. (b) If, in connection with any proposed change, waiver, discharge or termination to any of the provisions of this Agreement contemplated by clauses (i) through (v), inclusive, of the first proviso of Section 9.2(a), the consent of the Required Lenders is obtained but the consent of one or more of such other Lenders whose consent is required is not obtained, then the Borrower shall have the right, so long as all non-consenting Lenders whose individual consent is required are treated as described in either clauses (A) or (B) below, to either (A) replace each such non-consenting Lender or Lenders with one or more Replacement Lenders pursuant to Section 2.18(b) so long as at the time of such replacement each such Replacement Lender consents to the proposed change, waiver, discharge or termination or (B) terminate such non-consenting Lender's Commitment and/or repay the outstanding Loans of such Lender and cash collateralize its applicable LC Exposure in accordance with Section 2.5(j), provided that, unless the Commitment that is terminated and Loans repaid pursuant to preceding clause (B) are immediately replaced in full at such time through the addition of new Lenders or the increase of the Commitments and/or outstanding Loans of existing Lenders (who in each case must specifically consent thereto), then in the case of any action pursuant to preceding clause (B) the Required Lenders (determined after giving effect to the proposed action) shall specifically consent thereto, provided further, that in any event the Borrower shall not have the right to replace a Lender, terminate its Commitment or repay its Loans solely as a result of the exercise of such Lender's rights (and the withholding of any required consent by such Lender) pursuant to the second proviso to Section 9.2(a). Section 9.3 Expenses; Indemnity; Damage Waiver. (a) The Borrower shall pay (i) all reasonable out-of-pocket expenses incurred by the Administrative Agent and its Affiliates, including the reasonable fees, charges and disbursements of counsel for the Administrative Agent, in connection with the syndication of the credit facilities provided for herein, the preparation and administration of this Agreement or any amendments, modifications or waivers of the provisions hereof (whether or not the transactions contemplated hereby or thereby shall be consummated), (ii) all reasonable out-of-pocket expenses incurred by the Issuing Bank in connection with the issuance, amendment, renewal or extension of any Letter of Credit or any demand for payment thereunder and (iii) all out-of-pocket expenses incurred by the Administrative Agent, the Issuing Bank or any Lender, including the fees, charges and disbursements of any counsel for the Administrative Agent, the Issuing Bank or any Lender, in connection with the enforcement or protection of its rights in connection with this Agreement after the occurrence of an Event of Default, including its rights under this Section, or in connection with the Loans made or Letters of Credit issued hereunder, including all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans or Letters of Credit. 70 CREDIT AGREEMENT (b) The Borrower shall indemnify the Administrative Agent, the Issuing Bank and each Lender, and each Related Party of any of the foregoing Persons (each such Person being called an "Indemnitee") against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses, including the fees, charges and disbursements of any counsel for any Indemnitee, incurred by or asserted against any Indemnitee arising out of, in connection with, or as a result of (i) the execution or delivery of this Agreement or any agreement or instrument contemplated hereby, the performance by the parties hereto of their respective obligations hereunder or the consummation of the Transactions or any other transactions contemplated hereby, (ii) any Loan or Letter of Credit or the use of the proceeds therefrom (including any refusal by the Issuing Bank to honor a demand for payment under a Letter of Credit if the documents presented in connection with such demand do not strictly comply with the terms of such Letter of Credit), (iii) any actual or alleged presence or release of Hazardous Materials on or from any property owned or operated by the Borrower or any of its Subsidiaries, or any Environmental Liability related in any way to the Borrower or any of its Subsidiaries, or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory and regardless of whether any Indemnitee is a party thereto; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or wilful misconduct of such Indemnitee. (c) To the extent permitted by applicable law, the Borrower shall not assert, and hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement or any agreement or instrument contemplated hereby, the Transactions, any Loan or Letter of Credit or the use of the proceeds thereof. (d) All amounts due under this Section shall be payable not later than 10 days after written demand therefor. Section 9.4 Successors and Assigns. (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby (including any Affiliate of the Issuing Bank that issues any Letter of Credit), except that the Borrower may not assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of each Lender (and any attempted assignment or transfer by the Borrower without such consent shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby (including any Affiliate of the Issuing Bank that issues any Letter of Credit) and, to the extent expressly contemplated hereby, the Related Parties of each of the 71 CREDIT AGREEMENT Administrative Agent, the Issuing Bank and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement. (b) Any Lender may assign to one or more assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans and a corresponding amount of its LC Exposure at the time owing to it); provided that (i) except in the case of an assignment to a Lender or an Affiliate of a Lender, each of the Borrower, the Administrative Agent and the Issuing Bank must give its prior written consent to such assignment (which consent shall not be unreasonably withheld), (ii) except in the case of an assignment to a Lender or an Affiliate of a Lender or an assignment of the entire remaining amount of the assigning Lender's Commitment, the amount of the Commitment of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Acceptance with respect to such assignment is delivered to the Administrative Agent) shall not be less than $5,000,000 unless each of the Borrower and the Administrative Agent otherwise consent, (iii) each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender's rights and obligations under this Agreement, except that this clause (iii) shall not apply to rights in respect of outstanding Competitive Loans and (iv) the parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Acceptance, together with a processing and recordation fee of $3,500; and provided further that any consent of the Borrower otherwise required under this paragraph shall not be required if a Default has occurred and is continuing. Subject to acceptance and recording thereof pursuant to paragraph (d) of this Section, from and after the effective date specified in each Assignment and Acceptance the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Acceptance, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all of the assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 2.14, 2.15, 2.16 and 9.3). Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this paragraph shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with paragraph (e) of this Section. (c) The Administrative Agent, acting for this purpose as an agent of the Borrower, shall maintain at one of its offices in The City of New York a copy of each Assignment and Acceptance delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitment of, and principal amount of the Loans and LC Disbursements owing to, each Lender pursuant to the terms hereof from time to time (the "Register"). The entries in the Register shall be conclusive (absent manifest error), and the Borrower, the Administrative Agent, the Issuing Bank and the Lenders may treat each 72 CREDIT AGREEMENT Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Borrower, the Issuing Bank and any Lender, at any reasonable time and from time to time upon reasonable prior notice. (d) Upon its receipt of a duly completed Assignment and Acceptance executed by an assigning Lender and an assignee, the processing and recordation fee referred to in paragraph (b) of this Section and any written consent to such assignment required by paragraph (b) of this Section, the Administrative Agent shall accept such Assignment and Acceptance and record the information contained therein in the Register. No assignment shall be effective for purposes of this Agreement unless it has been recorded in the Register as provided in this paragraph. (e) Any Lender may, without the consent of the Borrower, the Administrative Agent or the Issuing Bank, sell participations to one or more banks or other entities (a "Participant") in all or a portion of such Lender's rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans owing to it); provided that (i) such Lender's obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) the Borrower, the Administrative Agent, the Issuing Bank and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement. Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; and provided further that no Lender shall transfer or grant any participation under which the Participants shall have rights to approve any amendment to or waiver of this Agreement except to the extent that such amendment or waiver would (i) extend the final scheduled maturity of any Revolving Loan, Note or Letter of Credit (unless such Letter of Credit is not extended beyond the Maturity Date) in which the Participant is participating, or reduce the rate or extend the time of payment of interest or fees thereon (except in connection with a waiver of applicability of any post-default increase in interest rates) or reduce the principal amount thereof, or increase the amount of the Participant's participation over the amount thereof then in effect (it being understood that a waiver of any Default or of a mandatory reduction in the aggregate Commitments shall not constitute a change in the terms of such participation and that an increase in any Commitment or Revolving Loan shall be permitted without the consent of any participant if the Participant's participation is not increased as a result thereof), or (ii) consent to the assignment by the Borrower of any of its rights and obligations under this Agreement. (f) A Participant shall not be entitled to receive any greater payment under Section 2.14 or 2.16 than the applicable Lender would have been entitled to receive 73 CREDIT AGREEMENT with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Borrower's prior written consent. A Participant that, subject to the foregoing, would be a Foreign Lender if it were a Lender shall not be entitled to the benefits of Section 2.16 unless the Borrower is notified of the participation sold to such Participant and such Participant agrees, for the benefit of the Borrower, to comply with Section 2.16(e) as though it were a Lender. (g) Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank, and this Section shall not apply to any such pledge or assignment of a security interest; provided that no such pledge or assignment of a security interest shall release a Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto. Section 9.5 Survival. All covenants, agreements, representations and warranties made by the Borrower herein and in the certificates or other instruments delivered in connection with or pursuant to this Agreement shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of this Agreement and the making of any Loans and issuance of any Letters of Credit, regardless of any investigation made by any such other party or on its behalf and notwithstanding that the Administrative Agent, the Issuing Bank or any Lender may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any fee or any other amount payable under this Agreement is outstanding and unpaid or any Letter of Credit is outstanding and so long as the Commitments have not expired or terminated. The provisions of Sections 2.14, 2.15, 2.16 and 9.3 and Article VIII shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Loans, the expiration or termination of the Letters of Credit and the Commitments or the termination of this Agreement or any provision hereof. Section 9.6 Counterparts; Integration; Effectiveness. This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement and any separate letter agreements with respect to fees payable to the Administrative Agent constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. Except as provided in Section 4.1, this Agreement shall become effective when it shall have been executed by the Administrative Agent and when the Administrative Agent shall have received counterparts hereof which, when taken together, bear the signatures of each of the other parties hereto, 74 CREDIT AGREEMENT and thereafter shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Delivery of an executed counterpart of a signature page of this Agreement by telecopy shall be effective as delivery of a manually executed counterpart of this Agreement. Section 9.7 Severability. Any provision of this Agreement held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction. Section 9.8 Right of Setoff. If an Event of Default shall have occurred and be continuing, each Lender and each of its Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other obligations at any time owing by such Lender or Affiliate to or for the credit or the account of the Borrower against any and all of the obligations of the Borrower now or hereafter existing under this Agreement held by such Lender, irrespective of whether or not such Lender shall have made any demand under this Agreement and although such obligations may be unmatured. The rights of each Lender under this Section are in addition to other rights and remedies (including other rights of setoff) which such Lender may have. Section 9.9 Governing Law; Jurisdiction; Consent to Service of Process. (a) This Agreement shall be construed in accordance with and governed by the law of the State of New York. (b) The Borrower hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of the Supreme Court of the State of New York sitting in New York County and of the United States District Court of the Southern District of New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that the Administrative Agent, the Issuing Bank or any Lender may otherwise have to bring any action or proceeding relating to this Agreement against the Borrower or its properties in the courts of any jurisdiction. 75 CREDIT AGREEMENT (c) The Borrower hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement in any court referred to in paragraph (b) of this Section. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. (d) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 9.1. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law. Section 9.10 WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION. Section 9.11 Headings. Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement. Section 9.12 Confidentiality. Each of the Administrative Agent, the Issuing Bank and the Lenders agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its and its Affiliates' directors, officers, employees and agents, including accountants, legal counsel and other advisors (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (b) to the extent requested by any regulatory authority, (c) to the extent required by applicable laws or regulations or by any subpoena or similar legal process, (d) to any other party to this Agreement, (e) in connection with the exercise of any remedies hereunder or any suit, action or proceeding relating to this Agreement or the enforcement of rights 76 CREDIT AGREEMENT hereunder, (f) to any participant or prospective participant in or assignee or prospective assignee of any of the rights and obligations under this Agreement, provided that such participant, prospective participant, assignee or prospective assignee agrees to be bound by the confidentiality provisions contained in this Section 9.12, (g) with the consent of the Borrower or (h) to the extent such Information (i) becomes publicly available other than as a result of a breach of this Section or (ii) becomes available to the Administrative Agent, the Issuing Bank or any Lender on a nonconfidential basis from a source other than the Borrower. For the purposes of this Section, "Information" means all information received from the Borrower relating to the Borrower or its business, other than any such information that is available to the Administrative Agent, the Issuing Bank or any Lender on a nonconfidential basis prior to disclosure by the Borrower; provided that, in the case of information received from the Borrower after the date hereof, such information is clearly identified at the time of delivery as confidential. Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information. Section 9.13 OREGON LEGAL NOTICE. WITHOUT LIMITING THE VALIDITY OF THE CHOICE OF NEW YORK LAW PROVIDED HEREIN, UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY THE LENDERS AFTER THE RESTATEMENT DATE OF THE ACT SPECIFIED HEREIN CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT FOR PERSONAL FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE BORROWER'S RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY THE LENDERS TO BE ENFORCEABLE. THE ACT SPECIFIED HEREIN MEANS CHAPTER 967 OREGON LAWS 1989, THE EFFECTIVE DATE OF WHICH WAS OCTOBER 3, 1989. 77 CREDIT AGREEMENT IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. MEYER-SMITH HOLDCO, INC. as Borrower By: JAMES C. AALBERG ------------------------------------- Name: James C. Aalberg Title: Vice President, Treasurer S-1 CREDIT AGREEMENT BANKERS TRUST COMPANY, as Administrative Agent and as a Lender By: MARY KAY COYLE ------------------------------------- Name: Mary Kay Coyle Title: Managing Director S-2 CREDIT AGREEMENT THE CHASE MANHATTAN BANK, as Syndication Agent and as a Lender By: ELLEN L. GERTZOG ------------------------------------- Name: Ellen L. Gertzog Title: Vice President S-3 CREDIT AGREEMENT BANK OF AMERICA NT & SA, as a Lender By: JAY R. ALLEN ------------------------------------- Name: Jay R. Allen Title: SVP S-4 CREDIT AGREEMENT THE BANK OF NEW YORK, as a Lender By: CHARLOTTE SOHN ------------------------------------- Name: Charlotte Sohn Title: Vice President S-5 CREDIT AGREEMENT COMPAGNIE FINANCIERE DE CIC ET DE L'UNION EUROPEENNE, as a Lender By: ANTHONY ROCK ------------------------------------- Name: Anthony Rock Title: Vice President By: BRIAN O'LEARY ------------------------------------- Name: Brian O'Leary Title: Vice President S-6 CREDIT AGREEMENT THE HONG KONG AND SHANGHAI BANKING CORPORATION LIMITED, as a Lender By: JOHN C. HOLSEY ------------------------------------- Name: John C. Holsey Title: Executive Vice President S-7 CREDIT AGREEMENT COOPERATIVE CENTRALE RAIFFESISEN- BOERENLEENBANK B.A., "RABOBANK NEDERLAND" NEW YORK BRANCH as a Lender By: DANA W. HEMENWAY ------------------------------------- Name: Dana W. Hemenway Title: Vice President By: W. PIETER C. KODDE ------------------------------------- Name: W. Pieter C. Kodde Title: Vice President S-8 CREDIT AGREEMENT CAISSE NATIONALE DE CREDIT AGRICOLE, as a Lender By: DEAN BALICE ------------------------------------- Name: Dean Balice Title: Senior Vice President Branch Manager S-9 CREDIT AGREEMENT THE DAI-ICHI KANGYO BANK, LIMITED, as a Lender By: TAKUO YOSHIDA ------------------------------------- Name: Takuo Yoshida Title: General Manager & Agent S-10 CREDIT AGREEMENT THE FUJI BANK, LIMITED, as a Lender By: KAZUO KAMIO ------------------------------------- Name: Kazuo Kamio Title: General Manager S-11 CREDIT AGREEMENT UNION BANK OF CALIFORNIA, N.A., as a Lender By: TIMOTHY P. STREB ------------------------------------- Name: Timothy P. Streb Title: Vice President S-12 CREDIT AGREEMENT SOCIETE GENERALE, as a Lender By: J. BLAINE SHAUM ------------------------------------- Name: J. Blaine Shaum Title: Regional Manager S-13 CREDIT AGREEMENT THE FIRST NATIONAL BANK OF CHICAGO, as a Lender By: CHRISTINA ZAUTCKE ------------------------------------- Name: Christina Zautcke Title: First Vice President S-14 CREDIT AGREEMENT KEYBANK NATIONAL ASSOCIATION, as a Lender By: KEVIN P. MCBRIDE ------------------------------------- Name: Kevin P. McBride Title: Vice President S-15 CREDIT AGREEMENT U.S. NATIONAL BANK ASSOCIATION, as a Lender By: STEVEN T. WILLIAMS ------------------------------------- Name: Steven T. Williams Title: Vice President S-16 CREDIT AGREEMENT WELLS FARGO BANK, N.A., as a Lender By: W.L. HAUCK ------------------------------------- Name: W.L. Hauck Title: VP S-17 CREDIT AGREEMENT ZIONS FIRST NATIONAL BANK, as a Lender By: RICHARD P. JACKSON ------------------------------------- Name: Richard P. Jackson Title: V.P. S-18 CREDIT AGREEMENT FIRST SECURITY BANK, as a Lender By: JUDY CALLISTER ------------------------------------- Name: Judy Callister Title: Vice President S-19 CREDIT AGREEMENT Schedule 2.1 Lenders and Commitments Name and Address of Lender Amount of Commitment - -------------------------- -------------------- Bankers Trust Company $286,279,888.90 One Bankers Trust Plaza 130 Liberty Street New York, New York 10006 Telecopier No.: (212) 250-7351 Attn: Deal Administrator The Chase Manhattan Bank $286,279,888.90 270 Park Avenue New York, New York 10017 Telecopier No.: (212) Attn: Wells Fargo Bank, N.A. $114,961,772.42 1300 SW Fifth Avenue 13th Floor Portland, Oregon 97201 Telecopier No.: (503) 225-3162 Attn: William Hauck Union Bank of California, N.A., $63,228,974.83 a Member of the Bank of Tokyo, Mitsubishi Bank Group 350 California Street 11th Floor San Francisco, California 94104 Telecopier No.: (415) 705-7085 Attn: Timothy P. Streb U.S. Bank National Association $57,480,886.21 555 S.W. Oak St., PL-4 Portland, Oregon 97204 Telecopier No.: (503-275-5428 Attn: Steven T. Williams The HongKong and Shanghai Banking Corporation Limited $28,740,443.11 140 Broadway, 4th Floor New York, New York 10005-1196 Telecopier No.: (212) 658-2813 Attn: Adriana Collins 1 CREDIT AGREEMENT First Security Bank, N.A. $28,740,443.11 15 East 100 South, 2nd Floor Salt Lake City, Utah 84111 Telecopier No.: (801) 246-5532 Attn: Judy Callister The Bank of New York $28,740,443.11 One Wall Street, 19th Floor New York, New York 10286 Telecopier No.: (212) Attn: The Fuji Bank, Limited $14,837,398.37 601 California Street San Francisco, California 94111 Telecopier No.: (415) Attn: Compagnie Financiere de CIC et de L'Union Europeenne $14,370,221.55 520 Madison Ave. 37th Floor New York, New York 10022 Telecopier No.: (212) 715-4535 Attn: Anthony Rock The First National Bank of Chicago $14,370,221.55 777 South Figueroa St. 4th Floor Los Angeles, California 90017 Telecopier No.: (213) 683-4999 Attn: James P. Moore Cooperative Centrale Raiffesisen-Boerenleenbank B.A., "Rabobank Nederland," New York Branch $14,370,221.55 Four Embarcadero Center Suite 3200 San Francisco, California 94111 Telecopier No.: (415) 986-8349 Attn: Hunter Holding Bank of America NT & SA $14,370,221.55 335 Madison Avenue New York, New York 10017 Telecopier No.: (212) 503-7502 Attn: Linda Carper 2 CREDIT AGREEMENT The Dai-ichi Kangyo Bank, Limited $14,370,221.55 101 California Street, Suite 4000 San Francisco, California 94111 Telecopier No.: (415) 788-7868 Attn: Mark Dirsa Keybank National Association $14,370,221.55 700 5th Avenue, 48th Floor Seattle, Washington 98125 Telecopier No.: (206) 684-6035 Attn: Mary Young Caisse Nationale de Credit Agricole $14,370,221.55 101 California Street San Francisco, California 94111 Telecopier No.: (415) 996-4116 Attn: Karen Kokame Societe Generale $11,496,177.24 One Montgomery Street San Francisco, California 94104 Telecopier No.: (415) Attn: Zions First National Bank $8,622,132.93 Commercial Loans 185-K2 One South Main Street Salt Lake City, Utah 84111 Telecopier No.: (801) 524-2136 Attn: Richard P. Jackson 3 EX-4.3 5 364-DAY CREDIT AGREEMENT ================================================================================ $500,000,000 364-DAY CREDIT AGREEMENT dated as of September 9, 1997 among MEYER-SMITH HOLDCO, INC., as Borrower and The Lenders Party Hereto BANKERS TRUST COMPANY, as Administrative Agent and THE CHASE MANHATTAN BANK, as Syndication Agent --------------------------- CHASE SECURITIES INC. and BT SECURITIES CORPORATION, as Arrangers ================================================================================ TABLE OF CONTENTS Page ARTICLE I Definitions SECTION 1.1. Defined Terms................................................. 1 SECTION 1.2. Classification of Loans and Borrowings........................17 SECTION 1.3. Terms Generally...............................................17 SECTION 1.4. Accounting Terms; GAAP........................................18 SECTION 1.5. Change of Names...............................................18 ARTICLE II The Credits SECTION 2.1. Commitments...................................................18 SECTION 2.2. Loans and Borrowings..........................................19 SECTION 2.3. Requests for Revolving Borrowings.............................19 SECTION 2.4. Competitive Bid Procedure.....................................20 SECTION 2.5. Term Loan Conversion..........................................22 SECTION 2.6. Funding of Borrowings.........................................23 SECTION 2.7. Interest Elections............................................24 SECTION 2.8. Termination and Reduction of Commitments......................25 SECTION 2.9. Repayment of Loans; Evidence of Debt..........................26 SECTION 2.10. Prepayment of Loans...........................................27 SECTION 2.11. Fees..........................................................27 SECTION 2.12. Interest......................................................28 SECTION 2.13. Alternate Rate of Interest....................................29 SECTION 2.14. Increased Costs...............................................29 SECTION 2.15. Break Funding Payments........................................30 SECTION 2.16. Taxes.........................................................31 SECTION 2.17. Payments Generally; Pro Rata Treatment; Sharing of Set-offs...........................................32 SECTION 2.18. Mitigation Obligations; Replacement of Lenders....................................................34 SECTION 2.19. Extension of Revolver Termination Date........................35 i ARTICLE III Representations and Warranties SECTION 3.1. Organization; Powers..........................................36 SECTION 3.2. Authorization; Enforceability.................................36 SECTION 3.3. Governmental Approvals; No Conflicts..........................36 SECTION 3.4. Financial Condition; No Material Adverse Change................................................36 SECTION 3.5. Properties....................................................37 SECTION 3.6. Litigation and Environmental Matters..........................37 SECTION 3.7. Compliance with Laws and Agreements...........................38 SECTION 3.8. Investment and Holding Company Status.........................38 SECTION 3.9. Taxes.........................................................38 SECTION 3.10. ERISA.........................................................38 SECTION 3.11. Disclosure....................................................38 SECTION 3.12. Solvency......................................................38 SECTION 3.13. Use of Proceeds; Margin Regulations...........................39 SECTION 3.14. No Default....................................................39 SECTION 3.15. Subsidiaries..................................................39 ARTICLE IV Conditions SECTION 4.1. Effective Date................................................39 SECTION 4.2. Each Credit Event.............................................40 ARTICLE V Affirmative Covenants SECTION 5.1. Financial Statements and Other Information....................41 SECTION 5.2. Notices of Material Events....................................42 SECTION 5.3. Existence; Conduct of Business................................43 SECTION 5.4. Payment of Obligations........................................43 SECTION 5.5. Maintenance of Properties; Insurance..........................43 SECTION 5.6. Books and Records; Inspection Rights..........................43 SECTION 5.7. Compliance with Laws..........................................44 SECTION 5.8. Use of Proceeds...............................................44 SECTION 5.9. Subsidiary Guaranties.........................................44 ii ARTICLE VI Negative Covenants SECTION 6.1. Material Subsidiary Debt......................................44 SECTION 6.2. Liens.........................................................45 SECTION 6.3. Modifications of Merger Document..............................46 SECTION 6.4. Fundamental Changes...........................................46 SECTION 6.5. Investments, Loans, Advances, Suretyship Liabilities and Acquisitions..................................47 SECTION 6.6. Hedging Agreements............................................47 SECTION 6.7. Restricted Payments...........................................48 SECTION 6.8. Transactions with Affiliates..................................48 SECTION 6.9. Restrictive Agreements........................................48 SECTION 6.10. Financial Covenants...........................................49 SECTION 6.11. Unconditional Purchase Obligations............................50 SECTION 6.12. Fiscal Year; Fiscal Quarter...................................50 ARTICLE VII Events of Default ARTICLE VIII The Administrative Agent SECTION 8.1. Appointment...................................................52 SECTION 8.2. Delegation of Duties..........................................53 SECTION 8.3. Exculpatory Provisions........................................53 SECTION 8.4. Reliance by Administrative Agent..............................53 SECTION 8.5. Notice of Default.............................................54 SECTION 8.6. Non-Reliance on Administrative Agent and Other Lenders........54 SECTION 8.7. Indemnification ..............................................54 SECTION 8.8. Administrative Agent in Its Individual Capacity ..............55 SECTION 8.9. Successor Administrative Agent................................55 SECTION 8.10. Syndication Agent.............................................55 iii ARTICLE IX Miscellaneous SECTION 9.1. Notices.......................................................56 SECTION 9.2. Waivers; Amendments...........................................57 SECTION 9.3. Expenses; Indemnity; Damage Waiver............................58 SECTION 9.4. Successors and Assigns........................................59 SECTION 9.5. Survival......................................................61 SECTION 9.6. Counterparts; Integration; Effectiveness......................62 SECTION 9.7. Severability..................................................62 SECTION 9.8. Right of Setoff...............................................62 SECTION 9.9. Governing Law; Jurisdiction; Consent to Service of Process.........................................62 SECTION 9.10. WAIVER OF JURY TRIAL..........................................63 SECTION 9.11. Headings......................................................63 SECTION 9.12. Confidentiality...............................................63 SECTION 9.13. OREGON LEGAL NOTICE...........................................64 SCHEDULES AND EXHIBITS Schedule 2.1 Lenders and Commitments Schedule 3.6 Disclosed Matters Schedule 3.15 Subsidiaries Schedule 4.1 Refinancing of Existing Debt Schedule 6.1 Debt Schedule 6.2 Liens Schedule 6.10 Restrictive Agreements Exhibit A Assignment and Acceptance Exhibit B Note Exhibit C Opinion of Stoel Rives, Counsel to the Borrower Exhibit D Subsidiary Guaranty iv 364-DAY CREDIT AGREEMENT dated as of September 9, 1997, among MEYER-SMITH HOLDCO., INC., as Borrower, the LENDERS party hereto, BANKERS TRUST COMPANY, as Administrative Agent and THE CHASE MANHATTAN BANK, as Syndication Agent. The parties hereto agree as follows: ARTICLE I Definitions Section 1.1 Defined Terms. As used in this Agreement, the following terms have the meanings specified below: "ABR" means, for any day, a rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the greater of (a) the Prime Rate in effect on such day and (b) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. For purposes hereof, "Prime Rate" means the rate of interest per annum publicly announced from time to time by the Administrative Agent as its prime rate in effect at its principal office in New York City (the Prime Rate not being intended to be the lowest rate of interest charged by the Administrative Agent in connection with extensions of credit to debtors); each change in the Prime Rate shall be effective on the date such change is publicly announced as effective. "Federal Funds Effective Rate" means, for any day, the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for the day of such transactions received by the Administrative Agent from three Federal funds brokers of recognized national standing selected by it. If for any reason the Administrative Agent shall have determined that it is unable to ascertain the Federal Funds Effective Rate for any reason, including the inability or failure of the Administrative Agent to obtain sufficient quotations in accordance with the terms thereof, the ABR shall be determined without regard to clause (b) of the first sentence of this definition, as appropriate, until the circumstances giving rise to such inability no longer exist. Any change in the ABR due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective on the effective date of such change in the Prime Rate or the Federal Funds Effective Rate, respectively. "Adjusted Interest Coverage Ratio" means the ratio of (a) Consolidated EBITDAR to (b) the sum of (i) the Borrower's Consolidated Interest Expense for such period plus (ii) except as included in Consolidated Interest Expense, the Borrower's consolidated rental expense on operating leases, computed as of the last day of a fiscal quarter for the period consisting of such fiscal quarter and the immediately preceding three fiscal quarters. "Adjusted LIBO Rate" means, with respect to any Eurodollar Borrowing for any Interest Period, an interest rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to (a) the LIBO Rate for such Interest Period multiplied by (b) the Statutory Reserve Rate. "Administrative Agent" means Bankers Trust Company, in its capacity as administrative agent for the Lenders hereunder. "Affiliate" means, with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified. "Agents" means the Administrative Agent and the Syndication Agent. "Applicable Level" means the level determined with reference to the following chart: Level Ratio Rating - ----- ----- ------ I greater than or equal to 7.5x greater than or equal to A-/A3 II greater than 6.5x BBB+/Baa1 III greater than 5.5x BBB/Baa2 IV greater than 4.5x BBB-/Baa3 V greater than or equal to 3.5x BB+/Ba1 VI lesser than 3.5x lesser than BB+/Ba1 For purposes of the foregoing, (i) for the six month period following from and after the Closing Date, the Applicable Level shall be Level IV; (ii) on the date that is six months after the Closing Date, the Borrower shall provide the Administrative Agent with a Compliance Certificate showing the ratio of Applicable EBITDA to Applicable Interest Expense of the Borrower for the fiscal quarter ended January 31, 1998 (and in the event the Borrower fails timely to provide such Compliance Certificate, the Applicable Level shall be Level V until such Compliance Certificate is provided), and from such date until May 23, 1998, the Applicable Level shall be the Level corresponding to such ratio; (iii) except as provided in (i) and (ii) above, at any time of determination, the Applicable Level shall be the Level corresponding to the ratio of Applicable EBITDA to Applicable Interest Expense (for the most recent four consecutive fiscal quarters; provided that for the periods ended May 23, 1998 and August 15, 1998, Applicable EBITDA and Applicable Interest Expense shall be calculated by reference to the full fiscal quarters then ended since the Closing Date) as set forth in the most recently delivered Compliance Certificate (it being understood and agreed that if the Borrower shall not have delivered the most recently due Compliance Certificate within the time period specified in Section 5.1(c), the Applicable Level shall be Level V until such Compliance Certificate is delivered) (for purposes of this definition, the "Ratio") and the senior unsecured long term debt rating of the Borrower from S&P and Moody's (for 2 purposes of this definition, the "Rating"); (iv) in the event the Ratio and the Rating do not fall within the same Level, the Applicable Level shall be the higher (Level I being the highest) of the two Levels; and (v) in the event the rating from S&P and the rating from Moody's do not fall within the same Level, the applicable Rating will be based upon the higher (Level I being the highest) of the two ratings, except that, in the event one of the two ratings is two or more Levels higher than the other, the applicable Rating shall be determined by reference to the Level next lower than the higher of the two ratings. If any rating established or deemed to be established by Moody's or S&P shall be changed (other than as a result of a change in the rating system of Moody's or S&P), such change shall be effective as of the date on which such change is first announced by the rating agency making such change. Each such change shall take effect on the effective date of such change and shall end on the date immediately preceding the effective date of the next such change. If the rating system of S&P or Moody's shall change prior to the Maturity Date, the Borrower and the Lenders shall negotiate in good faith to amend the references to specific ratings in this definition to reflect such changed rating system, and pending agreement on another Applicable Level the Rating shall be determined by reference to the rating provided by the non-changing rating agency. If the Borrower does not have a senior long term unsecured debt rating or implied rating from either Moody's or S&P, the Applicable Level shall be determined by reference to the Ratio only. For purposes of this definition, "Applicable EBITDA" of the Borrower and its Subsidiaries means "A" minus "B"; where: "A" equals the sum of consolidated net income plus, to the extent deducted in determining consolidated pre-tax net income (i) extraordinary losses, (ii) interest expenses, (iii) amortization, (iv) depreciation, (v) income taxes, (vi) non-cash LIFO reserve charges; and "B" equals, to the extent included in determining consolidated pre-tax income, extraordinary gains; and "Applicable Interest Expense" means the consolidated interest expense of the Borrower and its Subsidiaries. "Applicable Margin" means, with respect to any facility fee or Eurodollar Loan, the applicable number of basis points per annum as set forth below based on the Applicable Level: Applicable Margin for Applicable Level Facility Fee Eurodollar Loans - ---------------- ------------ ---------------- I 5.5 14.5 II 6.5 16.0 III 7.0 18.0 IV 8.0 22.0 V 10.0 27.5 3 VI 15.0 35.0 "Applicable Percentage" means, at any time and with respect to any Lender, the percentage of the total Commitments represented by such Lender's Commitment (or after the termination thereof, the percentage of the total outstanding Loans represented by such Lender's outstanding Loans at such time). "Assignment and Acceptance" means an assignment and acceptance entered into by a Lender and an assignee (with the consent of any party whose consent is required by Section 9.4), and accepted by the Administrative Agent, in the form of Exhibit A. "Availability Period" means the period from and including the Effective Date to but excluding the earlier of the Revolver Termination Date and the Maturity Date. "Board" means the Board of Governors of the Federal Reserve System of the United States of America. "Borrower" means Meyer-Smith Holdco, Inc., a Delaware corporation. "Borrowing" means (a) Revolving Loans of the same Type, made, converted or continued on the same date and, in the case of Eurodollar Loans, as to which a single Interest Period is in effect, (b) a Competitive Loan or group of Competitive Loans of the same Type made on the same date and as to which a single Interest Period is in effect or (c) the Term Loan. "Borrowing Request" means a request by the Borrower for a Revolving Borrowing in accordance with Section 2.3. "Business Day" means any day that is not a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to remain closed; provided that, when used in connection with a Eurodollar Loan, the term "Business Day" shall also exclude any day on which banks are not open for dealings in dollar deposits in the New York interbank market. "Capital Lease Obligations" of any Person means the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP. "Change in Control" means (a) the acquisition of ownership, directly or indirectly, beneficially or of record, by any Person or group (within the meaning of the Securities Exchange Act of 1934 and the rules of the Securities and Exchange Commission 4 thereunder as in effect on the date hereof), of shares representing more than 33 1/3% of the aggregate ordinary voting power represented by the issued and outstanding capital stock of the Borrower; or (b) occupation of a majority of the seats (other than vacant seats) on the board of directors of the Borrower by Persons who were neither (i) nominated by the board of directors of the Borrower nor (ii) appointed by directors so nominated. "Change in Law" means (a) the adoption of any law, rule or regulation after the date of this Agreement, (b) any change in any law, rule or regulation or in the interpretation or application thereof by any Governmental Authority after the date of this Agreement or (c) compliance by any Lender (or, for purposes of Section 2.14(b), by any lending office of such Lender or by such Lender's holding company, if any) with any request, guideline or directive (whether or not having the force of law) of any Governmental Authority made or issued after the date of this Agreement. "Class", when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are Revolving Loans or Competitive Loans. "Closing Date" means September 9, 1997. "Code" means the Internal Revenue Code of 1986, as amended from time to time. "Commitment" means, with respect to each Lender, the commitment of such Lender to make Revolving Loans hereunder, expressed as an amount representing the maximum aggregate amount of such Lender's Revolving Credit Exposure hereunder, as such commitment may be (a) reduced from time to time pursuant to Section 2.8 and (b) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to Section 9.4. The initial amount of each Lender's Commitment is set forth on Schedule 2.1, or in the Assignment and Acceptance pursuant to which such Lender shall have assumed its Commitment, as applicable. Each Lender's Commitment shall not be affected by any Competitive Loans made by such Lender; provided that such Competitive Loans shall be included in any calculation of the aggregate amount of Loans outstanding hereunder for purposes of determining whether the aggregate of the Commitments has been or would be exceeded by outstanding Loans. The initial aggregate amount of the Lenders' Commitments is $500,000,000. "Competitive Bid" means an offer by a Lender to make a Competitive Loan in accordance with Section 2.4. "Competitive Bid Rate" means, with respect to any Competitive Bid, the Margin or the Fixed Rate, as applicable, offered by the Lender making such Competitive Bid. 5 "Competitive Bid Request" means a request by the Borrower for Competitive Bids in accordance with Section 2.4. "Competitive Loan" means a Loan made pursuant to Section 2.4. "Compliance Certificate" means a certificate signed by a Responsible Officer of the Borrower certifying as to the matters set forth in Section 5.1(c). "Consolidated EBITDA" of the Borrower and its Subsidiaries means "A" minus "B"; where: "A" equals the sum of consolidated net income plus, to the extent deducted in determining consolidated pre-tax net income (i) extraordinary losses, (ii) interest expenses, including the interest component of rent expense under all Synthetic Lease Facilities for which the Borrower or any of its Subsidiaries has Suretyship Liability, (iii) amortization, (iv) depreciation, (v) income taxes, (vi) non-cash LIFO reserve charges; and "B" equals, to the extent included in determining consolidated pre-tax income, extraordinary gains. "Consolidated EBITDAR" of the Borrower and its Subsidiaries means "A" minus "B"; where: "A" equals the sum of consolidated net income plus, to the extent deducted in determining consolidated pre-tax net income (i) extraordinary losses, (ii) interest expense, (iii) amortization, (iv) depreciation, (v) income taxes, (vi) non-cash LIFO reserve charges and (vii) consolidated rental expense on operating leases (including rent paid pursuant to any Synthetic Lease Facility); and "B" equals, to the extent included in determining consolidated pre-tax income, extraordinary gains. "Consolidated Interest Expense" means the consolidated interest expense of the Borrower, including the interest component of rent expense under all Synthetic Lease Facilities for which the Borrower or any of its Subsidiaries has Suretyship Liability. "Consolidated Total Assets" means the total consolidated assets of the Borrower and its Subsidiaries as shown on the most recent consolidated balance sheet of the Borrower and its Subsidiaries referred to in Section 3.4 or delivered to the Administrative Agent and each Lender pursuant to Section 5.1. 6 "Control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. "Controlling" and "Controlled" have meanings correlative thereto. "Conversion Date" means the date on which the Term Loan Conversion is effected. "Current Synthetic Lease Facility" means the transactions contemplated by the Participation Agreement, dated the date hereof, among FMI, the Borrower, Wilmington Trust Company, owner trustee, FMS Trust 1997-1, as lessor, the investors named therein, the Administrative Agent, the Syndication Agent, and the lenders named therein. "Debt" of any Person means, without duplication, (a) all obligations of such Person for borrowed money, whether or not evidenced by bonds, debentures, notes or similar instruments, (b) all Capital Lease Obligations of such Person, (c) all obligations of such Person to pay the deferred purchase price of property or services (other than current accounts payable in the ordinary course of business), (d) all indebtedness secured by a Lien on the property of such Person, whether or not such indebtedness shall have been assumed by such Person (it being understood that if such Person has not assumed or otherwise become personally liable for any such indebtedness, the amount of the Debt of such Person in connection therewith shall be limited to the lesser of the face amount of such indebtedness or the fair market value of all property of such Person securing such indebtedness), (e) all obligations, contingent or otherwise, with respect to the face amount of all letters of credit (whether or not drawn) and banker's acceptances issued for the account of such Person, (f) all obligations of such Person in respect of Hedging Agreements, (g) all Suretyship Liabilities of such Person, (h) all other obligations of such Person upon which interest charges are customarily paid (other than current accounts payable in the ordinary course of business), (i) all obligations of such Person under conditional sale or other title retention agreements relating to property acquired by such Person and (j) all Debt (as defined above) of any partnership in which such Person is a general partner. The amount of the Debt of any Person in respect of Hedging Agreements shall be deemed to be the unrealized net loss position of such Person thereunder (determined for each counterparty individually, but netted for all Hedging Agreements maintained with such counterparty). "Debt for Borrowed Money" of any Person means all Debt of such Person described in (without duplication) clauses (a), (b), (c), (d), (h) and, to the extent constituting a Suretyship Liability in respect of Debt for Borrowed Money of another Person, (g), of the definition of Debt. A Suretyship Liability arising under a Synthetic Lease Facility shall be deemed to be a Debt for Borrowed Money. "Default" means any event or condition which constitutes an Event of Default or which upon notice, lapse of time or both would, unless cured or waived, become an Event of Default. 7 "Defaulting Lenders" has the meaning set forth in Section 2.6(b). "Disclosed Matters" means the actions, suits and proceedings and the environmental matters disclosed in Schedule 3.6. "dollars" or "$" refers to lawful money of the United States of America. "Effective Date" means the date on which the conditions specified in Section 4.1 are satisfied (or waived in accordance with Section 9.2). "Environmental Laws" means all laws, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions, notices or binding agreements issued, promulgated or entered into by any Governmental Authority, relating in any way to the environment, preservation or reclamation of natural resources, the management, release or threatened release of any Hazardous Material or to health and safety matters. "Environmental Liability" means any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of the Borrower or any Subsidiary directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials into the environment or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. "ERISA Affiliate" means any trade or business (whether or not incorporated) that, together with the Borrower, is treated as a single employer under Section 414(b) or (c) of the Code or, solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the Code. "ERISA Event" means (a) any "reportable event", as defined in Section 4043 of ERISA or the regulations issued thereunder with respect to a Plan (other than an event for which the 30-day notice period is waived); (b) the existence with respect to any Plan of an "accumulated funding deficiency" (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived; (c) the filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan; (d) the incurrence by the Borrower or any of its ERISA Affiliates of any liability under Title IV of ERISA with respect to the termination of any Plan; (e) the receipt by the Borrower or any ERISA Affiliate from the PBGC or a plan administrator of any notice relating to an intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan; (f) the incurrence by the Borrower or any of its ERISA Affiliates of any 8 liability with respect to the withdrawal or partial withdrawal from any Plan or Multiemployer Plan; or (g) the receipt by the Borrower or any ERISA Affiliate of any notice, or the receipt by any Multiemployer Plan from the Borrower or any ERISA Affiliate of any notice, concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA. "Eurodollar", when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Adjusted LIBO Rate (or, in the case of a Competitive Loan, the LIBO Rate). "Event of Default" has the meaning assigned to such term in Article VII. "Excluded Taxes" means, with respect to the Administrative Agent, any Lender or any other recipient of any payment to be made by or on account of any obligation of the Borrower hereunder, (a) income or franchise taxes imposed on (or measured by) its net income by the United States of America, or by the jurisdiction under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its applicable lending office is located, (b) any branch profits taxes imposed by the United States of America or any similar tax imposed by any other jurisdiction in which the Borrower is located and (c) in the case of a Foreign Lender (other than an assignee pursuant to a request by the Borrower under Section 2.18(b)), any withholding tax that is imposed on amounts payable to such Foreign Lender at the time such Foreign Lender becomes a party to this Agreement (or designates a new lending office) or is attributable to such Foreign Lender's failure to comply with Section 2.16(e), except to the extent that such Foreign Lender (or its assignor, if any) was entitled, at the time of designation of a new lending office (or assignment), to receive additional amounts from the Borrower with respect to such withholding tax pursuant to Section 2.16(a). "Extension Date" has the meaning specified in Section 2.19(b). "Financial Officer" means the chief financial officer, principal accounting officer, treasurer or controller of the Borrower. "Fixed Rate" means, with respect to any Competitive Loan (other than a Eurodollar Competitive Loan), the fixed rate of interest per annum specified by the Lender making such Competitive Loan in its related Competitive Bid. "Fixed Rate Loan" means a Competitive Loan bearing interest at a Fixed Rate. "FMI" means Fred Meyer, Inc. and its successors and assigns. "Foreign Lender" has the meaning provided in Section 2.16(e). 9 "GAAP" means generally accepted accounting principles in the United States of America. "Governmental Authority" means the government of the United States of America, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government. "Hazardous Materials" means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law. "Hedging Agreement" means any interest rate protection agreement, foreign currency exchange agreement, commodity price protection agreement or other interest or currency exchange rate or commodity price hedging arrangement. "Indemnified Taxes" means Taxes other than Excluded Taxes. "Interest Election Request" means a request by the Borrower to convert or continue a Revolving Borrowing in accordance with Section 2.7. "Interest Payment Date" means (a) with respect to any ABR Loan, the last day of each March, June, September and December, (b) with respect to any Eurodollar Loan, the last day of the Interest Period applicable to the Borrowing of which such Loan is a part and, in the case of a Eurodollar Borrowing with an Interest Period of more than three months' duration, each day prior to the last day of such Interest Period that occurs at intervals of three months' duration after the first day of such Interest Period and (c) with respect to any Fixed Rate Loan, the last day of the Interest Period applicable to the Borrowing of which such Loan is a part and, in the case of a Fixed Rate Borrowing with an Interest Period of more than 90 days' duration (unless otherwise specified in the applicable Competitive Bid Request), each day prior to the last day of such Interest Period that occurs at intervals of 90 days' duration after the first day of such Interest Period, and any other dates that are specified in the applicable Competitive Bid Request as Interest Payment Dates with respect to such Borrowing. "Interest Period" means (a) with respect to any Eurodollar Borrowing, the period commencing on the date of such Borrowing and ending on the numerically corresponding day in the calendar month that is one, two, three or six months thereafter, as the Borrower may elect, and (b) with respect to any Fixed Rate Borrowing, the period (which shall not be less than seven days or more than 180 days) commencing on the date of such Borrowing and ending on the date specified in the applicable Competitive Bid Request; 10 provided, that (i) if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless, in the case of a Eurodollar Borrowing only, such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day and (ii) any Interest Period pertaining to a Eurodollar Borrowing that commences on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the last calendar month of such Interest Period) shall end on the last Business Day of the last calendar month of such Interest Period. For purposes hereof, the date of a Borrowing initially shall be the date on which such Borrowing is made and, in the case of a Revolving Borrowing, thereafter shall be the effective date of the most recent conversion or continuation of such Borrowing. "Lenders" means the Persons listed on Schedule 2.1 and any other Person that shall have become a party hereto pursuant to an Assignment and Acceptance, other than any such Person that ceases to be a party hereto pursuant to an Assignment and Acceptance. "LIBO Rate" means, with respect to any Eurodollar Borrowing for any Interest Period, the offered quotation to first-class banks in the New York interbank eurodollar market by the Administrative Agent for dollar deposits of amounts in immediately available funds comparable to the outstanding principal amount of the applicable Eurodollar Loan, with maturities comparable to the Interest Period applicable to such Eurodollar Loan commencing two Business Days prior to the commencement of such Interest Period. "Lien" means, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, hypothecation, encumbrance, charge or security interest in, on or of such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement (or any financing lease having substantially the same economic effect as any of the foregoing) relating to such asset and (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities. "Loans" means the loans made by the Lenders to the Borrower pursuant to this Agreement. "Margin" means, with respect to any Competitive Loan bearing interest at a rate based on the LIBO Rate, the marginal rate of interest, if any, to be added to or subtracted from the LIBO Rate to determine the rate of interest applicable to such Loan, as specified by the Lender making such Loan in its related Competitive Bid. "Margin Stock" shall have the meaning provided such term in Regulation U and Regulation G of the Federal Reserve Board. "Material Adverse Effect" means a material adverse effect on (a) the business, assets, operations, prospects or condition, financial or otherwise, of the Borrower and its Subsidiaries taken as a whole, (b) the ability of the Borrower to perform any of its 11 obligations under this Agreement or (c) the rights of or benefits available to the Lenders under this Agreement. "Material Debt" means Debt of any one or more of the Borrower and its Subsidiaries in an aggregate principal amount equal to or exceeding $5,000,000. "Material Subsidiary" means a Subsidiary which either (a) has assets which constitute 5% or more of the consolidated assets of the Borrower and its Subsidiaries or (b) has revenues as of the end of the Borrower's most recently-ended fiscal year which constitute more than 5% of the consolidated revenues of the Borrower and its Subsidiaries during the Borrower's most recently ended fiscal year. "Maturity Date" means the later of (a) September 9, 1998, (b) if the Revolver Termination Date has been extended pursuant to Section 2.19, such extended Revolver Termination Date or (c) if the Term Loan Conversion has then been effected pursuant to Section 2.5, the date that is one year subsequent to the Conversion Date. "Merger" means the merger of FMI and Smith's as contemplated by the Merger Document. "Merger Document" means that certain Agreement and Plan of Reorganization and Merger, dated as of May 11, 1997, by and between FMI and Smith's. "Moody's" means Moody's Investors Service, Inc. "Multiemployer Plan" means a multiemployer plan as defined in Section 4001(a)(3) of ERISA. "Non-Defaulting Lender" has the meaning specified in Section 2.6(b). "Other Corporate Loan Documents" means the following documents, as such documents are amended, supplemented or otherwise modified from time to time: (i) all of the documents contemplated to be executed in connection with the Current Synthetic Lease Facility; (ii) the $1,030,000,000 Credit Agreement, of even date herewith, among Meyer-Smith Holdco, Inc. as Borrower, the Lenders identified therein, Bankers Trust Company as Administrative Agent and The Chase Manhattan Bank as Syndication Agent; and (iii) the $500,000,000 Bridge Credit Agreement, of even date herewith, among Meyer-Smith Holdco, Inc. as Borrower, the Lenders identified therein, Bankers Trust Company as Administrative Agent and The Chase Manhattan Bank as Syndication Agent. "Other Taxes" means any and all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement. 12 "PBGC" means the Pension Benefit Guaranty Corporation referred to and defined in ERISA and any successor entity performing similar functions. "Permitted Encumbrances" means: (a) Liens imposed by law for taxes that are not yet due or are being contested in compliance with Section 5.4; (b) carriers', warehousemen's, mechanics', materialmen's, repairmen's and other like Liens imposed by law, arising in the ordinary course of business and securing obligations that are not overdue by more than 30 days or are being contested in compliance with Section 5.4; (c) pledges and deposits made in the ordinary course of business in compliance with workers' compensation, unemployment insurance and other social security laws or regulations; (d) deposits to secure the performance of bids, trade contracts, leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature, in each case in the ordinary course of business; and (e) easements, zoning restrictions, rights-of-way and similar encumbrances on real property imposed by law or arising in the ordinary course of business that do not secure any monetary obligations and do not materially detract from the value of the affected property or interfere with the ordinary conduct of business of the Borrower or any Subsidiary; provided that the term "Permitted Encumbrances" shall not include any Lien securing Debt for Borrowed Money. "Permitted Investments" means: (a) direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States of America (or by any agency thereof to the extent such obligations are backed by the full faith and credit of the United States of America), in each case maturing within one year from the date of acquisition thereof; (b) investments in commercial paper maturing within 270 days from the date of acquisition thereof and having, at such date of acquisition, the two highest credit ratings obtainable from S&P or from Moody's; (c) investments in certificates of deposit, banker's acceptances and time deposits maturing within 180 days from the date of acquisition thereof issued or 13 guaranteed by or placed with, and money market deposit accounts issued or offered by, any domestic office of any commercial bank organized under the laws of the United States of America or any State thereof which has a combined capital and surplus and undivided profits of not less than $500,000,000; and (d) fully collateralized repurchase agreements with a term of not more than 30 days for securities described in clause (a) above and entered into with a financial institution satisfying the criteria described in clause (c) above. "Person" means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity. "Plan" means any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA, and in respect of which the Borrower or any ERISA Affiliate is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA. "Register" has the meaning set forth in Section 9.4. "Related Parties" means, with respect to any specified Person, such Person's Affiliates and the respective directors, officers, employees, agents and advisors of such Person and such Person's Affiliates. "Required Lenders" means, at any time, Non-Defaulting Lenders the sum of whose Commitments (or after the termination thereof, outstanding Loans at such time) represents an amount greater than 50% of the sum of (i) the aggregate Commitments of all Lenders less (ii) the aggregate Commitments of all Defaulting Lenders (or after the termination thereof, the sum of the then total outstanding Loans of Defaulting Lenders at such time). "Responsible Officer" means the Chairman or Vice Chairman of the Board of Directors, the Chairman or Vice Chairman of the Executive Committee of the Board of Directors, the President, any Senior Vice President or Executive Vice President, the Chief Financial Officer, the Chief Operating Officers, the Chief Accounting Officer, the Vice President/Treasurer or any Assistant Treasurer responsible for compliance with this Agreement. "Restricted Payment" means any dividend or other distribution (whether in cash, securities or other property) with respect to any shares of any class of capital stock of the Borrower or any Subsidiary, or any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any such shares of capital 14 stock of the Borrower or any option, warrant or other right to acquire any such shares of capital stock of the Borrower. "Revolver Termination Date" means the later of (a) September ___, 1998, (b) if the Revolver Termination Date has then been extended pursuant to Section 2.19, such extended Revolver Termination Date or (c) if the Term Loan Conversion has been effected pursuant to Section 2.5, the Conversion Date. "Revolving Credit Exposure" means, with respect to any Lender at any time, the sum of the outstanding principal amount of such Lender's Revolving Loans at such time. "Revolving Loan" means a Loan made pursuant to Section 2.3. "Smith's" means Smith's Food and Drug Centers Inc. and its successors and assigns. "Solvent" as to any Person means (i) the sum of the assets of such Person, both at a fair valuation and at present fair salable value, will exceed its liabilities, including contingent liabilities, (ii) such Person will have sufficient capital with which to conduct its business as presently conducted and (iii) such Person has not incurred debts, and does not intend to incur debts, beyond its ability to pay such debts as they mature. For purposes of this definition, "debt" means any liability on a claim, and "claim" means (x) a right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured, or (y) a right to an equitable remedy for breach of performance if such breach gives rise to a payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured, or unsecured. With respect to any contingent liabilities, such liabilities shall be computed at the amount which, in light of all the facts and circumstances existing at the time, represents the amount which can reasonably be expected to become an actual or matured liability. "S&P" means Standard & Poor's Corporation. "Statutory Reserve Rate" means a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum reserve percentages (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by the Board to which the Administrative Agent is subject for eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of the Board). Such reserve percentages shall include those imposed pursuant to such Regulation D. Eurodollar Loans shall be deemed to constitute eurocurrency funding and to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under such Regulation D or any comparable regulation. The Statutory 15 Reserve Rate shall be adjusted automatically on and as of the effective date of any change in any reserve percentage. "subsidiary" means, with respect to any Person (the "parent") at any date, any corporation, limited liability company, partnership, association or other entity the accounts of which are required to be consolidated with those of the parent in the parent's consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date, as well as, with respect to any Person, any Person of which such Person and/or its subsidiaries own, directly or indirectly, such number of outstanding shares (or similar equity interest) as have more than 50% of the ordinary voting power for the election of directors. "Subsidiary" means any subsidiary of the Borrower. "Subsidiary Guaranty" shall have the meaning set forth in Section 4.1(h). "Surety Instruments" means all letters of credit (including standby and commercial), banker's acceptances, guaranties, shipside bonds, surety bonds and similar instruments under which Suretyship Liabilities arise. "Suretyship Liability" means any agreement, undertaking or other contractual arrangement by which any Person guarantees, endorses or otherwise becomes or is contingently liable upon (by direct or indirect agreement, contingent or otherwise, to provide funds for payment, to supply funds to or otherwise to invest in a debtor, or otherwise to assure a creditor against loss) any indebtedness, obligation or other liability (including accounts payable) of any other Person (other than by endorsements of instruments in the course of collection), or guarantees the payment of dividends or other distributions upon the shares of any other Person. Suretyship Liability shall include any liability or contingent liability of a Person under or in connection with a Synthetic Lease Facility. The amount of any Person's obligation under any Suretyship Liability shall (subject to any limitation set forth therein) be deemed to be the principal amount of the indebtedness, obligation or other liability guaranteed thereby. As of any date, the amount of any Person's obligations under any Synthetic Lease Facility shall be equal to the amount which such Person would be obligated to pay if such Synthetic Lease Facility was accelerated on such date (disregarding accrued scheduled lease payments which would be characterized as interest if such Synthetic Lease Facility were treated as a capital lease under GAAP). "Syndication Agent" means The Chase Manhattan Bank. "Synthetic Lease" and "Synthetic Lease Facility" means any synthetic lease, tax ownership operating lease, tax retention operating lease, off balance sheet lease or similar lease transaction where the lessee is treated as owner of the leased property for U.S. federal income tax purposes while the lease is accounted for on the financial statements of the lessee, 16 prepared in accordance with GAAP, as an operating lease, including the Current Synthetic Lease Facility. "Taxes" means any and all present or future taxes, levies, imposts, duties, deductions, charges or withholdings imposed by any Governmental Authority. "Term Loan" has the meaning provided in Section 2.5. "Term Loan Conversion" means the conversion of all then outstanding Revolving Loans to a Term Loan pursuant to Section 2.5. "Transactions" means the execution, delivery and performance by the Borrower of this Agreement, the borrowing of Loans and the use of the proceeds thereof. "Type", when used in reference to any Loan or Borrowing, refers to whether the rate of interest on such Loan, or on the Loans comprising such Borrowing, is determined by reference to the Adjusted LIBO Rate, the ABR or, in the case of a Competitive Loan or Borrowing, the LIBO Rate or a Fixed Rate. "Withdrawal Liability" means liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA. Section 1.2 Classification of Loans and Borrowings. For purposes of this Agreement, Loans may be classified and referred to by Class (e.g., a "Revolving Loan") or by Type (e.g., a "Eurodollar Loan") or by Class and Type (e.g., a "Eurodollar Revolving Loan"). Borrowings also may be classified and referred to by Class (e.g., a "Revolving Borrowing") or by Type (e.g., a "Eurodollar Borrowing") or by Class and Type (e.g., a "Eurodollar Revolving Borrowing"). Section 1.3 Terms Generally. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation". The word "will" shall be construed to have the same meaning and effect as the word "shall". Unless the context requires otherwise (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (b) any reference herein to any Person shall be construed to include such Person's successors and assigns, (c) the words "herein", "hereof" and "hereunder", and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (d) all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and 17 Sections of, and Exhibits and Schedules to, this Agreement and (e) the words "asset" and "property" shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights. Section 1.4 Accounting Terms; GAAP. Except as otherwise expressly provided herein, all terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time; provided that for purposes of determining compliance with any covenant set forth in Article VI, such terms shall be construed in accordance with GAAP as in effect on the date of this Agreement applied on a basis consistent with the application used in preparing the Borrower's audited financial statements referred to in Section 5.1. If any change in accounting principles from those used in the preparation of the audited financial statements referred to in Section 5.1 hereafter occasioned by the promulgation of any rule, regulation, pronouncement or opinion by or required by the Financial Accounting Standards Board of the American Institute of Certified Public Accountants (or successors thereto or agencies with similar functions) would result in a change in the method of calculation of financial covenants, standards or terms found in Article 1 or Article VI, the parties hereto agree to enter into negotiations in order to amend such provisions so as to equitably reflect such changes with the desired result that the criteria for evaluating the Borrower's financial condition shall be the same after such change as if such change had not been made. Section 1.5 Change of Names. It is understood and agreed that following the consummation of the Merger, Meyer-Smith Holdco, Inc. will change its corporate name to "Fred Meyer, Inc." and FMI will change its corporate name to "Fred Meyer Stores, Inc." From and after the time at which such changes take effect all references to "Meyer-Smith Holdco, Inc." or the "Borrower" contained herein shall be construed to refer to "Fred Meyer, Inc.," and all references to "FMI" shall be construed to refer to "Fred Meyer Stores, Inc." ARTICLE II The Credits Section 2.1 Commitments. Subject to the terms and conditions set forth herein, each Lender agrees to make Revolving Loans to the Borrower from time to time during the Availability Period in an aggregate principal amount that will not result in (a) such Lender's Revolving Credit Exposure exceeding such Lender's Commitment or (b) the sum of the total Revolving Credit Exposures plus the aggregate principal amount of outstanding Competitive Loans exceeding the total Commitments. Within the foregoing limits and subject to the terms and conditions set forth herein, the Borrower may borrow, prepay and reborrow Revolving Loans during the Availability Period. 18 Section 2.2 Loans and Borrowings. (a) Each Revolving Loan shall be made as part of a Borrowing consisting of Revolving Loans made by the Lenders ratably in accordance with their respective Commitments. Each Competitive Loan shall be made in accordance with the procedures set forth in Section 2.4. The failure of any Lender to make any Loan required to be made by it shall not relieve any other Lender of its obligations hereunder; provided that the Commitments and Competitive Bids of the Lenders are several and no Lender shall be responsible for any other Lender's failure to make Loans as required. (b) Subject to Section 2.13, (i) each Revolving Borrowing shall be comprised entirely of ABR Loans or Eurodollar Loans as the Borrower may request in accordance herewith, and (ii) each Competitive Borrowing shall be comprised entirely of Eurodollar Loans or Fixed Rate Loans as the Borrower may request in accordance herewith. Each Lender at its option may make any Eurodollar Loan by causing any domestic or foreign branch or Affiliate of such Lender to make such Loan; provided that any exercise of such option shall not affect the obligation of the Borrower to repay such Loan in accordance with the terms of this Agreement. (c) At the commencement of each Interest Period for any Eurodollar Revolving Borrowing, such Borrowing shall be in an aggregate amount that is an integral multiple of $1,000,000 and not less than $10,000,000. At the time that each ABR Revolving Borrowing is made, such Borrowing shall be in an aggregate amount that is an integral multiple of $1,000,000 and not less than $10,000,000; provided that an ABR Revolving Borrowing may be in an aggregate amount that is equal to the entire unused balance of the total Commitments. Each Competitive Borrowing shall be in an aggregate amount that is an integral multiple of $1,000,000 and not less than $5,000,000. Borrowings of more than one Type and Class may be outstanding at the same time; provided that there shall not at any time be more than a total of 8 Eurodollar Revolving Borrowings outstanding. (d) Notwithstanding any other provision of this Agreement, the Borrower shall not be entitled to request, or to elect to convert or continue, any Borrowing if the Interest Period requested with respect thereto would end after the Maturity Date. Section 2.3 Requests for Revolving Borrowings. To request a Revolving Borrowing, the Borrower shall notify the Administrative Agent of such request by telephone (a) in the case of a Eurodollar Borrowing, not later than 12:00 p.m. (noon), New York City time, three Business Days before the date of the proposed Borrowing or (b) in the case of an ABR Borrowing, not later than 12:00 p.m. (noon), New York City time, on the day of the proposed Borrowing. Each such telephonic Borrowing Request shall be irrevocable and shall be confirmed promptly by hand delivery or telecopy to the Administrative Agent of a written Borrowing Request in a form approved by the Administrative Agent and signed by the Borrower. Each such telephonic and written Borrowing Request shall specify the following information in compliance with Section 2.2: (i) the aggregate amount of the requested Borrowing; 19 (ii) the date of such Borrowing, which shall be a Business Day; (iii) whether such Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing; (iv) in the case of a Eurodollar Borrowing, the initial Interest Period to be applicable thereto, which shall be a period contemplated by the definition of the term "Interest Period"; and (v) the location and number of the Borrower's account to which funds are to be disbursed, which shall comply with the requirements of Section 2.6. If no election as to the Type of Revolving Borrowing is specified, then the requested Revolving Borrowing shall be an ABR Borrowing. If no Interest Period is specified with respect to any requested Eurodollar Revolving Borrowing, then the Borrower shall be deemed to have selected an Interest Period of one month's duration. Promptly following receipt of a Borrowing Request in accordance with this Section, the Administrative Agent shall advise each Lender of the details thereof and of the amount of such Lender's Loan to be made as part of the requested Borrowing. Section 2.4 Competitive Bid Procedure. (a) Subject to the terms and conditions set forth herein, from time to time during the Availability Period the Borrower may request Competitive Bids and may (but shall not have any obligation to) accept Competitive Bids and borrow Competitive Loans; provided that the sum of the total Revolving Credit Exposures plus the aggregate principal amount of outstanding Competitive Loans at any time shall not exceed the total Commitments. To request Competitive Bids, the Borrower shall notify the Administrative Agent of such request by telephone, in the case of a Eurodollar Borrowing, not later than 11:00 a.m., New York City time, four Business Days before the date of the proposed Borrowing and, in the case of a Fixed Rate Borrowing, not later than 10:00 a.m., New York City time, one Business Day before the date of the proposed Borrowing; provided that the Borrower may submit up to (but not more than) 5 Competitive Bid Requests on the same day, but a Competitive Bid Request shall not be made within five Business Days after the date of any previous Competitive Bid Request, unless any and all such previous Competitive Bid Requests shall have been withdrawn or all Competitive Bids received in response thereto rejected. Each such telephonic Competitive Bid Request shall be confirmed promptly by hand delivery or telecopy to the Administrative Agent of a written Competitive Bid Request in a form approved by the Administrative Agent and signed by the Borrower. Each such telephonic and written Competitive Bid Request shall specify the following information in compliance with Section 2.2: (i) the aggregate amount of the requested Borrowing; 20 (ii) the date of such Borrowing, which shall be a Business Day; (iii) whether such Borrowing is to be a Eurodollar Borrowing or a Fixed Rate Borrowing; (iv) the Interest Period to be applicable to such Borrowing, which shall be a period contemplated by the definition of the term "Interest Period"; and (v) the location and number of the Borrower's account to which funds are to be disbursed, which shall comply with the requirements of Section 2.6. Promptly following receipt of a Competitive Bid Request in accordance with this Section, the Administrative Agent shall notify the Lenders of the details thereof by telecopy, inviting the Lenders to submit Competitive Bids. (b) Each Lender may (but shall not have any obligation to) make one or more Competitive Bids to the Borrower in response to a Competitive Bid Request. Each Competitive Bid by a Lender must be in a form approved by the Administrative Agent and must be received by the Administrative Agent by telecopy, in the case of a Eurodollar Competitive Borrowing, not later than 9:30 a.m., New York City time, three Business Days before the proposed date of such Competitive Borrowing, and in the case of a Fixed Rate Borrowing, not later than 9:30 a.m., New York City time, on the proposed date of such Competitive Borrowing. Competitive Bids that do not conform substantially to the form approved by the Administrative Agent may be rejected by the Administrative Agent, and the Administrative Agent shall notify the applicable Lender as promptly as practicable. Each Competitive Bid shall specify (i) the principal amount (which shall be a minimum of $5,000,000 and an integral multiple of $1,000,000 and which may equal the entire principal amount of the Competitive Borrowing requested by the Borrower) of the Competitive Loan or Loans that the Lender is willing to make, (ii) the Competitive Bid Rate or Rates at which the Lender is prepared to make such Loan or Loans (expressed as a percentage rate per annum in the form of a decimal to no more than four decimal places) and (iii) the Interest Period applicable to each such Loan and the last day thereof. (c) The Administrative Agent shall promptly notify the Borrower by telecopy of the Competitive Bid Rate and the principal amount specified in each Competitive Bid and the identity of the Lender that shall have made such Competitive Bid. (d) Subject only to the provisions of this paragraph, the Borrower may accept or reject any Competitive Bid. The Borrower shall notify the Administrative Agent by telephone, confirmed by telecopy in a form approved by the Administrative Agent, whether and to what extent it has decided to accept or reject each Competitive Bid, in the 21 case of a Eurodollar Competitive Borrowing, not later than 10:30 a.m., New York City time, three Business Days before the date of the proposed Competitive Borrowing, and in the case of a Fixed Rate Borrowing, not later than 10:30 a.m., New York City time, on the proposed date of the Competitive Borrowing; provided that (i) the failure of the Borrower to give such notice shall be deemed to be a rejection of each Competitive Bid, (ii) the Borrower shall not accept a Competitive Bid made at a particular Competitive Bid Rate if the Borrower rejects a Competitive Bid made at a lower Competitive Bid Rate, (iii) the aggregate amount of the Competitive Bids accepted by the Borrower shall not exceed the aggregate amount of the requested Competitive Borrowing specified in the related Competitive Bid Request, (iv) to the extent necessary to comply with clause (iii) above, the Borrower may accept Competitive Bids at the same Competitive Bid Rate in part, which acceptance, in the case of multiple Competitive Bids at such Competitive Bid Rate, shall be made pro rata in accordance with the amount of each such Competitive Bid, and (v) except pursuant to clause (iv) above, no Competitive Bid shall be accepted for a Competitive Loan unless such Competitive Loan is in a minimum principal amount of $5,000,000 and an integral multiple of $1,000,000; provided further that if a Competitive Loan must be in an amount less than $5,000,000 because of the provisions of clause (iv) above, such Competitive Loan may be for a minimum of $1,000,000 or any integral multiple thereof, and in calculating the pro rata allocation of acceptances of portions of multiple Competitive Bids at a particular Competitive Bid Rate pursuant to clause (iv) the amounts shall be rounded to integral multiples of $1,000,000 in a manner determined by the Borrower. A notice given by the Borrower pursuant to this paragraph shall be irrevocable. (e) The Administrative Agent shall promptly notify each bidding Lender by telecopy whether or not its Competitive Bid has been accepted (and, if so, the amount and Competitive Bid Rate so accepted), and each successful bidder will thereupon become bound, subject to the terms and conditions hereof, to make the Competitive Loan in respect of which its Competitive Bid has been accepted. (f) If the Administrative Agent shall elect to submit a Competitive Bid in its capacity as a Lender, it shall submit such Competitive Bid directly to the Borrower at least one quarter of an hour earlier than the time by which the other Lenders are required to submit their Competitive Bids to the Administrative Agent pursuant to paragraph (b) of this Section. Section 2.5 Term Loan Conversion. Except as otherwise provided in Section 2.19, no less than 30 and no more than 60 days prior to the scheduled Revolver Termination Date, the Borrower may elect to convert the Revolving Loans to a term loan (the "Term Loan") by delivery of a written notice to that effect to the Administrative Agent, which notice shall specify the initial Type of Loan of the Term Loan and, if the Term Loan is to be a Eurodollar Loan, the initial Interest Period for the Term Loan, together with a certificate of a Financial Official on behalf of the Borrower stating that the representations and warranties contained in Article 3 (other than (i) representations and warranties which expressly speak as of a particular date or are no longer true and correct as a result of a change which 22 is not a violation of this Agreement and (ii) as otherwise disclosed by the Borrower and approved in writing by the Required Lenders) are true and correct on and as of the date of such certificate. So long as (i) no Default or Event of Default has occurred and is continuing and (ii) the Borrower has repaid all outstanding Competitive Loans in full, on such Revolving Termination Date the Revolving Loans shall automatically convert into the Term Loan. The Term Loan shall commence on the Conversion Date and the aggregate principal balance thereof shall be payable in full on the Maturity Date. The Borrower may make no further Borrowings after the Conversion Date, regardless of any prepayments made with respect to the Term Loan pursuant to Section 2.10 or otherwise. Section 2.6 Funding of Borrowings. (a) Each Lender shall make each Loan to be made by it hereunder on the proposed date thereof by wire transfer of immediately available funds by 2:00 p.m., New York City time, to the account of the Administrative Agent most recently designated by it for such purpose by notice to the Lenders. The Administrative Agent will make such Loans available to the Borrower by promptly crediting the amounts so received, in like funds, to an account of the Borrower maintained with the Administrative Agent in New York City and designated by the Borrower in the applicable Borrowing Request or Competitive Bid Request. (b) The failure of any Lender (such Lender, a "Defaulting Lender") to make any Loan to be made by it on the date specified therefor shall not relieve any other Lender (each such other Lender, a "Non-Defaulting Lender") of its obligation to make its Loans on such date, but neither any Non-Defaulting Lender nor the Administrative Agent shall be responsible for the failure of any Defaulting Lender to make a Loan to be made by such Defaulting Lender, and no Defaulting Lender shall have any obligation to the Administrative Agent or any Non-Defaulting Lender (without prejudicing the rights of the Borrower against such Defaulting Lender). Notwithstanding anything set forth herein to the contrary, so long as a Lender remains a Defaulting Lender, such Lender shall not have any voting or consent rights under or with respect to this Agreement or constitute a "Lender" (or be included in the calculation of "Required Lenders" hereunder) for any voting or consent rights under or with respect to this Agreement. (c) Unless the Administrative Agent shall have received notice from a Lender prior to the proposed date of any Borrowing that such Lender will not make available to the Administrative Agent such Lender's share of such Borrowing, the Administrative Agent may assume that such Lender has made such share available on such date in accordance with paragraph (a) of this Section and may, in reliance upon such assumption, make available to the Borrower a corresponding amount. In such event, if a Lender is a Defaulting Lender, then such Defaulting Lender and the Borrower severally agree to pay to the Administrative Agent forthwith on demand such corresponding amount with interest thereon, for each day from and including the date such amount is made available to the Borrower but excluding the date of payment to the Administrative Agent, at (i) in the case of such Defaulting Lender, the greater of the Federal Funds Effective Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on 23 interbank compensation or (ii) in the case of the Borrower, the interest rate applicable to ABR Loans. If such Defaulting Lender pays such amount to the Administrative Agent, then such amount shall constitute such Lender's Loan included in such Borrowing and such Lender shall cease to be a Defaulting Lender. Section 2.7 Interest Elections. (a) Each Revolving Borrowing initially shall be of the Type specified in the applicable Borrowing Request and, in the case of a Eurodollar Revolving Borrowing, shall have an initial Interest Period as specified in such Borrowing Request, and the Term Loan shall be of the Type and, if a Eurodollar Loan, shall have the Interest Period, set forth in the notice delivered by the Borrower pursuant to Section 2.5; provided that no Interest Period for any Revolving Borrowing may end on a date that is later than the Revolver Termination Date in effect at the time of such election. Thereafter and until (i) the Conversion Date, in the case of Revolving Borrowings, and (ii) the Maturity Date, in the case of the Term Loan, the Borrower may elect to convert such Borrowing or the Term Loan to a different Type or to continue such Borrowing or the Term Loan and, in the case of a Eurodollar Revolving Borrowing or a Eurodollar Term Loan, may elect Interest Periods therefor, all as provided in this Section. Except in the case of the Term Loan, the Borrower may elect different options with respect to different portions of the affected Borrowing, in which case each such portion shall be allocated ratably among the Lenders holding the Loans comprising such Borrowing, and the Loans comprising each such portion shall be considered a separate Borrowing. This Section shall not apply to Competitive Borrowings, which may not be converted or continued. (b) To make an election pursuant to this Section, the Borrower shall notify the Administrative Agent of such election by telephone by the time that a Borrowing Request would be required under Section 2.3 if the Borrower were requesting a Revolving Borrowing of the Type resulting from such election to be made on the effective date of such election. Each such telephonic Interest Election Request shall be irrevocable and shall be confirmed promptly by hand delivery or telecopy to the Administrative Agent of a written Interest Election Request in a form approved by the Administrative Agent and signed by the Borrower. (c) Each telephonic and written Interest Election Request shall specify the following information in compliance with Section 2.2: (i) except in the case of the Term Loan, the Borrowing to which such Interest Election Request applies and, if different options are being elected with respect to different portions thereof, the portions thereof to be allocated to each resulting Borrowing (in which case the information to be specified pursuant to clauses (iii) and (iv) below shall be specified for each resulting Borrowing); (ii) the effective date of the election made pursuant to such Interest Election Request, which shall be a Business Day; 24 (iii) whether the resulting Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing; and (iv) if the resulting Borrowing is a Eurodollar Borrowing, the Interest Period to be applicable thereto after giving effect to such election, which shall be a period contemplated by the definition of the term "Interest Period". If any such Interest Election Request requests a Eurodollar Borrowing but does not specify an Interest Period, then the Borrower shall be deemed to have selected an Interest Period of one month's duration. (d) Promptly following receipt of an Interest Election Request, the Administrative Agent shall advise each Lender of the details thereof and of such Lender's portion of each resulting Borrowing. (e) If the Borrower fails to deliver a timely Interest Election Request with respect to a Eurodollar Revolving Borrowing or Eurodollar Term Loan prior to the end of the Interest Period applicable thereto, then, unless such Borrowing is repaid as provided herein, at the end of such Interest Period such Borrowing shall be converted to an ABR Borrowing. Notwithstanding any contrary provision hereof, if an Event of Default has occurred and is continuing and the Administrative Agent, at the request of the Required Lenders, so notifies the Borrower, then, so long as an Event of Default is continuing (i) no outstanding Revolving Borrowing may be converted to or continued as a Eurodollar Borrowing and (ii) unless repaid, each Eurodollar Revolving Borrowing or Eurodollar Term Loan shall be converted to an ABR Borrowing at the end of the Interest Period applicable thereto. Section 2.8 Termination and Reduction of Commitments. (a) Unless previously terminated, the Commitments shall terminate on the earlier of the Conversion Date and the Maturity Date. (b) The Borrower may at any time terminate, or from time to time reduce, the Commitments; provided that (i) each reduction of the Commitments shall be in an amount that is an integral multiple of $1,000,000 and not less than $10,000,000 and (ii) the Borrower shall not terminate or reduce the Commitments if, after giving effect to any concurrent prepayment of the Loans in accordance with Section 2.10, the sum of the Revolving Credit Exposures plus the aggregate principal amount of outstanding Competitive Loans would exceed the total Commitments. (c) The Borrower shall notify the Administrative Agent of any election to terminate or reduce the Commitments under paragraph (b) of this Section at least three Business Days prior to the effective date of such termination or reduction, specifying such election and the effective date thereof. Promptly following receipt of any notice, the 25 Administrative Agent shall advise the Lenders of the contents thereof. Each notice delivered by the Borrower pursuant to this Section shall be irrevocable; provided that a notice of termination of the Commitments delivered by the Borrower may state that such notice is conditioned upon the effectiveness of other credit facilities, in which case such notice may be revoked by the Borrower (by notice to the Administrative Agent on or prior to the specified effective date). Any termination or reduction of the Commitments shall be permanent. Each reduction of the Commitments shall be made ratably among the Lenders in accordance with their respective Commitments. Section 2.9 Repayment of Loans; Evidence of Debt. (a) The Borrower hereby unconditionally promises to pay (i) to the Administrative Agent for the account of each Lender thereof the then unpaid principal amount of each Revolving Loan or the Term Loan, as the case may be, on the Maturity Date and (ii) to the Administrative Agent for the account of each Lender thereof the then unpaid principal amount of each Competitive Loan on the last day of the Interest Period applicable to such Loan. (b) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrower to such Lender resulting from each Loan made by such Lender, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder. (c) The Administrative Agent shall maintain accounts in which it shall record (i) the amount of each Loan made hereunder, the Class and Type thereof and the Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder and (iii) the amount of any sum received by the Administrative Agent hereunder for the account of the Lenders and each Lender's share thereof. (d) The entries made in the accounts maintained pursuant to paragraph (b) or (c) of this Section shall be prima facie evidence of the existence and amounts of the obligations recorded therein; provided that the failure of any Lender or the Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligation of the Borrower to repay the Loans in accordance with the terms of this Agreement. (e) Any Lender may request that Loans made by it be evidenced by a promissory note. In such event, the Borrower shall prepare, execute and deliver to such Lender a promissory note payable to the order of such Lender (or, if requested by such Lender, to such Lender and its registered assigns) and in the form of Exhibit B. Thereafter, the Loans evidenced by such promissory note and interest thereon shall at all times (including after assignment pursuant to Section 9.4) be represented by one or more promissory notes in such form payable to the order of the payee named therein (or, if such promissory note is a registered note, to such payee and its registered assigns). 26 Section 2.10 Prepayment of Loans. (a) The Borrower shall have the right at any time and from time to time to prepay any Borrowing in whole or in part, subject to prior notice in accordance with paragraph (b) of this Section; provided that the Borrower shall not have the right to prepay any Competitive Loan without the prior consent of the Lender thereof. (b) The Borrower shall notify the Administrative Agent by telephone (confirmed by telecopy) of any prepayment hereunder (i) in the case of prepayment of a Eurodollar Revolving Borrowing or Eurodollar Term Loan, not later than 12:00 p.m. (noon), New York City time, three Business Days before the date of prepayment or (ii) in the case of prepayment of an ABR Revolving Borrowing or ABR Term Loan, not later than 12:00 p.m. (noon), New York City time, one Business Day before the date of prepayment. Each such notice shall be irrevocable and shall specify the prepayment date and the principal amount of each Borrowing or portion thereof to be prepaid; provided that, if a notice of prepayment is given in connection with a conditional notice of termination of the Commitments as contemplated by Section 2.8, then such notice of prepayment may be revoked if such notice of termination is revoked in accordance with Section 2.8. Promptly following receipt of any such notice relating to a Revolving Borrowing, the Administrative Agent shall advise the Lenders of the contents thereof. Each partial prepayment of any Revolving Borrowing or the Term Loan shall be in an amount that would be permitted in the case of an advance of a Revolving Borrowing of the same Type as provided in Section 2.2. Each prepayment of a Revolving Borrowing or the Term Loan shall be applied ratably to the Loans included in the prepaid Borrowing. Prepayments shall be accompanied by accrued interest to the extent required by Section 2.12. Section 2.11 Fees. (a) The Borrower agrees to pay to the Administrative Agent for the account of each Lender a facility fee, which shall accrue at the Applicable Margin on the daily amount of the Commitment of such Lender (whether used or unused) during the period from and including the Closing Date to but excluding the date on which such Commitment terminates; provided that from and after the Term Loan Conversion (if any) until the Maturity Date, the Borrower shall pay a facility fee on the amount of the Term Loan outstanding. Accrued facility fees shall be payable in arrears on the last Business Day of March, June, September and December of each year and on the date on which the Commitments terminate, commencing on the first such date to occur after the date hereof; provided that any facility fees accruing after the date on which the Commitments terminate or the Maturity Date, as the case may be, shall be payable on demand. All facility fees shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day for the period covered). (b) The Borrower agrees to pay to the Administrative Agent, for its own account, fees payable in the amounts and at the times separately agreed upon between the Borrower and the Administrative Agent. 27 (c) All fees payable hereunder shall be paid on the dates due, in immediately available funds, to the Administrative Agent for distribution, in the case of facility fees, to the Lenders. Fees paid shall not be refundable under any circumstances. Section 2.12 Interest. (a) The Loans comprising each ABR Borrowing shall bear interest at the ABR. (b) The Loans comprising each Eurodollar Borrowing shall bear interest (i) in the case of a Eurodollar Revolving Loan or Eurodollar Term Loan, at the Adjusted LIBO Rate for the Interest Period in effect for such Borrowing plus the Applicable Margin, or (ii) in the case of a Eurodollar Competitive Loan, at the LIBO Rate for the Interest Period in effect for such Borrowing plus (or minus, as applicable) the Margin applicable to such Loan. (c) Each Fixed Rate Loan shall bear interest at the Fixed Rate applicable to such Loan. (d) Notwithstanding the foregoing, if any principal of or interest on any Loan or any fee or other amount payable by the Borrower hereunder is not paid when due, whether at stated maturity, upon acceleration or otherwise, such overdue amount shall bear interest, after as well as before judgment, at a rate per annum equal to (i) in the case of overdue principal of any Loan, the greater of (A) 2% plus the rate otherwise applicable to such Loan as provided in the preceding paragraphs of this Section and (B) 2% plus the rate applicable to ABR Loans or (ii) in the case of any other amount, 2% plus the rate applicable to ABR Loans. (e) Accrued interest on each Loan shall be payable in arrears on each Interest Payment Date for such Loan and, in the case of Revolving Loans, upon termination of the Commitments; provided that (i) interest accrued pursuant to paragraph (d) of this Section shall be payable on demand, (ii) in the event of any repayment or prepayment of any Loan (other than a prepayment of an ABR Revolving Loan prior to the end of the Availability Period), accrued interest on the principal amount repaid or prepaid shall be payable on the date of such repayment or prepayment, (iii) in the event of any conversion of any Eurodollar Revolving Loan or Eurodollar Term Loan prior to the end of the current Interest Period therefor, accrued interest on such Loan shall be payable on the effective date of such conversion, and (iv) in the case of the Term Loan, all interest accrued and unpaid prior to the Maturity Date shall be payable on the Maturity Date. (f) All interest hereunder shall be computed on the basis of a year of 360 days, except that interest computed by reference to the ABR at times when the ABR is based on the Prime Rate shall be computed on the basis of a year of 365 days (or 366 days in a leap year), and in each case shall be payable for the actual number of days elapsed (including the first day but excluding the last day). The applicable ABR, Adjusted LIBO 28 Rate or LIBO Rate shall be determined by the Administrative Agent, and such determination shall be conclusive absent manifest error. Section 2.13 Alternate Rate of Interest. If prior to the commencement of any Interest Period for a Eurodollar Borrowing: (a) the Administrative Agent determines (which determination shall be conclusive absent manifest error) that adequate and reasonable means do not exist for ascertaining the Adjusted LIBO Rate or the LIBO Rate, as applicable, for such Interest Period; or (b) the Administrative Agent is advised by the Required Lenders (or, in the case of a Eurodollar Competitive Loan, the Lender that is required to make such Loan) that the Adjusted LIBO Rate or the LIBO Rate, as applicable, for such Interest Period will not adequately and fairly reflect the cost to such Lenders (or Lender) of making or maintaining their Loans (or its Loan) included in such Borrowing for such Interest Period; then the Administrative Agent shall give notice thereof to the Borrower and the Lenders by telephone or telecopy as promptly as practicable thereafter and, until the Administrative Agent notifies the Borrower and the Lenders that the circumstances giving rise to such notice no longer exist, (i) any Interest Election Request that requests the conversion of any Revolving Borrowing to, or continuation of any Revolving Borrowing as, a Eurodollar Borrowing shall be ineffective, (ii) if any Borrowing Request requests a Eurodollar Revolving Borrowing, such Borrowing shall be made as an ABR Borrowing and (iii) any request by the Borrower for a Eurodollar Competitive Borrowing shall be ineffective; provided that (A) if the circumstances giving rise to such notice do not affect all the Lenders, then requests by the Borrower for Eurodollar Competitive Borrowings may be made to Lenders that are not affected thereby and (B) if the circumstances giving rise to such notice affect only one Type of Borrowing, then the other Type of Borrowings shall be permitted. Section 2.14 Increased Costs. (a) If any Change in Law shall: (i) impose, modify or deem applicable any reserve, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender (except any such reserve requirement reflected in the Adjusted LIBO Rate); or (ii) impose on any Lender or the London interbank market any other condition affecting this Agreement or Eurodollar Loans or Fixed Rate Loans made by such Lender; and the result of any of the foregoing shall be to increase the cost to such Lender of making or maintaining any Eurodollar Loan or Fixed Rate Loan (or of maintaining its obligation to make any such Loan) or to reduce the amount of any sum received or receivable by such 29 Lender (whether of principal, interest or otherwise), then the Borrower will pay to such Lender such additional amount or amounts as will compensate such Lender for such additional costs incurred or reduction suffered. (b) If any Lender determines that any Change in Law regarding capital requirements has or would have the effect of reducing the rate of return on such Lender's capital or on the capital of such Lender's holding company, if any, as a consequence of this Agreement or the Loans made by such Lender to a level below that which such Lender or such Lender's holding company could have achieved but for such Change in Law (taking into consideration such Lender's policies and the policies of such Lender's holding company with respect to capital adequacy), then from time to time the Borrower will pay to such Lender such additional amount or amounts as will compensate such Lender or such Lender's holding company for any such reduction suffered. (c) A certificate of a Lender setting forth the basis of the calculations and the amount or amounts necessary to compensate such Lender or its holding company, as the case may be, as specified in paragraph (a) or (b) of this Section shall be delivered to the Borrower and shall be conclusive absent manifest error. The Borrower shall pay such Lender the amount shown as due on any such certificate within 10 days after receipt thereof. (d) Failure or delay on the part of any Lender to demand compensation pursuant to this Section shall not constitute a waiver of such Lender's right to demand such compensation; provided that the Borrower shall not be required to compensate a Lender pursuant to this Section for any increased costs or reductions incurred more than 180 days prior to the date that such Lender notifies the Borrower of the Change in Law giving rise to such increased costs or reductions and of such Lender's intention to claim compensation therefor; provided further that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the 180-day period referred to above shall be extended to include the period of retroactive effect thereof. (e) Notwithstanding the foregoing provisions of this Section, a Lender shall not be entitled to compensation pursuant to this Section in respect of any Competitive Loan if the Change in Law that would otherwise entitle it to such compensation shall have been publicly announced prior to submission of the Competitive Bid pursuant to which such Loan was made. Section 2.15 Break Funding Payments. In the event of (a) the payment of any principal of any Eurodollar Loan or Fixed Rate Loan other than on the last day of an Interest Period applicable thereto (including as a result of an Event of Default), (b) the conversion of any Eurodollar Loan other than on the last day of the Interest Period applicable thereto, (c) the failure to borrow, convert, continue or prepay any Revolving Loan or Eurodollar Term Loan on the date specified in any notice delivered pursuant hereto (regardless of whether such notice may be revoked under Section 2.10(b) and is revoked in accordance therewith), (d) the failure to borrow any Competitive Loan after accepting the Competitive Bid to make 30 such Loan, or (e) the assignment of any Eurodollar Loan or Fixed Rate Loan other than on the last day of the Interest Period applicable thereto as a result of a request by the Borrower pursuant to Section 2.18, then, in any such event, the Borrower shall compensate each Lender for the loss, cost and expense attributable to such event (excluding loss of Applicable Margin after the date of such event). In the case of a Eurodollar Loan, such loss, cost or expense to any Lender shall be deemed to include an amount determined by such Lender to be the excess, if any, of (i) the amount of interest which would have accrued on the principal amount of such Loan had such event not occurred, at the Adjusted LIBO Rate (excluding loss of Applicable Margin) that would have been applicable to such Loan, for the period from the date of such event to the last day of the then current Interest Period therefor (or, in the case of a failure to borrow, convert or continue, for the period that would have been the Interest Period for such Loan), over (ii) the amount of interest which would accrue on such principal amount for such period at the interest rate which such Lender would bid were it to bid, at the commencement of such period, for dollar deposits of a comparable amount and period from other banks in the eurodollar market. A certificate of any Lender setting forth any amount or amounts that such Lender is entitled to receive pursuant to this Section shall be delivered to the Borrower and shall be conclusive absent manifest error. The Borrower shall pay such Lender the amount shown as due on any such certificate within 10 days after receipt thereof. Section 2.16 Taxes. (a) Any and all payments by or on account of any obligation of the Borrower hereunder shall be made free and clear of and without deduction for any Indemnified Taxes or Other Taxes; provided that if the Borrower shall be required to deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section) to the Administrative Agent or any Lender (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law. (b) In addition, the Borrower shall pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law. (c) The Borrower shall indemnify the Administrative Agent and each Lender within 10 days after written demand therefor, for the full amount of any Indemnified Taxes or Other Taxes paid by the Administrative Agent or such Lender, as the case may be, on or with respect to any payment by or on account of any obligation of the Borrower hereunder (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section) and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. The Borrower shall also indemnify the Administrative Agent and each Lender, within 10 days after written demand therefor, for the full amount of Excluded Taxes as the Administrative Agent or such Lender, as the case may be, shall determine are payable in 31 respect of amounts paid to or on behalf of the Administrative Agent or such Lender, as the case may be, pursuant to this Section 2.16. A certificate as to the amount of such payment or liability delivered to the Borrower by a Lender, or by the Administrative Agent on its own behalf or on behalf of a Lender, shall be conclusive absent manifest error. (d) As soon as practicable after any payment of Indemnified Taxes or Other Taxes by the Borrower to a Governmental Authority, the Borrower shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent. (e) Any Lender that is not incorporated under the United States of America or a state thereof (each a "Foreign Lender") shall: (i) on the date it becomes a Lender, deliver to the Administrative Agent (A) two completed copies of United States Internal Revenue Service Form 1001 or 4224, or successor applicable form, as the case may be, and shall certify that it is entitled to receive payments under this Agreement without deduction or withholding (or at a reduced rate of deduction or withholding) of any United States Federal income taxes and (B) an Internal Revenue Services Form W-8 or W-9, or successor applicable form, as the case may be and shall certify that it is entitled to an exemption from United States backup withholding tax; (ii) deliver to the Administrative Agent two further copies of any such form or certification on or before the date that any such certification described above expires or becomes obsolete and after the occurrence of any event requiring a change in the most recent form previously delivered to it; and (iii) obtain such extensions of time for filing and complete such forms or certifications as may reasonably be requested by the Administrative Agent; except that the forms and certificates described in clauses (ii) and (iii) above shall not be required if any Change in Law has occurred prior to the date on which any such delivery would otherwise be required which renders all such forms inapplicable or which would prevent such Lender from duly completing and delivering any such form with respect to it and such Lender so advises the Administrative Agent. Section 2.17 Payments Generally; Pro Rata Treatment; Sharing of Set-offs. (a) The Borrower shall make each payment required to be made by it hereunder (whether of principal, interest or fees, or of amounts payable under Section 2.14, 2.15 or 2.16, or 32 otherwise) prior to 12:00 noon, New York City time, on the date when due, in immediately available funds, without set-off or counterclaim. Any amounts received after such time on any date may, in the discretion of the Administrative Agent, be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon. All such payments shall be made to the Administrative Agent at its offices at 130 Liberty Street, New York, New York, 10006, except that payments pursuant to Sections 2.14, 2.15, 2.16 and 9.3 shall be made directly to the Persons entitled thereto. The Administrative Agent shall distribute any such payments received by it for the account of any other Person to the appropriate recipient promptly following receipt thereof. If any payment hereunder shall be due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day, and, in the case of any payment accruing interest, interest thereon shall be payable for the period of such extension. All payments hereunder shall be made in dollars. (b) If at any time insufficient funds are received by and available to the Administrative Agent to pay fully all amounts of principal, interest and fees then due hereunder, such funds shall be applied (i) first, towards payment of interest and fees then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of interest and fees then due to such parties, and (ii) second, towards payment of principal then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of principal then due to such parties. (c) If any Lender shall, by exercising any right of set-off or counterclaim or otherwise, obtain payment in respect of any principal of or interest on any of its Revolving Loans or Term Loan resulting in such Lender receiving payment of a greater proportion of the aggregate amount of its Revolving Loans or Term Loan, as the case may be, and accrued interest thereon than the proportion received by any other Lender, then the Lender receiving such greater proportion shall purchase (for cash at face value) participations in the Revolving Loans or Term Loan, as the case may be, of other Lenders to the extent necessary so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on their respective Revolving Loans or the Term Loan, as the case may be; provided that (i) if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest, and (ii) the provisions of this paragraph shall not be construed to apply to any payment made by the Borrower pursuant to and in accordance with the express terms of this Agreement or any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Loans to any assignee or participant, other than to the Borrower or any Subsidiary or Affiliate thereof (as to which the provisions of this paragraph shall apply). The Borrower consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against the Borrower rights of set-off and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of the Borrower in the amount of such participation. 33 (d) Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Administrative Agent for the account of the Lenders that the Borrower will not make such payment, the Administrative Agent may assume that the Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders the amount due. In such event, if the Borrower has not in fact made such payment, then each of the Lenders severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the greater of the Federal Funds Effective Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation. (e) If any Lender shall fail to make any payment required to be made by it pursuant to Section 2.6(a) or 2.17(d), then the Administrative Agent may, in its discretion (notwithstanding any contrary provision hereof), apply any amounts thereafter received by the Administrative Agent for the account of such Lender to satisfy such Lender's obligations under such Sections until all such unsatisfied obligations are fully paid. Section 2.18 Mitigation Obligations; Replacement of Lenders. (a) If any Lender requests compensation under Section 2.14, or if the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.16, then such Lender shall use reasonable efforts to designate a different lending office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 2.14 or 2.16, as the case may be, in the future and (ii) would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. The Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment. (b) If (i) any Lender requests compensation under Section 2.14, or (ii) the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.16, or (iii) any Lender defaults in its obligation to fund Loans hereunder, or (iv) any Lender refuses to consent to certain proposed changes, waivers, discharges or termination with respect to this Agreement which require the consent of all Lenders and have been approved by the Required Lenders as (and to the extent) provided in Section 9.2(b), then the Borrower may, at its sole expense and effort, if no Default then exists (or, in the case of preceding clause (iv), no Default will exist immediately upon giving effect to such replacement), upon notice to such Lender and the Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in Section 9.4), all its interests, rights and obligations under this Agreement (other than any outstanding Competitive Loans held by it) to an assignee that shall assume such obligations (which assignee may be another 34 Lender, if a Lender accepts such assignment) (such Assignee a "Replacement Lender"); provided that (x) the Borrower shall have received the prior written consent of the Administrative Agent which consent shall not unreasonably be withheld, (y) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans (other than Competitive Loans) accrued interest thereon, accrued fees and all other amounts payable to it hereunder, from the Replacement Lender (to the extent of such outstanding principal and accrued interest and fees) or the Borrower (in the case of all other amounts) and (z) in the case of any such assignment resulting from a claim for compensation under Section 2.14 or payments required to be made pursuant to Section 2.16, such assignment will result in a reduction in such compensation or payments. A Lender shall not be required to make any such assignment and delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply. Section 2.19 Extension of Revolver Termination Date. (a) Not more than sixty (60) nor less than thirty (30) days prior to the scheduled Revolver Termination Date, and provided that no Default has occurred and is continuing, the Borrower may deliver to the Administrative Agent and the Lenders a written request for a 364 day extension of the Revolver Termination Date together with a certificate of a Financial Official on behalf of the Borrower stating that the representations and warranties contained in Article 3 (other than (i) representations and warranties which expressly speak as of a particular date or are no longer true and correct as a result of a change which is not a violation of this Agreement and (ii) as otherwise disclosed by the Borrower and approved in writing by the Required Lenders) are true and correct on and as of the date of such certificate. Each Lender shall, on or prior to the date that is ten (10) Business Days after receipt of such written request, notify in writing the Administrative Agent whether (in its sole and absolute discretion) it consents to such request and the Administrative Agent shall, after receiving the notifications from all of the Lenders or the expiration of such period, whichever is earlier, notify the Borrower and the Lenders of the results thereof. If any Lender shall fail to notify the Administrative Agent and the Borrower in writing of its consent to any such request for extension of the Revolver Termination Date within ten (10) days after the date of such extension request, such Lender shall be deemed not to have consented with respect to such request. (b) If all of the Lenders consent in writing to any such request in accordance with Section 2.19(a), the Revolver Termination Date in effect at such time (the "Extension Date") shall be extended for 364 days, and all references in this Agreement and in the Notes (if any) to the "Revolver Termination Date" shall refer to the Revolver Termination Date as so extended. If all of the Lenders do not consent to such request in writing in accordance with Section 2.19(a), the Revolver Termination Date in effect at such time shall be the final Revolver Termination Date and the Availability Period shall end on such date. Upon notice from the Administrative Agent that all of the Lenders have not consented to the Borrower's request for extension, the Borrower may, within ten (10) days of receipt of such notice, elect the Term Loan Conversion as of the final Revolver Termination Date in accordance with the provisions of Section 2.5 (but notwithstanding the notice provisions included therein). In the 35 event the Borrower does not elect the Term Loan Conversion within such ten-day period, such Revolver Termination Date shall be the Maturity Date. ARTICLE III Representations and Warranties The Borrower represents and warrants to the Lenders that: Section 3.1 Organization; Powers. Each of the Borrower and its Subsidiaries is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, has all requisite power and authority to carry on its business as now conducted and, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, is qualified to do business in, and is in good standing in, every jurisdiction where such qualification is required. Section 3.2 Authorization; Enforceability. The Transactions are within the Borrower's corporate powers and have been duly authorized by all necessary corporate and, if required, stockholder action, and the use of proceeds of the Loans will be, in each instance, within the Borrower's corporate powers and will have been duly authorized by all necessary corporate and, if required, stockholder action, as of the time of such use. This Agreement has been duly executed and delivered by the Borrower and constitutes a legal, valid and binding obligation of the Borrower, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors' rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law. Section 3.3 Governmental Approvals; No Conflicts. The Transactions (a) do not require any consent or approval of, registration or filing with, or any other action by, any Governmental Authority, except such as have been obtained or made and are in full force and effect, (b) will not violate any applicable law or regulation or the charter, by-laws or other organizational documents of the Borrower or any of its Subsidiaries or any order of any Governmental Authority, (c) will not violate or result in a default under any indenture, agreement or other instrument binding upon the Borrower or any of its Subsidiaries or any of their respective assets, or give rise to a right thereunder to require any payment to be made by the Borrower or any of its Subsidiaries, and (d) will not result in the creation or imposition of any Lien on any asset of the Borrower or any of its Subsidiaries. Section 3.4 Financial Condition; No Material Adverse Change. (a) The Borrower has heretofore furnished to the Lenders consolidated balance sheets and statements of income, stockholders equity and cash flows for (i) FMI and its subsidiaries, as of and for the fiscal year ended February 1, 1997, reported on by Deloitte & Touche, independent public accountants of FMI, and the fiscal quarter and the portion of the fiscal year ended 36 May 24, 1997, certified by the chief financial officer of FMI and (ii) Smith's and its subsidiaries, as of and for the fiscal year ended December 28, 1996, reported on by Ernst & Young LLP, independent public accountants of Smith's, and the fiscal quarter and the portion of the fiscal year ended April 5, 1997, certified by the chief financial officer of Smith's. Such financial statements present fairly, in all material respects, the financial position and results of operations and cash flows of FMI, Smith's and their respective subsidiaries as of such dates and for such periods in accordance with GAAP, subject to year-end audit adjustments and the absence of footnotes in the case of the statements for the fiscal quarters. (b) There has been no material adverse change in the business, assets, operations, prospects or condition, financial or otherwise, of (i) FMI and its subsidiaries, taken as a whole, since February 1, 1997, or (ii) Smith's or its subsidiaries, taken as a whole, since December 28, 1996. Section 3.5 Properties. (a) Each of the Borrower and its Subsidiaries has good title to, or valid leasehold interests in, all its real and personal property material to its business, except for minor defects in title that do not interfere with its ability to conduct its business as currently conducted or to utilize such properties for their intended purposes, subject to no Lien of any kind except Liens permitted hereby. (b) Each of the Borrower and its Subsidiaries owns, or is licensed to use, all trademarks, tradenames, copyrights, patents and other intellectual property material to its business, and the use thereof by the Borrower and its Subsidiaries does not infringe upon the rights of any other Person, except for any such infringements that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. Section 3.6 Litigation and Environmental Matters. (a) There are no actions, suits or proceedings by or before any arbitrator or Governmental Authority pending against or, to the knowledge of the Borrower, threatened against or affecting the Borrower or any of its Subsidiaries (i) as to which there is a reasonable possibility of an adverse determination and that, if adversely determined, could reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect (other than the Disclosed Matters) or (ii) that involve this Agreement or the Transactions. (b) Except for the Disclosed Matters and except with respect to any other matters that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, neither the Borrower nor any of its Subsidiaries (i) has failed to comply with any Environmental Law or to obtain, maintain or comply with any permit, license or other approval required under any Environmental Law, (ii) has become subject to any Environmental Liability, (iii) has received notice of any claim with respect to any Environmental Liability or (iv) knows of any basis for any Environmental Liability. 37 (c) Since the date of this Agreement, there has been no change in the status of the Disclosed Matters that, individually or in the aggregate, has resulted in, or materially increased the likelihood of, a Material Adverse Effect. Section 3.7 Compliance with Laws and Agreements. Each of the Borrower and its Subsidiaries is in compliance with all laws, regulations and orders of any Governmental Authority applicable to it or its property and all indentures, agreements and other instruments binding upon it or its property, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. No Default has occurred and is continuing. Section 3.8 Investment and Holding Company Status. Neither the Borrower nor any of its Subsidiaries is (a) an "investment company" as defined in, or subject to regulation under, the Investment Company Act of 1940 or (b) a "holding company" as defined in, or subject to regulation under, the Public Utility Holding Company Act of 1935. Section 3.9 Taxes. Each of the Borrower and its Subsidiaries has timely filed or caused to be filed all Tax returns and reports required to have been filed and has paid or caused to be paid all Taxes required to have been paid by it, except (a) Taxes that are being contested in good faith by appropriate proceedings and for which the Borrower or such Subsidiary, as applicable, has set aside on its books adequate reserves or (b) to the extent that the failure to do so could not reasonably be expected to result in a Material Adverse Effect. Section 3.10 ERISA. No ERISA Event has occurred or is reasonably expected to occur that, when taken together with all other such ERISA Events for which liability is reasonably expected to occur, could reasonably be expected to result in a Material Adverse Effect. Section 3.11 Disclosure. The Borrower has disclosed to the Lenders all agreements, instruments and corporate or other restrictions to which it or any of its Subsidiaries is subject, and all other matters known to it, that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. None of the reports, financial statements, certificates or other information furnished by or on behalf of the Borrower to the Administrative Agent or any Lender in connection with the negotiation of this Agreement or delivered hereunder (as modified or supplemented by other information so furnished) contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that, with respect to projected financial information, the Borrower represents only that such information was prepared in good faith based upon assumptions believed to be reasonable at the time. Section 3.12 Solvency. On the Closing Date and after giving effect to the Transactions, the Borrower and each of its Material Subsidiaries will be Solvent. 38 Section 3.13 Use of Proceeds; Margin Regulations. All proceeds of each of the Loans will be used by the Borrower only in accordance with the provisions of Section 5.8. No part of the proceeds of any of the Loans will be used by the Borrower to purchase or carry any Margin Stock or to extend credit to others for the purpose of purchasing or carrying any Margin Stock. Neither the making of any of the Loans nor the use of the proceeds thereof will violate or be inconsistent with the provisions of Regulations G, T, U or X of the Federal Reserve Board. Section 3.14 No Default. The Borrower is not in default under or with respect to any agreement, instrument or undertaking to which it is a party or by which it or any of its property is bound in any respect which could result in a Material Adverse Effect. No Default or Event of Default exists. Section 3.15 Subsidiaries. After giving effect to the Merger, the Persons listed on Schedule 3.15 are the only Subsidiaries of the Borrower. Schedule 3.15 correctly sets forth, after giving effect to the Merger, the percentage ownership (direct and indirect) of the Borrower in each class of capital stock of each of its Subsidiaries and also identifies the direct owner thereof and identifies each Material Subsidiary as of the Closing Date. ARTICLE IV Conditions Section 4.1 Effective Date. The obligations of the Lenders to make Loans hereunder shall not become effective until the date on which each of the following conditions is satisfied (or waived in accordance with Section 9.2): (a) The Administrative Agent (or its counsel) shall have received from each party hereto (A) either (i) a counterpart of this Agreement signed on behalf of such party or (ii) written evidence satisfactory to the Administrative Agent (which may include telecopy transmission of a signed signature page of this Agreement) that such party has signed a counterpart of this Agreement and (B) such other documents, in form and substance satisfactory to the Administrative agent, as the Administrative Agent may reasonably request. (b) The Administrative Agent shall have received a favorable written opinion (addressed to the Administrative Agent and the Lenders and dated the Effective Date) of Stoel Rives LLP, counsel for the Borrower, substantially in the form of Exhibit C, and covering such other matters relating to the Borrower, this Agreement or the Transactions as the Required Lenders shall reasonably request. The Borrower hereby requests such counsel to deliver such opinion. (c) The Administrative Agent shall have received such documents and certificates as the Administrative Agent or its counsel may reasonably request relating to the 39 organization, existence and good standing of the Borrower, the authorization of the Transactions and any other legal matters relating to the Borrower, this Agreement or the Transactions, all in form and substance satisfactory to the Administrative Agent and its counsel. (d) The Administrative Agent shall have received a certificate, dated the Effective Date and signed by the President, a Vice President or a Financial Officer of the Borrower, confirming compliance with the conditions set forth in paragraphs (b) and (c) of Section 4.2. (e) The Administrative Agent shall have received all fees and other amounts due and payable on or prior to the Effective Date, including, to the extent invoiced, reimbursement or payment of all out-of-pocket expenses required to be reimbursed or paid by the Borrower hereunder. (f) The Merger shall have been completed in accordance with the Merger Document, or on other terms reasonably satisfactory to the Lenders. (g) The Other Corporate Loan Documents shall have been executed and delivered and shall be in full force and effect. (h) Each Material Subsidiary shall have executed and delivered to the Administrative Agent a guaranty substantially in the form set forth as Exhibit D (each such guaranty, as amended, supplemented or otherwise modified, a "Subsidiary Guaranty"). (i) The Administrative Agent shall have received evidence satisfactory to it of prior or simultaneous repayment or refinancing of the Debt of the Borrower and its Subsidiaries set forth on Schedule 4.1 hereto (except as otherwise agreed to the satisfaction of the Agents). (j) The Administrative Agent shall have received the financial information required under Section 3.4(a), including a pro forma balance sheet giving effect to the Merger, in form and substance satisfactory to the Administrative Agent. The Administrative Agent shall notify the Borrower and the Lenders of the Effective Date, and such notice shall be conclusive and binding. Notwithstanding the foregoing, the obligations of the Lenders to make Loans hereunder shall not become effective unless each of the foregoing conditions is satisfied (or waived pursuant to Section 9.2) at or prior to 3:00 p.m., New York City time, on September 30, 1997 (and, in the event such conditions are not so satisfied or waived, the Commitments shall terminate at such time). Section 4.2 Each Credit Event. The obligation of each Lender to make a Loan on the occasion of any Borrowing is subject to the satisfaction of the following conditions: 40 (a) The Administrative Agent shall have received a fully executed Borrowing Request in respect of the Loans to be made on such date. (b) The representations and warranties of the Borrower set forth in this Agreement (other than the representations and warranties set forth in Sections 3.4 and 3.6) shall be true and correct on and as of the date of such Borrowing; (c) At the time of and immediately after giving effect to such Borrowing, no Default shall have occurred and be continuing; and (d) At the time of and immediately after giving effect to such Borrowing, the undrawn and available Commitments of the Lenders under this Agreement shall be not less than the aggregate outstanding amount of commercial paper of the Borrower. Each Borrowing shall be deemed to constitute a representation and warranty by the Borrower on the date thereof as to the matters specified in paragraphs (b), (c) and (d) of this Section. ARTICLE V Affirmative Covenants Until the Commitments have expired or been terminated and the principal of and interest on each Loan and all fees payable hereunder shall have been paid in full, the Borrower covenants and agrees with the Lenders that: Section 5.1 Financial Statements and Other Information. The Borrower will furnish to the Administrative Agent and each Lender: (a) within 100 days after the end of each fiscal year of the Borrower, its audited consolidated balance sheet and related statements of operations, stockholders' equity and cash flows as of the end of and for such year, setting forth in each case in comparative form the figures for the previous fiscal year, all reported on by Deloitte & Touche LLP or other independent public accountants of recognized national standing (without a "going concern" or like qualification or exception and without any qualification or exception as to the scope of such audit) to the effect that such consolidated financial statements present fairly in all material respects the financial condition and results of operations of the Borrower and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP. (b) within 55 days after the end of each of the first three fiscal quarters of each fiscal year of the Borrower, its consolidated balance sheet and related statements of operations, stockholders' equity and cash flows as of the end of and for such 41 fiscal quarter and the then elapsed portion of the fiscal year, setting forth in each case in comparative form the figures for the corresponding period or periods of (or, in the case of the balance sheet, as of the end of) the previous fiscal year, all certified by one of its Financial Officers as presenting fairly in all material respects the financial condition and results of operations of the Borrower and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP, subject to normal year-end audit adjustments and the absence of footnotes; (c) concurrently with any delivery of financial statements under clause (a) or (b) above, a Compliance Certificate (i) certifying as to whether a Default has occurred and, if a Default has occurred, specifying the details thereof and any action taken or proposed to be taken with respect thereto, (ii) setting forth reasonably detailed calculations (x) demonstrating compliance with Section 6.10(a) and (b) and (y) establishing the Applicable Margin, and (iii) stating whether any change in GAAP or in the application thereof has occurred since the date of the audited financial statements referred to in Section 3.4 and, if any such change has occurred, specifying the effect of such change on the financial statements accompanying such certificate; (d) concurrently with any delivery of financial statements under clause (a) above, a certificate of the accounting firm that reported on such financial statements stating whether they obtained knowledge during the course of their examination of such financial statements of any Default (which certificate may be limited to the extent required by accounting rules or guidelines); (e) promptly after the same become publicly available, copies of all periodic and other reports, proxy statements and other materials filed by the Borrower or any Subsidiary with the Securities and Exchange Commission, or any Governmental Authority succeeding to any or all of the functions of said Commission, or with any national securities exchange, or distributed by the Borrower to its shareholders generally, as the case may be; and (f) promptly following any request therefor, such other information regarding the operations, business affairs and financial condition of the Borrower or any Subsidiary, or compliance with the terms of this Agreement, as the Administrative Agent or any Lender may reasonably request. Section 5.2 Notices of Material Events. The Borrower will furnish to the Administrative Agent and each Lender prompt written notice of the following: (a) the occurrence of any Default upon actual knowledge of a Responsible Officer of the Borrower; (b) the filing or commencement of any action, suit or proceeding by or before any arbitrator or Governmental Authority against or affecting the Borrower or any 42 Affiliate thereof that, if adversely determined, could reasonably be expected to result in a Material Adverse Effect; (c) the occurrence of any ERISA Event that, alone or together with any other ERISA Events that have occurred, could reasonably be expected to result in material liability of the Borrower and its Subsidiaries; and (d) any other development that results in, or could reasonably be expected to result in, a Material Adverse Effect. Each notice delivered under this Section shall be accompanied by a statement of a Financial Officer or other executive officer of the Borrower setting forth the details of the event or development requiring such notice and any action taken or proposed to be taken with respect thereto. Section 5.3 Existence; Conduct of Business. The Borrower will, and will cause each of its Subsidiaries to, do or cause to be done all things necessary to preserve, renew and keep in full force and effect its legal existence and the rights, licenses, permits, privileges and franchises material to the conduct of its business; provided that the foregoing shall not prohibit any merger, consolidation, liquidation or dissolution permitted under Section 6.5. Section 5.4 Payment of Obligations. The Borrower will, and will cause each of its Subsidiaries to, pay its obligations, including Tax liabilities, that, if not paid, could result in a Material Adverse Effect before the same shall become delinquent or in default, except where (a) the validity or amount thereof is being contested in good faith by appropriate proceedings, (b) the Borrower or such Subsidiary has set aside on its books adequate reserves with respect thereto in accordance with GAAP and (c) the failure to make payment pending such contest could not reasonably be expected to result in a Material Adverse Effect. Section 5.5 Maintenance of Properties; Insurance. The Borrower will, and will cause each of its Subsidiaries to, (a) keep and maintain all property material to the conduct of its business in good working order and condition, ordinary wear and tear excepted, and (b) maintain, with financially sound and reputable insurance companies, insurance in such amounts and against such risks (and having such deductibles and self-insurance) as are customarily maintained by companies engaged in the same or similar businesses operating in the same or similar locations. Section 5.6 Books and Records; Inspection Rights. The Borrower will, and will cause each of its Subsidiaries to, keep proper books of record and account in which full, true and correct entries are made of all dealings and transactions in relation to its business and activities. The Borrower will, and will cause each of its Subsidiaries to, permit any representatives designated by the Administrative Agent or any Lender, upon reasonable prior notice, to visit and inspect its properties, to examine and make extracts from its books and 43 records, and to discuss its affairs, finances and condition with its officers and independent accountants, all at such reasonable times and as often as reasonably requested. Section 5.7 Compliance with Laws. The Borrower will, and will cause each of its Subsidiaries to, comply with all laws, rules, regulations and orders of any Governmental Authority applicable to it or its property, including without limitation ERISA and all Environmental Laws, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. Section 5.8 Use of Proceeds. The proceeds of the Loans will be used only to finance certain costs and expenses associated with the Merger, refinance existing indebtedness (including related prepayment premiums) and for general corporate purposes. No part of the proceeds of any Loan will be used, whether directly or indirectly, for any purpose that entails a violation of any of the Regulations of the Board, including Regulations G, U and X. Section 5.9 Subsidiary Guaranties. The Borrower shall cause each Material Subsidiary, now or hereafter in existence, to execute and deliver to the Administrative Agent a Subsidiary Guaranty together with such officer's certificates, resolutions and other assurances related thereto as the Administrative Agent shall reasonably request upon the earlier of (i) with respect to any Subsidiary on the date hereof that becomes a Material Subsidiary after the date hereof, or as to any Person which, when it becomes a Subsidiary after the date hereof, is not then a Material Subsidiary, as soon as possible after the end of the fiscal quarter in which such Subsidiary becomes a Material Subsidiary, and (ii) with respect to any Material Subsidiary acquired after the date hereof not currently a Subsidiary, within 10 days of becoming a Material Subsidiary. ARTICLE VI Negative Covenants Until the Commitments have expired or been terminated and the principal of and interest on each Loan and all fees payable hereunder shall have been paid in full, the Borrower covenants and agrees with the Lenders that: Section 6.1 Material Subsidiary Debt. The Borrower will not permit any Material Subsidiary to create, incur, assume or permit to exist any Debt, except: (a) Debt owed to the Borrower or to another Material Subsidiary; (b) Debt existing on the date hereof; provided that to the extent any item of such Debt exceeds $5,000,000, or the aggregate of all such Debt exceeds $25,000,000, such Debt shall be identified in Schedule 6.1; 44 (c) Debt secured by Permitted Encumbrances; (d) Capital Lease Obligations not to exceed $100,000,000; (e) Debt outstanding when such Person becomes a Material Subsidiary or is merged or consolidated with another Material Subsidiary, provided that such Debt exists at the time such Person becomes a Material Subsidiary and is not created in contemplation of or in connection with such Person becoming a Material Subsidiary; (f) Debt in respect of commercial letters of credit issued to support the purchase of goods by the applicable Material Subsidiary in the ordinary course of business; (g) Debt in respect of commercial letters of credit issued to support liabilities of a Material Subsidiary relating to worker's compensation, judgments pending appeal (and as to which there is no Event of Default under clause (k) of Article VII), construction or similar liabilities in the ordinary course of business; (h) Suretyship Liabilities constituting guarantees of the Borrower's unsecured Debt; provided such Debt is pari passu with the obligations of the Borrower hereunder; and (i) Debt in respect of Synthetic Lease Facilities entered into by any Material Subsidiary as lessee thereunder; and (j) Debt not otherwise permitted by the foregoing clauses of this Section 6.1 so long as the sum, without duplication, of (x) all such Debt and (y) all Debt secured by Liens permitted solely by clause (f) of Section 6.2 does not exceed 10% of Consolidated Total Assets. Section 6.2 Liens. The Borrower will not, and will not permit any Subsidiary to, create, incur, assume or permit to exist any Lien on any property or asset now owned or hereafter acquired by it, or assign or sell any income or revenues (including accounts receivable) or rights in respect of any thereof, except: (a) Permitted Encumbrances; (b) any Lien on any property or asset of the Borrower or any Subsidiary existing on the date hereof (including Liens created pursuant to the Current Synthetic Lease Facility) and set forth in Schedule 6.2; provided that (i) such Lien shall not apply to any other property or asset of the Borrower or any Subsidiary and (ii) such Lien shall secure only those obligations which it secures on the date hereof; (c) any Lien existing on any property or asset prior to the acquisition thereof by the Borrower or any Subsidiary or existing on any property or asset of any Person 45 that becomes a Subsidiary after the date hereof prior to the time such Person becomes a Subsidiary; provided that (i) such Lien is not created in contemplation of or in connection with such acquisition or such Person becoming a Subsidiary, as the case may be, (ii) such Lien shall not apply to any other property or assets of the Borrower or any Subsidiary and (iii) such Lien shall secure only those obligations which it secures on the date of such acquisition or the date such Person becomes a Subsidiary, as the case may be; and (d) Liens on fixed or capital assets acquired, constructed or improved by the Borrower or any Subsidiary; provided that (i) such security interests and the Indebtedness secured thereby are incurred prior to or within 180 days after such acquisition or the completion of such construction or improvement, (ii) the Debt secured thereby does not exceed the cost of acquiring, constructing or improving such fixed or capital assets and (iii) such security interests shall not apply to any other property or assets of the Borrower or any Subsidiary; (e) Liens on assets acquired after the date hereof under Synthetic Lease Facilities; and (f) Liens not otherwise permitted by the foregoing clauses of this Section 6.2, securing Debt of the Borrower or its Subsidiaries, so long as the sum, without duplication, of (i) all such Debt and (ii) all Debt permitted solely by clause (j) of Section 6.1 does not exceed 10% of Consolidated Total Assets Section 6.3 Modifications of Merger Document. The Borrower shall not, and shall not permit any of its Subsidiaries to amend, modify or waive, or permit the amendment, modification or waiver of, any provision of the Merger Document. Section 6.4 Fundamental Changes. (a) The Borrower will not, and will not permit any Material Subsidiary to, merge into or consolidate with any other Person, or permit any other Person to merge into or consolidate with it, or sell, transfer, lease or otherwise dispose of (in one transaction or in a series of transactions) all or any substantial part of its assets, or all or substantially all of the stock of any of its Subsidiaries (in each case, whether now owned or hereafter acquired), or liquidate or dissolve, except that, if at the time thereof and immediately after giving effect thereto no Default shall have occurred and be continuing (i) any Subsidiary may merge into the Borrower in a transaction in which the Borrower is the surviving corporation, (ii) any Subsidiary may merge into any Subsidiary in a transaction in which the surviving entity is a Subsidiary, (iii) any Subsidiary may sell, transfer, lease or otherwise dispose of its assets to the Borrower or to another Subsidiary and (iv) any Subsidiary may liquidate or dissolve if the Borrower determines in good faith that such liquidation or dissolution is in the best interests of the Borrower and is not materially disadvantageous to the Lenders. (b) The Borrower will not, and will not permit any of its Subsidiaries to, engage to any material extent in any business other than businesses of the type conducted 46 by the Borrower and its Subsidiaries on the date of execution of this Agreement and businesses reasonably related thereto. Section 6.5 Investments, Loans, Advances, Suretyship Liabilities and Acquisitions. The Borrower will not, and will not permit any of its Material Subsidiaries to, purchase, hold or acquire (including pursuant to any merger with any Person that was not a wholly owned Subsidiary prior to such merger) any capital stock, evidences of indebtedness or other securities (including any option, warrant or other right to acquire any of the foregoing) of, make or permit to exist any loans or advances to, incur Suretyship Liabilities in respect of any obligations of, or make or permit to exist any investment or any other interest in, any other Person, or purchase or otherwise acquire (in one transaction or a series of transactions) any assets of any other Person constituting a business unit, except: (a) Permitted Investments; (b) investments by the Borrower and its Subsidiaries in its Material Subsidiaries, or any Subsidiary which is not a Material Subsidiary so long as such non-Material Subsidiary executes and delivers a Subsidiary Guaranty in favor of the Administrative Agent; (c) loans or advances made, or Suretyship Liabilities incurred, by the Borrower to or in respect of any Subsidiary and made or incurred by any Subsidiary to or in respect of the Borrower or any other Subsidiary; (d) Suretyship Liabilities with respect to Hedging Agreements permitted by Section 6.6; (e) Suretyship Liabilities constituting Debt permitted by Section 6.1; (f) Suretyship Liabilities created under the Other Corporate Loan Documents; (g) Suretyship Liabilities with respect to Surety Instruments incurred in the ordinary course of business; and (h) investments by the Borrower and its Material Subsidiaries not otherwise permitted by the foregoing clauses of this Section 6.5, so long as such additional investments made in reliance on this clause (h) do not exceed $100,000,000 in the aggregate at any time. Section 6.6 Hedging Agreements. The Borrower will not, and will not permit any of its Subsidiaries to, enter into any Hedging Agreement, other than Hedging Agreements entered into in the ordinary course of business to hedge or mitigate risks to 47 which the Borrower or any Subsidiary is exposed in the conduct of its business or the management of its liabilities. Section 6.7 Restricted Payments. The Borrower will not, and will not permit any of its Subsidiaries to, declare or make, or agree to pay or make, directly or indirectly, any Restricted Payment, except that, so long as no Event of Default has occurred and is continuing, (a) the Borrower may declare and pay dividends with respect to its capital stock payable solely in additional shares of its common stock, (b) the Borrower may make Restricted Payments pursuant to and in accordance with stock option plans or other benefit plans for management or employees of the Borrower and its Subsidiaries, (c) any Subsidiary may declare and pay Restricted Payments to the Borrower or any other Subsidiary, and (d) from and after the fiscal year ending January 31, 1998, the Borrower and its Subsidiaries may pay cash dividends and repurchase their respective stock from any Person which is not the Borrower or another Subsidiary so long as on the date of payment or repurchase (i) such cash dividends and stock repurchases do not exceed $100,000,000 in any single fiscal year, and (ii) the total of such cash dividends and stock repurchases in all such fiscal years (beginning with the fiscal year ending January 31, 1998) does not exceed an aggregate amount of $200,000,000 plus 40% of the Borrower's and its Subsidiaries' aggregate net income earned commencing with the fiscal year ending January 31, 1998, and each fiscal year thereafter. Section 6.8 Transactions with Affiliates. The Borrower will not, and will not permit any of its Subsidiaries to, sell, lease or otherwise transfer any property or assets to, or purchase, lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except (a) at prices and on terms and conditions not less favorable to the Borrower or such Subsidiary than could be obtained on an arm's-length basis from unrelated third parties, (b) transactions between or among the Borrower and its wholly owned Subsidiaries not involving any other Affiliate and (c) any Restricted Payment permitted by Section 6.7. Section 6.9 Restrictive Agreements. The Borrower will not, and will not permit any of its Subsidiaries to, directly or indirectly, enter into, incur or permit to exist any agreement or other arrangement that prohibits, restricts or imposes any condition upon the ability of any Subsidiary to pay dividends or other distributions with respect to any shares of its capital stock or to make or repay loans or advances to the Borrower or any other Subsidiary or to incur Suretyship Liabilities in respect of Debt of the Borrower or any other Subsidiary; provided that (i) the foregoing shall not apply to restrictions and conditions imposed by law or by this Agreement, (ii) the foregoing shall not apply to restrictions and conditions (x) contained in the Other Corporate Loan Documents or (y) existing on the date hereof and identified on Schedule 6.9 (but shall apply to any extension or renewal of, or any amendment or modification expanding the scope of, any such restriction or condition) and (iii) the foregoing shall not apply to customary restrictions and conditions contained in agreements relating to the sale of a Subsidiary pending such sale, provided such restrictions and conditions apply only to the Subsidiary that is to be sold and such sale is permitted 48 hereunder and provided further that such restrictions and conditions cannot be imposed at any time that a Default has occurred and is continuing.. Section 6.10 Financial Covenants. (a) Debt for Borrowed Money to Consolidated EBITDA Ratio. The Borrower shall not permit the ratio of its Debt for Borrowed Money to Consolidated EBITDA (for the most recent four consecutive quarters) to exceed, at the end of any fiscal quarter ending on or during any period listed below, the ratio set forth opposite such period: Period Ratio ------ ----- From and including January 31, 1998, 4.00:1 to and including January 29, 1999 From and including January 30, 1999 3.75:1 to and including January 28, 2000 From and including January 29, 2000 3.35:1 to and including February 2, 2001 From and including February 3, 2001, 3.00:1 and thereafter provided, however, that Consolidated EBITDA of the Borrower and its Subsidiaries for the four quarter periods ended January 31, 1998, May 23, 1998 and August 15, 1998 shall be calculated by reference to (i) for each fiscal quarter ended after the Closing Date, the actual Consolidated EBITDA for such fiscal quarter, and (ii) for each fiscal quarter ended prior to the Closing Date, Consolidated EBITDA reflected in a pro-forma income statement for such fiscal quarter prepared by the Borrower in good faith using reasonable assumptions consistent with all facts known to the Borrower. (b) Adjusted Interest Coverage Ratio. The Borrower shall not permit the Adjusted Interest Coverage Ratio (for the most recent four consecutive quarters, except as specified below) to be less than, at the end of any fiscal quarter ending on or during any period listed below, the Adjusted Interest Coverage Ratio set forth opposite such period: Period Ratio ------ ----- From and including January 31, 1998 2.25:1 to and including January 29, 1999 From and including January 30, 1999 2.50:1 and thereafter 49 provided, however, that for the periods ended January 31, 1998, May 23, 1998 and August 15, 1998 the Adjusted Interest Coverage Ratio for such period shall be calculated by reference to the full fiscal quarters then ended since the Closing Date. Section 6.11 Unconditional Purchase Obligations. The Borrower shall not, and shall not permit any Material Subsidiary to, enter into or be a party to any contract for the purchase of materials, supplies or other property or services, if such contract requires that payments be made by it regardless of whether or not delivery is ever made of such materials, supplies or other property or services. Section 6.12 Fiscal Year; Fiscal Quarter. The Borrower shall not, and shall not permit any of its Subsidiaries to, change its fiscal year or any of its fiscal quarters. ARTICLE VII Events of Default If any of the following events ("Events of Default") shall occur: (a) the Borrower shall fail to pay any principal of any Loan when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or otherwise; or (b) the Borrower shall fail to pay any interest on any Loan or any fee or any other amount (other than an amount referred to in clause (a) of this Article) payable under this Agreement, when and as the same shall become due and payable, and such failure shall continue unremedied for a period of three (3) Business Days; or (c) any representation or warranty made or deemed made by or on behalf of the Borrower or any Subsidiary in or in connection with this Agreement or any amendment or modification hereof or waiver hereunder, or in any report, certificate, financial statement or other document furnished pursuant to or in connection with this Agreement or any amendment or modification hereof or waiver hereunder, shall prove to have been incorrect in any material respect when made or deemed made; or (d) the Borrower shall fail to observe or perform any covenant, condition or agreement contained in Sections 5.2(a), 5.3 (with respect to the Borrower's existence) or 5.8 or in Sections 6.1, 6.2, 6.4, 6.5, 6.6, 6.7, 6.9, 6.10, 6.11 or 6.12; or (e) the Borrower shall fail to observe or perform any covenant, condition or agreement contained in this Agreement (other than those specified in clauses (a), (b), (c) or (d) of this Article), and such failure shall continue unremedied for a period of 50 30 days after notice thereof from the Administrative Agent to the Borrower (which notice will be given at the request of any Lender); or (f) the Borrower or any Material Subsidiary shall fail to make any payment (whether of principal or interest and regardless of amount) in respect of any Material Debt, when and as the same shall become due and payable or within any applicable grace period provided in connection with such Material Debt; or (g) the Borrower or any Material Subsidiary shall default in any other obligation that results in any Debt of $10,000,000 or more in the aggregate becoming due prior to its scheduled maturity or that enables or permits (with or without the giving of notice, the lapse of time or both) the holder or holders of any Debt of $10,000,000 or more in the aggregate or any trustee or agent on its or their behalf to cause any such Debt to become due, or to require the prepayment, repurchase, redemption or defeasance thereof, prior to its scheduled maturity; or (h) an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization or other relief in respect of the Borrower or any Material Subsidiary or their respective debts, or of a substantial part of their respective assets, under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect or (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Borrower or any Material Subsidiary or for a substantial part of their respective assets, and, in any such case, such proceeding or petition shall continue undismissed for 60 days or an order or decree approving or ordering any of the foregoing shall be entered; or (i) the Borrower or any Material Subsidiary shall (i) voluntarily commence any proceeding or file any petition seeking liquidation, reorganization or other relief under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition described in clause (h) of this Article, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Borrower or any Material Subsidiary or for a substantial part of their respective assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors or (vi) take any action for the purpose of effecting any of the foregoing; or (j) the Borrower or any Material Subsidiary shall become unable, admit in writing or fail generally to pay its debts as they become due; or (k) one or more judgments for the payment of money in an aggregate amount in excess of $5,000,000 shall be rendered against the Borrower, any Subsidiary or any combination thereof and the same shall remain undischarged for a period of 30 consecutive days during which execution shall not be effectively stayed, or any action 51 shall be legally taken by a judgment creditor to attach or levy upon any assets of the Borrower or any Subsidiary to enforce any such judgment; or (l) an ERISA Event shall have occurred that, in the opinion of the Required Lenders, when taken together with all other ERISA Events that have occurred, could reasonably be expected to result in liability of the Borrower and its Subsidiaries in an aggregate amount exceeding $5,000,000; or (m) a Change in Control shall occur; or (n) any Subsidiary Guaranty shall cease to be in full force and effect, or any guarantor under any Subsidiary Guaranty or any Person acting by or on behalf of such guarantor shall deny or disaffirm all or any portion of the guarantor's obligation under such Subsidiary Guaranty; then, and in every such event (other than an event with respect to the Borrower described in clause (h) or (i) of this Article), and at any time thereafter during the continuance of such event, the Administrative Agent may, and at the request of the Required Lenders shall, by notice to the Borrower, take either or both of the following actions, at the same or different times: (i) terminate the Commitments, and thereupon the Commitments shall terminate immediately and (ii) declare the Loans then outstanding to be due and payable in whole or in part (in which case any principal not so declared to be due and payable may thereafter be declared to be due and payable), and thereupon the principal of the Loans so declared to be due and payable, together with accrued interest thereon and all fees and other obligations of the Borrower accrued hereunder, shall become due and payable immediately, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower; and in case of any event with respect to the Borrower described in clause (h) or (i) of this Article, the Commitments shall automatically terminate and the principal of the Loans then outstanding, together with accrued interest thereon, and all fees and other obligations of the Borrower accrued hereunder, shall automatically become due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower. ARTICLE VIII The Administrative Agent Section 8.1 Appointment. Each Lender hereby irrevocably designates and appoints Bankers Trust Company as the Administrative Agent of such Lender under this Agreement, and each such Lender irrevocably authorizes Bankers Trust Company as the Administrative Agent for such Lender, to take such action on its behalf under the provisions of this Agreement and to exercise such powers and perform such duties as are expressly delegated to the Agent by the terms of this Agreement, together with such other powers as 52 are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in this Agreement, the Administrative Agent shall not have any duties or responsibilities, except those expressly set forth herein, or any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities on the part of the Administrative Agent shall be read into this Agreement or otherwise exist against the Administrative Agent. The provisions of this Article 8 are solely for the benefit of the Administrative Agent and the Lenders and the Borrower shall have no rights as a third party beneficiary or otherwise under any of the provisions hereof. In performing its functions and duties hereunder, the Administrative Agent shall act solely as the agent of the Lenders and does not assume nor shall be deemed to have assumed any obligation or relationship of trust or agency with or for the Borrower or any of its successors and assigns. Section 8.2 Delegation of Duties. The Administrative Agent may execute any of its duties under this Agreement by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Administrative Agent shall not be responsible for the negligence or misconduct or any agents or attorneys-in-fact selected by it with reasonable care. Section 8.3 Exculpatory Provisions. The Administrative Agent shall not be (i) liable for any action lawfully taken or omitted to be taken by it or any Person described in Section 8.2 under or in connection with this Agreement (except for its or such Person's own gross negligence or willful misconduct), or (ii) responsible in any manner to any of the Lenders for any recitals, statements, representations or warranties made by the Borrower contained in this Agreement or in any certificate, report, statement or other document referred to or provided for in, or received under or in connection with, this Agreement or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement, or for any failure of the Borrower to perform its obligations hereunder or thereunder. The Administrative Agent shall not be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement, or to inspect the properties, books or records of the Borrower. This Section is intended solely to govern the relationship between the Administrative Agent, on the one hand, and the Lenders, on the other. Section 8.4 Reliance by Administrative Agent. The Administrative Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to the Borrower), independent accountants and other experts selected by the Administrative Agent. The Administrative Agent shall be fully justified in failing or refusing to take any action under this Agreement unless it shall first receive such advice or concurrence of the Required Lenders as it deems appropriate or it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of 53 taking or continuing to take any such action. The Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement in accordance with a request of the Required Lenders, and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders. Section 8.5 Notice of Default. The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Default unless the Administrative Agent has received notice from a Lender or the Borrower referring to this Agreement, describing such Default and stating that such notice is a "notice of default". In the event that the Administrative Agent receives such a notice, the Administrative Agent shall promptly give notice thereof to the Lenders. The Administrative Agent shall take such action with respect to such Default as shall be directed by the Required Lenders; provided that unless and until the Administrative Agent shall have received such directions, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default as the Administrative Agent shall deem advisable and in the best interests of the Lenders. Section 8.6 Non-Reliance on Administrative Agent and Other Lenders. Each Lender expressly acknowledges that neither the Administrative Agent, nor any of its officers, directors, employees, agents, attorneys-in-fact or affiliates has made any representations or warranties to it and that no act by the Administrative Agent hereafter taken, including, without limitation, any review of the affairs of the Borrower, shall be deemed to constitute any representation or warranty by the Administrative Agent. Each Lender represents and warrants to the Administrative Agent that it has, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, prospects, financial and other conditions and creditworthiness of the Borrower and made its own decision to make its Loans hereunder and enter into this Agreement. Each Lender also represents that it will, independently and without reliance upon the Administrative Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, prospects, financial and other condition and creditworthiness of the Borrower. Except for notices, reports and other documents expressly required under this Agreement to be furnished to the Lenders by the Administrative Agent, the Administrative Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, property, prospects, financial and other condition or creditworthiness of the Borrower which may come into the possession of the Administrative Agent or any of its officers, directors, employees, agents, attorneys-in-fact or affiliates. Section 8.7 Indemnification. The Lenders agree to indemnify the Administrative Agent, the Syndication Agent and each of their respective officers, directors, employees, representatives and agents (to the extent not reimbursed by the Borrower and 54 without limiting the obligation of the Borrower to do so), ratably according to their Applicable Percentage, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever (including, without limitation, the fees and disbursements of counsel for the Administrative Agent, Syndication Agent or such Person in connection with any investigative, administrative or judicial proceeding commenced or threatened, whether or not the Administrative Agent or such Person shall be designated a party thereto) that may at any time (including, without limitation, at any time following the payment of the Obligations) be imposed on, incurred by or asserted against the Administrative Agent, Syndication Agent or such Person as a result of, or arising out of, or in any way related to or by reason of, any of the Transactions or the execution, delivery or performance of this Agreement (but excluding any such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting solely from the gross negligence or willful misconduct of the Administrative Agent, Syndication Agent or such Person as finally determined by a court of competent jurisdiction). Section 8.8 Administrative Agent in its Individual Capacity. The Administrative Agent and its affiliates may make loans to, accept deposits from and generally engage in any kind of business with the Borrower as though the Administrative Agent were not the Administrative Agent hereunder. With respect to Loans made or renewed by it, the Administrative Agent shall have the same rights and powers under this Agreement as any Lender and may exercise the same as though it were not the Administrative Agent, and the terms "Lender" and "Lenders" shall include the Administrative Agent in its individual capacity. Section 8.9 Successor Administrative Agent. The Administrative Agent may resign as Administrative Agent upon 30 days' notice to the Borrower and the Lenders. If the Administrative Agent shall resign as Administrative Agent under this Agreement, then the Required Lenders during such 30-day period shall appoint from among the Lenders a successor agent, whereupon such successor agent shall succeed to the rights, powers and duties of the Administrative Agent and the term "Administrative Agent" shall mean such successor agent, effective upon its appointment, and the former Administrative Agent's rights, powers and duties as Administrative Agent shall be terminated, without any other or further act or deed on the part of such former Administrative Agent or any of the parties to this Agreement. After any retiring Administrative Agent's resignation hereunder as Administrative Agent, the provisions of this Section 8 and Section 9.3 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Agreement. Section 8.10 Syndication Agent. Without limiting any provision contained in this Section 8, the Syndication Agent shall not have, except as to and to the limited extent expressly provided herein, any obligation, responsibility or duty under this Agreement other than those applicable to all Lenders as such. Each Lender acknowledges that it has not 55 relied, and will not rely, on the Syndication Agent in deciding to enter into this Agreement or in taking or not taking action hereunder. ARTICLE IX Miscellaneous Section 9.1 Notices. Except in the case of notices and other communications expressly permitted to be given by telephone, all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopy, as follows: (a) if to the Borrower, to it at: Fred Meyer, Inc. P.O. Box 42121 3800 SE 22nd Avenue Portland, Oregon 97242-0121 Telecopy: (503) 797-5299 Attn: Mr. James C. Aalberg; with a copy of notices pursuant to Article VII to: Stoel Rives LLP 700 NE Multnomah, Ste 9504 Portland, Oregon 97232 Telecopy: (503) 230-1907 Attn: Mr. Gary R. Barnum (b) if to the Administrative Agent, to it at: Bankers Trust Company 130 Liberty Street New York, New York 10006 Telecopy: (212) 250-7351 Attn: Deal Administrator (c) if to any other Lender, to it at its address (or telecopy number) set forth opposite its signature below. Any party hereto may change its address or telecopy number for notices and other communications hereunder by notice to the other parties hereto. All notices and other communications given to any party hereto in accordance with the provisions of this 56 Agreement shall be deemed to have been given on the date of receipt. It is understood and agreed that the delivery of copies of notices to counsel as set forth above is for courtesy purposes only and any failure to deliver such copy shall not constitute failure with respect to any obligation to provide notices hereunder. Section 9.2 Waivers; Amendments. (a) Neither this Agreement nor any terms hereof may be changed, waived, discharged or terminated unless such change, waiver, discharge or termination is in writing signed by the Required Lenders, provided that no such change, waiver, discharge or termination shall, without the consent of each Lender (other than a Defaulting Lender), (i) extend the final scheduled maturity of any Loan beyond the Maturity Date, or reduce the rate or extend the time of payment of interest or fees thereon, or reduce the principal amount thereof (except to the extent repaid in cash), (ii) amend, modify or waive any provision of this Section 9.2, (iii) reduce the percentage specified in the definition of Required Lenders, (iv) consent to the assignment or transfer by the Borrower of any of its rights and obligations under this Agreement or (v) release any Subsidiary which is party to a Subsidiary Guaranty from its obligations under such Subsidiary Guaranty; provided further that no such change, waiver, discharge or termination shall (x) increase the Commitment of any Lender (it being understood that waivers or modifications of conditions precedent, covenants, Defaults or of a mandatory reduction in the aggregate Commitments shall not constitute an increase of the Commitment of any Lender, and that an increase in the available portion of any Commitment of any Lender shall not constitute an increase of the Commitment of such Lender) or (y) without the consent of the Administrative Agent, amend, modify or waive any provision of Section 8 or any other provision as the same relates to the Administrative Agent. No failure or delay by the Administrative Agent or any Lender in exercising any right or power hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Administrative Agent and the Lenders hereunder are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of this Agreement or consent to any departure by the Borrower therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) of this Section, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. Without limiting the generality of the foregoing, the making of a Loan shall not be construed as a waiver of any Default, regardless of whether the Administrative Agent or any Lender may have had notice or knowledge of such Default at the time. (b) If, in connection with any proposed change, waiver, discharge or termination to any of the provisions of this Agreement contemplated by clauses (i) through (v), inclusive, of the first proviso of Section 9.2(a), the consent of the Required Lenders is obtained but the consent of one or more of such other Lenders whose consent is required is not obtained, then the Borrower shall have the right, so long as all non-consenting Lenders whose individual consent is required are treated as described in either clauses (A) or (B) below, to either (A) replace each such non-consenting Lender or Lenders with one or more 57 Replacement Lenders pursuant to Section 2.18(b) so long as at the time of such replacement each such Replacement Lender consents to the proposed change, waiver, discharge or termination or (B) terminate such non-consenting Lender's Commitment and/or repay the outstanding Loans of such Lender; provided that, unless the Commitment that is terminated and Loans repaid pursuant to preceding clause (B) are immediately replaced in full at such time through the addition of new Lenders or the increase of the Commitments and/or outstanding Loans of existing Lenders (who in each case must specifically consent thereto), then in the case of any action pursuant to preceding clause (B) the Required Lenders (determined after giving effect to the proposed action) shall specifically consent thereto, provided further, that in any event the Borrower shall not have the right to replace a Lender, terminate its Commitment or repay its Loans solely as a result of the exercise of such Lender's rights (and the withholding of any required consent by such Lender) pursuant to the second proviso to Section 9.2(a). Section 9.3 Expenses; Indemnity; Damage Waiver. (a) The Borrower shall pay (i) all reasonable out-of-pocket expenses incurred by the Administrative Agent and its Affiliates, including the reasonable fees, charges and disbursements of counsel for the Administrative Agent, in connection with the syndication of the credit facilities provided for herein, the preparation and administration of this Agreement or any amendments, modifications or waivers of the provisions hereof (whether or not the transactions contemplated hereby or thereby shall be consummated) and (ii) all out-of-pocket expenses incurred by the Administrative Agent or any Lender, including the fees, charges and disbursements of any counsel for the Administrative Agent or any Lender, in connection with the enforcement or protection of its rights in connection with this Agreement after the occurrence of an Event of Default, including its rights under this Section, or in connection with the Loans made hereunder, including all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans. (b) The Borrower shall indemnify the Administrative Agent and each Lender, and each Related Party of any of the foregoing Persons (each such Person being called an "Indemnitee") against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses, including the fees, charges and disbursements of any counsel for any Indemnitee, incurred by or asserted against any Indemnitee arising out of, in connection with, or as a result of (i) the execution or delivery of this Agreement or any agreement or instrument contemplated hereby, the performance by the parties hereto of their respective obligations hereunder or the consummation of the Transactions or any other transactions contemplated hereby, (ii) any Loan or the use of the proceeds therefrom, (iii) any actual or alleged presence or release of Hazardous Materials on or from any property owned or operated by the Borrower or any of its Subsidiaries, or any Environmental Liability related in any way to the Borrower or any of its Subsidiaries, or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory and regardless of whether any Indemnitee is a party thereto; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses are 58 determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or wilful misconduct of such Indemnitee. (c) To the extent permitted by applicable law, the Borrower shall not assert, and hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement or any agreement or instrument contemplated hereby, the Transactions, any Loan or the use of the proceeds thereof. (d) All amounts due under this Section shall be payable not later than 10 days after written demand therefor. Section 9.4 Successors and Assigns. (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that the Borrower may not assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of each Lender (and any attempted assignment or transfer by the Borrower without such consent shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement. (b) Any Lender may assign to one or more assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans); provided that (i) except in the case of an assignment to a Lender or an Affiliate of a Lender, each of the Borrower and the Administrative Agent must give its prior written consent to such assignment (which consent shall not be unreasonably withheld), (ii) except in the case of an assignment to a Lender or an Affiliate of a Lender or an assignment of the entire remaining amount of the assigning Lender's Commitment, the amount of the Commitment of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Acceptance with respect to such assignment is delivered to the Administrative Agent) shall not be less than $5,000,000 unless each of the Borrower and the Administrative Agent otherwise consent, (iii) each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender's rights and obligations under this Agreement, except that this clause (iii) shall not apply to rights in respect of outstanding Competitive Loans and (iv) the parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Acceptance, together with a processing and recordation fee of $3,500; and provided further that any consent of the Borrower otherwise required under this paragraph shall not be required if a Default has occurred and is continuing. Subject to acceptance and recording thereof pursuant to paragraph (d) of this Section, from and after the effective date specified in each Assignment and Acceptance the assignee thereunder shall be a party hereto and, to the extent of the 59 interest assigned by such Assignment and Acceptance, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all of the assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 2.14, 2.15, 2.16 and 9.3). Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this paragraph shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with paragraph (e) of this Section. (c) The Administrative Agent, acting for this purpose as an agent of the Borrower, shall maintain at one of its offices in The City of New York a copy of each Assignment and Acceptance delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitment of, and principal amount of the Loans owing to, each Lender pursuant to the terms hereof from time to time (the "Register"). The entries in the Register shall be conclusive (absent manifest error), and the Borrower, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Borrower and any Lender, at any reasonable time and from time to time upon reasonable prior notice. (d) Upon its receipt of a duly completed Assignment and Acceptance executed by an assigning Lender and an assignee, the processing and recordation fee referred to in paragraph (b) of this Section and any written consent to such assignment required by paragraph (b) of this Section, the Administrative Agent shall accept such Assignment and Acceptance and record the information contained therein in the Register. No assignment shall be effective for purposes of this Agreement unless it has been recorded in the Register as provided in this paragraph. (e) Any Lender may, without the consent of the Borrower or the Administrative Agent, sell participations to one or more banks or other entities (a "Participant") in all or a portion of such Lender's rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans owing to it); provided that (i) such Lender's obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) the Borrower, the Administrative Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement. Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; and provided further that no Lender shall transfer or grant any participation under which the Participants shall have rights to approve 60 any amendment to or waiver of this Agreement except to the extent that such amendment or waiver would (i) extend the final scheduled maturity of any Revolving Loan or Note in which the Participant is participating, or reduce the rate or extend the time of payment of interest or fees thereon (except in connection with a waiver of applicability of any post-default increase in interest rates) or reduce the principal amount thereof, or increase the amount of the Participant's participation over the amount thereof then in effect (it being understood that a waiver of any Default or of a mandatory reduction in the aggregate Commitments shall not constitute a change in the terms of such participation and that an increase in any Commitment or Revolving Loan shall be permitted without the consent of any participant if the Participant's participation is not increased as a result thereof), or (ii) consent to the assignment by the Borrower of any of its rights and obligations under this Agreement. (f) A Participant shall not be entitled to receive any greater payment under Section 2.14 or 2.16 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Borrower's prior written consent. A Participant that, subject to the foregoing, would be a Foreign Lender if it were a Lender shall not be entitled to the benefits of Section 2.16 unless the Borrower is notified of the participation sold to such Participant and such Participant agrees, for the benefit of the Borrower, to comply with Section 2.16(e) as though it were a Lender. (g) Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank, and this Section shall not apply to any such pledge or assignment of a security interest; provided that no such pledge or assignment of a security interest shall release a Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto. Section 9.5 Survival. All covenants, agreements, representations and warranties made by the Borrower herein and in the certificates or other instruments delivered in connection with or pursuant to this Agreement shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of this Agreement and the making of any Loans, regardless of any investigation made by any such other party or on its behalf and notwithstanding that the Administrative Agent or any Lender may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any fee or any other amount payable under this Agreement is outstanding and unpaid and so long as the Commitments have not expired or terminated. The provisions of Sections 2.14, 2.15, 2.16 and 9.3 and Article VIII shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Loans, the expiration or termination of the Commitments or the termination of this Agreement or any provision hereof. 61 Section 9.6 Counterparts; Integration; Effectiveness. This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement and any separate letter agreements with respect to fees payable to the Administrative Agent constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. Except as provided in Section 4.1, this Agreement shall become effective when it shall have been executed by the Administrative Agent and when the Administrative Agent shall have received counterparts hereof which, when taken together, bear the signatures of each of the other parties hereto, and thereafter shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Delivery of an executed counterpart of a signature page of this Agreement by telecopy shall be effective as delivery of a manually executed counterpart of this Agreement. Section 9.7 Severability. Any provision of this Agreement held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction. Section 9.8 Right of Setoff. If an Event of Default shall have occurred and be continuing, each Lender and each of its Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other obligations at any time owing by such Lender or Affiliate to or for the credit or the account of the Borrower against any and all of the obligations of the Borrower now or hereafter existing under this Agreement held by such Lender, irrespective of whether or not such Lender shall have made any demand under this Agreement and although such obligations may be unmatured. The rights of each Lender under this Section are in addition to other rights and remedies (including other rights of setoff) which such Lender may have. Section 9.9 Governing Law; Jurisdiction; Consent to Service of Process. (a) This Agreement shall be construed in accordance with and governed by the law of the State of New York. (b) The Borrower hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of the Supreme Court of the State of New York sitting in New York County and of the United States District Court of the Southern District of New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in 62 such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that the Administrative Agent or any Lender may otherwise have to bring any action or proceeding relating to this Agreement against the Borrower or its properties in the courts of any jurisdiction. (c) The Borrower hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement in any court referred to in paragraph (b) of this Section. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. (d) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 9.1. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law. Section 9.10 WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION. Section 9.11 Headings. Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement. Section 9.12 Confidentiality. Each of the Administrative Agent and the Lenders agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its and its Affiliates' directors, officers, employees and agents, including accountants, legal counsel and other advisors (it being understood that 63 the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (b) to the extent requested by any regulatory authority, (c) to the extent required by applicable laws or regulations or by any subpoena or similar legal process, (d) to any other party to this Agreement, (e) in connection with the exercise of any remedies hereunder or any suit, action or proceeding relating to this Agreement or the enforcement of rights hereunder, (f) to any participant or prospective participant in or assignee or prospective assignee of any of the rights and obligations under this Agreement, provided that such participant, prospective participant, assignee or prospective assignee agrees to be bound by the confidentiality provisions contained in this Section 9.12, (g) with the consent of the Borrower or (h) to the extent such Information (i) becomes publicly available other than as a result of a breach of this Section or (ii) becomes available to the Administrative Agent or any Lender on a nonconfidential basis from a source other than the Borrower. For the purposes of this Section, "Information" means all information received from the Borrower relating to the Borrower or its business, other than any such information that is available to the Administrative Agent or any Lender on a nonconfidential basis prior to disclosure by the Borrower; provided that, in the case of information received from the Borrower after the date hereof, such information is clearly identified at the time of delivery as confidential. Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information. Section 9.13 OREGON LEGAL NOTICE. WITHOUT LIMITING THE VALIDITY OF THE CHOICE OF NEW YORK LAW PROVIDED HEREIN, UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY THE LENDERS AFTER THE RESTATEMENT DATE OF THE ACT SPECIFIED HEREIN CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT FOR PERSONAL FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE BORROWER'S RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY THE LENDERS TO BE ENFORCEABLE. THE ACT SPECIFIED HEREIN MEANS CHAPTER 967 OREGON LAWS 1989, THE EFFECTIVE DATE OF WHICH WAS OCTOBER 3, 1989. 64 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. MEYER-SMITH HOLDCO, INC., as Borrower by JAMES C. AALBERG -------------------------------------- Name: James C. Aalberg Title: Vice President, Treasurer S-1 BANKERS TRUST COMPANY, as Administrative Agent and as a Lender by MARY KAY COYLE -------------------------------------- Name: Mary Kay Coyle Title: Managing Director S-2 THE CHASE MANHATTAN BANK, as Syndication Agent and as a Lender by ELLEN L. GERTZOG -------------------------------------- Name: Ellen L. Gertzog Title: Vice President S-3 BANK OF AMERICA NT & SA, as a Lender by JAY R. ALLEN -------------------------------------- Name: Jay R. Allen Title: SVP S-4 THE BANK OF NEW YORK, as a Lender by CHARLOTTE SOHN -------------------------------------- Name: Charlotte Sohn Title: Vice President S-5 COMPAGNIE FINANCIERE DE CIC ET DE L'UNION EUROPEENNE, as a Lender by ANTHONY ROCK -------------------------------------- Name: Anthony Rock Title: Vice President by BRIAN O'LEARY -------------------------------------- Name: Brian O'Leary Title: Vice President S-6 THE HONG KONG AND SHANGHAI BANKING CORPORATION LIMITED, as a Lender by JOHN C. HOLSEY -------------------------------------- Name: John C. Holsey Title: Executive Vice President S-7 COOPERATIVE CENTRALE RAIFFESISEN- BOERENLEENBANK B.A., "RABOBANK NEDERLAND" NEW YORK BRANCH as a Lender by DANA W. HEMENWAY -------------------------------------- Name: Dana W. Hemenway Title: Vice President by W. PIETER C. KODDE -------------------------------------- Name: W. Pieter C. Kodde Title: Vice President S-8 CAISSE NATIONALE DE CREDIT AGRICOLE, as a Lender by DEAN BALICE -------------------------------------- Name: Dean Balice Title: Senior Vice President Branch Manager S-9 THE DAI-ICHI KANGYO BANK, LIMITED, as a Lender by TAKUO YOSHIDA -------------------------------------- Name: Takuo Yoshida Title: General Manager & Agent S-10 THE FUJI BANK, LIMITED, as a Lender by KAZUO KAMIO --------------------------------------- Name: Kazuo Kamio Title: General Manager S-11 UNION BANK OF CALIFORNIA, N.A., as a Lender by TIMOTHY P. STREB --------------------------------------- Name: Timothy P. Streb Title: Vice President S-12 SOCIETE GENERALE, as a Lender by J. BLAINE SHAUM --------------------------------------- Name: J. Blaine Shaum Title: Regional Manager S-13 THE FIRST NATIONAL BANK OF CHICAGO, as a Lender by CHRISTINA ZAUTCKE -------------------------------------- Name: Christina Zautcke Title: First Vice President S-14 KEYBANK NATIONAL ASSOCIATION, as a Lender by KEVIN P. MCBRIDE --------------------------------------- Name: Kevin P. McBride Title: Vice President S-15 U.S. NATIONAL BANK ASSOCIATION, as a Lender by STEVEN T. WILLIAMS --------------------------------------- Name: Steven T. Williams Title: Vice President S-16 WELLS FARGO BANK, N.A., as a Lender by W.L. HAUCK --------------------------------------- Name: W.L. Hauck Title: VP S-17 ZIONS FIRST NATIONAL BANK, as a Lender by RICHARD P. JACKSON --------------------------------------- Name: Richard P. Jackson Title: V.P. S-18 FIRST SECURITY BANK, as a Lender by JUDY CALLISTER --------------------------------------- Name: Judy Callister Title: Vice President S-19 Schedule 2.1 Lenders and Commitments Name and Address of Lender Amount of Commitment - -------------------------- -------------------- Bankers Trust Company $137,490,829.33 One Bankers Trust Plaza 130 Liberty Street New York, New York 10006 Telecopier No.: (212) 250-7351 Attn: Deal Administrator The Chase Manhattan Bank $137,490,829.33 270 Park Avenue New York, New York 10017 Telecopier No.: (212) Attn: Wells Fargo Bank, N.A. $55,806,685.64 1300 SW Fifth Avenue 13th Floor Portland, Oregon 97201 Telecopier No.: (503) 225-3162 Attn: William Hauck Union Bank of California, N.A., $30,693,677.10 a Member of the Bank of Tokyo, Mitsubishi Bank Group 350 California Street 11th Floor San Francisco, California 94104 Telecopier No.: (415) 705-7085 Attn: Timothy P. Streb U.S. Bank National Association $27,903,342.82 555 S.W. Oak St., PL-4 Portland, Oregon 97204 Telecopier No.: (503-275-5428 Attn: Steven T. Williams The HongKong and Shanghai Banking Corporation Limited $13,951,671.41 140 Broadway, 4th Floor New York, New York 10005-1196 Telecopier No.: (212) 658-2813 Attn: Adriana Collins 1 First Security Bank, N.A. $13,951,671.41 15 East 100 South, 2nd Floor Salt Lake City, Utah 84111 Telecopier No.: (801) 246-5532 Attn: Judy Callister The Bank of New York $13,951,671.41 One Wall Street, 19th Floor New York, New York 10286 Telecopier No.: (212) Attn: The Fuji Bank, Limited $10,162,601.63 601 California Street San Francisco, California 94111 Telecopier No.: (415) Attn: Compagnie Financiere de CIC et de L'Union Europeenne $6,975,835.71 520 Madison Ave. 37th Floor New York, New York 10022 Telecopier No.: (212) 715-4535 Attn: Anthony Rock The First National Bank of Chicago $6,975,835.71 777 South Figueroa St. 4th Floor Los Angeles, California 90017 Telecopier No.: (213) 683-4999 Attn: James P. Moore Cooperative Centrale Raiffesisen-Boerenleenbank B.A., "Rabobank Nederland," New York Branch $6,975,835.71 Four Embarcadero Center Suite 3200 San Francisco, California 94111 Telecopier No.: (415) 986-8349 Attn: Hunter Holding Bank of America NT & SA $6,975,835.71 335 Madison Avenue New York, New York 10017 Telecopier No.: (212) 503-7502 Attn: Linda Carper 2 The Dai-ichi Kangyo Bank, Limited $6,975,835.71 101 California Street, Suite 4000 San Francisco, California 94111 Telecopier No.: (415) 788-7868 Attn: Mark Dirsa Keybank National Association $6,975,835.71 700 5th Avenue, 48th Floor Seattle, Washington 98125 Telecopier No.: (206) 684-6035 Attn: Mary Young Caisse Nationale de Credit Agricole $6,975,835.71 101 California Street San Francisco, California 94111 Telecopier No.: (415) 996-4116 Attn: Karen Kokame Societe Generale $5,580,668.56 One Montgomery Street San Francisco, California 94104 Telecopier No.: (415) Attn: Zions First National Bank $4,185,501.42 Commercial Loans 185-K2 One South Main Street Salt Lake City, Utah 84111 Telecopier No.: (801) 524-2136 Attn: Richard P. Jackson 3 EX-4.4 6 BRIDGE CREDIT AGREEMENT ================================================================================ $500,000,000 BRIDGE CREDIT AGREEMENT dated as of September 9, 1997 among MEYER-SMITH HOLDCO, INC., as Borrower and The Lenders Party Hereto BANKERS TRUST COMPANY, as Administrative Agent and THE CHASE MANHATTAN BANK, as Syndication Agent --------------------------- CHASE SECURITIES INC. and BT SECURITIES CORPORATION, as Arrangers ================================================================================ TABLE OF CONTENTS Page ARTICLE I Definitions SECTION 1.1. Defined Terms................................................. 1 SECTION 1.2. Classification of Loans.......................................15 SECTION 1.3. Terms Generally...............................................15 SECTION 1.4. Accounting Terms; GAAP........................................16 SECTION 1.5. Change of Names...............................................16 ARTICLE II The Loans SECTION 2.1. Loans.........................................................16 SECTION 2.2. Loan Request..................................................17 SECTION 2.3. Funding of Loans..............................................17 SECTION 2.4. Interest Elections............................................17 SECTION 2.5. Repayment of Loans; Evidence of Debt..........................18 SECTION 2.6. Prepayment of Loans...........................................19 SECTION 2.7. Fees..........................................................20 SECTION 2.8. Interest......................................................20 SECTION 2.9. Alternate Rate of Interest....................................21 SECTION 2.10. Increased Costs...............................................21 SECTION 2.11. Break Funding Payments........................................22 SECTION 2.12. Taxes.........................................................23 SECTION 2.13. Payments Generally; Pro Rata Treatment; Sharing of Set-offs...........................................24 SECTION 2.14. Mitigation Obligations; Replacement of Lenders....................................................26 i Page ARTICLE III Representations and Warranties SECTION 3.1. Organization; Powers..........................................27 SECTION 3.2. Authorization; Enforceability.................................27 SECTION 3.3. Governmental Approvals; No Conflicts..........................27 SECTION 3.4. Financial Condition; No Material Adverse Change................................................27 SECTION 3.5. Properties....................................................28 SECTION 3.6. Litigation and Environmental Matters..........................28 SECTION 3.7. Compliance with Laws and Agreements...........................28 SECTION 3.8. Investment and Holding Company Status.........................29 SECTION 3.9. Taxes.........................................................29 SECTION 3.10. ERISA.........................................................29 SECTION 3.11. Disclosure....................................................29 SECTION 3.12. Solvency......................................................29 SECTION 3.13. Use of Proceeds; Margin Regulations...........................29 SECTION 3.14. No Default....................................................30 SECTION 3.15. Subsidiaries..................................................30 ARTICLE IV Conditions SECTION 4.1. Closing Date..................................................30 ARTICLE V Affirmative Covenants SECTION 5.1. Financial Statements and Other Information....................31 SECTION 5.2. Notices of Material Events....................................33 SECTION 5.3. Existence; Conduct of Business................................33 SECTION 5.4. Payment of Obligations........................................33 SECTION 5.5. Maintenance of Properties; Insurance..........................34 SECTION 5.6. Books and Records; Inspection Rights..........................34 SECTION 5.7. Compliance with Laws..........................................34 SECTION 5.8. Use of Proceeds...............................................34 SECTION 5.9. Subsidiary Guaranties.........................................34 SECTION 5.10. Syndication...................................................34 ii Page ARTICLE VI Negative Covenants SECTION 6.1. Material Subsidiary Debt......................................35 SECTION 6.2. Liens.........................................................36 SECTION 6.3. Modifications of Merger Document..............................37 SECTION 6.4. Fundamental Changes...........................................37 SECTION 6.5. Investments, Loans, Advances, Suretyship Liabilities and Acquisitions..................................37 SECTION 6.6. Hedging Agreements............................................38 SECTION 6.7. Restricted Payments...........................................38 SECTION 6.8. Transactions with Affiliates..................................39 SECTION 6.9. Restrictive Agreements........................................39 SECTION 6.10. Financial Covenants...........................................39 SECTION 6.11. Unconditional Purchase Obligations............................40 SECTION 6.12. Sale of Assets; Sale and Leaseback Transaction................40 SECTION 6.13. Fiscal Year; Fiscal Quarter...................................42 ARTICLE VII Events of Default ARTICLE VIII The Administrative Agent SECTION 8.1. Appointment...................................................44 SECTION 8.2. Delegation of Duties..........................................45 SECTION 8.3. Exculpatory Provisions........................................45 SECTION 8.4. Reliance by Administrative Agent..............................45 SECTION 8.5. Notice of Default.............................................45 SECTION 8.6. Non-Reliance on Administrative Agent and Other Lenders........46 SECTION 8.7. Indemnification ..............................................46 SECTION 8.8. Administrative Agent in Its Individual Capacity ..............47 SECTION 8.9. Successor Administrative Agent................................47 SECTION 8.10. Syndication Agent.............................................47 iii Page ARTICLE IX Miscellaneous SECTION 9.1. Notices.......................................................48 SECTION 9.2. Waivers; Amendments...........................................49 SECTION 9.3. Expenses; Indemnity; Damage Waiver............................50 SECTION 9.4. Successors and Assigns........................................51 SECTION 9.5. Survival......................................................53 SECTION 9.6. Counterparts; Integration; Effectiveness......................53 SECTION 9.7. Severability..................................................54 SECTION 9.8. Right of Setoff...............................................54 SECTION 9.9. Governing Law; Jurisdiction; Consent to Service of Process.........................................54 SECTION 9.10. WAIVER OF JURY TRIAL..........................................55 SECTION 9.11. Headings......................................................55 SECTION 9.12. Confidentiality...............................................55 SECTION 9.13. OREGON LEGAL NOTICE...........................................56 SCHEDULES AND EXHIBITS Schedule 2.1 Lenders and Commitments Schedule 3.6 Disclosed Matters Schedule 3.15 Subsidiaries Schedule 4.1 Refinancing of Existing Debt Schedule 6.1 Debt Schedule 6.2 Liens Schedule 6.10 Restrictive Agreements Exhibit A Assignment and Acceptance Exhibit B Note Exhibit C Opinion of Stoel Rives, Counsel to the Borrower Exhibit D Subsidiary Guaranty iv BRIDGE CREDIT AGREEMENT dated as of September 9, 1997, among MEYER-SMITH HOLDCO., INC., as Borrower, the LENDERS party hereto, BANKERS TRUST COMPANY, as Administrative Agent and THE CHASE MANHATTAN BANK, as Syndication Agent. The parties hereto agree as follows: ARTICLE I Definitions Section 1.1 Defined Terms. As used in this Agreement, the following terms have the meanings specified below: "ABR" means, for any day, a rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the greater of (a) the Prime Rate in effect on such day and (b) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. For purposes hereof, "Prime Rate" means the rate of interest per annum publicly announced from time to time by the Administrative Agent as its prime rate in effect at its principal office in New York City (the Prime Rate not being intended to be the lowest rate of interest charged by the Administrative Agent in connection with extensions of credit to debtors); each change in the Prime Rate shall be effective on the date such change is publicly announced as effective. "Federal Funds Effective Rate" means, for any day, the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for the day of such transactions received by the Administrative Agent from three Federal funds brokers of recognized national standing selected by it. If for any reason the Administrative Agent shall have determined that it is unable to ascertain the Federal Funds Effective Rate for any reason, including the inability or failure of the Administrative Agent to obtain sufficient quotations in accordance with the terms thereof, the ABR shall be determined without regard to clause (b) of the first sentence of this definition, as appropriate, until the circumstances giving rise to such inability no longer exist. Any change in the ABR due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective on the effective date of such change in the Prime Rate or the Federal Funds Effective Rate, respectively. "Adjusted Interest Coverage Ratio" means the ratio of (a) Consolidated EBITDAR to (b) the sum of (i) the Borrower's Consolidated Interest Expense for such period plus (ii) except as included in Consolidated Interest Expense, the Borrower's consolidated rental expense on operating leases, computed as of the last day of a fiscal quarter for the period consisting of such fiscal quarter and the immediately preceding three fiscal quarters. "Adjusted LIBO Rate" means, with respect to any Eurodollar Loan for any Interest Period, an interest rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to (a) the LIBO Rate for such Interest Period multiplied by (b) the Statutory Reserve Rate. "Administrative Agent" means Bankers Trust Company, in its capacity as administrative agent for the Lenders hereunder. "Affiliate" means, with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified. "Agents" means the Administrative Agent and the Syndication Agent. "Applicable Level" means the level determined with reference to the following chart: Level Ratio Rating - ----- ----- ------ I greater than or equal to 7.5x greater than or equal to A-/A3 II greater than 6.5x BBB+/Baa1 III greater than 5.5x BBB/Baa2 IV greater than 4.5x BBB-/Baa3 V greater than or equal to 3.5x BB+/Ba1 VI lesser than 3.5x lesser than BB+/Ba1 For purposes of the foregoing, (i) for the six month period following from and after the Closing Date, the Applicable Level shall be Level IV; (ii) on the date that is six months after the Closing Date, the Borrower shall provide the Administrative Agent with a Compliance Certificate showing the ratio of Applicable EBITDA to Applicable Interest Expense of the Borrower for the fiscal quarter ended January 31, 1998 (and in the event the Borrower fails timely to provide such Compliance Certificate, the Applicable Level shall be Level V until such Compliance Certificate is provided), and from such date until May 23, 1998, the Applicable Level shall be the Level corresponding to such ratio; (iii) except as provided in (i) and (ii) above, at any time of determination, the Applicable Level shall be the Level corresponding to the ratio of Applicable EBITDA to Applicable Interest Expense (for the most recent four consecutive fiscal quarters; provided that for the periods ended May 23, 1998 and August 15, 1998, Applicable EBITDA and Applicable Interest Expense shall be calculated by reference to the full fiscal quarters then ended since the Closing Date) as set forth in the most recently delivered Compliance Certificate (it being understood and agreed that if the Borrower shall not have delivered the most recently due Compliance Certificate within the time period specified in Section 5.1(c), the Applicable Level shall be Level V until such Compliance Certificate is delivered) (for purposes of this definition, the "Ratio") and the senior unsecured long term debt rating of the Borrower from S&P and Moody's (for 2 purposes of this definition, the "Rating"); (iv) in the event the Ratio and the Rating do not fall within the same Level, the Applicable Level shall be the higher (Level I being the highest) of the two Levels; and (v) in the event the rating from S&P and the rating from Moody's do not fall within the same Level, the applicable Rating will be based upon the higher (Level I being the highest) of the two ratings, except that, in the event one of the two ratings is two or more Levels higher than the other, the applicable Rating shall be determined by reference to the Level next lower than the higher of the two ratings. If any rating established or deemed to be established by Moody's or S&P shall be changed (other than as a result of a change in the rating system of Moody's or S&P), such change shall be effective as of the date on which such change is first announced by the rating agency making such change. Each such change shall take effect on the effective date of such change and shall end on the date immediately preceding the effective date of the next such change. If the rating system of S&P or Moody's shall change prior to the Maturity Date, the Borrower and the Lenders shall negotiate in good faith to amend the references to specific ratings in this definition to reflect such changed rating system, and pending agreement on another Applicable Level the Rating shall be determined by reference to the rating provided by the non-changing rating agency. If the Borrower does not have a senior long term unsecured debt rating or implied rating from either Moody's or S&P, the Applicable Level shall be determined by reference to the Ratio only. For purposes of this definition, "Applicable EBITDA" of the Borrower and its Subsidiaries means "A" minus "B"; where: "A" equals the sum of consolidated net income plus, to the extent deducted in determining consolidated pre-tax net income (i) extraordinary losses, (ii) interest expenses, (iii) amortization, (iv) depreciation, (v) income taxes, (vi) non-cash LIFO reserve charges; and "B" equals, to the extent included in determining consolidated pre-tax income, extraordinary gains; and "Applicable Interest Expense" means the consolidated interest expense of the Borrower and its Subsidiaries. "Applicable Margin" means, with respect to any Eurodollar Loan, the applicable number of basis points per annum as set forth below based on the Applicable Level: Applicable Margin for Applicable Level Eurodollar Loans ---------------- ---------------- I 20.0 II 22.5 III 25.0 IV 30.0 V 37.5 3 VI 50.0 "Applicable Percentage" means, with respect to any Lender, the percentage of the total outstanding Loans represented by such Lender's Loan. "Assignment and Acceptance" means an assignment and acceptance entered into by a Lender and an assignee (with the consent of any party whose consent is required by Section 9.4), and accepted by the Administrative Agent, in the form of Exhibit A. "Board" means the Board of Governors of the Federal Reserve System of the United States of America. "Borrower" means Meyer-Smith Holdco, Inc., a Delaware corporation. "Business Day" means any day that is not a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to remain closed; provided that, when used in connection with a Eurodollar Loan, the term "Business Day" shall also exclude any day on which banks are not open for dealings in dollar deposits in the New York interbank market. "Capital Lease Obligations" of any Person means the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP. "Change in Control" means (a) the acquisition of ownership, directly or indirectly, beneficially or of record, by any Person or group (within the meaning of the Securities Exchange Act of 1934 and the rules of the Securities and Exchange Commission thereunder as in effect on the date hereof), of shares representing more than 33 1/3% of the aggregate ordinary voting power represented by the issued and outstanding capital stock of the Borrower; or (b) occupation of a majority of the seats (other than vacant seats) on the board of directors of the Borrower by Persons who were neither (i) nominated by the board of directors of the Borrower nor (ii) appointed by directors so nominated. "Change in Law" means (a) the adoption of any law, rule or regulation after the date of this Agreement, (b) any change in any law, rule or regulation or in the interpretation or application thereof by any Governmental Authority after the date of this Agreement or (c) compliance by any Lender (or, for purposes of Section 2.14(b), by any lending office of such Lender or by such Lender's holding company, if any) with any request, guideline or directive (whether or not having the force of law) of any Governmental Authority made or issued after the date of this Agreement. 4 "Closing Date" means September 9, 1997. "Code" means the Internal Revenue Code of 1986, as amended from time to time. "Compliance Certificate" means a certificate signed by a Responsible Officer of the Borrower certifying as to the matters set forth in Section 5.1(c). "Consolidated EBITDA" of the Borrower and its Subsidiaries means "A" minus "B"; where: "A" equals the sum of consolidated net income plus, to the extent deducted in determining consolidated pre-tax net income (i) extraordinary losses, (ii) interest expenses, including the interest component of rent expense under all Synthetic Lease Facilities for which the Borrower or any of its Subsidiaries has Suretyship Liability, (iii) amortization, (iv) depreciation, (v) income taxes, (vi) non-cash LIFO reserve charges; and "B" equals, to the extent included in determining consolidated pre-tax income, extraordinary gains. "Consolidated EBITDAR" of the Borrower and its Subsidiaries means "A" minus "B"; where: "A" equals the sum of consolidated net income plus, to the extent deducted in determining consolidated pre-tax net income (i) extraordinary losses, (ii) interest expense, (iii) amortization, (iv) depreciation, (v) income taxes, (vi) non-cash LIFO reserve charges and (vii) consolidated rental expense on operating leases (including rent paid pursuant to any Synthetic Lease Facility); and "B" equals, to the extent included in determining consolidated pre-tax income, extraordinary gains. "Consolidated Interest Expense" means the consolidated interest expense of the Borrower, including the interest component of rent expense under all Synthetic Lease Facilities for which the Borrower or any of its Subsidiaries has Suretyship Liability. "Consolidated Total Assets" means the total consolidated assets of the Borrower and its Subsidiaries as shown on the most recent consolidated balance sheet of the Borrower and its Subsidiaries referred to in Section 3.4 or delivered to the Administrative Agent and each Lender pursuant to Section 5.1. 5 "Control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. "Controlling" and "Controlled" have meanings correlative thereto. "Current Synthetic Lease Facility" means the transactions contemplated by the Participation Agreement, dated the date hereof, among FMI, the Borrower, Wilmington Trust Company, owner trustee, FMS Trust 1997-1, as lessor, the investors named therein, the Administrative Agent, the Syndication Agent, and the lenders named therein. "Debt" of any Person means, without duplication, (a) all obligations of such Person for borrowed money, whether or not evidenced by bonds, debentures, notes or similar instruments, (b) all Capital Lease Obligations of such Person, (c) all obligations of such Person to pay the deferred purchase price of property or services (other than current accounts payable in the ordinary course of business), (d) all indebtedness secured by a Lien on the property of such Person, whether or not such indebtedness shall have been assumed by such Person (it being understood that if such Person has not assumed or otherwise become personally liable for any such indebtedness, the amount of the Debt of such Person in connection therewith shall be limited to the lesser of the face amount of such indebtedness or the fair market value of all property of such Person securing such indebtedness), (e) all obligations, contingent or otherwise, with respect to the face amount of all letters of credit (whether or not drawn) and banker's acceptances issued for the account of such Person, (f) all obligations of such Person in respect of Hedging Agreements, (g) all Suretyship Liabilities of such Person, (h) all other obligations of such Person upon which interest charges are customarily paid (other than current accounts payable in the ordinary course of business), (i) all obligations of such Person under conditional sale or other title retention agreements relating to property acquired by such Person and (j) all Debt (as defined above) of any partnership in which such Person is a general partner. The amount of the Debt of any Person in respect of Hedging Agreements shall be deemed to be the unrealized net loss position of such Person thereunder (determined for each counterparty individually, but netted for all Hedging Agreements maintained with such counterparty). "Debt for Borrowed Money" of any Person means all Debt of such Person described in (without duplication) clauses (a), (b), (c), (d), (h) and, to the extent constituting a Suretyship Liability in respect of Debt for Borrowed Money of another Person, (g), of the definition of Debt. A Suretyship Liability arising under a Synthetic Lease Facility shall be deemed to be a Debt for Borrowed Money. "Default" means any event or condition which constitutes an Event of Default or which upon notice, lapse of time or both would, unless cured or waived, become an Event of Default. "Disclosed Matters" means the actions, suits and proceedings and the environmental matters disclosed in Schedule 3.6. 6 "dollars" or "$" refers to lawful money of the United States of America. "Environmental Laws" means all laws, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions, notices or binding agreements issued, promulgated or entered into by any Governmental Authority, relating in any way to the environment, preservation or reclamation of natural resources, the management, release or threatened release of any Hazardous Material or to health and safety matters. "Environmental Liability" means any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of the Borrower or any Subsidiary directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials into the environment or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. "ERISA Affiliate" means any trade or business (whether or not incorporated) that, together with the Borrower, is treated as a single employer under Section 414(b) or (c) of the Code or, solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the Code. "ERISA Event" means (a) any "reportable event", as defined in Section 4043 of ERISA or the regulations issued thereunder with respect to a Plan (other than an event for which the 30-day notice period is waived); (b) the existence with respect to any Plan of an "accumulated funding deficiency" (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived; (c) the filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan; (d) the incurrence by the Borrower or any of its ERISA Affiliates of any liability under Title IV of ERISA with respect to the termination of any Plan; (e) the receipt by the Borrower or any ERISA Affiliate from the PBGC or a plan administrator of any notice relating to an intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan; (f) the incurrence by the Borrower or any of its ERISA Affiliates of any liability with respect to the withdrawal or partial withdrawal from any Plan or Multiemployer Plan; or (g) the receipt by the Borrower or any ERISA Affiliate of any notice, or the receipt by any Multiemployer Plan from the Borrower or any ERISA Affiliate of any notice, concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA. 7 "Eurodollar", when used in reference to any Loan refers to whether such Loan is bearing interest at a rate determined by reference to the Adjusted LIBO Rate. "Event of Default" has the meaning assigned to such term in Article VII. "Excluded Taxes" means, with respect to the Administrative Agent, any Lender or any other recipient of any payment to be made by or on account of any obligation of the Borrower hereunder, (a) income or franchise taxes imposed on (or measured by) its net income by the United States of America, or by the jurisdiction under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its applicable lending office is located, (b) any branch profits taxes imposed by the United States of America or any similar tax imposed by any other jurisdiction in which the Borrower is located and (c) in the case of a Foreign Lender (other than an assignee pursuant to a request by the Borrower under Section 2.18(b)), any withholding tax that is imposed on amounts payable to such Foreign Lender at the time such Foreign Lender becomes a party to this Agreement (or designates a new lending office) or is attributable to such Foreign Lender's failure to comply with Section 2.16(e), except to the extent that such Foreign Lender (or its assignor, if any) was entitled, at the time of designation of a new lending office (or assignment), to receive additional amounts from the Borrower with respect to such withholding tax pursuant to Section 2.16(a). "Financial Officer" means the chief financial officer, principal accounting officer, treasurer or controller of the Borrower. "FMI" means Fred Meyer, Inc. and its successors and assigns. "Foreign Lender" has the meaning provided in Section 2.16(e). "GAAP" means generally accepted accounting principles in the United States of America. "Governmental Authority" means the government of the United States of America, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government. "Hazardous Materials" means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law. 8 "Hedging Agreement" means any interest rate protection agreement, foreign currency exchange agreement, commodity price protection agreement or other interest or currency exchange rate or commodity price hedging arrangement. "Indemnified Taxes" means Taxes other than Excluded Taxes. "Interest Election Request" means a request by the Borrower to convert or continue a Loan in accordance with Section 2.7. "Interest Payment Date" means (a) with respect to ABR Loans, the last day of each March, June, September and December and (b) with respect to Eurodollar Loans, the last day of the Interest Period applicable to such Loans and, in the case of Eurodollar Loans with an Interest Period of more than three months' duration, each day prior to the last day of such Interest Period that occurs at intervals of three months' duration after the first day of such Interest Period. "Interest Period" means, with respect to Eurodollar Loans, the period commencing on the date of such Borrowing and ending on the numerically corresponding day in the calendar month that is one, two, three or six months thereafter, as the Borrower may elect; provided, that (i) if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless, in the case of a Eurodollar Borrowing only, such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day and (ii) any Interest Period pertaining to Eurodollar Loans that commences on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the last calendar month of such Interest Period) shall end on the last Business Day of the last calendar month of such Interest Period. "Lenders" means the Persons listed on Schedule 2.1 and any other Person that shall have become a party hereto pursuant to an Assignment and Acceptance, other than any such Person that ceases to be a party hereto pursuant to an Assignment and Acceptance. "LIBO Rate" means, with respect to Eurodollar Loans for any Interest Period, the offered quotation to first-class banks in the New York interbank eurodollar market by the Administrative Agent for dollar deposits of amounts in immediately available funds comparable to the outstanding principal amount of such Eurodollar Loans, with maturities comparable to the Interest Period applicable to such Eurodollar Loans commencing two Business Days prior to the commencement of such Interest Period. "Lien" means, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, hypothecation, encumbrance, charge or security interest in, on or of such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement (or any financing lease having substantially the same economic 9 effect as any of the foregoing) relating to such asset and (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities. "Loan" and "Loans" have the meaning provided in Section 2.1. "Loan Amount" means, with respect to each Lender, the amount set forth opposite such Lender's name in Schedule 2.1. "Loan Request" means the request for Loans delivered by the Borrower pursuant to Section 2.2. "Margin Stock" shall have the meaning provided such term in Regulation U and Regulation G of the Federal Reserve Board. "Material Adverse Effect" means a material adverse effect on (a) the business, assets, operations, prospects or condition, financial or otherwise, of the Borrower and its Subsidiaries taken as a whole, (b) the ability of the Borrower to perform any of its obligations under this Agreement or (c) the rights of or benefits available to the Lenders under this Agreement. "Material Debt" means Debt of any one or more of the Borrower and its Subsidiaries in an aggregate principal amount equal to or exceeding $5,000,000. "Material Subsidiary" means a Subsidiary which either (a) has assets which constitute 5% or more of the consolidated assets of the Borrower and its Subsidiaries or (b) has revenues as of the end of the Borrower's most recently-ended fiscal year which constitute more than 5% of the consolidated revenues of the Borrower and its Subsidiaries during the Borrower's most recently ended fiscal year. "Maturity Date" means the earlier of (a) September __, 2002 and (b) the date on which the Loan is repaid in full pursuant to Section 2.6 and/or Section 6.12. "Merger" means the merger of FMI and Smith's as contemplated by the Merger Document. "Merger Document" means that certain Agreement and Plan of Reorganization and Merger, dated as of May 11, 1997, by and between FMI and Smith's. "Moody's" means Moody's Investors Service, Inc. "Multiemployer Plan" means a multiemployer plan as defined in Section 4001(a)(3) of ERISA. 10 "Other Corporate Loan Documents" means the following documents, as such documents are amended, supplemented or otherwise modified from time to time: (i) all of the documents contemplated to be executed in connection with the Current Synthetic Lease Facility; (ii) the $1,030,000,000 Credit Agreement, of even date herewith, among Meyer-Smith Holdco, Inc. as Borrower, the Lenders identified therein, Bankers Trust Company as Administrative Agent and The Chase Manhattan Bank as Syndication Agent; and (iii) the $500,000,000 364-Day Credit Agreement, of even date herewith, among Meyer-Smith Holdco, Inc. as Borrower, the Lenders identified therein, Bankers Trust Company as Administrative Agent and The Chase Manhattan Bank as Syndication Agent. "Other Taxes" means any and all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement. "PBGC" means the Pension Benefit Guaranty Corporation referred to and defined in ERISA and any successor entity performing similar functions. "Permitted Encumbrances" means: (a) Liens imposed by law for taxes that are not yet due or are being contested in compliance with Section 5.4; (b) carriers', warehousemen's, mechanics', materialmen's, repairmen's and other like Liens imposed by law, arising in the ordinary course of business and securing obligations that are not overdue by more than 30 days or are being contested in compliance with Section 5.4; (c) pledges and deposits made in the ordinary course of business in compliance with workers' compensation, unemployment insurance and other social security laws or regulations; (d) deposits to secure the performance of bids, trade contracts, leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature, in each case in the ordinary course of business; and (e) easements, zoning restrictions, rights-of-way and similar encumbrances on real property imposed by law or arising in the ordinary course of business that do not secure any monetary obligations and do not materially detract from the value of the affected property or interfere with the ordinary conduct of business of the Borrower or any Subsidiary; provided that the term "Permitted Encumbrances" shall not include any Lien securing Debt for Borrowed Money. 11 "Permitted Investments" means: (a) direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States of America (or by any agency thereof to the extent such obligations are backed by the full faith and credit of the United States of America), in each case maturing within one year from the date of acquisition thereof; (b) investments in commercial paper maturing within 270 days from the date of acquisition thereof and having, at such date of acquisition, the two highest credit ratings obtainable from S&P or from Moody's; (c) investments in certificates of deposit, banker's acceptances and time deposits maturing within 180 days from the date of acquisition thereof issued or guaranteed by or placed with, and money market deposit accounts issued or offered by, any domestic office of any commercial bank organized under the laws of the United States of America or any State thereof which has a combined capital and surplus and undivided profits of not less than $500,000,000; and (d) fully collateralized repurchase agreements with a term of not more than 30 days for securities described in clause (a) above and entered into with a financial institution satisfying the criteria described in clause (c) above. "Person" means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity. "Plan" means any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA, and in respect of which the Borrower or any ERISA Affiliate is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA. "Public Debt Offering" means any public offering pursuant to a registration with the Securities and Exchange Commission or any offering pursuant to Rule 144A promulgated under the Securities Act of 1933 for the sale of debt instruments (whether senior or subordinated, secured or unsecured, convertible or not) of the Borrower or any of its Subsidiaries entered into by the Borrower or any of its Subsidiaries for the purposes of raising cash, or any other similar transaction which the Borrower and the Administrative Agent shall deem to be a "Public Debt Offering." "Register" has the meaning set forth in Section 9.4. 12 "Related Parties" means, with respect to any specified Person, such Person's Affiliates and the respective directors, officers, employees, agents and advisors of such Person and such Person's Affiliates. "Required Lenders" means, at any time, Lenders the sum of whose outstanding Loans at such time represents an amount greater than 50% of the aggregate outstanding Loans of all Lenders. "Responsible Officer" means the Chairman or Vice Chairman of the Board of Directors, the Chairman or Vice Chairman of the Executive Committee of the Board of Directors, the President, any Senior Vice President or Executive Vice President, the Chief Financial Officer, the Chief Operating Officers, the Chief Accounting Officer, the Vice President/Treasurer or any Assistant Treasurer responsible for compliance with this Agreement. "Restricted Payment" means any dividend or other distribution (whether in cash, securities or other property) with respect to any shares of any class of capital stock of the Borrower or any Subsidiary, or any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any such shares of capital stock of the Borrower or any option, warrant or other right to acquire any such shares of capital stock of the Borrower. "Smith's" means Smith's Food and Drug Centers Inc. and its successors and assigns. "Solvent" as to any Person means (i) the sum of the assets of such Person, both at a fair valuation and at present fair salable value, will exceed its liabilities, including contingent liabilities, (ii) such Person will have sufficient capital with which to conduct its business as presently conducted and (iii) such Person has not incurred debts, and does not intend to incur debts, beyond its ability to pay such debts as they mature. For purposes of this definition, "debt" means any liability on a claim, and "claim" means (x) a right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured, or (y) a right to an equitable remedy for breach of performance if such breach gives rise to a payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured, or unsecured. With respect to any contingent liabilities, such liabilities shall be computed at the amount which, in light of all the facts and circumstances existing at the time, represents the amount which can reasonably be expected to become an actual or matured liability. "S&P" means Standard & Poor's Corporation. 13 "Statutory Reserve Rate" means a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum reserve percentages (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by the Board to which the Administrative Agent is subject for eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of the Board). Such reserve percentages shall include those imposed pursuant to such Regulation D. Eurodollar Loans shall be deemed to constitute eurocurrency funding and to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under such Regulation D or any comparable regulation. The Statutory Reserve Rate shall be adjusted automatically on and as of the effective date of any change in any reserve percentage. "subsidiary" means, with respect to any Person (the "parent") at any date, any corporation, limited liability company, partnership, association or other entity the accounts of which are required to be consolidated with those of the parent in the parent's consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date, as well as, with respect to any Person, any Person of which such Person and/or its subsidiaries own, directly or indirectly, such number of outstanding shares (or similar equity interest) as have more than 50% of the ordinary voting power for the election of directors. "Subsidiary" means any subsidiary of the Borrower. "Subsidiary Guaranty" shall have the meaning set forth in Section 4.1(h). "Surety Instruments" means all letters of credit (including standby and commercial), banker's acceptances, guaranties, shipside bonds, surety bonds and similar instruments under which Suretyship Liabilities arise. "Suretyship Liability" means any agreement, undertaking or other contractual arrangement by which any Person guarantees, endorses or otherwise becomes or is contingently liable upon (by direct or indirect agreement, contingent or otherwise, to provide funds for payment, to supply funds to or otherwise to invest in a debtor, or otherwise to assure a creditor against loss) any indebtedness, obligation or other liability (including accounts payable) of any other Person (other than by endorsements of instruments in the course of collection), or guarantees the payment of dividends or other distributions upon the shares of any other Person. Suretyship Liability shall include any liability or contingent liability of a Person under or in connection with a Synthetic Lease Facility. The amount of any Person's obligation under any Suretyship Liability shall (subject to any limitation set forth therein) be deemed to be the principal amount of the indebtedness, obligation or other liability guaranteed thereby. As of any date, the amount of any Person's obligations under any Synthetic Lease Facility shall be equal to the amount which such Person would be obligated to pay if such Synthetic Lease Facility was accelerated on such date (disregarding 14 accrued scheduled lease payments which would be characterized as interest if such Synthetic Lease Facility were treated as a capital lease under GAAP). "Syndication Agent" means The Chase Manhattan Bank. "Synthetic Lease" and "Synthetic Lease Facility" means any synthetic lease, tax ownership operating lease, tax retention operating lease, off balance sheet lease or similar lease transaction where the lessee is treated as owner of the leased property for U.S. federal income tax purposes while the lease is accounted for on the financial statements of the lessee, prepared in accordance with GAAP, as an operating lease, including the Current Synthetic Lease Facility. "Taxes" means any and all present or future taxes, levies, imposts, duties, deductions, charges or withholdings imposed by any Governmental Authority. "Transactions" means the execution, delivery and performance by the Borrower of this Agreement, the borrowing of Loans and the use of the proceeds thereof. "Type", when used in reference to any Loan, refers to whether the rate of interest on such Loan is determined by reference to the Adjusted LIBO Rate or the ABR. "Withdrawal Liability" means liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA. Section 1.2 Classification of Loans. For purposes of this Agreement, Loans may be classified and referred to by Type (e.g., a "Eurodollar Loan"). Section 1.3 Terms Generally. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation". The word "will" shall be construed to have the same meaning and effect as the word "shall". Unless the context requires otherwise (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (b) any reference herein to any Person shall be construed to include such Person's successors and assigns, (c) the words "herein", "hereof" and "hereunder", and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (d) all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement and (e) the words "asset" and "property" shall be construed to have the same meaning and effect and to refer to any and all 15 tangible and intangible assets and properties, including cash, securities, accounts and contract rights. Section 1.4 Accounting Terms; GAAP. Except as otherwise expressly provided herein, all terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time; provided that for purposes of determining compliance with any covenant set forth in Article VI, such terms shall be construed in accordance with GAAP as in effect on the date of this Agreement applied on a basis consistent with the application used in preparing the Borrower's audited financial statements referred to in Section 5.1. If any change in accounting principles from those used in the preparation of the audited financial statements referred to in Section 5.1 hereafter occasioned by the promulgation of any rule, regulation, pronouncement or opinion by or required by the Financial Accounting Standards Board of the American Institute of Certified Public Accountants (or successors thereto or agencies with similar functions) would result in a change in the method of calculation of financial covenants, standards or terms found in Article 1 or Article VI, the parties hereto agree to enter into negotiations in order to amend such provisions so as to equitably reflect such changes with the desired result that the criteria for evaluating the Borrower's financial condition shall be the same after such change as if such change had not been made. Section 1.5 Change of Names. It is understood and agreed that following the consummation of the Merger, Meyer-Smith Holdco, Inc. will change its corporate name to "Fred Meyer, Inc." and FMI will change its corporate name to "Fred Meyer Stores, Inc." From and after the time at which such changes take effect all references to "Meyer-Smith Holdco, Inc." or the "Borrower" contained herein shall be construed to refer to "Fred Meyer, Inc.," and all references to "FMI" shall be construed to refer to "Fred Meyer Stores, Inc." ARTICLE II The Loans Section 2.1 Loans. (a) Subject to the terms and conditions set forth herein, each Lender hereby agrees to make a loan to the Borrower on the Closing Date (each a "Loan" and collectively the "Loans") in an amount equal to such Lender's Loan Amount. The Borrower may make no further borrowings after the Closing Date, regardless of any prepayments made pursuant to Section 2.6 or otherwise. (b) Subject to Section 2.8, the Loans shall be comprised entirely of either ABR Loans or Eurodollar Loans as the Borrower may request in accordance herewith. Each Lender at its option may make its Eurodollar Loan by causing any domestic or foreign branch or Affiliate of such Lender to make such Loan; provided that any exercise of such option shall not affect the obligation of the Borrower to repay such Loan in accordance with the terms of this Agreement. 16 (c) Notwithstanding any other provision of this Agreement, the Borrower shall not be entitled to elect to convert or continue any Loan if the Interest Period requested with respect thereto would end after the Maturity Date. Section 2.2 Loan Request. To request the Loans, the Borrower shall notify the Administrative Agent of such request by telephone (a) if the Loans are to be Eurodollar Loans, not later than 12:00 p.m. (noon), New York City time, three Business Days before the Closing Date or (b) if the Loans are to be ABR Loans, not later than 12:00 p.m. (noon), New York City time, on the Closing Date. The Loan Request shall be irrevocable and shall be confirmed promptly by hand delivery or telecopy to the Administrative Agent of the written Loan Request in a form approved by the Administrative Agent and signed by the Borrower. The telephonic and written Loan Request shall specify the following information: (i) whether the Loans are to be ABR Loans or Eurodollar Loans; (ii) in the case of Eurodollar Loans, the initial Interest Period to be applicable thereto, which shall be a period contemplated by the definition of the term "Interest Period"; and (iii) the location and number of the Borrower's account to which funds are to be disbursed. If no election as to the Type of Loan is specified, then the Loans shall be ABR Loans. If no Interest Period is specified with respect to Eurodollar Loans, then the Borrower shall be deemed to have selected an Interest Period of one month's duration. Promptly following receipt of the Loan Request in accordance with this Section, the Administrative Agent shall advise each Lender of the details thereof. Section 2.3 Funding of Loans. Each Lender shall make its Loan hereunder on the proposed date thereof by wire transfer of immediately available funds by 2:00 p.m., New York City time, to the account of the Administrative Agent designated by it for such purpose by notice to the Lenders. The Administrative Agent will make such Loans available to the Borrower by promptly crediting the amounts so received, in like funds, to an account of the Borrower maintained with the Administrative Agent in New York City and designated by the Borrower in the Loan Request. Section 2.4 Interest Elections. (a) The Loans initially shall be of the Type specified in the Loan Request and, in the case of Eurodollar Loans, shall have an initial Interest Period as specified in the Loan Request. Thereafter and until the Maturity Date, the Borrower may elect to convert the Loans to a different Type or to continue the Loans and, in the case of Eurodollar Loans, may elect Interest Periods therefor, all as provided in this Section; provided that no Interest Period for any Loan may end on a date that is later than the Maturity Date in effect at the time of such election. 17 (b) To make an election pursuant to this Section, the Borrower shall notify the Administrative Agent of such election by telephone by the time that the Loan Request would be required under Section 2.3 if the Borrower were requesting a Loan of the Type resulting from such election to be made on the effective date of such election. Each such telephonic Interest Election Request shall be irrevocable and shall be confirmed promptly by hand delivery or telecopy to the Administrative Agent of a written Interest Election Request in a form approved by the Administrative Agent and signed by the Borrower. (c) Each telephonic and written Interest Election Request shall specify the following information in compliance with Section 2.2: (i) the effective date of the election made pursuant to such Interest Election Request, which shall be a Business Day; (ii) whether the Loans are to be ABR Loans or Eurodollar Loans; and (iii) if the Loans are to be Eurodollar Loans, the Interest Period to be applicable thereto after giving effect to such election, which shall be a period contemplated by the definition of the term "Interest Period". If any such Interest Election Request requests a conversion to Eurodollar Loans but does not specify an Interest Period, then the Borrower shall be deemed to have selected an Interest Period of one month's duration. (c) Promptly following receipt of an Interest Election Request, the Administrative Agent shall advise each Lender of the details thereof. (d) If the Borrower fails to deliver a timely Interest Election Request with respect to Eurodollar Loans prior to the end of the Interest Period applicable thereto, then, unless such Loans are repaid as provided herein, at the end of such Interest Period the Loans shall be converted to ABR Loans. Notwithstanding any contrary provision hereof, if an Event of Default has occurred and is continuing and the Administrative Agent, at the request of the Required Lenders, so notifies the Borrower, then, so long as an Event of Default is continuing (i) no outstanding Loan may be converted to or continued as a Eurodollar Loan and (ii) unless repaid, each Eurodollar Loan shall be converted to an ABR Loan at the end of the Interest Period applicable thereto. Section 2.5 Repayment of Loans; Evidence of Debt. (a) The Borrower hereby unconditionally promises to pay to the Administrative Agent for the account of each Lender thereof the then unpaid principal amount of each Loan on the Maturity Date. 18 (b) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrower to such Lender resulting from each Loan made by such Lender, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder. (c) The Administrative Agent shall maintain accounts in which it shall record (i) the amount of the Loans made hereunder, the Type thereof and the Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder and (iii) the amount of any sum received by the Administrative Agent hereunder for the account of the Lenders and each Lender's share thereof. (d) The entries made in the accounts maintained pursuant to paragraph (b) or (c) of this Section shall be prima facie evidence of the existence and amounts of the obligations recorded therein; provided that the failure of any Lender or the Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligation of the Borrower to repay the Loans in accordance with the terms of this Agreement. (e) Any Lender may request that the Loan made by it be evidenced by a promissory note. In such event, the Borrower shall prepare, execute and deliver to such Lender a promissory note payable to the order of such Lender (or, if requested by such Lender, to such Lender and its registered assigns) and in the form of Exhibit B. Thereafter, the Loan evidenced by such promissory note and interest thereon shall at all times (including after assignment pursuant to Section 9.4) be represented by one or more promissory notes in such form payable to the order of the payee named therein (or, if such promissory note is a registered note, to such payee and its registered assigns). Section 2.6 Prepayment of Loans. (a) The Borrower shall have the right at any time and from time to time to prepay the Loans in whole or in part, subject to prior notice in accordance with paragraph (b) of this Section. (b) The Borrower shall notify the Administrative Agent by telephone (confirmed by telecopy) of any prepayment hereunder (i) in the case of prepayment of the Eurodollar Loans, not later than 12:00 p.m. (noon), New York City time, three Business Days before the date of prepayment or (ii) in the case of prepayment of the ABR Loans, not later than 12:00 p.m. (noon), New York City time, one Business Day before the date of prepayment. Each such notice shall be irrevocable and shall specify the prepayment date and the principal amount of the Loans to be prepaid. Promptly following receipt of any such notice the Administrative Agent shall advise the Lenders of the contents thereof. Each partial prepayment of the Loans shall be in an amount that is an integral multiple of $1,000,000 and not less than $1,000,000. Each Prepayment of the Loans shall be applied ratably to the Loans. Prepayments shall be accompanied by accrued interest to the extent required by Section 2.8. 19 (c) On any date on which the Borrower or any of its Subsidiaries receives any proceeds from a Public Debt Offering, the Borrower shall prepay the outstanding Loans in accordance with Section 2.6(b), together with any breakage fees and other costs and expenses incurred hereunder in connection therewith, in an amount equal to 100% of the cash proceeds obtained from such Public Debt Offering by the Borrower or such Subsidiary minus (x) reasonable expenses incurred or reasonably expected to be incurred in connection with such Public Debt Offering and (y) any income, franchise, transfer or other tax payable by the Borrower or such Subsidiary in connection with such transaction. The Borrower shall provide the Administrative Agent prompt written notice of any proposed Public Debt Offering and shall provide evidence of compliance herewith reasonably satisfactory to the Administrative Agent on or prior to the closing date of any such Public Debt Offering. Section 2.7 Fees. (a) The Borrower agrees to pay to the Administrative Agent, for its own account, fees payable in the amounts and at the times separately agreed upon between the Borrower and the Administrative Agent. (b) All fees payable hereunder shall be paid on the dates due, in immediately available funds. Fees paid shall not be refundable under any circumstances. Section 2.8 Interest. (a) ABR Loans shall bear interest at the ABR. (b) Eurodollar Loans shall bear interest at the Adjusted LIBO Rate for the Interest Period in effect for such Loans plus the Applicable Margin. (c) Notwithstanding the foregoing, if any principal of or interest on any Loan or any fee or other amount payable by the Borrower hereunder is not paid when due, whether at stated maturity, upon acceleration or otherwise, such overdue amount shall bear interest, after as well as before judgment, at a rate per annum equal to (i) in the case of overdue principal of any Loan, the greater of (A) 2% plus the rate otherwise applicable to such Loan as provided in the preceding paragraphs of this Section and (B) 2% plus the rate applicable to ABR Loans or (ii) in the case of any other amount, 2% plus the rate applicable to ABR Loans. (d) Accrued interest on each Loan shall be payable in arrears on each Interest Payment Date for such Loan provided that (i) interest accrued pursuant to paragraph (c) of this Section shall be payable on demand, (ii) in the event of any repayment or prepayment of any Loan accrued interest on the principal amount repaid or prepaid shall be payable on the date of such repayment or prepayment, (iii) in the event of any conversion of any Eurodollar Loan prior to the end of the current Interest Period therefor, accrued interest on such Loan shall be payable on the effective date of such conversion, and (iv) all interest accrued and unpaid prior to the Maturity Date shall be payable on the Maturity Date. 20 (e) All interest hereunder shall be computed on the basis of a year of 360 days, except that interest computed by reference to the ABR at times when the ABR is based on the Prime Rate shall be computed on the basis of a year of 365 days (or 366 days in a leap year), and in each case shall be payable for the actual number of days elapsed (including the first day but excluding the last day). The applicable ABR or Adjusted LIBO Rate shall be determined by the Administrative Agent, and such determination shall be conclusive absent manifest error. Section 2.9 Alternate Rate of Interest. If prior to the commencement of any Interest Period for a Eurodollar Loan: (a) the Administrative Agent determines (which determination shall be conclusive absent manifest error) that adequate and reasonable means do not exist for ascertaining the Adjusted LIBO Rate for such Interest Period; or (b) the Administrative Agent is advised by the Required Lenders that the Adjusted LIBO Rate for such Interest Period will not adequately and fairly reflect the cost to such Lenders (or Lender) of maintaining their Loans (or its Loan) for such Interest Period; then the Administrative Agent shall give notice thereof to the Borrower and the Lenders by telephone or telecopy as promptly as practicable thereafter and, until the Administrative Agent notifies the Borrower and the Lenders that the circumstances giving rise to such notice no longer exist, (i) any Interest Election Request that requests the conversion of the Loans to, or continuation of the Loans as Eurodollar Loans shall be ineffective and (ii) if the Loan Request requests Eurodollar Loans, such Loans shall be made as ABR Loans. Section 2.10 Increased Costs. (a) If any Change in Law shall: (i) impose, modify or deem applicable any reserve, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender (except any such reserve requirement reflected in the Adjusted LIBO Rate); or (ii) impose on any Lender or the London interbank market any other condition affecting this Agreement or Eurodollar Loans made by such Lender; and the result of any of the foregoing shall be to increase the cost to such Lender of making or maintaining any Eurodollar Loan (or of maintaining its obligation to make any such Loan) or to reduce the amount of any sum received or receivable by such Lender (whether of principal, interest or otherwise), then the Borrower will pay to such Lender such additional amount or amounts as will compensate such Lender for such additional costs incurred or reduction suffered. 21 (b) If any Lender determines that any Change in Law regarding capital requirements has or would have the effect of reducing the rate of return on such Lender's capital or on the capital of such Lender's holding company, if any, as a consequence of this Agreement or the Loans made by such Lender to a level below that which such Lender or such Lender's holding company could have achieved but for such Change in Law (taking into consideration such Lender's policies and the policies of such Lender's holding company with respect to capital adequacy), then from time to time the Borrower will pay to such Lender such additional amount or amounts as will compensate such Lender or such Lender's holding company for any such reduction suffered. (c) A certificate of a Lender setting forth the basis of the calculations and the amount or amounts necessary to compensate such Lender or its holding company, as the case may be, as specified in paragraph (a) or (b) of this Section shall be delivered to the Borrower and shall be conclusive absent manifest error. The Borrower shall pay such Lender the amount shown as due on any such certificate within 10 days after receipt thereof. (d) Failure or delay on the part of any Lender to demand compensation pursuant to this Section shall not constitute a waiver of such Lender's right to demand such compensation; provided that the Borrower shall not be required to compensate a Lender pursuant to this Section for any increased costs or reductions incurred more than 180 days prior to the date that such Lender notifies the Borrower of the Change in Law giving rise to such increased costs or reductions and of such Lender's intention to claim compensation therefor; provided further that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the 180-day period referred to above shall be extended to include the period of retroactive effect thereof. Section 2.11 Break Funding Payments. In the event of (a) the payment of any principal of any Eurodollar Loan other than on the last day of an Interest Period applicable thereto (including as a result of an Event of Default), (b) the conversion of any Eurodollar Loan other than on the last day of the Interest Period applicable thereto, (c) the failure to borrow, convert, continue or prepay any Eurodollar Loan on the date specified in any notice delivered pursuant hereto (regardless of whether such notice may be revoked under Section 2.6(b) and is revoked in accordance therewith), (d) the assignment of any Eurodollar Loan other than on the last day of the Interest Period applicable thereto as a result of a request by the Borrower pursuant to Section 2.14, then, in any such event, the Borrower shall compensate each Lender for the loss, cost and expense attributable to such event (excluding loss of Applicable Margin after the date of such event). In the case of a Eurodollar Loan, such loss, cost or expense to any Lender shall be deemed to include an amount determined by such Lender to be the excess, if any, of (i) the amount of interest which would have accrued on the principal amount of such Loan had such event not occurred, at the Adjusted LIBO Rate (excluding loss of Applicable Margin) that would have been applicable to such Loan, for the period from the date of such event to the last day of the then current Interest Period therefor (or, in the case of a failure to borrow, convert or continue, for the period that would have been the Interest Period for such Loan), over (ii) the amount of interest 22 which would accrue on such principal amount for such period at the interest rate which such Lender would bid were it to bid, at the commencement of such period, for dollar deposits of a comparable amount and period from other banks in the eurodollar market. A certificate of any Lender setting forth any amount or amounts that such Lender is entitled to receive pursuant to this Section shall be delivered to the Borrower and shall be conclusive absent manifest error. The Borrower shall pay such Lender the amount shown as due on any such certificate within 10 days after receipt thereof. Section 2.12 Taxes. (a) Any and all payments by or on account of any obligation of the Borrower hereunder shall be made free and clear of and without deduction for any Indemnified Taxes or Other Taxes; provided that if the Borrower shall be required to deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section) to the Administrative Agent or any Lender (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law. (b) In addition, the Borrower shall pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law. (c) The Borrower shall indemnify the Administrative Agent and each Lender within 10 days after written demand therefor, for the full amount of any Indemnified Taxes or Other Taxes paid by the Administrative Agent or such Lender, as the case may be, on or with respect to any payment by or on account of any obligation of the Borrower hereunder (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section) and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. The Borrower shall also indemnify the Administrative Agent and each Lender, within 10 days after written demand therefor, for the full amount of Excluded Taxes as the Administrative Agent or such Lender, as the case may be, shall determine are payable in respect of amounts paid to or on behalf of the Administrative Agent or such Lender, as the case may be, pursuant to this Section 2.12. A certificate as to the amount of such payment or liability delivered to the Borrower by a Lender, or by the Administrative Agent on its own behalf or on behalf of a Lender, shall be conclusive absent manifest error. (d) As soon as practicable after any payment of Indemnified Taxes or Other Taxes by the Borrower to a Governmental Authority, the Borrower shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent. 23 (e) Any Lender that is not incorporated under the United States of America or a state thereof (each a "Foreign Lender") shall: (i) on the date it becomes a Lender, deliver to the Administrative Agent (A) two completed copies of United States Internal Revenue Service Form 1001 or 4224, or successor applicable form, as the case may be, and shall certify that it is entitled to receive payments under this Agreement without deduction or withholding (or at a reduced rate of deduction or withholding) of any United States Federal income taxes and (B) an Internal Revenue Services Form W-8 or W-9, or successor applicable form, as the case may be and shall certify that it is entitled to an exemption from United States backup withholding tax; (ii) deliver to the Administrative Agent two further copies of any such form or certification on or before the date that any such certification described above expires or becomes obsolete and after the occurrence of any event requiring a change in the most recent form previously delivered to it; and (iii) obtain such extensions of time for filing and complete such forms or certifications as may reasonably be requested by the Administrative Agent; except that the forms and certificates described in clauses (ii) and (iii) above shall not be required if any Change in Law has occurred prior to the date on which any such delivery would otherwise be required which renders all such forms inapplicable or which would prevent such Lender from duly completing and delivering any such form with respect to it and such Lender so advises the Administrative Agent. Section 2.13 Payments Generally; Pro Rata Treatment; Sharing of Set-offs. (a) The Borrower shall make each payment required to be made by it hereunder (whether of principal, interest or fees, or of amounts payable under Section 2.10, 2.11 or 2.12, or otherwise) prior to 12:00 noon, New York City time, on the date when due, in immediately available funds, without set-off or counterclaim. Any amounts received after such time on any date may, in the discretion of the Administrative Agent, be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon. All such payments shall be made to the Administrative Agent at its offices at 130 Liberty Street, New York, New York, 10006, except that payments pursuant to Sections 2.10, 2.11, 2.12 and 9.3 shall be made directly to the Persons entitled thereto. The Administrative Agent shall distribute any such payments received by it for the account of any other Person to the appropriate recipient promptly following receipt thereof. If any payment hereunder shall be due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day, and, in the case of any payment accruing interest, interest 24 thereon shall be payable for the period of such extension. All payments hereunder shall be made in dollars. (b) If at any time insufficient funds are received by and available to the Administrative Agent to pay fully all amounts of principal, interest and fees then due hereunder, such funds shall be applied (i) first, towards payment of interest and fees then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of interest and fees then due to such parties, and (ii) second, towards payment of principal then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of principal then due to such parties. (c) If any Lender shall, by exercising any right of set-off or counterclaim or otherwise, obtain payment in respect of any principal of or interest on its Loan resulting in such Lender receiving payment of a greater proportion of the aggregate amount of its Loan and accrued interest thereon than the proportion received by any other Lender, then the Lender receiving such greater proportion shall purchase (for cash at face value) participations in the Loans of other Lenders to the extent necessary so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on their respective Loans provided that (i) if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest, and (ii) the provisions of this paragraph shall not be construed to apply to any payment made by the Borrower pursuant to and in accordance with the express terms of this Agreement or any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Loans to any assignee or participant, other than to the Borrower or any Subsidiary or Affiliate thereof (as to which the provisions of this paragraph shall apply). The Borrower consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against the Borrower rights of set-off and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of the Borrower in the amount of such participation. (d) Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Administrative Agent for the account of the Lenders that the Borrower will not make such payment, the Administrative Agent may assume that the Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders the amount due. In such event, if the Borrower has not in fact made such payment, then each of the Lenders severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the greater of the Federal Funds Effective Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation. 25 (e) If any Lender shall fail to make any payment required to be made by it pursuant to Section 2.3 or 2.13(d), then the Administrative Agent may, in its discretion (notwithstanding any contrary provision hereof), apply any amounts thereafter received by the Administrative Agent for the account of such Lender to satisfy such Lender's obligations under such Sections until all such unsatisfied obligations are fully paid. Section 2.14 Mitigation Obligations; Replacement of Lenders. (a) If any Lender requests compensation under Section 2.10, or if the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.12, then such Lender shall use reasonable efforts to designate a different lending office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 2.10 or 2.12, as the case may be, in the future and (ii) would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. The Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment. (b) If (i) any Lender requests compensation under Section 2.10, or (ii) the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.12, or (iii) any Lender defaults in its obligation to fund Loans hereunder, or (iv) any Lender refuses to consent to certain proposed changes, waivers, discharges or termination with respect to this Agreement which require the consent of all Lenders and have been approved by the Required Lenders as (and to the extent) provided in Section 9.2(b), then the Borrower may, at its sole expense and effort, if no Default then exists (or, in the case of preceding clause (iv), no Default will exist immediately upon giving effect to such replacement), upon notice to such Lender and the Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in Section 9.4), all its interests, rights and obligations under this Agreement to an assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment) (such Assignee a "Replacement Lender"); provided that (x) the Borrower shall have received the prior written consent of the Administrative Agent which consent shall not unreasonably be withheld, (y) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans accrued interest thereon, accrued fees and all other amounts payable to it hereunder, from the Replacement Lender (to the extent of such outstanding principal and accrued interest and fees) or the Borrower (in the case of all other amounts) and (z) in the case of any such assignment resulting from a claim for compensation under Section 2.10 or payments required to be made pursuant to Section 2.12, such assignment will result in a reduction in such compensation or payments. A Lender shall not be required to make any such assignment and delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply. 26 ARTICLE III Representations and Warranties The Borrower represents and warrants to the Lenders that: Section 3.1 Organization; Powers. Each of the Borrower and its Subsidiaries is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, has all requisite power and authority to carry on its business as now conducted and, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, is qualified to do business in, and is in good standing in, every jurisdiction where such qualification is required. Section 3.2 Authorization; Enforceability. The Transactions are within the Borrower's corporate powers and have been duly authorized by all necessary corporate and, if required, stockholder action, and the use of proceeds of the Loans will be, in each instance, within the Borrower's corporate powers and will have been duly authorized by all necessary corporate and, if required, stockholder action, as of the time of such use. This Agreement has been duly executed and delivered by the Borrower and constitutes a legal, valid and binding obligation of the Borrower, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors' rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law. Section 3.3 Governmental Approvals; No Conflicts. The Transactions (a) do not require any consent or approval of, registration or filing with, or any other action by, any Governmental Authority, except such as have been obtained or made and are in full force and effect, (b) will not violate any applicable law or regulation or the charter, by-laws or other organizational documents of the Borrower or any of its Subsidiaries or any order of any Governmental Authority, (c) will not violate or result in a default under any indenture, agreement or other instrument binding upon the Borrower or any of its Subsidiaries or any of their respective assets, or give rise to a right thereunder to require any payment to be made by the Borrower or any of its Subsidiaries, and (d) will not result in the creation or imposition of any Lien on any asset of the Borrower or any of its Subsidiaries. Section 3.4 Financial Condition; No Material Adverse Change. (a) The Borrower has heretofore furnished to the Lenders consolidated balance sheets and statements of income, stockholders equity and cash flows for (i) FMI and its subsidiaries, as of and for the fiscal year ended February 1, 1997, reported on by Deloitte & Touche, independent public accountants of FMI, and the fiscal quarter and the portion of the fiscal year ended May 24, 1997, certified by the chief financial officer of FMI and (ii) Smith's and its subsidiaries, as of and for the fiscal year ended December 28, 1996, reported on by Ernst & Young LLP, independent public accountants of Smith's, and the fiscal quarter and the portion of the fiscal year ended April 5, 1997, certified by the chief financial officer of Smith's. 27 Such financial statements present fairly, in all material respects, the financial position and results of operations and cash flows of FMI, Smith's and their respective subsidiaries as of such dates and for such periods in accordance with GAAP, subject to year-end audit adjustments and the absence of footnotes in the case of the statements for the fiscal quarters. (b) There has been no material adverse change in the business, assets, operations, prospects or condition, financial or otherwise, of (i) FMI and its subsidiaries, taken as a whole, since February 1, 1997, or (ii) Smith's or its subsidiaries, taken as a whole, since December 28, 1996. Section 3.5 Properties. (a) Each of the Borrower and its Subsidiaries has good title to, or valid leasehold interests in, all its real and personal property material to its business, except for minor defects in title that do not interfere with its ability to conduct its business as currently conducted or to utilize such properties for their intended purposes, subject to no Lien of any kind except Liens permitted hereby. (b) Each of the Borrower and its Subsidiaries owns, or is licensed to use, all trademarks, tradenames, copyrights, patents and other intellectual property material to its business, and the use thereof by the Borrower and its Subsidiaries does not infringe upon the rights of any other Person, except for any such infringements that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. Section 3.6 Litigation and Environmental Matters. (a) There are no actions, suits or proceedings by or before any arbitrator or Governmental Authority pending against or, to the knowledge of the Borrower, threatened against or affecting the Borrower or any of its Subsidiaries (i) as to which there is a reasonable possibility of an adverse determination and that, if adversely determined, could reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect (other than the Disclosed Matters) or (ii) that involve this Agreement or the Transactions. (b) Except for the Disclosed Matters and except with respect to any other matters that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, neither the Borrower nor any of its Subsidiaries (i) has failed to comply with any Environmental Law or to obtain, maintain or comply with any permit, license or other approval required under any Environmental Law, (ii) has become subject to any Environmental Liability, (iii) has received notice of any claim with respect to any Environmental Liability or (iv) knows of any basis for any Environmental Liability. (c) Since the date of this Agreement, there has been no change in the status of the Disclosed Matters that, individually or in the aggregate, has resulted in, or materially increased the likelihood of, a Material Adverse Effect. Section 3.7 Compliance with Laws and Agreements. Each of the Borrower and its Subsidiaries is in compliance with all laws, regulations and orders of any 28 Governmental Authority applicable to it or its property and all indentures, agreements and other instruments binding upon it or its property, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. No Default has occurred and is continuing. Section 3.8 Investment and Holding Company Status. Neither the Borrower nor any of its Subsidiaries is (a) an "investment company" as defined in, or subject to regulation under, the Investment Company Act of 1940 or (b) a "holding company" as defined in, or subject to regulation under, the Public Utility Holding Company Act of 1935. Section 3.9 Taxes. Each of the Borrower and its Subsidiaries has timely filed or caused to be filed all Tax returns and reports required to have been filed and has paid or caused to be paid all Taxes required to have been paid by it, except (a) Taxes that are being contested in good faith by appropriate proceedings and for which the Borrower or such Subsidiary, as applicable, has set aside on its books adequate reserves or (b) to the extent that the failure to do so could not reasonably be expected to result in a Material Adverse Effect. Section 3.10 ERISA. No ERISA Event has occurred or is reasonably expected to occur that, when taken together with all other such ERISA Events for which liability is reasonably expected to occur, could reasonably be expected to result in a Material Adverse Effect. Section 3.11 Disclosure. The Borrower has disclosed to the Lenders all agreements, instruments and corporate or other restrictions to which it or any of its Subsidiaries is subject, and all other matters known to it, that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. None of the reports, financial statements, certificates or other information furnished by or on behalf of the Borrower to the Administrative Agent or any Lender in connection with the negotiation of this Agreement or delivered hereunder (as modified or supplemented by other information so furnished) contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that, with respect to projected financial information, the Borrower represents only that such information was prepared in good faith based upon assumptions believed to be reasonable at the time. Section 3.12 Solvency. On the Closing Date and after giving effect to the Transactions, the Borrower and each of its Material Subsidiaries will be Solvent. Section 3.13 Use of Proceeds; Margin Regulations. All proceeds of each of the Loans will be used by the Borrower only in accordance with the provisions of Section 5.8. No part of the proceeds of any of the Loans will be used by the Borrower to purchase or carry any Margin Stock or to extend credit to others for the purpose of purchasing or carrying any Margin Stock. Neither the making of any of the Loans nor the use of the 29 proceeds thereof will violate or be inconsistent with the provisions of Regulations G, T, U or X of the Federal Reserve Board. Section 3.14 No Default. The Borrower is not in default under or with respect to any agreement, instrument or undertaking to which it is a party or by which it or any of its property is bound in any respect which could result in a Material Adverse Effect. No Default or Event of Default exists. Section 3.15 Subsidiaries. After giving effect to the Merger, the Persons listed on Schedule 3.15 are the only Subsidiaries of the Borrower. Schedule 3.15 correctly sets forth, after giving effect to the Merger, the percentage ownership (direct and indirect) of the Borrower in each class of capital stock of each of its Subsidiaries, identifies the direct owner thereof and identifies each Material Subsidiary as of the Closing Date. ARTICLE IV Conditions Section 4.1 Closing Date. The obligations of the Lenders to make Loans hereunder are subject to the satisfaction (or waiver in accordance with Section 9.2) of the following conditions: (a) The Administrative Agent (or its counsel) shall have received from each party hereto (A) either (i) a counterpart of this Agreement signed on behalf of such party or (ii) written evidence satisfactory to the Administrative Agent (which may include telecopy transmission of a signed signature page of this Agreement) that such party has signed a counterpart of this Agreement and (B) such other documents, in form and substance satisfactory to the Administrative agent, as the Administrative Agent may reasonably request. (b) The Administrative Agent shall have received a favorable written opinion (addressed to the Administrative Agent and the Lenders and dated the Closing Date) of Stoel Rives LLP, counsel for the Borrower, substantially in the form of Exhibit C, and covering such other matters relating to the Borrower, this Agreement or the Transactions as the Required Lenders shall reasonably request. The Borrower hereby requests such counsel to deliver such opinion. (c) The Administrative Agent shall have received such documents and certificates as the Administrative Agent or its counsel may reasonably request relating to the organization, existence and good standing of the Borrower, the authorization of the Transactions and any other legal matters relating to the Borrower, this Agreement or the Transactions, all in form and substance satisfactory to the Administrative Agent and its counsel. 30 (d) The Administrative Agent shall have received a certificate, dated the Closing Date and signed by the President, a Vice President or a Financial Officer of the Borrower, confirming that (i) the representations and warranties contained in Article III are true and correct and (ii) at the time of and immediately after giving effect to the Loans, no Default shall have occurred and be continuing. (e) The Administrative Agent shall have received all fees and other amounts due and payable on or prior to the Closing Date, including, to the extent invoiced, reimbursement or payment of all out-of-pocket expenses required to be reimbursed or paid by the Borrower hereunder. (f) The Merger shall have been completed in accordance with the Merger Document, or on other terms reasonably satisfactory to the Lenders. (g) The Other Corporate Loan Documents shall have been executed and delivered and shall be in full force and effect. (h) Each Material Subsidiary shall have executed and delivered to the Administrative Agent a guaranty substantially in the form set forth as Exhibit D (each such guaranty, as amended, supplemented or otherwise modified, a "Subsidiary Guaranty"). (i) The Administrative Agent shall have received evidence satisfactory to it of prior or simultaneous repayment or refinancing of the Debt of the Borrower and its Subsidiaries set forth on Schedule 4.1 hereto (except as otherwise agreed to the satisfaction of the Agents). (j) The Administrative Agent shall have received the financial information required under Section 3.4(a), including a pro forma balance sheet giving effect to the Merger, in form and substance satisfactory to the Administrative Agent. (k) The Administrative Agent shall have received a fully executed Loan Request in respect of the Loans to be made on such date. ARTICLE V Affirmative Covenants Until the principal of and interest on the Loans and all fees payable hereunder shall have been paid in full, the Borrower covenants and agrees with the Lenders that: Section 5.1 Financial Statements and Other Information. The Borrower will furnish to the Administrative Agent and each Lender: 31 (a) within 100 days after the end of each fiscal year of the Borrower, its audited consolidated balance sheet and related statements of operations, stockholders' equity and cash flows as of the end of and for such year, setting forth in each case in comparative form the figures for the previous fiscal year, all reported on by Deloitte & Touche LLP or other independent public accountants of recognized national standing (without a "going concern" or like qualification or exception and without any qualification or exception as to the scope of such audit) to the effect that such consolidated financial statements present fairly in all material respects the financial condition and results of operations of the Borrower and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP. (b) within 55 days after the end of each of the first three fiscal quarters of each fiscal year of the Borrower, its consolidated balance sheet and related statements of operations, stockholders' equity and cash flows as of the end of and for such fiscal quarter and the then elapsed portion of the fiscal year, setting forth in each case in comparative form the figures for the corresponding period or periods of (or, in the case of the balance sheet, as of the end of) the previous fiscal year, all certified by one of its Financial Officers as presenting fairly in all material respects the financial condition and results of operations of the Borrower and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP, subject to normal year-end audit adjustments and the absence of footnotes; (c) concurrently with any delivery of financial statements under clause (a) or (b) above, a Compliance Certificate (i) certifying as to whether a Default has occurred and, if a Default has occurred, specifying the details thereof and any action taken or proposed to be taken with respect thereto, (ii) setting forth reasonably detailed calculations (x) demonstrating compliance with Section 6.10(a) and (b) and (y) establishing the Applicable Margin, and (iii) stating whether any change in GAAP or in the application thereof has occurred since the date of the audited financial statements referred to in Section 3.4 and, if any such change has occurred, specifying the effect of such change on the financial statements accompanying such certificate; (d) concurrently with any delivery of financial statements under clause (a) above, a certificate of the accounting firm that reported on such financial statements stating whether they obtained knowledge during the course of their examination of such financial statements of any Default (which certificate may be limited to the extent required by accounting rules or guidelines); (e) promptly after the same become publicly available, copies of all periodic and other reports, proxy statements and other materials filed by the Borrower or any Subsidiary with the Securities and Exchange Commission, or any Governmental Authority succeeding to any or all of the functions of said Commission, or with any national securities exchange, or distributed by the Borrower to its shareholders generally, as the case may be; and 32 (f) promptly following any request therefor, such other information regarding the operations, business affairs and financial condition of the Borrower or any Subsidiary, or compliance with the terms of this Agreement, as the Administrative Agent or any Lender may reasonably request. Section 5.2 Notices of Material Events. The Borrower will furnish to the Administrative Agent and each Lender prompt written notice of the following: (a) the occurrence of any Default upon actual knowledge of a Responsible Officer of the Borrower; (b) the filing or commencement of any action, suit or proceeding by or before any arbitrator or Governmental Authority against or affecting the Borrower or any Affiliate thereof that, if adversely determined, could reasonably be expected to result in a Material Adverse Effect; (c) the occurrence of any ERISA Event that, alone or together with any other ERISA Events that have occurred, could reasonably be expected to result in material liability of the Borrower and its Subsidiaries; and (d) any other development that results in, or could reasonably be expected to result in, a Material Adverse Effect. Each notice delivered under this Section shall be accompanied by a statement of a Financial Officer or other executive officer of the Borrower setting forth the details of the event or development requiring such notice and any action taken or proposed to be taken with respect thereto. Section 5.3 Existence; Conduct of Business. The Borrower will, and will cause each of its Subsidiaries to, do or cause to be done all things necessary to preserve, renew and keep in full force and effect its legal existence and the rights, licenses, permits, privileges and franchises material to the conduct of its business; provided that the foregoing shall not prohibit any merger, consolidation, liquidation or dissolution permitted under Section 6.5. Section 5.4 Payment of Obligations. The Borrower will, and will cause each of its Subsidiaries to, pay its obligations, including Tax liabilities, that, if not paid, could result in a Material Adverse Effect before the same shall become delinquent or in default, except where (a) the validity or amount thereof is being contested in good faith by appropriate proceedings, (b) the Borrower or such Subsidiary has set aside on its books adequate reserves with respect thereto in accordance with GAAP and (c) the failure to make payment pending such contest could not reasonably be expected to result in a Material Adverse Effect. 33 Section 5.5 Maintenance of Properties; Insurance. The Borrower will, and will cause each of its Subsidiaries to, (a) keep and maintain all property material to the conduct of its business in good working order and condition, ordinary wear and tear excepted, and (b) maintain, with financially sound and reputable insurance companies, insurance in such amounts and against such risks (and having such deductibles and self-insurance) as are customarily maintained by companies engaged in the same or similar businesses operating in the same or similar locations. Section 5.6 Books and Records; Inspection Rights. The Borrower will, and will cause each of its Subsidiaries to, keep proper books of record and account in which full, true and correct entries are made of all dealings and transactions in relation to its business and activities. The Borrower will, and will cause each of its Subsidiaries to, permit any representatives designated by the Administrative Agent or any Lender, upon reasonable prior notice, to visit and inspect its properties, to examine and make extracts from its books and records, and to discuss its affairs, finances and condition with its officers and independent accountants, all at such reasonable times and as often as reasonably requested. Section 5.7 Compliance with Laws. The Borrower will, and will cause each of its Subsidiaries to, comply with all laws, rules, regulations and orders of any Governmental Authority applicable to it or its property, including without limitation ERISA and all Environmental Laws, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. Section 5.8 Use of Proceeds. The proceeds of the Loans will be used only to finance certain costs and expenses associated with the Merger, refinance existing indebtedness (including related prepayment premiums) and for general corporate purposes. No part of the proceeds of any Loan will be used, whether directly or indirectly, for any purpose that entails a violation of any of the Regulations of the Board, including Regulations G, U and X. Section 5.9 Subsidiary Guaranties. The Borrower shall cause each Material Subsidiary, now or hereafter in existence, to execute and deliver to the Administrative Agent a Subsidiary Guaranty together with such officer's certificates, resolutions and other assurances related thereto as the Administrative Agent shall reasonably request upon the earlier of (i) with respect to any Subsidiary on the date hereof that becomes a Material Subsidiary after the date hereof, or as to any Person which, when it becomes a Subsidiary after the date hereof, is not then a Material Subsidiary, as soon as possible after the end of the fiscal quarter in which such Subsidiary becomes a Material Subsidiary, and (ii) with respect to any Material Subsidiary acquired after the date hereof not currently a Subsidiary, within 10 days of becoming a Material Subsidiary. Section 5.10 Syndication. The Borrower acknowledges and agrees that the initial Lenders may, but shall have no obligation to, assign portions of the outstanding Loans to a syndicate of lenders in accordance with the terms of Section 9.4. In such case, the 34 Borrower shall actively assist the Lenders in completing a syndication reasonably satisfactory to the Lenders. In furtherance of such syndication, the Borrower shall (i) use commercially reasonable efforts to ensure that the syndication efforts benefit materially from the Borrower's existing lending relationships, (ii) cooperate in establishing direct contact between senior management and advisors of the Borrower and its Material Subsidiaries and the proposed lenders, (iii) assist in the preparation of one or more confidential information memoranda and other marketing materials to be used in connection with such syndication and (iv) cooperate in hosting, with the Lenders, one or more meetings of prospective lenders. ARTICLE VI Negative Covenants Until the principal of and interest on each Loan and all fees payable hereunder shall have been paid in full, the Borrower covenants and agrees with the Lenders that: Section 6.1 Material Subsidiary Debt. The Borrower will not permit any Material Subsidiary to create, incur, assume or permit to exist any Debt, except: (a) Debt owed to the Borrower or to another Material Subsidiary; (b) Debt existing on the date hereof; provided that to the extent any item of such Debt exceeds $5,000,000, or the aggregate of all such Debt exceeds $25,000,000, such Debt shall be identified in Schedule 6.1; (c) Debt secured by Permitted Encumbrances; (d) Capital Lease Obligations not to exceed $100,000,000; (e) Debt outstanding when such Person becomes a Material Subsidiary or is merged or consolidated with another Material Subsidiary, provided that such Debt exists at the time such Person becomes a Material Subsidiary and is not created in contemplation of or in connection with such Person becoming a Material Subsidiary; (f) Debt in respect of commercial letters of credit issued to support the purchase of goods by the applicable Material Subsidiary in the ordinary course of business; (g) Debt in respect of commercial letters of credit issued to support liabilities of a Material Subsidiary relating to worker's compensation, judgments pending appeal (and as to which there is no Event of Default under clause (k) of Article VII), construction or similar liabilities in the ordinary course of business; 35 (h) Suretyship Liabilities constituting guarantees of the Borrower's unsecured Debt; provided such Debt is pari passu with the obligations of the Borrower hereunder; and (i) Debt in respect of Synthetic Lease Facilities entered into by any Material Subsidiary as lessee thereunder; and (j) Debt not otherwise permitted by the foregoing clauses of this Section 6.1 so long as the sum, without duplication, of (x) all such Debt and (y) all Debt secured by Liens permitted solely by clause (f) of Section 6.2 does not exceed 10% of Consolidated Total Assets. Section 6.2 Liens. The Borrower will not, and will not permit any Subsidiary to, create, incur, assume or permit to exist any Lien on any property or asset now owned or hereafter acquired by it, or assign or sell any income or revenues (including accounts receivable) or rights in respect of any thereof, except: (a) Permitted Encumbrances; (b) any Lien on any property or asset of the Borrower or any Subsidiary existing on the date hereof (including Liens created pursuant to the Current Synthetic Lease Facility) and set forth in Schedule 6.2; provided that (i) such Lien shall not apply to any other property or asset of the Borrower or any Subsidiary and (ii) such Lien shall secure only those obligations which it secures on the date hereof; (c) any Lien existing on any property or asset prior to the acquisition thereof by the Borrower or any Subsidiary or existing on any property or asset of any Person that becomes a Subsidiary after the date hereof prior to the time such Person becomes a Subsidiary; provided that (i) such Lien is not created in contemplation of or in connection with such acquisition or such Person becoming a Subsidiary, as the case may be, (ii) such Lien shall not apply to any other property or assets of the Borrower or any Subsidiary and (iii) such Lien shall secure only those obligations which it secures on the date of such acquisition or the date such Person becomes a Subsidiary, as the case may be; and (d) Liens on fixed or capital assets acquired, constructed or improved by the Borrower or any Subsidiary; provided that (i) such security interests and the Indebtedness secured thereby are incurred prior to or within 180 days after such acquisition or the completion of such construction or improvement, (ii) the Debt secured thereby does not exceed the cost of acquiring, constructing or improving such fixed or capital assets and (iii) such security interests shall not apply to any other property or assets of the Borrower or any Subsidiary; (e) Liens on assets acquired after the date hereof under Synthetic Lease Facilities; and 36 (f) Liens not otherwise permitted by the foregoing clauses of this Section 6.2, securing Debt of the Borrower or its Subsidiaries, so long as the sum, without duplication, of (i) all such Debt and (ii) all Debt permitted solely by clause (j) of Section 6.1 does not exceed 10% of Consolidated Total Assets Section 6.3 Modifications of Merger Document. The Borrower shall not, and shall not permit any of its Subsidiaries to amend, modify or waive, or permit the amendment, modification or waiver of, any provision of the Merger Document. Section 6.4 Fundamental Changes. (a) The Borrower will not, and will not permit any Material Subsidiary to, merge into or consolidate with any other Person, or permit any other Person to merge into or consolidate with it, or sell, transfer, lease or otherwise dispose of (in one transaction or in a series of transactions) all or any substantial part of its assets, or all or substantially all of the stock of any of its Subsidiaries (in each case, whether now owned or hereafter acquired), or liquidate or dissolve, except that, if at the time thereof and immediately after giving effect thereto no Default shall have occurred and be continuing (i) any Subsidiary may merge into the Borrower in a transaction in which the Borrower is the surviving corporation, (ii) any Subsidiary may merge into any Subsidiary in a transaction in which the surviving entity is a Subsidiary, (iii) any Subsidiary may sell, transfer, lease or otherwise dispose of its assets to the Borrower or to another Subsidiary and (iv) any Subsidiary may liquidate or dissolve if the Borrower determines in good faith that such liquidation or dissolution is in the best interests of the Borrower and is not materially disadvantageous to the Lenders. (b) The Borrower will not, and will not permit any of its Subsidiaries to, engage to any material extent in any business other than businesses of the type conducted by the Borrower and its Subsidiaries on the date of execution of this Agreement and businesses reasonably related thereto. Section 6.5 Investments, Loans, Advances, Suretyship Liabilities and Acquisitions. The Borrower will not, and will not permit any of its Material Subsidiaries to, purchase, hold or acquire (including pursuant to any merger with any Person that was not a wholly owned Subsidiary prior to such merger) any capital stock, evidences of indebtedness or other securities (including any option, warrant or other right to acquire any of the foregoing) of, make or permit to exist any loans or advances to, incur Suretyship Liabilities in respect of any obligations of, or make or permit to exist any investment or any other interest in, any other Person, or purchase or otherwise acquire (in one transaction or a series of transactions) any assets of any other Person constituting a business unit, except: (a) Permitted Investments; (b) investments by the Borrower and its Subsidiaries in its Material Subsidiaries, or any Subsidiary which is not a Material Subsidiary so long as such non- 37 Material Subsidiary executes and delivers a Subsidiary Guaranty in favor of the Administrative Agent; (c) loans or advances made, or Suretyship Liabilities incurred, by the Borrower to or in respect of any Subsidiary and made or incurred by any Subsidiary to or in respect of the Borrower or any other Subsidiary; (d) Suretyship Liabilities with respect to Hedging Agreements permitted by Section 6.6; (e) Suretyship Liabilities constituting Debt permitted by Section 6.1; (f) Suretyship Liabilities created under the Other Corporate Loan Documents; (g) Suretyship Liabilities with respect to Surety Instruments incurred in the ordinary course of business; and (h) investments by the Borrower and its Material Subsidiaries not otherwise permitted by the foregoing clauses of this Section 6.5, so long as such additional investments made in reliance on this clause (h) do not exceed $100,000,000 in the aggregate at any time. Section 6.6 Hedging Agreements. The Borrower will not, and will not permit any of its Subsidiaries to, enter into any Hedging Agreement, other than Hedging Agreements entered into in the ordinary course of business to hedge or mitigate risks to which the Borrower or any Subsidiary is exposed in the conduct of its business or the management of its liabilities. Section 6.7 Restricted Payments. The Borrower will not, and will not permit any of its Subsidiaries to, declare or make, or agree to pay or make, directly or indirectly, any Restricted Payment, except that, so long as no Event of Default has occurred and is continuing, (a) the Borrower may declare and pay dividends with respect to its capital stock payable solely in additional shares of its common stock, (b) the Borrower may make Restricted Payments pursuant to and in accordance with stock option plans or other benefit plans for management or employees of the Borrower and its Subsidiaries, (c) any Subsidiary may declare and pay Restricted Payments to the Borrower or any other Subsidiary, and (d) from and after the fiscal year ending January 31, 1998, the Borrower and its Subsidiaries may pay cash dividends and repurchase their respective stock from any Person which is not the Borrower or another Subsidiary so long as on the date of payment or repurchase (i) such cash dividends and stock repurchases do not exceed $100,000,000 in any single fiscal year, and (ii) the total of such cash dividends and stock repurchases in all such fiscal years (beginning with the fiscal year ending January 31, 1998) does not exceed an aggregate amount of $200,000,000 plus 40% of the Borrower's and its Subsidiaries' aggregate net 38 income earned commencing with the fiscal year ending January 31, 1998, and each fiscal year thereafter. Section 6.8 Transactions with Affiliates. The Borrower will not, and will not permit any of its Subsidiaries to, sell, lease or otherwise transfer any property or assets to, or purchase, lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except (a) at prices and on terms and conditions not less favorable to the Borrower or such Subsidiary than could be obtained on an arm's-length basis from unrelated third parties, (b) transactions between or among the Borrower and its wholly owned Subsidiaries not involving any other Affiliate and (c) any Restricted Payment permitted by Section 6.7. Section 6.9 Restrictive Agreements. The Borrower will not, and will not permit any of its Subsidiaries to, directly or indirectly, enter into, incur or permit to exist any agreement or other arrangement that prohibits, restricts or imposes any condition upon the ability of any Subsidiary to pay dividends or other distributions with respect to any shares of its capital stock or to make or repay loans or advances to the Borrower or any other Subsidiary or to incur Suretyship Liabilities in respect of Debt of the Borrower or any other Subsidiary; provided that (i) the foregoing shall not apply to restrictions and conditions imposed by law or by this Agreement, (ii) the foregoing shall not apply to restrictions and conditions (x) contained in the Other Corporate Loan Documents or (y) existing on the date hereof and identified on Schedule 6.9 (but shall apply to any extension or renewal of, or any amendment or modification expanding the scope of, any such restriction or condition) and (iii) the foregoing shall not apply to customary restrictions and conditions contained in agreements relating to the sale of a Subsidiary pending such sale, provided such restrictions and conditions apply only to the Subsidiary that is to be sold and such sale is permitted hereunder and provided further that such restrictions and conditions cannot be imposed at any time that a Default has occurred and is continuing. Section 6.10 Financial Covenants. (a) Debt for Borrowed Money to Consolidated EBITDA Ratio. The Borrower shall not permit the ratio of its Debt for Borrowed Money to Consolidated EBITDA (for the most recent four consecutive quarters) to exceed, at the end of any fiscal quarter ending on or during any period listed below, the ratio set forth opposite such period: Period Ratio ------ ----- From and including January 31, 1998, 4.00:1 to and including January 29, 1999 From and including January 30, 1999 3.75:1 to and including January 28, 2000 39 From and including January 29, 2000 3.35:1 to and including February 2, 2001 From and including February 3, 2001, 3.00:1 and thereafter provided, however, that Consolidated EBITDA of the Borrower and its Subsidiaries for the four quarter periods ended January 31, 1998, May 23, 1998 and August 15, 1998 shall be calculated by reference to (i) for each fiscal quarter ended after the Closing Date, the actual Consolidated EBITDA for such fiscal quarter, and (ii) for each fiscal quarter ended prior to the Closing Date, Consolidated EBITDA reflected in a pro-forma income statement for such fiscal quarter prepared by the Borrower in good faith using reasonable assumptions consistent with all facts known to the Borrower. (b) Adjusted Interest Coverage Ratio. The Borrower shall not permit the Adjusted Interest Coverage Ratio (for the most recent four consecutive quarters, except as specified below) to be less than, at the end of any fiscal quarter ending on or during any period listed below, the Adjusted Interest Coverage Ratio set forth opposite such period: Period Ratio ------ ----- From and including January 31, 1998 2.25:1 to and including January 29, 1999 From and including January 30, 1999 2.50:1 and thereafter provided, however, that for the periods ended January 31, 1998, May 23, 1998 and August 15, 1998 the Adjusted Interest Coverage Ratio for such period shall be calculated by reference to the full fiscal quarters then ended since the Closing Date. Section 6.11 Unconditional Purchase Obligations. The Borrower shall not, and shall not permit any Material Subsidiary to, enter into or be a party to any contract for the purchase of materials, supplies or other property or services, if such contract requires that payments be made by it regardless of whether or not delivery is ever made of such materials, supplies or other property or services. Section 6.12 Sale of Assets; Sale and Leaseback Transactions. (a) Except as provided in Section 6.12(d), subject to the terms and conditions of this Agreement, the Borrower and its Subsidiaries may convey, sell, transfer or otherwise dispose of (or agree to do so at any future time) its property or assets, provided that to the extent the sum of the fair market value of such property or assets (i) conveyed, sold, transferred or otherwise disposed of and (ii) all transactions pursuant to Section 6.12(b), exceeds $350,000,000 at any time, the Borrower shall comply with the provisions of Section 6.12(c). The foregoing limitations shall 40 not apply to the conveyance, sale, transfer or other disposal of property or assets in the case of sales of inventory in the ordinary course of business and sales of equipment which is uneconomic, obsolete or no longer useful in its business. (b) Except as provided in Section 6.12(d), the Borrower and its Subsidiaries may become liable, directly or indirectly, with respect to any lease, whether an operating lease or a capital lease, of any property (whether real or personal or mixed) whether now owned or hereafter acquired, (i) which the Borrower or such Subsidiary has sold or transferred or is to sell or transfer to any other Person, or (ii) which the Borrower or such Subsidiary intends to use for substantially the same purposes as any other property which has been or is to be sold or transferred by the Borrower or such Subsidiary to any other Person in connection with such lease (such transaction a "Sale and Leaseback Transaction"), provided that to the extent the sum of the fair market value of the property or assets (i) conveyed, sold, transferred or otherwise disposed of pursuant to Section 6.12(a) and (ii) all transactions pursuant to Section 6.12(b) exceeds $350,000,000 at any time, the Borrower shall comply with the provisions of Section 6.12(c). (c) In the event that the aggregate fair market value of all assets sold in all transactions undertaken in reliance upon Sections 6.12(a) and (b) exceeds $350,000,000, the Borrower shall prepay the outstanding Loans in accordance with Section 2.6, together with any breakage fees and other costs and expenses incurred hereunder in connection therewith, in an amount equal to 50% of such excess minus (x) reasonable expenses incurred or reasonably expected to be incurred in connection with such transaction and (y) any income, franchise, transfer or other tax payable in connection with such transaction. The Borrower shall provide the Administrative Agent prompt written notice of any transaction entered into in reliance upon this Section 6.12(c), and shall provide evidence of compliance herewith reasonably satisfactory to the Administrator Agent on or prior to the closing date of any such transaction. (d) Notwithstanding the provisions of Section 6.12(a), (b) and (c) above, Smith's and any subsidiary of Smith's may convey, sell, transfer or dispose of, or enter into Sale and Leaseback Transactions in connection with, assets owned as of the Closing Date by Smith's or any of its subsidiaries; provided that on each date on which Smith's or any such subsidiary of Smith's receives any proceeds from any such transaction, the Borrower shall prepay the outstanding Loans in accordance with Section 2.6, together with any breakage fees and other costs and expenses incurred hereunder in connection therewith, in an amount equal to 50% of the cash proceeds obtained in such transaction by Smith's or such subsidiary of Smith's minus (x) reasonable expenses incurred or reasonably expected to be incurred in connection with such transaction, (y) any income, franchise, transfer or other tax payable by Smith's or such subsidiary of Smith's in connection with such transaction and (z) any Debt secured by a Lien on such property or assets and required to be repaid as a result of such transaction. The Borrower shall provide the Administrative Agent prompt written notice of any transaction entered into in reliance upon this Section 6.12(d), and shall provide evidence 41 of compliance herewith reasonably satisfactory to the Administrator Agent on or prior to the closing date of any such transaction. Section 6.13 Fiscal Year; Fiscal Quarter. The Borrower shall not, and shall not permit any of its Subsidiaries to, change its fiscal year or any of its fiscal quarters. ARTICLE VII Events of Default If any of the following events ("Events of Default") shall occur: (a) the Borrower shall fail to pay any principal of any Loan when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or otherwise; or (b) the Borrower shall fail to pay any interest on any Loan or any fee or any other amount (other than an amount referred to in clause (a) of this Article) payable under this Agreement, when and as the same shall become due and payable, and such failure shall continue unremedied for a period of three (3) Business Days; or (c) any representation or warranty made or deemed made by or on behalf of the Borrower or any Subsidiary in or in connection with this Agreement or any amendment or modification hereof or waiver hereunder, or in any report, certificate, financial statement or other document furnished pursuant to or in connection with this Agreement or any amendment or modification hereof or waiver hereunder, shall prove to have been incorrect in any material respect when made or deemed made; or (d) the Borrower shall fail to observe or perform any covenant, condition or agreement contained in Sections 5.2(a), 5.3 (with respect to the Borrower's existence) or 5.8 or in Sections 6.1, 6.2, 6.4, 6.5, 6.6, 6.7, 6.9, 6.10, 6.11 or 6.12; or (e) the Borrower shall fail to observe or perform any covenant, condition or agreement contained in this Agreement (other than those specified in clauses (a), (b), (c) or (d) of this Article), and such failure shall continue unremedied for a period of 30 days after notice thereof from the Administrative Agent to the Borrower (which notice will be given at the request of any Lender); or (f) the Borrower or any Material Subsidiary shall fail to make any payment (whether of principal or interest and regardless of amount) in respect of any Material Debt, when and as the same shall become due and payable or within any applicable grace period in connection with such Material Debt; or 42 (g) the Borrower or any Material Subsidiary shall default in any other obligation that results in any Debt of $10,000,000 or more in the aggregate becoming due prior to its scheduled maturity or that enables or permits (with or without the giving of notice, the lapse of time or both) the holder or holders of any Debt of $10,000,000 or more in the aggregate or any trustee or agent on its or their behalf to cause any such Debt to become due, or to require the prepayment, repurchase, redemption or defeasance thereof, prior to its scheduled maturity; or (h) an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization or other relief in respect of the Borrower or any Material Subsidiary or their respective debts, or of a substantial part of their respective assets, under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect or (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Borrower or any Material Subsidiary or for a substantial part of their respective assets, and, in any such case, such proceeding or petition shall continue undismissed for 60 days or an order or decree approving or ordering any of the foregoing shall be entered; or (i) the Borrower or any Material Subsidiary shall (i) voluntarily commence any proceeding or file any petition seeking liquidation, reorganization or other relief under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition described in clause (h) of this Article, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Borrower or any Material Subsidiary or for a substantial part of their respective assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors or (vi) take any action for the purpose of effecting any of the foregoing; or (j) the Borrower or any Material Subsidiary shall become unable, admit in writing or fail generally to pay its debts as they become due; or (k) one or more judgments for the payment of money in an aggregate amount in excess of $5,000,000 shall be rendered against the Borrower, any Subsidiary or any combination thereof and the same shall remain undischarged for a period of 30 consecutive days during which execution shall not be effectively stayed, or any action shall be legally taken by a judgment creditor to attach or levy upon any assets of the Borrower or any Subsidiary to enforce any such judgment; or (l) an ERISA Event shall have occurred that, in the opinion of the Required Lenders, when taken together with all other ERISA Events that have occurred, could reasonably be expected to result in liability of the Borrower and its Subsidiaries in an aggregate amount exceeding $5,000,000; or 43 (m) a Change in Control shall occur; or (n) any Subsidiary Guaranty shall cease to be in full force and effect, or any guarantor under any Subsidiary Guaranty or any Person acting by or on behalf of such guarantor shall deny or disaffirm all or any portion of the guarantor's obligation under such Subsidiary Guaranty; then, and in every such event (other than an event with respect to the Borrower described in clause (h) or (i) of this Article), and at any time thereafter during the continuance of such event, the Administrative Agent may, and at the request of the Required Lenders shall, by notice to the Borrower, take either or both of the following actions, at the same or different times: (i) declare the Loans then outstanding to be due and payable in whole or in part (in which case any principal not so declared to be due and payable may thereafter be declared to be due and payable), and thereupon the principal of the Loans so declared to be due and payable, together with accrued interest thereon and all fees and other obligations of the Borrower accrued hereunder, shall become due and payable immediately, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower; and in case of any event with respect to the Borrower described in clause (h) or (i) of this Article, the principal of the Loans then outstanding, together with accrued interest thereon, and all fees and other obligations of the Borrower accrued hereunder, shall automatically become due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower. ARTICLE VIII The Administrative Agent Section 8.1 Appointment. Each Lender hereby irrevocably designates and appoints Bankers Trust Company as the Administrative Agent of such Lender under this Agreement, and each such Lender irrevocably authorizes Bankers Trust Company as the Administrative Agent for such Lender, to take such action on its behalf under the provisions of this Agreement and to exercise such powers and perform such duties as are expressly delegated to the Agent by the terms of this Agreement, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in this Agreement, the Administrative Agent shall not have any duties or responsibilities, except those expressly set forth herein, or any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities on the part of the Administrative Agent shall be read into this Agreement or otherwise exist against the Administrative Agent. The provisions of this Article 8 are solely for the benefit of the Administrative Agent and the Lenders and the Borrower shall have no rights as a third party beneficiary or otherwise under any of the provisions hereof. In performing its functions and duties hereunder, the Administrative Agent shall act solely as the agent of the Lenders and 44 does not assume nor shall be deemed to have assumed any obligation or relationship of trust or agency with or for the Borrower or any of its successors and assigns. Section 8.2 Delegation of Duties. The Administrative Agent may execute any of its duties under this Agreement by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Administrative Agent shall not be responsible for the negligence or misconduct or any agents or attorneys-in-fact selected by it with reasonable care. Section 8.3 Exculpatory Provisions. The Administrative Agent shall not be (i) liable for any action lawfully taken or omitted to be taken by it or any Person described in Section 8.2 under or in connection with this Agreement (except for its or such Person's own gross negligence or willful misconduct), or (ii) responsible in any manner to any of the Lenders for any recitals, statements, representations or warranties made by the Borrower contained in this Agreement or in any certificate, report, statement or other document referred to or provided for in, or received under or in connection with, this Agreement or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement, or for any failure of the Borrower to perform its obligations hereunder or thereunder. The Administrative Agent shall not be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement, or to inspect the properties, books or records of the Borrower. This Section is intended solely to govern the relationship between the Administrative Agent, on the one hand, and the Lenders, on the other. Section 8.4 Reliance by Administrative Agent. The Administrative Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to the Borrower), independent accountants and other experts selected by the Administrative Agent. The Administrative Agent shall be fully justified in failing or refusing to take any action under this Agreement unless it shall first receive such advice or concurrence of the Required Lenders as it deems appropriate or it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement in accordance with a request of the Required Lenders, and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders. Section 8.5 Notice of Default. The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Default unless the Administrative Agent has received notice from a Lender or the Borrower referring to this Agreement, describing such Default and stating that such notice is a "notice of default". In the event that 45 the Administrative Agent receives such a notice, the Administrative Agent shall promptly give notice thereof to the Lenders. The Administrative Agent shall take such action with respect to such Default as shall be directed by the Required Lenders; provided that unless and until the Administrative Agent shall have received such directions, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default as the Administrative Agent shall deem advisable and in the best interests of the Lenders. Section 8.6 Non-Reliance on Administrative Agent and Other Lenders. Each Lender expressly acknowledges that neither the Administrative Agent, nor any of its officers, directors, employees, agents, attorneys-in-fact or affiliates has made any representations or warranties to it and that no act by the Administrative Agent hereafter taken, including, without limitation, any review of the affairs of the Borrower, shall be deemed to constitute any representation or warranty by the Administrative Agent. Each Lender represents and warrants to the Administrative Agent that it has, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, prospects, financial and other conditions and creditworthiness of the Borrower and made its own decision to make its Loans hereunder and enter into this Agreement. Each Lender also represents that it will, independently and without reliance upon the Administrative Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, prospects, financial and other condition and creditworthiness of the Borrower. Except for notices, reports and other documents expressly required under this Agreement to be furnished to the Lenders by the Administrative Agent, the Administrative Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, property, prospects, financial and other condition or creditworthiness of the Borrower which may come into the possession of the Administrative Agent or any of its officers, directors, employees, agents, attorneys-in-fact or affiliates. Section 8.7 Indemnification. The Lenders agree to indemnify the Administrative Agent, the Syndication Agent and each of their respective officers, directors, employees, representatives and agents (to the extent not reimbursed by the Borrower and without limiting the obligation of the Borrower to do so), ratably according to their Applicable Percentage, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever (including, without limitation, the fees and disbursements of counsel for the Administrative Agent, Syndication Agent or such Person in connection with any investigative, administrative or judicial proceeding commenced or threatened, whether or not the Administrative Agent or such Person shall be designated a party thereto) that may at any time (including, without limitation, at any time following the payment of the Obligations) be imposed on, incurred by or asserted against the Administrative Agent, Syndication Agent or 46 such Person as a result of, or arising out of, or in any way related to or by reason of, any of the Transactions or the execution, delivery or performance of this Agreement (but excluding any such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting solely from the gross negligence or willful misconduct of the Administrative Agent, Syndication Agent or such Person as finally determined by a court of competent jurisdiction). Section 8.8 Administrative Agent in its Individual Capacity. The Administrative Agent and its affiliates may make loans to, accept deposits from and generally engage in any kind of business with the Borrower as though the Administrative Agent were not the Administrative Agent hereunder. With respect to Loans made or renewed by it, the Administrative Agent shall have the same rights and powers under this Agreement as any Lender and may exercise the same as though it were not the Administrative Agent, and the terms "Lender" and "Lenders" shall include the Administrative Agent in its individual capacity. Section 8.9 Successor Administrative Agent. The Administrative Agent may resign as Administrative Agent upon 30 days' notice to the Borrower and the Lenders. If the Administrative Agent shall resign as Administrative Agent under this Agreement, then the Required Lenders during such 30-day period shall appoint from among the Lenders a successor agent, whereupon such successor agent shall succeed to the rights, powers and duties of the Administrative Agent and the term "Administrative Agent" shall mean such successor agent, effective upon its appointment, and the former Administrative Agent's rights, powers and duties as Administrative Agent shall be terminated, without any other or further act or deed on the part of such former Administrative Agent or any of the parties to this Agreement. After any retiring Administrative Agent's resignation hereunder as Administrative Agent, the provisions of this Section 8 and Section 9.3 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Agreement. Section 8.10 Syndication Agent. Without limiting any provision contained in this Section 8, the Syndication Agent shall not have, except as to and to the limited extent expressly provided herein, any obligation, responsibility or duty under this Agreement other than those applicable to all Lenders as such. Each Lender acknowledges that it has not relied, and will not rely, on the Syndication Agent in deciding to enter into this Agreement or in taking or not taking action hereunder. 47 ARTICLE IX Miscellaneous Section 9.1 Notices. Except in the case of notices and other communications expressly permitted to be given by telephone, all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopy, as follows: (a) if to the Borrower, to it at: Fred Meyer, Inc. P.O. Box 42121 3800 SE 22nd Avenue Portland, Oregon 97242-0121 Telecopy: (503) 797-5299 Attn: Mr. James C. Aalberg; with a copy of notices pursuant to Article VII to: Stoel Rives LLP 700 NE Multnomah, Ste 9504 Portland, Oregon 97232 Telecopy: (503) 230-1907 Attn: Mr. Gary R. Barnum (b) if to the Administrative Agent, to it at: Bankers Trust Company 130 Liberty Street New York, New York 10006 Telecopy: (212) 250-7351 Attn: Deal Administrator (c) if to any other Lender, to it at its address (or telecopy number) set forth opposite its signature below. Any party hereto may change its address or telecopy number for notices and other communications hereunder by notice to the other parties hereto. All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt. It is understood and agreed that the delivery of copies of notices to counsel as set forth above is for courtesy purposes only and any failure to deliver such copy shall not constitute failure with respect to any obligation to provide notices hereunder. 48 Section 9.2 Waivers; Amendments. (a) Neither this Agreement nor any terms hereof may be changed, waived, discharged or terminated unless such change, waiver, discharge or termination is in writing signed by the Required Lenders, provided that no such change, waiver, discharge or termination shall, without the consent of each Lender, (i) extend the final scheduled maturity of any Loan beyond the Maturity Date, or reduce the rate or extend the time of payment of interest or fees thereon, or reduce the principal amount thereof (except to the extent repaid in cash), (ii) amend, modify or waive any provision of this Section 9.2, (iii) reduce the percentage specified in the definition of Required Lenders, (iv) consent to the assignment or transfer by the Borrower of any of its rights and obligations under this Agreement or (v) release any Subsidiary which is party to a Subsidiary Guaranty form its obligations under such Subsidiary Guaranty; provided further that no such change, waiver, discharge or termination shall (x) increase the Loan Amount of any Lender (it being understood that waivers or modifications of conditions precedent, covenants, Defaults or of a mandatory reduction in the Loan Amounts shall not constitute an increase in the Loan Amount of any Lender) or (y) without the consent of the Administrative Agent, amend, modify or waive any provision of Section 8 or any other provision as the same relates to the Administrative Agent. No failure or delay by the Administrative Agent or any Lender in exercising any right or power hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Administrative Agent and the Lenders hereunder are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of this Agreement or consent to any departure by the Borrower therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) of this Section, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. (b) If, in connection with any proposed change, waiver, discharge or termination to any of the provisions of this Agreement contemplated by clauses (i) through (v), inclusive, of the first proviso of Section 9.2(a), the consent of the Required Lenders is obtained but the consent of one or more of such other Lenders whose consent is required is not obtained, then the Borrower shall have the right, so long as all non-consenting Lenders whose individual consent is required are treated as described in either clauses (A) or (B) below, to either (A) replace each such non-consenting Lender or Lenders with one or more Replacement Lenders pursuant to Section 2.14(b) so long as at the time of such replacement each such Replacement Lender consents to the proposed change, waiver, discharge or termination or (B) repay the outstanding Loans of such Lender; provided that, unless the Loans repaid pursuant to preceding clause (B) are immediately replaced in full at such time through the addition of new Lenders or the increase of outstanding Loans of existing Lenders (who in each case must specifically consent thereto), then in the case of any action pursuant to preceding clause (B) the Required Lenders (determined after giving effect to the proposed action) shall specifically consent thereto, provided further, that in any event the Borrower shall not have the right to replace a Lender or repay its Loans solely as a result of the 49 exercise of such Lender's rights (and the withholding of any required consent by such Lender) pursuant to the second proviso to Section 9.2(a). Section 9.3 Expenses; Indemnity; Damage Waiver. (a) The Borrower shall pay (i) all reasonable out-of-pocket expenses incurred by the Administrative Agent and its Affiliates, including the reasonable fees, charges and disbursements of counsel for the Administrative Agent, in connection with the syndication of the credit facilities provided for herein, the preparation and administration of this Agreement or any amendments, modifications or waivers of the provisions hereof (whether or not the transactions contemplated hereby or thereby shall be consummated) and (ii) all out-of-pocket expenses incurred by the Administrative Agent or any Lender, including the fees, charges and disbursements of any counsel for the Administrative Agent or any Lender, in connection with the enforcement or protection of its rights in connection with this Agreement after the occurrence of an Event of Default, including its rights under this Section, or in connection with the Loans made hereunder, including all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans. (b) The Borrower shall indemnify the Administrative Agent and each Lender, and each Related Party of any of the foregoing Persons (each such Person being called an "Indemnitee") against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses, including the fees, charges and disbursements of any counsel for any Indemnitee, incurred by or asserted against any Indemnitee arising out of, in connection with, or as a result of (i) the execution or delivery of this Agreement or any agreement or instrument contemplated hereby, the performance by the parties hereto of their respective obligations hereunder or the consummation of the Transactions or any other transactions contemplated hereby, (ii) any Loan or the use of the proceeds therefrom, (iii) any actual or alleged presence or release of Hazardous Materials on or from any property owned or operated by the Borrower or any of its Subsidiaries, or any Environmental Liability related in any way to the Borrower or any of its Subsidiaries, or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory and regardless of whether any Indemnitee is a party thereto; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or wilful misconduct of such Indemnitee. (c) To the extent permitted by applicable law, the Borrower shall not assert, and hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement or any agreement or instrument contemplated hereby, the Transactions, any Loan or the use of the proceeds thereof. 50 (d) All amounts due under this Section shall be payable not later than 10 days after written demand therefor. Section 9.4 Successors and Assigns. (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that the Borrower may not assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of each Lender (and any attempted assignment or transfer by the Borrower without such consent shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement. (b) Any Lender may assign to one or more assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Loan); provided that (i) except in the case of an assignment to a Lender or an Affiliate of a Lender, the Borrower must give its prior written consent to such assignment (which consent shall not be unreasonably withheld), (ii) except in the case of an assignment to a Lender or an Affiliate of a Lender or an assignment of the entire remaining amount of the assigning Lender's Loan, the amount of the Loan of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Acceptance with respect to such assignment is delivered to the Administrative Agent) shall not be less than $5,000,000 unless each of the Borrower and the Administrative Agent otherwise consent, (iii) each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender's rights and obligations under this Agreement, and (iii) the parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Acceptance, together with a processing and recordation fee of $3,500; and provided further that any consent of the Borrower otherwise required under this paragraph shall not be required if a Default has occurred and is continuing. Subject to acceptance and recording thereof pursuant to paragraph (d) of this Section, from and after the effective date specified in each Assignment and Acceptance the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Acceptance, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all of the assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 2.10, 2.11, 2.12 and 9.3). Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this paragraph shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with paragraph (e) of this Section. 51 (c) The Administrative Agent, acting for this purpose as an agent of the Borrower, shall maintain at one of its offices in The City of New York a copy of each Assignment and Acceptance delivered to it and a register for the recordation of the names and addresses of the Lenders and principal amount of the Loans owing to, each Lender pursuant to the terms hereof from time to time (the "Register"). The entries in the Register shall be conclusive, and the Borrower, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Borrower and any Lender, at any reasonable time and from time to time upon reasonable prior notice. (d) Upon its receipt of a duly completed Assignment and Acceptance executed by an assigning Lender and an assignee, the processing and recordation fee referred to in paragraph (b) of this Section and any written consent to such assignment required by paragraph (b) of this Section, the Administrative Agent shall accept such Assignment and Acceptance and record the information contained therein in the Register. No assignment shall be effective for purposes of this Agreement unless it has been recorded in the Register as provided in this paragraph. (e) Any Lender may, without the consent of the Borrower or the Administrative Agent, sell participations to one or more banks or other entities (a "Participant") in all or a portion of such Lender's rights and obligations under this Agreement (including all or a portion of the Loan owing to it); provided that (i) such Lender's obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) the Borrower, the Administrative Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement. Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; and provided further that no Lender shall transfer or grant any participation under which the Participants shall have rights to approve any amendment to or waiver of this Agreement except to the extent that such amendment or waiver would (i) extend the final scheduled maturity of any Loan or Note in which the Participant is participating, or reduce the rate or extend the time of payment of interest or fees thereon (except in connection with a waiver of applicability of any post-default increase in interest rates) or reduce the principal amount thereof, or increase the amount of the Participant's participation over the amount thereof then in effect (it being understood that a waiver of any Default or of a mandatory reduction in the aggregate Loan Amounts shall not constitute a change in the terms of such participation or (ii) consent to the assignment by the Borrower of any of its rights and obligations under this Agreement. (f) A Participant shall not be entitled to receive any greater payment under Section 2.10 or 2.12 than the applicable Lender would have been entitled to receive 52 with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Borrower's prior written consent. A Participant that, subject to the foregoing, would be a Foreign Lender if it were a Lender shall not be entitled to the benefits of Section 2.12 unless the Borrower is notified of the participation sold to such Participant and such Participant agrees, for the benefit of the Borrower, to comply with Section 2.12(e) as though it were a Lender. (g) Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank, and this Section shall not apply to any such pledge or assignment of a security interest; provided that no such pledge or assignment of a security interest shall release a Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto. Section 9.5 Survival. All covenants, agreements, representations and warranties made by the Borrower herein and in the certificates or other instruments delivered in connection with or pursuant to this Agreement shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of this Agreement and the making of any Loans, regardless of any investigation made by any such other party or on its behalf and notwithstanding that the Administrative Agent or any Lender may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any fee or any other amount payable under this Agreement is outstanding and unpaid. The provisions of Sections 2.10, 2.11, 2.12 and 9.3 and Article VIII shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Loans or the termination of this Agreement or any provision hereof. Section 9.6 Counterparts; Integration; Effectiveness. This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement and any separate letter agreements with respect to fees payable to the Administrative Agent constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. Except as provided in Section 4.1, this Agreement shall become effective when it shall have been executed by the Administrative Agent and when the Administrative Agent shall have received counterparts hereof which, when taken together, bear the signatures of each of the other parties hereto, and thereafter shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Delivery of an executed counterpart of a signature page of this Agreement by telecopy shall be effective as delivery of a manually executed counterpart of this Agreement. 53 Section 9.7 Severability. Any provision of this Agreement held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction. Section 9.8 Right of Setoff. If an Event of Default shall have occurred and be continuing, each Lender and each of its Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other obligations at any time owing by such Lender or Affiliate to or for the credit or the account of the Borrower against any and all of the obligations of the Borrower now or hereafter existing under this Agreement held by such Lender, irrespective of whether or not such Lender shall have made any demand under this Agreement and although such obligations may be unmatured. The rights of each Lender under this Section are in addition to other rights and remedies (including other rights of setoff) which such Lender may have. Section 9.9 Governing Law; Jurisdiction; Consent to Service of Process. (a) This Agreement shall be construed in accordance with and governed by the law of the State of New York. (b) The Borrower hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of the Supreme Court of the State of New York sitting in New York County and of the United States District Court of the Southern District of New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that the Administrative Agent or any Lender may otherwise have to bring any action or proceeding relating to this Agreement against the Borrower or its properties in the courts of any jurisdiction. (c) The Borrower hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement in any court referred to in paragraph (b) of this Section. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. 54 (d) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 9.1. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law. Section 9.10 WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION. Section 9.11 Headings. Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement. Section 9.12 Confidentiality. Each of the Administrative Agent and the Lenders agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its and its Affiliates' directors, officers, employees and agents, including accountants, legal counsel and other advisors (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (b) to the extent requested by any regulatory authority, (c) to the extent required by applicable laws or regulations or by any subpoena or similar legal process, (d) to any other party to this Agreement, (e) in connection with the exercise of any remedies hereunder or any suit, action or proceeding relating to this Agreement or the enforcement of rights hereunder, (f) to any participant or prospective participant in or assignee or prospective assignee of any of the rights and obligations under this Agreement, provided that such participant, prospective participant, assignee or prospective assignee agrees to be bound by the confidentiality provisions contained in this Section 9.12, (g) with the consent of the Borrower or (h) to the extent such Information (i) becomes publicly available other than as a result of a breach of this Section or (ii) becomes available to the Administrative Agent or any Lender on a nonconfidential basis from a source other than the Borrower. For the purposes of this Section, "Information" means all information received from the Borrower relating to the Borrower or its business, other than any such information that is available to the Administrative Agent or any Lender on a nonconfidential basis prior to disclosure by the 55 Borrower; provided that, in the case of information received from the Borrower after the date hereof, such information is clearly identified at the time of delivery as confidential. Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information. Section 9.13 OREGON LEGAL NOTICE. WITHOUT LIMITING THE VALIDITY OF THE CHOICE OF NEW YORK LAW PROVIDED HEREIN, UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY THE LENDERS AFTER THE EFFECTIVE DATE OF THE ACT SPECIFIED HEREIN CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT FOR PERSONAL FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE BORROWER'S RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY THE LENDERS TO BE ENFORCEABLE. THE ACT SPECIFIED HEREIN MEANS CHAPTER 967 OREGON LAWS 1989, THE EFFECTIVE DATE OF WHICH WAS OCTOBER 3, 1989. 56 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. MEYER-SMITH HOLDCO, INC. as Borrower By: JAMES C. AALBERG ------------------------------------- Name: James C. Aalberg Title: Vice President, Treasurer S-1 BANKERS TRUST COMPANY, as Administrative Agent and as a Lender By: MARY KAY COYLE ------------------------------------- Name: May Kay Coyle Title: Managing Director S-2 THE CHASE MANHATTAN BANK, as Syndication Agent and as a Lender By: ELLEN GERTZOG ------------------------------------- Name: Ellen Gertzog Title: Vice President S-3 Schedule 2.1 Lenders and Commitments Name and Address of Lender Amount of Commitment - -------------------------- -------------------- Bankers Trust Company $250,000,000.00 One Bankers Trust Plaza 130 Liberty Street New York, New York 10006 Telecopier No.: (212) 250-7351 Attn: Deal Administrator The Chase Manhattan Bank $250,000,000.00 270 Park Avenue New York, New York 10017 Telecopier No.: (212) Attn: 1 EX-10.1 7 EXECUTIVE SEVERANCE AGREEMENT EXECUTIVE SEVERANCE AGREEMENT [DATE] [Name and Address of Executive] __________________________________ __________________________________ Executive Fred Meyer, Inc. (formerly named Meyer-Smith Holdco, Inc.), a Delaware corporation PO Box 42121 Portland, OR 97242 FMI 1. Employment Relationship. Executive is currently employed by FMI or a subsidiary or other affiliate of FMI (collectively hereinafter referred to with FMI as "FMI") as [Title] . Executive and FMI acknowledge that either party may terminate this employment relationship in any "Employment Termination" (as defined in Section 8.1) at any time and for any or no reason, subject to the obligation of FMI to provide the severance benefits specified in this Agreement in accordance with the terms hereof in the event of a Qualifying Termination (as defined in Section 3) occurring during the term of this Agreement commencing on the date hereof and ending on the fifth anniversary of the date of this Agreement (the "Term"). 2. Release of Claims. In consideration for and as a condition precedent to receiving the severance benefits outlined in this Agreement in connection with a Qualifying Termination, Executive agrees to execute a Release of Claims in the form attached as Exhibit A, as the same may be revised at the recommendation of counsel to FMI to reflect changes in applicable law occurring between the date of this Agreement and any Qualifying Termination (subject only to any such revisions, the "Release of Claims"). Executive promises to execute and deliver the Release of Claims to FMI within the later of (a) 45 days from the date Executive receives the Release of Claims or (b) the date of any Qualifying Termination. 3. Compensation Upon Qualifying Termination. In the event of (a) an Employment Termination by FMI without "Cause" (as defined in Section 8.3) or (b) an Employment Termination by Executive for "Good Reason" (as defined in Section 8.2) occurring during the Term (any Employment Termination described in either Section 3(a) or 3(b) during the Term being a "Qualifying Termination"), but not upon any other Employment Termination, whether by reason of death or "Disability" (as defined in Section 8.5) or by FMI for Cause, and contingent upon Executive's execution of the Release of Claims and compliance with Section 10, Executive shall be entitled to the following benefits: 3.1 As severance pay, and in lieu of any other compensation for periods subsequent to the date of the Qualifying Termination, FMI shall pay Executive, commencing after the Qualifying Termination and the passage of eight days following execution of the Release of Claims without revocation, an amount in cash equal to: (a) the product of Executive's annual base pay at the rate in effect immediately prior to the date of the Qualifying Termination multiplied by the Applicable Multiplier (as defined below in this Section 3.1) (the "Severance Amount"), which aggregate amount shall be divided by the aggregate number of months in the number of years equal to the relevant Applicable Multiplier and be paid in such number of monthly payments on a monthly payment date consistent with FMI's compensation payment schedule; plus (b) if the Severance Amount, plus the amount or value of any other benefit to which Executive is entitled under this Section 3, is subject to the tax imposed by ss. 4999 of the Internal Revenue Code of 1986, as amended (the "Golden Parachute Tax"), such additional amount (an "Additional Payment") as will equal the amount of the Golden Parachute Tax incurred by Executive on a net basis after the deduction from the Additional Payment of all federal, state and local income taxes that will be imposed on Executive by reason of Executive's receipt of the Additional Payment (for purposes of which it will be assumed the Additional Payment will be taxed at the highest combined marginal rate provided for in the Internal Revenue Code and any applicable state income tax laws, assuming full deduction of state income taxes from federal taxable income). All determinations required to be made under this Section 3.1(b), including, without limitation, whether this Section 3.1(b) is applicable or inapplicable and when an Additional Payment is required and the amount of such Additional Payment and the assumptions to be utilized in arriving at such determination, shall be made by a certified public accounting firm designated by Executive which shall provide detailed supporting calculations both to FMI and to Executive within 15 business days after the receipt of notice from Executive that there has been a Qualifying Termination or such earlier time as is requested by FMI. The calculations prepared by such firm shall be reviewed on behalf of FMI by FMI's independent auditors. In the event of a dispute between the firm designated by Executive and FMI's independent auditors, such firms shall jointly select a third nationally recognized certified public accounting firm (the "Accounting Firm") to resolve the dispute and the decision of such third firm shall be final, binding and conclusive upon Executive and FMI. All fees and expenses of accounting firms shall be borne solely by FMI. Any Additional Payment shall be paid by FMI to Executive within five business days after the earlier of acceptance by FMI of the calculations prepared by the firm designated by Executive or FMI's receipt of the Accounting Firm's determination. Notwithstanding any other provision of this Section 3.1(b) apparently to the contrary, FMI shall have the right to require that any and all disputes between FMI and any other executives of FMI or any affiliate of FMI party to any similar agreement either with FMI or an affiliate arising at substantially the same time be submitted together for uniform 2 determination (other than with respect to the effect of individual tax rates and the like) by the Accounting Firm. The "Applicable Multiplier" will be three if the Qualifying Termination occurs on or prior to the first anniversary of the date of this Agreement and two if the Qualifying Termination occurs after the first anniversary and on or prior to the second anniversary of the date of this Agreement. The Applicable Multiplier will otherwise be one unless the Qualifying Termination occurs after or in connection with a "Change of Control" (as defined in Section 8.4) that occurs after the second anniversary of the date of this Agreement, in which case the Applicable Multiplier will instead be two. 3.2 Executive shall be entitled, under any annual cash incentive plans in effect at the time of any Qualifying Termination, to a prorated portion of the benefits for the plan year in which the Qualifying Termination occurs (the "applicable plan year"). Such prorated amount shall be determined based on the portion of the applicable plan year during which Executive was a participant. For purposes of this Agreement, Executive's participation in any such plan will be considered to have ended on the date of the Qualifying Termination. The prorated amount will be calculated, first, by calculating an annual award as though Executive were a participant for the entire applicable plan year, second, dividing such award by the total number of days in the applicable plan year and, third, multiplying the daily award so calculated by the actual number of days during the applicable plan year prior to the Qualifying Termination. The prorated amount will be calculated following the end of the applicable plan year and the amount will not be due and payable by FMI to Executive until the date other awards for the applicable plan year are payable to other eligible employees under the relevant plan. 3.3 All outstanding stock options, restricted stock, stock bonuses or other stock awards shall be governed by the terms of the applicable agreement or plan except that a portion of outstanding stock options held by Executive under all stock option and stock incentive plans of FMI that would vest during the 12-month period following the date of the Qualifying Termination shall become immediately exercisable on a prorated basis (based on the portion of the vesting period during which Executive was an employee) as of the date of the Qualifying Termination and shall thereafter be exercisable in accordance with the applicable provisions of the relevant option agreement. However, if the Qualifying Termination occurs after or in connection with a Change of Control, such options shall become immediately exercisable in full as of the date of the Qualifying Termination and shall thereafter be exercisable in accordance with the applicable provisions of the relevant option agreement. 3.4 Under the Fred Meyer Supplemental Income Plan (the "Plan") if not terminated under Section 8.2 of the Plan at the time of the Qualifying Termination, Executive's severance benefit under Section 5.2 of the Plan will be calculated as though a notice of termination of the Plan were given under Section 8.2(a) of the Plan immediately prior to the Qualifying Termination and Executive continued to be a qualifying participant under Section 8.2(a) of the Plan for the remaining term of the Plan. The effect will be that contributions will be made to the Plan and Executive's Severance Benefit under the Plan will be calculated, without regard to the provisions of Sections 5.2(a) and 5.2(b) of the Plan and notwithstanding the Qualifying Termination, as though Executive's employment continued up 3 to but not including the first day of the third calendar year after the calendar year in which the notice of termination was given. 3.5 Executive will, during the period Executive is eligible under COBRA, be treated as having elected COBRA coverage for Executive and Executive's dependents, and FMI will pay the resulting monthly premium or premiums as additional severance compensation to Executive. 4. Other Employment Terminations. In the event that Executive's employment with FMI terminates in any Employment Termination that does not constitute a Qualifying Termination, Executive shall not be entitled to benefits under Section 3. 5. Tax Withholding. Payments and other benefits provided for in this Agreement may be subject to tax withholding obligations imposed by federal, state and local laws and regulations. Subject to applicable law, FMI will satisfy any and all withholding obligations of FMI with respect to any amount that is compensation to Executive out of any such amounts payable to or for the benefit of Executive in cash or, if not then payable in cash or if subject to additional withholding for any reason, either from amounts that Executive shall promptly deposit with FMI upon any demand therefor or by withholding any such amount from any other amounts payable by FMI to Executive. 6. Subsequent Employment. The amount of any payment provided for in this Agreement shall not be reduced, offset or subject to recovery by FMI by reason of any compensation earned by Executive as the result of employment by another employer after a Qualifying Termination. 7. Other Agreements. In the event that severance benefits are payable to Executive under any other agreement with FMI in effect at the time of a Qualifying Termination (including but not limited to any employment agreement, but excluding for this purpose any stock option agreement or stock bonus agreement or stock appreciation right agreement that may provide for accelerated vesting or related benefits upon the occurrence of a change in control), the benefits provided in this Agreement shall not be payable to Executive. Executive may, however, elect to receive all of the benefits provided for in this Agreement in lieu of all of the benefits provided in all such other agreements. Any such election shall be made with respect to the agreements as a whole, and Executive cannot select some benefits from one agreement and other benefits from this Agreement. Executive acknowledges that Executive will not be entitled upon a Qualifying Termination to any benefit under the Fred Meyer, Inc. Severance Pay Plan. 8. Definitions. For purposes of this Agreement: 8.1 An "Employment Termination" shall mean that Executive's employment with FMI (including each subsidiary or other entity affiliate of FMI, or any successor to FMI or any of the foregoing, that may be Executive's employer) has terminated either by action by FMI or Executive, as the case may be, or by reason of the death or Disability of Executive. 4 8.2 "Good Reason" for an Employment Termination by Executive shall mean (including in respect of a surviving company following a Change of Control): (a) the assignment to Executive of a different title, job or responsibilities that results in a decrease in the level of responsibility of Executive with respect to FMI operations when compared to Executive's level of responsibility for FMI operations prior to the such assignment; provided that Good Reason shall not exist if Executive continues to have the same or a greater general level of responsibility for FMI operations after such assignment as Executive had prior to the assignment even if the operations for which Executive is responsible are of a subsidiary or division or other affiliate different from that for which Executive was previously responsible, including without limitation a subsidiary, division or affiliate of a surviving company; (b) a reduction by FMI or a surviving company in Executive's base compensation except for across-the-board salary reductions similarly affecting all management personnel of FMI or a surviving company and all management personnel of any person in control of FMI; (c) a significant reduction by FMI or a surviving company in total benefits available to Executive under cash incentive, stock incentive and other employee benefit plans compared to the total package of such benefits previously in effect for the benefit of Executive; (d) requirement by FMI or a surviving company that Executive be based more than 25 miles from where Executive's office is located immediately prior to such change of location except for required travel on company business to an extent substantially consistent with the business travel obligations that Executive undertook on behalf of FMI prior to such change of location; or (e) the failure by FMI to obtain from any successor, whether direct or indirect, by purchase, merger, consolidation or otherwise, to all or substantially all of the business and/or assets of FMI, the assent to this Agreement contemplated by Section 10. 8.3 "Cause" for an Employment Termination by FMI shall mean acts or omissions on the part of Executive involving: (a) material dishonesty or misappropriation adversely affecting FMI or its property or funds; (b) extreme misconduct, including reckless or willful destruction of company property, unauthorized disclosure of confidential information or sexual, racial or other actionable harassment; 5 (c) conviction of or a plea of nolo contendere to any felony or any crime involving moral turpitude; or (d) illegal, immoral, dishonest, fraudulent or other similar conduct tending to place Executive, or FMI by reason of association with Executive, in disrepute or to subject FMI to material financial loss or loss of business. 8.4 A "Change of Control" shall mean that one of the following events has taken place: (a) The shareholders of FMI approve: (i) any merger or statutory plan of exchange involving FMI ("Merger") in which FMI is not the continuing or surviving company or pursuant to which Common Stock would be converted into cash, securities or other property, other than a Merger involving FMI in which the holders of Common Stock immediately prior to the Merger have the same proportionate ownership of Common Stock or substantially identical securities of the surviving company after the Merger, or (ii) any sale, lease, exchange, or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of FMI or the adoption of any plan or proposal for the liquidation or dissolution; (b) A tender or exchange offer (other than one made by FMI) is made for Common Stock (or securities convertible into Common Stock) and such offer results in a portion of those securities being purchased and the offeror after the consummation of the offer is the beneficial owner (as determined pursuant to Section 13(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), directly or indirectly, of securities representing at least 20 percent of the voting power of outstanding securities of FMI; (c) FMI receives a report on Schedule 13D of the Exchange Act reporting the beneficial ownership by any person of securities representing 20 percent or more of the voting power of outstanding securities of FMI, except that if such receipt shall occur during a tender offer or exchange offer described in Section 8.4(b), a Change of Control shall not take place until the conclusion of such offer; or (d) During any period of 12 months or less, individuals who at the beginning of such period constituted a majority of the Board of Directors cease for any reason to constitute a majority thereof unless the nomination or election of such new directors was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such period. Notwithstanding anything in the foregoing to the contrary, no Change of Control shall be deemed to have occurred for purposes of this Agreement by virtue of any transaction which results in Executive, or a group of persons which includes Executive, acquiring, directly or 6 indirectly, securities representing 20 percent or more of the voting power of outstanding securities of FMI. 8.5 An Employment Termination based on "Disability" shall mean termination without further compensation under this Agreement, due to Executive's absence from Executive's full-time duties with FMI for 180 consecutive days as a result of Executive's incapacity due to physical or mental illness, unless within 30 days after notice of termination by FMI following such absence Executive shall have returned to the full-time performance of Executive's duties. 9. Confidentiality. Executive acknowledges that, by reason of Executive's employment with FMI, he or she will learn or has learned trade secrets and will obtain or has obtained other confidential information concerning the business and policies of FMI. Executive agrees that during Executive's employment by FMI and at any time thereafter, he or she will not divulge or otherwise disclose to anyone outside of FMI, or use in any activity or business (other than FMI's business), directly or indirectly, any such trade secrets or other confidential information concerning the business or policies of FMI or any of its affiliates which he or she may learn as a result of Executive's employment or may have learned prior thereto, except to the extent such information is lawfully obtainable from public sources or such use or disclosure is (a) necessary to the performance of this Agreement and in furtherance of FMI's best interests, (b) required by applicable law or (c) authorized in writing by FMI. The provisions of this Section 9 shall survive the termination of this Agreement for any reason. 10. Successors; Binding Agreement. This Agreement shall be binding on and inure to the benefit of FMI and its successors and assigns. Upon Executive's written request, FMI will seek to have any successor by agreement, assent to the fulfillment by FMI of its obligations under this Agreement. If such a request is made, failure of FMI to obtain such assent prior to or at the time a company becomes a successor shall constitute Good Reason for termination by Executive of his or her employment. This Agreement shall inure to the benefit of and be enforceable by Executive and Executive's legal representatives, executors, administrators and heirs. 11. Resignation of Corporate Offices. Executive will resign Executive's office, if any, as a director, officer or trustee of FMI, its subsidiaries or affiliates and of any other corporation or trust of which Executive serves as such at the request of FMI, effective as of the date of any Employment Termination. Executive agrees to provide FMI such written resignation(s) upon request and that no benefits otherwise payable in connection with a Qualifying Termination will be paid under this Agreement until after such resignation(s) are provided. 12. Governing Law. This Agreement shall be construed in accordance with and governed by the laws of the State of Oregon. 13. Arbitration. Except as set forth in Section 3.1(b) or in Section 14, any dispute or controversy arising under this Agreement shall be settled by arbitration in accordance with the rules of the American Arbitration Association. The determination and findings of such 7 arbitrators shall be final and binding on all parties. If any arbitration or other proceeding is brought for the enforcement of this Agreement, or because of an alleged dispute, breach, default or misrepresentation in connection with any of the provisions of this Agreement, the successful or prevailing party shall be entitled to recover reasonable attorneys' fees and other costs incurred in that action or proceeding, in addition to any other relief that may be granted. 14. Remedies of FMI. Executive acknowledges that Executive's agreements set forth in this Agreement are of a special, unique, unusual and extraordinary character, which gives this Agreement peculiar value to FMI. The loss of the benefit of these agreements cannot be reasonably or adequately compensated in damages in action at law and it would be difficult (if not impossible) to make FMI whole if these agreements were not honored. By reason thereof, Executive agrees and consents that if he or she violates any of the material provisions of this Agreement (including, without limitation, Section 9), FMI, in addition to any other rights and remedies available under this Agreement or under applicable law, shall be entitled to seek injunctive relief from a tribunal of competent jurisdiction, restraining Executive from committing or continuing any violation of this Agreement. The provisions of this Section 14 shall survive the termination of this Agreement for any reason. 15. Amendment. No provision of this Agreement may be modified unless such modification is agreed to in a writing signed by Executive and FMI. 16. Severability. If any of the provisions or terms of this Agreement shall for any reason be held invalid or unenforceable, such invalidity or unenforceability shall not affect any other terms of this Agreement, and this Agreement shall be construed as if such unenforceable term had never been contained in this Agreement. FRED MEYER, INC. By: ------------------------------ ----------------------------------------- Title: Executive 8 EXHIBIT A RELEASE OF CLAIMS 1. PARTIES. The parties to this Release of Claims (hereinafter this "Release") are __________________________________________________________ and Fred Meyer, Inc., a Delaware corporation formerly known as Meyer-Smith Holdco, Inc., as each is hereinafter defined. 1.1 EXECUTIVE. For the purposes of this Release, "Executive" means __________________________________________________, and his or her attorneys, heirs, executors, administrators, assigns, and spouse. 1.2 COMPANY. For purposes of this Release, "Company" means Fred Meyer, Inc., a Delaware corporation, its predecessors and successors, its subsidiaries and other entity affiliates, and all of each corporation's or other entity's officers, directors, employees, insurers, shareholders, agents, or assigns, in their individual and representative capacities. 2. BACKGROUND AND PURPOSE. Executive has been employed by Company or an affiliate and is party to an Executive Severance Agreement with Company (the "Agreement"). Executive's employment is ending effective __________. The purpose of this Release is to settle, and the parties hereby settle, fully and finally, any and all claims Executive may have against Company, whether asserted or not, known or unknown, including, but not limited to, claims arising out of or related to Executive's employment, any claim for reemployment, or any other claims whether asserted or not, known or unknown, past or future, that relate to Executive's employment, reemployment, or application for reemployment. 3. RELEASE. Except as reserved in this Paragraph 3 or below in Paragraph 3.1, Executive waives, acquits and forever discharges Company from any obligations Company has and all claims Executive may have including but not limited to obligations and/or claims arising from the Agreement or any other document or oral agreement relating to employment, compensation, benefits, severance or post-employment issues. Except as reserved in Paragraph 3.1, Executive hereby releases Company from any and all claims, demands, actions, or causes of action, whether known or unknown, arising from or related in any way to any employment of or past or future failure or refusal to employ Executive by Company, or any other past or future claim (except as reserved by this Release or where expressly prohibited by law) that relates in any way to Executive's employment, compensation, benefits, reemployment, or application for employment, with the exception of any claim Executive may have against Company for enforcement of this Release. This release includes any and all claims, direct or indirect, which might otherwise be made under any applicable local, state or federal authority, including but not limited to any claim arising under the Oregon or other state statutes dealing with employment, discrimination in employment, Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Americans With Disabilities Act, the Family and Medical Leave Act of 1993, the Equal Pay Act of 1963, Executive Order 11246, the Rehabilitation Act of 1973, A-1 the Uniformed Services Employment and Reemployment Rights Act of 1994, the Age Discrimination in Employment Act, the Fair Labor Standards Act, Oregon or other state wage and hour statutes, all as amended, any regulations under such authorities, and any applicable contract, tort, or common law theories. 3.1 Reservations of Rights. This Release shall not affect: (a) any rights of Executive under health and welfare plans or employee benefit plans that Executive is prevented by law from waiving or releasing, (b) Executive's rights to benefits under the provisions of any qualified or nonqualified pension, retirement or savings plans except to the extent that specific express provision is made with respect to any such benefit or plan under the Agreement or (c) Executive's entitlement under COBRA to extend coverage for the statutory period under any group health plan in which Executive and Executive's dependents are enrolled. 3.2 No Admission of Liability. It is understood and agreed that the acts done and evidenced hereby and the release granted hereunder is not an admission of liability on the part of Executive or Company, by whom liability has been and is expressly denied. 4. CONSIDERATION TO EXECUTIVE. After receipt of this Release fully endorsed by Executive, and the expiration of the seven-day revocation period provided by the Older Workers Benefit Protection Act without Executive's revocation, Company shall pay Executive: 4.1 Payment under Section 3.1. The payment, in monthly payments pursuant to Section 3.1(a) of the Agreement of an aggregate of __________ DOLLARS ($_________) (less proper withholding) as the "Severance Amount" and, if applicable, any "Additional Payment" provided for under Section 3.1(b) of the Agreement; 4.2 Payment under Section 3.2. When due, the amount of annual cash incentive (less proper withholding) based on the terms of Section 3.2 of the Agreement; 4.3 Payment under Section 3.4. When due, the amount of any payment (less proper withholding) to which Executive is entitled under Section 3.4 of the Agreement; and 4.4 Payments under Section 3.5. As payable, the amount of any premiums to be paid by Company under Section 3.5 of the Agreement. 5. NO DISPARAGEMENT. Executive agrees that henceforth Executive will not disparage or make false or adverse statements about Company, which as herein defined include its predecessors and successors, its subsidiaries and other entity affiliates, and all of each corporation's or other entity's officers, directors, employees, insurers, shareholders, agents, or assigns, in their individual and representative capacities. Company will use its best efforts to report to Executive any actions or statements that are attributed to Executive that Company believes are disparaging. If Executive has disparaged or made false or adverse statements about Company in Company's reasonable determination, Executive shall be in breach of this Release A-2 and Company may take actions consistent with breach of this Release. Company agrees to follow Company's applicable policy(ies) regarding release of employment reference information. 6. CONFIDENTIALITY, PROPRIETARY, TRADE SECRET AND RELATED INFORMATION. Executive acknowledges the duty and agrees not to make unauthorized use or disclosure of any confidential, proprietary or trade secret information learned as an employee about Company, its products, customers and suppliers, and covenants not to breach that duty. Moreover, Executive acknowledges that, subject to the enforcement limitations of applicable law, Company reserves the right to enforce the terms of the Agreement. Should Executive, Executive's attorney or agents be requested in any judicial, administrative, or other proceeding to disclose confidential, proprietary or trade secret information Executive learned as an employee of Company, Executive shall promptly notify Company of such request by the most expeditious means in order to enable Company to take any reasonable and appropriate action to limit such disclosure. 7. SCOPE OF RELEASE. The provisions of this Release shall be deemed to obligate, extend to, and inure to the benefit of the parties, including without limitation (a) Company's shareholders, subsidiaries, affiliates, successors, predecessors, assigns, directors, officers, employees and agents and (b) each parties' insurers, transferees, grantees, legatees, agents and heirs, including in each case those who may assume any and all of the above-described capacities subsequent to the execution and effective date of this Release. 8. OPPORTUNITY FOR ADVICE OF COUNSEL. Executive acknowledges that Executive has been encouraged to seek advice of counsel with respect to this Release and has had the opportunity to do so. 9. ENTIRE UNDERSTANDING. This Release and the Agreement contain the entire agreement and understanding between the parties and, except as reserved in Paragraph 3 and Paragraph 3.1, supersede and replace all prior agreements, written or oral, prior negotiations and proposed agreements, written or oral. Executive and Company acknowledge that no other party, nor agent nor attorney of any other party, has made any promise, representation, or warranty, express or implied, not contained in this Release concerning the subject matter of this Release to induce this Release, and Executive and Company acknowledge that they have not executed this Release in reliance upon any such promise, representation, or warranty not contained in this Release. 10. SEVERABILITY. Every provision of this Release is intended to be severable. In the event any term or provision of this Release is declared to be illegal or invalid for any reason whatsoever by a court of competent jurisdiction or by final and unappealed order of an administrative agency of competent jurisdiction, such illegality or invalidity shall not affect the balance of the terms and provisions of this Release, which terms and provisions shall remain binding and enforceable. A-3 11. BREACH; ENFORCEMENT OF RELEASE. Nothing in this Release shall operate to release or discharge any parties to this Release or their successors, assigns, legatees, heirs, or personal representatives from any rights, claims, or causes of action arising out of, relating to, or connected with a breach of any obligation of any party contained in this Release. Upon any breach, the nonbreaching party shall be entitled to all remedies provided for under the Agreement. 12. COSTS AND ATTORNEY'S FEES. Each party shall bear such party's own costs and attorneys' fees which have been or may be incurred in connection with any matters released herein or in connection with the negotiation and consummation of this Release. In the event of any administrative or civil action to enforce the provisions of this Release, the prevailing party shall be entitled to attorney fees and costs through trial and/or on appeal. 13. ACKNOWLEDGMENTS. Executive acknowledges that the Release provides severance pay and benefits which Company would otherwise have no obligation to provide. Executive also acknowledges that Company has provided the following information: (a) the class or group of employees offered the opportunity to obtain severance benefits similar to those in the Agreement, (b) the eligibility factors required to obtain severance benefits similar to those in the Agreement, (c) the time limits required to obtain severance benefits similar to those in the Agreement, (d) the job titles and ages of employees eligible or selected for severance benefits similar to those in the Agreement, and (e) the ages of employees in the same classification either not eligible or not selected. 14. REVOCATION. As provided by the Older Workers Benefit Protection Act, Executive's is entitled to have 45 days to consider this Release. For a period of seven days from execution of this Release, Executive may revoke this Release. Upon receipt of Executive's signed Release and the end of the revocation period, payment by Company as described in Paragraph 4 will be forwarded by mail in a timely manner as provided herein. __________________________________ Dated: __________________________________ [Name of Executive] STATE OF OREGON ) ) ss. County of _________ ) Personally appeared the above named ____________________________________ and acknowledged the foregoing instrument to be his or her voluntary act and deed. Before me: _________________________________________ Notary Public for _______________________ My commission expires: __________________ A-4 FRED MEYER, INC. By: ___________________________________ Dated: _____________________________ Title: A-5 EX-10.3 8 SUPPLEMENTAL WARRANT AGREEMENT SUPPLEMENTAL WARRANT AGREEMENT SUPPLEMENTAL WARRANT AGREEMENT (the "Agreement") dated as of September 9, 1997 among FRED MEYER, INC., a Delaware corporation formerly known as Meyer-Smith Holdco, Inc. (the "Company"), and THE YUCAIPA COMPANIES, a California general partnership, or its registered permitted assigns (the "Consultant"). WHEREAS, Smith's Food & Drug Centers, Inc., a Delaware corporation ("Smith's"), has become a wholly-owned subsidiary of the Company as a result of the transactions (collectively, the "Merger") contemplated in the Agreement and Plan of Reorganization and Merger dated as of May 11, 1997 (the "Merger Agreement") between Smith's and FM Stores, Inc., a Delaware corporation and predecessor to the Company formerly known as Fred Meyer, Inc. ("Fred Meyer Stores"). WHEREAS, prior to the effective date of the Merger, Smith's was a party to a Warrant Agreement dated May 23, 1996 (the "Warrant Agreement") between Smith's and the Consultant pursuant to which Smith's issued 1,842,555 warrants to purchase an aggregate of 1,842,555 shares of Class C Common Stock, $.01 par value per share, of Smith's. Defined terms used herein and not otherwise defined herein have the meanings set forth in the Warrant Agreement. WHEREAS, pursuant to the terms of the Merger Agreement and the Warrant Agreement, the Company is required to enter into a supplemental warrant agreement to provide for the issuance of Common Stock, $.01 par value ("Common Stock"), of the Company upon exercise of the warrants subject to the Warrant Agreement. NOW, THEREFORE, in consideration of the premises and the mutual agreements set forth in this Agreement, in the Warrant Agreement and in the Merger Agreement, the parties hereto agree as follows: SECTION 1. The Warrant Agreement is hereby amended such that, unless the context requires otherwise, the following defined terms contained therein shall have the meanings set forth below: (a) "Class C Common Stock," "Class B Common Stock," or "Common Stock" shall mean and refer to the Common Stock of the Company. (b) "Company" shall mean and refer to Fred Meyer, Inc., a Delaware corporation formerly known as Meyer-Smith Holdco, Inc.. (c) "Holder(s)" shall mean and refer to the registered holder(s) of the Warrant Certificates or the New Warrant Certificates, as defined below. (d) "Merger Agreement" shall mean and refer to the Merger Agreement dated as of May 11, 1997 by and between Smith's and Fred Meyer Stores. (e) "Registration Rights Agreement" shall mean and refer to the Registration Rights Agreement dated as of September 9, 1997 by and among the Company, Consultant and certain stockholders of the Company named therein. (f) "Warrant Shares" shall mean and refer to the Common Stock of the Company issuable upon exercise of the Warrants. (g) "Warrants" shall mean and refer to the 1,934,683 warrants, as described herein and in the Warrant Agreement, to purchase an aggregate of 1,934,683 shares (subject to adjustment) of Common Stock of the Company, pursuant hereto and pursuant to the Merger Agreement. SECTION 2. All references to the "Standstill Agreement" shall be deleted. SECTION 3. Subject to the terms and conditions of the Warrant Agreement, the Company shall issue shares of its Common Stock as set forth in Section 3 hereof to Holders of Warrants upon exercise of such Warrants. SECTION 4. The Warrants shall be exercisable initially for an aggregate of 1,934,683 Warrant Shares at an Exercise Price of $47.61904 per share, subject in each case to the adjustment provisions contained in the Warrant Agreement. The following proviso shall be added to the end of the third paragraph under Section 5 of the Warrant Agreement: "provided further, that any period of consecutive trading days during which the Market Price of the Smith's Class B Common Stock equaled or exceeded the Exercise Price of the Warrants prior to consummation of the Mergers (as defined in the Merger Agreement) shall count toward such 60-day period." SECTION 5. The parties hereto acknowledge that on September 8, 1997, the Market Price of Smith's Class B Common Stock had exceeded the Exercise Price then in effect for at least 60 consecutive trading days and as a result thereof and in accordance with the terms of the Warrant Agreement the Exercise Period in the case of the Series A Warrants expires at 5:00 p.m., Los Angeles time, on May 23, 2005 and, in the case of the Series B Warrants expires at 5:00 p.m., Los Angeles time on May 23, 2006. 2 SECTION 6. On September 5, 1997, the Company announced a two-for-one stock split of its Common Stock (the "Split"). Upon consummation of the Split, the Exercise Price and Warrant Number shall be adjusted pursuant to the provisions of Section 9 of the Warrant Agreement. SECTION 7. Upon tender and delivery to the Company by any Holder of Series A Warrant Certificates or Series B Warrant Certificates (as defined in the Warrant Agreement) or both and upon cancellation thereof, the Company shall issue and deliver new Series A Warrant Certificates ("New Series A Warrant Certificates") and new Series B Warrant Certificates ("New Series B Warrant Certificates" and together with the New Series A Warrant Certificates, the "New Warrant Certificates"), respectively, evidencing the Warrants of such tendering Holders. The New Warrant Certificates shall reflect the amendments to the Warrant Agreement contained herein. Series A Warrant Certificates and Series B Warrant Certificates shall continue to be valid evidence of the Warrants, and shall continue to be exercisable for the Common Stock of the Company pursuant to the terms hereof and in the Warrant Agreement. The New Warrant Certificates shall comply with and be subject to all of the terms and conditions of the Warrant Agreement applicable to the Warrant Certificates. SECTION 8. Section 5 of the Warrant Agreement is hereby amended by deleting the second paragraph thereof. SECTION 9. Section 8 of the Warrant Agreement is hereby amended by deleting the second sentence of the first paragraph. SECTION 10. Section 12 of the Warrant Agreement is hereby amended so that notices shall be made as set forth therein to the Company at 3800 SE 22nd Avenue, Portland, Oregon 97202, Attention: President, with a copy to the General Counsel. SECTION 11. Section 13 of the Warrant Agreement is hereby deleted. SECTION 12. The Company hereby assumes all obligations of Smith's under the Warrant Agreement and agrees to be bound by all of the provisions thereof, as amended by this Agreement. 3 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed, as of the day and year first above written. FRED MEYER, INC. By: ROGER A. COOKE ----------------------------------------- Roger A. Cooke Senior Vice President THE YUCAIPA COMPANIES By: RONALD W. BURKLE ----------------------------------------- Name: Ronald W. Burkle Title: General Partner 4 EX-10.11 9 EMPLOYMENT AGREEMENT/MILLER CONFORMED COPY EMPLOYMENT AGREEMENT (As Amended through Amendment No. 2) DATED: August 27, 1991 BETWEEN: FRED MEYER STORES, INC. 3800 SE 22nd Avenue Portland, OR 97202 "Company" AND: ROBERT G. MILLER 0305 SW Montgomery # F508 Portland, OR 97201 "Employee" The parties agree as follows: 1. General. This Agreement sets forth the terms upon which Employee shall be employed by the Company. Notwithstanding the foregoing, the Company may terminate the Employee's employment at any time, and Employee's employment hereunder will be considered "at will," subject to the Company's providing the benefits hereinafter specified in accordance with the terms hereof. 2. Employment. Employee shall be employed by Company on a full-time basis to perform duties as Chief Executive Officer and Chairman of the Board of the Company. 3. Compensation and Disability Benefits. 3.1 Salary. For services performed during the term of Employee's employment with the Company, the Company shall pay Employee an annual salary (prorated for any portion of a year), payable in equal periodic installments not less than monthly, of 1 $500,000, subject to annual review by the Compensation Committee of the Board of Directors of the Company. 3.2 Bonus. Employee will be eligible to participate in the Company's bonus plan on the same basis as other executives. Employee's bonuses for the Company's 1994 fiscal year and for fiscal years thereafter will be up to 100 percent of his annual salary, to be determined upon the achievement of financial objectives approved in advance by the Company's Board of Directors. 3.3 Insurance/Profit Sharing. Employee shall be entitled to participate as an executive officer in all existing Company insurance, profit sharing and other benefit plans in which executive officers may participate, including the Company's Excess Deferral Plan, on the same basis as other executive officers of the Company. 3.4 Long Term Disability Benefits. The Company will provide to Employee the long term disability benefits described in Appendix A to this Agreement. This benefit is in addition to benefits under any group plan purchased by the Employee. In the event of Total Disability as defined in Appendix A, Employee's salary provided for in Paragraph 3.1, above, will be continued during the elimination period. 3.5 Retiree Medical Benefits. After termination of Employee's employment for any reason after reaching age 55, the Company will pay Employee or his present spouse if she survives him, as applicable, a medical supplement to the extent determined as follows: (a) The supplement shall compensate for the premium value to Employee of medical coverage comparable to that provided under the Company's program applicable to retirees 2 generally (the Fred Meyer Plan) during any period in which the following applies: (1) Neither Employee nor his surviving spouse is eligible for coverage under the Fred Meyer Plan. (2) Neither employee nor his surviving spouse is eligible under a plan of a successor employer for medical benefits that are reasonably comparable to benefits under the Fred Meyer Plan. (3) Employee is at least 55 years old. (b) The supplement shall not exceed the smallest of the following amounts, as applicable, reduced by the employee cost applicable at the time under the Fred Meyer Plan (references to Employee shall include his present spouse): (1) The cost of COBRA continuation coverage available from the Company that Employee could have received by timely election. (2) The cost to Employee for coverage if Employee had timely exercised all available conversion rights under the Company's medical program for active employees. (3) The cost to Employee of the 3 coverage actually in effect for Employee from time to time to the extent the coverage is reasonably comparable to coverage under the Fred Meyer Plan at the time. (c) The supplement shall be paid only with respect to benefits Employee would have received under the Fred Meyer Plan if Employee had terminated when eligible under that Plan. (d) The supplement shall be paid in cash to Employee or his surviving spouse or, at the Company's election, by direct payment of the appropriate portion of the cost of coverage. The amount paid shall constitute compensation income to Employee or his surviving spouse, shall be reported on IRS form W-2 and any applicable state form, and shall be subject to all applicable state and federal withholding as non-qualified deferred compensation. 4. Severance. 4.1 In the event Employee is terminated by the Company for any reason other than for "cause," death or permanent disability, employee shall be entitled to payment of two years of compensation at Employees last determined salary (payable on the Company's normal payroll dates and without interest). 4.2 "Cause" is defined for the purposes of this Agreement as (a) embezzlement or fraud against the Company; (b) conviction of a felony which in the judgment of the Board of Directors of the Company adversely affects the business or 4 reputation of the Company; (c) conduct in wanton and knowing disregard of corporate policy; or (d) willful and continuous failure, in the judgment of the Board of Directors, to perform substantially the reasonably assigned duties with the Company after written notice and reasonable opportunity to perform. 5. Pension and Benefits. 5.1 Normal Retirement Benefit. Employee's normal retirement benefit shall be a pension starting at the end of the first month after age 62 and continuing for Employee's life equal to $25,000 per month. The benefit shall be reduced by 5 percent for each year by which Employee's total completed years of employment is less than 14, as shown on the following Schedule: Accrued Benefit Completed Years Employment Pension Amount of Employment Year End per month at 62 6 8/31/97 16,586 7 8/31/98 17,458 8 8/31/99 18,377 9 8/31/00 19,344 10 8/31/01 20,363 11 8/31/02 21,434 12 8/31/03 22,562 13 8/31/04 23,750 14 8/31/05 25,000 5.2 Early Retirement Benefit. If employment is terminated by Employee or Company for any reason before normal retirement date, Employee may elect to receive the accrued normal retirement benefit starting at the end of the month after age 55. If benefits start before the end of the first month after age 62, the amount from the Schedule in 5.1 shall be reduced 5/12 of one percent for each month by which the benefit starts early. 5 5.3 Spouse's Death Benefit. If Employee dies leaving a surviving spouse to whom he is now married, the spouse shall receive a monthly pension for her life as follows: (a) If Employee had retired and was receiving benefits or dies during the first month for which benefits were to be paid, one half of Employee's monthly benefit shall continue to the spouse. (b) If (a) does not apply, the spouse may elect to start a benefit as of the end of any month after the later of the date of death or the date Employee would have reached age 55. The benefit shall be one half of the amount Employee would have received if he had terminated just before death and elected to start benefits at the date benefits start to the spouse. 5.4 Additional Benefit. Retirement and Spouse's death benefit under 5.1 through 5.3 shall be in addition to and shall not reduce or be reduced by any benefits under the Supplemental Income Plan, the Excess Deferral Plan, the Profit Sharing Plan or any other plan maintained by the Company or an affiliate. 6. Miscellaneous Benefits. 6.1 Club Membership. The Company shall pay the cost of one club membership for Employee during the terms of Employee's employment with the Company. 6 6.2 Automobile. The Company will provide an automobile for Employee's use while he is employed by the Company. The Company will also pay all operating expenses associated with the automobile. 6.3 Vacation. Employee will be entitled to five weeks of vacation annually. 6.4 Medical Expenses. Beginning on the date Employee commences employment with the Company, the Company will provide reimbursement for medical expenses of Employee and his dependents under the Company's medical reimbursement plan, without any waiting or qualification period and without exclusions for any existing conditions. 7. Successors and Assigns; Entire Agreement. 7.1 The rights and benefits of Employee under this Agreement are personal to him and, except as may be set forth herein, may not be transferred or assigned voluntarily or involuntarily. 7.2 This Agreement shall be binding on the Company, its successors and assigns, including any person acquiring control of the Company's business and operations. 7.3 This Agreement contains the entire agreement and understanding by and between the Employee and the Company with respect to the employment of Employee and the payments provided for in this Agreement shall be in lieu of any other claims of Employee relating to his employment or benefits, including claims relating to termination of employment. 7 8. Applicable Law. This Agreement shall be construed in accordance with the laws of the State of Oregon. AGREEMENT DATED AUGUST 27, 1991 EXECUTED AS FOLLOWS: - ---------------------------------------------------- FRED MEYER, INC. By: KENNETH THRASHER, SR. V.P. ----------------------------------------- ROBERT G. MILLER -------------------------------------------- Robert G. Miller AMENDMENT NO. 1 DATED AUGUST 1, 1994 EXECUTED AS FOLLOWS: - --------------------------------------------------------- FRED MEYER, INC. By: ROGER A. COOKE ----------------------------------------- Executed: July 14, 1994 ROBERT G. MILLER -------------------------------------------- Robert G. Miller Executed: July 19, 1994 AMENDMENT NO. 2 DATED SEPTEMBER 9, 1997 EXECUTED AS FOLLOWS: - ------------------------------------------------------------ FRED MEYER STORES, INC. By: ROGER A. COOKE ----------------------------------------- Executed: December 5, 1997 ROBERT G. MILLER -------------------------------------------- Robert G. Miller Executed: December 5, 1997 8 APPENDIX A TO EMPLOYMENT AGREEMENT BETWEEN FRED MEYER STORES, INC. (the "Company") and ROBERT MILER ("Employee") LONG TERM DISABILITY BENEFITS 1. Definition of "Total Disability". "Total Disability" means the complete inability of an employee to perform any and every duty of his or her regular occupation for up to 24 months. After 24 months, the term "Total Disability" means the complete inability of an employee to perform any and every duty of any gainful occupation for which he or she is reasonably fitted by training, education, or experience, or may reasonably become qualified based on his or her training, education, or experience. 2. Long Term Disability Benefits. 2.1 Upon receipt of proof that Employee has suffered a Total Disability as a direct result, independent of all other causes, of an injury or illness, monthly benefits will be effective after the expiration of the elimination period, which is the period of six consecutive months of continuous Total Disability. 2.2 The benefit in the event of Total Disability will be $4,500 per month. 2.3 The monthly benefit will be reduced by the following: 1. The amount available under any Worker's Compensation law or similar law. 2. The amount of disability provided under any plan to which the Company makes contributions on behalf of the Employee. 3. Any disability income benefits provided under an act or law. 1 4. Disability income benefits provided or available from any pension plan participated in by the Company. 5. Social Security Disability benefits provided or available. 6. Any salary, sick pay, or other income replacement benefits provided by the employer. 7. Any retirement income provided or available from the Employment Agreement between the Company and Employee, or from any Company sponsored pension or retirement plan, including Social Security retirement income. 8. Any retirement income provided or available from any prior employer of Employee. 3. General Limitations. 3.1 No benefits shall be paid with respect to any injury or sickness: 1. Resulting from suicide, attempted suicide, or intentionally self-inflicted injury, while sane or insane. 2. Resulting from war, whether declared or undeclared, or any act or hazard of war. 3. Resulting from being engaged in an illegal occupation, commission of, or attempted commission of an assault or other illegal act, or resulting from injury caused by participation in a civil insurrection, rebellion and/or riot. 4. Sustained while on full-time active duty in any branch of the Armed Forces of any country, except for temporary active duty assignments of note more than 90 days. 5. Sustained while learning to operate an aircraft, operating or 2 serving as a crew member of an aircraft, while traveling or flying in any aircraft operated by or under the direction of any military authority, or while in any aircraft being used for test or experimental purposes. 6. Resulting from or related to alcoholism, narcotism or the abuse of other controlled substances. 3.2 Mental Illness Limitation - No benefits are provided with respect to disabilities due to neuroses, psychoneuroses, psychopathies, psychoses, and emotional diseases and disorders of any type. 4. Notice and Proof of Claim. To make a claim for benefits proof of disability must be submitted to and received by the Company within 20 days after Employee suffers a Total Disability. 5. Termination of Coverage. The Long Term Disability benefits provided above will only be provided if Employee is employed by the Company at the time he suffers a Total Disability. 3 EX-11 10 COMPUTATION OF EARNINGS PER SHARE EXHIBIT 11 FRED MEYER, INC. AND SUBSIDIARIES COMPUTATION OF EARNINGS PER COMMON SHARE (In thousands, except per share amounts) (Unaudited)
12 Weeks Ended 40 Weeks Ended ----------------------- ----------------------- Nov. 8, Nov. 9, Nov. 8, Nov. 9, 1997 1996 1997 1996 ------ ------ ------ ------ Weighted average number of shares outstanding............................ 78,517 50,770 60,805 52,628 Weighted average number of shares under option........................... 10,471 8,838 7,173 8,160 Shares assumed to have been purchased under the treasury stock method......................... (5,652) (4,222) (3,861) (4,118) -------- ------- -------- ------- Weighted average number of common and common equivalent shares outstanding............................ 83,336 55,386 64,117 56,670 ======== ======= ======== ======= Net income (loss) .............................. $(72,933) $ 6,292 $(40,554) $30,909 ======== ======= ======== ======= Earnings (loss) per common share................ $ (.88) $ .11 $ (.63) $ .55 ======== ======= ======== =======
EX-27 11 FINANCIAL DATA SCHEDULE
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 1,000 9-MOS JAN-31-1998 NOV-08-1997 117,375 0 109,912 0 1,200,557 1,561,661 2,659,164 (717,181) 4,573,261 1,165,813 1,900,504 0 0 440 1,284,585 4,573,261 3,611,323 3,611,323 2,534,718 945,319 0 0 46,440 84,846 34,190 50,656 0 (91,210) 0 (40,554) (.63) (.63)
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