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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 30, 2001
Commission File Number 0-20040
THE KRYSTAL COMPANY
(Exact name of registrant as specified in its charter)
Tennessee 62-0264140
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
One Union Square, Chattanooga, Tennessee 37402
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (423) 757-1550
Securities registered pursuant to Section 12 (g) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
None None
Securities registered pursuant to Section 12 (b) of the Act:
None
----
(Title of Class)
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 to Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to Form 10-K. [X]
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
On September 26, 1997, the registrant was acquired by Port Royal Holdings,
Inc., ("Port Royal") pursuant to a merger in which a wholly-owned subsidiary
of Port Royal was merged with and into the Company. As a result of the merger,
Port Royal became the owner of 100% of the common stock of the Company. Thus,
the aggregate market value of the voting stock held by a non-affiliate is zero
as of March 26, 2002.
This report is filed by the Company pursuant to Section 15(d) of the
Securities Exchange Act of 1934. No annual report or proxy statement has been
sent to security holders and no such annual report or proxy statement is
anticipated to be sent to security holders.
PART I
Item 1. Business
(A) General Development of Business
The Company was founded in 1932 as a single restaurant in Chattanooga,
Tennessee by R. B. Davenport, Jr. and J. Glenn Sherrill. The Company expanded
steadily in subsequent years, entering the Georgia market in 1936, and during
the 1950's and 1960's, began relocating restaurants from urban to suburban
locations and transforming its format from "cook-to-order" items to a more
standardized quick-service menu.
The Company's centerpiece of growth was its namesake, the KRYSTAL, a small,
square hamburger with steamed-in flavor served hot and fresh off the grill.
As competition in the restaurant industry increased in the late 1980's, the
Company firmly maintained its market niche by emphasizing the unique KRYSTAL.
Krystal restaurants have continued to emphasize the KRYSTAL and have built
their customer base around this and other items such as "Krystal Chili,"
"Chili Pups," "Corn Pups," the "Sunriser," a specialty breakfast sandwich,
the "Krystal Chik," a specialty chicken sandwich and the "Country Breakfast."
On September 26, 1997 (effective September 29, 1997 for accounting purposes),
the Company was acquired by Port Royal Holdings, Inc. ("Port Royal") (the
"Acquisition"). At the closing of the Acquisition, a wholly-owned subsidiary
of Port Royal was merged with and into the Company (the "Merger") and the
Company as the surviving corporation retained the name "Krystal." As a result
of the Acquisition and Merger, Port Royal became the owner of 100% of the
common stock of the Company.
(B) Financial Information about Industry Segments
See Part II, Item 7 Consolidated Results of Operations and Note 13 of the
Company's Consolidated Financial Statements.
(C) Narrative Description of Business
The Company develops, operates and franchises full-size KRYSTAL and smaller
"double drive-thru" KRYSTAL KWIK quick-service restaurants. The Company has
been in the quick service restaurant business since 1932, and believes it is
among the first fast food restaurant chains in the country. The Company began
to franchise KRYSTAL KWIK restaurants in 1990 and KRYSTAL restaurants in 1991.
In 1995, the Company began to develop and franchise KRYSTAL restaurants
located in non-traditional locations such as convenience stores. At
December 30, 2001, the Company operated 246 units (241 KRYSTAL restaurants
and 5 KRYSTAL KWIK restaurants) and franchisees operated 165 units (97 KRYSTAL
restaurants, 26 KRYSTAL KWIK restaurants and 42 KRYSTAL restaurants in
non-traditional locations) in eleven states in the Southeastern United States.
The Company also leases 19 restaurant sites in the Baltimore, Washington, D.C.
and St. Louis metropolitan areas which it in turn subleases to Davco
Restaurants, Inc. ("Davco"), a Wendy's International, Inc. franchisee
and former affiliate of the Company.
Since 1977 the Company has operated a fixed base hangar and airplane fueling
operation through a subsidiary company ("Krystal Aviation") in Chattanooga,
Tennessee.
Products --
KRYSTAL restaurants offer a substantially uniform menu consisting of the well
known KRYSTAL hamburger, "Krystal Chiks", french fries, "Chili Pups",
"Corn Pups", "Krystal Chili", frozen beverages, soft drinks and hot
beverages, pies and breakfast items including the "Sunriser" and the
"Country Breakfast" during certain morning hours. Most KRYSTAL KWIK
restaurants feature essentially the same menu as Krystal restaurants except
breakfast offerings. From time to time the Company test markets new products
or introduces new products as limited time offers.
The Company and its franchisees purchase their food, beverages and supplies
from Company approved independent suppliers. All products must meet standards
and specifications set by the Company. Management constantly monitors the
quality of the food, beverages and supplies provided to the restaurants. The
restaurants prepare, assemble and package these products using specially
designed production techniques and equipment to obtain uniform standards of
quality.
Sources of raw materials --
The Company and its franchisees purchase food, supplies, restaurant equipment,
and signs from Company approved suppliers. The Company believes that
alternate suppliers are available or can be made available.
Trademarks and patents --
The Company has registered "Krystal", "Krystal Kwik" and variations of each,
as well as certain product names, with the United States Patent and Trademark
office. The Company is not aware of any infringing uses that could
materially affect its business or any prior claim to these service marks that
would prevent the Company from using or licensing the use thereof for
restaurants in any area of the United States. The Company's policy is
to pursue registration of its marks whenever possible and oppose vigorously
any infringement of its marks.
Seasonal operations --
The Company does not consider its operations to be seasonal to any material
degree. Revenues during its first fiscal quarter, comprising the months of
January, February and March, will, however, generally be lower than its other
quarters due to consumer shopping habits and the climate in the location of a
number of its restaurants.
Working capital practice --
See Part II, Item 7 Liquidity and Capital Resources.
Customers --
No material part of the business of the Company is dependent upon a single
customer or a small number of customers.
Backlog --
Company-owned restaurants operate in a quick-service environment and have
no backlog.
Government contracts --
No material portion of the business of the Company is subject to renegotiation
of profits or termination of contracts or subcontracts at the election of the
U.S. Government.
Competition --
The quick-service restaurant industry is highly competitive and is dominated
by major chains with substantially greater financial resources than the
Company. The Company competes primarily on the basis of unique product
offerings, food quality, price and speed of service. A significant change
in pricing or other marketing strategies by one or more of these competitors
could have an adverse impact on the Company's sales, earnings and growth.
In addition, with respect to the sale of franchises, the Company competes
with many franchisors of restaurants and other business concepts.
Research and development --
The Company operates a research and development laboratory in Chattanooga,
Tennessee. While research and development activities are important to the
business of the Company, expenditures for these operations are not material.
Environmental matters --
While the Company is not aware of any federal, state or local environmental
regulations which will materially affect its operations or competitive
position or result in material capital expenditures, it cannot predict the
effect on its operations from possible future legislation or regulation.
During 2001, other than normal equipment expenditures, there were no
material capital expenditures for environmental control facilities and no
such material expenditures are anticipated.
Number of employees --
During 2001, the Company's average number of employees was approximately 7,616.
(D) Financial Information about Foreign and Domestic Operations and Export
Sales
The Company leases 19 restaurant sites in the Baltimore, Washington, D.C.
and St. Louis metropolitan areas which it in turn subleases to Davco
Restaurants, Inc. Revenue from this operation is less than 10% of the
Company's total revenue. All other operations of the Company are in the
southeastern United States and the Company has no export sales.
Item 2. Properties
See Notes 3 and 8 of the Company's Consolidated Financial Statements.
Item 3. Legal Proceedings
On September 21, 1999, the Company was named as a defendant in a lawsuit filed
in the Northern District of Alabama (Michael Jones vs. The Krystal Company)
alleging that the plaintiff was denied access to the restrooms in one of the
Company's restaurants in violation of the Americans with Disabilities Act.
The lawsuit sought class action status on behalf of all wheelchair bound
patrons of the Company's restaurants who have been denied access to restrooms.
As reported in the Company's Quarterly Report on Form 10-Q for its second
quarter of fiscal 2001, on July 12, 2001, a judgment was entered by the court
that ordered the provisional certification of the settlement class be made
final and ratified, affirmed and adopted the court's preliminary approval of
the terms of settlement between the plaintiff and the Company which, among
other things, requires the Company to renovate all wheelchair inaccessible
restrooms in Krystal-owned restaurants over a ten year period beginning
in 2002.
The Company is a party to various other legal proceedings incidental to its
business. The ultimate disposition of these matters is not presently
determinable but will not, in the opinion of management and the Company's
legal counsel, have a material adverse effect on the Company's financial
condition or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the shareholders of the Company
during the fourth quarter of fiscal 2001.
PART II
Item 5. Market for the Company's Common Equity and Related Stockholder
Matters
(a) Price Range of Common Stock. On September 26, 1997, the Company was
acquired by Port Royal through the merger of a wholly-owned subsidiary of
Port Royal with and into the Company. As a result of the merger, Port Royal
is the owner of 100% of the common stock of the Company and no public trading
market for the Company's stock exists. The Company's Common Stock formerly
traded over-the-counter on the NASDAQ National Market System under the symbol
KRYS.
(b) Holders of common stock. As noted above, Port Royal is the owner
of 100% of the common stock of the Company.
(c) Dividends. The Company has historically not declared dividends on its
common stock and has no present intention to do so in the near future. The
Company is restricted from paying dividends by the terms of the indenture under
which the 10.25% Senior Notes were issued.
Item 6. Selected Financial Data
The following tables present (i) selected historical data of the Company prior
to the Acquisition ("Pre-Merger Company") as of and for the nine month period
ended September 28, 1997, and (ii) selected historical data of the Company
after the Acquisition ("Post-Merger Company") as of and for the three month
period ended December 28, 1997, and the years ended January 3, 1999,
January 2, 2000, December 31, 2000 and December 30, 2001. The selected
historical financial data as of and for the nine month period ended
September 28, 1997 have been derived from the audited financial statements of
the Pre-Merger Company. The selected historical financial data as of and for
the three month period ended December 28, 1997, and the years ended January 3,
1999, January 2, 2000, December 31, 2000 and December 30, 2001 have been
derived from the audited financial statements of the Post-Merger Company.
The financial data set forth below should be read in conjunction with
Item 7 - "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the Company's financial statements and notes thereto
included in Item 8 - "Financial Statements and Supplementary Data".
Post-Merger Post-Merger Pre-Merger
Company Company Company
-------------------------------------- Combined -------- ---------
Fiscal Fiscal Fiscal Fiscal Twelve Three Nine
Year Year Year Year Months Months Months
Ended Ended Ended Ended Ended Ended Ended
(53 weeks)
--------- -------- ------- --------- -------------------------
Dec. 30, Dec. 31, Jan. 2, Jan. 3, Dec. 28, Dec. 28, Sep. 28,
2001 2000 2000 1999 1997 1997 1997
--------- -------- ------- --------- ---------- -------- -------
(In thousands)
Statement of Operations data:
Revenues:
Restaurant sales $246,898 $253,967 $256,384 $248,152 $240,255 $ 61,440 $178,815
Franchise fees 1,041 901 499 333 349 130 219
Royalties 5,958 4,927 4,380 3,775 3,060 828 2,232
Other 6,781 6,924 5,755 5,188 4,759 1,290 3,469
-----------------------------------------------------------------
260,678 266,719 267,018 257,448 248,423 63,688 184,735
-----------------------------------------------------------------
Cost and expenses 253,357 261,423 251,575 244,821 240,134 61,424 178,710
-----------------------------------------------------------------
Operating income 7,321 5,296 15,443 12,627 8,289 2,264 6,025
=================================================================
Income (loss) before
extraordinary item $ (3,601) $ (5,311) $ 2,544 $ 1,345 $ 1,126 $ ( 539) $ 1,665
=================================================================
Balance Sheet Data:
Working capital(deficit) $(11,195) $(21,680) $(24,375) $(11,065)$ (8,886)$ (8,886) $ (4,760)
Property owned and
leased, net 123,944 134,634 128,010 102,289 102,860 102,860 90,034
Total assets 197,990 203,201 198,511 179,488 190,121 190,121 119,130
Long term debt, net of
current portion 118,581 113,992 102,623 100,136 112,174 112,174 34,573
Capital lease obligations,
net of current portion 8,170 10,341 9,467 2,806 2,029 2,029 2,077
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion should be read in conjunction with the consolidated
audited financial statements of the Company (including the notes thereto)
contained elsewhere in this report.
Cash operating profit --
Cash operating profit (net income or loss before interest, taxes, depreciation,
amortization and other non-operating gains, losses or expenses) is one of the
key standards used by the Company to measure operating performance. Cash
operating profit is used to supplement operating income as an indicator of
operating performance and cash flows from operating activities as a measure of
liquidity, and not as an alternative to measures defined and required by
generally accepted accounting principles. Cash operating profit may not be
comparable to similarly titled measures reported by other companies.
Cash operating profit for the fiscal year ended December 30, 2001 was $21.8
million compared to $19.9 million for the year ended December 31, 2000, an
increase of 9.6%. This increase in cash operating profit was primarily
attributable to a decrease in the cost of employee labor as a percentage of
restaurant sales, an increase in average check and an increase in franchise
related revenues.
The following table reflects certain key operating statistics which impact the
Company's financial results:
KEY OPERATING STATISTICS
(Dollars in thousands except average check)
Fiscal Fiscal Fiscal
Year Year Year
Ended Ended Ended
-------- -------- --------
December 30, December 31, January 2,
2001 2000 2000
-------- -------- --------
RESTAURANT SALES:
Company owned $246,898 $253,967 $256,384
Franchise 125,514 101,618 88,594
-------- -------- --------
SYSTEMWIDE RESTAURANT SALES $372,412 $355,585 $344,978
Percent change 4.73% 3.07% 4.97%
COMPANY RESTAURANT STATISTICS:
Number of restaurants 246 251 250
Restaurant Sales $246,898 $253,967 $256,384
Percent change (2.78%) (0.94%) 3.32%
Percent change in same restaurant sales (0.34%) (4.41%) 1.70%
Transaction count per day 592 606 676
Percent change ( 2.31%) (10.36%) (2.31%)
Average check $ 4.65 $ 4.55 $ 4.28
Percent change 2.20% 6.31% 8.08%
Selected components are --
Cost of restaurant sales $206,498 $215,835 $210,767
As a percent of restaurant sales 83.64% 85.00% 82.21%
Food and paper cost $ 79,489 $ 81,413 $ 80,203
As a percent of restaurant sales 32.20% 32.06% 31.28%
Direct labor $ 56,128 $ 61,336 $ 61,395
As a percent of restaurant sales 22.73% 24.15% 23.95%
Other labor costs $ 18,842 $ 19,885 $ 19,646
As a percent of restaurant sales 7.63% 7.84% 7.66%
FRANCHISE SYSTEM STATISTICS:
Number of restaurants 165 139 118
Restaurant Sales $125,514 $101,618 $ 88,594
Percent change 23.52% 14.70% 10.07%
Percent change in same restaurant sales (1.68%) (2.60%) 5.50%
Transaction count per day 469 468 490
Percent change 0.21% (4.49%) 0.62%
Average check $ 4.95 $ 4.71 $ 4.44
Percent change 5.10% 6.08% 6.47%
Consolidated Results of Operations --
(Dollars in thousands)
Fiscal Fiscal Fiscal
Year Year Year
Ended Ended Ended
----------- --------- ----------
Dec. 30, Dec. 31, Jan. 2,
2001 2000 2000
----------- --------- ----------
Revenues:
Restaurant sales $246,898 $253,967 $256,384
Franchise fees 1,041 901 499
Royalties 5,958 4,927 4,380
Other 6,781 6,924 5,755
-------- -------- --------
260,678 266,719 267,018
-------- -------- --------
Cost and Expenses:
Cost of restaurant sales 206,498 215,835 210,767
Advertising expense 10,370 11,420 11,384
Depreciation and
amortization expense 14,457 14,571 13,235
General and administrative
expenses 15,760 15,166 12,646
Other expenses, net 6,272 4,431 3,543
-------- -------- --------
253,357 261,423 251,575
-------- -------- --------
Operating income 7,321 5,296 15,443
Gain on sale of investments -- -- 1,349
Gain on sale of assets 483 624 --
Interest expense, net (13,018) (12,941) (11,230)
-------- -------- --------
Income (loss) before (provision
for) benefit from income
taxes ( 5,214) ( 7,021) 5,562
(Provision for) benefit from
income taxes 1,613 1,710 (3,018)
-------- -------- --------
Net income (loss) $ ( 3,601) $ ( 5,311) $ 2,544
======== ======== ========
The following table sets forth the percentage relationship to total revenues,
unless otherwise indicated, of certain items from the Company's statements of
operations.
Fiscal Fiscal Fiscal
Year Year Year
Ended Ended Ended
-------- -------- --------
Dec. 30 Dec. 31, Jan. 2,
2001 2000 2000
-------- -------- --------
Revenues:
Restaurant sales 94.7% 95.2% 96.0%
Franchise fees 0.4 0.3 0.2
Royalties 2.3 1.9 1.6
Other 2.6 2.6 2.2
------- ------ ------
100.0 100.0 100.0
------- ------ ------
Costs and expenses:
Cost of restaurant sales 79.2 80.9 78.9
Advertising expense 4.0 4.3 4.3
Depreciation and amortization 5.6 5.5 5.0
General and administrative
expenses 6.0 5.7 4.7
Other expenses, net 2.4 1.7 1.3
------- ------ ------
97.2 98.1 94.2
------- ------ ------
Operating income 2.8 1.9 5.8
Gain on sale of assets 0.2 0.2 0.5
Interest expense:
Contractual rate interest, net ( 5.0) ( 4.8) (4.2)
------- ------ ------
Income (loss) before (provision
for) benefit from income taxes ( 2.0) ( 2.7) 2.1
(Provision for) benefit from
income taxes 0.6 0.7 ( 1.1)
------- ------ ------
Net income (loss) ( 1.4%) ( 2.0%) 1.0%
======= ====== ======
General --
The Company's fiscal year ends on the Sunday nearest December 31.
Consequently, the Company will periodically have a 53-week fiscal year. The
fiscal years ended December 30, 2001, December 31, 2000 and January 2, 2000
were 52 week fiscal year ends.
The Company's revenues are derived primarily from sales by Company-owned
restaurants. Total Company-owned restaurants decreased from 251 at the end of
2000 to 246 at the end of 2001. Royalties and franchise fees from franchisees
have been a small, but growing, portion of the Company's revenues to date. The
total number of franchised restaurants grew by 18.7% in 2001 from 139 at the end
of 2000 to 165 at the end of 2001. The Company expects its franchisees to
develop up to 60 new restaurants during fiscal 2002. The Company also operates
through its wholly owned aviation subsidiary a fixed based aircraft hangar
operation in Chattanooga, Tennessee. Revenues from this operation in each of
the last three years were less than 3.0% of the Company's total revenues.
Cost of restaurant sales relates to food and paper costs, labor and all other
restaurant costs for Company-owned restaurants. Depreciation and amortization
and general and administrative expenses relate primarily to Company-owned
restaurants and to the Company's franchise sales and support functions. Other
expenses relate primarily to Krystal Aviation and a $2.1 million charge to
recognize the impairment of certain assets.
Comparison of the Fiscal Year Ended December 30, 2001
to the Fiscal Year Ended December 31, 2000
Restaurant sales for the total Krystal system (Company and Franchise combined)
for fiscal year ended December 30, 2001 ("fiscal 2001") were $372.4 million
compared to $355.6 million for the twelve months ended December 31, 2000
("fiscal 2000"), a 4.7% increase.
Total Company revenues decreased 2.3% to $260.7 million for fiscal 2001
compared to $266.7 million for fiscal 2000. Of this $6.0 million decrease,
restaurant sales accounted for a $7.1 million decrease, franchise fees
increased $0.1 million, royalties increased $1.0 million, and the Company's
aviation subsidiary revenues decreased $0.1 million.
Company-owned average same restaurant sales per week for fiscal 2001 were
$18,894 compared to $18,959 for fiscal 2000, a decrease of 0.34%. The decrease
in same restaurant sales per week was attributable to several factors,
including heavy discounting by competitors and a decrease in transaction counts
which was partially offset by an increase in the average customer check. The
Company operated 246 restaurants at December 30, 2001 compared to 251
restaurants at December 31, 2000. The five store decrease in Company operated
units resulted from the Company's sale (re-franchising) of two restaurants,
which were sold in connection with the execution of new restaurant development
commitments by franchisees, and the closure of three under-performing units.
The average customer check for Company-owned restaurants in fiscal 2001 was
$4.65 as compared to $4.55 in fiscal 2000, an increase of 2.2%. The increase
in average customer check was due primarily to maintaining product price
increases of approximately 1.75% implemented during fiscal 2001. Transaction
counts per restaurant day decreased to 592 in fiscal 2001 compared to 606 in
fiscal 2000, a decrease of 2.3%.
Franchise fee income was $1.0 million in fiscal 2001 compared to $901,000 in
fiscal 2000. Royalty revenue increased 20.9% to $6.0 million in fiscal 2001
from $4.9 million in fiscal 2000. The increase in franchise fees, which are
earned upon the opening of new franchise restaurants, resulted primarily from
an increase in the number of new franchise restaurants opened in fiscal 2001
compared to the same period in 2000. During fiscal 2001, franchisees opened 32
new restaurants, and re-opened six additional restaurants that had been
temporarily closed. There were no franchise fees associated with the re-opened
restaurants. During fiscal 2000, franchisees opened 24 franchise restaurants.
The increase in franchise royalties was due to a 23.5% increase in franchise
system sales compared to fiscal 2000 resulting primarily from a 18.7% increase
in the number of franchisee operated restaurants. The franchise system
operated 165 restaurants at December 30, 2001 compared to 139 at
December 31, 2000.
Other revenue, which is generated primarily from the Company's aviation
subsidiary, was $6.8 million for fiscal 2001 compared to $6.9 million for
fiscal 2000, a 1.4% decrease. This decrease in revenue resulted primarily from
a 7.3% decrease in jet fuel sales and was partially offset by a 3.1% increase
in average retail jet fuel prices during fiscal 2001 compared to fiscal 2000.
Cost of restaurant sales was $206.5 million in fiscal 2001 compared to $215.8
million in fiscal 2000. Cost of restaurant sales as a percentage of restaurant
sales decreased to 83.6% in fiscal 2001 from 85.0% in fiscal 2000. This
decrease was primarily the result of a reduction in labor cost as a percentage
of restaurant sales, offset by an increase in food and paper costs as a
percentage of restaurant sales. Total food and paper costs were $79.5
million in fiscal 2001 as compared to $81.4 million in fiscal 2000. Food and
paper costs as a percentage of restaurant sales increased to 32.2% in fiscal
2001 compared to 32.1% in fiscal 2000. This increase was primarily
attributable to lower sales combined with increases in the price of beef and
cheese. Direct labor cost was $56.1 million in fiscal 2001 versus $61.3
million in fiscal 2000. Direct labor cost as a percentage of restaurant sales
was 22.7% for fiscal 2001 and 24.2% for fiscal 2000. This decrease resulted
primarily from an increase in labor efficiency resulting from improvements in
the utilization of the Company's store level labor management system. Other
labor cost, which includes restaurant General Managers' and Assistant
Managers' labor cost, was $18.8 million in fiscal 2001 compared to $19.9
million in fiscal 2000. Other labor cost as a percentage of restaurant sales
was 7.6% in fiscal 2001 versus 7.8% in fiscal 2000.
Advertising expense decreased $1.0 million, approximately 9.2%, to $10.4
million in fiscal 2001 versus $11.4 million in fiscal 2000. Advertising
expenditures as a percentage of revenues decreased to 4.0% in 2001 compared
to 4.3% in 2000. The Company bases its advertising expenditures on a
percentage of restaurant sales rather than total revenues. During fiscal
2001, the Company's advertising expenditures were 4.2% of restaurant sales
compared to 4.5% of restaurant sales in fiscal 2000.
Depreciation and amortization expenses were $14.5 million in fiscal 2001 as
compared to $14.6 million in fiscal 2000.
General and administrative expenses increased $0.6 million, approximately
3.9%, to $15.8 million in fiscal 2001 versus $15.2 million in fiscal 2000.
Other expenses increased $1.9 million, or 41.5%, to $6.3 million in fiscal
year ended December 30, 2001 versus fiscal year ended December 31, 2000.
The increase resulted primarily from a write-off of $2.1 million for impaired
assets during fiscal 2001 and was partially offset by a decrease in the
wholesale cost and volume of jet fuel purchased by the Company's aviation
subsidiary in fiscal 2001 compared to fiscal 2000.
The Company reported a gain on sale of assets of $483,000 in fiscal 2001
compared to $624,000 in fiscal 2000 related to the sale of Company owned
restaurants to franchisees.
Interest expense, net of interest income, for fiscal 2001 increased $0.1
million to $13.0 million from $12.9 million in fiscal 2000. This increase
resulted from an increase during much of fiscal 2001 in short term
borrowings.
The benefit from income taxes in fiscal 2001 was $1.6 million compared to a
benefit of $1.7 million for fiscal 2000. The effective income tax rate for
fiscal years 2001 and 2000 was less than the statutory income tax rate
primarily as a result of the non-deductible portion of amortization expense
associated with Acquisition-related goodwill.
Comparison of the Fiscal Year Ended December 31, 2000
to the Fiscal Year Ended January 2, 2000
Total Krystal system (Company and Franchise combined) restaurant sales for the
fiscal year ended December 31, 2000 ("fiscal 2000") were $355.6 million
compared to $345.0 million for the twelve months ended January 2, 2000
("fiscal 1999"), a 3.1% increase. Total Company revenues decreased 0.1% to
$266.7 million for fiscal 2000 compared to $267.0 million for fiscal 1999.
Of this $.3 million decrease, restaurant sales accounted for a $2.4 million
decrease, franchise fees increased $0.4 million, royalties increased
$0.5 million, and the Company's aviation subsidiary revenues increased $1.2
million. Company-owned average same restaurant sales per week for fiscal 2000
were $19,269 compared to $20,157 for fiscal 1999, a decrease of 4.4%. The
per unit weekly sales decrease was attributable to several factors, including
heavy discounting by competitors and a decrease in transaction counts which was
partially offset by an increase in the average customer check. The Company had
251 restaurants open at the end of fiscal 2000 compared to 250 at the end of
fiscal 1999.
The average customer check for Company-owned restaurants in fiscal 2000 was
$4.55 as compared to $4.28 in fiscal 1999, an increase of 6.3%. The increase
in average customer check was due primarily to increased food volume per
transaction resulting from the Sackful offering and to maintaining product
price increases of approximately 4.5% implemented in the first three quarters
of fiscal 2000. Transaction counts per restaurant day decreased to 606 in
fiscal 2000 compared to 676 in fiscal 1999, a decrease of 10.4%.
Franchise fees were $901,000 in fiscal 2000 compared to $499,000 for
fiscal 1999, an 80.6% increase. The franchise system had 139 restaurants
open at the end of fiscal 2000 compared to 118 at the end of fiscal 1999.
The increase in franchise fees was primarily due to the increased number of
franchised stores opened in fiscal 2000 versus 1999. During 2000, franchisees
opened 24 new franchise restaurants compared to 11 new franchise restaurants
in 1999. Royalties increased 12.5% to $4.9 million in fiscal 2000 from $4.4
million in fiscal 1999. The increase in royalties was primarily due to a
17.7% increase in franchise restaurants offset by a decrease in franchise
same restaurant sales in fiscal 2000 compared to fiscal 1999.
Other revenue, which is generated primarily from the Company's aviation
subsidiary, was $6.9 million in fiscal 2000 compared to $5.8 million in
fiscal 1999.
Cost of restaurant sales was $215.8 million in fiscal 2000 compared to $210.8
million in fiscal 1999. Cost of restaurant sales as a percentage of restaurant
sales increased to 80.9% in fiscal 2000 from 78.9% in fiscal 1999. This
increase was primarily the result of the increased cost of food and paper
and increased labor costs. Total food and paper costs were $81.4 million in
fiscal 2000 as compared to $80.2 million in fiscal 1999. Food and paper costs
as a percentage of restaurant sales increased to 32.1% in fiscal 2000 compared
to 31.3% in fiscal 1999. This increase was primarily attributable to decreased
efficiency due to lower sales combined with increases in the price of beef and
pork. Direct labor cost was $61.3 million in fiscal 2000 versus $61.4 million
in fiscal 1999. Direct labor cost as a percentage of restaurant sales was 24.2%
for fiscal 2000 and 24.0% for fiscal 1999. This increase resulted primarily
from reduced labor efficiency caused by lower same store sales. Other labor
cost, which includes restaurant General Managers' and Assistant Managers'
labor cost, was $19.9 million in fiscal 2000 compared to $19.6 million in
fiscal 1999. Other labor cost as a percentage of restaurant sales was 7.8% in
fiscal 2000 versus 7.7% in fiscal 1999.
Advertising expense was $11.4 million for fiscal 2000 and fiscal 1999.
Depreciation and amortization expenses were $14.6 million in fiscal 2000 as
compared to $13.2 million in fiscal 1999. This increase was primarily due to
capital expenditures related to refurbishing restaurant buildings, upgrading
restaurant equipment, and opening new restaurants.
General and administrative expenses increased $2.6 million, approximately
19.9%, to $15.2 million in fiscal 2000 versus $12.6 million in fiscal 1999.
The increase in general and administrative expenses resulted primarily from
Management's increased emphasis in the newly created franchise development and
operations departments and franchise advertising which supports the Company's
growing franchise system, and the related recruiting and relocation expenses
associated with these new hires.
The Company reported a gain on sale of assets of $624,000 in fiscal 2000
related to the sale of Company owned restaurants to franchisees.
Interest expense, net of interest income, for fiscal 2000 increased $1.7
million to $12.9 million from $11.2 million in fiscal 1999. This increase
resulted from an increase in capitalized leases, an increase in short term
borrowings, and higher costs related to corporate debt maintenance.
The benefit from income taxes in fiscal 2000 was $1.7 million compared to a
provision of $3.0 million for fiscal 1999. The effective income tax rate for
fiscal years 2000 and 1999 was less than the statutory income tax rate
primarily as a result of the non-deductible portion of amortization expense
associated with Acquisition-related goodwill.
Liquidity and Capital Resources --
The Company does not maintain significant inventory or accounts receivable
since substantially all of its restaurants' sales are for cash. Like many
restaurant businesses, the Company receives several weeks of trade credit
in purchasing food and supplies. The Company's receivables from franchisees
are closely monitored and collected weekly. The Company normally operates
with working capital deficits (current liabilities exceeding current assets),
and had a working capital deficit of $11.2 million at December 30, 2001,
compared to a working capital deficit of $21.7 million at December 31, 2000.
Capital expenditures totaled approximately $5.8 million for the 12 months of
fiscal 2001, compared to $22.1 million in fiscal 2000. Approximately $8.0
million is expected for capital expenditures during 2002. Capital expenditures
will primarily be used for refurbishing of certain restaurants, technology and
systems improvements and on-going capital improvements. The Company owns
approximately 41.5% of its restaurant locations and leases the remainder.
At December 30, 2001, the Company had existing cash balances of $13.0 million
and availability under its credit facility of $3.5 million. The Company
expects these funds and funds from operations will be sufficient to meet its
operating requirements and capital expenditures through 2002.
Subsequent to year-end, the Company entered into a real estate sale and
leaseback transaction in which it sold the commercial real estate and
improvements of 32 Company operated restaurant locations to an unaffiliated
third party and leased the properties back for a period of 20 years. The net
proceeds of this transaction (approximately $23.3 million) were primarily used
to fund a portion of the purchase of $27.0 million aggregate principal value
of the Company's 10.25% Senior Notes.
Impact of Inflation --
Although increases in labor, food and other operating costs could adversely
affect the Company's operations, management does not believe that inflation
has had a material effect on income during the past several years.
Seasonality --
The Company does not expect seasonality to affect its operations in a
materially adverse manner. The Company's revenues during its first fiscal
quarter, comprising the months of January, February and March, will, however,
generally be lower than its other quarters due to consumer shopping habits
and the climate in the location of a number of its restaurants.
Recent Accounting Pronouncements--
In June 2001, the Financial Accounting Standards Board (the "FASB") issued
SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other
Intangible Assets" (collectively the "Standards"). The Standards will be
effective for fiscal years beginning after December 15, 2001. SFAS No. 141
will require companies to recognize acquired identifiable intangible assets
separately from goodwill if certain conditions are met. The Standards will
require the value of separately identifiable intangible assets to be measured
at fair value. SFAS No. 142 will require that goodwill not be amortized, but
that amounts recorded as goodwill be periodically tested for value impairment.
Upon adoption of SFAS No. 142, if the value of goodwill is determined to be
impaired, the Company will be required to reduce goodwill through a charge to
earnings. There will be no financial statement impact on the Company related
to the Standards in fiscal year 2001. Based on the current levels of goodwill,
the adoption of the Standards in fiscal 2002 would decrease annual amortization
expense by approximately $1,967,500 through the elimination of goodwill
amortization. The Company has not yet determined the impact of the new
goodwill impairment standards.
Forward looking statements --
Certain written and oral statements made by or on behalf of the Company may
constitute "forward-looking" statements as defined under the Private
Securities Litigation Reform Act of 1995 (the "PSLRA"). The PSLRA contains a
safe harbor in making such disclosures. These forward-looking statements are
subject to certain risks and uncertainties that could cause actual results to
differ materially from the Company's historical experience and its present
expectations or projections. These risks and uncertainties include, but are
not limited to, unanticipated economic changes, interest rate movements,
changes in governmental policies, the impact of competition, changes in
consumer tastes, increases in costs for food and/or labor, the availability
and adequate supply of hourly-paid employees, the ability of the Company to
attract and retain suitable franchisees, the Company's ability to obtain
funding sufficient to meet operation requirements and capital expenditures
and the impact of governmental regulations. The Company cautions that such
factors are not exclusive. Caution should be taken not to place undue reliance
on any such forward-looking statements since such statements speak only as of
the date of the making of such statements and are based on certain expectations
and estimates of the Company which are subject to risks and changes in
circumstances that are not within the Company's control. The Company does
not undertake to update forward-looking statements other than as required by
law.
Item 7a. Quantitative and qualitative disclosures about market risks
Not applicable
Item 8. Financial Statements and Supplementary Data
(commencing on the following page)
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Krystal Company:
We have audited the accompanying consolidated balance sheets of The Krystal
Company (a Tennessee corporation) and Subsidiary as of December 30, 2001
and December 31, 2000, and the related consolidated statements of operations,
shareholder's equity and cash flows for each of the three years in the period
ended December 30, 2001. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Krystal Company and
Subsidiary as of December 30, 2001 and December 31, 2000, and the results of
their operations and their cash flows for each of the three years in the
period ended December 30, 2001, in conformity with accounting principles
generally accepted in the United States.
ARTHUR ANDERSEN LLP
Chattanooga, Tennessee
February 8, 2002
The Krystal Company and Subsidiary
----------------------------------
Consolidated Balance Sheets
---------------------------
(Dollars in thousands)
December 30, December 31,
2001 2000
----------- -----------
ASSETS
CURRENT ASSETS:
Cash and temporary investments $ 13,042 $ 4,979
Receivables, net 1,418 1,952
Inventories 2,033 1,992
Deferred income taxes 2,877 2,785
Prepayments and other 823 802
-------- -------
Total current assets 20,193 12,510
-------- -------
PROPERTY, BUILDINGS AND EQUIPMENT, net
of accumulated depreciation of $35,570
at December 30, 2001 and $29,156 at
December 31, 2000 114,800 123,311
-------- -------
LEASED PROPERTIES, net of accumulated
amortization of $5,385 at December 30, 2001
and $3,206 at December 31, 2000 9,144 11,323
-------- -------
OTHER ASSETS:
Goodwill, net 40,759 42,794
Prepaid pension asset 8,754 8,358
Deferred financing costs, net 2,735 3,278
Other 1,605 1,627
-------- -------
Total other assets 53,853 56,057
-------- -------
$197,990 $203,201
======== =======
The accompanying notes to consolidated financial statements are an integral
part of these balance sheets.
The Krystal Company And Subsidiary
----------------------------------
Consolidated Balance Sheets
---------------------------
(Dollars in thousands)
December 30, December 31,
2001 2000
----------- -----------
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable $ 5,175 $ 7,445
Accrued liabilities 22,719 21,918
Outstanding checks in excess
of bank balance -- 2,745
Current portion of long-term debt 1,361 120
Current portion of capital
lease obligations 2,133 1,962
-------- --------
Total current liabilities 31,388 34,190
-------- --------
LONG-TERM DEBT, excluding current portion 118,581 113,992
-------- --------
CAPITAL LEASE OBLIGATIONS, excluding
current portion 8,170 10,341
-------- --------
DEFERRED INCOME TAXES 8,912 10,279
-------- --------
OTHER LONG-TERM LIABILITIES 1,501 1,360
-------- --------
COMMITMENTS AND CONTINGENCIES (Notes 5, 8,
9 and 12)
SHAREHOLDER'S EQUITY:
Common stock, without par value;
100 shares authorized, issued
and outstanding at December 30, 2001
and December 31, 2000 35,000 35,000
Accumulated deficit ( 5,562) ( 1,961)
-------- --------
Total shareholder's equity 29,438 33,039
-------- --------
$197,990 $203,201
======== ========
The accompanying notes to consolidated financial statements are an integral
part of these balance sheets.
The Krystal Company and Subsidiary
----------------------------------
Consolidated Statements of Operations
-------------------------------------
(Dollars in thousands)
Fiscal Year Ended
----------------------------------------
December 30, December 31, January 2,
2001 2000 2000
---------- ---------- -----------
Revenues:
Restaurant sales $246,898 $253,967 $256,384
Franchise fees 1,041 901 499
Royalties 5,958 4,927 4,380
Other 6,781 6,924 5,755
-------- -------- --------
260,678 266,719 267,018
-------- --------- --------
Cost and Expenses:
Cost of restaurant sales 206,498 215,835 210,767
Advertising expense 10,370 11,420 11,384
Depreciation and
amortization expense 14,457 14,571 13,235
General and administrative
expenses 15,760 15,166 12,646
Other expenses, net 6,272 4,431 3,543
-------- -------- --------
253,357 261,423 251,575
-------- -------- --------
Operating income 7,321 5,296 15,443
Gain on sale of investments -- -- 1,349
Gain on sale of assets 483 624 --
Interest expense, net (13,018) (12,941) (11,230)
-------- -------- --------
Income (loss) before (provision
for) benefit from income
taxes ( 5,214) ( 7,021) 5,562
(Provision for) benefit from
income taxes 1,613 1,710 (3,018)
-------- -------- --------
Net income (loss) $( 3,601) $( 5,311) $ 2,544
======== ======== ========
The accompanying notes to consolidated financial statements are an integral
part of these statements.
The Krystal Company and Subsidiary
----------------------------------
Consolidated Statements of Shareholder's Equity
-----------------------------------------------
(Dollars in thousands)
Retained
Common Earnings
Stock (Deficit)
------ --------
BALANCE, January 3, 1999 $35,000 $ 806
Net income -- 2,544
------- -------
BALANCE, January 2, 2000 35,000 3,350
Net loss -- (5,311)
------- -------
BALANCE, December 31, 2000 35,000 (1,961)
Net loss (3,601)
------- -------
BALANCE, December 30, 2001 $35,000 $(5,562)
======= =======
The accompanying notes to consolidated financial statements are an integral
part of these statements.
The Krystal Company and Subsidiary
----------------------------------
Consolidated Statements of Cash Flows
-------------------------------------
(Dollars in thousands)
Fiscal Year Ended
---------------------------------------
December 30, December 31, January 2,
2001 2000 2000
---------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(3,601) $(5,311) $ 2,544
Adjustments to reconcile net
income (loss) to net cash provided
by operating activities-
Depreciation and amortization 14,457 14,571 13,235
Deferred income taxes (1,459) 509 (1,907)
Gain on sale of assets ( 483) ( 624) --
Loss on impaired assets 2,145 -- --
Changes in operating assets and
liabilities:
Receivables, net 534 ( 570) 923
Inventories ( 41) 107 (415)
Prepayments and other ( 21) 288 (370)
Accounts payable (2,270) ( 37) 2,473
Accrued liabilities 801 (2,192) 1,857
Other, net 398 1,404 (1,091)
------- ------- -------
Net cash provided by
operating activities 10,460 8,145 17,249
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, buildings
and equipment ( 5,831) (26,778) (33,128)
Proceeds from the sale of
property, buildings and equipment 2,349 9,621 6,645
Payments received on net
investment in direct
financing leases -- -- 58
------- ------- -------
Net cash used in investing
activities ( 3,482) (17,157) (26,425)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under
revolving credit facility 6,000 9,539 2,551
Proceeds from issuance of
long-term debt -- 2,000 --
Outstanding checks in excess
of bank balance (2,745) ( 956) 3,701
Repayments of long-term debt ( 170) ( 103) ( 66)
Principal payments of capital
lease obligations (2,000) (1,791) (720)
------- ------- -------
Net cash provided by
financing activities 1,085 8,689 5,466
------- ------- -------
NET INCREASE(DECREASE) IN CASH AND
TEMPORARY INVESTMENTS 8,063 ( 323) (3,710)
CASH AND TEMPORARY INVESTMENTS,
beginning of period 4,979 5,302 9,012
------- ------- -------
CASH AND TEMPORARY INVESTMENTS,
end of period $13,042 $ 4,979 $ 5,302
======= ======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest, net of amounts
capitalized $12,400 $12,353 $10,907
======= ======= =======
Income taxes $ 97 $ 715 $ 2,477
======= ======= =======
The accompanying notes to consolidated financial statements are an integral
part of these statements.
THE KRYSTAL COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ACQUISITION BY PORT ROYAL HOLDINGS INC.
Effective September 29, 1997, Port Royal Holdings, Inc. ("Port Royal") acquired
The Krystal Company (the "Company") for an aggregate purchase price of
$112,009,000 (the "Acquisition").
The purchase price for the Acquisition was funded through (i) a $35 million
equity contribution from Port Royal funded by a private equity placement,
(ii) borrowings under a revolving credit facility of $25 million with a bank
and (iii) the sale of the Company's 10.25% senior notes due 2007 in the
aggregate principal amount of $100 million (the "Notes").
The Acquisition was accounted for using the purchase method of accounting.
Accordingly, the purchase price was allocated to assets acquired and
liabilities assumed based on fair market values at the date of acquisition,
with the remainder to goodwill. The fair value adjustments to the historical
consolidated balance sheet were as follows:
(In thousands)
Net assets acquired at historical cost $ 46,279
Revaluation of Krystal's property, buildings
and equipment to estimated fair value 15,797
Adjustment to fair value of other
assets acquired and liabilities assumed 3,075
Deferred income taxes associated with
the revaluation of Krystal's assets
and liabilities (3,052)
Goodwill 49,910
---------
Total purchase price allocated $ 112,009
=========
2. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business Activities --
The Krystal Company ("Krystal") (a Tennessee corporation) is engaged primarily
in the development, operation and franchising of quick-service restaurants in
the Southeastern United States. Krystal's wholly-owned subsidiary, Krystal
Aviation Co. ("Aviation") operates a fixed base airport hangar operation in
Chattanooga, Tennessee. Aviation's revenues in each of the last three years
were less than 3% of the Company's total revenues.
Principles of Consolidation --
The accompanying consolidated financial statements include the accounts of
Krystal and Aviation (herein after referred to collectively as The "Company").
All significant intercompany balances and transactions have been eliminated.
Fiscal Year End --
The Company's fiscal year ends on the Sunday nearest December 31.
Consequently, the Company will periodically have a 53-week fiscal year. The
fiscal years ended December 30, 2001, December 31, 2000 and January 2, 2000
were 52 week fiscal years.
Cash and Temporary Investments --
The Company considers repurchase agreements and other temporary cash
investments with a maturity of three months or less to be temporary
investments.
Inventories --
Inventories are stated at cost and consist primarily of food, paper products
and other supplies.
Property, Buildings and Equipment --
Property, buildings and equipment are stated at cost. Expenditures which
materially increase useful lives are capitalized, whereas ordinary
maintenance and repairs are expensed as incurred. Depreciation of fixed
assets is computed using the straight-line method for financial reporting
purposes and accelerated methods for tax purposes over the estimated useful
lives of the related assets as follows:
Buildings and improvements 10 - 39 years
Equipment 3 - 10 years
Leasehold improvements Life of lease up to 20 years
Long-Lived Assets --
The Company periodically evaluates the carrying value of its long-lived assets.
The carrying value of specific long-lived assets are reviewed for potential
impairment when the projected undiscounted future cash flow of such assets
is less than its carrying value.
Leased Property--
The lower of fair market value or the discounted value of that portion of a
capital lease attributable to building costs is capitalized and amortized by
the straight-line method over the term of such leases and included with
depreciation expense. The portions of such leases relating to land are
accounted for as operating leases.
Intangibles --
The consolidated balance sheet of the Company includes the allocation of
purchase accounting goodwill of $49,190,000 (net of amounts written off in
connection with the subsequent sale of certain assets) and deferred financing
costs of $5,783,000. Deferred financing costs are amortized over the life of
the debt agreement. The financing costs related to the Senior Notes are
amortized over 10 years. The financing costs associated with the Company's
Credit Facility are being amortized through May 2003. Goodwill is amortized
over 25 years. Amortization expense for goodwill for the fiscal years ended
December 30, 2001, December 31, 2000, and January 2, 2000 was $1,967,500,
$1,985,000, and $1,997,000 respectively. Amortization expense for deferred
financing cost for the fiscal years ended December 30, 2001, December 31, 2000,
and January 2, 2000 was $541,000, $657,000, and $823,000 respectively.
Accumulated amortization of goodwill at December 30, 2001 and
December 31, 2000 was $8,431,000 and $6,464,000, respectively. Accumulated
amortization of deferred financing costs at December 30, 2001 and
December 31, 2000 was $3,048,000 and $2,507,000, respectively.
In June 2001, the Financial Accounting Standards Board (the "FASB") issued
SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other
Intangible Assets" (collectively the "Standards"). The Standards will be
effective for fiscal years beginning after December 15, 2001. SFAS No. 141
will require companies to recognize acquired identifiable intangible assets
separately from goodwill if certain conditions are met. The Standards will
require the value of separately identifiable intangible assets to be measured
at fair value. SFAS No. 142 will require that goodwill not be amortized, but
that amounts recorded as goodwill be periodically tested for value impairment.
Upon adoption of SFAS No. 142, if the value of goodwill is determined to be
impaired, the Company will be required to reduce goodwill through a charge to
earnings. There was no financial statement impact on the Company related
to the Standards in fiscal year 2001. Based on the current levels of goodwill,
the adoption of the Standards in fiscal 2002 would decrease annual amortization
expense by approximately $1,967,500 through the elimination of goodwill
amortization. The Company has not yet determined the impact of the new
goodwill impairment standards.
Franchise and License Agreements --
Franchise or license agreements are available for single and multi-unit
restaurants. The multi-unit agreement establishes the number of restaurants
the franchisee or licensee is to construct and open in the franchised area
during the term of the agreement. At December 30, 2001, there were 165
franchised or licensed restaurants of which 135 restaurants were operated
under 33 multi-unit agreements. At December 31, 2000, there were 139
franchised or licensed restaurants of which 110 restaurants were operated
under 28 multi-unit agreements.
Franchisees and licensees are required to pay the Company an initial franchise
or license fee plus a weekly royalty and service fee of either 4.5% or 6.0% of
the restaurants' gross receipts, depending on the duration of the franchise
agreement. The initial franchise and license fees are recorded as income as
related restaurants begin operations. Royalty and service fees, which are
based on restaurant sales of franchisees and licensees, are recognized as
earned. Franchise fees received prior to the opening of the restaurant are
deferred and included in accrued liabilities on the consolidated balance
sheets. At December 30, 2001 and December 31, 2000, total deferred franchise
and license fees were approximately $1,023,000 and $898,000, respectively.
Fair Market Value of Financial Instruments --
Unless otherwise indicated elsewhere in the notes to the consolidated financial
statements, the carrying values of the Company's financial instruments
approximate their fair values.
Benefit Plans --
The determination of obligations and expenses under the Company's retirement
and post retirement benefit plans is dependent on the selection of certain
assumptions used by actuaries in calculating such amounts. Those assumptions
are described in Note 6 to the consolidated financial statements and include
among others, the discount rate, expected return on plan assets and the
expected rates of increase in employee compensation and health care costs. In
accordance with generally accepted accounting principles, actual results that
differ from assumptions are accumulated and amortized over future periods and
and therefore, generally affect our recognized expense and the recorded
obligation in such periods. Significant differences in actual experience or
significant changes in the assumptions used may materially affect the pension
and post retirement obligations and future expenses.
Use of Estimates --
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Recent Accounting Pronouncements--
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended, ("SFAS No. 133") was effective
January 1, 2001 and establishes accounting and reporting standards requiring
that every derivative instrument (including certain derivative instruments
embedded in other contracts) be recorded in the balance sheet as either an
asset or liability measured at its fair value. SFAS No. 133 requires that
changes in the derivative's fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. Special accounting for
qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement, and requires that a company
must formally document, designate, and assess the effectiveness of
transactions that receive hedge accounting. The Company does not currently
hold any derivative financial instruments.
Reclassifications --
Certain reclassifications have been made to prior year financial statements to
conform with the 2001 presentation.
3. PROPERTY, BUILDINGS AND EQUIPMENT
Property, buildings and equipment at December 30, 2001 and December 31, 2000,
consisted of the following:
Fiscal Year Ended
------------------------------
December 30, December 31,
2001 2000
----------- -----------
(In thousands)
Land $ 41,785 $ 42,177
Buildings and improvements 42,830 42,355
Equipment 47,875 48,583
Leasehold improvements 17,033 16,125
Construction in progress 847 3,227
--------- ---------
150,370 152,467
Accumulated depreciation
and amortization (35,570) (29,156)
--------- ---------
$ 114,800 $ 123,311
========= =========
The Company recorded depreciation expense of $10.3 million during fiscal 2001,
$10.5 million during fiscal 2000 and $9.2 million during fiscal 1999.
During fiscal 2001, the Company recorded a charge of $2,145,000 to recognize
an impairment in the value of certain operating properties. This charge is
reflected in Other Expenses in the accompanying Consolidated Statement of
Operations.
4. ACCRUED LIABILITIES
Accrued liabilities at December 30, 2001 and December 31, 2000, consisted of
the following:
December 30, December 31,
2001 2000
------------ -----------
(In thousands)
Salaries, wages and benefits $ 5,613 $ 5,200
Workers' compensation 4,152 4,241
State sales taxes 1,562 1,465
Accrued interest 2,782 2,643
Deferred franchise advertising and fees 2,144 1,773
Other 6,466 6,596
-------- --------
$ 22,719 $ 21,918
======== ========
5. INDEBTEDNESS
Senior Secured Credit Agreement
In September 1997, the Company entered into a credit agreement with a bank for
a $25 million credit facility, which was amended and restated in May 2000
(the "Credit Facility").
At December 30, 2001, the margin applicable to outstanding borrowings was 3.0%
The weighted average interest rate for borrowings under the Credit Facility
during 2001 was 8.1%. Availability under the Credit Facility at
December 30, 2001 was $3.5 million which reflects $3.5 million in letters of
credit issued primarily related to the Company's workers compensation plans
and general liability insurance.
Subsequent to year-end, the credit facility was modified in an amendment that
became effective on January 28, 2002. The amended credit facility provides
for $10,000,000 in revolving loan commitments and a $15,000,000 term loan
commitment, with maturity dates of June 1, 2004 and January 28, 2007,
respectively.
Borrowings under the revolving loan commitment bear interest rates, at the
option of the Company, and depending on the certain financial covenants,
equal to either (a) the greater of the prime rate, or the federal
funds rate plus 0.5%, plus a margin (which ranges from 0.25% to 2.0%) or
(b) the rate offered in the Eurodollar market for amounts and periods
comparable to the relevant loan, plus a margin (which ranges from 1.75%
to 3.5% and is determined by certain financial covenants).
Borrowings under the term loan commitment bear interest rates equal to the rate
offered in the Eurodollar market for 30 day borrowings, plus an applicable
margin (which ranges from 3.5% to 4.0% and is determined by certain
financial covenants).
The credit facility contains restrictive covenants including, but not
limited to (a) the Company's required maintenance of a minimum amount of
tangible net worth; (b) the Company's required maintenance of certain levels
of funded debt coverage; (c) limitations regarding additional indebtedness;
(d) the Company's required maintenance of a minimum amount of fixed charges
coverage; (e) limitations regarding consolidated capital expenditures and
(f) limitations regarding liens on assets.
Essentially all assets of the Company are pledged as collateral on the new
credit facility. Additionally, the new credit facility is guaranteed by Port
Royal through a secured pledge of all of the Company's common stock held by
Port Royal and the common stock of each existing and future subsidiary of the
company.
Senior Notes
In September 1997, Port Royal issued $100,000,000 in unsecured 10.25% senior
notes ("the Notes") which mature on October 1, 2007. Following the Acquisition
of the Company by Port Royal, the Company became the obligor of the Notes.
The Notes pay interest semi-annually on April 1 and October 1 of each year.
The Notes are redeemable at the option of the Company at prices decreasing
from 105 1/8% of the principal amount on April 1, 2002 to 100% of the
principal amount on April 1, 2005. Additionally, upon a change of control of
the Company, the holders of the Notes will have the right to require the
Company to purchase all or a portion of the Notes at a price equal to 101% of
the original principal amount. The proceeds of the Notes were used to fund
the acquisition by Port Royal.
Long-term debt at December 30, 2001 and December 31, 2000, consisted of the
following:
December 30, December 31,
2001 2000
----------- -----------
(In thousands)
Revolving credit facility,
due May 20, 2003 (subsequently
amended to June 2004) $ 18,000 $ 12,000
10.25% senior notes,
due October 2007 100,000 100,000
Other 1,942 2,112
--------- --------
119,942 114,112
Less--
Current maturities ( 1,361) (120)
--------- --------
$118,581 $113,992
========= ========
Scheduled maturities of long-term debt (after reflecting the modification of
the Credit Facility subsequent to year end), are as follows:
(In thousands):
2002 $ 1,361
2003 1,483
2004 4,482
2005 1,485
2006 1,495
Thereafter 109,636
At December 30, 2001, the estimated fair value of the Credit Facility
approximates the carrying amount of such debt because the interest rate
changes with market interest rates. The estimated fair value of the Notes
at December 30, 2001 was $76,000,000. The fair value was estimated based upon
quoted market prices for the same or similar issues.
Subsequent to year end, the Company purchased $27.0 million aggregate principal
amount of its senior notes through a tender offer. These notes were retired
resulting in an extraordinary gain of $2.7 million. The extraordinary gain
resulted from retirement discounts of $5.4 million, offset by fees, taxes and
other costs of approximately $2.7 million.
6. BENEFIT PLANS
The Company maintains a defined benefit pension plan covering each employee
who was participating in the plan on September 30, 1998 and each salaried
employee or salaried benefits employee who is employed on or after
October 1, 1998. The cost of the plan is borne by actuarially determined
contributions made by the employer and by contributions made by the
participants. The plan provides benefits of stated amounts based on years of
service and the employee's compensation. The Company's funding policy is
consistent with the requirements of the Employee Retirement Income Security
Act of 1974.
The status of the pension benefits and other postretirement benefits as of
December 30, 2001 and December 31, 2000 are as follows:
(Dollars in thousands)
Pension Benefits Postretirement Benefits
-----------------|-----------------------
Dec. 30, Dec. 31,| Dec. 30, Dec. 31,
2001 2000 | 2001 2000
------- --------| ------- -------
Change in benefit obligation -- |
Benefit obligation at beginning |
of period $27,235 $25,235 | $ 1,684 $ 1,257
Service costs 1,144 2,077 | 86 77
Interest cost 2,105 1,955 | 129 119
Plan participants' contributions 873 -- | 64 34
Actuarial loss (gain) 2,353 264 | 323 365
Benefits paid (2,436) (2,296)| (354) ( 168)
------- ------- | ------- ------
Benefit obligation at |
end of period 31,274 27,235 | 1,932 1,684
------- ------- | ------- ------
Change in plan assets -- |
Fair value of plan assets at |
beginning of period 39,085 38,986 | -- --
Actual return on plan assets ( 488) 1,484 | -- --
Employer contributions -- -- | 289 134
Plan participants' contributions 873 911 | 65 34
Benefits paid (2,436) (2,296)| (354) ( 168)
------- ------- | ------- ------
Fair value of plan assets at |
end of period 37,034 39,085 | -- --
------- ------- | ------- ------
|
Funded status 5,760 11,850 | (1,932) (1,684)
|
Unrecognized prior service cost (2,111) (2,347)| -- --
Unrecognized net loss (gain) 5,105 (1,146)| 867 652
------- ------- | ------- ------
Asset (liability) recognized |
in the consolidated balance |
sheets $ 8,754 $ 8,358 | $(1,065) $(1,032)
======= ======= | ======= ======
|
Weighted-average assumptions as |
of the end of period -- |
|
Discount rate 7.25% 8.0% | 7.25% 8.0%
Expected return on plan assets 9.0% 9.0% | n/a n/a
Rate of compensation increase 3.0% 3.0% | n/a n/a
For measurement purposes, a 6.0% annual rate of increase in the per capita
cost of covered health care benefits was assumed for fiscal year 2001 and
assumed to remain constant thereafter.
Components of net periodic benefit cost --
Pension Benefits Postretirement Benefits
-----------------|-----------------------
Dec. 30, Dec. 31,| Dec. 30, Dec. 31,
2001 2000 | 2001 2000
------- --------| ------- -------
Service cost $ 1,144 $ 2,077 | $ 86 $ 77
Interest cost 2,105 1,955 | 129 119
Expected return on plan assets (3,410) (3,431)| -- --
Net amortization and deferral ( 234) -- | 40 39
------ ------ | ------ -----
$( 395) $ 601 | $ 255 $ 235
====== ====== | ====== =====
Assumed health care cost trend rates have a significant effect on the amount
reported for the health care plan. A one-percentage-point change in
assumed health care cost trend rates would have the following effects:
1-Percentage-Point
---------------------
Decrease Increase
-------- --------
Aggregate service and interest costs $ 194 $ 239
Accumulated postretirement benefit obligation 1,776 2,112
During 1999, an insurer from which the Company held life insurance policies
demutualized to form a publicly traded company. As a result of holding life
insurance policies from the insurer, the Company was a stockholder of record
in the insurance company. The Company elected to sell all of the shares it
received in connection with the demutualization, and as a result realized a
gain on sale of investments of $1,349,000. The gain is reflected as a sale
of investments in the Consolidated Statements of Operations.
7. INCOME TAXES
The provision for (benefit from) income taxes included the following
components:
Fiscal Year Ended
-------------------------------
Dec. 30, Dec. 31, Jan. 2,
2001 2000 2000
------ ------ --------
(In thousands)
Current tax provision
(benefit):
Federal $( 151) $(1,905) $4,629
State ( 3) ( 314) 296
------ ------ ------
( 154) (2,219) 4,925
Deferred income taxes (1,459) 509 (1,907)
------ ------ ------
Provision for (benefit
from) income taxes $(1,613) $(1,710) $3,018
====== ====== ======
The income tax effects of temporary differences that give rise to the current
deferred tax asset and the noncurrent net deferred tax liability as of
December 30, 2001 and December 31, 2000, were as follows:
Dec. 30, Dec. 31,
2001 2000
----------- -----------
(In thousands)
Current deferred tax asset:
Insurance reserves $ 1,578 $ 1,611
Deferred franchise fees 389 341
Miscellaneous payables 254 317
Other 656 516
------ ------
Current deferred tax asset $ 2,877 $ 2,785
====== ======
Noncurrent net deferred tax liability:
Noncurrent deferred tax asset:
Net operating loss carryforwards $ 962 $ 659
Tax credit carryforwards 2,504 1,942
Accrued postretirement benefit cost 405 392
Other 554 515
------- -------
Noncurrent deferred tax asset $ 4,425 $ 3,508
------- -------
Noncurrent deferred tax liability:
Property, buildings and equipment $(10,011) $(10,611)
Pension asset ( 3,326) ( 3,176)
------- -------
Noncurrent deferred tax liability (13,337) (13,787)
------- -------
Noncurrent net deferred tax liability $( 8,912) $(10,279)
======= =======
The difference between the reported income tax provision (benefit) and
the "expected" tax provision (benefit) based on the current statutory federal
income tax rate is as follows:
Fiscal Year Ended
---------------------------
Dec. 30, Dec. 31, Jan. 2,
2001 2000 2000
------- ------- -------
(In thousands)
Computed "expected" tax
provision (benefit) $(1,773) $(2,387) $1,892
Goodwill amortization 629 634 639
State income taxes (net of
federal income tax effect) ( 125) ( 207) 299
Other, net ( 344) 250 188
----- ----- -----
Reported tax provision (benefit) $(1,613) $(1,710) $3,018
===== ===== =====
8. LEASES
The Company leases certain buildings and equipment and a number of restaurants
(land and/or building) under noncancellable lease agreements, some of which are
subleased to third parties. The restaurant lease terms are normally for a
period of 15 to 20 years with options that permit renewals for additional
periods. Certain leases provide for additional contingent rentals based on
sales. Generally, the building portions of the restaurant leases have been
recorded as capital leases, while the land portions have been recorded as
operating leases.
The future minimum lease payments under non-cancelable capital and operating
leases (excluding real estate taxes, insurance and maintenance costs), together
with the present value of such minimum lease payments as of December 30, 2001,
are summarized as follows:
Capital Operating
Leases Leases
------- ---------
Year (In thousands)
2002 $ 2,822 $ 5,989
2003 2,543 5,151
2004 1,607 4,136
2005 1,163 3,467
2006 889 2,874
Thereafter 4,825 10,364
------ -------
Total minimum lease payments 13,849 $32,081
=======
Less amount representing interest ( 3,546)
------
Total obligations under capital leases 10,303
Less current portion ( 2,133)
------
Long-term obligations under capital leases $ 8,170
======
Total capital leases consist of the following property, buildings and
equipment:
Fiscal Year Ended
-----------------------------
Dec. 30, 2001 Dec. 31, 2000
------------- -------------
(In thousands)
Buildings and improvements $ 6,699 $ 6,699
Equipment 7,830 7,830
------- -------
14,529 14,529
Accumulated amortization (5,385) (3,206)
------- ------
Total leased properties $ 9,144 $11,323
======= =======
Rental expense under operating leases was $5,921,000, $5,423,000, and
$4,940,000 for the periods ended December 30, 2001, December 31, 2000, and
January 2, 2000, respectively.
Rental expense includes contingent rentals of $253,000, $278,000 and $275,000
for the periods ended December 30, 2001, December 31, 2000 and January 2, 2000,
respectively.
Operating Leases/Subleases with Third Parties --
The Company owns or leases from outside parties certain land and buildings
which are leased/subleased to third parties. Generally, the building portions
of the leases/subleases are treated as direct financing leases while the land
portions of the leases/subleases are treated as operating leases.
The following summarizes the minimum future rentals on operating
leases/subleases as of December 30, 2001:
Operating
Leases
---------
Year (In thousands)
2002 $ 1,303
2003 931
2004 633
2005 631
2006 594
Thereafter 1,845
------
Total minimum lease
payments to be received $ 5,937
======
Rental income under operating leases was $1,669,000, $1,553,000, and $1,234,000
for the periods ended December 30, 2001, December 31, 2000, and
January 2, 2000, respectively, and is included in other expenses in the
accompanying consolidated income statements.
Subsequent to year end, the Company entered into a real estate sale and
leaseback transaction in which it sold commercial real property and
improvements of 32 restaurant locations to an unaffiliated third party and
leased the properties back for a period of twenty years. Proceeds from this
transaction were approximately $23,317,000, net of expenses of $950,000. The
Company has the option to extend the leases past the original twenty years for
four additional periods of five years each. The leases are accounted for as
operating leases.
The gain that the Company realized on the above real estate transactions was
approximately $4,101,000 and will be deferred and classified in the subsequent
balance sheets as a deferred gain, and will be amortized as a reduction of
rental expense over the life of the leases.
The following is a schedule of future minimum payments under operating leases
that resulted from this transaction:
Operating
Year Leases
---- ---------
2002 $ 2,644
2003 2,644
2004 2,644
2005 2,644
2006 2,644
Thereafter 39,660
------
$52,880
======
9. COMMITMENTS AND CONTINGENCIES
On September 21, 1999, the Company was named as a defendant in a lawsuit filed
in the Northern District of Alabama (Michael Jones vs. The Krystal Company)
alleging that the plaintiff was denied access to the restrooms in one of the
Company's restaurants in violation of the Americans with Disabilities Act.
The lawsuit sought class action status on behalf of all wheelchair bound
patrons of the Company's restaurants who have been denied access to restrooms.
As reported in the Company's Quarterly Report on Form 10-Q for its second
quarter of fiscal 2001, on July 12, 2001, a judgment was entered by the court
that ordered the provisional certification of the settlement class be made
final and ratified, affirmed and adopted the court's preliminary approval of
the terms of settlement between the plaintiff and the Company which, among
other things, requires the Company to renovate all wheelchair inaccessible
restrooms in Krystal-owned restaurants over a ten year period beginning
in 2002.
The Company is a party to various other legal proceedings incidental to its
business. The ultimate disposition of these matters is not presently
determinable but will not, in the opinion of management and the Company's
legal counsel, have a material adverse effect on the Company's financial
condition or results of operations.
10. EMPLOYEE STOCK OPTIONS AND RESTRICTED STOCK PLANS
Employee Stock Options Plan--
On July 30, 1998, the Board of Directors of Port Royal Holdings, Inc.,
authorized a nonqualified Incentive Stock Option Plan (the "Plan") for key
employees of the Company and its subsidiary. The Plan is administered by the
Compensation Committee (the "Committee") of the Board of Directors. Under the
Plan, the Committee may grant options of up to 1,000,000 shares of Port Royal
common stock. The Committee granted 700,000 options in 1998 of which 100,000
vest ratably over 5 years and the remaining 600,000 vest in 2007, or upon a
change of control of the Company. These 700,000 options also contain a vesting
acceleration provision if the Company achieves certain cash flow targets. The
acceleration provisions resulted in 75,000 options becoming vested in 1999 and
2000. No options became vested under the acceleration provisions in 2001. No
options were granted or exercised in 2001, 2000 or 1999.
The Company accounts for its stock-based compensation plans under APB No. 25,
"Accounting for Stock Issued to Employees," under which no compensation
expense has been recognized as all employee stock options have been granted
with an exercise price equal to the estimated fair value of Port Royal common
stock on the grant date. SFAS No. 123, "Accounting for Stock-Based
Compensation," established accounting and disclosure requirements using a
fair-value based method of accounting for stock-based employee compensation
plans. The Company has adopted the disclosure requirements as detailed below.
For SFAS No. 123 purposes, the fair value of each option grant has been
estimated as of the date of the grant using the minimum value option pricing
model because there is no established fair market value of the Company's stock
as it is not available on the open market. The following weighted average
assumptions were used for fiscal year 1998 grants: expected dividend yield
of 0%, a risk-free interest rate of 5.49% and expected life of 10 years.
Using these assumptions, the fair value of the employee stock options granted
in 1998 is $1,303,000, which would be amortized as compensation expense over
the vesting period of the options. Had compensation cost been determined in
accordance with SFAS No. 123, utilizing the assumptions detailed above, the
Company's net income (loss) would have adjusted to the pro forma amounts
indicated below:
2001 2000 1999
------ ------ ------
Net Income (loss)(in thousands):
As reported $(3,601) $(5,311) $2,544
Pro forma (3,694) (5,444) 2,436
A summary of the Company's stock option activity is as follows:
(shares in thousands)
2001 2000 1999
------------------ ---------------- ----------------
Weighted Weighted Weighted
Shares Average Shares Average Shares Average
Under Exercise Under Exercise Under Exercise
Option Price Option Price Option Price
------- --------- --------- ------- ------- ------
Outstanding at beginning of year 700 $4.50 700 $4.50 700 $4.50
Granted - - - - - -
----- ----- ----- ----- ----- -----
Outstanding at end of year 700 $4.50 700 $4.50 700 $4.50
===== ===== ===== ===== ===== =====
Exercisable at end of year 230 $4.50 210 $4.50 115 $4.50
Of the 700,000 shares subject to options outstanding at December 30, 2001,
(i) options to purchase 100,000 shares have an exercise price of $4.50, with a
remaining contractual life of 6.7 years, of which 80,000 shares are
exercisable; and (ii) options to purchase 600,000 shares have an exercise
price of $4.50, with a weighted average remaining contractual life of 6.6
years, of which 150,000 are exercisable.
11. QUARTERLY INFORMATION (unaudited)
(In thousands of dollars)
Fiscal 2001
Operating Net
Revenues Income Loss
-------- --------- ------
Quarter Ended:
April 1 $ 62,724 $ 478 $( 1,925)
July 1 66,758 2,552 ( 175)
October 3 65,015 1,472 ( 1,232)
December 30 66,181 2,819 ( 269)
-------- ------- --------
Total $260,678 $ 7,321 $( 3,601)
======== ======= ========
Fiscal 2000
Operating
Income Net
Revenues (Loss) Loss
-------- --------- ------
Quarter Ended:
April 2 $ 64,365 $(1,171) $(2,894)
July 2 69,763 3,178 ( 181)
October 1 67,186 2,326 ( 648)
December 31 65,405 963 (1,588)
-------- ------- -------
$266,719 $ 5,296 $(5,311)
======== ======= =======
12. SUBSIDIARY GUARANTORS
The Company's subsidiaries have fully and unconditionally guaranteed the
Notes of the Company. The guarantees do not restrict the ability of the
subsidiary guarantors to declare dividends, or make loans or advances to the
Company.
Set forth below are condensed consolidating financial statements for the
Company and the Subsidiary Guarantors for the years ended December 30, 2001,
December 31, 2000, and January 2, 2000. The equity method has been used by
the Company with respect to investments in subsidiaries.
CONDENSED CONSOLIDATING BALANCE SHEET
At December 30, 2001
The Krystal
Company Subsidiary Consolidated
(Parent) Guarantors Adjustments Total
----------- ---------- ----------- -----------
Current Assets:
Cash and temporary investments $ 12,965 $ 77 $ -- $ 13,042
Receivables, net (11,734) 234 12,918 1,418
Inventories 1,971 62 -- 2,033
Deferred income taxes 2,876 1 -- 2,877
Prepayments and other 756 67 -- 823
-------- ------- ------- --------
Total current assets 6,834 441 12,918 20,193
-------- ------- ------- --------
Property, Buildings, and Equipment 144,654 5,716 -- 150,370
Accumulated depreciation (34,289) (1,281) -- (35,570)
-------- ------- ------- --------
Net property, buildings, and equipment 110,365 4,435 -- 114,800
-------- ------- ------- --------
Leased Properties, net 9,144 -- -- 9,144
Investment in Subsidiary 1 1 (2) --
Other Assets:
Goodwill, net 40,759 -- -- 40,759
Prepaid pension asset 8,754 -- -- 8,754
Deferred financing costs, net 2,735 -- -- 2,735
Other 1,588 17 -- 1,605
-------- ------- ------- --------
Total other assets 53,836 17 -- 53,853
-------- ------- ------- --------
Total Assets $180,180 $ 4,894 $12,916 $197,990
======== ======= ======= ========
Current Liabilities:
Accounts payable $ (6,795) $ ( 948) $12,918 $ 5,175
Accrued liabilities 22,339 380 -- 22,719
Current portion of long-term debt 1,138 223 -- 1,361
Current portion of capital lease
obligations 2,133 -- -- 2,133
-------- ------- ------- --------
Total current liabilities 18,815 ( 345) 12,918 31,388
-------- ------- ------- --------
Long Term Debt, excluding current
portion 116,957 1,624 -- 118,581
-------- ------- ------- --------
Capital Lease Obligations, excluding
current portion 8,170 -- -- 8,170
-------- ------- ------- --------
Deferred Income Taxes 8,928 ( 16) 8,912
-------- ------- ------- --------
Other Long-Term Liabilities 1,501 -- -- 1,501
-------- ------- ------- --------
Shareholder's Equity:
Common Stock 35,000 2 (2) 35,000
Retained Earnings (9,191) 3,629 -- (5,562)
-------- ------- ------- --------
Total shareholder's equity 25,809 3,631 (2) 29,438
-------- ------- ------- --------
Total Liabilities and Shareholder's
Equity $180,180 $ 4,894 $12,916 $197,990
======== ======= ======= ========
CONDENSED CONSOLIDATING BALANCE SHEET
At December 31, 2000
The Krystal
Company Subsidiary Consolidated
(Parent) Guarantors Adjustments Total
----------- ---------- ----------- -----------
Current Assets:
Cash and temporary investments $ 4,554 $ 425 $ -- $ 4,979
Receivables, net (6,411) 515 7,848 1,952
Inventories 1,942 50 -- 1,992
Deferred income taxes 2,752 33 -- 2,785
Prepayments and other 735 67 -- 802
-------- ------- ------- --------
Total current assets 3,572 1,090 7,848 12,510
-------- ------- ------- --------
Property, Buildings, and Equipment 146,917 5,550 -- 152,467
Accumulated depreciation (28,381) (775) -- (29,156)
-------- ------- ------- --------
Net property, buildings, and equipment 118,536 4,775 -- 123,311
-------- ------- ------- --------
Leased Properties, net 11,323 -- -- 11,323
Investment in Subsidiary 1 1 (2) --
Other Assets:
Goodwill, net 42,794 -- -- 42,794
Prepaid pension asset 8,358 -- -- 8,358
Deferred financing costs, net 3,278 -- -- 3,278
Other 1,608 19 1,627
-------- ------- ------- --------
Total other assets 56,038 19 -- 56,057
-------- ------- ------- --------
Total Assets $189,470 $ 5,885 $ 7,846 $203,201
======== ======= ======= ========
Current Liabilities:
Accounts payable $ (1,469) $ 1,066 $ 7,848 $ 7,445
Accrued liabilities 21,458 460 21,918
Outstanding checks in excess
of bank balance 2,745 -- -- 2,745
Current portion of long-term debt 5 115 -- 120
Current portion of capital lease
obligations 1,962 -- -- 1,962
-------- ------- ------- --------
Total current liabilities 24,701 1,641 7,848 34,190
-------- ------- ------- --------
Long Term Debt, excluding current
portion 112,095 1,897 -- 113,992
-------- ------- ------- --------
Capital Lease Obligations, excluding
current portion 10,341 -- -- 10,341
-------- ------- ------- --------
Deferred Income Taxes 10,808 (529) 10,279
-------- ------- ------- --------
Other Long-Term Liabilities 1,360 -- -- 1,360
-------- ------- ------- --------
Shareholder's Equity:
Common Stock 35,000 2 (2) 35,000
Retained Earnings (4,835) 2,874 -- (1,961)
-------- ------- ------- --------
Total shareholder's equity 30,165 2,876 (2) 33,039
-------- ------- ------- --------
Total Liabilities and Shareholder's
Equity $189,470 $ 5,885 $ 7,846 $203,201
======== ======= ======= ========
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
For the year ended December 30, 2001
The Krystal
Company Subsidiary Consolidated
(Parent) Guarantors Adjustments Total
-------- ------- ------- --------
Revenues:
Restaurant Sales $246,898 $ -- $ -- $246,898
Franchise fees 1,041 -- 1,041
Royalties 5,958 -- 5,958
Other - 6,781 -- 6,781
-------- ------- ------- --------
Total Revenues 253,897 6,781 -- 260,678
-------- ------- ------- --------
Cost and Expenses:
Cost of restaurant sales 206,498 -- -- 206,498
Advertising expense 10,370 -- -- 10,370
Depreciation and amortization
expense 13,951 506 -- 14,457
General and administrative
expenses 15,484 276 -- 15,760
Other expenses, net 1,622 4,650 -- 6,272
-------- ------- ------- --------
247,925 5,432 -- 253,357
-------- ------- ------- --------
Operating Income 5,972 1,349 -- 7,321
Gain on sale of asset 483 -- -- 483
Interest expense, net (12,887) ( 131) -- (13,018)
-------- ------- ------- --------
Income (loss) before (provision
for) benefit from income taxes (6,432) 1,218 -- (5,214)
(Provision for) benefit from
income taxes 2,076 ( 463) -- 1,613
-------- ------- ------- --------
Net income (loss) $ (4,356) $ 755 $ -- $ (3,601)
======== ======= ======= ========
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
For the year ended December 31, 2000
The Krystal
Company Subsidiary Consolidated
(Parent) Guarantors Adjustments Total
-------- ------- ------- --------
Revenues:
Restaurant Sales $253,967 $ -- $ -- $253,967
Franchise fees 901 -- 901
Royalties 4,927 -- 4,927
Other - 6,924 -- 6,924
-------- ------- ------- --------
Total Revenues 259,795 6,924 -- 266,719
-------- ------- ------- --------
Cost and Expenses:
Cost of restaurant sales 215,835 -- -- 215,835
Advertising expense 11,420 -- -- 11,420
Depreciation and amortization
expense 14,113 458 -- 14,571
General and administrative
expenses 14,916 250 -- 15,166
Other expenses, net (445) 4,876 -- 4,431
-------- ------- ------- --------
255,839 5,584 -- 261,423
-------- ------- ------- --------
Operating Income 3,956 1,340 -- 5,296
Gain (loss) on sale of asset 647 (23) -- 624
Interest expense, net (12,861) (80) -- (12,941)
-------- ------- ------- --------
Income (loss) before (provision
for) benefit from income taxes (8,258) 1,237 -- (7,021)
(Provision for) benefit from
income taxes 1,798 ( 88) -- 1,710
-------- ------- ------- --------
Net income (loss) $ (6,460) $ 1,149 $ -- $ (5,311)
======== ======== ======= ========
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
For the year ended January 2, 2000
The Krystal
Company Subsidiary Consolidated
(Parent) Guarantors Adjustments Total
-------- ------- ------- --------
Revenues:
Restaurant sales $256,384 $ -- $ -- $256,384
Franchise fees 499 -- -- 499
Royalties 4,380 -- -- 4,380
Other - 5,755 -- 5,755
-------- ------- ------- --------
Total Revenues 261,263 5,755 -- 267,018
-------- ------- ------- --------
Cost and Expenses:
Cost of restaurant sales 210,767 -- -- 210,767
Advertising expense 11,384 -- -- 11,384
Depreciation and amortization
expense 13,032 203 -- 13,235
General and administrative
expenses 12,372 274 -- 12,646
Other expenses, net (400) 3,943 -- 3,543
-------- ------- ------- --------
Total Operating Expenses 247,155 4,420 -- 251,575
-------- ------- ------- --------
Operating income 14,108 1,335 -- 15,443
Gain on sale of investments 1,349 -- -- 1,349
Interest income (expense), net (11,245) 15 -- (11,230)
-------- ------- ------- --------
Income before provision
for income taxes 4,212 1,350 -- 5,562
Provision for income taxes ( 2,496) ( 522) -- ( 3,018)
-------- ------- ------- --------
Net income $ 1,716 $ 828 $ -- $ 2,544
======== ======= ======= ========
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the year ended December 30, 2001
The Krystal
Company Subsidiary Consolidated
(Parent) Guarantors Adjustments Total
-------- ------- ------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (4,356) $ 755 $ -- $ (3,601)
Adjustments to reconcile net
income (loss) to net cash provided
by (used in) operating activities -
Depreciation and amortization 13,951 506 -- 14,457
Deferred income taxes (2,004) 545 -- (1,459)
Gain on sale of asset (483) -- -- (483)
Loss on impairment of assets 2,145 -- -- 2,145
Changes in operating assets and liabilities:
Receivables, net 5,323 281 (5,070) 534
Inventories (29) (12) -- (41)
Prepayments and other (21) -- -- (21)
Accounts payable (5,326) (2,014) 5,070 (2,270)
Accrued liabilities 881 (80) -- 801
Other, net 396 2 -- 398
-------- ------- ------- --------
Net cash provided by (used in)
operating activities 10,477 (17) -- 10,460
-------- ------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, buildings
and equipment (5,665) (166) -- (5,831)
Proceeds from the sale and the
sale/leaseback of property,
buildings and equipment 2,349 -- -- 2,349
-------- ------- ------- --------
Net cash used in investing
activities (3,316) (166) -- (3,482)
-------- ------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under
revolving credit facility 6,000 -- -- 6,000
Repayments of long-term debt (5) (165) -- (170)
Outstanding checks in excess of
bank balance (2,745) -- -- (2,745)
Principal payments of capital
lease obligations (2,000) -- -- (2,000)
-------- -------- -------- --------
Net cash provided by (used in)
financing activities 1,250 (165) -- 1,085
-------- -------- ------- --------
NET INCREASE (DECREASE) IN CASH AND
TEMPORARY INVESTMENTS 8,411 (348) -- 8,063
CASH AND TEMPORARY INVESTMENTS,
beginning of period 4,554 425 -- 4,979
-------- -------- ------- --------
CASH AND TEMPORARY INVESTMENTS,
end of period $ 12,965 $ 77 $ -- $ 13,042
======== ======== ======= ========
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the year ended December 31, 2000
The Krystal
Company Subsidiary Consolidated
(Parent) Guarantors Adjustments Total
-------- ------- ------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (6,460) $ 1,149 $ -- $ (5,311)
Adjustments to reconcile net
income (loss) to net cash provided
by (used in) operating activities -
Depreciation and amortization 14,178 393 -- 14,571
Deferred income taxes 509 -- -- 509
Gain on sale of asset (624) -- -- (624)
Changes in operating assets and
liabilities:
Receivables, net 1,522 (260) (1,832) (570)
Inventories 97 10 -- 107
Prepayments and other 307 (19) -- 288
Accounts payable (1,654) (215) 1,832 (37)
Accrued liabilities (1,985) (207) -- (2,192)
Other, net 1,616 (212) -- 1,404
-------- ------- ------- --------
Net cash provided by
operating activities 7,506 639 -- 8,145
-------- ------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, buildings
and equipment (24,721) (2,057) -- (26,778)
Proceeds from the sale and the
sale/leaseback of property,
buildings and equipment 9,621 -- -- 9,621
-------- ------- ------- --------
Net cash used in investing
activities (15,100) (2,057) -- (17,157)
-------- ------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under
revolving credit facility 9,539 -- -- 9,539
Proceeds from issuance of
long-term debt 98 1,902 -- 2,000
Repayments of long-term debt (103) -- -- (103)
Outstanding checks in excess
of bank balance (823) (133) -- (956)
Principal payments of capital
lease obligations (1,791) -- -- (1,791)
-------- -------- -------- --------
Net cash provided by
financing activities 6,920 1,769 -- 8,689
-------- -------- ------- --------
NET INCREASE (DECREASE) IN CASH AND
TEMPORARY INVESTMENTS (674) 351 -- (323)
CASH AND TEMPORARY INVESTMENTS,
beginning of period 5,228 74 -- 5,302
-------- -------- ------- --------
CASH AND TEMPORARY INVESTMENTS,
end of period $ 4,554 $ 425 $ -- $ 4,979
======== ======== ======= ========
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the year ended January 2, 2000
The Krystal
Company Subsidiary Consolidated
(Parent) Guarantors Adjustments Total
-------- -------- ------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,716 $ 828 $ -- $ 2,544
Adjustments to reconcile net
income to net cash provided
by operating activities -
Depreciation and amortization 13,032 203 -- 13,235
Deferred income taxes (1,949) 42 -- (1,907)
Changes in operating assets and
liabilities:
Receivables, net 5,058 (22) (4,113) 923
Inventories (398) (17) -- (415)
Prepayments and other (350) (20) -- (370)
Accounts payable (2,284) 644 4,113 2,473
Income taxes payable (90) 90 -- -
Accrued liabilities 1,868 (11) -- 1,857
Other, net (1,091) -- -- (1,091)
-------- -------- ------- -------
Net cash provided by
operating activities 15,512 1,737 -- 17,249
-------- ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, buildings
and equipment (30,767) (2,361) -- (33,128)
Proceeds from the sale and the
sale/leaseback of property,
buildings and equipment 6,645 -- -- 6,645
Payments received on net
investment in direct
financing leases 58 -- -- 58
-------- ------- ------- -------
Net cash used in investing
activities (24,064) (2,361) -- (26,425)
-------- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings (repayments) under
revolving credit facility 2,520 31 -- 2,551
Repayments of long-term debt (66) -- -- (66)
Outstanding checks in excess
of bank balance 3,568 133 -- 3,701
Principal payments of capital
lease obligations (720) -- -- (720)
-------- ------- ------- -------
Net cash provided by
financing activities 5,302 164 -- 5,466
-------- ------- ------- -------
NET DECREASE IN CASH AND
TEMPORARY INVESTMENTS (3,250) (460) -- (3,710)
CASH AND TEMPORARY INVESTMENTS,
beginning of period 8,478 534 -- 9,012
-------- ------- ------- -------
CASH AND TEMPORARY INVESTMENTS,
end of period $ 5,228 $ 74 $ -- $ 5,302
======== ======= ======= =======
13. Segment Reporting
The Company has three defined reportable segments: restaurants, franchising,
and fixed base airport hanger operations ("FBO"). The restaurant segment
consists of the operations of all Company-owned restaurants and derives its
revenues from retail sales of food products to the general public. The
franchising segment consists of franchise sales and support activities and
derives its revenues from fees related to the sales of franchise and
development rights and collection of royalties from franchisees of the Krystal
brand. The FBO operation consists primarily of aircraft fuel sales and the
leasing of aircraft hanger space. All of the Company's revenues are derived
within the United States.
The accounting policies of the segments are the same as those described in the
Summary of Significant Accounting Policies.
Segment information is as follows:
(in thousands) 2001 2000 1999
Revenues:
Restaurants $246,898 $253,967 $256,384
Franchising 6,999 5,828 4,879
FBO 6,781 6,924 5,755
- -------------------------------------------------------------------------------------------
Total segment revenues $260,678 $266,719 $267,018
===========================================================================================
Depreciation and Amortization:
Restaurants $ 13,847 $ 14,042 $ 12,966
Franchising 4 4 3
FBO 309 274 156
- -------------------------------------------------------------------------------------------
Total segment depreciation and amortization $ 14,160 $ 14,320 $ 13,125
===========================================================================================
Earnings before Interest, Taxes, Depreciation,
and Amortization ("EBITDA"):
Restaurant $ 15,409 $ 14,106 $ 24,110
Franchising 4,474 4,165 3,979
FBO 1,771 1,691 1,514
- -------------------------------------------------------------------------------------------
Total segment EBITDA $ 21,654 $ 19,962 $ 29,603
===========================================================================================
Interest expense:
Restaurant $ 12,946 $ 13,197 $ 10,923
Franchising 0 0 0
FBO 0 0 0
- -------------------------------------------------------------------------------------------
Total segment interest expense $ 12,946 $ 13,197 $ 10,923
============================================================================================
Capital Expenditures:
Restaurants $ 5,665 $ 22,463 $ 30,767
Franchising 0 0 0
FBO 166 1,305 344
- -------------------------------------------------------------------------------------------
Total segment capital expenditures $ 5,831 $ 23,768 $ 31,111
===========================================================================================
Total Assets:
Restaurants $189,695 $194,326 $193,763
Franchising 1,718 1,599 594
FBO 2,722 3,515 1,597
- -------------------------------------------------------------------------------------------
Total segment assets $194,135 $199,440 $195,954
===========================================================================================
A reconciliation of segment depreciation and
amortization to consolidated depreciation and
amortization is as follows:
Segment depreciation and amortization $ 14,160 $ 14,320 $ 13,125
Unreported segments (1) 297 251 110
- -------------------------------------------------------------------------------------------
Total consolidated depreciation and amortization $ 14,457 $ 14,571 $ 13,235
===========================================================================================
A reconciliation of segment EBITDA to consolidated
EBITDA is as follows:
Segment EBITDA $ 21,654 $ 19,962 $ 29,603
Unreported segments (1) 607 529 424
- -------------------------------------------------------------------------------------------
Total consolidated EBITDA $ 22,261 $ 20,491 $ 30,027
===========================================================================================
A reconciliation of segment total assets to
consolidated total assets is as follows:
Total segment assets $194,135 $199,440 $195,954
Unreported segments (1) 3,855 3,761 2,557
- -------------------------------------------------------------------------------------------
Total consolidated assets $197,990 $203,201 $198,511
===========================================================================================
(1) Unreported segments do not meet the quantitative thresholds for segment
reporting.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
There were no disagreements with accountants on accounting and financial
disclosure in 2001.
Item 10. Directors and Executive Officers of the Company
The directors of the Company, which serve until the next annual meeting
of shareholders or until their successors are elected and qualified or until
their earlier resignation or removal, are:
Name Age Position
---- --- --------
Philip H. Sanford 48 Chairman, Chief Executive Officer
and Director
James F. Exum, Jr. 45 President, Chief Operating Officer
and Director
Andrew G. Cope 60 Director
S. K. Johnston III 48 Director
W. A. Bryan Patten 61 Director
Richard C. Patton 40 Director
Benjamin R. Probasco 42 Director
A. Alexander Taylor II 48 Director
Philip H. Sanford has been Chairman, Chief Executive Officer and a
Director of the Company since September 1997. Prior to that time, Mr. Sanford
was Senior Vice President, Finance and Administration, of Coca-Cola
Enterprises Inc., from 1991 to 1997. Mr. Sanford was a senior executive with
Johnston Coca-Cola Bottling Group until 1991. Mr. Sanford is a director of
Chattem, Inc. (consumer products) and SunTrust Bank, Chattanooga, N.A.
James F. Exum, Jr. has been President, Chief Operating Officer and a
Director of the Company since September 1997. From 1995 to September 1997, Mr.
Exum served as President and Chief Executive Officer of Pennant Foods Corp.,
Knoxville, Tennessee. He was President and Chief Executive Officer of Southern
California Food Services Corp. from 1991 to 1995.
S. K. Johnston III has been a director of the Company since April 2001 and
has been the Executive Vice President of Strategic Planning for Coca-Cola
Enterprises, Inc. since January 2000. Prior to that, Mr. Johnston has served
in a variety of executive management positions at Coca-Cola Enterprises, Inc.
since 1993. Mr. Johnston is a director of SunTrust Bank.
Andrew G. Cope has been a Director of the Company since April 2000 and is
President of Johnston Southern Company, LLC, an investment holding company.
W. A. Bryan Patten has been a Director of the Company since September 1997
and is the President of Patten & Patten Inc., a registered investment
advisory firm in Chattanooga, Tennessee.
Richard C. Patton has been a Director of the Company since September
1997 and has been President of Woodmont Capital, LLC since 1997, and President
of Investments at Ingram Industries Inc., a diversified holding company, since
January of 1996. Prior to joining Ingram Industries Inc., Mr. Patton was
self-employed as an investor. From June 1992 to June 1995, Mr. Patton was an
equity analyst and portfolio manager with Fidelity Investments. From
June 1984 to September 1990 Mr. Patton developed the San Antonio Taco Co.
and Granite Falls restaurants. Mr. Patton is a director of Williamson-Dickie
Manufacturing Co. (work apparel).
Benjamin R. Probasco has been a Director of the Company since September
1997 and has been a principal with Kinsey Probasco & Associates since
June, 2001. Prior to joining Kinsey Probasco, Mr. Probasco was employed by
Gordon Biersch Brewery Restaurant Group, Inc. ("Biersch"), from April 1998 to
June 2001. Prior to joining Biersch, Mr. Probasco was employed for two years
at Probasco & Company, a real estate development company, six years at
Leonard, Kinsey & Associates from 1991 to 1997 and from 1983 to 1988 was
employed at Johnston Coca-Cola Bottling Group.
A. Alexander Taylor II has been a Director of the Company since
April 22, 1998 and has been President and Chief Operating Officer of
Chattem, Inc. since January 1998. Prior to joining Chattem, Inc. Mr. Taylor
was a partner in the law firm of Miller & Martin LLP and was affiliated with
that firm from 1978 to 1998. Mr. Taylor is a director of Chattem, Inc.
(consumer products) and U.S. Xpress Enterprises, Inc. (transportation).
The Executive Officers of the Company, in addition to Messrs. Sanford
and Exum, each of whom serves at the discretion of the board of directors,
are:
Name Age Position
---- --- --------
Gordon L. Davenport, Jr. 42 Vice President, Marketing - Development
Larry D. Bentley 45 Vice President and Chief Financial
Officer
Michael C. Bass 55 Vice President, Administration.
Roger A. Rendin 53 Vice President, Human Resources
Glen R. Griffiths 56 Vice President, Franchising
Gordon L. Davenport, Jr. has been Vice President Marketing -
Development at Krystal since February 1997. From 1995 to 1997, Mr. Davenport
served as Vice President of New Business and Strategic Planning and Vice
President of Marketing and New Business. From 1986 to 1995, Mr. Davenport
served in various marketing and sales management positions with Warner
Lambert Company.
Larry D. Bentley was elected Vice President and Chief Financial Officer
of the Company in December 1997. From 1991 to 1996, Mr. Bentley was
Executive Vice President and Chief Financial Officer of U.S. Xpress
Enterprises, Inc. From 1979 to 1991, Mr. Bentley served in various capacities
with Arthur Andersen & Co.
Michael C. Bass was appointed Vice President - Administration on
April 22, 1998. He has served in various capacities with the Company since
1979, including Director of Purchasing, Director of Administration and Vice
President of Administration. From 1969 to 1979 he held various management
positions with Marriott Corporation.
Roger A. Rendin was appointed Vice President, Human Resources in November
1999. From 1991 to 1999, Mr. Rendin served as Vice President, Human Resources
of Pep Boys Manny Moe & Jack. He served as Human Resources Director-Restaurant
Operations of Burger King Corporation from 1987 to 1991.
Glen R. Griffiths was appointed Vice President, Franchising in June 2001.
From 1998 to 2001, Mr. Griffiths served as Director of Business Development for
AFC Enterprises, Inc. From 1997 to 1998, he served as a Regional Director for
Shoney's, Inc. From 1995 to 1997, he served as a Regional Director for a
BOSTON MARKET Area Director.
Item 11. Executive Compensation
The following table summarizes the total compensation for the last three
fiscal years of the following five highest compensated named executive officers
of the Company during the last fiscal year.
Summary Compensation Table
Long-Term
Annual Compensation Compensation
-------------------------------------- ------------
Other Securities
Annual underlying
Name and Compen- Options
Principal Position Year Salary Bonus sation(1) Awarded
Philip H. Sanford 2001 $387,500 $ -- -- 0
Chairman of the Board of 2000 387,500 -- -- 0
Directors and Chief 1999 375,521 153,974 -- 0
Executive Officer
James F. Exum, Jr. 2001 337,500 -- -- 0
President and Chief 2000 337,500 -- -- 0
Operating Officer 1999 325,555 133,475 -- 0
And Director
Larry D. Bentley 2001 187,500 -- -- 0
Vice President, Chief 2000 176,835 -- -- 0
Financial Officer 1999 161,725 46,905 -- 0
Gordon L. Davenport, Jr. 2001 197,890 -- -- 0
Vice President Marketing 2000 191,163 -- -- 0
and Development 1999 181,836 68,842 -- 0
Michael C. Bass 2001 152,414 -- -- 0
Vice President 2000 146,216 -- -- 0
Administration 1999 138,088 52,605 -- 0
Roger A. Renden 2001 193,900 -- -- 0
Vice President 2000 182,000 -- -- 0
(1) Except as disclosed in the table, the value of perquisites received
by the named executive officers did not exceed the lesser of either
$50,000 or 10.0% of their total salary and bonus for such year.
There are no employment agreements with any of these individuals. The
Company has adopted performance-based incentive compensation plans for
senior management of the Company, including a cash management bonus plan and
a stock ownership plan, under which total awards may, in the aggregate,
equal 10% of the outstanding common stock of the Company on a fully-diluted
basis, assuming exercise of options, of which an amount equal to 7% of the
outstanding common stock of the Port Royal on a fully-diluted basis has been
granted. Non-employee directors receive a fee of $1,000 for each Board of
Directors and committee meeting attended.
OPTION EXERCISES AND HOLDINGS
The option activity by the Company's chief executive officer and the
other named executive officers during the fiscal year ended December 30, 2001,
as well as the number and total value of unexercised in-the-money options at
December 30, 2001, are shown in the following table. All references to options
and shares refer to Port Royal Stock.
Aggregate Option Exercises in Last Fiscal Year
and Option Values at December 30, 2001
Name Number of Value Number of Value of
Shares Realized Unexercised Unexercised
Acquired Options at Options
on Exercise Dec. 30, 2001 In-the-Money
Exercisable/ Exercisable/
Unexercisable Unexercisable(1)
- --------------------- -------- -------- ------------- -------------
Philip H. Sanford -- -- --/-- -/-
James F. Exum, Jr. -- -- 180,000/320,000 -/-
Larry D. Bentley -- -- 25,000/75,000 -/-
Gordon L. Davenport, Jr. -- -- 25,000/75,000 -/-
Michael C. Bass -- -- --/-- -/-
Roger A. Rendin -- -- --/-- -/-
Glen R. Griffiths -- -- --/-- -/-
(1) Since the shares of Port Royal Stock do not trade on any market, it is
assumed that the fair market value of the Port Royal Stock is equal
to the exercise price of the option.
Item 12. Security Ownership of Certain Beneficial Owners and Management
All of the outstanding capital stock of the Company is held by Port Royal.
The following table sets forth certain information regarding beneficial
ownership of the common stock of Port Royal by: (i) each person who holds more
than 5% of the common stock of Port Royal (the address for each such person is
set forth in the notes following the table), (ii) each Director of the Company
and nominee for election, (iii) each of the Executive Officers of the Company
and (iv) all Directors and Executive Officers as a group.
Name Amount of Percent of
Beneficial Ownership Class (1)
Directors
Philip H. Sanford(2) 2,600,000 26.0
James F. Exum, Jr.(3) 180,000 1.8
W. A. Bryan Patten(4) 863,333(5) 8.6
Richard C. Patton(6) 1,233,333(7) 12.3
Benjamin R. Probasco(8) 863,333(9) 8.6
A. Alexander Taylor II 123,333 1.2
Andrew G. Cope(13) 123,333 1.2
S. K. Johnston III(14) 1,233,334(15) 12.3
Executive Officers
Larry D. Bentley(3) 25,000 0.3
Gordon L. Davenport, Jr.(3) 291,667 2.9
Michael C. Bass 0 0
Roger A. Rendin 0 0
Glen R. Griffiths 0 0
5% Shareholders
Katherine J. Johnston Trust(10) 1,233,333 12.3
Ingram Investments, Inc.(11) 1,233,333 12.3
P&P Port Royal Investors, LP(12) 863,333 8.6
All Directors, Director Nominees and
Executive Officers as a group
(13 persons) 7,536,666 75.4
(1) For purposes of computing percentage of outstanding shares owned by each
beneficial owner, the shares issued pursuant to stock options
held by such beneficial owner are deemed outstanding. Such shares
are not deemed to be outstanding for the purpose of computing the
percentage ownership of any other person.
(2) The address for this beneficial owner is The Krystal Building,
One Union Square, Chattanooga, Tennessee 37402.
(3) Includes 200,000 shares for Mr. Exum, 25,000 shares for Mr. Bentley and
25,000 shares for Mr. Davenport, Jr. subject to purchase within sixty
days of March 20, 2002 under the Company's Incentive Stock Plan.
(4) The address for this beneficial owner is 520 Lookout Street,
Chattanooga, Tennessee 37403.
(5) Includes shares held by P&P Port Royal Investors, LP, an investment fund
for which an affiliate of Patten & Patten, Inc. serves as general
partner. Mr. Patten is a director, officer and shareholder of Patten
& Patten, Inc. Mr. Patten disclaims ownership of all but 5,920 of
these shares.
(6) The address for this beneficial owner is 4400 Harding Road, Nashville,
Tennessee 37205.
(7) Includes shares held by Ingram Investments, Inc., an investment fund for
which Mr. Patton is the President.
(8) The address for this beneficial owner is 100 East Tenth Street,
Suite 600, Chattanooga, Tennessee 37402.
(9) Includes shares held by various trusts of which Mr. Probasco is a
beneficiary.
(10) The address for this beneficial owner is Suite 600, The Krystal Building,
Chattanooga, Tennessee 37402.
(11) The address for this beneficial owner is 4400 Harding Road, Nashville,
Tennessee 37205.
(12) The address for this beneficial owner is 520 Lookout Street, Chattanooga,
Tennessee 37403.
(13) Includes shares held by High Hemlock Partners, an investment fund for
which Mr. Cope is managing partner.
(14) The address for this beneficial owner is 2791 Twin Oaks Way, Wellington,
Florida, 33414.
(15) Includes shares held by his wife, and a trust for the benefit of his
daughter, the Louisa L. Johnston Trust. Mr. Johnston disclaims
beneficial ownership of all but 468,667 of these shares.
Item 13. Certain Relationships and Related Transactions
None
PART IV
Item 14. Exhibits , Financial Statement Schedules, and Reports on Form 8-K
(a) 1. Financial Statements
The financial statements are included herein by reference.
2. Financial statement schedules
All schedules are omitted because the information is either not
required or is included in the financial statements or notes hereto.
3. Exhibits
See exhibit index
(b) Reports on Form 8-K -
The registrant filed a Form 8-K during the fourth quarter of fiscal
2001 to report the tender offer for a portion of its senior notes.
Signatures --
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
The Krystal Company
Dated: March 26, 2002 By: /s/ Larry D. Bentley
------------------------------
Larry D. Bentley, Vice President
and Chief Financial Officer
(Principal Accounting Officer)
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, thereto duly authorized.
Signature Title Date
/s/ Philip H. Sanford
- ----------------------
Philip H. Sanford Chairman of the Board of
Directors and Chief Executive
Officer and Director March 26, 2002
/s/ James F. Exum, Jr.
- ----------------------
James F. Exum, Jr. President, Chief Operating
Officer and Director March 26, 2002
/s/ Andrew G. Cope
- ----------------------
Andrew G. Cope Director March 26, 2002
/s/ S. K. Johnston III
- ----------------------
S. K. Johnston III Director March 26, 2002
/s/ W. A. Bryan Patten
- ----------------------
W. A. Bryan Patten Director March 26, 2002
/s/ Richard C. Patton
- ----------------------
Richard C. Patton Director March 26, 2002
/s/ Benjamin R. Probasco
- ----------------------
Benjamin R. Probasco Director March 26, 2002
/s/ Alexander Taylor II
- -----------------------
A. Alexander Taylor II Director March 26, 2002
Supplemental information to be furnished with Reports filed pursuant
to Section 15(d) of the Act by Registrants which have not registered securities
pursuant to Section 12 of the Act --
The Company has not sent an annual report or proxy statement to its sole
shareholder, Port Royal Holdings, Inc.
THE KRYSTAL COMPANY AND SUBSIDIARY
EXHIBIT INDEX
Exhibit
Number Description
2.1 Agreement and Plan of Merger dated July 3, 1997 by and
among Port Royal Holdings, Inc., TKC Acquisition Corp.
and The Krystal Company. (1)
3.1 Charter of the Company. (2)
3.2 By-laws of the Company. (2)
4.1 Indenture, dated as of September 26, 1997 between TKC
Acquisition Corp. and SunTrust Bank, Atlanta, N.A. (2)
4.2 Supplemental Indenture No. 1 dated as of September 26,
1997, between The Krystal Company, Krystal Aviation Co.,
Krystal Aviation Management Co. and SunTrust Bank, Atlanta. (2)
4.3 Form of Exchange Note (included in Exhibit 4.1). (2)
4.4 Registration Rights Agreement, dated as of September 26,
1997, between TKC Acquisition Corp. and UBS Securities, LLC. (2)
10.1 Port Royal, Inc. Stock Incentive Plan for The Krystal
Company, adopted July 30, 1998. (3)
10.2 Sale-leaseback Agreement by and between Crystac Property I LLC
and The Krystal Company dated as of December 31, 2001.
10.3 Master lease dated as of December 31, 2001 by and between
Crystac Property I LLC and The Krystal Company.
10.4 Sale-leaseback Agreement by and between Crystac Property II LLC
and The Krystal Company dated as of December 31, 2001.
10.5 Master lease dated as of December 31, 2001 by and between
Crystac Property II LLC and The Krystal Company.
10.6 Credit Agreement dated as of January 28, 2002 among The Krystal
Company, Krystal Aviation Co., Krystal Aviation Management Co.
and Port Royal Holdings, Inc. and Bank of America, N.A. as
administrative agent, and ORIX Financial Services, Inc. as
documentation agent and the lenders listed therein.
21.1 Subsidiaries of the Company. (2)
99.1 Arthur Andersen representation letter dated March 26, 2002.
(1)Incorporated by reference from the Definitive Proxy Statement of
the Company filed on September 15, 1997.
(2)Incorporated by reference from the Company's Registration Statement
on Form S-4 filed November 25, 1997.
(3)Submitted only with the electronic filing of this document with the
Commission pursuant to Regulation S-T under the Securities Act.
Reported on Form 10-K for the fiscal year ended January 3, 1999
Exhibit 99.1
March 26, 2002
Securities and Exchange Commission
450 Fifth Street N.W.
Washington, D.C. 20549
Ladies and Gentlemen:
Arthur Andersen LLP ("Andersen"), our independent public accountant, has
represented to us that its audit of our consolidated financial statements as of
December 30, 2001, was subject to Andersen's quality control system for its
U.S. accounting and auditing practice to provide reasonable assurance that the
engagement was conducted in compliance with professional standards and that
there was appropriate continuity of Andersen personnel working on the audit
and appropriate availability of national office consultation. The availability
of personnel at foreign affiliates of Andersen was not relevant to our audit,
and, thus, we received no assurance from Andersen regarding such availability.
Very truly yours,
/s/Larry D. Bentley
- -------------------
Larry D. Bentley
Vice President and
Chief Financial Officer
The Krystal Company
Exhibit 10.2-
SALE-LEASEBACK AGREEMENT
THIS SALE-LEASEBACK AGREEMENT (this "Agreement") is made as of December 31,
2001, by and between CRYSTAC PROPERTY I LLC, a Delaware limited liability
company ("Buyer"), whose address is c/o U.S. Realty Advisors, LLC, 1370 Avenue
of the Americas, New York, New York 10019, and THE KRYSTAL COMPANY, a Tennessee
corporation ("Seller"), whose address is One Union Square, Chattanooga,
Tennessee 37402.
PRELIMINARY STATEMENT:
Unless otherwise expressly provided herein, all defined terms used in this
Agreement shall have the meanings set forth in Section 1. Seller owns or has an
option or right to purchase the Properties. Buyer desires to purchase the
Properties pursuant to this Agreement and lease the Properties to Seller
pursuant to the Lease.
AGREEMENT: In consideration of the mutual covenants and provisions of this
Agreement, the parties agree as follows:
1. Definitions. The following terms shall have the following meanings for
all purposes of this Agreement:
"Acknowledgement" means the Acknowledgement of Master Lease Assignment and
Subordination, Nondisturbance and Attornment Agreement dated as of the date of
this Agreement among Buyer, Seller, Lender and Remainderman, as the same may be
amended from time to time. A duplicate original Acknowledgement will be executed
and recorded in the applicable real property records for each Property. Each
Acknowledgement will contain exhibits with the addresses and store
identification numbers for all of the Properties and the legal description for
the applicable Property.
"Affiliate" means any person or entity which directly or indirectly controls,
is under common control with, or is controlled by any other person or
entity. For purposes of this definition, "controls", "under common control
with" and "controlled by" means the possession, directly or indirectly,
of the power to direct or cause the direction of the management and
policies of such person or entity, whether through ownership of voting
securities or otherwise.
"Closing" shall have the meaning set forth in Section 5.
"Closing Date" shall have the meaning set forth in Section 5.
"Code" means the United States Bankruptcy Code, 11 U.S.C. Sec. 101 et seq., as
amended.
"Commitment" means that certain commitment letter between U.S. Realty Advisors,
LLC and Seller, and any amendments or supplements thereto.
"Counsel" means one or more legal counsel to Seller licensed in the states in
which (i) the Properties are located, (ii) Seller is incorporated or formed and
(iii) Seller maintains its chief executive offices, as selected by Seller and
approved by Buyer.
"De Minimis Amounts" shall mean, with respect to any given level of Hazardous
Materials, that level or quantity of Hazardous Materials in any form or
combination of forms, the use, storage or release of which does not constitute a
violation of, or require regulation or remediation under, any Environmental Laws
and is customarily employed in the ordinary course of, or associated with,
similar businesses located in the states in which the Properties are located.
"Environmental Condition" means any condition with respect to soil, surface
waters, groundwaters, land, stream sediments, surface or subsurface strata,
ambient air and any environmental medium comprising or surrounding any of the
Properties, whether or not yet discovered, which could or does result in any
damage, loss, cost, expense, claim, demand, order or liability to or against
Seller, Buyer or Lender by any third party (including, without limitation, any
Governmental Authority), including, without limitation, any condition resulting
from the operation of Seller's business and/or the operation of the business of
any other property owner or operator in the vicinity of any of the Properties
and/or any activity or operation formerly conducted by any person or entity on
or off any of the Properties.
"Environmental Insurer" means American International Specialty Lines Insurance
Company or such other insurer providing Environmental Policies reasonably
acceptable to Buyer.
"Environmental Laws" means any present and future federal, state and local
laws, statutes, ordinances, rules, regulations and the like, as well as common
law, relating to Hazardous Materials and/or the protection of human health or
the environment, by reason of a Release or a Threatened Release of Hazardous
Materials or relating to liability for or costs of Remediation or prevention
of Releases.
"Environmental Laws" includes, but is not limited to, the following statutes,
as amended, any successor thereto, and any regulations, rulings, orders or
decrees promulgated pursuant thereto, and any state or local statutes,
ordinances, rules, regulations and the like addressing similar issues: the
Comprehensive Environmental Response, Compensation and Liability Act; the
Emergency Planning and Community Right-to-Know Act; the Hazardous Materials
Transportation Act; the Resource Conservation and Recovery Act (including but
not limited to Subtitle I relating to underground storage tanks); the Solid
Waste Disposal Act; the Clean Water Act; the Clean Air Act; the Toxic
Substances Control Act; the Safe Drinking Water Act; the Occupational Safety
and Health Act; the Federal Water Pollution Control Act; the Federal
Insecticide, Fungicide and Rodenticide Act; the Endangered Species Act; the
National Environmental Policy Act; and the River and Harbors
Appropriation Act. "Environmental Laws" also includes, but is not limited to,
any present and future federal, state and local laws, statutes, ordinances,
rules, regulations and the like, as well as common law: conditioning transfer
of property upon a negative declaration or other approval of a Governmental
Authority of the environmental condition of the property; requiring
notification or disclosure of Releases or other environmental condition of
any of the Properties to any Governmental Authority or other person or entity,
whether or not in connection with transfer of title to or interest in
property; imposing conditions or requirements relating to Hazardous Materials
in connection with permits or other authorization for lawful activity;
relating to nuisance, trespass or other causes of action related to Hazardous
Materials; and relating to wrongful death, personal injury, or property or
other damage in connection with the physical condition or use of any of the
Properties by reason of the presence of Hazardous Materials in, on, under or
above any of the Properties.
"Environmental Policies" means the environmental insurance policy or policies,
as applicable, issued by Environmental Insurer to Buyer with respect to the
Properties, which Environmental Policies shall be in form and substance
satisfactory to Buyer in its sole but reasonable discretion.
"Event of Default" has the meaning set forth in Section 12.
"Existing Leases" means those billboard and other leases affecting certain of
the Properties, which are described on the attached Schedule I.
"Existing Lessees" means the lessees under the Existing Leases.
"Fee" means an expense deposit made to cover certain costs and expenses
associated with the transactions contemplated hereby and by the Related
Sale-Leaseback Agreement equal to $200,000.00 in the aggregate, which amount
has been paid prior to the execution of this Agreement.
"Governmental Authority"
means any governmental authority, agency, department, commission, bureau,
board, instrumentality, court or quasi-governmental authority of the United
States, the states in which the Properties are located or any political
subdivision thereof.
"Hazardous Materials" means (i) any toxic substance or hazardous waste,
substance, solid waste or related material, or any pollutant or contaminant;
(ii) radon gas, asbestos in any form which is or could become friable, urea
formaldehyde foam insulation, transformers or other equipment which contains
dielectric fluid containing levels of polychlorinated biphenyls in excess of
federal, state or local safety guidelines, whichever are more stringent, or any
petroleum product; (iii) any substance, gas, material or chemical which is or
becomes defined as or included in the definition of "hazardous substances,"
"toxic substances," "hazardous materials," "hazardous wastes," "regulated
substances" or words of similar import under any Environmental Laws; and (iv)
any other chemical, material, gas or substance the exposure to or release of
which is or becomes prohibited, limited or regulated by any Governmental
Authority that asserts jurisdiction over any of the Properties or the
operations or activity at any of the Properties, or any chemical, material,
gas or substance that does or is likely to pose a hazard to the health and/or
safety of the occupants of any of the Properties or the owners and/or
occupants of property adjacent to or surrounding any of the Properties.
"Indemnified Parties" has the meaning set forth in Section 14.
"Lease" means the master lease agreement dated as of the date of this Agreement
to be executed by Buyer, as lessor, and Seller, as lessee, with respect to the
Properties, as the same may be amended from time to time.
"Lender" means GE Capital Franchise Finance Corporation, a Delaware
corporation.
"License Agreement" means the license agreement dated as of the date of this
Agreement between Buyer and Seller, as the same may be amended from time to
time.
"Loan Agreement" means the Loan Agreement dated as of the date of this
Agreement in effect between Buyer and Lender, as such agreement may be amended
from time to time and any and all replacements or substitutions thereof.
"Material Adverse Effect" means a material adverse effect on (i) the business,
condition, worth or operations of Seller, (ii) Seller's ability to perform its
obligations under the Lease or any of the other Sale-Leaseback Documents, or
(iii) any of the Properties, including, without limitation, the operation of
any of the Properties as a Permitted Facility and/or the value of any of the
Properties.
"Memorandum" means the memorandum of master lease dated as of the date of this
Agreement to be executed by Buyer, as lessor, and Seller, as lessee, with
respect to the Properties, as the same may be amended from time to time. A
duplicate original Memorandum will be executed and recorded in the applicable
real property records for each Property. Each Memorandum will contain exhibits
with the addresses and store identification numbers for all of the Properties
and the legal description for the applicable Property.
"Mortgages" means, collectively, the mortgages, deeds of trust or deeds to
secure debt, assignments of rents and leases, security agreements and fixture
filings to be executed by Buyer for the benefit of Lender with respect to the
Properties, as such instruments may be amended, restated and/or supplemented
from time to time and any and all replacements or substitutions thereof.
"Non-Foreign Seller Certificate" means the non-foreign seller certificate to
be executed and delivered by Seller to Buyer prior to or on the Closing Date.
"Permitted Exceptions" means those recorded easements, restrictions, liens and
encumbrances set forth as exceptions in the title insurance policies issued by
Title Company to Buyer and approved by Buyer in connection with this Agreement.
"Permitted Facility" means a restaurant operated under the brand name
"Krystal"; provided, however, Seller may operate up to twenty percent (20%) of
the Properties in the aggregate as another restaurant concept owned and
operated by the Seller Entities, provided the Seller Entities either (i) own
and operate five (5) or more units as such other restaurant concept (not
taking into account any of the Properties or Related Properties) or (ii) own
or operate such Properties as other nationally or regionally recognized
brands as consented to by Buyer (whose consent shall not be unreasonably
withheld).
"Personalty" means all machinery, appliances, furniture, equipment, trade
fixtures and other personal property from time to time situated on or used in
connection with the Properties; provided, however, the term "Personalty"
shall not include the HVAC, walk-in coolers, walk-in freezers, supply fans,
exhaust fans, air ducts, hoods, vents, built-in sinks, built-in countertops,
plumbing and electrical fixtures, merchandise shelving, sign poles and lighting
poles, all of which items are intended to be fixtures as such term is used
within the definition of "Properties".
"Properties" means, collectively, the parcels of real estate described by
address, FFC Number and Unit Number in Exhibit A attached hereto and legally
described in Exhibit A-1 attached hereto, all rights, privileges and
appurtenances associated therewith, and all buildings, structures, fixtures and
other improvements now or hereafter located on such real estate (excluding
Personalty and inventory).
"Purchase Price" means the amount specified in Section 3.
"Questionnaires" means the environmental questionnaires completed by Seller
with respect to each of the Properties and submitted to Environmental Insurer
in connection with the issuance of the Environmental Policies. "Related Buyer"
means Crystac Property II LLC, a Delaware limited liability company.
"Related Lease" means the lease between Related Buyer, as lessor, and Seller,
as lessee, relating to the Related Properties.
"Related Properties" means any properties which are the subject of a lease
between Related Buyer, as lessor, and Seller, as lessee.
"Related Sale-Leaseback Agreement" means the Sale-Leaseback Agreement dated as
of the Closing Date between Related Buyer, as buyer, and Seller, as seller.
"Release" means any presence, release, deposit, discharge, emission, leaking,
spilling, seeping, migrating, injecting, pumping, pouring, emptying, escaping,
dumping, disposing or other movement of Hazardous Materials.
"Remainderman" shall have the meaning set forth in Section 15.
"Remediation" means any response, remedial, removal, or corrective action, any
activity to cleanup, detoxify, decontaminate, contain or otherwise remediate
any Hazardous Materials, any actions to prevent, cure or mitigate any Release,
any action to comply with any Environmental Laws or with any permits issued
pursuant thereto, any inspection, investigation, study, monitoring, assessment,
audit, sampling and testing, laboratory or other analysis, or any evaluation
relating to any Hazardous Materials.
"Sale-Leaseback Documents" means this Agreement, the Lease, the Memorandum,
the Acknowledgement, the License Agreement and all other documents executed
in connection therewith or contemplated thereby, all as amended and
supplemented and any and all replacements or substitutions thereof.
"Seller Entities" means, collectively, Seller and all Affiliates of Seller.
"Threatened Release" means a substantial likelihood of a Release which requires
action to prevent or mitigate damage to the soil, surface waters, groundwaters,
land, stream sediments, surface or subsurface strata, ambient air or any other
environmental medium comprising or surrounding any of the Properties which may
result from such Release.
"Title Company" means the title insurance company described in Section 6.
"UCC-1 Financing Statements" means such UCC-1 Financing Statements as Buyer
shall require from Seller with respect to the transactions contemplated by
this Agreement.
2. Transaction. On the terms and subject to the conditions set forth
herein:
(i) Seller shall sell, or cause to be conveyed, and Buyer shall purchase
all of the Properties; and
(ii) Buyer shall lease all of the Properties to Seller pursuant to the
Lease.
The sale and purchase of all of the Properties pursuant to this Agreement and
the lease of all of the Properties to Seller pursuant to the Lease are not
severable and shall be considered a single integrated transaction.
3. Purchase Price. The aggregate purchase price for all of the Properties
shall be $12,870,904.96 (the "Purchase Price"). The Purchase Price has been
allocated among the Properties as set forth on Exhibit A attached hereto. The
Purchase Price shall be paid at the Closing in cash or its equivalent subject
to any prorations and adjustments required by this Agreement. The Purchase
Price shall be remitted at Closing to Seller or at Seller's direction. In
addition to payment of the Purchase Price, Buyer shall be responsible to pay
at Closing the following fees and costs: (i) any underwriting, site assessment,
valuation, processing and commitment fee payable to Lender, (ii) any costs
related to the procurement of residual value insurance policies by Buyer,
(iii) attorneys' fees of Kutak Rock LLP, counsel to Lender, (iv) attorneys'
fees of Proskauer Rose LLP, counsel to Buyer, and (v) Buyer's reasonable
out-of-pocket costs.
4. Expense Deposit. At Closing, the Fee shall be applied to the costs to
be paid by Seller as contemplated by Section 6 of this Agreement and the
Related Sale-Leaseback Agreement and the balance, if any, shall be refunded to
Seller. In the event the transaction set forth in this Agreement fails to
close, the Fee shall be applied as contemplated by the Commitment.
5. Closing Date. The purchase and sale of the Properties shall be closed
(the "Closing") within 30 days following the satisfaction of all of the terms
and conditions contained herein, but in no event shall the date of the Closing
be extended beyond December 31, 2001, unless such extension shall be approved
by Buyer in its sole discretion (the date on which the Closing shall occur is
referred to herein as the "Closing Date").
6. Closing. Buyer has ordered a title insurance commitment for each of the
Properties from Lawyers Title Insurance Corporation ("Title Company"). Prior to
the Closing Date, the parties hereto shall deposit with Title Company all
documents and moneys necessary to comply with their obligations under this
Agreement. Title Company shall not cause the transaction to close unless and
until it has received written instructions from Buyer to do so. Except for the
fees and costs to be paid by Buyer pursuant to Section 3, all costs of such
transaction shall be borne by Seller, including, without limitation, the cost
of title insurance and endorsements, the attorneys' fees of Seller, local
counsel attorneys' fees of Buyer and Lender, the cost of the environmental due
diligence
undertaken pursuant to Section 11.E, including, without limitation, the cost of
the Environmental Policies, the cost of the surveys, stamp taxes, transfer fees
and escrow and recording fees. All real and personal property and other
applicable taxes and assessments and other charges relating to any of the
Properties which are due and delinquent on or prior to the Closing Date shall
be paid by Seller at or prior to the Closing, and all other taxes and
assessments shall be paid by Seller in its capacity as lessee under the Lease
in accordance with the terms of the Lease. The Closing documents shall be
dated as of the Closing Date.
Seller and Buyer hereby employ Title Company to act as escrow agent in
connection with this transaction. Seller and Buyer will deliver to
Title Company all documents, pay to Title Company all sums and do or cause to
be done all other things necessary or required by this Agreement, in the
reasonable judgment of Title Company, to enable Title Company to comply
herewith and to enable any title insurance policy provided for herein to be
issued. Title Company is authorized to pay, from any funds held by it for
Buyer's or Seller's respective credit all amounts necessary to procure the
delivery of such documents and to pay, on behalf of Buyer and Seller, all
charges and obligations payable by them, respectively. Seller will pay all
charges payable by it to Title Company. Title Company is authorized, in the
event any conflicting demand is made upon it concerning these instructions or
the escrow, at its election, to hold any documents and/or funds deposited
hereunder until an action shall be brought in a court of competent
jurisdiction to determine the rights of Seller and Buyer or to interplead such
documents and/or funds in an action brought in any such court. Deposit by Title
Company of such documents and funds, after deducting therefrom its charges and
its expenses and attorneys' fees incurred in connection with any such court
action, shall relieve Title Company of all further liability and responsibility
for such documents and funds. Title Company's receipt of this Agreement and
opening of an escrow pursuant to this Agreement shall be deemed to constitute
conclusive evidence of Title Company's agreement to be bound by the terms
and conditions of this Agreement pertaining to Title Company. Disbursement
of any funds shall be made by check, certified check or wire transfer, as
directed by Buyer. Title Company shall be under no obligation to disburse
any funds represented by check or draft, and no check or draft shall be
payment to Title Company in compliance with any of the requirements hereof,
until it is advised by the bank in which such check or draft is deposited
that such check or draft has been honored. Title Company is authorized to
act upon any statement furnished by the holder or payee, or a collection
agent for the holder or payee, of any lien on or charge or assessment
in connection with any of the Properties, concerning the amount of such charge
or assessment or the amount secured by such lien without liability or
responsibility for the accuracy of such statement. The employment of Title
Company as escrow agent shall not affect any rights of subrogation under the
terms of any title insurance policy issued pursuant to the provisions thereof.
7. Representations and Warranties of Buyer. The representations and
warranties of Buyer contained in this Section are being made by Buyer as of
the date of this Agreement and the Closing Date to induce Seller to enter into
this Agreement and consummate the transactions contemplated herein, and Seller
has relied, and will continue to rely, upon such representations and warranties
from and after the execution of this Agreement and the Closing. Buyer
represents and warrants to Seller as follows:
A. Organization of Buyer. Buyer has been duly formed, is validly existing
and has taken all necessary action to authorize the execution, delivery and
performance by Buyer of this Agreement.
B. Authority of Buyer. The person who has executed this Agreement on
behalf of Buyer is duly authorized so to do.
C. Enforceability. Upon execution by Buyer, this Agreement shall
constitute the legal, valid and binding obligation of Buyer, enforceable
against Buyer in accordance with its terms.
All representations and warranties of Buyer made in this Agreement shall
survive the Closing.
8. Representations and Warranties of Seller. The representations and
warranties of Seller contained in this Section are being made as of the date
of this Agreement and the Closing Date to induce Buyer to enter into this
Agreement and consummate the transactions contemplated herein, and Buyer has
relied, and will continue to rely, upon such representations and warranties
from and after the execution of this Agreement and the Closing. Seller
represents and warrants to Buyer as follows:
A. Information and Financial Statements. Seller has delivered to Buyer
financial statements (either audited financial statements or, if Seller does
not have audited financial statements, certified financial statements) and
certain other information concerning itself; and no material adverse change
has occurred with respect to any such financial statements and other
information provided to Buyer since the date such financial statements and
other information were prepared or delivered to Buyer. Seller understands that
Buyer is relying upon such financial statements and information and Seller
represents that such reliance is reasonable. All such financial statements
were prepared in accordance with generally accepted accounting principles
consistently applied (other than the income statements for the business at
each of the Properties) and fairly present, as of the date of this Agreement
and the Closing Date, the results of operations and financial condition of
each individual or entity to which they pertain.
B. Organization and Authority. (i) Seller is a duly organized or formed
corporation, validly existing and in good standing under the laws of its state
of incorporation, and qualified to do business in any jurisdiction where such
qualification is required. All necessary corporate action has been taken to
authorize the execution, delivery and performance of this Agreement and of the
other documents, instruments and agreements provided for herein.
(ii) The person who has executed this Agreement on behalf of Seller is duly
authorized so to do.
C. Enforceability of Documents. Upon execution by Seller, this Agreement
and the other documents, instruments and agreements to be executed in
connection with this Agreement, shall constitute the legal, valid and binding
obligations of Seller, enforceable against Seller in accordance with their
respective terms.
D. Litigation. There are no suits, actions or proceedings pending, or,
to Seller's actual knowledge, threatened in writing against or involving Seller
or any of the Properties before any arbitrator or Governmental Authority,
except for such suits, actions or proceedings which, individually or in the
aggregate, have not had, and could not reasonably be expected to result in, a
Material Adverse Effect.
E. Absence of Breaches or Defaults. Seller is not in default under any other
document, instrument or agreement to which Seller is a party or by which
Seller, any of the Properties or any of Seller's property is subject or bound,
except for such defaults which, individually or in the aggregate, have not had,
and could not reasonably be expected to result in, a Material Adverse Effect.
The authorization, execution, delivery and performance of this Agreement and
the documents, instruments and agreements provided for herein will not result
in any breach or default under any other document, instrument or agreement to
which Seller is a party or by which Seller, any of the Properties or any of
Seller's property is subject or bound, except for such breaches or defaults
which, individually or in the aggregate, have not had, and could not reasonably
be expected to result in, a Material Adverse Effect. The authorization,
execution, delivery and performance of this Agreement and the documents,
instruments and agreements provided for herein will not violate any applicable
law, statute, regulation, rule, ordinance, code, rule or order.
F. Utilities. At the Closing Date, each of the Properties will
be served by ample public utilities to permit full utilization of each of the
Properties for their intended purposes and all utility connection fees and use
charges will have been paid in full.
G. Intended Use and Zoning; Compliance With Laws. Seller intends to use each of
the Properties solely for the operation of a Permitted Facility in accordance
with the standards of operations then in effect on a system-wide basis, and
related ingress, egress and parking, and for no other purposes. To Seller's
actual knowledge and except as may be shown on the surveys and title
commitments for the Properties delivered by or on behalf of Seller to Buyer,
each of the Properties is in compliance in all material respects with all
applicable zoning requirements and the use of each of the Properties as a
Permitted Facility does not constitute a nonconforming use under applicable
zoning requirements. To Seller's actual knowledge, each of the Properties
complies in all material respects with all applicable statutes, regulations,
rules, ordinances, codes, licenses, permits, orders and approvals of any
governmental agencies, departments, commissions, bureaus, boards or
instrumentalities of the United States, the states in which the Properties
are located and all political subdivisions thereof, including, without
limitation, all health, building, fire, safety and other codes, ordinances and
requirements, all applicable standards of the National Board of Fire
Underwriters and the Americans With Disabilities Act of 1990, and all policies
or rules of common law, in each case, as amended, and any judicial or
administrative interpretation thereof, including any judicial order, consent,
decree or judgment applicable to Seller. Notwithstanding the foregoing, Seller
has advised Buyer of the settlement agreement relating to the civil action
brought under the Americans With Disabilities Act of 1990, which civil action
and settlement agreement are described more particularly on Schedule 16.C to
the Lease.
H. Area Development; Wetlands. No condemnation or eminent domain proceedings
affecting any of the Properties have been commenced or, to Seller's actual
knowledge, are contemplated. To Seller's actual knowledge, the area where any
of the Properties is located has not been declared blighted by any Governmental
Authority. Each of the Properties and, to Seller's actual knowledge, the real
property bordering any of the Properties is not designated by any Governmental
Authority as wetlands.
I. Licenses and Permits; Access. Prior to the Closing Date,
Seller shall have all required licenses and permits, both governmental and
private, to use and operate each of the Properties as a Permitted Facility.
There are adequate rights of access to public roads and ways available to each
of the Properties to permit full utilization of each of the Properties for its
intended purpose and all such public roads and ways have been completed and
dedicated to public use.
J. Condition of Properties. As of the Closing Date, each of the
Properties will be of good workmanship and materials, fully equipped and
operational, in good condition and repair given their age and use and ordinary
wear and tear excepted, free from structural defects, clean, orderly and
sanitary, safe, well lit, landscaped, decorated, attractive and well
maintained.
K. Environmental. Seller is fully familiar with the present use of each of the
Properties. To Seller's actual knowledge and except as disclosed in the
Questionnaires, no Hazardous Materials have been used, handled, manufactured,
generated, produced, stored, treated, processed, transferred or disposed of at
or on any of the Properties, except in De Minimis Amounts or in compliance with
all applicable Environmental Laws, and no Release or Threatened Release has
occurred at or on any of the Properties, except in De Minimis Amounts or in
compliance with all applicable Environmental Laws. To Seller's actual knowledge
and except as disclosed in the Questionnaires, the activities, operations and
business undertaken on, at or about each of the Properties, including, but not
limited to, any past or ongoing alterations or improvements at each of the
Properties, are and have been at all times, in compliance with all
Environmental Laws. To Seller's actual knowledge and except as disclosed in the
Questionnaires, no further action is required to remedy any Environmental
Condition or violation of, or to be in compliance in all material respects
with, any Environmental Laws, and no lien has been imposed on any of the
Properties by any Governmental Authority in connection with any Environmental
Condition, the violation or threatened violation of any Environmental Laws or
the presence of any Hazardous Materials on or off any of the Properties.
To Seller's actual knowledge and except as disclosed in the Questionnaires,
there is no pending or threatened (in writing) litigation or proceeding before
any Governmental Authority in which any person or entity alleges the violation
or threatened violation of any Environmental Laws or the presence, Release,
Threatened Release or placement on or at any of the Properties of any Hazardous
Materials, or of any facts which would give rise to any such action, nor has
Seller (a) received any notice (and Seller has no actual knowledge) that any
Governmental Authority or any employee or agent thereof has determined,
threatens to determine or requires an investigation to determine that there has
been a violation of any Environmental Laws at, on or in connection with any of
the Properties or that there exists a presence, Release, Threatened Release or
placement of any Hazardous Materials on or at any of the Properties in
violation of any applicable Environmental Laws, or the use, handling,
manufacturing, generation, production, storage, treatment, processing,
transportation or disposal of any Hazardous Materials at or on any of the
Properties in violation of any applicable Environmental Laws; (b) received any
notice under the citizen suit provision of any Environmental Law in connection
with any of the Properties or any facilities, operations or activities
conducted thereon, or any business conducted in connection therewith; or
(c) received any request for inspection, request for information, notice,
demand, administrative inquiry or any formal or informal complaint or claim
with respect to or in connection with the violation or threatened violation of
any Environmental Laws or existence of Hazardous Materials relating to any of
the Properties or any facilities, operations or activities conducted thereon
or any business conducted in connection therewith.
The information and disclosures in the Questionnaires are true, correct and
complete in all material respects, Buyer and Environmental Insurer may rely on
such information and disclosures, and the person or persons executing the
Questionnaires were duly authorized to do so.
L. Title to Properties. Title to each of the Properties is vested in
Seller. Upon Closing, title to each of the Properties shall be vested in
Buyer and Remainderman, free and clear of all liens, encumbrances, charges and
security interests of any nature whatsoever, except the Permitted Exceptions.
M. No Other Agreements and Options. Neither Seller nor, to Seller's
actual knowledge, any of the Properties is subject to any commitment,
obligation, or agreement, including, without limitation, any right of first
refusal, option to purchase or lease granted to a third party, which would
prevent Seller from completing or impair Seller's ability to complete the sale
of any of the Properties under this Agreement or which would bind Buyer
subsequent to consummation of the transaction contemplated by this Agreement.
N. No Mechanics' Liens. There are no outstanding accounts payable,
mechanics' liens, or rights to claim a mechanics' lien in favor of any
materialman, laborer, or any other person or entity in connection with labor or
materials furnished to or performed on any portion of any of the Properties
that will not have been fully paid for on or before the date such payment
becomes delinquent; no work has been performed or is in progress nor have
materials been supplied to any of the Properties or agreements entered into for
work to be performed or materials to be supplied to any of the Properties prior
to the date hereof, which will not have been fully paid for on or before the
date such payment becomes delinquent; Seller shall be responsible for any and
all claims for mechanics' liens and accounts payable that have arisen or may
subsequently arise due to agreements entered into for and/or any work
performed on, or materials supplied to any of the Properties prior to the
Closing Date; and Seller shall and does hereby agree to defend, indemnify and
forever hold Buyer and Buyer's designees harmless for, from and against any
and all such mechanics' lien claims, accounts payable or other commitments
relating to any of the Properties.
O. No Reliance. Seller acknowledges that Buyer did not prepare or assist
in the preparation of any of the projected financial information used by
Seller in analyzing the economic viability and feasibility of the transaction
contemplated by this Agreement, and that Seller has not relied on any report
or statement by Buyer in entering into this Agreement. Furthermore, Seller
acknowledges that it has not relied upon, nor may it hereafter rely upon, the
analysis undertaken by Buyer in determining the Purchase Price, and such
analysis will not be made available to Seller.
P. Existing Leases. Seller has delivered to Buyer true, correct and
complete copies of the Existing Leases. There are no leases, subleases or
occupancy agreements affecting any of the Properties other than the Existing
Leases. The Existing Leases have not been modified, amended, supplemented or
otherwise revised and are the only leases or agreements with the Existing
Lessees with respect to the Properties. None of the Existing Leases, and no
interest therein, has been assigned, transferred, mortgaged, hypothecated or
otherwise encumbered by Seller. No notice of default has been given by or to
any of the Existing Lessees which has not been cured. To Seller's actual
knowledge, no event has occurred and no condition exists which, with the giving
of notice or the lapse of time or both, would constitute a default by Seller or
the Existing Lessees under any of the Existing Leases.
All representations and warranties of Seller made in this Section 8 shall
survive the Closing. Seller acknowledges and agrees that Environmental
Insurer may rely on the environmental representations and warranties set
forth in the preceding subsection K, that Environmental Insurer is an
intended third-party beneficiary of such representations and warranties and
that Environmental Insurer shall have all rights and remedies available at
law or in equity as a result of a breach of such representations and
warranties, including, to the extent applicable, the right of subrogation.
9. Covenant and Agreements of Seller. Seller shall, at all reasonable
times, upon reasonable advance notice from Buyer (i) provide Buyer and Buyer's
officers, employees, agents, advisors, attorneys, accountants, architects, and
engineers with access to each of the Properties, all drawings, plans, and
specifications for each of the Properties in possession of Seller, all
engineering reports relating to each of the Properties in the possession of
Seller, the files and correspondence relating to each of the Properties, and
the financial books and records, including lists of delinquencies, relating to
the ownership, operation, and maintenance of each of the Properties, and (ii)
allow such persons to make such inspections, tests, copies, and verifications
as Buyer considers necessary. All such persons shall use reasonable efforts
not to unduly interfere with the conduct of Seller's business.
10. Transaction Characterization. A. It is the intent of the parties that
the conveyance of each of the Properties to Buyer be an absolute conveyance in
effect as well as form, and the instruments of conveyance to be delivered at
Closing are not intended to serve or operate as a mortgage, equitable
mortgage, deed of trust, security agreement, trust conveyance or financing or
trust arrangement of any kind, nor as a preference or fraudulent conveyance
against any creditors of Seller. After the execution and delivery of the deeds
described in Section 11.A, Seller will have no legal or equitable interest or
any other claim or interest in any of the Properties other than as set forth
in the Lease. Furthermore, the parties intend:
(i) for the Lease to be a true lease and not a transaction creating a financing
lease, capital lease, equitable mortgage, mortgage, deed of trust, security
interest or other financing arrangement, and the economic realities of the
Lease are those of a true lease; and
(ii) for the Lease to constitute a single master lease of all, but not less
than all, of the Properties, and to be a unitary, unseverable instrument
pertaining to all, but not less than all, of the Properties and that neither
the Lease nor the duties, obligations or rights of Seller may be allocated or
otherwise divided by Seller among the Properties.
Notwithstanding the existence of the Lease, neither party shall contest the
validity, enforceability or characterization of the sale and purchase of
any of the Properties by Buyer pursuant to this Agreement as an absolute
conveyance, and both parties shall support the intent expressed herein
that the purchase of all of the Properties by Buyer pursuant to this
Agreement provides for an absolute conveyance and does not create a
joint venture, partnership, equitable mortgage, trust, financing device
or arrangement, security interest or the like, if, and to the extent
that, any challenge occurs.
Seller and Buyer each stipulate that the Purchase Price is the fair market
value of the Properties and was agreed to by Seller and Buyer solely on that
basis.
B. This Agreement is a contract to extend a financial accommodation (as
such term is used in the Code) for the benefit of Seller and may not be assumed
over the objection of Buyer in the event Seller becomes a debtor or debtor in
possession in any bankruptcy proceeding. The financial accommodation made
through this Agreement is Buyer's acquisition of all of the Properties for the
purpose of leasing all of the Properties to Seller pursuant to a true lease.
11. Conditions of Closing. The obligation of Buyer to consummate the
purchase of the Properties pursuant to this Agreement is subject to the
fulfillment or waiver of each of the following conditions:
A. Title. Seller shall convey each of the Properties to Buyer and
Remainderman by general warranty deeds (collectively, the "Deeds"), free of
all liens, encumbrances, restrictions, encroachments and easements, except the
Permitted Exceptions.
B. Condition of Properties. Buyer shall have inspected and approved, in
its sole discretion, each of the Properties.
C. Evidence of Title. Buyer shall have received a preliminary title
report and irrevocable commitment to insure title by means of an ALTA extended
coverage owner's policy of title insurance (or its equivalent, in the event
such form is not issued in the jurisdiction where any of the Properties is
located) issued by Title Company showing good and marketable fee title in
Seller, committing to insure Buyer's fee simple ownership in each of the
Properties subject only to Permitted Exceptions and containing such
endorsements as Buyer may reasonably require.
D. Survey; Flood Hazard. Buyer shall have received a current ALTA
survey of each of the Properties, the form and substance of which shall be
satisfactory to Buyer in its sole discretion. Seller shall have provided
Buyer with evidence satisfactory to Buyer that the location of each of the
Properties is not within the 100-year flood plain or identified as a Special
Flood Hazard Area by the Federal Emergency Management Agency, or if any of the
Properties is in such a Special Flood Hazard Area, Seller shall provide Buyer
with evidence of flood insurance maintained on such Properties in amounts and
on terms and conditions satisfactory to Buyer.
E. Environmental. Buyer shall have completed such environmental due
diligence of each of the Properties as it deems necessary or advisable in its
sole discretion, including, without limitation, receiving an Environmental
Policy with respect to each of the Properties, and Buyer shall have approved
the environmental condition of each of the Properties in its sole discretion.
F. Zoning. If requested by Buyer, Seller shall have provided Buyer with
evidence satisfactory to Buyer to confirm that each of the Properties is
properly zoned for its use as a Permitted Facility and that such use
constitutes a legal, conforming use under applicable zoning requirements.
G. Utilities. Buyer shall have received evidence satisfactory to Buyer
in its sole discretion that all utilities and roads necessary for the
operation of each of the Properties as a Permitted Facility are available and
that all necessary consents to the use of such utilities and roads have been
obtained.
H. Compliance With Representations, Warranties and Covenants. (i) All
obligations of Seller under this Agreement shall have been complied with in
all material respects, and no event shall have occurred or condition shall
exist which would, upon the Closing Date, or, upon the giving of notice and/or
passage of time, constitute a breach or default by Seller hereunder or under
the Lease or any other agreement between or among Buyer or Seller pertaining
to the subject matter hereof, and no event shall have occurred or condition
hall exist or information shall have been disclosed by Seller or discovered
by Buyer which has had or would have a material adverse effect on any of the
Properties, Seller or Buyer's willingness to consummate the transaction
contemplated by this Agreement, as determined by Buyer in its sole and
absolute discretion.
(ii) Buyer shall have received such evidence satisfactory to Buyer in its
reasonable discretion that the representations and warranties of Seller under
this Agreement are true, correct and complete as of the Closing Date.
I. Proof of Insurance. Seller shall have delivered to Buyer copies of
insurance policies, showing that all insurance required by the Lease and
providing coverage and limits satisfactory to Buyer is in full force and
effect.
J. Opinions of Counsel to Seller. Seller shall have caused Counsel to
prepare and deliver opinions in form and substance reasonably satisfactory to
Buyer and its counsel.
K. Closing of Loan Agreement and Related Sale-Leaseback Agreement. All
of the transactions described in the Loan Agreement and the Related Sale-
Leaseback Agreement shall have closed prior to, or simultaneously with, the
Closing of the transaction described in this Agreement.
L. License Agreement. Buyer and Seller shall have executed and delivered
the License Agreement.
M. Existing Leases. Buyer and Lender shall have approved each Existing
Lease in its sole discretion.
N. Closing Documents. On or prior to the Closing Date, Buyer and/or
Seller, as may be appropriate, shall execute and deliver or cause to be
executed and delivered to Title Company or Buyer, as may be appropriate, all
documents required to be delivered by this Agreement, and such other documents,
payments, instruments and certificates, as Buyer may require in form acceptable
to Buyer, including, without limitation, the following:
(i) Deeds;
(ii) Lease;
(iii) Memorandum;
(iv) Acknowledgement;
(v) License Agreement;
(vi) Proof of Insurance;
(vii) Opinions of Counsel to Seller;
(viii) Non-Foreign Seller Certificate;
(ix) UCC-1 Financing Statements; and
(x) Closing settlement statement prepared by Title Company.
Upon fulfillment or waiver of all of the above conditions, Buyer shall deposit
funds necessary to close this transaction with the Title Company and this
transaction shall close in accordance with the terms and conditions of this
Agreement.
12. Default and Remedies. A. Each of the following shall be deemed an
event of default by Seller (each, an "Event of Default"):
(i) If any representation or warranty of Seller set forth in any of
the Sale-Leaseback Documents is false in any material respect or if Seller
renders any statement or account which is false in any material respect;
(ii) If Seller fails to keep or perform in any material respect any of the
terms or provisions of this Agreement;
(iii) If Seller is or becomes insolvent within the meaning of the Code, files
or notifies Buyer that it intends to file a petition under the Code, initiates
a proceeding under any similar law or statute relating to bankruptcy,
insolvency, reorganization, winding up or adjustment of debts (collectively,
an "Action"), becomes the subject of either a petition under the Code or an
Action which is not dissolved within 90 days after filing, or is not generally
paying its debts as the same become due;
(iv) If there is an "Event of Default" under the Lease; or
(v) If there is an "Event of Default" or a breach or default, after the passage
of all applicable notice and cure or grace periods, under any other Sale-
Leaseback Document.
B. In the event of any Event of Default, Buyer shall be entitled to exercise,
at its option, concurrently, successively or in any combination, all remedies
available under the Lease or at law or in equity, including without limitation
any one or more of the following:
(i) To terminate this Agreement by giving written notice to Seller in which
case neither party shall have any further obligation or liability, except such
liabilities as Seller may have for such breach or default;
(ii) To proceed with the Closing and direct Title Company to apply
such portion of the Purchase Price as Buyer may deem reasonably necessary to
cure any such breach or default;
(iii) To bring an action for damages against Seller, which, in the
event Buyer proceeds to close, may include an amount equal to the difference
between the value of the Properties as conveyed to Buyer and the value such
Properties would have had if all representations and warranties of Seller were
true and Seller had complied with all of its obligations;
(iv) To bring an action to require Seller specifically to perform its
obligations hereunder; and/or
(v) To recover from Seller all costs and expenses, including attorneys'
fees, paid or incurred by Buyer in connection with the transaction contemplated
by this Agreement and all costs and expenses incurred or paid by Buyer as a
result of such breach or default.
13. Assignments. A. Buyer may assign in whole or in part its
rights under this Agreement. In the event of any unconditional assignment of
Buyer's entire right and interest hereunder and provided Buyer's assignee
shall have assumed in writing all of the duties and obligations of Buyer
hereunder, Buyer shall automatically be relieved, from and after the date of
such assignment, of liability for the performance of any obligation of Buyer
contained herein.
B. Seller shall not, without the prior written consent of Buyer, which
consent may be withheld in Buyer's sole discretion, sell, assign, transfer,
mortgage, convey, encumber or grant any easements or other rights or interests
of any kind in any of the Properties, any of Seller's rights under this
Agreement or any interest in Seller, whether voluntarily, involuntarily or by
operation of law or otherwise, including, without limitation, by merger,
consolidation, dissolution or otherwise, except as expressly permitted by the
Lease.
14. Indemnity. Seller agrees to indemnify, protect, hold harmless and
defend Buyer, Lender and their respective directors, officers, shareholders,
members, employees, successors, assigns, agents, lenders, contractors,
subcontractors, experts, licensees, affiliates, lessees, mortgagees, trustees
and invitees, as applicable (collectively, the "Indemnified Parties"), for,
from and against any and all losses, costs, claims, liabilities, damages and
expenses (collectively, "Losses") (including, without limitation, Buyer's
reasonable attorneys' fees and consequential damages but excluding Losses
suffered by an Indemnified Party arising out of such Indemnified Party's gross
negligence or willful misconduct; provided, however, that the term "gross
negligence" shall not include gross negligence imputed as a matter of law to
any of the Indemnified Parties solely by reason of the Buyer's interest in any
of the Properties or Seller's failure to act in respect of matters which are
the obligation of Seller under the Lease) arising as the result of an
Environmental Condition and/or a breach of any of the representations,
warranties, covenants, agreements or obligations of Seller set forth in this
Agreement. Without limiting the generality of the foregoing, such indemnity
shall include, without limitation, any damages incurred with respect to any
engineering, governmental inspection and reasonable attorneys' fees and
expenses that the Indemnified Parties may incur by reason of any Environmental
Condition and/or any representation or warranty set forth in Section 8.K being
false, or by reason of any investigation or claim of any Governmental
Authority in connection therewith. The provisions of this Section 14 shall
survive the Closing.
15. Remainderman. Notwithstanding anything to the contrary
contained herein, Seller acknowledges that Buyer may only obtain title to an
estate for years in each of the Properties, and that Buyer may arrange for a
remainderman ("Remainderman") to obtain title to the remainder of the estate
of the Properties (the "Remainder Interest"). Seller agrees to cooperate in
such event, which cooperation shall include, without limitation (1) the
granting of deeds for the estate for years in each of the Properties to Buyer
and separate deeds for the Remainder Interest to the Remainderman (or its
designee), (2) the execution of a tripartite agreement among Seller, Buyer and
the Remainderman relating to, inter alia, the extension terms under the Lease,
(3) delivering appropriate title insurance policies to the Remainderman, and
(4) delivery of such other documents as may be reasonably required. Seller
acknowledges that Remainderman is an approved assignee of this Agreement to
the extent of the Remainder Interest.
16. Miscellaneous Provisions.
A. Notices. All notices, consents, approvals or other instruments
required or permitted to be given by either party pursuant to this Agreement
shall be in writing and given by (i) hand delivery, (ii) facsimile, (iii)
express overnight delivery service or (iv) certified or registered mail,
return receipt requested, and shall be deemed to have been delivered upon
(a) receipt, if hand delivered, (b) transmission, if delivered by facsimile,
(c) the next business day, if delivered by express overnight delivery service,
or (d) the third business day following the day of deposit of such notice with
the United States Postal Service, if sent by certified or registered mail,
return receipt requested. Notices shall be provided to the parties and
addresses (or facsimile numbers, as applicable) specified below:
If to Seller: The Krystal Company
One Union Square
Chattanooga, TN 37402
Attention: Mr. Larry D. Bentley
Telephone: (423) 757-1500
Telecopy: (423) 757- 5773
With a copy to: Miller & Martin LLP
1000 Volunteer Building
832 Georgia Avenue
Chattanooga, TN 37402
Attention: Hugh F. Sharber, Esq.
Telephone: (423) 785-8212
Telecopy: (423) 785- 8480
If to Buyer: Crystac Property I LLC
c/o U.S. Realty Advisors, LLC
1370 Avenue of the Americas
New York, NY 10019
Attention: Mr. David M. Ledy
Telephone: (212) 581-4540
Telecopy: (212) 581-4950
With a copy to: Proskauer Rose LLP
1585 Broadway
New York, NY 10036
Attention: Kenneth S. Hilton, Esq.
Telephone: (212) 969-3000
Telecopy: (212) 969-2900
B. Risk of Loss. As between Buyer and Seller, Seller shall be responsible
for the risk of loss, damage or destruction of any of the Properties or any
part thereof prior to the Closing Date.
C. Condemnation. In the event of a taking of all or any part of any of
the Properties prior to the Closing, Buyer at its sole option shall have the
right to either (i) receive the proceeds of any condemnation award and,
proceed to close this transaction or (ii) terminate this Agreement with
respect to any Property which is subject to such taking. Buyer and Seller
agree to execute such amendments to this Agreement as may be reasonably
required by Buyer to evidence any such termination.
D. Real Estate Commission. Buyer and Seller represent and warrant to
each other that they have dealt with no real estate broker, agent, finder or
other intermediary in connection with the transactions contemplated by this
Agreement. Buyer and Seller shall indemnify and hold each other harmless for,
from and against any costs, claims or expenses, including attorneys' fees,
arising out of the breach of their respective representations and warranties
contained within this Section. Seller has been advised by Banc of America
Securities LLC, whose fees shall be paid by Seller.
E. Waiver and Amendment. No provisions of this Agreement shall be deemed
waived or amended except by a written instrument unambiguously setting forth
the matter waived or amended and signed by the party against which enforcement
of such waiver or amendment is sought. Waiver of any matter shall not be
deemed a waiver of the same or any other matter on any future occasion.
F. Captions. Captions are used throughout this Agreement for convenience
of reference only and shall not be considered in any manner in the
construction or interpretation hereof.
G. Buyer's Liability. Notwithstanding anything to the contrary provided
in this Agreement, it is specifically understood and agreed, such agreement
being a primary consideration for the execution of this Agreement by Buyer,
that (i) there shall be absolutely no personal liability on the part of Buyer,
its successors or assigns and the trustees, members, partners, shareholders,
officers, directors, employees and agents of Buyer and its successors and
assigns, to Seller with respect to any of the terms, covenants and conditions
of this Agreement or the other Sale-Leaseback Documents, as applicable,
provided that Seller shall have recourse to the Properties and Buyer to the
extent expressly provided below, (ii) Seller waives all claims, demands and
causes of action against the trustees, members, partners, shareholders,
officers, directors, employees and agents of Buyer and its successors or
assigns in the event of any breach by Buyer of any of the terms, covenants and
conditions of this Agreement or
the other Sale-Leaseback Documents, as applicable, to be performed by Buyer,
and (iii) Seller shall look solely to the Properties for the satisfaction of
each and every remedy of Seller in the event of any breach by Buyer of any of
the terms, covenants and conditions of this Agreement or the other Sale-
Leaseback Documents, as applicable, to be performed by Buyer, or any other
matter in connection with this Agreement, the other Sale-Leaseback Documents
or any of the Properties, such exculpation of liability to be absolute and
without any exception whatsoever, provided that, with respect to affirmative
acts of Buyer which constitute gross negligence or intentional misconduct (it
being understood and agreed that the acts of the Seller and its shareholders,
officers, directors, employees and agents shall not be imputed to Buyer),
Seller shall have the right to look to other assets of Buyer, but not the
assets of the trustees, members, partners, shareholders, officers, directors,
employees and agents of
Buyer.
H. Severability. The provisions of this Agreement shall be deemed
severable. If any part of this Agreement shall be held unenforceable, the
remainder shall remain in full force and effect, and such unenforceable
provision shall be reformed by such court so as to give maximum legal effect
to the intention of the parties as expressed therein.
I. Construction Generally. This is an agreement between parties who are
experienced in sophisticated and complex matters similar to the transaction
contemplated by this Agreement and is entered into by both parties in reliance
upon the economic and legal bargains contained herein and shall be interpreted
and construed in a fair and impartial manner without regard to such factors as
the party which prepared the instrument, the relative bargaining powers of the
parties or the domicile of any party. Seller and Buyer were each represented
by legal counsel competent in advising them of their obligations and
liabilities hereunder.
J. Other Documents. Each of the parties agrees to sign such other and
further documents as may be necessary or reasonably requested by the other
party in order to carry out the intentions expressed in this Agreement.
K. Attorneys' Fees. Notwithstanding anything in this Agreement to the
contrary, in the event of any judicial or other adversarial proceeding between
the parties concerning this Agreement, the prevailing party shall be entitled
to recover all of its attorneys' fees and other costs in addition to any other
relief to which it may be entitled. References in this Agreement to Buyer's
attorneys' fees and/or costs shall mean the fees and costs of independent
counsel retained by Buyer with respect to this transaction.
L. Entire Agreement. This Agreement, together with any other
certificates, instruments or agreements to be delivered hereunder, constitute
the entire agreement between the parties with respect to the subject matter
hereof, and there are no other representations, warranties or agreements,
written or oral, between Seller and Buyer with respect to the subject matter
of this Agreement. Notwithstanding anything in this Agreement to the
contrary, upon the execution and delivery of this Agreement by Seller and
Buyer, the Commitment shall be deemed null and void and of no further force
and effect and the terms and conditions of this Agreement shall control
notwithstanding that such terms and conditions are inconsistent with or vary
from those set forth in the Commitment.
M. Recording. At the election of Buyer, this Agreement may be recorded
in the appropriate governmental office so as to impart constructive notice of
the terms and provisions hereof.
N. Forum Selection; Jurisdiction; Venue; Choice of Law. Seller acknowledges
that this Agreement was partially negotiated in the State of Arizona, the
Agreement was delivered by Seller and Buyer in the State of Arizona, all
payments under the Lease will be delivered in the State of Arizona (unless
otherwise directed by Buyer or its successors) and there are substantial
contacts between the parties and the transactions contemplated herein and the
State of Arizona. For purposes of any action or proceeding arising out of this
Agreement, the parties hereto hereby expressly submit to the jurisdiction of
all federal and state courts located in the State of Arizona and Seller
consents that it may be served with any process or paper by registered mail or
by personal service within or without the State of Arizona in accordance with
applicable law. Furthermore, Seller waives and agrees not to assert in any
such action, suit or proceeding that it is not personally subject to the
jurisdiction of such courts, that the action, suit or proceeding is brought
in an inconvenient forum or that venue of the action, suit or proceeding is
improper. It is the intent of the parties hereto that all provisions of this
Agreement shall be governed by and construed under the laws of the State of
Arizona. To the extent that a court of competent jurisdiction finds Arizona
law inapplicable with respect to any provisions hereof, then, as to those
provisions only, the law of the states in which the Properties are located,
as applicable, shall be deemed to apply. Nothing in this Section shall limit
or restrict the right of Buyer to commence any proceeding in the federal or
state courts located in the states in which the Properties are located, as
applicable, to the extent Buyer deems such proceeding necessary or advisable
to exercise remedies available under this Agreement.
O. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original.
P. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of Seller and Buyer and their respective successors and permitted
assigns, including, without limitation, any United States trustee, any debtor-
in-possession or any trustee appointed from a private panel.
Q. Survival. Except for the conditions of Closing set forth in Section
11, which shall be satisfied or waived as of the Closing Date, all
representations, warranties, agreements, obligations and indemnities of Seller
and Buyer set forth in this Agreement (including, without limitation, the
provisions of Sections 7, 8 and 14) shall survive the Closing.
R. Waiver of Jury Trial and Punitive, Consequential, Special and Indirect
Damages. BUYER AND SELLER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY
WAIVE THE RIGHT EITHER MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY AND ALL
ISSUES PRESENTED IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM BROUGHT BY
EITHER OF THE PARTIES HERETO AGAINST THE OTHER OR ITS SUCCESSORS WITH RESPECT
TO ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY
DOCUMENT CONTEMPLATED HEREIN OR RELATED HERETO. THIS WAIVER BY THE PARTIES
HERETO OF ANY RIGHT EITHER MAY HAVE TO A TRIAL BY JURY HAS BEEN NEGOTIATED
AND IS AN ESSENTIAL ASPECT OF THEIR BARGAIN. FURTHERMORE, SELLER HEREBY
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES THE RIGHT IT MAY HAVE TO
SEEK PUNITIVE, CONSEQUENTIAL, SPECIAL AND INDIRECT DAMAGES FROM BUYER AND ANY
OF BUYER'S AFFILIATES, OFFICERS, DIRECTORS, MEMBERS OR EMPLOYEES OR ANY OF
THEIR SUCCESSORS WITH RESPECT TO ANY AND ALL ISSUES PRESENTED IN ANY ACTION,
PROCEEDING, CLAIM OR COUNTERCLAIM BROUGHT BY SELLER AGAINST BUYER OR ANY OF
BUYER'S AFFILIATES, OFFICERS, DIRECTORS, MEMBERS OR EMPLOYEES OR ANY OF THEIR
SUCCESSORSWITH RESPECT TO ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS
AGREEMENT OR ANY DOCUMENT CONTEMPLATED HEREIN OR RELATED HERETO. THE WAIVER
BY SELLER OF ANY RIGHT IT MAY HAVE TO SEEK PUNITIVE, CONSEQUENTIAL, SPECIAL
AND INDIRECT DAMAGES HAS BEEN NEGOTIATED BY THE PARTIES HERETO AND IS AN
ESSENTIAL ASPECT OF THEIR BARGAIN.
S. Reliance By Lender. Seller acknowledges and agrees that Lender may rely on
all of the representations, warranties and covenants set forth in this
Agreement, that Lender is an intended third-party beneficiary of such
representations, warranties and covenants and that Lender shall have all
rights and remedies available at law or in equity as a result of a breach of
such representations, warranties and covenants, including to the extent
applicable, the right of subrogation.
IN WITNESS WHEREOF, Seller and Buyer have entered into this Agreement as of
the date first above written.
BUYER:
CRYSTAC PROPERTY I LLC,
a Delaware limited liability company
By Crystac Equity I LLC,
a Delaware limited liability company,
its member manager
By:
Jamie Grossman
Its Vice President, Assistant Secretary and
Assistant Treasurer
SELLER:
THE KRYSTAL COMPANY,
a Tennessee corporation
By:
Larry D. Bentley
Its Vice President and Chief Financial Officer
STATE OF ARIZONA ]
] SS.
COUNTY OF MARICOPA ]
The foregoing instrument was acknowledged before me on December ____,
2001 by Jamie Grossman, Vice President, Assistant Secretary and Assistant
Treasurer of Crystac Equity I LLC, a Delaware limited liability company, member
manager of Crystac Property I LLC, a Delaware limited liability company, on
behalf of the limited liability company.
Notary Public
My Commission Expires:
STATE OF ARIZONA ]
] SS.
COUNTY OF MARICOPA ]
The foregoing instrument was acknowledged before me on December 31, 2001 by
Larry D. Bentley, Vice President and Chief Financial Officer of The Krystal
Company, a Tennessee corporation, on behalf of the corporation.
Notary Public
My Commission Expires:
EXHIBIT A
PROPERTIES
EXHIBIT A-1
LEGAL DESCRIPTIONS OF PROPERTIES
SCHEDULE I
EXISTING LEASES
1. FFC No. 8001-3571, Store No. KIM001, 106 Highway 72, South Pittsburg, TN
Lease dated as of April 16, 1996 between Lessee, as landlord, and
Citizens State Bank, a Tennessee banking corporation, as tenant, as renewed by
letter from Citizens State Bank dated February 10, 1999.
Exhibit 10.3-
MASTER LEASE
THIS MASTER LEASE (this "Lease") is made as of December 31, 2001 (the
"Effective Date"), by and between CRYSTAC PROPERTY I LLC, a Delaware limited
liability company ("Lessor"), whose address is c/o U.S. Realty Advisors, LLC,
1370 Avenue of the Americas, New York, New York 10019, and THE KRYSTAL COMPANY,
a Tennessee corporation ("Lessee"), whose address is One Union Square,
Chattanooga, Tennessee 37402.
W I T N E S S E T H :
THAT, in consideration of the mutual covenants and agreements herein contained,
Lessor and Lessee hereby covenant and agree as follows:
1. Certain Defined Terms. The following terms shall have the following
meanings for all purposes of this Lease:
"Acknowledgement" means the Acknowledgement of Master Lease Assignment and
Subordination, Nondisturbance and Attornment Agreement dated as of the date of
this Lease among Lessor, Lessee, Lender and Remainderman, as the same may be
amended from time to time. A duplicate original Acknowledgement will be executed
and recorded in the applicable real property records for each Property.
"Action" has the meaning set forth in Section 23.A(iv).
"ADA" has the meaning set forth in Section 16.C.
"Additional Rental" has the meaning set forth in Section 5.C.
"Adjustment Date" means the first day of the month following the month in which
the first anniversary of the Effective Date occurs, and every first anniversary
thereafter during the Lease Term (including the extension periods if Lessee
exercises its option pursuant to Section 27).
"Affiliate" means any Person which directly or indirectly controls, is under
common control with, or is controlled by any other Person. For purposes of this
definition, "controls", "under common control with" and "controlled by" means
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities or otherwise.
"Aggregate Assumed Base Annual Rental" means the aggregate amount of Base
Annual Rental required to be paid by Lessee during the Assumed Base Annual
Rental Period. "Aggregate Fixed Charge Coverage Ratio" shall have the meaning
set forth in Section 8.A.
"Aggregate Rent Refund" means the positive difference, if any, between the
Aggregate Assumed Base Annual Rental and the CPI-Adjusted Rent.
"Applicable Regulations" means all applicable statutes, regulations, rules,
ordinances, codes, licenses, permits, orders and approvals of each Governmental
Authority having jurisdiction over Lessee and/or any of the Properties,
including, without limitation, all health, building, fire, safety and other
codes, ordinances and requirements and all applicable standards of the National
Board of Fire Underwriters and the ADA, in each case, as amended, and any
judicial or administrative interpretation thereof, including any judicial
order, consent, decree or judgment applicable to Lessee.
"Applicable Rent Reduction Percentage" means, with respect to any Property, a
fraction, the numerator of which shall be the Purchase Price for such Property,
and the denominator of which shall be the sum of the Purchase Price for all of
the Properties then subject to this Lease, including such Property. "Assumed
Base Annual Rental Period" means the period commencing on January 1, 2002 and
ending on December 31, 2021.
"Base Annual Rental" means $1,392,979.92, subject to the increases provided in
Section 5.B. "Base Monthly Rental" means an amount equal to 1/12 of the
applicable Base Annual Rental. "Business Day" means a day on which banks
located in Phoenix, Arizona are not required or authorized to remain closed.
"Casualty" has the meaning set forth in Section 21.A.
"Code" means the United States Bankruptcy Code, 11 U.S.C. Sec. 101 et seq., as
amended.
"CPI" means the Consumer Price Index which is designated for the applicable
month of determination as the United States City Average for All Urban
Consumers, All Items, Not Seasonally Adjusted, with a base period equaling 100
in 1982-1984, as published by the United States Department of Labor's Bureau of
Labor Statistics or any successor agency.
"CPI-Adjusted Rent" means the aggregate amount of Base Annual Rental that would
have been paid during the entire Assumed Base Annual Rental Period had the Base
Annual Rental on each CPI Adjustment Date been increased over the Base Annual
Rental immediately preceding such CPI Adjustment Date by two times the
applicable CPI Increase.
"CPI Adjustment Date" means the first day of the month following the month in
which the first anniversary of the Effective Date occurs, and every first
anniversary thereafter during the Lease Term.
"CPI Increase" means the quotient (expressed as a percentage) of (a) the
positive difference, if any, between (i) the CPI for the month which is one
month prior to the month of the applicable CPI Adjustment Date and (ii) the CPI
for the month which is thirteen months prior to the month of such CPI
Adjustment Date (the "Base CPI"), and (b) the Base CPI. In the event the
statistics are not available or in the event that publication of the CPI is
modified or discontinued in its entirety, the CPI Increase shall be determined
on the basis of an index chosen by Lessor as a reasonably comparable and
recognized index of the purchasing power of the United States consumer dollar
published by the United States Department of Labor or other similar
governmental agency. In the event that the CPI contemplated herein is not
reported for the months required for the calculation set forth above, the
parties agree to utilize the CPI reported for the month(s) nearest preceding
the month(s) required for such calculation.
"De Minimis Amounts" shall mean, with respect to any given level of
Hazardous Materials, that level or quantity of Hazardous Materials in any form
or combination of forms, the use, storage or release of which does not
constitute a violation of, or require regulation or remediation under, any
Environmental Laws and is customarily employed in the ordinary course of, or
associated with, similar businesses located in the states in which the
Properties are located.
"Default Rate" means 18% per annum or the highest rate permitted by law,
whichever is less.
"Disclosures" has the meaning set forth in Section 8.C. "Early Termination
Date" has the meaning set forth in Section 21.B. "Effective Date" has the
meaning set forth in the Preamble.
"Environmental Insurer" means American International Specialty Lines Insurance
Company or such other insurer providing Environmental Policies reasonably
acceptable to Lessor.
"Environmental Laws" means any present and future federal, state and local
laws, statutes, ordinances, rules, regulations and the like, as well as common
law, relating to Hazardous Materials and/or the protection of human health or
the environment, by reason of a Release or a Threatened Release of Hazardous
Materials or relating to liability for or costs of Remediation or prevention
of Releases. "Environmental Laws" includes, but is not limited to, the
following statutes, as amended, any successor thereto, and any regulations,
rulings, orders or decrees promulgated pursuant thereto, and any state or
local statutes, ordinances, rules, regulations and the like addressing similar
issues: the Comprehensive Environmental Response, Compensation and Liability
Act; the Emergency Planning and Community Right-to-Know Act; the Hazardous
Materials Transportation Act; the Resource Conservation and Recovery Act
(including but not limited to Subtitle I relating to underground storage
tanks); the Solid Waste Disposal Act; the Clean Water Act; the Clean Air Act;
the Toxic Substances Control Act; the Safe Drinking Water Act; the
Occupational Safety and Health Act; the Federal Water Pollution Control Act;
the Federal Insecticide, Fungicide and Rodenticide Act; the Endangered Species
Act; the National Environmental Policy Act; and the River and Harbors
Appropriation Act. "Environmental Laws" also includes, but is not limited to,
any present and future federal, state and local laws, statutes, ordinances,
rules, regulations and the like, as well as common law: conditioning transfer
of property upon a negative declaration or other approval of a Governmental
Authority of the environmental condition of the property; requiring
notification or disclosure of Releases or other environmental condition of any
of the Properties to any Governmental Authority or other person or entity,
whether or not in connection with transfer of title to or interest in
property; imposing conditions or requirements relating to Hazardous Materials
in connection with permits or other authorization for lawful activity;
relating to nuisance, trespass or other causes of action related to Hazardous
Materials; and relating to wrongful death, personal injury, or property or
other damage in connection with the physical condition or use of any of the
Properties by reason of the presence of Hazardous Materials in, on, under or
above any of the Properties.
"Environmental Liens" has the meaning set forth in Section 16.D(ix).
"Environmental Policies" means the environmental insurance policy or policies,
as applicable, issued by Environmental Insurer to Lessor with respect to the
Properties, which Environmental Policies shall be in form and substance
satisfactory to Lessor in its sole but reasonable discretion.
"Event of Default" has the meaning set forth in Section 23.
"Excluded Personalty" means (i) any Personalty which is leased by Lessee from
third parties as of the Effective Date, as described more particularly in
Schedule III attached hereto, but only during such time as the applicable lease
is in effect, and (ii) any Personalty purchased or acquired after the Effective
Date which is subject to a purchase money security interest granted by Lessee or
which Lessee leases from a third party, but only during such time as the
applicable security interest or lease is in effect; provided, however, in no
event shall the aggregate value of the Excluded Personalty relating to any
individual Property exceed the Excluded Personalty Cap.
"Excluded Personalty Cap" means (i) prior to January 1, 2012, $36,000, and
(ii) from and after January 1, 2012, $50,000.
"Existing Leases" means those billboard and other leases affecting certain
of the Properties, which are described on Schedule I to the Sale-Leaseback
Agreement.
"Existing Lessees" means the lessees under the Existing Leases.
"Extended Term" means the period subsequent to the expiration of the Primary
Term during which this Lease is actually in effect.
"FCCR Period" means the twelve month period of time immediately preceding the
date on which Lessee gives written notice to Lessor that Lessee is proposing to
substitute a Substitute Property as permitted by Section 57.A.
"Fixed Charge Coverage Ratio" has the meaning set forth in Section 57.B(i)(2).
"Forced Sale Election" has the meaning set forth in Section 57.A.
"GAAP" means generally accepted accounting principles consistently applied.
"Governmental Authority" means any governmental authority, agency, department,
commission, bureau, board, instrumentality, court or quasi-governmental
authority of the United States, the states in which the Properties are located
or any political subdivision thereof.
"Hazardous Materials" means (i) any toxic substance or hazardous waste,
substance, solid waste, or related material, or any pollutant or contaminant;
(ii) radon gas, asbestos in any form which is or could become friable, urea
formaldehyde foam insulation, transformers or other equipment which contains
dielectric fluid containing levels of polychlorinated biphenyls in excess of
federal, state or local safety guidelines, whichever are more stringent, or any
petroleum product; (iii) any substance, gas, material or chemical which is or
becomes defined as or included in the definition of "hazardous substances,"
"toxic substances," "hazardous materials," "hazardous wastes," "regulated
substances" or words of similar import under any Environmental Laws; and (iv)
any other chemical, material, gas or substance the exposure to or release of
which is or becomes prohibited, limited or regulated by any Governmental
Authority that asserts jurisdiction over any of the Properties or the
operations or activity at any of the Properties, or any chemical, material,
gas or substance that does or is likely to pose a hazard to the health
and/or safety of the occupants of any of the Properties or the owners
and/or occupants of property adjacent to or surrounding any of the Properties.
"Indemnified Parties"
means Lessor, Environmental Insurer, Remainderman, and Lender and their
directors, officers, shareholders, trustees, beneficial owners, partners,
members, and any directors, officers, shareholders, trustees, beneficial
owners, partners, members of any beneficial owners, partners or members of
Lessor, Environmental Insurer, Remainderman or Lender, and all employees,
agents, servants, representatives, contractors, subcontractors, affiliates,
subsidiaries, participants, successors and assigns of any of the foregoing,
including, but not limited to, any successors by merger, consolidation or
acquisition of all or a substantial portion of the assets and business of
Lessor, Environmental Insurer, Remainderman or Lender, as applicable.
"Lease Term" shall have the meaning described in Section 4.
"Lease Year" means the 12-month period commencing on the first day of the
calendar year or any other 12-month period as may be approved in writing by
Lessor after the commencement of the Lease Term and each successive 12-month
period thereafter.
"Lender" means GE Capital Franchise Finance Corporation, a Delaware
corporation, its successors and assigns, any successor lender in connection
with any loan secured by Lessor's interest in any of the Properties, and any
servicer of any loan secured by Lessor's interest in any of the Properties.
"Lessee Entities" means, collectively, Lessee and all Affiliates of Lessee.
"License Agreement" means the license agreement dated as of the date of this
Lease between Lessor and Lessee, as the same may be amended from time to time.
"Loan Agreement" means the Loan Agreement dated as of the date of this Lease in
effect between Lessor and Lender, as such agreement may be amended from time to
time and any and all replacements or substitutions thereof.
"Loan Documents" means, collectively, the Loan Agreement, the Notes, the
Mortgages and all other documents, instruments and agreements executed in
connection therewith or contemplated thereby, all as amended and supplemented
and any and all replacements or substitutions thereof.
"Losses" means any and all claims, suits, liabilities (including, without
limitation, strict liabilities), actions, proceedings, obligations, debts,
damages, losses, costs, expenses, diminutions in value, fines, penalties,
charges, fees, expenses, judgments, awards, amounts paid in settlement and
damages of whatever kind or nature (including, without limitation, attorneys'
fees, court costs and other costs of defense).
"Material Adverse Effect" means a
material adverse effect on (i) the business, condition, worth or operations of
Lessee, (ii) Lessee's ability to perform its obligations under this Lease or
any of the other Sale-Leaseback Documents, or (iii) any of the Properties,
including, without limitation, the operation of any of the Properties as a
Permitted Facility and/or the value of any of the Properties.
"Maturity Date" means January 1, 2022.
"Memorandum" means the memorandum of master lease dated as of the date of this
Lease between Lessor and Lessee with respect to the Properties, as the same may
be amended from time to time. A duplicate original Memorandum will be executed
and recorded in the applicable real property records for each Property. Each
Memorandum will contain exhibits with the addresses and store identification
numbers for all of the Properties and the legal description for the applicable
Property.
"Mortgages" means, collectively, the mortgages, deeds of trust or
deeds to secure debt, assignments of rents and leases, security agreements and
fixture filings dated as of even date herewith executed by Lessor for the
benefit of Lender with respect to the Properties, as such instruments may be
amended, restated and/or supplemented from time to time and any and all
replacements or substitutions thereof.
"Net Award" has the meaning set forth in Section 21.B.
"Net Restoration Amount" has the meaning set forth in Section 21.D.
"Notes" means, collectively, the promissory notes dated as of the date of this
Lease executed by Lessor and payable to Lender with respect to the Properties,
as such notes may be amended, restated and/or substituted from time to time.
"Partial Casualty" has the meaning set forth in Section 21.D. "Partial Taking"
has the meaning set forth in Section 21.D.
"Participation" means the granting of any participations in any document
evidencing loan obligations or any or all servicing rights with respect
thereto.
"Permitted Facility" means a restaurant operated under the brand name
"Krystal"; provided, however, Lessee may operate up to twenty percent (20%)
of the Properties in the aggregate as another restaurant concept owned and
operated by the Lessee Entities, provided the Lessee Entities either (i) own
and operate five (5) or more units as such other restaurant concept (not
taking into account any of the Properties or Related Properties) or (ii) own
or operate such Properties as other nationally or regionally recognized brands
as consented to by Lessor (whose consent shall not be unreasonably withheld).
"Person" means any individual, corporation, partnership, limited liability
company, trust, unincorporated organization, Governmental Authority or any
other form of entity.
"Personalty" means all machinery, appliances, furniture, equipment, trade
fixtures and other personal property from time to time situated on or used in
connection with the Properties; provided, however, the term "Personalty" shall
not include the HVAC, walk-in coolers, walk-in freezers, supply fans, exhaust
fans, air ducts, hoods, vents, built-in sinks, built-in countertops, plumbing
and electrical fixtures, merchandise shelving, sign poles and lighting poles,
all of which items are intended to be fixtures as such term is used within the
definition of "Properties".
"Prepayment Charges" means, for purposes of this Lease, an amount equal to any
prepayment premium or charge, yield maintenance payment, or other cost or
expense imposed on Lessor by the applicable Lender in connection with the
payment of the applicable Note(s) or promissory note(s) prior to the Maturity
Date.
"Primary Term" means the period commencing on the Effective Date and expiring
on January 31, 2022.
"Properties" means, collectively, the parcels of real estate described by
address, FFC Number and Unit Number in Exhibit A attached hereto, as the same
may be modified from time to time to reflect removed and substituted
Properties, and legally described in Exhibit A-1 attached hereto, as the
same may be modified from time to time to reflect removed and substituted
Properties, all rights, privileges and appurtenances associated therewith,
and all buildings, structures, fixtures and other improvements now or
hereafter located on such real estate (excluding Personalty).
"Property" means any one of the Properties.
"Purchase Price" means, with respect to any Property, the amount of the
purchase price corresponding to such Property as set forth on Exhibit A to the
Sale-Leaseback Agreement.
"Questionnaires" means the environmental questionnaires completed by Lessee
with respect to each of the Properties and submitted to Environmental Insurer
in connection with the issuance of the Environmental Policies. "Rejectable
Offer" has the meaning set forth in Section 21.B. "Rejectable Purchase Offer"
has the meaning set forth in Section 58.A.
"Rejectable Substitution Offer" has the meaning set forth in Section 57.A.
"Related Lease" means the lease between Related Lessor, as lessor, and Lessee,
as lessee, relating to the Related Properties.
"Related Lessor" means Crystac Property II LLC, a Delaware limited liability
company.
"Related Properties" means any properties which are the subject of a lease
between Related Lessor, as lessor, and Lessee, as lessee.
"Release" means any presence, release, deposit, discharge, emission, leaking,
spilling, seeping, migrating, injecting, pumping, pouring, emptying, escaping,
dumping, disposing or other movement of Hazardous Materials.
"Remainderman" means Snowflake Remainder I LLC, a Delaware limited liability
company, which owns a remainder interest in the parcels of real estate
described by address, Lessor Number and Unit Number in Exhibit A attached
hereto and legally described in Exhibit A-1 attached hereto and all rights,
privileges and appurtenances associated therewith, together with its
successors and assigns.
"Remediation" means any response, remedial, removal, or corrective action, any
activity to cleanup, detoxify, decontaminate, contain or otherwise remediate
any Hazardous Materials, any actions to prevent, cure or mitigate any Release,
any action to comply with any Environmental Laws or with any permits issued
pursuant thereto, any inspection, investigation, study, monitoring,
assessment, audit, sampling and testing, laboratory or other analysis, or
any evaluation relating to any Hazardous Materials.
"Sale-Leaseback Agreement" means that certain Sale-Leaseback Agreement dated
as of the date hereof between Lessor and Lessee with respect to the
Properties, as the same may be amended from time to time.
"Sale-Leaseback Documents" means the Sale-Leaseback Agreement, this Lease, the
Memorandum, the Acknowledgement, the License Agreement and all other documents
executed in connection therewith or contemplated thereby, all as amended and
supplemented and any and all replacements or substitutions thereof.
"Securitization" means one or more sales, dispositions, transfers or
assignments by Lender or any Affiliate of Lender to a special purpose
corporation, trust or other entity identified by Lender or any Affiliate of
Lender of notes evidencing obligations to repay secured or unsecured loans
owned by Lender or any Affiliate of Lender (and, to the extent applicable,
the subsequent sale, transfer or assignment of such notes to another special
purpose corporation, trust or other entity identified by Lender or any
Affiliate of Lender), and the issuance of bonds, certificates, notes or other
instruments evidencing interests in pools of such loans, whether in connection
with a permanent asset securitization or a sale of loans in anticipation of a
permanent asset securitization. Each Securitization shall be undertaken in
accordance with all requirements which may be imposed by the investors or the
rating agencies involved in each such sale, disposition, transfer or assignment
or which may be imposed by applicable securities, tax or other laws or
regulations.
"Stipulated Loss Value" has the meaning set forth in Section 21.B.
"Subject Transfer" shall mean (i) a change in control of Lessee, whether
through a direct or indirect transfer of beneficial ownership of the voting
stock of Lessee, a merger or consolidation by Lessee with any other entity, or
any other means, or (ii) a sale or other transfer of all or substantially all
of the assets of Lessee. For purposes of this definition, "a change in control
of Lessee" means a transaction or series of transactions in which there has
occurred a direct or indirect change in beneficial ownership of fifty percent
(50%) or more of the voting stock of Lessee from the ownership of such voting
stock as of the Effective Date, other than as a result of a public offering of
securities in Lessee or its parent company.
"Substitute Property" means one or more parcels of real estate substituted for
any of the Properties in accordance with the requirements of Section 57,
together with all rights, privileges and appurtenances associated therewith,
and all buildings, structures, fixtures and other improvements located thereon
(excluding Personalty). For purposes of clarity, where two or more parcels of
real property comprise a Substitute Property, such parcels shall be aggregated
and deemed to constitute the Substitute Property for all purposes of this
Lease.
"Successor Lessor" has the meaning set forth in Section 24.
"Taking" has the meaning set forth in Section 21.A.
"Tax Contest Permitted Amount" means (i) prior to January 1, 2012, $25,000, and
(ii) from and after January 1, 2012, $50,000. "Temporary Taking" has the meaning
set forth in Section 21.C. "Termination Notice" has the meaning set forth in
Section 21.B.
"Threatened Release" means a substantial likelihood of a Release which requires
action to prevent or mitigate damage to the soil, surface waters, groundwaters,
land, stream sediments, surface or subsurface strata, ambient air or any other
environmental medium comprising or surrounding any of the Properties which may
result from such Release.
"Title Company" means Lawyers Title Insurance
Corporation, or such other nationally recognized title insurance company
reasonably acceptable to Lessor.
"Total Casualty" has the meaning set forth in
Section 21.B.
"Total Taking" has the meaning set forth in Section 21.B.
"Transfer" means any sale, transfer or assignment of any document evidencing
loan obligations, or any or all servicing rights with respect thereto.
2. Demise of Properties. In consideration of the rentals and other sums to be
paid by Lessee and of the other terms, covenants and conditions on Lessee's
part to be kept and performed, Lessor hereby leases to Lessee, and Lessee
hereby takes and hires, the Properties. The Properties are leased to Lessee
"AS IS" and "WHERE IS" without representation or warranty by Lessor and
subject to the rights of parties in possession, to the existing state of
title, any state of facts which an accurate survey or physical inspection
might reveal, and all Applicable Regulations now or hereafter in effect. Lessee
has examined each of the Properties and title to each of the Properties and
has found all of the same satisfactory for all of Lessee's purposes.
3. Characterization of Lease. A. Lessor and Lessee intend that:
(i) this Lease constitutes a single master lease of all, but not less than all,
of the Properties and that Lessor and Lessee have executed and delivered this
Lease with the understanding that this Lease constitutes a unitary, unseverable
instrument pertaining to all, but not less than all, of the Properties, and
that neither this Lease nor the duties, obligations or rights of Lessee may
be allocated or otherwise divided among the Properties by Lessee;
(ii) this Lease is a "true lease" and not a financing lease, capital lease,
mortgage, equitable mortgage, deed of trust, trust agreement, security
agreement or other financing or trust arrangement, and the economic
realities of this Lease are those of a true lease; and
(iii) the business relationship created by this Lease and any related
documents is solely that of a long-term commercial lease between landlord
and tenant and has been entered into by both parties in reliance upon the
economic and legal bargains contained herein.
B. Lessor and Lessee acknowledge and agree that the Lease Term, including
any term extensions provided for in this Lease, is less than the remaining
economic life of each of the Properties.
C. Lessee and Lessor each waive any claim or defense based upon the
characterization of this Lease as anything other than a true lease and
irrevocably waive any claim or defense which asserts that this Lease is
anything other than a true lease. Lessee and Lessor each covenant and agree
that it will not assert that this Lease is anything but a true lease. Lessee
and Lessor each stipulate and agree not to challenge the validity,
enforceability or characterization of the lease of the Properties as a true
lease and further stipulate and agree that nothing contained in this Lease
creates or is intended to create a joint venture, partnership (either de jure
or de facto), equitable mortgage, trust, financing device or arrangement,
security interest or the like. Lessee and Lessor each shall support the intent
of the parties that the lease of the Properties pursuant to this Lease is a
true lease and does not create a joint venture, partnership (either de jure or
de facto), equitable mortgage, trust, financing device or arrangement,
security interest or the like, if, and to the extent that, any challenge
occurs.
D. Lessee and Lessor each waive any claim or defense based upon the
characterization of this Lease as anything other than a master lease of all
of the Properties and irrevocably waive any claim or defense which asserts
that this Lease is anything other than a master lease. Lessee and Lessor each
covenant and agree that it will not assert that this Lease is anything but a
unitary, unseverable instrument pertaining to the lease of all, but not less
than all, of the Properties. Lessee and Lessor each stipulate and agree not to
challenge the validity, enforceability or characterization of the lease of the
Properties as a unitary, unseverable instrument pertaining to the lease of
all, but not less than all, of the Properties. Lessee and Lessor each shall
support the intent of the parties that this Lease is a unitary, unseverable
instrument pertaining to the lease of all, but not less than all, of the
Properties, if, and to the extent that, any challenge occurs.
E. Lessee represents and warrants to Lessor that (i) the Base Annual Rental
is the fair market value for the use of the Properties and was agreed to by
Lessor and Lessee on that basis, and (ii) the execution, delivery and
performance by Lessee of this Lease does not constitute a transfer of all
or any part of the Properties, other than the leasehold interest evidenced
by this Lease.
F. The expressions of intent, the waivers, the representations and
warranties, the covenants, the agreements and the stipulations set forth in
this Section are a material inducement to Lessor entering into this Lease.
4. Lease Term. The Lease Term for all of the Properties shall commence as of
the Effective Date and shall expire on January 31, 2022, unless terminated
sooner as provided in this Lease and as may be extended for four additional
successive periods of five years each as set forth in Section 27 below. The
time period (inclusive of any extension periods exercised in accordance with
the terms hereof) during which this Lease shall actually be in effect is
referred to herein as the "Lease Term."
5. Rental and Other Payments. A. If the Effective Date is a date other than
the first day of the month, Lessee shall pay Lessor on the Effective Date the
Base Monthly Rental prorated on the basis of the ratio that the number of
days from the Effective Date through the last day in the month containing the
Effective Date bears to the number of days in such month. Thereafter, on or
before the first day of each succeeding calendar month, Lessee shall pay
Lessor in advance the Base Monthly Rental.
B. Commencing on the first Adjustment Date and on each Adjustment Date
thereafter, the Base Annual Rental shall increase by an amount equal to the
product of the then-current Base Annual Rental multiplied by 1.00%, which
increase shall be compounded. The increased Base Annual Rental shall constitute
the Base Annual Rental due and payable until the next Adjustment Date.
C. All sums of money required to be paid by Lessee under this Lease which are
not specifically referred to as rent ("Additional Rental") shall be considered
rent although not specifically designated as such. Lessor shall have the same
remedies for nonpayment of Additional Rental as those provided herein for the
nonpayment of Base Annual Rental.
D. (i) Lessor hereby agrees that, to the extent that the Aggregate Assumed
Base Annual Rental exceeds the CPI-Adjusted Rent, Lessor shall be required
to pay Lessee the Aggregate Rent Refund in accordance with the provisions of
this Section 5.D. In no event shall Base Annual Rental be deemed reduced as of
any Adjustment Date from the Base Annual Rental which would have been payable
during the year immediately preceding such Adjustment Date. In addition, if
the Aggregate Assumed Base Annual Rental is less than or equal to the
aggregate CPI-Adjusted Rent, then no additional amounts shall be payable by
Lessee to Lessor and the payments of Base Annual Rental otherwise contemplated
by this Lease for the Primary Term shall become the final amounts payable as
Base Annual Rental for the Primary Term. Anything contained herein to the
contrary notwithstanding, in no event shall Lessor be required to pay the
Aggregate Rent Refund in the event of any termination of this Lease resulting
from the occurrence of an Event of Default or a rejection of this Lease in a
bankruptcy case involving Lessee.
(ii) Within thirty (30) days after the end of the Primary Term (other than a
termination resulting from the occurrence of an Event of Default or a
rejection of this Lease in a bankruptcy case involving Lessee), Lessor shall
(x) provide Lessee with a statement setting forth Lessor's calculation of the
amount of the Aggregate Rent Refund and each CPI Increase used in calculating
the Aggregate Rent Refund and (y) pay the Aggregate Rent Refund to Lessee;
provided, however, the obligation of Lessor to pay the Aggregate Rent Refund
to Lessee shall not excuse or reduce Lessee's obligation to pay any Base
Annual Rental or Additional Rental payable in respect of the Primary Term or,
except as provided in subsection (iii) below, the Extended Term, or any payment
due in respect of any termination of this Lease or as a result of the rejection
of this Lease in a bankruptcy case involving Lessee, or any other amount
(including, without limitation, indemnification payments or damages) payable
hereunder during or with respect to the Primary Term or the Extended Term, and
Lessee shall not have any right to set-off the Aggregate Rent Refund or any
part thereof against its obligation to pay any such Base Annual Rental,
Additional Rental, any payment due in respect of any termination of this Lease
or as a result of the rejection of this Lease in a bankruptcy case involving
Lessee, or any such other amount, except as provided in subsection
(iii) below. If this Lease is terminated as a result of an Event of Default
or if this Lease is rejected in a bankruptcy case involving Lessee, or if
an Event of Default shall have occurred and be continuing at the
expiration of the Primary Term, Lessor may, but shall not be required to, in
exercising its rights hereunder, use, apply or retain the whole or any part of
the Aggregate Rent Refund for the payment of any rent or other sum (including
damages) to which Lessor may be entitled by reason of such Event of Default or
rejection.
(iii) In the event Lessee exercises its option to extend this Lease as set
forth in Section 27 below, Lessor may elect to apply the Aggregate Rent Refund,
if any, as a credit against the Base Annual Rental first accruing for the
Extended Term, until the balance of the Aggregate Rent Refund shall be reduced
to zero. Lessor shall evidence its election by giving notice thereof to Lessee
no later than the due date of the first installment of rent due in the first
Extended Term; provided, however, if Lessor fails to deliver such notice,
Lessor shall be deemed to have elected to so credit the Aggregate Rent Refund.
(iv) Notwithstanding anything contained herein to the contrary, the
obligation created by this Section 5.D shall be subordinate in all respects
to the loans secured by the Mortgages. Without limiting the generality of the
preceding sentence, in the event that Lender succeeds to the interest of Lessor
in this Lease whether by a foreclosure of the Mortgages or the delivery to
Lender of deeds-in-lieu of foreclosure, the preceding subsections of this
Section 5.D shall be of no force or effect, Lender shall have no obligation
to pay Lessee the Aggregate Rent Refund, and Lessee shall have no right to
receive a credit for the Aggregate Rent Refund against the Base Annual Rental
due for the Extended Term.
6. Representations and Warranties of Lessor. The representations and
warranties of Lessor contained in this Section are being made to induce
Lessee to enter into this Lease and Lessee has relied and will continue to
rely upon such representations and warranties. Lessor represents and warrants
to Lessee as of the Effective Date as follows:
A. Organization, Authority and Status of Lessor. (i) Lessor has been
duly organized and is validly existing and in good standing under the laws of
the State of Delaware. All necessary limited liability company action has
been taken to authorize the execution, delivery and performance by Lessor of
this Lease and the other documents, instruments and agreements provided for
herein.
(ii) The person who has executed this Lease on behalf of Lessor is duly
authorized to do so.
B. Enforceability. This Lease constitutes the legal, valid and binding
obligation of Lessor, enforceable against Lessor in accordance with its terms.
7. Representations and Warranties of Lessee. The representations and
warranties of Lessee contained in this Section are being made to induce Lessor
to enter into this Lease and Lessor has relied, and will continue to rely,
upon such representations and warranties. Lessee represents and warrants to
Lessor as of the Effective Date as follows:
A. Organization, Authority and Status of Lessee. (i) Lessee has been
duly organized or formed, is validly existing and in good standing under the
laws of its state of incorporation and is qualified to do business in the
jurisdictions where the Properties are located. All necessary corporate
action has been taken to authorize the execution, delivery and performance by
Lessee of this Lease and of the other documents, instruments and agreements
provided for herein. Lessee is not a "foreign corporation", "foreign
partnership", "foreign trust", "foreign limited liability company" or "foreign
estate", as those terms are defined in the Internal Revenue Code and the
regulations promulgated thereunder. Lessee's United States tax identification
number is correctly set forth on the signature page of this Lease.
(ii) The person who has executed this Lease on behalf of Lessee is duly
authorized to do so.
B. Enforceability. This Lease constitutes the legal, valid and binding
obligation of Lessee, enforceable against Lessee in accordance with its terms.
C. Litigation. There are no suits, actions or proceedings pending, or,
to Lessee's actual knowledge, threatened in writing against or involving
Lessee or any of the Properties before any arbitrator or Governmental
Authority, except for such suits, actions or proceedings which, individually
or in the aggregate, have not had, and could not reasonably be expected to
result in, a Material Adverse Effect.
D. Absence of Breaches or Defaults. Lessee is not in default under any
document, instrument or agreement to which Lessee is a party or by which
Lessee, any of the Properties or any of Lessee's property is subject or bound,
except for such defaults which, individually or in the aggregate, have not had,
and could not reasonably be expected to result in, a Material Adverse Effect.
The authorization, execution, delivery and performance of this Lease and the
documents, instruments and agreements provided for herein will not result in
any breach of or default under any document, instrument or agreement to which
Lessee is a party or by which Lessee, any of the Properties or any of Lessee's
property is subject or bound, except for such breaches or defaults which,
individually or in the aggregate, have not had, and could not reasonably be
expected to result in, a Material Adverse Effect. The authorization, execution,
delivery and performance of this Lease and the documents, instruments and
agreements provided for herein will not violate any applicable law, statute,
regulation, rule, ordinance, code, rule or order. E. Liabilities of Lessor.
Lessee is not liable for any indebtedness for money borrowed by Lessor and has
not guaranteed any of the debts or obligations of Lessor.
8. Covenants. Lessee covenants to Lessor for so long as this Lease is
in effect as follows:
A. Aggregate Fixed Charge Coverage Ratio. Lessee shall maintain an Aggregate
Fixed Charge Coverage Ratio at all of the Properties of at least 1.25:1,
determined as of the last day of each fiscal year of Lessee. For purposes of
this Lease, the term "Aggregate Fixed Charge Coverage Ratio" shall mean with
respect to the twelve month period of time immediately preceding the date of
determination, the ratio calculated for such period of time, each as determined
in accordance with GAAP, of (a) the sum of Net Income, Depreciation and
Amortization, Interest Expense and Operating Lease Expense, less a corporate
overhead allocation in an amount equal to 5.00% of Gross Sales, to (b) the sum
of the Operating Lease Expense and the Equipment Payment Amount. For purposes
of this Section 8.A, the following terms shall be defined as set forth below:
"Capital Lease" shall mean any lease of any property (whether real, personal or
mixed) by Lessee with respect to one or more of the Properties which lease
would, in conformity with GAAP, be required to be accounted for as a capital
lease on the balance sheet of Lessee. The term "Capital Lease" shall not include
any operating lease or this Lease.
"Debt" shall mean as directly related to all of the Properties and the period
of determination (i) indebtedness of Lessee for borrowed money,
(ii) obligations of Lessee evidenced by bonds, indentures, notes or similar
instruments, (iii) obligations of Lessee to pay the deferred purchase price
of property or services, (iv) obligations of Lessee under leases which should
be, in accordance with GAAP, recorded as Capital Leases, and (v) obligations
of Lessee under direct or indirect guarantees in respect of, and obligations
(contingent or otherwise) to purchase or otherwise acquire, or otherwise to
assure a creditor against loss in respect of, indebtedness or obligations of
others of the kinds referred to in clauses (i) through (iv) above. The term
"Debt" shall not include (x) Lessor's debt with respect to the Properties or
otherwise or (y) any corporate debt of Lessee which is not secured by any of
the Properties or any Personalty. "Depreciation and Amortization" shall mean
with respect to all of the Properties the depreciation and amortization
accruing during any period of determination with respect to Lessee as
determined in accordance with GAAP. The
term
"Depreciation and Amortization" shall not include Lessor's depreciation and
amortization with respect to the Properties or otherwise. "Equipment Payment
Amount" shall mean for any period of determination the sum of all amounts
payable during such period of determination under all (x) leases entered into
by Lessee for equipment located at one or more of the Properties and (y) all
loans made to Lessee secured by Lessee's interest in the equipment located at
one or more of the Properties.
"Net Income" shall mean with respect to the period of determination, the net
income or net loss of Lessee allocable to all of the Properties by Lessee. In
determining the amount of Net Income, (i) adjustments shall be made for
nonrecurring gains and losses allocable to the period of determination, (ii)
deductions shall be made for, among other things, Depreciation and
Amortization, Interest Expense and Operating Lease Expense allocable to
the period of determination, and (iii) no deductions shall be made for
(x) income taxes or charges equivalent to income taxes allocable to the
period of determination, as determined in accordance with GAAP, or
(y) corporate overhead expense allocable to the period of determination.
"Gross Sales" means the sales or other income arising from all business
conducted at all of the Properties by Lessee during the period of
determination, less sales tax paid by Lessee in connection with the business
conducted at each of the Properties during such period.
Interest Expense" shall mean for any period of determination, the sum of all
interest accrued or which should be accrued in respect of all Debt of Lessee
allocable to one or more of the Properties and all business operations thereon
during such period (including interest attributable to Capital Leases), as
determined in accordance with GAAP.
"Operating Lease Expense" shall mean the expenses incurred by Lessee under any
operating leases with respect to one or more of the Properties (including this
Lease, but excluding any permitted subleases) and the business operations
thereon during the period of determination, as determined in accordance with
GAAP.
B. Nonconsolidation Covenants. (i) Lessee will not assume liability for
any indebtedness for money borrowed by Lessor and does not, and will not,
guarantee any of the debts or obligations of Lessor. Lessee will not hold itself
out as being liable for any obligations or indebtedness of Lessor.
(ii) Lessee shall not, and shall use its best efforts to cause its Affiliates
not to, hold Lessor out to the public or to any individual creditors as being
a unified entity with assets and liabilities in common with Lessee.
(iii) Lessee shall conduct its business so as not to mislead others as to
the separate identity of Lessor, and particularly will avoid the appearance of
conducting business on behalf of Lessor. Without limiting the generality of
the foregoing, no oral and written communications of Lessee, including,
without limitation, letters, invoices, purchase orders, contracts, statements
and loan applications, will be made in the name of Lessor which to the extent
that to do otherwise would materially bear upon the maintenance of Lessor's
separate identity.
(iv) Lessee will not act in Lessor's name.
(v) Where necessary and appropriate, Lessee shall disclose the independent
business status of Lessor to creditors of Lessee, if any.
(vi) The resolutions, agreements and other instruments of Lessee, if any,
underlying the transactions described in this Lease will be maintained by
Lessee. (vii) All transactions between Lessee and Lessor will be no less fair
to each party than they could obtain on an arm's-length basis.
(viii) The books, records and accounts of Lessee shall at all times be
maintained in a manner permitting the assets and liabilities of Lessor to be
easily separated and readily ascertained from those of Lessee.
(ix) Lessee will not direct, or otherwise control, the ongoing business
decisions of Lessor.
(x) Lessee will not file or cause to be filed a voluntary or involuntary
petition in bankruptcy on behalf of or against Lessor.
C. Transfer, Participation and Securitization Covenants. (i) Lessee agrees to
cooperate in good faith with Lessor and Lender in connection with any Transfer,
Participation and/or Securitization of any of the Notes, Mortgages and/or any
of the Loan Documents, or any or all servicing rights with respect thereto,
including, without limitation, (x) providing such documents, financial and
other data, and other information and materials (the "Disclosures") which would
typically be required with respect to Lessee by a purchaser, transferee,
assignee, servicer, participant, investor or rating agency involved with
respect to such Transfer, Participation and/or Securitization, as applicable;
provided, however, Lessee shall not be required to make Disclosures of any
confidential information or any information which has not previously been made
public unless required by applicable federal or state securities laws; and
(y) amending the terms of this Lease to the extent necessary so as to satisfy
the requirements of purchasers, transferees, assignees, servicers,
participants, investors or selected rating agencies involved in any such
Transfer, Participation or Securitization, so long as such amendments would
not have a material adverse effect upon Lessee or the transactions
contemplated by this Lease.
(ii) Lessee consents to Lessor and Lender providing the Disclosures, as well
as any other information which Lessor and Lender may now have or hereafter
acquire with respect to the Properties or the financial condition of Lessee
to each purchaser, transferee, assignee, servicer, participant, investor or
rating agency involved with respect to such Transfer, Participation and/or
Securitization, as applicable, provided that, Lessor or Lender informs each
such purchaser, transferee, assignee, servicer and participant of the
confidential nature of such information. In connection with the performance of
Lessee's obligations under this Section 8.C: (x) Lessor and/or Lender shall
prepare, at the expense of Lessor and/or Lender, all documents evidencing the
amendments referred to in clause (y) of Section 8.C(i) as well as the documents
contemplated by Section 8.C(iii); and (y) Lessee shall pay its own attorney
fees and other out-of-pocket expenses incurred in connection with the review
and negotiation of such documents, provided that Lessor shall pay or cause
Lender to pay any such reasonable attorney fees and other out-of-pocket
expenses in excess of $5,000.00.
(iii) At the request of Lessor made prior to January 1, 2004, Lessor and Lessee
shall amend and restate this Lease and the Related Lease into a single Master
Lease (the "Master Lease") covering the Properties and the Related Properties,
but with such modifications as may be reasonably required to reflect such
amendment and restatement (e.g., a change to the amount listed in the Base
Annual Rental definition so that such amount equals the sum of the applicable
amount for this Lease and the Related Lease, a change to the number of
Properties listed in Section 27.B so that such number equals 90% of the
aggregate number of Properties and Related Properties, and a change to the
number of Properties listed in the second paragraph of Section 57.A so that
such number equals 20% of the aggregate number of Properties and Related
Properties). Lessee agrees to take such additional actions and execute such
additional documents as Lessor may reasonably require with respect to the
execution and delivery of the Master Lease.
D. Compliance Certificate. Within 120 days after the end of each fiscal year
of Lessee, Lessee shall deliver to Lessor such compliance certificates as
Lessor may reasonably require in order to establish that Lessee is in
compliance in all material respects with all of the obligations, duties and
covenants imposed on Lessee pursuant to this Lease.
9. Rentals To Be Net to Lessor. The Base Annual Rental payable hereunder
shall be net to Lessor, so that this Lease shall yield to Lessor the rentals
specified during the Lease Term, and that all costs, expenses and obligations
of every kind and nature whatsoever relating to the Properties shall be
performed and paid by Lessee.
10. Taxes and Assessments. Lessee shall pay, prior to the earlier of
delinquency or the accrual of interest on the unpaid balance, all taxes and
assessments of every type or nature assessed against, imposed upon or arising
with respect to Lessee, Lessor, any of the Properties, this Lease, the rental
or other payments due under this Lease during the Lease Term which affect in
any manner the net return realized by Lessor under this Lease, including,
without limitation, the following:
A. All taxes and assessments upon any of the Properties or any part
thereof and upon any Personalty, whether belonging to Lessor or Lessee, or
any tax or charge levied in lieu of such taxes and assessments;
B. All taxes, charges, license fees and or similar fees imposed by reason
of the use of any of the Properties by Lessee; and
C. All excise (other than the Tennessee excise tax), transaction,
privilege, license, sales, use and other taxes upon the rental or other
payments due under this Lease, the leasehold estate of either party or the
activities of either party pursuant to this Lease, including, without
limitation, the Alabama business privilege tax, the Florida sales and use tax
and the Tennessee franchise tax.
Notwithstanding the foregoing, but without limiting the preceding obligation of
Lessee to pay all taxes which are imposed on the rental or other payments due
under this Lease, in no event will Lessee be required to pay any net income
taxes (i.e., taxes which are determined taking into account deductions for
depreciation, interest, taxes and ordinary and necessary business expenses) or
franchise taxes of Lessor (unless imposed in lieu of other taxes that would
otherwise be the obligation of Lessee under this Lease or constituting the
Tennessee franchise tax, any "gross receipts tax" or any similar tax based upon
gross income or receipts of Lessor with respect to this Lease which does not
take into account deductions from depreciation, interest, taxes and/or ordinary
or necessary business expenses), any transfer taxes of Lessor, or any tax
imposed with respect to the sale, exchange or other disposition by Lessor, in
whole or in part, of any of the Properties or Lessor's interest in this Lease
(other than transfer or recordation taxes imposed in connection with the
transfer of any of the Properties to Lessee, the substitution of a Substitute
Property or the termination of this Lease pursuant to the provisions of this
Lease).
All taxing authorities shall be instructed to send all tax and
assessment invoices to Lessee and Lessee shall promptly provide Lessor and
Lender with copies of all tax and assessment invoices received by Lessee. Upon
request, Lessee shall also provide Lessor and Lender with evidence that such
invoices were paid in a timely fashion. Lessee may, at its own expense, contest
or cause to be contested (in the case of any item involving more than the Tax
Contest Permitted Amount, after prior written notice to Lessor), by appropriate
legal proceedings conducted in good faith and with due diligence, the amount or
validity or application, in whole or in part, of any item specified in this
Section or lien therefor, provided that (i) such proceeding shall suspend the
collection thereof from the applicable Properties or any interest therein,
(ii) neither such Properties nor any interest therein would be in any danger
of being sold, forfeited or lost by reason of such proceedings, (iii) no Event
of Default has occurred and is continuing, and (iv) Lessee shall have
deposited with Lessor adequate reserves for the payment of the taxes, together
with all interest and penalties thereon, unless paid in full under protest, or
Lessee shall have furnished the security as may be required in the proceeding
or as may be required by Lessor to ensure payment of any contested taxes.
11. Utilities. Lessee shall contract, in its own name, for and pay when
due all charges for the connection and use of water, gas, electricity,
telephone, garbage collection, sewer use and other utility services supplied
to the Properties during the Lease Term. Under no circumstances shall Lessor
be responsible for any interruption of any utility service.
12. Insurance. Throughout the Lease Term, Lessee shall maintain with
respect to each of the Properties, at its sole expense, the following types
and amounts of insurance (which may be included under a blanket insurance
policy if all the other terms hereof are satisfied):
A. Insurance against loss, damage or destruction by fire and other
casualty, including theft, vandalism and malicious mischief, flood (for each
of the Properties which is in a location designated by the Federal Emergency
Management Administration as a Special Flood Hazard Area), earthquake (for each
of the Properties which is in an area subject to destructive earthquakes within
recorded history), boiler explosion (for each of the Properties with a boiler),
plate glass breakage, sprinkler damage (for each of the Properties which has a
sprinkler system), all matters covered by a standard extended coverage
endorsement, all matters covered by a special coverage endorsement commonly
known as an "all-risk" endorsement and such other risks as Lessor may
reasonably require, insuring each of the Properties for not less than 100% of
their full insurable replacement cost.
B. Commercial general liability and property damage insurance, including a
products liability clause, covering Lessor, Remainderman and Lessee against
bodily injury liability, property damage liability and automobile bodily injury
and property damage liability, including without limitation any liability
arising out of the ownership, maintenance, repair, condition or operation of
the Properties or adjoining ways, streets or sidewalks and, if liquor, beer or
wine is sold on the Properties, insurance covering Lessor, Remainderman and
Lessee against liability arising from the sale of liquor, beer or wine on the
Properties. Such insurance policy or policies shall contain a broad form
contractual liability endorsement under which the insurer agrees to insure
Lessee's obligations under Section 19 hereof to the extent insurable, and a
"severability of interest" clause or endorsement which precludes the insurer
from denying the claim of Lessee, Remainderman or Lessor because of the
negligence or other acts of the other, shall be in amounts of not less than
$1,000,000.00 per injury and occurrence with respect to any insured liability,
whether for personal injury or property damage, or such higher limits as Lessor
or Remainderman may reasonably require from time to time, and shall be of form
and substance reasonably satisfactory to Lessor and Remainderman.
C. State Worker's compensation insurance in the statutorily mandated limits,
employer's liability insurance with limits not less than $500,000 or such
greater amount as Lessor or Remainderman may from time to time require
and such other insurance as may be necessary to comply with applicable
laws.
D. Such other insurance as may from time to time be reasonably required by
Lessor, Remainderman or Lender in order to protect their respective interests
with respect to the Properties.
All insurance policies shall:
(i) Provide for a waiver of subrogation by the insurer as to claims
against Lessor, Remainderman, Lender and their respective employees and agents;
(ii) Provide that any "no other insurance" clause in theinsurance policy
shall exclude any policies of insurance maintained by Lessor, Remainderman or
Lender and that the insurance policy shall not be brought into contribution
with insurance maintained by Lessor, Remainderman or Lender;
(iii) Contain a standard without contribution mortgage clause endorsement
in favor of Lender and any other party designated by Lessor;
(iv) Provide that the policy of insurance shall not be terminated,
cancelled or substantially modified without at least thirty (30) days' prior
written notice to Lessor, Remainderman, Lender and to any other party
covered by any standard mortgage clause endorsement;
(v) Provide that the insurer shall not have the option to restore the
applicable Properties if Lessor or Lessee elects to terminate this Lease in
accordance with the terms hereof; and
(vi) Be issued by insurance companies licensed to do business in the states
in which the Properties are located and which are rated A:VI or better by A.M.
Best's Insurance Guide or are otherwise approved by Lessor and Remainderman.
It is expressly understood and agreed that the foregoing minimum limits
of insurance coverage shall not limit the liability of Lessee for its acts or
omissions as provided in this Lease. All insurance policies (with the exception
of worker's compensation insurance to the extent not available under statutory
law), shall designate Lessor, Remainderman and Lender as additional named
insureds as their interests may appear and shall be payable as set forth in
Section 21 hereof. All such policies shall be written as primary policies, with
deductibles not to exceed 10% of the amount of coverage, except that earthquake
insurance may have a deductible not to exceed $100,000 per Property. Any other
policies, including any policy now or hereafter carried by Lessor, Remainderman
or Lender, shall serve as excess coverage. Notwithstanding the foregoing, at
all times while Lessee maintains a net worth determined in accordance with GAAP
of at least $20,000,000, Lessee may maintain the following deductibles: (x) a
deductible not to exceed $200,000 per claim for liability insurance, and (y)
deductibles not to exceed 20% of the amount of coverage for all other insurance
(except that earthquake insurance may have a deductible not to exceed $100,000
per Property). Lessee shall procure policies for all insurance for periods of
not less than one year and shall provide to Lessor, Remainderman and Lender
certificates of insurance or, upon the request of Lessor, Remainderman or
Lender, duplicate originals of insurance policies evidencing that insurance
satisfying the requirements of this Lease is in effect at all times. In the
event of any transfer by Lessor of Lessor's interest in any of the Properties
or any financing or refinancing of Lessor's interest in any of the Properties,
or by Remainderman of Remainderman's interest in any of the Properties, Lessee
shall, upon not less than ten (10) days' prior written notice, deliver to
Lessor and Remainderman or any Lender providing such financing or refinancing,
as the case may be, certificates of all insurance required to be maintained by
Lessee hereunder naming such transferee or such Lender, as the case may be, as
an additional named insured to the extent required herein effective as of the
date of such transfer, financing or refinancing.
13. Tax and Insurance Impound. Upon the occurrence of an Event of Default,
Lessor may require Lessee to pay to Lessor sums which will provide an impound
account (which shall not be deemed a trust fund) for paying up to the next one
year of taxes, assessments and/or insurance premiums for each of the
Properties. Upon such requirement, Lessor will estimate the actual amounts
needed for such purposes and will notify (which notice shall also include the
method of calculation) Lessee to pay the same to Lessor in equal monthly
installments, as nearly as practicable, in addition to all other sums due
under this Lease. Should additional funds be required at any time, Lessee
shall pay the same to Lessor on demand. Lessee shall advise Lessor of all
taxes and insurance bills which are due and shall cooperate fully with Lessor
in assuring that the same are paid timely. Lessor may deposit all impounded
funds in accounts insured by any federal or state agency and may commingle
such funds with other funds and accounts of Lessor. Interest or other gains
from such funds, if any, shall be added to the impounded funds. During the
continuance of any default by Lessee, Lessor may apply all impounded funds
(including any interest) against any sums due from Lessee to Lessor. Any
collected impound funds which are not applied pursuant to the previous sentence
against any sums due from Lessee to Lessor shall be used to pay the taxes and
insurance premiums for which they were collected. Lessor shall give to Lessee
an annual accounting showing all credits and debits to and from such impounded
funds received from Lessee.
14. Payment of Rental and Other Sums. All rental and other sums which
Lessee is required to pay hereunder shall be the unconditional obligation of
Lessee and shall be payable in full when due without any setoff, abatement,
deferment, deduction or counterclaim whatsoever. Upon execution of this Lease,
Lessee shall establish arrangements whereby payments of the Base Monthly Rental
and impound payments, if any, are transferred by Automated Clearing House Debit
directly from Lessee's bank account to such account as Lessor may designate.
Any delinquent payment (that is, any payment not made within five calendar days
after the date when due) shall, in addition to any other remedy of Lessor,
incur a late charge of 5% (which late charge is intended to compensate Lessor
for the cost of handling and processing such delinquent payment and should not
be considered interest) and bear interest at the Default Rate, such interest
to be computed from and including the date such payment was due through and
including the date of the payment; provided, however, in no event shall Lessee
be obligated to pay a sum of late charge and interest higher than the maximum
legal rate then in effect.
15. Use. Except as set forth below, each of the Properties shall be used
solely for the operation of a Permitted Facility in accordance with the
standards of operations then in effect on a system-wide basis, and for no other
purpose. Lessee shall occupy the Properties promptly following the Effective
Date and, except as set forth below and except during periods when any of the
Properties is untenantable by reason of fire or other casualty or condemnation
(provided, however, during all such periods while any of the Properties is
untenantable, Lessee shall strictly comply with the terms and conditions of
Section 21 of this Lease), Lessee shall at all times during the Lease Term
occupy each of the Properties and shall continuously (during normal business
hours) operate each of the Properties as a Permitted Facility. Lessee may cease
continuous operation of business at any of the Properties for a period not to
exceed 90 days and may do so only once with respect to each Property within any
five-year period during the Lease Term. If Lessee does discontinue operation as
permitted by this Section, Lessee shall (i) give written notice to Lessor
within 10 days after Lessee elects to cease operation, (ii) provide adequate
protection and maintenance of any such Properties during any period of vacancy,
(iii) comply with all Applicable Regulations and otherwise comply with the
terms and conditions of this Lease other than the continuous use covenant set
forth in this Section, and (iv) pay all costs necessary to restore such
Properties to substantially the same condition on the day operation of the
business ceased at such time as such Properties are reopened for Lessee's
business operations. In addition, Lessee may also cease continuous operation
of business at any Property for up to fourteen (14) consecutive days without
notice to Lessor or Lender, provided that no more than one Property may be
closed at any one time pursuant to this sentence unless such closure is in
order to perform the renovations contemplated by Schedule 16.C.
Notwithstanding anything herein to the contrary, Lessee shall pay the Base
Monthly Rental on the first day of each month during any period in which
Lessee discontinues operation.
Lessee shall not, by itself or through any assignment, sublease or other type
of transfer, convert any of the Properties to a use other than a Permitted
Facility during the Lease Term without Lessor's consent, which consent may be
withheld or conditioned by Lessor in its sole discretion. Without limiting
Lessor's right to withhold or condition its consent in its sole discretion,
Lessor may consider, among other things, the following in determining whether
to grant its consent:(i) whether the converted use will be consistent with
the highest and best use of the Properties, (ii) whether the converted use
will increase Lessor's risks or decrease the value of the Properties, and
(iii) whether Lender is willing to grant its consent to such change in use.
16. Compliance with Laws, Restrictions, Covenants and Encumbrances.
A. Lessee's use and occupation of each of the Properties, and the condition
thereof, shall, at Lessee's sole cost and expense, comply fully with all
Applicable Regulations and all restrictions, covenants and encumbrances of
record with respect to each of the Properties. In addition to the other
requirements of this Section, Lessee shall, at all times throughout the
Lease Term, comply with all Applicable Regulations, including, without
limitation, in connection with any maintenance, repairs and replacements of
the Properties undertaken by Lessee as required by Section 17 of this Lease.
B. Lessee will not knowingly permit any act or condition to exist on or about
any of the Properties which will increase in any material respect any
insurance rate thereon, except when such acts are required in the normal
course of its business and Lessee shall pay for such increase.
C. Without limiting the generality of the other provisions of this Section,
Lessee agrees that it shall be responsible for complying in all material
respects with all applicable provisions of the Americans with Disabilities Act
of 1990, as such act may be amended from time to time, and all regulations
promulgated thereunder (collectively, the "ADA"), as it affects the Properties,
including, but not limited to, making required "readily achievable" changes to
remove any architectural or communications barriers, and providing auxiliary
aides and services within the Properties. Lessee further agrees that any and
all alterations made to the Properties during the Lease Term will comply with
the requirements of the ADA. Except for the renovations contemplated by
Schedule 16.C, all plans for alterations which must be submitted to Lessor
under the provisions of Section 18 must include a statement from a licensed
architect or engineer certifying that they have reviewed the plans, and that
the plans comply with all applicable provisions of the ADA. Any subsequent
approval or consent to the plans by Lessor shall not be deemed to be a
representation of Lessor's part that the plans comply with the ADA, which
obligation shall remain with Lessee. Lessee agrees that it will defend,
indemnify and hold harmless the Indemnified Parties from and against any and
all Losses caused by, incurred or resulting from Lessee's failure to comply in
any respect (whether material or immaterial) with the ADA.
D. Lessee represents and warrants to Lessor and Environmental
Insurer as follows:
(i) To Lessee's actual knowledge and except as disclosed in the
Questionnaires, none of the Properties nor Lessee are in violation of, or
subject to, any pending or threatened investigation or inquiry by any
Governmental Authority or to any remedial obligations under any Environmental
Laws.
(ii) To Lessee's actual knowledge and except as disclosed in the
Questionnaires, all permits, licenses or similar authorizations to construct,
occupy, operate or use any buildings, improvements, fixtures and equipment
forming a part of any of the Properties by reason of any Environmental Laws
have been obtained.
(iii) To Lessee's actual knowledge and except as disclosed in the
Questionnaires, no Hazardous Materials have been used, handled, manufactured,
generated, produced, stored, treated, processed, transferred, disposed of or
otherwise Released in, on, under, from or about any of the Properties, except
in De Minimis Amounts or in compliance with Environmental Laws.
(iv) To Lessee's actual knowledge and except as disclosed in the
Questionnaires, the Properties do not contain Hazardous Materials, other than
in De Minimis Amounts or in compliance with Environmental Laws, or underground
storage tanks.
(v) To Lessee's actual knowledge and except as disclosed in the
Questionnaires, there is no threat of any Release migrating to any of the
Properties.
(vi) To Lessee's actual knowledge and except as disclosed in the
Questionnaires, there is no past or present non-compliance with Environmental
Laws, or with permits issued pursuant thereto, in connection with any of the
Properties.
(vii) Lessee has not received any written or oral notice or other communication
from any person or entity (including but not limited to a Governmental
Authority) relating to Hazardous Materials or Remediation thereof, of possible
liability of any person or entity pursuant to any Environmental Law, other
environmental conditions in connection with any of the Properties, or any
actual or potential administrative or judicial proceedings in connection with
any of the foregoing.
(viii) Lessee has truthfully and fully provided to Lessor, in writing, any
and all information relating to environmental conditions in, on, under
or from the Properties that is known to Lessee, as of the Effective Date,
and that is contained in Lessee's files and records, including but not limited
to any reports relating to Hazardous Materials in, on, under or from any of the
Properties.
(ix) To Lessee's actual knowledge and except as disclosed in the
Questionnaires: all uses and operations on or of the Properties, whether
by Lessee or any other person or entity, have been in compliance with all
Environmental Laws and permits issued pursuant thereto; there have been no
Releases in, on, under or from any of the Properties, except in De Minimis
Amounts or in compliance with Environmental Laws; there are no Hazardous
Materials in, on, or under any of the Properties, except in De Minimis
Amounts or in compliance with Environmental Laws; and the Properties have been
kept free and clear of all liens and other encumbrances imposed pursuant to
any Environmental Law (the "Environmental Liens"). Lessee has not knowingly
allowed any tenant or other user of any of the Properties to do any act that
materially increased the dangers to human health or the environment, posed
an unreasonable risk of harm to any person or entity (whether on or off the
Properties), impaired the value of any of the Properties, is contrary to
any requirement of any insurer, constituted a public or private nuisance,
constituted waste, or violated any covenant, condition, agreement or
easement applicable to any of the Properties.
E. Lessee covenants to Lessor and Environmental Insurer during the Lease
Term that: (i) the Properties shall not be in violation of or subject to any
investigation or inquiry by any Governmental Authority or to any remedial
obligations under any Environmental Laws except for such violations or
investigations or inquiries which relate to Hazardous Materials in
De Minimis Amounts. If any investigation or inquiry is initiated by any
Governmental Authority (except for investigations or inquiries which relate
to Hazardous Materials in De Minimis Amounts), Lessee shall promptly notify
Lessor; (ii) all uses and operations on or of each of the Properties,
whether by Lessee or any other person or entity, shall be in compliance
with all Environmental Laws and permits issued pursuant thereto;
(iii) there shall be no Releases in, on, under or from any of the Properties,
except in De Minimis Amounts or in compliance with Environmental Laws; (iv)
there shall be no Hazardous Materials in, on, or under any of the Properties,
except in De Minimis Amounts or in compliance with Environmental Laws; (v)
Lessee shall keep each of the Properties free and clear of all Environmental
Liens, whether due to any act or omission of Lessee or any other person or
entity; (vi) Lessee shall, at its sole cost and expense, fully and
expeditiously cooperate in all activities pursuant to subsection F below,
including but not limited to providing all relevant information and making
knowledgeable persons available for interviews; (vii) in the event that Lessor
notifies Lessee that it has knowledge of a Release or a Threatened Release at
any of the Properties or has a reasonable basis to believe that a material
violation of Environmental Laws at any of the Properties may have occurred,
Lessee shall, at its sole cost and expense, perform any environmental site
assessment or other investigation of environmental conditions in connection
with any of the Properties as may be reasonably requested by Lessor (including
but not limited to sampling, testing and analysis of soil, water, air,
building materials and other materials and substances whether solid, liquid or
gas), and share with Lessor and Environmental Insurer the reports and other
results thereof, and Lessor, Environmental Insurer and the other Indemnified
Parties shall be entitled to rely on such reports and other results thereof;
(viii) Lessee shall, at its sole cost and expense, comply with all reasonable
written requests of Lessor to (1) reasonably effectuate Remediation of any
condition (including but not limited to a Release) in, on, under or from any
of the Properties; (2) comply with any Environmental Law; (3) comply with any
directive from any Governmental Authority; and (4) take any other reasonable
action necessary or appropriate for protection of human health or the
environment; (ix) Lessee shall not do or allow any tenant or other user of any
of the Properties to do any act that materially increases the dangers to human
health or the environment, poses an unreasonable risk of harm to any person or
entity (whether on or off any of the Properties), impairs or may impair the
value of any of the Properties, is contrary to any requirement of any insurer,
constitutes a public or private nuisance, constitutes waste, or violates any
covenant, condition, agreement or easement applicable to any of the Properties;
and (x) Lessee shall immediately notify Lessor in writing of (A) any presence
of Releases or Threatened Releases in, on, under, from or migrating towards
any of the Properties; (B) any non-compliance with any Environmental Laws
related in any way to any of the Properties; (C) any actual or potential
Environmental Lien; (D) any required or proposed Remediation of environmental
conditions relating to any of the Properties; and (E) any written or oral
notice or other communication of which Lessee becomes aware from any source
whatsoever (including but not limited to a Governmental Authority) relating
in any way to Hazardous Materials or Remediation thereof, asserted liability
of Lessee with respect to the Properties pursuant to any Environmental Law,
other environmental conditions in connection with any of the Properties, or
any actual or potential administrative or judicial proceedings in connection
with anything referred to in this Section.
F. Lessor, Lender, Environmental Insurer and any other person or entity
designated by Lessor, including but not limited to any receiver, any
representative of a Governmental Authority, and any environmental consultant,
shall have the right, but not the obligation, to enter upon the Properties at
all reasonable times (including, without limitation, in connection with any
Securitization, Participation or Transfer or in connection with a proposed sale
or conveyance of any of the Properties or a proposed financing or refinancing
secured by any of the Properties or in connection with the exercise of any
remedies set forth in this Lease, the Mortgages or the other Loan Documents, as
applicable) to assess any and all aspects of the environmental condition of the
Properties and its use, including but not limited to conducting any
environmental assessment or audit (the scope of which shall be determined in
the sole and absolute discretion of the party conducting the assessment) and
taking samples of soil, groundwater or other water, air, or building materials,
and conducting other invasive testing; provided, however, that any such persons
(except in emergencies) shall use reasonable efforts to undertake any such
assessments or investigations so as to minimize the impact on Lessee's business
operations at the Properties. Lessee shall cooperate with and provide access to
Lessor, Lender, Environmental Insurer and any other person or entity designated
by Lessor. Any such assessment and investigation shall be at Lessor's sole cost
and expense unless at the time of any such assessment or investigation Lessor
has knowledge of a Release or a Threatened Release at any of the Properties or
has a reasonable basis to believe that a material violation of Environmental
Laws at any of the Properties may have occurred or an Event of Default has
occurred and is continuing, in which case Lessee shall be responsible for the
cost of any such assessment or investigation.
G. Lessee shall, at its sole cost and expense, protect, defend, indemnify,
release and hold harmless each of the Indemnified Parties for, from and
against any and all Losses (excluding Losses suffered by an Indemnified Party
directly arising out of such Indemnified Party's gross negligence or willful
misconduct; provided, however, that the term "gross negligence" shall not
include gross negligence imputed as a matter of law to any of the Indemnified
Parties solely by reason of the Lessor's interest in any of the Properties or
Lessor's failure to act in respect of matters which are or were the obligation
of Lessee under this Lease) and costs of Remediation (whether or not performed
voluntarily), engineers' fees, environmental consultants' fees, and costs of
investigation (including but not limited to sampling, testing, and analysis of
soil, water, air, building materials and other materials and substances
whether solid, liquid or gas) imposed upon or incurred by or asserted against
any Indemnified Parties, and directly or indirectly arising out of or in any
way relating to any one or more of the following: (i) any presence of any
Hazardous Materials in, on, above, or under any of the Properties; (ii) any
past or present Release or Threatened Release in, on, above, under or from
any of the Properties; (iii) any activity by Lessee, any person or entity
affiliated with Lessee or any other tenant or other user of any of the
Properties in connection with any actual, proposed or threatened use,
treatment, storage, holding, existence, disposition or other Release,
generation, production, manufacturing, processing, refining, control,
management, abatement, removal, handling, transfer or transportation to or
from any of the Properties of any Hazardous Materials at any time located in,
under, on or above any of the Properties; (iv) any activity by Lessee, any
person or entity affiliated with Lessee or any other tenant or other user of
any of the Properties in connection with any actual or proposed Remediation of
any Hazardous Materials at any time located in, under, on or above any of the
Properties, whether or not such Remediation is voluntary or pursuant to court
or administrative order, including but not limited to any removal, remedial or
corrective action; (v) any past, present or threatened non-compliance or
violations of any Environmental Laws (or permits issued pursuant to any
Environmental Law) in connection with any of the Properties or operations
thereon, including but not limited to any failure by Lessee, any person or
entity affiliated with Lessee or any other tenant or other user of any of the
Properties to comply with any order of any Governmental Authority in connection
with any Environmental Laws; (vi) the imposition, recording or filing or the
threatened imposition, recording or filing of any Environmental Lien
encumbering any of the Properties; (vii) any administrative processes or
proceedings or judicial proceedings in any way connected with any matter
addressed in this Section; (viii) any past, present or threatened injury to,
destruction of or loss of natural resources in any way connected with any of
the Properties, including but not limited to costs to investigate and assess
such injury, destruction or loss; (ix) any acts of Lessee, any person or
entity affiliated with Lessee or any other tenant or user of any of the
Properties in arranging for disposal or treatment, or arranging with a
transporter for transport for disposal or treatment, of Hazardous Materials
owned or possessed by Lessee, any person or entity affiliated with Lessee or
any other tenant or user of any of the Properties, at any facility or
incineration vessel owned or operated by another person or entity and
containing such or similar Hazardous Materials; (x) any acts of Lessee, any
person or entity affiliated with Lessee or any other tenant or user of any
of the Properties, in accepting any Hazardous Materials for transport to
disposal or treatment facilities, incineration vessels or sites selected
by Lessee, any person or entity affiliated with Lessee or any other tenant
or user of any of the Properties, from which there is a Release, or a
Threatened Release of any Hazardous Materials which causes the incurrence of
costs for Remediation; (xi) any personal injury, wrongful death, or property
damage arising under any statutory or common law or tort law theory relating to
any of the Properties, including but not limited to damages assessed for the
maintenance of a private or public nuisance or for the conducting of an
abnormally dangerous activity on or near any of the Properties; and (xii) any
misrepresentation or inaccuracy in any representation or warranty or material
breach or failure to perform any covenants or other obligations pursuant to
this Section. H. The obligations of Lessee and the rights and remedies of the
Indemnified Parties under the foregoing subsections D through G shall survive
the termination, expiration and/or release of this Lease but only with respect
to matters arising or occurring prior to or during the Lease Term.
17. Condition of Properties; Maintenance. Lessee, at its own expense,
will maintain all parts of each of the Properties in good repair and sound
condition, except for ordinary wear and tear, and will take all action and
will make all structural and non-structural, foreseen and unforeseen and
ordinary and extraordinary changes and repairs or replacements which may be
required to keep all parts of each of the Properties in good repair and sound
condition. Lessee waives any right to (i) require Lessor to maintain, repair
or rebuild all or any part of any of the Properties or (ii) make repairs at
the expense of Lessor, pursuant to any Applicable Regulations at any time in
effect; provided that, the foregoing provisions shall not limit any
obligations Lessor may have under Section 21.D with respect to the
disbursement of the Net Restoration Amount.
18. Waste; Alterations and Improvements. Lessee shall not commit actual or
constructive waste upon any of the Properties. Without the prior written
consent of Lessor, which consent shall not be unreasonably withheld or
conditioned, Lessee shall not (a) make any additions to or alter the structural
elements of the improvements at any of the Properties, which shall mean
additions or alterations which would either affect the foundation or
"footprint" of any building located at any of the Properties or involve
load-bearing walls, structural beams, columns or supports, or the roof,
provided that, adding or replacing windows shall not be deemed an addition
or alteration to the structural elements of the improvements at any of
the Properties, (b) alter any material part of any building system of any
of the Properties in any manner, other than replacements of parts of any
building system with parts of like kind and of equal or greater value, or
(c) make any other change or related series of other changes to any
Property that is estimated to cost in excess of $50,000 per Property,
other than changes in the color or style of wall colors/coverings, floor
coverings or treatments or changes to (or alterations of) exterior colors (any
of (a), (b) or (c) being hereinafter referred to as a "Material Alteration" and
any alteration that does not constitute a Material Alteration is hereinafter
referred to as a "Non-Material Alteration"). Lessee may undertake a Non-
Material Alteration to any Property without Lessor's consent. Lessor hereby
consents to Lessee undertaking the alterations to the Properties described on
Schedule 16.C to comply with the requirements of the settlement disclosed on
Schedule 16.C. If Lessor's consent is required hereunder to any alterations and
Lessor consents to the making of any such alterations, the same shall be made
according to plans and specifications approved by Lessor and subject to such
other conditions as Lessor shall require. All alterations shall be made by
Lessee at Lessee's sole expense by licensed contractors and in accordance with
all applicable laws governing such alterations. Any work at any time commenced
by Lessee on any of the Properties shall be prosecuted diligently to
completion, shall be of good workmanship and materials and shall comply fully
with all the terms of this Lease. Upon completion of any Material Alteration,
Lessee shall promptly provide Lessor with (i) evidence of full payment to all
laborers and materialmen contributing to the alterations, (ii) an architect's
certificate certifying the alterations to have been completed in conformity
with the plans and specifications, (iii) a certificate of occupancy (if the
alterations are of such a nature as would require the issuance of a
certificate of occupancy), and (iv) any other documents or information
reasonably requested by Lessor. Upon completion of any Non-Material Alteration
for which a permit was issued, Lessee shall promptly provide Lessor with a
copy of such permit and evidence that the Governmental Authority which issued
the permit has signed off on the work done pursuant to such permit (to the
extent such sign off is required by Applicable Regulations). Any addition to
or alteration of any of the Properties shall automatically be deemed a part of
the Properties and belong to Lessor, and Lessee shall execute and deliver to
Lessor such instruments as Lessor may require to evidence the ownership by
Lessor of such addition or alteration. Lessee shall execute and file or
record, as appropriate, a "Notice of Non-Responsibility," or any equivalent
notice permitted under applicable law in the states where the applicable
Properties are located.
19. Indemnification. Lessee shall indemnify, protect, defend and hold
harmless each of the Indemnified Parties from and against any and all Losses
(excluding Losses suffered by an Indemnified Party arising out of the gross
negligence or willful misconduct of such Indemnified Party; provided, however,
that the term "gross negligence" shall not include gross negligence imputed as
a matter of law to any of the Indemnified Parties solely by reason of the
Lessor's interest in any of the Properties or Lessor's failure to act in
respect of matters which are or were the obligation of Lessee under this
Lease) caused by, incurred or resulting from Lessee's operations of or
relating in any manner to any of the Properties, whether relating to their
original design or construction, latent defects, alteration, maintenance, use
by Lessee or any person thereon, supervision or otherwise, or from any breach
of, default under, or failure to perform, any term or provision of this Lease
by Lessee, its officers, employees, agents or other persons, or to which any
Indemnified Party is subject because of Lessor's or Remainderman's interest in
any of the Properties, including, without limitation, Losses arising from (1)
any accident, injury to or death of any person or loss of or damage to
property occurring in, on or about any of the Properties or portion thereof or
on the adjoining sidewalks, curbs, parking areas, streets or ways, (2) any use,
non-use or condition in, on or about, or possession, alteration, repair,
operation, maintenance or management of, any of the Properties or any portion
thereof or on the adjoining sidewalks, curbs, parking areas, streets or ways,
(3) any representation or warranty made herein by Lessee, in any certificate
delivered in connection herewith or in any other agreement to which Lessee is
a party or pursuant thereto being false or misleading in any material respect
as of the date of such representation or warranty was made, (4) performance of
any labor or services or the furnishing of any materials or other property in
respect to any of the Properties or any portion thereof, (5) any taxes,
assessments or other charges which Lessee is required to pay under Section 10,
(6) any lien, encumbrance or claim arising on or against any of the Properties
or any portion thereof under any Applicable Regulation or otherwise which
Lessee is obligated hereunder to remove and discharge, or the failure to
comply with any Applicable Regulation, (7) the claims of any invitees,
patrons, licensees or subtenants of all or any portion of any of the
Properties or any Person acting through or under Lessee or otherwise acting
under or as a consequence of this Lease or any sublease, (8) any act or
omission of Lessee or its agents, contractors, licensees, subtenants or
invitees, (9) any contest referred to in Section 10, (10) the sale of
liquor, beer or wine on any of the Properties, and (11) any failure of Lessee
to comply with any obligation of the lessor in any Existing Lease and any
claim made by the lessee under any Existing Lease. It is expressly understood
and agreed that Lessee's obligations under this Section shall survive the
expiration or earlier termination of this Lease for any reason but only with
respect to matters arising or occurring prior to or during the Lease Term.
20. Quiet Enjoyment. So long as Lessee shall pay the rental and other sums
herein provided and shall keep and perform all of the terms, covenants and
conditions on its part herein contained, Lessee shall have, subject and
subordinate to Lessor's rights herein, the right to the peaceful and quiet
occupancy of the Properties. Notwithstanding the foregoing, however, in no
event shall Lessee be entitled to bring any action against Lessor to enforce
its rights hereunder if an Event of Default shall have occurred and be
continuing.
21. Condemnation or Destruction. A. In the event of a taking of all or any
part of any of the Properties for any public or quasi-public purpose by any
lawful power or authority by exercise of the right of condemnation or eminent
domain or by agreement between Lessor, Lessee and those authorized to exercise
such right ("Taking") or the commencement of any proceedings or negotiations
which might result in a Taking or any material damage to or destruction of any
of the Properties or any part thereof (a "Casualty"), Lessee will promptly give
written notice thereof to Lessor, generally describing the nature and extent of
such Taking, proceedings, negotiations or Casualty and including copies of any
documents or notices received in connection therewith. Thereafter, Lessee shall
promptly send Lessor copies of all correspondence and pleadings relating to any
such Taking, proceedings, negotiations or Casualty. During all periods of time
following a Casualty, Lessee shall ensure that the subject Property is secure
and does not pose any risk of harm to adjoining property owners or occupants or
third-parties.
B. In the event of (i) a Taking of all of any of the Properties, other
than for temporary use, (ii) a Taking of substantially all of any of the
Properties (other than for temporary use) that results in Lessee making a good
faith determination that the restoration and continued use of the remainder of
such Property as a Permitted Facility would be uneconomic (each of (i) and
(ii), a "Total Taking"), or (iii) a Casualty of all or substantially all of any
of the Properties that results in Lessee making a good faith determination that
the restoration and continued use of such Property as a Permitted Facility
would be uneconomic (a "Total Casualty"), Lessor shall be entitled to receive
the entire award, insurance proceeds or payment in connection therewith
without deduction for any estate vested in Lessee by this Lease. Lessee hereby
expressly assigns to Lessor all of its right, title and interest in and to
every such award, insurance proceeds or payment and agrees that Lessee shall
not be entitled to any award, insurance proceeds or payment for the value of
Lessee's leasehold interest in this Lease. Lessee shall be entitled to claim
and receive any award or payment from the condemning authority expressly
granted for the taking of Personalty, the interruption of its business and
moving expenses, but only if such claim or award does not adversely affect or
interfere with the prosecution of Lessor's claim for the Total Taking or
otherwise reduce the amount recoverable by Lessor for the Total Taking. Lessee
shall be entitled to claim and receive any insurance proceeds with respect to
the Personalty, the interruption of its business and moving expenses, but only
if such claim or proceeds does not adversely affect or interfere with the
prosecution of Lessor's claim for the Total Casualty or otherwise reduce the
amount recoverable by Lessor for the Total Casualty.
In the event of a Total Taking or Total Casualty, Lessee shall have
the right to terminate this Lease with respect to the applicable Property
by notice (the "Termination Notice") given to Lessor not later than 30 days
after the Total Taking or Total Casualty, as applicable. The Termination
Notice must: (i) specify a date on which this Lease with respect to
such Property shall terminate, which date shall be the last day of a calendar
month occurring not earlier than 120 days and not later than 150 days after the
delivery of such notice (the "Early Termination Date"); (ii) contain a
certificate executed by the president, chief financial officer or treasurer of
Lessee which (X) describes the Total Taking or Total Casualty, (Y) represents
and warrants that either the whole of such Property has been taken, or that
substantially all of such Property has been taken and Lessee has determined in
good faith that the restoration and continued use of the remainder of such
Property as a Permitted Facility would be uneconomic, or that either the whole
or substantially all of such Property has been damaged or destroyed and Lessee
has determined in good faith that the restoration and continued use of such
Property as a Permitted Facility would be uneconomic, and (Z) contains a
covenant by Lessee that neither Lessee or any Affiliate of Lessee will use such
Property for a period of 2 years following the Early Termination Date; and
(iii) if the Early Termination Date shall occur prior to the commencement of
any extension options which may be exercised pursuant to Section 27, contain
either (X) an irrevocable rejectable written offer (the "Rejectable Offer")
of Lessee to purchase Lessor's interest in such Property and in the net award
for such Total Taking or net insurance proceeds for such Total Casualty, as
applicable, after deducting all costs, fees and expenses incident to the
collection thereof, including all costs and expenses incurred by Lessor and
Lender in connection therewith (the "Net Award") on the Early Termination Date
for a purchase price equal to the Stipulated Loss Value (as defined below) for
such Property, or (Y) a Rejectable Substitution Offer to substitute a
Substitute Property satisfying the applicable requirements of Section 57.A for
such Property and Lessor's interest in the Net Award. As used herein, the term
"Stipulated Loss Value" shall mean the sum of (a) the product of the percentage
specified on Schedule I attached hereto which corresponds to the Early
Termination Date multiplied by the Purchase Price for such Property, plus (b)
all Base Annual Rental, Additional Rental and other sums and obligations then
due and payable under this Lease, plus (c) in the event of a Total Casualty
only, the Prepayment Charges corresponding to such Property. In the event of a
termination of this Lease with respect to a Property pursuant to this Section
21.B which does not involve the acceptance (or deemed acceptance) of a
Rejectable Substitution Offer, the Base Annual Rental then in effect shall be
reduced by an amount equal to the product of (x) the Applicable Rent Reduction
Percentage for such Property, and (y) the Base Annual Rental then in effect.
If the Early Termination Date shall occur prior to the commencement of any
extension options which may be exercised pursuant to Section 27, Lessor shall
have 90 days from the delivery of the Termination Notice to deliver to Lessee
written notice of its election to either accept or reject any Rejectable Offer
or Rejectable Substitution Offer contained in the Termination Notice. Lessor's
failure to deliver such notice within such time period shall be deemed to
constitute Lessor's acceptance of the applicable Rejectable Offer or Rejectable
Substitution Offer. If the Mortgage corresponding to such Property is still
outstanding, any rejection of the Rejectable Offer or Rejectable Substitution
Offer by Lessor shall not be effective unless it is consented to in writing by
the Lender and such written consent is delivered to Lessee within such 90-day
period.
If Lessor accepts the Rejectable Offer or is deemed to have accepted the
Rejectable Offer or if, while the Mortgage corresponding to such Property is
still outstanding, any rejection of the Rejectable Offer by Lessor is not
consented to in writing by the Lender, then, on the Early Termination Date,
Lessor shall sell and convey, and Lessee shall purchase for the applicable
Stipulated Loss Value, Lessor's interest in such Property and the Net Award.
Lessee's obligations under this Lease with respect to such Property shall not
be terminated until the applicable Stipulated Loss Value is paid in full. Upon
such payment, (i) Lessor shall convey such Property to Lessee "as-is" by
limited warranty deed, subject to all matters of record (except for the
Mortgage corresponding to such Property and any other consensual liens
granted by Lessor other than those granted by Lessor at the request of
Lessee), and without representation or warranty (except as otherwise
contained in the limited warranty deed), and (ii) all obligations of either
party hereunder with respect to such Property shall cease as of the Early
Termination Date, provided, however, Lessee's obligations to the Indemnified
Parties under any indemnification provisions of this Lease with respect to
such Property (including, without limitation, Sections 16 and 19) and
Lessee's obligations to pay any sums (whether payable to Lessor or a third
party) accruing under this Lease with respect to such Property prior to the
Early Termination Date shall survive the termination of this Lease with
respect to such Property. This Lease shall, however, continue in full force
and effect with respect to all other Properties. If Lessor accepts the
Rejectable Substitution Offer or is deemed to have accepted the Rejectable
Substitution Offer or if, while the Mortgage corresponding to such Property
is still outstanding, any rejection of the Rejectable Substitution Offer by
Lessor is not consented to in writing by the Lender, then, on the Early
Termination Date, Lessee shall complete such substitution, subject, however,
to the satisfaction of each of the applicable terms and conditions set forth
in Section 57. Upon such substitution (i) Lessee shall be entitled to claim
and receive the Net Award and (ii) all obligations of either party hereunder
with respect to the Property being replaced shall cease as of the Early
Termination Date, provided, however, Lessee's obligations to the
Indemnified Parties under any indemnification provisions of this Lease with
respect to such Property (including, without limitation, Sections 16 and 19)
and Lessee's obligations to pay any sums (whether payable to Lessor or a third
party) accruing under this Lease with respect to such Property prior to the
Early Termination Date shall survive the termination of this Lease with respect
to such Property. This Lease shall, however, continue in full force and effect
with respect to all other Properties.
Lessee shall be solely responsible for the payment of all costs and expenses
incurred in connection with the conveyance of a Property to Lessee pursuant to
this Section 21, including, without limitation, to the extent applicable, the
cost of title insurance, survey charges, stamp taxes, mortgage taxes, transfer
fees, escrow and recording fees, taxes imposed on Lessor as a result of such
conveyance, taxes imposed in connection with the transfer of a Property to
Lessee or the termination of this Lease with respect to a Property pursuant to
the provisions of this Section 21, Lessee's attorneys' fees and the reasonable
attorneys' fees and expenses of counsel to Lessor and Lender.
If Lessor rejects the Rejectable Offer or Rejectable Substitution Offer and, as
long as the Mortgage corresponding to the Property subject to such Rejectable
Offer or Rejectable Substitution Offer is still outstanding, such rejection is
consented to in writing by Lender (and such written consent delivered to Lessee
within the applicable 90-day period), or if the Early Termination Date shall
occur after the commencement of any extension options exercised pursuant to
Section 27, then (i) the Net Award shall be paid to and belong to Lessor, (ii)
on the Early Termination Date, Lessee shall pay to Lessor all Base Annual
Rental, Additional Rental and other sums and obligations then due and payable
under this Lease, and (iii) all obligations of either party hereunder shall
cease as of the Early Termination Date with respect to the applicable Property,
provided, however, Lessee's obligations to the Indemnified Parties with respect
to such Property under any indemnification provisions of this Lease with
respect to such Property (including, without limitation, Sections 16 and 19)
and Lessee's obligations to pay any sums (whether payable to Lessor or a third
party) accruing under this Lease with respect to such Property prior to the
Early Termination Date shall survive the termination of this Lease. This Lease
shall, however, continue in full force and effect with respect to all other
Properties.
C. In the event of a Taking of all or any part of any of the Properties
for a temporary use ("Temporary Taking"), this Lease shall remain in
full force and effect without any reduction of Base Annual Rental, Additional
Rental or any other sum payable hereunder. Except as provided below, Lessee
shall be entitled to the entire award for a Temporary Taking, whether paid by
damages, rent or otherwise, unless the period of occupation and use by the
condemning authorities shall extend beyond the date of expiration of this
Lease, in which case the award made for such Taking shall be apportioned
between Lessor and Lessee as of the date of such expiration. At the termination
of any such Temporary Taking, Lessee will, at its own cost and expense and
pursuant to the terms of Section 18 above, promptly commence and complete the
restoration of the Property affected by such Temporary Taking; provided,
however, Lessee shall not be required to restore such Property if the Lease
Term shall expire prior to, or within one year after, the date of termination
of such Temporary Taking, and in such event Lessor shall be entitled to recover
the entire award relating to the Temporary Taking.
D. In the event of a Taking which is not a Total Taking or a Temporary Taking
("Partial Taking") or of a Casualty which is not a Total Casualty (a "Partial
Casualty"), all awards, compensation or damages shall be paid to Lessor, and
Lessor shall have the option to (i) terminate this Lease with respect to the
Property affected, provided that, as long as the Mortgage corresponding to the
applicable Property is still outstanding, Lessor shall have obtained Lender's
prior written consent, by notifying Lessee within 60 days after Lessee gives
Lessor notice of such Partial Casualty or that title has vested in the taking
authority or (ii) continue this Lease in effect, which election may be
evidenced by either a notice from Lessor to Lessee or Lessor's failure to
notify Lessee that Lessor has elected to terminate this Lease with respect to
such Property within such 60-day period. Lessee shall have a period of 60 days
after Lessor's notice that it has elected to terminate this Lease with respect
to such Property during which to elect to continue this Lease with respect to
such Property on the terms herein provided. If Lessor elects to terminate this
Lease with respect to such Property and Lessee does not elect to continue this
Lease with respect to such Property or shall fail during such 60-day period to
notify Lessor of Lessee's intent to continue this Lease with respect to such
Property, then this Lease shall terminate with respect to such Property as of
the last day of the month during which such period expired. Lessee shall then
immediately vacate and surrender such Property, all obligations of either party
hereunder with respect to such Property shall cease as of the date of
termination (provided, however, Lessee's obligations to the Indemnified Parties
under any indemnification provisions of this Lease with respect to such
Property (including, without limitation, Sections 16 and 19) and Lessee's
obligations to pay Base Annual Rental, Additional Rental and all other sums
(whether payable to Lessor or a third party) accruing under this Lease with
respect to such Property prior to the date of termination shall survive such
termination) and Lessor may retain all such awards, compensation or damages.
The Lease shall continue in full force and effect with respect to all other
Properties. If Lessor elects not to terminate this Lease with respect to such
Property, or if Lessor elects to terminate this Lease with respect to such
Property but Lessee elects to continue this Lease with respect to such
Property, then this Lease shall continue in full force and effect on the
following terms: (i) all Base Annual Rental, Additional Rental and other sums
and obligations due under this Lease shall continue unabated, and (ii) Lessee
shall promptly commence and diligently prosecute restoration of such Property
to the same condition, as nearly as practicable, as prior to such Partial
Taking or Partial Casualty as approved by Lessor. Subject to reasonable
conditions for disbursement imposed by Lessor, Lessor shall promptly make
available in installments as restoration progresses an amount up to but not
exceeding the amount of any award, compensation or damages received by Lessor
after deducting all costs, fees and expenses incident to the collection
thereof, including all costs and expenses incurred by Lessor and Lender in
connection therewith (the "Net Restoration Amount"), upon request of Lessee
accompanied by evidence reasonably satisfactory to Lessor that such amount has
been paid or is due and payable and is properly a part of such costs and that
Lessee has complied with the terms of Section 18 above in connection with the
restoration. Prior to the disbursement of any portion of the Net Restoration
Amount with respect to a Partial Casualty, Lessee shall provide evidence
reasonably satisfactory to Lessor of the payment of restoration expenses by
Lessee up to the amount of the insurance deductible applicable to such Partial
Casualty. Lessor shall be entitled to keep any portion of the Net Restoration
Amount which may be in excess of the cost of restoration, subject to the rights
of Lender under the Loan Documents, and Lessee shall bear all additional costs,
fees and expenses of such restoration in excess of the Net Restoration Amount.
If this Lease is terminated with respect to any Property as a result of a
Partial Casualty, simultaneously with such termination Lessee shall pay Lessor
an amount equal to the insurance deductible applicable to such Partial
Casualty.
E. Any loss under any property damage insurance required to be maintained by
Lessee shall be adjusted by Lessor and Lessee. Any award relating to a Total
Taking or a Partial Taking shall be adjusted by Lessor or, at Lessor's
election, Lessee. Notwithstanding the foregoing or any other provisions of this
Section to the contrary, if at the time of any Taking or any Casualty or at any
time thereafter Lessee shall be in default under this Lease and such default
shall be continuing, Lessor is hereby authorized and empowered, upon written
notice to Lessee, but shall not be obligated, in the name and on behalf of
Lessee and otherwise, to file and prosecute Lessee's claim, if any, for an
award on account of such Taking or for insurance proceeds on account of such
Casualty and to collect such award or proceeds and apply the same, after
deducting all costs, fees and expenses incident to the collection thereof, to
the curing of such default and any other then existing default under this Lease
and/or to the payment of any amounts owed by Lessee to Lessor under this Lease,
in such order, priority and proportions as Lessor in its discretion shall deem
proper.
F. Notwithstanding the foregoing, nothing in this Section 21 shall be
construed as limiting or otherwise adversely affecting the representations,
warranties, covenants and characterizations set forth in Lease, including,
without limitation, those provisions set forth in Section 3 of this Lease.
22. Inspection. Lessor and its authorized representatives shall, at its
and their sole cost and expense (except as otherwise provided in this Lease),
have the right, upon reasonable advance notice, to enter any of the Properties
or any part thereof during normal business hours in order to inspect the same
and make photographic or other evidence concerning Lessee's compliance with
the terms of this Lease or in order to show the Properties to prospective
purchasers and lenders. Lessee hereby waives any claim for damages for any
injury or inconvenience to or interference with Lessee's business, any loss of
occupancy or quiet enjoyment of any of the Properties and any other loss
occasioned by such entry so long as Lessor shall have used reasonable efforts
not to unreasonably interrupt Lessee's normal business operations. Lessee
shall keep and maintain at the Properties or Lessee's corporate headquarters
full, complete and appropriate books of account and records of Lessee's
business relating to the Properties in accordance with Lessee's standard
accounting practices. Lessee's books and records shall be open for inspection
at reasonable times and upon reasonable notice by Lessor, Lender and their
respective auditors or other authorized representatives and shall show such
information as is reasonably necessary to determine compliance with Lessor's
obligations under the Loan Documents.
23. Default, Remedies and Measure of Damages. A. Each of the following
shall be an event of default under this Lease (each, an "Event of Default"):
(i) If any representation or warranty of Lessee set forth in this Lease
is false in any material respect, or if Lessee renders any statement or
account which is false in any material respect;
(ii) If any rent or other monetary sum due under this Lease is not paid
within five days from the date when due; provided, however, notwithstanding
the occurrence of such an Event of Default, (x) Lessor shall not be entitled
to exercise its remedies set forth below unless and until Lessor shall have
given Lessee notice thereof and a period of five days from the delivery of
such notice shall have elapsed without such Event of Default being cured, and
(y) if such Event of Default is solely because of Lessee's failure to pay any
monetary sum due to Lessor under this Lease (other than rent), Lessee shall
not lose any of its rights under this Lease unless and until Lessor shall have
given Lessee notice thereof and a period of five days from the delivery of
such notice shall have elapsed without such Event of Default being cured;
(iii) If Lessee fails to pay, prior to delinquency, any taxes, assessments
or other charges, the failure of which to pay will result in the imposition of
a lien against any of the Properties or the rental or other payments due under
this Lease or a claim against Lessor, unless Lessee is contesting such taxes,
assessments or other charges in accordance with the provisions of Section 10
of this Lease;
(iv) If Lessee becomes insolvent within the meaning of the Code, files or
notifies Lessor that it intends to file a petition under the Code, initiates
a proceeding under any similar law or statute relating to bankruptcy,
insolvency, reorganization, winding up or adjustment of debts (collectively,
hereinafter, an "Action"), becomes the subject of either a petition under the
Code or an Action which is not dissolved within 90 days after filing, or is
not generally paying its debts as the same become due;
(v) If Lessee vacates or abandons any of the Properties other than in
accordance with the provisions of Section 15 of this Lease;
(vi) If Lessee fails to observe or perform any of the other covenants
(except with respect to a breach of the Aggregate Fixed Charge Coverage Ratio,
which breach is addressed in subitem (ix) below), conditions or obligations of
this Lease; provided, however, if any such failure does not involve the
payment of any monetary sum, is not willful or intentional, does not place any
rights or property of Lessor in immediate jeopardy, and is within the
reasonable power of Lessee to promptly cure after receipt of notice thereof,
all as determined by Lessor in its reasonable discretion, then such failure
shall not constitute an Event of Default hereunder, unless otherwise expressly
provided herein, unless and until Lessor shall have given Lessee notice
thereof and a period of 30 days shall have elapsed, during which period Lessee
may correct or cure such failure, upon failure of which an Event of Default
shall be deemed to have occurred hereunder without further notice or demand of
any kind being required. If such failure cannot reasonably be cured within
such 30 day period, as determined by Lessor in its reasonable discretion, and
Lessee is diligently pursuing a cure of such failure, then Lessee shall have a
reasonable period to cure such failure beyond such 30 day period, which shall
in no event exceed 90 days after receiving notice of such failure from Lessor.
If Lessee shall fail to correct or cure such failure within such 90-day period,
an Event of Default shall be deemed to have occurred hereunder without further
notice or demand of any kind being required;
(vii) If there is an "Event of Default" or a breach or default, after the
passage of all applicable notice and cure or grace periods, under any other
Sale-Leaseback Document;
(viii) If a final, nonappealable judgment is rendered by a court against
Lessee which has a material adverse effect on either the ability to conduct
business at any of the Properties for its intended use or Lessee's ability to
perform its obligations under this Lease, or is in the amount of $250,000.00
or more, and in either event is not discharged or provision made for such
discharge within 60 days from the date of entry thereof;
(ix) If there is a breach of the Aggregate Fixed Charge Coverage
Ratio requirement and Lessor shall have given Lessee notice thereof and Lessee
shall have failed within a period of 10 days from the delivery of such notice
to either:
(1) deliver a Rejectable Substitution Offer to Lessor for the substitution of
such Substitute Properties satisfying the applicable requirements of Section
57.A for the Properties (starting with the Property with the lowest "Fixed
Charge Coverage Ratio" (determined as contemplated in the following sentence)
and proceeding in ascending order to the Property with the next lowest Fixed
Charge Coverage Ratio) as is necessary to cure the breach of the Aggregate
Fixed Charge Coverage Ratio requirement;
(2) deliver a Rejectable Purchase Offer to Lessor to purchase such of the
Properties (starting with the Property with the lowest Fixed Charge Coverage
Ratio and proceeding in ascending order to the Property with the next lowest
Fixed Charge Coverage Ratio) as is necessary to cure the breach of the
Aggregate Fixed Charge Coverage Ratio requirement; or
(3) deliver notice to Lessor that it has elected to pay the FCCR Rent
Prepayment Amount (as hereinafter defined) on the first day of the calendar
month immediately following the date such notice is delivered.
For purposes of the preceding subitems (1) and (2), the definitions set forth
in
Section 8.A of this Lease with respect to the calculation of the Aggregate
Fixed Charge Coverage Ratio shall be deemed modified as applicable to provide
for the calculation of a Fixed Charge Coverage Ratio for each Property on an
individual basis rather than on an aggregate basis with the other Properties.
For purposes of such calculation, the Operating Lease Expense with respect to
this Lease for each such Property shall equal the product of (x) the Applicable
Rent Reduction Percentage for such Property, and (y) the Base Annual Rental
then in effect. If Lessee makes a Rejectable Substitution Offer or Rejectable
Purchase Offer as contemplated by subitems (1) and (2) above, unless Lessor
rejects such Rejectable Substitution Offer or Rejectable Purchase Offer or
elects a Forced Sale Election as contemplated by Section 57 or 58, as
applicable, the failure of Lessee to complete such substitutions or purchases
within the time period contemplated by Section 57 or 58, as applicable, shall
be deemed an Event of Default without further notice or demand of any kind
being required. If Lessee delivers notice to Lessor that it has elected to
pay the FCCR Rent Prepayment Amount as provided in subitem (3) above, the
failure of Lessee to pay Lessor the FCCR Rent Prepayment Amount on the first
day of the calendar month immediately following the date such notice is
delivered shall be deemed an Event of Default without further notice or
demand of any kind being required. In the event Lessee elects to pay Lessor
the FCCR Rent Prepayment Amount as provided in subitem (3) above, Base
Monthly Rental beginning with the calendar month in which such payment is
made shall be equal to the Base Monthly Rental then in effect reduced by the
FCCR Rent Reduction Amount (as hereinafter defined). For purposes of this
Section 23.A(ix), the following terms shall be defined as set forth below:
"FCCR Rent Prepayment Amount" means the present value, discounted on a monthly
basis at 9.7% per annum, of the FCCR Rent Reduction Amount for each month
beginning with the calendar month in which the FCCR Rent Prepayment Amount is
paid and ending with the calendar month of January, 2022, inclusive.
"FCCR Rent Reduction Amount" the product of (x) the Base Monthly Rental for the
last month of the fiscal year for which the breach of the Aggregate Fixed
Charge Coverage Ratio requirement occurred and (y) the Fixed Charge Coverage
Shortfall Percentage. For purposes of illustration and not limitation, if (i)
Lessee's Aggregate Fixed Charge Coverage Ratio for the fiscal year ending
January 31, 2010 was 1.0:1 (which results in a Fixed Charge Coverage Shortfall
Percentage of 20%), (ii) Lessee paid the FCCR Rent Prepayment Amount on
September 1, 2010, and (iii) the Base Monthly Rental for January, 2010 was
$100, then the Base Monthly Rental payment beginning on September 1, 2010 shall
be equal to the Base Monthly Rental for August, 2010 reduced by the sum of $20.
"Fixed Charge Coverage Shortfall Percentage" means the percentage represented
by (x) 1 minus (y) a fraction, the numerator of which shall be the Aggregate
Fixed Charge Coverage Ratio for the fiscal year for which the breach of the
Aggregate Fixed Charge Coverage Ratio requirement occurred, and the denominator
of which shall be 1.25:1.
Notwithstanding the foregoing, if, within a 30 day period after the delivery
of Lessor's notice to Lessee of Lessee's breach of the Aggregate Fixed Charge
Coverage Ratio requirement, Lessee provides evidence satisfactory to Lessor
that the Aggregate Fixed Charge Coverage Ratio is at least 1.25:1 for the
twelve calendar month period immediately preceding the delivery to Lessor of
such evidence, no Event of Default shall be deemed to have occurred as a
result of such breach of the Aggregate Fixed Charge Coverage Ratio
requirement; or
(x) If Lessee shall fail to maintain insurance in
accordance with the requirements of Section 12 of this Lease.
B. Upon the occurrence of an Event of Default, with or without notice or
demand, except the notice prior to default required under certain
circumstances by subsection A. above or such other notice as may be required
by statute and cannot be waived by Lessee (all other notices being hereby
waived), Lessor shall be entitled to exercise, at its option, concurrently,
successively, or in any combination, all remedies available at law or in
equity, including without limitation, any one or more of the following:
(i) To terminate this Lease, whereupon Lessee's right to possession of the
Properties shall cease and this Lease, except as to Lessee's liability, shall
be terminated.
(ii) To reenter and take possession of any or all of the Properties and, to the
extent permissible, all licenses, permits and other rights or privileges of
Lessee pertaining to the use and operation of any or all of the Properties and
to expel Lessee and those claiming under or through Lessee, without being
deemed guilty in any manner of trespass or becoming liable for any loss or
damage resulting therefrom, without resort to legal or judicial process,
procedure or action. No notice from Lessor hereunder or under a forcible entry
and detainer statute or similar law shall constitute an election by Lessor to
terminate this Lease unless such notice specifically so states. If Lessee
shall, after an Event of Default, voluntarily give up possession of any of the
Properties to Lessor, deliver to Lessor or its agents the keys to any of the
Properties, or both, such actions shall be deemed to be in compliance with
Lessor's rights and the acceptance thereof by Lessor or its agents shall not
be deemed to constitute a termination of this Lease. Lessor reserves the right
following any reentry and/or reletting to exercise its right to terminate this
Lease by giving Lessee written notice thereof, in which event this Lease will
terminate as specified in said notice.
(iii) If Lessee has not removed the Personalty within fifteen (15)
days after written notice from Lessor to Lessee and repaired all damage to the
Properties caused by such removal, Lessor shall have the immediate right to
cause all Personalty located on or at any or all of the Properties to be stored
in a public warehouse or elsewhere at Lessee's sole expense, without becoming
liable for any loss or damage resulting therefrom and without resorting to
legal or judicial process, procedure or action.
(iv) To bring an action against Lessee for any damages sustained by Lessor or
any equitable relief available to Lessor.
(v) To relet any or all of the Properties or any part thereof for such term or
terms (including a term which extends beyond the original Lease Term), at such
rentals and upon such other terms as Lessor, in its sole discretion, may
determine, with all proceeds received from such reletting being applied to the
rental and other sums due from Lessee in such order as Lessor may, in it sole
discretion, determine, which other sums include, without limitation, all
repossession costs, brokerage commissions, attorneys' fees and expenses,
employee expenses, alteration, remodeling and repair costs and expenses of
preparing for such reletting. Except to the extent required by applicable law,
Lessor shall have no obligation to relet any of the Properties or any part
thereof and shall in no event be liable for refusal or failure to relet any of
the Properties or any part thereof, or, in the event of any such reletting, for
refusal or failure to collect any rent due upon such reletting, and no such
refusal or failure shall operate to relieve Lessee of any liability under this
Lease or otherwise to affect any such liability. Lessor reserves the right
following any reentry and/or reletting to exercise its right to terminate this
Lease by giving Lessee written notice thereof, in which event this Lease will
terminate as specified in said notice.
(vi) (x) To recover from Lessee all rent and other monetary sums then due and
owing under this Lease and (y) to accelerate and recover from Lessee all rent
and other monetary sums scheduled to become due and owing under this Lease
after the date of such breach for the entire original scheduled Lease Term.
(vii) To recover from Lessee all reasonable costs and expenses, including
reasonable attorneys' fees, court costs, expert witness fees, costs of tests
and analyses, travel and accommodation expenses, deposition and trial
transcripts, copies and other similar costs and fees, paid or incurred by
Lessor as a result of such breach, regardless of whether or not legal
proceedings are actually commenced.
(viii) To immediately or at any time thereafter, and with or without notice, at
Lessor's sole option but without any obligation to do so, correct such breach
or default and charge Lessee all costs and expenses incurred by Lessor therein.
Any sum or sums so paid by Lessor, together with interest at the Default Rate,
shall be deemed to be Additional Rental hereunder and shall be immediately due
from Lessee to Lessor. Any such acts by Lessor in correcting Lessee's breaches
or defaults hereunder shall not be deemed to cure said breaches or defaults or
constitute any waiver of Lessor's right to exercise any or all remedies set
forth herein.
(ix) To immediately or at any time thereafter, and with or without notice,
except as required herein, set off any money of Lessee held by Lessor
under this Lease against any sum owing by Lessee hereunder. (x) To exercise its
rights under the License Agreement.
(xi) To seek any equitable relief available to Lessor, including, without
limitation, the right of specific performance.
Upon the occurrence and during the continuance of an Event of Default, Lessor
shall also have the option to purchase any Personalty (other than the Excluded
Personalty) for an amount equal to the then fair market salvage value for such
Personalty. If Lessor exercises such option, upon the payment of such amount,
Lessee shall, at Lessee's sole cost and expense, execute and deliver to Lessor
any documents or instruments necessary to transfer ownership of such Personalty
to Lessor. Lessor shall have the right to offset any amounts owed by Lessee
under this Lease against the purchase price for such Personalty.
All powers and remedies given by this Section to Lessor, subject to applicable
law, shall be cumulative and not exclusive of one another or of any other right
or remedy or of any other powers and remedies available to Lessor under this
Lease, by judicial proceedings or otherwise, to enforce the performance or
observance of the covenants and agreements of Lessee contained in this Lease,
and no delay or omission of Lessor to exercise any right or power accruing upon
the occurrence of any Event of Default shall impair any other or subsequent
Event of Default or impair any rights or remedies consequent thereto. Every
power and remedy given by this Section or by law to Lessor may be exercised
from time to time, and as often as may be deemed expedient, by Lessor,
subject at all times to Lessor's right in its sole judgment to discontinue
any work commenced by Lessor or change any course of action undertaken by
Lessor.
If Lessee shall fail to observe or perform any of its obligations under this
Lease or in the event of an emergency, then, without waiving any Event of
Default which may result from such failure or emergency, Lessor may, but
without any obligation to do so, take all actions, including, without
limitation, entry upon any or all of the Properties to perform Lessee's
obligations, immediately and without notice in the case of an emergency and
upon five days written notice to Lessee in all other cases. All expenses
incurred by Lessor in connection with performing such obligations, including,
without limitation, reasonable attorneys' fees and expenses, together with
interest at the Default Rate from the date any such expenses were incurred by
Lessor until the date of payment by Lessee, shall constitute Additional Rental
and shall be paid by Lessee to Lessor upon demand.
C. Notwithstanding anything in this Section 23 or elsewhere in this Lease to
the contrary, it is understood and agreed that Lessor and its successors and
assigns shall have no right to operate as a franchisee of Lessee, except as
contemplated by the License Agreement.
24. Liens; Mortgages, Subordination, Nondisturbance and Attornment.
Lessor's interest in this Lease and/or any of the Properties shall not be
subordinate to any liens or encumbrances placed upon any of the Properties by
or resulting from any act of Lessee, and nothing herein contained shall be
construed to require such subordination by Lessor. Lessee shall keep the
Properties free from any liens for work performed, materials furnished or
obligations incurred by Lessee. NOTICE IS HEREBY GIVEN THAT LESSEE IS NOT
AUTHORIZED TO PLACE OR ALLOW TO BE PLACED ANY LIEN, MORTGAGE, DEED OF TRUST,
SECURITY INTEREST OR ENCUMBRANCE OF ANY KIND UPON ALL OR ANY PART OF ANY OF
THE PROPERTIES OR LESSEE'S LEASEHOLD INTEREST THEREIN, AND ANY SUCH PURPORTED
TRANSACTION WHICH IS NOT APPROVED BY LESSOR SHALL BE VOID. FURTHERMORE, ANY
SUCH PURPORTED TRANSACTION SHALL BE DEEMED A TORTIOUS INTERFERENCE WITH
LESSOR'S RELATIONSHIP WITH LESSEE AND LESSOR'S INTEREST IN THE PROPERTIES.
This Lease at all times shall automatically be subordinate to the Mortgages and
to the lien of any and all ground leases, mortgages, trust deeds and deeds to
secure debt now or hereafter placed upon any of the Properties by Lessor, and
Lessee covenants and agrees to execute and deliver, upon demand, such further
instruments subordinating this Lease to the lien of the Mortgages and any or
all such ground leases, mortgages, trust deeds or deeds to secure debt as shall
be desired by Lessor, or any present or proposed mortgagees or lenders under
trust deeds or deeds to secure debt, upon the condition that Lessee shall have
the right to remain in possession of the Properties under the terms of this
Lease, notwithstanding any default in the Mortgages or any or all such ground
leases, mortgages, trust deeds or deeds to secure debt or after foreclosure of
any or all such Mortgages, mortgages, trust deeds or deeds to secure debt or
termination of any or all such ground leases, so long as no Event of Default
has occurred and is continuing.
If any landlord, mortgagee, receiver, Lender or other secured party elects to
have this Lease and the interest of Lessee hereunder be superior to any of the
Mortgages or any such ground lease, mortgage, trust deed or deed to secure
debt and evidences such election by notice given to Lessee, then this Lease
and the interest of Lessee hereunder shall be deemed superior to any such
Mortgage, ground lease, mortgage, trust deed or deed to secure debt, whether
this Lease was executed before or after such Mortgage, ground lease, mortgage,
trust deed or deed to secure debt and in that event such landlord, mortgagee,
receiver, Lender or other secured party shall have the same rights with
respect to this Lease as if it had been executed and delivered prior to the
execution and delivery of such Mortgage, ground lease, mortgage, trust deed or
deed to secure debt and had been assigned to such landlord, mortgagee,
receiver, Lender or other secured party.
Although the foregoing provisions shall be self-operative and no future
instrument of subordination shall be required, upon request by Lessor,
Lessee shall execute and deliver whatever instruments may be reasonably
required for such purposes, and in the event Lessee fails so to do within 10
days after demand, Lessee does hereby make, constitute and irrevocably appoint
Lessor as its agent and attorney-in-fact and in its name, place and stead so
to do, which appointment shall be deemed coupled with an interest.
In the event any purchaser or assignee of Lender at a foreclosure sale acquires
title to any of the Properties, or in the event Lender or any assignee
otherwise succeeds to the rights of Lessor as landlord under this Lease,
Lessee shall attorn to Lender or such purchaser or assignee, as the case may
be (a "Successor Lessor"), and recognize the Successor Lessor as lessor under
this Lease, and this Lease shall continue in full force and effect as a direct
lease between the Successor Lessor and Lessee, provided that the Successor
Lessor shall only be liable for any obligations of the lessor under this Lease
which accrue after the date that such Successor Lessor acquires title. The
foregoing provision shall be self operative and effective without the
execution of any further instruments.
25. Estoppel Certificate. A. At any time, and from time to time, Lessee
shall, promptly and in no event later than 10 days after a request from Lessor
or Lender, execute, acknowledge and deliver to Lessor or Lender a certificate
in the form supplied by Lessor, Lender or any present or proposed mortgagee or
purchaser designated by Lessor, certifying: (i) that Lessee has accepted the
Properties (or, if Lessee has not done so, that Lessee has not accepted the
Properties, and specifying the reasons therefor); (ii) that this Lease is in
full force and effect and has not been modified (or if modified, setting forth
all modifications), or, if this Lease is not in full force and effect, the
certificate shall so specify the reasons therefor; (iii) the commencement and
expiration dates of the Lease Term, including the terms of any extension
options of Lessee; (iv) the date to which the rentals have been paid under
this Lease and the amount thereof then payable; (v) whether there are then any
existing defaults by Lessor in the performance of its obligations under this
Lease, and, if there are any such defaults, specifying the nature and extent
thereof; (vi) that no notice has been received by Lessee of any default under
this Lease which has not been cured, except as to defaults specified in the
certificate; (vii) the capacity of the person executing such certificate, and
that such person is duly authorized to execute the same on behalf of Lessee;
(viii) that neither Lessor nor Lender has actual involvement in the management
or control of decision making related to the operational aspects or the day-to-
day operations of the Properties; and (ix) any other information reasonably
requested by Lessor, Lender or such present or proposed mortgagee or purchaser.
B. If Lessee shall fail or refuse to sign a certificate in accordance with the
provisions of this Section within 10 days following a request by Lessor, Lessee
irrevocably constitutes and appoints Lessor as its attorney-in-fact to execute
and deliver the certificate to any such third party, it being stipulated that
such power of attorney is coupled with an interest and is irrevocable and
binding; provided, however, that Lessor's execution and delivery of such
certificate on behalf of Lessee shall not cure any default arising by reason
of Lessee's failure to execute and deliver such certificate.
26. Assignment; Subletting. A. Lessor shall have the right to sell or
convey all, but not less than all, of the Properties or to assign its right,
title and interest as Lessor under this Lease in whole, but not in part;
provided, however, the prohibition on Lessor's right to sell or convey less
than all of the Properties shall not restrict Lessor's right to sell or convey
Properties to Lessee pursuant to the provisions of Sections 21.B, 23.A(ix),
57 or 58 hereof. In the event of any such sale or assignment other than a
security assignment, provided Lessee receives written notice that such
purchaser or assignee has assumed all of Lessor's obligations under this Lease
and such assignment does not increase Lessee's obligations under this Lease,
Lessee shall attorn to such purchaser or assignee and Lessor shall be
relieved, from and after the date of such transfer or conveyance, of liability
for the performance of any obligation of Lessor contained herein, except for
obligations or liabilities accrued prior to such assignment or sale.
B. Lessee acknowledges that Lessor has relied both on the business experience
and creditworthiness of Lessee and upon the particular purposes for which
Lessee intends to use the Properties in entering into this Lease. Except as
provided below, without the prior written consent of Lessor: (i) Lessee shall
not assign, transfer or convey this Lease or any interest therein, whether by
operation of law or otherwise; (ii) no Subject Transfer shall occur; (iii) no
interest in the Properties shall be pledged, encumbered or mortgaged by Lessee;
and (iv) Lessee shall not sublet all or any part of any of the Properties. It
is expressly agreed that Lessor may withhold or condition such consent based
upon such matters as Lessor may in its reasonable discretion determine,
including, without limitation, the experience and creditworthiness of any
assignee, the assumption by any assignee of all of Lessee's obligations
hereunder by undertakings enforceable by Lessor, payment to Lessor of any
rentals owing under a sublease which are in excess of the rentals owing
hereunder, the transfer to any assignee of all necessary licenses to continue
operating the Properties for the purposes herein provided, receipt of such
representations and warranties from any assignee as Lessor may request,
including such matters as its organization, existence, good standing and
finances and other matters, whether or not similar in kind. At the time of any
assignment of this Lease which is approved by Lessor, the assignee shall
assume all of the obligations of Lessee under this Lease pursuant to Lessor's
standard form of assumption agreement. No such assignment nor any subletting of
any of the Properties shall relieve Lessee of its obligations respecting this
Lease. Any assignment, transfer, conveyance, pledge, mortgage or subletting in
violation of this Section shall be voidable at the sole option of Lessor.
C. Notwithstanding the provisions of Section 26.B, Lessee shall have the right
to sublease up to ten percent any of the Properties, without the prior written
consent of Lessor or Lender, if each of the following conditions are satisfied:
(1) no Event of Default shall have occurred and be continuing under this Lease
as of the effective date of the applicable sublease;
(2) any such sublease shall be subordinate to this Lease and the Mortgage
corresponding to the Property to which such sublease relates;
(3) Lessee shall remain liable under this Lease notwithstanding such subleases;
(4) the Properties subject to such subleases shall be used as Permitted
Facilities and shall otherwise be operated and maintained in accordance with
the terms and conditions of this Lease; and
(5) the form of sublease is reasonably acceptable to Lessor and Lender.
Within 10 days after the execution of each sublease, Lessee shall provide
Lessor and Lender with a notice of such sublease and a photocopy of the fully
executed sublease.
27. Option To Extend; New Lease. A. Lessee shall have the option to
continue this Lease in effect for four additional successive periods of five
years each, provided that, at the time of exercise of such option or at the
expiration of the Lease Term or, if applicable, the preceding extension of the
Lease Term, no Event of Default shall have occurred and be continuing. If
Lessee exercises such option, this Lease shall continue for the applicable
period in accordance with the terms and provisions of this Lease then in
effect, except that the Base Annual Rental during the applicable period shall
be determined as set forth below.
Lessee may only exercise the first extension option by giving notice to Lessor
of Lessee's intention to do so not later than July 31, 2020. If the first
extension option is exercised by Lessee, Lessee may only exercise the
second extension option by giving notice to Lessor of Lessee's intention to do
so not later than January 31, 2026. If the first two extension options are
exercised, Lessee may only exercise the third extension option by giving notice
to Lessor of Lessee's intention to do so not later than January 31, 2031. If
the first three extension options are exercised, Lessee may only exercise the
fourth extension option by giving notice to Lessor of Lessee's intention to do
so not later than January 31, 2036.
Notwithstanding the foregoing, Lessee's failure to deliver notice of the
exercise of its options under this Section by the applicable outside dates set
forth above shall not terminate the applicable option unless and until Lessor
shall, following the applicable outside date, give written notice of the
applicable option to Lessee, and Lessee shall fail to exercise the applicable
option within thirty (30) days after such notice is given.
The Base Annual Rental during each extension period shall be determined
as follows:
(i) if Lessee delivers to Lessor prior to or simultaneously with the
exercise of the applicable extension option a Useful Life Opinion (as
hereinafter defined), the Base Annual Rental for the first year of such
extension period shall be equal to the Base Annual Rental in effect
immediately prior to the commencement of such extension period, and such Base
Annual Rental shall increase on each Adjustment Date occurring during such
extension period in accordance with the provisions of Section 5.B.
As used herein, the term "Useful Life Opinion" shall mean an opinion from an
independent MAI appraiser that, with respect to each Property then subject to
this Lease, the sum of (A) the estimated economic useful life for such Property
as of the Effective Date as set forth on Schedule 27 attached hereto plus (B)
the additional estimated remaining economic useful life of such Property as of
the commencement date of the applicable extension period multiplied by 90% is
greater than the number of years in the period commencing with the Effective
Date and ending with the date on which the applicable extension period would
expire.
(ii) if Lessee does not deliver a Useful Life Opinion to Lessor prior to or
simultaneously with the exercise of the applicable extension option, the Base
Annual Rental during such extension period shall be an amount equal to 95% of
the annual fair market rental value during such extension period of the
Properties then subject to this Lease, to be determined as follows:
Lessor and Lessee shall exercise reasonable efforts to agree in good faith on
the annual fair market rental value of the Properties for the applicable
extension period within thirty (30) days after Lessor is notified of the
exercise of such option. If Lessor and Lessee shall agree upon the annual fair
market rental value of the Properties for such extension period, Lessor and
Lessee shall within five (5) days thereafter mutually execute and deliver an
acknowledgment of such fair market value which shall be binding upon Lessor and
Lessee and any persons claiming by or through any of them during such extension
period.
If Lessor and Lessee are unable to agree in writing upon the annual fair market
rental value of the Properties for such extension period within such thirty
(30) day period, then not later than forty-five (45) days following the date
Lessor is notified of the exercise of such option (the "Appraiser Selection
Date"), Lessor will select an independent MAI appraiser and Lessee will select
another independent MAI appraiser (each, a "Selected Appraiser"); and each of
Lessor and Lessee will notify the other in writing thereof on or prior to the
Appraiser Selection Date. If only Lessor shall designate a Selected Appraiser
on or before the Appraiser Selection Date, then the determination of the
annual fair market rental value of the Properties for such extension period
shall be made solely by such Selected Appraiser. If only Lessee shall
designate a Selected Appraiser on or before the Appraiser Selection Date, then
the determination of the annual fair market rental value of the Properties for
such extension period shall be made solely by such Selected Appraiser. If
neither Lessor nor Lessee shall designate a Selected Appraiser on or before
the Appraiser Selection Date, then, upon application of either Lessor or
Lessee, the determination of the annual fair market rental value of the
Properties for such extension period shall be made solely by an independent
MAI appraiser selected by the American Arbitration Association or any
successor organization. Each Selected Appraiser shall deliver a signed
appraisal of the annual fair market rental value of the Properties for such
extension period (an "Appraisal") to Lessee and Lessor on or before the date
that is forty-five (45) days after the Appraiser Selection Date or such later
date that such Selected Appraiser is designated pursuant to this Section 27.A.
The annual fair market rental value of the Properties for such extension period
shall then be obtained by averaging the values determined by each Appraisal
delivered by the two Selected Appraisers if the higher value determination of
one of the Selected Appraisers is not more than five percent (5%) in excess of
the lower value determination of the other Selected Appraiser and such annual
fair market rental value shall be final and binding on Lessor and Lessee and
any persons claiming by or through any of them during such extension period.
If the higher value determination is more than five percent (5%) in excess of
the lower value determination, the two Selected Appraisers shall appoint a
third independent MAI appraiser within fifteen (15) days after the date such
Appraisals are delivered by the two Selected Appraisers to Lessee and Lessor,
provided that, if the two Selected Appraisers fail to agree on the selection
of a third independent MAI appraiser within such time period, either Lessor
or Lessee may petition the American Arbitration Association, or any successor
organization, for a determination of the third appraiser. The annual fair
market value of the Properties for such extension period shall, in such case,
be determined by the third appraiser selecting, within thirty (30) days
thereafter, which of the first two appraisals is closest to the annual fair
market rental value of the Properties for such extension period as determined
by such third appraiser, and such determination of the annual fair market
rental value by such third appraiser shall be binding on Lessor and Lessee
and any persons claiming by or through any of them during such extension
period. Lessee shall be obligated to pay the costs of all three appraisers
and the American Arbitration Association (to the extent applicable).
B. In addition and provided that Lessee shall not have exercised its option
for the first renewal term set forth in Section 27.A, Lessee shall also have
the right, by notice delivered to Lessor not later than July 31, 2020, to
enter into a new master lease with Lessor, to commence at the end of the
Primary Term, for not less than fourteen (14) of the Properties, provided
that, at the time of exercise of such option or at the expiration of the
Primary Term, no Event of Default shall have occurred and be continuing.
Such new master lease shall be for a five year primary term, have three (3)
five-year renewal options and otherwise be on the same terms and conditions
as this Lease, except that the Base Annual Rental shall be determined as
follows:
The Base Annual Rental for the five year primary term shall be equal to the
amount of Base Annual Rental that would have been applicable had Lessee
exercised its option for the first renewal term set forth in Section 27.A,
provided, however, if subsection (i) of Section 27.A would have been
applicable, the Base Annual Rental for the first year of the five year primary
term shall be equal to the product of (x) the Base Annual Rental determined
pursuant to subsection (i) of Section 27.A multiplied by (y) a fraction, the
numerator of which shall be the sum of the Purchase Price for all of the
Properties which will be the subject of the new master lease, and the
denominator of which shall be the sum of the Purchase Price for all of the
Properties which were the subject of this Lease immediately prior to the
expiration of the Primary Term, and such Base Annual Rental shall increase on
each Adjustment Date occurring during such five year primary term in accordance
with the provisions of Section 5.B. The Base Annual Rental for the first,
second and third renewal periods under such new master lease shall be equal to
the amount of Base Annual Rental that would have been applicable under Section
27.A had Lessee exercised its option under such Section for the second, third
and fourth renewal terms, respectively.
Lessee shall be solely responsible for the payment of all reasonable costs and
expenses incurred in connection with the execution of such new master lease,
including, without limitation, Lessee's attorneys' fees and reasonable
attorneys' fees and expenses of counsel to Lessor and Lender. 28. State
Specific Provisions. The provisions and/or remedies which are set forth on
Schedule II shall be deemed a part of and included within the terms and
conditions of this Lease.
29. Notices. All notices, consents, approvals or other instruments
required or permitted to be given by either party pursuant to this Lease
shall be in writing and given by (i) hand delivery, (ii) facsimile, (iii)
express overnight delivery service or (iv) certified or registered mail, return
receipt requested, and shall be deemed to have been delivered upon (a) receipt,
if hand delivered, (b) transmission, if delivered by facsimile, (c) the next
Business Day, if delivered by express overnight delivery service, or (d) the
third Business Day following the day of deposit of such notice with the United
States Postal Service, if sent by certified or registered mail, return receipt
requested. Notices shall be provided to the parties and addresses (or
facsimile numbers, as applicable) specified below:
If to Lessee: The Krystal Company
One Union Square
Chattanooga, TN 37402
Attention: Mr. Larry D. Bentley
Telephone: (423) 757-1500
Telecopy: (423) 757- 5773
With a copy to: Miller & Martin LLP
1000 Volunteer Building
832 Georgia Avenue
Chattanooga, TN 37402
Attention: Hugh F. Sharber, Esq.
Telephone: (423) 785-8212
Telecopy: (423) 785- 8480
If to Lessor: Crystac Property I LLC
c/o U.S. Realty Advisors, LLC
1370 Avenue of the Americas
New York, NY 10019
Attention: Mr. David M. Ledy
Telephone: (212) 581-4540
Telecopy: (212) 581-4950
With a copy to: Proskauer Rose LLP
1585 Broadway
New York, NY 10036
Attention: Kenneth S. Hilton, Esq.
Telephone: (212) 969-3000
Telecopy: (212) 969-2900
or to such other address or such other person as either party may from time to
time hereafter specify to the other party in a notice delivered in the manner
provided above. No such notices, consents, approvals or other communications
shall be valid unless Lender receives a duplicate original thereof at the
following address:
Dennis L. Ruben, Esq.
Executive Vice President, General Counsel and Secretary
GE Capital Franchise Finance Corporation
17207 North Perimeter Drive
Scottsdale, AZ 85255
Telephone: (480) 585-4500
Telecopy: (480) 585-2226
or to such other address or such other person as Lender may from time to time
specify to Lessor and Lessee in a notice delivered in the manner provided above.
30. Holding Over. If Lessee remains in possession of any of the
Properties after the expiration of the Primary Term, or any extension thereto
in accordance with Section 27, Lessee, at Lessor's option and within Lessor's
sole discretion, may be deemed a tenant on a month-to-month basis and shall
continue to pay rentals and other sums in the amounts herein provided, except
that the Base Monthly Rental shall be automatically doubled, and to comply with
all the terms of this Lease; provided that nothing herein nor the acceptance
of rent by Lessor shall be deemed a consent to such holding over. Lessee
shall defend, indemnify, protect and hold the Indemnified Parties harmless
from and against any and all Losses resulting from Lessee's failure to
surrender possession upon the expiration of the Lease Term, including,
without limitation, any claims made by any succeeding lessee. The terms of
this Section 30 shall survive the expiration of the Lease Term.
31. No Liens on Personalty. A. NOTICE IS HEREBY GIVEN THAT LESSEE
IS NOT AUTHORIZED TO PLACE OR ALLOW TO BE PLACED ANY LIEN, MORTGAGE, DEED OF
TRUST, SECURITY INTEREST OR ENCUMBRANCE OF ANY KIND UPON ALL OR ANY PART OF
THE PERSONALTY OTHER THAN THE EXCLUDED PERSONALTY, AND ANY SUCH PURPORTED
TRANSACTION WHICH IS NOT APPROVED BY LESSOR SHALL BE VOID. FURTHERMORE, ANY
SUCH PURPORTED TRANSACTION SHALL BE DEEMED A TORTIOUS INTERFERENCE WITH
LESSOR'S RELATIONSHIP WITH LESSEE AND LESSOR'S INTEREST IN THE PROPERTIES.
B. Lessor acknowledges that the Excluded Personalty may be leased by
Lessee from third parties or subject to a purchase money security interest
granted by Lessee; provided, however, in no event shall the aggregate value
of the Excluded Personalty relating to any individual Property exceed the
Excluded Personalty Cap.
32. Removal of Personalty. At the expiration of the Lease Term and if
no Event of Default is then continuing, Lessee may remove all Personalty from
the Properties and take any actions reasonably necessary to de-identify the
Properties as a "Krystal(" restaurant. Lessee shall repair any damage caused
by such removal and de-identification and shall leave the Properties broom
clean and in good and working condition and repair inside and out. Any
property of Lessee left on the Properties on the tenth day following the
expiration of the Lease Term shall, at Lessor's option, automatically and
immediately become the property of Lessor.
33. Financial Statements. Within 45 days after the end of each fiscal quarter
and within 120 days after the end of each fiscal year of Lessee, Lessee shall
deliver to Lessor and Lender (i) complete financial statements of Lessee
including a balance sheet, profit and loss statement, statement of cash flows
and all other related schedules for the fiscal period then ended; and (ii)
income statements for the business at each of the Properties. All such
financial statements shall be prepared in accordance with GAAP (other than the
income statements for the business at each of the Properties) and shall be
certified to be accurate and complete by Lessee (or the Treasurer or other
appropriate officer of Lessee). Lessee understands that Lessor and Lender will
rely upon such financial statements and Lessee represents that such reliance
is reasonable. In the event that Lessee's property and business at the
Properties is ordinarily consolidated with other business for financial
statement purposes, such financial statements shall be prepared on a
consolidated basis showing separately the sales, profits and losses, assets
and liabilities pertaining to each of the Properties with the basis for
allocation of overhead of other charges being clearly set forth. The financial
statements delivered to Lessor and Lender need not be audited, but Lessee
shall deliver to Lessor and Lender copies of any audited financial statements
of Lessee which may be prepared, as soon as they are available.
34. Force Majeure. Any prevention, delay or stoppage due to strikes,
lockouts, acts of God, enemy or hostile governmental action, civil
commotion, fire or other casualty beyond the control of the party
obligated to perform shall excuse the performance by such party for a period
equal to any such prevention, delay or stoppage, except the obligations imposed
with regard to rental and other monies to be paid by Lessee pursuant to this
Lease and any indemnification obligations imposed upon Lessee under this Lease.
35. Time Is of the Essence. Time is of the essence with respect to each
and every provision of this Lease in which time is a factor.
36. Lessor's Liability. Notwithstanding anything to the contrary provided
in this Lease, it is specifically understood and agreed, such agreement being a
primary consideration for the execution of this Lease by Lessor, that (i) there
shall be absolutely no personal liability on the part of Lessor, its successors
or assigns and the trustees, members, partners, shareholders, officers,
directors, employees and agents of Lessor and its successors or assigns, to
Lessee with respect to any of the terms, covenants and conditions of this
Lease, provided that Lessee shall have recourse to the Properties and Lessor
to the extent expressly provided below, (ii) Lessee waives all claims, demands
and causes of action against the trustees, members, partners, shareholders,
officers, directors, employees and agents of Lessor and its successors or
assigns in the event of any breach by Lessor of any of the terms, covenants
and conditions of this Lease to be performed by Lessor, and (iii) Lessee shall
look solely to the Properties for the satisfaction of each and every remedy of
Lessee in the event of any breach by Lessor of any of the terms, covenants
and conditions of this Lease to be performed by Lessor, or any other matter in
connection with this Lease or the Properties, such exculpation of liability to
be absolute and without any exception whatsoever, provided that, with respect
to affirmative acts of Lessor which constitute gross negligence or intentional
misconduct (it being understood and agreed that the acts of the Lessee and its
shareholders, officers, directors, employees and agents shall not be imputed
to Lessor), Lessee shall have the right to look to other assets of Lessor, but
not the assets of the trustees, members, partners, shareholders, officers,
directors, employees and agents of Lessor.
37. Consent of Lessor. (a) Except with respect to provisions of this Lease
which expressly provide that Lessor's consent shall not be unreasonably
conditioned or withheld, Lessor's consent to any request of Lessee may be
conditioned or withheld in Lessor's sole discretion. Lessor shall have no
liability for damages resulting from Lessor's failure to give any consent,
approval or instruction reserved to Lessor, Lessee's sole remedy in any such
event being an action for injunctive relief.
(b) It is understood and agreed that to the extent Lessor is required to
obtain the consent, approval, agreement or waiver of Lender with respect to a
matter for which Lessor's approval has been requested under this Lease, Lessor
shall in no event be deemed to have unreasonably withheld Lessor's consent,
approval, agreement or waiver thereof if Lender shall not have given its
approval if required.
38. Waiver and Amendment. No provision of this Lease shall be deemed
waived or amended except by a written instrument unambiguously setting forth
the matter waived or amended and signed by the party against which enforcement
of such waiver or amendment is sought. Waiver of any matter shall not be
deemed a waiver of the same or any other matter on any future occasion. No
acceptance by Lessor of an amount less than the monthly rent and other
payments stipulated to be due under this Lease shall be deemed to be other
than a payment on account of the earliest such rent or other payments then due
or in arrears nor shall any endorsement or statement on any check or letter
accompanying any such payment be deemed a waiver of Lessor's right to collect
any unpaid amounts or an accord and satisfaction.
39. Successors Bound. Except as otherwise specifically provided herein,
the terms, covenants and conditions contained in this Lease shall bind and
inure to the benefit of the respective heirs, successors, executors,
administrators and assigns of each of the parties hereto.
40. No Merger. The voluntary or other surrender of this Lease by Lessee,
or a mutual cancellation thereof, shall not result in a merger of Lessor's and
Lessee's estates, and shall, at the option of Lessor, either terminate any or
all existing subleases or subtenancies, or operate as an assignment to Lessor
of any or all of such subleases or subtenancies.
41. Captions. Captions are used throughout this Lease for convenience of
reference only and shall not be considered in any manner in the construction
or interpretation hereof.
42. Severability. The provisions of this Lease shall be deemed severable.
If any part of this Lease shall be held unenforceable by any court of competent
jurisdiction, the remainder shall remain in full force and effect, and such
unenforceable provision shall be reformed by such court so as to give maximum
legal effect to the intention of the parties as expressed therein.
43. Characterization. A. It is the intent of the parties hereto that the
business relationship created by this Lease and any related documents is solely
that of a long-term commercial lease between landlord and tenant and has been
entered into by both parties in reliance upon the economic and legal bargains
contained herein. None of the agreements contained herein, is intended, nor
shall the same be deemed or construed, to create a partnership between Lessor
and Lessee, to make them joint venturers, to make Lessee an agent, legal
representative, partner, subsidiary or employee of Lessor, nor to make Lessor
in any way responsible for the debts, obligations or losses of Lessee.
B. Lessor and Lessee acknowledge and warrant to each other that each has been
represented by independent counsel and has executed this Lease after being
fully advised by said counsel as to its effect and significance. This Lease
shall be interpreted and construed in a fair and impartial manner without
regard to such factors as the party which prepared the instrument, the
relative bargaining powers of the parties or the domicile of any party.
Whenever in this Lease any words of obligation or duty are used, such words
or expressions shall have the same force and effect as though made in the form
of a covenant.
44. Easements. During the Lease Term, Lessor agrees to grant such utility,
access or other similar easements on, over, under and above any of the
Properties as Lessee may request, provided that such easements are reasonably
required for the operation of such Property as a Permitted Facility and will
not decrease the value of such Property. During the Lease Term, Lessor shall
also have the right to grant any utility, access or other similar easements on,
over, under and above any of the Properties which are not requested by Lessee,
provided that such easements will not materially interfere with Lessee's long-
term use of such Properties and ten (10) days' prior written notice is given
to Lessee.
45. Bankruptcy. A. As a material inducement to Lessor executing this
Lease, Lessee acknowledges and agrees that Lessor is relying upon (i) the
financial condition and specific operating experience of Lessee and Lessee's
obligation to use each of the Properties specifically in accordance with
system-wide requirements imposed from time to time on Permitted Facilities,
(ii) Lessee's timely performance of all of its obligations under this Lease
notwithstanding the entry of an order for relief under the Code for Lessee and
(iii) all defaults under this Lease as to all Properties being cured promptly
and this Lease being assumed within 60 days of any order for relief entered
under the Code for Lessee, or this Lease being rejected within such 60 day
period and the Properties surrendered to Lessor.
Accordingly, in consideration of the mutual covenants contained in this Lease
and for other good and valuable consideration, Lessee hereby agrees that:
(i) All obligations that accrue under this Lease (including the obligation
to pay rent), from and after the date that an Action is commenced shall be
timely performed exactly as provided in this Lease and any failure to so
perform shall be harmful and prejudicial to Lessor;
(ii) Any and all obligations under this Lease that become due from and after
the date that an Action is commenced and that are not paid as required by
this Lease shall, in the amount of such rents, constitute administrative
expense claims allowable under the Code with priority of payment at least
equal to that of any other actual and necessary expenses incurred after the
commencement of the Action;
(iii) Any extension of the time period within which Lessee may assume or
reject this Lease without an obligation to cause all obligations coming due
under this Lease from and after the date that an Action is commenced to be
performed as and when required under this Lease shall be harmful and
prejudicial to Lessor;
(iv) Any time period designated as the period within which Lessee
must cure all defaults and compensate Lessor for all pecuniary losses which
extends beyond the date of assumption of this Lease shall be harmful and
prejudicial to Lessor;
(v) Any assignment of this Lease must result in all terms and conditions of
this Lease being assumed by the assignee without alteration or amendment, and
any assignment which results in an amendment or alteration of the terms and
conditions of this Lease without the express written consent of Lessor
shall be harmful and prejudicial to Lessor;
(vi) Any proposed assignment of this Lease to an assignee: (a) that will not
use the Properties specifically in accordance with a franchise agreement with
the franchisor of Permitted Facilities, or (b) that does not possess financial
condition, operating performance and experience characteristics equal to or
better than the financial condition, operating performance and experience of
Lessee as of the Effective Date, shall be harmful and prejudicial to Lessor;
(vii) The rejection (or deemed rejection) of this Lease for any reason
whatsoever shall constitute cause for immediate relief from the automatic stay
provisions of the Code, and Lessee stipulates that such automatic stay shall
be lifted immediately and possession of the Properties will be delivered to
Lessor immediately without the necessity of any further action by Lessor; and
(viii) This Lease shall at all times be treated as consistent with the
specific characterizations set forth in Section 3 of this Lease, and assumption
or rejection of this Lease shall be (a) in its entirety, (b) for all of the
Properties, and (c) in strict accordance with the specific terms and conditions
of this Lease.
B. No provision of this Lease shall
be deemed a waiver of Lessor's rights or remedies under the Code or applicable
law to oppose any assumption and/or assignment of this Lease, to require timely
performance of Lessee's obligations under this Lease, or to regain possession of
the Properties as a result of the failure of Lessee to comply with the terms and
conditions of this Lease or the Code.
C. Notwithstanding anything in this Lease
to the contrary, all amounts payable by Lessee to or on behalf of Lessor under
this Lease, whether or not expressly denominated as such, shall constitute
"rent" for the purposes of the Code.
D. For purposes of this Section addressing
the rights and obligations of Lessor and Lessee in the event that an Action is
commenced, the term "Lessee" shall include Lessee's successor in bankruptcy,
whether a trustee, Lessee as debtor in possession or other responsible person.
46. No Offer. No contractual or other rights shall exist between Lessor and
Lessee with respect to the Properties until both have executed and delivered
this Lease, notwithstanding that deposits may have been received by Lessor and
notwithstanding that Lessor may have delivered to Lessee an unexecuted copy of
this Lease. The submission of this Lease to Lessee shall be for examination
purposes only, and does not and shall not constitute a reservation of or an
option for Lessee to lease or otherwise create any interest on the part of
Lessee in the Properties.
47. Other Documents. Each of the parties agrees to sign such other and
further documents as may be necessary or appropriate to carry out the
intentions expressed in this Lease.
48. Attorneys' Fees. Notwithstanding anything in this Lease to the
contrary, in the event of any judicial or other adversarial proceeding between
the parties concerning this Lease, to the extent permitted by law, the
prevailing party shall be entitled to recover all of its reasonable attorneys'
fees and other costs in addition to any other relief to which it may be
entitled. In addition, Lessor shall, upon demand, be entitled to all
attorneys' fees and all other costs incurred in the preparation and service of
any notice or demand hereunder, whether or not a legal action is subsequently
commenced. References in this Lease to Lessor's attorneys' fees and/or costs
shall mean the fees and costs of independent counsel retained by Lessor with
respect to the matter.
49. Entire Agreement. This Lease and any other instruments or agreements
referred to herein, constitute the entire agreement between the parties with
respect to the subject matter hereof, and there are no other representations,
warranties or agreements except as herein provided. Without limiting the
foregoing, Lessee specifically acknowledges that neither Lessor nor any agent,
officer, employee or representative of Lessor has made any representation or
warranty regarding the projected profitability of the business to be conducted
on the Properties. Furthermore, Lessee acknowledges that Lessor did not prepare
or assist in the preparation of any of the projected figures used by Lessee in
analyzing the economic viability and feasibility of the business to be
conducted by Lessee at the Properties.
50. Forum Selection; Jurisdiction; Venue; Choice of Law. Lessee
acknowledges that this Lease was partially negotiated in the State of Arizona,
this Lease was executed and delivered in the State of Arizona, all payments
under this Lease will be delivered in the State of Arizona (unless otherwise
directed by Lessor or its successors) and there are substantial contacts
between the parties and the transactions contemplated herein and the State of
Arizona. For purposes of any action or proceeding arising out of this Lease,
the parties hereto expressly submit to the jurisdiction of all federal and
state courts located in the State of Arizona. Lessee and Lessor consent that
they may be served with any process or paper by registered mail or by personal
service within or without the State of Arizona in accordance with applicable
law. Furthermore, Lessee and Lessor waive and agree not to assert in any such
action, suit or proceeding that they are not personally subject to the
jurisdiction of such courts, that the action, suit or proceeding is brought in
an inconvenient forum or that venue of the action, suit or proceeding is
improper. The creation of this Lease and the rights and remedies of Lessor
with respect to the Properties, as provided herein and by the laws of the
states in which the Properties are located, as applicable, shall be governed
by and construed in accordance with the internal laws of the states in which
the Properties are located, as applicable, without regard to principles of
conflicts of law. With respect to other provisions of this Lease, this Lease
shall be governed by the internal laws of the State of Arizona, without regard
to its principles of conflicts of law. Nothing contained in this Section shall
limit or restrict the right of Lessor or Lessee to commence any proceeding in
the federal or state courts located in the states in which the Properties are
located to the extent Lessor or Lessee deems such proceeding necessary or
advisable to exercise remedies available under this Lease.
51. Counterparts. This Lease may be executed in one or more counterparts,
each of which shall be deemed an original.
52. Memorandum of Master Lease. Concurrently with the execution of this
Lease, Lessor and Lessee are executing the Memorandum to be recorded in the
applicable real property records with respect to each of the Properties.
Further, upon Lessor's request, Lessee agrees to execute and acknowledge a
termination of lease and/or quit claim deed in recordable form with respect to
each of the Properties to be held by Lessor until the expiration or sooner
termination of the Lease Term.
53. No Brokerage. Lessor and Lessee represent and warrant to
each other that they have had no conversation or negotiations with any broker
concerning the leasing of the Properties. Each of Lessor and Lessee agrees to
protect, indemnify, save and keep harmless the other, against and from all
liabilities, claims, losses, costs, damages and expenses, including attorneys'
fees, arising out of, resulting from or in connection with their breach of the
foregoing warranty and representation. Lessee has been advised by Banc of
America Securities LLC, whose fees shall be paid by Lessee.
54. Waiver of Jury Trial and Punitive, Consequential, Special and Indirect
Damages. LESSOR AND LESSEE HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY
WAIVE THE RIGHT EITHER MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY AND ALL
ISSUES PRESENTED IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM BROUGHT BY
EITHER OF THE PARTIES HERETO AGAINST THE OTHER OR ITS SUCCESSORS WITH RESPECT
TO ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS LEASE, THE RELATIONSHIP
OF LESSOR AND LESSEE, LESSEE'S USE OR OCCUPANCY OF ANY OF THE PROPERTIES,
AND/OR ANY CLAIM FOR INJURY OR DAMAGE, OR ANY EMERGENCY OR STATUTORY REMEDY.
THIS WAIVER BY THE PARTIES HERETO OF ANY RIGHT EITHER MAY HAVE TO A TRIAL BY
JURY HAS BEEN NEGOTIATED AND IS AN ESSENTIAL ASPECT OF THEIR BARGAIN.
FURTHERMORE, LESSEE HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES THE
RIGHT IT MAY HAVE TO SEEK PUNITIVE, CONSEQUENTIAL, SPECIAL AND INDIRECT
DAMAGES FROM LESSOR AND ANY OF LESSOR'S AFFILIATES, OFFICERS, DIRECTORS,
MEMBERS OR EMPLOYEES OR ANY OF THEIR SUCCESSORS WITH RESPECT TO ANY AND ALL
ISSUES PRESENTED IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM BROUGHT BY
LESSEE AGAINST LESSOR OR ANY OF LESSOR'S AFFILIATES, OFFICERS, DIRECTORS,
MEMBERS OR EMPLOYEES OR ANY OF THEIR SUCCESSORS WITH RESPECT TO ANY MATTER
ARISING OUT OF OR IN CONNECTION WITH THIS LEASE OR ANY DOCUMENT CONTEMPLATED
HEREIN OR RELATED HERETO. THE WAIVER BY LESSEE OF ANY RIGHT IT MAY HAVE TO
SEEK PUNITIVE, CONSEQUENTIAL, SPECIAL AND INDIRECT DAMAGES HAS BEEN NEGOTIATED
BY THE PARTIES HERETO AND IS AN ESSENTIAL ASPECT OF THEIR BARGAIN.
55. Reliance By Environmental Insurer and Lender. (a) Lessee
acknowledges and agrees that Environmental Insurer may rely on the
representations, warranties and covenants set forth in Section 16 of this
Lease, that Environmental Insurer is an intended third-party beneficiary of
such representations, warranties and covenants and that Environmental
Insurer shall have all rights and remedies available at law or in equity
as a result of a breach of such representations, warranties and covenants,
including to the extent applicable, the right of subrogation.
(b) Lessee acknowledges and agrees that Lender may rely on all of the
representations, warranties and covenants set forth in this Lease, that Lender
is an intended third-party beneficiary of such representations, warranties and
covenants and that Lender shall have all rights and remedies available at law
or in equity as a result of a breach of such representations, warranties and
covenants, including to the extent applicable, the right of subrogation.
56. Document Review. In the event Lessee makes any request upon Lessor
requiring Lessor, Lender or the attorneys of Lessor or Lender to review and/or
prepare (or cause to be reviewed and/or prepared) any documents, plans,
specifications or other submissions in connection with or arising out of this
Lease, then Lessee shall reimburse Lessor or its designee promptly upon
Lessor's demand therefor for all reasonable out-of-pocket costs and expenses
incurred by Lessor in connection with such review and/or preparation plus a
reasonable processing and review fee.
57. Substitution. A. Subject to the fulfillment of all of the conditions
set forth in the following subsection B, Lessee shall have the right to
deliver a rejectable offer to Lessor (each, a "Rejectable Substitution Offer")
to substitute a Substitute Property for a Property (such Property to be
replaced being referred to herein as the "Replaced Property") if:
(i) the terms of Section 21.B of this Lease permit such substitution (each, a
"Casualty/Condemnation Substitution"); or
(ii) the terms of Section 23.A(ix)(1) of this Lease permit such substitution
(each, a "FCCR Substitution").
From and after the third anniversary of the Effective Date and subject to the
fulfillment of all of the conditions set forth in the following subsection B,
Lessee shall also have the right to deliver a Rejectable Substitution Offer to
substitute a Substitute Property for a Property if Lessee determines for any
reason to make a substitution (each, a "Discretionary Substitution"); provided,
however, that once Lessee has done Casualty/Condemnation Substitutions,
Discretionary Substitutions and/or FCCR Substitutions for a total of three (3)
Properties in the aggregate, Lessee shall no longer have the right to deliver a
Rejectable Substitution Offer with respect to a Discretionary Substitution.
Each Rejectable Substitution Offer shall identify the proposed Substitute
Property in reasonable detail and contain a certificate executed by a duly
authorized officer of Lessee pursuant to which Lessee shall certify that in
Lessee's good faith judgment such proposed Substitute Property satisfies as of
the date of such notice, or will satisfy as of the date of the closing of
such substitution, all of the applicable conditions to substitution set forth
in this Section 57. Lessee agrees to deliver to Lessor all of the diligence
information and materials contemplated by the provisions of Section 57.B of
this Lease within 30 days after the delivery to Lessor of a Rejectable
Substitution Offer.
With respect to any Rejectable Substitution Offer for a Casualty/Condemnation
Substitution, Lessor shall have 90 days from the delivery of a Rejectable
Substitution Offer notice satisfying the requirements set forth above to deliver
to Lessee written notice of its election to either accept or reject the
Rejectable Substitution Offer. Lessor's failure to deliver such notice within
such time period shall be deemed to constitute Lessor's acceptance of such
Rejectable Substitution Offer. If the Mortgage corresponding to a Replaced
Property is still outstanding, any rejection by Lessor of a Rejectable
Substitution Offer for a Casualty/Condemnation Substitution shall not be
effective unless it is consented to in writing by Lender. If Lessor accepts a
Rejectable Substitution Offer for a Casualty/Condemnation Substitution or is
deemed to have accepted such Rejectable Substitution Offer, or while the
Mortgage corresponding to the Replaced Property is still outstanding, any
rejection by Lessor of such Rejectable Substitution Offer is not consented to in
writing by the Lender, then Lessee shall complete the substitution of the
Substitute Property for the Replaced Property, subject, however, to the
satisfaction of each of the applicable terms and conditions set forth in Section
57.B.
With respect to any Rejectable Substitution Offer for a Discretionary
Substitution or FCCR Substitution, Lessor shall have 90 days from the delivery
of a Rejectable Substitution Offer notice satisfying the requirements set forth
above (the "Section 57 Ninety Day Period") to deliver to Lessee written notice
of its election to either (i) accept such Rejectable Substitution Offer, (ii)
reject such Rejectable Substitution Offer, or (iii) elect to have Lessee, as
non-exclusive agent for Lessor, undertake on behalf of Lessor to obtain cash
bids for the sale of the Replaced Property (a "Forced Sale Election"). Lessor's
failure to deliver such written notice within such time period shall be deemed
to constitute Lessor's acceptance of such Rejectable Substitution Offer. If the
Mortgage corresponding to a Replaced Property is still outstanding, any
rejection by Lessor of a Rejectable Substitution Offer for a Discretionary
Substitution or FCCR Substitution or any Forced Sale Election relating to a
FCCR Substitution shall not be effective unless it is consented to in writing
by Lender. If Lessor accepts a Rejectable Substitution Offer for a
Discretionary Substitution or FCCR Substitution or is deemed to have accepted
such Rejectable Substitution Offer, or while the Mortgage corresponding to the
Replaced Property is still outstanding, any rejection by Lessor of such
Rejectable Substitution Offer or any Forced Sale Election relating to a FCCR
Substitution is not consented to in writing by the Lender, then Lessee shall
complete the substitution of the Substitute Property for the Replaced Property,
subject, however, to the satisfaction of each of the applicable terms and
conditions set forth in Section 57.B. During the period commencing when such
Rejectable Substitution Offer has been made and ending on the earlier of the
date Lessor delivers the written notice contemplated by the first sentence of
this paragraph or the expiration of the Section 57 Ninety Day Period, Lessor,
but not Lessee, shall be entitled, directly or through one or more agents, to
seek bids for the sale of the Replaced Property.
If Lessor elects the Forced Sale Election under this Section 57 and, with
respect to a Forced Sale Election relating to a FCCR Substitution, such Forced
Sale Election is consented to in writing by the Lender, Lessee, as
non-exclusive agent for Lessor, shall undertake on behalf of Lessor to obtain
cash bids for the sale of the Replaced Property. Prior to solicitation of any
such bids, Lessee and Lessor shall agree on a form of contract of purchase
relating to the Replaced Property acceptable to Lessor. Lessee may use a third
party as its agent in connection with any such sale. Lessee shall certify to
Lessor in writing the amount and terms of each bid received by Lessee and the
name and address of the Person submitting a bid (which Person shall not be the
Lessee, any Affiliate of the Lessee, or any Person with an agreement to allow
Lessee or any Affiliate of Lessee to use the Replaced Property at any time
during the three (3) year period following any such sale). Lessor shall be
under no duty to solicit bids, to inquire into the efforts of Lessee to obtain
bids or otherwise to take any action in connection with any such sale other
than to sell its interest in the Replaced Property as provided herein. The
sale of the Replaced Property shall close on a Base Monthly Rental payment
date which is no later than 270 days from the expiration date of the Section
57 Ninety Day Period (such date of closing being referred to herein as the
"Section 57 Closing Date"). On the Section 57 Closing Date (subject to receipt
of the net sales price and all additional payments and instruments specified
below):
(1) this Lease shall be deemed terminated with respect to such Replaced
Property only, but this Lease shall continue in full force and effect with
respect to all of the other Properties; provided, however, such termination
shall not limit Lessee's obligations to Lessor with respect to such Replaced
Property under any indemnification provisions of this Lease (including,
without limitation, Sections 16 and 19 of this Lease) and Lessee's obligations
to pay any sums (whether payable to Lessor or a third party) accruing under
this Lease with respect to such Replaced Property prior to the Section 57
Closing Date shall survive the termination of this Lease;
(2) the Base Annual Rental then in effect shall be reduced by an amount equal
to the product of (x) the Applicable Rent Reduction Percentage for the
Replaced Property, and (y) the Base Annual Rental then in effect;
(3) Lessee shall deliver possession of the Replaced Property to the highest
bidder; and
(4) Lessor shall convey the Replaced Property to such highest bidder "as-is"
by limited warranty deed, subject to all matters of record (except for the
Mortgage corresponding to the Replaced Property and any other consensual liens
granted by Lessor other than those granted by Lessor at the request of Lessee),
and without representation or warranty (except as otherwise contained in the
limited warranty deed), the total net selling price realized at such sale to be
retained by Lessor.
In addition, Lessee shall deliver to Lessor on the Section 57 Closing Date an
instrument in which Lessee agrees not to, and not to permit any Affiliate to,
directly or indirectly use the Replaced Property during the three (3) year
period following the Section 57 Closing Date; and Lessee shall pay to Lessor
the sum of:
(A) the excess, if any, of the sum of (x) the product of the percentage
specified on Schedule I attached hereto which corresponds to the time period
during which such purchase occurs multiplied by the Purchase Price for the
Replaced Property, plus (y) the Prepayment Charges corresponding to the
Replaced Property, less (z) the net sales price of the Replaced Property
paid to Lessor pursuant to the preceding sentence; plus
(B) all Base Annual Rental, Additional Rental and all other sums and
obligations then due and payable under this Lease as of the Section 57
Closing Date.
Anything in this Section 57.A to the contrary notwithstanding, Lessee shall
have the right to revoke any Rejectable Substitution Offer for a Discretionary
Substitution or FCCR Substitution on not more than two (2) occasions during
the Lease Term if, with respect to each such occasion, Lessor has elected a
Forced Sale Election in accordance with the provisions of this Section and
during the period in which Lessee had the right to serve as agent for Lessor
to obtain cash bids either (i) there were no cash bids or (ii) all such cash
bids were for an amount less than 85% of the product of the percentage
specified on Schedule I attached hereto which corresponds to the time period
during which such purchase would have occurred multiplied by the Purchase
Price for the Replaced Property. Lessee shall pay Lessor's reasonable expenses
incurred in connection with the revoked Rejectable Substitution Offer for a
Discretionary Substitution or FCCR Substitution or incurred in connection with
the termination of this Lease with respect to the Replaced Property.
If Lessor has elected a Forced Sale Election in accordance with the provisions
of this Section and an acceptable bid for the Replaced Property shall not have
been obtained or if a sale shall not have occurred on or as of the date which
is 270 days from the expiration date of the Section 57 Ninety Day Period, then
this Lease shall continue in full force and effect until an acceptable bid is
obtained and a sale shall have occurred. If Lessee shall fail to pay all
amounts due under and pursuant to this Section 57.A on the Section 57 Closing
Date, no sale shall be consummated, this Lease shall continue in full force
and effect and it shall be deemed that Lessee has revoked its Rejectable
Substitution Offer.
If Lessor rejects any Rejectable Substitution Offer for reasons other than
that, in Lessor's reasonable judgment, the proposed Substitute Property would
not have satisfied the applicable substitution conditions set forth in this
Section 57, and such rejection is consented to by Lender, then:
(X) if such rejected Rejectable Substitution Offer was made with respect to a
Casualty/Condemnation Substitution, the provisions of the last paragraph of
Section 21.B and the last sentence of the second paragraph of Section 21.B
shall be applicable; and
(Y) if such rejected Rejectable Substitution Offer was made with respect to a
FCCR Substitution or a Discretionary Substitution, this Lease shall terminate
with respect to the Replaced Property on the next scheduled Base Monthly Rental
payment date (the "Early Substitution Termination Date") provided Lessee has
paid to Lessor all Base Annual Rental, Additional Rental and all other sums and
obligations then due and payable under this Lease as of such Early Substitution
Termination Date. On the Early Substitution Termination Date, and provided
Lessee shall have paid to Lessor all Base Annual Rental, Additional Rental and
other sums and obligations then due and payable under this Lease as of the Early
Substitution Termination Date:
(i) the Base Annual Rental then in effect shall
be reduced by an amount equal to the product of (x) the Applicable Rent
Reduction Percentage for the Replaced Property, and (y) the Base Annual
Rental then in effect; and
(ii) all obligations of Lessor and Lessee shall cease as of the Early
Substitution Termination Date with respect to such Property; provided,
however, Lessee's obligations to Lessor with respect to such Property under any
indemnification provisions of this Lease with respect to such Property
(including, without limitation, Sections 16 and 19 of this Lease) and Lessee's
obligations to pay any sums (whether payable to Lessor or a third party)
accruing under this Lease with respect to such Property prior to the Early
Substitution Termination Date shall survive the termination of this Lease with
respect to such Property or otherwise. This Lease shall, however, continue in
full force and effect with respect to all other Properties. B. The substitution
of a Substitute Property for a Property pursuant to the preceding subsection A
shall be subject to the fulfillment of all of the following terms and
conditions:
(i) The Substitute Property must:
(1) be a Permitted Facility, in good condition and repair, ordinary wear and
tear excepted;
(2) have a Fixed Charge Coverage Ratio (with the definitions of Section 8.A
being deemed to be modified, as contemplated by the following sentence to
provide for a calculation of an individual "Fixed Charge Coverage Ratio" for
the Substitute Property only) for the FCCR Period of not less than the Fixed
Charge Coverage Ratio for the Replaced Property for such FCCR Period; provided
that, with respect to each FCCR Substitution, the Fixed Charge Coverage Ratio
for the Substitute Property for such FCCR Period must also be high enough
(after taking into account any other substitutions for Properties which are
being consummated simultaneously therewith) to result in a cure of the breach
of the Aggregate Fixed Charge Coverage Ratio requirement (it being understood
and agreed that the determination of the Fixed Charge Coverage Ratio for the
Substitute Property shall be based on an assumption that the Operating Lease
Expense for the Substitute Property would be the same amount as the Operating
Lease Expense for the Replaced Property, as determined in accordance with the
last sentence of this subitem (2)). For purposes of this subitem (2), the
definitions set forth in Section 8.A of this Lease with respect to the
calculation of the Aggregate Fixed Charge Coverage Ratio shall be deemed
modified as applicable to provide for the calculation of a Fixed Charge
Coverage Ratio for each Property on an individual basis rather than on an
aggregate basis with the other Properties. For purposes of such calculation,
the Operating Lease Expense with respect to this Lease for each such Property
shall equal the product of (x) the Applicable Rent Reduction Percentage for
such Property, and (y) the Base Annual Rental then in effect;
(3) have a fair market value no less than the greater of the then
fair market value of the Replaced Property or the fair market value of such
Replaced Property as of the Effective Date (in each case, determined without
regard to this Lease, but assuming that while this Lease has been in effect,
Lessee has complied with all of the terms and conditions of this Lease), as
determined by Lessor, and consented to by Lender, utilizing the same valuation
method as used in connection with the closing of the transaction described in
the Sale-Leaseback Agreement, which was based upon the sum of (x) the fair
market value of the land comprising such Property and (y) the replacement cost
of the improvements located thereon;
(4) have improvements which have a remaining useful life substantially
equivalent to, or better than, that of the improvements located at the
Replaced Property;
(5) be conveyed to Lessor (or, if directed by Lessor, to Lessor and a person
designated to acquire the remainderman interest) by special or limited
warranty deed, free and clear of all liens and encumbrances, except such
matters as are reasonably acceptable to Lessor (the "Substitute Property
Permitted Exceptions"); and
(6) be located in either (a) the same state as the Replaced Property, or
(b) in another state acceptable to Lessor in Lessor's reasonable discretion;
(ii) Lessor shall have inspected and approved the Substitute Property utilizing
Lessor's customary site inspection and underwriting approval criteria. Lessee
shall have reimbursed Lessor and Lender for all of their reasonable costs and
expenses incurred with respect to such proposed substitution, including,
without limitation, Lessor's third-party and/or in-house site inspectors'
costs and expenses with respect to the proposed Substitute Property. Lessee
shall be solely responsible for the payment of all costs and expenses
resulting from such proposed substitution, regardless of whether such
substitution is consummated, including, without limitation, the cost of title
insurance and endorsements for both Lessor and Lender, survey charges, stamp
taxes, mortgage taxes, transfer fees, escrow and recording fees, qualification
fees, if any, the cost of environmental due diligence undertaken pursuant to
subsection (v) below, including, without limitation, the cost of environmental
insurance, income, capital gains and transfer taxes imposed on Lessor as a
result of such substitution and the reasonable attorneys' fees and expenses of
counsel to Lessee, Lessor and Lender. In addition to the foregoing, Lessee
shall pay any and all ongoing fees, taxes, charges, costs and expenses, on an
after tax basis, with respect to the Substitute Property, including, without
limitation, state and local transfer taxes associated with the sale of such
properties by Lessor and/or Remainderman, costs and expenses associated with
qualifying Lessor and/or Remainderman in states where Lessor and/or
Remainderman would not otherwise have to qualify but for the substitution and
keeping such entities qualified and in good standing in such states, any and
all franchise taxes of such entities, income, excise, sales and/or use taxes,
if any, business and/or business privilege taxes, if any, and any taxes, fees
or charges of a similar nature;
(iii) Lessor shall have received a preliminary title report and irrevocable
commitment to insure title by means of an ALTA extended coverage owner's
policy of title insurance (or its equivalent, in the event such form is not
issued in the jurisdiction where the proposed Substitute Property is located)
for the proposed Substitute Property issued by Title Company and committing to
insure Lessor's good and marketable title in the proposed Substitute Property,
subject only to the Substitute Property Permitted Exceptions and containing
endorsements substantially comparable to those required by Lessor at the
Closing (as defined in the Sale-Leaseback Agreement) and Lender shall have
received such title report and irrevocable commitment to insure its first
priority lien encumbering the proposed Substitute Property as Lender shall
reasonably require;
(iv) Lessor shall have received a current ALTA survey of the proposed
Substitute Property, the form of which shall be comparable to those received
by Lessor at the Closing and sufficient to cause the standard survey
exceptions set forth in the title policy referred to in the preceding
subsection to be deleted;
(v) Lessor shall have completed such environmental due diligence of the
proposed Substitute Property as it deems necessary or advisable in its sole
discretion, including, without limitation, receiving an environmental
insurance policy with respect to such proposed Substitute Property, or to
the extent applicable, an endorsement to the Environmental Policies, in form
and substance and issued by such environmental insurance company as is
acceptable to Lessor in its sole discretion, and Lessor shall have approved
the environmental condition of the proposed Substitute Property in its sole
discretion;
(vi) Lessee shall deliver, or cause to be delivered, with respect to Lessee
and the Substitute Property, opinions of Counsel (as defined in the Sale-
Leaseback Agreement) in form and substance comparable to those received at
Closing (but also addressing such matters unique to the Substitute Property
as may be reasonably required by Lessor);
(vii) no Event of Default shall have occurred and be continuing under any of
the Sale-Leaseback Documents;
(viii) Lessee shall have executed such documents as may be reasonably required
by Lessor as a result of such substitution, including amendments to this Lease
and the Memorandum (the "Substitute Documents"), all of which documents shall
be in form and substance reasonably satisfactory to Lessor;
(ix) the representations and warranties set forth in the Substitute Documents,
this Lease and the Sale-Leaseback Agreement applicable to the proposed
Substitute Property shall be true and correct in all material respects as of
the date of substitution, and Lessee shall have delivered to Lessor an
officer's certificate certifying to that effect;
(x) Lessee shall have delivered to Lessor certificates of insurance showing
that insurance required by the Substitute Documents is in full force and
effect;
(xi) Lessor shall have obtained an endorsement to the policy of residual value
insurance issued to Lessor and Lender in connection with the transaction
described in the Sale-Leaseback Agreement with respect to the proposed
Substitute Property, which endorsement shall be in form and substance
reasonably satisfactory to Lessor and Lender;
(xii) Lender shall have consented to the substitution of the proposed
Substitute Property; and
(xiii) the date of the closing of the substitution shall occur no later than
20 days after the date of acceptance (or deemed acceptance) by Lessor of the
Rejectable Substitution Offer.
C. Upon satisfaction of the foregoing conditions set forth in Section
57.B and provided Lessor has accepted the Rejectable Substitution Offer or is
deemed to have accepted the Rejectable Substitution Offer, or while the
Mortgage corresponding to such Property is still outstanding, any rejection
of the Rejectable Substitution Offer by Lessor is not consented to in writing
by the Lender:
(i) the proposed Substitute Property shall be deemed substituted for the
Replaced Property;
(ii) the Substitute Property shall be referred to herein as a "Property" and
included within the definition of "Properties";
(iii) the Substitute Documents shall be dated as of the date of the
substitution; and
(iv) Lessor shall convey the Replaced Property to Lessee or a designee of
Lessee "as-is" by limited warranty deed, subject to all matters of record
(except for the Mortgage corresponding to the Replaced Property and any other
consensual liens granted by Lessor other than those granted by Lessor at the
request of Lessee), and without representation or warranty (except as
otherwise contained in the limited warranty deed).
D. Notwithstanding the foregoing, nothing in this
Section 57 shall be construed as limiting or otherwise adversely affecting the
representations, warranties, covenants and characterizations set forth in
Lease, including, without limitation, those provisions set forth in Section 3
of this Lease.
58. Rejectable Purchase Offer. A. If Lessor shall have given Lessee
notice of a breach of the Aggregate Fixed Charge Coverage Ratio requirement
under this Lease, Lessee shall have the right to deliver a rejectable offer to
Lessor (a "Rejectable Purchase Offer") to purchase such of the Properties as is
contemplated by Section 23.A(ix)(2) (each of such Properties being referred to
herein as a "FCCR Property"), subject to the fulfillment of all of the
conditions set forth in this Section 58.
Lessor shall have 90 days from the delivery of the Rejectable Purchase Offer
notice (the "Section 58 Ninety Day Period") to deliver to Lessee written
notice of Lessor's election to either (i) accept such Rejectable Purchase
Offer, (ii) reject such Rejectable Purchase Offer, or (iii) elect a Forced
Sale Election. Lessor's failure to deliver such written notice within such
time period shall be deemed to constitute Lessor's acceptance of such
Rejectable Purchase Offer. If the Mortgage corresponding to any FCCR Property
is still outstanding, any rejection by Lessor of a Rejectable Purchase Offer
or any Forced Sale Election under this Section 58 shall not be effective
unless it is consented to in writing by Lender. If Lessor accepts such
Rejectable Purchase Offer or is deemed to have accepted such Rejectable
Purchase Offer, or while the Mortgage corresponding to the Replaced Property
is still outstanding, any rejection by Lessor of the Rejectable Purchase Offer
or any Forced Sale Election under this Section 58 is not consented to in
writing by the Lender, then Lessee shall complete the purchase contemplated by
the Rejectable Purchase Offer, subject, however, to the satisfaction of each
of the terms and conditions set forth in the following subsection B. During
the period commencing when such Rejectable Purchase Offer has been made and
ending on the earlier of the date Lessor delivers the written notice
contemplated by the first sentence of this paragraph or the expiration of
the Section 58 Ninety Day Period, Lessor, but not Lessee, shall be entitled,
directly or through one or more agents, to seek bids for the sale of each
FCCR Property.
If Lessor elects the Forced Sale Election under this Section 58 and such
Forced Sale Election is consented to in writing by the Lender, Lessee, as non-
exclusive agent for Lessor, shall undertake on behalf of Lessor to obtain cash
bids for the sale of each FCCR Property. Prior to solicitation of any such
bids, Lessee and Lessor shall agree on a form of contract of purchase relating
to each FCCR Property acceptable to Lessor. Lessee may use a third party as
its agent in connection with any such sale. Lessee shall certify to Lessor in
writing the amount and terms of each bid received by Lessee and the name and
address of the Person submitting a bid (which Person shall not be the Lessee,
any Affiliate of the Lessee, or any Person with an agreement to allow Lessee
or any Affiliate of Lessee to use any FCCR Property at any time during the
three (3) year period following any such sale). Lessor shall be under no duty
to solicit bids, to inquire into the efforts of Lessee to obtain bids or
otherwise to take any action in connection with any such sale other than to
sell its interest in each FCCR Property as provided herein. The sale of each
FCCR Property shall close on a Base Monthly Rental payment date which is no
later than 270 days from the expiration date of the Section 58 Ninety Day
Period (such date of closing being referred to herein as the "Section 58
Closing Date"). On the Section 58 Closing Date (subject to receipt of the net
sales price and all additional payments and instruments specified below):
(1) this Lease shall be deemed terminated with respect to each FCCR
Property only, but this Lease shall continue in full force and effect with
respect to all of the other Properties; provided, however, such termination
shall not limit Lessee's obligations to Lessor with respect to each FCCR
Property under any indemnification provisions of this Lease (including, without
limitation, Sections 16 and 19 of this Lease) and Lessee's obligations to pay
any sums (whether payable to Lessor or a third party) accruing under this Lease
with respect to each FCCR Property prior to the Section 58 Closing Date shall
survive the termination of this Lease;
(2) the Base Annual Rental then in effect shall be reduced by an amount equal
to the product of (x) the Applicable Rent Reduction Percentage for each FCCR
Property, and (y) the Base Annual Rental then
in effect;
(3) Lessee shall deliver possession of each FCCR Property to the highest
bidder; and
(4) Lessor shall convey each FCCR Property to such highest bidder "as-is" by
limited warranty deed, subject to all matters of record (except for the
Mortgage corresponding to each FCCR Property and any other consensual liens
granted by Lessor other than those granted by Lessor at the request of Lessee),
and without representation or warranty (except as otherwise contained in the
limited warranty deed), the total net selling price realized at such sale to
be retained by Lessor.
In addition, Lessee shall deliver to Lessor on the Section 58 Closing Date an
instrument in which Lessee agrees not to, and not to permit any Affiliate to,
directly or indirectly use any FCCR Property during the three (3) year period
following the Section 58 Closing Date; and Lessee shall pay to Lessor the sum
of:
(A) the excess, if any, of the sum of (x) the product of the percentage
specified on Schedule I attached hereto which corresponds to the time period
during which such purchase occurs multiplied by the aggregate Purchase Price
for each FCCR Property, plus (y) the Prepayment Charges corresponding to each
FCCR Property, less (z) the net sales price of each FCCR Property paid to
Lessor pursuant to the preceding sentence;
plus
(B) all Base Annual Rental, Additional Rental and all other sums and
obligations then due and payable under this Lease as of the Section 58 Closing
Date.
Anything in this Section 58.A to the contrary notwithstanding, Lessee shall
have the right to revoke any Rejectable Purchase Offer on not more than two (2)
occasions during the Lease Term if, with respect to each such occasion, Lessor
has elected a Forced Sale Election in accordance with the provisions of this
Section and during the period in which Lessee had the right to serve as agent
for Lessor to obtain cash bids either (i) there were no cash bids or (ii) all
such cash bids were for an amount less than 85% of the product of the
percentage specified on Schedule I attached hereto which corresponds to the
time period during which such purchase would have occurred multiplied by the
aggregate Purchase Price for each FCCR Property. Lessee shall pay Lessor's
reasonable expenses incurred in connection with any revoked Rejectable
Purchase Offer or incurred in connection with the termination of this
Lease with respect to each FCCR Property.
If Lessor has elected a Forced Sale Election in accordance with
the provisions of this Section and an acceptable bid for each FCCR Property
shall not have been obtained or if a sale shall not have occurred on or as of
the date which is 270 days from the expiration date of the Section 58 Ninety
Day Period, then this Lease shall continue in full force and effect until an
acceptable bid is obtained and a sale shall have occurred. If Lessee shall fail
to pay all amounts due under and pursuant to this Section 58.A on the Section
58 Closing Date, no sale shall be consummated, this Lease shall continue in
full force and effect and it shall be deemed that Lessee has revoked its
Rejectable Purchase Offer.
If Lessor rejects any Rejectable Purchase Offer, and such rejection is
consented to by Lender, this Lease shall terminate with respect to each
FCCR Property on the next scheduled Base Monthly Rental payment date (the
"Early Purchase Termination Date") provided Lessee has paid to Lessor all Base
Annual Rental, Additional Rental and all other sums and obligations then due
and payable under this Lease as of such Early Purchase Termination Date. On the
Early Purchase Termination Date, and provided Lessee shall have paid to Lessor
all Base Annual Rental, Additional Rental and other sums and obligations then
due and payable under this Lease as of the Early Purchase Termination Date:
(1) the Base Annual Rental then in effect shall be reduced by an amount equal
to the product of (x) the aggregate Applicable Rent Reduction Percentage for
each FCCR Property, and (y) the Base Annual Rental then in effect; and
(2) all obligations of Lessor and Lessee shall cease as of the Early Purchase
Termination Date with respect to each FCCR Property; provided, however,
Lessee's obligations to Lessor with respect to each FCCR Property under any
indemnification provisions of this Lease with respect to such FCCR Property
(including, without limitation, Sections 16 and 19 of this Lease) and Lessee's
obligations to pay any sums (whether payable to Lessor or a third party)
accruing under this Lease with respect to such FCCR Property prior to the
Early Purchase Termination Date shall survive the termination of this Lease
with respect to such FCCR Property or otherwise. This Lease shall, however,
continue in full force and effect with respect to all other Properties.
B. The purchase of any FCCR Property by Lessee pursuant to a Rejectable
Purchase Offer shall be subject to the fulfillment of all of the following
terms and conditions:
(i) no Event of Default shall have occurred and be continuing under any of
the Sale-Leaseback Documents;
(ii) the purchase of such FCCR
Property (together with any other Properties which are being purchased
simultaneously therewith) must result in a cure of the breach of the Aggregate
Fixed Charge Coverage Ratio requirement;
(iii) Lessee shall have paid to Lessor the Subject Purchase Price (as defined
below), together with all Base Annual Rental, Additional Rental and other sums
and obligations then due and payable under this Lease as of the date of the
closing of such purchase;
(iv) Lessee shall be solely responsible for the payment of all costs and
expenses resulting from such proposed purchase, regardless of whether the
purchase is consummated, including, without limitation, to the extent
applicable, the cost of title insurance and endorsements, including, survey
charges, stamp taxes, mortgage taxes, transfer taxes and fees, escrow and
recording fees, taxes imposed on Lessor as a result of such purchase, the
attorneys' fees of Lessee and the reasonable attorneys' fees and expenses of
counsel to Lessor and Lender; and
(v) the date of the closing of such purchase shall occur on the next
scheduled Base Monthly Rental payment date following Lessor's acceptance
(or deemed acceptance) of the Rejectable Purchase Offer, but in no event
later than 20 days after the date of acceptance (or deemed acceptance) by
Lessor of such Rejectable Purchase Offer. On the date of the closing of
the purchase of each FCCR Property by Lessee pursuant to a
Rejectable Purchase Offer (the "Rejectable Purchase Closing Date"), subject
to satisfaction of the foregoing conditions:
(1) this Lease shall be deemed terminated with respect to each FCCR Property
only, but this Lease shall continue in full force and effect with respect to
all of the other Properties; provided, however, such termination shall not
limit Lessee's obligations to Lessor with respect to each FCCR Property under
any indemnification provisions of this Lease (including, without limitation,
Sections 16 and 19 of this Lease) and Lessee's obligations to pay any sums
(whether payable to Lessor or a third party) accruing under this Lease with
respect to such FCCR Property prior to the Rejectable Purchase Closing Date
shall survive the termination of this Lease;
(2) the Base Annual Rental then in effect shall be reduced by an amount equal
to the product of (x) the aggregate Applicable Rent Reduction Percentage for
each FCCR Property, and (y) the Base Annual Rental then in effect; and
(3) Lessor shall convey each FCCR Property to Lessee "as-is" by limited
warranty deed, subject to all matters of record (except for the Mortgage
corresponding to each FCCR Property to be purchased and any other consensual
liens granted by Lessor other than those granted by Lessor at the request of
Lessee), and without representation or warranty (except as otherwise
contained in the limited warranty deed).
For purposes of this Section 58, the term "Subject Purchase Price" shall mean
the product of the percentage specified on Schedule I attached hereto which
corresponds to the time period during which such purchase occurs multiplied by
the aggregate Purchase Price for each FCCR Property being purchased.
59. Existing Leases. During the Lease Term, Lessor assigns to Lessee all
of Lessor's right, title and interest as landlord under the Existing Leases,
which Existing Leases shall be subleases of the applicable Properties on the
terms and conditions set forth in the Existing Leases. Lessee shall fulfill,
perform and observe in all respects, at its own cost and expense, each and
every condition and covenant of the lessor in each Existing Lease and give
prompt notice to Lessor of any claim or event of default under any Existing
Lease given to Lessee by any Existing Lessee or given by Lessee to any
Existing Lessee, together with a complete copy or statement of any information
submitted or referenced in support of such claim or event of default. Lessor
agrees that the Existing Leases are not subject to the consent requirements
set forth in Section 26.B, provided that, Lessee shall not be relieved of any
of its obligations with respect to this Lease by reason of the Existing Leases.
IN WITNESS WHEREOF, Lessor and Lessee have entered into this Lease as of the
date first above written.
LESSOR:
CRYSTAC PROPERTY I LLC,
a Delaware limited liability company
By Crystac Equity I LLC,
a Delaware limited liability company,
its member manager
By:
Jamie Grossman
Its Vice President, Assistant Secretary and
Assistant Treasurer
LESSEE:
THE KRYSTAL COMPANY,
a Tennessee corporation
By:
Larry D. Bentley
Its Vice President and Chief Financial Officer
Lessee's Tax Identification Number:
62-0264140
Lessee's Organizational Number:
0017908
POWER OF ATTORNEY
Lessor may act as attorney-in-fact or otherwise on behalf of
Lessee pursuant to Sections 24 and 25.B of this Lease. This power of attorney is
coupled with an interest, is durable and is not affected by subsequent
disability or incapacity of the principal or lapse of time.
------- -------
Witness Lessee
WITNESS
In accordance with the requirements of Arizona Revised Statutes Section
14-5506 and other applicable law, the undersigned has executed this Lease for
the purpose of witnessing the grant of the powers of attorney by Lessee to
Lessor.
STATE OF ARIZONA ]
] SS.
COUNTY OF MARICOPA ]
The foregoing instrument was acknowledged before me on December 31,
2001 by Jamie Grossman, Vice President, Assistant Secretary and Assistant
Treasurer of Crystac Equity I LLC, a Delaware limited liability company, member
manager of Crystac Property I LLC, a Delaware limited liability company, on
behalf of the limited liability company.
Notary Public
My Commission Expires:
STATE OF ARIZONA ]
] SS.
COUNTY OF MARICOPA ]
The foregoing instrument was acknowledged before me on December ___, 2001 by
Larry D. Bentley, Vice President and Chief Financial Officer of The Krystal
Company, a Tennessee corporation, on behalf of the corporation.
Notary Public
My Commission Expires:
EXHIBIT A
PROPERTIES
EXHIBIT A-1
LEGAL DESCRIPTIONS OF PROPERTIES
SCHEDULE I
STIPULATED LOSS VALUE
SCHEDULE II
STATE SPECIFIC PROVISIONS
The following provisions shall be deemed a part of the Lease to the extent any
of the Properties are located in the applicable states:
ALABAMA:
The taxes and assessments required to be paid by Lessee pursuant to Section 10
of the Lease shall also include any Alabama Business Privilege Tax owed by
Lessor or Remainderman which is attributable to the period of time in which
this Lease is in effect. Lessee shall remit to Lessor the amount required to
be paid by Lessor or Remainderman with respect to the Alabama Business
Privilege Tax annually within ten (10) days after Lessor's request.
FLORIDA:
Radon Gas. Radon is a naturally occurring radioactive gas that, when it has
accumulated in a building in sufficient quantities, may present health risks
to persons who are exposed to it over time. Levels of radon that exceed
federal and state guidelines have been found in buildings in Florida.
Additional information regarding radon and radon testing may be obtained from
the county health public health unit.
SCHEDULE III
LEASED PERSONALTY
1. Lancer frozen carbonated beverage machines leased pursuant to Master Lease
Agreement dated June 22, 2001 between Lessee and Transamerica Equipment
Financial Services Corporation.
2. Lancer frozen carbonated beverage machines leased pursuant to Equipment
Lease Agreement (No. 847101) dated as of September 6, 2000 between Lessee
and CLC Equipment LLC.
3. Signage leased pursuant to Master Equipment Lease Numbers 483-01, 483-02
and 483-03 between Lessee and STI Credit Corporation, dated
December 23, 1998, January 26, 1999 and May 12, 1999, respectively.
4. Headsets leased pursuant to Master Equipment Lease Number 483-04 dated
July 27, 1999 between Lessee and STI Credit Corporation.
5. Computer hardware leased pursuant to Master Equipment Lease
Number 483-05 dated August 8, 1999 between Lessee and STI Credit Corporation.
SCHEDULE 16.C
ADA SETTLEMENT
Lessee is a party to a settlement agreement relating to a civil action
commenced on September 21, 1999 in the United States District Court for the
Northern District of Alabama, Northeastern Division by Michael L. Jones, on
behalf of himself and all others similarly situated, Plaintiffs, against The
Krystal Company, Defendant (Civil Action No. CV-99-S-2537-NE). Under the
settlement agreement, Lessee is required to renovate all 190 Krystal-owned
restaurants that were built prior to the effective date of the ADA, and which
contain restrooms that may not be fully-accessible to wheelchair-bound patrons,
over the course of a ten (10) year period (commencing in 2002), to make such
public accommodations fully-accessible to wheelchair-bound patrons in compliance
with the accessibility guidelines specified by the ADA and the interpretative
regulations promulgated under Congressional authorization.
SCHEDULE 27
EFFECTIVE DATE ECONOMIC USEFUL LIVES
FFCA Store # Type Street City State Economic
File # Life
1. 8001-3595 JAX021 F 337 Park Ave Orange Park FL 29
2. 8001-3600 JCM007 F 2328 Lakeland Dr. Flowood MS 28
3. 8001-3593 KNX013 F 3910 Western Ave. Knoxville TN 27
4. 8001-3575 ATL047 F 6155 Peachtree Pkwy Norcross GA 28
5. 8001-3586 CTN002 F 2740 Wilma Rudolph Blvd. Clarksville TN 28
6. 8001-3585 JCM008 F 2010 E. County Line Road Ridgeland MS 28
7. 8001-3597 CHN021 F 2511 Decatur Pike Athens TN 34
8. 8001-3579 KNX018 F 303 Whitecrest Drive Maryville TN 34
9. 8001-3576 MBL001 F 1914 Government St Mobile AL 25
10.8001-3578 KNX014 F 7215 Strawberry Plains Pike Knoxville TN 27
11.8001-3568 ROS002 F 1055 Holcomb Bridge Rd. Roswell GA 28
12.8001-3588 PEN004 F 5660 N. Ninth Ave. Pensacola FL 34
13.8001-3577 MFS016 F 3675 Lamar Ave. Memphis TN 21
14.8001-3571 KIM001 F 106 Highway 72 South Pittsburg TN 28
15.8001-3573 JTN001 F 1978 N. Highland Jackson TN 34
16.8001-3570 ORT001 F 1217 Oak Ridge Turnpike Oak Ridge TN 22
Exhibit 10.4-
SALE-LEASEBACK AGREEMENT
THIS SALE-LEASEBACK AGREEMENT (this "Agreement") is made as of
December 31, 2001, by and between CRYSTAC PROPERTY II LLC, a Delaware limited
liability company ("Buyer"), whose address is c/o U.S. Realty Advisors, LLC,
1370 Avenue of the Americas, New York, New York 10019, and THE KRYSTAL COMPANY,
a Tennessee corporation ("Seller"), whose address is One Union Square,
Chattanooga, Tennessee 37402.
PRELIMINARY STATEMENT:
Unless otherwise expressly provided herein, all defined terms used in this
Agreement shall have the meanings set forth in Section 1. Seller owns or has
an option or right to purchase the Properties. Buyer desires to purchase the
Properties pursuant to this Agreement and lease the Properties to Seller
pursuant to the Lease.
AGREEMENT:
In consideration of the mutual covenants and provisions of this Agreement, the
parties agree as follows:
1. Definitions. The following terms shall have the following meanings for all
purposes of this Agreement:
"Acknowledgement" means the Acknowledgement of Master Lease Assignment and
Subordination, Nondisturbance and Attornment Agreement dated as of the date of
this Agreement among Buyer, Seller, Lender and Remainderman, as the same may be
amended from time to time. A duplicate original Acknowledgement will be
executed and recorded in the applicable real property records for each
Property. Each Acknowledgement will contain exhibits with the addresses and
store identification numbers for all of the Properties and the legal
description for the applicable Property.
"Affiliate" means any person or entity which directly or indirectly controls,
is under common control with, or is controlled by any other person or entity.
For purposes of this definition, "controls", "under common control with" and
"controlled by" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such person or
entity, whether through ownership of voting securities or otherwise.
"Closing" shall have the meaning set forth in Section 5.
"Closing Date" shall have the meaning set forth in Section 5.
"Code" means the United States Bankruptcy Code, 11 U.S.C. Sec. 101 et seq.,
as amended.
"Commitment" means that certain commitment letter between U.S. Realty
Advisors, LLC and Seller, and any amendments or supplements thereto.
"Counsel" means one or more legal counsel to Seller licensed in the states in
which (i) the Properties are located, (ii) Seller is incorporated or formed
and (iii) Seller maintains its chief executive offices, as selected by Seller
and approved by Buyer.
"De Minimis Amounts" shall mean, with respect to any given level of Hazardous
Materials, that level or quantity of Hazardous Materials in any form or
combination of forms, the use, storage or release of which does not constitute
a violation of, or require regulation or remediation under, any Environmental
Laws and is customarily employed in the ordinary course of, or associated with,
similar businesses located in the states in which the Properties are located.
"Environmental Condition" means any condition with respect to soil, surface
waters, groundwaters, land, stream sediments, surface or subsurface strata,
ambient air and any environmental medium comprising or surrounding any of the
Properties, whether or not yet discovered, which could or does result in any
damage, loss, cost, expense, claim, demand, order or liability to or against
Seller, Buyer or Lender by any third party (including, without limitation, any
Governmental Authority), including, without limitation, any condition
resulting from the operation of Seller's business and/or the operation of the
business of any other property owner or operator in the vicinity of any of the
Properties and/or any activity or operation formerly conducted by any person
or entity on or off any of the Properties.
"Environmental Insurer" means American International Specialty Lines Insurance
Company or such other insurer providing Environmental Policies reasonably
acceptable to Buyer.
"Environmental Laws" means any present and future federal, state and local
laws, statutes, ordinances, rules, regulations and the like, as well as common
law, relating to Hazardous Materials and/or the protection of human health or
the environment, by reason of a Release or a Threatened Release of Hazardous
Materials or relating to liability for or costs of Remediation or prevention
of Releases. "Environmental Laws" includes, but is not limited to, the
following statutes, as amended, any successor thereto, and any regulations,
rulings, orders or decrees promulgated pursuant thereto, and any state or
local statutes, ordinances, rules, regulations and the like addressing similar
issues: the Comprehensive Environmental Response, Compensation and Liability
Act; the Emergency Planning and Community Right-to-Know Act; the Hazardous
Materials Transportation Act; the Resource Conservation and Recovery Act
(including but not limited to Subtitle I relating to underground storage
tanks); the Solid Waste Disposal Act; the Clean Water Act; the Clean Air Act;
the Toxic Substances Control Act; the Safe Drinking Water Act; the
Occupational Safety and Health Act; the Federal Water Pollution Control Act;
the Federal Insecticide, Fungicide and Rodenticide Act; the Endangered Species
Act; the National Environmental Policy Act; and the River and Harbors
Appropriation Act. "Environmental Laws" also includes, but is not limited to,
any present and future federal, state and local laws, statutes, ordinances,
rules, regulations and the like, as well as common law: conditioning transfer
of property upon a negative declaration or other approval of a Governmental
Authority of the environmental condition of the property; requiring
notification or disclosure of Releases or other environmental condition of
any of the Properties to any Governmental Authority or other person or entity,
whether or not in connection with transfer of title to or interest in property;
imposing conditions or requirements relating to Hazardous Materials in
connection with permits or other authorization for lawful activity; relating
to nuisance, trespass or other causes of action related to Hazardous Materials;
and relating to wrongful death, personal injury, or property or other damage
in connection with the physical condition or use of any of the Properties by
reason of the presence of Hazardous Materials in, on, under or above any of
the Properties.
"Environmental Policies" means the environmental insurance policy or policies,
as applicable, issued by Environmental Insurer to Buyer with respect to the
Properties, which Environmental Policies shall be in form and substance
satisfactory to Buyer in its sole but reasonable discretion.
"Event of Default" has the meaning set forth in Section 12.
"Existing Leases" means those billboard and other leases affecting certain of
the Properties, which are described on the attached Schedule I.
"Existing Lessees" means the lessees under the Existing Leases.
"Fee" means an expense deposit made to cover certain costs and expenses
associated with the transactions contemplated hereby and by the Related
Sale-Leaseback Agreement equal to $200,000.00 in the aggregate, which amount
has been paid prior to the execution of this Agreement.
"Governmental Authority" means any governmental authority, agency, department,
commission, bureau, board, instrumentality, court or quasi-governmental
authority of the United States, the states in which the Properties are located
or any political subdivision thereof.
"Hazardous Materials" means (i) any toxic substance or hazardous waste,
substance, solid waste or related material, or any pollutant or contaminant;
(ii) radon gas, asbestos in any form which is or could become friable, urea
formaldehyde foam insulation, transformers or other equipment which contains
dielectric fluid containing levels of polychlorinated biphenyls in excess of
federal, state or local safety guidelines, whichever are more stringent, or
any petroleum product; (iii) any substance, gas, material or chemical which
is or becomes defined as or included in the definition of "hazardous
substances," "toxic substances," "hazardous materials," "hazardous wastes,"
"regulated substances" or words of similar import under any Environmental Laws;
and (iv) any other chemical, material, gas or substance the exposure to or
release of which is or becomes prohibited, limited or regulated by any
Governmental Authority that asserts jurisdiction over any of the Properties or
the operations or activity at any of the Properties, or any chemical, material,
gas or substance that does or is likely to pose a hazard to the health and/or
safety of the occupants of any of the Properties or the owners and/or
occupants of property adjacent to or surrounding any of the Properties.
"Indemnified Parties" has the meaning set forth in Section 14.
"Lease" means the master lease agreement dated as of the date of this Agreement
to be executed by Buyer, as lessor, and Seller, as lessee, with respect to the
Properties, as the same may be amended from time to time.
"Lender" means GE Capital Franchise Finance Corporation, a Delaware corporation.
"License Agreement" means the license agreement dated as of the date of this
Agreement between Buyer and Seller, as the same may be amended from time to
time.
"Loan Agreement" means the Loan Agreement dated as of the date of this
Agreement in effect between Buyer and Lender, as such agreement may be amended
from time to time and any and all replacements or substitutions thereof.
"Material Adverse Effect" means a material adverse effect on (i) the business,
condition, worth or operations of Seller, (ii) Seller's ability to perform its
obligations under the Lease or any of the other Sale-Leaseback Documents, or
(iii) any of the Properties, including, without limitation, the operation of
any of the Properties as a Permitted Facility and/or the value of any of the
Properties.
"Memorandum" means the memorandum of master lease dated as of the date of
this Agreement to be executed by Buyer, as lessor, and Seller, as lessee,
with respect to the Properties, as the same may be amended from time to time.
A duplicate original Memorandum will be executed and recorded in the applicable
real property records for each Property. Each Memorandum will contain exhibits
with the addresses and store identification numbers for all of the Properties
and the legal description for the applicable Property.
"Mortgages" means, collectively, the mortgages, deeds of trust or deeds to
secure debt, assignments of rents and leases, security agreements and fixture
filings to be executed by Buyer for the benefit of Lender with respect to the
Properties, as such instruments may be amended, restated and/or supplemented
from time to time and any and all replacements or substitutions thereof.
"Non-Foreign Seller Certificate" means the non-foreign seller certificate to
be executed and delivered by Seller to Buyer prior to or on the Closing Date.
"Permitted Exceptions" means those recorded easements, restrictions, liens and
encumbrances set forth as exceptions in the title insurance policies issued by
Title Company to Buyer and approved by Buyer in connection with this Agreement.
"Permitted Facility" means a restaurant operated under the brand name
"Krystal"; provided, however, Seller may operate up to twenty percent (20%)
of the Properties in the aggregate as another restaurant concept owned and
operated by the Seller Entities, provided the Seller Entities either (i) own
and operate five (5) or more units as such other restaurant concept (not
taking into account any of the Properties or Related Properties) or (ii) own
or operate such Properties as other nationally or regionally recognized brands
as consented to by Buyer (whose consent shall not be unreasonably withheld).
"Personalty" means all machinery, appliances, furniture, equipment, trade
fixtures and other personal property from time to time situated on or used in
connection with the Properties; provided, however, the term "Personalty" shall
not include the HVAC, walk-in coolers, walk-in freezers, supply fans, exhaust
fans, air ducts, hoods, vents, built-in sinks, built-in countertops, plumbing
and electrical fixtures, merchandise shelving, sign poles and lighting poles,
all of which items are intended to be fixtures as such term is used within
the definition of "Properties".
"Properties" means, collectively, the parcels of real estate described by
address, FFC Number and Unit Number in Exhibit A attached hereto and legally
described in Exhibit A-1 attached hereto, all rights, privileges and
appurtenances associated therewith, and all buildings, structures, fixtures
and other improvements now or hereafter located on such real estate
(excluding Personalty and inventory).
"Purchase Price" means the amount specified in Section 3.
"Questionnaires" means the environmental questionnaires completed by Seller
with respect to each of the Properties and submitted to Environmental Insurer
in connection with the issuance of the Environmental Policies.
"Related Buyer" means Crystac Property I LLC, a Delaware limited liability
company.
"Related Lease" means the lease between Related Buyer, as lessor, and Seller,
as lessee, relating to the Related Properties.
"Related Properties" means any properties which are the subject of a lease
between Related Buyer, as lessor, and Seller, as lessee.
"Related Sale-Leaseback Agreement" means the Sale-Leaseback Agreement dated
as of the Closing Date between Related Buyer, as buyer, and Seller, as seller.
"Release" means any presence, release, deposit, discharge, emission, leaking,
spilling, seeping, migrating, injecting, pumping, pouring, emptying, escaping,
dumping, disposing or other movement of Hazardous Materials.
"Remainderman" shall have the meaning set forth in Section 15.
"Remediation" means any response, remedial, removal, or corrective action, any
activity to cleanup, detoxify, decontaminate, contain or otherwise remediate
any Hazardous Materials, any actions to prevent, cure or mitigate any Release,
any action to comply with any Environmental Laws or with any permits issued
pursuant thereto, any inspection, investigation, study, monitoring, assessment,
audit, sampling and testing, laboratory or other analysis, or any evaluation
relating to any Hazardous Materials.
"Sale-Leaseback Documents" means this Agreement, the Lease, the Memorandum,
the Acknowledgement, the License Agreement and all other documents executed in
connection therewith or contemplated thereby, all as amended and supplemented
and any and all replacements or substitutions thereof.
"Seller Entities" means, collectively, Seller and all Affiliates of Seller.
"Threatened Release" means a substantial likelihood of a Release which
requires action to prevent or mitigate damage to the soil, surface waters,
groundwaters, land, stream sediments, surface or subsurface strata, ambient
air or any other environmental medium comprising or surrounding any of the
Properties which may result from such Release.
"Title Company" means the title insurance company described in Section 6.
"UCC-1 Financing Statements" means such UCC-1 Financing Statements as Buyer
shall require from Seller with respect to the transactions contemplated by
this Agreement.
2. Transaction. On the terms and subject to the conditions set forth herein:
(i) Seller shall sell, or cause to be conveyed, and Buyer shall purchase all
of the Properties; and
(ii) Buyer shall lease all of the Properties to Seller pursuant to the Lease.
The sale and purchase of all of the Properties pursuant to this Agreement and
the lease of all of the Properties to Seller pursuant to the Lease are not
severable and shall be considered a single integrated transaction.
3. Purchase Price. The aggregate purchase price for all of the Properties
shall be $11,395,906.42 (the "Purchase Price"). The Purchase Price has been
allocated among the Properties as set forth on Exhibit A attached hereto. The
Purchase Price shall be paid at the Closing in cash or its equivalent subject
to any prorations and adjustments required by this Agreement. The Purchase
Price shall be remitted at Closing to Seller or at Seller's direction. In
addition to payment of the Purchase Price, Buyer shall be responsible to pay
at Closing the following fees and costs: (i) any underwriting, site
assessment, valuation, processing and commitment fee payable to Lender,
(ii) any costs related to the procurement of residual value insurance policies
by Buyer, (iii) attorneys' fees of Kutak Rock LLP, counsel to Lender,
(iv) attorneys' fees of Proskauer Rose LLP, counsel to Buyer, and
(v) Buyer's reasonable out-of-pocket costs.
4. Expense Deposit. At Closing, the Fee shall be applied to the costs to be
paid by Seller as contemplated by Section 6 of this Agreement and the Related
Sale-Leaseback Agreement and the balance, if any, shall be refunded to Seller.
In the event the transaction set forth in this Agreement fails to close, the
Fee shall be applied as contemplated by the Commitment.
5. Closing Date. The purchase and sale of the Properties shall be closed
(the "Closing") within 30 days following the satisfaction of all of the terms
and conditions contained herein, but in no event shall the date of the Closing
be extended beyond December 31, 2001, unless such extension shall be approved
by Buyer in its sole discretion (the date on which the Closing shall occur is
referred to herein as the "Closing Date").
6. Closing. Buyer has ordered a title insurance commitment for each of the
Properties from Lawyers Title Insurance Corporation ("Title Company"). Prior
to the Closing Date, the parties hereto shall deposit with Title Company all
documents and moneys necessary to comply with their obligations under this
Agreement. Title Company shall not cause the transaction to close unless and
until it has received written instructions from Buyer to do so. Except for
the fees and costs to be paid by Buyer pursuant to Section 3, all costs of
such transaction shall be borne by Seller, including, without limitation,
the cost of title insurance and endorsements, the attorneys' fees of Seller,
local counsel attorneys' fees of Buyer and Lender, the cost of the
environmental due diligence undertaken pursuant to Section 11.E, including,
without limitation, the cost of the Environmental Policies, the cost of the
surveys, stamp taxes, transfer fees and escrow and recording fees. All real
and personal property and other applicable taxes and assessments and other
charges relating to any of the Properties which are due and delinquent on or
prior to the Closing Date shall be paid by Seller at or prior to the Closing,
and all other taxes and assessments shall be paid by Seller in its capacity as
lessee under the Lease in accordance with the terms of the Lease. The Closing
documents shall be dated as of the Closing Date.
Seller and Buyer hereby employ Title Company to act as escrow agent in
connection with this transaction. Seller and Buyer will deliver to Title
Company all documents, pay to Title Company all sums and do or cause to be
done all other things necessary or required by this Agreement, in the
reasonable judgment of Title Company, to enable Title Company to comply
herewith and to enable any title insurance policy provided for herein to be
issued. Title Company is authorized to pay, from any funds held by it for
Buyer's or Seller's respective credit all amounts necessary to procure the
delivery of such documents and to pay, on behalf of Buyer and Seller, all
charges and obligations payable by them, respectively. Seller will pay all
charges payable by it to Title Company. Title Company is authorized, in the
event any conflicting demand is made upon it concerning these instructions or
the escrow, at its election, to hold any documents and/or funds deposited
hereunder until an action shall be brought in a court of competent
jurisdiction to determine the rights of Seller and Buyer or to interplead such
documents and/or funds in an action brought in any such court. Deposit by
Title Company of such documents and funds, after deducting therefrom its
charges and its expenses and attorneys' fees incurred in connection with any
such court action, shall relieve Title Company of all further liability and
responsibility for such documents and funds. Title Company's receipt of this
Agreement and opening of an escrow pursuant to this Agreement shall be deemed
to constitute conclusive evidence of Title Company's agreement to be bound by
the terms and conditions of this Agreement pertaining to Title Company.
Disbursement of any funds shall be made by check, certified check or wire
transfer, as directed by Buyer. Title Company shall be under no obligation to
disburse any funds represented by check or draft, and no check or draft shall
be payment to Title Company in compliance with any of the requirements hereof,
until it is advised by the bank in which such check or draft is deposited
that such check or draft has been honored. Title Company is authorized to act
upon any statement furnished by the holder or payee, or a collection agent for
the holder or payee, of any lien on or charge or assessment in connection with
any of the Properties, concerning the amount of such charge or assessment or
the amount secured by such lien without liability or responsibility for the
accuracy of such statement. The employment of Title Company as escrow agent
shall not affect any rights of subrogation under the terms of any title
insurance policy issued pursuant to the provisions thereof.
7. Representations and Warranties of Buyer. The representations and
warranties of Buyer contained in this Section are being made by Buyer as of
the date of this Agreement and the Closing Date to induce Seller to enter into
this Agreement and consummate the transactions contemplated herein, and Seller
has relied, and will continue to rely, upon such representations and
warranties from and after the execution of this Agreement and the Closing.
Buyer represents and warrants to Seller as follows:
A. Organization of Buyer. Buyer has been duly formed, is validly existing and
has taken all necessary action to authorize the execution, delivery and
performance by Buyer of this Agreement.
B. Authority of Buyer. The person who has executed this Agreement on behalf
of Buyer is duly authorized so to do.
C. Enforceability. Upon execution by Buyer, this Agreement shall constitute
the legal, valid and binding obligation of Buyer, enforceable against Buyer in
accordance with its terms.
All representations and warranties of Buyer made in this Agreement shall
survive the Closing.
8. Representations and Warranties of Seller. The representations and
warranties of Seller contained in this Section are being made as of the date
of this Agreement and the Closing Date to induce Buyer to enter into this
Agreement and consummate the transactions contemplated herein, and Buyer has
relied, and will continue to rely, upon such representations and warranties
from and after the execution of this Agreement and the Closing. Seller
represents and warrants to Buyer as follows:
A. Information and Financial Statements. Seller has delivered to Buyer
financial statements (either audited financial statements or, if Seller does
not have audited financial statements, certified financial statements) and
certain other information concerning itself; and no material adverse change
has occurred with respect to any such financial statements and other
information provided to Buyer since the date such financial statements and
other information were prepared or delivered to Buyer. Seller understands
that Buyer is relying upon such financial statements and information and
Seller represents that such reliance is reasonable. All such financial
statements were prepared in accordance with generally accepted accounting
principles consistently applied (other than the income statements for the
business at each of the Properties) and fairly present, as of the date of this
Agreement and the Closing Date, the results of operations and financial
condition of each individual or entity to which they pertain.
B. Organization and Authority. (i) Seller is a duly organized or formed
corporation, validly existing and in good standing under the laws of its
state of incorporation, and qualified to do business in any jurisdiction
where such qualification is required. All necessary corporate action has
been taken to authorize the execution, delivery and performance of this
Agreement and of the other documents, instruments and agreements provided for
herein.
(ii) The person who has executed this Agreement on behalf of Seller is duly
authorized so to do.
C. Enforceability of Documents. Upon execution by Seller, this Agreement
and the other documents, instruments and agreements to be executed in
connection with this Agreement, shall constitute the legal, valid and
binding obligations of Seller, enforceable against Seller in accordance
with their respective terms.
D. Litigation. There are no suits, actions or proceedings pending, or,
to Seller's actual knowledge, threatened in writing against or involving
Seller or any of the Properties before any arbitrator or Governmental
Authority, except for such suits, actions or proceedings which, individually
or in the aggregate, have not had, and could not reasonably be expected to
result in, a Material Adverse Effect.
E. Absence of Breaches or Defaults. Seller is not in default under any other
document, instrument or agreement to which Seller is a party or by which
Seller, any of the Properties or any of Seller's property is subject or bound,
except for such defaults which, individually or in the aggregate, have not
had, and could not reasonably be expected to result in, a Material Adverse
Effect. The authorization, execution, delivery and performance of this
Agreement and the documents, instruments and agreements provided for herein
will not result in any breach or default under any other document, instrument
or agreement to which Seller is a party or by which Seller, any of the
Properties or any of Seller's property is subject or bound, except for such
breaches or defaults which, individually or in the aggregate, have not had,
and could not reasonably be expected to result in, a Material Adverse Effect.
The authorization, execution, delivery and performance of this Agreement and
the documents, instruments and agreements provided for herein will not violate
any applicable law, statute, regulation, rule, ordinance, code, rule or order.
F. Utilities. At the Closing Date, each of the Properties will be served by
ample public utilities to permit full utilization of each of the Properties
for their intended purposes and all utility connection fees and use charges
will have been paid in full.
G. Intended Use and Zoning; Compliance With Laws. Seller intends to use each
of the Properties solely for the operation of a Permitted Facility in
accordance with the standards of operations then in effect on a system-wide
basis, and related ingress, egress and parking, and for no other purposes.
To Seller's actual knowledge and except as may be shown on the surveys and
title commitments for the Properties delivered by or on behalf of Seller to
Buyer, each of the Properties is in compliance in all material respects with
all applicable zoning requirements and the use of each of the Properties as a
Permitted Facility does not constitute a nonconforming use under applicable
zoning requirements. To Seller's actual knowledge, each of the Properties
complies in all material respects with all applicable statutes, regulations,
rules, ordinances, codes, licenses, permits, orders and approvals of any
governmental agencies, departments, commissions, bureaus, boards or
instrumentalities of the United States, the states in which the Properties
are located and all political subdivisions thereof, including, without
limitation, all health, building, fire, safety and other codes, ordinances
and requirements, all applicable standards of the National Board of Fire
Underwriters and the Americans With Disabilities Act of 1990, and all policies
or rules of common law, in each case, as amended, and any judicial or
administrative interpretation thereof, including any judicial order, consent,
decree or judgment applicable to Seller. Notwithstanding the foregoing,
Seller has advised Buyer of the settlement agreement relating to the civil
action brought under the Americans With Disabilities Act of 1990, which civil
action and settlement agreement are described more particularly on
Schedule 16.C to the Lease.
H. Area Development; Wetlands. No condemnation or eminent domain proceedings
affecting any of the Properties have been commenced or, to Seller's actual
knowledge, are contemplated. To Seller's actual knowledge, the area where any
of the Properties is located has not been declared blighted by any Governmental
Authority. Each of the Properties and, to Seller's actual knowledge, the real
property bordering any of the Properties is not designated by any Governmental
Authority as wetlands.
I. Licenses and Permits; Access. Prior to the Closing Date, Seller shall
have all required licenses and permits, both governmental and private, to use
and operate each of the Properties as a Permitted Facility. There are
adequate rights of access to public roads and ways available to each of the
Properties to permit full utilization of each of the Properties for its
intended purpose and all such public roads and ways have been completed and
dedicated to public use.
J. Condition of Properties. As of the Closing Date, each of the Properties
will be of good workmanship and materials, fully equipped and operational,
in good condition and repair given their age and use and ordinary wear and
tear excepted, free from structural defects, clean, orderly and sanitary,
safe, well lit, landscaped, decorated, attractive and well maintained.
K. Environmental. Seller is fully familiar with the present use of each of
the Properties. To Seller's actual knowledge and except as disclosed in the
Questionnaires, no Hazardous Materials have been used, handled, manufactured,
generated, produced, stored, treated, processed, transferred or disposed of at
or on any of the Properties, except in De Minimis Amounts or in compliance
with all applicable Environmental Laws, and no Release or Threatened Release
has occurred at or on any of the Properties, except in De Minimis Amounts or
in compliance with all applicable Environmental Laws. To Seller's actual
knowledge and except as disclosed in the Questionnaires, the activities,
operations and business undertaken on, at or about each of the Properties,
including, but not limited to, any past or ongoing alterations or improvements
at each of the Properties, are and have been at all times, in compliance with
all Environmental Laws. To Seller's actual knowledge and except as disclosed
in the Questionnaires, no further action is required to remedy any
Environmental Condition or violation of, or to be in compliance in all
material respects with, any Environmental Laws, and no lien has been imposed
on any of the Properties by any Governmental Authority in connection with any
Environmental Condition, the violation or threatened violation of any
Environmental Laws or the presence of any Hazardous Materials on or off any of
the Properties.
To Seller's actual knowledge and except as disclosed in the Questionnaires,
there is no pending or threatened (in writing) litigation or proceeding
before any Governmental Authority in which any person or entity alleges the
violation or threatened violation of any Environmental Laws or the presence,
Release, Threatened Release or placement on or at any of the Properties of any
Hazardous Materials, or of any facts which would give rise to any such action,
nor has Seller (a) received any notice (and Seller has no actual knowledge)
that any Governmental Authority or any employee or agent thereof has
determined, threatens to determine or requires an investigation to determine
that there has been a violation of any Environmental Laws at, on or in
connection with any of the Properties or that there exists a presence, Release,
Threatened Release or placement of any Hazardous Materials on or at any of the
Properties in violation of any applicable Environmental Laws, or the use,
handling, manufacturing, generation, production, storage, treatment,
processing, transportation or disposal of any Hazardous Materials at or on any
of the Properties in violation of any applicable Environmental Laws;
(b) received any notice under the citizen suit provision of any Environmental
Law in connection with any of the Properties or any facilities, operations or
activities conducted thereon, or any business conducted in connection
therewith; or (c) received any request for inspection, request for
information, notice, demand, administrative inquiry or any formal or informal
complaint or claim with respect to or in connection with the violation or
threatened violation of any Environmental Laws or existence of Hazardous
Materials relating to any of the Properties or any facilities, operations or
activities conducted thereon or any business conducted in connection therewith.
The information and disclosures in the Questionnaires are true, correct and
complete in all material respects, Buyer and Environmental Insurer may rely
on such information and disclosures, and the person or persons executing the
Questionnaires were duly authorized to do so.
L. Title to Properties. Title to each of the Properties is vested in Seller.
Upon Closing, title to each of the Properties shall be vested in Buyer and
Remainderman, free and clear of all liens, encumbrances, charges and security
interests of any nature whatsoever, except the Permitted Exceptions.
M. No Other Agreements and Options. Neither Seller nor, to Seller's actual
knowledge, any of the Properties is subject to any commitment, obligation, or
agreement, including, without limitation, any right of first refusal, option
to purchase or lease granted to a third party, which would prevent Seller from
completing or impair Seller's ability to complete the sale of any of the
Properties under this Agreement or which would bind Buyer subsequent to
consummation of the transaction contemplated by this Agreement.
N. No Mechanics' Liens. There are no outstanding accounts payable, mechanics'
liens, or rights to claim a mechanics' lien in favor of any materialman,
laborer, or any other person or entity in connection with labor or materials
furnished to or performed on any portion of any of the Properties that will
not have been fully paid for on or before the date such payment becomes
delinquent; no work has been performed or is in progress nor have materials
been supplied to any of the Properties or agreements entered into for work to
be performed or materials to be supplied to any of the Properties prior to the
date hereof, which will not have been fully paid for on or before the date
such payment becomes delinquent; Seller shall be responsible for any and all
claims for mechanics' liens and accounts payable that have arisen or may
subsequently arise due to agreements entered into for and/or any work
performed on, or materials supplied to any of the Properties prior to the
Closing Date; and Seller shall and does hereby agree to defend, indemnify and
forever hold Buyer and Buyer's designees harmless for, from and against any
and all such mechanics' lien claims, accounts payable or other commitments
delating to any of the Properties.
O. No Reliance. Seller acknowledges that Buyer did not prepare or assist in
the preparation of any of the projected financial information used by Seller
in analyzing the economic viability and feasibility of the transaction
contemplated by this Agreement, and that Seller has not relied on any report
or statement by Buyer in entering into this Agreement. Furthermore, Seller
acknowledges that it has not relied upon, nor may it hereafter rely upon, the
analysis undertaken by Buyer in determining the Purchase Price, and such
analysis will not be made available to Seller.
P. Existing Leases. Seller has delivered to Buyer true, correct and complete
copies of the Existing Leases. There are no leases, subleases or occupancy
agreements affecting any of the Properties other than the Existing Leases.
The Existing Leases have not been modified, amended, supplemented or otherwise
revised and are the only leases or agreements with the Existing Lessees with
respect to the Properties. None of the Existing Leases, and no interest
therein, has been assigned, transferred, mortgaged, hypothecated or otherwise
encumbered by Seller. No notice of default has been given by or to any of
the Existing Lessees which has not been cured. To Seller's actual knowledge,
no event has occurred and no condition exists which, with the giving of notice
or the lapse of time or both, would constitute a default by Seller or the
Existing Lessees under any of the Existing Leases.
All representations and warranties of Seller made in this Section 8 shall
survive the Closing. Seller acknowledges and agrees that Environmental
Insurer may rely on the environmental representations and warranties set forth
in the preceding subsection K, that Environmental Insurer is an intended third-
party beneficiary of such representations and warranties and that Environmental
Insurer shall have all rights and remedies available at law or in equity as a
result of a breach of such representations and warranties, including, to the
extent applicable, the right of subrogation.
9. Covenant and Agreements of Seller. Seller shall, at all reasonable times,
upon reasonable advance notice from Buyer (i) provide Buyer and Buyer's
officers, employees, agents, advisors, attorneys, accountants, architects, and
engineers with access to each of the Properties, all drawings, plans, and
specifications for each of the Properties in possession of Seller, all
engineering reports relating to each of the Properties in the possession of
Seller, the files and correspondence relating to each of the Properties, and
the financial books and records, including lists of delinquencies, relating to
the ownership, operation, and maintenance of each of the Properties, and (ii)
allow such persons to make such inspections, tests, copies, and verifications
as Buyer considers necessary. All such persons shall use reasonable efforts
not to unduly interfere with the conduct of Seller's business.
10. Transaction Characterization. A. It is the intent of the parties that
the conveyance of each of the Properties to Buyer be an absolute conveyance in
effect as well as form, and the instruments of conveyance to be delivered at
Closing are not intended to serve or operate as a mortgage, equitable
mortgage, deed of trust, security agreement, trust conveyance or financing or
trust arrangement of any kind, nor as a preference or fraudulent conveyance
against any creditors of Seller. After the execution and delivery of the
deeds described in Section 11.A, Seller will have no legal or equitable
interest or any other claim or interest in any of the Properties other than
as set forth in the Lease. Furthermore, the parties intend:
(i) for the Lease to be a true lease and not a transaction creating a
financing lease, capital lease, equitable mortgage, mortgage, deed of trust,
security interest or other financing arrangement, and the economic realities
of the Lease are those of a true lease; and
(ii) for the Lease to constitute a single master lease of all, but not less
than all, of the Properties, and to be a unitary, unseverable instrument
pertaining to all, but not less than all, of the Properties and that neither
the Lease nor the duties, obligations or rights of Seller may be allocated or
otherwise divided by Seller among the Properties.
Notwithstanding the existence of the Lease, neither party shall contest the
validity, enforceability or characterization of the sale and purchase of any
of the Properties by Buyer pursuant to this Agreement as an absolute
conveyance, and both parties shall support the intent expressed herein that
the purchase of all of the Properties by Buyer pursuant to this Agreement
provides for an absolute conveyance and does not create a joint venture,
partnership, equitable mortgage, trust, financing device or arrangement,
security interest or the like, if, and to the extent that, any challenge
occurs.
Seller and Buyer each stipulate that the Purchase Price is the fair market
value of the Properties and was agreed to by Seller and Buyer solely on that
basis.
B. This Agreement is a contract to extend a financial accommodation (as such
term is used in the Code) for the benefit of Seller and may not be assumed
over the objection of Buyer in the event Seller becomes a debtor or debtor in
possession in any bankruptcy proceeding. The financial accommodation made
through this Agreement is Buyer's acquisition of all of the Properties for the
purpose of leasing all of the Properties to Seller pursuant to a true lease.
11. Conditions of Closing. The obligation of Buyer to consummate the purchase
of the Properties pursuant to this Agreement is subject to the fulfillment or
waiver of each of the following conditions:
A. Title. Seller shall convey each of the Properties to Buyer and Remainderman
by general warranty deeds (collectively, the "Deeds"), free of all liens,
encumbrances, restrictions, encroachments and easements, except the Permitted
Exceptions.
B. Condition of Properties. Buyer shall have inspected and approved, in its
sole discretion, each of the Properties.
C. Evidence of Title. Buyer shall have received a preliminary title report
and irrevocable commitment to insure title by means of an ALTA extended
coverage owner's policy of title insurance (or its equivalent, in the event
such form is not issued in the jurisdiction where any of the Properties is
located) issued by Title Company showing good and marketable fee title in
Seller, committing to insure Buyer's fee simple ownership in each of the
Properties subject only to Permitted Exceptions and containing such
endorsements as Buyer may reasonably require.
D. Survey; Flood Hazard. Buyer shall have received a current ALTA survey
of each of the Properties, the form and substance of which shall be
satisfactory to Buyer in its sole discretion. Seller shall have provided
Buyer with evidence satisfactory to Buyer that the location of each of the
Properties is not within the 100-year flood plain or identified as a Special
Flood Hazard Area by the Federal Emergency Management Agency, or if any of the
Properties is in such a Special Flood Hazard Area, Seller shall provide Buyer
with evidence of flood insurance maintained on such Properties in amounts and
on terms and conditions satisfactory to Buyer.
E. Environmental. Buyer shall have completed such environmental due
diligence of each of the Properties as it deems necessary or advisable in its
sole discretion, including, without limitation, receiving an Environmental
Policy with respect to each of the Properties, and Buyer shall have approved
the environmental condition of each of the Properties in its sole discretion.
F. Zoning. If requested by Buyer, Seller shall have provided Buyer with
evidence satisfactory to Buyer to confirm that each of the Properties is
properly zoned for its use as a Permitted Facility and that such use
constitutes a legal, conforming use under applicable zoning requirements.
G. Utilities. Buyer shall have received evidence satisfactory to Buyer in its
sole discretion that all utilities and roads necessary for the operation of
each of the Properties as a Permitted Facility are available and that all
necessary consents to the use of such utilities and roads have been obtained.
H. Compliance With Representations, Warranties and Covenants. (i) All
obligations of Seller under this Agreement shall have been complied with in
all material respects, and no event shall have occurred or condition shall
exist which would, upon the Closing Date, or, upon the giving of notice and/or
passage of time, constitute a breach or default by Seller hereunder or under
the Lease or any other agreement between or among Buyer or Seller pertaining
to the subject matter hereof, and no event shall have occurred or condition
shall exist or information shall have been disclosed by Seller or discovered
by Buyer which has had or would have a material adverse effect on any of the
Properties, Seller or Buyer's willingness to consummate the transaction
contemplated by this Agreement, as determined by Buyer in its sole and
absolute discretion.
(ii) Buyer shall have received such evidence satisfactory to Buyer in its
reasonable discretion that the representations and warranties of Seller under
this Agreement are true, correct and complete as of the Closing Date.
I. Proof of Insurance. Seller shall have delivered to Buyer copies of i
nsurance policies, showing that all insurance required by the Lease and
providing coverage and limits satisfactory to Buyer is in full force and
effect.
J. Opinions of Counsel to Seller. Seller shall have caused Counsel to
prepare and deliver opinions in form and substance reasonably satisfactory
to Buyer and its counsel.
K. Closing of Loan Agreement and Related Sale-Leaseback Agreement. All of
the transactions described in the Loan Agreement and the Related
Sale-Leaseback Agreement shall have closed prior to, or simultaneously with,
the Closing of the transaction described in this Agreement.
L. License Agreement. Buyer and Seller shall have executed and delivered
the License Agreement.
M. Existing Leases. Buyer and Lender shall have approved each Existing Lease
in its sole discretion.
N. Closing Documents. On or prior to the Closing Date, Buyer and/or Seller,
as may be appropriate, shall execute and deliver or cause to be executed and
delivered to Title Company or Buyer, as may be appropriate, all documents
required to be delivered by this Agreement, and such other documents,
payments, instruments and certificates, as Buyer may require in form
acceptable to Buyer, including, without limitation, the following:
(i) Deeds;
(ii) Lease;
(iii) Memorandum;
(iv) Acknowledgement;
(v) License Agreement;
(vi) Proof of Insurance;
(vii) Opinions of Counsel to Seller;
(viii) Non-Foreign Seller Certificate;
(ix) UCC-1 Financing Statements; and
(x) Closing settlement statement prepared by Title Company.
(xi) Upon fulfillment or waiver of all of the above conditions, Buyer
shall deposit funds necessary to close this transaction with the Title Company
and this transaction shall close in accordance with the terms and conditions
of this Agreement.
12. Default and Remedies. A. Each of the following shall be deemed an event of
default by Seller (each, an "Event of Default"):
(i) If any representation or warranty of Seller set forth in any of the Sale-
Leaseback Documents is false in any material respect or if Seller renders any
statement or account which is false in any material respect;
(ii) If Seller fails to keep or perform in any material respect any of the
terms or provisions of this Agreement;
(iii) If Seller is or becomes insolvent within the meaning of the Code, files
or notifies Buyer that it intends to file a petition under the Code, initiates
a proceeding under any similar law or statute relating to bankruptcy,
insolvency, reorganization, winding up or adjustment of debts (collectively,
an "Action"), becomes the subject of either a petition under the Code or an
Action which is not dissolved within 90 days after filing, or is not generally
paying its debts as the same become due;
(iv) If there is an "Event of Default" under the Lease; or
(v) If there is an "Event of Default" or a breach or default, after the
passage of all applicable notice and cure or grace periods, under any other
Sale-Leaseback Document.
B. In the event of any Event of Default, Buyer shall be entitled to exercise,
at its option, concurrently, successively or in any combination, all remedies
available under the Lease or at law or in equity, including without limitation
any one or more of the following:
(i) To terminate this Agreement by giving written notice to Seller in which
case neither party shall have any further obligation or liability, except
such liabilities as Seller may have for such breach or default;
(ii) To proceed with the Closing and direct Title Company to apply such
portion of the Purchase Price as Buyer may deem reasonably necessary to cure
any such breach or default;
(iii) To bring an action for damages against Seller, which, in the event Buyer
proceeds to close, may include an amount equal to the difference between the
value of the Properties as conveyed to Buyer and the value such Properties
would have had if all representations and warranties of Seller were true and
Seller had complied with all of its obligations;
(iv) To bring an action to require Seller specifically to perform its
obligations hereunder; and/or
(v) To recover from Seller all costs and expenses, including attorneys' fees,
paid or incurred by Buyer in connection with the transaction contemplated by
this Agreement and all costs and expenses incurred or paid by Buyer as a
result of such breach or default.
13 Assignments. A. Buyer may assign in whole or in part its rights under
this Agreement. In the event of any unconditional assignment of Buyer's
entire right and interest hereunder and provided Buyer's assignee shall have
assumed in writing all of the duties and obligations of Buyer hereunder, Buyer
shall automatically be relieved, from and after the date of such assignment,
of liability for the performance of any obligation of Buyer contained herein.
B. Seller shall not, without the prior written consent of Buyer, which consent
may be withheld in Buyer's sole discretion, sell, assign, transfer, mortgage,
convey, encumber or grant any easements or other rights or interests of any
kind in any of the Properties, any of Seller's rights under this Agreement or
any interest in Seller, whether voluntarily, involuntarily or by operation of
law or otherwise, including, without limitation, by merger, consolidation,
dissolution or otherwise, except as expressly permitted by the Lease.
14. Indemnity. Seller agrees to indemnify, protect, hold harmless and defend
Buyer, Lender and their respective directors, officers, shareholders, members,
employees, successors, assigns, agents, lenders, contractors, subcontractors,
experts, licensees, affiliates, lessees, mortgagees, trustees and invitees, as
applicable (collectively, the "Indemnified Parties"), for, from and against
any and all losses, costs, claims, liabilities, damages and expenses
(collectively, "Losses") (including, without limitation, Buyer's reasonable
attorneys' fees and consequential damages but excluding Losses suffered by an
Indemnified Party arising out of such Indemnified Party's gross negligence or
willful misconduct; provided, however, that the term "gross negligence" shall
not include gross negligence imputed as a matter of law to any of the
Indemnified Parties solely by reason of the Buyer's interest in any of the
Properties or Seller's failure to act in respect of matters which are the
obligation of Seller under the Lease) arising as the result of an
Environmental Condition and/or a breach of any of the representations,
warranties, covenants, agreements or obligations of Seller set forth in this
Agreement. Without limiting the generality of the foregoing, such indemnity
shall include, without limitation, any damages incurred with respect to any
engineering, governmental inspection and reasonable attorneys' fees and
expenses that the Indemnified Parties may incur by reason of any Environmental
Condition and/or any representation or warranty set forth in Section 8.K being
false, or by reason of any investigation or claim of any Governmental
Authority in connection therewith. The provisions of this Section 14 shall
survive the Closing.
15. Remainderman. Notwithstanding anything to the contrary contained herein,
Seller acknowledges that Buyer may only obtain title to an estate for years
in each of the Properties, and that Buyer may arrange for a remainderman
("Remainderman") to obtain title to the remainder of the estate of the
Properties (the "Remainder Interest"). Seller agrees to cooperate in such
event, which cooperation shall include, without limitation (1) the granting
of deeds for the estate for years in each of the Properties to Buyer and
separate deeds for the Remainder Interest to the Remainderman (or its
designee), (2) the execution of a tripartite agreement among Seller, Buyer
and the Remainderman relating to, inter alia, the extension terms under the
Lease, (3) delivering appropriate title insurance policies to the Remainderman,
and (4) delivery of such other documents as may be reasonably required.
Seller acknowledges that Remainderman is an approved assignee of this
Agreement to the extent of the Remainder Interest.
16. Miscellaneous Provisions.
A. Notices. All notices, consents, approvals or other instruments required or
permitted to be given by either party pursuant to this Agreement shall be in
writing and given by (i) hand delivery, (ii) facsimile, (iii) express
overnight delivery service or (iv) certified or registered mail, return receipt
requested, and shall be deemed to have been delivered upon (a) receipt, if
hand delivered, (b) transmission, if delivered by facsimile, (c) the next
business day, if delivered by express overnight delivery service, or (d) the
third business day following the day of deposit of such notice with the United
States Postal Service, if sent by certified or registered mail, return receipt
requested. Notices shall be provided to the parties and addresses (or
facsimile numbers, as applicable) specified below:
If to Seller: The Krystal Company
One Union Square
Chattanooga, TN 37402
Attention: Mr. Larry D. Bentley
Telephone: (423) 757-1500
Telecopy: (423) 757- 5773
With a copy to: Miller & Martin LLP
1000 Volunteer Building
832 Georgia Avenue
Chattanooga, TN 37402
Attention: Hugh F. Sharber, Esq.
Telephone: (423) 785-8212
Telecopy: (423) 785- 8480
If to Buyer: Crystac Property II LLC
c/o U.S. Realty Advisors, LLC
1370 Avenue of the Americas
New York, NY 10019
Attention: Mr. David M. Ledy
Telephone: (212) 581-4540
Telecopy: (212) 581-4950
With a copy to: Proskauer Rose LLP
1585 Broadway
New York, NY 10036
Attention: Kenneth S. Hilton, Esq.
Telephone: (212) 969-3000
Telecopy: (212) 969-2900
B. Risk of Loss. As between Buyer and Seller, Seller shall be responsible
for the risk of loss, damage or destruction of any of the Properties or any
part thereof prior to the Closing Date.
C. Condemnation. In the event of a taking of all or any part of any of the
Properties prior to the Closing, Buyer at its sole option shall have the
right to either (i) receive the proceeds of any condemnation award and,
proceed to close this transaction or (ii) terminate this Agreement with
respect to any Property which is subject to such taking. Buyer and Seller
agree to execute such amendments to this Agreement as may be reasonably
required by Buyer to evidence any such termination.
D. Real Estate Commission. Buyer and Seller represent and warrant to each
other that they have dealt with no real estate broker, agent, finder or other
intermediary in connection with the transactions contemplated by this
Agreement. Buyer and Seller shall indemnify and hold each other harmless for,
from and against any costs, claims or expenses, including attorneys' fees,
arising out of the breach of their respective representations and warranties
contained within this Section. Seller has been advised by Banc of America
Securities LLC, whose fees shall be paid by Seller.
E. Waiver and Amendment. No provisions of this Agreement shall be deemed
waived or amended except by a written instrument unambiguously setting forth
the matter waived or amended and signed by the party against which enforcement
of such waiver or amendment is sought. Waiver of any matter shall not be
deemed a waiver of the same or any other matter on any future occasion.
F. Captions. Captions are used throughout this Agreement for convenience of
reference only and shall not be considered in any manner in the construction
or interpretation hereof.
G. Buyer's Liability. Notwithstanding anything to the contrary provided in
this Agreement, it is specifically understood and agreed, such agreement being
a primary consideration for the execution of this Agreement by Buyer, that
(i) there shall be absolutely no personal liability on the part of Buyer, its
successors or assigns and the trustees, members, partners, shareholders,
officers, directors, employees and agents of Buyer and its successors and
assigns, to Seller with respect to any of the terms, covenants and conditions
of this Agreement or the other Sale-Leaseback Documents, as applicable,
provided that Seller shall have recourse to the Properties and Buyer to the
extent expressly provided below, (ii) Seller waives all claims, demands and
causes of action against the trustees, members, partners, shareholders,
officers, directors, employees and agents of Buyer and its successors or
assigns in the event of any breach by Buyer of any of the terms, covenants
and conditions of this Agreement or the other Sale-Leaseback Documents, as
applicable, to be performed by Buyer, and (iii) Seller shall look solely to
the Properties for the satisfaction of each and every remedy of Seller in the
event of any breach by Buyer of any of the terms, covenants and conditions of
this Agreement or the other Sale-Leaseback Documents, as applicable, to be
performed by Buyer, or any other matter in connection with this Agreement,
the other Sale-Leaseback Documents or any of the Properties, such exculpation
of liability to be absolute and without any exception whatsoever, provided
that, with respect to affirmative acts of Buyer which constitute gross
negligence or intentional misconduct (it being understood and agreed that
the acts of the Seller and its shareholders, officers, directors, employees
and agents shall not be imputed to Buyer), Seller shall have the right to look
to other assets of Buyer, but not the assets of the trustees, members,
partners, shareholders, officers, directors, employees and agents of Buyer.
H. Severability. The provisions of this Agreement shall be deemed severable.
If any part of this Agreement shall be held unenforceable, the remainder shall
remain in full force and effect, and such unenforceable provision shall be
reformed by such court so as to give maximum legal effect to the intention of
the parties as expressed therein.
I. Construction Generally. This is an agreement between parties who are
experienced in sophisticated and complex matters similar to the transaction
contemplated by this Agreement and is entered into by both parties in reliance
upon the economic and legal bargains contained herein and shall be interpreted
and construed in a fair and impartial manner without regard to such factors as
the party which prepared the instrument, the relative bargaining powers of the
parties or the domicile of any party. Seller and Buyer were each represented
by legal counsel competent in advising them of their obligations and
liabilities hereunder.
J. Other Documents. Each of the parties agrees to sign such other and further
documents as may be necessary or reasonably requested by the other party in
order to carry out the intentions expressed in this Agreement.
K. Attorneys' Fees. Notwithstanding anything in this Agreement to the
contrary, in the event of any judicial or other adversarial proceeding between
the parties concerning this Agreement, the prevailing party shall be entitled
to recover all of its attorneys' fees and other costs in addition to any other
relief to which it may be entitled. References in this Agreement to Buyer's
attorneys' fees and/or costs shall mean the fees and costs of independent
counsel retained by Buyer with respect to this transaction.
L. Entire Agreement. This Agreement, together with any other certificates,
instruments or agreements to be delivered hereunder, constitute the entire
agreement between the parties with respect to the subject matter hereof, and
there are no other representations, warranties or agreements, written or oral,
between Seller and Buyer with respect to the subject matter of this Agreement.
Notwithstanding anything in this Agreement to the contrary, upon the execution
and delivery of this Agreement by Seller and Buyer, the Commitment shall be
deemed null and void and of no further force and effect and the terms and
conditions of this Agreement shall control notwithstanding that such terms and
conditions are inconsistent with or vary from those set forth in the
Commitment.
M. Recording. At the election of Buyer, this Agreement may be recorded in the
appropriate governmental office so as to impart constructive notice of the
terms and provisions hereof.
N. Forum Selection; Jurisdiction; Venue; Choice of Law. Seller acknowledges
that this Agreement was partially negotiated in the State of Arizona, the
Agreement was delivered by Seller and Buyer in the State of Arizona, all
payments under the Lease will be delivered in the State of Arizona (unless
otherwise directed by Buyer or its successors) and there are substantial
contacts between the parties and the transactions contemplated herein and the
State of Arizona. For purposes of any action or proceeding arising out of
this Agreement, the parties hereto hereby expressly submit to the jurisdiction
of all federal and state courts located in the State of Arizona and Seller
consents that it may be served with any process or paper by registered mail or
by personal service within or without the State of Arizona in accordance with
applicable law. Furthermore, Seller waives and agrees not to assert in any
such action, suit or proceeding that it is not personally subject to the
jurisdiction of such courts, that the action, suit or proceeding is brought in
an inconvenient forum or that venue of the action, suit or proceeding is
improper. It is the intent of the parties hereto that all provisions of this
Agreement shall be governed by and construed under the laws of the State of
Arizona. To the extent that a court of competent jurisdiction finds Arizona
law inapplicable with respect to any provisions hereof, then, as to those
provisions only, the law of the states in which the Properties are located,
as applicable, shall be deemed to apply. Nothing in this Section shall limit
or restrict the right of Buyer to commence any proceeding in the federal or
state courts located in the states in which the Properties are located, as
applicable, to the extent Buyer deems such proceeding necessary or advisable
to exercise remedies available under this Agreement.
O. Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original.
P. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of Seller and Buyer and their respective successors and permitted
assigns, including, without limitation, any United States trustee, any
debtor-in-possession or any trustee appointed from a private panel.
Q. Survival. Except for the conditions of Closing set forth in Section 11,
which shall be satisfied or waived as of the Closing Date, all representations,
warranties, agreements, obligations and indemnities of Seller and Buyer set
forth in this Agreement (including, without limitation, the provisions of
Sections 7, 8 and 14) shall survive the Closing.
R. Waiver of Jury Trial and Punitive, Consequential, Special and Indirect
Damages. BUYER AND SELLER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY
WAIVE THE RIGHT EITHER MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY AND ALL
ISSUES PRESENTED IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM BROUGHT BY
EITHER OF THE PARTIES HERETO AGAINST THE OTHER OR ITS SUCCESSORS WITH RESPECT
TO ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY
DOCUMENT CONTEMPLATED HEREIN OR RELATED HERETO. THIS WAIVER BY THE PARTIES
HERETO OF ANY RIGHT EITHER MAY HAVE TO A TRIAL BY JURY HAS BEEN NEGOTIATED AND
IS AN ESSENTIAL ASPECT OF THEIR BARGAIN. FURTHERMORE, SELLER HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVES THE RIGHT IT MAY HAVE TO SEEK PUNITIVE,
CONSEQUENTIAL, SPECIAL AND INDIRECT DAMAGES FROM BUYER AND ANY OF BUYER'S
AFFILIATES, OFFICERS, DIRECTORS, MEMBERS OR EMPLOYEES OR ANY OF THEIR
SUCCESSORS WITH RESPECT TO ANY AND ALL ISSUES PRESENTED IN ANY ACTION,
PROCEEDING, CLAIM OR COUNTERCLAIM BROUGHT BY SELLER AGAINST BUYER OR ANY OF
BUYER'S AFFILIATES, OFFICERS, DIRECTORS, MEMBERS OR EMPLOYEES OR ANY OF THEIR
SUCCESSORSWITH RESPECT TO ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS
AGREEMENT OR ANY DOCUMENT CONTEMPLATED HEREIN OR RELATED HERETO. THE WAIVER
BY SELLER OF ANY RIGHT IT MAY HAVE TO SEEK PUNITIVE, CONSEQUENTIAL, SPECIAL
AND INDIRECT DAMAGES HAS BEEN NEGOTIATED BY THE PARTIES HERETO AND IS AN
ESSENTIAL ASPECT OF THEIR BARGAIN.
S. Reliance By Lender. Seller acknowledges and agrees that Lender may rely
on all of the representations, warranties and covenants set forth in this
Agreement, that Lender is an intended third-party beneficiary of such
representations, warranties and covenants and that Lender shall have all
rights and remedies available at law or in equity as a result of a breach of
such representations, warranties and covenants, including to the extent
applicable, the right of subrogation.
IN WITNESS WHEREOF, Seller and Buyer have entered into this Agreement as of
the date first above written.
BUYER:
CRYSTAC PROPERTY II LLC,
a Delaware limited liability company
By Crystac Equity II LLC,
a Delaware limited liability company,
its member manager
By:
Jamie Grossman
Its Vice President, Assistant Secretary and
Assistant Treasurer
SELLER:
THE KRYSTAL COMPANY,
a Tennessee corporation
By:
Larry D. Bentley
Its Vice President and Chief Financial Officer
STATE OF ARIZONA]
] SS.
COUNTY OF MARICOPA]
The foregoing instrument was acknowledged before me on December ____, 2001 by
Jamie Grossman, Vice President, Assistant Secretary and Assistant Treasurer of
Crystac Equity II LLC, a Delaware limited liability company, member manager of
Crystac Property II LLC, a Delaware limited liability company, on behalf of
the limited liability company.
Notary Public
My Commission Expires:
STATE OF ARIZONA ]
] SS.
COUNTY OF MARICOPA ]
The foregoing instrument was acknowledged before me on December 31, 2001 by
Larry D. Bentley, Vice President and Chief Financial Officer of The Krystal
Company, a Tennessee corporation, on behalf of the corporation.
Notary Public
My Commission Expires:
EXHIBIT A
PROPERTIES
EXHIBIT A-1
LEGAL DESCRIPTIONS OF PROPERTIES
SCHEDULE I
EXISTING LEASES
1. FFC No. 8001-3596, Store No. SAV005, 10003 Abercorn Road, Savannah, GA
Sign Lease dated as of October 12, 1983 between Lessee, as landlord, and Foster
and Kleiser, Inc., as tenant, as amended by letter agreement dated
October 28, 1998 between Lessee and Lamar Advertising.
2. FFC No. 8001-3604, Store No. ATL022, 4933 Jonesboro Road, Forest Park, GA
Sign Lease dated as of June 1, 1998 between Lessee, as landlord, and Eller
Media Company, as tenant.
Exhibit 10.5-
MASTER LEASE
THIS MASTER LEASE (this "Lease") is made as of December 31, 2001 (the
"Effective Date"), by and between CRYSTAC PROPERTY II LLC, a Delaware limited
liability company ("Lessor"), whose address is c/o U.S. Realty Advisors, LLC,
1370 Avenue of the Americas, New York, New York 10019, and THE KRYSTAL COMPANY,
a Tennessee corporation ("Lessee"), whose address is One Union Square,
Chattanooga, Tennessee 37402.
W I T N E S S E T H :
THAT, in consideration of the mutual covenants and agreements herein contained,
Lessor and Lessee hereby covenant and agree as follows:
1. Certain Defined Terms. The following terms shall have the following
meanings for all purposes of this Lease:
"Acknowledgement" means the Acknowledgement of Master Lease Assignment and
Subordination, Nondisturbance and Attornment Agreement dated as of the date of
this Lease among Lessor, Lessee, Lender and Remainderman, as the same may be
amended from time to time. A duplicate original Acknowledgement will be
executed and recorded in the applicable real property records for each Property.
"Action" has the meaning set forth in Section 23.A(iv).
"ADA" has the meaning set forth in Section 16.C.
"Additional Rental" has the meaning set forth in Section 5.C.
"Adjustment Date" means the first day of the month following the month in
which the first anniversary of the Effective Date occurs, and every first
anniversary thereafter during the Lease Term (including the extension periods
if Lessee exercises its option pursuant to Section 27).
"Affiliate" means any Person which directly or indirectly controls, is under
common control with, or is controlled by any other Person. For purposes of
this definition, "controls", "under common control with" and "controlled by"
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of such Person, whether through
the ownership of voting securities or otherwise.
"Aggregate Assumed Base Annual Rental" means the aggregate amount of Base
Annual Rental required to be paid by Lessee during the Assumed Base Annual
Rental Period.
"Aggregate Fixed Charge Coverage Ratio" shall have the meaning set forth in
Section 8.A.
"Aggregate Rent Refund" means the positive difference, if any, between the
Aggregate Assumed Base Annual Rental and the CPI-Adjusted Rent.
"Applicable Regulations" means all applicable statutes, regulations, rules,
ordinances, codes, licenses, permits, orders and approvals of each
Governmental Authority having jurisdiction over Lessee and/or any of the
Properties, including, without limitation, all health, building, fire, safety
and other codes, ordinances and requirements and all applicable standards of
the National Board of Fire Underwriters and the ADA, in each case, as amended,
and any judicial or administrative interpretation thereof, including any
judicial order, consent, decree or judgment applicable to Lessee.
"Applicable Rent Reduction Percentage" means, with respect to any Property,
a fraction, the numerator of which shall be the Purchase Price for such
Property, and the denominator of which shall be the sum of the Purchase Price
for all of the Properties then subject to this Lease, including such Property.
"Assumed Base Annual Rental Period" means the period commencing on
January 1, 2002 and ending on December 31, 2021.
"Base Annual Rental" means $1,233,345.12, subject to the increases provided
in Section 5.B.
"Base Monthly Rental" means an amount equal to 1/12 of the applicable Base
Annual Rental.
"Business Day" means a day on which banks located in Phoenix, Arizona are not
required or authorized to remain closed.
"Casualty" has the meaning set forth in Section 21.A.
"Code" means the United States Bankruptcy Code, 11 U.S.C. Sec. 101 et seq., as
amended.
"CPI" means the Consumer Price Index which is designated for the applicable
month of determination as the United States City Average for All Urban
Consumers, All Items, Not Seasonally Adjusted, with a base period equaling 100
in 1982-1984, as published by the United States Department of Labor's Bureau
of Labor Statistics or any successor agency.
"CPI-Adjusted Rent" means the aggregate amount of Base Annual Rental that
would have been paid during the entire Assumed Base Annual Rental Period had
the Base Annual Rental on each CPI Adjustment Date been increased over the
Base Annual Rental immediately preceding such CPI Adjustment Date by two times
the applicable CPI Increase.
"CPI Adjustment Date" means the first day of the month following the month in
which the first anniversary of the Effective Date occurs, and every first
anniversary thereafter during the Lease Term.
"CPI Increase" means the quotient (expressed as a percentage) of (a) the
positive difference, if any, between (i) the CPI for the month which is one
month prior to the month of the applicable CPI Adjustment Date and (ii) the CPI
for the month which is thirteen months prior to the month of such CPI
Adjustment Date (the "Base CPI"), and (b) the Base CPI. In the event the
statistics are not available or in the event that publication of the CPI is
modified or discontinued in its entirety, the CPI Increase shall be determined
on the basis of an index chosen by Lessor as a reasonably comparable and
recognized index of the purchasing power of the United States consumer dollar
published by the United States Department of Labor or other similar
governmental agency. In the event that the CPI contemplated herein is not
reported for the months required for the calculation set forth above, the
parties agree to utilize the CPI reported for the month(s) nearest preceding
the month(s) required for such calculation.
"De Minimis Amounts" shall mean, with respect to any given level of Hazardous
Materials, that level or quantity of Hazardous Materials in any form or
combination of forms, the use, storage or release of which does not constitute
a violation of, or require regulation or remediation under, any Environmental
Laws and is customarily employed in the ordinary course of, or associated with,
similar businesses located in the states in which the Properties are located.
"Default Rate" means 18% per annum or the highest rate permitted by law,
whichever is less.
"Disclosures" has the meaning set forth in Section 8.C.
"Early Termination Date" has the meaning set forth in Section 21.B.
"Effective Date" has the meaning set forth in the Preamble.
"Environmental Insurer" means American International Specialty Lines Insurance
Company or such other insurer providing Environmental Policies reasonably
acceptable to Lessor.
"Environmental Laws" means any present and future federal, state and local
laws, statutes, ordinances, rules, regulations and the like, as well as common
law, relating to Hazardous Materials and/or the protection of human health or
the environment, by reason of a Release or a Threatened Release of Hazardous
Materials or relating to liability for or costs of Remediation or prevention
of Releases. "Environmental Laws" includes, but is not limited to, the
following statutes, as amended, any successor thereto, and any regulations,
rulings, orders or decrees promulgated pursuant thereto, and any state or
local statutes, ordinances, rules, regulations and the like addressing similar
issues: the Comprehensive Environmental Response, Compensation and Liability
Act; the Emergency Planning and Community Right-to-Know Act; the Hazardous
Materials Transportation Act; the Resource Conservation and Recovery Act
(including but not limited to Subtitle I relating to underground storage
tanks); the Solid Waste Disposal Act; the Clean Water Act; the Clean Air Act;
the Toxic Substances Control Act; the Safe Drinking Water Act; the Occupational
Safety and Health Act; the Federal Water Pollution Control Act; the Federal
Insecticide, Fungicide and Rodenticide Act; the Endangered Species Act; the
National Environmental Policy Act; and the River and Harbors Appropriation Act.
"Environmental Laws" also includes, but is not limited to, any present and
future federal, state and local laws, statutes, ordinances, rules, regulations
and the like, as well as common law: conditioning transfer of property upon a
negative declaration or other approval of a Governmental Authority of the
environmental condition of the property; requiring notification or disclosure
of Releases or other environmental condition of any of the Properties to any
Governmental Authority or other person or entity, whether or not in connection
with transfer of title to or interest in property; imposing conditions or
requirements relating to Hazardous Materials in connection with permits or
other authorization for lawful activity; relating to nuisance, trespass or
other causes of action related to Hazardous Materials; and relating to
wrongful death, personal injury, or property or other damage in connection
with the physical condition or use of any of the Properties by reason of the
presence of Hazardous Materials in, on, under or above any of the Properties.
"Environmental Liens" has the meaning set forth in Section 16.D(ix).
"Environmental Policies" means the environmental insurance policy or policies,
as applicable, issued by Environmental Insurer to Lessor with respect to the
Properties, which Environmental Policies shall be in form and substance
satisfactory to Lessor in its sole but reasonable discretion.
"Event of Default" has the meaning set forth in Section 23.
"Excluded Personalty" means (i) any Personalty which is leased by Lessee from
third parties as of the Effective Date, as described more particularly in
Schedule III attached hereto, but only during such time as the applicable lease
is in effect, and (ii) any Personalty purchased or acquired after the Effective
Date which is subject to a purchase money security interest granted by Lessee
or which Lessee leases from a third party, but only during such time as the
applicable security interest or lease is in effect; provided, however, in no
event shall the aggregate value of the Excluded Personalty relating to any
individual Property exceed the Excluded Personalty Cap.
"Excluded Personalty Cap" means (i) prior to January 1, 2012, $36,000, and
(ii) from and after January 1, 2012, $50,000.
"Existing Leases" means those billboard and other leases affecting certain
of the Properties, which are described on Schedule I to the Sale-Leaseback
Agreement.
"Existing Lessees" means the lessees under the Existing Leases.
"Extended Term" means the period subsequent to the expiration of the Primary
Term during which this Lease is actually in effect.
"FCCR Period" means the twelve month period of time immediately preceding the
date on which Lessee gives written notice to Lessor that Lessee is proposing
to substitute a Substitute Property as permitted by Section 57.A.
"Fixed Charge Coverage Ratio" has the meaning set forth in Section 57.B(i)(2).
"Forced Sale Election" has the meaning set forth in Section 57.A.
"GAAP" means generally accepted accounting principles consistently applied.
"Governmental Authority" means any governmental authority, agency, department,
commission, bureau, board, instrumentality, court or quasi-governmental
authority of the United States, the states in which the Properties are located
or any political subdivision thereof.
"Hazardous Materials" means (i) any toxic substance or hazardous waste,
substance, solid waste, or related material, or any pollutant or contaminant;
(ii) radon gas, asbestos in any form which is or could become friable, urea
formaldehyde foam insulation, transformers or other equipment which contains
dielectric fluid containing levels of polychlorinated biphenyls in excess of
federal, state or local safety guidelines, whichever are more stringent, or
any petroleum product; (iii) any substance, gas, material or chemical which is
or becomes defined as or included in the definition of "hazardous substances,"
"toxic substances," "hazardous materials," "hazardous wastes," "regulated
substances" or words of similar import under any Environmental Laws; and (iv)
any other chemical, material, gas or substance the exposure to or release of
which is or becomes prohibited, limited or regulated by any Governmental
Authority that asserts jurisdiction over any of the Properties or the
operations or activity at any of the Properties, or any chemical, material,
gas or substance that does or is likely to pose a hazard to the health and/or
safety of the occupants of any of the Properties or the owners and/or occupants
of property adjacent to or surrounding any of the Properties.
"Indemnified Parties" means Lessor, Environmental Insurer, Remainderman, and
Lender and their directors, officers, shareholders, trustees, beneficial
owners, partners, members, and any directors, officers, shareholders, trustees,
beneficial owners, partners, members of any beneficial owners, partners or
members of Lessor, Environmental Insurer, Remainderman or Lender, and all
employees, agents, servants, representatives, contractors, subcontractors,
affiliates, subsidiaries, participants, successors and assigns of any of the
foregoing, including, but not limited to, any successors by merger,
consolidation or acquisition of all or a substantial portion of the assets
and business of Lessor, Environmental Insurer, Remainderman or Lender, as
applicable.
"Lease Term" shall have the meaning described in Section 4.
"Lease Year" means the 12-month period commencing on the first day of the
calendar year or any other 12-month period as may be approved in writing by
Lessor after the commencement of the Lease Term and each successive 12-month
period thereafter.
"Lender" means GE Capital Franchise Finance Corporation, a Delaware
corporation, its successors and assigns, any successor lender in connection
with any loan secured by Lessor's interest in any of the Properties, and any
servicer of any loan secured by Lessor's interest in any of the Properties.
"Lessee Entities" means, collectively, Lessee and all Affiliates of Lessee.
"License Agreement" means the license agreement dated as of the date of this
Lease between Lessor and Lessee, as the same may be amended from time to time.
"Loan Agreement" means the Loan Agreement dated as of the date of this Lease
in effect between Lessor and Lender, as such agreement may be amended from
time to time and any and all replacements or substitutions thereof.
"Loan Documents" means, collectively, the Loan Agreement, the Notes, the
Mortgages and all other documents, instruments and agreements executed in
connection therewith or contemplated thereby, all as amended and supplemented
and any and all replacements or substitutions thereof.
"Losses" means any and all claims, suits, liabilities (including, without
limitation, strict liabilities), actions, proceedings, obligations, debts,
damages, losses, costs, expenses, diminutions in value, fines, penalties,
charges, fees, expenses, judgments, awards, amounts paid in settlement and
damages of whatever kind or nature (including, without limitation, attorneys'
fees, court costs and other costs of defense).
"Material Adverse Effect" means a material adverse effect on (i) the business,
condition, worth or operations of Lessee, (ii) Lessee's ability to perform its
obligations under this Lease or any of the other Sale-Leaseback Documents, or
(iii) any of the Properties, including, without limitation, the operation of
any of the Properties as a Permitted Facility and/or the value of any of the
Properties.
"Maturity Date" means January 1, 2022.
"Memorandum" means the memorandum of master lease dated as of the date of this
Lease between Lessor and Lessee with respect to the Properties, as the same
may be amended from time to time. A duplicate original Memorandum will be
executed and recorded in the applicable real property records for each
Property. Each Memorandum will contain exhibits with the addresses and store
identification numbers for all of the Properties and the legal description
for the applicable Property.
"Mortgages" means, collectively, the mortgages, deeds of trust or deeds to
secure debt, assignments of rents and leases, security agreements and fixture
filings dated as of even date herewith executed by Lessor for the benefit of
Lender with respect to the Properties, as such instruments may be amended,
restated and/or supplemented from time to time and any and all replacements
or substitutions thereof.
"Net Award" has the meaning set forth in Section 21.B.
"Net Restoration Amount" has the meaning set forth in Section 21.D.
"Notes" means, collectively, the promissory notes dated as of the date of this
Lease executed by Lessor and payable to Lender with respect to the Properties,
as such notes may be amended, restated and/or substituted from time to time.
"Partial Casualty" has the meaning set forth in Section 21.D.
"Partial Taking" has the meaning set forth in Section 21.D.
"Participation" means the granting of any participations in any document
evidencing loan obligations or any or all servicing rights with respect
thereto.
"Permitted Facility" means a restaurant operated under the brand name
"Krystal"; provided, however, Lessee may operate up to twenty percent
(20%) of the Properties in the aggregate as another restaurant concept owned
and operated by the Lessee Entities, provided the Lessee Entities either (i)
own and operate five (5) or more units as such other restaurant concept (not
taking into account any of the Properties or Related Properties) or (ii) own
or operate such Properties as other nationally or regionally recognized brands
as consented to by Lessor (whose consent shall not be unreasonably withheld).
"Person" means any individual, corporation, partnership, limited liability
company, trust, unincorporated organization, Governmental Authority or any
other form of entity.
"Personalty" means all machinery, appliances, furniture, equipment, trade
fixtures and other personal property from time to time situated on or used in
connection with the Properties; provided, however, the term "Personalty" shall
not include the HVAC, walk-in coolers, walk-in freezers, supply fans, exhaust
fans, air ducts, hoods, vents, built-in sinks, built-in countertops, plumbing
and electrical fixtures, merchandise shelving, sign poles and lighting poles,
all of which items are intended to be fixtures as such term is used within the
definition of "Properties".
"Prepayment Charges" means, for purposes of this Lease, an amount equal to any
prepayment premium or charge, yield maintenance payment, or other cost or
expense imposed on Lessor by the applicable Lender in connection with the
payment of the applicable Note(s) or promissory note(s) prior to the Maturity
Date.
"Primary Term" means the period commencing on the Effective Date and expiring
on January 31, 2022.
"Properties" means, collectively, the parcels of real estate described by
address, FFC Number and Unit Number in Exhibit A attached hereto, as the same
may be modified from time to time to reflect removed and substituted
Properties, and legally described in Exhibit A-1 attached hereto, as the same
may be modified from time to time to reflect removed and substituted
Properties, all rights, privileges and appurtenances associated therewith,
and all buildings, structures, fixtures and other improvements now or
hereafter located on such real estate (excluding Personalty).
"Property" means any one of the Properties.
"Purchase Price" means, with respect to any Property, the amount of the
purchase price corresponding to such Property as set forth on Exhibit A to
the Sale-Leaseback Agreement.
"Questionnaires" means the environmental questionnaires completed by Lessee
with respect to each of the Properties and submitted to Environmental Insurer
in connection with the issuance of the Environmental Policies.
"Rejectable Offer" has the meaning set forth in Section 21.B.
"Rejectable Purchase Offer" has the meaning set forth in Section 58.A.
"Rejectable Substitution Offer" has the meaning set forth in Section 57.A.
"Related Lease" means the lease between Related Lessor, as lessor, and
Lessee, as lessee, relating to the Related Properties.
"Related Lessor" means Crystac Property I LLC, a Delaware limited
liability company.
"Related Properties" means any properties which are the subject of a lease
between Related Lessor, as lessor, and Lessee, as lessee.
"Release" means any presence, release, deposit, discharge, emission, leaking,
spilling, seeping, migrating, injecting, pumping, pouring, emptying, escaping,
dumping, disposing or other movement of Hazardous Materials.
"Remainderman" means Snowflake Remainder II LLC, a Delaware limited liability
company, which owns a remainder interest in the parcels of real estate
described by address, Lessor Number and Unit Number in Exhibit A attached
hereto and legally described in Exhibit A-1 attached hereto and all rights,
privileges and appurtenances associated therewith, together with its successors
and assigns.
"Remediation" means any response, remedial, removal, or corrective action, any
activity to cleanup, detoxify, decontaminate, contain or otherwise remediate
any Hazardous Materials, any actions to prevent, cure or mitigate any Release,
any action to comply with any Environmental Laws or with any permits issued
pursuant thereto, any inspection, investigation, study, monitoring, assessment,
audit, sampling and testing, laboratory or other analysis, or any evaluation
relating to any Hazardous Materials.
"Sale-Leaseback Agreement" means that certain Sale-Leaseback Agreement dated
as of the date hereof between Lessor and Lessee with respect to the Properties,
as the same may be amended from time to time.
"Sale-Leaseback Documents" means the Sale-Leaseback Agreement, this Lease,
the Memorandum, the Acknowledgement, the License Agreement and all other
documents executed in connection therewith or contemplated thereby, all as
amended and supplemented and any and all replacements or substitutions thereof.
"Securitization" means one or more sales, dispositions, transfers or
assignments by Lender or any Affiliate of Lender to a special purpose
corporation, trust or other entity identified by Lender or any Affiliate of
Lender of notes evidencing obligations to repay secured or unsecured loans
owned by Lender or any Affiliate of Lender (and, to the extent applicable,
the subsequent sale, transfer or assignment of such notes to another special
purpose corporation, trust or other entity identified by Lender or any
Affiliate of Lender), and the issuance of bonds, certificates, notes or other
instruments evidencing interests in pools of such loans, whether in connection
with a permanent asset securitization or a sale of loans in anticipation of a
permanent asset securitization. Each Securitization shall be undertaken in
accordance with all requirements which may be imposed by the investors or the
rating agencies involved in each such sale, disposition, transfer or
assignment or which may be imposed by applicable securities, tax or other
laws or regulations.
"Stipulated Loss Value" has the meaning set forth in Section 21.B.
"Subject Transfer" shall mean (i) a change in control of Lessee, whether
through a direct or indirect transfer of beneficial ownership of the voting
stock of Lessee, a merger or consolidation by Lessee with any other entity, or
any other means, or (ii) a sale or other transfer of all or substantially all
of the assets of Lessee. For purposes of this definition, "a change in control
of Lessee" means a transaction or series of transactions in which there has
occurred a direct or indirect change in beneficial ownership of fifty percent
(50%) or more of the voting stock of Lessee from the ownership of such voting
stock as of the Effective Date, other than as a result of a public offering of
securities in Lessee or its parent company.
"Substitute Property" means one or more parcels of real estate substituted for
any of the Properties in accordance with the requirements of Section 57,
together with all rights, privileges and appurtenances associated therewith,
and all buildings, structures, fixtures and other improvements located thereon
(excluding Personalty). For purposes of clarity, where two or more parcels of
real property comprise a Substitute Property, such parcels shall be aggregated
and deemed to constitute the Substitute Property for all purposes of this
Lease.
"Successor Lessor" has the meaning set forth in Section 24.
"Taking" has the meaning set forth in Section 21.A.
"Tax Contest Permitted Amount" means (i) prior to January 1, 2012, $25,000,
and (ii) from and after January 1, 2012, $50,000.
"Temporary Taking" has the meaning set forth in Section 21.C.
"Termination Notice" has the meaning set forth in Section 21.B.
"Threatened Release" means a substantial likelihood of a Release which
requires action to prevent or mitigate damage to the soil, surface waters,
groundwaters, land, stream sediments, surface or subsurface strata, ambient
air or any other environmental medium comprising or surrounding any of the
Properties which may result from such Release.
"Title Company" means Lawyers Title Insurance Corporation, or such other
nationally recognized title insurance company reasonably acceptable to Lessor.
"Total Casualty" has the meaning set forth in Section 21.B.
"Total Taking" has the meaning set forth in Section 21.B.
"Transfer" means any sale, transfer or assignment of any document evidencing
loan obligations, or any or all servicing rights with respect thereto.
2. Demise of Properties. In consideration of the rentals and other sums to
be paid by Lessee and of the other terms, covenants and conditions on Lessee's
part to be kept and performed, Lessor hereby leases to Lessee, and Lessee
hereby takes and hires, the Properties. The Properties are leased to Lessee
"AS IS" and "WHERE IS" without representation or warranty by Lessor and
subject to the rights of parties in possession, to the existing state of
title, any state of facts which an accurate survey or physical inspection
might reveal, and all Applicable Regulations now or hereafter in effect.
Lessee has examined each of the Properties and title to each of the
Properties and has found all of the same satisfactory for all of Lessee's
purposes.
3. Characterization of Lease. A. Lessor and Lessee intend that:
(i) this Lease constitutes a single master lease of all, but not less than
all, of the Properties and that Lessor and Lessee have executed and
delivered this Lease with the understanding that this Lease constitutes a
unitary, unseverable instrument pertaining to all, but not less than all, of
the Properties, and that neither this Lease nor the duties, obligations or
rights of Lessee may be allocated or otherwise divided among the Properties
by Lessee;
(ii) this Lease is a "true lease" and not a financing lease, capital lease,
mortgage, equitable mortgage, deed of trust, trust agreement, security
agreement or other financing or trust arrangement, and the economic realities
of this Lease are those of a true lease; and
(iii) the business relationship created by this Lease and any related
documents is solely that of a long-term commercial lease between landlord and
tenant and has been entered into by both parties in reliance upon the economic
and legal bargains contained herein.
B. Lessor and Lessee acknowledge and agree that the Lease Term, including any
term extensions provided for in this Lease, is less than the remaining
economic life of each of the Properties.
C. Lessee and Lessor each waive any claim or defense based upon the
characterization of this Lease as anything other than a true lease and
irrevocably waive any claim or defense which asserts that this Lease is
anything other than a true lease. Lessee and Lessor each covenant and agree
that it will not assert that this Lease is anything but a true lease. Lessee
and Lessor each stipulate and agree not to challenge the validity,
enforceability or characterization of the lease of the Properties as a true
lease and further stipulate and agree that nothing contained in this Lease
creates or is intended to create a joint venture, partnership (either de jure
or de facto), equitable mortgage, trust, financing device or arrangement,
security interest or the like. Lessee and Lessor each shall support the
intent of the parties that the lease of the Properties pursuant to this Lease
is a true lease and does not create a joint venture, partnership (either de
jure or de facto), equitable mortgage, trust, financing device or arrangement,
security interest or the like, if, and to the extent that, any challenge
occurs.
D. Lessee and Lessor each waive any claim or defense based upon the
characterization of this Lease as anything other than a master lease of all of
the Properties and irrevocably waive any claim or defense which asserts that
this Lease is anything other than a master lease. Lessee and Lessor each
covenant and agree that it will not assert that this Lease is anything but a
unitary, unseverable instrument pertaining to the lease of all, but not less
than all, of the Properties. Lessee and Lessor each stipulate and agree not to
challenge the validity, enforceability or characterization of the lease of the
Properties as a unitary, unseverable instrument pertaining to the lease of
all, but not less than all, of the Properties. Lessee and Lessor each shall
support the intent of the parties that this Lease is a unitary, unseverable
instrument pertaining to the lease of all, but not less than all, of the
Properties, if, and to the extent that, any challenge occurs.
E. Lessee represents and warrants to Lessor that (i) the Base Annual Rental is
the fair market value for the use of the Properties and was agreed to by
Lessor and Lessee on that basis, and (ii) the execution, delivery and
performance by Lessee of this Lease does not constitute a transfer of all or
any part of the Properties, other than the leasehold interest evidenced by
this Lease.
F. The expressions of intent, the waivers, the representations and warranties,
the covenants, the agreements and the stipulations set forth in this Section
are a material inducement to Lessor entering into this Lease.
4. Lease Term. The Lease Term for all of the Properties shall commence
as of the Effective Date and shall expire on January 31, 2022, unless
terminated sooner as provided in this Lease and as may be extended for four
additional successive periods of five years each as set forth in Section 27
below. The time period (inclusive of any extension periods exercised in
accordance with the terms hereof) during which this Lease shall actually be
in effect is referred to herein as the "Lease Term."
5. Rental and Other Payments. A. If the Effective Date is a date other
than the first day of the month, Lessee shall pay Lessor on the Effective
Date the Base Monthly Rental prorated on the basis of the ratio that the
number of days from the Effective Date through the last day in the month
containing the Effective Date bears to the number of days in such month.
Thereafter, on or before the first day of each succeeding calendar month,
Lessee shall pay Lessor in advance the Base Monthly Rental.
B. Commencing on the first Adjustment Date and on each Adjustment Date
thereafter, the Base Annual Rental shall increase by an amount equal to the
product of the then-current Base Annual Rental multiplied by 1.00%, which
increase shall be compounded. The increased Base Annual Rental shall
constitute the Base Annual Rental due and payable until the next Adjustment
Date.
C. All sums of money required to be paid by Lessee under this Lease which
are not specifically referred to as rent ("Additional Rental") shall be
considered rent although not specifically designated as such. Lessor shall
have the same remedies for nonpayment of Additional Rental as those provided
herein for the nonpayment of Base Annual Rental.
D. (i) Lessor hereby agrees that, to the extent that the Aggregate Assumed
Base Annual Rental exceeds the CPI-Adjusted Rent, Lessor shall be required
to pay Lessee the Aggregate Rent Refund in accordance with the provisions of
this Section 5.D. In no event shall Base Annual Rental be deemed reduced as
of any Adjustment Date from the Base Annual Rental which would have been
payable during the year immediately preceding such Adjustment Date. In
addition, if the Aggregate Assumed Base Annual Rental is less than or equal
to the aggregate CPI-Adjusted Rent, then no additional amounts shall be
payable by Lessee to Lessor and the payments of Base Annual Rental otherwise
contemplated by this Lease for the Primary Term shall become the final amounts
payable as Base Annual Rental for the Primary Term. Anything contained herein
to the contrary notwithstanding, in no event shall Lessor be required to pay
the Aggregate Rent Refund in the event of any termination of this Lease
resulting from the occurrence of an Event of Default or a rejection of this
Lease in a bankruptcy case involving Lessee.
(ii) Within thirty (30) days after the end of the Primary Term (other than a
termination resulting from the occurrence of an Event of Default or a
rejection of this Lease in a bankruptcy case involving Lessee), Lessor shall
(x) provide Lessee with a statement setting forth Lessor's calculation of the
amount of the Aggregate Rent Refund and each CPI Increase used in calculating
the Aggregate Rent Refund and (y) pay the Aggregate Rent Refund to Lessee;
provided, however, the obligation of Lessor to pay the Aggregate Rent Refund
to Lessee shall not excuse or reduce Lessee's obligation to pay any Base
Annual Rental or Additional Rental payable in respect of the Primary Term or,
except as provided in subsection (iii) below, the Extended Term, or any
payment due in respect of any termination of this Lease or as a result of the
rejection of this Lease in a bankruptcy case involving Lessee, or any other
amount (including, without limitation, indemnification payments or damages)
payable hereunder during or with respect to the Primary Term or the Extended
Term, and Lessee shall not have any right to set-off the Aggregate Rent Refund
or any part thereof against its obligation to pay any such Base Annual Rental,
Additional Rental, any payment due in respect of any termination of this Lease
or as a result of the rejection of this Lease in a bankruptcy case involving
Lessee, or any such other amount, except as provided in subsection (iii) below.
If this Lease is terminated as a result of an Event of Default or if this
Lease is rejected in a bankruptcy case involving Lessee, or if an Event of
Default shall have occurred and be continuing at the expiration of the Primary
Term, Lessor may, but shall not be required to, in exercising its rights
hereunder, use, apply or retain the whole or any part of the Aggregate Rent
Refund for the payment of any rent or other sum (including damages) to which
Lessor may be entitled by reason of such Event of Default or rejection.
(iii) In the event Lessee exercises its option to extend this Lease as set
forth in Section 27 below, Lessor may elect to apply the Aggregate Rent
Refund, if any, as a credit against the Base Annual Rental first accruing for
the Extended Term, until the balance of the Aggregate Rent Refund shall be
reduced to zero. Lessor shall evidence its election by giving notice thereof
to Lessee no later than the due date of the first installment of rent due in
the first Extended Term; provided, however, if Lessor fails to deliver such
notice, Lessor shall be deemed to have elected to so credit the Aggregate Rent
Refund.
(iv) Notwithstanding anything contained herein to the contrary, the obligation
created by this Section 5.D shall be subordinate in all respects to the loans
secured by the Mortgages. Without limiting the generality of the preceding
sentence, in the event that Lender succeeds to the interest of Lessor in this
Lease whether by a foreclosure of the Mortgages or the delivery to Lender of
deeds-in-lieu of foreclosure, the preceding subsections of this Section 5.D
shall be of no force or effect, Lender shall have no obligation to pay Lessee
the Aggregate Rent Refund, and Lessee shall have no right to receive a credit
for the Aggregate Rent Refund against the Base Annual Rental due for the
Extended Term.
6. Representations and Warranties of Lessor. The representations and
warranties of Lessor contained in this Section are being made to induce Lessee
to enter into this Lease and Lessee has relied and will continue to rely upon
such representations and warranties. Lessor represents and warrants to Lessee
as of the Effective Date as follows:
A. Organization, Authority and Status of Lessor. (i) Lessor has been duly
organized and is validly existing and in good standing under the laws of the
State of Delaware. All necessary limited liability company action has been
taken to authorize the execution, delivery and performance by Lessor of this
Lease and the other documents, instruments and agreements provided for herein.
(ii) The person who has executed this Lease on behalf of Lessor is duly
authorized to do so.
B. Enforceability. This Lease constitutes the legal, valid and binding
obligation of Lessor, enforceable against Lessor in accordance with its terms.
7. Representations and Warranties of Lessee. The representations and
warranties of Lessee contained in this Section are being made to induce Lessor
to enter into this Lease and Lessor has relied, and will continue to rely,
upon such representations and warranties. Lessee represents and warrants to
Lessor as of the Effective Date as follows:
A. Organization, Authority and Status of Lessee. (i) Lessee has been duly
organized or formed, is validly existing and in good standing under the laws
of its state of incorporation and is qualified to do business in the
jurisdictions where the Properties are located. All necessary corporate
action has been taken to authorize the execution, delivery and performance by
Lessee of this Lease and of the other documents, instruments and agreements
provided for herein. Lessee is not a "foreign corporation", "foreign
partnership", "foreign trust", "foreign limited liability company" or
"foreign estate", as those terms are defined in the Internal Revenue Code and
the regulations promulgated thereunder. Lessee's United States tax
identification number is correctly set forth on the signature page of this
Lease.
(ii) The person who has executed this Lease on behalf of Lessee is duly
authorized to do so.
B. Enforceability. This Lease constitutes the legal, valid and binding
obligation of Lessee, enforceable against Lessee in accordance with its terms.
C. Litigation. There are no suits, actions or proceedings pending, or, to
Lessee's actual knowledge, threatened in writing against or involving Lessee
or any of the Properties before any arbitrator or Governmental Authority,
except for such suits, actions or proceedings which, individually or in the
aggregate, have not had, and could not reasonably be expected to result in, a
Material Adverse Effect.
D. Absence of Breaches or Defaults. Lessee is not in default under any
document, instrument or agreement to which Lessee is a party or by which
Lessee, any of the Properties or any of Lessee's property is subject or bound,
except for such defaults which, individually or in the aggregate, have not
had, and could not reasonably be expected to result in, a Material Adverse
Effect. The authorization, execution, delivery and performance of this Lease
and the documents, instruments and agreements provided for herein will not
result in any breach of or default under any document, instrument or agreement
to which Lessee is a party or by which Lessee, any of the Properties or any of
Lessee's property is subject or bound, except for such breaches or defaults
which, individually or in the aggregate, have not had, and could not
reasonably be expected to result in, a Material Adverse Effect. The
authorization, execution, delivery and performance of this Lease and the
documents, instruments and agreements provided for herein will not violate any
applicable law, statute, regulation, rule, ordinance, code, rule or order.
E. Liabilities of Lessor. Lessee is not liable for any indebtedness for money
borrowed by Lessor and has not guaranteed any of the debts or obligations of
Lessor.
8. Covenants. Lessee covenants to Lessor for so long as this Lease is in
effect as follows:
A. Aggregate Fixed Charge Coverage Ratio. Lessee shall maintain an
Aggregate Fixed Charge Coverage Ratio at all of the Properties of at least
1.25:1, determined as of the last day of each fiscal year of Lessee. For
purposes of this Lease, the term "Aggregate Fixed Charge Coverage Ratio" shall
mean with respect to the twelve month period of time immediately preceding the
date of determination, the ratio calculated for such period of time, each as
determined in accordance with GAAP, of (a) the sum of Net Income, Depreciation
and Amortization, Interest Expense and Operating Lease Expense, less a
corporate overhead allocation in an amount equal to 5.00% of Gross Sales, to
(b) the sum of the Operating Lease Expense and the Equipment Payment Amount.
For purposes of this Section 8.A, the following terms shall be defined as set
forth below:
"Capital Lease" shall mean any lease of any property (whether real, personal
or mixed) by Lessee with respect to one or more of the Properties which lease
would, in conformity with GAAP, be required to be accounted for as a capital
lease on the balance sheet of Lessee. The term "Capital Lease" shall not
include any operating lease or this Lease.
"Debt" shall mean as directly related to all of the Properties and the period
of determination (i) indebtedness of Lessee for borrowed money,
(ii) obligations of Lessee evidenced by bonds, indentures, notes or similar
instruments, (iii) obligations of Lessee to pay the deferred purchase price of
property or services, (iv) obligations of Lessee under leases which should be,
in accordance with GAAP, recorded as Capital Leases, and (v) obligations of
Lessee under direct or indirect guarantees in respect of, and obligations
(contingent or otherwise) to purchase or otherwise acquire, or otherwise to
assure a creditor against loss in respect of, indebtedness or obligations of
others of the kinds referred to in clauses (i) through (iv) above. The term
"Debt" shall not include (x) Lessor's debt with respect to the Properties or
otherwise or (y) any corporate debt of Lessee which is not secured by any of
the Properties or any Personalty.
"Depreciation and Amortization" shall mean with respect to all of the
Properties the depreciation and amortization accruing during any period of
determination with respect to Lessee as determined in accordance with GAAP.
The term "Depreciation and Amortization" shall not include Lessor's
depreciation and amortization with respect to the Properties or otherwise.
"Equipment Payment Amount" shall mean for any period of determination the sum
of all amounts payable during such period of determination under all
(x) leases entered into by Lessee for equipment located at one or more of the
Properties and (y) all loans made to Lessee secured by Lessee's interest in
the equipment located at one or more of the Properties.
"Net Income" shall mean with respect to the period of determination, the net
income or net loss of Lessee allocable to all of the Properties by Lessee. In
determining the amount of Net Income, (i) adjustments shall be made for
nonrecurring gains and losses allocable to the period of determination,
(ii) deductions shall be made for, among other things, Depreciation and
Amortization, Interest Expense and Operating Lease Expense allocable to the
period of determination, and (iii) no deductions shall be made for (x) income
taxes or charges equivalent to income taxes allocable to the period of
determination, as determined in accordance with GAAP, or (y) corporate
overhead expense allocable to the period of determination.
"Gross Sales" means the sales or other income arising from all business
conducted at all of the Properties by Lessee during the period of
determination, less sales tax paid by Lessee in connection with the business
conducted at each of the Properties during such period.
Interest Expense" shall mean for any period of determination, the sum of all
interest accrued or which should be accrued in respect of all Debt of Lessee
allocable to one or more of the Properties and all business operations
thereon during such period (including interest attributable to Capital
Leases), as determined in accordance with GAAP.
"Operating Lease Expense" shall mean the expenses incurred by Lessee under any
operating leases with respect to one or more of the Properties (including this
Lease, but excluding any permitted subleases) and the business operations
thereon during the period of determination, as determined in accordance with
GAAP.
B. Nonconsolidation Covenants. (i) Lessee will not assume liability for any
indebtedness for money borrowed by Lessor and does not, and will not,
guarantee any of the debts or obligations of Lessor. Lessee will not hold
itself out as being liable for any obligations or indebtedness of Lessor.
(ii) Lessee shall not, and shall use its best efforts to cause its Affiliates
not to, hold Lessor out to the public or to any individual creditors as being
a unified entity with assets and liabilities in common with Lessee.
(iii) Lessee shall conduct its business so as not to mislead others as to the
separate identity of Lessor, and particularly will avoid the appearance of
conducting business on behalf of Lessor. Without limiting the generality of
the foregoing, no oral and written communications of Lessee, including,
without limitation, letters, invoices, purchase orders, contracts, statements
and loan applications, will be made in the name of Lessor which to the extent
that to do otherwise would materially bear upon the maintenance of Lessor's
separate identity.
(iv) Lessee will not act in Lessor's name.
(v) Where necessary and appropriate, Lessee shall disclose the independent
business status of Lessor to creditors of Lessee, if any.
(vi) The resolutions, agreements and other instruments of Lessee, if any,
underlying the transactions described in this Lease will be maintained by
Lessee.
(vii) All transactions between Lessee and Lessor will be no less fair to
each party than they could obtain on an arm's-length basis.
(viii) The books, records and accounts of Lessee shall at all times be
maintained in a manner permitting the assets and liabilities of Lessor to
be easily separated and readily ascertained from those of Lessee.
(ix) Lessee will not direct, or otherwise control, the ongoing business
decisions of Lessor.
(x) Lessee will not file or cause to be filed a voluntary or involuntary
petition in bankruptcy on behalf of or against Lessor.
C. Transfer, Participation and Securitization Covenants. (i) Lessee agrees
to cooperate in good faith with Lessor and Lender in connection with any
Transfer, Participation and/or Securitization of any of the Notes, Mortgages
and/or any of the Loan Documents, or any or all servicing rights with respect
thereto, including, without limitation, (x) providing such documents,
financial and other data, and other information and materials (the
"Disclosures") which would typically be required with respect to Lessee by
a purchaser, transferee, assignee, servicer, participant, investor or rating
agency involved with respect to such Transfer, Participation and/or
Securitization, as applicable; provided, however, Lessee shall not be required
to make Disclosures of any confidential information or any information which
has not previously been made public unless required by applicable federal or
state securities laws; and (y) amending the terms of this Lease to the extent
necessary so as to satisfy the requirements of purchasers, transferees,
assignees, servicers, participants, investors or selected rating agencies
involved in any such Transfer, Participation or Securitization, so long as
such amendments would not have a material adverse effect upon Lessee or the
transactions contemplated by this Lease.
(ii) Lessee consents to Lessor and Lender providing the Disclosures, as well
as any other information which Lessor and Lender may now have or hereafter
acquire with respect to the Properties or the financial condition of Lessee to
each purchaser, transferee, assignee, servicer, participant, investor or
rating agency involved with respect to such Transfer, Participation and/or
Securitization, as applicable, provided that, Lessor or Lender informs each
such purchaser, transferee, assignee, servicer and participant of the
confidential nature of such information. In connection with the performance
of Lessee's obligations under this Section 8.C: (x) Lessor and/or Lender shall
prepare, at the expense of Lessor and/or Lender, all documents evidencing the
amendments referred to in clause (y) of Section 8.C(i) as well as the
documents contemplated by Section 8.C(iii); and (y) Lessee shall pay its own
attorney fees and other out-of-pocket expenses incurred in connection with the
review and negotiation of such documents, provided that Lessor shall pay or
cause Lender to pay any such reasonable attorney fees and other out-of-pocket
expenses in excess of $5,000.00.
(iii) At the request of Lessor made prior to January 1, 2004, Lessor and
Lessee shall amend and restate this Lease and the Related Lease into a single
Master Lease (the "Master Lease") covering the Properties and the Related
Properties, but with such modifications as may be reasonably required to
reflect such amendment and restatement (e.g., a change to the amount listed in
the Base Annual Rental definition so that such amount equals the sum of the
applicable amount for this Lease and the Related Lease, a change to the number
of Properties listed in Section 27.B so that such number equals 90% of the
aggregate number of Properties and Related Properties, and a change to the
number of Properties listed in the second paragraph of Section 57.A so that
such number equals 20% of the aggregate number of Properties and Related
Properties). Lessee agrees to take such additional actions and execute such
additional documents as Lessor may reasonably require with respect to the
execution and delivery of the Master Lease.
D. Compliance Certificate. Within 120 days after the end of each fiscal year
of Lessee, Lessee shall deliver to Lessor such compliance certificates as
Lessor may reasonably require in order to establish that Lessee is in
compliance in all material respects with all of the obligations, duties and
covenants imposed on Lessee pursuant to this Lease.
9. Rentals To Be Net to Lessor. The Base Annual Rental payable
hereunder shall be net to Lessor, so that this Lease shall yield to Lessor
the rentals specified during the Lease Term, and that all costs, expenses and
obligations of every kind and nature whatsoever relating to the Properties
shall be performed and paid by Lessee.
10. Taxes and Assessments. Lessee shall pay, prior to the earlier of
delinquency or the accrual of interest on the unpaid balance, all taxes and
assessments of every type or nature assessed against, imposed upon or arising
with respect to Lessee, Lessor, any of the Properties, this Lease, the rental
or other payments due under this Lease during the Lease Term which affect in
any manner the net return realized by Lessor under this Lease, including,
without limitation, the following:
A. All taxes and assessments upon any of the Properties or any part thereof
and upon any Personalty, whether belonging to Lessor or Lessee, or any tax or
charge levied in lieu of such taxes and assessments;
B. All taxes, charges, license fees and or similar fees imposed by reason
of the use of any of the Properties by Lessee; and
C. All excise (other than the Tennessee excise tax), transaction, privilege,
license, sales, use and other taxes upon the rental or other payments due
under this Lease, the leasehold estate of either party or the activities of
either party pursuant to this Lease, including, without limitation, the
Alabama business privilege tax, the Florida sales and use tax and the
Tennessee franchise tax.
Notwithstanding the foregoing, but without limiting the preceding obligation
of Lessee to pay all taxes which are imposed on the rental or other payments
due under this Lease, in no event will Lessee be required to pay any net
income taxes (i.e., taxes which are determined taking into account
deductions for depreciation, interest, taxes and ordinary and necessary
business expenses) or franchise taxes of Lessor (unless imposed in lieu of
other taxes that would otherwise be the obligation of Lessee under this Lease
or constituting the Tennessee franchise tax, any "gross receipts tax" or any
similar tax based upon gross income or receipts of Lessor with respect to
this Lease which does not take into account deductions from depreciation,
interest, taxes and/or ordinary or necessary business expenses), any transfer
taxes of Lessor, or any tax imposed with respect to the sale, exchange or
other disposition by Lessor, in whole or in part, of any of the Properties or
Lessor's interest in this Lease (other than transfer or recordation taxes
imposed in connection with the transfer of any of the Properties to Lessee,
the substitution of a Substitute Property or the termination of this Lease
pursuant to the provisions of this Lease).
All taxing authorities shall be instructed to send all tax and assessment
invoices to Lessee and Lessee shall promptly provide Lessor and Lender with
copies of all tax and assessment invoices received by Lessee. Upon request,
Lessee shall also provide Lessor and Lender with evidence that such invoices
were paid in a timely fashion. Lessee may, at its own expense, contest or
cause to be contested (in the case of any item involving more than the Tax
Contest Permitted Amount, after prior written notice to Lessor), by appropriate
legal proceedings conducted in good faith and with due diligence, the amount
or validity or application, in whole or in part, of any item specified in this
Section or lien therefor, provided that (i) such proceeding shall suspend the
collection thereof from the applicable Properties or any interest therein,
(ii) neither such Properties nor any interest therein would be in any danger
of being sold, forfeited or lost by reason of such proceedings, (iii) no Event
of Default has occurred and is continuing, and (iv) Lessee shall have deposited
with Lessor adequate reserves for the payment of the taxes, together with all
interest and penalties thereon, unless paid in full under protest, or Lessee
shall have furnished the security as may be required in the proceeding or as
may be required by Lessor to ensure payment of any contested taxes.
11. Utilities. Lessee shall contract, in its own name, for and pay when due
all charges for the connection and use of water, gas, electricity, telephone,
garbage collection, sewer use and other utility services supplied to the
Properties during the Lease Term. Under no circumstances shall Lessor be
responsible for any interruption of any utility service.
12. Insurance. Throughout the Lease Term, Lessee shall maintain with
respect to each of the Properties, at its sole expense, the following types
and amounts of insurance (which may be included under a blanket insurance
policy if all the other terms hereof are satisfied):
A. Insurance against loss, damage or destruction by fire and other casualty,
including theft, vandalism and malicious mischief, flood (for each of the
Properties which is in a location designated by the Federal Emergency
Management Administration as a Special Flood Hazard Area), earthquake (for
each of the Properties which is in an area subject to destructive earthquakes
within recorded history), boiler explosion (for each of the Properties with a
boiler), plate glass breakage, sprinkler damage (for each of the Properties
which has a sprinkler system), all matters covered by a standard extended
coverage endorsement, all matters covered by a special coverage endorsement
commonly known as an "all-risk" endorsement and such other risks as Lessor
may reasonably require, insuring each of the Properties for not less than
100% of their full insurable replacement cost.
B. Commercial general liability and property damage insurance, including a
products liability clause, covering Lessor, Remainderman and Lessee against
bodily injury liability, property damage liability and automobile bodily
injury and property damage liability, including without limitation any
liability arising out of the ownership, maintenance, repair, condition or
operation of the Properties or adjoining ways, streets or sidewalks and, if
liquor, beer or wine is sold on the Properties, insurance covering Lessor,
Remainderman and Lessee against liability arising from the sale of liquor,
beer or wine on the Properties. Such insurance policy or policies shall
contain a broad form contractual liability endorsement under which the insurer
agrees to insure Lessee's obligations under Section 19 hereof to the extent
insurable, and a "severability of interest" clause or endorsement which
precludes the insurer from denying the claim of Lessee, Remainderman or Lessor
because of the negligence or other acts of the other, shall be in amounts of
not less than $1,000,000.00 per injury and occurrence with respect to any
insured liability, whether for personal injury or property damage, or such
higher limits as Lessor or Remainderman may reasonably require from time to
time, and shall be of form and substance reasonably satisfactory to Lessor
and Remainderman.
C. State Worker's compensation insurance in the statutorily mandated limits,
employer's liability insurance with limits not less than $500,000 or such
greater amount as Lessor or Remainderman may from time to time require and
such other insurance as may be necessary to comply with applicable laws.
D. Such other insurance as may from time to time be reasonably required by
Lessor, Remainderman or Lender in order to protect their respective interests
with respect to the Properties.
All insurance policies shall:
(i) Provide for a waiver of subrogation by the insurer as to claims against
Lessor, Remainderman, Lender and their respective employees and agents;
(ii) Provide that any "no other insurance" clause in the insurance policy
shall exclude any policies of insurance maintained by Lessor, Remainderman or
Lender and that the insurance policy shall not be brought into contribution
with insurance maintained by Lessor, Remainderman or Lender;
(iii) Contain a standard without contribution mortgage clause endorsement in
favor of Lender and any other party designated by Lessor;
(iv) Provide that the policy of insurance shall not be terminated, cancelled
or substantially modified without at least thirty (30) days' prior written
notice to Lessor, Remainderman, Lender and to any other party covered by any
standard mortgage clause endorsement;
(v) Provide that the insurer shall not have the option to restore the
applicable Properties if Lessor or Lessee elects to terminate this Lease in
accordance with the terms hereof; and
(vi) Be issued by insurance companies licensed to do business in the states
in which the Properties are located and which are rated A:VI or better by A.M.
Best's Insurance Guide or are otherwise approved by Lessor and Remainderman.
It is expressly understood and agreed that the foregoing minimum limits of
insurance coverage shall not limit the liability of Lessee for its acts or
omissions as provided in this Lease. All insurance policies (with the
exception of worker's compensation insurance to the extent not available
under statutory law), shall designate Lessor, Remainderman and Lender as
additional named insureds as their interests may appear and shall be payable
as set forth in Section 21 hereof. All such policies shall be written as
primary policies, with deductibles not to exceed 10% of the amount of
coverage, except that earthquake insurance may have a deductible not to
exceed $100,000 per Property. Any other policies, including any policy
now or hereafter carried by Lessor, Remainderman or Lender, shall serve as
excess coverage. Notwithstanding the foregoing, at all times while Lessee
maintains a net worth determined in accordance with GAAP of at least
$20,000,000, Lessee may maintain the following deductibles: (x) a deductible
not to exceed $200,000 per claim for liability insurance, and (y) deductibles
not to exceed 20% of the amount of coverage for all other insurance (except
that earthquake insurance may have a deductible not to exceed $100,000 per
Property). Lessee shall procure policies for all insurance for periods of not
less than one year and shall provide to Lessor, Remainderman and Lender
certificates of insurance or, upon the request of Lessor, Remainderman or
Lender, duplicate originals of insurance policies evidencing that insurance
satisfying the requirements of this Lease is in effect at all times. In the
event of any transfer by Lessor of Lessor's interest in any of the Properties
or any financing or refinancing of Lessor's interest in any of the Properties,
or by Remainderman of Remainderman's interest in any of the Properties, Lessee
shall, upon not less than ten (10) days' prior written notice, deliver to
Lessor and Remainderman or any Lender providing such financing or refinancing,
as the case may be, certificates of all insurance required to be maintained by
Lessee hereunder naming such transferee or such Lender, as the case may be, as
an additional named insured to the extent required herein effective as of the
date of such transfer, financing or refinancing.
13. Tax and Insurance Impound. Upon the occurrence of an Event of Default,
Lessor may require Lessee to pay to Lessor sums which will provide an impound
account (which shall not be deemed a trust fund) for paying up to the next one
year of taxes, assessments and/or insurance premiums for each of the
Properties. Upon such requirement, Lessor will estimate the actual amounts
needed for such purposes and will notify (which notice shall also include the
method of calculation) Lessee to pay the same to Lessor in equal monthly
installments, as nearly as practicable, in addition to all other sums due
under this Lease. Should additional funds be required at any time, Lessee
shall pay the same to Lessor on demand. Lessee shall advise Lessor of all
taxes and insurance bills which are due and shall cooperate fully with Lessor
in assuring that the same are paid timely. Lessor may deposit all impounded
funds in accounts insured by any federal or state agency and may commingle
such funds with other funds and accounts of Lessor. Interest or other gains
from such funds, if any, shall be added to the impounded funds. During the
continuance of any default by Lessee, Lessor may apply all impounded funds
(including any interest) against any sums due from Lessee to Lessor. Any
collected impound funds which are not applied pursuant to the previous
sentence against any sums due from Lessee to Lessor shall be used to pay the
taxes and insurance premiums for which they were collected. Lessor shall give
to Lessee an annual accounting showing all credits and debits to and from such
impounded funds received from Lessee.
14. Payment of Rental and Other Sums. All rental and other sums which
Lessee is required to pay hereunder shall be the unconditional obligation of
Lessee and shall be payable in full when due without any setoff, abatement,
deferment, deduction or counterclaim whatsoever. Upon execution of this
Lease, Lessee shall establish arrangements whereby payments of the Base
Monthly Rental and impound payments, if any, are transferred by Automated
Clearing House Debit directly from Lessee's bank account to such account as
Lessor may designate. Any delinquent payment (that is, any payment not made
within five calendar days after the date when due) shall, in addition to any
other remedy of Lessor, incur a late charge of 5% (which late charge is
intended to compensate Lessor for the cost of handling and processing such
delinquent payment and should not be considered interest) and bear interest at
the Default Rate, such interest to be computed from and including the date
such payment was due through and including the date of the payment; provided,
however, in no event shall Lessee be obligated to pay a sum of late charge and
interest higher than the maximum legal rate then in effect.
15. Use. Except as set forth below, each of the Properties shall be used
solely for the operation of a Permitted Facility in accordance with the
standards of operations then in effect on a system-wide basis, and for no
other purpose. Lessee shall occupy the Properties promptly following the
Effective Date and, except as set forth below and except during periods when
any of the Properties is untenantable by reason of fire or other casualty or
condemnation (provided, however, during all such periods while any of the
Properties is untenantable, Lessee shall strictly comply with the terms and
conditions of Section 21 of this Lease), Lessee shall at all times during the
Lease Term occupy each of the Properties and shall continuously (during normal
business hours) operate each of the Properties as a Permitted Facility.
Lessee may cease continuous operation of business at any of the Properties for
a period not to exceed 90 days and may do so only once with respect to each
Property within any five-year period during the Lease Term. If Lessee does
discontinue operation as permitted by this Section, Lessee shall (i) give
written notice to Lessor within 10 days after Lessee elects to cease operation,
(ii) provide adequate protection and maintenance of any such Properties during
any period of vacancy, (iii) comply with all Applicable Regulations and
otherwise comply with the terms and conditions of this Lease other than the
continuous use covenant set forth in this Section, and (iv) pay all costs
necessary to restore such Properties to substantially the same condition on
the day operation of the business ceased at such time as such Properties are
reopened for Lessee's business operations. In addition, Lessee may also cease
continuous operation of business at any Property for up to fourteen (14)
consecutive days without notice to Lessor or Lender, provided that no more
than one Property may be closed at any one time pursuant to this sentence
unless such closure is in order to perform the renovations contemplated by
Schedule 16.C. Notwithstanding anything herein to the contrary, Lessee shall
pay the Base Monthly Rental on the first day of each month during any period
in which Lessee discontinues operation.
Lessee shall not, by itself or through any assignment, sublease or other type
of transfer, convert any of the Properties to a use other than a Permitted
Facility during the Lease Term without Lessor's consent, which consent may be
withheld or conditioned by Lessor in its sole discretion. Without limiting
Lessor's right to withhold or condition its consent in its sole discretion,
Lessor may consider, among other things, the following in determining whether
to grant its consent: (i) whether the converted use will be consistent with
the highest and best use of the Properties, (ii) whether the converted use
will increase Lessor's risks or decrease the value of the Properties, and
(iii) whether Lender is willing to grant its consent to such change in use.
16. Compliance with Laws, Restrictions, Covenants and Encumbrances.
A. Lessee's use and occupation of each of the Properties, and the condition
thereof, shall, at Lessee's sole cost and expense, comply fully with all
Applicable Regulations and all restrictions, covenants and encumbrances of
record with respect to each of the Properties. In addition to the other
requirements of this Section, Lessee shall, at all times throughout the
Lease Term, comply with all Applicable Regulations, including, without
limitation, in connection with any maintenance, repairs and replacements of
the Properties undertaken by Lessee as required by Section 17 of this Lease.
B. Lessee will not knowingly permit any act or condition to exist on or
about any of the Properties which will increase in any material respect any
insurance rate thereon, except when such acts are required in the normal
course of its business and Lessee shall pay for such increase.
C. Without limiting the generality of the other provisions of this Section,
Lessee agrees that it shall be responsible for complying in all material
respects with all applicable provisions of the Americans with Disabilities
Act of 1990, as such act may be amended from time to time, and all regulations
promulgated thereunder (collectively, the "ADA"), as it affects the Properties,
including, but not limited to, making required "readily achievable" changes to
remove any architectural or communications barriers, and providing auxiliary
aides and services within the Properties. Lessee further agrees that any and
all alterations made to the Properties during the Lease Term will comply with
the requirements of the ADA. Except for the renovations contemplated by
Schedule 16.C, all plans for alterations which must be submitted to Lessor
under the provisions of Section 18 must include a statement from a licensed
architect or engineer certifying that they have reviewed the plans, and that
the plans comply with all applicable provisions of the ADA. Any subsequent
approval or consent to the plans by Lessor shall not be deemed to be a
representation of Lessor's part that the plans comply with the ADA, which
obligation shall remain with Lessee. Lessee agrees that it will defend,
indemnify and hold harmless the Indemnified Parties from and against any and
all Losses caused by, incurred or resulting from Lessee's failure to comply
in any respect (whether material or immaterial) with the ADA.
D. Lessee represents and warrants to Lessor and Environmental Insurer as
follows:
(i) To Lessee's actual knowledge and except as disclosed in the Questionnaires,
none of the Properties nor Lessee are in violation of, or subject to, any
pending or threatened investigation or inquiry by any Governmental Authority
or to any remedial obligations under any Environmental Laws.
(ii) To Lessee's actual knowledge and except as disclosed in the
Questionnaires, all permits, licenses or similar authorizations to construct,
occupy, operate or use any buildings, improvements, fixtures and equipment
forming a part of any of the Properties by reason of any Environmental Laws
have been obtained.
(iii) To Lessee's actual knowledge and except as disclosed in the
Questionnaires, no Hazardous Materials have been used, handled, manufactured,
generated, produced, stored, treated, processed, transferred, disposed of or
otherwise Released in, on, under, from or about any of the Properties, except
in De Minimis Amounts or in compliance with Environmental Laws.
(iv) To Lessee's actual knowledge and except as disclosed in the
Questionnaires, the Properties do not contain Hazardous Materials, other than
in De Minimis Amounts or in compliance with Environmental Laws, or underground
storage tanks.
(v) To Lessee's actual knowledge and except as disclosed in the Questionnaires,
there is no threat of any Release migrating to any of the Properties.
(vi) To Lessee's actual knowledge and except as disclosed in the
Questionnaires, there is no past or present non-compliance with Environmental
Laws, or with permits issued pursuant thereto, in connection with any of the
Properties.
(vii) Lessee has not received any written or oral notice or other communication
from any person or entity (including but not limited to a Governmental
Authority) relating to Hazardous Materials or Remediation thereof, of possible
liability of any person or entity pursuant to any Environmental Law, other
environmental conditions in connection with any of the Properties, or any
actual or potential administrative or judicial proceedings in connection with
any of the foregoing.
(viii) Lessee has truthfully and fully provided to Lessor, in writing, any
and all information relating to environmental conditions in, on, under or from
the Properties that is known to Lessee, as of the Effective Date, and that is
contained in Lessee's files and records, including but not limited to any
reports relating to Hazardous Materials in, on, under or from any of the
Properties.
(ix) To Lessee's actual knowledge and except as disclosed in the
Questionnaires: all uses and operations on or of the Properties, whether by
Lessee or any other person or entity, have been in compliance with all
Environmental Laws and permits issued pursuant thereto; there have been no
Releases in, on, under or from any of the Properties, except in De Minimis
Amounts or in compliance with Environmental Laws; there are no Hazardous
Materials in, on, or under any of the Properties, except in De Minimis Amounts
or in compliance with Environmental Laws; and the Properties have been kept
free and clear of all liens and other encumbrances imposed pursuant to any
Environmental Law (the "Environmental Liens"). Lessee has not knowingly
allowed any tenant or other user of any of the Properties to do any act that
materially increased the dangers to human health or the environment, posed an
unreasonable risk of harm to any person or entity (whether on or off the
Properties), impaired the value of any of the Properties, is contrary to any
requirement of any insurer, constituted a public or private nuisance,
constituted waste, or violated any covenant, condition, agreement or easement
applicable to any of the Properties.
E. Lessee covenants to Lessor and Environmental Insurer during the Lease Term
that: (i) the Properties shall not be in violation of or subject to any
investigation or inquiry by any Governmental Authority or to any remedial
obligations under any Environmental Laws except for such violations or
investigations or inquiries which relate to Hazardous Materials in De Minimis
Amounts. If any investigation or inquiry is initiated by any Governmental
Authority (except for investigations or inquiries which relate to Hazardous
Materials in De Minimis Amounts), Lessee shall promptly notify Lessor;
(ii) all uses and operations on or of each of the Properties, whether by
Lessee or any other person or entity, shall be in compliance with all
Environmental Laws and permits issued pursuant thereto; (iii) there shall be
no Releases in, on, under or from any of the Properties, except in De Minimis
Amounts or in compliance with Environmental Laws; (iv) there shall be no
Hazardous Materials in, on, or under any of the Properties, except in De
Minimis Amounts or in compliance with Environmental Laws; (v) Lessee shall
keep each of the Properties free and clear of all Environmental Liens, whether
due to any act or omission of Lessee or any other person or entity;
(vi) Lessee shall, at its sole cost and expense, fully and expeditiously
cooperate in all activities pursuant to subsection F below, including but not
limited to providing all relevant information and making knowledgeable persons
available for interviews; (vii) in the event that Lessor notifies Lessee that
it has knowledge of a Release or a Threatened Release at any of the Properties
or has a reasonable basis to believe that a material violation of Environmental
Laws at any of the Properties may have occurred, Lessee shall, at its sole cost
and expense, perform any environmental site assessment or other investigation
of environmental conditions in connection with any of the Properties as may be
reasonably requested by Lessor (including but not limited to sampling, testing
and analysis of soil, water, air, building materials and other materials and
substances whether solid, liquid or gas), and share with Lessor and
Environmental Insurer the reports and other results thereof, and Lessor,
Environmental Insurer and the other Indemnified Parties shall be entitled to
rely on such reports and other results thereof; (viii) Lessee shall, at its
sole cost and expense, comply with all reasonable written requests of Lessor
to (1) reasonably effectuate Remediation of any condition (including but not
limited to a Release) in, on, under or from any of the Properties; (2) comply
with any Environmental Law; (3) comply with any directive from any Governmental
Authority; and (4) take any other reasonable action necessary or appropriate
for protection of human health or the environment; (ix) Lessee shall not do or
allow any tenant or other user of any of the Properties to do any act that
materially increases the dangers to human health or the environment, poses an
unreasonable risk of harm to any person or entity (whether on or off any of
the Properties), impairs or may impair the value of any of the Properties, is
contrary to any requirement of any insurer, constitutes a public or private
nuisance, constitutes waste, or violates any covenant, condition, agreement
or easement applicable to any of the Properties; and (x) Lessee shall
immediately notify Lessor in writing of (A) any presence of Releases or
Threatened Releases in, on, under, from or migrating towards any of the
Properties; (B) any non-compliance with any Environmental Laws related in any
way to any of the Properties; (C) any actual or potential Environmental Lien;
(D) any required or proposed Remediation of environmental conditions relating
to any of the Properties; and (E) any written or oral notice or other
communication of which Lessee becomes aware from any source whatsoever
(including but not limited to a Governmental Authority) relating in any way
to Hazardous Materials or Remediation thereof, asserted liability of Lessee
with respect to the Properties pursuant to any Environmental Law, other
environmental conditions in connection with any of the Properties, or any
actual or potential administrative or judicial proceedings in connection with
anything referred to in this Section.
F. Lessor, Lender, Environmental Insurer and any other person or entity
designated by Lessor, including but not limited to any receiver, any
representative of a Governmental Authority, and any environmental consultant,
shall have the right, but not the obligation, to enter upon the Properties at
all reasonable times (including, without limitation, in connection with any
Securitization, Participation or Transfer or in connection with a proposed
sale or conveyance of any of the Properties or a proposed financing or
refinancing secured by any of the Properties or in connection with the
exercise of any remedies set forth in this Lease, the Mortgages or the other
Loan Documents, as applicable) to assess any and all aspects of the
environmental condition of the Properties and its use, including but not
limited to conducting any environmental assessment or audit (the scope of
which shall be determined in the sole and absolute discretion of the party
conducting the assessment) and taking samples of soil, groundwater or other
water, air, or building materials, and conducting other invasive testing;
provided, however, that any such persons (except in emergencies) shall use
reasonable efforts to undertake any such assessments or investigations so as
to minimize the impact on Lessee's business operations at the Properties.
Lessee shall cooperate with and provide access to Lessor, Lender, Environmental
Insurer and any other person or entity designated by Lessor. Any such
assessment and investigation shall be at Lessor's sole cost and expense unless
at the time of any such assessment or investigation Lessor has knowledge of a
Release or a Threatened Release at any of the Properties or has a reasonable
basis to believe that a material violation of Environmental Laws at any of the
Properties may have occurred or an Event of Default has occurred and is
continuing, in which case Lessee shall be responsible for the cost of any such
assessment or investigation.
G. Lessee shall, at its sole cost and expense, protect, defend, indemnify,
release and hold harmless each of the Indemnified Parties for, from and against
any and all Losses (excluding Losses suffered by an Indemnified Party directly
arising out of such Indemnified Party's gross negligence or willful misconduct;
provided, however, that the term "gross negligence" shall not include gross
negligence imputed as a matter of law to any of the Indemnified Parties solely
by reason of the Lessor's interest in any of the Properties or Lessor's failure
to act in respect of matters which are or were the obligation of Lessee under
this Lease) and costs of Remediation (whether or not performed voluntarily),
engineers' fees, environmental consultants' fees, and costs of investigation
(including but not limited to sampling, testing, and analysis of soil, water,
air, building materials and other materials and substances whether solid,
liquid or gas) imposed upon or incurred by or asserted against any Indemnified
Parties, and directly or indirectly arising out of or in any way relating to
any one or more of the following: (i) any presence of any Hazardous Materials
in, on, above, or under any of the Properties; (ii) any past or present Release
or Threatened Release in, on, above, under or from any of the Properties;
(iii) any activity by Lessee, any person or entity affiliated with Lessee or
any other tenant or other user of any of the Properties in connection with any
actual, proposed or threatened use, treatment, storage, holding, existence,
disposition or other Release, generation, production, manufacturing,
processing, refining, control, management, abatement, removal, handling,
transfer or transportation to or from any of the Properties of any Hazardous
Materials at any time located in, under, on or above any of the Properties;
(iv) any activity by Lessee, any person or entity affiliated with Lessee or
any other tenant or other user of any of the Properties in connection with any
actual or proposed Remediation of any Hazardous Materials at any time located
in, under, on or above any of the Properties, whether or not such Remediation
is voluntary or pursuant to court or administrative order, including but not
limited to any removal, remedial or corrective action; (v) any past, present
or threatened non-compliance or violations of any Environmental Laws
(or permits issued pursuant to any Environmental Law) in connection with any
of the Properties or operations thereon, including but not limited to any
failure by Lessee, any person or entity affiliated with Lessee or any other
tenant or other user of any of the Properties to comply with any order of any
Governmental Authority in connection with any Environmental Laws; (vi) the
imposition, recording or filing or the threatened imposition, recording or
filing of any Environmental Lien encumbering any of the Properties; (vii) any
administrative processes or proceedings or judicial proceedings in any way
connected with any matter addressed in this Section; (viii) any past, present
or threatened injury to, destruction of or loss of natural resources in any
way connected with any of the Properties, including but not limited to costs
to investigate and assess such injury, destruction or loss; (ix) any acts of
Lessee, any person or entity affiliated with Lessee or any other tenant or
user of any of the Properties in arranging for disposal or treatment, or
arranging with a transporter for transport for disposal or treatment, of
Hazardous Materials owned or possessed by Lessee, any person or entity
affiliated with Lessee or any other tenant or user of any of the Properties,
at any facility or incineration vessel owned or operated by another person or
entity and containing such or similar Hazardous Materials; (x) any acts of
Lessee, any person or entity affiliated with Lessee or any other tenant or
user of any of the Properties, in accepting any Hazardous Materials for
transport to disposal or treatment facilities, incineration vessels or sites
selected by Lessee, any person or entity affiliated with Lessee or any other
tenant or user of any of the Properties, from which there is a Release, or a
Threatened Release of any Hazardous Materials which causes the incurrence of
costs for Remediation; (xi) any personal injury, wrongful death, or property
damage arising under any statutory or common law or tort law theory relating
to any of the Properties, including but not limited to damages assessed for
the maintenance of a private or public nuisance or for the conducting of an
abnormally dangerous activity on or near any of the Properties; and (xii) any
misrepresentation or inaccuracy in any representation or warranty or material
breach or failure to perform any covenants or other obligations pursuant to
this Section.
H. The obligations of Lessee and the rights and remedies of the Indemnified
Parties under the foregoing subsections D through G shall survive the
termination, expiration and/or release of this Lease but only with respect to
matters arising or occurring prior to or during the Lease Term.
17. Condition of Properties; Maintenance. Lessee, at its own expense,
will maintain all parts of each of the Properties in good repair and sound
condition, except for ordinary wear and tear, and will take all action and
will make all structural and non-structural, foreseen and unforeseen and
ordinary and extraordinary changes and repairs or replacements which may be
required to keep all parts of each of the Properties in good repair and sound
condition. Lessee waives any right to (i) require Lessor to maintain, repair
or rebuild all or any part of any of the Properties or (ii) make repairs at
the expense of Lessor, pursuant to any Applicable Regulations at any time in
effect; provided that, the foregoing provisions shall not limit any obligations
Lessor may have under Section 21.D with respect to the disbursement of the Net
Restoration Amount.
18. Waste; Alterations and Improvements. Lessee shall not commit actual or
constructive waste upon any of the Properties. Without the prior written
consent of Lessor, which consent shall not be unreasonably withheld or
conditioned, Lessee shall not (a) make any additions to or alter the
structural elements of the improvements at any of the Properties, which shall
mean additions or alterations which would either affect the foundation or
"footprint" of any building located at any of the Properties or involve load-
bearing walls, structural beams, columns or supports, or the roof, provided
that, adding or replacing windows shall not be deemed an addition or alteration
to the structural elements of the improvements at any of the Properties,
(b) alter any material part of any building system of any of the Properties in
any manner, other than replacements of parts of any building system with parts
of like kind and of equal or greater value, or (c) make any other change or
related series of other changes to any Property that is estimated to cost in
excess of $50,000 per Property, other than changes in the color or style of
wall colors/coverings, floor coverings or treatments or changes to (or
alterations of) exterior colors (any of (a), (b) or (c) being hereinafter
referred to as a "Material Alteration" and any alteration that does not
constitute a Material Alteration is hereinafter referred to as a "Non-Material
Alteration"). Lessee may undertake a Non-Material Alteration to any Property
without Lessor's consent. Lessor hereby consents to Lessee undertaking the
alterations to the Properties described on Schedule 16.C to comply with the
requirements of the settlement disclosed on Schedule 16.C. If Lessor's consent
is required hereunder to any alterations and Lessor consents to the making of
any such alterations, the same shall be made according to plans and
specifications approved by Lessor and subject to such other conditions as
Lessor shall require. All alterations shall be made by Lessee at Lessee's
sole expense by licensed contractors and in accordance with all applicable
laws governing such alterations. Any work at any time commenced by Lessee on
any of the Properties shall be prosecuted diligently to completion, shall be
of good workmanship and materials and shall comply fully with all the terms of
this Lease. Upon completion of any Material Alteration, Lessee shall promptly
provide Lessor with (i) evidence of full payment to all laborers and
materialmen contributing to the alterations, (ii) an architect's certificate
certifying the alterations to have been completed in conformity with the plans
and specifications, (iii) a certificate of occupancy (if the alterations are
of such a nature as would require the issuance of a certificate of occupancy),
and (iv) any other documents or information reasonably requested by Lessor.
Upon completion of any Non-Material Alteration for which a permit was issued,
Lessee shall promptly provide Lessor with a copy of such permit and evidence
that the Governmental Authority which issued the permit has signed off on the
work done pursuant to such permit (to the extent such sign off is required by
Applicable Regulations). Any addition to or alteration of any of the
Properties shall automatically be deemed a part of the Properties and belong
to Lessor, and Lessee shall execute and deliver to Lessor such instruments as
Lessor may require to evidence the ownership by Lessor of such addition or
alteration. Lessee shall execute and file or record, as appropriate, a
"Notice of Non-Responsibility," or any equivalent notice permitted under
applicable law in the states where the applicable Properties are located.
19. Indemnification. Lessee shall indemnify, protect, defend and hold
harmless each of the Indemnified Parties from and against any and all Losses
(excluding Losses suffered by an Indemnified Party arising out of the gross
negligence or willful misconduct of such Indemnified Party; provided, however,
that the term "gross negligence" shall not include gross negligence imputed as
a matter of law to any of the Indemnified Parties solely by reason of the
Lessor's interest in any of the Properties or Lessor's failure to act in
respect of matters which are or were the obligation of Lessee under this Lease)
caused by, incurred or resulting from Lessee's operations of or relating in
any manner to any of the Properties, whether relating to their original design
or construction, latent defects, alteration, maintenance, use by Lessee or any
person thereon, supervision or otherwise, or from any breach of, default under,
or failure to perform, any term or provision of this Lease by Lessee, its
officers, employees, agents or other persons, or to which any Indemnified
Party is subject because of Lessor's or Remainderman's interest in any of the
Properties, including, without limitation, Losses arising from (1) any
accident, injury to or death of any person or loss of or damage to property
occurring in, on or about any of the Properties or portion thereof or on the
adjoining sidewalks, curbs, parking areas, streets or ways, (2) any use,
non-use or condition in, on or about, or possession, alteration, repair,
operation, maintenance or management of, any of the Properties or any portion
thereof or on the adjoining sidewalks, curbs, parking areas, streets or ways,
(3) any representation or warranty made herein by Lessee, in any certificate
delivered in connection herewith or in any other agreement to which Lessee is
a party or pursuant thereto being false or misleading in any material respect
as of the date of such representation or warranty was made, (4) performance of
any labor or services or the furnishing of any materials or other property in
respect to any of the Properties or any portion thereof, (5) any taxes,
assessments or other charges which Lessee is required to pay under Section 10,
(6) any lien, encumbrance or claim arising on or against any of the Properties
or any portion thereof under any Applicable Regulation or otherwise which
Lessee is obligated hereunder to remove and discharge, or the failure to
comply with any Applicable Regulation, (7) the claims of any invitees, patrons,
licensees or subtenants of all or any portion of any of the Properties or any
Person acting through or under Lessee or otherwise acting under or as a
consequence of this Lease or any sublease, (8) any act or omission of Lessee
or its agents, contractors, licensees, subtenants or invitees, (9) any contest
referred to in Section 10, (10) the sale of liquor, beer or wine on any of the
Properties, and (11) any failure of Lessee to comply with any obligation of
the lessor in any Existing Lease and any claim made by the lessee under any
Existing Lease. It is expressly understood and agreed that Lessee's
obligations under this Section shall survive the expiration or earlier
termination of this Lease for any reason but only with respect to matters
arising or occurring prior to or during the Lease Term.
20. Quiet Enjoyment. So long as Lessee shall pay the rental and other
sums herein provided and shall keep and perform all of the terms, covenants
and conditions on its part herein contained, Lessee shall have, subject and
subordinate to Lessor's rights herein, the right to the peaceful and quiet
occupancy of the Properties. Notwithstanding the foregoing, however, in no
event shall Lessee be entitled to bring any action against Lessor to enforce
its rights hereunder if an Event of Default shall have occurred and be
continuing.
21. Condemnation or Destruction. A. In the event of a taking of all or
any part of any of the Properties for any public or quasi-public purpose by
any lawful power or authority by exercise of the right of condemnation or
eminent domain or by agreement between Lessor, Lessee and those authorized to
exercise such right ("Taking") or the commencement of any proceedings or
negotiations which might result in a Taking or any material damage to or
destruction of any of the Properties or any part thereof (a "Casualty"),
Lessee will promptly give written notice thereof to Lessor, generally
describing the nature and extent of such Taking, proceedings, negotiations
or Casualty and including copies of any documents or notices received in
connection therewith. Thereafter, Lessee shall promptly send Lessor copies of
all correspondence and pleadings relating to any such Taking, proceedings,
negotiations or Casualty. During all periods of time following a Casualty,
Lessee shall ensure that the subject Property is secure and does not pose any
risk of harm to adjoining property owners or occupants or third-parties.
B. In the event of (i) a Taking of all of any of the Properties, other than
for temporary use, (ii) a Taking of substantially all of any of the Properties
(other than for temporary use) that results in Lessee making a good faith
determination that the restoration and continued use of the remainder of such
Property as a Permitted Facility would be uneconomic (each of (i) and (ii), a
"Total Taking"), or (iii) a Casualty of all or substantially all of any of the
Properties that results in Lessee making a good faith determination that the
restoration and continued use of such Property as a Permitted Facility would
be uneconomic (a "Total Casualty"), Lessor shall be entitled to receive the
entire award, insurance proceeds or payment in connection therewith without
deduction for any estate vested in Lessee by this Lease. Lessee hereby
expressly assigns to Lessor all of its right, title and interest in and to
every such award, insurance proceeds or payment and agrees that Lessee shall
not be entitled to any award, insurance proceeds or payment for the value of
Lessee's leasehold interest in this Lease. Lessee shall be entitled to claim
and receive any award or payment from the condemning authority expressly
granted for the taking of Personalty, the interruption of its business and
moving expenses, but only if such claim or award does not adversely affect or
interfere with the prosecution of Lessor's claim for the Total Taking or
otherwise reduce the amount recoverable by Lessor for the Total Taking.
Lessee shall be entitled to claim and receive any insurance proceeds with
respect to the Personalty, the interruption of its business and moving
expenses, but only if such claim or proceeds does not adversely affect or
interfere with the prosecution of Lessor's claim for the Total Casualty or
otherwise reduce the amount recoverable by Lessor for the Total Casualty.
In the event of a Total Taking or Total Casualty, Lessee shall have the right
to terminate this Lease with respect to the applicable Property by notice
(the "Termination Notice") given to Lessor not later than 30 days after the
Total Taking or Total Casualty, as applicable. The Termination Notice must:
(i) specify a date on which this Lease with respect to such Property shall
terminate, which date shall be the last day of a calendar month occurring not
earlier than 120 days and not later than 150 days after the delivery of such
notice (the "Early Termination Date"); (ii) contain a certificate executed by
the president, chief financial officer or treasurer of Lessee which (X)
describes the Total Taking or Total Casualty, (Y) represents and warrants that
either the whole of such Property has been taken, or that substantially all of
such Property has been taken and Lessee has determined in good faith that the
restoration and continued use of the remainder of such Property as a Permitted
Facility would be uneconomic, or that either the whole or substantially all of
such Property has been damaged or destroyed and Lessee has determined in good
faith that the restoration and continued use of such Property as a Permitted
Facility would be uneconomic, and (Z) contains a covenant by Lessee that
neither Lessee or any Affiliate of Lessee will use such Property for a period
of 2 years following the Early Termination Date; and (iii) if the Early
Termination Date shall occur prior to the commencement of any extension
options which may be exercised pursuant to Section 27, contain either (X) an
irrevocable rejectable written offer (the "Rejectable Offer") of Lessee to
purchase Lessor's interest in such Property and in the net award for such
Total Taking or net insurance proceeds for such Total Casualty, as applicable,
after deducting all costs, fees and expenses incident to the collection
thereof, including all costs and expenses incurred by Lessor and Lender in
connection therewith (the "Net Award") on the Early Termination Date for a
purchase price equal to the Stipulated Loss Value (as defined below) for such
Property, or (Y) a Rejectable Substitution Offer to substitute a Substitute
Property satisfying the applicable requirements of Section 57.A for such
Property and Lessor's interest in the Net Award. As used herein, the term
"Stipulated Loss Value" shall mean the sum of (a) the product of the
percentage specified on Schedule I attached hereto which corresponds to the
Early Termination Date multiplied by the Purchase Price for such Property,
plus (b) all Base Annual Rental, Additional Rental and other sums and
obligations then due and payable under this Lease, plus (c) in the event of a
Total Casualty only, the Prepayment Charges corresponding to such Property.
In the event of a termination of this Lease with respect to a Property
pursuant to this Section 21.B which does not involve the acceptance (or
deemed acceptance) of a Rejectable Substitution Offer, the Base Annual Rental
then in effect shall be reduced by an amount equal to the product of (x) the
Applicable Rent Reduction Percentage for such Property, and (y) the Base
Annual Rental then in effect.
If the Early Termination Date shall occur prior to the commencement of any
extension options which may be exercised pursuant to Section 27, Lessor shall
have 90 days from the delivery of the Termination Notice to deliver to Lessee
written notice of its election to either accept or reject any Rejectable Offer
or Rejectable Substitution Offer contained in the Termination Notice.
Lessor's failure to deliver such notice within such time period shall be
deemed to constitute Lessor's acceptance of the applicable Rejectable Offer or
Rejectable Substitution Offer. If the Mortgage corresponding to such Property
is still outstanding, any rejection of the Rejectable Offer or Rejectable
Substitution Offer by Lessor shall not be effective unless it is consented to
in writing by the Lender and such written consent is delivered to Lessee
within such 90-day period.
If Lessor accepts the Rejectable Offer or is deemed to have accepted the
Rejectable Offer or if, while the Mortgage corresponding to such Property is
still outstanding, any rejection of the Rejectable Offer by Lessor is not
consented to in writing by the Lender, then, on the Early Termination Date,
Lessor shall sell and convey, and Lessee shall purchase for the applicable
Stipulated Loss Value, Lessor's interest in such Property and the Net Award.
Lessee's obligations under this Lease with respect to such Property shall not
be terminated until the applicable Stipulated Loss Value is paid in full.
Upon such payment, (i) Lessor shall convey such Property to Lessee "as-is" by
limited warranty deed, subject to all matters of record (except for the
Mortgage corresponding to such Property and any other consensual liens granted
by Lessor other than those granted by Lessor at the request of Lessee), and
without representation or warranty (except as otherwise contained in the
limited warranty deed), and (ii) all obligations of either party hereunder
with respect to such Property shall cease as of the Early Termination Date,
provided, however, Lessee's obligations to the Indemnified Parties under any
indemnification provisions of this Lease with respect to such Property
(including, without limitation, Sections 16 and 19) and Lessee's obligations
to pay any sums (whether payable to Lessor or a third party) accruing under
this Lease with respect to such Property prior to the Early Termination Date
shall survive the termination of this Lease with respect to such Property.
This Lease shall, however, continue in full force and effect with respect to
all other Properties.
If Lessor accepts the Rejectable Substitution Offer or is deemed to have
accepted the Rejectable Substitution Offer or if, while the Mortgage
corresponding to such Property is still outstanding, any rejection of the
Rejectable Substitution Offer by Lessor is not consented to in writing by the
Lender, then, on the Early Termination Date, Lessee shall complete such
substitution, subject, however, to the satisfaction of each of the applicable
terms and conditions set forth in Section 57. Upon such substitution
(i) Lessee shall be entitled to claim and receive the Net Award and (ii) all
obligations of either party hereunder with respect to the Property being
replaced shall cease as of the Early Termination Date, provided, however,
Lessee's obligations to the Indemnified Parties under any indemnification
provisions of this Lease with respect to such Property (including, without
limitation, Sections 16 and 19) and Lessee's obligations to pay any sums
(whether payable to Lessor or a third party) accruing under this Lease with
respect to such Property prior to the Early Termination Date shall survive the
termination of this Lease with respect to such Property. This Lease shall,
however, continue in full force and effect with respect to all other
Properties.
Lessee shall be solely responsible for the payment of all costs and expenses
incurred in connection with the conveyance of a Property to Lessee pursuant to
this Section 21, including, without limitation, to the extent applicable, the
cost of title insurance, survey charges, stamp taxes, mortgage taxes, transfer
fees, escrow and recording fees, taxes imposed on Lessor as a result of such
conveyance, taxes imposed in connection with the transfer of a Property to
Lessee or the termination of this Lease with respect to a Property pursuant to
the provisions of this Section 21, Lessee's attorneys' fees and the reasonable
attorneys' fees and expenses of counsel to Lessor and Lender.
If Lessor rejects the Rejectable Offer or Rejectable Substitution Offer and,
as long as the Mortgage corresponding to the Property subject to such
Rejectable Offer or Rejectable Substitution Offer is still outstanding, such
rejection is consented to in writing by Lender (and such written consent
delivered to Lessee within the applicable 90-day period), or if the Early
Termination Date shall occur after the commencement of any extension options
exercised pursuant to Section 27, then (i) the Net Award shall be paid to and
belong to Lessor, (ii) on the Early Termination Date, Lessee shall pay to
Lessor all Base Annual Rental, Additional Rental and other sums and
obligations then due and payable under this Lease, and (iii) all obligations
of either party hereunder shall cease as of the Early Termination Date with
respect to the applicable Property, provided, however, Lessee's obligations to
the Indemnified Parties with respect to such Property under any
indemnification provisions of this Lease with respect to such Property
(including, without limitation, Sections 16 and 19) and Lessee's obligations
to pay any sums (whether payable to Lessor or a third party) accruing under
this Lease with respect to such Property prior to the Early Termination Date
shall survive the termination of this Lease. This Lease shall, however,
continue in full force and effect with respect to all other Properties.
C. In the event of a Taking of all or any part of any of the Properties for a
temporary use ("Temporary Taking"), this Lease shall remain in full force and
effect without any reduction of Base Annual Rental, Additional Rental or any
other sum payable hereunder. Except as provided below, Lessee shall be
entitled to the entire award for a Temporary Taking, whether paid by damages,
rent or otherwise, unless the period of occupation and use by the condemning
authorities shall extend beyond the date of expiration of this Lease, in which
case the award made for such Taking shall be apportioned between Lessor and
Lessee as of the date of such expiration. At the termination of any such
Temporary Taking, Lessee will, at its own cost and expense and pursuant to the
terms of Section 18 above, promptly commence and complete the restoration of
the Property affected by such Temporary Taking; provided, however, Lessee
shall not be required to restore such Property if the Lease Term shall expire
prior to, or within one year after, the date of termination of such Temporary
Taking, and in such event Lessor shall be entitled to recover the entire award
relating to the Temporary Taking.
D. In the event of a Taking which is not a Total Taking or a Temporary Taking
("Partial Taking") or of a Casualty which is not a Total Casualty (a "Partial
Casualty"), all awards, compensation or damages shall be paid to Lessor, and
Lessor shall have the option to (i) terminate this Lease with respect to the
Property affected, provided that, as long as the Mortgage corresponding to the
applicable Property is still outstanding, Lessor shall have obtained Lender's
prior written consent, by notifying Lessee within 60 days after Lessee gives
Lessor notice of such Partial Casualty or that title has vested in the taking
authority or (ii) continue this Lease in effect, which election may be
evidenced by either a notice from Lessor to Lessee or Lessor's failure to
notify Lessee that Lessor has elected to terminate this Lease with respect to
such Property within such 60-day period. Lessee shall have a period of 60
days after Lessor's notice that it has elected to terminate this Lease with
respect to such Property during which to elect to continue this Lease with
respect to such Property on the terms herein provided. If Lessor elects to
terminate this Lease with respect to such Property and Lessee does not elect
to continue this Lease with respect to such Property or shall fail during such
60-day period to notify Lessor of Lessee's intent to continue this Lease with
respect to such Property, then this Lease shall terminate with respect to such
Property as of the last day of the month during which such period expired.
Lessee shall then immediately vacate and surrender such Property, all
obligations of either party hereunder with respect to such Property shall
cease as of the date of termination (provided, however, Lessee's obligations
to the Indemnified Parties under any indemnification provisions of this Lease
with respect to such Property (including, without limitation, Sections 16 and
19) and Lessee's obligations to pay Base Annual Rental, Additional Rental and
all other sums (whether payable to Lessor or a third party) accruing under
this Lease with respect to such Property prior to the date of termination
shall survive such termination) and Lessor may retain all such awards,
compensation or damages. The Lease shall continue in full force and effect
with respect to all other Properties. If Lessor elects not to terminate this
Lease with respect to such Property, or if Lessor elects to terminate this
Lease with respect to such Property but Lessee elects to continue this Lease
with respect to such Property, then this Lease shall continue in full force
and effect on the following terms: (i) all Base Annual Rental, Additional
Rental and other sums and obligations due under this Lease shall continue
unabated, and (ii) Lessee shall promptly commence and diligently prosecute
restoration of such Property to the same condition, as nearly as practicable,
as prior to such Partial Taking or Partial Casualty as approved by Lessor.
Subject to reasonable conditions for disbursement imposed by Lessor, Lessor
shall promptly make available in installments as restoration progresses an
amount up to but not exceeding the amount of any award, compensation or
damages received by Lessor after deducting all costs, fees and expenses
incident to the collection thereof, including all costs and expenses incurred
by Lessor and Lender in connection therewith (the "Net Restoration Amount"),
upon request of Lessee accompanied by evidence reasonably satisfactory to
Lessor that such amount has been paid or is due and payable and is properly a
part of such costs and that Lessee has complied with the terms of Section 18
above in connection with the restoration. Prior to the disbursement of any
portion of the Net Restoration Amount with respect to a Partial Casualty,
Lessee shall provide evidence reasonably satisfactory to Lessor of the payment
of restoration expenses by Lessee up to the amount of the insurance deductible
applicable to such Partial Casualty. Lessor shall be entitled to keep any
portion of the Net Restoration Amount which may be in excess of the cost of
restoration, subject to the rights of Lender under the Loan Documents, and
Lessee shall bear all additional costs, fees and expenses of such restoration
in excess of the Net Restoration Amount. If this Lease is terminated with
respect to any Property as a result of a Partial Casualty, simultaneously with
such termination Lessee shall pay Lessor an amount equal to the insurance
deductible applicable to such Partial Casualty.
E. Any loss under any property damage insurance required to be maintained by
Lessee shall be adjusted by Lessor and Lessee. Any award relating to a Total
Taking or a Partial Taking shall be adjusted by Lessor or, at Lessor's
election, Lessee. Notwithstanding the foregoing or any other provisions of
this Section to the contrary, if at the time of any Taking or any Casualty or
at any time thereafter Lessee shall be in default under this Lease and such
default shall be continuing, Lessor is hereby authorized and empowered, upon
written notice to Lessee, but shall not be obligated, in the name and on
behalf of Lessee and otherwise, to file and prosecute Lessee's claim, if any,
for an award on account of such Taking or for insurance proceeds on account of
such Casualty and to collect such award or proceeds and apply the same, after
deducting all costs, fees and expenses incident to the collection thereof, to
the curing of such default and any other then existing default under this
Lease and/or to the payment of any amounts owed by Lessee to Lessor under this
Lease, in such order, priority and proportions as Lessor in its discretion
shall deem proper.
F. Notwithstanding the foregoing, nothing in this Section 21 shall be
construed as limiting or otherwise adversely affecting the representations,
warranties, covenants and characterizations set forth in Lease, including,
without limitation, those provisions set forth in Section 3 of this Lease.
22. Inspection. Lessor and its authorized representatives shall, at its
and their sole cost and expense (except as otherwise provided in this Lease),
have the right, upon reasonable advance notice, to enter any of the Properties
or any part thereof during normal business hours in order to inspect the same
and make photographic or other evidence concerning Lessee's compliance with
the terms of this Lease or in order to show the Properties to prospective
purchasers and lenders. Lessee hereby waives any claim for damages for any
injury or inconvenience to or interference with Lessee's business, any loss
of occupancy or quiet enjoyment of any of the Properties and any other loss
occasioned by such entry so long as Lessor shall have used reasonable efforts
not to unreasonably interrupt Lessee's normal business operations. Lessee
shall keep and maintain at the Properties or Lessee's corporate headquarters
full, complete and appropriate books of account and records of Lessee's
business relating to the Properties in accordance with Lessee's standard
accounting practices. Lessee's books and records shall be open for
inspection at reasonable times and upon reasonable notice by Lessor, Lender
and their respective auditors or other authorized representatives and shall
show such information as is reasonably necessary to determine compliance with
Lessor's obligations under the Loan Documents.
23. Default, Remedies and Measure of Damages. A. Each of the following
shall be an event of default under this Lease (each, an "Event of Default"):
(i) If any representation or warranty of Lessee set forth in this Lease is
false in any material respect, or if Lessee renders any statement or
account which is false in any material respect;
(ii) If any rent or other monetary sum due under this Lease is not paid
within five days from the date when due; provided, however, notwithstanding
the occurrence of such an Event of Default, (x) Lessor shall not be entitled
to exercise its remedies set forth below unless and until Lessor shall have
given Lessee notice thereof and a period of five days from the delivery of
such notice shall have elapsed without such Event of Default being cured, and
(y) if such Event of Default is solely because of Lessee's failure to pay any
monetary sum due to Lessor under this Lease (other than rent), Lessee shall
not lose any of its rights under this Lease unless and until Lessor shall have
given Lessee notice thereof and a period of five days from the delivery of
such notice shall have elapsed without such Event of Default being cured;
(iii) If Lessee fails to pay, prior to delinquency, any taxes, assessments or
other charges, the failure of which to pay will result in the imposition of a
lien against any of the Properties or the rental or other payments due under
this Lease or a claim against Lessor, unless Lessee is contesting such taxes,
assessments or other charges in accordance with the provisions of Section 10
of this Lease;
(iv) If Lessee becomes insolvent within the meaning of the Code, files or
notifies Lessor that it intends to file a petition under the Code, initiates a
proceeding under any similar law or statute relating to bankruptcy, insolvency,
reorganization, winding up or adjustment of debts (collectively, hereinafter,
an "Action"), becomes the subject of either a petition under the Code or an
Action which is not dissolved within 90 days after filing, or is not generally
paying its debts as the same become due;
(v) If Lessee vacates or abandons any of the Properties other than in
accordance with the provisions of Section 15 of this Lease;
(vi) If Lessee fails to observe or perform any of the other covenants
(except with respect to a breach of the Aggregate Fixed Charge Coverage
Ratio, which breach is addressed in subitem (ix) below), conditions or
obligations of this Lease; provided, however, if any such failure does not
involve the payment of any monetary sum, is not willful or intentional, does
not place any rights or property of Lessor in immediate jeopardy, and is
within the reasonable power of Lessee to promptly cure after receipt of notice
thereof, all as determined by Lessor in its reasonable discretion, then such
failure shall not constitute an Event of Default hereunder, unless otherwise
expressly provided herein, unless and until Lessor shall have given Lessee
notice thereof and a period of 30 days shall have elapsed, during which period
Lessee may correct or cure such failure, upon failure of which an Event of
Default shall be deemed to have occurred hereunder without further notice or
demand of any kind being required. If such failure cannot reasonably be cured
within such 30 day period, as determined by Lessor in its reasonable
discretion, and Lessee is diligently pursuing a cure of such failure, then
Lessee shall have a reasonable period to cure such failure beyond such 30 day
period, which shall in no event exceed 90 days after receiving notice of such
failure from Lessor. If Lessee shall fail to correct or cure such failure
within such 90-day period, an Event of Default shall be deemed to have
occurred hereunder without further notice or demand of any kind being required;
(vii) If there is an "Event of Default" or a breach or default, after the
passage of all applicable notice and cure or grace periods, under any other
Sale-Leaseback Document;
(viii) If a final, nonappealable judgment is rendered by a court against
Lessee which has a material adverse effect on either the ability to conduct
business at any of the Properties for its intended use or Lessee's ability to
perform its obligations under this Lease, or is in the amount of $250,000.00
or more, and in either event is not discharged or provision made for such
discharge within 60 days from the date of entry thereof;
(ix) If there is a breach of the Aggregate Fixed Charge Coverage Ratio
requirement and Lessor shall have given Lessee notice thereof and Lessee
shall have failed within a period of 10 days from the delivery of such notice
to either:
(1) deliver a Rejectable Substitution Offer to Lessor for the substitution of
such Substitute Properties satisfying the applicable requirements of Section
57.A for the Properties (starting with the Property with the lowest "Fixed
Charge Coverage Ratio" (determined as contemplated in the following sentence)
and proceeding in ascending order to the Property with the next lowest Fixed
Charge Coverage Ratio) as is necessary to cure the breach of the Aggregate
Fixed Charge Coverage Ratio requirement;
(2) deliver a Rejectable Purchase Offer to Lessor to purchase such of the
Properties (starting with the Property with the lowest Fixed Charge Coverage
Ratio and proceeding in ascending order to the Property with the next lowest
Fixed Charge Coverage Ratio) as is necessary to cure the breach of the
Aggregate Fixed Charge Coverage Ratio requirement; or
(3) deliver notice to Lessor that it has elected to pay the FCCR Rent
Prepayment Amount (as hereinafter defined) on the first day of the calendar
month immediately following the date such notice is delivered.
For purposes of the preceding subitems (1) and (2), the definitions set forth
in Section 8.A of this Lease with respect to the calculation of the Aggregate
Fixed Charge Coverage Ratio shall be deemed modified as applicable to provide
for the calculation of a Fixed Charge Coverage Ratio for each Property on an
individual basis rather than on an aggregate basis with the other Properties.
For purposes of such calculation, the Operating Lease Expense with respect to
this Lease for each such Property shall equal the product of (x) the
Applicable Rent Reduction Percentage for such Property, and (y) the Base
Annual Rental then in effect.
If Lessee makes a Rejectable Substitution Offer or Rejectable Purchase Offer
as contemplated by subitems (1) and (2) above, unless Lessor rejects such
Rejectable Substitution Offer or Rejectable Purchase Offer or elects a Forced
Sale Election as contemplated by Section 57 or 58, as applicable, the failure
of Lessee to complete such substitutions or purchases within the time period
contemplated by Section 57 or 58, as applicable, shall be deemed an Event of
Default without further notice or demand of any kind being required. If
Lessee delivers notice to Lessor that it has elected to pay the FCCR Rent
Prepayment Amount as provided in subitem (3) above, the failure of Lessee to
pay Lessor the FCCR Rent Prepayment Amount on the first day of the calendar
month immediately following the date such notice is delivered shall be deemed
an Event of Default without further notice or demand of any kind being
required.
In the event Lessee elects to pay Lessor the FCCR Rent Prepayment Amount as
provided in subitem (3) above, Base Monthly Rental beginning with the calendar
month in which such payment is made shall be equal to the Base Monthly Rental
then in effect reduced by the FCCR Rent Reduction Amount (as hereinafter
defined).
For purposes of this Section 23.A(ix), the following terms shall be defined
as set forth below:
"FCCR Rent Prepayment Amount" means the present value, discounted on a monthly
basis at 9.7% per annum, of the FCCR Rent Reduction Amount for each month
beginning with the calendar month in which the FCCR Rent Prepayment Amount is
paid and ending with the calendar month of January, 2022, inclusive.
"FCCR Rent Reduction Amount" the product of (x) the Base Monthly Rental for
the last month of the fiscal year for which the breach of the Aggregate Fixed
Charge Coverage Ratio requirement occurred and (y) the Fixed Charge Coverage
Shortfall Percentage. For purposes of illustration and not limitation, if
(i) Lessee's Aggregate Fixed Charge Coverage Ratio for the fiscal year ending
January 31, 2010 was 1.0:1 (which results in a Fixed Charge Coverage Shortfall
Percentage of 20%), (ii) Lessee paid the FCCR Rent Prepayment Amount on
September 1, 2010, and (iii) the Base Monthly Rental for January, 2010 was
$100, then the Base Monthly Rental payment beginning on September 1, 2010
shall be equal to the Base Monthly Rental for August, 2010 reduced by the sum
of $20.
"Fixed Charge Coverage Shortfall Percentage" means the percentage represented
by (x) 1 minus (y) a fraction, the numerator of which shall be the Aggregate
Fixed Charge Coverage Ratio for the fiscal year for which the breach of the
Aggregate Fixed Charge Coverage Ratio requirement occurred, and the denominator
of which shall be 1.25:1.
Notwithstanding the foregoing, if, within a 30 day period after the delivery
of Lessor's notice to Lessee of Lessee's breach of the Aggregate Fixed Charge
Coverage Ratio requirement, Lessee provides evidence satisfactory to Lessor
that the Aggregate Fixed Charge Coverage Ratio is at least 1.25:1 for the
twelve calendar month period immediately preceding the delivery to Lessor of
such evidence, no Event of Default shall be deemed to have occurred as a
result of such breach of the Aggregate Fixed Charge Coverage Ratio
requirement; or
(x) If Lessee shall fail to maintain insurance in accordance with the
requirements of Section 12 of this Lease.
B. Upon the occurrence of an Event of Default, with or without notice or
demand, except the notice prior to default required under certain
circumstances by subsection A. above or such other notice as may be required
by statute and cannot be waived by Lessee (all other notices being hereby
waived), Lessor shall be entitled to exercise, at its option, concurrently,
successively, or in any combination, all remedies available at law or in
equity, including without limitation, any one or more of the following:
(i) To terminate this Lease, whereupon Lessee's right to possession of the
Properties shall cease and this Lease, except as to Lessee's liability, shall
be terminated.
(ii) To reenter and take possession of any or all of the Properties and, to
the extent permissible, all licenses, permits and other rights or privileges
of Lessee pertaining to the use and operation of any or all of the Properties
and to expel Lessee and those claiming under or through Lessee, without being
deemed guilty in any manner of trespass or becoming liable for any loss or
damage resulting therefrom, without resort to legal or judicial process,
procedure or action. No notice from Lessor hereunder or under a forcible
entry and detainer statute or similar law shall constitute an election by
Lessor to terminate this Lease unless such notice specifically so states.
If Lessee shall, after an Event of Default, voluntarily give up possession of
any of the Properties to Lessor, deliver to Lessor or its agents the keys to
any of the Properties, or both, such actions shall be deemed to be in
compliance with Lessor's rights and the acceptance thereof by Lessor or its
agents shall not be deemed to constitute a termination of this Lease. Lessor
reserves the right following any reentry and/or reletting to exercise its
right to terminate this Lease by giving Lessee written notice thereof, in
which event this Lease will terminate as specified in said notice.
(iii) If Lessee has not removed the Personalty within fifteen (15) days
after written notice from Lessor to Lessee and repaired all damage to the
Properties caused by such removal, Lessor shall have the immediate right to
cause all Personalty located on or at any or all of the Properties to be
stored in a public warehouse or elsewhere at Lessee's sole expense, without
becoming liable for any loss or damage resulting therefrom and without
resorting to legal or judicial process, procedure or action.
(iv) To bring an action against Lessee for any damages sustained by Lessor or
any equitable relief available to Lessor.
(v) To relet any or all of the Properties or any part thereof for such term
or terms (including a term which extends beyond the original Lease Term), at
such rentals and upon such other terms as Lessor, in its sole discretion, may
determine, with all proceeds received from such reletting being applied to
the rental and other sums due from Lessee in such order as Lessor may, in it
sole discretion, determine, which other sums include, without limitation, all
repossession costs, brokerage commissions, attorneys' fees and expenses,
employee expenses, alteration, remodeling and repair costs and expenses of
preparing for such reletting. Except to the extent required by applicable
law, Lessor shall have no obligation to relet any of the Properties or any
part thereof and shall in no event be liable for refusal or failure to relet
any of the Properties or any part thereof, or, in the event of any such
reletting, for refusal or failure to collect any rent due upon such reletting,
and no such refusal or failure shall operate to relieve Lessee of any
liability under this Lease or otherwise to affect any such liability.
Lessor reserves the right following any reentry and/or reletting to exercise
its right to terminate this Lease by giving Lessee written notice thereof,
in which event this Lease will terminate as specified in said notice.
(vi) (x) To recover from Lessee all rent and other monetary sums then due
and owing under this Lease and (y) to accelerate and recover from Lessee all
rent and other monetary sums scheduled to become due and owing under this
Lease after the date of such breach for the entire original scheduled Lease
Term.
(vii) To recover from Lessee all reasonable costs and expenses, including
reasonable attorneys' fees, court costs, expert witness fees, costs of tests
and analyses, travel and accommodation expenses, deposition and trial
transcripts, copies and other similar costs and fees, paid or incurred by
Lessor as a result of such breach, regardless of whether or not legal
proceedings are actually commenced.
(viii) To immediately or at any time thereafter, and with or without notice,
at Lessor's sole option but without any obligation to do so, correct such
breach or default and charge Lessee all costs and expenses incurred by Lessor
therein. Any sum or sums so paid by Lessor, together with interest at the
Default Rate, shall be deemed to be Additional Rental hereunder and shall be
immediately due from Lessee to Lessor. Any such acts by Lessor in correcting
Lessee's breaches or defaults hereunder shall not be deemed to cure said
breaches or defaults or constitute any waiver of Lessor's right to exercise
any or all remedies set forth herein.
(ix) To immediately or at any time thereafter, and with or without notice,
except as required herein, set off any money of Lessee held by Lessor under
this Lease against any sum owing by Lessee hereunder.
(x) To exercise its rights under the License Agreement.
(xi) To seek any equitable relief available to Lessor, including, without
limitation, the right of specific performance.
Upon the occurrence and during the continuance of an Event of Default, Lessor
shall also have the option to purchase any Personalty (other than the
Excluded Personalty) for an amount equal to the then fair market salvage value
for such Personalty. If Lessor exercises such option, upon the payment of
such amount, Lessee shall, at Lessee's sole cost and expense, execute and
deliver to Lessor any documents or instruments necessary to transfer
ownership of such Personalty to Lessor. Lessor shall have the right to offset
any amounts owed by Lessee under this Lease against the purchase price for
such Personalty.
All powers and remedies given by this Section to Lessor, subject to
applicable law, shall be cumulative and not exclusive of one another or of
any other right or remedy or of any other powers and remedies available to
Lessor under this Lease, by judicial proceedings or otherwise, to enforce the
performance or observance of the covenants and agreements of Lessee contained
in this Lease, and no delay or omission of Lessor to exercise any right or
power accruing upon the occurrence of any Event of Default shall impair any
other or subsequent Event of Default or impair any rights or remedies
consequent thereto. Every power and remedy given by this Section or by law
to Lessor may be exercised from time to time, and as often as may be deemed
expedient, by Lessor, subject at all times to Lessor's right in its sole
judgment to discontinue any work commenced by Lessor or change any course of
action undertaken by Lessor.
If Lessee shall fail to observe or perform any of its obligations under this
Lease or in the event of an emergency, then, without waiving any Event of
Default which may result from such failure or emergency, Lessor may, but
without any obligation to do so, take all actions, including, without
limitation, entry upon any or all of the Properties to perform Lessee's
obligations, immediately and without notice in the case of an emergency and
upon five days written notice to Lessee in all other cases. All expenses
incurred by Lessor in connection with performing such obligations, including,
without limitation, reasonable attorneys' fees and expenses, together with
interest at the Default Rate from the date any such expenses were incurred by
Lessor until the date of payment by Lessee, shall constitute Additional Rental
and shall be paid by Lessee to Lessor upon demand.
C. Notwithstanding anything in this Section 23 or elsewhere in this Lease to
the contrary, it is understood and agreed that Lessor and its successors and
assigns shall have no right to operate as a franchisee of Lessee, except as
contemplated by the License Agreement.
24. Liens; Mortgages, Subordination, Nondisturbance and Attornment. Lessor's
interest in this Lease and/or any of the Properties shall not be subordinate
to any liens or encumbrances placed upon any of the Properties by or resulting
from any act of Lessee, and nothing herein contained shall be construed to
require such subordination by Lessor. Lessee shall keep the Properties free
from any liens for work performed, materials furnished or obligations incurred
by Lessee. NOTICE IS HEREBY GIVEN THAT LESSEE IS NOT AUTHORIZED TO PLACE OR
ALLOW TO BE PLACED ANY LIEN, MORTGAGE, DEED OF TRUST, SECURITY INTEREST OR
ENCUMBRANCE OF ANY KIND UPON ALL OR ANY PART OF ANY OF THE PROPERTIES OR
LESSEE'S LEASEHOLD INTEREST THEREIN, AND ANY SUCH PURPORTED TRANSACTION WHICH
IS NOT APPROVED BY LESSOR SHALL BE VOID. FURTHERMORE, ANY SUCH PURPORTED
TRANSACTION SHALL BE DEEMED A TORTIOUS INTERFERENCE WITH LESSOR'S
RELATIONSHIP WITH LESSEE AND LESSOR'S INTEREST IN THE PROPERTIES.
This Lease at all times shall automatically be subordinate to the Mortgages
and to the lien of any and all ground leases, mortgages, trust deeds and deeds
to secure debt now or hereafter placed upon any of the Properties by Lessor,
and Lessee covenants and agrees to execute and deliver, upon demand, such
further instruments subordinating this Lease to the lien of the Mortgages and
any or all such ground leases, mortgages, trust deeds or deeds to secure debt
as shall be desired by Lessor, or any present or proposed mortgagees or
lenders under trust deeds or deeds to secure debt, upon the condition that
Lessee shall have the right to remain in possession of the Properties under
the terms of this Lease, notwithstanding any default in the Mortgages or any
or all such ground leases, mortgages, trust deeds or deeds to secure debt or
after foreclosure of any or all such Mortgages, mortgages, trust deeds or
deeds to secure debt or termination of any or all such ground leases, so long
as no Event of Default has occurred and is continuing.
If any landlord, mortgagee, receiver, Lender or other secured party elects to
have this Lease and the interest of Lessee hereunder be superior to any of
the Mortgages or any such ground lease, mortgage, trust deed or deed to secure
debt and evidences such election by notice given to Lessee, then this Lease
and the interest of Lessee hereunder shall be deemed superior to any such
Mortgage, ground lease, mortgage, trust deed or deed to secure debt, whether
this Lease was executed before or after such Mortgage, ground lease, mortgage,
trust deed or deed to secure debt and in that event such landlord, mortgagee,
receiver, Lender or other secured party shall have the same rights with
respect to this Lease as if it had been executed and delivered prior to the
execution and delivery of such Mortgage, ground lease, mortgage, trust deed or
deed to secure debt and had been assigned to such landlord, mortgagee,
receiver, Lender or other secured party.
Although the foregoing provisions shall be self-operative and no future
instrument of subordination shall be required, upon request by Lessor,
Lessee shall execute and deliver whatever instruments may be reasonably
required for such purposes, and in the event Lessee fails so to do within 10
days after demand, Lessee does hereby make, constitute and irrevocably appoint
Lessor as its agent and attorney-in-fact and in its name, place and stead so
to do, which appointment shall be deemed coupled with an interest.
In the event any purchaser or assignee of Lender at a foreclosure sale
acquires title to any of the Properties, or in the event Lender or any
assignee otherwise succeeds to the rights of Lessor as landlord under this
Lease, Lessee shall attorn to Lender or such purchaser or assignee, as the
case may be (a "Successor Lessor"), and recognize the Successor Lessor as
lessor under this Lease, and this Lease shall continue in full force and
effect as a direct lease between the Successor Lessor and Lessee, provided
that the Successor Lessor shall only be liable for any obligations of the
lessor under this Lease which accrue after the date that such Successor Lessor
acquires title. The foregoing provision shall be self operative and effective
without the execution of any further instruments.
25. Estoppel Certificate. A. At any time, and from time to time, Lessee
shall, promptly and in no event later than 10 days after a request from Lessor
or Lender, execute, acknowledge and deliver to Lessor or Lender a certificate
in the form supplied by Lessor, Lender or any present or proposed mortgagee or
purchaser designated by Lessor, certifying: (i) that Lessee has accepted the
Properties (or, if Lessee has not done so, that Lessee has not accepted the
Properties, and specifying the reasons therefor); (ii) that this Lease is in
full force and effect and has not been modified (or if modified, setting forth
all modifications), or, if this Lease is not in full force and effect, the
certificate shall so specify the reasons therefor; (iii) the commencement and
expiration dates of the Lease Term, including the terms of any extension
options of Lessee; (iv) the date to which the rentals have been paid under
this Lease and the amount thereof then payable; (v) whether there are then any
existing defaults by Lessor in the performance of its obligations under this
Lease, and, if there are any such defaults, specifying the nature and extent
thereof; (vi) that no notice has been received by Lessee of any default under
this Lease which has not been cured, except as to defaults specified in the
certificate; (vii) the capacity of the person executing such certificate, and
that such person is duly authorized to execute the same on behalf of Lessee;
(viii) that neither Lessor nor Lender has actual involvement in the management
or control of decision making related to the operational aspects or the day-to-
day operations of the Properties; and (ix) any other information reasonably
requested by Lessor, Lender or such present or proposed mortgagee or purchaser.
B. If Lessee shall fail or refuse to sign a certificate in accordance with the
provisions of this Section within 10 days following a request by Lessor,
Lessee irrevocably constitutes and appoints Lessor as its attorney-in-fact to
execute and deliver the certificate to any such third party, it being
stipulated that such power of attorney is coupled with an interest and is
irrevocable and binding; provided, however, that Lessor's execution and
delivery of such certificate on behalf of Lessee shall not cure any default
arising by reason of Lessee's failure to execute and deliver such certificate.
26. Assignment; Subletting. A. Lessor shall have the right to sell or
convey all, but not less than all, of the Properties or to assign its right,
title and interest as Lessor under this Lease in whole, but not in part;
provided, however, the prohibition on Lessor's right to sell or convey less
than all of the Properties shall not restrict Lessor's right to sell or convey
Properties to Lessee pursuant to the provisions of Sections 21.B, 23.A(ix),
57 or 58 hereof. In the event of any such sale or assignment other than a
security assignment, provided Lessee receives written notice that such
purchaser or assignee has assumed all of Lessor's obligations under this
Lease and such assignment does not increase Lessee's obligations under this
Lease, Lessee shall attorn to such purchaser or assignee and Lessor shall be
relieved, from and after the date of such transfer or conveyance, of liability
for the performance of any obligation of Lessor contained herein, except for
obligations or liabilities accrued prior to such assignment or sale.
B. Lessee acknowledges that Lessor has relied both on the business experience
and creditworthiness of Lessee and upon the particular purposes for which
Lessee intends to use the Properties in entering into this Lease. Except as
provided below, without the prior written consent of Lessor: (i) Lessee shall
not assign, transfer or convey this Lease or any interest therein, whether by
operation of law or otherwise; (ii) no Subject Transfer shall occur; (iii) no
interest in the Properties shall be pledged, encumbered or mortgaged by Lessee;
and (iv) Lessee shall not sublet all or any part of any of the Properties.
It is expressly agreed that Lessor may withhold or condition such consent
based upon such matters as Lessor may in its reasonable discretion determine,
including, without limitation, the experience and creditworthiness of any
assignee, the assumption by any assignee of all of Lessee's obligations
hereunder by undertakings enforceable by Lessor, payment to Lessor of any
rentals owing under a sublease which are in excess of the rentals owing
hereunder, the transfer to any assignee of all necessary licenses to
continue operating the Properties for the purposes herein provided, receipt
of such representations and warranties from any assignee as Lessor may
request, including such matters as its organization, existence, good standing
and finances and other matters, whether or not similar in kind. At the time
of any assignment of this Lease which is approved by Lessor, the assignee
shall assume all of the obligations of Lessee under this Lease pursuant to
Lessor's standard form of assumption agreement. No such assignment nor any
subletting of any of the Properties shall relieve Lessee of its obligations
respecting this Lease. Any assignment, transfer, conveyance, pledge,
mortgage or subletting in violation of this Section shall be voidable at
the sole option of Lessor.
C. Notwithstanding the provisions of Section 26.B, Lessee shall have the right
to sublease up to ten percent any of the Properties, without the prior written
consent of Lessor or Lender, if each of the following conditions are satisfied:
(1) no Event of Default shall have occurred and be continuing under this Lease
as of the effective date of the applicable sublease;
(2) any such sublease shall be subordinate to this Lease and the Mortgage
corresponding to the Property to which such sublease relates;
(3) Lessee shall remain liable under this Lease notwithstanding such subleases;
(4) the Properties subject to such subleases shall be used as Permitted
Facilities and shall otherwise be operated and maintained in accordance with
the terms and conditions of this Lease; and
(5) the form of sublease is reasonably acceptable to Lessor and Lender.
Within 10 days after the execution of each sublease, Lessee shall provide
Lessor and Lender with a notice of such sublease and a photocopy of the fully
executed sublease.
27. Option To Extend; New Lease. A. Lessee shall have the option to
continue this Lease in effect for four additional successive periods of five
years each, provided that, at the time of exercise of such option or at the
expiration of the Lease Term or, if applicable, the preceding extension of
the Lease Term, no Event of Default shall have occurred and be continuing.
If Lessee exercises such option, this Lease shall continue for the applicable
period in accordance with the terms and provisions of this Lease then in
effect, except that the Base Annual Rental during the applicable period shall
be determined as set forth below.
Lessee may only exercise the first extension option by giving notice to
Lessor of Lessee's intention to do so not later than July 31, 2020. If the
first extension option is exercised by Lessee, Lessee may only exercise the
second extension option by giving notice to Lessor of Lessee's intention to do
so not later than January 31, 2026. If the first two extension options are
exercised, Lessee may only exercise the third extension option by giving
notice to Lessor of Lessee's intention to do so not later than
January 31, 2031. If the first three extension options are exercised, Lessee
may only exercise the fourth extension option by giving notice to Lessor of
Lessee's intention to do so not later than January 31, 2036.
Notwithstanding the foregoing, Lessee's failure to deliver notice of the
exercise of its options under this Section by the applicable outside dates
set forth above shall not terminate the applicable option unless and until
Lessor shall, following the applicable outside date, give written notice of
the applicable option to Lessee, and Lessee shall fail to exercise the
applicable option within thirty (30) days after such notice is given.
The Base Annual Rental during each extension period shall be determined as
follows:
(i) if Lessee delivers to Lessor prior to or simultaneously with the exercise
of the applicable extension option a Useful Life Opinion (as hereinafter
defined), the Base Annual Rental for the first year of such extension period
shall be equal to the Base Annual Rental in effect immediately prior to the
commencement of such extension period, and such Base Annual Rental shall
increase on each Adjustment Date occurring during such extension period in
accordance with the provisions of Section 5.B.
As used herein, the term "Useful Life Opinion" shall mean an opinion from an
independent MAI appraiser that, with respect to each Property then subject to
this Lease, the sum of (A) the estimated economic useful life for such
Property as of the Effective Date as set forth on Schedule 27 attached
hereto plus (B) the additional estimated remaining economic useful life of
such Property as of the commencement date of the applicable extension period
multiplied by 90% is greater than the number of years in the period
commencing with the Effective Date and ending with the date on which the
applicable extension period would expire.
(ii) if Lessee does not deliver a Useful Life Opinion to Lessor prior to or
simultaneously with the exercise of the applicable extension option, the
Base Annual Rental during such extension period shall be an amount equal to
95% of the annual fair market rental value during such extension period of
the Properties then subject to this Lease, to be determined as follows:
Lessor and Lessee shall exercise reasonable efforts to agree in good faith
on the annual fair market rental value of the Properties for the applicable
extension period within thirty (30) days after Lessor is notified of the
exercise of such option. If Lessor and Lessee shall agree upon the annual
fair market rental value of the Properties for such extension period, Lessor
and Lessee shall within five (5) days thereafter mutually execute and deliver
an acknowledgment of such fair market value which shall be binding upon Lessor
and Lessee and any persons claiming by or through any of them during such
extension period.
If Lessor and Lessee are unable to agree in writing upon the annual fair market
rental value of the Properties for such extension period within such thirty
(30) day period, then not later than forty-five (45) days following the date
Lessor is notified of the exercise of such option (the "Appraiser Selection
Date"), Lessor will select an independent MAI appraiser and Lessee will select
another independent MAI appraiser (each, a "Selected Appraiser"); and each of
Lessor and Lessee will notify the other in writing thereof on or prior to the
Appraiser Selection Date. If only Lessor shall designate a Selected Appraiser
on or before the Appraiser Selection Date, then the determination of the
annual fair market rental value of the Properties for such extension period
shall be made solely by such Selected Appraiser. If only Lessee shall
designate a Selected Appraiser on or before the Appraiser Selection Date,
then the determination of the annual fair market rental value of the
Properties for such extension period shall be made solely by such Selected
Appraiser. If neither Lessor nor Lessee shall designate a Selected Appraiser
on or before the Appraiser Selection Date, then, upon application of either
Lessor or Lessee, the determination of the annual fair market rental value
of the Properties for such extension period shall be made solely by an
independent MAI appraiser selected by the American Arbitration Association
or any successor organization. Each Selected Appraiser shall deliver a signed
appraisal of the annual fair market rental value of the Properties for such
extension period (an "Appraisal") to Lessee and Lessor on or before the date
that is forty-five (45) days after the Appraiser Selection Date or such later
date that such Selected Appraiser is designated pursuant to this Section 27.A.
The annual fair market rental value of the Properties for such extension
period shall then be obtained by averaging the values determined by each
Appraisal delivered by the two Selected Appraisers if the higher value
determination of one of the Selected Appraisers is not more than five percent
(5%) in excess of the lower value determination of the other Selected
Appraiser and such annual fair market rental value shall be final and binding
on Lessor and Lessee and any persons claiming by or through any of them
during such extension period. If the higher value determination is more than
five percent (5%) in excess of the lower value determination, the two Selected
Appraisers shall appoint a third independent MAI appraiser within fifteen (15)
days after the date such Appraisals are delivered by the two Selected
Appraisers to Lessee and Lessor, provided that, if the two Selected Appraisers
fail to agree on the selection of a third independent MAI appraiser within
such time period, either Lessor or Lessee may petition the American
Arbitration Association, or any successor organization, for a determination
of the third appraiser. The annual fair market value of the Properties for
such extension period shall, in such case, be determined by the third
appraiser selecting, within thirty (30) days thereafter, which of the first
two appraisals is closest to the annual fair market rental value of the
Properties for such extension period as determined by such third appraiser,
and such determination of the annual fair market rental value by such
third appraiser shall be binding on Lessor and Lessee and any persons claiming
by or through any of them during such extension period. Lessee shall be
obligated to pay the costs of all three appraisers and the American
Arbitration Association (to the extent applicable).
B.In addition and provided that Lessee shall not have exercised its
option for the first renewal term set forth in Section 27.A, Lessee shall also
have the right, by notice delivered to Lessor not later than July 31, 2020, to
enter into a new master lease with Lessor, to commence at the end of the
Primary Term, for not less than fourteen (14) of the Properties, provided that,
at the time of exercise of such option or at the expiration of the Primary
Term, no Event of Default shall have occurred and be continuing. Such new
master lease shall be for a five year primary term, have three (3) five-year
renewal options and otherwise be on the same terms and conditions as this
Lease, except that the Base Annual Rental shall be determined as follows:
The Base Annual Rental for the five year primary term shall be equal to the
amount of Base Annual Rental that would have been applicable had Lessee
exercised its option for the first renewal term set forth in Section 27.A,
provided, however, if subsection (i) of Section 27.A would have been
applicable, the Base Annual Rental for the first year of the five year
primary term shall be equal to the product of (x) the Base Annual Rental
determined pursuant to subsection (i) of Section 27.A multiplied by (y) a
fraction, the numerator of which shall be the sum of the Purchase Price for
all of the Properties which will be the subject of the new master lease, and
the denominator of which shall be the sum of the Purchase Price for all of
the Properties which were the subject of this Lease immediately prior to the
expiration of the Primary Term, and such Base Annual Rental shall increase on
each Adjustment Date occurring during such five year primary term in
accordance with the provisions of Section 5.B. The Base Annual Rental for the
first, second and third renewal periods under such new master lease shall be
equal to the amount of Base Annual Rental that would have been applicable
under Section 27.A had Lessee exercised its option under such Section for the
second, third and fourth renewal terms, respectively.
Lessee shall be solely responsible for the payment of all reasonable costs and
expenses incurred in connection with the execution of such new master lease,
including, without limitation, Lessee's attorneys' fees and reasonable
attorneys' fees and expenses of counsel to Lessor and Lender.
28. State Specific Provisions. The provisions and/or remedies which are
set forth on Schedule II shall be deemed a part of and included within the
terms and conditions of this Lease.
29. Notices. All notices, consents, approvals or other instruments
required or permitted to be given by either party pursuant to this Lease shall
be in writing and given by (i) hand delivery, (ii) facsimile, (iii) express
overnight delivery service or (iv) certified or registered mail, return
receipt requested, and shall be deemed to have been delivered upon (a) receipt,
if hand delivered, (b) transmission, if delivered by facsimile, (c) the next
Business Day, if delivered by express overnight delivery service, or (d) the
third Business Day following the day of deposit of such notice with the United
States Postal Service, if sent by certified or registered mail, return receipt
requested. Notices shall be provided to the parties and addresses (or
facsimile numbers, as applicable) specified below:
If to Lessee: The Krystal Company
One Union Square
Chattanooga, TN 37402
Attention: Mr. Larry D. Bentley
Telephone: (423) 757-1500
Telecopy: (423) 757- 5773
With a copy to: Miller & Martin LLP
1000 Volunteer Building
832 Georgia Avenue
Chattanooga, TN 37402
Attention: Hugh F. Sharber, Esq.
Telephone: (423) 785-8212
Telecopy: (423) 785- 8480
If to Lessor: Crystac Property II LLC
c/o U.S. Realty Advisors, LLC
1370 Avenue of the Americas
New York, NY 10019
Attention: Mr. David M. Ledy
Telephone: (212) 581-4540
Telecopy: (212) 581-4950
With a copy to:Proskauer Rose LLP
1585 Broadway
New York, NY 10036
Attention: Kenneth S. Hilton, Esq.
Telephone: (212) 969-3000
Telecopy: (212) 969-2900
or to such other address or such other person as either party may from time to
time hereafter specify to the other party in a notice delivered in the manner
provided above. No such notices, consents, approvals or other communications
shall be valid unless Lender receives a duplicate original thereof at the
following address:
Dennis L. Ruben, Esq.
Executive Vice President, General Counsel and Secretary
GE Capital Franchise Finance Corporation
17207 North Perimeter Drive
Scottsdale, AZ 85255
Telephone: (480) 585-4500
Telecopy: (480) 585-2226
or to such other address or such other person as Lender may from time to time
specify to Lessor and Lessee in a notice delivered in the manner provided
above.
30. Holding Over. If Lessee remains in possession of any of the
Properties after the expiration of the Primary Term, or any extension thereto
in accordance with Section 27, Lessee, at Lessor's option and within Lessor's
sole discretion, may be deemed a tenant on a month-to-month basis and shall
continue to pay rentals and other sums in the amounts herein provided, except
that the Base Monthly Rental shall be automatically doubled, and to comply
with all the terms of this Lease; provided that nothing herein nor the
acceptance of rent by Lessor shall be deemed a consent to such holding over.
Lessee shall defend, indemnify, protect and hold the Indemnified Parties
harmless from and against any and all Losses resulting from Lessee's failure
to surrender possession upon the expiration of the Lease Term, including,
without limitation, any claims made by any succeeding lessee. The terms of
this Section 30 shall survive the expiration of the Lease Term.
31. No Liens on Personalty. A. NOTICE IS HEREBY GIVEN THAT LESSEE IS
NOT AUTHORIZED TO PLACE OR ALLOW TO BE PLACED ANY LIEN, MORTGAGE, DEED OF
TRUST, SECURITY INTEREST OR ENCUMBRANCE OF ANY KIND UPON ALL OR ANY PART OF
THE PERSONALTY OTHER THAN THE EXCLUDED PERSONALTY, AND ANY SUCH PURPORTED
TRANSACTION WHICH IS NOT APPROVED BY LESSOR SHALL BE VOID. FURTHERMORE, ANY
SUCH PURPORTED TRANSACTION SHALL BE DEEMED A TORTIOUS INTERFERENCE WITH
LESSOR'S RELATIONSHIP WITH LESSEE AND LESSOR'S INTEREST IN THE PROPERTIES.
B. Lessor acknowledges that the Excluded Personalty may be leased by Lessee
from third parties or subject to a purchase money security interest granted by
Lessee; provided, however, in no event shall the aggregate value of the
Excluded Personalty relating to any individual Property exceed the Excluded
Personalty Cap.
32. Removal of Personalty. At the expiration of the Lease Term and if
no Event of Default is then continuing, Lessee may remove all Personalty from
the Properties and take any actions reasonably necessary to de-identify the
Properties as a "Krystal(" restaurant. Lessee shall repair any damage caused
by such removal and de-identification and shall leave the Properties broom
clean and in good and working condition and repair inside and out. Any
property of Lessee left on the Properties on the tenth day following the
expiration of the Lease Term shall, at Lessor's option, automatically and
immediately become the property of Lessor.
33. Financial Statements. Within 45 days after the end of each fiscal
quarter and within 120 days after the end of each fiscal year of Lessee,
Lessee shall deliver to Lessor and Lender (i) complete financial statements
of Lessee including a balance sheet, profit and loss statement, statement of
cash flows and all other related schedules for the fiscal period then ended;
and (ii) income statements for the business at each of the Properties. All
such financial statements shall be prepared in accordance with GAAP (other
than the income statements for the business at each of the Properties) and
shall be certified to be accurate and complete by Lessee (or the Treasurer or
other appropriate officer of Lessee). Lessee understands that Lessor and
Lender will rely upon such financial statements and Lessee represents that
such reliance is reasonable. In the event that Lessee's property and business
at the Properties is ordinarily consolidated with other business for financial
statement purposes, such financial statements shall be prepared on a
consolidated basis showing separately the sales, profits and losses, assets
and liabilities pertaining to each of the Properties with the basis for
allocation of overhead of other charges being clearly set forth. The financial
statements delivered to Lessor and Lender need not be audited, but Lessee shall
deliver to Lessor and Lender copies of any audited financial statements of
Lessee which may be prepared, as soon as they are available.
34. Force Majeure. Any prevention, delay or stoppage due to strikes,
lockouts, acts of God, enemy or hostile governmental action, civil commotion,
fire or other casualty beyond the control of the party obligated to perform
shall excuse the performance by such party for a period equal to any such
prevention, delay or stoppage, except the obligations imposed with regard to
rental and other monies to be paid by Lessee pursuant to this Lease and any
indemnification obligations imposed upon Lessee under this Lease.
35. Time Is of the Essence. Time is of the essence with respect to each
and every provision of this Lease in which time is a factor.
36. Lessor's Liability. Notwithstanding anything to the contrary provided
in this Lease, it is specifically understood and agreed, such agreement being
a primary consideration for the execution of this Lease by Lessor, that (i)
there shall be absolutely no personal liability on the part of Lessor, its
successors or assigns and the trustees, members, partners, shareholders,
officers, directors, employees and agents of Lessor and its successors or
assigns, to Lessee with respect to any of the terms, covenants and conditions
of this Lease, provided that Lessee shall have recourse to the Properties and
Lessor to the extent expressly provided below, (ii) Lessee waives all claims,
demands and causes of action against the trustees, members, partners,
shareholders, officers, directors, employees and agents of Lessor and its
successors or assigns in the event of any breach by Lessor of any of the
terms, covenants and conditions of this Lease to be performed by Lessor, and
(iii) Lessee shall look solely to the Properties for the satisfaction of each
and every remedy of Lessee in the event of any breach by Lessor of any of the
terms, covenants and conditions of this Lease to be performed by Lessor, or
any other matter in connection with this Lease or the Properties, such
exculpation of liability to be absolute and without any exception whatsoever,
provided that, with respect to affirmative acts of Lessor which constitute
gross negligence or intentional misconduct (it being understood and agreed
that the acts of the Lessee and its shareholders, officers, directors,
employees and agents shall not be imputed to Lessor), Lessee shall have the
right to look to other assets of Lessor, but not the assets of the trustees,
members, partners, shareholders, officers, directors, employees and agents of
Lessor.
37. Consent of Lessor. (a) Except with respect to provisions of this
Lease which expressly provide that Lessor's consent shall not be unreasonably
conditioned or withheld, Lessor's consent to any request of Lessee may be
conditioned or withheld in Lessor's sole discretion. Lessor shall have no
liability for damages resulting from Lessor's failure to give any consent,
approval or instruction reserved to Lessor, Lessee's sole remedy in any such
event being an action for injunctive relief.
(b) It is understood and agreed that to the extent Lessor is required to
obtain the consent, approval, agreement or waiver of Lender with respect to a
matter for which Lessor's approval has been requested under this Lease,
Lessor shall in no event be deemed to have unreasonably withheld Lessor's
consent, approval, agreement or waiver thereof if Lender shall not have given
its approval if required.
38. Waiver and Amendment. No provision of this Lease shall be deemed
waived or amended except by a written instrument unambiguously setting forth
the matter waived or amended and signed by the party against which enforcement
of such waiver or amendment is sought. Waiver of any matter shall not be
deemed a waiver of the same or any other matter on any future occasion. No
acceptance by Lessor of an amount less than the monthly rent and other
payments stipulated to be due under this Lease shall be deemed to be other
than a payment on account of the earliest such rent or other payments then due
or in arrears nor shall any endorsement or statement on any check or letter
accompanying any such payment be deemed a waiver of Lessor's right to collect
any unpaid amounts or an accord and satisfaction.
39. Successors Bound. Except as otherwise specifically provided herein,
the terms, covenants and conditions contained in this Lease shall bind and
inure to the benefit of the respective heirs, successors, executors,
administrators and assigns of each of the parties hereto.
40. No Merger. The voluntary or other surrender of this Lease by Lessee,
or a mutual cancellation thereof, shall not result in a merger of Lessor's and
Lessee's estates, and shall, at the option of Lessor, either terminate any or
all existing subleases or subtenancies, or operate as an assignment to Lessor
of any or all of such subleases or subtenancies.
41. Captions. Captions are used throughout this Lease for convenience of
reference only and shall not be considered in any manner in the construction
or interpretation hereof.
42. Severability. The provisions of this Lease shall be deemed severable.
If any part of this Lease shall be held unenforceable by any court of competent
jurisdiction, the remainder shall remain in full force and effect, and such
unenforceable provision shall be reformed by such court so as to give maximum
legal effect to the intention of the parties as expressed therein.
43. Characterization. A. It is the intent of the parties hereto that the
business relationship created by this Lease and any related documents is
solely that of a long-term commercial lease between landlord and tenant and
has been entered into by both parties in reliance upon the economic and legal
bargains contained herein. None of the agreements contained herein, is
intended, nor shall the same be deemed or construed, to create a partnership
between Lessor and Lessee, to make them joint venturers, to make Lessee an
agent, legal representative, partner, subsidiary or employee of Lessor, nor
to make Lessor in any way responsible for the debts, obligations or losses of
Lessee.
B. Lessor and Lessee acknowledge and warrant to each other that each has been
represented by independent counsel and has executed this Lease after being
fully advised by said counsel as to its effect and significance. This Lease
shall be interpreted and construed in a fair and impartial manner without
regard to such factors as the party which prepared the instrument, the
relative bargaining powers of the parties or the domicile of any party.
Whenever in this Lease any words of obligation or duty are used, such words
or expressions shall have the same force and effect as though made in the form
of a covenant.
44. Easements. During the Lease Term, Lessor agrees to grant such utility,
access or other similar easements on, over, under and above any of the
Properties as Lessee may request, provided that such easements are reasonably
required for the operation of such Property as a Permitted Facility and will
not decrease the value of such Property. During the Lease Term, Lessor shall
also have the right to grant any utility, access or other similar easements on,
over, under and above any of the Properties which are not requested by Lessee,
provided that such easements will not materially interfere with Lessee's long-
term use of such Properties and ten (10) days' prior written notice is given
to Lessee.
45. Bankruptcy. A. As a material inducement to Lessor executing this
Lease, Lessee acknowledges and agrees that Lessor is relying upon (i) the
financial condition and specific operating experience of Lessee and Lessee's
obligation to use each of the Properties specifically in accordance with
system-wide requirements imposed from time to time on Permitted Facilities,
(ii) Lessee's timely performance of all of its obligations under this Lease
notwithstanding the entry of an order for relief under the Code for Lessee
and (iii) all defaults under this Lease as to all Properties being cured
promptly and this Lease being assumed within 60 days of any order for relief
entered under the Code for Lessee, or this Lease being rejected within such
60 day period and the Properties surrendered to Lessor.
Accordingly, in consideration of the mutual covenants contained in this Lease
and for other good and valuable consideration, Lessee hereby agrees that:
(i) All obligations that accrue under this Lease (including the obligation
to pay rent), from and after the date that an Action is commenced shall be
timely performed exactly as provided in this Lease and any failure to so
perform shall be harmful and prejudicial to Lessor;
(ii) Any and all obligations under this Lease that become due from and after
the date that an Action is commenced and that are not paid as required by
this Lease shall, in the amount of such rents, constitute administrative
expense claims allowable under the Code with priority of payment at least
equal to that of any other actual and necessary expenses incurred after the
commencement of the Action;
(iii) Any extension of the time period within which Lessee may assume or
reject this Lease without an obligation to cause all obligations coming due
under this Lease from and after the date that an Action is commenced to be
performed as and when required under this Lease shall be harmful and
prejudicial to Lessor;
(iv) Any time period designated as the period within which Lessee must cure
all defaults and compensate Lessor for all pecuniary losses which extends
beyond the date of assumption of this Lease shall be harmful and prejudicial
to Lessor;
(v) Any assignment of this Lease must result in all terms and conditions of
this Lease being assumed by the assignee without alteration or amendment, and
any assignment which results in an amendment or alteration of the terms and
conditions of this Lease without the express written consent of Lessor shall
be harmful and prejudicial to Lessor;
(vi) Any proposed assignment of this Lease to an assignee: (a) that will not
use the Properties specifically in accordance with a franchise agreement with
the franchisor of Permitted Facilities, or (b) that does not possess
financial condition, operating performance and experience characteristics equal
to or better than the financial condition, operating performance and experience
of Lessee as of the Effective Date, shall be harmful and prejudicial to Lessor;
(vii) The rejection (or deemed rejection) of this Lease for any reason
whatsoever shall constitute cause for immediate relief from the automatic stay
provisions of the Code, and Lessee stipulates that such automatic stay shall
be lifted immediately and possession of the Properties will be delivered to
Lessor immediately without the necessity of any further action by Lessor; and
(viii) This Lease shall at all times be treated as consistent with the
specific characterizations set forth in Section 3 of this Lease, and assumption
or rejection of this Lease shall be (a) in its entirety, (b) for all of the
Properties, and (c) in strict accordance with the specific terms and conditions
of this Lease.
B. No provision of this Lease shall be deemed a waiver of Lessor's rights or
remedies under the Code or applicable law to oppose any assumption and/or
assignment of this Lease, to require timely performance of Lessee's
obligations under this Lease, or to regain possession of the Properties as
a result of the failure of Lessee to comply with the terms and conditions of
this Lease or the Code.
C. Notwithstanding anything in this Lease to the contrary, all amounts payable
by Lessee to or on behalf of Lessor under this Lease, whether or not
expressly denominated as such, shall constitute "rent" for the purposes of
the Code.
D. For purposes of this Section addressing the rights and obligations of
Lessor and Lessee in the event that an Action is commenced, the term "Lessee"
shall include Lessee's successor in bankruptcy, whether a trustee, Lessee as
debtor in possession or other responsible person.
46. No Offer. No contractual or other rights shall exist between Lessor
and Lessee with respect to the Properties until both have executed and
delivered this Lease, notwithstanding that deposits may have been received by
Lessor and notwithstanding that Lessor may have delivered to Lessee an
unexecuted copy of this Lease. The submission of this Lease to Lessee shall
be for examination purposes only, and does not and shall not constitute a
reservation of or an option for Lessee to lease or otherwise create any
interest on the part of Lessee in the Properties.
47. Other Documents. Each of the parties agrees to sign such other and
further documents as may be necessary or appropriate to carry out the
intentions expressed in this Lease.
48. Attorneys' Fees. Notwithstanding anything in this Lease to the
contrary, in the event of any judicial or other adversarial proceeding
between the parties concerning this Lease, to the extent permitted by law,
the prevailing party shall be entitled to recover all of its reasonable
attorneys' fees and other costs in addition to any other relief to which it
may be entitled. In addition, Lessor shall, upon demand, be entitled to all
attorneys' fees and all other costs incurred in the preparation and service
of any notice or demand hereunder, whether or not a legal action is
subsequently commenced. References in this Lease to Lessor's attorneys' fees
and/or costs shall mean the fees and costs of independent counsel retained by
Lessor with respect to the matter.
49. Entire Agreement. This Lease and any other instruments or agreements
referred to herein, constitute the entire agreement between the parties with
respect to the subject matter hereof, and there are no other representations,
warranties or agreements except as herein provided. Without limiting the
foregoing, Lessee specifically acknowledges that neither Lessor nor any agent,
officer, employee or representative of Lessor has made any representation or
warranty regarding the projected profitability of the business to be conducted
on the Properties. Furthermore, Lessee acknowledges that Lessor did not
prepare or assist in the preparation of any of the projected figures used by
Lessee in analyzing the economic viability and feasibility of the business to
be conducted by Lessee at the Properties.
50. Forum Selection; Jurisdiction; Venue; Choice of Law. Lessee
acknowledges that this Lease was partially negotiated in the State of Arizona,
this Lease was executed and delivered in the State of Arizona, all payments
under this Lease will be delivered in the State of Arizona (unless otherwise
directed by Lessor or its successors) and there are substantial contacts
between the parties and the transactions contemplated herein and the State of
Arizona. For purposes of any action or proceeding arising out of this Lease,
the parties hereto expressly submit to the jurisdiction of all federal and
state courts located in the State of Arizona. Lessee and Lessor consent that
they may be served with any process or paper by registered mail or by personal
service within or without the State of Arizona in accordance with applicable
law. Furthermore, Lessee and Lessor waive and agree not to assert in any such
action, suit or proceeding that they are not personally subject to the
jurisdiction of such courts, that the action, suit or proceeding is brought in
an inconvenient forum or that venue of the action, suit or proceeding is
improper. The creation of this Lease and the rights and remedies of Lessor
with respect to the Properties, as provided herein and by the laws of the
states in which the Properties are located, as applicable, shall be governed
by and construed in accordance with the internal laws of the states in which
the Properties are located, as applicable, without regard to principles of
conflicts of law. With respect to other provisions of this Lease, this Lease
shall be governed by the internal laws of the State of Arizona, without regard
to its principles of conflicts of law. Nothing contained in this Section
shall limit or restrict the right of Lessor or Lessee to commence any
proceeding in the federal or state courts located in the states in which the
Properties are located to the extent Lessor or Lessee deems such proceeding
necessary or advisable to exercise remedies available under this Lease.
51. Counterparts. This Lease may be executed in one or more counterparts,
each of which shall be deemed an original.
52. Memorandum of Master Lease. Concurrently with the execution of this
Lease, Lessor and Lessee are executing the Memorandum to be recorded in the
applicable real property records with respect to each of the Properties.
Further, upon Lessor's request, Lessee agrees to execute and acknowledge a
termination of lease and/or quit claim deed in recordable form with respect
to each of the Properties to be held by Lessor until the expiration or sooner
termination of the Lease Term.
53. No Brokerage. Lessor and Lessee represent and warrant to each other
that they have had no conversation or negotiations with any broker concerning
the leasing of the Properties. Each of Lessor and Lessee agrees to protect,
indemnify, save and keep harmless the other, against and from all liabilities,
claims, losses, costs, damages and expenses, including attorneys' fees,
arising out of, resulting from or in connection with their breach of the
foregoing warranty and representation. Lessee has been advised by Banc of
America Securities LLC, whose fees shall be paid by Lessee.
54. Waiver of Jury Trial and Punitive, Consequential, Special and Indirect
Damages. LESSOR AND LESSEE HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY
WAIVE THE RIGHT EITHER MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY AND ALL
ISSUES PRESENTED IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM BROUGHT BY
EITHER OF THE PARTIES HERETO AGAINST THE OTHER OR ITS SUCCESSORS WITH RESPECT
TO ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS LEASE, THE
RELATIONSHIP OF LESSOR AND LESSEE, LESSEE'S USE OR OCCUPANCY OF ANY OF THE
PROPERTIES, AND/OR ANY CLAIM FOR INJURY OR DAMAGE, OR ANY EMERGENCY OR
STATUTORY REMEDY. THIS WAIVER BY THE PARTIES HERETO OF ANY RIGHT EITHER MAY
HAVE TO A TRIAL BY JURY HAS BEEN NEGOTIATED AND IS AN ESSENTIAL ASPECT OF
THEIR BARGAIN. FURTHERMORE, LESSEE HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVES THE RIGHT IT MAY HAVE TO SEEK PUNITIVE, CONSEQUENTIAL,
SPECIAL AND INDIRECT DAMAGES FROM LESSOR AND ANY OF LESSOR'S AFFILIATES,
OFFICERS, DIRECTORS, MEMBERS OR EMPLOYEES OR ANY OF THEIR SUCCESSORS WITH
RESPECT TO ANY AND ALL ISSUES PRESENTED IN ANY ACTION, PROCEEDING, CLAIM OR
COUNTERCLAIM BROUGHT BY LESSEE AGAINST LESSOR OR ANY OF LESSOR'S AFFILIATES,
OFFICERS, DIRECTORS, MEMBERS OR EMPLOYEES OR ANY OF THEIR SUCCESSORS WITH
RESPECT TO ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS LEASE OR ANY
DOCUMENT CONTEMPLATED HEREIN OR RELATED HERETO. THE WAIVER BY LESSEE OF ANY
RIGHT IT MAY HAVE TO SEEK PUNITIVE, CONSEQUENTIAL, SPECIAL AND INDIRECT
DAMAGES HAS BEEN NEGOTIATED BY THE PARTIES HERETO AND IS AN ESSENTIAL ASPECT
OF THEIR BARGAIN.
55. Reliance By Environmental Insurer and Lender. (a) Lessee
acknowledges and agrees that Environmental Insurer may rely on the
representations, warranties and covenants set forth in Section 16 of this
Lease, that Environmental Insurer is an intended third-party beneficiary of
such representations, warranties and covenants and that Environmental Insurer
shall have all rights and remedies available at law or in equity as a result
of a breach of such representations, warranties and covenants, including to
the extent applicable, the right of subrogation.
(b) Lessee acknowledges and agrees that Lender may rely on all of the
representations, warranties and covenants set forth in this Lease, that
Lender is an intended third-party beneficiary of such representations,
warranties and covenants and that Lender shall have all rights and remedies
available at law or in equity as a result of a breach of such representations,
warranties and covenants, including to the extent applicable, the right of
subrogation.
56. Document Review. In the event Lessee makes any request upon Lessor
requiring Lessor, Lender or the attorneys of Lessor or Lender to review and/or
prepare (or cause to be reviewed and/or prepared) any documents, plans,
specifications or other submissions in connection with or arising out of this
Lease, then Lessee shall reimburse Lessor or its designee promptly upon
Lessor's demand therefor for all reasonable out-of-pocket costs and expenses
incurred by Lessor in connection with such review and/or preparation plus a
reasonable processing and review fee.
57. Substitution. A. Subject to the fulfillment of all of the conditions
set forth in the following subsection B, Lessee shall have the right to
deliver a rejectable offer to Lessor (each, a "Rejectable Substitution Offer")
to substitute a Substitute Property for a Property (such Property to be
replaced being referred to herein as the "Replaced Property") if:
(i) the terms of Section 21.B of this Lease permit such substitution (each, a
"Casualty/Condemnation Substitution"); or
(ii) the terms of Section 23.A(ix)(1) of this Lease permit such substitution
(each, a "FCCR Substitution").
From and after the third anniversary of the Effective Date and subject to the
fulfillment of all of the conditions set forth in the following subsection B,
Lessee shall also have the right to deliver a Rejectable Substitution Offer to
substitute a Substitute Property for a Property if Lessee determines for any
reason to make a substitution (each, a "Discretionary Substitution"); provided,
however, that once Lessee has done Casualty/Condemnation Substitutions,
Discretionary Substitutions and/or FCCR Substitutions for a total of three (3)
Properties in the aggregate, Lessee shall no longer have the right to deliver a
Rejectable Substitution Offer with respect to a Discretionary Substitution.
Each Rejectable Substitution Offer shall identify the proposed Substitute
Property in reasonable detail and contain a certificate executed by a duly
authorized officer of Lessee pursuant to which Lessee shall certify that in
Lessee's good faith judgment such proposed Substitute Property satisfies as of
the date of such notice, or will satisfy as of the date of the closing of
such substitution, all of the applicable conditions to substitution set forth
in this Section 57. Lessee agrees to deliver to Lessor all of the diligence
information and materials contemplated by the provisions of Section 57.B of
this Lease within 30 days after the delivery to Lessor of a Rejectable
Substitution Offer.
With respect to any Rejectable Substitution Offer for a Casualty/Condemnation
Substitution, Lessor shall have 90 days from the delivery of a Rejectable
Substitution Offer notice satisfying the requirements set forth above to
deliver to Lessee written notice of its election to either accept or reject
the Rejectable Substitution Offer. Lessor's failure to deliver such notice
within such time period shall be deemed to constitute Lessor's acceptance of
such Rejectable Substitution Offer. If the Mortgage corresponding to a
Replaced Property is still outstanding, any rejection by Lessor of a Rejectable
Substitution Offer for a Casualty/Condemnation Substitution shall not be
effective unless it is consented to in writing by Lender. If Lessor accepts a
Rejectable Substitution Offer for a Casualty/Condemnation Substitution or is
deemed to have accepted such Rejectable Substitution Offer, or while the
Mortgage corresponding to the Replaced Property is still outstanding, any
rejection by Lessor of such Rejectable Substitution Offer is not consented to
in writing by the Lender, then Lessee shall complete the substitution of the
Substitute Property for the Replaced Property, subject, however, to the
satisfaction of each of the applicable terms and conditions set forth in
Section 57.B.
With respect to any Rejectable Substitution Offer for a Discretionary
Substitution or FCCR Substitution, Lessor shall have 90 days from the delivery
of a Rejectable Substitution Offer notice satisfying the requirements set
forth above (the "Section 57 Ninety Day Period") to deliver to Lessee written
notice of its election to either (i) accept such Rejectable Substitution Offer,
(ii) reject such Rejectable Substitution Offer, or (iii) elect to have Lessee,
as non-exclusive agent for Lessor, undertake on behalf of Lessor to obtain
cash bids for the sale of the Replaced Property (a "Forced Sale Election").
Lessor's failure to deliver such written notice within such time period shall
be deemed to constitute Lessor's acceptance of such Rejectable Substitution
Offer. If the Mortgage corresponding to a Replaced Property is still
outstanding, any rejection by Lessor of a Rejectable Substitution Offer for a
Discretionary Substitution or FCCR Substitution or any Forced Sale Election
relating to a FCCR Substitution shall not be effective unless it is consented
to in writing by Lender. If Lessor accepts a Rejectable Substitution Offer
for a Discretionary Substitution or FCCR Substitution or is deemed to have
accepted such Rejectable Substitution Offer, or while the Mortgage
corresponding to the Replaced Property is still outstanding, any rejection
by Lessor of such Rejectable Substitution Offer or any Forced Sale Election
relating to a FCCR Substitution is not consented to in writing by the Lender,
then Lessee shall complete the substitution of the Substitute Property for
the Replaced Property, subject, however, to the satisfaction of each of the
applicable terms and conditions set forth in Section 57.B. During the period
commencing when such Rejectable Substitution Offer has been made and ending on
the earlier of the date Lessor delivers the written notice contemplated by the
first sentence of this paragraph or the expiration of the Section 57 Ninety
Day Period, Lessor, but not Lessee, shall be entitled, directly or through one
or more agents, to seek bids for the sale of the Replaced Property.
If Lessor elects the Forced Sale Election under this Section 57 and, with
respect to a Forced Sale Election relating to a FCCR Substitution, such Forced
Sale Election is consented to in writing by the Lender, Lessee, as non-
exclusive agent for Lessor, shall undertake on behalf of Lessor to obtain cash
bids for the sale of the Replaced Property. Prior to solicitation of any such
bids, Lessee and Lessor shall agree on a form of contract of purchase relating
to the Replaced Property acceptable to Lessor. Lessee may use a third party
as its agent in connection with any such sale. Lessee shall certify to Lessor
in writing the amount and terms of each bid received by Lessee and the name
and address of the Person submitting a bid (which Person shall not be the
Lessee, any Affiliate of the Lessee, or any Person with an agreement to allow
Lessee or any Affiliate of Lessee to use the Replaced Property at any time
during the three (3) year period following any such sale). Lessor shall be
under no duty to solicit bids, to inquire into the efforts of Lessee to obtain
bids or otherwise to take any action in connection with any such sale other
than to sell its interest in the Replaced Property as provided herein. The
sale of the Replaced Property shall close on a Base Monthly Rental payment
date which is no later than 270 days from the expiration date of the Section
57 Ninety Day Period (such date of closing being referred to herein as the
"Section 57 Closing Date"). On the Section 57 Closing Date (subject to
receipt of the net sales price and all additional payments and instruments
specified below):
(1) this Lease shall be deemed terminated with respect to such Replaced
Property only, but this Lease shall continue in full force and effect with
respect to all of the other Properties; provided, however, such termination
shall not limit Lessee's obligations to Lessor with respect to such Replaced
Property under any indemnification provisions of this Lease (including,
without limitation, Sections 16 and 19 of this Lease) and Lessee's
obligations to pay any sums (whether payable to Lessor or a third party)
accruing under this Lease with respect to such Replaced Property prior to
the Section 57 Closing Date shall survive the termination of this Lease;
(2) the Base Annual Rental then in effect shall be reduced by an amount equal
to the product of (x) the Applicable Rent Reduction Percentage for the
Replaced Property, and (y) the Base Annual Rental then in effect;
(3) Lessee shall deliver possession of the Replaced Property to the highest
bidder; and
(4) Lessor shall convey the Replaced Property to such highest bidder "as-is"
by limited warranty deed, subject to all matters of record (except for the
Mortgage corresponding to the Replaced Property and any other consensual
liens granted by Lessor other than those granted by Lessor at the request
of Lessee), and without representation or warranty (except as otherwise
contained in the limited warranty deed), the total net selling price realized
at such sale to be retained by Lessor.
In addition, Lessee shall deliver to Lessor on the Section 57 Closing Date an
instrument in which Lessee agrees not to, and not to permit any Affiliate to,
directly or indirectly use the Replaced Property during the three (3) year
period following the Section 57 Closing Date; and Lessee shall pay to Lessor
the sum of:
(A) the excess, if any, of the sum of (x) the product of the percentage
specified on Schedule I attached hereto which corresponds to the time period
during which such purchase occurs multiplied by the Purchase Price for the
Replaced Property, plus (y) the Prepayment Charges corresponding to the
Replaced Property, less (z) the net sales price of the Replaced Property paid
to Lessor pursuant to the preceding sentence;
plus
(B) all Base Annual Rental, Additional Rental and all other sums and
obligations then due and payable under this Lease as of the Section 57
Closing Date.
Anything in this Section 57.A to the contrary notwithstanding, Lessee shall
have the right to revoke any Rejectable Substitution Offer for a Discretionary
Substitution or FCCR Substitution on not more than two (2) occasions during the
Lease Term if, with respect to each such occasion, Lessor has elected a Forced
Sale Election in accordance with the provisions of this Section and during the
period in which Lessee had the right to serve as agent for Lessor to obtain
cash bids either (i) there were no cash bids or (ii) all such cash bids were
for an amount less than 85% of the product of the percentage specified on
Schedule I attached hereto which corresponds to the time period during which
such purchase would have occurred multiplied by the Purchase Price for the
Replaced Property. Lessee shall pay Lessor's reasonable expenses incurred in
connection with the revoked Rejectable Substitution Offer for a Discretionary
Substitution or FCCR Substitution or incurred in connection with the
termination of this Lease with respect to the Replaced Property.
If Lessor has elected a Forced Sale Election in accordance with the provisions
of this Section and an acceptable bid for the Replaced Property shall not have
been obtained or if a sale shall not have occurred on or as of the date which
is 270 days from the expiration date of the Section 57 Ninety Day Period, then
this Lease shall continue in full force and effect until an acceptable bid is
obtained and a sale shall have occurred. If Lessee shall fail to pay all
amounts due under and pursuant to this Section 57.A on the Section 57 Closing
Date, no sale shall be consummated, this Lease shall continue in full force
and effect and it shall be deemed that Lessee has revoked its Rejectable
Substitution Offer.
If Lessor rejects any Rejectable Substitution Offer for reasons other than
that, in Lessor's reasonable judgment, the proposed Substitute Property would
not have satisfied the applicable substitution conditions set forth in this
Section 57, and such rejection is consented to by Lender, then:
(X) if such rejected Rejectable Substitution Offer was made with respect to a
Casualty/Condemnation Substitution, the provisions of the last paragraph of
Section 21.B and the last sentence of the second paragraph of Section 21.B
shall be applicable; and
(Y) if such rejected Rejectable Substitution Offer was made with respect to
a FCCR Substitution or a Discretionary Substitution, this Lease shall
terminate with respect to the Replaced Property on the next scheduled Base
Monthly Rental payment date (the "Early Substitution Termination Date")
provided Lessee has paid to Lessor all Base Annual Rental, Additional Rental
and all other sums and obligations then due and payable under this Lease as
of such Early Substitution Termination Date. On the Early Substitution
Termination Date, and provided Lessee shall have paid to Lessor all Base
Annual Rental, Additional Rental and other sums and obligations then due and
payable under this Lease as of the Early Substitution Termination Date:
(i) the Base Annual Rental then in effect shall be reduced by an amount equal
to the product of (x) the Applicable Rent Reduction Percentage for the
Replaced Property, and (y) the Base Annual Rental then in effect; and
(ii) all obligations of Lessor and Lessee shall cease as of the Early
Substitution Termination Date with respect to such Property; provided,
however, Lessee's obligations to Lessor with respect to such Property under
any indemnification provisions of this Lease with respect to such Property
(including, without limitation, Sections 16 and 19 of this Lease) and Lessee's
obligations to pay any sums (whether payable to Lessor or a third party)
accruing under this Lease with respect to such Property prior to the Early
Substitution Termination Date shall survive the termination of this Lease with
respect to such Property or otherwise. This Lease shall, however, continue in
full force and effect with respect to all other Properties.
B. The substitution of a Substitute Property for a Property pursuant to the
preceding subsection A shall be subject to the fulfillment of all of the
following terms and conditions:
(i) The Substitute Property must:
(1) be a Permitted Facility, in good condition and repair, ordinary wear and
tear excepted;
(2) have a Fixed Charge Coverage Ratio (with the definitions of Section 8.A
being deemed to be modified, as contemplated by the following sentence to
provide for a calculation of an individual "Fixed Charge Coverage Ratio" for
the Substitute Property only) for the FCCR Period of not less than the Fixed
Charge Coverage Ratio for the Replaced Property for such FCCR Period; provided
that, with respect to each FCCR Substitution, the Fixed Charge Coverage Ratio
for the Substitute Property for such FCCR Period must also be high enough
(after taking into account any other substitutions for Properties which are
being consummated simultaneously therewith) to result in a cure of the breach
of the Aggregate Fixed Charge Coverage Ratio requirement (it being understood
and agreed that the determination of the Fixed Charge Coverage Ratio for the
Substitute Property shall be based on an assumption that the Operating Lease
Expense for the Substitute Property would be the same amount as the Operating
Lease Expense for the Replaced Property, as determined in accordance with the
last sentence of this subitem (2)). For purposes of this subitem (2), the
definitions set forth in Section 8.A of this Lease with respect to the
calculation of the Aggregate Fixed Charge Coverage Ratio shall be deemed
modified as applicable to provide for the calculation of a Fixed Charge
Coverage Ratio for each Property on an individual basis rather than on an
aggregate basis with the other Properties. For purposes of such calculation,
the Operating Lease Expense with respect to this Lease for each such Property
shall equal the product of (x) the Applicable Rent Reduction Percentage for
such Property, and (y) the Base Annual Rental then in effect;
(3) have a fair market value no less than the greater of the then fair market
value of the Replaced Property or the fair market value of such Replaced
Property as of the Effective Date (in each case, determined without regard to
this Lease, but assuming that while this Lease has been in effect, Lessee has
complied with all of the terms and conditions of this Lease), as determined
by Lessor, and consented to by Lender, utilizing the same valuation method as
used in connection with the closing of the transaction described in the Sale-
Leaseback Agreement, which was based upon the sum of (x) the fair market
value of the land comprising such Property and (y) the replacement cost of
the improvements located thereon;
(4) have improvements which have a remaining useful life substantially
equivalent to, or better than, that of the improvements located at the
Replaced Property;
(5) be conveyed to Lessor (or, if directed by Lessor, to Lessor and a person
designated to acquire the remainderman interest) by special or limited
warranty deed, free and clear of all liens and encumbrances, except such
matters as are reasonably acceptable to Lessor (the "Substitute Property
Permitted Exceptions"); and
(6) be located in either (a) the same state as the Replaced Property, or
(b) in another state acceptable to Lessor in Lessor's reasonable discretion;
(ii) Lessor shall have inspected and approved the Substitute Property
utilizing Lessor's customary site inspection and underwriting approval
criteria. Lessee shall have reimbursed Lessor and Lender for all of their
reasonable costs and expenses incurred with respect to such proposed
substitution, including, without limitation, Lessor's third-party and/or
in-house site inspectors' costs and expenses with respect to the proposed
Substitute Property. Lessee shall be solely responsible for the payment of
all costs and expenses resulting from such proposed substitution, regardless
of whether such substitution is consummated, including, without limitation,
the cost of title insurance and endorsements for both Lessor and Lender,
survey charges, stamp taxes, mortgage taxes, transfer fees, escrow and
recording fees, qualification fees, if any, the cost of environmental due
diligence undertaken pursuant to subsection (v) below, including, without
limitation, the cost of environmental insurance, income, capital gains and
transfer taxes imposed on Lessor as a result of such substitution and the
reasonable attorneys' fees and expenses of counsel to Lessee, Lessor and
Lender. In addition to the foregoing, Lessee shall pay any and all ongoing
fees, taxes, charges, costs and expenses, on an after tax basis, with respect
to the Substitute Property, including, without limitation, state and local
transfer taxes associated with the sale of such properties by Lessor and/or
Remainderman, costs and expenses associated with qualifying Lessor and/or
Remainderman in states where Lessor and/or Remainderman would not otherwise
have to qualify but for the substitution and keeping such entities qualified
and in good standing in such states, any and all franchise taxes of such
entities, income, excise, sales and/or use taxes, if any, business and/or
business privilege taxes, if any, and any taxes, fees or charges of a similar
nature;
(iii) Lessor shall have received a preliminary title report and irrevocable
commitment to insure title by means of an ALTA extended coverage owner's
policy of title insurance (or its equivalent, in the event such form is not
issued in the jurisdiction where the proposed Substitute Property is located)
for the proposed Substitute Property issued by Title Company and committing to
insure Lessor's good and marketable title in the proposed Substitute Property,
subject only to the Substitute Property Permitted Exceptions and containing
endorsements substantially comparable to those required by Lessor at the
Closing (as defined in the Sale-Leaseback Agreement) and Lender shall have
received such title report and irrevocable commitment to insure its first
priority lien encumbering the proposed Substitute Property as Lender shall
reasonably require;
(iv) Lessor shall have received a current ALTA survey of the proposed
Substitute Property, the form of which shall be comparable to those received
by Lessor at the Closing and sufficient to cause the standard survey exceptions
set forth in the title policy referred to in the preceding subsection to be
deleted;
(v) Lessor shall have completed such environmental due diligence of the
proposed Substitute Property as it deems necessary or advisable in its sole
discretion, including, without limitation, receiving an environmental
insurance policy with respect to such proposed Substitute Property, or to
the extent applicable, an endorsement to the Environmental Policies, in form
and substance and issued by such environmental insurance company as is
acceptable to Lessor in its sole discretion, and Lessor shall have approved
the environmental condition of the proposed Substitute Property in its sole
discretion;
(vi) Lessee shall deliver, or cause to be delivered, with respect to Lessee
and the Substitute Property, opinions of Counsel (as defined in the Sale-
Leaseback Agreement) in form and substance comparable to those received at
Closing (but also addressing such matters unique to the Substitute Property
as may be reasonably required by Lessor);
(vii) no Event of Default shall have occurred and be continuing under any of
the Sale-Leaseback Documents;
(viii) Lessee shall have executed such documents as may be reasonably required
by Lessor as a result of such substitution, including amendments to this Lease
and the Memorandum (the "Substitute Documents"), all of which documents shall
be in form and substance reasonably satisfactory to Lessor;
(ix) the representations and warranties set forth in the Substitute Documents,
this Lease and the Sale-Leaseback Agreement applicable to the proposed
Substitute Property shall be true and correct in all material respects as of
the date of substitution, and Lessee shall have delivered to Lessor an
officer's certificate certifying to that effect;
(x) Lessee shall have delivered to Lessor certificates of insurance showing
that insurance required by the Substitute Documents is in full force and
effect;
(xi) Lessor shall have obtained an endorsement to the policy of residual value
insurance issued to Lessor and Lender in connection with the transaction
described in the Sale-Leaseback Agreement with respect to the proposed
Substitute Property, which endorsement shall be in form and substance
reasonably satisfactory to Lessor and Lender;
(xii) Lender shall have consented to the substitution of the proposed
Substitute Property; and
(xiii) the date of the closing of the substitution shall occur no later
than 20 days after the date of acceptance (or deemed acceptance) by Lessor
of the Rejectable Substitution Offer.
C. Upon satisfaction of the foregoing conditions set forth in Section 57.B
and provided Lessor has accepted the Rejectable Substitution Offer or is
deemed to have accepted the Rejectable Substitution Offer, or while the
Mortgage corresponding to such Property is still outstanding, any rejection
of the Rejectable Substitution Offer by Lessor is not consented to in writing
by the Lender:
(i) the proposed Substitute Property shall be deemed substituted for the
Replaced Property;
(ii) the Substitute Property shall be referred to herein as a "Property"
and included within the definition of "Properties";
(iii) the Substitute Documents shall be dated as of the date of the
substitution; and
(iv) Lessor shall convey the Replaced Property to Lessee or a designee of
Lessee "as-is" by limited warranty deed, subject to all matters of record
(except for the Mortgage corresponding to the Replaced Property and any other
consensual liens granted by Lessor other than those granted by Lessor at the
request of Lessee), and without representation or warranty (except as otherwise
contained in the limited warranty deed).
D. Notwithstanding the foregoing, nothing in this Section 57 shall be
construed as limiting or otherwise adversely affecting the representations,
warranties, covenants and characterizations set forth in Lease, including,
without limitation, those provisions set forth in Section 3 of this Lease.
58. Rejectable Purchase Offer. A. If Lessor shall have given Lessee
notice of a breach of the Aggregate Fixed Charge Coverage Ratio requirement
under this Lease, Lessee shall have the right to deliver a rejectable offer to
Lessor (a "Rejectable Purchase Offer") to purchase such of the Properties as
is contemplated by Section 23.A(ix)(2) (each of such Properties being referred
to herein as a "FCCR Property"), subject to the fulfillment of all of the
conditions set forth in this Section 58.
Lessor shall have 90 days from the delivery of the Rejectable Purchase Offer
notice (the "Section 58 Ninety Day Period") to deliver to Lessee written
notice of Lessor's election to either (i) accept such Rejectable Purchase
Offer, (ii) reject such Rejectable Purchase Offer, or (iii) elect a Forced
Sale Election. Lessor's failure to deliver such written notice within such
time period shall be deemed to constitute Lessor's acceptance of such
Rejectable Purchase Offer. If the Mortgage corresponding to any FCCR Property
is still outstanding, any rejection by Lessor of a Rejectable Purchase Offer
or any Forced Sale Election under this Section 58 shall not be effective
unless it is consented to in writing by Lender. If Lessor accepts such
Rejectable Purchase Offer or is deemed to have accepted such Rejectable
Purchase Offer, or while the Mortgage corresponding to the Replaced Property
is still outstanding, any rejection by Lessor of the Rejectable Purchase
Offer or any Forced Sale Election under this Section 58 is not consented to
in writing by the Lender, then Lessee shall complete the purchase
contemplated by the Rejectable Purchase Offer, subject, however, to the
satisfaction of each of the terms and conditions set forth in the following
subsection B. During the period commencing when such Rejectable Purchase
Offer has been made and ending on the earlier of the date Lessor delivers
the written notice contemplated by the first sentence of this paragraph or
the expiration of the Section 58 Ninety Day Period, Lessor, but not Lessee,
shall be entitled, directly or through one or more agents, to seek bids for
the sale of each FCCR Property.
If Lessor elects the Forced Sale Election under this Section 58 and such
Forced Sale Election is consented to in writing by the Lender, Lessee, as non-
exclusive agent for Lessor, shall undertake on behalf of Lessor to obtain cash
bids for the sale of each FCCR Property. Prior to solicitation of any such
bids, Lessee and Lessor shall agree on a form of contract of purchase relating
to each FCCR Property acceptable to Lessor. Lessee may use a third party as
its agent in connection with any such sale. Lessee shall certify to Lessor in
writing the amount and terms of each bid received by Lessee and the name and
address of the Person submitting a bid (which Person shall not be the Lessee,
any Affiliate of the Lessee, or any Person with an agreement to allow Lessee
or any Affiliate of Lessee to use any FCCR Property at any time during the
three (3) year period following any such sale). Lessor shall be under no
duty to solicit bids, to inquire into the efforts of Lessee to obtain bids or
otherwise to take any action in connection with any such sale other than to
sell its interest in each FCCR Property as provided herein. The sale of each
FCCR Property shall close on a Base Monthly Rental payment date which is no
later than 270 days from the expiration date of the Section 58 Ninety Day
Period (such date of closing being referred to herein as the "Section 58
Closing Date"). On the Section 58 Closing Date (subject to receipt of the net
sales price and all additional payments and instruments specified below):
(1) this Lease shall be deemed terminated with respect to each FCCR Property
only, but this Lease shall continue in full force and effect with respect to
all of the other Properties; provided, however, such termination shall not
limit Lessee's obligations to Lessor with respect to each FCCR Property under
any indemnification provisions of this Lease (including, without limitation,
Sections 16 and 19 of this Lease) and Lessee's obligations to pay any sums
(whether payable to Lessor or a third party) accruing under this Lease with
respect to each FCCR Property prior to the Section 58 Closing Date shall
survive the termination of this Lease;
(2)the Base Annual Rental then in effect shall be reduced by an amount equal
to the product of (x) the Applicable Rent Reduction Percentage for each FCCR
Property, and (y) the Base Annual Rental then in effect;
(3) Lessee shall deliver possession of each FCCR Property to the highest
bidder; and
(4) Lessor shall convey each FCCR Property to such highest bidder "as-is" by
limited warranty deed, subject to all matters of record (except for the
Mortgage corresponding to each FCCR Property and any other consensual liens
granted by Lessor other than those granted by Lessor at the request of Lessee),
and without representation or warranty (except as otherwise contained in the
limited warranty deed), the total net selling price realized at such sale to be
retained by Lessor.
In addition, Lessee shall deliver to Lessor on the Section 58 Closing Date an
instrument in which Lessee agrees not to, and not to permit any Affiliate to,
directly or indirectly use any FCCR Property during the three (3) year period
following the Section 58 Closing Date; and Lessee shall pay to Lessor the sum
of:
(A) the excess, if any, of the sum of (x) the product of the percentage
specified on Schedule I attached hereto which corresponds to the time period
during which such purchase occurs multiplied by the aggregate Purchase Price
for each FCCR Property, plus (y) the Prepayment Charges corresponding to each
FCCR Property, less (z) the net sales price of each FCCR Property paid to
Lessor pursuant to the preceding sentence;
plus
(B) all Base Annual Rental, Additional Rental and all other sums and
obligations then due and payable under this Lease as of the Section 58 Closing
Date.
Anything in this Section 58.A to the contrary notwithstanding, Lessee shall
have the right to revoke any Rejectable Purchase Offer on not more than two
(2) occasions during the Lease Term if, with respect to each such occasion,
Lessor has elected a Forced Sale Election in accordance with the provisions
of this Section and during the period in which Lessee had the right to serve
as agent for Lessor to obtain cash bids either (i) there were no cash bids or
(ii) all such cash bids were for an amount less than 85% of the product of the
percentage specified on Schedule I attached hereto which corresponds to the
time period during which such purchase would have occurred multiplied by the
aggregate Purchase Price for each FCCR Property. Lessee shall pay Lessor's
reasonable expenses incurred in connection with any revoked Rejectable
Purchase Offer or incurred in connection with the termination of this Lease
with respect to each FCCR Property.
If Lessor has elected a Forced Sale Election in accordance with the provisions
of this Section and an acceptable bid for each FCCR Property shall not have
been obtained or if a sale shall not have occurred on or as of the date which
is 270 days from the expiration date of the Section 58 Ninety Day Period,
then this Lease shall continue in full force and effect until an acceptable
bid is obtained and a sale shall have occurred. If Lessee shall fail to pay
all amounts due under and pursuant to this Section 58.A on the Section 58
Closing Date, no sale shall be consummated, this Lease shall continue in full
force and effect and it shall be deemed that Lessee has revoked its Rejectable
Purchase Offer.
If Lessor rejects any Rejectable Purchase Offer, and such rejection is
consented to by Lender, this Lease shall terminate with respect to each FCCR
Property on the next scheduled Base Monthly Rental payment date (the "Early
Purchase Termination Date") provided Lessee has paid to Lessor all Base Annual
Rental, Additional Rental and all other sums and obligations then due and
payable under this Lease as of such Early Purchase Termination Date. On the
Early Purchase Termination Date, and provided Lessee shall have paid to Lessor
all Base Annual Rental, Additional Rental and other sums and obligations then
due and payable under this Lease as of the Early Purchase Termination Date:
(1) the Base Annual Rental then in effect shall be reduced by an amount equal
to the product of (x) the aggregate Applicable Rent Reduction Percentage for
each FCCR Property, and (y) the Base Annual Rental then in effect; and
(2) all obligations of Lessor and Lessee shall cease as of the Early Purchase
Termination Date with respect to each FCCR Property; provided, however,
Lessee's obligations to Lessor with respect to each FCCR Property under any
indemnification provisions of this Lease with respect to such FCCR Property
(including, without limitation, Sections 16 and 19 of this Lease) and Lessee's
obligations to pay any sums (whether payable to Lessor or a third party)
accruing under this Lease with respect to such FCCR Property prior to the
Early Purchase Termination Date shall survive the termination of this Lease
with respect to such FCCR Property or otherwise. This Lease shall, however,
continue in full force and effect with respect to all other Properties.
B. The purchase of any FCCR Property by Lessee pursuant to a Rejectable
Purchase Offer shall be subject to the fulfillment of all of the following
terms and conditions:
(i) no Event of Default shall have occurred and be continuing under any of
the Sale-Leaseback Documents;
(ii) the purchase of such FCCR Property (together with any other Properties
which are being purchased simultaneously therewith) must result in a cure of
the breach of the Aggregate Fixed Charge Coverage Ratio requirement;
(iii) Lessee shall have paid to Lessor the Subject Purchase Price (as defined
below), together with all Base Annual Rental, Additional Rental and other sums
and obligations then due and payable under this Lease as of the date of the
closing of such purchase;
(iv) Lessee shall be solely responsible for the payment of all costs and
expenses resulting from such proposed purchase, regardless of whether the
purchase is consummated, including, without limitation, to the extent
applicable, the cost of title insurance and endorsements, including, survey
charges, stamp taxes, mortgage taxes, transfer taxes and fees, escrow and
recording fees, taxes imposed on Lessor as a result of such purchase, the
attorneys' fees of Lessee and the reasonable attorneys' fees and expenses of
counsel to Lessor and Lender; and
(v) the date of the closing of such purchase shall occur on the next
scheduled Base Monthly Rental payment date following Lessor's acceptance (or
deemed acceptance) of the Rejectable Purchase Offer, but in no event later
than 20 days after the date of acceptance (or deemed acceptance) by Lessor of
such Rejectable Purchase Offer.
On the date of the closing of the purchase of each FCCR Property by Lessee
pursuant to a Rejectable Purchase Offer (the "Rejectable Purchase Closing
Date"), subject to satisfaction of the foregoing conditions:
(1) this Lease shall be deemed terminated with respect to each FCCR Property
only, but this Lease shall continue in full force and effect with respect to
all of the other Properties; provided, however, such termination shall not
limit Lessee's obligations to Lessor with respect to each FCCR Property under
any indemnification provisions of this Lease (including, without limitation,
Sections 16 and 19 of this Lease) and Lessee's obligations to pay any sums
(whether payable to Lessor or a third party) accruing under this Lease with
respect to such FCCR Property prior to the Rejectable Purchase Closing Date
shall survive the termination of this Lease;
(2) the Base Annual Rental then in effect shall be reduced by an amount equal
to the product of (x) the aggregate Applicable Rent Reduction Percentage for
each FCCR Property, and (y) the Base Annual Rental then in effect; and
(3) Lessor shall convey each FCCR Property to Lessee "as-is" by limited
warranty deed, subject to all matters of record (except for the Mortgage
corresponding to each FCCR Property to be purchased and any other consensual
liens granted by Lessor other than those granted by Lessor at the request of
Lessee), and without representation or warranty (except as otherwise contained
in the limited warranty deed).
For purposes of this Section 58, the term "Subject Purchase Price" shall mean
the product of the percentage specified on Schedule I attached hereto which
corresponds to the time period during which such purchase occurs multiplied by
the aggregate Purchase Price for each FCCR Property being purchased.
59. Existing Leases. During the Lease Term, Lessor assigns to Lessee all
of Lessor's right, title and interest as landlord under the Existing Leases,
which Existing Leases shall be subleases of the applicable Properties on the
terms and conditions set forth in the Existing Leases. Lessee shall fulfill,
perform and observe in all respects, at its own cost and expense, each and
every condition and covenant of the lessor in each Existing Lease and give
prompt notice to Lessor of any claim or event of default under any Existing
Lease given to Lessee by any Existing Lessee or given by Lessee to any
Existing Lessee, together with a complete copy or statement of any information
submitted or referenced in support of such claim or event of default. Lessor
agrees that the Existing Leases are not subject to the consent requirements
set forth in Section 26.B, provided that, Lessee shall not be relieved of any
of its obligations with respect to this Lease by reason of the Existing Leases.
IN WITNESS WHEREOF, Lessor and Lessee have entered into this Lease as of the
date first above written.
LESSOR:
CRYSTAC PROPERTY II LLC,
a Delaware limited liability company
By Crystac Equity II LLC,
a Delaware limited liability company,
its member manager
By:
Jamie Grossman
Its Vice President, Assistant Secretary and
Assistant Treasurer
LESSEE:
THE KRYSTAL COMPANY,
a Tennessee corporation
By:
Larry D. Bentley
Its Vice President and Chief Financial Officer
Lessee's Tax Identification Number:
62-0264140
Lessee's Organizational Number:
0017908
POWER OF ATTORNEY
Lessor may act as attorney-in-fact or otherwise on behalf of Lessee pursuant
to Sections 24 and 25.B of this Lease. This power of attorney is coupled with
an interest, is durable and is not affected by subsequent disability or
incapacity of the principal or lapse of time.
Witness Lessee
WITNESS
In accordance with the requirements of Arizona Revised Statutes Section
14-5506 and other applicable law, the undersigned has executed this Lease for
the purpose of witnessing the grant of the powers of attorney by Lessee to
Lessor.
STATE OF ARIZONA]
] SS.
COUNTY OF MARICOPA]
The foregoing instrument was acknowledged before me on December ____, 2001 by
Jamie Grossman, Vice President, Assistant Secretary and Assistant Treasurer of
Crystac Equity II LLC, a Delaware limited liability company, member manager of
Crystac Property II LLC, a Delaware limited liability company, on behalf of
the limited liability company.
Notary Public
My Commission Expires:
STATE OF ARIZONA]
] SS.
COUNTY OF MARICOPA]
The foregoing instrument was acknowledged before me on December ___, 2001 by
Larry D. Bentley, Vice President and Chief Financial Officer of The Krystal
Company, a Tennessee corporation, on behalf of the corporation.
Notary Public
My Commission Expires:
EXHIBIT A
PROPERTIES
EXHIBIT A-1
LEGAL DESCRIPTIONS OF PROPERTIES
SCHEDULE I
STIPULATED LOSS VALUE
SCHEDULE II
STATE SPECIFIC PROVISIONS
The following provisions shall be deemed a part of the Lease to the extent any
of the Properties are located in the applicable states:
ALABAMA:
The taxes and assessments required to be paid by Lessee pursuant to Section 10
of the Lease shall also include any Alabama Business Privilege Tax owed by
Lessor or Remainderman which is attributable to the period of time in which
this Lease is in effect. Lessee shall remit to Lessor the amount required to
be paid by Lessor or Remainderman with respect to the Alabama Business
Privilege Tax annually within ten (10) days after Lessor's request.
FLORIDA:
Radon Gas. Radon is a naturally occurring radioactive gas that, when it has
accumulated in a building in sufficient quantities, may present health risks
to persons who are exposed to it over time. Levels of radon that exceed
federal and state guidelines have been found in buildings in Florida.
Additional information regarding radon and radon testing may be obtained
from the county health public health unit.
SCHEDULE III
LEASED PERSONALTY
1. Lancer frozen carbonated beverage machines leased pursuant to Master Lease
Agreement dated June 22, 2001 between Lessee and Transamerica Equipment
Financial Services Corporation.
2. Lancer frozen carbonated beverage machines leased pursuant to Equipment
Lease Agreement (No. 847101) dated as of September 6, 2000 between Lessee and
CLC Equipment LLC.
3. Signage leased pursuant to Master Equipment Lease Numbers 483-01, 483-02
and 483-03 between Lessee and STI Credit Corporation, dated December 23, 1998,
January 26, 1999 and May 12, 1999, respectively.
4. Headsets leased pursuant to Master Equipment Lease Number 483-04 dated
July 27, 1999 between Lessee and STI Credit Corporation.
5. Computer hardware leased pursuant to Master Equipment Lease Number 483-05
dated August 8, 1999 between Lessee and STI Credit Corporation.
SCHEDULE 16.C
ADA SETTLEMENT
Lessee is a party to a settlement agreement relating to a civil action
commenced on September 21, 1999 in the United States District Court for the
Northern District of Alabama, Northeastern Division by Michael L. Jones, on
behalf of himself and all others similarly situated, Plaintiffs, against The
Krystal Company, Defendant (Civil Action No. CV-99-S-2537-NE). Under the
settlement agreement, Lessee is required to renovate all 190 Krystal-owned
restaurants that were built prior to the effective date of the ADA, and which
contain restrooms that may not be fully-accessible to wheelchair-bound
patrons, over the course of a ten (10) year period (commencing in 2002), to
make such public accommodations fully-accessible to wheelchair-bound patrons
in compliance with the accessibility guidelines specified by the ADA and the
interpretative regulations promulgated under Congressional authorization.
SCHEDULE 27
EFFECTIVE DATE ECONOMIC USEFUL LIVES
Remaining
FFCA Store Economic
File # # Type STREET CITY STATE Life
1. 8001-3604 ATL022 F 4933 Jonesboro Rd Forest Park GA 22
2. 8001-3605 ATL049 F 5181 Hwy 78 Stone Mtn. GA 28
3. 8001-3581 NSH015 F 1717 Charlotte Ave Nashville TN 20
4. 8001-3603 KNX012 F 410 Lovell Road Knoxville TN 27
5. 8001-3594 SAV006 F 14020 Abercorn Road Savannah GA 27
6. 8001-3584 ATL051 F 5140 South Cobb Dr. Smyrna GA 29
7. 8001-3591 KNX011 F 8901 Kingston Pike Knoxville TN 27
8. 8001-3583 NSH022 F 401 S. Cartwright St. Goodlettsville TN 27
9. 8001-3596 SAV005 F 10003 Abercorn Rd. Savannah GA 25
10.8001-3599 ALB004 F 2621 Dawson Rd. Albany GA 33
11.8001-3589 BCF002 F 2914 S. Washington Av. Titusville FL 28
12.8001-3592 SAV004 F 4814 Augusta Road Garden City GA 25
13.8001-3580 DAY004 F 2550 W. Inter. Spdwy Blvd.Daytona Bch FL 28
14.8001-3587 MUF002 F 1865 S. Church St. Murfreesboro TN 26
15.8001-3569 MFS001 F 1377 Union Ave. Memphis TN 23
16.8001-3572 MNT001 F 2805 East South Blvd Montgomery AL 22
Exhibit 10.6-
CREDIT AGREEMENT
dated as of January 28, 2002
among
THE KRYSTAL COMPANY, as Borrower
KRYSTAL AVIATION CO., KRYSTAL AVIATION MANAGEMENT CO., AND PORT ROYAL
HOLDINGS, INC., as Guarantors,
THE LENDERS LISTED HEREIN, as Lenders
BANK OF AMERICA, N.A.,
as Administrative Agent
and
ORIX FINANCIAL SERVICES, INC.,
as Documentation Agent
EXHIBITS
Exhibit A - Form of Revolving Loan Note
Exhibit B - Form of Term Loan Note
Exhibit C-1 - Form of Parent Guaranty
Exhibit C-2 - Form of Subsidiary Guaranty
Exhibit D-1 - Form of Borrower Security Agreement
Exhibit D-2 - Form of Subsidiary Security Agreement
Exhibit E-1 - Form of Parent Pledge Agreement
Exhibit E-2 - Form of Pledge Agreement
Exhibit F - Form of Closing Certificate
Exhibit G - Form of Opinion
Exhibit H - Form of Assignment and Acceptance Agreement
Exhibit I - Form of Intellectual Property Security Agreement
Exhibit J - Form of Notice of Borrowing
Exhibit K - Form of Notice of Conversion/Continuation
Exhibit L - Form of Compliance Certificate
SCHEDULES
Schedule R-1 - Real Estate Collateral
Schedule 4.01 - UCC Search Locations
Schedule 5.01 - Subsidiaries
Schedule 5.05 - Litigation
Schedule 5.08(a)- Environmental Claims
Schedule 5.08(b)- Environmental Notices
Schedule 5.10 - Defaults
Schedule 5.11 - Burdensome Restrictions
Schedule 5.12 - Taxes
Schedule 5.13 - Material Subsidiaries
Schedule 5.15 - Employee Benefit Matters
Schedule 5.16 - Patent, Trademark, License, and
Other Intellectual Property Matters
Schedule 5.17 - Ownership of Properties
Schedule 5.20 - Labor and Employment Matters
Schedule 5.21 - Dividend Restrictions
Schedule 7.01 - Existing Indebtedness
Schedule 7.02 - Existing Liens
CREDIT AGREEMENT
THIS CREDIT AGREEMENT is made and entered into as of January 28, 2002 by and
among THE KRYSTAL COMPANY, a Tennessee corporation (the "Borrower") KRYSTAL
AVIATION CO., KRYSTAL AVIATION MANAGEMENT CO., and PORT ROYAL HOLDINGS, INC.,
(each individually, a "Guarantor" and collectively, the "Guarantors"), the
banks, financial institutions and other institutional lenders party thereto as
lenders (each individually, a "Lender" and collectively, the "Lenders"), BANK
OF AMERICA, N.A., a national banking association, as administrative agent for
the Lenders (in such capacity, the "Agent") for the Lenders, and ORIX FINANCIAL
SERVICES, INC., a New York corporation, as documentation agent ("ORIX," and,
also referred to as the "Documentation Agent").
The parties hereby agree as follows:
ARTICLE I.
DEFINITIONS; CONSTRUCTION
Section 1.01. Definitions. In addition to the other terms defined herein, the
following terms used herein shall have the meanings herein specified (to be
equally applicable to both the singular and plural forms of the terms defined):
"Adjusted LIBO Rate" shall mean, with respect to each Interest Period for a
Eurodollar Advance, the rate per annum (rounded upwards, if necessary, to the
nearest 1/100 of 1%) determined pursuant to the following formula:
LIBOR
Adjusted LIBO Rate = --------------------------------
1.0 - LIBOR Reserve Percentage
As used herein, LIBOR Reserve Percentage shall mean, for any Interest Period
for a Eurodollar Advance, the reserve percentage (expressed as a decimal) equal
to then stated maximum rate of all reserves requirements (including, without
limitation, any marginal, emergency, supplemental, special or other reserves)
applicable to any member bank of the Federal Reserve System in respect of
Eurocurrency liabilities as defined in Regulation D (or against any successor
category of liabilities as defined in Regulation D).
"Advance" shall mean any principal amount advanced and remaining outstanding
at any time as (i) the Revolving Loan, which Advance shall be made or
outstanding as Base Rate Advance or Eurodollar Advance, as the case may be, or
(ii) the Term Loan, which Advance shall be made or outstanding as Eurodollar
Advance.
"Affiliate" of any Person means any other Person directly or indirectly
controlling, controlled by, or under common control with, such Person, whether
through the ownership of voting securities, by contract or otherwise. For
purposes of this definition, "control" (including with correlative meanings,
the terms "controlling", "controlled by", and "under common control with") as
applied to any Person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of that
Person.
"Agent" shall mean Bank of America, and any successor agent appointed pursuant
to Section 9.10 hereto.
"Agent's Fee Letter" shall mean that certain fee letter dated as of the Closing
Date, executed by the Borrower and addressed to the Agent.
"Agreement" shall mean this Credit Agreement, as hereafter amended, restated,
supplemented or otherwise modified from time to time.
"Applicable Commitment Fee Rate" shall mean, with respect to any calculation of
the Commitment Fee hereunder, (i) from the Closing Date through and including
July 31, 2002, three quarters of one percent (0.75%) per annum, and (ii)
thereafter, the percentage per annum determined by reference to the following
chart set forth below based on Borrower's Funded Debt Coverage Ratio calculated
as of the relevant determination date in accordance with Section 6.08(b):
Funded Debt Applicable Commitment
Coverage Ratio Fee Rate
----------------------------- --------
Less than or equal to 3.0:1.0 0.20%
Greater than 3.0:1.0, but less
than or equal to 3.50:1.0 0.25%
Greater than 3.50:1.0, but less
than or equal to 4.0:1.0 0.3755
Greater than 4.0:1.0, but less
than or equal to 4.50:1.0 0.50%
Greater than 4.50:1.0 but less
than or equal to 5.0:1.0 0.625%
Greater than 5.0:1.0 0.75%
Each change in the Applicable Commitment Fee Rate resulting from a change in
the Funded Debt Coverage Ratio shall be effective from and after the date that
any change in the Applicable Margin is effective. Notwithstanding the
foregoing, at any time during which Borrower has failed to deliver the
financial statements and certificates when required by Section 6.07(a), (b),
and (c), as applicable, the Applicable Commitment Fee Rate shall be 0.75%.
"Applicable Margin" shall mean, (i) under the Revolving Loan Commitment, (A)
with respect to all Eurodollar Advances outstanding from the Closing Date
through and including July 31, 2002, three and one-half of one percent (3.50%)
per annum, (B) with respect to all Base Rate Advances outstanding from the
Closing Date through and including July 31, 2002, two percent (2.00%) per
annum, and (C) with respect to all Advances outstanding thereafter, the
relevant percentage indicated below for the Borrower's Funded Debt Coverage
Ratio, as determined quarterly, based upon the financial statements delivered
to the Lenders pursuant to Section 6.07(a) or Section 6.07(b) hereof, as the
case may be in accordance with Section 6.08(b), with such Applicable Margin to
be effective with respect to calculations based upon the financial statements
delivered pursuant to Section 6.07 as of the first day of the second Fiscal
Quarter immediately following the Fiscal Quarter for which such financial
statements are delivered (for example, the Applicable Margin effective as of
the first day of the third Fiscal Quarter shall be calculated based upon the
financial statements delivered for the first Fiscal Quarter of the Borrower):
Funded Debt Applicable Margin Applicable Margin
Coverage Ratio for Eurodollar Advances for Base Rate Advances
of the Revolving Loan of the Revolving Loan
Less than or equal to 3.0:1.0 1.75% 0.25%
Greater than 3.0:1.0, but less
than or equal to 3.50:1.0 2.00% 0.50%
Greater than 3.50:1.0, but less
than or equal to 4.0:1.0 2.50% 1.00%
Greater than 4.0:1.0, but less
than or equal to 4.50:1.0 3.00% 1.50%
Greater than 4.50:1.0, but less
than or equal to 4.00:1.0 3.25% 1.75%
Greater than 5.0:1.0 3.50% 2.00%
Notwithstanding the foregoing, at any time during which Borrower has failed to
deliver the financial statements and certificates when required by Section
6.07(a), (b), and (c), as applicable, the Applicable Margin with respect to
Eurodollar Advances then outstanding shall be 3.50% and the Applicable Margin
with respect to Base Rate Advances shall be 2.00%,
and (ii) under the Term Loan Commitment (A) with respect to all Advances
outstanding from the Closing Date through and including July 31, 2002, four
percent (4.00%) per annum, and (B) with respect to all Advances outstanding
thereafter, the relevant percentage indicated below for the Borrower's Funded
Debt Coverage Ratio, as determined quarterly, based upon the financial
statements delivered to the Lenders pursuant to Section 6.07(a) or Section
6.07(b) hereof, as the case may be in accordance with Section 6.08(b),
Funded Debt Coverage Ratio Applicable Margin for Advances under
the Term Loan Commitment
Less than or equal to 4.0 3.50%
Greater than 4.0:1.0 but less
than or equal to 4.50:1.0 3.75%
Greater than 4.50:1.0 4.00%
Notwithstanding the foregoing, at any time during which Borrower has failed to
deliver the financial statements and certificates when required by Section
6.07(a), (b) and (c), as applicable, the Applicable Margin with respect to
Advances under the Term Loan Commitment then outstanding shall be 4.00%.
"Asset Sale" shall mean, with respect to any Person, the sale, lease,
conveyance or other disposition, that does not constitute a Restricted Payment
or an Investment, by such Person of any of its assets (including, without
limitation by way of a Sale and Leaseback Transaction and including the
issuance, sale or transfer of any Equity Interests in any Subsidiary of the
Borrower) other than to the Borrower (including the receipt of proceeds of
insurance paid on account of the loss of or damage to any asset and awards of
compensation for any asset taken by condemnation, eminent domain or similar
proceeding, and including the receipt of proceeds of business interruption
insurance), in each case, in one or a series of related transactions; provided,
that notwithstanding the foregoing, the term "Asset Sale" shall not include:
(a) the sale, lease, conveyance, disposition or other transfer of all or
substantially all of the assets of the Borrower in a transaction permitted
under Section 7.03 hereof;
(b) the sale or lease of equipment, inventory, accounts receivable or
other assets in the ordinary course of business consistent with past
practice;
(c) a transfer of assets by the Borrower to a Wholly-Owned Subsidiary of
the Borrower or by a Wholly-Owned Subsidiary of the Borrower to the Borrower
or to another Wholly-Owned Subsidiary of the Borrower;
(d) an issuance of Equity Interests by a Wholly-Owned Subsidiary of the
Borrower to the Borrower or to another Wholly-Owned Subsidiary of the
Borrower;
(e) the issuance by the Borrower of shares of its Capital Stock; or
(f) the sale or other disposition of cash or Cash Equivalents.
"Assignment and Acceptance" shall mean an assignment and acceptance entered
into by a Lender and an Eligible Assignee in accordance with the terms of this
Agreement and substantially in the form of Exhibit H.
"Bank of America" shall mean Bank of America, N.A., a national banking
association, and its successors and assigns.
"Bankruptcy Code" shall mean the Bankruptcy Code of 1978, as amended and in
effect from time to time (11 U.S.C. 101 et seq.).
"Base Rate" shall mean (with any change in the Base Rate to be effective as of
the date of change of either of the following rates) the higher of (i) the
rate which the Agent publicly announces from time to time as its prime lending
rate, as in effect from time to time, and (ii) the Federal Funds Rate, as in
effect from time to time, plus one-half of one percent (0.50%) per annum. The
Agent's prime lending rate is a reference rate and does not necessarily
represent the lowest or best rate actually charged to customers; the Agent may
make commercial loans or other loans at rates of interest at, above or below
the Agent's prime lending rate.
"Base Rate Advance" shall mean an Advance made or outstanding as a Revolving
Loan bearing interest based on the Base Rate.
"Base Rate Borrowing" shall mean a Borrowing made up of Base Rate Advances.
"Borrower" shall mean The Krystal Company, a Tennessee corporation, its
successors and permitted assigns.
"Borrower Security Agreement" shall mean that certain Borrower Security
Agreement executed by the Borrower substantially in the form of Exhibit D-1,
granting a security interest in all of the personal property and fixtures of
the Borrower to the Agent, for the benefit of the Agent and the Lenders.
"Borrowing" shall mean the incurrence by Borrower under any Facility of
Advances of one Type concurrently having the same Interest Period or the
continuation or conversion of an existing Borrowing or Borrowings in whole or
in part.
"Business Day" shall mean any day excluding Saturday, Sunday and any other day
on which banks are required or authorized to close in Atlanta, Georgia and, if
the applicable Business Day relates to Eurodollar Advances, any day on which
trading is not carried on by and between banks in deposits of the applicable
currency in the applicable interbank Eurocurrency market.
"Capital Expenditures" shall mean, for any fiscal period of the Borrower, all
expenditures by the Borrower and its Subsidiaries during such period for the
acquisition or leasing of any fixed assets or improvements, or for
replacements, substitutions or additions thereto, which have a useful life of
more than one year and which are or should be reflected on the Borrower's
statement of cash flow for such period as capital expenditures in accordance
with GAAP.
"Capital Lease" shall mean, as applied to any Person, any lease of any property
(whether real, personal or mixed) by such Person as lessee which would, in
accordance with GAAP, be required to be classified and accounted for as a
capital lease on a balance sheet of such Person, other than, in the case of
Borrower or any of its Subsidiaries, any such lease under which Borrower or a
Wholly-Owned Subsidiary of Borrower is the lessor.
"Capital Lease Obligation" shall mean, with respect to any Capital Lease, the
amount of the obligation of the lessee thereunder which would, in accordance
with GAAP, appear on a balance sheet of such lessee in respect of such Capital
Lease.
"Capital Stock" shall mean (i) in the case of a corporation, capital stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
capital stock, (iii) in the case of a partnership, partnership interests
(whether general or limited) and (iv) any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing Person.
"Cash Equivalents" shall mean
:
(ii) securities issued or directly and fully guaranteed or insured by the
United States of America or any agency or instrumentality thereof (provided
that the full faith and credit of the United States is pledged in support
thereof) having maturities not more than twelve months from the date of
acquisition;
(iii) U.S. dollar denominated (or foreign currency fully hedged) time deposits,
certificates of deposit of (a) any domestic commercial bank of recognized
standing having capital and surplus in excess of $500 million or (b) any bank
whose short-term commercial paper rating from S&P is at least A-1 or the
equivalent thereof or from Moody's is at least P-1 or the equivalent thereof
(any such bank being an "Approved Lender"), in each case with maturities of not
more than twelve months from the date of acquisition; and
(iv) commercial paper issued by an Approved Lender (or by the parent company
thereof) or any variable rate notes issued by, or guaranteed by, any domestic
corporation rated A-2 (or the equivalent thereof) or better by S&P or P-2 (or
the equivalent thereof) or better by Moody's and maturing within twelve months
of the date of acquisition.
"Cash Taxes Paid" shall mean, for any fiscal period of Borrower, the taxes paid
by the Borrower and its Subsidiaries.
"Change of Control" shall mean such time as either:
(i) prior to the initial Public Equity Offering by the Borrower or the Parent
of its common stock, the Permitted Shareholders cease to be, directly or
indirectly, the beneficial owners in the aggregate, of more than 50% of the
voting power of the Voting Stock of the Borrower and of the Parent, in each
case on a fully-diluted basis, after giving effect to the conversion and
exercise of all outstanding warrants, options and other securities of the
Borrower or the Parent, as the case may be, convertible into or exercisable
for Voting Stock of the Borrower or the Parent, as the case may be (whether or
not such securities are then currently convertible or exercisable); or
(ii) after the initial Public Equity Offering by the Borrower or the Parent of
its common stock, (a) any "person" or "group" (within the meaning of Section
13(d) or 14(d) of the Exchange Act) (other than one or more of the Permitted
Shareholders) has become, directly or indirectly, the "beneficial owner" (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a Person
shall be deemed to have "beneficial ownership" of all shares that any such
Person has the right to acquire, whether such right is exercisable immediately
or only after the passage of time), by way of merger, consolidation or
otherwise, of 35% or more of the voting power of the Voting Stock of the
Borrower or the Parent in each case on a fully-diluted basis, after giving
effect to the conversion and exercise of all outstanding warrants, options and
other securities of the Borrower or the Parent, as the case may be, convertible
into or exercisable for Voting Stock of the Borrower or the Parent, as the
case may be (whether or not such securities are then currently convertible or
exercisable) and (b) such person or group is or becomes, directly or
indirectly, the beneficial owner of a greater percentage of the voting power of
the Voting Stock of the Borrower or of the Parent, as the case may be,
calculated on such fully-diluted basis, than the percentage then beneficially
owned by the Permitted Shareholders; or
(iii) the Borrower or the Parent merges with or into another Person or sells,
assigns, conveys, transfers, leases or otherwise disposes of all or
substantially all of its assets to any Person, or any Person merges with or
into the Borrower or the Parent, in any such event pursuant to a transaction in
which the outstanding Voting Stock of the Borrower or the Parent is converted
into or exchanged for cash, securities or other property, other than any such
transaction where (x) the outstanding Voting Stock of the Borrower or the
Parent is converted into or exchanged for (1) Voting Stock (other than
Disqualified Stock) of the surviving or transferee corporation and/or (2) cash,
securities and other property in an amount which could be paid by the Borrower
as a Restricted Payment under Section 7.04 hereof and (y) immediately after
such transaction no "person" or "group" (within the meaning of Section 13(d)
and 14(d) of the Exchange Act) (other than one or more of the Permitted
Shareholders) is the "beneficial owner" (as defined in Rules 13d-3 and 13d-5
under the Exchange Act, except that a Person shall be deemed to have
"beneficial ownership" of all shares that any such Person has the right to
acquire, whether such right is exercisable immediately or only after the
passage of time), directly or indirectly, of (1) 35% or more of the voting
power of the Voting Stock of the surviving or transferee corporation on a
fully-diluted basis, after giving effect to the conversion and exercise of
all outstanding warrants, options and other securities of such surviving or
transferee corporation, convertible into or exercisable for Voting Stock of
such surviving or transferee corporation (whether or not such securities are
then currently convertible or exercisable) and (2) a greater percentage of the
voting power of the Voting Stock of such surviving or transferee corporation
calculated on such fully diluted basis, than the percentage then beneficially
owned by the Permitted Shareholders; or
(iv) during any period of two consecutive calendar years, individuals who at
the beginning of such period constituted either the board of directors of the
Borrower or of the Parent, as the case may be, together with any new members of
such board of directors (a) whose election by such board of directors or whose
nomination for election by the stockholders of the Borrower or the stockholders
of the Parent, as the case may be, was approved by a vote of a majority of the
members of such board of directors then still in office who either were
directors at the beginning of such period or whose election or nomination for
election was previously so approved or (b) elected by the Permitted
Shareholders, cease for any reason to constitute a majority of the directors of
the Borrower or of the Parent, as the case may be, then in office.
"Change in Control Provision" shall mean any term or provision contained in any
indenture, debenture, note, or other agreement or document evidencing or
governing Indebtedness of Borrower evidencing debt or a commitment to extend
loans in excess of $1,000,000.00 which requires, or permits the holder(s) of
such Indebtedness of Borrower to require that such Indebtedness of Borrower be
redeemed, repurchased, defeased, prepaid or repaid, either in whole or in part,
or the maturity of such Indebtedness of Borrower to be accelerated in any
respect, as a result of a change in ownership of the capital stock of Borrower
or voting rights with respect thereto.
"Closing Certificate" shall mean the closing certificate of even date herewith
delivered by the Borrower to the Agent, in form and substance satisfactory to
the Agent and substantially in the form of Exhibit F.
"Closing Date" shall mean January 28, 2002.
"Collateral" shall mean all of the assets of the Credit Parties subject to
a Lien in favor of the Agent, for the benefit of the Agent and the Lenders,
pursuant to the Security Documents.
"Collateral (Pool A)" shall mean all Collateral other than the Collateral
(Pool B).
"Collateral (Pool B)" shall mean the Real Estate Collateral designated on
Schedule R-1 as Collateral (Pool B), together with all substitutions and
replacements therefor as designated by the Term Lender from time to time.
"Commitments" shall mean the Revolving Loan Commitment and the Term Loan
Commitment.
"Commitment Fee" shall have the meaning ascribed to it in Section 3.05(a).
"Consolidated Cash Flow" shall mean, with respect to any fiscal period of the
Borrower, the sum of (i) Consolidated EBITDA for such period, plus (ii) Rental
Expense for such period, minus (iii) Dividends paid during such period, minus
(iv) Taxes Paid during such period, in each case, calculated on a consolidated
basis in accordance with GAAP.
"Consolidated Companies" shall mean, collectively, Parent and all of its
Subsidiaries.
"Consolidated EBITDA" shall mean, with reference to any period, and without
duplication of any of item, an amount equal to the sum for such fiscal period
of Consolidated Net Income (Loss) and, to the extent deducted in determining
such Consolidated Net Income (Loss), provisions for (i) taxes based on income
(whether paid or deferred), (ii) Consolidated Interest Expense, (iii)
depreciation of assets and (iv) amortization.
"Consolidated Funded Debt" shall mean, as of any date of determination, the
Funded Debt of the Borrower and its Subsidiaries.
"Consolidated Interest Expense" shall mean, for any period, total interest
expense of the Borrower and its Subsidiaries (including without limitation,
interest expense attributable to Capital Leases, all capitalized interest, all
commissions, discounts and other fees and charges owed with respect to bankers
acceptance financing, net costs (i.e., costs minus benefits) under Interest
Rate Contracts, and total interest expense (whether shown as interest expense
or as loss and expenses on sales of receivables) under a receivables purchase
facility) determined on a consolidated basis in accordance with GAAP, excluding
amortized costs of Indebtedness, net of any interest income.
"Consolidated Net Income (Loss)" shall mean, with reference to any period, the
net income (or deficit) of the Borrower and its Subsidiaries for such period
(taken as a cumulative whole), after deducting all operating expenses,
provisions for all taxes and reserves (including reserves for deferred income
taxes) and all other proper deductions, all determined in accordance with GAAP
on a consolidated basis, after eliminating all intercompany transactions and
after deducting portions of income properly attributable to minority interests,
if any, in the stock and surplus of the Subsidiaries of the Borrower, and
excluding the sum of (i) the gain or loss (net of any tax effect) resulting
from the sale of any capital assets other than in the ordinary course of
business of the Borrower and its Subsidiaries and (ii) other extraordinary or
non-recurring items, as defined by GAAP, of the Borrower and its Subsidiaries.
"Consolidated Net Worth" shall mean the shareholders' equity of the Borrower
calculated in accordance with GAAP, less treasury stock.
"Contractual Obligation" of any Person shall mean any provision of any
security issued by such Person or of any material agreement, instrument or
undertaking under which such Person is obligated or by which it or any of the
property owned by it is bound.
"Credit Documents" shall mean, collectively, this Agreement, the Notes, the
Guaranty Agreements, the Security Documents and all other instruments,
documents, certificates, agreements and writings executed in connection
herewith.
"Credit Parties" shall mean, collectively, each of the Borrower and the
Guarantors (including all Persons that are currently Guarantors and all Persons
who may at any time in the future become Guarantors), and every other Person
who from time to time executes a Security Document with respect to all or any
portion of the Obligations.
"Currency Contracts" shall mean any forward contracts, futures contracts,
foreign exchange contracts, currency swap agreements, and other similar
agreements and arrangements entered into by any Consolidated Company designed
to protect any Consolidated Company against fluctuations in foreign exchange
rates.
"Current Maturities of Long Term Debt" shall have the meaning afforded such
term under GAAP and shall be calculated with respect to the Borrower and its
Subsidiaries.
"Default" shall mean any condition or event which, with notice or lapse of
time or both, would constitute an Event of Default.
"Disqualified Stock" means (a) with respect to any Person, Capital Stock of
such Person that, by its terms (or by the terms of any security into which it
is convertible or for which it is exchangeable), or upon the happening of any
event matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the option of the holder thereof,
in whole or in part, on or prior to the date which is one year after the date
on which the Senior Notes mature and (b) with respect to any Subsidiary of such
Person (including with respect to any Subsidiary of the Borrower), any Capital
Stock.
"Documentation Agent" shall mean ORIX.
"Dollar" and "U.S. Dollar" and the sign "$" shall mean lawful money of the
United States of America.
"Eligible Assets" means another business or any substantial part of another
business or other long-term assets (including, without limitation new
restaurant locations), in each case, in, or used or useful in, the same or a
similar line of business as the Borrower (exclusive of Krystal Aviation Co. and
Krystal Aviation Management Co.) was engaged in on the Closing Date or any
reasonable extensions or expansions thereof (including the Capital Stock of
another Person engaged in such business, provided such other Person is, or
immediately after giving effect to any such acquisition shall become, a
Wholly-Owned Subsidiary of the Borrower).
"Eligible Assignee" shall mean (i) a commercial bank organized under the laws
of the United States or any state thereof having a combined capital and
surplus of at least $50,000,000 and a long term debt rate of at least
"investment grade" by Moody's or S& P, or any commercial finance or asset-
based lending Affiliate of any such commercial bank and (ii) any Lender.
"Environmental Laws" shall mean all federal, state, local and foreign statutes
and codes or regulations, rules or ordinances issued, promulgated, or approved
thereunder, now or hereafter in effect (including, without limitation, those
with respect to asbestos or asbestos containing material or exposure to
asbestos or asbestos containing material), relating to pollution or protection
of the environment and relating to public health and safety, relating to (i)
emissions, discharges, releases or threatened releases of pollutants,
contaminants, chemicals or industrial toxic or hazardous constituents,
substances or wastes, including without limitation, any Hazardous Substance,
petroleum including crude oil or any fraction thereof, any petroleum product or
other waste, chemicals or substances regulated by any Environmental Law into
the environment (including, without limitation, ambient air, surface water,
ground water, land surface or subsurface strata), or (ii) the manufacture,
processing, distribution, use, generation, treatment, storage, disposal,
transport or handling of any Hazardous Substance, petroleum including crude
oil or any fraction thereof, any petroleum product or other waste, chemicals
or substances regulated by any Environmental Law, and (iii) underground
storage tanks and related piping, and emissions, discharges and releases or
threatened releases therefrom, such Environmental Laws to include, without
limitation (a) the Clean Air Act (42 U.S.C. 7401 et seq.), (b) the Clean Water
Act (33 U.S.C. 1251 et seq.), (c) the Resource Conservation and Recovery Act
(42 U.S.C. 6901 et seq.), (d) the Toxic Substances Control Act (15 U.S.C.
2601 et seq.), (e) the Comprehensive Environmental Response Compensation and
Liability Act, as amended by the Superfund Amendments and Reauthorization Act
(42 U.S.C. 9601 et seq.), and (f) all applicable national and local laws or
regulations with respect to environmental control.
"Environmental Indemnity Agreement" shall mean that certain Environmental
Indemnity Agreement of even date herewith from the Borrower in favor of the
Agent, for the benefit of the Agent and the Lenders.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock), whether outstanding
prior to, on or after the Closing Date.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended and in effect from time to time.
"ERISA Affiliate" shall mean, with respect to any Person, each trade or
business (whether or not incorporated) which is a member of a group of which
that Person is a member and which is under common control within the meaning of
the regulations promulgated under Section 414 of the Tax Code.
"Eurodollar Advance" shall mean an Advance made or outstanding as a Revolving
Loan bearing interest based on the Adjusted LIBO Rate or an Advance made or
outstanding as the Term Loan bearing interest based on the Adjusted LIBO Rate.
"Eurodollar Borrowing" shall mean a Borrowing made up of Eurodollar Advances.
"Event of Default" shall have the meaning provided in Article VIII.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder.
"Executive Officer" shall mean with respect to any Person, the Chairman,
President, Vice Presidents, Chief Financial Officer, Treasurer, Secretary and
any Person holding comparable offices or duties.
"Exempt Affiliate Transactions" means (a) transactions between or among the
Borrower and/or its Wholly-Owned Subsidiaries, (b) advances to officers of the
Borrower or any Subsidiary of the Borrower in the ordinary course of business
to provide for the payment of reasonable expenses incurred by such persons in
the performance of their responsibilities to the Borrower or such Subsidiary or
in connection with any relocation, (c) fees and compensation paid to and
indemnity provided on behalf of directors, officers or employees of the
Borrower or any Subsidiary of the Borrower in the ordinary course of business,
(d) any employment agreement that is in effect on the Closing Date and any such
agreement entered into by the Borrower or a Subsidiary of the Borrower after
the Closing Date in the ordinary course of business of the Borrower or such
Subsidiary and (e) any Restricted Payment that is not prohibited by Section
7.04 hereof.
"Facility" or "Facilities" shall mean the Revolving Loan Commitment, the Letter
of Credit Subcommitment, and the Term Loan Commitment, as the context may
indicate.
"Federal Funds Rate" shall mean for any period, a fluctuating interest rate per
annum equal for each day during such period to the weighted average of the
rates on overnight Federal funds transactions with member banks of the Federal
Reserve System arranged by Federal funds brokers, as published for such day
(or, if such day is not a Business Day, for the next preceding Business Day) by
the Federal Reserve Bank of Atlanta, or, if such rate is not so published for
any day which is a Business Day, the average of the quotations for such day on
such transactions received by the Agent from three Federal funds brokers of
recognized standing selected by the Agent.
"Final Maturity Date" shall mean, the fifth anniversary of the Closing Date, or
such earlier date as payment of the Term Loan shall become due and payable
(whether by acceleration or otherwise).
"Fiscal Quarter" shall mean, with respect to the Borrower, a period of 13 (or,
if applicable, 14) consecutive week period, in each case, comprising a portion
of the Borrower's Fiscal Year.
"Fiscal Year" shall mean, with respect to the Borrower, any period of 52 (or,
if applicable 53) consecutive weeks ending on the Sunday closest to
December 31 of each year; references to a Fiscal Year with a number
corresponding to any calendar year (e.g., "Fiscal Year 2001") refer to the
Fiscal Year ending on the Sunday closest to December 31 of that year.
"Fiscal Year End" shall mean the last day of any Fiscal Year.
"Fixed Charge Coverage Ratio" shall mean, for any period, the ratio of (a)
Consolidated EBITDA plus Rental Obligations minus extraordinary gains minus
dividends paid during such period, to (b) Fixed Charges for such period in each
case determined with respect to the Borrower and its Subsidiaries for the
Fiscal Quarter ending on such date and the immediately preceding three Fiscal
Quarters.
"Fixed Charges" shall mean, with reference to any period, determined in
accordance with GAAP on a consolidated basis, the sum of the following for the
Borrower and its Subsidiaries, after eliminating all intercompany items:
(a) Consolidated Interest Expense for such period;
(b) all Rental Obligations payable as lessee under any operating lease
properly charged or chargeable to income during such period in
accordance with GAAP;
(c) Current Maturities of Long Term Debt for such period as reflected
on the balance sheet for such ended period; and
(d) Current maturities of Long Term Capital Leases for such period,
without duplication, as reflected on the balance sheets for such ended
period; and
(e) all Cash Taxes Paid; provided, however, that in no event shall Cash
Taxes Paid include any taxes paid as a result of transaction gains or
losses that are not included in EBITDA;
provided that any interest charges or rentals paid or accrued by any Person
acquired by the Borrower or any of its Subsidiaries during such period, through
purchase, merger, consolidation or otherwise, shall be included in "Fixed
Charges" only to the extent that the earnings of such Person are taken into
account in determining Consolidated Cash Flow for such period.
"Funded Debt" shall mean, as applied to any Person, all Indebtedness of such
Person of the types described in clauses (i) - (vii) of the definition thereof,
less the undrawn amount of any Letters of Credit issued hereunder.
"Funded Debt Coverage Ratio" shall mean, as of the last day of any Fiscal
Quarter of the Borrower, the ratio of (i) Consolidated Funded Debt to (ii)
Consolidated EBITDA determined with respect to the Borrower and its
Subsidiaries for the Fiscal Quarter ending on such date and the immediately
preceding three Fiscal Quarters.
"GAAP" shall mean generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or, if no such statements are
promulgated, then such other statements by such other entity as may be approved
by a significant segment of the accounting profession, which are applicable to
the circumstances as of the date of determination.
"Guarantors" shall mean, collectively, (i) the Parent (ii) Krystal Aviation
Co., (iii) Krystal Aviation Management Co. and (iv) all other Material
Subsidiaries of the Borrower, whether now existing or hereafter created, and
their respective successors and permitted assigns.
"Guaranty" shall mean any contractual obligation, contingent or otherwise
(other than letters of credit), of a Person with respect to any Indebtedness or
other obligation or liability of another Person, including without limitation,
any such Indebtedness, obligation or liability directly or indirectly
guaranteed, endorsed, co-made or discounted or sold with recourse by that
Person, or in respect of which that Person is otherwise directly or indirectly
liable, including contractual obligations (contingent or otherwise) arising
through any agreement to purchase, repurchase, or otherwise acquire such
Indebtedness, obligation or liability or any security therefor, or any
agreement to provide funds for the payment or discharge thereof (whether in the
form of loans, advances, stock purchases, capital contributions or otherwise),
or to maintain solvency, assets, level of income, or other financial condition,
or to make any payment other than for value received. The amount of any
Guaranty shall be deemed to be an amount equal to the stated or determinable
amount of the primary obligation in respect of which guaranty is made or, if
not so stated or determinable, the maximum reasonably anticipated liability
in respect thereof (assuming such Person is required to perform thereunder)
as determined by such Person in good faith.
"Guaranty Agreements" shall mean, the Subsidiary Guaranty and the Parent
Guaranty.
"Hazardous Substances" shall have the meaning assigned to that term in the
Comprehensive Environmental Response Compensation and Liability Act of 1980, as
amended by the Superfund Amendments and Reauthorization Act of 1986.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person entered into in the ordinary course of business under interest rate
swap agreements, interest rate cap agreements and interest rate collar
agreements and other similar financial agreements or arrangements designed to
protect such Person against, or manage the exposure of such Person to,
fluctuations in interest rates.
"Indebtedness" of any Person shall mean, without duplication (i) all
obligations of such Person for borrowed money and for the deferred purchase
price of property or services, and obligations evidenced by bonds, debentures,
notes or other similar instruments; (ii) all Capital Lease Obligations; (iii)
all Guaranties of such Person (including contingent reimbursement obligations
under undrawn letters of credit); (iv) Indebtedness of others secured by any
Lien upon property owned by such Person, whether or not assumed; (v)
obligations or other liabilities under Currency Contracts, Interest Rate
Contracts, or other Hedging Obligations; (vi) all obligations of such Person
arising pursuant to any asset securitization transactions; (vii) Redeemable
Capital Stock of such Person valued at the greater of its voluntary or
involuntary maximum fixed repurchase price plus accrued dividends; and (viii)
all other obligations of such Person which in accordance with GAAP would be
shown on the balance sheet of such Person as a liability (other than reserves
required by GAAP). For purposes hereof, the "maximum fixed repurchase price"
of any Redeemable Capital Stock which does not have a fixed repurchase price
shall be calculated in accordance with the terms of such Redeemable Capital
Stock as if such Redeemable Capital Stock were purchased on any date on which
Indebtedness shall be required to be determined pursuant to this Agreement, and
if such price is based on, or measured by, the fair market value of such
Redeemable Capital Stock, such fair market value shall be determined in good
faith by the board of directors of the issuer of such Redeemable Capital Stock.
"Initial Maturity Date" shall mean June 1, 2004, or such earlier date as
payment of the Revolving Loan shall be due (whether by acceleration or
otherwise).
"Intellectual Property Security Agreement" shall mean that certain Intellectual
Property Security Agreement of even date herewith executed by the Borrower and
its Subsidiaries in favor of the Agent, for the benefit of the Agent and the
Lenders, substantially in the form of Exhibit I attached hereto.
"Interest Period" shall mean (i) as to any Eurodollar Advance, the interest
period selected by the Borrower pursuant to Section 3.04(a) hereof, and (ii) as
to the Term Loan, the interest period specified in Section 3.04(c) hereof.
"Interest Rate Contract" shall mean all interest rate swap agreements, interest
rate cap agreements, interest rate collar agreements, interest rate insurance
and other agreements and arrangements designed to provide protection against
fluctuations in interest rates, in each case as the same may be from time to
time amended, restated, renewed, supplemented or otherwise modified.
Investments" means, with respect to any Person, all investments by such Person
in other Persons (including Affiliates) in the form of direct or indirect loans
(including guarantees of Indebtedness or other obligations), advances or other
extensions of credit or capital contributions to other Persons (by means of any
transfer of cash or other property but excluding advances to officers of the
type specified in clause (b) of the definition of Exempt Affiliate
Transactions), or any purchases, acquisitions for consideration of
Indebtedness, Equity Interests or other securities or ownership by such Person
or any Capital Stock, bonds, notes, debentures or other securities (including,
without limitation any interests in a partnership or joint venture) issued or
owned by any other Person, and all other items that are or would be classified
as investments on a balance sheet prepared in accordance with GAAP; provided
that an acquisition by the Borrower for consideration consisting of common
equity securities of the Borrower shall not be deemed to be an Investment.
"Lender" or "Lenders" shall mean, individually and collectively, as the
context may require, the Revolving Lender and the Term Lender.
"Lending Office" shall mean for each Lender, the office such Lender may
designate in writing from time to time to Borrower and the Agent.
"L/C Cash Collateral Account" shall mean a cash collateral account
established by the Agent for deposit of cash collateral for the aggregate L/C
Outstandings, which account shall be designated as the L/C Cash Collateral
Account and shall be subject to the sole dominion and control of the Agent.
"L/C Outstandings" shall mean, as at any date of determination with respect to
an outstanding Letter of Credit, the sum of (i) the maximum aggregate amount
which at such date of determination is available to be drawn (assuming
conditions for drawing thereunder have been met) under such Letter of Credit
then outstanding, plus (ii) the aggregate amount of all drawings under such
Letter of Credit and honored by the Agent not theretofore reimbursed by or on
behalf of the Borrower.
"L/C Subcommitment" shall mean, at any time, an aggregate amount of $5,000,000,
as such amount may be reduced from time to time in accordance with the terms of
this Agreement.
"Letter of Credit" shall mean any letter of credit issued by the Agent for the
account of the Borrower pursuant to the L/C Subcommitment, as the same may be
amended, extended or re-issued from time to time.
"Letter of Credit Fee" shall have the meaning set forth in Section 3.05(b).
"LIBOR" shall mean, for any Interest Period, with respect to Eurodollar
Advances the offered rate for deposits in U.S. Dollars, for a period comparable
to the Interest Period and in an amount comparable to the amount of such
Advances, appearing on the Reuters Screen LIBO Page as of 11:00 A.M. (London,
England time) on the day that is two London Business Days prior to the first
day of the Interest Period. If two or more of such rates appear on the Reuters
Screen LIBO Page, the rate for that Interest Period shall be the arithmetic
mean of such rates. If the foregoing rate is unavailable from the Reuters
Screen for any reason, then such rate shall be determined by the Agent from
Telerate Page 3750 or, if such rate is also unavailable on such service, then
on any other interest rate reporting service of recognized standing designated
in writing by the Agent to Borrower and the other Lenders; in any such case
rounded, if necessary, to the next higher 1/16 of 1.0%, if the rate is not such
a multiple.
"Lien" shall mean any mortgage, pledge, security interest, lien, charge,
hypothecation, assignment, deposit arrangement, title retention, preferential
property right, trust or other arrangement having the practical effect of the
foregoing and shall include the interest of a vendor or lessor under any
conditional sale agreement, capitalized lease or other title retention
agreement.
"Loans" shall mean, collectively, the Revolving Loan and the Term Loan
.
"Margin Regulations" shall mean Regulation T, Regulation U and Regulation X of
the Board of Governors of the Federal Reserve System, as the same may be in
effect from time to time.
"Material Contracts" shall mean the material agreements of the Borrower and
each of the other Credit Parties listed on Schedule 5.10 and all other
agreements of the Borrower or any other Credit Party now or hereafter entered
into which contain material Contractual Obligations.
"Material Subsidiary" shall mean each direct or indirect Subsidiary of the
Borrower.
"Materially Adverse Effect" shall mean any materially adverse change in (i) the
business, results of operations, financial condition, assets or prospects of
the Consolidated Companies, taken as a whole, (ii) the ability of Borrower to
perform its obligations under this Agreement, or (iii) the ability of the other
Credit Parties (taken as a whole) to perform their respective obligations under
the Credit Documents.
"Maturity Date" shall mean, (i) with respect to all amounts owing or Advances
made under the Revolving Loan Commitment, the Initial Maturity Date, and (ii)
with respect to all amounts owing or Advances made under the Term Loan
Commitment, the Final Maturity Date.
"Moody's" shall mean Moody's Investors Service, Inc.
"Mortgages" shall mean those certain mortgages, deed to secure debt, deeds of
trust and similar instruments executed by the Borrower granting a Lien on the
Real Estate Collateral and fixtures owned by the Borrower to the Agent, for
the benefit of the Agent and the Lenders.
"Multiemployer Plan" shall have the meaning set forth in Section 4001(a)(3)
of ERISA.
"Net Proceeds" shall mean the aggregate cash proceeds received by the Borrower
or any of its Subsidiaries in respect of any Asset Sale (including, without
limitation, any cash received upon the sale or other disposition of any noncash
consideration received in any Asset Sale), net of the direct costs relating to
such Asset Sale (including, without limitation legal, accounting and investment
banking fees, and sales commissions), taxes paid or payable as a result
thereof, and any reserve for adjustment in respect of the sale price of such
asset or assets established in accordance with GAAP.
"Notes" shall mean, collectively, the Revolving Loan Note and the Term Loan
Note.
"Notice of Borrowing" shall have the meaning provided in Section 3.01(a)(i).
"Notice of Conversion/Continuation" shall have the meaning provided in
Section 3.01(b)(i).
"Obligations" shall mean all amounts owing to the Agent or any Lender pursuant
to the terms of this Agreement, any Currency Contract or Interest Rate
Contract entered into by a Lender with the Borrower, or any other Credit
Document, including without limitation, all Loans (including all principal and
interest payments (including post-petition interest whether or not allowed as
a claim in any bankruptcy action) due thereunder), fees, expenses,
indemnification and reimbursement payments, indebtedness, liabilities, and
obligations of the Credit Parties, direct or indirect, absolute or contingent,
liquidated or unliquidated, now existing or hereafter arising, together with
all renewals, extensions, modifications or refinancings thereof.
"ORIX" shall mean ORIX Financial Services, Inc., a New York corporation, and
its successors and assigns.
"ORIX Fee Letter" shall mean, that certain Fee Letter dated as of the Closing
Date, executed by the Borrowers and addressed to ORIX.
"Parent" shall mean Port Royal Holdings, Inc., a Georgia corporation.
"Parent Guaranty" shall mean that certain limited recourse Parent Guaranty of
even date herewith executed by the Parent in favor of the Agent for the
benefit of the Agent and the Lenders with respect to the Obligations.
"Parent Pledge Agreement" shall mean that certain Parent Pledge Agreement of
even date herewith executed by the Parent in favor of the Agent, for the
benefit of the Agent and the Lenders, in connection with the Pledged Stock
owned by the Parent substantially in the form of Exhibit E-1.
"Payment Office" shall mean with respect to payments of principal, interest,
fees or other amounts relating to the Revolving Loan and the Term Loan, and
all other Obligations, the office specified as the "Payment Office" for the
Agent on the signature page of the Agent, or such other location as to which
the Agent shall have given written notice to the Borrower.
"PBGC" shall mean the Pension Benefit Guaranty Corporation, or any successor
thereto.
"Permitted Investments" shall mean:
(a) any Investments in the Borrower;
(b) any Investments in Cash Equivalents;
(c) Investments made as a result of the receipt of noncash consideration
from an Asset Sale that was made pursuant to and in compliance with
Section 7.05(b);
(d) Investments in property or assets to be used in any line of business in
which the Borrower or any of its Subsidiaries was engaged on the
Closing Date or any reasonable extensions or expansions thereof; and
(e) Investments in Wholly-Owned Subsidiaries of the Borrower and any entity
that (a) is engaged in the same or a similar line of business as the
Borrower or any of its Subsidiaries was engaged in on the Closing Date
or any reasonable extensions or expansions thereof, and (b) as a result
of such Investment, becomes a Wholly-Owned Subsidiary of the Borrower.
"Permitted Liens" shall mean with respect to any Person,
(a) Liens pursuant to the Security Documents;
(b) Liens existing on the Closing Date and disclosed on Schedule 7.02;
(c) pledges or deposits by such Person under worker's compensation laws,
unemployment insurance laws or similar legislation, or good faith
deposits in connection with bids, tenders, contracts (other than for
the payment of Indebtedness) or leases to which such Person is a party,
or deposits to secure public or statutory obligations of such Person or
deposits of cash or United States government bonds to secure surety or
appeal bonds to which such Person is a party, or deposits as security for
contested taxes or for the payment of rent, in each case incurred in the
ordinary course of business;
(d) Liens imposed by law, such as carriers', warehousemen's and mechanic's
Liens, in each case for sums not yet due or being contested in good faith by
appropriate proceedings; or other Liens arising out of judgments or awards
against such Person with respect to which such Person shall be proceeding
with an appeal or other proceedings for review;
(e) Liens for property taxes not yet subject to penalties for non-payment
or which are being contested in good faith and by appropriate proceedings;
(f) Liens in favor of issuers of surety bonds or letters of credit issued
pursuant to the request of and for the account of such Person in the
ordinary course of its business; provided, however, that such letters of
credit do not constitute Indebtedness;
(g) survey exceptions, minor encumbrances, easements or reservations of,
or rights of others for, licenses, rights of way, sewers, electric lines,
telegraph and telephone lines and other similar purposes, or zoning or other
restrictions as to the use of real properties or liens incidental to the
conduct of the business of such Person or the ownership of its properties
which were not incurred in connection with Indebtedness and which do not or
will not in the aggregate have a Materially Adverse Effect on the value of
said properties or materially impair their use in the operation of the
business of such Person;
(h) Liens securing Indebtedness incurred to finance the construction,
purchase or lease of, or repairs, improvements or additions to, or
equipping of, property; provided, however, that the Lien may not extend to
any other property owned by the Borrower or any Subsidiary at the time the
Lien is incurred, and the Indebtedness secured by the Lien may not be issued
more than 180 days after the later of the acquisition or construction of the
property subject to the Lien;
(i) Liens on property or shares of stock of a Person at the time such
Person becomes a Subsidiary; provided, however, that any such Lien may not
extend to any other property owned by the Borrower or any Subsidiary;
(j) Liens on property at the time the Borrower or a Subsidiary acquires the
property including any acquisition by means of a merger or consolidation
with or into the Borrower or a Subsidiary; provided, however, that the Liens
may not extend to any other property owned by the Borrower or any
Subsidiary;
(k) Liens securing Hedging Obligations so long as the related Indebtedness
is, and is permitted to be hereunder, secured by a Lien on the same
property securing such Hedging Obligations; and
(l) Liens to secure any refinancing, refunding, extension, renewal or
replacement (or successive refinancings, refundings, extensions, renewals
or replacements) as a whole, or in part, of any Indebtedness secured by any
Lien referred to in the foregoing clauses (a), (h) (i) and (j); provided,
however, that (x) such new Lien shall be limited to all or part of the same
property that secured the original Lien (plus improvements on such property)
and (y) the Indebtedness secured by such Lien at such time is not increased
to any amount greater than the sum of (A) the outstanding principal amount
or, if greater, committed amount of the Indebtedness described under clauses
(a), (h), (i) and (j) at the time the original Lien became a Permitted Lien
and (B) an amount necessary to pay any fees and expenses, including
premiums, related to such refinancing, refunding, extension, renewal or
replacement. This clause (n) shall not be deemed to limit the provisions of
clauses (b) through (g) or (k).
"Permitted Shareholders" shall mean (i) those Persons who "beneficially own"
(as such term is defined in Rules 13d-3 and 13d-5 under the Exchange Act)
Voting Stock of the Parent as of the Closing Date; (ii) the spouses, parents,
siblings, descendants (including children or grandchildren) or any Affiliate of
such Persons; (iii) in the event of the incompetence or death of any of the
Persons described in clause (i) or (ii), such Person's estate, executor,
administrator, committee or other personal representative in each case who at
any particular date shall beneficially own or have the right to acquire,
directly or indirectly, Voting Stock of the Parent; (iv) any trusts created for
the sole benefit of the Persons described in clause (i), (ii), or (iii) or any
trust for the benefit of such trust or (y) any Person of which any of the
Persons described in (i), (ii) or (iii) (x) "beneficially owns" (as such term
is defined in Rules 13d-3 and 13d-5 under the Exchange Act) on a fully-diluted
basis all of the Voting Stock of such Person or (y) is the sole trustee or
general partner, or otherwise has the sole power to manage the business and
affairs, of such Person.
"Person" shall mean any individual, partnership, firm, corporation,
association, limited liability company, joint venture, trust or other entity,
or any government or political subdivision or agency, department or
instrumentality thereof.
"Plan" shall mean any "employee benefit plan" (as defined in Section 3(3) of
ERISA), including, but not limited to, any defined benefit pension plan, profit
sharing plan, money purchase pension plan, savings or thrift plan, stock bonus
plan, employee stock ownership plan, Multiemployer Plan, or any plan, fund,
program, arrangement or practice providing for medical (including post-
retirement medical), hospitalization, accident, sickness, disability, or life
insurance benefits.
"Pledge Agreement" shall mean that certain Pledge Agreement of even date
herewith executed by the Borrower and its Subsidiaries in favor of the Agent
for the benefit of the Agent and the Lenders, in connection with the Pledged
Stock owned by the Borrower and its Subsidiaries.
"Pledge Agreements" shall mean, individually and collectively, the Pledge
Agreement and the Parent Pledge Agreement.
"Pledged Stock" shall mean, collectively, all issued and outstanding capital
stock, together with all warrants, stock options, and other purchase and
conversion rights with respect to such capital stock, of each of the Parent,
the Borrower and its Material Subsidiaries (other than Krystal Aviation
Management Co.).
"Post Closing Agreement" shall mean that certain Post Closing Agreement of
even date herewith executed by the Borrower, the Guarantors and the Agent for
the benefit of the Agent and the Lenders.
"Prior Credit Agreement" shall mean that certain Credit Agreement dated as of
September 26, 1997, by and among Borrower, as successor by merger to TKC
Acquisition Corp., the lenders party thereto, SunTrust Bank, Atlanta, as agent
for itself and the lenders, and Bank of America as successor to Union Bank of
Switzerland, New York Branch, as Syndication Agent, as amended, modified, and
restated.
"Pro Rata Share" shall mean, with respect to each of the Commitments of each
Lender, each Revolving Loan to be made by, the Term Loan to be made by, each
Letter of Credit issued hereunder, and each payment (including, without
limitation, any payment of principal, interest or fees) to be made to each
Lender with respect to the Revolving Loan, the percentage designated as such
Lender's Pro Rata Share of the Revolving Loan Commitment or the Term Loan
Commitment, as applicable, such Loans, such Letters of Credit or such payments,
as applicable, set forth under the name of such Lender on the respective
signature page for such Lender, in each case as such Pro Rata Share may change
from time to time as a result of assignments or amendments made pursuant to
this Agreement.
"Public Equity Offering" means underwritten public offering of the common stock
of the Parent pursuant to an effective registration statement filed with the
United States Securities and Exchange Commission in accordance with the
Securities Act (whether alone or in conjunction with a secondary public
offering).
"Purchase Money Obligations" of any Person means any obligations of such
Person to any seller or any other Person incurred or assumed to finance the
construction and/or acquisition of real or personal property to be used in the
business of such Person or any of its Subsidiaries in an amount that is more
than 100% of the cost of such property, and incurred within 180 days after the
date of such construction or acquisition (excluding accounts payable to trade
creditors incurred in the ordinary course of business).
"Real Estate Collateral" shall mean all real property owned by the Borrower
which is listed on Schedule R-1 together with all other real property in which
the Agent is now or hereafter granted an interest to secure the Obligations.
"Redeemable Capital Stock" shall mean any shares of any class or series of
capital stock that, either by the terms thereof, by the terms of any security
into which it is convertible or exchangeable, or by contract or otherwise, is
or upon the happening of an event or passage of time would be, required to be
redeemed prior to the Final Maturity Date or is redeemable at the option of
the holder thereof at any time prior to the Final Maturity Date, or is
convertible into or exchangeable for debt securities at any time prior to the
Final Maturity Date.
"Regulation D" shall mean Regulation D of the Board of Governors of the Federal
Reserve System, as the same may be in effect from time to time.
"Rental Obligations" shall mean, with reference to any period, the aggregate
amount of all rental obligations for which the Borrower and its Subsidiaries
are directly or indirectly liable (as lessee or as guarantor or other surety
but without duplication) under all leases in effect at any time during such
period, including all such amounts for which any Person was liable during the
period immediately prior to the date such Person became a Subsidiary of the
Borrower or was merged into or consolidated with the Borrower or a Subsidiary
of the Borrower, as determined in accordance with GAAP.
"Required Lenders" shall mean (i) at any time, the Lenders holding at least 66
2/3% of the Commitments, whether or not advanced, or, following the termination
of all of the Commitments, the Lenders holding at least 66 2/3% of the
Commitments at the time of termination thereof, and shall mean (ii) all Lenders
at any time during which there are less than three (3) Lenders.
"Requirement of Law" for any person shall mean the articles or certificate of
incorporation or charter and bylaws or other organizational or governing
documents of such Person, and any law, treaty, rule or regulation, or
determination of an arbitrator or a court or other governmental authority, in
each case applicable to or binding upon such Person or any of its property or
to which such Person or any of its property is subject.
"Restricted Payment" has the meaning set forth in Section 7.04 hereof.
"Reuters Screen" shall mean, when used in connection with any designated
page and LIBOR, the display page so designated on the Reuters Monitor Money
Rates Service (or such other page as may replace that page on that service for
the purpose of displaying rates comparable to LIBOR).
"Revolving Lender" shall mean Bank of America, and each assignee thereof, if
any, pursuant to Section 10.06(c).
"Revolving Loan Note" shall mean the promissory note evidencing the Revolving
Loan in the form attached hereto as Exhibit A, either as originally executed or
as hereafter amended, modified or supplemented.
"Revolving Loan Commitment" shall mean, the obligation of the Revolving Lender
to advance the sum of up to $10,000,000 on or after the Closing Date, as the
same may be increased or decreased from time to time as a result of any
reduction thereof pursuant to Section 2.04, any assignment thereof pursuant to
Section 10.06, or any amendment thereof pursuant to Section 10.02, and as
further limited by the deemed utilization of the Revolving Loan Commitment by
the issuance of Letters of Credit.
"Revolving Loan" shall mean the Revolving Loan made to the Borrower by the
Revolving Lender pursuant to Section 2.01.
"Sale and Leaseback Transaction" means any direct or indirect arrangement with
any Person or to which any such Person is a party, providing for the leasing to
the Borrower or a Subsidiary of any property, whether owned by the Borrower or
any Subsidiary as of the Closing Date or later acquired, which has been or is
to be sold or transferred by the Borrower or such Subsidiary to such Person or
to any other Person from whom funds have been or are to be advanced by such
person on the security of such property.
"Securities Act" means the Securities Act of 1933, as amended, and the rules
and regulations promulgated thereunder.
"Security Documents" shall mean, collectively, the Guaranty Agreements, the
Borrower Security Agreement, the Subsidiary Security Agreement, the Pledge
Agreement, the Parent Pledge Agreement, the Mortgages, the Intellectual
Property Security Agreement and each other guaranty agreement, mortgage, deed
of trust, security agreement, pledge agreement, financing statement, or other
security or collateral document guaranteeing or securing the Obligations, now
or hereafter executed, as the same may be amended, restated, supplemented or
otherwise modified from time to time.
"Senior Notes" shall mean those 10.25% Notes due 2007 issued by the Borrower
in favor of certain noteholders, pursuant to the terms of the Senior Notes
Indenture.
"Senior Notes Indenture" shall mean that certain Indenture dated as of
September 26, 1997 as the same may be modified, amended or supplemented from
time to time.
"Subordinated Debt" shall mean all Indebtedness of Borrower which is
subordinated to all obligations of Borrower or any other Credit Party arising
under this Agreement, the Notes, and the Guaranty Agreements, which is created,
incurred or assumed on terms and conditions satisfactory in all respects to
the Agent and the Lenders, including without limitation, with respect to
interest rates, payment terms, maturities, amortization schedules, covenants,
defaults, remedies, and subordination provisions, as evidenced by the prior
written approval of the Agent and the Lenders.
"Subsidiary" shall mean, with respect to any Person, any corporation or other
entity (including, without limitation, partnerships, joint ventures, and
associations) regardless of its jurisdiction of organization or formation, at
least a majority of the total combined voting power of all classes of voting
stock or other ownership interests of which shall, at the time as of which any
determination is being made, be owned by such Person, either directly or
indirectly through one or more other Subsidiaries.
"Subsidiary Guaranty" shall mean that certain Subsidiary Guaranty of even date
herewith executed by the Material Subsidiaries of the Borrower in favor of the
Agent for the benefit of the Agent and the Lenders with respect to the
Obligations, substantially in the form of Exhibit C-2.
"Subsidiary Security Agreement" shall mean that certain Subsidiary Security
Agreement of even date herewith executed by the Material Subsidiaries of the
Borrower in favor of the Agent for the benefit of the Agent and the Lenders,
substantially in the form of Exhibit D-2.
"Tax Code" shall mean the Internal Revenue Code of 1986, as amended and in
effect from time to time.
"Taxes" shall mean any present or future taxes, levies, imposts, duties,
fees, assessments, deductions, withholdings or other charges of whatever
nature, including without limitation, income, receipts, excise, property,
sales, transfer, license, payroll, withholding, social security and franchise
taxes now or hereafter imposed or levied by the United States, or any state,
local or foreign government or by any department, agency or other political
subdivision or taxing authority thereof or therein and all interest, penalties,
additions to tax and similar liabilities with respect thereto.
"Telerate" shall mean, when used in connection with any designated page and
LIBOR, the display page so designated on the Dow Jones Telerate Service (or
such other page as may replace that page on that service for the purpose of
displaying rates comparable to LIBOR).
"Term Lender" shall mean ORIX and each assignee thereof, if any, pursuant to
Section 10.06(c).
"Term Loan" shall mean, the Term Loan made to the Borrower by the Term Lender
pursuant to Section 2.01.
"Term Loan Commitment" shall mean the obligation of the Term Lender to advance
the sum of $15,000,000 on the Closing Date.
"Term Loan Note" shall mean the promissory note evidencing the Term Loan
substantially in the form attached as Exhibit B, either as originally executed
or as hereafter amended, modified or supplemented.
"Termination Statements" shall mean those certain Uniform Commercial Code
termination statements relating to the Prior Credit Agreement in form and
substance satisfactory to the Lenders in their sole and absolute discretion.
"Title Insurance Commitment" shall have the meaning set forth in Section
4.01(j).
"Type" of Borrowing shall mean a Borrowing consisting of Base Rate Advances
or Eurodollar Advances.
"Voting Stock" shall mean securities of any class or classes, the holders of
which are entitled to elect all of the corporate directors (or Persons
performing similar functions).
"Wholly-Owned Subsidiary" of any Person means a Subsidiary of such Person all
of the outstanding Capital Stock or other ownership interests of which (other
than directors' qualifying shares) shall at the time be owned by such Person
or by one or more Wholly-Owned Subsidiaries of such Person.
Section 1.02. Accounting Terms and Determination. Unless otherwise defined or
specified herein, all accounting terms shall be construed herein, all
accounting determinations hereunder shall be made, all financial statements
required to be delivered hereunder shall be prepared, and all financial records
shall be maintained in accordance with, GAAP.
Section 1.03. Other Definitional Terms. The words "hereof", "herein" and
"hereunder" and words of similar import when used in this Agreement shall
refer to this Agreement as a whole and not to any particular provision of this
Agreement, and Article, Section, Schedule, Exhibit and like references are to
this Agreement unless otherwise specified.
Section 1.04. Exhibits and Schedules. All Exhibits and Schedules attached
hereto are by reference made a part hereof.
ARTICLE II.
REVOLVING LOAN
Section 2.01. Revolving Loan Commitment; the Term Loan Commitment; Use of
Proceeds.
(a) Revolving Loan Commitment. Subject to and upon the terms and
conditions herein set forth, the Revolving Lender establishes in favor of the
Borrower, from, on and after the Closing Date, but prior to the Initial
Maturity Date, its Revolving Loan Commitment. The Revolving Lender, subject
to and upon the terms and conditions set forth herein, from time to time agrees
to make to the Borrower Advances of the Revolving Loan in an aggregate
principal amount outstanding at any time not to exceed the Revolving Loan
Commitment. Borrower shall be entitled to repay and reborrow the Revolving
Loan in accordance with the provisions hereof. In addition to the Revolving
Loan, the Borrower may request, from, on and after the Closing Date but prior
to the Initial Maturity Date, that the Agent issue Letters of Credit for the
account of the Borrower, subject to and upon the terms and conditions herein
set forth. Notwithstanding any provision of this Agreement to the contrary,
the sum of (x) the aggregate principal amount of the Revolving Loan, plus
(y) the aggregate L/C Outstandings, shall not exceed the aggregate Revolving
Loan Commitment.
(b) Amount and Terms of Revolving Loan. Each Revolving Loan shall, at the
option of the Borrower, be made or continued as, or converted into, part of one
or more Borrowings that shall consist entirely of Base Rate Advances or
Eurodollar Advances. At no time shall the aggregate number of Eurodollar
Borrowings outstanding under this Article II exceed five.
(c) Term Loan Commitment. Subject to and upon the terms and conditions
herein set forth, the Term Lender establishes in favor of the Borrower, from,
on and after the Closing Date, but prior to the Final Maturity Date, its the
Term Loan Commitment. The Term Lender, subject to and upon the terms and
conditions set forth herein agrees to lend to the Borrower on the Closing Date
the Term Loan in the principal amount outstanding at any time not to exceed the
Term Loan Commitment. The Borrower shall not be entitled to reborrow the Term
Loan. The Borrower shall be entitled to repay the Term Loan in accordance
with the provisions hereof. Prior to the occurrence of a Default or Event of
Default, the Term Loan shall consist entirely of Eurodollar Advances.
(d) Use of Proceeds. The proceeds of the Revolving Loan and the Term Loan
shall be used (i) to repay the Borrower's obligations under the Prior Credit
Agreement and (ii) for the working capital needs of the Borrower.
Section 2.02. [Intentionally Omitted]
Section 2.03. Notes; Repayment of Principal.
(a) The Borrower's obligation to pay the principal of, and interest on, the
Revolving Loan to the Revolving Lender shall be evidenced by the records of
the Agent and the Revolving Lender and by the Revolving Loan Note payable to
the Revolving Lender (or the assignor of the Revolving Lender) in the amount
of the Revolving Loan Commitment, completed in conformity with this Agreement.
(b) [Intentionally Omitted]
(c) All Borrowings outstanding under the Revolving Loan Note shall be due
and payable in full on the Initial Maturity Date. The Borrower shall be
required to provide cash collateral for all Letters of Credit outstanding on
the Initial Maturity Date as provided in Section 2.07(b).
(d) The Borrower's obligations to pay the principal of, and interest on,
the Term Loan to the Term Lender shall be evidenced by the records of the
Agent and the Term Lender by the Term Loan Note payable to the Term Lender
(or the assignor of the Term Lender) in the amount of the Term Loan Commitment,
completed in conformity with this Agreement.
(e) Commencing on March 1, 2002, the unpaid principal balance of the Term
Loan shall be repaid on the first business day of each calendar month
thereafter in fifty-nine (59) monthly installments of $104,166 each, plus
accrued and unpaid interest thereon plus a final payment of all remaining
unpaid principal and interest on the Term Loan which shall be due and payable
on the Final Maturity Date.
Section 2.04. Voluntary Reduction of Revolving Loan Commitment. (a) Upon at
least five (5) Business Days' prior irrevocable telephonic notice to the
Agent (promptly confirmed in writing to the Agent and the Lenders), the
Borrower shall have the right, without premium or penalty, to terminate the
unutilized Revolving Loan Commitment, in part or in whole, provided that (i)
any such termination shall apply to permanently reduce the Revolving Loan
Commitment, and (ii) any partial termination pursuant to this Section 2.04
shall be in an amount of at least $500,000 and integral multiples of $500,000.
Unless otherwise specified by the Borrower in the applicable notice the L/C
Subcommitment shall not be reduced by any such reduction unless and until the
Revolving Loan Commitment is reduced to an amount less than the L/C
Subcommitment in which case the L/C Subcommitment shall be reduced to such
amount.
Section 2.05. L/C Subcommitment. Subject to, and upon the terms and conditions
hereof (including the limitations of Section 2.01) the Borrower may request, in
accordance with the provisions of this Section 2.05 and Section 2.06, that on
and after the Closing Date, that the Agent issue a Letter or Letters of Credit
for the account of the Borrower; provided that (i) no Letter of Credit shall
have an expiration date that is later than five (5) days prior to the Initial
Maturity Date; (ii) each Letter of Credit issued by the Agent shall be in a
stated amount of at least $25,000; and (iii) the Borrower shall not request
that the Agent issue any Letter of Credit, if, after giving effect to such
issuance, the aggregate L/C Outstandings would exceed the L/C Subcommitment.
Section 2.06. Notice of Issuance of Letter of Credit; Agreement to Issue.
(a) Whenever the Borrower desires the issuance of a Letter of Credit, it
shall, in addition to any application and documentation procedures required
by the Agent for the issuance of such Letter of Credit, deliver to the Agent a
written notice no later than 11:00 A.M. (Atlanta, Georgia time) at least five
(5) days in advance of the proposed date of issuance. Each such notice shall
specify (i) the proposed date of issuance (which shall be a Business Day);
(ii) the face amount of the Letter of Credit; (iii) the expiration date of the
Letter of Credit; and (iv) the name and address of the beneficiary with
respect to such Letter of Credit and shall attach a precise description of the
documentation and a verbatim text of any certificate to be presented by the
beneficiary of such Letter of Credit which would require the Agent to make
payment under the Letter of Credit, provided that the Agent may require changes
in any such documents and certificates in accordance with its customary letter
of credit practices, and provided further, that no Letter of Credit shall
require payment against a conforming draft to be made thereunder on the same
Business Day that such draft is presented if such presentation is made after
11:00 A.M. (Atlanta, Georgia time). In determining whether to pay under any
Letter of Credit, the Agent shall be responsible only to determine that the
documents and certificate required to be delivered under its Letter of Credit
have been delivered, and that they comply on their face with the requirements
of the Letter of Credit. Promptly after receiving the notice of issuance of a
Letter of Credit, the Agent shall notify the Revolving Lender of such issuance.
(b) The Agent agrees, subject to the terms and conditions set forth in this
Agreement, to issue for the account of the Borrower a Letter of Credit in a
face amount equal to the face amount requested under paragraph (a) above,
following its receipt of a notice and the application and other documents
required by Section 2.06(a). Immediately upon the issuance of each Letter of
Credit, the Revolving Lender shall be deemed to, and hereby agrees to, have
irrevocably purchased from the Agent a participation in such Letter of Credit
and any drawing thereunder in an amount equal to the Revolving Lender's Pro
Rata Share of such Letter of Credit multiplied by the face amount of such
Letter of Credit.
Section 2.07. Payment of Amounts drawn under Letter of Credit.
(a) In the event of any request for a drawing under any Letter of Credit
by the beneficiary thereof, the Agent shall notify the Borrower and the
Revolving Lender on or before the date on which the Agent intends to honor
such drawing, and the Borrower shall reimburse the Agent on the day on which
such drawing is honored in an amount, in same day funds, equal to the amount
of such drawing, provided that anything contained in this Agreement to the
contrary notwithstanding, unless the Borrower shall have notified the Agent
prior to 11:00 A.M. (Atlanta, Georgia time) on the Business Day immediately
prior to the date on which such drawing is honored, that the Borrower intends
to reimburse the Agent for the amount of such drawing in funds other than the
proceeds of Revolving Loan, the Borrower shall be deemed to have timely given
a Notice of Borrowing to the Agent requesting Base Rate Advances of the
Revolving Loan on the date on which such drawing is honored in an amount equal
to the amount of such drawing, and the Revolving Lender shall by 1:00 P.M.
(Atlanta, Georgia time) on the date of such drawing, make Base Rate Advance of
the Revolving Loan in the amount of such drawing, the proceeds of which shall
be applied directly by the Agent to reimburse the Agent for the amount of such
drawing, provided that for the purposes solely of such Borrowing, the
conditions and precedents set forth in Sections 4.01 and 4.02 hereof shall not
be applicable, and provided further that if for any reason proceeds of the
Revolving Loan are not received by the Agent on such date in the amount equal
to the amount of such drawing, the Borrower shall reimburse the Agent on the
Business Day immediately following the date of such drawing in an amount, in
Dollars and immediately available funds, equal to the excess of the amount of
such drawing over the amount of such Revolving Loan, if any, which are so
received, plus accrued interest on the amount at the applicable rate of
interest for Base Rate Advances.
(b) Notwithstanding any provision of this Agreement to the contrary, to
the extent that any Letter of Credit or portion thereof remains outstanding
on the Initial Maturity Date, the parties hereby agree that the beneficiary or
beneficiaries thereof shall be deemed to have made a drawing of all available
amounts pursuant to such Letters of Credit on the Initial Maturity Date, and
an amount equal to 105% of the amount thereof shall be deposited with the
Agent as cash collateral for its remaining obligations pursuant to such
Letters of Credit in the L/C Cash Collateral Account.
Section 2.08. [Intentionally Omitted]
Section 2.09. Obligations Absolute. The obligation of the Borrower to
reimburse the Agent for drawings made under Letters of Credit issued for the
account of the Borrower and the Revolving Lender's obligation to honor their
participations purchased therein shall be unconditional and irrevocable and
shall be paid strictly in accordance with the terms of this Agreement under all
circumstances, including without limitation, the following circumstances:
(a) Any lack of validity or enforceability of any Letter of Credit;
(b) The existence of any claim, set-off, defense or other right which the
Borrower or any Subsidiary or Affiliate of the Borrower may have at any time
against a beneficiary or any transferee of any Letter of Credit (or any
Persons or entities for whom any such beneficiary or transferee may be acting),
the Revolving Lender or any other Person, whether in connection with this
Agreement, the transactions contemplated herein or any unrelated transaction
(including without limitation any underlying transaction between the Borrower
or any of its Subsidiaries and Affiliates and the beneficiary for which such
Letter of Credit was procured); provided that nothing in this Section shall
affect the right of the Borrower to seek relief against any beneficiary,
transferee, Revolving Lender or any other Person in any action or proceeding
or to bring a counterclaim in any suit involving such Persons;
(c) Any draft, demand, certificate or any other document presented under
any Letter of Credit proving to be forged, fraudulent or invalid in any
respect or any statement therein being untrue or inaccurate in any respect;
(d) Payment by the Agent under any Letter of Credit against presentation
of a demand, draft or certificate or other document which does not comply
with the terms of such Letter of Credit;
(e) Any other circumstance or happening whatsoever which is similar to any
of the foregoing; or
(f) the fact that a Default or an Event of Default shall have occurred and
be continuing.
Nothing in this Section 2.09 shall prevent an action against the Agent for its
gross negligence or willful misconduct in honoring drafts under the Letters of
Credit or otherwise.
Section 2.10. Indemnification; Nature of Agent's Duties.
(a) In addition to amounts payable as elsewhere provided in this Agreement,
without duplication, the Borrower hereby agrees to protect, indemnify, pay and
save the Agent and the Revolving Lender harmless from and against any and all
claims, demands, liabilities, damages, losses, costs, charges and reasonable
expenses (including reasonable attorney's fees and disbursements) which the
Agent or the Revolving Lender may incur or be subject to as a consequence,
direct or indirect, of (i) the issuance of any Letter of Credit for the
account of the Borrower, other than as a result of the gross negligence or
willful misconduct of the Agent; (ii) the failure of the Agent to honor a
drawing under any Letter of Credit due to any act or omission (whether rightful
or wrongful) of any present or future de jure or de facto government or
governmental authority; or (iii) any confirmation of any Letter of Credit
obtained by the Agent with the consent of the Borrower
.
(b) Notwithstanding any other provision contained in this Agreement, the
Agent shall not be obligated to issue any Letter of Credit, nor shall the
Revolving Lender be obligated to purchase its participation in any Letter of
Credit to be issued hereunder, if the issuance of such Letter of Credit or
purchase of such participation shall have become unlawful or prohibited by
compliance by Agent or the Revolving Lender in good faith with any law,
governmental rule, guideline, request, order, injunction, judgment or decree
(whether or not having the force of law); provided that in the case of the
obligation of a Revolving Lender to purchase such participation, the Revolving
Lender shall have notified the Agent to such effect in writing at least
ten (10) Business Days' prior to the issuance thereof by the Agent, which
notice shall relieve the Agent of its obligation to issue such Letter of
Credit pursuant to the L/C Subcommitment.
ARTICLE III.
GENERAL LOAN TERMS
Section 3.01. Funding Notices
(a) Whenever the Borrower desires to make a Borrowing with respect to the
Revolving Loan Commitment (other than one resulting from a conversion or
continuation pursuant to Section 3.01(b)(i), and other than a Borrowing made
automatically in connection with a treasury management program established by
the Borrower with the Agent), it shall give the Agent prior written notice,
substantially in the form of Exhibit J attached hereto, (or telephonic notice
promptly confirmed in writing) of such Borrowing (a "Notice of Borrowing"),
such Notice of Borrowing to be given prior to 11:00 A.M. (local time for the
Agent) at the Payment Office of the Agent (x) on the Business Day which is the
requested date of such Borrowing in the case of Base Rate Advances, and (y)
three Business Days prior to the requested date of such Borrowing in the case
of Eurodollar Advances. Notices received after 11:00 A.M. shall be deemed
received on the next Business Day. Each Notice of Borrowing shall be
irrevocable and shall specify the aggregate principal amount of the Borrowing,
the date of Borrowing (which shall be a Business Day), and whether the
Borrowing is to consist of Base Rate Advances or Eurodollar Advances and (in
the case of Eurodollar Advances) the Interest Period to be applicable thereto.
Each Borrowing shall be in an amount of not less than $500,000 and shall be in
an integral multiple of $100,000.
(b) Whenever Borrower desires to convert all or a portion of an outstanding
Borrowing under the Revolving Loan Commitment consisting of Base Rate Advances
into a Borrowing consisting of Eurodollar Advances, or to continue outstanding
a Borrowing consisting of Eurodollar Advances for a new Interest Period, it
shall give the Agent at least three Business Days' prior written notice,
substantially in the form of Exhibit K attached hereto (or telephonic notice
promptly confirmed in writing) of each such Borrowing to be converted into or
continued as Eurodollar Advances. Such notice (a "Notice of
Conversion/Continuation") shall be given prior to 11:00 A.M. (local time for
the Agent) on the date specified at the Payment Office of the Agent. Each
such Notice of Conversion/Continuation shall be irrevocable and shall specify
the aggregate principal amount of the Advances under the Revolving Loan
Commitment to be converted or continued, the date of such conversion or
continuation and the Interest Period to be applicable thereto. Each such
Advance to be converted into or continued as a Eurodollar Advance shall be in
an amount of not less than $500,000, and shall be in an integral multiple of
$100,000. If, upon the expiration of any Interest Period in respect of any
Borrowing consisting of Eurodollar Advances, Borrower shall have failed to
either deliver the Notice of Conversion/Continuation or repay such Borrowing,
Borrower shall be deemed to have elected to convert or continue such Borrowing
to or as a Borrowing consisting of Base Rate Advances. So long as any Default
or Event of Default shall have occurred and be continuing, no Borrowing may be
converted into or continued as (upon expiration of the current Interest Period)
Eurodollar Advances unless the Agent and each of the Lenders shall have
otherwise consented in writing. No conversion of any Borrowing of Revolving
Eurodollar Advances shall be permitted except on the last day of the Interest
Period in respect thereof.
(c) Without in any way limiting Borrower's obligation to confirm in
writing any telephonic notice, the Agent may act without liability upon the
basis of telephonic notice believed by the Agent in good faith to be from
Borrower prior to receipt of written confirmation. In each such case, Borrower
hereby waives the right to dispute the Agent's record of the terms of such
telephonic notice, absent manifest error.
(d) The Agent shall promptly give the Revolving Lender notice by telephone
(confirmed in writing) or by telex, telecopy or facsimile transmission of the
matters covered by the notices given to the Agent pursuant to this Section 3.01
with respect to the Revolving Loan Commitment.
Section 3.02. Disbursement of Funds
.
(a) No later than 1:00 p.m. (local time for the Agent) on the date of each
Borrowing pursuant to the Revolving Loan Commitment or the Borrowing pursuant
to the Term Loan Commitment (other than one resulting from a conversion or
continuation pursuant to Section 3.01(b)(i)), the Revolving Lender or Term
Lender, as applicable will make available its Pro Rata Share of the amount of
such Borrowing in immediately available funds at the Payment Office of the
Agent. The Agent will make available to Borrower the aggregate of the amounts
(if any) so made available by the Revolving Lender or Term Lender, as
applicable to the Agent in a timely manner by crediting such amounts to
Borrower's demand deposit account maintained with the Agent or at Borrower's
option, by effecting a wire transfer of such amounts to an account specified by
the Borrower, by the close of business on such Business Day (with interest on
such amount to begin accruing hereunder on such Business Day). In the event
that the Agent does not make such amounts available to the Borrower by the
close of business on such Business Day, but such amount is made available
later that day, such amount may be credited to Borrower in the manner
described in the preceding sentence on the next Business Day (with interest on
such amount to begin accruing hereunder on such next Business Day). The Term
Loan shall be disbursed in a single Borrowing on the Closing Date.
(b) Unless the Agent shall have been notified by any Lender prior to the
date of a Borrowing that such Lender does not intend to make available to the
Agent such Lender's portion of the Borrowing to be made on such date, the Agent
may assume that such Lender has made such amount available to the Agent on such
date and the Agent may make available to Borrower a corresponding amount. If
such corresponding amount is not in fact made available to the Agent by such
Lender on the date of Borrowing, the Agent shall be entitled to recover such
corresponding amount on demand from such Lender together with interest at the
Federal Funds Rate. If such Lender does not pay such corresponding amount
forthwith upon the Agent's demand therefor, the Agent shall promptly notify
Borrower, and Borrower shall immediately pay such corresponding amount to the
Agent together with interest at the rate specified for the Borrowing which
includes such amount paid and any amounts due under Section 3.12 hereof.
Nothing in this subsection shall be deemed to relieve any Lender from its
obligation to fund its Commitments or its obligations pursuant to Section
2.02 hereunder or to prejudice any rights which Borrower may have against
any Lender as a result of any default by such Lender hereunder.
(c) All Borrowings under the Commitments shall be loaned by the Lenders
on the basis of their Pro Rata Share of the Commitments. No Lender shall be
responsible for any default by any other Lender in its obligations hereunder,
and each Lender shall be obligated to make the Loans provided to be made by
it hereunder, regardless of the failure of any other Lender to fund its
Commitment hereunder.
Section 3.03. Interest.
(a) The Borrower agrees to pay interest in respect of all unpaid principal
amounts of the Revolving Loan from the respective dates such principal amounts
were advanced to maturity (whether by acceleration, notice of prepayment or
otherwise) at rates per annum equal to the applicable rates indicated below:
(i) For Base Rate Advances - The Base Rate in effect from time to time
plus the Applicable Margin; and
(ii) For Eurodollar Advances - The relevant Adjusted LIBO Rate for the
Interest Period plus the Applicable Margin.
(b) The Borrower agrees to pay interest in respect of the unpaid principal
amount of the Term Loan from the Closing Date to maturity (whether by
acceleration, notice of prepayment or otherwise) at the relevant Adjusted LIBO
Rate for the Interest Period plus the Applicable Margin.
(c) [Intentionally Omitted]
(d) Overdue principal and, to the extent not prohibited by applicable law,
overdue interest, in respect of the Loans, and all other overdue amounts owing
hereunder, shall bear interest from each date that such amounts are overdue:
(i) in the case of overdue principal and interest with respect to all
Loans outstanding as Eurodollar Advances, at the greater of (A) the rate
otherwise applicable for then current Interest Period plus an additional
two percent (2.0%) per annum or (B) the rate in effect for Base Rate
Advances plus an additional two percent (2.0%) per annum; and
(ii) in the case of overdue principal and interest with respect to
all other Loans outstanding as Base Rate Advances and all other
Obligations hereunder (other than Loans), at a rate equal to the
applicable Base Rate plus an additional two percent (2.0%) per annum.
(e) Interest on Advances under the Revolving Loan and interest on the Term
Loan, subject to Section 3.03(a) and (d) hereof, shall be payable as follows
(i) On Base Rate Advances. Interest on each Base Rate Advance shall
be payable monthly in arrears on the first day of each month for the prior
month commencing on February 1, 2002.
(ii) On Eurodollar Advances. Interest on each Eurodollar Advance shall
be payable on the last day of the applicable Interest Period and, with
respect to Eurodollar Advances for which the applicable Interest Period
exceeds 3 months, also on the last day of each Fiscal Quarter occurring
during such Interest Period.
(f) The Agent, upon determining the Adjusted LIBO Rate for Interest Period,
shall promptly notify by telephone (confirmed in writing) or in writing
Borrower and the other Lenders of such Adjusted LIBO Rate. Any such
determination shall, absent manifest error, be final, conclusive and binding
for all purposes.
Section 3.04. Interest Period.
(a) In connection with the making or continuation of, or conversion into,
each Borrowing of Eurodollar Advances, Borrower shall select an Interest
Period to be applicable to such Eurodollar Advances, which Interest Period
with respect to Advances of the Revolving Loan shall be either a 1, 2, 3 or
6-month period or such other period as may be made available to the Borrower
by the Revolving Lender from time to time, and with respect to Advances of the
Term Loan shall be a 1-month period.
(b) [Intentionally Omitted]
(c) Notwithstanding paragraph (a) of this Section 3.04:
(i) The initial Interest Period for any Borrowing of Eurodollar
Advances shall commence on the date of such Borrowing (including the date
of any conversion from a Borrowing consisting of Base Rate Advances) and
each Interest Period occurring thereafter in respect of such Borrowing
shall commence on the day on which the next preceding Interest Period
expires;
(ii) If any Interest Period would otherwise expire on a day which is
not a Business Day, such Interest Period shall expire on the next
succeeding Business Day, provided that if any Interest Period in respect
of Eurodollar Advances would otherwise expire on a day that is not a
Business Day but is a day of the month after which no further Business Day
occurs in such month, such Interest Period shall expire on the next
preceding Business Day;
(iii) Any Interest Period in respect of Eurodollar Advances which
begins on a day for which there is no numerically corresponding day in the
calendar month at the end of such Interest Period shall, subject to part
(iv) below, expire on the last Business Day of such calendar month; and
(iv) No Interest Period with respect to the Loans shall extend beyond
the Maturity Date.
Section 3.05. Fees.
(a) Commitment Fee. Borrower shall pay to the Agent, for the ratable
benefit of the Revolving Lender, a commitment fee (the "Commitment Fee") for
the period commencing on the Closing Date to and including the Maturity Date,
payable (a) quarterly in arrears on the last day of each calendar quarter,
commencing on the last day of the first Fiscal Quarter of 2002, and (b) on the
Maturity Date, equal to Applicable Commitment Fee Rate per annum multiplied by
the average daily unused portion of the Revolving Loan Commitment of the
Revolving Lender. For the purposes of computing the Commitment Fee, in
addition to the utilization by Revolving Loan, the Revolving Loan Commitment of
the Revolving Lender shall be deemed to be utilized by the amount of L/C
Outstandings.
(b) Letter of Credit Fee. The Borrower shall pay to the Agent, for the
account of itself and the Revolving Lender (i) a letter of credit fee equal to
the Applicable Margin for Eurodollar Advances multiplied by the average daily
aggregate L/C Outstandings with respect to Letters of Credit (the "Letter of
Credit Fee") plus, (ii) a fronting fee equal to 0.125% per annum times the
aggregate daily amount available to be drawn under all Letters of Credit
(determined as of the close of business on any date of determination) which
shall be payable at the time of issuance of each Letter of Credit. The Letter
of Credit Fee shall be payable by the Borrower (a) quarterly, in arrears,
commencing on March 31, 2002 and continuing thereafter on the last day of each
succeeding calendar quarter and (b) on the Maturity Date.
(c) Administrative Fees; ORIX Fees. The Borrower shall (i) pay to the
Agent an administrative fee in the amount and on the dates previously agreed
in writing by Borrower with the Agent pursuant to the Agent's Fee Letter, and
(ii) pay to ORIX, the fees in the amounts and on the dates previously agreed
in writing by the Borrower with ORIX pursuant to the ORIX Fee Letter.
Section 3.06. Voluntary Prepayments of Borrowings.
(a) Borrower may, at its option, prepay Borrowings consisting of Base
Rate Advances at any time in whole, or from time to time in part, in amounts
aggregating $500,000 or any greater integral multiple of $100,000, by paying
the principal amount to be prepaid together with interest accrued and unpaid
thereon to the date of prepayment. Borrowings consisting of Eurodollar
Advances (other than the Term Loan) may be prepaid, at Borrower's option, in
whole, or from time to time in part, in amounts aggregating $500,000 or any
greater integral multiple of $100,000, by paying the principal amount to be
prepaid, together with interest accrued and unpaid thereon to the date of
prepayment, and all compensation payments pursuant to Section 3.12 if such
prepayment is made on a date other than the last day of an Interest Period
applicable thereto. Each such optional prepayment shall be applied in
accordance with Section 3.06(c) below:
(ii) The Borrower may not prepay the Term Loan at any time prior to
the first anniversary of the Closing Date. At any time after the first
anniversary of the Closing Date, upon thirty day prior written notice (which
notice shall be irrevocable) to the Agent, the Borrower shall have the right
to prepay the Term Loan Outstanding, in part or in whole, provided that
(i) any such termination shall apply to proportionately reduce the Term Loan
Commitments of each of the Term Lender, and (ii) any partial termination
pursuant to this Section 2.04(d) shall be in an amount of at least $500,000
and integral multiples of $100,000. Provided that no Event of Default has
occurred and is continuing, any such reduction in the Term Loan Commitment
shall not be deemed a permanent reduction of the Commitments because the
Revolving Lender may, at its sole discretion and at the request of the
Borrower no earlier than eighteen (18) months from the Closing Date, and with
the approval of the Term Lender, elect to increase the Revolving Loan
Commitment to the extent of any prior reduction in the Term Loan Commitment;
provided, however, that there is and shall be no obligation or requirement on
the part of the Revolving Lender to extend any such financial accommodation or
on the part of the Term Lender to approve the Borrower's request. If for any
reason any prepayments under this Section 2.04(b) are made after the first
anniversary of the Closing Date, in view of the impracticality and extreme
difficulty of ascertaining actual damages and by mutual agreement of the
Borrower and the Term Lender as to the calculation of the Term Lender's lost
profits as a result thereof, the Borrower agrees to pay to the Term Lender,
upon each such prepayment, a prepayment fee in the amount set forth below if
such prepayment is made in the period indicated:
Amount Period
(A) 4% of the portion of the then after the first anniversary of
outstanding principal balance of the the Closing Date but prior to or
Term Loan which is prepaid on the second anniversary of the
Closing Date
(B) 3% of the portion of the then after the second anniversary of the
outstanding principal balance of the Closing Date but prior to or on
Term Loan which is prepaid the third anniversary of the
Closing Date
(C) 2% of the portion of the then after the third anniversary of the
outstanding principal balance of the Closing Date but prior to or on the
Term Loan which is prepaid fourth anniversary of the
Closing Date
(D) 1% of the portion of the then after the fourth anniversary of the
outstanding principal balance of the Closing Date but prior to or on the
Term Loan which is prepaid first day of the sixth (6th) month
following the fourth anniversary of
the Closing Date
(E) No premium after the first day of the sixth
(6th) month following the fourth
anniversary of the Closing Date.
(b) Borrower shall give written notice (or telephonic notice confirmed in
writing) to the Agent of any intended prepayment of the Revolving Loan (i) not
less than one Business Day prior to any prepayment of Base Rate Advances and
(ii) not less than three Business Days prior to any prepayment of Eurodollar
Advances (other than the Term Loan). Such notice, once given, shall be
irrevocable. Upon receipt of such notice of prepayment pursuant to the first
sentence of this paragraph (b), the Agent shall promptly notify the Revolving
Lender of the contents of such notice.
(c) Borrower, when providing notice of prepayment pursuant to Section
3.06(b), may designate the Types of Advances and the specific Borrowing or
Borrowings which are to be prepaid, provided that (i) if any prepayment of
Eurodollar Advances made pursuant to a single Borrowing of the Revolving Loan
shall reduce the outstanding Advances made pursuant to such Borrowing to an
amount less than $500,000, such Borrowing shall immediately be converted into
Base Rate Advances; and (ii) each prepayment made pursuant to a single
Borrowing shall be applied pro rata among the Advances comprising such
Borrowing. In the absence of a designation by Borrower, the Agent shall,
subject to the foregoing, make such designation in its discretion but using
reasonable efforts to avoid funding losses to the Lenders pursuant to Section
3.12. All voluntary prepayments shall be applied to the payment of interest
before application to principal.
Section 3.07. Payments, etc.
(a) Except as otherwise specifically provided herein, all payments under
this Agreement and the other Credit Documents shall be made without defense,
set-off or counterclaim to the Agent not later than 1:00 P.M. (local time for
the Agent) on the date when due and shall be made in Dollars in immediately
available funds at its Payment Office.
(b) (i) All such payments shall be made free and clear of and without
deduction or withholding for any Taxes in respect of this Agreement, the Notes
or other Credit Documents, or any payments of principal, interest, fees or
other amounts payable hereunder or thereunder (but excluding, except as
provided in paragraph (iii) hereof, any Taxes imposed on the overall net income
of the Lenders pursuant to the laws of the jurisdiction in which the principal
executive office or appropriate Lending Office of such Lender is located). If
any Taxes are so levied or imposed, Borrower agrees (A) to pay the full amount
of such Taxes, and such additional amounts as may be necessary so that every
net payment of all amounts due hereunder and under the Notes and other Credit
Documents, after withholding or deduction for or on account of any such Taxes
(including additional sums payable under this Section 3.07), will not be less
than the full amount provided for herein had no such deduction or withholding
been required, (B) to make such withholding or deduction and (C) to pay the
full amount deducted to the relevant authority in accordance with applicable
law. Borrower will furnish to the Agent and each Lender, within 30 days after
the date the payment of any Taxes is due pursuant to applicable law, certified
copies of tax receipts evidencing such payment by Borrower. Borrower will
indemnify and hold harmless the Agent and each Lender and reimburse the Agent
and each Lender upon written request for the amount of any Taxes so levied or
imposed and paid by the Agent or Lender and any liability (including penalties,
interest and expenses) arising therefrom or with respect thereto, whether or
not such Taxes were correctly or illegally asserted. A certificate as to the
amount of such payment by such Lender or the Agent, absent manifest error,
shall be final, conclusive and binding for all purposes provided that the Agent
and each Lender shall use reasonable efforts to furnish Borrower notice of the
imposition of any Taxes as soon as practicable thereafter; provided, however,
that no delay or failure to furnish such notice shall in any event release or
discharge Borrower from its obligations to the Agent or such Lender pursuant
to Section 3.07(b) or otherwise result in any liability of the Agent or such
Lender.
(ii) Each Lender that is organized under the laws of any jurisdiction
other than the United States of America or any State thereof (including the
District of Columbia) agrees to furnish to Borrower and the Agent, prior to
the time it becomes a Lender hereunder, two copies of either U.S. Internal
Revenue Service Form 4224 or U.S. Internal Revenue Service Form 1001 or any
successor forms thereto (wherein such Lender claims entitlement to complete
exemption from or reduced rate of U.S. Federal withholding tax on interest paid
by Borrower hereunder) and to provide to Borrower and the Agent a new Form
4224 or Form 1001 or any successor forms thereto if any previously delivered
form is found to be incomplete or incorrect in any material respect or upon
the obsolescence of any previously delivered form; provided, however, that no
Lender shall be required to furnish a form under this paragraph (ii) after the
date that it becomes a Lender hereunder if it is not entitled to claim an
exemption from or a reduced rate of withholding under applicable law.
(iii) Borrower shall also reimburse each Lender, upon written request,
for any Taxes imposed (including, without limitation, Taxes imposed on the
overall net income of such Lender or its applicable Lending Office pursuant to
the laws of the jurisdiction in which the principal executive office or the
applicable Lending Office of such Lender is located) as such Lender shall
determine are payable by such Lender in respect of amounts paid by or on
behalf of Borrower to or on behalf of such Lender pursuant to paragraph
(i) hereof.
(c) Subject to Section 3.04(c)(ii), whenever any payment to be made
hereunder or under any Note shall be stated to be due on a day which is not a
Business Day, the due date thereof shall be extended to the next succeeding
Business Day and, with respect to payments of principal, interest thereon shall
be payable at the applicable rate during such extension.
(d) All computations of interest and fees shall be made on the basis of a
year of 360 days for the actual number of days (including the first day but
excluding the last day) occurring in the period for which such interest or
fees are payable (to the extent computed on the basis of days elapsed).
Interest on Base Rate Advances shall be calculated based on the Base Rate from
and including the date of such Loan to but excluding the date of the repayment
or conversion thereof. Interest on each Eurodollar Advance shall be
calculated as to each Interest Period from and including the first day thereof
to but excluding the last day thereof. Each determination by the Agent of an
interest rate or fee hereunder shall be made in good faith and, except for
manifest error, shall be final, conclusive and binding for all purposes.
(e) Payment by the Borrower to the Agent in accordance with the terms of
this Agreement shall, as to the Borrower, constitute payment to the Lenders
under this Agreement.
Section 3.08. Interest Rate Not Ascertainable, etc. In the event that the
Agent shall have reasonably determined (which determination shall be made in
good faith and, absent manifest error, shall be final, conclusive and binding
upon all parties) that on any date for determining the Adjusted LIBO Rate for
any Interest Period, by reason of any changes arising after the date of this
Agreement affecting the London interbank market, or the Agent's position in
such market, adequate and fair means do not exist for ascertaining the
applicable interest rate on the basis provided for in the definition of
Adjusted LIBO Rate, then, and in any such event, the Agent shall forthwith
give notice (by telephone confirmed in writing) to Borrower and to the Lenders,
of such determination and a summary of the basis for such determination. Until
the Agent notifies Borrower that the circumstances giving rise to the
suspension described herein no longer exist, the obligations of the Lenders to
make or permit portions of the Revolving Loan or the Term Loan, as applicable,
to remain outstanding past the last day of then current Interest Periods as
Eurodollar Advances shall be suspended, and such affected Advances shall bear
the same interest as Base Rate Advances.
Section 3.09. Illegality.
(a) In the event that any Lender shall have reasonably determined (which
determination shall be made in good faith and, absent manifest error, shall be
final, conclusive and binding upon all parties) at any time that the making or
continuance of any Eurodollar Advance has become unlawful by compliance by
such Lender in good faith with any applicable law, governmental rule,
regulation, guideline or order (whether or not having the force of law and
whether or not failure to comply therewith would be unlawful), then, in any
such event, the Lender shall give prompt notice (by telephone confirmed in
writing) to Borrower and to the Agent of such determination and a summary of
the basis for such determination (which notice the Agent shall promptly
transmit to the other Lenders).
(b) Upon the giving of the notice to Borrower referred to in subsection
(a) above, (i) Borrower's right to request and such Lender's obligation to
make Eurodollar Advances shall be immediately suspended until such time that
the making or continuance of any Eurodollar Advance is no longer unlawful,
and such Lender shall make an Advance as part of the requested Borrowing of
Eurodollar Advance as a Base Rate Advance, which Base Rate Advance shall, for
all other purposes, be considered part of such Borrowing, and (ii) if the
affected Eurodollar Advance or Advances are then outstanding, Borrower shall
immediately, or if permitted by applicable law, no later than the date
permitted thereby, upon at least one Business Day's written notice to the
Agent and the affected Lender, convert each such Advance into a Base Rate
Advance or Advances, provided that if more than one Lender is affected at any
time, then all affected Lenders must be treated the same pursuant to this
Section 3.09(b).
Section 3.10. Increased Costs.
(a) If, by reason of (x) after the date hereof, the introduction of or
any change (including, without limitation, any change by way of imposition or
increase of reserve requirements) in or in the interpretation of any law or
regulation, or (y) the compliance with any guideline or request from any
central bank or other governmental authority or quasi-governmental authority
exercising control over banks or financial institutions generally made after
the date hereof (whether or not having the force of law):
(i) any Lender (or its applicable Lending Office) shall be subject to
any tax, duty or other charge with respect to its Eurodollar Advances or its
obligation to make Eurodollar Advances or the basis of taxation of payments to
any Lender of the principal of or interest on its Eurodollar Advances or its
obligation to make Eurodollar Advances shall have changed (except for changes
in the tax on the overall net income of such Lender or its applicable Lending
Office imposed by the jurisdiction in which such Lender's principal executive
office or applicable Lending Office is located); or
(ii) any reserve (including, without limitation, any imposed by the
Board of Governors of the Federal Reserve System), special deposit or similar
requirement against assets of, deposits with or for the account of, or credit
extended by, any Lender's applicable Lending Office shall be imposed or deemed
applicable or any other condition adversely affecting its Eurodollar Advances
or its obligation to make Eurodollar Advances shall be imposed on any Lender
or its applicable Lending Office or the London interbank market;
(iii) and as a result thereof there shall be any increase in the cost
to such Lender of agreeing to make or making, funding or maintaining Eurodollar
Advances (except to the extent already included in the determination of the
applicable Adjusted LIBO Rate for Eurodollar Advances) or its obligation to
make Eurodollar Advances, or there shall be a reduction in the amount received
or receivable by such Lender or its applicable Lending Office, then Borrower
shall from time to time (subject, in the case of certain Taxes, to the
applicable provisions of Section 3.07(b)), upon written notice from and demand
by such Lender on Borrower (with a copy of such notice and demand to the
Agent), pay to the Agent for the account of such Lender within five Business
Days after the date of such notice and demand, additional amounts sufficient
to indemnify such Lender against such increased cost. A certificate as to the
amount of such increased cost, submitted to Borrower and the Agent by such
Lender in good faith and accompanied by a statement prepared by such Lender
describing in reasonable detail the basis for and calculation of such increased
cost, shall, except for manifest error, be final, conclusive and binding for
all purposes.
(b) If any Lender shall advise the Agent that at any time it has determined
in good faith and in its reasonable judgment that, because of the circumstances
described in clauses (x) or (y) in Section 3.10(a) or any other circumstances
beyond such Lender's reasonable control arising after the date of this
Agreement affecting such Lender or the London interbank market or such
Lender's position in such market, the Adjusted LIBO Rate as determined by the
Agent will not adequately and fairly reflect the cost to such Lender of funding
its Eurodollar Advances, then, and in any such event:
(i) the Agent shall forthwith give notice (by telephone confirmed in
writing) to Borrower and to the other Lenders of such advice;
(ii) Borrower's right to request and such Lender's obligation to make
or permit portions of the Loans to remain outstanding past the last day of
then current Interest Periods as Eurodollar Advances shall be immediately
suspended until such time as the Adjusted LIBO Rate, as determined by the
Agent, will adequately and fairly reflect the cost to such Lender of funding
its Eurodollar Advances; and
(iii) such Lender shall make a Loan as part of the requested Borrowing
of Eurodollar Advances as Base Rate Advances, which such Base Rate Advances
shall, for all other purposes, be considered part of such Borrowing.
Section 3.11. Lending Offices.
(a) Each Lender agrees that, if requested by Borrower, it will use
reasonable efforts (subject to overall policy considerations of such Lender)
to designate an alternate Lending Office with respect to any of its Eurodollar
Advances affected by the matters or circumstances described in Sections 3.07
(b), 3.08, 3.09 or 3.10 to reduce the liability of Borrower or avoid the
results provided thereunder, so long as such designation is not
disadvantageous to such Lender as reasonably determined by such Lender, which
determination shall be conclusive and binding on all parties hereto. Nothing
in this Section 3.11 shall affect or postpone any of the obligations of
Borrower or any right of any Lender provided hereunder.
(b) If any Lender that is organized under the laws of any jurisdiction
other than the United States of America or any State thereof (including the
District of Columbia) issues a public announcement with respect to the closing
of its lending offices in the United States such that any withholdings or
deductions and additional payments with respect to Taxes may be required to be
made by Borrower thereafter pursuant to Section 3.07(b), such Lender shall use
reasonable efforts to furnish Borrower notice thereof as soon as practicable
thereafter; provided, however, that no delay in furnishing such notice shall
in any event release or discharge Borrower from its obligations to such Lender
pursuant to Section 3.07(b) or otherwise result in any liability of such
Lender.
Section 3.12. Funding Losses. Borrower shall compensate each Lender, upon its
written request to Borrower (which request shall set forth the basis for
requesting such amounts in reasonable detail and which request shall be made
in good faith and, absent manifest error, shall be final, conclusive and
binding upon all of the parties hereto), for all losses, expenses and
liabilities (including, without limitation, any interest paid by such Lender
to lenders of funds borrowed by it to make or carry its Eurodollar Advances to
the extent not recovered by such Lender in connection with the re-employment
of such funds but excluding loss of anticipated profits), which the Lender may
sustain: (i) if for any reason (other than a default by such Lender) a
borrowing of, or conversion to or continuation of, Eurodollar Advances to
Borrower does not occur on the date specified therefor in a Notice of
Borrowing, a Notice of Conversion/ Continuation (whether or not withdrawn),
(ii) if any repayment (including mandatory prepayments and any conversions
pursuant to Section 3.09(b)) of any Eurodollar Advance to Borrower occurs on
a date which is not the last day of an Interest Period applicable thereto, or
(iii), if, for any reason, Borrower defaults in its obligation to repay its
Eurodollar Advances when required by the terms of this Agreement.
Section 3.13. Assumptions Concerning Funding of Eurodollar Advances.
Calculation of all amounts payable to a Lender under this Article III shall be
made as though that Lender had actually funded its relevant Eurodollar
Advances through the purchase of deposits in the relevant market bearing
interest at the rate applicable to such Eurodollar Advances in an amount equal
to the amount of the Eurodollar Advances and having a maturity comparable to
the relevant Interest Period and through the transfer of such Eurodollar
Advances from an offshore office of that Lender to a domestic office of that
Lender in the United States of America; provided, however, that each Lender
may fund each of its Eurodollar Advances in any manner it sees fit and the
foregoing assumption shall be used only for calculation of amounts payable
under this Article III.
Section 3.14. Apportionment of Payments. Aggregate principal and interest
payments in respect of the Revolving Loan and the Commitment Fees and
aggregate principal and interest payments in respect of the Term Loan shall be
distributed by the Agent to each Lender at its payment office set forth beside
its name on the appropriate signature page hereof or such other address as any
Lender may request with respect to its share of all such payments received by
the Agent in proportion to the outstanding Obligations owed to each Lender,
including, as to the Revolving Lender, all L/C Outstandings.
Section 3.15. Sharing of Payments, Etc. If any Lender shall obtain any payment
or reduction (including, without limitation, any amounts received as adequate
protection of a deposit treated as cash collateral under the Bankruptcy Code)
of the Obligations (whether voluntary, involuntary, through the exercise of
any right of set-off, or otherwise) in excess of its Pro Rata Share of
payments or reductions on account of such obligations obtained by all the
Lenders, such Lender shall forthwith (i) notify the other Lender and Agent of
such receipt, and (ii) purchase from the other Lender such participations in
the affected obligations as shall be necessary to cause such purchasing Lender
to share the excess payment or reduction, net of costs incurred in connection
therewith, ratably with each of them, provided that if all or any portion of
such excess payment or reduction is thereafter recovered from such purchasing
Lender or additional costs are incurred, the purchase shall be rescinded and
the purchase price restored to the extent of such recovery or such additional
costs, but without interest unless the Lender obligated to return such funds
is required to pay interest on such funds. Borrower agrees that any Lender
so purchasing a participation from another Lender pursuant to this Section
3.15 may, to the fullest extent permitted by law, exercise all its rights of
payment (including the right of set-off) with respect to such participation as
fully as if such Lender were the direct creditor of Borrower in the amount of
such participation.
Section 3.16. Capital Adequacy. Without limiting any other provision of this
Agreement, in the event that any Lender shall have reasonably determined in
good faith that any law, treaty, governmental (or quasi-governmental) rule,
regulation, guideline or order regarding capital adequacy not currently in
effect or fully applicable as of the Closing Date, or any change therein or in
the interpretation or application thereof, or compliance by such Lender with
any request or directive regarding capital adequacy not currently in effect or
fully applicable as of the Closing Date (whether or not having the force of
law and whether or not failure to comply therewith would be unlawful) from a
central bank or governmental authority or body having jurisdiction, does or
shall have the effect of reducing the rate of return on such Lender's capital
as a consequence of its obligations hereunder to a level below that which such
Lender could have achieved but for such law, treaty, rule, regulation,
guideline or order, or such change or compliance (taking into consideration
such Lender's policies with respect to capital adequacy) by an amount
reasonably deemed by such Lender to be material, then within ten (10)
Business Days after written notice and demand by such Lender (with copies
thereof to the Agent), Borrower shall from time to time pay to such Lender
additional amounts sufficient to compensate such Lender for such reduction
(but, in the case of outstanding Base Rate Advances, without duplication of
any amounts already recovered by such Lender by reason of an adjustment in
the applicable Base Rate). Each certificate as to the amount payable under
this Section 3.16 (which certificate shall set forth the basis for requesting
such amounts in reasonable detail), submitted to Borrower by any Lender in
good faith, shall, absent manifest error, be final, conclusive and binding for
all purposes.
Section 3.17. Application of Payments and Allocation of Proceeds. If an Event
of Default has occurred and has not been waived, and the maturity of the Notes
has been accelerated pursuant to Article VIII, all payments (including payments
constituting proceeds of Collateral) received by the Agent hereunder, in
respect of any principal of or interest on the Loans or any other amounts
payable by the Borrower hereunder, shall be applied by the Agent in the
following order: (a) first, to the expenses incurred by the Agent in
connection with enforcing the Agent's liens and any other remedies of the
Agent and the Lenders, holding, preserving, processing, maintaining or
preparing for sale, lease, or other disposition, any Collateral (other than
the Collateral (Pool B) and any funds held in the L/C Cash Collateral Account),
including reasonable attorney's fees and legal expenses pertaining thereto;
(b) second, to all fees of the Agent and the Lenders, as set forth herein and
in the Fee Letters; (c) third, to the ratable payment of accrued and unpaid
interest on all outstanding Loans; (c) fourth, to the ratable payment of the
outstanding principal balance of the accrued and unpaid Loans; (d) fifth, to
the payment of any Obligations with respect to Currency Contracts, Interest
Rate Contracts, or other Hedging Obligations owed to the Agent; (e) sixth, to
payment of all other amounts due under any of the Credit Documents, if any, to
be applied for the ratable benefit of the Lenders; provided, however, that all
payments received by the Agent with respect of Collateral (Pool B) shall be
applied in the foregoing order with the exception that the application of such
payments with respect to subsection (c) thereof shall be applied first to the
Term Loan until the Term Loan is paid in full and then to the Revolving Loan;
and provided, further, however, that amounts received by the Agent from the
L/C Cash Collateral Account shall be applied in the foregoing order with the
exception that the application of such payments with respect to subsection
(c) thereof shall be applied (or shall be held in the L/C Cash Collateral
Account until all outstanding Letters of Credit issued hereunder have either
been drawn or have expired) first to that portion of the Revolving Loan
constituting L/C Outstandings until all such Obligations with respect thereto
have been paid in full, and then ratably to the Term Loan and the remaining
portion of the Revolving Loan.
Section 3.18. Limitation on Certain Payment Obligations.
(a) Each Lender or Agent shall make written demand on Borrower for
indemnification or compensation pursuant to Section 3.07 no later than 180 days
after the earlier of (i) the date on which such Lender or Agent makes payment
of such Taxes, and (ii) the date on which the relevant taxing authority or
other governmental authority makes written demand upon such Lender or Agent
for payment of such Taxes.
(b) Each Lender or Agent shall make written demand on Borrower for
indemnification or compensation pursuant to Sections 3.10 and 3.12 no later
than 180 days after the event giving rise to the claim for indemnification or
compensation occurs.
(c) Each Lender or Agent shall make written demand on Borrower for
indemnification or compensation pursuant to Section 3.16 no later than 180
days after such Lender or Agent receives actual notice or obtains actual
knowledge of the promulgation of a law, rule, order or interpretation or
occurrence of another event giving rise to a claim pursuant to such sections.
(d) In the event that the Lenders or Agent fail to give Borrower notice
within the time limitations prescribed in (a) or (b) above, Borrower shall not
have any obligation to pay such claim for compensation or indemnification.
In the event that any Lender or Agent fails to give Borrower notice within the
time limitation prescribed in (c) above, Borrower shall not have any obligation
to pay any amount with respect to claims accruing prior to the date which is
180 days preceding such written demand.
ARTICLE IV.
CONDITIONS TO BORROWING
The obligations of each Lender to make Advances hereunder is subject to the
satisfaction of the following conditions:
Section 4.01. Conditions Precedent to Initial Loans and Letters of Credit.
At the time of the making of the initial Loans hereunder on the Closing Date
and the issuance of the initial Letter of Credit hereunder, the Agent shall
have received the following, in form and substance reasonably satisfactory in
all respects to the Agent:
(a) the duly executed counterparts of this Agreement;
(b) the duly completed Revolving Loan Note evidencing the Revolving Loan
Commitment and the duly executed the Term Loan Note evidencing the Term Loan
Commitment.
(c) the duly executed Guaranty Agreements;
(d) the duly executed Borrower Security Agreement and appropriate UCC
financing statements relating thereto;
(e) the duly executed Subsidiary Security Agreement executed by each
Subsidiary of the Borrower, and appropriate UCC financing statements relating
thereto;
(f) the duly executed Pledge Agreements accompanied, to the extent relevant
under applicable law, by (i) all stock certificates representing the Pledged
Stock, (ii) stock powers for those shares duly executed in blank, (iii)
Uniform Commercial Code financing statements relating thereto, and (iv) any
other documentation requested by the Agent in order to assure the perfection
of a first priority lien in such Pledged Stock in favor of the Agent for the
benefit of the Agent and the Lenders;
(g) the duly executed Intellectual Property Security Agreement;
(h) duly executed Mortgages, together with delivery to Agent of: (x) a
title insurance commitment (the "Title Insurance Commitment") issued by a
title company acceptable to the Agent in such form and amount as is acceptable
to the Agent insuring that each Mortgage is a valid first priority Lien on the
Borrower's interest in the Real Estate subject only to such exceptions to title
as shall be acceptable to the Agent in its sole and absolute discretion and
containing such endorsements and affirmative insurance as the Agent may
require, and true copies of each document, instrument or certificate required
by the terms of each such policy and/or Mortgage to be filed, recorded,
executed or delivered in connection therewith; (y) duly executed UCC-1
financing statements under the applicable Uniform Commercial Code, or other
filings under applicable law, to be filed in connection with each Mortgage in
form and substance satisfactory to the Agent to perfect the Lien created by
such Mortgage; and (z) surveys of the Real Estate, certified to the title
company, the Agent, the Lenders and each of their successors and assigns, in
form and content satisfactory to the Agent and prepared by a professional and
properly licensed land surveyor satisfactory to the Agent.
(i) the duly executed Environmental Indemnity Agreement duly executed by
the Borrower;
(j) an environmental review and audit report (which may include phase I
and, as requested, phase II environmental reports) with respect to the Real
Estate encumbered by the Mortgages, satisfactory in all respects to the Agent
from an independent firm acceptable to the Agent, together with copies of all
existing environmental reviews and audits and other information pertaining to
actual or potential environmental claims as the Agent may require;
(k) appraisals in form and substance satisfactory to the Agent reflecting
values of the Borrower's real property at levels acceptable to the Agent from
appraisers acceptable to the Agent;
(l) a duly executed closing certificate of the Borrower and the Parent in
substantially the form of Exhibit F attached hereto and appropriately
completed;
(m) certificates of the Secretaries or Assistant Secretaries of the Credit
Parties attaching and certifying copies of the resolutions of the board of
directors of the Credit Parties, authorizing as applicable the execution,
delivery and performance of the Credit Documents by the Credit Parties party
thereto;
(n) certificates of the Secretaries or an Assistant Secretary of the
Credit Parties certifying (i) the name, title and true signature of each
officer of the Credit Parties executing the Credit Documents, and (ii) the
bylaws of the Credit Parties;
(o) certified copies of the articles or certificate of incorporation or
charters of the Credit Parties certified by the Secretaries of State and by
the Secretaries or Assistant Secretaries of the Credit Parties, together with
certificates of good standing or existence, as may be available from the
Secretaries of State of the jurisdiction of incorporation or organization of
the Credit Parties and each other jurisdiction where the Credit Parties
ownership of property or the conduct of its business require it to be
qualified, except where a failure to be so qualified would not have a
Materially Adverse Effect;
(p) the favorable opinion of (i) Miller & Martin, LLP, counsel to the
Credit Parties, substantially in the form of Exhibit G, addressed to the
Agent and each of the Lenders;
(q) the duly executed Agent's Fee Letter and the duly executed ORIX Fee
Letter;
(r) copies of all documents and instruments, including all consents,
authorizations and filings, required or advisable under any Requirement of
Law or by any material Contractual Obligation of the Credit Parties, in
connection with the execution, delivery, performance, validity and
enforceability of the Credit Documents and the other documents to be
executed and delivered hereunder, and such consents, authorizations, filings
and orders shall be in full force and effect and all applicable waiting
periods shall have expired;
(s) reports from the Uniform Commercial Code records of each of the
jurisdictions listed on Schedule 4.01 hereto, in each case showing no
outstanding liens or security interests granted by any Credit Party other
than (x) Permitted Liens and (y) Liens in favor of the Agent;
(t) copies of indentures, credit agreements, instruments, and other
documents evidencing or securing Indebtedness of any Consolidated Company
described on Schedule 7.01, in any single case in an amount not less than
$1,000,000;
(u) certificates, reports and other information as the Agent may request
from any Consolidated Company in order to satisfy the Lenders as to the
absence of any material liabilities or obligations arising from matters
relating to employees of the Consolidated Companies, including employee
relations, collective bargaining agreements, Plans and other compensation and
employee benefit plans;
(v) a summary, set forth in format and detail acceptable to the Agent, of
the types and amounts of insurance (property and liability) maintained by the
Consolidated Companies accompanied by the insurance certificates naming the
Agent as loss payee and additional insured as may be required by the terms of
the Security Documents;
(w) a duly executed Solvency Certificate of the Borrower;
(x) projected consolidated financial statements for the Consolidated
Companies for the 2002 and 2003 fiscal years, in each case, on a quarter by
quarter basis;
(y) the Agent shall be satisfied that no change in the business assets,
management, operations, financial condition or prospects of the Borrower and
its Subsidiaries shall have occurred since September 30, 2001, which change,
in the reasonable business judgment of the Agent and the Lenders, will have a
Materially Adverse Effect;
(z) payment of all fees and expenses payable to the Agent and the Lenders
in connection with the execution and delivery of this Agreement, including,
without limitation, fees and expenses of counsel to the Agent;
(aa) the Agent shall have received the audited financial statements
(including the balance sheet and income and cash flow statements) of the
Borrower on a consolidated basis with its Subsidiaries for the fiscal year
ending December 31, 2000, accompanied by an opinion of independent certified
public accountants of recognized national standing satisfactory to the Agent,
stating that such financial statements are unqualified and prepared in all
material respects in accordance with GAAP, without any explanatory paragraphs;
(bb) evidence assuring the Agent and the Lenders that all corporate
proceedings and all other legal matters in connection with the authorization,
legality, validity and enforceability of the Credit Documents are in form and
substance satisfactory to the Lenders in the exercise of their reasonable
credit judgment;
(cc) payoff letter with respect to obligations under the Prior Credit
Agreement;
(dd) Termination Statements;
(ee) releases of all mortgages affecting the Real Estate Collateral;
and
(ff) the duly executed Post Closing Agreement.
Section 4.02. Conditions to Each Loan and Letter of Credit. At the time
of the making of all Loans (but not including the continuation or
conversion of any Revolving Loan in the same principal amount or any
Revolving Loan pursuant to Section 2.02(c) or Section 2.07) and issuance
of all Letters of Credit (before as well as after giving effect to such
Loans and the proposed use of the proceeds thereof and the issuance of
such Letters of Credit) the following conditions shall have been
satisfied or shall exist:
(a) there shall exist no Default or Event of Default;
(b) all representations and warranties by Borrower contained herein shall
be true and correct in all material respects with the same effect as though
such representations and warranties had been made on and as of the date of
such Loan or issuance of such Letter of Credit, except for representations
and warranties which were made as of a specific date;
(c) the Loans to be made or the Letters of Credit to be issued and the
use of proceeds thereof shall not contravene, violate or conflict with, or
involve the Agent or any Lender in a violation of, any law, rule, injunction,
or regulation, or determination of any court of law or other governmental
authority applicable to Borrower; and
(d) the Agent shall have received such other documents or legal opinions
as the Agent or any Lender may reasonably request, all in form and substance
satisfactory to the Agent in the exercise of its reasonable credit judgment.
Each request for a Borrowing and the acceptance by Borrower of the proceeds
thereof and each request for the issuance of a Letter of Credit shall
constitute a representation and warranty by Borrower, as of the date of the
Loans comprising such Borrowing or the issuance of such Letter of Credit, that
the applicable conditions specified in Section 4.01 (with respect to the
initial Loans and Letters of Credit) and Section 4.02 have been satisfied.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES
Each Credit Party hereby represents and warrants as follows:
Section 5.01. Corporate Existence; Compliance with Law. Each of the Parent,
the Borrower and its Subsidiaries is a corporation duly organized, validly
existing, and in good standing under the laws of the jurisdiction of its
incorporation. Each of the Borrower and its Subsidiaries (i) has the
corporate power and authority and the legal right to own and operate its
property and to conduct its business, (ii) is duly qualified as a foreign
corporation and in good standing under the laws of each jurisdiction where
its ownership of property or the conduct of its business requires such
qualification, and (iii) is in compliance with all Requirements of Law,
where (a) the failure to have such power, authority and legal right as set
forth in clause (i), (b) the failure to be so qualified or in good standing as
set forth in clause (ii), or (c) the failure to comply with Requirements of
Law as set forth in clause (iii), would reasonably be expected by the
Borrower, in the aggregate, to have a Materially Adverse Effect. The
jurisdiction of incorporation or organization, and the ownership of all issued
and outstanding capital stock, for each Subsidiary of the Borrower as of the
date of this Agreement is accurately described on Schedule 5.01.
Section 5.02. Corporate Power; Authorization. Each of the Credit Parties has
the corporate power and authority to make, deliver and perform the Credit
Documents to which it is a party and has taken all necessary corporate action
to authorize the execution, delivery and performance of such Credit Documents.
No consent or authorization of, or filing with, any Person (including, without
limitation, any governmental authority), is required in connection with the
execution, delivery or performance by any Credit Party, or the validity or
enforceability against any Credit Party, of the Credit Documents to which it
is a party, other than such consents, authorizations or filings which have
been made or obtained.
Section 5.03. Enforceable Obligations. This Agreement has been duly executed
and delivered, and each other Credit Document will be duly executed and
delivered, by the respective Credit Parties thereto, and this Agreement
constitutes, and each other Credit Document when executed and delivered will
constitute, legal, valid and binding obligations of the Credit Parties thereto,
respectively, enforceable against the Credit Parties thereto, in accordance
with their respective terms, except as may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, or similar laws affecting the
enforcement of creditors' rights generally and by general principles of equity.
Section 5.04. No Legal Bar. The execution, delivery and performance by the
Credit Parties of the Credit Documents to which they are a party will not
violate any Requirement of Law or cause a breach or default under any of their
respective Contractual Obligations where such violation or breach would
reasonably be expected to have a Materially Adverse Effect.
Section 5.05. No Material Litigation. Except as set forth on Schedule 5.05 or
in any notice furnished to the Lenders pursuant to Section 6.07(e) at or prior
to the respective times the representations and warranties set forth in this
Section 5.05 are made or deemed to be made hereunder, no litigation,
investigations or proceedings of or before any courts, tribunals, arbitrators
or governmental authorities are pending or, to the knowledge of Borrower,
threatened by or against the Borrower or any of its Subsidiaries, or against
any of their respective properties or revenues, existing or future (a) with
respect to any Credit Document, or any of the transactions contemplated
hereby or thereby, or (b) seeking money damages in excess of $1,000,000,
either singly or in the aggregate or which, if adversely determined, would
otherwise reasonably be expected to have a Materially Adverse Effect.
Section 5.06. Investment Company Act, Etc. None of the Credit Parties is an
"investment company" or a company "controlled" by an "investment company" (as
each of the quoted terms is defined or used in the Investment Company Act of
1940, as amended). None of the Credit Parties is subject to regulation under
the Public Utility Holding Company Act of 1935, the Federal Power Act, or any
foreign, federal or local statute or regulation limiting its ability to incur
indebtedness for money borrowed, guarantee such indebtedness, or pledge its
assets to secure such indebtedness, as contemplated hereby or by any other
Credit Document.
Section 5.07. Margin Regulations. No part of the proceeds of any of the Loans
will be used for any purpose which violates, or which would be inconsistent or
not in compliance with, the provisions of the applicable Margin Regulations.
Section 5.08. Compliance with Environmental Laws.
(a) The Borrower and its Subsidiaries have received no notices of claims
or potential liability under, nor notices of non-compliance with, any
applicable Environmental Law, which claims and liabilities under, and non-
compliance with, such Environmental Laws, would reasonably be expected to
result in penalties, fines, claims or other liabilities to the Borrower and
its Subsidiaries in amounts in excess of $1,000,000, either individually or in
the aggregate (including any such penalties, fines, claims, or liabilities
relating to the matters set forth on Schedule 5.08(a)), except as set forth on
Schedule 5.08(a) or in any notice furnished to the Lenders pursuant to Section
6.07(f) at or prior to the respective times the representations and warranties
set forth in this Section 5.08(a) are made or deemed to be made hereunder.
(b) Except as set forth on Schedule 5.08(b) or in any notice furnished to
the Lenders pursuant to Section 6.07(f) at or prior to the respective times
the representations and warranties set forth in this Section 5.08(b) are made
or deemed to be made hereunder, none of the Borrower and its Subsidiaries has
received any notice of violation, or notice of any action, either judicial or
administrative, from any governmental authority (whether United States or
foreign) relating to the actual or alleged violation of any Environmental Law,
including, without limitation, any notice of any actual or alleged spill, leak,
or other release of any Hazardous Substance, waste or hazardous waste by
Borrower or any of its Subsidiaries or its employees or agents, or as to the
existence of any contamination on any properties owned by Borrower or any of
its Subsidiaries, where any such violation, spill, leak, release or
contamination would reasonably be expected to result in penalties, fines,
claims or other liabilities to the Borrower or any of its Subsidiaries in
amounts in excess of $1,000,000, either individually or in the aggregate.
(c) Except as set forth on Schedule 5.08(c), the Borrower and its
Subsidiaries have obtained all necessary governmental permits, licenses and
approvals which are material to the operations conducted on their respective
properties, including without limitation, all required material permits,
licenses and approvals for (i) the emission of air pollutants or contaminants,
(ii) the treatment or pretreatment and discharge of waste water or storm
water, (iii) the treatment, storage, disposal or generation of hazardous
wastes, (iv) the withdrawal and usage of ground water or surface water, and
(v) the disposal of solid wastes, where the failure to obtain such permits,
licenses and approvals would reasonably be expected to have a Materially
Adverse Effect, either individually or in the aggregate.
Section 5.09. Insurance. The Borrower and its Subsidiaries currently maintain
insurance with respect to their respective properties and businesses, with
financially sound and reputable insurers, having coverages against losses or
damages of the kinds customarily insured against by reputable companies in the
same or similar businesses, such insurance being in amounts no less than those
amounts which are customary for such companies under similar circumstances.
The Borrower and its Subsidiaries have paid all material amounts of insurance
premiums now due and owing with respect to such insurance policies and
coverages, and such policies and coverages are in full force and effect.
Section 5.10. No Default. Schedule 5.10 lists each of the Material Contracts
of each of the Borrower and its Subsidiaries. Except as set forth on Schedule
5.10, none of the Borrower or any of its Subsidiaries is in default under or
with respect to any Contractual Obligation in any respect which default or
defaults would be reasonably expected in the aggregate to have a Material
Adverse Effect.
Section 5.11. No Burdensome Restrictions. Except as set forth on Schedule 5.11
or in any notice furnished to the Lenders pursuant to Section 6.07(k) at or
prior to the respective times the representations and warranties set forth in
this Section 5.11 are made or deemed to be made hereunder, none of the Borrower
or any of its Subsidiaries is a party to or bound by any Contractual Obligation
or Requirement of Law which has had or would reasonably be expected to have a
Materially Adverse Effect.
Section 5.12. Taxes. Except as set forth on Schedule 5.12, each of the
Borrower and its Subsidiaries have filed or caused to be filed all
declarations, reports and tax returns which are required to have been filed,
and has paid all taxes, custom duties, levies, charges and similar
contributions ("taxes" in this Section 5.12) shown to be due and payable on
said returns or on any assessments made against it or its properties, and all
other taxes, fees or other charges imposed on it or any of its properties by
any governmental authority (other than those the amount or validity of which
is currently being contested in good faith by appropriate proceedings and with
respect to which reserves in conformity with GAAP have been provided in its
books); and no tax liens have been filed and, to the knowledge of Borrower, no
claims are being asserted with respect to any such taxes, fees or other
charges.
Section 5.13. Subsidiaries. Except as disclosed on Schedule 5.01, on the date
of this Agreement, Borrower has no Subsidiaries and neither Borrower nor any
Subsidiary is a joint venture partner or general partner in any partnership.
Except as disclosed on Schedule 5.13 or in any notice furnished to the
Lenders pursuant to Section 6.07(l) at or prior to the respective times the
representations and warranties set forth in this Section 5.13 are made or
deemed to be made hereunder, Borrower has no Material Subsidiaries.
Section 5.14. Financial Statements. The Borrower has furnished to the Agent
and the Lenders:
(a) financial statements for the Borrower on a consolidated basis with its
Subsidiaries for the Fiscal Year ended December 31, 2000 and the Fiscal
Quarter ended September 30, 2001, which are complete and correct in all
material respects and present fairly the financial position of the Borrower as
at December 31, 2000, and the results of operations for the periods then ended.
(b) No Material Adverse Change. Since September 30, 2001 there have been
no changes with respect to the Consolidated Companies which has had or would
reasonably be expected to have a Materially Adverse Effect.
Section 5.15. ERISA. Except as disclosed on Schedule 5.15 or in any notice to
the Lenders furnished pursuant to Section 6.07(g) at or prior to the
respective times the representations and warranties set forth in this Section
5.15 are made or deemed to be made hereunder:
(1) Identification of Plans. None of the Borrower or its
Subsidiaries nor any of their respective ERISA Affiliates maintains or
contributes to, or has during the past seven years maintained or contributed
to, any Plan that is subject to Title IV of ERISA;
(2) Compliance. Each Plan maintained by the Borrower or its
Subsidiaries have at all times been maintained, by their terms and in
operation, in compliance with all applicable laws, and the Borrower and its
Subsidiaries are subject to no tax or penalty with respect to any Plan of such
Person or any ERISA Affiliate thereof, including without limitation, any tax
or penalty under Title I or Title IV of ERISA (excluding PBGC premiums in the
normal course) or under Chapter 43 of the Tax Code, or any tax or penalty
resulting from a loss of deduction that was previously asserted on a filed tax
return with the state or federal taxing authority under Sections 162, 404, or
419 of the Tax Code, where the failure to comply with such laws, and such
taxes and penalties, together with all other liabilities referred to in this
Section 5.15 (taken as a whole), would in the aggregate have a Materially
Adverse Effect;
(3) Liabilities. The Borrower and its Subsidiaries are subject to
no liabilities (including withdrawal liabilities) with respect to any Plans of
such Persons or any of their ERISA Affiliates, including without limitation,
any liabilities arising from Titles I or IV of ERISA, other than obligations
to fund benefits under an ongoing Plan and to pay current contributions,
expenses and premiums with respect to such Plans, where such liabilities,
together with all other liabilities referred to in this Section 5.15 (taken as
a whole), would in the aggregate have a Materially Adverse Effect;
(4) Funding. The Borrower and its Subsidiaries and, with respect
to any Plan which is subject to Title IV of ERISA, each of their respective
ERISA Affiliates, have made full and timely payment of all amounts (A) required
to be contributed under the terms of each Plan and applicable law, and (B)
required to be paid as expenses (including PBGC or other premiums) of each
Plan, where the failure to pay such amounts (when taken as a whole, including
any penalties attributable to such amounts) would have a Materially Adverse
Effect. No Plan subject to Title IV of ERISA (other than a Multiemployer Plan)
has an "amount of unfunded benefit liabilities" (as defined in Section
4001(a)(18) of ERISA), determined as if such Plan terminated on any date on
which this representation and warranty is deemed made, in any amount which,
together with all other liabilities referred to in this Section 5.15 (taken as
a whole), would have a Materially Adverse Effect if such amount were then due
and payable. None of the Borrower and its Subsidiaries would be subject to
withdrawal liability with respect to any Multiemployer Plan, determined as if
the event resulting in such withdrawal liability occurred on any date on which
this representation is made or deemed to be made based on the most recent
actuarial valuation data made available to employers participating in the
Multiemployer Plan, in any amount which, together with all other liabilities
referred to in this Section 5.15 (taken as a whole), would have a Materially
Adverse Effect if such amounts were then due and payable. The Borrower and
its Subsidiaries are subject to no liabilities with respect to post-retirement
medical benefits in any amounts which, together with all other liabilities
referred to in this Section 5.15 (taken as a whole), would reasonably be
expected to have a Materially Adverse Effect if such amounts were then due
and payable.
Section 5.16. Patents, Trademarks, Licenses, Etc. Except as set forth on
Schedule 5.16, (i) Borrower and its Subsidiaries have obtained and hold in
full force and effect all material patents, trademarks, service marks, trade
names, copyrights, licenses and other such rights, free from material
burdensome restrictions, which are necessary for the operation of their
respective businesses as presently conducted, and (ii) to the best of
Borrower's knowledge, no product, process, method, service or other item
presently sold by or employed by Borrower and its Subsidiaries in connection
with such business infringes any patents, trademark, service mark, trade name,
copyright, license or other right owned by any other person and there is not
presently pending, or to the knowledge of Borrower, threatened, any claim or
litigation against or affecting Borrower and its Subsidiaries contesting such
Person's right to sell or use any such product, process, method, substance or
other item where the result of such failure to obtain and hold such benefits
or such infringement would reasonably be expected to have a Materially Adverse
Effect.
Section 5.17. Ownership of Property. Except as set forth on Schedule 5.17,
each Consolidated Company has good and marketable fee simple title to or a
valid leasehold interest in all of its real property and good title to, or a
valid leasehold interest in, all of its other property, other than properties
disposed of in the ordinary course of business since such date or as otherwise
permitted by the terms of this Agreement, subject to no Lien or title defect
of any kind, except Permitted Liens. The Consolidated Companies enjoy
peaceful and undisturbed possession under all of their respective material
leases.
Section 5.18. Indebtedness. Except for the Indebtedness set forth on
Schedule 7.01 or otherwise permitted pursuant to Section 7.01, none of the
Borrower or any of its Subsidiaries is an obligor in respect of any
Indebtedness for borrowed money or any commitment to create or incur any
Indebtedness for borrowed money.
Section 5.19. Financial Condition. On the Closing Date, and on the date of
each Loan hereunder and after giving effect to the Transaction and the other
transactions contemplated by this Agreement and the other Credit Documents,
including without limitation, the use of the proceeds of the Loans as provided
in Section 2.01, (i) the assets of each Credit Party at fair valuation and
based on their present fair saleable value (including, without limitation, the
fair and realistic value of any contribution or subrogation rights in respect
of any Guaranty Agreement given by such Credit Party) will exceed such Credit
Party's debts, including contingent liabilities (as such liabilities may be
limited under the express terms of any Guaranty Agreement of such Credit
Party), (ii) the remaining capital of such Credit Party will not be
unreasonably small to conduct the Credit Party's business, and (iii) such
Credit Party will not have incurred debts, or have intended to incur debts,
beyond the Credit Party's ability to pay such debts as they mature. For
purposes of this Section 5.19, "debt" means any liability on a claim, and
"claim" means (a) the 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 (b) the right
to an equitable remedy for breach of performance if such breach gives rise to
a right to payment, whether or not such right to an equitable remedy is
reduced to judgment, fixed, contingent, matured, unmatured, disputed,
undisputed, secured or unsecured.
Section 5.20. Labor Matters. Except as set forth in Schedule 5.20 or in any
notice furnished to the Lenders pursuant to Section 6.07(k) at or prior to the
respective times the representations and warranties set forth in this Section
5.20 are made or deemed to be made hereunder, the Consolidated Companies have
experienced no strikes, labor disputes, slow downs or work stoppages due to
labor disagreements which have had, or would reasonably be expected to have,
a Materially Adverse Effect, and, to the best knowledge of Borrower, there are
no such strikes, disputes, slow downs or work stoppages threatened against any
Consolidated Company. Except as set forth in Schedule 5.20 or in any notice
furnished to the Lenders pursuant to Section 6.07(k) at or prior to the
respective times the representations and warranties set forth in this Section
5.20 are made or deemed to be made hereunder, the hours worked and payment
made to employees of the Consolidated Companies have not been in violation in
any material respect of the Fair Labor Standards Act or any other applicable
law dealing with such matters where the failure to comply therewith would
reasonably be expected to have a Materially Adverse Effect. Substantially all
payments due from the Consolidated Companies, or for which any claim may be
made against the Consolidated Companies, on account of wages and employee
health and welfare insurance and other benefits have been paid or accrued as
liabilities on the books of the Consolidated Companies where the failure to
pay or accrue such liabilities would reasonably be expected to have a
Materially Adverse Effect.
Section 5.21. Payment of Dividend Restrictions. Except as described on
Schedule 5.21, none of the Borrower or its Subsidiaries is party to or subject
to any agreement or understanding restricting or limiting the payment of any
dividends or other distributions by Borrower or any Subsidiaries of Borrower.
Section 5.22. Ownership of Borrower. As of the Closing Date, Parent owns 100%
of the issued and outstanding capital stock of the Borrower, which Stock is
fully paid and non-assessable.
Section 5.23. [Intentionally Omitted]
Section 5.24. Continuing Business of Borrower. There exists no actual or,
to the best knowledge of Borrower, threatened termination, cancellation or
limitation of, or any material modification or change in, (i) the business
relationships of the Borrower with any customer or group of customers of the
Borrower whose business individually or in the aggregate is material to the
operations or financial condition of the Borrower, (ii) the business
relationships of the Borrower with any of its material suppliers or (iii) any
Material Contract where such termination, cancellation, limitation,
modification or change would reasonably be expected, individually or in the
aggregate, to have a Materially Adverse Effect; and there exists no other
condition or state of facts or circumstances which would reasonably be
expected to have a Materially Adverse Effect on the ongoing business of the
Borrower. (b) The Parent, as of the Closing Date (i) engages in no business
or other activity other than the ownership of the Stock of Borrower, and (ii)
has no outstanding Indebtedness other than hereunder and under the other
Credit Documents.
Section 5.25. [Intentionally Omitted]
Section 5.26. Disclosure. No representation or warranty contained in this
Agreement (including the Schedules attached hereto) or in any other document
furnished from time to time pursuant to the terms of this Agreement, contains
or will contain any untrue statement of a material fact or omits or will omit
to state any material fact necessary to make the statements herein or therein
not misleading in any material respect as of the date made or deemed to be
made. Except as may be set forth herein (including the Schedules attached
hereto), there is no fact known to the Borrower which has had, or is
reasonably expected to have, a Materially Adverse Effect.
ARTICLE VI.
AFFIRMATIVE COVENANTS
So long as any Commitment remains in effect hereunder or any Note or other
Obligation shall remain unpaid, each of the Borrower and the Guarantors will:
Section 6.01. Corporate Existence, Etc. Preserve and maintain, and cause each
of its Subsidiaries to preserve and maintain, its corporate existence, its
material rights, franchises, and licenses, and its material patents and
copyrights (for the scheduled duration thereof), trademarks, trade names, and
service marks, necessary or desirable in the normal conduct of its business,
and its qualification to do business as a foreign corporation in all
jurisdictions where it conducts business or other activities making such
qualification necessary, where the failure to be so qualified would reasonably
be expected to have a Materially Adverse Effect.
Section 6.02. Compliance with Laws, Etc. Comply, and cause each of its
Subsidiaries to comply with all Requirements of Law (including, without
limitation, the Environmental Laws subject to the exception set forth in
Section 5.08 where the penalties, claims, fines, and other liabilities
resulting from noncompliance with such Environmental Laws do not involve
amounts in excess of $1,000,000 in the aggregate) and Contractual Obligations
applicable to or binding on any of them where the failure to comply with such
Requirements of Law and Contractual Obligations would reasonably be expected
to have a Materially Adverse Effect.
Section 6.03. Payment of Taxes and Claims, Etc. Pay, and cause each of its
Subsidiaries to pay, (i) all taxes, assessments and governmental charges
imposed upon it or upon its property, and (ii) all claims (including, without
limitation, claims for labor, materials, supplies or services) which might, if
unpaid, become a Lien upon its property, unless, in each case, the validity or
amount thereof is being contested in good faith by appropriate proceedings and
adequate reserves are maintained with respect thereto.
Section 6.04. Keeping of Books. Keep, and cause each of its Subsidiaries to
keep, proper books of record and account, containing complete and materially
accurate entries of all their respective financial and business transactions.
Section 6.05. Visitation, Inspection, Etc. Permit, and cause each of its
Subsidiaries to permit, any representative of the Agent or any Lender to visit
and inspect any of its property, to examine its books and records and to make
copies and take extracts therefrom, and to discuss its affairs, finances and
accounts with its officers, all at such reasonable times and as often as the
Agent or such Lender may reasonably request; provided that, as long as no
Event of Default has occurred or is continuing, (i) Agent or such Lender shall
give at least five (5) Business Days' prior written notice to Borrower of any
such visit or inspection, (ii) such visit or inspection will not materially
interfere with the conduct of business and (iii) such visit or inspection will
be at Agent's or such Lender's expense; provided, however, that the Borrower
shall reimburse the Agent and the Lenders for their respective expenses
incurred in connection with any visit or inspection made at any time during
which an Event of Default has occurred and is continuing.
Section 6.06. Insurance; Maintenance of Properties.
(a) Maintain or cause to be maintained with financially sound and reputable
insurers, insurance with respect to its properties and business, and the
properties and business of its Subsidiaries, against loss or damage of the
kinds customarily insured against by reputable companies in the same or similar
businesses, such insurance to be of such types and in such amounts as is
customary for such companies under similar circumstances; provided, however,
that in any event Borrower shall use its best efforts to maintain, or cause to
be maintained, insurance in amounts and with coverages not materially less
favorable to any of its Subsidiaries as in effect on the date of this Agreement.
(b) Cause, and cause each of its Subsidiaries to cause, all properties used
or useful in the conduct of its business to be maintained and kept in good
condition, repair and working order and supplied with all necessary equipment
and will cause to be made all necessary repairs, renewals, replacements,
settlements and improvements thereof, all as in the judgment of Borrower may
be necessary so that the business carried on in connection therewith may be
properly and advantageously conducted.
Section 6.07. Reporting Covenants. Furnish to each Lender:
(a) Annual Financial Statements. As soon as available and in any event
within 120 days after each fiscal year end of Borrower, balance sheets of the
Borrower and its Subsidiaries as at the end of such year, presented on a
consolidated basis, and the related statements of income, shareholders'
equity, and cash flows of the Borrower and its Subsidiaries for such fiscal
year, presented on a consolidated basis, setting forth in each case in
comparative form the figures for the previous fiscal year, all in reasonable
detail and accompanied by a report thereon of an independent public accountant
of recognized national standing satisfactory to the Agent, which such report
shall be unqualified as to going concern and scope of audit and shall state
that such financial statements present fairly in all material respects the
financial condition as at the end of such fiscal year on a consolidated basis,
and the results of operations and statements of cash flows of the Borrower and
its Subsidiaries for such Fiscal Year in accordance with GAAP and that the
examination by such accountants in connection with such consolidated financial
statements has been made in accordance with generally accepted auditing
standards;
(b) Quarterly Financial Statements. (i) As soon as available and in any
event within 45 days after the end of each Fiscal Quarter of the Borrower
(other than the fourth Fiscal Quarter), balance sheets of the Borrower and its
Subsidiaries as at the end of such Fiscal Quarter presented on a consolidated
basis and the related statements of income, shareholders' equity, and cash
flows of the Borrower and its Subsidiaries for such Fiscal Quarter and for the
portion of Borrower's Fiscal Year ended at the end of such quarter, presented
on a consolidated basis setting forth in each case in comparative form the
figures for the corresponding quarter and the corresponding portion of the
Borrower's previous Fiscal Year, all in reasonable detail and certified, with
respect to the quarterly statements, by the chief financial officer or
principal accounting officer of the Borrower that such financial statements
fairly present in all material respects the financial condition of the Borrower
and its Subsidiaries as at the end of such Fiscal Quarter on a consolidated
basis, and the results of operations and statements of cash flows of the
Borrower and its Subsidiaries for such Fiscal Quarter and such portion of the
Borrower's Fiscal Year, in accordance with GAAP consistently applied (subject
to normal year-end audit adjustments and the absence of certain footnotes) and
(ii) as soon as available and in any event within 30 days after the end of
each calendar month, balance sheets of the Borrower and its Subsidiaries as at
the end of such month presented on a consolidated basis and the related
statements of income, shareholders' equity, and cash flows of the Borrower
and its Subsidiaries for such month and for the portion of the Borrower's
Fiscal Year ended at the end of such month, presented on a consolidated basis
setting forth in each case in comparative form the figures for the
corresponding portion of the Borrower's previous Fiscal Year, all in
reasonable detail, in accordance with GAAP consistently applied
(subject to normal year-end audit adjustments and the absence of certain
footnotes);
(c) No Default/Compliance Certificate. Together with the financial
statements required pursuant to subsections (a) and (b)(i) above, a
certificate, substantially in the form of Exhibit L attached hereto, of the
treasurer or chief financial officer of the Borrower (i) to the effect that,
based upon a review of the activities of the Borrower and its Subsidiaries and
such financial statements during the period covered thereby, there exists no
Event of Default and no Default under this Agreement, or if there exists an
Event of Default or a Default hereunder, specifying the nature thereof and the
proposed response thereto, and (ii) demonstrating in reasonable detail
compliance as at the end of such Fiscal Year or such Fiscal Quarter with
Section 6.08 and Sections 7.01 through 7.06;
(d) Notice of Default. Promptly after any Executive Officer of the
Borrower has notice or knowledge of the occurrence of an Event of Default or a
Default, a certificate of the chief financial officer or principal accounting
officer of the Borrower specifying the nature thereof and the proposed response
thereto;
(e) Litigation. Promptly after (i) the occurrence thereof, notice of the
institution of or any material adverse development in any material action,
suit or proceeding or any governmental investigation or any arbitration, before
any court or arbitrator or any governmental or administrative body, agency or
official, against the Borrower or any of its Subsidiaries, or any material
property of any thereof seeking money damages in excess of $2,000,000 (unless
any such judgment, award or fine is unequivocally covered by Borrower's
insurance policies) or which, if adversely determined, would otherwise
reasonably be expected to have a Materially Adverse Effect, or (ii) actual
knowledge thereof, notice of the threat of any such action, suit, proceeding,
investigation or arbitration;
(f) Environmental Notices. Promptly after receipt thereof, notice of any
actual or alleged violation, or notice of any action, claim or request for
information, either judicial or administrative, from any governmental authority
relating to any actual or alleged claim, notice of potential responsibility
under or violation of any Environmental Law, or any actual or alleged spill,
leak, disposal or other release of any waste, petroleum product, or hazardous
waste or Hazardous Substance by Borrower or any of its Subsidiaries which could
reasonably be expected to result in penalties, fines, claims or other
liabilities to the Borrower or any of its Subsidiaries in amounts in excess of
$1,000,000;
(g) ERISA. (i) Promptly after the occurrence thereof with respect to any
Plan of any Consolidated Company or any ERISA Affiliate thereof, or any trust
established thereunder, notice of (A) a "reportable event" described in Section
4043 of ERISA and the regulations issued from time to time thereunder (other
than a "reportable event" not subject to the provisions for 30-day notice to
the PBGC under such regulations), or (B) any other event which could subject
any Consolidated Company to any tax, penalty or liability (excluding PBGC
premiums in the normal course) under Title I or Title IV of ERISA or Chapter 43
of the Tax Code, or any tax or penalty resulting from a loss of deduction that
was asserted on a filed tax return with the state or federal taxing authority
under Sections 162, 404 or 419 of the Tax Code, where any such taxes,
penalties or liabilities exceed or could reasonably be expected to exceed
$1,000,000 in the aggregate;
(ii) Promptly after such notice must be provided to the PBGC, or to a
Plan participant, beneficiary or alternative payee, any notice required under
Section 101(d), 302(f)(4), 303, 307, 4041(b)(1)(A) or 4041(c)(1)(A) of ERISA
or under Section 401(a)(29) or 412 of the Tax Code with respect to any Plan of
any Consolidated Company or any ERISA Affiliate thereof;
(iii) Promptly after receipt, any notice received by any Consolidated
Company or any ERISA Affiliate thereof concerning the intent of the PBGC or
any other governmental authority to terminate a Plan of such Consolidated
Company or ERISA Affiliate thereof which is subject to Title IV of ERISA, to
impose any liability on such Consolidated Company or ERISA Affiliate under
Title IV of ERISA or Chapter 43 of the Tax Code;
(iv) Upon the request of the Agent, promptly upon the filing thereof
with the Internal Revenue Service ("IRS") or the Department of Labor ("DOL"),
a copy of IRS Form 5500 or annual report for each Plan of any Consolidated
Company or ERISA Affiliate thereof which is subject to Title IV of ERISA;
(v) Upon the request of the Agent, (A) true and complete copies of any
and all documents, government reports and IRS determination or opinion letters
or rulings for any Plan of any Consolidated Company from the IRS, PBGC or DOL,
(B) any reports filed with the IRS, PBGC or DOL with respect to a Plan of the
Consolidated Companies or any ERISA Affiliate thereof, or (C) a current
statement of withdrawal liability for each Multiemployer Plan of any
Consolidated Company or any ERISA Affiliate thereof;
(h) Liens. Promptly upon the Borrower or any Subsidiary becoming aware
thereof, notice of the filing of any federal statutory Lien, tax or other
state or local government Lien or any other Lien affecting their respective
properties, other than Permitted Liens;
(i) Public Filings, Etc. Promptly upon the filing thereof or otherwise
becoming available, copies of all financial statements, annual, quarterly and
special reports, proxy statements and notices sent or made available generally
by the Parent or the Borrower to its public security holders, of all regular
and periodic reports and all registration statements and prospectuses, if any,
filed by any of them with any securities exchange, and of all press releases
and other statements made available generally to the public containing material
developments in the business or financial condition of the Borrower and the
other Consolidated Companies;
(j) Accountants' Reports. Promptly upon receipt thereof, copies of all
financial statements of, and all reports submitted by, independent public
accountants to the Parent or the Borrower in connection with each annual,
interim, or special audit of Parent's or Borrower's financial statements,
including without limitation, the comment letter submitted by such
accountants to management in connection with their annual audit;
(k) Burdensome Restrictions, Etc. Promptly upon the existence or
occurrence thereof, notice of the existence or occurrence of (i) any
Contractual Obligation or Requirement of Law described in Section 5.11, (ii)
failure of the Borrower or any Subsidiary to hold in full force and effect
those material trademarks, service marks, patents, trade names, copyrights,
licenses and similar rights necessary in the normal conduct of its business,
and (iii) any strike, labor dispute, slow down or work stoppage as described
in Section 5.20;
(l) New Material Subsidiaries. Not more than 30 days after the formation
or acquisition of any Material Subsidiary, or any other event resulting in the
creation of a new Material Subsidiary, notice of the formation or acquisition
of such Material Subsidiary or such occurrence, including a description of the
assets of such entity, the activities in which it will be engaged, and such
other information as the Agent and any of the Lenders may request;
(m) Intercompany Asset Transfers. Promptly upon the occurrence thereof,
notice of the transfer of any assets from any Credit Party to any other
Consolidated Company that is not a Credit Party in any transaction or series
of related transactions, where either the book value or the fair market value
of such assets is greater than $1,000,000 (excluding sales or other transfers
of assets in the ordinary course of business);
(n) Annual Budget and Projections. Within a reasonable period of time
after the beginning of each Fiscal Year of Borrower, an annual budget,
including without limitation, an annual budget of Capital Expenditures, and
accompanying projected balance sheets and statements of income, shareholders'
equity, and cash flows for such fiscal year for the Borrower and its
Subsidiaries in form and substance reasonably acceptable to the Lenders;
(o) Asset Sales. Quarterly, with the statements required under Section
6.07(b), notice of Asset Sales of restaurants during the immediately preceding
Fiscal Quarter; and
(p) Licenses. Quarterly, with the statements required under Section 6.07
(b), details of all exclusive licenses entered into during the immediately
preceding Fiscal Quarter as required under the Intellectual Property Security
Agreement.
(q) Other Information. With reasonable promptness, such other
information about the Consolidated Companies as the Agent or any Lender may
reasonably request from time to time.
Section 6.08. Financial Covenants.
(a) Fixed Charge Coverage Ratio. Maintain a Fixed Charge Coverage Ratio
at all times, measured as of the last day of each Fiscal Quarter of the
Borrower for such Fiscal Quarter and the immediately preceding three (3)
Fiscal Quarters, commencing with the Fiscal Quarter ending March 31, 2002,
of not less than the ratio set forth below for the applicable period:
Period Ratio
From the Closing Date through 1.20 to 1.0
and including the Fiscal Quarter ending 6/30/02
From 7/1/02 through and including the 1.25 to 1.0
Fiscal Quarter ending 12/29/02
From 12/30/02 through and including 1.35 to 1.0
the Fiscal Quarter ending 6/29/03 and for
each Fiscal Quarter ending thereafter
(b) Funded Debt Coverage Ratio. Maintain a Funded Debt Coverage Ratio at
all times, measured as of the last day of each Fiscal Quarter of the Borrower
for such Fiscal Quarter and the immediately preceding three (3) Fiscal
Quarters, commencing with Fiscal Quarter ending 3/31/02, of not less than the
ratio set forth below for the applicable period:
From the Closing Date through and 6.00 to 1.0
including the Fiscal Quarter ending 3/31/02
From 4/1/02 through and including the 5.50 to 1.0
Fiscal Quarter ending 6/30/02
From 7/1/02 through and including the 5.35 to 1.0
Fiscal Quarter ending 12/29/02
From 12/30/02 through and including the 5.00 to 1.00
Fiscal Quarter ending 12/28/03
From 12/29/03 through and including the 4.50 to 1.00
Fiscal Quarter ending 6/27/04 and for each
Fiscal Quarter ending thereafter
(c) Consolidated Net Worth. Maintain at all times, as calculated on the
last day of each Fiscal Quarter of the Borrower beginning with the Fiscal
Quarter ending March 31, 2002, Consolidated Net Worth in an amount not less
than $30,000,000, less the effect thereon resulting from any change in
accounting principles, as defined by GAAP.
(d) Consolidated Capital Expenditures. Not make or commit to make any
Consolidated Capital Expenditures during any period of eight consecutive
Fiscal Quarters which exceed, when aggregated with all other Consolidated
Capital Expenditures previously made during such period, the amount of
$30,000,000.
Section 6.09. Notices Under Certain Other Indebtedness. Within five (5)
Business Days upon its receipt thereof, Borrower shall furnish the Agent a
copy of any notice received by it or any other Consolidated Company from the
holder(s) of Indebtedness referred to in Section 7.01(b), (c), (e), (f), (g)
or (i) (or from any trustee, agent, attorney, or other party acting on behalf
of such holder(s)) in an amount which, in the aggregate, exceeds $1,000,000,
where such notice states or claims (i) the existence or occurrence of any
default or event of default with respect to such Indebtedness under the terms
of any indenture, loan or credit agreement, debenture, note, or other document
evidencing or governing such Indebtedness, or (ii) the existence or occurrence
of any event or condition which requires or permits holder(s) of any
Indebtedness to exercise rights under any Change in Control Provision.
Section 6.10. Additional Credit Parties and Collateral. Promptly after (i)
the formation or acquisition of any Material Subsidiary not listed on Schedule
5.13, (ii) the transfer of assets to any Consolidated Company if notice
thereof is required to be given pursuant to Section 6.07(m) and as a result
thereof the recipient of such assets becomes a Material Subsidiary, or (iii)
the occurrence of any other event creating a new Material Subsidiary, Borrower
shall cause to be executed and delivered a Guaranty Agreement from each such
Material Subsidiary, together with related corporate authorization documents,
organizational documents, secretary's certificates and, if requested by the
Agent in the exercise of its reasonable credit judgment, opinions, all in form
and substance satisfactory to the Agent and the Required Lenders.
ARTICLE VII.
NEGATIVE COVENANTS
So long as any Commitment remains in effect hereunder or any Note or other
Obligation shall remain unpaid, each of the Borrower and its Subsidiaries
agrees that it will not, and will not permit any Subsidiary, to:
Section 7.01. Indebtedness. Create, incur, assume, guarantee, suffer to exist
or otherwise become liable on or with respect to, directly or indirectly, any
Indebtedness, other than the following which may be incurred so long as no
Event of Default has occurred and is continuing or would be caused thereby:
(a) Indebtedness of under this Agreement and pursuant to the Guaranty
Agreements or any of the other Credit Documents;
(b) Indebtedness outstanding or incurred on the Closing Date and
described on Schedule 7.01;
(c) Indebtedness of the Borrower or any of its Subsidiaries represented by
Capital Lease Obligations (whether or not incurred pursuant to Sale and
Leaseback Transactions), mortgage financings or Purchase Money Obligations, in
each case incurred for the purpose of financing all of any part of the
purchase price or cost of construction or improvement of property used in the
business of the Borrower or any of its Subsidiaries (provided that such
Indebtedness is incurred within 180 days of the date such property is
purchased or the date on which such construction of or improvement to such
property is commenced) in an aggregate principal amount at any time
outstanding not to exceed $15,000,000.00;
(d) unsecured current liabilities (other than liabilities for borrowed
money or liabilities evidenced by promissory notes, bonds or similar
instruments) incurred in the ordinary course of business and either (i) not
more than 30 days past due, or (ii) being disputed in good faith by appropriate
proceedings with reserves for such disputed liability maintained in conformity
with GAAP;
(e) Indebtedness of Borrower with respect to the Senior Notes and
Indebtedness of the Material Subsidiaries of Borrower with respect to
guarantees thereof;
(f) Subordinated Debt of the Borrower (but not Subsidiaries of the
Borrower) expressly approved in writing by the Lenders;
(g) Guarantees of advances to officers and employees in the ordinary
course of business, or Guarantees otherwise disclosed to and approved in
writing by the Agent and the Required Lenders;
(h) Endorsements of instruments for deposit or collection in the ordinary
course of business; and
(i) other Indebtedness of Borrower and its Subsidiaries not exceeding
$5,000,000 in aggregate principal amount outstanding at any time.
Section 7.02. Liens. Create, incur, assume or suffer to exist any Lien on any
of its property now owned or hereafter acquired to secure any Indebtedness
other than Permitted Liens.
Section 7.03. Mergers, Consolidations, Etc. Merge or consolidate or permit
any of its Subsidiaries to merge or consolidate, in a single transaction or
series of related transactions, with or into (other than the consolidation or
merger of a Wholly-Owned Subsidiary of the Borrower with another Wholly-Owned
Subsidiary of the Borrower or into the Borrower) (whether or not the Borrower
or such Subsidiary is the surviving corporation), or directly and/or
indirectly through its Subsidiaries sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of the properties or assets of
the Borrower and its Subsidiaries (determined on a consolidated basis for the
Borrower and its Subsidiaries taken as a whole) in one or more related
transactions to, another corporation, Person or entity unless:
(a) either (i) the Borrower, in the case of a transaction involving the
Borrower, or such Subsidiary, in the case of a transaction involving a
Subsidiary of the Borrower, is the surviving corporation or (ii) in the case
of a transaction involving the Borrower or a Guarantor, the entity or the
Person formed or surviving any such consolidation or merger (if other than the
Borrower or such Guarantor) or to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made is a corporation
organized or existing under the laws of the United States of America, any
state thereof or the District of Columbia and expressly assumes all the
obligations of the Borrower hereunder;
(b) immediately prior to or after such transaction no Default or Event of
Default shall have occurred and/or be continuing;
(c) in the case of a transaction involving the Borrower, the Borrower or,
if other than the Borrower, the entity or Person formed by or surviving any
such consolidation or merger, or to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made (i) will have
Consolidated Net Worth immediately after the transaction equal to or greater
than the Consolidated Net Worth of the Borrower immediately preceding the
transaction, and (ii) will, at the time of such transaction and after giving
pro forma effect thereto as if such transaction had occurred at the beginning
of the applicable four-quarter period, be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set
forth in Section 6.08(a) hereof;
(d) if, as a result of any such transaction, property or assets of the
Borrower or a Guarantor would become subject to a Lien other than a Permitted
Lien hereof, the Borrower, any such Guarantor or the surviving entity, as the
case may be, shall cause such Liens to be subordinate to the Liens in favor of
the Agent and the Lenders; and
(e) the Borrower shall have delivered to the Agent a certificate of an
Executive Officer and, except in the case of a merger of a Subsidiary of the
Borrower into the Borrower or into a Wholly-Owned Subsidiary of the Borrower,
an opinion of counsel, each stating that such consolidation, merger,
conveyance, lease or disposition and any supplemental indenture with respect
thereto, comply with all of the terms of this Section 7.03 and that all
conditions precedent herein provided relating to such transaction or series
of transactions have been complied with. For purposes of the foregoing, the
transfer (by lease, assignment, sale or otherwise, in a single transaction or
series of transactions) of all or substantially all of the properties or
assets of one or more Subsidiaries of the Borrower the Capital Stock of which
constitutes all or substantially all of the properties and assets of the
Borrower, shall be deemed to be the transfer of all or substantially all of
the properties and assets of the Borrower.
Section 7.04. Investments, Loans, Dividends, Etc.
(a) Directly or indirectly:
(i) declare or pay any dividend or make any distribution of any kind
or character (whether in cash, securities or other property) on account of any
class of the Borrower's or any of its Subsidiaries' Equity Interests or to
holders thereof (including, without limitation, any payment to stockholders
of the Borrower in connection with a merger or consolidation involving the
Borrower), other than (a) dividends or distributions payable solely in Equity
Interests (other than Disqualified Stock) of the Borrower or (b) dividends or
distributions payable solely to the Borrower or any Wholly-Owned Subsidiary of
the Borrower;
(ii) purchase, redeem or otherwise acquire or retire for value any
Equity Interests of the Borrower, any Subsidiary of the Borrower, or any other
Affiliate of the Borrower (other than any such Equity Interests owned by the
Borrower or any Wholly-Owned Subsidiary of the Borrower);
(iii) make any Investment (other than Permitted Investments and other
than Investments in an aggregate amount not to exceed $3,000,000 during the
period from the Closing Date through the Final Maturity Date which are made in
assets used or useful in the same or similar line of business engaged in by
Krystal Aviation Co. or Krystal Aviation Management on the Closing Date); or
(iv) make any payments to any Affiliate of the Borrower as compensation
for management services, except through the issuance of Equity Interests
(other than Disqualified Stock) of the Borrower
(I) (all such payments and other actions set forth in clauses (i) through
(iv) above being collectively referred to as "Restricted Payments"), unless,
at the time of and after giving effect to such Restricted Payment:
(II) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof,
(III) at the time of such Restricted Payment and after giving pro forma
effect thereto as if such Restricted Payment had been made at the beginning of
the applicable four-quarter period, the Borrower would have been permitted to
incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge
Coverage Ratio test set forth under Section 6.08(b) hereof, and
(IV) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments declared or made by the Borrower and its Subsidiaries
on or after the Closing Date (excluding Restricted Payments permitted by
Sections 7.04(b)(ii), 7.04(b)(iii), 7.04(b)(iv), 7.04(b)(v) and 7.04(b)(vi)
hereof), is less than the sum of (i) 50% of the Consolidated Net Income of the
Borrower for the period (taken as one accounting period) from the beginning of
the first Fiscal Quarter commencing after the Closing Date to the end of the
Borrower's most recently ended Fiscal Quarter for which internal financial
statements are available at the time of such Restricted Payment (or, if such
Consolidated Net Income for such period is a deficit, less 100% of such
deficit), plus (ii) 100% of the aggregate net cash proceeds received by the
Borrower from the issue or sale after the Closing Date of Equity Interests of
the Borrower or of debt securities of the Borrower that have been converted
into such Equity Interests (other than Equity Interests (or convertible debt
securities) sold to a Subsidiary of the Borrower and other than Disqualified
Stock or debt securities that have been converted into Disqualified Stock).
(b) The foregoing clauses (II) and (III) of Section 7.04(a) will not
prohibit:
(i) the payment of any dividend on any class of Capital Stock of the
Borrower or any Subsidiary of the Borrower within 60 days after the date of
declaration thereof, if on the date on which such dividend was declared such
payment would have complied with the provisions of this Agreement; or
(ii) any dividend on shares of Capital Stock payable solely in shares
of Capital Stock (other than Disqualified Stock); or
(iii) any dividend or other distribution payable from a Subsidiary to
the Borrower or any Wholly-Owned Subsidiary; or
(iv) the making of any Investment in exchange for, or out of the
proceeds of, the substantially concurrent sale (other than to a Subsidiary of
the Borrower) of Equity Interests of the Borrower (other than Disqualified
Stock); provided, that any net cash proceeds that are utilized for any such
Investment, and any Consolidated Net Income resulting therefor shall be
excluded from clause (III) of Section 7.04(a) hereof; or
(v) the redemption, repurchase, retirement or other acquisition of any
Equity Interests of the Borrower in exchange for, or out of the proceeds of,
the substantially concurrent sale (other than to a Subsidiary of the Borrower)
of other Equity Interests of the Borrower (other than any Disqualified Stock);
provided that any net cash proceeds that are utilized for any such redemption,
repurchase, retirement or other acquisition, and any Consolidated Net Income
resulting therefrom, shall be excluded from clause (III) of Section 7.04(a)
hereof; or
(vi) the defeasance, redemption or repurchase of pari passu or
Subordinated Debt with the net cash proceeds from an incurrence of additional
Subordinated Debt or the substantially concurrent sale (other than to a
Subsidiary of the Borrower) of Equity Interests of the Borrower (other than
Disqualified Stock); provided, that any net cash proceeds that are utilized
for any such defeasance, redemption or repurchase, and any Consolidated Net
Income resulting therefrom, shall be excluded from clause (III) of Section
7.04(a) hereof; or
(vii) the repurchase of shares of Capital Stock of the Borrower in
connection with repurchase provisions under employee stock option and stock
purchase agreements or other agreements to compensate management employees of
the Borrower to the extent such payments do not exceed $1.0 million in the
aggregate.
(c) The amount of all Restricted Payments (other than cash) shall be the
fair market value on the date of the Restricted Payment of the asset(s)
proposed to be transferred by the Borrower or such Subsidiary, as the case may
be, pursuant to the Restricted Payment.
Section 7.05. Asset Sales. Engage, directly or indirectly, in an Asset Sale
unless each of the following conditions are met:
(i) the Borrower (or such Subsidiary) receives consideration at the
time of such Asset Sale at least equal to the fair market value of the assets
sold or otherwise disposed of, and in the case of a lease of assets, a lease
providing for rent and other conditions which are no less favorable to the
Borrower (or such Subsidiary) in any material respect than then prevailing
market conditions (as determined in each case by the Board of Directors of the
Borrower, whose determination shall be conclusive if made in good faith and
evidenced by a Board Resolution set forth in an officers' certificate of the
Borrower delivered to the Agent);
(ii) at least 85% (100% in the case of lease payments) of the
consideration therefor received by the Borrower or such Subsidiary is in the
form of cash or Cash Equivalents;
(iii) no Default or Event of Default exists or would result therefrom;
(iv) if the Asset Sale includes Real Estate Collateral, the Borrower
grants to the Agent for the benefit of the Agent and the Lenders, a perfected,
first priority security interest in additional Real Estate Collateral of a
quality and value (including cash and Cash Equivalents) at least equal to the
quality and value of the Real Estate Collateral subject to the Asset Sale, in
each case, as determined in the sole discretion of the Required Lenders;
(v) if the Asset Sale relates to one or more restaurants (otherwise
this subsection shall not apply), then (y) the Borrower shall provide notice
to the Agent of such Asset Sale for all Asset Sales made during each Fiscal
Quarter of the Borrower with the quarterly statements provided under Section
6.07(b) with respect to such Fiscal Quarter; and (z) such Asset Sale together
with all other Asset Sales relating to restaurants shall not have exceeded an
aggregate of thirty (30) restaurants from the Closing Date; provided, that, an
Asset Sale relating to one or more restaurants in excess of thirty (30)
restaurants in the aggregate may be conducted with the prior written consent
of the Agent, which consent shall be given or withheld at the direction of the
Required Lenders. Notwithstanding the foregoing, the Borrower acknowledges
that the Required Lenders are under no obligation to grant approval of any
Asset Sales of restaurants in excess of 30 and that such approval may be
granted or withheld by the Required Lenders in their sole discretion;
(vi) no default or event of default under the Senior Notes Indenture
exists or would result therefrom.
(b) The Borrower may apply, and may permit its Subsidiaries to apply, Net
Proceeds of an Asset Sale, at its option, in each case within 180 days after
the consummation of such an Asset Sale and so long as no Default or Event of
Default has occurred and is continuing:
(i) to reduce Indebtedness outstanding hereunder (and to reduce the
Commitments with respect thereto) first to repay the outstanding Obligations
with respect to the Term Loan and then to repay the outstanding Obligations
with respect to the Revolving Loan, with such payment to be applied first to
accrued and unpaid interest and fees and then to principal, with installments
on the Term Loan to be repaid in inverse order of maturity, subject to the
provisions of Section 3.06;
(ii) to acquire Eligible Assets or to reimburse the Borrower or its
Subsidiaries for expenditures previously made to acquire Eligible Assets,
provided that any such expenditures were made not more than 180 days prior to
the consummation of such Asset Sale and were made in contemplation of such
Asset Sale and for the purpose of replacing the assets to be disposed of in
such Asset Sale;
(iii) to reimburse the Borrower or its Subsidiaries for expenditures
made, and costs incurred, to repair, rebuild, replace or restore property
subject to loss, damage or taking to the extent that the Net Proceeds consist
of insurance proceeds received on account of such loss, damage or taking;
(iv) to prepay, repay or redeem all or a portion of the Senior Notes;
or
(v) to make Investments which are made (y) in assets used or useful in
the same or similar line of business engaged in by the Borrower on the Closing
Date or (z) in the assets used or useful in the same or similar line of
business engaged in by Krystal Aviation Co. or Krystal Aviation Management Co.
on the Closing Date which in the aggregate together with all other Investments
in such assets do not exceed $3,000,000 during the period from the Closing
Date through the Final Maturity Date.
Pending the final application of any such Net Proceeds, the Borrower may
invest such Net Proceeds temporarily in Cash Equivalents or apply such Net
Proceeds to reduce amounts outstanding hereunder.
Section 7.06. Sale and Leaseback Transactions. Enter into any Sale and
Leaseback Transaction. Notwithstanding the foregoing, the Borrower or any
Subsidiary may enter into a Sale and Leaseback Transaction if:
(a) after giving pro forma effect to any such Sale and Leaseback
Transaction, the Borrower shall be in compliance with Sections 7.01 and 7.02
hereof,
(b) the gross cash proceeds of such Sale and Leaseback Transaction are at
least equal to the fair market value of such property;
(c) the aggregate rent payable by the Borrower in respect of such Sale and
Leaseback Transaction is not in excess of the fair market rental value of the
property leased pursuant to such Sale and Leaseback Transaction; and
(d) the assets subject to such Sale and Leaseback Transaction do not
constitute Collateral.
Section 7.07. Transactions with Affiliates. Enter into or suffer to exist
any transaction or a series of related transactions (including, without
limitation the sale, purchase, exchange or lease of assets, property or
services) with any Affiliate (each of the foregoing, an "Affiliate
Transaction"), other than Exempt Affiliate Transactions, unless:
(a) such Affiliate Transaction is on terms that are no less favorable to
the Borrower or the relevant Subsidiary than those that would have been
obtained in a comparable transaction by the Borrower or such Subsidiary with
a Person that is not an Affiliate; and
(b) the Borrower delivers to the Lenders (i) with respect to any Affiliate
Transaction entered into after the Closing Date involving aggregate
consideration in excess of $2.5 million, a Board Resolution duly adopted by a
committee of independent Directors of the Borrower, as set forth in an
Officer's Certificate, certifying that such Affiliate Transaction complies
with clause (a) above.
Section 7.08. Changes in Business. Enter into or engage in any business which
is substantially different from the business engaged in (or any reasonable
extensions or expansions thereof) by the Borrower and its Subsidiaries on the
Closing Date.
Section 7.09. ERISA. Take or fail to take any action with respect to any Plan
of any Consolidated Company or, with respect to its ERISA Affiliates, any Plans
which are subject to Title IV of ERISA or to continuation health care
requirements for group health plans under the Tax Code, including without
limitation (i) establishing any such Plan, (ii) amending any such Plan
(except where required to comply with applicable law), (iii) terminating or
withdrawing from any such Plan, or (iv) incurring an amount of unfunded benefit
liabilities, as defined in Section 4001(a)(18) of ERISA, or any withdrawal
liability under Title IV of ERISA with respect to any such Plan, which
together with any other action or omission referred to in this Section 7.09
(taken as a whole) would have a Materially Adverse Effect, without first
obtaining the written approval of the Required Lenders.
Section 7.10. Limitation on Payment Restrictions Affecting Borrower and its
Subsidiaries. Create or otherwise cause or suffer to exist or become
effective, any consensual encumbrance or restriction on the ability of
Borrower or any of its Subsidiaries to (i) pay dividends or make any other
distributions on any stock of a Subsidiary of the Borrower, or (ii) pay any
intercompany debt owed to Borrower or any Subsidiary of Borrower, or (iii)
transfer any of its property or assets to Borrower or any Subsidiary of
Borrower, except any consensual encumbrance or restriction existing as of the
Closing Date.
Section 7.11. Actions Under Certain Documents. Without the prior written
consent of the Required Lenders (i) modify, amend, cancel or rescind any
agreements or documents evidencing or governing Subordinated Debt or
intercompany debt, (ii) make any payment with respect to Subordinated Debt,
except that current interest accrued on such Subordinated Debt as of the date
of this Agreement and all interest subsequently accruing thereon (whether or
not paid currently) may be paid unless a Default or Event of Default has
occurred and is continuing, (iii) voluntarily prepay any portion of
intercompany debt, (iv) amend or modify the Senior Note Indenture or Senior
Notes issued thereunder to (x) increase the interest rate applicable thereto
or fees payable in connection therewith, (y) shorten the maturity or scheduled
amortization thereof, (z) make any covenant or event of default applicable
thereto more restrictive or otherwise to materially increase the obligations
or liabilities of the Consolidated Companies thereunder or (v) prepay, defease,
tender for, or otherwise provide for the payment prior to maturity of, the
Senior Notes, in whole or in part, except in connection with an Asset Sale
as permitted pursuant to Section 7.05 hereof.
Section 7.12. Additional Negative Pledges. Create or otherwise cause or
suffer to exist or become effective, directly or indirectly, any prohibition
or restriction on the creation or existence of any Lien upon any asset of
Borrower or its Subsidiaries, other than pursuant to (i) Section 7.02, (ii)
the terms of any agreement, instrument or other document pursuant to which
any Indebtedness permitted by Section 7.01(c) is incurred by Borrower or its
Subsidiaries, so long as such prohibition or restriction applies only to the
property or asset being financed by such Indebtedness, (iii) the Senior
Indenture as in effect on the Closing Date and (iv) any requirement of
applicable law or any regulatory authority having jurisdiction over any of
the Borrower or its Subsidiaries.
Section 7.13. Changes in Fiscal Year. Change the calculation of the Fiscal
Year of the Borrower.
Section 7.14. Issuance of Stock by Subsidiaries. Permit any Material
Subsidiary (either directly or indirectly by the issuance of rights or
options for, or securities convertible into such shares) to issue, sell or
dispose of any shares of its stock of any class (other than directors'
qualifying shares, if any) except to the Borrower or another Wholly-Owned
Subsidiary of Borrower.
Section 7.15. Store Closings. In the event that any restaurant constituting
a part of the Real Estate Collateral is not actively engaged in the business
of providing restaurant services for a period of sixty (60) consecutive days,
Borrower shall provide to the Agent for the benefit of the Agent and the
Lenders a perfected, first priority security interest in additional Real
Estate Collateral at least equal in quality and value of the closed restaurant
as of the Closing Date (or such later date as the closed restaurant became
part of the Real Estate Collateral), in each case as determined in the sole
discretion of the Required Lenders.
ARTICLE VIII.
EVENTS OF DEFAULT
Upon the occurrence and during the continuance of any of the following
specified events (each an "Event of Default"):
Section 8.01. Payments. Borrower shall fail to make promptly when due
(including, without limitation, by mandatory prepayment) any principal
payment with respect to the Loans, or Borrower shall fail to make any
payment of interest, fee or other amount payable hereunder within two (2)
Business Days of its due date;
Section 8.02. Covenants without Notice. Borrower shall fail to observe or
perform any covenant or agreement contained in Sections 6.01, 6.05, 6.07,
6.08, 6.09 or Article VII;
Section 8.03. Other Covenants. Borrower shall fail to observe or perform
any covenant or agreement contained in this Agreement, other than those
referred to in Sections 8.01 and 8.02, and such failure shall remain
unremedied for 30 days after the earlier of (i) Borrower's obtaining knowledge
thereof, or (ii) written notice thereof shall have been given to Borrower by
Agent or any Lender;
Section 8.04. Representations. Any representation or warranty made or deemed
to be made by Borrower or any other Credit Party or by any of its officers
under this Agreement or any other Credit Document (including the Schedules
attached thereto), or any certificate or other document submitted to the Agent
or the Lenders by any such Person pursuant to the terms of this Agreement or
any other Credit Document, shall be incorrect in any material respect when
made or deemed to be made or submitted;
Section 8.05. Non-Payments of Other Indebtedness. Parent or any Consolidated
Company shall fail to make when due (whether at stated maturity, by
acceleration, on demand or otherwise, and after giving effect to any
applicable grace period) any payment of principal of or interest on any
Indebtedness (other than the Obligations) exceeding $500,000 individually or
in the aggregate, other than such payments that are in dispute for less than
60 days;
Section 8.06. Defaults Under Other Agreements; Change in Control Provisions.
Parent or any Consolidated Company shall fail to observe or perform any
covenants or agreements contained in any of the Material Contracts or in any
other agreements or instruments relating to any of its Indebtedness exceeding
$1,000,000 individually or in the aggregate (after giving effect to any
applicable grace period), or any other event shall occur if the effect of such
failure or other event is to accelerate, or with notice or passage of time or
both (after giving effect to any applicable grace period), to permit the
holder of such Indebtedness or any other Person to accelerate, the maturity of
such Indebtedness; or any such Indebtedness shall be required to be prepaid
(other than by a regularly scheduled required prepayment) in whole or in part
prior to its stated maturity; or (b) any event or condition shall occur or
exist which, pursuant to the terms of any Change in Control Provision,
requires or permits the holder(s) of the Indebtedness subject to such Change
in Control Provision to require that such Indebtedness be redeemed,
repurchased, defeased, prepaid or repaid, in whole or in part, or the maturity
of such Indebtedness to be accelerated;
Section 8.07. Bankruptcy. Parent or any Consolidated Company shall commence a
voluntary case concerning itself under the Bankruptcy Code or applicable
foreign bankruptcy laws; or an involuntary case for bankruptcy is commenced
against Parent or any Consolidated Company and the petition is not controverted
within 10 days, or is not dismissed within 60 days, after commencement of the
case; or a custodian (as defined in the Bankruptcy Code) or similar official
under applicable foreign bankruptcy laws is appointed for, or takes charge of,
all or any substantial part of the property of the Parent or any Consolidated
Company; or the Parent or any Consolidated Company commences proceedings of
its own bankruptcy or to be granted a suspension of payments or any other
proceeding under any reorganization, arrangement, adjustment of debt, relief
of debtors, dissolution, insolvency or liquidation or similar law of any
jurisdiction, whether now or hereafter in effect, relating to the Parent or
any Consolidated Company or there is commenced against the Parent or any
Consolidated Company any such proceeding which remains undismissed for a
period of 60 days; or the Parent or any Consolidated Company is adjudicated
insolvent or bankrupt; or any order of relief or other order approving any
such case or proceeding is entered; or the Parent or any Consolidated
Company suffers any appointment of any custodian or the like for it or any
substantial part of its property to continue undischarged or unstayed for a
period of 60 days; or the Parent or any Consolidated Company makes a general
assignment for the benefit of creditors; or the Parent or any Consolidated
Company shall fail to pay, or shall state that it is unable to pay, or shall
be unable to pay, its debts generally as they become due; or the Parent or any
Consolidated Company shall call a meeting of its creditors with a view to
arranging a composition or adjustment of its debts; or the Parent or any
Consolidated Company shall by any act or failure to act indicate its consent
to, approval of or acquiescence in any of the foregoing; or any corporate
action is taken by the Parent or any Consolidated Company for the purpose of
effecting any of the foregoing;
Section 8.08. ERISA. A Plan of either Parent, a Consolidated Company or of
any of its ERISA Affiliates which is subject to Title IV of ERISA:
(i) shall fail to be funded in accordance with the minimum funding
standard required by applicable law, the terms of such Plan,
Section 412 of the Tax Code or Section 302 of ERISA for any plan
year or a waiver of such standard is sought or granted with respect
to such Plan under applicable law, the terms of such Plan or
Section 412 of the Tax Code or Section 303 of ERISA; or
(ii) is being, or has been, terminated or the subject of termination
proceedings under applicable law or the terms of such Plan; or
(iii) shall require Parent or a Consolidated Company to provide
security under applicable law, the terms of such Plan, Section 401
or 412 of the Tax Code or Section 306 or 307 of ERISA; or
(iv) results in a liability to Parent or a Consolidated Company
under applicable law, the terms of such Plan, or Title IV of
ERISA;
and there shall result from any such failure, waiver, termination or other
event described in clauses (i) through (iv) above a liability to the PBGC or
a Plan that would have a Materially Adverse Effect;
Section 8.09. Judgments. Judgments or orders for the payment of money in
excess of $2,000,000 individually or in the aggregate (unless the Borrower's
insurance company has admitted liability for such judgment or order with
respect to all amounts in excess of $2,000,000 and such judgment has not
resulted in a Lien on the assets of the Borrower or its Subsidiaries) or
otherwise having a Materially Adverse Effect shall be rendered against Parent
or any Consolidated Company and such judgment or order shall continue
unsatisfied (in the case of a money judgment) and in effect for a period of 35
days during which execution shall not be effectively stayed or deferred
(whether by action of a court, by agreement or otherwise);
Section 8.10. Ownership of Credit Parties. If Borrower shall at any time fail
to own and control the shares of Voting Stock of any Subsidiary which it owned
or controlled at the time such Subsidiary became a Credit Party hereunder
other than due to sale of the Voting Stock of such Subsidiary permitted
pursuant to Section 7.05 hereof;
Section 8.11. Chairman of the Board of Directors of Parent and Borrower. If
Philip H. Sanford shall cease for any reason, including without limitation,
death, incompetence or incapacity, to hold the position and exercise the
duties of the Chairman of the Board of the Directors of each of the Parent and
the Borrower and is not replaced within a reasonable period of time by a
Person of comparable experience, expertise and standing in the business
community, as determined by the Required Lenders in the exercise of their
reasonable credit judgment;
Section 8.12. Change in Control. If a Change of Control shall occur;
Section 8.13. Default under Other Credit Documents. There shall exist or
occur any "Event of Default" as provided under the terms of any other Credit
Document, or any Credit Document ceases to be in full force and effect or the
validity or enforceability thereof is disaffirmed by or on behalf of Borrower
or any other Credit Party, or at any time it is or becomes unlawful for
Borrower or any other Credit Party to perform or comply with its obligations
under any Credit Document, or the obligations of Borrower or any other Credit
Party under any Credit Document are not or cease to be legal, valid and
binding on Borrower or any such Credit Party.
Section 8.14. Material Adverse Change. There shall occur any change with
respect to any of the Consolidated Companies which has had or would
reasonably be expected to have a Materially Adverse Effect.
Section 8.15. Renewal or Replacement of Revolving Commitments. The
Borrower shall fail to renew or replace the Revolving Commitments with a
revolving facility satisfactory to the Term Lender within sixty (60) days
following the Initial Maturity Date.
Then, and in any such event, and at any time thereafter if any Event of
Default shall then be continuing, the Agent may, with the consent of the
Required Lenders, and upon the written or telex request of the Required
Lenders, shall, take any or all of the following actions, without prejudice
to the rights of the Agent, any Lender or the holder of any Note to enforce
its claims against Borrower or any other Credit Party: (i) declare all
Commitments terminated, whereupon the Commitments of each Lender shall
terminate immediately and any commitment fee shall forthwith become due and
payable without any other notice of any kind; (ii) declare the principal of
and any accrued interest on the Loans, and all other Obligations owing
hereunder to be, whereupon the same shall become, forthwith due and payable
without presentment, demand, protest or other notice of any kind, all of which
are hereby waived by the Borrower; provided, that, if an Event of Default
specified in Section 8.07 shall occur, the result which would occur upon the
giving of notice by the Agent to any Credit Party, shall occur automatically
without the giving of any such notice, and (iii) may exercise any other rights
or remedies available under the Credit Documents, at law or in equity. Upon
any acceleration of the Loans outstanding hereunder, all outstanding Letters
of Credit shall be deemed to have been fully drawn and the Borrower shall be
required to deposit cash collateral into the L/C Cash Collateral Account in
accordance with the provisions of Section 2.07(b).
ARTICLE IX.
THE AGENT
Section 9.01. Appointment of Agent. Each Lender hereby designates Bank of
America as Agent to administer all matters concerning the Loans and to act as
herein specified. Each of the Lenders hereby designates ORIX as the
Documentation Agent and acknowledges that the Documentation Agent shall have
no duties under this Agreement whatsoever but shall be entitled to all the
protections afforded the Agent under this Article IX. Each Lender hereby
irrevocably authorizes, and each holder of any Note by the acceptance of a
Note shall be deemed irrevocably to authorize, the Agent to take such actions
on its behalf under the provisions of this Agreement, the other Credit
Documents, and all other instruments and agreements referred to herein or
therein, and to exercise such powers and to perform such duties hereunder
and thereunder as are specifically delegated to or required of the Agent by
the terms hereof and thereof and such other powers as are reasonably
incidental thereto. The Agent may perform any of its duties hereunder by or
through their agents or employees.
Section 9.02. Authorization of Agent with Respect to the Security Documents.
(a) Each Lender hereby authorizes the Agent to enter into each of the
Security Documents substantially in the form attached hereto, and to take all
action contemplated thereby. All rights and remedies under the Security
Documents may be exercised by the Agent for the benefit of the Agent and the
Lenders and the other beneficiaries thereof upon the terms thereof. The
Lenders further agree that the Agent may assign its rights and obligations
under any of the Security Documents to any affiliate of the Agent or to any
trustee, if necessary or appropriate under applicable law, which assignee in
each such case shall (subject to compliance with any requirements of applicable
law governing the assignment of such Security Documents) be entitled to all the
rights of the Agent under and with respect to the applicable Security Document.
(b) In each circumstance where, under any provision of any Security
Document, the Agent shall have the right to grant or withhold any consent,
exercise any remedy, make any determination or direct any action by the Agent
under such Security Document, the Agent shall act in respect of such consent,
exercise of remedies, determination or action, as the case may be, with the
consent of and at the direction of the Required Lenders; provided, however,
that no such consent of the Required Lenders shall be required with respect to
any consent, determination or other matter that is, in the Agent's judgment,
ministerial or administrative in nature. In each circumstance where any
consent of or direction from the Required Lenders is required, the Agent shall
send to the Lenders a notice setting forth a description in reasonable detail
of the matter as to which consent or direction is requested and the Agent's
proposed course of action with respect thereto. In the event the Agent shall
not have received a response from any Lender within five (5) Business Days
after such Lender's receipt of such notice, such Lender shall be deemed to
have agreed to the course of action proposed by the Agent.
Section 9.03. Nature of Duties of Agent. Except for the agreement to provide
copies of notices to ORIX as described in Section 9.04(a), the Agent shall
have no duties or responsibilities except those expressly set forth in this
Agreement and the other Credit Documents. None of the Agent nor any of its
respective officers, directors, employees or agents shall be liable for any
action taken or omitted by it as such hereunder or in connection herewith,
unless caused by its or their gross negligence or willful misconduct. The
duties of the Agent shall be ministerial and administrative in nature; the
Agent shall not have by reason of this Agreement a fiduciary relationship in
respect of any Lender; and nothing in this Agreement, express or implied, is
intended to or shall be so construed as to impose upon the Agent any
obligations in respect of this Agreement or the other Credit Documents except
as expressly set forth herein.
Section 9.04. Lack of Reliance on Agent.
(a) Independently and without reliance upon the Agent, each Lender, to the
extent it deems appropriate, has made and shall continue to make (i) its own
independent investigation of the financial condition and affairs of the Credit
Parties in connection with the taking or not taking of any action in connection
herewith, and (ii) its own appraisal of the creditworthiness of the Credit
Parties, and, except as expressly provided in this Agreement, the Agent shall
have no duty or responsibility, either initially or on a continuing basis, to
provide any Lender with any credit or other information with respect thereto,
whether coming into its possession before the making of the Loans or at any
time or times thereafter; provided, however, that the Agent shall provide to
ORIX copies of all notices received from the Borrower which it determines to
be material to the Collateral and the Obligations within thirty (30) days of
such determination.
(b) The Agent shall not be responsible to any Lender for any recitals,
statements, information, representations or warranties herein or in any
document, certificate or other writing delivered in connection herewith or
for the execution, effectiveness, genuineness, validity, enforceability,
collectibility, priority or sufficiency of this Agreement, the Notes, the
Guaranty Agreement or any other documents contemplated hereby or thereby, or
the financial condition of the Credit Parties, or be required to make any
inquiry concerning either the performance or observance of any of the terms,
provisions or conditions of this Agreement, the Notes, the Guaranty Agreement
or the other documents contemplated hereby or thereby, or the financial
condition of the Credit Parties, or the existence or possible existence of
any Default or Event of Default.
Section 9.05. Certain Rights of the Agent. If the Agent shall request
instructions from the Required Lenders with respect to any action or actions
(including the failure to act) in connection with this Agreement, the Agent
shall be entitled to refrain from such act or taking such act, unless and
until the Agent shall have received instructions from the Required Lenders;
and the Agent shall not incur liability in any Person by reason of so
refraining. Without limiting the foregoing, no Lender shall have any right
of action whatsoever against the Agent as a result of the Agent acting or
refraining from acting hereunder in accordance with the instructions of the
Required Lenders.
Section 9.06. Reliance by Agent. The Agent shall be entitled to rely, and
shall be fully protected in relying, upon any note, writing, resolution,
notice, statement, certificate, telex, teletype or telecopier message, cable
gram, radiogram, order or other documentary, teletransmission or telephone
message believed by it to be genuine and correct and to have been signed,
sent or made by the proper Person. The Agent may consult with legal counsel
(including counsel for any Credit Party), independent public accountants and
other experts selected by it and shall not be liable for any action taken or
omitted to be taken by it in good faith in accordance with the advice of such
counsel, accountants or experts.
Section 9.07. Indemnification of Agent. To the extent the Agent is not
reimbursed and indemnified by the Credit Parties, each Lender will reimburse
and indemnify the Agent, ratably according to the respective amounts of the
Loans outstanding under all Facilities (or if no amounts are outstanding,
ratably in accordance with the Commitments), in either case, for and against
any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses (including counsel fees and disbursements)
or disbursements of any kind or nature whatsoever which may be imposed on,
incurred by or asserted against the Agent in performing its duties hereunder,
in any way relating to or arising out of this Agreement or the other Credit
Documents; provided that no Lender shall be liable to the Agent for any
portion of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting from the Agent's
gross negligence or willful misconduct.
Section 9.08. The Agent in its Individual Capacity. With respect to its
obligation to lend under this Agreement, the Loans made by it and the Notes
issued to it, the Agent shall have the same rights and powers hereunder as any
other Lender or holder of a Note and may exercise the same as though it were
not performing the duties specified herein; and the terms "Lenders",
"Required Lenders", "holders of Notes", or any similar terms shall, unless the
context clearly otherwise indicates, include the Agent in its individual
capacity. The Agent may accept deposits from, lend money to, and generally
engage in any kind of banking, trust, financial advisory or other business
with the Consolidated Companies or any affiliate of the Consolidated Companies
as if it were not performing the duties specified herein, and may accept fees
and other consideration from the Consolidated Companies for services in
connection with this Agreement and otherwise without having to account for
the same to the Lenders.
Section 9.09. Holders of Notes. The Agent may deem and treat the payee of any
Note as the owner thereof for all purposes hereof unless and until a written
notice of the assignment or transfer thereof shall have been filed with the
Agent. Any request, authority or consent of any Person who, at the time of
making such request or giving such authority or consent, is the holder of any
Note shall be conclusive and binding on any subsequent holder, transferee or
assignee of such Note or of any Note or Notes issued in exchange therefor.
Section 9.10. Successor Agent.
(a) The Agent may resign at any time by giving written notice thereof to
the Lenders and Borrower and may be removed at any time with or without cause
by the Required Lenders; provided, however, the Agent may not resign or be
removed until a successor Agent has been appointed and shall have accepted
such appointment. Upon any such resignation or removal, the Required Lenders
shall have the right to appoint a successor Agent subject to Borrower's prior
written approval which shall not be unreasonably withheld. If no successor
Agent shall have been so appointed by the Required Lenders, and shall have
accepted such appointment, within 30 days after the retiring Agent's giving of
notice of resignation or the Required Lenders' removal of the retiring Agent,
then the retiring Agent may, on behalf of the Lenders, appoint a successor
Agent subject to Borrower's prior written approval which shall not be
unreasonably withheld, and which shall be a bank which maintains an office in
the United States, or a commercial bank organized under the laws of the United
States of America or any State thereof, or any Affiliate of such bank, having
a combined capital and surplus of at least $1,000,000,000.
(b) Upon the acceptance of any appointment as the Agent hereunder by a
successor Agent, such successor Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring
Agent, and the retiring Agent shall be discharged from its duties and
obligations under this Agreement. After any retiring Agent's resignation or
removal hereunder as Agent, the provisions of this Article IX shall inure to
its benefit as to any actions taken or omitted to be taken by it while it was
an Agent under this Agreement.
ARTICLE X.
MISCELLANEOUS
Section 10.01. Notices. All notices, requests and other communications to any
party hereunder shall be in writing (including bank wire, telex, telecopy or
similar teletransmission or writing) and shall be given to such party at its
address or applicable teletransmission number set forth on the signature pages
hereof, or such other address or applicable teletransmission number as such
party may hereafter specify by notice to the Agent and Borrower. Each such
notice, request or other communication shall be effective (i) if given by
telex, when such telex is transmitted to the telex number specified in this
Section and the appropriate answerback is received, (ii) if given by mail, 72
hours after such communication is deposited in the mails with first class
postage prepaid, addressed as aforesaid, (iii) if given by telecopy, when such
telecopy is transmitted to the telecopy number specified in this Section and
the appropriate confirmation is received, or (iv) if given by any other means
(including, without limitation, by air courier), when delivered or received at
the address specified in this Section; provided that notices to the Agent
shall not be effective until received.
Section 10.02. Amendments, Etc. No amendment or waiver of any provision of
this Agreement or the other Credit Documents, nor consent to any departure by
any Credit Party therefrom, shall in any event be effective unless the same
shall be in writing and signed by the Required Lenders (and in the case of any
amendment, the applicable Credit Party), and then such waiver or consent shall
be effective only in the specific instance and for the specific purpose for
which given; provided that no amendment, waiver or consent shall, unless in
writing and signed by all the Lenders and participants, do any of the
following: (i) increase the Commitments or contractual obligations of the
Lenders to Borrower under this Agreement, (ii) reduce the principal of, or
interest on, the Notes or any fees hereunder, (iii) postpone any date fixed
for the payment in respect of principal of, or interest on, the Notes or any
fees hereunder, or extend the Final Maturity Date, (iv) change the percentage
of the Commitments or of the aggregate unpaid principal amount of the Notes,
or the number or identity of Lenders which shall be required for the Lenders
or any of them to take any action hereunder, (vi) agree to release any
Guarantor from its obligations under any Guaranty Agreement or any Collateral
from the Security Documents (other than in connection with an Asset Sale
pursuant to Section 7.05 where the conditions of such Section have been
satisfied), (vii) modify the definition of "Required Lenders," or (viii)
modify this Section 10.02. Notwithstanding the foregoing, no amendment,
waiver or consent shall, unless in writing and signed by the Agent in addition
to the Lenders required hereinabove to take such action, affect the rights or
duties of the Agent under this Agreement or under any other Credit Document.
Section 10.03. No Waiver; Remedies Cumulative. No failure or delay on the
part of the Agent, any Lender or any holder of a Note in exercising any right
or remedy hereunder or under any other Credit Document, and no course of
dealing between any Credit Party and the Agent, any Lender or the holder of
any Note shall operate as a waiver thereof, nor shall any single or partial
exercise of any right or remedy hereunder or under any other Credit Document
preclude any other or further exercise thereof or the exercise of any other
right or remedy hereunder or thereunder. The rights and remedies herein
expressly provided are cumulative and not exclusive of any rights or remedies
which the Agent, any Lender or the holder of any Note would otherwise have.
No notice to or demand on any Credit Party not required hereunder or under any
other Credit Document in any case shall entitle any Credit Party to any other
or further notice or demand in similar or other circumstances or constitute a
waiver of the rights of the Agent, the Lenders or the holder of any Note to
any other or further action in any circumstances without notice or demand.
Section 10.04. Payment of Expenses, Etc. Borrower shall:
(i) whether or not the transactions hereby contemplated are consummated,
pay all reasonable, out-of-pocket costs and expenses of the Agent in the
administration (both before and after the execution hereof and including
reasonable expenses actually incurred relating to advice of counsel as to
the rights and duties of the Agent and the Lenders with respect thereto) of,
and in connection with the preparation, execution and delivery of,
preservation of rights under, enforcement of, and, after a Default or
Event of Default, refinancing, renegotiation or restructuring of, this
Agreement and the other Credit Documents and the documents and instruments
referred to therein, and any amendment, waiver or consent relating thereto
(including, without limitation, the reasonable fees actually incurred and
disbursements of counsel for the Agent), and in the case of enforcement of
this Agreement or any Credit Document after an Event of Default, all such
reasonable, out-of-pocket costs and expenses (including, without
limitation, the reasonable fees actually incurred and reasonable
disbursements and changes of counsel), for any of the Lenders;
(ii) subject, in the case of certain Taxes, to the applicable provisions
of Section 3.07(b), pay and hold each of the Lenders harmless from and against
any and all present and future stamp, documentary, and other similar Taxes
with respect to this Agreement, the Notes and any other Credit Documents,
any collateral described therein, or any payments due thereunder, and save
each Lender harmless from and against any and all liabilities with respect
to or resulting from any delay or omission to pay such Taxes; and
(iii) indemnify the Agent and each Lender, and their respective
officers, directors, employees, representatives and agents from, and hold
each of them harmless against, any and all costs, losses, liabilities, claims,
damages or expenses incurred by any of them (whether or not any of them is
designated a party thereto) (an "Indemnitee") arising out of or by reason of
any investigation, litigation or other proceeding related to any actual or
proposed use of the proceeds of any of the Loans or any Credit Party's
entering into and performing of the Agreement, the Notes, or the other
Credit Documents, including, without limitation, the reasonable fees actually
incurred and disbursements of counsel incurred in connection with any such
investigation, litigation or other proceeding; provided, however, Borrower
shall not be obligated to indemnify any Indemnitee for any of the foregoing
arising out of such Indemnitee's gross negligence or willful misconduct;
(iv) without limiting the indemnities set forth in subsection (iii)
above, indemnify each Indemnitee for any and all expenses and costs (including
without limitation, remedial, removal, response, abatement, cleanup,
investigative, closure and monitoring costs), losses, claims (including claims
for contribution or indemnity and including the cost of investigating or
defending any claim and whether or not such claim is ultimately defeated, and
whether such claim arose before, during or after any Credit Party's ownership,
operation, possession or control of its business, property or facilities or
before, on or after the date hereof, and including also any amounts paid
incidental to any compromise or settlement by the Indemnitee or Indemnitees to
the holders of any such claim), lawsuits, liabilities, obligations, actions,
judgments, suits, disbursements, encumbrances, liens, damages (including
without limitation damages for contamination or destruction of natural
resources), penalties and fines of any kind or nature whatsoever (including
without limitation in all cases the reasonable fees actually incurred, other
charges and disbursements of counsel in connection therewith) incurred,
suffered or sustained by that Indemnitee based upon, arising under or relating
to Environmental Laws based on, arising out of or relating to in whole or in
part, the existence or exercise of any rights or remedies by any Indemnitee
under this Agreement, any other Credit Document or any related documents.
If and to the extent that the obligations of Borrower under this Section 10.04
are unenforceable for any reason, Borrower hereby agrees to make the maximum
contribution to the payment and satisfaction of such obligations which is
permissible under applicable law.
Section 10.05. Right of Setoff. In addition to and not in limitation of all
rights of offset that any Lender or other holder of a Note may have under
applicable law, each Lender or other holder of a Note shall, upon the
occurrence of any Event of Default and whether or not such Lender or such
holder has made any demand or any Credit Party's obligations have matured,
have the right to appropriate and apply to the payment of any Credit Party's
obligations hereunder and under the other Credit Documents, all deposits of
any Credit Party (general or special, time or demand, provisional or final)
then or thereafter held by and other indebtedness or property then or
thereafter owing by such Lender or other holder to any Credit Party, whether
or not related to this Agreement or any transaction hereunder.
Section 10.06. Benefit of Agreement; Assignments; Participations.
(a) This Agreement shall be binding upon and inure to the benefit of and be
enforceable by the respective successors and assigns of the parties hereto,
provided that Borrower may not assign or transfer any of its interest
hereunder without the prior written consent of the Lenders.
(b) Any Lender may make, carry or transfer Loans at, to or for the
account of, any of its branch offices or the office of an Affiliate of such
Lender.
(c) Each Lender may assign all or a portion of its interests, rights and
obligations under this Agreement (including all or a portion of any of its
Commitments and the Loans at the time owing to it and the Notes held by it)
to any Eligible Assignee; provided, however, that (i) the Borrower must give
its prior written consent, which will not be unreasonably withheld to such
assignment unless such assignment is an Affiliate of the assigning Lender or
unless an Event of Default has occurred and is continuing hereunder, (ii) the
amount of the Commitments of the assigning Lender subject to each assignment
(determined as of the date the assignment and acceptance with respect to such
assignment is delivered to the Agent) shall not be less than an amount equal
to $2,000,000 or greater integral multiplies of $1,000,000 (or such lesser
amount as shall constitute the entire Commitment of such Lender) and (iii) the
parties to each such assignment shall execute and deliver to the Agent an
Assignment and Acceptance, together with a Note or Notes subject to such
assignment and, unless such assignment is to an Affiliate of such Lender, a
processing and recordation fee of $3,500; provided, however, that no fee shall
be charged with respect to the first assignment made by the Term Lender.
Borrower shall not be responsible for such processing and recordation fee or
any costs or expenses incurred by any Lender or the Agent in connection with
such assignment. From and after the effective date specified in each
Assignment and Acceptance, which effective date shall be at least five (5)
Business Days after the execution thereof, 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.
Within five (5) Business Days after receipt of the notice and the Assignment
and Acceptance, Borrower shall execute and deliver to the Agent, in exchange
for the surrendered Note or Notes (which Agent shall deliver to Borrower
forthwith), a new Note or Notes to the order of such assignee in a principal
amount equal to the applicable Commitments assumed by it pursuant to such
Assignment and Acceptance and new Note or Notes to the assigning Lender in the
amount of its retained Commitment or Commitments. Such new Note or Notes
shall be in an aggregate principal amount equal to the aggregate principal
amount of such surrendered Note or Notes, shall be dated the date of the
surrendered Note or Notes which they replace, and shall otherwise be in
substantially the form attached hereto.
(d) Each Lender may, without the consent of Borrower or the Agent, sell
participations to one or more banks or other entities in all or a portion of
its rights and obligations under this Agreement (including all or a portion of
its Commitments in the Loans owing to it and the Notes held by it), provided,
however, 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, (iii) the participating
bank or other entity shall not be entitled to the benefit (except through its
selling Lender) of the cost protection provisions contained in Article III of
this Agreement, and (iv) Borrower and the Agent and other Lenders shall
continue to deal solely and directly with each Lender in connection with such
Lender's rights and obligations under this Agreement and the other Credit
Documents, and such Lender shall retain the sole right to enforce the
obligations of Borrower relating to the Loans and to approve any amendment,
modification or waiver of any provisions of this Agreement; provided, however,
that the consent of each participant shall be required for any amendments or
waivers listed in Section 10.02. Each Lender shall promptly notify in writing
the Agent and the Borrower of any sale of a participation hereunder.
(e) Any Lender or participant may, in connection with the assignment or
participation or proposed assignment or participation, pursuant to this
Section, disclose to the assignee or participant or proposed assignee or
participant any information relating to Borrower or the other Consolidated
Companies furnished to such Lender by or on behalf of Borrower or any other
Consolidated Company. With respect to any disclosure of confidential, non-
public, proprietary information, such proposed assignee or participant shall
agree to use the information only for the purpose of making any necessary
credit judgments with respect to this credit facility and not to use the
information in any manner prohibited by any law, including without limitation,
the securities laws of the United States. The proposed participant or
assignee shall agree not to disclose any of such information except (i) to
directors, employees, auditors or counsel to whom it is necessary to show such
information, each of whom shall be informed of the confidential nature of the
information, (ii) in any statement or testimony pursuant to a subpoena or
order by any court, governmental body or other agency asserting jurisdiction
over such entity, or as otherwise required by law (provided prior notice is
given to Borrower and the Agent unless otherwise prohibited by the subpoena,
order or law), and (iii) upon the request or demand of any regulatory agency
or authority with proper jurisdiction. The proposed participant or assignee
shall further agree to return all documents or other written material and
copies thereof received from any Lender, the Agent or Borrower relating to
such confidential information unless otherwise properly disposed of by such
entity.
(f) Any Lender may at any time assign all or any portion of its rights in
this Agreement and the Notes issued to it to a Federal Reserve Bank; provided
that no such assignment shall release the Lender from any of its obligations
hereunder.
(g) If (i) any Taxes referred to in Section 3.07(b) have been levied or
imposed so as to require withholdings and reductions by the Borrower and
payment by the Borrower of additional amounts to any Lender as a result
thereof or any Lender shall make demand for payment of any material additional
amounts as compensation for increased cost pursuant to Section 3.10, then and
in such event, upon request from the Borrower delivered to such Lender, such
Lender shall assign, in accordance with the provisions of Section 10.06(c),
all of its rights and obligations under this Agreement and the other Credit
Documents to an Eligible Assignee selected by the Borrower and consented to
by the Agent in consideration for the payment by such assignee to the Lender
of the principal of and interest on the outstanding Loans accrued to the date
of such assignment, the assumption of such Lender's Commitments hereunder,
together with any and all other amounts owing to such Lender under any
provisions of this Agreement or the other Credit Documents accrued to the date
of such assignment.
Section 10.07. Governing Law; Submission to Jurisdiction.
(a) THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER
AND UNDER THE NOTES SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY
THE LAW (WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW PRINCIPLES THEREOF) OF
THE STATE OF GEORGIA.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT, THE
NOTES OR ANY OTHER CREDIT DOCUMENT MAY BE BROUGHT IN THE SUPERIOR COURT OF
FULTON COUNTY, GEORGIA, OR ANY OTHER COURT OF THE STATE OF GEORGIA OR OF THE
UNITED STATES OF AMERICA FOR THE NORTHERN DISTRICT OF GEORGIA, AND, BY
EXECUTION AND DELIVERY OF THIS AGREEMENT, BORROWER HEREBY ACCEPTS FOR ITSELF
AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE
JURISDICTION OF THE AFORESAID COURTS. THE PARTIES HERETO HEREBY IRREVOCABLY
WAIVE TRIAL BY JURY TO THE EXTENT ALLOWED BY LAW, AND BORROWER HEREBY
IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION
TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH
IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING
IN SUCH RESPECTIVE JURISDICTIONS.
(c) THE BORROWER HEREBY IRREVOCABLY DESIGNATES CT CORPORATION SYSTEM, AS
ITS DESIGNEE, APPOINTEE AND LOCAL AGENT TO RECEIVE, FOR AND ON BEHALF OF THE
BORROWER, SERVICE OF PROCESS IN SUCH RESPECTIVE JURISDICTIONS IN ANY LEGAL
ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR THE NOTES OR ANY
DOCUMENT RELATED THERETO. IT IS UNDERSTOOD THAT A COPY OF SUCH PROCESS SERVED
ON SUCH LOCAL AGENT WILL BE PROMPTLY FORWARDED BY SUCH LOCAL AGENT AND BY THE
SERVER OF SUCH PROCESS BY MAIL TO THE BORROWER AT ITS ADDRESS SET FORTH
OPPOSITE ITS SIGNATURE BELOW, BUT THE FAILURE OF THE BORROWER TO RECEIVE SUCH
COPY SHALL NOT AFFECT IN ANY WAY THE SERVICE OF SUCH PROCESS. THE BORROWER
FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY OF THE
AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF
COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE
BORROWER AT ITS SAID ADDRESS, SUCH SERVICE TO BECOME EFFECTIVE 30 DAYS
AFTER SUCH MAILING.
(d) Nothing herein shall affect the right of the Agent, any Lender,
any holder of a Note or any Credit Party to serve process in any other
manner permitted by law or to commence legal proceedings or otherwise
proceed against the Borrower in any other jurisdiction.
Section 10.08. Independent Nature of Lenders' Rights. The amounts payable at
any time hereunder to each Lender shall be a separate and independent debt,
and each Lender shall be entitled to protect and enforce its rights pursuant
to this Agreement and its Notes, and it shall not be necessary for any other
Lender to be joined as an additional party in any proceeding for such purpose.
Section 10.09. Counterparts. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts,
each of which when so executed and delivered shall be an original, but all of
which shall together constitute one and the same instrument.
Section 10.10. Effectiveness; Termination of Commitments; Survival
a) This Agreement shall become effective on the date on which all of the
parties hereto shall have signed a copy hereof (whether the same or different
copies) and shall have delivered the same to the Agent or, in the case of the
Lenders, shall have given to the Agent written or telex notice (actually
received) that the same has been signed and mailed to them.
(b) The obligations of Borrower under Sections 3.07(b), 3.10, 3.12, 3.13,
3.16 and 10.04 hereof shall survive the payment in full of the Notes after the
Maturity Date. All representations and warranties made herein, in the
certificates, reports, notices, and other documents delivered pursuant to this
Agreement shall survive the execution and delivery of this Agreement, the
other Credit Documents, and such other agreements and documents, the making of
the Loans hereunder, and the execution and delivery of the Notes.
Section 10.11. Severability. In case any provision in or obligation under
this Agreement or the other Credit Documents shall be invalid, illegal or
unenforceable, in whole or in part, in any jurisdiction, the validity,
legality and enforceability of the remaining provisions or obligations, or of
such provision or obligation in any other jurisdiction, shall not in any way
be affected or impaired thereby.
Section 10.12. Independence of Covenants. All covenants hereunder shall be
given independent effect so that if a particular action or condition is not
permitted by any of such covenants, the fact that it would be permitted by an
exception to, or be otherwise within the limitation of, another covenant,
shall not avoid the occurrence of a Default or an Event of Default if such
action is taken or condition exists.
Section 10.13. Change in Account Principles, Fiscal Year or Tax Laws. If (i)
any preparation of the financial statements referred to in Section 6.07
hereafter occasioned by the promulgation of rules, regulations, pronouncements
and opinions by or required by the Financial Accounting Standards Board or the
American Institute of Certified Public Accounts (or successors thereto or
agencies with similar functions) result in a material change in the method of
calculation of financial covenants, standards or terms found in this Agreement,
(ii) there is any change in Borrower's Fiscal Quarter or Fiscal Year, or (iii)
there is a material change in federal tax laws which materially affects any of
the Consolidated Companies' ability to comply with the financial covenants,
standards or terms found in this Agreement, Borrower and the Required Lenders
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 any of the Consolidated Companies' financial condition shall be the
same after such changes as if such changes had not been made. Unless and
until such provisions have been so amended, the provisions of this Agreement
shall govern.
Section 10.14. Intent Not To Violate Usury Laws. It is the intent of the
parties hereto not to violate any federal or state law, rule or regulation
pertaining either to usury or to the contracting for or charging or collecting
of interest, and the Borrower and the Agent and Lenders agree that, should any
provision of this Agreement or of the Notes, or any act performed hereunder or
thereunder, violate any such law, rule or regulation, then the excess of
interest or loan charges contracted for or charged or collected over the
maximum lawful rate of interest shall be applied to the outstanding principal
indebtedness due to the Lenders by the Borrower under this Agreement.
Section 10.15. Headings Descriptive; Entire Agreement. The headings of the
several sections and subsections of this Agreement are inserted for
convenience only and shall not in any way affect the meaning or construction
of any provision of this Agreement. This Agreement, the other Credit
Documents, and the agreements and documents required to be delivered pursuant
to the terms of this Agreement constitute the entire agreement among the
parties hereto and thereto regarding the subject matters hereof and thereof
and supersede all prior agreements, representations and understandings related
to such subject matters.
[SIGNATURES SET FORTH ON THE FOLLOWING PAGES]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and delivered by their duly authorized officers as of the day and year
first above written.
Address for Notices: BANK OF AMERICA, N.A.
As Agent
Ms. Susan Ryan
Bank of America, N.A.
Agency Management By:
231 S. LaSalle Street, 8th Floor Name:
Chicago, Illinois 60697 Title:
Mail Code: IL1-231-08-30
Payment Office:
101 North Trion Street BANK OF AMERICA, N.A.
Charlotte, NC 28255 As Revolving Lender
Attn: Lori Lamb
Address for Notices:
Ms. Susan Ryan By:
Bank of America, N.A. Name:
Agency Management Title:
231 S. LaSalle Street, 8th Floor
Mail Code: IL1-231-08-30
REVOLVING LOAN COMMITMENT: $10,000,000.00
PRO RATA SHARE: 100%
Address for Notices: ORIX FINANCIAL SERVICES, INC.,
and Payment Office: as Term Lender and as Documentation Agent
Structured Finance Group
600 Town Park Drive, Suite 300
Kennesaw, Georgia 30144-3734 By:
Name:
Title:
TERM LOAN COMMITMENT: $15,000,000.00
PRO RATA SHARE: 100%
Address for Notices: THE KRYSTAL COMPANY,
as Borrower
One Union Square By:
The Krystal Building Name:
Chattanooga, Tennessee 37402 Title:
Attn: Larry Bentley
Address for Notices: KRYSTAL AVIATION CO.,
as Guarantor
One Union Square By:
The Krystal Building Name:
Chattanooga, Tennessee 37402 Title:
Attn: Larry Bentley
Address for Notices: KRYSTAL AVIATION MANAGEMENT CO.,
as Guarantor
One Union Square By:
The Krystal Building Name:
Chattanooga, Tennessee 37402 Title: Larry Bentley
Address for Notices: PORT ROYAL HOLDINGS, INC.,
as Guarantor
One Union Square By:
The Krystal Building Name:
Chattanooga, Tennessee 37402 Title:
Attn: Larry Bentley