<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
-------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to _________________
Commission file number 333-14569
EVENFLO & SPALDING HOLDINGS CORPORATION
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(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 59-2439656
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(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
601 South Harbour Island Boulevard, Suite 200, Tampa, Florida 33602-3141
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (813) 204-5200
---------------------------
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Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report
Indicate by check X 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
--- ---
The number of shares outstanding of the registrant's Common stock, par value
$.01 per share, at April 30, 1998, was 96,931,741 shares.
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EVENFLO & SPALDING HOLDINGS CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED STATEMENTS OF CONSOLIDATED EARNINGS (LOSS)
AND COMPREHENSIVE EARNINGS (LOSS)
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Three months ended
March 31,
------------------------
1998 1997
--------- --------
<S> <C> <C>
NET SALES $ 236,551 205,871
Cost of sales 164,379 135,886
--------- --------
GROSS PROFIT 72,172 69,985
Selling, general and administrative expenses 68,593 57,002
Royalty income, net (2,784) (2,895)
Restructuring costs 5,352 400
--------- --------
INCOME FROM OPERATIONS 1,011 15,478
Interest expense, net 19,331 17,201
Currency loss, net 618 251
--------- --------
EARNINGS (LOSS) BEFORE INCOME TAXES (18,938) (1,974)
Income taxes (benefit) (6,379) (987)
--------- --------
NET EARNINGS (LOSS) (12,559) (987)
Other comprehensive earnings (loss) - currency translation
adjustments net of tax benefit of $45 and $25 (111) (530)
--------- --------
COMPREHENSIVE EARNINGS (LOSS) $ (12,670) (1,517)
========= ========
</TABLE>
See Unaudited Notes to Condensed Consolidated Financial Statements
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EVENFLO & SPALDING HOLDINGS CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED STATEMENTS OF CONSOLIDATED EARNINGS (LOSS)
AND COMPREHENSIVE EARNINGS (LOSS)
FOR THE SIX MONTHS ENDED MARCH 31, 1998 AND 1997
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Six months ended
March 31,
------------------------
1998 1997
--------- -------
<S> <C> <C>
NET SALES $ 393,600 331,065
Cost of sales 277,655 223,059
--------- -------
GROSS PROFIT 115,945 108,006
Selling, general and administrative expenses 123,440 107,300
Royalty income, net (6,806) (5,772)
Restructuring costs 5,761 1,061
--------- -------
INCOME (LOSS) FROM OPERATIONS (6,450) 5,417
Interest expense, net 37,575 33,826
Currency loss, net 1,559 221
--------- -------
EARNINGS (LOSS) BEFORE INCOME TAXES (45,584) (28,630)
Income taxes (benefit) (15,481) (14,315)
--------- -------
NET EARNINGS (LOSS) (30,103) (14,315)
Other comprehensive earnings (loss) - currency translation
adjustments net of tax benefit of $198 and $127 (151) (212)
--------- -------
COMPREHENSIVE EARNINGS (LOSS) $ (30,254) (14,527)
========= =======
</TABLE>
See Unaudited Notes to Condensed Consolidated Financial Statements
3
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EVENFLO & SPALDING HOLDINGS CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998 AND SEPTEMBER 30, 1997
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31, September 30,
1998 1997
----------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 6,393 5,168
Receivables, less allowance of $5,154 and $3,941 250,284 243,571
Inventories 223,215 157,512
Deferred income taxes 12,647 13,860
Other 10,887 8,955
----------- --------
TOTAL CURRENT ASSETS 503,426 429,066
Property, plant and equipment, net 115,977 110,195
Intangible assets, net 163,624 154,123
Deferred income taxes 52,296 34,904
Deferred financing costs 29,654 29,594
Other 3,903 3,349
----------- --------
TOTAL ASSETS $ 868,880 761,231
=========== ========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES
Non-U.S. bank loans $ 18,720 17,674
Current maturities of long-term debt 17,500 17,500
Accounts payable 219,765 183,657
Accrued expenses 81,259 79,348
Income taxes 347 811
----------- --------
TOTAL CURRENT LIABILITIES 337,591 298,990
Long-term debt 698,125 609,900
Pension 12,144 12,327
Post-retirement benefits 8,910 8,910
Other 1,607 1,735
----------- --------
TOTAL LIABILITIES 1,058,377 931,862
SHAREHOLDERS' EQUITY (DEFICIENCY)
Common stock, $.01 par value, 150,000,000 shares authorized
and 96,931,741 and 94,655,078 shares outstanding 970 947
Paid-in capital 443,143 431,780
Retained earnings (deficit) (629,170) (599,067)
Accumulated other comprehensive earnings (loss) - currency
translation adjustments (4,440) (4,291)
----------- --------
TOTAL SHAREHOLDERS' EQUITY (DEFICIENCY) (189,497) (170,631)
----------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY) $ 868,880 761,231
=========== ========
</TABLE>
See Unaudited Notes to Condensed Consolidated Financial Statements
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EVENFLO & SPALDING HOLDINGS CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31, 1998 AND 1997
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Six months ended
March 31,
----------------------
1998 1997
-------- -------
<S> <C> <C>
INCREASE (DECREASE) IN CASH
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) $(30,103) (14,315)
Adjustments to reconcile net earnings (loss) to net cash
provided (used) by operating activities:
Depreciation 10,689 8,798
Intangibles amortization 2,743 2,284
Deferred income taxes (16,179) (1,161)
Deferred financing cost amortization 2,318 2,319
Other (183) (38)
-------- -------
Subtotal (30,715) (2,113)
Receivables (6,713) (46,026)
Inventories (62,320) (39,442)
Current liabilities, excluding bank loans 36,455 11,896
Other (2,289) (2,554)
-------- -------
NET CASH USED BY OPERATING ACTIVITIES (65,582) (78,239)
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (16,806) (11,596)
Payment to purchase net assets of Hogan (1,641) 0
-------- -------
NET CASH FLOWS USED IN INVESTING ACTIVITIES (18,447) (11,596)
-------- -------
NET CASH USED BEFORE FINANCING ACTIVITIES (84,029) (89,835)
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings under revolving credit loan 78,700 6,300
Net borrowings of other indebtedness 7,546 7,356
Payment of new credit agreement costs (2,378) 0
Proceeds from issuance of common stock 1,422 7,218
Repurchase of common stock (36) 0
-------- -------
NET CASH FLOWS PROVIDED (USED) BY FINANCING ACTIVITIES 85,254 20,874
-------- -------
CASH - net change 1,225 (68,961)
beginning of period 5,168 75,298
-------- -------
end of period $ 6,393 6,337
======== =======
SUPPLEMENTAL CASH FLOW DATA
Interest paid $ 35,863 17,338
Income taxes paid (6,542) 1,464
Non-cash portion of acquisition of Hogan net assets for
common stock and a 10 1/2% note 13,025 0
</TABLE>
See Unaudited Notes to Condensed Consolidated Financial Statements
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EVENFLO & SPALDING HOLDINGS CORPORATION AND SUBSIDIARIES
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS AND SIX MONTHS ENDED MARCH 31, 1998 AND 1997
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
BASIS OF PRESENTATION
The accompanying condensed consolidated balance sheet of Evenflo & Spalding
Holdings Corporation and subsidiaries (the "Company") as of March 31, 1998, and
the related condensed statements of consolidated earnings (loss) and
comprehensive earnings (loss) for the three and six month periods ended March
31, 1998 and 1997, and of cash flows for the six month periods ended March 31,
1998 and 1997, are unaudited. In the opinion of management, all adjustments
necessary for a fair presentation of such condensed consolidated financial
statements have been included. Such adjustments consisted only of normal
recurring items. Interim results may not be indicative of results for a full
year.
The condensed consolidated financial statements and notes are presented as
permitted by Form 10-Q of the Securities and Exchange Commission and do not
contain certain information included in the Company's annual consolidated
financial statements and notes. The condensed consolidated balance sheet as of
September 30, 1997, was derived from the Company's audited financial statements,
but does not include all disclosures required by generally accepted accounting
principles. This Form 10-Q should be read in conjunction with the Company's
consolidated financial statements and accompanying notes included in its Annual
Report on Form 10-K for the year ended September 30, 1997 (file no. 333-14569).
POTENTIAL ASSET DISPOSITIONS
The Company is currently examining several transaction structures for the
dispositon of Evenflo to an affiliate. The proceeds from any such sale would be
applied to reduce indebtedness under the Company's senior credit agreements. The
Company expects that such a sale could be completed during the current fiscal
year.
RESTRUCTURING COSTS
In fiscal 1997, the Company began to restructure Spalding's international
operations by streamlining operations in Japan and certain European countries.
In the 1998 second quarter, Spalding implemented an expanded international
restructuring program that will reduce the Company's international
infrastructure to a size sufficient to support a strategic focus on core golf
and sporting goods products in selected countries. Operations will be
significantly downsized in Japan, consolidated in Europe, and closed in Mexico.
As a result, future sales activities in Mexico, France, Germany, Italy, and
Spain will be channeled through distributors and/or agents.
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Restructuring costs were $5,352 in the 1998 second quarter. Spalding
restructuring costs were $4,679 and consisted of (i) $3,179 principally for
international severance and lease settlements and (ii) $1,500 of management
severance costs. Evenflo restructuring costs were $673 to relocate Gerry
Colorado administrative and manufacturing operations to Evenflo's Ohio and
Georgia locations. The Company anticipates significant additional restructuring
charges in future periods. See Restructuring Costs discussion in "Management's
Discussion and Analysis."
SENIOR CREDIT FACILITY AMENDMENT AND ADDITIONAL $25 MILLION SEASONAL CREDIT
FACILITY
On March 31, 1998, the Company reached an agreement with its bank syndicate to
amend (the "Amendment") its senior credit agreement (the "Credit Facility") and
to provide an additional $25,000 senior secured credit facility (the "Seasonal
Credit Facility") for seasonal working capital needs until August 31, 1998. The
Amendment provides for a modification of financial ratio covenants for fiscal
periods through September 30, 1998, a 25 basis point increase in interest rates,
pledge of stock of subsidiaries, collateralization of certain domestic assets,
an amendment fee, and revisions to certain other provisions. The $25,000
Seasonal Credit Facility is available to support the Company's seasonal working
capital needs through August 31, 1998. See "-Liquidity and Capital Resources."
OTHER FINANCING ARRANGEMENTS
On February 18, 1998, the Company financed the new 150,000 square feet Spalding
Chicopee, Massachusetts, warehouse with the Massachusetts Development Finance
Agency. The $6,500, twenty-year loan is at 5% annual interest for the first five
years and converts to 300 basis points over one-year U.S. Treasury in years six
through twenty. In order to maintain the 5% interest rate for the first five
years, Spalding is required to maintain a certain number of new full-time
positions. There are no amortization requirements for the first five years of
the loan, the sixth through fifteenth years require $27 monthly amortization
payments, and years sixteen through twenty require $54 monthly amortization
payments. Massachusetts Development Finance Agency has been granted a security
interest in the warehouse.
ACQUISITIONS
On April 21, 1997, the Company acquired the net assets of Gerry Baby Products
Company ("Gerry") for a purchase price of $68,652. Gerry had manufacturing and
administrative operations in Colorado, which subsequent to the acquisition have
been substantially consolidated into Evenflo's operations in Ohio and Georgia.
Gerry also has manufacturing operations in Wisconsin. Gerry manufactures and/or
markets specialty juvenile products including baby bath, health and safety
items, monitors and other baby care products and accessories, as well as
juvenile car seats, strollers, high chairs, cribs, dressers and changing tables,
gates, and soft and frame carriers marketed under the Gerry(R) and Snugli(R)
brand names. The Gerry acquisition was accounted for using the purchase method;
accordingly, the operating results of Gerry have been included in the condensed
statement of consolidated earnings (loss) from the date of acquisition. If the
acquisition had taken place at October 1, 1996, rather than in April 1997,
Gerry's unaudited results of operations would have increased pro forma
consolidated net sales by $33,446 and
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decreased net loss by $462 for the quarter ended March 31, 1997, and would have
increased pro forma consolidated net sales by $56,829 and increased net loss by
$280 for the six months ended March 31, 1997.
On November 26, 1997, the Company acquired certain assets of the Ben Hogan Co.
("Hogan") for a purchase price of $14,666, consisting of $10,000 in Company
common stock (2 million shares), $3,025 in a 10 1/2% note due November 25, 2000,
and $1,641 in cash. Hogan manufactures and/or markets golf clubs, golf balls,
and golf accessories. The Hogan acquisition was accounted for using the purchase
method; accordingly, the operating results of Hogan have been included in the
condensed statement of consolidated earnings (loss) from the date of
acquisition. Consolidated pro forma net sales and net loss would not have been
materially different from the Company's reported amounts for 1997.
CONTINGENCIES
The Company is in disagreement with the Internal Revenue Service (the "IRS")
regarding the valuation of trademarks purchased from an Abarco N.V. ("Abarco")
affiliate in 1994. The IRS has completed the field audit for the year in which
the transactions occurred, and has preliminarily indicated that a portion of the
original purchase price may be recharacterized as a dividend distribution, and
that a portion of the amortization relating to such trademarks may be
disallowed. As a result, the Company expects that it may be assessed withholding
tax of approximately $30,000, and interest and penalties thereon of
approximately $25,000, related to this issue. Under the terms of indemnity
provisions contained in the 1996 Recapitalization and Stock Purchase Agreement
to which the Company and Abarco were parties, the Company believes that any
resulting liability would be indemnified by Abarco. The Company intends to
vigorously contest any assessment from the IRS. If the Company were unsuccessful
in appealing the assessment relating to these trademarks, a portion of the
$43,600 deferred tax asset at March 31, 1998 relating to the future amortization
of such trademarks would be written off as a charge to retained earnings
(deficit).
The Company is both a plaintiff and defendant in numerous lawsuits incidental to
its current and former operations, some alleging substantial claims. In
addition, the Company's operations are subject to federal, state, local, and
foreign environmental laws and regulations. The Company has entered into
settlement agreements with the U.S. Environmental Protection Agency and other
parties on several sites, and is still negotiating on other sites. The
settlement amounts and estimated liabilities are not significant. Management is
of the opinion that, after taking into account the merits of defenses, insurance
coverage and established reserves, the ultimate resolution of these matters will
not have a material adverse effect in relation to the Company's condensed
consolidated financial statements.
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INVENTORIES
<TABLE>
<CAPTION>
March 31, September 30,
1998 1997
-------- -------------
<S> <C> <C>
Finished goods $150,093 99,733
Work in process 42,269 28,031
Raw materials 30,853 29,748
-------- -------
Total inventories $223,215 157,512
======== =======
</TABLE>
RECLASSIFICATIONS
Certain reclassifications have been made to prior year amounts to conform with
current year presentations.
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INDEPENDENT ACCOUNTANTS' REPORT
The Board of Directors
Evenflo & Spalding Holdings Corporation:
We have reviewed the accompanying condensed consolidated balance sheet of
Evenflo & Spalding Holdings Corporation and subsidiaries (the "Company") as of
March 31, 1998, and the related condensed statements of consolidated earnings
(loss) and comprehensive earnings (loss) for the three and six months ended
March 31, 1998 and 1997, and of cash flows for the six months ended March 31,
1998 and 1997. These financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and of making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such condensed consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of the Company at September 30, 1997,
and the related statements of consolidated earnings (loss) and comprehensive
earnings (loss), consolidated cash flows and consolidated shareholders' equity
(deficiency) for the year then ended (not presented herein); and in our report
dated November 7, 1997, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth in
the accompanying condensed consolidated balance sheet as of September 30, 1997,
is fairly stated, in all material respects, in relation to the consolidated
balance sheet from which it has been derived.
DELOITTE & TOUCHE LLP
Tampa, Florida
May 4, 1998
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS
With the exception of historical information (information relating to the
Company's financial condition and results of operations at historical dates or
for historical periods), the matters discussed in this Management's Discussion
and Analysis of Financial Condition and Results of Operations are
forward-looking statements that necessarily are based on certain assumptions and
are subject to certain risks and uncertainties. These forward-looking statements
are based on management's expectations as of the date hereof, and the Company
does not undertake any responsibility to update any of these statements in the
future. Actual future performance and results could differ from that contained
in or suggested by these forward-looking statements as a result of the factors
set forth in this Management's Discussion and Analysis of Financial Condition
and Results of Operations and elsewhere in this March 31, 1998, Form 10-Q and
other filings by the Company with the Securities and Exchange Commission.
RESULTS OF OPERATIONS
Quarter Ended March 31, 1998 ("1998 second quarter") as compared
to the Quarter Ended March 31, 1997 ("1997 second quarter")
NET SALES are gross sales net of returns, allowances, trade discounts, freight
on goods sold, and royalties paid on third-party trademarks used on the
Company's products. The Company's net sales increased $30.7 million or 14.9% to
$236.6 million for the 1998 second quarter compared to $205.9 million for the
same period in the prior year.
Spalding net sales were $143.5 million for the 1998 second quarter, flat with
the 1997 second quarter results of $144.0 million. Domestic net sales of
Spalding's golf equipment for the 1998 second quarter were up $11.0 million or
14.9% over the 1997 second quarter. Spalding experienced higher net sales of
Top-Flite(R) and Spalding(R) golf clubs and Etonic The Difference(R) spikeless
golf shoes, partially offset by $3.1 million lower net sales of golf balls. Net
sales of Hogan products were $1.1 million for the 1998 second quarter. Domestic
net sales of other sporting goods declined $2.6 million or 11.4%, primarily due
to lower sales of products outside the core basketball line. Etonic athletic
shoe net sales increased slightly at $0.6 million from the comparable prior
period, although discounting continues to be prevalent in this product category.
International net sales at Spalding declined $9.5 million or 22.9% in the 1998
second quarter compared to the 1997 second quarter. The decrease resulted
primarily from lower net sales in the Asia/Pacific region, Europe, and Mexico
due in part to international restructuring activity and closings. Weaker
currencies compared to the U.S. dollar negatively impacted Spalding's
international 1998 second quarter net sales by approximately $1.8 million
compared to the 1997 second quarter.
Net sales at Evenflo for the 1998 second quarter increased $31.2 million or
50.5% to $93.0 million from $61.8 million for the 1997 second quarter. Most of
Evenflo's net sales increase is
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attributable to the inclusion of Gerry net sales in the 1998 second quarter as
a result of the April 1997 acquisition of Gerry. Without Gerry, Evenflo's net
sales rose 7.1%, with higher net sales of car seats offset by lower net sales of
play yards. International net sales at Evenflo decreased $0.6 million in the
1998 second quarter compared to the 1997 second quarter principally due to lower
net sales in Canada partially offset by higher net sales in Mexico. Weaker
currencies compared to the U.S. dollar negatively impacted Evenflo's
international 1998 second quarter net sales by approximately $0.7 million
compared to the 1997 second quarter.
GROSS PROFIT is net sales less cost of sales which includes the costs necessary
to make the Company's products, including the costs of raw materials,
production, warehousing, and procurement. For the 1998 second quarter, Company
gross profit increased $2.2 million to $72.2 million from $70.0 million for the
same period in the prior year. Gross profit as a percentage of net sales
decreased to 30.5% for the 1998 second quarter from 34.0% for the comparable
prior year quarter.
Gross profit as a percentage of net sales at Spalding decreased to 36.7% in the
1998 second quarter from 38.7% in the 1997 second quarter. Spalding's gross
margin percentage decrease was primarily due to (i) higher net sales of Spalding
golf clubs, which have relatively low margins, (ii) lower net sales of golf
balls, (iii) competitive pricing in Etonic athletic shoes and spiked golf shoes,
(iv) international competitive pricing, combined with a shift to a less
favorable international sales mix and the strength of the U.S. dollar versus
international currencies, and (v) $1.8 million in unusual receivable cash
discounts and inventory write-offs relating to the international restructuring,
partially offset by favorable golf ball manufacturing variances.
Gross profit as a percentage of net sales at Evenflo decreased to 21.0% in the
1998 second quarter from 23.1% in the 1997 second quarter. Evenflo's gross
margin percentage decrease was primarily due to (i) the addition of lower
margin Gerry products, (ii) an increased level of returns, and (iii) a less
favorable international sales mix combined with the strength of the U.S. dollar
versus international currencies.
SELLING, GENERAL AND ADMINISTRATIVE ("SG&A") expenses include the costs
necessary to sell the Company's products and the general and administrative
costs of managing the business, including salaries and related benefits,
commissions, advertising and promotion expenses, bad debts, travel, amortization
of intangible assets, insurance and product liability costs, consumer corrective
action campaign costs, and professional fees. SG&A expenses were $68.6 million,
or 20.3% higher than SG&A expenses of $57.0 million in the comparable quarter
last fiscal year.
Spalding's SG&A expenses increased $6.6 million in the 1998 second quarter
primarily from higher selling, advertising, promotion and endorsement costs, and
higher wages and commissions from increasing the size of the sales force.
Included in SG&A expenses in the 1998 second quarter are $1.0 million in unusual
receivable write-offs due to lower collections in countries that Spalding is
exiting under the international restructuring program. SG&A expenses in the 1997
second quarter included $0.1 million of unusual cost recovery relating to the
October 1996 purchase of Etonic's Canadian distribution rights.
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Evenflo had $5.2 million higher SG&A expenses in the 1998 second quarter
principally due to the addition of Gerry, as well as higher safety campaign
costs relating to the Happy Camper(R) play yard, the On-My-Way(R) infant car
seat, the Canadian Ultara(R) car seat, and higher advertising, partially offset
by lower product liability expenses compared to the 1997 second quarter. The
corporate office had $0.1 million lower SG&A expenses in the 1998 second quarter
compared to the 1997 second quarter.
ROYALTY INCOME was $2.8 million in the 1998 second quarter, down 3.8% from $2.9
million in the 1997 second quarter. The slight decrease is principally due to
lower royalty income in Japan.
RESTRUCTURING COSTS were $5.4 million in the 1998 second quarter. Spalding
restructuring costs were $4.7 million and consisted of (i) $3.2 million
principally for international severance and lease settlements and (ii) $1.5
million of management severance costs. Evenflo restructuring costs were $0.7
million to relocate Gerry Colorado administrative and manufacturing operations
to Evenflo's Ohio and Georgia locations. The 1997 second quarter included $0.4
million of Spalding international restructuring costs.
In fiscal 1997, the Company began to restructure Spalding's international
operations by streamlining operations in Japan and certain European countries.
In the 1998 second quarter, Spalding implemented an expanded international
restructuring program that will reduce the Company's international
infrastructure to a size sufficient to support a strategic focus on core golf
and sporting goods products in selected countries. Operations will be
significantly downsized in Japan, consolidated in Europe, and closed in Mexico.
As a result, future sales activities in Mexico, France, Germany, Italy, and
Spain will be channeled through distributors and/or agents. In addition to the
restructuring costs, Spalding incurred $2.8 million of other unusual expenses
associated with the closure and downsizing of certain international affiliates
under the international restructuring program consisting of (i) $0.5 million in
receivable cash discounts that reduced net sales, (ii) $1.3 million in inventory
write-offs in Japan and certain countries that Spalding is exiting expensed to
cost of sales, and (iii) $1.0 million in receivable write-offs due to lower
collection rates in countries that Spalding is exiting charged to selling,
general and administrative expenses. The Company estimates fiscal 1998 Spalding
restructuring and other unusual costs could approximate $23.5 million in total,
principally relating to international restructuring costs. See EBITDA discussion
in "-Liquidity and Capital Resources".
In July 1997, the Company adopted a plan to relocate the Gerry Colorado
administrative and manufacturing operations to Evenflo's Ohio and Georgia
locations. In addition to the restructuring costs, Evenflo incurred $0.4 million
of other unusual expenses including $0.2 million expensed to cost of sales to
relocate the Gerry Colorado warehouse operation to Evenflo's Ohio and Georgia
locations and $0.2 charged to selling, general and administrative expenses for
Year 2000 conversion costs. The Company estimates fiscal 1998 Evenflo
restructuring and other unusual costs could approximate $2.6 million in total.
See EBITDA discussion in "-Liquidity and Capital Resources".
INTEREST EXPENSE increased to $19.3 million in the 1998 second quarter from
$17.2 million in the 1997 second quarter, an increase of $2.1 million or 12.4%.
This increase is due to higher average borrowings under the Company's $250
million revolving credit facility (the "Revolving Credit
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Facility"), which, combined with $400 million of term loans, comprise the
Company's $650 million Credit Facility. The Company also has outstanding $200
million 10 3/8% Series B Senior Subordinated Notes ("Notes") due 2006. The
Company's average balance under the Notes, Credit Facility, certain non-U.S.
borrowing arrangements and other financing agreements for the 1998 second
quarter was approximately $737 million compared to $648 million under the
Company's borrowing arrangements then in effect during the 1997 second quarter.
At March 31, 1998, the Company had additional availability (though no
borrowings) under the $25 million Seasonal Credit Facility. See further
discussion in the "Unaudited Notes to Condensed Consolidated Financial
Statements" and "-Liquidity and Capital Resources".
CURRENCY LOSS of $0.6 million was $0.4 million higher in the 1998 second quarter
than in the 1997 second quarter. See "-Liquidity and Capital Resources."
INCOME TAXES were a tax benefit of $6.4 million for the 1998 second quarter,
which represents an effective tax rate of 34% in relation to a loss before
income taxes of $18.9 million. The effective tax rate varied from a U.S. federal
statutory rate of 35% due to actual non-U.S. withholding taxes paid that reduce
the benefit realized on the loss. The effective tax rate for the comparable
quarter in the prior year of 50% varied from the statutory rate due to projected
benefits anticipated from utilization of non-U.S. net operating losses. The 1997
second quarter effective tax rate was subsequently adjusted in the 1997 third
and fourth quarters due to higher than expected losses by non-U.S. subsidiaries
for which no tax benefit was recognized.
NET LOSS was $12.6 million for the 1998 second quarter compared to $1.0 million
for the 1997 second quarter. The $11.6 million decrease in earnings was a result
of a $14.5 million decrease in earnings from operations, $2.1 million higher
interest expense, and $0.4 million higher currency loss, partially offset by a
$5.4 million higher income tax benefit.
Six Months Ended March 31, 1998 ("1998 six months") as compared
to the Six Months Ended March 31, 1997 ("1997 six months")
NET SALES increased $62.5 million or 18.9% to $393.6 million for the 1998 six
months compared to $331.1 million for the same period in the prior year.
Spalding net sales increased 5.1% to $230.9 million for the 1998 six months
compared to $219.6 million for the 1997 six months. Domestic net sales of
Spalding's golf equipment for the 1998 six months were up $27.8 million or 25.4%
over the 1997 six months. Spalding experienced higher net sales of Top-Flite(R)
golf balls, Top-Flite(R) and Spalding(R) golf clubs as well as Etonic The
Difference(R) spikeless golf shoes. Net sales of Hogan products were $1.2
million for the 1998 six months. Domestic net sales of other sporting goods
declined $4.1 million or 11.3%, primarily due to lower sales of products outside
the core basketball line. Etonic athletic shoe net sales decreased $0.9 million
from the comparable prior period due to competitive pricing pressures.
International net sales at Spalding declined $11.4 million or 18.2% in the 1998
six months compared to the 1997 six months. The decrease resulted primarily from
lower net sales in the Asia/Pacific region, Europe, and Mexico due in part to
international restructuring activity and closings. Weaker currencies compared to
the U.S. dollar negatively impacted
14
<PAGE> 15
Spalding's international 1998 six months net sales by approximately $3.5 million
compared to the 1997 six months.
Net sales at Evenflo for the 1998 six months increased 46.0% to $162.7 million
from $111.4 million for the 1997 six months. Most of Evenflo's net sales
increase is attributable to the inclusion of Gerry net sales in the 1998 six
months as a result of the April 1997 acquisition of Gerry. Without Gerry,
Evenflo's net sales increased 3.4%, with higher net sales of car seats and
feeding products offset by lower net sales of play yards. International net
sales at Evenflo decreased $0.5 million in the 1998 six months compared to the
1997 six months principally due to lower net sales in Canada, partially offset
by higher net sales in Mexico. Weaker currencies compared to the U.S. dollar
negatively impacted Evenflo's international 1998 six months net sales by
approximately $1.2 million compared to the 1997 six months.
GROSS PROFIT for the 1998 six months increased $7.9 million to $115.9 million
from $108.0 million for the same period in the prior year. Gross profit as a
percentage of net sales decreased to 29.5% for the 1998 six months from 32.6%
for the 1997 six months.
Gross profit as a percentage of net sales at Spalding decreased to 36.7% in the
1998 six months from 37.5% in the 1997 six months. Spalding's gross margin
percentage decrease was primarily due to (i) higher net sales of Spalding golf
clubs, which have relatively low margins, (ii) competitive pricing in Etonic
athletic shoes and spiked golf shoes, (iii) international competitive pricing,
combined with a shift to a less favorable international sales mix, and the
strength of the U.S. dollar versus international currencies, and (iv) $1.8
million in unusual receivable cash discounts and inventory write-offs relating
to the international restructuring, partially offset by favorable golf ball
manufacturing variances.
Gross profit as a percentage of net sales at Evenflo decreased to 19.1% in the
1998 six months from 23.0% in the 1997 six months. Evenflo's gross margin
percentage decrease was primarily due to (i) the addition of lower margin Gerry
products, (ii) an increased level of returns, and (iii) a less favorable
international sales mix combined with the strength of the U.S. dollar versus
international currencies, partially offset by $0.9 million lower unusual costs
expensed to cost of sales in the 1998 six months compared to the 1997 six
months.
SELLING, GENERAL AND ADMINISTRATIVE ("SG&A") expenses for the 1998 six months
were $123.4 million, or 15.0% higher than SG&A expenses of $107.3 million in the
comparable six months last fiscal year.
Spalding's SG&A expenses increased $7.8 million in the 1998 six months primarily
due to higher selling, advertising, promotion, and endorsement costs, and higher
wages and commissions from increasing the size of the sales force. Included in
SG&A expenses in the 1998 six months are $1.0 million in unusual receivable
write-offs due to lower collections in countries that Spalding is exiting under
the international restructuring program. SG&A expenses for the 1997 six months
included $0.8 million of unusual costs charged to SG&A for the October 1996
purchase of Etonic's Canadian distribution rights.
15
<PAGE> 16
Evenflo had $8.3 million higher SG&A expenses in the 1998 six months
principally due to the addition of Gerry, as well as higher safety campaign
costs relating to the Happy Camper(R) play yard, the On My Way(R) infant car
seat, and the Canadian Ultara(R) car seat, partially offset by lower product
liability expenses compared to the 1997 six months. The corporate office had
$0.1 million higher SG&A expenses in the 1998 six months compared to the 1997
six months.
ROYALTY INCOME increased to $6.8 million in the 1998 six months from $5.8
million in the 1997 six months, an increase of $1.0 million or 17.9%. The
increase is principally due to royalty income settlements on Evenflo play yards
and Gerry strollers.
RESTRUCTURING COSTS were $5.7 million in the 1998 six months. Spalding
restructuring costs were $5.0 million and consisted of (i) $3.5 million
principally for international severance and lease settlements and (ii) $1.5
million of management severance costs. Evenflo restructuring costs were $0.7
million to relocate Gerry Colorado administrative and manufacturing operations
to Evenflo's Ohio and Georgia locations. The 1997 six months included $1.1
million of Spalding international restructuring costs.
In fiscal 1997, the Company began to restructure Spalding's international
operations by streamlining operations in Japan and certain European countries.
In the 1998 second quarter, Spalding implemented an expanded international
restructuring program that will reduce the Company's international
infrastructure to a size sufficient to support a strategic focus on core golf
and sporting goods products in selected countries. Operations will be
significantly downsized in Japan, consolidated in Europe, and closed in Mexico.
As a result, future sales activities in Mexico, France, Germany, Italy, and
Spain will be channeled through distributors and/or agents. In addition to the
restructuring costs, Spalding incurred $2.8 million of other unusual expenses
associated with the closure and downsizing of certain international affiliates
under the international restructuring program consisting of (i) $0.5 million in
receivable cash discounts that reduced net sales, (ii) $1.3 million in inventory
write-offs in Japan and certain countries that Spalding is exiting expensed to
cost of sales, and (iii) $1.0 million in receivable write-offs due to lower
collection rates in countries that Spalding is exiting charged to selling,
general and administrative expenses. The Company estimates fiscal 1998 Spalding
restructuring and other unusual costs could approximate $23.5 million in total,
principally relating to international restructuring costs. See EBITDA discussion
in "-Liquidity and Capital Resources".
In July 1997, the Company adopted a plan to relocate the Gerry Colorado
administrative and manufacturing operations to Evenflo's Ohio and Georgia
locations. In addition to the restructuring costs, Evenflo incurred $0.8 million
of other unusual expenses including (i) $0.2 million expensed to cost of sales
to relocate the Gerry Colorado warehouse operation to Evenflo's Ohio and Georgia
locations, (ii) $0.2 expensed to cost of sales attributable to the manufacturing
and warehouse reconfiguration at Piqua, Ohio, and (iii) $0.4 charged to selling,
general and administrative expenses for Year 2000 conversion costs. The Company
estimates fiscal 1998 Evenflo restructuring and other unusual costs could
approximate $2.6 million in total. See EBITDA discussion in "-Liquidity and
Capital Resources".
INTEREST EXPENSE increased to $37.6 million in the 1998 six months from $33.8
million in the 1997 six months, an increase of $3.7 million or 11.1%. The
Company's average balance under
16
<PAGE> 17
the Notes, Credit Facility, certain non-U.S. borrowing arrangements and other
financing agreements for the 1998 six months was approximately $712 million
compared to approximately $633 million under the Company's borrowing
arrangements then in effect during the 1997 six months.
CURRENCY LOSS of $1.6 million was $1.3 million higher in the 1998 six months
than in the 1997 six months. See "-Liquidity and Capital Resources."
INCOME TAXES were a tax benefit of $15.5 million for the 1998 six months, which
represents an effective tax rate of 34% in relation to a loss before income
taxes of $45.6 million. The effective tax rate varied from a U.S. federal
statutory rate of 35% due to actual non-U.S. withholding taxes paid that reduce
the benefit realized on the loss. The effective tax rate for the comparable six
months in the prior year of 50% varied from the statutory rate due to projected
benefits anticipated from utilization of non-U.S. net operating losses.
NET LOSS was $30.1 million for the 1998 six months compared to $14.3 million for
the 1997 six months. The $15.8 million decrease in earnings was a result of a
$11.9 million decrease in earnings from operations, $3.7 million higher interest
expense, and $1.3 million higher currency loss, partially offset by a $1.2
million higher income tax benefit.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of liquidity are from cash flows generated from
operations and from borrowings under the Credit Facility and certain non-U.S.
facilities. In addition, on March 30, 1998, the Company entered into a $25
million senior secured credit facility (the "Seasonal Credit Facility")
available for seasonal working capital needs until August 31, 1998. The Company
believes its business is somewhat seasonal. For fiscal 1997, quarterly net sales
as a percentage of total sales were approximately 15%, 25%, 30%, and 30%,
respectively, and quarterly income (loss) from operations as a percentage of
total income (loss) from operations was approximately (13)%, 29%, 40%, and 44%,
respectively. Many sporting goods marketed by Spalding, especially golf
products, experience higher levels of sales in the spring and summer months. The
Company's need for cash historically has been greater in its first and second
quarters when cash generated from operating activities coupled with draw downs
from credit facilities have been invested in receivables and inventories.
For the 1998 six months, the Company used $84.0 million in cash before financing
activities to fund $65.6 million in operating activities, and invest $16.8
million in capital expenditures and $1.6 million in the acquisition of Hogan.
Cash used in operating and investing activities in the 1998 six months were
funded from (i) $79.7 million in net borrowings from the Company's Revolving
Credit Facility and other non-U.S. credit facilities, (ii) a $6.5 million loan
from the Massachusetts Development Finance Agency, and (iii) $1.4 million in
proceeds from the issuance of common stock (net of repurchases) to certain key
employees of the Company under the 1996 Stock Purchase and Option Plan for Key
Employees of Evenflo & Spalding Holdings Corporation and Subsidiaries, less (i)
$2.4 million in fees relating primarily to the amendment of its Credit Facility
and the commitment for the Seasonal Credit Facility, and (ii) a $1.2 million
increase in cash and cash equivalents.
17
<PAGE> 18
Net cash flow used by operating activities for the 1998 six months was $65.6
million compared to $78.2 million for the 1997 six months. The $12.7 million
lower use of cash for operating activities when compared to the 1997 six months
was due to a $41.3 million decrease in the use of cash for working capital
offset by $15.8 million higher net loss and a $12.8 million increase in deferred
taxes and other non-cash expenses. The use of cash for working capital in the
1998 six months compared favorably to the 1997 six months due to a $39.3
decrease in receivables and a $24.9 increase in payables and other accounts,
offset by a $22.9 million increase in inventories.
Capital expenditures were $16.8 million for the 1998 six months compared to
$11.6 million in the 1997 six months. Spalding capital expenditures were $3.7
million higher in the 1998 six months, the majority of which was used to improve
production equipment and continue a multiphase expansion of its warehouse and
golf ball facilities at its Chicopee, Massachusetts, operations. Management
estimates the completion of the multiphase project could require an additional
$7.0 million to be invested in the remainder of fiscal 1998. Capital
expenditures at Evenflo were $1.5 million higher than the comparable 1997 six
months, as Evenflo is in the process of expanding its warehousing and shipping
facilities in Piqua, Ohio, and Canton, Georgia, in order to improve efficiency
and accommodate the consolidation of Gerry's Colorado operations. Management
estimates the completion of the expansion and facilities upgrade could require
an additional $2.2 million to be invested in the remainder of fiscal 1998.
Overall, management expects capital expenditure levels in the 1998 fiscal year
to be slightly lower than those in the 1997 fiscal year.
On November 26, 1997, the Company acquired certain assets of the Ben Hogan Co.
for a purchase price of $14.7 million. The purchased net assets consisted of the
following (dollars in millions):
<TABLE>
<S> <C>
Inventories $ 3.4
Equipment 0.2
Intangible assets 12.2
-----
Total 15.8
Accrued expenses (1.1)
-----
Net assets purchased $14.7
=====
</TABLE>
On February 18, 1998, the Company financed the new 150,000 square feet Spalding
Chicopee, Massachusetts, warehouse with the Massachusetts Development Finance
Agency. The $6.5 million, twenty-year loan is at 5% annual interest for the
first five years and converts to 300 basis points over one-year U.S. Treasury in
years six through twenty. In order to maintain the 5% interest rate for the
first five years, Spalding is required to maintain a certain number of new
full-time positions. There are no amortization requirements for the first five
years of the loan, the sixth through fifteenth year requires $27,084 monthly
amortization payments, and years sixteen through twenty requires $54,167 monthly
amortization payments. Massachusetts Development Finance Agency has been granted
a security interest in the warehouse.
On March 31, 1998, the Company reached an agreement with its bank syndicate to
amend its Credit Facility (the "Amendment") and to provide an additional $25
million Seasonal
18
<PAGE> 19
Credit Facility. The Amendment provides for a modification of financial ratio
covenants for fiscal periods through September 30, 1998, a 25 basis point
increase in interest rates, pledge of stock of subsidiaries, collateralization
of certain domestic assets, an amendment fee, and revisions to certain other
provisions. The $25 million Seasonal Credit Facility is available to support the
Company's seasonal working capital needs through August 31, 1998.
The primary sources of cash flows from financing activities are from borrowings
under the $250 million Revolving Credit Facility, the $25 million Seasonal
Credit Facility, and credit facilities available to certain of the Company's
non-U.S. facilities. At March 31, 1998, the Company had an available borrowing
capacity of approximately $36 million (reduced to reflect $133 million of
outstanding letters of credit and bankers' acceptances) under the Revolving
Credit Facility and the Seasonal Credit Facility. As of May 8, 1998, the Company
had an available borrowing capacity of approximately $13 million (reduced to
reflect $127 million of outstanding letters of credit and bankers' acceptances)
under the Revolving Credit Facility and the Seasonal Credit Facility.
The Company's ability to fund its operations, make capital expenditures and make
scheduled payments or to refinance its indebtedness will depend upon its future
financial and operating performance, which will be affected by prevailing
economic conditions and financial, business, and other factors, certain of which
are beyond its control. There can be no assurance that the Company's results of
operations, cash flow and capital resources will be sufficient to fund its
operations, capital expenditures, or its debt service obligations. In the
absence of improved operating results or recapitalization, the Company may face
significant liquidity problems and might be required to dispose of material
assets or operations to meet its debt service and other obligations, and there
can be no assurance as to the timing of such sales or the proceeds that the
Company could realize therefrom.
EBITDA (earnings before interest, taxes, depreciation and amortization) is
included as a basis upon which the Company assesses its financial performance,
and certain covenants in the Company's borrowing arrangements are tied to
similar measures. The following sets forth certain information regarding the
Company's EBITDA and other net cash flow items for the 1998 second quarter and
the 1998 six months:
<TABLE>
<CAPTION>
Three Months Ended March 31, 1998
(dollar amounts in thousands)
---------------------------------------------------------------------------
Historical Cash Flow
net cash provided by (used in)
-----------------------------------------
Other items
Historical affecting Operating Investing Financing
EBITDA historical EBITDA activities activities activities
------ ----------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Spalding $ 2,257 7,454 (25,087) (4,383) 31,210
Evenflo 6,622 1,096 (4,574) (5,948) 11,205
Corporate (1,614) 127 (2,631) -- 2,867
------- ----- ------- ------- ------
Consolidated $ 7,265 8,677 (32,292) (10,331) 45,282
======= ===== ======= ======= ======
</TABLE>
19
<PAGE> 20
THREE MONTHS ENDED MARCH 31, 1998
Spalding. Spalding's 1998 second quarter historical EBITDA was adversely
affected by $7,454 of restructuring and other unusual costs. Restructuring costs
were $4,679 and consisted of (i) $3,179 principally for international severance
and lease settlements and (ii) $1,500 of management severance costs. In
addition, Spalding incurred $2,775 of other unusual expenses associated with the
closure and downsizing of certain international affiliates under the
international restructuring program consisting of (i) $526 in receivable cash
discounts that reduced net sales, (ii) $1,277 in inventory write-offs in Japan
and certain countries that Spalding is exiting expensed to cost of sales, and
(iii) $972 in receivable write-offs due to lower collection rates in countries
that Spalding is exiting charged to selling, general and administrative
expenses. The Company estimates fiscal 1998 total Spalding restructuring and
other unusual costs could approximate $23,500 in total, principally relating to
international restructuring costs.
Evenflo. Evenflo's 1998 second quarter historical EBITDA was adversely affected
by $1,096 of restructuring and other unusual costs. Restructuring costs were
$673 to relocate the Gerry Colorado administrative and manufacturing operations
to Evenflo's Ohio and Georgia locations. In addition, Evenflo incurred $423 of
other unusual expenses including $209 expensed to cost of sales to relocate the
Gerry Colorado warehouse operation to Evenflo's Ohio and Georgia locations and
$214 charged to selling, general and administrative expenses for Year 2000
conversion costs. The Company estimates fiscal 1998 total Evenflo restructuring
and other unusual costs could approximate $2,600 in total.
<TABLE>
<CAPTION>
Three Months Ended March 31, 1997
(dollar amounts in thousands)
---------------------------------------------------------------------------
Historical Cash Flow
net cash provided by (used in)
-----------------------------------------
Other items
Historical affecting Operating Investing Financing
EBITDA historical EBITDA activities activities activities
------ ----------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Spalding $16,174 300 (13,860) (2,423) 15,005
Evenflo 6,112 1,059 (9,768) (4,122) 13,168
Corporate (1,768) -- (13,504) -- 13,478
------- ----- ------- ------ ------
Consolidated $20,518 1,359 (37,132) (6,545) 41,651
======= ===== ======= ====== ======
</TABLE>
THREE MONTHS ENDED MARCH 31, 1997
Spalding. Spalding's 1997 second quarter historical EBITDA was adversely
affected by $400 of international restructuring costs offset by $100 of unusual
cost recovery relating to the October 1996 purchase of Etonic's Canadian
distribution rights which were credited to selling, general and administrative
expenses.
Evenflo. Evenflo's 1997 second quarter historical EBITDA was adversely affected
by $1,059 of unusual costs including $765 expensed to cost of sales attributable
to the manufacturing and warehouse reconfiguration at Piqua, Ohio, and $294
charged to selling, general and
20
<PAGE> 21
administrative expenses to consolidate certain of its operations that were
previously managed separately.
<TABLE>
<CAPTION>
Six Months Ended March 31, 1998
(dollar amounts in thousands)
---------------------------------------------------------------------------
Historical Cash Flow
net cash provided by (used in)
-----------------------------------------
Other items
Historical affecting Operating Investing Financing
EBITDA historical EBITDA activities activities activities
------ ----------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Spalding $ 874 7,803 (27,045) (8,271) 36,469
Evenflo 8,271 1,505 (11,344) (10,176) 22,074
Corporate (3,722) 145 (27,193) -- 26,711
------- ----- ------- ------- ------
Consolidated $ 5,423 9,453 (65,582) (18,447) 85,254
======= ===== ======= ======= ======
</TABLE>
SIX MONTHS ENDED MARCH 31, 1998
Spalding. Spalding's 1998 six months historical EBITDA was adversely affected by
$7,803 of restructuring and other unusual costs. Restructuring costs were $5,028
and consisted of (i) $3,528 principally relating to international severance and
lease settlements and (ii) $1,500 of management severance costs. In addition,
Spalding incurred $2,775 of other unusual expenses associated with the closure
and downsizing of certain international affiliates under the international
restructuring program consisting of (i) $526 in receivable cash discounts that
reduced net sales, (ii) $1,277 in inventory write-offs in Japan and certain
countries that Spalding is exiting expensed to cost of sales, and (iii) $972 in
receivable write-offs due to lower collection rates in countries that Spalding
is exiting charged to selling, general and administrative expenses. The Company
estimates fiscal 1998 total Spalding restructuring and other unusual costs could
approximately $23,500 in total, principally relating to international
restructuring costs.
Evenflo. Evenflo's 1998 six months historical EBITDA was adversely affected by
$1,505 of restructuring and other unusual costs. Restructuring costs were $733
to relocate the Gerry Colorado administrative and manufacturing operations to
Evenflo's Ohio and Georgia locations. In addition, Evenflo incurred $772 of
other unusual expenses including (i) $209 expensed to cost of sales to relocate
the Gerry Colorado warehouse operation to Evenflo's Ohio and Georgia locations,
(ii) $159 expensed to cost of sales attributable to the manufacturing and
warehouse reconfiguration at Piqua, Ohio, and (iii) $404 charged to selling,
general and administrative expenses for Year 2000 conversion costs. The Company
estimates fiscal 1998 total Evenflo restructuring and other unusual costs could
approximate $2,600 in total.
21
<PAGE> 22
<TABLE>
<CAPTION>
Six Months Ended March 31, 1997
(dollar amounts in thousands)
---------------------------------------------------------------------------
Historical Cash Flow
net cash provided by (used in)
-----------------------------------------
Other items
Historical affecting Operating Investing Financing
EBITDA historical EBITDA activities activities activities
------ ----------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Spalding $ 11,569 1,894 (29,127) (2,876) 16,504
Evenflo 8,330 1,911 (17,789) (8,720) 22,916
Corporate (3,621) -- (31,323) -- (18,546)
-------- ----- ------- ------- -------
Consolidated $ 16,278 3,805 (78,239) (11,596) 20,874
======== ===== ======= ======= =======
</TABLE>
SIX MONTHS ENDED MARCH 31, 1997
Spalding. Spalding's 1997 six months historical EBITDA was adversely affected by
$1,061 of international restructuring costs and $833 of unusual costs relating
to the October 1996 purchase of Etonic's Canadian distribution rights that were
charged to selling, general and administrative expenses.
Evenflo. Evenflo's 1997 six months historical EBITDA was adversely affected by
$1,911 of unusual costs including $1,239 expensed to cost of sales, attributable
to the manufacturing and warehouse reconfiguration at Piqua, Ohio, and $672
charged to selling, general and administrative expenses to consolidate certain
of its operations that were previously managed separately.
CURRENCY HEDGING. In fiscal 1997, approximately 19% of the total Company net
sales were generated in non-U.S. currencies. A portion of the Company's foreign
sales during the 1998 six month period were made in Asia/Pacific region
countries which have experienced significant currency fluctuations relative to
the U.S. dollar due to recent economic disruptions in that region. Fluctuations
in the value of these currencies relative to the U.S. dollar could have a
material effect on the Company's results of operations. Although the Company
sources many of its goods from foreign manufacturers, the vast majority is
sourced from China which has not experienced significant currency fluctuations
during this period relative to the U.S. dollar. The Company, in its discretion,
uses forward exchange contracts to hedge up to six month transaction exposures
from U.S. dollar purchases made by its non-U.S. operations.
YEAR 2000 COMPLIANCE. Many existing computer software and hardware systems use
only two digits to identify the year in date fields and, as such, could fail or
create erroneous results by or at the year 2000. The Company has made and will
continue to make investments in its software systems and applications to upgrade
systems for year 2000 compliance. In addition, the Company is currently
contacting its significant suppliers and customers in an attempt to identify any
potential year 2000 compliance issues with them. This process is expected to be
complete for most of the Company's operations by the end of calendar 1998, with
minor aspects of the project
22
<PAGE> 23
continuing into the first half of calendar 1999. The financial impact of
becoming Year 2000 compliant has not been and is not expected to be material to
the Company's results of operations.
Although the Company is not aware of any material operational impediments
associated with upgrading its computer hardware and software systems to be Year
2000 compliant, the Company cannot make any assurances that the upgrade of the
Company's computer systems will be completed on schedule, that the upgraded
systems will be free of defects, or that the Company's alternative plans will
meet the Company's needs.
23
<PAGE> 24
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to Part I, Item 3 "Legal Proceedings" of Registrant's Annual
Report on Form 10-K for the year ended September 30, 1997, filed December 19,
1997. Since December 19, 1997, the Company has not been named as a defendant in
any action which, to the best of the Company's knowledge, could have a material
adverse effect on the financial condition or results of operations of the
Company.
ITEM 5. OTHER INFORMATION (dollar amounts in thousands)
The Company is currently examining several transaction structures for the
dispositon of Evenflo to an affiliate. The proceeds from any such sale would be
applied to reduce indebtedness under the Company's senior credit agreements. The
Company expects that such a sale could be completed during the current fiscal
year.
In fiscal 1997, the Company began to restructure Spalding's international
operations by streamlining operations in Japan and certain European countries.
In the 1998 second quarter, Spalding implemented an expanded international
restructuring program that will reduce the Company's international
infrastructure to a size sufficient to support a strategic focus on core golf
and sporting goods products in selected countries. Operations will be
significantly downsized in Japan, consolidated in Europe, and closed in Mexico.
As a result, future sales activities in Mexico, France, Germany, Italy, and
Spain will be channeled through distributors and/or agents. Restructuring costs
were $5,352 in the 1998 second quarter. Spalding restructuring costs were $4,679
and consisted of (i) $3,179 principally for international severance and lease
settlements and (ii) $1,500 of management severance costs. Evenflo restructuring
costs were $673 to relocate Gerry Colorado administrative and manufacturing
operations to Evenflo's Ohio and Georgia locations. The Company anticipates
significant additional restructuring charges in future periods. See
Restructuring Costs discussion in "Management's Discussion and Analysis."
The Company is in disagreement with the Internal Revenue Service (the "IRS")
regarding the valuation of trademarks purchased from an Abarco N.V. ("Abarco")
affiliate in 1994. The IRS has completed the field audit for the year in which
the transactions occurred, and has preliminarily indicated that a portion of the
original purchase price may be recharacterized as a dividend distribution, and
that a portion of the amortization relating to such trademarks may be
disallowed. As a result, the Company expects that it may be assessed withholding
tax of approximately $30,000, and interest and penalties thereon of
approximately $25,000, related to this issue. Under the terms of indemnity
provisions contained in the 1996 Recapitalization and Stock Purchase Agreement
to which the Company and Abarco were parties, the Company believes that any
resulting liability would be indemnified by Abarco. The Company intends to
vigorously contest any assessment from the IRS. If the Company were unsuccessful
in appealing the assessment relating to these trademarks, a portion of the
$43,600 deferred tax asset at March 31, 1998 relating to the future amortization
of such trademarks would be written off as a charge to retained earnings
(deficit).
24
<PAGE> 25
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<S> <C>
10.1 Credit Agreement Amendment No. 2, dated March 31,
1998, to the Credit Agreement dated September 30,
1996, among Evenflo & Spalding Holdings Corporation,
as the Borrower, the Lenders and Bank of America
National Trust & Savings Association, as the
administrative agent for the Lenders.*
10.2 Security Agreement dated as of March 31, 1998, among
Evenflo & Spalding Holdings Corporation, as the
Borrower, Spalding & Evenflo Companies, Inc., Evenflo
Company, Inc., Etonic Worldwide Corporation, Lisco,
Inc., S&E Finance Co., Inc., Spalding Sports Centers,
Inc., Etonic Lisco, Inc., Lisco Furniture, Inc.,
Lisco Feeding, Inc., and Lisco Sports, Inc., as
Subsidiary Grantors, and Bank of America National
Trust & Savings Association, as Administrative Agent
for the Lenders.*
10.3 Amended and Restated Pledge Agreement, dated as of
March 31, 1998, to the Credit Agreement dated
September 30, 1996, made by Evenflo & Spalding
Holdings Corporation, as the Borrower, Spalding &
Evenflo Companies, Inc., Evenflo Company, Inc.,
Etonic Worldwide Corporation, Lisco, Inc., S&E
Finance Co., Inc., Spalding Sports Centers, Inc.,
Etonic Lisco, Inc., Lisco Furniture, Inc., Lisco
Feeding, Inc., and Lisco Sports, Inc., as Subsidiary
Pledgors, in favor of Bank of America National Trust
& Savings Association, as Administrative Agent for
the Lenders.*
10.4 Supplement No. 1, dated March 31, 1998, to the
Guaranty, dated as of September 30, 1996, made by
Spalding Sports Centers, Inc. in favor of Bank of
America National Trust & Savings Association, as
Administrative Agent for the Lenders.*
10.5 $25,000,000 Liquidity Facility, dated as of March 30,
1998, among Evenflo & Spalding Holdings Corporation,
as a Guarantor, Spalding & Evenflo Companies, Inc. as
the Borrower, Bank of America National Trust &
Savings Association, as Administrative Agent, Merrill
Lynch Capital Corporation, as Documentation Agent,
NationsBank N.A. as Syndication Agent, and Lenders.*
10.6 Security Agreement, dated as of March 30, 1998, among
Evenflo & Spalding Holdings Corporation, Spalding &
Evenflo Companies, Inc., as the Borrower, Evenflo
Company, Inc., Etonic Worldwide Corporation, Lisco,
Inc., S&E Finance Co., Inc., Spalding Sports Centers,
Inc., Etonic Lisco, Inc., Lisco Furniture, Inc.,
Lisco Feeding, Inc., and Lisco Sports, Inc., as
Subsidiary Grantors, and Bank of America National
Trust & Savings Association, as Administrative Agent
for the Lenders to the Liquidity Facility dated as of
March 30, 1998.*
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10.7 Pledge Agreement, dated as of March 30, 1998, among
Evenflo & Spalding Holdings Corporation, Spalding &
Evenflo Companies, Inc., as the Borrower, Evenflo
Company, Inc., Etonic Worldwide Corporation, Lisco,
Inc., S&E Finance Co., Inc., Spalding Sports Centers,
Inc., Etonic Lisco, Inc., Lisco Furniture, Inc.,
Lisco Feeding, Inc., and Lisco Sports, Inc., as
Subsidiary Grantors, and Bank of America National
Trust & Savings Association, as Administrative Agent
for the Lenders to the Liquidity Facility dated as of
March 30, 1998.*
10.8 Guaranty, dated as of March 30, 1998, among Evenflo &
Spalding Holdings Corporation, Spalding & Evenflo
Companies, Inc., as the Borrower, Evenflo Company,
Inc., Etonic Worldwide Corporation, Lisco, Inc., S&E
Finance Co., Inc., Spalding Sports Centers, Inc.,
Etonic Lisco, Inc., Lisco Furniture, Inc., Lisco
Feeding, Inc., and Lisco Sports, Inc., as Subsidiary
Grantors, and Bank of America National Trust &
Savings Association, as Administrative Agent for the
Lenders to the Liquidity Facility dated as of March
30, 1998.*
10.9 $6,500,000 Loan Agreement, dated as of February 18,
1998, among Spalding & Evenflo Companies, Inc., as the
Borrower, and Government Land Bank, a Massachusetts
body politic and corporate created by Chapter 212 of
the Acts of 1975.**
10.10 Ground Lease and Security Agreement dated February
18, 1998, between Spalding & Evenflo Companies, Inc.,
as Ground Lessor, and the Massachusetts Development
Finance Agency as Lessee.**
10.11 Indemnity Agreement, dated February 18, 1998, between
Spalding & Evenflo Companies, Inc., as Borrower for
the benefit of the Massachusetts Development Finance
Agency as Lender.**
10.12 Promissory Note, dated February 18, 1998, between
Spalding & Evenflo Companies, Inc. as Maker and the
Government Land Bank as Payee.**
10.13 Sublease Agreement, dated February 18, 1998, between
the Government Land Bank as Lessor and Spalding &
Evenflo Companies, Inc. as Tenant.**
27.1 Financial Data Schedule (for SEC use only).**
99.1 News release dated April 1, 1998.*
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(b) Reports on Form 8-K
Current report on Form 8-K dated April 1, 1998
* Previously filed with Form 8-K dated April 1, 1998
** Filed herewith
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Quarterly Report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Evenflo & Spalding Holdings Corporation
(Registrant)
Date: May 15, 1998 By: /s/ W. Michael Kipphut
-----------------------------------
W. Michael Kipphut
Vice President and Treasurer
(a Principal Financial Officer and
authorized signatory)
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EXHIBIT 10.9
LOAN AGREEMENT
This Loan Agreement is made as of this ______ day of February, l998, by
and between Spalding & Evenflo Companies, Inc., a Delaware corporation with its
principal place of business at 601 South Harbor Island Boulevard, Suite 200, P.
O. Box 30101, Tampa, FL 33602 ("Borrower") and Government Land Bank, a
Massachusetts body politic and corporate created by Chapter 212 of the Acts of
1975, as amended, and having its principal place of business at 75 Federal
Street, Boston, Massachusetts 02110 (the "Bank").
Introduction
A. Borrower is this day delivering to the Bank its Promissory Note in
the original principal amount of Six Million Five Hundred Thousand and 00/100
($6,500,000.00) Dollars (the "Note"). The proceeds of the Note are to be used by
Borrower to provide secured term loan financing for certain improvements to be
used by Borrower as a warehouse and distribution facility located in Chicopee,
Massachusetts as more particularly described in a certain Ground Lease of even
date (the "Ground Lease") between Borrower as Ground Lessor and the Bank as
Lessee ("Property"), which Property is part of a larger facility owned by
Borrower and described in the Ground Lease as the "Chicopee Facility."
B. The Lessee's rights under the Ground Lease are to serve as
collateral security for the Borrower's obligations to the Bank. Until the
occurrence and continuance of an event of default under any of the Loan
Documents (as defined below), the Borrower shall have the continued right to use
and occupy the Property pursuant to a Sublease of even date herewith between the
Bank as Lessor and Borrower as Tenant (the "Sublease").
C. The Note, the Ground Lease, the Sublease, this Agreement , and all
other documents and instruments executed and delivered in connection therewith,
including, without limitation, UCC-1 Financing statements, shall, for the
purposes of this Agreement, be referred to, collectively, as the "Loan
Documents".
D. Upon payment of the Note, the Loan Documents shall be immediately
discharged.
E. In connection with the execution and delivery of the Loan Documents,
the Bank has requested that the Borrower enter into and comply with certain
covenants and conditions as more fully set forth herein.
Now, therefore, in consideration of the foregoing and the undertakings
of the Bank with respect to the Loan Documents, the Borrower hereby agrees as
follows:
1. REPRESENTATIONS AND WARRANTIES.
Borrower represents and warrants to the Bank that:
(a) Borrower is a corporation duly organized and validly existing in
good standing under the laws of the State of Delaware and is duly qualified to
do business and is in good standing in the
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Commonwealth of Massachusetts and in every other state in which such
qualification may be necessary by reason of the nature or location of Borrower's
assets or operations, except where the failure to so qualify would not
materially adversely affect the Borrower's business or financial condition;
(b) Borrower's exact legal name is Spalding & Evenflo Companies, Inc. It
has not operated under any other name in the past six (6) years;
(c) The execution, delivery and performance hereof are within Borrower's
corporate powers, have been duly authorized by all necessary actions on the part
of the directors and officers thereof, require no action by or in respect of, or
filing with, any governmental authority, and do not contravene or constitute a
default under any provision of applicable law or regulation or of the
constituent documents of Borrower or of any judgment, order, decree, injunction
or credit facility or loan agreement or indenture or any other material
agreement (except as to which required waivers or consents have been received)
by which it or any of its properties may be bound, or result in creation or
imposition of any lien on any of its assets except in favor of the Bank;
(d) This Loan Agreement has been duly executed and delivered by and
constitutes a valid and binding agreement of Borrower, enforceable against
Borrower in accordance with its terms, except as enforceability may be limited
by (i) bankruptcy, insolvency or other similar law affecting creditors, rights
generally, or (ii) laws relating to the availability of specific performance,
injunctive relief or other equitable remedies;
(e) Borrower is the wholly owned subsidiary of Evenflo & Spalding
Holdings Corporation ("Holdings"), and the assets of Holdings include the 100%
interest in Borrower, its cash, accounts receivable and note receivables from
affiliates. Borrower represents that the financial statements of Holdings fairly
represent the financial condition of Borrower. The financial statements of
Holdings which have been or shall be from time to time furnished to Bank have
been prepared in accordance with generally accepted accounting principles
("GAAP") applied on a basis consistent with that of prior financial periods and
are true and correct and fairly present the financial position of Holdings and,
consequently, Borrower on a consolidated basis as at the close of business on
the date(s) thereof and the results of its operations during the period(s)
covered thereby, except in the case of unaudited financial statements where
certain information and footnote disclosures normally contained in financial
statements prepared in accordance with GAAP have been omitted. Holdings and
Borrower have no liabilities, contingent or otherwise, involving material
amounts which are not disclosed in said statements or the notes thereto. Since
the date of the most recent of such statements there has occurred no material
adverse change in Borrower's financial condition or business;
(f) Borrower owns all of the assets reflected in the most recent of such
financial statements, except assets sold or otherwise disposed of in the
ordinary course of business since the date thereof, and such assets together
with any assets acquired since such date, including without limitation the
Property, are subject to no liens except (i) a pledge by Holdings of all of the
shares Borrower's corporate stock to secure its $650 million credit facility
DATED AS OF September 30, 1996 (such credit facility, and any replacement
facility, being referred to herein as the "Holdings Credit Facility") and (ii)
as otherwise disclosed in the above-described financial statements;
(g) All Borrower's constituent documents have been duly filed and are in
proper order. All its books and records are accurate and up-to date;
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(h) Borrower and Holdings have made, filed or extended the filing dates
for all tax returns, reports and declarations relating to any material tax
liability required by any jurisdiction to which it is subject (any tax liability
which may result in a lien on the Property being hereby deemed material) and has
complied with all the requirements of its credit facilities regarding tax
matters;
(i) Borrower and Holdings are (x) subject to no legal restriction, or
any judgment, award, decree, order, governmental rule or regulation or
contractual restriction which could have a material adverse effect on their
respective financial condition, business or prospects, and (y) in compliance
with their constituent documents, all material contractual agreements by which
they or any of their properties are, or may be bound and all applicable laws,
rules and regulations (including without limitation those relating to
environmental protection) other than laws, rules and regulations, the validity
or applicability of which they are contesting in good faith or provisions of any
of the foregoing the failure to comply with which cannot reasonably be expected
to materially adversely affect their financial condition, business or prospects
or the value of the Property;
(j) There is no action, suit, proceeding or investigation pending or, to
its knowledge, threatened against or affecting Borrower or Holdings or any of
their assets before or by any court or other governmental authority which, if
determined adversely to Borrower or Holdings, would have a material adverse
effect on their respective financial condition, business or prospects or the
value, title or extent of any Collateral except with regard to litigation and
claims, previously disclosed to the Bank, which are to be resolved and settled
with the proceeds of the Note;
(k) Borrower's principal executive office and the office where it keeps
its records is (and has been for more than four (4) months prior to the date of
this Loan Agreement) 601 South Harbor Island Boulevard, Suite 200, Tampa, FL
33602; and
(l) Borrower has (and has no reason to believe it will not have)
sufficient capital for the conduct of its business; Borrower does not intend to
incur, and does not believe it has incurred, debts beyond its ability to pay
same as they mature.
2. BORROWER'S REPORTS AND NOTICES. Borrower will deliver to the Bank:
(a) within ninety (90) days after the close of each fiscal year of
Holdings, a full and complete signed copy of an audited report or reports
prepared in accordance with GAAP by certified public accountants acceptable to
Bank, which shall include a consolidated balance sheet of Holdings as at the end
of such year and consolidated statements of earnings (loss) of Holdings
reflecting the results of its operations during such year;
(b) within sixty (60) days of the end of each calendar quarter, an
internally prepared report by Holdings of its quarterly and year-to-date income,
expenses, and cash flow in form and substance satisfactory to the Bank,
certified to by the chief financial officer of Holdings;
(c) at the request of the Bank, financial statements of Borrower,
equivalent to those described in (a) and (b), above, if the representations set
forth in paragraph 1(e), above, are no longer accurate;
(d) promptly, such other information concerning the Borrower, the
Property, the operation of Borrower's businesses or its financial condition and
copies of such governmental filings and other documentation as the Bank may from
time to time reasonably request; provided that such documentation
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is not confidential, proprietary or otherwise privileged; and
(e) immediately, notice of:
(i) any Event of Default or any event during the term hereof which
would constitute an Event of Default as defined in Section 6;
(ii) any change of location of its principal offices, change of either
Borrower's name or business structure, any sale or purchase out of the ordinary
course of either Borrower's business and any other material change in the
business or financial affairs of Borrower or any change in the legal status of
Borrower;
(iii) the institution or commencement of any action, suit, proceeding
or investigation against or affecting Borrower or any of its assets which, if
determined adversely to Borrower, could have a material adverse effect on the
financial condition, business or prospects of Borrower or the value, title or
extent of the Property;
(iv) any judgment, award, decree, order or determination relating
thereto which could have a material adverse effect on the financial condition,
business or prospects of Borrower or the value, title or extent of the Property;
(v) the imposition or creation of any lien against any asset of
Borrower in the Commonwealth of Massachusetts other than one in favor of the
Bank;
(vi) any potential or known release or threat of release of hazardous
or toxic chemicals, materials or oil from the Property in the Commonwealth of
Massachusetts or the incurrence of any expense or loss in connection therewith
or upon Borrower's obtaining knowledge of any investigation, action or the
incurrence of any expense or loss by any governmental authority in connection
with the containment or removal of any hazardous or toxic chemical, material or
oil from the Property for which expense or loss Borrower may be liable or
potentially responsible;
(vii) any material loss or destruction of the Property or the Chicopee
Facility whether or not covered by insurance; and
(f) immediately upon receipt, copies of all notices, responses or
other communications regarding an event of default or the occurrence of any
event which, with the passage of time and/or the giving of notice would
constitute an event of default under Holdings Credit Agreement.
3. BORROWER'S AFFIRMATIVE COVENANTS. Borrower agrees that it will:
(a) maintain property and liability insurance with responsible
insurance companies reasonably satisfactory to the Bank in such amounts and
covering such risks as is usually carried by companies engaged in similar
businesses and owning similar properties in the same general areas as Borrower
operates and meeting at least the criteria for insurance set forth in Schedule 1
attached hereto and made a part hereof.;
(b) maintain insurance naming the Bank as loss payee with responsible
insurance companies
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satisfactory to Bank covering Borrower's real and personal property, in such
amounts as is usually carried by companies engaged in similar businesses and in
any event not less than required by Schedule 1 attached hereto, and deliver to
Bank copies of such insurance policies (and all renewals thereof) together with
lender's loss payable endorsements naming Bank as secured party, executed by the
insurer(s) such policies to provide that coverage may not be decreased or
terminated without prior notice to the Bank;
(c) maintain its corporate existence, and its qualification to do
business in good standing in every state in which such qualification may be
necessary by reason of the nature or location of its assets or operations, and
comply with its charter documents and by-laws, all contractual requirements by
which it or any of its properties may be bound and all applicable laws, rules
and regulations (including without limitation ERISA and those relating to
environmental protection) other than laws, rules or regulations the validity or
applicability of which the Borrower shall contest in good faith or provisions of
any of the foregoing the failure to comply with which cannot reasonably be
expected to materially adversely affect the financial condition, business or
prospects of Borrower or the value, title or extent of the Property, Borrower
acknowledging further, and without any limitation of the foregoing, that such
compliance shall also include complying with the requirements of M.G.L. c.7,
Sect. 22G et seq., regarding doing business with Burma, and with those of M.G.L.
c.23A, Sect.59, regarding doing business with the People's Republic of China;
(d) continue to engage primarily in its present business and maintain
and preserve all of its properties necessary for the conduct thereof in good
working order and condition, ordinary wear and tear excepted;
(e) pay and discharge all taxes, assessments, governmental charges or
levies imposed upon it or its income or property, or upon this Loan Agreement or
any notes evidencing obligations, including without limitation taxes,
assessments, charges or levies relating to real and personal property and the
Property, prior to the date on which penalties attach thereto, and all lawful
claims (whether or not relating to the foregoing), which if unpaid, might give
rise to a lien upon any property of Borrower, except any of the foregoing which
is being contested in good faith and by appropriate proceedings and for which
Borrower have established adequate reserves; and
(f) notify the Bank in advance, or, in any event, as soon as reasonably
possible, of any merger, consolidation or sale of Borrower or substantially all
of its assets or corporate stock, whereupon any such successor shall agree in
writing to be bound by the terms hereof and of the Loan Documents.
4. BORROWER'S NEGATIVE COVENANTS. The Borrower will not, without the
prior written consent of Bank at any time; which consent will not be
unreasonably withheld:
(a) create, permit to be created or suffer to exist any lien or
encumbrance upon the Property or the fixtures used in connection with the
Property, now owned or hereafter acquired, except those in favor of the Bank or
the lender under the Holdings Credit Facility; or
(b) sell, transfer or otherwise dispose of, or permit the sale,
transfer or disposition, of all or a material portion of the Property or the
Chicopee Facility except in accordance with the Ground Lease.
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5. EMPLOYMENT COVENANTS.
(a) Borrower acknowledges and agrees that a material inducement to the
Bank entering into this Loan Agreement and the Loan Documents is Borrower's
covenant and agreement that Borrower hereby agrees that it will add to its
present full time work force of 865 full time employees at Borrower's Chicopee,
Massachusetts facility by creating and maintaining not less than 101 new full
time positions commencing not later than May 1, 1998, resulting in a full time
work force of not less than 966 employees. If, at any time Borrower fails to
maintain this covenant, the Bank will have the right, among other matters, to
charge an interest rate on the Note of three hundred (300) basis point over one
year U.S. Treasury Notes until such time as Borrower restores compliance with
the foregoing covenant.
(b) In addition, Borrower covenants and agrees that, within eighteen
(18) months of the date hereof, Borrower will have created and will thereafter
maintain at least 135 new full time positions at Borrower's Chicopee Facility,
resulting in an ongoing full time work force of not less than 1,000 employees.
If Borrower shall fail to have met and continue to fulfill the foregoing
covenant, interest on $650,000.00 of the principal amount of the Note will
accrue interest, retroactive to the date hereof, at a rate equal to three
hundred (300) basis points over the rate for one year Treasury Notes in effect
as of the date hereof. Borrower shall make a payment to the Bank under the Note
for all incremental interest at the foregoing higher rate of interest with the
first payment of interest due after the eighteenth (18th) month after the date
hereof; and interest shall thereafter be due and payable under the foregoing
$650,000.00 portion of the Note at the higher rate of interest at all times the
employment covenant set forth in this paragraph (b) is not met.
(c) The employment levels described in subparagraphs (a) and (b),
above, are to be certified to the Bank, for purposes of administration of the
above agreements, as of May 1, 1998, the date which is eighteen (18) months from
the date hereof, and on May 1 of each year throughout the term of this
Agreement. In order to best ascertain these full-time employment levels, the
Bank will perform monitoring review on a no more frequent than monthly basis, as
set forth below, and require reporting from Borrower as follows:
a. Bank staff may, upon reasonable notice to Borrower, visit the
Chicopee site.
b. Prior to, or during, a site visit, Borrower will provide a
"head count" summary report from payroll data in form and in
such detail as the Bank may reasonably require.
c. The head count report will be certified to at Buyer's
election, by Borrower's vice president or payroll manager, or
equivalent, as to accuracy and that it does not include any
part-time, temporary or contract employees.
d. The foregoing report will provide for or be supplemented with
an explanation of changes in personnel and identification and
explanation of any expected employment changes or activities
that would affect maintenance of the minimum employment level
during upcoming report period. Borrower will also provide an
explanation for employment levels below the minimum during the
period ended and plan for improvement.
e. Borrower will provide additional information or written
response within thirty (30) days in response to requests from
Bank staff for information or explanation.
f. Borrower will provide certifications and copies to the Bank
regarding total number of full time employees at the Chicopee
site reported in its most recent reports to EEOC and/or other
governmental filings within 30 days of the date or filing of
such reports.
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6. EVENTS OF DEFAULT. If any of the Events of Default set forth below
shall occur and be continuing, Bank may, but shall not be obligated to make
demand for payment and shall have all of the other rights and remedies set forth
in this Loan Agreement in addition to remedies otherwise available at law or in
equity provided that all obligations of Borrower to the Bank shall automatically
become immediately due and payable without demand or notice on occurrence of one
of the events described in (e) or (f) or (g) below:
(a) failure by Borrower, after notice and the opportunity to cure, to
pay any amount due under this Loan Agreement or when due;
(b) failure by Borrower to perform, discharge, observe or comply with
any obligation (other than for payment) under any Loan Document in accordance
with the terms thereof;
(c) any representation, warranty or statement of Borrower to Bank
heretofore, now or hereafter made in connection with any obligation (including
without limitation any made in any document certificate or reporting provided by
Borrower hereunder) is found to have been false or misleading in any material
respect as of the time when made;
(d) occurrence of any material event of default as defined in any other
instrument evidencing or governing indebtedness of Borrower (other than
obligations to the Bank) now or hereafter outstanding, or any event or condition
which entitles any holder or trustee of such indebtedness to accelerate its
maturity (other than ordinary course disputes with trade vendors being contested
by Borrower in good faith and for which Borrower (as applicable) has established
adequate reserves);
(e) Borrower's liquidation, termination, dissolution or ceasing to
carry on actively any substantial part of its current business (other than due
to the merger, consolidation or sale of Borrower or all or substantially all of
its assets or corporate stock pursuant to which Borrower will provide notice and
the successor entity will agree in writing to be bound to the terms hereof and
of the Loan Documents);
(f) commencement by Borrower or Holdings of a voluntary proceeding
seeking relief with respect to itself or its debts under any bankruptcy,
insolvency or other similar law, or seeking appointment of a trustee, receiver,
liquidator or other similar official for it or any substantial part of its
assets; or its consent to any of the foregoing in an involuntary proceeding
against it; or Borrower or Holdings shall generally not be paying its debts as
they become due or admit in writing its inability to do so; or an assignment for
the benefit of, or the offering to or entering into by Borrower or Holdings of
any composition, extension, reorganization or other agreement or arrangement,
other than in the ordinary course of its business, with its creditors;
(g) commencement of an involuntary proceeding against Borrower or
Holdings seeking relief with respect to it or its debts under any bankruptcy,
insolvency or other similar law, or seeking appointment of a trustee, receiver,
liquidator or other similar official for it or any substantial part of its
assets, which proceeding remains undismissed and unstayed for sixty (60) days;
or entry of an order for relief against either Borrower or Holdings in any such
proceeding;
(h) service upon Bank of a writ naming Bank as trustee for Borrower or,
or of any other similar process of attachment; or
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(i) entry of any uninsured, material judgment or judgments or of any
court order or unappealed administrative ruling which in any material way
prevents Borrower from conducting its business in the ordinary course at the
Property.
7. RIGHTS AND REMEDIES AFTER AN EVENT OF DEFAULT. Following
the occurrence and during the continuation of an Event of Default, if the Bank
has not already done so, all obligations and liabilities of Borrower to the Bank
shall become immediately due and payable at Bank's option upon notice to
Borrower, except that such acceleration shall be automatic and shall not require
action or notice of any kind after occurrence of an Event of Default described
in Section 6(e), (f) or (g) and the Bank shall have all of the rights and
remedies available to it under the Ground Lease and under the other Loan
Documents. At the Bank's option, all obligations hereunder shall bear interest
payable on demand at the rate per annum three and 50/100 percent (3.5%) in
excess of the then applicable rate provided in the Note (the "Default Rate"). In
addition, the Borrower shall pay to the Bank a late charge of two and one-half
(2.5%) percent of the amount of any payment not made within ten (10) days of the
date it is due.
Any and all deposits or other sums at any time credited by or due from
the Bank to Borrower shall at all times constitute security for the obligations
under the Note and Loan Documents and may be set-off against any obligations at
any time whether or not they are then due or other security held by Bank is
considered by Bank to be adequate. Any and all instruments, documents, policies
and certificates of insurance, securities, goods, accounts, choses in action,
general intangibles, chattel paper, cash, property and the proceeds thereof
owned by Borrower or in which Borrower has an interest, which now or hereafter
are at any time in possession or control of Bank or in transit by mail or
carrier to or from Bank or in the possession of any third party acting in Bank's
behalf, without regard to whether Bank received the same in pledge, for
safekeeping, as agent for collection or transmission or otherwise or whether
Bank had conditionally released the same, shall constitute security for
obligations of Borrower to the Bank and may be applied at any time to such
obligations which are then owing, whether due or not due.
8. GENERAL PROVISIONS.
a. Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon Borrower and the Bank and their
respective successors and assigns. Whenever a reference is
made in this Agreement to "Borrower" or "Bank", such reference
shall be deemed to include a reference to the legal
representatives, successors and assigns of Borrower or the
Bank. Without any limitation of the foregoing, Borrower
acknowledges that the Bank may participate with an affiliated
agency, the Massachusetts Industrial Finance Agency ("MIFA"),
and that, in such instance, all references to "the Bank" in
this Agreement and all rights of the Bank under the Loan
Documents shall be deemed to refer to and/or be held by both
the Bank and MIFA as their interests may appear.
b. Severability. If any provision of this Agreement or the
application thereof to any person or circumstance shall be
invalid or unenforceable to any extent, the remainder of this
Agreement and the application of such provisions to other
persons or circumstances shall not be affected thereby and
shall be enforced to the greatest extent permitted by law.
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c. Applicable Law. This Agreement shall be interpreted, construed
and enforced according to the laws of the Commonwealth of
Massachusetts excluding its conflicts of laws and choice of
law provisions.
d. No Oral Modifications. Neither this Agreement nor any
provisions hereof may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed
by the party against whom enforcement of the change, waiver,
discharge or termination is sought.
e. Cumulative Remedies. The remedies herein provided shall be in
addition to and not in substitution for the rights and
remedies vested in the Bank in any of the Loan Documents or in
law or equity, all of which rights and remedies are
specifically reserved by the Bank. The remedies herein
provided or otherwise available to the Bank shall be
cumulative and may be exercised concurrently. The failure to
exercise any of the remedies herein provided shall not
constitute a waiver thereof, nor shall use of any of the
remedies herein provided prevent the subsequent or concurrent
resort to any other remedy or remedies. It is intended that
this clause shall be broadly construed so that all remedies
herein provided or otherwise available to the Bank shall
continue and be each and all available to the Bank until the
Indebtedness shall have been paid in full.
f. Counterparts. This Agreement may be executed in any number of
counterparts all of which taken together shall constitute one
and the same instrument, and any of the parties or signatories
hereto may execute this Agreement by signing any such
counterpart.
g. Further Assurance. At any time and from time to time, upon
request by the Bank, Borrower will make, execute and deliver,
or cause to be made, executed and delivered, to the Bank and,
where appropriate, cause to be recorded and/or filed and from
time to time thereafter to be re-recorded and/or refiled at
such time and in such offices and places as shall be deemed
desirable by the Bank, any and all such other and further
assignments, security agreements, financing statements,
continuation statements, instruments of further assurance,
certificates and other documents as may, in the opinion of the
Bank reasonably exercised, be necessary or desirable in order
to effectuate, complete, or perfect, or to continue and
preserve the obligations of Borrower under this Agreement with
respect to Borrower's security interest in the Property and
the fixtures used in connection therewith except if such
execution and delivery shall constitute a default under
Holdings Credit Agreement. Upon any failure by Borrower so to
do, the Bank may make, execute, record, file, re-record and/or
refile any and all such assignments, security instruments or
instruments in the nature of security instruments,
certificates, and documents for and in the name of Borrower,
and Borrower hereby irrevocably appoints the Bank the agent
and attorney-in-fact of Borrower so to do.
h. Notices. Any and all notices, elections, demands or requests
provided for or permitted to be given pursuant to this
Agreement (hereinafter in this paragraph h referred to as
"Notice") must be in writing and shall be deemed to have been
properly given or served if sent by personal delivery or by
overnight courier or by depositing same in the United States
Mail, postpaid and registered or certified, return receipt
requested, and addressed to the addresses hereinafter set
forth. All Notices shall be effective upon being personally
delivered or upon being sent by overnight courier or upon
being deposited in the United States Mail as aforesaid. The
time period in which a response to such Notice must be given
or any action taken with respect thereto (if any), however,
shall commence to run from the date of receipt if personally
delivered or sent by overnight courier or, if so deposited in
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the United States Mail, the earlier of three (3) business days
following such deposit and the date of receipt as disclosed on
the return receipt. Rejection or other refusal to accept or
the inability to deliver because of changed address for which
no Notice was given shall be deemed to be receipt of the
Notice sent. By giving at least thirty (30) days prior Notice
thereof, any party shall have the right from time to time and
at any time during the term of this Agreement to change their
respective addresses and each shall have the right to specify
as its address any other address within the United States of
America. For the purposes of this Agreement:
the address of the Bank is:
Massachusetts Development Finance Agency
75 Federal Street
Boston, MA 02110
with a copy to:
Bartlett, Hackett, Feinberg, Gentilli, Liston, Brown & Phalen,
P.C.
10 High Street, Suite 920
Boston, MA 02110
Attn: Joel J. Feinberg, Esq.
the address of Borrower is:
601 South Harbor Island Boulevard, Suite 200
P. O. Box 30101
Tampa, FL 33602
Attn: Chief Executive Officer
With a copy to (which shall not constitute notice):
601 South Harbor Island Boulevard, Suite 200
P. O. Box 30101
Tampa, FL 33602
Attn: General Counsel
i. Modifications, Etc. Borrower hereby consents and agrees that
the Bank may at any time and from time to time, with or
without consideration, surrender any property or other
security of any kind or nature whatsoever held by it or by any
person, firm or corporation on its behalf or for its account,
securing the indebtedness of Borrower to the Bank or, with the
consent of Borrower and subject to and in accordance with the
Holdings Credit Facility, substitute for any collateral so
held by it, other collateral of like kind, or of any kind;
with the consent of Borrower, agree to modification of the
terms of the Note or the Loan Documents; extend or renew the
Note or any of the Loan
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<PAGE> 11
Documents for any period; grant releases, compromises and
indulgences with respect to the Note or the Loan Documents to
any persons or entities now or hereafter liable thereunder or
hereunder; and no such action which the Bank shall take or
fail to take in connection with the Loan Documents or any of
them, or any security for the payment of the indebtedness or
for the performance of any obligations or undertakings of
Borrower, nor any course of dealing with Borrower or any other
person, shall release Borrower's obligations hereunder, affect
this Agreement in any way or afford Borrower any recourse
against the Bank. The provisions of this Agreement shall
extend and be applicable to all renewals, amendments,
extensions, consolidations and modifications of the Loan
Documents, and any and all references herein to the Loan
Documents shall be deemed to include any such renewals,
amendments, extensions, consolidations or modifications
thereof.
j. Attorneys Fees. The Bank in any action arising out of or relating
to this Loan Agreement or any of the Loan Documents shall be
entitled to recover its reasonable attorneys fees and costs.
IN WITNESS WHEREOF, the parties have entered into this agreement as of the date
first above written.
SPALDING & EVENFLO COMPANIES, INC.
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
GOVERNMENT LAND BANK
By:
-------------------------------------
Michael P. Hogan
Executive Director
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ACKNOWLEDGED AND AGREED TO
EVENFLO & SPALDING HOLDINGS CORPORATION
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
12
<PAGE> 1
EXHIBIT 10.10
GROUND LEASE AND SECURITY AGREEMENT
SPALDING & EVENFLO COMPANIES, INC., a Delaware corporation , with its
principal place of business at 601 S. Harbour Island Boulevard, Suite 200,
Tampa, Florida 33035 (hereinafter called the "Ground Lessor"), for consideration
paid, and other good and valuable consideration as more particularly described
below, has as of this 18th day of February, 1998, agreed to enter into this
Ground Lease and Security Agreement with GOVERNMENT LAND BANK, a Massachusetts
body politic and corporate created by Chapter 212 of the Acts of 1975, as
amended, d/b/a Massachusetts Development Finance Agency, and having its
principal place of business at 75 Federal Street, Boston, Massachusetts
(hereinafter called the "Lessee").
Introduction
A. Ground Lessor and Lessee have entered into a Loan Agreement of
even date herewith regarding a certain loan from Lessee to Ground Lessor in the
original principal amount of Six Million Five Hundred thousand Dollars
$6,500,000 (the "Loan Agreement"), as evidenced by a Note of even date herewith
(defined below), it being the intention of the parties that this Ground Lease
shall run concurrently with the term of the Loan Agreement and serve as further
collateral security for the obligations of Ground Lessor under the Loan
Agreement and the Note and will secure (i) the payment of Six Million Five
Hundred Thousand Dollars ($6,500,000.00), together with interest thereon, all as
provided in one certain promissory note of the Ground Lessor of even date
herewith, payable to the order of the Lessee (hereinafter referred to as the
"Note"), (ii) the payment under and observance of all terms, covenants,
agreements and conditions contained or referred to herein, in the Note, and in
all documents and instruments securing payment and performance under the Note
(hereinafter referred to as the "Loan Documents"), (iii) all other obligations
now existing or hereinafter arising which Ground Lessor may from time to time
owe to Lessee; and (iv) the performance of all other present and future
obligations of the Ground Lessor to Lessee of every kind, nature and description
(said payment obligations, terms,
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covenants, agreements, conditions and obligations being hereinafter collectively
referred to as the "Obligations").
B. Ground Lessor is the holder in fee simple of title to a certain
warehouse and distribution facility consisting of approximately 150,000 square
feet located on Meadow Street, Chicopee, Hampden County, Massachusetts as shown
on Exhibit A attached hereto and made a part hereof (the "Real Estate"). The
Real Estate shall include all buildings and improvements now or hereafter
constructed, installed or located thereon. The Real Estate is a part of a
larger, integrated office/warehouse/manufacturing facility of approximately 47
acres belonging to Ground Lessor (the "Chicopee Facility") of which the Real
Estate is one component. Appurtenant to the Real Estate are all rights, claims,
easements, reversions and remainders of whatever nature necessary or useful in
connection with the use or occupancy of the Real Estate as well as the right to
use in common with others those portions of the Chicopee Facility, including
drives, parking areas, loading facilities, means of access and egress, public
and private utilities, and party walls necessary or useful in connection with
the use and occupancy of the Real Estate (collectively, such appurtenant rights
and rights in common to be known as the "Appurtenant Rights"). The Appurtenant
Rights shall include, without limitation, those Appurtenant Rights specifically
shown on Exhibit A attached hereto and made a part hereof.. The Real Estate,
together with the Appurtenant Rights shall be referred to herein as the "Leased
Premises".
NOW, THEREFORE, in consideration of the foregoing, and for other good
and valuable consideration the receipt and sufficiency of which are hereby
acknowledged, the parties have agreed as follows:
1. Demise of Leased Premises. Ground Lessor does hereby lease, grant
and convey to Lessee, for the term of years set forth in Paragraph 2, below, the
Leased Premises. The foregoing grant includes the grant by Ground Lessor to
Lessee of the right to the use and enjoyment of and a continuing security
interest in all real property and rights thereto, now or hereafter owned by
Ground Lessor and
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now or hereafter located at or generated from the Leased Premises (it being the
intention of the parties hereto that, wherever appropriate, a security interest
shall attach to such property and rights as soon as the Ground Lessor obtains an
interest in said property and rights and before such property becomes fixtures
but to exclude any interest in Lessee of equipment, removable fixtures, and
other personal property), including, without limitation, all and each of the
following, whether singly or collectively, whether owned, due or existing now,
or at any time in the future, and all proceeds, profits, substitutions and
accessions of or to, or realized from, any of the following:
(i) the Real Estate with buildings and improvements whether now
existing or hereafter constructed or located thereon, including all easements,
covenants, agreements and rights which are appurtenant thereto, including
without limitation, rights in all streets, ways, whether public or private, and
open spaces, situated in Chicopee, Hampden County, Massachusetts, as more
particularly bounded and described in Schedule A annexed hereto;
(ii) all furnaces, ranges, heaters, plumbing goods, gas and electric
fixtures, screens, screen doors, mantels, shades, storm doors and windows,
awnings, oil burners and tanks, gas or electric refrigerators and refrigerating
systems, ventilating and air conditioning apparatus and equipment, door bell and
alarm systems, sprinkler and fire extinguishing systems, portable or sectional
buildings, and all other fixtures of whatever kind or nature owned by the Ground
Lessor, including without limitation, fixtures as defined in G.L. c. 106, s.
9-313, now or in the future contained in or on the Leased Premises, and any and
all similar fixtures hereinafter installed in the Leased Premises in any manner
which renders such articles usable in connection therewith;
(iii) all machinery, equipment, building supplies and appliances owned
by the Ground Lessor and incorporated into the Leased Premises as a part thereof
or any portion or unit thereof;
(iv) any other property of the Ground Lessor in the nature of or
constituting the types of property described in (i) through (iii), above, in
which the Lessee may in the future be granted an interest;
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(v) all intangible personal property owned by the Ground Lessor now
or at any time hereafter acquired and used in any way in connection with the
improvement, construction or operation of the Leased Premises, including, but
not limited to, plans and specifications, permits, approvals, construction,
repair or warranty contracts, and other rights of every nature and description
used in connection with the Leased Premises (and all proceeds thereof and
accessions thereto), but excluding any rights to any intellectual property of
Ground Lessor such as patents, trade marks, and license agreements. ;
(vi) all rents, revenues, and income to be derived from the holding
of the leasehold interest hereunder, which shall include those arising under any
and all subleases or tenancies hereafter created at the Leased Premises or any
part thereof, and, specifically, those pursuant to a certain Sublease Agreement
of even date herewith between Lessee, as the Lessor thereunder, and Spalding &
Evenflo Companies, Inc., as Tenant (the "Sublease"), with the right to receive
and apply the same to the Obligations, and Lessee may demand, sue for and
recover such payments but shall not be required to do so;
(vii) all proceeds received from the sale, exchange, collection or
other disposition of any of the property identified in foregoing Subparagraphs
(i) through (vi); all insurance proceeds relating to all or any portion of said
property; and all awards, damages, proceeds, or refunds from any state, local,
federal or other takings of, and all municipal tax abatements relating to, all
or any portion of said property; and
(viii) all rights, remedies, representations, warranties, and
privileges pertaining to any of the foregoing property identified in
Subparagraphs (i) through (vii), and all proceeds of the conversion, voluntary
or involuntary, of any of the forgoing into cash or liquidated claims.
It is the true, clear, and express intention of the Ground Lessor that
the continuing grant of this Ground Lease and Security Agreement remain as
security and as collateral for payment and performance of the Obligations
whether now existing, or which may hereafter be incurred by future advances or
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<PAGE> 5
otherwise, and whether or not the Obligations are related to the transaction
described in this Ground Lease and Security Agreement, by class, or kind, or
whether or not contemplated by the parties at the time of the granting of this
Ground Lease and Security Agreement. The notice of the continuing grant of this
Ground Lease and Security Agreement therefore shall not be required to be stated
on the face of any document representing any such Obligations nor otherwise be
required to identify it as being secured hereby.
2. Term of Lease.
2.1 Definitions
2.1.1 Commencement Date. "Commencement Date" shall mean the
date hereof.
2.1.2 Lease Year. "Lease Year" shall mean the period of
twelve (12) consecutive months commencing on the first day of the month
following the Commencement Date (if the Commencement Date shall be a day other
than the first day of the month) and each succeeding year during the term.
2.2 Lease Term. The term of this Lease Agreement shall commence on the
Commencement Date, and continue thereafter for a period of twenty (20) years
(the "Initial Term"); provided that, unless Lessee notifies Ground Lessor of
Lessee's intention to terminate this Ground Lease as of the end of the Initial
Term, this Ground Lease shall be extended for an extension term of ten (10)
years and, unless similar cancellation notice is given by Lessee within six (6)
months of the expiration of that or any successive extension term provided for
herein, Lessee shall be deemed to have extended the term for six (6) additional
terms of ten (10) years each and a further extension term of nine (9) years
(each of the foregoing five extensions terms being referred to as the "Extension
Terms" and, together with the Initial Term, the "Term"). Each successive
Extension Term shall be on the same terms and conditions as the Initial Term,
and no further instrument shall be necessary to effectuate or evidence the
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<PAGE> 6
granting of the leasehold and security interest hereunder for such Extension
Term.
3. DELIVERY OF POSSESSION.
Subject to the terms and conditions set forth herein, Lessee shall be
entitled to possession and use of the Leased Premises on the Commencement Date.
4. USE OF THE LEASED PREMISES.
4.1 Use of the Leased Premises. Lessee shall have the right to
use, and to allow others to use, the Leased Premises throughout the term of this
Ground Lease for any and all lawful purposes provided that such use does not
materially adversely affect the use of the Chicopee Facility. It is understood
and agreed that Lessee intends to sublet the entire Leased Premises pursuant to
the Sublease, and shall have the right to enter into additional or successive
subleases of all or portions of the Leased Premises throughout the term of this
Ground Lease. Accordingly, Lessee shall have no liabilities or obligations for
the uses to which the Leased Premises are put, it being understood and agreed
that Lessee's subtenants shall, throughout the term of this Sublease, be solely
and exclusively responsible, at such subtenant's sole cost and expense, for
assuring that the Leased Premises and the use of the Leased Premises will be in
conformity with all the terms of this Ground Lease and applicable laws,
regulations, codes and ordinances. Provided further, however, that if Lessee's
subtenant is, at any time, other than Spalding & Evenflo Companies, Inc., or an
affiliate or successor by merger to such subtenant as may be allowed under the
Sublease (a "Non-affiliate User"), Lessee will, to the extent allowed by the
terms of its sublease with such Non-affiliate User, use reasonable efforts to
enforce such Non-affiliate User's obligations to comply with the terms of this
Ground Lease and applicable laws, regulations, codes and ordinances. Any failure
of the Non-affiliate User to do so will not, however, result in a default
hereunder; provided that Ground Lessor shall have the right to enforce such
obligations on behalf of Lessee.
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4.2 Assignment and Subletting. Lessee may assign this Ground
Lease or sublet any portion of the Leased Premises, in accordance with the terms
of this Ground Lease, without the written consent of Lessor. Lessee will,
however, notify the Ground Lessor of the identity and notice address for any
such subtenant.
5. RENT. Lessee shall be obligated to pay Ground Lessor rental payments
for each Lease Year during the Term, in advance, of One hundred dollars ($100)
as of the Commencement Date and on the first day of each subsequent Lease Year.
Ground Lessor acknowledges receipt of the rental payment for the first Lease
Year. If, in any subsequent Lease Year, Lessee shall fail to pay the aforesaid
rent in a timely fashion, Ground Lessor shall provide Lessee no less than sixty
(60) days prior notice of and an opportunity to cure such failure.
6. USE OF APPURTENANT RIGHTS; SIGNS
6.1. Use. Lessee shall have the right to free use of the
Appurtenant Rights and to assign or sublet those rights as part of , and in
conjunction with, the Sublease or any other sublease of the Leased Premises or
assignment of this Ground Lease. If, at any time, there is a default under the
Sublease, and Lessee relets the Leased Premises to a Non-affiliate User, Lessee,
at Ground Lessor's expense, may, in accordance with applicable codes, laws and
ordinances, close off any commonly shared walls or facilities, and limit access
of Ground Lessor to the Leased Premises except as provided in this Ground Lease.
Ground Lessor shall not take any action, or allow any other party to take any
action, which would interfere with or preclude the exercise or use of any
Appurtenant Right by Lessee or any Non-affiliate User, it being the express
intention of the parties hereto that, throughout the term of this Ground Lease,
Lessee, and those claiming through or under Lessee, shall have the ability and
right to use the Leased Premises as if they were a separate facility from the
remainder of the Chicopee Facility; provided, however, that Lessee shall make
reasonable efforts to ensure that the use of the Leased Premises does not
materially adversely affect the use of the Chicopee Facility.
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<PAGE> 8
6.2. Maintenance of Common Facilities. Throughout the Term of
this Ground Lease, Ground Lessor, at Ground Lessor's cost and expense, shall
maintain and repair in as good an order and condition as of the date hereof all
facilities of the Chicopee Facility, including those facilities which are used
as or are part of the Appurtenant Rights. Without any limitation of the
foregoing, Ground Lessor shall pay for the cost of all common utilities serving
both the Leased Premises and other portions of the Chicopee Facility.
6.3. Sharing of Common Expenses. At any time the Leased
Premises are sublet to or used by a Non-affiliate User, and to the extent the
commonly used facilities are not (or cannot practically be) separated as
provided for in paragraph 6.1, above, such Non-Affiliate User shall pay to
Ground Lessor its pro rata share of expenses incurred by Ground Lessor pursuant
to paragraph 6.2, above, arising out of and related to the Appurtenant Rights.
The Non-Affiliated User's pro rata share of any such expense shall be based on a
fraction, the numerator of which shall be the number of ground floor square
footage of the Leased Premises and the denominator or which shall be the ground
floor square footage of that portion of the Chicopee Facility which has the
benefit of the applicable common expense. Ground Lessor may charge the
Non-affiliate User for the pro rata share of such expenses not more frequently
than quarterly upon presentation to the Non-Affiliate User, with a copy to
Lessee, of appropriate invoices and calculations as to the pro rata share of
each expenses or category of expenses. Ground Lessor will provide an annual
reconciliation and accounting of all such expenses to the Non-affiliate User and
to Lessee, and either of them shall have the right, within thirty (30) days of
receipt thereof, to request an audit of such expenses and the allocation
thereof, the cost of which is to be borne by the Non-Affiliate User or Lessee
unless there is greater than a ten (10%) per cent disparity from Ground Lessor's
accounting in which event Ground Lessor shall bear such cost. Lessee shall
include in any sublease with a Non-affiliate User the obligation of such User to
pay its pro rata share as aforesaid and shall use reasonable efforts to enforce
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<PAGE> 9
such obligation. If, notwithstanding the foregoing, the Non-affiliate User does
not make the required payments to Ground Lessor, Ground Lessor shall have the
right to enforce such obligation on its own behalf and in the stead of Lessee;
provided, however, that any such failure of payment on the part of the
Non-affiliate User shall not result in a default under or a forfeiture of this
Ground Lease.
6.4 Certain Rights of Ground Lessor. Ground Lessor shall have
the right, from time to time, and upon notice to Lessee, to change the location
or configuration of any of the Appurtenant Rights and to promulgate uniform
rules and regulations for the use of the Appurtenant Rights and the other common
areas and facilities of the Chicopee Facility, provided that: (a) any such
change will not interfere with the use and occupancy of the Leased Premises; (b)
the Leased Premises will continue to have all parking, access and egress,
loading areas and other appurtenant facilities so as to conform to all
applicable codes, laws, regulations and ordinances; (c) any change or rule or
regulation shall be applied and enforced equally to the Leased Premises and the
other portions of the Chicopee Facility; and (d) the pro rata share of common
expenses allocated to the Leased Premises will not materially increase.
6.5. Signage. Any subtenant or assignee of Lessee shall have
the right to place signs on the exterior of the Leased Premises and at the
access points to the Chicopee Facility from public roadways and on any common
identifying signs for the Chicopee Facility. All such signs shall be in
conformity with the requirements of the City of Chicopee and shall otherwise be
in reasonable conformity with other signs located within the Chicopee Facility.
7. Real Estate Taxes and Municipal Betterments. Ground Lessor shall
pay, before the time such payments are due and/or could constitute a lien
against the Leased Premises, all payments for taxes, charges, and assessments
for municipal betterments upon the Leased Premises. Ground Lessor will promptly
submit to Lessee, at such times as Lessee may reasonably request, evidence of
the timely payment of such taxes, charges and assessments. Upon the occurrence
of any default under the Sublease, Lessee shall have the right to require that
Ground Lessor maintain with Lessee an escrow account into which Ground Lessor
will deposit each month an amount calculated by Lessee to equal one-twelfth of
the
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anticipated amounts of such taxes, charges and assessments, to be applied by
Lessee to the necessary payments as and when due. Interest that accrues on the
funds being held by the Lessee pursuant to this Paragraph shall be credited to
the Ground Lessor by the Lessee, and shall remain in escrow with the Lessee.
If Ground Lessor, as part of a general contest of the real property tax
assessment against the Chicopee Facility, shall, in good faith, desire to
contest the validity or amount of any tax, assessment, levy, or other
governmental charge herein agreed to be paid by Ground Lessor, Ground Lessor
shall be permitted to do so and to defer, but only to the extent permitted by
applicable law and so as not to result in the imposition of any liens or
encumbrance, payment of such tax or charge until final determination of the
contest, upon providing written notice to Lessee of Ground Lessor's intentions
prior to the commencement of any such contest, which shall be given at least
seven (7) days prior to delinquency.
At any time the Leased Premises are sublet to or used by a
Non-affiliate User, to the extent the Leased Premises do not constitute a
separate tax parcel or are otherwise not subject to a separate tax assessment,
the Non-affiliate User shall pay to Ground Lessor a pro rata share of real
property taxes assessed against the Chicopee Facility, such proportion to be
determined on the basis of the incremental increase in assessed valuation for
the Chicopee Facility after the completion of construction of the improvements
constituting the Leased Premises. The Non-affiliate User shall make all payments
of its share of real property taxes to the Ground Lessor within twenty (20) days
of receipt of an invoice therefor. Lessee shall include in any sublease with a
Non-affiliate User an obligation on the part of such User to make the foregoing
payments and shall use reasonable efforts to require such User to make the
payments to Ground Lessor as aforesaid. If, notwithstanding the foregoing, the
Non-affiliate User does not make the required payments to Ground Lessor, Ground
Lessor shall have the right to enforce such obligation on its own behalf and in
the stead of Lessee; provided, however, that any such failure of payment on the
part of the Non-affiliate User shall not result in a default under or a
forfeiture of this
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Ground Lease.
8. Certain Covenants of Ground Lessor. The Ground Lessor further
covenants and agrees as follows:
A. To perform and observe all the terms and conditions of this Ground
Lease and Security Agreement, the Note and the Loan Documents.
B. That the Ground Lessor has and will maintain a good and marketable
fee simple estate in the Leased Premises, free and clear of all liens,
encumbrances, charges and other exceptions to title except for Permitted
Encumbrances identified in Schedule B hereto; has full power and lawful
authority to convey the Leased Premises to Lessee by this Ground Lease and
Security Agreement; will preserve its title to the Leased Premises subject only
to said Permitted Encumbrances; and will forever warrant and defend the same to
Lessee against the claims of all persons.
C. That the execution and delivery of this Ground Lease and Security
Agreement, and of any other instruments executed and delivered in connection
herewith, constitute representations by the Ground Lessor that such execution
and delivery is made with the authorization of the Ground Lessor to the extent
required by applicable law, and that it does bind the Ground Lessor.
D. Not without the prior written consent of the Lessee, to convey any
part or all of the Chicopee Facility or the fee simple interest in the Leased
Premises, provided, however, that the foregoing shall not apply to a conveyance
as part of a corporate merger or sale of all or substantially all of the
corporate stock or corporate assets of Ground Lessor or a conveyance to a
parent, subsidiary, or affiliate of Ground Lessor.
E. To use, improve and update the Chicopee Facility only in a way which
complies with all applicable laws, regulations, codes and ordinances and which
will not interfere with the use or structural or mechanical integrity of the
Leased Premises. The Ground Lessor will not make or permit to be made any
structural alterations or additions on the Leased Premises (except in accordance
with the terms of the
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Sublease) without the prior written consent of the Lessee, which consent shall
not be unreasonably withheld or delayed. In addition, the Ground Lessor will
keep all and singular the Chicopee Facility in such repair, order condition as
the same are now or may hereafter be put in while this Ground Lease and Security
Agreement is outstanding, damage by fire or casualty expressly not excepted. The
Ground Lessor shall use best efforts to comply with, shall not use any of the
Chicopee Facility in violation of, and shall use best efforts to cause the
Chicopee Facility to be in compliance with, each and every statute, regulation,
ordinance, decision, license, directive order, by-law, or rule of any federal,
state, local and other governmental authority which has or claims jurisdiction
over the Ground Lessor or any of the Chicopee Facility. The Ground Lessor has to
the best of its knowledge obtained, and will maintain in full force and effect,
or shall obtain, as the case may be, all licenses, permits and approvals
necessary for the use, maintenance, construction and operation of the Chicopee
Facility, and, at the option of the Lessee, will do all things and execute all
such documents as the Lessee may reasonably request to collaterally assign, if
legally permissible to do so, the Ground Lessor's rights therein , as and to the
extent they pertain to the Leased Premises, to the Lessee.
F. Not without the prior written consent of the Lessee, or a partial
release granted by the Lessee hereunder, to permit the ownership of the Leased
Premises or any part thereof to become vested in any entity other than the
Ground Lessor (its affiliate, parent or subsidiary); or to permit the merger,
dissolution or reorganization of any entity comprising the Ground Lessor, except
as part of a sale of all or substantially all of the assets of Ground Lessor or
a merger or sale of all or substantially all of the outstanding shares of stock
of Ground Lessor into or with a corporation of at least comparable net worth to
Ground Lessor, in which latter case Ground Lessor shall notify Lessee in writing
in advance (or, in any event, as soon as possible) of such sale, but shall not
need the consent of Lessee. The Lessee may, in any case, without notice to the
Ground Lessor or any other parties liable for the payment of the Obligations,
deal with such successor or successors in interest with reference to this Ground
Lease and
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Security Agreement and the Obligations hereby secured in the same manner as with
the Ground Lessor or any other party liable for the payment of the Obligations,
without in any way vitiating or discharging its or their liability hereunder or
upon the Obligations hereby secured. No sale or transfer of the Leased Premises
and no indulgence or forbearance on the part of the Lessee and no extension,
whether oral or in writing, of the time for the payment of the Obligations
hereby secured and no partial release of any party responsible for the
Obligations secured hereby given by the Lessee shall operate to release,
discharge, modify, change or affect the liability of the Ground Lessor herein or
any other party liable for the payment of the Note, whether in whole or in part.
G. That there is no suit, action, proceeding or investigation presently
pending or, to the best of Ground Lessor's knowledge, threatened against the
Ground Lessor or any of the Chicopee Facility, which, if determined adversely,
would have a material adverse effect upon the Ground Lessor or the
Leased Premises.
H. That the Ground Lessor shall do all such things and execute all such
documents from time to time hereafter as the Lessee may reasonably request in
order to carry into effect the provisions and intent of this Ground Lease and
Security Agreement and to protect, perfect and maintain the Lessee's interest in
and to the Leased Premises, including, without limitation, appearing in and
defending any suit, action or proceeding that might in any way, in the
reasonable judgment of the Lessee, affect the priority of this Ground Lease and
Security Agreement or the rights and powers of the Lessee hereunder, or the
value of the Leased Premises.
9. Insurance. The Ground Lessor shall, with respect to the Chicopee
Facility maintain or cause to be maintained public liability insurance, fire and
all risk casualty insurance, with an acceptable agreed amount endorsement, and
such other insurance against such casualties or contingencies meeting the
insurance requirements attached hereto as Schedule C and as may be required by
the Lessee in sums and with companies satisfactory to the Lessee, provided that
the property insurance on the Leased
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<PAGE> 14
Premises shall be no less than the greater of (i) 100% of replacement value
thereof, or (ii) the amount of the Obligations (meeting all coinsurance
requirements). All policies shall contain a provision requiring at least ten
(10) days advance notice to the Lessee before any cancellation or modification.
All insurance on the Leased Premises shall be for the benefit of and deposited
with the Lessee, shall be first payable to the Lessee, and shall include such
endorsement in favor of the Lessee as the Lessee may reasonably specify. The
endorsement shall provide that the insurance, to the extent of the Lessee's
interest therein, shall not be impaired or invalidated, in whole or in part, by
reason of any act or neglect of the Ground Lessor, or failure by the Ground
Lessor to comply with any warranty or condition of the policies. The Ground
Lessor shall advise the Lessee of each claim made by the Ground Lessor under any
policy of insurance which covers all or any portion of the Leased Premises and
(i) prior to the occurrence of an Event of Default hereunder, as said term is
hereinafter defined, or under the Note, will not adjust or settle such claim
without the prior consent of the Lessee, which consent shall not be unreasonably
withheld or delayed; and (ii) after the occurrence and continuance of an Event
of Default hereunder, as said term is hereinafter defined, or under the Note or
the Sublease, at the Lessee's option in each instance, will permit the Lessee,
to the exclusion of the Ground Lessor, to conduct the adjustment of each such
claim. The Ground Lessor hereby appoints the Lessee as the Ground Lessor's
attorney in fact, after the occurrence of an Event of Default hereunder, as said
term is hereinafter defined, or under the Note or the Sublease, to obtain,
adjust, settle, and cancel any insurance described in this Paragraph and to
endorse in favor of the Lessee any and all drafts and other instruments with
respect to such insurance. The within appointment, being coupled with an
interest, is irrevocable until this Ground Lease and Security Agreement is
terminated by a written instrument executed by a duly authorized officer of the
Lessee.
The Lessee shall not be liable for any loss sustained on account of any
exercise pursuant to said power unless such loss is caused by the gross
negligence or willful misconduct of the Lessee. The Lessee shall, at Ground
Lessor's requirement make any proceeds available to the Ground Lessor to repair
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<PAGE> 15
or reconstruct the Leased Premises provided (i) the Sublease, to the extent then
in effect, will remain in full force and effect; (ii) the Lessee receives from
the Ground Lessor certification from an architect, reasonably satisfactory to
Lessee, of the estimated cost to so repair or reconstruct the Leased Premises;
(iii) the value and utility of the Leased Premises following such repair or
reconstruction will be at least equal to the value and utility of the Leased
Premises prior to the damage sustained thereby; (iv) the plans and
specifications for any such repair or reconstruction are reasonably acceptable
to the Lessee; (v) the Ground Lessor delivers to the Lessee the insurance
proceeds and such additional funds deemed necessary in the reasonable judgment
of the Lessee, to be held by the Lessee for such repair or reconstruction in
accordance with such disbursement procedures as are established by the Lessee
(or other arrangements are made which are satisfactory to the Lessee); and (vi)
the Ground Lessor provides the Lessee with satisfactory evidence that the said
repair or reconstruction is in compliance with all applicable state, federal and
local laws, ordinances, rules and regulations. Notwithstanding any terms or
provisions of this Paragraph to the contrary, if Ground Lessor fails to satisfy
any of the above conditions or upon the occurrence of an Event of Default
hereunder, as said term is hereinafter defined, or under the Note or the
Sublease, not cured within any applicable grace periods, or if the Ground Lessor
decides not to rebuild or restore the Leased Premises and informs the Lessee of
such decision within forty-five (45) days after damage to the Leased Premises
has occurred, the Lessee may apply the proceeds of such insurance against the
Obligations, whether or not such have matured; provided, however, that no such
application shall relieve Ground Lessor of the balance of or any deficiency
under the Obligations.
10. Lessee's Right to Make Certain Payments. The Ground Lessor hereby
authorizes the Lessee, at Lessee's option and upon Ground Lessor's failure to do
so, after written notice from Lessee to pay all taxes, assessments, water rates
and other charges, with interest and costs and charges accrued thereon, which
may at any time be a lien upon the Leased Premises or any part thereof; to pay
the premiums for any insurance required hereunder; to incur and pay reasonable
expenses, including
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<PAGE> 16
reasonable attorney's fees, in protecting its rights hereunder and in the
security hereby granted; to pay any balance due under any conditional agreement
of sale or financing statement on any fixture or other property covered hereby;
in the event the Note or any other instrument evidencing an Obligation is put in
the hands of any attorney for collection of all or any part thereof, to pay
reasonable attorney's fees and expenses in connection with such collection; to
take any other action that the Lessee may deem proper to repair, insure,
maintain or preserve the Leased Premises or Lessee's rights therein; to add all
such amounts incurred, or any part thereof, to the principal sum secured hereby
and to apply to any of these purposes or to the repayment of any amounts so paid
by the Lessee or any part thereof any sums paid hereunder by the Ground Lessor.
11. Hazardous Materials.
11.1 Ground Lessor represents and warrants that neither the
Ground Lessor nor any person for whose conduct the Ground Lessor is responsible,
nor to Ground Lessor's knowledge, any tenants or users of the Chicopee Facility,
except as previously set forth in hazardous waste site assessments and reports
prepared by O'Reilly, Talbot & Okun Associates, Inc. dated December, 1997 and
previously submitted to Lessee, with respect to the Leased Premises, ever:
(i) owned, occupied or operated a site or vessel on which any
hazardous material or oil was or is stored or disposed of (except if such
storage or disposal was or is in compliance with all laws, ordinances and
regulations pertaining thereto) (the terms "site", "vessel", "hazardous material
and oil" respectively being used in this Paragraph having the meaning given
those terms in G.L. chapter 21E, as amended and applicable federal statutes);
(ii) directly or indirectly transported, or arranged for the
transport, of any hazardous material or oil (except if such transport was on or
in compliance with all applicable laws, ordinances and regulations);
(iii) caused or was legally responsible for any release, or threat of
release, of any hazardous material or oil;
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<PAGE> 17
(iv) received notification from any federal, state, local or other
governmental authority of any potential, known, or threat of release of any
hazardous material or oil on or from the Leased Premises or any site or vessel
owned, occupied or operated either by the Ground Lessor or any person for whose
conduct the Ground Lessor is responsible or whose liability may result in a lien
on the Leased Premises, or of the incurrence of any material expense or loss by
such governmental authority, or by any other person, in connection with the
assessment, containment, or removal of any release, or threat of release, of
any hazardous material or oil from the Leased Premises or any such site or
vessel. The Ground Lessor represents and warrants to the best of its knowledge
that no hazardous material or oil was ever, or is now, stored or disposed of
(except in compliance with all laws, ordinances and regulations pertaining
thereto) on the Leased Premises.
11.2 The Ground Lessor shall: (i) not store nor permit others
to store (except in compliance with all laws, ordinances and regulations
pertaining thereto), or dispose of any hazardous material or oil on the Chicopee
Facility, or on any other site or vessel owned, occupied or operated either by
the Ground Lessor, or by any person for whose conduct the Ground Lessor is
responsible; (ii) neither directly nor indirectly transport or arrange for the
transport of any hazardous material or oil (except in compliance with all laws,
ordinances and regulations pertaining thereto); (iii) take all such action in
the future upon the reasonable request of the Lessee, including, without
limitation, the conducting of engineering or other tests (at the sole expense of
the Ground Lessor) to confirm that no hazardous material or oil is or ever was
stored or disposed of on the Chicopee Facility in violation of laws, ordinances
and regulations pertaining thereto.
11.3 Notwithstanding anything to the contrary which may be
contained in this Ground Lease and Security Agreement, the Ground Lessor
covenants and agrees to comply strictly and in all respects with the statutes
("Statutes") set forth below as they may be amended form time to time, and to
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notify the Lessee promptly in the event of any potential or known "release" of
"oil" or "hazardous waste", "hazardous substances" or "hazardous materials" as
those terms (or successor terms of similar import) are defined in the Statutes,
upon the Leased Premises. In the event that the Ground Lessor fails to comply
with the requirements of the Statutes, the Lessee may, at its election, but
without the obligation so to do, after notifying Ground Lessor of its intention
to do so and providing Ground Lessor the opportunity to cure, give such notices
or cause such work to be performed at the Leased Premises, or take any and all
other actions as the Lessee deems necessary, as shall cure such failure of
compliance and any amounts paid as a result thereof, together with interest
thereon at the rate of interest set forth in the Note from the date of payment,
shall be immediately due and payable by the Ground Lessor to the Lessee, and
until paid shall be added to and become a part of the Obligations secured
hereby, and the same may be collected as part of said Obligations in any suit
hereon or upon the Obligations, or the Lessee, by the payment of any assessment,
claim or charge, may, if it sees fit, be thereby subrogated to the rights of any
jurisdiction but no such advance shall be deemed to relieve the Ground Lessor
from any default hereunder or impair any right or remedy consequent thereon. The
Ground Lessor does hereby, for itself and its successors and assigns, agree to
and hereby does indemnify, defend and hold harmless the Lessee and its assigns,
successors and grantees, of and from any and all liabilities, assessments,
suits, damages, costs and expenses, attorney's fees or judgments arising from
its failure to comply with the Statutes or from the handling or disposal of
hazardous wastes and/or toxic substances, including clean-up thereof, and
including, without limitation, the assertion of any lien pursuant to any of the
Statutes taking priority over the property interest of this Ground Lease and
Security Agreement; and the Ground Lessor further agrees to indemnify, defend
and hold harmless the Lessee and its assigns, successors and grantees from any
and all infractions and liens arising from any liability or indebtedness to any
jurisdiction arising pursuant to the provisions of the Statutes. For the
purposes of this Paragraph, the term "Statutes" shall include the following and
their implementing regulations, if applicable: (i) Massachusetts Hazardous
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Waste Management Act, Mass. G.L.c. 21C. (ii) Massachusetts Super Fund Law, Mass.
G.L.c. 21E. (iii) Massachusetts Pesticide Control Act, Mass. G.L.c. 132B. (iv)
Massachusetts Lead Poisoning Prevention and Control Act, Mass. G.L. c. 111 ss
190-199A. (v) Comprehensive Environmental Response, Compensation and Liability
Act of 1980, 42 U.S.C. Sec. 9601 et. seq. (vi) Toxic Substances Control Act, 15
U.S.C. Sec. 2601 et. seq. (vii)Federal Insecticide Fungicide and Rodenticide
Act, 7 U.S.C. Sec. 136. (viii) Hazardous Materials Transportation Act, 49 U.S.C.
Sec. 1801-1802. (ix) Federal Water Pollution Control Act, 32 U.S.C. Sec. 1251
et. seq. (x) Federal Solid Waste Disposal Act. (xi) Federal Clean Air Act, 42
U.S.C. sec. 1857 et. seq.
12. Eminent Domain. The Ground Lessor shall advise the Lessee of any
proposed taking by any state, federal or local authority of all or a portion of
the Chicopee Facility, including the Leased Premises. The Ground Lessor shall
cooperate with the Lessee in connection with the negotiation of any such taking
and any awards or damages payable to the Ground Lessor in connection therewith
and shall take any reasonable action relating thereto requested by the Lessee.
Prior to the occurrence of an Event of Default hereunder, as said term is
hereinafter defined, or under the Note or the Sublease, the Ground Lessor will
not adjust or settle such damage or award claim without the prior consent of the
Lessee, which consent shall not be unreasonably withheld. After the occurrence
and continuance of an Event of Default hereunder, as said term is hereinafter
defined, or under the Note or the Sublease, the Ground Lessor will permit the
Lessee, at the Lessee's option in each instance, to the exclusion of the Ground
Lessor, to conduct the adjustment of each such damage or award claim. The Ground
Lessor hereby appoints the Lessee as the Ground Lessor's attorney in fact after
the occurrence and continuance of an Event of Default hereunder, as said term is
hereinafter defined, or under the Note, to obtain, adjust and settle each such
damage or award claim and to endorse in favor of the Lessee any and all drafts
and other instruments with respect thereto. The within appointment, being
coupled with an interest, is irrevocable until this Ground Lease and Security
Agreement is terminated by a written instrument executed by a duly
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authorized officer of the Lessee. The Lessee shall not be liable for any loss
sustained on account of any exercise pursuant to said power unless such loss is
caused by the gross negligence or willful misconduct of the Lessee. The Lessee
may apply any proceeds of such taking against the Obligations, whether or not
such have matured; provided, however, that until the occurrence of an Event of
default, and the expiration of any cure periods, Ground Lessor shall be entitled
to retain all of such proceeds if and to the extent they do not arise out of a
taking of any portion of the Leased Premises.
13. Management. It is understood and agreed that, until the
occurrence of an Event of Default, Ground Lessor shall manage the entire
Chicopee Facility. Notwithstanding the provision above, upon the occurrence of
an Event of Default, if the performance of the Ground Lessor in managing the
Leased Premises is, in the reasonable opinion of the Lessee, materially
unsatisfactory, within thirty (30) days of receipt by Ground Lessor of written
notice from the Lessee so stating, Ground Lessor shall (i) cure such
unsatisfactory performance to the reasonable satisfaction of the Lessee or
undertake action that will result in a timely cure thereof promptly, or (ii)
retain at its own expense a qualified and competent company or entity approved
in writing by the Lessee to manage the Leased Premises. The management agreement
between the Ground Lessor and the said company or entity shall be approved by
the Lessee and said agreement shall, at the option of the Lessee, be
collaterally assigned to the Lessee.
14. Notices to Lessee. The Ground Lessor shall promptly notify the
Lessee upon the occurrence of any of the following events:
(i) receipt of any notice of violation, or notice of similar import,
from any governmental authority, contractor or lender related in any way to the
Leased Premises, or the use or improvement thereof;
(ii) receipt of any notice related to the title, or encumbrance
thereof, to the Leased Premises, or to the commencement of litigation in any way
related to the Leased Premises; or
(iii) material damage to the Leased Premises, whether or not such
damage is covered by insurance.
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15. Events of Default. Each of the following shall be deemed to be an
"Event of Default" under this Ground Lease and Security Agreement: (i) failure
to make any payment when due after the expiration of any applicable grace
periods in accordance with the terms of the Note, the Sublease or the
Obligations; (ii) failure to perform under any of the terms, covenants, and
conditions in this Ground Lease and Security Agreement, the Loan Documents or
any other agreement between the Ground Lessor and the Lessee, or failure to
perform any of the nonpayment obligations under the Note or the Sublease, if
such failure shall have continued for a period of thirty (30) days after written
notice of such failure shall have been furnished to the Ground Lessor at its
address as set forth above, unless such failure to perform is incapable of cure
within said thirty (30) day period, in which event the Ground Lessor shall not
be in default if during said thirty (30) day period the Ground Lessor commences
to cure such failure to perform and diligently proceeds to effect such cure
during the period required therefore or immediately thereafter; (iii) material
breach of any warranties or representations given by Ground Lessor to Lessee;
(iv) a default following the expiration of all applicable grace periods under
any junior or senior mortgage or junior or senior security interest, lien or
encumbrance of any kind upon the Leased Premises or any portion of the Chicopee
Facility, or the institution of foreclosure or other proceedings to enforce any
such mortgage or security interest, lien or encumbrance; (v) permitting or
consenting to any indulgence, forbearance or postponement of any obligations of
any mortgage or security interest in the Chicopee Facility, without the written
consent of the Lessee; or (vi) should the Ground Lessor or any guarantor of the
Obligations secured hereby, or any successors and assigns thereof, including,
without limitation, the then current owner in fee simple of the Leased Premises:
(a) seek relief (including the entry of an order of relief) pursuant to the
Federal Bankruptcy Code, or any similar law, state or federal, whether now or
hereafter existing (hereafter referred to as a "Bankruptcy Proceeding"); or (b)
file any answer admitting insolvency or inability to pay its debts; or (c) fail
to obtain a vacation or stay of any
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involuntary bankruptcy or other insolvency proceeding within sixty (60) days, as
hereinafter provided; or (d) have a trustee or receiver or custodian appointed
for or have any court take jurisdiction of its property, or the major part
thereof, in any involuntary proceeding for the purpose of reorganization,
arrangement, dissolution or liquidation if such trustee or receiver or custodian
shall not be discharged or if such jurisdiction shall not be relinquished,
vacated or stayed on appeal or otherwise within sixty (60) days; or (e) make an
assignment for the benefit of its creditors; or (f) admit in writing its
inability to pay its debts generally as they become due; or (g) consent to an
appointment of a receiver or trustee or custodian of all of its property, or the
major part thereof; or (h) become insolvent.
16. Remedies of Lessee.
16.1 Upon the occurrence and continuance of an Event of
Default as defined in Paragraph 15, above, or at any time thereafter, full
performance and payment of all of the Obligations will become immediately due at
the option of the Lessee, including without limitation the full and immediate
payment of all amounts due under the Note, and the Lessee shall among other
matters have all the rights of a secured party under the Massachusetts General
Laws, and shall have all of the following rights and remedies: (i) to take
possession of all or a portion of the Leased Premises and to remove the Tenant
under the Sublease from all possession of the Leased Premises and exercise all
rights and remedies as the Lessor under the Sublease; (ii) with or without
taking possession of the Leased Premises, to lease or otherwise dispose of any
or all of the Leased Premises in its then condition or following such
construction, development, preparation or processing as the Lessee deems
advisable or, similarly, to assign or transfer all or any part of Lessee's
interest in its leasehold interest hereunder; (iii) with or without taking
possession of the Leased Premises, and without assuming the obligations of the
Ground Lessor, to exercise the rights of the Ground Lessor to use, or to benefit
from, any of the leases, permits or licenses of or related to the Leased
Premises; (iv) with or without taking possession of the Leased Premises and with
or without bringing any action or proceeding, either directly, by agent, or by
the
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appointment of a receiver, construct or complete the construction of
improvements or site work on the Leased Premises and manage, lease, sublease or
operate the Leased Premises on such terms as the Lessee, in its sole discretion,
deems proper or appropriate provided no material adverse impact on the
operations of the Chicopee facility; (v) to accelerate all obligations due under
the Note and other Loan Documents and to apply any revenues, rents or profits
from the Leased Premises, or the proceeds thereof, towards (but not necessarily
in complete satisfaction of) the Obligations; and/or (vi) to apply toward any of
the Obligations any deposits or any sums credited by or due from the Lessee to
the Ground Lessor, or any funds being held in escrow by the Lessee, without
first enforcing any other rights of the Lessee against the Ground Lessor,
against any endorser or guarantor of the Note or against the Leased Premises.
16.2 After the occurrence of an Event of Default and whether
or not Spalding & Evenflo Companies, Inc. remains in possession of the Leased
Premises, whether or not such Event of Default is waived by the Lessee, the
Lessee shall be entitled to collect at that time all reasonable costs, charges
and expenses, including reasonable attorney's fees, incurred by the Lessee as a
result of said Event of Default up to the time of a waiver of default or through
the exercise by Lessee of any and all of the remedies of a secured party under
G.L. chapter 106 (Uniform Commercial Code) or otherwise.
16.3 The Ground Lessor will pay on demand to the Lessee or the
Lessee may, at its option, add to the principal balance then due under the Note
(i) any sums advanced or paid by the Lessee on account of the occurrence of an
Event of Default of whatever nature by the Ground Lessor, (ii) any sums advanced
or paid, whether before or after the occurrence of an Event of Default, for or
in lieu of taxes, assessments, water rates, repairs, improvements or insurance,
and (iii) any sums paid by the Lessee, including reasonable attorney's fees, in
prosecuting, defending, intervening in any legal or equitable proceeding wherein
the Lessee reasonably deems any of the rights created by this Ground Lease and
Security Agreement to be jeopardized or in issue, provided, however, that prior
to the occurrence of an Event of Default, Lessee shall give Ground Lessor ten
(10) days prior notice of Lessee's
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intention to incur expenses pursuant to this clause (iii), during which time
Ground Lessor shall have the opportunity of providing information to Lessee as
to the necessity of incurring such expenses, which Lessee shall have the right
to accept or reject in its sole discretion..
16.4 Upon an Event of Default, Lessee shall be under no
Fobligation to re-let or derive any income of any sort from the Leased Premises.
If Lessee, at its option, exercises any of the foregoing rights and remedies,
any disposition of the Leased Premises and/or of Lessee's leasehold interest
hereunder may be at public auction or private negotiated transaction, to the
extent such private disposition is authorized under the Massachusetts General
Laws, upon such terms and in such manner as the Lessee deems advisable. The
Lessee may purchase or repossess for its own purposes and in its own name the
ground leasehold interest in the Leased Premises as created hereby, or any
portion of it, at any disposition held under this Paragraph. With respect to any
part of the Leased Premises to be sold pursuant to G.L. chapter 106, the Lessee
shall give the Ground Lessor written notice in accordance with Massachusetts law
of the date, time and place of any proposed public sale, or such additional
notice as may be required under Massachusetts General Laws, and of the date
after which any private sale or other disposition may be made. The Lessee may
sell any part of the ground leasehold interest in the Leased Premises as created
hereby, or any portion or unit thereof, at the sales conducted pursuant hereto.
Lessee need only apply proceeds from the disposition of the Leased Premises
towards the Obligations only upon actual receipt thereof. Lessee's entering into
a new sublease with a Non-affiliate User shall not relieve Ground Lessor of its
Obligations unless and only to the extent Lessee receives payments thereunder,
after all costs and expenses incurred by Lessee in connection therewith. Lessee
may offset all such costs and expenses first against any revenues received
before crediting the net revenues to the Obligations.
17. Certain Rights of Lessee.
17.1 In connection with the Lessee's exercise of the Lessee's
rights under this Ground Lease and Security Agreement, the Lessee may enter
upon, occupy and use all or any part of the Leased
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Premises and may exclude the Ground Lessor from the Leased Premises or portion
thereof as may have been so entered upon, occupied or used. The Lessee shall not
be required to remove any part of the furniture, fixtures or equipment from said
Leased Premises upon the Lessee's taking possession thereof, and may render any
part of the Leased Premises unusable to the Ground Lessor. In the event the
Lessee manages or engages a third party manager for the Leased Premises as
provided for herein, the Ground Lessor shall pay to the Lessee on demand a
reasonable fee for the management thereof in addition to the Obligations
provided for herein. Further, the Lessee may construct such improvements on the
Leased Premises or make such alternations, renovations, repairs and replacements
thereto, as the Lessee, in its sole discretion, deems proper or appropriate. The
obligation of the Ground Lessor to pay such amounts and all expenses incurred by
the Lessee in the exercise of its rights herein shall be included in the
Obligations and shall accrue interest at the highest rate of interest charged
relative to the Obligations.
17.2 Upon the occurrence of an Event of Default and the
expiration of all applicable grace periods, the Ground Lessor hereby irrevocably
constitutes and appoints the Lessee as the Ground Lessor's true and lawful
attorney, to take any action with respect to the Leased Premises to preserve,
protect or realize upon the Lessee's interest therein, each at the sole risk,
cost and expense of the Ground Lessor, but for the sole benefit of the Lessee.
The rights and powers granted the Lessee by the within appointment include, but
are not limited to, the right and power to: (i) prosecute, defend, compromise,
settle or release any action relating to the Leased Premises; (ii) endorse the
name of the Ground Lessor in favor of the Lessee upon any and all checks or
other items constituting remittances or proceeds of the Leased Premises; (iii)
sign and file or record on behalf of the Ground Lessor any financing or other
statement in order to perfect or protect the Lessee's security interest in
accordance with the Loan Documents; (iv) enter into any contracts or agreements
relative to, and take all action deemed necessary in connection with, the
construction or completion of any improvements or site work on the Leased
Premises; (v) exercise the rights of the Ground Lessor under any lease, permit
or license relating to the
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Leased Premises; or (vi) manage, operate, maintain, complete, sell or repair the
Leased Premises. The Lessee shall not be obligated to perform any of such acts
or to exercise any of such powers, but if the Lessee elects so to perform or
exercise, the Lessee shall not be accountable for more than it actually receives
as a result of such exercise of power, and shall not be responsible to Ground
Lessor except for the Lessee's gross negligence, wilful misconduct and actual
bad faith. All powers conferred upon the Lessee by this Ground Lease and
Security Agreement, being coupled with an interest, shall be irrevocable until
terminated by a written instrument executed by a duly authorized officer of the
Lessee or until all Obligations of Ground Lessor have been satisfied in full.
18. Rights and Remedies Cumulative. The rights, remedies, powers,
privileges and discretions of the Lessee hereunder (hereinafter the "Lessee's
Rights and Remedies"), shall be cumulative and not exclusive of any rights or
remedies which it would otherwise have, including, without limitation, the
Lessee's rights and remedies under the Note and the Loan Documents. No delays or
omissions by the Lessee in exercising or enforcing any of the Lessee's Rights
and Remedies shall operate as or constitute a waiver thereof. No waiver by the
Lessee of any default hereunder or under the Note shall operate as a waiver of
any other default hereunder or under the Note. No single or partial exercise of
the Lessee's Rights or Remedies, and no other agreement or transaction, of
whatever nature entered into between the Lessee and the Ground Lessor at any
time, whether before, during or after the date hereof, preclude any other or
further exercise of the Lessee's Rights and Remedies. No waiver or modification
on the Lessee's part on any one occasion shall be deemed a waiver on any
subsequent occasion, nor shall it be deemed a continuing waiver. All of the
Lessee's Rights and Remedies under this Ground Lease and Security Agreement and
under the Note and the Loan Documents shall be cumulative, and not alternative
or exclusive, and may be exercised by the Lessee at such time or times and in
such order of preference as the Lessee in its sole discretion may determine.
26
<PAGE> 27
19. No Liability of Lessee. The Lessee shall not be liable for any loss
sustained by the Ground Lessor resulting from any action, omission or failure to
act by the Lessee with respect to the exercise or enforcement of its rights
under this Ground Lease and Security Agreement, the Note, the Loan Documents or
its relationship with the Ground Lessor or the Chicopee Facility unless such
loss is caused by the gross negligence, wilful misconduct or actual bad faith of
the Lessee. This Ground Lease and Security Agreement and the Lessee's exercise
of its rights hereunder shall not operate to place any responsibility upon the
Lessee for the control, care, management, or repair of the Leased Premises, nor
shall it operate to place any responsibility upon the Lessee to perform the
obligations of the Ground Lessor under any lease, license or contract, or to
make the Lessee responsible or liable for any waste committed on the Leased
Premises any damages or defective condition of the Leased Premises, or the
management, upkeep, repair or control of the Leased Premises.
20. Indemnification of Lessee. The Ground Lessor shall indemnify,
defend and hold the Lessee harmless from any claim brought or threatened against
the Lessee by any other person (as well as from attorneys' reasonable fees and
expenses in connection therewith) on account of the Leased Premises, or the
Chicopee Facility, or on account of the Lessee's relationship with the Ground
Lessor or any guarantor or endorser of the Obligations (except those arising
solely out of the gross negligence, wilful misconduct or actual bad faith of
Lessee). The within indemnification shall survive payment of the Obligations
and/or any termination, release or discharge executed by the Lessee in favor of
the Ground Lessor for a period of three (3) years.
21. Miscellaneous.
21.1 Interpretation of Agreement. This Ground Lease and
Security Agreement, the Note, the Loan Documents and all other instruments
executed in connection herewith incorporate all discussions and negotiations
between the Ground Lessor and the Lessee concerning the matters included herein
and in such other instruments. No such discussions or negotiations shall limit,
modify or otherwise affect the provisions hereof. No modification, amendment or
waiver of any provision of this
27
<PAGE> 28
Ground Lease and Security Agreement, the Note, the Loan Documents or any other
agreement between the Ground Lessor and the Lessee shall be effective unless
executed in writing by the party to be charged with such modification, amendment
or waiver, and if such party be the Lessee, then by a duly authorized officer
thereof. Furthermore, if any provision of this Ground Lease and Security
Agreement is held to be invalid or unenforceable by a court of competent
jurisdiction, all of the other provisions hereof shall remain in full force and
effect and shall be liberally construed in favor of the Lessee in order to
effect the provisions of this Ground Lease and Security Agreement.
21.2 Governing Law. This Ground Lease and Security Agreement
shall be governed, construed and enforced under the laws of the Commonwealth of
Massachusetts. The parties agreed that the Courts of the Commonwealth of
Massachusetts shall have jurisdiction over the matters et forth herein, and
Ground Lessor hereby submits to such jurisdiction.
21.3 Waiver of Rights. Ground Lessor specifically waives any
existing or future right, power, privilege, immunity or remedy, whether
conferred by any statute or by general equitable considerations, that it now or
hereafter may have or claim to require any separate valuation, sale or other
realization of its interests in connection with any disposition of the Leased
Premises or other enforcement of this Ground Lease and Security Agreement and
instead agrees and consents to Lessee's foreclosure or other enforcement against
its respective interests in any of the property from time to time encumbered by
this Ground Lease and Security Agreement, either simultaneously or in such order
as Lessee may elect.
22. Defeasance. At such time as all Obligations outstanding to Lessee
have been satisfied in full, Lessee shall release its leasehold interest
hereunder, and neither party shall have any obligation to the other hereunder
except for indemnifications by Ground Lessor which, by their terms, survive the
termination hereof. Provided further that any sublease entered into between
Lessee and a Non-affiliate User after the occurrence of an Event of Default
shall remain in effect for the balance of its then current term. Lessee shall
execute and deliver such instruments as may be necessary to effectuate or
evidence the termination of this Ground Lease upon the foregoing terms and
conditions.
28
<PAGE> 29
WITNESS the execution hereof under seal on this ______ day of
February, 1998.
Ground Lessor
SPALDING & EVENFLO COMPANIES, INC.
By:
----------------------------------------
Its:
---------------------------------------
Lessee:
GOVERNMENT LAND BANK
By:
---------------------------------------
Michael P. Hogan, its executive director
COMMONWEALTH OF MASSACHUSETTS
_______, ss. February ___, 1998
Then personally appeared the above named _______________ and
_________________ and acknowledged the foregoing instrument to be their free act
and deed, and the free act and deed of said Spalding & Evenflo Companies, Inc.,
before me,
-------------------------
Notary Public
My commission expires
29
<PAGE> 30
COMMONWEALTH OF MASSACHUSETTS
_______, ss. February ___, 1998
Then personally appeared the above named Michael P. Hogan, Executive
Director of the Government Land Bank and acknowledged the foregoing instrument
to be his free act and deed, and the free act and deed of said agency before me,
-------------------------
Notary Public
My commission expires
EXHIBITS
A. Description of Premises
B. Permitted Encumbrance
C. Insurance Requirements
30
<PAGE> 31
SCHEDULE A
DESCRIPTION OF LEASED PREMISES
31
<PAGE> 32
SCHEDULE B
PERMITTED ENCUMBRANCES
1. All the exceptions shown on Schedule B of a title insurance policy in the
amount of $6,500,000.00 dated February __. 1998, given to the Government Land
Bank and related to the Leased Premises.
32
<PAGE> 1
EXHIBIT 10.11
INDEMNITY AGREEMENT REGARDING HAZARDOUS MATERIALS
THIS INDEMNITY AGREEMENT (this "Agreement"), is made as of this _____
day of February, 1998, by SPALDING & EVENFLO COMPANIES, INC. ("Borrower") for
the benefit of GOVERNMENT LAND BANK d/b/a Massachusetts Development Finance
Agency ("Lender").
W I T N E S S E T H:
WHEREAS, Borrower is the owner of certain real property located on
Meadow Street, Chicopee, Hampden County Massachusetts, as shown on a survey
entitled "Plan of Land in the City of Chicopee, Massachusetts , Hampden County -
Prepared for Spalding & Evenflo Companies, Inc." by Durkee, White, Towne &
Chapdelaine, dated January 19, 1998, more particularly described in Exhibit A
attached hereto and incorporated herein by this reference (the "Land"), (the
Land, together with all improvements now or hereafter located in, on or under
the Land, collectively, the "Property");
WHEREAS, Lender has made and Borrower has accepted a loan in the amount
of $6,500,000.00 (the "Loan"), which Loan is evidenced by that certain Note of
even date from Borrower to Lender in the face amount of $6,500,000.00 (the
"Note") and secured by, among other things, that certain Ground Lease of even
date from Borrower to Lender conveying a leasehold interest in a portion of the
Property and to be recorded in the public records of the aforesaid county
(together with all amendments, modifications, consolidations, increases,
supplements and extensions thereof, the "Ground Lease");
WHEREAS, as a condition to making the Loan, Lender requires Borrower to
provide certain indemnities concerning Hazardous Materials (as hereinafter
defined) presently upon, in or under the Property, or hereafter placed or
otherwise located thereon or therein;
WHEREAS, to induce Lender to make the Loan to Borrower, Borrower has
agreed to provide this Agreement for Lender's benefit.
NOW, THEREFORE, for and in consideration of the sum of Ten and No/100
($10.00) Dollars and other good and valuable consideration, the receipt and
sufficiency of which are hereby ac knowledged, Lender, by its acceptance of
delivery hereof, and Borrower hereby agrees as follows:
1. Definitions. The following definitions shall apply for
purposes of this Agreement:
(a) "Environmental Law" shall mean any federal, state or local
statute, regulation or ordinance or any judicial or administrative
decree or decision, whether now existing or hereinafter enacted,
promulgated or issued, with respect to any Hazardous Materials,
drinking water, groundwater, wetlands, landfills, open dumps, storage
tanks, underground storage tanks, solid waste, waste water, storm water
run-off, waste emissions or wells. Without limiting the generality of
the foregoing, the term shall encompass each of the following statutes,
and regulations promulgated thereunder, and amendments and successors
to such statutes and regulations, as may be enacted and promulgated
from time to time: (i) the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (codified in scattered sections
of 26 U.S.C.; 33 U.S.C.; 42 U.S.C. and 42 U.S.C. ss.9601 et seq.); (ii)
the Resource Conservation and Recovery Act of 1976 (42 U.S.C. ss.6901
et seq.); (iii) the Toxic Substances Control Act (15 U.S.C. ss.2601 et
seq.); (iv) the Clean Water Act (33 U.S.C. ss.1251 et seq.); (v) the
Clean Air Act (42 U.S.C. ss.7401 et seq.); (vi) the Safe Drinking Water
Act (21 U.S.C. ss.349; 42 U.S.C. ss.201 and ss.300f et seq.); (vii) the
National Environmental Policy Act of 1969 (42 U.S.C. ss.4321); (viii)
the Superfund Amendment and Reauthorization Act of 1986 (codified in
scattered sections of 10
-1-
<PAGE> 2
U.S.C., 29 U.S.C., 33 U.S.C. and 42 U.S.C.); (ix) the Massachusetts Oil
and Hazardous Material Release Prevention and Response Act, M.G.L. c.
21E; and (x) the Massachusetts Hazardous Waste Management Act, M.G.L.
c. 21C.
(b) "Hazardous Materials" shall mean each and every element,
compound, chemical mixture, contaminant, pollutant, material, waste or
other substance which is defined, determined or identified as hazardous
or toxic under any Environmental Law. Without limiting the generality
of the foregoing, the term shall mean and include:
(i) "hazardous substances" as defined in the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the
Superfund Amendment and Reauthorization Act of 1986, or Title III of
the Superfund Amendment and Reauthorization Act, each as amended, and
regulations promulgated thereunder;
(ii) "hazardous waste" as defined in the Resource
Conservation and Recovery Act of 1976, as amended, and regulations
promulgated thereunder;
(iii) "hazardous materials" as defined in the Hazardous
Materials Transportation Act, as amended, and regulations promulgated
thereunder;
(iv) "chemical substance or mixture" as defined in the Toxic
Substances Control Act, as amended, and regulations promulgated
thereunder;
(v) "hazardous material" and "oil" as defined in the
Massachusetts Oil and Hazardous Material Release Prevention and
Response Act, as amended, and regulations promulgated thereunder; and
(vi) "hazardous waste" as defined in the Massachusetts
Hazardous Waste Management Act, as amended, and regulations promulgated
thereunder.
(c) "Indemnified Parties" shall mean Lender and affiliates,
each of their respective directors, officers, employees and agents, and
the successors and assigns of any of them; and "Indemnified Party"
shall mean any one of the Indemnified Parties.
(d) "Release" shall mean any spilling, leaking, pumping,
pouring, emitting, emptying, discharging, injecting, storing, escaping,
leaching, dumping, or discarding, burying, abandoning, or disposing
into the environment.
(e) "Threat of Release" shall mean a substantial likelihood
of a Release which requires action to prevent or mitigate damage to the
environment which may result from such Release.
2. Indemnity Agreement. Borrower covenants and agrees, at its sole cost
and expense, to indemnify, defend (at trial and appellate levels and with
attorneys, consultants and experts acceptable to Lender) and hold each
Indemnified Party harmless against and from any and all liens, damages, losses,
liabilities, obligations, settlement payments, penalties, assessments,
citations, directives, claims, litigation, demands, defenses, judgments, suits,
proceedings, costs, disbursements or expenses of any kind or of any nature
whatsoever (including, without limitation, attorneys', consultants' and experts'
fees and disbursements incurred in investigating, defending against, settling or
prosecuting any claim, litigation or proceeding) which may at any time be
imposed upon, incurred by or asserted or awarded against such Indemnified Party
or the Property and arising directly or indirectly from or out of: (A) the
Release or Threat of Release of any Hazardous Materials on, in, under or
affecting all or any portion of the Property or any surrounding areas,
regardless of whether or not caused by or within the control of
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<PAGE> 3
Borrower; (B) the violation of any Environmental Laws relating to or affecting
the Property or the Borrower, whether or not caused by or within the control of
Borrower; (C) the failure of Borrower to comply fully with the terms and
conditions of this Agreement; (D) the violation of any Environmental Laws in
connection with other real property of Borrower which gives or may give rise to
any rights whatsoever in any party with respect to the Property by virtue of any
Environmental Laws; or (E) the enforcement of this Agreement, including, without
limitation, (i) the costs of assessment, containment and/or removal of any and
all Hazardous Materials from all or any portion of the Property or any
surrounding areas, (ii) the costs of any actions taken in response to a Release
or Threat of Release of any Hazardous Materials on, in, under or affecting all
or any portion of the Property or any surrounding areas to prevent or minimize
such Release or Threat of Release so that it does not migrate or otherwise cause
or threaten danger to present or future public health, safety, welfare or the
environment, and (iii) costs incurred to comply with the Environmental Laws in
connection with all or any portion of the Property or any surrounding areas.
Notwithstanding the foregoing, Borrower shall not be obligated to indemnify and
hold Lender harmless from claims, liabilities or losses arising solely out of
the gross negligence or wilful misconduct of Lender. Lender's and the other
Indemnified Parties' rights under this Agreement shall be in addition to all
rights of Lender under the Ground Lease, the Note, and under any other documents
or instruments evidencing, securing or relating to the Loan (the Ground Lease,
the Note and such other documents or instruments, as amended or modified from
time to time, being herein referred to as the "Loan Documents"), and payments by
Borrower under this Agreement shall not reduce Borrower's obligations and
liabilities under any of the Loan Documents.
3. Survival.
(a) The indemnity set forth above in Paragraph 2 shall survive
the repayment of the Loan and any exercise by Lender of any remedies under the
Ground Lease, or any other remedy in the nature of foreclosure, and shall not
merge with any deed given by Borrower to Lender in lieu of foreclosure or any
deed under a power of sale.
(b) It is agreed and intended by Borrower and Lender that the
indemnity set forth above in Paragraph 2 may be assigned or otherwise
transferred by Lender to its successors and assigns and to any subsequent
purchaser of all or any portion of the Property by, through or under Lender,
without notice to Borrower and without any further consent of Borrower. To the
extent consent of any such assignment or transfer is required by law, advance
consent to any such assignment or transfer is hereby given by Borrower in order
to maximize the extent and effect of the indemnity given hereby.
4. No Waiver. The liabilities of Borrower under this Agreement
shall in no way be limited or impaired by, and Borrower hereby consents to and
agrees to be bound by, any amendment or modification of the provisions of the
Loan Documents to or with Lender by Borrower or any person who succeeds Borrower
as owner of the Property. In addition, notwithstanding any terms of any of the
Loan Documents to the contrary, the liability of Borrower under this Agreement
shall in no way be limited or impaired by: (i) any extensions of time for
performance required by any of the Loan Documents; (ii) any sale, assignment or
exercise of other remedies available under the Note or the Ground Lease or any
sale or transfer of all or part of Lender's interest in the Property; (iii) any
exculpatory provision in any of the Loan Documents limiting Lender's recourse to
property encumbered by the Ground Lease or to any other security, or limiting
Lender's rights to a deficiency judgment against Borrower; (iv) the accuracy or
inaccuracy of the representations and warranties made by Borrower under any of
the Loan Documents; (v) the release of Borrower or any other person from
performance or observance of any of the agreements, covenants, terms or
conditions contained in the Loan Documents by operation of law, Lender's
voluntary act, or otherwise; (vi) the release or substitution, in whole or in
part, of any security for the Note; or (vii) Lender's failure to record the
Ground Lease or file any UCC-1 financing statements (or Lender's improper
recording or filing of any thereof) or to otherwise perfect, protect, secure or
insure any security interest or lien given as security for the Note; and, in any
such case, whether with or without notice to Borrower and with or without
consideration.
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<PAGE> 4
5. Waiver by Borrower . Borrower waives any right or claim of right to
cause a marshalling of Borrower's assets or to cause Lender to proceed against
any of the security for the Loan before proceeding under this Agreement against
Borrower or to proceed against Borrower in any particular order; Borrower agrees
that any payments required to be made hereunder shall become due on demand;
Borrower expressly waives and relinquish all rights and remedies (including any
rights of subrogation) accorded by applicable law to indemnitors or guarantors.
6. Delay. No delay on Lender's part in exercising any right, power or
privilege under any of the Loan Documents shall operate as a waiver of any
privilege, power or right hereunder.
7. Releases. Any one or more of Borrower or any other party liable upon
or in respect of this Agreement or the Loan may be released without affecting
the liability of any party not so released.
8. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original. Said counterparts shall
constitute but one and the same instrument and shall be binding upon each of the
undersigned individually as fully and completely as if all had signed but one
instrument so that the joint and several liability of each of the undersigned
hereunder shall be unaffected by the failure of any of the undersigned to
execute any or all of the said counterparts.
9. Notices. Each notice, demand, election or request provided for or
permitted to be given pursuant to this Agreement (hereinafter in this paragraph
9 referred to as "Notice") must be in writing and shall be deemed to have been
sufficiently given or served by personal delivery or by sending same by
overnight courier or by depositing same in the United States Mail, postpaid and
registered or certified, return receipt requested, and addressed as follows:
If to Lender:
Government Land Bank
75 Federal Street
Boston, MA 02110
with a copy to:
Joel J. Feinberg
Bartlett, Hackett, Feinberg, Gentilli, Liston, Brown &
Phalen, P.C.
10 High Street, Suite 920
Boston, MA 02110
If to Borrower:
Spalding & Evenflo Companies, Inc.
601 S. Harbor Blvd., Suite 200
Tampa, FL 33630
Attn: Chief Financial Officer
With a copy to the attention of its general counsel at the same
address.
Each Notice shall be effective upon being personally delivered or upon being
sent by overnight courier or upon being deposited in the United States Mail as
aforesaid. The time period in which a response to such Notice must be given or
any action taken with respect thereto (if any), however, shall commence to run
from the date of receipt if personally delivered or sent by overnight courier
or, if so deposited in the United States Mail, the earlier of three (3) business
days following such deposit and the date of receipt as disclosed on the return
receipt. Rejection or other refusal to accept or the inability to deliver
because of
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<PAGE> 5
changed address for which no Notice was given shall be deemed to be receipt of
the Notice sent. By giving at least thirty (30) days' prior Notice thereof,
Lender and Borrower shall have the right from time to time and at any time
during the term of this Agreement to change their respective addresses and each
shall have the right to specify as its address any other address within The
United State of America.
10. Amendments. No provision of this Agreement may be changed, waived,
discharged or terminated orally, by telephone or by any other means except by an
instrument in writing signed by the party against whom enforcement of the
change, waiver, discharge or termination is sought.
11. Binding Effect. Except as herein provided, this Agreement shall be
binding upon Borrower and successors and assigns, and shall inure to the benefit
of Lender, the other Indemnified Parties, and their respective successors and
assigns. Notwithstanding the foregoing, Borrower , without the prior written
consent of Lender in each instance, may not (except as otherwise specifically
provided for in the Loan Documents)assign, transfer or set over to another, in
whole or in part, all or any part of its or their benefits, rights, duties and
obligations hereunder, including, but not limited to, performance of and
compliance with conditions hereof.
12. GOVERNING LAW; CONSENT TO JURISDICTION. THIS AGREEMENT AND THE
RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL IN ALL RESPECTS BE
GOVERNED BY, AND INTERPRETED AND DETERMINED IN ACCORDANCE WITH, THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR
CHOICE OF LAW). BORROWER HEREBY IRREVOCABLY AND UNCONDITIONALLY (A) SUBMITS TO
PERSONAL JURISDICTION IN THE COMMONWEALTH OF MASSACHUSETTS OVER ANY SUIT, ACTION
OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, AND (B) WAIVE ANY
AND ALL PERSONAL RIGHTS UNDER THE LAWS OF ANY STATE (I) TO THE RIGHT, IF ANY, TO
TRIAL BY JURY, OR (II) TO OBJECT TO JURISDICTION WITHIN THE COMMONWEALTH OF
MASSACHUSETTS OR VENUE IN ANY PARTICULAR FORUM WITHIN THE COMMONWEALTH OF
MASSACHUSETTS. BORROWER AGREES THAT, IN ADDITION TO ANY METHODS OF SERVICE OF
PROCESS PROVIDED FOR UNDER APPLICABLE LAW, ALL SERVICE OF PROCESS IN ANY SUCH
SUIT, ACTION OR PROCEEDING MAY BE MADE BY CERTIFIED OR REGISTERED MAIL, RETURN
RECEIPT REQUESTED, DIRECTED TO BORROWER AT THE ADDRESS SET FORTH IN PARAGRAPH 9
ABOVE, AND SERVICE TO MADE SHALL BE COMPLETE FIVE (5) DAYS AFTER THE SAME SHALL
BE SO MAILED. NOTHING CONTAINED HEREIN, HOWEVER, SHALL PREVENT LENDER FROM
BRINGING ANY SUIT, ACTION OR PROCEEDING OR EXERCISING ANY RIGHTS AGAINST ANY
SECURITY AND AGAINST BORROWER PERSONALLY, AND AGAINST ANY PROPERTY OF BORROWER,
WITHIN ANY OTHER STATE. INITIATING SUCH SUIT, ACTION OR PROCEEDING OR TAKING
SUCH ACTION IN ANY STATE SHALL IN NO EVENT CONSTITUTE A WAIVER OF THE AGREEMENT
CONTAINED HEREIN THAT THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS SHALL GOVERN
THE RIGHTS AND OBLIGATIONS OF BORROWER AND LENDER HEREUNDER OR OF THE SUBMISSION
HEREIN MADE BY BORROWER TO PERSONAL JURISDICTION WITHIN THE COMMONWEALTH OF
MASSACHUSETTS.
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<PAGE> 6
IN WITNESS WHEREOF, Borrower have caused this Agreement to be executed
under seal as of the day and year first written above.
BORROWER:
SPALDING & EVENFLO COMPANIES, INC.
By:
-------------------------------
Title:
-6-
<PAGE> 1
EXHIBIT 10.12
PROMISSORY NOTE
$6,500,000.00 Boston, Massachusetts
February 18, 1998
FOR VALUE RECEIVED, SPALDING & EVENFLO COMPANIES, INC., a Delaware
corporation, with its principal place of business at 601 S. Harbour Island
Boulevard, Suite 200, Tampa, FL 33630 (the "Maker"), promises to pay to the
GOVERNMENT LAND BANK, a Massachusetts body politic and corporate created by
Chapter 212 of the Acts of 1975, as amended, and having its principal place of
business at 75 Federal Street, Boston, Massachusetts 02110 (the "Payee") or its
order, the principal sum of Six Million Five Hundred Thousand Dollars and 00/100
($6,500,000.00), with interest on the unpaid principal balance thereof based on
a three hundred sixty (360) day year and thirty (30) day months at the rate of
(i) five percent (5%) per annum during the period commencing on the date hereof
through the fifth (5th) anniversary of the date hereof and (ii) commencing on
the fifth anniversary of the date hereof and on every anniversary date
thereafter through the end of the term of this Note, the rate determined by
Payee as the rate of interest for one-year U.S. Treasury obligations as of the
applicable anniversary date plus three hundred (300) basis points, each change
of interest rate to be effective through the next successive anniversary date.
Amounts due hereunder shall be payable by Maker as to principal and interest as
follows:
(A) Maker shall make monthly payments of interest in arrears
beginning on the 18th day of March, 1998 and on the same day
of each successive month thereafter. Upon the occurrence and
continuance of any Event of Default (as defined herein) the
interest rate hereunder shall increase to three and 50/100ths
(3.5%) percent per annum above the interest rate then in
effect.
(B) Commencing with the first monthly payment of interest due
after the fifth (5th) anniversary of the date hereof, Maker
will make payments of principal, with each monthly payment of
interest, equal to (i) Twenty-seven Thousand Eighty-four
Dollars ($27,084.00) per month during the sixth (6th) through
fifteenth (15th) years of the term hereof and (ii) Fifty-four
<PAGE> 2
Thousand One Hundred Sixty-seven Dollars ($54,167.00) per
month during the sixteenth (16th) through twentieth (20th)
years of the term hereof. The final payment of the entire
principal balance hereof, plus all accrued but unpaid
interest, together with any and all other amounts due
hereunder, shall be due and payable on February 18, 2018 (the
"Maturity Date").
(C) All payments shall be made in immediately payable funds in
lawful money of the United States of America at Payee's
address as set forth above. All payments made hereunder shall
be applied first to any late charges, fees, or penalties
payable hereunder, then to accrued and unpaid interest and
thereafter to principal.
The interest rate payable under this Note may be subject to increase
under the circumstances set forth in the Loan Agreement (hereinafter defined) of
even date between Maker and Payee, and any changes in such interest rate shall
occur automatically pursuant to the terms of the Loan Agreement without the need
of any amendments of this Note or any other writing to evidence same.
This Note may be prepaid in whole or in part at any time without
penalty, provided, however, that, notwithstanding any such partial prepayments,
the monthly principal installment amount provided for above shall not change.
Whenever any day on which a payment is required to be made hereunder falls on a
Sunday or a public holiday, such payment shall be due on the next following
normal business day.
The sums due and payable under this Note and any instrument now or
hereafter securing the same are payable at the office of the Payee indicated
above or at such other place or places as the Payee, its successors or assigns,
may designate to the Maker in writing from time to time in legal tender of the
United States of America.
This Note is secured by, among other things, a Ground Lease and
Security Agreement of even date herewith granted by Maker to Payee (the "Ground
Lease"), and has been delivered in connection with and is subject to the further
terms and conditions set forth in a Loan Agreement of even date between Maker
and
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<PAGE> 3
Payee (the "Loan Agreement"). The payments to be made under this Note are to be
applied to payments due and owing to Payee under a certain Sublease of even date
herewith between Payee, as Lessor and Maker as Tenant (the "Sublease"). The
Ground Lease, Loan Agreement, Sublease and certain other appurtenant loan
documents given to the Payee by the Maker of even date herewith and related to
certain real estate ("Leased Premises") of the Maker, which Leased Premises are
located in Chicopee, Hampden County, Massachusetts, as more particularly
described in the Ground Lease, are referred to herein, collectively, as the
"Loan Documents."
The occurrence of any one or more of the following shall constitute
an "Event of Default" hereunder:
1. default in making payment of any installment of principal or
interest due hereunder or any other indebtedness of the Maker to the Payee for
more than ten (10) days after the date when the same shall become due and
payable, whether at the due date thereof or by acceleration or otherwise;
2. default in the performance of any of the covenants and conditions
of the Ground Lease, Sublease or other Loan Documents or any other instrument
now or hereafter securing payment or performance under this Note, all of which
are hereby incorporated in this Note as if set forth at length herein, if such
default shall have continued for a period of thirty (30) days after written
notice of such default shall have been furnished to the Maker at its address as
set forth herein, unless such default is incapable of cure within said thirty
(30) day period, in which event the Maker shall not be in default if during said
thirty (30) day period the Maker commences to cure such default and diligently
proceeds to effect such cure during the period required therefor or immediately
thereafter;
3. if any representation or warranty heretofore, now, or hereafter
made by the Maker to the Payee, in any document, instrument, agreement or paper
was not true or accurate in any material respect when given;
4. the dissolution, termination of existence or the appointment of a
permanent receiver for the Maker or for any of the property of the Maker; an
assignment for the benefit of creditors by the Maker; the
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filing of a petition under any bankruptcy, receivership, insolvency or debtor
relief law by the Maker, or a petition for any adjustment of indebtedness,
reorganization, composition or extension by the Maker or the pendency of any
such petition against the Maker, or any other person or corporation now or
hereafter liable, absolutely or contingently, for the payment of the whole or
any part of the Note, such petition remaining undismissed for a period of ninety
(90) days; the calling or sufferance of a meeting of creditors of the Maker; the
meeting by the Maker with a formal or informal creditors' committee; the
offering by or entering into by the Maker of any composition, extension or any
other arrangement seeking relief or extension for the debts of the Maker; the
initiation of any other judicial or non-judicial proceeding or agreement by,
against, or including the Maker which seeks or intends to accomplish a
reorganization or arrangement with creditors; the termination of existence,
merger, dissolution, reorganization, winding up, or liquidation of the Maker
(other than in connection with the merger of Maker or sale of Maker's operations
of which the Leased Premises form one part); the occurrence of any of the
foregoing Events of Default with respect to any partner or beneficiary of the
Maker, co-maker or any guarantor, endorser, or surety to the Payee of the
obligations of the Maker under the Note; the occurrence of any of the foregoing
Events of Default with respect to any parent (if the Maker is a corporation),
subsidiary, or affiliate of the Maker, as if such partner, beneficiary,
guarantor, endorser, surety, parent, subsidiary, or affiliate were the Maker
described herein; or
5. The occurrence of an Event of Default, after the expiration of any
applicable notice or grace period, under the Ground Lease, Loan Agreement,
Sublease or any other Loan Document;
Upon the occurrence of any Event of Default as aforesaid, this Note
shall, at the option of the Payee, become immediately due and payable without
presentment, demand, protest or notice of any kind, all of which are hereby
expressly waived by the Maker, and any and all deposits or other sums at any
time credited by, or due to the Maker from the Payee or any bank acting as a
participant under any loan arrangement between the Payee and the Maker, and any
cash, securities, instruments, or other property of
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the Maker in the possession of the Payee, or any bank acting as a participant
under any loan arrangement between the Payee and the Maker, whether for
safekeeping or otherwise, or in transit to or from the Payee or any such
participant, or in the possession of any third party acting on the Payee's
behalf (regardless of the reason the Payee had received same or whether the
Payee has conditionally released the same) shall at all times constitute
security for any and all obligations of the Maker hereunder and may, at the
option of the Payee, be applied or set off against such obligations, whether or
not such obligations are then due or whether or not other collateral is
available to the Payee.
Irrespective of the exercise or non-exercise of the foregoing options,
in the event that any payment herein provided for shall become overdue for a
period in excess of ten (10) days, a late charge of two and one-half cents
($.025) for each one dollar ($1.00) overdue shall become immediately due to the
Payee as liquidated damages for failure to make prompt payment, and the same
shall be secured in the same manner as this Note. Said charge shall be payable
in any event not later than the due date of the next subsequent installment.
No delay or omission of the Payee in exercising any right or remedy
upon the occurrence of any Event of Default shall constitute a waiver of or
otherwise impair any such right or remedy or shall be construed to be a waiver
of any such default or an acquiescence therein. Acceptance by the Payee of any
payment after acceleration shall not be deemed a waiver of such acceleration. A
waiver on one occasion shall not operate as a bar to or waiver of any such right
or remedy on any future occasion. No single, partial or other exercise of any
right by any holder hereof shall preclude other or further exercise thereof.
No renewal or extension granted, nor any indulgence shown to, nor any
release of the Maker, nor any dealings with any holder hereof or any person now
or hereafter interested herein or in any property securing this Note, whether as
owner, encumbrancer, or otherwise, shall discharge, extend or in any way affect
the obligations of the Maker hereunder, or of any co-maker, entity assuming said
obligations, endorser or guarantor hereof.
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The Maker shall be and remain primarily liable under this Note and
any instrument given to secure the same until full payment hereof, unaffected by
(a) any alienation of any property securing the Note;
(b) any forbearance or extension of time, or any guarantee or
assumption of the indebtedness and liabilities of the Maker by others; or
(c) any other matters, as to all of which notice is hereby
waived by the Maker.
The liabilities of the Maker, any co-maker, entity assuming the
indebtedness, liabilities, obligations and covenants of the Maker hereunder,
endorser or guarantor of this Note are joint and several, provided, however,
that notwithstanding any other provision or term hereof, the discharge, release,
or partial release by the Payee of the undersigned or any one or more co-maker,
endorser or guarantor shall not release or discharge any other persons or
entities obligated on account of this Note. Furthermore, the granting of
additional security to the Payee hereunder by the undersigned, any entity
assuming the indebtedness, obligations, liabilities and covenants of the Maker
hereunder or any co-maker, endorser or guarantor shall not release, discharge or
impair the indebtedness, obligations and liabilities of said parties hereunder.
Each reference in this Note to the Maker, any entity assuming the indebtedness,
liabilities, obligations and covenants of the Maker hereunder, any co-maker,
endorser, and any guarantor, is to such person or entity individually and also
to all such persons or entities jointly. No person or entity obligated on
account of this Note may seek contribution from any other person or entity also
obligated unless and until all liabilities, obligations and indebtedness to the
Payee of the person or entity from whom contribution is sought have been
satisfied in full. The term "holder" as used herein shall mean the payee or
endorsee of this Note who is in possession of it or the bearer if this Note is
at the time payable to bearer.
The Maker agrees to pay all reasonable costs and reasonable attorney's
fees incurred in any action to collect this Note and to sell or otherwise
dispose of any collateral under the provisions of any instrument
securing this Note. In the event any payment of principal or interest received
upon this obligation and paid
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by the Maker, any entity assuming the indebtedness, liabilities, obligations and
covenants of the Maker hereunder, or any guarantor, surety, co-maker or
endorser, shall be deemed by final order of a court of competent jurisdiction to
have been a voidable preference or fraudulent conveyance under the bankruptcy or
insolvency laws of the United States, or otherwise due to any party other than
the Payee, then in any such event, the obligation of the Maker, any entity
assuming the indebtedness, liabilities, obligations and covenants of the Maker
hereunder, or any guarantor, surety, co-maker or endorser shall, jointly and
severally, survive as an obligation due hereunder and shall not be discharged or
satisfied by said payment or payments, notwithstanding return by the Payee to
said parties of the original hereof, or any guaranty, endorsement, or the like,
or any other evidence of discharge. The Maker expressly warrants that the
proceeds of the loan evidenced by this Note shall be used solely for business
purposes.
The invalidity of any provision of this Note shall in no way affect
the validity of any other provision hereof. The remedies of the Payee provided
for in this Note and in any mortgage or other instrument now or hereafter
securing the obligations, liabilities and indebtedness of the Maker under this
Note or related thereto shall not be deemed exclusive, but shall be cumulative
and shall be in addition to all other remedies existing, in the Payee's favor,
under applicable law (including equitable remedies) of any jurisdiction. This
Note shall be governed by, construed and enforced in accordance with the laws of
the Commonwealth of Massachusetts.
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WITNESS the execution hereof under seal on this __ day of February,
1998.
Attest MAKER :
SPALDING & EVENFLO COMPANIES, INC.
By:
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Its: , Duly Authorized
By:
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Its: , Duly Authorized
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<PAGE> 1
EXHIBIT 10.13
SUBLEASE
SUBLEASE AGREEMENT made this ___ day of February, 1998 by and between
GOVERNMENT LAND BANK, a Massachusetts body politic and corporate created by
Chapter 212 of the Acts of 1975, as amended, with its principal offices located
at 75 Federal Street, Boston, Massachusetts ("Lessor") , and SPALDING & EVENFLO
COMPANIES, INC., a Delaware corporation, with its principal offices at 601 S.
Harbour Island Boulevard, Suite 200, Tampa, FL 33630 ("Tenant") .
PRELIMINARY STATEMENT
A. Lessor is the holder of a leasehold interest in a certain facility
located in Chicopee, Hampden County, Massachusetts (the "Leased Premises"),
described and located as shown on the plan attached hereto as Exhibit A,
together with such rights, easements, and privileges as are more fully set forth
in that certain Ground Lease (the "Ground Lease") of even date herewith by and
between Spalding & Evenflo Companies, Inc., as ground lessor (the "Ground
Lessor") and Lessor as ground lessee;
B. Tenant desires to lease the Leased Premises from Lessor in
accordance with the terms and conditions hereof, subject however to the terms
and conditions of the Ground Lease;
C. Lessor and Tenant have also entered into a Loan Agreement of even
date herewith regarding a certain loan from Lessor to Tenant in the original
principal amount of $6,500,000 (the "Loan Agreement"), as evidenced by a
Promissory Note of even date herewith (the "Note"), it being the intention of
the parties that this Sublease shall run concurrently with the term of the Loan
Agreement and serve as further collateral security for the obligations of Tenant
under the Loan Agreement and the Note and that, upon the occurrence and
continuance of any Event of Default under the Loan Agreement or the Note beyond
applicable grace and cure periods, Tenant's rights under this Sublease shall
terminate.
D. Lessor and Tenant desire to set forth in writing herein the terms
and conditions of their agreements and understandings with respect to the
foregoing.
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises and covenants
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herein contained, the parties hereto hereby agree as follows:
1. DESCRIPTION OF THE LEASED PREMISES. Lessor hereby leases to Tenant,
and Tenant hereby leases from Lessor, the land and buildings located thereon,
with all appurtenances thereto, consisting of approximately One Hundred and
Fifty Thousand (150,000) square feet of space , more or less, and as more
particularly described in Exhibit A attached hereto (the "Leased Premises").
Tenant shall have the further non-exclusive right, in common with other tenants
and users of the manufacturing, warehouse and office facility located on Meadow
Street, Chicopee, Massachusetts (the "Chicopee Facility"), as depicted on
Exhibit A and defined as the "Appurtenant Rights" in the Ground Lease, to use
the Common Areas of the Chicopee Facility (as defined in Article 7 hereof) for
ingress and egress, parking, loading, and other purposes specified in Article 7
hereof.
2. TERM
2.1 Definitions
2.1.1 Commencement Date. "Commencement Date" shall mean the
date hereof.
2.1.2 Lease Year. "Lease Year" shall mean the period of
twelve (12) consecutive months commencing on the first day of the month
following the Commencement Date (if the Commencement Date shall be a day other
than the first day of the month) and each succeeding year during the term.
2.2 Lease Term. The term of this Sublease shall commence on
the Commencement Date, and continue thereafter for a period of twenty (20) years
(the "Term").
3. DELIVERY OF POSSESSION.
Subject to the terms and conditions set forth herein, Tenant shall be
entitled to possession and use of the Leased Premises on the Commencement Date.
IT IS EXPRESSLY UNDERSTOOD AND AGREED THAT LESSOR MAKES NO REPRESENTATIONS OR
WARRANTIES OF ANY KIND WITH REGARD TO THE LEASED PREMISES, INCLUDING ANY OF THE
BUILDINGS OR IMPROVEMENTS THEREON, TENANT HAVING MADE ITS OWN DETERMINATION AS
TO THE CONFORMITY OF
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THE LEASED PREMISES WITH ALL APPLICABLE LAWS, REGULATIONS, CODES AND
ORDINANCES AND THE SUITABILITY OF THE LEASED PREMISES FOR TENANT'S INTENDED
PURPOSES.
4. USE OF THE LEASED PREMISES.
4.1 Use of the Leased Premises. Tenant's use of the Leased
Premises shall at all times be in accordance with the terms and conditions
hereof and for the purposes and activities of operating a
warehouse/distribution/office facility in conjunction with a manufacturing
facility. Tenant's use of the Leased Premises will be consistent with the terms
and conditions of the Loan Agreement. Tenant will, throughout the term of this
Sublease, be solely and exclusively responsible, at Tenant's sole cost and
expense, for assuring that the Leased Premises and Tenant's use of the Leased
Premises will be in conformity with all applicable laws, regulations, codes and
ordinances
4.2 Assignment and Subletting. Tenant may not assign this
Sublease or sublet any portion of the Leased Premises without the written
consent of Lessor which consent shall not be unreasonably withheld.
Notwithstanding the foregoing, Tenant may assign this Lease or sublet the Leased
Premises to any current or future parent, subsidiary or affiliate of Tenant or
any corporation into which Tenant or its parent corporation may be merged or in
conjunction with the sale of all or substantially all of the corporate stock or
assets of Tenant, for any of which Lessor's consent will not be required,
provided that Tenant shall notify Lessor in advance (or, in any event, as soon
as possible) of any such sale or merger; and provided, further, that if Tenant
shall make any assignment or sublease, the assignee or subtenant shall agree to
be bound to Lessor under the terms hereof, will assume all of the Tenant's
obligations under the Note and Loan Agreement, and the making of any such
assignment or sublease shall not release Tenant from, or otherwise affect in any
manner, any of Tenant's obligations hereunder.
5. RENT. Tenant shall be obligated to pay Lessor rental payments
as follows:
5.1 Base Rent. During the first five (5) Lease Years of the
Term, Tenant shall pay
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Lessor a fixed minimum rental (the "Base Rent") in the amount of Twenty-seven
Thousand Eighty-four and 00/100 Dollars ($27,084.00) per month. During the sixth
(6th) through the fifteenth (15th) Lease Years , Tenant shall pay monthly Base
Rent in the amount of (i) Twenty-seven Thousand Eighty-four and 00/100 Dollars
($27,084.00) per month plus (ii) an amount equal to the interest due and owing
during the previous month under the Note on the outstanding principal balance
thereof at the then applicable rate of interest under the Note (the "Interest
Component"). During the sixteenth (16th) through the twentieth (20th) Lease
Years, Tenant shall pay monthly Base Rent in an amount equal to (i)Fifty-four
Thousand One Hundred Sixty-seven and 00/100 Dollars ($54,167.00) per month plus
(ii) the Interest Component for the month. In each instance, such amounts are
intended to equal the amount of monthly payments of interest and principal to be
paid by Tenant under the Note. If at any time, the payments under the Note shall
be increased, as provided by its terms or under the terms of the Loan Agreement,
the amount of Base Rent hereunder shall automatically be increased to equal the
amount of payment required under the Note and Loan Agreement. Such Base Rent
shall be due and payable to Lessor at the address set forth herein commencing on
the Commencement Date and continuing thereafter on the first (1st) day of each
month during the Lease Term. If the Commencement Date is a date other than the
first of the month, the Base Rent for the partial month shall be pro-rated.
Until the occurrence of an Event of Default hereunder, or under the Note or Loan
Agreement, Lessor shall apply all payments of Base Rent received hereunder to
the amounts due and owing under the Note.
5.2 Common Area Costs. During the Lease Term, Tenant shall
pay for all expenses incurred in connection with the maintenance of the Leased
Premises and the Common Areas serving the Leased Premises. If, at any time,
Lessor, in Lessor's reasonable judgment, determines that Tenant is failing to
maintain the Leased Premises or Common Areas appertaining thereto, Lessor may,
after thirty (30) days written notice to Tenant of its intentions and Tenant's
failure to act in response to such notice, provide such maintenance itself, in
which case Tenant shall promptly reimburse Lessor for the costs thereof,
together with
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interest thereon at the rate of One and one-half (1.5%) per cent per month, upon
presentation of Lessor's invoices.
5.3 Late Payments. If Tenant shall be more than ten (10) days
late in the payment of any Rent, any such late payment shall bear interest at a
rate of two percent (2%) per month. As used in this ss.5.3, the term "Rent"
shall mean and refer to Base Rent, any and any other amounts which may be
required hereunder for the use and occupancy by Tenant of the Leased Premises.
6. GROUND LEASE
To the extent Lessor has any responsibilities or liabilities with
respect to the Leased Premises under the terms of the Ground Lease, those
responsibilities and liabilities shall be borne solely by Tenant throughout the
term of this Sublease. It is understood and agreed that all payments of Rent
hereunder are intended to be absolutely net to Lessor. At such time as Tenant's
obligations under the Note and Loan Agreement have been satisfied in full,
Lessor has agreed to relinquish any further rights under the Ground Lease which
will be terminated as of that date. At such time, this Sublease shall terminate,
and the parties agree to execute and deliver any instruments as may reasonably
be necessary to effectuate or evidence such termination. Upon such termination,
any and all obligations of the parties hereunder shall cease, and Tenant shall
continue to have the right to use and occupy the Leased Premises directly as or
under agreement with the Ground Lessor.
7. COMMON AREAS; SIGNS
7.1 Definition of Common Areas. As used herein "Common Areas"
shall mean and refer to all improvements and appurtenances of every kind and
nature that may be a part of the Chicopee Facility the use of which is
appurtenant to the use of the Leased Premises. Common Areas shall include,
without limitation: the common wall or walls which separate the Leased Premises
from the remainder of the building in the Chicopee Facility to which the Leased
Premises are connected; all corridors, entrances, pedestrian sidewalks,
walkways, ramps, loading docks and areas, delivery areas, driveways and access
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roads and parking areas which are necessary and useful to the use of the Leased
Premises, including those specifically demarcated on Exhibit A-1; all landscaped
and planted areas, common utility services, lighting facilities, and other areas
and improvements which may be provided for the general use, in common with
others, of tenants of the Chicopee Facility, their officers, agents, employees
and customers.
7.2 Tenant's Use of Common Areas. Lessor hereby grants to
Tenant, to the extent permitted by the Ground Lease, the non-exclusive right to
use portions of the Common Areas in common with other users of the Chicopee
Facility, and any other designees or licensees of the Ground Lessor, and subject
to such reasonable restrictions, rules and regulations as may be adopted by the
Ground Lessor from time to time.
7.3 Management of Common Areas. Lessor shall have no liability
and shall not bear at any time any cost or expense relating to the Common Areas.
Tenant acknowledges and agrees that all Common Areas shall at all times be
subject to exclusive operational and management control of the Ground Lessor,
and , subject to the terms and limitations of the Ground Lease, the Ground
Lessor shall operate the Common Areas for their intended purposes in such manner
as the Ground Lessor shall determine in its sole discretion. Ground Lessor shall
also provide for the repair and maintenance of the Common Areas in accordance
with the provisions of the Ground Lease.
7.4 Signs. In accordance with the provisions hereof and any other sign
policies which may be established by the owner of the Chicopee Facility, Tenant
shall be responsible for the construction and installation of any signs
associated with the Leased Premises which are to be displayed on the exterior of
the Leased Premises or elsewhere within the Common Areas. All of Tenant's signs
shall be in conformity with applicable laws and ordinances and shall be erected
and maintained by Tenant at Tenant's sole cost and expense.
8. UTILITY EXPENSES. Tenant shall be responsible, and shall fully and
promptly pay for, all heat, gas, electricity, telephone, and other public
utilities (including water and sewer) of every kind
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furnished to the Leased Premises throughout the Lease Term, as well as all other
costs and expenses of every kind whatsoever of or in connection with the use of
the Leased Premises and all activities of Tenant conducted on the Leased
Premises (the "Utility Expenses") . If any such Utility Expenses shall be
charged or assessed against the Chicopee Facility, Tenant shall be responsible
for its pro rata share of such Utility Expenses. Tenant shall make payment of
such pro rata amount to the Ground Lessor within twenty (20) days after Ground
Lessor provides Tenant an invoice therefor, or such other time period as may be
required under the terms of the Ground Lease.
9. PAYMENT OF TAXES AND ASSESSMENTS.
9.1 Real Property Taxes. Tenant shall have sole responsibility
for all real property taxes, if any, which may be assessed directly to Tenant as
a user, lessee or occupant of the Leased Premises. To the extent the Leased
Premises do not constitute a separate tax parcel or are otherwise not subject to
a separate tax assessment, Tenant shall pay a pro rata share of real property
taxes assessed against the Chicopee Facility, such proportion to be determined
on the basis of the incremental increase in assessed valuation for the Chicopee
Facility after the completion of construction of the improvements constituting
the Leased Premises. Tenant shall make all payments of its share of real
property taxes to the Ground Lessor within twenty (20) days of receipt of an
invoice therefor, or such other time period as may be required by the terms of
the Ground Lease.
9.2 Contesting Taxes or Assessments. If Tenant, as part of a general
contest of the real property tax assessment against the Chicopee Facility,
shall, in good faith, desire to contest the validity or amount of any tax,
assessment, levy, or other governmental charge herein agreed to be paid by
Tenant, Tenant shall be permitted to do so and to defer, but only to the extent
permitted by applicable law, payment of such tax or charge until final
determination of the contest, upon providing written notice to Lessor of
Tenant's intentions prior to the commencement of any such contest, which shall
be given at least seven (7) days prior to delinquency.
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10. COMPLIANCE. Tenant, at its sole cost and expense, shall (i) comply
with and abide by any and all applicable federal, state, county, municipal and
other governmental statutes, ordinances, laws and regulations affecting the
Leased Premises in its use of the Leased Premises, including but not limited to
building codes and the American with Disabilities Act; (ii) obtain every permit,
license or certificate required for operation of Tenant's business within the
Leased Premises by any governmental agency having jurisdiction thereof; and
(iii) comply with all requirements of any insurance company or organization
necessary for the maintenance of insurance with respect to the Leased Premises
in accordance with Article 17 hereof.
11. PROHIBITED USES; WASTE AND NUISANCE; LIENS; ABANDONMENT.
11.1 Prohibited Uses. Without the express written permission of
Lessor, Tenant shall not use, or permit the Leased Premises, or any part
thereof, to be used for any purposes or activities other than the purposes or
activities for which the Leased Premises are leased under this Sublease. Lessor
agrees that such permission shall not be unreasonably withheld. No use shall be
made or permitted to be made of the Leased Premises, or acts done, which will
cause a cancellation of any insurance policy covering the Chicopee Facility, or
any part thereof, nor shall Tenant permit to be kept, used, or sold, in or about
the Leased Premises any article that may be prohibited by the standard form of
fire insurance policies.
11.2 Waste and Nuisance. Tenant shall not commit, or suffer to be
committed, any waste or nuisance on or affecting the Leased Premises or the
Chicopee Facility.
11.3 Liens Against the Leased Premises.
11.3.1 Liens Prohibited. Tenant shall keep all and every part of
the Leased Premises free and clear of any and all mechanics', material
suppliers', and other liens for or arising out of or in connection with work or
labor done, services performed, or materials or appliances used or furnished for
or in connection with operations of Tenant, any alteration, improvement, repairs
or additions that Tenant may make or permit to be made, or any work or
construction by, for or permitted by Tenant on or about the
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Leased Premises, or any obligations of any kind incurred by Tenant, and shall at
all times promptly and fully pay and discharge any and all claims on which any
lien may or could be asserted unless validly contested.
11.3.2 Contesting Liens If Tenant desires to contest any lien, it
shall notify Lessor of its intention to do so within twenty (20) days after the
filing of the lien. In such event, and provided that Tenant shall, on demand,
protect Lessor by a good and sufficient surety bond against any lien and any
cost, liability, or damage arising out of such contest, Tenant shall not be in
default under this Sublease until ten (10) days after the final determination of
the validity of the lien, within which time Tenant shall satisfy and discharge
the lien to the extent held valid. Notwithstanding the foregoing, the
satisfaction and discharge of any lien shall not, in any case, be delayed until
execution is had on any judgment rendered on such lien, and any such delay shall
be deemed a default by Tenant under this Sublease.
11.3.3 Indemnifications. Tenant shall indemnify Lessor from and
against any and all liens and claims of liens and suits or other proceedings of,
pertaining to, or arising out of or in connection with work or labor done,
services performed, or materials or appliances used or furnished for or in
connection with operations of Tenant, any alteration, improvement, repairs or
additions that Tenant may make or permit to be made, or any work or construction
by for or permitted by Tenant on or about the Leased Premises. Further, in the
event of any contested lien, Tenant shall protect and indemnify Lessor against
any and all loss, expense, and damage resulting from such contest.
11.4 Abandonment of the Premises. Tenant shall not vacate or
abandon the Leased Premises during the Lease Term. If that Tenant abandons,
vacates, or surrenders the Leased Premises or is dispossessed by process of law
or otherwise, any personal property belonging to Tenant and left on the Leased
Premises shall be deemed to be abandoned after the expiration of thirty (30)
days therefrom, at the option of Lessor, except such property as may be
encumbered.
12. WARRANTIES OF TITLE AND QUIET POSSESSION. Lessor covenants that,
pursuant to the Ground Lease, Lessor is seized of the Leased Premises and has
full right to make and enter into this
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Sublease and that Tenant shall have quiet and peaceable possession of the Leased
Premises during the Lease Term, subject to the rights of Lessor pursuant to
Article 13 hereof.
13. RIGHT OF ENTRY. Tenant shall permit Lessor its agents and employees
to enter into and upon the Leased Premises at all reasonable times during the
Lease Term and after notice to Tenant for the purpose of inspecting the Leased
Premises, or for the purpose of posting notices of non-responsibility for
alterations, additions, or repairs, and without any liability to Tenant for any
loss of occupation or quiet enjoyment of the Leased Premises occasioned by any
such entry. In exercising its rights under this paragraph, Lessor shall use its
best efforts to accommodate Tenant and minimize any loss of occupation or quiet
enjoyment by Tenant of the Leased Premises occasioned by such entry.
14. OBLIGATION FOR EQUIPMENT, MACHINERY & FURNISHINGS BY TENANT;
ALTERATIONS & IMPROVEMENTS; APPROVAL BY LESSOR
14.1 Maintenance of Machinery and Equipment by Tenant. Tenant
shall at all times maintain within the Leased Premises machinery and equipment
as may be needed for the contemplated uses thereof, and Tenant will keep such
equipment in good maintenance and repair and fully insured to its full
replacement cost value. Lessor shall have no responsibility for any loss or
damage to any such machinery or equipment of Tenant due to fire or other
casualty, theft, act of God, or any other causes,
14.2 Alterations and Improvements by Tenant. Tenant shall, at
it own expense (i) design and construct interior fitouts for the Leased Premises
and install fixtures, equipment, machinery and furnishings therein; and (ii)
make such other alterations, modifications and improvements to the Leased
Premises as Tenant may deem necessary. Notwithstanding Tenant's right to make
alterations, modifications or improvements as aforesaid, prior to making any
structural alteration, modification or improvement which is estimated to cost in
excess of Fifty Thousand Dollars ($50,000) or which will in any way affect the
external appearance of the Leased Premises, regardless of cost, Tenant shall
seek and obtain Lessor's written approval of plans and specifications therefor
not to be unreasonably withheld. Tenant shall in no event make,
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<PAGE> 11
or attempt to make, any alterations, modifications, improvements, or other
changes of any kind to the Leased Premises that will adversely affect the
structural integrity of the Leased Premises or any portion of the Chicopee
Facility.
14.3 Approval by Lessor. Any approval by Lessor required
pursuant to ss.14.2 hereof shall not be unreasonably withheld by Lessor. In the
event of any disapproval by Lessor pursuant to this Article 14, Lessor shall
provide to Tenant an itemized statement of reasons for such disapproval. If
Lessor does not disapprove any plans and specifications submitted by Tenant in
accordance with 14.2 within thirty (30) days after they have been submitted to
Lessor, such plans and specifications shall be deemed to have been approved by
Lessor.
14.4 Ownership of Improvements. Any and all alterations,
modifications, improvements or additions made by Lessor or Tenant to the Leased
Premises shall constitute part of the Leased Premises under the Ground Lease,
and Tenant shall have only a leasehold interest therein, subject to the terms
and conditions of this Sublease, unless otherwise specifically agreed by written
agreement of the parties. Provided, however, that upon any termination of this
Sublease by termination of the Ground Lease, as provided for in ss.6, above,
title to all Tenant's improvements shall revert to and vest in Tenant.
14.5 Written Notice to Lessor. Tenant shall provide written
notice to Lessor, pursuant to ss.14.2 or otherwise, no less than thirty (30)
days in advance of the commencement of any alteration, modification,
improvement, or repair estimated to cost in excess of Fifty Thousand Dollars
($50,000) in order that Lessor may post appropriate notices of Lessor's no
responsibility therefor.
15. MAINTENANCE, REPAIRS AND CASUALTY LOSSES.
15.1 Maintenance of Leased Premises. Tenant shall, throughout
the Lease Term, at its own cost and expense and without any expense to Lessor,
keep and maintain the Leased Premises in good, sanitary, and neat order,
condition and repair. Without limitation, Tenant shall specifically be
responsible for (i) any damage caused in the course of Tenant's ordinary wear
and tear and use of the Leased Premises,
11
<PAGE> 12
and (ii) any damage caused as a direct result of Tenant's negligence. To the
extent any facilities or utilities shall serve both the Leased Premises and
other portions of the Chicopee Facility, Tenant shall pay its pro rata share of
such expenses to the Ground Lessor within twenty (20) days of receipt of
invoices therefor from the Ground Lessor, or such other period as may be
provided for in the Ground Lease.
15.2 Structural Repairs. Tenant shall make any necessary
structural repairs to the Leased Premises, provided that Tenant shall provide
not less than ten (10) days advance written notice to Lessor of any such repairs
costing in excess of Fifty thousand ($50,000) dollars. As used in this
subparagraph, the terms "structural repairs" shall mean all repairs to the roof,
foundation, exterior walls, loadbearing walls, elevators, stairs, sprinkler
systems, and all repairs to HVAC, utility conduits, and electrical and plumbing
systems.
15.3 Maintenance of Common Areas. Notwithstanding the
provisions of ss.15.1, it shall the obligation of the Ground Lessor, throughout
the Lease Term, to keep and maintain Common Areas of the Chicopee Facility in
good, sanitary, and neat order, condition and repair. Such maintenance shall
include routine and non-routine repair and maintenance, procuring and
maintaining any necessary lighting, emergency, or other equipment, as well as
providing appropriate policing and security for the Common Areas. Further,
except as specifically provided in this Sublease, the Ground Lessor shall
restore and rehabilitate, or cause the restoration or rehabilitation, of any
improvements of any kind that may be destroyed or damaged by fire, casualty, or
any other cause whatsoever. With respect to any expenses incurred by Ground
Lessor for repairs and maintenance of the Common Areas pursuant to this ss.15.3,
Tenant shall be obligated to pay to the Ground Lessor the Common Area Costs
specified in ss.5.2 hereof.
15.4 No Obligation Upon Lessor. Except as specifically provided
herein, Lessor shall not be obligated to make any repairs, replacements, or
renewals of any kind, nature, or description whatsoever to the Leased Premises.
-12-
<PAGE> 13
15.5 Damage by Fire or Other Casualty
15.5.1 Insured Loss. If all or any portion of the Leased
Premises shall be destroyed or damaged by fire or other casualty and the
insurance proceeds shall be adequate to restore the damaged property to its
equivalent condition prior to such loss, Lessor will allow for the release of
such proceeds to the Ground Lessor, pursuant to the terms of the Ground Lease,
so as to allow the Ground Lessor to commence and complete the restoration of the
damaged property substantially to its functionally equivalent condition prior to
such loss. The Ground Lessor shall commence such restoration within thirty (30)
days from the date of receipt of insurance premiums (but in no event later than
ninety (90) days of such loss) and complete it within one hundred twenty (120)
days therefrom. In no event shall Tenant shall have the right to terminate this
Sublease as a result of or arising out of such fire or casualty.
15.5.2 Partially Insured Loss. If all or any portion of the
Leased Premises shall be destroyed or damaged by fire or other casualty and the
insurance proceeds shall not be adequate to restore the damaged property to its
equivalent condition prior to such loss and Ground Lessor is unable to provide
Lessor with evidence reasonably satisfactory to Lessor (in the form of financial
reports or their equivalent) of Ground Lessor's ability to restore the Leased
Premises, Lessor shall be entitled to elect to (i) allow the release of such
proceeds to the Ground Lessor in accordance with the terms of the Ground Lease,
together with other funds to be deposited by Ground Lessor and/or Tenant with
Lessor sufficient to make up the shortfall in such proceeds, and to allow Ground
Lessor to apply such insurance proceeds and other sums to commence and complete
the restoration of the damaged property to a condition that allows Tenant to
continue to use the Leased Premises in substantially the same way they were used
prior to such loss, making such changes or modifications to the terms and
conditions hereof as may be necessary or appropriate; or (ii) notify Tenant that
it intends to terminate this Sublease in which case Lessor shall apply all
insurance proceeds to amounts due and owing under the Note and Loan Agreement,
and Tenant shall promptly pay any deficiency to Lessor. If Lessor elects to
allow Ground Lessor to restore the damaged property as described in
item15.5.2(i) above, Ground Lessor shall commence such restoration within ninety
(90) days from the date of such loss and
13
<PAGE> 14
complete it within one hundred eighty (180) days therefrom, with Tenant making
such repairs and restorations to its leasehold improvements and furniture,
fixtures and equipment as may be necessary to restore the Leased Premises to a
condition suitable for Tenant's use and occupancy thereof. In no event shall
Tenant shall have the right to terminate this Sublease.
16. INDEMNITY; WAIVER OF CLAIMS.
16.1 Indemnification by Tenant. Tenant shall indemnify and hold
harmless Lessor from and against any and all claims, liability, loss, damage,
costs or expenses whatsoever which Lessor may sustain, incur or be required to
pay, arising out of, in connection with, or on account of (i) any loss, injury,
death or damage in connection with the Leased Premises during the Lease Term; or
(ii) any loss, injury, death or damage in connection with Tenant's performance
under this Sublease. Notwithstanding the foregoing, such indemnification shall
not be available with respect to any loss, injury, death, or damage arising by
reason of the gross negligence or willful misconduct of Lessor, its agents or
employees.
16.2 Waiver of Claims by Tenant. Tenant waives any and all
claims against Lessor to the property of Tenant in, on, or about the Leased
Premises, and for injuries to persons or property in or about the Leased
Premises, from any cause arising at any time; provided, however, that such
waiver shall not be applicable with respect to any loss, injury, death, or
damage arising by reason of the gross negligence or intentional misconduct of
Lessor, its agents or employees, or those for whose conduct it is legally
responsible.
17. INSURANCE AND WAIVERS OF SUBROGATION.
17.1 Tenant's Liability Insurance. Tenant shall, at all times
during the Lease Term and at Tenant's sole expense, procure and maintain public
liability insurance covering the Leased Premises and its appurtenances in an
amount of not less than Two Million Dollars ($2,000,000) for injury to or death
of any one person for any one occurrence, and one Hundred Thousand Dollars
($100,000) for property damage for any one occurrence, with both Lessor and
Tenant as named insureds. In addition, Tenant shall maintain
14
<PAGE> 15
fire and extended coverage on its equipment, furniture, fixtures and other
property kept on the premises.
17.2 Insurance of the Leased Premises. Tenant shall, at all times
during the Lease Term and at Tenant's sole cost and expense, procure and
maintain insurance in the amount of full replacement value of the leasehold
improvements to Leased Premises and all the contents, equipment and fixtures
therein as will protect the Leased Premises from and against loss or damage by
fire, extended perils and other risks, if any, customarily insured against by
business organizations. All such policies shall meet the insurance criteria set
forth on Exhibit B attached hereto and made a part hereof and shall name Lessor
as the loss payee.
17.3 Lessor's Right to Pay Premiums. All policies of insurance
required to be maintained by Tenant pursuant to this Article 17 shall be in a
form satisfactory to Lessor and by insurance companies satisfactory to Lessor.
In the event of the failure by Tenant to procure insurance required by this
Sublease, to maintain payment of the premiums therefor, or to deliver the
policies or certificates of policies to Lessor, Lessor shall be entitled, but
shall not be obligated, to procure and/or maintain such insurance and to pay
premiums therefor, which premiums shall be immediately repayable to Lessor by
Tenant and shall place Tenant in default hereunder. Each insurer on an insurance
policy procured by Lessor shall agree, by endorsement on the policy or policies
issued by it, or by independent instrument furnished to Lessor, that it will
give Lessor thirty (30) days' written notice before the policy or policies in
question shall be altered or canceled. Lessor agrees that it shall not
unreasonably withhold its approval as to the form or insurance companies
selected by Tenant.
17.4 Mutual Waiver of Subrogation. Lessor and Tenant waive all
rights against each other for (i) damages caused by losses covered by insurance,
except such rights as either may have to the proceeds of such insurance held by
the other as trustee; and (ii) loss or damage to any equipment used in
connection with the Leased Premises and covered by property insurance.
15
<PAGE> 16
18. ATTORNMENT; SUBORDINATION.
18.1 Attornment. In the event of an assignment or other transfer of
Lessor's interest in the Ground Lease, Tenant agrees to attorn to and to
recognize such transferee, assignee, mortgagee, lienholder, or underlying lessor
as the lessor under this Sublease.
18.2 Subordination and Estoppel. Upon notice from and at the
direction of Lessor, Tenant agrees to execute, acknowledge and deliver any
document, instrument or agreement that may now or hereafter be required by any
party with respect to the Chicopee Facility or the Leased Premises, to confirm
the subordination of this Sublease to the Ground Lease and to confirm for the
benefit of third parties the status of this Sublease and Tenant's obligations
hereunder in such form as Lessor may reasonably require.
18.3 Remedies. Failure of Tenant to execute and deliver any of
the above documents, instruments or agreements within thirty (30) days after
notice by Lessor shall constitute a breach of this Sublease and Lessor may, at
its option, execute and delivery any of the foregoing documents, instruments or
agreements in the name of Tenant; and Tenant hereby grants Lessor an irrevocable
power-of-attorney for the foregoing purposes.
19. DEFAULT AND TERMINATION. Notwithstanding any other provision
hereof, this Sublease may be terminated upon the happening of any of the
following events and in accordance with the provisions hereof:
19.1 Default in Payments. Upon the failure by Tenant to make any
Rental payments or any other payments due hereunder or under the Note or Loan
Agreement and the continuance of such default for a period of ten (10) days
after written notice of such default from Lessor (unless, by the terms of Note,
no such written notice is required), Lessor shall have the right to give Tenant
notice of its intention to terminate this Sublease within fourteen (14) days.
Upon such termination, Lessor shall have the right, at its option, to
accelerate, as Rent due hereunder, the entire principal balance of the Note and
all other amounts due and owing hereunder and under the Loan Agreement.
19.2 Other Defaults. Upon the failure by Tenant to perform any
other material term or condition of this Sublease, and the continuation of such
failure for a period of thirty (30) days following
16
<PAGE> 17
written notice of such failure, Lessor shall have the right to give Tenant
notice of its intention to terminate this Sublease. After the expiration of a
period of thirty (30) days from the date of such notice, this Sublease shall, at
the option of Lessor, terminate and Lessor shall have the right to accelerate,
as Rent due hereunder, and the entire principal balance of the Note and all
other amounts due and owing hereunder and under the Loan Agreement.
19.3 Remedies. Upon any default as aforesaid or upon any
termination of this Sublease, Lessor, in addition to any rights it may have
hereunder, shall have the immediate right of re-entry and may remove all
persons. In addition to Lessor's immediate right of re-entry, Lessor shall also
have the right to recover from Tenant all damages incurred by reason of the
breach, including the cost of recovering the Leased Premises and all reasonably
incurred costs for reletting the Leased Premises, including brokerage
commissions and alterations for making the leased Premises suitable for the uses
of a new tenant. The parties agree that as an alternative or additional remedy,
Lessor may request and obtain specific performance, when appropriate, of the
provisions of this Sublease.
19.4 Bankruptcy, etc. If Tenant shall be adjudged bankrupt or
insolvent, or any receiver or trustee of all or any part of the business or
property of Tenant shall be appointed and shall not be discharged within ninety
(90) days after appointment, or Tenant shall make any general assignment of its
property for the benefit of creditors, or Tenant shall file a voluntary petition
in bankruptcy or insolvency, or shall apply for reorganization or arrangement
with its creditors under the bankruptcy or insolvency laws now in force or
hereafter enacted, federal, state or otherwise, or such petition shall be filed
against Tenant and shall not be dismissed within ninety (90) days after such
filing, or Tenant shall seek a composition with its creditors by trust, mortgage
or otherwise, Lessor may, at its election, terminate this Sublease without being
prejudiced to any remedies which may be available to it for breach of contract
and in law or equity. In such event, Lessor shall have the full benefit of the
remedies and rights of recovery recited in ss.19.2 and 19.3 hereof.
17
<PAGE> 18
19.5 Ownership Of Improvements Upon Termination. Except as provided
by ss.6 and ss.14.4 hereof, upon termination of this Sublease, Lessor shall
become seized of any and all alterations, improvements or additions made by
Tenant in or to the Leased Premises during the Lease Term.
19.6 Force Majeure. Notwithstanding any other provision hereof,
neither party hereto shall be liable to the other or be deemed to be in breach
of this Sublease for any failure or delay in rendering performance, other than
payment of Base Rent, arising out of causes beyond its reasonable control and
without its fault or negligence. Such causes may include, but are not limited
to, acts of God or the public enemy, fires, floods, epidemics, or unusually
severe weather. Dates or times of performance shall be extended to the extent of
delays excused hereby, provided that the party whose performance is affected
notifies the other promptly of the nature of the existence and nature of such
delay.
20. LESSOR'S RIGHT TO PERFORM. In addition to Lessor's termination
rights pursuant to Article 19 hereof, if Tenant, by failing or neglecting to do
or perform any act or thing required by this Sublease, shall be in default
hereunder and such default shall continue for a period of thirty (30) days after
written notice from Lessor specifying the nature of the act or thing to be done
or performed, then Lessor may, but shall not be obligated to, do or perform or
cause to be done or performed such act or thing (and may enter upon the Leased
Premises for such purpose, subject to a further notification to Tenant at least
five (5) days in advance of such entry), and Lessor shall not be liable or in
any way responsible for any loss, inconvenience, annoyance, or damage resulting
to Tenant on account of such election (other than that arising from Lessor's
gross negligence or wilful misconduct). Tenant shall repay to Lessor, on demand,
the entire expense incurred on account of such election, including compensation
to the agents, employees and contractors of Lessor. Any act or thing done by
Lessor pursuant to the provisions of this Article 20 shall not constitute or be
construed as a waiver by Lessor of any such default by Tenant, or as a waiver of
any covenant, term or condition contained in this Sublease, or of any other
right or remedy of Lessor, under this Sublease or otherwise.
17
<PAGE> 19
21. REDELIVERY OF LEASED PREMISES; SURRENDER OF LEASE.
21.1 Redelivery of Leased Premises. Upon the termination of
this Sublease in accordance with the provisions of Article 19 hereof, Tenant
shall peaceably and quietly quit and surrender the Leased Premises to Lessor in
good order and condition, subject to the provisions of this Sublease. In
furtherance of the foregoing, Tenant shall remove all of Tenant's personal
property from the Leased Premises and shall leave the Leased Premises in good
repair and tenantable condition, reasonable and ordinary wear and tear and
damage by fire or other casualty excepted.
21.2 Holdover. Should Tenant remain in possession of the
Leased Premises after the expiration of the Lease Term, such holding over shall
be deemed to have created and shall be construed and to be a tenancy-at-will on
the terms and conditions set forth in this Lease Agreement, and Tenant shall pay
Base Rent at the rate set forth in the Note for default or penalty interest.
22. ENVIRONMENTAL MATTERS AFFECTING THE LEASED PREMISES. Lessor makes
no representations or warranties, express or implied, as to the presence or
absence of any hazardous materials or substances on the Leased Premises or
Chicopee Facility or whether such substances have been released or properly
stored on the Leased Premises or the Chicopee Facility, and Tenant accepts the
Leased Premises "AS IS" with respect to such matters. Tenant shall (i) not
release or cause any threat of release of any oil or hazardous materials, as
such terms are defined in Massachusetts General Laws, Chapter 21E, as amended on
the Leased Premises or the Chicopee Facility and, to the extent such a release
occurs, respond in a timely fashion in accordance with all the requirements of
Massachusetts General Law 21E and the Massachusetts Contingency Plan, (ii) not
incur during the term of the Sublease any liability to the Commonwealth of
Massachusetts under Chapter 21E which relates or arises out of its occupancy and
use of the Leased Premises, and (iii) maintain and use the Leased Premises, at
its own expense, in accordance with all applicable federal, state and municipal
statutes, ordinances, by-laws, and rules and regulations relating to the
environment, including without limitation, Chapter 21E, the Federal Resource
Conservation and Recovery Act, the Massachusetts Hazardous Waste Management Act,
the Federal Water pollution Control Act, the
19
<PAGE> 20
Federal Clean Air Act, the Rivers Protection Act, and all statutes and
regulations pertaining to wetlands protection.
23. EFFECT OF EMINENT DOMAIN.
23.1 Effect of Condemnation of Leased Premises. If any portion
of the Leased Premises shall be appropriated or taken under the power of eminent
domain by any public or quasi public authority, but the Leased Premises can be
restored to substantially their prior condition for Tenant's use, Lessor shall
allow the release of the proceeds to Tenant for Tenant to use for such
restoration. If the Premises cannot be so restored, Lessor shall apply the
proceeds to the amounts due and owing under the Note and the Loan Agreement, and
this Sublease shall terminate and expire as of the date of such taking.
23.2 Effect of Condemnation of Chicopee Facility. If any other
portion of the Chicopee Facility shall be appropriated or taken under the power
of eminent domain by any public or quasi-public authority such that Tenant
cannot use the Leased Premises as part of the Chicopee Facility, at Tenant's
option, upon thirty (30) days notice, this Sublease shall terminate and expire
as of the date of such taking provided, however, that Tenant's obligations under
the Note and Loan Agreement shall not terminate and all condemnation proceeds
shall first be applied to the obligations of Tenant thereunder.
23.3 Condemnation Awards. In the event of the termination of
this Sublease by reason of a condemnation or taking of the Chicopee Facility or
the Leased Premises by eminent domain, Tenant shall have the right to make and
prosecute all claims in its own name and behalf of both Lessor and Tenant
provided that (i) all proceeds shall first be paid to Lessor, and the applicable
taking authority shall be advised of Lessor's interest therein and (ii) Tenant
shall give Lessor not less than thirty (30) days advance written notice of
Tenant's intended actions, and in the event Lessor does not agree or approve of
Tenant's intended actions, Lessor shall have the right to make its own
independent claim for damages. All claims shall reflect and be subject to
Lessor's prior rights under the Ground Lease.
20
<PAGE> 21
24. MISCELLANEOUS.
24.1 Independent Entities. Lessor and Tenant acknowledge that
nothing contained herein, nor any act of Lessor or Tenant, shall be deemed or
construed by the parties to create any relationship of principal and agent,
limited or general partnership, or joint venture. Further, neither party shall
make any representations tending to create apparent agency, employment or
partnership and neither party shall have the power or authority to act for the
other in any manner to create any obligations or debts binding upon the other,
and neither party shall be responsible for any obligations or expenses of the
other. Tenant is and shall be considered an independent enterprise with entire
direction and control of its business and operations, subject only to the
conditions and obligations established by this Sublease.
24.2 Assignment. Tenant shall not assign or transfer this
Sublease, or any interest herein, without the prior express and written
consent of Lessor. Any such consent to an assignment shall not be deemed to be
a consent to any subsequent assignment. Any purported assignment hereof without
the express and written consent of the Lessor shall be void and shall, at the
option of Lessor, terminate this Sublease. Notwithstanding the prohibition
against assignment without the express and written consent of Lessor contained
in the preceding two sentences, Tenant may assign or transfer this Sublease, or
any interest herein, without such consent, but upon prior written notice (or,
in any event, notice given at the earliest possible date) to Lessor to a
related corporation it creates for the conduct of its business or to a current
or future parent, subsidiary or affiliate of Tenant or any corporation into
which Tenant or its parent corporation may be merged or to which all or
substantially all of the corporate stock or assets of Tenant are sold. Any such
assignment shall not relieve Tenant of its obligations under the Note and Loan
Agreement. Lessor shall have the right to assign its interest hereunder, in
whole or in part, and Tenant shall, upon notice from Lessor, attorn to such
assignee as the now Lessor hereunder. Subject to the foregoing, the covenants,
terms and conditions of this Sublease shall be binding upon, and shall inure to
the benefit of, the parties hereto and their respective successors, legal
representatives and assigns.
24.3 Non-Waiver; Cumulative Remedies. The failure on the part of
either party to this
21
<PAGE> 22
Sublease to act upon a breach of any of the covenants or agreements contained
herein shall in no way constitute a waiver of the rights of such party to act
upon any other or future breach by the other party. Any and all rights and
remedies created for either party herein shall be deemed cumulative and the use
of one remedy shall not be taken to exclude the right to use any other.
24.4 Attorneys' Fees. If any action at law or in equity shall
be instituted by Lessor for or on account of any breach, or to enforce or
interpret any of the covenants, terms or conditions of this Sublease, or for the
recovery of the Leased Premises, the Lessor shall be entitled to recover from
Tenant as part of the Lessor's costs, reasonable attorneys' fees, the amount of
which Tenant shall be made a part of any judgment or decree rendered.
24.5 Severabilitv. If any one or more of the provisions contained
herein or any application thereof shall be declared invalid, illegal or
unenforceable in any respect, the validity, legality or enforceability of the
remaining provisions contained herein and any other application thereof shall
not in any way be affected or impaired thereby.
24.6 Modifications. No change or modification of this Sublease or
the obligations assumed by either party hereto in connection with this Sublease
shall be valid or binding unless evidenced by a writing signed by each party or
an authorized representative of each party.
24.7 Notices. Any notice, approval, consent, request or other
communication hereunder shall be in writing and shall be considered given when
delivered personally or mailed by registered or certified mail, return receipt
requested, to the parties hereto at the addresses set forth below (or at such
other address as a party may specify by notice to the other pursuant hereto):
22
<PAGE> 23
(a) If to Lessor, to it at:
Government Land Bank
75 Federal Street
Boston, MA 02110
Attention:
and a copy to:
Joel J. Feinberg, Esquire
Bartlett, Hackett, Feinberg, Gentilli, Liston,
Brown & Phalen, P.C.
10 High St. Suite 920
Boston, MA 02110
(b) If to Tenant, to it at:
Spalding & Evenflo Companies, Inc.
601 S. Harbour Boulevard - Suite 200
Tampa, FL 33630
Attention: Chief Financial Officer
and a copy to:
24.9 Gender and Number. masculine, feminine or neuter
pronouns shall be substituted for one another, and the plural and the singular
number shall be substituted for one another, in any place or places herein in
which the context may require such substitution.
24.10 Heading. The headings contained within this Sublease are
inserted for convenience of reference only and shall not in any manner affect
the construction or meaning of anything herein contained or govern the rights or
liabilities of the parties hereto.
24.11 Further Assurances. The parties hereto shall take all
such steps, execute all such instruments and documents, and do all such acts and
things as may be reasonably necessary or appropriate in order to effectuate the
contemplated purposes and satisfy the terms and conditions of this Sublease.
24.12 Governing Law. This Sublease shall be governed and
construed in accordance with the substantive laws of the Commonwealth of
Massachusetts and shall have the effect of a sealed instrument.
24.13 Notice of Sublease. As soon as practicable after the
execution of this Sublease, and the recording of a notice of Ground Lease, the
parties shall execute a Notice of Sublease setting forth the material terms of
this Sublease and record the Notice in the Hampden County Registry of Deeds.
23
<PAGE> 24
IN WITNESS WHEREOF, this Sublease has been duly executed under
seal as of the day and year first above written.
LESSOR:
GOVERNMENT LAND BANK
d/b/a Massachusetts Development
Finance Agency
By:
-------------------------------
TENANT:
SPALDING & EVENFLO COMPANIES, INC.
By:
-------------------------------
COMMONWEALTH-OF MASSACHUSETTS
, ss. February 1998
Then personally appeared the above named as aforesaid and
acknowledged the foregoing instrument to be the free act and deed of ,
before me
------------------------------------
NOTARY PUBLIC My commission
expire:
COMMONWEALTH OF MASSACHUSETTS
, ss. February 1998
Then personally appeared the above named as aforesaid and
acknowledged the foregoing instrument to be the free act and deed of ,
before me
-------------------------
NOTARY PUBLIC
My commission expires:
24
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF EVENFLO & SPALDING HOLDINGS CORPORATION FOR THE
QUARTER ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 6,393
<SECURITIES> 0
<RECEIVABLES> 255,438
<ALLOWANCES> 5,154
<INVENTORY> 223,215
<CURRENT-ASSETS> 503,426
<PP&E> 205,963
<DEPRECIATION> 89,986
<TOTAL-ASSETS> 868,880
<CURRENT-LIABILITIES> 337,591
<BONDS> 698,125
0
0
<COMMON> 970
<OTHER-SE> (190,467)
<TOTAL-LIABILITY-AND-EQUITY> 868,880
<SALES> 393,600
<TOTAL-REVENUES> 393,600
<CGS> 277,655
<TOTAL-COSTS> 277,655
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 37,575
<INCOME-PRETAX> (45,584)
<INCOME-TAX> (15,481)
<INCOME-CONTINUING> (30,103)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (30,103)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
