<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED OCTOBER 17, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO __________
Commission File number 333-35457
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RANDALL'S FOOD MARKETS, INC.
(Exact name of registrant as specified in its charter)
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Texas 74-2134840
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3663 Briarpark, Houston, Texas 77042
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Address of principal executive offices (including zip code)
(713) 268-3500
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Registrant's telephone number, including area code
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes (X) No ( )
The number of shares outstanding of the registrant's common stock, par value
$0.25 per share, as of November 13, 1998 was 30,004,702 shares
<PAGE>
RANDALL'S FOOD MARKETS, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NO.
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<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets at October 17, 1998 and
June 27, 1998 3
Condensed Consolidated Statements of Income for the Sixteen (16)
Week Periods Ended October 17, 1998 and October 18, 1997 4
Condensed Consolidated Statements of Cash Flows for the Sixteen
(16) Week Periods Ended October 17, 1998 and October 18, 1997 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9
Item 3. Quantitative and Qualitative Disclosure about Market Risk 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
</TABLE>
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RANDALL'S FOOD MARKETS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
OCTOBER 17, 1998 AND JUNE 27, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
UNAUDITED AUDITED
OCTOBER 17, 1998 JUNE 27, 1998
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<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 24,141 $ 36,243
Receivables, net 46,928 44,187
Merchandise inventories 181,117 166,332
Other current assets 15,899 17,778
-------- --------
Total current assets 268,085 264,540
Property and equipment, net 416,478 365,853
Goodwill, net 216,004 217,968
Other assets, net 36,886 35,386
-------- --------
Total $937,453 $883,747
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt and obligations under capital leases $ 4,553 $ 4,544
Accounts payable 131,160 135,834
Accrued expenses and other 135,822 136,477
-------- --------
Total current liabilities 271,535 276,855
Long-term debt, net of current maturities 327,795 276,447
Obligations under capital leases, net of current maturities 60,247 61,515
Other long-term liabilities 33,299 32,485
-------- --------
Total liabilities 692,876 647,302
-------- --------
Commitments & Contingencies (See Note 3)
Redeemable common stock, $14.50 and $13.30 redemption value per share,
387,651 shares issued and outstanding at October 17, 1998 and June 27, 1998 5,621 5,155
-------- --------
Stockholders' Equity:
Common stock, $0.25 par value, 75,000,000 shares authorized; 29,647,061
shares issued and 29,628,679 shares outstanding at October 17, 1998 and
29,697,979 shares issued and 29,679,597 shares outstanding at June 27, 1998 7,411 7,425
Additional paid-in capital 173,854 174,337
Stockholders' notes receivable (5,905) (6,213)
Retained earnings 64,227 56,506
Restricted common stock (413) (547)
Treasury stock, 18,392 shares at cost (218) (218)
-------- --------
Total stockholders' equity 238,956 231,290
-------- --------
Total $937,453 $883,747
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated financial statements.
3
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RANDALL'S FOOD MARKETS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIXTEEN WEEK PERIODS ENDED
OCTOBER 17, 1998 and OCTOBER 18, 1997
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
OCTOBER 17, 1998 OCTOBER 18, 1997
---------------- ----------------
<S> <C> <C>
Net sales $766,741 $719,377
Cost of sales 552,880 522,940
-------- --------
Gross profit 213,861 196,437
-------- --------
Operating expenses:
Selling, general and administrative expenses 171,814 163,276
Depreciation and amortization 17,173 15,117
-------- --------
Total operating expenses 188,987 178,393
-------- --------
Operating income 24,874 18,044
Interest expense, net 10,052 10,522
-------- --------
Income before income taxes 14,822 7,522
Provision for income taxes 6,636 3,780
-------- --------
Net income $ 8,186 $ 3,742
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated financial statements.
4
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RANDALL'S FOOD MARKETS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIXTEEN WEEK PERIODS ENDED
OCTOBER 17, 1998 and OCTOBER 18, 1997
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
OCTOBER 17, 1998 OCTOBER 18, 1997
---------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 8,186 $ 3,742
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 17,173 15,117
Other 1,548 848
Change in assets and liabilities, net (19,872) 5,795
-------- --------
Net cash provided by operating activities 7,035 25,502
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (77,472) (14,572)
Proceeds from sale of assets 7,142 12,417
Other 210 531
-------- --------
Net cash used in investing activities (70,120) (1,624)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowing under credit agreement 122,000 -
Repayments of debt (70,649) (3,132)
Reduction in obligations under capital leases (1,168) (1,291)
Other 800 (42)
-------- --------
Net cash provided by (used in) financing activities 50,983 (4,465)
-------- --------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (12,102) 19,413
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 36,243 23,115
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 24,141 $ 42,528
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated financial statements.
5
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RANDALL'S FOOD MARKETS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIXTEEN WEEK PERIODS ENDED
OCTOBER 17, 1998 AND OCTOBER 18, 1997 (UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying condensed consolidated balance sheet of Randall's Food
Markets, Inc. and subsidiaries (the "Company") at June 27, 1998 has been derived
from the Company's audited financial statements at that date. The condensed
consolidated balance sheet at October 17, 1998, the condensed consolidated
statements of income for the sixteen week periods ended October 17, 1998 and
October 18, 1997 and the condensed consolidated statements of cash flows for the
sixteen week periods ended October 17, 1998 and October 18, 1997 are unaudited.
In the opinion of management, such condensed consolidated financial statements
contain all adjustments, consisting only of normal recurring adjustments,
necessary for a fair statement of the consolidated financial position and
results of operations of the Company for the interim periods. Operating results
for the sixteen week period ended October 17, 1998 are not necessarily
indicative of the operating results that may be expected for a full fiscal year.
Certain information and footnote disclosures normally included in annual
financial statements presented in accordance with generally accepted accounting
principles have been omitted. The accompanying condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements and footnotes thereto included in the Company's Annual Report on Form
10-K for the year ended June 27, 1998.
Certain reclassifications have been made to the prior period's financial
statements to conform to the current period presentation.
2. STORE CLOSING COSTS
During the fiscal year ended June 28, 1997 ("Fiscal Year 1997"), the
Company recorded a charge of approximately $32.8 million in connection with the
planned closure, replacement or sale of certain of its stores during Fiscal Year
1997, the fiscal year ended June 27, 1998 ("Fiscal Year 1998") and the fiscal
year ending June 26, 1999 ("Fiscal Year 1999"). Such charge included estimated
inventory losses of approximately $3.0 million (included in cost of sales during
Fiscal Year 1997), estimated lease termination costs of approximately $11.7
million and asset write-offs of approximately $18.1 million (included in
operating expenses during Fiscal Year 1997). During the sixteen weeks ended
October 17, 1998, the Company closed and replaced three such stores and charged
approximately $6.8 million against the accrual recorded in connection with the
charge in Fiscal Year 1997.
3. CONTINGENCIES
MSP LITIGATION - Following the Company's acquisition of Cullum Companies,
Inc. in August 1992, the Company terminated the Cullum's Management Security
Plan for Cullum Companies, Inc. ("the MSP"). In respect of such termination, the
Company paid MSP participants the greater of (i) the amount of such
participant's deferral or (ii) the net present value of the participant's
accrued benefit, based upon the participant's current salary, age and years of
service. Thirty-five of the former MSP participants have instituted a claim
against the Company on behalf of all persons who were participants in the MSP on
its date of termination (which is alleged by plaintiffs to be approximately 250
persons). On May 7, 1997, the plaintiffs filed an amended complaint for the
Court to recognize their action as a class action, to recover additional amounts
under the MSP, for a declaration of rights under an employee pension benefit
plan and for breach of
6
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fiduciary duty. The plaintiffs assert that the yearly plan agreement
executed by each participant in the MSP was a contract for a specified
retirement and death benefit set forth in such plan agreements and that such
benefits were vested and nonforfeitable. A pre-trial order in the MSP
litigation, which was submitted to the Court on October 22, 1997, states that
an expert for the plaintiffs, assuming class certification, may testify that
the damages allegedly sustained by the plaintiff class may range from
approximately $18.0 million to $37.2 million and, assuming that a court were
to award additional damages based on a rate of return achieved by an equity
index over the relevant period, such damages may range from approximately
$37.4 million to $70.6 million. On December 30, 1997, the Court issued an
order denying the plaintiffs' summary judgment motion on the plaintiffs'
claim that the MSP was not an exempt "top hat plan" (a plan which is unfunded
and maintained by an employer primarily for the purpose of providing deferred
compensation for a select group of management or highly compensated
employees). The order also granted the Company's summary judgment motions on
two of the plaintiffs' ancillary claims, but did not address the plaintiffs'
request for certification as a class action. On June 5, 1998, the Court
ruled that the plan was "unfunded", meaning that the trial of the limited
class action issue will deal only with the question of whether the MSP was
"maintained primarily for the purpose of providing deferred compensation for
a select group of management or highly compensated employees." On June 16,
1998, the Court certified the case as a class action for the limited issue of
determining if the MSP was an exempt "top hat plan". The Court defined the
class as all persons who, on the date of the termination of the MSP, were
participants in the MSP and were employed by Randall's Food Markets, Inc. On
September 8, 1998, a pre-trial conference was held to discuss burden of
proof, expert testimony and meaning of "select group" and the evidence to be
considered at the trial. The trial of the limited class action issue was
conducted before the Court, sitting without a jury, on October 26, 1998.
Upon order of the Court, both parties submitted post-trial briefs on November
6, 1998. The Court has yet to rule on the limited class action issue. Once
the initial class issue is resolved, the Court will make an evaluation as to
whether any other issues should be dealt with in a class action context.
Based upon current facts, the Company is unable to estimate any meaningful
range of possible loss that could result from an unfavorable outcome of the
MSP litigation. It is possible that the Company's results of operations or
cash flows in a particular quarterly or annual period or its financial
position could be materially affected by an ultimate unfavorable outcome of
the MSP litigation. However, the Company intends to vigorously contest the
MSP claim and, although there can be no assurance, management currently does
not anticipate an unfavorable outcome based on management's independent
analysis of the facts relating to such litigation.
FLEMING DISPUTE - On July 30, 1997, the Company initiated an arbitration
proceeding before the American Arbitration Association against Fleming
Companies, Inc. ("Fleming"), one of its long-time suppliers, alleging, among
other things, that Fleming violated the terms of a supply agreement signed in
1993. On July 7, 1998, the arbitration panel unanimously found that Fleming
materially breached the supply agreement and the contract was terminated as of
July 7, 1998 without payment of any termination fee. The Company and Fleming
entered into a transition agreement, effective September 25, 1998, which
provides for a continued supply of products from Fleming while the Company moves
to self distribution.
JOHN PAUL MITCHELL LAWSUIT - On August 26, 1998, a jury in the 126th
District Court, Travis County, Texas, returned a verdict against the Company and
a co-defendant, Jade Drug Company, Inc. ("Jade"), finding both parties
intentionally conspired with each other to interfere with contracts between John
Paul Mitchell Systems ("Mitchell") and one or more of its distributors and/or
salons. The jury found the Company guilty of having in its possession, selling
or offering for sale Mitchell products that it knew, or that a reasonable person
in the position of the Company would know, had serial numbers or other permanent
identification markings removed, altered or obliterated. The jury found that
the company unfairly competed with Mitchell by purchasing and distributing the
products and infringed on Mitchell's trademark. The jury also found that the
harm caused Mitchell resulted from malice.
7
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The jury awarded Mitchell and its co-plaintiff, Ultimate Salon Services
Inc. (together, the "Plaintiffs"), $3.25 million in joint and several damages
from the Company and Jade, $4.5 million in exemplary damages from the Company
and $3.0 million in actual damages and $4.5 million in exemplary damages from
Jade.
The Company and Jade filed motions with the trial court judge to disregard
the jury's verdict. On November 19, 1998, the trial court judge threw out the
jury's verdict, entered judgement in favor of the Company and Jade, ordered that
the Plaintiffs recover nothing and ordered that the Plaintiffs pay the Company
and Jade all of their court costs. As of this date, the Plaintiffs have not
indicated whether or not they are going to appeal. Although the outcome of this
matter cannot be predicted with certainty, management believes an unfavorable
outcome will not have a material adverse effect on the Company, its operations,
its financial condition or its cash flows.
Other than the foregoing matters, the Company believes it is not a party to
any pending legal proceedings, including ordinary litigation incidental to the
conduct of its business and the ownership of its property, the adverse
determination of which would have a material adverse effect on the Company, its
operations, its financial condition or its cash flows.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company operates a chain of 116 supermarkets primarily under the
RANDALLS and TOM THUMB banners in the Houston, Dallas/Fort Worth and Austin
metropolitan areas. The Company operates on a 52 or 53 week fiscal year ending
on the last Saturday of each June. Same-store sales is defined as net sales for
stores in full operation in each of the current fiscal periods and the
comparable periods of the prior fiscal year. Replacement stores are included in
the same-store sales calculation. A replacement store is defined as a store
that is opened to replace a store that is closed nearby.
Presented below is a table showing the percentage of net sales represented by
certain items in the Company's consolidated condensed statements of income
(dollars in thousands):
<TABLE>
<CAPTION>
16 WEEKS ENDED 16 WEEKS ENDED
OCTOBER 17, 1998 OCTOBER 18, 1997
------------------ -------------------
<S> <C> <C> <C> <C>
Net sales $ 766,741 100.0% $ 719,377 100.0%
Cost of sales 552,880 72.1% 522,940 72.7%
-------- ----- -------- -----
Gross profit 213,861 27.9% 196,437 27.3%
Selling, general and administrative expenses 171,814 22.4% 163,276 22.7%
Depreciation and amortization 17,173 2.2% 15,117 2.1%
-------- ----- -------- -----
Operating income 24,874 3.2% 18,044 2.5%
Interest expense, net 10,052 1.3% 10,522 1.5%
-------- ----- -------- -----
Earnings before taxes 14,822 1.9% 7,522 1.0%
Provision for income taxes 6,636 0.9% 3,780 0.5%
-------- ----- -------- -----
Net income $ 8,186 1.1% $ 3,742 0.5%
-------- ----- -------- -----
-------- ----- -------- -----
EBITDA $ 42,728 5.6% $ 33,841 4.7%
-------- ----- -------- -----
-------- ----- -------- -----
</TABLE>
FIRST QUARTER 1999 COMPARED TO FIRST QUARTER 1998
NET SALES - Net sales for the sixteen weeks ended October 17, 1998 ("First
Quarter 1999") increased by $47.4 million (6.6%) compared to the sixteen weeks
ended October 18, 1997 ("First Quarter 1998"). Such increase is partially
attributable to additional sales of $11.5 million generated from the opening of
one new store (excluding 3 replacement stores) during First Quarter 1999 and the
operation during such period of two stores opened during the fiscal year ended
June 27, 1998 (excluding 2 replacement stores) which were not in operation
during the entire comparable period of the prior year. In addition, the Company
experienced an increase in same-store sales of approximately $67.5 million in
First Quarter 1999 as compared to First Quarter 1998. These increases were
offset by a decline of approximately $31.5 million from closed and temporarily
closed stores that are excluded from same-store sales.
The Company's same-store sales for First Quarter 1999 have improved
significantly over those of First Quarter 1998. Same-store sales during First
Quarter 1999 increased approximately 9.9% compared to an increase of
approximately 1.7% during First Quarter 1998. Such improvement was due
primarily to the store remodeling and expansion program, the contribution of
replacement stores, the success of other merchandising, marketing and customer
service initiatives and favorable economic conditions. The Company cannot
predict whether the improvement in the trend in same-store sales that has
occurred in First Quarter 1999 will continue in future periods, and as a
result, there can be no assurance that such trend will continue or will not be
reversed in future periods.
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GROSS PROFIT - Gross profit for First Quarter 1999 increased by $17.4 million or
8.9% compared to First Quarter 1998. The dollar increase in gross profit is
primarily attributable to the increased sales volume during First Quarter 1999.
Gross profit as a percentage of net sales increased to 27.9% for First Quarter
1999 from 27.3% for First Quarter 1998. This increase, as a percentage of net
sales, was primarily due to more effective promotional efforts and higher gross
margins at new and replacement stores. Such higher gross margins at new and
replacement stores were due primarily to the more expansive specialty
departments and broader range of products and services offered by such stores.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - Selling, general and
administrative expenses increased $8.5 million or 5.2% during First Quarter 1999
compared to First Quarter 1998. Selling, general and administrative expenses as
a percentage of net sales decreased to 22.4% for First Quarter 1999 from 22.7%
for First Quarter 1998. This decrease, as a percentage of net sales, was due
primarily to better expense management and the increase in net sales. The
Company intends to remain focused on expense control. Therefore, the Company
does not expect selling, general and administrative expenses as a percentage of
net sales to increase compared to corresponding periods of the prior year;
however, no assurance can be given in this regard.
EBITDA (EARNINGS BEFORE NET INTEREST EXPENSE, TAXES, DEPRECIATION, AMORTIZATION
AND LIFO PROVISION) AND OPERATING INCOME - EBITDA for First Quarter 1999
increased by $8.9 million or 26.3% compared to First Quarter 1998. EBITDA as a
percentage of net sales increased to 5.6% for First Quarter 1999 from 4.7% for
First Quarter 1998. Operating income for First Quarter 1999 increased by $6.8
million or 37.9% compared to First Quarter 1998. Such increases are primarily
attributable to the increases in gross profit offset to some extent by the
increases in selling, general and administrative expenses, as described above.
DEPRECIATION AND AMORTIZATION - Depreciation and amortization expense for First
Quarter 1999 increased by $2.1 million or 13.6% compared to First Quarter 1998.
This increase was primarily due to new store openings and the remodeling of
certain existing stores and other facilities in connection with the Company's
capital expenditure program that began in the year ended June 27, 1998. See
"Liquidity and Capital Resources".
INTEREST EXPENSE, NET - Net interest expense for First Quarter 1999 remained
relatively constant compared to First Quarter 1998. The Company expects
interest expense will increase in future periods as the Company utilizes the
revolving credit facility available under its bank credit agreement to finance
its working capital needs and expected capital expenditures. See "Liquidity and
Capital Resources".
PROVISION FOR INCOME TAXES - The provision for income taxes for First Quarter
1999 was $6.6 million compared $3.8 million for First Quarter 1998. This
increase was primarily due to the Company's increased pre-tax income.
NET INCOME - Net income for First Quarter 1999 increased $4.4 million or 118.8%
compared to First Quarter 1998 due primarily to the combined impact of the
factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES - The Company is a holding company, and as a
result, its operating cash flow and its ability to service its indebtedness,
including the Company's $150.0 million aggregate principal amount outstanding of
9-3/8% Series B Senior Subordinated Notes due 2007, are dependent upon the
operating cash flow of its subsidiaries and the payment of funds by such
subsidiaries to the Company in the form of loans, dividends or otherwise.
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The Company's principal sources of liquidity are expected to be cash
flow from operations, borrowings under the $225.0 million revolving credit
facility ("Revolver") available under the Company's current bank credit
agreement and proceeds from lease financing arrangements. As of October 17,
1998, the Company had approximately $173.0 million available (net of
approximately $18,000 of outstanding letters of credit) to be borrowed under
the Revolver. Management anticipates that the Company's principal uses of
liquidity will be to provide working capital, meet debt service requirements
and finance the Company's expansion and remodeling plans. Management
believes that cash flows generated from operations, borrowings under the
Revolver and proceeds from lease financing arrangements will adequately
provide for the Company's working capital and debt service needs and will be
sufficient to fund its expected capital expenditures.
During First Quarter 1999 and First Quarter 1998, operating activities
provided net cash of approximately $7.0 million and $25.5 million, respectively.
Net cash provided by operations during First Quarter 1999 resulted primarily
from net income during the period (adjusted for the non-cash impact of
depreciation and amortization) offset to some extent by increases in merchandise
inventories and decreases in accounts payable. Net cash provided by operations
during First Quarter 1998 resulted primarily from net income (adjusted for the
non-cash impact of depreciation and amortization), the collection of a $10.0
million federal income tax receivable, and increases in accounts payable and
accrued expenses, offset to some extent by increases in merchandise
inventories. Financing activities provided approximately $51.0 million during
First Quarter 1999, primarily from borrowings under the credit agreement offset
by a reduction of debt and capital lease obligations. During First Quarter
1998, financing activities utilized approximately $4.5 million, primarily due to
debt reduction.
Cash used in investing activities during First Quarter 1999 and First
Quarter 1998 consisted primarily of capital expenditures of approximately
$77.5 million and $14.6 million, respectively, offset to some extent by
proceeds from asset sales of approximately $7.1 million and $12.4 million
during First Quarter 1999 and First Quarter 1998, respectively. Capital
expenditures primarily include expenditures related to the construction of
new stores, the purchase of real estate, the remodeling of existing stores,
ongoing store expenditures for equipment and capitalized maintenance, as well
as expenditures relating to the Company's warehousing and distribution network
and computer equipment.
During Fiscal Year 1998, the Company embarked upon a program to accelerate
its store development and remodeling and to optimize its distribution network.
Such program has resulted in a level of capital expenditures in excess of
historical levels. During First Quarter 1999, the Company made capital
expenditures of approximately $77.5 million primarily for the construction of
new stores, purchase of land, remodel or renovation of existing stores,
expansion of its distribution system, and computer hardware and software
expenditures. The Company currently expects to make additional capital
expenditures of approximately $177.5 million for such programs for the
remainder of the fiscal year ending June 26, 1999. The Company anticipates
funding its future capital expenditures with cash flow from operations,
borrowings under the Revolver and proceeds from lease financing arrangements,
including a five-year, $50.0 million synthetic lease arrangement that the
Company entered into on September 10, 1998.
During Fiscal Year 1998, the Company commenced expansion of its
distribution system in a strategic shift toward self distribution. Such
expansion is expected to increase the efficiency of the Company's
distribution network and is expected to be completed during Fiscal Year 1999.
While the Company has distributed products to its stores for many years, the
anticipated expansion and move to self distribution present multiple risks
that could potentially have an adverse impact on the Company's financial
results for a particular quarter or annual reporting period. Such risks
include, but are not limited to, excess inventory levels and disruptions of
product delivery and sourcing. The Company has developed extensive transition
11
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plans including the testing of the distribution network prior to the
transition to self distribution. Although there can be no assurance,
management believes that its prior experience in distribution and its
extensive planning process reduce the risks of a significant disruption of
supply during the transition to self distribution.
EFFECTS OF INFLATION - The Company's primary costs, inventory and labor, are
affected by a number of factors that are beyond its control, including
availability and price of merchandise, the competitive climate and general and
regional economic conditions. As is typical of the supermarket industry, the
Company has generally been able to maintain gross profit margins by adjusting
retail prices, but competitive conditions may from time to time render the
Company unable to do so while maintaining its market share.
YEAR 2000 COMPLIANCE - The year 2000 issue is the result of computer programs
being written using two digits rather than four to define the applicable year,
as well as hardware that is designed with similar constraints. Some of the
Company's computer programs and hardware that have date-sensitive functions may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculations causing disruptions in
operations including, among other things, a temporary inability to process
transactions, receive invoices, make payments or engage in similar normal
business activities.
A project to address the year 2000 issue began in February 1997. This
project is being managed by the Company's Chief Information Officer. The
Company is utilizing both internal and external resources to identify,
correct and test the Company's hardware and software for year 2000
compliance. In July 1997, the Company completed a comprehensive inventory and
impact assessment of its computer systems. Based on the findings of the
assessment, the Company has determined various software and hardware computer
systems will have be to upgraded. To complete this task the Company
developed the Y2K Migration Plan (the "Y2K Plan").
The Y2K Plan is currently underway and includes testing and implementing
the upgrades for all year 2000 non-compliant hardware and software computer
systems. The Y2K Plan is expected to be complete by the end of Fiscal Year
1999. Presently, approximately 50% of the Company's systems have been
upgraded and tested, and have been found to be Year 2000 compliant. The
Company currently expects the aggregate cost of its Y2K Plan to be
approximately $25.0 million for both Year 2000 upgrades and the replacement
of systems that are inefficient and in need of replacement regardless of
their year 2000 readiness. During First quarter 1999, the Company invested
approximately $7.0 million for hardware and software programs; these new
systems are Year 2000 compliant. The Company currently expects to make
additional such purchases of approximately $16.0 million during the remainder
of Fiscal Year 1999. In addition, the Company is in the process of resolving
year 2000 issues related to its non-data related systems and supplier
compliance. Any remaining costs are not anticipated to have a material impact
on the Company's financial position, results of operations or cash flows.
The Company intends its year 2000 date conversion project to be completed
on a timely basis so as to not significantly impact business operations. Year
2000 upgrades have been prioritized to complete all mission critical systems
such as procurement in the early phases of conversion. Currently, 90% of all
systems related to procurement have been upgraded and have been found to be Year
2000 compliant. If the necessary upgrades are not completed as planned, the year
2000 issue may have a material impact on the Company. The Company has suppliers
and other third parties that it relies on for business operations and currently
believes those suppliers and other third parties are taking the appropriate
action for year 2000 compliance. The Company cannot provide assurance that
failure of such suppliers and other third parties to address the year 2000 issue
will not have an adverse impact on the Company. While the Company has limited
ability to test and control its suppliers' and other third parties' year 2000
readiness, the Company is contacting major suppliers and critical other third
parties and obtaining and assessing whether they will be year 2000 compliant.
Based on the
12
<PAGE>
responses, the Company will develop contingency plans to reduce the impact of
transactions with non-compliant major suppliers and other critical parties.
Although there can be no assurance that multiple business disruptions caused
by technology failures can be adequately anticipated, the Company is
identifying second and third sources of supply for major suppliers to
minimize the risk of business interruptions.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for certain forward-looking statements. The factors discussed below,
among others, could cause actual results to differ materially from those
contained in forward-looking statements made in this report, including,
without limitation, in "Management's Discussion and Analysis of Financial
Condition and Results of Operations," in the Company's related press release
and in oral statements made by authorized officers of the Company. When used
in this report, any press release or oral statements, the words "looking
forward", "estimate," "project," "anticipate," "expect," "intend," "believe"
and similar expressions are intended to identify forward-looking statements.
All of these forward-looking statements are based on estimates and
assumptions made by management of the Company, which, although believed to be
reasonable, are inherently uncertain. Therefore, undue reliance should not
be placed upon such estimates and statements. No assurance can be given that
any of such statements or estimates will be realized and actual results will
differ from those contemplated by such forward-looking statements. Accordingly,
the Company hereby identifies the following important factors which could
cause the Company's financial results to differ materially from any such
results which might be projected, forecast, estimated or budgeted by the
Company in forward-looking statements: heightened competition, including
specifically the intensification of price competition and the expansion,
renovation and opening of new stores by competitors; failure to obtain new
customers or retain existing customers; inability to carry out strategies to
accelerate new store development and remodeling programs, reduce operating
costs, differentiate products and services, leverage the frequent shopper
program and increase private label sales; insufficiency of financial
resources to renovate and expand the store base; increase in leverage and
interest expense due to the expansion and remodeling program; outcome of the
MSP Litigation and the John Paul Mitchell Litigation; issues arising in
connection with the Y2K Plan; prolonged dispute with labor; economic
downturn in the State of Texas; loss or retirement of key executives;
higher selling, general and administrative expenses occasioned by the need
for additional advertising, marketing, administrative or management
information systems expenditures; adverse publicity and news coverage.
The foregoing review of the factors pursuant to the Private Litigation
Securities Reform Act of 1995 should not be construed as exhaustive or as any
admission regarding the adequacy of disclosures made by the Company prior to
this filing.
13
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
During First Quarter 1999, the Company entered into two interest rate swap
agreements to hedge interest rate costs and risks associated with variable
interest rates. Such agreements effectively convert variable-rate debt, to the
extent of the notional amount, to fixed-rate debt with effective per annum
interest rates of 5.493% and 5.295%, with respect to the London Interbank
Offered Rate portion of such borrowings. The aggregate notional principal
amount of such agreements is $100.0 million, $50.0 million of which became
effective August 25, 1998 and matures August 25, 2001, and $50.0 million of
which became effective September 2, 1998 and matures September 2, 2001. The
counterparty to such agreements can terminate either agreement after two years,
at its sole discretion. The counterparty to such agreements is a major
financial institution, and therefore, credit losses from counterparty
nonperformance are not anticipated.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
MSP LITIGATION - Following the Company's acquisition of Cullum Companies,
Inc. in August 1992, the Company terminated the Cullum's Management Security
Plan for Cullum Companies, Inc. ("the MSP"). In respect of such termination, the
Company paid MSP participants the greater of (i) the amount of such
participant's deferral or (ii) the net present value of the participant's
accrued benefit, based upon the participant's current salary, age and years of
service. Thirty-five of the former MSP participants have instituted a claim
against the Company on behalf of all persons who were participants in the MSP on
its date of termination (which is alleged by plaintiffs to be approximately 250
persons). On May 7, 1997, the plaintiffs filed an amended complaint for the
Court to recognize their action as a class action, to recover additional amounts
under the MSP, for a declaration of rights under an employee pension benefit
plan and for breach of fiduciary duty. The plaintiffs assert that the yearly
plan agreement executed by each participant in the MSP was a contract for a
specified retirement and death benefit set forth in such plan agreements and
that such benefits were vested and nonforfeitable. A pre-trial order in the MSP
litigation, which was submitted to the Court on October 22, 1997, states that an
expert for the plaintiffs, assuming class certification, may testify that the
damages allegedly sustained by the plaintiff class may range from approximately
$18.0 million to $37.2 million and, assuming that a court were to award
additional damages based on a rate of return achieved by an equity index over
the relevant period, such damages may range from approximately $37.4 million to
$70.6 million. On December 30, 1997, the Court issued an order denying the
plaintiffs' summary judgment motion on the plaintiffs' claim that the MSP was
not an exempt "top hat plan" (a plan which is unfunded and maintained by an
employer primarily for the purpose of providing deferred compensation for a
select group of management or highly compensated employees). The order also
granted the Company's summary judgment motions on two of the plaintiffs'
ancillary claims, but did not address the plaintiffs' request for certification
as a class action. On June 5, 1998, the Court ruled that the plan was
"unfunded", meaning that the trial of the limited class action issue will deal
only with the question of whether the MSP was "maintained primarily for the
purpose of providing deferred compensation for a select group of management or
highly compensated employees." On June 16, 1998, the Court certified the case as
a class action for the limited issue of determining if the MSP was an exempt
"top hat plan". The Court defined the class as all persons who, on the date of
the termination of the MSP, were participants in the MSP and were employed by
Randall's Food Markets, Inc. On September 8, 1998, a pre-trial conference was
held to discuss burden of proof, expert testimony and meaning of "select group"
and the evidence to be considered at the trial. The trial of the limited class
action issue was conducted before the Court, sitting without a jury, on October
26, 1998. Upon order of the Court, both parties submitted post-trial briefs on
November 6, 1998. The Court has yet to rule on the limited class action issue.
Once the initial class issue is resolved, the Court will make an evaluation as
to whether any other issues should be dealt with in a class action context.
Based upon current facts, the Company is unable to estimate any meaningful range
of possible loss that could result from an unfavorable outcome of the MSP
litigation. It is possible that
14
<PAGE>
the Company's results of operations or cash flows in a particular quarterly
or annual period or its financial position could be materially affected by an
ultimate unfavorable outcome of the MSP litigation. However, the Company
intends to vigorously contest the MSP claim and, although there can be no
assurance, management currently does not anticipate an unfavorable outcome
based on management's independent analysis of the facts relating to such
litigation.
FLEMING DISPUTE - On July 30, 1997, the Company initiated an arbitration
proceeding before the American Arbitration Association against Fleming
Companies, Inc. ("Fleming"), one of its long-time suppliers, alleging, among
other things, that Fleming violated the terms of a supply agreement signed in
1993. On July 7, 1998, the arbitration panel unanimously found that Fleming
materially breached the supply agreement and that the contract was terminated as
of July 7, 1998 without payment of any termination fee. The Company and Fleming
entered into a Transition Agreement, effective September 25, 1998, which
provides for a continued supply of products from Fleming while the Company moves
into self distribution.
JOHN PAUL MITCHELL LAWSUIT - On August 26, 1998, a jury in the 126th
District Court, Travis County, Texas, returned a verdict against the Company
and a co-defendant, Jade Drug Company, Inc. ("Jade"), finding both parties
intentionally conspired with each other to interfere with contracts between
John Paul Mitchell Systems ("Mitchell") and one or more of its distributors
and/or salons. The jury found the Company guilty of having in its
possession, selling or offering for sale Mitchell products that it knew, or
that a reasonable person in the position of the Company would know, had
serial numbers or other permanent identification markings removed, altered or
obliterated. The jury found that the company unfairly competed with Mitchell
by purchasing and distributing the products and infringed on Mitchell's
trademark. The jury also found that the harm caused Mitchell resulted from
malice.
The jury awarded Mitchell and its co-plaintiff, Ultimate Salon Services
Inc. (together, the "Plaintiffs"), $3.25 million in joint and several damages
from the Company and Jade, $4.5 million in exemplary damages from the Company
and $3.0 million in actual damages and $4.5 million in exemplary damages from
Jade.
The Company and Jade filed motions with the trial court judge to
disregard the jury's verdict. On November 19, 1998, the trial court judge
threw out the jury's verdict, entered judgement in favor of the Company and
Jade, ordered that the Plaintiffs recover nothing and ordered that the
Plaintiffs pay the Company and Jade all of their court costs. As of this
date, the Plaintiffs have not indicated whether or not they are going to
appeal. Although the outcome of this matter cannot be predicted with
certainty, management believes an unfavorable outcome will not have a
material adverse effect on the Company, its operations, its financial
condition, or its cash flows.
Other than the foregoing matters, the Company believes it is not a party to
any pending legal proceedings, including ordinary litigation incidental to the
conduct of its business and the ownership of its property, the adverse
determination of which would have a material adverse effect on the Company, its
operations, its financial condition, or its cash flows.
ITEM 2. CHANGES IN SECURITIES
None
15
<PAGE>
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
<S> <C>
10.21 Ground Lease Agreement, dated as of September 10, 1998 between
Brazos Markets Development, L.P. and Randall's Food & Drugs, Inc.
and Randall's Food Markets, Inc.
10.22 Facilities Lease Agreement, dated as of September 10, 1998 between
Brazos Markets Development, L.P. and Randall's Food & Drugs, Inc.
and Randall's Food Markets, Inc.
10.23 Guarantee as of September 10, 1998 Re: Agreement for Ground Lease,
Ground Lease Agreement, Agreement for Facilities Lease and Facilities
Lease Agreement, each between Brazos Markets Development, L.P., a
Delaware Corporation, and Randall's Food & Drugs, Inc., a Delaware
Corporation, and Randall's Food Markets Inc., a Texas Corporation,
and each effective as of September 10, 1998.
10.24 Residual Guarantee as of September 10, 1998 Re: Credit Agreement
dated effective as of September 10, 1998 by and among Brazos Markets
Development, L.P. as the Borrower, the several banks a party thereto
from time to time and the Agent.
27 Financial Data Schedule
</TABLE>
B. Reports on Form 8-K
None
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Quarterly Report to be signed on its behalf by
the undersigned, thereunto duly authorized.
RANDALL'S FOOD MARKETS, INC.
(Registrant)
Date: November 25, 1998 /s/ R. RANDALL ONSTEAD, JR.
-------------------------------------
R. Randall Onstead, Jr.,
Chairman and Chief Executive Officer
Date: November 25, 1998 /s/ MICHAEL M. CALBERT
-------------------------------------
Michael M. Calbert,
Senior Vice President and
Chief Financial Officer
17
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
GROUND LEASE AGREEMENT
between
BRAZOS MARKETS DEVELOPMENT, L.P.
and
RANDALL'S FOOD & DRUGS, INC.
and
RANDALL'S FOOD MARKETS, INC.
Dated as of September 10, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
THIS GROUND LEASE AGREEMENT HAS BEEN ASSIGNED AS SECURITY FOR
INDEBTEDNESS OF BRAZOS MARKETS DEVELOPMENT, L.P.
SEE SECTION 18.10
This Ground Lease Agreement has been manually executed in 6 counterparts,
numbered consecutively from 1 through 6, of which this is No. ________. To
the extent, if any, that this Ground Lease Agreement constitutes chattel
paper (as such term is defined in the Uniform Commercial Code as in effect in
any applicable jurisdiction) no security interest in this Ground Lease
Agreement may be created or perfected through the transfer or possession of
any counterpart other than the original executed counterpart which shall be
the counterpart identified as counterpart No. 1.
<PAGE>
TABLE OF CONTENTS
GROUND LEASE AGREEMENT
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Section 1.1. DEFINED TERMS . . . . . . . . . . . . . . . . . . . . . . . . . .1
Section 1.2. FORMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
Section 1.3. RECITALS, TABLE OF CONTENTS, TITLES, AND HEADINGS . . . . . . . .7
Section 1.4. INTERPRETATION. . . . . . . . . . . . . . . . . . . . . . . . . .7
ARTICLE II REPRESENTATIONS AND WARRANTIES OF LESSEE AND BRAZOS . . . . . . . . . . .7
Section 2.1. CORPORATE MATTERS . . . . . . . . . . . . . . . . . . . . . . . .7
Section 2.2. AUTHORIZATION; BINDING AGREEMENT. . . . . . . . . . . . . . . . .7
Section 2.3. POWER AND AUTHORITY . . . . . . . . . . . . . . . . . . . . . . .7
Section 2.4. CONSENTS, APPROVALS, AUTHORIZATIONS . . . . . . . . . . . . . . .8
Section 2.5. COMPLIANCE WITH LEGAL REQUIREMENTS AND INSURANCE REQUIREMENTS . .8
Section 2.6. AGREEMENT FOR GROUND LEASE. . . . . . . . . . . . . . . . . . . .8
Section 2.7. PROPERTY LIENS. . . . . . . . . . . . . . . . . . . . . . . . . .8
Section 2.8. BROKERAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Section 2.9. SUITABILITY OF PROPERTY . . . . . . . . . . . . . . . . . . . . .8
Section 2.10. EXISTENCE. . . . . . . . . . . . . . . . . . . . . . . . . . . .9
Section 2.11. PARTNERSHIP POWER. . . . . . . . . . . . . . . . . . . . . . . .9
Section 2.12. AUTHORIZATION AND APPROVALS. . . . . . . . . . . . . . . . . . .9
Section 2.13. ENFORCEABLE OBLIGATIONS. . . . . . . . . . . . . . . . . . . . .9
Section 2.14. PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . . . . .9
Section 2.15. OTHER ASSETS AND LIABILITIES.. . . . . . . . . . . . . . . . . .9
ARTICLE III LEASE OF PROPERTY. . . . . . . . . . . . . . . . . . . . . . . . . . . .9
Section 3.1. LEASE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
Section 3.2. PROPERTY LEASING RECORD . . . . . . . . . . . . . . . . . . . . .9
Section 3.3. OWNERSHIP OF PROPERTY . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE IV DELIVERY AND ACCEPTANCE . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 4.1. ACCEPTANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 4.2. PAYMENTS FINAL. . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 4.3. NO WARRANTIES OR REPRESENTATIONS. . . . . . . . . . . . . . . . 11
Section 4.4. QUIET ENJOYMENT . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 4.5. OTHER FINANCING REQUIREMENTS. . . . . . . . . . . . . . . . . . 12
ARTICLE V LEASE TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 5.1. LEASE TERM. . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 5.2. TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE VI RENT AND OTHER PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 6.1. BASIC RENT. . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 6.2. OTHER AMOUNTS . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 6.3. ADDITIONAL RENT . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 6.4. PAYMENT IN ADVANCE. . . . . . . . . . . . . . . . . . . . . . . 13
Section 6.5. CREDIT AGREEMENT LOSSES . . . . . . . . . . . . . . . . . . . . 13
(i)
<PAGE>
ARTICLE VII RESTRICTED USE; COMPLIANCE WITH LAWS . . . . . . . . . . . . . . . . . 13
Section 7.1. INSURANCE REQUIREMENT AND LEGAL REQUIREMENT . . . . . . . . . . 13
Section 7.2. FILINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 7.3. COMPLIANCE WITH OTHER REQUIREMENTS. . . . . . . . . . . . . . . 13
Section 7.4. INSPECTION. . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 7.5. NO LIENS; ASSIGNMENT AND SUBLETTING . . . . . . . . . . . . . . 14
Section 7.6. INTERFERENCE. . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 7.7. DELIVERY OF INFORMATION . . . . . . . . . . . . . . . . . . . . 15
Section 7.8. EXECUTION OF DOCUMENTS. . . . . . . . . . . . . . . . . . . . . 15
ARTICLE VIII MAINTENANCE OF PROPERTY . . . . . . . . . . . . . . . . . . . . . . . 15
Section 8.1. WARRANTIES. . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 8.2. COSTS AND EXPENSES. . . . . . . . . . . . . . . . . . . . . . . 15
Section 8.3. PAYMENT OF TAXES. . . . . . . . . . . . . . . . . . . . . . . . 15
Section 8.4. ENVIRONMENTAL REPORT. . . . . . . . . . . . . . . . . . . . . . 16
Section 8.5. OBLIGATIONS OF BRAZOS . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE IX INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 9.1. LIABILITY AND PROPERTY DAMAGE . . . . . . . . . . . . . . . . . 16
Section 9.2. ADDITIONAL INSUREDS; NOTICE . . . . . . . . . . . . . . . . . . 17
Section 9.3. APPLICATION OF PROCEEDS OF LOSS OR SUBSTANTIAL TAKING . . . . . 17
Section 9.4. APPLICATION OF PROCEEDS OF OTHER THAN LOSS OR SUBSTANTIAL
TAKING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 9.5. INVESTMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 9.6. APPLICATION IN DEFAULT. . . . . . . . . . . . . . . . . . . . . 18
Section 9.7. CERTIFICATES. . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 9.8. COVENANT TO KEEP INSURANCE IN FORCE . . . . . . . . . . . . . . 18
ARTICLE X INDEMNITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 10.1. INDEMNIFIED PERSONS. . . . . . . . . . . . . . . . . . . . . . 18
Section 10.2. PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 10.3. CONTINUING INDEMNIFICATION . . . . . . . . . . . . . . . . . . 19
Section 10.4. LIMITATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 10.5. LITIGATION . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE XI RENEWAL AND TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 11.1. LESSEE'S RIGHT TO TERMINATE. . . . . . . . . . . . . . . . . . 20
Section 11.2. BRAZOS' RIGHT TO TERMINATE . . . . . . . . . . . . . . . . . . 21
Section 11.3. RENEWAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 11.4. SALES TO THIRD PARTIES . . . . . . . . . . . . . . . . . . . . 22
Section 11.5. ADDITIONAL PAYMENTS. . . . . . . . . . . . . . . . . . . . . . 22
Section 11.6. TERMINATION OF GROUND LEASE. . . . . . . . . . . . . . . . . . 22
Section 11.7. SURRENDER OF PROPERTY. . . . . . . . . . . . . . . . . . . . . 23
ARTICLE XII PROCEDURE UPON SALE. . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE XIII EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 13.1. EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . . . . . 23
Section 13.2. RIGHTS UPON DEFAULT. . . . . . . . . . . . . . . . . . . . . . 24
Section 13.3. EVENTS OF PROPERTY TERMINATION.. . . . . . . . . . . . . . . . 27
Section 13.4. BRAZOS' RIGHT UPON EVENT OF PROPERTY TERMINATION . . . . . . . 28
ARTICLE XIV LOSS OF OR DAMAGE TO PROPERTY. . . . . . . . . . . . . . . . . . . . . 28
Section 14.1. LESSEE'S RISK. . . . . . . . . . . . . . . . . . . . . . . . . 28
(ii)
<PAGE>
Section 14.2. REPAIR . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 14.3. PROPERTY DAMAGED BEYOND REPAIR . . . . . . . . . . . . . . . . 29
ARTICLE XV CONDEMNATION OF PROPERTY. . . . . . . . . . . . . . . . . . . . . . . . 29
Section 15.1. TAKING OF SUBSTANTIALLY ALL OF A PROPERTY. . . . . . . . . . . 29
Section 15.2. TAKING OF LESS THAN SUBSTANTIALLY ALL OF A PROPERTY. . . . . . 29
Section 15.3. GRANT OF EASEMENTS . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE XVI LEASEHOLD INTERESTS. . . . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE XVII PERMITTED CONTESTS. . . . . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE XVIII MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 18.1. SURVIVAL . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 18.2. ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . 32
Section 18.3. MODIFICATIONS. . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 18.4. GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 18.5. NO OFFSETS . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 18.6. NON-RECOURSE.. . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 18.7. NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 18.8. USURY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 18.9. NO MERGER. . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 18.10. SALE OR ASSIGNMENT BY BRAZOS. . . . . . . . . . . . . . . . . 36
Section 18.11. INCOME TAXES. . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 18.12. TRANSFER ON AS-IS BASIS . . . . . . . . . . . . . . . . . . . 36
Section 18.13. RIGHT TO PERFORM FOR LESSEE.. . . . . . . . . . . . . . . . . 37
Section 18.14. MERGER, CONSOLIDATION OR SALE OF ASSETS.. . . . . . . . . . . 37
Section 18.15. RULE AGAINST PERPETUITIES . . . . . . . . . . . . . . . . . . 37
Section 18.16. REEXECUTION.. . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 18.17. PURCHASE OR SALE OF FACILITY. . . . . . . . . . . . . . . . . 37
Section 18.18. SEVERABILITY. . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 18.19. INTENTIONALLY OMITTED . . . . . . . . . . . . . . . . . . . . 37
Section 18.20. EXECUTION IN COUNTERPARTS . . . . . . . . . . . . . . . . . . 37
Section 18.21. CONFIDENTIALITY . . . . . . . . . . . . . . . . . . . . . . . 37
Section 18.22. WAIVER OF LANDLORD'S LIENS. . . . . . . . . . . . . . . . . . 38
Section 18.23. BREAKAGE COSTS ARISING DUE TO BRAZOS DEFAULT. . . . . . . . . 38
Section 18.24. MEMORANDA OF LEASE. . . . . . . . . . . . . . . . . . . . . . 38
</TABLE>
(iii)
<PAGE>
List of Exhibits
- ----------------
Exhibit A Schedule of Insurance
(iv)
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GROUND LEASE AGREEMENT
THIS GROUND LEASE AGREEMENT (this "GROUND LEASE") is made and entered
into as of September 10, 1998, by and among BRAZOS MARKETS DEVELOPMENT, L.P.,
a Delaware limited partnership (referred to herein as "BRAZOS"), RANDALL'S
FOOD & DRUGS, INC., a Delaware corporation, (referred to herein as "LESSEE")
and RANDALL'S FOOD MARKETS, INC., a Texas corporation (referred to herein as
"Lessee" or "Guarantor" as applicable).
W I T N E S S E T H:
WHEREAS, Brazos may hereafter acquire fee or leasehold interests in
certain parcels of real property; and
WHEREAS, on or about the date of this Ground Lease, Brazos and Lessee
entered into an Agreement for Ground Lease, providing for the acquisition by
Brazos of the fee or leasehold interests in such parcels of real property
from time to time; and
WHEREAS, Lessee wishes to lease or sublease such property under the
terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Brazos and Lessee hereby agree as follows:
ARTICLE I
DEFINITIONS
Section I.1. DEFINED TERMS. For the purposes of this Ground Lease each
of the following terms shall have the meaning specified with respect thereto:
"ACQUIRED GROUND LEASE" means each ground lease entered into by Brazos
under which a leasehold interest in a Property is being leased to Brazos by
the owner of such Property.
"ACQUISITION COST" means, without duplication, for any Property, the sum
of (i) the amount of the advances under the Credit Agreement and Article III
of the Agreement for Ground Lease, and (ii) the advance of Brazos equity made
pursuant to Section 3.7 of the Agreement for Ground Lease with respect to
such Property.
"ADDITIONAL RENT" has the meaning set forth in SECTION 6.3 hereof.
"AFFILIATE" means any other person controlling, controlled by or under
direct or indirect common control with any Person. For the purposes of this
definition, "control," when used with respect to any specified Person, means
the power to direct the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by contract
or otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"AGENT" means Chase Bank of Texas, National Association.
"AGREEMENT FOR GROUND LEASE" means the Agreement for Ground Lease, dated
of even date herewith, between Brazos and Lessee providing for the
acquisition of each Property, as it may be further amended, restated,
modified or supplemented, from time to time, in accordance with the terms
thereof.
"ASSIGNEE" means any lender or agent for a lender under the Credit
Agreement and each person, firm, corporation or other entity to which any
part of Brazos' interest under this Ground Lease or in any Property shall at
the time have been assigned, conditionally or otherwise, by Brazos in
accordance with SECTION 18.10 of this Ground Lease.
GROUND LEASE AGREEMENT - Page 1
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"ASSIGNMENT" means each assignment or security agreement referred to in
SECTION 18.10 hereof between Brazos and a third party, pursuant to which
Brazos assigns or grants a security interest in any of its rights under this
Ground Lease to such third party, as from time to time amended.
"BASIC RENT" means, so long as any borrowings are outstanding under the
Credit Agreement with respect to any Property, for any applicable period, the
amount computed by multiplying the following:
(i) the Acquisition Cost of such Property outstanding on the preceding
Basic Rent Payment Date (if any) plus (calculated on a daily basis
from the date of any advance for such period) any advances added to
the Acquisition Cost during such period, by
(ii) the Brazos Margin (calculated as a monthly factor and, with respect
to advances during a month, a daily factor) for such period plus
the interest rate factor for interest accrued under the Credit
Agreement during such period with respect to outstanding advances
previously made and advances made during such period under (without
duplication) the Agreement for Ground Lease and the Credit
Agreement towards such Acquisition Cost.
"BASIC RENT PAYMENT DATE" means the applicable payment date under the
Credit Agreement for the applicable accrued interest.
"BRAZOS" means Brazos Markets Development, L.P. or any successor or
successors to all of its rights and obligations hereunder.
"BRAZOS MARGIN" means the margin specified and calculated in accordance
with the letter from Brazos to Lessee dated as of September 10, 1998,
designated therein as the "Brazos Margin Letter".
"BUSINESS DAY" means a day other than a Saturday, Sunday or other day on
which commercial banks in Dallas, Texas or New York City, New York are
authorized or required by law to close.
"CAPITAL LEASE" means a capital lease as determined in accordance with
GAAP.
"CODE" means the Internal Revenue Code of 1986, as amended.
"CONSENT" means each consent of Lessee or Guarantor to an Assignment,
pursuant to which, among other things, Lessee or Guarantor, as the case may
be, consents to the terms of such Assignment insofar as they relate to this
Ground Lease, as from time to time amended.
"CORPORATE CREDIT DOCUMENTS" means the Corporate Credit Documents as
defined in the Credit Agreement.
"CREDIT AGREEMENT" means the Credit Agreement dated of even date
herewith by and among Brazos, the Agent and the banks named therein for the
financing of the acquisition of Properties by Brazos in connection with the
Agreement for Ground Lease, as it may be amended, restated, modified or
supplemented, from time to time.
"CREDIT DOCUMENT" shall have the meaning ascribed to such term in the
Credit Agreement.
"EFFECTIVE DATE" means with respect to any Property, the date on which
such Property is leased hereunder by Brazos to Lessee, pursuant to SECTION
3.1 hereof, which date shall be set forth in the Property Leasing Record.
"ENVIRONMENTAL CLAIM" means any third party (including governmental
agencies and employees) action, lawsuit, claim, demand, regulatory action or
proceeding, order, decree, consent agreement or notice of potential or actual
responsibility or violation (including claims or proceedings under the
Occupational Safety and Health Acts or similar laws or requirements relating
to health or safety of employees) which seeks to impose liability under any
Environmental Law relating to any Property.
GROUND LEASE AGREEMENT - Page 2
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"ENVIRONMENTAL LAW" means all Legal Requirements arising from, relating
to, or in connection with the Environment (as defined in 43 U.S.C. Section
9601(8) (1988)), health, or safety, including without limitation (i) the
Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended, and (ii) Legal Requirements relating to (a) pollution,
contamination, injury, destruction, loss, protection, cleanup, reclamation or
restoration of the air, surface water, groundwater, land surface or
subsurface strata, or other natural resources; (b) solid, gaseous or liquid
waste generation, treatment, processing, recycling, reclamation, cleanup,
storage, disposal or transportation; (c) exposure to pollutants,
contaminants, hazardous materials or wastes; (d) the safety or health of
employees; or (e) the manufacture, processing, handling, transportation,
distribution in commerce, use, storage or disposal of hazardous, medical,
infectious, or toxic substances, materials or waste.
"EVENT OF DEFAULT" has the meaning set forth in SECTION 13.1 hereof.
"EVENT OF PROPERTY TERMINATION" means any of the events specified in
SECTION 13.3.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
and all regulations promulgated by the Securities and Exchange Commission
thereunder.
"EXCLUDED TAXES" shall mean each of the following taxes:
(a) Any federal, state or other estate, inheritance, income or
similar tax of Brazos or any of its partners (other than any gross receipts
tax referred to in CLAUSE (b) of SECTION 8.3 hereof, or tax measured by the
net income of Brazos or any of its partners (including without limitation the
earned surplus component of the Texas franchise tax); PROVIDED, HOWEVER, that
if at any time during the term of this Ground Lease, the method of taxation
shall be such that there shall be levied, assessed or imposed on Brazos, in
substitution for any other tax, assessment, charge or levy which Lessee is
required to pay pursuant to SECTION 8.3, a capital levy or other tax directly
on the rents received therefrom, or upon the value of any property or any
present or future improvement or improvements on any Property, then all such
taxes, assessments, levies or charges, or the part thereof so measured or
based, shall be payable by Lessee, but only to the extent such taxes would be
payable if the Property affected were the only property of Brazos, and Lessee
shall pay and discharge the same as provided herein.
(b) Any taxes imposed against or payable by Brazos or any of its
partners resulting from, or that would not have been imposed but for, the
gross negligence or willful misconduct of Brazos or its Affiliate or the
default by Brazos in the performance of its obligations hereunder, under any
other Lease Document or under the Credit Documents or the breach by Brazos of
its representations and warranties hereunder, under any other Lease Document
or under the Credit Documents.
(c) Taxes imposed on Brazos or any of its partners that result from
any voluntary sale, assignment, transfer or other disposition by Brazos of
its interest in any Property or any interest therein; PROVIDED, HOWEVER, any
transfer of the interest of Brazos hereunder arising as a result of an Event
of Property Termination or an Event of Default by Lessee hereunder or
otherwise in accordance with this Ground Lease shall not constitute a
voluntary transfer by Brazos.
(d) Taxes imposed on or with respect to or payable by Brazos or any
Affiliate thereof because Brazos or such Affiliate is not a United States
person within the meaning of Section 7701(a)(30) of the Internal Revenue Code
of 1986, as amended.
(e) Any interest, penalties or additions to taxes imposed on Brazos
or any of its partners that would not have been imposed or incurred but for
the failure of Brazos or any of its partners to file any return or other
document timely and in the form prescribed by law; PROVIDED, HOWEVER, that
this exclusion shall not apply if such failure is attributable to a failure
by Lessee to fulfill its obligations under this Ground Lease with respect to
such return.
(f) Taxes imposed on or with respect to or payable by Brazos that
would not have been imposed but for an amendment, supplement, modification,
consent or waiver to the Lease Documents or Credit Documents not initiated,
required or consented to by Lessee unless such amendment, supplement,
modification, consent or waiver (i) is necessary or appropriate to, and in
conformity with, any other amendment to any Lease Document or Credit Document
initiated
GROUND LEASE AGREEMENT - Page 3
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or requested by or consented to by Lessee, (ii) arises due to, or in
connection with there having occurred, an Event of Default by Lessee, or
(iii) is required by the terms of the Credit Documents or is executed in
connection with any amendment to the Credit Documents required by law.
(g) any franchise tax or similar tax of Brazos or any of its partners
if Brazos or its partners (as the case may be) would have been subject to
such franchise tax in the absence of this transaction.
(h) Any tax imposed by its express terms in lieu of or in
substitution for any tax set forth in SUBPARAGRAPHS (a) through (g) above.
"FACILITY" means all improvements of whatever kind or character now or
hereafter located on, in or under or affixed to an individual Property,
including, without limitation, any utilities, paving, signage or lighting and
all additions, replacements and subsequent replacements thereof, together
with the FF&E installed in such Facility or other building, in which a fee or
leasehold interest has been or will be acquired by Brazos for the purpose of
entering into the Facilities Lease, but excluding all parcels of land on
which such Facility sits.
"FACILITIES LEASE" means, with respect to any Facility or FF&E, the
facilities lease by and between Brazos, as lessor, and Lessee, as lessee.
"FF&E" means fixtures that are permanently attached to the Property or
the Facility and that are necessary for the operation of the Facility for
general retail purposes, such as mechanical, electrical, plumbing, heating,
air conditioning and ventilating equipment and systems, but excluding Trade
Fixtures.
"GAAP" means generally accepted accounting principles set forth from
time to time in the opinions and pronouncements of the Accounting Principles
Board and the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board (or
agencies with similar functions of comparable stature and authority within
the United States accounting profession), which are applicable to the
circumstances as of the date of determination.
"GOVERNMENTAL AUTHORITY" means any nation or government, any state or
other political subdivision thereof, and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"GROUND LEASE" means this Ground Lease Agreement and each Property
Leasing Record.
"GUARANTOR" means Randall's Food Markets, Inc., a Texas corporation.
"GUARANTY" means the Guaranty, dated of even date herewith, by and
between Guarantor and Brazos, as it may be further amended, restated,
modified or supplemented, from time to time, in accordance with the terms
thereof.
"INDEBTEDNESS" shall have the meaning ascribed to such term in the
Guaranty.
"INDEMNIFIED PERSON" has the meaning set forth in SECTION 10.1 hereof.
"INSURANCE REQUIREMENTS" means all requirements of this Ground Lease
with respect to insurance, all terms of any insurance policy covering or
applicable to any Property, all requirements of the issuer of any such
policy, all statutory requirements and all orders, rules, regulations and
other requirements of any governmental body related to insurance applicable
to any Property.
"LEASE DOCUMENT" shall have the meaning ascribed to such term in the
Credit Agreement.
"LEASE TERM" has the meaning set forth in SECTION 5.1 hereof.
GROUND LEASE AGREEMENT - Page 4
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"LEGAL REQUIREMENTS" means all laws, judgments, decrees, ordinances and
regulations and any other governmental rules, orders and determinations and all
requirements having the force of law, now or hereinafter enacted, made or
issued, whether or not presently contemplated, and all agreements, covenants,
conditions and restrictions, applicable to each Property and/or the ownership,
operation or use thereof, including, without limitation, all requirements of the
Americans With Disabilities Act (P.L. 101-335) and environmental statutes,
compliance with which is required at any time during the Lease Term and any
Renewal Term, whether or not such compliance shall require structural,
unforeseen or extraordinary changes to any Property or the operation, occupancy
or use thereof.
"LESSEE" means with respect to this Ground Lease, Randall's Food & Drugs,
Inc., a Delaware corporation and Randall's Food Markets, Inc., a Texas
corporation, and, with respect to any particular Property, for all purposes of
such Property and with respect to all matters affecting such Property, shall
mean only the one foregoing entity which executes the Property Leasing Record
with respect to such Property. Accordingly, references in this Ground Lease to
the "Lessee" shall be construed in the context of such reference to mean, with
respect to each particular Property that is subject to this Ground Lease,
Randall's Food & Drugs, Inc. or Randall's Food Markets, Inc., as the case may
be, as evidenced by a Property Leasing Record covering such particular Property
and shall not be construed to include any other entity or Lessee.
"LIEN" means any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), or preference, priority or
other security agreement or preferential arrangement of any kind or nature
whatsoever (including, without limitation, any conditional sale or other title
retention agreement and any capital lease having substantially the same economic
effect as any of the foregoing).
"LIEN OF RECORD" means, with the exception of the Lien of a lender or a
lender's agent under a Credit Agreement, (i) any mechanics' or materialmen's
lien for which Lessee does not hold retainage or trapped funds in amounts
required by applicable law or which is not covered by an adequate payment bond
or is not the subject of a Permitted Contest, (ii) any lien securing the payment
of taxes, assessments, or governmental charges and levies which are due, payable
and delinquent, (iii) any judgment lien, or (iv) any other filed, recorded, or
docketed matter (whether or not the same shall constitute a Permitted
Encumbrance or be the subject of a Permitted Contest) which in the case of any
of the foregoing (a) is reasonably likely to result in a sale of an interest in
all or a portion of the Property for satisfaction of same, a loss, forfeiture,
reversion of title, or right of reentry with respect to any Property, or (b)
whether or not valid, is reasonably likely to interfere with the due and timely
payment of any sum payable or the exercise of any rights or the performance of
any of the duties or responsibilities of Lessee under this Agreement.
"MATERIAL ADVERSE EFFECT" means a material adverse change in, or a material
adverse effect upon, the operations, business, properties, condition (financial
or otherwise) or prospects of the Guarantor and its Subsidiaries taken as a
whole; if, but only if, such material adverse change or such material adverse
effect has an economic effect (on an after tax basis) which exceeds an amount
equal to the greater of (i) fifteen percent (15%) of the consolidated
stockholders' equity (determined in accordance with GAAP) of the Guarantor at
the time of determination and (ii) $40,000,000.
"MATERIAL ADVERSE LEASE DOCUMENT EFFECT" means (a) a material impairment of
the ability of the Guarantor to perform its obligations under the Guaranty or of
the Lessee to perform its obligations under any Lease Document (as defined in
the Guaranty) or (b) a material adverse effect upon the legality, validity,
binding effect or enforceability in any material respect against the Guarantor
or the Lessee of, respectively, the Guaranty or any Lease Document (as defined
in the Guaranty) if, but only if, such material impairment or such material
adverse effect has an economic effect (on an after tax basis) which exceeds an
amount equal to the greater of (i) fifteen percent (15%) of the consolidated
stockholders' equity of the Guarantor at the time of determination and (ii)
$40,000,000.00.
"MAXIMUM RATE" has the meaning set forth in SECTION 18.8 hereof.
"PERMITTED CONTEST" means any good-faith contest permitted by and in
accordance with the terms of ARTICLE XVII.
"PERMITTED ENCUMBRANCES" means the following Liens and other matters
affecting the title or leasehold interest of any Property: (a) subject to the
terms of SECTION 7.5, mechanics' and materialmen's liens incurred in good
GROUND LEASE AGREEMENT - Page 5
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faith in the ordinary course of business and securing obligations that are
junior to any Liens of Assignee not exceeding $250,000 for any Property and
$2,000,000 in the aggregate which are not yet due or which are subject to a
Permitted Contest; (b) Liens securing the payment of taxes, assessments and
governmental charges or levies, either not delinquent or subject to a
Permitted Contest; (c) zoning and planning restrictions, subdivision and
platting restrictions, easements, rights-of-way, licenses, reservations,
covenants, conditions, waivers, restrictions on the use of property,
encroachments, encumbrances on or irregularities of title which do not, in
Lessee's reasonable judgment, materially impair (i) the intended use of the
Property by Lessee or (ii) the Value of any Property; (d) the lien created
contemporaneously with the acquisition of such Property pursuant to, and
securing the obligations under, a Credit Agreement; (e) any mechanics' or
materialmen's lien for which Lessee holds retainage or trapped funds in
amounts required by and in accordance with applicable law; (f) outstanding
mineral interests; and (g) any other or additional matters; PROVIDED that
such other or additional matters shall be approved in writing by Brazos and
Agent, whose approval shall not be unreasonably withheld or delayed.
"PERSON" means an individual, partnership, corporation, business trust,
joint venture, joint stock company, trust, unincorporated association or
Governmental Authority or other entity of whatever nature.
"POTENTIAL DEFAULT" means any event which, but for the lapse of time, or
giving of notice, or both, would constitute an Event of Default.
"POTENTIAL PROPERTY TERMINATION" means any event which, but for the lapse
of time, or giving of notice, or both, would constitute an Event of Property
Termination.
"PROPERTY" means any and all parcels of land leased or to be leased
hereunder and when leased, evidenced by Property Leasing Records and the
respective easements, rights and appurtenances relating to such parcels of land,
but excluding all Facilities.
"PROPERTY LEASING RECORD" means an instrument evidencing the ground lease
or sublease of a Property under this Ground Lease, as prepared and executed by
Brazos, as lessor or sublessor, accepted and executed by Lessee, as lessee or
sublessee in such form as Lessee, Brazos and Agent may approve.
"RENEWAL TERM" has the meaning set forth in SECTION 11.3(a) hereof.
"REPORTS" has the meaning set forth in SECTION 8.4 hereof.
"RESIDUAL GUARANTY" means the "Residual Guaranty" as defined in the Credit
Agreement.
"RESPONSIBLE OFFICER" means any officer of any Guarantor or any officer of
a Lessee other than a Guarantor designated as such by a Responsible Officer of
any Guarantor.
"SUBSIDIARY" means with respect to any Person, any corporation of which
voting control or more than fifty percent (50%) of the outstanding capital stock
having ordinary voting power to elect a majority of the board of directors of
such corporation (irrespective of whether at such time capital stock of any
other class or classes of such corporation shall or might have voting power upon
the occurrence of any contingency) is at the time directly or indirectly owned
by such Person. With respect to each Lessee, "SUBSIDIARY" shall include any
Subsidiary of such Lessee.
"SURETY INSTRUMENTS" means all letters of credit (including standby),
bankers' acceptances, bank guarantees, shipside bonds, surety bonds and similar
instruments.
"TITLE POLICY" means, with respect to any Property, the owner policy of
title insurance issued to Brazos as the insured thereunder covering the interest
of Brazos in and to such Property.
"TRADE FIXTURES" means all removable furniture, equipment and other
personal property that are installed for Lessee's use of the Facility as a
supermarket or for other purposes from time to time operated by Lessee,
including without limitation counters, racks, refrigerators and freezers,
cashier's stands, cash registers, display cases and signs.
GROUND LEASE AGREEMENT - Page 6
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"UNEARNED RENT" means any Basic Rent paid by Lessee with respect to a
Property and attributable to a period after the termination of this Ground Lease
as to such Property including, without limitation, upon purchase of such
Property by Lessee or sale of such Property to a third person pursuant to the
terms hereof.
"UNECONOMIC NOTICE" has the meaning set forth in SECTION 12.1 hereof.
"UNECONOMIC PROPERTY" has the meaning set forth in SECTION 12.1 hereof.
"VALUE" has the meaning set forth in the Agreement for Ground Lease.
Section I.2. FORMS. All forms specified by the text hereof or by
reference to exhibits attached hereto shall be substantially as set forth
herein, subject to such changes by Brazos and Lessee by mutual consent that do
not alter the substantive rights of the parties hereto or of the Assignees or as
may be required by applicable laws hereafter enacted.
Section I.3. RECITALS, TABLE OF CONTENTS, TITLES, AND HEADINGS. The terms
and phrases used in the recitals of this Ground Lease have been included for
convenience of reference only and the meaning, construction, and interpretation
of such words and phrases for purposes of this Ground Lease shall be determined
solely by reference to SECTION 1.1 hereof. The table of contents, titles, and
headings of the Articles and Sections of this Ground Lease have been inserted
for convenience of reference only and are not to be considered a part hereof and
shall not in any way modify or restrict any of the terms or provisions hereof
and shall not be considered or given any effect in construing this Ground Lease
or any provision hereof or in ascertaining intent, if any question of intent
should arise.
Section I.4. INTERPRETATION. Unless the context requires otherwise, words
of the masculine gender shall be construed to include correlative words of the
feminine and neuter genders and vice versa, and words of the singular number
shall be construed to include correlative words of the plural number and vice
versa. This Ground Lease, and all the terms and provisions hereof, shall be
liberally construed to effect the purposes set forth herein and to sustain the
validity of this Ground Lease.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF LESSEE AND BRAZOS
Brazos represents and warrants to Lessee on the date of this Ground Lease
with respect to SECTIONS 2.10 to 2.15 and Lessee represents and warrants to
Brazos on the date of this Ground Lease with respect to SECTIONS 2.1 to 2.4 and
as of the date the relevant Property is leased pursuant to this Ground Lease
with respect to SECTIONS 2.1 to 2.9 (it being understood that all
representations and warranties in this ARTICLE II with respect to a Property
shall refer to the Property then being leased pursuant to the terms of this
Ground Lease) the following:
Section II.1. CORPORATE MATTERS. Lessee has full corporate power and
authority to own and operate its properties and to conduct its business as
presently conducted and full corporate power, authority to execute, deliver and
perform its obligations under this Ground Lease, the Agreement for Ground Lease
and any Consent.
Section II.2. AUTHORIZATION; BINDING AGREEMENT. This Ground Lease has
been duly authorized, executed and delivered by Lessee and, assuming the due
authorization, execution and delivery of this Ground Lease by Brazos, this
Ground Lease is a legal, valid and binding obligation of Lessee, enforceable
against Lessee, subject, as to enforceability, to applicable bankruptcy,
insolvency and similar laws affecting creditors' rights generally and to general
principles of equity (regardless of whether enforcement is sought in a
proceeding in equity or at law).
GROUND LEASE AGREEMENT - Page 7
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Section II.3. POWER AND AUTHORITY. The consummation of the transactions
herein contemplated and the performance and observance of Lessee's obligations
under this Ground Lease and any Consent have been duly authorized by all
necessary corporate action on the part of Lessee. The execution, delivery and
performance by Lessee of this Ground Lease and any Consent will not result in
any violation of any term of the certificate of incorporation or the by-laws of
Lessee, do not require approval of the board of directors or shareholders of
Lessee or the approval or consent of any trustee or holders of Indebtedness of
Lessee except such as have been obtained prior to the date hereof and will not
conflict with or result in a breach of any terms or provisions of, or constitute
a default under, or result in the creation or imposition of any Lien (other than
a Lien on any Property as may be contemplated herein) upon any property or
assets of Lessee under, any indenture, mortgage or other agreement or instrument
to which Lessee is a party or by which it or any of its property is bound where
such breach or default, singly or in the aggregate, would have a Material
Adverse Effect or would, in the reasonable judgment of Lessee, materially impair
the ability of Lessee to perform its obligations under the Agreement for Ground
Lease, this Ground Lease, the Facilities Lease or the Agreement for Facilities
Lease referred to in the Facilities Lease or the Consent executed by Lessee of
even date herewith, or under any existing applicable law, rule, regulation,
license, judgment, order or decree of any Governmental Authority or court having
jurisdiction over Lessee or any of its activities or properties.
Section II.4. CONSENTS, APPROVALS, AUTHORIZATIONS. There are no consents,
licenses, orders, authorizations or approvals of, or notices to or registrations
with, any Governmental Authority which are required in connection with the valid
execution, delivery and performance of this Ground Lease that have not been
obtained or made, except such permits and licenses as Lessee will be required to
obtain for the occupancy, use or operation of a Property and which, in the
ordinary course of business, are not obtained until just prior to the
commencement of such occupancy, use or operation, and any such consents,
licenses, orders, authorizations, approvals, notices and registrations that have
been obtained or made are in full force and effect.
Section II.5. COMPLIANCE WITH LEGAL REQUIREMENTS AND INSURANCE
REQUIREMENTS. The operation, use and physical condition of the Property comply
with the Insurance Requirements and Lessee will not do or permit any act or
thing which is contrary in any material respect (as determined in Lessee's
reasonable judgment) to any Legal Requirements, or which might materially
impair, in the reasonable judgment of Lessee, other than in the normal use
thereof, the Value or the usefulness of any Property; PROVIDED, in each case,
that Lessee shall not be required to comply with any Legal Requirements if (a)
in the case of Legal Requirements with respect to laws affecting the
environment, Lessee acts diligently to cure such non-compliance upon becoming
aware of it and (b) in every case, such non-compliance, individually or in the
aggregate, (i) would not subject any Property to sale, forfeiture or loss, as a
result of failure to comply therewith, (ii) would not cause either Brazos or any
Assignee to incur (x) civil liability which, in the reasonable judgment of
Brazos or Agent is not adequately indemnified (Lessee's obligations under
ARTICLE X of this Ground Lease shall be deemed to be adequate indemnification if
no Event of Default, Event of Property Termination, Potential Default or
Potential Property Termination exists and if such civil liability is reasonably
likely to be less than $500,000 per Property and $2,000,000 in the aggregate),
or (y) any criminal liability as a result of failure to comply therewith, (iii)
is permitted under the provisions of the Acquired Ground Lease, if any, on such
Property, and (iv) is consistent with business practices normal in the industry
of Lessee or the practices of Lessee with respect to properties owned by Lessee.
Section II.6. AGREEMENT FOR GROUND LEASE. Each Property leased pursuant
to the Agreement for Ground Lease was acquired and leased in accordance with the
terms of the Agreement for Ground Lease. The representations and warranties of
Lessee in the Agreement for Ground Lease are true and correct on and as of the
date made, except as to such matters as would not, in the reasonable judgment of
Lessee, impair the Lessee's abilities to perform its obligations under this
Ground Lease.
Section II.7. PROPERTY LIENS. Except as specifically disclosed by Lessee
in writing to Brazos or except as set forth in the Title Policy for such
Property, to the best of Lessee's knowledge, no Property is subject to a Lien of
Record, and, to the best of Lessee's knowledge, no Property is subject to any
other Lien, except for Permitted Encumbrances previously disclosed in writing to
Brazos.
Section II.8. BROKERAGE. Except as may be contemplated by the Ground
Lease or approved by Lessee, no brokerage or other similar fee, commission or
compensation to real estate brokers or agents is to be paid by Brazos in
connection with this Ground Lease, and Lessee hereby indemnifies Brazos against
any claims for brokerage fees or
GROUND LEASE AGREEMENT - Page 8
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commissions and agrees to pay all expenses incurred by Brazos in connection
with the defense of any action or proceeding brought to collect any such
brokerage fees or commissions, provided such claim is made through or under
Lessee.
Section II.9. SUITABILITY OF PROPERTY. To the best of Lessee's actual
knowledge, each Property is suitable as determined by Lessee in its sole
discretion (including, without limitation, ground conditions, utilities, and
condition of title) for the intended use of the Property under the Ground Lease.
Section II.10. EXISTENCE. Brazos is a limited partnership duly formed and
validly existing under the laws of the State of Delaware and is in good standing
and qualified to do business in each jurisdiction where its ownership or lease
of property or conduct of its business requires such qualification and where a
failure to be qualified would, in the reasonable judgment of Brazos, impair the
ability of Brazos to perform its obligations under this Agreement. The General
Partner (as defined in the Credit Agreement) is a corporation duly organized, in
good standing, and validly existing under the laws of Delaware and in good
standing and qualified to do business in each jurisdiction where its ownership
or lease of property or conduct of its business requires such qualification and
where a failure to be qualified would, in the reasonable judgment of Brazos,
impair the ability of Brazos to perform its obligations under this Agreement.
Section II.11. PARTNERSHIP POWER. The execution, delivery, and performance
by Brazos of this Agreement and the consummation of the transactions
contemplated hereby are within Brazos's partnership powers, have been duly
authorized by all necessary partnership action, do not contravene Brazos's
agreement of limited partnership or any law or any contractual restriction
binding on or affecting Brazos, and will not result in or require the creation
or imposition of any lien not contemplated by this Agreement or the Credit
Agreement.
Section II.12. AUTHORIZATION AND APPROVALS. No authorization or approval
or other action by, and no notice to or filing with, any Governmental Authority
is required for the due execution, delivery and performance by Brazos of this
Agreement or the consummation of the transactions contemplated by this Agreement
that have not been obtained or made, subject to the provisions of SECTION 2.4
hereof.
Section II.13. ENFORCEABLE OBLIGATIONS. Brazos has duly executed and
delivered this Agreement, and this Agreement is the legal, valid, and binding
obligation of Brazos enforceable against Brazos in accordance with its terms
subject, as to enforceability, to applicable bankruptcy, insolvency and similar
laws affecting creditors' rights generally and to general principles of equity
(regardless of whether enforcement is sought in a proceeding in equity or at
law).
Section II.14. PROCEEDINGS. There is no pending or, to the best knowledge
of Brazos after due inquiry, threatened action or proceeding affecting Brazos
before any court, Governmental Authority or arbitrator, which would, in the
reasonable judgment of Brazos, have an adverse impact on the Value or intended
use of a Property or which would affect the legality, validity, binding effect
or enforceability of this Agreement.
Section II.15. OTHER ASSETS AND LIABILITIES. Brazos has no material
assets other than the Properties and Facilities owned and to be acquired
pursuant to the Lease Documents and the commitments of its limited partners to
make capital contributions to Brazos, has no material liabilities other than
pursuant to the Lease Documents and the Credit Documents, and has incurred no
Indebtedness other than pursuant to the Credit Documents.
ARTICLE III
LEASE OF PROPERTY
Section III.1. LEASE. Subject to the definitions, terms and conditions
hereof, Brazos hereby leases to Lessee, and Lessee hereby leases from Brazos
pursuant to this Ground Lease, or sublease in the case of an Acquired Ground
Lease, any Property, when Brazos makes an advance under the Agreement for Ground
Lease with respect to such Property and such Property is acquired under the
Agreement for Ground Lease, or if no advance is made with respect to a Property
under an Acquired Ground Lease, when Brazos enters into such Acquired Ground
Lease. The Effective Date of the lease or sublease of each Property shall be
the date of the initial advance with respect to such Property under the
Agreement for Ground Lease or the Effective Date of any Acquired Ground Lease.
GROUND LEASE AGREEMENT - Page 9
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Section III.2. PROPERTY LEASING RECORD.
(a) The lease of each Property shall be evidenced by a Property Leasing
Record. Each Property Leasing Record shall give a full legal description of the
Property covered thereby, the Acquisition Cost of such Property, the Lease Term
for such Property, the location of such Property and such other details as
Brazos, Lessee and any Assignee may from time to time agree. Lessee shall
provide to Brazos the information necessary to describe in the Property Leasing
Record the Property, except that Brazos shall provide, pursuant to the terms
hereof, the Acquisition Cost and the Lease Term. Execution and delivery by
Lessee of a Property Leasing Record shall constitute (i) acknowledgment by
Lessee that the Property specified in such Property Leasing Record has been
delivered to Lessee in acceptable condition and has been accepted for lease
hereunder by Lessee as of the Effective Date of the Property Leasing Record,
(ii) acknowledgment by Lessee that the Property specified in such Property
Leasing Record is subject to all of the covenants, terms and conditions of this
Ground Lease, and (iii) certification by Lessee that the representations and
warranties of Lessee contained in ARTICLE II of this Ground Lease are true and
correct on and as of the Effective Date of the Property Leasing Record as though
made on and as of such date, except as to such matters as would not, in the
reasonable judgment of Lessee, materially impair the Lessee's abilities to
perform its obligations under this Ground Lease and that there exists on such
date no Event of Default, Event of Property Termination, Potential Default or
Potential Property Termination.
(b) Upon the making of additional advances for a Property, Brazos and
Lessee shall execute an updated Property Leasing Record to reflect the change in
Acquisition Cost for such Property caused by such advance.
(c) Upon the release or disposition of a Property or any portion
thereof and the application of proceeds therefrom in accordance with the Credit
Agreement, Brazos and Lessee shall execute an updated Property Leasing Record to
reflect the change in Acquisition Cost for such Property caused by such release
or disposition.
Section III.3. OWNERSHIP OF PROPERTY.
(a) It is the intent of the parties hereto that: (i) this Ground Lease
constitutes an "operating lease" pursuant to Statement of Financial Accounting
Standards No. 13, as amended, for purposes of Lessee's financial reporting, and
(ii) for purposes of federal, state and local income or franchise taxes and for
any other tax imposed on or measured by income, the transaction contemplated
hereby is a financing arrangement and preserves ownership in the Property to the
Lessee. Nevertheless, the Lessee acknowledges and agrees that neither the
Agent, Brazos nor any Assignee has made any representations or warranties to the
Lessee concerning the tax, accounting or legal characteristics of the Credit
Agreement and Lease Documents (as defined in the Credit Agreement) and that the
Lessee has obtained and relied upon such tax, accounting and legal advice
concerning the Credit Agreement and Lease Documents (as defined in the Credit
Agreement) as it deems appropriate.
(b) Anything to the contrary notwithstanding, Brazos and the Lessee
intend and agree that with respect to the nature of the transactions evidenced
by this Ground Lease in the context of the exercise of remedies under the Credit
Agreement and Lease Documents, including, without limitation, in the case of any
insolvency or receivership proceedings or a petition under the United States
bankruptcy laws or any other applicable insolvency laws or statute of the United
States of America or any state or commonwealth thereof affecting the Lessee,
Brazos, or any Assignee or any enforcement or collection actions, (i) the
transactions evidenced by this Ground Lease are loans made by Brazos and the
Agent as unrelated third party lenders to the Lessee secured by the Property,
(ii) the obligations of the Lessee under this Ground Lease to pay Basic Rent and
Additional Rent or other amounts in connection with a purchase of the Property
pursuant to this Ground Lease shall be treated as payments of interest on and
principal of, respectively, loans from Brazos and the Assignees to the Lessee,
and (iii) this Ground Lease grants a security interest and mortgage or deed of
trust or lien, as the case may be, in the Property to Brazos and the Assignees
to secure the Lessee's performance under and payment of all amounts under this
Ground Lease and the Credit Agreement and Lease Documents (as defined in the
Credit Agreement).
(c) Specifically, without limiting the generality of SUBSECTION (b) of
this Section, Brazos and the Lessee further intend and agree that, for the
purpose of securing the Lessee's obligations for the repayment of the
above-described loans from Brazos and the Agent to the Lessee, (i) this Lease
shall also be deemed to be a security agreement and financing statement
within the meaning of Article 9 of the Uniform Commercial Code (and
specifically, a
GROUND LEASE AGREEMENT - Page 10
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construction mortgage, as said term is defined in Section 9.313(a)(3) of the
Uniform Commercial Code) and a real property mortgage or deed of trust; (ii)
the conveyance provided for in ARTICLE III shall be deemed to be a grant by
the Lessee to Brazos and the Assignees of a mortgage lien and security
interest in all of the Lessee's right, title and interest in and to the
Property and all proceeds of the conversion, voluntary or involuntary, of the
foregoing into cash, investments, securities or other property, whether in
the form of cash, investments, securities or other property (it being
understood that Lessee hereby mortgages and warrants and grants a security
interest in the Property to Brazos and the Assignees to secure such loans);
(iii) the possession by Brazos or any of its agents of notes and such other
items of property as constitute instruments, money, negotiable documents or
chattel paper shall be deemed to be "possession by the secured party" for
purposes of perfecting the security interest pursuant to Section 9.305 of the
Uniform Commercial Code; and (iv) notifications to Persons holding such
property, and acknowledgments, receipts or confirmations from financial
intermediaries, bankers or agents (as applicable) of the Lessee shall be
deemed to have been given for the purpose of perfecting such security
interest under applicable law. Brazos and the Lessee shall, to the extent
consistent with this Ground Lease, take such actions and execute, deliver,
file and record such other documents, financing statements, mortgages and
deeds of trust as may be necessary to ensure that, if this Ground Lease were
deemed to create a security interest in the Property in accordance with this
Section, such security interest would be deemed to be a perfected security
interest of first priority under applicable law and will be maintained as
such throughout the term of this Ground Lease or any renewal hereof as
provided in SECTION 5.1.
(d) Notwithstanding anything to the contrary contained in any of the
Lease Documents, the Trade Fixtures are not the property of Brazos and are not
covered by this Lease, and Brazos shall not grant any Lien covering the Trade
Fixtures.
Section III.4. BRAZOS COVENANTS. In the absence of an Event of Default
which is continuing beyond the applicable grace or curative periods, Brazos
agrees as follows: (i) it will not engage any broker in connection with the
purchase or sale of any Facility or FF&E without Lessee's prior written consent;
(ii) within ninety (90) days after the end of Brazos' fiscal year, Brazos will
provide to each Lessee its unaudited balance sheet dated as of the end of its
fiscal year, prepared in accordance with GAAP, certified by an officer of the
General Partner of Brazos; (iii) Brazos will provide such additional financial
information regarding Brazos or any Property (to the extent such Property
information is maintained by Brazos) as may be reasonably requested by Lessee;
(iv) Brazos shall comply with all of its obligations under the Credit Documents,
except to the extent that compliance is prevented by any failure on the part of
Lessee to perform its obligations under the Lease Documents; (v) Brazos shall
not acquire or own any material assets other than the Properties and Facilities
to be acquired pursuant to the Lease Documents and the commitment of its limited
partner to make capital contributions to Brazos; (vi) Brazos will not engage in
any business other than the ownership and leasing of the Properties and
Facilities to be acquired pursuant to the Lease Documents; and (vii) Brazos will
not incur any Indebtedness or other material obligations other than those
pursuant to the Credit Documents and the Lease Documents.
ARTICLE IV
DELIVERY AND ACCEPTANCE
Section IV.1. ACCEPTANCE. Lessee shall accept Property acquired by
purchase or lease pursuant to the Agreement for Ground Lease. Brazos shall not
be liable to Lessee for any failure to obtain, or delay in obtaining, any
Property or any delay in the delivery of title or possession thereof to Lessee,
unless such failure or delay is caused by the gross negligence or willful
misconduct of Brazos.
Section IV.2. PAYMENTS FINAL. Each payment of Basic Rent, Additional Rent
and any other amount due hereunder made by Lessee shall be final, and Lessee,
without waiving any other remedies it may have, will not seek or have any right
to recover all or any part of such payment from Brazos or any Assignee for any
reason whatsoever, except as expressly provided herein. The making of payments
under this Ground Lease by Lessee (including payments pursuant to ARTICLE X)
shall not be deemed to be a waiver of any claim or claims that Lessee may assert
against Brazos or any other person. Brazos agrees to repay Lessee amounts paid
to Brazos to the extent such payments were in error and are not required by the
various terms and provisions of this Ground Lease.
Section IV.3. NO WARRANTIES OR REPRESENTATIONS. Notwithstanding any other
provision contained in this Ground Lease, it is specifically understood and
agreed that except as otherwise expressly provided herein, neither Brazos
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nor any Assignee nor any Affiliate of either, nor anyone acting on behalf of
any of them makes any warranties or representations hereunder or has any
responsibility to disclose any relevant information hereunder, or has any
other responsibility or duty hereunder, nor, except as expressly set forth in
SECTIONS 3.3 and 18.11 of this Ground Lease, has Brazos or any Assignee or
any Affiliate of either, or anyone acting on behalf of any of them made any
covenants or undertakings, as to the accounting treatment to be accorded
Lessee or as to the U.S. Federal or any state income or any other tax
consequences, if any, to Lessee as a result of or by virtue of the
transactions contemplated by this Ground Lease.
Section IV.4. QUIET ENJOYMENT. During the Lease Term or Renewal Term, if
any, of any Property hereunder and so long as no Event of Default, Event of
Property Termination, Potential Default or Potential Property Termination shall
have occurred and be continuing, Brazos covenants that as between Brazos and
Lessee, Lessee shall have the right to quiet enjoyment of the Property on the
terms and conditions provided in this Ground Lease without any interference from
Brazos or any party claiming by, through or under Brazos. Lessee agrees to
attorn to any Assignee in the event such Assignee succeeds to Brazos' interest
in the Property, and Lessee will not hold the Assignee responsible for Brazos'
obligations incurred in the period prior to the succession of the Assignee to
Brazos' interest.
Section IV.5. OTHER FINANCING REQUIREMENTS. If Brazos is required by the
Agent pursuant to the terms of the Credit Agreement to provide an appraisal or
other evidence of the value of a Property to the Agent under the Credit
Agreement, Lessee agrees to provide such appraisal or other evidence to Brazos
at Lessee's sole cost and expense.
ARTICLE V
LEASE TERM
Section V.1. LEASE TERM. The "LEASE TERM" with respect to any Property
leased hereunder shall commence on the Effective Date for such Property and
shall end on September 10, 2003. The lease of any Property may be renewed for
thirty-five (35) renewal terms of one year each, pursuant to, and in accordance
with, SECTION 11.3. The Lease Term or any Renewal Term may be terminated
earlier pursuant to ARTICLES XI, XIII, XIV or XV hereof.
Section V.2. TERMINATION. Notwithstanding anything contained in this
ARTICLE V or ARTICLE XI, this Ground Lease shall terminate on September 10,
2038, unless earlier terminated.
ARTICLE VI
RENT AND OTHER PAYMENTS
Section VI.1. BASIC RENT. Lessee hereby agrees to pay Brazos on each
Basic Rent Payment Date, Basic Rent for the period ending on such Basic Rent
Payment Date. Such Basic Rent shall be due and payable on the later of the
applicable Basic Rent Payment Date or two Business Days after Brazos shall have
given Lessee written notice of the amount of the Basic Rent due with respect to
each Property for such Basic Rent Payment Date. Brazos agrees to communicate
with Lessee in a timely manner and to otherwise cooperate fully with Lessee
concerning all matters and decisions which affect or which could minimize the
amount of Basic Rent payable hereunder. Upon receipt by Brazos of any notice
from Agent pursuant to Section 2.1(b) of the Credit Agreement relating to any
adjustments under Section 2.1(b) under the Credit Agreement, Brazos will advise
Lessee by written notice of such adjustments and the amount of any Basic Rent
which may be due from Lessee or the amount of any credit which may be applied by
Lessee to the Basic Rent payable by Lessee on the next Basic Rent Payment Date.
Brazos agrees that Basic Rent payable hereunder shall be reduced by the amount
of any such credit adjustment. Lessee agrees to pay any additional Basic Rent
which is owing due to such adjustments within five (5) Business Days of receipt
of such written notice from Brazos.
Section VI.2. OTHER AMOUNTS. Except as otherwise specifically provided in
this Ground Lease, Lessee hereby agrees to pay within thirty (30) days of
written demand all amounts (other than Basic Rent and amounts which are payable
on demand or pursuant to ARTICLES X-XV) due hereunder, including, without
limitation, all amounts payable to any Indemnified Person pursuant to ARTICLE X
hereof.
GROUND LEASE AGREEMENT - Page 12
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Section VI.3. ADDITIONAL RENT. Lessee shall pay to Brazos from time to
time, on demand, as additional rent ("ADDITIONAL RENT") (i) subject to Section
5.3 of the Agreement for Facilities Lease, amounts required to reimburse Brazos
for its costs and expenses (not previously included in Basic Rent) incurred in
acquiring, financing and leasing the Property and to the extent legally
enforceable, interest on each overdue amount not paid by Lessee to Brazos as
provided in this Ground Lease from the date such overdue amount was due until
paid at the per annum rate of interest equal to the most recent rate of interest
calculated pursuant to the Credit Agreement or as reasonably established by
Agent in the absence of any borrowing under the Credit Agreement, plus two
percent (2%). Lessee shall also pay to Brazos on demand an amount equal to any
reasonable expenses and attorneys' fees incurred by Brazos in collecting such
unpaid sums and enforcing the obligations for such unpaid sums.
Section VI.4. PAYMENT IN ADVANCE. Basic Rent and Additional Rent and any
other amount payable by Lessee to Brazos shall be paid sufficiently in advance
of the date due to assure that immediately available funds in the full amount
due are available on the date due, to such account of Brazos at such bank, or,
with the consent of Agent, to such account of such other person at such bank, or
otherwise as Brazos may from time to time designate in writing.
Section VI.5. CREDIT AGREEMENT LOSSES. In addition to all other payment
obligations hereunder, if the lease for any Property is terminated for any
reason other than a default by Brazos prior to the end of the Lease Term or, if
applicable, Renewal Term, then Lessee shall pay to Brazos within five (5)
Business Days after receipt of the billing statement referred to below an
additional amount compensating Brazos for all penalties, costs and expenses
(including reasonable out-of-pocket costs and expenses) as are incurred by
Brazos under the Credit Agreement in connection with such termination and as are
set forth in a billing statement sent by Brazos to Lessee containing the
calculation thereof in reasonable detail.
ARTICLE VII
RESTRICTED USE; COMPLIANCE WITH LAWS
Section VII.1. INSURANCE REQUIREMENT AND LEGAL REQUIREMENT. So long as no
Event of Default or Event of Property Termination shall have occurred and be
continuing beyond any applicable grace or curative period, Lessee may use the
Property in the regular course of its business for any lawful purpose. Without
limiting the generality of the foregoing, Lessee may offer for sale at the
Facilities such products and services as Lessee from time to time offers at any
other stores operated by Lessee or any Affiliate of Lessee. Lessee will not do
or permit any act or thing which is contrary to any Insurance Requirement or
which is contrary to any Legal Requirement, which would, in the reasonable
judgment of Lessee, other than in the normal use thereof, materially impair the
Value or usefulness of any Property; PROVIDED, that Lessee shall not be required
to comply with any Legal Requirements to the extent provided in SECTION 2.5 of
this Ground Lease.
Section VII.2. FILINGS. Lessee shall promptly and duly execute, deliver,
file and record, at Lessee's expense, all such documents, statements, filings
and registrations, and take such further action as Brazos or any Assignee shall
from time to time reasonably request in order to establish, perfect and maintain
Brazos' or such Assignee's title to and interest in the Property and any
Assignee's interest in this Ground Lease or any Property as against Lessee or
any third party in any applicable jurisdiction.
Section VII.3. COMPLIANCE WITH OTHER REQUIREMENTS. Lessee shall use every
precaution which is commercially reasonable and which is usually employed by
corporations engaged in a business which involves owning or operating similar
property to prevent loss or damage to Property and to prevent injury to third
persons or property of third persons. Lessee shall cooperate fully with Brazos
and all insurance companies providing insurance pursuant to ARTICLE IX hereof in
the investigation and defense of any claims or suits arising from the ownership,
use, or occupancy of the Property; PROVIDED that nothing contained in this
SECTION 7.3 shall be construed as imposing on Brazos any duty to investigate or
defend any such claims or suits. Lessee shall comply and shall use commercially
reasonable efforts to cause all persons using or occupying Property to comply
with all Insurance Requirements and Legal Requirements regarding acquiring,
titling, registering, leasing, insuring, using, occupying, operating and
disposing of Property, and, if applicable, the licensing of operators thereof;
provided, that Lessee shall not be required to comply with any Legal
Requirements to the extent provided in SECTION 2.5 of this Ground Lease.
GROUND LEASE AGREEMENT - Page 13
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Section VII.4. INSPECTION. Brazos or any Assignee or any authorized
representative of either may, upon five (5) Business Days advance notice, during
reasonable business hours and subject to Lessee's normal safety and security
rules and procedures, from time to time, inspect Property and deeds,
registration certificates, certificates of title and related documents covering
Property wherever the same may be located, but neither Brazos nor any Assignee
shall have any duty to make any such inspection. Neither Brazos nor any
Assignee shall incur any liability or obligation by reason of making any
inspection unless and to the extent such party causes damage to any of the
Property or any other person during the course of such inspection. All
inspections shall be at Brazos' or Assignee's own risk.
GROUND LEASE AGREEMENT - Page 14
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Section VII.5. NO LIENS; ASSIGNMENT AND SUBLETTING. Lessee shall not
permit or suffer to exist on any Property any Lien, other than Liens which are
the subject of a Permitted Contest, Permitted Encumbrances and Liens placed
thereon by, or arising from, Brazos' own actions or those of any Assignee or
Affiliate of Brazos and in all such cases, approved by Lessee (PROVIDED, that
any Liens of Record, other than Liens placed thereon by, or arising from,
Brazos' own actions or those of any Assignee or Affiliate of Brazos and in all
such cases, approved by Lessee, may not exceed an aggregate amount of
$2,5000,000 with respect to the aggregate of the Properties and Facilities, and
an aggregate amount of $250,000 with respect to each Property and related
Facility), nor may it assign any right or interest herein or in any Property.
Notwithstanding anything to the contrary contained herein, provided that no
Event of Default has occurred and is then continuing beyond any applicable grace
or curative period, Lessee shall have the right, without the prior written
consent of Brazos or any Assignee, to assign this Lease to any Affiliate of
Lessee, and to sublease all or any portion of any one or more Properties to any
Person for any legal use and may otherwise relinquish possession of Property to
any contractor for use in performing work for Lessee; PROVIDED that such
assignment, sublease or relinquishment of possession shall in no way affect the
obligations of Lessee or the rights of Brazos hereunder and with respect to the
Property. Any sublease by Lessee shall be expressly subordinate to this Ground
Lease. Brazos and Assignee shall have the present and continuing right to
collect and enjoy all rents and other sums of money payable under any such
sublease, and Lessee hereby irrevocably assigns such rents and other sums to
Brazos and Assignee for the benefit and protection of Brazos and Assignee for
all amounts due to Brazos and Assignee under this Ground Lease; PROVIDED that
unless an Event of Default shall have occurred and be continuing hereunder
beyond any applicable grace or curative period, Lessee shall be entitled to
collect and enjoy such rents and other sums. Lessee shall, within thirty (30)
days after the execution of any such sublease, deliver a conformed copy thereof
to Brazos and Agent. Nothing contained in this Ground Lease shall be construed
as constituting the consent or request of Brazos, express or implied, to or for
the performance by any contractor, laborer, materialman or vendor of any labor
or services or for the furnishing of any materials for any construction,
alteration, addition, repair or demolition of or to any Property or any part
thereof. Notice is hereby given that Brazos and Agent will not be liable for
any labor, services or materials furnished or to be furnished to Lessee, or to
anyone holding any Property or any part thereof through or under Lessee, and
that no mechanics' or other liens for any such labor, services or materials
shall attach to or affect the interest of Brazos or Assignee in and to the
Property.
In the event a Lien or other matter affecting title to Property arises and
such Lien or other matter is a Lien or other matter with respect to which Brazos
is entitled to make a claim under the terms of a Title Policy covering such
Property, Brazos shall be obligated to remove or discharge, or pay to Lessee,
the amount incurred by Lessee in removing and discharging such Lien or other
matter to the extent (and only to the extent) of any proceeds, damages or other
amounts paid to Brazos under a Title Policy (the "TITLE POLICY PROCEEDS"). In
that connection, if such Lien or other matter is discovered, Brazos, upon
Lessee's reasonable request and at Lessee's expense, will make such claims or
institute such proceedings as are appropriate under the terms of such Title
Policy to cause the Title Insurer to either remove such Lien or other matter or
pay any Title Policy Proceeds payable under the Title Policy in respect of such
Lien or other matter. Lessee agrees to indemnify and hold Brazos harmless from
and against all liability, cost and expense which Brazos may sustain or incur in
making any such claim or instituting any such proceeding. In the event that
Brazos is paid any Title Policy Proceeds as a result of such claim or proceeding
prior to the time that Lessee discharges such Lien or other matter, Brazos shall
apply the Title Policy Proceeds to the payment of amounts necessary to remove
and discharge such Lien or other matter to the extent of such proceeds. In the
event that Brazos is paid any Title Policy Proceeds after Lessee discharges such
Lien or other matter, then Brazos agrees to reimburse Lessee to the extent (and
only to the extent) of any proceeds, damages or other amounts paid to Brazos
under a Title Policy for any amounts paid by Lessee to remove or discharge any
such Lien or other matter, including, without limitation, expenses incurred by
Lessee in causing such Lien or other matter to be removed or discharged or
incurred by Lessee under the foregoing indemnity. Any Title Policy Proceeds
exceeding the foregoing amounts shall be paid to Lessee. Any claim by Lessee
against Brazos in accordance with the foregoing provisions shall be strictly
limited to the amount of any Title Policy Proceeds actually paid to Brazos.
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Section VII.6. INTERFERENCE. If any Lien or charge of any kind or any
judgment, decree or order of any court or other governmental authority
(including, without limitation, any state or local tax lien affecting the
Property), whether or not valid but exclusive of any Lien granted by Brazos
contrary to the provisions of this Ground Lease, shall be asserted or entered
which is reasonably likely to interfere with the due and timely payment of any
sum payable or the exercise of any of the rights or the performance of any of
the duties or responsibilities under this Ground Lease, Lessee shall, upon
obtaining knowledge thereof or upon receipt of notice to that effect from Brazos
or Agent, promptly take such action as may be necessary to prevent or terminate
such interference.
Section VII.7. DELIVERY OF INFORMATION. Lessee shall deliver to Brazos
and Agent (i) promptly after a Responsible Officer obtains knowledge of any
Event of Default or Potential Default, a certificate of a Responsible Officer
specifying the nature and period of existence of such Event of Default or
Potential Default, and what action, if any, Lessee has taken, is taking, or
proposes to take with respect thereto, and (ii) promptly after Lessee obtains
knowledge of any and all Liens other than Permitted Encumbrances on any Property
or other matter which may, in the reasonable judgment of Lessee, materially
adversely affect the Value of a Property or the intended use of a Property, a
detailed statement describing each such Lien or other matter. Brazos shall
deliver to Lessee, the information and notices provided by Brazos pursuant to
Section 5.6 of the Credit Agreement (other than 5.6(g)) simultaneously with
delivering such information to Agent.
Section VII.8. EXECUTION OF DOCUMENTS. Lessee hereby agrees that neither
it nor Guarantor will take or permit to be taken any action on the part of
either of them pursuant to SECTION 8.5 of this Ground Lease and the powers
granted by Brazos thereunder, if such action would cause a Default (as defined
in the Credit Agreement) under the Credit Agreement.
ARTICLE VIII
MAINTENANCE OF PROPERTY
Section VIII.1. WARRANTIES. Brazos, so long as no Event of Default or
Event of Property Termination shall have occurred and be continuing, hereby
assigns and agrees to make available to Lessee any and all rights Brazos may
have under any vendor's warranties or undertakings with respect to the Property.
If any Event of Default or Event of Property Termination shall have occurred and
be continuing beyond the expiration of any applicable grace or curative period,
the assignment of such rights from Brazos to Lessee shall be deemed to be
terminated, except to the extent that such Event of Default or Event of Property
Termination is the result of a breach of any vendor's warranties or
undertakings, in which case the foregoing assignment will remain in full force
and effect and Lessee will be allowed a reasonable period of time to pursue such
vendor and to cure the Event of Default or Event of Property Termination.
Section VIII.2. COSTS AND EXPENSES. Subject to the provisions of Section
5.2 of the Agreement for Ground Lease, Lessee shall pay all costs, expenses,
fees and charges incurred in connection with the ownership, use or occupancy of
any Property during the Lease Term and Renewal Term, if any, thereof, including,
without limitation, any rent under an Acquired Ground Lease. Except as
otherwise provided in ARTICLE XII hereof, Lessee shall at all times, at its own
expense, and subject to reasonable wear and tear, keep the Property in good
operating order, repair, condition and appearance. The foregoing undertaking to
maintain Property in good repair shall apply regardless of the cause
necessitating repair, regardless of the availability or adequacy of insurance or
condemnation proceeds and regardless of whether Lessee has possession of the
Property, and as between Brazos and Lessee all risks of damage to the Property
are assumed by Lessee. With respect to any Property, the undertaking to
maintain in good repair shall include, without limitation, all common area
maintenance including, without limitation, removal of dirt, snow, ice, rubbish
and other obstructions and maintenance of sidewalks and landscaping in the
ordinary course of Lessee's business. Lessee hereby agrees to indemnify and
hold Brazos and any Assignee harmless from and against all costs, expenses,
claims, losses, damages, fines or penalties, including reasonable counsel fees,
arising out of or due to Lessee's failure to fulfill its obligations under this
SECTION 8.2.
Section VIII.3. PAYMENT OF TAXES. With respect to any Property, except
for Excluded Taxes, Lessee shall make all required reports to the appropriate
taxing authorities and shall pay: (i) all taxes, assessments, (which may be
amortized over the maximum period permitted by Law) levies, fees, water and
sewer rents and charges, and all other
GROUND LEASE AGREEMENT - Page 16
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governmental, quasi-governmental and non-governmental charges, general and
special (which may be amortized over the maximum period permitted by Law),
ordinary and extraordinary, foreseen and unforeseen, which are, at any time
during the Lease Term or any Renewal Term hereof, imposed or levied upon or
assessed against (A) the Property, (B) any Basic Rent, any Additional Rent or
other sum payable hereunder or (C) this Ground Lease, the leasehold estate
hereby created, or which arises in respect of the ownership, operation,
occupancy, possession or use of the Property, (ii) all gross receipts or
similar taxes (i.e., taxes based upon gross income which fail to take into
account all customary deductions (e.g., depreciation and interest) relating
to the Property) imposed or levied upon, assessed against or measured by any
Basic Rent, or any Additional Rent or other sum payable hereunder, (iii) all
transfer, sales, value added, use and similar taxes at any time levied,
assessed or payable on account of the acquisition, leasing or use of the
Property, (iv) all charges of utilities and communications services serving
the Property and (v) subject to the exclusions in the definition of "Excluded
Taxes", all franchise taxes and state registration fees or charges levied by
any state in which Brazos is domiciled or in which any Facility or FF&E is
located. Lessee will furnish to Brazos, promptly after demand therefor and
when made available by the taxing authorities, proof of payment of all items
referred to above, the payment of which is the responsibility of Lessee. If
any such assessments may legally be paid in installments, Lessee may pay or
permit to be paid such assessment in installments. So long as, in the
reasonable opinion of Lessee's counsel, Lessee shall have reasonable grounds
to contest the existence, amount, applicability or validity of any tax Lessee
is required to pay pursuant to this Ground Lease, Lessee may contest such tax
pursuant to the provisions of ARTICLE XVII of this Ground Lease so long as
reserves deemed adequate under GAAP therefor are maintained therefor by
Lessee.
Section VIII.4. ENVIRONMENTAL REPORTS. At any reasonable time and from
time-to-time, upon reasonable notice, Lessee shall furnish Brazos a report or
reports (the "REPORTS") prepared by a qualified independent consultant, at the
expense of Lessee, concerning the condition and status of any Property in
respect of any Environmental Laws; PROVIDED that the party requesting such
reports (either Brazos or the Assignee) has demonstrable evidence that such
Property may be adversely affected by a hazardous substance, a hazardous waste
or an Environmental Claim not adequately addressed in any environmental
assessment previously delivered to Brazos or any Assignee in connection with
such Property.
Section VIII.5. OBLIGATIONS OF BRAZOS. Brazos agrees to promptly deliver
to Lessee all notices, bills, invoices or reports received by Brazos which
relate to any Property. Further, as owner of a Property or owner of the
leasehold estate of an Acquired Ground Lease, Brazos shall execute all such
documents and take all such actions as shall be necessary or as shall reasonably
be requested by Lessee or Guarantor in order to allow Lessee to develop,
construct, use, operate and/or maintain the Property efficiently or otherwise in
a manner consistent with the purposes for which Lessee acquired an interest in
the Property, including, without limiting the generality of the foregoing,
execution of any architectural contracts, construction contracts, applications
or permits or other documents relating to any construction activities or other
operations or activities on or sought to be undertaken on the Property and
execution of easements, licenses or other such documents relating to the
Property. Brazos hereby appoints Guarantor and Lessee as its agent and
attorney-in-fact in connection with executing all such documents and taking all
such actions described in the sentence directly above. Also, Brazos shall
furnish Lessee or Guarantor promptly upon request with any powers of attorney or
other documents necessary or appropriate to enable Lessee or Guarantor to take
all such actions or execute all such documents on behalf of Brazos as described
in this paragraph. Any power of attorney granted under or pursuant to this
SECTION 8.5 is and shall be coupled with an interest and irrevocable.
GROUND LEASE AGREEMENT - Page 17
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ARTICLE IX
INSURANCE
Section IX.1. LIABILITY AND PROPERTY DAMAGE. Lessee shall, at its sole
cost and expense, including through self-insurance, maintain such liability and
property damage insurance with respect to all Property and insurance against
loss or damage to all Property of the types usually carried by corporations
engaged in the same or a similar business, of similar size as Lessee, and owning
similar property and which cover risks of the kind customarily insured against
by such corporations and such other insurance as may be required by law or as
may be reasonably requested by Brazos for purposes of assuring compliance with
this ARTICLE IX, including, without limitation, the insurance described on the
Schedule of Insurance attached hereto as EXHIBIT "A". Such insurance shall be
written by financially sound and reputable companies which are legally qualified
to issue such insurance. Lessee may, at its cost and expense, prosecute any
claim against any insurer or contest any settlement proposed by any insurer, and
Lessee may bring any such prosecution or contest in the name of Brazos, Lessee,
or both, and Brazos will join therein at Lessee's request; PROVIDED that Lessee
shall indemnify Brazos against any losses, costs or expenses (including
reasonable attorneys' fees) which Brazos may incur in connection with such
prosecution or contest. Notwithstanding the foregoing, Lessee at its sole
option, may choose to self-insure in whole or in part (through deductibles or
otherwise) for any liabilities or damages which are otherwise to be covered by
insurance as described herein.
Section IX.2. ADDITIONAL INSUREDS; NOTICE. Any policies of insurance
other than Workers' Compensation and Employers' Liability Insurance, carried in
accordance with this ARTICLE IX and any policies taken out in substitution or
replacement for any such policies (i) shall name Brazos and Assignee as
additional insureds, as their respective interests may appear (but without
imposing upon any such person any obligation imposed on the insured, including,
without limitation, the liability to pay the premium for any such policy), (ii)
shall have attached to the All Risk direct physical damage policy, a lender's
loss payable endorsement for the benefit of Brazos and Assignee as loss payees
and (iii) shall provide that as against Brazos and Assignee the insurers shall
waive any rights of subrogation. Lessee shall request the insurers to give
thirty (30) days advance written notice to Brazos and its assigns of any
cancellation of any insurance to be maintained under this Article. Lessee shall
give a copy to Brazos and any Assignee of any notice received by Lessee
regarding the cancellation or other termination of the insurance included in the
Schedule of Insurance attached hereto as EXHIBIT "A". Each liability policy (A)
shall be primary without right of contribution from any other insurance which is
carried by Brazos with respect to its interest as such in the Property and (B)
shall expressly provide that all of the provisions thereof, except the limits of
liability, shall operate in the same manner as if there were a separate policy
covering each insured. Any insurance required to be maintained pursuant to
this Lease may, at Lessee's option, be maintained, in whole or in part, as part
of blanket insurance policies covering the Property and other properties of
Lessee.
Section IX.3. APPLICATION OF PROCEEDS OF LOSS OR SUBSTANTIAL TAKING. Any
insurance or condemnation proceeds received as the result of the occurrence of
(i) any event of loss described in SECTION 14.3 hereof or (ii) any event of
substantial Taking described in SECTION 15.1 shall be paid to Agent on behalf of
Brazos, and disposed of as contemplated by SECTION 14.3 hereof.
Section IX.4. APPLICATION OF PROCEEDS OF OTHER THAN LOSS OR SUBSTANTIAL
TAKING. As between Lessee and Brazos, if any insurance or condemnation proceeds
received as a result of any loss or Taking, other than a loss described in
SECTION 14.3 or an event of substantial Taking described in SECTION 15.1, is
less than $250,000, it is agreed that such proceeds will be paid to Lessee to be
used for repairs, replacement, reconstruction or restoration in accordance with
the terms of SECTIONS 14.2 and 15.2 hereof. If the proceeds equal or exceed
$250,000, then the proceeds shall be deposited in a special purpose account held
by Assignee, to be used only for the purpose set forth in this paragraph, and
Lessee shall be entitled (i) to receive the amounts so deposited against
certificates, invoices or bills in form reasonably satisfactory to Brazos and
Agent, delivered to Brazos and Assignee from time to time as such work or repair
progresses, and (ii) to direct the investment of the amounts so deposited as
provided in SECTION 9.5. Notwithstanding the foregoing, so long as no Event of
Default has occurred and is then continuing beyond any applicable grace or
curative period, any insurance or condemnation proceeds received as a result of
any loss or Taking, other than a loss to which SECTION 14.3 applies or an event
of substantial Taking described in SECTION 15.1, shall be paid to Lessee and
used by Lessee for repairs, replacement, reconstruction or restoration of the
affected Property so as to place the same in good operating order, repair,
condition and appearance. Any moneys remaining in the aforesaid account after
final payment for repairs has been made shall be paid to Lessee.
GROUND LEASE AGREEMENT - Page 18
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Section IX.5. INVESTMENT. Agent, at Lessee's instruction, shall invest
the amounts deposited with Agent pursuant to SECTION 9.4 in the following:
(i) direct obligations of the United States Government;
(ii) interest-bearing time deposits at, or obligations of, any Assignee;
(iii) commercial paper supported by a letter of credit issued by any
Assignee; or
(iv) money market mutual funds that invest only in government
obligations or repurchase agreements secured by government
obligations.
Such investments shall mature in such amounts and on such dates so as to provide
that amounts shall be available on the draw dates sufficient to pay the amounts
requested by and due to Lessee. Any interest earned on investments of such
funds shall be paid to Lessee. Brazos and Agent shall not be liable for any
loss resulting from the liquidation of each and every such investment and Lessee
shall be liable for such loss, if any.
Section IX.6. APPLICATION IN DEFAULT. Any amount referred to in SECTIONS
9.3 or 9.4 which is payable to Lessee shall not be paid to Lessee or, if it has
been previously paid to Lessee and not applied by Lessee as provided in SECTIONS
9.3 or 9.4, shall not be retained by Lessee, if at the time of such payment an
Event of Default or Event of Property Termination shall have occurred and be
continuing beyond any applicable grace or curative period. In such event, all
such amounts shall be paid to and held by Brazos as security for the obligations
of Lessee hereunder or, at Brazos' option, applied by Brazos toward payment of
any of such obligations of Lessee at the time due hereunder as Brazos may elect.
At such time as there shall not be continuing any Event of Default or Event of
Property Termination, all such amounts at the time held by Brazos in excess of
the amount, if any, which Brazos shall have elected to apply as above provided
shall be applied as provided in SECTIONS 9.3 or 9.4.
Section IX.7. CERTIFICATES. Subject to Lessee's right to self-insure as
set forth hereinabove, on or before the execution of this Ground Lease, and
annually on or before the anniversary of the date of this Ground Lease, Lessee
will furnish to Brazos and Agent certificates or other evidence reasonably
acceptable to Brazos and Agent certifying that the insurance then carried and
maintained on each Property complies with the terms hereof.
Section IX.8. COVENANT TO KEEP INSURANCE IN FORCE. Subject to Lessee's
right to self insure as set forth above, Lessee covenants that it will not use
or occupy any Property or permit the use or occupancy of any Property at a time
when the insurance required by this ARTICLE IX is not in force with respect to
such Property.
ARTICLE X
INDEMNITIES
Section X.1. INDEMNIFIED PERSONS. Lessee shall indemnify and hold
harmless Brazos, each general and limited partner of Brazos, any Assignee, any
successor or successors, and any Affiliate of each of them, and their respective
officers, directors, incorporators, shareholders, partners (general and limited,
including without limitation, the general and limited partners of Brazos),
employees, agents and servants (each of the foregoing, an "INDEMNIFIED PERSON")
from and against all liabilities, losses, obligations, claims, damages,
penalties, causes of action, suits, costs and expenses (including, without
limitation, reasonable attorneys' and accountants' fees and expenses) or
judgments of any nature relating to or in any way arising out of:
(a) Except as provided in Section 7.5 with respect to claims under a
Title Policy, the acquisition, title on acquisition, rejection, possession,
titling, retitling, registration, reregistration, custody by Lessee of title and
registration documents, ownership, use, non-use, misuse, lease, operation,
repair, control or disposition of any Property leased or subleased or to be
leased or subleased hereunder, (i) except to the extent that such costs are
included in the Acquisition Cost of such Property and (ii) except for any
general administrative expenses of Brazos;
GROUND LEASE AGREEMENT - Page 19
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(b) The assertion of any claim or demand based upon any infringement or
alleged infringement of any right, by or in respect of any Property; PROVIDED,
HOWEVER, that upon request of Lessee, Brazos will make available to Lessee
Brazos' rights under any similar indemnification arising from any vendor's
warranties or undertakings with respect to any Property;
(c) All taxes, assessments and charges that Lessee is obligated to pay
pursuant to SECTION 8.3 above;
(d) Any violation or alleged violation (other than an alleged violation
alleged by Brazos or the Assignee) by Lessee of this Ground Lease or of any
contracts or agreements to which Lessee is a party or by which it is bound or
any laws, rules, regulations, orders, writs, injunctions, decrees, consents,
approvals, exemptions, authorizations, licenses and withholdings of objection,
of any governmental or public body or authority and all other Legal
Requirements, including, without limitation, any Legal Requirements with respect
to the environment or the regulation of hazardous materials or substances, or
any breach of a representation or warranty by Lessee under this Ground Lease;
(e) Any Environmental Claim or requirement of Environmental Law
concerning or relating to any Property, or the operations or business in respect
of any Property, other than any Environmental Claim resulting from the gross
negligence or willful misconduct of Brazos or the Assignee; or
(f) Any claim against Brazos' title or Assignee's interest in any
Property to the extent such claim is not fully paid by a Title Policy as
provided in Section 7.5.
Section X.2. PAYMENTS. Subject to the terms of Section 10.5, Lessee shall
forthwith upon demand reimburse any Indemnified Person for any sum or sums
expended with respect to any of the items set forth in SECTION 10.1 or, upon
request from any Indemnified Person, shall pay such amounts directly. Any
payment made to or on behalf of any Indemnified Person pursuant to this ARTICLE
X shall be increased to such amount as will, after taking into account all
actual increases in taxes imposed with respect to the accrual or receipt of such
payment (as the same may be increased pursuant to this sentence), equal the
amount of the payment, reduced by the amount of any savings in such taxes
actually realized by the Indemnified Person as a result of the payment or
accrual of the amounts in respect of which the payment to or on behalf of the
Indemnified Person hereunder is made. To the extent that Lessee in fact
indemnifies any Indemnified Person under the indemnity provisions of this Ground
Lease, Lessee shall be subrogated to such Indemnified Person's rights in the
affected transaction and shall have a right to determine the settlement of
claims therein.
Section X.3. CONTINUING INDEMNIFICATION. The indemnities contained in
this ARTICLE X shall not be affected by and shall survive any termination of
this Ground Lease as a whole or in respect of any Property leased hereunder as
to all matters arising prior to such termination or any failure or refusal of
Lessee to accept any Property acquired pursuant to the Agreement for Ground
Lease.
Section X.4. LIMITATIONS.
(a) Notwithstanding any provisions of this ARTICLE X to the contrary,
Lessee shall not indemnify and hold harmless any Indemnified Person against
liabilities, losses, obligations, claims, damages, penalties, causes of action,
suits, costs and expenses to the extent arising from the gross negligence (as
between such Indemnified Person or an Affiliate of such Indemnified Person and
Lessee) or willful misconduct (as between such Indemnified Person or an
Affiliate of such Indemnified Person and Lessee) of such Indemnified Person, but
shall otherwise indemnify any Indemnified Person against its own negligence, or
against any consequential damages or loss of profit or loss of any fees to
Brazos (except to the extent specified in the letter from Brazos to Lessee dated
as of September 10, 1998, designated therein as the "Brazos Margin Letter").
(b) Brazos and Lessee agree that the terms of any state Law which may
affect the rights of Brazos and Lessee under this ARTICLE X may be set forth in
the Memorandum of Ground Lease for the affected Property and shall apply as
though set forth in full in this Ground Lease. Brazos agrees to release the
Memorandum of Lease for any Property upon payment of all amounts and
satisfaction of all obligations owing as of the date of sale with respect to
such Property.
GROUND LEASE AGREEMENT - Page 20
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Section X.5. LITIGATION. If any claim, action, proceeding or suit is
brought against an Indemnified Person with respect to which Lessee would be
required to indemnify such Indemnified Person, such Indemnified Person, with
reasonable promptness, shall cause written notice of the assertion of such claim
or the commencement of such proceeding or litigation to be given to Lessee but
failure to so notify Lessee shall not relieve Lessee from any liability
hereunder unless, in the reasonable judgment of Lessee, Lessee is actually and
materially prejudiced thereby and then only to the extent thereof. Upon receipt
of such notice, Lessee shall have the right to assume the defense thereof,
including the employment at its expense of counsel; PROVIDED that Lessee shall
not have such right, to the extent that such Indemnified Person shall deliver to
Lessee a written notice waiving the benefits of the indemnification of such
Indemnified Person provided by this ARTICLE X in connection with such claim,
action, proceeding or suit. Notwithstanding the foregoing, if (i) (A) any
claim, action, proceeding or suit is brought against an Indemnified Person who
is an individual, (B) the action threatens to restrain or adversely affect the
conduct of the business of the Indemnified Person, but not the business of
Brazos' ownership of the Property under this Agreement, and (C) the claim,
action, proceeding or suit seeks damages of more than $500,000, or (ii)
independent counsel to an Indemnified Person shall conclude that there may be
defenses available to the Indemnified Person which may conflict with those
available to Lessee, Lessee shall not have the right to assume the defense of
any such action on behalf of the Indemnified Person if such Indemnified Person
chooses to defend such action (with counsel reasonably acceptable to Lessee),
and all reasonable costs, expenses and attorneys' fees incurred by the
Indemnified Person in defending such action shall be borne by Lessee; provided
however, if there is more than one (1) Indemnified Person having a right to
defend such action as aforesaid, the obligation of Lessee to pay the fees and
expenses of such Indemnified Persons shall be limited to one (1) firm of
attorneys. Notwithstanding the assumption of its defense by Lessee pursuant to
this SECTION 10.5, any Indemnified Person shall have the right to employ
separate counsel and to participate in its defense, but the fees and expenses of
such counsel shall be borne by the Indemnified Person. In addition, Lessee will
not be liable for any settlement of any claim, action, proceeding or suit unless
Lessee has consented thereto in writing. Any decision by an Indemnified Person
to employ its own counsel rather than counsel selected by Lessee (whether or not
at Lessee's expense) shall in no way affect any rights of such Indemnified
Person otherwise arising under this ARTICLE X.
ARTICLE XI
RENEWAL AND TERMINATION
Section XI.1. LESSEE'S RIGHT TO TERMINATE.
(a) Regardless of whether any Potential Default, Potential Property
Termination, Event of Default or Event of Property Termination has occurred and
is continuing, with respect to all Properties, Lessee shall have the right, at
any time during the Lease Term or any Renewal Term, upon not less than fifteen
(15) days' written notice to Brazos and Assignee, to terminate, on any date
specified in such notice, this Ground Lease with respect to all Properties, and
either (i) purchase or cause its designee to purchase all Properties, for cash
at their respective Acquisition Cost less any Unearned Rent, together with all
other amounts then due and payable by Lessee to Brazos hereunder or (ii) with
the prior written consent of both Brazos and Agent, arrange, at its own cost and
expense, for all Properties, to be sold for cash pursuant to SECTION 11.4 and
with the consequences therein provided, except that such sale must occur on the
date stipulated in the written notice contemplated by this SECTION 11.1.
(b) In addition to Lessee's right to terminate this Ground Lease with
respect to all Properties pursuant to subsection (a) above, so long as no Event
of Default or Event of Property Termination (other than an Event of Property
Termination with respect to the Property to be purchased pursuant to this
subsection (b)) has occurred and is continuing beyond any applicable grace or
curative period, Lessee shall have the right, at any time during the Lease Term
or any Renewal Term, upon not less than fifteen (15) days' written notice to
Brazos and Assignee, to terminate on any date specified in such notice this
Ground Lease with respect to any one or more Property (each such Property
specified in such notice being herein called a "PURCHASED PROPERTY"), but not
with respect to the remaining Properties, subject to the following terms and
conditions:
(i) On the effective date of such termination with respect to the
Purchased Property, Lessee or its designee shall purchase the
Purchased Property for cash equal to the Acquisition Cost less any
Unearned Rent with respect to the applicable Property and
simultaneously purchase the Facility located on such Purchased
Property (or the leasehold interest in such Facility in the case of
an
GROUND LEASE AGREEMENT - Page 21
<PAGE>
Acquired Facilities Lease, as defined in the Facilities Lease)
for the Acquisition Cost (as defined in the Facilities Lease) of
such Facility or Acquired Facilities Lessee.
(ii) The conditions of either subsection (iii), (iv) or (v) below have
been satisfied.
(iii) In the good faith judgment of Lessee, the Purchased Property shall
have become uneconomic for continued use and occupancy by Lessee
(such Property being hereinafter sometimes called an "UNECONOMIC
PROPERTY") and Lessee shall have delivered to Brazos and Assignee
a written notice (an "UNECONOMIC NOTICE") containing a certificate
of an officer of Lessee stating that Lessee has determined that
such Property has become uneconomic for continued use and occupancy
by Lessee. If Lessee terminates this Ground Lease with respect to
an Uneconomic Property, neither Lessee nor any Affiliate of Lessee
shall have the right, for the period commencing six (6) months and
ending one (1) year following the date of the purchase of such
Economic Property, to use such Uneconomic Property for the
operation of a retail store by Lessee or such Affiliate.
(iv) In addition to the right to terminate this Ground Lease with
respect to an Uneconomic Property, Lessee shall have the right to
terminate this Ground Lease with respect to Properties with respect
to which the attributable Acquisition Costs are no more than twenty
percent (20%) of the aggregate Acquisition Costs for all Properties
then covered by this Ground Lease.
(v) In addition to Lessee's right to terminate this Ground Lease with
respect to an Uneconomic Property pursuant to subsection (iii)
above, or to terminate pursuant to subsection (iv), Lessee shall
have the right to terminate this Ground Lease with respect to any
one or more Properties provided that Lessee has delivered to Brazos
and the Assignee, on or prior to the notice of termination with
respect to such Properties, an appraisal or appraisals, in form and
substance reasonably satisfactory to Brazos and the Assignee,
reflecting that the aggregate fair market value of all Properties
that will remain subject to this Ground Lease after such
termination and all Facilities that will remain subject to the
Facilities Lease after such termination (assuming completion of all
such Facilities) is no less than the aggregate Acquisition Costs of
the remaining Properties and Acquisition Costs (as defined in the
Facilities Lease) of the remaining Facilities (including any such
Acquisition Costs reasonably expected to be advanced to cause the
completion of the remaining Facilities).
Section XI.2. BRAZOS' RIGHT TO TERMINATE. Brazos shall have the right
upon ninety (90) days' prior written notice to Lessee, to terminate the Ground
Lease of all Properties as of a Basic Rent Payment Date stipulated in such
notice if at any time: (1) by reason of a nexus between a state or local taxing
jurisdiction and any Property or the activities of any user (other than Brazos)
of the Property, Brazos incurs, or, in its reasonable judgment, in the future
would incur, a state or local tax for which Brazos is not indemnified, and
which, in its reasonable good faith judgment, renders the Ground Lease
uneconomic, unless Lessee agrees to indemnify Brazos from such state or local
tax; or (2) the Agreement for Ground Lease or any other instrument relating to
this Ground Lease shall be deemed to require the payment or deemed to permit the
collection of interest in excess of the Maximum Rate and any such interest in
excess of such Maximum Rate cannot be spread and allocated either to the
preceding or subsequent periods in which such excess interest is to be paid or
collected pursuant to SECTION 18.8 of this Ground Lease. In the event of a
termination of this Ground Lease with respect to all Properties pursuant to this
SECTION 11.2, Lessee shall either (i) purchase or cause its designee to
purchase, on the Basic Rent Payment Date or other date stipulated in the written
notice contemplated by this SECTION 11.2, all Properties for cash at their
respective Acquisition Cost less any Unearned Rent or (ii) with the prior
written consent of both Brazos and Agent arrange, at its own cost and expense,
for all Properties to be sold for cash pursuant to SECTION 11.4 and with the
consequences therein provided, except that such sale must occur on the Basic
Rent Payment Date or other date stipulated in the written notice contemplated by
this SECTION 11.2.
GROUND LEASE AGREEMENT - Page 22
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Section XI.3. RENEWAL.
(a) Provided that Lessee has theretofore given notice to Brazos and
Agent of Lessee's desire to renew this Lease, not later than nine months prior
to the end of the Lease Term or six months prior to the end of a Renewal Term,
if any, as applicable, Brazos, with the consent of Agent, shall give notice to
Lessee as to whether it desires to renew the lease with respect to all
Properties and the terms and conditions (including the rental amounts) of any
such renewal. Not later than six months prior to the end of the Lease Term or
four months prior to the end of a Renewal Term, as applicable, Lessee shall give
notice to Brazos as to whether it will renew or not renew the lease for each
Property for which Brazos has offered to renew the lease. Failure of Lessee to
give such notice shall be deemed an election not to renew the lease. If the
parties elect to renew the Lease Term as set forth above, Brazos will use
commercially reasonable efforts to obtain financing, on terms and conditions
consistent with the Credit Agreement and partnership agreement of Brazos
otherwise acceptable to Brazos and Lessee, for the Renewal Term. So long as (i)
no Event of Default or Event of Property Termination has occurred and is
continuing beyond any applicable grace or curative period, (ii) Brazos shall
have received a commitment for financing on terms satisfactory to Brazos and
Lessee through the last day of the Renewal Term (as defined below) from the
Agent under the Credit Agreement or from a third party, and (iii) Lessee shall
elect to renew this Lease, this Lease shall be renewed for a term (the "RENEWAL
TERM") equal to one year commencing on the first day of the calendar month
following the last day of the Lease Term or Renewal Term, as applicable,
thereof; PROVIDED, HOWEVER, the Lease Term or Renewal Term, as applicable, shall
not be renewed if on the first day of the new Renewal Term the lender(s) fails
to fund under its commitment pursuant to the terms of such commitment for any
reason. Lessee may give advance notice of its intention to renew this Ground
Lease with respect to all Properties for successive Renewal Terms. Upon
acceptance by Brazos and Agent of such successive Renewal Terms, Lessee shall be
bound by such renewals for the entire period of successive Renewal Terms. Upon
the request of Lessee, but subject to the other provisions of this SECTION 11.3,
any Renewal Term may be five (5) years, rather than one (1) year.
(b) If this Ground Lease is not being renewed, Lessee shall, at its
option, either (i) purchase or cause its designee to purchase all Properties for
cash at their Acquisition Cost (less any Unearned Rent) during the period from
one (1) month before the end of the Lease Term or Renewal Term, as applicable,
to five (5) Business Days before the end of the Lease Term or Renewal Term, as
applicable or (ii) arrange, at its own cost and expense, for all Properties to
be sold for cash pursuant to SECTION 11.4 and with the consequences therein
provided during the period from six (6) months before the end of the Lease Term
or Renewal Term, as applicable, to one (1) month before the end of the Lease
Term or Renewal Term, as applicable. With respect to Property for which the
lease is not being renewed, not later than eight months prior to the end of the
Lease Term or four months prior to the end of the Renewal Term, as applicable,
Lessee shall give notice to Brazos of its election to either purchase or sell
such Property to a third party. Any notice given by Lessee pursuant to the
preceding sentence shall be irrevocable, except that Lessee may revoke the
election to have a Property sold to a third party if Lessee purchases such
Property.
Section XI.4. SALES TO THIRD PARTIES.
(a) If Lessee exercises its right to arrange for a sale of a Property
to a third party pursuant to SECTIONS 11.1, 11.2 or 11.3, Brazos shall receive
the proceeds of sale and:
(i) if the proceeds of sale are greater than the Acquisition
Cost of the Property sold less any Unearned Rent, Brazos
shall pay to Lessee the amount by which such proceeds exceed
such Acquisition Cost less any Unearned Rent; and
(ii) if the proceeds of sale are equal to or less than the
Acquisition Cost of the Property sold less any Unearned
Rent, Lessee shall pay to Brazos an amount equal to (A) such
Acquisition Cost less (B) the proceeds of such sale plus any
Unearned Rent.
For purposes of this SECTION 11.4, in connection with the sale of a Property
"PROCEEDS OF SALE" shall mean the aggregate proceeds from the sale of such
Property without reduction for any amounts paid by Lessee.
(b) All payments and credits referred to in PARAGRAPH (a) above shall
be made on the date of the sale of such Property, and the parties shall account
to each other for such payments and credits. In consideration for the receipt
GROUND LEASE AGREEMENT - Page 23
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by Brazos of the proceeds of sale and all other amounts then due and owing
hereunder, Brazos shall transfer title to such Property to the purchaser at the
sale designated by Lessee free of any Lien created by or under the Credit
Agreement or granted by Brazos contrary to the provisions of this Ground Lease,
pursuant to a special warranty deed. In the event of a sale pursuant to this
SECTION 11.4, neither Lessee nor any Affiliate of Lessee shall purchase the
Property. Any Property sold to a third party pursuant to this PARAGRAPH (b)
shall, unless SECTION 11.4 (a)(i) applies, be free of any Liens (exclusive of
any Lien granted by Brazos contrary to the provisions of this Ground Lease) at
the time of sale, including Liens which would otherwise be Permitted
Encumbrances if such Liens would reduce the value to the purchaser of such
Property; PROVIDED HOWEVER, Lessee shall have the option to obtain affirmative
title insurance, if available, to insure over such Lien or to make other
arrangements acceptable to such purchaser.
(c) If a Property and all Facilities thereon are sold to the same third
party, the proceeds of sale shall be allocated prorata between such Property and
Facility based on the Acquisition Cost of such Property and the Acquisition Cost
(as defined in the Facilities Lease) of such Facility.
Section XI.5. ADDITIONAL PAYMENTS. In connection with any purchase or
sale of a Property under this ARTICLE XI, on or before the date such purchase or
sale occurs, Lessee shall pay to Brazos, in addition to any purchase price
payable, all Basic Rent payable, any Additional Rent, all amounts owing under
SECTION 11.4, and other amounts owing hereunder to the date of such sale. In
the event a Property is the subject of an Acquired Ground Lease and this Ground
Lease is not being renewed or is being terminated as provided in this ARTICLE XI
with respect to such Property, the Lessee shall assume all of Brazos'
obligations under such Acquired Ground Lease as of the end of the term or the
date of termination of this Ground Lease with respect to such Property and this
Ground Lease shall terminate with respect to such Property.
Section XI.6. TERMINATION OF GROUND LEASE. Upon receipt by Brazos of the
purchase price payable in connection with any sale or purchase of any Property
under this ARTICLE XI, together with all additional payments required under
SECTION 11.5 with respect to such Property, this Ground Lease shall terminate
with respect to such Property.
Section XI.7. SURRENDER OF PROPERTY. Subject to the provisions of this
ARTICLE XI and ARTICLES XII, XIII, XIV and XV hereof, upon termination of the
lease of any Property hereunder, Lessee shall surrender such Property to Brazos.
GROUND LEASE AGREEMENT - Page 24
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ARTICLE XII
PROCEDURE UPON SALE
The following procedure shall apply to each sale of a Property to Lessee or
its designee:
(a) The closing of such sale and purchase shall occur on the date
specified in the written notice of one party to the other regarding
such sale, or on the next Business Day if the date designated in
such notice is not a Business Day.
(b) At such closing, Lessee or its designee shall pay to Brazos and the
Agent the Acquisition Cost and all other amounts then due and owing
hereunder with respect to the Purchased Property, less any Unearned
Rent with respect to the Purchased Property.
(c) At such closing, the Lessee or its designee shall assume all of
Brazos' obligations under any Acquired Ground Lease with respect to
such Purchased Property.
(d) At such closing, Brazos shall deliver or shall cause to be
delivered to Lessee or its designee the following:
(i) A Special Warranty Deed conveying to the Lessee or its
designee the applicable Purchased Property, free and clear
of any Liens arising under the Credit Agreement or created
by Brazos contrary to the provisions of this Ground Lease
and any other encumbrances other than Permitted
Encumbrances.
(iii) An assignment of warranties to Lessee or its designee
affecting all or any portion of the Purchased Property.
(iv) To the extent necessary to convey title in accordance with
CLAUSE (i) above, releases of all Liens (including
termination statements with respect to any UCC financing
statements) covering the Purchased Property, executed by the
holders of such Liens or their duly authorized agent.
ARTICLE XIII
EVENTS OF DEFAULT
Section XIII.1. EVENTS OF DEFAULT. Any of the following events of default
shall constitute an "EVENT OF DEFAULT" and shall give rise to the rights on the
part of Brazos described in SECTION 13.2 hereof:
(a) FAILURE TO MAKE PAYMENTS. Failure of Lessee to pay amounts due to
Brazos at the time of any scheduled sale of a Property hereunder, failure of
Lessee to pay Basic Rent for more than five (5) Business Days after such payment
is due pursuant to ARTICLE VI hereof or failure of Lessee to pay any other
amount payable by Lessee hereunder when due which failure continues for more
than ten (10) Business Days after written demand for such payment.
(b) FAILURE TO MAINTAIN INSURANCE. Subject to Lessee's rights to self
insure hereunder, failure of Lessee to maintain the insurance required by
ARTICLE IX hereof, or default in the performance of the covenant contained in
SECTION 9.4 hereof which failure or default continues for more than thirty (30)
days after any lapse of insurance or such default.
GROUND LEASE AGREEMENT - Page 25
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(c) OTHER DEFAULTS. Lessee shall default in the performance or
observance of any other term, covenant, condition or obligation contained in
this Ground Lease or any Consent and such default shall (i) continue for thirty
(30) days after written notice shall have been given to Lessee by Brazos or any
Assignee specifying such default and requiring such default to be remedied or
(ii) if such default is of a nature that it is not capable of being cured within
such 30-day period, Lessee shall not have diligently commenced curing such
default and proceeded diligently and in good faith thereafter to complete curing
such default.
(d) BANKRUPTCY. (i) The entry of a decree or order for relief in
respect of Lessee by a court having jurisdiction in the premises in an
involuntary case under the Federal bankruptcy laws, as now or hereafter
constituted, or any other applicable Federal or state bankruptcy, insolvency or
other similar law, or appointing a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or similar official) of Lessee or of any substantial part
of Lessee's property, or ordering the winding up or liquidation of Lessee's
affairs, and the continuance of any such decree or order unstayed and in effect
for a period of sixty (60) consecutive days; or (ii) the general suspension or
discontinuance of Lessee's business operations, its insolvency (however
evidenced) or its admission of insolvency or bankruptcy, or the commencement by
Lessee of a voluntary case under the Federal bankruptcy laws, as now or
hereafter constituted, or any other applicable Federal or state bankruptcy,
insolvency or other similar law, or the consent by it to the appointment of or
taking possession by a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or other similar official) of Lessee or of any substantial part of
its property, or the making by it of an assignment for the benefit of creditors,
or the failure of Lessee generally to pay its debts as such debts become due, or
the taking of corporate action by Lessee in furtherance of any such action.
(e) PAYMENT OF OBLIGATIONS. A default or event of default which
remains uncured for any applicable grace or curative period, the effect of which
is to permit the holder or holders of any Indebtedness of Lessee, or a trustee
or agent on behalf of such holder or holders, to cause such Indebtedness to
become due prior to its stated maturity shall occur under the provisions of any
instrument evidencing Indebtedness in excess of $20,000,000 of Lessee (or under
the provisions of any agreement pursuant to which such instrument was issued).
(f) MISREPRESENTATIONS. Any representation or warranty made by Lessee
in this Ground Lease or any Consent or which is contained in any certificate,
document or financial or other statement furnished under or in connection with
this Ground Lease proves to be false or misleading in any material respect when
made or deemed made and which has a Material Adverse Effect.
(g) DEFAULT UNDER LEASE DOCUMENTS. An Event of Default (as defined in
the Agreement for Ground Lease, Agreement for Facilities Lease or Facilities
Lease) shall occur under the Agreement for Ground Lease, Agreement for
Facilities Lease or Facilities Lease, respectively, and be continuing beyond any
applicable grace or curative period.
(h) OTHER AGREEMENTS. Lessee shall default in any material respect in
the performance or observance of any material term, covenant, condition or
obligation contained in any other material written agreement executed by Lessee
with or for the benefit of Brazos or Agent and such default shall not have been
cured within any applicable grace or cure period and which would reasonably be
expected to have a Material Adverse Lease Document Effect.
(i) UNAUTHORIZED ASSIGNMENT. Any assignment by Lessee of any interest
in this Ground Lease other than in accordance with the terms of this Ground
Lease.
(j) DEFAULT UNDER THE GUARANTY. An "Event of Default" (as defined in
the Guaranty) under the Guaranty shall occur and be continuing beyond any
applicable grace or curative period.
(l) DEFAULT UNDER CORPORATE CREDIT DOCUMENTS. The occurrence of any
breach, failure of performance, default, event of default or terminating event
with regard to either Lessee or Guarantor under any of the Corporate Credit
Documents, which remains uncured beyond any applicable grace or cure period, the
effect of which is to permit the holders of any Indebtedness thereunder, or an
agent on behalf of such holder or holders, to cause the Indebtedness evidenced
by the Corporate Credit Documents to become due prior to its stated maturity.
GROUND LEASE AGREEMENT - Page 26
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Section XIII.2. RIGHTS UPON DEFAULT. Upon the occurrence and continuation
of any Event of Default Brazos or any Assignee may in its discretion declare
this Ground Lease to be in default and may, in its discretion, do any one or
more of the following:
(a) Prior to the exercise of any other remedy, terminate this Ground
Lease as of any date, in which event, Lessee shall have the right and shall be
required as to all Property other than Property which is the subject of an
Acquired Ground Lease, to purchase all of the Property at a price equal to the
Acquisition Cost of such Property and as to all Property which is the subject
of an Acquired Ground Lease, assume all obligations of Brazos under such
Acquired Ground Lease. In connection with any such purchase under this SECTION
13.2, on the Basic Rent Payment Date or other date upon which such purchase
shall occur, Lessee shall pay to Brazos, in addition to such Acquisition Cost,
all Basic Rent payable and any Additional Rent and other amount owing hereunder
with respect to such Property up to the date of such sale, and reasonable
attorneys' fees and expenses and other costs incurred by Brazos by reason of
such Event of Default and exercise of Brazos' rights under this SECTION 13.2.
Any Unearned Rent shall be credited against Lessee's payment obligations under
the foregoing sentences and the balance, if any, shall be refunded to Lessee.
Upon payment of the amount set forth in the foregoing sentences, Brazos shall
transfer all Property to Lessee free of any Lien created pursuant to the Credit
Agreement, and this Ground Lease shall terminate without further obligation or
liability of Brazos or Lessee except where such liability is expressly provided
to survive the termination of this Ground Lease; PROVIDED, HOWEVER, in no event
shall Lessee be liable for any further damages arising out of the occurrence of
such Event of Default.
(b) If and only if Lessee fails to pay the amounts set forth in
subparagraph (a) above, Brazos or any Assignee may, in its discretion, do any
one or more of the following:
(1) Sell any Property or Brazos' interest in any Acquired Ground
Lease (with or without the concurrence or request of Lessee);
(2) Hold, use, occupy, lease or keep idle any or all Property as
Brazos in its sole discretion may determine, without any duty to
account to Lessee with respect to any such action or inaction or
for any proceeds thereof;
(3) Exercise any other right or remedy which may be available
under applicable law and in general proceed by appropriate judicial
proceedings, either at law or in equity, to enforce the terms
hereof or to recover damages for the breach hereof; and
(4) Declare an Event of Property Termination as to any or all
Properties leased hereunder.
Suit or suits for the recovery of any default in the payment of any sum due
hereunder may be brought by Brazos from time to time at Brazos' election, and
nothing herein contained shall be deemed to require Brazos to await the date
whereon this Ground Lease or the term hereof would have expired by limitation
had there been no such default by Lessee or no such termination or cancellation.
The receipt of any payments under this Ground Lease by Brazos with
knowledge of any breach of this Ground Lease by Lessee or of any default by
Lessee in the performance of any of the terms, covenants or conditions of this
Ground Lease, shall not be deemed to be a waiver of any provision of this Ground
Lease.
No receipt of moneys by Brazos from Lessee after the termination or
cancellation hereof in any lawful manner shall reinstate, continue or extend the
Lease Term or any Renewal Term, or affect any notice theretofore given to
Lessee, or operate as a waiver of the right of Brazos to enforce the payment of
Basic Rent or Additional Rent or other charges payable hereunder, or operate as
a waiver of the right of Brazos to recover possession of any Property by proper
suit, action, proceedings or remedy; it being agreed that, after the service of
notice to terminate or cancel this Ground Lease, and the expiration of the time
therein specified, if the default has not been cured in the meantime, or after
the commencement of suit, action or summary proceedings or of any other remedy,
or after a final order, warrant or judgment for the possession of the Property,
Brazos may demand, receive and collect any moneys payable hereunder, without in
any manner affecting such notice, proceedings, suit, action, order, warrant or
judgment; and any and all such
GROUND LEASE AGREEMENT - Page 27
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moneys so collected shall be deemed to be payments on account for the use,
operation and occupation of the Property, or at the election of Brazos, on
account of Lessee's liability hereunder. Acceptance of the keys to any
Property, or any similar act, by Brazos, or any agent or employee, during the
term hereof, shall not be deemed to be an acceptance of a surrender of any
Property unless Brazos shall consent thereto in writing.
If, after an Event of Default shall have occurred, Lessee fails to
surrender promptly after written request by Brazos or converts or destroys any
Property, Lessee shall be liable to Brazos for all Basic Rent and Additional
Rent then due and payable with respect to such Property, all other amounts
payable under this Ground Lease, the Acquisition Cost of such Property as of the
date of such request, conversion or destruction and all losses, damages and
expenses (including, without limitation, attorneys' fees and expenses) sustained
by Brazos by reason of such Event of Default and the exercise of Brazos'
remedies with respect thereto.
If, after an Event of Default Brazos repossesses any Property,
notwithstanding any termination of this Ground Lease, Lessee shall be liable for
and Brazos may recover from Lessee all Basic Rent accrued and any Additional
Rent owing with respect to such Property to the date of such repossession, all
other amounts payable under this Ground Lease, and all losses, damages and
expenses (including, without limitation, reasonable attorneys' fees and
expenses) sustained by Brazos by reason of such Event of Default and the
exercise of Brazos' remedies with respect thereto. In addition, Brazos may sell
Brazos' interest in any Property upon any terms that Brazos deems satisfactory,
free of any rights of Lessee or any person claiming through or under Lessee. In
the event of such sale, in addition to the amounts payable under the first
sentence of this paragraph, Brazos shall be entitled to recover from Lessee, as
liquidated damages, and not as a penalty, an amount equal to the Acquisition
Cost of any Property so sold, minus the sum of any Unearned Rent plus the net
proceeds of such sale (deducting from such Unearned Rent and the gross proceeds
of such sale any reasonable legal expenses, commissions, sales taxes or other
costs or expenses associated with such sale) received by Brazos; PROVIDED,
HOWEVER, if the proceeds of such sale plus any Unearned Rent are in excess of
the amount payable to Brazos pursuant hereto, such excess shall be the property
of Lessee.
Subject to the availability of such remedy under applicable law and subject
to the provisions of Section 13.2(a) above, Brazos may (i) sell all or any part
of the Property at public or private sale, as Brazos may determine, free and
clear of any rights of the Lessee and without any duty to account to the Lessee
with respect to such action or inaction or any proceeds with respect thereto
(except to the extent required by clause (ii) below if Brazos shall elect to
exercise its rights thereunder) in which event the Lessee's obligation to pay
Basic Rent hereunder for periods commencing after the date of such sale shall be
terminated or proportionately reduced, as the case may be; and (ii) if Brazos
shall so elect, demand that the Lessee pay to Brazos, and the Lessee shall pay
to Brazos, on the date of such sale, as liquidated damages for loss of a bargain
and not as a penalty (the parties agreeing that Brazos' actual damages would be
difficult to predict, but the aforementioned liquidated damages represent a
reasonable approximation of such amount) (in lieu of Basic Rent due for periods
commencing on or after the Basic Rent Payment Date coinciding with such date of
sale (or, if the sale date is not a Basic Rent Payment Date, the Basic Rent
Payment Date next preceding the date of such sale)), an amount equal to (A) the
excess, if any, of (1) the Acquisition Cost calculated as of such Basic Rent
Payment Date (including all Rent due and unpaid to and including such Basic Rent
Payment Date), over (2) the net proceeds of such sale, if any (that is, after
deducting all costs and expenses incurred by Brazos, the Agent and Assignees
incident to such conveyance, including, without limitation, repossession costs,
brokerage commissions, prorations, transfer taxes, fees and expenses for
counsel, title insurance fees, survey costs, recording fees, and any repair or
alteration costs); plus (B) any and all additional damages, costs and expense of
Brazos, the Agent and Assignees under the Ground Lease; plus (C) interest at the
overde rate specified in SECTION 6.3 hereof on the foregoing amount from such
Basic Rent Payment Date until the date of payment.
Brazos may exercise any other right or remedy that may be available to it
under applicable law, or proceed by appropriate court action (legal or
equitable) to enforce the terms hereof or to recover damages for the breach
hereof. Separate suits may be brought to collect any such damages for any
period(s), and such suits shall not in any manner prejudice the right of Brazos,
the Agent and Assignees to collect any such damages for any subsequent
period(s), or Brazos may defer any such suit until after the expiration of the
Lease Term, in which event such suit shall be deemed not to have accrued until
the expiration of the Lease Term.
In the event that a court of competent jurisdiction rules that this Ground
Lease constitutes a mortgage, deed of trust or other secured financing as is the
intent of the parties pursuant to SECTION 3.3, and subject to the availability
of such remedy under applicable law, then Brazos and the Lessee agree that the
Lessee hereby grants, bargains, sells,
GROUND LEASE AGREEMENT - Page 28
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transfers, assigns and conveys unto the trustee named as such in the Lien
granted by Brazos to Agent, as trustee and herein referred to as "trustee",
and his successors (Brazos hereby reserving the right to from time to time,
with or without cause and at Lessor's sole discretion, by instrument in
writing, substitute a successor or successors to trustee, which instrument,
executed by Brazos duly acknowledged and recorded in the office of the
recorder of the county or counties where the Property is situated, shall be
conclusive proof of proper substitution of such successor, who shall,
without conveyance from trustee or any successor trustee to trustee, succeed
to all his title, estate, rights, powers and duties), in trust a lien and
security interest against all of Lessee's interest in and to the Property, to
have and to hold the Property, together with all and singularly the rights,
hereditaments, and appurtenances in any way appertaining or belonging
thereto, unto such trustee and such trustee's successor or substitute in such
trust, and such trustee's and its or his successors and assigns, in trust,
and that, upon the occurrence of any Event of Default such trustee, at the
direction of Brazos, may proceed with foreclosure, and in such event such
trustee, at the direction of Brazos, is hereby authorized and empowered, and
it shall be such trustee's special duty, upon such request of Brazos, acting
upon a request from the Agent or Assignees, to sell the Property, or any part
thereof, to the highest bidder or bidders for cash or credit, as directed by
Brazos, acting upon a request from the Agent or Assignees, at the location at
the county courthouse specified by the commissioner's court in the county in
the state wherein the Property then subject to the lien hereof is situated
or, if no such location is specified by the commissioner's court, then at the
location specified in such trustee's notice of such sale to the Lessee;
PROVIDED, that if the Property is situated in more than one county, then such
sale of the Property, or part thereof, may be made in any county in the state
wherein any part of the Property then subject to the lien hereof is situated.
Any such sale shall be made at public outcry between the hours of ten
o'clock (10:00) A.M. and four o'clock (4:00) P.M. on the first (1st) Tuesday
in any month. Written or printed notice of such sale shall be posted at the
courthouse door in the county, or if more than one, then in each of the
counties, wherein the Property then subject to the lien hereof is situated.
Such notice shall designate the county where the Property, or part thereof,
will be sold and the earliest time at which the sale will occur, and such
notice shall be posted at least twenty-one (21) days prior to the date of
sale. Such notice shall also be filed with the county clerk in the county,
or if more than one, then in each of the counties wherein the Property is
located. Trustee shall, at least twenty-one (21) days preceding the date of
sale, serve written notice of the proposed sale by certified mail on each
debtor obligated to pay the Acquisition Cost and other obligations secured
hereby according to the records of the Agent and Assignees. After such sale,
Brazos shall make to the purchaser or purchasers thereunder good and
sufficient assignments, deed, bills of sale, and other instruments, in the
name of Brazos, conveying the Property, or part thereof, so sold to the
purchaser or purchasers with general warranty of title by Brazos. Any
proceeds of any such sale shall be applied in accordance with applicable law.
The sale of a part of the Property shall not exhaust the power of sale, but
sales may be made from time to time until the Acquisition Cost and other
obligations secured hereby are paid and performed in full. It shall not be
necessary to have present or to exhibit at any such sale any of the personal
property. Upon the occurrence of a Lease Event of Default, Brazos, in lieu
of or in addition to exercising any power of sale hereinabove given, may
proceed by a suit or suits in equity or at law, whether for a foreclosure
hereunder, or for the sale of the Property, or against the Lessee on a
recourse basis for the Acquisition Cost, or the specific performance of any
covenant or agreement herein contained or in aid of the execution of any
power herein granted, or for the appointment of a receiver pending any
foreclosure hereunder or the sale of the Property, or for the enforcement of
any other appropriate legal or equitable remedy.
No remedy referred to in this SECTION 13.2 is intended to be exclusive,
but, subject to the provisions of Section 13.2(a) above, each shall be
cumulative and in addition to any other remedy referred to above or otherwise
available to Brazos at law or in equity, and the exercise in whole or in part by
Brazos of any one or more of such remedies shall not preclude the simultaneous
or later exercise by Brazos of any or all such other remedies, subject to the
provisions of Section 13.2(a) above. No waiver by Brazos of any Event of
Default hereunder shall in any way be, or be construed to be, a waiver of any
future or subsequent Event of Default.
With respect to the termination of this Ground Lease as to any Property as
a result of an Event of Default, Lessee hereby waives service of any notice of
intention to re-enter. Lessee hereby waives any and all rights to recover or
regain possession of any Property or to reinstate this Ground Lease as permitted
or provided by or under any statute, law or decision now or hereafter in force
and effect.
Section XIII.3. EVENTS OF PROPERTY TERMINATION. The occurrence of any of
the following shall constitute an Event of Property Termination with respect to
a Property:
GROUND LEASE AGREEMENT - Page 29
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(a) UNSATISFACTORY TITLE. If at any time title to any Property
is not satisfactory to Brazos or Agent by reason of any Lien or other
defect not disclosed in writing or contained in the Title Policy for such
Property at the time of any advance (even though the same may have existed
at the time of any such advance), except the Permitted Encumbrances, and
such Lien, encumbrance or other defect would, in the reasonable judgment of
Lessee, have a material adverse effect on the Value or usefulness of the
Property and is not corrected to the satisfaction of Brazos and Agent
within one hundred eighty (180) days after written notice to Lessee unless
such defect would, in the reasonable judgment of Lessee, cause a loss or
forfeiture of title to a Property or the loss of priority of any Lien for
the benefit of Agent, in which case such defect shall be cured immediately
and prior to any such loss of title or priority.
(b) NON-COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS. If Lessee
fails to comply with any requirement of any Governmental Authority with
respect to such Property and such non-compliance results, in the reasonable
judgment of Lessee, in a material adverse affect on the Value of the
Property or to contest such requirement by means of a Permitted Contest
under ARTICLE XVII (i) within thirty (30) days after notice in writing of
such requirement shall have been given to Lessee by such Governmental
Authority or by Brazos or Assignee, or (ii) if such requirement is of a
nature that it cannot be completely complied with within such 30-day
period, if Lessee shall fail after such notice either diligently to
commence complying with such requirement or to proceed thereafter with
reasonable diligence and in good faith to comply with such requirement;
PROVIDED, HOWEVER, that Lessee shall in any event comply with such
requirement prior to the date on which such Property may be seized or sold
as a result of such non-compliance.
(c) DEFAULT UNDER ACQUIRED GROUND LEASE. Lessee shall default
after the expiration of all applicable cure periods under an Acquired
Ground Lease or as may be allowed under local Law in the observance or
performance of any term, covenant or condition of the Acquired Ground Lease
relating to such Property on the part of Brazos, as tenant thereunder, to
be observed or performed, unless any such observance or performance shall
have been waived or not required by the landlord under the Acquired Ground
Lease, or if any one or more of the events referred to in the Acquired
Ground Lease shall occur which would cause the Acquired Ground Lease to
terminate without notice or action by the landlord thereunder or which
would entitle the landlord under the Acquired Ground Lease to terminate the
Acquired Ground Lease and the term thereof by the giving of notice to
Brazos, as tenant thereunder, or if the Acquired Ground Lease shall be
terminated or canceled for any reason or under any circumstance whatsoever,
or if any of the terms, covenants or conditions of the Acquired Ground
Lease shall in any manner be modified, changed, supplemented, altered or
amended in any respect without the consent of Brazos.
Section XIII.4. BRAZOS' RIGHT UPON EVENT OF PROPERTY TERMINATION. If any
Event of Property Termination with respect to a Property shall occur, Brazos
may, with Agent's approval, as liquidated damages and not as a penalty, require
Lessee to purchase such Property on the next Basic Rent Payment Date or on any
other date agreed upon by Brazos and Lessee at a price equal to the Acquisition
Cost for such Property (less any Unearned Rent) by giving written notice of such
required purchase or require Lessee to assume all obligations of Brazos under an
Acquired Ground Lease by giving written notice of such required assumption. Any
such notice shall be given no less than thirty (30) days in advance of the
required purchase date. In connection with any such purchase under this SECTION
13.4, on the Basic Rent Payment Date or any other date upon which such purchase
shall occur, Lessee shall pay to Brazos, in addition to such Acquisition Cost
payable, all Basic Rent payable and any Additional Rent and other amounts owing
hereunder with respect to such Property up to the date of sale. At the time of
such sale, Lessee shall be required to pay to Brazos the obligations, costs,
losses, damages, and expenses (including, without limitation, reasonable
attorneys' fees and expenses) sustained by Brazos by reason of such Event of
Property Termination and exercise of Brazos' rights under this SECTION 13.4.
Upon payment in full of all such amounts, Brazos shall transfer all of Brazos'
right, title and interest in and to the Property to Lessee free and clear of any
Lien created pursuant to the Credit Agreement.
ARTICLE XIV
LOSS OF OR DAMAGE TO PROPERTY
Section XIV.1. LESSEE'S RISK. Lessee hereby assumes all risk of loss of
or damage to Property, however caused. No loss of or damage to any Property
shall impair any obligation of Lessee under this Ground Lease, which
GROUND LEASE AGREEMENT - Page 30
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shall continue in full force and effect with respect to any lost or damaged
Property. Notwithstanding anything to the contrary contained in this
Facilities Lease, Lessee does not assume the risk of loss or damage to
Properties caused by the gross negligence or willful misconduct of Brazos or
any Assignee.
Section XIV.2. REPAIR. In the event of damage of any kind whatsoever to
any Property (unless the same is determined by Lessee to be damaged beyond
repair as provided in SECTION 14.3 hereof) Lessee, at its own cost and expense,
but subject to the provisions of SECTION 9.4 hereof, shall place the same in
good operating order, repair, condition and appearance.
Section XIV.3. PROPERTY DAMAGED BEYOND REPAIR. If more than fifty percent
(50%) of a Property is unusable for sixty (60) days or more, or if the cost of
repair exceeds fifty percent (50%) of the Acquisition Cost, or if any Property
is seized, confiscated, rendered unfit for use or if any improvements thereon
are destroyed or damaged beyond repair (in the reasonable judgment of Lessee),
or if the use of the Property by Lessee or the use of any improvement by the
party entitled thereto in the ordinary course of business is prevented by the
act of any third person or persons or governmental instrumentality for a period
exceeding ninety (90) days (other than an act which is a Taking which is
substantial as described in SECTION 15.1 of this Ground Lease), or if the
Acquired Ground Lease applicable to such Property is terminated due to casualty,
or if such Property is attached (other than on a claim against Brazos as to
which Lessee is not obligated to indemnify Brazos) and the attachment is not
removed within ninety (90) days, or if a Taking which is substantial as
described in SECTION 15.1 shall occur, then in any such event, (i) Lessee shall
promptly notify Brazos and Assignee in writing of such event, (ii) on the Basic
Rent Payment Date following such event, unless such Basic Rent Payment Date
occurs within thirty (30) days of such event, in which case on the next Basic
Rent Payment Date or other date agreed to by Brazos and Lessee, Lessee shall pay
to Brazos an amount equal to the Acquisition Cost of such Property (after
deducting any Unearned Rent and any insurance proceeds received by Brazos in
respect of such event or the net amount after Brazos' expenses of proceeds to
Brazos from any award or sale made in connection with a Taking); PROVIDED that
insurance or net Taking proceeds, if any, received by Brazos in excess of the
Acquisition Cost of the affected Property (less any Unearned Rent) shall be paid
by Brazos to Lessee, (iii) the Lease Term or Renewal Term of such Property shall
continue until the date on which Brazos receives payment from Lessee of the
amount payable pursuant to this SECTION 14.3 and the Basic Rent and any
Additional Rent and other amounts then owing hereunder with respect to the
affected Property, and shall thereupon terminate with respect to the affected
Property and (iv) Brazos shall on such Basic Rent Payment Date or such other
date transfer title to such Property to Lessee free of any Lien created pursuant
to the Credit Agreement or created by Brazos contrary to the provisions of this
Ground Lease, and Lessee shall be subrogated to Brazos' rights in the affected
transaction. Notwithstanding the foregoing, if more than fifty percent (50%) of
a Property is unusable for sixty (60) days or more, or if the cost of repair
exceeds fifty percent (50%) of the Acquisition Cost, or if the use of any
Property by Lessee in the ordinary course of business is prevented by the act of
any third person or persons or governmental instrumentality for a period
exceeding ninety (90) days, and Lessee gives notice to Brazos agreeing that this
Lease shall remain in effect with respect to the affected Property
notwithstanding such conditions, and agrees to repair and restore the affected
Property to a good operating order, repair, condition and appearance, the
provisions of this SECTION 14.3 shall not apply.
ARTICLE XV
CONDEMNATION OF PROPERTY
Section XV.1. TAKING OF SUBSTANTIALLY ALL OF A PROPERTY. If Lessee or
Brazos shall receive notice that the use, occupancy or title to all or
substantially all of a Property is to be taken, requisitioned or sold in, by or
on account of eminent domain proceedings or other action by any person or
authority having the power of eminent domain (such events collectively referred
to as a "TAKING"), and such Taking is substantial, then the Lease Term or
Renewal Term shall terminate as provided in SECTION 14.3. A Taking shall be
deemed substantial if the remainder of the Property is unusable for Lessee's
ordinary business purposes or the Acquired Ground Lease applicable to such
Property is terminated as a result of such Taking.
Section XV.2. TAKING OF LESS THAN SUBSTANTIALLY ALL OF A PROPERTY. If
less than substantially all of a Property is subject to a Taking, then this
Ground Lease shall continue in effect as to the portion of the Property not
taken and Lessee, at its own cost and expense, but subject to the provisions of
SECTION 9.4 hereof, shall place the same in good operating order, repair,
condition and appearance. Brazos and Lessee each hereby waives any statutory or
common law
GROUND LEASE AGREEMENT - Page 31
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right allowing either of them to petition any court to terminate this Ground
Lease in the event of a Taking of less than substantially all of the Property.
Section XV.3. GRANT OF EASEMENTS. So long as no Event of Default or Event
of Property Termination hereunder has occurred and is continuing beyond any
applicable grace or curative period, Lessee shall have the right (i) to grant
easements and dedications for the benefit of any Property or which, in the
reasonable judgment of Lessee, are deemed necessary for Lessee's use of the
Property; (ii) voluntarily to dedicate or convey, as required, portions of any
Property for road, highway and other public purposes as required in the good
faith judgment of Lessee in order to obtain or maintain the use of all or part
of a Property for the purposes intended by Lessee; and (iii) voluntarily to
execute petitions to have any Property or a portion thereof annexed to any
municipality or included within any utility, highway or other improvement or
service district. If Lessee receives any monetary consideration for such
easement or dedication, Lessee shall be entitled to retain such consideration,
subject to applying same to any restoration costs. Lessee shall have the right
and the power to exercise the above power to grant without the joinder of
Brazos, except that Brazos will cooperate, at Lessee's expense, as necessary and
join in the execution of any appropriate instrument. As a condition precedent
to Lessee's exercise of any of Lessee's powers under this Article, Lessee shall
give Brazos ten (10) days' prior written notice of the proposed action. Upon
the giving of such notice, Lessee shall be deemed to have certified that such
action will not adversely affect either the market value of such Property or the
use of such Property for its intended purpose, will not affect Brazos' or any
Assignee's ability to exercise its rights and remedies under this Ground Lease
and that Lessee undertakes to remain obligated under this Ground Lease to the
same extent as if Lessee had not exercised its powers under this Article and
Lessee will perform all obligations under such instrument and shall prepare all
required documents and provide all other instruments and certficates as Brazos
may reasonably request.
ARTICLE XVI
LEASEHOLD INTERESTS
The following provisions relate to each lease (an "ACQUIRED GROUND LEASE")
under which a leasehold interest in a Property is being subleased to Lessee
hereunder:
(a) This Ground Lease is subject and subordinate to all of the terms,
covenants, provisions, conditions and agreements contained in each Acquired
Ground Lease and the matters to which the Acquired Ground Lease is subject and
subordinate.
(b) Lessee hereunder covenants and agrees to perform and to observe all
of the terms, covenants, provisions, conditions and agreements of the underlying
Acquired Ground Lease on Brazos' part as lessee thereunder to be performed and
observed including, without limitation, payment of all rent, additional rent and
other amounts payable by Brazos as lessee under the Acquired Ground Lease, to
the end that all things shall be done which are necessary to keep unimpaired the
rights of Brazos as lessee under the Acquired Ground Lease. Each of the parties
hereto agree to promptly provide the other with copies of any notices or other
information received in writing from any landlord under an Acquired Ground
Lease.
(c) Lessee covenants and agrees that it will not do or cause to be done
or suffer or permit any act or thing to be done which would or might cause such
Acquired Ground Lease or the rights of Brazos as lessee thereunder to be
canceled, terminated or forfeited or which would make Lessee or Brazos liable
for any losses, costs, liabilities, damages, claims, penalties or other
expenses. Brazos covenants and agrees, subject to any limitations on its rights
and obligations hereunder, that it will not do or cause to be done or knowingly
suffer or knowingly permit any act or thing to be done without notice to Lessee
which would or might cause such Acquired Ground Lease or the rights of Brazos as
lessee thereunder to be canceled, terminated or forfeited or which would make
Lessee or Brazos liable for any losses, costs, liabilities, damages, claims,
penalties or other expenses.
(d) Lessee covenants and agrees pursuant to ARTICLE X hereof to
indemnify and hold harmless Brazos and any Assignee from and against any and all
liability, loss, damage, suits, penalties, claims and demands of every kind and
nature (including, without limitation, reasonable attorneys' fees and expenses)
by reason of Lessee's failure to comply with any Acquired Ground Lease or the
provisions of this ARTICLE XVI.
GROUND LEASE AGREEMENT - Page 32
<PAGE>
(e) Brazos and Lessee agree that any services which are required to be
provided or repairs or restorations which are required to be made in accordance
with the provisions of such Acquired Ground Lease by the lessor thereunder will
be provided and made by such lessor, and Brazos shall have no obligation to
provide any such services or to make any such repairs or restorations. Brazos
shall in no event be liable to Lessee nor shall the obligations of Lessee
hereunder be impaired or the performance thereof excused because of any failure
or delay on the part of the lessor under the Acquired Ground Lease in providing
such services or making such restorations or repairs and such failure or delay
shall not constitute a basis for any claim against Brazos or any offset against
any amount payable to Brazos under this Ground Lease.
(f) If Brazos' interest under any Acquired Ground Lease shall expire,
terminate or otherwise be extinguished, the Ground Lease of the Property to
which such Acquired Ground Lease relates shall thereupon terminate as provided
in this paragraph. Upon such expiration, termination or extinguishment (i) on
the Basic Rent Payment Date next succeeding such event, Lessee shall pay to
Brazos an amount equal to the Acquisition Cost of such Property less any
Unearned Rent and (ii) the Lease Term or Renewal Term of such Property shall
continue until the date on which Brazos receives payment from Lessee of the
amount payable pursuant to this paragraph (f) and of all Basic Rent payable and
any Additional Rent and other amounts owing hereunder, and shall then terminate
upon the payment of such amounts and Brazos shall assign to Lessee the rights,
if any, of Brazos under such Acquired Ground Lease.
(g) The aggregate of the Acquisition Costs attributable to Properties
covered by an Acquired Ground Lease and with respect to which a leasehold
interest in such Property is being subleased to Lessee hereunder and the
Acquisition Costs (as defined in the Facilities Lease) attributable to
Facilities covered by an Acquired Facilities Lease (as defined in the Facilities
Lease) and with respect to which a leasehold interest in such Facility is being
subleased to Lessee hereunder (including any Acquisition Costs reasonably
expected to be advanced to cause the completion of such Facilities) shall not,
unless the Agent and the Majority Banks shall otherwise consent in writing,
exceed fifteen percent (15%) of the then current aggregate Acquisition Costs for
all Properties and Acquisition Costs (as defined in the Facilities Lease) for
all Facilities (including any Acquisition Costs reasonably expected to be
advanced to cause the completion of any Facilities).
GROUND LEASE AGREEMENT - Page 33
<PAGE>
ARTICLE XVII
PERMITTED CONTESTS
(a) Lessee shall not be required, nor shall Brazos have the right, to
pay, discharge or remove any tax, assessment, levy, fee, rent, charge, Lien or
encumbrance, or to comply or cause any Property to comply with any Legal
Requirements applicable to any Property or the occupancy, use or operation
thereof, so long as no Event of Default or Event of Property Termination exists
(and continues beyond any applicable grace or curative period) under this Ground
Lease with respect to any Property, and, in the opinion of Lessee's counsel,
Lessee shall have reasonable grounds to contest, and shall be diligently
contesting, the existence, amount, applicability or validity thereof by
appropriate proceedings, which proceedings (i) would not, in the reasonable
judgment of Lessee, subject any Property or any Basic Rent or any Additional
Rent to sale, forfeiture or loss, as a result of failure to comply therewith,
(ii) shall not affect the payment of any Basic Rent or any Additional Rent or
other sums due and payable hereunder, (iii) unless any criminal liability could
result from a failure to comply therewith, would not cause either Brazos or any
Assignee to incur civil liability which, in the sole judgment of Brazos or any
Assignee, is not adequately indemnified (Lessee's obligations under ARTICLE X of
this Ground Lease shall be deemed to be adequate indemnification if no Event of
Default, Event of Property Termination, Potential Default or Potential Property
Termination exists, and continues beyond any applicable grace or curative
period, and if such civil liability is reasonably likely to be less than
$1,000,000 per Property and $2,000,000 in the aggregate for all Properties),
(iv) shall be permitted under the provisions of the Acquired Ground Lease, if
any, on such Property, (v) if involving taxes, shall suspend the collection of
such taxes, and (vi) shall be permitted under and be conducted in accordance
with the provisions of any other instrument to which Lessee or the Property is
subject and shall not constitute a default thereunder. Lessee shall conduct all
such contests in good faith and with due diligence and shall promptly after the
final determination (including appeals) of such contest, pay and discharge all
amounts which shall be determined to be payable therein. Notwithstanding
anything in this paragraph (a) to the contrary, Lessee shall not be obligated to
actively contest any mechanics' or materialmens' Lien or claim which does not
exceed $500,000; PROVIDED that the failure to so contest does not violate
clauses (i)-(iv) or (vi) above; PROVIDED FURTHER, that such Lien is junior to
any Lien of an Assignee on such Property, and PROVIDED FURTHER, that Lessee
shall in any event diligently contest and defend against the enforcement of any
such Lien or claim in good faith and with due diligence and shall promptly,
after the final determination (including appeals of such contest), pay and
discharge all amounts which shall be determined to be payable therein.
(b) At least ten (10) days prior to the commencement thereof, Lessee
shall notify Brazos and Agent in writing of any such proceeding in which the
amount in contest exceeds $500,000, and shall describe such proceeding in
reasonable detail. If a taxing authority or subdivision thereof proposes an
additional assessment or levy of any tax for which Lessee is obligated to
reimburse Brazos under this Ground Lease, or if Brazos is notified of the
commencement of an audit or similar proceeding which could result in such an
additional assessment, then Brazos shall in a timely manner notify Lessee in
writing of such proposed levy or proceeding.
ARTICLE XVIII
MISCELLANEOUS
Section XVIII.1. SURVIVAL. All agreements, indemnities, representations
and warranties, and the obligation to pay Additional Rent contained in this
Ground Lease shall survive the expiration or other termination hereof.
Section XVIII.2. ENTIRE AGREEMENT. This Ground Lease and the Property
Leasing Records covering Property leased pursuant hereto and the instruments,
documents or agreements referred to herein constitute the entire agreement
between the parties and no representations, warranties, promises, guarantees or
agreements, oral or written, express or implied, have been made by any party
hereto with respect to this Ground Lease or the Property, except as provided
herein or therein.
Section XVIII.3. MODIFICATIONS. This Ground Lease may not be amended,
modified or terminated, nor may any obligation hereunder be waived orally, and
no such amendment, modification, termination or waiver shall be effective for
any purpose unless it is in writing and is signed by the party against whom
enforcement thereof is sought. A waiver on one occasion shall not be construed
to be a waiver with respect to any other occasion.
GROUND LEASE AGREEMENT - Page 34
<PAGE>
Section XVIII.4. GOVERNING LAW. THIS GROUND LEASE SHALL WITH RESPECT TO
EACH PROPERTY IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAWS OF THE STATE IN WHICH SUCH PROPERTY IS LOCATED,
INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE. ANY PROVISION
OF THIS GROUND LEASE WHICH IS PROHIBITED BY LAW OR UNENFORCEABLE IN ANY
JURISDICTION SHALL, AS TO SUCH JURISDICTION, BE INEFFECTIVE TO THE EXTENT OF
SUCH PROHIBITION OR UNENFORCEABILITY WITHOUT INVALIDATING THE REMAINING
PROVISIONS HEREOF, AND THE PARTIES HERETO SHALL NEGOTIATE IN GOOD FAITH
APPROPRIATE MODIFICATIONS TO REFLECT SUCH CHANGES AS MAY BE REQUIRED BY LAW,
AND, AS NEARLY AS POSSIBLE, TO PRODUCE THE SAME ECONOMIC EFFECTS AS THE
PROVISION WHICH IS PROHIBITED OR UNENFORCEABLE; AND ANY SUCH PROHIBITION OR
UNENFORCEABILITY IN ANY JURISDICTION SHALL NOT INVALIDATE OR RENDER
UNENFORCEABLE SUCH PROVISION IN ANY OTHER JURISDICTION. TO THE EXTENT PERMITTED
BY APPLICABLE LAW, LESSEE AND BRAZOS HEREBY WAIVE ANY PROVISION OF LAW WHICH
RENDERS ANY PROVISION HEREOF PROHIBITED OR UNENFORCEABLE IN ANY RESPECT.
Section XVIII.5. NO OFFSETS. The obligations of Lessee to pay all amounts
payable pursuant to this Ground Lease (including specifically and without
limitation amounts payable due under ARTICLES VI and X hereof) shall be absolute
and unconditional under any and all circumstances of any character, and such
amounts shall be paid without notice, demand, defense, setoff, deduction or
counterclaim and without abatement, suspension, deferment, diminution or
reduction of any kind whatsoever, except as herein expressly otherwise provided.
The obligation of Lessee to lease and pay Basic Rent, Additional Rent or any
other amounts for any and all Property is without any warranty or
representation, express or implied, as to any matter whatsoever on the part of
Brazos or any Assignee or any Affiliate of either, or anyone acting on behalf of
any of them.
NEITHER BRAZOS NOR ANY ASSIGNEE NOR ANY AFFILIATE OF EITHER, NOR ANYONE
ACTING ON BEHALF OF ANY OF THEM, MAKES ANY REPRESENTATION OR WARRANTY OF ANY
KIND WHATSOEVER, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION, AS TO THE
SAFETY, TITLE, CONDITION, QUALITY, QUANTITY, FITNESS FOR USE, MERCHANTABILITY,
CONFORMITY TO SPECIFICATION, ENVIRONMENTAL CONDITION (INCLUDING THE PRESENCE OR
ABSENCE OF HAZARDOUS MATERIALS), OR ANY OTHER CHARACTERISTIC, OF ANY PROPERTY,
OR AS TO WHETHER ANY PROPERTY OR THE OWNERSHIP, USE, OCCUPANCY OR POSSESSION
THEREOF COMPLIES WITH ANY LAWS, RULES, REGULATIONS OR REQUIREMENTS OF ANY KIND.
EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, AS BETWEEN BRAZOS AND
LESSEE, ANY ASSIGNEE OR ANY INDEMNIFIED PERSON, AND TO THE EXTENT ALLOWED BY
LAW, LESSEE ASSUMES ALL RISKS AND WAIVES ANY AND ALL DEFENSES, SET-OFFS,
DEDUCTIONS, COUNTERCLAIMS (OR OTHER RIGHTS), EXISTING OR FUTURE, TO ITS
OBLIGATION TO PAY BASIC RENT, ADDITIONAL RENT AND ALL OTHER AMOUNTS PAYABLE
HEREUNDER, INCLUDING, WITHOUT LIMITATION, ANY RELATING TO:
(a) THE SAFETY, TITLE, CONDITION, QUALITY, QUANTITY, FITNESS FOR USE,
MERCHANTABILITY, CONFORMITY TO SPECIFICATION, OR ANY OTHER QUALITY OR
CHARACTERISTIC OF ANY PROPERTY, LATENT OR NOT;
(b) ANY SET-OFF, COUNTERCLAIM, RECOUPMENT, ABATEMENT, DEFENSE OR OTHER
RIGHT TO WITHHOLD THE PAYMENT OF BASIC RENT, ADDITIONAL RENT OR OTHER AMOUNTS
HEREUNDER WHICH LESSEE MAY HAVE AGAINST BRAZOS, ANY ASSIGNEE, OR ANY INDEMNIFIED
PERSON FOR ANY REASON WHATSOEVER ARISING OUT OF THIS OR ANY OTHER TRANSACTION OR
MATTER;
(c) EXCEPT AS PROVIDED IN SECTION 7.5 OF THIS GROUND LEASE WITH RESPECT
TO CLAIMS UNDER A TITLE POLICY, ANY DEFECT IN TITLE OR OWNERSHIP OF ANY PROPERTY
OR ANY TITLE ENCUMBRANCE NOW OR HEREAFTER EXISTING WITH RESPECT TO THE PROPERTY;
GROUND LEASE AGREEMENT - Page 35
<PAGE>
(d) ANY FAILURE OR DELAY IN DELIVERY OR ANY LOSS OR DESTRUCTION OF, OR
DAMAGE TO, ANY PROPERTY, IN WHOLE OR IN PART, OR CESSATION OF THE USE OR
POSSESSION OF ANY PROPERTY BY LESSEE FOR ANY REASON WHATSOEVER AND OF WHATEVER
DURATION, OR ANY CONDEMNATION, CONFISCATION, REQUISITION, SEIZURE, PURCHASE,
TAKING OR FORFEITURE OF ANY PROPERTY, IN WHOLE OR IN PART;
(e) ANY INABILITY OR ILLEGALITY WITH RESPECT TO THE USE, OWNERSHIP,
OCCUPANCY OR POSSESSION OF THE PROPERTY BY LESSEE;
(f) ANY INSOLVENCY, BANKRUPTCY, REORGANIZATION OR SIMILAR PROCEEDING BY
OR AGAINST LESSEE, GUARANTOR OR BRAZOS;
(g) ANY FAILURE TO OBTAIN, OR EXPIRATION, SUSPENSION OR OTHER
TERMINATION OF, OR INTERRUPTION TO, ANY REQUIRED LICENSES, PERMITS, CONSENTS,
AUTHORIZATIONS, APPROVALS OR OTHER LEGAL REQUIREMENTS;
(h) THE INVALIDITY OR UNENFORCEABILITY OF THIS GROUND LEASE OR ANY
OTHER INFIRMITY HEREIN OR ANY LACK OF POWER OR AUTHORITY OF BRAZOS OR LESSEE TO
ENTER INTO THIS GROUND LEASE; OR
(i) ANY OTHER CIRCUMSTANCES OR HAPPENING WHATSOEVER, WHETHER OR NOT
SIMILAR TO ANY OF THE FOREGOING.
LESSEE HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, ANY AND
ALL RIGHTS WHICH IT MAY NOW HAVE OR WHICH AT ANY TIME HEREAFTER MAY BE CONFERRED
UPON IT, BY STATUTE OR OTHERWISE, TO TERMINATE, CANCEL, QUIT, RESCIND OR
SURRENDER THIS GROUND LEASE EXCEPT IN ACCORDANCE WITH THE EXPRESS TERMS HEREOF.
Section XVIII.6. NON-RECOURSE. Brazos' obligations hereunder are intended
to be the limited obligations of the limited partnership and of the corporation
which is the general partner thereof. Notwithstanding any other provision of
this Ground Lease, Lessee agrees that the personal liability of Brazos and the
partners comprising Brazos shall be strictly and absolutely limited to the
Properties and no recourse for the payment of any amount due under this Ground
Lease or any other agreement contemplated hereby, or for any claim based thereon
or otherwise in respect thereof, shall be had against any other assets of the
limited partnership or of the general or of any limited partner of Brazos or any
incorporator, shareholder, officer, director or Affiliate (past, present or
future) of such general partner or limited partner, or of any Affiliate of
either, or of any successor corporation to any corporate general partner or any
corporate limited partner of Brazos, it being understood that Brazos is a
limited partnership entering into the transactions involved in and relating to
this Ground Lease on the express understanding aforesaid. Notwithstanding the
foregoing provisions of this SECTION 18.6, nothing contained in this Lease shall
be construed to prevent enforcement of specific performance of Brazos'
obligations hereunder or prevent recourse against Brazos (i) for Brazos' failure
to convey any Property to Lessee or its designee in accordance with the
provisions of this Ground Lease, or to obtain a release of any Lien created
pursuant to the Credit Agreement or created by Brazos contrary to the provisions
of this Ground Lease covering any Property so purchased, (ii) for Brazos'
failure to make an advance with respect to Acquisition Costs as and when Lessee
is entitled to such advance, (iii) for Brazos' failure to make insurance
proceeds or condemnation awards available to Lessee as and when Lessee is
entitled to such amounts pursuant to this Lease, (iv) for Brazos' breach of its
representations in SECTION 2.15 hereof, (v) for Brazos' failure to comply with
the provisions of SECTION 3.4(v), (vi) AND (vii), SECTION 18.10 or
SECTION 18.14, or (vi) for fraud perpetrated by Brazos.
Section XVIII.7. NOTICES.
(a) 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:
GROUND LEASE AGREEMENT - Page 36
<PAGE>
If to Brazos:
Brazos Markets Development, L.P.
c/o Brazos Markets Management, Inc.
2911 Turtle Creek Blvd., Suite 1240
Dallas, Texas 75219
Attention: Gregory C. Greene
Telephone: (214) 522-7296
Telecopy: (214) 520-2009
If to Agent or Assignee:
Chase Bank of Texas, National Association
712 Main Street
Houston, Texas 77002
Attention: Michael Ondruch
Telephone: (713) 216-5324
Telecopy: (713) 216-6004
with a copy to:
Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P.
3400 Chase Tower
600 Travis Street
Houston, Texas 77002-3095
Attention: Stanley B. Haas
Telephone: (713) 226-1247
Telecopy: (713) 223-3717
If to Lessee:
Randall's Food & Drugs, Inc.
3663 Briarpark
Houston, Texas 77042
Attention: Lee Straus
Telephone: (713) 268-3617
Telecopy: (713) 268-3605
Randall's Food Markets, Inc.
3663 Briarpark
Houston, Texas 77042
Attention: Lee Straus
Telephone: (713) 268-3617
Telecopy: (713) 268-3605
with a copies to:
Randall's Properties, Inc.
3663 Briarpark
Houston, Texas 77042
Attention: Mr. Joe R. Rollins
Telephone: (713) 268-3661
Telecopy: (713) 268-3601
GROUND LEASE AGREEMENT - Page 37
<PAGE>
and
Vinson & Elkins LLP
2300 First City Tower
1001 Fannin Street
Houston, Texas 77012-6760
Attention: Mr. Sanford A. Weiner
Telephone: (713) 758-2558
Telecopy: (713) 615-5268
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
given in accordance with the provisions of this Section.
All communications shall be effective three Business Days after the date
when mailed by certified mail, return receipt requested postage prepaid to any
party at its address specified above, or upon receipt if telecopied to any party
to the telecopy number set forth above, or upon receipt if delivered personally
to any party at its address specified above.
A copy of each communication shall be sent to any Assignee at such address
as such Assignee may specify by written notice to Brazos and Lessee.
(b) Brazos shall within five (5) Business Days give to Lessee a copy of
all notices received by Brazos pursuant to any Credit Agreement or any Acquired
Ground Lease and any other notices received with respect to any Property.
Section XVIII.8. USURY. No provision of this Ground Lease, the Agreement
for Ground Lease or any other instrument relating to this Ground Lease, shall
require the payment or permit the collection of interest in excess of the
maximum non-usurious interest rate under applicable law (the "MAXIMUM RATE").
If any excess interest in such respect is so provided for, or shall be
adjudicated to be so provided for, the provisions of this SECTION 18.8 shall
govern, and neither Lessee nor its successors or assigns shall be obligated to
pay the amount of such interest to the extent it is in excess of the Maximum
Rate. In determining the Maximum Rate, any interest shall be spread over the
term of the Ground Lease to the extent permitted by applicable U.S. Federal or
state law, notwithstanding the actual time for the payment of any rent or other
amounts hereunder. It is expressly stipulated and agreed to be the intent of
Brazos and Lessee at all times to comply with applicable state law governing the
Maximum Rate or the amount of interest payable pursuant to this Ground Lease (or
applicable U.S. Federal law to the extent that it permits Brazos to contract
for, charge, take, reserve or receive a greater amount of interest than under
state law). If the applicable law is ever judicially interpreted so as to
render usurious any amount called for under the Ground Lease, the Agreement for
Ground Lease or any of the other documents relating to this Ground Lease or any
amount contracted for, charged, taken, reserved or received with respect to this
Ground Lease, or if Brazos' exercise of any option contained herein or in any
other document to accelerate the payment of amounts required hereunder results
in Lessee having paid any interest in excess of that permitted by applicable
law, then it is Brazos' and Lessee's intent that all excess amounts theretofore
collected by Brazos be credited on the remaining balance of payments due
hereunder (or, if all amounts due hereunder have been or would thereby be paid
in full, refunded to Lessee) and the provisions of this Ground Lease shall
immediately be deemed reformed and the amounts thereafter collectible hereunder
reduced, without the necessity of the execution of any new documents, so as to
comply with the applicable law, but so as to permit the recovery of the fullest
amount otherwise called for hereunder and under any other document relating
hereto. If at any time the amount of any interest for a year, would, but for
thi SECTION 18.8, exceed the amount of interest that would have been accrued
during such year if the Maximum Rate had from time to time been in effect, the
total interest payable for such year shall be limited to the amount that would
have been accrued if the Maximum Rate had from time to time been in effect, and
to the fullest extent permitted by applicable law, such excess shall be (i)
spread and allocated to the preceding periods in which the interest paid was
less than the interest that would have been accrued at the Maximum Rate or (ii)
spread and allocated to subsequent periods in which the total payments on
account of interest are less than the interest that would have accrued at the
Maximum Rate.
GROUND LEASE AGREEMENT - Page 38
<PAGE>
Section XVIII.9. NO MERGER. There shall be no merger of this Ground Lease
or of the leasehold estate hereby created with the fee estate in any Property by
reason of the fact that the same person acquires or holds, directly or
indirectly, this Ground Lease or the leasehold estate hereby created or any
interest herein or in such leasehold estate as well as the fee estate in any
Property or any interest in such fee estate.
Section XVIII.10. SALE OR ASSIGNMENT BY BRAZOS. Brazos shall not sell,
mortgage or encumber or assign or otherwise grant any Lien upon its right,
title, interest or obligations in a Property or under this Ground Lease, except
that Brazos shall have the right to finance the acquisition and ownership of the
Property by selling, assigning or granting a security interest to the Assignee
pursuant to the Credit Documents in (i) its right, title and interest in this
Ground Lease and (ii) any or all amounts due from Lessee or any third party
under this Ground Lease as provided in the Credit Agreement; PROVIDED that any
such sale, assignment or grant of a security interest shall be subject to the
rights and interests of Lessee under this Ground Lease. In addition, Brazos
shall, at the time each Property or Facility is acquired by Brazos, execute and
deliver to Lessee a Deed of Trust and Security Agreement (each, a "PURCHASE DEED
OF TRUST") covering the applicable Property and/or Facility and granting to
Lessee a Lien covering such Property and/or Facility to secure performance of
Brazos' obligations pursuant to ARTICLE XII hereof. Each Purchase Deed of Trust
shall be subordinate to any Liens created pursuant to the Credit Documents in
favor of the Assignee covering the applicable Property and/or Facility.
Section XVIII.11. INCOME TAXES. Brazos agrees that it will not file any
Federal, state or local income tax returns during the Lease Term or Renewal
Term, if any, with respect to any Property that are inconsistent with the
treatment of Lessee as owner of such Property for Federal, state and local
income tax purposes.
Section XVIII.12. TRANSFER ON AS-IS BASIS. In connection with any sale of
Property pursuant to this Ground Lease, when Brazos transfers title, such
transfer shall be on an as-is, non-installment sale basis, without warranty by,
or recourse to, Brazos, but free of the Lien created by a Credit Agreement and
any Lien created by Brazos contrary to the terms of this Ground Lease.
Section XVIII.13. RIGHT TO PERFORM FOR LESSEE.
(a) If an Event of Default occurs by reason of the failure of Lessee to
perform or comply with any of its covenants or agreements contained in this
Ground Lease and continues beyond any applicable grace or curative period,
Brazos may, upon notice to Lessee but without waiving or releasing any
obligations or default, itself perform or comply with such covenant or
agreement, and the amount of the reasonable expenses of Brazos incurred in
connection with such performance or compliance, shall be payable by Lessee, not
later than ten (10) Business Days after written notice by Brazos.
(b) Without in any way limiting the obligations of Lessee hereunder,
Lessee hereby irrevocably appoints Brazos as its agent and attorney at the time
at which Lessee is obligated to deliver possession of any Property to Brazos, to
demand and take possession of such Property in the name and on behalf of Lessee
from whomsoever shall be at the time in possession thereof.
Section XVIII.14. MERGER, CONSOLIDATION OR SALE OF ASSETS.
(a) Brazos may not consolidate with or merge into any other Person or
sell all or substantially all of its assets to any Person.
(b) The terms and provisions of this Ground Lease shall be binding upon
and inure to the benefit of Brazos and Lessee and their respective successors
and assigns.
Section XVIII.15. RULE AGAINST PERPETUITIES. The parties hereto do not
intend any interest created by this Ground Lease to be a perpetuity or to be
subject to invalidation under the perpetuities rule, however, if the rule is to
be applied, then the perpetuities period shall be twenty-one (21) years after
the last to die of the currently living great-grandchildren and/or grandchildren
of George H. W. Bush.
GROUND LEASE AGREEMENT - Page 39
<PAGE>
Section XVIII.16. REEXECUTION. The parties hereto shall reexecute this
Ground Lease to the extent necessary to make this Ground Lease enforceable under
the laws of any State in which a Property is located.
Section XVIII.17. PURCHASE OR SALE OF FACILITY. Notwithstanding anything
to the contrary herein, Lessee shall not have the right to purchase any Property
or arrange for the sale of any Property to a third party unless, simultaneous
with such purchase or sale, any Facility located on such Property is purchased
by Lessee or sold to a third party.
Section XVIII.18. SEVERABILITY. In case one or more provisions of this
Ground Lease shall be invalid, illegal or unenforceable in any respect under any
applicable law, the validity, legality and enforceability of the remaining
provisions contained herein shall not be affected or impaired thereby.
Section XVIII.19. INTENTIONALLY OMITTED.
Section XVIII.20. EXECUTION IN COUNTERPARTS. This Ground Lease 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.
Section XVIII.21. CONFIDENTIALITY. Brazos agrees to use reasonable
efforts to keep confidential all information of a confidential nature received
by it from Lessee pursuant to this Ground Lease; PROVIDED, HOWEVER, that such
information may be disclosed: (i) to directors, officers, employees, agents,
representatives or outside counsel of Brazos or of the Agent or any Bank or any
Affiliate of any Bank under any Credit Agreement; (ii) to any auditor,
government official or examiner; (iii) pursuant to any subpoena or other court
order or otherwise as may be required by applicable law; or (iv) to any assignee
of or participant in, or prospective assignee of or participant in, any Bank's
Advances or its Commitment or any part thereof under any Credit Agreement who,
in each case, agrees in writing to be bound by the terms of this Section; and
PROVIDED FURTHER, that no confidentiality obligation shall attach to any
information which (1) is or becomes publicly known, through no wrongful act on
the part of any Person who shall have received such information, (2) is
rightfully received by such Person from a third party, (3) is independently
developed by such Person, or (4) is explicitly approved for release by Lessee.
Section XVIII.22. WAIVER OF LANDLORD'S LIENS. Brazos hereby waives,
relinquishes and discharges all liens and rights (statutory, contractual,
consensual or otherwise) that Brazos may have on any personal property or trade
fixtures of Lessee of any kind, and all additions, accessions and substitutions
thereto. This clause shall be self-operative and no other instrument of waiver
need be required by any lienholder of such property or trade fixtures. In
confirmation of such waiver, however, Brazos shall, at Lessee's request, execute
promptly any appropriate certificate or instrument that Lessee may reasonably
request.
Section XVIII.23. BREAKAGE COSTS ARISING DUE TO BRAZOS DEFAULT.
Notwithstanding anything to the contrary set forth herein or in any of the other
Lease Documents, Lessee shall not have any obligation to pay or to reimburse
Brazos for the payment of breakage costs payable under Section 2.8 of the Credit
Agreement which arise solely by reason of an acceleration of the maturity of the
Obligations (as defined in the Credit Agreement) following an Event of Default
(as defined in the Credit Agreement) unless an Event of Default (as herein
defined) then exists hereunder which is continuing beyond the expiration of any
applicable grace or curative period.
Section XVIII.24. MEMORANDA OF LEASE. Brazos and Lessee each agrees,
promptly upon request by the other party hereto or by Agent, to execute
Memoranda of Lease in recordable form and otherwise in form and substance
satisfactory to Brazos, Lessee and Agent, for all Properties.
GROUND LEASE AGREEMENT - Page 40
<PAGE>
IN WITNESS WHEREOF, Brazos and Lessee have caused this Ground Lease to be
executed and delivered by their duly authorized officers as of the day and year
first above written.
BRAZOS MARKETS DEVELOPMENT, L.P.,
a Delaware limited partnership
By: BRAZOS MARKETS MANAGEMENT, INC.,
a Delaware corporation, its General Partner
By: /s/ Daniel D. Boeckman
---------------------------------------------
Daniel D. Boeckman, Executive Vice President
GROUND LEASE AGREEMENT - Page 41
<PAGE>
RANDALL'S FOOD & DRUGS, INC.,
a Delaware corporation
By: /s/ Lee Straus
-------------------------------------------
Lee Straus, Senior Vice President-Finance,
Secretary and Treasurer
RANDALL'S FOOD MARKETS, INC.,
a Texas corporation
By: /s/ Lee Straus
-------------------------------------------
Lee Straus, Senior Vice President-Finance,
Secretary and Treasurer
GROUND LEASE AGREEMENT - Page 42
<PAGE>
STATE OF TEXAS )
)
COUNTY OF DALLAS )
This instrument was acknowledged before me on the 8th day of September,
1998 by Daniel D. Boeckman, Executive Vice President of BRAZOS MARKETS
MANAGEMENT, INC., a Delaware corporation, the General Partner of BRAZOS MARKETS
DEVELOPMENT, L.P., a Delaware limited partnership, on behalf of said corporation
and said limited partnership.
/s/ Sharon Kay Koehler
--------------------------------------
NOTARY PUBLIC IN AND FOR
THE STATE OF TEXAS
[SEAL]
GROUND LEASE AGREEMENT - Page 43
<PAGE>
[SEAL]
STATE OF TEXAS )
)
COUNTY OF HARRIS )
This instrument was acknowledged before me on the 14th day of September,
1998 by Lee Straus, the Senior Vice President-Finance, Secretary and Treasurer
of RANDALL'S FOOD & DRUGS, INC., a Delaware corporation, on behalf of said
corporation.
/s/ Carol B. Klass
--------------------------------------
NOTARY PUBLIC IN AND FOR
THE STATE OF TEXAS
My commission expires: 9-17-02 Name of Notary Printed:
/s/ Carol B. Klass
---------------------------
[SEAL]
STATE OF TEXAS )
)
COUNTY OF HARRIS )
This instrument was acknowledged before me on the 14th day of September,
1998 by Lee Straus, the Senior Vice President-Finance, Secretary and Treasurer
of RANDALL'S FOOD MARKETS, INC., a Texas corporation, on behalf of said
corporation.
/s/ Carol B. Klass
--------------------------------------
NOTARY PUBLIC IN AND FOR
THE STATE OF TEXAS
My commission expires: Name of Notary Printed:
9-17-02 /s/ Carol B. Klass
- ------------------------------ ---------------------------
GROUND LEASE AGREEMENT - Page 44
<PAGE>
EXHIBIT A
SCHEDULE OF INSURANCE
1. All risk direct physical damage insurance for the Property and all
improvements, equipment and structures located thereon in the amounts and
subject to the deductibles and self-insurance provisions that are applicable
under like insurance coverage maintained by Lessee for similar property and
equipment owned, leased or held by Lessee and which are approved by Agent in its
reasonable discretion.
2. Commercial general liability insurance, including, without
limitation, coverage for legal liability against claims for bodily injury, death
or property damage, occurring on, in or about each Property and the
improvements, equipment and structures located thereon, in the minimum amount of
$1,000,000 combined single limit per occurrence for bodily injury and property
damage, $2,000,000 annual aggregate. Liability coverage may be subject to such
deductibles as may be usual and customary for Lessee to carry in its normal
course of business.
3. Workers' compensation and employers' liability insurance covering
Lessee's employees in such amount as is required by law, or if permissible under
state law, any legally appropriate alternative providing substantially similar
compensation for injured workers.
GROUND LEASE AGREEMENT - Page 45
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
FACILITIES LEASE AGREEMENT
between
BRAZOS MARKETS DEVELOPMENT, L.P.
and
RANDALL'S FOOD & DRUGS, INC.
and
RANDALL'S FOOD MARKETS, INC.
Dated as of September 10, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
THIS FACILITIES LEASE AGREEMENT HAS BEEN ASSIGNED
AS SECURITY FOR INDEBTEDNESS OF
BRAZOS MARKETS DEVELOPMENT, L.P.
SEE SECTION 19.10
This Facilities Lease Agreement has been manually executed in 6 counterparts,
numbered consecutively from 1 through 6, of which this is No. ________. To
the extent, if any, that this Facilities Lease Agreement constitutes chattel
paper (as such term is defined in the Uniform Commercial Code as in effect in
any applicable jurisdiction) no security interest in this Facilities Lease
Agreement may be created or perfected through the transfer or possession of
any counterpart other than the original executed counterpart which shall be
the counterpart identified as counterpart No. 1.
<PAGE>
TABLE OF CONTENTS
FACILITIES LEASE AGREEMENT
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE IDEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Section 1.1. DEFINED TERMS.. . . . . . . . . . . . . . . . . . . . . . . . . .1
Section 1.2. FORMS.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
Section 1.3. RECITALS, TABLE OF CONTENTS, TITLES, AND HEADINGS . . . . . . . .7
Section 1.4. INTERPRETATION. . . . . . . . . . . . . . . . . . . . . . . . . .7
ARTICLE IIREPRESENTATIONS AND WARRANTIES OF LESSEE AND BRAZOS. . . . . . . . . . . .8
Section 2.1. CORPORATE MATTERS.. . . . . . . . . . . . . . . . . . . . . . . .8
Section 2.2. AUTHORIZATION; BINDING AGREEMENT. . . . . . . . . . . . . . . . .8
Section 2.3. POWER AND AUTHORITY.. . . . . . . . . . . . . . . . . . . . . . .8
Section 2.4. CONSENTS, APPROVALS, AUTHORIZATIONS.. . . . . . . . . . . . . . .8
Section 2.5. COMPLIANCE WITH LEGAL REQUIREMENTS AND
INSURANCE REQUIREMENTS. . . . . . . . . . . . . . . . . . . . . .8
Section 2.6. AGREEMENT FOR FACILITIES LEASE. . . . . . . . . . . . . . . . . .9
Section 2.7. NO ENCROACHMENTS. . . . . . . . . . . . . . . . . . . . . . . . .9
Section 2.8. FACILITY AND FF&E LIENS . . . . . . . . . . . . . . . . . . . . .9
Section 2.9. BROKERAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
Section 2.10. SUITABILITY OF FACILITY AND FF&E . . . . . . . . . . . . . . . .9
Section 2.11. EXISTENCE. . . . . . . . . . . . . . . . . . . . . . . . . . . .9
Section 2.12. PARTNERSHIP POWER. . . . . . . . . . . . . . . . . . . . . . . 10
Section 2.13. AUTHORIZATION AND APPROVALS. . . . . . . . . . . . . . . . . . 10
Section 2.14. ENFORCEABLE OBLIGATIONS. . . . . . . . . . . . . . . . . . . . 10
Section 2.15. PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 2.16. OTHER ASSETS AND LIABILITIES.. . . . . . . . . . . . . . . . . 10
ARTICLE IIILEASE OF FACILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 3.1. LEASE.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 3.2. FACILITY LEASING RECORD.. . . . . . . . . . . . . . . . . . . . 10
Section 3.3. OWNERSHIP OF THE FACILITY AND FF&E. . . . . . . . . . . . . . . 11
Section 3.4. BRAZOS COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE IVDELIVERY AND ACCEPTANCE. . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 4.1. ACCEPTANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 4.2. PAYMENTS FINAL. . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 4.3. NO WARRANTIES OR REPRESENTATIONS. . . . . . . . . . . . . . . . 12
Section 4.4. QUIET ENJOYMENT.. . . . . . . . . . . . . . . . . . . . . . . . 13
Section 4.5. OTHER FINANCING REQUIREMENTS. . . . . . . . . . . . . . . . . . 13
ARTICLE VLEASE TERM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 5.1. LEASE TERM. . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 5.2. INSURABLE INTEREST. . . . . . . . . . . . . . . . . . . . . . . 13
Section 5.3. TERMINATION.. . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE VIRENT AND OTHER PAYMENTS. . . . . . . . . . . . . . . . . . . . . . . . . 13
(i)
<PAGE>
Section 6.1. BASIC RENT. . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 6.2. OTHER AMOUNTS.. . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 6.3. ADDITIONAL RENT.. . . . . . . . . . . . . . . . . . . . . . . . 14
Section 6.4. PAYMENT IN ADVANCE. . . . . . . . . . . . . . . . . . . . . . . 14
Section 6.5. CREDIT AGREEMENT LOSSES . . . . . . . . . . . . . . . . . . . . 14
ARTICLE VIIRESTRICTED USE; COMPLIANCE WITH LAWS. . . . . . . . . . . . . . . . . . 14
Section 7.1. INSURANCE REQUIREMENT AND LEGAL REQUIREMENT.. . . . . . . . . . 14
Section 7.2. FILINGS.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 7.3. COMPLIANCE WITH OTHER REQUIREMENTS. . . . . . . . . . . . . . . 15
Section 7.4. INSPECTION. . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 7.5. NO LIENS; ASSIGNMENT AND SUBLETTING.. . . . . . . . . . . . . . 15
Section 7.6. INTERFERENCE. . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 7.7. DELIVERY OF INFORMATION . . . . . . . . . . . . . . . . . . . . 16
Section 7.8 EXECUTION OF DOCUMENTS. . . . . . . . . . . . . . . . . . . . . 16
ARTICLE VIIIMAINTENANCE, IMPROVEMENT AND REPAIR OF FACILITIES . . . . . . . . . . 17
Section 8.1. WARRANTIES. . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 8.2. COSTS AND EXPENSES. . . . . . . . . . . . . . . . . . . . . . . 17
Section 8.3. PAYMENT OF TAXES. . . . . . . . . . . . . . . . . . . . . . . . 17
Section 8.4. NO MATERIAL ALTERATIONS.. . . . . . . . . . . . . . . . . . . . 18
Section 8.5. MAINTENANCE.. . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 8.6. ADDITIONS AND ALTERATIONS.. . . . . . . . . . . . . . . . . . . 18
Section 8.7. ENVIRONMENTAL REPORTS . . . . . . . . . . . . . . . . . . . . . 18
Section 8.8. OBLIGATIONS OF BRAZOS . . . . . . . . . . . . . . . . . . . . . 18
Section 8.9. CORRECTION OF STRUCTURAL DEFECTS. . . . . . . . . . . . . . . . 19
ARTICLE IXINSURANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 9.1. LIABILITY AND PROPERTY DAMAGE.. . . . . . . . . . . . . . . . . 19
Section 9.2. ADDITIONAL INSUREDS; NOTICE.. . . . . . . . . . . . . . . . . . 19
Section 9.3. APPLICATION OF PROCEEDS OF LOSS OR SUBSTANTIAL TAKING . . . . . 19
Section 9.4. APPLICATION OF PROCEEDS OF OTHER THAN LOSS OR SUBSTANTIAL
TAKING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 9.5. INVESTMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 9.6. APPLICATION IN DEFAULT. . . . . . . . . . . . . . . . . . . . . 20
Section 9.7. CERTIFICATES. . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 9.8. COVENANT TO KEEP INSURANCE IN FORCE.. . . . . . . . . . . . . . 20
ARTICLE XINDEMNITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 10.1. INDEMNIFIED PERSONS. . . . . . . . . . . . . . . . . . . . . . 21
Section 10.2. PAYMENTS.. . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 10.3. CONTINUING INDEMNIFICATION.. . . . . . . . . . . . . . . . . . 22
Section 10.4. LIMITATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 10.5. LITIGATION.. . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE XIRENEWAL AND TERMINATION. . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 11.1. LESSEE'S RIGHT TO TERMINATE. . . . . . . . . . . . . . . . . . 23
Section 11.2. BRAZOS' RIGHT TO TERMINATE . . . . . . . . . . . . . . . . . . 24
Section 11.3. RENEWAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 11.4. SALES TO THIRD PARTIES . . . . . . . . . . . . . . . . . . . . 25
Section 11.5. ADVISEMENT.. . . . . . . . . . . . . . . . . . . . . . . . . . 26
(ii)
<PAGE>
Section 11.6. ADDITIONAL PAYMENTS. . . . . . . . . . . . . . . . . . . . . . 26
Section 11.7. TERMINATION OF FACILITIES LEASE. . . . . . . . . . . . . . . . 27
Section 11.8. SURRENDER OF FACILITY. . . . . . . . . . . . . . . . . . . . . 27
ARTICLE XIIPROCEDURE UPON SALE . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE XIIIEVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 13.1. EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . . . . . 28
Section 13.2. RIGHTS UPON DEFAULT. . . . . . . . . . . . . . . . . . . . . . 29
Section 13.3. EVENTS OF FACILITY TERMINATION.. . . . . . . . . . . . . . . . 32
Section 13.4. BRAZOS' RIGHT UPON EVENT OF FACILITY TERMINATION.. . . . . . . 33
ARTICLE XIVLOSS OF OR DAMAGE TO FACILITIES . . . . . . . . . . . . . . . . . . . . 34
Section 14.1. LESSEE'S RISK. . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 14.2. REPAIR . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 14.3. FACILITY DAMAGED BEYOND REPAIR.. . . . . . . . . . . . . . . . 34
ARTICLE XVCONDEMNATION OF FACILITY . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 15.1. TAKING OF SUBSTANTIALLY ALL OF A FACILITY. . . . . . . . . . . 34
Section 15.2. TAKING OF LESS THAN SUBSTANTIALLY ALL OF A FACILITY. . . . . . 35
Section 15.3. GRANT OF EASEMENTS.. . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE XVILEASEHOLD INTERESTS . . . . . . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE XVIIINTENTIONALLY OMITTED. . . . . . . . . . . . . . . . . . . . . . . . . 36
ARTICLE XVIIIPERMITTED CONTESTS. . . . . . . . . . . . . . . . . . . . . . . . . . 36
ARTICLE XIXMISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 19.1. SURVIVAL.. . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 19.2. ENTIRE AGREEMENT.. . . . . . . . . . . . . . . . . . . . . . . 37
Section 19.3. MODIFICATIONS. . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 19.4. GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 19.5. NO OFFSETS . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 19.6. NON-RECOURSE.. . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 19.7. NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 19.8. USURY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 19.9. NO MERGER. . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 19.10. SALE OR ASSIGNMENT BY BRAZOS. . . . . . . . . . . . . . . . . 42
Section 19.11. INCOME TAXES. . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 19.12. TRANSFER ON AS-IS BASIS.. . . . . . . . . . . . . . . . . . . 42
Section 19.13. RIGHT TO PERFORM FOR LESSEE. . . . . . . . . . . . . . . . . 42
Section 19.14. MERGER, CONSOLIDATION OR SALE OF ASSETS.. . . . . . . . . . . 43
Section 19.15. RULE AGAINST PERPETUITIES.. . . . . . . . . . . . . . . . . . 43
Section 19.16. REEXECUTION.. . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 19.17. PURCHASE OR SALE OF PROPERTY. . . . . . . . . . . . . . . . . 43
Section 19.18. SEVERABILITY. . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 19.19. INTENTIONALLY OMITTED . . . . . . . . . . . . . . . . . . . . 43
Section 19.20. EXECUTION IN COUNTERPARTS . . . . . . . . . . . . . . . . . . 43
Section 19.21. CONFIDENTIALITY . . . . . . . . . . . . . . . . . . . . . . . 43
(iii)
<PAGE>
Section 19.22. WAIVER OF LANDLORD'S LIENS. . . . . . . . . . . . . . . . . . 43
Section 19.23. BREAKAGE COSTS ARISING DUE TO BRAZOS DEFAULT. . . . . . . . . 43
Section 19.24. MEMORANDA OF LEASE. . . . . . . . . . . . . . . . . . . . . . 44
</TABLE>
(iv)
<PAGE>
(v)
<PAGE>
List of Exhibits
- ----------------
Exhibit A Schedule of Insurance
(vi)
<PAGE>
FACILITIES LEASE AGREEMENT
THIS FACILITIES LEASE AGREEMENT (this "FACILITIES LEASE") is made and
entered into as of September 10, 1998, by and among BRAZOS MARKETS
DEVELOPMENT, L.P., a Delaware limited partnership (referred to herein as
"BRAZOS"), RANDALL'S FOOD & DRUGS, INC., a Delaware corporation (referred to
herein as "LESSEE") and RANDALL'S FOOD MARKETS, INC., a Texas corporation
(referred to herein as "LESSEE" or Guarantor, as applicable).
W I T N E S S E T H:
WHEREAS, Brazos may hereafter purchase or lease certain equipment and
construct or acquire fee or leasehold interests in certain buildings and
other facilities; and
WHEREAS, on or about the date of this Facilities Lease, Brazos and
Lessee entered into an Agreement for Facilities Lease, providing for the
purchase or lease of equipment and the construction of such buildings and
other facilities from time to time; and
WHEREAS, Lessee wishes to lease or sublease such equipment, buildings
and other facilities under the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Brazos and Lessee hereby agree as follows:
ARTICLE I
DEFINITIONS
Section I.1. DEFINED TERMS. For the purposes of this Facilities Lease
each of the following terms shall have the meaning specified with respect
thereto:
"ACQUIRED FACILITIES LEASE" means each lease entered into by Brazos
under which a leasehold interest in a Facility or FF&E is being leased to
Brazos by the owner of such Facility.
"ACQUISITION COST" means, without duplication, for any Facility or FF&E,
the sum of (i) the amount of the advances under the Credit Agreement and
Article III of the Agreement for Facilities Lease, and (ii) the advance of
Brazos equity made pursuant to Section 3.7 of the Agreement for Facilities
Lease with respect to such Facility or FF&E.
"ADDITIONAL RENT" has the meaning set forth in SECTION 6.3 hereof.
"AFFILIATE" means any other person controlling, controlled by or under
direct or indirect common control with any Person. For the purposes of this
definition, "control," when used with respect to any specified Person, means
the power to direct the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by contract
or otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"AGENT" means Chase Bank of Texas, National Association.
FACILITIES LEASE AGREEMENT - Page 1
<PAGE>
"AGREEMENT FOR FACILITIES LEASE" means the Agreement for Facilities
Lease, dated of even date herewith, between Brazos and Lessee providing for
the construction of each Facility and the acquisition of FF&E, as it may be
further amended, restated, modified or supplemented, from time to time, in
accordance with the terms thereof.
"ASSIGNEE" means any lender or agent for a lender under the Credit
Agreement and each person, firm, corporation or other entity to which any
part of Brazos' interest under this Facilities Lease or in any Facility or
FF&E shall at the time have been assigned, conditionally or otherwise, by
Brazos in accordance with SECTION 19.10 of this Facilities Lease.
"ASSIGNMENT" means each assignment or security agreement referred to in
SECTION 19.10 hereof between Brazos and a third party, pursuant to which
Brazos assigns or grants a security interest in any of its rights under this
Facilities Lease to such third party, as from time to time amended.
"BASIC RENT" means, so long as any borrowings are outstanding under the
Credit Agreement, with respect to any Facility or FF&E, for any applicable
period, the amount computed by multiplying the following:
(i) the Acquisition Cost of such Facility or FF&E outstanding on the
preceding Basic Rent Payment Date (if any) plus (calculated on a
daily basis from the date of any advance for such period) any
advances added to the Acquisition Cost during such period, by
(ii) the Brazos Margin (calculated as a monthly factor and with respect
to advances during a month, a daily factor) for such period plus the
interest rate factor for interest accrued under the Credit Agreement
during such period with respect to outstanding advances previously
made and advances made during such period under (without
duplication) the Agreement for Facilities Lease and the Credit
Agreement towards such Acquisition Cost.
"BASIC RENT PAYMENT DATE" means the applicable payment date under the
Credit Agreement for the applicable accrued interest; provided, however, that
with respect to any Facility under construction, the first Basic Rent Payment
Date shall be the applicable date set forth above first occurring after
Substantial Completion (as defined in the Agreement for Facilities Lease) of
such Facility.
"BRAZOS" means Brazos Markets Development, L.P. or any successor or
successors to all of its rights and obligations hereunder.
"BRAZOS MARGIN" means the margin specified and calculated in accordance
with the letter from Brazos to Lessee dated as of September 10, 1998,
designated therein as the "Brazos Margin Letter".
"BUSINESS DAY" means a day other than a Saturday, Sunday or other day on
which commercial banks in Dallas, Texas or New York City, New York are
authorized or required by law to close.
"CAPITAL LEASE" means a capital lease as determined in accordance with
GAAP.
"CODE" means the Internal Revenue Code of 1986, as amended.
"CONSENT" means each consent of Lessee or Guarantor to an Assignment,
pursuant to which, among other things, Lessee or Guarantor, as the case may
be, consents to the terms of such Assignment insofar as they relate to this
Facilities Lease, as from time to time amended.
"CORPORATE CREDIT DOCUMENTS" means the Corporate Credit Documents as
defined in the Credit Agreement.
FACILITIES LEASE AGREEMENT - Page 2
<PAGE>
"CREDIT AGREEMENT" means the Credit Agreement dated of even date
herewith and among Brazos, the Agent and the banks named therein for the
financing of the acquisition of Facilities and FF&E by Brazos in connection
with the Agreement for Facilities Lease, as it may be amended, restated,
modified or supplemented, from time to time.
"CREDIT DOCUMENT" shall have the meaning ascribed to such term in the
Credit Agreement.
"EFFECTIVE DATE" means with respect to any Facility, the date on which
such Facility is leased hereunder by Brazos to Lessee, pursuant to SECTION
3.1 hereof, which date shall be set forth in the Facility Leasing Record.
"ENVIRONMENTAL CLAIM" means any third party (including governmental
agencies and employees) action, lawsuit, claim, demand, regulatory action or
proceeding, order, decree, consent agreement or notice of potential or actual
responsibility or violation (including claims or proceedings under the
Occupational Safety and Health Acts or similar laws or requirements relating
to health or safety of employees) which seeks to impose liability under any
Environmental Law relating to any Facility or Property.
"ENVIRONMENTAL LAW" means all Legal Requirements arising from, relating
to, or in connection with the Environment (as defined in 43 U.S.C. Section
9601(8) (1988)), health, or safety, including without limitation (i) the
Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended, and (ii) Legal Requirements relating to (a) pollution,
contamination, injury, destruction, loss, protection, cleanup, reclamation or
restoration of the air, surface water, groundwater, land surface or
subsurface strata, or other natural resources; (b) solid, gaseous or liquid
waste generation, treatment, processing, recycling, reclamation, cleanup,
storage, disposal or transportation; (c) exposure to pollutants,
contaminants, hazardous materials or wastes; (d) the safety or health of
employees; or (e) the manufacture, processing, handling, transportation,
distribution in commerce, use, storage or disposal of hazardous, medical,
infectious, or toxic substances, materials or waste.
"EVENT OF DEFAULT" has the meaning set forth in SECTION 13.1 hereof.
"EVENT OF FACILITY TERMINATION" means any of the events specified in
SECTION 13.3.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
and all regulations promulgated by the Securities and Exchange Commission
thereunder.
"EXCLUDED TAXES" shall mean each of the following taxes:
(a) Any federal, state or other estate, inheritance, income or similar
tax of Brazos or any of its partners (other than any gross receipts tax
referred to in CLAUSE (b) of SECTION 8.3 hereof, or tax measured by the net
income of Brazos or any of its partners (including without limitation the
earned surplus component of the Texas franchise tax); PROVIDED, HOWEVER, that
if at any time during the term of this Facilities Lease, the method of
taxation shall be such that there shall be levied, assessed or imposed on
Brazos, in substitution for any other tax, assessment, charge or levy which
Lessee is required to pay pursuant to SECTION 8.3, a capital levy or other
tax directly on the rents received therefrom, or upon the value of any
property or any present or future improvement or improvements on any
Facility, then all such taxes, assessments, levies or charges, or the part
thereof so measured or based, shall be payable by Lessee, but only to the
extent such taxes would be payable if the Facility affected were the only
property of Brazos, and Lessee shall pay and discharge the same as provided
herein.
(b) Any taxes imposed against or payable by Brazos or any of its
partners resulting from, or that would not have been imposed but for, the
gross negligence or willful misconduct of Brazos or its Affiliate or the
default by Brazos in the performance of its obligations hereunder, under any
other Lease Document or under the Credit Documents or the breach by Brazos of
its representations and warranties hereunder, under any other Lease Document
or under the Credit Documents.
FACILITIES LEASE AGREEMENT - Page 3
<PAGE>
<PAGE>
(c) Taxes imposed on Brazos or any of its partners that result from
any voluntary sale, assignment, transfer or other disposition by Brazos of
its interest in any Facility or any interest therein; PROVIDED, HOWEVER, any
transfer of the interest of Brazos hereunder arising as a result of an Event
of Facility Termination or an Event of Default by Lessee hereunder or
otherwise in accordance with this Facilities Lease shall not constitute a
voluntary transfer by Brazos.
(d) Taxes imposed on or with respect to or payable by Brazos or any
Affiliate thereof because Brazos or such Affiliate is not a United States
person within the meaning of Section 7701(a)(30) of the Internal Revenue Code
of 1986, as amended.
(e) Any interest, penalties or additions to taxes imposed on Brazos or
any of its partners that would not have been imposed or incurred but for the
failure of Brazos or any of its partners to file any return or other document
timely and in the form prescribed by law; PROVIDED, HOWEVER, that this
exclusion shall not apply if such failure is attributable to a failure by
Lessee to fulfill its obligations under this Facilities Lease with respect to
such return.
(f) Taxes imposed on or with respect to or payable by Brazos that
would not have been imposed but for an amendment, supplement, modification,
consent or waiver to the Lease Documents or Credit Documents not initiated,
required or consented to by Lessee unless such amendment, supplement,
modification, consent or waiver (i) is necessary or appropriate to, and in
conformity with, any other amendment to any Lease Document or Credit Document
initiated or requested by or consented to by Lessee, (ii) arises due to, or
in connection with there having occurred, an Event of Default by Lessee, or
(iii) is required by the terms of the Credit Documents or is executed in
connection with any amendment to the Credit Documents required by law.
(g) any franchise tax or similar tax of Brazos or any of its partners
if Brazos or its partners (as the case may be) would have been subject to
such franchise tax in the absence of this transaction.
(h) Any tax imposed by its express terms in lieu of or in substitution
for any tax set forth in subparagraphs (a) through (g) above.
"FACILITY" means all improvements of whatever kind or character now or
hereafter located on, in or under or affixed to an individual Property,
including, without limitation, any utilities, paving, signage or lighting and
all additions, replacements and subsequent replacements thereof, together
with the FF&E installed in such Facility or other building, in which a fee or
leasehold interest has been or will be acquired by Brazos for the purpose of
entering into the Facilities Lease, but excluding all parcels of land on
which such Facility sits.
"FACILITIES LEASE" means this Facilities Lease Agreement and each
Facility Leasing Record.
"FACILITY LEASING RECORD" means an instrument evidencing the lease or
sublease of a Facility or FF&E under this Facilities Lease, as prepared and
executed by Brazos, as lessor or sublessor, accepted and executed by Lessee,
as lessee or sublessee in such form as Lessee, Brazos and Agent may approve.
"FF&E" means fixtures that are permanently attached to the Property or
the Facility and that are necessary for the operation of the Facility for
general retail purposes, such as mechanical, electrical, plumbing, heating,
air conditioning and ventilating equipment and systems, but excluding Trade
Fixtures.
"GAAP" means generally accepted accounting principles set forth from
time to time in the opinions and pronouncements of the Accounting Principles
Board and the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board (or
agencies with similar functions of comparable stature and authority within
the United States accounting profession), which are applicable to the
circumstances as of the date of determination.
FACILITIES LEASE AGREEMENT - Page 4
<PAGE>
"GOVERNMENTAL AUTHORITY" means any nation or government, any state or other
political subdivision thereof, and any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government.
"GROUND LEASE" means, with respect to any Property, the ground lease by and
between Brazos, as lessor, and Lessee, as lessee.
"GUARANTOR" means Randall's Food Markets, Inc., a Texas corporation.
"GUARANTY" means the Guaranty, dated of even date herewith, by and between
Guarantor and Brazos, as it may be further amended, restated, modified or
supplemented, from time to time, in accordance with the terms thereof.
"INDEBTEDNESS" shall have the meaning ascribed to such term in the
Guaranty.
"INDEMNIFIED PERSON" has the meaning set forth in SECTION 10.1 hereof.
"INSURANCE REQUIREMENTS" means all requirements of this Facilities Lease
with respect to insurance, all terms of any insurance policy covering or
applicable to any Facility, all requirements of the issuer of any such policy,
all statutory requirements and all orders, rules, regulations and other
requirements of any governmental body related to insurance applicable to any
Facility.
"LEASE DOCUMENT" shall have the meaning ascribed to such term in the Credit
Agreement.
"LEASE TERM" has the meaning set forth in SECTION 5.1 hereof.
"LEGAL REQUIREMENTS" means all laws, judgments, decrees, ordinances and
regulations and any other governmental rules, orders and determinations and all
requirements having the force of law, now or hereinafter enacted, made or
issued, whether or not presently contemplated, and all agreements, covenants,
conditions and restrictions, applicable to each Facility and FF&E and/or the
ownership, operation or use thereof, including, without limitation, all
requirements of the Americans With Disabilities Act (P.L. 101-335) and
environmental statutes, compliance with which is required at any time during the
Lease Term and any Renewal Term, whether or not such compliance shall require
structural, unforeseen or extraordinary changes to any Facility and FF&E or the
operation, occupancy or use thereof.
"LESSEE" means with respect to this Facilities Lease, Randall's Food &
Drugs, Inc., a Delaware corporation and Randall's Food Markets, Inc., a Texas
corporation, and, with respect to any particular Facility or FF&E, for all
purposes of such Facility or FF&E and with respect to all matters affecting such
Facility or FF&E, shall mean only the one foregoing entity which executes the
Facility Leasing Record with respect to such Property or FF&E. Accordingly,
references in this Facilities Lease to the "Lessee" shall be construed in the
context of such reference to mean, with respect to each particular Facility or
FF&E that is subject to this Agreement, Randall's Food & Drugs, Inc. or
Randall's Food Markets, Inc., as the case may be, as evidenced by a the entity
executing the Facility Leasing Record covering such particular Facility or FF&E
and shall not be construed to include any other entity or Lessee.
"LIEN" means any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), or preference, priority or
other security agreement or preferential arrangement of any kind or nature
whatsoever (including, without limitation, any conditional sale or other title
retention agreement and any capital lease having substantially the same economic
effect as any of the foregoing).
"LIEN OF RECORD" means, with the exception of the Lien of a lender or
lender's agent under a Credit Agreement, (i) any mechanics' or materialmen's
lien for which Lessee does not hold retainage or trapped funds in amounts
required by applicable law or which is not covered by an adequate payment bond
or is not the subject of a Permitted Contest, (ii) any lien securing the payment
of taxes, assessments or governmental charges and levies which
FACILITIES LEASE AGREEMENT - Page 5
<PAGE>
are due, payable and delinquent, (iii) any judgment lien or (iv) any other
filed, recorded, or docketed matter (whether or not the same shall constitute
a Permitted Encumbrance or be the subject of a Permitted Contest) which in
the case of any of the foregoing (a) is reasonably likely to result in a sale
of an interest in all or a portion of the Facility for satisfaction of same,
a loss, forfeiture, reversion of title, or right of reentry with respect to
any Facility or (b) whether or not valid, is reasonably likely to interfere
with the due and timely payment of any sum payable or the exercise of any of
the rights or the performance of any of the duties or responsibilities of
Lessee under this Facilities Lease.
"MATERIAL ADVERSE EFFECT" means a material adverse change in, or a material
adverse effect upon, the operations, business, properties, condition (financial
or otherwise) or prospects of the Guarantor and its Subsidiaries taken as a
whole; if, but only if, such material adverse change or such material adverse
effect has an economic effect (on an after tax basis) which exceeds an amount
equal to the greater of (i) fifteen percent (15%) of the consolidated
stockholders' equity (determined in accordance with GAAP) of the Guarantor at
the time of determination and (ii) $40,000,000.
"MATERIAL ADVERSE LEASE DOCUMENT EFFECT" means (a) a material impairment of
the ability of the Guarantor to perform its obligations under the Guaranty or of
the Lessee to perform its obligations under any Lease Document (as defined in
the Guaranty) or (b) a material adverse effect upon the legality, validity,
binding effect or enforceability in any material respect against the Guarantor
or the Lessee of, respectively, the Guaranty or any Lease Document (as defined
in the Guaranty) if, but only if, such material impairment or such material
adverse effect has an economic effect (on an after tax basis) which exceeds an
amount equal to the greater of (i) fifteen percent (15%) of the consolidated
stockholders' equity (determined in accordance with GAAP) of the Guarantor at
the time of determination and (ii) $40,000,000.00.
"MAXIMUM RATE" has the meaning set forth in SECTION 19.8 hereof.
"PERMITS" means all consents, licenses and building permits required for
construction, completion, and operation of an individual Facility in accordance
with all Legal Requirements of Law affecting the particular Facility, including,
without limitation, all environmental permits.
"PERMITTED CONTEST" means any good-faith contest permitted by and in
accordance with the terms of ARTICLE XVIII.
"PERMITTED ENCUMBRANCES" means the following Liens and other matters
affecting the title or leasehold interest of any Facility or FF&E: (a) subject
to the terms of SECTION 7.5, mechanics' and materialmen's liens incurred in good
faith in the ordinary course of business and securing obligations that are
junior to any Liens of Assignee not exceeding $250,000 for any particular
Facility or FF&E and $2,000,000 in the aggregate which are not yet due or which
are subject to a Permitted Contest; (b) Liens securing the payment of taxes,
assessments and governmental charges or levies, either not delinquent or subject
to a Permitted Contest; (c) zoning and planning restrictions, subdivision and
platting restrictions, easements, rights-of-way, licenses, reservations,
covenants, conditions, waivers, restrictions on the use of property,
encroachments, encumbrances on or irregularities of title which do not, in
Lessee's reasonable judgment, materially impair (i) the intended use of the
Facility or FF&E by Lessee or (ii) the Value of any Facility or FF&E; (d) the
lien created contemporaneously with the acquisition of such Facility or FF&E
pursuant to, and securing the obligations under, a Credit Agreement; (e) any
mechanics' or materialmen's lien for which Lessee holds retainage or trapped
funds in amounts required by and in accordance with applicable law; (f)
outstanding mineral interests; and (g) any other or additional matters; PROVIDED
that such other or additional matters shall be approved in writing by Brazos and
Agent, whose approval shall not be unreasonably withheld or delayed.
"PERSON" means an individual, partnership, corporation, business trust,
joint venture, joint stock company, trust, unincorporated association or
Governmental Authority or other entity of whatever nature.
FACILITIES LEASE AGREEMENT - Page 6
<PAGE>
"POTENTIAL DEFAULT" means any event which, but for the lapse of time, or
giving of notice, or both, would constitute an Event of Default.
"POTENTIAL FACILITY TERMINATION" means any event which, but for the lapse
of time, or giving of notice, or both, would constitute an Event of Facility
Termination.
"PROPERTY" means any and all parcels of land in which Brazos has acquired a
fee interest or leasehold interest and leased or subleased under a Ground Lease
to Lessee, in each case for the operation of a Facility thereon, but excluding
FF&E and all improvements thereon and all structures, equipment and materials
affixed thereon or located thereon, therein or thereunder.
"RENEWAL TERM" has the meaning set forth in SECTION 11.3(a) hereof.
"REPORTS" has the meaning set forth in SECTION 8.7 hereof.
"RESIDUAL GUARANTY" means the "Residual Guaranty" as defined in the Credit
Agreement.
"RESPONSIBLE OFFICER" means any officer of any Guarantor or any officer of
a Lessee other than a Guarantor designated as such by a Responsible Officer of
any Guarantor.
"SUBSIDIARY" means with respect to any Person, any corporation of which
voting control or more than fifty percent (50%) of the outstanding capital stock
having ordinary voting power to elect a majority of the board of directors of
such corporation (irrespective of whether at such time capital stock of any
other class or classes of such corporation shall or might have voting power upon
the occurrence of any contingency) is at the time directly or indirectly owned
by such Person. With respect to each Lessee, "SUBSIDIARY" shall include any
Subsidiary of such Lessee.
"SURETY INSTRUMENTS" means all letters of credit (including standby),
bankers' acceptances, bank guarantees, shipside bonds, surety bonds and similar
instruments.
"TITLE POLICY" means, with respect to any Facility, the owner policy of
title insurance issued to Lessor as the insured thereunder covering the interest
of Lessor in and to such Facility.
"TRADE FIXTURES" means all removable furniture, equipment and other
personal property that are installed for Lessee's use of the Facility as a
supermarket or for other purposes from time to time operated by Lessee,
including without limitation counters, racks, refrigerators and freezers,
cashier's stands, cash registers, display cases and signs.
"UNEARNED RENT" means any Basic Rent paid by Lessee with respect to a
Facility and attributable to a period after the termination of this Facilities
Lease as to such Facility including, without limitation, upon purchase of such
Facility by Lessee or sale of such Facility to a third party pursuant to the
terms hereof.
"UNECONOMIC NOTICE" has the meaning set forth in SECTION 12.1 hereof.
"UNECONOMIC FACILITY" has the meaning set forth in SECTION 12.1 hereof.
"VALUE" has the meaning set forth in the Agreement for Facilities Lease.
Section 1.2. FORMS. All forms specified by the text hereof or by
reference to exhibits attached hereto shall be substantially as set forth
herein, subject to such changes by Brazos and Lessee by mutual consent that do
not alter the substantive rights of the parties hereto or of the Assignees or as
may be required by applicable laws hereafter enacted.
FACILITIES LEASE AGREEMENT - Page 7
<PAGE>
Section 1.3. RECITALS, TABLE OF CONTENTS, TITLES, AND HEADINGS. The terms
and phrases used in the recitals of this Facilities Lease have been included for
convenience of reference only and the meaning, construction, and interpretation
of such words and phrases for purposes of this Facilities Lease shall be
determined solely by reference to SECTION 1.1 hereof. The table of contents,
titles, and headings of the Articles and Sections of this Facilities Lease have
been inserted for convenience of reference only and are not to be considered a
part hereof and shall not in any way modify or restrict any of the terms or
provisions hereof and shall not be considered or given any effect in construing
this Facilities Lease or any provision hereof or in ascertaining intent, if any
question of intent should arise.
Section 1.4. INTERPRETATION. Unless the context requires otherwise, words
of the masculine gender shall be construed to include correlative words of the
feminine and neuter genders and vice versa, and words of the singular number
shall be construed to include correlative words of the plural number and vice
versa. This Facilities Lease, and all the terms and provisions hereof, shall be
liberally construed to effect the purposes set forth herein and to sustain the
validity of this Facilities Lease.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF LESSEE AND BRAZOS
Brazos represents and warrants to Lessee on the date of this Facilities
Lease with respect to SECTIONS 2.11 to 2.16 and Lessee represents and warrants
to Brazos on the date of this Facilities Lease with respect to SECTIONS 2.1 to
2.4 and as of the date the relevant Facility or FF&E is leased pursuant to this
Facilities Lease with respect to SECTIONS 2.1 to 2.10 (it being understood that
all representations and warranties in this ARTICLE II with respect to a Facility
or FF&E shall refer to the Facility or FF&E then being leased pursuant to the
terms of this Facilities Lease) the following:
Section II.1. CORPORATE MATTERS. Lessee has full corporate power and
authority to execute, deliver and perform its obligations under this Facilities
Lease, the Agreement for Facilities Lease and any Consent.
Section II.2. AUTHORIZATION; BINDING AGREEMENT. This Facilities Lease has
been duly authorized, executed and delivered by Lessee and, assuming the due
authorization, execution and delivery of this Facilities Lease by Brazos, this
Facilities Lease is a legal, valid and binding obligation of Lessee, enforceable
against Lessee, subject, as to enforceability, to applicable bankruptcy,
insolvency and similar laws affecting creditors' rights generally and to general
principles of equity (regardless of whether enforcement is sought in a
proceeding in equity or at law).
Section II.3. POWER AND AUTHORITY. The consummation of the transactions
herein contemplated and the performance and observance of Lessee's obligations
under this Facilities Lease and any Consent have been duly authorized by all
necessary corporate action on the part of Lessee. The execution, delivery and
performance by Lessee of this Facilities Lease and any Consent will not result
in any violation of any term of the certificate of incorporation or the by-laws
of Lessee, do not require approval of the board of directors or shareholders of
Lessee or the approval or consent of any trustee or holders of Indebtedness of
Lessee except such as have been obtained prior to the date hereof and will not
conflict with or result in a breach of any terms or provisions of, or constitute
a default under, or result in the creation or imposition of any Lien (other than
a Lien on any Facility or FF&E as may be contemplated herein) upon any property
or assets of Lessee under, any indenture, mortgage or other agreement or
instrument to which Lessee is a party or by which it or any of its property is
bound where such breach or default, singly or in the aggregate, would have a
Material Adverse Effect or would, in the reasonable judgment of Lessee,
materially impair the ability of Lessee to perform its obligations under the
Agreement for Facilities Lease, this Facilities Lease, the Ground Lease or the
Agreement for Ground Lease referred to in the Ground Lease or the Consent
executed by Lessee of even date herewith, or under any existing applicable law,
rule, regulation, license, judgment, order or decree of any Governmental
Authority or court having jurisdiction over Lessee or any of its activities or
properties.
Section II.4. CONSENTS, APPROVALS, AUTHORIZATIONS. There are no consents,
licenses, orders, authorizations or approvals of, or notices to or registrations
with, any Governmental Authority which are required in connection with the
FACILITIES LEASE AGREEMENT - Page 8
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valid execution, delivery and performance of this Facilities Lease that have
not been obtained or made, except such permits and licenses as Lessee will be
required to obtain for the construction, installation, occupancy, use or
operation of a specific Facility or FF&E and which, in the ordinary course of
business, are not obtained until just prior to the commencement of such
construction, installation, occupancy, use or operation, and any such
consents, licenses, orders, authorizations, approvals, notices and
registrations that have been obtained or made are in full force and effect.
Section II.5. COMPLIANCE WITH LEGAL REQUIREMENTS AND INSURANCE
REQUIREMENTS. The operation, use and physical condition of the Facilities
comply with the Insurance Requirements and Lessee will not do or permit any act
or thing which is contrary in any material respect (as determined in Lessee's
reasonable judgment) to any Legal Requirements, or which might materially
impair, in the reasonable judgment of Lessee, other than in the normal use
thereof, the Value or usefulness of any Facility or FF&E; PROVIDED, in each
case, that Lessee shall not be required to comply with any Legal Requirements if
(a) in the case of Legal Requirements with respect to laws affecting the
environment, Lessee acts diligently to cure such non-compliance upon becoming
aware of it and (b) in every case such non-compliance, individually or in the
aggregate, (i) would not subject any Facility or FF&E to sale, forfeiture or
loss, as a result of failure to comply therewith, (ii) would not cause either
Brazos or any Assignee to incur (x) civil liability which, in the reasonable
judgment of Brazos or Agent is not adequately indemnified (Lessee's obligations
under ARTICLE X of this Facilities Lease shall be deemed to be adequate
indemnification if no Event of Default, Event of Facility Termination, Potential
Default or Potential Facility Termination exists and if such civil liability is
reasonably likely to be less than $500,000 per Facility or FF&E and $2,000,000
in the aggregate), or (y) any criminal liability as a result of failure to
comply therewith, (iii) is permitted under the provisions of the Acquired
Facilities Lease, if any, on such Facility or FF&E, and (iv) is consistent with
business practices normal in the industry of Lessee or the practices of Lessee
with respect to properties owned by Lessee.
Section II.6. AGREEMENT FOR FACILITIES LEASE. Each Facility built
pursuant to the Agreement for Facilities Lease was built substantially, and
leased, in accordance with the terms of the Agreement for Facilities Lease. The
representations and warranties of Lessee in the Agreement for Facilities Lease
are true and correct on and as of the date made, except as to such matters as
would not, in the reasonable judgment of Lessee, impair the Lessee's abilities
to perform its obligations under this Facilities Lease.
Section II.7. NO ENCROACHMENTS. Each Facility is constructed entirely on
its Property and does not encroach upon or overhang (unless consented to by the
affected property owner) any easement or right-of-way or the land of others, and
is wholly within any building restriction lines, however established, except
such non-structural encroachments or overhanging projections as may be readily
removed or corrected without materially affecting the value or intended use of
the Facility as determined in Lessee's reasonable discretion and encroachments
affirmatively insured over by title insurance covering such Property.
Section II.8. FACILITY AND FF&E LIENS. Except as specifically disclosed
by Lessee in writing to Brazos or except as set forth in the Title Policy for
such Facility, to the best of Lessee's knowledge, no Facility or FF&E is subject
to a Lien of Record, and, to the best of Lessee's knowledge, no Facility or FF&E
is subject to any other Lien, except for Permitted Encumbrances previously
disclosed in writing to Brazos.
Section II.9. BROKERAGE. Except as may be contemplated by the Facilities
Lease or approved by Lessee, no brokerage or other similar fee, commission or
compensation to real estate brokers or agents is to be paid by Brazos in
connection with this Facilities Lease, and Lessee hereby indemnifies Brazos
against any claims for brokerage fees or commissions and agrees to pay all
expenses incurred by Brazos in connection with the defense of any action or
proceeding brought to collect any such brokerage fees or commissions, provided
such claim is made through or under Lessee.
Section II.10. SUITABILITY OF FACILITY AND FF&E. To the best of Lessee's
actual knowledge, each Facility and FF&E is suitable as determined by Lessee in
its sole discretion (including, without limitation, ground conditions,
utilities, and condition of title) for the intended use of the Facility and FF&E
under the Facilities Lease.
FACILITIES LEASE AGREEMENT - Page 9
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Section II.11. EXISTENCE. Brazos is a limited partnership duly formed and
validly existing under the laws of the State of Delaware and is in good standing
and qualified to do business in each jurisdiction where its ownership or lease
of property or conduct of its business requires such qualification and where a
failure to be qualified would, in the reasonable judgment of Brazos, impair the
ability of Brazos to perform its obligations under this Facilities Lease. The
General Partner (as defined in the Credit Agreement) is a corporation duly
organized, in good standing, and validly existing under the laws of Delaware and
in good standing and qualified to do business in each jurisdiction where its
ownership or lease of property or conduct of its business requires such
qualification and where a failure to be qualified would, in the reasonable
judgment of Brazos, impair the ability of Brazos to perform its obligations
under this Facilities Lease.
Section II.12. PARTNERSHIP POWER. The execution, delivery, and
performance by Brazos of this Facilities Lease and the consummation of the
transactions contemplated hereby are within Brazos's partnership powers, have
been duly authorized by all necessary partnership action, do not contravene
Brazos's agreement of limited partnership or any law or any contractual
restriction binding on or affecting Brazos, and will not result in or require
the creation or imposition of any lien not contemplated by this Facilities Lease
or the Credit Agreement.
Section II.13. AUTHORIZATION AND APPROVALS. No authorization or approval
or other action by, and no notice to or filing with, any Governmental Authority
is required for the due execution, delivery and performance by Brazos of this
Facilities Lease or the consummation of the transactions contemplated by this
Facilities Lease, subject to the provisions of SECTION 2.4 hereof.
Section II.14. ENFORCEABLE OBLIGATIONS. Brazos has duly executed and
delivered this Facilities Lease, and this Facilities Lease is the legal, valid,
and binding obligation of Brazos enforceable against Brazos in accordance with
its terms subject, as to enforceability, to applicable bankruptcy, insolvency
and similar laws affecting creditors' rights generally and to general principles
of equity (regardless of whether enforcement is sought in a proceeding in equity
or at law).
Section II.15. PROCEEDINGS. There is no pending or, to the best knowledge
of Brazos, threatened action or proceeding affecting Brazos before any court,
Governmental Authority or arbitrator, which would, in the reasonable judgment of
Brazos, have an adverse impact on the Value or intended use of a Property, or
which would affect the legality, validity, binding effect or enforceability of
this Facilities Lease.
Section II.16. OTHER ASSETS AND LIABILITIES. Brazos has no material
assets other than the Properties and Facilities owned and to be acquired
pursuant to the Lease Documents and the commitments of its limited partners to
make capital contributions to Brazos, has no material liabilities other than
pursuant to the Lease Documents and the Credit Documents, and has incurred no
Indebtedness other than pursuant to the Credit Documents.
ARTICLE III
LEASE OF FACILITY
Section III.1. LEASE. Subject to the definitions, terms and conditions
hereof, Brazos hereby leases to Lessee, and Lessee hereby leases from Brazos
pursuant to this Facilities Lease, or sublease in the case of an Acquired
Facilities Lease, any Facility or FF&E, when Brazos makes an advance under the
Agreement for Facilities Lease with respect to such Facility or FF&E and such
Facility or FF&E is acquired under the Agreement for Facilities Lease, or if no
advance is made with respect to a Facility or FF&E under an Acquired Facilities
Lease, when Brazos enters into such Acquired Facilities Lease. The Effective
Date of the lease or sublease of each Facility or FF&E shall be the date of the
initial advance with respect to such Facility or FF&E under the Agreement for
Facilities Lease or the Effective Date of any Acquired Facilities Lease.
FACILITIES LEASE AGREEMENT - Page 10
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Section III.2. FACILITY LEASING RECORD.
(a) The lease of each Facility or FF&E shall be evidenced by a Facility
Leasing Record. Each Facility Leasing Record shall give a full description of
the Facility or FF&E covered thereby, the Acquisition Cost of such Facility or
FF&E, the Lease Term for such Facility or FF&E, the location of such Facility or
FF&E and such other details as Brazos, Lessee and any Assignee may from time to
time agree. Lessee shall provide to Brazos the information necessary to
describe in the Facility Leasing Record the Facility or FF&E, except that Brazos
shall provide, pursuant to the terms hereof, the Acquisition Cost and the Lease
Term. Execution and delivery by Lessee of a Facility Leasing Record shall
constitute (i) acknowledgment by Lessee that the Facility specified in such
Facility Leasing Record has been delivered to Lessee in acceptable condition and
has been accepted for lease hereunder by Lessee as of the Effective Date of the
Facility Leasing Record, (ii) acknowledgment by Lessee that the Facility or FF&E
specified in such Facility Leasing Record is subject to all of the covenants,
terms and conditions of this Facilities Lease, and (iii) certification by Lessee
that the representations and warranties of Lessee contained in ARTICLE II of
this Facilities Lease are true and correct on and as of the Effective Date of
the Facility Leasing Record as though made on and as of such date, except as to
such matters as would not, in the reasonable judgment of Lessee, materially
impair the Lessee's abilities to perform its obligations under this Facilities
Lease and that there exists on such date no Event of Default, Event of Facility
Termination, Potential Default or Potential Facility Termination.
(b) Upon the making of additional advances for a Facility or FF&E,
Brazos and Lessee shall execute an updated Facility Leasing Record to reflect
the change in Acquisition Cost for such Facility or FF&E caused by such advance.
(c) Upon the release or disposition of a Facility or FF&E or any portion
thereof and the application of proceeds therefrom in accordance with the Credit
Agreement, Brazos and Lessee shall execute an updated Facility Leasing Record to
reflect the change in Acquisition Cost for such Facility or FF&E caused by such
release or disposition.
Section III.3. OWNERSHIP OF THE FACILITY AND FF&E.
(a) It is the intent of the parties hereto that: (i) this Facilities
Lease constitutes an "operating lease" pursuant to Statement of Financial
Accounting Standards No. 13, as amended, for purposes of Lessee's financial
reporting, and (ii) for purposes of federal, state and local income or franchise
taxes and for any other tax imposed on or measured by income, the transaction
contemplated hereby is a financing arrangement and preserves ownership in the
Facility and FF&E to the Lessee. Nevertheless, the Lessee acknowledges and
agrees that neither the Agent, Brazos nor any Assignee has made any
representations or warranties to the Lessee concerning the tax, accounting or
legal characteristics of the Credit Agreement and Lease Documents (as defined in
the Credit Agreement) and that the Lessee has obtained and relied upon such tax,
accounting and legal advice concerning the Credit Agreement and Lease Documents
(as defined in the Credit Agreement) as it deems appropriate.
(b) Anything to the contrary notwithstanding, Brazos and the Lessee
intend and agree that with respect to the nature of the transactions evidenced
by this Facilities Lease in the context of the exercise of remedies under the
Credit Agreement and Lease Documents, including, without limitation, in the case
of any insolvency or receivership proceedings or a petition under the United
States bankruptcy laws or any other applicable insolvency laws or statute of the
United States of America or any state or commonwealth thereof affecting the
Lessee, Brazos, or any Assignee or any enforcement or collection actions, (i)
the transactions evidenced by this Facilities Lease are loans made by Brazos and
the Agent as unrelated third party lenders to the Lessee secured by the Facility
and FF&E, (ii) the obligations of the Lessee under this Facilities Lease to pay
Basic Rent and Additional Rent or other amounts in connection with a purchase of
the Facility and FF&E pursuant to this Facilities Lease shall be treated as
payments of interest on and principal of, respectively, loans from Brazos and
the Assignees to the Lessee, and (iii) this Facilities Lease grants a security
interest and mortgage or deed of trust or lien, as the case may be, in the
Facility and FF&E to Brazos and the
FACILITIES LEASE AGREEMENT - Page 11
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Assignees to secure the Lessee's performance under and payment of all amounts
under this Facilities Lease and the Credit Agreement and Lease Documents (as
defined in the Credit Agreement).
(c) Specifically, without limiting the generality of SUBSECTION (b) of
this Section, Brazos and the Lessee further intend and agree that, for the
purpose of securing the Lessee's obligations for the repayment of the
above-described loans from Brazos and the Agent to the Lessee, (i) this Lease
shall also be deemed to be a security agreement and financing statement
within the meaning of Article 9 of the Uniform Commercial Code (and
specifically, a construction mortgage, as said term is defined in Section
9.313(a)(3) of the Uniform Commercial Code) and a real property mortgage or
deed of trust; (ii) the conveyance provided for in ARTICLE III shall be
deemed to be a grant by the Lessee to Brazos and the Assignees of a mortgage
lien and security interest in all of the Lessee's right, title and interest
in and to the Facility and FF&E and all proceeds of the conversion, voluntary
or involuntary, of the foregoing into cash, investments, securities or other
property, whether in the form of cash, investments, securities or other
property (it being understood that Lessee hereby mortgages and warrants and
grants a security interest in the Facility and FF&E to Brazos and the
Assignees to secure such loans); (iii) the possession by Brazos or any of its
agents of notes and such other items of property as constitute instruments,
money, negotiable documents or chattel paper shall be deemed to be
"possession by the secured party" for purposes of perfecting the security
interest pursuant to Section 9.305 of the Uniform Commercial Code; and (iv)
notifications to Persons holding such property, and acknowledgments, receipts
or confirmations from financial intermediaries, bankers or agents (as
applicable) of the Lessee shall be deemed to have been given for the purpose
of perfecting such security interest under applicable law. Brazos and the
Lessee shall, to the extent consistent with this Facilities Lease, take such
actions and execute, deliver, file and record such other documents, financing
statements, mortgages and deeds of trust as may be necessary to ensure that,
if this Facilities Lease were deemed to create a security interest in the
Facility and FF&E in accordance with this Section, such security interest
would be deemed to be a perfected security interest of first priority under
applicable law and will be maintained as such throughout the term of this
Facilities Lease or any renewal hereof as provided in SECTION 5.1.
(d) Notwithstanding anything to the contrary contained in any of the
Lease Documents, the Trade Fixtures are not the property of Brazos and are not
covered by this Lease, and Brazos shall not grant any Lien covering the Trade
Fixtures.
Section III.4. BRAZOS COVENANTS. In the absence of an Event of Default
which is continuing beyond the applicable grace or curative periods, Brazos
agrees as follows: (i) it will not engage any broker in connection with the
purchase or sale of any Facility or FF&E without Lessee's prior written consent;
(ii) within ninety (90) days after the end of Brazos' fiscal year, Brazos will
provide to each Lessee its unaudited balance sheet dated as of the end of its
fiscal year, prepared in accordance with GAAP, certified by an officer of the
General Partner of Brazos; (iii) Brazos will provide such additional financial
information regarding Brazos or any Facility or FF&E (to the extent such
Facility or FF&E information is maintained by Brazos) as may be reasonably
requested by Lessee; (iv) Brazos shall comply with all of its obligations under
the Credit Documents, except to the extent that compliance is prevented by any
failure on the part of Lessee to perform its obligations under the Lease
Documents; (v) Brazos shall not acquire or own any material assets other than
the Properties and Facilities to be acquired pursuant to the Lease Documents and
the commitment of its limited partner to make capital contributions to Brazos;
(vi) Brazos will not engage in any business other than the ownership and leasing
of the Properties and Facilities to be acquired pursuant to the Lease Documents;
and (vii) Brazos will not incur any Indebtedness or other material obligations
other than those pursuant to the Credit Documents and the Lease Documents.
ARTICLE IV
DELIVERY AND ACCEPTANCE
Section IV.1. ACCEPTANCE. Lessee shall accept Facilities built or
Facilities or FF&E acquired by purchase or lease pursuant to the Agreement for
Facilities Lease. Brazos shall not be liable to Lessee for any failure to build
or obtain, or delay in building or obtaining, any Facility or FF&E or any delay
in the delivery of title or possession thereof to Lessee, unless such failure or
delay is caused by the gross negligence or willful misconduct of Brazos.
FACILITIES LEASE AGREEMENT - Page 12
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Section IV.2. PAYMENTS FINAL. Each payment of Basic Rent, Additional Rent
and any other amount due hereunder made by Lessee shall be final, and Lessee,
without waiving any other remedies it may have, will not seek or have any right
to recover all or any part of such payment from Brazos or any Assignee for any
reason whatsoever except as expressly provided herein. The making of payments
under this Facilities Lease by Lessee (including payments pursuant to ARTICLE X)
shall not be deemed to be a waiver of any claim or claims that Lessee may assert
against Brazos or any other person. Brazos agrees to repay Lessee amounts paid
to Brazos to the extent such payments were in error and are not required by the
various terms and provisions of this Facilities Lease.
Section IV.3. NO WARRANTIES OR REPRESENTATIONS. Notwithstanding any other
provision contained in this Facilities Lease, it is specifically understood and
agreed that except as otherwise expressly provided herein, neither Brazos nor
any Assignee nor any Affiliate of either, nor anyone acting on behalf of any of
them makes any warranties or representations hereunder or has any responsibility
to disclose any relevant information hereunder, or has any other responsibility
or duty hereunder, nor, except as expressly set forth in SECTION 3.3 and 19.11
of this Facilities Lease, has Brazos or any Assignee or any Affiliate of either,
or anyone acting on behalf of any of them made any covenants or undertakings, as
to the accounting treatment to be accorded Lessee or as to the U.S. Federal or
any state income or any other tax consequences, if any, to Lessee as a result of
or by virtue of the transactions contemplated by this Facilities Lease.
Section IV.4. QUIET ENJOYMENT. During the Lease Term or Renewal Term, if
any, of any Facility or FF&E hereunder and so long as no Event of Default, Event
of Facility Termination, Potential Default or Potential Facility Termination
shall have occurred and be continuing, Brazos covenants that as between Brazos
and Lessee, Lessee shall have the right to quiet enjoyment of the Facility or
FF&E on the terms and conditions provided in this Facilities Lease without any
interference from Brazos or any party claiming by, through or under Brazos.
Lessee agrees to attorn to any Assignee in the event such Assignee succeeds to
Brazos' interest in the Facility or FF&E, and Lessee will not hold the Assignee
responsible for Brazos' obligations incurred in the period prior to the
succession of the Assignee to Brazos' interest.
Section IV.5. OTHER FINANCING REQUIREMENTS. If Brazos is required by the
Agent pursuant to the terms of the Credit Agreement to provide an appraisal or
other evidence of the value of a Facility or FF&E to the Agent under the Credit
Agreement, Lessee agrees to provide such appraisal or other evidence to Brazos
at Lessee's sole cost and expense.
ARTICLE V
LEASE TERM
Section V.1. LEASE TERM. The "LEASE TERM" with respect to any Facility of
FF&E leased hereunder shall commence on the Effective Date for such Facility and
shall end on September 10, 2003. The lease of any Facility or FF&E may be
renewed for thirty-five (35) renewal terms of one year each, pursuant to, and in
accordance with, SECTION 11.3. The Lease Term or any Renewal Term may be
terminated earlier pursuant to ARTICLES XI, XIII, XIV or XV hereof.
Section V.2. INSURABLE INTEREST. Notwithstanding anything contained in
this ARTICLE V and to the extent that Lessee or any additional insureds named
pursuant to SECTION 9.2 of this Facilities Lease have an insurable interest
therein, the provisions of ARTICLES IX and X and SECTION 13.1 hereof shall apply
with respect to any Facility or FF&E from the time such Facility or FF&E is
acquired by Brazos.
Section V.3. TERMINATION. Notwithstanding anything contained in this
ARTICLE V or ARTICLE XI, this Facilities Lease shall terminate on September 10,
2038, unless earlier terminated.
ARTICLE VI
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RENT AND OTHER PAYMENTS
Section VI.1. BASIC RENT. Lessee hereby agrees to pay Brazos on each
Basic Rent Payment Date, Basic Rent for the period ending on such Basic Rent
Payment Date. Such Basic Rent shall be due and payable on the later of the
applicable Basic Rent Payment Date or two Business Days after Brazos shall have
given Lessee written notice of the amount of the Basic Rent due with respect to
each Facility or FF&E for such Basic Rent Payment Date. Brazos agrees to
communicate with Lessee in a timely manner and to otherwise cooperate fully with
Lessee concerning all matters and decisions which affect or which could minimize
the amount of Basic Rent payable hereunder. Upon receipt by Brazos of any
notice from Agent pursuant to Section 2.1(b) of the Credit Agreement relating to
any adjustments under Section 2.1(b) under the Credit Agreement, Brazos will
advise Lessee by written notice of such adjustments and the amount of any Basic
Rent which may be due from Lessee or the amount of any credit which may be
applied by Lessee to the Basic Rent payable by Lessee on the next Basic Rent
Payment Date. Brazos agrees that Basic Rent payable hereunder shall be reduced
by the amount of any such credit adjustment. Lessee agrees to pay any
additional Basic Rent which is owing due to such adjustments within five (5)
Business Days of receipt of such written notice from Brazos.
Section VI.2. OTHER AMOUNTS. Except as otherwise specifically provided in
this Facilities Lease, Lessee hereby agrees to pay within thirty (30) days of
written demand all amounts (other than Basic Rent and amounts which are payable
on demand or pursuant to ARTICLES X-XV) due hereunder, including, without
limitation, all amounts payable to any Indemnified Person pursuant to ARTICLE X
hereof.
Section VI.3. ADDITIONAL RENT. Lessee shall pay to Brazos from time to
time, on demand, as additional rent ("ADDITIONAL RENT") (i) subject to Section
5.3 of the Agreement for Facilities Lease, amounts required to reimburse Brazos
for its costs and expenses (not previously included in Basic Rent) incurred in
acquiring, financing and leasing the Facility, and to the extent legally
enforceable, interest on each overdue amount not paid by Lessee to Brazos as
provided in this Facilities Lease from the date such overdue amount was due
until paid at the per annum rate of interest equal to the most recent rate of
interest calculated pursuant to the Credit Agreement or as reasonably
established by Agent in the absence of any borrowing under the Credit Agreement,
plus two percent (2%). Lessee shall also pay to Brazos on demand an amount
equal to any reasonable expenses and attorneys' fees incurred by Brazos in
collecting such unpaid sums and enforcing the obligations for such unpaid sums.
Section VI.4. PAYMENT IN ADVANCE. Basic Rent and Additional Rent and any
other amount payable by Lessee to Brazos shall be paid sufficiently in advance
of the date due to assure that immediately available funds in the full amount
due are available on the date due, to such account of Brazos at such bank, or,
with the consent of Agent, to such account of such other person at such bank, or
otherwise as Brazos may from time to time designate in writing.
Section VI.5. CREDIT AGREEMENT LOSSES. In addition to all other payment
obligations hereunder, if the lease for any Facility is terminated for any
reason other than a default by Brazos prior to the end of the Lease Term or, if
applicable, Renewal Term, then Lessee shall pay to Brazos within five (5)
Business Days after receipt of the billing statement referred to below, an
additional amount compensating Brazos for all penalties, costs and expenses
(including reasonable out-of-pocket costs and expenses) as are incurred by
Brazos under the Credit Agreement in connection with such termination and as are
set forth in a billing statement sent by Brazos to Lessee containing the
calculation thereof in reasonable detail.
ARTICLE VII
RESTRICTED USE; COMPLIANCE WITH LAWS
Section VII.1. INSURANCE REQUIREMENT AND LEGAL REQUIREMENT. So long as no
Event of Default or Event of Facility Termination shall have occurred and be
continuing beyond any applicable grace or curative period, Lessee may use the
Facilities in the regular course of its business for any lawful purpose.
Without limiting the generality of the
FACILITIES LEASE AGREEMENT - Page 14
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foregoing, Lessee may offer for sale at the Facility such products and
services as Lessee from time to time offers at any other stores operated by
Lessee or any Affiliate of Lessee. Any assignee or sublessee may use the
Facility for any lawful purpose, subject to the immediately succeeding
sentence. Lessee will not do or permit any act or thing which is contrary to
any Insurance Requirement or which is contrary to any Legal Requirement,
which would, in the reasonable judgment of Lessee, other than in the normal
use thereof, materially impair the Value or usefulness of any Facility;
PROVIDED, that Lessee shall not be required to comply with any Legal
Requirements to the extent provided in SECTION 2.5 of this Facilities Lease.
Section VII.2. FILINGS. Lessee shall promptly and duly execute, deliver,
file and record, at Lessee's expense, all such documents, statements, filings
and registrations, and take such further action as Brazos or any Assignee shall
from time to time reasonably request in order to establish, perfect and maintain
Brazos' or such Assignee's title to and interest in the Facilities and any
Assignee's interest in this Facilities Lease or any Facility as against Lessee
or any third party in any applicable jurisdiction. As FF&E or other fixtures,
furniture and equipment are substituted pursuant to SECTION 8.5 hereof for FF&E
subject to this Facilities Lease, title to such substitute FF&E or other
fixtures, furniture and equipment shall automatically be transferred to Brazos
and such FF&E or other fixtures, furniture and equipment shall be subject to
this Facilities Lease and title to the existing FF&E for which such FF&E or
other fixtures, furniture and equipment is being substituted shall be released
by Brazos; Brazos shall promptly obtain releases of any Liens arising pursuant
to the Credit Agreement or granted by Brazos contrary to the provisions of this
Facilities Lease covering the released FF&E. Lessee may, after thirty (30)
days' written notice in writing to Brazos and each Assignee and at Lessee's own
cost and expense, change the place of principal location of any FF&E; PROVIDED
that prior notice shall not be required in the case of FF&E used for
transportation (such as, without limitation, automobiles and trucks), but in
such event Lessee shall notify Brazos in writing of the change of the principal
location of such transportation FF&E not later than thirty (30) days after such
change is made. Notwithstanding the foregoing, no change of location shall be
undertaken unless and until all Legal Requirements shall have been met;
PROVIDED, that Lessee shall not be required to comply with any Legal
Requirements to the extent provided in SECTION 2.5 of this Facilities Lease.
Section VII.3. COMPLIANCE WITH OTHER REQUIREMENTS. Lessee shall use every
precaution which is commercially reasonable and which is usually employed by
corporations engaged in a business which involves owning or operating similar
property or equipment to prevent loss or damage to Facilities and to prevent
injury to third persons or property of third persons. Lessee shall cooperate
fully with Brazos and all insurance companies providing insurance pursuant to
ARTICLE IX hereof in the investigation and defense of any claims or suits
arising from the ownership or operation of FF&E or ownership, use, or occupancy
of the Facility, PROVIDED that nothing contained in this SECTION 7.3 shall be
construed as imposing on Brazos any duty to investigate or defend any such
claims or suits. Lessee shall comply and shall use commercially reasonable
efforts to cause all persons using or operating FF&E or using or occupying
Facilities to materially comply with all Insurance Requirements and Legal
Requirements regarding acquiring, titling, registering, leasing, insuring,
using, occupying, operating and disposing of Facilities, and, if applicable, the
licensing of operators thereof; PROVIDED, that Lessee shall not be required to
comply with any Legal Requirements to the extent provided in SECTION 2.5 of this
Facilities Lease.
Section VII.4. INSPECTION. Brazos or any Assignee or any authorized
representative of either may, upon five (5) Business Days advance notice, during
reasonable business hours and subject to Lessee's normal safety and security
rules and procedures, from time to time, inspect Facilities and FF&E and deeds,
registration certificates, certificates of title and related documents covering
Facilities and FF&E wherever the same may be located, but neither Brazos nor any
Assignee shall have any duty to make any such inspection. Neither Brazos nor
any Assignee shall incur any liability or obligation by reason of making any
inspection unless and to the extent such party causes damage to any of the
Facility or injury to any person during the course of such inspection. All
inspections shall be at Brazos' or Assignee's own risk.
Section VII.5. NO LIENS; ASSIGNMENT AND SUBLETTING. Lessee shall not
permit or suffer to exist on any Facility or FF&E any Lien, other than Liens
which are the subject of a Permitted Contest, Permitted Encumbrances and Liens
placed thereon by, or arising from, Brazos' own actions or those of any Assignee
or Affiliate of Brazos and in all such
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cases, approved by Lessee (PROVIDED, that any Liens of Record, other than
Liens placed thereon by, or arising from, Brazos' own actions or those of any
Assignee or Affiliate of Brazos and in all such cases, approved by Lessee,
may not exceed an aggregate amount of $2,000,000 with respect to the
aggregate of the Properties, Facilities and FF&E, and an aggregate amount of
$250,000 with respect to each Facility and related Property & FF&E), nor may
it assign any right or interest herein or in any Facility or FF&E.
Notwithstanding anything to the contrary contained herein, provided that no
Event of Default has occurred and is then continuing beyond any applicable
grace or curative period, Lessee shall have the right, without the prior
written consent of Brazos or any Assignee, to assign this Lease to any
Affiliate of Lessee, and to sublease all or any portion of any one or more
Facilities and FF&E to any Person for any legal use and may otherwise
relinquish possession of Facility to any contractor for use in performing
work for Lessee; PROVIDED that such assignment, sublease or relinquishment of
possession shall in no way affect the obligations of Lessee or the rights of
Brazos hereunder and with respect to the Facility. Any sublease by Lessee
shall be expressly subordinate to this Facilities Lease. Brazos and Assignee
shall have the present and continuing right to collect and enjoy all rents
and other sums of money payable under any such sublease, and Lessee hereby
irrevocably assigns such rents and other sums to Brazos and Assignee for the
benefit and protection of Brazos and Assignee for all amounts due to Brazos
and Assignee under this Facilities Lease; PROVIDED that unless an Event of
Default shall have occurred and be continuing hereunder beyond any applicable
grace or curative period, Lessee shall be entitled to collect and enjoy such
rents and other sums. Lessee shall, within thirty (30) days after the
execution of any such sublease, deliver a conformed copy thereof to Brazos
and Agent. Nothing contained in this Facilities Lease shall be construed as
constituting the consent or request of Brazos, express or implied, to or for
the performance by any contractor, laborer, materialman or vendor of any
labor or services or for the furnishing of any materials for any
construction, alteration, addition, repair or demolition of or to any
Facility or any part thereof. Notice is hereby given that Brazos and Agent
will not be liable for any labor, services or materials furnished or to be
furnished to Lessee, or to anyone holding any Facility or any part thereof
through or under Lessee, and that no mechanics' or other liens for any such
labor, services or materials shall attach to or affect the interest of Brazos
or Assignee in and to the Facility.
In the event a Lien or other matter affecting title to a Facility arises
and such Lien or other matter is a Lien or other matter with respect to which
Brazos is entitled to make a claim under the terms of a Title Policy covering
such Facility, Brazos shall be obligated to remove or discharge, or pay to
Lessee, the amount incurred by Lessee in removing and discharging such Lien or
other matter to the extent (and only to the extent) of any proceeds, damages or
other amounts paid to Brazos under a Title Policy (the "TITLE POLICY PROCEEDS").
In that connection, if such Lien or other matter is discovered, Brazos, upon
Lessee's reasonable request and at Lessee's expense, will make such claims or
institute such proceedings as are appropriate under the terms of such Title
Policy to cause the Title Insurer to either remove such Lien or other matter or
pay any Title Policy Proceeds payable under the Title Policy in respect of such
Lien or other matter. Lessee agrees to indemnify and hold Brazos harmless from
and against all liability, cost and expense which Brazos may sustain or incur in
making any such claim or instituting any such proceeding. In the event that
Brazos is paid any Title Policy Proceeds as a result of such claim or proceeding
prior to the time that Lessee discharges such Lien or other matter, Brazos shall
apply the Title Policy Proceeds to the payment of amounts necessary to remove
and discharge such Lien or other matter to the extent of such proceeds. In the
event that Brazos is paid any Title Policy Proceeds after Lessee discharges such
Lien or other matter, then Brazos agrees to reimburse Lessee to the extent (and
only to the extent) of any proceeds, damages or other amounts paid to Brazos
under a Title Policy for any amounts paid by Lessee to remove or discharge any
such Lien or other matter, including, without limitation, expenses incurred by
Lessee in causing such Lien or other matter to be removed or discharged or
incurred by Lessee under the foregoing indemnity. Any Title Policy Proceeds
exceeding the foregoing amounts shall be paid to Lessee. Any claim by Lessee
against Brazos in accordance with the foregoing provisions shall be strictly
limited to the amount of any Title Policy Proceeds actually paid to Brazos.
Section VII.6. INTERFERENCE. If any Lien or charge of any kind or any
judgment, decree or order of any court or other governmental authority
(including, without limitation, any state or local tax lien affecting the
Facility or FF&E), whether or not valid but exclusive of any Lien granted by
Brazos contrary to the provisions of this Facilities Lease, shall be asserted or
entered which is reasonably likely to interfere with the due and timely payment
of any sum payable or the exercise of any of the rights or the performance of
any of the duties or responsibilities under this Facilities Lease,
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Lessee shall, upon obtaining knowledge thereof or upon receipt of notice to
that effect from Brazos or Agent, promptly take such action as may be
necessary to prevent or terminate such interference.
Section VII.7. DELIVERY OF INFORMATION. Lessee shall deliver to Brazos
and Agent (i) promptly after a Responsible Officer obtains knowledge of any
Event of Default or Potential Default, a certificate of a Responsible Officer
specifying the nature and period of existence of such Event of Default or
Potential Default, and what action, if any, Lessee has taken, is taking, or
proposes to take with respect thereto, and (ii) promptly after Lessee obtains
knowledge of any and all Liens other than Permitted Encumbrances on any Facility
or FF&E or other matter which may, in the reasonable judgment of Lessee,
materially adversely affect the Value of a Facility or FF&E or intended use of a
Facility or FF&E, a detailed statement describing each such Lien or other
matter. Brazos shall deliver to Lessee, the information and notices provided by
Brazos pursuant to Section 5.6 of the Credit Agreement (other than 5.6(g))
simultaneously with delivering such information to Agent.
Section VII.8 EXECUTION OF DOCUMENTS. Lessee hereby agrees that neither
it nor Guarantor will take or permit to be taken any action on the part of
either of them pursuant to SECTION 8.8 of this Facilities Lease and the powers
granted by Brazos thereunder, if such action would cause a Default (as defined
in the Credit Agreement) under the Credit Agreement.
ARTICLE VIII
MAINTENANCE, IMPROVEMENT AND REPAIR OF FACILITIES
Section VIII.1. WARRANTIES. Brazos, so long as no Event of Default or
Event of Facility Termination shall have occurred and be continuing, hereby
assigns and agrees to make available to Lessee any and all rights Brazos may
have under any vendor's or manufacturer's warranties or undertakings with
respect to any Facility. If any Event of Default or Event of Facility
Termination shall have occurred and be continuing beyond the expiration of any
applicable grace or curative period, the assignment of such rights from Brazos
to Lessee shall be deemed to be terminated, except to the extent that such Event
of Default or Event of Facility Termination is the result of a breach of any
vendor's warranties or undertakings, in which case the foregoing assignment will
remain in full force and effect and Lessee will be allowed a reasonable period
of time to pursue such vendor and to cure the Event of Default or Event of
Facility Termination.
Section VIII.2. COSTS AND EXPENSES. Subject to the provisions of Section
5.3 of the Agreement for Facilities Lease, Lessee shall pay all costs, expenses,
fees and charges incurred in connection with the ownership, use or occupancy of
any Facility or ownership, use and operation of any FF&E during the Lease Term
and Renewal Term, if any, thereof, including, without limitation, any rent under
an Acquired Facilities Lease. Except as otherwise provided in ARTICLE XII
hereof, Lessee shall at all times, at its own expense, and subject to reasonable
wear and tear, keep the Facility and FF&E in good operating order, repair,
condition and appearance. The foregoing undertaking to maintain the Facility and
FF&E in good repair shall apply regardless of the cause necessitating repair,
regardless of the availability or adequacy of insurance or condemnation proceeds
and regardless of whether Lessee has possession of the Facility or FF&E, and as
between Brazos and Lessee all risks of damage to the Facility or FF&E are
assumed by Lessee. With respect to any Facility or FF&E, the undertaking to
maintain in good repair shall include, without limitation, all interior and
exterior repairs, whether structural or nonstructural, foreseen or unforeseen,
ordinary or extraordinary and all common area maintenance including, without
limitation, removal of dirt, snow, ice, rubbish and other obstructions and
maintenance of sidewalks and landscaping in the ordinary course of Lessee's
business. Lessee hereby agrees to indemnify and hold Brazos and any Assignee
harmless from and against all costs, expenses, claims, losses, damages, fines or
penalties, including reasonable counsel fees, arising out of or due to Lessee's
failure to fulfill its obligations under this SECTION 8.2.
Section VIII.3. PAYMENT OF TAXES. With respect to any Facility, except
for Excluded Taxes, Lessee shall make all required reports to the appropriate
taxing authorities and shall pay: (i) all taxes, assessments (which may be
amortized over the maximum period permitted by Law), levies, fees, water and
sewer rents and charges, and all other
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governmental, quasi-governmental and non-governmental charges, general and
special (which may be amortized over the maximum period permitted by Law),
ordinary and extraordinary, foreseen and unforeseen, which are, at any time
during the Lease Term or any Renewal Term hereof, imposed or levied upon or
assessed against (A) the Facility and FF&E, (B) any Basic Rent, any
Additional Rent or other sum payable hereunder or (C) this Facilities Lease,
the leasehold estate hereby created, or which arises in respect of the
ownership, operation, occupancy, possession or use of the Facility and FF&E,
(ii) all gross receipts or similar taxes (i.e., taxes based upon gross income
which fail to take into account all customary deductions (e.g., depreciation
and interest) relating to any Facility and FF&E) imposed or levied upon,
assessed against or measured by any Basic Rent, or any Additional Rent or
other sum payable hereunder, (iii) all transfer, sales, value added, use and
similar taxes at any time levied, assessed or payable on account of the
acquisition, leasing or use of the Facility and FF&E, (iv) all charges of
utilities and communications services serving the Facility and FF&E and (v)
subject to the exclusions in the definition of "Excluded Taxes", all
franchise taxes and state registration fees or charges levied by any state in
which Brazos is domiciled or in which any Facility or FF&E is located.
Lessee will furnish to Brazos, promptly after demand therefor and when made
available by the taxing authorities, proof of payment of all items referred
to above, the payment of which is the responsibility of Lessee. If any such
assessments may legally be paid in installments, Lessee may pay or permit to
be paid such assessment in installments. So long as, in the reasonable
opinion of Lessee's counsel, Lessee shall have reasonable grounds to contest
the existence, amount, applicability or validity of any tax Lessee is
required to pay pursuant to this Facilities Lease, Lessee may contest such
tax pursuant to the provisions of ARTICLE XVIII of this Facilities Lease so
long as reserves deemed adequate under GAAP are maintained therefor by Lessee.
Section VIII.4. NO MATERIAL ALTERATIONS. Lessee shall not make any
alterations to any Facility which in Lessee's reasonable judgment would
materially adversely affect the value of the Facility or the usefulness of the
Facility for its intended purpose without the prior written consent of Brazos.
Any improvements or additions paid for by Brazos in accordance with the
Agreement for Facilities Lease shall become part of the Facility and shall be
evidenced by an updated Facility Leasing Record. Any improvements or additions
to any Facility not paid for by Brazos shall become and remain the property of
Lessee if it can be removed from such Facility without impairing the functioning
of such Facility or its resale value, excluding such addition.
Section VIII.5. MAINTENANCE. The FF&E shall be maintained, repaired,
refurbished or replaced by Lessee when necessary in order to ensure that all the
FF&E located at each Facility will include the FF&E listed on the Facility
Leasing Record with respect to such Facility or replacements for such FF&E of
the kind, quality and in the quantities included in the Facility Leasing Record
with respect to such Facility (PROVIDED that Lessee may replace FF&E with
equipment of different kind, quality and in different quantities if such
replacement equipment is of equal or greater value in Lessee's good faith
judgment and is included in the FF&E) and will be in such condition and
sufficient to allow such Facility to be operated in accordance with standards at
least substantially equivalent to the operation of facilities owned and operated
by Lessee. As equipment is substituted for FF&E subject to this Facilities
Lease, title to such substitute equipment shall automatically be transferred to
Brazos and such equipment shall be subject to this Facilities Lease and title to
the existing FF&E for which such equipment is being substituted shall be
released by Brazos. Brazos shall promptly obtain releases of any Liens arising
pursuant to the Credit Agreement or granted by Brazos contrary to the provisions
of this Facilities Lease covering the released FF&E.
FACILITIES LEASE AGREEMENT - Page 18
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Section VIII.6. ADDITIONS AND ALTERATIONS. So long as no Event of Default
or Event of Facility Termination shall have occurred and be continuing beyond
any applicable grace or curative period, Lessee may, at its expense, make
additions to and alterations to any Facility following the completion of the
initial construction of such Facility; PROVIDED that upon completion of such
additions or alterations (i) in Lessee's reasonable judgment, neither the fair
market value of the Facility shall be materially lessened thereby nor the
condition of such Facility materially impaired, below the value, utility or
condition thereof immediately prior to such action (assuming such Facility was
then of a condition and repair required to be maintained pursuant to SECTION
8.2), (ii) such additions or alternations shall not result in a change of use of
such Facility to a use that is not permitted in this Lease, (iii) such work
shall be completed in a good and workmanlike manner and in compliance with all
applicable Insurance Requirements and upon completion of the work the Facility
shall comply in all respects with the requirements of this Facilities Lease and
any Ground Lease and (iv) no exterior walls of any building or other improvement
constituting a part of a Facility shall be demolished unless Lessee has made
adequate provision according to nationally recognized sound and prudent
engineering and architectural standards to preserve and maintain the structural
integrity of the Facility and for the restoration of such Facility to a
structurally sound architectural whole; PROVIDED, that Lessee shall notify
Brazos of such costs that are in excess of $500,000 for a Facility and shall not
make such additions or alterations that cost more than $500,000 for each
Facility and that such additions or alterations shall not result in any Lien
(except Permitted Encumbrances) upon such Facility. Any and all such additions
and alterations shall be and remain part of the Facility and shall be subject to
this Facilities Lease.
Section VIII.7. ENVIRONMENTAL REPORTS. At any reasonable time and from
time-to-time, upon reasonable notice, Lessee shall furnish Brazos a report or
reports (the "REPORTS") prepared by a qualified independent consultant, at the
expense of Lessee, concerning the condition and status of any Facility in
respect of any Environmental Laws; PROVIDED that the party requesting such
reports (either Brazos or the Assignee) has demonstrable evidence that such
Facility may be adversely affected by a hazardous substance, a hazardous waste
or an Environmental Claim not adequately addressed in any environmental
assessment previously delivered to Brazos or any Assignee in connection with
such Facility.
Section VIII.8. OBLIGATIONS OF BRAZOS. Brazos agrees to promptly deliver
to Lessee all notices, bills, invoices or reports received by Brazos which
relate to any Facility. Further, as owner of a Facility or owner of the
leasehold estate of an Acquired Facilities Lease, Brazos shall execute all such
documents and take all such actions as shall be necessary or as shall reasonably
be requested by Lessee or Guarantor in order to allow Lessee to develop,
construct, use, operate and/or maintain the Facility efficiently or otherwise in
a manner consistent with the purposes for which Lessee acquired an interest in
the Property, including, without limiting the generality of the foregoing,
execution of any architectural contracts, construction contracts, applications
or permits or other documents relating to any construction activities or other
operations or activities on or sought to be undertaken on the Property and
execution of easements, licenses or other such documents relating to the
Property. Brazos hereby appoints Guarantor and Lessee as its agent and
attorney-in-fact in connection with executing all such documents and taking all
such actions described in the sentence directly above. Also, Brazos shall
furnish Lessee or Guarantor promptly upon request with any powers of attorney or
other documents necessary or appropriate to enable Lessee or Guarantor to take
all such actions or execute all such documents on behalf of Brazos as described
in this paragraph. Any power of attorney granted under or pursuant to this
SECTION 8.8 is and shall be coupled with an interest and irrevocable.
Section VIII.9. CORRECTION OF STRUCTURAL DEFECTS. Upon demand of Brazos,
Lessee shall correct any structural defect in any Facility.
ARTICLE IX
INSURANCE
Section IX.1. LIABILITY AND PROPERTY DAMAGE. Lessee shall, at its sole
cost and expense, including through self-insurance, maintain such liability and
property damage insurance with respect to all Facilities and FF&E and
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insurance against loss or damage to all Facilities and FF&E of the types
usually carried by corporations engaged in the same or a similar business, of
similar size as Lessee, and owning or operating similar equipment and
property and which cover risks of the kind customarily insured against by
such corporations and such other insurance as may be required by law or as
may be reasonably requested by Brazos for purposes of assuring compliance
with this ARTICLE IX, including, without limitation, the insurance described
on the Schedule of Insurance attached hereto as EXHIBIT "A". Such insurance
shall be written by financially sound and reputable companies which are
legally qualified to issue such insurance. Lessee may, at its cost and
expense, prosecute any claim against any insurer or contest any settlement
proposed by any insurer, and Lessee may bring any such prosecution or contest
in the name of Brazos, Lessee, or both, and Brazos will join therein at
Lessee's request; PROVIDED that Lessee shall indemnify Brazos against any
losses, costs or expenses (including reasonable attorneys' fees) which Brazos
may incur in connection with such prosecution or contest. Notwithstanding
the foregoing, Lessee at its sole option, may choose to self-insure in whole
or in part (through deductibles or otherwise) for any liabilities or damages
which are otherwise to be covered by insurance as described herein.
Section IX.2. ADDITIONAL INSUREDS; NOTICE. Any policies of insurance,
other than Workers' Compensation and Employer's Liability Insurance, carried in
accordance with this ARTICLE IX and any policies taken out in substitution or
replacement for any such policies (i) shall name Brazos and Assignee as
additional insureds, as their respective interests may appear (but without
imposing upon any such person any obligation imposed on the insured, including,
without limitation, the liability to pay the premium for any such policy), (ii)
shall have attached to the All Risk direct physical damage policy a lender's
loss payable endorsement for the benefit of Brazos and Assignee as loss payees
and (iii) shall provide that as against Brazos and Assignee the insurers shall
waive any rights of subrogation. Lessee shall request the insurers to give
thirty (30) days advance written notice to Brazos and its assigns of any
cancellation of any insurance to be maintained under this Article. Lessee shall
give a copy to Brazos and any Assignee of any notice received by Lessee
regarding the cancellation or other termination of the insurance included in the
Schedule of Insurance attached hereto as EXHIBIT "A". Each liability policy (A)
shall be primary without right of contribution from any other insurance which is
carried by Brazos with respect to its interest as such in the Facility and (B)
shall expressly provide that all of the provisions thereof, except the limits of
liability, shall operate in the same manner as if there were a separate policy
covering each insured. Any insurance required to be maintained pursuant to this
Lease may, at Lessee's option, be maintained, in whole or in part, as part of
blanket insurance policies covering the Facilities and other properties of
Lessee.
Section IX.3. APPLICATION OF PROCEEDS OF LOSS OR SUBSTANTIAL TAKING. Any
insurance or condemnation proceeds received as the result of the occurrence of
(i) any event of loss described in SECTION 14.3 hereof or (ii) any event of
substantial Taking described in SECTION 15.1 shall be paid to Agent on behalf of
Brazos, and disposed of as contemplated by SECTION 14.3 hereof.
Section IX.4. APPLICATION OF PROCEEDS OF OTHER THAN LOSS OR SUBSTANTIAL
TAKING. As between Lessee and Brazos, if any insurance or condemnation proceeds
received as a result of any loss or Taking, other than a loss described in
SECTION 14.3 or an event of substantial Taking described in SECTION 15.1, is
less than $250,000, it is agreed that such proceeds will be paid to Lessee to be
used for repairs, replacement, reconstruction or restoration in accordance with
the terms of SECTIONS 14.2 and 15.2 hereof. If the proceeds equal or exceed
$250,000, then the proceeds shall be deposited in a special purpose account held
by Assignee, to be used only for the purpose set forth in this paragraph, and
Lessee shall be entitled (i) to receive the amounts so deposited against
certificates, invoices or bills in form reasonably satisfactory to Brazos and
Agent, delivered to Brazos and Assignee from time to time as such work or repair
progresses, and (ii) to direct the investment of the amounts so deposited as
provided in SECTION 9.5. Notwithstanding the foregoing, so long as no Event of
Default has occurred and is then continuing beyond any applicable grace or
curative period, any insurance or condemnation proceeds received as a result of
any loss or Taking, other than a loss to which SECTION 14.3 applies or an event
of substantial Taking described in SECTION 15.1, shall be paid to Lessee and
used by Lessee for repairs, replacement, reconstruction or restoration of the
affected Facility so as to place the same in good operating order, repair,
condition and appearance. Any moneys remaining in the aforesaid account after
final payment for repairs has been made shall be paid to Lessee.
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Section IX.5. INVESTMENT. Agent, at Lessee's instruction, shall invest
the amounts deposited with Agent pursuant to SECTION 9.4 in the following:
(i) direct obligations of the United States Government;
(ii) interest-bearing time deposits at, or obligations of, any Assignee;
(iii) commercial paper supported by a letter of credit issued by any
Assignee; or
(iv) money market mutual funds that invest only in government obligations
or repurchase agreements secured by government obligations.
Such investments shall mature in such amounts and on such dates so as to provide
that amounts shall be available on the draw dates sufficient to pay the amounts
requested by and due to Lessee. Any interest earned on investments of such
funds shall be paid to Lessee. Brazos and Agent shall not be liable for any
loss resulting from the liquidation of each and every such investment and Lessee
shall be liable for such loss, if any.
Section IX.6. APPLICATION IN DEFAULT. Any amount referred to in SECTIONS
9.3 or 9.4 which is payable to Lessee shall not be paid to Lessee or, if it has
been previously paid to Lessee and not applied by Lessee as provided in SECTIONS
9.3 or 9.4, shall not be retained by Lessee, if at the time of such payment an
Event of Default or Event of Facility Termination shall have occurred and be
continuing beyond any applicable grace or curative period. In such event, all
such amounts shall be paid to and held by Brazos as security for the obligations
of Lessee hereunder or, at Brazos' option, applied by Brazos toward payment of
any of such obligations of Lessee at the time due hereunder as Brazos may elect.
At such time as there shall not be continuing any Event of Default or Event of
Facility Termination, all such amounts at the time held by Brazos in excess of
the amount, if any, which Brazos shall have elected to apply as above provided
shall be applied as provided in SECTIONS 9.3 or 9.4.
Section IX.7. CERTIFICATES. Subject to Lessee's right to self-insure as
set forth hereinabove, on or before the execution of this Facilities Lease, and
annually on or before the anniversary of the date of this Facilities Lease,
Lessee will furnish to Brazos and Agent certificates or other evidence
reasonably acceptable to Brazos and Agent certifying that the insurance then
carried and maintained on each Facility complies with the terms hereof.
Section IX.8. COVENANT TO KEEP INSURANCE IN FORCE. Subject to Lessee's
right to self insure as set forth above, Lessee covenants that it will not use,
occupy or operate any Facility or FF&E or permit the use, occupancy or operation
of any Facility or FF&E at a time when the insurance required by this ARTICLE IX
is not in force with respect to such Facility or FF&E.
ARTICLE X
INDEMNITIES
Section X.1. INDEMNIFIED PERSONS. Lessee shall indemnify and hold
harmless Brazos, each general and limited partner of Brazos, any Assignee, any
successor or successors, and any Affiliate of each of them, and their respective
officers, directors, incorporators, shareholders, partners (general and limited,
including without limitation, the general and limited partners of Brazos),
employees, agents and servants (each of the foregoing, an "INDEMNIFIED PERSON")
from and against all liabilities, losses, obligations, claims, damages,
penalties, causes of action, suits, costs and expenses (including, without
limitation, reasonable attorneys' and accountants' fees and expenses) or
judgments of any nature relating to or in any way arising out of:
(a) Except as provided in SECTION 7.5 with respect to claims under a
Title Policy, the ordering, delivery, acquisition, construction, title on
acquisition, rejection, installation, possession, titling, retitling,
registration, reregistration, custody by Lessee of title and registration
documents, ownership, use, non-use, misuse, lease, operation,
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transportation, repair, control or disposition of any Facility or FF&E leased
or subleased or to be leased or subleased hereunder, (i) except to the extent
that such costs are included in the Acquisition Cost of such Facility or FF&E
and (ii) except for any general administrative expenses of Brazos;
(b) The assertion of any claim or demand based upon any infringement or
alleged infringement of any patent or other right, by or in respect of any
Facility or FF&E; PROVIDED, HOWEVER, that upon request of Lessee, Brazos will
make available to Lessee Brazos' rights under any similar indemnification
arising from any manufacturer's or vendor's warranties or undertakings with
respect to any Facility or FF&E;
(c) All taxes, assessments and charges that Lessee is obligated to pay
pursuant to SECTION 8.3 above;
(d) Any violation or alleged violation (other than an alleged violation
alleged by Brazos or the Assignee) by Lessee of this Facilities Lease or of any
contracts or agreements to which Lessee is a party or by which it is bound or
any laws, rules, regulations, orders, writs, injunctions, decrees, consents,
approvals, exemptions, authorizations, licenses and withholdings of objection,
of any governmental or public body or authority and all other Legal
Requirements, including, without limitation, any Legal Requirements with respect
to the environment or the regulation of hazardous materials or substances, or
any breach of a representation or warranty by Lessee under this Facilities
Lease;
(e) Any Environmental Claim or requirement of Environmental Law concerning
or relating to any Facility, or the operations or business in respect of any
Facility, other than any Environmental Claim resulting from the gross negligence
or willful misconduct of Brazos or the Assignee; or
(f) Any claim against Brazos' title or Assignee's interest in any Facility
or FF&E to the extent such claim is not fully paid by a Title Policy as provided
in section 7.5.
Section X.2. PAYMENTS. Subject to the terms of Section 10.5, Lessee shall
forthwith upon demand reimburse any Indemnified Person for any sum or sums
expended with respect to any of the items set forth in SECTION 10.1 or, upon
request from any Indemnified Person, shall pay such amounts directly. Any
payment made to or on behalf of any Indemnified Person pursuant to this ARTICLE
X shall be increased to such amount as will, after taking into account all
actual increases in taxes imposed with respect to the accrual or receipt of such
payment (as the same may be increased pursuant to this sentence), equal the
amount of the payment, reduced by the amount of any savings in such taxes
actually realized by the Indemnified Person as a result of the payment or
accrual of the amounts in respect of which the payment to or on behalf of the
Indemnified Person hereunder is made. To the extent that Lessee in fact
indemnifies any Indemnified Person under the indemnity provisions of this
Facilities Lease, Lessee shall be subrogated to such Indemnified Person's rights
in the affected transaction and shall have a right to determine the settlement
of claims therein.
Section X.3. CONTINUING INDEMNIFICATION. The indemnities contained in
this ARTICLE X shall not be affected by and shall survive any termination of
this Facilities Lease as a whole or in respect of any Facility or FF&E leased
hereunder as to all matters arising prior to such termination or any failure or
refusal of Lessee to accept any Facility or FF&E constructed, acquired or
ordered pursuant to the Agreement for Facilities Lease.
FACILITIES LEASE AGREEMENT - Page 22
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Section X.4. LIMITATIONS.
(a) Notwithstanding any provisions of this ARTICLE X to the contrary,
Lessee shall not indemnify and hold harmless any Indemnified Person against
liabilities, losses, obligations, claims, damages, penalties, causes of action,
suits, costs and expenses to the extent arising from the gross negligence (as
between such Indemnified Person or an Affiliate of such Indemnified Person and
Lessee) or willful misconduct (as between such Indemnified Person or an
Affiliate of such Indemnified Person and Lessee) of such Indemnified Person, but
shall otherwise indemnify any Indemnified Person against its own negligence, or
against any consequential damages or loss of profit or loss of any fees to
Brazos (except to the extent specified in the letter from Brazos to Lessee dated
as of September 10, 1998, designated therein as the "Brazos Margin Letter").
(b) Brazos and Lessee agree that the terms of any state Law which may
affect the rights of Brazos and Lessee under this ARTICLE X may be set forth in
the Memorandum of Facilities Lease for the affected Facility or FF&E and shall
apply as though set forth in full in this Facilities Lease. Brazos agrees to
release the Memorandum of Facilities Lease for any Facility upon payment of all
amounts and satisfaction of all obligations owing as of the date of sale with
respect to such Facility.
Section X.5. LITIGATION. If any claim, action, proceeding or suit is
brought against an Indemnified Person with respect to which Lessee would be
required to indemnify such Indemnified Person, such Indemnified Person, with
reasonable promptness, shall cause written notice of the assertion of such claim
or the commencement of such proceeding or litigation to be given to Lessee but
failure to so notify Lessee shall not relieve Lessee from any liability
hereunder unless, in the reasonable judgment of Lessee, Lessee is actually and
materially prejudiced thereby and then only to the extent thereof. Upon receipt
of such notice, Lessee shall have the right to assume the defense thereof,
including the employment at its expense of counsel; PROVIDED that Lessee shall
not have such right, to the extent that such Indemnified Person shall deliver to
Lessee a written notice waiving the benefits of the indemnification of such
Indemnified Person provided by this ARTICLE X in connection with such claim,
action, proceeding or suit. Notwithstanding the foregoing, if (i) (A) any
claim, action, proceeding or suit is brought against an Indemnified Person who
is an individual, (B) the action threatens to restrain or adversely affect the
conduct of the business of the Indemnified Person, but not the business of
Brazos' ownership of the Property under this Agreement, and (C) the claim,
action, proceeding or suit seeks damages of more than $500,000, or (ii)
independent counsel to an Indemnified Person shall conclude that there may be
defenses available to the Indemnified Person which may conflict with those
available to Lessee, Lessee shall not have the right to assume the defense of
any such action on behalf of the Indemnified Person if such Indemnified Person
chooses to defend such action (with counsel reasonably acceptable to Lessee),
and all reasonable costs, expenses and attorneys' fees incurred by the
Indemnified Person in defending such action shall be borne by Lessee; provided
however, if there is more than one (1) Indemnified Person having a right to
defend such action as aforesaid, the obligation of Lessee to pay the fees and
expenses of such Indemnified Persons shall be limited to one (1) firm of
attorneys. Notwithstanding the assumption of its defense by Lessee pursuant to
this SECTION 10.5, any Indemnified Person shall have the right to employ
separate counsel and to participate in its defense, but the fees and expenses of
such counsel shall be borne by the Indemnified Person. In addition, Lessee will
not be liable for any settlement of any claim, action, proceeding or suit unless
Lessee has consented thereto in writing. Any decision by an Indemnified Person
to employ its own counsel rather than counsel selected by Lessee (whether or not
at Lessee's expense) shall in no way affect any rights of such Indemnified
Person otherwise arising under this ARTICLE X.
FACILITIES LEASE AGREEMENT - Page 23
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ARTICLE XI
RENEWAL AND TERMINATION
Section XI.1. LESSEE'S RIGHT TO TERMINATE.
(a) Regardless of whether any Potential Default, Potential Property
Termination, Event of Default or Event of Facility Termination has occurred and
is continuing, with respect to all Facilities and all FF&E, Lessee shall have
the right, at any time during the Lease Term or any Renewal Term, upon not less
than fifteen (15) days' written notice to Brazos and Assignee, to terminate, on
any date specified in such notice, this Facilities Lease with respect to all
Facilities and all FF&E, and either (i) purchase or cause its designee to
purchase all Facilities and all FF&E, for cash at their respective Acquisition
Cost less any Unearned Rent, together with all other amounts then due and
payable by Lessee to Brazos hereunder or (ii) with the prior written consent of
both Brazos and Agent, arrange, at its own cost and expense, for all Facilities
and all FF&E, to be sold for cash pursuant to SECTION 11.4 and with the
consequences therein provided, except that such sale must occur on the date
stipulated in the written notice contemplated by this SECTION 11.1.
(b) In addition to Lessee's right to terminate this Facilities Lease
with respect to all Facilities and all FF&E pursuant to subsection (a) above, so
long as no Event of Default or Event of Facility Termination (other than an
Event of Facility Termination with respect to the Facility and FF&E to be
purchased pursuant to this subsection (b)) has occurred and is continuing beyond
any applicable grace or curative period, Lessee shall have the right, at any
time during the Lease Term or any Renewal Term, upon not less than fifteen (15)
days' written notice to Brazos and Assignee, to terminate on any date specified
in such notice this Facilities Lease with respect to any one or more Facility
and the related FF&E (each such Facility and related FF&E specified in such
notice being herein called a "PURCHASED FACILITY"), but not with respect to the
remaining Facilities, subject to the following terms and conditions:
(i) On the effective date of such termination with respect to the
Purchased Facility, Lessee or its designee shall purchase the
Purchased Facility for cash equal to the Acquisition Cost less any
Unearned Rent with respect to the applicable Facility and
simultaneously purchase the parcel of land on which the Purchased
Facility is located (or the leasehold interest in such parcel in the
case of an Acquired Ground Lease, as defined in the Ground Lease)
for the Acquisition Cost (as defined in the Ground Lease) of such
parcel of land or Acquired Ground Lessee.
(ii) The conditions of either subsection (iii), (iv) or (v) below have
been satisfied.
(iii) In the good faith judgment of Lessee, the Purchased Facility shall
have become uneconomic for continued use and occupancy by Lessee
(such Facility being hereinafter sometimes called an "UNECONOMIC
FACILITY") and Lessee shall have delivered to Brazos and Assignee a
written notice (an "UNECONOMIC NOTICE") containing a certificate of
an officer of Lessee stating that Lessee has determined that such
Facility has become uneconomic for continued use and occupancy by
Lessee. If Lessee terminates this Facilities Lease with respect to
an Uneconomic Facility, neither Lessee nor any Affiliate of Lessee
shall have the right, for the period commencing six (6) months and
ending one (1) year following the date of the purchase of such
Economic Facility, to use such Uneconomic Facility for the operation
of a retail store by Lessee or such Affiliate.
(iv) In addition to the right to terminate this Facilities Lease with
respect to an Uneconomic Facility, Lessee shall have the right to
terminate this Facilities Lease with respect to Facilities with
respect to which the attributable Acquisition Costs are no more than
twenty percent (20%) of the aggregate Acquisition Costs for all
Facilities then covered by this Facilities Lease.
(v) In addition to Lessee's right to terminate this Facilities Lease
with respect to an Uneconomic Facility pursuant to subsection (iii)
above, or to terminate pursuant to subsection (iv), Lessee shall
have the
FACILITIES LEASE AGREEMENT - Page 24
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right to terminate this Facilities Lease with respect to any one
or more Facilities provided that Lessee has delivered to Brazos
and the Assignee, on or prior to the notice of termination with
respect to such Facilities, an appraisal or appraisals, in form
and substance reasonably satisfactory to Brazos and the Assignee,
reflecting that the aggregate fair market value of all Facilities
that will remain subject to this Facilities Lease after such
termination (assuming completion of all such Facilities) and all
Properties that are subject to the Ground Lease after such
termination is no less than the aggregate Acquisition Costs of the
remaining Facilities (including any Acquisition Costs reasonably
expected to be advanced to cause the completion of the remaining
Facilities) and Acquisition Costs (as defined in the Ground Lease)
of the remaining Properties.
Section XI.2. BRAZOS' RIGHT TO TERMINATE. Brazos shall have the right
upon ninety (90) days' prior written notice to Lessee, to terminate the
Facilities Lease of all Facilities and all FF&E as of a Basic Rent Payment Date
stipulated in such notice if at any time: (1) by reason of a nexus between a
state or local taxing jurisdiction and any Facility or FF&E or the activities of
any user (other than Brazos) of the Facility or FF&E, Brazos incurs, or, in its
reasonable judgment, in the future would incur, a state or local tax for which
Brazos is not indemnified, and which, in its reasonable good faith judgment,
renders the Facilities Lease uneconomic, unless Lessee agrees to indemnify
Brazos from such state or local tax; or (2) the Agreement for Facilities Lease
or any other instrument relating to this Facilities Lease shall be deemed to
require the payment or deemed to permit the collection of interest in excess of
the Maximum Rate and any such interest in excess of such Maximum Rate cannot be
spread and allocated either to the preceding or subsequent periods in which such
excess interest is to be paid or collected pursuant to SECTION 19.8 of this
Facilities Lease. In the event of a termination of this Facilities Lease with
respect to all Facilities and all FF&E pursuant to this SECTION 11.2, Lessee
shall either (i) purchase or cause its designee to purchase, on the Basic Rent
Payment Date or other date stipulated in the written notice contemplated by this
SECTION 11.2, all Facilities and all FF&E for cash at their respective
Acquisition Cost less any Unearned Rent or (ii) with the prior written consent
of both Brazos and Agent arrange, at its own cost and expense, for all
Facilities and all FF&E to be sold for cash pursuant to SECTION 11.4 and with
the consequences therein provided, except that such sale must occur on the Basic
Rent Payment Date or other date stipulated in the written notice contemplated by
this SECTION 11.2.
Section XI.3. RENEWAL.
(a) Provided that Lessee has theretofore given notice to Brazos and
Agent of Lessee's desire to renew this Lease, not later than nine months prior
to the end of the Lease Term or six months prior to the end of a Renewal Term,
if any, as applicable, Brazos, with the consent of Agent, shall give notice to
Lessee as to whether it desires to renew the lease with respect to all
Facilities and all FF&E and the terms and conditions (including the rental
amounts) of any such renewal. Not later than six months prior to the end of the
Lease Term or four months prior to the end of a Renewal Term, as applicable,
Lessee shall give notice to Brazos as to whether it will renew or not renew the
lease for each Facility for which Brazos has offered to renew the lease.
Failure of Lessee to give such notice shall be deemed an election not to renew
the lease. If the parties elect to renew the Lease Term as set forth above,
Brazos will use commercially reasonable efforts to obtain financing, on terms
and conditions consistent with the Credit Agreement and partnership agreement of
Brazos or otherwise acceptable to Brazos and Lessee, for the Renewal Term. So
long as (i) no Event of Default or Event of Facility Termination has occurred
and is continuing beyond any applicable grace or curative period, (ii) Brazos
shall have received a commitment for financing on terms satisfactory to Brazos
and Lessee through the last day of the Renewal Term (as defined below) from the
Agent under the Credit Agreement or from a third party, and (iii) Lessee shall
elect to renew this Lease, this Lease shall be renewed for a term (the "RENEWAL
TERM") equal to one year commencing on the first day of the calendar month
following the last day of the Lease Term or Renewal Term, as applicable,
thereof; PROVIDED, HOWEVER, the Lease Term or Renewal Term, as applicable, shall
not be renewed if on the first day of the new Renewal Term the lender(s) fails
to fund under its commitment pursuant to the terms of such commitment for any
reason. Lessee may give advance notice of its intention to renew this
Facilities Lease with respect to all Facilities and all FF&E for successive
Renewal
FACILITIES LEASE AGREEMENT - Page 25
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Terms. Upon acceptance by Brazos and Agent of such successive Renewal Terms,
Lessee shall be bound by such renewals for the entire period of successive
Renewal Terms. Upon the request of Lessee, but subject to the other
provisions of this SECTION 11.3, any Renewal Term may be five (5) years,
rather than one (1) year.
(b) If this Facilities Lease is not being renewed, Lessee shall, at its
option, either (i) purchase or cause its designee to purchase all Facilities and
all FF&E for cash at their respective Acquisition Cost (less any Unearned Rent)
during the period from one (1) month before the end of the Lease Term or Renewal
Term, as applicable, to five (5) Business Days before the end of the Lease Term
or Renewal Term, as applicable or (ii) arrange, at its own cost and expense, for
all Facilities and all FF&E to be sold for cash pursuant to SECTION 11.4 and
with the consequences therein provided during the period from six (6) months
before the end of the Lease Term or Renewal Term, as applicable, to one (1)
month before the end of the Lease Term or Renewal Term, as applicable. With
respect to a Facility for which the lease is not being renewed, not later than
eight months prior to the end of the Lease Term or four months prior to the end
of the Renewal Term, as applicable, Lessee shall give notice to Brazos of its
election to either purchase or sell such Facilities and FF&E to a third party.
Any notice given by Lessee pursuant to the preceding sentence shall be
irrevocable, except that Lessee may revoke the election to have a Facility or
FF&E sold to a third party if Lessee purchases such Facility or FF&E.
Section XI.4. SALES TO THIRD PARTIES.
(a) If Lessee exercises its right to arrange for a sale of a Facility to
a third party pursuant to SECTIONS 11.1, 11.2 or 11.3, Brazos shall receive the
proceeds of sale and:
(i) if the proceeds of sale are greater than the Acquisition
Cost of the Facility sold less any Unearned Rent, Brazos
shall pay to Lessee the amount by which such proceeds exceed
such Acquisition Cost less any Unearned Rent;
(ii) if the proceeds of sale are equal to or less than the
Acquisition Cost of the Facility sold less any Unearned
Rent, but greater than or equal to fifteen percent (15%) of
the Acquisition Cost of such Facility, Lessee shall pay to
Brazos an amount equal to (A) such Acquisition Cost less (B)
the proceeds of such sale plus any Unearned Rent; and
(iii) if the proceeds of sale are less than fifteen percent (15%)
of the Acquisition Cost of the Facility sold, Lessee shall
pay to Brazos an amount equal to the sum of (A) eighty-five
percent (85%) of such Acquisition Cost less any Unearned
Rent and (B) the amount specified to Lessee in the notice
delivered pursuant to SECTION 11.5 by which the residual
value of such Facility has been reduced by wear and tear in
excess of that attributable to normal use, plus the amount
by which, in the good faith judgment of Brazos, the proceeds
of sale for such Facility has been reduced due to Liens
(exclusive of any Lien granted by Brazos contrary to the
provisions of this Facilities Lease) attaching to such
Facility at the time of sale.
For purposes of this SECTION 11.4, in connection with the sale of a Facility
"proceeds of sale" shall mean the aggregate proceeds from the sale of such
Facility without reduction for any amounts paid by Lessee.
(b) All payments and credits referred to in paragraph (a) above shall be
made on the date of the sale of such Facility, and the parties shall account to
each other for such payments and credits. In consideration for the receipt by
Brazos of the proceeds of sale and all other amounts then due and owing
hereunder, Brazos shall transfer title to such Facility to the purchaser at the
sale designated by Lessee, free of any Lien created by or under the Credit
Agreement or granted by Brazos contrary to the provisions of this Facilities
Lease, pursuant to a special warranty bill of sale. In the event of a sale
pursuant to this SECTION 11.4, neither Lessee nor any Affiliate of Lessee shall
purchase the Facility. Any Facility sold to a third party pursuant to this
paragraph (b) shall, unless SECTION 11.4 (a)(i) applies, be free of any Liens
(exclusive of any Lien granted by Brazos contrary to the provisions of this
Facilities Lease) at the time of sale,
FACILITIES LEASE AGREEMENT - Page 26
<PAGE>
including Liens which would otherwise be Permitted Encumbrances if such Liens
would reduce the Value to the purchaser of such Facility; PROVIDED, HOWEVER,
Lessee shall have the option to obtain affirmative title insurance, if
available, to insure over such Lien or to make other arrangements acceptable
to such purchaser.
(c) If a Facility and the related Property are sold to the same third
party, the proceeds of sale shall be allocated prorata between such Facility and
Property based on the Acquisition Cost of such Facility and the Acquisition Cost
(as defined in the Ground Lease) of such Property unless (a)(iii) above applies,
in which case, Agent may allocate the proceeds in any manner acceptable to
Agent.
(d) In the event Lessee exercises the third party sale option with
respect to a Facility then, as soon as practicable and in all events not less
than sixty (60) days prior to the end of the Lease Term or Renewal Term, as
applicable, Lessee at its expense shall cause to be delivered to Brazos a Phase
I environmental site assessment for each of the Properties recently prepared (no
more than thirty (30) days old prior to the date of delivery) by an independent
recognized professional reasonably acceptable to Brazos and in form, scope and
content reasonably satisfactory to Brazos. In the event that Brazos shall not
have received such environmental site assessment by the date sixty (60) days
prior to the end of the Lease Term or Renewal Term or in the event that such
environmental assessment shall reveal the existence of any material violation of
Environmental Laws, other material environmental violations or potential
material environmental violation (with materiality determined in each case by
Brazos and Agent in their reasonable good faith judgment) with respect to a
Facility, then thirty (30) days prior to the end of the Lease Term or Renewal
Term, as the case may be, Lessee shall pay to Brazos an amount equal to the
Acquisition Cost (less Unearned Rent) and any and all other amounts then due and
owing hereunder for the affected Facility. Upon receipt of such payment and all
other amounts due under the Lease Documents, Brazos shall transfer to Lessee all
of Brazos's right, title and interest in and to the affected Facility in
accordance with this Facilities Lease, free and clear of any Lien created under
the Credit Agreement or any Lien granted by Brazos contrary to the provisions of
this Facilities Lease.
Section XI.5. ADVISEMENT. At least thirty (30) days prior to any sale of
a Facility pursuant to SECTION 11.4, Lessee shall deliver to Brazos a copy of
the purchase contract for such Facility. If such sale will result in the
applicability of SECTION 11.4(a)(iii), Brazos may arrange for a sale of such
Facility to be made to a purchaser designated by Brazos, if such purchaser will
pay an amount sufficient to render SECTION 11.4(a)(iii) inapplicable, or Brazos
may send Lessee a bill as described in the paragraph below for the amount by
which the residual value of such Facility has been reduced by wear and tear in
excess of that attributable to normal use and such amount shall be due and
payable within ten (10) days after receipt of such bill. Unless Brazos shall
arrange for the sale of such Facility and shall give Lessee notice thereof
within thirty (30) days of Brazos' receipt of the purchase contract, Lessee may
proceed with the sale to a purchaser designated by it; PROVIDED that on or
before the date of such sale Lessee shall pay to Brazos the amount set forth in
the bill for excess wear and tear. Within thirty (30) days of Lessee's receipt
of Brazos' notice provided for in the preceding sentence, Lessee may arrange for
such sale to be made to another purchaser designated by it, if such purchaser
shall pay an amount sufficient to render SECTION 11.4(a)(iii) inapplicable. If
Brazos and Lessee do not agree on the amount by which the residual value of a
Facility has been reduced by wear and tear in excess of that attributable to
normal use, such amount shall be determined by an appraisal conducted by a
mutually acceptable disinterested appraiser.
Upon any sale of the Facility or FF&E to any third party hereunder, Lessee
(A) shall abandon the Facility or FF&E to the possession of such third party at
the closing, subject only to the Liens existing at such time, and (B) shall
deliver the Facility or FF&E in the same physical and operating condition as on
the first day of the Lease Term, less wear and tear attributable to normal use
and occupancy for an approved use, and in the manner required hereby. Upon the
end of the Lease Term or any Renewal Term, unless Lessee purchases the Facility
or FF&E, Lessee shall surrender to Brazos all keys to the Facilities and FF&E
and give Brazos the combination of all safes or safes or safe cabinets, if any,
which are to remain in the Facility. If Lessee does not purchase the Facility
or FF&E pursuant to the terms hereof, and fails to relinquish possession of the
Facility or FF&E in the condition required by this Section, Lessee shall pay to
Brazos, as Additional Rent, the greater of (A) the costs and expenses as
reasonably determined by Brazos with the approval of Agent as necessary to
repair and restore the Facility or FF&E to the condition required by this
Section, or
FACILITIES LEASE AGREEMENT - Page 27
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(B) the reduction in fair market sales value attributable to such failure to
deliver the Facility or FF&E in the condition required by this Section as
reasonably determined by Brazos with the approval of Agent.
Section XI.6. ADDITIONAL PAYMENTS. In connection with any purchase or
sale of a Facility or FF&E under this ARTICLE XI, on or before the date such
purchase or sale occurs, Lessee shall pay to Brazos, in addition to any purchase
price payable, all Basic Rent payable, any Additional Rent, all amounts owing
under SECTION 11.4, and other amounts owing hereunder to the date of such sale.
Section XI.7. TERMINATION OF FACILITIES LEASE. Upon receipt by Brazos of
the purchase price payable in connection with any sale or purchase of any
Facility or FF&E under this ARTICLE XI, together with all additional payments
required under SECTION 11.6 with respect to such Facility or FF&E, this
Facilities Lease shall terminate with respect to such Facility or FF&E. In the
event a Facility is the subject of an Acquired Facilities Lease and this
Facilities Lease is not being renewed or is being terminated as provided in this
ARTICLE XI with respect to such Facility, the Lessee shall assume all of Brazos'
obligations under such Acquired Facilities Lease as of the end of the term or
the date of termination of this Facilities Lease with respect to such Facility
and this Facilities Lease shall terminate with respect to such Facility.
Section XI.8. SURRENDER OF FACILITY. Subject to the provisions of this
ARTICLE XI and ARTICLES XII, XIII, XIV and XV hereof, upon termination of the
lease of any Facility or FF&E hereunder, Lessee shall surrender such Facility or
FF&E to Brazos.
ARTICLE XII
PROCEDURE UPON SALE
The following procedure shall apply to each sale of a Facility and related
FF&E to Lessee or its designee:
(a) The closing of such sale and purchase shall occur on the date
specified in the written notice of one party to the other regarding
such sale, or on the next Business Day if the date designated in
such notice is not a Business Day.
(b) At such closing, Lessee or its designee shall pay to Brazos and the
Agent the Acquisition Cost and all other amounts then due and owing
hereunder with respect to the Purchased Facility, less any Unearned
Rent with respect to the Purchased Facility.
(c) At such closing, the Lessee or its designee shall assume all of
Brazos' obligations under any Acquired Facilities Lease with respect
to such Purchased Facility.
(d) At such closing, Brazos shall deliver or shall cause to be delivered
to Lessee or its designee the following:
(i) A Special Warranty Deed conveying to the Lessee or its
designee the applicable Purchased Facility and related FF&E,
free and clear of any Liens arising under the Credit
Agreement or created by Brazos contrary to the provisions of
this Facilities Lease and any other encumbrances other than
Permitted Encumbrances.
(ii) A Bill of Sale transferring to Lessee or its designee any of
the related FF&E, free and clear of any Liens arising under
the Credit Agreement or created by Brazos contrary to the
provisions of this Facilities Lease and any encumbrances
other than the Permitted Encumbrances.
FACILITIES LEASE AGREEMENT - Page 28
<PAGE>
(iii) An assignment of warranties to Lessee or its designee
affecting all or any portion of the Purchased Facility or
related FF&E.
(iv) To the extent necessary to convey title in accordance with
CLAUSES (i) and (ii) above, releases of all Liens (including
termination statements with respect to any UCC financing
statements) covering the Purchased Facility and related
FF&E, executed by the holders of such Liens or their duly
authorized agent.
ARTICLE XIII
EVENTS OF DEFAULT
Section XIII.1. EVENTS OF DEFAULT. Any of the following events of default
shall constitute an "EVENT OF DEFAULT" and shall give rise to the rights on the
part of Brazos described in SECTION 13.2 hereof:
(a) FAILURE TO MAKE PAYMENTS. Failure of Lessee to pay amounts due to
Brazos at the time of any scheduled sale of a Facility hereunder, failure of
Lessee to pay Basic Rent for more than five (5) Business Days after such payment
is due pursuant to ARTICLE VI hereof or failure of Lessee to pay any other
amount payable by Lessee hereunder when due which failure continues for more
than ten (10) Business Days after written demand for such payment.
(b) FAILURE TO MAINTAIN INSURANCE. Subject to Lessee's rights to self
insure hereunder, failure of Lessee to maintain the insurance required by
ARTICLE IX hereof, or default in the performance of the covenant contained in
SECTION 9.4 hereof which failure or default continues for more than thirty (30)
days after any lapse of insurance or such default.
(c) OTHER DEFAULTS. Lessee shall default in the performance or
observance of any other term, covenant, condition or obligation contained in
this Facilities Lease or any Consent and such default shall (i) continue for
thirty (30) days after written notice shall have been given to Lessee by Brazos
or any Assignee specifying such default and requiring such default to be
remedied or (ii) if such default is of a nature that it is not capable of being
cured within such 30-day period, Lessee shall not have diligently commenced
curing such default and proceeded diligently and in good faith thereafter to
complete curing such default.
(d) BANKRUPTCY. (i) The entry of a decree or order for relief in
respect of Lessee by a court having jurisdiction in the premises in an
involuntary case under the Federal bankruptcy laws, as now or hereafter
constituted, or any other applicable Federal or state bankruptcy, insolvency or
other similar law, or appointing a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or similar official) of Lessee or of any substantial part
of Lessee's property, or ordering the winding up or liquidation of Lessee's
affairs, and the continuance of any such decree or order unstayed and in effect
for a period of sixty (60) consecutive days; or (ii) the general suspension or
discontinuance of Lessee's business operations, its insolvency (however
evidenced) or its admission of insolvency or bankruptcy, or the commencement by
Lessee of a voluntary case under the Federal bankruptcy laws, as now or
hereafter constituted, or any other applicable Federal or state bankruptcy,
insolvency or other similar law, or the consent by it to the appointment of or
taking possession by a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or other similar official) of Lessee or of any substantial part of
its property, or the making by it of an assignment for the benefit of creditors,
or the failure of Lessee generally to pay its debts as such debts become due, or
the taking of corporate action by Lessee in furtherance of any such action.
(e) PAYMENT OF OBLIGATIONS. A default or event of default which remains
uncured for any applicable grace or curative period, the effect of which is to
permit the holder or holders of any Indebtedness of Lessee, or a trustee or
agent on behalf of such holder or holders, to cause such Indebtedness to become
due prior to its stated maturity shall
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occur under the provisions of any instrument evidencing Indebtedness in
excess of $20,000,000 of Lessee (or under the provisions of any agreement
pursuant to which such instrument was issued).
(f) MISREPRESENTATIONS. Any representation or warranty made by Lessee
in this Facilities Lease or any Consent or which is contained in any
certificate, document or financial or other statement furnished under or in
connection with this Facilities Lease proves to be false or misleading in any
material respect when made or deemed made and which has a Material Adverse
Effect.
(g) DEFAULT UNDER LEASE DOCUMENTS. An Event of Default (as defined in
the Agreement for Facilities Lease, Agreement for Ground Lease or Ground Lease)
shall occur under the Agreement for Facilities Lease, Agreement for Ground Lease
or Ground Lease, respectively, and be continuing beyond any applicable grace or
curative period.
(h) OTHER AGREEMENTS. Lessee shall default in any material respect in
the performance or observance of any material term, covenant, condition or
obligation contained in any other material written agreement executed by Lessee
with or for the benefit of Brazos or Agent and such default shall not have been
cured within any applicable grace or cure period and which would reasonably be
expected to have a Material Adverse Lease Document Effect.
(i) UNAUTHORIZED ASSIGNMENT. Any assignment by Lessee of any interest
in this Facilities Lease other than in accordance with the terms of this
Facilities Lease.
(j) DEFAULT UNDER THE GUARANTY. An "EVENT OF DEFAULT" (as defined in
the Guaranty) under the Guaranty shall occur and be continuing beyond any
applicable grace or curative period.
(k) DEFAULT UNDER CORPORATE CREDIT DOCUMENTS. The occurrence of any
breach, failure of performance, default, event of default or terminating event
with regard to either Lessee or Guarantor under any of the Corporate Credit
Documents, which remains uncured beyond any applicable grace or cure period, the
effect of which is to permit the holders of any Indebtedness thereunder, or an
agent on behalf of such holder or holders, to cause the Indebtedness evidenced
by the Corporate Credit Documents to become due prior to its stated maturity.
Section XIII.2. RIGHTS UPON DEFAULT. Upon the occurrence and continuation
of any Event of Default Brazos or any Assignee may in its discretion declare
this Facilities Lease to be in default and may, in its discretion, do any one or
more of the following:
(a) Prior to the exercise of any other remedy, terminate this Facilities
Lease as of any date, in which event, Lessee shall have the right and shall be
required as to all Facilities other than the Facility which is the subject of an
Acquired Facilities Lease, to purchase all Facilities at a price equal to the
Acquisition Cost of such Facility and as to all Facilities which are the
subject of an Acquired Facilities Lease, assume all obligations of Brazos under
such Acquired Facilities Lease. In connection with any such purchase under this
SECTION 13.2, on the Basic Rent Payment Date or other date upon which such
purchase shall occur, Lessee shall pay to Brazos, in addition to such
Acquisition Cost, all Basic Rent payable and any Additional Rent and other
amount owing hereunder with respect to such Facility up to the date of such
sale, and reasonable attorneys' fees and expenses and other costs incurred by
Brazos by reason of such Event of Default and exercise of Brazos' rights under
this SECTION 13.2. Any Unearned Rent shall be credited against Lessee's payment
obligations under the foregoing sentences and the balance, if any, shall be
refunded to Lessee. Upon payment of the amount set forth in the foregoing
sentences, Brazos shall transfer all Facilities to Lessee free of any Lien
created pursuant to the Credit Agreement and this Facilities Lease shall
terminate without further obligation or liability of Brazos or Lessee except
where such liability is expressly provided to survive the termination of this
Facilities Lease; PROVIDED, HOWEVER, in no event shall Lessee be liable for any
further damages arising out of the occurrence of such Event of Default.
(b) If and only if Lessee fails to pay the amounts set forth in
subparagraph (a) above, Brazos or any Assignee may, in its discretion, do any
one or more of the following:
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(i) Whether or not the lease of any Facility is terminated, take
immediate possession of and remove any or all FF&E and other equipment or
property of Brazos in the possession of Lessee, wherever situated, and for such
purpose, enter upon any premises without liability to Lessee for so doing;
(ii) Sell any Facility or Brazos' interest in any Acquired Facilities
Lease (with or without the concurrence or request of Lessee);
(iii) Hold, use, occupy, operate, remove, lease or keep idle any or all
Facility as Brazos in its sole discretion may determine, without any duty to
account to Lessee with respect to any such action or inaction or for any
proceeds thereof;
(iv) Exercise any other right or remedy which may be available under
applicable law and in general proceed by appropriate judicial proceedings,
either at law or in equity, to enforce the terms hereof or to recover damages
for the breach hereof; and
(v) Declare an Event of Facility Termination as to any or all Facilities
and/or FF&E leased hereunder.
Suit or suits for the recovery of any default in the payment of any sum due
hereunder may be brought by Brazos from time to time at Brazos' election, and
nothing herein contained shall be deemed to require Brazos to await the date
whereon this Facilities Lease or the term hereof would have expired by
limitation had there been no such default by Lessee or no such termination or
cancellation.
The receipt of any payments under this Facilities Lease by Brazos with
knowledge of any breach of this Facilities Lease by Lessee or of any default by
Lessee in the performance of any of the terms, covenants or conditions of this
Facilities Lease, shall not be deemed to be a waiver of any provision of this
Facilities Lease.
No receipt of moneys by Brazos from Lessee after the termination or
cancellation hereof in any lawful manner shall reinstate, continue or extend the
Lease Term or any Renewal Term, or affect any notice theretofore given to
Lessee, or operate as a waiver of the right of Brazos to enforce the payment of
Basic Rent or Additional Rent or other charges payable hereunder, or operate as
a waiver of the right of Brazos to recover possession of any Facility or FF&E by
proper suit, action, proceedings or remedy; it being agreed that, after the
service of notice to terminate or cancel this Facilities Lease, and the
expiration of the time therein specified, if the default has not been cured in
the meantime, or after the commencement of suit, action or summary proceedings
or of any other remedy, or after a final order, warrant or judgment for the
possession of the Facility, Brazos may demand, receive and collect any moneys
payable hereunder, without in any manner affecting such notice, proceedings,
suit, action, order, warrant or judgment; and any and all such moneys so
collected shall be deemed to be payments on account for the use, operation and
occupation of the Facility, or at the election of Brazos, on account of Lessee's
liability hereunder. Acceptance of the keys to any Facility, or any similar
act, by Brazos, or any agent or employee, during the term hereof, shall not be
deemed to be an acceptance of a surrender of any Facility unless Brazos shall
consent thereto in writing.
If, after an Event of Default shall have occurred, Lessee fails to
surrender promptly after written request by Brazos or converts or destroys any
Facility, Lessee shall be liable to Brazos for all Basic Rent and Additional
Rent then due and payable with respect to such Facility, all other amounts
payable under this Facilities Lease, the Acquisition Cost of such Facility as of
the date of such request, conversion or destruction and all losses, damages and
expenses (including, without limitation, attorneys' fees and expenses) sustained
by Brazos by reason of such Event of Default and the exercise of Brazos'
remedies with respect thereto.
If, after an Event of Default Brazos repossesses any Facility,
notwithstanding any termination of this Facilities Lease, Lessee shall be liable
for and Brazos may recover from Lessee all Basic Rent accrued and any Additional
Rent owing with respect to such Facility to the date of such repossession, all
other amounts payable under this Facilities Lease, and all losses, damages and
expenses (including, without limitation, reasonable attorneys' fees and
expenses)
FACILITIES LEASE AGREEMENT - Page 31
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sustained by Brazos by reason of such Event of Default and the exercise of
Brazos' remedies with respect thereto. In addition, Brazos may sell Brazos'
interest in any Facility upon any terms that Brazos deems satisfactory, free
of any rights of Lessee or any person claiming through or under Lessee. In
the event of such sale, in addition to the amounts payable under the first
sentence of this paragraph, Brazos shall be entitled to recover from Lessee,
as liquidated damages, and not as a penalty, an amount equal to the
Acquisition Cost of any Facility so sold, minus the sum of any Unearned Rent
plus the net proceeds of such sale (deducting from such Unearned Rent and the
gross proceeds of such sale any reasonable legal expenses, commissions, sales
taxes or other costs or expenses associated with such sale) received by
Brazos; PROVIDED, HOWEVER, if the proceeds of such sale plus any Unearned
Rent are in excess of the amount payable to Brazos pursuant hereto, such
excess shall be the property of Lessee.
Subject to the availability of such remedy under applicable law and subject
to the provisions of Section 13.2(a) above, Brazos may (i) sell all or any part
of the Facility or FF&E at public or private sale, as Brazos may determine, free
and clear of any rights of the Lessee and without any duty to account to the
Lessee with respect to such action or inaction or any proceeds with respect
thereto (except to the extent required by clause (ii) below if Brazos shall
elect to exercise its rights thereunder) in which event the Lessee's obligation
to pay Basic Rent hereunder for periods commencing after the date of such sale
shall be terminated or proportionately reduced, as the case may be; and (ii) if
Brazos shall so elect, demand that the Lessee pay to Brazos, and the Lessee
shall pay to Brazos, on the date of such sale, as liquidated damages for loss of
a bargain and not as a penalty (the parties agreeing that Brazos' actual damages
would be difficult to predict, but the aforementioned liquidated damages
represent a reasonable approximation of such amount) (in lieu of Basic Rent due
for periods commencing on or after the Basic Rent Payment Date coinciding with
such date of sale (or, if the sale date is not a Basic Rent Payment Date, the
Basic Rent Payment Date next preceding the date of such sale)), an amount equal
to (A) the excess, if any, of (1) the Acquisition Cost calculated as of such
Basic Rent Payment Date (including all Rent due and unpaid to and including such
Basic Rent Payment Date), over (2) the net proceeds of such sale, if any (that
is, after deducting all costs and expenses incurred by Brazos, the Agent and the
Assignees incident to such conveyance, including, without limitation,
repossession costs, brokerage commissions, prorations, transfer taxes, fees and
expenses for counsel, title insurance fees, survey costs, recording fees, and
any repair or alteration costs); plus (B) any and all additional damages, costs
and expense of Brazos under the Ground Lease; plus (C) interest at the overdue
rate provied in SECTION 6.3 hereof on the foregoing amount from such Basic Rent
Payment Date until the date of payment.
Brazos may exercise any other right or remedy that may be available to it
under applicable law, or proceed by appropriate court action (legal or
equitable) to enforce the terms hereof or to recover damages for the breach
hereof. Separate suits may be brought to collect any such damages for any
period(s), and such suits shall not in any manner prejudice Brazos' right to
collect any such damages for any subsequent period(s), or Brazos may defer any
such suit until after the expiration of the Term, in which event such suit shall
be deemed not to have accrued until the expiration of the Lease Term.
In the event that a court of competent jurisdiction rules that this
Facilities Lease constitutes a mortgage, deed of trust or other secured
financing as is the intent of the parties pursuant to SECTION 3.3, and subject
to the availability of such remedy under applicable law, then Brazos and the
Lessee agree that the Lessee hereby grants, bargains, sells, transfers, assigns
and conveys unto the trustee named as such in the Lien granted by Brazos to
Agent, as trustee and herein referred to as "trustee", and his successors
(Brazos hereby reserving the right to from time to time, with or without cause
and at Brazos' sole discretion, by instrument in writing, substitute a successor
or successors to trustee, which instrument, executed by Brazos duly acknowledged
and recorded in the office of the recorder of the county or counties where the
Facility is situated, shall be conclusive proof of proper substitution of such
successor, who shall, without conveyance from trustee or any successor trustee
to trustee, succeed to all his title, estate, rights, powers and duties), in
trust a lien and security interest against all of Lessee's interest in and to
the Facility, to have and to hold the Facility, together with all and singularly
the rights, hereditaments, and appurtenances in any way appertaining or
belonging thereto, unto such trustee and such trustee's successor or substitute
in such trust, and such trustee's and its or his successors and assigns, in
trust, and that, upon the occurrence of any Event of Default such trustee, at
the direction of Brazos, may proceed with foreclosure, and in such event such
trustee, at the direction of Brazos, is hereby authorized
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and empowered, and it shall be such trustee's special duty, upon such request
of Brazos, acting upon a request from the Agent or Assignees, to sell the
Facility, or any part thereof, to the highest bidder or bidders for cash or
credit, as directed by Brazos, acting upon a request from the Agent or
Assignees, at the location at the county courthouse specified by the
commissioner's court in the county in the state wherein the Facility then
subject to the lien hereof is situated or, if no such location is specified
by the commissioner's court, then at the location specified in such trustee's
notice of such sale to the Lessee; PROVIDED, that if the Facility is situated
in more than one county, then such sale of the Facility, or part thereof, may
be made in any county in the state wherein any part of the Facility then
subject to the lien hereof is situated. Any such sale shall be made at
public outcry between the hours of ten o'clock (10:00) A.M. and four o'clock
(4:00) P.M. on the first (1st) Tuesday in any month. Written or printed
notice of such sale shall be posted at the courthouse door in the county, or
if more than one, then in each of the counties, wherein the Facility then
subject to the lien hereof is situated. Such notice shall designate the
county where the Facility, or part thereof, will be sold and the earliest
time at which the sale will occur, and such notice shall be posted at least
twenty-one (21) days prior to the date of sale. Such notice shall also be
filed with the county clerk in the county, or if more than one, then in each
of the counties wherein the Facility is located. Trustee shall, at least
twenty-one (21) days preceding the date of sale, serve written notice of the
proposed sale by certified mail on each debtor obligated to pay the
Acquisition Cost and other obligations secured hereby according to the
records of the Agent and Assignees. After such sale, Brazos shall make to the
purchaser or purchasers thereunder good and sufficient assignments, deed,
bills of sale, and other instruments, in the name of Brazos, conveying the
Facility, or part thereof, so sold to the purchaser or purchasers with
general warranty of title by Brazos. Any proceeds of any sale shall be
applied in accordance with applicable law. The sale of a part of the
Facility shall not exhaust the power of sale, but sales may be made from time
to time until the Acquisition Cost and other obligations secured hereby are
paid and performed in full. It shall not be necessary to have present or to
exhibit at any such sale any of the personal property. Upon the occurrence
of a Lease Event of Default, Brazos, in lieu of or in addition to exercising
any power of sale hereinabove given, may proceed by a suit or suits in equity
or at law, whether for a foreclosure hereunder, or for the sale of the
Facility, or against the Lessee on a recourse basis for the Acquisition Cost,
or the specific performance of any covenant or agreement herein contained or
in aid of the execution of any power herein granted, or for the appointment
of a receiver pending any foreclosure hereunder or the sale of the Facility,
or for the enforcement of any other appropriate legal or equitable remedy.
Sales pursuant to this SECTION 13.2, by Brazos of any part of the Facility,
may be by private or public sale, in such order or otherwise in such manner as
Brazos may elect in its sole discretion. Brazos shall have, with respect to the
FF&E, in addition to any other rights and remedies which may be available to it
at law or in equity or pursuant to this Facilities Lease or any other contract
or agreement, all rights and remedies of a secured party under any applicable
version of the Uniform Commercial Code of the relevant jurisdictions relating to
the FF&E, and it is expressly agreed that if Brazos should proceed to dispose of
or utilize the FF&E, or any part thereof, in accordance with the provisions of
said Uniform Commercial Code, ten (10) days' notice by Brazos to Lessee shall be
deemed to be reasonable notice of any such provision requiring such notice. Any
sale of FF&E by Brazos may be made on such terms as it may choose, without
assuming any credit risk and without any obligation to advertise or give notice
of any kind other than that necessary under applicable law. Brazos shall incur
no liability as a result of the sale of the FF&E, or any part thereof, at any
private or public sale. Lessee hereby waives, to the extent permitted by law,
any claims against Brazos arising by reason of the fact that the price at which
the FF&E may have been sold at such private sale was less than the price which
may have been obtained at a public sale or was less than the aggregate account
of the amounts due from Lessee to Brazos hereunder, even if Brazos accepts the
first offer received and does not offer the FF&E to more than one possible
purchaser.
No remedy referred to in this SECTION 13.2 is intended to be exclusive,
but, subject to the provisions of Section 13.2(a) above, each shall be
cumulative and in addition to any other remedy referred to above or otherwise
available to Brazos at law or in equity, and the exercise in whole or in part by
Brazos of any one or more of such remedies shall not preclude the simultaneous
or later exercise by Brazos of any or all such other remedies, subject to the
provisions of Section 13.2(a) above. No waiver by Brazos of any Event of
Default hereunder shall in any way be, or be construed to be, a waiver of any
future or subsequent Event of Default.
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With respect to the termination of this Facilities Lease as to any Facility
as a result of an Event of Default, Lessee hereby waives service of any notice
of intention to re-enter. Lessee hereby waives any and all rights to recover or
regain possession of any Facility or to reinstate this Facilities Lease as
permitted or provided by or under any statute, law or decision now or hereafter
in force and effect.
Section XIII.3. EVENTS OF FACILITY TERMINATION. The occurrence of any of
the following shall constitute an Event of Facility Termination with respect to
a Facility:
(a) UNSATISFACTORY TITLE. If at any time title to any Facility
is not satisfactory to Brazos or Agent by reason of any Lien or other
defect not disclosed in writing or contained in the Title Policy for such
Facility at the time of any advance (even though the same may have existed
at the time of any such advance), except the Permitted Encumbrances, and
such Lien, encumbrance or other defect would, in the reasonable judgment of
Lessee, have a material adverse effect on the Value or usefulness of the
Facility and is not corrected to the satisfaction of Brazos and Agent
within one hundred eighty (180) days after written notice to Lessee unless
such defect would, in the reasonable judgment of Lessee, cause a loss or
forfeiture of title to a Facility or the loss of priority of any Lien for
the benefit of Agent, in which case such defect shall be cured immediately
and prior to any such loss of title or priority.
(b) NONCONFORMING WORK. If Lessee shall fail to correct any
structural defect in a Facility within a reasonable period of time after
Lessee has actual knowledge of the existence of such structure defect.
(c) NON-COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS. If Lessee
fails to materially comply with any requirement of any Governmental
Authority with respect to such Facility and such non-compliance results, in
the reasonable judgment of Lessee, in a material adverse effect on the
Value of the Facility or to contest such requirement by means of a
Permitted Contest under ARTICLE XVIII (i) within thirty (30) days after
notice in writing of such requirement shall have been given to Lessee by
such Governmental Authority or by Brazos or Assignee, or (ii) if such
requirement is of a nature that it cannot be completely complied with
within such 30-day period, if Lessee shall fail after such notice either
diligently to commence complying with such requirement or to proceed
thereafter with reasonable diligence and in good faith to comply with such
requirement; PROVIDED, HOWEVER, that Lessee shall in any event comply with
such requirement prior to the date on which such Facility may be seized or
sold as a result of such non-compliance.
(d) PERMITS. If Lessee shall fail to obtain or be unable to
obtain when needed any material Permit, or if any material Permit shall be
revoked or otherwise cease to be in full force and effect and Lessee shall
not have obtained reinstatement or reissuance of such Permit within thirty
(30) days after the revocation or expiration thereof, or if such
reinstatement or reissuance is of a nature that it cannot be completely
effected within thirty (30) days, Lessee shall not have diligently
commenced application for such reinstatement or reissuance and shall
thereafter be diligently proceeding to complete said reinstatement or
reissuance.
(e) DEFAULT UNDER ACQUIRED FACILITIES LEASE. Lessee shall
default after the expiration of all applicable cure periods under an
Acquired Facilities Lease or as may be allowed under local Law in the
observance or performance of any term, covenant or condition of the
Acquired Facilities Lease relating to such Facility on the part of Brazos,
as tenant thereunder, to be observed or performed, unless any such
observance or performance shall have been waived or not required by the
landlord under the Acquired Facilities Lease, or if any one or more of the
events referred to in the Acquired Facilities Lease shall occur which would
cause the Acquired Facilities Lease to terminate without notice or action
by the landlord thereunder or which would entitle the landlord under the
Acquired Facilities Lease to terminate the Acquired Facilities Lease and
the term thereof by the giving of notice to Brazos, as tenant thereunder,
or if the Acquired Facilities Lease shall be terminated or canceled for any
reason or under any circumstance whatsoever, or if any of the terms,
covenants or conditions of the Acquired Facilities Lease shall in any
manner be modified, changed, supplemented, altered or amended in any
respect without the consent of Brazos.
FACILITIES LEASE AGREEMENT - Page 34
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Section XIII.4. BRAZOS' RIGHT UPON EVENT OF FACILITY TERMINATION. If any
Event of Facility Termination with respect to a Facility shall occur, Brazos
may, with Agent's approval, as liquidated damages and not as a penalty, require
Lessee to purchase such Facility on the next Basic Rent Payment Date or on any
other date agreed upon by Brazos and Lessee at a price equal to the Acquisition
Cost for such Facility (less any Unearned Rent) by giving written notice of such
required purchase or require Lessee to assume all obligations of Brazos under an
Acquired Facilities Lease by giving written notice of such required assumption.
Any such notice shall be given no less than thirty (30) days in advance of the
required purchase date. In connection with any such purchase under this SECTION
13.4, on the Basic Rent Payment Date or any other date upon which such purchase
shall occur, Lessee shall pay to Brazos, in addition to such Acquisition Cost
payable, all Basic Rent payable and any Additional Rent and other amounts owing
hereunder with respect to such Facility up to the date of sale. At the time of
such sale, Lessee shall be required to pay to Brazos the obligations, costs,
losses, damages, and expenses (including, without limitation, reasonable
attorneys' fees and expenses) sustained by Brazos by reason of such Event of
Facility Termination and exercise of Brazos' rights under this SECTION 13.4.
Upon payment in full of all such amounts, Brazos shall transfer all of Brazos'
right, title and interest in and to the Facility to Lessee free and clear of any
Lien created pursuant to the Credit Agreement.
ARTICLE XIV
LOSS OF OR DAMAGE TO FACILITIES
Section XIV.1. LESSEE'S RISK. Lessee hereby assumes all risk of loss of
or damage to Facilities, however caused. No loss of or damage to any Facility
shall impair any obligation of Lessee under this Facilities Lease, which shall
continue in full force and effect with respect to any lost or damaged Facility.
Notwithstanding anything to the contrary contained in this Facilities Lease,
Lessee does not assume the risk of loss or damage to Facilities caused by the
gross negligence or willful misconduct of Brazos or any Assignee.
Section XIV.2. REPAIR. In the event of damage of any kind whatsoever to
any Facility (unless the same is determined by Lessee to be damaged beyond
repair as provided in SECTION 14.3 hereof) Lessee, at its own cost and expense,
but subject to the provisions of SECTION 9.4 hereof, shall place the same in
good operating order, repair, condition and appearance.
Section XIV.3. FACILITY DAMAGED BEYOND REPAIR. If more than fifty percent
(50%) of a Facility is unusable for sixty (60) days or more, or if the cost of
repair exceeds fifty percent (50%) of the Acquisition Cost, or if any Facility
is destroyed, lost, stolen, seized, confiscated, rendered unfit for use or
damaged beyond repair (in the reasonable judgment of Lessee), or if the use of
any Facility by Lessee in the ordinary course of business is prevented by the
act of any third person or persons or governmental instrumentality for a period
exceeding ninety (90) days (other than an act which is a Taking which is
substantial as described in SECTION 15.1 of this Facilities Lease), or if the
Acquired Facilities Lease applicable to such Facility is terminated due to
casualty, or if such Facility is attached (other than on a claim against Brazos
as to which Lessee is not obligated to indemnify Brazos) and the attachment is
not removed within ninety (90) days, or if a Taking which is substantial as
described in SECTION 15.1 shall occur, then in any such event, (i) Lessee shall
promptly notify Brazos and Assignee in writing of such event, (ii) on the Basic
Rent Payment Date following such event, unless such Basic Rent Payment Date
occurs within thirty (30) days of such event, in which case on the next Basic
Rent Payment Date or other date agreed to by Brazos and Lessee, Lessee shall pay
to Brazos an amount equal to the Acquisition Cost of such Facility (after
deducting any Unearned Rent and any insurance proceeds received by Brazos in
respect of such event or the net amount after Brazos' expenses of proceeds to
Brazos from any award or sale made in connection with a Taking); PROVIDED that
insurance or net Taking proceeds, if any, received by Brazos in excess of the
Acquisition Cost of the affected Facility (less any Unearned Rent) shall be paid
by Brazos to Lessee, (iii) the Lease Term or Renewal Term of such Facility shall
continue until the date on which Brazos receives payment from Lessee of the
amount payable pursuant to this SECTION 14.3 and the Basic Rent and any
Additional Rent and other amounts then owing hereunder with respect to the
affected Facility, and shall thereupon terminate with respect to the affected
Facility and (iv) Brazos shall on such Basic Rent Payment Date or such other
date transfer title to such
FACILITIES LEASE AGREEMENT - Page 35
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Facility to Lessee free of any Lien created pursuant to the Credit Agreement
or created by Brazos contrary to the provisions of this Facilities Lease, and
Lessee shall be subrogated to Brazos' rights in the affected transaction.
Notwithstanding the foregoing, if more than fifty percent (50%) of a Facility
is unusable for sixty (60) days or more, or if the cost of repair exceeds
fifty percent (50%) of the Acquisition Cost, or if the use of any Facility by
Lessee in the ordinary course of business is prevented by the act of any
third person or persons or governmental instrumentality for a period
exceeding ninety (90) days, and Lessee gives notice to Brazos agreeing that
this Lease shall remain in effect with respect to the affected Facility
notwithstanding such conditions, and agrees to repair and restore the
affected Facility to a good operating order, repair, condition and
appearance, the provisions of this SECTION 14.3 shall not apply.
ARTICLE XV
CONDEMNATION OF FACILITY
Section XV.1. TAKING OF SUBSTANTIALLY ALL OF A FACILITY. If Lessee or
Brazos shall receive notice that the use, occupancy or title to all or
substantially all of a Facility is to be taken, requisitioned or sold in, by or
on account of eminent domain proceedings or other action by any person or
authority having the power of eminent domain (such events collectively referred
to as a "TAKING"), and such Taking is substantial, then the Lease Term or
Renewal Term shall terminate as provided in SECTION 14.3. A Taking shall be
deemed substantial if the Facility or the remainder of the Property on which it
is located is unusable for Lessee's ordinary business purposes or the Acquired
Facilities Lease applicable to such Facility is terminated as a result of such
Taking.
Section XV.2. TAKING OF LESS THAN SUBSTANTIALLY ALL OF A FACILITY. If
less than substantially all of a Facility or the Property on which it is located
is subject to a Taking, then this Facilities Lease shall continue in effect as
to such Facility not taken and Lessee, at its own cost and expense, but subject
to the provisions of SECTION 9.4 hereof, shall place the same in good operating
order, repair, condition and appearance. Brazos and Lessee each hereby waives
any statutory or common law right allowing either of them to petition any court
to terminate this Facilities Lease in the event of a Taking of less than
substantially all of the Facility or the Property on which it is located.
Section XV.3. GRANT OF EASEMENTS. So long as no Event of Default or Event
of Facility Termination hereunder has occurred and is continuing beyond any
applicable grace or curative period, Lessee shall have the right to grant
easements and dedications for the benefit of any Facility or which, in the
reasonable judgment of Lessee, are deemed necessary for Lessee's use of the
Facility. If Lessee receives any monetary consideration for such easement or
dedication, Lessee shall be entitled to retain such consideration, subject to
applying same to any restoration costs. Lessee shall have the right and the
power to exercise the above power to grant without the joinder of Brazos, except
that Brazos will cooperate, at Lessee's expense, as necessary and join in the
execution of any appropriate instrument. As a condition precedent to Lessee's
exercise of any of Lessee's powers under this Article, Lessee shall give Brazos
ten (10) days' prior written notice of the proposed action. Upon the giving of
such notice, Lessee shall be deemed to have certified that such action will not
adversely affect either the market value of such Facility or the use of such
Facility for its intended purpose, will not affect Brazos' or any Assignee's
ability to exercise its rights and remedies under this Facilities Lease and that
Lessee undertakes to remain obligated under this Facilities Lease to the same
extent as if Lessee had not exercised its powers under this Article and Lessee
will perform all obligations under such instrument and shall prepare all
required documents and provide all other instruments and certificates as Brazos
may reasonably request.
ARTICLE XVI
LEASEHOLD INTERESTS
The following provisions relate to each lease (an "ACQUIRED FACILITIES
LEASE") under which a leasehold interest in a Facility is being subleased to
Lessee hereunder:
FACILITIES LEASE AGREEMENT - Page 36
<PAGE>
(a) This Facilities Lease is subject and subordinate to all of the
terms, covenants, provisions, conditions and agreements contained in each
Acquired Facilities Lease and the matters to which the Acquired Facilities Lease
is subject and subordinate.
(b) Lessee hereunder covenants and agrees to perform and to observe all
of the terms, covenants, provisions, conditions and agreements of the underlying
Acquired Facilities Lease on Brazos' part as lessee thereunder to be performed
and observed including, without limitation, payment of all rent, additional rent
and other amounts payable by Brazos as lessee under the Acquired Facilities
Lease, to the end that all things shall be done which are necessary to keep
unimpaired the rights of Brazos as lessee under the Acquired Facilities Lease.
Each of the parties hereto agree to promptly provide the other with copies of
any notices or other information received in writing from any landlord under an
Acquired Facilities Lease.
(c) Lessee covenants and agrees that it will not do or cause to be done
or suffer or permit any act or thing to be done which would or might cause such
Acquired Facilities Lease or the rights of Brazos as lessee thereunder to be
canceled, terminated or forfeited or which would make Lessee or Brazos liable
for any losses, costs, liabilities, damages, claims, penalties or other
expenses. Brazos covenants and agrees, subject to any limitations on its rights
and obligations hereunder, that it will not do or cause to be done or knowingly
suffer or knowingly permit any act or thing to be done without notice to Lessee
which would or might cause such Acquired Facilities Lease or the rights of
Brazos as lessee thereunder to be canceled, terminated or forfeited or which
would make Lessee or Brazos liable for any losses, costs, liabilities, damages,
claims, penalties or other expenses.
(d) Lessee covenants and agrees pursuant to ARTICLE X hereof to
indemnify and hold harmless Brazos and any Assignee from and against any and all
liability, loss, damage, suits, penalties, claims and demands of every kind and
nature (including, without limitation, reasonable attorneys' fees and expenses)
by reason of Lessee's failure to comply with any Acquired Facilities Lease or
the provisions of this ARTICLE XVI.
(e) Brazos and Lessee agree that any services which are required to be
provided or repairs or restorations which are required to be made in accordance
with the provisions of such Acquired Facilities Lease by the lessor thereunder
will be provided and made by such lessor, and Brazos shall have no obligation to
provide any such services or to make any such repairs or restorations. Brazos
shall in no event be liable to Lessee nor shall the obligations of Lessee
hereunder be impaired or the performance thereof excused because of any failure
or delay on the part of the lessor under the Acquired Facilities Lease in
providing such services or making such restorations or repairs and such failure
or delay shall not constitute a basis for any claim against Brazos or any offset
against any amount payable to Brazos under this Facilities Lease.
(f) If Brazos' interest under any Acquired Facilities Lease shall
expire, terminate or otherwise be extinguished, the Facilities Lease of the
Facility to which such Acquired Facility Lease relates shall thereupon terminate
as provided in this paragraph. Upon such expiration, termination or
extinguishment (i) on the Basic Rent Payment Date next succeeding such event,
Lessee shall pay to Brazos an amount equal to the Acquisition Cost of such
Facility less any Unearned Rent and (ii) the Lease Term or Renewal Term of such
Facility shall continue until the date on which Brazos receives payment from
Lessee of the amount payable pursuant to this paragraph (f) and of all Basic
Rent payable and any Additional Rent and other amounts owing hereunder, and
shall then terminate upon the payment of such amounts and Brazos shall assign to
Lessee the rights, if any, of Brazos under such Acquired Facilities Lease.
(g) The aggregate of the Acquisition Costs attributable to Facilities
covered by an Acquired Facilities Lease and with respect to which a leasehold
interest in such Facility is being subleased to Lessee hereunder (including any
Acquisition Costs reasonably expected to be advanced to cause the completion of
such Facilities) and the Acquisition Costs (as defined in the Ground Lease)
attributable to Properties covered by an Acquired Ground Lease (as defined in
the Ground Lease) and with respect to which a leasehold interest in such
Property is being subleased to Lessee under the Ground Lease shall not, unless
the Agent and the Majority Banks shall otherwise consent in writing, exceed
fifteen percent (15%) of the then current aggregate Acquisition Costs for all
Facilities (including any Acquisition Costs
FACILITIES LEASE AGREEMENT - Page 37
<PAGE>
reasonably expected to be advanced to cause the completion of any Facilities)
and Acquisition Costs (as defined in the Ground Lease) for all Properties.
ARTICLE XVII
INTENTIONALLY OMITTED
ARTICLE XVIII
PERMITTED CONTESTS
(a) Lessee shall not be required, nor shall Brazos have the right, to
pay, discharge or remove any tax, assessment, levy, fee, rent, charge, Lien or
encumbrance, or to comply or cause any Facility or FF&E to comply with any Legal
Requirements applicable to any Facility or FF&E or the occupancy, use or
operation thereof, so long as no Event of Default or Event of Facility
Termination exists (and continues beyond any applicable grace or curative
period) under this Facilities Lease with respect to any Facility, and, in the
opinion of Lessee's counsel, Lessee shall have reasonable grounds to contest,
and shall be diligently contesting, the existence, amount, applicability or
validity thereof by appropriate proceedings, which proceedings (i) would not, in
the reasonable judgment of Lessee, subject any Facility or any Basic Rent or any
Additional Rent to sale, forfeiture or loss, as a result of failure to comply
therewith, (ii) shall not affect the payment of any Basic Rent or any Additional
Rent or other sums due and payable hereunder, (iii) unless any criminal
liability could result from a failure to comply therewith, would not cause
either Brazos or any Assignee to incur civil liability which, in the sole
judgment of Brazos or any Assignee, is not adequately indemnified (Lessee's
obligations under ARTICLE X of this Facilities Lease shall be deemed to be
adequate indemnification if no Event of Default, Event of Facility Termination,
Potential Default or Potential Facility Termination exists, and continues beyond
any applicable grace or curative period, and if such civil liability is
reasonably likely to be less than $1,000,000 per Facility or FF&E and $2,000,000
in the aggregate for all Facilities and FF&E), (iv) shall be permitted under the
provisions of the Acquired Facilities Lease, if any, on such Facility, (v) if
involving taxes, shall suspend the collection of taxes, and (vi) shall be
permitted under and be conducted in accordance with the provisions of any other
instrument to which Lessee or the Facility or FF&E is subject and shall not
constitute a default thereunder. Lessee shall conduct all such contests in good
faith and with due diligence and shall promptly after the final determination
(including appeals) of such contest, pay and discharge all amounts which shall
be determined to be payable therein. Notwithstanding anything in this paragraph
(a) to the contrary, Lessee shall not be obligated to actively contest any
mechanics' or materialmens' Lien or claim which does not exceed $500,000;
PROVIDED that the failure to so contest does not violate clauses (i)-(iv) or
(vi) above, PROVIDED FURTHER that such Lien is junior to any Lien of an Assignee
on such Facility, and PROVIDED FURTHER, that Lessee shall in any event
diligently contest and defend against the enforcement of any such Lien or claim
in good faith and with due diligence and shall promptly, after the final
determination (including appeals of such contest), pay and discharge all amounts
which shall be determined to be payable therein.
(b) At least ten (10) days prior to the commencement thereof, Lessee
shall notify Brazos and Agent in writing of any such proceeding in which the
amount in contest exceeds $500,000, and shall describe such proceeding in
reasonable detail. If a taxing authority or subdivision thereof proposes an
additional assessment or levy of any tax for which Lessee is obligated to
reimburse Brazos under this Facilities Lease, or if Brazos is notified of the
commencement of an audit or similar proceeding which could result in such an
additional assessment, then Brazos shall in a timely manner notify Lessee in
writing of such proposed levy or proceeding.
ARTICLE XIX
MISCELLANEOUS
FACILITIES LEASE AGREEMENT - Page 38
<PAGE>
Section XIX.1. SURVIVAL. All agreements, indemnities, representations and
warranties, and the obligation to pay Additional Rent contained in this
Facilities Lease shall survive the expiration or other termination hereof.
Section XIX.2. ENTIRE AGREEMENT. This Facilities Lease and the Facility
Leasing Records covering Facilities and FF&E leased pursuant hereto and the
instruments, documents or agreements referred to herein constitute the entire
agreement between the parties and no representations, warranties, promises,
guarantees or agreements, oral or written, express or implied, have been made by
any party hereto with respect to this Facilities Lease or the Facility, except
as provided herein or therein.
Section XIX.3. MODIFICATIONS. This Facilities Lease may not be amended,
modified or terminated, nor may any obligation hereunder be waived orally, and
no such amendment, modification, termination or waiver shall be effective for
any purpose unless it is in writing and is signed by the party against whom
enforcement thereof is sought. A waiver on one occasion shall not be construed
to be a waiver with respect to any other occasion.
Section XIX.4. GOVERNING LAW. THIS FACILITIES LEASE SHALL WITH RESPECT TO
EACH FACILITY IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAWS OF THE STATE IN WHICH SUCH FACILITY IS LOCATED,
INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE. ANY PROVISION
OF THIS FACILITIES LEASE WHICH IS PROHIBITED BY LAW OR UNENFORCEABLE IN ANY
JURISDICTION SHALL, AS TO SUCH JURISDICTION, BE INEFFECTIVE TO THE EXTENT OF
SUCH PROHIBITION OR UNENFORCEABILITY WITHOUT INVALIDATING THE REMAINING
PROVISIONS HEREOF, AND THE PARTIES HERETO SHALL NEGOTIATE IN GOOD FAITH
APPROPRIATE MODIFICATIONS TO REFLECT SUCH CHANGES AS MAY BE REQUIRED BY LAW,
AND, AS NEARLY AS POSSIBLE, TO PRODUCE THE SAME ECONOMIC EFFECTS AS THE
PROVISION WHICH IS PROHIBITED OR UNENFORCEABLE; AND ANY SUCH PROHIBITION OR
UNENFORCEABILITY IN ANY JURISDICTION SHALL NOT INVALIDATE OR RENDER
UNENFORCEABLE SUCH PROVISION IN ANY OTHER JURISDICTION. TO THE EXTENT PERMITTED
BY APPLICABLE LAW, LESSEE AND BRAZOS HEREBY WAIVE ANY PROVISION OF LAW WHICH
RENDERS ANY PROVISION HEREOF PROHIBITED OR UNENFORCEABLE IN ANY RESPECT.
Section XIX.5. NO OFFSETS. The obligations of Lessee to pay all amounts
payable pursuant to this Facilities Lease (including specifically and without
limitation amounts payable due under ARTICLES VI and X hereof) shall be absolute
and unconditional under any and all circumstances of any character, and such
amounts shall be paid without notice, demand, defense, setoff, deduction or
counterclaim and without abatement, suspension, deferment, diminution or
reduction of any kind whatsoever, except as herein expressly otherwise provided.
The obligation of Lessee to lease and pay Basic Rent, Additional Rent or any
other amounts for any and all Facilities is without any warranty or
representation, express or implied, as to any matter whatsoever on the part of
Brazos or any Assignee or any Affiliate of either, or anyone acting on behalf of
any of them.
NEITHER BRAZOS NOR ANY ASSIGNEE NOR ANY AFFILIATE OF EITHER, NOR ANYONE
ACTING ON BEHALF OF ANY OF THEM, MAKES ANY REPRESENTATION OR WARRANTY OF ANY
KIND WHATSOEVER, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION, AS TO THE
SAFETY, TITLE, CONDITION, QUALITY, QUANTITY, FITNESS FOR USE, MERCHANTABILITY,
CONFORMITY TO SPECIFICATION, ENVIRONMENTAL CONDITION (INCLUDING THE PRESENCE OR
ABSENCE OF HAZARDOUS MATERIALS), OR ANY OTHER CHARACTERISTIC, OF ANY FACILITY OR
FF&E, OR AS TO WHETHER ANY FACILITY OR FF&E OR THE OWNERSHIP, USE, OCCUPANCY OR
POSSESSION THEREOF COMPLIES WITH ANY LAWS, RULES, REGULATIONS OR REQUIREMENTS OF
ANY KIND.
EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, AS BETWEEN BRAZOS AND
LESSEE, ANY ASSIGNEE OR ANY INDEMNIFIED PERSON, AND TO THE EXTENT ALLOWED BY
LAW, LESSEE ASSUMES ALL RISKS AND WAIVES ANY AND ALL DEFENSES, SET-OFFS,
DEDUCTIONS,
FACILITIES LEASE AGREEMENT - Page 39
<PAGE>
COUNTERCLAIMS (OR OTHER RIGHTS), EXISTING OR FUTURE, TO ITS OBLIGATION TO PAY
BASIC RENT, ADDITIONAL RENT AND ALL OTHER AMOUNTS PAYABLE HEREUNDER,
INCLUDING, WITHOUT LIMITATION, ANY RELATING TO:
(a) THE SAFETY, TITLE, CONDITION, QUALITY, QUANTITY, FITNESS FOR USE,
MERCHANTABILITY, CONFORMITY TO SPECIFICATION, OR ANY OTHER QUALITY OR
CHARACTERISTIC OF ANY FACILITY OR FF&E, LATENT OR NOT;
(b) ANY SET-OFF, COUNTERCLAIM, RECOUPMENT, ABATEMENT, DEFENSE OR OTHER
RIGHT TO WITHHOLD THE PAYMENT OF BASIC RENT, ADDITIONAL RENT OR OTHER AMOUNTS
HEREUNDER WHICH LESSEE MAY HAVE AGAINST BRAZOS, ANY ASSIGNEE, OR ANY INDEMNIFIED
PERSON FOR ANY REASON WHATSOEVER ARISING OUT OF THIS OR ANY OTHER TRANSACTION OR
MATTER;
(c) EXCEPT AS PROVIDED IN SECTION 7.5 OF THIS FACILITIES LEASE WITH
RESPECT TO CLAIMS UNDER A TITLE POLICY, ANY DEFECT IN TITLE OR OWNERSHIP OF ANY
FACILITY OR FF&E OR ANY TITLE ENCUMBRANCE NOW OR HEREAFTER EXISTING WITH RESPECT
TO THE FACILITY OR FF&E;
(d) ANY FAILURE OR DELAY IN DELIVERY OR ANY LOSS, THEFT OR DESTRUCTION
OF, OR DAMAGE TO, ANY FACILITY OR FF&E, IN WHOLE OR IN PART, OR CESSATION OF THE
USE OR POSSESSION OF ANY FACILITY OR FF&E BY LESSEE FOR ANY REASON WHATSOEVER
AND OF WHATEVER DURATION, OR ANY CONDEMNATION, CONFISCATION, REQUISITION,
SEIZURE, PURCHASE, TAKING OR FORFEITURE OF ANY FACILITY OR FF&E, IN WHOLE OR IN
PART;
(e) ANY INABILITY OR ILLEGALITY WITH RESPECT TO THE USE, OWNERSHIP,
OCCUPANCY OR POSSESSION OF THE FACILITY OR FF&E BY LESSEE;
(f) ANY INSOLVENCY, BANKRUPTCY, REORGANIZATION OR SIMILAR PROCEEDING BY
OR AGAINST LESSEE, GUARANTOR OR BRAZOS;
(g) ANY FAILURE TO OBTAIN, OR EXPIRATION, SUSPENSION OR OTHER
TERMINATION OF, OR INTERRUPTION TO, ANY REQUIRED LICENSES, PERMITS, CONSENTS,
AUTHORIZATIONS, APPROVALS OR OTHER LEGAL REQUIREMENTS;
(h) THE INVALIDITY OR UNENFORCEABILITY OF THIS FACILITIES LEASE OR ANY
OTHER INFIRMITY HEREIN OR ANY LACK OF POWER OR AUTHORITY OF BRAZOS OR LESSEE TO
ENTER INTO THIS FACILITIES LEASE; OR
(i) ANY OTHER CIRCUMSTANCES OR HAPPENING WHATSOEVER, WHETHER OR NOT
SIMILAR TO ANY OF THE FOREGOING.
LESSEE HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, ANY AND
ALL RIGHTS WHICH IT MAY NOW HAVE OR WHICH AT ANY TIME HEREAFTER MAY BE CONFERRED
UPON IT, BY STATUTE OR OTHERWISE, TO TERMINATE, CANCEL, QUIT, RESCIND OR
SURRENDER THIS FACILITIES LEASE EXCEPT IN ACCORDANCE WITH THE EXPRESS TERMS
HEREOF.
Section XIX.6. NON-RECOURSE. Brazos' obligations hereunder are intended
to be the limited obligations of the limited partnership and of the corporation
which is the general partner thereof. Notwithstanding any other provision of
this Facilities Lease, Lessee agrees that the personal liability of Brazos and
the partners comprising Brazos shall be strictly and absolutely limited to the
Facilities and FF&E and no recourse for the payment of any amount due under this
FACILITIES LEASE AGREEMENT - Page 40
<PAGE>
Facilities Lease or any other agreement contemplated hereby, or for any claim
based thereon or otherwise in respect thereof, shall be had against any other
assets of the limited partnership or of the general or of any limited partner of
Brazos or any incorporator, shareholder, officer, director or Affiliate (past,
present or future) of such general partner or limited partner, or of any
Affiliate of either, or of any successor corporation to any corporate general
partner or any corporate limited partner of Brazos, it being understood that
Brazos is a limited partnership entering into the transactions involved in and
relating to this Facilities Lease on the express understanding aforesaid.
Notwithstanding the foregoing provisions of this SECTION 19.6, nothing contained
in this Lease shall be construed to prevent enforcement of specific performance
of Brazos' obligations hereunder or prevent recourse against Brazos (i) for
Brazos' failure to convey any Facility or FF&E to Lessee or its designee in
accordance with the provisions of this Lease, or to obtain a release of any Lien
created pursuant to the Credit Agreement or created by Brazos contrary to the
provisions of this Facilities Lease covering any Facility or FF&E so purchased,
(ii) for Brazos' failure to make an advance with respect to Acquisition Costs as
and when Lessee is entitled to such advance, (iii) for Brazos' failure to make
insurance proceeds or condemnation awards available to Lessee as and when Lessee
is entitled to such amounts pursuant to this Lease, (iv) for Brazos' breach of
its representations in SECTION 2.16 hereof, (v) for Brazos' failure to comply
with the provisions of SECTION 3.4(v), (vi) AND (vii), SECTION 19.10 or
SECTION 19.14, or (vi) for fraud perpetrated by Brazos.
Section XIX.7. NOTICES.
(a) 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:
If to Brazos:
Brazos Markets Development, L.P.
c/o Brazos Markets Management, Inc.
2911 Turtle Creek Blvd., Suite 1240
Dallas, Texas 75219
Attention: Gregory C. Greene
Telephone: (214) 522-7296
Telecopy: (214) 520-2009
If to Agent or Assignee:
Chase Bank of Texas, National Association
712 Main Street
Houston, Texas 77002
Attention: Michael Ondruch
Telephone: (713) 216-5324
Telecopy: (713) 216-6004
with a copy to:
Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P.
3400 Chase Tower
600 Travis Street
Houston, Texas 77002-3095
Attention: Stanley B. Haas
Telephone: (713) 226-1247
Telecopy: (713) 223-3717
FACILITIES LEASE AGREEMENT - Page 41
<PAGE>
If to Lessee:
Randall's Food & Drugs, Inc.
3663 Briarpark
Houston, Texas 77042
Attention: Lee Straus
Telephone: (713) 268-3617
Telecopy: (713) 268-3605
Randall's Food Markets, Inc.
3663 Briarpark
Houston, Texas 77042
Attention: Lee Straus
Telephone: (713) 268-3617
Telecopy: (713) 268-3605
with copies to
Randall's Properties, Inc.
3663 Briarpark
Houston, Texas 77042
Attention: Mr. Joe R. Rollins
Telephone: (713) 268-3661
Telecopy: (713) 268-3601
and
Vinson & Elkins LLP
2300 First City Tower
1001 Fannin Street
Houston, Texas 77012-6760
Attention: Mr. Sanford A. Weiner
Telephone: (713) 758-2558
Telecopy: (713) 615-5268
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
given in accordance with the provisions of this Section.
All communications shall be effective three Business Days after the date
when mailed by certified mail, return receipt requested postage prepaid to any
party at its address specified above, or upon receipt if telecopied to any party
to the telecopy number set forth above, or upon receipt if delivered personally
to any party at its address specified above.
A copy of each communication shall be sent to any Assignee at such address
as such Assignee may specify by written notice to Brazos and Lessee.
(b) Brazos shall within five (5) Business Days give to Lessee a copy of
all notices received by Brazos pursuant to any Credit Agreement or any Acquired
Facility Lease and any other notices received with respect to any Facility.
FACILITIES LEASE AGREEMENT - Page 42
<PAGE>
Section XIX.8. USURY. No provision of this Facilities Lease, the
Agreement for Facilities Lease or any other instrument relating to this
Facilities Lease, shall require the payment or permit the collection of interest
in excess of the maximum non-usurious interest rate under applicable law (the
"MAXIMUM RATE"). If any excess interest in such respect is so provided for, or
shall be adjudicated to be so provided for, the provisions of this SECTION 19.8
shall govern, and neither Lessee nor its successors or assigns shall be
obligated to pay the amount of such interest to the extent it is in excess of
the Maximum Rate. In determining the Maximum Rate, any interest shall be spread
over the term of the Facilities Lease to the extent permitted by applicable U.S.
Federal or state law, notwithstanding the actual time for the payment of any
rent or other amounts hereunder. It is expressly stipulated and agreed to be
the intent of Brazos and Lessee at all times to comply with applicable state law
governing the Maximum Rate or the amount of interest payable pursuant to this
Facilities Lease (or applicable U.S. Federal law to the extent that it permits
Brazos to contract for, charge, take, reserve or receive a greater amount of
interest than under state law). If the applicable law is ever judicially
interpreted so as to render usurious any amount called for under the Facilities
Lease, the Agreement for Facilities Lease or any of the other documents relating
to this Facilities Lease or any amount contracted for, charged, taken, reserved
or received with respect to this Facilities Lease, or if Brazos' exercise of any
option contained herein or in any other document to accelerate the payment of
amounts required hereunder results in Lessee having paid any interest in excess
of that permitted by applicable law, then it is Brazos' and Lessee's intent that
all excess amounts theretofore collected by Brazos be credited on the remaining
balance of payments due hereunder (or, if all amounts due hereunder have been or
would thereby be paid in full, refunded to Lessee) and the provisions of this
Facilities Lease shall immediately be deemed reformed and the amounts thereafter
collectible hereunder reduced, without the necessity of the execution of any new
documents, so as to comply with the applicable law, but so as to permit the
recovery of the fullest amount otherwise called for hereunder and under any
other document relating hereto. If at any time the amount of any interest fora
year, would, but for this SECTION 19.8, exceed the amount of interest that would
have been accrued during such year if the Maximum Rate had from time to time
been in effect, the total interest payable for such year shall be limited to the
amount that would have been accrued if the Maximum Rate had from time to time
been in effect, and to the fullest extent permitted by applicable law, such
excess shall be (i) spread and allocated to the preceding periods in which the
interest paid was less than the interest that would have been accrued at the
Maximum Rate or (ii) spread and allocated to subsequent periods in which the
total payments on account of interest are less than the interest that would have
accrued at the Maximum Rate.
Section XIX.9. NO MERGER. There shall be no merger of this Facilities
Lease or of the leasehold estate hereby created with the fee estate in any
Facility by reason of the fact that the same person acquires or holds, directly
or indirectly, this Facilities Lease or the leasehold estate hereby created or
any interest herein or in such leasehold estate as well as the fee estate in any
Facility or any interest in such fee estate.
Section XIX.10. SALE OR ASSIGNMENT BY BRAZOS. Brazos shall not sell,
mortgage or encumber or assign or otherwise grant any Lien upon its right,
title, interest or obligations in a Facility or FF&E or under this Facilities
Lease, except that Brazos shall have the right to finance the acquisition and
ownership of the Facility and FF&E by selling, assigning or granting a security
interest to the Assignee pursuant to the Credit Documents in (i) its right,
title and interest in this Facilities Lease and (ii) any or all amounts due from
Lessee or any third party under this Facilities Lease, as provided in the Credit
Agreement; PROVIDED that any such sale, assignment or grant of a security
interest shall be subject to the rights and interests of Lessee under this
Facilities Lease. In addition, Brazos shall, at the time each Property or
Facility is acquired by Brazos, execute and deliver to Lessee a Deed of Trust
and Security Agreement (each, a "PURCHASE DEED OF TRUST") covering the
applicable Property and/or Facility and granting to Lessee a Lien covering such
Property and/or Facility to secure performance of Brazos' obligations pursuant
to ARTICLE XII hereof. Each Purchase Deed of Trust shall be subordinate to any
Liens created pursuant to the Credit Documents in favor of the Assignee covering
the applicable Property and/or Facility.
Section XIX.11. INCOME TAXES. Brazos agrees that it will not file any
Federal, state or local income tax returns during the Lease Term or Renewal
Term, if any, with respect to any Facility that are inconsistent with the
treatment of Lessee as owner of such Facility for Federal, state and local
income tax purposes.
FACILITIES LEASE AGREEMENT - Page 43
<PAGE>
Section XIX.12. TRANSFER ON AS-IS BASIS. In connection with any sale of
Facility pursuant to this Facilities Lease, when Brazos transfers title, such
transfer shall be on an as-is, non-installment sale basis, without warranty by,
or recourse to, Brazos, but free of the Lien created by a Credit Agreement and
any Lien created by Brazos contrary to the terms of this Facilities Lease.
Section XIX.13. RIGHT TO PERFORM FOR LESSEE.
(a) If an Event of Default occurs by reason of the failure of Lessee to
perform or comply with any of its covenants or agreements contained in this
Facilities Lease and continues beyond any applicable grace or curative period,
Brazos may, upon notice to Lessee but without waiving or releasing any
obligations or default, itself perform or comply with such covenant or
agreement, and the amount of the reasonable expenses of Brazos incurred in
connection with such performance or compliance, shall be payable by Lessee, not
later than ten (10) Business Days after written notice by Brazos.
(b) Without in any way limiting the obligations of Lessee hereunder,
Lessee hereby irrevocably appoints Brazos as its agent and attorney at the time
at which Lessee is obligated to deliver possession of any Facility to Brazos, to
demand and take possession of such Facility in the name and on behalf of Lessee
from whomsoever shall be at the time in possession thereof.
Section XIX.14. MERGER, CONSOLIDATION OR SALE OF ASSETS.
(a) Brazos may not consolidate with or merge into any other Person or
sell all or substantially all of its assets to any Person.
(b) The terms and provisions of this Facilities Lease shall be binding
upon and inure to the benefit of Brazos and Lessee and their respective
successors and assigns.
Section XIX.15. RULE AGAINST PERPETUITIES. The parties hereto do not
intend any interest created by this Facilities Lease to be a perpetuity or to be
subject to invalidation under the perpetuities rule, however, if the rule is to
be applied, then the perpetuities period shall be twenty-one (21) years after
the last to die of the currently living great-grandchildren and/or grandchildren
of George H. W. Bush.
Section XIX.16. REEXECUTION. The parties hereto shall reexecute this
Facilities Lease to the extent necessary to make this Facilities Lease
enforceable under the laws of any State in which a Facility is located.
Section XIX.17. PURCHASE OR SALE OF PROPERTY. Notwithstanding anything to
the contrary herein, Lessee shall not have the right to purchase any Facility or
arrange for the sale of any Facility to a third party unless simultaneous with
such purchase or sale any Property on which such Facility is located is
purchased by Lessee or sold to a third party.
Section XIX.18. SEVERABILITY. In case one or more provisions of this
Facilities Lease shall be invalid, illegal or unenforceable in any respect under
any applicable law, the validity, legality and enforceability of the remaining
provisions contained herein shall not be affected or impaired thereby.
Section XIX.19. INTENTIONALLY OMITTED
Section XIX.20. EXECUTION IN COUNTERPARTS. This Facilities Lease 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.
Section XIX.21. CONFIDENTIALITY. Brazos agrees to use reasonable efforts
to keep confidential all information of a confidential nature received by it
from Lessee pursuant to this Facilities Lease; PROVIDED, HOWEVER, that such
FACILITIES LEASE AGREEMENT - Page 44
<PAGE>
information may be disclosed: (i) to directors, officers, employees, agents,
representatives or outside counsel of Brazos or of the Agent or any Bank or any
Affiliate of any Bank under any Credit Agreement; (ii) to any auditor,
government official or examiner; (iii) pursuant to any subpoena or other court
order or otherwise as may be required by applicable law; or (iv) to any assignee
of or participant in, or prospective assignee of or participant in, any Bank's
Advances or its Commitment or any part thereof under any Credit Agreement who,
in each case, agrees in writing to be bound by the terms of this Section; and
PROVIDED FURTHER, that no confidentiality obligation shall attach to any
information which (1) is or becomes publicly known, through no wrongful act on
the part of any Person who shall have received such information, (2) is
rightfully received by such Person from a third party, (3) is independently
developed by such Person, or (4) is explicitly approved for release by Lessee.
Section XIX.22. WAIVER OF LANDLORD'S LIENS. Brazos hereby waives,
relinquishes and discharges all liens and rights (statutory, contractual,
consensual or otherwise) that Brazos may have on any personal property or trade
fixtures of Lessee of any kind, and all additions, accessions and substitutions
thereto. This clause shall be self-operative and no other instrument of waiver
need be required by any lienholder of such property or trade fixtures. In
confirmation of such waiver, however, Brazos shall, at Lessee's request, execute
promptly any appropriate certificate or instrument that Lessee may reasonably
request.
Section XIX.23. BREAKAGE COSTS ARISING DUE TO BRAZOS DEFAULT.
Notwithstanding anything to the contrary set forth herein or in any of the other
Lease Documents, Lessee shall not have any obligation to pay or to reimburse
Brazos for the payment of breakage costs payable under Section 2.8 of the Credit
Agreement which arise solely by reason of an acceleration of the maturity of the
Obligations (as defined in the Credit Agreement) following an Event of Default
(as defined in the Credit Agreement) unless an Event of Default (as herein
defined) then exists hereunder which is continuing beyond the expiration of any
applicable grace or curative period.
Section XIX.24. MEMORANDA OF LEASE. Brazos and Lessee each agrees,
promptly upon request by the other party hereto or by Agent, to execute
Memoranda of Lease in recordable form and otherwise in form and substance
satisfactory to Brazos, Lessee and Agent, for all Facilities and all FF&E.
FACILITIES LEASE AGREEMENT - Page 45
<PAGE>
IN WITNESS WHEREOF, Brazos and Lessee have caused this Facilities Lease to
be executed and delivered by their duly authorized officers as of the day and
year first above written.
BRAZOS MARKETS DEVELOPMENT, L.P.
a Delaware limited partnership
By: BRAZOS MARKETS MANAGEMENT, INC.,
a Delaware corporation, its General Partner
By: /s/ DANIEL D. BOECKMAN
--------------------------------------------
Daniel D. Boeckman, Executive Vice President
FACILITIES LEASE AGREEMENT - Page 46
<PAGE>
RANDALL'S FOOD & DRUGS, INC.,
a Delaware corporation
By: /s/ LEE STRAUS
-------------------------------------------
Lee Straus, Senior Vice President-Finance,
Secretary and Treasurer
RANDALL'S FOOD MARKETS, INC.,
a Texas corporation
By: /s/ LEE STRAUS
-------------------------------------------
Lee Straus, Senior Vice President-Finance,
Secretary and Treasurer
FACILITIES LEASE AGREEMENT - Page 47
<PAGE>
STATE OF TEXAS )
)
COUNTY OF DALLAS )
This instrument was acknowledged before me on the 8th day of September,
1998 by Daniel D. Boekman, Executive Vice President of BRAZOS MARKETS
MANAGEMENT, INC., a Delaware corporation, the General Partner of BRAZOS MARKETS
DEVELOPMENT, L.P., a Delaware limited partnership, on behalf of said corporation
and said limited partnership.
/s/ Sharon Kay Koehler
---------------------------------------
NOTARY PUBLIC IN AND FOR
THE STATE OF T E X A S
[SEAL]
FACILITIES LEASE AGREEMENT - Page 48
<PAGE>
[SEAL]
STATE OF TEXAS )
)
COUNTY OF HARRIS )
This instrument was acknowledged before me on the 14th day of September,
1998 by Lee Straus, the Senior Vice President-Finance, Secretary and Treasurer
of RANDALL'S FOOD & DRUGS, INC., a Delaware corporation, on behalf of said
corporation.
/s/ Carol B. Klass
---------------------------------------
NOTARY PUBLIC IN AND FOR
THE STATE OF T E X A S
My commission expires: Name of Notary Printed:
9-17-02 /s/ Carol B. Klass
-------------------------
[SEAL]
STATE OF TEXAS )
)
COUNTY OF HARRIS )
This instrument was acknowledged before me on the 14th day of September,
1998 by Lee Straus, the Senior Vice President-Finance, Secretary and Treasurer
of RANDALL'S FOOD MARKETS, INC., a Texas corporation, on behalf of said
corporation.
/s/ Carol B. Klass
---------------------------------------
NOTARY PUBLIC IN AND FOR
THE STATE OF T E X A S
My commission expires: Name of Notary Printed:
9-17-02 /s/ Carol B. Klass
-------------------------
FACILITIES LEASE AGREEMENT - Page 49
<PAGE>
EXHIBIT A
SCHEDULE OF INSURANCE
1. All risk direct physical damage insurance for the Property and all
improvements, equipment and structures located thereon in the amounts and
subject to the deductibles and self-insurance provisions that are applicable
under like insurance coverage maintained by Lessee for similar property and
equipment owned, leased or held by Lessee and which are approved by Agent in its
reasonable discretion.
2. Commercial general liability insurance, including, without
limitation, coverage for legal liability against claims for bodily injury, death
or property damage, occurring on, in or about each Property and the
improvements, equipment and structures located thereon, in the minimum amount of
$1,000,000 combined single limit per occurrence for bodily injury and property
damage, $2,000,000 annual aggregate. Liability coverage may be subject to such
deductibles as may be usual and customary for Lessee to carry in its normal
course of business.
3. Workers' compensation and employers' liability insurance covering
Lessee's employees in such amount as is required by law, or if permissible under
state law, any legally appropriate alternative providing substantially similar
compensation for injured workers.
FACILITIES LEASE AGREEMENT - Page 1
<PAGE>
GUARANTY
As of September 10, 1998
Brazos Markets Development, L.P. (the "LESSOR")
2911 Turtle Creek Blvd., Suite 1240
Dallas, Texas 75219
Attention: Mr. Gregory C. Greene
Re: Agreement for Ground Lease, Ground Lease Agreement ("GROUND LEASE"),
Agreement for Facilities Lease and Facilities Lease Agreement
("FACILITIES LEASE") (collectively, the "LEASE DOCUMENTS") each
between Brazos Markets Development, L.P., a Delaware corporation, and
RANDALL'S FOOD & DRUGS, INC., a Delaware corporation and RANDALL'S
FOOD MARKETS, INC., a Texas corporation (collectively, the "LESSEE"),
and each effective as of September 10, 1998 (the "CLOSING DATE")
Gentlemen:
1. GUARANTY. For value received, and in consideration of your entering
into the Lease Documents with the Lessee, the undersigned (the "GUARANTOR") does
hereby unconditionally, irrevocably, and absolutely guarantee (a) the full
payment when due, whether at the stated due date, by acceleration or otherwise,
of any and all rent, indebtedness and other amounts of every kind howsoever
created, arising, or evidenced, whether direct or indirect, absolute or
contingent, now or hereafter existing or owing to you by the Lessee pursuant to
the Lease Documents and that certain Consent and Agreement dated as of September
10, 1998 among the Lessee, the Borrower, and the Agent, as it may be amended or
supplemented from time to time (the "LESSEE CONSENT"), and (b) the performance
by the Lessee of its obligations under the (i) Lease Documents pursuant to the
terms of the Lease Documents and (ii) the Lessee Consent pursuant to the terms
of the Lessee Consent (all such obligations being hereinafter collectively
called the "LIABILITIES"). The Guarantor hereby agrees that upon any default by
the Lessee in the payment of any of the Liabilities when and as due or in the
performance of its other obligations thereunder, it will, upon written demand by
the Lessor, forthwith pay the same immediately or perform or cause Lessee to
perform such obligations.
2. GUARANTY CONTINUING, ABSOLUTE, UNLIMITED. This Guaranty is a
continuing, irrevocable, absolute guaranty of performance and payment as a
primary obligor and not as a surety. This Guaranty shall apply to all
Liabilities. The Liabilities shall be conclusively presumed to have been
created in reliance on this Guaranty. You shall not be required to proceed
first against the Lessee or any other person, firm or corporation or against any
property securing any of the Liabilities before resorting to the Guarantor for
payment. To the extent permitted by applicable law, this Guaranty shall be
construed as a guarantee of payment without regard to the enforceability of any
of the Liabilities, the rejection of the Lease Documents in bankruptcy, or any
limitation of claims against the Lessee, and notwithstanding any claim, defense
(other than payment or performance by the Guarantor) or right of set-off which
the Lessee or the Guarantor may have against you, including any such claim,
defense or right of set-off based on any present or future law or order of any
government (DE JURE or DE FACTO), or of any agency thereof or court of law
purporting to reduce, amend or otherwise affect any obligations of the Lessee,
or any other obligor, or to vary any terms of payment, and without regard to any
other circumstances which might otherwise constitute a legal or equitable
discharge of a surety or a guarantor. The Guarantor agrees that this Guaranty
shall continue to be effective or be reinstated, as the case may be, if at any
time payment to you of the Liabilities or any part thereof is rescinded or must
otherwise be returned by you to the Guarantor upon the insolvency, bankruptcy or
reorganization of the Lessee, or otherwise, as though such payment to you had
not been made. To the extent permitted by applicable law, the Guarantor's
obligation to fully pay or perform the Liabilities and any remedy for the
enforcement thereof shall not be impaired, modified, released, or limited in any
way by any impairment, modification, release, or limitation of the liability of
Lessee or its bankruptcy estate, resulting from the operation of any present or
future provision of the Bankruptcy Code or any Debtor Relief Law or from the
decision of any court interpreting the same.
FORM OF GUARANTY - Page 1
<PAGE>
3. GUARANTY NOT AFFECTED BY CHANGE IN SECURITY OR OTHER ACTIONS. You
may, from time to time, without the consent of or notice to the Guarantor, take
any or all of the following actions without impairing or affecting the
Guarantor's obligations under this Guaranty or releasing or exonerating the
Guarantor from any of its liabilities hereunder:
(a) retain or obtain a security interest in any property to secure
any of the Liabilities or any obligation hereunder;
(b) retain or obtain the primary or secondary liability of any party
or parties, in addition to the Guarantor, with respect to any of the
Liabilities;
(c) extend the time or change the manner, place or terms of payment
of, or renew or amend any note or other instrument evidencing the Liabilities or
any part thereof, or amend in any manner any agreement relating thereto;
(d) release or compromise, in whole or in part, or accept full or
partial payment for, any of the Liabilities hereby guaranteed, or any liability
of any nature of any other party or parties with respect to the Liabilities or
any security therefor;
(e) subordinate the payment of all or any part of the Liabilities to
the payment of any liability of the Lessee to creditors of the Lessee other than
you or the Guarantor;
(f) enforce your security interest, if any, in all or any properties
securing any of the Liabilities or any obligations hereunder in order to obtain
full or partial payment of the Liabilities then outstanding; or
(g) release or fail to perfect, protect, or enforce your security
interest, if any, in all or any properties securing any of the Liabilities or
any obligation hereunder, or permit any substitution or exchange for any such
property.
4. WAIVERS. The Guarantor hereby expressly waives to the extent
permitted by law:
(a) notice of acceptance of this Guaranty;
(b) notice of the existence or incurrence of any or all of the
Liabilities;
(c) presentment, demand, notice of dishonor, protest, and all other
notices whatsoever (except the written demand referred to in SECTION 1
hereinabove);
(d) any requirement that proceedings first be instituted by you
against the Lessee;
(e) all diligence in collection or protection of or realization upon
the Liabilities or any part thereof, or any obligation hereunder, or any
collateral for any of the foregoing;
(f) any rights or defenses based on the Lessor's election of
remedies, including any defense to the Lessor's action to recover any deficiency
after a non-judicial sale; and
(g) the occurrence of every other condition precedent to which the
Guarantor might otherwise be entitled.
5. DEFINITIONS. As used in this Guaranty, the following terms will have
the following meanings, unless the context otherwise requires:
FORM OF GUARANTY - Page 2
<PAGE>
"ACQUIRED EBITDA" shall mean, with respect to any Acquired Entity or
Business, any Controverted Restricted Subsidiary, any Sold Entity or Business or
any Converted Unrestricted Subsidiary (any of the foregoing, a "PRO FORMA
ENTITY") for any period, the sum of the amounts for such period of (a) income
from continuing operations before income taxes and extraordinary items, (b)
interest expense, (c) depreciation expense, (d) amortization expense, including
amortization of deferred financing fees, (e) non-recurring charges, (f) non-cash
charges, (g) losses on asset sales and (h) restructuring charges or reserves
LESS the sum of the amounts for such period of (i) non-recurring gains, (j)
non-cash gains and (k) gains on asset sales, all as determined on a
consolidated basis for such Pro Forma Equity in accordance with GAAP.
"ACQUIRED ENTITY OR BUSINESS" shall have the meaning provided in the
definition of the term "Consolidated EBITDA."
"ACQUISITION SUBSIDIARY" shall mean (a) any Subsidiary of the Guarantor
that is formed or acquired after June 27, 1997 in connection with Permitted
Acquisitions, PROVIDED that at such time (or promptly thereafter) the Guarantor
designates such Subsidiary an Acquisition Subsidiary in a written notice to the
Lessor, (b) any Restricted Subsidiary on June 27, 1997 subsequently
re-designated as an Acquisition Subsidiary by the Guarantor in a written
notice to the Lessor, PROVIDED that such re-designation shall be deemed to be
an investment on the date of such re-designation in an Acquisition Subsidiary
in an amount equal to the sum of (i) the net worth of such re-designated
Restricted Subsidiary immediately prior to such re-designation (such net
worth to be calculated without regard to any Subsidiary Guaranty or
Subsidiary Residual Guaranty provided by such re-designated Restricted
Subsidiary) and (ii) the aggregate principal amount of any Indebtedness owed
by such re-designated Restricted Subsidiary to the Guarantor or any other
Restricted Subsidiary immediately prior to such re-designation, all
calculated, except as set forth in the parenthetical to clause (i), on a
consolidated basis in accordance with GAAP, and (c) each Subsidiary of an
Acquisition Subsidiary; PROVIDED, HOWEVER, that (i) at the time of any
written re-designation by the Guarantor to the Lessor of any Acquisition
Subsidiary as a Restricted Subsidiary, the Acquisition Subsidiary so
re-designated shall no longer constitute an Acquisition Subsidiary, (ii) no
Acquisition Subsidiary may be re-designated as a Restricted Subsidiary if a
Default or Event of Default would result from such re-designation and (iii)
no Restricted Subsidiary may be re-designated as an Acquisition Subsidiary if
a Default or Event of Default would result from such re-designation. On or
promptly after the date of its formation, acquisition or re-designation, as
applicable, each Acquisition Subsidiary (other than an Acquisition Subsidiary
that is a Foreign Subsidiary) shall have entered into a tax sharing agreement
containing terms that, in the reasonable judgment of the Lessor, provide for
an appropriate allocation of tax liabilities and benefits.
"AFFILIATE" shall mean, with respect to any Person, any other Person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with such Person. A Person shall be deemed to control a
corporation if such Person possesses, directly or indirectly, the power (a) to
vote 10% or more of the securities having ordinary voting power for the election
of directors of such corporation or (b) to direct or cause the direction of the
management and policies of such corporation, whether through the ownership of
voting securities, by contract or otherwise.
"AGENT" means Chase Bank of Texas, National Association, a national banking
association, in its capacity as agent pursuant to ARTICLE 8 of the Credit
Agreement and any successor agent pursuant to SECTION 8.6 of the Credit
Agreement.
"ATTORNEY COSTS" means and includes all reasonable fees and disbursements
of any law firm or other external counsel, the reasonable allocated cost of
internal legal services and all reasonable disbursements of internal counsel.
"AVAILABLE AMOUNT" shall have the meaning ascribed to such term in the 1997
Credit Agreement.
"AVAILABLE FOREIGN INVESTMENT AMOUNT" shall mean, on any date (the
"INVESTMENT DATE"), an amount equal to (a) the sum of (i) $20,000,000, (ii) the
aggregate amount of all cash dividends and other cash distributions received by
the Guarantor or any Subsidiary Guarantor from any Restricted Foreign
Subsidiaries on or prior to the Investment Date (other than the portion of any
such dividends and other distributions that is used by the Guarantor or any
Subsidiary
FORM OF GUARANTY - Page 3
<PAGE>
Guarantor to pay taxes), (iii) the aggregate amount of all cash repayments of
principal received by the Guarantor or any Subsidiary Guarantor from any
Restricted Foreign Subsidiaries on or prior to the Investment Date in respect
of loans made by the Guarantor or any Subsidiary Guarantor to such Restricted
Foreign Subsidiaries and (iv) the aggregate amount of all net cash proceeds
received by the Guarantor or any Subsidiary Guarantor in connection with the
sale, transfer or other disposition of its ownership interest in any
Restricted Foreign Subsidiary on or prior to the Investment Date MINUS (b)
the aggregate amount of any investments (including loans) made by the
Guarantor or any Restricted Subsidiary (other than any Restricted Foreign
Subsidiary) in or to Restricted Foreign Subsidiaries pursuant to SECTION
8(e)(x) or (xi) on or prior to the Investment Date.
"BANKRUPTCY CODE" shall have the meaning provided in SECTION 9(a)(v).
"BANKS" means the lenders listed on the signature pages of the Credit
Agreement and each Eligible Assignee (as defined in the Credit Agreement) that
shall become a party to the Credit Agreement pursuant to SECTION 9.6 thereof.
"BUSINESS DAY" means any day of the year other than a Saturday or Sunday or
any other day on which banks are not required or authorized to close in Houston,
Texas.
"CAPITAL EXPENDITURES" shall mean, for any period, the aggregate of all
expenditures (whether paid in cash or accrued as liabilities and including in
all events all amounts expended or capitalized under Capital Leases, but
excluding any amount representing capitalized interest) by the Guarantor and the
Restricted Subsidiaries during such period that, in conformity with GAAP, are or
are required to be included as additions during such period to property, plant
or equipment reflected in the consolidated balance sheet of the Guarantor and
its Subsidiaries, PROVIDED that the term "Capital Expenditures" shall not
include (a) expenditures made in connection with the replacement, substitution
or restoration of assets (i) to the extent financed from insurance proceeds paid
on account of the loss of or damage to the assets being replaced or restored or
(ii) with awards of compensation arising from the taking by eminent domain or
condemnation of the assets being replaced, (b) the purchase price of equipment
that is purchased simultaneously with the trade-in of existing equipment to the
extent that the gross amount of such purchase price is reduced by the credit
granted by the seller of such equipment for the equipment being traded in at
such time, (c) the purchase of plant, property or equipment made within one year
of the sale of any asset to the extent purchased with the proceeds of such sale
or (d) expenditures that constitute any part of Consolidated Lease Expense.
"CAPITALIZED LEASE OBLIGATIONS" shall mean, as applied to any Person, all
obligations under Capital Leases of such Person or any of its Subsidiaries, in
each case taken at the amount thereof accounted for as liabilities in accordance
with GAAP.
"CAPITAL LEASE", as applied to any Person, shall mean any lease of any
property (whether real, personal or mixed) by that Person as lessee that, in
conformity with GAAP, is, or is required to be, accounted for as a capital lease
on the balance sheet of that Person.
"CHANGE OF CONTROL" shall mean and be deemed to have occurred if (a) (i)
KKR, its Affiliates and the Management Group shall at any time not own, in the
aggregate, directly or indirectly, beneficially and of record, at least 35% of
the outstanding Voting Stock of the Guarantor (other than as the result of one
or more widely distributed offerings of Guarantor Common Stock, in each case
whether by the Guarantor or by KKR, its Affiliates or the Management Group)
and/or (ii) any person, entity or "group" (within the meaning of Section 13(d)
or 14(d) of the Securities Exchange Act of 1934, as amended) shall at any time
have acquired direct or indirect beneficial ownership of a percentage of the
outstanding Voting Stock of the Guarantor that exceeds the percentage of such
Voting Stock then beneficiary owned, in the aggregate, by KKR, its Affiliates
and the Management Group, unless, in the case of either clause (i) or (ii)
above, KKR, its Affiliates and the Management Group have, at such time, the
right or the ability by voting power, contract or otherwise to elect or
designate for election a majority of the Board of Directors of the Guarantor;
(b) at any time Continuing Directors shall not constitute a majority of the
Board of Directors of the Guarantor; and/or (c) a Change of Control (as defined
in the Subordinated Note Indenture) shall occur.
FORM OF GUARANTY - Page 4
<PAGE>
"CHASE" means Chase Bank of Texas, National Association, or its successors
or assigns.
"CLOSING DATE" has the meaning given such term in the introductory
paragraph.
"CLOSING DATE STORE" shall mean any Store that (a) is owned, leased or
operated by the Guarantor or any of the Restricted Subsidiaries and (b) was
opened for business by the Guarantor or a Restricted Subsidiary on or prior to
June 27, 1997.
"CODE" shall mean the Internal Revenue Code of 1986, as amended from time
to time, and the regulations promulgated and rulings issued thereunder. Section
references to the Code are to the Code, as in effect at the date of this
Guaranty, and any subsequent provisions of the Code, amendatory thereof,
supplemental thereto or substituted therefor.
"CONSOLIDATED EARNINGS" shall mean, for any period, "income from continuing
operations before income taxes and extraordinary items" of the Guarantor and the
Restricted Subsidiaries for such period, determined in a manner consistent with
the manner in which such amount was determined in accordance with the audited
financial statements referred to in SECTION 7(a)(i).
"CONSOLIDATED EBITDA" shall mean, for any period, the sum, without
duplication, of the amounts for such period of (a) Consolidated Earnings, (b)
Consolidated Interest Expense, (c) depreciation expense, (d) amortization
expense, including amortization of deferred financing fees, (e) non-recurring
charges, (f) non-cash charges, (g) losses on asset sales, (h) restructuring
charges or reserves (including charges incurred in connection with the closing,
exchange or replacement of Stores), (i) in the case of any period ending during
the fiscal year ending June 27, 1998, Transaction Expenses, (j) any expenses or
charges incurred in connection with any issuance of debt or equity securities,
(k) any fees and expenses related to Permitted Acquisitions and (l) any
deduction for minority interest expense LESS the sum of the amounts for such
period of (m) non-recurring gains, (n) non-cash gains and (o) gains on asset
sales, all as determined on a consolidated basis for the Guarantor and the
Restricted Subsidiaries in accordance with GAAP, PROVIDED that (i) except as
provided in clause (ii) below, there shall be excluded from Consolidated
Earnings for any period the income from continuing operations before income
taxes and extraordinary items of all Unrestricted Subsidiaries for such period
to the extent otherwise included in Consolidated Earnings, except to the extent
actually received in cash by the Guarantor or its Restricted Subsidiaries during
such period through dividends or other distributions, and (ii) for purposes of
the definition of the term "Permitted Acquisition" and SECTIONS 8(c), (j) and
(k), (x) there shall be included in determining Consolidated EBITDA for any
period (A) the Acquired EBITDA of any Person, property, business or asset (other
than an Unrestricted Subsidiary) acquired to the extent not subsequently sold,
transferred or otherwise disposed of (but not including the Acquired EBITDA of
any related Person, property, business or assets to the extent not so acquired)
by the Guarantor or any Restricted Subsidiary during such period (each such
Person, property, business or asset acquired and not subsequently so disposed
of, an "ACQUIRED ENTITY OR BUSINESS"), and the Acquired EBITDA of any
Unrestricted Subsidiary that is converted into a Restricted Subsidiary during
such period (each, a "CONVERTED RESTRICTED SUBSIDIARY"), in each case based on
the actual Acquired EBITDA of such Acquired Entity or Business or Converted
Restricted Subsidiary for such period (including the portion thereof occurring
prior to such acquisition or conversion) and (B) an adjustment in respect of
each Acquired Entity or Business equal to the amount of the Pro Forma Adjustment
with respect to such Acquired Entity or Business for such period (including the
portion thereof occurring prior to such acquisition or conversion) as specified
in the Pro Forma Adjustment Certificate delivered to the Lessor and (y) for
purposes of determining the Consolidated Total Debt to Consolidated EBITDA Ratio
only, there shall be excluded in determining Consolidated EBITDA for any period
the Acquired EBITDA of any Person, property, business or asset (other than an
Unrestricted Subsidiary) sold, transferred or otherwise disposed of by the
Guarantor or any Restricted Subsidiary during such period (each such Person,
property, business or asset so sold or disposed of, a "SOLD ENTITY OR
BUSINESS"), and the Acquired EBITDA of any Restricted Subsidiary that is
converted into an Unrestricted Subsidiary during such period (each, a "CONVERTED
UNRESTRICTED SUBSIDIARY"), in each case based on the actual Acquired EBITDA of
such Sold Entity or Business or Converted Unrestricted Subsidiary for such
period (including the portion thereof occurring prior to such sale, transfer,
disposition or conversion).
FORM OF GUARANTY - Page 5
<PAGE>
"CONSOLIDATED EBITDA TO CONSOLIDATED INTEREST EXPENSE RATIO" shall mean, as
of any date of determination, the ratio of (a) Consolidated EBITDA for the
relevant Test Period to (b) Consolidated Interest Expense for such Test Period.
"CONSOLIDATED INTEREST EXPENSE" shall mean, for any period, cash interest
expense (including that attributable to Capital Leases in accordance with GAAP),
net of cash interest income, of the Guarantor and the Restricted Subsidiaries on
a consolidated basis with respect to all outstanding Indebtedness of the
Guarantor and the Restricted Subsidiaries, including, without limitation, all
commissions, discounts and other fees and charges owed with respect to letters
of credit and bankers' acceptance financing and net costs under Hedge Agreements
(other than currency swap agreements, currency future or option contracts and
other similar agreements), but excluding, however, amortization of deferred
financing costs and any other amounts of non-cash interest, all as calculated on
a consolidated basis in accordance with GAAP, PROVIDED that (a) except as
provided in clause (b) below, there shall be excluded from Consolidated Interest
Expense for any period the cash interest expense (or income) of all Unrestricted
Subsidiaries for such period to the extent otherwise included in Consolidated
Interest Expense and (b) for purposes of the definition of the term "Permitted
Acquisition" and SECTIONS 8(c), (j) and (k), there shall be included in
determining Consolidated Interest Expense for any period the cash interest
expense (or income) of any Acquired Entity or Business acquired during such
period and of any Converted Restricted Subsidiary converted during such period,
in each case based on the cash interest expense (or income) of such Acquired
Entity or Business or Converted Restricted Subsidiary for such period (including
the portion thereof occurring prior to such acquisition or conversion) assuming
any Indebtedness incurred or repaid in connection with any such acquisition or
conversion had been incurred or prepaid on the first day of such period.
"CONSOLIDATED LEASE EXPENSE" shall mean, for any period, all rental
expenses of the Guarantor and the Restricted Subsidiaries during such period
under operating leases for real or personal property (including in connection
with Permitted Sale Leasebacks), excluding real estate taxes, insurance costs
and common area maintenance charges and net of sublease income, other than (a)
obligations under vehicle leases entered into in the ordinary course of
business, (b) all such rental expenses associated with Stores acquired after
June 27, 1997 to the extent that such rental expenses relate to operating leases
in effect at the time of (and immediately prior to) such acquisition and (c)
Capitalized Lease Obligations, all as determined on a consolidated basis in
accordance with GAAP, PROVIDED that there shall be excluded from Consolidated
Lease Expense for any period the rental expenses of all Unrestricted
Subsidiaries for such period to the extent otherwise included in Consolidated
Lease Expense.
"CONSOLIDATED NET INCOME" shall mean, for any period, the sum of (a) the
consolidated net income (or loss) of the Guarantor and the Restricted
Subsidiaries, determined on a consolidated basis in accordance with GAAP, and
(b) the Distribution System Amount for such period to the extent otherwise
deducted in arriving at such Consolidated Net Income.
"CONSOLIDATED TOTAL DEBT" shall mean, as of any date of determination, (a)
the sum of (i) all Indebtedness of the Guarantor and the Restricted Subsidiaries
for borrowed money outstanding on such date and (ii) all Capitalized Lease
Obligations of the Guarantor and the Restricted Subsidiaries outstanding on such
date, all calculated on a consolidated basis in accordance with GAAP MINUS (b)
aggregate amount of cash included in the cash accounts listed on the
consolidated balance sheet of the Guarantor and the Restricted Subsidiaries as
at such date to the extent the use thereof for application to payment of
Indebtedness is not prohibited by law or any contract to which the Guarantor or
any of the Restricted Subsidiaries is a party.
"CONSOLIDATED TOTAL DEBT TO CONSOLIDATED EBITDA RATIO" shall mean, as of
any date of determination, the ratio of (a) Consolidated Total Debt as of the
last day of the relevant Test Period to (b) Consolidated EBITDA for such Test
Period.
"CONTINUING DIRECTOR" shall mean, at any date, an individual (a) who is a
member of the Board of Directors of the Guarantor on the date hereof, (b) who,
as at such date, has been a member of such Board of Directors for at least the
12 preceding months, (c) who has been nominated to be a member of such Board of
Directors, directly or indirectly,
FORM OF GUARANTY - Page 6
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by KKR or Persons nominated by KKR or (d) who has been nominated to be a
member of such Board of Directors by a majority of the other Continuing
Directors then in office.
"CONVERTED RESTRICTED SUBSIDIARY" shall have the meaning provided in the
definition of the term "Consolidated EBITDA."
"CONVERTED UNRESTRICTED SUBSIDIARY" shall have the meaning provided in the
definition of the term "Consolidated EBITDA."
"CORRESPONDING PROVISION" has the meaning set forth in SECTION 28.
"CREDIT AGREEMENT" means that certain Credit Agreement dated as of
September 10, 1998, by and among Lessor , as Borrower, Chase Bank of Texas,
National Association, as Agent, and the Banks named therein, as it may be
amended, amended and restated, modified or supplemented from time to time.
"CUMULATIVE CONSOLIDATED NET INCOME AVAILABLE TO COMMON STOCKHOLDERS"
means, as of any date of determination, Consolidated Net Income less cash
dividends paid with respect to preferred stock for the period (taken as one
accounting period) commencing on the Closing Date and ending on the last day of
the most recent fiscal quarter for which Section 7(a) Financials have been
delivered to the Lessor under SECTION 7(a).
"DEBTOR RELIEF LAW" means the Bankruptcy Code and all other applicable
liquidation, conservatorship, bankruptcy, moratorium, rearrangement,
receivership, insolvency, reorganization, suspension of payments or similar laws
from time to time in effect affecting the rights of creditors generally.
"DEFAULT" means any event, act or condition that with notice or lapse of
time, or both, would constitute an Event of Default.
"DISTRIBUTION CAPITAL EXPENDITURES" shall mean Capital Expenditures by the
Guarantor and the Restricted Subsidiaries in connection with the expansion of
the Guarantor's self-distribution capabilities.
"DISTRIBUTION SYSTEM AMOUNT" shall mean, for any period, non-recurring
expenses for such period that are not capitalized and that are incurred in
connection with the expansion of the Guarantor's self-distribution capabilities.
"DIVIDENDS" shall have the meaning provided in SECTION 8(f).
"DOMESTIC SUBSIDIARY" shall mean each Subsidiary of the Guarantor that is
organized under the laws of the United States, any state or territory thereof,
or the District of Columbia.
"ENVIRONMENTAL CLAIMS" shall mean any and all administrative, regulatory or
judicial actions, suits, demands, demand letters, claims, liens, notices of
noncompliance or violation, investigations (other than internal reports prepared
by the Guarantor or any of its Subsidiaries (a) in the ordinary course of such
Person's business or (b) as required in connection with a financing transaction
or an acquisition or disposition of real estate) or proceedings relating in any
way to any Environmental Law or any permit issued, or any approval given, under
any such Environmental Law (hereinafter, "CLAIMS"), including, without
limitation, (i) any and all Claims by governmental or regulatory authorities for
enforcement, cleanup, removal, response, remedial or other actions or damages
pursuant to any applicable Environmental Law and (ii) any and all Claims by any
third party seeking damages, contribution, indemnification, cost recovery,
compensation or injunctive relief resulting from Hazardous Materials or arising
from alleged injury or threat of injury to health, safety or the environment.
"ENVIRONMENTAL LAW" shall mean any applicable Federal, state, foreign or
local statute, law, rule, regulation, ordinance, code and rule of common law now
or hereafter in effect and in each case as amended, and any binding judicial or
administrative interpretation thereof, including any binding judicial or
administrative order, consent decree
FORM OF GUARANTY - Page 7
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or judgment, relating to the environmental, human health or safety or
Hazardous Materials.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time. Section references to ERISA are to ERISA as in
effect at the date of this Guaranty and any subsequent provisions of ERISA
amendatory thereof, supplemental thereto or substituted therefor.
"ERISA AFFILIATE" shall mean each person (as defined in Section 3(9) of
ERISA) that together with the Guarantor or a Subsidiary would be deemed to be a
"single employer" within the meaning of Section 414(b) or (c) of the Code or,
solely for purposes of Section 302 of ERISA and Section 412 of the Code, is
treated as single employer under Section 414 of the Code.
"EVENT OF DEFAULT" shall have the meaning specified in SECTION 9.
"FACILITIES LEASE" has the meaning given such term in the introductory
paragraph.
"FACILITY" has the meaning set forth in the Facilities Lease.
"FOREIGN SUBSIDIARY" shall mean each Subsidiary of the Guarantor that is
not a Domestic Subsidiary.
"GAAP" shall mean generally accepted accounting principles in the United
States of America as in effect from time to time; PROVIDED, HOWEVER, that if
there occurs after the date hereof any change in GAAP that affects in any
respect the calculation of any covenant contained in SECTION 8, the Lessor and
the Guarantor shall negotiate in good faith amendments to the provisions of this
Guaranty that relate to the calculation of such covenant with the intent of
having the respective positions of the Lessor and the Guarantor after such
change in GAAP conform as nearly as possible to their respective positions as of
the date of this Guaranty and, until any such amendments have been agreed upon,
the covenants in SECTION 8 shall be calculated as if no such change in GAAP has
occurred.
"GOVERNMENTAL AUTHORITY" shall mean any nation or government, any state or
other political subdivision thereof, and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"GROUND" means the Property (as defined in the Ground Lease).
"GROUND LEASE" has the meaning given such term in the introductory
paragraph.
"GUARANTEE OBLIGATIONS" shall mean, as to any Person, any obligation of
such Person guaranteeing or intended to guarantee any Indebtedness of any other
Person (the "PRIMARY OBLIGOR") in any manner, whether directly or indirectly,
including, without limitation, any obligation of such Person, whether or not
contingent, (a) to purchase any such Indebtedness or any property constituting
direct or indirect security therefor, (b) to advance or supply funds (i) for the
purchase or payment of any such Indebtedness or (ii) to maintain working capital
or equity capital of the primary obligor or otherwise to maintain the net worth
or solvency of the primary obligor, (c) to purchase property, securities or
services primarily for the purpose of assuring the owner of any such
Indebtedness of the ability of the primary obligor to make payment of such
Indebtedness or (d) otherwise to assure or hold harmless the owner of such
Indebtedness against loss in respect thereof; PROVIDED, HOWEVER, that the term
"Guarantee Obligations" shall not include endorsements of instruments for
deposit or collection in the ordinary course of business. The amount of any
Guarantee Obligation shall be deemed to be an amount equal to the stated or
determinable amount of the Indebtedness in respect of which such Guarantee
Obligation is made or, if not stated or determinable, the maximum reasonably
anticipated liability in respect thereof (assuming such Person is required to
perform thereunder) as determined by such Person in good faith.
"GUARANTOR COMMON STOCK" shall mean any class of outstanding common stock
of the Guarantor as of the Closing Date.
FORM OF GUARANTY - Page 8
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"GUARANTOR" has the meaning given such term in SECTION 1 hereof.
"HAZARDOUS MATERIALS" shall mean (a) any petroleum or petroleum products,
radioactive materials, friable asbestos, urea formaldehyde foam insulation,
transformers or other equipment that contains dielectric fluid containing
regulated levels of polychlorinated biphenyls, and radon gas; (b) any chemicals,
materials or substances defined as or included in the definition of "hazardous
substances," "hazardous waste," "hazardous materials," "extremely hazardous
waste," "restricted hazardous waste," "toxic substances," "toxic pollutants,"
"contaminants," or "pollutants," or words of similar import, under any
applicable Environmental Law; and (c) any other chemical, material or substance,
exposure to which is prohibited, limited or regulated by any Governmental
Authority.
"HEDGE AGREEMENTS" shall mean interest rate swap, cap or collar agreements,
interest rate future or option contracts, currency swap agreements, currency
future or option contracts and other similar agreements entered into by the
Guarantor in order to protect the Guarantor or any of the Restricted
Subsidiaries against fluctuations in interest rates or currency exchange rates.
"INDEMNIFIED PERSON" has the meaning given such term in SECTION 26(a) of
this Guaranty.
"INDEBTEDNESS" of any Person shall mean (a) all indebtedness of such Person
for borrowed money, (b) the deferred purchase price of assets or services that
in accordance with GAAP would be shown on the liability side of the balance
sheet of such Person, (c) the face amount of all letters of credit issued for
the account of such Person and, without duplication, all drafts drawn
thereunder, (d) all Indebtedness of a second Person secured by any Lien on any
property owned by such first Person, whether or not such Indebtedness has been
assumed, (e) all Capitalized Lease Obligations of such Person, (f) all
obligations of such Person under interest rate swap, cap or collar agreements,
interest rate future or option contracts, currency swap agreements, currency
future or option contracts and other similar agreements and (g) without
duplication, all Guarantee Obligations of such Person, PROVIDED that
Indebtedness shall not include trade payables and accrued expenses, in each case
arising in the ordinary course of business.
"KKR" shall mean each of Kohlberg Kravis Roberts & Co., L.P. and KKR
Associates, L.P.
"LEASE DOCUMENTS" has the meaning given such term in the introductory
paragraph.
"LESSEE" has the meaning given such term in the introductory paragraph.
"LIABILITIES" has the meaning given such term in SECTION 1 of this
Guaranty.
"LEVEL I STATUS" shall mean, on any date, the Consolidated Total Debt to
Consolidated EBITDA Ratio is greater than or equal to 6.00:1.00 as of such date.
"LEVEL II STATUS" shall mean, on any date, the circumstance that Level I
Status does not exist and the Consolidated Total Debt to Consolidated EBITDA
Ratio is greater than or equal to 5.50:1.00 as of such date.
"LEVEL III STATUS" shall mean, on any date, the circumstance that neither
Level I Status nor Level II Status exists and the Consolidated Total Debt to
Consolidated EBITDA Ratio is greater than or equal to 5.00:1.00 as of such date.
"LEVEL IV STATUS" shall mean, on any date, the circumstance that none of
Level I Status, Level II Status or Level III Status exists and the Consolidated
Total Debt to Consolidated EBITDA Ratio is greater than or equal to 4.50:1.00 as
of such date.
"LEVEL V STATUS" shall mean, on any date, the circumstance that none of
Level I Status, Level II Status, Level III Status or Level IV Status exists and
the Consolidated Total Debt to Consolidated EBITDA Ratio is greater than or
FORM OF GUARANTY - Page 9
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equal to 4.00:1.00 as of such date.
"LEVEL VI STATUS" shall mean, on any date, the circumstance that none of
Level I Status, Level II Status, Level III Status, Level IV Status or Level V
Status exists and the Consolidated Total Debt to Consolidated EBITDA Ratio is
greater than or equal to 3.50:1.00 as of such date.
"LEVEL VII STATUS" shall mean, on any date, the circumstance that none of
Level I Status, Level II Status, Level III Status, Level IV Status, Level V
Status or Level VI Status exists and the Consolidated Total Debt to Consolidated
EBITDA Ratio is greater than or equal to 3.00:1.00 as of such date.
"LEVEL VIII STATUS" shall mean, on any date, the circumstance that the
Consolidated Total Debt to Consolidated EBITDA Ratio is less than 3.00:1.00 as
of such date.
"LIEN" shall mean any mortgage, pledge, security interest, hypothecation,
assignment, lien (statutory or other) or similar encumbrance (including any
agreement to give any of the foregoing, any conditional sale or other title
retention agreement or any lease in the nature thereof).
"MANAGEMENT GROUP" shall mean, at any time, the Chairman of the Board, the
President, the Executive Vice President or Vice President, the Treasurer and the
Secretary of the Guarantor at such time.
"MATERIAL" means a circumstance, standard or event that is deemed
"material" by Guarantor in its sole, but reasonable, determination.
"MATERIAL ADVERSE EFFECT" shall mean a circumstance or condition affecting
the business, assets, operations, properties or financial condition of the
Guarantor and its Subsidiaries taken as a whole that would materially adversely
affect (a) the ability of the Guarantor to perform its obligations under this
Guaranty or the Lessee to perform its obligations under any Lease Document or
(b) the rights and remedies of the Lessor under this Guaranty or under any Lease
Document, in each case if, but only if, such circumstance or condition has an
economic effect (on an after tax basis) which exceeds an amount equal to the
greater of (i) fifteen percent (15%) of the consolidated stockholders' equity
(determined in accordance with GAAP) of the Guarantor at the time of
determination and (ii) $40,000,000.
"MATERIAL SUBSIDIARY" shall mean, at any date of determination, any
Restricted Subsidiary of the Guarantor (a) whose total assets at the last day of
the Test Period ending on the last day of the most recent fiscal period for
which Section 7(a) Financials have been delivered were equal to or greater than
5% of the consolidated total assets of the Guarantor and the Restricted
Subsidiaries at such date or (b) whose gross revenues for such Test Period were
equal to or greater than 5% of the consolidated gross revenues of the Guarantor
and the Restricted Subsidiaries for such period, in each case determined in
accordance with GAAP.
"MINORITY INVESTMENT" shall mean any Person (other than a Subsidiary) in
which the Guarantor or any Restricted Subsidiary owns capital stock or other
equity interests.
"MOODY'S" shall mean Moody's Investors Service, Inc. or any successor by
merger or consolidation to its business.
"MORTGAGE" means each Deed of Trust, Security Agreement, Assignment of
Rents, and Fixture Filing executed by the Lessor to the trustee named therein,
for the benefit of the Agent on behalf of the Banks, substantially in the form
of Exhibit "C" attached to the Credit Agreement.
"MORTGAGED PREMISES" means the property made subject to the Mortgage, which
property is subject to the Ground Lease and the Facilities Lease.
"1997 CREDIT AGREEMENT" means that certain Credit Agreement dated as of
June 27, 1997 among Guarantor,
FORM OF GUARANTY - Page 10
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The Chase Manhattan Bank, as Administrative Agent, National Westminster Bank
PLC, as Syndication Agent, Citicorp USA, Inc., as Documentation Agent, and
the other financial institutions from time to time party thereto, as the same
may be amended, amended and restated, renewed, extended or otherwise modified
or supplemented from time to time and together with any one or more credit
agreements or similar instruments, agreements or documents executed from time
to time in respect of any financing arrangements to replace, or which are in
substitution for, the financing arrangement evidenced thereby.
"OPERATING LEASE" means an operating lease determined in accordance with
GAAP.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
pursuant to Section 4002 of ERISA, or any successor thereto.
"PERMITTED ACQUISITION" shall mean the acquisition, by merger or otherwise,
by the Guarantor or any of the Restricted Subsidiaries of assets or capital
stock or other equity interests, so long as (a) such acquisition and all
transactions related thereto shall be consummated in accordance with applicable
law; (b) such acquisition shall, in the case of the acquisition of capital stock
or other equity interests by the Guarantor or any Restricted Domestic
Subsidiary, result in the issuer of such capital stock or other equity interests
becoming a Restricted Domestic Subsidiary and a direct Restricted Domestic
Subsidiary in the case of such an acquisition by the Guarantor; (c) after giving
effect to such acquisition, no Default or Event of Default shall have occurred
and be continuing; and (d) the Guarantor shall be in compliance, on a pro forma
basis after giving effect to such acquisition (including any Indebtedness
assumed or permitted to exist or incurred pursuant to SECTIONS 8(a)(x) and (xi),
respectively, and any related Pro Forma Adjustment), with the covenants set
forth in SECTIONS 8(i), (j) and (k), as such covenants are recomputed as at the
last day of the most recently ended Test Period under such Sections as if such
acquisition had occurred on the first day of such Test Period.
"PERMITTED INVESTMENTS" shall mean (a) securities issued or unconditionally
guaranteed by the United States government or any agency or instrumentality
thereof, in each case having maturities of not more than 24 months from the date
of acquisition thereof; (b) securities issued by any state of the United States
of America or any political subdivision of any such state or any public
instrumentality thereof or any political subdivision of any such state or any
public instrumentality thereof having maturities of not more than 24 months from
the date of acquisition thereof and, at the time of acquisition, having an
investment grade rating generally obtainable from either S&P or Moody's (or, if
at any time neither S&P nor Moody's shall be rating such obligations, then from
another nationally recognized rating service); (c) commercial paper issued by
any Bank or any bank holding company owning any Bank; (d) commercial paper
maturing no more than 12 months after the date of creation thereof and, at the
time of acquisition, having a rating of at least A-2 or P-2 from either S&P or
Moody's (or, if at any time neither S&P nor Moody's shall be rating such
obligations, an equivalent rating from another nationally recognized rating
service); (e) domestic and Eurodollar certificates of deposit or bankers'
acceptances maturing no more than two years after the date of acquisition
thereof issued by any Bank or any other bank having combined capital and surplus
of not less than $250,000,000 in the case of domestic banks and $100,000,000 (or
the dollar equivalent thereof) in the case of foreign banks; (f) repurchase
agreements with a term of not more than 30 days for underlying securities of the
type described in clauses (a), (b) and (e) above entered into with any bank
meeting the qualifications specified in clause (e) above or securities dealers
or recognized national standing; (g) shares of investment companies that are
registered under the Investment Company Act of 1940 and invest solely in one or
more of the types of securities described in clauses (a) through (f) above; and
(h) in the case of investments by any Restricted Foreign Subsidiary, other
customarily utilized high-quality investments in the country where such
Restricted Foreign Subsidiary is located.
"PERMITTED LIENS" shall mean (a) Liens for taxes, assessments or
governmental charges or claims not yet due or which are being contested in good
faith and by appropriate proceedings for which appropriate reserves have been
established in accordance with GAAP; (b) Liens in respect of property or assets
of the Guarantor or any of its Subsidiaries imposed by law, such as carriers',
warehousemen's and mechanic's Liens and other similar Liens arising in the
ordinary course of business, in each case so long as such Liens arise in the
ordinary course of business and do not individually or in the aggregate have a
Material Adverse Effect; (c) Liens arising from judgments or decrees in
FORM OF GUARANTY - Page 11
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circumstances not constituting an Event of Default under SECTION 9(a); (d) Liens
incurred or deposits made in connection with worker's compensation, unemployment
insurance and other types of social security, or to secure the performance of
tenders, statutory obligations, surety and appeal bonds, bids, leases,
government contracts, performance and return-of-money bonds and other similar
obligations incurred in the ordinary course of business; (e) ground leases in
respect of real property on which facilities owned or leased by the Guarantor or
any of its Subsidiaries are located; (f) easements, rights-of-way, restrictions,
minor defects or irregularities in title and other similar charges or
encumbrances not interfering in any Material respect with the business of the
Guarantor and its Subsidiaries taken as a whole; (g) any interest or title of a
lessor or secured by a lessor's interest under any lease permitted by this
Guaranty; (h) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of customs duties in connection with the
importation of goods; (i) Liens on goods the purchase price of which is financed
by a documentary letter of credit issued for the account of the Guarantor or any
of its Subsidiaries, PROVIDED that such Liens secures only the obligations of
the Guarantor or such Subsidiaries in respect of such letter of credit to the
extent permitted under SECTION 8(a); and (j) leases or subleases granted to
others not interfering in any Material respect with the business of the
Guarantor and its Subsidiaries, taken as a whole.
"PERMITTED SALE LEASEBACK" shall mean any Sale Leaseback consummated by the
Guarantor or any of the Restricted Subsidiaries after June 27, 1997 with respect
to one or more Stores, PROVIDED that such Sale Leaseback is consummated for fair
value as determined at the time of consummation in good faith by the Guarantor
and, in the case of any Permitted Sale Leaseback (or series of related Permitted
Sales Leasebacks) the aggregate proceeds of which exceed $20,000,000, the Board
of Directors of the Guarantor (which such determination may take into account
any retained interest or other investment of the Guarantor or such Restricted
Subsidiary in connection with, and any other Material economic terms of, such
Sale Leaseback).
"PERSON" shall mean any individual, partnership, joint venture, firm,
corporation, limited liability company, association, trust or other enterprise
or any Governmental Authority.
"PLAN" shall mean any multiemployer or single-employer plan, as defined in
Section 4001 of ERISA and subject to Title IV of ERISA, that is or was within
any of the preceding five plan years maintained or contributed to by (or to
which there is or was an obligation to contribute or to make payments of) the
Guarantor, a Subsidiary or an ERISA Affiliate.
"PRO-FORMA ADJUSTMENT" shall mean, for any test period that includes any of
the six fiscal quarters first following any Permitted Acquisition, with respect
to the Acquired EBITDA of the applicable Acquired Entity or Business, the pro
forma increase or decrease in such Acquired EBITDA projected by the Guarantor in
good faith as a result of reasonably identifiable and supportable net cost
savings or additional net costs, as the case may be, realizable during such
period by combining the operations of such Acquired Entity or Business with the
operations of the Guarantor and its Subsidiaries, PROVIDED that so long as such
net cost savings or additional net costs will be realizable at any time during
such period, it may be assumed, for purposes of projecting such pro forma
increase or decrease to such Acquired EBITDA, that such net cost savings or
additional net costs will be realizable during the entire such period, PROVIDED
FURTHER that any such pro forma increase or decrease to such Acquired EBITDA
shall be without duplication for net cost savings or additional net costs
actually realized during such period and already included in such Acquired
EBITDA.
"PRO FORMA ADJUSTMENT CERTIFICATE" shall mean any certificate of an
Authorized Officer of the Guarantor delivered pursuant to SECTION 7(a)(viii) or
setting forth the information described in CLAUSE (4) to SECTION 7(a)(iv).
"PUTABLE SHARES" has the meaning set forth in the 1997 Credit Agreement.
"PUTABLE SHARE RESERVE FUND" shall mean the amount required for the
Guarantor to repurchase the Putable Shares following the Closing Date.
"REPLACEMENT CREDIT AGREEMENT" means, a credit agreement or financing
arrangement that amends, amends and restates, modifies, supplements, or
replaces, or which is in substitution for, the financing arrangement evidenced
FORM OF GUARANTY - Page 12
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by the 1997 Credit Agreement.
"REPORTABLE EVENT" shall mean an event described in Section 4043 of ERISA
and the regulations thereof.
"REQUIREMENT OF LAW" shall mean, as to any Person, the Certificate of
Incorporation and By-Laws or other organizational or governing documents of such
Person, and any law, treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case applicable
to or binding upon such Person or any of its property or assets or to which such
Person or any of its property or assets is subject.
"RESTRICTED DOMESTIC SUBSIDIARY" shall mean each Restricted Subsidiary that
is also a Domestic Subsidiary.
"RESTRICTED FOREIGN SUBSIDIARY" shall mean any Foreign Subsidiary that is
also a Restricted Subsidiary.
"RESTRICTED SUBSIDIARY" shall mean any Subsidiary of the Guarantor other
than an Unrestricted Subsidiary.
"SALE LEASEBACK" shall mean any transaction or series of related
transactions pursuant to which the Guarantor or any of the Restricted
Subsidiaries sells, transfers or otherwise disposes of any property, real or
personal, whether now owned or hereafter acquired, and thereafter rents or
leases such property or other property that it intends to use for substantially
the same purpose or purposes as the property being sold, transferred or
disposed.
"S&P" shall mean Standard & Poor's Ratings Service or any successor by
merger or consolidation to its business.
"SEC" shall mean the Securities and Exchange Commission or any successor
thereof.
"SECTION 7(a) FINANCIALS" shall mean the financial statements delivered, or
required to be delivered, pursuant to SECTION 7(a)(i) or (ii) together with the
accompanying officer's certificate delivered, or required to be delivered,
pursuant to SECTION 7(a)(v).
"SOLD ENTITY OR BUSINESS" shall have the meaning provided in the definition
of the term "Consolidated EBITDA."
"SPECIFIED SUBSIDIARY" shall mean, at any date of determination, (a) any
Material Subsidiary or (b) any Unrestricted Subsidiary (i) whose total assets at
the last day of the Test Period ending on the last day of the most recent fiscal
period for which Section 7(a) Financials have been delivered were equal to or
greater than 15% of the consolidated total assets of the Guarantor and its
Subsidiaries at such date or (ii) whose gross revenues for such Test Period were
equal to or greater than 15% of the consolidated gross revenues of the Guarantor
and its Subsidiaries for such period, in each case determined in accordance with
GAAP.
"STATUS" shall mean, as to the Guarantor as of any date, the existence of
Level I Status, Level II Status, Level III Status, Level IV Status, Level V
Status, Level VI Status, Level VII Status or Level VIII Status, as the case may
be, on such date. Changes in Status resulting from changes in the Consolidated
Total Debt to Consolidated EBITDA Ratio shall become effective (the date of such
effectiveness, the "EFFECTIVE DATE") as of the first day following the last day
of the most recent fiscal year or period for which (a) Section 7(a) Financials
are delivered to the Lessor under SECTION 7(a) and (b) an officer's certificate
is delivered by the Guarantor to the Lessor setting forth, with respect to such
Section 7(a) Financials, the then-applicable Status, and shall remain in effect
until the next change to be effective pursuant to this definition, PROVIDED that
(i) if the Guarantor shall have made any payments in respect of interest or
commitment fees during the period (the "INTERIM PERIOD") from and including the
Effective Date to but excluding the date any change in Status is determined as
provided above, then the amount of the next such payment due on or after such
day shall be increased or decreased by an amount equal to any underpayment or
overpayment so made by the Guarantor during such Interim Period and (ii) each
determination of the Consolidated Total Debt to Consolidated EBITDA Ratio
pursuant to this definition shall be made with respect to the Test Period ending
at the end of the fiscal period covered
FORM OF GUARANTY - Page 13
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by the relevant financial statements.
"STORES" shall mean any facility operated by the Guarantor or any of its
Subsidiaries as a grocery store or drug store, or part of such facility
(including, without limitation, related office buildings, parking lots or other
related real property), now or hereafter owned by the Guarantor or any of its
Subsidiaries, in each case including, without limitation, the land on which such
facility is located, all buildings and other improvements thereon, all fixtures,
furniture, equipment and other tangible personal property located in or used in
connection with such facility (other than motor vehicles) related to the
ownership, lease or operation of such facility, all whether now existing or
hereafter acquired.
"SUBORDINATED NOTE INDENTURE" shall mean the Indenture dated as of June 27,
1997, as the same may be amended, supplemented or otherwise modified from time
to time, between the Guarantor and Marine Midland Bank, as trustee, pursuant to
which the Subordinated Notes were issued.
"SUBORDINATED NOTES" shall mean the $150,000,000 aggregate principal amount
of Senior Subordinated Notes due 2007 of the Guarantor issued on or about June
27, 1997 pursuant to the Subordinated Note Indenture.
"SUBSIDIARY" of any Person shall mean and include (a) any corporation more
than 50% of whose stock of any class or classes having by the terms thereof
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 through Subsidiaries and (b) any partnership, association, joint
venture or other entity in which such Person directly or indirectly through
Subsidiaries has more than a 50% equity interest at the time. Unless otherwise
expressly provided, all references herein to a "Subsidiary" shall mean a
Subsidiary of the Guarantor.
"SUBSIDIARY GUARANTY" shall mean each guaranty made by each Subsidiary
Guarantor substantially in the form of the Subsidiary Guaranty dated
concurrently herewith executed by Randall's Properties, Inc., a Delaware
corporation, in favor of the Lessor, as the same may be amended, supplemented or
otherwise modified from time to time.
"SUBSIDIARY RESIDUAL GUARANTY" shall mean each guaranty made by each
Subsidiary Guarantor substantially in the form of the Subsidiary Residual
Guaranty dated concurrently herewith executed by Randall's Properties, Inc., a
Delaware corporation, in favor of the Agent, as the same may be amended,
supplemented or otherwise modified from time to time.
"SUBSIDIARY GUARANTOR" shall mean each Domestic Subsidiary of the Guarantor
that is a Restricted Subsidiary or is or becomes a party to a Subsidiary
Guaranty or Subsidiary Residual Guaranty.
"TEST PERIOD" shall mean, for any determination under this Guaranty, the
four consecutive fiscal quarters of the Guarantor then last ended.
"TRANSACTION EXPENSES" shall mean any fees or expenses incurred or paid by
the Guarantor or any of its Subsidiaries in connection with the Recapitalization
(as defined in the 1997 Credit Agreement), the financing therefor and the other
transactions contemplated hereby and thereby (including the Make-Whole Premium
(as defined in the 1997 Credit Agreement)).
"UNFUNDED CURRENT LIABILITY" of any Plan shall mean the amount, if any, by
which the present value of the accrued benefits under the Plan as of the close
of its most recent plan year, determined in accordance with Statement of
Financial Accounting Standards No. 87 as in effect on the date hereof, based
upon the actuarial assumptions that would be used by the Plan's actuary in a
termination of the Plan, exceeds the fair market value of the assets allocable
thereto.
"UNRESTRICTED SUBSIDIARY" shall mean (a) any Subsidiary of the Guarantor
that is formed or acquired after June 27, 1997, PROVIDED that at such time (or
promptly thereafter) the Guarantor designates such Subsidiary an
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Unrestricted Subsidiary in a written notice to the Lessor, (b) any Restricted
Subsidiary on June 27, 1997 subsequently re-designated as an Unrestricted
Subsidiary by the Guarantor in a written notice to the Lessor, PROVIDED that
such re-designation shall be deemed to be an investment on the date of such
re-designation in an Unrestricted Subsidiary in an amount equal to the sum of
(i) the net worth of such re-designated Restricted Subsidiary immediately
prior to such re-designation (such net worth to be calculated without regard
to any Subsidiary Guaranty or Subsidiary Residual Guaranty provided by such
re-designated Restricted Subsidiary) and (ii) the aggregate principal amount
of any Indebtedness owed by such re-designated Restricted Subsidiary to the
Guarantor or any other Restricted Subsidiary immediately prior to such
re-designation, all calculated, except as set forth in the parenthetical to
clause (i), on a consolidated basis in accordance with GAAP, and (c) each
Subsidiary of an Unrestricted Subsidiary; PROVIDED, HOWEVER, that (i) at the
time of any written re-designation by the Guarantor to the Lessor of any
Unrestricted Subsidiary as a Restricted Subsidiary, the Unrestricted
Subsidiary so re-designated shall no longer constitute an Unrestricted
Subsidiary, (ii) no Unrestricted Subsidiary may be re-designated as a
Restricted Subsidiary if a Default or Event of Default would result from such
re-designation and (iii) no Restricted Subsidiary may be re-designated as an
Unrestricted Subsidiary if a Default or Event of Default would result from
such re-designation. On or promptly after the date of its formation,
acquisition or re-designation, as applicable, each Unrestricted Subsidiary
(other than an Unrestricted Subsidiary that is a Foreign Subsidiary) shall
have entered into a tax sharing agreement containing terms that, in the
reasonable judgment of the Lessor, provide for an appropriate allocation of
tax liabilities and benefits.
"VOTING STOCK" shall mean, with respect to any Person, shares of such
Person's capital stock having the right to vote for the election of directors of
such Person under ordinary circumstances.
6 REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF GUARANTOR. The
Guarantor represents and warrants to you that:
(a) CORPORATE STATUS. The Guarantor and each Material Subsidiary (a)
is a duly organized and validly existing corporation or other entity in good
standing under the laws of the jurisdiction of its organization and has the
corporate or other organizational power and authority to own its property and
assets and to transact the business in which it is engaged and (b) has duly
qualified and is authorized to do business and is in good standing in all
jurisdictions where it is required to be so qualified, except where the failure
to be so qualified could not reasonably be expected to result in a Material
Adverse Effect.
(b) CORPORATE POWER AND AUTHORITY. The Guarantor has the corporate
power and authority to execute, deliver and carry out the terms and provisions
of this Guaranty and has taken all necessary corporate action to authorize the
execution, delivery and performance of this Guaranty. The Guarantor has duly
executed and delivered this Guaranty and this Guaranty constitutes the legal,
valid and binding obligation of the Guarantor enforceable in accordance with its
terms, except as the enforceability thereof may be limited by bankruptcy,
insolvency or similar laws affecting creditors' rights generally and subject to
general principles of equity.
(c) NO VIOLATION. Neither the execution, delivery and performance by
the Guarantor of this Guaranty nor compliance with the terms and provisions
hereof nor the consummation of the transactions contemplated herein will (a)
contravene any applicable provision of any Material law, statute, rule,
regulation, order, writ, injunction or decree of any court or governmental
instrumentality, (b) result in any breach of any of the terms, covenants,
conditions or provisions of, or constitute a default under, or result in the
creation or imposition of (or the obligation to create or impose) any Lien upon
any of the property or assets of the Guarantor or any of the Restricted
Subsidiaries pursuant to, the terms of any Material indenture (including the
Senior Note Indenture), loan agreement, lease agreement, mortgage, deed of
trust, agreement or other Material instrument to which the Guarantor or any of
the Restricted Subsidiaries is a party or by which it or any of its property or
assets is bound or (c) violate any provision of the certificate of incorporation
or By-Laws of the Guarantor or any of the Restricted Subsidiaries.
(d) LITIGATION. Except as set forth in the Guarantor's audited
financial statements for the fiscal year ended June 28, 1997, there are no
actions, suits or proceedings (including, without limitation, Environmental
Claims) pending or, to the knowledge of the Guarantor, threatened with respect
to the Guarantor or any of its
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Subsidiaries that could reasonably be expected to result in a Material
Adverse Effect.
(e) GOVERNMENTAL APPROVALS. No order, consent, approval, license,
authorization, or validation of, or filing, recording or registration with, or
exemption by, any Governmental Authority is required to authorize or is required
in connection with (a) the execution, delivery and performance of any Credit
Document or (b) the legality, validity, binding effect or enforceability of this
Guaranty, except any of the foregoing the failure to obtain or make could not
reasonably be expected to have a Material Adverse Effect.
(f) INVESTMENT COMPANY ACT. The Guarantor is not an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
(g) TRUE AND COMPLETE DISCLOSURE.
(i) All factual information and data (taken as a whole)
heretofore or contemporaneously furnished by the Guarantor, any of its
Subsidiaries or any of their respective authorized representatives in
writing to the Lessor on or before the Closing Date for purposes of or in
connection with this Guaranty or any transaction contemplated herein was
true and complete in all Material respects on the date as of which such
information or data is dated or certified and was not incomplete by
omitting to state any Material fact necessary to make such information and
data (taken as a whole) not misleading at such time in light of the
circumstances under which such information or data was furnished, it being
understood and agreed that for purposes of this Section, such factual
information and data shall not include projections and pro forma financial
information.
(ii) The projections and pro formal financial information
contained in the information and data referred to in paragraph (i) above
were based on good faith estimates and assumptions believed by such Persons
to be reasonable at the time made, it being recognized by the Lessor that
such projections as to future events are not to be viewed as facts and that
actual results during the period or periods covered by any such projections
may differ from the projected results.
(h) FINANCIAL CONDITION; FINANCIAL STATEMENTS. (i) The consolidated
balance sheet of the Guarantor and its Subsidiaries at June 28, 1997, and the
related consolidated statements of operations, redeemable stock and
stockholders' equity and cash flows for the fiscal year ended as of such date,
which statements have been audited by Deloitte & Touche LLP, independent
certified public accountants, who delivered an unqualified opinion with respect
thereto, and (ii) the unaudited consolidated balance sheet of the Guarantor and
its Subsidiaries at April 5, 1998, and the related consolidated statements of
operations, redeemable stock and stockholders' equity and cash flows for the
respective fiscal quarters and portions of the fiscal year ended as of such
dates, in each case present fairly in all Material respects the consolidated
financial position of the Guarantor and its Subsidiaries at the respective dates
of said statements and the results of operations for the respective periods
covered thereby. All such financial statements have been prepared in accordance
with GAAP consistently applied except to the extent provided in the notes to
said financial statements and, in the case of said financial statements referred
to in clause (ii), subject to normal year-end audit adjustments. No event has
occurred since June 28, 1997 which has resulted in a Material Adverse Effect.
(i) TAX RETURNS AND PAYMENTS. Each of the Guarantor and its
Subsidiaries has filed all federal income tax returns and all other Material tax
returns, domestic and foreign, required to be filed by it and has paid all
Material taxes and assessments payable by it that have become due, other than
those not yet delinquent or contested in good faith. The Guarantor and each of
its Subsidiaries have paid, or have provided adequate reserves (in the good
faith judgment of the management of the Guarantor) in accordance with GAAP for
the payment of, all Material federal, state and foreign income taxes applicable
for all prior fiscal years and for the current fiscal year to the Closing Date.
(j) COMPLIANCE WITH ERISA. Each Plan is in compliance with ERISA,
the Code and any applicable Requirement of Law; no Reportable Event has occurred
(or is reasonably likely to occur) with respect to any Plan; no Plan is
insolvent or in reorganization (or is reasonably likely to be insolvent or in
reorganization), and no
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written notice of any such insolvency or reorganization has been given to the
Guarantor, any Subsidiary or any ERISA Affiliate; no Plan (other than a
multiemployer plan) has an accumulated or waived funding deficiency (or is
reasonably likely to have such a deficiency); neither the Guarantor nor any
Subsidiary nor any ERISA Affiliate has incurred (or is reasonably likely
expected to incur) any liability to or on account of a Plan pursuant to
Section 409, 502(i), 502(l), 515, 4062, 4063, 4064, 4069, 4201 or 4204 of
ERISA or Section 4971 or 4975 of the Code or has been notified in writing
that it will incur any liability under any of the foregoing Sections with
respect to any Plan; no proceedings have been instituted (or are reasonably
likely to be instituted) to terminate or to reorganize any Plan or to appoint
a trustee to administer any Plan, and no written notice of any such
proceedings has been given to the Guarantor, any Subsidiary or any ERISA
Affiliate; and no lien imposed under the Code or ERISA on the assets of the
Guarantor or any Subsidiary or any ERISA Affiliate exists (or is reasonably
likely to exist) nor has the Guarantor, any Subsidiary or any ERISA Affiliate
been notified in writing that such a lien will be imposed on the assets of
the Guarantor, any Subsidiary or any ERISA Affiliate on account of any Plan,
EXCEPT to the extent that a breach of any of the foregoing representations,
warranties or agreements in this Section would not result, individually or in
the aggregate, in an amount of liability that would be reasonably likely to
have a Material Adverse Effect or relates to any matter disclosed in the
financial statements of the Guarantor contained in the Confidential
Information Memorandum. No Plan (other than a multiemployer plan) has an
Unfunded Current Liability that would, individually or when taken together
with any other liabilities referenced in this Section, be reasonably likely
to have a Material Adverse Effect. With respect to Plans that are
multiemployer plans (as defined in Section 3(37) of ERISA), the
representations and warranties in this Section, other than any made with
respect to (a) liability under Section 4201 or 4204 of ERISA or (b) liability
for termination or reorganization of such Plans under ERISA, are made to the
best knowledge of the Guarantor.
(k) SUBSIDIARIES. SCHEDULE 6(k) lists each Subsidiary of the
Guarantor (and the direct and indirect ownership interest of the Guarantor
therein), in each case existing on the Closing Date. To the knowledge of the
Guarantor, each Material Subsidiary as of the Closing Date has been so
designated on SCHEDULE 6(k).
(l) PATENTS, ETC. The Guarantor and each of the Restricted
Subsidiaries have obtained all patents, trademarks, servicemarks, trade names,
copyrights, licenses and other rights, free from burdensome restrictions, that
are necessary for the operation of their respective businesses as currently
conducted and as proposed to be conducted, except where the failure to obtain
any such rights could not reasonably be expected to have a Material Adverse
Effect.
(m) ENVIRONMENTAL LAWS.
(i) Other than instances of noncompliance that could not
reasonably be expected to have a Material Adverse Effect: (1) the
Guarantor and each of its Subsidiaries are in compliance with all
Environmental Laws in all jurisdictions in which the Guarantor and each of
its Subsidiaries are currently doing business (including, without
limitation, having obtained all Material permits required under
Environmental Laws) and (2) the Guarantor will comply and cause each of its
Subsidiaries to comply with all of such Environmental Laws (including,
without limitation, all permits required under Environmental Laws).
(ii) Neither the Guarantor nor any of its Subsidiaries has
treated, stored, transported or disposed of Hazardous Materials at or from
any currently or formerly owned Real Estate (as defined in SECTION
7(a)(vi)) or facility relating to its business in a manner that could
reasonably be expected to have a Material Adverse Effect.
(iii) PROPERTIES. The Guarantor and each of the Restricted
Subsidiaries have good title to or leasehold interest in all properties
that are necessary for the operation of their respective businesses as
currently conducted and as proposed to be conducted, free and clear of all
Liens (other than any Liens permitted by this Guaranty) and except where
the failure to have such good title could not reasonably be expected to
have a Material Adverse Effect.
70 AFFIRMATIVE COVENANTS. So long as any Lease Document remains in
effect:
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(a) INFORMATION COVENANTS. The Guarantor will furnish to the Lessor:
(i) ANNUAL FINANCIAL STATEMENTS. As soon as available and in
any event on or before the date on which such financial statements are
required to be filed with the SEC, the consolidated balance sheet or (1)
the Guarantor and the Restricted Subsidiaries and (2) the Guarantor and its
Subsidiaries, in each case as at the end of such fiscal year and the
related consolidated statement of operations, redeemable stock and
stockholders' equity cash flows for such fiscal year, setting forth
comparative consolidated figures for the preceding fiscal year, and
certified by independent certified public accountants of recognized
national standing whose opinion shall not be qualified as to the scope of
audit or as to the status of the Guarantor or any of the Material
Subsidiaries as a going concern, together in any event with a certificate
of such accounting firm stating that in the course of its regular audit of
the business of the Guarantor and the Material Subsidiaries, which audit
was conducted in accordance with generally accepted auditing standards,
such accounting firm has obtained no knowledge of any Default or Event of
Default relating to SECTIONS 8(i), (j) and (k) that has occurred and is
continuing or, if in the opinion of such accounting firm such a Default or
Event of Default has occurred and is continuing, a statement as to the
nature thereof.
(ii) QUARTERLY FINANCIAL STATEMENTS. As soon as available and
in any event on or before the date on which such financial statements are
required to be filed with the SEC with respect to each of the first three
quarterly accounting periods in each fiscal year of the Guarantor, the
consolidated balance sheet or (1) the Guarantor and the Restricted
Subsidiaries and (2) the Guarantor and its Subsidiaries, in each case as at
the end of such quarterly period and the related consolidated statement of
operations, redeemable stock and stockholders' equity income for such
quarterly accounting period and for the elapsed portion of the fiscal year
ended with the last day of such quarterly period, and the related
consolidated statement of cash flows for the elapsed portion of the fiscal
year ended with the last day of such quarterly period, and setting forth
comparative consolidated figures for the related periods in the prior
fiscal year or, in the case of such consolidated balance sheet, for the
last day of the prior fiscal year, all of which shall be certified by an
Authorized Officer of the Guarantor, subject to changes resulting from
audit and normal year-end audit adjustments.
(iii) BUDGETS. Within 60 days after the commencement of each
fiscal year of the Guarantor, budgets of the Guarantor in reasonable detail
for the fiscal year as customarily prepared by management of the Guarantor
for its internal use, setting forth the principal assumptions upon which
such budgets are based.
(iv) OFFICER'S CERTIFICATES. At the time of the delivery of
the financial statements provided for in SECTIONS 7(i) and (ii), a
certificate of an Authorized Officer of the Guarantor 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, which certificate
shall set forth (1) the calculations required to establish whether the
Guarantor and its Subsidiaries were in compliance with the provisions of
SECTIONS 8(i), (j) and (k) as at the end of such fiscal year or period, as
the case may be, (2) a specification of any change in the identity of the
Restricted Subsidiaries, Unrestricted Subsidiaries, Acquisition
Subsidiaries and Foreign Subsidiaries as at the end of such fiscal year or
period, as the case may be, from the Restricted Subsidiaries, Unrestricted
Subsidiaries, Acquisition Subsidiaries, and Foreign Subsidiaries,
respectively, provided to the Lessor on the Closing Date or the most recent
fiscal year or period, as the case may be, (3) the then applicable Status
and (4) the amount of any Pro Forma Adjustment not previously set forth in
a Pro Formal Adjustment Certificate or any change in the amount of a Pro
Forma Adjustment set forth in any Pro Forma Adjustment Certificate
previously provided and, in either case, in reasonable detail, the
calculations and basis therefor; and at the time of the delivery of the
financial statements provided for in SECTION 7(a)(i), a certificate of an
Authorized Officer of the Guarantor setting forth in reasonable detail the
Available Amount as at the end of the fiscal year to which such financial
statements relate.
(v) NOTICE OF DEFAULT OR LITIGATION. Promptly after an
Authorized Officer of the Guarantor or any of its Subsidiaries obtains
knowledge thereof, notice of (1) the occurrence of any event that
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constitutes a Default or Event of Default, which notice shall specify the
nature thereof, the period of existence thereof and what action the
Guarantor proposes to take with respect thereto, and (2) any litigation or
governmental proceeding pending against the Guarantor or any of its
Subsidiaries that could reasonably be expected to result in a Material
Adverse Effect.
(vi) ENVIRONMENTAL MATTERS. The Guarantor will promptly advise
the Lessor in writing after obtaining knowledge of any one or more of the
following environmental matters, unless such environmental matters would
not, individually or when aggregated with all other such matters, be
reasonably expected to result in a Material Adverse Effect:
(1) Any pending or threatened Environmental Claim
against the Guarantor or any of its Subsidiaries or any Real Estate
(as defined below);
(2) Any condition or occurrence on any Real Estate
that (x) results in noncompliance by the Guarantor or any of its
Subsidiaries with any applicable Environmental Law or (y) could
reasonably be anticipated to form the basis of an Environmental Claim
against the Guarantor or any of its Subsidiaries or any Real Estate;
(3) Any condition or occurrence on any Real Estate
that could reasonably be anticipated to cause such Real Estate to be
subject to any restrictions on the ownership, occupancy, use or
transferability or such Real Estate under any Environmental Law; and
(4) The taking of any removal or remedial action in
response to the actual or alleged presence of any Hazardous Material
on any Real Estate.
All such notices shall describe in reasonable detail the nature of the
claim, investigation, condition, occurrence or removal or remedial action
and the Guarantor's response thereto. The term "REAL ESTATE" shall mean
land, buildings and improvements owned or leased by the Guarantor or any of
its Subsidiaries, but excluding all operating fixtures and equipment,
whether or not incorporated into improvements.
(vii) OTHER INFORMATION. Promptly upon filing thereof, copies
of any filings on Form 10-K, 10-Q or 8-K or registration statements with,
and reports to, the SEC by the Guarantor or any of its Subsidiaries (other
than amendments to any registration statement (to the extent such
registration statement, in the form it becomes effective, is delivered to
the Lessor), exhibits to any registration statement and any registration
statements on Form S-8) and copies of all financial statements, proxy
statements, notices and reports that the Guarantor or any of its
Subsidiaries shall send to the holders of any publicly issued debt of the
Guarantor and/or any of its Subsidiaries (including the Subordinated Notes)
in their capacity as such holders (in each case to the extent not
theretofore delivered to the Lessor pursuant to this Guaranty) and, with
reasonable promptness, such other information (financial or otherwise) as
the Lessor may reasonably request in writing from time to time.
(viii) PRO FORMA ADJUSTMENT CERTIFICATE. Not later than the
consummation of the acquisition of any Acquired Entity or Business by the
Guarantor or any Restricted Subsidiary for which there shall be a Pro Forma
Adjustment, a certificate of an Authorized Officer of the Guarantor setting
forth the amount of such Pro Forma Adjustment and, in reasonable detail,
the calculations and basis therefor.
(b) BOOKS, RECORDS AND INSPECTIONS. The Guarantor will, and will
cause each of the Specified Subsidiaries to, permit officers and designated
representatives of the Lessor to visit and inspect any of the properties or
assets of the Guarantor and any such Specified Subsidiary in whomsoever's
possession to the extent that it is within the Guarantor's or such Specified
Subsidiary's control to permit such inspection, and to examine the books of
account of the Guarantor and any such Specified Subsidiary and discuss the
affairs, finances and accounts of the Guarantor and of any such Specified
Subsidiary with, and be advised as to the same by, its and their officers and
independent
FORM OF GUARANTY - Page 19
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accountants, all at such reasonable times and intervals and to such
reasonable extent as the Lessor may desire.
(c) MAINTENANCE OF INSURANCE. The Guarantor will, and will cause
each of the Material Subsidiaries to, at all times maintain in full force and
effect, with insurance companies that the Guarantor believes (in the good
faith judgment of the management of the Guarantor) are financially sound and
responsible at the time the relevant coverage is placed or renewed, insurance
in at least such amounts and against at least such risks (and with such risk
retentions) as are usually insured against in the same general area by
companies engaged in the same or a similar business; and will furnish to the
Lessor, upon written request from the Lessor, information presented in
reasonable detail as to the insurance so carried.
(d) PAYMENT OF TAXES. The Guarantor will pay and discharge, and
will cause each of its Subsidiaries to pay and discharge, all Material 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 Material penalties attach thereto, and all lawful Material claims
that, if unpaid, could reasonably be expected to become a Material Lien upon
any properties of the Guarantor or any of the Restricted Subsidiaries,
PROVIDED that neither the Guarantor nor any of its Subsidiaries shall be
required to pay any such tax, assessments, charge, levy or claim that is
being contested in good faith and by proper proceedings if it has maintained
adequate reserves (in the good faith judgment of the management of the
Guarantor) with respect thereto in accordance with GAAP.
(e) CONSOLIDATED CORPORATE FRANCHISES. The Guarantor will do, and
will cause each Material Subsidiary to do, or cause to be done, all things
necessary to preserve and keep in full force and effect its existence,
corporate rights and authority, except to the extent that the failure to do
so could not reasonably be expected to have a Material Adverse Effect;
PROVIDED, HOWEVER, that the Guarantor and its Subsidiaries may consummate any
transaction permitted under SECTIONS 8(c) or (d).
(f) COMPLIANCE WITH STATUTES, OBLIGATIONS, ETC. The Guarantor
will, and will cause each Subsidiary to, comply with all applicable laws,
rules, regulations and orders, except to the extent the failure to do so
could not reasonably be expected to have a Material Adverse Effect.
(g) ERISA. Promptly after the Guarantor or any Subsidiary or any
ERISA Affiliate knows or has reason to know of the occurrence of any of the
following events that, individually or in the aggregate (including in the
aggregate such events previously disclosed or exempt from disclosure
hereunder, to the extent the liability therefor remains outstanding), would
be reasonably likely to have a Material Adverse Effect, the Guarantor will
deliver to the Lessor a certificate of an Authorized Officer or any other
senior officer of the Guarantor setting forth details as to such occurrence
and the action, if any, that the Guarantor, such Subsidiary or such ERISA
Affiliate is required or proposes to take, together with any notices
(required, proposed or otherwise) given to or filed with or by the Guarantor,
such Subsidiary, such ERISA Affiliate, the PBGC, a Plan participant (other
than notices relating to an individual participant's benefits) or the Plan
administrator with respect thereto: that a Reportable Event has occurred;
that an accumulated funding deficiency has been incurred or an application is
to be made to the Secretary of the Treasury for a waiver or modification of
the minimum funding standard (including any required installment payments) or
an extension of any amortization period under Section 412 of the Code with
respect to a Plan; that a Plan having an Unfunded Current Liability has been
or is to be terminated, reorganized, partitioned or declared insolvent under
Title IV of ERISA (including the giving of written notice thereof); that a
Plan has an Unfunded Current Liability that has or will result in a lien
under ERISA or the Code; that proceedings will be or have been instituted to
terminate a Plan having an Unfunded Current Liability (including the giving
of written notice thereof); that a proceeding has been instituted against the
Guarantor, a Subsidiary or an ERISA Affiliate pursuant to Section 515 of
ERISA to collect a delinquent contribution to a Plan; that the PBGC has
notified the Guarantor, any Subsidiary or any ERISA Affiliate of its
intention to appoint a trustee to administer any Plan; that the Guarantor,
any Subsidiary or any ERISA Affiliate has failed to make a required
installment or other payment pursuant to Section 412 of the Code with respect
to a Plan; or that the Guarantor, any Subsidiary or any ERISA Affiliate has
incurred or will incur (or has been notified in writing that it will incur)
any liability (including any contingent or secondary liability) to or on
account of a Plan pursuant to Section 409, 502(i), 502(l), 515, 4062, 4063,
4064, 4069, 4201 or 4204 of ERISA or Section 4971 or 4975 of the Code.
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(h) GOOD REPAIR. The Guarantor will, and will cause each of the
Restricted Subsidiaries to, ensure that its properties and equipment used or
useful in its business in whomsoever's possession they may be to the extent
that it is within the Guarantor's or such Restricted Subsidiary's control to
cause same, are kept in good repair, working order and condition, normal wear
and tear excepted, and that from time to time there are made in such
properties and equipment all needful and proper repairs, renewals,
replacements, extensions, additions, betterments and improvements thereto, to
the extent and in the manner customary for companies in similar businesses
and consistent with third party leases, except in each case to the extent the
failure to do so could not be reasonably expected to have a Material Adverse
Effect.
(i) TRANSACTIONS WITH AFFILIATES. The Guarantor will conduct, and
cause each of the Restricted Subsidiaries to conduct, all transactions with
any of its Affiliates on terms that are substantially as favorable to the
Guarantor or such Restricted Subsidiary as it would obtain in a comparable
arm's-length transaction with a Person that is not an Affiliate, PROVIDED
that the foregoing restrictions shall not apply to (i) the payment of
customary annual fees to KKR and its Affiliates for management, consulting
and financial services rendered to the Guarantor and its Subsidiaries, and
investment banking fees paid to KKR and its Affiliates for services rendered
to the Guarantor and its Subsidiaries in connection with divestitures,
acquisitions, financings and other transactions, (ii) customary fees paid to
members of the Board of Directors of the Guarantor and its Subsidiaries and
(iii) transactions permitted by SECTION 8(f).
(j) END OF FISCAL YEARS; FISCAL QUARTERS. The Guarantor will, for
financial reporting purposes, cause (i) each of its, and each of its
Subsidiaries', fiscal years to end on the last Saturday in June of each year
and (i) each of its, and each of its Subsidiaries', fiscal quarters to end on
dates consistent with such fiscal year-end and the Guarantor's past practice;
PROVIDED, HOWEVER, that the Guarantor may, upon written notice to the Lessor,
change the financial reporting convention specified above to any other
financial reporting convention reasonably acceptable to the Lessor, in which
case the Guarantor and the Lessor will make any adjustments to this Guaranty
that are necessary in order to reflect such change in financial reporting.
(k) ADDITIONAL GUARANTOR SUBSIDIARIES. The Guarantor will cause
(i) any direct or indirect Domestic Subsidiary (other than any Unrestricted
Subsidiary or Acquisition Subsidiary) formed or otherwise purchased or
acquired after the date hereof and (b) any Subsidiary (other than any
Unrestricted Subsidiary or Acquisition Subsidiary) that is not a Domestic
Subsidiary on the date hereof but subsequently becomes a Domestic Subsidiary
(other than any Unrestricted Subsidiary or Acquisition Subsidiary), in each
case to become a Subsidiary Guarantor and to execute and deliver to the Agent
a Subsidiary Guaranty and a Subsidiary Residual Guaranty.
(l) CHANGES IN BUSINESS. The Guarantor and its Subsidiaries taken
as a whole will not fundamentally and substantively alter the character of
their business taken as a whole from the business conducted by the Guarantor
and its Subsidiaries taken as a whole on the date hereof and other business
activities incidental or related to any of the foregoing.
80 NEGATIVE COVENANTS. So long as any Lease Document remains in
effect:
(a) LIMITATION ON INDEBTEDNESS. The Guarantor will not, and will
not permit any of the Restricted Subsidiaries to, create, incur, assume or
suffer to exist any Indebtedness, except:
(i) Indebtedness arising under the Credit Documents (as
defined in the 1997 Credit Agreement), as presently in effect or as may be
hereafter required under the present terms of the 1997 Credit Agreement;
(ii) Indebtedness of (1) the Guarantor to any Subsidiary of the
Guarantor and (2) Indebtedness of any Restricted Subsidiary to the
Guarantor or any other Subsidiary of the Guarantor;
(iii) Indebtedness in respect of any bankers' acceptance, letter
of credit, warehouse
FORM OF GUARANTY - Page 21
<PAGE>
receipt or similar facilities entered into in the ordinary course of
business;
(iv) except as provided in CLAUSES (x) and (xi) below,
Guarantee Obligations incurred by (1) Restricted Subsidiaries in respect of
Indebtedness of the Guarantor or other Restricted Subsidiaries that is
permitted to be incurred under this Guaranty and (2) the Guarantor in
respect of Indebtedness of the Restricted Subsidiaries that is permitted to
be incurred under this Guaranty;
(v) Guarantee Obligations incurred in the ordinary course of
business in respect of obligations of suppliers, customers, franchisees,
lessors and licensees;
(vi) (1) Indebtedness (including Indebtedness arising under
Capital Leases) incurred within 270 days of the acquisition, construction
or improvement of fixed or capital assets to finance the acquisition,
construction or improvement of such fixed or capital assets or otherwise
incurred in respect of Capital Expenditures permitted by SECTION 8(l), (2)
Indebtedness arising under Capital Leases entered into in connection with
Permitted Sale Leasebacks and (3) Indebtedness arising under Capital
Leases, other than Capital Leases in effect on the date hereof and Capital
Leases entered into pursuant to SUBCLAUSES (1) and (2) above, PROVIDED that
the aggregate amount of Indebtedness incurred pursuant to this SUBCLAUSE
(3) shall not exceed $100,000,000 at any time outstanding, and (4) any
refinancing, refunding, renewal or extension of any Indebtedness specified
in SUBCLAUSES (1), (2) or (3) above, PROVIDED that the principal amount
thereof is not increased above the principal amount thereof outstanding
immediately prior to such refinancing, refunding, renewal or extension;
(vii) Indebtedness outstanding on the date hereof and listed on
SCHEDULE 8(a) and any refinancing, refunding, renewal or extension thereof,
PROVIDED that (1) the principal amount thereof is not increased above the
principal amount thereof outstanding immediately prior to such refinancing,
refunding, renewal or extension, except to the extent otherwise permitted
hereunder, and (2) the direct and contingent obligors with respect to such
Indebtedness are not changed;
(viii) Indebtedness in respect of Hedge Agreements;
(ix) Indebtedness in respect of the Subordinated Notes;
(x) (1) Indebtedness of a Person or Indebtedness attaching to
assets of a Person that, in either case, becomes a Restricted Subsidiary
(including a Restricted Subsidiary that is also an Acquisition Subsidiary)
or Indebtedness attaching to assets that are acquired by the Guarantor or
any Restricted Subsidiary (including any Acquisition Subsidiary), in each
case after June 27, 1997 as the result of a Permitted Acquisition, PROVIDED
that (w) such Indebtedness existed at the time such Person became a
Restricted Subsidiary or at the time such assets were acquired and, in each
case, was not created in anticipation thereof, (x) such Indebtedness is not
guaranteed in any respect by the Guarantor or any Restricted Subsidiary
(other than any such person that so becomes a Restricted Subsidiary), (y)
(A) such Person executes a Subsidiary Guaranty and a Subsidiary Residual
Guaranty to the extent required under SECTION 7(k) and (B) if any such
Indebtedness is secured, the Liabilities are equally and ratably secured in
a manner reasonably acceptable to the Agent, PROVIDED that the requirements
of this SUBCLAUSE (y) shall not apply to an aggregate amount at any time
outstanding of up to (and including) $75,000,000 of the aggregate of (1)
such Indebtedness and (2) all Indebtedness as to which the proviso to
CLAUSE (xi)(1)(y) below then applies and (z) the aggregate amount of such
Indebtedness and all Indebtedness incurred under CLAUSE (xi) below, when
taken together, does not exceed $200,000,000 in the aggregate at any time
outstanding, PROVIDED that, when calculating the outstanding amount of
Indebtedness for purposes of this SUBCLAUSE (z), Indebtedness of any
Acquisition Subsidiary, Indebtedness attaching to assets of any Acquisition
Subsidiary and Indebtedness attaching to assets acquired by any Acquisition
Subsidiary shall be excluded, and (2) any refinancing, refunding, renewal
or extension of any Indebtedness specified in SUBCLAUSE (1) above, PROVIDED
that, except to the extent otherwise permitted hereunder, (x) the principal
amount of any such Indebtedness is not increased above the principal amount
FORM OF GUARANTY - Page 22
<PAGE>
thereof outstanding immediately prior to such refinancing, refunding,
renewal or extension and (y) the direct and contingent obligors with
respect to such Indebtedness are not changed;
(xi) (1) Indebtedness of the Guarantor or any Restricted
Subsidiary (including any Acquisition Subsidiary) incurred to finance a
Permitted Acquisition, PROVIDED that (x) such Indebtedness is not
guaranteed in any respect by any Restricted Subsidiary (other than any
Person acquired (the "ACQUIRED PERSON") as a result of such Permitted
Acquisition or the Restricted Subsidiary so incurring such Indebtedness)
or, in the case of Indebtedness of any Restricted Subsidiary, by the
Guarantor, (y) (A) such Person executes a Subsidiary Guaranty and a
Subsidiary Residual Guaranty to the extent required under SECTION 7(k) and
(B) if a guarantee by such acquired Person of any such Indebtedness is
secured by assets of such acquired Person, the Liabilities are equally and
ratably secured in a manner reasonably acceptable to the Agent, PROVIDED
that the requirements of this SUBCLAUSE (y) shall not apply to an aggregate
amount at any time outstanding of up to (and including) $75,000,000 of the
aggregate of (1) such Indebtedness and (2) all Indebtedness as to which the
proviso to CLAUSE (x)(1)(y) above then applies and (z) the aggregate amount
of such Indebtedness and all Indebtedness assumed or permitted to exist
under CLAUSE (x) above, when taken together, does not exceed $200,000,000
in the aggregate at any time outstanding, PROVIDED that, when calculating
the outstanding amount of Indebtedness for purposes of this SUBCLAUSE (z),
Indebtedness of any Acquisition Subsidiary shall be excluded, and (2) any
refinancing, refunding, renewal or extension of any Indebtedness specified
in SUBCLAUSE (1) above, PROVIDED that (x) the principal amount of any such
Indebtedness is not increased above the principal amount thereof
outstanding immediately prior to such refinancing, refunding, renewal or
extension and (y) the direct and contingent obligors with respect to such
Indebtedness are not changed, except to the extent otherwise permitted
hereunder;
(xii) Indebtedness of Restricted Foreign Subsidiaries in an
aggregate amount at any time outstanding not to exceed (i) $20,000,000
MINUS (ii) the amount equal to (x) the aggregate amount of Indebtedness
incurred and outstanding at such time pursuant to CLAUSE (xiv) below MINUS
(y) $200,000,000;
(xiii) (1) Indebtedness incurred in connection with any Permitted
Sale Leaseback and (2) any refinancing, refunding, renewal or extension of
any Indebtedness specified in SUBCLAUSE (1) above, PROVIDED that, except to
the extent otherwise permitted hereunder, (x) the principal amount of any
such Indebtedness is not increased above the principal amount thereof
outstanding immediately prior to such refinancing, refunding, renewal or
extension and (y) the direct and contingent obligors with respect to such
Indebtedness are not changed; and
(xiv) (1) additional Indebtedness, PROVIDED that the aggregate
amount of Indebtedness incurred and remaining outstanding pursuant to this
CLAUSE (xiv) shall not at any time exceed the sum of (x) $200,000,000 and
(y) the amount equal to (A) $20,000,000 MINUS (B) the aggregate amount of
Indebtedness then outstanding under CLAUSE (xii) above, and (2) any
refinancing, refunding, renewal or extension of any Indebtedness specified
in SUBCLAUSE (1) above.
(b) LIMITATION ON LIENS. The Guarantor will not, and will not
permit any of the Restricted Subsidiaries to, create, incur, assume or suffer
to exist any Lien upon any property or assets of any kind (real or personal,
tangible or intangible) of the Guarantor or any Restricted Subsidiary,
whether now owned or hereafter acquired, except:
(i) Liens arising under the Credit Documents (as defined in
the 1997 Credit Agreement), as presently in effect or as may be hereafter
required under the present terms of the 1997 Credit Agreement;
(ii) Permitted Liens;
(iii) Liens securing Indebtedness permitted pursuant to SECTION
8(a)(vi), PROVIDED that
FORM OF GUARANTY - Page 23
<PAGE>
such Liens attach at all times only to the assets so financed;
(iv) Liens existing on the date hereof;
(v) Liens existing on the assets of any Person that becomes a
Restricted Subsidiary, or existing on assets acquired, pursuant to a
Permitted Acquisition to the extent the Liens on such assets secure
Indebtedness permitted by Section 8(a)(x), PROVIDED that such Liens attach
at all times only to the same assets that such Liens attached to, and
secure only the same Indebtedness that such Liens secured, immediately
prior to such Permitted Acquisition;
(vi) (1) Liens placed upon the capital stock of any Restricted
Subsidiary acquired pursuant to a Permitted Acquisition to secure
Indebtedness of the Guarantor or any other Restricted Subsidiary incurred
pursuant to SECTION 8(a)(xi) in connection with such Permitted Acquisition,
(2) Liens placed upon the assets of such Restricted Subsidiary to secure a
guarantee by such Restricted Subsidiary of any such Indebtedness of the
Guarantor or any other Restricted Subsidiary and (3) Liens placed upon the
capital stock or assets of any Acquisition Subsidiary to secure
Indebtedness of such Acquisition Subsidiary incurred pursuant to SECTION
8(a)(xi) in connection with any Permitted Acquisition;
(vii) the replacement, extension or renewal of any Lien
permitted by clauses (i) through (vi) above upon or in the same assets
theretofore subject to such Lien or the replacement, extension or renewal
(without increase in the amount or change in any direct or contingent
obligor) of the Indebtedness secured thereby;
(viii) additional Liens so long as the aggregate principal amount
of the obligations so secured does not exceed $25,000,000 at any time
outstanding; and
(ix) Liens provided for in the Lease Documents to the extent
the transaction to which the Lease Documents relate is deemed to be a
mortgage.
(c) LIMITATION ON FUNDAMENTAL CHANGES. Except as expressly
permitted by SECTIONS 8(d) or (e), the Guarantor will not, and will not
permit any of the Restricted Subsidiaries to, enter into any merger,
consolidation or amalgamation, or liquidate, wind up or dissolve itself (or
suffer any liquidation or dissolution), or convey, sell, lease, assign,
transfer or otherwise dispose of, all or substantially all its business
units, assets or other properties, except that:
(i) any Subsidiary of the Guarantor or any other Person may be
merged or consolidated with or into the Guarantor, PROVIDED that (1) the
Guarantor shall be the continuing or surviving corporation or the Person
formed by or surviving any such merger or consolidation (if other that the
Guarantor) shall be a corporation organized or existing under the laws of
the United States, any state thereof, the District of Columbia or any
territory thereof (the Guarantor or such Person, as the case may be, being
herein referred to as the "SUCCESSOR GUARANTOR"), (2) the Successor
Guarantor (if other than the Guarantor) shall expressly assume all the
obligations of the Guarantor under this Guaranty pursuant to a supplement
hereto in form reasonably satisfactory to the Lessor, (3) no Default or
Event of Default would result from the consummation of such merger or
consolidation, (4) the Successor Guarantor shall be in compliance, on a pro
forma basis after giving effect to such merger or consolidation, with the
covenants set forth in SECTIONS 8(i), (j) and (k), as such covenants are
recomputed as at the last day of the most recently ended Test Period under
such Sections as if such merger or consolidation had occurred on the first
day of such Test Period, (5) each Subsidiary Guarantor, unless it is the
other party to such merger or consolidation, shall have confirmed, in a
manner reasonably acceptable to the Agent, that its Subsidiary Guaranty and
Subsidiary Residual Guaranty shall continue to apply to the Liabilities and
(6) the Guarantor shall have delivered to the Lessor an officer's
certificate and an opinion of counsel, each stating that such merger or
consolidation and such supplement to this Guaranty, PROVIDED FURTHER that
if the foregoing are satisfied, the Successor Guarantor (if other than the
Guarantor) will succeed to, and be substituted for, the Guarantor under
this Guaranty;
FORM OF GUARANTY - Page 24
<PAGE>
(ii) any Subsidiary of the Guarantor or any other Person may be
merged or consolidated with or into any one or more Subsidiaries of the
Guarantor, PROVIDED that (1) in the case of any merger or consolidation
involving one or more Restricted Subsidiaries, (A) a Restricted Subsidiary
shall be the continuing or surviving corporation or (B) the Guarantor shall
take all steps necessary to cause the Person formed by or surviving any
such merger or consolidation (if other than a Restricted Subsidiary) to
become a Restricted Subsidiary, (2) in the case of any merger or
consolidation involving one or more Guarantor Subsidiaries, a Subsidiary
Guarantor shall be the continuing or surviving corporation or the Person
formed by or surviving any such merger or consolidation (if other than a
Subsidiary Guarantor) shall become a Subsidiary Guarantor and to execute
and deliver to the Agent a Subsidiary Guaranty and a Subsidiary Residual
Guaranty, (3) no Default or Event of Default would result from the
consummation of such merger or consolidation, (4) the Guarantor shall be in
compliance, on a pro forma basis after giving effect to such merger or
consolidation, with the covenants set forth in SECTIONS 8(i), (j) and (k),
as such covenants are recomputed as at the last day of the most recently
ended Test Period under such Sections as if such merger or consolidation
had occurred on the first day of such Test Period, and (5) the Guarantor
shall have delivered to the Lessor an Officers' Certificate stating that
such merger or consolidation complies with this Guaranty;
(iii) any Restricted Subsidiary that is not a Subsidiary
Guarantor may sell, lease, transfer or otherwise dispose of any or all of
its assets (upon voluntary liquidation or otherwise) to the Guarantor, a
Subsidiary Guarantor or any other Restricted Subsidiary of the Guarantor;
and
(iv) any Subsidiary Guarantor may sell, lease, transfer or
otherwise dispose of any or all of its assets (upon voluntary liquidation
or otherwise) to the Guarantor or any other Subsidiary Guarantor.
(d) LIMITATION ON SALE OF ASSETS. The Guarantor will not, and
will not permit any of the Restricted Subsidiaries to, (1) convey, sell,
lease, assign, transfer or otherwise dispose of any of its property, business
or assets (including, without limitation, receivables and leasehold
interests), whether now owned or hereafter acquired (other than any such
sale, transfer, assignment or other disposition resulting from any casualty
or condemnation, of any assets of the Guarantor or the Restricted
Subsidiaries or (2) sell any shares owned by it of any Restricted
Subsidiary's capital stock to any Person other than the Guarantor, a
Subsidiary Guarantor or a Restricted Foreign Subsidiary, except that:
(i) the Guarantor and the Restricted Subsidiaries may sell,
transfer or otherwise dispose of used or surplus equipment, vehicles,
inventory and other assets in the ordinary course of business;
(ii) the Guarantor and the Restricted Subsidiaries may sell,
transfer or otherwise dispose of other assets for fair value, PROVIDED that
(1) the aggregate amount of such sales, transfers and disposals by the
Guarantor and the Restricted Subsidiaries taken as a whole pursuant to this
CLAUSE (ii) shall not exceed in the aggregate $175,000,000 from and after
June 27, 1997, (2) any consideration in excess of $5,000,000 received by
the Guarantor or any Subsidiary Guarantor in connection with such sales,
transfers and other dispositions of assets pursuant to this CLAUSE (ii)
that is in the form of Indebtedness shall be pledged to the Agent as
security for the Liabilities in a manner reasonably acceptable to the
Agent, (3) with respect to any such sale, transfer or disposition (or
series of related sales, transfers or dispositions) in an aggregate amount
in excess of $10,000,000, the Guarantor shall be in compliance, on a pro
forma basis after giving effect to such sale, transfer or disposition, with
the covenants set forth in SECTIONS 8(i), (j) AND (k), as such covenants
are recomputed as at the last day of the most recently ended Test Period
under such Sections as if such sale, transfer or disposition had occurred
on the first day of such Test Period, and (4) after giving effect to any
such sale, transfer or disposition, no Default or Event of Default shall
have occurred and be continuing;
(iii) The Guarantor and the Restricted Subsidiaries may make
sales of assets to the Guarantor or to any Restricted Subsidiary, PROVIDED
that any such sales to Restricted Foreign Subsidiaries must be for fair
value;
FORM OF GUARANTY - Page 25
<PAGE>
(iv) any Restricted Subsidiary may effect any transaction
permitted by SECTION 8(c);
(v) in addition to selling or transferring accounts receivable
pursuant to the other provisions hereof, the Guarantor and the Restricted
Subsidiaries may sell or discount without recourse accounts receivable
arising in the ordinary course of business in connection with the
compromise or collection thereof; and
(vi) the Guarantor and the Restricted Subsidiaries may sell,
transfer or otherwise dispose of Stores in connection with Permitted Sale
Leasebacks.
(e LIMITATION ON INVESTMENTS. The Guarantor will not, and will not
permit any of the Restricted Subsidiaries to, make any advance, loan,
extensions of credit or capital contribution to, or purchase any stock, bonds,
notes, debentures or other securities of or any assets of, or make any other
investment in, any Person, except:
(i) extensions of trade credit and asset purchases in the
ordinary course of business;
(ii) Permitted Investments;
(iii) loans and advances to officers, directors and employees of
the Guarantor or any of its Subsidiaries (1) to finance the purchase of
capital stock of the Guarantor and (2) for additional purposes not
contemplated by SUBCLAUSE (1) above in an aggregate principal amount at any
time outstanding with respect to this CLAUSE (2) not exceeding $10,000,000;
(iv) investments existing on the date hereof and any
extensions, renewals or reinvestments thereof, so long as the aggregate
amount of all investments pursuant to this CLAUSE (iv) is not increased at
any time above the amount of such investments existing on the date hereof;
(v) investments in Hedge Agreements permitted by SECTION
8(a)(viii);
(vi) investments received in connection with the bankruptcy or
reorganization of suppliers or customers and in settlement of delinquent
obligations of, and other disputes with, customers arising in the ordinary
course of business;
(vii) investments to the extent that payment for such
investments is made solely with capital stock of the Guarantor;
(viii) investments constituting non-cash proceeds of sales,
transfers and other dispositions of assets to the extent permitted by
SECTION 8(d);
(ix) investments in any Subsidiary Guarantor;
(x) investments constituting Permitted Acquisitions, PROVIDED
that the aggregate amount of any such investment made by the Guarantor or
any Restricted Subsidiary (other than any Acquisition Subsidiary) in any
Acquisition Subsidiary shall not exceed the Available Amount at the time of
such investment, PROVIDED FURTHER that the aggregate amount of any such
investment made by the Guarantor or any Restricted Subsidiary (other than
any Restricted Foreign Subsidiary) in any Restricted Foreign Subsidiary
shall not exceed (1) the Available Foreign Investment Amount at the time of
such investment MINUS (2) the portion of the Available Foreign Investment
Amount being used at such time for investments made pursuant to CLAUSE
(xiv) below;
(xi) investments in any Restricted Foreign Subsidiary, PROVIDED
that the aggregate
FORM OF GUARANTY - Page 26
<PAGE>
amount of any such investment made by the Guarantor or any Restricted
Subsidiary (other than any Restricted Foreign Subsidiary) shall not exceed
(1) the Available Foreign Investment Amount at the time of such investment
MINUS (2) the portion of the Available Foreign Investment Amount being
used at such time for investments made pursuant to CLAUSE (xiv) below;
(xii) investments made to pay for the repurchase, retirement or
other acquisition of the Remaining Equity in an aggregate amount at the
time of such investment not in excess of the lesser of (1) the Available
Amount at such time and (2) the aggregate amount of such investments then
permitted to be made under the Subordinated Note Indenture;
(xiii) (1) investments made to pay for the repurchase of Putable
Shares with amounts in the Putable Shares Reserve Fund and (2) investments
made to repurchase or retire common stock of the Guarantor owned by the
Guarantor's employee stock ownership plan or key employee stock ownership
plan; and
(xiv) additional investments (including investments in Minority
Investments, Unrestricted Subsidiaries and Acquisition Subsidiaries) in an
aggregate amount at the time of such investment not in excess of the sum of
(1) the Available Amount at such time and (2) the amount equal to one-half
of the Available Foreign Investment Amount at such time.
(f) LIMITATION ON DIVIDENDS. The Guarantor will not declare or
pay any dividends (other than dividends payable solely in its capital stock
or rights, warrants or options to purchase its capital stock) or return any
capital to its stockholders or make any other distribution, payment or
delivery of property or cash to its stockholders as such, or redeem, retire,
purchase or otherwise acquire, directly or indirectly, for consideration, any
shares of any class of its capital stock or the capital stock of any direct
or indirect parent of the Guarantor now or hereafter outstanding (or any
warrants for or options or stock appreciation rights in respect of any of
such shares), or set aside any funds for any of the foregoing purposes, or
permit any of the Restricted Subsidiaries to purchase or otherwise acquire
for consideration (other than in connection with an investment permitted by
SECTION 8(e)) any shares of any class of the capital stock of the Guarantor,
now or hereafter outstanding (or any options or warrants or stock
appreciation rights issued by such Person with respect to its capital stock)
(all of the foregoing "DIVIDENDS"), PROVIDED that, so long as no Default or
Event of Default exists or would exist after giving effect thereto, (i) the
Guarantor may redeem in whole or in part any capital stock of the Guarantor
for another class of capital stock or rights to acquire capital stock of the
Guarantor or with proceeds from substantially concurrent equity contributions
or issuances of new shares of capital stock, PROVIDED that such other class
of capital stock contains terms and provisions at least as advantageous to
the Lessor as those contained in the capital stock redeemed thereby, (ii) the
Guarantor may repurchase shares of its capital stock (and/or options or
warrants in respect thereof) held by its officers, directors and employees so
long as such repurchase is pursuant to, and in accordance with the terms of,
management and/or employee stock plans, stock subscription agreements or
shareholder agreements, (iii) the Guarantor may make investments permitted by
SECTION 8(e) and (iv) the Guarantor may declare and pay dividends on its
capital stock, PROVIDED that (1) the aggregate amount of dividends paid
pursuant to this clause (iv) shall not at any time exceed 50% of Cumulative
Consolidated Net Income Available to Common Stockholders at such time and (2)
at the time of the payment of any such dividends and after giving effect
thereto, the Consolidated Total Debt to Consolidated EBITDA Ratio on the date
of such payment of such dividends shall be less than 3.50:1.00.
(g) LIMITATIONS ON DEBT PAYMENTS AND AMENDMENTS.
(i) The Guarantor will not optionally prepay, repurchase or
redeem or otherwise defease any Subordinated Notes; PROVIDED, HOWEVER, that
so long as no Default or Event of Default has occurred and is continuing,
the Guarantor may optionally prepay, repurchase or redeem Subordinated
Notes (1) for an aggregate price not in excess of the Available Amount at
the time of such prepayment, repurchase or redemption or (2) with the
proceeds of subordinated Indebtedness that (A) is permitted by SECTION 8(a)
and (B) has terms Material to the interests of the Lessor not Materially
less advantageous to the Lessor.
FORM OF GUARANTY - Page 27
<PAGE>
(ii) The Guarantor will not waive, amend, modify, terminate or
release the Subordinated Note Indenture, to the extent that any such
waiver, amendment, supplement, modification, termination or release would
be adverse to the Lessor in any Material respect.
(h) LIMITATIONS ON SALE LEASEBACKS. The Guarantor will not, and will
not permit any of the Restricted Subsidiaries to, enter into or effect any Sale
Leasebacks of Stores, other than Permitted Sale Leasebacks.
(i) CONSOLIDATED LEASE EXPENSE. The Guarantor will not permit
Consolidated Lease Expense for any fiscal year of the Guarantor set forth below
to exceed the amount set forth below opposite such fiscal year:
<TABLE>
<CAPTION>
Fiscal Year Amount
----------- ------
<S> <C>
1998 $ 85,000,000
1999 90,000,000
2000 100,000,000
2001 110,000,000
2002 120,000,000
2003 130,000,000
2004 140,000,000
2005 140,000,000
2006 140,000,000
</TABLE>
(j) CONSOLIDATED TOTAL DEBT TO CONSOLIDATED EBITDA RATIO. The
Guarantor will not permit the Consolidated Total Debt to Consolidated EBITDA
Ratio for any Test Period ending during any period set forth below to be
greater than the ratio set forth below opposite such period:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
The date hereof through second
fiscal quarter of 1999 6.75:1.00
Last two fiscal quarters of 1999 6.50:1.00
First two fiscal quarters of 2000 5.75:1.00
Last two fiscal quarters of 2000 5.00:1.00
First two fiscal quarters of 2001 4.50:1.00
Last two fiscal quarters of 2001 4.00:1.00
Fiscal year 2002 3.50:1.00
Fiscal year 2003 and thereafter 3.00:1.00
</TABLE>
(k) CONSOLIDATED EBITDA TO CONSOLIDATED INTEREST EXPENSE RATIO.
The Guarantor will not permit the Consolidated EBITDA to Consolidated
Interest Expense Ratio for any Test Period ending during any period set forth
below to be less than the ratio set forth below opposite such period:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
Fiscal year 1998 1.75:1.00
Fiscal year 1999 1.75:1.00
First two fiscal quarters of 2000 1.90:1.00
Last two fiscal quarters of 2000 2.00:1.00
First two fiscal quarters of 2001 2.25:1.00
Last two fiscal quarters of 2001 2.50:1.00
Fiscal year 2002 2.75:1.00
Fiscal year 2003 and thereafter 3.00:1.00
</TABLE>
FORM OF GUARANTY - Page 28
<PAGE>
(l CAPITAL EXPENDITURES.
(i) The Guarantor will not, and will not permit any of the
Restricted Subsidiaries to, make any Capital Expenditures (other than
Distribution Capital Expenditures and Permitted Acquisitions that
constitute Capital Expenditures), that would cause the aggregate amount of
such Capital Expenditures made by the Guarantor and the Restricted
Subsidiaries in any fiscal year of the Guarantor set forth below to exceed
the amount set forth below opposite such fiscal year:
<TABLE>
<CAPTION>
Fiscal Year Amount
----------- ------
<S> <C>
1998 $225,000,000
1999 180,000,000
2000 180,000,000
2001 150,000,000
2002 150,000,000
2003 150,000,000
2004 150,000,000
2005 150,000,000
2006 150,000,000
</TABLE>
To the extent that Capital Expenditures (other than Distribution Capital
Expenditures and Permitted Acquisitions that constitute Capital
Expenditures) made by the Guarantor and the Restricted Subsidiaries during
any fiscal year are less than the maximum amount permitted to be made for
such fiscal year, 75% of such unused amount (each such amount, a
"CARRY-FORWARD AMOUNT") may be carried forward to the immediately
succeeding fiscal year and utilized to make such Capital Expenditures in
such succeeding fiscal year in the event the amount set forth above for
such succeeding fiscal year has been used (it being understood and agreed
that (1) no carry-forward amount may be carried forward beyond the first
three fiscal years immediately succeeding the fiscal year in which it
arose, (2) no portion of the carry-forward amount available for any fiscal
year may be used until the entire amount of such Capital Expenditures
permitted to be made in such fiscal year (without giving effect to such
carry-forward amount) shall be made and (3) if the carry-forward amount
available for any fiscal year is the sum of amounts carried forward from
each of the two or three immediately preceding fiscal years, no portion of
such carry-forward amount from the earlier of the two or three immediately
preceding fiscal years may be used until the entire portion of such
carry-forward amount from the more recent immediately preceding fiscal year
shall have been used for such Capital Expenditures made in such fiscal
year).
(ii) The Guarantor will not, and will not permit any of the
Restricted Subsidiaries to, make Distribution Capital Expenditures in
excess of $80,000,000 from and after June 27, 1997.
9. EVENTS OF DEFAULT.
(a Any of the following shall constitute an "EVENT OF DEFAULT":
(i) PAYMENTS. The Guarantor shall fail to pay if, when and as
the same becomes due, all sums due and payable under this Guaranty, and
such failure continues for more than five (5) Business Days after such
payment is due and payable hereunder; or
(ii) REPRESENTATIONS, ETC. Any representation, warranty or
statement made or deemed made by the Guarantor herein or in any certificate
delivered or required to be delivered pursuant hereto or thereto shall
prove to be untrue in any Material respect on the date as of which made or
deemed made; or
FORM OF GUARANTY - Page 29
<PAGE>
(iii) COVENANTS. The Guarantor shall (1) default in the due
performance or observance by it of any term, covenant or agreement
contained in SECTION 7(a)(v) or SECTION 8 or (2) default in the due
performance or observance by it of any term, covenant or agreement (other
than those referred to in SECTIONS 9(a)(i) or (ii) or CLAUSE (1) of this
SECTION 9(a)(iii)) contained in this Guaranty and such default shall
continue unremedied for a period of at least 30 days after receipt of
written notice by the Guarantor from the Lessor; or
(iv) DEFAULT UNDER OTHER AGREEMENTS. (1) the Guarantor or any
of the Restricted Subsidiaries shall (x) default in any payment with
respect to any Indebtedness (other than the Liabilities) in excess of
$20,000,000 in the aggregate, for the Guarantor and such Subsidiaries,
beyond the period of grace, if any, provided in the instrument or agreement
under which such Indebtedness was created or (y) default in the observance
or performance of any agreement or condition relating to any such
Indebtedness or contained in any instrument or agreement evidencing,
securing or relating thereto, or (except in the case of Indebtedness
consisting of any Hedge Agreement) any other event shall occur or condition
exist, the effect of which default or other event or condition is to cause,
or to permit the holder or holders of such Indebtedness (or a trustee or
agent on behalf of such holder or holders) to cause, any such Indebtedness
to become due prior to its stated maturity; or (2) without limiting the
provisions of CLAUSE (1) above, any such Indebtedness (other than
Indebtedness consisting of any Hedge Agreement) shall be declared to be due
and payable, or required to be prepaid other than by a regularly scheduled
required prepayment or as a mandatory prepayment, prior to the stated
maturity thereof; or
(v) BANKRUPTCY, ETC. The Guarantor or any Specified
Subsidiary shall commence a voluntary case concerning itself under Title 11
of the United States Code entitled "Bankruptcy," as now or hereafter in
effect, or any successor thereto (the "BANKRUPTCY CODE"); or an involuntary
case is commenced against the Guarantor or any Specified Subsidiary and the
petition is not controverted within 10 days after commencement of the case;
or an involuntary case is commenced against the Guarantor or any Specified
Subsidiary and the petition is not dismissed within 60 days after
commencement of the case; or a custodian (as defined in the Bankruptcy
Code) is appointed for, or takes charge of, all or substantially all of the
property of the Guarantor or any Specified Subsidiary; or the Guarantor or
any Specified Subsidiary commences any other proceeding under any
reorganization, arrangement, adjustment of debt, relief of debtors,
dissolution, insolvency or liquidation or similar law of any jurisdiction
whether now or hereafter in effect relating to the Guarantor or any
Specified Subsidiary; or there is commenced against the Guarantor or any
Specified Subsidiary any such proceeding that remains undismissed for a
period of 60 days; or the Guarantor or any Specified Subsidiary is
adjudicated insolvent or bankrupt; or any order of relief or other order
approving any such case or proceeding is entered; or the Guarantor or any
Specified Subsidiary suffers any appointment of any custodian or the like
for it or any substantial part of its property to continue undischarged or
unstayed for a period of 60 days; or the Guarantor or any Specified
Subsidiary makes a general assignment for the benefit of creditors; or any
corporate action is taken by the Guarantor or any Specified Subsidiary for
the purpose of effecting any of the foregoing; or
(vi) ERISA. (1) Any Plan shall fail to satisfy the minimum
funding standard required for any plan year or part thereof or a waiver of
such standard or extension of any amortization period is sought or granted
under Section 412 of the Code; any Plan is or shall have been terminated or
is the subject of termination proceedings under ERISA (including the giving
of written notice thereof); an event shall have occurred or condition shall
exist in either case entitling the PBGC to terminate any Plan or to appoint
a trustee to administer the Plan (including the giving of written notice
thereof); any Plan shall have an accumulated funding deficiency (whether or
not waived); the Guarantor or any Subsidiary or any ERISA Affiliate has
incurred or is likely to incur a liability to or on account of a Plan under
Section 409, 502(i), 502(l), 515, 4062, 4064, 4069, 4201 or 4204 of ERISA
or Section 4971 or 4975 of the Code (including the giving of written notice
thereof); (2) there could result from any event or events set forth in
CLAUSE (1) of this SECTION 9(a)(vi) the imposition of a lien, the granting
of a security interest, or a liability, or the reasonable likelihood of
incurring a lien, security interest or liability; and (3) such lien,
security interest or liability will or would be
FORM OF GUARANTY - Page 30
<PAGE>
reasonably likely to have a Material Adverse Effect; or
(vii) GUARANTEES. This Guaranty or any Subsidiary Guaranty or
Subsidiary Residual Guaranty or any material provision hereof or thereof
shall cease to be in full force or effect or the Guarantor or any
Subsidiary Guarantor shall deny or disaffirm in writing the Guarantor's or
any applicable Subsidiary Guarantor's obligations hereunder or thereunder,
as the case may be; or
(viii) JUDGMENTS. One or more judgments or decrees shall be
entered against the Guarantor or any of the Restricted Subsidiaries
involving a liability of $20,000,000 or more in the aggregate for all such
judgments and decrees for the Guarantor and the Restricted Subsidiaries (to
the extent not paid or fully covered by insurance provided by a carrier not
disputing coverage) and any such judgments or decrees shall not have been
satisfied, vacated, discharged or stayed or bonded pending appeal within 60
days from the entry thereof; or
(ix) CHANGE OF CONTROL. A Change of Control shall occur.
10. REMEDIES UPON EVENT OF DEFAULT. Without limiting any other rights
or remedies of the Lessor provided for elsewhere in this Guaranty or the
Lease Documents, or by any Requirement of Law, or in equity, or otherwise:
(a) Upon the occurrence of any Event of Default, the Lessor may
without any notice to (except as expressly provided herein or in any Lease
Document) or demand upon Guarantor, which are expressly waived by Guarantor
(except as to notices expressly provided for herein or in any Lease
Document), proceed to protect, exercise and enforce the rights and remedies
of the Lessor against Guarantor hereunder or under the Lease Documents and
such other rights and remedies as are provided by Requirement of Law or
equity.
(b) The rights provided for in this Guaranty and the Lease
Documents are cumulative and are not exclusive of any other rights, powers,
privileges or remedies provided by law or in equity, or under any other
instrument, document or agreement now existing or hereafter arising.
(c) The order and manner in which the Lessor's rights and remedies
are to be exercised shall be determined by the Lessor in its sole discretion,
and all payments received by the Lessor shall be applied first to the costs
and expenses (including reasonable Attorney Costs incurred by the Lessor) of
the Lessor, then to the payment of all accrued and unpaid amounts due under
any Lease Documents to and including the date of such application. To the
extent permitted by applicable law, no application of payments will cure any
Event of Default, or prevent acceleration, or continued acceleration, of
amounts payable under the Lease Documents, or prevent the exercise, or
continued exercise, of rights or remedies of the Lessor hereunder or
thereunder or under any Requirement of Law or in equity.
11. PAYMENTS. Each payment by the Guarantor to you under this Guaranty
shall be made by transferring the amount thereof in immediately available
funds without set-off or counterclaim.
12. COSTS, EXPENSES AND TAXES. The Guarantor agrees to pay on demand:
(i) all reasonable out-of-pocket costs and expenses of the Lessor in
connection with the preparation, execution and delivery of this Guaranty and
the Lease Documents and the other documents to be delivered hereunder,
including the reasonable fees and out-of-pocket expenses of counsel for the
Lessor with respect thereto and with respect to advising the Lessor as to its
rights and responsibilities under this Guaranty and the Lease Documents, and
any modification, supplement or waiver of any of the terms of this Guaranty
or any Lease Document, (ii) all reasonable costs and expenses of the Lessor
hereunder and under the Lease Documents, including reasonable legal fees and
expenses, in connection with a default or the enforcement of this Guaranty
and the Lease Documents and (iii) reasonable costs and expenses incurred in
connection with third party professional services reasonably required by the
Lessor pursuant to the Lease Documents such as appraisers, environmental
consultants, accountants or similar Persons; PROVIDED that except during the
continuance of any Event of Default hereunder, the Lessor will first obtain
the consent of the Guarantor to such expense, which consent shall not be
unreasonably withheld. Without prejudice to the survival of any other
obligations of the Guarantor
FORM OF GUARANTY - Page 31
<PAGE>
hereunder, the obligations of the Guarantor under this Section shall survive
the termination of this Guaranty.
13. SUBROGATION. The Guarantor shall not be subrogated, in whole or in
part, to your rights or those of any subsequent assignee or transferee of any
of the Liabilities until all the Liabilities to you and every such subsequent
assignee or transferee shall have been paid in full, and Guarantor hereby
waives any and all such rights. The provisions of this SECTION 13 shall
survive the termination of this Guaranty and any satisfaction and discharge
of Lessee by virtue of any payment, court order, or law.
14. NO WAIVER; REMEDIES. No failure on the part of the Lessor to
exercise, and no delay in exercising, any right hereunder or under any Lease
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 Guarantor in any
case shall entitle the Guarantor 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.
15. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations,
warranties and covenants contained herein or made in writing by the Guarantor
in connection herewith shall survive the execution and delivery of this
Guaranty and the termination of the Lease Documents and will bind and inure
to the benefit of the respective successors and assigns of the parties
hereto, whether so expressed or not.
16. CONFIDENTIALITY. The Lessor agrees to keep any information
delivered or made available by the Guarantor to it which is clearly indicated
to be confidential information, confidential from anyone other than Persons
employed or retained by the Lessor who are or are expected to become engaged
in evaluating, approving, structuring or administering the Lease Documents;
PROVIDED that nothing herein shall prevent the Lessor from disclosing such
information (a) to the Agent or any 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 Lessor,
(d) which has been publicly disclosed, (e) to the extent reasonably required
in connection with any litigation to which the Lessor, the Guarantor or its
respective Affiliates may be a party, (f) to the extent reasonably required
in connection with the exercise of any remedy hereunder and (g) to Lessor's,
Agent's or any Bank's legal counsel and independent auditors. The Lessor
will promptly notify the Guarantor of any information that it is required or
requested to deliver pursuant to clause (b) or (c) of this SECTION 16 and, if
the Guarantor is a party to any such litigation, clause (e) of this SECTION
16.
17. SEPARABILITY. Should any clause, sentence, paragraph or Section of
this Guaranty be judicially declared to be invalid, unenforceable or void,
such decision will not have the effect of invalidating or voiding the
remainder of this Guaranty, and the parties hereto agree that the part or
parts of this Guaranty 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.
18. EXECUTION IN COUNTERPARTS. This Guaranty 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.
19. INTERPRETATION.
(a) In this Guaranty, 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
FORM OF GUARANTY - Page 32
<PAGE>
refer to this Guaranty 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 not
prohibited by this Guaranty, and reference to a Person in a particular
capacity excludes such Person in any other capacity or individually;
PROVIDED that nothing in this clause is intended to authorize any
assignment not otherwise permitted by this Guaranty;
(v) except as expressly provided to the contrary herein,
reference to any agreement, document or instrument (including this
Guaranty) 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;
(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 word "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 are for convenience
only and shall not affect the construction hereof.
(c) No provision of this Guaranty shall be interpreted or
construed against any Person solely because that Person or its legal
representative drafted such provision.
20. SUBMISSION TO JURISDICTION. The Guarantor, to the extent permitted
by applicable law, hereby agrees as follows:
(a) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS GUARANTY
MAY BE BROUGHT IN THE COURTS OF THE STATE OF TEXAS, IN HARRIS COUNTY OR
ELSEWHERE IN THE STATE OF TEXAS OR OF THE UNITED STATES FOR THE SOUTHERN
DISTRICT OF TEXAS AND, BY EXECUTION AND DELIVERY OF THIS GUARANTY, THE
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 GUARANTOR FURTHER IRREVOCABLY
CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN
ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED
OR CERTIFIED MAIL, POSTAGE PREPAID, TO IT AT ITS ADDRESS PROVIDED IN SECTION
23, SUCH SERVICE TO BECOME EFFECTIVE THIRTY (30) DAYS AFTER SUCH MAILING.
NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE LESSOR TO SERVE PROCESS IN ANY
OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE
PROCEED AGAINST THE GUARANTOR IN ANY OTHER JURISDICTION.
(b) THE GUARANTOR 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 GUARANTY
BROUGHT IN THE COURTS REFERRED TO IN CLAUSE (A) ABOVE AND HEREBY FURTHER
IRREVOCABLY WAIVES AND
FORM OF GUARANTY - Page 33
<PAGE>
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.
21. WAIVER OF JURY TRIAL. THE 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 GUARANTY OR UNDER ANY
AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE
FUTURE BE DELIVERED IN CONNECTION HEREWITH, 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.
22. PARTIES. This Guaranty shall inure to the benefit of you and your
successors, assigns or transferees, and shall be binding upon the Guarantor
and its successors and assigns. The Guarantor may not assign any of its
duties under this Guaranty without the prior written consent of Lessor. You
may assign your rights and benefits under this Guaranty or the Lease
Documents to any financial institution providing financing to you in
connection with the Lease Documents.
23. NOTICES. 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 Guarantor:
Randall's Food Markets, Inc.
3663 Briarpark
Houston, Texas 77042
Attention: Mr. Lee Straus
Telephone: (713) 268-3617
Telecopy: (713) 268-3605
with copies to
Randall's Properties, Inc.
3663 Briarpark
Houston, Texas 77042
Attention: Mr. Joe R. Rollins
Telephone: (713) 268-3661
Telecopy: (713) 268-3601
and
Vinson & Elkins LLP
2300 First City Tower
1001 Fannin Street
Houston, Texas 77012-6760
Attention: Mr. Sanford A. Weiner
Telephone: (713) 758-2558
Telecopy: (713) 615-5268
FORM OF GUARANTY - Page 34
<PAGE>
(b) If to the Lessor:
Brazos Markets Development, L.P.
2911 Turtle Creek Blvd., Suite 1240
Dallas, Texas 75219
Attention: Gregory C. Greene
Telephone: (214) 522-7296
Telecopy: (214) 520-2009
with a copy to
Robert R. Veach, Jr.
2911 Turtle Creek Blvd., Suite 1240A
Dallas, Texas 75219
Telephone: (214) 522-7544
Telecopy: (214) 520-2009
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 given in accordance with the provisions of this SECTION 23.
Other than the service of process set forth in SECTION 20(a) above, all
communications shall be effective three Business Days after the date when
mailed by certified mail, return receipt requested postage prepaid to any
party at its address specified above, or upon receipt if telecopied to any
party to the telecopy number set forth above, or upon receipt if delivered
personally to any party at its address specified above.
24. TERM. This Guaranty is not limited to any particular period of
time, but shall continue in full force and effect until all of the
Liabilities have been fully and finally paid or have been otherwise
discharged by you, and the Guarantor shall not be released from any
obligation or liability hereunder until such full payment or discharge shall
have occurred.
25. GOVERNING LAW. This Guaranty and all other documents executed in
connection herewith shall be deemed to be contracts and agreements executed
by the Guarantor and Lessor under the laws of the State of Texas 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.
26. INDEMNITY.
(a) The Guarantor shall indemnify the Lessor and each Affiliate
thereof and their respective directors, officers, employees and agents (each,
an "INDEMNIFIED PERSON") 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 Lessee of the proceeds of any extension of credit or
any investigation, litigation or other proceeding (including any threatened
investigation or proceeding) relating to the foregoing, and the Guarantor
shall assume the defense thereof, including the employment of counsel at
Guarantor's expense; PROVIDED that Guarantor shall not have such right, to
the extent that such Indemnified Person shall deliver to Guarantor a written
notice waiving the benefits of the indemnification of such Indemnified Person
provided by this SECTION 26(a) in connection with such claim, action,
proceeding or suit. Notwithstanding the foregoing, if (i) any claim, action,
proceeding or suit is brought against an Indemnified Person who is an
individual, (ii) the claim, action, proceeding or suit seeks damages of more
than $500,000, or (iii) independent counsel to an Indemnified Person shall
conclude that there may be defenses available to the Indemnified Person which
may conflict with those available to Guarantor, Guarantor shall not have the
right to assume the defense of any such claim, action, proceeding or suit on
behalf of the Indemnified Person if such Indemnified Person chooses to defend
such claim, action, proceeding or suit (with counsel reasonably acceptable to
Guarantor), and
FORM OF GUARANTY - Page 35
<PAGE>
all reasonable costs, expenses and attorneys' fees incurred by the
Indemnified Person in defending such claim, action, proceeding or suit shall
be borne by Guarantor; PROVIDED HOWEVER, if there is more than one (1)
Indemnified Person having a right to defend such claim, action, proceeding or
suit as aforesaid, the obligation of Guarantor to pay the fees and expenses
of such Indemnified Person shall be limited to one (1) firm of attorneys.
Any Indemnified Person shall also have the right to employ separate counsel
and to participate in its defense, but the fees and expenses of such counsel
shall be borne by such Indemnified Person. Any decision by an Indemnified
Person to employ its own counsel (whether or not at Guarantor's expense)
shall in no way affect any rights of such Indemnified Person otherwise
arising under this SECTION 26(a). In addition, Guarantor will not be liable
for any settlement of any claim, action, proceeding or suit unless Guarantor
has consented thereto in writing. The foregoing indemnity and agreement to
hold harmless shall not in any event apply to any losses, liabilities,
claims, damages or expenses incurred by reason of (i) the gross negligence or
willful misconduct of the Person to be indemnified or (ii) any Material
default by Lessor or any other Indemnified Person that is not cured within
any applicable cure period, if any, under any of the Lease Documents or to
any consequential damages or loss of profit or loss of any fees to Brazos
(except to the extent specified in the letter from Brazos to Lessee dated as
of September 10, 1998, designated therein as the "Brazos Margin Letter").
(b) WITHOUT LIMITING ANY PROVISION OF THIS GUARANTY, IT IS THE
EXPRESS INTENTION OF THE PARTIES HERETO THAT EACH PERSON TO BE INDEMNIFIED
HEREUNDER OR THEREUNDER SHALL BE INDEMNIFIED AND HELD HARMLESS AGAINST ANY
AND ALL LOSSES, LIABILITIES, CLAIMS OR DAMAGES: (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 OR STRICT LIABILITY. Without
prejudice to the survival of any other obligations of the Guarantor hereunder
and under the Lease Documents, the obligations of the Guarantor under this
Section shall survive the termination of this Guaranty and the Lease
Documents and the payment of the Liabilities.
27. NEW GUARANTY.
(a) In the event that (i) any Lease Document is rejected by a
trustee or debtor-in-possession in any bankruptcy or insolvency proceeding
involving the Lessee or (ii) any Lease Document is terminated as a result of
any bankruptcy or insolvency proceeding involving the Lessee and, if within
sixty (60) days after such rejection or termination, the Lessor or its
Applicable Designee (as hereinafter defined) shall so request and shall agree
in writing with the Lessee to perform the obligations of the Lessor as and to
the extent required under such Lease Document, the Guarantor will, unless
prohibited by bankruptcy or other applicable law, upon the Agent's or its
Applicable Designee's acquiring title to the properties covered by to such
Lease Document and entering into new Lease Documents pursuant to Section 4.4
of the Lessee Consent, execute and deliver to the Lessor or such Applicable
Designee a new Guaranty that shall contain the same conditions, agreements,
terms, provisions and limitations as such original Guaranty (except for any
requirements which have been fulfilled by the Lessee and the Guarantor prior
to such rejection or termination). References in this Guaranty to such "LEASE
DOCUMENT" shall be deemed also to refer to such new Lease Document. As used
herein, the term "APPLICABLE DESIGNEE" means an entity designated by the
Agent and which possesses the power and authority to perform the obligations
of the Borrower under the Lease Documents and is at least as creditworthy as
the Borrower is on the date of this Agreement.
(b) Upon written request by the Lessor to the Lessee given on or
after any foreclosure, trustee sale or conveyance in lieu thereof of the
Mortgaged Premises, the owner of the Mortgaged Premises, as landlord, and the
Lessee, as tenant, shall execute a lease of the Mortgaged Premises containing
all of the same terms, provisions, options and conditions as are contained in
the Lease Documents, which lease shall be for the unexpired portion of the
term of the Lease Documents, as to the Mortgaged Premises. Upon written
request by Lessor to Guarantor relating to the execution by Lessee of a new
lease of the Ground or Facility, the Guarantor hereby agrees to execute a new
Guaranty that shall contain the same conditions, agreements, terms,
provisions and limitations as such original Guaranty (except for any
requirements which have been fulfilled by the Lessee and the Guarantor prior
to such rejection or termination) in form and substance substantially
equivalent to this Guaranty which shall relate to each new lease.
FORM OF GUARANTY - Page 36
<PAGE>
Sincerely yours,
RANDALL'S FOOD MARKETS, INC.,
a Texas corporation
By: /s/ Lee Straus
------------------------------------------
Lee Straus, Senior Vice President-Finance,
Secretary and Treasurer
FORM OF GUARANTY - Page 37
<PAGE>
ACCEPTED AND AGREED as of the date first above written:
BRAZOS MARKETS DEVELOPMENT, L.P.,
a Delaware limited partnership
By: BRAZOS MARKETS MANAGEMENT,
INC., a Delaware corporation, its
General Partner
By: /s/ Daniel D. Boeckman
-----------------------------------
Daniel D. Boeckman, Executive Vice
President
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SCHEDULE 6(k)
SUBSIDIARIES
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SCHEDULE 8(a)
INDEBTEDNESS
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RESIDUAL GUARANTY
As of September 10, 1998
Chase Bank of Texas, National Association, as Agent for
the Banks described below (the "AGENT")
600 Travis
Houston, Texas 77002
Re: Credit Agreement (the "AGREEMENT") dated effective as of September 10,
1998 by and among Brazos Markets Development, L.P. as the Borrower
(the "BORROWER"), the several banks a party thereto from time to time
(the "BANKS"), and the Agent.
Ladies and Gentlemen:
1. GUARANTY. For value received, and in consideration of Borrower
entering into the Agreement, the undersigned (the "GUARANTOR") does hereby
irrevocably, absolutely, and unconditionally guarantee (a) the full payment,
when due, of any and all indebtedness and other amounts of every kind,
howsoever created, arising, or evidenced, whether direct or indirect,
absolute or contingent, now or hereafter existing or owing to the Banks or
the Agent, by Borrower under the Note as defined in and evidenced by the
Agreement (all such obligations being hereinafter collectively referred to as
the "LIABILITIES") and (b) the performance by Borrower of its obligations
under the Operative Documents pursuant to the terms thereof; PROVIDED THAT
the Liabilities shall be limited to an amount up to and including the
aggregate of (i) the maximum amount (without deduction for any proceeds of
sale) that would be determined as due and payable if Lessee were to exercise
its right of sale to a third party pursuant to Section 11.4(a)(ii) of the
Ground Lease; (ii) the maximum amount (without deduction for any proceeds of
sale) that would be determined as due and payable if Lessee were to exercise
its right of sale to a third party pursuant to Section 11.4(a)(iii) of the
Facilities Lease; (iii) all interest on such amounts; (iv) any and all other
sums which are or may become due pursuant to the Agreement with respect to
such amounts (including, without limitation, indemnities, legal fees, and
amounts payable pursuant to Section 9.7 of the Agreement) and (v) to the
extent permitted by applicable law, all other amounts which, but for the
automatic stay under Section 362(a) of the Bankruptcy Code, would become due
under the Ground Lease and Facilities Lease (the foregoing obligations and
undertakings are collectively referred to as the "OBLIGATIONS"). The
Guarantor has a substantial, direct or indirect, financial interest in the
benefits and advantages which will result from the Agreement. The Guarantor
hereby agrees that, upon any Event of Default under (and as defined in) the
Operative Documents, the Guarantor will forthwith pay the Liabilities as
limited by this paragraph immediately upon written demand or perform the
Obligations. Notwithstanding anything to the contrary contained in this
Guaranty, and regardless of whether an Event of Default under (and as
described in) any Operative Document has occurred and is continuing,
Guarantor shall have no liability under this Guaranty unless (A) an Event of
Default has occurred and is continuing beyond any applicable grace or
curative period under (and as defined in) any Lease Document or (B) any Lease
Document is rejected by a trustee or debtor-in-possession in any bankruptcy
proceeding involving the Lessee. This Guaranty is in addition to, and not in
lieu of, the Guaranty dated concurrently herewith executed by Guarantor in
favor of Lessor relating to the Lease Documents; provided, however, that in
no event shall the Agent or any of the Banks be entitled to recover an
aggregate amount (through the collateral assignment of the Lease Documents or
through this Guaranty or otherwise) in excess of the Liabilities.
2. GUARANTY CONTINUING, ABSOLUTE, UNLIMITED. This Guaranty is a
continuing, absolute, and unlimited Guaranty of payment and the Guarantor is
a primary obligor and not a surety. The Liabilities and Obligations shall be
conclusively presumed to have been created in reliance on this Guaranty. The
Agent shall not be required to proceed first against Borrower or any other
person, firm or corporation or against any property securing any of the
Liabilities or Obligations before resorting to the Guarantor for payment or
performance. To the extent permitted by applicable law,
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this Guaranty shall be construed as a guarantee of payment without regard to
the enforceability of any of the Liabilities or Obligations or the rejection
of the Agreement in bankruptcy, and notwithstanding any claim, defense (other
than payment or performance by Borrower or the Guarantor) or right of set-off
which Borrower or the Guarantor may have against any Bank or the Agent,
including any such claim, defense, or right of set-off based on any present
or future law or order of any government (DE JURE or DE FACTO), or of any
agency thereof or court of law purporting to reduce, amend, or otherwise
affect any of the Liabilities or Obligations of Borrower or any other
obligor, or to vary any terms of payment thereof, and without regard to any
other circumstances which might otherwise constitute a legal or equitable
discharge of a surety or a guarantor. The Guarantor agrees that this
Guaranty shall continue to be effective or be reinstated, as the case may be,
if at any time payment to the Banks or the Agent of the Liabilities or any
part thereof is rescinded or must otherwise be returned by any Bank or the
Agent upon the insolvency, bankruptcy, or reorganization of Borrower, or
otherwise, as though such payment to such Bank or the Agent had not been
made. To the extent permitted by applicable law, the Guarantor's obligation
to fully pay or perform the Liabilities and any remedy for the enforcement
thereof shall not be impaired, modified, released, or limited in any way by
any impairment, modification, release, or limitation of the liability of
Borrower or its bankruptcy estate, resulting from the operation of any
present or future provision of the Bankruptcy Code or any Debtor Relief Law
or from the decision of any court interpreting the same.
3. GUARANTY NOT AFFECTED BY CHANGE IN SECURITY OR OTHER ACTIONS. The
Agent and the Banks may, from time to time, without the consent of or notice
to the Guarantor, take any or all of the following actions without impairing
or affecting the Guarantor's obligations under this Guaranty or releasing or
exonerating the Guarantor from any of its liabilities hereunder:
(a) retain or obtain a security interest in any property to secure
any of the Liabilities or any obligation hereunder;
(b) retain or obtain the primary or secondary liability of any
party or parties, in addition to the Guarantor, with respect to any of the
Liabilities;
(c) extend the time or change the manner, place or terms of
payment of, or renew or amend any note or other instrument evidencing the
Liabilities or any part thereof, or amend in any manner any agreement
relating thereto;
(d) release or compromise, in whole or in part, or accept full or
partial payment for, any of the Liabilities hereby guaranteed, or any
liability of any nature of any other party or parties with respect to the
Liabilities or any security therefor;
(e) subordinate the payment of all or any part of the Liabilities
to the payment of any liability of the Borrower to creditors of the Borrower
other than the Agent or the Banks;
(f) enforce the Agent's or the Banks' security interest, if any,
in all or any properties securing any of the Liabilities or any obligations
hereunder in order to obtain full or partial payment of the Liabilities then
outstanding; or
(g) release or fail to perfect, protect, or enforce the Agent's or
the Banks' security interest, if any, in all or any properties securing any
of the Liabilities or any obligation hereunder, or permit any substitution or
exchange for any such property.
4. WAIVERS. The Guarantor hereby expressly waives to the extent
permitted by law:
(a) notice of acceptance of this Guaranty;
(b) notice of the existence or incurrence of any or all of the
Liabilities;
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(c) presentment, demand, notice of dishonor, protest, and all
other notices whatsoever (except the written demand referred to in SECTION 1
hereinabove);
(d) any requirement that proceedings first be instituted by the
Agent or any Bank against the Borrower;
(e) all diligence in collection or protection of or realization
upon the Liabilities or any part thereof, or any obligation hereunder, or any
collateral for any of the foregoing;
(f) any rights or defenses based on the Agent's or a Bank's
election of remedies, including any defense to the Agent's or Bank's action
to recover any deficiency after a non-judicial sale; and
(g) the occurrence of every other condition precedent to which the
Guarantor might otherwise be entitled.
5. DEFINITIONS. As used in this Guaranty, the following terms will
have the following meanings, unless the context otherwise requires:
"AFFILIATE" shall mean, with respect to any Person, any other Person
directly or indirectly controlling, controlled by, or under direct or
indirect common control with such Person. A Person shall be deemed to
control a corporation if such Person possesses, directly or indirectly, the
power (a) to vote 10% or more of the securities having ordinary voting power
for the election of directors of such corporation or (b) to direct or cause
the direction of the management and policies of such corporation, whether
through the ownership of voting securities, by contract or otherwise.
"AGENT" means Chase Bank of Texas, National Association, a national
banking association, in its capacity as agent pursuant to ARTICLE 8 of the
Agreement and any successor agent pursuant to SECTION 8.6 of the Agreement.
"AGREEMENT" has the meaning given such term in the introductory
paragraph.
"ATTORNEY COSTS" means and includes all reasonable fees and
disbursements of any law firm or other external counsel, the reasonable
allocated cost of internal legal services and all reasonable disbursements of
internal counsel.
"BANKRUPTCY CODE" means Title 11 of the United States Code entitled
"Bankruptcy," as now or hereafter in effect, or any successor thereto.
"BANKS" means the lenders listed on the signature pages of the Agreement
and each Eligible Assignee (as defined in the Agreement) that shall become a
party to the Agreement pursuant to SECTION 9.6 thereof.
"BUSINESS DAY" means any day of the year other than a Saturday or Sunday
or any other day on which banks are not required or authorized to close in
Houston, Texas.
"CHASE" means Chase Bank of Texas, National Association, or its
successors or assigns.
"DEBTOR RELIEF LAW" means the Bankruptcy Code and all other applicable
liquidation, conservatorship, bankruptcy, moratorium, rearrangement,
receivership, insolvency, reorganization, suspension of payments or similar
laws from time to time in effect affecting the rights of creditors generally.
"FACILITIES LEASE" has the meaning set forth in the Agreement.
"GOVERNMENTAL AUTHORITY" shall mean any nation or government, any state
or other political subdivision
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thereof, and any entity exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government.
"GROUND LEASE" has the meaning set forth in the Agreement.
"GUARANTOR" has the meaning given such term in SECTION 1 hereof.
"INDEMNIFIED PERSON" has the meaning given such term in SECTION 22(a) of
this Guaranty.
"LEASE DOCUMENTS" has the meaning set forth in the Agreement.
"LESSEE" collectively means RANDALL'S FOOD & DRUGS, INC., a Delaware
corporation and RANDALL'S FOOD MARKETS, INC., a Texas corporation.
"LIABILITIES" has the meaning given such term in SECTION 1 of this
Guaranty.
"MATERIAL" means a circumstance, standard or event that is deemed
"material" by Guarantor in its sole, but reasonable, determination.
"OPERATIVE DOCUMENTS" means the Note (as defined in the Agreement) and
the Agreement.
"PERSON" shall mean any individual, partnership, joint venture, firm,
corporation, limited liability company, association, trust or other
enterprise or any Governmental Authority.
"REQUIREMENT OF LAW" shall mean, as to any Person, the Certificate of
Incorporation and By-Laws or other organizational or governing documents of
such Person, and any law, treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case
applicable to or binding upon such Person or any of its property or assets or
to which such Person or any of its property or assets is subject.
6. RIGHTS CUMULATIVE. The rights provided for in this Guaranty and
the Operative Documents are cumulative and are not exclusive of any other
rights, powers, privileges or remedies provided by law or in equity, or under
any other instrument, document or agreement now existing or hereafter
arising. The order and manner in which the Agent's and the Banks' rights and
remedies are to be exercised shall be determined by the Agent or the Banks in
their sole discretion. To the extent permitted by applicable law, no
application of payments will cure any Event of Default, or prevent
acceleration, or continued acceleration, of amounts payable, or prevent the
exercise, or continued exercise, of rights or remedies of the Agent and the
Banks hereunder or under any Requirement of Law or in equity.
7. PAYMENTS. Each payment by the Guarantor to the Agent under this
Guaranty shall be made by transferring the amount thereof in immediately
available funds without set-off or counterclaim.
8. COSTS, EXPENSES AND TAXES. The Guarantor agrees to pay on demand:
(i) all reasonable out-of-pocket costs and expenses of the Agent in
connection with the preparation, execution and delivery of this Guaranty and
any other documents to be delivered hereunder, including the reasonable fees
and out-of-pocket expenses of counsel for the Agent with respect thereto and
with respect to advising the Agent as to its rights and responsibilities
under this Guaranty, and any modification, supplement or waiver of any of the
terms of this Guaranty, (ii) all reasonable costs and expenses of the Agent
hereunder, including reasonable legal fees and expenses of counsel to the
Agent, in connection with a default or the enforcement of this Guaranty and
(iii) reasonable costs and expenses incurred in connection with third party
professional services reasonably required by the Agent pursuant to the Lease
Documents such as appraisers, environmental consultants, accountants or
similar Persons; PROVIDED that except during the continuance of any Event of
Default under the Lease Documents, the Agent will first obtain the consent of
the Guarantor to such expense, which consent shall not be unreasonably
withheld. Without prejudice to the survival of any other obligations of the
Guarantor hereunder, the obligations of the Guarantor under this Section
shall survive the termination of this Guaranty.
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9. SUBROGATION. The Guarantor shall not be subrogated, in whole or in
part, to the rights of the Agent or any Bank or those of any subsequent
assignee or transferee of any of the Liabilities until all the Liabilities to
the Agent and the Banks and every such subsequent assignee or transferee
shall have been paid in full, and Guarantor hereby waives any and all such
rights. The provisions of this SECTION 9 shall survive the termination of
this Guaranty and any satisfaction and discharge of Borrower by virtue of any
payment, court order, or law.
10. NO WAIVER; REMEDIES. No failure on the part of the Agent to
exercise, and no delay in exercising, any right hereunder 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 Guarantor in any case shall entitle the
Guarantor 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.
11. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations,
warranties and covenants contained herein or made in writing by the Guarantor
in connection herewith shall survive the execution and delivery of this
Guaranty, and the termination of the Operative Documents and will bind and
inure to the benefit of the respective successors and assigns of the parties
hereto, whether so expressed or not.
12. CONFIDENTIALITY. The Agent and each Bank agree to keep any
information delivered or made available by the Guarantor to it which is
clearly indicated to be confidential information, confidential from anyone
other than Persons employed or retained by the Agent who are or are expected
to become engaged in evaluating, approving, structuring or administering the
Operative Documents; PROVIDED that nothing herein shall prevent the Agent or
any Bank from disclosing such information (a) to any 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 Agent or any Bank, (d) which has been publicly disclosed,
(e) to the extent reasonably required in connection with any litigation to
which the Agent, any Bank, the Borrower, the Guarantor 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 any Bank's legal
counsel and independent auditors. The Agent will promptly notify the
Guarantor of any information that it is required or requested to deliver
pursuant to clause (b) or (c) of this SECTION 12 and, if the Guarantor is a
party to any such litigation, clause (e) of this SECTION 12.
13. SEPARABILITY. Should any clause, sentence, paragraph or Section of
this Guaranty be judicially declared to be invalid, unenforceable or void,
such decision will not have the effect of invalidating or voiding the
remainder of this Guaranty, and the parties hereto agree that the part or
parts of this Guaranty 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.
14. EXECUTION IN COUNTERPARTS. This Guaranty 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.
15. INTERPRETATION.
(a) In this Guaranty, 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 Guaranty as a whole and not to any
particular Article, Section or other subdivision;
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(iv) reference to any Person includes such Person's successors
and assigns but, if applicable, only if such successors and assigns are not
prohibited by this Guaranty, and reference to a Person in a particular
capacity excludes such Person in any other capacity or individually;
PROVIDED that nothing in this clause is intended to authorize any
assignment not otherwise permitted by this Guaranty;
(v) except as expressly provided to the contrary herein,
reference to any agreement, document or instrument (including this
Guaranty) 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;
(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 word "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 are for convenience
only and shall not affect the construction hereof.
(c) No provision of this Guaranty shall be interpreted or
construed against any Person solely because that Person or its legal
representative drafted such provision.
16. SUBMISSION TO JURISDICTION. The Guarantor, to the extent permitted
by applicable law, hereby agrees as follows:
(a) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS GUARANTY
MAY BE BROUGHT IN THE COURTS OF THE STATE OF TEXAS, IN HARRIS COUNTY OR
ELSEWHERE IN THE STATE OF TEXAS OR OF THE UNITED STATES FOR THE SOUTHERN
DISTRICT OF TEXAS AND, BY EXECUTION AND DELIVERY OF THIS GUARANTY, THE
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 GUARANTOR FURTHER IRREVOCABLY
CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN
ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED
OR CERTIFIED MAIL, POSTAGE PREPAID, TO IT AT ITS ADDRESS PROVIDED IN SECTION
19, SUCH SERVICE TO BECOME EFFECTIVE THIRTY (30) DAYS AFTER SUCH MAILING.
NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE AGENT OR ANY BANK TO SERVE
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS
OR OTHERWISE PROCEED AGAINST THE GUARANTOR IN ANY OTHER JURISDICTION.
(b) THE GUARANTOR 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 GUARANTY
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
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BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
17. WAIVER OF JURY TRIAL. THE 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 GUARANTY OR UNDER ANY
AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE
FUTURE BE DELIVERED IN CONNECTION HEREWITH, 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.
18. PARTIES. This Guaranty shall inure to the benefit of the Agent and
the Banks and their respective successors, assigns or transferees, and shall
be binding upon the Guarantor and its successors and assigns. The Guarantor
may not assign any of its duties under this Guaranty without the prior
written consent of the Agent. The Agent and the Banks may assign their
respective rights and benefits under this Guaranty to any Eligible Assignee.
19. NOTICES. 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 Guarantor:
Randall's Food Markets, Inc.
3663 Briarpark
Houston, Texas 77042
Attention: Mr. Lee Straus
Telephone: (713) 268-3617
Telecopy: (713) 268-3605
with copies to
Randall's Properties, Inc.
3663 Briarpark
Houston, Texas 77042
Attention: Mr. Joe R. Rollins
Telephone: (713) 268-3661
Telecopy: (713) 268-3601
and
Vinson & Elkins LLP
2300 First City Tower
1001 Fannin Street
Houston, Texas 77012-6760
Attention: Mr. Sanford A. Weiner
Telephone: (713) 758-2558
Telecopy: (713) 615-5268
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(b) If to the Agent:
Chase Bank of Texas, National Association
712 Main Street
Houston, Texas 77002
Attention: Michael Ondruch
Telephone: (713) 216-5324
Telecopy: (713) 216-6004
with a copy to
Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P.
3200 Chase Tower
600 Travis
Houston, Texas 77002
Attention: Stanley B. Haas
Telecopy: (713) 223-3717
Telephone: (713) 226-1247
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 given in accordance with the provisions of this SECTION 19.
Other than the service of process set forth in SECTION 16(a) above, all
communications shall be effective three (3) Business Days after the date when
mailed by certified mail, return receipt requested postage prepaid to any
party at its address specified above, or upon receipt if telecopied to any
party to the telecopy number set forth above, or upon receipt if delivered
personally to any party at its address specified above.
20. TERM. This Guaranty is not limited to any particular period of
time, but shall continue in full force and effect until all of the
Liabilities have been fully and finally paid or have been otherwise
discharged by the Agent and the Banks, and the Guarantor shall not be
released from any obligation or liability hereunder until such full payment
or discharge shall have occurred.
21. GOVERNING LAW. This Guaranty and all other documents executed in
connection herewith shall be deemed to be contracts and agreements executed
by the Guarantor and Agent under the laws of the State of Texas 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.
22. INDEMNITY.
(a) The Guarantor shall indemnify the Agent, each Bank and each
Affiliate thereof and their respective directors, officers, employees and
agents (each, an "INDEMNIFIED PERSON") 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 Borrower of the proceeds of any
extension of credit or any investigation, litigation or other proceeding
(including any threatened investigation or proceeding) relating to the
foregoing, and the Guarantor shall assume the defense thereof, including the
employment of counsel at Guarantor's expense; PROVIDED that Guarantor shall
not have such right, to the extent that such Indemnified Person shall deliver
to Guarantor a written notice waiving the benefits of the indemnification of
such Indemnified Person provided by this SECTION 22(a) in connection with
such claim, action, proceeding or suit. Notwithstanding the foregoing, if (i)
any claim, action, proceeding or suit is brought against an Indemnified
Person who is an individual, (ii) the claim, action, proceeding or suit seeks
damages of more than $500,000, or (iii) independent counsel to an Indemnified
Person shall conclude that there may be defenses available to
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the Indemnified Person which may conflict with those available to Guarantor,
Guarantor shall not have the right to assume the defense of any such claim,
action, proceeding or suit on behalf of the Indemnified Person if such
Indemnified Person chooses to defend such claim, action, proceeding or suit
(with counsel reasonably acceptable to Guarantor), and all reasonable costs,
expenses and attorneys' fees incurred by the Indemnified Person in defending
such claim, action, proceeding or suit shall be borne by Guarantor; PROVIDED
HOWEVER, if there is more than one (1) Indemnified Person having a right to
defend such claim, action, proceeding or suit as aforesaid, the obligation of
Guarantor to pay the fees and expenses of such Indemnified Person shall be
limited to one (1) firm of attorneys. Any Indemnified Person shall also have
the right to employ separate counsel and to participate in its defense, but
the fees and expenses of such counsel shall be borne by such Indemnified
Person. Any decision by an Indemnified Person to employ its own counsel
(whether or not at Guarantor's expense) shall in no way affect any rights of
such Indemnified Person otherwise arising under this SECTION 22(a). In
addition, Guarantor will not be liable for any settlement of any claim,
action, proceeding or suit unless Guarantor has consented thereto in writing.
The foregoing indemnity and agreement to hold harmless shall not in any event
apply to any losses, liabilities, claims, damages or expenses incurred by
reason of (i) the gross negligence or willful misconduct of the Person to be
indemnified, or (ii) any Material default by the Agent or any Bank or any
other Indemnified Person that is not cured within any applicable cure period,
if any, under any of the Operative Documents or to any consequential damages
or loss of profit.
(b) WITHOUT LIMITING ANY PROVISION OF THIS GUARANTY, IT IS THE
EXPRESS INTENTION OF THE PARTIES HERETO THAT EACH PERSON TO BE INDEMNIFIED
HEREUNDER OR THEREUNDER SHALL BE INDEMNIFIED AND HELD HARMLESS AGAINST ANY
AND ALL LOSSES, LIABILITIES, CLAIMS OR DAMAGES: (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 OR STRICT LIABILITY. Without
prejudice to the survival of any other obligations of the Guarantor hereunder
and under the Operative Documents, the obligations of the Guarantor under
this Section shall survive the termination of this Guaranty and the Operative
Documents and the payment of the Liabilities.
Sincerely yours,
RANDALL'S FOOD MARKETS, INC.,
a Texas corporation
By: /s/ Lee Straus
-------------------------------------------
Lee Straus, Senior Vice President-Finance,
Secretary and Treasurer
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ACCEPTED AND AGREED as of the date first above written:
CHASE BANK OF TEXAS, NATIONAL
ASSOCIATION, as Agent
By: /s/ Michael Ondruch
--------------------------------------
Michael Ondruch, Vice President
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONDENSED
CONSOLIDATED BALANCE SHEETS, CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS, THE
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR RANDALLS FOOD MARKETS, INC.
AND IS QUALIFIED IN IT ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> JUN-26-1999
<PERIOD-START> JUN-27-1998
<PERIOD-END> OCT-17-1998
<CASH> 24,141
<SECURITIES> 0
<RECEIVABLES> 46,928
<ALLOWANCES> 0
<INVENTORY> 181,117
<CURRENT-ASSETS> 268,085
<PP&E> 416,478
<DEPRECIATION> 0
<TOTAL-ASSETS> 937,453
<CURRENT-LIABILITIES> 271,535
<BONDS> 327,795
0
0
<COMMON> 13,032
<OTHER-SE> 231,545
<TOTAL-LIABILITY-AND-EQUITY> 937,453
<SALES> 766,741
<TOTAL-REVENUES> 766,741
<CGS> 552,880
<TOTAL-COSTS> 188,987
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,052
<INCOME-PRETAX> 14,822
<INCOME-TAX> 6,636
<INCOME-CONTINUING> 8,186
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,186
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
