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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR
15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
Commission file number: 1-13011
COMFORT SYSTEMS USA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 76-0526487
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
777 POST OAK BLVD.
SUITE 500
HOUSTON, TEXAS 77056
(713) 830-9600
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
Securities registered pursuant to Section 12(b) of the Act:
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NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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Common Stock, $.01 par value New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports to
be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of March 26, 1999, the aggregate market value of the 30,606,521 shares
of the registrant's common stock held by non-affiliates of the registrant was
$459,097,815, based on the $15.00 last sale price of the registrant's common
stock on the New York Stock Exchange on that date.
As of March 26, 1999, 38,586,426 shares of the registrant's common stock
were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: The information required by Part III
(other than the required information regarding executive officers) is
incorporated by reference from the registrant's definitive proxy statement,
which will be filed with the Commission not later than 120 days following
December 31, 1998.
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FORWARD-LOOKING STATEMENTS
This report contains "forward-looking statements"within the meaning of
Section 27A of the Securities Act of 1933, as amended ("Securities Act") and
Section 21E of the Exchange Act. Such forward-looking statements are made only
as of the date of this report and involve known and unknown risks, uncertainties
and other important factors that could cause the actual results, performance or
achievements of the Company, or industry results, to differ materially from any
future results, performance or achievements expressed or implied by such
forward-looking statements. Such risks, uncertainties and other important
factors include, among others, risks associated with acquisitions, fluctuations
in operating results because of acquisitions and variations in stock prices,
changes in government regulations, competition, and risks entailed in the
operations and growth of the newly acquired businesses. Important factors that
could cause actual results to differ are discussed under "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Factors Which May Affect Future Results."
PART I
ITEM 1. BUSINESS
Comfort Systems USA, Inc., a Delaware corporation ("Comfort Systems" and
collectively with its subsidiaries, the "Company"), is a leading national
provider of comprehensive heating, ventilation and air conditioning ("HVAC")
installation, maintenance, repair and replacement services. Founded in December
1996, the Company is consolidating the fragmented commercial and industrial HVAC
markets, and performs most of its services within manufacturing plants, office
buildings, retail centers, apartment complexes, and healthcare, education and
government facilities. In addition to standard HVAC services, the Company also
provides specialized applications such as process cooling, control systems,
electronic monitoring and process piping. Certain locations also perform related
services such as electrical and plumbing. Approximately 97% of the Company's pro
forma combined 1998 revenues were derived from commercial and industrial
customers with approximately 55% of the revenues attributable to installation
services and 45% attributable to maintenance, repair and replacement services.
On July 2, 1997, Comfort Systems completed the initial public offering (the
"IPO") of its common stock (the "Common Stock") and simultaneously acquired
twelve companies (collectively referred to as the "Founding Companies")
engaged in providing HVAC services. The Founding Companies had 18 operating
locations in ten states. Subsequent to the IPO, and through December 31, 1998,
the Company acquired 82 HVAC and complementary businesses (collectively with the
Founding Companies, the "Acquired Companies"). The companies acquired
subsequent to the IPO added 88 operating locations in 18 additional states.
These acquisitions included 15 "tuck-in" operations that have been or are
currently being integrated with existing Company operations. In addition, during
the first three months of 1999, the Company acquired 10 HVAC businesses with
aggregate 1998 annual revenues of approximately $35 million. These acquisitions
along with the existing Founding Companies allow the Company to provide services
in 114 operating locations and 46 of the top 150 major markets.
INDUSTRY OVERVIEW
Based on available industry data, the Company believes that the HVAC
industry is highly fragmented with over 40,000 companies, most of which are
small, owner-operated businesses with limited access to capital for
modernization and expansion. The HVAC industry as a whole is estimated to
generate annual revenues in excess of $75 billion, over $35 billion of which is
in the commercial and industrial markets. HVAC systems have become a necessity
in virtually all commercial and industrial buildings as well as homes. Because
most commercial buildings are sealed, HVAC systems provide the primary method of
circulating fresh air in such buildings. Older industrial facilities often have
poor air quality as well as inadequate air conditioning, and older HVAC systems
result in significantly higher energy costs than do modern systems. In many
instances, the replacement of an aging system with a modern, energy-efficient
system will significantly reduce a building's operating costs while also
improving air quality and the
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effectiveness of the HVAC system. These factors cause many facility owners to
consider early replacement of older systems.
Growth in the HVAC industry is positively affected by a number of factors,
particularly (i) the aging of the installed base, (ii) the increasing
efficiency, sophistication and complexity of HVAC systems, (iii) the increasing
opportunities associated with utility deregulation and (iv) the increasing
standards relating to indoor air quality, and the reduction or elimination of
the refrigerants commonly used in older HVAC systems. These factors are expected
to increase demand for the reconfiguration or replacement of existing HVAC
systems. The Company believes that these factors also mitigate the effect on the
HVAC industry of the cyclicality inherent in the traditional construction
industry.
The Company believes that the majority of business owners in the HVAC
industry have limited access to capital for expansion of their businesses and
that relatively few have attractive liquidity options. In addition, the
increasing complexity of HVAC systems has led to a need for better trained
technicians to install, monitor and service these systems. The cost of
recruiting, training and retaining a sufficient number of qualified technicians
makes it more difficult for smaller HVAC companies to expand their businesses.
The Company believes that significant opportunities continue to exist for a
well-capitalized, national company to excel in the HVAC industry.
The HVAC industry can be broadly divided into installation services and
maintenance, repair and replacement services.
INSTALLATION SERVICES. Installation services consist of "design and
build" and "plan and spec" projects. In "design and build" projects, the
commercial HVAC firm is responsible for designing, engineering and installing a
cost-effective, energy-efficient system customized to the specific needs of the
building owner. Costs and other project terms are normally negotiated between
the building owner or its representative and the HVAC firm. Firms which
specialize in "design and build" projects generally have specially-trained
HVAC engineers, CAD/CAM design systems and in-house sheet metal and
prefabrication capabilities. These firms utilize a consultative approach with
customers and tend to develop long-term relationships with building owners and
developers, general contractors, architects and property managers. "Plan and
spec" installation refers to projects where an architect or a consulting
engineer designs the HVAC systems and the installation project is "put out for
bid." The Company believes that "plan and spec" projects usually take longer
to complete than "design and build" projects because the preparation of the
system design by a third party and resulting bid process may often take months
to complete. Furthermore, in "plan and spec" projects, the HVAC firm is not
responsible for project design and any changes must be approved by several
parties, thereby increasing overall project time and cost. Approximately 55% of
the Company's pro forma combined 1998 revenues related to installation services
and the majority of the revenues from installation projects were performed on a
"design and build/negotiated" basis.
MAINTENANCE, REPAIR AND REPLACEMENT SERVICES. These services include the
maintenance, repair, replacement, reconfiguration and monitoring of previously
installed HVAC systems and controls. The growth and aging of the installed base
of HVAC systems and the increasing demand for more efficient, sophisticated and
complex systems and controls have fueled growth in this service line. The
increasing sophistication and complexity of these HVAC systems is leading many
commercial and industrial building owners and property managers to increase
attention to maintenance and to outsource maintenance and repair, often through
service agreements with HVAC service providers. In addition, increasing
restrictions are being placed on the use of certain types of refrigerants used
in HVAC systems, which, along with indoor air quality concerns, may increase
demand for the reconfiguration and replacement of existing HVAC systems.
State-of-the-art control and monitoring systems feature electronic sensors and
microprocessors. These systems require specialized training to install, maintain
and repair, and the typical building engineer has not received this training.
Increasingly, HVAC systems in commercial and industrial buildings are being
remotely monitored through PC-based communications systems to improve energy
efficiency and expedite problem diagnosis and correction. Approximately 45% of
the Company's pro forma combined 1998 revenues related to maintenance, repair
and replacement services.
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STRATEGY
The Company has implemented an operating strategy that emphasizes continued
internal growth and expansion through acquisitions.
OPERATING STRATEGY. The key elements of the Company's operating strategy
are:
FOCUS ON COMMERCIAL AND INDUSTRIAL MARKETS. The Company primarily
focuses on the commercial and industrial markets with particular emphasis
on "design and build" installation services and maintenance, repair and
replacement services. The Company believes that the commercial and
industrial HVAC markets are attractive because of their growth
opportunities, diverse customer base, reduced weather exposure as compared
to residential markets, attractive margins and potential for long-term
relationships with building owners, property managers, general contractors
and architects. Approximately 97% of the Company's pro forma combined 1998
revenues were derived from commercial and industrial customers.
OPERATE ON A DECENTRALIZED BASIS. The Company manages its
subsidiaries on a decentralized basis, with local management maintaining
responsibility for day-to-day operations, profitability and growth. While
it maintains strong operating and financial controls, the Company believes
that its decentralized operating structure allows local management to
capitalize on existing knowledge of local and regional markets and on
customer relationships.
ACHIEVE OPERATING EFFICIENCIES. The Company believes there are
opportunities to achieve operating efficiencies and cost savings through
purchasing economies and the adoption of "best practices" operating
programs. The Company has begun and will continue to use its growing
purchasing power to gain volume discounts on products and services such as
HVAC components, raw materials, service vehicles, advertising, bonding,
insurance and benefits. Moreover, the Company is reviewing its operations
at the local and regional operating levels to identify those "best
practices" that can be successfully implemented throughout its operations.
ATTRACT AND RETAIN QUALITY EMPLOYEES. The Company seeks to attract
and retain quality employees by providing them (i) an enhanced career path
from working for a larger public company, (ii) additional training,
education and apprenticeships to allow talented employees to advance to
higher-paying positions, (iii) the opportunity to realize a more stable
income and (iv) attractive benefits packages.
INTERNAL GROWTH. A key component of the Company's strategy is to continue
the internal growth at the Company's subsidiaries. The key elements of the
Company's internal growth strategy are:
EXPAND ALLIANCES WITH UTILITY COMPANIES. The Company believes that
there is significant potential for mutually beneficial relationships with
companies that market energy and energy services. The Company has begun
working with companies in the utility industry through its Preferred
Partners program which involves cooperative marketing of the Company's
services and provides utilities the opportunity to profit and to benefit
from the Company's own customer relationships and marketing programs. The
Company believes it can expand these relationships as it gains experience
with successful programs and as its geographic presence increases.
CAPITALIZE ON SPECIALIZED TECHNICAL AND MARKETING STRENGTHS. The
Company believes it will be able to continue to expand the services it
offers in its markets by leveraging the specialized technical and marketing
strengths of individual Acquired Companies. The Company also believes its
growing geographical coverage will enable it to serve existing customers'
needs in new regions that may have been beyond the service area of the
Company's operations that originated the existing customer relationship. In
addition, a number of Acquired Companies currently focus primarily on
installation and, therefore, have only limited maintenance, repair and
replacement operations. The Company believes there are significant
opportunities for these Acquired Companies to provide maintenance, repair
and replacement services, particularly by offering these services to
customers for whom those companies have already designed and built systems.
Several of the Acquired Companies have specific expertise in HVAC control
and monitoring systems, process cooling, replacement and other services.
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This expertise has been and will be increasingly shared within the
Company's family of HVAC businesses.
ESTABLISH REGIONAL AND NATIONAL MARKET COVERAGE. The Company believes
that significant demand exists from large regional and national companies
to utilize the services of a single HVAC service company capable of
providing comprehensive commercial and industrial services on a regional or
national basis. Many of the Acquired Companies already provide local or
regional coverage to companies with nationwide locations, such as
commercial real estate developers and managers, retailers and
manufacturers. The Company believes it can expand these existing
relationships as it develops and begins to leverage a regional and
nationwide network to provide these customers with a single source for all
of their HVAC needs to promote consistent service, improve control and
reduce cost.
ACQUISITIONS. The Company believes the HVAC industry is highly fragmented,
with small, owner-operated businesses with limited capital resources, which
outnumber larger enterprises. The key elements of the Company's acquisition
strategy are:
ENTER NEW GEOGRAPHIC MARKETS. In new markets, the Company targets one
or more leading local or regional companies providing HVAC services with
the customer base, technical skills and infrastructure necessary to be a
core business into which other HVAC and/or complementary service operations
can be consolidated or "tucked-in." The Company chooses businesses that
are located in attractive markets, are financially stable, are experienced
in the industry and have a strong management team.
EXPAND WITHIN EXISTING MARKETS. Once the Company has entered a
market, it seeks to acquire other well-established HVAC businesses to
expand its market penetration and range of services offered. The Company
also pursues "tuck-in" acquisitions of smaller companies, whose
operations can be integrated into an existing operation to leverage the
existing infrastructure of the previously Acquired Company.
ACQUIRE COMPLEMENTARY BUSINESSES. The Company opportunistically
acquires companies providing complementary services to the same customer
base, such as commercial and industrial control systems, electrical and
plumbing services. This enables the Company to offer, on a comprehensive
basis and from a single provider, HVAC, mechanical and electrical services
in certain markets.
ACQUISITION PROGRAM
The Company is regarded by acquisition candidates as an attractive acquirer
because of (i) the Company's strategy of becoming a national, comprehensive and
professionally managed HVAC service provider focused on commercial and
industrial markets, (ii) the Company's decentralized operating strategy, (iii)
the Company's increased visibility and access to financial resources as a public
company, (iv) increased employee benefits and job opportunities for their
employees, (v) the potential for increased profitability due to certain
centralized administrative functions, enhanced systems capabilities and access
to increased marketing resources and (vi) the potential for the owners of the
businesses being acquired to participate in the Company's planned internal
growth and growth through acquisitions, while realizing liquidity.
As consideration for acquisitions, the Company will use various
combinations of its Common Stock, cash and notes. The consideration for each
future acquisition will vary on a case-by-case basis. The major factors in
establishing the purchase price for each acquisition include historical
operating results, future prospects of the acquiree and the ability of a
business to complement the services offered by the Company.
OPERATIONS SERVICES PROVIDED
The Company provides a wide range of installation, maintenance, repair and
replacement services for HVAC and related systems in commercial, industrial and,
to a lesser extent, residential properties. Daily operations are managed on a
local basis by the management team at each Acquired Company. In addition to
senior management, Acquired Companies' personnel generally include design
engineers, sales personnel,
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customer service personnel, installation service technicians, sheet metal and
prefabrication technicians, estimators and administrative personnel. The Company
manages the Acquired Companies on a decentralized basis, with local management
maintaining responsibility for day-to-day operating decisions. The Company has
centralized certain administrative functions such as insurance, employee
benefits, safety programs and cash management to enable the management of each
Acquired Company to focus on pursuing new business opportunities and improving
operating efficiencies. Additional administrative functions which the Company is
currently centralizing include Company-wide training programs, project financing
programs and national purchasing programs.
INSTALLATION SERVICES. The Company's installation business comprised
approximately 55% of the Company's 1998 pro forma combined revenues. These
services consist of the design, engineering, integration, installation and
start-up of HVAC and related systems. The commercial and industrial installation
services performed by the Company consist of "design and build" systems for
manufacturing plants, office buildings, retail centers, apartment complexes, and
health care, education and government facilities. In a "design and build"
project, the customer typically has an overall design for the facility prepared
by an architect or a consulting engineer who then enlists the Company's
engineering personnel to prepare a specific design for the HVAC system. The
Company determines the needed capacity, energy efficiency and type of controls
that best suit the proposed facility. The Company's engineer then estimates the
amount of time, labor, materials and equipment needed to build the specified
system. Materials and equipment for a typical commercial or industrial project
include ductwork, compressors, blowers, chillers, cooling towers, air handling
equipment and the associated pumps and piping necessary to complete the system.
The Company utilizes CAD/CAM systems in the design and engineering phases of the
project to calculate the material and labor costs of the project. The drawings
are prepared in a format appropriate for submission to local building
inspectors. The final design, terms, price and timing of the project are then
negotiated with the customer or its representatives, after which any necessary
modifications are made to the system.
Once an agreement has been reached, the Company orders the necessary
materials and equipment for delivery to meet the project schedule. In most
instances, the Company fabricates in its own facilities, the ductwork and piping
and assembles certain components for the system based on the mechanical drawing
specifications, thereby eliminating the need to subcontract ductwork or piping
fabrication. The Company's CAD/CAM systems are capable of automatically cutting
ductboard, sheet metal and piping, thereby reducing the amount of labor
necessary to produce the ductwork and piping for the system. Project specific
components are then fabricated at the Company's facilities in sections small
enough to be transported to the job site. This practice enables the Company to
limit the amount of fieldwork required for installation, reduce the labor
associated with the installation process and, therefore, meet the shorter time
requirements increasingly demanded by commercial and industrial customers. The
Company installs the system at the project site, working closely with the
general contractor. Most commercial and industrial installation projects last
from two weeks to one year and generate revenues from $25,000 to $2,000,000 per
project. These projects are generally billed periodically as costs are incurred
and, in most cases, with a 10% retainage held back until completion and
successful start-up of the HVAC system.
The Company also performs selected "plan and spec" installation services
in addition to "design and build" projects.
The Company also installs process cooling systems, control and monitoring
systems and industrial process piping. Process cooling systems are utilized
primarily in industrial facilities to provide heating and/or cooling to precise
temperature and climate standards for products being manufactured and for the
manufacturing equipment. Control systems are used in HVAC and process cooling
systems to maintain pre-established temperature or climate standards for
commercial or industrial facilities. These systems use direct digital technology
integrated with computer terminals. HVAC control systems are capable not only of
controlling a facility's entire HVAC system, often on a room-by-room basis, but
can be programmed to integrate energy management, security, fire, card key
access, lighting and overall facility monitoring. This monitoring can be
performed on-site or remotely through a PC-based communications system. The
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monitoring system will communicate an exception when the HVAC system is
operating outside pre-established parameters. Diagnosis of potential problems
can be performed from the computer terminal which often can remotely adjust the
control system. Industrial process piping is utilized in manufacturing
facilities to convey required raw material, support utilities and finished
products.
MAINTENANCE, REPAIR AND REPLACEMENT SERVICES. The Company's maintenance,
repair and replacement services comprised approximately 45% of the Company's
1998 pro forma combined revenues, and include the maintenance, repair,
replacement, reconfiguration and monitoring of HVAC systems and industrial
process piping. Over two-thirds of the Company's maintenance, repair and
replacement revenues were derived from reconfiguring existing HVAC systems for
commercial and industrial customers. Reconfiguration often utilizes consultative
expertise similar to that provided in the "design and build" installation
market. The Company believes that the reconfiguration of an existing system
results in a more cost-effective, energy-efficient system that better meets the
specific needs of the building owner. The reconfiguration also enables the
Company to utilize its design and engineering personnel as well as its sheet
metal and pre-fabrication facilities.
Maintenance and repair services are provided either in response to service
calls or pursuant to a service agreement. Service calls are coordinated by
customer service representatives or dispatchers that use computer and
communication technology to process orders, arrange service calls, communicate
with customers, dispatch technicians and invoice customers. Service technicians
work from service vehicles equipped with commonly used parts, supplies and tools
to complete a variety of jobs.
Commercial and industrial service agreements usually have terms of one to
three years, with automatic annual renewals. The Company also provides remote
monitoring of temperature, pressure, humidity and air flow for HVAC systems. If
the system is not operating within the specifications set forth by the customer
and cannot be remotely adjusted, a service crew is dispatched to analyze and
repair the system.
SOURCES OF SUPPLY
The raw materials and components used by the Company include HVAC system
components, ductwork, steel, sheet metal and copper tubing and piping. These raw
materials and components are generally available from a variety of domestic or
foreign suppliers at competitive prices. Delivery times are typically short for
most raw materials and standard components, but during periods of peak demand,
may extend to a month or more. Chillers for large units typically have the
longest delivery time and generally have lead times of up to six months. The
major components of commercial HVAC systems are compressors and chillers that
are manufactured primarily by York Heating and Air Conditioning Corporation
("York"), Carrier Corporation and Trane Air Conditioning Company. The major
suppliers of control systems are Honeywell Inc., Johnson Controls Inc., York and
Andover Control Corporation. The Company does not have any significant contracts
guaranteeing the Company a supply of raw materials or components.
SALES AND MARKETING
The Company has a diverse customer base, with no single customer accounting
for more than 2% of pro forma combined 1998 revenues. Management and a dedicated
sales force at the Acquired Companies have been responsible for developing and
maintaining successful long-term relationships with key customers. Customers of
the Acquired Companies generally include building owners and developers and
property managers, as well as general contractors, architects and consulting
engineers. The Company intends to continue its emphasis on developing and
maintaining long-term relationships with its customers by providing superior,
high-quality service in a professional manner. Moreover, the dedicated sales
force will receive additional technical and sales training to enhance the
comprehensive selling skills necessary to serve the HVAC needs of their
customers.
The Company also intends to capitalize on cross-marketing and business
development opportunities that management believes are available to the Company
as a regional or national provider of comprehensive commercial and industrial
HVAC and related services. Management believes that it can increasingly leverage
the diverse technical and marketing strengths of individual Acquired Companies
to expand the
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services offered in other local markets. Eventually, the Company intends to
offer comprehensive services from many of its regional locations.
EMPLOYEES
As of December 31, 1998, the Company had 8,893 employees, including 490
management personnel, 7,278 engineers, and service and installation technicians,
253 sales personnel and 872 administrative personnel. As it executes its
internal growth and acquisition strategies, the Company expects the number of
employees to increase. Certain of the Company's subsidiaries have collective
bargaining agreements that cover, in the aggregate, approximately 2,375
employees. The Company has not experienced any strikes or work stoppages and
believes its relations with employees covered by collective bargaining
agreements are good.
RECRUITING, TRAINING AND SAFETY
The Company's continued future success will depend, in part, on its ability
to continue to attract, retain and motivate qualified service technicians, field
supervisors and project managers. The Company believes that its success in
retaining qualified employees will be based on the quality of its recruiting,
training, compensation, employee benefits programs and opportunities for
advancement. The Company recruits at local technical schools and community
colleges where students focus on learning basic HVAC and related skills.
Additionally, Comfort Systems provides on-the-job training, apprenticeship
programs, attractive benefit packages, steady employment and opportunities for
advancement within the national network of Comfort Systems' companies.
The Company is working to establish "best practices" safety programs
throughout its operations to ensure that all technicians comply with safety
standards established by the Company and federal, state and local laws and
regulations. Additionally, the Company has implemented a "best practices"
safety program throughout its operations, which will provide employees with
incentives to improve safety performance and decrease workplace accidents. The
Company's employment screening process seeks to determine that prospective
employees have the requisite skills, sufficient background references and
acceptable driving records, if applicable.
RISK MANAGEMENT, INSURANCE AND LITIGATION
The primary risks in the Company's operations are bodily injury, property
damage and injured workers' compensation. The Company has obtained and intends
to maintain liability insurance for bodily injury, third party property damage
and workers' compensation which it considers sufficient to insure against these
risks, subject to self-insured amounts.
The Company is subject to certain claims and lawsuits arising in the normal
course of business and maintains various insurance coverages to minimize
financial risk associated with these claims. The Company has provided accruals
for probable losses and legal fees associated with certain of these actions in
its consolidated financial statements. In the opinion of management, uninsured
losses, if any, resulting from the ultimate resolution of these matters will not
have a material effect on the Company's financial position or results of
operations.
The Company's subsidiaries typically warrant labor for the first year after
installation on new HVAC systems and pass through to the customer manufacturers'
warranties on equipment. The Company's subsidiaries generally warrant labor for
30 days after servicing of existing HVAC systems. The Company does not expect
warranty claims to have a material adverse effect on its financial position or
results of operations.
COMPETITION
The HVAC industry is highly competitive. The Company believes that
purchasing decisions in the commercial and industrial markets are based on (i)
long-term customer relationships, (ii) quality, timeliness and reliability of
services provided, (iii) competitive price, (iv) range of services provided and
(v) scale of operation. The Company believes its strategy of becoming a leading
national provider of comprehensive
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HVAC installation services as well as maintenance, repair and replacement of
HVAC systems directly addresses these factors. Specifically, the Company's
strategy to focus on the highly consultative "design and build"installation
market and the maintenance, repair and replacement market, as well as its
strategy to operate on a decentralized basis, should promote the development and
strengthening of long-term customer relationships. In addition, the Company's
focus on attracting, training and retaining quality employees by utilizing
professionally managed recruiting, training and benefits programs should allow
it to offer high quality, comprehensive HVAC services at a competitive price.
Most of the Company's competitors are small, owner-operated companies that
typically operate in a limited geographic area. There are, however, a few public
companies focused on providing HVAC services in some of the same service lines
provided by the Company. In addition, there are several private companies
attempting to consolidate HVAC companies on a regional or national basis. Also,
some HVAC equipment manufacturers and public utilities are active in providing
maintenance, repair and replacement services in the HVAC industry. Certain of
the Company's competitors and potential competitors may have greater financial
resources than the Company to finance acquisition and development opportunities,
to pay higher prices for the same opportunities or to develop and support their
own operations.
FACILITIES AND VEHICLES
The Company leases the majority of its facilities. In most instances these
leases are with the former owners who are now employed by the Company. The
Acquired Companies collectively lease offices, warehouses and shop facilities at
their various locations. Leased premises range in size from 500 square feet to
over 196,000 square feet. The Company believes that its facilities are
sufficient for its current needs.
The Company operates a fleet of various owned or leased service trucks,
vans and support vehicles. The Company believes that these vehicles generally
are well-maintained and adequate for its current operations.
GOVERNMENTAL REGULATION AND ENVIRONMENTAL MATTERS
The Company's operations are subject to various federal, state and local
laws and regulations, including: (i) licensing requirements applicable to
service technicians, (ii) building and HVAC codes and zoning ordinances, (iii)
regulations relating to consumer protection, including those governing
residential service agreements and (iv) regulations relating to worker safety
and protection of the environment. The Company believes it has all required
licenses to conduct its operations and is in substantial compliance with
applicable regulatory requirements. Failure of the Company to comply with
applicable regulations could result in substantial fines or revocation of the
Company's operating licenses.
Many state and local regulations governing the HVAC services trades require
permits and licenses to be held by individuals. In some cases, a required permit
or license held by a single individual may be sufficient to authorize specified
activities for all of the Company's service technicians who work in the state or
county that issued the permit or license. The Company intends to implement a
policy to ensure that, where possible, any such permits or licenses that may be
material to the Company's operations in a particular geographic region are held
by at least two Company employees within that region.
The Company's operations are subject to the federal Clean Air Act, as
amended (the "Clean Air Act"), which governs air emissions and imposes
specific requirements on the use and handling of chlorofluorocarbons ("CFCs")
and certain other refrigerants. Clean Air Act regulations require the
certification of service technicians involved in the service or repair of
equipment containing these refrigerants and also regulate the containment and
recycling of these refrigerants. These requirements have increased the Company's
training expenses and expenditures for containment and recycling equipment. The
Clean Air Act is intended ultimately to eliminate the use of CFCs in the United
States and to require alternative refrigerants to be used in replacement HVAC
systems.
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EXECUTIVE OFFICERS
The Company has six executive officers.
Fred M. Ferreira, age 55, has served as Chairman of the Board, Chief
Executive Officer and President of Comfort Systems since January 1997. Mr.
Ferreira was responsible for introducing the consolidation opportunity in the
commercial and industrial HVAC industry to Notre Capital Ventures II, L.L.C.
("Notre") and was primarily responsible for the organization of the Company.
From 1995 through 1996, Mr. Ferreira was a private investor. He served as Chief
Operating Officer and a director of Allwaste, Inc., a publicly-traded
environmental services company ("Allwaste"), from 1994 to 1995, and was
President of Allwaste Environmental Services, Inc., the largest division of
Allwaste, from 1991 to 1994. From 1989 to 1990, Mr. Ferreira served as President
of Allied Waste Industries, Inc., an environmental services company. Prior to
that time, Mr. Ferreira served as Vice President -- Southern District and in
various other positions with Waste Management, Inc., an environmental services
company.
Michael Nothum, Jr., age 44, is a director of the Company and became its
Chief Operating Officer in January 1998. He was employed by Tri-City Mechanical,
Inc., an Arizona corporation that is a wholly-owned subsidiary of the Company,
since 1979, serving as President from 1992 to December 1997.
J. Gordon Beittenmiller, age 40, has served as Executive Vice President,
Chief Financial Officer and a director of Comfort Systems since May 1998, and
was Senior Vice President, Chief Financial Officer and a director of Comfort
Systems from February 1997 to April 1998. From 1994 to February 1997, Mr.
Beittenmiller was Corporate Controller of Keystone International, Inc.
("Keystone"), a publicly-traded manufacturer of industrial valves and
actuators, and served Keystone in other financial positions from 1991 to 1994.
From 1987 to 1991, he was Vice President -- Finance of Critical Industries,
Inc., a publicly-traded manufacturer and distributor of specialized safety
equipment. From 1982 to 1987, he held various positions with Arthur Andersen
LLP. Mr. Beittenmiller is a Certified Public Accountant.
Reagan S. Busbee, age 35, has served as Senior Vice President of Comfort
Systems since January 1997. From 1992 through 1996, Mr. Busbee served as Vice
President of Chas. P. Young Co., a financial printer and a wholly-owned
subsidiary of Consolidated Graphics Inc., a publicly-traded consolidator of the
printing industry. From August 1986 to May 1992, he held various positions and
was a Certified Public Accountant with Arthur Andersen LLP.
William George, III, age 34, has served as Senior Vice President, General
Counsel and Secretary of Comfort Systems since May 1998, and was Vice President,
General Counsel and Secretary of Comfort Systems from March 1997 to April 1998.
From October 1995 to February 1997, Mr. George was Vice President and General
Counsel of American Medical Response, Inc., a publicly traded consolidator of
the healthcare transportation industry. From September 1992 to September 1995,
Mr. George practiced corporate and antitrust law at Ropes & Gray, a law firm.
Gary E. Hess, age 51, has served as Senior Vice President of Comfort
Systems since February 1999. He served Comfort Systems as director of its
northeast region from August 1998 to January 1999. Prior to that, he was
employed by Hess Mechanical Corporation, a wholly-owned subsidiary of the
Company, since 1980, serving as President and Chief Executive Officer. Mr. Hess
was President of Associated Builders and Contractors during 1996 and was
selected as their 1997 Contractor of the Year.
ITEM 2. PROPERTIES
Most of the Company's subsidiaries lease the real property and buildings
from which it operates. The Company's facilities consist of offices, shops,
maintenance and warehouse facilities. Generally, leases range from five to ten
years and are on terms the Company believes to be commercially reasonable.
Certain of these facilities are leased from related parties. In order to
maximize available capital, the Company generally intends to continue to lease
the majority of its properties. The Company believes that its facilities are
adequate for its current needs.
The Company leases its executive and administrative offices in Houston,
Texas and Phoenix, Arizona.
9
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company is from time to time party to litigation in the ordinary course
of business. There are currently no pending legal proceedings that, in
management's opinion, would have a material adverse effect on the Company's
consolidated operating results or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
10
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The following table sets forth the reported high and low sales prices of
the Common Stock for the quarters indicated as traded at the New York Stock
Exchange. The Common Stock is traded under the symbol FIX.
<TABLE>
<CAPTION>
HIGH LOW
--------- -----------
<S> <C> <C>
June 27-30, 1997..................... $ 16.125 $ 13.00
Third Quarter, 1997.................. $ 21.5625 $ 15.50
Fourth Quarter, 1997................. $ 20.0625 $ 15.00
First Quarter, 1998.................. $ 22.25 $ 18.125
Second Quarter, 1998................. $ 24.75 $ 19.125
Third Quarter, 1998.................. $ 26.625 $ 15.25
Fourth Quarter, 1998................. $ 20.50 $ 14.1875
January 1 - March 26, 1999........... $ 18.50 $ 11.375
</TABLE>
As of March 26, 1999, there were approximately 1,512 stockholders of record
of the Company's Common Stock, and the last reported sale price on that date was
$15.00 per share.
The Company has never declared or paid a dividend on its Common Stock. The
Company currently expects to retain future earnings in order to finance its
growth and, consequently, does not intend to declare any dividend on the Common
Stock for the foreseeable future. In addition, the Company's revolving credit
agreement restricts the ability of the Company to pay dividends without the
lender's consent. No market exists for the Company's Restricted Voting Common
Stock, which converts to Common Stock upon sale and under certain other
conditions.
RECENT SALES OF UNREGISTERED SECURITIES
On November 15, 1998, the Company issued 1,610,889 unregistered shares of
its Common Stock in connection with the acquisition of Shambaugh & Son, Inc. On
December 11, 1998, the Company issued 382,384 unregistered shares of its Common
Stock in connection with the acquisition of an HVAC business, which was not
material. In each case, the shares were issued without registration under the
Securities Act in reliance on the exemption provided by Section 4(2), no public
offering being involved.
ITEM 6. SELECTED FINANCIAL DATA
Comfort Systems acquired the twelve Founding Companies in connection with
the IPO on July 2, 1997. Subsequent to the IPO and through December 31, 1998,
the Company completed 82 acquisitions, 17 of which were accounted for as
poolings-of-interests (the "Pooled Companies") and 65 of which were accounted
for as purchases (the "Purchased Companies"). The following selected
historical financial data has been derived from the audited financial statements
of the Company for each of the three years ended December 31, 1996, 1997, and
1998. The remaining selected historical financial data of the Company has been
derived from unaudited financial statements of the Company. These unaudited
financial statements have been prepared on the same basis as the audited
financial statements of the Company, and in the opinion of the Company, reflect
all adjustments necessary for a fair presentation of that historical
information. The historical financial statement data reflects the acquisitions
of the Founding Companies and Purchased Companies as of their respective
acquisition dates and reflects 15 of the Pooled Companies (the "Restated
Companies") for all periods presented. Two of the Pooled Companies are
considered immaterial poolings based upon criteria set forth by the Securities
and Exchange Commission and have not been
11
<PAGE>
restated for all periods presented. The selected historical financial data below
should be read in conjunction with the consolidated historical financial
statements and related notes.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1994 1995 1996 1997 1998
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................ $ 126,023 $ 126,794 $ 161,419 $ 297,646 $ 853,961
Operating income................ 3,653 4,011 6,575 5,699 68,497
Net income (loss)............... 2,896 3,137 4,589 (2,064) 35,013
BALANCE SHEET DATA:
Working capital................. $ 8,803 $ 10,110 $ 13,971 $ 63,137 $ 133,390
Total assets.................... 36,366 42,035 50,366 308,779 789,293
Total debt, including current
portion....................... 6,738 9,076 8,376 24,726 236,446
Stockholders' equity............ 9,385 10,731 15,429 217,635 379,932
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
The following discussion should be read in conjunction with the
consolidated historical financial statements of the Company and related notes
thereto. This discussion contains forward-looking statements regarding the
business and industry of Comfort Systems within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements are based on the
current plans and expectations of the Company and involve risks and uncertanties
that could cause actual future activities and results of operations to be
materially different from those set forth in the forward-looking statements.
Important factors that could cause actual results to differ are discussed under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Factors Which May Affect Future Results."
Comfort Systems was founded in December 1996 to become a leading national
provider of HVAC services, primarily focusing on commercial and industrial
markets.
On July 2, 1997, Comfort Systems completed the IPO and simultaneously
acquired the twelve Founding Companies, which are engaged in providing HVAC
services. Subsequent to the IPO, and through December 31, 1998, the Company
acquired 82 additional HVAC businesses. Of these additional acquisitions, 17
acquisitions were accounted for as poolings-of-interests and are referred to
herein as the Pooled Companies, and the remaining 65 acquisitions were accounted
for as purchases and are referred to herein as the Purchased Companies. The
consolidated historical financial statements of the Company have been
retroactively restated to give effect to the operations of 15 of the Pooled
Companies. Two of the Pooled Companies are considered immaterial poolings based
upon criteria set forth by the Securities and Exchange Commission and have not
been restated for all periods presented.
Pro forma and historical results are not necessarily indicative of future
results of the Company because, among other things, the Acquired Companies were
not under common control or management prior to their acquisition. The results
of the Company have historically been subject to seasonal fluctuations. These
pro forma combined and historical statements of operations should be read in
conjunction with the consolidated historical financial statements and related
notes of Comfort Systems, filed herewith, and the additional information and the
respective financial statements and related notes of Comfort Systems and the
Founding Companies included in the Company's Registration Statement on Form S-1
(File No. 333-24021) (the "Registration Statement"), as amended, filed with
the Securities and Exchange Commission in connection with the IPO.
The timing and magnitude of acquisitions, assimilation costs and the
seasonal nature of the HVAC industry may materially affect operating results.
Accordingly, the operating results for any period are not necessarily indicative
of the results that may be achieved for any subsequent period.
12
<PAGE>
PRO FORMA COMBINED
The following pro forma combined information is presented as a supplement
to reflect the pro forma results of operations as if the IPO and the acquisition
of the Founding Companies occurred on January 1, 1997. Therefore, the
accompanying unaudited pro forma combined statements of operations and the
related management's discussion and analysis of the Company for the years ended
December 31, 1998 and 1997, respectively, include the combined operations of the
Pooled Companies and the Founding Companies from January 1, 1997, and the
Purchased Companies from the dates of their acquisition.
The Founding Companies, Pooled Companies and Purchased Companies were
managed prior to their acquisitions as independent private companies. Therefore,
historical selling, general, and administrative expenses for the periods
presented in the consolidated historical financial statements of the Company
reflect compensation and related benefits the owners of those businesses
received prior to acquisition. Historical selling, general and administrative
expenses also include the non-recurring, non-cash compensation charge of $11.6
million recorded by Comfort Systems in the first quarter of 1997 related to
Common Stock issued to management of and consultants to the Company prior to the
IPO. This pro forma combined financial information includes the effects of (a)
the IPO, (b) certain reductions in salaries and benefits to the former owners
("the Compensation Differential") of the Founding and Pooled Companies which
the former owners agreed would take effect as of the date of the acquisitions,
(c) pro forma compensation expense of $430,000 for the six months ended June 30,
1997, to reflect the ongoing salaries received by corporate management as though
those salaries were being paid prior to the IPO, (d) amortization of goodwill
resulting from the acquisitions of the Purchased and Founding Companies, (e)
interest expense on borrowings of $11.0 million that would have been necessary
to fund certain S Corporation Distributions if they had occurred at the
beginning of each period presented, (f) the elimination of the $11.6 million
non-recurring, non-cash compensation charge referred to above and (g) the
reduction of the acquisition-related costs incurred in the acquisition of the
Pooled Companies. In addition, an incremental tax provision has been recorded as
if all applicable Purchased and Founding Companies, and Pooled Companies which
were C Corporations had been subject to federal and state income taxes.
This pro forma combined financial information may not be comparable to and
may not be indicative of the Company's future results of operations because
these acquired companies were not under common control or management prior to
their acquisition by the Company. Important factors that could cause actual
results to differ are discussed under "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Factors Which May Affect Future
Results."
RESULTS OF OPERATIONS -- PRO FORMA COMBINED (UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1997 1998
--------------------- ---------------------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
Revenues............................. $ 384,546 100.0% $ 853,961 100.0%
Cost of services..................... 282,814 73.5 647,512 75.8
---------- --------- ---------- ---------
Gross profit......................... 101,732 26.5 206,449 24.2
Selling, general and administrative
expenses........................... 63,110 16.4 129,055 15.1
Goodwill amortization................ 3,593 0.9 7,132 0.8
---------- --------- ---------- ---------
Operating income..................... 35,029 9.1 70,262 8.2
Other income (expense)............... (692) (0.2) (6,435) 0.8
---------- --------- ---------- ---------
Income before taxes.................. 34,337 8.9 63,827 7.5
Provision for income taxes........... 13,987 -- 27,756 --
---------- --------- ---------- ---------
Pro forma net income................. $ 20,350 5.3% $ 36,071 4.2%
========== ========= ========== =========
</TABLE>
13
<PAGE>
1998 COMPARED TO 1997
PRO FORMA REVENUES -- Pro forma combined revenues increased $469.4 million,
or 122.1%, to $854.0 million in 1998 compared to 1997. The acquisition of the
Purchased Companies, excluding "tuck-ins", acquired subsequent to the IPO
through the end of 1998 contributed approximately $426.2 million of revenue in
1998.
PRO FORMA GROSS PROFIT -- Pro forma combined gross profit increased $104.7
million, or 102.9% to $206.4 million in 1998 compared to 1997 primarily due to
increased revenues at the Founding Companies, the addition of the Purchased
Companies and incremental increases in volume and gross margin at some of the
Pooled Companies. As a percentage of revenues, pro forma combined gross profit
decreased from 26.5% in 1997 to 24.2% in 1998. This decline resulted primarily
from the acquisition of the Purchased Companies, which, taken as a whole, have
gross margins that are lower than the Company's historical average.
PRO FORMA SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (SG&A) -- Pro forma
combined SG&A, excluding goodwill amortization, increased $65.9 million, or
104.5%, to $129.1 million in 1998 compared to 1997. These increases were due
principally to the addition of the Purchased Companies along with corporate
office and management expenses associated with the Company's establishment as a
public company. As a percentage of revenues, pro forma combined SG&A, excluding
goodwill amortization, decreased from 16.4% to 15.1% in 1998, compared to the
prior year. This decrease is due to the Company's acquisition of the Purchased
Companies, which, taken as a whole, have SG&A as a percentage of revenues that
is lower than the Company's historical average.
PRO FORMA OPERATING INCOME -- Pro forma combined operating income increased
$35.2 million, or 100.6%, to $70.3 million in 1998 compared to 1997 primarily
due to increased revenues at the Founding Companies, the addition of the
Purchased Companies and incremental increases in volume at some of the Pooled
Companies. As a percentage of revenues, pro forma operating income decreased
from 9.1% in 1997 to 8.2% in 1998. This decline resulted primarily from the
acquisition of the Purchased Companies, which, taken as a whole, have operating
income margins that are lower than the Company's historical average.
PRO FORMA OTHER INCOME (EXPENSE) -- Pro forma combined other expense, net,
increased to $6.4 million in 1998 primarily due to the increase in interest
expense related to the acquisition of the Purchased Companies acquired
subsequent to the IPO and through the end of 1998.
HISTORICAL
The following historical consolidated financial information represents the
operations of the Restated Companies for all periods presented and the Founding
Companies and Purchased Companies from their respective dates of acquisition.
Historical selling, general, and administrative expenses for the periods
presented in the consolidated financial statements of the Company reflect
compensation and related benefits the owners of those businesses received prior
to acquisition. The following historical financial information for 1997 includes
the non-recurring, non-cash compensation charge of $11.6 million recorded by
Comfort Systems in the first quarter of 1997, non-recurring acquisition-related
costs and reflects normal recurring corporate costs of Comfort Systems
subsequent to the IPO. This compensation charge is not deductible for federal
and state income taxes. This historical consolidated information has been
derived from the audited consolidated financial statements of the Company.
14
<PAGE>
RESULTS OF OPERATIONS -- HISTORICAL
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
1996 1997 1998
--------------------- --------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Revenues............................. $ 161,419 100.0% $ 297,646 100.0% $ 853,961 100.0%
Cost of services..................... 128,049 79.3 220,419 74.1 647,512 75.8
---------- --------- ---------- --------- ---------- ---------
Gross profit......................... 33,370 20.7 77,227 25.9 206,449 24.2
Selling, general and
administrative expenses............ 26,795 16.6 69,677 23.4 130,820 15.3
Goodwill amortization................ -- -- 1,851 0.6 7,132 0.8
---------- --------- ---------- --------- ---------- ---------
Operating income..................... 6,575 4.1 5,699 1.9 68,497 8.1
Other income (expense)............... (478) (0.3) (161) -- (6,435) (0.8)
---------- --------- ---------- --------- ---------- ---------
Income before taxes.................. 6,097 3.8 5,538 1.9 62,062 7.3
Provision for income taxes........... 1,508 -- 7,602 -- 27,049 --
---------- --------- ---------- --------- ---------- ---------
Net income (loss).................... $ 4,589 2.8% $ (2,064) (0.7)% $ 35,013 4.1%
========== ========= ========== ========= ========== =========
</TABLE>
1998 COMPARED TO 1997
REVENUES -- Revenues increased $556.3 million, or 186.9%, to $854.0 million
in 1998 compared to 1997. The increase in revenues over the prior year is
primarily due to the acquisition of the Founding Companies and Purchased
Companies coupled with broad growth in the Cincinnati, Syracuse and Kansas City,
Kansas markets.
GROSS PROFIT -- Gross profit increased $129.2 million, or 167.3%, to $206.4
million in 1998 compared to 1997. The increase in gross profit was primarily due
to the acquisitions described above. As a percentage of revenues, gross profit
decreased from 25.9% in 1997 to 24.2% in 1998. This decline resulted primarily
from the acquisition of the Purchased Companies, which, taken as a whole, have
gross margins that are lower than the Company's historical average.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- SG&A, excluding goodwill
amortization, in 1997 and 1998 includes $10.3 million and $1.8 million,
respectively, of Compensation Differential and acquisition related costs which
will be eliminated prospectively. Additionally, the Company recorded the non-
recurring, non-cash Compensation Charge of $11.6 million in the first quarter of
1997. Excluding the Compensation Differential, the Compensation Charge, and
goodwill amortization, SG&A increased $81.3 million to $129.1million in 1998.
Most of this increase was related to the Founding Companies and Purchased
Companies acquired since the IPO, along with corporate office and management
expenses associated with the Company's establishment as a public company.
OPERATING INCOME -- Operating income increased $62.8 million, or 1,101.9%
to $68.5 million in 1998 compared to 1997 primarily due to increased revenues at
the Founding Companies, the addition of the Purchased Companies and incremental
increases in volume at some of the Pooled Companies. As a percentage of revenue,
operating income increased from 1.9% in 1997 to 8.1% in 1998. As discussed
above, this increase primarily resulted from the Compensation Differential and
the Compensation Charge recorded in 1997.
OTHER INCOME (EXPENSE) -- Other expense, net, increased to $6.4 million in
1998 compared to 1997 primarily due to the increase in interest expense related
to the acquisition of the Purchased Companies acquired subsequent to the IPO and
through the end of 1998.
1997 COMPARED TO 1996
REVENUES -- Revenues increased $136.2 million, or 84.4%, to $297.6 million
in 1997 compared to 1996. The acquisition of the Founding Companies and
Purchased Companies in the second half of 1997 accounted for over 90% of the
increase in revenues over the prior year. The remaining increase over the
15
<PAGE>
prior year is primarily attributed to increased demand for the Company's
commercial service capabilities in the Cincinnati market.
GROSS PROFIT -- Gross Profit increased $43.9 million, 131.4% to $77.2
million in 1997 compared to 1996. The acquisition of the Founding Companies and
Purchased Companies accounted for approximately three-fourths of the increase
over the prior year. Gross profit as a percentage of revenues increased as a
result of the Founding Companies' positive impact on the overall gross profit
percentage in the second half of 1997 and an overall improvement from the Pooled
Companies compared to the prior year. The Company's operations in Mobile,
Alabama contributed to the largest increase as a percentage of revenues among
the Pooled Companies due to higher margins associated with its specialized
"design and build" HVAC installation capabilities.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- SG&A, excluding goodwill
amortization, increased $42.9 million, or 160.0%, to $69.7 million in 1997
compared to 1996. Approximately 45% of this increase is related to the
acquisition of the Founding and Purchased Companies in the second half of 1997.
Historical SG&A for 1997 includes the non-recurring, non-cash compensation
charge of $11.6 million recorded by Comfort Systems in the first quarter of 1997
related to Common Stock issued to management of and consultants to the Company.
The Company's establishment as a public company in 1997 resulted in $2.8 million
of corporate office and management expenses in 1997 whereas no such corporate
expenses are reflected in 1996 as the Company was not yet public. Of this
amount, approximately $0.6 million was non-recurring acquisition costs in 1997
related to the Pooled Companies. The remaining increase related to increases in
personnel and infrastructure to support growth at certain of the Pooled
Companies, and does not reflect the reduction in management compensation and
benefits as a result of the mergers of these Pooled Companies with Comfort
Systems.
OPERATING INCOME -- Operating income decreased $0.9 million, or 13.3%, to
$5.7 million in 1997 compared to 1996 primarily due to revenues attributed by
the acquisition of the Founding and Purchased Companies offset by the
Compensation Charge and corporate office and management expenses recorded in
1997 as discussed above.
OTHER INCOME (EXPENSE) -- Other expense, net, decreased to $0.2 million in
1997 compared to 1996 due primarily to the increase in interest income of $0.7
million resulting from the investment of temporary excess cash from the IPO.
LIQUIDITY AND CAPITAL RESOURCES -- HISTORICAL
For the year ended December 31, 1998, net cash used in operating activities
was $5.5 million primarily due to a decrease in accounts payable of $15.0
million, an increase in accounts receivable of $34.9 million and an increase in
cost and estimated earnings in excess of billings of $7.9 million. The increase
in receivables is attributed to growth. Accounts payable balances decreased from
the date of acquisition at various locations as certain companies took advantage
of cash discounts for early payment. Cash provided from operations for 1997 and
1996 was $1.0 million and $7.2 million, respectively.
Cash used in investing activities was $143.1 million for the year ended
December 31, 1998, primarily in connection with the acquisition of Purchased
Companies for $133.3 million, net of cash acquired. Cash flows used in investing
activities for 1997 and 1996 were $57.6 million and $3.4 million, respectively.
The uses of cash in 1997 and 1996 were primarily for the acquisition of the
Founding Companies and Purchased Companies and additions to equipment,
respectively.
Cash provided by financing activities for the year ended December 31, 1998
was $137.5 million and was primarily attributable to the $16.7 million received
from the second public offering (the "Second Public Offering") and net
borrowings of long-term debt of $124.2 million which were primarily used to fund
acquisitions. Net cash provided by financing activities in 1997 was $66.6
million and was primarily attributable to the $79.9 million from the IPO, which
was partially offset by a net reduction in outstanding debt. Net cash used in
financing activities in 1996 was $2.3 million primarily due to the net reduction
in outstanding debt.
16
<PAGE>
On July 2, 1997, Comfort Systems completed the offering of 6,100,000 shares
of Common Stock to the public at $13.00 per share. The net proceeds to Comfort
Systems from the IPO (after deducting underwriting commissions and offering
expenses) were $68.8 million. Of this amount, $45.3 million was used to pay the
cash portion of the purchase prices of the Founding Companies.
In connection with the IPO, the Company granted its underwriters an option
to sell additional 915,000 shares at $13.00 per share. On July 9, 1997, the
underwriters exercised this option. Net proceeds to the Company from this sale
of shares were $11.1 million after deducting underwriting commissions.
On June 16, 1998, the Company completed a Second Public Offering of 400,000
shares of its Common Stock to the public at $20.00 per share. The net proceeds
from this offering (after deducting underwriting commissions and offering
expenses) of $7.6 million were used to repay debt.
In connection with the Second Public Offering, the Company granted its
underwriters an option to sell additional shares at $20.00 per share. On July
21, 1998, the underwriters exercised this option. An additional 461,479 shares
of Common Stock was sold and the net proceeds of $8.8 million, after deducting
underwriting commissions, were used to repay debt.
Subsequent to December 31, 1998, and through March 26, 1999, the Company
completed acquisitions of 10 companies for approximately $9.8 million in cash,
381,690 shares of Common Stock, approximately $2.2 million in convertible
subordinated notes and approximately $3.3 million in subordinated notes. These
acquisitions will be accounted for as purchase transactions.
In July 1997, the Company entered into a credit agreement with Bank One,
Texas, N.A. (the "Credit Facility"). The Credit Facility was amended and
restated in September 1997 primarily to provide for additional banks to lend to
the Company under the Credit Facility. At that time, the Credit Facility
provided the Company with an unsecured revolving line of credit of $75 million.
The Credit Facility was further amended in April 1998 and again in December 1998
in order to increase borrowing capacity and to provide for additional banks to
lend to the Company under the Credit Facility. The Credit Facility currently
provides the Company with a revolving line of credit of up to $300 million
secured by accounts receivable, inventory and the shares of capital stock of the
Company's subsidiaries. The Company currently has a choice of two interest rate
options when borrowing under the Credit Facility. Under one option, the interest
rate is determined based on the higher of the Federal Funds Rate plus 0.5% or
the bank's prime rate. An additional margin of zero to 1.25% is then added to
the higher of these two rates. Under the other interest rate option, borrowings
bear interest based on designated short-term Eurodollar rates (which generally
approximate LIBOR) plus 1.0% to 2.5%. The additional margin for both options
depends on the ratio of the Company's debt to EBITDA. Commitment fees of 0.25%
to 0.5% per annum, also depending on the ratio of debt to EBITDA, are payable on
the unused portion of the facility. The Credit Facility prohibits the payment of
dividends by the Company without the lenders' approval and requires the Company
to comply with certain financial covenants. The amended Credit Facility expires
on November 1, 2001, at which time all amounts outstanding under the Credit
Facility are due.
As of December 31, 1998, the Company had borrowed $170.7 million under the
Credit Facility at an average interest rate of approximately 6.8% for the year
ended December 31, 1998. As of March 26, 1999, $188.0 million (unaudited) was
outstanding under this Facility.
The Company anticipates that available borrowings under its Credit Facility
and cash flow from operations will provide cash in excess of the Company's
normal working capital needs, debt service requirements, planned capital
expenditures for equipment and additional acquisition opportunities. Should the
Company accelerate or revise its acquisition program, the Company may need to
seek additional financing through the public or private sale of equity or debt
securities or increase its Credit Facility. There can be no assurance that the
Company will secure such financing if and when it is needed, or that such
financing will be available on terms that the Company deems acceptable.
17
<PAGE>
YEAR 2000
Computers, software, and other equipment utilizing embedded technology that
use only two digits to identify a year in a date field may be unable to process
accurately certain date-based information at or after the year 2000. This is
commonly referred to as the "Year 2000 issue." The Company has implemented a
Year 2000 program and is using both internal and external resources to assess
and replace or reprogram computers, software and other equipment as needed. Key
areas of the Company's operations that are being addressed include external
customers, external suppliers and internal computers, software and potential
back-up and contingency plans.
Year 2000 considerations may have an effect on some of the Company's
customers and suppliers, and thus indirectly on the Company. If the Company's
vendors or suppliers of the Company's necessary dispatching, power,
telecommunications, transportation and financial services fail to provide the
Company with equipment and service, the Company will be unable to provide
services to its customers. If any of these uncertainties were to occur, the
Company's business, financial condition and results of operations could be
materially adversely affected. The Company is studying the potential effect on
the Company with respect to customers and suppliers with Year 2000 issues and
does not currently expect a material effect on the Company's financial condition
or results of operations at this time. The Company has initiated communications
with its significant customers and suppliers to assess the extent to which the
Company is vulnerable to those third parties with which the Company transacts
business.
The Company's initial assessment identified Year 2000 issues within the
Company's operating systems. The total cost of anticipated Year 2000
enhancements is approximately $500,000 and is being funded from operating cash
flows. The majority of such costs is for the acquisition of hardware and
software and will be capitalized. The remaining costs will be expensed as
incurred and are not expected to have a material effect on the results of
operations. The Company expects, but cannot be certain, that it will be
substantially complete with Year 2000 enhancements for internal operating
systems by September 1999.
The ability of third parties with which the Company transacts business to
adequately address Year 2000 issues is outside of the Company's control. There
can be no assurance that the failure of the Company, or such third parties, to
adequately address their respective Year 2000 issues will not have a material
adverse effect on the Company's financial condition or results of operations.
Accordingly, as part of the Year 2000 program, contingency plans are being
assessed and developed to respond to any failures as they may occur. Such
contingency plans are scheduled to be completed during 1999. At this time, the
Company does not expect that any failure of the Company or third parties to
achieve Year 2000 compliance will adversely affect the Company.
SEASONALITY AND CYCLICALITY
The HVAC industry is subject to seasonal variations. Specifically, the
demand for new installation and replacement is generally lower during the winter
months due to reduced construction activity during inclement weather and less
use of air conditioning during the colder months. Demand for HVAC services is
generally higher in the second and third calendar quarters due to increased
construction activity and increased use of air conditioning during the warmer
months. Accordingly, the Company expects its revenues and operating results
generally will be lower in the first and fourth calendar quarters.
Historically, the construction industry has been highly cyclical. As a
result, the Company's volume of business may be adversely affected by declines
in new installation projects in various geographic regions of the United States.
FACTORS WHICH MAY AFFECT FUTURE RESULTS
The Company's future operating results are difficult to predict and may be
affected by a number of factors, including the lack of a combined operating
history and the difficulty of integrating acquired businesses, cyclical and
seasonal fluctuations in the demand for HVAC systems, difficulties in
implementing its acquisition strategy and the availability of acquisition
financing. As a result of these and other
18
<PAGE>
factors, there can be no assurance that the Company will not experience material
fluctuations in future operating results on a quarterly or annual basis.
The Company's success depends in part on its ability to integrate the
Acquired Companies and the future businesses that it acquires. The businesses
operated as separate, independent entities prior to their affiliation with the
Company, and there can be no assurance that the Company will be able to
integrate the operations of these businesses successfully or institute the
necessary systems and procedures, including accounting and financial reporting
systems, to effectively manage the combined enterprise on a profitable basis.
The pro forma combined historical financial results of the acquired businesses
primarily cover periods when such businesses were not under common control or
management and, therefore, may not be indicative of the Company's future
financial or operating results.
Key elements of the Company's strategy are to both maintain and improve the
profitability of the acquired businesses and to continue to expand the revenues
of acquired businesses. The Company's level of success in this strategy, if any,
will be affected by demand for new or replacement HVAC systems. In part, such
demand will be contingent upon factors outside the Company's control, such as
the level of new construction or the potential for slower replacement based upon
the overall level of activity in the economy. The HVAC industry is subject to
both seasonal and cyclical variations, meaning that temperate weather and
downturns in the domestic or regional economies will negatively affect overall
demand for the Company's services.
The Company has grown significantly through the acquisition of additional
HVAC and complementary businesses and intends to continue such acquisition
activity in the future. However, the Company could face difficulties in
implementing its acquisition strategy. The Company faces continuing competition
for acquisition candidates, a fact that may limit the number of acquisition
opportunities and may lead to higher acquisition prices. The HVAC industry is
currently undergoing rapid consolidation on both a national and a regional level
by the Company and by other companies that have acquisition objectives that are
similar to the Company's objectives. Additionally, HVAC equipment manufacturers
and certain public utilities are beginning to provide maintenance, repair and
replacement services within the HVAC industry. These companies generally are
better capitalized, have greater name recognition and may be able to provide
these services at a lower cost.
Acquisitions also involve a number of special risks, including failure of
the acquired business to achieve expected results, diversion of management's
attention and failure to retain key personnel of the acquired business. There
are also risks associated with unanticipated events or liabilities resulting
from the acquired businesses' operations prior to their acquisition. Any of
these risks, or a combination of them, could have a material adverse effect on
the Company's business, financial condition and results of operations.
The timing, size and success of the Company's acquisition efforts depend in
large part on the availability of financing. The Company intends to continue to
finance future acquisitions by using shares of its Common Stock for a portion of
the consideration to be paid. If the Common Stock does not have sufficient
market value, or if potential acquisition candidates are otherwise unwilling to
accept Common Stock as part of the consideration for the sale of their
businesses, the Company may be required to utilize more of its cash resources,
if available, to maintain its acquisition program. One factor that may affect
the Common Stock's market price in the future, and thus its usefulness as
acquisition currency, is the dilutive effect of the continued issuance of shares
in connection with acquisitions. The availability of such shares in the market
when they become eligible for sale could affect the Company's stock valuation
(i.e., upon the expiration of contractual restrictions or of specified holding
periods for unregistered shares). If the Company fails to maintain its stock
valuation, and if the Company does not have sufficient cash resources, its
growth could be limited unless it is able to obtain additional capital through
debt or equity financing.
The timely provision of high-quality installation service and maintenance,
repair and replacement of HVAC systems by the Company requires an adequate
supply of skilled HVAC technicians. In addition, the Company depends on the
senior management of the businesses it acquires to remain committed to the
success of the businesses after their acquisition. Accordingly, the Company's
ability to maintain and
19
<PAGE>
increase its productivity and profitability are also affected by its ability to
employ, train and retain the skilled technicians necessary to meet the Company's
service requirements, and to retain senior management in acquired businesses.
HVAC systems are also subject to various environmental statutes and
regulations, including the Clean Air Act and those regulating the production,
servicing and disposal of certain ozone depleting refrigerants used in HVAC
systems. There can be no assurance that the regulatory environment in which the
Company operates will not change significantly in the future. The Company's
failure to comply, or the costs of compliance, with such laws and regulations
could adversely affect the Company's future results.
Because of these and other factors, past financial performance should not
necessarily be considered an indicator of future performance. Investors should
not rely solely on historical trends to anticipate future results and should be
aware that the trading price of the Company's Common Stock may be subject to
wide fluctuations in response to quarter-to-quarter variations in operating
results, general conditions in the HVAC industry, the increasing supply of
tradable stock, changes in analysts' earnings estimates, recommendations by
analysts, or other events.
ITEM 7-A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk primarily related to potential
adverse changes in interest rates as discussed below. Management is actively
involved in monitoring exposure to market risk and continues to develop and
utilize appropriate risk management techniques. The Company is not exposed to
any other significant market risks including commodity price risk, foreign
currency exchange risk or interst rate risks from the use of derivative
financial instruments. Management does not use derivative financial instruments
for trading or to speculate on changes in interest rates or commodity prices.
Therefore, the Company's exposure to changes in interest rates primarily
results from its short-term and long-term debt with both fixed and floating
interest rates. The Company's debt with fixed interest rates consists of capital
leases, convertible subordinate notes, subordinated notes and various other
notes payable. The Company's debt with variable interest rates consists entirely
of its revolving credit facility. The following table presents principal amounts
(stated in thousands) and related average interest rates by year of maturity for
the Company's debt obligations and their indicated fair market value at December
31, 1998:
<TABLE>
<CAPTION>
FAIR
1999 2000 2001 2002 2003 THEREAFTER VALUE
--------- --------- ---------- --------- --------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Liabilities -- Long-Term Debt:
Variable Rate Debt................. $ -- $ -- $ 170,700 $ -- $ -- $-- $170,700
Average Interest Rate......... -- % -- % 6.8% -- % -- % -- % 6.8%
Fixed Rate Debt.................... $ 9,077 $ 11,218 $ 43,711 $ 1,176 $ 564 $-- $ 65,746
Average Interest Rate......... 6.0% 6.0% 4.7% 5.4% 6.0% -- % 5.11%
</TABLE>
20
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
COMFORT SYSTEMS USA, INC.
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 & 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
These pro forma combined financial statements should be read in conjunction
with the audited consolidated historical financial statements of Comfort Systems
USA, Inc. included elsewhere in this report.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
----------------------
1997 1998
---------- ----------
<S> <C> <C>
(IN THOUSANDS)
Revenues................................ $ 384,546 $ 853,961
Cost of services........................ 282,814 647,512
---------- ----------
Gross profit............................ 101,732 206,449
Selling, general and administrative
expenses.............................. 63,110 129,055
Goodwill amortization................... 3,593 7,132
---------- ----------
Operating income........................ 35,029 70,262
Other income (expense).................. (692) (6,435)
---------- ----------
Income before taxes..................... 34,337 63,827
Provision for income taxes.............. 13,987 27,756
---------- ----------
Pro forma net income.................... $ 20,350 $ 36,071
========== ==========
Pro forma net income per share
(basic)............................... $ 0.79 $ 1.09
Pro forma net income per share
(diluted)............................. 0.78 1.07
Shares used in computing pro forma net
income per
share (basic)......................... 25,747 32,962
Shares used in computing pro forma net
income per
share (diluted)....................... 25,940 34,329
</TABLE>
The pro forma combined financial information for the years ended December
31, 1998 and 1997, includes the results of Comfort Systems and the Founding
Companies from January 1, 1997, the Purchased Companies from date of their
respective acquisitions and the retroactive restatement to January 1, 1997 of
the Pooled Companies. The Founding Companies, Pooled Companies and Purchased
Companies were managed prior to their acquisitions as independent private
companies. Therefore, historical selling, general, and administrative expenses
for the periods presented in the consolidated historical financial statements of
the Company reflect compensation and related benefits the owners of those
businesses received prior to acquisition. Historical selling, general and
administrative expenses also include the non-recurring, non-cash compensation
charge of $11.6 million recorded by Comfort Systems in the first quarter of 1997
related to Common Stock issued to management of and consultants to the Company
prior to the IPO. This pro forma combined financial information includes the
effects of (a) the IPO, (b) certain reductions in salaries and benefits to the
former owners ("the Compensation Differential") of the Founding and Pooled
Companies which the former owners agreed would take effect as of the date of the
acquisitions, (c) pro forma compensation expense of $430,000 for the six months
ended June 30, 1997, to reflect the ongoing salaries received by corporate
management as though those salaries were being paid prior to the IPO, (d)
amortization of goodwill resulting from the acquisitions of the Purchased and
Founding Companies, (e) interest expense on borrowings of $11.0 million that
would have been necessary to fund certain S Corporation Distributions if they
had occurred at the beginning of each period presented, (f) the elimination of
the $11.6 million non-recurring, non-cash compensation charge referred to above
and (g) the elimination of the acquisition-related costs incurred in the
acquisition of the Pooled Companies. In addition, an incremental tax provision
has been recorded as if all applicable Purchased and Founding Companies, and
21
<PAGE>
Pooled Companies which were C Corporations had been subject to federal and state
income taxes. Diluted earnings per share data presented above was calculated in
accordance with Statement of Financial Accounting Standards No. 128. The diluted
earnings per share data presented above reflects the dilutive effect, if any, of
stock options and convertible subordinated notes which were outstanding during
the periods presented.
This pro forma combined financial information may not be comparable to and
may not be indicative of the Company's future results of operations because
these Acquired Companies were not under common control or management.
22
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Comfort Systems USA, Inc.:
We have audited the accompanying consolidated balance sheets of Comfort
Systems USA, Inc. (a Delaware corporation) and subsidiaries as of December 31,
1997 and 1998, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Comfort Systems USA, Inc., and subsidiaries as of December 31, 1997 and 1998,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
February 18, 1999
23
<PAGE>
COMFORT SYSTEMS USA, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1998
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......... $ 18,097 $ 6,985
Accounts receivable................ 86,120 241,332
Less -- Allowance............. 1,698 4,758
---------- ----------
Accounts receivable,
net................... 84,422 236,574
Other receivables.................. 879 2,733
Inventories........................ 7,360 14,768
Prepaid expenses and other......... 4,993 14,264
Costs and estimated earnings in
excess of billings................ 14,034 37,228
---------- ----------
Total current assets..... 129,785 312,552
PROPERTY AND EQUIPMENT, net............. 13,676 34,413
GOODWILL, net........................... 163,126 430,526
OTHER NONCURRENT ASSETS................. 2,192 11,802
---------- ----------
Total assets............. $ 308,779 $ 789,293
========== ==========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term
debt.............................. $ 2,030 $ 1,568
Current maturities of notes to
affiliates and former owners...... 315 7,509
Accounts payable................... 28,353 74,161
Accrued compensation and
benefits.......................... 7,603 25,869
Billings in excess of costs and
estimated earnings................ 11,525 43,968
Income taxes payable............... 5,135 1,299
Other current liabilities.......... 11,687 24,788
---------- ----------
Total current
liabilities........... 66,648 179,162
DEFERRED INCOME TAXES................... 1,061 1,124
LONG-TERM DEBT, NET OF CURRENT
MATURITIES............................ 16,956 171,039
NOTES TO AFFILIATES AND FORMER OWNERS... 5,425 56,330
OTHER LONG-TERM LIABILITIES............. 1,054 1,706
---------- ----------
Total liabilities........ 91,144 409,361
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par,
5,000,000 shares authorized, none
issued and outstanding............ -- --
Common stock, $.01 par, 102,969,912
shares authorized, 28,013,436 and
38,141,180 shares issued and
outstanding, respectively......... 280 381
Additional paid-in capital......... 205,829 333,978
Retained earnings.................. 11,526 45,573
---------- ----------
Total stockholders'
equity................ 217,635 379,932
---------- ----------
Total liabilities and
stockholders'
equity................ $ 308,779 $ 789,293
========== ==========
</TABLE>
Reflects a 121.1387-for-one stock split effective on March 19, 1997
The accompanying notes are an integral part of these consolidated financial
statements.
24
<PAGE>
COMFORT SYSTEMS USA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES............................. $ 161,419 $ 297,646 $ 853,961
COST OF SERVICES..................... 128,049 220,419 647,512
---------- ---------- ----------
Gross profit............... 33,370 77,227 206,449
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 26,795 69,102 130,370
GOODWILL AND OTHER AMORTIZATION...... -- 1,851 7,132
ACQUISITION RELATED EXPENSES......... -- 575 450
---------- ---------- ----------
Operating income........... 6,575 5,699 68,497
OTHER INCOME (EXPENSE):
Interest income................. 376 1,187 957
Interest expense................ (561) (1,331) (7,633)
Other........................... (293) (17) 241
---------- ---------- ----------
Other income (expense)..... (478) (161) (6,435)
---------- ---------- ----------
INCOME BEFORE INCOME TAXES........... 6,097 5,538 62,062
PROVISION FOR INCOME TAXES........... 1,508 7,602 27,049
---------- ---------- ----------
NET INCOME (LOSS).................... $ 4,589 $ (2,064) $ 35,013
========== ========== ==========
NET INCOME (LOSS) PER SHARE:
Basic........................... $ 0.45 $ (0.11) $ 1.06
========== ========== ==========
Diluted......................... $ 0.45 $ (0.11) $ 1.04
========== ========== ==========
SHARES USED IN COMPUTING NET INCOME
(LOSS) PER SHARE:
Basic........................... 10,117 18,954 32,962
========== ========== ==========
Diluted......................... 10,117 18,954 34,329
========== ========== ==========
</TABLE>
Reflects a 121.1387-for-one stock split effective on March 19, 1997
The accompanying notes are an integral part of these consolidated financial
statements.
25
<PAGE>
COMFORT SYSTEMS USA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED TOTAL
--------------------- PAID-IN EARNINGS STOCKHOLDERS'
SHARES AMOUNT CAPITAL (DEFICIT) EQUITY
------------ ------ ---------- --------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995............ 5,875,989 $ 58 $ 200 $ 10,473 $ 10,731
S Corporation distributions made by
certain Pooled Companies......... -- -- -- (1,107) (1,107)
Adjustments to conform fiscal year
ends of Pooled Companies......... -- -- -- 1,104 1,104
Initial Capitalization............. 121,139 1 -- -- 1
Net income......................... -- -- -- 4,589 4,589
Pooled Companies not restated...... 69,184 1 11 317 329
Other.............................. -- -- 5 (223) (218)
------------ ------ ---------- --------- -------------
BALANCE AT DECEMBER 31, 1996............ 6,066,312 60 216 15,153 15,429
Issuance of Common Stock:
Proceeds of the Initial Public
Offering................... 7,015,000 70 79,805 -- 79,875
Acquisition of Founding
Companies.................. 9,720,927 98 100,999 -- 101,097
Issuance of management
shares..................... 4,118,708 41 11,556 -- 11,597
Acquisition of Purchased
Companies.................. 1,092,489 11 13,253 -- 13,264
S Corporation distributions made by
certain Pooled Companies......... -- -- -- (2,191) (2,191)
Adjustments to conform fiscal
year-ends of Pooled Companies.... -- -- -- 727 727
Net loss........................... -- -- -- (2,064) (2,064)
Other.............................. -- -- -- (99) (99)
------------ ------ ---------- --------- -------------
BALANCE AT DECEMBER 31, 1997............ 28,013,436 280 205,829 11,526 217,635
Issuance of Common stock:
Proceeds of the Second Public
Offering................... 861,479 9 15,892 -- 15,901
Acquisition of Purchased
Companies.................. 9,212,573 92 111,456 -- 111,548
Issuance of Employee Stock
Purchase Plan shares....... 29,362 -- 482 -- 482
Issuance of shares for options
exercised.................. 24,330 -- 319 -- 319
S Corporation distributions made by
certain Pooled Companies......... -- -- -- (966) (966)
Net income......................... -- -- -- 35,013 35,013
------------ ------ ---------- --------- -------------
BALANCE AT DECEMBER 31, 1998............ 38,141,180 $ 381 $ 333,978 $ 45,573 $ 379,932
============ ====== ========== ========= =============
</TABLE>
Reflects a 121.1387-for-one stock split effective on March 19, 1997
The accompanying notes are an integral part of these consolidated financial
statements.
26
<PAGE>
COMFORT SYSTEMS USA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1996 1997 1998
--------- ---------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)....................... $ 4,589 $ (2,064) $ 35,013
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operating activities --
Depreciation and amortization
expense........................... 1,788 4,786 14,001
Bad debt expense................... 177 583 1,253
Compensation expense related to
issuance of management shares..... -- 11,556 --
Deferred tax expense (benefit)..... 306 (630) 960
Gain on sale of property and
equipment......................... (2) (95) (274)
Pooled Companies not restated...... 32 -- --
Adjustment to conform year-end of
certain pooled companies.......... 1,104 727 --
Changes in operating assets and
liabilities, net of effects of
acquisitions of Founding and
Purchased Companies --
(Increase) decrease in --
Receivables, net......... (3,347) (12,066) (34,915)
Inventories.............. (315) 1,008 (788)
Prepaid expenses and
other current
assets............... (1,210) 503 2,437
Cost and estimated
earnings in excess of
billings............. 109 (5,167) (7,926)
Other noncurrent
assets............... 338 65 113
Increase (decrease) in --
Accounts payable and
accrued
liabilities.......... 2,510 1,170 (14,991)
Billings in excess of
costs and estimated
earnings............. 1,046 546 208
Other, net......................... 64 31 (616)
--------- ---------- ------------
Net cash provided by (used in)
operating activities...... 7,189 953 (5,525)
--------- ---------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and
equipment......................... (3,489) (4,501) (11,137)
Proceeds from sales of property and
equipment......................... 87 936 1,369
Cash paid for Founding Companies,
net of cash acquired.............. -- (42,295) --
Cash paid for Purchased Companies,
net of cash acquired.............. -- (11,781) (133,338)
--------- ---------- ------------
Net cash used in investing
activities................ (3,402) (57,641) (143,106)
--------- ---------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt......... (4,655) (38,157) (109,508)
Borrowings of long-term debt....... 3,449 27,107 233,684
S Corporation distributions paid by
certain Pooled Companies.......... (1,107) (2,090) (966)
Proceeds from issuance of common
stock, net of offering costs...... -- 79,916 16,702
Other.............................. 52 (189) (2,393)
--------- ---------- ------------
Net cash provided by (used in)
financing activities...... (2,261) 66,587 137,519
--------- ---------- ------------
NET INCREASE (DECREASE) IN CASH......... 1,526 9,899 (11,112)
CASH AND CASH EQUIVALENTS, beginning of
year.................................. 6,672 8,198 18,097
--------- ---------- ------------
CASH AND CASH EQUIVALENTS, end of
year.................................. $ 8,198 $ 18,097 $ 6,985
========= ========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
27
<PAGE>
COMFORT SYSTEMS USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. BUSINESS AND ORGANIZATION:
Comfort Systems USA, Inc., a Delaware corporation ("Comfort Systems" and
collectively with its subsidiaries, the "Company"), is a national provider of
comprehensive heating, ventilation and air conditioning ("HVAC") installation,
maintenance, repair and replacement services. Founded in December 1996, the
Company is consolidating the fragmented commercial and industrial HVAC markets,
executing most of its applications within office buildings, retail centers,
apartment complexes, hotels, manufacturing plants and government facilities. In
addition to standard HVAC services, the Company also provides specialized
applications such as process cooling, control systems, electronic monitoring and
process piping. Certain locations also perform related services such as
electrical and plumbing.
On July 2, 1997, Comfort Systems completed the initial public offering (the
"IPO") of its Common Stock (the "Common Stock") and simultaneously acquired
twelve companies (collectively referred to as the "Founding Companies")
engaged in providing HVAC services. The Founding Companies had 18 operating
locations in ten states. Subsequent to the IPO, and through December 31, 1998,
the Company acquired 82 HVAC and complementary businesses (collectively with the
Founding Companies, the "Acquired Companies"). The companies acquired
subsequent to the IPO added 88 operating locations in 18 additional states.
These acquisitions included 15 "tuck-in" operations that have been or are
currently being integrated with existing Company operations. In addition, during
the first three months of 1999, the Company acquired 10 additional acquisitions
(the "Additional Acquisitions") with aggregate 1998 annual revenues of
approximately $35 million (unaudited). These acquisitions along with the
existing Founding Companies allow the Company to provide services in 114
operating locations (unaudited).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
For financial statement purposes, Comfort Systems has been identified as
the accounting acquirer. Accordingly, the historical financial statements
include those of Comfort Systems since December 1996. Of the 82 acquisitions
noted above, 17 were accounted for as poolings-of-interests (the "Pooled
Companies") and 65 were accounted for as purchases (the "Purchased
Companies"). These consolidated financial statements reflect the acquisitions
of the Founding Companies and Purchased Companies as of their respective
acquisition dates and reflects 15 of the Pooled Companies (the "Restated
Companies") for all periods presented. Two of the Pooled Companies are
considered immaterial poolings based upon criteria set forth by the Securities
and Exchange Commission and have not been restated for all periods presented.
The acquisitions of the Founding and Purchased Companies were accounted for
using the purchase method of accounting. The allocations of the purchase prices
to the assets acquired and liabilities assumed of these companies have been
recorded based on preliminary estimates of fair value and may be changed as
additional information becomes available.
Prior to their acquisition by Comfort Systems, seven of the Pooled
Companies reported annual results based on fiscal year-ends other than December
31. An adjustment to conform the year-ends of five of these companies to
December 31 year-ends was made in 1996 resulting in an increase of approximately
$1.1 million to retained earnings and cash flows for 1996. An adjustment to
conform the year-ends of two of these companies to December 31 year-ends was
made in 1997 resulting in an increase of approximately $727,000 to retained
earnings and cash flows for 1997.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Comfort Systems and its wholly-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated.
28
<PAGE>
COMFORT SYSTEMS USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CASH FLOW INFORMATION
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Cash paid for interest in 1996, 1997 and 1998 was approximately $548,000,
$736,000, and $6,575,000, respectively. Cash paid for income taxes in 1996, 1997
and 1998 was approximately $738,000, $995,000, and $33,329,000, respectively.
The Company recorded capital leases in 1996, 1997 and 1998 of approximately
$ -- , $114,000 and $20,000, respectively.
INVENTORIES
Inventories consist of parts and supplies held for use in the ordinary
course of business and are stated at the lower of cost or market using the
first-in, first-out method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, and depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
Leasehold improvements are capitalized and amortized over the lesser of the
expected life of the lease or the estimated useful life of the asset.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated over the
remaining useful life of the equipment. Upon retirement or disposition of
property and equipment, the cost and related accumulated depreciation are
removed from the accounts and any resulting gain or loss is recognized in the
statement of operations.
GOODWILL
Goodwill represents the excess of the aggregate purchase price paid by the
Company in acquisitions accounted for as purchases over the fair value of the
net tangible assets acquired. Goodwill is amortized on a straight-line basis
over 40 years.
The Company periodically evaluates the recoverability of the remaining
balance of goodwill recorded from business acquisitions. The Company uses an
estimate of future income from operations and cash flows, as well as other
economic and business factors as a measure of recoverability of these assets.
As of December 31, 1998 and 1997, accumulated amortization of goodwill was
approximately $9.1 million and $1.9 million, respectively.
REVENUE RECOGNITION
The Company recognizes revenue when services are performed except when work
is being performed under a construction contract. Revenues from construction
contracts are recognized on the percentage-of-completion method measured by the
percentage of costs incurred to total estimated costs for each contract.
Contract costs include all direct material, labor and subcontract costs and
those indirect costs related to contract performance, such as indirect labor,
supplies, tools, repairs and depreciation costs. Provisions for the total
estimated losses on uncompleted contracts are made in the period in which such
losses are determined. Changes in job performance, job conditions, estimated
profitability and final contract settlements may result in revisions to costs
and revenues, and their effects are recognized in the period in which the
revisions are determined.
Receivable balances billed but not paid by customers pursuant to retainage
provisions in construction contracts will be due upon completion of the
contracts and acceptance by the customer. Based on the Company's experience with
similar contracts in recent years, the retention balance will be billed and
29
<PAGE>
COMFORT SYSTEMS USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
collected in the upcoming fiscal year. The reatainage retainage balances at
December 31, 1997 and 1998 are $11.6 million and $45.3 million, respectively.
WARRANTY COSTS
The Company typically warrants labor for the first year after installation
on new air conditioning and heating systems. The Company generally warrants
labor for 30 days after servicing of existing air conditioning and heating
systems. A reserve for warranty costs is recorded based upon the historical
level of warranty claims and management's estimate of future costs.
INCOME TAXES
The Company files a consolidated return for federal income tax purposes.
Income taxes are provided for under the liability method, which takes into
account differences between financial statement treatment and tax treatment of
certain transactions. Deferred tax assets represent the tax effect of activity
that has been reflected in the financial statements but which will not be
deductible for tax purposes until future periods. Deferred tax liabilities
represent the tax effect of activity that has been reflected in the financial
statements but which will not be taxable until future periods.
Certain of the Pooled Companies were S Corporations for income tax purposes
and, accordingly, any income tax liabilities for the periods prior to the
acquisition date are the responsibility of the respective stockholders. All
acquired entities are subject to corporate income taxes subsequent to their
acquisition.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of revenues, expenses, assets,
liabilities and contingent assets and liabilities at the date of the financial
statements. Actual results could differ from those estimates.
CONCENTRATIONS OF CREDIT RISK
The Company provides services to a broad range of geographical regions. The
Company's credit risk primarily consists of receivables from a variety of
customers including general contractors, property owners and developers, and
commercial and industrial companies. The Company reviews its accounts receivable
and provides allowances as deemed necessary.
The Company's financial instruments consist of cash and cash equivalents,
accounts receivable, receivables from related parties, other receivables,
accounts payable, a line of credit, notes payable, notes payable to related
parties and long-term debt. The Company believes that the carrying value of
these instruments on the accompanying balance sheets approximate their fair
value.
RECLASSIFICATIONS
Certain reclassifications have been made in prior years' financial
statements to conform to the 1998 presentation.
3. BUSINESS COMBINATIONS:
POOLINGS
During 1997 and 1998, the Company acquired all of the outstanding stock of
the Pooled Companies in exchange for 4,507,406 and 1,437,767 shares of Common
Stock, respectively. These acquisitions have been accounted for as
poolings-of-interests as described in Note 2. These companies provide HVAC and
related services.
30
<PAGE>
COMFORT SYSTEMS USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The historical financial statements for 1996 and 1997 represent the
operations of the Restated Companies prior to their acquisition by the Company.
The combined revenues and net income of the Pooled Companies acquired in 1998
for the preacquisition period in 1998 were $50.7 million and $1.4 million,
respectively.
The following table summarizes the restated revenues, net income and per
share data of the Company after giving effect to the acquisition of the 1998
Pooled Companies:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1997
---------------------- ------------------------
REVENUES NET INCOME REVENUES NET INCOME
-------- ---------- -------- ------------
<S> <C> <C> <C> <C>
Revenues and net income (loss):
As previously reported.......... $ 97,315 $3,759 $237,709 $ (2,830)
Pooled Companies................ 64,104 830 59,937 766
-------- ---------- -------- ------------
As restated..................... $161,419 $4,589 $297,646 $ (2,064)
======== ========== ======== ============
Earnings per share:
As previously reported.......... $ 0.43 $ (0.16)
Pooled Companies................ 0.02 0.05
---------- ------------
As restated..................... $ 0.45 $ (0.11)
========== ============
</TABLE>
Diluted earnings per share and basic earnings per share are the same for
all periods presented above.
PURCHASES
Subsequent to the IPO, and through December 31, 1997, Comfort Systems
acquired 13 of the Purchased Companies, which were accounted for as purchase
transactions. These companies provide HVAC and related services. The aggregate
consideration paid in these transactions was $14.5 million in cash, 1,092,489
shares of Common Stock with a market value at the date of acquisition totaling
$13.3 million and $5.0 million in the form of convertible subordinated notes.
These notes are convertible at various dates in 1999 and thereafter into 220,449
shares of Common Stock.
During 1998, the Company acquired 52 of the Purchased Companies, which were
accounted for as purchase transactions. These companies provide HVAC and related
services. The aggregate consideration paid in these transactions was $161.2
million in cash, 9,212,573 shares of Common Stock with a market value at the
date of acquisition totaling $111.7 million, $57.4 million in the form of
convertible subordinated notes and $3.1 million in the form of subordinated
notes (collectively the "Notes"). The convertible notes are convertible at
various dates in 1999, 2000, 2001, or 2002 and thereafter into 1,243,673,
1,699,729, 1,797,937, or 53,655 shares of Common Stock, respectively.
31
<PAGE>
COMFORT SYSTEMS USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The accompanying balance sheet as of December 31, 1998 includes allocations
of the respective purchase prices to the assets acquired and liabilities assumed
based on preliminary estimates of fair value and is subject to final adjustment.
The allocations in 1997 and 1998 resulted in $25.4 million and $277.4 million in
goodwill, respectively, which represents the excess of purchase price over the
estimated fair value of the net assets acquired for the Purchased Companies. In
conjunction with the acquisitions, goodwill was determined as follows (in
thousands):
<TABLE>
<CAPTION>
1997 1998
---------- ------------
<S> <C> <C>
Fair value of assets acquired, net of
cash acquired...................... $ (21,677) $ (261,754)
Liabilities assumed.................. 17,010 233,669
Cash paid, net of cash acquired...... 11,781 133,338
Estimated market value of stock
consideration...................... 13,264 111,681
Issuance of Notes.................... 4,978 60,482
---------- ------------
Goodwill............................. $ 25,356 $ 277,416
========== ============
</TABLE>
The unaudited pro forma data presented below consists of the income
statement data presented in these consolidated financial statements plus income
statement data for the Founding Companies and Purchased Companies as if the
acquisitions were effective on January 1, 1997 through the respective dates of
acquisitions (in thousands, except per share data):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1997 1998
------------ ------------
<S> <C> <C>
(UNAUDITED)
Revenues............................. $ 1,066,147 $ 1,227,013
Net income........................... 37,839 37,568
Net income per share................. 1.05 0.99
</TABLE>
Pro forma adjustments included in the preceding table regarding the
Founding Companies and the Purchased Companies primarily relate to (a) the IPO,
(b) certain reductions in salaries and benefits to the former owners (the
"Compensation Differential") of the Founding Companies, Pooled Companies and
Purchased Companies which the former owners agreed would take effect as of the
acquisition date, (c) pro forma compensation expense of $430,000 for the six
months ended June 30, 1997, to reflect the ongoing salaries received by
corporate management as though these salaries were being paid prior to the
Offering, (d) elimination of merger costs in connection with the acquisition of
the Pooled Companies, (e) amortization of goodwill related to the Purchased and
Founding Companies, (f) elimination of the non-recurring, non-cash compensation
charge of $11.6 million recorded by Comfort Systems in the first quarter of 1997
related to Common Stock issued to management of and consultants to the Company,
and (g) interest expense on borrowings of $11.0 million that would have been
necessary to fund certain S Corporation distributions as if they had occurred at
the beginning of each period presented. In addition, an incremental tax
provision has been recorded as if all applicable Purchased and Founding
Companies and Pooled Companies which were C Corporations had been subject to
federal and state income taxes.
The pro forma results presented above are not necessarily indicative of
actual results which might have occurred had the operations and management teams
of the Company, the Founding Companies, the Purchased Companies and Pooled
Companies been combined at the beginning of the periods presented.
ADDITIONAL ACQUISITIONS (UNAUDITED)
Subsequent to December 31, 1998, and through March 26, 1999, the Company
completed the 10 Additional Acquisitions for approximately $9.8 million in cash,
381,690 shares of Common Stock, approximately $2.2 million in convertible
subordinated notes and approximately $3.3 million in
32
<PAGE>
COMFORT SYSTEMS USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
subordinated notes. Annualized revenues from the businesses acquired in the
Additional Acquisitions were approximately $35 million. All of these
acquisitions will be accounted for as purchase transactions.
4. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following (dollars in thousands):
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
USEFUL LIVES --------------------
IN YEARS 1997 1998
------------- --------- ---------
<S> <C> <C> <C>
Land................................. N/A $ 95 $ 124
Transportation equipment............. 3-7 17,171 31,776
Machinery and equipment.............. 3-15 8,789 23,002
Computer and telephone equipment..... 3-7 4,768 10,168
Buildings and leasehold
improvements....................... 3-20 3,532 8,564
Furniture and fixtures............... 3-10 3,394 8,082
--------- ---------
37,749 81,716
Less -- Accumulated depreciation..... 24,073 47,303
--------- ---------
Property and equipment, net..... $ 13,676 $ 34,413
========= =========
</TABLE>
5. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Activity in the Company's allowance for doubtful accounts consists of the
following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
--------- ---------
Balance at beginning of year......... $ 994 $ 1,698
<S> <C> <C>
Additions for bad debt expense....... 583 1,253
Deductions for recoveries and for
uncollectible receivables written
off................................ (488) (909)
Allowance for doubtful accounts of
Founding and Purchased Companies at
acquisition dates.................. 609 2,716
--------- ---------
Balance at end of year.......... $ 1,698 $ 4,758
========= =========
</TABLE>
Other current liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
--------- ---------
Accrued warranty costs............... $ 2,053 $ 4,596
<S> <C> <C>
Accrued insurance expense............ 737 4,851
Deferred income taxes................ 1,445 4,939
Deferred revenue..................... 770 525
Other current liabilities............ 6,682 9,877
--------- ---------
$ 11,687 $ 24,788
========= =========
</TABLE>
33
<PAGE>
COMFORT SYSTEMS USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Installation contracts in progress are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1998
---------- ----------
Costs incurred on contracts in
progress........................... $ 169,426 $ 748,542
<S> <C> <C>
Estimated earnings, net of losses.... 43,072 151,792
---------- ----------
Less -- Billings to date............. 209,989 907,074
---------- ----------
$ 2,509 $ (6,740)
========== ==========
Costs and estimated earnings in
excess of billings on uncompleted
contracts.......................... $ 14,034 $ 37,228
Billings in excess of costs and
estimated earnings on uncompleted
contracts.......................... (11,525) (43,968)
---------- ----------
$ 2,509 $ (6,740)
========== ==========
</TABLE>
6. LONG-TERM DEBT OBLIGATIONS:
Long-term debt obligations consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1998
--------- ----------
<S> <C> <C>
Revolving credit facility............ $ 15,300 $ 170,700
Notes to affiliates and former
owners............................... 5,425 63,839
Other................................ 4,001 1,907
--------- ----------
Total long-term...................... 24,726 236,446
Less: current maturities............. 2,345 9,077
--------- ----------
$ 22,381 $ 227,369
========= ==========
</TABLE>
At December 31, 1998, future principal payments of long-term debt are as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31 --
<S> <C>
1999............................ $ 9,077
2000............................ 11,218
2001............................ 214,411
2002............................ 1,176
2003............................ 564
Thereafter...................... --
----------
$ 236,446
==========
</TABLE>
REVOLVING CREDIT AGREEMENT
In July 1997, the Company entered into a credit agreement with Bank One,
Texas, N.A. (the "Credit Facility"). The Credit Facility was amended and
restated in September 1997 primarily to provide for additional banks to lend to
the Company under the Credit Facility. At that time, the Credit Facility
provided the Company with an unsecured revolving line of credit of $75 million.
The Credit Facility was further amended in April 1998 and again in December 1998
in order to increase borrowing capacity and to provide for additional banks to
lend to the Company under the Credit Facility. The Credit Facility currently
provides the Company with a revolving line of credit of up to $300 million
secured by accounts receivable, inventory and the shares of capital stock of the
Company's subsidiaries. The Company currently has a choice of the two interest
rate options when borrowing under the Credit Facility. Under one option, the
interest rate is
34
<PAGE>
COMFORT SYSTEMS USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
determined based on the higher of the Federal Funds Rate plus 0.5% or the bank's
prime rate. An additional margin of zero to 1.25% is then added to the higher of
these two rates. Under the other interest rate option, borrowings bear interest
based on designated short-term Eurodollar rates (which generally approximate
LIBOR) plus 1.0% to 2.5%. The additional margin for both options depends on the
ratio of the Company's debt to EBITDA. Commitment fees of 0.25% to 0.5% per
annum, also depending on the ratio of debt to EBITDA, are payable on the unused
portion of the facility. The Credit Facility prohibits the payment of dividends
by the Company without the lenders' approval and requires the Company to comply
with certain financial covenants. The amended Credit Facility expires on
November 1, 2001, at which time all amounts outstanding under the Credit
Facility are due.
As of December 31, 1998, the Company had borrowed $170.7 million under the
Credit Facility at an average interest rate of approximately 6.8% for the year
ended December 31, 1998. As of March 26, 1999, $188.0 million (unaudited) was
outstanding under this facility.
NOTES TO AFFILIATES AND FORMER OWNERS
The Notes in the amount of $63.8 million, net of $1.6 million of
repayments, referred to above were issued to former owners of certain Purchased
Companies as partial consideration of the acquisition purchase price. Of these
Notes, $62.4 million bear interest, payable quarterly, at a weighted average
interest rate of 5.11% and are convertible by the holder into shares of the
Company's Common Stock at a weighted average price of $25.84 per share. The
remaining Notes in the amount of $1.4 million are non-interest bearing, and
require principal payments of $1.0 million in 1999 and $0.4 million in equal
installments in 2000, 2001, 2002 and 2003. The terms of the convertible
subordinated notes require $6.5 million of principal payments in 1999, $10.9
million of principal payments in 2000, $43.5 million of principal payments in
2001, $1.1 million of principal payments in 2002, and $0.4 million of principal
payments in 2003.
The Company estimates the fair value of long-term debt as of December 31,
1998 and 1997, to be approximately the same as the recorded value.
7. INCOME TAXES:
The Company has implemented SFAS No. 109, "Accounting for Income Taxes,"
which provides for a liability approach to accounting for income taxes. The
provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Current --
Federal......................... $ 912 $ 6,469 $ 21,650
State and Puerto Rico........... 290 1,763 4,439
--------- --------- ---------
1,202 8,232 26,089
--------- --------- ---------
Deferred --
Federal......................... 302 (688) 907
State and Puerto Rico........... 4 58 53
--------- --------- ---------
306 (630) 960
--------- --------- ---------
$ 1,508 $ 7,602 $ 27,049
========= ========= =========
</TABLE>
35
<PAGE>
COMFORT SYSTEMS USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The difference in income taxes provided for and the amounts determined by
applying the federal statutory tax rate to income before income taxes result
from the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Income tax expense at the statutory
rate................................. $ 2,134 $ 1,937 $ 21,713
Increase (decrease) resulting from --
State income taxes, net of
federal tax effect............ 163 1,245 3,148
Non-deductible expenses......... 30 428 364
Non-recurring, non-cash
compensation charge........... -- 4,045 --
Effect of S Corporation income
previously taxed to the former
owners........................ (807) (1,089) (308)
Non-deductible goodwill
amortization.................. -- 633 2,047
Non-deductible acquisition costs
related to Pooled Companies... -- 201 157
Provision (benefit) recognized
upon termination of Subchapter
S election.................... -- 100 (101)
Other........................... (12) 102 29
--------- --------- ---------
$ 1,508 $ 7,602 $ 27,049
========= ========= =========
</TABLE>
Deferred income tax provisions result from current period activity that has
been reflected in the financial statements but which is not includable in
determining the Company's tax liabilities until future periods. Deferred tax
assets and liabilities reflect the tax effect in future periods of all such
activity to date that has been reflected in the financial statements but which
is not includable in determining the Company's tax liabilities until future
periods.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Deferred income tax assets --
Accounts receivable and
allowance for doubtful
accounts...................... $ (497) $ (1,699)
Accrued liabilities and
expenses...................... (1,788) (6,038)
Other........................... (514) (470)
--------- ---------
Total deferred income tax
assets.................. (2,799) (8,207)
--------- ---------
Deferred income tax liabilities --
Property and equipment.......... 325 873
Long-term installation
contracts..................... 1,984 4,716
Other........................... 153 475
--------- ---------
Total deferred income tax
liabilities............. 2,462 6,064
--------- ---------
Net deferred income tax
assets.................. $ (337) $ (2,143)
========= =========
</TABLE>
The deferred tax assets and liabilities reflected above are included in the
consolidated balance sheet at December 31, 1998, as $7.8 million of current
deferred income tax assets in prepaid expenses and other, $0.4 million of
non-current deferred income tax assets in other non-current assets, $5.0 million
of current deferred income tax liabilities in other current liabilities and $1.1
million of non-current deferred income tax liabilities in deferred income taxes.
8. EMPLOYEE BENEFIT PLANS:
Certain of the Company's subsidiaries sponsor various retirement plans for
most full-time and some part-time employees. These plans consist of defined
contribution plans and multi-employer pension plans
36
<PAGE>
COMFORT SYSTEMS USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and cover employees at substantially all of the Company's operating locations.
The defined contribution plans provide for contributions ranging from 1% to 6%
of covered employees' salaries or wages and totaled $2.2 million for 1996, $1.8
million for 1997 and $3.6 million for 1998. Of these amounts, approximately
$670,000 and $2.2 million was payable to the plans at December 31, 1997 and
1998, respectively.
Certain of the Company's subsidiaries also participate in several
multi-employer pension plans for the benefit of their employees who are union
members. Company contributions to these plans were approximately $2.0 million
for 1996, $2.1 million for 1997 and $8.1 million for 1998. The data available
from administrators of the multi-employer pension plans is not sufficient to
determine the accumulated benefit obligations, nor the net assets attributable
to the multi-employer plans in which Company employees participate.
9. COMMITMENTS AND CONTINGENCIES:
LEASES
The Company leases certain facilities and equipment under noncancelable
operating leases. Rent expense for the years ended December 31, 1996, 1997, and
1998 was $0.9 million, $2.2 million, and $6.7 million, respectively. Concurrent
with the acquisitions of certain Founding, Pooled and Purchased Companies, the
Company entered into various agreements with previous owners to lease land and
buildings used in the Company's operations. The terms of these leases range from
five years to twenty years and provide for certain escalations in the rental
expenses each year. Included in the 1998 and 1997 rent expense above is
approximately $3.9 million and $1.2 million of rent paid to these related
parties, respectively. The following represents future minimum rental payments
under noncancelable operating leases (in thousands):
<TABLE>
<CAPTION>
Year ending December 31 --
<S> <C>
1999............................ $ 11,740
2000............................ 10,461
2001............................ 9,188
2002............................ 8,084
2003............................ 6,293
Thereafter...................... 13,346
---------
$ 59,112
=========
</TABLE>
CLAIMS AND LAWSUITS
The Company is from time to time party to litigation in the ordinary course
of business. There are currently no pending legal proceedings that, in
management's opinion, would have a material adverse effect on the Company's
operating results or financial condition. The Company maintains various
insurance coverages in order to minimize financial risk associated with certain
claims. The Company has provided accruals for probable losses and legal fees
associated with certain of these actions in the accompanying consolidated
financial statements.
10. STOCKHOLDERS' EQUITY:
COMMON STOCK AND PREFERRED STOCK
Comfort Systems effected a 121.1387-for-one stock split on March 19, 1997
for each share of Common Stock of the Company then outstanding. In addition, the
Company increased the number of authorized shares of Common Stock to 52,969,912
and authorized 5,000,000 shares of $.01 par value preferred stock. Subsequent to
December 31, 1997, the Company increased the number of authorized shares of
Common Stock to 102,969,912.
37
<PAGE>
COMFORT SYSTEMS USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The effects of the Common Stock split and the increase in the number of
shares of authorized Common Stock have been retroactively reflected on the
balance sheet and in the accompanying notes as applicable. In December 1996, in
connection with the organization and initial capitalization of Comfort Systems,
the Company issued 121,139 shares of Common Stock at $.01 per share to Notre
Capital Ventures II, L.L.C. ("Notre"). In January 1997, the Company issued
2,848,773 additional shares to Notre for $.01 per share. In January and February
1997, the Company issued a total of 1,269,935 shares of Common Stock to
management of and consultants to the Company at a price of $.01 per share. As a
result, the Company recorded a non-recurring, non-cash compensation charge of
$11.6 million in the first quarter of 1997, representing the difference between
the amount paid for the shares and the estimated fair value of the shares on the
date of sale.
On July 2, 1997, Comfort Systems completed the offering of 6,100,000 shares
of Common Stock to the public at $13.00 per share. The net proceeds to Comfort
Systems from the IPO (after deducting underwriting commissions and offering
expenses) were $68.8 million. Of this amount, $45.3 million was used to pay the
cash portion of the purchase prices of the Founding Companies. In connection
with the IPO, the Company granted its underwriters an option to sell an
additional 915,000 shares at $13.00 per share. On July 9, 1997, the underwriters
exercised this option. Net proceeds to the Company from this sale of shares were
$11.1 million after deducting underwriting commissions.
On June 16, 1998, the Company completed a second public offering (the
"Second Public Offering") of 400,000 shares of its Common Stock. The net
proceeds from this offering of $7.6 million, after deducting underwriting
commissions, were used to repay debt. On July 21, 1998, the underwriters
exercised their overallotment option in connection with the Second Public
Offering completed in June 1998. An additional 461,479 shares of Common Stock
were sold and the net proceeds of $8.8 million were used to repay debt.
RESTRICTED COMMON STOCK
In March 1997, Notre exchanged 2,742,912 shares of Common Stock for an
equal number of shares of restricted voting common stock ("Restricted Voting
Common Stock"). The holder of Restricted Voting Common Stock is entitled to
elect one member of the Company's Board of Directors and to 0.55 of one vote for
each share on all other matters on which they are entitled to vote. Holders of
Restricted Voting Common Stock are not entitled to vote on the election of any
other directors.
Each share of Restricted Voting Common Stock will automatically convert to
Common Stock on a share-for-share basis (i) in the event of a disposition of
such share of Restricted Voting Common Stock by the holder thereof (other than a
distribution which is a distribution by a holder to its partners or beneficial
owners, or a transfer to a related party of such holders (as defined in Sections
267, 707, 318 and/or 4946 of the Internal Revenue Code of 1986, as amended)),
(ii) in the event any person acquires beneficial ownership of 15% or more of the
total number of outstanding shares of Common Stock of the Company, or (iii) in
the event any person offers to acquire 15% or more of the total number of
outstanding shares of Common Stock of the Company. After July 1, 1998, the Board
of Directors may elect to convert any remaining shares of Restricted Voting
Common Stock into shares of Common Stock in the event that 80% or more of the
originally outstanding shares of Restricted Voting Common Stock have been
previously converted into shares of Common Stock. At December 31, 1998, no
Restricted Voting Common Stock had been converted to shares of Common Stock.
EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share." SFAS No. 128 revises the methodology to be used in
computing earnings per share (EPS) such that the computations previously
required for primary and fully diluted EPS are to be replaced with "basic" and
"diluted" EPS. Basic EPS is computed by dividing net income by the weighted
average number of shares
38
<PAGE>
COMFORT SYSTEMS USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of common stock outstanding during the year. Diluted EPS is computed in a
similar manner as fully diluted EPS, except that, among other changes, the
average share price for the period is used in all cases when applying the
treasury stock method to potentially dilutive outstanding options. Diluted EPS
is also computed by adjusting both net earnings and shares outstanding as if the
conversion of the convertible subordinated notes occurred on the first day of
the year. The net earnings adjustment related to the conversion of the
convertible subordinated notes in 1998 was $753,000. The Company has adopted
SFAS No. 128 and restated EPS for all periods presented.
The following table summarizes weighted average shares outstanding for each
of the periods presented (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Shares issued in connection with the
acquisitions of Founding Companies.... -- 5,008 9,721
Shares sold pursuant to the IPO......... -- 3,142 6,100
Shares held by Notre, management and
consultants........................... 4,240 4,240 4,240
Shares issued in connection with the
acquisitions of Pooled Companies...... 5,877 5,946 5,946
Weighted average shares issued in
connection with the underwriter's
overallotment......................... -- 434 1,122
Weighted average shares issued in
connection with the acquisitions of
the Purchased Companies............... -- 184 5,597
Weighted average portion of shares sold
in the Second Public Offering......... -- -- 215
Weighted average portion of shares
issued in connection with the Employee
Stock Purchase Plan................... -- -- 12
Weighted average portion of shares
issued in connection with the exercise
of stock options...................... -- -- 9
--------- --------- ---------
Weighted average shares
outstanding -- Basic.................. 10,117 18,954 32,962
Weighted average portion of shares
related to stock options under the
treasury stock method................. -- -- 462
Weighted average shares related to the
issuance of convertible notes......... -- -- 905
--------- --------- ---------
Weighted average shares
outstanding -- Diluted................ 10,117 18,954 34,329
========= ========= =========
</TABLE>
11. STOCK OPTION PLANS:
LONG-TERM INCENTIVE PLANS
In March 1997, the Company's stockholders approved the Company's 1997
Long-Term Incentive Plan which provides for the granting or awarding of
incentive or non-qualified stock options, stock appreciation rights, restricted
or deferred stock, dividend equivalents or other incentive awards to directors,
officers, key employees and consultants to the Company.
The Company's 1997 Long-Term Incentive Plan provides for the granting of
options to key employees to purchase an aggregate of not more than 13% of the
total number of shares of the Company's Common Stock outstanding at the time of
grant. Such options have been issued by the Company at fair market value on the
date of grant and become exercisable in five equal annual installments beginning
on the first anniversary of the date of grant. The options expire after seven
years from the date of grant if unexercised. Outstanding options may be canceled
and reissued under terms specified in the plan.
39
<PAGE>
COMFORT SYSTEMS USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes activity under the Company's stock option
plan:
<TABLE>
<CAPTION>
1997 1998
---------------------------- -----------------------------
WEIGHTED-AVERAGE WEIGHTED-AVERAGE
FIXED OPTIONS SHARES EXERCISE PRICE SHARES EXERCISE PRICE
- ---------------------------------------- --------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year........ -- -$- 2,537,203 $13.72
Granted................................. 2,537,203 13.72 1,495,500 18.54
Exercised............................... -- -- (24,330) 13.45
Forfeited............................... -- -- (53,344) 16.01
--------- -----------
Outstanding at end of year.............. 2,537,203 $13.72 3,955,029 $15.51
========= ===========
Options exercisable at year-end......... -- 518,281
Weighted-average fair value of options
granted during the year as of December
31, 1998.............................. $3.53 $7.33
</TABLE>
The following table summarizes information about fixed stock options
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------------- --------------------------------
NUMBER WEIGHTED-AVERAGE NUMBER
RANGE OF OUTSTANDING REMAINING WEIGHTED-AVERAGE EXERCISABLE WEIGHTED-AVERAGE
EXERCISE PRICES AT 12/31/98 CONTRACTUAL LIFE EXERCSE PRICE AT 12/31/98 EXERCISE PRICE
- ------------------------------------- ------------ ------------------ ------------------ ------------ -----------------
<S> <C> <C> <C> <C> <C>
$13.00 to $19.38..................... 3,585,529 5.9 years $14.98 503,281 $ 13.68
$19.69 to $21.44..................... 369,500 6.5 21.04 15,000 21.13
------------ ------------
$13.00 to $21.44..................... 3,955,029 6.0 $15.51 518,281 $ 13.90
============ ============
</TABLE>
In September 1997, the Company's stockholders approved the Company's 1998
Employee Stock Purchase Plan which allows employees to purchase shares from the
Company's authorized but unissued shares of Common Stock or from shares of
Common Stock reacquired by the Company, including shares repurchased on the open
market.
The Company's 1998 Employee Stock Purchase Plan provides for the purchase
of 300,000 shares at semi-annual intervals. Full-time employees are eligible to
purchase shares with payroll deductions ranging from 2% to 8% of compensation
with a maximum deduction of $2,000 for any purchase period for each participant.
The purchase price per share is 85% of the lower of the market price on the
first business day of the purchase period or the purchase date.
The Company accounts for its stock-based compensation under Accounting
Principles Board Statement No. 25, "Accounting for Stock Issued to Employees"
(APB 25). Under this accounting method, no expense in connection with the stock
option plan or the stock purchase plan is recognized in the consolidated
statements of operations. In October 1995, the Financial Accounting Standards
Board issued SFAS No. 123, "Accounting for Stock-Based Compensation," which
requires that if a company accounts for stock-based compensation in accordance
with APB 25, the company must also disclose the effects on its results of
operations as if an estimate of the value of stock-based compensation at the
date of grant was recorded as an expense in the company's statement of
operations. These effects for the Company are as follows (in thousands, except
per share data):
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C> <C>
Net Income As reported........................ $ (2,064) $ 35,013
Pro forma for SFAS No. 123......... $ (2,436) $ 33,341
Income Per Share -- Basic As reported........................ $ (.11) $ 1.06
Pro forma for SFAS No. 123......... $ (.13) $ 1.01
Income Per Share -- Diluted As reported........................ $ (.11) $ 1.04
Pro forma for SFAS No. 123......... $ (.13) $ 0.97
</TABLE>
40
<PAGE>
COMFORT SYSTEMS USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
LONG-TERM INCENTIVE PLAN -- The effects of applying SFAS No. 123 in the pro
forma disclosure may not be indicative of future amounts as additional option
awards in future years are anticipated. The fair value of each option grant is
estimated on the date of grant using the Black-Scholes option-pricing model with
the following assumptions:
<TABLE>
<S> <C>
Expected dividend yield................. 0.00%
Expected stock price volatility......... 44.87%
Risk free interest rate................. 5.00%-6.15%
Expected life of options................ 4 years
</TABLE>
EMPLOYEE STOCK PURCHASE PLAN -- The effects of applying SFAS No. 123 in the
pro forma disclosure may not be indicative of future amounts as the granting of
additional purchase rights is anticipated. Compensation cost associated with the
stock purchase plan is recognized for the fair value of the employees' purchase
rights, which is estimated using the Black-Scholes model with the following
assumptions:
<TABLE>
<S> <C>
Expected dividend yield.............. 0.00%
Expected volatility.................. 42.10%
Risk free interest rate.............. 5.19%-5.25%
Expected life of purchase rights..... 0.5 years
</TABLE>
The weighted average fair value of these purchase rights granted in 1998
was $5.37.
NON-EMPLOYEE DIRECTORS STOCK PLAN
In March 1997, the Company's stockholders approved the 1997 Non-Employee
Directors' Stock Plan (the "Directors' Plan"), which provides for the granting
or awarding of stock options and stock appreciation rights to non-employees. The
number of shares authorized and reserved for issuance under the Directors' Plan
is 250,000 shares. The Directors' Plan provided for the automatic grant of
options to purchase 10,000 shares to each non-employee director serving at the
commencement of the IPO.
Each non-employee director will be granted options to purchase 10,000
shares at the time of the initial election. In addition, each non-employee
director is automatically granted options to purchase an additional 5,000 shares
at each annual meeting of the stockholders that is more than two months after
the date of the director's initial election. All options are granted with an
exercise price equal to the fair market value at the date of grant and are
immediately vested upon grant.
Options have been granted to three current members of the board of
directors to purchase 10,000 shares of Common Stock at the IPO price and each of
these three directors received an option for 5,000 shares on the 1998 Annual
Meeting date. These options will expire at the earlier of 10 years from the date
of grant or one year after termination of service as a director.
The Directors' Plan allows non-employee directors to receive shares
("Deferred Shares") at future settlement dates in lieu of cash. The number of
Deferred Shares will have an aggregate fair market value equal to the fees
payable to the directors. No Deferred Shares have been issued.
12. SIGNIFICANT VENDORS:
Significant vendors are defined as those that account for greater than 10%
of the Company's purchases. For the year ended December 31, 1998, there were no
significant vendors. For the year ended
41
<PAGE>
COMFORT SYSTEMS USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1997, one vendor accounted for 10.5% of the Company's purchases.
For the year ended December 31, 1996, there were no significant vendors.
13. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):
Quarterly financial information for the year ended December 31, 1998 is
summarized as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
MARCH JUNE SEPTEMBER DECEMBER
QUARTER QUARTER QUARTER QUARTER
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues............................. $132,608 $194,350 $ 232,381 $ 294,622
Gross Profit......................... $ 31,339 $ 47,704 $ 57,073 $ 70,333
Net income........................... $ 3,385 $ 8,418 $ 10,799 $ 12,411
Earnings Share:
Basic........................... $ 0.12 $ 0.27 $ 0.32 $ 0.34
Diluted......................... $ 0.11 $ 0.26 $ 0.31 $ 0.33
</TABLE>
The quarterly information has been restated to include the results of the
1998 Pooled Companies.
The sum of the individual quarterly earnings per share amounts do not agree
with year-to-date earnings per share as each quarter's computation is based on
the weighted average number of shares outstanding during the quarter, the
weighted average stock price during the quarter and the dilutive effects of the
convertible subordinated notes in each quarter.
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
PART III
ITEMS 10 TO 13 INCLUSIVE
These items have been omitted in accordance with the instructions to Form
10-K. The Company will file with the Commission a definitive proxy statement
including the information to be disclosed under the items in the 120 days
following December 31, 1998.
42
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) Consolidated Financial Statements of the Company, which are
included at Item 8 of this report.
(2) Exhibits.
<TABLE>
<CAPTION>
INCORPORATED BY REFERENCE TO
THE EXHIBIT INDICATED BELOW
AND TO THE FILING WITH THE
COMMISSION INDICATED BELOW
-------------------------------
EXHIBIT EXHIBIT FILING OR
NUMBER DESCRIPTION OF EXHIBITS NUMBER FILE NUMBER
- ------------------------ ----------------------------------------------------------------- ------- ------------------
<S> <C> <C> <C>
3.1 -- Second Amended and Restated Certificate of Incorporation of "the 3.1 333-24021
Registrant."
3.2 -- Certificate of Amendment dated May 21, 1998 3.2 Filed Herewith
3.3 -- Bylaws of "the Registrant", as amended 3.3 Filed Herewith
4.1 -- Form of certificate evidencing ownership of Common Stock of "the 4.1 333-24021
Registrant".
10.1 -- Comfort Systems USA, Inc. 1997 Long-Term Incentive Plan 10.1 333-24021
10.2 -- Comfort Systems USA, Inc. 1997 Non-Employee Directors' Stock 10.2 333-24021
Plan.
10.3 -- Form of Employment Agreement between the Registrant and Fred M. 10.3 333-24021
Ferreira.
10.4 -- Form of Employment Agreement between the Registrant and J. Gordon 10.4 333-24021
Beittenmiller.
10.5 -- Form of Employment Agreement between the Registrant and William 10.5 333-24021
George, III.
10.6 -- Form of Employment Agreement between the Registrant and Reagan S. 10.6 333-24021
Busbee.
10.7 -- Form of Employment Agreement between the Registrant, Accurate Air 10.7 333-24021
Systems, Inc. and Thomas J. Beaty.
10.8 -- Form of Employment Agreement between the Registrant, Atlas 10.8 333-24021
Comfort Services USA, Inc. and Brian S. Atlas.
10.9 -- Form of Employment Agreement between the Registrant, Contract 10.9 333-24021
Service, Inc. and John C. Phillips.
10.10 -- Form of Employment Agreement between the Registrant, Eastern 10.10 333-24021
Heating & Cooling, Inc. and Alfred J. Giardenelli, Jr.
10.11 -- Form of Employment Agreement between the Registrant, Quality Air 10.11 333-24021
Heating & Cooling, Inc. and Robert J. Powers.
10.12 -- Form of Employment Agreement between the Registrant, S. M. 10.12 333-24021
Lawrence Company, Inc. and Samuel M. Lawrence III.
10.13 -- Form of Employment Agreement between the Registrant, Tech Heating 10.13 333-24021
and Air Conditioning, Inc. and Robert R. Cook.
10.14 -- Form of Employment Agreement between the Registrant, Tri-City 10.14 333-24021
Mechanical, Inc. and Michael Nothum, Jr.
10.15 -- Form of Employment Agreement between the Registrant, Western 10.15 333-24021
Building Services, Inc. and Charles W. Klapperich.
10.16 -- Employment Agreement between the Registrant, F&G Mechanical February 1998
Corporation and Salvatore P. Giardina. Form 8-K
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
INCORPORATED BY REFERENCE TO
THE EXHIBIT INDICATED BELOW
AND TO THE FILING WITH THE
COMMISSION INDICATED BELOW
-------------------------------
EXHIBIT EXHIBIT FILING OR
NUMBER DESCRIPTION OF EXHIBITS NUMBER FILE NUMBER
- ------------------------ ----------------------------------------------------------------- ------- ------------------
<S> <C> <C> <C>
10.17 -- Employment Agreement between the Registrant, Shambaugh & Son, Filed Herewith
Inc. and Mark P. Shambaugh.
10.18 -- Form of Agreement among certain stockholders. 10.16 333-24021
10.19 -- Lease between M & B Interests, Inc. and Atlas Air Conditioning 10.17 333-32595
Company, Inc. dated October 1, 1994.
10.20 -- Lease between Thomas J. and Bonnie J. Beaty and Accurate Air 10.18 333-32595
Systems, Inc. dated July 1, 1997.
10.21 -- Amended and Restated Agreement of Lease between Thomas J. and 10.19 333-32595
Bonnie J. Beaty and Accurate Air Systems, Inc. dated July 1,
1997.
10.22 -- Lease between Nothum Development, L.L.C. and Tri-City Mechanical, 10.20 333-32595
Inc. dated July 1, 1997.
10.23 -- Lease between Samuel Matthews Lawrence, Jr. and S.M. Lawrence 10.21 333-32595
Company, Incorporated dated November 1, 1996.
10.24 -- Lease between K and P Warehouse #1 and Quality Trane Heating and 10.22 333-32595
Cooling, Inc. (n/k/a Quality Air Heating and Cooling, Inc.) dated
April 1, 1986, together with amendments thereto.
10.25 -- Lease between J&J Investments and Contract Service, Inc. dated 10.23 333-32595
March 1, 1997.
10.26 -- Lease by Tech Heating and Air Conditioning, Inc. dated April 2, 10.24 333-32595
1995 as amended by Amendment between Cook Properties, Inc. and
Tech Heating and Air Conditioning, Inc. on March 13, 1997.
10.27 -- Third Amended and Restated Credit Agreement among the Company and 10.25 Filed Herewith
its subsidiaries, Bank One, Texas, N.A., as agent and the banks
listed therein dated December 14, 1998.
10.28 -- Lease dated June 30, 1994, between Salpat Realty and F&G 10.27 1997 Form 10-K
Mechanical Corp, together with lease modification agreements
dated June 30, 1994 and February 12, 1998.
10.28 -- Lease dated October 31, 1998, between Mark Shambaugh and Filed Herewith
Shambaugh & Sons, Inc. (Opportunity Drive)
10.29 -- Lease dated October 31, 1998, between Mark Shambaugh and Filed Herewith
Shambaugh & Sons, Inc. (Di Salle Boulevard).
10.30 -- Lease dated October 31, 1998, between Mark Shambaugh and Filed Herewith
Shambaugh & Sons, Inc. (Speedway Drive).
10.31 -- Lease dated October 31, 1998, between Mark Shambaugh and Filed Herewith
Shambaugh & Sons, Inc. (South Bend).
10.32 -- Lease dated October 31, 1998, between Mark Shambaugh and Filed Herewith
Shambaugh & Sons, Inc. (Lafayette).
10.33 -- Promissory Note dated February 12, 1998 by Sorce Properties LLC 10.28 1997 Form 10-K
in favor of F&G Mechanical Corporation.
10.34 -- Pledge Agreement dated February 12, 1998 by Salvatore Fichera and 10.29 1997 Form 10-K
Salvatore P. Giardina in favor of F&G Mechanical Corporation.
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
INCORPORATED BY REFERENCE TO
THE EXHIBIT INDICATED BELOW
AND TO THE FILING WITH THE
COMMISSION INDICATED BELOW
-------------------------------
EXHIBIT EXHIBIT FILING OR
NUMBER DESCRIPTION OF EXHIBITS NUMBER FILE NUMBER
- ------------------------ ----------------------------------------------------------------- ------- ------------------
<S> <C> <C> <C>
10.35 -- Form of Indemnity Agreement entered into by the Company with each 10.26 333-32595
of the following persons: Fred M. Ferreira, J. Gordon
Beittenmiller, Reagan S. Busbee, William George, III, Steven S.
Harter, Robert J. Powers, Michael Nothum, Jr., Robert R. Cook,
Brian S. Atlas, Thomas J. Beaty, John C. Phillips, Samuel M.
Lawrence III, Alfred J. Giardenelli, Jr., Charles W. Klapperich,
Larry Martin and John Mercadante, Jr. on June 27, 1997.
10.36 -- Indemnity Agreement between the Company and Notre Capital 10.27 333-32595
Ventures II, L.L.C.
10.37 -- Comfort Systems USA, Inc. 1998 Employee Stock Purchase Plan. 10.28 333-338009
10.38 -- Agreement Regarding Sale of Stock between Fred M. Ferreira an the 10.1 Third Quarter 1997
Registrant dated October 31, 1997. Form 10-Q
10.39 -- Agreement Regarding Sale of Stock between Steve S. Harter and the 10.2 Third Quarter 1997
Registrant dated October 31, 1997. Form 10-Q
10.40 -- Agreement Regarding Sale of Stock between J. Gordon Beittenmiller 10.3 Third Quarter 1997
and the Registrant dated October 31, 1997. Form 10-Q
10.41 -- Agreement Regarding Sale of Stock between Thomas J. Beaty and the 10.4 Third Quarter 1997
Registrant dated October 31, 1997. Form 10-Q
10.42 -- Agreement Regarding Sale of Stock between Brian S. Atlas and the 10.5 Third Quarter 1997
Registrant dated October 31, 1997. Form 10-Q
10.43 -- Agreement Regarding Sale of Stock between John C. Phillips and 10.6 Third Quarter 1997
the Registrant dated October 31, 1997. Form 10-Q
10.44 -- Agreement Regarding Sale of Stock between Alfred J. Giardenelli, 10.7 Third Quarter 1997
Jr. and the Registrant dated October 31, 1997. Form 10-Q
10.45 -- Agreement Regarding Sale of Stock between Robert J. Powers and 10.8 Third Quarter 1997
the Registrant dated October 31, 1997. Form 10-Q
10.46 -- Agreement Regarding Sale of Stock between Samuel M. Lawrence and 10.9 Third Quarter 1997
the Registrant dated October 31, 1997. Form 10-Q
10.47 -- Agreement Regarding Sale of Stock between Michael Nothum, Jr. and 10.10 Third Quarter 1997
the Registrant dated October 31, 1997. Form 10-Q
10.48 -- Agreement Regarding Sale of Stock between Bob R. Cook and the 10.11 Third Quarter 1997
Registrant dated October 31, 1997. Form 10-Q
10.49 -- Agreement Regarding Sale of Stock between Charles W. Klapperich 10.12 Third Quarter 1997
and the Registrant dated October 31, 1997. Form 10-Q
10.50 -- Agreement Regarding Sale of Stock between Reagan S. Busbee and 10.13 Third Quarter 1997
the Registrant dated October 1997. Form 10-Q
10.51 -- Agreement Regarding Sale of Stock between William George and the 10.14 Third Quarter 1997
Registrant dated October 31, 1997. Form 10-Q
10.52 -- Agreement and Plan of Organization, dated as of March 18, 1997, 2.1 333-24021
by and among the Registrant, Accurate Acquisition Corp., Accurate
Air Systems, Inc. and the Stockholder named therein.
10.53 -- Agreement and Plan of Organization, dated as of March 18, 1997, 2.2 333-24021
by and among the Registrant, Atlas Air Acquisition I Corp., Atlas
Comfort Services USA, Inc. and the Stockholders named therein.
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
INCORPORATED BY REFERENCE TO
THE EXHIBIT INDICATED BELOW
AND TO THE FILING WITH THE
COMMISSION INDICATED BELOW
-------------------------------
EXHIBIT EXHIBIT FILING OR
NUMBER DESCRIPTION OF EXHIBITS NUMBER FILE NUMBER
- ------------------------ ----------------------------------------------------------------- ------- ------------------
<S> <C> <C> <C>
10.54 -- Agreement and Plan of Organization, dated as of March 18, 1997, 2.3 333-24021
by and among the Registrant, Contract Acquisition Corp., Contract
Service, Inc. and the Stockholders named therein.
10.55 -- Agreement and Plan of Organization, dated as of March 18, 1997, 2.4 333-24021
by and among the Registrant, Eastern Acquisition Corp., Eastern
II Acquisition Corp., Eastern Heating & Cooling, Inc., Eastern
Refrigeration Co., Inc. and the Stockholder named therein.
10.56 -- Agreement and Plan of Organization, dated as of March 18, 1997, 2.6 333-24021
by and among the Registrant, Quality Acquisition Corp., Quality
Air Heating & Cooling, Inc. and the Stockholder named therein.
10.57 -- Agreement and Plan of Organization, dated as of March 18, 1997, 2.7 333-24021
by and among the Registrant, S.M. Lawrence Acquisition Corp.,
S.M. Lawrence II Acquisition Corp., S.M. Lawrence Company, Inc.,
Lawrence Service, Inc. and the Stockholders named therein.
10.58 -- Agreement and Plan of Organization, dated as of March 18, 1997, 2.10 333-24021
by and among the Registrant, Tech I Acquisition Corp, Tech II
Acquisition Corp., Tech Heating and Air Conditioning, Inc., Tech
Mechanical, Inc. and the Stockholder named therein.
10.59 -- Agreement and Plan of Organization, dated as of March 18, 1997, 2.11 333-24021
by and among the Registrant, Tri-City Acquisition Corp., Tri-City
Mechanical, Inc., and the Stockholder named therein.
10.60 -- Agreement and Plan of Organization, dated as of March 18, 1997, 2.12 333-24021
by and among the Registrant, Western Building Acquisition Corp.,
Western Building Services, Inc., and the Stockholders named
therein.
10.61 -- Agreement and Plan of Merger dated February 12, 1998, by and 2.1 February 1998
among the Registrant, F&G Mechanical Corporation, Salvatore Form 8-K
Fichera and Salvatore P. Giardina.
10.62 -- Agreement and Plan of Merger dated November 15, 1998, by and 2.1 November 1998
among the Registrant, Shambaugh & Son, Inc. Form 8-K
10.63 -- First Amendment to Credit Agreement among the Company and its Filed Herewith
subsidiaries, Bank One, Texas, N.A., as agent and the banks
listed therein dated January 14, 1999.
21.1 -- List of subsidiaries of Comfort Systems USA, Inc. Filed Herewith
23.1 -- Consent of Arthur Andersen L.L.P. Filed Herewith
27.1 -- Financial Data Schedule Filed Herewith
</TABLE>
(b)Reports on Form 8-K
-- The Company filed a report on Form 8-K with the Securities and Exchange
Commission on November 27, 1998. Under Item 2 of that report, the
Company described its acquisition of Shambaugh & Son, Inc., a mechanical
contractor engaged primarily in HVAC.
(c) Exhibits: as provided
(d) The following financial statements are filed as part of this report: as set
forth in the Index to Financial Statements beginning on Page F-1.
46
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
COMFORT SYSTEMS USA, INC.
By: ___/s/__FRED M. FERREIRA__________
FRED M. FERREIRA
CHIEF EXECUTIVE OFFICER
Date: _______March 26, 1999___________
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this report has been signed by the following persons in
the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------------------------------------------------- ---------------
<S> <C> <C>
/s/FRED M. FERREIRA Chairman of the Board, Chief March 26, 1999
FRED M. FERREIRA Executive Officer and President
/s/J. GORDON BEITTENMILLER Executive Vice President, Chief March 26, 1999
J. GORDON BEITTENMILLER Financial Officer and Director
(PRINCIPAL ACCOUNTING OFFICER)
/s/MICHAEL NOTHUM, JR. Chief Operating Officer and Director March 26, 1999
MICHAEL NOTHUM, JR.
/s/STEVEN S. HARTER Director March 26, 1999
STEVEN S. HARTER
/s/BRIAN S. ATLAS Director March 26, 1999
BRIAN S. ATLAS
/s/THOMAS J. BEATY Director March 26, 1999
THOMAS J. BEATY
/s/ROBERT R. COOK Director March 26, 1999
ROBERT R. COOK
/s/ALFRED J. GIARDENELLI, JR. Director March 26, 1999
ALFRED J. GIARDENELLI, JR.
/s/CHARLES W. KLAPPERICH Director March 26, 1999
CHARLES W. KLAPPERICH
/s/SAMUEL M. LAWRENCE III Director March 26, 1999
SAMUEL M. LAWRENCE III
</TABLE>
47
<PAGE>
SIGNATURES -- (CONTINUED)
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------------------------------------------------- ---------------
<S> <C> <C>
/s/LARRY MARTIN Director March 26, 1999
LARRY MARTIN
/s/JOHN MERCADANTE, JR. Director March 26, 1999
JOHN MERCADANTE, JR.
/s/JOHN C. PHILLIPS Director March 26, 1999
JOHN C. PHILLIPS
/s/ROBERT J. POWERS Director March 26, 1999
ROBERT J. POWERS
/s/SALVATORE P. GIARDINA Director March 26, 1999
SALVATORE P. GIARDINA
/s/MARK P. SHAMBAUGH Director March 26, 1999
MARK P. SHAMBAUGH
</TABLE>
48
EXHIBIT 3.2 TO 10-K
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
COMFORT SYSTEMS USA, INC.
Comfort Systems USA, Inc., a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of the Corporation, at a meeting duly
held, adopted a resolution proposing and declaring advisable the following
amendment to the Second Amended and Restated Certificate of Incorporation of the
Corporation:
RESOLVED, that the Second Amended and Restated Certificate of
Incorporation of the Corporation be amended by increasing the number of
authorized shares of common stock, $.01 par value per share, set forth in
the first paragraph of ARTICLE FOUR so that, as amended, the first
paragraph of ARTICLE FOUR shall be and read as follows:
The total number of shares of all classes of stock which the
Corporation shall have authority to issue is One Hundred Seven
Million, Nine Hundred Sixty-Nine Thousand, Nine Hundred Twelve
(107,969,912) shares, of which Five Million (5,000,000) shares,
designated as Preferred Stock, shall have a par value of One Cent
($.01) per share (the "Preferred Stock"), One Hundred Million
(100,000,000) shares, designated as Common Stock, shall have a par
value of One Cent ($.01) per share (the "Common Stock"), and Two
Million, Nine Hundred Sixty-Nine Thousand, Nine Hundred Twelve
(2,969,912) shares, designated as Restricted Voting Common Stock,
shall have a par value of One Cent ($.01) per share (the "Restricted
Voting Common Stock").
SECOND: That the stockholders of the Corporation, at a meeting duly held,
approved the amendment in accordance with the provisions of Section 242 of the
General Corporation Law of the State of Delaware.
THIRD: That this Certificate of Amendment has been duly adopted in
accordance with the provisions of Section 242 of the General Corporation Law of
the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be executed by the undersigned effective as of May 21, 1998.
COMFORT SYSTEMS USA, INC.
By: /s/
-------------------------
William George, Vice President
EXHIBIT 3.3 TO 10-K
BYLAWS
OF
COMFORT SYSTEMS USA, INC.
AS AMENDED THROUGH MARCH 5, 1999
<PAGE>
BYLAWS
OF
COMFORT SYSTEMS USA, INC
ARTICLE I
STOCKHOLDERS
SECTION 1. ANNUAL MEETING. The annual meeting of the stockholders of the
Corporation shall be held on such date, at such time and at such place within or
without the State of Delaware as may be designated by the Board of Directors,
for the purpose of electing Directors and for the transaction of such other
business as may be properly brought before the meeting, which date shall be
within thirteen (13) months subsequent to the last annual meeting of
stockholders.
SECTION 2. SPECIAL MEETINGS. Unless otherwise provided in the Certificate
of Incorporation of the Corporation, special meetings of the stockholders for
any purpose or purposes may be called at any time by the Chief Executive
Officer, by a majority of the Board of Directors, or by a majority of the
executive committee (if any), at such time and at such place as may be stated in
the notice of the meeting. Business transacted at such meeting shall be confined
to the purpose(s) stated in the notice of such meeting.
SECTION 3. NOTICE OF STOCKHOLDER BUSINESS AND NOMINATIONS.
(a) ANNUAL MEETINGS OF STOCKHOLDERS.
(i) Nominations of persons for election to the Board of
Directors and the proposal of business to be considered by the
Stockholders may be made at an annual meeting of Stockholders
(A) pursuant to the Corporation's notice of meeting, (B) by or
at the direction of the Board of Directors or (C) by any
Stockholder who was a Stockholder of record at the time of
giving of notice provided for in this Section, who is entitled
to vote at the meeting and who complies with the notice
procedures set forth in this Section.
(ii) For nominations or other business to be properly brought
before an annual meeting by a Stockholder pursuant to section
3(a)(i) of this ARTICLE 1, the Stockholder must have given
timely notice thereof in writing to the Secretary of the
Corporation and such other business must otherwise be a proper
matter for Stockholder action. To be timely, a Stockholder's
notice shall be delivered to the Secretary at the principal
offices of the Corporation not later than the close of
business on the sixtieth (60th) day nor earlier than the close
of business on the ninetieth (90th) day prior to the first
(1st) anniversary of the preceding year's annual meeting;
PROVIDED, HOWEVER, that in the event that the date of the
annual meeting is more than thirty (30) days before or more
than sixty (60) days after such anniversary date, notice by
the Stockholder to be timely must be so delivered not earlier
than the close of business on the ninetieth (90th) day prior
to such annual meeting and not later than the close of
business on the later of the sixtieth (60th) day prior to such
annual meeting or the tenth (10th) day following the day on
which public announcement of the date of such meeting is first
made by the Corporation. In no event shall the public
announcement of an adjournment of an annual meeting commence a
new time period for the giving of a Stockholders's notice as
described above. Such Stockholder's notice shall set forth:
(A) as to each person whom the Stockholder proposes to
nominate for election or reelection as a Director all
information relating to such person that is required to
be disclosed in solicitations of proxies for election of
Directors in an election contest, or is otherwise
required, in each case pursuant to Regulation 14A under
the Securities Exchange Act of 1934, as amended (the
"EXCHANGE Act") and Rule 14a-11 thereunder (including
such person's written consent to being named in the
proxy statement as a nominee and to serving as a
Director if elected);
(B) as to any other business that the Stockholder
proposes to bring before the meeting, a brief
description of the business desired to be brought before
the meeting, the reasons for conducting such business at
the meeting and any material interest in such business
of such Stockholder and the beneficial owner, if any, on
whose behalf the proposal is made; and
(C) as to the Stockholder giving the notice and the
beneficial owner, if any, on whose behalf the nomination
or proposal is made (1) the name and address of such
Stockholder, as they appear on the Corporation's books,
and of such beneficial owner and (2) the class and
number of shares of the, Corporation which are owned
beneficially and of record by such Stockholder and such
beneficial owner.
(iii) Notwithstanding anything in the second sentence of
Section 3(a)(ii) of this ARTICLE I to the contrary, in the
event that the number of Directors to be elected to the Board
of Directors is increased and there is no public announcement
by the Corporation naming all of the nominees for Director or
specifying the size of the increased Board of Directors at
least seventy (70) days prior to the first (1st) anniversary
of the preceding year's annual meeting, a Stockholder's notice
required by this Section shall also be considered timely, but
only with respect to nominees for any new positions created by
such increase, if it shall be delivered to the Secretary at
the principal executive offices of the Corporation not later
than the close of business on the tenth (10th) day following
the day on which such public announcement is first made by the
Corporation.
(b) SPECIAL MEETINGS OF STOCKHOLDERS. Only such business shall be
conducted at a special meeting of Stockholders as shall have been
brought before the meeting pursuant to the Corporation's notice of
meeting. Nominations of persons for election to the Board of
Directors may be made at a special meeting of Stockholders at which
Directors are to be elected pursuant to the Corporation's notice of
meeting (a) by or at the direction of the Board of Directors or (b)
provided that the Board of Directors has determined that Directors
shall be elected at such meeting, by any Stockholder who is a
Stockholder of record at the time of giving of notice provided for
in this Section 3, who shall be entitled to vote at the meeting and
who complies with the notice procedures set forth in this Section 3.
In the event the Corporation calls a special meeting of Stockholders
for the purpose of electing one or more Directors to the Board of
Directors, any such Stockholder may nominate a person or persons (as
the case may be), for election to such positions(s) as specified in
the Corporation's notice of meeting, if the Stockholder's notice
required by Section 3(a)(ii) of this ARTICLE I shall be delivered to
the Secretary at the principal executive offices of the Corporation
not earlier than the close of business on the ninetieth (90th) day
prior to such special meeting and not later than the close of
business on the later of the sixtieth (60th) day prior to such
special meeting or the tenth (10th) day following the day on which
public announcement is first made of the date of the special meeting
and, of the nominees proposed by the Board of Directors to be
elected at such meeting. In no event shall the public announcement
of an adjournment of a special meeting commence a new time period
for the giving of a Stockholder's notice as described above.
(c) GENERAL.
(i) Only such persons who are nominated in accordance with the
procedures set forth in this Section 3 shall be eligible to
serve as Directors and only such business shall be conducted
at a meeting of Stockholders as shall have been brought before
the meeting in accordance with the procedures set forth in
this Section 3. Except as otherwise provided by applicable
law, the Chairman of the meeting shall have the power and duty
to determine whether a nomination or any business proposed to
be brought before the meeting was made or, proposed, as the
case may be, in accordance with the procedures set forth in
this Section 3 and, if any proposed nomination or business is
not in compliance with this Section 3, to declare that such
defective proposal or nomination shall be disregarded.
(ii) For purposes of this Section 3, "public announcement'
shall mean disclosure in a press release reported by the Dow
Jones News Service, Associate Press or comparable national
news service or in a document publicly filed by the
Corporation with the Securities and Exchange Commission
pursuant to Section 13, 14 or 15(d) of the Exchange Act.
(iii) Notwithstanding the foregoing provisions of this Section
3., a Stockholder shall also comply with all applicable
requirements of the Exchange Act and the rules and regulations
thereunder with respect to the matters set forth in this
Section 3. Nothing in this Section 3 shall be deemed to affect
any rights (A) of Stockholders to request inclusion of
proposals in the Corporation's proxy statement pursuant to
Rule 14a-8 under the Exchange Act; or (B) of the holders of
any series of Common Stock or Preferred Stock or any
outstanding voting indebtedness to elect Directors under
specified circumstances.
Notwithstanding any other provisions of the Certificate of Incorporation
of the Corporation and notwithstanding that a lesser percentage may be permitted
from time to time by. applicable law, no provision of this Section 3 of ARTICLE
I may be altered, amended or repealed in any respect, nor may any provision
inconsistent therewith be adopted, unless such alteration, amendment, repeal or
adoption is approved by the active vote of the holders of at least 80 percent of
the combined voting power of the then outstanding shares of the Corporation's
stock entitled to vote generally at elections of Directors voting together as a
single class, and at least 80 percent of each class, series and issuance of
combined voting power of the then outstanding shares of the Corporation's stock
entitled to vote generally at elections of Directors voting separately as a
class, series and issuance.
SECTION 4. QUORUM. At any meeting of the stockholders, the holders of a
majority in number of the total outstanding shares of stock of the Corporation
entitled to vote at such meeting, present in person or represented by proxy,
shall constitute a quorum of the stockholders for all purposes, unless the
representation of a larger number of shares shall be required by law, by the
Certificate of Incorporation or by these Bylaws, in which case the
representation of the number ofshares so required shall constitute a quorum;
provided that at any meeting.of the stockholders at which the holders of any
class of stock of the Corporation shall be entitled to vote separately as a
class, the holders of a majority in number of the total outstanding shares of
such class, present in person or represented by proxy, shall constitute a quorum
for purposes of such class vote unless the representation of a larger number of
shares of such class shall be required by law, by the Certificate of
Incorporation or by these Bylaws.
SECTION 5. ADJOURNED MEETINGS. Whether or not a quorum shall be present in
person or represented at any meeting of the stockholders, the holders of a
majority in number of the shares of stock of the Corporation present in person
or represented by proxy and entitled to vote at such meeting may adjourn from
time to time; provided, however, that if the holders of any class of stock of
the Corporation are entitled to vote separately as a class upon any matter at
such meeting, any adjournment of the meeting in respect of action by such class
upon such matter shall be determined by the holders of a majority of the shares
of such class present in person or represented by proxy and entitled to vote at
such meeting. When a meeting is adjourned to another time or place, notice need
not be given of the adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken. At the adjourned
meeting the stockholders, or the holders of any class of stock entitled to vote
separately as a class, as the case may be, may transact any business which might
have been transacted by them at the original meeting. If the adjournment is for
more than thirty days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the adjourned meeting.
SECTION 6. ORGANIZATION. Each annual and special meeting of Stockholders
held in person shall be presided over by a chairman, who shall have the
exclusive authority to, among other things, determine (a) whether business and
nominations have been properly brought before such meetings, and (b) the order
in which business and nominations properly brought before such meeting shall be
considered. The chairman of each annual and special meeting shall be the
Chairman of the Board of Directors, or such person as shall be appointed by the
resolution approved by the majority of the Board of Directors.
The Secretary of the Corporation shall act as Secretary of all meetings of
the stockholders; but in the absence of the Secretary, the Chairman may appoint
any person to act as Secretary of the meeting. It shall be the duty of the
Secretary to prepare and make, at least ten (10) days before every meeting of
stockholders, a complete list of stockholders entitled to vote at such meeting,
arranged in alphabetical order and showing the address of each stockholder and
the number of shares registered in the name of each stockholder. Such list shall
be open, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting or, if not so
specified, at the place where the meeting is to be held, for the ten (10) days
next preceding the meeting, to the examination of any stockholder, for any
purpose germane to the meeting, during ordinary business hours, and shall be
produced and kept at the time and place of the meeting during the whole time
thereof and subject to the inspection of any stockholder who may be present.
SECTION 7. VOTING. Except as otherwise provided in the Certificate of
Incorporation or by law, each stockholder shall be entitled to one vote for each
share of the capital stock of the Corporation registered in the name of such
stockholder upon the books of the Corporation. Each stockholder entitled to vote
at a meeting of stockholders or to express consent or dissent to corporate
action in writing without a meeting may authorize another person or persons to
act for him by proxy, but no such proxy shall be voted or acted upon after three
years from its date, unless the proxy provides for a longer period. When
directed by the presiding officer or upon the demand of any stockholder, the
vote upon any matter before a meeting of stockholders shall be by ballot. Except
as otherwise provided by law or by the Certificate of Incorporation, Directors
shall be elected by a plurality of the votes cast at a meeting of stockholders
by the stockholders entitled to vote in the election and, whenever any corporate
action, other than the election of Directors is to be taken, it shall be
authorized by a majority of the votes cast at a meeting of stockholders by the
stockholders entitled to vote thereon.
Shares of the capital stock of the Corporation belonging to the
Corporation or to another corporation, if a majority of the shares entitled to
vote in the election of directors of such other corporation is held, directly or
indirectly, by the Corporation, shall neither be entitled to vote nor be counted
for quorum purposes.
SECTION 8. INSPECTORS. When required by law or directed by the presiding
officer or upon the demand of any stockholder entitled to vote, but not
otherwise, the polls shall be opened and closed, the proxies and ballots shall
be received and taken in charge, and all questions touching the qualification of
voters, the validity of proxies and the acceptance or rejection of votes shall
be decided at any meeting of the stockholders by two or more Inspectors who may
be appointed by the Board of Directors before the meeting, or if not so
appointed, shall be appointed by the presiding officer at the meeting. If any
person so appointed fails to appear or act, the vacancy may be filled by
appointment in like manner.
SECTION 9. ACTION WITHOUT MEETING. Unless otherwise provided in the
Certificate of Incorporation of the Corporation, prior to a firm commitment
underwritten public offering of the Corporation's Common Stock in which gross
proceeds equal or exceed $25 million before deducting underwriters' discounts
and other expenses of the offering (the "Offering"), any action permitted or
required by law, the Certificate of Incorporation of the Corporation or these
Bylaws to be taken at a meeting of stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent or consents in writing,
setting forth the action so taken, shall be signed by the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted and shall be delivered to the Corporation by
delivery to its registered office in the state of incorporation, its principal
place of business, or an officer or agent of the Corporation having custody of
the book in which proceedings of meetings of stockholders are recorded. Delivery
made to the Corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested.
Every written consent shall bear the date of signature of each stockholder
who signs the consent, and no written consent shall be effective to take the
corporate action referred to therein unless, within sixty (60) days of the
earliest dated consent delivered in the manner required by this Section to the
Corporation, written consents signed by a sufficient number of holders to take
action are delivered to the Corporation by delivery to its registered office in
the state of incorporation, its principal place of business, or an officer or
agent of the Corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Delivery made to the Corporation's
registered office shall be by hand or by certified or registered mail, return
receipt requested.
Prompt notice of the taking of corporation action without a meeting by
less than a unanimous written consent shall be given by the Secretary to those
stockholders who have not consented in writing.
Subsequent to the Offering, any action required or permitted to be taken
by the Stockholders must be effected at a duly called annual or special meeting
of Stockholders and may not be effected without such a meeting by any consent in
writing by such holders.
ARTICLE II
BOARD OF DIRECTORS
SECTION 1. NUMBER AND TERM OF OFFICE; CLASSES. The business and affairs of
the Corporation shall be managed by or under the direction of a Board of
Directors, none of whom need be stockholders of the Corporation. The number of
Directors constituting the Board of Directors shall be fixed from time to time
by resolution passed by a majority of the Board of Directors. The directors of
the Corporation shall be divided into three classes as nearly equal in size as
is practicable, hereby designated Class I, Class II and Class III. The term of
office of the initial Class I directors shall expire at the 1998 annual meeting
of the stockholders, the term of office of the initial Class II directors shall
expire at the 1999 annual meeting of the stockholders and the term of office of
the initial Class III directors shall expire at the 2000 annual meeting of the
stockholders. For the purposes thereof, the initial Class I, Class II and Class
III directors shall be those directors so designated by the Board of Directors
at its meeting held June 27, 1997. At each annual meeting of stockholders,
commencing with the 1998 meeting of stockholders, each of the successors elected
to replace the directors of a class whose term shall have expired at such annual
meeting shall be elected to hold office until the third annual meeting next
succeeding his or her election and until his or her respective successor shall
have been duly elected and qualified. If the number of directors is hereafter
changed, any newly created directorships or decrease in directorships shall be
so apportioned among the classes as to make all classes as nearly equal in
number as is practicable, provided that no decrease in the number of directors
constituting the Board of Directors shall shorten the term of any remaining
incumbent director.
SECTION 2. REMOVAL, VACANCIES AND ADDITIONAL DIRECTORS. Except as
otherwise provided in the Certificate of Incorporation, the stockholders may, at
any special meeting the notice of which shall state that it is called for that
purpose, remove, with or without cause, any Director and fill the vacancy;
provided that whenever any Director shall have been elected by the holders of
any class of stock of the Corporation voting separately as a class under the
provisions of the Certificate of Incorporation, such Director may be removed and
the vacancy filled only by the holders of that class of stock voting separately
as a class. Except as otherwise provided in the Certificate of Incorporation,
vacancies caused by any such removal and not filled by the stockholders at the
meeting at which such removal shall have been made, or any vacancy caused by the
death or resignation of any Director or for any other reason, and any newly
created directorship resulting from any increase in the authorized number of
Directors, may be filled by the affirmative vote of a majority of the Directors
then in office, although less than a quorum, and any Director so elected to fill
any such vacancy or newly created directorship shall hold office until his
successor is elected and qualified or until his earlier resignation or removal.
When one or more Directors shall resign effective at a future date, a
majority of the Directors then in office, including those who have so resigned,
shall have power to fill such vacancy or vacancies, the vote thereon to take
effect when such resignation or resignations shall become effective, and each
Director so chosen shall hold office as herein provided in connection with the
filling of other vacancies
SECTION 3. PLACE OF MEETING. The Board of Directors may hold its meetings
in such place or places in the State of Delaware or outside the State of
Delaware as the Board from time to time shall determine.
SECTION 4. REGULAR MEETING. Regular meetings of the Board of Directors
shall be held at such times and places as the Board from time to time by
resolution shall determine. No notice shall be required for any regular meeting
of the Board of Directors, but a copy of every resolution fixing or changing the
time or place of regular meetings shall be mailed to every Director at least
five (5) days before the first meeting held in pursuance thereof.
SECTION 5. SPECIAL MEETING. Special meetings of the Board of Directors
shall be held whenever called by direction of the Chairman of the Board, the
Vice Chairman of the Board, the President or by any two of the Directors then in
office.
Notice of the day, hour and place of holding of each special meeting shall
be given by mailing the same at least two (2) days before the meeting or by
causing the same to be transmitted by telegraph, cable or wireless at least one
day bef6re the meeting to each Director. Unless otherwise indicated in the
notice thereof, any and all business other than an amendment of these Bylaws may
be transacted at any special meeting, and an amendment of these Bylaws may be
acted upon if the notice. of the meeting shall have stated that the amendment of
these Bylaws is one of the purposes of the meeting. At any meeting at which
every Director shall be present, even though without any notice, any business
may be transacted, including the amendment of these Bylaws.
SECTION 6. QUORUM. Subject to the provisions of Section 2 of this Article
II, a majority of the members of the Board of Directors in office (but, unless
the Board shall consist solely of one Director, in no case less than one-third
of the total number of Directors nor less than two Directors) shall constitute a
quorum for the transaction of business and the vote of the majority of the
Directors present at any meeting of the Board of Directors at which a quorum is
present shall be the act of the Board of Directors. If at any meeting of the
Board there is less than a quorum present, a majority of those present may
adjourn the meeting from time to time.
SECTION 7. ORGANIZATION. The Chairman of the Board, or in his absence, the
Vice Chairman of the Board, or in his absence, the President shall preside at
all meetings of the Board of Directors. In the absence of the Chairman of the
Board, the Vice Chairman of the Board and the President, a Chairman shall be
elected from the Directors present. The Secretary of the Corporation shall act
as Secretary of all meetings of the Directors; but in the absence of the
Secretary, the Chairman may appoint any person to act as Secretary of the
meeting.
SECTION 8. COMMITTEE. The Board of Directors may, by resolution passed by
a majority of the whole Board, designate one or more committees, each committee
to consist of one or more of the Directors of the Corporation. The Board may
designate one or more Directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of a member of a committee, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not he or they constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of any such absent or
disqualified member. Any such committee, to the extent provided by resolution
passed by a majority of the whole Board, shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and the affairs of the Corporation, and may authorize the seal of the
Corporation to be affixed to all papers which may require it; but no such
committee shall have the power or authority in reference to amending the
Certificate of Incorporation, adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the Corporation's property and assets, recommending to the
stockholders a dissolution of the Corporation or a revocation of a dissolution,
or amending these Bylaws; and unless such resolution, these Bylaws, or the
Certificate of Incorporation expressly so provide, no such committee shall have
the power or authority to declare a dividend or to authorize the issuance of
stock.
SECTION 9. CONFERENCE TELEPHONE MEETINGS. Unless otherwise restricted by
the Certificate of Incorporation or by these Bylaws, the members of the Board of
Directors or any committee designated by the Board, may participate in a meeting
of the Board or such committee, as the case may be, by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and such participation shall
constitute presence in person at such meeting.
SECTION 10. CONSENT OF DIRECTORS OR COMMITTEE IN LIEU OF MEETING. Unless
otherwise restricted by the Certificate of Incorporation or by these Bylaws, any
action required or permitted to be taken at any meeting of the Board of
Directors, or of any committee thereto, may be taken without a meeting if all
members of the Board or committee, as the case may be, consent thereto in
writing and the writing or writings are filed with the minutes of proceedings of
the Board or committee, as the case may be.
ARTICLE III
OFFICERS
SECTION 1. OFFICERS. The officers of the Corporation shall be a Chairman
of the Board, a Vice Chairman of the Board, a President, one or more Vice
Presidents, a Secretary and a Treasurer, and such additional officers, if any,
as shall be elected by the Board of Directors pursuant to the provisions of
Section 8 of this Article III. The Chairman of the Board, the Vice Chairman of
the Board, the President, one or more Vice Presidents, the Secretary and the
Treasurer shall be elected by the Board of Directors at its first meeting after
each annual meeting of the stockholders. The failure to hold such election shall
not of itself terminate the term of office of any officer. All officers shall
hold office at the pleasure of the Board of Directors. Any officer may resign at
any time upon written notice to the Corporation. Officers may, but need not, be
Directors. Any number of offices may be held by the same person.
All officers, agents and employees shall be subject to removal, with or
without cause, at any time by the Board of Directors. The removal of an officer
without cause shall be without prejudice to his contract rights, if any. The
election or appointment of an officer shall not of itself create contract
rights. All agents and employees other than officers elected by the Board of
Directors shall also be subject to removal, with or without cause, at any time
by the officers appointing them.
Any vacancy caused by the death of any officer, his resignation, his
removal, or otherwise, may be filled by the Board of Directors, and any officer
so elected shall hold office at the pleasure of the Board of Directors.
In addition to the powers and duties, of the officers of the Corporation
as set forth in these Bylaws, the officers shall have such authority and shall
perform such duties as from time to time may be determined by the Board of
Directors.
SECTION 2. POWERS AND DUTIES OF THE CHAIRMAN OF THE BOARD. The Chairman of
the Board shall be the chief executive officer of the Corporation and, subject
to the control of the Board of Directors, shall have general charge and control
of all its business and affairs and shall have all powers and shall perform all
duties incident to the office of Chairman of the Board. He shall preside at all
meetings of the stockholders and at all meetings of the Board of Directors and
shall have such other powers and perform such other duties as may from time to
time be assigned to him by these Bylaws or by the Board of Directors.
SECTION 3. POWERS AND DUTIES OF THE VICE CHAIRMAN OF THE BOARD. The Vice
Chairman of the Board, shall be the chief executive officer of the Corporation
and, subject to the control of the Board of Directors and the Chairman of the
Board, shall have general charge and control of all its business and affairs and
shall have all powers and shall perform all duties incident to the office of
Vice Chairman of the Board. In the absence of the Chairman of the Board, he
shall preside at all meetings of the stockholders and at all meetings of the
Board of Directors and shall have such other powers and perform such other
duties as may from time to time to be assigned to him by these Bylaws or by the
Board of Directors or the Chairman of the Board.
SECTION 4. POWERS AND DUTIES OF THE PRESIDENT. The President shall be the
chief operating officer of the Corporation and, subject to the control of the
Board of Directors, the Chairman of the Board and the Vice Chairman of the
Board, shall have general charge and control of all its operations and shall
have all powers and shall perform all duties incident to the office of
President. In the absence of the Chairman of the Board and the Vice Chairman of
the Board, he shall preside at all meetings of the stockholders and at all
meetings of the Board of Directors and shall have such other powers and perform
such other duties as may from time to time be assigned to him by these Bylaws or
by the Board of Directors, the Chairman of the Board or the Vice Chairman of the
Board.
SECTION 5. POWERS AND DUTIES OF THE VICE PRESIDENTS. Each Vice President
shall have all powers and shall perform all duties incident to the office of
Vice President and shall have such other powers and perform such other duties as
may from time to time be assigned to him by these By laws or by the Board of
Directors, the Chairman of the Board, the Vice Chairman of the Board or the
President.
SECTION 6. POWERS AND DUTIES OF THE SECRETARY. The Secretary shall keep
the minutes of all meetings of the Board of Directors and the minutes of all
meetings of the stockholders in books provided for that purpose; he shall attend
to the giving or serving of all notices of the Corporation; he shall have
custody of the corporate seal of the Corporation and shall affix the same to
such documents and other papers as the Board of Directors or the President shall
authorize and direct; he shall have charge of the stock certificate books,
transfer books and stock ledgers and such other books and papers as the Board of
Directors or the President shall direct, all of which shall at all reasonable
times be open to the examination of any Director, upon application, at the
office of the Corporation during business hours; and whenever required by the
Board of Directors, the Chairman of the Board, the Vice Chairman of the Board or
the President shall render statements of such accounts; and he shall have all
powers and shall perform all duties incident to the office of Secretary and
shall also have such other powers and shall perform such other duties as may
from time to time be assigned to him by these Bylaws or by the Board of
Directors, the Chairman of the Board., the Vice Chairman of the Board or the
President.
SECTION 7. POWERS AND DUTIES OF THE TREASURER. The Treasurer shall have
custody of, and when proper shall pay out, disburse or otherwise dispose of, all
funds and securities of the Corporation which may have come into his hands; he
may endorse on behalf of the Corporation for collection checks, notes and other
obligations and shall deposit the same to the credit of the Corporation in such
bank or banks or depositary or depositaries as the Board of Directors may
designate; he shall sign all receipts and vouchers for payments made to the
Corporation; he shall enter or cause to be entered regularly in the books of the
Corporation kept for the purpose full and accurate accounts of all moneys
received or paid or otherwise disposed of by him and whenever required by the
Board of Directors, the Chairman of the Board, the Vice Chairman of the Board or
the President shall render statements of such accounts; he shall, at all
reasonable times, exhibit his books and accounts to any Director of the
Corporation upon application at the office of the Corporation during business
hours; and he shall have all powers and he shall perform all duties incident to
the office of Treasurer and shall also have such other powers and shall perform
such other duties as may from time to time be assigned to him by these Bylaws or
by the Board of Directors, the Chairman of the Board, the Vice Chairman of the
Board or the President.
SECTION 8. ADDITIONAL OFFICERS. The Board of Directors may from time to
time elect such other officers (who may but need not be Directors), including a
Controller, Assistant Treasurers, Assistant Secretaries and Assistant
Controllers, as the Board may deem advisable and such officers shall have such
authority and shall perform such duties as may from time to time be assigned to
them by the Board of Directors, the Chairman of the Board, the Vice Chairman of
the Board or the President.
The Board of Directors may from time to time by resolution delegate to any
Assistant Treasurer or Assistant Treasurers any of the powers or duties herein
assigned to the Treasurer; and may similarly delegate to any Assistant Secretary
or Assistant Secretaries any of the powers or duties assigned to the Secretary.
SECTION 9. GIVING OF BOND BY OFFICERS. All officers of the Corporation,
if required to do so by the Board of Directors, shall furnish bonds to the
Corporation for the faithful performance of their duties, in such penalties and
with such conditions and security as the Board shall require.
SECTION 10. VOTING UPON STOCKS. Unless otherwise ordered by the Board of
Directors, the Chairman of the Board, the Vice Chairman of the Board, the
President or any Vice President shall have full power and authority on behalf of
the Corporation to attend and to act and to vote, or in the name of the
Corporation to execute proxies to vote, at any meeting of stockholders of any
corporation in which the Corporation may hold stock, and at any such meeting
shall possess and may exercise, in person or by proxy, any and all rights,
powers and privileges incident to the ownership of such stock. The Board of
Directors may from time to time, by resolution, confer like powers upon any
other person or persons.
SECTION 11. COMPENSATION OF OFFICERS. The officers of the Corporation
shall be entitled to receive such compensation for their services as shall from
time to time be determined by the Board of Directors.
ARTICLE IV
INDEMNIFICATION OF DIRECTORS AND OFFICERS
SECTION 1. NATURE OF INDEMNITY. The Corporation shall indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he is or was or has
agreed to become a Director or officer of the Corporation, or is or was serving
or has agreed to serve at the request of the Corporation as a Director or
officer of another corporation, partnership, joint venture, trust or other
enterprise, or by reason of any action alleged to have been taken or omitted in
such capacity, and may indemnify any person who was or is a party or is
threatened to be made a party to such an action, suit or proceeding by reason of
the fact that he is or was or has agreed to become an employee or agent of the
Corporation, or is or was serving or has agreed to serve at the request of the
Corporation as an employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him or on his behalf in connection with such action, suit or
proceeding and any appeal therefrom, if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful; except that in the case of
an action or suit by or in the right of the Corporation to procure a judgment in
its favor (1) such indemnification shall be limited to expenses (including
attorneys' fees) actually and reasonably incurred by such person in the defense
or settlement of such action or suit, and (1) no indemnification shall be made
in respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Corporation unless and only to the extent that the
Delaware Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Delaware Court of
Chancery or such other court shall deem proper.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal action
or proceeding, had reasonable cause to believe that his conduct was unlawful.
SECTION 2. SUCCESSFUL DEFENSE. To the extent that a Director, officer,
employee or agent of the Corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in Section I
of this Article IV or in defense of any claim, issue or matter therein, he shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
SECTION 3. DETERMINATION THAT INDEMNIFICATION IS PROPER. Any
indemnification of a Director or Officer of the Corporation under Section I of
this Article IV (unless ordered by a court) shall be made by the Corporation
unless a determination is made that indemnification of the Director or officer
is not proper in the circumstances because he has not met the applicable
standard of conduct set forth in Section I. Any indemnification of an employee
or agent of the Corporation under Section I (unless ordered by a court) may be
made by the Corporation upon a determination that indemnification of the
employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in Section 1. Any such determination
shall be made (1) by the Board of Directors by a majority vote of a quorum
consisting of Directors who were not parties to such action, suit or proceeding,
or (2) if such a quorum is not obtainable, or, even if obtainable .a quorum of
disinterested Directors so directs, by independent legal counsel in a written
opinion, or (3) by the stockholders.
SECTION 4. ADVANCE PAYMENT OF EXPENSES. Unless the Board of Directors
otherwise determines in a specific case, expenses incurred by a Director or
officer in defending a civil or criminal action, suit or proceeding shall be
paid by the Corporation in advance of the final disposition of such action, suit
or proceeding upon receipt of an undertaking by or on behalf of the Director or
officer to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the Corporation as authorized in this Article IV.
Such expenses incurred by other employees and agents may be so paid upon such
terms and conditions, if any, as the Board of Directors deems appropriate. The
Board of Directors may authorize the Corporation's legal counsel to represent
such Director, officer, employee or agent in any action, suit or proceeding,
whether or not the Corporation is a party to such action, suit or proceeding.
SECTION 5. SURVIVAL: PRESERVATION OF OTHER RIGHTS. The foregoing
indemnification provisions shall be deemed to be a contract between the
Corporation and each Director, officer, employee and agent who serves in any
such capacity at any time while these provisions as well as the relevant
provisions of the Delaware General Corporation Law are in effect and any repeal
or modification thereof shall not affect any right or obligation then existing
with respect to any state of facts then or previously existing or any action,
suit, or proceeding previously or thereafter brought or threatened based in
whole or in part upon any such state of facts. Such a contract right may not be
modified retroactively without the consent of such Director, officer, employee
or agent.
The indemnification provided by this Article IV shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any bylaw, agreement, vote of stockholders or disinterested Directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a Director, officer,. employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person. The
Corporation may enter into an agreement with any of its Directors, officers,
employees or agents providing for indemnification and advancement of expenses,
including attorneys fees, that may change, enhance, qualify or limit any right
to indemnification or advancement of expenses created by this Article IV.
SECTION 6. SEVERABILITY. If this Article IV or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each Director or officer and may
indemnify each employee or agent of the Corporation as to costs, charges and
expenses (including attorneys' fees), judgment, fines and amounts paid in
settlement with respect to any action, suit or proceeding, whether civil,
criminal, administrative or investigative, including an action by or in the
right of the Corporation, to the fullest extent permitted by any applicable
portion of this Article IV that shall not have been invalidated and to the
fullest extent permitted by applicable law.
SECTION 7. SUBROGATION. In the event of payment of indemnification to a
person described in Section I of this Article IV, the Corporation shall be
subrogated to the extent of such payment to any right of recovery such person
may have and such person, as a condition of receiving indemnification from the
Corporation, shall execute all documents and do all things that the Corporation
may deem necessary or desirable to perfect such right of recovery, including the
execution of such documents necessary to enable the Corporation effectively to
enforce any such recovery.
SECTION 8. NO DUPLICATION OF PAYMENTS. The Corporation shall not be liable
under this Article IV to make any payment in connection with any claim made
against a person described in Section I of this Article IV to the extent such
person has otherwise received payment (under any insurance policy, bylaw or
otherwise) of the amounts otherwise indemnifiable hereunder.
ARTICLE V
STOCK-SEAL-FISCAL YEAR
SECTION 1. CERTIFICATES FOR SHARES OF Stock. The certificates for shares
of stock of the Corporation shall be in such form, not inconsistent with the
Certificate of Incorporation, as shall be approved by the Board of Directors.
All certificates shall be signed by the Chairman of the Board, the Vice Chairman
of the Board, the President or a Vice President and by the Secretary or an
Assistant Secretary or the Treasurer or an Assistant Treasurer, and shall not be
valid unless so signed.
In case any officer or officers who shall have signed any such certificate
or certificates shall cease to be such officer or officers of the Corporation,
whether because of death, resignation or otherwise, before such certificate or
certificates shall have been delivered by the Corporation, such certificate or
certificates may nevertheless be issued and delivered as though the person or
persons who signed such certificate or certificates had not ceased to be such
officer or officers of the Corporation.
All certificates for shares of stock shall be consecutively numbered as
the same are issued. The name of the person owning the shares represented
thereby with the number of such shares and the date of issue thereof shall be
entered on the books of the Corporation.
Except as hereinafter provided, all certificates surrendered to the
Corporation for transfer shall be canceled, and no new certificates shall be
issued until former certificates for the same number of shares have been
surrendered and canceled.
SECTION 2. LOST, STOLEN OR DESTROYED CERTIFICATES. Whenever a person
owning a certificate for shares of stock of the Corporation alleges that it has
been lost, stolen or destroyed, he shall file in the office of the Corporation
an affidavit setting forth, to the best of his knowledge and belief, the time,
place and circumstances of the loss, theft or destruction, and, if required by
the Board of Directors, a bond of indemnity or other indemnification sufficient
in the opinion of the Board of Directors to indemnify the Corporation and its
agents against any claim that may be made against it or them on account of the
alleged loss, theft or destruction of any such certificate or the issuance of a
new certificate in replacement therefor. Thereupon the Corporation may cause to
be issued to such person a new certificate in replacement for the certificate
alleged to have been lost, stolen or destroyed. Upon the stub of every new
certificate so issued shall be noted the fact of such issue and the number, date
and the name of the registered owner of the lost, stolen or destroyed
certificate in lieu of which the new certificate is issued.
SECTION 3. TRANSFER OF SHARES. Shares of stock of the Corporation shall be
transferred on the books of the Corporation by the holder thereof, in person or
by his attorney duly authorized in writing, upon surrender and cancellation of
certificates for the number of shares of stock to be transferred, except as
provided in Section 2 of this Article IV.
SECTION 4. REGULATIONS. The Board of Directors shall have power and
authority to make such rules and regulations as it may deem expedient concerning
the issue, transfer and registration of certificates for shares of stock of the
Corporation.
SECTION 5. RECORD DATE. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting or to receive payment of any dividend or other distribution or
allotment of any rights, or to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any other lawful action,
as the case may be, the Board of Directors may fix, in advance, a record date,
which shall not be (i) more than sixty (60) nor less than ten (10) days before
the date of such meeting, or (ii) in the case of corporate action to be taken by
consent in writing without a meeting prior to, or more than ten (10) days after,
the date upon which the resolution fixing the record date is adopted by the
Board of Directors, or (iii) more than sixty (60) days prior to any other
action.
If no record date is fixed, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given or,
if notice is waived, at the close of business on the day next preceding the day
on which the meeting is held; the record date for determining stockholders
entitled to express consent to corporate action in writing without a meeting,
when no prior action by the Board of Directors is necessary, shall be the day on
which the first written consent is delivered to the Corporation; and the record
date for determining stockholders for any other purpose shall be at the close of
business on the day on which the Board of Directors adopts the resolution
relating thereto. A determination of stockholders of record entitled to notice
of or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
SECTION 6. DIVIDENDS. Subject to the provisions of the Certificate of
Incorporation, the Board of Directors shall have power to declare and pay
dividends upon shares of stock of the Corporation, but only out of funds
available for the payment of dividends as provided by law.
Subject to the provisions of the Certificate of Incorporation, any
dividends declared upon the stock of the Corporation shall be payable on such
date or dates as the Board of Directors shall determine. If the date fixed for
the payment of any dividend shall in any year fall upon a legal holiday, then
the dividend payable on such date shall be paid on the next day not a legal
holiday.
SECTION 7. CORPORATE SEAL. The Board of Directors shall provide a suitable
seal, containing the name of the Corporation, which seal shall be kept in the
custody of the Secretary. A duplicate of the seal may be kept and be used by any
officer of the Corporation designated by the Board of Directors, the Chairman of
the Board, the Vice Chairman of the Board or the President.
SECTION 8. FISCAL YEAR. The fiscal year of the Corporation shall be
such fiscal year as the Board of Directors from time to time by resolution
shall determine.
ARTICLE VI
MISCELLANEOUS PROVISIONS
SECTION 1. CHECKS, NOTES, ETC. All checks, drafts, bills of exchange,
acceptances, notes or other obligations or orders for the payment of money shall
be signed and, if so required by the Board of Directors, countersigned by such
officers of the Corporation and/or other persons as the Board of Directors from
time to time shall designate.
Checks, drafts, bills of exchange, acceptances, notes, obligations and
orders for the payment of money made payable to the Corporation may be endorsed
for deposit to the credit of the Corporation with a duly authorized depository
by the Treasurer and/or such other officers or persons as the Board of Directors
from time to time may designate.
SECTION 2. LOANS. No loans and no renewals of any loans shall be
contracted on behalf of the Corporation except as authorized by the Board of
Directors. When authorized so to do, any officer or agent of the Corporation may
effect loans and advances for the Corporation from any bank, trust company or
other institution or from any firm, corporation or individual, and for such
loans and advances may make, execute and deliver promissory notes, bonds or
other evidences of indebtedness of the Corporation. When authorized so to do,
any officer or agent of the Corporation may pledge, hypothecate or transfer, as
security for the payment of any and all loans, advances, indebtedness and
liabilities of the Corporation, any and all stocks, securities and other
personal property at any time held by the Corporation, and to that end may
endorse, assign and deliver the same. Such authority may be general or confined
to specific instances.
SECTION 3. CONTRACTS. Except as otherwise provided in these Bylaws or by
law or as otherwise directed by the Board of Directors, the Chairman of the
Board, the Vice Chairman of the Board, the President or any Vice President shall
be authorized to execute and deliver, in the name and on behalf of the
Corporation, all agreements, bonds, contracts, deeds, mortgages, and other
instruments, either for the Corporation's own account or in a fiduciary or other
capacity, and the seal of the Corporation, if appropriate, shall be affixed
thereto by any of such officers or the Secretary or an Assistant Secretary. The
Board of Directors, the Chairman of the Board, the Vice Chairman of the Board,
the President or any Vice President designated by the Board of Directors, the
Chairman of the Board, the Vice Chairman of the Board or the President may
authorize any other officer, employee or agent to execute and deliver, in the
name and on behalf of the Corporation, agreements, bonds, contracts, deeds,
mortgages, and other instruments, either for the Corporation's own account or in
a fiduciary or other capacity, and, if appropriate, to affix the seal of the
Corporation thereto. The grant of such authority by the Board or any such
officer may be general or confined to specific instances.
SECTION 4. WAIVERS OF NOTICE. Whenever any notice whatever is required to
be given by law, by the Certificate of Incorporation or by these Bylaws to any
person or persons, a waiver thereof in writing, signed by the person or persons
entitled to the notice, whether before or after the time stated therein, shall
be deemed equivalent thereto.
SECTION 5. OFFICES OUTSIDE OF DELAWARE. Except as otherwise required by
the laws of the State of Delaware, the Corporation may have an office or offices
and keep its books, documents and papers outside of the State of Delaware at
such place or places as from time to time may be determined by the Board of
Directors, the Chairman of the Board or the Vice Chairman of the Board.
ARTICLE VII
AMENDMENTS
The Board of Directors shall have the power to adopt, amend and repeal
from time to time Bylaws of the Corporation, subject to the right of the
stockholders entitled to vote with respect thereto to amend or repeal such
Bylaws as adopted or amended by the Board of Directors; provided, however, that
unless a different percentage is called for in a particular provision hereof,
any amendment or repeal of the Bylaws of the Corporation by the stockholders
shall be by a vote of the holders of at least 66 2/3 percent of the total votes
eligible to be cast by holders of voting stock with respect to such amendment or
repeal.
EXHIBIT 10.17 TO 10-K
EXECUTION COUNTERPART
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") between Shambaugh & Son, Inc.,
an Indiana corporation (the "Company") and a wholly-owned subsidiary of Comfort
Systems USA, Inc., a Delaware corporation ("Comfort"), and Mark Shambaugh
("Executive") is entered into and effective as of the 15th day of November,
1998. This Agreement supersedes any other employment agreements or
understandings, written or oral, between the Company and Executive.
R E C I T A L S
The following statements are true and correct:
As of the date of this Agreement, the Company, Comfort and the other
subsidiaries and affiliates of each (collectively, the "Comfort Group") are
engaged primarily in the business of mechanical contracting services, including
heating, ventilation and air conditioning, plumbing, piping and electrical and
related services ("Services").
Executive is employed hereunder by the Company in a confidential
relationship wherein Executive, in the course of his employment with the
Company, has and will continue to become familiar with and aware of information
as to the Comfort Group's customers, specific manner of doing business,
including the processes, techniques and trade secrets utilized by the Comfort
Group, and future plans with respect thereto, all of which has been and will be
established and maintained at great expense to the Company and Comfort. This
information is a trade secret and constitutes the valuable goodwill of the
Company and Comfort.
NOW, THEREFORE, in consideration of the mutual promises, terms, covenants
and conditions set forth herein and the performance of each, the Company and
Executive hereby agree as follows:
A G R E E M E N T S
1. EMPLOYMENT AND DUTIES.
(1) The Company hereby employs Executive as its Chief Executive
Officer and Executive hereby accepts this employment upon the terms and
conditions herein contained. Executive agrees to devote substantially all
of his business time, attention and efforts to promote and further the
business of the Company.
(2) Executive shall faithfully adhere to, execute and fulfill all
lawful policies established by the Company and Comfort, including
Comfort's Corporate Compliance Policy.
(3) Executive shall not, during the term of Executive's employment
hereunder, be engaged in any other business activity pursued for gain,
profit or other pecuniary advantage if such activity interferes in any
material respect with Executive's duties and responsibilities hereunder;
PROVIDED, HOWEVER, that Executive may engage in the activities listed on
Exhibit A hereto so long as Executive does not devote more time to such
activities than Executive has historically devoted to such activities. The
foregoing limitations shall not be construed as prohibiting Executive from
making personal investments in such form or manner as will neither require
Executive's services in the operation or affairs of the companies or
enterprises in which such investments are made nor violate the terms of
Section 4.
2. COMPENSATION. For all services rendered by Executive, the Company shall
compensate Executive as follows:
(1) BASE SALARY. Effective the date hereof, the base salary payable
to Executive shall be $300,000 per year, payable on a regular basis in
accordance with the Company's standard payroll procedures, but not less
often than monthly. On at least an annual basis, the Company will review
Executive's performance and may make increases to such base salary if, in
its discretion, any such increase is warranted.
(2) EXECUTIVE PERQUISITES, BENEFITS AND OTHER COMPENSATION.
Executive shall be entitled to receive additional benefits and
compensation from the Company in such form and to the extent specified
below:
(1) Coverage, subject to contributions required of employees
generally, for Executive and Executive's dependent family members
under health, hospitalization, disability, dental, life and other
insurance plans that the Company may have in effect from time to
time for the benefit of its employees.
(2) Reimbursement for all business travel and other
out-of-pocket expenses reasonably incurred by Executive in the
performance of Executive's services pursuant to this Agreement.
Reimbursable expenses shall be appropriately documented in
reasonable detail by Executive, and shall be in a format consistent
with the Company's expense reporting policy.
(3) In addition to the benefits described in Section 2(b)(i),
Executive shall be entitled to continue to participate in such other
benefit programs, including, but not limited to, auto allowance and
401(k) plan, as shall be granted from time to time by the Company to
its key employees in a manner consistent with its past practice.
(4) Executive may, in his discretion, take up to eight weeks
of vacation time during any calendar year; PROVIDED, HOWEVER, that
in no event shall Executive take more than three consecutive weeks
of vacation time; and PROVIDED, FURTHER, that in no event shall
Executive's vacation time accrue from year to year.
3. CONFIDENTIALITY.
(1) CONFIDENTIAL INFORMATION. As used herein, the term "Confidential
Information" means any information, technical data or know-how of the
Company and the other members of the Comfort Group, including, but not
limited to, that which relates to customers, business affairs, business
plans, financial matters, financial plans and projections, pending and
proposed acquisitions, operational and hiring matters, contracts and
agreements, marketing, sales and pricing, prospects of the Comfort Group,
and any information, technical data or know-how that contain or reflect
any of the foregoing, whether prepared by the Company, any other member of
the Comfort Group, Executive or any other person or entity; PROVIDED,
HOWEVER, that the term "Confidential Information" shall not include
information, technical data or know-how which is generally available to
the public not as a result of any breach of this Agreement by Executive.
(2) NO DISCLOSURE. Except in the performance of Executive's duties
as an executive of the Company, Executive will not, during or after the
Executive's engagement with the Company, disclose to any person or entity
or use, for any reason whatsoever, any Confidential Information, unless
such disclosure is required by law or the order of any governmental
authority under color of law; PROVIDED, HOWEVER, that prior to disclosing
any information pursuant to this Section 3(b), Executive shall, if
possible, give prior written notice of the disclosure of such information
to the Company and shall provide the Company with the opportunity to
contest such disclosure.
4. NON-COMPETITION AGREEMENT.
(1) COMPETITION. Executive will not, during the period of
Executive's employment by or with the Company, and for a period of two
years immediately following the termination of Executive's employment, for
any reason whatsoever, directly or indirectly, on behalf of Executive or
on behalf of or in conjunction with any other person, company,
partnership, corporation or business of whatever nature:
(1) except for the activities listed on Exhibit A hereto,
engage, as an officer, director, shareholder, owner, partner, joint
venturer, or in a managerial capacity, whether as an employee,
independent contractor, consultant or advisor, or as a sales
representative, or make or guarantee loans or invest, in or for any
business engaged in Services in competition with the Company or any
other member of the Comfort Group anywhere within the United States
or Canada (the "Territory");
(2) call upon any person who is, at that time, within the
Territory, an employee of the Company or any other member of the
Comfort Group in a technical, managerial or sales capacity for the
purpose or with the intent of enticing such employee away from or
out of the employ of the Company or such other member of the Comfort
Group;
(3) call upon any person or entity which is at that time, or
which has been within two years prior to that time, a customer of
the Company or any other member of the Comfort Group for the purpose
of soliciting or selling Services; or
(4) call upon any prospective acquisition candidate, on
Executive's own behalf or on behalf of any competitor, which
acquisition candidate either was called upon by Executive on behalf
of the Company or any other member of the Comfort Group or was the
subject of an acquisition analysis made by Executive on behalf of
the Company or any other member of the Comfort Group for the purpose
of acquiring such acquisition candidate.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit Executive from acquiring as an investment not more than 1% of any
class of securities of a competing business whose securities are traded on
a national securities exchange or on an over-the-counter or similar
market.
(2) NO VIOLATION. It is specifically agreed that the period during
which the agreements and covenants of Executive made in this Section 4
shall be effective shall be computed by excluding from such computation
any time during which Executive is in violation of any provision of this
Section 4.
5. TERM; TERMINATION; RIGHTS ON TERMINATION. The term of this Agreement
shall begin on the date hereof and continue for five years (the "Term"), unless
terminated sooner as herein provided. This Agreement and Executive's employment
may be terminated in any one of the following ways:
(1) DEATH. The death of Executive shall immediately terminate this
Agreement with no severance compensation due to Executive's estate.
(2) DISABILITY. If, as a result of incapacity due to physical or
mental illness or injury, Executive shall have been absent from
Executive's full-time duties hereunder for four consecutive months, then
30 days after receiving written notice (which notice may occur before or
after the end of such four-month period, but which shall not be effective
earlier than the last day of such four-month period), the Company may
terminate Executive's employment hereunder, provided Executive is unable
to resume his full-time duties at the conclusion of such notice period. In
the event this Agreement is terminated as a result of Executive's
disability, Executive shall receive from the Company Executive's base
salary at the rate then in effect for the lesser of the time period
remaining under the Term or one year, and such amount shall be payable
during such period in a manner consistent with Company's standard pay
practices. The amount payable hereunder shall be decreased by the amount
of benefits otherwise actually paid by the Company to Executive or on
Executive's behalf or under any insurance procured by the Company.
(3) CAUSE. The Company may terminate this Agreement 10 days after
written notice to Executive for cause, which shall be any of the
following: (i) Executive's willful or material breach of this Agreement,
which breach is not cured within 10 days after written notice by the
Company to Executive; (ii) Executive's gross negligence in the performance
of any of Executive's material duties and responsibilities hereunder,
which gross negligence is not cured within 10 days after written notice by
the Company to Executive; (iii) Executive's intentional nonperformance of
any of Executive's material duties and responsibilities hereunder, which
nonperformance is not cured within 10 days after written notice by the
Company to Executive; (iv) Executive's willful dishonesty, fraud or
misconduct with respect to the business or affairs of the Company or any
other member of the Comfort Group; (v) Executive's conviction of a felony
crime; (vi) Executive's confirmed positive illegal drug test result; (vii)
sexual harassment by Executive; or (viii) willful or material failure by
Executive to comply with Comfort's Corporate Compliance Policy. In the
event of a termination for cause, as enumerated above, Executive shall
have no right to any severance compensation.
(4) WITHOUT CAUSE. At any time after the commencement of Executive's
employment, Executive or the Company may, without cause, terminate this
Agreement and Executive's employment, effective 30 days after receipt of
written notice. Should Executive be terminated by the Company without
cause during the first three years of the Term (the "Initial Term"),
Executive shall receive from the Company Executive's base salary at the
rate then in effect for the greater of the time period remaining under the
Initial Term or for one year, and such amount shall be payable in a
lump-sum payment due on the effective date of termination. Should
Executive be terminated by the Company without cause during the final two
years of the Term, Executive shall receive from the Company Executive's
base salary at the rate then in effect for one year, and such amount shall
be payable during such period in a manner consistent with the Company's
standard pay practices. If Executive resigns or otherwise terminates
Executive's employment, Executive shall receive no severance compensation.
6. RETURN OF COMPANY PROPERTY. All records, plans, manuals, "field
guides", memoranda, lists, documents, statements and other property delivered to
Executive by or on behalf of the Company or any other member of the Comfort
Group, by any customer of the Company or any other member of the Comfort Group
(including, but not limited to, any such customers obtained by Executive), by
any acquisition candidate of the Company or any other member of the Comfort
Group, and all records compiled by Executive which pertain to the business or
activities of the Company or any other member of the Comfort Group shall be and
remain the property of the Company and shall be subject at all times to its
discretion and control. Likewise, all correspondence with customers,
representatives or acquisition candidates, reports, records, charts, advertising
materials, and any data collected by Executive or by or on behalf of the Company
or any other member of the Comfort Group or any representative of any of them
shall be delivered promptly to the Company without request by it upon
termination of Executive's employment with the Company.
7. INVENTIONS. Executive shall disclose promptly to the Company any and
all significant conceptions and ideas for inventions, improvements and valuable
discoveries, whether patentable or not, which are conceived or made by
Executive, solely or jointly with another, during the period of Executive's
employment with the Company or within one year thereafter, and which are
directly related to the business or activities of the Company or which Executive
conceives as a result of his employment by the Company. Executive hereby assigns
and agrees to assign all Executive's interests therein to the Company or its
nominee. Whenever requested to do so by the Company, Executive shall execute any
and all applications, assignments or other instruments that the Company shall
deem necessary to apply for and obtain Letters Patent of the United States or
any foreign country or to otherwise protect the Company's interest therein.
8. TRADE SECRETS. Executive agrees that Executive will not, during or
after the Term, disclose the specific terms of the Company's or any other member
of the Comfort Group's relationships or agreements with significant vendors or
customers or any other significant and material trade secret of the Company or
any other member of the Comfort Group, whether in existence or proposed, to any
person, firm, partnership, corporation or business for any reason or purpose
whatsoever.
9. NO PRIOR AGREEMENTS. Executive hereby represents and warrants to the
Company that the execution of this Agreement by Executive and Executive's
employment by the Company and the performance of Executive's duties hereunder
will not violate or be a breach of any agreement with a former employer, client
or any other person or entity. Further, Executive agrees to indemnify the
Company for any claim, including, but not limited to, attorneys' fees and
expenses of investigation, by any such third party that such third party may now
have or may hereafter come to have against the Company based upon or arising out
of any non-competition agreement, invention or secrecy agreement between
Executive and such third party which was in existence as of the date of this
Agreement.
10. ASSIGNMENT; BINDING EFFECT. Executive understands that Executive has
been selected for employment by the Company on the basis of Executive's personal
qualifications, experience and skills. Executive agrees, therefore, that
Executive cannot assign all or any portion of Executive's performance under this
Agreement. Executive, Executive's spouse and the estate of each shall not have
any right to encumber or dispose of any right to receive payments hereunder, it
being understood that such payments and the right thereto are nonassignable and
nontransferable; PROVIDED, HOWEVER, that in the event of the death of Executive,
any payments that Executive is entitled to receive may be assigned to the
beneficiaries of Executive's estate. Subject to the preceding three sentences
and the express provisions of Section 11, this Agreement shall be binding upon,
inure to the benefit of and be enforceable by the parties hereto and their
respective heirs, legal representatives, successors and assigns.
11. COMPLETE AGREEMENT. Executive has no oral representations,
understandings or agreements with the Company or any of its officers, directors
or representatives covering the same subject matter as this Agreement. This
Agreement is the final, complete and exclusive statement and expression of the
agreement between the Company and Executive and of all the terms of this
Agreement, and it cannot be varied, contradicted or supplemented by evidence of
any prior or contemporaneous oral or written agreements.
12. AMENDMENT; WAIVER. This Agreement may not be modified except in a
writing signed by the parties, and no term of this Agreement may be waived
except by a writing signed by the party waiving the benefit of such term.
13. NOTICE. Whenever any notice is required hereunder, it shall be given
in writing addressed as follows:
To the Company: Shambaugh & Son, Inc.
7614 Opportunity Drive
Ft. Wayne, IN 46801
Attention: President
with a copy to: Comfort Systems USA, Inc.
777 Post Oak Boulevard, Suite 500
Houston, TX 77056
Attention: General Counsel
To Executive: Mark Shambaugh
2233 East Cedar Canyons Road
Ft. Wayne, IN 46845
Notice shall be deemed given and effective on the earlier of five days after the
deposit in the U.S. mail of a writing addressed as above and sent first class
mail, certified, return receipt requested, or when actually received. Either
party may change the address for notice by notifying the other party of such
change in accordance with this Section 13.
14. SEVERABILITY; ENFORCEABILITY. If any portion of this Agreement is held
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall be
given to the intent manifested by the portion held invalid or inoperative.
Moreover, in the event any court of competent jurisdiction shall determine that
the scope, time or territorial restrictions set forth in any covenant contained
herein are unreasonable, then it is the intention of the parties that such
restrictions be enforced to the fullest extent which the court deems reasonable,
and this Agreement shall thereby be reformed. Each of the covenants contained in
this Agreement shall be construed as an agreement independent of any other
provision in this Agreement, and the existence of any claim or cause of action
of Executive against the Company, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by the Company of
such covenants.
15. SURVIVAL. The provisions of Sections 3, 4, 6, 7 and 8 shall survive
the termination of this Agreement.
16. SPECIFIC PERFORMANCE. Because of the difficulty of measuring economic
losses to the Company as a result of a breach of the covenants contained in
Sections 3, 4, 6, 7 and 8 and because of the immediate and irreparable damage
that could be caused to the Company for which it would have no other adequate
remedy, Executive agrees that the Company shall be entitled to specific
performance and that such covenants may be enforced by the Company in the event
of any breach or threatened breach by Executive, by injunctions, restraining
orders and other appropriate equitable relief. Executive further agrees to waive
any requirement for the securing or posting of any bond in connection with the
obtaining of any such injunctive or other equitable relief.
17. ARBITRATION. With the exception of Sections 4 and 8, any unresolved
dispute or controversy arising under or in connection with this Agreement shall
be settled exclusively by arbitration, conducted by a single arbitrator in the
State of Indiana, in accordance with the National Rules for the Resolution of
Employment Disputes of the American Arbitration Association ("AAA") then in
effect, provided that the parties may agree to use an arbitrator other than
those provided by the AAA. The arbitrator shall not have the authority to add
to, detract from, or modify any provision hereof nor to award punitive damages
to any injured party. The arbitrator shall have the authority to order back-pay,
severance compensation, reimbursement of costs, including those incurred to
enforce this Agreement, and interest thereon. A decision by a the arbitrator
shall be final and binding. Judgment may be entered on the arbitrator's award in
any court having jurisdiction. Responsibility for bearing the cost of the
arbitration shall be determined by the arbitrator and shall be proportional to
the arbitrator's decision on the merits.
18. ATTORNEYS' FEES. If any litigation is instituted to enforce or
interpret the provisions of this Agreement or the transactions described herein,
the prevailing party in such action shall be entitled to recover such party's
reasonable attorneys' fees and other costs from the other party hereto.
19. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Indiana.
20. COUNTERPARTS. This Agreement may be executed in multiple counterparts,
each of which shall be deemed an original and all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
COMPANY:
SHAMBAUGH & SON, INC.
By: /s/
William George, Vice President
EXECUTIVE:
/s/
Mark Shambaugh
EXHIBIT 10.27
THIRD AMENDED AND RESTATED CREDIT AGREEMENT
This THIRD AMENDED AND RESTATED CREDIT AGREEMENT dated as of
December 14, 1998 (this "AGREEMENT") is among COMFORT SYSTEMS USA, INC., a
Delaware corporation (the "COMPANY"), the Subsidiaries of the Company listed on
the signature pages hereto as Guarantors (together with each other person who
subsequently becomes a Guarantor, collectively the "GUARANTORS"), the banks and
other financial institutions listed on the signature pages hereto under the
caption "BANKS" (together with each other person who becomes a Bank,
collectively the "BANKS"), and BANK ONE, TEXAS, N.A., individually as a Bank
("BOT") and as administrative agent for the other Banks (in such capacity
together with any other Person who becomes the administrative agent, the
"ADMINISTRATIVE AGENT"), BANKERS TRUST COMPANY, individually as a Bank ("BTCO")
and as syndication agent for the other Banks (in such capacity together with any
other Person who becomes the syndication agent, the "SYNDICATION AGENT"),
NATIONSBANK, N.A., individually as a Bank ("NB") and as documentation agent for
the other Banks (in such capacity together with any other Person who becomes the
documentation agent, the "DOCUMENTATION AGENT"; and together with the
Administrative Agent and the Syndication Agent, the "AGENTS"), CREDIT LYONNAIS,
individually as a Bank and as Co-Agent, NATIONAL CITY BANK, individually as a
Bank and as Co-Agent, and THE BANK OF NOVA SCOTIA, individually as a Bank and as
Co-Agent (collectively, "Co-Agents").
WHEREAS, the Company, Guarantors, BOT and the Administrative Agent
are parties to the Existing Credit Agreement (this and other terms used in these
recitals without definition being used as defined in SECTION 1.1), which
provides for a revolving credit facility pursuant to which BOT and the Banks
named therein committed to make loans of up to $175,000,000.00, including a
letter of credit facility not to exceed $10,000,000.00, to the Company for
general corporate purposes, including working capital, financing permitted
acquisitions and the issuance of letters of credit.
WHEREAS, the Company has requested the Banks to further amend and
restate the Existing Credit Agreement to modify certain terms and conditions
thereof, including, without limitation, to increase the revolving credit
facility to $300,000,000.00, to provide for the pledge and grant of a perfected
First Priority security interest in favor of the Administrative Agent with
respect to substantially all the accounts receivable and inventory of the
Company and its Subsidiaries and all the shares of capital stock of the
Company's domestic Subsidiaries and 65% of the capital stock of the Company's
foreign Subsidiaries, and the addition and replacement of Agents and certain
Banks, all as set forth herein.
WHEREAS, to facilitate the transactions contemplated hereby, all
Banks under the Existing Credit Agreement, pursuant to a Master Assignment
Agreement, have agreed to assign to BOT all of their existing loans and existing
commitments under the Existing Credit Agreement and BOT, pursuant to such Master
Assignment Agreement, has agreed to assign to each Bank under this Agreement the
Commitments set forth on the signature pages hereto.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants set forth herein, the Company, the Guarantors, the Agents and the
Banks agree as follows:
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ARTICLE I
DEFINITIONS; ACCOUNTING TERMS; INTERPRETATION
SECTION 1.1. DEFINITIONS. As used in this Agreement, the
following terms shall have the following meanings:
"ADMINISTRATIVE AGENT" has the meaning specified in the
introduction to this Agreement.
"ADMINISTRATIVE QUESTIONNAIRE" means the questionnaire attached
hereto as EXHIBIT 1.1(A) to be completed by each Bank and returned to the
Administrative Agent.
"ADVANCE" means an advance, pursuant to a Notice of Advance,
comprised of a single Type of Loans from all the Banks (or resulting from
a conversion or conversions on the same date having, in the case of
Eurodollar Rate Advances, the same Interest Period (except as otherwise
provided in this Agreement)), made by all of the Banks concurrently to the
Company.
"ADVANCE DATE" means, with respect to each Advance, the Business Day
upon which the proceeds of such Advance are to be made available to the
Company.
"AFFILIATE" means any other Person directly or indirectly controlling
(including all directors and officers of such Person), controlled by, or
under direct or indirect common control with such Person.
"AGENTS" has the meaning specified in the introduction to this
Agreement.
"AGREEMENT" has the meaning specified in the introduction to this
Agreement.
"ALTERNATE BASE RATE" means, for any date, a rate per annum (rounded
upwards, if necessary, to the next 1/16 of 1%) equal to the greater of (a)
the Federal Funds Effective Rate in effect on such day plus 1/2 of 1% and
(b) the Prime Rate in effect on such day. For purposes hereof, the term
"PRIME RATE" means, as of a particular date, the prime rate of BOT most
recently announced by BOT and in effect on such date, automatically
fluctuating upward or downward, as the case may be, with and at the time
of each change therein without notice to the Company or any other Person,
which prime rate may not necessarily represent the lowest or best rate
actually charged to a customer. "FEDERAL FUNDS EFFECTIVE RATE" means, for
any day, the weighted average of the rates on overnight federal funds
transactions with members of the Federal Reserve System arranged by
federal funds brokers, as published for such day (or, if such day is not a
Business Day, for the next preceding Business Day) by the Federal Reserve
Bank of New York, or, if such rate is not so published for any day which
is a Business Day, the average of the quotations for such day on such
transactions received by the Administrative Agent from three federal funds
brokers of recognized standing selected by it. If, for any reason, the
Administrative Agent shall have determined (which determination shall be
conclusive absent manifest error) that it is unable to ascertain the
Federal Funds Effective Rate, including the inability or failure of the
Administrative Agent to obtain sufficient quotations in accordance with
the terms hereof, the Alternate Base Rate shall be
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<PAGE>
determined without regard to clause (a) of the first sentence of this
definition until the circumstances giving rise to such inability no longer
exist. Any change in the Alternate Base Rate due to a change in the Prime
Rate or the Federal Funds Effective Rate shall be effective on the
effective date of such change in the Prime Rate or the Federal Funds
Effective Rate, respectively.
"ALTERNATE BASE RATE ADVANCE" means any Advance bearing interest at a
rate determined by reference to the Alternate Base Rate in accordance with
the provisions of ARTICLE II.
"APPLICABLE LENDING OFFICE" means, with respect to each Bank, such
Bank's Domestic Lending Office in the case of an Alternate Base Rate
Advance and such Bank's Eurodollar Lending Office in the case of a
Eurodollar Rate Advance.
"APPLICATION FOR LETTER OF CREDIT" means a letter of credit
application in a form satisfactory to the Issuing Bank.
"ASSET SALE" means the sale, transfer or other disposition for value,
whether voluntary or involuntary, by the Company or any of its
Subsidiaries to any Person other than the Company or any of its
wholly-owned Subsidiaries of (i) any of the stock of any of the Company's
Subsidiaries, (ii) substantially all of the Assets of any division or line
of business of the Company and its Subsidiaries, or (iii) any other Assets
of the Company or any of its Subsidiaries (other than (a) inventory and
surplus or obsolete assets sold in the ordinary course of business and (b)
any such other Assets to the extent that the aggregate value of such
Assets sold in any single transaction or related series of transactions is
equal to $500,000 or less).
"ASSETS" (whether or not capitalized) means any interest in any kind
of property or asset, whether real, personal or mixed, or tangible or
intangible.
"ASSIGNMENT AND ACCEPTANCE" has the meaning specified in
SECTION 12.10(C).
"BANK" has the meaning provided in the introduction to this
Agreement.
"BANKRUPTCY CODE" has the meaning specified in SECTION 10.1(E).
"BOARD" means the Board of Governors of the Federal Reserve System of
the United States (or any successor).
"BOT" means Bank One, Texas, N.A., 910 Travis, 7th Floor, Houston,
Texas 77002.
"BTCO" means Bankers Trust, One Bankers Trust Plaza, 130 Liberty
Street, New York, New York 10006.
"BUSINESS DAY" means any day (other than a day which is a Saturday,
Sunday or legal holiday in the State of Texas) on which most banks are
open for business in Houston, Texas.
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"CAPITALIZED LEASE OBLIGATIONS" means all lease or rental obligations
which, pursuant to GAAP, are capitalized for balance sheet purposes.
"CERCLA" means the comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended, state and local
analogs, and all rules and regulations and requirements thereunder in each
case as now or hereafter in effect.
"CHANGE OF CONTROL" means any of (i) the acquisition by any Person
(other than the shareholders on the Effective Date), or two or more
Persons acting in concert, after the Effective Date of beneficial
ownership of 50% or more of the outstanding shares of voting stock of the
Company, (ii) during any period of 24 consecutive months, beginning on the
Effective Date, the ceasing of those individuals (the "CONTINUING
DIRECTORS") who (a) were directors of the Company on the first day of each
such period or (b) subsequently became directors of the Company and whose
initial nomination for election subsequent to that date was approved by a
majority of the Continuing Directors then on the board of directors of the
Company, to constitute a majority of the board of directors of the Company
at any time during such period, (iii) all or substantially all of the
assets of the Company and its Subsidiaries are sold in a single
transaction or series of related transactions to any Persons or (iv) the
Company merges or consolidates with or into any other Person except as
permitted hereunder.
"CODE" means the Internal Revenue Code of 1986 and the regulations
promulgated thereunder.
"COLLATERAL" means, collectively, all of the personal property
(including capital stock) in which Liens are purported to be granted
pursuant to the Collateral Documents as security for the Obligations.
"COLLATERAL ACCOUNT AGREEMENT" means the Collateral Account Agreement
executed and delivered by the Company and Administrative Agent on the
Effective Date, substantially in the form of EXHIBIT 1.1(b) annexed
hereto, as such Collateral Account Agreement may hereafter be amended,
supplemented or otherwise modified from time to time.
"COLLATERAL DOCUMENTS" means the Collateral Account Agreement, the
Company Pledge Agreement, the Company Security Agreement, the Subsidiary
Pledge Agreements, the Subsidiary Security Agreements and all other
instruments or documents delivered by the Company or any Guarantor
pursuant to this Agreement or any of the other Loan Documents in order to
grant to the Administrative Agent, on behalf of the Banks, a Lien on the
Collateral as security for the Obligations.
"COMMITMENT" and "COMMITMENTS" means the obligation of each of the
Banks to enter into and perform this Agreement, to make available the
Loans and to issue or participate in the Letters of Credit to the Company
in the amounts shown on the signature page of each Bank hereto and all
other duties and obligations of the Banks hereunder.
"COMMITMENT FEE" has the meaning specified in SECTION 4.1(A).
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"COMPANY" has the meaning specified in the introduction to this
Agreement.
"COMPANY PLEDGE AGREEMENT" means the Company Pledge Agreement
executed and delivered by the Company on the Effective Date, substantially
in the form of EXHIBIT 1.1(C) annexed hereto, as such Company Pledge
Agreement may thereafter be amended, supplemented or otherwise modified
from time to time.
"COMPANY SECURITY AGREEMENT" means the Company Security Agreement
executed and delivered by the Company on the Effective Date, substantially
in the form of EXHIBIT 1.1(D) annexed hereto, as such Company Security
Agreement may thereafter be amended, supplemented or otherwise modified
from time to time.
"COMPLIANCE CERTIFICATE" means a certificate substantially in the
form of EXHIBIT 1.1(E) annexed hereto delivered to the Administrative
Agent and the Banks by the Company pursuant to SECTION 7.1(D).
"CONSOLIDATED NET WORTH" means, at any date, an amount equal to the
consolidated stockholders' equity of the Company and its subsidiaries
determined in accordance with GAAP as of such date.
"CONVERSION" or "CONVERT" (in each case whether or not capitalized)
means the changing of a Eurodollar Rate Advance to an Alternate Base Rate
Advance or vice versa in accordance with the provisions hereof.
"CREDIT EVENT" means the making of any Advance or the issuance or
extension of any Letter of Credit.
"CUMULATIVE CONSOLIDATED NET INCOME" means, as of any date of
determination, (x) the consolidated net income (or loss) of the Company
and its Subsidiaries, determined on a consolidated basis in accordance
with GAAP, LESS (y) any Restricted Subordinated Debt Payments (other than
interest payments) in respect of any Subordinated Debt existing on the
Effective Date made during the period (taking as one accounting period)
commencing on the Effective Date and ending on the last day of the most
recent fiscal quarter for which financial statements have been delivered
pursuant to Section 6.1.
"CURRENT ASSETS" and "CURRENT LIABILITIES" means, as to the Company
and its Subsidiaries determined on a consolidated basis, at any time the
aggregate current assets or current liabilities (other than the repayment
of the Loans) of the Company, each as determined in accordance with GAAP.
"DEFAULT" means the occurrence of any event which with or without the
giving of notice or the passage of time or both could become an Event of
Default.
"DEFAULT RATE" means the lesser of (i) the Highest Lawful Rate and
(ii) with respect to (a) Alternate Base Rate Advances, the rate per annum
which would otherwise be applicable plus two percent (2.00%), and (b)
Eurodollar Rate Advances, the rate per annum which would otherwise be
applicable plus three percent (3.00%).
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<PAGE>
"DESIGNATED PAYMENT DATE" means March 31, June 30, September 30 and
December 31 of each year; PROVIDED, HOWEVER, if a Designated Payment Date
shall be a day which is not a Business Day, such Designated Payment Date
shall be the next succeeding Business Day, and such extension of time
shall be included in determining the amount to be paid on such date.
"DOCUMENTATION AGENT" has the meaning specified in the
introduction to this Agreement.
"DOMESTIC LENDING OFFICE" means, with respect to any Bank, the office
of such Bank, designated from time to time as its "Domestic Lending
Office" hereunder.
"EBITDA" means, for any period, the consolidated pre-tax income for
such period, plus the aggregate amount which was deducted for such period
in determining such consolidated, pre-tax income in respect of Interest
Expense (including amortization of debt discount, imputed interest and
capitalized interest), depreciation and amortization, provided, the
calculations of EBITDA after the acquisition of assets or entities
permitted under Section 8.5(d) shall include pro forma adjustments
consistent with the regulations and practices of the United States
Securities and Exchange Commission (whether or not applicable) to account
for such acquired entity's historical EBITDA for the relevant period or
similar adjustments in the case of an asset acquisition.
"EFFECTIVE DATE" means the date on or before December 14, 1998, on
which all conditions to make an Advance set forth in SECTION 5.1 are first
met or waived in accordance with SECTION 12.1 hereof.
"ELIGIBLE ASSIGNEE" means (a) any Bank; (b) a commercial bank
organized under the laws of the United States, or any state thereof, and
having total assets in excess of $250,000,000.00; (c) a commercial bank
organized under the laws of any other country which is a member of the
Organization for Economic Cooperation and Development or any successor
organization, or a political subdivision of any such country, and having
total assets in excess of $1,000,000,000.00; PROVIDED that such bank is
acting through a branch or agency located in the country in which it is
organized or another country which is also a member of the Organization
for Economic Cooperation and Development or any successor organization;
(d) the central bank of any country which is a member of the Organization
for Economic Cooperation and Development or any successor organization;
and (e) any other bank or similar financial institution approved by the
Administrative Agent, the Majority Banks and the Company, which consent of
the Company shall not be unreasonably withheld.
"ENVIRONMENTAL LAWS" means federal, state or local laws, rules or
regulations, and any judicial or administrative interpretations thereof,
including any judicial or administrative order, judgment, permit,
approval, decision or determination pertaining to conservation or
protection of the environment in effect at the time in question, including
the Clean Air Act, CERCLA, the Federal Water Pollution Control Act, the
Occupational Safety and Health Act, the Resource Conservation and Recovery
Act, the Safe Drinking Water Act, the Toxic Substances Control Act, the
Superfund Amendment
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<PAGE>
and Reauthorization Act of 1986, the Hazardous Materials Transportation
Act, and comparable state and local laws, and other environmental
conservation and protection laws.
"ERISA" means the Employee Retirement Income Security Act of 1974 and
the regulations promulgated thereunder.
"ERISA AFFILIATE" means any trade or business (whether or not
incorporated) which is either a member of the same "controlled group" or
under "common control," within the meaning of Section 414 of the Code and
the regulations thereunder, with the Company and (b) any Subsidiary of the
Company.
"EUROCURRENCY LIABILITIES" has the meaning specified in
Regulation D as in effect from time to time.
"EURODOLLAR LENDING OFFICE" means, with respect to each Bank. the
branches or affiliates of such Bank designated as its "Eurodollar Lending
Office" from time to time hereunder.
"EURODOLLAR RATE" means, with respect to any Eurodollar Rate Advance,
the rate (rounded to 1/16 of 1%) at which dollar deposits approximately
equal in principal amount to the entire portion of such Advance and for a
maturity equal to the applicable Interest Period are offered in
immediately available funds to the Administrative Agent by prime banks in
whatever Eurodollar interbank market may be selected by the Administrative
Agent in its sole and absolute discretion at the time of determination and
in accordance with the then usual practice in such market at approximately
10:00 a.m. (Houston, Texas time) two Business Days prior to the
commencement of such Interest Period.
"EURODOLLAR RATE ADVANCE" means any Advance bearing interest at a
rate determined by reference to the Eurodollar Rate in accordance with the
provisions of Article II.
"EVENTS OF DEFAULT" has the meaning specified in SECTION 10.1.
"EXISTING CREDIT AGREEMENT" means that certain Credit Agreement by
and among the Company, Guarantors, BOT, the Administrative Agent and
certain of the Banks dated as of July 2, 1997, as such credit agreement
was amended and restated by that certain First Amended and Restated Credit
Agreement dated as of September 22, 1997 and by that certain Second
Amended and Restated Credit Agreement dated as of April 14, 1998, and as
such credit agreement was further amended by that certain First Amendment
to Second Amended and Restated Credit Agreement dated as of June 30, 1998.
"FEDERAL FUNDS EFFECTIVE RATE" has the meaning specified in the
definition of the term "ALTERNATE BASE RATE."
"FEES" has the meaning specified in SECTION 4.1.
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"FINANCIAL CONDITION CERTIFICATE" means the certificate substantially
in the form of EXHIBIT 1.1(F) annexed hereto, dated the Effective Date,
delivered by the Company pursuant to SECTION 5.1(I).
"FINANCIALS" has the meaning specified in SECTION 5.1(H).
"FIRST PRIORITY" means, with respect to any Lien purported to be
created in any Collateral pursuant to any Collateral Document, that (i)
such Lien has priority over any other Lien on such Collateral (other than
Permitted Liens which as a matter of statutory law have priority over any
other Lien irrespective of the prior perfection or filing of such other
Lien) and (ii) such Lien is the only Lien (other than Permitted Liens and
Liens otherwise permitted pursuant to SECTION 8.4) to which such
Collateral is subject.
"FUNDED SENIOR DEBT" means all indebtedness for borrowed money
evidenced by a written document and subject to required payments of
interest and/or principal exclusive of Subordinated Debt.
"GAAP" means generally accepted accounting principles as in effect
from time to time as set forth in the opinions, statements and
pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants, the Financial Accounting
Standards Board and such other Persons who shall be approved by a
significant segment of the accounting profession and concurred in by the
independent certified public accountants certifying any audited financial
statements of the Company.
"GUARANTEED OBLIGATIONS" has the meaning specified in SECTION 9.1.
"GUARANTORS" has the meaning provided in the introduction to this
Agreement.
"GUARANTY" means the obligations contained in ARTICLE IX hereof and
in any document containing similar obligations executed by subsequent
Guarantors.
"HAZARDOUS MATERIALS" means (a) hazardous waste as defined in the
Resource Conservation and Recovery Act of 1976, or in any applicable
federal, state or local law or regulation, (b) hazardous substances, as
defined in CERCLA, or in any applicable state or local law or regulation,
(c) gasoline, or any other petroleum product or by-product, (d) toxic
substances, as defined in the Toxic Substances Control Act of 1976, or in
any applicable federal, state or local law or regulation, (e) asbestos or
asbestos containing materials, or (f) insecticides, fungicides, or
rodenticides, as defined in the Federal Insecticide, Fungicide, and
Rodenticide Act of 1975, or in any applicable federal, state or local law
or regulation, as each such act, statute or regulation may be amended from
time to time.
"HIGHEST LAWFUL RATE" means, as to any Bank, the maximum nonusurious
rate of interest that, under applicable law, may be contracted for, taken,
reserved, charged or received by such Bank on the Loans or under the Loan
Documents at any time or from time to time. If the maximum rate of
interest which, under applicable law, any of the Banks are permitted to
charge the Company on the Loans shall change after the date hereof, to the
extent permitted by applicable law, the Highest Lawful Rate shall be
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automatically increased or decreased, as the case may be, as of the
effective time of such change without notice to the Company or any other
Person.
"INDEBTEDNESS" means, without duplication, (a) all indebtedness for
borrowed money (whether by loan or the issuance and sale of debt
securities or letters of credit issued under this facility, banker's
acceptances or quasi equity issues) or for the deferred purchase price of
property or services, (b) all indebtedness created or arising under any
conditional sale or other title retention agreement with respect to
property, (c) all Capitalized Lease Obligations, (d) hedge or swap
agreements and Interest Rate Agreements (at a mark to market valuation);
and (e) obligations under direct or indirect guaranties in respect of, and
obligations (contingent or otherwise) to purchase or otherwise acquire, or
otherwise to assure a creditor against loss in respect to indebtedness or
obligations of another Person of the kinds referred to in clauses (a)
through (d) above.
"INFORMATION SYSTEMS AND EQUIPMENT" means all computer hardware,
firmware and software, as well as other information processing systems, or
any equipment containing embedded microchips, whether directly or owned,
licensed, leased, operated or otherwise controlled by the Company or any
of its Subsidiaries, including through third-party service providers, and
which, in whole or in part, are used, operated, relied upon, or integral
to, the Company's or any of its Subsidiaries' conduct of their business.
"INTEREST EXPENSE" means, with respect to the Company and its
Subsidiaries determined on a consolidated basis, for any period the total
interest expense for such period determined in conformity with GAAP
including any interest expense attributable to Capitalized Lease
Obligations.
"INTEREST PERIOD" has the meaning specified in SECTION 2.11.
"INTEREST RATE AGREEMENT" means any interest rate swap agreement,
interest rate cap agreement, interest rate collar agreement, interest rate
hedging agreement or other similar agreement or arrangement designed to
protect against fluctuations in interest rates to which the Company and
any Bank are parties.
"INVESTMENT" means, as applied to any Person, any direct or indirect
purchase or other acquisition by such Person of the assets, stock or other
securities of any other Person, or any direct or indirect loan, advance or
capital contribution by such Person to any other Person, and any other
item which would be classified as an "investment" on a balance sheet of
such Person in accordance with GAAP, including any direct or indirect
contribution by such Person of property or assets to a joint venture,
partnership or other business entity in which such Person retains an
interest.
"ISSUING BANK" means, for each Letter of Credit, the Bank that agrees
or is otherwise obligated to issue such Letter of Credit, determined as
provided in Section 3.2(c).
"LETTER OF CREDIT" has the meaning specified in SECTION 3.1 (A).
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"LETTER OF CREDIT FEE" means the following computed on the undrawn
face amount of each Letter of Credit (i) a 1/8% per annum fronting fee
payable to the Issuing Bank and (ii) a fee payable to the Issuing Bank for
the ratable benefit of the Banks equal to the greater of (a) $500.00 or
(b) a rate per annum determined in accordance with the grid set forth
below as a function of the ratio of Total Funded Debt on the last day of
the immediately preceding fiscal quarter to EBITDA for the consecutive
four fiscal quarters ending on the last day of such fiscal quarter:
TOTAL FUNDED DEBT/EBITDA
RATIO LETTER OF CREDIT FEE
--------------------------------------------------------------
(greater than or equal to) 3.00 2.500%
(greater than or equal to) 2.50 but <3.00 2.000%
(greater than or equal to) 2.00 but <2.50 1.750%
(greater than or equal to) 1.50 but <2.00 1.500%
(greater than or equal to) 1.00 but < 1.50 1.250%
<1.00 1.000%
Any Letter of Credit Fees expressed as a rate per annum shall be
calculated on the basis of a 365 day-year.
"LETTER OF CREDIT OBLIGATIONS" means at any time the sum of (a) the
aggregate then undrawn and unexpired amount of outstanding Letters of
Credit and (b) the aggregate amount of drawings under Letters of Credit
not reimbursed pursuant to SECTION 3.3(C).
"LETTER OF CREDIT REQUEST" has the meaning specified in SECTION
3.2(A).
"LIEN" means, when used with respect to any Person, any mortgage,
lien, charge, pledge, security interest, attachment or encumbrance of any
kind (whether voluntary or involuntary and whether imposed or created by
operation of law or otherwise) upon, or pledge of, any of its property or
assets, whether now owned or hereafter acquired, or any lease intended as
security, any capital lease in the nature of the foregoing, any
conditional sale agreement or other title retention agreement, in each
case, for the purpose, or having the effect, of protecting a creditor
against loss or securing the payment or performance of an obligation.
"LOAN" and "LOANS" has the meaning assigned thereto in SECTION 2.1.
"LOAN DOCUMENTS" means this Agreement, the Notes, the Letters of
Credit (and any applications for, or reimbursement agreements or other
documents or certificates executed by the Company in favor of an Issuing
Bank relating to, the Letters of Credit), the Guaranty, the Collateral
Documents, the Notice of Advance, and the corporate resolutions
authorizing the Loan Documents.
"MAJORITY BANKS" means Banks holding at least 51% of the Advances
outstanding under the Loans, or, if no Advances are outstanding, Banks
holding such percentage of the Total Commitment (notwithstanding any
reduction or termination of the Total
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Commitment) or if there are no Advances or Commitments outstanding, Banks
holding such percentage of outstanding Letters of Credit.
"MARGIN" means with respect to any Advance, the percentage determined
in accordance with the following table as a function of the ratio of Total
Funded Debt on the last day of the immediately preceding fiscal quarter to
EBITDA for the consecutive four fiscal quarters ending on the last day of
such fiscal quarter:
TOTAL FUNDED DEBT/ EURODOLLAR RATE ALTERNATE BASE
EBITDA RATIO ADVANCE RATE ADVANCE
--------------------------------------------------------------------------
(greater than or equal to) 3.00 2.500% 1.250%
(greater than or equal to) 2.50 but <3.00 2.000% 0.750%
(greater than or equal to) 2.00 but <2.50 1.750% 0.500%
(greater than or equal to) 1.50 but <2.00 1.500% 0.250%
(greater than or equal to) 1.00 but <1.50 1.250% 0.000%
<1.00 1.000% 0.000%
; PROVIDED that for the Margin Period from the Effective Date
through the date that the first Compliance Certificate is delivered
pursuant to SECTION 7.1(D), the applicable Margin shall be 1.500% for
Eurodollar Rate Advances and 0.250% for Alternate Base Rate Advances.
"MARGIN PERIOD" means (a) the period from the Effective Date through
the date that the first quarterly financial statements are delivered
pursuant to SECTION 7.1(A) and (b) thereafter, a period commencing on the
date on which the quarterly or annual financial statements of the Company
are required to be delivered pursuant to SECTION 7.1(A) or SECTION 7.1(B)
as the case may be, and ending on the next date a financial statement is
required to be so delivered.
"MASTER ASSIGNMENT AGREEMENT" means that certain Master Assignment
Agreement, substantially in the form of EXHIBIT 1.1(G) annexed hereto,
among the Company, the banks under the Existing Credit Agreement, the
Banks under this Agreement and the Agents pursuant to which all banks
under the Existing Credit Agreement assign their commitments to the
Administrative Agent, and the Administrative Agent assigns to each Bank
under this Agreement, and each such Bank purchases from the Administrative
Agent, the Loans and the Commitments set forth on the signature pages
hereto.
"MATERIAL ADVERSE EFFECT" means, relative to any occurrence of
whatever nature (including any adverse determination in any litigation,
arbitration or governmental investigation or proceeding), (a) a material
adverse effect on the business, operations, properties, assets or
condition (financial or otherwise) of the Company and its Subsidiaries
taken as a whole or (b) the impairment of the ability of the Company and
the Guarantors to perform, or of any Agent or any Bank to enforce, the
Obligations.
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"MATERIAL SUBSIDIARY" means a Subsidiary of the Company that has
annual revenues or Assets with a book value of $5,000,000 or more for the
most recently ended fiscal year.
"MATURITY DATE" means November 1, 2001.
"MAXIMUM GUARANTEED AMOUNT" means for each Guarantor the maximum
amount which any Guarantor could pay under the Guaranty without having
such payment set aside as a fraudulent transfer or conveyance or similar
action under the Bankruptcy Code or any applicable state or foreign law.
"MULTIEMPLOYER PLAN" means any plan which is a "multiemployer plan"
(as such term is defined in Section 4001(a)(3) of ERISA).
"NB" means NationsBank, N.A., 700 Louisiana Street, Houston, Texas
77002.
"NET ASSET SALE PROCEEDS" means, with respect to any Asset Sale, cash
payments (including any cash received by way of deferred payment pursuant
to, or by monetization of, a note receivable or otherwise, but only as and
when so received) received from such Asset Sale, net of any bona fide
direct costs incurred in connection with Asset Sale, including (i) income
taxes reasonably estimated to be actually payable within two years of the
date of such Asset Sale as a result of any gain recognized in connection
with such Asset Sale and (ii) payment of the outstanding principal amount
of, premium or penalty, if any, and interest on any Indebtedness (other
than the Loans) that is secured by a Lien on the stock or assets in
question and that is required to be repaid under the terms thereof as a
result of such Asset Sale.
"NOTE" and "NOTES" have the meaning specified in SECTION 2.2.
"NOTICE OF ADVANCE" has the meaning provided in SECTION 2.3(A).
"NOTICE OF CONVERSION" has the meaning provided in SECTION 2.5.
"NOTICE OF DEFAULT" has the meaning specified in SECTION 10.2.
"OBLIGATIONS" means all the obligations of every nature of the
Company and each Guarantor owed to Agents, Banks or any of them now or
hereafter existing under the Loan Documents, whether for principal,
interest, Fees, expenses, indemnification or otherwise.
"OTHER ACTIVITIES" has the meaning specified in SECTION 11.3.
"OTHER FINANCINGS" has the meaning specified in SECTION 11.3.
"OTHER HEDGING AGREEMENT" shall mean any foreign exchange contract,
currency swap agreements, commodity agreements or other similar agreements
or arrangements designed to protect against the fluctuations in currency
values to which the Company is a party.
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<PAGE>
"PAYMENT OFFICE" means the office of the Administrative Agent located
at 910 Travis, Houston, Texas 77002, or such other office as the
Administrative Agent may hereafter designate in writing as such to the
other parties hereto.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to all or any of its functions under ERISA.
"PERMITTED INVESTMENTS" means, as to any Person:
(a) securities issued or directly and fully guaranteed or
insured by the United States or any agency or instrumentality
thereof (PROVIDED that the full faith and credit of the United
States is pledged in support thereof) having maturities of not more
than twelve months from the date of acquisition thereof,
(b) time deposits and certificates of deposit with maturities
of not more than twelve months from the date of acquisition by such
Person which deposits or certificates are either: (a) fully insured
by the Federal Deposit Insurance Corporation or (b) in any Bank or
other commercial bank incorporated in the United States or any U.S.
branch of any other commercial bank, in each case having capital,
surplus and undivided profits aggregating $100,000,000.00 or more
with a long-term unsecured debt rating of at least A- from Standard
& Poor's Ratings Group or A3 from Moody's Investors Service,
(c) commercial paper issued by any Person incorporated in the
United States rated at least A2 or the equivalent thereof by
Standard & Poor's Ratings Group or at least P2 or the equivalent
thereof by Moody's Investors Service and, in each case, maturing not
more than 270 days after the date of issuance,
(d) investments in money market mutual funds having assets in
excess of $2,000,000,000.00 substantially all of whose assets are
comprised of securities of the types described in clauses (a)
through (c) above, and
(e) repurchase or reverse purchase agreements respecting
obligations with a term of not more than seven days for underlying
securities of the types described in clause (a) above entered into
with any bank listed in or meeting the qualifications specified in
clause (b) above.
"PERMITTED LIENS" shall mean: (a) Liens for taxes, assessments,
levies or other governmental charges not yet due or which are being
contested in good faith by appropriate proceedings and for which adequate
reserves are maintained in accordance with GAAP; (b) Liens in connection
with worker's compensation, unemployment insurance or other social
security, old age pension or public liability obligations not yet due or
which are being contested in good faith by appropriate proceedings and for
which adequate reserves are maintained in accordance with GAAP; (c)
operator's, vendors', carriers', warehousemen's, repairmen's, mechanics',
workers', materialmen's or other like Liens arising by operation of law in
the ordinary course of business (or deposits to obtain the release of any
such Lien) and securing amounts not yet due or which are being contested
in good faith by appropriate proceedings and for which adequate reserves
are
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<PAGE>
maintained in accordance with GAAP; (d) deposits to secure insurance in
the ordinary course of business; (e) deposits to secure the performance of
bids, tenders, contracts (other than contracts for the payment of money or
the deferred purchase price of goods or services), leases, licenses,
franchises, trade contracts, statutory obligations, surety and appeal
bonds and performance bonds and other obligations of a like nature
incurred in the ordinary course of business; (f) easements, rights of way,
covenants, restrictions, reservations, exceptions, encroachments, zoning
and similar restrictions and other similar encumbrances (other than to
secure the payment of borrowed money or the deferred purchase price of
goods or services) or title defects, in each case incurred in the ordinary
course of business which, in the aggregate, are not substantial in amount,
and which do not in any case singly or in the aggregate materially detract
from the value or usefulness of the Property subject thereto for the
business conducted by the Company and its Subsidiaries or materially
interfere with the ordinary conduct of the business of the Company and its
Subsidiaries; (g) bankers' liens arising by operation of law; and (h)
inchoate Liens arising under ERISA to secure contingent liabilities of the
Company and its Subsidiaries.
"PERSON" means an individual, partnership, corporation (including a
business trust), limited liability company, joint stock company, trust,
unincorporated association, joint venture or other entity, or a foreign or
domestic state or political subdivision thereof or any agency of such
state or subdivision.
"PLAN" means any employee pension benefit plan (as defined in Section
3(2) of ERISA), subject to Title IV of ERISA or Section 412 of the Code,
other than a Multiemployer Plan, with respect to which the Company or an
ERISA Affiliate contributes or has an obligation or liability to
contribute, including any such plan that may have been terminated.
"PLEDGED COLLATERAL" means, collectively, the "PLEDGED COLLATERAL" as
defined in the Company Pledge Agreement and the Subsidiary Pledge
Agreements.
"PRESCRIBED FORMS" shall mean such duly executed form(s) or
statement(s), and in such number of copies, which may, from time to time,
be prescribed by law and which, pursuant to applicable provisions of the
Code or an income tax treaty between the United States and the country of
residence of the Bank providing the form(s) or statement(s), permit each
of the Company and the Administrative Agent to make payments hereunder for
the account of such Bank free of deduction or withholding of income and
other taxes, or with deduction or withholding of income or other taxes at
a reduced rate under an applicable tax treaty.
"PRIME RATE" has the meaning set forth in the definition of
Alternate Base Rate.
"PROPERTY" (whether or not capitalized) means any interest in any
kind of property or asset, whether real, personal or mixed, or tangible or
intangible.
"RELEASE" means any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping or disposing
into the environment
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<PAGE>
(including the abandonment or discarding of barrels, containers and other
closed receptacles).
"REPORTABLE EVENT" means an event described in Section 4043(b) of
ERISA with respect to a Plan as to which the 30-day notice requirement has
not been waived by the PBGC.
"REQUIREMENTS OF ENVIRONMENTAL LAWS" means, as to any Person, the
requirements of any applicable Environmental Law relating to or affecting
such Person or the condition or operation of such Person's business or its
properties, both real and personal.
"RESERVE PERCENTAGE" means, for any Interest Period and for any Bank,
the reserve percentage applicable during such Interest Period under
regulations issued from time to time by the Board (or if more than one
such percentage is so applicable, the daily average for such percentages
for those days in such Interest Period during which any such percentage
shall be so applicable) for determining the actual reserve requirement
(including any marginal, supplemental or emergency reserves) for such Bank
in respect of liabilities or assets consisting of or including
Eurocurrency Liabilities.
"RESPONSIBLE OFFICER" means, with respect to the Company, the
chairman of the board of directors, president, any vice president, chief
executive officer, chief operating officer, treasurer or chief financial
officer of the Company.
"RESTRICTED SUBORDINATED DEBT PAYMENTS" means any payment or
prepayment of principal of, premium or penalty, if any, or interest on, or
redemption, purchase, retirement, defeasance (including in-substance or
legal defeasance), sinking fund or similar payment with respect to, any
Subordinated Indebtedness.
"SOLVENT" means, with respect to any Person, that as of the date of
determination both (a) (i) the then fair saleable value of the property of
such Person is (y) greater than the total amount of liabilities (including
contingent liabilities) of such Person and (z) not less than the amount
that will be required to pay the probable liabilities on such Person's
then existing debts as they become absolute and matured considering all
financing alternatives and potential asset sales reasonably available to
such Person; (ii) such Person's capital is not unreasonably small in
relation to its business or any contemplated or undertaken transaction;
and (iii) such Person does not intend to incur, or believe (nor should it
reasonably believe) that it will incur, debts beyond its ability to pay
such debts as they become due; and (b) such Person is "solvent" within the
meaning given that term and similar terms under applicable laws relating
to fraudulent transfers and conveyances. For purposes of this definition,
the amount of any contingent liability at any time shall be computed as
the amount that, in light of all of the facts and circumstances existing
at such time, represents the amount that can reasonably be expected to
become an actual or matured liabilty.
"SUBSIDIARY" means and includes, with respect to any Person, (a) any
corporation more than 50% of whose stock of any class or classes having by
the terms thereof
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<PAGE>
ordinary voting power to elect a majority of the directors of such
corporation (irrespective of whether or not at the time stock of any class
or classes of such corporation shall have or might have voting power by
reason of the happening of any contingency) is at the time owned by such
Person, directly or indirectly and (b) any partnership, association, joint
venture or other entity in which such Person, directly or indirectly, has
greater than 50% of the equity interest. Unless otherwise provided or the
context otherwise requires, the term "Subsidiary" or "Subsidiaries" shall
mean a Subsidiary or Subsidiaries of the Company.
"SUBSIDIARY PLEDGE AGREEMENT" means each Subsidiary Pledge Agreement
executed and delivered by an existing Guarantor on the Effective Date or
executed and delivered by any additional Guarantor from time to time
thereafter in accordance with SECTION 7.8, in each case substantially in
the form of EXHIBIT 1.1(H) annexed hereto, as such Subsidiary Pledge
Agreement may be amended, supplemented or otherwise modified from time to
time, and "SUBSIDIARY PLEDGE Agreements" means all such Subsidiary
Security Agreements.
"SUBSIDIARY SECURITY AGREEMENT" means each Subsidiary Security
Agreement executed and delivered by an existing Guarantor on the Effective
Date or executed and delivered by any additional Guarantor from time to
time thereafter in accordance with SECTION 7.8, in each case substantially
in the form of EXHIBIT 1.1(I) annexed hereto, as such Subsidiary Security
Agreement may be amended, supplemented or otherwise modified from time to
time, and "SUBSIDIARY SECURITY AGREEMENTS" means all such Subsidiary
Security Agreements.
"SUBORDINATED DEBT" means any Indebtedness of the Company or any
subsidiary of the Company which is expressly and validly subordinated to
the obligations of the Company hereunder and under the Notes and other
Loan Documents pursuant to terms and conditions substantially in the form
of the attached EXHIBIT 1.1(J).
"SYNDICATION AGENT" has the meaning specified in the introduction
to this Agreement.
"TOTAL COMMITMENT" means the sum of the Commitments for each Bank
totaling a maximum of $300,000,000.00 for all Banks.
"TOTAL FUNDED DEBT" means Funded Senior Debt plus Subordinated
Debt.
"UCC" means the Uniform Commercial Code (or any similar or equivalent
legislation) as in effect in any applicable jurisdiction.
"UNUTILIZED COMMITMENT" means the Total Commitment less Letter of
Credit Obligations less the outstanding Advances under the Loan, as same
may be reduced pursuant to SECTION 2.16.
"YEAR 2000 COMPLIANT" means that all Information Systems and
Equipment accurately process date data (including, but not limited to,
calculating, comparing and sequencing), before, during and after the year
2000, as well as same and multi-century
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<PAGE>
dates, or between the years 1999 and 2000, taking into account all leap
years, including the fact that the year 2000 is a leap year, except where
a failure to so process would not have a Material Adverse Effect, and
further, that when used in combination with, or interfacing with, other
Information Systems and Equipment, shall accurately accept, release and
exchange date data , except where a failure to so accept, release and
exchange would not have a Material Adverse Effect, and shall in all
material respects continue to function in the same manner as it performs
today, except where a failure to function would not cause a Material
Adverse Effect, and shall not otherwise impair the accuracy or
functionality of Information Systems and Equipment, except where an
impairment would not have a Material Adverse Effect.
SECTION 1.2. TYPES OF ADVANCES. Advances hereunder are
distinguished by "Type". The Type of an Advance refers to the determination
whether such Advance is a Eurodollar Rate Advance or an Alternate Base Rate
Advance.
SECTION 1.3. ACCOUNTING TERMS. All accounting terms not defined herein
shall be construed in accordance with GAAP, as applicable, and all calculations
required to be made hereunder and all financial information required to be
provided hereunder shall be done or prepared in accordance with GAAP.
SECTION 1.4. SCHEDULES. Schedules hereto may be updated by the
Company from time to time to reflect transactions and other matters not
prohibited by the Loan Documents.
ARTICLE II
THE LOANS
SECTION 2.1. THE LOANS. Subject to the terms and conditions hereof,
each Bank severally agrees at any time and from time to time on and after the
Effective Date and prior to the Maturity Date, to make and maintain a loan or
loans (together with any Advances under a Letter of Credit described in Article
III, a "LOAN" and collectively, the "LOANS") to the Company not to exceed at any
time outstanding the maximum amount of its Commitment, which Loans (i) shall, at
the option of the Company, be made and maintained pursuant to one or more
Advances comprised of Alternate Base Rate Advances or Eurodollar Rate Advances;
PROVIDED that, except as otherwise specifically provided herein, all Advances
made simultaneously under the Loan shall be of the same Type, (ii) in the case
of Eurodollar Rate Advances, shall be made in the minimum amount of
$1,000,000.00 and integral multiples of $100,000.00 and, in the case of
Alternate Base Rate Advances, in the minimum amount of $100,000.00 and integral
multiples thereof, or, in either case, in the remaining balance of the Total
Commitment, (iii) may be repaid and, so long as no Default or Event of Default
exists hereunder, reborrowed, at the option of the Company in accordance with
the provisions hereof, and (iv) shall, in the aggregate at any time outstanding
and together with all Letter of Credit Obligations, not exceed the Total
Commitment. There shall be no further Advances after the Maturity Date.
SECTION 2.2. THE NOTES. The Loans shall be evidenced by a Note
in favor of each Bank (individually a "NOTE" and collectively, the "NOTES"),
substantially in the form of EXHIBIT 2.2(A).
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SECTION 2.3. NOTICE OF ADVANCE.
(a) Whenever the Company desires an Advance, it shall give written notice
thereof (a "NOTICE OF ADVANCE") (or telephonic notice promptly confirmed
in writing) to the Administrative Agent (i) in the case of an Alternate
Base Rate Advance, not later than 11:00 a.m. (Houston, Texas time) on the
date of such Advance and (ii) in the case of a Eurodollar Rate Advance,
not later than noon (Houston, Texas time) three Business Days prior to the
date of such Advance. Each Notice of Advance shall be irrevocable and
shall be in the form of EXHIBIT 2.3 hereto, specifying (i) the aggregate
principal amount of the Advance to be made, (ii) the date of such Advance
(which shall be a Business Day), (iii) whether it is to be an Alternate
Base Rate Advance or a Eurodollar Rate Advance and (iv) if the proposed
Advance is to be a Eurodollar Rate Advance, the initial Interest Period to
be applicable thereto.
(b) The Administrative Agent shall promptly give the Banks written notice
or telephonic notice (promptly confirmed in writing) of each proposed
Advance, of each Bank's proportionate share thereof and of the other
matters covered by each Notice of Advance.
SECTION 2.4. DISBURSEMENT OF FUNDS FOR LOANS.
(a) No later than 1:00 p.m. (Houston, Texas time) on any Advance Date for
Loans, each Bank shall make available its pro rata portion of the amount
of such Advance in U.S. dollars and in immediately available funds at the
Payment Office. At such time, the Administrative Agent shall credit the
amounts so received to the general deposit account of the Company
maintained with the Administrative Agent in immediately available funds or
as otherwise directed by the Company.
(b) Unless the Administrative Agent shall have been notified by any Bank
prior to disbursement of the Advance by the Administrative Agent that such
Bank does not intend to make available to the Administrative Agent such
Bank's portion of the Advance to be made on such date, the Administrative
Agent may assume that such Bank has made such amount available to the
Administrative Agent on such Advance Date and the Administrative Agent
may, in reliance upon such assumption, make available to the Company a
corresponding amount. If such corresponding amount is not in fact made
available to the Administrative Agent by such Bank and the Administrative
Agent has made available same to the Company, the Administrative Agent
shall be entitled to recover such corresponding amount on demand from such
Bank. If such Bank does not pay such corresponding amount forthwith upon
the Administrative Agent's demand therefor, the Administrative Agent shall
promptly notify the Company, and the Company shall pay such corresponding
amount to the Administrative Agent within two (2) Business Days after
demand therefor. The Administrative Agent shall also be entitled to
recover from such Bank or the Company, as the case may be, interest on
such corresponding amount from the date such corresponding amount was made
available by the Administrative Agent to the Company to the date such
corresponding amount is recovered by the Administrative Agent, at a rate
per annum equal to (i) as to the Company, the Alternate Base Rate or the
Eurodollar Rate PLUS the applicable Margin, as
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appropriate or (ii) as to any Bank, the Federal Funds Effective Rate on
the date of such Advance for a period of three (3) days and thereafter at
the Alternate Base Rate or the Eurodollar Rate PLUS the applicable Margin,
as appropriate. Nothing herein shall be deemed to relieve any Bank from
its obligation to fulfill its Commitments hereunder or to prejudice any
rights which the Company may have against any Bank as a result of any
default by such Bank hereunder.
SECTION 2.5. CONVERSIONS AND CONTINUANCES. The Company shall have the
option to convert or continue on any Business Day all or a portion of the
outstanding principal amount of one Type of Advance for any Loan into another
Type of Advance; PROVIDED, no Advances may be converted into or continued as
Eurodollar Rate Advances if a Default or Event of Default is in existence on the
date of the conversion or continuation. Any continuation of an Advance as the
same Type of Advance in the same amount shall be effected by the Company giving
notice to the Administrative Agent, in writing, or by telephone promptly
confirmed in writing, of its intention to continue such Advance as an Advance of
the same Type. Each such conversion shall be effected by the Company giving the
Administrative Agent written notice (each a "NOTICE OF CONVERSION"),
substantially in the form of EXHIBIT 2.5 hereto, prior to noon (Houston, Texas
time) at least (a) three (3) Business Days prior to the date of such conversion
in the case of conversion into or continuance as Eurodollar Rate Advances and
(b) prior to 11:00 a.m. (Houston, Texas time) one Business Day prior to the date
of conversion in the case of a conversion into Alternate Base Rate Advances,
specifying each Advance (or portions thereof) to be so converted and, if to be
converted into or continued as Eurodollar Rate Advances, the Interest Period to
be initially applicable thereto. The Administrative Agent shall thereafter
promptly notify each Bank of such Notice of Conversion.
SECTION 2.6. VOLUNTARY PREPAYMENTS. The Company shall have the right
to voluntarily prepay any Loan in whole or in part at any time on the following
terms and conditions: (a) no Eurodollar Rate Advance may be prepaid prior to the
last day of its Interest Period unless, simultaneously therewith, the Company
pays to the Administrative Agent for the benefit of the Banks, all sums
necessary to compensate the Banks for all costs and expenses resulting from such
prepayment, as reasonably determined by the Banks, including but not limited to
those costs described in SECTIONS 2.10(F), 2.14, and SECTION 2.15 hereof; and
(b) each prepayment pursuant to this section shall be applied first, to the
payment of accrued and unpaid interest, and then, to the outstanding principal
of such Advances.
SECTION 2.7. MANDATORY REPAYMENTS. The Loans shall be repaid and/or
the Commitments shall be permanently reduced, in the amounts and under the
circumstances set forth below, all such repayments and/or reductions to be
applied as set forth below:
(a) NET ASSET SALE PROCEEDS. No later than (i) the first Business Day
following the date of receipt by the Company or any of its Subsidiaries of
any Net Asset Sale Proceeds in respect of any Asset Sale in excess of
$5,000,000 for any single transaction or related series of transactions
the Company shall repay the Loans and the Revolving Loan Commitments shall
be permanently reduced in an aggregate amount equal to such Net Asset Sale
Proceeds and (ii) the first Business Day following the 360th day after
receipt by the Company or any Subsidiary of any Net Asset Sale Proceeds in
respect of any Asset Sale of $5,000,000 or less for any single transaction
or related series of transactions
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the Company shall repay the Loans and the Revolving Loan Commitments shall
be permanently reduced in an aggregate amount equal to the amount of such
Net Asset Sale Proceeds that were not reinvested in the business of the
Company or any of its Subsidiaries on or before such date;
(b) LOANS AND LETTER OF CREDIT OBLIGATIONS IN EXCESS OF TOTAL COMMITMENT.
The Company shall repay Loans on any day on which the aggregate
outstanding principal amount of the Loans together with the outstanding
Letter of Credit Obligations exceeds the Total Commitment, in the amount
of such excess; and
(c) REPAYMENT UPON MATURITY. The aggregate amount under the Notes (and all
accrued, unpaid interest) shall be due and payable, and the Commitments
shall terminate on the Maturity Date.
SECTION 2.8. METHOD AND PLACE OF PAYMENT. Except as otherwise
specifically provided herein, all payments under this Agreement due from the
Company shall be made to the Administrative Agent for the benefit of the Banks
not later than 11:00 a.m. (Houston, Texas time) on the date when due and shall
be made in lawful money of the United States in immediately available funds at
the Payment Office.
SECTION 2.9. PRO RATA ADVANCES. All Advances under this Agreement
shall be incurred from the Banks pro rata, on the basis of their respective
Commitments. It is understood that no Bank shall be responsible for any default
by any other Bank in its obligation to make Loans hereunder and that each Bank
shall be obligated to make the Loans provided to be made by it hereunder,
regardless of the failure of any other Bank to fulfill its commitments
hereunder.
SECTION 2.10. INTEREST.
(a) Subject to SECTION 12.8, the Company agrees to pay interest on the
total outstanding principal balance of all Alternate Base Rate Advances
from the date of each respective Advance to maturity (whether by
acceleration or otherwise) at a rate per annum which shall at all times be
equal to the lesser of (i) the Highest Lawful Rate and (ii) the Alternate
Base Rate in effect from time to time plus the Margin for Alternate Base
Rate Advances, which Margin shall be adjusted on the first day of each
Margin Period. If the Alternate Base Rate is based on the Prime Rate,
interest shall be computed on the basis of the actual number of days
elapsed over a year of 365 or 366 days, as the case may be. If the
Alternate Base Rate is based on the Federal Funds Effective Rate, interest
shall be computed on the basis of the actual number of days elapsed over a
year of 360 days.
(b) Subject to SECTION 12.8, the Company agrees to pay interest on the
total outstanding principal balance of all Eurodollar Rate Advances from
the date of each respective Advance to maturity (whether by acceleration
or otherwise) at a rate per annum (computed on the basis of the actual
number of days elapsed over a year of 360 days) which shall, during each
Interest Period applicable thereto, be equal to the lesser of (i) the
Highest Lawful Rate and (ii) the applicable Eurodollar Rate for such
Interest
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Period plus the Margin for Eurodollar Rate Advances. The applicable
Eurodollar Rate shall be fixed for each Interest Period and shall not
change during said Interest Period, but the applicable Margin, which is
added to said Eurodollar Rate to determine the total interest payable to
the Banks, shall be adjusted, if applicable under the definition of
"Margin", effective on the first day of each Margin Period, whether or not
said adjustment occurs at a time other than the beginning of an Interest
Period.
(c) Subject to SECTION 12.8, overdue principal and, to the extent
permitted by law, overdue interest in respect of any Advance and all other
overdue amounts owing hereunder shall bear interest for each day that such
amounts are overdue at a rate per annum equal to the Default Rate.
(d) Interest on each Advance shall accrue from and including the date of
such Advance to but excluding the date of any repayment thereof and shall
be payable (i) in respect of Eurodollar Rate Advances (A) on the last day
of the Interest Period (as defined below) applicable thereto and, in the
case of any Interest Period in excess of three (3) months, the date that
is three months after the commencement of such Interest Period, and (B) on
the date of any voluntary or mandatory repayment or any conversion or
continuance, (ii) in respect of Alternate Base Rate Advances (A) on each
Designated Payment Date, and (B) on the date of any voluntary or mandatory
repayment of such Advances on the principal amount repaid and (iii) in
respect of each Advance, at maturity (whether by acceleration or
otherwise) and, after maturity, on demand.
(e) The Administrative Agent, upon determining the Eurodollar Rate for any
Interest Period. shall notify the Company thereof. Each such determination
shall, absent manifest error, be final and conclusive and binding on all
parties hereto. In addition, prior to the due date for the payment of
interest on any Advances set forth in the immediately preceding paragraph,
the Administrative Agent shall notify the Company of the amount of
interest due by the Company on all outstanding Advances on the applicable
due date, but any failure of the Administrative Agent to so notify the
Company shall not reduce the Company's liability for the amount owed.
(f) The Company shall pay to the Administrative Agent for the account of
each Bank, so long as such Bank shall be required under regulations of the
Board to maintain reserves with respect to liabilities or assets
consisting of or including Eurocurrency Liabilities, additional interest
on the unpaid principal amount of such Bank's share of each Eurodollar
Rate Advance, from the date of such Advance until such principal amount is
paid in full, at an interest rate per annum equal at all times during the
Interest Period for such Advance to the lesser of (i) the Highest Lawful
Rate and (ii) the remainder obtained by subtracting (A) the Eurodollar
Rate for such Interest Period from (B) the rate obtained by dividing such
Eurodollar Rate referred to in clause (A) above by that percentage equal
to 100% minus the Reserve Percentage of such Bank for such Interest
Period. Such additional interest shall be determined by such Bank as
incurred and shall be payable upon demand therefor by the Bank to the
Company. Each determination by such Bank of additional interest due under
this Section shall be conclusive and binding for all purposes in the
absence of manifest error.
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SECTION 2.11. INTEREST PERIODS.
(a) At the time the Company gives any Notice of Advance or Notice of
Conversion or provides notice of its intent to continue a loan as the same
Type in respect of the making of, or conversion into, a Eurodollar Rate
Advance, the Company shall have the right to elect, by giving the
Administrative Agent on the dates and at the times specified in SECTION
2.3 or SECTION 2.5, as the case may be, notice of the interest period
(each an "INTEREST PERIOD") applicable to such Eurodollar Rate Advance,
which Interest Period shall be either a one, two, three or six month
period; PROVIDED that:
(i) the initial Interest Period for any Eurodollar Rate Advance
shall commence on the date of such Eurodollar Rate Advance
(including the date of any conversion thereto or continuance thereof
pursuant to SECTION 2.5); each Interest Period occurring thereafter
in respect of such Eurodollar Rate Advance shall commence on the
expiration date of the immediately preceding Interest Period;
(ii) if any Interest Period relating to a Eurodollar Rate Advance
begins on a day for which there is no numerically corresponding day
in the calendar month at the end of such Interest Period, such
Interest Period shall end on the last Business Day of such calendar
month;
(iii) if any Interest Period would otherwise expire on a day which
is not a Business Day, such Interest Period shall expire on the next
succeeding Business Day; PROVIDED, that if there are no more
Business Days in that month, the Interest Period shall expire on the
preceding Business Day;
(iv) no Interest Period for Advances shall extend beyond the
applicable Maturity Date; and
(v) the Company shall be entitled to have a maximum of ten (10)
separate Eurodollar Rate Advances hereunder for all Loans
outstanding at any one time.
(b) If, upon the expiration of any Interest Period applicable to a
Eurodollar Rate Advance, the Company has failed to elect a new Interest
Period to be applicable to such Advance as provided above, the Company
shall be deemed to have elected to convert such Advance into an Alternate
Base Rate Advance effective as of the expiration date of such current
Interest Period.
SECTION 2.12. INTEREST RATE NOT ASCERTAINABLE. In the event that the
Administrative Agent shall determine (which determination shall, absent manifest
error, be final, conclusive and binding upon all parties) that on any date for
determining the Eurodollar Rate for any Interest Period, by reason of any
changes arising after the date of this Agreement affecting the Eurodollar
interbank market or the Administrative Agent's position in such market, adequate
and fair means do not exist for ascertaining the applicable interest rate on the
basis provided for in the definition of Eurodollar Rate, then, and in any such
event, the Administrative Agent shall forthwith give notice to the Company and
to the Banks of such determination. Until the
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circumstances giving rise to the suspension described herein no longer exist,
the obligations of the Banks to make Eurodollar Rate Advances shall be
suspended.
SECTION 2.13. CHANGE IN LEGALITY.
(a) Notwithstanding anything to the contrary herein contained, if any
change in any law or regulation or in the interpretation thereof by any
governmental authority charged with the administration or interpretation
thereof shall make it unlawful for any Bank or its Eurodollar Lending
Office to make or maintain any Eurodollar Rate Advance or to give effect
to its obligations as contemplated hereby, then, by prompt written notice
to the Company, such Bank may:
(i) declare that Eurodollar Rate Advances will not thereafter be
made by such Bank hereunder, whereupon the Company shall be
prohibited from requesting Eurodollar Rate Advances from such Bank
hereunder unless such declaration is subsequently withdrawn,
PROVIDED, such request for a Eurodollar Rate Advance shall, if the
Company so indicates, be automatically converted (as to such Bank)
into a request for an Alternate Base Rate Advance and the affected
Bank or Banks shall respond thereto as provided herein; and
(ii) require that all outstanding Eurodollar Rate Advances made by
such Bank be converted to Alternate Base Rate Advances, in which
event (A) all such Eurodollar Rate Advances shall be automatically
converted to Alternate Base Rate Advances as of the effective date
of such notice as provided in paragraph (b) below if required by
applicable law or regulation, or if not so required, at the end of
the current Interest Period and (B) all payments and prepayments of
principal which would otherwise have been applied to repay the
converted Eurodollar Rate Advances shall instead be applied to repay
the Alternate Base Rate Advances resulting from the conversion of
such Eurodollar Rate Advances.
(b) For purposes of this Section, a notice to the Company by the
Administrative Agent pursuant to paragraph (a) above shall be effective on
the date of receipt thereof by the Company.
SECTION 2.14. INCREASED COSTS, TAXES OR CAPITAL ADEQUACY
REQUIREMENTS.
(a) If any change in the application or effectiveness of any applicable
law or regulation or compliance by any Bank with any applicable guideline
or request issued after the date hereof from any central bank or
governmental authority having jurisdiction over such Bank (whether or not
having the force of law) (i) shall change the basis of taxation of
payments to such Bank of the principal of or interest on any Eurodollar
Rate Advance made by such Bank or any other fees or amounts payable
hereunder with respect to Eurodollar Rate Advances (other than taxes
imposed on the overall net income of such Bank or its Applicable Lending
Office or franchise taxes imposed upon it by the jurisdiction in which
such Bank or its Applicable Lending Office has an office), (ii) shall
impose, modify or deem applicable any reserve, special deposit or similar
requirement with respect to Eurodollar Rate Advances against assets of,
deposits with or for the
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account of, or credit extended by, such Bank (without duplication of any
amounts paid pursuant to SECTION 2.10(F) or (iii) shall impose on such
Bank any other condition affecting this Agreement with respect to
Eurodollar Rate Advances or any Eurodollar Rate Advance made by such Bank,
and the result of any of the foregoing shall be to increase the cost to
such Bank of maintaining its Commitment or of making or maintaining any
Eurodollar Rate Advance or to reduce the amount of any sum received or
receivable by such Bank hereunder (whether of principal, interest or
otherwise) in respect thereof by an amount deemed in good faith by such
Bank to be material, then the Company shall pay to such Bank such
additional amount as will compensate it for such increase or reduction
within ten (10) days after notice thereof pursuant to Section 2.14(c).
(b) If any Bank shall have determined in good faith that any change in any
law, rule, regulation or guideline regarding capital adequacy, or any
change therein or any change in the interpretation or administration
thereof or compliance with any request or directive regarding capital
adequacy (whether or not having the force of law) of any such authority,
central bank or comparable agency has or would have the effect of reducing
the rate of return on the capital of such Bank as a consequence of, or
with reference to, such Bank's obligations hereunder to a level below that
which it could have achieved but for such adoption, change or compliance
by an amount deemed by such Bank to be material, then, from time to time,
the Company shall pay to the Administrative Agent for the benefit of such
Bank such additional amount as will reasonably compensate it for such
reduction within ten (10) days after notice thereof pursuant to SECTION
2.14(C).
(c) Each Bank will notify the Company through the Administrative Agent of
any event occurring after the date of this Agreement which will entitle it
to compensation pursuant to this Section, as promptly as practicable after
it becomes aware thereof and determines to request compensation and in any
case, within 120 days after becoming aware thereof. A certificate setting
forth in reasonable detail the amount necessary to compensate the Bank in
question as specified in paragraph (a) or (b) above, as the case may be,
and the calculation of such amount shall be delivered to the Company and
shall be conclusive absent manifest error. The failure on the part of any
Bank to demand increased compensation with respect to any Interest Period
shall not constitute a waiver of the right to demand compensation
thereafter within the 120 day time limit set forth above. Each Bank
agrees, to the extent it may lawfully do so without incurring additional
costs, to use its best efforts to minimize costs arising under this
section by designating another lending office for the Loans affected,
PROVIDED no Bank shall be required to do so.
(d) In the event any Bank gives a notice to the Company pursuant to
SECTION 2.13 or 2.14 that it cannot fund certain Loans or that such
funding will be at an increased cost, or is unable to deliver the
Prescribed Forms as required by SECTION 2.17 below, the Company may give
notice in response, with copies to the Administrative Agent, that it
wishes to seek one or more banks to replace such Bank in accordance with
the provisions set forth in SECTION 12.10. Each Bank giving such a notice
agrees that, at the request of the Company, it will assign all of its
interests hereunder and under the Notes and the Commitment to a
designated, Eligible Assignee for the full amount then owing to it, all in
accordance with SECTION 12.10. Thereafter, said assignee shall have all of
the rights
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hereunder and obligations of the Assigning Bank (except as otherwise
expressly set forth herein) and such Bank shall have no further
obligations to the Company hereunder.
(e) Any notice given pursuant to this SECTION 2.14 shall be deemed to
contain a representation by the Bank issuing such notice that the
increased costs and charges are common to substantially all of the loan
customers of such Bank and are not unique to the Company.
SECTION 2.15. EURODOLLAR ADVANCE PREPAYMENT AND DEFAULT Penalties.
Subject to SECTION 12.8, the Company shall indemnify each Bank against any loss
or expense (excluding loss of anticipated profits) which it may sustain or incur
as a consequence of (a) an Advance of, or a conversion from or into, Eurodollar
Rate Advances that does not occur on the date specified therefor in a Notice of
Advance or Notice of Conversion or (b) any payment, prepayment or conversion of
a Eurodollar Rate Advance required by any other provision of this Agreement or
otherwise made on a date other than the last day of the applicable Interest
Period. Such loss or expense shall include an amount equal to the excess
determined by each Bank of (i) its cost of obtaining the funds for the Advance
being paid, prepaid or converted or not borrowed (based on the Eurodollar Rate)
for the period from the date of such payment. prepayment or conversion or
failure to borrow to the last day of the Interest Period for such Advance (or,
in the case of a failure to borrow, the Interest Period for the Advance which
would have commenced on the date of such failure to borrow) OVER (ii) the amount
of interest (as determined by each Bank) that would be realized in reemploying
the funds so paid, prepaid or converted or not borrowed for such period or
Interest Period, as the case may be. The Administrative Agent, on behalf of the
Banks, will notify the Company of any loss or expense which will entitle the
Banks to compensation pursuant to this Section, as promptly as possible after it
becomes aware thereof, but failure to so notify shall not affect the Company's
liability therefor. A certificate of any Bank setting forth any amount which it
is entitled to receive pursuant to this Section shall be delivered to the
Company and shall be conclusive absent manifest error if such determination is
made on a reasonable basis. The Company shall pay to the Administrative Agent
for the account of the Banks the amount shown as due on any certificate within
ten (10) days after its receipt of the same. Without prejudice to the survival
of any other obligations of the Company hereunder, the obligations of the
Company under this Section shall survive the termination of this Agreement and,
with respect to the assigning Bank, the assignment of any of the Notes, in each
case for one hundred and twenty (120) days.
SECTION 2.16. VOLUNTARY REDUCTION OF COMMITMENT. Upon at least three
(3) Business Days' prior written notice, the Company shall have the right,
without premium or penalty, to reduce or terminate the Commitments, in whole or
in part, in the amount of $5,000,000.00 or integral multiples thereof.
SECTION 2.17. TAX FORMS. With respect to any Bank which is organized
under the laws of a jurisdiction outside the United States, on the date of the
initial Advance hereunder or on the date it becomes a party hereto, and from
time to time thereafter if requested by the Company or the Administrative Agent,
each such Bank shall provide the Administrative Agent and the Company with the
Prescribed Forms. Unless the Company and the Administrative Agent have received
such Prescribed Forms, the Administrative Agent and the Company if required by
applicable law or regulation, may withhold taxes from payments under the Loan
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Documents at the applicable rate in the case of payments to or for any Bank
organized under the laws of a jurisdiction outside the United States; PROVIDED
the Company shall, unless otherwise directed in writing by the Administrative
Agent or unless otherwise required by law, make all payments in full to the
Administrative Agent without deducting any withholding or similar taxes. If the
Company is required by law to deduct or withhold any taxes from any Payment, the
Company shall: (a) make such deduction or withholding; (b) pay the amount so
deducted or withheld to the appropriate taxing authority not later than the date
when due (irrespective of the rate of such deduction or withholding); (c)
deliver to the relevant Administrative Agent or Bank, as the case may be,
promptly and in any event within 30 days after the date on which such taxes
become due, original tax receipts and other evidence satisfactory to such
Administrative Agent or Bank, as the case may be, of the payment when due of the
full amount of such taxes; and (d) pay to the respective Administrative Agent or
Bank, forthwith upon any request by such Administrative Agent or Bank, therefor
from time to time, such additional amounts as may be necessary so that such
Administrative Agent or Bank, as the case may be, receives, free and clear of
all taxes, the full amount of such Payment stated to be due under this
Agreement, the Notes or the other Loan Documents as if no such deduction or
withholding had been made. The Company hereby indemnifies each Agent and each
Bank, and holds each of them harmless for, any taxes and any loss, cost, damage,
penalty or expense whatsoever arising from any failure of the Company to make,
or delay in making, any deduction or withholding of taxes, or its failure to pay
when due the amount so deducted or withheld to the appropriate taxation
authority or its failure otherwise to comply with the terms and conditions of
this Section.
ARTICLE III
LETTERS OF CREDIT
SECTION 3.1. LETTERS OF CREDIT.
(a) Subject to and upon the terms and conditions herein set forth, the
Issuing Bank agrees that it will, at any time and from time to time on or
after the Effective Date and prior to the Maturity Date, following its
receipt of a Letter of Credit Request and Application for Letter of
Credit, issue for the account of the Company and in support of the
obligations of the Company or any of its Subsidiaries, one or more standby
and/or commercial letters of credit (the "LETTERS OF Credit") payable on a
sight basis, up to a maximum amount outstanding at any one time for all
Letters of Credit of $10,000,000.00; PROVIDED that the Issuing Bank shall
not issue any Letter of Credit if at the time of such issuance: (i) Letter
of Credit Obligations shall be greater than an amount which, when added to
the sum of all Advances then outstanding plus Letter of Credit
Obligations, would exceed the Total Commitment or (ii) the expiry date or,
in the case of any Letter of Credit containing an expiry date that is
extendible at the option of the Issuing Bank, the initial expiry date, of
such Letter of Credit is a date that is later than the Maturity Date.
(b) The Issuing Bank shall neither renew or extend nor permit the renewal
or extension of any Letter of Credit (which renewal or extension will not
be for any period ending after the Maturity Date) if any of the conditions
precedent to such renewal set forth in Section 5.2 are not satisfied or
waived or, after giving effect to such renewal, the expiry date of such
Letter of Credit would be a date that is later than five (5) Business Days
prior to the Maturity Date.
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SECTION 3.2. LETTER OF CREDIT REQUESTS.
(a) Whenever the Company desires that a Letter of Credit be issued for its
account or that the existing expiry date shall be extended, it shall give
the Issuing Bank (with copies to be sent to the Administrative Agent and
each Bank) (i) in the case of a Letter of Credit to be issued, at least
five (5) Business Days' prior written request therefor and (ii) in the
case of the extension of the existing expiry date of any Letter of Credit,
at least five (5) Business Days prior to the date on which the Issuing
Bank must notify the beneficiary thereof that the Issuing Bank does not
intend to extend such existing expiry date. Each such request shall be
executed by the Company and shall be in the form of EXHIBIT 3.2 attached
hereto (each a "LETTER OF CREDIT REQUEST") and shall be accompanied by an
Application for Letter of Credit therefor, completed to the reasonable
satisfaction of the Issuing Bank, and such other certificates, documents
and other papers and information as the Issuing Bank or the Administrative
Agent may reasonably request. Each Letter of Credit shall be denominated
in U.S. dollars, shall expire no later than the date specified in SECTION
3.1, shall not be in an amount greater than is permitted under clause (i)
of SECTION 3.1(A) and shall be in such form as may be reasonably approved
from time to time by the Issuing Bank and the Company.
(b) The making of each Letter of Credit Request shall be deemed to be a
representation and warranty by the Company that such Letter of Credit may
be issued in accordance with, and will not violate the requirements of
this Agreement. Unless the Issuing Bank has received notice from any Bank
before it issues the respective Letter of Credit or extends the existing
expiry date of a Letter of Credit that one or more of the conditions
specified in ARTICLE V are not then satisfied, or that the issuance of
such Letter of Credit would violate this Agreement, then the Issuing Bank
shall issue the requested Letter of Credit for the account of the Company
in accordance with the Issuing Bank's usual and customary practices. Upon
its issuance of any Letter of Credit or the extension of the existing
expiry date of any Letter of Credit, as the case may be, the Issuing Bank
shall promptly notify the Company and the Administrative Agent and the
Administrative Agent shall notify each Bank of such issuance or extension,
which notices shall be accompanied by a copy of the Letter of Credit
actually issued or a copy of any amendment extending the existing expiry
date of any Letter of Credit, as the case may be.
(c) Upon receipt by a proposed Issuing Bank of a Letter of Credit Request
pursuant to Section 3.2(a) requesting the issuance of a Letter of Credit,
(a) in the event the Administrative Agent is the proposed Issuing Bank,
the Administrative Agent shall be the Issuing Bank with respect to such
Letter of Credit, notwithstanding the fact that the Letter of Credit
Obligations with respect to such Letter of Credit and with respect to all
other Letters of Credit issued by the Administrative Agent, when
aggregated with the Administrative Agent's outstanding Loans, may exceed
the Administrative Agent's Commitments; and (b) in the event any other
Bank is the proposed Issuing Bank, such Bank shall promptly notify the
Company and the Administrative Agent whether or not, in its sole
discretion, it has elected to issue such Letter of Credit, and (1) if such
Bank so elects to issue such Letter of Credit, it shall be the Issuing
Bank with respect thereto and (2) if such Bank fails to so promptly notify
the Company and the Administrative Agent or declines to issue such Letter
of Credit, the Company may request the Administrative
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Agent or another Bank to be the Issuing Bank with respect to such Letter
of Credit in accordance with the provisions of this Section 3.2.
SECTION 3.3. LETTER OF CREDIT PARTICIPATIONS.
(a) All Letters of Credit issued subsequent hereto shall be deemed to have
been sold and transferred by the Issuing Bank to each Bank, and each Bank
shall be deemed irrevocably and unconditionally to have purchased and
received from the Issuing Bank, without recourse or warranty, an undivided
interest and participation, (to the extent of such Bank's percentage
participation in the Commitment) in each such Letter of Credit (including
extensions of the expiry date thereof), each substitute Letter of Credit,
each drawing made thereunder and the obligations of the Company under this
Agreement and the other Loan Documents with respect thereto, and any
security therefor or guaranty pertaining thereto.
(b) In determining whether to pay under any Letter of Credit, the Issuing
Bank shall have no obligation relative to the Banks other than to confirm
that any documents required to be delivered under such Letter of Credit
appear to have been delivered and that they appear to comply on their face
with the requirements of such Letter of Credit.
(c) In the event that the Issuing Bank makes any payment under any Letter
of Credit, the same shall be considered an Alternate Base Rate Advance
without further action by any Person. The Issuing Bank shall promptly
notify the Administrative Agent, which shall promptly notify each Bank
thereof. Each Bank shall immediately pay to the Administrative Agent for
the account of the Issuing Bank the amount of such Lender's percentage
participation of such Advance. If any Bank shall not have so made its
percentage participation available to the Administrative Agent, such
Lender agrees to pay interest thereon, for each day from such date until
the date such amount is paid at the lesser of (i) the Federal Funds
Effective Rate and (ii) the Highest Lawful Rate.
(d) The Issuing Bank shall not be liable for, and the obligations of the
Company and the Banks to make payments to the Administrative Agent for the
account of the Issuing Bank with respect to Letters of Credit shall not be
subject to, any qualification or exception whatsoever, including any of
the following circumstances:
(i) any lack of validity or enforceability of this Agreement or
any of the other Loan Documents;
(ii) the existence of any claim, setoff, defense or other right
which the Company may have at any time against a beneficiary named
in a Letter of Credit, any transferee of any Letter of Credit, the
Administrative Agent, any Issuing Bank, any Bank, or any other
Person, whether in connection with this Agreement, any Letter of
Credit, the transactions contemplated herein or any unrelated
transactions (including any underlying transaction between the
Company and the beneficiary named in any such Letter of Credit);
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(iii) any draft, certificate or any other document presented under
the Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect;
(iv) the surrender or impairment of any security for the performance
or observance of any of the terms of any of the Loan Documents; or
(v) the occurrence of any Default or Event of Default.
(e) The Issuing Bank shall not be liable for any error, omission,
interruption or delay in transmission, dispatch or delivery of any message
or advice, however transmitted, in connection with any Letter of Credit,
except for errors or omissions caused by such Issuing Bank's gross
negligence or willful misconduct. IT IS THE EXPRESS INTENTION OF THE
PARTIES HERETO THAT SUCH ISSUING BANK, ITS OFFICERS, DIRECTORS, EMPLOYEES
AND AGENTS (OTHER THAN WITH RESPECT TO ANY CLAIMS BY THE ISSUING BANK
AGAINST ANY SUCH OFFICER, DIRECTOR, EMPLOYEE OR AGENT THEREOF) SHALL BE
INDEMNIFIED AND HELD HARMLESS FROM, SUBJECT TO THE SAME TYPE OF
PROTECTIONS SET FORTH IN SECTION 11.5(B), ANY ACTION TAKEN OR OMITTED BY
SUCH PERSON UNDER OR IN CONNECTION WITH ANY LETTER OF CREDIT OR ANY
RELATED DRAFT OR DOCUMENT ARISING OUT OF OR RESULTING FROM SUCH PERSON'S
SOLE OR CONTRIBUTORY NEGLIGENCE, BUT NOT FROM THE GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT OF SUCH PERSON AS DETERMINED BY A COURT OF COMPETENT
JURISDICTION. The Company agrees that any action taken or omitted by the
Issuing Bank under or in connection with any Letter of Credit or the
related drafts or documents, if done in accordance with the standards of
care specified in the Uniform Customs and Practice for Documentary Credits
(1993 Revision), International Chamber of Commerce, Publication No. 500
(and any subsequent revisions thereof approved by a Congress of the
International Chamber of Commerce and adhered to by the Issuing Bank) or
any other comparable or successor publication or document and, to the
extent not inconsistent therewith, the Uniform Commercial Code of the
State of New York, shall not result in any liability of the Issuing Bank
to the Company.
SECTION 3.4. INCREASED COSTS.
(a) Notwithstanding any other provision herein, but subject to SECTION
12.8, if any Bank shall have determined in good faith that any change
after the Effective Date of any law, rule, regulation or guideline or the
application or effectiveness of any applicable law or regulation or any
change after the Effective Date in the interpretation or administration
thereof, or compliance by any Bank (or any lending office of such Bank)
with any applicable guideline or request from any central bank or
governmental authority (whether or not having the force of law) issued
after the Effective Date either (i) shall impose, modify or make
applicable any reserve, deposit, capital adequacy or similar requirement
against Letters of Credit issued, or participated in, by any Bank or (ii)
shall impose on any Bank any other conditions affecting this Agreement or
any Letter of Credit; and the result of any of the foregoing is to
increase the cost to any Bank of issuing, maintaining or participating in
any Letter of Credit, or reduce the amount received or receivable by any
Bank hereunder with respect to Letters of Credit, by an amount deemed by
such Lender to be material, then, from time to time, the Company shall pay
to the
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Administrative Agent for the account of such Lender such additional amount
or amounts as will reasonably compensate such Lender for such increased
cost or reduction by such Lender.
(b) Each Bank will notify the Company through the Administrative Agent of
any event occurring after the date of this Agreement which will entitle
such Bank to compensation pursuant to subsection (a) above, as promptly as
practicable. A certificate of such Lender (i) stating that the
compensation sought to be recovered pursuant to this SECTION 3.4 is
generally being charged to other similarly situated customers and (ii)
setting forth in reasonable detail such amount or amounts as shall be
necessary to compensate such Bank as specified in subsection (a) above may
be delivered to the Company (with a copy to the Administrative Agent) and
shall be conclusive absent manifest error. The Company shall pay to the
Administrative Agent for the account of such Bank the amount shown as due
on any such certificate upon demand; PROVIDED that with respect to events
occurring prior to any notice given under this SECTION 3.4(B), such Bank
shall only be entitled to recover compensation for such events occurring
over a period of 120 days.
(c) Except as expressly provided in SECTION 3.4(B), failure on the part of
any Bank to demand compensation for any increased costs or reduction in
amounts received or receivable or reduction in return on capital with
respect to any Letter of Credit shall not constitute a waiver of such
Bank's rights to demand compensation for any increased costs or reduction
in amounts received or receivables or reduction in return on capital with
respect to such Letter of Credit.
SECTION 3.5. CONFLICT BETWEEN APPLICATIONS AND AGREEMENT. To the
extent that any provision of any application related to any Letter of Credit is
inconsistent with the provisions of this Agreement, the provisions of this
Agreement shall control.
ARTICLE IV
FEES
SECTION 4.1. FEES. Subject to SECTION 12.8 hereof, the Company
agrees to pay the following fees (the "FEES"):
(a) The Company agrees to pay to the Administrative Agent for the ratable
account of the Banks a Commitment fee (the "COMMITMENT FEE") for the
period from and including the Effective Date to the Maturity Date computed
at a rate per annum determined by the grid set forth below and calculated
on the basis of a 360 day-year on the daily average of the Unutilized
Commitment of each Bank; PROVIDED that for the Margin Period from the
Effective Date through the date that the first Compliance Certificate is
delivered pursuant to SECTION 7.1(D), the applicable Commitment Fee shall
be 0.375%. The rate for the Commitment Fee shall be adjusted on the first
day of each Margin Period. Commitment Fees shall be due and payable in
arrears on each Designated Payment Date commencing on the first such date
following the Effective Date and on the Maturity Date.
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TOTAL FUNDED DEBT/ COMMITMENT FEE
EBITDA RATIO RATE
- ------------------------------------------------------------------
(greater than or equal to) 3.00 0.500%
(greater than or equal to) 2.50 but < 3.00 0.500%
(greater than or equal to) 2.00 but < 2.50 0.375%
(greater than or equal to) 1.50 but < 2.00 0.375%
(greater than or equal to) 1.00 but < 1.50 0.375%
< 1.00 0.250%
(b) The Letter of Credit Fees shall be due and payable at the time the
Issuing Bank is to issue or renew any Letter of Credit. The Letter of
Credit Fee shall be adjusted, if applicable under the definition of
"Letter of Credit Fee", on the first day of each Margin Period; provided
that for the Margin Period from the Effective Date through the date that
the first Compliance Certificate is delivered pursuant to SECTION 7.1(D),
the applicable Letter of Credit Fee shall be 1.500%.
(c) The fees described in those certain fee letters between the Company
and BTCo, NB and BOT and any of their resepctive Affiliates.
ARTICLE V
CONDITIONS PRECEDENT
SECTION 5.1. CONDITIONS PRECEDENT TO THE INITIAL ADVANCE. The
obligation of each Bank to make its initial Advance to the Company is subject
to, in addition to the conditions precedent specified in subsection 5.2, the
prior or concurrent satisfaction of the following conditions:
(a) LOAN AND OTHER RELATED DOCUMENTS. On or before the Effective Date, the
Company shall, and shall cause each Guarantor to, deliver to the Agents
the following, all in form and substance satisfactory to the Agents, and,
where relevant, executed by all appropriate parties:
(i) this Agreement (which includes the Guaranty) and all other
Loan Documents;
(ii) one Note for each Bank;
(iii) a Notice of Advance with respect to the initial Advance
meeting the requirements of SECTION 2.3(A);
(iv) a certificate of an officer and of the secretary or an
assistant secretary of the Company and of each Guarantor, as
applicable, dated as of the Effective Date certifying, (i) true and
complete copies of each of (1) the articles or certificate of
incorporation, marked as filed with the applicable governmental
authorities and as amended and in effect, of the Company and each of
the Guarantors not party to the Existing Credit Agreement, (2) the
bylaws, as amended and in effect, of the Company and each of the
Guarantors not party to the Existing Credit Agreement and (3) the
resolutions adopted by the board of directors of the Company and
each
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of the Guarantors (A) authorizing the execution, delivery and
performance by the Company and each of its Subsidiaries of this
Agreement and the other Loan Documents to which it is or will be a
party and, in the case of the Company, the Advances to be made
hereunder, (B) approving the forms of the Loan Documents to which it
is or will be a party and which will be delivered at or prior to the
date of the initial Advance and (C) authorizing officers of the
Company and each of its Subsidiaries to execute and deliver the Loan
Documents to which it is or will be a party and any related
documents, including, any agreement contemplated by this Agreement,
in each case as being in full force and effect without modification
or amendment, (ii) that the articles or certificate of incorporation
and bylaws of each of the Guarantors party to the Existing Credit
Agreement have not been amended, supplemented, or otherwise modified
since April 14, 1998, except as attached to such certificate, (iii)
the incumbency and specimen signatures of the officers of the
Company and each of its Subsidiaries executing any documents on its
behalf, and (iv) that since December 31, 1997 there has been no
change in the businesses, operations, properties, assets,
liabilities, condition (financial or otherwise) or prospects of the
Company and its Subsidiaries taken as a whole which could reasonably
be expected to have a Material Adverse Effect.
(v) on or before the Effective Date, the Company, each bank under
the Existing Credit Agreement, BOT, as administrative agent under
the Existing Credit Agreement, each Bank under this Agreement and
the Agents shall have executed and delivered the Master Assignment
Agreement and on the Effective Date, each such bank, BOT, Bank and
Agent shall have sold, purchased and/or assigned such loans and/or
commitments pursuant to the Master Assignment Agreement such that
each Bank's pro rata share of the Loans and/or Commitments shall be
as set forth on the signature pages hereto.
(b) SECURITY INTERESTS IN PERSONAL PROPERTY. The Agents shall have
received evidence satisfactory to them that the Company and the Guarantors
shall have taken or caused to be taken all such actions, executed and
delivered or caused to be executed and delivered all such agreements,
documents and instruments, and made or caused to be made all such filings
and recordings (other than the filing or recording of the items described
in clauses (iii) and (iv) below) that may be necessary or, in the opinion
of the Agents, desirable in order to create in favor of the Administrative
Agent, for the benefit of the Banks, a valid and (upon such filing and
recording) perfected First Priority security interest in the entire
Collateral. Such actions shall include the following:
(i) SCHEDULES TO COLLATERAL DOCUMENTS. Delivery to the
Administrative Agent of accurate and complete schedules to all of
the applicable Collateral Documents;
(ii) STOCK CERTIFICATES AND INSTRUMENTS. Delivery to the
Administrative Agent of (a) certificates (which certificates shall
be accompanied by irrevocable undated stock powers, duly endorsed in
blank and otherwise satisfactory in form and substance to the
Agents) representing substantially all capital stock pledged
pursuant to the Company Pledge Agreement and the Subsidiary Pledge
Agreements and (b) substantially all promissory notes or other
instruments (duly
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endorsed, where appropriate, in a manner satisfactory to the Agents)
evidencing any Collateral;
(iii) LIEN SEARCHES AND UCC TERMINATION STATEMENTS. Delivery to the
Administrative Agent of (a) the results of a recent search, by a
Person satisfactory to the Agents, of all jurisdictions where
filings to perfect are material or a material portion of the
Collateral are located, together with copies of all such filings
disclosed by such search; and (b) UCC termination statements duly
executed by all applicable Persons for filing in all applicable
jurisdictions as may be necessary to terminate any effective UCC
financing statements or fixture filings disclosed in such search and
affecting a material portion of the Collateral (other than any such
financing statements or fixture filings in respect of Liens
permitted to remain outstanding pursuant to the terms of this
Agreement);
(iv) UCC FINANCING STATEMENTS. Delivery to the Administrative Agent
of UCC financing statements duly executed by the Company and each
applicable Guarantor with respect to all Collateral of the Company
or such Guarantor, for filing in all jurisdictions as may be
necessary or, in the opinion of the Agents, desirable to perfect the
security interests created in such Collateral pursuant to the
Collateral Documents; and
(v) OPINIONS OF LOCAL COUNSEL. Delivery to the Administrative Agent
of an opinion of counsel (which counsel shall be reasonably
satisfactory to the Agents) under the laws of Texas and such other
jurisdictions as Agents may reasonably request, in each case with
respect to the creation and perfection of the security interests in
favor the Administrative Agent on behalf of the Banks in such
Collateral and such other matters governed by the laws of such
jurisdiction regarding such security interests as the Agents may
reasonably request, in each case in form and substance reasonably
satisfactory to the Agents.
(c) NECESSARY GOVERNMENTAL AUTHORIZATIONS AND CONSENTS. The Company and
its Subsidiaries shall have obtained all authorizations, consents,
approvals, licenses or exemptions of or have made all filings or
registrations with any court or governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, and shall
have obtained all consents of other Persons, in each case that are
necessary or advisable in connection with the transactions contemplated
hereby and the continued operation of the businesses conducted by the
Company and its Subsidiaries in substantially the same manner as conducted
prior to the Effective Date, and each shall be in full force and effect,
in each case other than those the failure to obtain, which either
individually or in the aggregate, would not be reasonably likely to have a
Material Adverse Effect;
(d) OPINION OF BRACEWELL & PATTERSON, L.L.P. The Banks shall have received
originally executed copies of one or more favorable written opinions
addressed to the Agents and the Banks from Bracewell & Patterson, L.L.P.,
counsel to the Company and the Guarantors dated as of the Effective Date,
substantially in the form of EXHIBIT 5.1(D)
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annexed hereto and such other matters as the Agents acting on behalf of
the Banks may reasonably request;
(e) OPINION OF O'MELVENY & MYERS LLP. The Banks shall have received
originally executed copies of one or more favorable written opinions of
O'Melveny & Myers LLP, dated as of the Effective Date, substantially in
the form of EXHIBIT 5.1(E) annexed hereto and as to such other matters as
the Agents acting on behalf of the Banks may reasonably request;
(f) PAYMENT OF FEES. The Company shall have paid to the Administrative
Agent, for distribution as appropriate to the Agents and the Banks, the
Fees payable on the Effective Date referred to in Section 4.1 and all
reasonable fees and expenses (including the reasonable fees and expenses
of O'Melveny & Myers LLP) agreed upon by such parties to be paid on the
Effective Date;
(g) GOOD STANDING AND RELATED CERTIFICATES. On or prior to the Effective
Date, the Agents shall have received certificates of appropriate public
officials as to the existence, good standing and qualification to do
business as a foreign corporation, as applicable, of the Company and its
Subsidiaries in each jurisdiction in which the ownership of its properties
or the conduct of its business requires such qualifications and where the
failure to so qualify would have a Material Adverse Effect; and
(h) FINANCIAL STATEMENTS; PRO FORMA BALANCE SHEET. On or prior to the
Effective Date, the Banks shall have received from the Company (i) the
audited financial statements of the Company and its Subsidiaries for the
twelve (12) months ended December 31, 1997 consisting of a balance sheet
and related consolidated statements of income, stockholders' equity and
cash flows for such period, (ii) the unaudited financial statements of the
Company and its Subsidiaries for the fiscal periods most recently ended
prior to the Effective Date (including without limitation monthly income
statements for any such period of less than three months), in each case
consisting of a balance sheet and the related consolidated statements of
income, stockholders' equity and cash flows for such periods, all in
reasonably detail and certified by the chief financial officer of the
Company that they fairly present the financial condition of the Company
and its Subsidiaries for such periods and the results of their operations
and their cash flows for such periods, subject to changes resulting from
audit and normal year-end adjustments, (iii) pro forma consolidated
balance sheets of the Company and its Subsidiaries as at September 30,
1998, prepared in accordance with GAAP and reasonably reflecting the
transactions contemplated hereby, which pro forma financial statements
shall be in form and substance reasonably satisfactory to the Agents, and
(iv) projected consolidated financial statements of the Company and its
Subsidiaries for the three-year period after the Effective Date consisting
of a balance sheet and consolidated statements of income, shareholders'
equity and cash flows, which projected financial statements shall be in
form and substance reasonably satisfactory to the Agents (such financial
statements and information described in clauses (i) through (iv) above are
hereinafter collectively referred to as the "FINANCIALS");
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(i) SOLVENCY ASSURANCES. On the Effective Date, as to the Company and its
Subsidiaries, the Agents and the Banks shall have received a Financial
Condition Certificate with appropriate attachments, demonstrating that,
after giving effect to the consummation of the transactions contemplated
hereby, the Company and its Subsidiaries will be Solvent;
(j) NO DISRUPTION OF FINANCIAL AND CAPITAL MARKETS. There shall have been
no material adverse change after October 28, 1998 to the syndication
markets for credit facilities similar to the credit facilities provided
herein and there shall not have occurred and be continuing a material
disruption of or material adverse change in financial, banking or capital
markets that would have an adverse effect on such syndication market, in
each case as determined by the Agents in their sole discretion.
(k) DUE DILIGENCE. The results of Agents' continuing financial, legal, tax
and accounting due diligence investigations with respect to the Company
and its Subsidiaries and the other transactions contemplated hereunder
shall be satisfactory in all respects to the Agents and the other Banks,
and any supplemental business or financial due diligence that the Agents
reasonably determine have become necessary shall not have disclosed
information not previously disclosed to the Agents which causes the
results of such diligences not to be satisfactory in all respects to the
Agents and the other Banks. The Agents and the other Banks shall also have
received any information reasonably necessary to conduct their continuing
due diligence.
(l) EVIDENCE OF INSURANCE. Agents shall have received a certificate from
the Company's insurance broker or other evidence satisfactory to them that
all insurance required to be maintained pursuant to Section 7.3 is in full
force and effect and that the Administrative Agent on behalf of the Banks
has been named as additional insured and/or loss payee thereunder to the
extent required under Section 7.3.
The acceptance of the benefits of the initial Credit Event shall
constitute a representation and warranty by the Company to the Administrative
Agent and each of the Banks that, all of the conditions specified in this
Section above shall have been satisfied or waived as of that time.
SECTION 5.2. CONDITIONS PRECEDENT TO ALL CREDIT EVENTS. The obligation
of the Banks to make any Advance is, including, without limitation, the initial
Advance, subject to the further conditions precedent that on the date of such
Credit Event:
(a) The representations and warranties set forth in ARTICLE VI and in each
of the Collateral Documents shall be true and correct in all material
respects as of, and as if such representations and warranties were made
on, the date of the proposed Advance (unless such representation and
warranty expressly relates to an earlier date or is no longer true and
correct solely as a result of transactions permitted by the Loan
Documents), and the Company shall be deemed to have certified to the
Administrative Agent and the Banks that such representations and
warranties are true and correct in all material respects by submitting a
Notice of Advance.
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(b) The Company shall have complied with the provisions of SECTION 2.3
hereof.
(c) No Default or Event of Default shall have occurred and be continuing
or would result from such Credit Event.
(d) No Material Adverse Effect shall have occurred since the delivery of
the most recent financial statements delivered pursuant to SECTION 7.1.
(e) The Administrative Agent shall have received such other approvals or
documents as the Administrative Agent or the Banks may reasonably request.
The acceptance of the benefits of each such Credit Event shall
constitute a representation and warranty by the Company to the Administrative
Agent and each of the Banks that all of the conditions specified in this Section
above exist as of that time.
SECTION 5.3. DELIVERY OF DOCUMENTS. All of the Notes, certificates,
legal opinions and other documents and papers referred to in this ARTICLE V,
unless otherwise specified, shall be delivered to the Administrative Agent for
the account of each of the Banks and, except for the Notes, in sufficient
counterparts for each of the Banks and shall be reasonably satisfactory in form
and substance to the Banks.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
The Company, as to itself and each of its Subsidiaries, makes, on or
as of the occurrence of each Credit Event (except to the extent such
representations or warranties relate to an earlier date or are no longer true
and correct in all material respects solely as a result of transactions not
prohibited by the Loan Documents), the following representations and warranties
to the Administrative Agent and the Banks:
SECTION 6.1. ORGANIZATION AND QUALIFICATION. Each of the Company and
its Subsidiaries (a) is duly formed or organized, validly existing and is in
good standing under the laws of the state of its organization, (b) has the power
to own its property and to carry on its business as now conducted, except where
the failure to do so would not have a Material Adverse Effect and (c) is duly
qualified to do business and is in good standing in every jurisdiction in which
the failure to be so qualified would have a Material Adverse Effect.
SECTION 6.2. AUTHORIZATION AND VALIDITY. Each of the Company and its
Subsidiaries has the corporate power and authority to execute, deliver and
perform its obligations hereunder and under the other Loan Documents to which it
is a party and all such action has been duly authorized by all necessary
corporate proceedings on its part. The Loan Documents to which each of the
Company and its Subsidiaries is a party have been duly and validly executed and
delivered by such Person and constitute a valid and legally binding agreement of
such Person enforceable in accordance with the respective terms thereof, except,
in each case, as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer or other similar laws relating
to or affecting the enforcement of creditors' rights generally, and by general
principles of equity regardless of whether such enforceability is a proceeding
in equity or at law.
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SECTION 6.3. GOVERNMENTAL CONSENTS. No authorization, consent,
approval, license or exemption of or filing or registration with any court or
governmental department. commission, board, bureau, agency or
instrumentality, domestic or foreign, is necessary for the valid execution,
delivery or performance by the Company or any Subsidiary of any Loan Document.
SECTION 6.4. CONFLICTING OR ADVERSE AGREEMENTS OR RESTRICTIONS.
Neither the Company nor any Subsidiary is a party to any contract or agreement
or subject to any restriction which would reasonably be expected to have a
Material Adverse Effect. Neither the execution nor delivery of the Loan
Documents nor compliance with the terms and provisions hereof or thereof will be
contrary to the provisions of, or constitute a default under (a) the charter or
bylaws of the Company or any of its Subsidiaries or (b) any law, regulation,
order, writ, injunction or decree of any court or governmental instrumentality
that is applicable to the Company or any of its Subsidiaries or (c) any material
agreement to which the Company or any of its Subsidiaries is a party or by which
it is bound or to which it is subject.
SECTION 6.5. TITLE TO ASSETS. Each of the Company and its Subsidiaries
has good title to all material personalty and good and indefeasible title to all
material realty as reflected on the Company's and the Subsidiaries' books and
records as being owned by them, except for properties disposed of in the
ordinary course of business, subject to no Liens, except those permitted
hereunder, except where the failure to do so could not reasonably be expected to
have a Material Adverse Effect. All of such assets have been and are being
maintained by the appropriate Person in good working condition in accordance
with industry standards, except where the failure to do so could not reasonably
be expected to have a Material Adverse Effect.
SECTION 6.6. LITIGATION. No proceedings against or affecting the
Company or any Subsidiary are pending or, to the knowledge of the Company,
threatened before any court or governmental agency or department which involve a
reasonable material risk of having a Material Adverse Effect, individually or in
the aggregate, except those listed on SCHEDULE 6.6 hereof.
SECTION 6.7. FINANCIAL STATEMENTS. Prior to the Effective Date, the
Company has furnished to the Banks the Financials. The Financials have been
prepared in conformity with GAAP consistently applied (except as otherwise
disclosed in such financial statements) throughout the periods involved and
present fairly, in all material respects, the consolidated financial condition
of the Company and its consolidated Subsidiaries as of the dates thereof and the
consolidated results of their operations for the periods then ended. As of the
Effective Date, no Material Adverse Effect has occurred since December 31, 1997.
SECTION 6.8. DEFAULT. Neither the Company nor any Subsidiary is in
default under any material provisions of any instrument evidencing any
Indebtedness or of any agreement relating thereto, or in default in any respect
under any order, writ, injunction or decree of any court, or in default in any
respect under or in violation of any order, injunction or decree of any
governmental instrumentality, in each case in such manner as to cause a Material
Adverse Effect.
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SECTION 6.9. INVESTMENT COMPANY ACT. Neither the Company nor any
Subsidiary is, or is directly or indirectly controlled by or acting on behalf of
any Person which is, an "investment company," as such term is defined in the
Investment Company Act of 1940, as amended.
SECTION 6.10. PUBLIC UTILITY HOLDING COMPANY ACT. Neither the Company
nor any Subsidiary is a non-exempt "holding company," or subject to regulation
as such, or, to the knowledge of the Company's or such Subsidiary's officers, an
"affiliate" of a "holding company" or a "subsidiary company" of a "holding
company," within the meaning of the Public Utility Holding Company Act of 1935,
as amended.
SECTION 6.11. ERISA. No accumulated funding deficiency (as defined in
Section 412 of the Code or Section 302 of ERISA), that would cause a Material
Adverse Effect whether or not waived, exists or is expected to be incurred with
respect to any Plan. No liability to the PBGC (other than required premium
payments) has been or is expected by the Company to be incurred with respect to
any Plan by the Company or any ERISA Affiliate that would cause a Material
Adverse Effect. Neither the Company nor any ERISA Affiliate has incurred any
withdrawal liability under Title IV of ERISA with respect to any Multi-Employer
Plans.
SECTION 6.12. TAX RETURNS AND PAYMENTS. Each of the Company and its
Subsidiaries has filed all federal income tax returns and other tax returns,
statements and reports (or obtained extensions with respect thereto) which are
required to be filed and has paid or deposited or made adequate provision, in
accordance with GAAP for the payment of all taxes (including estimated taxes
shown on such returns, statements and reports) which are shown to be due
pursuant to such returns, except for such taxes as are being contested in good
faith and by appropriate proceedings.
SECTION 6.13. ENVIRONMENTAL MATTERS. Each of the Company and its
Subsidiaries (a) possesses all environmental, health and safety licenses,
permits, authorizations, registrations, approvals and similar rights necessary
under law or otherwise for the Company or such Subsidiary to conduct its
operations as now being conducted (other than those with respect to which the
failure to possess or maintain would not, individually or in the aggregate for
the Company and such Subsidiaries, reasonably be expected to have a Material
Adverse Effect) and (b) each of such licenses, permits, authorizations,
registrations, approvals and similar rights is valid and subsisting, in full
force and effect and enforceable by the Company or such Subsidiary, and each of
the Company and its Subsidiaries is in compliance with all effective terms,
conditions or other provisions of such permits, authorizations, registrations,
approvals and similar rights except for such failure or noncompliance that,
individually or in the aggregate for the Company and such Subsidiaries, would
not reasonably be expected to have a Material Adverse Effect. Except as
disclosed on SCHEDULE 6.13, on the Effective Date, neither the Company nor any
of its Subsidiaries has received any notices of any violation of, noncompliance
with, or remedial obligation under, Requirements of Environmental Laws (which
violation or non-compliance has not been cured), and there are no writs,
injunctions, decrees, orders or judgments outstanding, or lawsuits, claims,
proceedings, investigations or inquiries pending or, to the knowledge of the
Company or any Subsidiary, threatened, relating to the ownership, use,
condition, maintenance or operation of, or conduct of business related to, any
property owned, leased or operated by the Company or such
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Subsidiary or other assets of the Company or such Subsidiary, other than those
violations, instances of noncompliance, obligations, writs, injunctions,
decrees, orders, judgments, lawsuits, claims, proceedings, investigations or
inquiries that, individually or in the aggregate for the Company and such
Subsidiaries, would not have a Material Adverse Effect. Except as disclosed on
Schedule 6. 13, there are no material obligations, undertakings or liabilities
arising out of or relating to Environmental Laws to which the Company or any of
its Subsidiaries has agreed, assumed or retained, or by which the Company or any
of its Subsidiaries is adversely affected, by contract or otherwise and,
further, except as disclosed on SCHEDULE 6.13, neither the Company nor any of
its Subsidiaries has received a written notice or claim to the effect that the
Company or any of its Subsidiaries is or may be liable to any other Person as
the result of a Release or threatened Release of a Hazardous Material which, in
either case, could reasonably be expected to have a Material Adverse Effect.
SECTION 6.14. PURPOSE OF LOANS
(a) The proceeds of the Loan will be used solely for general corporate
purposes, including working capital, to finance acquisitions permitted
hereunder, and for Letters of Credit.
(b) None of the proceeds of any Advance will be used directly or
indirectly for the purpose of purchasing or carrying any "margin stock"
within the meaning of Regulation U or for the purpose of reducing or
retiring any indebtedness which was originally incurred to purchase or
carry any margin stock.
SECTION 6.15. FRANCHISES AND OTHER RIGHTS. The Company and each of its
Subsidiaries has all franchises, permits, licenses and other authority as are
necessary to enable them to carry on their respective businesses as now being
conducted and is not in default in respect thereof where the absence of such or
any such default could reasonably be expected to have a Material Adverse Effect,
individually or in the aggregate.
SECTION 6.16. SUBSIDIARIES AND ASSETS. The Subsidiaries listed on
SCHEDULE 6.16 are all of the Subsidiaries of the Company as of the Effective
Date and the address given for such Guarantors is the correct mailing address as
of the Effective Date. The Company shall update such SCHEDULE 6.16 within thirty
(30) days of new Subsidiaries being added.
SECTION 6.17. SOLVENCY. After giving effect to the initial Advance
hereunder and all other Indebtedness of the Company existing at the time of such
Advance, the Company and its Subsidiaries, viewed as a consolidated entity, is
Solvent.
SECTION 6.18. PAYMENT OF CERTAIN INDEBTEDNESS. The Company has (a)
repaid in full all of the Indebtedness described on SCHEDULE 8.3(B)(II) and (b)
obtained, and where applicable recorded in all appropriate locations, releases
of Liens for all real and personal property securing same.
SECTION 6.19. MATTERS RELATING TO COLLATERAL .
(a) CREATION, PERFECTION AND PRIORITY OF LIENS. The execution and delivery
of the Collateral Documents by the Company and the Guarantors, together
with (i) the actions taken on or prior to the date hereof pursuant to
SECTION 5.1(B) and (ii) the delivery to the
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Administrative Agent of any Pledged Collateral not delivered to the
Administrative Agent at the time of execution and delivery of the
applicable Collateral Document (all of which Pledged Collateral has been
so delivered) are effective to create in favor of the Administrative Agent
for the benefit of the Banks, as security for the respective Secured
Obligations (as defined in the applicable Collateral Document in respect
of any Collateral), a valid and perfected First Priority Lien on all of
the Collateral, and all filings and other actions necessary or desirable
to perfect and maintain the perfection and First Priority status of such
Liens have been duly made or taken and remain in full force and effect,
other than the filing of any UCC financing statements delivered to the
Administrative Agent for filing (but not yet filed) and the periodic
filing of UCC continuation statements in respect of UCC financing
statements filed by or on behalf of the Administrative Agent.
(b) GOVERNMENTAL AUTHORIZATIONS. No authorization, approval or other
action by, and no notice to or filing with, any governmental authority or
regulatory body is required for either (i) pledge or grant by the Company
or any Guarantor of the Liens purported to be created in favor of the
Administrative Agent pursuant to any of the Collateral Documents or (ii)
the exercise by the Administrative Agent of any rights or remedies in
respect of any Collateral (whether specifically granted or created
pursuant to any of the Collateral Documents or created or provided for by
applicable law), except for filings or recordings contemplated by SECTION
6.19(A) and except as may be required, in connection with the disposition
of any Pledged Collateral, by laws generally affecting the offering and
sale of securities.
(c) ABSENCE OF THIRD-PARTY FILINGS. Except such as may have been filed in
favor of the Administrative Agent as contemplated by SECTION 6.19(A) or
filed in connection with a Permitted Lien, no effective UCC financing
statement, fixture filing or other instrument similar in effect covering a
substantial portion of the Collateral is on file in any filing or
recording office.
(d) MARGIN REGULATIONS. The pledge of the Pledged Collateral pursuant to
the Collateral Documents does not violate Regulation T, U or X of the
Board of Governors of the Federal Reserve System.
(e) INFORMATION REGARDING COLLATERAL. All information supplied to the
Agents by or on behalf of the Company or any Guarantor with respect to any
of the Collateral (in each case taken as a whole with respect to any
particular Collateral) is accurate and complete in all material respects.
SECTION 6.20. YEAR 2000 COMPLIANCE All Information Systems and
Equipment are either (i) Year 2000 Compliant, or (ii) any reprogramming,
remediation, or any other corrective action necessary to make such Information
Systems and Equipment Year 2000 Compliant, including the internal testing of all
such Information Systems and Equipment, will be completed by either (x) July 1,
1999 with respect to the Company and its Subsidiaries existing on the Effective
Date or (y) within 45 days after the date of creation or acquisition of any
Subsidiary of the Company created or acquired after the Effective Date, but in
any event no later than December 31, 1999. Further, to the extent that such
reprogramming/ remediation and testing
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action is required, the cost thereof, as well as the cost of the reasonably
foreseeable consequences of failure to become Year 2000 Compliant, to the
Company and its Subsidiaries (including, without limitation, reprogramming
errors and the failure of other systems or equipment) will not result in a
Default or Material Adverse Effect.
ARTICLE VII
AFFIRMATIVE COVENANTS
The Company, as to itself and each of its Subsidiaries, covenants
and agrees that on and after the date hereof and for so long as this Agreement
is in effect and until the Notes have been paid in full and the Commitments have
terminated:
SECTION 7.1. INFORMATION COVENANTS. The Company will furnish
to each Bank:
(a) As soon as available, and in any event within forty-five (45) days
after the close of each fiscal quarter, the consolidated balance sheet of
the Company and its Subsidiaries as of the end of such period and the
related consolidated statements of income and cash flow for such period,
setting forth, in each case, comparative consolidated figures for the
related periods in the prior fiscal year, all of which shall be certified
by the treasurer, chief financial officer, or chief executive officer of
the Company as fairly presenting in all material respects, the financial
position of the Company and its Subsidiaries as of the end of such period
and the results of their operations for the period then ended in
accordance with GAAP, subject to changes resulting from normal year-end
audit adjustments. In addition to the foregoing, the Company shall also
provide at such time, summary balance sheet and operating income
information with respect to each direct Subsidiary fairly representing in
all material respects, the financial position of each direct Subsidiary as
of the end of such period and the results of their operations for the
period then ended.
(b) As soon as available, and in any event within one hundred twenty (120)
days after the close of each fiscal year of the Company, the audited
consolidated balance sheets of the Company as at the end of such fiscal
year and the related consolidated and statements of income, stockholders
equity and cash flows for such fiscal year, setting forth. in each case
comparative figures for the preceding fiscal year and certified by Arthur
Andersen or other independent certified public accountants of recognized
national standing, whose report shall be without limitation as to the
scope of the audit and reasonably satisfactory in substance to the Banks.
In addition to the foregoing, the Company shall cause each Subsidiary to
deliver summary income statements within one hundred twenty (120) days
after the close of each fiscal year of the Company.
(c) Promptly after any Responsible Officer of the Company obtains
knowledge thereof, notice of:
(i) any material violation of, noncompliance with, or remedial
obligations under, Requirements of Environmental Laws that could
cause a Material Adverse Effect;
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(ii) any Release or threatened material Release of Hazardous
Materials affecting any property owned, leased or operated by the
Company or any of its Subsidiaries that could cause a Material
Adverse Effect;
(iii) any event or condition which constitutes a Default or an Event
of Default;
(iv) any condition or event which, in the opinion of management of
the Company, would reasonably be expected to have a Material Adverse
Effect;
(v) any Person having given any written notice to the Company or
taken any other action with respect to a claimed material default or
event under any material instrument or material agreement;
(vi) the institution of any litigation which might reasonably be
expected in the good faith judgment of the Company either to have a
Material Adverse Effect or result in a final, non-appealable
judgment or award in excess of $1,000,000.00 with respect to any
single cause of action; and
(vii) all ERISA notices required by SECTION 7.7;
such notice shall specify the nature and period of existence thereof and
specifying the notice given or action taken by such Person and the nature of any
such claimed default, event or condition and, in the case of an Event of Default
or Default, what action has been taken, is being taken or is proposed to be
taken with respect thereto.
(d) At the time of the delivery of the financial statements provided for
in SECTIONS 7.1(A) and 7.1(B), a Compliance Certificate of a Responsible
Officer to the effect that, no Default or Event of Default exists or, if
any Default or Event of Default does exist, specifying the nature and
extent thereof and the action that is being taken or that is proposed to
be taken with respect thereto, which certificate shall set forth the
calculations required to establish whether the Company was in compliance
with the provisions of SECTIONS 8.10 through 8.14 as at the end of such
fiscal period or year, as the case may be.
(e) Promptly following request by the Administrative Agent such
environmental reports, studies and audits of the Company's procedures and
policies, assets and operations in respect of Environmental Laws as the
Administrative Agent may reasonably request.
(f) Promptly upon receipt thereof, a copy of any report or letter
submitted to the Company by its independent accountants in connection with
any regular or special audit of the Company's records.
(g) From time to time and with reasonable promptness, such other
information or documents as the Administrative Agent or any Bank through
the Administrative Agent may reasonably request.
SECTION 7.2. BOOKS, RECORDS AND INSPECTIONS. The Company and its
Subsidiaries will maintain, and will permit, or cause to be permitted, any
Person designated by
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any Bank or the Banks to visit and inspect any of the properties of the Company
and its Subsidiaries, to examine the corporate books and financial records of
the Company and its Subsidiaries and make copies thereof or extracts therefrom
and to discuss the affairs, finances and accounts of any such corporations with
the officers of the Company and its Subsidiaries and with their independent
public accountants, all at such reasonable times and as often as the
Administrative Agent or such Bank may reasonably request. Such inspections shall
be at the expense of the Bank or Banks requesting same unless there is in
existence a Default at the time of such request in which event such expense
shall be at the expense of the Company.
SECTION 7.3. INSURANCE AND MAINTENANCE OF PROPERTIES.
(a) Each of the Company and its Subsidiaries will keep reasonably
adequately insured by financially sound and reputable insurers all of its
material property, which is of a character, and in amounts and against
such risks, usually and reasonably insured by similar Persons engaged in
the same or similar businesses, including, without limitation, insurance
against fire, casualty and any other hazards normally insured against.
Each of the Company and its Subsidiaries will at all times maintain
insurance against its liability for injury to Persons or property, which
insurance shall be by financially sound and reputable insurers and in such
amounts and form as are customary for corporations of established
reputation engaged in the same or a similar business and owning and
operating similar properties. The Company shall provide the Administrative
Agent a listing of all such insurance and such other certificates and
other evidence thereof, on or prior to the Effective Date hereof and
annually thereafter. Each policy of insurance that insures against loss or
damage with respect to any Collateral or against losses due to business
interruption shall name the Administrative Agent for the benefit of the
Banks as the loss payee thereunder for any covered loss in excess of
$500,000 and shall provide for at least thirty (30) days (fifteen (15)
days in the event of non-payment of premium) prior written notice to the
Administrative Agent of any modification or cancellation of such policy.
(b) Each of the Company and its Subsidiaries will cause all of its
material properties used or useful in the conduct of its business to be
maintained and kept in good condition, repair and working order and
supplied with all necessary equipment and will cause to be made all
reasonably necessary repairs, renewals and replacements thereof, all as in
the reasonable judgment of such Person may be reasonably necessary so that
the business carried on in connection therewith may be properly conducted
at all times, except where such failure could not reasonably be expected
to have a Material Adverse Effect.
SECTION 7.4. PAYMENT OF TAXES. Each of the Company and its
Subsidiaries will pay and discharge all taxes, assessments and governmental
charges or levies imposed upon it or upon its income or profits, or upon any
properties belonging to it, prior to the date on which penalties attach thereto,
except for such amounts that are being contested in good faith and by
appropriate proceedings, except where such failure could not reasonably be
expected to have a Material Adverse Effect, individually or in the aggregate.
SECTION 7.5. CORPORATE EXISTENCE. Each of the Company and its
Subsidiaries will do all things necessary to preserve and keep in full force and
effect (a) the
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existence of the Company, and (b) unless the failure to do so would not
reasonably be expected to have a Material Adverse Effect, individually or in the
aggregate, the rights and franchises of each of the Company and its
Subsidiaries.
SECTION 7.6. COMPLIANCE WITH STATUTES. Each of the Company and its
Subsidiaries will comply with all applicable statutes, regulations and orders
of, and all applicable restrictions imposed by, all governmental bodies,
domestic or foreign, in respect of the conduct of its business and the ownership
of its property, except to the extent the failure to do so would not reasonably
be expected to have a Material Adverse Effect.
SECTION 7.7. ERISA. Promptly after any Responsible Officer of the
Company or any of its Subsidiaries knows or has reason to know any of the
following items are true the Company will deliver or cause to be delivered to
the Banks a certificate of the chief financial officer of the Company setting
forth details as to such occurrence and such action, if any, the Company or its
ERISA Affiliate is required or proposes to take, together with any notices
required or proposed to be given to or filed with or by the Company or its ERISA
Affiliate with respect thereto: that a Reportable Event has occurred or that an
application may be or has been made to the Secretary of the Treasury for a
waiver or modification of the minimum funding standard; that a Multiemployer
Plan has been or may be terminated, reorganized, partitioned or declared
insolvent under Title IV of ERISA; that any required contribution to a Plan or
Multiemployer Plan has not been or may not be timely made; that proceedings may
be or have been instituted under Section 4069(a) of ERISA to impose liability on
the Company or an ERISA Affiliate or under Section 4042 of ERISA to terminate a
Plan or appoint a trustee to administer a Plan; that the Company or any ERISA
Affiliate has incurred or may incur any liability (including any contingent or
secondary liability) on account of the termination of or withdrawal from a Plan
or a Multiemployer Plan; and that the Company or an ERISA Affiliate may be
required to provide security to a Plan under Section 401(a)(29) of the Code.
SECTION 7.8. ADDITIONAL SUBSIDIARIES. The Company will cause any
Person that becomes a Material Subsidiary subsequent to the Effective Date,
within thirty (30) Business Days after becoming a Material Subsidiary, (A) to
execute and deliver (i) a Guaranty or a counterpart of this Agreement and
deliver same to the Administrative Agent (together with certificates and all
other instruments for such Material Subsidiary as required by SECTION 5.1(A)(IV)
hereof); (ii) a Subsidiary Pledge Agreement or a counterpart of a Subsidiary
Pledge Agreement executed by each such new Guarantor; and (iii) a Subsidiary
Security Agreement or a counterpart of a Subsidiary Security Agreement executed
by each such new Guarantor; PROVIDED if said Material Subsidiary is not
incorporated under the laws of the United States or one of its states or
territories, no such Guaranty, Subsidiary Pledge Agreement or Subsidiary
Security Agreement, will be required if the Company makes arrangements,
satisfactory to the Administrative Agent, in its sole discretion, regarding
restrictions on transfer of funds or other assets by the Company or any
Subsidiary to said new foreign Material Subsidiary; and (B) to take all such
other further actions and executed all such further documents and instruments
(including actions, documents and instruments comparable to those described in
SECTION 5.1(B)) as may be necessary or, in the opinion of the Administrative
Agent, desirable to create in favor of the Administrative Agent, for the benefit
of the Banks, a valid and perfected First Priority Lien on all of the personal
property assets of such Subsidiary described in the applicable forms of the
Collateral Documents.
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SECTION 7.9. YEAR 2000 COMPLIANCE. The Company will ensure that its
and its Subsidiaries' Information Systems and Equipment are Year 2000 Compliant
(x) at all times after July 1, 1999 with respect to the Company and its
Subsidiaries existing on the Effective Date or (y) within 45 days after the date
of creation or acquisition of any Subsidiary of the Company created or acquired
after the Effective Date, but in any event no later than December 31, 1999,
except insofar as the failure to do so will not result in a Material Adverse
Effect, and shall notify the Administrative Agent and any Bank promptly upon
detecting any failure of the Information Systems and Equipment to be Year 2000
Compliant. In addition, the Company shall provide the Agents and any Bank with
such information about its year 2000 computer readiness (including, without
limitation, information as to contingency plans, budgets and testing results) as
such Agent or such Bank may reasonably request.
ARTICLE VIII
NEGATIVE COVENANTS
The Company covenants and agrees, as to itself and, except as
otherwise provided herein, each of its Subsidiaries, that on and after the date
hereof and for so long as this Agreement is in effect and until the Commitments
have terminated:
SECTION 8.1. CHANGE IN BUSINESS. The Company will not, and will not
permit any of its Subsidiaries to, engage in any businesses not of the same
general type or reasonably related thereto as those conducted by the Company on
the Effective Date.
SECTION 8.2. CONSOLIDATION, MERGER OR SALE OF ASSETS. Except as
disclosed to the Administrative Agent on or before the Effective Date, the
Company will not, and will not permit any of its Subsidiaries to, wind up,
liquidate or dissolve their affairs, or enter into any transaction of merger or
consolidation, or enter into any Asset Sales, except for (a) mergers permitted
under SECTION 8.5(D), so long as the Company is the surviving entity and so long
as no Event of Default occurs immediately before or after such merger, (b)
mergers by the Company with any of its wholly-owned Subsidiaries and mergers by
the Company's wholly-owned Subsidiaries with another of the Company's
wholly-owned Subsidiaries, so long as the Company is the surviving entity and so
long as no Event of Default occurs immediately before or after such merger, and
(c) mergers by a wholly-owned Subsidiary of the Company with another Person in
connection with an Investment permitted under SECTION 8.5(D), so long as the
relevant Subsidiary is the surviving entity and so long as no Event of Default
occurs immediately before or after such merger.
SECTION 8.3. INDEBTEDNESS. Neither the Company nor any
Subsidiary of the Company will create, incur, assume or permit to exist any
Indebtedness of the Company or any Subsidiary except:
(a) Indebtedness existing hereunder;
(b) Indebtedness existing on the Effective Date not otherwise permitted in
this Section 8.3 listed on SCHEDULE 8.3(B)(I) and (II);
(c) Indebtedness arising as a result of the endorsement in the ordinary
course of business of negotiable instruments in the course of collection;
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(d) accounts payable and unsecured, current and long-term, liabilities
(including accrued insurance related liabilities), not the result of
indebtedness for borrowed money, to vendors, suppliers and other Persons
for goods and services in the ordinary course of business;
(e) agreements to acquire any Person or assets entered into by the Company
or any of its Subsidiaries in anticipation of acquiring such Person or
assets if such acquisition is not prohibited by this Agreement, and so
long as the Indebtedness represented by such agreements is not otherwise
prohibited hereunder;
(f) intercompany Indebtedness of any Subsidiary of the Company to the
Company or any other Subsidiary and Indebtedness of the Company to any
Subsidiary of the Company provided that same is subordinate to the
Obligations in the manner provided in SECTION 8.5 hereof;
(g) current and deferred taxes;
(h) other Indebtedness not in excess of $5,000,000.00 in the aggregate at
any time outstanding;
(i) Subordinated Debt incurred by the Company or any of its Subsidiaries
solely in connection with Investments permitted by SECTION 8.5(D) and
Subordinated Debt incurred to refinance the then outstanding aggregate
principal amount of any such Subordinated Debt incurred solely in
connection with Investments permitted by SECTION 8.5(D); PROVIDED that
such refinancing Subordinated Debt (1) shall be in an aggregate principal
amount not to exceed the then outstanding aggregate principal amount of
such Subordinated Indebtedness to be refinanced plus the amount of accrued
and unpaid interest thereon; (2) shall not mature earlier than twelve
months after the Maturity Date; and (3) shall contain such other terms and
conditions that are not more favorable to the holders of such refinancing
Subordinated Debt than to the holders of the Subordinated Debt being
refinanced;
(j) Indebtedness assumed or acquired in connection with Investments
permitted under SECTION 8.5(D); provided that all of such Indebtedness in
excess of three percent (3%) of the net book value of the assets acquired
in any such Investment shall be retired within 60 days after the date of
such Investment;
(k) renewals and extensions with the same lenders (in the same or lesser
principal amount on similar terms and conditions) of any Indebtedness
listed in subparagraphs (a) through (i) but excluding (h) above;
(l) vehicle leases not to exceed $10,000,000.00 in face value; and
(m) Indebtedness under Interest Rate Agreements and Other Hedging
Agreements to which the Company and any Bank are parties; PROVIDED that
the Company or any of its Subsidiaries may enter into Interest Rate
Agreements and Other Hedging Agreements with lenders other than Banks so
long as such Interest Rate Agreements and Other
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Hedging Agreements are unsecured and are entered into in the ordinary
course of business for non-speculative purposes.
SECTION 8.4. LIENS AND RELATED MATTERS.
(a) PROHIBITION ON LIENS. Neither the Company nor any Subsidiary of the
Company will create, incur, assume or suffer to exist any Lien upon or
with respect to any of its property or assets of any kind whether now
owned or hereafter acquired, except:
(i) Liens existing on the Effective Date and listed on SCHEDULE
8.4(A);
(ii) Liens existing on the Effective Date securing currently secured
Indebtedness permitted under SECTION 8.3(B) or (h) above;
(iii) Permitted Liens;
(iv) Liens securing Indebtedness permitted under SECTION 8.3(H) and
8.3(J);
(v) Liens granted pursuant to the Collateral Documents; and
(vi) any renewal, extension or replacement of any Lien referred to
above with the same lenders; PROVIDED that no Lien arising or
existing as a result of such extension, renewal or replacement shall
be extended to cover any property not theretofore subject to the
Lien being extended, renewed or replaced; and PROVIDED FURTHER that
the principal amount of the Indebtedness secured thereby shall not
exceed the principal amount of the Indebtedness so secured at the
time of such extension, renewal or replacement.
(b) EQUITABLE LIEN IN FAVOR OF LENDERS. If the Company or any of its
Subsidiaries shall create or assume any Lien upon any of its properties or
assets, whether now owned or hereafter acquired, other than Liens excepted
by the provisions of subsection 8.4(a), it shall make or cause to be made
effective provision whereby the Obligations will be secured by such Lien
equally and ratably with any and all other Indebtedness secured thereby as
long as any such Indebtedness shall be so secured; PROVIDED that,
notwithstanding the foregoing, this covenant shall not be construed as a
consent by Majority Banks to the creation or assumption of any such Lien
not permitted by the provisions of SECTION 8.4(A).
(c) NO FURTHER NEGATIVE PLEDGES. Except with respect to specific property
encumbered to secure payment of particular Indebtedness or to be sold
pursuant to an executed agreement with respect to an Asset Sale, neither
the Company nor any of its Subsidiaries shall enter into any agreement
(other than an agreement prohibiting only the creation of Liens securing
Subordinated Indebtedness) prohibiting the creation or assumption on any
Lien upon any of its properties or assets, whether now or owned or
hereafter acquired.
SECTION 8.5. INVESTMENTS. Neither the Company nor any
Subsidiary will, directly or indirectly, make or own any Investment in any
Person, except:
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(a) Permitted Investments;
(b) Investments owned on the Effective Date as set forth on SCHEDULE
8.5(B), including Investments in the Subsidiaries, direct and indirect;
(c) Investments arising out of loans and advances for expenses, travel per
diem and similar items in the ordinary course of business to officers,
directors and employees and intercompany Indebtedness permitted by SECTION
8.3(F);
(d) Investments in the stock, warrants, stock appreciation rights, other
securities and/or other assets of domestic entities engaged in the same
general type of business as the Company on the Effective Date, (i) in
which the Company or one of its wholly owned Subsidiaries is the surviving
entity, (ii) at a time when no Default or Event of Default exists
hereunder, (iii) the cash portion of the purchase price for any one such
Investment does not exceed $15,000,000.00, and (iv) the aggregate cash
portion of the purchase price of all such Investments shall not exceed
$60,000,000.00 in any given two consecutive fiscal quarters;
(e) other Investments having cost to the Company and its Subsidiaries not
exceeding $500,000.00 in the aggregate at any one time outstanding during
the term of this Agreement,
(f) Investments in the form of stock buybacks allowed under SECTION 8.6;
and
(g) Investments in capital stock of wholly-owned Subsidiaries of the
Company.
SECTION 8.6. RESTRICTED PAYMENTS. The Company will not (i) pay any
dividend or other distribution, direct or indirect, on account of, or redeem,
retire, purchase or guaranty the value of or make any other acquisition, direct
or indirect, of any shares of any class of stock of the Company, or of any
warrants, rights or options to acquire any such shares, now or hereafter
outstanding, except to the extent that the consideration therefor consists
solely of shares of stock (including warrants, rights or options relating
thereto) of the Company or is approved by the Majority Banks, and (ii) make any
Restricted Subordinated Debt Payments; PROVIDED the Company may (a) purchase the
stock of departing officers and employees upon their departure in a maximum,
aggregate amount not to exceed $500,000.00 in the aggregate measured over the
entire period any Loans are outstanding under this Agreement or such larger
amount at the Administrative Agent's written consent, (b) make payments of
regularly scheduled interest in respect of any Subordinated Indebtedness, in
accordance with the terms of and to the extent required by, and subject to the
subordination provisions contained in, the documents establishing and evidencing
such Subordinated Indebtedness, and (c) so long as no Event of Default shall
have occurred and be continuing or occurs as a result thereof, make Restricted
Subordinated Debt Payments (other than interest payments) in respect of
Subordinated Debt existing on the Effective Date only in an aggregate amount not
to exceed at any time (x) 50% of Cumulative Consolidated Net Income at such time
LESS (y) the amount of Restricted Subordinated Debt Payments (other than
interest payments) made pursuant to this clause (c) following the last day of
the most recent fiscal quarter for which financial statements have been
delivered pursuant to Section 6.1.
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SECTION 8.7. CHANGE IN ACCOUNTING. The Company will not and will not
permit any Subsidiary to, change its method of accounting including a change of
the Company's fiscal year except for (a) changes permitted by GAAP in which the
Company's auditors concur, (b) changes with respect to any Person or assets
acquired by the Company to conform with the Company's policies and procedures
and which are permitted by GAAP or (c) changes required by GAAP. The Company
shall advise the Administrative Agent in writing promptly upon making any
material change to the extent same is not disclosed in the financial statements
required under SECTION 7.1 hereof. In the event of any such change, the Company,
the Banks and the Administrative Agent agree to negotiate amendments to SECTIONS
8.10 through 8.14 hereof (and related definitions, if relevant) so as to
equitably reflect such changes thereon with the intended result that the
criteria for evaluating the financial condition of the Company and its
Subsidiaries shall be substantially the same after such changes as before.
SECTION 8.8. CHANGE OF CERTAIN INDEBTEDNESS. The Company will not, and
will not permit any of its Subsidiaries after the occurrence and during the
continuance of any Event of Default to make any voluntary prepayments of
principal or interest on any other of the Company's Indebtedness.
SECTION 8.9. TRANSACTIONS WITH AFFILIATES. The Company will not,
directly or indirectly, engage in any transaction with any Affiliate, including
the purchase, sale or exchange of assets or thc rendering of any service, except
in the ordinary course of business or pursuant to the reasonable requirements of
its business and, in each case, upon terms that are no less favorable than those
which might be obtained in an arm's-length transaction at the time from
non-Affiliates.
SECTION 8.10. FUNDED SENIOR DEBT TO EBITDA RATIO. The Company will not
as of the last day of any fiscal quarter permit the ratio of its total Funded
Senior Debt on such day to EBITDA for the rolling four (4) quarters then ended
to be greater than 2.50 to 1.00 at any time during the term hereof.
SECTION 8.11. TOTAL FUNDED DEBT TO EBITDA RATIO. The Company will not
as of the last day of any fiscal quarter permit the ratio of (i) its Total
Funded Debt on such day to (ii) EBITDA for the four consecutive fiscal quarters
then ended to be greater than 3.50 to 1.00 at any time during the term hereof.
SECTION 8.12. MINIMUM NET WORTH. The Company will not permit, as of
the last day of the fiscal quarter ending December 31, 1998, its Consolidated
Net Worth to be less than $282,000,000. The Company will not permit, as of the
last day of any fiscal quarter commencing with fiscal quarter ending March 31,
1999, its Consolidated Net Worth to be less than the sum of (i) $300,000,000
PLUS (ii) seventy-five percent (75%) of the cumulative quarterly consolidated
net income of the Company for each such fiscal quarter during which the Company
has positive consolidated net income PLUS (iii) one hundred percent (100%) of
the net proceeds received by the Company from any sale or issuance of any equity
securities of, or any other additions to capital by, the Company or its
Subsidiaries.
SECTION 8.13. CAPITAL EXPENDITURES. The Company will not permit total
consolidated capital expenditures (including Capitalized Lease Obligations but
exclusive of (x)
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Investments permitted under SECTION 8.5(D) and (y) consolidated capital
expenditures with respect to casualty loss replacements) to be greater than the
lesser of (i) $30,000,000.00 or (ii) two percent (2.00%) of gross revenues (pro
forma gross revenues with respect to permitted acquisitions) for any fiscal year
during the term hereof.
SECTION 8.14. INTEREST COVERAGE RATIO. The Company will not permit as
of the last day of any fiscal quarter the ratio of EBITDA for the four
consecutive fiscal quarters ended on such day to cash Interest Expense for such
period to be less than 4.00 to 1.00. This interest coverage ratio shall be
calculated on a rolling four quarter basis.
For purposes of calculating the ratios in SECTIONS 8.10 and 8.11,
the calculations of Total Funded Debt and Funded Senior Debt after the
acquisition of assets or entities permitted under this Agreement shall include
pro forma adjustments to account for such acquired entity's historical Total
Funded Debt and Funded Senior Debt for the relevant period.
ARTICLE IX
GUARANTY
SECTION 9.1. GUARANTY. In consideration of, and in order to induce the
Banks to make the Loans and the Issuing Bank to issue Letters of Credit
hereunder, the Guarantors hereby absolutely, unconditionally and irrevocably,
jointly and severally, guarantee the punctual payment and performance when due,
whether at stated maturity, by acceleration or otherwise, of the Obligations,
and all other obligations and covenants of the Company now or hereafter existing
under this Agreement, the Notes and the other Loan Documents whether for
principal, interest (including interest accruing or becoming owing both prior to
and subsequent to the commencement of any proceeding against or with respect to
the Company under any chapter of the Bankruptcy Code), Fees, commissions,
expenses (including reasonable attorneys' fees and expenses) or otherwise, and
all reasonable costs and expenses, if any, incurred by the Administrative Agent
or any Bank in connection with enforcing any rights under this Guaranty (all
such obligations being the "GUARANTEED OBLIGATIONS",) and agree to pay any and
all reasonable expenses incurred by each Bank and the Administrative Agent in
enforcing this Guaranty; PROVIDED that notwithstanding anything contained herein
or in any of the Loan Documents to the contrary, the maximum liability of each
Guarantor hereunder and under the other Loan Documents shall in no event exceed
such Guarantor's Maximum Guaranteed Amount, PROVIDED FURTHER, each Guarantor
shall be unconditionally required to pay all amounts demanded of it hereunder
prior to any determination of such Maximum Guaranteed Amount and the recipient
of such payment, if so required by a final non-appealable order of a court of
competent jurisdiction. shall then be liable for the refund of any excess
amounts. If any such rebate or refund is ever required, all other Guarantors
(and the Company) shall be fully liable for the repayment thereof to the maximum
extent allowed by applicable law. This Guaranty is an absolute, unconditional,
present and continuing guaranty of payment and not of collectibility and is in
no way conditioned upon any attempt to collect from the Company or any other
action, occurrence or circumstance whatsoever. Each Guarantor agrees that the
Guaranteed Obligations may at any time and from time to time exceed the Maximum
Guaranteed Amount of such Guarantor without impairing this Guaranty or affecting
the rights and remedies of the Banks hereunder.
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SECTION 9.2. CONTINUING GUARANTY. Each Guarantor guarantees that the
Guaranteed Obligations will be paid strictly in accordance with the terms of
this Agreement, the Notes and the other Loan Documents. Each Guarantor agrees
that the Guaranteed Obligations and Loan Documents may be extended or renewed,
and Loans repaid and reborrowed in whole or in part, without notice to or assent
by such Guarantor, and that it will remain bound upon this Guaranty
notwithstanding any extension, renewal or other alteration of any Guaranteed
Obligations or Loan Documents, or any repayment and reborrowing of Loans. To the
maximum extent permitted by applicable law, the obligations of each Guarantor
under this Guaranty shall be absolute, unconditional and irrevocable, and shall
be performed strictly in accordance with the terms hereof under any
circumstances whatsoever, including:
(a) any extension, renewal, modification, settlement, compromise, waiver
or release in respect of any Guaranteed Obligations;
(b) any extension, renewal, amendment, modification, rescission, waiver or
release in respect of any Loan Documents;
(c) any release, exchange, substitution, non-perfection or invalidity of,
or failure to exercise rights or remedies with respect to, any direct or
indirect security for any Guaranteed Obligations, including the release of
any Guarantor or other Person liable on any Guaranteed Obligations;
(d) any change in the corporate existence, structure or ownership of the
Company, any Guarantor, or any insolvency, bankruptcy, reorganization or
other similar proceeding affecting the Company, such Guarantor, any other
Guarantor or any of their respective assets;
(e) the existence of any claim, defense, set-off or other rights or
remedies which such Guarantor at any time may have against the Company, or
the Company or such Guarantor may have at any time against the
Administrative Agent, any Bank, any other Guarantor or any other Person,
whether in connection with this Guaranty, the Loan Documents, the
transactions contemplated thereby or any other transaction other than by
the payment in full by the Company of the Guaranteed Obligations after the
termination of the Commitments of the Banks;
(f) any invalidity or unenforceability for any reason of this Agreement or
other Loan Documents, or any provision of law purporting to prohibit the
payment or performance by the Company, such Guarantor or any other
Guarantor of the Guaranteed Obligations or Loan Documents, or of any other
obligation to the Administrative Agent or any Bank; or
(g) any other circumstances or happening whatsoever, whether or not
similar to any of the foregoing.
SECTION 9.3. EFFECT OF DEBTOR RELIEF LAWS. If after receipt of any
payment of, or proceeds of any security applied (or intended to be applied) to
the payment of all or any part of the Guaranteed Obligations, the Administrative
Agent or any Bank is for any reason compelled to surrender or voluntarily
surrenders such payment or proceeds to any Person (a)
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because such payment or application of proceeds is or may be avoided,
invalidated, declared fraudulent, set aside, determined to be void or voidable
as a preference, fraudulent conveyance, fraudulent transfer, impermissible
set-off or a diversion of trust funds or (b) for any other similar reason,
including (i) any judgment, decree or order of any court or administrative body
having jurisdiction over the Administrative Agent, any Bank or any of their
respective properties or (ii) any settlement or compromise of any such claim
effected by the Administrative Agent or any Bank with any such claimant
(including the Company), then the Guaranteed Obligations or part thereof
intended to be satisfied shall be reinstated and continue, and this Guaranty
shall continue in full force as if such payment or proceeds have not been
received, notwithstanding any revocation thereof or the cancellation of any Note
or any other instrument evidencing any Guaranteed Obligations or otherwise; and
the Guarantors, jointly and severally, shall be liable to pay the Administrative
Agent and the Banks, and hereby do indemnify the Administrative Agent and the
Banks and hold them harmless for the amount of such payment or proceeds so
surrendered and all expenses (including reasonable attorneys' fees, court costs
and expenses attributable thereto) incurred by the Administrative Agent or any
Bank in the defense of any claim made against it that any payment or proceeds
received by the Administrative Agent or any Bank in respect of all or part of
the Guaranteed Obligations must be surrendered. The provisions of this paragraph
shall survive the termination of this Guaranty, and any satisfaction and
discharge of the Company by virtue of any payment, court order or any federal or
state law.
SECTION 9.4. WAIVER OF SUBROGATION. Notwithstanding any payment or
payments made by any Guarantor hereunder, or any set-off or application by the
Administrative Agent or any Bank of any security or of any credits or claims, no
Guarantor will assert or exercise any rights of the Administrative Agent or any
Bank or of such Guarantor against the Company to recover the amount of any
payment made by such Guarantor to the Administrative Agent or any Bank hereunder
by way of any claim, remedy or subrogation, reimbursement, exoneration,
contribution, indemnity, participation or otherwise arising by contract, by
statute, under common law or otherwise, and such Guarantor shall not have any
right of recourse to or any claim against assets or property of the Company, in
each case unless and until the Obligations of the Company guaranteed hereby have
been fully and finally satisfied. Until such time, each Guarantor hereby
expressly waives any right to exercise any claim, right or remedy which such
Guarantor may now have or hereafter acquire against the Company that arises
under this Agreement or any other Loan Document or from the performance by any
Guarantor of the Guaranty hereunder including any claim, remedy or right of
subrogation, reimbursement, exoneration, contribution, indemnification or
participation in any claim, right or remedy of the Administrative Agent or any
Bank against the Company, or any security that the Administrative Agent or any
Bank now has or hereafter acquires, whether or not such claim, right or remedy
arises in equity, under contract, by statute, under common law or otherwise. If
any amount shall be paid to a Guarantor by the Company or another Guarantor
after payment in full of the Obligations, and the Obligations shall thereafter
be reinstated in whole or in part and the Administrative Agent or any Bank
forced to repay and sums received by any of them in payment of the Obligations,
this Guaranty shall be automatically reinstated and such amount shall be held in
trust for the benefit of the Administrative Agent and the Banks and shall
forthwith be paid to the Administrative Agent to be credited and applied to the
Guaranteed Obligations, whether matured or unmatured. The provisions of this
paragraph shall survive the termination of this Guaranty, and any satisfaction
and discharge of the Company by virtue of any payment, court order or any
federal or state law.
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SECTION 9.5. SUBORDINATION. If any Guarantor becomes the holder of any
indebtedness payable by the Company or another Guarantor, each Guarantor hereby
subordinates all indebtedness owing to it from the Company to all indebtedness
of the Company to the Administrative Agent and the Banks, and agrees that during
the continuance of any Event of Default it shall not accept any payment on the
same until payment in full of the Obligations of the Company under this
Agreement and the other Loan Documents after the termination of the Commitments
of the Banks and shall in no circumstance whatsoever attempt to set-off or
reduce any obligations hereunder because of such indebtedness. If any amount
shall nevertheless be paid in violation of the foregoing to a Guarantor by the
Company or another Guarantor prior to payment in full of the Guaranteed
Obligations, such amount shall be held in trust for the benefit of the
Administrative Agent and the Banks and shall forthwith be paid to the
Administrative Agent to be credited and applied to the Guaranteed Obligations,
whether matured or unmatured.
SECTION 9.6. WAIVER. Each Guarantor hereby waives promptness,
diligence, notice of acceptance and any other notice with respect to any of the
Guaranteed Obligations and this Guaranty and waives presentment, demand of
payment, notice of intent to accelerate, notice of dishonor or nonpayment and
any requirement that the Administrative Agent or any Bank institute suit,
collection proceedings or take any other action to collect the Guaranteed
Obligations, including any requirement that the Administrative Agent or any Bank
protect, secure, perfect or insure any Lien against any property subject thereto
or exhaust any right or take any action against the Company or any other Person
or any collateral (it being the intention of the Administrative Agent, the Banks
and each Guarantor that this Guaranty is to be a guaranty of payment and not of
collection). It shall not be necessary for the Administrative Agent or any Bank,
in order to enforce any payment by any Guarantor hereunder, to institute suit or
exhaust its rights and remedies against the Company, any other Guarantor or any
other Person, including others liable to pay any Guaranteed Obligations, or to
enforce its rights against any security ever given to secure payment thereof.
Each Guarantor hereby expressly waives to the maximum extent permitted by
applicable law each and every right to which it may be entitled by virtue of the
suretyship laws of the State of Texas, including any and all rights it may have
pursuant to Rule 31, Texas Rules of Civil Procedure, Section 17.001 of the Texas
Civil Practice and Remedies Code and Chapter 34 of the Texas Business and
Commerce Code. Each Guarantor hereby waives marshaling of assets and
liabilities, notice by the Administrative Agent or any Bank of any indebtedness
or liability to which such Bank applies or may apply any amounts received by
such Bank, and of the creation, advancement, increase, existence, extension,
renewal, rearrangement or modification of the Guaranteed Obligations. Each
Guarantor expressly waives, to the extent permitted by applicable law, the
benefit of any and all laws providing for exemption of property from execution
or for valuation and appraisal upon foreclosure.
SECTION 9.7. FULL FORCE AND EFFECT. This Guaranty is a continuing
guaranty and shall remain in full force and effect until all of the Obligations
of the Company under this Agreement and the other Loan Documents and all other
amounts payable under this Guaranty have been paid in full (after the
termination of the Commitments of the Banks). All rights, remedies and powers
provided in this Guaranty may be exercised, and all waivers contained in this
Guaranty may be enforced, only to the extent that the exercise or enforcement
thereof does not violate any provisions of applicable law which may not be
waived.
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ARTICLE X
EVENTS OF DEFAULT AND REMEDIES
SECTION 10.1. EVENTS OF DEFAULT. The following events shall
constitute Events of Default ("EVENTS OF DEFAULT") hereunder:
(a) any installment of principal is not paid when due; or any payment of
interest or Fees is not paid on the date on which such payment is due and
such failure continues for a period of five (5) days; or
(b) any representation or warranty made or deemed made by the Company or
any Subsidiary herein or in any of the Loan Documents or other document,
certificate or financial statement delivered in connection with this
Agreement or any other Loan Document shall prove to have been incorrect in
any material respect when made or deemed made or reaffirmed, as the case
may be; or
(c) the Company shall fail to perform, comply or observe or cause any
Subsidiary, to fail to perform, comply or observe (i) any term, duty or
covenant contained in ARTICLE VIII of this Agreement; or (ii ) any other
term, duty or covenant contained elsewhere in this Agreement or in any of
the Loan Documents and such failure continues for a period of thirty (30)
days after receipt by the Company and such Guarantor of notice from the
Administrative Agent or any Bank of such default; or
(d) the Company or any Subsidiary shall (i) fail to make (whether as
primary obligor or as guarantor or other surety) any principal payment of
or interest or premium, if any, on any instruments of Indebtedness in
excess of $2,500,000 in the aggregate allowed hereunder outstanding beyond
any period of grace provided with respect thereto or (ii) shall fail to
duly observe, perform or comply with any agreement with any Person or any
term or condition of any instrument of Indebtedness in excess of
$2,500,000 in the aggregate, if the effect of such failure is to cause, or
to permit the holder or holders to cause, such obligations to become due
prior to any stated maturity; or
(e) an involuntary proceeding shall be commenced or an involuntary
petition shall be filed in a court of competent jurisdiction seeking (i)
relief in respect of the Company or any Subsidiary, or of a substantial
part of the property or assets of the Company or any Subsidiary, under
Title 11 of the United States Code, as now or hereafter in effect, or any
successor thereto (the "BANKRUPTCY CODE"), or any other federal or state
bankruptcy, insolvency, receivership or similar law, (ii) the appointment
of a receiver, trustee, custodian, sequestrator, conservator or similar
official for the Company or any Subsidiary or for a substantial part of
the property or assets of the Company or any Subsidiary or (iii) the
winding-up or liquidation of the Company or any Subsidiary; and such
proceeding or petition shall continue undismissed for 60 days or an order
or decree approving or ordering any of the foregoing shall be entered; or
(f) the Company or any Subsidiary shall (i) voluntarily commence any
proceeding or file any petition seeking relief under the Bankruptcy Code
or any other federal or state bankruptcy, insolvency, receivership or
similar law, (ii) consent to the institution of, or
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fail to contest in a timely and appropriate manner, any proceeding or the
filing of any petition described in clause (e) above, (iii) apply for or
consent to the appointment of a receiver, trustee, custodian,
sequestrator, conservator or similar official for the Company or any
Subsidiary or for a substantial part of the property or asses of the
Company or any Subsidiary, (iv) file an answer admitting the material
allegations of a petition filed against it in any such proceeding, (v)
make a general assignment for the benefit of creditors, (vi) become
unable, or admit in writing its inability or fail generally to pay is
debts as they become due or (vii) take any action for the purpose of
effecting any of the foregoing; or
(g) a judgment or order, which with other outstanding judgments and orders
against the Company and its Subsidiaries equal or exceed $1,000,000.00 in
the aggregate (to the extent not covered by insurance as to which the
respective insurer has acknowledged coverage), shall be entered against
the Company or any Subsidiary and (i) within 30 days after entry thereof
such judgment shall not have been paid or discharged or execution thereof
stayed pending appeal or, within 30 days after the expiration of any such
stay, such judgment shall not have been paid or discharged or (ii) any
enforcement proceeding shall have been commenced (and not stayed) by any
creditor or upon such judgment; or
(h) a Change of Control shall occur; or
(i) at any time after the execution and delivery thereof, (i) the Guaranty
for any reason, other than the satisfaction in full of all Obligations,
shall cease to be in full force and effect (other than in accordance with
its terms) or shall be declared to be null and void, (ii) any Collateral
Document shall cease to be in full force and effect (other than by reason
of a release of Collateral thereunder in accordance with the terms hereof
or thereof, the satisfaction in full of the Obligations or any other
termination of such Collateral Document in accordance with the terms
hereof or thereof) or shall be declared null and void, or the
Administrative Agent shall not have or shall cease to have a valid and
perfected First Priority Lien in any material amount of Collateral
purported to be covered thereby, in each case for any reason other than
the failure of the Administrative Agent or any Bank to take any action
within its control, or (iii) the Company or any Guarantor shall contest
the validity or enforceability of any Loan Document in writing or deny in
writing that it has any further liability, including with respect to
future Advances by the Banks, under any Loan Document to which it is a
party.
SECTION 10.2. PRIMARY REMEDIES. In any such event, and at any time
after the occurrence of any of the above described events, the Administrative
Agent, if directed by the Majority Banks, shall by written notice to the Company
(a "NOTICE OF DEFAULT") take any or all of the following actions; PROVIDED, that
if an Event of Default specified in SECTION 10.1 (E) or SECTION 10.1(F) shall
occur, the following shall occur automatically without the giving of any Notice
of Default: (a) declare the Commitments terminated, whereupon the Commitments
shall forthwith terminate immediately and any Commitment Fee and any other owing
and unpaid Fee shall forthwith become due and payable without any other notice
of any kind; (b) declare (i) the principal of and any accrued and unpaid
interest in respect of all Advances, (ii) an amount equal to the maximum amount
that may at any time be drawn under all Letters of Credit then outstanding
(whether or not any beneficiary under any such Letter of Credit shall have
presented, or shall be entitled at such time to present, the drafts or other
documents or certificates required
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to draw under such Letter of Credit), and (iii) all other Obligations owing
hereunder, to be, whereupon the same shall become, forthwith due and payable
without presentment, demand, notice of demand or of dishonor and non-payment,
protest, notice of protest, notice of intent to accelerate, declaration or
notice of acceleration or any other notice of any kind (except as herein
expressly provided), all of which are hereby waived by the Company; (c) set off
any assets or money of the Company or any Guarantor in its or any Banks'
possession against the Obligations; and (d) exercise any rights or remedies
under any document securing any of the Loan Documents or under any applicable
state or federal law. Any amounts described in clause (b)(ii) above, when
received by the Administrative Agent, shall be held by the Administrative Agent
pursuant to the terms of the Collateral Account Agreement and shall be applied
as therein provided.
SECTION 10.3. OTHER REMEDIES. Upon the occurrence and during the
continuance of any Event of Default, the Administrative Agent may proceed to
protect and enforce its and the Banks' rights, either by suit in equity or by
action at law or both, whether for the specific performance of any covenant or
agreement contained in this Agreement or in any other Loan Document or in aid of
the exercise of any power granted in this Agreement or in any other Loan
Document; or may proceed to enforce the payment of all amounts owing to the
Banks under the Loan Documents and any accrued and unpaid interest thereon in
the manner set forth herein or therein; it being intended that no remedy
conferred herein or in any of the other Loan Documents is to be exclusive of any
other remedy, and each and every remedy contained herein or in any other Loan
Document shall be cumulative and shall be in addition to every other remedy
given hereunder and under the other Loan Documents or now or hereafter existing
at law or in equity or by statute or otherwise.
ARTICLE XI
THE AGENTS
SECTION 11.1. AUTHORIZATION AND ACTION. Each Bank hereby irrevocably
appoints and authorizes each Agent to act on its behalf and to exercise such
powers under this Agreement and the other Loan Documents as are specifically
delegated to or required of such Agent by the terms hereof, together with such
powers as are reasonably incidental thereto. Each Agent may perform any of its
duties hereunder by or through its agents and employees. The duties of each
Agent shall be mechanical and administrative in nature; no Agent shall have by
reason of this Agreement or any other Loan Documents a fiduciary relationship in
respect of any Bank; and nothing in this Agreement or any other Loan Document,
expressed or implied is intended to, or shall be so construed as to, impose upon
any Agent any obligations in respect of this Agreement or any other Loan
Document except as expressly set forth herein or therein. As to any matters not
expressly provided for by this Agreement, the Notes or the other Loan Documents
(including enforcement or collection of the Notes), no Agent shall be required
to exercise any discretion or take any action, but shall be required to act or
to refrain from acting (and shall be fully protected in so acting or refraining
from acting) upon the instructions of the Majority Banks, and such instructions
shall be binding upon the Banks and all holders of Notes and the Obligations;
PROVIDED, that no Agent shall be required to take any action which exposes such
Agent to personal liability and shall not be required or entitled to take any
action which is contrary to any of the Loan Documents or applicable law.
SECTION 11.2. AGENTS' RELIANCE.
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(a) None of the Agents nor any of its directors, officers, agents or
employees shall be liable to the Banks for any action taken or omitted to
be taken by it or them under or in connection with this Agreement, the
Notes or any of the other Loan Documents (i) with the consent or at the
request of the Majority Banks or (ii) in the absence of its or their own
gross negligence or willful misconduct, IT BEING THE EXPRESS INTENTION OF
THE PARTIES HERETO THAT EACH AGENT AND ITS DIRECTORS, OFFICERS, AGENTS AND
EMPLOYEES SHALL HAVE NO LIABILITY TO THE BANKS FOR ACTIONS AND OMISSIONS
UNDER THIS SECTION RESULTING FROM THEIR SOLE ORDINARY OR CONTRIBUTORY
NEGLIGENCE.
(b) Without limitation of the generality of the foregoing, each Agent: (i)
may treat the payee of each Note and the Obligations as the holder thereof
until the Administrative Agent receives written notice of the assignment
or transfer thereof signed by such payee and in form satisfactory to the
Agents; (ii) may consult with legal counsel (including counsel for the
Company), independent public accountants and other experts selected by it
and shall not be liable for any action taken or omitted to be taken in
good faith by it in accordance with the advice of such counsel,
accountants or experts; (iii) makes no warranty or representation to any
Bank and shall not be responsible to any Bank for any statements,
warranties or representations made in or in connection with this
Agreement, any Note or any other Loan Document; (iv) except as otherwise
expressly provided herein, shall not have any duty to ascertain or to
inquire as to the performance or observance of any of the terms, covenants
or conditions of this Agreement, any Note or any other Loan Document or to
inspect the property (including the books and records) of the Company; (v)
shall not be responsible to any Bank for the due execution, legality,
validity, enforceability, collectibility, genuineness, sufficiency or
value of this Agreement, any Note, any other Loan Document or any other
instrument or document furnished pursuant hereto or thereto; (vi) shall
not be responsible to any Bank for the perfection or priority of any Lien
securing the Obligations; and (vii) shall incur no liability under or in
respect of this Agreement, any Note or any other Loan Document by acting
upon any notice, consent, certificate or other instrument or writing
(which may be by telegram, telecopier or cable) reasonably believed by it
to be genuine and signed or sent by the proper party or parties.
SECTION 11.3. AGENT AND AFFILIATES. Without limiting the right of any
other Bank to engage in any business transactions with the Company or any of its
Affiliates, with respect to their Commitments, the Loans made by them and the
Notes issued to them, BOT, BTCo and NB and each other Bank who may become the
Administrative Agent, Syndication Agent or Documentation Agent, as the case may
be, shall have the same rights and powers under this Agreement and its Notes as
any other Bank and may exercise the same as though it was not an Agent; and the
term "Bank" or "Banks" shall, unless otherwise expressly indicated, include BOT,
BTCo and NB and any such other Bank, in their individual capacities. BOT, BTCo
and NB, each other Person who becomes the Administrative Agent, the Syndication
Agent or the Documentation Agent, as the case may be, and their respective
Affiliates may be engaged in, or may hereafter engage in, one or more loan,
letter of credit. leasing or other financing activity not the subject of this
Agreement (collectively, the "OTHER FINANCINGS") with the Company, any
Subsidiary or any of its Affiliates, or may act as trustee on behalf of, or
depositary for, or otherwise engage in other business transactions with the
Company, any Subsidiary or any of its Affiliates (all Other Financings and other
such business transactions being collectively, the
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"OTHER ACTIVITIES") with no responsibility to account therefor to the Banks.
Without limiting the rights and remedies of the Banks specifically set forth
herein, no other Bank by virtue of being a Bank hereunder shall have any
interest in (a) any Other Activities, (b) any present or future guaranty by or
for the account of the Company not contemplated or included herein, (c) any
present or future offset exercised by an Agent in respect of any such Other
Activities, (d) any present or future property taken as security for any such
Other Activities or (e) any property now or hereafter in the possession or
control of any Agent which may be or become security for the Obligations of the
Company hereunder and under the Notes by reason of the general description of
indebtedness secured, or of property contained in any other agreements,
documents or instruments related to such Other Activities; PROVIDED, HOWEVER,
that if any payment in respect of such guaranties or such property or the
proceeds thereof shall be applied to reduction of the Obligations evidenced
hereunder and by the Notes, then each Bank shall be entitled to share in such
application according to its pro rata portion of such Obligations.
SECTION 11.4. BANK CREDIT DECISION. Each Bank acknowledges and agrees
that it has, independently and without reliance upon any Agent or any other Bank
and based on the financial statements referred to in SECTION 7.1 and such other
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Bank also acknowledges
and agrees that it will, independently and without reliance upon any Agent or
any other Bank and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under this Agreement and the other Loan Documents.
SECTION 11.5. AGENTS' INDEMNITY.
(a) No Agent shall be required to take any action hereunder or to
prosecute or defend any suit in respect of this Agreement, the Notes or
any other Loan Document unless indemnified to Agents' satisfaction by the
Banks against loss, cost, liability and expense. If any indemnity
furnished to the Agents shall become impaired, it may call for additional
indemnity and cease to do the acts indemnified against until such
additional indemnity is given. In addition, the Banks agree to indemnify
the Agents (to the extent not reimbursed by the Company), ratably
according to the respective aggregate principal amounts of the Notes then
held by each of them (or if no Notes are at the time outstanding, ratably
according to the respective amounts of the Commitments), from and against
any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever which may be imposed on, incurred by, or asserted against any
Agent in any way relating to or arising out of this Agreement or any
action taken or omitted by any Agent under this Agreement, the Notes and
the other Loan Documents. Without limitation of the foregoing, each Bank
agrees to reimburse each Agent promptly upon demand for its ratable share
of any out-of-pocket expenses (including reasonable counsel fees) incurred
by such Agent in connection with the preparation, execution,
administration, or enforcement of, or legal advice in respect of rights or
responsibilities under, this Agreement, the Notes and the other Loan
Documents to the extent that such Agent is not reimbursed for such
expenses by the Company. The provisions of this Section shall survive the
termination of this Agreement, the payment of the Obligations and/or the
assignment of any of the Notes.
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(b) Notwithstanding the foregoing, no Bank shall be liable under this
Section to the Administrative Agent for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements due to the Administrative Agent resulting from
the Administrative Agent's gross negligence or willful misconduct. EACH
BANK AGREES, HOWEVER, THAT IT EXPRESSLY INTENDS, UNDER THIS SECTION, TO
INDEMNIFY THE ADMINISTRATIVE AGENT RATABLY AS AFORESAID FOR ALL SUCH
LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS,
SUITS, COSTS, EXPENSES AND DISBURSEMENTS ARISING OUT OF OR RESULTING FROM
THE ADMINISTRATIVE AGENT'S SOLE ORDINARY OR CONTRIBUTORY NEGLIGENCE.
SECTION 11.6. SUCCESSOR AGENTS. Each Agent may resign at any time by
giving written notice thereof to the Banks and the Company and may be removed as
an Agent under this Agreement, the Notes and the other Loan Documents at any
time with or without cause by the Majority Banks. Upon any such resignation or
removal, the Majority Banks shall have the right to appoint a successor Agent
with, so long as no Event of Default exists, the consent of the Company, which
will not be unreasonably withheld. If no successor Agent shall have been so
appointed by the Majority Banks, and shall have accepted such appointment,
within 30 calendar days after the retiring Agent's giving of notice of
resignation or the Majority Banks' removal of the retiring Agent, then the
retiring Agent may, on behalf of the Banks, appoint a successor Agent, which
shall be an Eligible Assignee. Upon the acceptance of any appointment as an
Agent hereunder and under the Notes and the other Loan Documents by a successor
Agent, such successor Agent shall thereupon succeed to and become vested with
all the rights, powers, privileges and duties of the retiring Agent, and the
retiring Agent shall be discharged from its duties and obligations under this
Agreement, the Notes and the other Loan Documents. After any retiring Agent's
resignation or removal as an Agent hereunder and under the Notes and the other
Loan Documents, the provisions of this ARTICLE XI shall inure to its benefit as
to any actions taken or omitted to be taken by it while it was an Agent under
this Agreement, the Notes and the other Loan Documents.
SECTION 11.7. NOTICE OF DEFAULT. No Agent shall be deemed to have
knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless such Agent shall have received notice from a Bank or the
Company referring to this Agreement, describing such Default or Event of Default
and stating that such notice is a "notice of default." If an Agent receives such
notice, such Agent shall give notice thereof to the Banks; PROVIDED HOWEVER, if
such notice is received from a Bank, such Agent also shall give notice thereof
to the Company. Each Agent shall be entitled to take action or refrain from
taking action with respect to such Default or Event of Default as provided in
SECTION 10.1 and SECTION 10.2.
SECTION 11.8. COLLATERAL DOCUMENTS AND GUARANTIES. Each Bank hereby
further authorizes the Administrative Agent, on behalf of and for the benefit of
the Banks, to enter into each Collateral Document as secured party and to be the
agent for and representative of the Banks under the Guaranty, and each Bank
agrees to be bound by the terms of each Collateral Document and the Guaranty;
PROVIDED that the Administrative Agent shall not (i) enter into or consent to
any material amendment, modification, termination or waiver of any provision
contained in any Collateral Document or the Guaranty or (ii) release any
Collateral (except as otherwise expressly permitted or required pursuant to the
terms of this Agreement or the
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applicable Collateral Document), in each case without the prior consent of
Majority Banks (or, if required pursuant to Section 12.1, all Banks); PROVIDED
FURTHER, HOWEVER, that, without further written consent or authorization from
the Banks, the Administrative Agent may execute any documents or instruments
necessary to (a) release any Lien encumbering any item of Collateral that is the
subject of a sale or other disposition of assets permitted by this Agreement or
to which Majority Banks have otherwise consented or (b) release any Guarantor
from the Guaranty if all of the capital stock of such Guarantor is sold to any
Person (other than an Affiliate of the Company) pursuant to a sale or other
disposition permitted hereunder or to which Majority Banks have otherwise
consented. Anything contained in any of the Loan Documents to the contrary
notwithstanding, the Company, the Agents and each Bank hereby agree that (X) no
Bank shall have any right individually to realize upon any of the Collateral
under any Collateral Document or to enforce the Guaranty, it being understood
and agreed that all powers, rights and remedies under the Collateral Documents
and the Guaranty may be exercised solely by the Administrative Agent for the
benefit of the Banks in accordance with the terms thereof, and (Y) in the event
of a foreclosure by the Administrative Agent on any of the Collateral pursuant
to a public or private sale, any Agent or any Bank may be the purchaser of any
or all of such Collateral at any such sale and the Administrative Agent, as
agent for and representative of Banks (but not any Bank or Banks in its or their
respective individual capacities unless Majority Banks shall otherwise agree in
writing) shall be entitled, for the purpose of bidding and making settlement or
payment of the purchase price for all or any portion of the Collateral sold at
any such public sale, to use and apply any of the Obligations as a credit on
account of the purchase price for any Collateral payable by the Administrative
Agent at such sale.
ARTICLE XII
MISCELLANEOUS
SECTION 12.1. AMENDMENTS. No amendment, modification, termination or
waiver of any provision of this Agreement or of the Notes, or consent to any
departure by the Company therefrom, shall in any event be effective without the
written concurrence of Majority Banks; PROVIDED that no such amendment,
modification, termination, waiver or consent shall, without the consent of each
Bank (with Obligations directly affected in the case of the following clause
(i)): (i) extend the scheduled final maturity of any Loan or Note, or extend the
stated expiration date of any Letter of Credit beyond the Maturity Date, or
reduce the rate of interest (other than any waiver of any increase in the
interest rate applicable to any of the Loans pursuant to the Default Rate) or
fees thereon, or extend the time of payment of interest, principal or fees
thereon, or reduce the principal amount thereof, (ii) release all or
substantially all of the Collateral, release all or substantially all of the
Subsidiaries that are party to the Guaranty from the Guaranty except as
expressly provided in the Loan Documents, (iii) amend, modify, terminate or
waive any provision of this Section 12.1, (iv) reduce the percentage specified
in the definition of Majority Banks, or (v) consent to the assignment or
transfer by the Company of any of its respective rights and obligations under
this Agreement; PROVIDED FURTHER that no such amendment, modification,
termination or waiver shall (1) increase the Commitments of any Bank over the
amount thereof then in effect without the consent of such Bank (it being
understood that amendments, modifications or waivers of conditions precedent,
covenants, Events of Default or of a mandatory reduction of the Commitments
shall not constitute an increase of the Commitment of any Bank, and that an
increase in the available portion of any
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Commitment of any Bank shall not constitute an increase in the Commitment of
such Bank), (2) no amendment, modification, termination or waiver relating to
the obligations of Banks relating to the purchase or participation in Letters of
Credit shall be effective without the written concurrence of each Issuing Bank
having a Letter of Credit then outstanding or which has not been reimbursed for
a drawing under a Letter of Credit issued by it and of the Administrative Agent,
and (3) no amendment, modification, termination or waiver of any provision of
Article XI or of any provision of this Agreement which, by its terms, expressly
requires the approval or concurrence of any Agent shall be effective without the
written concurrence of such Agent. The Administrative Agent may, but shall have
no obligation to, with the concurrence of any Bank, execute amendments,
modifications, waivers or consents on behalf of that Bank. Any waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which it was given. No notice to or demand on the Company in any case shall
entitle the Company to any other or further notice or demand in similar or other
circumstances. Any amendment, modification, termination, waiver or consent
effected in accordance with this Section 12.1 shall be binding upon each Bank at
the time outstanding, each future Bank and, if signed by the Company, on the
Company.
SECTION 12.2. NOTICES. Except with respect to telephone notifications
specifically permitted pursuant to ARTICLE II, all notices, consents, requests,
approvals, demands and other communications provided for herein shall be in
writing (including telecopy communications) and mailed, telecopied, sent by
overnight courier or delivered:
(a) If to the Company and the Guarantors:
Comfort Systems USA, Inc.
777 Post Oak Boulevard, Suite 500
Houston, Texas 77056
Telephone No.: (713) 830-9600
Telecopy No.: (713) 830-9676
Attention: Jeff Wheeler
(b) If to the Administrative Agent:
Bank One, Texas, N.A.
910 Travis, 7th Floor
Houston, Texas 77002
Telephone No.: (713) 751-6243
Telecopy No.: (713) 751-6199
Attention: Cynthia Cady
or, in the case of any party hereto, such other address or telecopy number as
such party may hereafter specify for such purpose by notice to the other
parties.
(c) If to any Bank, to the address shown on the signature page hereof or
specified by such Bank (or the Administrative Agent on behalf of any Bank)
to the Company.
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All communications shall, when mailed, telecopied or delivered, be
effective when mailed by certified mail, return receipt requested to any party
at its address specified above, or telecopied to any party to the telecopy
number set forth above, or delivered personally to any party at its address
specified above; PROVIDED, that communications to the Administrative Agent
pursuant to ARTICLE II shall not be effective until actually received by the
Administrative Agent, and PROVIDED FURTHER that communications sent by telecopy
after 5:00 p.m., Houston, Texas time, shall be effective on the next succeeding
Business Day.
SECTION 12.3. NO WAIVER; REMEDIES. No failure on the part of any Bank
or the Administrative Agent to exercise, and no delay in exercising, any right
hereunder, under any Note or under any other Loan Document shall operate as a
waiver thereof; nor shall any single or partial exercise of any such right, or
any abandonment or discontinuance of any steps to enforce such right, preclude
any other or further exercise thereof or the exercise of any other right. No
notice to or demand on the Company in any case shall entitle the Company to any
other or further notice or demand in similar or other circumstances. The
remedies herein are cumulative and not exclusive of any other remedies provided
by law, at equity or in any other agreement.
SECTION 12.4. COSTS, EXPENSES AND TAXES. The Company agrees to pay on
demand: (a) all reasonable out-of-pocket costs and expenses of the Syndication
Agent in connection with the preparation, execution and delivery of this
Agreement, the Notes, the other Loan Documents and the other documents to be
delivered hereunder, including the reasonable fees and out-of-pocket expenses of
counsel for the Syndication Agent with respect thereto and with respect to
advising the Syndication Agent as to its rights and responsibilities under this
Agreement, the Notes and the other Loan Documents, and any modification,
supplement or waiver of any of the terms of this Agreement or any other Loan
Document, (b) all reasonable costs and expenses of any Bank and any other holder
of an interest in the Notes, and the Obligations of the Company hereunder and
under the Loan Documents, including reasonable legal fees and expenses, in
connection with the enforcement of this Agreement, the Notes and the other Loan
Documents and (c) reasonable costs and expenses incurred in connection with
third party professional services required by the Syndication Agent, such as
appraisers, environmental consultants, accountants or similar Persons; PROVIDED
THAT prior to any Event of Default hereunder, such Agent will first obtain the
consent of the Company to such expense, which consent shall not be unreasonably
withheld. Without prejudice to the survival of any other obligations of the
Company hereunder and under the Notes, the obligations of the Company under this
Section shall survive the termination of this Agreement or the replacement of
any Agent and each assignment of the Notes.
SECTION 12.5. INDEMNITY.
(a) The Company shall and hereby does indemnify each Agent and each Bank
and each Affiliate thereof and their respective directors, officers,
employees and agents from, and hold each of them harmless against, any and
all losses, liabilities, claims or damages (including reasonable legal
fees and expenses) to which any of them may become subject, insofar as
such losses, liabilities, claims or damages arise out of or result from
any actual or proposed use by the Company of the proceeds of any extension
of credit hereunder or any investigation, litigation or other proceeding
(including any threatened investigation or proceeding) relating to the
foregoing or any of the other Loan Documents, including,
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without limitation, any of the foregoing relating to the violations of,
noncompliance with or liability under any Environmental Law applicable to
the operations of the Company, any of its Subsidiaries or any of their
respective Property, and the Company shall reimburse each Agent, each Bank
and each Affiliate thereof and their respective directors, officers,
employees and agents, upon demand for any expenses (including legal fees)
reasonably incurred in connection with any such investigation or
proceeding; but excluding any such losses, liabilities, claims, damages or
expenses incurred by reason of the gross negligence or willful misconduct
of the Person to be indemnified (the "INDEMNIFIED OBLIGATIONS").
(b) WITHOUT LIMITING ANY PROVISION OF THIS AGREEMENT, IT IS THE EXPRESS
INTENTION OF THE PARTIES HERETO THAT EACH PERSON TO BE INDEMNIFIED
HEREUNDER SHALL BE INDEMNIFIED AND HELD HARMLESS AGAINST ANY AND ALL
INDEMNIFIED OBLIGATIONS: (I) ARISING OUT OF OR RESULTING FROM THE ORDINARY
SOLE OR CONTRIBUTORY NEGLIGENCE OF SUCH PERSON OR (II) IMPOSED UPON SAID
PARTY UNDER ANY THEORY OF STRICT LIABILITY. Without prejudice to the
survival of any other obligations of the Company hereunder and under the
other Loan Documents, the obligations of the Company under this Section
shall survive the termination of this Agreement and the other Loan
Documents and the payment of the Obligations or the assignment of the
Notes.
SECTION 12.6. RIGHT OF SETOFF. Without limiting the remedies provided
for in ARTICLE X, each Bank is hereby authorized at any time and from time to
time, to the fullest extent permitted by law, to set off and apply any and all
deposits held and other indebtedness owing by such Bank, or any branch,
subsidiary or Affiliate, to or for the credit or the account of the Company
against any and all the Obligations of the Company now or hereafter existing
under this Agreement and the other Loan Documents and other obligations of the
Company held by such Bank, irrespective of whether or not such Bank shall have
made any demand under this Agreement, its Note or the Obligations and although
the Obligations may be unmatured. The rights of each Bank under this Section are
in addition to other rights and remedies (including other rights of setoff)
which such Bank may have.
SECTION 12.7. GOVERNING LAW. This Agreement, all Notes, the other Loan
Documents and all other documents executed in connection herewith shall be
deemed to be contracts and agreements executed by the Company and each Bank
under the laws of the State of New York and of the United States of America and
for all purposes shall be construed in accordance with, and governed by, the
laws of said state and of the United States of America. Without limitation of
the foregoing, nothing in this Agreement, or in the Notes or in any other Loan
Document shall be deemed to constitute a waiver of any rights which any Bank may
have under applicable federal legislation relating to the amount of interest
which such Bank may contract for, take, receive or charge in respect of the Loan
and the Loan Documents, including any right to take, receive, reserve and charge
interest at the rate allowed by the law of the state where any Bank is located.
Each Agent, each Bank and the Company further agree that insofar as the
provisions of Article 5069-1.04, of the Revised Civil Statutes of Texas, as
amended, are applicable to the determination of the Highest Lawful Rate with
respect to the Notes and the Obligations hereunder and under the other Loan
Documents, the indicated rate ceiling of such Article shall be applicable;
PROVIDED, HOWEVER, that to the extent permitted by such Article, the
Administrative Agent may from time to time by notice to the Company revise the
election of
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such interest rate ceiling as such ceiling affects the then current or future
balances of the Loans. The provisions of Article 5069-15.01 ET SEQ. do not apply
to this Agreement, any Note issued hereunder or the other Loan Documents.
SECTION 12.8. INTEREST. Each provision in this Agreement and each
other Loan Document is expressly limited so that in no event whatsoever shall
the amount paid, or otherwise agreed to be paid, to the Administrative Agent or
any Bank, or charged, contracted for, reserved, taken or received by the
Administrative Agent or any Bank, for the use, forbearance or detention of the
money to be loaned under this Agreement or any Loan Document or otherwise
(including any sums paid as required by any covenant or obligation contained
herein or in any other Loan Document which is for the use, forbearance or
detention of such money), exceed that amount of money which would cause the
effective rate of interest to exceed the Highest Lawful Rate, and all amounts
owed under this Agreement and each other Loan Document shall be held to be
subject to reduction to the effect that such amounts so paid or agreed to be
paid, charged, contracted for, reserved, taken or received which are for the
use, forbearance or detention of money under this Agreement or such Loan
Document shall in no event exceed that amount of money which would cause the
effective rate of interest to exceed the Highest Lawful Rate. Anything in any
Note or any other Loan Document to the contrary notwithstanding, the Company
shall not be required to pay unearned interest on any Note and the Company shall
not be required to pay interest on the Obligations at a rate in excess of the
Highest Lawful Rate, and if the effective rate of interest which would otherwise
be payable under such Note and such Loan Documents would exceed the Highest
Lawful Rate, or if the holder of such Note shall receive any unearned interest
or shall receive monies that are deemed to constitute interest which would
increase the effective rate of interest payable by the Company under such Note
and the other Loan Documents to a rate in excess of the Highest Lawful Rate,
then (a) the amount of interest which would otherwise be payable by the Company
shall be reduced to the amount allowed under applicable law and (b) any unearned
interest paid by the Company or any interest paid by the Company in excess of
the Highest Lawful Rate shall in the first instance be credited on the principal
of the Obligations of the Company (or if all such Obligations shall have been
paid in full, refunded to the Company). It is further agreed that, without
limitation of the foregoing, all calculations of the rate of interest contracted
for, reserved, taken, charged or received by any Bank under the Notes and the
Obligations and under the other Loan Documents are made for the purpose of
determining whether such rate exceeds the Highest Lawful Rate, and shall be
made, to the extent permitted by usury laws applicable to such Bank, by
amortizing, prorating and spreading in equal parts during the period of the full
stated term of the Notes and this Agreement all interest at any time contracted
for, charged or received by such Bank in connection therewith. Furthermore, in
the event that the maturity of any Note or other obligation is accelerated or in
the event of any required or permitted prepayment, then such consideration that
constitutes interest under applicable law may never include more than the
maximum amount allowed by applicable law and excess interest, if any, provided
for in this Agreement, any Note or otherwise shall be canceled automatically as
of the date of such acceleration or prepayment and, if theretofore paid, shall
be refunded to the Company.
SECTION 12.9. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations, warranties and covenants contained herein or made in writing by
the Company in connection herewith and the other Loan Documents shall survive
the execution and delivery of this Agreement, the Notes and the other Loan
Documents, the termination of the Commitments
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of the Banks and will bind and inure to the benefit of the respective successors
and assigns of the parties hereto, whether so expressed or not, PROVIDED, that
the Commitments of the Banks shall not inure to the benefit of any successor or
assign of the Company.
SECTION 12.10. SUCCESSORS AND ASSIGNS; PARTICIPATIONS.
(a) All covenants, promises and agreements by or on behalf of the Company
or the Banks that are contained in this Agreement shall bind and inure to
the benefit of their respective permitted successors and assigns. Neither
the Company nor any Guarantor may assign or transfer any of its rights or
obligations hereunder.
(b) Any of the Banks may assign to or sell participations to one or more
banks of all or a portion of its rights and obligations under this
Agreement and the other Loan Documents (including all or a portion of its
Commitment, the Advances and the Obligations of the Company owing to it
and the Notes); PROVIDED, that the participating banks or other entities
shall be entitled to the cost protection provisions contained in Article
II and SECTION 12.4 and the Company shall continue to deal solely and
directly with the Administrative Agent in connection with its rights and
obligations under this Agreement and the other Loan Documents. Except with
respect to cost protections provided to a participant pursuant to this
paragraph and the items listed in SECTION 12.1 hereof, no participant
shall be a third party beneficiary of this Agreement nor shall it be
entitled to enforce any rights provided to the Banks against the Company
under this Agreement. Notwithstanding the foregoing, no Bank shall
transfer or grant any participation under which the participant shall have
rights to approve any amendment to or waiver of this Agreement or any
other Loan Document except to the extent such amendment or waiver would
(i) extend the final scheduled maturity of any Loan, Note or Letter of
Credit (unless such Letter of Credit is not extended beyond the Maturity
Date) in which such participant is participating, or reduce the rate or
extend the time of payment of interest or fees thereon (except in
connection with a waiver of applicability of any post-default increase in
interest rates) or reduce the principal amount thereof, or increase the
amount of the participant's participation over the amount thereof then in
effect (it being understood that a waiver of any Default or Event of
Default or of a mandatory reduction in the Total Commitment, shall not
constitute a change in the terms of such participation, and that an
increase in Commitment or any Loan shall be permitted without the consent
of any participant if the participant's participation is not increased as
a result thereof).
(c) A Bank may assign to any other Bank or Banks or to any Affiliate of a
Bank and, with the prior written consent of the Company (so long as no
Event of Default exists) and the Administrative Agent (which consent shall
not be unreasonably withheld), a Bank may assign to one or more other
Eligible Assignees all or a portion of its interests, rights, and
obligations under this Agreement and the other Loan Documents (including
all or a portion of its Commitment and the same portion of the Loans and
other Obligations of the Company at the time owing to it and the Note held
by it); PROVIDED, HOWEVER, that (i) each such assignment shall be in a
minimum principal amount of not less than $5,000,000.00, or 100% of such
Bank's outstanding Loans, all Types of Loans and shall be of a constant,
and not a varying, percentage of all the assigning Bank's Commitment,
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rights and obligations under this Agreement, (ii) the parties to each such
assignment shall execute and deliver to the Administrative Agent, for its
acceptance, an Assignment and Acceptance, substantially in the form of
EXHIBIT 12.10(C) hereto, in form and substance satisfactory to the
Administrative Agent (an "ASSIGNMENT AND ACCEPTANCE") and any Note subject
to such assignment and (iii) no assignment shall be effective until
receipt by the Administrative Agent of a reasonable service fee from the
assignee in respect of said assignment equal to $2,000.00. Upon such
execution, delivery, acceptance and recording, from and after the
effective date specified in each Assignment and Acceptance, which
effective date (unless otherwise agreed to by the assigning Bank, the
Eligible Assignee thereunder and the Administrative Agent) shall be at
least five Business Days after the execution thereof, (x) the Eligible
Assignee thereunder shall be a party hereto and to the other Loan
Documents and, to the extent provided in such Assignment and Acceptance,
have the rights and obligations of a Bank hereunder and under the other
Loan Documents and (y) the assignor Bank thereunder shall, to the extent
provided in such Assignment and Acceptance, be released from its
obligations under this Agreement and the other Loan Documents (and, in the
case of an Assignment and Acceptance covering all of the remaining portion
of an assigning Bank's rights and obligations under this Agreement and the
other Loan Documents, such Bank shall cease to be a party hereto).
(d) Notwithstanding any other provision herein, any Bank may, in
connection with any assignment or participation or proposed assignment or
participation pursuant to this section, disclose to the assignee or
participant or proposed assignee or participant, any information relating
to the Company furnished to such Bank by or on behalf of the Company.
SECTION 12.11. CONFIDENTIALITY. Each Bank agrees to exercise its best
efforts to keep any information delivered or made available by the Company to it
which is clearly indicated to be confidential information, confidential from
anyone other than Persons employed or retained by such Bank who are or are
expected to become engaged in evaluating, approving, structuring or
administering the Loans; PROVIDED that nothing herein shall prevent any Bank
from disclosing such information (a) to any other Bank, (b) pursuant to subpoena
or upon the order of any court or administrative agency, (c) upon the request or
demand of any regulatory agency or authority having jurisdiction over such Bank,
(d) which has been publicly disclosed, (e) to the extent reasonably required in
connection with any litigation to which the Administrative Agent, any Bank, the
Company or its respective Affiliates may be a party, (f) to the extent
reasonably required in connection with the exercise of any remedy hereunder, (g)
to such Bank's legal counsel and independent auditors and (h) to any actual or
proposed participant or assignee of all or part of its rights hereunder which
has agreed in writing to be bound by the provisions of this Section. Each Bank
will promptly notify the Company of any information that it is required or
requested to deliver pursuant to clause (b) or (c) of this Section and, if the
Company is a party to any such litigation, clause (e) of this Section.
SECTION 12.12. PRO RATA TREATMENT.
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(a) Except as otherwise specifically permitted hereunder, each payment or
prepayment of principal, if permitted under this Agreement, and each
payment of interest with respect to an Advance shall be made pro rata
among the Banks.
(b) Each Bank agrees that if, through the exercise of a right of banker's
Lien, setoff or claim of any kind against the Company as a result of which
the unpaid principal portion of the Notes and the Obligations held by it
shall be proportionately less than the unpaid principal portion of the
Notes and Obligations held by any other Bank, it shall be deemed to have
simultaneously purchased from such other Bank a participation in the Notes
and Obligations held by such other Bank, in the amount required to render
such amounts proportional; PROVIDED, HOWEVER, that if any such purchase or
purchases or adjustments shall be made pursuant to this Section and the
payment giving rise thereto shall thereafter be recovered, such purchase
or purchases or adjustments shall be rescinded to the extent of such
recovery and the purchase price or prices or adjustments restored without
interest. Each Bank purchasing participations pursuant to this clause may
exercise all rights of collection, set-off and banker's liens with respect
to such participations as if such Bank were a holder of a direct Loan to
the Company.
SECTION 12.13. SEPARABILITY. Should any clause, sentence, paragraph or
Section of this Agreement be judicially declared to be invalid, unenforceable or
void, such decision will not have the effect of invalidating or voiding the
remainder of this Agreement, and the parties hereto agree that the part or parts
of this Agreement so held to be invalid, unenforceable or void will be deemed to
have been stricken herefrom and the remainder will have the same force and
effectiveness as if such part or parts had never been included herein.
SECTION 12.14. EXECUTION IN COUNTERPARTS. This Agreement may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement. Any Subsidiary of the Company that executes this Agreement after the
date of this Agreement shall, upon such execution, become a party hereto as a
Guarantor.
SECTION 12.15. INTERPRETATION.
(a) In this Agreement, unless a clear contrary intention appears:
(i) the singular number includes the plural number and VICE VERSA:
(ii) reference to any gender includes each other gender;
(iii) the words "herein," "hereof" and "hereunder" and other words
of similar import refer to this Agreement as a whole and not to any
particular Article, Section or other subdivision;
(iv) reference to any Person includes such Person's successors and
assigns but, if applicable, only if such successors and assigns are
permitted by this Agreement, and reference to a Person in a
particular capacity excludes such Person in any
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other capacity or individually, PROVIDED at nothing in this clause
is intended to authorize any assignment not otherwise permitted by
this Agreement;
(v) except as expressly provided to the contrary herein, reference
to any agreement, document or instrument (including this Agreement)
means such agreement, document or instrument as amended,
supplemented or modified and in effect from time to time in
accordance with the terms thereof and, if applicable, the terms
hereof, and reference to any Note or other note includes any Note
issued pursuant hereto in extension or renewal thereof and in
substitution or replacement therefor;
(vi) unless the context indicates otherwise, reference to any
Article, Section, Schedule or Exhibit means such Article or Section
hereof or such Schedule or Exhibit hereto;
(vii) the words "including" (and with correlative meaning "include")
means including, without limiting the generality of any description
preceding such term;
(viii) with respect to the determination of any period of time,
except as expressly provided to the contrary, the word "from" means
"from and including" and the word "to" means "to but excluding"; and
(ix) reference to any law, rule or regulation means such as amended,
modified, codified or reenacted, in whole or in part, and in effect
from time to time.
(b) The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.
(c) No provision of this Agreement shall be interpreted or construed
against any Person solely because that Person or its legal representative
drafted such provision.
(d) In the event of any conflict between the specific provisions of this
Agreement and the provisions of any application pertaining to any Letter
of Credit, the terms of this Agreement shall control.
SECTION 12.16. SUBMISSION TO JURISDICTION.
(a) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT AND THE
OTHER LOAN DOCUMENTS MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW
YORK, IN NEW YORK COUNTY OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT
OF NEW YORK AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE
COMPANY AND EACH GUARANTOR HEREBY IRREVOCABLY ACCEPTS FOR ITSELF AND IN
RESPECT OF ITS PROPERTY, UNCONDITIONALLY, THE JURISDICTION OF THE
AFORESAID COURTS WITH RESPECT TO ANY SUCH ACTION OR PROCEEDING. THE
COMPANY AND EACH GUARANTOR FURTHER IRREVOCABLY CONSENT TO THE SERVICE OF
PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR
68
<PAGE>
PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED
MAIL, POSTAGE PREPAID, TO IT AT ITS ADDRESS PROVIDED IN SECTION 12.2 AND
WITH RESPECT TO ANY GUARANTOR, AT THE ADDRESS PROVIDED ON SCHEDULE 6.16
HERETO, SUCH SERVICE TO BECOME EFFECTIVE THIRTY (30) DAYS AFTER SUCH
MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE ADMINISTRATIVE AGENT
OR ANY BANK TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO
COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE COMPANY IN ANY
OTHER JURISDICTION. THE SUBMISSION TO JURISDICTION CONTAINED IN THIS
SECTION IS NON-EXCLUSIVE.
(b) EACH OF THE COMPANY AND THE GUARANTORS HEREBY IRREVOCABLY WAIVES ANY
OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY
OF THE AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION
WITH THIS AGREEMENT BROUGHT IN THE COURTS REFERRED TO IN CLAUSE (a) ABOVE
AND HEREBY FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN
ANY SUCH COURT THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH
COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
SECTION 12.17. WAIVER OF JURY TRIAL. EACH OF THE COMPANY AND EACH
GUARANTOR HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT TO
A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS
UNDER THIS AGREEMENT OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT
DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR
ARISING FROM OR RELATING TO ANY BANKING RELATIONSHIP EXISTING IN CONNECTION WITH
THIS AGREEMENT, AND AGREES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, THAT ANY
SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.
SECTION 12.18. FINAL AGREEMENT OF THE PARTIES. THIS AGREEMENT
(INCLUDING THE SCHEDULES AND EXHIBITS HERETO), THE NOTES AND THE OTHER LOAN
DOCUMENTS CONSTITUTE A "LOAN AGREEMENT" AS DEFINED IN SECTION 26.02(A) OF THE
TEXAS BUSINESS AND COMMERCE CODE, AND REPRESENT THE FINAL AGREEMENT BETWEEN THE
PARTIES RELATING TO THE SUBJECT MATTER HEREOF AND THEREOF AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS
69
<PAGE>
OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
[Remainder of page intentionally left blank]
70
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized as of the
date first above written.
BORROWER:
COMFORT SYSTEMS USA, INC.
By: /s/___________________________
J. Gordon Beittenmiller
Senior Vice President and
Chief Financial Officer
GUARANTORS:
ACCURATE AIR SYSTEMS, INC.
ACCU-TEMP LP, INC.
ACCU-TEMP, LLC
ACI MECHANICAL, INC.
ADAMS MECHANICAL SERVICES, INC.
ADAMS MECHANICAL, SERVICES, INC.
AIR POWER SYSTEMS, INC.
AIR POWER SYSTEMS, INC.
AIR SOLUTIONS, INC.
ALLSTATE MECHANICAL, INC.
AMERICAN REFRIGERATION CONTRACTORS, INC.
ARMANI PLUMBING & MECHANICAL
ATLAS AIR CONDITIONING COMPANY
ATLAS COMFORT SERVICES USA, INC.
BATCHELOR'S MECHANICAL CONTRACTORS, INC.
BCM CONTROLS CORPORATION
CEL, INC.
CENTRAL MECHANICAL CONSTRUCTION CO., INC.
CENTRAL MECHANICAL INC.
CONTRACT SERVICE, INC.
CS44 ACQUISITION CORPORATION
DESIGN MECHANICAL INCORPORATED
DYNASTAR, INC.
E.L. PRUITT COMPANY
EASTERN HEATING & COOLING, INC.
EASTERN REFRIGERATION CO., INC.
EDS, INC.
F&G MECHANICAL CORPORATION
FRED HAYES MECHANICAL CONTRACTORS, INC.
<PAGE>
FREEWAY HEATING & AIR CONDITIONING, INC.
GMS AIR CONDITIONING, INC.
GOTHAM AIR CONDITIONING SERVICE, INC.
GULFSIDE MECHANICAL, INC.
H & H PLUMBING & HEATING, INC.
HARRIS GENERAL & MECHANICAL CONTRACTORS, INC.
HELM CORPORATION
HELM CORPORATION SAN DIEGO
HESS MECHANICAL CORPORATION
HILLCREST SHEET METAL, INC.
INDUSTRIAL COOLING INC.
JAMES AIR CONDITIONING ENTERPRISES, INC.
KILGUST MECHANICAL, INC.
KUEMPEL SERVICE, INC.
LAWRENCE SERVICE, INC.
LOWRIE ELECTRIC CO., INC.
MANDELL MECHANICAL CORPORATION
MARTIN HEATING, INC.
MAXIMUM REFRIGERATION & AIR CONDITIONING
CORPORATION
MEADOWLANDS FIRE PROTECTION CORP.
MECHANICAL SERVICE GROUP, INC.
MJ MECHANICAL SERVICES, INC.
NOGLE & BLACK MECHANICAL, INC.
NORTH AMERICAN MECHANICAL, INC.
NORTH JERSEY MECHANICAL CONTRACTORS, INC.
OK SHEET METAL & AIR CONDITIONING, INC.
QUALITY AIR HEATING & COOLING, INC.
RADNEY PLUMBING, INC.
RIVER CITY MECHANICAL, INC.
RIVER CITY MECHANICAL, INCORPORATED
ROSS & ASSOCIATES
S&K AIR CONDITIONING CO., INC.
S. I. GOLDMAN
S.M. LAWRENCE COMPANY, INC.
SALMON & ALDER, INC.
SEASONAIR, INC.
SOUTHERN BLUEGRASS MECHANICAL, INC.
<PAGE>
STANDARD HEATING & AIR CONDITIONING COMPANY
TARGET CONSTRUCTION, INC.
TECH HEATING AND AIR CONDITIONING, INC.
TECH MECHANICAL, INC.
TEMP-RIGHT SERVICE, INC.
TEMPRITE AIR CONDITIONING AND
REFRIGERATION, INC.
THE CAPITAL REFRIGERATION COMPANY
THE FAGAN COMPANY
THE HARVEY ROBBIN COMPANY
TRI-CITY MECHANICAL, INC.
TROOST SERVICE CO.
UNITED ENVIRONMENTAL SERVICES, INC.
WALKER-J-WALKER, INC.
WESTERN BUILDING SERVICES, INC.
WOODCOCK & ASSOCIATES, INC.
By: /s/______________________________
J. Gordon Beittenmiller
Vice President
<PAGE>
Amount of Commitment: ADMINISTRATIVE AGENT/BANK:
$32,000,000.00 BANK ONE, TEXAS, N.A.,
as Administrative Agent and Individually,
as a Bank
By:/s/_______________________________
Name: _________________________________
Title: __________________________________
Address for Notice:
910 Travis, 7th Floor
Houston, Texas 77002
Attn: John Elan & Barry Kelly
Amount of Commitment: SYNDICATION AGENT/ BANK:
$32,000,000.00 BANKERS TRUST COMPANY
By:_/s/_____________________________
Name: ______________________________
Title: _______________________________
Address for Notice:
130 Liberty Street, 30th Floor
New York, NY 10006
Amount of Commitment: CO-AGENT/ BANK:
$29,000,000.00 CREDIT LYONNAIS, New York Branch
By:_/s/_____________________________
Name: ______________________________
Title: _______________________________
<PAGE>
Address for Notice:
2200 Ross Avenue, Suite 4400 West
Dallas, Texas 75201
Attn: Blake Wright
Amount of Commitment: DOCUMENTATION AGENT/ BANK:
$32,000,000.00 NATIONSBANK
By:_/s/_____________________________
Name: ______________________________
Title: _______________________________
Address for Notice:
700 Louisiana Street
Houston, TX 77002
Attn: Richard Nichols
Amount of Commitment: BANK:
$12,500,000.00 THE LONG-TERM CREDIT BANK OF JAPAN, LTD.
By:_/s/_____________________________
Name: ______________________________
Title: _______________________________
Address for Notice:
2200 Ross Avenue, Suite 4700 West
Dallas, Texas 75201
Attn: Bruce Frey
Amount of Commitment: BANK:
$17,500,000.00 SOCIETE GENERALE
<PAGE>
By:_/s/_____________________________
Name: ______________________________
Title: _______________________________
Address for Notice:
1111 Bagby, Suite 2020
Houston, Texas 77002
Attn: Thierry Namuroy
Amount of Commitment: CO-AGENT/BANK:
$25,000,000.00 NATIONAL CITY BANK OF COLUMBUS,
AS AND INDIVIDUALLY, AS A BANK
By:/s/_____________________________________
Michael J. Durbin
Assistant Vice President
Address for Notice:
155 East Broad Street, 3rd Floor
Columbus, Ohio 43251-0034
Attn: Michael Durbin
<PAGE>
Amount of Commitment: BANK:
$15,000,000.00 STAR BANK, NATIONAL ASSOCIATION
By:_/s/_____________________________
Name: ______________________________
Title: _______________________________
Address for Notice:
425 Walnut Street
P.O. Box 1038
Cincinnati, Ohio 45201-1038
Attn: William J. Hronek
Amount of Commitment: BANK:
$20,000,000.00 UNION BANK OF CALIFORNIA, N.A.
By:_/s/_____________________________
Name: ______________________________
Title: _______________________________
Address for Notice:
445 South Figueroa St., 16th Floor
Los Angeles, CA 90071-1655
Attention: J. Scott Jessup
<PAGE>
Amount of Commitment: BANK:
$15,000,000.00 BANK OF MONTREAL
By:_/s/_____________________________
Name: ______________________________
Title: _______________________________
Address for Notice:
115 South LaSalle Street, 12W
Chicago, IL 60603
Attn: Amy Dumser
Amount of Commitment: BANK:
$25,000,000.00 BANK OF NOVA SCOTIA
By:_/s/_____________________________
Name: ______________________________
Title: _______________________________
Address for Notice:
1100 Louisiana Street
Houston, TX 77002
Attention: Rick Hawthorne
<PAGE>
Amount of Commitment: BANK:
$15,000,000.00 COMERICA BANK
By:_/s/_____________________________
Name: ______________________________
Title: _______________________________
Address for Notice:
4100 Spring Valley Road, Suite 900
Dallas, TX 75244
Attention: Mark Grover
Amount of Commitment: BANK:
$5,000,000.00 BANK POLSKA
By:_/s/_____________________________
Name: ______________________________
Title: _______________________________
Address for Notice:
470 Park Avenue South, 15th Floor
New York, NY 10016
Attention: Harvey Winter
EXHIBIT 10.28 TO 10-K
AGREEMENT OF LEASE
BETWEEN
MARK P. SHAMBAUGH
LANDLORD
AND
SHAMBAUGH & SON, INC.
TENANT
DATED: OCTOBER 31, 1998
PREMISES
7614 AND 7720 OPPORTUNITY DRIVE
FORT WAYNE, IN 46825
<PAGE>
AGREEMENT OF LEASE ("Lease"), made as of the 31st day of October,
1998, between Mark P. Shambaugh, as Landlord, and Shambaugh & Son, Inc., an
Indiana corporation.
R E C I T A L S:
WHEREAS, the Landlord is the owner of certain premises known as and
by the street address of 7614 and 7720 Opportunity Drive, Fort Wayne, Indiana
46801 (as more particularly described on Schedule "A", annexed hereto and made a
part hereof); and
WHEREAS, the Landlord desires to rent the aforementioned premises to
the Tenant and the Tenant desires to rent the aforementioned premises from the
Landlord.
NOW, THEREFORE, in consideration of the mutual promises and
covenants herein contained and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto,
for themselves, as well as their respective legal representatives, heirs,
successors and assigns, hereby agree as follows:
ARTICLE 1
GLOSSARY
For the purposes of this Lease, the following terms shall have the
meanings indicated below:
"Additional Rent" shall have the meaning set forth in Section 2.2(B)
hereof.
"Applicable Rate" shall mean the lesser of (x) three percentage
points above the then current Prime Interest rate as published, from time to
time, by the WALL STREET JOURNAL as its prime interest rate in its Money Rates
section (or if such publication no longer exists or no longer publishes such
rate, then the "base rate" as announced by Citibank, N.A. [or its successors],
from time to time, for the rate presently referred to as its "base rate") or (y)
the maximum rate permitted by applicable law.
"Bankruptcy Code" shall mean 11 U.S.C. Section 101 ET SEQ., or any
statute, federal or state, of similar nature and purpose, now or hereafter.
"Building Systems" shall mean the mechanical, electrical, sanitary,
heating, air conditioning, ventilating, elevator, plumbing, life-safety and
other service or support systems of any nature whatsoever located at or on the
Premises, BUT shall not include installations made by Tenant or fixtures or
appliances (regardless of whether or not such fixtures or appliances are owned
by the Tenant or the Landlord).
"Building Insurance" shall have the meaning set forth in Section
10.2 hereof.
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<PAGE>
"Business Days" shall mean all days, excluding Saturdays, Sundays
and all days observed as holidays by the State of Indiana or the federal
government.
"Commencement Date" is October 31, 1998.
"Event of Default" shall have the meaning set forth in Section 16.1
hereof.
"Expiration Date" shall mean the Fixed Expiration Date or such other
date on which the Term ends pursuant to any of the terms, conditions or
covenants of this Lease or pursuant to law.
"Fixed Expiration Date" is October 31, 2008.
"Fixed Rent" : $660,000.00 per annum ($55,000.00 per month) for the
first Lease Year (as such term is hereinafter defined) subject to adjustment
thereafter in accordance with the provisions of Rider 1 hereof.
"Government Authority" or "Government Authorities" shall mean the
United States of America, the State of Indiana, the County of Allen, the
Municipality of Fort Wayne, and/or any political subdivision thereof and any
agency, department, commission, board, bureau or instrumentality of any of the
foregoing, now existing or hereafter created, having jurisdiction over the
Premises or any portion thereof.
"Hazardous Materials" shall have the meaning set forth in Section
8.2 hereof.
"Increase Notice" shall have the meaning set forth in Section 3 of
Rider 1 attached hereto and made a part hereof.
"Indemnitees" shall mean Landlord, his agents and contractors (and
the partners, shareholders, officers, directors and employees of any of the
Landlord's agents or contractors).
"Initial Term" shall mean the ten (10) year period commencing on the
Commencement Date.
"Landlord", on the date as of which this Lease is made, shall mean
Mark P. Shambaugh, but thereafter, "Landlord" shall mean any fee owner of the
Premises.
"Lease Year" shall mean each twelve (12) month period commencing on
the Commencement Date and each anniversary of the Commencement Date.
"Mortgage(s)" Shall mean any deed of trust, trust indenture or
mortgage which may now or hereafter affect the Premises and all extensions,
supplements, amendments, modifications, consolidations, refinancings and
replacements thereof or thereto, substitutions therefor, and advances made
thereunder.
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<PAGE>
"Mortgagee(s)" Shall mean any trustee or mortgagee or holder of a
Mortgage.
"Notice(s)" shall have the meaning set forth in Section 22.1(A)
hereof.
"Option" or "Options" shall have the meaning set forth in Section
26.1 hereof.
"Option Period" or "Option Periods" shall have the meaning set forth
in Section 26.1 hereof.
"Permitted Use" shall mean general, executive and administrative
offices, parking, machine shop, repair, and warehouse facilities in connection
with Tenant's business as a mechanical contracting and service company and uses
related thereto including the evolution of the Tenant's business consistent with
the evolution of the mechanical contracting industry in general, subject to all
applicable laws, regulations, codes and ordinances, and subject further to all
recorded restrictions, covenants and limitations affecting the Premises,
provided, however, that no recorded restrictions, covenants or limitations
impair the use of the Premises for the purposes intended by Tenant as of the
Commencement Date.
"Person(s) or Person(s)" shall mean any natural person or persons, a
partnership, a corporation and any other form of business or legal association
or entity.
"Persons Within Tenant's Control" shall mean and include Tenant, all
of Tenant's respective shareholders, directors, officers, agents, contractors,
sub-contractors, servants, employees, licensees and invitees as well as any of
the heirs, successors, representatives and assigns of any of the foregoing.
"Premises" shall mean all that certain plot, piece and parcel of
land, together with all buildings and improvements erected thereon, known as and
by the street address of 7614 and 7720 Opportunity Drive, Fort Wayne, Indiana
46825 (as more particularly described on Schedule "A", annexed hereto and made a
part hereof).
"Price Index" shall have the meaning set forth in Section 1(B) of
Rider 1 attached hereto.
"Rental" shall mean and be deemed to include Fixed Rent, Additional
Rent and any other sums payable, now or hereafter, by Tenant hereunder.
"Requirements" shall mean all present and future laws, rules,
ordinances, regulations, statutes, requirements, codes and executive orders,
extraordinary as well as ordinary, retroactive and prospective, of all
Governmental Authorities, now existing or hereafter created which affect,
directly or indirectly, the Premises and/or the maintenance, use, operation or
occupation of the Premises, and all recorded restrictions, covenants and
limitations affecting the Premises, provided, however, that no recorded
restrictions, covenants or limitations impair the use of the Premises for the
purposes intended by Tenant as of the Commencement Date.
4
<PAGE>
"Taxes" shall have the meaning set forth in Section 3.1 hereof.
"Tenant", on the date as of which this Lease is made, shall mean the
Tenant named in this Lease, but thereafter "Tenant" shall mean only the tenant
under this Lease at the time in question; provided, however, that the Tenant
named in this Lease and any and all successor tenant(s) hereunder shall not be
released and relieved from any liability hereunder in the event of any
assignment of this Lease or a sublet, in whole or in part, of the Premises.
"Tenant Indemnitees" shall mean Tenant, its agents and contractors
(and the partners, shareholders, officers, directors and employees of Tenant and
its agents and contractors).
"Tenant's Property" shall mean Tenant's movable fixtures and movable
partitions, telephone and other equipment, furniture, furnishings and other
movable items of personal property owned by the Tenant.
"Term", on the date as of which this Lease is made shall mean the
Initial Term, but thereafter shall be deemed to include any Option Period for
which the Tenant exercises its Option pursuant to the provisions of Article 26
hereof.
ARTICLE 2
DEMISE; PREMISES; TERM; RENT
SECTION 2.1. Landlord hereby leases to Tenant and Tenant hereby
hires from Landlord the Premises for the Initial Term to commence on the
Commencement Date and to end on the Fixed Expiration Date, unless earlier
terminated as provided herein and subject to the renewal options provided for in
Article 26 below.
SECTION 2.2. Commencing upon the Commencement Date, Tenant shall pay
to Landlord, in lawful money of the United States of America, without Notice or
demand, without relief from valuation and appraisement laws, by good and
sufficient check at the office of Landlord or at such other place as Landlord
may designate from time to time, the following:
(A) the Fixed Rent, as such term is defined in Article 1 hereof,
which shall be payable in equal monthly installments in advance on the
first day of each and every calendar month during the Term, and
(B) additional rent ("Additional Rent") consisting of all other sums
of money as shall become due from and be payable by Tenant hereunder.
5
<PAGE>
SECTION 2.3. If the Commencement Date is other than the first day of
a calendar month, or the Fixed Expiration Date is other than the last day of a
calendar month, Fixed Rent for such month shall be prorated on a per diem basis.
SECTION 2.4. Tenant shall pay the Fixed Rent and Additional Rent
when due without abatement, deduction, counterclaim, setoff or defense of any
nature. It is understood and agreed that the Fixed Rent to be received by
Landlord during the Term shall be net to Landlord so that this Lease shall yield
to Landlord the Fixed Rent specified herein and, accordingly, all real estate
taxes, insurance, maintenance and other expenses of any nature related to the
Premises, excluding Landlord's income taxes, shall be solely the responsibility
of Tenant unless otherwise specifically set forth herein.
ARTICLE 3
REAL ESTATE TAXES
SECTION 3.1. The Tenant covenants and agrees that it shall, within
twenty (20) days of written demand by the Landlord to the Tenant, pay to the
Landlord, as Additional Rent, any and all Taxes (as hereinafter defined) of any
nature whatsoever assessed or imposed against the Premises for each and every
Lease Year during the Term of this Lease. The Landlord hereby agrees that any
demand given by the Landlord to the Tenant pursuant to the provisions of this
Section 3.1 shall include an accurate copy of the invoice, statement, bill or
similar document issued by the relevant Governmental Authority or Governmental
Authorities, as the case may be, with respect to the Taxes for which payment is
demanded. For purposes of this Section 3.1, "Taxes" shall include, without
limitation, any and all taxes assessed against the Premises, all personal
property taxes, all ad valorem taxes and any and all other taxes assessed
against the Premises by any Governmental Authority, now or hereafter, but shall
EXCLUDE any special assessments or charges for improvements or infrastructure
effected or installed prior to the Commencement Date. With respect to Taxes for
tax periods commencing before or ending after the Term of this Lease, Tenant
shall only be obligated to pay to Landlord the pro rata portion of such Taxes
equal to the portion of such tax period falling within the Term of this Lease.
ARTICLE 4
UTILITIES
SECTION 4.1. The Tenant shall contract for in its name, and
covenants and agrees that it shall pay when due any and all charges incurred
for, any and all utilities supplied to the Premises including, without
limitation, electricity, water, heating oil and/or natural gas. Landlord
represents and warrants to Tenant that electricity, water, telephone, sewer, and
natural gas, if any, are present at and available to the Premises in quantities
sufficient for Tenant's business purposes.
SECTION 4.2. Landlord shall not be liable in any way to Tenant for
any interruption or failure of or defect in the supply or character of any
utility furnished to the Premises, now or hereafter, or for any loss, damage or
expense Tenant may sustain if either the quantity or character of any utility is
changed or is no longer suitable for Tenant's requirements, whether by reason of
any requirement, act or omission of the public utility serving the Premises or
for any other reason whatsoever. Notwithstanding the provisions of this Section
4.2, the Landlord shall be responsible for any and all actual damages suffered
by the Tenant as a result of any interruption of utility service to the extent
caused by the Landlord's gross negligence or intentional misconduct, and Rent
shall abate until such service is fully restored.
6
<PAGE>
SECTION 4.3. If any Taxes are imposed upon Landlord with respect to
any utility furnished as a service to Tenant by any Governmental Authority,
Tenant agrees that such Taxes shall be reimbursed by Tenant to Landlord upon
written demand. The Landlord hereby agrees that any demand given by the Landlord
to the Tenant pursuant to the provisions of this Section 4.3 shall include an
accurate copy of the invoice, statement, bill or similar document issued by the
relevant Governmental Authority or Governmental Authorities, as the case may be,
with respect to the Taxes for which payment is demanded.
ARTICLE 5
USE AND OCCUPANCY
SECTION 5.1. Tenant shall use and occupy the Premises for the
Permitted Use and for no other purpose of any nature whatsoever. However,
nothing contained herein shall require Tenant to operate or occupy the Premises
continuously during the Term.
ARTICLE 6
ALTERATIONS
SECTION 6.1.
(A)(1) Except as provided below, prior to making any additions,
alterations or improvements to the Premises, Tenant shall: (i) submit to
Landlord plans and specifications for approval by the Landlord (including
to the extent reasonably applicable, layout, architectural, electrical,
mechanical and structural drawings) that comply with all Requirements for
each proposed addition, alteration or improvement to the Premises, and
Tenant shall not commence any such work without first obtaining Landlord's
approval of such plans and specifications; and (ii) at Tenant's expense,
obtain all permits, approvals and certificates required by any
Governmental Authorities. Upon completion of such addition, alteration or
improvement, Tenant, at Tenant's expense, shall obtain certificates of
final approval of such addition, alteration or improvement required by any
Governmental Authority and shall furnish Landlord with copies thereof. All
additions, alterations and improvements shall be made and performed in
accordance with the plans and specifications therefor as approved by
Landlord and otherwise in accordance with all Requirements. All materials
and equipment to be incorporated in the Premises as a result thereof shall
be good quality and no such materials or equipment shall be subject to any
lien, encumbrance, chattel mortgage, title retention or security
agreement.
7
<PAGE>
(A)(2) Notwithstanding anything to the contrary contained in this
Lease, Tenant shall have the right to make any alterations, additions and
improvements to the Premises without the consent of the Landlord if and
only if: (i) the total cost of such alterations, additions or improvements
do not exceed Fifty Thousand and No/100 Dollars ($50,000.00) for any Lease
Year; and (ii) Tenant shall not remove, materially alter or otherwise
impair any structural element of the Premises or the Building System.
(A)(3) Tenant agrees that any review or approval by Landlord of any
plans and/or specifications with respect to any alteration, addition and
improvement is solely for Landlord's benefit, and without any
representation or warranty whatsoever to Tenant or any other Person with
respect to the adequacy, correctness or sufficiency thereof or with
respect to Requirements or otherwise.
(A)(4) Landlord, at Tenant's expense, and upon the request of
Tenant, shall join in any applications for any permits, approvals or
certificates required to be obtained by Tenant in connection with any
permitted alteration, addition and improvement (provided that the
provisions of the applicable Requirements shall require that Landlord join
in such application) and shall otherwise cooperate with Tenant in
connection therewith; provided, however, that Landlord shall not be
obligated to incur any cost or expense or liability in connection
therewith.
(B) All alterations, additions and improvements shall become a part
of the Premises and shall be Landlord's property from and after the
installation thereof and may not be removed or changed without Landlord's
prior written consent. All Tenant's Property shall remain the property of
Tenant and, on or before the Expiration Date or earlier end of the Term,
may be removed from the Premises by Tenant at Tenant's sole cost and
option; provided, however, that Tenant shall repair and restore in a good
and workmanlike manner any damage to the Premises caused by such removal.
The provisions of this Section 6.1(B) shall survive the expiration or
earlier termination of this Lease.
(C)(1) Any mechanic's lien filed against the Premises for work
claimed to have been done for, or materials claimed to have been furnished
to, Tenant shall be contested by appropriate judicial proceedings or shall
be canceled or discharged by Tenant, at Tenant's expense, within ninety
(90) days after such lien shall be filed and Tenant receives notice
thereof, by payment or filing of the bond required by law.
(C)(2) If Tenant shall fail to contest or discharge such mechanic's
lien within the aforesaid period, then, in addition to any other right or
remedy of Landlord, Landlord may, but shall not be obligated to, discharge
the same either by paying the amount claimed to be due or by procuring the
discharge of such lien by deposit in court or bonding.
8
<PAGE>
(C)(3) Any amount paid by Landlord for any of the aforesaid charges
and for all expenses of Landlord (including, but not limited to,
reasonable attorneys' fees and disbursements) incurred in defending any
such action, discharging said lien or in procuring the discharge of said
lien, with interest on all such amounts at the Applicable Rate, shall be
repaid by Tenant within twenty (20) days after written demand therefor,
and all amounts so repayable, together with such interest, shall be
considered Additional Rent.
(D) Tenant shall have the right, at its sole cost and expense, to
erect and maintain any exterior signs on the Premises with the prior
written consent of Landlord so long as the same comply with all applicable
Requirements. Landlord acknowledges consent to Tenant's signage in
existence as of the Commencement Date.
SECTION 6.2. Landlord reserves the right to construct additions to the
office building and pre-fab shop as hereinafter specifically set forth;
PROVIDED, HOWEVER, that such right shall expire in the event that, upon the day
prior to the date upon which Landlord becomes contractually obligated to
construct either of said additions either (i) Mark P. Shambaugh has not
reasonably determined that the Tenant will be able to make productive use of
such addition or (ii) Mark P. Shambaugh has ceased being employed as the Chief
Executive Officer of Tenant.
(A) Landlord reserves the right to construct an addition to the
office building located upon the Premises containing approximately 20,000
additional square feet provided Landlord commences construction of said
addition during the first three (3) years of the Initial Term. Landlord's
addition to the office building shall be constructed pursuant to plans and
specifications acceptable to Landlord and consistent with the existing
interior and exterior structure and architecture of the office building.
Landlord agrees to notify Tenant in writing of its election to construct
said addition, and Landlord shall promptly thereafter commence and
complete construction of the addition as soon as reasonably possible under
the circumstances. Tenant agrees that upon completion of construction of
the addition to the office building, Tenant shall take possession thereof
and occupy the same. Upon completion of construction, Tenant agrees to pay
as additional Fixed Rent an annual sum equal to Eleven and No/100 Dollars
($11.00) per square foot of leasable area contained within the addition to
the office building, which amount shall be adjusted as if it were Fixed
Rent upon the effective date hereof in accordance with Rider 1 and paid in
equal monthly installments as Fixed Rent is paid pursuant to this Lease.
From and after the completion of construction, the additional amounts paid
pursuant to this subparagraph shall be deemed for all purposes to be Fixed
Rent.
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(B) Landlord reserves the right to construct an addition to the
pre-fab shop building located upon the Premises containing approximately
10,000 additional square feet provided Landlord commences construction of
said addition during the first three (3) years of the Initial Term.
Landlord's addition to the pre-fab shop building shall be constructed
pursuant to plans and specifications acceptable to Landlord and consistent
with the existing interior and exterior structure and architecture of the
pre-fab shop building. Landlord agrees to notify Tenant in writing of its
election to construct said addition, and Landlord shall promptly
thereafter commence and complete construction of the addition as soon as
reasonably possible under the circumstances. Tenant agrees that upon
completion of construction of the addition to the pre-fab shop building,
Tenant shall take possession thereof and occupy the same. Upon completion
of construction, Tenant agrees to pay as additional Fixed Rent an annual
sum equal to Six and No/100 Dollars ($6.00) per square foot of leasable
area contained within the addition to the pre-fab shop building, which
amount shall be adjusted as if it were Fixed Rent upon the effective date
hereof in accordance with Rider 1 and paid in equal monthly installments
as Fixed Rent is paid pursuant to this Lease. From and after the
completion of construction, the additional amounts paid pursuant to this
subparagraph shall be deemed for all purposes to be Fixed Rent.
ARTICLE 7
REPAIRS; REPLACEMENTS; MAINTENANCE
SECTION 7.1. Except for those repairs, replacements or maintenance
required to be effected by Landlord, and further subject to the right of
reimbursement herein provided, Tenant, at Tenant's sole cost and expense, shall
take good care of the Premises and the improvements, buildings, Building
Systems, fixtures, equipment, parking lots, landscaping and appurtenances
located thereon and make all non-structural repairs, REPLACEMENTS or alterations
thereto of any nature whatsoever as and when needed to preserve them in as good
working order and condition as exists as of the Commencement Date, ordinary wear
and tear excepted, ("Maintenance Repairs") or to comply with any Requirement
("Requirement Alteration"). If Tenant shall fail, after thirty (30) days Notice
(or such shorter period as may be required because of an emergency), to commence
to make repairs, replacements or alterations required to be made by Tenant and
complete the same within a reasonable period of time thereafter exercising due
diligence, the same may be made by Landlord, at the expense of Tenant, and the
expenses thereof incurred by Landlord, with interest thereon at the Applicable
Rate, shall be paid to Landlord, as Additional Rent, within twenty (20) days
after rendition of a bill or statement therefor. Tenant shall give Landlord
prompt Notice of any defective condition known to Tenant in any Building Systems
located in, servicing or passing through the Premises. If the cost of any
Maintenance Repair or Requirement Alteration, whether structural or
non-structural, exceeds $10,000.00, and Landlord consents to such Maintenance
Repair or Requirement Alteration after prior written notice from Tenant, then
upon termination or other expiration of this Lease Landlord shall reimburse to
Tenant the pro rata portion of the cost of such Maintenance Repair or
Requirement Alterations equal to the portion of the useful life of such
Maintenance Repair or Requirement Alternations that remains after the expiration
or other termination of this Lease. The useful life of such Maintenance Repair
or Requirement Alterations shall be established by the party making such
Maintenance Repair or Requirement Alterations at the time made. Notwithstanding
anything to the contrary contained in this Section, in no event shall Tenant be
responsible for any repair, item of maintenance or replacement to the extent the
same is caused by the negligence or willful misconduct of Landlord or Landlord's
employees, contractors or agents.
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SECTION 7.2. Landlord hereby assigns all warranties and guaranty
agreements relating to the Premises and the Building Systems to Tenant during
the Term.
SECTION 7.3. Landlord hereby agrees to repair, maintain and replace
all structural portions of the Premises, including, without limitation, exterior
walls, support columns and walls, foundation and the roof in as good repair and
working order as exists as of the Commencement Date, ordinary wear and tear
excepted.
SECTION 7.4 Tenant shall further be responsible for the payment of
all assessments duly issued against the Premises as and when the same shall
become due and payable during the Term of this Lease pursuant to the recorded
plat and restrictions for Cook Road Office and Industrial Park. In the event any
such assessment shall exceed $10,000.00 for capital improvements, then upon
termination or other expiration of this Lease, Landlord shall reimburse Tenant
the pro rata portion of the cost of such assessment equal to the useful life of
the capital improvement that remains after the expiration or other termination
of this Lease. The useful life of the capital improvement shall be determined by
the party making the capital improvement at the time made.
ARTICLE 8
REQUIREMENTS OF LAW
SECTION 8.1. Tenant shall not do, and shall not permit (to the
extent Tenant has control over the same) any act or thing in or upon the
Premises which will invalidate or be in conflict with the certificate of
occupancy for the Premises or violate any Requirements. Tenant shall immediately
take all action, including but not limited to, making any Requirement
Alterations necessary to comply with all Requirements which shall or may impose
any violation, order or duty upon Landlord or Tenant arising from or in
connection with the Premises, Tenant's occupancy, use or manner of use of the
Premises or any installations in the Premises, or required by reason of a breach
of any of Tenant's covenants or agreements under this Lease, whether or not such
Requirements shall now be in effect or hereafter enacted or issued, and whether
or not any work required shall be ordinary or extraordinary or foreseen or
unforeseen as of the date hereof. Landlord represents and warrants to Tenant
that as of the Commencement Date no condition exists with respect to the
Premises that will necessitate any Requirement Alteration.
SECTION 8.2. Tenant covenants and agrees that Tenant shall, at
Tenant's sole cost and expense, comply at all times with all Requirements
governing the use, generation, storage, treatment and/or disposal of any
Hazardous Materials (as defined below) in, on, under, about or
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from the presence of which results from or in connection with the act or
omission of Tenant or Persons Within Tenant's Control or the breach of this
Lease by Tenant or Persons Within Tenant's Control. The term "Hazardous
Materials" shall mean any biologically or chemically active or other toxic or
hazardous wastes, pollutants or substances, including, without limitation,
asbestos, PCBS, petroleum products and by-products, substances defined or listed
as "hazardous substances" or "toxic substances" or similarly identified in or
pursuant to the Comprehensive Environmental Response, Compensation and Liability
Act, 42 U.S.C. ' 9601 ET SEQ., and as hazardous wastes under the Resource
Conservation and Recovery Act, 42 U.S.C. ' 6010, ET SEQ., any chemical substance
or mixture regulated under the Toxic Substance Control Act of 1976, as amended,
15 U.S.C. 2601, ET SEQ., any "toxic pollutant" under the Clean Water Act, 33
U.S.C. ' 466 ET SEQ., as amended, any hazardous air pollutant under the Clean
Air Act, 42 U.S.C. ' 7401 ET SEQ., hazardous materials identified in or pursuant
to the Hazardous Materials Transportation Act, 49 U.S.C. ' 1802, ET SEQ., and
any hazardous or toxic substances or pollutant regulated under any other
Requirements. Tenant shall indemnify and hold harmless all Indemnitees from and
against any loss, claim, cost, damage, liability or expense (including
attorneys' fees and disbursements) arising by reason of any clean up, removal,
remediation, detoxification action or any other activity required or recommended
of any Indemnitees by any Governmental Authority by reason of the presence in,
on, under or about the Premises of any Hazardous Materials, as a result of or in
connection with the act or omission of Tenant or Persons Within Tenant's Control
or the breach of this Lease by Tenant or Persons Within Tenant's Control.
Landlord shall indemnify and hold harmless all Tenant Indemnitees from and
against any loss, claim, cost, damage, liability or expense (including
attorneys' fees and disbursements) arising by reason of any clean up, removal,
remediation, detoxification action or any other activity required or recommended
of any Tenant Indemnitees by any Governmental Authority by reason of the
presence in, on, under or about the Premises of any Hazardous Materials either
in existence on the Commencement Date or that come to exist thereafter that are
not the result of or in connection with the act or omission of Tenant or Persons
Within Tenant's Control or the breach of this Lease by Tenant or Persons Within
Tenant's Control. The foregoing covenants and indemnities shall survive the
expiration or any termination of this Lease.
SECTION 8.3. Landlord represents and warrants to Tenant that as of
the date hereof Landlord has no notice of the presence, generation, storage,
disposal or other use of Hazardous Materials on, in or under the Premises prior
to the date hereof or any violation of any violation of any applicable
Requirements relating to Hazardous Materials.
SECTION 8.4. If Tenant shall receive notice of any violation of or
defaults under, any Requirements, liens or other encumbrances applicable to the
Premises, Tenant shall give immediate written Notice thereof to Landlord.
SECTION 8.5. If any governmental license or permit shall be required
for the proper and lawful conduct of Tenant's business and if the failure to
secure such license or permit would, in any way, affect Landlord or the
Premises, then Tenant, at Tenant's expense, shall promptly procure and
thereafter maintain, submit for inspection by Landlord, and at all times comply
with the terms and conditions of, each such license or permit.
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ARTICLE 9
SUBORDINATION
SECTION 9.1. This Lease shall at all times, now and hereafter, be
subject and subordinate to each and every Mortgage, whether made prior to or
after the execution of this Lease, and to all extensions, supplements,
amendments, modifications, consolidations and replacements thereof or thereto,
substitutions therefor, and advances made thereunder, provided that the
Mortgagee confirms and accepts the provisions of Section 9.5 below. This clause
shall be self-operative and no further agreement of subordination shall be
required to make the interest of any Mortgagee superior to the interest of
Tenant hereunder. In confirmation of such subordination, Tenant shall promptly
execute and deliver, at its own cost and expense, any document, in recordable
form if requested, that Landlord or any Mortgagee may request to evidence such
subordination; and if Tenant fails to execute, acknowledge or deliver any such
document within twenty (20) days after request therefor, Tenant hereby
irrevocably constitutes and appoints Landlord as Tenant's attorney-in-fact,
coupled with an interest, to execute, acknowledge and deliver any such document
for and on behalf of Tenant.
SECTION 9.2. The subordination set forth in Section 9.1 above is
subject to the written agreement (a "Non-Disturbance Agreement") by any
Mortgagee or any other person to whom Tenant may be required to attorn, that so
long as Tenant is in compliance with the terms of this Lease, Tenant's use and
occupancy of the Premises shall not be disturbed, and that all provisions of the
Lease shall be given effect, including those related to the application of any
proceeds of insurance. Landlord shall cause each Mortgagee, whether pursuant to
a Mortgage now existing or hereafter arising, to execute and deliver to Tenant a
Non-Disturbance Agreement, subject to the terms of the preceding sentence, in a
form acceptable to such Mortgagee.
ARTICLE 10
INSURANCE; PROPERTY LOSS OR DAMAGE; REIMBURSEMENT
SECTION 10.1.
(A) Neither Landlord nor Landlord's agents shall be liable for any
injury or damage to persons or property, or interruption of Tenant's
business, resulting from fire or other casualty caused by Persons other
than the Landlord.
(B) Tenant shall give written Notice to Landlord, promptly after
Tenant learns thereof, of any accident, emergency, occurrence, fire or
other casualty and all damages to or defects in the Premises for the
repair of which Landlord might be responsible. Such Notice shall be given
by telecopy or personal delivery to the address(es) of Landlord in effect
for Notice.
SECTION 10.2. Tenant shall not do or permit to be done any act or
thing in or upon the Premises which will invalidate or be in conflict with the
terms of the State of Indiana standard form of fire insurance with extended
coverage, or with rental, liability, boiler, sprinkler, water damage, war risk
or other insurance policies covering the Premises (hereinafter referred to as
"Building Insurance"); and Tenant, at Tenant's own expense, shall comply with
all rules, orders, regulations and requirements of all insurance boards.
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SECTION 10.3.
(A) Tenant shall, at Tenant's own cost and expense, obtain, maintain
and keep in full force and effect during the Term, for the benefit of
Landlord, any Mortgagees and Tenant, the Building Insurance in an amount
equal to the replacement value of the Building and its contents (not to
exceed $7,417,000.00) and commercial general liability insurance
(including premises operation, bodily injury, personal injury, death,
independent contractors, broad form contractual liability and broad form
property damage coverages) with coverage limits of $1,000,000 per
occurrence and $2,000,000 in the aggregate, against all claims, demands or
actions with respect to damage, injury or death made by or on behalf of
any person or entity, arising from or relating to the conduct and
operation of Tenant's business in, on or about the Premises (which shall
include Tenant's signs, if any), or arising from or related to any act or
omission of Tenant or of Persons Within Tenant's Control.
(B) Landlord and any Mortgagees shall be named as additional
insureds in said policies. All said policies of insurance shall be: (i)
written as "occurrence" policies; (ii) written as primary policy coverage
and not contributing with or in excess of any coverage which Landlord may
carry; and (iii) issued by reputable and independent insurance companies
rated in Best's Insurance Guide, or any successor thereto (or if there be
none, an organization having a national reputation) as having a general
policyholder rating of "A" and a financial rating of at least "XI", and
which are licensed to do business in the State of Indiana. Upon Landlord?s
request, Tenant shall deliver to Landlord the policies of insurance or
certificates thereof, together with evidence of payment of premiums
thereon, and shall thereafter furnish to Landlord, at least thirty (30)
days prior to the expiration of any such policies and any renewal thereof,
a new policy or certificate in lieu thereof, with evidence of the payment
of premiums thereon. Each of said policies shall also contain a provision
whereby the insurer agrees not to cancel, fail to renew, diminish or
materially modify said insurance policy(ies) without having given Landlord
and any Mortgagees at least thirty (30) days prior written Notice thereof.
(C) Tenant shall pay all premiums and charges for all of said
policies, and, if Tenant shall fail to make any payment when due or carry
any such policy, Landlord may, but shall not be obligated to, make such
payment or carry such policy, and the amount paid by Landlord, with
interest thereon (at the Applicable Rate), shall be repaid to Landlord by
Tenant on demand, and all such amounts so repayable, together with such
interest, shall be deemed to constitute Additional Rent hereunder. Payment
by Landlord of any such premium, or the carrying by Landlord of any such
policy, shall not be deemed to waive or release the default of Tenant with
respect thereto.
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(D) Tenant, at Tenant's sole cost and expense, shall maintain
insurance protecting and indemnifying Tenant against any and all damage to
or loss of Tenant's Property, and all claims and liabilities relating
thereto.
SECTION 10.4.
(A) Landlord and Tenant hereby release each other and their
respective agents, employees, partners, shareholders, officers and
directors from any claims or actions for damage to the Premises or
Tenant's Property to the extent the same are covered by proceeds of any
insurance policies maintained by the parties hereto under the terms of
this Lease or in force at the time of any such damage. Each party shall
cause each insurance policy obtained by it to provide that the insurance
company waives all rights of recovery by way of subrogation against the
other party in connection with any damage covered by any such policy.
(B) The waiver of subrogation referred to in Section 10.4(A) above
shall extend to the agents and employees of each party, but only if and to
the extent that such waiver can be obtained without additional charge
(unless such party shall pay such charge). Nothing contained in this
Section 10.4 shall be deemed to relieve the Landlord or Tenant from any
duty imposed elsewhere in this Lease to repair, restore and rebuild the
Premises, in whole or in part.
ARTICLE 11
DESTRUCTION BY FIRE OR OTHER CAUSE
SECTION 11.1. If the Premises or any part thereof shall be damaged
by fire or other casualty, Tenant shall give immediate written Notice thereof to
Landlord. Landlord shall, subject to the provisions of Sections 11.2 and 11.3
below, proceed with reasonable diligence, after receipt of the net proceeds of
insurance, to repair or cause to be repaired such damage at its expense, to the
condition immediately preceding such damage and, if the Premises, or any part
thereof, shall be rendered untenantable by reason of such damage, then the Fixed
Rent hereunder, or an amount thereof apportioned according to the area of the
Premises so rendered untenantable (if less than the entire Premises shall be so
rendered untenantable), shall be abated for the period from the date of such
damage to the date that is thirty (30) days after the date when the repair of
such damage shall have been substantially completed. If Landlord or any
Mortgagee shall be unable to collect the insurance proceeds applicable to such
damage because of some action or inaction on the part of Tenant or Persons
Within Tenant's Control, then Landlord shall have no duty to make such repairs
or effect any restoration hereunder. Tenant covenants and agrees to cooperate
with Landlord and any Mortgagee in their efforts to collect insurance proceeds
(including rent insurance proceeds) payable to such parties. Landlord shall not
be liable for any delay which may arise by reason of adjustment of insurance on
the part of Landlord and/or Tenant, or any cause beyond the control of Landlord
or contractors employed by Landlord.
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SECTION 11.2. Landlord shall not be liable for any inconvenience or
annoyance to Tenant or injury to the business of Tenant resulting in any way
from damage from fire or other casualty or the repair thereof unless caused by
Landlord. Tenant understands that Landlord, in reliance upon Section 10.3
hereof, will not carry insurance of any kind on Tenant's Property, and that
Landlord shall not be obligated to repair any damage thereto or replace the
same.
SECTION 11.3.
(A) Notwithstanding anything to the contrary contained in Sections
11.1 and 11.2 above, in the event that:
(1)at least fifty (50%) percent of the rentable square feet of
the Premises shall be damaged by a fire or other casualty so that
substantial alteration or reconstruction of the Premises shall be
required (whether or not the remainder of the Premises shall have
been damaged by such fire or other casualty and without regard to
the structural integrity of the Premises); or
(2)the Premises shall be totally or substantially damaged or
shall be rendered wholly or substantially unsuitable for the
Permitted Use; or
(3)the Landlord fails to commence any repairs, reconstruction or
restoration of the Premises within sixty (60) days after a casualty;
or
(4)Landlord fails complete all repairs, reconstruction or
restoration of the Premises within one hundred twenty (120) days
after the date of casualty;
then, as a result of any circumstances described in subparagraphs (1), (2), (3)
or (4) hereof, the Tenant, at Tenant's option, may terminate this Lease and the
term and estate hereby granted, by notifying the Landlord in writing of such
termination within one hundred twenty (120) days after the date of such damage
[as to subparagraphs (1) and (2)] or within thirty (30) days after the passage
of the times periods in subparagraphs (3) and (4) above. In the event that such
a Notice of termination shall be given, then this Lease and the term and estate
hereby granted shall expire as of the date of termination stated in said Notice
with the same effect as if that date were the Fixed Expiration Date, and the
Fixed Rent and Additional Rent hereunder shall be apportioned as of such date.
Notwithstanding the termination of this Lease as provided in this Subsection
11.3(A) Landlord shall be obligated to reimburse to Tenant a portion of the cost
of any Maintenance Repair or Requirement Alterations to the extent required by
Section 7.1 above. In the event of an occurrence as described in subparagraphs
(1) or (2) above, Landlord, at Landlord's option, may terminate this Lease and
the term and estate hereby granted by notifying Tenant in writing of such
termination within one hundred twenty (120) days after the date of such damage.
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ARTICLE 12
EMINENT DOMAIN
SECTION 12.1. If the whole of the Premises is acquired or condemned
for any public or quasi-public use or purpose, this Lease and the Term shall end
as of the date of the vesting of title with the same effect as if said date were
the Fixed Expiration Date. If only a part of the Premises is so acquired or
condemned then, except as hereinafter provided in this Section 12.1, this Lease
and the Term shall continue in effect but, if a part of the Premises is so
acquired or condemned, from and after the date of the vesting of title, the
Fixed Rent and Additional Rent, if any, shall be reduced in the proportion which
the area of the part of the Premises so acquired or condemned bears to the total
area of the Premises immediately prior to such acquisition or condemnation. If
the part of the Premises acquired or condemned contains more than fifty percent
(50%) of the rentable square feet of the Premises or if, by reason of such
acquisition or condemnation, the Premises shall be rendered wholly or
substantially unsuitable for the Permitted Use, then either Landlord or Tenant
may terminate this Lease and the Term and estate hereby granted, by notifying
the other party in writing of such termination within one hundred twenty (120)
days after the date upon which Tenant receives Notice of vesting of title. In
the event that such Notice of termination shall be given, then this Lease and
the Term and estate hereby granted shall expire as of the date of termination
stated in said Notice, with the same effect as if that date were the Fixed
Expiration Date. In the event of any termination of this Lease and the Term
pursuant to the provisions of this Section 12.1, the Fixed Rent or Additional
Rent shall be apportioned as of the date of sooner termination and any prepaid
portion of the Fixed Rent for any period after such date shall be refunded by
Landlord to Tenant.
SECTION 12.2. In the event of any such acquisition or condemnation
of all or any part of the Premises, Landlord shall be entitled to receive the
entire award for any such acquisition or condemnation, but shall be obligated to
proceed with reasonable diligence to repair and restore the Premises, at
Landlord's expense, to a condition most suitable for the Permitted Use. Tenant
shall have no claim against Landlord or the condemning authority for the value
of any unexpired portion of the Term and Tenant hereby expressly assigns to
Landlord all of its right in and to any such award. Nothing contained in this
Section 12.2 shall be deemed to prevent Tenant from making a separate claim in
any condemnation proceedings for the value of any Tenant's Property included in
such taking, and for any moving expenses, so long as Landlord's award is not
reduced thereby.
SECTION 12.3.
(A) Notwithstanding anything to the contrary contained in Sections
12.1 and 12.2 above, in the event that:
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(1)the Landlord fails to commence any repairs, reconstruction or
restoration of the Premises within sixty (60) days after the
physical taking of a portion of the Premises; or
(2)Landlord fails complete all repairs, reconstruction or
restoration of the Premises within one hundred twenty (120) days
after the date of such physical taking,
then, as a result of any circumstances described in subparagraphs (1) or (2)
hereof, the Tenant, at Tenant's option, may terminate this Lease and the term
and estate hereby granted, by notifying the Landlord in writing of such
termination within thirty (30) days after the passage of the times periods in
subparagraphs (1) and (2) above. In the event that such a Notice of termination
shall be given, then this Lease and the term and estate hereby granted shall
expire as of the date of termination stated in said Notice with the same effect
as if that date were the Fixed Expiration Date, and the Fixed Rent and
Additional Rent hereunder shall be apportioned as of such date. Notwithstanding
the termination of this Lease as provided in this Subsection 12.3(A) Landlord
shall be obligated to reimburse to Tenant a portion of the cost of any
Maintenance Repair or Requirement Alterations to the extent required by Section
7.1 above.
ARTICLE 13
ASSIGNMENT; SUBLETTING; MORTGAGE; ETC.
SECTION 13.1.
(A) The Tenant shall not: (i) assign this Lease; or (ii) mortgage or
encumber Tenant's interest in this Lease, in whole or in part; or (iii)
sublet, or permit the subletting of, the Premises or any part thereof
without the prior consent of Landlord. Notwithstanding the provisions of
this Section 13.1, the use of the Premises by any Person AFFILIATED (as
such term is hereinafter defined) with the Tenant or under the COMMON
CONTROL (as such term is hereinafter defined) of Comfort Systems USA,
Inc., as the case may be, shall not be deemed an assignment of this Lease
or a sublet of the Premises, provided Tenant is not in default and remains
fully obligated pursuant to the terms and conditions of this Lease. For
purposes of this Article 13, a Person shall be deemed to be an "affiliate"
of the Tenant or under the "common control" of Comfort Systems USA, Inc.,
if such Person is a member of a "parent-subsidiary controlled group" as
such term is defined by Section 1563(a)(1) of the Internal Revenue Code of
1986, as amended or a member of a "brother-sister controlled group" as
such term is defined by Section 1563(a)(2) of the Internal Revenue Code of
1986, as amended of which either Comfort Systems USA, Inc. or the Tenant,
as the case may be, is a member.
(B) Notwithstanding the provisions otherwise set forth in this
Article 13, no reorganization, consolidation and/or restructuring of the
Tenant or the sale or transfer of any of its stock shall be deemed an
assignment of this Lease or a sublet of the Premises, provided that the
surviving entity resulting from such reorganization, consolidation and/or
restructuring remains fully obligated pursuant to the terms and conditions
of this Lease as Tenant.
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SECTION 13.2. If Tenant's interest in this Lease shall be assigned
in violation of the provisions of this Article 13, such assignment shall be
invalid and of no force and effect against Landlord. If the Premises or any part
thereof are sublet to, or occupied by, or used by, any person other than Tenant,
whether or not in violation of this Article 13, Landlord, may collect an amount
equal to the then Fixed Rent plus any other items of Rental or other sums paid
by the subtenant, user or occupant as a fee for its use and occupancy, and shall
apply the net amount collected to the Fixed Rent and the other items of Rental
reserved in this Lease. No such assignment, subletting, occupancy, or use, nor
any such collection or application of Rental or fee for use and occupancy, shall
be deemed a waiver by Landlord of any term, covenant or condition of this Lease
or the acceptance by Landlord of such assignee, subtenant, occupant or user as
Tenant hereunder, nor shall the same, in any circumstances, relieve Tenant of
any of its obligations under this Lease.
ARTICLE 14
ACCESS TO PREMISES
SECTION 14.1. Landlord or Landlord's agents shall have the right to
enter the Premises at all reasonable times during Tenant's regular business
hours upon (except in case of emergency) reasonable prior notice, which notice
may be oral, to examine the same, to show the same to prospective purchasers or
Mortgagees and to make such repairs, alterations, improvements or additions: (i)
as Landlord may deem necessary or required under the terms of the Lease; or (ii)
which Landlord may elect to perform at least twenty (20) days after notice
(except in an emergency when no notice shall be required) following Tenant's
failure to make repairs or perform any work which Tenant is obligated to make or
perform under this Lease, and Landlord shall be allowed to take all material
into and upon the Premises that may be required therefor without the same
constituting an eviction or constructive eviction of Tenant in whole or in part
and except as herein provided the Fixed Rent (and any other item of Rental)
shall in no respect abate or be reduced by reason of said repairs, alterations,
improvements or additions, wherever located, or while the same are being made,
by reason of loss or interruption of business of Tenant, or otherwise. Landlord
shall promptly repair any damage caused to the Premises or Tenant's Property by
such work, alterations, improvements or additions. In all events, Landlord shall
use its best efforts not to interfere with or obstruct Tenant's business
activities on or in the Premises during any entry.
ARTICLE 15
CERTIFICATE OF OCCUPANCY
SECTION 15.1. Landlord represents and warrants to Tenant that use
and occupancy of the Premises for the Permitted Uses shall not violate the
certificate of occupancy for the Premises or any Requirement. Tenant shall not
at any time, now or hereafter, use or occupy the Premises, directly or
indirectly, in violation of the certificate of occupancy for the Premises and in
the event that any Governmental Authority hereafter contends or declares by
notice, order or in any other manner whatsoever that the Premises are used for a
purpose that is not included in the Permitted Uses and is a violation of such
certificate of occupancy, Tenant shall, upon three (3) Business Days' written
Notice from Landlord or any Government Authority, immediately discontinue such
use of the Premises.
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ARTICLE 16
DEFAULT
SECTION 16.1. Each of the following events shall be an "Event of
Default" under this Lease:
(A) if Tenant shall on any occasion default in the payment when due
of any installment of Fixed Rent or Additional Rent or in the payment when
due of any other item of Rental and such default shall continue for ten
(10) days from and after the date on which Landlord gives Tenant written
Notice specifying such default; or
(B)(1) if Tenant shall not, or shall be unable to, or shall admit in
writing Tenant's inability to, as to any obligation, pay Tenant's debts as
they become due; or
(B)(2) if Tenant shall commence or institute any case, proceeding or
other action (a) seeking relief on Tenant's behalf as debtor, or to
adjudicate it a bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, winding-up, liquidation, dissolution, composition
or other relief with respect to Tenant or Tenant's debts under any
existing or future law of any jurisdiction, domestic or foreign, relating
to bankruptcy, insolvency, reorganization or relief of debtors, or (b)
seeking appointment of a receiver, trustee, custodian or other similar
official for it or for all or any substantial part of its property; or
(B)(3) if Tenant shall make a general assignment for the benefit of
creditors; or
(B)(4) if any case, proceeding or other action shall be commenced or
instituted against Tenant (a) seeking to have an order for relief entered
against Tenant as debtor or to adjudicate Tenant a bankrupt or insolvent,
or seeking reorganization, arrangement, adjustment, winding-up,
liquidation, dissolution, composition or other relief with respect to
Tenant or Tenant's debts under any existing or future law of any
jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, or (b) seeking appointment of a
receiver, trustee, custodian or other similar official for Tenant or for
all or any substantial part of Tenant's property, which either: (i)
results in any such entry of an order for relief, adjudication of
bankruptcy or insolvency or such an appointment or the issuance or entry
of any other order having a similar effect; or (ii) remains undismissed
for a period of sixty (60) days; or
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(B)(5) if a trustee, receiver or other custodian shall be appointed
for any substantial part of the assets of Tenant which appointment is not
vacated or effectively stayed within ninety (90) days; or
(C) if Tenant shall default in the observance or performance of any
other term, covenant or condition of this Lease on Tenant's part to be
observed or performed, and Tenant shall fail to remedy such default within
thirty (30) days after written Notice by Landlord to Tenant of such
default, or if such default is of such a nature that it cannot with due
diligence be completely remedied within said period of thirty (30) days,
if Tenant shall not: (i) duly institute within said thirty (30) day
period; and (ii) thereafter diligently and continuously prosecute to
completion all steps necessary to remedy the same.
SECTION 16.2. If an Event of Default shall occur, Landlord may, at
any time thereafter, at Landlord's option, give written Notice to Tenant stating
that this Lease and the Term shall expire and terminate on the date specified in
such Notice, which date shall not be less than ten (10) days after the giving of
such Notice, whereupon this Lease and the Term and all rights of Tenant under
this Lease shall automatically expire and terminate as if the date specified in
the Notice given pursuant to this Section 16.2 were the Fixed Expiration Date
and Tenant thereafter shall quit and surrender the Premises, but Tenant shall
remain liable for damages as provided herein or pursuant to law. Anything
contained herein to the contrary notwithstanding, if such termination shall be
stayed by order of any court having jurisdiction over any proceeding described
in Section 16.1(B), or by federal or state statute, then, following the
expiration of any such stay, or if the trustee appointed in any such proceeding,
Tenant or Tenant as debtor-in-possession fails to assume Tenant's obligations
under this Lease within the period prescribed therefor by law or within one
hundred twenty (120) days after entry of the order for relief or as may be
allowed by the court, or if said trustee, Tenant or Tenant as
debtor-in-possession shall fail to provide adequate protection of Landlord's
right, title and interest in and to the Premises or adequate assurance of the
complete and continuous future performance of Tenant's obligations under this
Lease, Landlord, to the extent permitted by law or by leave of the court having
jurisdiction over such proceeding, shall have the right, at its election, to
terminate this Lease on ten (10) days' Notice to Tenant, Tenant as
debtor-in-possession or said trustee and upon the expiration of said ten (10)
day period this Lease shall cease and expire as aforesaid and Tenant, Tenant as
debtor-in-possession or said trustee shall thereafter quit and surrender the
Premises as aforesaid.
SECTION 16.3. If, at any time: (i) Tenant shall consist of two (2)
or more Persons; or (ii) Tenant's obligations under this Lease shall have been
guaranteed by any Person other than Tenant; or (iii) Tenant's interest in this
Lease has been assigned, the word "Tenant" as used and referred to in this
Lease, shall be deemed to mean any one or more of the persons primarily or
secondarily liable for Tenant's obligations under this Lease. Any monies
received by Landlord from or on behalf of Tenant during the pendency of any
proceeding of the types referred to in Section 16.1(B) hereof shall be deemed
paid as compensation for the use and occupancy of the Premises and the
acceptance of any such compensation by Landlord shall not be deemed an
acceptance of Rental or a waiver on the part of Landlord of any rights under
Section 16.2 hereof.
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SECTION 16.4. In the event of any default by Landlord hereunder,
except as otherwise provided herein, Tenant will give Landlord written notice
specifying such default with particularity, and Landlord shall thereupon have
thirty (30) days in which to cure such default or to commence to cure such
default if any such default cannot be reasonably cured within such 30-day
period, in which event Landlord shall prosecute such cure with diligence to a
conclusion. Unless and until Landlord fails to so cure or proceed with diligence
to cure any default after such notice, Tenant shall not have any remedy or cause
of action by reason thereof.
If Landlord is in default hereunder, and fails to cure the same timely, in
addition to any and all other rights, remedies and recourses available to
Tenant, Tenant may undertake to cure such default on behalf of Landlord, and
thereupon Landlord agrees to pay Tenant, upon demand, all costs, expenses and
disbursements (including reasonable attorneys' fees) incurred by Tenant in
taking such remedial actions with interest thereon at the Applicable Rate. In
addition to the foregoing, Tenant shall also have the same rights granted to
Landlord under Section 17.1(B) relating to injunctive or equitable relief. The
right to invoke the remedies hereinbefore set forth are cumulative and shall not
preclude Tenant from invoking any other remedy allowed at law or in equity.
ARTICLE 17
REMEDIES AND DAMAGES
SECTION 17.1.
(A) If any Event of Default shall occur, or this Lease and the Term
shall expire and come to an end as provided in Article 16 hereof:
(1)Tenant shall quit and peacefully surrender the Premises to
Landlord, and Landlord and its agents may, after the date upon which
this Lease and the Term shall expire and come to an end, re-enter
the Premises or any part thereof, without Notice, either by summary
proceedings, or by any other applicable action or proceeding or
otherwise, and may repossess the Premises and dispossess Tenant and
any other persons from the Premises by summary proceedings or
otherwise and remove any and all of their property and effects from
the Premises (and Tenant shall remain liable for damages as provided
herein or pursuant to law); and
(2)Landlord, at Landlord's option, may relet the whole or any
part or parts of the Premises from time to time, either in the name
of Landlord or otherwise, to such tenant or tenants, for such term
or terms ending before, on or after the Fixed Expiration Date, at
such rent or rentals and upon such other conditions, which may
include concessions and free rent periods, as Landlord may
determine; provided, however, that Landlord shall exercise
reasonable efforts to mitigate any damages related to liability of
Tenant under this Lease.
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(B) In the event of a breach or threatened breach by Tenant, or any
persons claiming through or under Tenant, of any term, covenant or
condition of this Lease, Landlord shall have the right to enjoin such
breach.
SECTION 17.2.
(A) If this Lease and the Term shall expire and come to an end as
provided in Article 2 hereof, or by or under any summary proceeding or any
other action or proceeding, or if Landlord shall re-enter the Premises as
provided in Section 17.1 hereof, or by or under any summary proceeding or
any other action or proceeding, then, in any of said events:
(1)Tenant shall pay to Landlord all Fixed Rent, Additional Rent
and other items of Rental payable under this Lease by Tenant to
Landlord to the date upon which this Lease and the Term shall have
expired and come to an end or to the date of re-entry upon the
Premises by Landlord, as the case may be;
(2)if Landlord has not terminated the Lease, but only Tenant's
right of possession to the Premises, Tenant also shall be liable for
and shall pay to Landlord, as damages, any deficiency ("Deficiency")
between the Rental for the period which is the unexpired portion of
the Term and the net amount, if any, of rents collected under any
reletting effected pursuant to the provisions of Section 17.1(A)(2)
for any part of such period (after first deducting from the rents
collected under any such reletting all of Landlord's reasonable and
actual expenses in connection with the termination of Tenant's right
of possession, Landlord's re-entry upon the Premises and such
reletting including, but not limited to, all repossession costs,
brokerage commissions, attorneys' fees and disbursements, alteration
costs and other expenses of preparing the Premises for such
reletting, to the extent the same are allocable to the remaining
Term); any such Deficiency shall be paid in monthly installments by
Tenant on the days specified in this Lease for payment of
installments of Fixed Rent; Landlord shall be entitled to recover
from Tenant each monthly Deficiency as the same shall arise, and no
suit to collect the amount of the Deficiency for any month shall
prejudice Landlord's right to collect the Deficiency for any
subsequent month by a similar proceeding; and
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(3)alternatively, if Landlord has terminated the Lease, Landlord
shall be entitled to recover from Tenant, and Tenant shall pay to
Landlord, on demand, and as and for liquidated and agreed final
damages, a sum equal to the amount by which the present value
(calculated using the Base Rate as the discount rate) of the unpaid
Rental for the period which otherwise would have constituted the
unexpired portion of the Term exceeds the present value (calculated
using the Base Rate as the discount rate) of the then fair and
reasonable rental value of the Premises for the same period, taking
into consideration reasonable costs incurred to relet the Premises;
if, before presentation of proof of such liquidated damages to any
court, commission or tribunal, the Premises, or any part thereof,
are relet by Landlord on a fair and arms-length basis for the period
which otherwise would have constituted the unexpired portion of the
Term, or any part thereof, the amount of rent reserved upon such
reletting shall be deemed, prima facie, to be the fair and
reasonable rental value for the part or the whole of the Premises so
relet during the term of the reletting.
(B) Tenant shall in no event be entitled to any rents collected or
payable under any reletting, whether or not such rents exceed the Fixed
Rent reserved in this Lease. Nothing contained in this Article 17 shall be
deemed to limit or preclude the recovery by Landlord from Tenant of the
maximum amount allowed to be obtained as damages by any statute or rule of
law, or of any sums or damages to which Landlord may be entitled in
addition to the damages set forth in this Section 17.2.
ARTICLE 18
FEES AND EXPENSES
SECTION 18.1. If an Event of Default shall have occurred by Tenant
or Landlord has defaulted on its obligations on this Lease and the same is not
cured within any applicable cure period, the non-defaulting party may (1)
perform any term, covenant or condition of this Lease for the account of the
defaulting party, or (2) make any expenditure or incur any obligation for the
payment of money in connection with any obligation owed to the non-defaulting
party, including, but not limited to, reasonable attorneys' fees and
disbursements in instituting, prosecuting or defending any action or proceeding,
and in either case the cost thereof, with interest thereon at the Applicable
Rate, shall be paid by the defaulting party to the non-defaulting party within
twenty (20) days after rendition of any bill or statement therefor.
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ARTICLE 19
END OF TERM
SECTION 19.1. Upon the expiration or other termination of this
Lease, Tenant shall quit and surrender to Landlord the Premises, vacant, broom
clean, in good order and condition, ordinary wear and tear and damage by fire or
other casualty or by condemnation excepted, and Tenant shall remove all of
Tenant's Property and all other personal property and personal effects of all
persons claiming through or under Tenant, and shall pay the cost of repairing
all damage to the Premises occasioned by such removal.
SECTION 19.2. If the Premises are not surrendered upon the
expiration or other termination of this Lease and all Tenant Property removed as
provided above, Tenant shall be deemed to be occupying the Premises as a tenant
at will, and after sixty (60) days written notice from Landlord, such continued
occupancy will be at a rental equal to the Fixed Rent herein provided plus fifty
percent (50%) of such amount and otherwise subject to all the conditions,
provisions and obligations of this Lease insofar as the same are applicable to a
tenancy at will.
SECTION 19.3. Tenant's obligations under this Article 19 shall
survive the expiration or termination of this Lease.
ARTICLE 20
NOTICES
SECTION 20.1.
(A) Except as otherwise expressly provided in this Lease, any bills,
statements, consents, notices, demands, requests or other communications
given or required to be given under this Lease ("Notice(s)") shall be in
writing and shall be deemed sufficiently given or rendered if delivered by
hand (against a signed receipt) or if deposited with a nationally
recognized overnight courier or if deposited in the United States mail,
and sent by first class mail, certified, return receipt requested with
postage prepaid, and in any case addressed:
IF TO TENANT:
(i) at Tenant's address first set forth in this Lease and (ii) to
the Premises, and
WITH A COPY TO:
Comfort Systems USA, Inc.
777 Post Oak Boulevard, Suite 500
Houston, TX 77056
Attention: General Counsel
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IF TO LANDLORD:
Mark P. Shambaugh
2233 East Cedar Canyons Road
Fort Wayne, IN 46845
WITH A COPY TO:
N. Reed Silliman, Esq.
Baker & Daniels
111 East Wayne Street, Suite 800
Fort Wayne, IN 46802
and any Mortgagee who may have requested the same, by Notice given
in accordance with the provisions of this Article 20, at the address
designated by such Mortgagee, or to such other address(es) as either
Landlord or Tenant may designate as its new address(es) for such
purpose by Notice given to the other in accordance with the
provisions of this Article 20.
(B) Notices shall be deemed to have been rendered or given (a) on
the date delivered, if delivered by hand, (b) on the day after being
deposited with a nationally recognized overnight courier or (c) five (5)
days after deposit in the United States mail, as provided in Section
20.1(A) hereof.
ARTICLE 21
INDEMNITY
SECTION 21.1. Tenant shall not do or permit any act or thing to be
done in, at or upon the Premises that may subject any Indemnitee to any
liability or responsibility for injury, damage to persons or property or to any
liability by reason of the existence or application of, compliance with or
violation of any Requirement, but shall exercise such control over the Premises
as to protect each Indemnitee fully against any such liability and
responsibility. Tenant shall indemnify and save harmless the Indemnitees from
and against (a) all claims against the Indemnitees arising from any accident,
injury or damage whatsoever caused to any person or to the property of any
person and occurring in, on or about the Premises during the Term or during
Tenant's occupancy of the Premises, unless, and to the extent not, caused by the
negligent or intentional misconduct of Landlord, and (b) any breach, violation
or non-performance of any covenant, condition or agreement contained in this
Lease to be fulfilled, kept, observed and performed by Tenant. This indemnity
and hold harmless agreement shall include indemnity from and against any and all
liability, claims, fines, suits, demands, costs and expenses of any kind or
nature (including, without limitation, attorneys' fees and disbursements)
incurred in or in connection with any such claim or proceeding brought thereon,
and the defense thereof. If any claim, action or proceeding is made or brought
against any Indemnitee, against which claim, action or proceeding Tenant is
obligated to indemnify such Indemnitee pursuant to the terms of this Lease,
then, upon demand by the Indemnitee, Tenant, at its sole cost and expense, shall
contest or defend such claim, action or proceeding in the Indemnitee's name, if
necessary, by such attorneys as the Indemnitee may select, including, without
limitation, attorneys for the Indemnitee's insurer. The provisions of this
Article 21 shall survive the expiration or earlier termination of this Lease.
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SECTION 21.2. Landlord shall indemnify and save harmless the Tenant
and the other Tenant Indemnitees from and against (a) all claims against the
Tenant Indemnitees arising from any accident, injury or damage whatsoever caused
to any person or the property of any person and occurring in, on or about the
Premises during the Term or during Tenant's occupancy of the Premises to the
extent caused by the negligent or intentional misconduct of Landlord and (b) any
breach, violation or nonperformance of any covenant, condition or agreement
contained in this Lease to be fulfilled, kept, observed and performed by
Landlord. This indemnity and hold harmless shall include indemnity from and
against any and all liability, claims, fines, suits, demands, costs and expenses
of any kind or nature (including, without limitation, attorneys' fees and
disbursements) incurred in or in connection with any such claim or proceeding
brought thereon, and the defense thereof. If any claim, action or proceeding is
made or brought against any Tenant Indemnitee, against which claim, action or
proceeding Landlord is obligated to indemnify such Tenant Indemnitee pursuant to
the terms of this Lease, then, upon demand by the Tenant Indemnitee, Landlord at
its sole cost and expense shall contest or defend such claim, action or
proceeding in the Tenant Indemnitee's name, if necessary, by such attorneys as
the Tenant Indemnitee may select, including without limitation attorneys for the
Indemnitee's insurer. The provisions of this Article 21 shall survive the
expiration or earlier termination of this Lease.
ARTICLE 22
RENEWAL OPTIONS
SECTION 22.1. Provided that there is no Event of Default at the time
the Option (as such term is hereinafter defined) is to be exercised, the Tenant
shall have the option to renew this Lease for one (1) additional five (5) year
period as follows:
OPTION PERIOD shall commence on the tenth (10th) anniversary of the
Commencement Date and shall continue up to and including the day before
the fifteenth (15th) anniversary of the Commencement Date,
the aforementioned option period is referred to herein as the
"Option Period".
SECTION 22.2. The Option granted to the Tenant pursuant to the
provisions of Section 22.1 hereof shall be exercised by the Tenant giving
written Notice to the Landlord of the Tenant's intent to exercise the Option not
less than one-hundred twenty (120) days prior to the expiration of the Initial
Term.
SECTION 22.3. In the event that the Tenant exercises the Option, the
Landlord and the Tenant hereby agree that this Lease shall continue in full
force and effect and remain unamended during the Option Period, except that the
Fixed Rent payable by the Tenant to the Landlord during such Option Period shall
continue to be increased annually in accordance with the provisions of Rider 1
hereof.
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ARTICLE 23
COVENANT OF QUIET ENJOYMENT
SECTION 23.1. Landlord covenants that, upon Tenant paying all Fixed
Rent and Additional Rent and observing and performing all of the terms,
agreements, covenants, provisions and conditions of this Lease on Tenant's part
to be observed and performed, Tenant may peaceably and quietly enjoy the
Premises.
ARTICLE 24
MISCELLANEOUS
SECTION 24.1. The obligations of Landlord under this Lease shall be
binding upon Landlord named herein after the sale, conveyance, assignment or
transfer by such Landlord (or upon any subsequent landlord after the sale,
conveyance, assignment or transfer by such subsequent landlord) of its interest
in the Premises, as the case may be, and in the event of any such sale,
conveyance, assignment or transfer, Landlord shall be freed and relieved of any
of the covenants and obligations of Landlord under this Lease thereafter
arising, upon the date that the transferee shall have assumed, in writing, for
the benefit of Tenant, all obligations of the Landlord under this Lease arising
after the effective date of the transfer.
SECTION 24.2. Notwithstanding anything contained in this Lease to
the contrary, all amounts payable by Tenant to or on behalf of Landlord under
this Lease, whether or not expressly denominated Fixed Rent, Additional Rent or
Rental, shall constitute rent for the purposes of Section 502(b)(7) of the
Bankruptcy Code.
SECTION 24.3. Upon the request of either party, the other will
execute and deliver a mutually acceptable memorandum of this Lease in recordable
form.
SECTION 24.4. Except as otherwise provided specifically herein, any
consent or approval required to be obtained from Landlord or Tenant under this
Lease shall not be unreasonably withheld, conditioned or delayed.
SECTION 24.5. Landlord represents and warrants to Tenant that
Landlord has full power and authority to enter into this Lease without the
consent of any other parties, including any Mortgagees. Tenant and the person
executing this Lease on behalf of Tenant hereby covenant and warrant that: (i)
Tenant is now and shall remain throughout the term of this Lease a duly
organized and validly existing corporation qualified to do business in the State
of Indiana; and (ii) the persons executing this Lease on behalf of Tenant are
duly authorized to do so by all necessary corporate action.
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SECTION 24.6. If any words or phrases in this Lease are stricken out
or otherwise eliminated, whether or not any other words or phrases have been
added, this Lease shall be construed as if the words or phrases so stricken out
or otherwise eliminated were never included in this Lease and no implication or
inference shall be drawn from the fact that such words or phrases were stricken
out or otherwise eliminated.
SECTION 24.7. If any of the provisions of this Lease, or the
application thereof to any person or circumstance, shall, to any extent, be
invalid or unenforceable, the remainder of this Lease, or the application of
such provisions to persons or circumstances other than those as to whom or which
it is held invalid or unenforceable, shall not be affected thereby and shall
remain valid and enforceable, and every provision of this Lease shall be valid
and enforceable to the fullest extent permitted by law.
SECTION 24.8. This Lease contains the entire agreement between the
parties and all prior negotiations and agreements are merged into this Lease.
This Lease may not be changed, abandoned or discharged, in whole or in part, nor
may any of its provisions be waived except by a written agreement that (a)
expressly refers to this Lease, and (b) is executed by the party against whom
enforcement of the change, abandonment, discharge or waiver is sought.
SECTION 24.9. The laws of the State of Indiana applicable to
contracts made and to be performed wholly within the State of Indiana shall
govern and control the validity, interpretation, performance and enforcement of
this Lease without regard to principles of conflicts of law.
SECTION 24.10. The captions are inserted only as a matter of
convenience and for reference and in no way define, limit or describe the scope
of this Lease nor the intent of any provision thereof.
SECTION 24.11. The covenants, conditions and agreements contained in
this Lease shall bind and inure to the benefit of Landlord and Tenant and their
respective legal representatives, heirs, successors, and, except as otherwise
provided in this Lease, their assigns.
SECTION 24.12. Tenant acknowledges and agrees that the liability of
Landlord under this Lease shall be limited to Landlord's interest in the
Premises, and any judgments rendered against Landlord shall be satisfied solely
out of the proceeds of the sale of Landlord's interest in the Premises. The
foregoing provision is not intended to relieve Landlord from the performance of
any of Landlord's obligations under this Lease, but only to limit the personal
liability of Landlord in the case of a recovery of a judgment against Landlord;
nor shall the foregoing be deemed to limit Tenant's rights to injunctive relief
or to avail itself of any other right or remedy which may be awarded Tenant by
law or under this Lease.
SECTION 24.13. For the purposes of this Lease and all agreements
supplemental to this Lease, unless the context otherwise requires:
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(A) The words "herein", "hereof", "hereunder" and "hereby" and words
of similar import shall be construed to refer to this Lease as a whole and
not to any particular Article or Section unless expressly so stated.
(B) Obligations hereunder shall be construed in every instance as
conditions as well as covenants, each separate and independent of any
other terms of this Lease.
(C) Reference to "termination of this Lease" or "expiration of this
Lease" and words of like import includes expiration or sooner termination
of this Lease and the Term and the estate hereby granted or cancellation
of this Lease pursuant to any of the provisions of this Lease or by law.
Upon the termination of this Lease, the Term and estate granted by this
Lease shall end at noon on the date of termination as if such date were
the Fixed Expiration Date, and neither party shall have any further
obligation or liability to the other after such termination except: (i) as
shall be expressly provided for in this Lease; and (ii) for such
obligations as by their nature under the circumstances can only be, or by
the provisions of this Lease, may be, performed after such termination,
and, in any event, unless expressly otherwise provided in this Lease, any
liability for a payment (which shall be apportioned as of such
termination) which shall have accrued to or with respect to any period
ending at the time of termination shall survive the termination of this
Lease.
(D) Words and phrases used in the singular shall be deemed to
include the plural and vice versa, and nouns and pronouns used in any
particular gender shall be deemed to include any other gender.
IN WITNESS WHEREOF, Landlord and Tenant have duly executed this
Lease as of the day and year first above written.
/s/
-----------------------------------------
MARK P. SHAMBAUGH
"Landlord"
SHAMBAUGH & SON, INC.,
an Indiana Corporation
By: /s/
------------------------------------
Printed: KEVIN L. BEACH
Its: V.P./SEC'Y.
"Tenant"
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RIDER 1
INCREASES IN FIXED RENT
SECTION 1. For purposes of the Lease:
(A) "Bureau" means the Federal Bureau of Labor Statistics or any
successor agency that shall issue the indices or data referred to in
subparagraph (ii) below.
(B) "Price Index" means the Consumer Price Index for All Urban
Consumers for the Fort Wayne, Indiana geographic area, 1982-1984=100,
issued from time to time by the Bureau or any other successor measure
hereafter employed by the Bureau in lieu of such price index that measures
the cost of living for such geographic area or failing such successor, the
most nearly comparable index (reflecting changes in costs of housing
including rental housing, energy and services), published by a
Governmental Authority, appropriately adjusted. Furthermore, if hereafter
the Price Index is converted to a different standard reference base or a
substantial change is made in the terms or number of items contained
therein, the Price Index shall be adjusted (with the use of such
conversion factor, formula or table as is published by the Bureau, or if
it shall not publish same, the conversion factor published by Prentice
Hall, Inc., or, failing such publication, by any other nationally
recognized publisher of similar statistical information) to the figure
that would have resulted if not for such conversion or change.
(C) "Base Index" means the Price Index issued for December 31, 1998.
(D) "Applicable Price Index" for a Lease Year means the Price Index
most recently issued prior to the date on which such Lease Year commences.
SECTION 2.
(A) Tenant shall pay to Landlord the Fixed Rent in the amount set
forth in Article 1 of this Lease for the first Lease Year.
(B) Beginning after the end of the first Lease Year, and for each
and every Lease Year thereafter, the Tenant shall pay to the Landlord, as
Fixed Rent, an amount equal to the GREATER of:
(1) an amount equal to the sum of (x) the percentage by which
the Applicable Price Index for such Lease Year exceeds the
Applicable Price Index for the immediately preceding Lease Year,
multiplied by the Fixed Rent payable for such immediately preceding
Lease Year and (y) such Fixed Rent payable for the immediately
preceding Lease Year (e.g., if the Base Index is 200, the Applicable
Price Index for the second Lease Year is 203, the Applicable Price
Index for the third Lease Year is 215, and the Fixed Rent payable
for the second Lease Year is $50,000.00, then the Applicable Price
Index for the third Lease Year exceeds the Applicable Price Index
for the second Year by 5.91% (i.e., the difference between 203 and
215), and the Fixed Rent derived from the aforesaid calculation
shall be $52,955.75 (5.91% of $50,000.00, which is $2,955.00, plus
$50,000.00); or
<PAGE>
(2) an amount equal to the Fixed Rent for the immediately
preceding Lease Year.
The Landlord and the Tenant hereby acknowledge that it is the mutual intention
of the parties that for each and every Lease Year subsequent to the first Lease
Year during the Term hereof, the Fixed Rent payable by the Tenant to the
Landlord hereunder shall never be decreased from the prior Lease Year.
SECTION 3. Upon Notice by the Landlord to the Tenant of an increase in the Fixed
Rent pursuant to the provisions of this Section 3 ("Increase Notice?), the
Tenant shall pay the Fixed Rent as set forth in the Increase Notice for the
period in which the increase identified in such Notice shall apply.
<PAGE>
SCHEDULE A
LEGAL DESCRIPTION
OPPORTUNITY DRIVE
Lots 2, 3 and 4, all in Cook Road Office in Industrial Park. Section I,
according to the recorded plat thereof in plat book 47, page 132-137, and
re-recorded in plat book 48, pages 126-131, in the Office of the Recorder of
Allen County, Indiana.
EXHIBIT 10.29 TO 10-K
AGREEMENT OF LEASE
BETWEEN
MARK P. SHAMBAUGH
LANDLORD
AND
SHAMBAUGH & SON, INC.
TENANT
DATED: OCTOBER 31, 1998
PREMISES
7525 DI SALLE BLVD.
FORT WAYNE, IN 46825
<PAGE>
AGREEMENT OF LEASE ("Lease"), made as of the 31st day of October,
1998, between Mark P. Shambaugh, as Landlord, and Shambaugh & Son, Inc., an
Indiana corporation.
R E C I T A L S:
WHEREAS, the Landlord is the owner of certain premises known as and
by the street address of 7525 Di Salle Blvd., Fort Wayne, Indiana 46825 (as more
particularly described on Schedule ?A?, annexed hereto and made a part hereof);
and
WHEREAS, the Landlord desires to rent the aforementioned premises to
the Tenant and the Tenant desires to rent the aforementioned premises from the
Landlord.
NOW, THEREFORE, in consideration of the mutual promises and
covenants herein contained and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto,
for themselves, as well as their respective legal representatives, heirs,
successors and assigns, hereby agree as follows:
ARTICLE 1
GLOSSARY
For the purposes of this Lease, the following terms shall have the
meanings indicated below:
"Additional Rent" shall have the meaning set forth in Section 2.2(B)
hereof.
"Applicable Rate" shall mean the lesser of (x) three percentage
points above the then current Prime Interest rate as published, from time to
time, by the WALL STREET JOURNAL as its prime interest rate in its Money Rates
section (or if such publication no longer exists or no longer publishes such
rate, then the "base rate" as announced by Citibank, N.A. [or its successors],
from time to time, for the rate presently referred to as its "base rate") or (y)
the maximum rate permitted by applicable law.
"Bankruptcy Code" shall mean 11 U.S.C. Section 101 ET SEQ., or any
statute, federal or state, of similar nature and purpose, now or hereafter.
"Building Systems" shall mean the mechanical, electrical, sanitary,
heating, air conditioning, ventilating, elevator, plumbing, life-safety and
other service or support systems of any nature whatsoever located at or on the
Premises, BUT shall not include installations made by Tenant or fixtures or
appliances (regardless of whether or not such fixtures or appliances are owned
by the Tenant or the Landlord).
"Building Insurance" shall have the meaning set forth in Section
10.2 hereof.
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"Business Days" shall mean all days, excluding Saturdays, Sundays
and all days observed as holidays by the State of Indiana or the federal
government.
"Commencement Date" is October 31, 1998.
"Event of Default" shall have the meaning set forth in Section 16.1
hereof.
"Expiration Date" shall mean the Fixed Expiration Date or such other
date on which the Term ends pursuant to any of the terms, conditions or
covenants of this Lease or pursuant to law.
"Fixed Expiration Date" is October 31, 2008.
"Fixed Rent" : $130,000.00 per annum ($10,833.33 per month) for the
first Lease Year (as such term is hereinafter defined) subject to adjustment
thereafter in accordance with the provisions of Rider 1 hereof.
"Government Authority" or "Government Authorities" shall mean the
United States of America, the State of Indiana, the County of Allen, the
Municipality of Fort Wayne, and/or any political subdivision thereof and any
agency, department, commission, board, bureau or instrumentality of any of the
foregoing, now existing or hereafter created, having jurisdiction over the
Premises or any portion thereof.
"Hazardous Materials" shall have the meaning set forth in Section
8.2 hereof.
"Increase Notice" shall have the meaning set forth in Section 3 of
Rider 1 attached hereto and made a part hereof.
"Indemnitees" shall mean Landlord, his agents and contractors (and
the partners, shareholders, officers, directors and employees of any of the
Landlord's agents or contractors).
"Initial Term" shall mean the ten (10) year period commencing on the
Commencement Date.
"Landlord", on the date as of which this Lease is made, shall mean
Mark P. Shambaugh, but thereafter, "Landlord" shall mean any fee owner of the
Premises.
"Lease Year" shall mean each twelve (12) month period commencing on
the Commencement Date and each anniversary of the Commencement Date.
"Mortgage(s)" Shall mean any deed of trust, trust indenture or
mortgage which may now or hereafter affect the Premises and all extensions,
supplements, amendments, modifications, consolidations, refinancings and
replacements thereof or thereto, substitutions therefor, and advances made
thereunder.
3
<PAGE>
"Mortgagee(s)" Shall mean any trustee or mortgagee or holder of a
Mortgage.
"Notice(s)" shall have the meaning set forth in Section 22.1(A)
hereof.
"Option" or "Options" shall have the meaning set forth in Section
26.1 hereof.
"Option Period" or "Option Periods" shall have the meaning set forth
in Section 26.1 hereof.
"Permitted Use" shall mean general, executive and administrative
offices, parking, machine shop, repair, and warehouse facilities in connection
with Tenant's business as a mechanical contracting and service company and uses
related thereto including the evolution of the Tenant's business consistent with
the evolution of the mechanical contracting industry in general, subject to all
applicable laws, regulations, codes and ordinances, and subject further to all
recorded restrictions, covenants and limitations affecting the Premises,
provided, however, that no recorded restrictions, covenants or limitations
impair the use of the Premises for the purposes intended by Tenant as of the
Commencement Date.
"Person(s) or Person(s)" shall mean any natural person or persons, a
partnership, a corporation and any other form of business or legal association
or entity.
"Persons Within Tenant's Control" shall mean and include Tenant, all
of Tenant's respective shareholders, directors, officers, agents, contractors,
sub-contractors, servants, employees, licensees and invitees as well as any of
the heirs, successors, representatives and assigns of any of the foregoing.
"Premises" shall mean all that certain plot, piece and parcel of
land, together with all buildings and improvements erected thereon, known as and
by the street address of 7614 and 7620 Opportunity Drive, Fort Wayne, Indiana
46801 (as more particularly described on Schedule "A", annexed hereto and made a
part hereof).
"Price Index" shall have the meaning set forth in Section 1(B) of
Rider 1 attached hereto.
"Rental" shall mean and be deemed to include Fixed Rent, Additional
Rent and any other sums payable, now or hereafter, by Tenant hereunder.
"Requirements" shall mean all present and future laws, rules,
ordinances, regulations, statutes, requirements, codes and executive orders,
extraordinary as well as ordinary, retroactive and prospective, of all
Governmental Authorities, now existing or hereafter created which affect,
directly or indirectly, the Premises and/or the maintenance, use, operation or
occupation of the Premises, and all recorded restrictions, covenants and
limitations affecting the Premises, provided, however, that no recorded
restrictions, covenants or limitations impair the use of the Premises for the
purposes intended by Tenant as of the Commencement Date.
4
<PAGE>
"Taxes" shall have the meaning set forth in Section 3.1 hereof.
"Tenant", on the date as of which this Lease is made, shall mean the
Tenant named in this Lease, but thereafter "Tenant" shall mean only the tenant
under this Lease at the time in question; provided, however, that the Tenant
named in this Lease and any and all successor tenant(s) hereunder shall not be
released and relieved from any liability hereunder in the event of any
assignment of this Lease or a sublet, in whole or in part, of the Premises.
"Tenant Indemnitees" shall mean Tenant, its agents and contractors
(and the partners, shareholders, officers, directors and employees of Tenant and
its agents and contractors).
"Tenant's Property" shall mean Tenant's movable fixtures and movable
partitions, telephone and other equipment, furniture, furnishings and other
movable items of personal property owned by the Tenant.
"Term", on the date as of which this Lease is made shall mean the
Initial Term, but thereafter shall be deemed to include any Option Period for
which the Tenant exercises its Option pursuant to the provisions of Article 26
hereof.
ARTICLE 2
DEMISE; PREMISES; TERM; RENT
SECTION 2.1. Landlord hereby leases to Tenant and Tenant hereby
hires from Landlord the Premises for the Initial Term to commence on the
Commencement Date and to end on the Fixed Expiration Date, unless earlier
terminated as provided herein and subject to the renewal options provided for in
Article 26 below.
SECTION 2.2. Commencing upon the Commencement Date, Tenant shall pay
to Landlord, in lawful money of the United States of America, without Notice or
demand, without relief from valuation and appraisement laws, by good and
sufficient check at the office of Landlord or at such other place as Landlord
may designate from time to time, the following:
(A) the Fixed Rent, as such term is defined in Article 1 hereof,
which shall be payable in equal monthly installments in advance on the
first day of each and every calendar month during the Term, and
(B) additional rent ("Additional Rent") consisting of all other sums
of money as shall become due from and be payable by Tenant hereunder.
5
<PAGE>
SECTION 2.3. If the Commencement Date is other than the first day of
a calendar month, or the Fixed Expiration Date is other than the last day of a
calendar month, Fixed Rent for such month shall be prorated on a per diem basis.
SECTION 2.4. Tenant shall pay the Fixed Rent and Additional Rent
when due without abatement, deduction, counterclaim, setoff or defense of any
nature. It is understood and agreed that the Fixed Rent to be received by
Landlord during the Term shall be net to Landlord so that this Lease shall yield
to Landlord the Fixed Rent specified herein and, accordingly, all real estate
taxes, insurance, maintenance and other expenses of any nature related to the
Premises, excluding Landlord's income taxes, shall be solely the responsibility
of Tenant unless otherwise specifically set forth herein.
ARTICLE 3
REAL ESTATE TAXES
SECTION 3.1. The Tenant covenants and agrees that it shall, within
twenty (20) days of written demand by the Landlord to the Tenant, pay to the
Landlord, as Additional Rent, any and all Taxes (as hereinafter defined) of any
nature whatsoever assessed or imposed against the Premises for each and every
Lease Year during the Term of this Lease. The Landlord hereby agrees that any
demand given by the Landlord to the Tenant pursuant to the provisions of this
Section 3.1 shall include an accurate copy of the invoice, statement, bill or
similar document issued by the relevant Governmental Authority or Governmental
Authorities, as the case may be, with respect to the Taxes for which payment is
demanded. For purposes of this Section 3.1, "Taxes" shall include, without
limitation, any and all taxes assessed against the Premises, all personal
property taxes, all ad valorem taxes and any and all other taxes assessed
against the Premises by any Governmental Authority, now or hereafter, but shall
EXCLUDE any special assessments or charges for improvements or infrastructure
effected or installed prior to the Commencement Date. With respect to Taxes for
tax periods commencing before or ending after the Term of this Lease, Tenant
shall only be obligated to pay to Landlord the pro rata portion of such Taxes
equal to the portion of such tax period falling within the Term of this Lease.
ARTICLE 4
UTILITIES
SECTION 4.1. The Tenant shall contract for in its name, and
covenants and agrees that it shall pay when due any and all charges incurred
for, any and all utilities supplied to the Premises including, without
limitation, electricity, water, heating oil and/or natural gas. Landlord
represents and warrants to Tenant that electricity, water, telephone, sewer, and
natural gas, if any, are present at and available to the Premises in quantities
sufficient for Tenant's business purposes.
SECTION 4.2. Landlord shall not be liable in any way to Tenant for
any interruption or failure of or defect in the supply or character of any
utility furnished to the Premises, now or hereafter, or for any loss, damage or
expense Tenant may sustain if either the quantity or character of any utility is
changed or is no longer suitable for Tenant's requirements, whether by reason of
any requirement, act or omission of the public utility serving the Premises or
for any other reason whatsoever. Notwithstanding the provisions of this Section
4.2, the Landlord shall be responsible for any and all actual damages suffered
by the Tenant as a result of any interruption of utility service to the extent
caused by the Landlord's gross negligence or intentional misconduct, and Rent
shall abate until such service is fully restored.
6
<PAGE>
SECTION 4.3. If any Taxes are imposed upon Landlord with respect to
any utility furnished as a service to Tenant by any Governmental Authority,
Tenant agrees that such Taxes shall be reimbursed by Tenant to Landlord upon
written demand. The Landlord hereby agrees that any demand given by the Landlord
to the Tenant pursuant to the provisions of this Section 4.3 shall include an
accurate copy of the invoice, statement, bill or similar document issued by the
relevant Governmental Authority or Governmental Authorities, as the case may be,
with respect to the Taxes for which payment is demanded.
ARTICLE 5
USE AND OCCUPANCY
SECTION 5.1. Tenant shall use and occupy the Premises for the
Permitted Use and for no other purpose of any nature whatsoever. However,
nothing contained herein shall require Tenant to operate or occupy the Premises
continuously during the Term.
ARTICLE 6
ALTERATIONS
SECTION 6.1.
(A)(1) Except as provided below, prior to making any additions,
alterations or improvements to the Premises, Tenant shall: (i) submit to
Landlord plans and specifications for approval by the Landlord (including
to the extent reasonably applicable, layout, architectural, electrical,
mechanical and structural drawings) that comply with all Requirements for
each proposed addition, alteration or improvement to the Premises, and
Tenant shall not commence any such work without first obtaining Landlord's
approval of such plans and specifications; and (ii) at Tenant's expense,
obtain all permits, approvals and certificates required by any
Governmental Authorities. Upon completion of such addition, alteration or
improvement, Tenant, at Tenant's expense, shall obtain certificates of
final approval of such addition, alteration or improvement required by any
Governmental Authority and shall furnish Landlord with copies thereof. All
additions, alterations and improvements shall be made and performed in
accordance with the plans and specifications therefor as approved by
Landlord and otherwise in accordance with all Requirements. All materials
and equipment to be incorporated in the Premises as a result thereof shall
be good quality and no such materials or equipment shall be subject to any
lien, encumbrance, chattel mortgage, title retention or security
agreement.
7
<PAGE>
(A)(2) Notwithstanding anything to the contrary contained in this
Lease, Tenant shall have the right to make any alterations, additions and
improvements to the Premises without the consent of the Landlord if and
only if: (i) the total cost of such alterations, additions or improvements
do not exceed Fifty Thousand and No/100 Dollars ($50,000.00) for any Lease
Year; and (ii) Tenant shall not remove, materially alter or otherwise
impair any structural element of the Premises or the Building System.
(A)(3) Tenant agrees that any review or approval by Landlord of any
plans and/or specifications with respect to any alteration, addition and
improvement is solely for Landlord's benefit, and without any
representation or warranty whatsoever to Tenant or any other Person with
respect to the adequacy, correctness or sufficiency thereof or with
respect to Requirements or otherwise.
(A)(4) Landlord, at Tenant's expense, and upon the request of
Tenant, shall join in any applications for any permits, approvals or
certificates required to be obtained by Tenant in connection with any
permitted alteration, addition and improvement (provided that the
provisions of the applicable Requirements shall require that Landlord join
in such application) and shall otherwise cooperate with Tenant in
connection therewith; provided, however, that Landlord shall not be
obligated to incur any cost or expense or liability in connection
therewith.
(B) All alterations, additions and improvements shall become a part
of the Premises and shall be Landlord's property from and after the
installation thereof and may not be removed or changed without Landlord's
prior written consent. All Tenant's Property shall remain the property of
Tenant and, on or before the Expiration Date or earlier end of the Term,
may be removed from the Premises by Tenant at Tenant's sole cost and
option; provided, however, that Tenant shall repair and restore in a good
and workmanlike manner any damage to the Premises caused by such removal.
The provisions of this Section 6.1(B) shall survive the expiration or
earlier termination of this Lease.
(C)(1) Any mechanic's lien filed against the Premises for work
claimed to have been done for, or materials claimed to have been furnished
to, Tenant shall be contested by appropriate judicial proceedings or shall
be canceled or discharged by Tenant, at Tenant's expense, within ninety
(90) days after such lien shall be filed and Tenant receives notice
thereof, by payment or filing of the bond required by law.
(C)(2) If Tenant shall fail to contest or discharge such mechanic's
lien within the aforesaid period, then, in addition to any other right or
remedy of Landlord, Landlord may, but shall not be obligated to, discharge
the same either by paying the amount claimed to be due or by procuring the
discharge of such lien by deposit in court or bonding.
8
<PAGE>
(C)(3) Any amount paid by Landlord for any of the aforesaid charges
and for all expenses of Landlord (including, but not limited to,
reasonable attorneys' fees and disbursements) incurred in defending any
such action, discharging said lien or in procuring the discharge of said
lien, with interest on all such amounts at the Applicable Rate, shall be
repaid by Tenant within twenty (20) days after written demand therefor,
and all amounts so repayable, together with such interest, shall be
considered Additional Rent.
(D) Tenant shall have the right, at its sole cost and expense, to
erect and maintain any exterior signs on the Premises with the prior
written consent of Landlord so long as the same comply with all applicable
Requirements. Landlord acknowledges consent to Tenant's signage in
existence as of the Commencement Date.
ARTICLE 7
REPAIRS; REPLACEMENTS; MAINTENANCE
SECTION 7.1. Except for those repairs, replacements or maintenance
required to be effected by Landlord, and further subject to the right of
reimbursement herein provided, Tenant, at Tenant's sole cost and expense, shall
take good care of the Premises and the improvements, buildings, Building
Systems, fixtures, equipment, parking lots, landscaping and appurtenances
located thereon and make all non-structural repairs, REPLACEMENTS or alterations
thereto of any nature whatsoever as and when needed to preserve them in as good
working order and condition as exists as of the Commencement Date, ordinary wear
and tear excepted, ("Maintenance Repairs") or to comply with any Requirement
("Requirement Alteration"). If Tenant shall fail, after thirty (30) days Notice
(or such shorter period as may be required because of an emergency), to commence
to make repairs, replacements or alterations required to be made by Tenant and
complete the same within a reasonable period of time thereafter exercising due
diligence, the same may be made by Landlord, at the expense of Tenant, and the
expenses thereof incurred by Landlord, with interest thereon at the Applicable
Rate, shall be paid to Landlord, as Additional Rent, within twenty (20) days
after rendition of a bill or statement therefor. Tenant shall give Landlord
prompt Notice of any defective condition known to Tenant in any Building Systems
located in, servicing or passing through the Premises. If the cost of any
Maintenance Repair or Requirement Alteration, whether structural or
non-structural, exceeds $10,000.00, and Landlord consents to such Maintenance
Repair or Requirement Alteration after prior written notice from Tenant, then
upon termination or other expiration of this Lease Landlord shall reimburse to
Tenant the pro rata portion of the cost of such Maintenance Repair or
Requirement Alterations equal to the portion of the useful life of such
Maintenance Repair or Requirement Alternations that remains after the expiration
or other termination of this Lease. The useful life of such Maintenance Repair
or Requirement Alterations shall be established by the party making such
Maintenance Repair or Requirement Alterations at the time made. Notwithstanding
anything to the contrary contained in this Section, in no event shall Tenant be
responsible for any repair, item of maintenance or replacement to the extent the
same is caused by the negligence or willful misconduct of Landlord or Landlord's
employees, contractors or agents.
9
<PAGE>
SECTION 7.2. Landlord hereby assigns all warranties and guaranty
agreements relating to the Premises and the Building Systems to Tenant during
the Term.
SECTION 7.3. Landlord hereby agrees to repair, maintain and replace
all structural portions of the Premises, including, without limitation, exterior
walls, support columns and walls, foundation and the roof in as good repair and
working order as exists as of the Commencement Date, ordinary wear and tear
excepted.
ARTICLE 8
REQUIREMENTS OF LAW
SECTION 8.1. Tenant shall not do, and shall not permit (to the
extent Tenant has control over the same) any act or thing in or upon the
Premises which will invalidate or be in conflict with the certificate of
occupancy for the Premises or violate any Requirements. Tenant shall immediately
take all action, including but not limited to, making any Requirement
Alterations necessary to comply with all Requirements which shall or may impose
any violation, order or duty upon Landlord or Tenant arising from or in
connection with the Premises, Tenant's occupancy, use or manner of use of the
Premises or any installations in the Premises, or required by reason of a breach
of any of Tenant's covenants or agreements under this Lease, whether or not such
Requirements shall now be in effect or hereafter enacted or issued, and whether
or not any work required shall be ordinary or extraordinary or foreseen or
unforeseen as of the date hereof. Landlord represents and warrants to Tenant
that as of the Commencement Date no condition exists with respect to the
Premises that will necessitate any Requirement Alteration.
SECTION 8.2. Tenant covenants and agrees that Tenant shall, at
Tenant's sole cost and expense, comply at all times with all Requirements
governing the use, generation, storage, treatment and/or disposal of any
Hazardous Materials (as defined below) in, on, under, about or from the presence
of which results from or in connection with the act or omission of Tenant or
Persons Within Tenant's Control or the breach of this Lease by Tenant or Persons
Within Tenant's Control. The term "Hazardous Materials" shall mean any
biologically or chemically active or other toxic or hazardous wastes, pollutants
or substances, including, without limitation, asbestos, PCBS, petroleum products
and by-products, substances defined or listed as "hazardous substances" or
"toxic substances" or similarly identified in or pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. ' 9601 ET
SEQ., and as hazardous wastes under the Resource Conservation and Recovery Act,
42 U.S.C. ' 6010, ET SEQ., any chemical substance or mixture regulated under the
Toxic Substance Control Act of 1976, as amended, 15 U.S.C. 2601, ET SEQ., any
"toxic pollutant" under the Clean Water Act, 33 U.S.C. ' 466 ET SEQ., as
amended, any hazardous air pollutant under the Clean Air Act, 42 U.S.C. ' 7401
ET SEQ., hazardous materials identified in or pursuant to the Hazardous
Materials Transportation Act, 49 U.S.C. ' 1802, ET SEQ., and any hazardous or
toxic substances or pollutant regulated under any other Requirements. Tenant
shall indemnify and hold harmless all Indemnitees from and against any loss,
claim, cost, damage, liability or expense (including attorneys' fees and
disbursements) arising by reason of any clean up, removal, remediation,
detoxification action or any other activity required or recommended of any
Indemnitees by any Governmental Authority by reason of the presence in, on,
under or about the Premises of any Hazardous Materials, as a result of or in
connection with the act or omission of Tenant or Persons Within Tenant's Control
or the breach of this Lease by Tenant or Persons Within Tenant's Control.
Landlord shall indemnify and hold harmless all Tenant Indemnitees from and
against any loss, claim, cost, damage, liability or expense (including
attorneys' fees and disbursements) arising by reason of any clean up, removal,
remediation, detoxification action or any other activity required or recommended
of any Tenant Indemnitees by any Governmental Authority by reason of the
presence in, on, under or about the Premises of any Hazardous Materials either
in existence on the Commencement Date or that come to exist thereafter that are
not the result of or in connection with the act or omission of Tenant or Persons
Within Tenant's Control or the breach of this Lease by Tenant or Persons Within
Tenant's Control. The foregoing covenants and indemnities shall survive the
expiration or any termination of this Lease.
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<PAGE>
SECTION 8.3. Landlord represents and warrants to Tenant that as of
the date hereof Landlord has no notice of the presence, generation, storage,
disposal or other use of Hazardous Materials on, in or under the Premises prior
to the date hereof or any violation of any violation of any applicable
Requirements relating to Hazardous Materials.
SECTION 8.4. If Tenant shall receive notice of any violation of or
defaults under, any Requirements, liens or other encumbrances applicable to the
Premises, Tenant shall give immediate written Notice thereof to Landlord.
SECTION 8.5. If any governmental license or permit shall be required
for the proper and lawful conduct of Tenant's business and if the failure to
secure such license or permit would, in any way, affect Landlord or the
Premises, then Tenant, at Tenant's expense, shall promptly procure and
thereafter maintain, submit for inspection by Landlord, and at all times comply
with the terms and conditions of, each such license or permit.
ARTICLE 9
SUBORDINATION
SECTION 9.1. This Lease shall at all times, now and hereafter, be
subject and subordinate to each and every Mortgage, whether made prior to or
after the execution of this Lease, and to all extensions, supplements,
amendments, modifications, consolidations and replacements thereof or thereto,
substitutions therefor, and advances made thereunder, provided that the
Mortgagee confirms and accepts the provisions of Section 9.5 below. This clause
shall be self-operative and no further agreement of subordination shall be
required to make the interest of any Mortgagee superior to the interest of
Tenant hereunder. In confirmation of such subordination, Tenant shall promptly
execute and deliver, at its own cost and expense, any document, in recordable
form if requested, that Landlord or any Mortgagee may request to evidence such
subordination; and if Tenant fails to execute, acknowledge or deliver any such
document within twenty (20) days after request therefor, Tenant hereby
irrevocably constitutes and appoints Landlord as Tenant's attorney-in-fact,
coupled with an interest, to execute, acknowledge and deliver any such document
for and on behalf of Tenant.
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SECTION 9.2. The subordination set forth in Section 9.1 above is
subject to the written agreement (a "Non-Disturbance Agreement") by any
Mortgagee or any other person to whom Tenant may be required to attorn, that so
long as Tenant is in compliance with the terms of this Lease, Tenant's use and
occupancy of the Premises shall not be disturbed, and that all provisions of the
Lease shall be given effect, including those related to the application of any
proceeds of insurance. Landlord shall cause each Mortgagee, whether pursuant to
a Mortgage now existing or hereafter arising, to execute and deliver to Tenant a
Non-Disturbance Agreement, subject to the terms of the preceding sentence, in a
form acceptable to such Mortgagee.
ARTICLE 10
INSURANCE; PROPERTY LOSS OR DAMAGE; REIMBURSEMENT
SECTION 10.1.
(A) Neither Landlord nor Landlord's agents shall be liable for any
injury or damage to persons or property, or interruption of Tenant's
business, resulting from fire or other casualty caused by Persons other
than the Landlord.
(B) Tenant shall give written Notice to Landlord, promptly after
Tenant learns thereof, of any accident, emergency, occurrence, fire or
other casualty and all damages to or defects in the Premises for the
repair of which Landlord might be responsible. Such Notice shall be given
by telecopy or personal delivery to the address(es) of Landlord in effect
for Notice.
SECTION 10.2. Tenant shall not do or permit to be done any act or
thing in or upon the Premises which will invalidate or be in conflict with the
terms of the State of Indiana standard form of fire insurance with extended
coverage, or with rental, liability, boiler, sprinkler, water damage, war risk
or other insurance policies covering the Premises (hereinafter referred to as
"Building Insurance"); and Tenant, at Tenant's own expense, shall comply with
all rules, orders, regulations and requirements of all insurance boards.
SECTION 10.3.
(A) Tenant shall, at Tenant's own cost and expense, obtain, maintain
and keep in full force and effect during the Term, for the benefit of
Landlord, any Mortgagees and Tenant, the Building Insurance in an amount
equal to the replacement value of the Building and its contents (not to
exceed $1,815,700.00) and commercial general liability insurance
(including premises operation, bodily injury, personal injury, death,
independent contractors, broad form contractual liability and broad form
property damage coverages) with coverage limits of $1,000,000 per
occurrence and $2,000,000 in the aggregate, against all claims, demands or
actions with respect to damage, injury or death made by or on behalf of
any person or entity, arising from or relating to the conduct and
operation of Tenant's business in, on or about the Premises (which shall
include Tenant's signs, if any), or arising from or related to any act or
omission of Tenant or of Persons Within Tenant's Control.
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(B) Landlord and any Mortgagees shall be named as additional
insureds in said policies. All said policies of insurance shall be: (i)
written as "occurrence" policies; (ii) written as primary policy coverage
and not contributing with or in excess of any coverage which Landlord may
carry; and (iii) issued by reputable and independent insurance companies
rated in Best's Insurance Guide, or any successor thereto (or if there be
none, an organization having a national reputation) as having a general
policyholder rating of "A" and a financial rating of at least "XI", and
which are licensed to do business in the State of Indiana. Upon Landlord?s
request, Tenant shall deliver to Landlord the policies of insurance or
certificates thereof, together with evidence of payment of premiums
thereon, and shall thereafter furnish to Landlord, at least thirty (30)
days prior to the expiration of any such policies and any renewal thereof,
a new policy or certificate in lieu thereof, with evidence of the payment
of premiums thereon. Each of said policies shall also contain a provision
whereby the insurer agrees not to cancel, fail to renew, diminish or
materially modify said insurance policy(ies) without having given Landlord
and any Mortgagees at least thirty (30) days prior written Notice thereof.
(C) Tenant shall pay all premiums and charges for all of said
policies, and, if Tenant shall fail to make any payment when due or carry
any such policy, Landlord may, but shall not be obligated to, make such
payment or carry such policy, and the amount paid by Landlord, with
interest thereon (at the Applicable Rate), shall be repaid to Landlord by
Tenant on demand, and all such amounts so repayable, together with such
interest, shall be deemed to constitute Additional Rent hereunder. Payment
by Landlord of any such premium, or the carrying by Landlord of any such
policy, shall not be deemed to waive or release the default of Tenant with
respect thereto.
(D) Tenant, at Tenant's sole cost and expense, shall maintain
insurance protecting and indemnifying Tenant against any and all damage to
or loss of Tenant's Property, and all claims and liabilities relating
thereto.
SECTION 10.4.
(A) Landlord and Tenant hereby release each other and their
respective agents, employees, partners, shareholders, officers and
directors from any claims or actions for damage to the Premises or
Tenant's Property to the extent the same are covered by proceeds of any
insurance policies maintained by the parties hereto under the terms of
this Lease or in force at the time of any such damage. Each party shall
cause each insurance policy obtained by it to provide that the insurance
company waives all rights of recovery by way of subrogation against the
other party in connection with any damage covered by any such policy.
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(B) The waiver of subrogation referred to in Section 10.4(A) above
shall extend to the agents and employees of each party, but only if and to
the extent that such waiver can be obtained without additional charge
(unless such party shall pay such charge). Nothing contained in this
Section 10.4 shall be deemed to relieve the Landlord or Tenant from any
duty imposed elsewhere in this Lease to repair, restore and rebuild the
Premises, in whole or in part.
ARTICLE 11
DESTRUCTION BY FIRE OR OTHER CAUSE
SECTION 11.1. If the Premises or any part thereof shall be damaged
by fire or other casualty, Tenant shall give immediate written Notice thereof to
Landlord. Landlord shall, subject to the provisions of Sections 11.2 and 11.3
below, proceed with reasonable diligence, after receipt of the net proceeds of
insurance, to repair or cause to be repaired such damage at its expense, to the
condition immediately preceding such damage and, if the Premises, or any part
thereof, shall be rendered untenantable by reason of such damage, then the Fixed
Rent hereunder, or an amount thereof apportioned according to the area of the
Premises so rendered untenantable (if less than the entire Premises shall be so
rendered untenantable), shall be abated for the period from the date of such
damage to the date that is thirty (30) days after the date when the repair of
such damage shall have been substantially completed. If Landlord or any
Mortgagee shall be unable to collect the insurance proceeds applicable to such
damage because of some action or inaction on the part of Tenant or Persons
Within Tenant's Control, then Landlord shall have no duty to make such repairs
or effect any restoration hereunder. Tenant covenants and agrees to cooperate
with Landlord and any Mortgagee in their efforts to collect insurance proceeds
(including rent insurance proceeds) payable to such parties. Landlord shall not
be liable for any delay which may arise by reason of adjustment of insurance on
the part of Landlord and/or Tenant, or any cause beyond the control of Landlord
or contractors employed by Landlord.
SECTION 11.2. Landlord shall not be liable for any inconvenience or
annoyance to Tenant or injury to the business of Tenant resulting in any way
from damage from fire or other casualty or the repair thereof unless caused by
Landlord. Tenant understands that Landlord, in reliance upon Section 10.3
hereof, will not carry insurance of any kind on Tenant's Property, and that
Landlord shall not be obligated to repair any damage thereto or replace the
same.
SECTION 11.3.
(A) Notwithstanding anything to the contrary contained in Sections
11.1 and 11.2 above, in the event that:
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(1)at least fifty (50%) percent of the rentable square feet of
the Premises shall be damaged by a fire or other casualty so that
substantial alteration or reconstruction of the Premises shall be
required (whether or not the remainder of the Premises shall have
been damaged by such fire or other casualty and without regard to
the structural integrity of the Premises); or
(2)the Premises shall be totally or substantially
damaged or shall be rendered wholly or substantially
unsuitable for the Permitted Use; or
(3)the Landlord fails to commence any repairs, reconstruction or
restoration of the Premises within sixty (60) days after a casualty;
or
(4)Landlord fails complete all repairs, reconstruction or
restoration of the Premises within one hundred twenty (120) days
after the date of casualty;
then, as a result of any circumstances described in subparagraphs (1), (2), (3)
or (4) hereof, the Tenant, at Tenant's option, may terminate this Lease and the
term and estate hereby granted, by notifying the Landlord in writing of such
termination within one hundred twenty (120) days after the date of such damage
[as to subparagraphs (1) and (2)] or within thirty (30) days after the passage
of the times periods in subparagraphs (3) and (4) above. In the event that such
a Notice of termination shall be given, then this Lease and the term and estate
hereby granted shall expire as of the date of termination stated in said Notice
with the same effect as if that date were the Fixed Expiration Date, and the
Fixed Rent and Additional Rent hereunder shall be apportioned as of such date.
Notwithstanding the termination of this Lease as provided in this Subsection
11.3(A) Landlord shall be obligated to reimburse to Tenant a portion of the cost
of any Maintenance Repair or Requirement Alterations to the extent required by
Section 7.1 above. In the event of an occurrence as described in subparagraphs
(1) or (2) above, Landlord, at Landlord's option, may terminate this Lease and
the term and estate hereby granted by notifying Tenant in writing of such
termination within one hundred twenty (120) days after the date of such damage.
ARTICLE 12
EMINENT DOMAIN
SECTION 12.1. If the whole of the Premises is acquired or condemned
for any public or quasi-public use or purpose, this Lease and the Term shall end
as of the date of the vesting of title with the same effect as if said date were
the Fixed Expiration Date. If only a part of the Premises is so acquired or
condemned then, except as hereinafter provided in this Section 12.1, this Lease
and the Term shall continue in effect but, if a part of the Premises is so
acquired or condemned, from and after the date of the vesting of title, the
Fixed Rent and Additional Rent, if any, shall be reduced in the proportion which
the area of the part of the Premises so acquired or condemned bears to the total
area of the Premises immediately prior to such acquisition or condemnation. If
the part of the Premises acquired or condemned contains more than fifty percent
(50%) of the rentable square feet of the Premises or if, by reason of such
acquisition or condemnation, the Premises shall be rendered wholly or
substantially unsuitable for the Permitted Use, then either Landlord or Tenant
may terminate this Lease and the Term and estate hereby granted, by notifying
the other party in writing of such termination within one hundred twenty (120)
days after the date upon which Tenant receives Notice of vesting of title. In
the event that such Notice of termination shall be given, then this Lease and
the Term and estate hereby granted shall expire as of the date of termination
stated in said Notice, with the same effect as if that date were the Fixed
Expiration Date. In the event of any termination of this Lease and the Term
pursuant to the provisions of this Section 12.1, the Fixed Rent or Additional
Rent shall be apportioned as of the date of sooner termination and any prepaid
portion of the Fixed Rent for any period after such date shall be refunded by
Landlord to Tenant.
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SECTION 12.2. In the event of any such acquisition or condemnation
of all or any part of the Premises, Landlord shall be entitled to receive the
entire award for any such acquisition or condemnation, but shall be obligated to
proceed with reasonable diligence to repair and restore the Premises, at
Landlord's expense, to a condition most suitable for the Permitted Use. Tenant
shall have no claim against Landlord or the condemning authority for the value
of any unexpired portion of the Term and Tenant hereby expressly assigns to
Landlord all of its right in and to any such award. Nothing contained in this
Section 12.2 shall be deemed to prevent Tenant from making a separate claim in
any condemnation proceedings for the value of any Tenant's Property included in
such taking, and for any moving expenses, so long as Landlord's award is not
reduced thereby.
SECTION 12.3.
(A) Notwithstanding anything to the contrary contained in Sections
12.1 and 12.2 above, in the event that:
(1)the Landlord fails to commence any repairs, reconstruction or
restoration of the Premises within sixty (60) days after the
physical taking of a portion of the Premises; or
(2)Landlord fails complete all repairs, reconstruction or
restoration of the Premises within one hundred twenty (120) days
after the date of such physical taking,
then, as a result of any circumstances described in subparagraphs (1) or (2)
hereof, the Tenant, at Tenant's option, may terminate this Lease and the term
and estate hereby granted, by notifying the Landlord in writing of such
termination within thirty (30) days after the passage of the times periods in
subparagraphs (1) and (2) above. In the event that such a Notice of termination
shall be given, then this Lease and the term and estate hereby granted shall
expire as of the date of termination stated in said Notice with the same effect
as if that date were the Fixed Expiration Date, and the Fixed Rent and
Additional Rent hereunder shall be apportioned as of such date. Notwithstanding
the termination of this Lease as provided in this Subsection 12.3(A) Landlord
shall be obligated to reimburse to Tenant a portion of the cost of any
Maintenance Repair or Requirement Alterations to the extent required by Section
7.1 above.
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ARTICLE 13
ASSIGNMENT; SUBLETTING; MORTGAGE; ETC.
SECTION 13.1.
(A) The Tenant shall not: (i) assign this Lease; or (ii) mortgage or
encumber Tenant's interest in this Lease, in whole or in part; or (iii)
sublet, or permit the subletting of, the Premises or any part thereof
without the prior consent of Landlord. Notwithstanding the provisions of
this Section 13.1, the use of the Premises by any Person AFFILIATED (as
such term is hereinafter defined) with the Tenant or under the COMMON
CONTROL (as such term is hereinafter defined) of Comfort Systems USA,
Inc., as the case may be, shall not be deemed an assignment of this Lease
or a sublet of the Premises, provided Tenant is not in default and remains
fully obligated pursuant to the terms and conditions of this Lease. For
purposes of this Article 13, a Person shall be deemed to be an "affiliate"
of the Tenant or under the "common control" of Comfort Systems USA, Inc.,
if such Person is a member of a "parent-subsidiary controlled group" as
such term is defined by Section 1563(a)(1) of the Internal Revenue Code of
1986, as amended or a member of a "brother-sister controlled group" as
such term is defined by Section 1563(a)(2) of the Internal Revenue Code of
1986, as amended of which either Comfort Systems USA, Inc. or the Tenant,
as the case may be, is a member.
(B) Notwithstanding the provisions otherwise set forth in this
Article 13, no reorganization, consolidation and/or restructuring of the
Tenant or the sale or transfer of any of its stock shall be deemed an
assignment of this Lease or a sublet of the Premises, provided that the
surviving entity resulting from such reorganization, consolidation and/or
restructuring remains fully obligated pursuant to the terms and conditions
of this Lease as Tenant.
SECTION 13.2. If Tenant's interest in this Lease shall be assigned
in violation of the provisions of this Article 13, such assignment shall be
invalid and of no force and effect against Landlord. If the Premises or any part
thereof are sublet to, or occupied by, or used by, any person other than Tenant,
whether or not in violation of this Article 13, Landlord, may collect an amount
equal to the then Fixed Rent plus any other items of Rental or other sums paid
by the subtenant, user or occupant as a fee for its use and occupancy, and shall
apply the net amount collected to the Fixed Rent and the other items of Rental
reserved in this Lease. No such assignment, subletting, occupancy, or use, nor
any such collection or application of Rental or fee for use and occupancy, shall
be deemed a waiver by Landlord of any term, covenant or condition of this Lease
or the acceptance by Landlord of such assignee, subtenant, occupant or user as
Tenant hereunder, nor shall the same, in any circumstances, relieve Tenant of
any of its obligations under this Lease.
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ARTICLE 14
ACCESS TO PREMISES
SECTION 14.1. Landlord or Landlord's agents shall have the right to
enter the Premises at all reasonable times during Tenant's regular business
hours upon (except in case of emergency) reasonable prior notice, which notice
may be oral, to examine the same, to show the same to prospective purchasers or
Mortgagees and to make such repairs, alterations, improvements or additions: (i)
as Landlord may deem necessary or required under the terms of the Lease; or (ii)
which Landlord may elect to perform at least twenty (20) days after notice
(except in an emergency when no notice shall be required) following Tenant's
failure to make repairs or perform any work which Tenant is obligated to make or
perform under this Lease, and Landlord shall be allowed to take all material
into and upon the Premises that may be required therefor without the same
constituting an eviction or constructive eviction of Tenant in whole or in part
and except as herein provided the Fixed Rent (and any other item of Rental)
shall in no respect abate or be reduced by reason of said repairs, alterations,
improvements or additions, wherever located, or while the same are being made,
by reason of loss or interruption of business of Tenant, or otherwise. Landlord
shall promptly repair any damage caused to the Premises or Tenant's Property by
such work, alterations, improvements or additions. In all events, Landlord shall
use its best efforts not to interfere with or obstruct Tenant's business
activities on or in the Premises during any entry.
ARTICLE 15
CERTIFICATE OF OCCUPANCY
SECTION 15.1. Landlord represents and warrants to Tenant that use
and occupancy of the Premises for the Permitted Uses shall not violate the
certificate of occupancy for the Premises or any Requirement. Tenant shall not
at any time, now or hereafter, use or occupy the Premises, directly or
indirectly, in violation of the certificate of occupancy for the Premises and in
the event that any Governmental Authority hereafter contends or declares by
notice, order or in any other manner whatsoever that the Premises are used for a
purpose that is not included in the Permitted Uses and is a violation of such
certificate of occupancy, Tenant shall, upon three (3) Business Days' written
Notice from Landlord or any Government Authority, immediately discontinue such
use of the Premises.
ARTICLE 16
DEFAULT
SECTION 16.1. Each of the following events shall be an "Event of
Default" under this Lease:
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(A) if Tenant shall on any occasion default in the payment when due
of any installment of Fixed Rent or Additional Rent or in the payment when
due of any other item of Rental and such default shall continue for ten
(10) days from and after the date on which Landlord gives Tenant written
Notice specifying such default; or
(B)(1) if Tenant shall not, or shall be unable to, or shall admit in
writing Tenant's inability to, as to any obligation, pay Tenant's debts as
they become due; or
(B)(2) if Tenant shall commence or institute any case, proceeding or
other action (a) seeking relief on Tenant's behalf as debtor, or to
adjudicate it a bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, winding-up, liquidation, dissolution, composition
or other relief with respect to Tenant or Tenant's debts under any
existing or future law of any jurisdiction, domestic or foreign, relating
to bankruptcy, insolvency, reorganization or relief of debtors, or (b)
seeking appointment of a receiver, trustee, custodian or other similar
official for it or for all or any substantial part of its property; or
(B)(3) if Tenant shall make a general assignment for the benefit of
creditors; or
(B)(4) if any case, proceeding or other action shall be commenced or
instituted against Tenant (a) seeking to have an order for relief entered
against Tenant as debtor or to adjudicate Tenant a bankrupt or insolvent,
or seeking reorganization, arrangement, adjustment, winding-up,
liquidation, dissolution, composition or other relief with respect to
Tenant or Tenant's debts under any existing or future law of any
jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, or (b) seeking appointment of a
receiver, trustee, custodian or other similar official for Tenant or for
all or any substantial part of Tenant's property, which either: (i)
results in any such entry of an order for relief, adjudication of
bankruptcy or insolvency or such an appointment or the issuance or entry
of any other order having a similar effect; or (ii) remains undismissed
for a period of sixty (60) days; or
(B)(5) if a trustee, receiver or other custodian shall be appointed
for any substantial part of the assets of Tenant which appointment is not
vacated or effectively stayed within ninety (90) days; or
(C) if Tenant shall default in the observance or performance of any
other term, covenant or condition of this Lease on Tenant's part to be
observed or performed, and Tenant shall fail to remedy such default within
thirty (30) days after written Notice by Landlord to Tenant of such
default, or if such default is of such a nature that it cannot with due
diligence be completely remedied within said period of thirty (30) days,
if Tenant shall not: (i) duly institute within said thirty (30) day
period; and (ii) thereafter diligently and continuously prosecute to
completion all steps necessary to remedy the same.
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SECTION 16.2. If an Event of Default shall occur, Landlord may, at
any time thereafter, at Landlord's option, give written Notice to Tenant stating
that this Lease and the Term shall expire and terminate on the date specified in
such Notice, which date shall not be less than ten (10) days after the giving of
such Notice, whereupon this Lease and the Term and all rights of Tenant under
this Lease shall automatically expire and terminate as if the date specified in
the Notice given pursuant to this Section 16.2 were the Fixed Expiration Date
and Tenant thereafter shall quit and surrender the Premises, but Tenant shall
remain liable for damages as provided herein or pursuant to law. Anything
contained herein to the contrary notwithstanding, if such termination shall be
stayed by order of any court having jurisdiction over any proceeding described
in Section 16.1(B), or by federal or state statute, then, following the
expiration of any such stay, or if the trustee appointed in any such proceeding,
Tenant or Tenant as debtor-in-possession fails to assume Tenant's obligations
under this Lease within the period prescribed therefor by law or within one
hundred twenty (120) days after entry of the order for relief or as may be
allowed by the court, or if said trustee, Tenant or Tenant as
debtor-in-possession shall fail to provide adequate protection of Landlord's
right, title and interest in and to the Premises or adequate assurance of the
complete and continuous future performance of Tenant's obligations under this
Lease, Landlord, to the extent permitted by law or by leave of the court having
jurisdiction over such proceeding, shall have the right, at its election, to
terminate this Lease on ten (10) days' Notice to Tenant, Tenant as
debtor-in-possession or said trustee and upon the expiration of said ten (10)
day period this Lease shall cease and expire as aforesaid and Tenant, Tenant as
debtor-in-possession or said trustee shall thereafter quit and surrender the
Premises as aforesaid.
SECTION 16.3. If, at any time: (i) Tenant shall consist of two (2)
or more Persons; or (ii) Tenant's obligations under this Lease shall have been
guaranteed by any Person other than Tenant; or (iii) Tenant's interest in this
Lease has been assigned, the word "Tenant" as used and referred to in this
Lease, shall be deemed to mean any one or more of the persons primarily or
secondarily liable for Tenant's obligations under this Lease. Any monies
received by Landlord from or on behalf of Tenant during the pendency of any
proceeding of the types referred to in Section 16.1(B) hereof shall be deemed
paid as compensation for the use and occupancy of the Premises and the
acceptance of any such compensation by Landlord shall not be deemed an
acceptance of Rental or a waiver on the part of Landlord of any rights under
Section 16.2 hereof.
SECTION 16.4. In the event of any default by Landlord hereunder,
except as otherwise provided herein, Tenant will give Landlord written notice
specifying such default with particularity, and Landlord shall thereupon have
thirty (30) days in which to cure such default or to commence to cure such
default if any such default cannot be reasonably cured within such 30-day
period, in which event Landlord shall prosecute such cure with diligence to a
conclusion. Unless and until Landlord fails to so cure or proceed with diligence
to cure any default after such notice, Tenant shall not have any remedy or cause
of action by reason thereof.
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If Landlord is in default hereunder, and fails to cure the same timely, in
addition to any and all other rights, remedies and recourses available to
Tenant, Tenant may undertake to cure such default on behalf of Landlord, and
thereupon Landlord agrees to pay Tenant, upon demand, all costs, expenses and
disbursements (including reasonable attorneys' fees) incurred by Tenant in
taking such remedial actions with interest thereon at the Applicable Rate. In
addition to the foregoing, Tenant shall also have the same rights granted to
Landlord under Section 17.1(B) relating to injunctive or equitable relief. The
right to invoke the remedies hereinbefore set forth are cumulative and shall not
preclude Tenant from invoking any other remedy allowed at law or in equity.
ARTICLE 17
REMEDIES AND DAMAGES
SECTION 17.1.
(A) If any Event of Default shall occur, or this Lease and the Term
shall expire and come to an end as provided in Article 16 hereof:
(1)Tenant shall quit and peacefully surrender the Premises to
Landlord, and Landlord and its agents may, after the date upon which
this Lease and the Term shall expire and come to an end, re-enter
the Premises or any part thereof, without Notice, either by summary
proceedings, or by any other applicable action or proceeding or
otherwise, and may repossess the Premises and dispossess Tenant and
any other persons from the Premises by summary proceedings or
otherwise and remove any and all of their property and effects from
the Premises (and Tenant shall remain liable for damages as provided
herein or pursuant to law); and
(2)Landlord, at Landlord's option, may relet the whole or any
part or parts of the Premises from time to time, either in the name
of Landlord or otherwise, to such tenant or tenants, for such term
or terms ending before, on or after the Fixed Expiration Date, at
such rent or rentals and upon such other conditions, which may
include concessions and free rent periods, as Landlord may
determine; provided, however, that Landlord shall exercise
reasonable efforts to mitigate any damages related to liability of
Tenant under this Lease.
(B) In the event of a breach or threatened breach by Tenant, or any
persons claiming through or under Tenant, of any term, covenant or
condition of this Lease, Landlord shall have the right to enjoin such
breach.
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SECTION 17.2.
(A) If this Lease and the Term shall expire and come to an end as
provided in Article 2 hereof, or by or under any summary proceeding or any
other action or proceeding, or if Landlord shall re-enter the Premises as
provided in Section 17.1 hereof, or by or under any summary proceeding or
any other action or proceeding, then, in any of said events:
(1)Tenant shall pay to Landlord all Fixed Rent, Additional Rent
and other items of Rental payable under this Lease by Tenant to
Landlord to the date upon which this Lease and the Term shall have
expired and come to an end or to the date of re-entry upon the
Premises by Landlord, as the case may be;
(2)if Landlord has not terminated the Lease, but only Tenant's
right of possession to the Premises, Tenant also shall be liable for
and shall pay to Landlord, as damages, any deficiency ("Deficiency")
between the Rental for the period which is the unexpired portion of
the Term and the net amount, if any, of rents collected under any
reletting effected pursuant to the provisions of Section 17.1(A)(2)
for any part of such period (after first deducting from the rents
collected under any such reletting all of Landlord's reasonable and
actual expenses in connection with the termination of Tenant's right
of possession, Landlord's re-entry upon the Premises and such
reletting including, but not limited to, all repossession costs,
brokerage commissions, attorneys' fees and disbursements, alteration
costs and other expenses of preparing the Premises for such
reletting, to the extent the same are allocable to the remaining
Term); any such Deficiency shall be paid in monthly installments by
Tenant on the days specified in this Lease for payment of
installments of Fixed Rent; Landlord shall be entitled to recover
from Tenant each monthly Deficiency as the same shall arise, and no
suit to collect the amount of the Deficiency for any month shall
prejudice Landlord's right to collect the Deficiency for any
subsequent month by a similar proceeding; and
(3)alternatively, if Landlord has terminated the Lease, Landlord
shall be entitled to recover from Tenant, and Tenant shall pay to
Landlord, on demand, and as and for liquidated and agreed final
damages, a sum equal to the amount by which the present value
(calculated using the Base Rate as the discount rate) of the unpaid
Rental for the period which otherwise would have constituted the
unexpired portion of the Term exceeds the present value (calculated
using the Base Rate as the discount rate) of the then fair and
reasonable rental value of the Premises for the same period, taking
into consideration reasonable costs incurred to relet the Premises;
if, before presentation of proof of such liquidated damages to any
court, commission or tribunal, the Premises, or any part thereof,
are relet by Landlord on a fair and arms-length basis for the period
which otherwise would have constituted the unexpired portion of the
Term, or any part thereof, the amount of rent reserved upon such
reletting shall be deemed, prima facie, to be the fair and
reasonable rental value for the part or the whole of the Premises so
relet during the term of the reletting.
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(B) Tenant shall in no event be entitled to any rents collected or
payable under any reletting, whether or not such rents exceed the Fixed
Rent reserved in this Lease. Nothing contained in this Article 17 shall be
deemed to limit or preclude the recovery by Landlord from Tenant of the
maximum amount allowed to be obtained as damages by any statute or rule of
law, or of any sums or damages to which Landlord may be entitled in
addition to the damages set forth in this Section 17.2.
ARTICLE 18
FEES AND EXPENSES
SECTION 18.1. If an Event of Default shall have occurred by Tenant
or Landlord has defaulted on its obligations on this Lease and the same is not
cured within any applicable cure period, the non-defaulting party may (1)
perform any term, covenant or condition of this Lease for the account of the
defaulting party, or (2) make any expenditure or incur any obligation for the
payment of money in connection with any obligation owed to the non-defaulting
party, including, but not limited to, reasonable attorneys' fees and
disbursements in instituting, prosecuting or defending any action or proceeding,
and in either case the cost thereof, with interest thereon at the Applicable
Rate, shall be paid by the defaulting party to the non-defaulting party within
twenty (20) days after rendition of any bill or statement therefor.
ARTICLE 19
END OF TERM
SECTION 19.1. Upon the expiration or other termination of this
Lease, Tenant shall quit and surrender to Landlord the Premises, vacant, broom
clean, in good order and condition, ordinary wear and tear and damage by fire or
other casualty or by condemnation excepted, and Tenant shall remove all of
Tenant's Property and all other personal property and personal effects of all
persons claiming through or under Tenant, and shall pay the cost of repairing
all damage to the Premises occasioned by such removal.
SECTION 19.2. If the Premises are not surrendered upon the
expiration or other termination of this Lease and all Tenant Property removed as
provided above, Tenant shall be deemed to be occupying the Premises as a tenant
at will, and after sixty (60) days written notice from Landlord, such continued
occupancy will be at a rental equal to the Fixed Rent herein provided plus fifty
percent (50%) of such amount and otherwise subject to all the conditions,
provisions and obligations of this Lease insofar as the same are applicable to a
tenancy at will.
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<PAGE>
SECTION 19.3. Tenant's obligations under this Article 19 shall
survive the expiration or termination of this Lease.
ARTICLE 20
NOTICES
SECTION 20.1.
(A) Except as otherwise expressly provided in this Lease, any bills,
statements, consents, notices, demands, requests or other communications
given or required to be given under this Lease ("Notice(s)") shall be in
writing and shall be deemed sufficiently given or rendered if delivered by
hand (against a signed receipt) or if deposited with a nationally
recognized overnight courier or if deposited in the United States mail,
and sent by first class mail, certified, return receipt requested with
postage prepaid, and in any case addressed:
IF TO TENANT:
(i) at Tenant's address first set forth in this Lease and (ii) to
the Premises, and
WITH A COPY TO:
Comfort Systems USA, Inc.
777 Post Oak Boulevard, Suite 500
Houston, TX 77056
Attention: General Counsel
IF TO LANDLORD:
Mark P. Shambaugh
2233 East Cedar Canyons Road
Fort Wayne, IN 46845
WITH A COPY TO:
N. Reed Silliman, Esq.
Baker & Daniels
111 East Wayne Street, Suite 800
Fort Wayne, IN 46802
and any Mortgagee who may have requested the same, by Notice given
in accordance with the provisions of this Article 20, at the address
designated by such Mortgagee, or to such other address(es) as either
Landlord or Tenant may designate as its new address(es) for such
purpose by Notice given to the other in accordance with the
provisions of this Article 20.
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<PAGE>
(B) Notices shall be deemed to have been rendered or given (a) on
the date delivered, if delivered by hand, (b) on the day after being
deposited with a nationally recognized overnight courier or (c) five (5)
days after deposit in the United States mail, as provided in Section
20.1(A) hereof.
ARTICLE 21
INDEMNITY
SECTION 21.1. Tenant shall not do or permit any act or thing to be
done in, at or upon the Premises that may subject any Indemnitee to any
liability or responsibility for injury, damage to persons or property or to any
liability by reason of the existence or application of, compliance with or
violation of any Requirement, but shall exercise such control over the Premises
as to protect each Indemnitee fully against any such liability and
responsibility. Tenant shall indemnify and save harmless the Indemnitees from
and against (a) all claims against the Indemnitees arising from any accident,
injury or damage whatsoever caused to any person or to the property of any
person and occurring in, on or about the Premises during the Term or during
Tenant's occupancy of the Premises, unless, and to the extent not, caused by the
negligent or intentional misconduct of Landlord, and (b) any breach, violation
or non-performance of any covenant, condition or agreement contained in this
Lease to be fulfilled, kept, observed and performed by Tenant. This indemnity
and hold harmless agreement shall include indemnity from and against any and all
liability, claims, fines, suits, demands, costs and expenses of any kind or
nature (including, without limitation, attorneys' fees and disbursements)
incurred in or in connection with any such claim or proceeding brought thereon,
and the defense thereof. If any claim, action or proceeding is made or brought
against any Indemnitee, against which claim, action or proceeding Tenant is
obligated to indemnify such Indemnitee pursuant to the terms of this Lease,
then, upon demand by the Indemnitee, Tenant, at its sole cost and expense, shall
contest or defend such claim, action or proceeding in the Indemnitee's name, if
necessary, by such attorneys as the Indemnitee may select, including, without
limitation, attorneys for the Indemnitee's insurer. The provisions of this
Article 21 shall survive the expiration or earlier termination of this Lease.
SECTION 21.2. Landlord shall indemnify and save harmless the Tenant
and the other Tenant Indemnitees from and against (a) all claims against the
Tenant Indemnitees arising from any accident, injury or damage whatsoever caused
to any person or the property of any person and occurring in, on or about the
Premises during the Term or during Tenant's occupancy of the Premises to the
extent caused by the negligent or intentional misconduct of Landlord and (b) any
breach, violation or nonperformance of any covenant, condition or agreement
contained in this Lease to be fulfilled, kept, observed and performed by
Landlord. This indemnity and hold harmless shall include indemnity from and
against any and all liability, claims, fines, suits, demands, costs and expenses
of any kind or nature (including, without limitation, attorneys' fees and
disbursements) incurred in or in connection with any such claim or proceeding
brought thereon, and the defense thereof. If any claim, action or proceeding is
made or brought against any Tenant Indemnitee, against which claim, action or
proceeding Landlord is obligated to indemnify such Tenant Indemnitee pursuant to
the terms of this Lease, then, upon demand by the Tenant Indemnitee, Landlord at
its sole cost and expense shall contest or defend such claim, action or
proceeding in the Tenant Indemnitee's name, if necessary, by such attorneys as
the Tenant Indemnitee may select, including without limitation attorneys for the
Indemnitee's insurer. The provisions of this Article 21 shall survive the
expiration or earlier termination of this Lease.
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<PAGE>
ARTICLE 22
RENEWAL OPTIONS
SECTION 22.1. Provided that there is no Event of Default at the time
the Option (as such term is hereinafter defined) is to be exercised, the Tenant
shall have the option to renew this Lease for one (1) additional five (5) year
period as follows:
OPTION PERIOD shall commence on the tenth (10th) anniversary of the
Commencement Date and shall continue up to and including the day before
the fifteenth (15th) anniversary of the Commencement Date,
the aforementioned option period is referred to herein as the "Option
Period".
SECTION 22.2. The Option granted to the Tenant pursuant to the
provisions of Section 22.1 hereof shall be exercised by the Tenant giving
written Notice to the Landlord of the Tenant's intent to exercise the Option not
less than one-hundred twenty (120) days prior to the expiration of the Initial
Term.
SECTION 22.3. In the event that the Tenant exercises the Option, the
Landlord and the Tenant hereby agree that this Lease shall continue in full
force and effect and remain unamended during the Option Period, except that the
Fixed Rent payable by the Tenant to the Landlord during such Option Period shall
continue to be increased annually in accordance with the provisions of Rider 1
hereof.
ARTICLE 23
COVENANT OF QUIET ENJOYMENT
SECTION 23.1. Landlord covenants that, upon Tenant paying all Fixed
Rent and Additional Rent and observing and performing all of the terms,
agreements, covenants, provisions and conditions of this Lease on Tenant's part
to be observed and performed, Tenant may peaceably and quietly enjoy the
Premises.
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<PAGE>
ARTICLE 24
MISCELLANEOUS
SECTION 24.1. The obligations of Landlord under this Lease shall be
binding upon Landlord named herein after the sale, conveyance, assignment or
transfer by such Landlord (or upon any subsequent landlord after the sale,
conveyance, assignment or transfer by such subsequent landlord) of its interest
in the Premises, as the case may be, and in the event of any such sale,
conveyance, assignment or transfer, Landlord shall be freed and relieved of any
of the covenants and obligations of Landlord under this Lease thereafter
arising, upon the date that the transferee shall have assumed, in writing, for
the benefit of Tenant, all obligations of the Landlord under this Lease arising
after the effective date of the transfer.
SECTION 24.2. Notwithstanding anything contained in this Lease to
the contrary, all amounts payable by Tenant to or on behalf of Landlord under
this Lease, whether or not expressly denominated Fixed Rent, Additional Rent or
Rental, shall constitute rent for the purposes of Section 502(b)(7) of the
Bankruptcy Code.
SECTION 24.3. Upon the request of either party, the other will
execute and deliver a mutually acceptable memorandum of this Lease in recordable
form.
SECTION 24.4. Except as otherwise provided specifically herein, any
consent or approval required to be obtained from Landlord or Tenant under this
Lease shall not be unreasonably withheld, conditioned or delayed.
SECTION 24.5. Landlord represents and warrants to Tenant that
Landlord has full power and authority to enter into this Lease without the
consent of any other parties, including any Mortgagees. Tenant and the person
executing this Lease on behalf of Tenant hereby covenant and warrant that: (i)
Tenant is now and shall remain throughout the term of this Lease a duly
organized and validly existing corporation qualified to do business in the State
of Indiana; and (ii) the persons executing this Lease on behalf of Tenant are
duly authorized to do so by all necessary corporate action.
SECTION 24.6. If any words or phrases in this Lease are stricken out
or otherwise eliminated, whether or not any other words or phrases have been
added, this Lease shall be construed as if the words or phrases so stricken out
or otherwise eliminated were never included in this Lease and no implication or
inference shall be drawn from the fact that such words or phrases were stricken
out or otherwise eliminated.
SECTION 24.7. If any of the provisions of this Lease, or the
application thereof to any person or circumstance, shall, to any extent, be
invalid or unenforceable, the remainder of this Lease, or the application of
such provisions to persons or circumstances other than those as to whom or which
it is held invalid or unenforceable, shall not be affected thereby and shall
remain valid and enforceable, and every provision of this Lease shall be valid
and enforceable to the fullest extent permitted by law.
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<PAGE>
SECTION 24.8. This Lease contains the entire agreement between the
parties and all prior negotiations and agreements are merged into this Lease.
This Lease may not be changed, abandoned or discharged, in whole or in part, nor
may any of its provisions be waived except by a written agreement that (a)
expressly refers to this Lease, and (b) is executed by the party against whom
enforcement of the change, abandonment, discharge or waiver is sought.
SECTION 24.9. The laws of the State of Indiana applicable to
contracts made and to be performed wholly within the State of Indiana shall
govern and control the validity, interpretation, performance and enforcement of
this Lease without regard to principles of conflicts of law.
SECTION 24.10. The captions are inserted only as a matter of
convenience and for reference and in no way define, limit or describe the scope
of this Lease nor the intent of any provision thereof.
SECTION 24.11. The covenants, conditions and agreements contained in
this Lease shall bind and inure to the benefit of Landlord and Tenant and their
respective legal representatives, heirs, successors, and, except as otherwise
provided in this Lease, their assigns.
SECTION 24.12. Tenant acknowledges and agrees that the liability of
Landlord under this Lease shall be limited to Landlord's interest in the
Premises, and any judgments rendered against Landlord shall be satisfied solely
out of the proceeds of the sale of Landlord's interest in the Premises. The
foregoing provision is not intended to relieve Landlord from the performance of
any of Landlord's obligations under this Lease, but only to limit the personal
liability of Landlord in the case of a recovery of a judgment against Landlord;
nor shall the foregoing be deemed to limit Tenant's rights to injunctive relief
or to avail itself of any other right or remedy which may be awarded Tenant by
law or under this Lease.
SECTION 24.13. For the purposes of this Lease and all agreements
supplemental to this Lease, unless the context otherwise requires:
(A) The words "herein", "hereof", "hereunder" and "hereby" and words
of similar import shall be construed to refer to this Lease as a whole and
not to any particular Article or Section unless expressly so stated.
(B) Obligations hereunder shall be construed in every instance as
conditions as well as covenants, each separate and independent of any
other terms of this Lease.
(C) Reference to "termination of this Lease" or "expiration of this
Lease" and words of like import includes expiration or sooner termination
of this Lease and the Term and the estate hereby granted or cancellation
of this Lease pursuant to any of the provisions of this Lease or by law.
Upon the termination of this Lease, the Term and estate granted by this
Lease shall end at noon on the date of termination as if such date were
the Fixed Expiration Date, and neither party shall have any further
obligation or liability to the other after such termination except: (i) as
shall be expressly provided for in this Lease; and (ii) for such
obligations as by their nature under the circumstances can only be, or by
the provisions of this Lease, may be, performed after such termination,
and, in any event, unless expressly otherwise provided in this Lease, any
liability for a payment (which shall be apportioned as of such
termination) which shall have accrued to or with respect to any period
ending at the time of termination shall survive the termination of this
Lease.
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<PAGE>
(D) Words and phrases used in the singular shall be deemed to
include the plural and vice versa, and nouns and pronouns used in any
particular gender shall be deemed to include any other gender.
IN WITNESS WHEREOF, Landlord and Tenant have duly executed this
Lease as of the day and year first above written.
/s/
--------------------------------------
MARK P. SHAMBAUGH
"Landlord"
SHAMBAUGH & SON, INC.,
an Indiana Corporation
By: /s/
----------------------------------
Printed: KEVIN L. BEACH
Its: V.P./SEC'Y.
"Tenant"
29
<PAGE>
RIDER 1
INCREASES IN FIXED RENT
SECTION 1. For purposes of the Lease:
(A) "Bureau" means the Federal Bureau of Labor Statistics or any
successor agency that shall issue the indices or data referred to in
subparagraph (ii) below.
(B) "Price Index" means the Consumer Price Index for All Urban
Consumers for the Fort Wayne, Indiana geographic area, 1982-1984=100,
issued from time to time by the Bureau or any other successor measure
hereafter employed by the Bureau in lieu of such price index that measures
the cost of living for such geographic area or failing such successor, the
most nearly comparable index (reflecting changes in costs of housing
including rental housing, energy and services), published by a
Governmental Authority, appropriately adjusted. Furthermore, if hereafter
the Price Index is converted to a different standard reference base or a
substantial change is made in the terms or number of items contained
therein, the Price Index shall be adjusted (with the use of such
conversion factor, formula or table as is published by the Bureau, or if
it shall not publish same, the conversion factor published by Prentice
Hall, Inc., or, failing such publication, by any other nationally
recognized publisher of similar statistical information) to the figure
that would have resulted if not for such conversion or change.
(C) "Base Index" means the Price Index issued for December 31, 1998.
(D) "Applicable Price Index" for a Lease Year means the Price Index
most recently issued prior to the date on which such Lease Year commences.
SECTION 2.
(A) Tenant shall pay to Landlord the Fixed Rent in the amount set
forth in Article 1 of this Lease for the first Lease Year.
(B) Beginning after the end of the first Lease Year, and for each
and every Lease Year thereafter, the Tenant shall pay to the Landlord, as
Fixed Rent, an amount equal to the GREATER of:
<PAGE>
(1) an amount equal to the sum of (x) the percentage by which
the Applicable Price Index for such Lease Year exceeds the
Applicable Price Index for the immediately preceding Lease Year,
multiplied by the Fixed Rent payable for such immediately preceding
Lease Year and (y) such Fixed Rent payable for the immediately
preceding Lease Year (e.g., if the Base Index is 200, the Applicable
Price Index for the second Lease Year is 203, the Applicable Price
Index for the third Lease Year is 215, and the Fixed Rent payable
for the second Lease Year is $50,000.00, then the Applicable Price
Index for the third Lease Year exceeds the Applicable Price Index
for the second Year by 5.91% (i.e., the difference between 203 and
215), and the Fixed Rent derived from the aforesaid calculation
shall be $52,955.75 (5.91% of $50,000.00, which is $2,955.00, plus
$50,000.00); or
(2) an amount equal to the Fixed Rent for the immediately
preceding Lease Year.
The Landlord and the Tenant hereby acknowledge that it is the mutual intention
of the parties that for each and every Lease Year subsequent to the first Lease
Year during the Term hereof, the Fixed Rent payable by the Tenant to the
Landlord hereunder shall never be decreased from the prior Lease Year.
SECTION 3. Upon Notice by the Landlord to the Tenant of an increase
in the Fixed Rent pursuant to the provisions of this Section 3 ("Increase
Notice"), the Tenant shall pay the Fixed Rent as set forth in the Increase
Notice for the period in which the increase identified in such Notice shall
apply.
<PAGE>
SCHEDULE A
LEGAL DESCRIPTION
HAVEL BROS., FORT WAYNE
Lot 2 in Stone Point Industrial Park, according to the recorded plat thereof in
the Office of the Recorder of Allen County, Indiana.
EXHIBIT 10-30 TO 10-K
AGREEMENT OF LEASE
BETWEEN
MARK P. SHAMBAUGH
LANDLORD
AND
SHAMBAUGH & SON, INC.
TENANT
DATED: OCTOBER 31, 1998
PREMISES
4711 SPEEDWAY DRIVE
FORT WAYNE, IN 46825
<PAGE>
AGREEMENT OF LEASE ("Lease"), made as of the 31st day of October,
1998, between Mark P. Shambaugh, as Landlord, and Shambaugh & Son, Inc., an
Indiana corporation.
R E C I T A L S:
WHEREAS, the Landlord is the owner of certain premises known as and
by the street address of 4711 Speedway Drive, Fort Wayne, Indiana 46825 (as more
particularly described on Schedule ?A?, annexed hereto and made a part hereof);
and
WHEREAS, the Landlord desires to rent the aforementioned premises to
the Tenant and the Tenant desires to rent the aforementioned premises from the
Landlord.
NOW, THEREFORE, in consideration of the mutual promises and
covenants herein contained and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto,
for themselves, as well as their respective legal representatives, heirs,
successors and assigns, hereby agree as follows:
ARTICLE 1
GLOSSARY
For the purposes of this Lease, the following terms shall have the
meanings indicated below:
"Additional Rent" shall have the meaning set forth in Section 2.2(B)
hereof.
"Applicable Rate" shall mean the lesser of (x) three percentage
points above the then current Prime Interest rate as published, from time to
time, by the WALL STREET JOURNAL as its prime interest rate in its Money Rates
section (or if such publication no longer exists or no longer publishes such
rate, then the "base rate" as announced by Citibank, N.A. [or its successors],
from time to time, for the rate presently referred to as its "base rate") or (y)
the maximum rate permitted by applicable law.
"Bankruptcy Code" shall mean 11 U.S.C. Section 101 ET SEQ., or any
statute, federal or state, of similar nature and purpose, now or hereafter.
"Building Systems" shall mean the mechanical, electrical, sanitary,
heating, air conditioning, ventilating, elevator, plumbing, life-safety and
other service or support systems of any nature whatsoever located at or on the
Premises, BUT shall not include installations made by Tenant or fixtures or
appliances (regardless of whether or not such fixtures or appliances are owned
by the Tenant or the Landlord).
"Building Insurance" shall have the meaning set forth in Section
10.2 hereof.
2
<PAGE>
"Business Days" shall mean all days, excluding Saturdays, Sundays
and all days observed as holidays by the State of Indiana or the federal
government.
"Commencement Date" is October 31, 1998.
"Event of Default" shall have the meaning set forth in Section 16.1
hereof.
"Expiration Date" shall mean the Fixed Expiration Date or such other
date on which the Term ends pursuant to any of the terms, conditions or
covenants of this Lease or pursuant to law.
"Fixed Expiration Date" is October 31, 2008.
"Fixed Rent" : $12,000.00 per annum ($1,000.00 per month) for the
first Lease Year (as such term is hereinafter defined) subject to adjustment
thereafter in accordance with the provisions of Rider 1 hereof.
"Government Authority" or "Government Authorities" shall mean the
United States of America, the State of Indiana, the County of Allen, the
Municipality of Fort Wayne, and/or any political subdivision thereof and any
agency, department, commission, board, bureau or instrumentality of any of the
foregoing, now existing or hereafter created, having jurisdiction over the
Premises or any portion thereof.
"Hazardous Materials" shall have the meaning set forth in Section
8.2 hereof.
"Increase Notice" shall have the meaning set forth in Section 3 of
Rider 1 attached hereto and made a part hereof.
"Indemnitees" shall mean Landlord, his agents and contractors (and
the partners, shareholders, officers, directors and employees of any of the
Landlord's agents or contractors).
"Initial Term" shall mean the ten (10) year period commencing on the
Commencement Date.
"Landlord", on the date as of which this Lease is made, shall mean
Mark P. Shambaugh, but thereafter, "Landlord" shall mean any fee owner of the
Premises.
"Lease Year" shall mean each twelve (12) month period commencing on
the Commencement Date and each anniversary of the Commencement Date.
"Mortgage(s)" Shall mean any deed of trust, trust indenture or
mortgage which may now or hereafter affect the Premises and all extensions,
supplements, amendments, modifications, consolidations, refinancings and
replacements thereof or thereto, substitutions therefor, and advances made
thereunder.
3
<PAGE>
"Mortgagee(s)" Shall mean any trustee or mortgagee or holder of a
Mortgage.
"Notice(s)" shall have the meaning set forth in Section 22.1(A)
hereof.
"Option" or "Options" shall have the meaning set forth in Section
26.1 hereof.
"Option Period" or "Option Periods" shall have the meaning set forth
in Section 26.1 hereof.
"Permitted Use" shall mean general, executive and administrative
offices, parking, machine shop, repair, and warehouse facilities in connection
with Tenant's business as a mechanical contracting and service company and uses
related thereto including the evolution of the Tenant's business consistent with
the evolution of the mechanical contracting industry in general, subject to all
applicable laws, regulations, codes and ordinances, and subject further to all
recorded restrictions, covenants and limitations affecting the Premises,
provided, however, that no recorded restrictions, covenants or limitations
impair the use of the Premises for the purposes intended by Tenant as of the
Commencement Date.
"Person(s) or Person(s)" shall mean any natural person or persons, a
partnership, a corporation and any other form of business or legal association
or entity.
"Persons Within Tenant's Control" shall mean and include Tenant, all
of Tenant's respective shareholders, directors, officers, agents, contractors,
sub-contractors, servants, employees, licensees and invitees as well as any of
the heirs, successors, representatives and assigns of any of the foregoing.
"Premises" shall mean all that certain plot, piece and parcel of
land, together with all buildings and improvements erected thereon, known as and
by the street address of 7614 and 7620 Opportunity Drive, Fort Wayne, Indiana
46801 (as more particularly described on Schedule "A", annexed hereto and made a
part hereof).
"Price Index" shall have the meaning set forth in Section 1(B) of
Rider 1 attached hereto.
"Rental" shall mean and be deemed to include Fixed Rent, Additional
Rent and any other sums payable, now or hereafter, by Tenant hereunder.
"Requirements" shall mean all present and future laws, rules,
ordinances, regulations, statutes, requirements, codes and executive orders,
extraordinary as well as ordinary, retroactive and prospective, of all
Governmental Authorities, now existing or hereafter created which affect,
directly or indirectly, the Premises and/or the maintenance, use, operation or
occupation of the Premises, and all recorded restrictions, covenants and
limitations affecting the Premises, provided, however, that no recorded
restrictions, covenants or limitations impair the use of the Premises for the
purposes intended by Tenant as of the Commencement Date.
4
<PAGE>
"Taxes" shall have the meaning set forth in Section 3.1 hereof.
"Tenant", on the date as of which this Lease is made, shall mean the
Tenant named in this Lease, but thereafter "Tenant" shall mean only the tenant
under this Lease at the time in question; provided, however, that the Tenant
named in this Lease and any and all successor tenant(s) hereunder shall not be
released and relieved from any liability hereunder in the event of any
assignment of this Lease or a sublet, in whole or in part, of the Premises.
"Tenant Indemnitees" shall mean Tenant, its agents and contractors
(and the partners, shareholders, officers, directors and employees of Tenant and
its agents and contractors).
"Tenant's Property" shall mean Tenant's movable fixtures and movable
partitions, telephone and other equipment, furniture, furnishings and other
movable items of personal property owned by the Tenant.
"Term", on the date as of which this Lease is made shall mean the
Initial Term, but thereafter shall be deemed to include any Option Period for
which the Tenant exercises its Option pursuant to the provisions of Article 26
hereof.
ARTICLE 2
DEMISE; PREMISES; TERM; RENT
SECTION 2.1. Landlord hereby leases to Tenant and Tenant hereby
hires from Landlord the Premises for the Initial Term to commence on the
Commencement Date and to end on the Fixed Expiration Date, unless earlier
terminated as provided herein and subject to the renewal options provided for in
Article 26 below.
SECTION 2.2. Commencing upon the Commencement Date, Tenant shall pay
to Landlord, in lawful money of the United States of America, without Notice or
demand, without relief from valuation and appraisement laws, by good and
sufficient check at the office of Landlord or at such other place as Landlord
may designate from time to time, the following:
(A) the Fixed Rent, as such term is defined in Article 1 hereof,
which shall be payable in equal monthly installments in advance on the
first day of each and every calendar month during the Term, and
(B) additional rent ("Additional Rent") consisting of all other sums
of money as shall become due from and be payable by Tenant hereunder.
5
<PAGE>
SECTION 2.3. If the Commencement Date is other than the first day of
a calendar month, or the Fixed Expiration Date is other than the last day of a
calendar month, Fixed Rent for such month shall be prorated on a per diem basis.
SECTION 2.4. Tenant shall pay the Fixed Rent and Additional Rent
when due without abatement, deduction, counterclaim, setoff or defense of any
nature. It is understood and agreed that the Fixed Rent to be received by
Landlord during the Term shall be net to Landlord so that this Lease shall yield
to Landlord the Fixed Rent specified herein and, accordingly, all real estate
taxes, insurance, maintenance and other expenses of any nature related to the
Premises, excluding Landlord's income taxes, shall be solely the responsibility
of Tenant unless otherwise specifically set forth herein.
ARTICLE 3
REAL ESTATE TAXES
SECTION 3.1. The Tenant covenants and agrees that it shall, within
twenty (20) days of written demand by the Landlord to the Tenant, pay to the
Landlord, as Additional Rent, any and all Taxes (as hereinafter defined) of any
nature whatsoever assessed or imposed against the Premises for each and every
Lease Year during the Term of this Lease. The Landlord hereby agrees that any
demand given by the Landlord to the Tenant pursuant to the provisions of this
Section 3.1 shall include an accurate copy of the invoice, statement, bill or
similar document issued by the relevant Governmental Authority or Governmental
Authorities, as the case may be, with respect to the Taxes for which payment is
demanded. For purposes of this Section 3.1, "Taxes" shall include, without
limitation, any and all taxes assessed against the Premises, all personal
property taxes, all ad valorem taxes and any and all other taxes assessed
against the Premises by any Governmental Authority, now or hereafter, but shall
EXCLUDE any special assessments or charges for improvements or infrastructure
effected or installed prior to the Commencement Date. With respect to Taxes for
tax periods commencing before or ending after the Term of this Lease, Tenant
shall only be obligated to pay to Landlord the pro rata portion of such Taxes
equal to the portion of such tax period falling within the Term of this Lease.
ARTICLE 4
UTILITIES
SECTION 4.1. The Tenant shall contract for in its name, and
covenants and agrees that it shall pay when due any and all charges incurred
for, any and all utilities supplied to the Premises including, without
limitation, electricity, water, heating oil and/or natural gas. Landlord
represents and warrants to Tenant that electricity, water, telephone, sewer, and
natural gas, if any, are present at and available to the Premises in quantities
sufficient for Tenant's business purposes.
SECTION 4.2. Landlord shall not be liable in any way to Tenant for
any interruption or failure of or defect in the supply or character of any
utility furnished to the Premises, now or hereafter, or for any loss, damage or
expense Tenant may sustain if either the quantity or character of any utility is
changed or is no longer suitable for Tenant's requirements, whether by reason of
any requirement, act or omission of the public utility serving the Premises or
for any other reason whatsoever. Notwithstanding the provisions of this Section
4.2, the Landlord shall be responsible for any and all actual damages suffered
by the Tenant as a result of any interruption of utility service to the extent
caused by the Landlord's gross negligence or intentional misconduct, and Rent
shall abate until such service is fully restored.
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SECTION 4.3. If any Taxes are imposed upon Landlord with respect to
any utility furnished as a service to Tenant by any Governmental Authority,
Tenant agrees that such Taxes shall be reimbursed by Tenant to Landlord upon
written demand. The Landlord hereby agrees that any demand given by the Landlord
to the Tenant pursuant to the provisions of this Section 4.3 shall include an
accurate copy of the invoice, statement, bill or similar document issued by the
relevant Governmental Authority or Governmental Authorities, as the case may be,
with respect to the Taxes for which payment is demanded.
ARTICLE 5
USE AND OCCUPANCY
SECTION 5.1. Tenant shall use and occupy the Premises for the
Permitted Use and for no other purpose of any nature whatsoever. However,
nothing contained herein shall require Tenant to operate or occupy the Premises
continuously during the Term.
ARTICLE 6
ALTERATIONS
SECTION 6.1.
(A)(1) Except as provided below, prior to making any additions,
alterations or improvements to the Premises, Tenant shall: (i) submit to
Landlord plans and specifications for approval by the Landlord (including
to the extent reasonably applicable, layout, architectural, electrical,
mechanical and structural drawings) that comply with all Requirements for
each proposed addition, alteration or improvement to the Premises, and
Tenant shall not commence any such work without first obtaining Landlord's
approval of such plans and specifications; and (ii) at Tenant's expense,
obtain all permits, approvals and certificates required by any
Governmental Authorities. Upon completion of such addition, alteration or
improvement, Tenant, at Tenant's expense, shall obtain certificates of
final approval of such addition, alteration or improvement required by any
Governmental Authority and shall furnish Landlord with copies thereof. All
additions, alterations and improvements shall be made and performed in
accordance with the plans and specifications therefor as approved by
Landlord and otherwise in accordance with all Requirements. All materials
and equipment to be incorporated in the Premises as a result thereof shall
be good quality and no such materials or equipment shall be subject to any
lien, encumbrance, chattel mortgage, title retention or security
agreement.
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(A)(2) Notwithstanding anything to the contrary contained in this
Lease, Tenant shall have the right to make any alterations, additions and
improvements to the Premises without the consent of the Landlord if and
only if: (i) the total cost of such alterations, additions or improvements
do not exceed Fifty Thousand and No/100 Dollars ($50,000.00) for any Lease
Year; and (ii) Tenant shall not remove, materially alter or otherwise
impair any structural element of the Premises or the Building System.
(A)(3) Tenant agrees that any review or approval by Landlord of any
plans and/or specifications with respect to any alteration, addition and
improvement is solely for Landlord's benefit, and without any
representation or warranty whatsoever to Tenant or any other Person with
respect to the adequacy, correctness or sufficiency thereof or with
respect to Requirements or otherwise.
(A)(4) Landlord, at Tenant's expense, and upon the request of
Tenant, shall join in any applications for any permits, approvals or
certificates required to be obtained by Tenant in connection with any
permitted alteration, addition and improvement (provided that the
provisions of the applicable Requirements shall require that Landlord join
in such application) and shall otherwise cooperate with Tenant in
connection therewith; provided, however, that Landlord shall not be
obligated to incur any cost or expense or liability in connection
therewith.
(B) All alterations, additions and improvements shall become a part
of the Premises and shall be Landlord's property from and after the
installation thereof and may not be removed or changed without Landlord's
prior written consent. All Tenant's Property shall remain the property of
Tenant and, on or before the Expiration Date or earlier end of the Term,
may be removed from the Premises by Tenant at Tenant's sole cost and
option; provided, however, that Tenant shall repair and restore in a good
and workmanlike manner any damage to the Premises caused by such removal.
The provisions of this Section 6.1(B) shall survive the expiration or
earlier termination of this Lease.
(C)(1) Any mechanic's lien filed against the Premises for work
claimed to have been done for, or materials claimed to have been furnished
to, Tenant shall be contested by appropriate judicial proceedings or shall
be canceled or discharged by Tenant, at Tenant's expense, within ninety
(90) days after such lien shall be filed and Tenant receives notice
thereof, by payment or filing of the bond required by law.
(C)(2) If Tenant shall fail to contest or discharge such mechanic's
lien within the aforesaid period, then, in addition to any other right or
remedy of Landlord, Landlord may, but shall not be obligated to, discharge
the same either by paying the amount claimed to be due or by procuring the
discharge of such lien by deposit in court or bonding.
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(C)(3) Any amount paid by Landlord for any of the aforesaid charges
and for all expenses of Landlord (including, but not limited to,
reasonable attorneys' fees and disbursements) incurred in defending any
such action, discharging said lien or in procuring the discharge of said
lien, with interest on all such amounts at the Applicable Rate, shall be
repaid by Tenant within twenty (20) days after written demand therefor,
and all amounts so repayable, together with such interest, shall be
considered Additional Rent.
(D) Tenant shall have the right, at its sole cost and expense, to
erect and maintain any exterior signs on the Premises with the prior
written consent of Landlord so long as the same comply with all applicable
Requirements. Landlord acknowledges consent to Tenant's signage in
existence as of the Commencement Date.
ARTICLE 7
REPAIRS; REPLACEMENTS; MAINTENANCE
SECTION 7.1. Except for those repairs, replacements or maintenance
required to be effected by Landlord, and further subject to the right of
reimbursement herein provided, Tenant, at Tenant's sole cost and expense, shall
take good care of the Premises and the improvements, buildings, Building
Systems, fixtures, equipment, parking lots, landscaping and appurtenances
located thereon and make all non-structural repairs, REPLACEMENTS or alterations
thereto of any nature whatsoever as and when needed to preserve them in as good
working order and condition as exists as of the Commencement Date, ordinary wear
and tear excepted, ("Maintenance Repairs") or to comply with any Requirement
("Requirement Alteration"). If Tenant shall fail, after thirty (30) days Notice
(or such shorter period as may be required because of an emergency), to commence
to make repairs, replacements or alterations required to be made by Tenant and
complete the same within a reasonable period of time thereafter exercising due
diligence, the same may be made by Landlord, at the expense of Tenant, and the
expenses thereof incurred by Landlord, with interest thereon at the Applicable
Rate, shall be paid to Landlord, as Additional Rent, within twenty (20) days
after rendition of a bill or statement therefor. Tenant shall give Landlord
prompt Notice of any defective condition known to Tenant in any Building Systems
located in, servicing or passing through the Premises. If the cost of any
Maintenance Repair or Requirement Alteration, whether structural or
non-structural, exceeds $10,000.00, and Landlord consents to such Maintenance
Repair or Requirement Alteration after prior written notice from Tenant, then
upon termination or other expiration of this Lease Landlord shall reimburse to
Tenant the pro rata portion of the cost of such Maintenance Repair or
Requirement Alterations equal to the portion of the useful life of such
Maintenance Repair or Requirement Alternations that remains after the expiration
or other termination of this Lease. The useful life of such Maintenance Repair
or Requirement Alterations shall be established by the party making such
Maintenance Repair or Requirement Alterations at the time made. Notwithstanding
anything to the contrary contained in this Section, in no event shall Tenant be
responsible for any repair, item of maintenance or replacement to the extent the
same is caused by the negligence or willful misconduct of Landlord or Landlord's
employees, contractors or agents.
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SECTION 7.2. Landlord hereby assigns all warranties and guaranty
agreements relating to the Premises and the Building Systems to Tenant during
the Term.
SECTION 7.3. Landlord hereby agrees to repair, maintain and replace
all structural portions of the Premises, including, without limitation, exterior
walls, support columns and walls, foundation and the roof in as good repair and
working order as exists as of the Commencement Date, ordinary wear and tear
excepted.
ARTICLE 8
REQUIREMENTS OF LAW
SECTION 8.1. Tenant shall not do, and shall not permit (to the
extent Tenant has control over the same) any act or thing in or upon the
Premises which will invalidate or be in conflict with the certificate of
occupancy for the Premises or violate any Requirements. Tenant shall immediately
take all action, including but not limited to, making any Requirement
Alterations necessary to comply with all Requirements which shall or may impose
any violation, order or duty upon Landlord or Tenant arising from or in
connection with the Premises, Tenant's occupancy, use or manner of use of the
Premises or any installations in the Premises, or required by reason of a breach
of any of Tenant's covenants or agreements under this Lease, whether or not such
Requirements shall now be in effect or hereafter enacted or issued, and whether
or not any work required shall be ordinary or extraordinary or foreseen or
unforeseen as of the date hereof. Landlord represents and warrants to Tenant
that as of the Commencement Date no condition exists with respect to the
Premises that will necessitate any Requirement Alteration.
SECTION 8.2. Tenant covenants and agrees that Tenant shall, at
Tenant's sole cost and expense, comply at all times with all Requirements
governing the use, generation, storage, treatment and/or disposal of any
Hazardous Materials (as defined below) in, on, under, about or from the presence
of which results from or in connection with the act or omission of Tenant or
Persons Within Tenant's Control or the breach of this Lease by Tenant or Persons
Within Tenant's Control. The term "Hazardous Materials" shall mean any
biologically or chemically active or other toxic or hazardous wastes, pollutants
or substances, including, without limitation, asbestos, PCBS, petroleum products
and by-products, substances defined or listed as "hazardous substances" or
"toxic substances" or similarly identified in or pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. ' 9601 ET
SEQ., and as hazardous wastes under the Resource Conservation and Recovery Act,
42 U.S.C. ' 6010, ET SEQ., any chemical substance or mixture regulated under the
Toxic Substance Control Act of 1976, as amended, 15 U.S.C. 2601, ET SEQ., any
"toxic pollutant" under the Clean Water Act, 33 U.S.C. ' 466 ET SEQ., as
amended, any hazardous air pollutant under the Clean Air Act, 42 U.S.C. ' 7401
ET SEQ., hazardous materials identified in or pursuant to the Hazardous
Materials Transportation Act, 49 U.S.C. ' 1802, ET SEQ., and any hazardous or
toxic substances or pollutant regulated under any other Requirements. Tenant
shall indemnify and hold harmless all Indemnitees from and against any loss,
claim, cost, damage, liability or expense (including attorneys' fees and
disbursements) arising by reason of any clean up, removal, remediation,
detoxification action or any other activity required or recommended of any
Indemnitees by any Governmental Authority by reason of the presence in, on,
under or about the Premises of any Hazardous Materials, as a result of or in
connection with the act or omission of Tenant or Persons Within Tenant's Control
or the breach of this Lease by Tenant or Persons Within Tenant's Control.
Landlord shall indemnify and hold harmless all Tenant Indemnitees from and
against any loss, claim, cost, damage, liability or expense (including
attorneys' fees and disbursements) arising by reason of any clean up, removal,
remediation, detoxification action or any other activity required or recommended
of any Tenant Indemnitees by any Governmental Authority by reason of the
presence in, on, under or about the Premises of any Hazardous Materials either
in existence on the Commencement Date or that come to exist thereafter that are
not the result of or in connection with the act or omission of Tenant or Persons
Within Tenant's Control or the breach of this Lease by Tenant or Persons Within
Tenant's Control. The foregoing covenants and indemnities shall survive the
expiration or any termination of this Lease.
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SECTION 8.3. Landlord represents and warrants to Tenant that as of
the date hereof Landlord has no notice of the presence, generation, storage,
disposal or other use of Hazardous Materials on, in or under the Premises prior
to the date hereof or any violation of any violation of any applicable
Requirements relating to Hazardous Materials.
SECTION 8.4. If Tenant shall receive notice of any violation of or
defaults under, any Requirements, liens or other encumbrances applicable to the
Premises, Tenant shall give immediate written Notice thereof to Landlord.
SECTION 8.5. If any governmental license or permit shall be required
for the proper and lawful conduct of Tenant's business and if the failure to
secure such license or permit would, in any way, affect Landlord or the
Premises, then Tenant, at Tenant's expense, shall promptly procure and
thereafter maintain, submit for inspection by Landlord, and at all times comply
with the terms and conditions of, each such license or permit.
ARTICLE 9
SUBORDINATION
SECTION 9.1. This Lease shall at all times, now and hereafter, be
subject and subordinate to each and every Mortgage, whether made prior to or
after the execution of this Lease, and to all extensions, supplements,
amendments, modifications, consolidations and replacements thereof or thereto,
substitutions therefor, and advances made thereunder, provided that the
Mortgagee confirms and accepts the provisions of Section 9.5 below. This clause
shall be self-operative and no further agreement of subordination shall be
required to make the interest of any Mortgagee superior to the interest of
Tenant hereunder. In confirmation of such subordination, Tenant shall promptly
execute and deliver, at its own cost and expense, any document, in recordable
form if requested, that Landlord or any Mortgagee may request to evidence such
subordination; and if Tenant fails to execute, acknowledge or deliver any such
document within twenty (20) days after request therefor, Tenant hereby
irrevocably constitutes and appoints Landlord as Tenant's attorney-in-fact,
coupled with an interest, to execute, acknowledge and deliver any such document
for and on behalf of Tenant.
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SECTION 9.2. The subordination set forth in Section 9.1 above is
subject to the written agreement (a "Non-Disturbance Agreement") by any
Mortgagee or any other person to whom Tenant may be required to attorn, that so
long as Tenant is in compliance with the terms of this Lease, Tenant's use and
occupancy of the Premises shall not be disturbed, and that all provisions of the
Lease shall be given effect, including those related to the application of any
proceeds of insurance. Landlord shall cause each Mortgagee, whether pursuant to
a Mortgage now existing or hereafter arising, to execute and deliver to Tenant a
Non-Disturbance Agreement, subject to the terms of the preceding sentence, in a
form acceptable to such Mortgagee.
ARTICLE 10
INSURANCE; PROPERTY LOSS OR DAMAGE; REIMBURSEMENT
SECTION 10.1.
(A) Neither Landlord nor Landlord's agents shall be liable for any
injury or damage to persons or property, or interruption of Tenant's
business, resulting from fire or other casualty caused by Persons other
than the Landlord.
(B) Tenant shall give written Notice to Landlord, promptly after
Tenant learns thereof, of any accident, emergency, occurrence, fire or
other casualty and all damages to or defects in the Premises for the
repair of which Landlord might be responsible. Such Notice shall be given
by telecopy or personal delivery to the address(es) of Landlord in effect
for Notice.
SECTION 10.2. Tenant shall not do or permit to be done any act or
thing in or upon the Premises which will invalidate or be in conflict with the
terms of the State of Indiana standard form of fire insurance with extended
coverage, or with rental, liability, boiler, sprinkler, water damage, war risk
or other insurance policies covering the Premises (hereinafter referred to as
"Building Insurance"); and Tenant, at Tenant's own expense, shall comply with
all rules, orders, regulations and requirements of all insurance boards.
SECTION 10.3.
(A) Tenant shall, at Tenant's own cost and expense, obtain, maintain
and keep in full force and effect during the Term, for the benefit of
Landlord, any Mortgagees and Tenant, the Building Insurance in an amount
equal to the replacement value of the Building and its contents (not to
exceed ____________) and commercial general liability insurance (including
premises operation, bodily injury, personal injury, death, independent
contractors, broad form contractual liability and broad form property
damage coverages) with coverage limits of $1,000,000 per occurrence and
$2,000,000 in the aggregate, against all claims, demands or actions with
respect to damage, injury or death made by or on behalf of any person or
entity, arising from or relating to the conduct and operation of Tenant's
business in, on or about the Premises (which shall include Tenant's signs,
if any), or arising from or related to any act or omission of Tenant or of
Persons Within Tenant's Control.
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(B) Landlord and any Mortgagees shall be named as additional
insureds in said policies. All said policies of insurance shall be: (i)
written as "occurrence" policies; (ii) written as primary policy coverage
and not contributing with or in excess of any coverage which Landlord may
carry; and (iii) issued by reputable and independent insurance companies
rated in Best's Insurance Guide, or any successor thereto (or if there be
none, an organization having a national reputation) as having a general
policyholder rating of "A" and a financial rating of at least "XI", and
which are licensed to do business in the State of Indiana. Upon Landlord?s
request, Tenant shall deliver to Landlord the policies of insurance or
certificates thereof, together with evidence of payment of premiums
thereon, and shall thereafter furnish to Landlord, at least thirty (30)
days prior to the expiration of any such policies and any renewal thereof,
a new policy or certificate in lieu thereof, with evidence of the payment
of premiums thereon. Each of said policies shall also contain a provision
whereby the insurer agrees not to cancel, fail to renew, diminish or
materially modify said insurance policy(ies) without having given Landlord
and any Mortgagees at least thirty (30) days prior written Notice thereof.
(C) Tenant shall pay all premiums and charges for all of said
policies, and, if Tenant shall fail to make any payment when due or carry
any such policy, Landlord may, but shall not be obligated to, make such
payment or carry such policy, and the amount paid by Landlord, with
interest thereon (at the Applicable Rate), shall be repaid to Landlord by
Tenant on demand, and all such amounts so repayable, together with such
interest, shall be deemed to constitute Additional Rent hereunder. Payment
by Landlord of any such premium, or the carrying by Landlord of any such
policy, shall not be deemed to waive or release the default of Tenant with
respect thereto.
(D) Tenant, at Tenant's sole cost and expense, shall maintain
insurance protecting and indemnifying Tenant against any and all damage to
or loss of Tenant's Property, and all claims and liabilities relating
thereto.
SECTION 10.4.
(A) Landlord and Tenant hereby release each other and their
respective agents, employees, partners, shareholders, officers and
directors from any claims or actions for damage to the Premises or
Tenant's Property to the extent the same are covered by proceeds of any
insurance policies maintained by the parties hereto under the terms of
this Lease or in force at the time of any such damage. Each party shall
cause each insurance policy obtained by it to provide that the insurance
company waives all rights of recovery by way of subrogation against the
other party in connection with any damage covered by any such policy.
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(B) The waiver of subrogation referred to in Section 10.4(A) above
shall extend to the agents and employees of each party, but only if and to
the extent that such waiver can be obtained without additional charge
(unless such party shall pay such charge). Nothing contained in this
Section 10.4 shall be deemed to relieve the Landlord or Tenant from any
duty imposed elsewhere in this Lease to repair, restore and rebuild the
Premises, in whole or in part.
ARTICLE 11
DESTRUCTION BY FIRE OR OTHER CAUSE
SECTION 11.1. If the Premises or any part thereof shall be damaged
by fire or other casualty, Tenant shall give immediate written Notice thereof to
Landlord. Landlord shall, subject to the provisions of Sections 11.2 and 11.3
below, proceed with reasonable diligence, after receipt of the net proceeds of
insurance, to repair or cause to be repaired such damage at its expense, to the
condition immediately preceding such damage and, if the Premises, or any part
thereof, shall be rendered untenantable by reason of such damage, then the Fixed
Rent hereunder, or an amount thereof apportioned according to the area of the
Premises so rendered untenantable (if less than the entire Premises shall be so
rendered untenantable), shall be abated for the period from the date of such
damage to the date that is thirty (30) days after the date when the repair of
such damage shall have been substantially completed. If Landlord or any
Mortgagee shall be unable to collect the insurance proceeds applicable to such
damage because of some action or inaction on the part of Tenant or Persons
Within Tenant's Control, then Landlord shall have no duty to make such repairs
or effect any restoration hereunder. Tenant covenants and agrees to cooperate
with Landlord and any Mortgagee in their efforts to collect insurance proceeds
(including rent insurance proceeds) payable to such parties. Landlord shall not
be liable for any delay which may arise by reason of adjustment of insurance on
the part of Landlord and/or Tenant, or any cause beyond the control of Landlord
or contractors employed by Landlord.
SECTION 11.2. Landlord shall not be liable for any inconvenience or
annoyance to Tenant or injury to the business of Tenant resulting in any way
from damage from fire or other casualty or the repair thereof unless caused by
Landlord. Tenant understands that Landlord, in reliance upon Section 10.3
hereof, will not carry insurance of any kind on Tenant's Property, and that
Landlord shall not be obligated to repair any damage thereto or replace the
same.
SECTION 11.3.
(A) Notwithstanding anything to the contrary contained in Sections
11.1 and 11.2 above, in the event that:
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(1)at least fifty (50%) percent of the rentable square feet of
the Premises shall be damaged by a fire or other casualty so that
substantial alteration or reconstruction of the Premises shall be
required (whether or not the remainder of the Premises shall have
been damaged by such fire or other casualty and without regard to
the structural integrity of the Premises); or
(2)the Premises shall be totally or substantially damaged or
shall be rendered wholly or substantially unsuitable for the
Permitted Use; or
(3)the Landlord fails to commence any repairs, reconstruction or
restoration of the Premises within sixty (60) days after a casualty;
or
(4)Landlord fails complete all repairs, reconstruction or
restoration of the Premises within one hundred twenty (120) days
after the date of casualty;
then, as a result of any circumstances described in subparagraphs (1), (2), (3)
or (4) hereof, the Tenant, at Tenant's option, may terminate this Lease and the
term and estate hereby granted, by notifying the Landlord in writing of such
termination within one hundred twenty (120) days after the date of such damage
[as to subparagraphs (1) and (2)] or within thirty (30) days after the passage
of the times periods in subparagraphs (3) and (4) above. In the event that such
a Notice of termination shall be given, then this Lease and the term and estate
hereby granted shall expire as of the date of termination stated in said Notice
with the same effect as if that date were the Fixed Expiration Date, and the
Fixed Rent and Additional Rent hereunder shall be apportioned as of such date.
Notwithstanding the termination of this Lease as provided in this Subsection
11.3(A) Landlord shall be obligated to reimburse to Tenant a portion of the cost
of any Maintenance Repair or Requirement Alterations to the extent required by
Section 7.1 above. In the event of an occurrence as described in subparagraphs
(1) or (2) above, Landlord, at Landlord's option, may terminate this Lease and
the term and estate hereby granted by notifying Tenant in writing of such
termination within one hundred twenty (120) days after the date of such damage.
ARTICLE 12
EMINENT DOMAIN
SECTION 12.1. If the whole of the Premises is acquired or condemned
for any public or quasi-public use or purpose, this Lease and the Term shall end
as of the date of the vesting of title with the same effect as if said date were
the Fixed Expiration Date. If only a part of the Premises is so acquired or
condemned then, except as hereinafter provided in this Section 12.1, this Lease
and the Term shall continue in effect but, if a part of the Premises is so
acquired or condemned, from and after the date of the vesting of title, the
Fixed Rent and Additional Rent, if
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any, shall be reduced in the proportion which the area of the part of the
Premises so acquired or condemned bears to the total area of the Premises
immediately prior to such acquisition or condemnation. If the part of the
Premises acquired or condemned contains more than fifty percent (50%) of the
rentable square feet of the Premises or if, by reason of such acquisition or
condemnation, the Premises shall be rendered wholly or substantially unsuitable
for the Permitted Use, then either Landlord or Tenant may terminate this Lease
and the Term and estate hereby granted, by notifying the other party in writing
of such termination within one hundred twenty (120) days after the date upon
which Tenant receives Notice of vesting of title. In the event that such Notice
of termination shall be given, then this Lease and the Term and estate hereby
granted shall expire as of the date of termination stated in said Notice, with
the same effect as if that date were the Fixed Expiration Date. In the event of
any termination of this Lease and the Term pursuant to the provisions of this
Section 12.1, the Fixed Rent or Additional Rent shall be apportioned as of the
date of sooner termination and any prepaid portion of the Fixed Rent for any
period after such date shall be refunded by Landlord to Tenant.
SECTION 12.2. In the event of any such acquisition or condemnation
of all or any part of the Premises, Landlord shall be entitled to receive the
entire award for any such acquisition or condemnation, but shall be obligated to
proceed with reasonable diligence to repair and restore the Premises, at
Landlord's expense, to a condition most suitable for the Permitted Use. Tenant
shall have no claim against Landlord or the condemning authority for the value
of any unexpired portion of the Term and Tenant hereby expressly assigns to
Landlord all of its right in and to any such award. Nothing contained in this
Section 12.2 shall be deemed to prevent Tenant from making a separate claim in
any condemnation proceedings for the value of any Tenant's Property included in
such taking, and for any moving expenses, so long as Landlord's award is not
reduced thereby.
SECTION 12.3.
(A) Notwithstanding anything to the contrary contained in Sections
12.1 and 12.2 above, in the event that:
(1)the Landlord fails to commence any repairs, reconstruction or
restoration of the Premises within sixty (60) days after the
physical taking of a portion of the Premises; or
(2)Landlord fails complete all repairs, reconstruction or
restoration of the Premises within one hundred twenty (120) days
after the date of such physical taking,
then, as a result of any circumstances described in subparagraphs (1) or (2)
hereof, the Tenant, at Tenant's option, may terminate this Lease and the term
and estate hereby granted, by notifying the Landlord in writing of such
termination within thirty (30) days after the passage of the times periods in
subparagraphs (1) and (2) above. In the event that such a Notice of termination
shall be given, then this Lease and the term and estate hereby granted shall
expire as of the date of termination stated in said Notice with the same effect
as if that date were the Fixed Expiration Date, and the Fixed Rent and
Additional Rent hereunder shall be apportioned as of such date. Notwithstanding
the termination of this Lease as provided in this Subsection 12.3(A) Landlord
shall be obligated to reimburse to Tenant a portion of the cost of any
Maintenance Repair or Requirement Alterations to the extent required by Section
7.1 above.
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ARTICLE 13
ASSIGNMENT; SUBLETTING; MORTGAGE; ETC.
SECTION 13.1.
(A) The Tenant shall not: (i) assign this Lease; or (ii) mortgage or
encumber Tenant's interest in this Lease, in whole or in part; or (iii)
sublet, or permit the subletting of, the Premises or any part thereof
without the prior consent of Landlord. Notwithstanding the provisions of
this Section 13.1, the use of the Premises by any Person AFFILIATED (as
such term is hereinafter defined) with the Tenant or under the COMMON
CONTROL (as such term is hereinafter defined) of Comfort Systems USA,
Inc., as the case may be, shall not be deemed an assignment of this Lease
or a sublet of the Premises, provided Tenant is not in default and remains
fully obligated pursuant to the terms and conditions of this Lease. For
purposes of this Article 13, a Person shall be deemed to be an "affiliate"
of the Tenant or under the "common control" of Comfort Systems USA, Inc.,
if such Person is a member of a "parent-subsidiary controlled group" as
such term is defined by Section 1563(a)(1) of the Internal Revenue Code of
1986, as amended or a member of a "brother-sister controlled group" as
such term is defined by Section 1563(a)(2) of the Internal Revenue Code of
1986, as amended of which either Comfort Systems USA, Inc. or the Tenant,
as the case may be, is a member.
(B) Notwithstanding the provisions otherwise set forth in this
Article 13, no reorganization, consolidation and/or restructuring of the
Tenant or the sale or transfer of any of its stock shall be deemed an
assignment of this Lease or a sublet of the Premises, provided that the
surviving entity resulting from such reorganization, consolidation and/or
restructuring remains fully obligated pursuant to the terms and conditions
of this Lease as Tenant.
SECTION 13.2. If Tenant's interest in this Lease shall be assigned
in violation of the provisions of this Article 13, such assignment shall be
invalid and of no force and effect against Landlord. If the Premises or any part
thereof are sublet to, or occupied by, or used by, any person other than Tenant,
whether or not in violation of this Article 13, Landlord, may collect an amount
equal to the then Fixed Rent plus any other items of Rental or other sums paid
by the subtenant, user or occupant as a fee for its use and occupancy, and shall
apply the net amount collected to the Fixed Rent and the other items of Rental
reserved in this Lease. No such assignment, subletting, occupancy, or use, nor
any such collection or application of Rental or fee for use and occupancy, shall
be deemed a waiver by Landlord of any term, covenant or condition of this Lease
or the acceptance by Landlord of such assignee, subtenant, occupant or user as
Tenant hereunder, nor shall the same, in any circumstances, relieve Tenant of
any of its obligations under this Lease.
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ARTICLE 14
ACCESS TO PREMISES
SECTION 14.1. Landlord or Landlord's agents shall have the right to
enter the Premises at all reasonable times during Tenant's regular business
hours upon (except in case of emergency) reasonable prior notice, which notice
may be oral, to examine the same, to show the same to prospective purchasers or
Mortgagees and to make such repairs, alterations, improvements or additions: (i)
as Landlord may deem necessary or required under the terms of the Lease; or (ii)
which Landlord may elect to perform at least twenty (20) days after notice
(except in an emergency when no notice shall be required) following Tenant's
failure to make repairs or perform any work which Tenant is obligated to make or
perform under this Lease, and Landlord shall be allowed to take all material
into and upon the Premises that may be required therefor without the same
constituting an eviction or constructive eviction of Tenant in whole or in part
and except as herein provided the Fixed Rent (and any other item of Rental)
shall in no respect abate or be reduced by reason of said repairs, alterations,
improvements or additions, wherever located, or while the same are being made,
by reason of loss or interruption of business of Tenant, or otherwise. Landlord
shall promptly repair any damage caused to the Premises or Tenant's Property by
such work, alterations, improvements or additions. In all events, Landlord shall
use its best efforts not to interfere with or obstruct Tenant's business
activities on or in the Premises during any entry.
ARTICLE 15
CERTIFICATE OF OCCUPANCY
SECTION 15.1. Landlord represents and warrants to Tenant that use
and occupancy of the Premises for the Permitted Uses shall not violate the
certificate of occupancy for the Premises or any Requirement. Tenant shall not
at any time, now or hereafter, use or occupy the Premises, directly or
indirectly, in violation of the certificate of occupancy for the Premises and in
the event that any Governmental Authority hereafter contends or declares by
notice, order or in any other manner whatsoever that the Premises are used for a
purpose that is not included in the Permitted Uses and is a violation of such
certificate of occupancy, Tenant shall, upon three (3) Business Days' written
Notice from Landlord or any Government Authority, immediately discontinue such
use of the Premises.
ARTICLE 16
DEFAULT
SECTION 16.1. Each of the following events shall be an "Event of
Default" under this Lease:
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(A) if Tenant shall on any occasion default in the payment when due
of any installment of Fixed Rent or Additional Rent or in the payment when
due of any other item of Rental and such default shall continue for ten
(10) days from and after the date on which Landlord gives Tenant written
Notice specifying such default; or
(B)(1) if Tenant shall not, or shall be unable to, or shall admit in
writing Tenant's inability to, as to any obligation, pay Tenant's debts as
they become due; or
(B)(2) if Tenant shall commence or institute any case, proceeding or
other action (a) seeking relief on Tenant's behalf as debtor, or to
adjudicate it a bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, winding-up, liquidation, dissolution, composition
or other relief with respect to Tenant or Tenant's debts under any
existing or future law of any jurisdiction, domestic or foreign, relating
to bankruptcy, insolvency, reorganization or relief of debtors, or (b)
seeking appointment of a receiver, trustee, custodian or other similar
official for it or for all or any substantial part of its property; or
(B)(3) if Tenant shall make a general assignment for the benefit of
creditors; or
(B)(4) if any case, proceeding or other action shall be commenced or
instituted against Tenant (a) seeking to have an order for relief entered
against Tenant as debtor or to adjudicate Tenant a bankrupt or insolvent,
or seeking reorganization, arrangement, adjustment, winding-up,
liquidation, dissolution, composition or other relief with respect to
Tenant or Tenant's debts under any existing or future law of any
jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, or (b) seeking appointment of a
receiver, trustee, custodian or other similar official for Tenant or for
all or any substantial part of Tenant's property, which either: (i)
results in any such entry of an order for relief, adjudication of
bankruptcy or insolvency or such an appointment or the issuance or entry
of any other order having a similar effect; or (ii) remains undismissed
for a period of sixty (60) days; or
(B)(5) if a trustee, receiver or other custodian shall be appointed
for any substantial part of the assets of Tenant which appointment is not
vacated or effectively stayed within ninety (90) days; or
(C) if Tenant shall default in the observance or performance of any
other term, covenant or condition of this Lease on Tenant's part to be
observed or performed, and Tenant shall fail to remedy such default within
thirty (30) days after written Notice by Landlord to Tenant of such
default, or if such default is of such a nature that it cannot with due
diligence be completely remedied within said period of thirty (30) days,
if Tenant shall not: (i) duly institute within said thirty (30) day
period; and (ii) thereafter diligently and continuously prosecute to
completion all steps necessary to remedy the same.
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SECTION 16.2. If an Event of Default shall occur, Landlord may, at
any time thereafter, at Landlord's option, give written Notice to Tenant stating
that this Lease and the Term shall expire and terminate on the date specified in
such Notice, which date shall not be less than ten (10) days after the giving of
such Notice, whereupon this Lease and the Term and all rights of Tenant under
this Lease shall automatically expire and terminate as if the date specified in
the Notice given pursuant to this Section 16.2 were the Fixed Expiration Date
and Tenant thereafter shall quit and surrender the Premises, but Tenant shall
remain liable for damages as provided herein or pursuant to law. Anything
contained herein to the contrary notwithstanding, if such termination shall be
stayed by order of any court having jurisdiction over any proceeding described
in Section 16.1(B), or by federal or state statute, then, following the
expiration of any such stay, or if the trustee appointed in any such proceeding,
Tenant or Tenant as debtor-in-possession fails to assume Tenant's obligations
under this Lease within the period prescribed therefor by law or within one
hundred twenty (120) days after entry of the order for relief or as may be
allowed by the court, or if said trustee, Tenant or Tenant as
debtor-in-possession shall fail to provide adequate protection of Landlord's
right, title and interest in and to the Premises or adequate assurance of the
complete and continuous future performance of Tenant's obligations under this
Lease, Landlord, to the extent permitted by law or by leave of the court having
jurisdiction over such proceeding, shall have the right, at its election, to
terminate this Lease on ten (10) days' Notice to Tenant, Tenant as
debtor-in-possession or said trustee and upon the expiration of said ten (10)
day period this Lease shall cease and expire as aforesaid and Tenant, Tenant as
debtor-in-possession or said trustee shall thereafter quit and surrender the
Premises as aforesaid.
SECTION 16.3. If, at any time: (i) Tenant shall consist of two (2)
or more Persons; or (ii) Tenant's obligations under this Lease shall have been
guaranteed by any Person other than Tenant; or (iii) Tenant's interest in this
Lease has been assigned, the word "Tenant" as used and referred to in this
Lease, shall be deemed to mean any one or more of the persons primarily or
secondarily liable for Tenant's obligations under this Lease. Any monies
received by Landlord from or on behalf of Tenant during the pendency of any
proceeding of the types referred to in Section 16.1(B) hereof shall be deemed
paid as compensation for the use and occupancy of the Premises and the
acceptance of any such compensation by Landlord shall not be deemed an
acceptance of Rental or a waiver on the part of Landlord of any rights under
Section 16.2 hereof.
SECTION 16.4. In the event of any default by Landlord hereunder,
except as otherwise provided herein, Tenant will give Landlord written notice
specifying such default with particularity, and Landlord shall thereupon have
thirty (30) days in which to cure such default or to commence to cure such
default if any such default cannot be reasonably cured within such 30-day
period, in which event Landlord shall prosecute such cure with diligence to a
conclusion. Unless and until Landlord fails to so cure or proceed with diligence
to cure any default after such notice, Tenant shall not have any remedy or cause
of action by reason thereof.
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If Landlord is in default hereunder, and fails to cure the same timely, in
addition to any and all other rights, remedies and recourses available to
Tenant, Tenant may undertake to cure such default on behalf of Landlord, and
thereupon Landlord agrees to pay Tenant, upon demand, all costs, expenses and
disbursements (including reasonable attorneys' fees) incurred by Tenant in
taking such remedial actions with interest thereon at the Applicable Rate. In
addition to the foregoing, Tenant shall also have the same rights granted to
Landlord under Section 17.1(B) relating to injunctive or equitable relief. The
right to invoke the remedies hereinbefore set forth are cumulative and shall not
preclude Tenant from invoking any other remedy allowed at law or in equity.
ARTICLE 17
REMEDIES AND DAMAGES
SECTION 17.1.
(A) If any Event of Default shall occur, or this Lease and the Term
shall expire and come to an end as provided in Article 16 hereof:
(1)Tenant shall quit and peacefully surrender the Premises to
Landlord, and Landlord and its agents may, after the date upon which
this Lease and the Term shall expire and come to an end, re-enter
the Premises or any part thereof, without Notice, either by summary
proceedings, or by any other applicable action or proceeding or
otherwise, and may repossess the Premises and dispossess Tenant and
any other persons from the Premises by summary proceedings or
otherwise and remove any and all of their property and effects from
the Premises (and Tenant shall remain liable for damages as provided
herein or pursuant to law); and
(2)Landlord, at Landlord's option, may relet the whole or any
part or parts of the Premises from time to time, either in the name
of Landlord or otherwise, to such tenant or tenants, for such term
or terms ending before, on or after the Fixed Expiration Date, at
such rent or rentals and upon such other conditions, which may
include concessions and free rent periods, as Landlord may
determine; provided, however, that Landlord shall exercise
reasonable efforts to mitigate any damages related to liability of
Tenant under this Lease.
(B) In the event of a breach or threatened breach by Tenant, or any
persons claiming through or under Tenant, of any term, covenant or
condition of this Lease, Landlord shall have the right to enjoin such
breach.
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SECTION 17.2.
(A) If this Lease and the Term shall expire and come to an end as
provided in Article 2 hereof, or by or under any summary proceeding or any
other action or proceeding, or if Landlord shall re-enter the Premises as
provided in Section 17.1 hereof, or by or under any summary proceeding or
any other action or proceeding, then, in any of said events:
(1)Tenant shall pay to Landlord all Fixed Rent, Additional Rent
and other items of Rental payable under this Lease by Tenant to
Landlord to the date upon which this Lease and the Term shall have
expired and come to an end or to the date of re-entry upon the
Premises by Landlord, as the case may be;
(2)if Landlord has not terminated the Lease, but only Tenant's
right of possession to the Premises, Tenant also shall be liable for
and shall pay to Landlord, as damages, any deficiency ("Deficiency")
between the Rental for the period which is the unexpired portion of
the Term and the net amount, if any, of rents collected under any
reletting effected pursuant to the provisions of Section 17.1(A)(2)
for any part of such period (after first deducting from the rents
collected under any such reletting all of Landlord's reasonable and
actual expenses in connection with the termination of Tenant's right
of possession, Landlord's re-entry upon the Premises and such
reletting including, but not limited to, all repossession costs,
brokerage commissions, attorneys' fees and disbursements, alteration
costs and other expenses of preparing the Premises for such
reletting, to the extent the same are allocable to the remaining
Term); any such Deficiency shall be paid in monthly installments by
Tenant on the days specified in this Lease for payment of
installments of Fixed Rent; Landlord shall be entitled to recover
from Tenant each monthly Deficiency as the same shall arise, and no
suit to collect the amount of the Deficiency for any month shall
prejudice Landlord's right to collect the Deficiency for any
subsequent month by a similar proceeding; and
(3)alternatively, if Landlord has terminated the Lease, Landlord
shall be entitled to recover from Tenant, and Tenant shall pay to
Landlord, on demand, and as and for liquidated and agreed final
damages, a sum equal to the amount by which the present value
(calculated using the Base Rate as the discount rate) of the unpaid
Rental for the period which otherwise would have constituted the
unexpired portion of the Term exceeds the present value (calculated
using the Base Rate as the discount rate) of the then fair and
reasonable rental value of the Premises for the same period, taking
into consideration reasonable costs incurred to relet the Premises;
if, before presentation of proof of such liquidated damages to any
court, commission or tribunal, the Premises, or any part thereof,
are relet by Landlord on a fair and arms-length basis for the period
which otherwise would have constituted the unexpired portion of the
Term, or any part thereof, the amount of rent reserved upon such
reletting shall be deemed, prima facie, to be the fair and
reasonable rental value for the part or the whole of the Premises so
relet during the term of the reletting.
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(B) Tenant shall in no event be entitled to any rents collected or
payable under any reletting, whether or not such rents exceed the Fixed
Rent reserved in this Lease. Nothing contained in this Article 17 shall be
deemed to limit or preclude the recovery by Landlord from Tenant of the
maximum amount allowed to be obtained as damages by any statute or rule of
law, or of any sums or damages to which Landlord may be entitled in
addition to the damages set forth in this Section 17.2.
ARTICLE 18
FEES AND EXPENSES
SECTION 18.1. If an Event of Default shall have occurred by Tenant
or Landlord has defaulted on its obligations on this Lease and the same is not
cured within any applicable cure period, the non-defaulting party may (1)
perform any term, covenant or condition of this Lease for the account of the
defaulting party, or (2) make any expenditure or incur any obligation for the
payment of money in connection with any obligation owed to the non-defaulting
party, including, but not limited to, reasonable attorneys' fees and
disbursements in instituting, prosecuting or defending any action or proceeding,
and in either case the cost thereof, with interest thereon at the Applicable
Rate, shall be paid by the defaulting party to the non-defaulting party within
twenty (20) days after rendition of any bill or statement therefor.
ARTICLE 19
END OF TERM
SECTION 19.1. Upon the expiration or other termination of this
Lease, Tenant shall quit and surrender to Landlord the Premises, vacant, broom
clean, in good order and condition, ordinary wear and tear and damage by fire or
other casualty or by condemnation excepted, and Tenant shall remove all of
Tenant's Property and all other personal property and personal effects of all
persons claiming through or under Tenant, and shall pay the cost of repairing
all damage to the Premises occasioned by such removal.
SECTION 19.2. If the Premises are not surrendered upon the
expiration or other termination of this Lease and all Tenant Property removed as
provided above, Tenant shall be deemed to be occupying the Premises as a tenant
at will, and after sixty (60) days written notice from Landlord, such continued
occupancy will be at a rental equal to the Fixed Rent herein provided plus fifty
percent (50%) of such amount and otherwise subject to all the conditions,
provisions and obligations of this Lease insofar as the same are applicable to a
tenancy at will.
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SECTION 19.3. Tenant's obligations under this Article 19 shall
survive the expiration or termination of this Lease.
ARTICLE 20
NOTICES
SECTION 20.1.
(A) Except as otherwise expressly provided in this Lease, any bills,
statements, consents, notices, demands, requests or other communications
given or required to be given under this Lease ("Notice(s)") shall be in
writing and shall be deemed sufficiently given or rendered if delivered by
hand (against a signed receipt) or if deposited with a nationally
recognized overnight courier or if deposited in the United States mail,
and sent by first class mail, certified, return receipt requested with
postage prepaid, and in any case addressed:
IF TO TENANT:
(i) at Tenant's address first set forth in this Lease and (ii) to
the Premises, and
WITH A COPY TO:
Comfort Systems USA, Inc.
777 Post Oak Boulevard, Suite 500
Houston, TX 77056
Attention: General Counsel
IF TO LANDLORD:
Mark P. Shambaugh
2233 East Cedar Canyons Road
Fort Wayne, IN 46845
WITH A COPY TO:
N. Reed Silliman, Esq.
Baker & Daniels
111 East Wayne Street, Suite 800
Fort Wayne, IN 46802
and any Mortgagee who may have requested the same, by Notice given
in accordance with the provisions of this Article 20, at the address
designated by such Mortgagee, or to such other address(es) as either
Landlord or Tenant may designate as its new address(es) for such
purpose by Notice given to the other in accordance with the
provisions of this Article 20.
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(B) Notices shall be deemed to have been rendered or given (a) on
the date delivered, if delivered by hand, (b) on the day after being
deposited with a nationally recognized overnight courier or (c) five (5)
days after deposit in the United States mail, as provided in Section
20.1(A) hereof.
ARTICLE 21
INDEMNITY
SECTION 21.1. Tenant shall not do or permit any act or thing to be
done in, at or upon the Premises that may subject any Indemnitee to any
liability or responsibility for injury, damage to persons or property or to any
liability by reason of the existence or application of, compliance with or
violation of any Requirement, but shall exercise such control over the Premises
as to protect each Indemnitee fully against any such liability and
responsibility. Tenant shall indemnify and save harmless the Indemnitees from
and against (a) all claims against the Indemnitees arising from any accident,
injury or damage whatsoever caused to any person or to the property of any
person and occurring in, on or about the Premises during the Term or during
Tenant's occupancy of the Premises, unless, and to the extent not, caused by the
negligent or intentional misconduct of Landlord, and (b) any breach, violation
or non-performance of any covenant, condition or agreement contained in this
Lease to be fulfilled, kept, observed and performed by Tenant. This indemnity
and hold harmless agreement shall include indemnity from and against any and all
liability, claims, fines, suits, demands, costs and expenses of any kind or
nature (including, without limitation, attorneys' fees and disbursements)
incurred in or in connection with any such claim or proceeding brought thereon,
and the defense thereof. If any claim, action or proceeding is made or brought
against any Indemnitee, against which claim, action or proceeding Tenant is
obligated to indemnify such Indemnitee pursuant to the terms of this Lease,
then, upon demand by the Indemnitee, Tenant, at its sole cost and expense, shall
contest or defend such claim, action or proceeding in the Indemnitee's name, if
necessary, by such attorneys as the Indemnitee may select, including, without
limitation, attorneys for the Indemnitee's insurer. The provisions of this
Article 21 shall survive the expiration or earlier termination of this Lease.
SECTION 21.2. Landlord shall indemnify and save harmless the Tenant
and the other Tenant Indemnitees from and against (a) all claims against the
Tenant Indemnitees arising from any accident, injury or damage whatsoever caused
to any person or the property of any person and occurring in, on or about the
Premises during the Term or during Tenant's occupancy of the Premises to the
extent caused by the negligent or intentional misconduct of Landlord and (b) any
breach, violation or nonperformance of any covenant, condition or agreement
contained in this Lease to be fulfilled, kept, observed and performed by
Landlord. This indemnity and hold harmless shall include indemnity from and
against any and all liability, claims, fines, suits, demands, costs and expenses
of any kind or nature (including, without limitation, attorneys' fees and
disbursements) incurred in or in connection with any such claim or proceeding
brought thereon, and the defense thereof. If any claim, action or proceeding is
made or brought against any Tenant Indemnitee, against which claim, action or
proceeding Landlord is obligated to indemnify such Tenant Indemnitee pursuant to
the terms of this Lease, then, upon demand by the Tenant Indemnitee, Landlord at
its sole cost and expense shall contest or defend such claim, action or
proceeding in the Tenant Indemnitee's name, if necessary, by such attorneys as
the Tenant Indemnitee may select, including without limitation attorneys for the
Indemnitee's insurer. The provisions of this Article 21 shall survive the
expiration or earlier termination of this Lease.
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ARTICLE 22
RENEWAL OPTIONS
SECTION 22.1. Provided that there is no Event of Default at the time
the Option (as such term is hereinafter defined) is to be exercised, the Tenant
shall have the option to renew this Lease for one (1) additional five (5) year
period as follows:
OPTION PERIOD shall commence on the tenth (10th) anniversary of the
Commencement Date and shall continue up to and including the day before
the fifteenth (15th) anniversary of the Commencement Date,
the aforementioned option period is referred to herein as the
"Option Period".
SECTION 22.2. The Option granted to the Tenant pursuant to the
provisions of Section 22.1 hereof shall be exercised by the Tenant giving
written Notice to the Landlord of the Tenant's intent to exercise the Option not
less than one-hundred twenty (120) days prior to the expiration of the Initial
Term.
SECTION 22.3. In the event that the Tenant exercises the Option, the
Landlord and the Tenant hereby agree that this Lease shall continue in full
force and effect and remain unamended during the Option Period, except that the
Fixed Rent payable by the Tenant to the Landlord during such Option Period shall
continue to be increased annually in accordance with the provisions of Rider 1
hereof.
ARTICLE 23
COVENANT OF QUIET ENJOYMENT
SECTION 23.1. Landlord covenants that, upon Tenant paying all Fixed
Rent and Additional Rent and observing and performing all of the terms,
agreements, covenants, provisions and conditions of this Lease on Tenant's part
to be observed and performed, Tenant may peaceably and quietly enjoy the
Premises.
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ARTICLE 24
MISCELLANEOUS
SECTION 24.1. The obligations of Landlord under this Lease shall be
binding upon Landlord named herein after the sale, conveyance, assignment or
transfer by such Landlord (or upon any subsequent landlord after the sale,
conveyance, assignment or transfer by such subsequent landlord) of its interest
in the Premises, as the case may be, and in the event of any such sale,
conveyance, assignment or transfer, Landlord shall be freed and relieved of any
of the covenants and obligations of Landlord under this Lease thereafter
arising, upon the date that the transferee shall have assumed, in writing, for
the benefit of Tenant, all obligations of the Landlord under this Lease arising
after the effective date of the transfer.
SECTION 24.2. Notwithstanding anything contained in this Lease to
the contrary, all amounts payable by Tenant to or on behalf of Landlord under
this Lease, whether or not expressly denominated Fixed Rent, Additional Rent or
Rental, shall constitute rent for the purposes of Section 502(b)(7) of the
Bankruptcy Code.
SECTION 24.3. Upon the request of either party, the other will
execute and deliver a mutually acceptable memorandum of this Lease in recordable
form.
SECTION 24.4. Except as otherwise provided specifically herein, any
consent or approval required to be obtained from Landlord or Tenant under this
Lease shall not be unreasonably withheld, conditioned or delayed.
SECTION 24.5. Landlord represents and warrants to Tenant that
Landlord has full power and authority to enter into this Lease without the
consent of any other parties, including any Mortgagees. Tenant and the person
executing this Lease on behalf of Tenant hereby covenant and warrant that: (i)
Tenant is now and shall remain throughout the term of this Lease a duly
organized and validly existing corporation qualified to do business in the State
of Indiana; and (ii) the persons executing this Lease on behalf of Tenant are
duly authorized to do so by all necessary corporate action.
SECTION 24.6. If any words or phrases in this Lease are stricken out
or otherwise eliminated, whether or not any other words or phrases have been
added, this Lease shall be construed as if the words or phrases so stricken out
or otherwise eliminated were never included in this Lease and no implication or
inference shall be drawn from the fact that such words or phrases were stricken
out or otherwise eliminated.
SECTION 24.7. If any of the provisions of this Lease, or the
application thereof to any person or circumstance, shall, to any extent, be
invalid or unenforceable, the remainder of this Lease, or the application of
such provisions to persons or circumstances other than those as to whom or which
it is held invalid or unenforceable, shall not be affected thereby and shall
remain valid and enforceable, and every provision of this Lease shall be valid
and enforceable to the fullest extent permitted by law.
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SECTION 24.8. This Lease contains the entire agreement between the
parties and all prior negotiations and agreements are merged into this Lease.
This Lease may not be changed, abandoned or discharged, in whole or in part, nor
may any of its provisions be waived except by a written agreement that (a)
expressly refers to this Lease, and (b) is executed by the party against whom
enforcement of the change, abandonment, discharge or waiver is sought.
SECTION 24.9. The laws of the State of Indiana applicable to
contracts made and to be performed wholly within the State of Indiana shall
govern and control the validity, interpretation, performance and enforcement of
this Lease without regard to principles of conflicts of law.
SECTION 24.10. The captions are inserted only as a matter of
convenience and for reference and in no way define, limit or describe the scope
of this Lease nor the intent of any provision thereof.
SECTION 24.11. The covenants, conditions and agreements contained in
this Lease shall bind and inure to the benefit of Landlord and Tenant and their
respective legal representatives, heirs, successors, and, except as otherwise
provided in this Lease, their assigns.
SECTION 24.12. Tenant acknowledges and agrees that the liability of
Landlord under this Lease shall be limited to Landlord's interest in the
Premises, and any judgments rendered against Landlord shall be satisfied solely
out of the proceeds of the sale of Landlord's interest in the Premises. The
foregoing provision is not intended to relieve Landlord from the performance of
any of Landlord's obligations under this Lease, but only to limit the personal
liability of Landlord in the case of a recovery of a judgment against Landlord;
nor shall the foregoing be deemed to limit Tenant's rights to injunctive relief
or to avail itself of any other right or remedy which may be awarded Tenant by
law or under this Lease.
SECTION 24.13. For the purposes of this Lease and all agreements
supplemental to this Lease, unless the context otherwise requires:
(A) The words "herein", "hereof", "hereunder" and "hereby" and words
of similar import shall be construed to refer to this Lease as a whole and
not to any particular Article or Section unless expressly so stated.
(B) Obligations hereunder shall be construed in every instance as
conditions as well as covenants, each separate and independent of any
other terms of this Lease.
(C) Reference to "termination of this Lease" or "expiration of this
Lease" and words of like import includes expiration or sooner termination
of this Lease and the Term and the estate hereby granted or cancellation
of this Lease pursuant to any of the provisions of this Lease or by law.
Upon the termination of this Lease, the Term and estate granted by this
Lease shall end at noon on the date of termination as if such date were
the Fixed Expiration Date, and neither party shall have any further
obligation or liability to the other after such termination except: (i) as
shall be expressly provided for in this Lease; and (ii) for such
obligations as by their nature under the circumstances can only be, or by
the provisions of this Lease, may be, performed after such termination,
and, in any event, unless expressly otherwise provided in this Lease, any
liability for a payment (which shall be apportioned as of such
termination) which shall have accrued to or with respect to any period
ending at the time of termination shall survive the termination of this
Lease.
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(D) Words and phrases used in the singular shall be deemed to
include the plural and vice versa, and nouns and pronouns used in any
particular gender shall be deemed to include any other gender.
IN WITNESS WHEREOF, Landlord and Tenant have duly executed this
Lease as of the day and year first above written.
/s/
-----------------------------------
MARK P. SHAMBAUGH
"Landlord"
SHAMBAUGH & SON, INC.,
an Indiana Corporation
By: /s/
--------------------------------
Printed: KEVIN L. BEACH
Its: V.P./SEC'Y.
"Tenant"
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RIDER 1
INCREASES IN FIXED RENT
SECTION 1. For purposes of the Lease:
(A) "Bureau" means the Federal Bureau of Labor Statistics or any
successor agency that shall issue the indices or data referred to in
subparagraph (ii) below.
(B) "Price Index" means the Consumer Price Index for All Urban
Consumers for the Fort Wayne, Indiana geographic area, 1982-1984=100,
issued from time to time by the Bureau or any other successor measure
hereafter employed by the Bureau in lieu of such price index that measures
the cost of living for such geographic area or failing such successor, the
most nearly comparable index (reflecting changes in costs of housing
including rental housing, energy and services), published by a
Governmental Authority, appropriately adjusted. Furthermore, if hereafter
the Price Index is converted to a different standard reference base or a
substantial change is made in the terms or number of items contained
therein, the Price Index shall be adjusted (with the use of such
conversion factor, formula or table as is published by the Bureau, or if
it shall not publish same, the conversion factor published by Prentice
Hall, Inc., or, failing such publication, by any other nationally
recognized publisher of similar statistical information) to the figure
that would have resulted if not for such conversion or change.
(C) "Base Index" means the Price Index issued for December 31, 1998.
(D) "Applicable Price Index" for a Lease Year means the Price Index
most recently issued prior to the date on which such Lease Year commences.
SECTION 2.
(A) Tenant shall pay to Landlord the Fixed Rent in the amount set
forth in Article 1 of this Lease for the first Lease Year.
(B) Beginning after the end of the first Lease Year, and for each
and every Lease Year thereafter, the Tenant shall pay to the Landlord, as
Fixed Rent, an amount equal to the GREATER of:
(1) an amount equal to the sum of (x) the percentage by which
the Applicable Price Index for such Lease Year exceeds the
Applicable Price Index for the immediately preceding Lease Year,
multiplied by the Fixed Rent payable for such immediately preceding
Lease Year and (y) such Fixed Rent payable for the immediately
preceding Lease Year (e.g., if the Base Index is 200, the Applicable
Price Index for the second Lease Year is 203, the Applicable Price
Index for the third Lease Year is 215, and the Fixed Rent payable
for the second Lease Year is $50,000.00, then the Applicable Price
Index for the third Lease Year exceeds the Applicable Price Index
for the second Year by 5.91% (i.e., the difference between 203 and
215), and the Fixed Rent derived from the aforesaid calculation
shall be $52,955.75 (5.91% of $50,000.00, which is $2,955.00, plus
$50,000.00); or
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(2) an amount equal to the Fixed Rent for the immediately
preceding Lease Year.
The Landlord and the Tenant hereby acknowledge that it is the mutual intention
of the parties that for each and every Lease Year subsequent to the first Lease
Year during the Term hereof, the Fixed Rent payable by the Tenant to the
Landlord hereunder shall never be decreased from the prior Lease Year.
SECTION 3. Upon Notice by the Landlord to the Tenant of an increase
in the Fixed Rent pursuant to the provisions of this Section 3 ("Increase
Notice?), the Tenant shall pay the Fixed Rent as set forth in the Increase
Notice for the period in which the increase identified in such Notice shall
apply.
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SCHEDULE A
LEGAL DESCRIPTION
SPEEDWAY DRIVE/ASCC
Block 10, Speedway Addition, Section 2, according to the recorded plat thereof
located at plat book 32, pages 13-14, in the Office of the Recorder of Allen
County, Indiana.
EXHIBIT 10.31 TO 10-K
AGREEMENT OF LEASE
BETWEEN
MARK P. SHAMBAUGH
LANDLORD
AND
SHAMBAUGH & SON, INC.
TENANT
DATED: OCTOBER 31, 1998
PREMISES
3210 SUGAR MAPLE COURT
SOUTH BEND, IN 46628
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AGREEMENT OF LEASE ("Lease"), made as of the 31st day of October,
1998, between Mark P. Shambaugh, as Landlord, and Shambaugh & Son, Inc., an
Indiana corporation.
R E C I T A L S:
WHEREAS, the Landlord is the owner of certain premises known as and
by the street address of 3210 Sugar Maple Court, South Bend, Indiana 46628 (as
more particularly described on Schedule ?A?, annexed hereto and made a part
hereof); and
WHEREAS, the Landlord desires to rent the aforementioned premises to
the Tenant and the Tenant desires to rent the aforementioned premises from the
Landlord.
NOW, THEREFORE, in consideration of the mutual promises and
covenants herein contained and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto,
for themselves, as well as their respective legal representatives, heirs,
successors and assigns, hereby agree as follows:
ARTICLE 1
GLOSSARY
For the purposes of this Lease, the following terms shall have the
meanings indicated below:
"Additional Rent" shall have the meaning set forth in Section 2.2(B)
hereof.
"Applicable Rate" shall mean the lesser of (x) three percentage
points above the then current Prime Interest rate as published, from time to
time, by the WALL STREET JOURNAL as its prime interest rate in its Money Rates
section (or if such publication no longer exists or no longer publishes such
rate, then the "base rate" as announced by Citibank, N.A. [or its successors],
from time to time, for the rate presently referred to as its "base rate") or (y)
the maximum rate permitted by applicable law.
"Bankruptcy Code" shall mean 11 U.S.C. Section 101 ET SEQ., or any
statute, federal or state, of similar nature and purpose, now or hereafter.
"Building Systems" shall mean the mechanical, electrical, sanitary,
heating, air conditioning, ventilating, elevator, plumbing, life-safety and
other service or support systems of any nature whatsoever located at or on the
Premises, BUT shall not include installations made by Tenant or fixtures or
appliances (regardless of whether or not such fixtures or appliances are owned
by the Tenant or the Landlord).
"Building Insurance" shall have the meaning set forth in Section
10.2 hereof.
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"Business Days" shall mean all days, excluding Saturdays, Sundays
and all days observed as holidays by the State of Indiana or the federal
government.
"Commencement Date" is October 31, 1998.
"Event of Default" shall have the meaning set forth in Section 16.1
hereof.
"Expiration Date" shall mean the Fixed Expiration Date or such other
date on which the Term ends pursuant to any of the terms, conditions or
covenants of this Lease or pursuant to law.
"Fixed Expiration Date" is October 31, 2008.
"Fixed Rent" : $43,500.00 per annum ($3,625.00 per month) for the
first Lease Year (as such term is hereinafter defined) subject to adjustment
thereafter in accordance with the provisions of Rider 1 hereof.
"Government Authority" or "Government Authorities" shall mean the
United States of America, the State of Indiana, the County of Allen, the
Municipality of Fort Wayne, and/or any political subdivision thereof and any
agency, department, commission, board, bureau or instrumentality of any of the
foregoing, now existing or hereafter created, having jurisdiction over the
Premises or any portion thereof.
"Hazardous Materials" shall have the meaning set forth in Section
8.2 hereof.
"Increase Notice" shall have the meaning set forth in Section 3 of
Rider 1 attached hereto and made a part hereof.
"Indemnitees" shall mean Landlord, his agents and contractors (and
the partners, shareholders, officers, directors and employees of any of the
Landlord's agents or contractors).
"Initial Term" shall mean the ten (10) year period commencing on the
Commencement Date.
"Landlord", on the date as of which this Lease is made, shall mean
Mark P. Shambaugh, but thereafter, "Landlord" shall mean any fee owner of the
Premises.
"Lease Year" shall mean each twelve (12) month period commencing on
the Commencement Date and each anniversary of the Commencement Date.
"Mortgage(s)" Shall mean any deed of trust, trust indenture or
mortgage which may now or hereafter affect the Premises and all extensions,
supplements, amendments, modifications, consolidations, refinancings and
replacements thereof or thereto, substitutions therefor, and advances made
thereunder.
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"Mortgagee(s)" Shall mean any trustee or mortgagee or holder of a
Mortgage.
"Notice(s)" shall have the meaning set forth in Section 22.1(A)
hereof.
"Option" or "Options" shall have the meaning set forth in Section
26.1 hereof.
"Option Period" or "Option Periods" shall have the meaning set forth
in Section 26.1 hereof.
"Permitted Use" shall mean general, executive and administrative
offices, parking, machine shop, repair, and warehouse facilities in connection
with Tenant's business as a mechanical contracting and service company and uses
related thereto including the evolution of the Tenant's business consistent with
the evolution of the mechanical contracting industry in general, subject to all
applicable laws, regulations, codes and ordinances, and subject further to all
recorded restrictions, covenants and limitations affecting the Premises,
provided, however, that no recorded restrictions, covenants or limitations
impair the use of the Premises for the purposes intended by Tenant as of the
Commencement Date.
"Person(s) or Person(s)" shall mean any natural person or persons, a
partnership, a corporation and any other form of business or legal association
or entity.
"Persons Within Tenant's Control" shall mean and include Tenant, all
of Tenant's respective shareholders, directors, officers, agents, contractors,
sub-contractors, servants, employees, licensees and invitees as well as any of
the heirs, successors, representatives and assigns of any of the foregoing.
"Premises" shall mean all that certain plot, piece and parcel of
land, together with all buildings and improvements erected thereon, known as and
by the street address of 7614 and 7620 Opportunity Drive, Fort Wayne, Indiana
46801 (as more particularly described on Schedule "A", annexed hereto and made a
part hereof).
"Price Index" shall have the meaning set forth in Section 1(B) of
Rider 1 attached hereto.
"Rental" shall mean and be deemed to include Fixed Rent, Additional
Rent and any other sums payable, now or hereafter, by Tenant hereunder.
"Requirements" shall mean all present and future laws, rules,
ordinances, regulations, statutes, requirements, codes and executive orders,
extraordinary as well as ordinary, retroactive and prospective, of all
Governmental Authorities, now existing or hereafter created which affect,
directly or indirectly, the Premises and/or the maintenance, use, operation or
occupation of the Premises, and all recorded restrictions, covenants and
limitations affecting the
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Premises, provided, however, that no recorded restrictions, covenants or
limitations impair the use of the Premises for the purposes intended by Tenant
as of the Commencement Date.
"Taxes" shall have the meaning set forth in Section 3.1 hereof.
"Tenant", on the date as of which this Lease is made, shall mean the
Tenant named in this Lease, but thereafter "Tenant" shall mean only the tenant
under this Lease at the time in question; provided, however, that the Tenant
named in this Lease and any and all successor tenant(s) hereunder shall not be
released and relieved from any liability hereunder in the event of any
assignment of this Lease or a sublet, in whole or in part, of the Premises.
"Tenant Indemnitees" shall mean Tenant, its agents and contractors
(and the partners, shareholders, officers, directors and employees of Tenant and
its agents and contractors).
"Tenant's Property" shall mean Tenant's movable fixtures and movable
partitions, telephone and other equipment, furniture, furnishings and other
movable items of personal property owned by the Tenant.
"Term", on the date as of which this Lease is made shall mean the
Initial Term, but thereafter shall be deemed to include any Option Period for
which the Tenant exercises its Option pursuant to the provisions of Article 26
hereof.
ARTICLE 2
DEMISE; PREMISES; TERM; RENT
SECTION 2.1. Landlord hereby leases to Tenant and Tenant hereby
hires from Landlord the Premises for the Initial Term to commence on the
Commencement Date and to end on the Fixed Expiration Date, unless earlier
terminated as provided herein and subject to the renewal options provided for in
Article 26 below.
SECTION 2.2. Commencing upon the Commencement Date, Tenant shall pay
to Landlord, in lawful money of the United States of America, without Notice or
demand, without relief from valuation and appraisement laws, by good and
sufficient check at the office of Landlord or at such other place as Landlord
may designate from time to time, the following:
(A) the Fixed Rent, as such term is defined in Article 1 hereof,
which shall be payable in equal monthly installments in advance on the
first day of each and every calendar month during the Term, and
(B) additional rent ("Additional Rent") consisting of all other sums
of money as shall become due from and be payable by Tenant hereunder.
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SECTION 2.3. If the Commencement Date is other than the first day of
a calendar month, or the Fixed Expiration Date is other than the last day of a
calendar month, Fixed Rent for such month shall be prorated on a per diem basis.
SECTION 2.4. Tenant shall pay the Fixed Rent and Additional Rent
when due without abatement, deduction, counterclaim, setoff or defense of any
nature. It is understood and agreed that the Fixed Rent to be received by
Landlord during the Term shall be net to Landlord so that this Lease shall yield
to Landlord the Fixed Rent specified herein and, accordingly, all real estate
taxes, insurance, maintenance and other expenses of any nature related to the
Premises, excluding Landlord's income taxes, shall be solely the responsibility
of Tenant unless otherwise specifically set forth herein.
ARTICLE 3
REAL ESTATE TAXES
SECTION 3.1. The Tenant covenants and agrees that it shall, within
twenty (20) days of written demand by the Landlord to the Tenant, pay to the
Landlord, as Additional Rent, any and all Taxes (as hereinafter defined) of any
nature whatsoever assessed or imposed against the Premises for each and every
Lease Year during the Term of this Lease. The Landlord hereby agrees that any
demand given by the Landlord to the Tenant pursuant to the provisions of this
Section 3.1 shall include an accurate copy of the invoice, statement, bill or
similar document issued by the relevant Governmental Authority or Governmental
Authorities, as the case may be, with respect to the Taxes for which payment is
demanded. For purposes of this Section 3.1, "Taxes" shall include, without
limitation, any and all taxes assessed against the Premises, all personal
property taxes, all ad valorem taxes and any and all other taxes assessed
against the Premises by any Governmental Authority, now or hereafter, but shall
EXCLUDE any special assessments or charges for improvements or infrastructure
effected or installed prior to the Commencement Date. With respect to Taxes for
tax periods commencing before or ending after the Term of this Lease, Tenant
shall only be obligated to pay to Landlord the pro rata portion of such Taxes
equal to the portion of such tax period falling within the Term of this Lease.
ARTICLE 4
UTILITIES
SECTION 4.1. The Tenant shall contract for in its name, and
covenants and agrees that it shall pay when due any and all charges incurred
for, any and all utilities supplied to the Premises including, without
limitation, electricity, water, heating oil and/or natural gas. Landlord
represents and warrants to Tenant that electricity, water, telephone, sewer, and
natural gas, if any, are present at and available to the Premises in quantities
sufficient for Tenant's business purposes.
SECTION 4.2. Landlord shall not be liable in any way to Tenant for
any interruption or failure of or defect in the supply or character of any
utility furnished to the Premises, now or hereafter, or for any loss, damage or
expense Tenant may sustain if either the quantity or character of any utility is
changed or is no longer suitable for Tenant's requirements,
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<PAGE>
whether by reason of any requirement, act or omission of the public utility
serving the Premises or for any other reason whatsoever. Notwithstanding the
provisions of this Section 4.2, the Landlord shall be responsible for any and
all actual damages suffered by the Tenant as a result of any interruption of
utility service to the extent caused by the Landlord's gross negligence or
intentional misconduct, and Rent shall abate until such service is fully
restored.
SECTION 4.3. If any Taxes are imposed upon Landlord with respect to
any utility furnished as a service to Tenant by any Governmental Authority,
Tenant agrees that such Taxes shall be reimbursed by Tenant to Landlord upon
written demand. The Landlord hereby agrees that any demand given by the Landlord
to the Tenant pursuant to the provisions of this Section 4.3 shall include an
accurate copy of the invoice, statement, bill or similar document issued by the
relevant Governmental Authority or Governmental Authorities, as the case may be,
with respect to the Taxes for which payment is demanded.
ARTICLE 5
USE AND OCCUPANCY
SECTION 5.1. Tenant shall use and occupy the Premises for the
Permitted Use and for no other purpose of any nature whatsoever. However,
nothing contained herein shall require Tenant to operate or occupy the Premises
continuously during the Term.
ARTICLE 6
ALTERATIONS
SECTION 6.1.
(A)(1) Except as provided below, prior to making any additions,
alterations or improvements to the Premises, Tenant shall: (i) submit to
Landlord plans and specifications for approval by the Landlord (including
to the extent reasonably applicable, layout, architectural, electrical,
mechanical and structural drawings) that comply with all Requirements for
each proposed addition, alteration or improvement to the Premises, and
Tenant shall not commence any such work without first obtaining Landlord's
approval of such plans and specifications; and (ii) at Tenant's expense,
obtain all permits, approvals and certificates required by any
Governmental Authorities. Upon completion of such addition, alteration or
improvement, Tenant, at Tenant's expense, shall obtain certificates of
final approval of such addition, alteration or improvement required by any
Governmental Authority and shall furnish Landlord with copies thereof. All
additions, alterations and improvements shall be made and performed in
accordance with the plans and specifications therefor as approved by
Landlord and otherwise in accordance with all Requirements. All materials
and equipment to be incorporated in the Premises as a result thereof shall
be good quality and no such materials or equipment shall be subject to any
lien, encumbrance, chattel mortgage, title retention or security
agreement.
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(A)(2) Notwithstanding anything to the contrary contained in this
Lease, Tenant shall have the right to make any alterations, additions and
improvements to the Premises without the consent of the Landlord if and
only if: (i) the total cost of such alterations, additions or improvements
do not exceed Fifty Thousand and No/100 Dollars ($50,000.00) for any Lease
Year; and (ii) Tenant shall not remove, materially alter or otherwise
impair any structural element of the Premises or the Building System.
(A)(3) Tenant agrees that any review or approval by Landlord of any
plans and/or specifications with respect to any alteration, addition and
improvement is solely for Landlord's benefit, and without any
representation or warranty whatsoever to Tenant or any other Person with
respect to the adequacy, correctness or sufficiency thereof or with
respect to Requirements or otherwise.
(A)(4) Landlord, at Tenant's expense, and upon the request of
Tenant, shall join in any applications for any permits, approvals or
certificates required to be obtained by Tenant in connection with any
permitted alteration, addition and improvement (provided that the
provisions of the applicable Requirements shall require that Landlord join
in such application) and shall otherwise cooperate with Tenant in
connection therewith; provided, however, that Landlord shall not be
obligated to incur any cost or expense or liability in connection
therewith.
(B) All alterations, additions and improvements shall become a part
of the Premises and shall be Landlord's property from and after the
installation thereof and may not be removed or changed without Landlord's
prior written consent. All Tenant's Property shall remain the property of
Tenant and, on or before the Expiration Date or earlier end of the Term,
may be removed from the Premises by Tenant at Tenant's sole cost and
option; provided, however, that Tenant shall repair and restore in a good
and workmanlike manner any damage to the Premises caused by such removal.
The provisions of this Section 6.1(B) shall survive the expiration or
earlier termination of this Lease.
(C)(1) Any mechanic's lien filed against the Premises for work
claimed to have been done for, or materials claimed to have been furnished
to, Tenant shall be contested by appropriate judicial proceedings or shall
be canceled or discharged by Tenant, at Tenant's expense, within ninety
(90) days after such lien shall be filed and Tenant receives notice
thereof, by payment or filing of the bond required by law.
(C)(2) If Tenant shall fail to contest or discharge such mechanic's
lien within the aforesaid period, then, in addition to any other right or
remedy of Landlord, Landlord may, but shall not be obligated to, discharge
the same either
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by paying the amount claimed to be due or by procuring the discharge of
such lien by deposit in court or bonding.
(C)(3) Any amount paid by Landlord for any of the aforesaid charges
and for all expenses of Landlord (including, but not limited to,
reasonable attorneys' fees and disbursements) incurred in defending any
such action, discharging said lien or in procuring the discharge of said
lien, with interest on all such amounts at the Applicable Rate, shall be
repaid by Tenant within twenty (20) days after written demand therefor,
and all amounts so repayable, together with such interest, shall be
considered Additional Rent.
(D) Tenant shall have the right, at its sole cost and expense, to
erect and maintain any exterior signs on the Premises with the prior
written consent of Landlord so long as the same comply with all applicable
Requirements. Landlord acknowledges consent to Tenant's signage in
existence as of the Commencement Date.
ARTICLE 7
REPAIRS; REPLACEMENTS; MAINTENANCE
SECTION 7.1. Except for those repairs, replacements or maintenance
required to be effected by Landlord, and further subject to the right of
reimbursement herein provided, Tenant, at Tenant's sole cost and expense, shall
take good care of the Premises and the improvements, buildings, Building
Systems, fixtures, equipment, parking lots, landscaping and appurtenances
located thereon and make all non-structural repairs, REPLACEMENTS or alterations
thereto of any nature whatsoever as and when needed to preserve them in as good
working order and condition as exists as of the Commencement Date, ordinary wear
and tear excepted, ("Maintenance Repairs") or to comply with any Requirement
("Requirement Alteration"). If Tenant shall fail, after thirty (30) days Notice
(or such shorter period as may be required because of an emergency), to commence
to make repairs, replacements or alterations required to be made by Tenant and
complete the same within a reasonable period of time thereafter exercising due
diligence, the same may be made by Landlord, at the expense of Tenant, and the
expenses thereof incurred by Landlord, with interest thereon at the Applicable
Rate, shall be paid to Landlord, as Additional Rent, within twenty (20) days
after rendition of a bill or statement therefor. Tenant shall give Landlord
prompt Notice of any defective condition known to Tenant in any Building Systems
located in, servicing or passing through the Premises. If the cost of any
Maintenance Repair or Requirement Alteration, whether structural or
non-structural, exceeds $10,000.00, and Landlord consents to such Maintenance
Repair or Requirement Alteration after prior written notice from Tenant, then
upon termination or other expiration of this Lease Landlord shall reimburse to
Tenant the pro rata portion of the cost of such Maintenance Repair or
Requirement Alterations equal to the portion of the useful life of such
Maintenance Repair or Requirement Alternations that remains after the expiration
or other termination of this Lease. The useful life of such Maintenance Repair
or Requirement Alterations shall be established by the party making such
Maintenance Repair or Requirement Alterations at the time made. Notwithstanding
anything to
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the contrary contained in this Section, in no event shall Tenant be responsible
for any repair, item of maintenance or replacement to the extent the same is
caused by the negligence or willful misconduct of Landlord or Landlord's
employees, contractors or agents.
SECTION 7.2. Landlord hereby assigns all warranties and guaranty
agreements relating to the Premises and the Building Systems to Tenant during
the Term.
SECTION 7.3. Landlord hereby agrees to repair, maintain and replace
all structural portions of the Premises, including, without limitation, exterior
walls, support columns and walls, foundation and the roof in as good repair and
working order as exists as of the Commencement Date, ordinary wear and tear
excepted.
ARTICLE 8
REQUIREMENTS OF LAW
SECTION 8.1. Tenant shall not do, and shall not permit (to the
extent Tenant has control over the same) any act or thing in or upon the
Premises which will invalidate or be in conflict with the certificate of
occupancy for the Premises or violate any Requirements. Tenant shall immediately
take all action, including but not limited to, making any Requirement
Alterations necessary to comply with all Requirements which shall or may impose
any violation, order or duty upon Landlord or Tenant arising from or in
connection with the Premises, Tenant's occupancy, use or manner of use of the
Premises or any installations in the Premises, or required by reason of a breach
of any of Tenant's covenants or agreements under this Lease, whether or not such
Requirements shall now be in effect or hereafter enacted or issued, and whether
or not any work required shall be ordinary or extraordinary or foreseen or
unforeseen as of the date hereof. Landlord represents and warrants to Tenant
that as of the Commencement Date no condition exists with respect to the
Premises that will necessitate any Requirement Alteration.
SECTION 8.2. Tenant covenants and agrees that Tenant shall, at
Tenant's sole cost and expense, comply at all times with all Requirements
governing the use, generation, storage, treatment and/or disposal of any
Hazardous Materials (as defined below) in, on, under, about or from the presence
of which results from or in connection with the act or omission of Tenant or
Persons Within Tenant's Control or the breach of this Lease by Tenant or Persons
Within Tenant's Control. The term "Hazardous Materials" shall mean any
biologically or chemically active or other toxic or hazardous wastes, pollutants
or substances, including, without limitation, asbestos, PCBS, petroleum products
and by-products, substances defined or listed as "hazardous substances" or
"toxic substances" or similarly identified in or pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. ' 9601 ET
SEQ., and as hazardous wastes under the Resource Conservation and Recovery Act,
42 U.S.C. ' 6010, ET SEQ., any chemical substance or mixture regulated under the
Toxic Substance Control Act of 1976, as amended, 15 U.S.C. 2601, ET SEQ., any
"toxic pollutant" under the Clean Water Act, 33 U.S.C. ' 466 ET SEQ., as
amended, any hazardous air pollutant under the Clean Air Act, 42 U.S.C. ' 7401
ET SEQ., hazardous materials identified in or pursuant to the Hazardous
Materials Transportation Act, 49 U.S.C. ' 1802, ET SEQ., and any hazardous or
toxic substances or pollutant regulated under any
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other Requirements. Tenant shall indemnify and hold harmless all Indemnitees
from and against any loss, claim, cost, damage, liability or expense (including
attorneys' fees and disbursements) arising by reason of any clean up, removal,
remediation, detoxification action or any other activity required or recommended
of any Indemnitees by any Governmental Authority by reason of the presence in,
on, under or about the Premises of any Hazardous Materials, as a result of or in
connection with the act or omission of Tenant or Persons Within Tenant's Control
or the breach of this Lease by Tenant or Persons Within Tenant's Control.
Landlord shall indemnify and hold harmless all Tenant Indemnitees from and
against any loss, claim, cost, damage, liability or expense (including
attorneys' fees and disbursements) arising by reason of any clean up, removal,
remediation, detoxification action or any other activity required or recommended
of any Tenant Indemnitees by any Governmental Authority by reason of the
presence in, on, under or about the Premises of any Hazardous Materials either
in existence on the Commencement Date or that come to exist thereafter that are
not the result of or in connection with the act or omission of Tenant or Persons
Within Tenant's Control or the breach of this Lease by Tenant or Persons Within
Tenant's Control. The foregoing covenants and indemnities shall survive the
expiration or any termination of this Lease.
SECTION 8.3. Landlord represents and warrants to Tenant that as of
the date hereof Landlord has no notice of the presence, generation, storage,
disposal or other use of Hazardous Materials on, in or under the Premises prior
to the date hereof or any violation of any violation of any applicable
Requirements relating to Hazardous Materials.
SECTION 8.4. If Tenant shall receive notice of any violation of or
defaults under, any Requirements, liens or other encumbrances applicable to the
Premises, Tenant shall give immediate written Notice thereof to Landlord.
SECTION 8.5. If any governmental license or permit shall be required
for the proper and lawful conduct of Tenant's business and if the failure to
secure such license or permit would, in any way, affect Landlord or the
Premises, then Tenant, at Tenant's expense, shall promptly procure and
thereafter maintain, submit for inspection by Landlord, and at all times comply
with the terms and conditions of, each such license or permit.
ARTICLE 9
SUBORDINATION
SECTION 9.1. This Lease shall at all times, now and hereafter, be
subject and subordinate to each and every Mortgage, whether made prior to or
after the execution of this Lease, and to all extensions, supplements,
amendments, modifications, consolidations and replacements thereof or thereto,
substitutions therefor, and advances made thereunder, provided that the
Mortgagee confirms and accepts the provisions of Section 9.5 below. This clause
shall be self-operative and no further agreement of subordination shall be
required to make the interest of any Mortgagee superior to the interest of
Tenant hereunder. In confirmation of such subordination, Tenant shall promptly
execute and deliver, at its own cost and expense, any document, in recordable
form if requested, that Landlord or any Mortgagee may request to
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evidence such subordination; and if Tenant fails to execute, acknowledge or
deliver any such document within twenty (20) days after request therefor, Tenant
hereby irrevocably constitutes and appoints Landlord as Tenant's
attorney-in-fact, coupled with an interest, to execute, acknowledge and deliver
any such document for and on behalf of Tenant.
SECTION 9.2. The subordination set forth in Section 9.1 above is
subject to the written agreement (a "Non-Disturbance Agreement") by any
Mortgagee or any other person to whom Tenant may be required to attorn, that so
long as Tenant is in compliance with the terms of this Lease, Tenant's use and
occupancy of the Premises shall not be disturbed, and that all provisions of the
Lease shall be given effect, including those related to the application of any
proceeds of insurance. Landlord shall cause each Mortgagee, whether pursuant to
a Mortgage now existing or hereafter arising, to execute and deliver to Tenant a
Non-Disturbance Agreement, subject to the terms of the preceding sentence, in a
form acceptable to such Mortgagee.
ARTICLE 10
INSURANCE; PROPERTY LOSS OR DAMAGE; REIMBURSEMENT
SECTION 10.1.
(A) Neither Landlord nor Landlord's agents shall be liable for any
injury or damage to persons or property, or interruption of Tenant's
business, resulting from fire or other casualty caused by Persons other
than the Landlord.
(B) Tenant shall give written Notice to Landlord, promptly after
Tenant learns thereof, of any accident, emergency, occurrence, fire or
other casualty and all damages to or defects in the Premises for the
repair of which Landlord might be responsible. Such Notice shall be given
by telecopy or personal delivery to the address(es) of Landlord in effect
for Notice.
SECTION 10.2. Tenant shall not do or permit to be done any act or
thing in or upon the Premises which will invalidate or be in conflict with the
terms of the State of Indiana standard form of fire insurance with extended
coverage, or with rental, liability, boiler, sprinkler, water damage, war risk
or other insurance policies covering the Premises (hereinafter referred to as
"Building Insurance"); and Tenant, at Tenant's own expense, shall comply with
all rules, orders, regulations and requirements of all insurance boards.
SECTION 10.3.
(A) Tenant shall, at Tenant's own cost and expense, obtain, maintain
and keep in full force and effect during the Term, for the benefit of
Landlord, any Mortgagees and Tenant, the Building Insurance in an amount
equal to the replacement value of the Building and its contents (not to
exceed $500,000.00) and commercial general liability insurance (including
premises operation, bodily injury, personal injury, death, independent
contractors, broad form contractual liability
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and broad form property damage coverages) with coverage limits of
$1,000,000 per occurrence and $2,000,000 in the aggregate, against all
claims, demands or actions with respect to damage, injury or death made by
or on behalf of any person or entity, arising from or relating to the
conduct and operation of Tenant's business in, on or about the Premises
(which shall include Tenant's signs, if any), or arising from or related
to any act or omission of Tenant or of Persons Within Tenant's Control.
(B) Landlord and any Mortgagees shall be named as additional
insureds in said policies. All said policies of insurance shall be: (i)
written as "occurrence" policies; (ii) written as primary policy coverage
and not contributing with or in excess of any coverage which Landlord may
carry; and (iii) issued by reputable and independent insurance companies
rated in Best's Insurance Guide, or any successor thereto (or if there be
none, an organization having a national reputation) as having a general
policyholder rating of "A" and a financial rating of at least "XI", and
which are licensed to do business in the State of Indiana. Upon Landlord?s
request, Tenant shall deliver to Landlord the policies of insurance or
certificates thereof, together with evidence of payment of premiums
thereon, and shall thereafter furnish to Landlord, at least thirty (30)
days prior to the expiration of any such policies and any renewal thereof,
a new policy or certificate in lieu thereof, with evidence of the payment
of premiums thereon. Each of said policies shall also contain a provision
whereby the insurer agrees not to cancel, fail to renew, diminish or
materially modify said insurance policy(ies) without having given Landlord
and any Mortgagees at least thirty (30) days prior written Notice thereof.
(C) Tenant shall pay all premiums and charges for all of said
policies, and, if Tenant shall fail to make any payment when due or carry
any such policy, Landlord may, but shall not be obligated to, make such
payment or carry such policy, and the amount paid by Landlord, with
interest thereon (at the Applicable Rate), shall be repaid to Landlord by
Tenant on demand, and all such amounts so repayable, together with such
interest, shall be deemed to constitute Additional Rent hereunder. Payment
by Landlord of any such premium, or the carrying by Landlord of any such
policy, shall not be deemed to waive or release the default of Tenant with
respect thereto.
(D) Tenant, at Tenant's sole cost and expense, shall maintain
insurance protecting and indemnifying Tenant against any and all damage to
or loss of Tenant's Property, and all claims and liabilities relating
thereto.
SECTION 10.4.
(A) Landlord and Tenant hereby release each other and their
respective agents, employees, partners, shareholders, officers and
directors from any claims or actions for damage to the Premises or
Tenant's Property to the extent the same
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are covered by proceeds of any insurance policies maintained by the
parties hereto under the terms of this Lease or in force at the time of
any such damage. Each party shall cause each insurance policy obtained by
it to provide that the insurance company waives all rights of recovery by
way of subrogation against the other party in connection with any damage
covered by any such policy.
(B) The waiver of subrogation referred to in Section 10.4(A) above
shall extend to the agents and employees of each party, but only if and to
the extent that such waiver can be obtained without additional charge
(unless such party shall pay such charge). Nothing contained in this
Section 10.4 shall be deemed to relieve the Landlord or Tenant from any
duty imposed elsewhere in this Lease to repair, restore and rebuild the
Premises, in whole or in part.
ARTICLE 11
DESTRUCTION BY FIRE OR OTHER CAUSE
SECTION 11.1. If the Premises or any part thereof shall be damaged
by fire or other casualty, Tenant shall give immediate written Notice thereof to
Landlord. Landlord shall, subject to the provisions of Sections 11.2 and 11.3
below, proceed with reasonable diligence, after receipt of the net proceeds of
insurance, to repair or cause to be repaired such damage at its expense, to the
condition immediately preceding such damage and, if the Premises, or any part
thereof, shall be rendered untenantable by reason of such damage, then the Fixed
Rent hereunder, or an amount thereof apportioned according to the area of the
Premises so rendered untenantable (if less than the entire Premises shall be so
rendered untenantable), shall be abated for the period from the date of such
damage to the date that is thirty (30) days after the date when the repair of
such damage shall have been substantially completed. If Landlord or any
Mortgagee shall be unable to collect the insurance proceeds applicable to such
damage because of some action or inaction on the part of Tenant or Persons
Within Tenant's Control, then Landlord shall have no duty to make such repairs
or effect any restoration hereunder. Tenant covenants and agrees to cooperate
with Landlord and any Mortgagee in their efforts to collect insurance proceeds
(including rent insurance proceeds) payable to such parties. Landlord shall not
be liable for any delay which may arise by reason of adjustment of insurance on
the part of Landlord and/or Tenant, or any cause beyond the control of Landlord
or contractors employed by Landlord.
SECTION 11.2. Landlord shall not be liable for any inconvenience or
annoyance to Tenant or injury to the business of Tenant resulting in any way
from damage from fire or other casualty or the repair thereof unless caused by
Landlord. Tenant understands that Landlord, in reliance upon Section 10.3
hereof, will not carry insurance of any kind on Tenant's Property, and that
Landlord shall not be obligated to repair any damage thereto or replace the
same.
SECTION 11.3.
(A) Notwithstanding anything to the contrary contained in Sections
11.1 and 11.2 above, in the event that:
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(1)at least fifty (50%) percent of the rentable square feet of
the Premises shall be damaged by a fire or other casualty so that
substantial alteration or reconstruction of the Premises shall be
required (whether or not the remainder of the Premises shall have
been damaged by such fire or other casualty and without regard to
the structural integrity of the Premises); or
(2)the Premises shall be totally or substantially
damaged or shall be rendered wholly or substantially
unsuitable for the Permitted Use; or
(3)the Landlord fails to commence any repairs, reconstruction or
restoration of the Premises within sixty (60) days after a casualty;
or
(4)Landlord fails complete all repairs, reconstruction or
restoration of the Premises within one hundred twenty (120) days
after the date of casualty;
then, as a result of any circumstances described in subparagraphs (1), (2), (3)
or (4) hereof, the Tenant, at Tenant's option, may terminate this Lease and the
term and estate hereby granted, by notifying the Landlord in writing of such
termination within one hundred twenty (120) days after the date of such damage
[as to subparagraphs (1) and (2)] or within thirty (30) days after the passage
of the times periods in subparagraphs (3) and (4) above. In the event that such
a Notice of termination shall be given, then this Lease and the term and estate
hereby granted shall expire as of the date of termination stated in said Notice
with the same effect as if that date were the Fixed Expiration Date, and the
Fixed Rent and Additional Rent hereunder shall be apportioned as of such date.
Notwithstanding the termination of this Lease as provided in this Subsection
11.3(A) Landlord shall be obligated to reimburse to Tenant a portion of the cost
of any Maintenance Repair or Requirement Alterations to the extent required by
Section 7.1 above. In the event of an occurrence as described in subparagraphs
(1) or (2) above, Landlord, at Landlord's option, may terminate this Lease and
the term and estate hereby granted by notifying Tenant in writing of such
termination within one hundred twenty (120) days after the date of such damage.
ARTICLE 12
EMINENT DOMAIN
SECTION 12.1. If the whole of the Premises is acquired or condemned
for any public or quasi-public use or purpose, this Lease and the Term shall end
as of the date of the vesting of title with the same effect as if said date were
the Fixed Expiration Date. If only a part of the Premises is so acquired or
condemned then, except as hereinafter provided in this Section 12.1, this Lease
and the Term shall continue in effect but, if a part of the Premises is so
acquired or condemned, from and after the date of the vesting of title, the
Fixed Rent and Additional Rent, if
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any, shall be reduced in the proportion which the area of the part of the
Premises so acquired or condemned bears to the total area of the Premises
immediately prior to such acquisition or condemnation. If the part of the
Premises acquired or condemned contains more than fifty percent (50%) of the
rentable square feet of the Premises or if, by reason of such acquisition or
condemnation, the Premises shall be rendered wholly or substantially unsuitable
for the Permitted Use, then either Landlord or Tenant may terminate this Lease
and the Term and estate hereby granted, by notifying the other party in writing
of such termination within one hundred twenty (120) days after the date upon
which Tenant receives Notice of vesting of title. In the event that such Notice
of termination shall be given, then this Lease and the Term and estate hereby
granted shall expire as of the date of termination stated in said Notice, with
the same effect as if that date were the Fixed Expiration Date. In the event of
any termination of this Lease and the Term pursuant to the provisions of this
Section 12.1, the Fixed Rent or Additional Rent shall be apportioned as of the
date of sooner termination and any prepaid portion of the Fixed Rent for any
period after such date shall be refunded by Landlord to Tenant.
SECTION 12.2. In the event of any such acquisition or condemnation
of all or any part of the Premises, Landlord shall be entitled to receive the
entire award for any such acquisition or condemnation, but shall be obligated to
proceed with reasonable diligence to repair and restore the Premises, at
Landlord's expense, to a condition most suitable for the Permitted Use. Tenant
shall have no claim against Landlord or the condemning authority for the value
of any unexpired portion of the Term and Tenant hereby expressly assigns to
Landlord all of its right in and to any such award. Nothing contained in this
Section 12.2 shall be deemed to prevent Tenant from making a separate claim in
any condemnation proceedings for the value of any Tenant's Property included in
such taking, and for any moving expenses, so long as Landlord's award is not
reduced thereby.
SECTION 12.3.
(A) Notwithstanding anything to the contrary contained in Sections
12.1 and 12.2 above, in the event that:
(1)the Landlord fails to commence any repairs, reconstruction or
restoration of the Premises within sixty (60) days after the
physical taking of a portion of the Premises; or
(2)Landlord fails complete all repairs, reconstruction or
restoration of the Premises within one hundred twenty (120) days
after the date of such physical taking,
then, as a result of any circumstances described in subparagraphs (1) or (2)
hereof, the Tenant, at Tenant's option, may terminate this Lease and the term
and estate hereby granted, by notifying the Landlord in writing of such
termination within thirty (30) days after the passage of the times periods in
subparagraphs (1) and (2) above. In the event that such a Notice of termination
shall be given, then this Lease and the term and estate hereby granted shall
expire as of the date of
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termination stated in said Notice with the same effect as if that date were the
Fixed Expiration Date, and the Fixed Rent and Additional Rent hereunder shall be
apportioned as of such date. Notwithstanding the termination of this Lease as
provided in this Subsection 12.3(A) Landlord shall be obligated to reimburse to
Tenant a portion of the cost of any Maintenance Repair or Requirement
Alterations to the extent required by Section 7.1 above.
ARTICLE 13
ASSIGNMENT; SUBLETTING; MORTGAGE; ETC.
SECTION 13.1.
(A) The Tenant shall not: (i) assign this Lease; or (ii) mortgage or
encumber Tenant's interest in this Lease, in whole or in part; or (iii)
sublet, or permit the subletting of, the Premises or any part thereof
without the prior consent of Landlord. Notwithstanding the provisions of
this Section 13.1, the use of the Premises by any Person AFFILIATED (as
such term is hereinafter defined) with the Tenant or under the COMMON
CONTROL (as such term is hereinafter defined) of Comfort Systems USA,
Inc., as the case may be, shall not be deemed an assignment of this Lease
or a sublet of the Premises, provided Tenant is not in default and remains
fully obligated pursuant to the terms and conditions of this Lease. For
purposes of this Article 13, a Person shall be deemed to be an "affiliate"
of the Tenant or under the "common control" of Comfort Systems USA, Inc.,
if such Person is a member of a "parent-subsidiary controlled group" as
such term is defined by Section 1563(a)(1) of the Internal Revenue Code of
1986, as amended or a member of a "brother-sister controlled group" as
such term is defined by Section 1563(a)(2) of the Internal Revenue Code of
1986, as amended of which either Comfort Systems USA, Inc. or the Tenant,
as the case may be, is a member.
(B) Notwithstanding the provisions otherwise set forth in this
Article 13, no reorganization, consolidation and/or restructuring of the
Tenant or the sale or transfer of any of its stock shall be deemed an
assignment of this Lease or a sublet of the Premises, provided that the
surviving entity resulting from such reorganization, consolidation and/or
restructuring remains fully obligated pursuant to the terms and conditions
of this Lease as Tenant.
SECTION 13.2. If Tenant's interest in this Lease shall be assigned
in violation of the provisions of this Article 13, such assignment shall be
invalid and of no force and effect against Landlord. If the Premises or any part
thereof are sublet to, or occupied by, or used by, any person other than Tenant,
whether or not in violation of this Article 13, Landlord, may collect an amount
equal to the then Fixed Rent plus any other items of Rental or other sums paid
by the subtenant, user or occupant as a fee for its use and occupancy, and shall
apply the net amount collected to the Fixed Rent and the other items of Rental
reserved in this Lease. No such assignment, subletting, occupancy, or use, nor
any such collection or application of Rental or fee for use and occupancy, shall
be deemed a waiver by Landlord of any term, covenant or condition
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of this Lease or the acceptance by Landlord of such assignee, subtenant,
occupant or user as Tenant hereunder, nor shall the same, in any circumstances,
relieve Tenant of any of its obligations under this Lease.
ARTICLE 14
ACCESS TO PREMISES
SECTION 14.1. Landlord or Landlord's agents shall have the right to
enter the Premises at all reasonable times during Tenant's regular business
hours upon (except in case of emergency) reasonable prior notice, which notice
may be oral, to examine the same, to show the same to prospective purchasers or
Mortgagees and to make such repairs, alterations, improvements or additions: (i)
as Landlord may deem necessary or required under the terms of the Lease; or (ii)
which Landlord may elect to perform at least twenty (20) days after notice
(except in an emergency when no notice shall be required) following Tenant's
failure to make repairs or perform any work which Tenant is obligated to make or
perform under this Lease, and Landlord shall be allowed to take all material
into and upon the Premises that may be required therefor without the same
constituting an eviction or constructive eviction of Tenant in whole or in part
and except as herein provided the Fixed Rent (and any other item of Rental)
shall in no respect abate or be reduced by reason of said repairs, alterations,
improvements or additions, wherever located, or while the same are being made,
by reason of loss or interruption of business of Tenant, or otherwise. Landlord
shall promptly repair any damage caused to the Premises or Tenant's Property by
such work, alterations, improvements or additions. In all events, Landlord shall
use its best efforts not to interfere with or obstruct Tenant's business
activities on or in the Premises during any entry.
ARTICLE 15
CERTIFICATE OF OCCUPANCY
SECTION 15.1. Landlord represents and warrants to Tenant that use
and occupancy of the Premises for the Permitted Uses shall not violate the
certificate of occupancy for the Premises or any Requirement. Tenant shall not
at any time, now or hereafter, use or occupy the Premises, directly or
indirectly, in violation of the certificate of occupancy for the Premises and in
the event that any Governmental Authority hereafter contends or declares by
notice, order or in any other manner whatsoever that the Premises are used for a
purpose that is not included in the Permitted Uses and is a violation of such
certificate of occupancy, Tenant shall, upon three (3) Business Days' written
Notice from Landlord or any Government Authority, immediately discontinue such
use of the Premises.
ARTICLE 16
DEFAULT
SECTION 16.1. Each of the following events shall be an "Event of
Default" under this Lease:
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(A) if Tenant shall on any occasion default in the payment when due
of any installment of Fixed Rent or Additional Rent or in the payment when
due of any other item of Rental and such default shall continue for ten
(10) days from and after the date on which Landlord gives Tenant written
Notice specifying such default; or
(B)(1) if Tenant shall not, or shall be unable to, or shall admit in
writing Tenant's inability to, as to any obligation, pay Tenant's debts as
they become due; or
(B)(2) if Tenant shall commence or institute any case, proceeding or
other action (a) seeking relief on Tenant's behalf as debtor, or to
adjudicate it a bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, winding-up, liquidation, dissolution, composition
or other relief with respect to Tenant or Tenant's debts under any
existing or future law of any jurisdiction, domestic or foreign, relating
to bankruptcy, insolvency, reorganization or relief of debtors, or (b)
seeking appointment of a receiver, trustee, custodian or other similar
official for it or for all or any substantial part of its property; or
(B)(3) if Tenant shall make a general assignment for
the benefit of creditors; or
(B)(4) if any case, proceeding or other action shall be commenced or
instituted against Tenant (a) seeking to have an order for relief entered
against Tenant as debtor or to adjudicate Tenant a bankrupt or insolvent,
or seeking reorganization, arrangement, adjustment, winding-up,
liquidation, dissolution, composition or other relief with respect to
Tenant or Tenant's debts under any existing or future law of any
jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, or (b) seeking appointment of a
receiver, trustee, custodian or other similar official for Tenant or for
all or any substantial part of Tenant's property, which either: (i)
results in any such entry of an order for relief, adjudication of
bankruptcy or insolvency or such an appointment or the issuance or entry
of any other order having a similar effect; or (ii) remains undismissed
for a period of sixty (60) days; or
(B)(5) if a trustee, receiver or other custodian shall be appointed
for any substantial part of the assets of Tenant which appointment is not
vacated or effectively stayed within ninety (90) days; or
(C) if Tenant shall default in the observance or performance of any
other term, covenant or condition of this Lease on Tenant's part to be
observed or performed, and Tenant shall fail to remedy such default within
thirty (30) days after written Notice by Landlord to Tenant of such
default, or if such default is of such a nature that it cannot with due
diligence be completely remedied within said period
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of thirty (30) days, if Tenant shall not: (i) duly institute within said
thirty (30) day period; and (ii) thereafter diligently and continuously
prosecute to completion all steps necessary to remedy the same.
SECTION 16.2. If an Event of Default shall occur, Landlord may, at
any time thereafter, at Landlord's option, give written Notice to Tenant stating
that this Lease and the Term shall expire and terminate on the date specified in
such Notice, which date shall not be less than ten (10) days after the giving of
such Notice, whereupon this Lease and the Term and all rights of Tenant under
this Lease shall automatically expire and terminate as if the date specified in
the Notice given pursuant to this Section 16.2 were the Fixed Expiration Date
and Tenant thereafter shall quit and surrender the Premises, but Tenant shall
remain liable for damages as provided herein or pursuant to law. Anything
contained herein to the contrary notwithstanding, if such termination shall be
stayed by order of any court having jurisdiction over any proceeding described
in Section 16.1(B), or by federal or state statute, then, following the
expiration of any such stay, or if the trustee appointed in any such proceeding,
Tenant or Tenant as debtor-in-possession fails to assume Tenant's obligations
under this Lease within the period prescribed therefor by law or within one
hundred twenty (120) days after entry of the order for relief or as may be
allowed by the court, or if said trustee, Tenant or Tenant as
debtor-in-possession shall fail to provide adequate protection of Landlord's
right, title and interest in and to the Premises or adequate assurance of the
complete and continuous future performance of Tenant's obligations under this
Lease, Landlord, to the extent permitted by law or by leave of the court having
jurisdiction over such proceeding, shall have the right, at its election, to
terminate this Lease on ten (10) days' Notice to Tenant, Tenant as
debtor-in-possession or said trustee and upon the expiration of said ten (10)
day period this Lease shall cease and expire as aforesaid and Tenant, Tenant as
debtor-in-possession or said trustee shall thereafter quit and surrender the
Premises as aforesaid.
SECTION 16.3. If, at any time: (i) Tenant shall consist of two (2)
or more Persons; or (ii) Tenant's obligations under this Lease shall have been
guaranteed by any Person other than Tenant; or (iii) Tenant's interest in this
Lease has been assigned, the word "Tenant" as used and referred to in this
Lease, shall be deemed to mean any one or more of the persons primarily or
secondarily liable for Tenant's obligations under this Lease. Any monies
received by Landlord from or on behalf of Tenant during the pendency of any
proceeding of the types referred to in Section 16.1(B) hereof shall be deemed
paid as compensation for the use and occupancy of the Premises and the
acceptance of any such compensation by Landlord shall not be deemed an
acceptance of Rental or a waiver on the part of Landlord of any rights under
Section 16.2 hereof.
SECTION 16.4. In the event of any default by Landlord hereunder,
except as otherwise provided herein, Tenant will give Landlord written notice
specifying such default with particularity, and Landlord shall thereupon have
thirty (30) days in which to cure such default or to commence to cure such
default if any such default cannot be reasonably cured within such 30-day
period, in which event Landlord shall prosecute such cure with diligence to a
conclusion. Unless and until Landlord fails to so cure or proceed with diligence
to cure any default after such notice, Tenant shall not have any remedy or cause
of action by reason thereof.
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If Landlord is in default hereunder, and fails to cure the same timely, in
addition to any and all other rights, remedies and recourses available to
Tenant, Tenant may undertake to cure such default on behalf of Landlord, and
thereupon Landlord agrees to pay Tenant, upon demand, all costs, expenses and
disbursements (including reasonable attorneys' fees) incurred by Tenant in
taking such remedial actions with interest thereon at the Applicable Rate. In
addition to the foregoing, Tenant shall also have the same rights granted to
Landlord under Section 17.1(B) relating to injunctive or equitable relief. The
right to invoke the remedies hereinbefore set forth are cumulative and shall not
preclude Tenant from invoking any other remedy allowed at law or in equity.
ARTICLE 17
REMEDIES AND DAMAGES
SECTION 17.1.
(A) If any Event of Default shall occur, or this Lease and the Term
shall expire and come to an end as provided in Article 16 hereof:
(1)Tenant shall quit and peacefully surrender the Premises to
Landlord, and Landlord and its agents may, after the date upon which
this Lease and the Term shall expire and come to an end, re-enter
the Premises or any part thereof, without Notice, either by summary
proceedings, or by any other applicable action or proceeding or
otherwise, and may repossess the Premises and dispossess Tenant and
any other persons from the Premises by summary proceedings or
otherwise and remove any and all of their property and effects from
the Premises (and Tenant shall remain liable for damages as provided
herein or pursuant to law); and
(2)Landlord, at Landlord's option, may relet the whole or any
part or parts of the Premises from time to time, either in the name
of Landlord or otherwise, to such tenant or tenants, for such term
or terms ending before, on or after the Fixed Expiration Date, at
such rent or rentals and upon such other conditions, which may
include concessions and free rent periods, as Landlord may
determine; provided, however, that Landlord shall exercise
reasonable efforts to mitigate any damages related to liability of
Tenant under this Lease.
(B) In the event of a breach or threatened breach by Tenant, or any
persons claiming through or under Tenant, of any term, covenant or
condition of this Lease, Landlord shall have the right to enjoin such
breach.
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SECTION 17.2.
(A) If this Lease and the Term shall expire and come to an end as
provided in Article 2 hereof, or by or under any summary proceeding or any
other action or proceeding, or if Landlord shall re-enter the Premises as
provided in Section 17.1 hereof, or by or under any summary proceeding or
any other action or proceeding, then, in any of said events:
(1)Tenant shall pay to Landlord all Fixed Rent, Additional Rent
and other items of Rental payable under this Lease by Tenant to
Landlord to the date upon which this Lease and the Term shall have
expired and come to an end or to the date of re-entry upon the
Premises by Landlord, as the case may be;
(2)if Landlord has not terminated the Lease, but only Tenant's
right of possession to the Premises, Tenant also shall be liable for
and shall pay to Landlord, as damages, any deficiency ("Deficiency")
between the Rental for the period which is the unexpired portion of
the Term and the net amount, if any, of rents collected under any
reletting effected pursuant to the provisions of Section 17.1(A)(2)
for any part of such period (after first deducting from the rents
collected under any such reletting all of Landlord's reasonable and
actual expenses in connection with the termination of Tenant's right
of possession, Landlord's re-entry upon the Premises and such
reletting including, but not limited to, all repossession costs,
brokerage commissions, attorneys' fees and disbursements, alteration
costs and other expenses of preparing the Premises for such
reletting, to the extent the same are allocable to the remaining
Term); any such Deficiency shall be paid in monthly installments by
Tenant on the days specified in this Lease for payment of
installments of Fixed Rent; Landlord shall be entitled to recover
from Tenant each monthly Deficiency as the same shall arise, and no
suit to collect the amount of the Deficiency for any month shall
prejudice Landlord's right to collect the Deficiency for any
subsequent month by a similar proceeding; and
(3)alternatively, if Landlord has terminated the Lease, Landlord
shall be entitled to recover from Tenant, and Tenant shall pay to
Landlord, on demand, and as and for liquidated and agreed final
damages, a sum equal to the amount by which the present value
(calculated using the Base Rate as the discount rate) of the unpaid
Rental for the period which otherwise would have constituted the
unexpired portion of the Term exceeds the present value (calculated
using the Base Rate as the discount rate) of the then fair and
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reasonable rental value of the Premises for the same period, taking
into consideration reasonable costs incurred to relet the Premises;
if, before presentation of proof of such liquidated damages to any
court, commission or tribunal, the Premises, or any part thereof,
are relet by Landlord on a fair and arms-length basis for the period
which otherwise would have constituted the unexpired portion of the
Term, or any part thereof, the amount of rent reserved upon such
reletting shall be deemed, prima facie, to be the fair and
reasonable rental value for the part or the whole of the Premises so
relet during the term of the reletting.
(B) Tenant shall in no event be entitled to any rents collected or
payable under any reletting, whether or not such rents exceed the Fixed
Rent reserved in this Lease. Nothing contained in this Article 17 shall be
deemed to limit or preclude the recovery by Landlord from Tenant of the
maximum amount allowed to be obtained as damages by any statute or rule of
law, or of any sums or damages to which Landlord may be entitled in
addition to the damages set forth in this Section 17.2.
ARTICLE 18
FEES AND EXPENSES
SECTION 18.1. If an Event of Default shall have occurred by Tenant
or Landlord has defaulted on its obligations on this Lease and the same is not
cured within any applicable cure period, the non-defaulting party may (1)
perform any term, covenant or condition of this Lease for the account of the
defaulting party, or (2) make any expenditure or incur any obligation for the
payment of money in connection with any obligation owed to the non-defaulting
party, including, but not limited to, reasonable attorneys' fees and
disbursements in instituting, prosecuting or defending any action or proceeding,
and in either case the cost thereof, with interest thereon at the Applicable
Rate, shall be paid by the defaulting party to the non-defaulting party within
twenty (20) days after rendition of any bill or statement therefor.
ARTICLE 19
END OF TERM
SECTION 19.1. Upon the expiration or other termination of this
Lease, Tenant shall quit and surrender to Landlord the Premises, vacant, broom
clean, in good order and condition, ordinary wear and tear and damage by fire or
other casualty or by condemnation excepted, and Tenant shall remove all of
Tenant's Property and all other personal property and personal effects of all
persons claiming through or under Tenant, and shall pay the cost of repairing
all damage to the Premises occasioned by such removal.
SECTION 19.2. If the Premises are not surrendered upon the
expiration or other termination of this Lease and all Tenant Property removed as
provided above, Tenant shall be
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deemed to be occupying the Premises as a tenant at will, and after sixty (60)
days written notice from Landlord, such continued occupancy will be at a rental
equal to the Fixed Rent herein provided plus fifty percent (50%) of such amount
and otherwise subject to all the conditions, provisions and obligations of this
Lease insofar as the same are applicable to a tenancy at will.
SECTION 19.3. Tenant's obligations under this Article 19 shall
survive the expiration or termination of this Lease.
ARTICLE 20
NOTICES
SECTION 20.1.
(A) Except as otherwise expressly provided in this Lease, any bills,
statements, consents, notices, demands, requests or other communications
given or required to be given under this Lease ("Notice(s)") shall be in
writing and shall be deemed sufficiently given or rendered if delivered by
hand (against a signed receipt) or if deposited with a nationally
recognized overnight courier or if deposited in the United States mail,
and sent by first class mail, certified, return receipt requested with
postage prepaid, and in any case addressed:
IF TO TENANT:
(i) at Tenant's address first set forth in this
Lease and (ii) to the Premises, and
WITH A COPY TO:
Comfort Systems USA, Inc.
777 Post Oak Boulevard, Suite 500
Houston, TX 77056
Attention: General Counsel
IF TO LANDLORD:
Mark P. Shambaugh
2233 East Cedar Canyons Road
Fort Wayne, IN 46845
WITH A COPY TO:
N. Reed Silliman, Esq.
Baker & Daniels
111 East Wayne Street, Suite 800
Fort Wayne, IN 46802
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and any Mortgagee who may have requested the same, by Notice given
in accordance with the provisions of this Article 20, at the address
designated by such Mortgagee,
or to such other address(es) as either Landlord or Tenant may
designate as its new address(es) for such purpose by Notice given to
the other in accordance with the provisions of this Article 20.
(B) Notices shall be deemed to have been rendered or given (a) on
the date delivered, if delivered by hand, (b) on the day after being
deposited with a nationally recognized overnight courier or (c) five (5)
days after deposit in the United States mail, as provided in Section
20.1(A) hereof.
ARTICLE 21
INDEMNITY
SECTION 21.1. Tenant shall not do or permit any act or thing to be
done in, at or upon the Premises that may subject any Indemnitee to any
liability or responsibility for injury, damage to persons or property or to any
liability by reason of the existence or application of, compliance with or
violation of any Requirement, but shall exercise such control over the Premises
as to protect each Indemnitee fully against any such liability and
responsibility. Tenant shall indemnify and save harmless the Indemnitees from
and against (a) all claims against the Indemnitees arising from any accident,
injury or damage whatsoever caused to any person or to the property of any
person and occurring in, on or about the Premises during the Term or during
Tenant's occupancy of the Premises, unless, and to the extent not, caused by the
negligent or intentional misconduct of Landlord, and (b) any breach, violation
or non-performance of any covenant, condition or agreement contained in this
Lease to be fulfilled, kept, observed and performed by Tenant. This indemnity
and hold harmless agreement shall include indemnity from and against any and all
liability, claims, fines, suits, demands, costs and expenses of any kind or
nature (including, without limitation, attorneys' fees and disbursements)
incurred in or in connection with any such claim or proceeding brought thereon,
and the defense thereof. If any claim, action or proceeding is made or brought
against any Indemnitee, against which claim, action or proceeding Tenant is
obligated to indemnify such Indemnitee pursuant to the terms of this Lease,
then, upon demand by the Indemnitee, Tenant, at its sole cost and expense, shall
contest or defend such claim, action or proceeding in the Indemnitee's name, if
necessary, by such attorneys as the Indemnitee may select, including, without
limitation, attorneys for the Indemnitee's insurer. The provisions of this
Article 21 shall survive the expiration or earlier termination of this Lease.
SECTION 21.2. Landlord shall indemnify and save harmless the Tenant
and the other Tenant Indemnitees from and against (a) all claims against the
Tenant Indemnitees arising from any accident, injury or damage whatsoever caused
to any person or the property of any person and occurring in, on or about the
Premises during the Term or during Tenant's occupancy of the Premises to the
extent caused by the negligent or intentional misconduct of Landlord and (b) any
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breach, violation or nonperformance of any covenant, condition or agreement
contained in this Lease to be fulfilled, kept, observed and performed by
Landlord. This indemnity and hold harmless shall include indemnity from and
against any and all liability, claims, fines, suits, demands, costs and expenses
of any kind or nature (including, without limitation, attorneys' fees and
disbursements) incurred in or in connection with any such claim or proceeding
brought thereon, and the defense thereof. If any claim, action or proceeding is
made or brought against any Tenant Indemnitee, against which claim, action or
proceeding Landlord is obligated to indemnify such Tenant Indemnitee pursuant to
the terms of this Lease, then, upon demand by the Tenant Indemnitee, Landlord at
its sole cost and expense shall contest or defend such claim, action or
proceeding in the Tenant Indemnitee's name, if necessary, by such attorneys as
the Tenant Indemnitee may select, including without limitation attorneys for the
Indemnitee's insurer. The provisions of this Article 21 shall survive the
expiration or earlier termination of this Lease.
ARTICLE 22
RENEWAL OPTIONS
SECTION 22.1. Provided that there is no Event of Default at the time
the Option (as such term is hereinafter defined) is to be exercised, the Tenant
shall have the option to renew this Lease for one (1) additional five (5) year
period as follows:
OPTION PERIOD shall commence on the tenth (10th) anniversary of the
Commencement Date and shall continue up to and including the day before
the fifteenth (15th) anniversary of the Commencement Date,
the aforementioned option period is referred to herein as the
"Option Period".
SECTION 22.2. The Option granted to the Tenant pursuant to the
provisions of Section 22.1 hereof shall be exercised by the Tenant giving
written Notice to the Landlord of the Tenant's intent to exercise the Option not
less than one-hundred twenty (120) days prior to the expiration of the Initial
Term.
SECTION 22.3. In the event that the Tenant exercises the Option, the
Landlord and the Tenant hereby agree that this Lease shall continue in full
force and effect and remain unamended during the Option Period, except that the
Fixed Rent payable by the Tenant to the Landlord during such Option Period shall
continue to be increased annually in accordance with the provisions of Rider 1
hereof.
ARTICLE 23
COVENANT OF QUIET ENJOYMENT
SECTION 23.1. Landlord covenants that, upon Tenant paying all Fixed
Rent and Additional Rent and observing and performing all of the terms,
agreements, covenants, provisions and conditions of this Lease on Tenant's part
to be observed and performed, Tenant may peaceably and quietly enjoy the
Premises.
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ARTICLE 24
MISCELLANEOUS
SECTION 24.1. The obligations of Landlord under this Lease shall be
binding upon Landlord named herein after the sale, conveyance, assignment or
transfer by such Landlord (or upon any subsequent landlord after the sale,
conveyance, assignment or transfer by such subsequent landlord) of its interest
in the Premises, as the case may be, and in the event of any such sale,
conveyance, assignment or transfer, Landlord shall be freed and relieved of any
of the covenants and obligations of Landlord under this Lease thereafter
arising, upon the date that the transferee shall have assumed, in writing, for
the benefit of Tenant, all obligations of the Landlord under this Lease arising
after the effective date of the transfer.
SECTION 24.2. Notwithstanding anything contained in this Lease to
the contrary, all amounts payable by Tenant to or on behalf of Landlord under
this Lease, whether or not expressly denominated Fixed Rent, Additional Rent or
Rental, shall constitute rent for the purposes of Section 502(b)(7) of the
Bankruptcy Code.
SECTION 24.3. Upon the request of either party, the other will
execute and deliver a mutually acceptable memorandum of this Lease in recordable
form.
SECTION 24.4. Except as otherwise provided specifically herein, any
consent or approval required to be obtained from Landlord or Tenant under this
Lease shall not be unreasonably withheld, conditioned or delayed.
SECTION 24.5. Landlord represents and warrants to Tenant that
Landlord has full power and authority to enter into this Lease without the
consent of any other parties, including any Mortgagees. Tenant and the person
executing this Lease on behalf of Tenant hereby covenant and warrant that: (i)
Tenant is now and shall remain throughout the term of this Lease a duly
organized and validly existing corporation qualified to do business in the State
of Indiana; and (ii) the persons executing this Lease on behalf of Tenant are
duly authorized to do so by all necessary corporate action.
SECTION 24.6. If any words or phrases in this Lease are stricken out
or otherwise eliminated, whether or not any other words or phrases have been
added, this Lease shall be construed as if the words or phrases so stricken out
or otherwise eliminated were never included in this Lease and no implication or
inference shall be drawn from the fact that such words or phrases were stricken
out or otherwise eliminated.
SECTION 24.7. If any of the provisions of this Lease, or the
application thereof to any person or circumstance, shall, to any extent, be
invalid or unenforceable, the remainder of this Lease, or the application of
such provisions to persons or circumstances other than those as to whom or which
it is held invalid or unenforceable, shall not be affected thereby and shall
remain
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valid and enforceable, and every provision of this Lease shall be valid and
enforceable to the fullest extent permitted by law.
SECTION 24.8. This Lease contains the entire agreement between the
parties and all prior negotiations and agreements are merged into this Lease.
This Lease may not be changed, abandoned or discharged, in whole or in part, nor
may any of its provisions be waived except by a written agreement that (a)
expressly refers to this Lease, and (b) is executed by the party against whom
enforcement of the change, abandonment, discharge or waiver is sought.
SECTION 24.9. The laws of the State of Indiana applicable to
contracts made and to be performed wholly within the State of Indiana shall
govern and control the validity, interpretation, performance and enforcement of
this Lease without regard to principles of conflicts of law.
SECTION 24.10. The captions are inserted only as a matter of
convenience and for reference and in no way define, limit or describe the scope
of this Lease nor the intent of any provision thereof.
SECTION 24.11. The covenants, conditions and agreements contained in
this Lease shall bind and inure to the benefit of Landlord and Tenant and their
respective legal representatives, heirs, successors, and, except as otherwise
provided in this Lease, their assigns.
SECTION 24.12. Tenant acknowledges and agrees that the liability of
Landlord under this Lease shall be limited to Landlord's interest in the
Premises, and any judgments rendered against Landlord shall be satisfied solely
out of the proceeds of the sale of Landlord's interest in the Premises. The
foregoing provision is not intended to relieve Landlord from the performance of
any of Landlord's obligations under this Lease, but only to limit the personal
liability of Landlord in the case of a recovery of a judgment against Landlord;
nor shall the foregoing be deemed to limit Tenant's rights to injunctive relief
or to avail itself of any other right or remedy which may be awarded Tenant by
law or under this Lease.
SECTION 24.13. For the purposes of this Lease and all agreements
supplemental to this Lease, unless the context otherwise requires:
(A) The words "herein", "hereof", "hereunder" and "hereby" and words
of similar import shall be construed to refer to this Lease as a whole and
not to any particular Article or Section unless expressly so stated.
(B) Obligations hereunder shall be construed in every instance as
conditions as well as covenants, each separate and independent of any
other terms of this Lease.
(C) Reference to "termination of this Lease" or "expiration of this
Lease" and words of like import includes expiration or sooner termination
of this
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Lease and the Term and the estate hereby granted or cancellation of this
Lease pursuant to any of the provisions of this Lease or by law. Upon the
termination of this Lease, the Term and estate granted by this Lease shall
end at noon on the date of termination as if such date were the Fixed
Expiration Date, and neither party shall have any further obligation or
liability to the other after such termination except: (i) as shall be
expressly provided for in this Lease; and (ii) for such obligations as by
their nature under the circumstances can only be, or by the provisions of
this Lease, may be, performed after such termination, and, in any event,
unless expressly otherwise provided in this Lease, any liability for a
payment (which shall be apportioned as of such termination) which shall
have accrued to or with respect to any period ending at the time of
termination shall survive the termination of this Lease.
(D) Words and phrases used in the singular shall be deemed to
include the plural and vice versa, and nouns and pronouns used in any
particular gender shall be deemed to include any other gender.
IN WITNESS WHEREOF, Landlord and Tenant have duly executed this
Lease as of the day and year first above written.
/s/________________________________
MARK P. SHAMBAUGH
"Landlord"
SHAMBAUGH & SON, INC.,
an Indiana Corporation
By:/s/
Printed: KEVIN L. BEACH
Its: V.P./SEC'Y.
"Tenant"
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RIDER 1
INCREASES IN FIXED RENT
SECTION 1. For purposes of the Lease:
(A) "Bureau" means the Federal Bureau of Labor Statistics or any
successor agency that shall issue the indices or data referred to in
subparagraph (ii) below.
(B) "Price Index" means the Consumer Price Index for All Urban
Consumers for the Fort Wayne, Indiana geographic area, 1982-1984=100,
issued from time to time by the Bureau or any other successor measure
hereafter employed by the Bureau in lieu of such price index that measures
the cost of living for such geographic area or failing such successor, the
most nearly comparable index (reflecting changes in costs of housing
including rental housing, energy and services), published by a
Governmental Authority, appropriately adjusted. Furthermore, if hereafter
the Price Index is converted to a different standard reference base or a
substantial change is made in the terms or number of items contained
therein, the Price Index shall be adjusted (with the use of such
conversion factor, formula or table as is published by the Bureau, or if
it shall not publish same, the conversion factor published by Prentice
Hall, Inc., or, failing such publication, by any other nationally
recognized publisher of similar statistical information) to the figure
that would have resulted if not for such conversion or change.
(C) "Base Index" means the Price Index issued for December 31, 1998.
(D) "Applicable Price Index" for a Lease Year means the Price Index
most recently issued prior to the date on which such Lease Year commences.
SECTION 2.
(A) Tenant shall pay to Landlord the Fixed Rent in the amount set
forth in Article 1 of this Lease for the first Lease Year.
(B) Beginning after the end of the first Lease Year, and for each
and every Lease Year thereafter, the Tenant shall pay to the Landlord, as
Fixed Rent, an amount equal to the GREATER of:
(1) an amount equal to the sum of (x) the percentage by which
the Applicable Price Index for such Lease Year exceeds the
Applicable Price Index for the immediately preceding Lease Year,
multiplied by the Fixed Rent payable for such immediately
<PAGE>
preceding Lease Year and (y) such Fixed Rent payable for the
immediately preceding Lease Year (e.g., if the Base Index is 200,
the Applicable Price Index for the second Lease Year is 203, the
Applicable Price Index for the third Lease Year is 215, and the
Fixed Rent payable for the second Lease Year is $50,000.00, then the
Applicable Price Index for the third Lease Year exceeds the
Applicable Price Index for the second Year by 5.91% (i.e., the
difference between 203 and 215), and the Fixed Rent derived from the
aforesaid calculation shall be $52,955.75 (5.91% of $50,000.00,
which is $2,955.00, plus $50,000.00); or
(2) an amount equal to the Fixed Rent for the immediately
preceding Lease Year.
The Landlord and the Tenant hereby acknowledge that it is the mutual intention
of the parties that for each and every Lease Year subsequent to the first Lease
Year during the Term hereof, the Fixed Rent payable by the Tenant to the
Landlord hereunder shall never be decreased from the prior Lease Year.
SECTION 3. Upon Notice by the Landlord to the Tenant of an increase
in the Fixed Rent pursuant to the provisions of this Section 3 ("Increase
Notice"), the Tenant shall pay the Fixed Rent as set forth in the Increase
Notice for the period in which the increase identified in such Notice shall
apply.
<PAGE>
SCHEDULE A
LEGAL DESCRIPTION
HAVEL BROS., SOUTH BEND
A tract of land in the Northeast Quarter of Section 28, Township 38 North, Range
2 East, City of South Bend, St. Joseph County, Indiana, more particularly
described as follows: Commencing at the Southeast corner of said Northeast
Quarter; then North 000 00' 01" East along the East Line thereof, 1550.16 feet;
thence South 890 58' 58" West, 210.65 feet to the Point of Beginning; said Point
of Beginning being the Southwest corner of Lot Numbered 1 of Bendix Park Minor
Subdivision, recorded as Document Number 8804247 in the Office of the St. Joseph
County Recorder; thence South 890 58' 58" West, 140.00 feet; then North 000 06'
23" East, 291.12 feet to a point on a curve, said curve being concave
Northwesterly and having a radius of 60.00 feet, a chord length of 52.08 feet,
and a chord bearing of North 640 23' 08" East, thence Northeasterly along said
curve an arc length of 53.87 feet to the beginning of a curve, said curve being
concave Southeasterly and having a radius of 20.00 feet, a chord length of 17.32
feet and a chord bearing of North 640 19' 26" East; thence North 890 58' 58"
East, 76.89 feet to the Northwest corner of said Lot Numbered 1 of Bendix Park
Minor Subdivision; thence South 000 00' 01" West along the West line of said Lot
1 a distance of 321.12 feet to the Point of Beginning and to be known as Lot
Lettered "A" in Bendix Park 2nd Minor Subdivision.
EXHIBIT 10.32 TO 10-K
AGREEMENT OF LEASE
BETWEEN
MARK P. SHAMBAUGH
LANDLORD
AND
SHAMBAUGH & SON, INC.
TENANT
DATED: OCTOBER 31, 1998
PREMISES
N. NINTH STREET ROAD
LAFAYETTE, IN 47902
<PAGE>
AGREEMENT OF LEASE ("Lease"), made as of the 31st day of October,
1998, between Mark P. Shambaugh, as Landlord, and Shambaugh & Son, Inc., an
Indiana corporation.
R E C I T A L S:
WHEREAS, the Landlord is the owner of certain premises known as and
by the street address of N. Ninth Street Road, Lafayette, Indiana 47902 (as more
particularly described on Schedule "A", annexed hereto and made a part hereof);
and
WHEREAS, the Landlord desires to rent the aforementioned premises to
the Tenant and the Tenant desires to rent the aforementioned premises from the
Landlord.
NOW, THEREFORE, in consideration of the mutual promises and
covenants herein contained and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto,
for themselves, as well as their respective legal representatives, heirs,
successors and assigns, hereby agree as follows:
ARTICLE 1
GLOSSARY
For the purposes of this Lease, the following terms shall have the
meanings indicated below:
"Additional Rent" shall have the meaning set forth in Section 2.2(B)
hereof.
"Applicable Rate" shall mean the lesser of (x) three percentage
points above the then current Prime Interest rate as published, from time to
time, by the WALL STREET JOURNAL as its prime interest rate in its Money Rates
section (or if such publication no longer exists or no longer publishes such
rate, then the "base rate" as announced by Citibank, N.A. [or its successors],
from time to time, for the rate presently referred to as its "base rate") or (y)
the maximum rate permitted by applicable law.
"Bankruptcy Code" shall mean 11 U.S.C. Section 101 ET SEQ., or any
statute, federal or state, of similar nature and purpose, now or hereafter.
"Building Systems" shall mean the mechanical, electrical, sanitary,
heating, air conditioning, ventilating, elevator, plumbing, life-safety and
other service or support systems of any nature whatsoever located at or on the
Premises, BUT shall not include installations made by Tenant or fixtures or
appliances (regardless of whether or not such fixtures or appliances are owned
by the Tenant or the Landlord).
"Building Insurance" shall have the meaning set forth in Section
10.2 hereof.
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"Business Days" shall mean all days, excluding Saturdays, Sundays
and all days observed as holidays by the State of Indiana or the federal
government.
"Commencement Date" is October 31, 1998.
"Event of Default" shall have the meaning set forth in Section 16.1
hereof.
"Expiration Date" shall mean the Fixed Expiration Date or such other
date on which the Term ends pursuant to any of the terms, conditions or
covenants of this Lease or pursuant to law.
"Fixed Expiration Date" is October 31, 2008.
"Fixed Rent" : $26,500.00 per annum ($2,208.33 per month) for the
first Lease Year (as such term is hereinafter defined) subject to adjustment
thereafter in accordance with the provisions of Rider 1 hereof.
"Government Authority" or "Government Authorities" shall mean the
United States of America, the State of Indiana, the County of Allen, the
Municipality of Fort Wayne, and/or any political subdivision thereof and any
agency, department, commission, board, bureau or instrumentality of any of the
foregoing, now existing or hereafter created, having jurisdiction over the
Premises or any portion thereof.
"Hazardous Materials" shall have the meaning set forth in Section
8.2 hereof.
"Increase Notice" shall have the meaning set forth in Section 3 of
Rider 1 attached hereto and made a part hereof.
"Indemnitees" shall mean Landlord, his agents and contractors (and
the partners, shareholders, officers, directors and employees of any of the
Landlord's agents or contractors).
"Initial Term" shall mean the ten (10) year period commencing on the
Commencement Date.
"Landlord", on the date as of which this Lease is made, shall mean
Mark P. Shambaugh, but thereafter, "Landlord" shall mean any fee owner of the
Premises.
"Lease Year" shall mean each twelve (12) month period commencing on
the Commencement Date and each anniversary of the Commencement Date.
"Mortgage(s)" Shall mean any deed of trust, trust indenture or
mortgage which may now or hereafter affect the Premises and all extensions,
supplements, amendments, modifications, consolidations, refinancings and
replacements thereof or thereto, substitutions therefor, and advances made
thereunder.
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"Mortgagee(s)" Shall mean any trustee or mortgagee or holder of a
Mortgage.
"Notice(s)" shall have the meaning set forth in Section 22.1(A)
hereof.
"Option" or "Options" shall have the meaning set forth in Section
26.1 hereof.
"Option Period" or "Option Periods" shall have the meaning set forth
in Section 26.1 hereof.
"Permitted Use" shall mean general, executive and administrative
offices, parking, machine shop, repair, and warehouse facilities in connection
with Tenant's business as a mechanical contracting and service company and uses
related thereto including the evolution of the Tenant's business consistent with
the evolution of the mechanical contracting industry in general, subject to all
applicable laws, regulations, codes and ordinances, and subject further to all
recorded restrictions, covenants and limitations affecting the Premises,
provided, however, that no recorded restrictions, covenants or limitations
impair the use of the Premises for the purposes intended by Tenant as of the
Commencement Date.
"Person(s) or Person(s)" shall mean any natural person or persons, a
partnership, a corporation and any other form of business or legal association
or entity.
"Persons Within Tenant's Control" shall mean and include Tenant, all
of Tenant's respective shareholders, directors, officers, agents, contractors,
sub-contractors, servants, employees, licensees and invitees as well as any of
the heirs, successors, representatives and assigns of any of the foregoing.
"Premises" shall mean all that certain plot, piece and parcel of
land, together with all buildings and improvements erected thereon, known as and
by the street address of 7614 and 7620 Opportunity Drive, Fort Wayne, Indiana
46801 (as more particularly described on Schedule "A", annexed hereto and made a
part hereof).
"Price Index" shall have the meaning set forth in Section 1(B) of
Rider 1 attached hereto.
"Rental" shall mean and be deemed to include Fixed Rent, Additional
Rent and any other sums payable, now or hereafter, by Tenant hereunder.
"Requirements" shall mean all present and future laws, rules,
ordinances, regulations, statutes, requirements, codes and executive orders,
extraordinary as well as ordinary, retroactive and prospective, of all
Governmental Authorities, now existing or hereafter created which affect,
directly or indirectly, the Premises and/or the maintenance, use, operation or
occupation of the Premises, and all recorded restrictions, covenants and
limitations affecting the
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Premises, provided, however, that no recorded restrictions, covenants or
limitations impair the use of the Premises for the purposes intended by Tenant
as of the Commencement Date.
"Taxes" shall have the meaning set forth in Section 3.1 hereof.
"Tenant", on the date as of which this Lease is made, shall mean the
Tenant named in this Lease, but thereafter "Tenant" shall mean only the tenant
under this Lease at the time in question; provided, however, that the Tenant
named in this Lease and any and all successor tenant(s) hereunder shall not be
released and relieved from any liability hereunder in the event of any
assignment of this Lease or a sublet, in whole or in part, of the Premises.
"Tenant Indemnitees" shall mean Tenant, its agents and contractors
(and the partners, shareholders, officers, directors and employees of Tenant and
its agents and contractors).
"Tenant's Property" shall mean Tenant's movable fixtures and movable
partitions, telephone and other equipment, furniture, furnishings and other
movable items of personal property owned by the Tenant.
"Term", on the date as of which this Lease is made shall mean the
Initial Term, but thereafter shall be deemed to include any Option Period for
which the Tenant exercises its Option pursuant to the provisions of Article 26
hereof.
ARTICLE 2
DEMISE; PREMISES; TERM; RENT
SECTION 2.1. Landlord hereby leases to Tenant and Tenant hereby
hires from Landlord the Premises for the Initial Term to commence on the
Commencement Date and to end on the Fixed Expiration Date, unless earlier
terminated as provided herein and subject to the renewal options provided for in
Article 26 below.
SECTION 2.2. Commencing upon the Commencement Date, Tenant shall pay
to Landlord, in lawful money of the United States of America, without Notice or
demand, without relief from valuation and appraisement laws, by good and
sufficient check at the office of Landlord or at such other place as Landlord
may designate from time to time, the following:
(A) the Fixed Rent, as such term is defined in Article 1 hereof,
which shall be payable in equal monthly installments in advance on the
first day of each and every calendar month during the Term, and
(B) additional rent ("Additional Rent") consisting of all other sums
of money as shall become due from and be payable by Tenant hereunder.
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SECTION 2.3. If the Commencement Date is other than the first day of
a calendar month, or the Fixed Expiration Date is other than the last day of a
calendar month, Fixed Rent for such month shall be prorated on a per diem basis.
SECTION 2.4. Tenant shall pay the Fixed Rent and Additional Rent
when due without abatement, deduction, counterclaim, setoff or defense of any
nature. It is understood and agreed that the Fixed Rent to be received by
Landlord during the Term shall be net to Landlord so that this Lease shall yield
to Landlord the Fixed Rent specified herein and, accordingly, all real estate
taxes, insurance, maintenance and other expenses of any nature related to the
Premises, excluding Landlord's income taxes, shall be solely the responsibility
of Tenant unless otherwise specifically set forth herein.
ARTICLE 3
REAL ESTATE TAXES
SECTION 3.1. The Tenant covenants and agrees that it shall, within
twenty (20) days of written demand by the Landlord to the Tenant, pay to the
Landlord, as Additional Rent, any and all Taxes (as hereinafter defined) of any
nature whatsoever assessed or imposed against the Premises for each and every
Lease Year during the Term of this Lease. The Landlord hereby agrees that any
demand given by the Landlord to the Tenant pursuant to the provisions of this
Section 3.1 shall include an accurate copy of the invoice, statement, bill or
similar document issued by the relevant Governmental Authority or Governmental
Authorities, as the case may be, with respect to the Taxes for which payment is
demanded. For purposes of this Section 3.1, "Taxes" shall include, without
limitation, any and all taxes assessed against the Premises, all personal
property taxes, all ad valorem taxes and any and all other taxes assessed
against the Premises by any Governmental Authority, now or hereafter, but shall
EXCLUDE any special assessments or charges for improvements or infrastructure
effected or installed prior to the Commencement Date. With respect to Taxes for
tax periods commencing before or ending after the Term of this Lease, Tenant
shall only be obligated to pay to Landlord the pro rata portion of such Taxes
equal to the portion of such tax period falling within the Term of this Lease.
ARTICLE 4
UTILITIES
SECTION 4.1. The Tenant shall contract for in its name, and
covenants and agrees that it shall pay when due any and all charges incurred
for, any and all utilities supplied to the Premises including, without
limitation, electricity, water, heating oil and/or natural gas. Landlord
represents and warrants to Tenant that electricity, water, telephone, sewer, and
natural gas, if any, are present at and available to the Premises in quantities
sufficient for Tenant's business purposes.
SECTION 4.2. Landlord shall not be liable in any way to Tenant for
any interruption or failure of or defect in the supply or character of any
utility furnished to the Premises, now or hereafter, or for any loss, damage or
expense Tenant may sustain if either the quantity or character of any utility is
changed or is no longer suitable for Tenant's requirements,
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whether by reason of any requirement, act or omission of the public utility
serving the Premises or for any other reason whatsoever. Notwithstanding the
provisions of this Section 4.2, the Landlord shall be responsible for any and
all actual damages suffered by the Tenant as a result of any interruption of
utility service to the extent caused by the Landlord's gross negligence or
intentional misconduct, and Rent shall abate until such service is fully
restored.
SECTION 4.3. If any Taxes are imposed upon Landlord with respect to
any utility furnished as a service to Tenant by any Governmental Authority,
Tenant agrees that such Taxes shall be reimbursed by Tenant to Landlord upon
written demand. The Landlord hereby agrees that any demand given by the Landlord
to the Tenant pursuant to the provisions of this Section 4.3 shall include an
accurate copy of the invoice, statement, bill or similar document issued by the
relevant Governmental Authority or Governmental Authorities, as the case may be,
with respect to the Taxes for which payment is demanded.
ARTICLE 5
USE AND OCCUPANCY
SECTION 5.1. Tenant shall use and occupy the Premises for the
Permitted Use and for no other purpose of any nature whatsoever. However,
nothing contained herein shall require Tenant to operate or occupy the Premises
continuously during the Term.
ARTICLE 6
ALTERATIONS
SECTION 6.1.
(A)(1) Except as provided below, prior to making any additions,
alterations or improvements to the Premises, Tenant shall: (i) submit to
Landlord plans and specifications for approval by the Landlord (including
to the extent reasonably applicable, layout, architectural, electrical,
mechanical and structural drawings) that comply with all Requirements for
each proposed addition, alteration or improvement to the Premises, and
Tenant shall not commence any such work without first obtaining Landlord's
approval of such plans and specifications; and (ii) at Tenant's expense,
obtain all permits, approvals and certificates required by any
Governmental Authorities. Upon completion of such addition, alteration or
improvement, Tenant, at Tenant's expense, shall obtain certificates of
final approval of such addition, alteration or improvement required by any
Governmental Authority and shall furnish Landlord with copies thereof. All
additions, alterations and improvements shall be made and performed in
accordance with the plans and specifications therefor as approved by
Landlord and otherwise in accordance with all Requirements. All materials
and equipment to be incorporated in the Premises as a result thereof shall
be good quality and no such materials or equipment shall be subject to any
lien, encumbrance, chattel mortgage, title retention or security
agreement.
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(A)(2) Notwithstanding anything to the contrary contained in this
Lease, Tenant shall have the right to make any alterations, additions and
improvements to the Premises without the consent of the Landlord if and
only if: (i) the total cost of such alterations, additions or improvements
do not exceed Fifty Thousand and No/100 Dollars ($50,000.00) for any Lease
Year; and (ii) Tenant shall not remove, materially alter or otherwise
impair any structural element of the Premises or the Building System.
(A)(3) Tenant agrees that any review or approval by Landlord of any
plans and/or specifications with respect to any alteration, addition and
improvement is solely for Landlord's benefit, and without any
representation or warranty whatsoever to Tenant or any other Person with
respect to the adequacy, correctness or sufficiency thereof or with
respect to Requirements or otherwise.
(A)(4) Landlord, at Tenant's expense, and upon the request of
Tenant, shall join in any applications for any permits, approvals or
certificates required to be obtained by Tenant in connection with any
permitted alteration, addition and improvement (provided that the
provisions of the applicable Requirements shall require that Landlord join
in such application) and shall otherwise cooperate with Tenant in
connection therewith; provided, however, that Landlord shall not be
obligated to incur any cost or expense or liability in connection
therewith.
(B) All alterations, additions and improvements shall become a part
of the Premises and shall be Landlord's property from and after the
installation thereof and may not be removed or changed without Landlord's
prior written consent. All Tenant's Property shall remain the property of
Tenant and, on or before the Expiration Date or earlier end of the Term,
may be removed from the Premises by Tenant at Tenant's sole cost and
option; provided, however, that Tenant shall repair and restore in a good
and workmanlike manner any damage to the Premises caused by such removal.
The provisions of this Section 6.1(B) shall survive the expiration or
earlier termination of this Lease.
(C)(1) Any mechanic's lien filed against the Premises for work
claimed to have been done for, or materials claimed to have been furnished
to, Tenant shall be contested by appropriate judicial proceedings or shall
be canceled or discharged by Tenant, at Tenant's expense, within ninety
(90) days after such lien shall be filed and Tenant receives notice
thereof, by payment or filing of the bond required by law.
(C)(2) If Tenant shall fail to contest or discharge such mechanic's
lien within the aforesaid period, then, in addition to any other right or
remedy of Landlord, Landlord may, but shall not be obligated to, discharge
the same either
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by paying the amount claimed to be due or by procuring the discharge of
such lien by deposit in court or bonding.
(C)(3) Any amount paid by Landlord for any of the aforesaid charges
and for all expenses of Landlord (including, but not limited to,
reasonable attorneys' fees and disbursements) incurred in defending any
such action, discharging said lien or in procuring the discharge of said
lien, with interest on all such amounts at the Applicable Rate, shall be
repaid by Tenant within twenty (20) days after written demand therefor,
and all amounts so repayable, together with such interest, shall be
considered Additional Rent.
(D) Tenant shall have the right, at its sole cost and expense, to
erect and maintain any exterior signs on the Premises with the prior
written consent of Landlord so long as the same comply with all applicable
Requirements. Landlord acknowledges consent to Tenant's signage in
existence as of the Commencement Date.
ARTICLE 7
REPAIRS; REPLACEMENTS; MAINTENANCE
SECTION 7.1. Except for those repairs, replacements or maintenance
required to be effected by Landlord, and further subject to the right of
reimbursement herein provided, Tenant, at Tenant's sole cost and expense, shall
take good care of the Premises and the improvements, buildings, Building
Systems, fixtures, equipment, parking lots, landscaping and appurtenances
located thereon and make all non-structural repairs, REPLACEMENTS or alterations
thereto of any nature whatsoever as and when needed to preserve them in as good
working order and condition as exists as of the Commencement Date, ordinary wear
and tear excepted, ("Maintenance Repairs") or to comply with any Requirement
("Requirement Alteration"). If Tenant shall fail, after thirty (30) days Notice
(or such shorter period as may be required because of an emergency), to commence
to make repairs, replacements or alterations required to be made by Tenant and
complete the same within a reasonable period of time thereafter exercising due
diligence, the same may be made by Landlord, at the expense of Tenant, and the
expenses thereof incurred by Landlord, with interest thereon at the Applicable
Rate, shall be paid to Landlord, as Additional Rent, within twenty (20) days
after rendition of a bill or statement therefor. Tenant shall give Landlord
prompt Notice of any defective condition known to Tenant in any Building Systems
located in, servicing or passing through the Premises. If the cost of any
Maintenance Repair or Requirement Alteration, whether structural or
non-structural, exceeds $10,000.00, and Landlord consents to such Maintenance
Repair or Requirement Alteration after prior written notice from Tenant, then
upon termination or other expiration of this Lease Landlord shall reimburse to
Tenant the pro rata portion of the cost of such Maintenance Repair or
Requirement Alterations equal to the portion of the useful life of such
Maintenance Repair or Requirement Alternations that remains after the expiration
or other termination of this Lease. The useful life of such Maintenance Repair
or Requirement Alterations shall be established by the party making such
Maintenance Repair or Requirement Alterations at the time made. Notwithstanding
anything to
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the contrary contained in this Section, in no event shall Tenant be responsible
for any repair, item of maintenance or replacement to the extent the same is
caused by the negligence or willful misconduct of Landlord or Landlord's
employees, contractors or agents.
SECTION 7.2. Landlord hereby assigns all warranties and guaranty
agreements relating to the Premises and the Building Systems to Tenant during
the Term.
SECTION 7.3. Landlord hereby agrees to repair, maintain and replace
all structural portions of the Premises, including, without limitation, exterior
walls, support columns and walls, foundation and the roof in as good repair and
working order as exists as of the Commencement Date, ordinary wear and tear
excepted.
ARTICLE 8
REQUIREMENTS OF LAW
SECTION 8.1. Tenant shall not do, and shall not permit (to the
extent Tenant has control over the same) any act or thing in or upon the
Premises which will invalidate or be in conflict with the certificate of
occupancy for the Premises or violate any Requirements. Tenant shall immediately
take all action, including but not limited to, making any Requirement
Alterations necessary to comply with all Requirements which shall or may impose
any violation, order or duty upon Landlord or Tenant arising from or in
connection with the Premises, Tenant's occupancy, use or manner of use of the
Premises or any installations in the Premises, or required by reason of a breach
of any of Tenant's covenants or agreements under this Lease, whether or not such
Requirements shall now be in effect or hereafter enacted or issued, and whether
or not any work required shall be ordinary or extraordinary or foreseen or
unforeseen as of the date hereof. Landlord represents and warrants to Tenant
that as of the Commencement Date no condition exists with respect to the
Premises that will necessitate any Requirement Alteration.
SECTION 8.2. Tenant covenants and agrees that Tenant shall, at
Tenant's sole cost and expense, comply at all times with all Requirements
governing the use, generation, storage, treatment and/or disposal of any
Hazardous Materials (as defined below) in, on, under, about or from the presence
of which results from or in connection with the act or omission of Tenant or
Persons Within Tenant's Control or the breach of this Lease by Tenant or Persons
Within Tenant's Control. The term "Hazardous Materials" shall mean any
biologically or chemically active or other toxic or hazardous wastes, pollutants
or substances, including, without limitation, asbestos, PCBS, petroleum products
and by-products, substances defined or listed as "hazardous substances" or
"toxic substances" or similarly identified in or pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. ' 9601 ET
SEQ., and as hazardous wastes under the Resource Conservation and Recovery Act,
42 U.S.C. ' 6010, ET SEQ., any chemical substance or mixture regulated under the
Toxic Substance Control Act of 1976, as amended, 15 U.S.C. 2601, ET SEQ., any
"toxic pollutant" under the Clean Water Act, 33 U.S.C. ' 466 ET SEQ., as
amended, any hazardous air pollutant under the Clean Air Act, 42 U.S.C. ' 7401
ET SEQ., hazardous materials identified in or pursuant to the Hazardous
Materials Transportation Act, 49 U.S.C. ' 1802, ET SEQ., and any hazardous or
toxic substances or pollutant regulated under any
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other Requirements. Tenant shall indemnify and hold harmless all Indemnitees
from and against any loss, claim, cost, damage, liability or expense (including
attorneys' fees and disbursements) arising by reason of any clean up, removal,
remediation, detoxification action or any other activity required or recommended
of any Indemnitees by any Governmental Authority by reason of the presence in,
on, under or about the Premises of any Hazardous Materials, as a result of or in
connection with the act or omission of Tenant or Persons Within Tenant's Control
or the breach of this Lease by Tenant or Persons Within Tenant's Control.
Landlord shall indemnify and hold harmless all Tenant Indemnitees from and
against any loss, claim, cost, damage, liability or expense (including
attorneys' fees and disbursements) arising by reason of any clean up, removal,
remediation, detoxification action or any other activity required or recommended
of any Tenant Indemnitees by any Governmental Authority by reason of the
presence in, on, under or about the Premises of any Hazardous Materials either
in existence on the Commencement Date or that come to exist thereafter that are
not the result of or in connection with the act or omission of Tenant or Persons
Within Tenant's Control or the breach of this Lease by Tenant or Persons Within
Tenant's Control. The foregoing covenants and indemnities shall survive the
expiration or any termination of this Lease.
SECTION 8.3. Landlord represents and warrants to Tenant that as of
the date hereof Landlord has no notice of the presence, generation, storage,
disposal or other use of Hazardous Materials on, in or under the Premises prior
to the date hereof or any violation of any violation of any applicable
Requirements relating to Hazardous Materials.
SECTION 8.4. If Tenant shall receive notice of any violation of or
defaults under, any Requirements, liens or other encumbrances applicable to the
Premises, Tenant shall give immediate written Notice thereof to Landlord.
SECTION 8.5. If any governmental license or permit shall be required
for the proper and lawful conduct of Tenant's business and if the failure to
secure such license or permit would, in any way, affect Landlord or the
Premises, then Tenant, at Tenant's expense, shall promptly procure and
thereafter maintain, submit for inspection by Landlord, and at all times comply
with the terms and conditions of, each such license or permit.
ARTICLE 9
SUBORDINATION
SECTION 9.1. This Lease shall at all times, now and hereafter, be
subject and subordinate to each and every Mortgage, whether made prior to or
after the execution of this Lease, and to all extensions, supplements,
amendments, modifications, consolidations and replacements thereof or thereto,
substitutions therefor, and advances made thereunder, provided that the
Mortgagee confirms and accepts the provisions of Section 9.5 below. This clause
shall be self-operative and no further agreement of subordination shall be
required to make the interest of any Mortgagee superior to the interest of
Tenant hereunder. In confirmation of such subordination, Tenant shall promptly
execute and deliver, at its own cost and expense, any document, in recordable
form if requested, that Landlord or any Mortgagee may request to
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evidence such subordination; and if Tenant fails to execute, acknowledge or
deliver any such document within twenty (20) days after request therefor, Tenant
hereby irrevocably constitutes and appoints Landlord as Tenant's
attorney-in-fact, coupled with an interest, to execute, acknowledge and deliver
any such document for and on behalf of Tenant.
SECTION 9.2. The subordination set forth in Section 9.1 above is
subject to the written agreement (a "Non-Disturbance Agreement") by any
Mortgagee or any other person to whom Tenant may be required to attorn, that so
long as Tenant is in compliance with the terms of this Lease, Tenant's use and
occupancy of the Premises shall not be disturbed, and that all provisions of the
Lease shall be given effect, including those related to the application of any
proceeds of insurance. Landlord shall cause each Mortgagee, whether pursuant to
a Mortgage now existing or hereafter arising, to execute and deliver to Tenant a
Non-Disturbance Agreement, subject to the terms of the preceding sentence, in a
form acceptable to such Mortgagee.
ARTICLE 10
INSURANCE; PROPERTY LOSS OR DAMAGE; REIMBURSEMENT
SECTION 10.1.
(A) Neither Landlord nor Landlord's agents shall be liable for any
injury or damage to persons or property, or interruption of Tenant's
business, resulting from fire or other casualty caused by Persons other
than the Landlord.
(B) Tenant shall give written Notice to Landlord, promptly after
Tenant learns thereof, of any accident, emergency, occurrence, fire or
other casualty and all damages to or defects in the Premises for the
repair of which Landlord might be responsible. Such Notice shall be given
by telecopy or personal delivery to the address(es) of Landlord in effect
for Notice.
SECTION 10.2. Tenant shall not do or permit to be done any act or
thing in or upon the Premises which will invalidate or be in conflict with the
terms of the State of Indiana standard form of fire insurance with extended
coverage, or with rental, liability, boiler, sprinkler, water damage, war risk
or other insurance policies covering the Premises (hereinafter referred to as
"Building Insurance"); and Tenant, at Tenant's own expense, shall comply with
all rules, orders, regulations and requirements of all insurance boards.
SECTION 10.3.
(A) Tenant shall, at Tenant's own cost and expense, obtain, maintain
and keep in full force and effect during the Term, for the benefit of
Landlord, any Mortgagees and Tenant, the Building Insurance in an amount
equal to the replacement value of the Building and its contents (not to
exceed $902,000.00) and commercial general liability insurance (including
premises operation, bodily injury, personal injury, death, independent
contractors, broad form contractual liability
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and broad form property damage coverages) with coverage limits of
$1,000,000 per occurrence and $2,000,000 in the aggregate, against all
claims, demands or actions with respect to damage, injury or death made by
or on behalf of any person or entity, arising from or relating to the
conduct and operation of Tenant's business in, on or about the Premises
(which shall include Tenant's signs, if any), or arising from or related
to any act or omission of Tenant or of Persons Within Tenant's Control.
(B) Landlord and any Mortgagees shall be named as additional
insureds in said policies. All said policies of insurance shall be: (i)
written as "occurrence" policies; (ii) written as primary policy coverage
and not contributing with or in excess of any coverage which Landlord may
carry; and (iii) issued by reputable and independent insurance companies
rated in Best's Insurance Guide, or any successor thereto (or if there be
none, an organization having a national reputation) as having a general
policyholder rating of "A" and a financial rating of at least "XI", and
which are licensed to do business in the State of Indiana. Upon Landlord?s
request, Tenant shall deliver to Landlord the policies of insurance or
certificates thereof, together with evidence of payment of premiums
thereon, and shall thereafter furnish to Landlord, at least thirty (30)
days prior to the expiration of any such policies and any renewal thereof,
a new policy or certificate in lieu thereof, with evidence of the payment
of premiums thereon. Each of said policies shall also contain a provision
whereby the insurer agrees not to cancel, fail to renew, diminish or
materially modify said insurance policy(ies) without having given Landlord
and any Mortgagees at least thirty (30) days prior written Notice thereof.
(C) Tenant shall pay all premiums and charges for all of said
policies, and, if Tenant shall fail to make any payment when due or carry
any such policy, Landlord may, but shall not be obligated to, make such
payment or carry such policy, and the amount paid by Landlord, with
interest thereon (at the Applicable Rate), shall be repaid to Landlord by
Tenant on demand, and all such amounts so repayable, together with such
interest, shall be deemed to constitute Additional Rent hereunder. Payment
by Landlord of any such premium, or the carrying by Landlord of any such
policy, shall not be deemed to waive or release the default of Tenant with
respect thereto.
(D) Tenant, at Tenant's sole cost and expense, shall maintain
insurance protecting and indemnifying Tenant against any and all damage to
or loss of Tenant's Property, and all claims and liabilities relating
thereto.
SECTION 10.4.
(A) Landlord and Tenant hereby release each other and their
respective agents, employees, partners, shareholders, officers and
directors from any claims or actions for damage to the Premises or
Tenant's Property to the extent the same
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are covered by proceeds of any insurance policies maintained by the
parties hereto under the terms of this Lease or in force at the time of
any such damage. Each party shall cause each insurance policy obtained by
it to provide that the insurance company waives all rights of recovery by
way of subrogation against the other party in connection with any damage
covered by any such policy.
(B) The waiver of subrogation referred to in Section 10.4(A) above
shall extend to the agents and employees of each party, but only if and to
the extent that such waiver can be obtained without additional charge
(unless such party shall pay such charge). Nothing contained in this
Section 10.4 shall be deemed to relieve the Landlord or Tenant from any
duty imposed elsewhere in this Lease to repair, restore and rebuild the
Premises, in whole or in part.
ARTICLE 11
DESTRUCTION BY FIRE OR OTHER CAUSE
SECTION 11.1. If the Premises or any part thereof shall be damaged
by fire or other casualty, Tenant shall give immediate written Notice thereof to
Landlord. Landlord shall, subject to the provisions of Sections 11.2 and 11.3
below, proceed with reasonable diligence, after receipt of the net proceeds of
insurance, to repair or cause to be repaired such damage at its expense, to the
condition immediately preceding such damage and, if the Premises, or any part
thereof, shall be rendered untenantable by reason of such damage, then the Fixed
Rent hereunder, or an amount thereof apportioned according to the area of the
Premises so rendered untenantable (if less than the entire Premises shall be so
rendered untenantable), shall be abated for the period from the date of such
damage to the date that is thirty (30) days after the date when the repair of
such damage shall have been substantially completed. If Landlord or any
Mortgagee shall be unable to collect the insurance proceeds applicable to such
damage because of some action or inaction on the part of Tenant or Persons
Within Tenant's Control, then Landlord shall have no duty to make such repairs
or effect any restoration hereunder. Tenant covenants and agrees to cooperate
with Landlord and any Mortgagee in their efforts to collect insurance proceeds
(including rent insurance proceeds) payable to such parties. Landlord shall not
be liable for any delay which may arise by reason of adjustment of insurance on
the part of Landlord and/or Tenant, or any cause beyond the control of Landlord
or contractors employed by Landlord.
SECTION 11.2. Landlord shall not be liable for any inconvenience or
annoyance to Tenant or injury to the business of Tenant resulting in any way
from damage from fire or other casualty or the repair thereof unless caused by
Landlord. Tenant understands that Landlord, in reliance upon Section 10.3
hereof, will not carry insurance of any kind on Tenant's Property, and that
Landlord shall not be obligated to repair any damage thereto or replace the
same.
SECTION 11.3.
(A) Notwithstanding anything to the contrary contained in Sections
11.1 and 11.2 above, in the event that:
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(1)at least fifty (50%) percent of the rentable square feet of
the Premises shall be damaged by a fire or other casualty so that
substantial alteration or reconstruction of the Premises shall be
required (whether or not the remainder of the Premises shall have
been damaged by such fire or other casualty and without regard to
the structural integrity of the Premises); or
(2)the Premises shall be totally or substantially
damaged or shall be rendered wholly or substantially
unsuitable for the Permitted Use; or
(3)the Landlord fails to commence any repairs, reconstruction or
restoration of the Premises within sixty (60) days after a casualty;
or
(4)Landlord fails complete all repairs, reconstruction or
restoration of the Premises within one hundred twenty (120) days
after the date of casualty;
then, as a result of any circumstances described in subparagraphs (1), (2), (3)
or (4) hereof, the Tenant, at Tenant's option, may terminate this Lease and the
term and estate hereby granted, by notifying the Landlord in writing of such
termination within one hundred twenty (120) days after the date of such damage
[as to subparagraphs (1) and (2)] or within thirty (30) days after the passage
of the times periods in subparagraphs (3) and (4) above. In the event that such
a Notice of termination shall be given, then this Lease and the term and estate
hereby granted shall expire as of the date of termination stated in said Notice
with the same effect as if that date were the Fixed Expiration Date, and the
Fixed Rent and Additional Rent hereunder shall be apportioned as of such date.
Notwithstanding the termination of this Lease as provided in this Subsection
11.3(A) Landlord shall be obligated to reimburse to Tenant a portion of the cost
of any Maintenance Repair or Requirement Alterations to the extent required by
Section 7.1 above. In the event of an occurrence as described in subparagraphs
(1) or (2) above, Landlord, at Landlord's option, may terminate this Lease and
the term and estate hereby granted by notifying Tenant in writing of such
termination within one hundred twenty (120) days after the date of such damage.
ARTICLE 12
EMINENT DOMAIN
SECTION 12.1. If the whole of the Premises is acquired or condemned
for any public or quasi-public use or purpose, this Lease and the Term shall end
as of the date of the vesting of title with the same effect as if said date were
the Fixed Expiration Date. If only a part of the Premises is so acquired or
condemned then, except as hereinafter provided in this Section 12.1, this Lease
and the Term shall continue in effect but, if a part of the Premises is so
acquired or condemned, from and after the date of the vesting of title, the
Fixed Rent and Additional Rent, if
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any, shall be reduced in the proportion which the area of the part of the
Premises so acquired or condemned bears to the total area of the Premises
immediately prior to such acquisition or condemnation. If the part of the
Premises acquired or condemned contains more than fifty percent (50%) of the
rentable square feet of the Premises or if, by reason of such acquisition or
condemnation, the Premises shall be rendered wholly or substantially unsuitable
for the Permitted Use, then either Landlord or Tenant may terminate this Lease
and the Term and estate hereby granted, by notifying the other party in writing
of such termination within one hundred twenty (120) days after the date upon
which Tenant receives Notice of vesting of title. In the event that such Notice
of termination shall be given, then this Lease and the Term and estate hereby
granted shall expire as of the date of termination stated in said Notice, with
the same effect as if that date were the Fixed Expiration Date. In the event of
any termination of this Lease and the Term pursuant to the provisions of this
Section 12.1, the Fixed Rent or Additional Rent shall be apportioned as of the
date of sooner termination and any prepaid portion of the Fixed Rent for any
period after such date shall be refunded by Landlord to Tenant.
SECTION 12.2. In the event of any such acquisition or condemnation
of all or any part of the Premises, Landlord shall be entitled to receive the
entire award for any such acquisition or condemnation, but shall be obligated to
proceed with reasonable diligence to repair and restore the Premises, at
Landlord's expense, to a condition most suitable for the Permitted Use. Tenant
shall have no claim against Landlord or the condemning authority for the value
of any unexpired portion of the Term and Tenant hereby expressly assigns to
Landlord all of its right in and to any such award. Nothing contained in this
Section 12.2 shall be deemed to prevent Tenant from making a separate claim in
any condemnation proceedings for the value of any Tenant's Property included in
such taking, and for any moving expenses, so long as Landlord's award is not
reduced thereby.
SECTION 12.3.
(A) Notwithstanding anything to the contrary contained in Sections
12.1 and 12.2 above, in the event that:
(1)the Landlord fails to commence any repairs, reconstruction or
restoration of the Premises within sixty (60) days after the
physical taking of a portion of the Premises; or
(2)Landlord fails complete all repairs, reconstruction or
restoration of the Premises within one hundred twenty (120) days
after the date of such physical taking,
then, as a result of any circumstances described in subparagraphs (1) or (2)
hereof, the Tenant, at Tenant's option, may terminate this Lease and the term
and estate hereby granted, by notifying the Landlord in writing of such
termination within thirty (30) days after the passage of the times periods in
subparagraphs (1) and (2) above. In the event that such a Notice of termination
shall be given, then this Lease and the term and estate hereby granted shall
expire as of the date of
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termination stated in said Notice with the same effect as if that date were the
Fixed Expiration Date, and the Fixed Rent and Additional Rent hereunder shall be
apportioned as of such date. Notwithstanding the termination of this Lease as
provided in this Subsection 12.3(A) Landlord shall be obligated to reimburse to
Tenant a portion of the cost of any Maintenance Repair or Requirement
Alterations to the extent required by Section 7.1 above.
ARTICLE 13
ASSIGNMENT; SUBLETTING; MORTGAGE; ETC.
SECTION 13.1.
(A) The Tenant shall not: (i) assign this Lease; or (ii) mortgage or
encumber Tenant's interest in this Lease, in whole or in part; or (iii)
sublet, or permit the subletting of, the Premises or any part thereof
without the prior consent of Landlord. Notwithstanding the provisions of
this Section 13.1, the use of the Premises by any Person AFFILIATED (as
such term is hereinafter defined) with the Tenant or under the COMMON
CONTROL (as such term is hereinafter defined) of Comfort Systems USA,
Inc., as the case may be, shall not be deemed an assignment of this Lease
or a sublet of the Premises, provided Tenant is not in default and remains
fully obligated pursuant to the terms and conditions of this Lease. For
purposes of this Article 13, a Person shall be deemed to be an "affiliate"
of the Tenant or under the "common control" of Comfort Systems USA, Inc.,
if such Person is a member of a "parent-subsidiary controlled group" as
such term is defined by Section 1563(a)(1) of the Internal Revenue Code of
1986, as amended or a member of a "brother-sister controlled group" as
such term is defined by Section 1563(a)(2) of the Internal Revenue Code of
1986, as amended of which either Comfort Systems USA, Inc. or the Tenant,
as the case may be, is a member.
(B) Notwithstanding the provisions otherwise set forth in this
Article 13, no reorganization, consolidation and/or restructuring of the
Tenant or the sale or transfer of any of its stock shall be deemed an
assignment of this Lease or a sublet of the Premises, provided that the
surviving entity resulting from such reorganization, consolidation and/or
restructuring remains fully obligated pursuant to the terms and conditions
of this Lease as Tenant.
SECTION 13.2. If Tenant's interest in this Lease shall be assigned
in violation of the provisions of this Article 13, such assignment shall be
invalid and of no force and effect against Landlord. If the Premises or any part
thereof are sublet to, or occupied by, or used by, any person other than Tenant,
whether or not in violation of this Article 13, Landlord, may collect an amount
equal to the then Fixed Rent plus any other items of Rental or other sums paid
by the subtenant, user or occupant as a fee for its use and occupancy, and shall
apply the net amount collected to the Fixed Rent and the other items of Rental
reserved in this Lease. No such assignment, subletting, occupancy, or use, nor
any such collection or application of Rental or fee for use and occupancy, shall
be deemed a waiver by Landlord of any term, covenant or condition
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of this Lease or the acceptance by Landlord of such assignee, subtenant,
occupant or user as Tenant hereunder, nor shall the same, in any circumstances,
relieve Tenant of any of its obligations under this Lease.
ARTICLE 14
ACCESS TO PREMISES
SECTION 14.1. Landlord or Landlord's agents shall have the right to
enter the Premises at all reasonable times during Tenant's regular business
hours upon (except in case of emergency) reasonable prior notice, which notice
may be oral, to examine the same, to show the same to prospective purchasers or
Mortgagees and to make such repairs, alterations, improvements or additions: (i)
as Landlord may deem necessary or required under the terms of the Lease; or (ii)
which Landlord may elect to perform at least twenty (20) days after notice
(except in an emergency when no notice shall be required) following Tenant's
failure to make repairs or perform any work which Tenant is obligated to make or
perform under this Lease, and Landlord shall be allowed to take all material
into and upon the Premises that may be required therefor without the same
constituting an eviction or constructive eviction of Tenant in whole or in part
and except as herein provided the Fixed Rent (and any other item of Rental)
shall in no respect abate or be reduced by reason of said repairs, alterations,
improvements or additions, wherever located, or while the same are being made,
by reason of loss or interruption of business of Tenant, or otherwise. Landlord
shall promptly repair any damage caused to the Premises or Tenant's Property by
such work, alterations, improvements or additions. In all events, Landlord shall
use its best efforts not to interfere with or obstruct Tenant's business
activities on or in the Premises during any entry.
ARTICLE 15
CERTIFICATE OF OCCUPANCY
SECTION 15.1. Landlord represents and warrants to Tenant that use
and occupancy of the Premises for the Permitted Uses shall not violate the
certificate of occupancy for the Premises or any Requirement. Tenant shall not
at any time, now or hereafter, use or occupy the Premises, directly or
indirectly, in violation of the certificate of occupancy for the Premises and in
the event that any Governmental Authority hereafter contends or declares by
notice, order or in any other manner whatsoever that the Premises are used for a
purpose that is not included in the Permitted Uses and is a violation of such
certificate of occupancy, Tenant shall, upon three (3) Business Days' written
Notice from Landlord or any Government Authority, immediately discontinue such
use of the Premises.
ARTICLE 16
DEFAULT
SECTION 16.1. Each of the following events shall be an "Event of
Default" under this Lease:
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(A) if Tenant shall on any occasion default in the payment when due
of any installment of Fixed Rent or Additional Rent or in the payment when
due of any other item of Rental and such default shall continue for ten
(10) days from and after the date on which Landlord gives Tenant written
Notice specifying such default; or
(B)(1) if Tenant shall not, or shall be unable to, or shall admit in
writing Tenant's inability to, as to any obligation, pay Tenant's debts as
they become due; or
(B)(2) if Tenant shall commence or institute any case, proceeding or
other action (a) seeking relief on Tenant's behalf as debtor, or to
adjudicate it a bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, winding-up, liquidation, dissolution, composition
or other relief with respect to Tenant or Tenant's debts under any
existing or future law of any jurisdiction, domestic or foreign, relating
to bankruptcy, insolvency, reorganization or relief of debtors, or (b)
seeking appointment of a receiver, trustee, custodian or other similar
official for it or for all or any substantial part of its property; or
(B)(3) if Tenant shall make a general assignment for
the benefit of creditors; or
(B)(4) if any case, proceeding or other action shall be commenced or
instituted against Tenant (a) seeking to have an order for relief entered
against Tenant as debtor or to adjudicate Tenant a bankrupt or insolvent,
or seeking reorganization, arrangement, adjustment, winding-up,
liquidation, dissolution, composition or other relief with respect to
Tenant or Tenant's debts under any existing or future law of any
jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, or (b) seeking appointment of a
receiver, trustee, custodian or other similar official for Tenant or for
all or any substantial part of Tenant's property, which either: (i)
results in any such entry of an order for relief, adjudication of
bankruptcy or insolvency or such an appointment or the issuance or entry
of any other order having a similar effect; or (ii) remains undismissed
for a period of sixty (60) days; or
(B)(5) if a trustee, receiver or other custodian shall be appointed
for any substantial part of the assets of Tenant which appointment is not
vacated or effectively stayed within ninety (90) days; or
(C) if Tenant shall default in the observance or performance of any
other term, covenant or condition of this Lease on Tenant's part to be
observed or performed, and Tenant shall fail to remedy such default within
thirty (30) days after written Notice by Landlord to Tenant of such
default, or if such default is of such a nature that it cannot with due
diligence be completely remedied within said period
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of thirty (30) days, if Tenant shall not: (i) duly institute within said
thirty (30) day period; and (ii) thereafter diligently and continuously
prosecute to completion all steps necessary to remedy the same.
SECTION 16.2. If an Event of Default shall occur, Landlord may, at
any time thereafter, at Landlord's option, give written Notice to Tenant stating
that this Lease and the Term shall expire and terminate on the date specified in
such Notice, which date shall not be less than ten (10) days after the giving of
such Notice, whereupon this Lease and the Term and all rights of Tenant under
this Lease shall automatically expire and terminate as if the date specified in
the Notice given pursuant to this Section 16.2 were the Fixed Expiration Date
and Tenant thereafter shall quit and surrender the Premises, but Tenant shall
remain liable for damages as provided herein or pursuant to law. Anything
contained herein to the contrary notwithstanding, if such termination shall be
stayed by order of any court having jurisdiction over any proceeding described
in Section 16.1(B), or by federal or state statute, then, following the
expiration of any such stay, or if the trustee appointed in any such proceeding,
Tenant or Tenant as debtor-in-possession fails to assume Tenant's obligations
under this Lease within the period prescribed therefor by law or within one
hundred twenty (120) days after entry of the order for relief or as may be
allowed by the court, or if said trustee, Tenant or Tenant as
debtor-in-possession shall fail to provide adequate protection of Landlord's
right, title and interest in and to the Premises or adequate assurance of the
complete and continuous future performance of Tenant's obligations under this
Lease, Landlord, to the extent permitted by law or by leave of the court having
jurisdiction over such proceeding, shall have the right, at its election, to
terminate this Lease on ten (10) days' Notice to Tenant, Tenant as
debtor-in-possession or said trustee and upon the expiration of said ten (10)
day period this Lease shall cease and expire as aforesaid and Tenant, Tenant as
debtor-in-possession or said trustee shall thereafter quit and surrender the
Premises as aforesaid.
SECTION 16.3. If, at any time: (i) Tenant shall consist of two (2)
or more Persons; or (ii) Tenant's obligations under this Lease shall have been
guaranteed by any Person other than Tenant; or (iii) Tenant's interest in this
Lease has been assigned, the word "Tenant" as used and referred to in this
Lease, shall be deemed to mean any one or more of the persons primarily or
secondarily liable for Tenant's obligations under this Lease. Any monies
received by Landlord from or on behalf of Tenant during the pendency of any
proceeding of the types referred to in Section 16.1(B) hereof shall be deemed
paid as compensation for the use and occupancy of the Premises and the
acceptance of any such compensation by Landlord shall not be deemed an
acceptance of Rental or a waiver on the part of Landlord of any rights under
Section 16.2 hereof.
SECTION 16.4. In the event of any default by Landlord hereunder,
except as otherwise provided herein, Tenant will give Landlord written notice
specifying such default with particularity, and Landlord shall thereupon have
thirty (30) days in which to cure such default or to commence to cure such
default if any such default cannot be reasonably cured within such 30-day
period, in which event Landlord shall prosecute such cure with diligence to a
conclusion. Unless and until Landlord fails to so cure or proceed with diligence
to cure any default after such notice, Tenant shall not have any remedy or cause
of action by reason thereof.
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If Landlord is in default hereunder, and fails to cure the same timely, in
addition to any and all other rights, remedies and recourses available to
Tenant, Tenant may undertake to cure such default on behalf of Landlord, and
thereupon Landlord agrees to pay Tenant, upon demand, all costs, expenses and
disbursements (including reasonable attorneys' fees) incurred by Tenant in
taking such remedial actions with interest thereon at the Applicable Rate. In
addition to the foregoing, Tenant shall also have the same rights granted to
Landlord under Section 17.1(B) relating to injunctive or equitable relief. The
right to invoke the remedies hereinbefore set forth are cumulative and shall not
preclude Tenant from invoking any other remedy allowed at law or in equity.
ARTICLE 17
REMEDIES AND DAMAGES
SECTION 17.1.
(A) If any Event of Default shall occur, or this Lease and the Term
shall expire and come to an end as provided in Article 16 hereof:
(1)Tenant shall quit and peacefully surrender the Premises to
Landlord, and Landlord and its agents may, after the date upon which
this Lease and the Term shall expire and come to an end, re-enter
the Premises or any part thereof, without Notice, either by summary
proceedings, or by any other applicable action or proceeding or
otherwise, and may repossess the Premises and dispossess Tenant and
any other persons from the Premises by summary proceedings or
otherwise and remove any and all of their property and effects from
the Premises (and Tenant shall remain liable for damages as provided
herein or pursuant to law); and
(2)Landlord, at Landlord's option, may relet the whole or any
part or parts of the Premises from time to time, either in the name
of Landlord or otherwise, to such tenant or tenants, for such term
or terms ending before, on or after the Fixed Expiration Date, at
such rent or rentals and upon such other conditions, which may
include concessions and free rent periods, as Landlord may
determine; provided, however, that Landlord shall exercise
reasonable efforts to mitigate any damages related to liability of
Tenant under this Lease.
(B) In the event of a breach or threatened breach by Tenant, or any
persons claiming through or under Tenant, of any term, covenant or
condition of this Lease, Landlord shall have the right to enjoin such
breach.
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SECTION 17.2.
(A) If this Lease and the Term shall expire and come to an end as
provided in Article 2 hereof, or by or under any summary proceeding or any
other action or proceeding, or if Landlord shall re-enter the Premises as
provided in Section 17.1 hereof, or by or under any summary proceeding or
any other action or proceeding, then, in any of said events:
(1)Tenant shall pay to Landlord all Fixed Rent, Additional Rent
and other items of Rental payable under this Lease by Tenant to
Landlord to the date upon which this Lease and the Term shall have
expired and come to an end or to the date of re-entry upon the
Premises by Landlord, as the case may be;
(2)if Landlord has not terminated the Lease, but only Tenant's
right of possession to the Premises, Tenant also shall be liable for
and shall pay to Landlord, as damages, any deficiency ("Deficiency")
between the Rental for the period which is the unexpired portion of
the Term and the net amount, if any, of rents collected under any
reletting effected pursuant to the provisions of Section 17.1(A)(2)
for any part of such period (after first deducting from the rents
collected under any such reletting all of Landlord's reasonable and
actual expenses in connection with the termination of Tenant's right
of possession, Landlord's re-entry upon the Premises and such
reletting including, but not limited to, all repossession costs,
brokerage commissions, attorneys' fees and disbursements, alteration
costs and other expenses of preparing the Premises for such
reletting, to the extent the same are allocable to the remaining
Term); any such Deficiency shall be paid in monthly installments by
Tenant on the days specified in this Lease for payment of
installments of Fixed Rent; Landlord shall be entitled to recover
from Tenant each monthly Deficiency as the same shall arise, and no
suit to collect the amount of the Deficiency for any month shall
prejudice Landlord's right to collect the Deficiency for any
subsequent month by a similar proceeding; and
(3)alternatively, if Landlord has terminated the Lease, Landlord
shall be entitled to recover from Tenant, and Tenant shall pay to
Landlord, on demand, and as and for liquidated and agreed final
damages, a sum equal to the amount by which the present value
(calculated using the Base Rate as the discount rate) of the unpaid
Rental for the period which otherwise would have constituted the
unexpired portion of the Term exceeds the present value (calculated
using the Base Rate as the discount rate) of the then fair and
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reasonable rental value of the Premises for the same period, taking
into consideration reasonable costs incurred to relet the Premises;
if, before presentation of proof of such liquidated damages to any
court, commission or tribunal, the Premises, or any part thereof,
are relet by Landlord on a fair and arms-length basis for the period
which otherwise would have constituted the unexpired portion of the
Term, or any part thereof, the amount of rent reserved upon such
reletting shall be deemed, prima facie, to be the fair and
reasonable rental value for the part or the whole of the Premises so
relet during the term of the reletting.
(B) Tenant shall in no event be entitled to any rents collected or
payable under any reletting, whether or not such rents exceed the Fixed
Rent reserved in this Lease. Nothing contained in this Article 17 shall be
deemed to limit or preclude the recovery by Landlord from Tenant of the
maximum amount allowed to be obtained as damages by any statute or rule of
law, or of any sums or damages to which Landlord may be entitled in
addition to the damages set forth in this Section 17.2.
ARTICLE 18
FEES AND EXPENSES
SECTION 18.1. If an Event of Default shall have occurred by Tenant
or Landlord has defaulted on its obligations on this Lease and the same is not
cured within any applicable cure period, the non-defaulting party may (1)
perform any term, covenant or condition of this Lease for the account of the
defaulting party, or (2) make any expenditure or incur any obligation for the
payment of money in connection with any obligation owed to the non-defaulting
party, including, but not limited to, reasonable attorneys' fees and
disbursements in instituting, prosecuting or defending any action or proceeding,
and in either case the cost thereof, with interest thereon at the Applicable
Rate, shall be paid by the defaulting party to the non-defaulting party within
twenty (20) days after rendition of any bill or statement therefor.
ARTICLE 19
END OF TERM
SECTION 19.1. Upon the expiration or other termination of this
Lease, Tenant shall quit and surrender to Landlord the Premises, vacant, broom
clean, in good order and condition, ordinary wear and tear and damage by fire or
other casualty or by condemnation excepted, and Tenant shall remove all of
Tenant's Property and all other personal property and personal effects of all
persons claiming through or under Tenant, and shall pay the cost of repairing
all damage to the Premises occasioned by such removal.
SECTION 19.2. If the Premises are not surrendered upon the
expiration or other termination of this Lease and all Tenant Property removed as
provided above, Tenant shall be
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deemed to be occupying the Premises as a tenant at will, and after sixty (60)
days written notice from Landlord, such continued occupancy will be at a rental
equal to the Fixed Rent herein provided plus fifty percent (50%) of such amount
and otherwise subject to all the conditions, provisions and obligations of this
Lease insofar as the same are applicable to a tenancy at will.
SECTION 19.3. Tenant's obligations under this Article 19 shall
survive the expiration or termination of this Lease.
ARTICLE 20
NOTICES
SECTION 20.1.
(A) Except as otherwise expressly provided in this Lease, any bills,
statements, consents, notices, demands, requests or other communications
given or required to be given under this Lease ("Notice(s)") shall be in
writing and shall be deemed sufficiently given or rendered if delivered by
hand (against a signed receipt) or if deposited with a nationally
recognized overnight courier or if deposited in the United States mail,
and sent by first class mail, certified, return receipt requested with
postage prepaid, and in any case addressed:
IF TO TENANT:
(i) at Tenant's address first set forth in this
Lease and (ii) to the Premises, and
WITH A COPY TO:
Comfort Systems USA, Inc.
777 Post Oak Boulevard, Suite 500
Houston, TX 77056
Attention: General Counsel
IF TO LANDLORD:
Mark P. Shambaugh
2233 East Cedar Canyons Road
Fort Wayne, IN 46845
WITH A COPY TO:
N. Reed Silliman, Esq.
Baker & Daniels
111 East Wayne Street, Suite 800
Fort Wayne, IN 46802
and any Mortgagee who may have requested the same, by Notice given
in accordance with the provisions of this Article 20, at the
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address designated by such Mortgagee, or to such other address(es)
as either Landlord or Tenant may designate as its new address(es)
for such purpose by Notice given to the other in accordance with the
provisions of this Article 20.
(B) Notices shall be deemed to have been rendered or given (a) on
the date delivered, if delivered by hand, (b) on the day after being
deposited with a nationally recognized overnight courier or (c) five (5)
days after deposit in the United States mail, as provided in Section
20.1(A) hereof.
ARTICLE 21
INDEMNITY
SECTION 21.1. Tenant shall not do or permit any act or thing to be
done in, at or upon the Premises that may subject any Indemnitee to any
liability or responsibility for injury, damage to persons or property or to any
liability by reason of the existence or application of, compliance with or
violation of any Requirement, but shall exercise such control over the Premises
as to protect each Indemnitee fully against any such liability and
responsibility. Tenant shall indemnify and save harmless the Indemnitees from
and against (a) all claims against the Indemnitees arising from any accident,
injury or damage whatsoever caused to any person or to the property of any
person and occurring in, on or about the Premises during the Term or during
Tenant's occupancy of the Premises, unless, and to the extent not, caused by the
negligent or intentional misconduct of Landlord, and (b) any breach, violation
or non-performance of any covenant, condition or agreement contained in this
Lease to be fulfilled, kept, observed and performed by Tenant. This indemnity
and hold harmless agreement shall include indemnity from and against any and all
liability, claims, fines, suits, demands, costs and expenses of any kind or
nature (including, without limitation, attorneys' fees and disbursements)
incurred in or in connection with any such claim or proceeding brought thereon,
and the defense thereof. If any claim, action or proceeding is made or brought
against any Indemnitee, against which claim, action or proceeding Tenant is
obligated to indemnify such Indemnitee pursuant to the terms of this Lease,
then, upon demand by the Indemnitee, Tenant, at its sole cost and expense, shall
contest or defend such claim, action or proceeding in the Indemnitee's name, if
necessary, by such attorneys as the Indemnitee may select, including, without
limitation, attorneys for the Indemnitee's insurer. The provisions of this
Article 21 shall survive the expiration or earlier termination of this Lease.
SECTION 21.2. Landlord shall indemnify and save harmless the Tenant
and the other Tenant Indemnitees from and against (a) all claims against the
Tenant Indemnitees arising from any accident, injury or damage whatsoever caused
to any person or the property of any person and occurring in, on or about the
Premises during the Term or during Tenant's occupancy of the Premises to the
extent caused by the negligent or intentional misconduct of Landlord and (b) any
breach, violation or nonperformance of any covenant, condition or agreement
contained in this Lease to be fulfilled, kept, observed and performed by
Landlord. This indemnity and hold harmless shall include indemnity from and
against any and all liability, claims, fines, suits,
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demands, costs and expenses of any kind or nature (including, without
limitation, attorneys' fees and disbursements) incurred in or in connection with
any such claim or proceeding brought thereon, and the defense thereof. If any
claim, action or proceeding is made or brought against any Tenant Indemnitee,
against which claim, action or proceeding Landlord is obligated to indemnify
such Tenant Indemnitee pursuant to the terms of this Lease, then, upon demand by
the Tenant Indemnitee, Landlord at its sole cost and expense shall contest or
defend such claim, action or proceeding in the Tenant Indemnitee's name, if
necessary, by such attorneys as the Tenant Indemnitee may select, including
without limitation attorneys for the Indemnitee's insurer. The provisions of
this Article 21 shall survive the expiration or earlier termination of this
Lease.
ARTICLE 22
RENEWAL OPTIONS
SECTION 22.1. Provided that there is no Event of Default at the time
the Option (as such term is hereinafter defined) is to be exercised, the Tenant
shall have the option to renew this Lease for one (1) additional five (5) year
period as follows:
OPTION PERIOD shall commence on the tenth (10th) anniversary of the
Commencement Date and shall continue up to and including the day before
the fifteenth (15th) anniversary of the Commencement Date,
the aforementioned option period is referred to herein as the
"Option Period".
SECTION 22.2. The Option granted to the Tenant pursuant to the
provisions of Section 22.1 hereof shall be exercised by the Tenant giving
written Notice to the Landlord of the Tenant's intent to exercise the Option not
less than one-hundred twenty (120) days prior to the expiration of the Initial
Term.
SECTION 22.3. In the event that the Tenant exercises the Option, the
Landlord and the Tenant hereby agree that this Lease shall continue in full
force and effect and remain unamended during the Option Period, except that the
Fixed Rent payable by the Tenant to the Landlord during such Option Period shall
continue to be increased annually in accordance with the provisions of Rider 1
hereof.
ARTICLE 23
COVENANT OF QUIET ENJOYMENT
SECTION 23.1. Landlord covenants that, upon Tenant paying all Fixed
Rent and Additional Rent and observing and performing all of the terms,
agreements, covenants, provisions and conditions of this Lease on Tenant's part
to be observed and performed, Tenant may peaceably and quietly enjoy the
Premises.
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ARTICLE 24
MISCELLANEOUS
SECTION 24.1. The obligations of Landlord under this Lease shall be
binding upon Landlord named herein after the sale, conveyance, assignment or
transfer by such Landlord (or upon any subsequent landlord after the sale,
conveyance, assignment or transfer by such subsequent landlord) of its interest
in the Premises, as the case may be, and in the event of any such sale,
conveyance, assignment or transfer, Landlord shall be freed and relieved of any
of the covenants and obligations of Landlord under this Lease thereafter
arising, upon the date that the transferee shall have assumed, in writing, for
the benefit of Tenant, all obligations of the Landlord under this Lease arising
after the effective date of the transfer.
SECTION 24.2. Notwithstanding anything contained in this Lease to
the contrary, all amounts payable by Tenant to or on behalf of Landlord under
this Lease, whether or not expressly denominated Fixed Rent, Additional Rent or
Rental, shall constitute rent for the purposes of Section 502(b)(7) of the
Bankruptcy Code.
SECTION 24.3. Upon the request of either party, the other will
execute and deliver a mutually acceptable memorandum of this Lease in recordable
form.
SECTION 24.4. Except as otherwise provided specifically herein, any
consent or approval required to be obtained from Landlord or Tenant under this
Lease shall not be unreasonably withheld, conditioned or delayed.
SECTION 24.5. Landlord represents and warrants to Tenant that
Landlord has full power and authority to enter into this Lease without the
consent of any other parties, including any Mortgagees. Tenant and the person
executing this Lease on behalf of Tenant hereby covenant and warrant that: (i)
Tenant is now and shall remain throughout the term of this Lease a duly
organized and validly existing corporation qualified to do business in the State
of Indiana; and (ii) the persons executing this Lease on behalf of Tenant are
duly authorized to do so by all necessary corporate action.
SECTION 24.6. If any words or phrases in this Lease are stricken out
or otherwise eliminated, whether or not any other words or phrases have been
added, this Lease shall be construed as if the words or phrases so stricken out
or otherwise eliminated were never included in this Lease and no implication or
inference shall be drawn from the fact that such words or phrases were stricken
out or otherwise eliminated.
SECTION 24.7. If any of the provisions of this Lease, or the
application thereof to any person or circumstance, shall, to any extent, be
invalid or unenforceable, the remainder of this Lease, or the application of
such provisions to persons or circumstances other than those as to whom or which
it is held invalid or unenforceable, shall not be affected thereby and shall
remain valid and enforceable, and every provision of this Lease shall be valid
and enforceable to the fullest extent permitted by law.
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SECTION 24.8. This Lease contains the entire agreement between the
parties and all prior negotiations and agreements are merged into this Lease.
This Lease may not be changed, abandoned or discharged, in whole or in part, nor
may any of its provisions be waived except by a written agreement that (a)
expressly refers to this Lease, and (b) is executed by the party against whom
enforcement of the change, abandonment, discharge or waiver is sought.
SECTION 24.9. The laws of the State of Indiana applicable to
contracts made and to be performed wholly within the State of Indiana shall
govern and control the validity, interpretation, performance and enforcement of
this Lease without regard to principles of conflicts of law.
SECTION 24.10. The captions are inserted only as a matter of
convenience and for reference and in no way define, limit or describe the scope
of this Lease nor the intent of any provision thereof.
SECTION 24.11. The covenants, conditions and agreements contained in
this Lease shall bind and inure to the benefit of Landlord and Tenant and their
respective legal representatives, heirs, successors, and, except as otherwise
provided in this Lease, their assigns.
SECTION 24.12. Tenant acknowledges and agrees that the liability of
Landlord under this Lease shall be limited to Landlord's interest in the
Premises, and any judgments rendered against Landlord shall be satisfied solely
out of the proceeds of the sale of Landlord's interest in the Premises. The
foregoing provision is not intended to relieve Landlord from the performance of
any of Landlord's obligations under this Lease, but only to limit the personal
liability of Landlord in the case of a recovery of a judgment against Landlord;
nor shall the foregoing be deemed to limit Tenant's rights to injunctive relief
or to avail itself of any other right or remedy which may be awarded Tenant by
law or under this Lease.
SECTION 24.13. For the purposes of this Lease and all agreements
supplemental to this Lease, unless the context otherwise requires:
(A) The words "herein", "hereof", "hereunder" and "hereby" and words
of similar import shall be construed to refer to this Lease as a whole and
not to any particular Article or Section unless expressly so stated.
(B) Obligations hereunder shall be construed in every instance as
conditions as well as covenants, each separate and independent of any
other terms of this Lease.
(C) Reference to "termination of this Lease" or "expiration of this
Lease" and words of like import includes expiration or sooner termination
of this Lease and the Term and the estate hereby granted or cancellation
of this Lease pursuant to any of the provisions of this Lease or by law.
Upon the termination of
28
<PAGE>
this Lease, the Term and estate granted by this Lease shall end at noon on
the date of termination as if such date were the Fixed Expiration Date,
and neither party shall have any further obligation or liability to the
other after such termination except: (i) as shall be expressly provided
for in this Lease; and (ii) for such obligations as by their nature under
the circumstances can only be, or by the provisions of this Lease, may be,
performed after such termination, and, in any event, unless expressly
otherwise provided in this Lease, any liability for a payment (which shall
be apportioned as of such termination) which shall have accrued to or with
respect to any period ending at the time of termination shall survive the
termination of this Lease.
(D) Words and phrases used in the singular shall be deemed to
include the plural and vice versa, and nouns and pronouns used in any
particular gender shall be deemed to include any other gender.
IN WITNESS WHEREOF, Landlord and Tenant have duly executed this
Lease as of the day and year first above written.
/s/____________________________________
MARK P. SHAMBAUGH
"Landlord"
SHAMBAUGH & SON, INC.,
an Indiana Corporation
By:/s/_______________________________
Printed: KEVIN L. BEACH
Its:V.P./SEC'Y.
"Tenant"
29
<PAGE>
RIDER 1
INCREASES IN FIXED RENT
SECTION 1. For purposes of the Lease:
(A) "Bureau" means the Federal Bureau of Labor Statistics or any
successor agency that shall issue the indices or data referred to in
subparagraph (ii) below.
(B) "Price Index" means the Consumer Price Index for All Urban
Consumers for the Fort Wayne, Indiana geographic area, 1982-1984=100,
issued from time to time by the Bureau or any other successor measure
hereafter employed by the Bureau in lieu of such price index that measures
the cost of living for such geographic area or failing such successor, the
most nearly comparable index (reflecting changes in costs of housing
including rental housing, energy and services), published by a
Governmental Authority, appropriately adjusted. Furthermore, if hereafter
the Price Index is converted to a different standard reference base or a
substantial change is made in the terms or number of items contained
therein, the Price Index shall be adjusted (with the use of such
conversion factor, formula or table as is published by the Bureau, or if
it shall not publish same, the conversion factor published by Prentice
Hall, Inc., or, failing such publication, by any other nationally
recognized publisher of similar statistical information) to the figure
that would have resulted if not for such conversion or change.
(C) "Base Index" means the Price Index issued for December 31, 1998.
(D) "Applicable Price Index" for a Lease Year means the Price Index
most recently issued prior to the date on which such Lease Year commences.
SECTION 2.
(A) Tenant shall pay to Landlord the Fixed Rent in the amount set
forth in Article 1 of this Lease for the first Lease Year.
(B) Beginning after the end of the first Lease Year, and for each
and every Lease Year thereafter, the Tenant shall pay to the Landlord, as
Fixed Rent, an amount equal to the GREATER of:
(1) an amount equal to the sum of (x) the percentage by which
the Applicable Price Index for such Lease Year exceeds the
Applicable Price Index for the immediately preceding Lease Year,
multiplied by the Fixed Rent payable for such immediately preceding
Lease Year and (y) such Fixed Rent payable for the immediately
<PAGE>
preceding Lease Year (e.g., if the Base Index is 200, the Applicable
Price Index for the second Lease Year is 203, the Applicable Price
Index for the third Lease Year is 215, and the Fixed Rent payable
for the second Lease Year is $50,000.00, then the Applicable Price
Index for the third Lease Year exceeds the Applicable Price Index
for the second Year by 5.91% (i.e., the difference between 203 and
215), and the Fixed Rent derived from the aforesaid calculation
shall be $52,955.75 (5.91% of $50,000.00, which is $2,955.00, plus
$50,000.00); or
(2) an amount equal to the Fixed Rent for the immediately
preceding Lease Year.
The Landlord and the Tenant hereby acknowledge that it is the mutual intention
of the parties that for each and every Lease Year subsequent to the first Lease
Year during the Term hereof, the Fixed Rent payable by the Tenant to the
Landlord hereunder shall never be decreased from the prior Lease Year.
SECTION 3. Upon Notice by the Landlord to the Tenant of an increase
in the Fixed Rent pursuant to the provisions of this Section 3 ("Increase
Notice"), the Tenant shall pay the Fixed Rent as set forth in the Increase
Notice for the period in which the increase identified in such Notice shall
apply.
<PAGE>
SCHEDULE A
LEGAL DESCRIPTION
ED GRACE COMPANY
PARCEL I:
A part of the Fractional Southwest Quarter of Section 9, Township 23
North, Range 4 West, more completely described as follows:
Beginning at a point, said point being on the South line of said Section
9-23-4 and 40 feet North 890-15' West of the intersection of the South line of
said section and the West line of the Longlois Reserve; thence North 890-15'
West along the South line of said Section a distance of 338.38 feet to an iron
pipe; thence North 000 -25' West a distance of 95.34 feet to an iron pipe;
thence South 890-38' East a distance of 338.35 feet to an iron pipe; thence
South 000-25' East a distance of 97.76 feet to an iron pipe on the South line of
said Section and the place of beginning, containing 0.75 acres, more or less.
PARCEL II:
A part of School Lot 9 in Section 16, Township 23 North, Range of West of
the Second Principal Meridian in Fairfield Township, Tippecanoe County, Indiana,
being more completely described as follows, to-wit:
Commencing at a capped rebar in a position historically representing the
Northeast Corner of School Lot 9 in Section 16, Township 23 North, Range 4 West;
thence North 890-15'-00" West (Record Bearing) along the north line of said Lot
a distance of 253.50 feet to the Point of Beginning of the herein described
tract; thence South 080 -37'-07" West a distance of 170.20 feet; thence South
880 -52'-35" East a distance of 225.73 feet to the West right-of-way of North
9th Street Road; thence South 040 -28'-36" West along said Right-of-Way a
distance of 19.40 feet to the center line of said North 9th Street Road; thence
South 330 -46'-00" West along said center line a distance of 16.37 feet to a
railroad spike with a cut "+"; thence South 890 -56'- 48" West in part along a
chain link type security fence a distance of 438.40 feet to a capped rebar;
thence North 000 -28'-18" West a distance of 209.35 feet to a capped rebar on
the North line of said Lot 9; thence South 890 -15'-00" East a distance of
250.58 feet to the Point of Beginning, containing 1.299 acres.
PARCEL III:
A part of School Lot 9 in Section 16, Township 23 North, Range 4 West of
the Second Principal Meridian in Fairfield Township, Tippecanoe County, Indiana,
being more completely described as follows, to-wit:
Beginning at a capped rebar in a position historically representing the
Northeast corner of School Lot 9 in Section 16, Township 23 North, Range 4 West;
thence North 890 -15'-00" West (Record Bearing) along the North line of said Lot
a distance of 253.50 feet; thence South 080 -37'-07" West a distance of 170.20
feet; thence South 880 52'-35" East a distance of 237.00 feet to the center line
of North 9th Street Road; thence North 330 -46'-00" East along said center line
a distance of 77.00 feet; thence North 000 -25'-00" East a distance of 105.60
feet to the point of Beginning, containing 1.000 acre.
EXHIBIT 10.63
COMFORT SYSTEMS USA, INC.
FIRST AMENDMENT TO CREDIT AGREEMENT
This FIRST AMENDMENT TO CREDIT AGREEMENT (this "AMENDMENT") is dated
as of January 14, 1999 and entered into by and among COMFORT SYSTEMS USA, INC.,
a Delaware corporation (the "COMPANY"), the other Credit Support Parties (as
defined in Section 4 hereof), the Subsidiaries of the Company listed on the
signature pages hereto as Guarantors (together with each other Person who
subsequently becomes a Guarantor, collectively the "GUARANTORS"), the banks and
other financial institutions listed on the signature pages hereto under the
caption "BANKS" (together with each other Person who becomes a Bank,
collectively the "BANKS"), BANK ONE, TEXAS, N.A. individually as a bank ("BOT")
and as administrative agent for the other Banks (in such capacity together with
any other Person who becomes the administrative agent, the "ADMINISTRATIVE
AGENT"), BANKERS TRUST COMPANY, individually as a Bank ("BTCO") and as
syndication agent for the other Banks (in such capacity together with any other
Person who becomes the syndication agent, the "SYNDICATION AGENT"), and NATIONS
BANK, N.A., individually as a Bank ("NB") and as documentation agent for the
other Banks (in such capacity together with any other Person who becomes the
documentation agent, the "DOCUMENTATION AGENT"); and together with the
Administrative Agent and the Syndication Agent, the "AGENTS"), CREDIT LYONNAIS,
individually as a Bank and Co-Agent, NATIONAL CITY BANK, individually as a Bank
and as Co-Agent, and THE BANK OF NOVA SCOTIA, individually as a Bank and as
Co-Agent (collectively, the "CO-AGENTS"), and is made with reference to that
certain Third Amended and Restated Credit Agreement dated as of December 14,
1998, by and among the Company, the Guarantors, the Banks, the Administrative
Agent, the Syndication Agent, the Documentation Agent, and the Co-Agents (the
"CREDIT AGREEMENT"), and to other Loan Documents. Capitalized terms used herein
without definition shall have the same meanings herein as set forth in the
Credit Agreement.
RECITALS
WHEREAS, Loan Parties and the Banks desire to amend the Credit
Agreement to permit the Company to make certain other Investments having a cost
to the Company and its Subsidiaries not exceeding $2,000,000 in the aggregate
over the life of the Credit Agreement.
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, the parties hereto agree as follows:
SECTION 1. AMENDMENT TO THE CREDIT AGREEMENT
1.1 AMENDMENT TO SECTION 8.5: INVESTMENTS
Section 8.5(e) of the Credit Agreement is hereby amended by deleting
the reference to "$500,000" contained therein and substituting "$2,000,000"
therefor.
<PAGE>
SECTION 2. CONDITIONS TO EFFECTIVENESS
Section 1 of this Amendment shall become effective only upon the
prior or concurrent satisfaction of all of the following conditions precedent
(the date of satisfaction of such conditions being referred to herein as the
"AMENDMENT EFFECTIVE DATE"):
A. On or before the Amendment Effective Date, the Company shall
deliver to the Banks (or to the Agents for the Banks) the following, each,
unless otherwise noted, dated the Amendment Effective Date:
1. A certificate of the secretary or an assistant secretary of
the Company and of the Guarantors certifying: (i) that the resolutions of
its Board of Directors of the Company and of the Guarantors approving and
authorizing the execution, delivery, and performance of the Credit
Agreement and amendments thereto delivered on the Effective Date, are in
full force and effect and have not been amended, supplemented or otherwise
modified since December 14,1998 and (ii) that the signature and incumbency
certificates of the officers of each of the Company and of the Guarantors
delivered on the Effective Date, are in full force and effect and have not
been amended, supplemented or otherwise modified since December 14, 1998;
and
2. Counterparts of this Amendment executed by the Requisite
Banks and each of the other parties hereto.
B. On or before the Amendment Effective Date, all corporate and
other proceedings taken or to be taken in connection with the transactions
contemplated hereby and all documents incidental thereto not previously found
acceptable by the Agents, acting on behalf of the Banks, and their counsel shall
be satisfactory in form and substance to the Agents and such counsel, and the
Agents and such counsel shall have received all such counterpart originals or
certified copies of such documents as the Agents may reasonably request.
SECTION 3. REPRESENTATIONS AND WARRANTIES
In order to induce the Banks to enter into this Amendment and to
amend the Credit Agreement in the manner provided herein, the Company and each
other Loan Party party hereto represents and warrants to each Bank that the
following statements are true, correct and complete as to itself:
A. CORPORATE POWER AND AUTHORITY. Each Loan Party party hereto has
all requisite corporate power and authority to enter into this Amendment and to
carry out the transactions contemplated hereby and the Company and each other
Loan Party party hereto has all requisite corporate power and authority to carry
out the transactions contemplated by, and perform its obligations under, the
Credit Agreement as further amended by this Amendment (the "AMENDED AGREEMENT").
B. AUTHORIZATION OF AGREEMENTS. The execution and delivery of this
<PAGE>
Amendment and the performance of the Amended Agreement have been duly authorized
by all necessary corporate action on the part of the Company and each of the
other Loan Parties party hereto, as the case may be.
C. NO CONFLICT. The execution and delivery by each Loan Party party
hereto of this Amendment and the performance by such Loan Party of this
Amendment and the performance by the Company of the Amended Agreement do not and
will not (i) violate any provision of any law or any governmental rule or
regulation applicable to the Company or any of its Subsidiaries, the Certificate
or Articles of Incorporation or Bylaws of the Company or any of its Subsidiaries
or any order, judgment or decree of any court or other agency of government
binding on the Company or any of its Subsidiaries, (ii) conflict with, result in
a breach of or constitute (with due notice or lapse of time or both) a default
any Contractual Obligation of the Company or any of its Subsidiaries, (iii)
result in or require the creation or imposition of any Lien upon any of the
properties or assets of the Company or any of its Subsidiaries (other than any
Liens created under any of the Loan Documents in favor of the Agents on behalf
of the Banks), or (iv) require any approval of stockholders or any approval or
consent of any Person under any Contractual Obligation of the Company or any of
its Subsidiaries.
D. GOVERNMENTAL CONSENTS. The execution and delivery by each Loan
Party party hereto of this Amendment and the performance by such Loan Party of
this Amendment and the performance by the Company of the Amended Agreement do
not and will not require any registration with, consent or approval of, or
notice to, or other action to, with or by, any federal, state or other
governmental authority or regulatory body.
E. BINDING OBLIGATION. This Amendment has been duly executed and
delivered by each Loan Party party hereto and this Amendment and the Amended
Agreement are the legally valid and binding obligations of such Loan Party,
enforceable against such Loan Party in accordance with their respective terms,
except as may be limited by bankruptcy, insolvency, reorganization, moratorium
or similar laws relating to or limiting creditors' rights generally or by
equitable principles relating to enforceability.
F. INCORPORATION OF REPRESENTATIONS AND WARRANTIES FROM CREDIT
AGREEMENT. The representations and warranties contained in Article VI of the
Credit Agreement are and will be true, correct and complete in all material
respects on and as of the Amendment Effective Date to the same extent as though
made on and as of that date, except to the extent such representations and
warranties specifically relate to an earlier date, in which case they were true,
correct and complete in all material respects on and as of such earlier date.
G. ABSENCE OF DEFAULT. No event has occurred and is continuing or
will result from the consummation of the transactions contemplated by this
Amendment that would constitute an Event of Default or a Potential Event of
Default.
SECTION 4. ACKNOWLEDGEMENT AND CONSENT
The Company is a party to certain Collateral Documents pursuant to
which the
<PAGE>
Company has created Liens in favor of the Agents on certain Collateral to secure
the Obligations. Each of the other Loan Parties party hereto is a party to
certain Collateral Documents and the Guaranty, pursuant to which each such Loan
Party has (i) guarantied the Obligations and (ii) created Liens in favor of the
Agents on certain Collateral to secure the obligations of such Loan Party under
the Guaranty. The Loan Parties party hereto are collectively referred to herein
as the "CREDIT SUPPORT PARTIES", and the Collateral Documents and the Guaranty
are collectively referred to herein as the "CREDIT SUPPORT DOCUMENTS".
Each Credit Support Party hereby acknowledges that it has reviewed
the terms and provisions of the Credit Agreement, the Collateral Documents and
the Guaranty and this Amendment and consents to the further amendment of the
Credit Agreement effected pursuant to this Amendment. Each Credit Support Party
hereby confirms that each Credit Support Document to which it is a party or
otherwise bound and all Collateral encumbered thereby will continue to guaranty
or secure, as the case may be, to the fullest extent possible the payment and
performance of all "Obligations," "Guarantied Obligations" and "Secured
Obligations," as the case may be (in each case as such terms are defined in the
applicable Credit Support Document), including without limitation the payment
and performance of all such "Obligations," "Guarantied Obligations" or "Secured
Obligations," as the case may be, in respect of the Obligations of Company now
or hereafter existing under or in respect of the Amended Agreement and the Notes
defined therein.
Each Credit Support Party acknowledges and agrees that any of the
Credit Support Documents to which it is a party or otherwise bound shall
continue in full force and effect and that all of its obligations thereunder
shall be valid and enforceable and shall not be impaired or limited by the
execution or effectiveness of this Amendment. Each Credit Support Party
represents and warrants that all representations and warranties contained in the
Amended Agreement and the other Credit Support Documents to which it is a party
or otherwise bound are true, correct and complete in all material respects on
and as of the Amendment Effective Date to the same extent as though made on and
as of that date, except to the extent such representations and warranties
specifically relate to an earlier date, in which case they were true, correct
and complete in all material respects on and as of such earlier date.
Each Credit Support Party (other than the Company) acknowledges and
agrees that (i) notwithstanding the conditions to effectiveness set forth in
this Amendment, such Credit Support Party is not required by the terms of the
Credit Agreement or any other Loan Document to consent to the amendments to the
Credit Agreement effected pursuant to this Amendment and (ii) nothing in the
Credit Agreement, this Amendment or any other Loan Document shall be deemed to
require the consent of such Credit Support Party to any future amendments to the
Credit Agreement.
SECTION 5. MISCELLANEOUS
A. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT AND THE
OTHER LOAN DOCUMENTS.
<PAGE>
(i) On and after the Amendment Effective Date, each reference in the
Credit Agreement to "this Agreement", "hereunder", "hereof",
"herein" or words of like import referring to the Credit Agreement,
and each reference in the other Loan Documents to the "Credit
Agreement", "thereunder", "thereof" or words of like import
referring to the Credit Agreement shall mean and be a reference to
the Amended Agreement.
(ii) Except as specifically amended by this Amendment, the Credit
Agreement and the other Loan Documents shall remain in full force
and effect and are hereby ratified and confirmed.
(iii) The execution, delivery and performance of this Amendment
shall not, except as expressly provided herein, constitute a waiver
of any provision of, or operate as a waiver of any right, power or
remedy of any Agent or any Bank under, the Credit Agreement or any
of the other Loan Documents.
B. FEES AND EXPENSES. Company acknowledges that all reasonable
costs, fees and expenses as described in Section 12.4 of the Credit Agreement
incurred by the Syndication Agent and its counsel with respect to this Amendment
and the documents and transactions contemplated hereby shall be for the account
of the Company.
C. HEADINGS. Section and subsection headings in this Amendment are
included herein for convenience of reference only and shall not constitute a
part of this Amendment for any other purpose or be given any substantive effect.
D. APPLICABLE LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF
THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED
IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING
WITHOUT LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF
NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
E. COUNTERPARTS; EFFECTIVENESS. This Amendment may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed an
original, but all such counterparts together shall constitute but one and the
same instrument; signature pages may be detached from multiple separate
counterparts and attached to a single counterpart so that all signature pages
are physically attached to the same document. This Amendment (other than the
provisions of Section 1, which shall become effective upon the satisfaction of
each of the conditions set forth in Section 2 hereof) shall become effective
upon the execution of a counterpart hereof by the Requisite Banks and each of
the other parties hereto and receipt by the Company and the Agents f written or
telephonic notification of such execution and authorization of delivery thereof.
[Remainder of page intentionally left blank]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
BORROWER:
COMFORT SYSTEMS USA, INC.
By:/s/______________________________
J. Gordon Beittenmiller
Senior Vice President and
Chief Financial Officer
S-1
<PAGE>
GUARANTORS:
ACCURATE AIR SYSTEMS, INC.
ACCU-TEMP LP, INC.
ACCU-TEMP, LLC
ACI MECHANICAL, INC.
ADAMS MECHANICAL SERVICES, INC.
ADAMS MECHANICAL, SERVICES, INC.
AIR POWER SYSTEMS, INC.
AIR POWER SYSTEMS, INC.
AIR SOLUTIONS, INC.
ALLSTATE MECHANICAL, INC.
AMERICAN REFRIGERATION CONTRACTORS, INC.
ARMANI PLUMBING & MECHANICAL
ATLAS AIR CONDITIONING COMPANY
ATLAS COMFORT SERVICES USA, INC.
BATCHELOR'S MECHANICAL CONTRACTORS, INC.
BCM CONTROLS CORPORATION
CEL, INC.
CENTRAL MECHANICAL CONSTRUCTION CO., INC.
CENTRAL MECHANICAL INC.
CLIMATE CONTROL, INC.
CONTRACT SERVICE, INC.
CS44 ACQUISITION CORPORATION
DESIGN MECHANICAL INCORPORATED
DYNASTAR, INC.
E.L. PRUITT COMPANY
EASTERN HEATING & COOLING, INC.
EASTERN REFRIGERATION CO., INC.
EDISON COOLING SYSTEMS, INC.
EDS, INC.
F&G MECHANICAL CORPORATION
FRED HAYES MECHANICAL CONTRACTORS, INC.
FREEWAY HEATING & AIR CONDITIONING, INC.
GMS AIR CONDITIONING, INC.
GOTHAM AIR CONDITIONING SERVICE, INC.
GULFSIDE MECHANICAL, INC.
H & H PLUMBING & HEATING, INC.
<PAGE>
HARRIS GENERAL & MECHANICAL
CONTRACTORS, INC.
HELM CORPORATION
HELM CORPORATION SAN DIEGO
HESS MECHANICAL CORPORATION
HILLCREST SHEET METAL, INC.
INDUSTRIAL COOLING INC.
JAMES AIR CONDITIONING ENTERPRISES, INC.
KILGUST MECHANICAL, INC.
KUEMPEL SERVICE, INC.
LAWRENCE SERVICE, INC.
LOWRIE ELECTRIC CO., INC.
MANDELL MECHANICAL CORPORATION
MARTIN HEATING, INC.
MAXIMUM REFRIGERATION & AIR
CONDITIONING CORPORATION
MEADOWLANDS FIRE PROTECTION CORP.
MECHANICAL SERVICE GROUP, INC.
MJ MECHANICAL SERVICES, INC.
NOGLE & BLACK MECHANICAL, INC.
NORTH AMERICAN MECHANICAL, INC.
NORTH JERSEY MECHANICAL CONTRACTORS, INC.
OK SHEET METAL & AIR CONDITIONING, INC.
QUALITY AIR HEATING & COOLING, INC.
RADNEY PLUMBING, INC.
RIVER CITY MECHANICAL, INC.
RIVER CITY MECHANICAL, INCORPORATED
ROSS & ASSOCIATES
S&K AIR CONDITIONING CO., INC.
S. I. GOLDMAN
S.M. LAWRENCE COMPANY, INC.
SALMON & ALDER, INC.
SEASONAIR, INC.
SHAMBAUGH & SON, INC.
SOUTHERN BLUEGRASS MECHANICAL, INC.
STANDARD HEATING & AIR CONDITIONING
COMPANY
<PAGE>
SUPERIOR HEATING AND SHEET METAL
COMPANY
TARGET CONSTRUCTION, INC.
TECH HEATING AND AIR CONDITIONING,
INC.
TECH MECHANICAL, INC.
TEMP-RIGHT SERVICE, INC.
TEMPRITE AIR CONDITIONING AND
REFRIGERATION, INC.
THE CAPITAL REFRIGERATION COMPANY
THE FAGAN COMPANY
THE HARVEY ROBBIN COMPANY
TRI-CITY MECHANICAL, INC.
TROOST SERVICE CO.
UNITED ENVIRONMENTAL SERVICES, INC.
WALKER-J-WALKER, INC.
WEATHER ENGINEERING, INC.
WESTERN BUILDING SERVICES, INC.
WOODCOCK & ASSOCIATES, INC.
By: __/s/_____________________________
J. Gordon Beittenmiller
Vice President
<PAGE>
ADMINISTRATIVE AGENT/BANK:
BANK ONE, TEXAS, N.A.,
AS ADMINISTRATIVE AGENT AND INDIVIDUALLY,
AS A BANK
By:___/s/_____________________________
Name: _________________________________
Title: __________________________________
<PAGE>
SYNDICATION AGENT/ BANK:
BANKERS TRUST COMPANY,
AS SYNDICATION AGENT AND INDIVIDUALLY AS A
BANK
By:_________________________________
Name: ______________________________
Title: _______________________________
DOCUMENTATION AGENT/ BANK:
NATIONSBANK, N.A.,
AS DOCUMENTATION AGENT AND INDIVIDUALLY,
AS A BANK
By:
___/s/__________________________________
Name: __________________________________
Title:__________________________________
CO-AGENT/ BANK:
CREDIT LYONNAIS, NEW YORK BRANCH,
AS CO-AGENT AND INDIVIDUALLY, AS A BANK
By: _____/s/_______________________________
Name: _____________________________________
Title:_____________________________________
<PAGE>
CO-AGENT/BANK:
NATIONAL CITY BANK,
AS CO-AGENT AND INDIVIDUALLY, AS A BANK
By:_/s/____________________________________
Michael J. Durbin
Vice President
CO-AGENT/ BANK:
THE BANK OF NOVA SCOTIA,
AS CO-AGENT AND INDIVIDUALLY, AS A BANK
By: /s/__________________________________
Name: ___________________________________
Title:___________________________________
BANK:
THE LONG-TERM CREDIT BANK OF JAPAN, LTD.
By: /s/__________________________________
Name:____________________________________
Title:___________________________________
<PAGE>
BANK:
STAR BANK, NATIONAL ASSOCIATION
By: /s/__________________________________
Name:____________________________________
Title:___________________________________
BANK:
UNION BANK OF CALIFORNIA, N.A.
By: /s/__________________________________
Name:____________________________________
Title:___________________________________
BANK:
BANK OF MONTREAL
By: /s/__________________________________
Name:____________________________________
Title:___________________________________
<PAGE>
BANK:
SOCIETE GENERALE, SOUTHWEST AGENCY
By: /s/__________________________________
Name:____________________________________
Title:___________________________________
BANK:
COMERICA BANK
By: /s/__________________________________
Name:____________________________________
Title:___________________________________
BANK:
BANK POLSKA, KASA OPIEKI S.A., PEKOA S.A.
GROUP, NEW YORK BRANCH
By: /s/__________________________________
Name:____________________________________
Title:___________________________________
<PAGE>
BANK:
LASALLE NATIONAL BANK
By: /s/__________________________________
Name:____________________________________
Title:___________________________________
EXHIBIT 21.1
LIST OF SUBSIDIARIES OF COMFORT SYSTEMS USA, INC.
ENTITY STATE OF
NUMBER NAME OF ENTITY ORGANIZATION
- ------ -------------- ------------
1. Aaron Mechanical, Inc. Michigan
2. ACI Mechanical, Inc. Delaware
3. A.C.I. Mechanical USA, Inc. Delaware
4. Accurate Air Systems, L.P. Texas
5. Accu-Temp GP, Inc. Delaware
6. Accu-Temp LP, Inc. Delaware
7. Accu-Temp, LLC Indiana
8. Adams Mechanical Services, Inc. Texas
9. Air Power Systems, Inc. Delaware
10. Air Solutions USA, Inc. Delaware
11. All Temp Services, Inc. Florida
12. American Refrigeration Contractors,
Inc. Delaware
13. Armani Plumbing & Mechanical, Inc. New York
14. Atlas-Accurate Holdings, L.L.C. Delaware
15. Atlas Air Conditioning Company, L.P. Texas
16. Batchelor's Mechanical Contractors,
Inc. Alabama
17. BCM Controls Corporation Massachusetts
18. Bessette Plumbing & Heating, Inc. Connecticut
19. CEL, Inc. (Casey Electric) Delaware
20. Central Mechanical Construction Co.,
Inc. Delaware
21. Central Mechanical, Inc. Delaware
22. Climate Control, Inc. Delaware
23. Comfort Systems USA G.P., Inc. Delaware
24. Comfort Systems USA (Texas), L.P. Texas
25. Contract Service, Inc.
[C.S.I./Bonneville] Utah
26. CS44 Acquisition Corp.
[Edmonds/Service Refrigeration] Delaware
27. Design Mechanical Incorporated Delaware
28. Eastern Heating & Cooling, Inc. New York
29. Eastern Refrigeration Co., Inc. New York
30. EDS, Inc. [Energy Development
Services] Minnesota
31. E.L. Pruitt Company Delaware
32. ESS Engineering, Inc. Delaware
33. F&G Mechanical Corporation Delaware
34. FIX Reinsurance Corporation Vermont
35. Fred Hayes Mechanical Contractors,
Inc. Delaware
36. Freeway Heating & Air Conditioning,
Inc. Utah
37. GMS Air Conditioning, Inc. Delaware
38. Gotham Air Conditioning Service,
Inc. Delaware
39. Gulfside Mechanical, Inc. Delaware
40. H & H Plumbing & Heating, Inc. Delaware
41. H & M Mechanical, Inc. Delaware
Page 1 of 3
<PAGE>
ENTITY STATE OF
NUMBER NAME OF ENTITY ORGANIZATION
- ------ -------------- ------------
42. Harris General & Mechanical
Contractors, Inc. Delaware
43. Helm Corporation Colorado
44. Helm Corporation San Diego California
45. Hess Mechanical Corporation Delaware
46. Hillcrest Sheet Metal, Inc. Delaware
47. Industrial Cooling Inc. Delaware
48. J & J Mechanical, Inc. Kentucky
49. James Air Conditioning Enterprise
Inc. Puerto Rico
50. Kilgust Mechanical, Inc. Delaware
51. Kuempel Service, Inc. Ohio
52. Lawrence Service, Inc. Tennessee
53. Lower Bucks Cooling and Heating
Corporation Pennsylvania
54. Lowrie Electric Company, Inc. Tennessee
55. Mandell Mechanical Corporation New York
56. Martin Heating, Inc. Delaware
57. Maximum Refrigeration & Air
Conditioning Corp. Delaware
58. Meadowlands Fire Protection Corp. New Jersey
59. Mechanical Service Group, Inc. [Page] Delaware
60. MJ Mechanical Services, Inc. Delaware
61. N.J.M. Service Co., Inc. New Jersey
62. Nogle & Black Mechanical, Inc. Delaware
63. North American Mechanical, Inc. Delaware
64. North Jersey Mechanical Contractors,
Inc. New Jersey
65. OK Sheet Metal and Air Conditioning,
Inc. Delaware
66. Quality Air Heating & Cooling,
Inc. Michigan
67. Radney Plumbing, Inc. Delaware
68. River City Mechanical, Inc. Michigan
69. River City Mechanical,
Incorporated Delaware
70. Ross & Associates, Inc. Delaware
71. S&K Air Conditioning Co., Inc. Georgia
72. S. I. Goldman Company, Inc. Delaware
73. S.M. Lawrence Company, Inc. Tennessee
74. Salmon & Alder, Inc. Utah
75. Salmon & Alder, LLC Utah
76. Seasonair, Inc. Maryland
77. Shambaugh & Son, Inc. Indiana
78. Sheren Plumbing & Heating, Inc. Delaware
79. Southern Bluegrass Mechanical, Inc. Delaware
80. Standard Heating & Air Conditioning
Company Alabama
81. Superior Heating and Sheet Metal
Company Delaware
82. Target Construction, Inc. Delaware
83. Tech Heating and Air Conditioning,
Inc. Ohio
Page 2 of 3
<PAGE>
ENTITY STATE OF
NUMBER NAME OF ENTITY ORGANIZATION
- ------ -------------- ------------
84. Tech Mechanical Inc. Ohio
85. Temp-Right Service, Inc. Delaware
86. Temprite Air Conditioning and
Refrigeration, Inc. Delaware
87. The Capital Refrigeration Company Delaware
88. The Fagan Company Kansas
89. The Harvey Robbin Company Delaware
90. Tri-City Mechanical, Inc. Arizona
91. Troost Service Co. Michigan
92. United Environmental Services,
Inc. Delaware
93. Walker-J-Walker, Inc. Tennessee
94. Weather Engineering, Inc. Delaware
95. Western Building Services, Inc. Colorado
96. Woodcock & Associates, Inc. New York
Page 3 of 3
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our reports included in this Form 10-K, into the Company's previously filed
Registration Statement on Form S-1 on July 31, 1997 File No. 333-32595 and
Registration Statement on Form S-8 on October 16, 1997 File No. 333-38011.
ARTHUR ANDERSEN LLP
Houston, Texas
March 26, 1999
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