UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
|X|Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 28, 1997, or
|_|Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _______________ to _______________
Commission File No. 1-13727
FFP MARKETING COMPANY, INC.
(Exact name of registrant as specified in its charter)
Texas 75-2735779
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
2801 Glenda Avenue; Fort Worth, Texas 76117-4391
(Address of principal executive office, including zip code)
817/838-4700
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act
Title of Each Class Name of Each Exchange on Which Registered
Common Shares, par value $0.01 American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act
None
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of shares held by non-affiliates of the
registrant at March 31, 1998, was $9,989,000. For purposes of this computation,
all officers, directors, and beneficial owners of 10% or more of the common
shares of the registrant are deemed to be affiliates. Such determination should
not be deemed an admission that such officers, directors, and beneficial owners
are affiliates.
Common Shares 3,779,415
Preferred Shares None
(Number of shares outstanding as of March 31, 1998)
<PAGE>
INDEX
Page
Part I
Item 1. Business 1
Item 2. Properties 10
Item 3. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Part II
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters 12
Item 6. Selected Financial and Operating Data 13
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk 23
Item 8. Financial Statements and Supplementary Data 23
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 23
Part III
Item 10. Directors and Executive Officers of the Registrant 24
Item 11. Executive Compensation 27
Item 12. Security Ownership of Certain Beneficial Owners
and Management 30
Item 13. Certain Relationships and Related Transactions 33
Part IV
Item 14. Exhibits, Financial Statements, Schedules and
Reports on Form 8-K 37
Signatures 39
<PAGE>
PART I
Item 1. BUSINESS.
General Background
FFP Marketing Company, Inc. ("FFP Marketing"), was formed in
connection with the December 1997 restructuring of FFP Partners, L.P. ("FFP
Partners"), in which the real estate used in its retail operations was retained
by FFP Partners and all other assets and businesses were transferred to FFP
Marketing. Unless the context requires otherwise, references in this report to
"FFP Marketing" or to the "Company" for periods or activities prior to the
completion of the December 1997 restructuring include the activities of FFP
Partners, and also include the activities of their respective subsidiaries.
Certain members of the senior management of FFP Marketing hold similar
management positions with FFP Partners. As a result of the restructuring of FFP
Partners, the holders of its limited partnership interests received one share of
common stock of FFP Marketing for each limited partnership unit that they owned
on December 28, 1997, resulting in each such person owning the same economic
interest in FFP Marketing as they had held in FFP Partners.
FFP Marketing operates convenience stores, truck stops, and motor
fuel concessions at independently operated convenience stores over an eleven
state area. It also operates a money order company, selling money orders through
its own outlets as well as through agents; sells motor fuel on a wholesale
basis, primarily in Texas; and operates a motor fuel terminal and processing
facility in Texas.
The Company maintains its principal executive offices at 2801 Glenda
Avenue, Fort Worth, Texas 76117-4391; its telephone number is 817.838.4700; its
Internet web site is at http://www.ffpmarketing.com.
Operations
Description of Operations. The Company commenced operations in May
1987 upon the purchase of its initial base of retail outlets from companies
owned by members of its senior management and conducts its operations through
its 100%-owned subsidiaries, FFP Operating Partners, L.P.; Direct Fuels, L.P;
FFP Financial Services, L.P.; FFP Money Order Company, Inc.; Practical Tank
Management, Inc.; and FFP Transportation, L.L.C.
Convenience Stores. At year end 1997, FFP Marketing operated 207
convenience stores, an increase of 90 stores from the previous year end. This
increase resulted from the acquisition in December 1997 of 94 stores from E-Z
Serve Convenience Stores, offset by the sale of the merchandise operations of
two convenience stores to independent operators {see Store Development}, the
sale of four outlets in Missouri, and the conversion of two stores from
independent operators to company operated outlets. The Company's stores are open
seven days a week, offer extended hours (53 of the stores are open 24 hours a
day, the remainder generally are open from 6:00 am to midnight), and emphasize
convenience to the customer through location, merchandise selection, and
service. The convenience stores sell groceries, tobacco products, take-out foods
and beverages (including alcoholic beverages where local laws permit), dairy
products, and non-food merchandise such as health and beauty aids and magazines
and, at all except two of the stores, motor fuel. Food service in the
convenience stores varies from pre-packaged sandwiches and fountain drinks to
full food-service delicatessens (at 69 stores), some with limited in-store
seating. During late 1993, the Company began installing small "express"
franchises of Kentucky Fried Chicken(R) and Subway Sandwiches(R) in selected
convenience stores. At the end of 1997 eight of its convenience stores had these
or other branded food outlets in them. {See Store Development; Products, Store
Design and Operation.} The convenience stores operate under several different
trade names. The principal trade names are "Kwik Pantry," "Nu-Way," "Economy
Drive-Ins," and "Taylor Food Mart."
For fiscal year 1997, the convenience stores accounted for 36% (35%
in 1996) of the Company's consolidated revenues. They had average weekly per
store merchandise sales of $9,482 and motor fuel sales of 11,409 gallons. In
fiscal 1996, average weekly sales were $9,454 of merchandise and 11,901 gallons
of fuel.
Truck Stops. At the end of 1997, the Company operated eleven truck
stops, an increase of one from the previous year end, due to the renovation and
reopening of a location that had been closed. The truck stops, which operate
principally under the trade name of "Drivers," are located on interstate and
other highways and are similar in their operations to the convenience stores,
although the merchandise mix is directed towards truck drivers and the traveling
public. Five of the truck stops have full service restaurants; the Company
operates two of the restaurants and leases the other three to independent
operators. Five of the other outlets offer prepared-to-order food service,
including two outlets which have a combination Kentucky Fried Chicken/Taco Bell
"express" franchise and one which has a Pizza Hut franchise within the store.
One of the truck stops does not provide food service. In 1997, the truck stops
(including their associated restaurants and food service facilities) accounted
for 13% (13% in 1996) of the Company's consolidated revenues, with average
weekly per outlet merchandise and food sales (including food service sales) of
$17,704 ($17,192 in 1996) and fuel sales of 68,115 gallons (66,973 gallons in
1996).
Motor Fuel Concessions at Independently Operated Outlets. The
Company operated the motor fuel concession at 205 independently operated
convenience stores at year end 1997, a decrease of one outlet since the prior
year end. This decrease was the net result of the routine opening and closing of
certain outlets and the addition of locations due to the sale of the merchandise
operations of the two convenience stores, referred to above. Although the
merchandise sale portion of the convenience store operations were sold, the
Company retained the motor fuel concession at these locations. FFP Marketing
owns the motor fuel inventory and the fuel pumps and underground storage tanks
located at these independently operated convenience stores and provides the
motor fuel supply for them. The actual sale of the motor fuel to the public is
conducted by the operator of the outlet pursuant to contracts that generally
obligate the Company to provide the motor fuel inventory, the fuel storage and
dispensing equipment, and to maintain the fuel equipment while the store
operator agrees to collection and remittance procedures. The convenience store
operators are compensated by commissions based on profits and/or the volume of
fuel sold. In those instances where the operator owns the real estate underlying
his store, the contracts generally grant the Company the right of first refusal
to purchase the operator's convenience store should it be offered for sale. Many
of the contracts have renewal options and, based on past experience, the Company
believes that a significant number of those contracts which do not have renewal
options will be renegotiated and renewed upon expiration. In addition to the
contractual arrangement between the store operator and the Company, 122 of these
operators also lease or sublease the store building and land from FFP Marketing
or companies affiliated with it.
During fiscal 1997, these fuel concessions had average weekly per
outlet fuel sales of 8,505 gallons as compared to 8,584 gallons in fiscal 1996.
In 1997, these outlets accounted for 28% (26% in 1996) of the Company's
consolidated revenues.
Wholesale Fuel Sales. FFP Marketing sells motor fuel on a wholesale
basis to smaller independent and regional chains of fuel retailers and to end
users of fuels, such as contractors, operators of vehicle fleets, and public
utilities. The Company has also been designated a "jobber" for Citgo, Chevron,
Fina, Conoco, Texaco, Coastal, Diamond Shamrock, Sinclair, and Phillips 66. This
designation enables the Company to qualify independent fuel retailers to operate
as a branded outlet for the large oil company. FFP Marketing then supplies motor
fuel to such retailers on a wholesale basis under contracts ranging from five to
ten years. The Company makes purchases to fill specific orders by its branded
wholesale customers.
In June 1997, the Company completed the renovation of a bulk storage
terminal and fuel processing facility located in Euless, Texas, that it had
purchased in March 1996. The Company uses this facility to provide terminalling
services (storage and delivery services) for other wholesalers of motor fuel and
to separate commingled refined products into their component parts for sale to
retailers and end users. The facility has storage for 235,000 barrels (9,879,000
gallons) of motor fuel and the capacity to process approximately 1,500 barrels
per day of commingled product. The motor fuel obtained by separating commingled
products is used by the Company to satisfy a portion of the fuel supply needs
for it its own retail outlets and its wholesale customers.
Management believes the Company's fuel wholesale activities enhance
its relationships with its fuel vendors by increasing the volume of purchases
from such vendors. In addition, the wholesale activities permit the Company to
develop relationships with independent operators of convenience stores that may,
at some future time, be interested in entering into an agreement for FFP
Marketing to take over the fuel concession at their outlets. {See Motor Fuel
Concessions at Independently Operated Outlets.}
In 1997, the Company's wholesale operations contributed 23% of
consolidated revenues (24% in 1996).
Market Strategy. The Company's market strategy emphasizes the
operation and development of existing stores and retail outlets in small
communities rather than metropolitan markets. In general, the Company believes
stores in communities with populations of 50,000 or less experience a more
favorable operating environment, primarily due to less competition from larger
national or regional chains and access to a higher quality and more stable labor
force. In addition, costs of land, reflected in both new store development costs
and acquisition prices for existing stores and retail outlets, are generally
lower in small communities. As a result of these factors, the Company believes
this market strategy enables it to achieve a higher average return on investment
than would be achieved by operating primarily in metropolitan markets.
Store Development. In early 1994 in its continuing endeavor to
increase the productivity and operating efficiency of its existing store base,
management identified outlets that it believed would contribute more to the
earnings of FFP Marketing if operated by independent operators rather than by
the Company. Shortly thereafter, the Company undertook a program to sell the
merchandise operations of these outlets to independent operators and through the
end of 1997 has completed the sale of the merchandise operations at 45
locations. Because of their different overhead structure, independent operators
are often able to operate the stores less expensively than can the Company.
These sales were structured such that FFP Marketing retained the leasehold
interest in the property and subleased the land and building to the operator for
a five year period with a five year renewal option. The Company also entered
into an agreement to operate the fuel concession at these locations. {See Motor
Fuel Concessions at Independently Operated Outlets.} Management believes that
the sales of these operations and the resulting combination of rents, fuel
profits, and other ancillary income enhance the profitability of these outlets
to FFP Marketing. The Company is continuing to pursue sales of the merchandise
operation of additional stores.
In addition to the sales of the merchandise operations at certain
convenience stores, discussed above, management is seeking other ways to
increase the productivity of the Company's present base of convenience store and
truck stop outlets. As a part of this endeavor, the Company has installed
limited-menu "express" outlets of national food franchises in some of the
Company's outlets. FFP Marketing operates combination Kentucky Fried
Chicken/Taco Bell outlets in two truck stops, a Pizza Hut outlet in one truck
stop, Kentucky Fried Chicken outlets in two convenience stores, a Blimpie's
Sandwich franchise in two stores, a Subway Sandwich franchise in one store, and
regional fast food franchises in three convenience stores. The Company's
experience with this type of food service operation indicates that it increases
store traffic because it offers the advantage of national and regional
name-brand recognition and advertising. In addition, the training and
operational programs of these franchisors provide a consistent and high-quality
product to customers. Management is evaluating the existing operations to
determine if it would be appropriate to install additional outlets of this type
in other locations. It is also evaluating the relative merits of the various
types of franchises.
In addition to working to enhance the performance of its existing
outlets, the Company also seeks opportunities to acquire operating outlets at
attractive prices. In December 1997, the Company completed the purchase of 94
convenience stores from a single seller. The stores acquired are all located in
states in which FFP Marketing had operations and about 80% of them are in Texas.
The Company believes that this acquisition will have a positive impact on its
earnings and cash flow because it will be able to operate the additional stores
with minimal additional overhead. While additional field supervisory personnel
will be added, purchasing and accounting for the stores will require minimal
additional administrative staff.
Opportunities to expand the operation of motor fuel concessions at
independently operated convenience stores are limited by competitive factors,
including the existence of established facilities at most independent
convenience stores. However, the Company continues to pursue the acquisition of
this type of outlet principally by the development of relationships through its
fuel wholesaling operations.
Products, Store Design, and Operation. The number and type of
merchandise items stocked in the convenience stores varies from one store to
another depending upon the size and location of the store and the type of
products desired by the customer base served by the store. However, the stores
generally carry national or regional brand name merchandise of the type
customarily carried by competing convenience stores. Substantially all the
convenience stores and truck stops offer fast foods such as hot dogs,
pre-packaged sandwiches and other foods, and fountain drinks. Sixty-one of the
convenience stores have facilities for daily preparation of fresh food catering
to local tastes, including fried chicken and catfish, tacos, french fries, and
made-to-order sandwiches. Also, as discussed above eight convenience stores and
three truck stops have small "express" outlets of national or regional fast-food
franchises.
Products carried in the stores and services offered by them are
reviewed on a continuing basis to ensure a competitive product selection. New
products and services are added from time to time with special emphasis being
given to those goods or services that carry a higher gross profit margin than
the Company's overall average, will increase customer traffic within the stores,
or complement other items already carried by the stores. Due to the geographic
distribution of the Company's stores and the variety of trade names under which
they are operated, the use of advertising is limited to location signage,
point-of-sale promotional materials, advertisements in local newspapers, and
locally distributed flyers.
Over the last several years, the Company has increased the number of
its outlets which are affiliated with a large oil company, referred to as
"branded" outlets. In March 1997, the Company operated 285 branded outlets as
compared to 221 in 1996. The increase was due primarily to the December 1997
purchase of convenience stores referred to above. By way of comparison, the
Company had 65 branded outlets in 1990. The Company's outlets are branded Citgo,
Chevron, Fina, Conoco, Diamond Shamrock, Texaco, and Coastal. Branded locations
generally have higher fuel sales volumes (in gallons) than non-branded outlets
due to the advertising and promotional activities of the respective oil company
and the acceptance of such oil company's proprietary credit cards. The increased
customer traffic associated with higher fuel sales tends to increase merchandise
sales volumes, as well. The Company continues to evaluate the desirability of
branding additional outlets. In addition to the Company operated convenience
stores, truck stops, and fuel concessions at independently operated outlets that
are branded, the Company also serves as a wholesale distributor to 185 branded
retail outlets.
Merchandise Supply. Based on competitive bids, the Company has
selected a single company as the primary grocery and merchandise supplier to its
convenience stores and truck stops. However, some merchandise items, such as
bakery goods, dairy products, soft drinks, beer, and other perishable products,
are generally purchased from local vendors and/or wholesale route salespeople.
The Company believes it could replace any of its merchandise suppliers,
including its primary merchandise supplier, with no significant adverse effect
on its operations.
Motor Fuel Supply. The Company purchases fuel for its branded retail
outlets and branded wholesale customers from the respective oil company which
branded the outlet and for its unbranded outlets from large integrated oil
companies and independent refineries. Fuel is purchased from approximately 40
vendors, although the purchases are concentrated in a few vendors, largely due
to the number of branded outlets. However, management believes that the
competitiveness for retail outlets among oil companies is such that the company
could find alternative supply sources if the need to do so arose.
During recent years, the Company has not experienced any
difficulties in obtaining sufficient quantities of motor fuel to satisfy retail
sales requirements. However, unanticipated national or international events
could result in a curtailment of motor fuel supplies to FFP Marketing, thereby
adversely affecting motor fuel sales. In addition, management believes a
significant portion of its merchandise sales are to customers who also purchase
motor fuel. Accordingly, reduced availability of motor fuel could negatively
impact other facets of the Company's operations, as well.
Competition
The convenience store industry is highly competitive. Most
convenience stores and an increasing number of traditional grocery stores in the
Company's market areas sell motor fuel; in addition, merchandise similar or
identical to that sold by the Company's stores is generally available to
competitors. In addition to independently operated and national and regional
chains of convenience stores, FFP Marketing also competes with local and
national chains of supermarkets, drug stores, fast-food operations, and motor
fuel retailers. Major oil companies are also becoming a significant factor in
the convenience store industry as they convert outlets that previously sold only
motor fuel to convenience stores; however, major oil company stores generally
carry a more limited selection of merchandise than that carried by the Company's
outlets and operate principally in metropolitan areas, where the Company has few
outlets. Some of the Company's competitors have large sales volumes, benefit
from national or regional advertising, and have greater financial resources than
the Company.
FFP Marketing believes each of its retail outlets generally competes
with other retailers that are within a radius of one to two miles of its
locations, and believes that its outlets compete based on accessibility, the
variety of products and services offered, extended hours of operation, price,
and prompt check-out service.
The Company's wholesale fuel operation is also very competitive.
Management believes this business is highly price sensitive, although the
ability to compete is also dependent upon providing quality products and
reliable delivery schedules. The Company's wholesale fuel operation competes for
customers with large integrated oil companies and smaller, independent refiners,
and fuel jobbers, some of which have greater financial resources than FFP
Marketing. Management believes it can compete effectively in this business
because of the Company's purchasing economies, numerous supply sources,
including the commingled fuel processed at its fuel processing plant, and the
reluctance of many larger suppliers to sell to smaller customers.
Employees
At March 15, 1998, the FFP Marketing employed 1,688 people
(including part-time employees).
There are no collective bargaining agreements between FFP Marketing
and any of its employees and management believes the relationship with employees
of the Company is good.
Trademarks and Trade Names
FFP Marketing's convenience stores and truck stops are operated
under a variety of trade names, including "Kwik Pantry," "Nu-Way," "Economy,"
"Dynamic Minute Mart," "Taylor's Food Stores," "Drivers," and "Drivers Diner."
New outlets generally use the trade name of the Company's stores predominant in
the geographic area where the new store is located. The Company sells money
orders in its outlets, and through agents, under the service mark "Financial
Express Money Order Company." The money orders are produced using a computer
controlled laser printing system developed by the Company. This system is also
marketed to third parties under the name of "Lazer Wizard."
Eight of the Company's truck stops operate under the trade name of
"Drivers;" the three other truck stops use the same trade name as the Company's
convenience stores in the area in which they are located.
The Company has registered the names "Kwik Pantry," "Drivers,"
"Drivers Diner," "Financial Express Money Order Company," and "Lazer Wizard"
as service marks or trademarks under federal law.
Insurance
The Company carries workers' compensation insurance in all states in
which it operates.
The Company maintains liability coverages for its vehicles which
meet or exceed state requirements but it does not carry automobile physical
damage insurance. Insurance covering physical damage of properties owned by the
Company is generally carried only for selected properties. The Company maintains
property damage coverage on leased properties as required by the terms of the
leases thereon and maintains property damage coverage on other properties as it
deems appropriate.
The Company maintains general liability insurance with limits and
deductibles management believes prudent in light of the exposure of the
Company to loss and the cost of the insurance. The Company does not maintain
any insurance covering losses due to environmental contamination. {See
Government Regulation - Environmental Regulation.}
The Company monitors the insurance markets and modifies its
insurance coverages from time-to-time, both adding and eliminating coverage, as
it believes appropriate at such time in light of changes in the Company's
exposure to loss and the cost of insurance against such losses.
Government Regulation
Alcoholic Beverage Licenses. The Company's retail outlets sell
alcoholic beverages in areas where such sales are legally permitted. The sale of
alcoholic beverages is generally regulated by state and local laws which grant
to various agencies the authority to approve, revoke, or suspend permits and
licenses relating to the sale of such beverages. In most states, the regulatory
agencies have wide-ranging discretion to determine if a licensee or applicant is
qualified to be licensed. The State of Texas requires that licenses for the sale
of alcoholic beverages be held, directly or indirectly, only by individual
residents of Texas or by companies controlled by such persons. Therefore, the
Company has an agreement with a corporation controlled by John H. Harvison, its
Chairman and Chief Executive Officer, which permits that corporation to sell
alcoholic beverages in the Company's Texas outlets where such sales are legal.
In many states, sellers of alcoholic beverages have been held
responsible for damages caused by persons who purchased alcoholic beverages from
them and who were at the time of the purchase, or subsequently became,
intoxicated. Although the Company's retail operations have adopted procedures
which are designed to minimize such liability, the potential exposure to the
Company as a seller of alcoholic beverages is substantial. The Company's present
liability insurance provides coverage, within its limits and subject to its
deductibles, for this type of liability.
Environmental Regulation. The Company is subject to various federal,
state, and local environmental, health, and safety laws and regulations. In
particular, federal regulations issued in 1988 regarding underground storage
tanks established requirements for, among other things, underground storage tank
leak detection systems, upgrading of underground tanks with respect to corrosion
resistance, corrective actions in the event of leaks, and the demonstration of
financial responsibility to undertake corrective actions and compensate third
parties for damages in the event of leaks. Certain of these requirements were
effective immediately and others are being phased in over a ten year period.
However, all underground storage tanks must comply with all requirements by
December 1998. The Company implemented a plan several years ago to bring all of
its existing underground storage tanks and related equipment into compliance
with these laws and regulations on or before the December 1998 deadline and
currently estimates the total cost to be incurred in 1998 to do so will range
from $1,444,000 to $1,764,000.
All states in which the Company has underground storage tanks have
established trust funds for the sharing, recovering, and reimbursing of certain
cleanup costs and liabilities incurred as a result of leaks in such tanks. These
trust funds, which essentially provide insurance coverage for the cleanup of
environmental damages caused by an underground storage tank leak, are funded by
a tax on underground storage tanks or the levy of a "loading fee" or other tax
on the wholesale purchase of motor fuels within each respective state. The
coverages afforded by each state vary but generally provide up to $1,000,000 for
the cleanup of environmental contamination and most provide coverage for
third-party liability, as well. Some of the funds require the Company to pay
deductibles up to $25,000 per occurrence.
Although the benefits afforded the Company as a result of the trust
funds are substantial, the Company may not be able to recover through higher
retail prices the costs associated with the fees and taxes which fund the
trusts.
Management believes the Company complies in all material respects
with existing environmental laws and regulations and is not currently aware of
any material capital expenditures, other than as discussed above, that will be
required to further comply with such existing laws and regulations. However, new
laws and regulations could be adopted which could require the Company to incur
significant additional costs.
Forward-Looking Statements
Certain of the statements made in this report are forward-looking
statements that involve a number of risks and uncertainties. Statements that
should generally be considered forward-looking include, but are not limited to,
those that contain the words "estimate," "anticipate," "in the opinion of
management," "believes," and similar phrases. Among the factors that could cause
actual results to differ materially from the statements made are the following:
general business conditions in the local markets served by the Company's
convenience stores, truck stops, and other retail outlets, and its wholesale
fuel markets; the weather in the local markets served by the Company;
competitive factors such as changes in the locations, merchandise offered, or
other aspects of competitors' operations; increases in cost of fuel and
merchandise sold or reductions in the gross profit realized from such sales;
expense pressures relating to operating costs, including labor, repair and
maintenance, and supplies; and, unanticipated general and administrative
expenses, including costs of expansion or financing.
<PAGE>
Item 2. PROPERTIES.
FFP Marketing currently leases all real estate used in its retail
operations. The following table summarizes the ownership status of such outlets
as of March 27, 1998:
Leased from
Leased Affiliates Leased
from of the from
FFP Harvison Unrelated
Partners Family Parties Total
Number of Locations
Convenience Stores
Land 42 52 111 205
Buildings 93 4 108 205
Truck Stops
Land 2 8 1 11
Building 7 3 1 11
Fuel concessions at
independently operated outlets
Land 18 104 83 205
Buildings 66 56 83 205
Other/Not Active
Land 16 7 7 30
Buildings 17 6 7 30
Total
Land 78 171 202 451
Buildings 183 69 199 451
The leases covering land and buildings leased from FFP Partners
terminate December 31, 2002, with two five-year renewal options with renewals at
the option of FFP Marketing. Upon each renewal, the rent will be adjusted by the
increase in the consumer price index since January 1, 1998 (the date the leases
were entered into). The leases on these properties were entered into in
conjunction with the restructuring of FFP Partners that was completed in
December 1997 in which the non-real estate assets and businesses of FFP Partners
were transferred to FFP Marketing while the real estate used in the retail
operations was retained by FFP Partners. The lease rates for the locations were
established based on knowledge of the properties by the management of FFP
Partners and its management's general experience in acting as lessor and lessee
for similar properties. The management of FFP Marketing believes that the lease
rates are comparable to leases that could be entered into with unrelated third
parties. However, FFP Marketing did not engage any third party advisors or refer
to any third party surveys or analyses of rental rates in making this
determination.
Leases covering buildings leased from FFP Partners located on land
leased from affiliates of the Harvison Family (corporations, partnerships,
trusts, and other business entities affiliated with John H. Harvison, Chairman
and Chief Executive Officer of FFP Marketing, and members of his family) or from
unrelated parties terminate concurrently with the underlying ground lease. The
leases on these properties were entered into in conjunction with the
restructuring of FFP Partners discussed above and the lease rates on these
locations were established in the same manner as described above for real estate
leased from FFP Partners.
Leases covering land or land and buildings leased from affiliates of
the Harvison Family generally expire on May 31, 2002, and have one or two
five-year renewal periods with renewal at the sole option of FFP Marketing. The
monthly rent upon renewal will be adjusted by the increase in the consumer price
index since the leases were entered into. Management believes the terms and
conditions of these leases are more favorable to FFP Marketing than could have
been obtained from unrelated third parties. However, FFP Marketing did not
engage any third party advisors or refer to any third party surveys or analyses
of rental rates in making this determination.
The Company also owns a 33 acre tract of land in Euless, Texas,
which is the site of its fuel terminal and fuel processing plant.
The executive offices of the Company are located at 2801 Glenda
Avenue, Fort Worth, Texas, where it occupies approximately 15,000 square feet of
office space leased from three affiliates of the Harvison Family.
Item 3. LEGAL PROCEEDINGS.
The Company is periodically involved in routine litigation arising
in the ordinary course of its businesses, particularly personal injury and
employment related claims. Management presently believes none of the pending or
threatened litigation of this nature is material to the Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of stockholders during 1997.
<PAGE>
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company's common shares are listed for trading on the
American Stock Exchange (symbol "FMM"). At April 2, 1998, there were 186
holders of record. {See Item 12. Security Ownership of Certain Beneficial
Owners and Management.}
FFP Marketing's common shares began trading on the American Stock
Exchange on a "when issued" basis on December 29, 1997, the day following the
completion of the restructuring of FFP Partners {see Item 1. Business General
Background} and commenced trading separately on January 14, 1998. The closing
price of the shares from December 29, 1997, through March 31, 1998, has ranged
from $2.50 to $4.625.
FFP Marketing may also issue preferred shares from time to time in
one or more series as authorized by its Board of Directors. There are currently
no preferred shares issued.
The Board of FFP Marketing has not established a dividend policy but
management does not anticipate that dividends will be paid on the Company's
common shares in the foreseeable future.
<PAGE>
Item 6. SELECTED FINANCIAL AND OPERATING DATA.
1997 1996 1995 1994 1993
Financial Data (in thousands,
except per unit data):
Revenues and Margins -
Motor fuel sales $311,495 $321,814 $296,887 $275,278 $246,023
Motor fuel margin 21,702 20,672 22,813 22,332 21,650
Merchandise sales 61,652 60,579 65,512 72,827 74,921
Merchandise margin 18,739 17,821 19,187 20,169 20,320
Miscellaneous revenues 6,267 7,759 7,646 7,408 5,706
Total revenues 379,414 390,152 370,045 355,513 326,650
Total margin 46,708 46,252 49,646 49,909 47,676
Direct store expenses 28,241 27,062 28,496 29,553 28,794
General and administrative 12,113 11,506 11,795 11,056 10,527
expenses
Depreciation and amortization 5,488 3,951 3,769 4,352 5,681
Total operating expenses 45,842 42,519 44,060 44,961 45,002
Operating income 866 3,733 5,586 4,948 2,674
Interest expense 1,642 1,246 1,176 1,173 1,565
Income/(loss) before taxes/
other items (776) 2,487 4,410 3,775 1,109
Deferred income tax
expense/(benefit) (892) 2,646 500 244 94
Gain on extinguishment of debt 0 0 0 200 0
Change in accounting for
income taxes 0 0 0 0 (297)
Net income/(loss) $116 $(159) $3,910 $3,731 $718
Income/(loss) per share [unit] -
From continuing operations -
Basic $0.03 $(0.04) $1.06 $1.02 $0.20
Diluted 0.03 (0.04) 1.02 1.00 0.19
Net income/(loss) -
Basic 0.03 (0.04) 1.06 0.96 0.28
Diluted 0.03 (0.04) 1.02 0.95 0.27
Distributions declared per Unit $0.000 $0.415 $0.870 $0.370 $0.000
Total assets $75,330 $78,599 $69,332 $67,978 $70,277
Long-term obligations 24,575 9,418 7,100 9,527 10,755
Operating Data:
Gallons of motor fuel sold (in thousands) -
Retail 199,310 197,687 193,233 196,246 187,267
Wholesale 83,296 90,704 95,473 81,289 57,718
Fuel margin per gallon (in cents) -
Retail 9.8 9.3 10.9 10.1 10.0
Wholesale 2.5 1.9 1.7 1.8 1.7
Average weekly merchandise sales -
Convenience stores $9,482 $9,454 $9,560 $9,901 $10,289
Truck stops 17,704 17,192 17,506 18,160 17,798
Merchandise margin 30.4% 29.4% 29.3% 27.7% 27.1%
Number of locations at year end -
Convenience stores 207 117 127 127 145
Truck stops 11 10 10 10 10
Fuel concessions at
independent outlets 205 206 194 185 169
- ----------------------------------------------
Income/(loss) per share [unit] amounts for prior years have been restated to
comply with Statement of Financial Accounting Standards No. 128, "Earnings
per Share."
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
General
This discussion should be read in conjunction with the selected
financial and operating data, the description of the Company's business
operations, and the financial statements and related notes and schedules
included elsewhere in this Annual Report on Form 10-K. {See Item 1. Business -
Forward-Looking Statements.}
Concurrently with the close of its 1997 fiscal year, FFP Partners
completed a restructuring in which the real estate used in its retail operations
was retained by FFP Partners and all its other assets and businesses were
transferred to FFP Marketing. In addition to retaining the real estate referred
to above, FFP Partners also retained certain liabilities, principally bank debt
and other debt secured by the real estate retained by it. All other liabilities
(including trade accounts payable, money orders payable, accrued expenses,
deferred income taxes, obligations under capital leases and other debt secured
by various equipment) were transferred to FFP Marketing.
The businesses transferred to FFP Marketing include the operation of
convenience stores, truck stops, and self-service motor fuel concessions at
independently operated convenience stores, motor fuel wholesaling activities,
the operation of a motor fuel terminal and processing facility, and the
operation of a money order company, selling money orders through the outlets
operated by FFP Marketing as well as through agents. The real estate retained by
FFP Partners is being leased to FFP Marketing for use in the conduct of its
retail convenience store and motor fuel operations.
The selected financial data that accompanies this discussion
reflects the historical operations of FFP Partners to which FFP Marketing
succeeded in connection with the aforementioned restructuring. Since the
restructuring occurred at the end of FFP Partners fiscal year, the financial
data for 1997 and prior years does not reflect the rent that will be paid to FFP
Partners by FFP Marketing for the land and buildings used in FFP Marketing's
retail operations nor does it reflect the future change in depreciation and
amortization, interest, and other expenses that will occur as a result of the
restructuring.
Also in December 1997, the Company acquired 107 operating
convenience stores. Ten of the stores acquired were sold to an unrelated party
concurrently with the closing of the purchase and three other stores were sold
to another unrelated party shortly thereafter, resulting in a net increase from
these transactions of 94 stores. The purchase of the stores was completed on a
store-by-store basis throughout December so their operations had little impact
on fiscal 1997. However, since the outlets were operating when they were
acquired, the Company expects the acquisition to have an immediate positive
impact on earnings and cash flow in 1998.
The Company reports its results of operations using a fiscal year
which ends on the last Sunday in December. Most fiscal years have 52 weeks but
some consist of 53 weeks. Fiscal 1995 was a 53-week year, while fiscal 1997,
1996, 1994, and 1993 were 52-week years. This variation in time periods most
affects revenues (and related costs of sales) and salary costs as other expenses
(such as rent and utilities) are usually recorded on a "monthly" basis. However,
differences in the number of weeks in a fiscal year should be considered in
reviewing the financial data.
1997 Compared with 1996
The $10,738,000 (2.8%) decline in the Company's total revenues in
1997 from the 1996 level is due principally to the $10,319,000 (3.2%) decline in
motor fuel sales. This decline in fuel sales resulted from the absence in 1997
of a large volume of lower margin wholesale sales to a customer that purchases
from the Company infrequently along with the effect of generally lower fuel
sales prices in 1997 as compared to 1996. The price of motor fuel dropped
steadily throughout 1997. Wholesale fuel sales declined 7,408,000 gallons (8.2%)
due to the absence of the sales mentioned above, while retail fuel sales
increased 1,623,000 (0.8%) over the prior year due to the sales from the 94
convenience stores acquired in December 1997. Although revenues from fuel sales
declined, the margin on such sales increased $1,030,000 (5.0%) over 1996 levels.
Both retail and wholesale fuel gross profit increased in absolute and per gallon
terms. The 0.5 cent (5.4%) increase in retail margin per gallon in 1997 over
1996 is attributable to the lessening in the fourth quarter of the year of the
competitive pricing pressures that have existed over the last 18 months. The 0.6
cent per gallon (31.6%) improvement in wholesale margins resulted primarily from
the absence of the low margin sales referred to previously.
Partially offsetting the decline in fuel sales was a $1,073,000
(1.8%) increase in merchandise sales in 1997. This increase primarily resulted
from the additional merchandise sales of the stores acquired in December 1997.
Excluding the sales from the acquired stores, merchandise sales decreased
$1,196,000 reflecting the absence of merchandise sales from the outlets which
the Company sold to independent operators during 1996 and 1997. Excluding the
impact of the stores acquired in December 1997, the Company operated an average
of six fewer stores in 1997 than 1996. Although overall merchandise sales,
excluding the impact of the stores acquired in December, declined, average
weekly merchandise sales at the Company's convenience stores (excluding the
impact of the stores acquired in December) increased 2.6% to $9,704.
The Company's gross profit on merchandise sales increased by
$918,000 (5.2%) in 1997. About 70% of this increase came from the additional
merchandise gross profit from the stores acquired in December. The remainder is
attributable to the increase in average weekly merchandise sales, mentioned
above, and the increase in gross margin on merchandise sales to 30.4% in 1997
from 29.4% in 1996.
Miscellaneous revenues declined $1,492,000 (19.2%) in 1997 as
compared to 1996 primarily due to the lesser amount of gains recognized on sales
of convenience store merchandise operations to independent operators.
Of the $1,179,000 (4.4%) increase in direct store expenses (those
costs directly attributable to the operation of the Company's retail outlets,
such as salaries and other personnel costs, supplies, utilities, repairs and
maintenance, and commissions paid to the operators of the self-service motor
fuel outlets), $851,000 relates to the additional expenses attributable to the
94 stores acquired during December 1997. The remaining $328,000 increase in
these expenses are primarily attributable to increased wage costs, related to
the federally mandated minimum wage increase which took effect on September 1,
1997. In connection with the December 1997 restructuring of FFP Partners, all of
the real estate used in the Company's retail operations was retained by FFP
Partners and is leased to FFP Marketing. As a result, rent expense for the
retail outlets will increase substantially in 1998 and coming years. Based on
the locations involved, the Company expects the rent included in direct store
expenses to increase approximately $2,430,000. The increased rent will be
offset, in part, by a reduction in depreciation expense attributable to the
depreciation on the buildings retained by FFP Partners and by a reduction in
interest expense related to the debt retained by FFP Partners in conjunction
with the restructuring.
General and administrative expenses increased $607,000 (5.3%) in
1997 over 1996. Of this amount, $453,000 are legal, accounting, and other
expenses directly attributable to the December 1997 restructuring of FFP
Partners. Excluding those costs, general and administrative expenses increased
$154,000 (1.3%) primarily as a result of increased wage costs due to the opening
of the Company's fuel terminal and processing facility in mid-1997 and an
increase in field supervisory personnel added in December 1997 to manage the 94
stores acquired in December, offset by reductions in bad debt expense and
advertising and promotion costs.
Depreciation and amortization expenses increased $1,537,000 (38.9%)
in 1997 reflecting the impact of increased charges related to the Company's
significant capital expenditures in 1996 and 1997, primarily related to the
upgrading of the Company's underground storage tanks to meet 1998 environmental
regulatory requirements, and the start of operations at the Company's fuel
terminal in mid-1997. Although the acquisition of the 94 convenience stores in
December 1997 had little impact on depreciation expense in 1997 since they were
acquired so late in the year, this investment will increase this expense
category in 1998 and later years. Also affecting depreciation in future years is
the reduction of approximately $1,200,000 that will occur due to the
depreciation on buildings that were retained by FFP Partners in the December
1997 restructuring.
The $396,000 (31.8%) increase in interest expense in 1997 as
compared to 1996 is the result of the generally higher level of interest rates
during the 1997 period and to the Company's higher debt levels. The increased
borrowings were used to fund the Company's investment in its fuel terminal and
processing facility and to purchase equipment to upgrade its underground storage
tanks to meet environmental standards that are effective at the end of 1998. In
connection with the December 1997 restructuring of FFP Partners, FFP Partners
retained the bank debt and all debt secured by the real estate which was
retained by it. {See Note 5 to the Consolidated Financial Statements.}
Accordingly, interest expense of the Company in the future will be reduced by
the interest which would have otherwise been paid on this indebtedness. However,
interest expense in 1998 and later years will increase as a result of interest
that will be paid on the debt used to finance the December 1997 purchase of the
94 convenience stores, mentioned above.
Prior to the December 1997 restructuring of FFP Partners, the
Company operated as a publicly-traded limited partnership. As such, the Company
paid no income taxes but rather the income or loss of the Company was allocated
to its partners to be included in their respective tax returns. However, since
it was expected that the Company would become taxable as a corporation beginning
in 1998, it was required under applicable accounting pronouncements to provide a
liability for those taxes it would have to pay on items of income and expense
recognized for financial reporting purposes before 1998 but which would be
recognized for tax reporting purposes in 1998 or later years. Accordingly, the
Company provided for these deferred tax expenses in its consolidated statements
of operations while the current tax benefit of the deferral of the recognition
of income, or the acceleration of expenses, for tax purposes was allocated the
Company's partners. The primary items giving rise to differences between
financial and tax reporting were differences in the tax bases and depreciation
methods of the Company's fixed assets.
In 1996, the Company was able to substantially shorten the lives
over which certain buildings used in its retail operations were depreciated for
tax purposes. As discussed above, the benefit of this additional tax
depreciation was allocated to the Company's partners while the Company was
required to record a deferred tax expense related to it. This item is covered in
more detail in the discussion of income taxes expense for 1996 compared to 1995
later in this section. However, in connection with the December 1997
restructuring of FFP Partners, the ownership of the real estate that gave rise
to the large deferred tax provision in 1996 was retained by FFP Partners which
continues as a publicly-traded limited partnership. Accordingly, the deferred
taxes attributable to these buildings was reversed in 1997. This reversal of
deferred tax expense accounts for the significant change in the deferred
provision between 1996 and 1997.
However, going forward, the Company will be taxable as a corporation
for federal income tax purposes and, accordingly, will provide both current and
deferred income taxes on its earnings.
1996 Compared with 1995
The Company's total revenues increased $20,107,000 (5.4%) in 1996
over 1995. This increase was the result of a $24,927,000 (8.4%) increase in
motor fuel sales offset by a $4,933,000 (7.5%) decline in merchandise sales.
Miscellaneous revenues were essentially flat between the two years.
The increased fuel revenues resulted from increased prices and an
increase of 4,454,000 gallons (2.3%) of fuel sold at retail offset by a
4,769,000 gallon (5.0%) decline in wholesale gallons sold. The increase in
retail fuel gallons sold parallels the 2.4% increase in the average number of
locations selling fuel in 1996 as compared to 1995. The decrease in wholesale
fuel gallons resulted from the absence of large spot sales to certain customers
in 1996. The majority of the Company's wholesale sales are to smaller
independent retailers, many of which are contractually committed to purchase
from the Company. However, the Company also markets to operators of larger
convenience store chains and other retail outlets but such customers are
primarily motivated by price. Due to increases in wholesale fuel prices in 1996,
the Company was not able to be as aggressive in its pricing to these customers
as in prior years.
Although fuel sales increased, fuel margin declined significantly,
$2,141,000 (9.4%), from the prior year. This decline was caused by substantially
reduced retail fuel margins in 1996 as compared to 1995. The 1996 retail fuel
margin was 9.3 cents per gallon, a drop of 14.7% from the 10.9 cents per gallon
realized in 1995. The reduced margin resulted from increases in wholesale prices
that could not be fully passed on to retail customers due to competitive
pressures from non-traditional fuel retailers in the Company's market areas,
such as grocery stores that have installed fuel islands. The reduced retail
margin was experienced by the Company throughout 1996 with the exception of its
second fiscal quarter. Although the volumes of fuel sold on a wholesale basis
declined, the wholesale margin per gallon increased by 11.8%, from 1.7 cents in
1995 to 1.9 cents in 1996.
The $4,933,000 decline in merchandise sales primarily relates to the
decline in the average number of convenience stores and truck stop restaurants
operated during the year. The Company continued its program of selling the
merchandise operations of selected convenience stores to independent operators,
with 18 such sales in 1996. Under this program, begun in mid-1994, the Company
sells the merchandise operations of outlets that it believes will contribute
more to its earnings if operated by independent operators than by the Company.
The independent operators, because of their different overhead structure, are
able to operate the stores less expensively than can the Company. These sales
are structured such that the Company retains the real estate or leasehold
interest in the property and leases or subleases the land, building, and
equipment to the operator. The Company also retains the motor fuel concession at
these outlets, which become self-service fuel outlets for the Company. The sales
of these stores, offset to some extent by the conversion of certain gas only
outlets to convenience stores, reduced the average number of convenience stores
operated during the year by 5.0%. In addition, the Company leased the restaurant
facilities at two of its truck stops to independent operators in early 1996.
Total merchandise gross profit also declined due to the sales
declines; however, the margin on merchandise sales increased slightly in 1996,
to 29.4% from 29.3%. Shortly after year end 1996, the Company reorganized its
retail operations placing convenience stores and truck stops, and their related
food service operations, under the supervision of one executive. Management
believes this supervisory structure will increase the focus on improving
merchandise margins and sales levels in its outlets.
Although miscellaneous revenues in total were relatively unchanged
between 1996 and 1995, the composition of the revenues shifted. Gains on the
sales of merchandise operations at convenience stores increased to $1,778,000
from $791,000 (124.8%) while check cashing fees, food stamp commissions, and
other revenues related to check cashing booths declined $497,000 due to closing
eight such outlets. In addition, the Company recognized a one-time gain of
$353,000 from the sale of a fleet fueling franchise in 1995. Other items
included in miscellaneous revenue, such as lottery commissions and money order
fees, were relatively unchanged between the periods.
Direct store expenses declined $1,434,000 (5.0%) in 1996 from 1995.
This decline was due to the reduction in the average number of convenience
stores operated during 1996 and to the closure of the eight check cashing
outlets, both discussed above, offset by increased fuel commissions paid to
operators of the Company's self-service fuel outlets due to an increase in the
number of this type of outlet. The Company leases the land or land and buildings
at 167 of its retail locations from affiliates of the General Partner. As is
customary in these types of agreements, these leases provide for adjustments in
the monthly rent based on the change in the consumer price index. The
adjustments are made every five years with the next adjustment to be effective
beginning in May 1997.
General and administrative expenses declined $289,000 (2.5%) in 1996
as compared to the prior year principally due to declines in salaries and bad
debts although all categories of costs except legal and professional fees
declined slightly or were flat compared to 1995.
The modest increase in depreciation and amortization expense relates
to the increases in the Company's fixed assets over the last few years. Because
of the significant asset additions during the current year, principally related
to environmental upgrades at the Company's retail locations and to improvements
at the fuel terminal acquired in early 1996, which began operating in mid-1997,
depreciation and amortization in future years will increase from the 1996 level.
Interest expense was relatively unchanged in 1996 from the prior
year, increasing $70,000 (6.0%). Although the Company's total debt (long-and
short-term and capital leases) increased by a total of $5,935,000, interest
rates were somewhat lower in 1996 than 1995, much of the additional indebtedness
was incurred late in the year, and a significant portion of the debt was
incurred to finance renovation of the fuel terminal and the interest expense
related thereto was capitalized.
The Company adopted Financial Accounting Standards Board Statement
No. 109 "Accounting for Income Taxes" ("SFAS 109") at the beginning of fiscal
1993. As a result of adopting this accounting principle, the Company is required
to record deferred income tax expense attributable to changes arising in the
current period in the temporary differences between financial and tax reporting
which are expected to reverse after 1997, when the Company will become taxable
as a corporation. These differences are due primarily to temporary differences
between the financial reporting amounts and tax bases of the Company's property
and equipment.
In 1996, the Company recorded deferred income taxes of $2,646,000,
an increase of $2,146,000 (429.2%) over the previous year. Of the total for the
current year, $2,089,000 was related to a change in the lives used by the
Company to depreciate certain buildings for income tax reporting purposes. In
August 1996, Congress passed legislation clarifying that certain buildings used
in connection with the retail sale of motor fuel qualified for a substantially
shorter depreciable life for tax purposes than was being utilized by the
Company. Substantially all of the buildings owned by the Company qualified for
this shorter life. In January 1997, the Internal Revenue Service issued a notice
explaining how the tax deduction related to the change in the depreciable lives
on these assets should be determined. As a result, the Company deducted in 1996
the difference between the tax depreciation previously recorded and the
depreciation available using the shorter life and recognized an additional
deferred income tax provision of $2,089,000 in the fourth quarter 1996 related
to this timing difference. The current tax benefit of this deduction was
allocated to the Company's unitholders but the deferred tax expense associated
with the acceleration of this deduction for tax purposes was reflected on the
Company's income statement.
The 1996 deferred tax expense not related to the above described
clarification in the tax law, was $557,000, an increase of $57,000 (11.4%) over
the expense reported in 1995 and is principally due to additions to fixed assets
which are depreciated differently for financial reporting and tax purposes.
However, the $2,089,000 expense related to the "catch-up" in depreciation
discussed above will not recur.
The Company's reported a net loss of $159,000 in 1996, as compared
to net income of $3,910,000 in 1995 primarily due to significant impact of
reduced retail fuel margins and to the non-recurring deferred tax provision
related to the change in the depreciable lives of certain buildings for tax
purposes.
Liquidity and Capital Resources
In connection with the December 1997 restructuring of FFP Partners,
the real estate used in its retail operations was retained by FFP Partners,
along with the balances due at year end 1997 under a bank revolving credit
facility ($7,439,000), a bank term loan ($7,905,000), and other debt ($594,000)
securing the real estate. All other businesses, assets and liabilities were
transferred to FFP Marketing. However, subsidiaries of FFP Marketing remain
liable on the debt retained by FFP Partners, pending its refinancing, and could
be required to repay the debt if FFP Partners is unable to do so. FFP Partners
has indemnified FFP Marketing against this liability and has granted to FFP
Marketing the right to offset any payments FFP Marketing might be required to
make on the debt retained by FFP Partners against any amounts otherwise due to
FFP Partners by FFP Marketing. However, since subsidiaries of FFP Marketing are
liable on this debt and continue to access the bank revolving credit facility,
this debt must be reflected as a liability on the balance sheets of both FFP
Marketing and FFP Partners.
Although FFP Partners retained the liability for the $7,439,000
balance due under the revolving credit line portion of the bank debt at the date
of the December 1997 restructuring, FFP Marketing retains availability under
this revolving credit facility. The revolving credit line provides for
borrowings up to $15,000,000, with the amount available at any time related to a
borrowing base comprised of FFP Marketing's trade receivables and inventories.
To the extent that borrowings under this credit facility fall below the
$7,439,000 balance retained by FFP Partners they are treated as loans by FFP
Marketing to FFP Partners and FFP Partners pays interest to FFP Marketing on
such amounts at the lender's prime rate, which is same rate that is payable to
the lender. FFP Marketing bears the interest cost on any balances under the
revolving credit facility that exceed the $7,439,000 amount.
The revolving credit facility and the bank term loan both bear
interest at the lender's prime rate, payable monthly; the term loan requires
monthly principal payments of $95,000; and both loans mature in November 2000.
The loans are subject to a Loan and Security Agreement among FFP Partners and
two companies that prior to the December 1997 restructuring were subsidiaries of
FFP Partners but are now subsidiaries of FFP Marketing. The agreement contains
various restrictive covenants including financial covenants relating to the
maintenance of a specified minimum tangible net worth, a debt to tangible net
worth ratio, and a cash flow coverage ratio, all as defined in the agreement.
The loans under the agreement are secured by FFP Marketing's trade accounts
receivable, inventories, and its equipment not otherwise encumbered, and by a
negative pledge of its other assets. The loans are also secured by the assets of
FFP Partners.
FFP Marketing has been advised by FFP Partners that FFP Partners
expects to refinance the bank and other debt during 1998. At the time the
refinancing is completed, FFP Marketing anticipates that it will have no
liability for the obligations although it is expected to retain the revolving
credit facility for which it will be solely liable.
In addition to the foregoing debt, FFP Marketing has a loan of
$6,735,000 incurred in connection with the December 1997 acquisition of 94
operating convenience stores. The loan bears interest payable monthly at the
prime rate of a large national bank, is due in February 1999, and is secured by
the assets of the 94 convenience stores. FFP Marketing is in the process of
securing long-term financing to refinance this bridge loan and expects to
complete the refinancing by mid-1998.
When the Company operated as a publicly-traded limited partnership,
it made cash distributions to its partners from time to time, a portion of which
represented the amount the partners were required to pay in income taxes on the
Company's income that was allocated to them. With the change in the Company's
tax status to a corporation, management does not currently anticipate that any
dividends will be paid on the Company's common stock within the next twelve
months.
The Company's cash flows from operating activities were $8,096,000
in 1997, an increase of $3,078,000 over 1996. This increase is primarily
attributable to the increase in money orders payable which principally resulted
from a contract entered into in 1997 with a third party that has a large number
of outlets to sell money orders as an agent for the Company. The Company's
investment in property and equipment during 1997 was $17,410,000, an increase of
$7,893,000 over 1996. The expenditures were principally to complete the
renovation of the fuel terminal and processing facility, to continue the
upgrading of the Company's underground storage tanks to meet 1998 environmental
requirements, and to purchase the 94 operating convenience stores, discussed
previously, in December 1997. The increase in capital expenditures in 1997 over
1996 is due primarily to the December 1997 purchase of the convenience stores.
Although the Company will invest additional funds at its fuel terminal and will
complete the upgrade of its underground storage tanks, the amounts expended in
1998 should be substantially less than was spent in 1997. The Company has
contracted with a firm to install the necessary equipment and/or to modify
existing installations to meet current environmental requirements for
underground storage tanks by the December 1998 deadline. The cost of completing
this upgrading is expected to be between $1,444,000 to $1,764,000 during 1998.
The Company will pay for some of its expected capital expenditures from
operating cash flow and expects to finance a portion of the expenditures by
utilizing lease lines of credit, as it has in the past.
The Company's financing activities provided $7,750,000 of cash in
1997. This amount represents an increase of $3,419,000 from 1996 levels. Its
total debt position (amounts due on bank debt and capital leases) was impacted
by the additional debt the Company incurred to finance the December 1997
acquisition of convenience stores.
The Company is party to commodity futures contracts and forward
contracts to buy and sell fuel, both of which are used principally to satisfy
balances owed on exchange agreements. Both of these types of contracts have
off-balance sheet risk as they involve the risk of dealing with others and their
ability to meet the terms of the contracts and the risk associated with
unmatched positions and market fluctuations. The open positions under these
contracts were not significant at year end 1997. {See Note 11 to the
Consolidated Financial Statements.}
The Company had negative working capital at year end 1997 of
$185,000 as compared to a negative $7,410,000 at year end 1996. This change
resulted primarily from the refinancing of its bank debt in October 1997. The
Company's reported working capital position is also impacted by the accounting
requirement that the debt that was transferred to FFP Partners in connection
with the restructuring be reflected on the balance sheet of FFP Marketing (as
discussed above). If the current portion of the debt obligations that were
transferred to FFP Partners are ignored, FFP Marketing's working capital would
be $1,023,000. The Company has traditionally been able to operate its business
with minimal or negative working capital, principally because most sales are for
cash and it has received payment terms from vendors. The Company believes that
the availability of funds under its revolving line of credit (as discussed
above) and its traditional use of trade credit will permit operations to be
conducted in a customary manner.
"Year 2000" Computer Issues
FFP Marketing uses a variety of computer software programs to
operate and manage its businesses. The functioning of such software is subject
to problems if it does not properly interpret dates in the year 2000 and beyond.
Software which properly handles dates beginning in 2000 is said to be "year 2000
compliant." The Company's principal accounting and management information
software is currently year 2000 compliant, as is its computer networking and
operating system software. The Company uses some internally produced software
which is not year 2000 compliant but believes that the cost to modify or replace
this software such that it is year 2000 compliant will not be significant.
However, FFP Marketing is also dependent upon software used in
conjunction with or provided by third parties, such as its merchandise and fuel
vendors, banks, credit card processing companies, and check approval vendors.
While the direct cost of rendering any software provided by these vendors year
2000 compliant will be borne by the respective vendors, there could be an
adverse impact on the Company's operations if the necessary modifications are
not made in a timely manner. The vendors involved are large, sophisticated
organizations that the Company believes are responsible in managing their
businesses and business relationships and, accordingly, believes that they will
take appropriate steps to make their systems year 2000 compliant. However, the
Company is in the process of determining if such software is year 2000
compliant, and, if not, the timetable of the respective vendors to make it
compliant and will monitor their progress in doing so.
Inflation and Seasonality
The Company believes inflation has not had a material effect on
operating results in recent years except for the upward pressure placed on
wages, primarily store wages, by the federal minimum wage increases which took
effect in 1997 and 1996. Operations for the foreseeable future are not expected
to be significantly impacted by inflation. Generally, increased costs of
in-store merchandise can be quickly reflected in higher prices to customers. The
price of motor fuel, adjusted for inflation, has declined over recent years.
However, significant increases in the retail price of motor fuels could reduce
fuel demand and the Company's gross profit on fuel sales.
The Company's businesses are subject to seasonal influences, with
higher sales being experienced in the second and third quarters of the year as
customers tend to purchase more motor fuel and convenience items, such as soft
drinks, other beverages, and snack items, during the warmer months.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements and supplementary data filed herewith begin
on page F-1.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There were no changes in, nor disagreements with, accountants during
1997.
<PAGE>
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Set forth below are the names, ages, positions, and business
experience of the executive officers and directors of FFP Marketing.
Name Age Position
John H. Harvison [1] 64 Chairman of the Board and Chief
Executive Officer
Robert J. Byrnes [1] 57 President, Chief Operating
Officer, and Director
Steven B. Hawkins 50 Vice President - Finance and
Administration, Secretary,
Treasurer, and Chief
Financial Officer
J. D. St.Clair 63 Vice President - Fuel Supply
and Distribution and Director
Michael Triantafellou 44 Vice President - Retail
Operations and Director
John W. Hughes [1,2] 56 Director
Garland R. McDonald 60 Director
John D. Harvison 41 Director
E. Michael Gregory [2] 46 Director
- --------------------------------
[1] Member of Compensation Committee
[2] Member of Audit Committee
John H. Harvison has been Chairman of the Board of FFP Marketing and
its predecessor since the commencement of the Company's operations in May 1987.
Mr. Harvison is a founder and an executive officer of each of the companies from
which the Company's initial base of retail outlets was acquired, and has been
active in the retail gasoline business since 1958 and in the convenience store
business since 1973. In addition, he has been involved in oil and gas
exploration and production, the ownership and management of an oil refinery and
other personal investments. In January 1995, Mr. Harvison consented to the entry
of a cease and desist order by the United States Office of Thrift Supervision
that, among other things, prohibits him from participating in any manner in the
conduct of the affairs of federally insured depository institutions. This Order
was issued in connection with Mr. Harvison's ownership in a federal savings bank
and transactions between him (and companies in which he had an ownership
interest) and that institution. In consenting to the issuance of the Order, Mr.
Harvison did not admit any of the allegations against him and consented to the
issuance of the Order solely to avoid the cost and distraction that would be
caused by prolonged litigation to contest the positions taken by the Office of
Thrift Supervision. Mr. Harvison is the father of John D.
Harvison, who is also a director of the Company.
Robert J. Byrnes has been the President of the Company and its
predecessor since April 1989 and has been a Director since May 1987. From May
1987 to April 1989, Mr. Byrnes served as Vice President - Truck Stop Operations
for the Company. Mr. Byrnes has been, since 1985, the President of Swifty
Distributors, Inc., one of the companies from which the Company acquired its
initial retail outlets. From 1975 through 1984, Mr. Byrnes was President of
Independent Enterprises, Inc., which owned and operated convenience stores and a
truck stop. During that period, he was also President of Enterprise
Distributing, Inc., a wholesaler of motor fuels. Prior to 1975, Mr. Byrnes was
President of Foremost Petroleum Corporation (which is now a subsidiary of Citgo
Petroleum Corporation) and was a distribution manager for ARCO Oil & Gas
Company. He is currently a director of Plaid Pantries, Inc., an operator of
convenience stores headquartered in Beaverton, Oregon.
Steven B. Hawkins has been Vice President - Finance and
Administration, Secretary, and Treasurer of FFP Marketing and its predecessor
since May 1987. From April 1980 through May 1987, Mr. Hawkins was employed as
Secretary/Treasurer, Controller and Chief Financial Officer by various companies
affiliated through common ownership with FFP Marketing. Prior to joining such
affiliates, Mr. Hawkins was employed for nine years by Arthur Andersen & Co., an
international public accounting firm. He is a member of both the American
Institute of Certified Public Accountants and the Texas Society of CPAs.
J. D. St.Clair has been Vice President - Fuel Supply and
Distribution and a Director of the Company and its predecessor since May 1987.
Mr. St.Clair is a founder and an executive officer of several of the companies
from which the Company acquired its initial retail outlets. He has been involved
in the retail gasoline marketing and convenience store business since 1971.
Prior to 1971, Mr. St.Clair performed operations research and system analysis
for Bell Helicopter, Inc., from 1967 to 1971; for the National Aeronautics and
Space Administration from 1962 to 1967; and Western Electric Company from 1957
to 1962.
Michael Triantafellou was elected Vice President - Retail Operations
and a Director of FFP Marketing's predecessor in February 1997. He had served as
Director of Truck Stops and Food Service Operations for the Company since
January 1994. Mr. Triantafellou has been engaged in the truck stop and food
service industries since 1976, having held various middle and upper management
positions in the truck stop businesses of Truckstops of America (from 1975 to
1980), Bar-B Management (from 1980 to 1985) Greyhound-Dial Corp. (from 1985 to
1993), and Knox Oil of Texas (from 1993 to 1994). Mr. Triantafellou is a 1975
graduate of the Wharton School of the University of Pennsylvania.
John W. Hughes has been a Director of the Company and its
predecessor since May 1987. Mr. Hughes is an attorney with the law firm of
Garrison & Hughes, L.L.P., in Fort Worth, Texas. From 1991 to 1995 he was an
attorney with the firm of Simon, Anisman, Doby & Wilson, P.C., in Fort Worth,
Texas. Since 1963, Mr. Hughes has been a partner of Hughes Enterprises, which
invests in venture capital opportunities, real estate, and oil and gas.
Garland R. McDonald, is employed by the Company to oversee and
direct a variety of special projects. He was elected to the Board of the
Company's predecessor in January 1990 and had previously served as a Director of
the predecessor company from May 1987 through May 1989. He also served as a Vice
President of FFP Marketing's predecessor from May 1987 to October 1987. Mr.
McDonald is a founder and the Chief Executive Officer of Hi-Lo Distributors,
Inc., and Gas-Go, Inc., two of companies from which the Company initially
acquired its retail outlets. He has been actively involved in the convenience
store and retail gasoline businesses since 1967.
John D. Harvison was elected a Director of FFP Marketing's
predecessor in April 1995. Mr. Harvison has been Vice President of Dynamic
Production, Inc., an independent oil and gas exploration and production company
since 1977. He previously served as Operations Manager for Dynamic from 1977 to
1987. He also serves as an officer of various other companies that are
affiliated with Dynamic that are involved in real estate management and various
other investment activities. Mr. Harvison is the son of John H.
Harvison, the Chairman of the Board of the Company.
E. Michael Gregory was elected to the Board of the Company's
predecessor in September 1995. Mr. Gregory is the founder and President of
Gregory Consulting, Inc., an engineering and consulting firm that is involved in
the development of products related to the distribution and storage of petroleum
products and computer software for a variety of purposes including work on such
products and software for the Company. Prior to founding Gregory Consulting in
1988, Mr. Gregory was the Chief Electronic Engineer for Tidel Systems (a
division of The Southland Corporation) where he was responsible for new product
concept development and was involved in projects involving the monitoring of
fuel levels in underground storage tanks. He is a Registered Professional
Engineer in Texas.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Regulations issued under the Securities Exchange Act of 1934
require certain persons to report their holdings of the Company's common
shares to the Securities and Exchange Commission ("SEC") and to the Company.
To the best of the Company's knowledge, based upon copies of reports and
other representations provided to the Company, all 1997 reports required
under Section 16 of the Securities Exchange Act of 1934 were filed in a
timely manner except that the reports reflecting the acquisition of the
common shares of the company (and options to acquire common shares of the
company) that were received in connection with the December 1997
restructuring of FFP Partners, L.P., as a result of the ownership of Class A
and/or Class B Units of FFP Partners (or options to acquire Class A Units of
FFP Partners) were filed late by John H. Harvison, Robert J. Byrnes, Steven
B. Hawkins, J. D. St.Clair, Michael Triantafellou, Garland R. McDonald, John
D. Harvison, E. Michael Gregory, Randall W. Harvison, 7HBF, Ltd., and HBF
Financial, Ltd.
Item 11. EXECUTIVE COMPENSATION.
Since FFP Marketing did not commence operations until December 29,
1997, it did not pay any salaries during 1997. However, persons employed by FFP
Partners (and its general partner) became employees of FFP Marketing following
the December 1997 restructuring of FFP Partners. Accordingly, the information
presented below with respect to compensation of executives is the amounts paid
by FFP Partners during 1997 and the prior years presented.
Each director who is not an officer or employee of FFP Marketing
receives an annual retainer of $4,000 plus $1,000 for each Board meeting, or
committee meeting not held in conjunction with a Board meeting, which he attends
and $500 for each telephone meeting in which he participates. Each director is
also reimbursed for expenses related to attendance at board meetings.
In addition, upon election to the Board, non-employee directors are
generally granted options to acquire 25,000 common shares at the fair market
value of the underlying shares on the date of grant. The options become
exercisable with respect to one-third of the shares covered thereby on each of
the anniversary dates following the grant and expire ten years after grant. In
the event of a change in control of the Company, any unexercisable portion of
the options will become immediately exercisable. Upon exercise, the option price
may be paid, in whole or in part, in shares owned by the director.
Directors who are officers or employees of the Company receive no
additional compensation for attendance at Board or committee meetings.
The Company has employment agreements with Messrs. Harvison, Byrnes,
Hawkins, St.Clair, and Triantafellou which provide that if the employment of any
such officer is terminated for any reason other than the commission of an act of
fraud or dishonesty with respect to the Company or for the intentional neglect
or nonperformance of his duties, such officer is to receive an amount equal to
twice his then current annual salary plus a continuation of certain benefits
provided by the Company for a period of two years.
Summary Compensation Table
The following table provides information regarding compensation paid
during each of the Company's last three fiscal years to the Company's Chief
Executive Officer and to each of the Company's other executive officers who
earned salary and bonus of more than $100,000 in the latest fiscal year:
Summary Compensation Table
Annual Compensation
-------------------
Other
Annual
Compen-
Salary sation
Name and Principal Position Year ($) ($)
John H. Harvison 1997 135,000 -
Chairman and Chief Executive 1996 137,597 [1] -
Officer 1995 135,000 -
Robert J. Byrnes 1997 135,000 -
President, Chief Operating 1996 137,597 [1] -
Officer, and Director 1995 135,000 -
- ------------------------------
[1]The annual salaries did not change in 1996. The Company pays its employees on
a weekly basis and there were 53 pay periods in 1996 vs 52 pay periods in
1997 and 1995.
There were no long-term compensation awards or payouts during any
of the last three years.
Options Exercised during Fiscal 1997 and Fiscal Year End Option
Values. All options held by directors, officers, and employees to acquire Class
A Units of FFP Partners that were outstanding at the completion of the December
1997 restructuring of FFP Partners were divided into separate options to
purchase Class A Units of FFP Partners and a like number of FFP Marketing common
shares. The exercise price for the existing FFP Partners unit options was
divided between the two new options in proportion to the average closing price
on the American Stock Exchange of FFP Partners Class A Units and FFP Marketing
common shares during the first month of trading following completion of the
restructuring.
The following table provides information about options to purchase
FFP Partners Class A Units exercised during the last fiscal year and the value
of unexercised options to purchase FFP Marketing common shares held at the end
of the fiscal year by the named executive officers:
Aggregated Option/SAR Exercises in Last Fiscal Year
and FY-End Option/SAR Values
Options to Purchase Options to Purchase
FFP Partners Class A Units FFP Marketing Common Shares
-------------------------- ---------------------------
Value of
Units Number of Unexercised
Acquired Unexercised In-the-Money
on Options/SARs Options/SARs
on Value at Fiscal at Fiscal
Exercise Realized Year End Year End
(#) ($) (#) ($) [1]
Name and Exercisable/ Exercisable/
Principal Position Unexercisable Unexercisable
John H. Harvison - 0 - - 0 - 40,000/0 $3,440/$0
Chairman and Chief
Executive Officer
Robert J. Byrnes - 0 - - 0 - 35,000/0 $3,010/$0
President, Chief
Operating Officer, and
Director
- --------------------------------
[1] The closing price for FFP Marketing's common shares as reported by the
American Stock Exchange on December 29, 1997, the first day of trading of
such shares, was $2.625. The value shown is calculated by multiplying the
difference between this closing price and the option exercise price times
the number of units underlying the option.
<PAGE>
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth as of March 27, 1998, information
regarding the only persons known by the Company to own, directly or indirectly,
more than 5% of its common shares:
Amount and
Nature of
Title Name and Address Beneficial Percent
of Class of Beneficial Owner Ownership of Class [1]
Common John H. Harvison 1,585,153[2] 41.5%
2801 Glenda Avenue
Fort Worth, Texas 76117
Common John D. Harvison 1,561,820[3] 41.1%
2801 Glenda Avenue
Fort Worth, Texas 76117
Common Randall W. Harvison 1,469,943[4] 38.9%
2801 Glenda Avenue
Fort Worth, Texas 76117
Common 7HBF, Ltd. 736,749 [5] 19.5%
2801 Glenda Avenue
Fort Worth, Texas 76117
Common HBF Financial, Ltd. 738,443 [6] 19.5%
2801 Glenda Avenue
Fort Worth, Texas 76117
Common Garland R. McDonald 332,877 [7] 8.8%
2801 Glenda Avenue
Fort Worth, Texas 76117
Common J. D. St.Clair 193,627 [8] 5.1%
2801 Glenda Avenue
Fort Worth, Texas 76117
[1] Based on 3,779,415 Marketing Company shares outstanding. FFP Marketing
shares shares that an individual has the right to acquire within 60 days
pursuant to the exercise of options are deemed to be outstanding for the
purpose of computing the percentage ownership of such individual but are not
deemed to be outstanding for the purpose of computing the percentage
ownership of any other person or group shown in the table.
[2] Includes options to acquire 40,000 FFP Marketing shares; 774,543 FFP
Marketing shares beneficially owned by 7HBF, Ltd. (a Texas limited
partnership of which John H. Harvison and members of his family are
partners); 738,443 FFP Marketing shares beneficially owned by HBF Financial,
Ltd. (a Texas limited liability company which is 98%-owned by trusts for the
benefit of the children of John H. Harvison); and 32,167 FFP Marketing
shares owned by a company of which John H. Harvison is an officer and
director and one-third of which is owned by trusts for the benefit of his
children. 7HBF, Ltd., may be deemed to share beneficial ownership of 144,417
FFP Marketing shares with Garland R. McDonald, 49,750 FFP Marketing shares
with Garland R. McDonald and Barbara J. Smith (John H. Harvison's sister),
83,417 FFP Marketing shares with J. D. St.Clair; 16,833 FFP Marketing shares
with Robert J. Byrnes; and 75,210 FFP Marketing shares with J. D. St.Clair,
Garland R. McDonald, Robert J. Byrnes, and HBF Financial, Ltd. The
beneficial ownership of 175,000 FFP Marketing shares included in the
foregoing shares owned by 7HBF, Ltd., is in dispute based on the prior
ownership of Economy Oil Company, the record holder of the shares. The
dispute is being resolved in the State District Court of Texas.
[3] Includes options to acquire 16,667 FFP Marketing shares; 699,333 FFP
Marketing shares beneficially owned by 7HBF, Ltd. (a Texas limited
partnership of which John D. Harvison and members of his family are
partners); 738,443 FFP Marketing shares beneficially owned by HBF Financial,
Ltd. (a Texas limited liability company which is 98%-owned by trusts for the
benefit of the siblings of John D. Harvison); 32,167 FFP Marketing shares
owned by a company one-third of which is owned by trusts for the benefit of
John D. Harvison and his siblings; and 75,210 FFP Marketing shares owned by
a company of which John D. Harvison is a director. 7HBF, Ltd., may be deemed
to share beneficial ownership of 144,417 FFP Marketing shares with Garland
R. McDonald, 49,750 FFP Marketing shares with Garland R. McDonald and
Barbara J. Smith (John H. Harvison's sister), 83,417 FFP Marketing shares
with J. D. St.Clair, and 16,833 FFP Marketing shares with Robert J. Byrnes.
The beneficial ownership of 175,000 FFP Marketing shares included in the
foregoing shares owned by 7HBF, Ltd., is in dispute based on the prior
ownership of Economy Oil Company, the record holder of the shares. The
dispute is being resolved in the State District Court of Texas.
[4] Includes 699,333 FFP Marketing shares beneficially owned by 7HBF, Ltd. (a
Texas limited partnership of which Randall W. Harvison and members of his
family are partners); 738,443 FFP Marketing shares beneficially owned by HBF
Financial, Ltd. (a Texas limited liability company which is 98%-owned by
trusts for the benefit of the siblings of Randall W. Harvison); and 32,167
FFP Marketing shares owned by a company one-third of which is owned by
trusts for the benefit of Randall W. Harvison and his siblings. 7HBF, Ltd.,
may be deemed to share beneficial ownership of 144,417 FFP Marketing shares
with Garland R. McDonald, 49,750 FFP Marketing shares with Garland R.
McDonald and Barbara J. Smith (John H. Harvison's sister), 83,417 FFP
Marketing shares with J. D. St.Clair, and 16,833 FFP Marketing shares with
Robert J. Byrnes. The beneficial ownership of 175,000 FFP Marketing shares
included in the foregoing shares owned by 7HBF, Ltd., is in dispute based on
the prior ownership of Economy Oil Company, the record holder of the shares.
The dispute is being resolved in the State District Court of Texas.
[5] Includes 774,543 Marketing shares owned by nine companies which are owned or
controlled by 7HBF, Ltd., a limited partnership owned by John H. Harvison
and members of his immediate family. 7HBF, Ltd., may be deemed to share
beneficial ownership of 144,417 FFP Marketing shares with Garland R.
McDonald, 49,750 FFP Marketing shares with Garland R. McDonald and Barbara
J. Smith (John H. Harvison's sister), 83,417 FFP Marketing shares with J.D.
St.Clair, and 16,833 FFP Marketing shares with Robert J. Byrnes.
[6] Includes 738,443 FFP Marketing shares owned by a company which is owned by
HBF Financial, Ltd., a limited liability company 98% owned by trusts for the
benefit of the children of John H. Harvison and 2% owned by one of his
sisters. In addition, HBF Financial, Ltd., owns 31% of the general partner
of 7HBF, Ltd.
[7] Includes options to acquire 25,000 FFP Marketing shares; 194,167 FFP
Marketing shares held by two companies of which Mr. McDonald is a director,
executive officer, and a 50% owner; and 38,500 FFP Marketing shares held by
an Individual Retirement Account for the benefit of Mr. McDonald. Mr.
McDonald may be deemed to share beneficial ownership of 144,417 FFP
Marketing shares with 7HBF, Ltd., and of 49,750 FFP Marketing shares with
7HBF, Ltd., and Barbara J. Smith (John H. Harvison's sister).
[8] Includes options to acquire 30,000 FFP Marketing shares; 5,000 FFP Marketing
shares held directly; 83,417 FFP Marketing shares held by a company of which
Mr. St.Clair is a director, executive officer, and a one-third owner. Mr.
St.Clair may be deemed to share beneficial ownership of the 83,417 FFP
Marketing shares with 7HBF Financial, Ltd.
The following table sets forth as of March 27, 1998, information
with respect to the FFP Marketing common shares beneficially owned by all
directors and executive officers of the Company (such information is based on
ownership reported to the Company by such persons):
Amount and
Title Nature of Percent
of Beneficial of
Class Name of Beneficial Owner Ownership [1] Class [1]
Common John H. Harvison, Chairman 1,585,153 [2] 41.5%
Common Robert J. Byrnes, 127,043 [3] 3.3%
President and Director
Common Steven B. Hawkins, Vice 26,300 [4] 0.7%
President
Common J. D. St.Clair, Vice 193,627 [5] 5.1%
President and Director
Common Michael Triantafellou, 6,666 [6] 0.2%
Vice President and Director
Common John W. Hughes, Director 0 0.0%
Common Garland R. McDonald, Director 332,877 [7] 8.8%
Common John D. Harvison, Director 1,561,820 [8] 41.1%
Common E. Michael Gregory, Director 16,667 [9] 0.4%
Common All directors and exectutive
officers as a group 1,784,953 47.2%
(10 persons)
- --------------------------------------------
[1] Based on 3,779,415 Marketing Company shares outstanding. FFP Marketing
shares that an individual has the right to acquire within 60 days pursuant
to the exercise of options are deemed to be outstanding for the purpose of
computing the percentage ownership of such individual but are not deemed to
be outstanding for the purpose of computing the percentage ownership of any
other person or group shown in the table.
[2] Includes options to acquire 40,000 FFP Marketing shares; 699,333 FFP
Marketing shares beneficially owned by 7HBF, Ltd. (a Texas limited
partnership of which John H. Harvison and members of his family are
partners); 738,443 FFP Marketing shares beneficially owned by HBF Financial,
Ltd. (a Texas limited liability company which is 98%-owned by trusts for the
benefit of the children of John H. Harvison); 32,167 FFP Marketing shares
owned by a company of which John H. Harvison is an officer and director and
one-third of which is owned by trusts for the benefit of his children; and
75,210 FFP Marketing shares owned by a company of which John H. Harvison is
an officer and director. 7HBF, Ltd., may be deemed to share beneficial
ownership of 144,417 FFP Marketing shares with Garland R. McDonald, 49,750
FFP Marketing shares with Garland R. McDonald and Barbara J. Smith (John H.
Harvison's sister), 83,417 FFP Marketing shares with J. D. St.Clair, and
16,833 FFP Marketing shares with Robert J. Byrnes. The beneficial ownership
of 175,000 FFP Marketing shares included in the foregoing shares owned by
7HBF, Ltd., is in dispute.
[3] Includes options to acquire 35,000 FFP Marketing shares; and 16,833 FFP
Marketing shares held by a company of which Mr. Byrnes is a director,
executive officer, and 50% owner. Mr. Byrnes may be deemed to share
beneficial ownership of the 16,833 FFP Marketing shares with 7HBF Financial,
Ltd.
[4] Includes options to acquire 25,000 FFP Marketing shares and 1,300 FFP
Marketing shares held by an Individual Retirement Account for the benefit of
Mr. Hawkins.
[5] Includes options to acquire 30,000 FFP Marketing shares; 5,000 FFP Marketing
shares held directly; 83,417 FFP Marketing shares held by a company of which
Mr. St.Clair is a director, executive officer, and a one-third owner. Mr.
St.Clair may be deemed to share beneficial ownership of the 83,417 FFP
Marketing shares with 7HBF Financial, Ltd.
[6] Consists of options to acquire 6,666 FFP Marketing shares.
[7] Includes options to acquire 25,000 FFP Marketing shares; 194,167 FFP
Marketing shares held by two companies of which Mr. McDonald is a director,
executive officer, and a 50% owner; and 38,500 FFP Marketing shares held by
an Individual Retirement Account for the benefit of Mr. McDonald. Mr.
McDonald may be deemed to share beneficial ownership of 144,417 FFP
Marketing shares with 7HBF, Ltd., and of 49,750 FFP Marketing shares with
7HBF, Ltd., and Barbara J. Smith (John H. Harvison's sister).
[8] Includes options to acquire 16,667 FFP Marketing shares; 699,333 FFP
Marketing shares beneficially owned by 7HBF, Ltd. (a Texas limited
partnership of which John D. Harvison and members of his family are
partners); 738,443 FFP Marketing shares beneficially owned by HBF Financial,
Ltd. (a Texas limited liability company which is 98%-owned by trusts for the
benefit of the siblings of John D. Harvison); 32,167 FFP Marketing shares
owned by a company one-third of which is owned by trusts for the benefit of
John D. Harvison and his siblings; and 75,210 FFP Marketing shares owned by
a company of which John D. Harvison is a director. 7HBF, Ltd., may be deemed
to share beneficial ownership of 144,417 FFP Marketing shares with Garland
R. McDonald, 49,750 FFP Marketing shares with Garland R. McDonald and
Barbara J. Smith (John H. Harvison's sister), 83,417 FFP Marketing shares
with J. D. St.Clair, and 16,833 FFP Marketing shares with Robert J. Byrnes.
The beneficial ownership of 175,000 FFP Marketing shares included in the
foregoing shares owned by 7HBF, Ltd., is in dispute based on the prior
ownership of Economy Oil Company, the record holder of the shares. The
dispute is being resolved in the State District Court of Texas.
[9] Consists of options to acquire 16,667 FFP Marketing shares.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Related Transactions
FFP Marketing leases buildings or land and buildings for some of its
retail outlets from FFP Partners, L.P. John H. Harvison, Chairman and Chief
Executive Officer of FFP Marketing, and Steven B. Hawkins, Vice President -
Finance and Chief Financial Officer of FFP Marketing, hold similar positions
with FFP Partners, L.P. In addition, companies owned directly or indirectly by
Mr. Harvison and members of his immediate family and/or other members of the
senior management of FFP Marketing hold corresponding ownership interests in FFP
Partners. The leases on these properties were entered into in conjunction with
the restructuring of FFP Partners that was completed in December 1997 in which
the non-real estate assets and businesses of FFP Partners were transferred to
FFP Marketing while the real estate used in the retail operations was retained
by FFP Partners. The lease rates for the locations were established based on
knowledge of the properties by the management of FFP Partners and FFP Marketing
and their general experience in acting as lessor and lessee for similar
properties. The management of FFP Marketing believes that the lease rates are
comparable to leases that could be entered into with unrelated third parties.
However, FFP Marketing did not engage any third party advisors or refer to any
third party surveys or analyses of rental rates in making this determination.
Since these leases were effective concurrently with the approval of the
restructuring of FFP Partners which occurred at the close of FFP Partners' 1997
fiscal year, no lease payments were made by FFP Marketing during its 1997 fiscal
year. However, FFP Marketing anticipates that it will pay approximately
$2,430,000 in lease payments for these properties during fiscal 1998.
FFP Real Estate Trust (the "REIT"), the general partner of FFP
Partners, and FFP Marketing have entered into a reimbursement agreement pursuant
to which the REIT will reimburse FFP Marketing for all direct and indirect costs
(principally officers' compensation and other general and administrative costs)
paid by FFP Marketing that are allocable to the REIT. The reimbursement for
officers' compensation costs incurred by FFP Marketing in connection with the
REIT's activities will be determined by the amount of time management and other
personnel spend on activities of the REIT compared to the amount of time they
spend on activities of FFP Marketing. Since the REIT's only activity after the
restructuring will be serving as the general partner of FFP Partners, all of the
REIT's costs and expenses will be borne by FFP Partners. The costs to be
reimbursed to FFP Marketing by the REIT for 1998 are expected to be
approximately $200,000.
In connection with the December 1997 restructuring of FFP Partners,
FFP Marketing has indemnified FFP Partners against any costs or expenses that
FFP Partners may incur in fulfilling commitments as a guarantor of the
obligations of its former subsidiaries that are now subsidiaries of FFP
Marketing, other than obligations related to the indebtedness that FFP Partners
retained in the restructuring. Likewise, FFP Partners has indemnified FFP
Marketing against any costs or expenses it may incur in connection with, or
payments it may make on, the indebtedness that FFP Partners retained in the
restructuring. FFP Partners has granted to FFP Marketing the right to offset any
payments for which FFP Marketing is indemnified against any amounts otherwise
due to FFP Partners by FFP Marketing.
FFP Marketing leases land or land and buildings for some of its
retail outlets and some administrative and executive office facilities from
various entities directly or indirectly owned by Messrs. John H. Harvison, and
members of his immediate family, Byrnes, St.Clair, and McDonald. During fiscal
1997, the Company paid $908,000 to such entities with respect to these leases.
FFP Marketing believes the leases with these affiliates are on terms that are
more favorable to the Company than terms that could have been obtained from
unaffiliated third parties for similar properties.
John H. Harvison, Chairman and Chief Executive Officer of FFP
Marketing, owns 50% of Product Supply Services, Inc. ("Product Supply"), which
provides consulting services and acts as an agent for FFP Marketing in
connection with the procurement of motor fuel for sale by the Company. Product
Supply provides such services to the Company pursuant to an agreement providing
that the Company will pay Product Supply $5,000 per month, supply it with office
space and support services, such as telephone and clerical assistance, and pay
its reasonable out-of-pocket costs in providing such services. The agreement may
be canceled either by FFP Marketing or Product Supply upon sixty days' written
notice. During fiscal year 1997, the Company paid $68,000 to Product Supply for
its services.
E. Michael Gregory, a Director of FFP Marketing, is the owner and
president of Gregory Consulting, Inc. ("Gregory Consulting"), which provides
engineering, consulting, and other similar services to the Company. During
fiscal year 1997, the Company paid Gregory Consulting $265,000 for such
services.
Under Texas law, the Company is not permitted to hold licenses to
sell alcoholic beverages in Texas. Consequently, the Company has entered into
agreements with Nu-Way Beverage Company ("Nu-Way Beverage"), a company wholly
owned by John H. Harvison, under which Nu-Way Beverage sells alcoholic beverages
at FFP Marketing's Texas outlets. Under this agreement, the Company receives
rent and a management fee relative to the sale of alcoholic beverages and it
loans funds to Nu-Way Beverage to pay for alcoholic beverage purchases. The
Company receives interest on such funds at 1/2% above the prime rate charged by
a major commercial bank and the loan is secured by the alcoholic beverage
inventory located in the Company's Texas outlets. During 1997, the highest
balance due under this loan was $431,000 and the balance at the end of the year
was $426,000. During 1997, Nu-Way Beverage sold $8,330,000 of alcoholic
beverages at the Company's Texas outlets. After deducting cost of sales and
other expenses related to these sales, including $1,355,000 of rent, management
fees, and interest paid to the FFP Marketing, Nu-Way Beverage had earnings of
$83,000 from sales of alcoholic beverages at the Company's outlets.
In June 1994, the Company concluded the settlement of a lawsuit
which it had filed against Nu-Way Oil Company and Nu-Way Distributing Company
(the "Nu-Way Companies"), both of which are controlled by John Harvison and
members of his immediate family, and a related suit which the Nu-Way Companies
had filed against the Company. Under the settlement, all claims in both of the
lawsuits were dismissed and the Company received cash, a promissory note from an
affiliated company (secured by first and second liens on real estate), and title
to a convenience store which was being leased by the Company from an affiliate.
The Company estimated the assets it received had an aggregate value of $485,000.
The affiliated companies received approximately $65,000 in cash (held in the
Registry of the Court) and 30,000 Class B Units owned by an affiliate that were
being held by an escrow agent. This agreement was approved by the disinterested
directors of the General Partner. The note which the Company received in
connection with this settlement is to be repaid over five years, with interest
at 9.5%; the highest balance outstanding during 1997 under the note was $65,000,
and the balance outstanding at year end 1997 was $44,000.
The Company provides vehicles to various employees, primarily field
supervisory personnel, in conjunction with the performance of their employment
duties. In 1997, the Company purchased vehicles totaling $106,000 from EZ Auto,
L.L.C., a company 50%-owned by members of John H. Harvison's immediate family.
Management believes that the cost of these vehicles was comparable to that which
could have been obtained from unrelated third parties for similar vehicles.
In 1980 and 1982, certain of the Affiliated Companies granted to E-Z
Serve, Inc. ("E-Z Serve"), the right to sell motor fuel at retail for a period
of ten years at certain outlets owned or leased by companies controlled,
directly or indirectly, by John H. Harvison and members of his immediate family
or their affiliates. All rights to commissions under these agreements and the
right to sell motor fuel at wholesale to E-Z Serve at such locations were
assigned to the Company on May 21, 1987, in connection with the acquisition of
its initial base of retail operations. In December 1990, in connection with the
expiration or termination of the agreements with E-Z Serve, the Company entered
into agreements with Thrift Financial Co. ("Thrift Financial"), a company owned
and controlled by members of John H. Harvison's immediate family, which grant to
the Company the exclusive right to sell motor fuel at certain retail locations.
The terms of these agreements are comparable to agreements that the Company has
with other unrelated parties. During fiscal 1997, the Company paid Thrift
Financial $323,000 under these agreements.
Cost Allocations. Prior to the December 1997 restructuring of FFP
Partners, the affairs of the Company were managed by its General Partner. The
General Partner made determinations with respect to costs incurred by it
(whether directly or indirectly through its affiliates) that were reimbursed by
the Company. The Company reimbursed the General Partner and any of its
affiliates for direct and indirect general and administrative costs, principally
officers' compensation and associated expenses, related to the business of the
Company. The reimbursement was based on the time devoted by employees to the
Company's business or upon such other reasonable basis as was determined by the
General Partner. In fiscal 1997, the Company reimbursed the General Partner and
its affiliates $763,000 for such expenses.
During 1997, the Company paid $386,000 to affiliates to reimburse
them for legal fees they had paid that benefited the Company. This payment was
the final portion of an amount which had been accrued in 1996.
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this Annual Report on
Form 10-K:
(1) Financial Statements.
See Index to Financial Statements and Financial Statement
Schedules on page F-1 hereof.
(2) Financial Statement Schedules.
See Index to Financial Statements and Financial Statement
Schedules on page F-1 hereof.
Schedules other than those listed on the accompanying Index to
Financial Statements and Financial Statement Schedules are
omitted because they are either not required, not applicable, or
the required information is included in the consolidated
financial statements or notes thereto.
(3) Exhibits.
3.1 Articles of Incorporation of FFP Marketing
Company, Inc. {1 - Ex. 3.1}
3.2 Bylaws of FFP Marketing Company, Inc. {1 - Ex. 3.2}
10.1 Nonqualified Unit Option Plan of FFP Partners, L.P.
{1 - Ex. 10.1}
10.2 Form of Ground Lease with affiliated companies.
{1 - Ex. 10.2}
10.3 Form of Building Lease with affiliated companies.
{1 - Ex. 10.3}
10.4 Form of Agreement with Product Supply Services, Inc.
{1 - Ex. 10.4}
10.5 Form of Employment Agreement between FFP Partners Management
Company, Inc., and certain executive officers dated April 23,
1989, as amended July 22, 1992 {1 - Ex. 10.5}
10.6 Loan Agreement among FFP Partners, L.P., FFP Operating
Partners, L.P., Direct Fuels, L.P., and HSBC Business Loans,
Inc., dated October 31, 1997 {2}
10.7 Form of Lease Agreement with FFP Properties, L.P. {2}
10.8 Form of Building Lease Agreement with FFP Properties, L.P. {2}
21.1 Subsidiaries of the Registrant. {2}
27 Financial data schedule. {2}
- -----------------------------
{1} Included in the Company's Registration Statement on Form S-4
(Registration No. 333-41709) as the exhibit indicated and
incorporated herein by reference.
{2} Included herewith.
(b) No reports on Form 8-K were filed during the last quarter of the
period covered by this Annual Report on Form 10-K.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities and Exchange Act of 1934, the Registrant has duly caused this Annual
Report on Form 10-K to be signed on its behalf by the undersigned, thereunto
duly authorized.
Dated: April 13, 1998 FFP MARKETING COMPANY, INC.
(Registrant)
By: /s/ John H. Harvison
-----------------------------------------
John H. Harvison
Chairman of the Board
-----------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Annual Report has been signed below by the following persons on behalf of
the Registrant in the capacities indicated as of April 13, 1998.
/s/ John H. Harvison Chairman of the Board of Directors
- --------------------------------- and Chief Executive Officer
John H. Harvison (Principal executive officer)
/s/ Robert J. Byrnes President, Chief Operating Officer,
- --------------------------------- and Director (Principal operating
Robert J. Byrnes officer)
/s/ Steven B. Hawkins Vice President - Finance and
- --------------------------------- Administration, and Chief
Steven B. Hawkins Financial Officer (Principal
financial and accounting officer)
/s/ J. D. St.Clair Director
- ---------------------------------
J. D. St.Clair
/s/ Michael Triantafellou Director
- ---------------------------------
Michael Triantafellou
Director
- ---------------------------------
John W. Hughes
Director
- ---------------------------------
Garland R. McDonald
/s/ John D. Harvison Director
- ---------------------------------
John D. Harvison
Director
- ---------------------------------
E. Michael Gregory
<PAGE>
Item 8. INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE.
Page
Number
Independent Auditors' Report F-2
Consolidated Balance Sheets as of December 28, 1997, and
December 29, 1996 F-3
Consolidated Statements of Operations for the Years Ended
December 28, 1997, December 29, 1996, and December 31, 1995 F-4
Consolidated Statements of Stockholders' Equity/Partners' Capital
for the Years Ended December 28, 1997, December 29, 1996,
and December 31, 1995 F-5
Consolidated Statements of Cash Flows for the Years Ended
December 28, 1997, December 29, 1996, and December 31, 1995 F-6
Notes to Consolidated Financial Statements F-8
Schedule II - Valuation and Qualifying Accounts F-28
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders
FFP Marketing Company, Inc.:
We have audited the consolidated financial statements of FFP
Marketing Company, Inc. (formerly, FFP Partners, L.P., a Delaware limited
partnership) and subsidiaries as listed in the accompanying index. In connection
with our audits of the consolidated financial statements, we also have audited
the financial statement schedule as listed in the accompanying index. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of FFP
Marketing Company, Inc. and subsidiaries as of December 28, 1997 and December
29, 1996, and the results of their operations and their cash flows for each of
the years in the three-year period ended December 28, 1997, in conformity with
generally accepted accounting principles. Also in our opinion, the related
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
KPMG Peat Marwick LLP
Fort Worth, Texas
March 17, 1998
<PAGE>
FFP MARKETING COMPANY, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 28, 1997, AND DECEMBER 29, 1996
(In thousands, except share information)
1997 1996
ASSETS
Current Assets
Cash and cash equivalents $9,389 $8,244
Trade receivables, less allowance for doubtful accounts
of $809 and $883 in 1997 and 1996, respectively 10,732 10,303
Notes receivable 1,163 1,198
Inventories 15,820 12,489
Prepaid expenses and other current assets 1,077 625
Total current assets 38,181 32,859
Property and equipment, net 32,095 38,024
Other assets, net 5,054 7,716
Total Assets $75,330 $78,599
LIABILITIES AND STOCKHOLDERS' EQUITY/PARTNERS' CAPITAL
Current Liabilities
Amount due under revolving credit line $0 $6,823
Current installments of long-term debt 1,208 1,587
Current installments of obligations under
capital leases 917 1,122
Accounts payable 15,319 14,150
Money orders payable 11,299 7,809
Accrued expenses 9,623 8,778
Total current liabilities 38,366 40,269
Long-term debt, excluding current installments 21,465 7,765
Obligations under capital leases, excluding current
installments 3,110 1,653
Deferred income taxes 3,259 3,781
Other liabilities 2,866 993
Total Liabilities 69,066 54,461
Commitments and contingencies
Stockholders' Equity/Partners' Capital
Preferred stock ($0.01 par value; 1,000,000 shares
authorized; no shares issued and outstanding) 0 0
Common stock ($0.01 par value; 9,000,000 shares
authorized; 3,779,415 shares issued and outstanding) 22,202 0
Reduction for joint debt obligations (15,938) 0
Limited partners' equity 0 24,165
General partner's equity 0 242
Treasury units 0 (269)
Total Stockholders' Equity/Partners' Capital 6,264 24,138
Total Liabilities and Stockholders'Equity/
Partners' Capital $75,330 $78,599
See accompanying notes to consolidated financial statements.
<PAGE>
FFP MARKETING COMPANY, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER
28, 1997, DECEMBER 29, 1996, AND DECEMBER 31, 1995
(In thousands, except per share information)
1997 1996 1995
Revenues
Motor fuel $311,495 $321,814 $296,887
Merchandise 61,652 60,579 65,512
Miscellaneous 6,267 7,759 7,646
Total Revenues 379,414 390,152 370,045
Costs and Expenses
Cost of motor fuel 289,793 301,142 274,074
Cost of merchandise 42,913 42,758 46,325
Direct store expenses 28,241 27,062 28,496
General and administrative expenses 12,113 11,506 11,795
Depreciation and amortization 5,488 3,951 3,769
Total Costs and Expenses 378,548 386,419 364,459
Operating Income 866 3,733 5,586
Interest Expense 1,642 1,246 1,176
Income/(Loss) before income taxes (776) 2,487 4,410
Deferred income tax expense/(benefit) (892) 2,646 500
Net Income/(Loss) $116 $(159) $3,910
Net income/(loss) per share -
Basic $0.03 $(0.04) $1.06
Diluted 0.03 (0.04) 1.02
Weighted average number of common
shares outstanding -
Basic 3,779 3,759 3,706
Diluted 3,802 3,759 3,839
See accompanying notes to consolidated financial statements.
<PAGE>
FFP MARKETING COMPANY, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY/PARTNERS' CAPITAL YEARS
ENDED DECEMBER 28, 1997, DECEMBER 29, 1996, AND DECEMBER 31, 1995
(In thousands, except share/unit information)
Reduction
for
Joint Debt
Common Obliga- Limited General Treasury
Stock tions Partners Partner Units Total
Balance, December 25,1994 $0 $0 $24,870 $249 $(269) $24,850
1994
Exercise of Class A Unit
ptions by employees
and directors 0 0 238 1 0 239
Retirement of Class A Units 0 0 (94) 0 0 (94)
Units
Distributions to partners
($0.87 per Class A and
Class B Unit) (3,172) (32) 0 (3,204)
Net income 0 0 3,871 39 0 3,910
Balance, December 31, 1995 0 0 25,713 257 (269) 25,701
Exercise of Class A Unit
options by employees
and directors 0 0 139 2 0 141
Distributions to partners
($0.415 per Class A and
Class B Unit) 0 0 (1,530) (15) 0 (1,545)
Net (loss) 0 0 (157) (2) 0 (159)
Balance, December 29, 1996 0 0 24,165 242 (269) 24,138
Net income 0 0 115 1 0 116
Net assets distributed in
restructuring
transaction 22,202 0 (24,280) (243) 269 (2,052)
Reduction of equity
attributable to
reporting of joint
debt obligations
in restructuring 0 (15,938) 0 0 0 (15,938)
Balance, December 28,
1997 $22,202 $(15,938) $0 $0 $0 $6,264
See accompanying notes to consolidated financial statements.
<PAGE>
FFP MARKETING COMPANY, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 28, 1997, DECEMBER 29, 1996, AND DECEMBER 31, 1995
(In thousands, except supplemental information)
1997 1996 1995
Cash Flows from Operating Activities
Net income/(loss) $116 $(159) $3,910
Adjustments to reconcile net income/(loss)
to net cash provided by operating activities -
Depreciation and amortization 5,488 3,950 3,769
Provision for doubtful accounts 199 327 459
Provision/(benefit) for deferred
income taxes (892) 2,646 500
(Gain) on sales of property (254) (21) (256)
and equipment
(Gain) on sales of convenience store
operations (30) (1,778) (791)
Minority interest in net income of
subsidiaries 0 32 42
Changes in operating assets and liabilities -
(Increase) in trade receivables (628) (1,190) (1,807)
(Increase)/decrease in inventories (3,331) (1,229) 86
(Increase)/decrease in prepaid expenses
and other operating assets (298) 223 321
Increase/(decrease) in accounts payable 1,169 1,120 (150)
Increase in money orders payable 3,490 1,891 1,656
Increase/(decrease) in accrued expenses
and other liabilitie s 3,067 (794) (2,429)
Net cash provided by operating activities 8,096 5,018 5,310
Cash Flows from Investing Activities
Purchases of property and equipment (17,410) (9,517) (4,762)
Proceeds from sales of property and equipment 1,289 98 314
Investments in joint ventures and other
entities 0 0 (1,350)
Decrease in notes receivable 846 540 733
(Increase)/decrease in other assets 574 (332) (687)
Net cash (used in) investing activities (14,701) (9,211) (5,752)
Cash Flows from Financing Activities
Borrowings/(payments) on revolving
credit line, net (6,823) 2,820 4,003
Proceeds from long-term debt 122,884 4,000 0
Payments on long-term debt (109,563) (2,033) (4,178)
Borrowings under capital lease obligations 2,522 1,923 1,076
Payments on capital lease obligations (1,270) (975) (694)
Proceeds from exercise of unit options 0 141 145
Distributions to unitholders 0 (1,545) (3,204)
Net cash provided by/(used in) financing
activities 7,750 4,331 (2,852)
Net increase/(decrease) in cash and cash
equivalents 1,145 138 (3,294)
Cash and cash equivalents at beginning
of year 8,244 8,106 11,400
Cash and cash equivalents at end of year $9,389 $8,244 $8,106
Supplemental Disclosure of Cash Flow Information
Cash paid for interest during 1997, 1996, and 1995, was $1,917,000,
$1,097,000, and $1,394,000, respectively. Purchases of property and equipment in
1997 and 1996 include capitalized interest of $148,000 and $80,000,
respectively.
Supplemental Schedule of Noncash Investing and Financing Activities
During 1997, the Company transferred $196,000 of prepaid expenses
and $18,143,000 of land and buildings to FFP Partners, L.P., and issued $349,000
of common stock to the general partner of FFP Partners in conjunction with the
restructuring of FFP Partners that resulted in the formation of FFP Marketing.
Also in connection with the restructuring, the Company recorded a reduction in
stockholders' equity related to debt for which it and FFP Partners are jointly
liable.
During 1996, the Company acquired fixed assets of $200,000 in
exchange for notes payable.
During 1995, the Company (i) acquired fixed assets of $598,000 in
exchange for notes payable and (ii) retired $94,000 in Class A Units in
connection with the surrender of 12,295 Class A Units in payment for the
exercise of options to acquire 25,000 Class A Units by a director of the General
Partner.
See accompanying notes to consolidated financial statements.
<PAGE>
FFP MARKETING COMPANY, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 28, 1997, DECEMBER 29, 1996, AND DECEMBER 31, 1995
1. Basis of Presentation
(a) Organization of Company
FFP Marketing Company, Inc. ("FFP Marketing" or the "Company"), was
formed in connection with the December 1997 restructuring of FFP Partners, L.P.
("FFP Partners"), in which the real estate used in its retail operations was
retained by FFP Partners and all other assets and businesses were transferred to
FFP Marketing. Unless the context requires otherwise, references in these
consolidated financial statements to "FFP Marketing" or to the "Company" for
periods or activities prior to the completion of the December 1997 restructuring
include the activities of FFP Partners. The net book value of the assets and
liabilities retained by FFP Partners has been reflected as a distribution to FFP
Partners in the accompanying consolidated statements of stockholders'
equity/partners' capital. Accordingly, no gain or loss was recognized as a
result of the restructuring.
As a result of the restructuring of FFP Partners, the holders of its
limited partnership interests received one share of common stock of FFP
Marketing for each limited partnership unit that they owned on December 28,
1997, resulting in each such person owning the same economic interest in FFP
Marketing as they had held in FFP Partners.
FFP Marketing operates convenience stores, truck stops, and motor
fuel concessions at independently operated convenience stores over an eleven
state area. It also operates a money order company, selling money orders through
its own outlets as well as through agents; sells motor fuel on a wholesale
basis, primarily in Texas; and operates a motor fuel terminal and processing
facility in Texas.
The Company conducts its operations through the following
subsidiaries:
Entity Date Formed Principal Activity
FFP Operating Partners, December 1986 Operation of convenience
L.P., a Delaware stores and other retail
limited partnership outlets
Direct Fuels, L.P., a December 1988 Operation of fuel terminal
Texas limited and wholesale fuel sales
partnership
FFP Financial Services, September 1990 Sale of money order services
L.P., a Delaware and supplies
limited partnership
Practical Tank September 1993 Underground storage tank
Management, Inc., a monitoring
Texas corporation
FFP Transportation, September 1994 Ownership of tank trailers and
L.L.C., a Texas limited other transportation
liability company equipment
FFP Money Order Company, December 1996 Sale of money orders through
Inc., a Nevada agents
corporation
(b) Consolidation
The consolidated financial statements include the accounts of the
Company and its majority owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in the consolidated financial
statements.
(c) Reclassifications
Certain 1996 and 1995 amounts have been reclassified to conform
to the 1997 presentation.
2. Significant Accounting Policies
(a) Fiscal Years
The Company prepares its financial statements and reports its
results of operations on the basis of a fiscal year which ends on the last
Sunday of December. Accordingly, the fiscal years ended December 28, 1997, and
December 29, 1996, consisted of 52 weeks, while the year ended December 31,
1995, consisted of 53 weeks. Year end data in these notes is as of the
respective dates above.
(b) Cash Equivalents
The Company considers all highly liquid investments with maturities
at date of purchase of three months or less to be cash equivalents.
(c) Notes Receivable
The Company evaluates the collectibility of notes receivable in
accordance with the provisions of Statement of Financial Accounting Standards
("SFAS") No. 114, "Accounting by Creditors for Impairment of Loans," as amended
by SFAS No. 118, "Accounting by Creditors for Impairment of a Loan -- Income
Recognition and Disclosures." At year end 1997 and 1996, no notes receivable
were determined to be impaired.
(d) Inventories
Inventories consist of retail convenience store merchandise and
motor fuel products. Merchandise inventories are stated at the lower of cost or
market as determined by the retail method. Motor fuel inventories are stated at
the lower of cost or market using the first-in, first-out ("FIFO") inventory
method.
The Company has selected a single company as the primary grocery and
merchandise supplier to its convenience stores and truck stops although certain
items, such as bakery goods, dairy products, soft drinks, beer, and other
perishable products, are generally purchased from local vendors and/or wholesale
route salespeople. The Company believes it could replace any of its merchandise
suppliers, including its primary grocery and merchandise supplier, with no
significant adverse effect on its operations.
The Company does not have long-term contracts with any suppliers of
petroleum products covering more than 10% of its motor fuel supply.
Unanticipated national or international events could result in a curtailment of
motor fuel supplies to the Company, thereby adversely affecting motor fuel
sales. In addition, management believes a significant portion of its merchandise
sales are to customers who also purchase motor fuel. Accordingly, reduced
availability of motor fuel could negatively impact other facets of the Company's
operations.
(e) Property and Equipment
Property and equipment are stated at cost. Equipment acquired under
capital leases is stated at the present value of the initial minimum lease
payments, which is not in excess of the fair value of the equipment.
Depreciation and amortization of property and equipment are provided on the
straight-line method over the estimated useful lives of the respective assets,
which range from three to twenty years. Leasehold improvements are amortized on
the straight-line method over the shorter of the lease term or the estimated
useful lives of the respective assets.
(f) Investments
Investments in joint ventures and other entities that are 50% or
less owned are accounted for by the equity method and are included in other
assets, net, in the accompanying consolidated balance sheets.
(g) Intangible Assets
In connection with the allocation of the purchase price of the
assets acquired in 1987 upon the commencement of the Company's operations,
$1,093,000 was allocated as the future benefit of real estate leased from
affiliates of its former general partner. The future benefit of these leases is
being amortized using the straight-line method over 20 years, the term including
option periods, of such leases.
Goodwill of $1,524,000 and $2,040,000 at year end 1997 and 1996,
respectively, is being amortized using the straight-line method over 20 years.
The Company assesses the recoverability of goodwill by determining whether the
amortization of the balance over the remaining amortization period can be
recovered through undiscounted future operating cash flows of the acquired
operations. The amount of goodwill impairment, if any, is measured based on
projected discounted future operating cash flows using a discount rate
reflecting the Company's average cost of funds. The assessment of the
recoverability of goodwill would be impacted if anticipated future operating
cash flows are not achieved.
(h) Sales of Convenience Store Operations
The Company sold the merchandise operations and related inventories
of certain convenience store locations to various third parties in exchange for
cash and notes receivable. The notes receivable generally are for terms of five
years, require monthly payments of principal and interest, and bear interest at
rates ranging from 8% to 10%. Summary information about these sales is as
follows:
Gains
-----------------------
Number Notes Total Deferred
Sold Cash Receivable Proceeds Recognized (at year-end)
(In thousands, except number sold)
1997 2 $66 $201 $267 $30 $50
1996 18 816 1,561 2,377 1,778 250
1995 10 357 543 900 791 200
Gains on sales which meet specified criteria, including receipt of a
significant cash down payment and projected cash flow from store operations
sufficient to adequately service the debt, are recognized upon closing of the
sale. Gains on sales which do not meet the specified criteria are recognized
under the installment method as cash payments are received. Gains being
recognized under the installment method are evaluated periodically to determine
if full recognition of the gain is appropriate.
Under these sales, the Company retains the real estate or leasehold
interests, and leases or subleases the store facilities (including the store
equipment) to the purchaser under five-year renewable operating lease
agreements. The Company retains ownership of the motor fuel operations and pays
the purchaser of the store commissions based on motor fuel sales. In addition,
the new store operators may purchase merchandise under the Company's established
buying arrangements.
(i) Environmental Costs
Environmental remediation costs are expensed; related environmental
expenditures that extend the life, increase the capacity, or improve the safety
or efficiency of existing assets are capitalized. Liabilities for environmental
remediation costs are recorded when environmental assessment and/or remediation
is probable and the amounts can be reasonably estimated. Environmental
liabilities are evaluated independently from potential claims for recovery.
Accordingly, the gross estimated liabilities and estimated claims for
reimbursement have been presented separately in the accompanying consolidated
balance sheets (see Note 13b).
In October 1996, the American Institute of Certified Public
Accountants issued Statement of Position ("SOP") 96-1, Environmental Remediation
Liabilities. SOP 96-1, was adopted by the Company on December 29, 1997, and
requires, among other things, environmental remediation liabilities to be
accrued when the criteria of SFAS No. 5, "Accounting for Contingencies," have
been met. The SOP also provides guidance with respect to the measurement of
remediation liabilities. Such accounting is consistent with the Company's
current method of accounting for environmental remediation costs, and therefore,
adoption of SOP 96-1 in 1997 did not have a material impact on the Company's
consolidated financial position, results of operations, or liquidity.
(j) Motor Fuel Taxes
Motor fuel revenues and related cost of motor fuel include federal
and state excise taxes of $99,911,000, $105,718,000, and $103,478,000, for 1997,
1996, and 1995, respectively.
(k) Exchanges
The exchange method of accounting is utilized for motor fuel
exchange transactions. Under this method, such transactions are considered as
exchanges of assets with deliveries being offset against receipts, or vice
versa. Exchange balances due from others are valued at current replacement
costs. Exchange balances due to others are valued at the cost of forward
contracts (Note 11) to the extent they have been entered into, with any
remaining balance valued at current replacement cost. Exchange balances due to
others at year end 1997 and 1996 were $754,000 and $4,000, respectively.
(l) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the estimated future tax
consequences attributable to existing differences between financial statement
carrying amounts of assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to be in effect when such amounts are realized or settled. The effect
of a change in tax rates is recognized in income in the period that includes the
enactment date.
Under the Revenue Act of 1987, FFP Partners qualified as a
publicly-traded partnership until the end of its 1997 fiscal year. Accordingly,
the taxable income or loss of the Company was includable in the income tax
returns of the individual partners and no provision for income taxes was made in
the accompanying consolidated financial statements, except for applying the
provisions of SFAS No. 109 "Accounting for Income Taxes."
The businesses and activities retained by FFP Partners in connection
with its December 1997 restructuring will permit it to continue to be treated as
a partnership for tax purposes. However, as a result of the restructuring,
through which FFP Marketing was formed, FFP Marketing was organized as a
corporation. Accordingly, income tax expense will be recorded in its
consolidated financial statements for future periods.
(m) Fair Value of Financial Instruments
The carrying amounts of cash, receivables, amounts due under
revolving credit line, and money orders payable approximate fair value because
of the short maturity of those instruments. The carrying amount of notes
receivable approximates fair value which is determined by discounting expected
future cash flows at current rates.
The carrying amount of long-term debt approximates fair value due to
the variable interest rate on substantially all such obligations.
(n) Common Stock
Prior to the December 1997 restructuring of FFP Partners, the
capital of the Company consisted of partnership interests. These interests were
converted into common stock in connection with the restructuring. The average
number of shares/units shown as outstanding on the statement of operations have
been adjusted to reflect the number of common shares that would have been
outstanding had the restructuring occurred at the beginning of the earliest year
presented giving effect to the shares that would have been issued to the general
partner.
The treasury units (64,778 units, at cost) which were being held by
the Company were retired in conjunction with the restructuring.
(o) Income/(Loss) per Share
The Company adopted SFAS No. 128, "Earnings per Share" in the fourth
quarter of 1997. SFAS No. 128 changes the manner in which the Company calculates
and presents its net income or loss per share and requires net income or loss
per share amounts for all prior periods to be restated to conform to the new
presentation. The adoption of SFAS No. 128 did not have a material effect on the
Company's net income or loss per share amounts. A reconciliation of the
denominators of the basic and diluted net income/(loss) per share computations
for 1997, 1996, and 1995, follows:
1997 1996 1995
(In thousands)
Weighted average number of common shares
outstanding, assuming dilution 3,779 3,759 3,706
Effect of dilutive options 23 0 133
Weighted average number of common shares
outstanding, assuming dilution 3,802 3,759 3,839
(p) Dividends/Distributions to Partners
Prior to the December 1997 restructuring of FFP Partners,
distributions to partners represented a return of capital and were allocated pro
rata to the general partner and holders of the Limited Partnership interests.
Distributions to shareholders that may be made in the future will be dividends.
(q) Employee Benefit Plan
The Company has a 401(k) profit sharing plan covering all employees
who meet age and tenure requirements. Participants may contribute to the plan a
portion, within specified limits, of their compensation under a salary reduction
arrangement. The Company may make discretionary matching or additional
contributions to the plan. The Company did not make any contributions to the
plan in 1997, 1996, or 1995.
(r) Use of Estimates
The use of estimates is required to prepare the Company's
consolidated financial statements in conformity with generally accepted
accounting principles. Although management believes that such estimates are
reasonable, actual results could differ from the estimates.
(s) Stock Option Plan
The Company accounts for its outstanding stock options in accordance
with the provisions of Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations. As
such, compensation expense would be recorded only if the current market price of
the underlying stock on the date of grant of the option exceeded the exercise
price of the option. On January 1, 1996, the Company adopted SFAS No. 123,
"Accounting for Stock-Based Compensation," which permits entities to (i)
recognize as expense over the vesting period the fair value of all stock-based
awards on the date of grant or (ii) continue to apply the provisions of APB
Opinion No. 25 and provide pro forma net income and earnings per share
disclosures for employee option grants made in 1995 and future years as if the
fair-value-based method defined in SFAS No. 123 had been applied. The Company
elected the second alternative (see Note 9).
(t) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company adopted the provisions of SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of," on
January 1, 1996. This statement requires that long-lived assets and certain
identifiable intangibles to be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of such assets to future net cash flows
expected to be generated by the assets. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value less
costs to sell. The adoption of this statement did not have a material impact on
the Company's consolidated financial position, results of operations, or
liquidity.
(u) Revenue Recognition
The Company recognizes revenue related to motor fuel and merchandise
sales at the time of the sale.
3. Property and Equipment
Property and equipment consists of the following:
1997 1996
(In thousands)
Land $1,224 $4,703
Land improvements 0 2,698
Buildings and leasehold improvements 7,992 26,509
Machinery and equipment 51,209 35,450
Construction in progress 286 2,821
60,711 72,181
Accumulated depreciation and amortization (28,616) (34,157)
$32,095 $38,024
In connection with the December 1997 restructuring of FFP
Partners, all land and buildings used in the Company's retail operations were
transferred to FFP Partners.
4. Other Assets
Other assets consist of the following:
1997 1996
(In thousands)
Intangible Assets (Note 2g)
Ground leases $1,093 $1,093
Goodwill 1,524 2,040
Other 2,284 2,295
4,901 5,428
Accumulated amortization (2,570) (2,375)
2,331 3,053
Notes receivable 1,294 2,069
Claims for reimbursement of
environmental remediation costs 1,052 1,038
Investments in joint ventures and
other entities 0 1,293
Other 377 263
$5,054 $7,716
In December 1995, the Company advanced $1,200,000 to a company
which granted the Company a security interest in certain loans that were
secured by convenience stores located in areas where the Company currently
has operations. In 1997, the Company foreclosed on the loans and took title
to the properties securing the loans. In connection with the December 1997
restructuring of FFP Partners, these properties were transferred to FFP
Partners.
5. Notes Payable and Long-Term Debt
In connection with the December 1997 restructuring of FFP Partners,
FFP Partners retained the liability for the year end balances due under a bank
revolving credit facility ($7,439,000), a bank term loan ($7,905,000), and other
debt ($594,000) secured by the real estate transferred to FFP Partners. However,
in accordance with SFAS No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Liabilities and Extinguishment of Liabilities," the debt
must be presented on the balance sheets of both FFP Partners and FFP Marketing
until FFP Marketing obtains a legal release as a primary obligor on the debt. At
such time and to the extent that FFP Marketing obtains a legal release, the debt
will be removed from its consolidated balance sheet with a corresponding
adjustment to the reduction for joint debt obligations that is included in
consolidated stockholders' equity. Such adjustment will result in an increase in
consolidated stockholders' equity.
All other debt, including capital lease obligations, were
transferred to FFP Marketing. However, subsidiaries of FFP Marketing remain
liable on the debt retained by FFP Partners, pending its refinancing, and could
be required to repay the debt if FFP Partners is unable to do so. FFP Partners
has indemnified FFP Marketing against this liability and has granted to FFP
Marketing the right to offset any payments FFP Marketing might be required to
make on the debt retained by FFP Partners against any amounts otherwise due to
FFP Partners by FFP Marketing.
Although FFP Partners retained the liability for the $7,439,000 due
under the revolving credit line portion of the bank debt at the date of the
December 1997 restructuring, FFP Marketing retains availability under this
revolving credit facility. The revolving credit line provides for borrowings up
to $15,000,000, with the amount available at any time related to a borrowing
base comprised of FFP Marketing's trade receivables and inventories. To the
extent that borrowings under this credit facility fall below the $7,439,000
balance retained by FFP Partners they are treated as loans by FFP Marketing to
FFP Partners and FFP Partners pays interest to FFP Marketing on such amounts at
the lender's prime rate, which is same rate that is payable to the lender. FFP
Marketing bears the interest cost on any balances under the revolving credit
facility that exceed the $7,439,000 amount.
The revolving credit facility and the bank term loan both bear
interest at the lender's prime rate, payable monthly; the term loan requires
monthly principal payments of $95,000; and both loans mature in November 2000.
The loans are subject to a Loan and Security Agreement among FFP Partners and
two companies that prior to the December 1997 restructuring were subsidiaries of
FFP Partners but are now subsidiaries of FFP Marketing. The agreement contains
various restrictive covenants including financial covenants relating to the
maintenance of a specified minimum tangible net worth, a debt to tangible net
worth ratio, and a cash flow coverage ratio, all as defined in the agreement. As
a result of the restructuring, these ratios are calculated on a combined basis
for FFP Marketing and FFP Partners. As of year end, FFP Marketing and FFP
Partners were not compliance with certain requirements under the loan agreement;
the lender has waived declaring a default due to such noncompliance. The loans
under the agreement are secured by FFP Marketing's trade accounts receivable,
inventories, and its equipment not otherwise encumbered, and by a negative
pledge of its other assets. The loans are also secured by the assets of FFP
Partners.
FFP Marketing has been advised by FFP Partners that FFP Partners
expects to refinance the bank and other debt during 1998. At the time the
refinancing is completed, FFP Marketing anticipates that it will have no
liability for the obligations although it is expected to retain the revolving
credit facility for which it will be solely liable.
In addition to the foregoing debt, FFP Marketing has a loan of
$6,735,000 incurred in connection with the December 1997 acquisition of 94
operating convenience stores. The loan bears interest payable monthly at the
prime rate (8.5% at year end 1997) of a large national bank, is due in February
1999, and is secured by the assets of the 94 convenience stores. FFP Marketing
is in the process of securing long-term financing to refinance this bridge loan
and expects to complete the refinancing by mid-1998.
The aggregate fixed maturities of long-term debt for each of the
five years subsequent to 1997 are as follows:
(In thousands)
1998 $1,208
1999 8,034
2000 13,118
2001 55
2002 53
Thereafter 205
$22,673
6. Capital Leases
The Company is obligated under noncancelable capital leases
beginning to expire in 1998. The gross amount of the assets covered by these
capital leases that are included in property and equipment in the accompanying
consolidated balance sheets is as follows:
1997 1996
(In thousands)
Fixtures and equipment $6,565 $3,980
Accumulated amortization (1,641) (888)
$4,924 $3,092
The amortization of assets held under capital leases is included in
depreciation and amortization expense in the accompanying consolidated
statements of operations. Future minimum lease payments under the noncancelable
capital leases for years subsequent to 1997 are:
(In thousands)
1998 $1,237
1999 1,069
2000 994
2001 1,126
2002 435
Thereafter 0
Total minimum lease payments 4,861
Amount representing interest (834)
Present value of future minimum lease payments 4,027
Current installments (917)
Obligations under capital leases, excluding
current installments $3,110
7. Operating Leases
The Company has noncancelable, long-term operating leases on certain
locations, a significant portion of which are with related parties. Certain of
the leases have contingent rentals based on sales levels of the locations and/or
have escalation clauses tied to the consumer price index. Minimum future rental
payments (including bargain renewal periods) and sublease receipts for years
after 1997 are as follows:
Future Rental Payments Future
--------------------------- Sublease
Parties Others Total Receipts
(In thousands)
1998 $3,314 $2,913 $6,227 $1,062
1999 3,316 2,661 5,977 902
2000 3,311 2,545 5,856 627
2001 3,304 2,369 5,673 276
2002 3,043 1,603 4,646 51
Thereafter 1,837 9,579 11,416 29
$18,125 $21,670 $39,795 $2,947
Total rental expense and sublease income were as follows:
Rent Expense
--------------------------- Sublease
Parties Others Total Income
(In thousands)
1997 $915 $922 $1,837 $1,370
1996 727 742 1,469 1,154
1995 849 735 1,584 843
8. Accrued Expenses
Accrued expenses consist of the following:
1997 1996
(In thousands)
Motor fuel taxes payable $5,979 $5,726
Accrued payroll and related expenses 964 818
Other 2,680 2,234
$9,623 $8,778
9. Nonqualified Unit Option Plan
The Company's predecessor had a Nonqualified Unit Option Plan and a
Nonqualified Unit Option Plan for Nonexecutive Employees that authorized the
grant of options to purchase up to 450,000 and 100,000 Class A Units of FFP
Partners, respectively.
Following is a summary of activity under the unit option plans:
Weighted
Average
Class A Exercise Exercise
Units Price Range Price
Options outstanding, December 25, 1994 293,930 $2.00 - $3.88 $3.59
Options granted during year 50,000 6.00 - 7.00 6.50
Options expired or terminated
during year (6,999) 3.75 3.75
Options exercised during year (76,267) 2.00 - 3.88 3.11
Options outstanding, December 31, 1995 260,664 3.75 - 7.00 4.28
Options granted during year 0
Options expired or terminated
during year (1,333) 3.75 3.75
Options exercised during year (37,332) 3.75 3.75
Options outstanding, December 29, 1996 221,999 3.75 - 7.00 4.37
Options granted during year 20,000 4.31 4.31
Options expired or terminated
during year 0
Options exercised during year 0
Options outstanding, December 28, 1997 241,999 3.75 - 7.00 4.37
Options exercisable, December 28, 1997 205,333 3.75 - 7.00 4.20
The exercise price of each option granted under the plans is
determined by the Board of Directors, but may not be less than the fair market
value of the underlying units on the date of grant. The original exercise prices
of the options outstanding at year end 1997 were:
Exercise Options
Price Outstanding
$3.750 165,333
3.875 6,666
4.313 20,000
6.000 25,000
7.000 25,000
241,999
At year end 1997, the weighted-average remaining contractual life of
outstanding options was 5.55 years.
All options outstanding at year end 1997 are exercisable with
respect to one-third of the units covered thereby on each of the anniversary
dates of their grants and expire ten years from the date of grant. In the event
of a change in control of the Company, any unexercisable portion of the options
will become immediately exercisable.
The per share weighted-average fair value of options granted in
1997, 1996, and 1995, estimated using the Black Scholes option-pricing model,
and the underlying assumptions used are:
Underlying Assumptions
-----------------------------------------
Estimated Risk-Free Expected
Year Fair Dividend Interest Expected Option
Granted Value Yield Rate Volatility Life
1997 $2.81 0.0% 6.40% 58% 7 years
1996 0.00 0.0% 0.00% 0% 0
1995 3.00 0.0% 6.00% 62% 3 years
The Company applies APB Opinion No. 25 in accounting for its option
plans; accordingly, no compensation cost related to the plans has been
recognized in the consolidated financial statements. Had the Company determined
compensation under SFAS No. 123, the Company's net income (loss) would have been
reduced to the pro forma amounts indicated below:
1997 1996 1995
(In thousands, except per unit information)
Net income/(loss)
As reported $116 $(159) $3,910
Pro forma 53 (203) 3,866
Income/(loss) per share/unit
As reported
Basic $0.03 $(0.04) $1.06
Diluted 0.03 (0.04) 1.02
Pro forma
Basic 0.01 (0.05) 1.04
Diluted 0.01 (0.05) 1.01
Pro forma net income reflects only options granted subsequent to
1994. Therefore, the full impact of calculating compensation cost for stock
options under SFAS No. 123 is not reflected in the pro forma net income/(loss)
amounts presented above because compensation cost for options granted prior to
1995 is not considered.
All options to acquire Class A Units of FFP Partners that were
outstanding at the completion of the December 1997 restructuring of FFP Partners
were divided into separate options to purchase Class A Units of FFP Partners and
a like number of FFP Marketing common shares. The exercise price for the
existing FFP Partners unit options was divided between the two new options in
proportion to the closing prices on the American Stock Exchange of FFP Partners
Class A Units and FFP Marketing common shares. The adjusted exercise prices of
the options to acquire FFP Marketing common shares outstanding at year end 1997
are:
Exercise Options
Price Outstanding
$2.539 165,333
2.623 6,666
2.920 20,000
4.062 25,000
4.739 25,000
241,999
10. Income Taxes
Noncash charges/(credits) of $(892,000), $2,646,000, and $500,000,
were recorded in 1997, 1996, and 1995, respectively, to record deferred income
tax expense/(benefit).
In August 1996, Congress passed legislation clarifying that certain
buildings used in connection with the retail sale of motor fuel qualified for a
substantially shorter depreciable life for tax purposes than was being utilized
by the Company. In January 1997, the Internal Revenue Service issued a notice
explaining how the tax deduction related to the change in the depreciable lives
on these assets should be determined. As a result, the Company deducted in 1996
the difference between the tax depreciation previously recorded and the
depreciation available using the shorter life and recognized an additional
deferred income tax provision of $2,089,000 in the fourth quarter 1996 related
to this temporary difference. The current tax benefit of this deduction was
allocated to the Company's unitholders but the deferred tax expense associated
with the acceleration of this deduction for tax purposes was reflected in the
Company's 1996 consolidated statement of operations. However, in connection with
the December 1997 restructuring of FFP Partners, the buildings which gave rise
to this additional deferred income tax provision were transferred to FFP
Partners and as a result, their ownership was continued in a partnership format
and the deferred taxes attributable to the real estate assets were reversed in
the fourth quarter 1997.
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and liabilities at year end 1997
and 1996, are presented below. Those temporary differences which existed at year
end 1996 but which were expected to reverse prior to the Company's being treated
as a corporation for tax purposes (fiscal year 1998) have been excluded from the
1996 amounts:
1997 1996
(In thousands)
Deferred tax assets:
Accounts receivable, principally due to
allowance for doubtful accounts $308 $0
Accrued expenses, principally due to
accruals for financial reporting
purposes 238 0
Other, net (176) 0
Total deferred tax assets, net $370 $0
Deferred tax liabilities:
Property and equipment, principally
due to basis differences and
differences in depreciation $(2,763) $(2,950)
Other, net (496) (831)
Total deferred tax liabilities $(3,259) $(3,781)
11. Futures and Forward Contracts
The Company is party to commodity futures contracts with off-balance
sheet risk. Changes in the market value of open futures contracts are recognized
as gains or losses in the period of change. These investments involve the risk
of dealing with others and their ability to meet the terms of the contracts and
the risk associated with unmatched positions and market fluctuations. Contract
amounts are often used to express the volume of these transactions, but the
amounts potentially subject to risk are much smaller.
From time-to-time the Company enters into forward contracts to buy
and sell fuel, principally to satisfy balances owed on exchange agreements (Note
2k). These transactions, which together with futures contracts are classified as
operating activities for purposes of the consolidated statements of cash flows,
are included in motor fuel sales and related cost of sales and resulted in net
gains as follows:
(In thousands)
1997 $430
1996 363
1995 87
Open positions under futures and forward contracts were not
significant at year end 1997 and 1996.
12. Related Party Transactions
Until completion of the December 1997 restructuring of FFP Partners,
the Company reimbursed the general partner and its affiliates for salaries and
related costs of executive officers and others and for expenses incurred by them
in connection with the management of the Company. These expenses were $763,000,
$745,000, and $727,000, and for 1997, 1996, and 1995, respectively.
In July 1991, the Company entered into an agreement with an
affiliated company whereby the affiliated company sells alcoholic beverages at
the Company's stores in Texas. Under Texas law, the Company is not permitted to
hold licenses to sell alcoholic beverages in Texas. The agreement provides that
the Company will receive rent and a management fee based on the gross receipts
from sales of alcoholic beverages at its stores. In July 1992, the agreement was
amended to be for a term of five years commencing on the date of amendment. The
sales recorded by the affiliated company under this agreement were $8,330,000,
$8,240,000, and $9,116,000, and in 1997, 1996, and 1995, respectively. The
Company received $1,355,000, $1,265,000, and $1,217,000, in 1997, 1996, and
1995, respectively, in rent, management fees, and interest, which are included
in miscellaneous revenues in the consolidated statements of operations. After
deducting cost of sales and other expenses related to these sales, including the
amounts paid to the Company, the affiliated company had earnings of $83,000,
$82,000, and $91,000 in 1997, 1996, and 1995, respectively, as a result of these
alcoholic beverage sales. Under a revolving note executed in connection with
this agreement, the Company advances funds to the affiliated company to pay for
the purchases of alcoholic beverages. Receipts from the sales of such beverages
are credited against the note balance. The revolving note provides for interest
at 0.5% above the prime rate charged by a major financial institution and had a
balance of $426,000 and $420,000 at year end 1997 and 1996, respectively.
The Company purchases certain goods and services (including
automobiles, office supplies, computer software and consulting services, and
fuel supply consulting and procurement services) from related entities. Amounts
incurred for these products and services were $471,000, $359,000, and $421,000,
for 1997, 1996, and 1995, respectively.
As a part of its merchandise sales activities, the Company supplies
its private label cigarettes on a wholesale basis to other retailers who do not
operate outlets in its trade areas and pays them rebates based on the volume of
cigarettes purchased. In 1997, 1996, and 1995, the Company paid $-0-, $14,000,
and $51,000, respectively, of such rebates to a company on whose Board one of
the Company's executive officers serves. The amount of rebates paid to this
company was calculated in the same manner as the rebates paid to non-related
companies.
In 1980 and 1982, certain companies from which the Company acquired
its initial base of retail outlets granted to a third party the right to sell
motor fuel at retail for a period of 10 years at self-serve gasoline stations
owned or leased by the affiliated companies or their affiliates. All rights to
commissions under these agreements and the right to sell motor fuel at wholesale
to the third party at such locations were assigned to the Company in May 1987 in
connection with the acquisition of its initial base of retail operations. In
December 1990, in connection with the expiration or termination of the
agreements with the third party, the Company entered into agreements with a
company owned and controlled by the Chairman of the general partner and members
of his immediate family, which grant to the Company the exclusive right to sell
motor fuel at retail at these locations. The terms of these agreements are
comparable to agreements that the Company has with other unrelated parties. The
Company paid this affiliated company commissions related to the sale of motor
fuel at these locations of $323,000, $277,000, and $261,000, in 1997, 1996, and
1995, respectively.
During 1995, the Company purchased four parcels of land, including
building and petroleum storage tanks and related dispensing equipment, from a
company controlled by the Chairman of the general partner and members of his
immediate family. The Company paid a total of $116,000 for the real estate and
related improvements. The Company is operating one of these locations as a
convenience store and one as a self-service motor fuel outlet and intends to
operate the other two as either convenience stores or self-service motor fuel
outlets. The purchase price was determined by reference to similar properties
acquired by the Company from unrelated parties.
During 1996, the Company charged to expense $611,000 to reimburse
various related companies for legal fees that benefited the Company. Of this
amount, the Company paid $225,000 during 1996 and the remaining $386,000 in
1997.
13. Commitments and Contingencies
(a) Uninsured Liabilities
The Company maintains general liability insurance with limits and
deductibles management believes prudent in light of the exposure of the Company
to loss and the cost of the insurance.
The Company self-insures claims up to $45,000 per year for each
individual covered by its employee medical benefit plan for supervisory and
administrative employees; claims above $45,000 are covered by a stop-loss
insurance policy. The Company also self-insures medical claims for its eligible
store employees. However, claims under the plan for store employees are subject
to a $1,000,000 lifetime limit per employee and the Company does not maintain
stop-loss coverage for these claims. The Company and its covered employees
contribute to pay the self-insured claims and stop-loss insurance premiums.
Accrued liabilities include amounts management believes adequate to cover the
estimated claims arising prior to a year-end, including claims incurred but not
yet reported. The Company recorded expense related to these plans of $295,000,
$271,000, and $353,000, in 1997, 1996, and 1995, respectively.
The Company is covered for worker's compensation in all states
through incurred loss retrospective policies. Accruals for estimated claims
(including claims incurred but not reported) have been recorded at year end 1997
and 1996, including the effects of any retroactive premium adjustments.
(b) Environmental Matters
The operations of the Company are subject to a number of federal,
state, and local environmental laws and regulations, which govern the storage
and sale of motor fuels, including those regulating underground storage tanks.
In September 1988, the Environmental Protection Agency ("EPA") issued
regulations that require all newly installed underground storage tanks be
protected from corrosion, be equipped with devices to prevent spills and
overfills, and have a leak detection method that meets certain minimum
requirements. The effective commencement date for newly installed tanks was
December 22, 1988. Underground storage tanks in place prior to December 22,
1988, must conform to the new standards by December 1998. The Company has
implemented a plan to bring all of its existing underground storage tanks and
related equipment into compliance with these laws and regulations and currently
estimates the costs to do so will range from $1,444,000 to $1,764,000 during
1998. The Company anticipates that substantially all these expenditures will be
capitalized as additions to property and equipment. Such estimates are based
upon current regulations, prior experience, assumptions as to the number of
underground storage tanks to be upgraded, and certain other matters. At year end
1997 and 1996, the Company recorded liabilities for future estimated
environmental remediation costs related to known leaking underground storage
tanks of $644,000 in other liabilities. Corresponding claims for reimbursement
of environmental remediation costs of $644,000 were recorded in 1997 and 1996,
as the Company expects that such costs will be reimbursed by various
environmental agencies. In 1995, the Company contracted with a third party to
perform site assessments and remediation activities on 35 sites located in Texas
that are known or thought to have leaking underground storage tanks. Under the
contract, the third party will coordinate with the state regulatory authority
the work to be performed and bill the state directly for such work. The Company
is liable for the $10,000 per occurrence deductible and for any costs in excess
of the $1,000,000 limit provided for by the state environmental trust fund. The
Company does not expect that the costs of remediation of any of these 35 sites
will exceed the $1,000,000 limit. The assumptions on which the foregoing
estimates are based may change and unanticipated events and circumstances may
occur which may cause the actual cost of complying with the above requirements
to vary significantly from these estimates.
During 1997, 1996, and 1995, environmental expenditures were
$1,665,000, $2,019,000, and $1,003,000, respectively (including capital
expenditures of $1,267,000, $1,456,000, and $644,000), in complying with
environmental laws and regulations.
The Company does not maintain insurance covering losses associated
with environmental contamination. However, all the states in which the Company
owns or operates underground storage tanks have state operated funds which
reimburse the Company for certain cleanup costs and liabilities incurred as a
result of leaks in underground storage tanks. These funds, which essentially
provide insurance coverage for certain environmental liabilities, are funded by
taxes on underground storage tanks or on motor fuels purchased within each
respective state. The coverages afforded by each state vary but generally
provide up to $1,000,000 for the cleanup of environmental contamination and most
provide coverage for third-party liability as well. The funds require the
Company to pay deductibles ranging from $5,000 to $25,000 per occurrence. The
majority of the Company's environmental contamination cleanup activities relate
to underground storage tanks located in Texas. Due to an increase in claims
throughout the state, the Texas state environmental trust fund has significantly
delayed reimbursement payments for certain cleanup costs after September 30,
1992. In 1993, the Texas state fund issued guidelines that, among other things,
prioritize the timing of future reimbursements based upon the total number of
tanks operated by and the financial net worth of each applicant. The Company has
been classified in the category with the lowest priority. Because the state and
federal governments have the right, by law, to levy additional fees on fuel
purchases, the Company believes these clean up costs will ultimately be
reimbursed. However, due to the uncertainty of the timing of the receipt of the
reimbursements, the claims for reimbursement of environmental remediation costs,
totaling $1,052,000 and $1,038,000 at year end 1997 and 1996, respectively, have
been classified as long-term receivables and are included in other assets in the
accompanying consolidated balance sheets.
(c) Other
The Company is subject to various claims and litigation arising in
the ordinary course of business, particularly personal injury and employment
related claims. In the opinion of management, the outcome of such matters will
not have a material effect on the consolidated financial position or results of
operations of the Company.
14. Quarterly Operating Results (Unaudited)
Quarterly results of operations for 1997, 1996, and 1995, were as
follows:
First Second Third Fourth Full
Quarter Quarter Quarter Quarter Year
(In thousands, except per unit data)
1997
Total revenues $92,682 $99,332 $96,059 $91,341 $379,414
Total margin 9,979 11,951 11,734 13,044 46,708
Net income/(loss) (1,262) 340 (375) 1,413 116
Net income/(loss) per share
Basic $(0.33) $0.09 $(0.10) $0.38 $0.03
Diluted (0.33) 0.09 (0.10) 0.38 0.03
1996
Total revenues $94,391 $105,092 $94,298 $96,371 $390,152
Total margin 10,989 13,473 11,407 10,383 46,252
Net income/(loss) (169) 2,030 564 (2,584) (159)
Net income/(loss) per share
Basic $(0.05) $0.54 $0.15 $(0.68) $(0.04)
Diluted (0.05) 0.53 0.15 (0.68) (0.04)
1995
Total revenues $84,413 $97,623 $93,716 $94,293 $370,045
Total margin 10,970 12,521 13,963 12,192 49,646
Net income 154 1,172 2,071 513 3,910
Net income per share
Basic $0.04 $0.32 $0.56 $0.14 $1.06
Diluted 0.04 0.31 0.54 0.13 1.02
<PAGE>
Schedule II
FFP MARKETING COMPANY, INC., AND SUBSIDIARIES
Valuation and Qualifying Accounts
(In thousands)
Year Ended December 28, 1997
--------------------------------------------
Balance Additions Balance
at Charged to at
Beginning Costs and Deductions End of
Description of Period Expenses (describe) Period
Allowances for doubtful accounts
Trade receivables $883 $199 $273 (a) $809
Year Ended December 29, 1996
--------------------------------------------
Balance Additions Balance
at Charged to at
Beginning Costs and Deductions End of
Description of Period Expenses (describe) Period
Allowances for doubtful accounts
Trade receivables $1,045 $327 $489 (a) $883
Year Ended December 31, 1995
--------------------------------------------
Balance Additions Balance
at Charged to at
Beginning Costs and Deductions End of
Description of Period Expenses (describe) Period
Allowances for doubtful accounts
Trade receivables $917 $459 $331 (a) $1,045
- -----------------------------
(a) Accounts charged-off, net of recoveries.
LOAN AND SECURITY AGREEMENT
among
FFP PARTNERS, L.P.
("FFPP")
FFP OPERATING PARTNERS, L.P.
("FFPO")
DIRECT FUELS, L.P.
("Direct Fuels")
2801 Glenda Avenue
Fort Worth, Texas 76117-4391
and
HSBC BUSINESS LOANS, INC.
("Secured Party")
12655 North Central Expressway, Suite 300
Dallas, Texas 75243-1717
Dated: October 31, 1997
TABLE OF CONTENTS
1. DEFINITIONS.............................................................1
1.1. CERTAIN SPECIFIC TERMS.......................................1
1.2. SINGULARS AND PLURALS........................................8
1.3. UCC DEFINITIONS..............................................9
2. ADVANCES................................................................9
2.1. REQUESTS FOR ADVANCES FOR REVOLVING LOANS....................9
2.2. PROCEEDS OF ADVANCES FOR REVOLVING LOANS.....................9
2.3. ESTABLISHMENT OF RESERVES....................................9
2.4. LETTERS OF CREDIT............................................9
3. COLLATERAL AND INDEBTEDNESS SECURED....................................10
3.1. SECURITY INTEREST...........................................10
3.2. OTHER COLLATERAL.............................................11
3.3. INDEBTEDNESS SECURED........................................11
4. CONDITIONS TO ADVANCES.................................................11
4.1. PARTNERSHIP ACTION..........................................11
4.2. PARTNERSHIP DOCUMENTS.......................................11
4.3. OPINIONS.....................................................11
4.4. TRANSACTION DOCUMENTS.......................................12
4.5. THIRD PARTY ACTION...........................................12
4.6. GUARANTIES...................................................12
4.7. OTHER MATTERS................................................12
5. REPRESENTATIONS AND WARRANTIES.........................................12
5.1. PARTNERSHIP EXISTENCE.......................................12
5.2. PARTNERSHIP CAPACITY........................................12
5.3. VALIDITY OF RECEIVABLES.....................................12
5.4. INVENTORY...................................................13
5.5. TITLE TO COLLATERAL.........................................13
5.6. NOTES RECEIVABLE............................................13
5.7. EQUIPMENT...................................................13
5.8. PLACE OF BUSINESS...........................................14
5.9. FINANCIAL CONDITION.........................................14
5.10. TAXES......................................................14
5.11. LITIGATION.................................................14
5.12. ERISA MATTERS..............................................14
5.13. ENVIRONMENTAL MATTERS......................................15
5.14. VALIDITY OF TRANSACTION DOCUMENTS..........................15
5.15. NO CONSENT OR FILING.......................................15
5.16. NO VIOLATIONS..............................................15
5.17. TRADEMARKS AND PATENTS.....................................16
5.18. CONTINGENT LIABILITIES.....................................16
5.19. SOLVENCY....................................................16
5.20. COMPLIANCE WITH LAWS.......................................16
5.21. LICENSES, PERMITS, ETC.....................................16
5.22. USE OF PROCEEDS; MARGIN STOCK...............................16
5.23. COMMISSIONS.................................................17
5.24. LABOR CONTRACTS............................................17
5.25. CONSOLIDATED SUBSIDIARIES..................................17
5.26. ACCURACY OF REPRESENTATIONS.................................17
5.27. PARTNERSHIP INTERESTS......................................17
5.28. NO ADVERSE CHANGE..........................................17
5.29. NO DEFAULT.................................................17
5.30. MATERIAL AGREEMENTS........................................17
5.31. NO FINANCING OF CORPORATE TAKEOVERS........................17
6. CERTAIN DOCUMENTS TO BE DELIVERED TO SECURED PARTY.....................17
6.1. DOCUMENTS...................................................17
6.2. INVOICES....................................................18
6.3. CHATTEL PAPER...............................................18
7. COLLECTIONS............................................................18
8. PAYMENT OF PRINCIPAL, INTEREST, FEES, AND COSTS AND EXPENSES...........18
8.1. PROMISE TO PAY PRINCIPAL....................................18
8.2. PROMISE TO PAY INTEREST.....................................19
8.3. PROMISE TO PAY FEES.........................................19
8.4. PROMISE TO PAY COSTS AND EXPENSES...........................20
8.5. METHOD OF PAYMENT OF PRINCIPAL, INTEREST, FEES, AND
COSTS AND EXPENSES.......................................20
8.6. COMPUTATION OF DAILY OUTSTANDING BALANCE....................21
8.7. ACCOUNT STATED..............................................21
8.8. CAPITAL ADEQUACY.............................................21
8.9. ADDITIONAL PROVISIONS APPLICABLE TO LIBOR....................22
9. PROCEDURES AFTER SCHEDULING RECEIVABLES................................24
9.1. RETURNED MERCHANDISE........................................24
9.2. CREDITS AND EXTENSIONS......................................25
9.3. RETURNED INSTRUMENTS.......................................25
9.4. DEBIT MEMORANDA.............................................25
9.5. NOTES RECEIVABLE............................................25
10. AFFIRMATIVE COVENANTS.................................................26
10.1. FINANCIAL STATEMENTS.......................................26
10.2. GOVERNMENT AND OTHER SPECIAL RECEIVABLES...................26
10.3. TERMS OF SALE..............................................27
10.4. BOOKS AND RECORDS..........................................27
10.5. INVENTORY IN POSSESSION OF THIRD PARTIES...................27
10.6. EXAMINATIONS...............................................27
10.7. VERIFICATION OF COLLATERAL.................................27
10.8. RESPONSIBLE PARTIES........................................27
10.9. TAXES......................................................27
10.10. LITIGATION................................................28
10.11. INSURANCE.................................................28
10.12. EXISTENCE; BUSINESS.......................................28
10.13. PENSION REPORTS...........................................29
10.14. NOTICE OF NON-COMPLIANCE..................................29
10.15. COMPLIANCE WITH ENVIRONMENTAL LAWS........................29
10.16. DEFEND COLLATERAL..........................................29
10.17. USE OF PROCEEDS...........................................29
10.18. COMPLIANCE WITH LAWS......................................29
10.19. MAINTENANCE OF PROPERTY...................................29
10.20. LICENSES, PERMITS, ETC....................................30
10.21. TRADEMARKS AND PATENTS....................................30
10.22. ERISA.....................................................30
10.23. MAINTENANCE OF OWNERSHIP..................................30
10.24. ACTIVITIES OF CONSOLIDATED SUBSIDIARIES...................30
10.25. LANDLORD AND WAREHOUSEMAN WAIVERS..........................30
10.26. COMPLIANCE WITH MATERIAL AGREEMENTS........................30
10.27. OTHER NOTICES..............................................30
11. NEGATIVE COVENANTS....................................................31
11.1. LOCATION OF INVENTORY, EQUIPMENT, AND BUSINESS RECORDS.....31
11.2. BORROWED MONEY.............................................31
11.3. SECURITY INTEREST AND OTHER ENCUMBRANCES...................31
11.4. STORING AND USE OF COLLATERAL..............................31
11.5. MERGERS, CONSOLIDATIONS, OR SALES..........................31
11.6. PARTNERSHIP INTERESTS......................................31
11.7. DISTRIBUTIONS..............................................31
11.8. INVESTMENTS AND ADVANCES...................................31
11.9. GUARANTIES.................................................32
11.10. LEASES....................................................32
11.11. CAPITAL EXPENDITURES......................................32
11.12. COMPENSATION..............................................32
11.13. NAME CHANGE...............................................32
11.14. DISPOSITION OF COLLATERAL.................................32
11.15. FINANCIAL COVENANTS.......................................32
11.16. FISCAL YEAR AND ACCOUNTING METHOD.........................32
11.17. LINES OF BUSINESS.........................................32
12. EVENTS OF DEFAULT.....................................................33
12.1. EVENTS OF DEFAULT..........................................33
12.2. EFFECTS OF AN EVENT OF DEFAULT.............................35
13. SECURED PARTY'S RIGHTS AND REMEDIES...................................35
13.1. GENERALLY..................................................35
13.2. NOTIFICATION OF ACCOUNT DEBTORS............................35
13.3. POSSESSION OF COLLATERAL...................................36
13.4. COLLECTION OF RECEIVABLES..................................36
13.5. ENDORSEMENT OF CHECKS; DEBTOR'S MAIL.......................36
13.6. LICENSE TO USE PATENTS, TRADEMARKS, AND TRADENAMES.........36
14. MISCELLANEOUS.........................................................36
14.1. PERFECTING THE SECURITY INTEREST; PROTECTING THE
COLLATERAL...............................................36
14.2. PERFORMANCE OF DEBTOR'S DUTIES.............................36
14.3. NOTICE OF SALE.............................................37
14.4. WAIVER BY SECURED PARTY....................................37
14.5. WAIVER BY DEBTOR...........................................37
14.6. SETOFF.....................................................37
14.7. ASSIGNMENT.................................................37
14.8. SUCCESSORS AND ASSIGNS.....................................37
14.9. MODIFICATION...............................................37
14.10. COUNTERPARTS..............................................37
14.11. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES..................38
14.12. INDEMNIFICATION...........................................38
14.13. TERMINATION; PREPAYMENT PREMIUM...........................39
14.14. FURTHER ASSURANCES........................................40
14.15. HEADINGS..................................................40
14.16. CUMULATIVE SECURITY INTEREST, ETC.........................40
14.17. SECURED PARTY'S DUTIES....................................40
14.18. NOTICES GENERALLY.........................................40
14.19. SEVERABILITY..............................................40
14.20. INCONSISTENT PROVISIONS...................................40
14.21. USURY SAVINGS.............................................41
14.22. PARTICIPATIONS.............................................41
14.23. APPLICABLE LAW............................................41
14.24. CONSENT TO JURISDICTION...................................42
14.25. JURY TRIAL WAIVER.........................................42
14.26. ARTICLE 15.10(b)..........................................42
14.27. FINAL AGREEMENT...........................................42
Debtor and Secured Party agree as follows:
1. DEFINITIONS.
1.1. CERTAIN SPECIFIC TERMS. For purposes of this Loan and Security
Agreement (this "Agreement"), the following terms shall have the following
meanings:
(a) ACCOUNT DEBTOR means the person, firm, or entity obligated to pay
a Receivable.
(b) ADVANCE means any Revolving Loan or Term Loan made to Debtor by
Secured Party pursuant to this Agreement.
(c) BORROWING CAPACITY means, at the time of computation, the amount
specified in Item 1 of the Schedule.
(d) BUSINESS DAY means a day other than a Saturday, Sunday, or other
day on which banks are authorized or required to close under the laws of
New York or the State; provided, that such day is a day in which
transactions occur in the London interbank market, and provided, further,
that for purposes of Item 20 of the Schedule and of calculations made with
reference thereto, a Business Day shall be deemed to be the equivalent of
1.4 calendar days.
(e) COLLATERAL means collectively all of the property of Debtor
subject to the Security Interest and described in Sections 3.1 and 3.2.
(f) CONSOLIDATED SUBSIDIARY means any entity of which at least 50% of
the equity interest is owned by Debtor directly, or indirectly through one
or more of its subsidiaries. If Debtor has no Consolidated Subsidiaries,
the provisions of this Agreement relating to Consolidated Subsidiaries
shall be inapplicable without affecting the applicability of such
provisions to Debtor alone.
(g) CREDIT means any discount, allowance, credit, rebate, or
adjustment granted by Debtor with respect to a Receivable, other than a
cash discount described in Item 3 of the Schedule.
(h) DEBT SERVICE COVERAGE means, for the period of determination, a
ratio with the Net Profit After Taxes (as defined below) plus depreciation
and amortization expense as the numerator and the sum of the regular
principal payments of any long term debt due over the next 12 months as the
denominator.
(i) DEBT TO TANGIBLE NET WORTH RATIO means a ratio with total
liabilities minus the principal balance of any debt that is subordinated to
Secured Party in a manner satisfactory to Secured Party as the numerator
and with Tangible Net Worth (as defined below) as the denominator.
(j) DEBTOR means, collectively, FFPP, FFPO and Direct Fuels (as
defined on the cover page to this Agreement) and, if the context so
requires, DEBTOR shall refer to any of such parties.
(k) DISPOSAL means the intentional or unintentional abandonment,
discharge, deposit, injection, dumping, spilling, leaking, storing,
burning, thermal destruction, or placing of any Hazardous Substances so
that they or any of their constituents may enter the environment.
(l) ELIGIBLE EQUIPMENT means that Equipment of Debtor in which Secured
Party has a first-priority perfected security interest reduced by (i) any
Equipment as to which a representation or warranty contained in Section 5.5
or 5.7 is not, or does not continue to be, true and accurate; and (ii) any
Equipment which is otherwise unacceptable to Secured Party, in its
reasonable judgment.
(m) ELIGIBLE INVENTORY means all Inventory of Debtor in which Secured
Party has a first-priority perfected security interest reduced by (i) any
Inventory as to which a representation or warranty contained in Section 5.4
or 5.5 is not, or does not continue to be, true and accurate; and (ii) any
Inventory which is otherwise unacceptable to Secured Party, in its
reasonable judgment.
(n) ENVIRONMENT means any water including, but not limited to, surface
water and ground water or water vapor; any land including land surface or
subsurface; stream sediments; air; fish, wildlife, plants; and all other
natural resources or environmental media.
(o) ENVIRONMENTAL LAWS means all federal, state, and local
environmental, land use, zoning, health, chemical use, safety and
sanitation laws, statutes, ordinances, regulations, codes, and rules
relating to the protection of the Environment and/or governing the use,
storage, treatment, generation, transportation, processing, handling,
production, or disposal of Hazardous Substances and the policies,
guidelines, procedures, interpretations, decisions, orders, and directives
of federal, state, and local governmental agencies and authorities with
respect thereto.
(p) ENVIRONMENTAL PERMITS means all licenses, permits, approvals,
authorizations, consents, or registrations required by any applicable
Environmental Laws and all applicable judicial and administrative orders in
connection with ownership, lease, purchase, transfer, closure, use, and/or
operation of any property owned, leased, or operated by Debtor or any
Consolidated Subsidiary and/or as may be required for the storage,
treatment, generation, transportation, processing, handling, production, or
disposal of Hazardous Substances.
(q) ENVIRONMENTAL QUESTIONNAIRE means a questionnaire and all
attachments thereto concerning (i) activities and conditions affecting the
Environment at any property of Debtor or any Consolidated Subsidiary or
(ii) the enforcement or possible enforcement of any Environmental Law
against Debtor or any Consolidated Subsidiary.
(r) ENVIRONMENTAL REPORT means a written report prepared for Secured
Party by an environmental consulting or environmental engineering firm.
(s) ERISA means the Employee Retirement Income Security Act of 1974,
as amended from time to time.
(t) EURODOLLAR INTEREST PERIOD means the period of time for which
LIBOR shall be in effect as to any Advance bearing interest at LIBOR,
commencing on the date of the Advance or the expiration date of the
immediately preceding Eurodollar Interest Period, as the case may be,
applicable to and ending on the effective date of any rate change or rate
continuation made as provided in Section 8.9(a) as a Debtor may specify in
a Notice of Continuation/Conversion, subject, however to the early
termination provisions herein; provided, however, that (i) any Eurodollar
Interest Period which would otherwise end on a day which is not a Business
Day shall be extended to the next succeeding Business Day unless such
Business Day falls in another calendar month, in which case such Eurodollar
Interest Period shall end on the next preceding Business Day, (ii) each
Eurodollar Interest Period shall be three or six calendar months for each
Revolving Loan, and six or twelve calendar months for the Term Loan, or be
of such other length as the Debtor and the Secured Party may mutually
agree, (iii) a Eurodollar Interest Period may not be selected for any
Advance if such period would terminate later than the time specified in
Section 14.13(a), and (iv) a Eurodollar Interest Period may not be selected
for any Advance if such period would terminate beyond a date on which a
scheduled payment of principal on such Advance is required.
(u) EURODOLLAR LENDING OFFICE means the office specified as the
Secured Party's "Eurodollar Lending Office" in Item 37 of the Schedule.
(v) EURODOLLAR RESERVE PERCENTAGE means, for any Eurodollar Interest
Period for any Advance bearing interest at LIBOR, the reserve percentage
applicable during such Eurodollar Interest Period (or if more than one such
percentage shall be so applicable, the daily average of such percentages
for those days in such Eurodollar Interest Period during which any such
percentage shall be so applicable) under regulations issued from time to
time by the Board of Governors of the Federal Reserve System.
(w) EVENT OF DEFAULT means an Event of Default or Events of Default as
defined in Section 12.1.
(x) EXTENSION means the granting to an Account Debtor of additional
time within which such Account Debtor is required to pay a Receivable.
(y) FEDERAL BANKRUPTCY CODE means Title 11 of the United States Code,
entitled "Bankruptcy," as amended, or any successor federal bankruptcy law.
(z) GUARANTOR means, collectively, Direct Fuels Management Company,
Inc. and FFP Partners Management Company, Inc., and if the context so
requires, GUARANTOR shall refer to any of such parties.
(aa) HAZARDOUS SUBSTANCES means, without limitation, any explosives,
radon, radioactive materials, asbestos, urea formaldehyde foam insulation,
polychlorinated biphenyls, petroleum and petroleum products, methane,
hazardous materials, hazardous wastes, hazardous or toxic substances, and
any other material defined as a hazardous substance in Section 101(14) of
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, 42 U.S.C. Section 9601(14).
(bb) HIGHEST LAWFUL RATE means, with respect to the Secured Party and
Marine Midland Bank, the maximum nonusurious interest rate, if any, that at
any time or from time to time may be contracted for, taken, reserved,
charged or received with respect to the Advances or on other amounts, if
any, due to Secured Party or Marine Midland Bank pursuant to this Agreement
or any other Transaction Document, under laws applicable to Secured Party
and Marine Midland Bank which are presently in effect, or, to the extent
allowed by law, under such applicable laws which may hereafter be in effect
and which allow a higher maximum nonusurious interest rate than applicable
laws now allow.
(cc) INDEBTEDNESS means the indebtedness secured by the Security
Interest and described in Section 3.3.
(dd) INELIGIBLE RECEIVABLES means the following described Receivables
and any other Receivables which are not reasonably satisfactory to Secured
Party for credit or any other reason:
(i) Any Receivable which has remained unpaid for more than the number
of days specified in Item 4 of the Schedule.
(ii) Any Receivable with respect to which a representation or warranty
contained in Sections 5.3, 5.5, or 5.6 is not, or does not continue to be,
true and accurate, including, without limitation, any Receivable subject to
a setoff.
(iii) Any Receivable with respect to which Debtor has extended the
time for payment without the consent of Secured Party, except as provided
in Section 9.2(a).
(iv) Any Receivable as to which any one or more of the following
events occurs: a request or petition for liquidation, reorganization,
arrangement, adjustment of debts, adjudication as a bankrupt, or other
relief under the bankruptcy, insolvency, or similar laws of the United
States, any state or territory thereof, or any foreign jurisdiction, now or
hereafter in effect, shall be filed by or against a Responsible Party; a
Responsible Party shall make any general assignment for the benefit of
creditors; a receiver or trustee, including, without limitation, a
"custodian," as defined in the Federal Bankruptcy Code, shall be appointed
for a Responsible Party or for any of the assets of a Responsible Party;
any other type of insolvency proceeding with respect to a Responsible Party
(under the bankruptcy laws of the United States or otherwise) or any formal
or informal proceeding for the dissolution or liquidation of, settlement of
claims against, or winding up of affairs of, a Responsible Party shall be
instituted; all or any material part of the assets of a Responsible Party
shall be sold, assigned, or transferred; a Responsible Party shall fail to
pay its debts as they become due; or a Responsible Party shall cease doing
business as a going concern.
(v) All Receivables owed by an Account Debtor owing Receivables
classified as ineligible under any criterion set forth in any of Sections
1.1(dd)(i) through 1.1(dd)(iv), if the outstanding dollar amount of such
Receivables constitutes a percentage of the aggregate outstanding dollar
amount of all Receivables owed by such Account Debtor equal to or greater
than the percentage specified in Item 5 of the Schedule.
(vi) All Receivables owed by an Account Debtor which does not maintain
its chief executive office in the United States or which is not organized
under the laws of the United States or any state, unless otherwise
specified in Item 6 of the Schedule.
(vii) All Receivables owed by an Account Debtor if Debtor or any
person who, or entity which, directly or indirectly controls Debtor, either
owns in whole or material part, or directly or indirectly controls, such
Account Debtor.
(viii) Any Receivable arising from a consignment or other arrangement,
pursuant to which the subject Inventory is returnable if not sold or
otherwise disposed of by the Account Debtor; any Receivable constituting a
partial billing under terms providing for payment only after full shipment
or performance; any Receivable arising from a bill and hold sale or in
connection with any prebilling where the Inventory or services have not
been delivered, performed, or accepted by the Account Debtor if Secured
Party has not entered into a written agreement satisfactory to Secured
Party with such Account Debtor relating to such Receivables; and any
Receivable as to which the Account Debtor contends the balance reported by
Debtor is incorrect or not owing.
(ix) Any Receivable which is unenforceable against the Account Debtor
for any reason.
(x) Any Receivable which is an Instrument, Document, or Chattel Paper
or which is evidenced by a note, draft, trade acceptance, or other
instrument for the payment of money where such Instrument, Document,
Chattel Paper, note, draft, trade acceptance, or other instrument has not
been endorsed and delivered by Debtor to Secured Party.
(xi) Any Receivable or Receivables owed by an Account Debtor which
exceeds any credit limit established by Secured Party for such Account
Debtor; provided, that such Receivable or Receivables shall be ineligible
only to the extent of such excess.
(ee) INTANGIBLE ASSETS means (1) all loans or advances to, and other
receivables owing from, any officers, employees, subsidiaries and other
affiliates, (2) all investments, whether in a subsidiary or otherwise, (3)
goodwill, (4) any other assets deemed intangible under generally accepted
accounting principles, and (5) any other assets deemed intangible by
Secured Party in its reasonable credit judgement.
(ff) INTERNAL REVENUE CODE means the Internal Revenue Code of 1986, as
amended from time to time.
(gg) INVENTORY means inventory, as defined in the Uniform Commercial
Code as in effect in the State as of the date of this Agreement, and in any
event shall include returned or repossessed Goods.
(hh) INVENTORY BORROWING BASE means, at the time of computation, an
amount up to the percentages specified in Item 2 of the Schedule of the
dollar value of Eligible Inventory, such dollar value to be calculated at
the lower of actual cost or market value and accounted for in the manner
specified in Item 7 of the Schedule, less the amount of any reserves
established by Secured Party in accordance with Section 2.3.
(ii) INVOICE means any document or documents used, or to be used, to
evidence a Receivable.
(jj) LETTER OF CREDIT means any documentary or standby letter of
credit issued by Marine Midland Bank for the account of the Debtor.
(kk) LIBOR means with respect to the applicable Eurodollar Interest
Period in effect for each Advance bearing interest at LIBOR, the quotient
obtained by dividing (a) the annual rate of interest determined by Marine
Midland Bank, at or before 10:00 a.m. (London time) (or as soon thereafter
as practicable), on the third Business Day prior to the first day of such
Eurodollar Interest Period, to be the annual rate of interest at which
deposits of U.S. dollars are offered to Marine Midland Bank by prime banks
in the London interbank market as may be selected by Marine Midland Bank in
its sole discretion, acting in good faith, at the time of determination and
in accordance with the then existing practice in such market for delivery
on the first day of such Eurodollar Interest Period in immediately
available funds and having a maturity equal to such Eurodollar Interest
Period in an amount equal (or as nearly equal as may be possible) to the
unpaid principal amount of such Advance by (b) a percentage equal to 100%
minus the Eurodollar Reserve Percentage for such Eurodollar Interest
Period. Each determination of LIBOR made by Marine Midland Bank in
accordance with this paragraph shall be conclusive except in the case of
manifest error.
(ll) MARINE PAYMENT ACCOUNT means the special bank account to which
Proceeds of Collateral, including, without limitation, payments on
Receivables and other payments from sales or leases of Inventory, are
credited. There is a Marine Payment Account if so indicated in Item 8 of
the Schedule.
(mm) NET PROFIT AFTER TAXES means, for a period of determination, net
income after provisions for taxes for such period, determined in accordance
with generally accepted accounting principles consistently applied.
(nn) NOTICE OF CONTINUATION/CONVERSION is defined in Section 8.9(a).
(oo) PENSION EVENT means, with respect to any Pension Plan, the
occurrence of (i) any prohibited transaction described in Section 406 of
ERISA or in Section 4975 of the Internal Revenue Code; (ii) any Reportable
Event; (iii) any complete or partial withdrawal, or proposed complete or
partial withdrawal, of Debtor or any Consolidated Subsidiary from such
Pension Plan; (iv) any complete or partial termination, or proposed
complete or partial termination, of such Pension Plan; or (v) any
accumulated funding deficiency (whether or not waived), as defined in
Section 302 of ERISA or in Section 412 of the Internal Revenue Code.
(pp) PENSION PLAN means any pension plan, as defined in Section 3(2)
of ERISA, which is a multiemployer plan or a single employer plan, as
defined in Section 4001 of ERISA, and subject to Title IV of ERISA and
which is (i) a plan maintained by Debtor or any Consolidated Subsidiary for
employees or former employees of Debtor or of any Consolidated Subsidiary;
(ii) a plan to which Debtor or any Consolidated Subsidiary contributes or
is required to contribute; (iii) a plan to which Debtor or any Consolidated
Subsidiary was required to make contributions at any time during the five
(5) calendar years preceding the date of this Agreement; or (iv) any other
plan with respect to which Debtor or any Consolidated Subsidiary has
incurred or may incur liability, including, without limitation, contingent
liability, under Title IV of ERISA either to such plan or to the Pension
Benefit Guaranty Corporation. For purposes of this definition, and for
purposes of Sections 1.1(ii), 5.12, and 12.1(i), Debtor shall include any
trade or business (whether or not incorporated) which, together with Debtor
or any Consolidated Subsidiary, is deemed to be a "single employer" within
the meaning of Section 4001(b)(1) of ERISA.
(qq) PRIME RATE means the rate of interest publicly announced by
Marine Midland Bank from time to time as its prime rate, which rate is a
base rate for calculating interest on certain loans. The rate announced by
Marine Midland Bank as its prime rate may or may not be the most favorable
rate charged by Marine Midland Bank to its customers.
(rr) RECEIVABLE means the right to payment for Goods sold or leased or
services rendered by Debtor, whether or not earned by performance, and may,
without limitation, in whole or in part be in the form of an Account,
Chattel Paper, Document, or Instrument.
(ss) RECEIVABLES BORROWING BASE means, at the time of its computation,
the aggregate amount of the outstanding Receivables in which Secured Party
has a first priority perfected security interest (adjusted with respect to
Credits and returned merchandise as provided in Article 9 hereof) less the
amount of Ineligible Receivables and any reserves established by Secured
Party in accordance with Section 2.3.
(tt) RELEASE means "release," as defined in Section 101(22) of the
Comprehensive, Environmental Response, Compensation and Liability Act of
1980, 42 U.S.C. Section 9601(22), and the regulations promulgated
thereunder.
(uu) REPORTABLE EVENT means any event described in Section 4043(b) of
ERISA or in regulations issued thereunder with regard to a Pension Plan.
(vv) RESPONSIBLE PARTY means an Account Debtor, a general partner of
an Account Debtor, or any party otherwise in any way directly or indirectly
liable for the payment of a Receivable.
(ww) REVOLVING LOAN is defined in Section 2.1.
(xx) SCHEDULE means the schedule executed in connection with, and
which is a part of, this Agreement.
(yy) SECURED PARTY means the person or entity defined on the cover
page of this Agreement and any successors or assigns of Secured Party.
(zz) SECURITY INTEREST means the security interest granted to Secured
Party by Debtor as described in Section 3.1.
(aaa) SOLVENT means, with respect to any person or entity on a
particular determination date, that on such date (i) the fair value of the
property of such person or entity is greater than the total amount of debts
and other liabilities, including, without limitation, contingent and
unliquidated liabilities, of such person or entity; (ii) the present fair
salable value of the assets of such person or entity is greater than the
amount that will be required to pay the probable liability of such person
or entity on its existing debts and other liabilities as they become
absolute and matured; (iii) such person or entity is able to realize upon
its assets and pay its debts and other liabilities, contingent obligations,
and other commitments as they mature in the normal course of business; (iv)
such person or entity does not intend to, and does not believe that it
will, incur debts or other liabilities beyond such person's or entity's
ability to pay as such debts and other liabilities mature or become due;
and (v) such person or entity is not engaged in a business or transaction,
and is not about to engage in a business or a transaction, for which such
person's or entity's property would constitute unreasonably small capital.
(bbb) STATE means the State of the United States specified in Item 31
of the Schedule.
(ccc) TANGIBLE NET WORTH means the sum of stockholders' and owners'
equity plus the principal balance of any debt that is subordinated to
Secured Party in a manner satisfactory to Secured Party minus the book
value of Intangible Assets (as defined above), all determined in accordance
with generally accepted accounting principles consistently applied.
(ddd) TERM LOAN is defined in Section 2.5.
(eee) THIRD PARTY means any person or entity who has executed and
delivered, or who in the future may execute and deliver, to Secured Party
any agreement, instrument, or document, pursuant to which such person or
entity has guaranteed to Secured Party the payment of the Indebtedness or
has granted Secured Party a security interest in or lien on some or all of
such person's or entity's real or personal property to secure the payment
of the Indebtedness.
(fff) TRANSACTION DOCUMENTS means this Agreement and all documents,
including, without limitation, collateral documents, letter of credit
agreements, notes, acceptance credit agreements, security agreements,
pledges, guaranties, mortgages, title insurance, assignments, and
subordination agreements required to be executed by Debtor, any Third
Party, or any Responsible Party pursuant hereto or in connection herewith.
(ggg) TREASURY RATE means the weekly average yield on United States
Treasury Securities-Constant Maturity Series issued by the United States
Government for a term of three (3) years, as most recently published by the
Federal Reserve Board in Federal Reserve Statistical Release H.15(519),
immediately prior to the date of the applicable Advance. Each determination
of the Treasury Rate by the Secured Party shall, in the absence of manifest
error, be conclusive and binding. The parties understand and agree that at
any particular time Secured Party may not be able to obtain a quotation of
an applicable Treasury Rate and in such circumstance the Treasury Rate will
not be available.
(hhh) VALIDITY GUARANTY means an unlimited, continuing guaranty of the
validity of the collateral by Steven B. Hawkins or other officers of the
Debtor acceptable to the Secured Party, in a form acceptable to the Secured
Party.
(iii) VALUE means, with respect to Inventory, the lower of actual cost
or market value, with respect to Equipment, the net book value, and with
respect to Real Property, the fair market value, in each case as determined
by appraisers acceptable to Secured Party in its sole discretion.
1.2. SINGULARS AND PLURALS. Unless the context otherwise requires,
words in the singular number include the plural, and in the plural include
the singular.
1.3. UCC DEFINITIONS. Unless otherwise defined in Section 1.1 or
elsewhere in this Agreement, capitalized words shall have the meanings set
forth in the Uniform Commercial Code as in effect in the State as of the
date of this Agreement.
2. ADVANCES.
2.1. REQUESTS FOR ADVANCES FOR REVOLVING LOANS. From time to time
prior to the expiration of this Agreement, each Debtor may make a written
or oral request for an Advance as a revolving loan so long as the sum of
the aggregate principal balance of all outstanding revolving loans and such
requested Advance of such requesting Debtor does not exceed the Borrowing
Capacity designated for such requesting Debtor as then computed (each, a
"Revolving Loan"); and Secured Party shall make such requested Advance,
provided that (i) the Borrowing Capacity would not, after giving effect to
the requested Advance, be so exceeded; (ii) there has not occurred an Event
of Default or an event which, with notice or lapse of time or both, would
constitute an Event of Default; and (iii) all representations and
warranties contained in this Agreement and in the other Transaction
Documents are true and correct on the date such requested Advance is made
as though made on and as of such date. Notwithstanding any other provision
of this Agreement, Secured Party may from time to time reduce the
percentages applicable to the Receivables Borrowing Base and the Inventory
Borrowing Base as they relate to amounts of the Borrowing Capacity if
Secured Party determines in its reasonable judgment, that there has been a
material change in circumstances related to any or all Receivables or
Inventory from those circumstances in existence on or prior to the date of
this Agreement or in the financial or other condition of Debtor. Subject to
the provisions contained in Section 8.9 herein, if Secured Party shall
reduce such percentage, then Debtor shall have the right to prepay in full
the total outstanding balance owing to Secured Party under this Agreement
without penalty, notwithstanding the provisions contained in Section
14.13(b) herein; provided, however, there shall not have occurred an Event
of Default. Each oral request for an Advance shall be conclusively presumed
to be made by a person authorized by Debtor to do so, and the making of the
Advance to Debtor as hereinafter provided shall conclusively establish
Debtor's obligation to repay the Advance.
2.2. PROCEEDS OF ADVANCES FOR REVOLVING LOANS. Advances shall be made
in the manner agreed by Debtor and Secured Party in writing or, absent any
such agreement, as determined by Secured Party.
2.3. ESTABLISHMENT OF RESERVES. Secured Party may, at any time and
from time to time, in its reasonable judgment, establish reserves against
the Receivables or the Inventory of Debtor. The amount of such reserves
shall be subtracted from the Receivables Borrowing Base or Inventory
Borrowing Base, as applicable, when calculating the amount of the Borrowing
Capacity. Subject to the provisions contained in Section 8.9 herein, if
Secured Party shall establish such reserve, then Debtor shall have the
right to prepay in full the total outstanding balance owing to Secured
Party under this Agreement without penalty, notwithstanding the provisions
contained in Section 14.13(b) herein; provided, however, there shall not
have occurred an Event of Default.
2.4. LETTERS OF CREDIT. At the request of Debtor, and upon execution
of Letter of Credit documentation satisfactory to Marine Midland Bank,
Secured Party, within the limits of the Borrowing Capacity as then
computed, may guarantee Letters of Credit issued from time to time by the
Marine Midland Bank for the account of Debtor in an amount not exceeding in
the aggregate at any one time outstanding the amount set forth in Item 9 of
the Schedule. The Letters of Credit shall be on terms mutually acceptable
to Secured Party and Debtor and no Letters of Credit shall have an
expiration date later than the termination date of this Agreement. An
Advance in an amount equal to any amount paid by Marine Midland Bank on any
draft drawn under any Letter of Credit shall be made to Debtor, and the
proceeds thereof delivered to Marine Midland Bank, immediately upon
notification to Secured Party that Marine Midland Bank made payment on such
draft. In connection with the issuance of any Letters of Credit, Debtor
shall pay to Secured Party the applicable fees charged by Marine Midland
Bank.
2.5 TERM LOAN. A term loan in the amount of $8,000,000 (the "Term
Loan") is available to Debtor in a one-time Advance on the date of this
Agreement.
2.6 JOINT AND SEVERAL LIABILITY. FFPP, FFPO and Direct Fuels shall be
jointly and severally liable for each Revolving Loan, each Letter of Credit
and the Term Loan.
3. COLLATERAL AND INDEBTEDNESS SECURED.
3.1. SECURITY INTEREST. Debtor hereby grants to Secured Party a
security interest in, and a lien on, the following property of Debtor
wherever located and whether now owned or hereafter acquired:
(a) All Accounts, Inventory, Goods, Fixtures, Chattel Paper,
Documents, and Instruments, whether or not specifically assigned to Secured
Party (including, without limitation, all Receivables).
(b) All General Intangibles, whether or not assigned to Secured Party,
including without limitation, contracts, contract rights and general
intangibles of Debtor, including without limitation all tax refunds,
claims, causes of action, judgments, franchises, permits, licenses, supply
contracts, purchase contracts, agreements, goodwill, trademarks,
copyrights, trade secrets, patents, and all rights and benefits of Debtor
with respect thereto.
(c) All Equipment (whether or not affixed to realty), whether now
owned or hereafter acquired, wherever located unless otherwise set forth on
Exhibit B, under the heading Capital Leases Secured by Equipment.
(d) All guaranties, collateral, liens on, or security interests in,
real or personal property, leases, letters of credit, and other rights,
agreements, and property securing or relating to payment of Receivables.
(e) All books, records, ledger cards, data processing records,
computer software, and other property at any time evidencing or relating to
Collateral.
(f) All monies, securities, and other property now or hereafter held,
or received by, or in transit to, Secured Party from or for Debtor, and all
of Debtor's deposit accounts, credits, and balances with Secured Party
existing at any time.
(g) All parts, accessories, attachments, special tools, additions,
replacements, substitutions, and accessions to or for all of the foregoing.
(h) All proceeds of letters of credit of which Debtor is the
beneficiary or in which Debtor has a beneficial interest.
(i) All proceeds and products of all of the foregoing in any form,
including, without limitation, amounts payable under any policies of
insurance insuring the foregoing against loss or damage, and all increases
and profits received from all of the foregoing.
3.2. OTHER COLLATERAL.
Nothing contained in this Agreement shall limit the rights of Secured
Party in and to any other collateral securing the Indebtedness which may
have been, or may hereafter be, granted to Secured Party by Debtor or any
Third Party, pursuant to any other agreement.
3.3. INDEBTEDNESS SECURED. The Security Interest secures payment of
any and all indebtedness, and performance of all obligations and
agreements, of Debtor to Secured Party, whether now existing or hereafter
incurred or arising, of every kind and character, primary or secondary,
direct or indirect, absolute or contingent, sole, joint or several, and
whether such indebtedness is from time to time reduced and thereafter
increased, or entirely extinguished and thereafter reincurred, including,
without limitation: (a) all Advances; (b) all interest which accrues on any
such indebtedness, until payment of such indebtedness in full, including,
without limitation, all interest provided for under this Agreement; (c) all
other monies payable by Debtor, and all obligations and agreements of
Debtor to Secured Party, pursuant to the Transaction Documents; (d) all
debts owed, or to be owed, by Debtor to others which Secured Party has
obtained, or may obtain, by assignment or otherwise; (e) all monies payable
by any Third Party, and all obligations and agreements of any Third Party
to Secured Party, pursuant to any of the Transaction Documents; and (f) all
monies due, and to become due, pursuant to Section 8.3.
4. CONDITIONS TO ADVANCES. Notwithstanding any other provision of this
Agreement or any of the other Transaction Documents, and without affecting
in any manner the rights of Secured Party under any other provision of this
Agreement, Secured Party shall not be obligated to make Advances unless and
until the following conditions have been, and continue to be, satisfied:
4.1. PARTNERSHIP ACTION. Debtor shall have taken all necessary and
appropriate partnership action, and the Partners of Debtor shall have
adopted resolutions authorizing, and the partners of Debtor (to the extent
required under Debtor's organizational documents or applicable law) shall
have consented to, this Agreement, and the borrowings hereunder, the
execution and delivery of the Transaction Documents and the taking of all
action required of Debtor by the Transaction Documents; and Debtor shall
have furnished to Secured Party certified copies of such partnership
resolutions and such other corporate documents as Secured Party shall
reasonably request.
4.2. PARTNERSHIP DOCUMENTS. There shall have been furnished to Secured
Party (a) copies of the certificate of limited partnership and limited
partnership agreements of Debtor, certified by its general partner as of
the date of this Agreement; (b) a certificate of Debtor's existence or
equivalent certificate duly issued of recent date by the Secretary of State
of the state specified in Item 10 of the Schedule, and certificates of
authority to do business in each state in which Debtor is licensed or
qualified to do business; (c) a certificate of incumbency specifying the
officers of the general partner of Debtor, together with their specimen
signatures; and (d) such other and further documents as Secured Party may
reasonably request, including, without limitation, tax status reports
covering payment of franchise taxes, if any, and other taxes.
4.3. OPINIONS. Independent counsel for Debtor shall have furnished to
Secured Party their favorable opinion, in form and content satisfactory to
Secured Party and Debtor and their respective counsel, dated the date of
this Agreement. If this Agreement is being executed and delivered in
connection with the acquisition of stock or assets by Debtor, Debtor shall
also have caused the seller of such stock or assets to furnish to Secured
Party an opinion of counsel for such seller or a letter authorizing Secured
Party to rely on such an opinion, in form and content satisfactory to
Secured Party and its counsel, dated the date of this Agreement.
4.4. TRANSACTION DOCUMENTS. Debtor shall have delivered to Secured
Party all the Transaction Documents, as required by, and in form and
content satisfactory to, Secured Party and its counsel.
4.5. THIRD PARTY ACTION. Each Third Party shall have (i) taken all
necessary and appropriate corporate and shareholder action, and the Board
of Directors of the Third Party shall have adopted resolutions authorizing
the execution and delivery of the guaranty of such Third Party and the
taking of all action called for thereby; and (ii) furnished to Secured
Party certified copies of evidence of such corporate and shareholder action
and such other corporate documents as Secured Party shall reasonably
request.
4.6. GUARANTIES. Guarantors shall have executed and delivered to
Secured Party guaranties in form and substance acceptable to Secured Party,
covering all indebtedness of Debtor to Secured Party, however incurred and
whenever arising, containing a waiver of subrogation and similar rights,
and the Secured Party shall have received the Validity Guaranty in form and
substance acceptable to Secured Party.
4.7. OTHER MATTERS. All matters incidental to the execution and
delivery of the Transaction Documents, and all action required by the
Transaction Documents, shall be satisfactory to Secured Party and to its
counsel.
5. REPRESENTATIONS AND WARRANTIES. To induce Secured Party to enter
into this Agreement, and make Advances to Debtor from time to time as
herein provided, Debtor represents and warrants and, so long as any
Indebtedness remains unpaid or this Agreement remains in effect, shall be
deemed continuously to represent and warrant as follows:
5.1. PARTNERSHIP EXISTENCE. Debtor is duly organized and existing
under the laws of the state specified in Item 10 of the Schedule and is
duly licensed or qualified to do business and in good standing in every
state in which the nature of its business or ownership of its property
requires such licensing or qualification.
5.2. PARTNERSHIP CAPACITY. The execution, delivery, and performance of
the Transaction Documents are within Debtor's powers, have been duly
authorized by all necessary and appropriate partnership action, and are not
in contravention of any law or the terms of Debtor's certificate of limited
partnership or limited partnership agreement or any amendment thereto, or
of any indenture, agreement, undertaking, or other document to which Debtor
is a party or by which Debtor or any of Debtor's property is bound or
affected.
5.3. VALIDITY OF RECEIVABLES. (a) Each Receivable is genuine and
enforceable in accordance with its terms and represents an undisputed and
bona fide indebtedness owing to Debtor by the Account Debtor obligated
thereon; (b) there are no defenses, setoffs, or counterclaims against any
Receivable; (c) no payment has been received on any Receivable, and no
Receivable is subject to any Credit or Extension or agreements therefor
unless written notice specifying such payment, Credit, Extension, or
agreement has been delivered to Secured Party; (d) each copy of each
Invoice is a true and genuine copy of the original Invoice sent to the
Account Debtor named therein and accurately evidences the transaction from
which the underlying Receivable arose, and the date payment is due as
stated on each such Invoice or computed based on the information set forth
on each such Invoice is correct; (e) all Chattel Paper, and all promissory
notes, drafts, trade acceptances, and other instruments for the payment of
money relating to or evidencing each Receivable, and each endorsement
thereon, are true and genuine and in all respects what they purport to be,
and are the valid and binding obligation of all parties thereto, and the
date or dates stated on all such items as the date on which payment in
whole or in part is due is correct; (f) all Inventory described in each
Invoice has been delivered to the Account Debtor named in such Invoice or
placed for such delivery in the possession of a carrier not owned or
controlled directly or indirectly by Debtor; (g) all evidence of the
delivery or shipment of Inventory is true and genuine; (h) all services to
be performed by Debtor in connection with each Receivable have been
performed by Debtor; and (i) all evidence of the performance of such
services by Debtor is true and genuine.
5.4. INVENTORY. (a) All representations made by Debtor to Secured
Party, and all documents and schedules given by Debtor to Secured Party,
relating to the description, quantity, quality, condition, and valuation of
the Inventory are true and correct; (b) Debtor has not received any
Inventory on consignment or approval unless Debtor (i) has delivered
written notice to Secured Party describing any Inventory which Debtor has
received on consignment or approval, (ii) has marked such Inventory on
consignment or approval or has segregated it from all other Inventory, and
(iii) has appropriately marked its records to reflect the existence of such
Inventory on consignment or approval; (c) Inventory is located only at the
address or addresses of Debtor set forth at the beginning of this
Agreement, the locations specified in Item 11 of the Schedule, or such
other place or places as approved by Secured Party in writing; (d) all
Inventory is insured as required by Section 10.11, pursuant to policies in
full compliance with the requirements of such Section; and (e) all
Inventory has been produced by Debtor in accordance with the Federal Fair
Labor Standards Act of 1938, as amended, and all rules, regulations, and
orders promulgated thereunder.
5.5. TITLE TO COLLATERAL. (a) Debtor is the owner of the Collateral
free of all security interests, liens, and other encumbrances except the
Security Interest and except as described in Item 12 of the Schedule; (b)
Debtor has the unconditional authority to grant the Security Interest to
Secured Party; and (c) assuming that all necessary Uniform Commercial Code
filings have been made and, if applicable, assuming compliance with the
Federal Assignment of Claims Act of 1940, as amended, Secured Party has an
enforceable first lien on all Collateral, subordinate only to those
security interests, liens, or encumbrances described as having priority
over the Security Interest in Item 12 of the Schedule.
5.6. NOTES RECEIVABLE. No Receivable is an Instrument, Document, or
Chattel Paper or is evidenced by any note, draft, trade acceptance, or
other instrument for the payment of money, except such Instrument,
Document, Chattel Paper, note, draft, trade acceptance, or other instrument
as has been endorsed and delivered by Debtor to Secured Party and has not
been presented for payment and returned uncollected for any reason.
5.7. EQUIPMENT. Equipment is located, and Equipment which is a Fixture
is affixed to real property, only at the address or addresses of Debtor set
forth at the beginning of this Agreement, the locations specified in Item
11 of the Schedule, or such other place or places as approved by Secured
Party in writing. Such real property is owned by Debtor or by the person or
persons named in Item 11 of the Schedule and if owned by the Debtor is
encumbered only by the mortgage or mortgages listed in Item 11 of the
Schedule.
5.8. PLACE OF BUSINESS. (a) Unless otherwise disclosed to Secured
Party in Item 11 or Item 13 of the Schedule, Debtor is engaged in business
operations which are in whole, or in part, carried on at the address or
addresses specified at the beginning of this Agreement and at no other
address or addresses; (b) if Debtor has more than one place of business,
its chief executive office is at the address specified as such at the
beginning of this Agreement; and (c) Debtor's records concerning the
Collateral are kept at the address or addresses specified at the beginning
of this Agreement or in Item 13 of the Schedule.
5.9. FINANCIAL CONDITION. Debtor has furnished to Secured Party
Debtor's most current financial statements, which statements represent
correctly and fairly the results of the operations and transactions of
Debtor and the Consolidated Subsidiaries as of the dates, and for the
period referred to, and have been prepared in accordance with generally
accepted accounting principles consistently applied during each interval
involved and from interval to interval. Since the date of such financial
statements, there have not been any materially adverse changes in the
financial condition reflected in such financial statements, except as
disclosed in writing by Debtor to Secured Party.
5.10. TAXES. Except as disclosed in writing by Debtor to Secured
Party: (a) all federal and other tax returns required to be filed by Debtor
and each Consolidated Subsidiary have been filed, and all taxes required by
such returns have been paid; and (b) neither Debtor nor any Consolidated
Subsidiary has received any notice from the Internal Revenue Service or any
other taxing authority proposing additional taxes.
5.11. LITIGATION. Except as disclosed in writing by Debtor to Secured
Party, there are no actions, suits, proceedings, or investigations pending
or, to the knowledge of Debtor, threatened against Debtor or any
Consolidated Subsidiary or any basis therefor which, if adversely
determined, would, in any case or in the aggregate, materially adversely
affect the property, assets, financial condition, or business of Debtor or
any Consolidated Subsidiary or materially impair the right or ability of
Debtor or any Consolidated Subsidiary to carry on its operations
substantially as conducted on the date of this Agreement.
5.12. ERISA MATTERS. (a) No Pension Plan has been terminated, or
partially terminated, or is insolvent, or in reorganization, nor have any
proceedings been instituted to terminate or reorganize any Pension Plan;
(b) neither Debtor nor any Consolidated Subsidiary has withdrawn from any
Pension Plan in a complete or partial withdrawal, nor has a condition
occurred which, if continued, would result in a complete or partial
withdrawal; (c) neither Debtor nor any Consolidated Subsidiary has incurred
any withdrawal liability, including, without limitation, contingent
withdrawal liability, to any Pension Plan, pursuant to Title IV of ERISA;
(d) neither Debtor nor any Consolidated Subsidiary has incurred any
liability to the Pension Benefit Guaranty Corporation other than for
required insurance premiums which have been paid when due; (e) no
Reportable Event has occurred; (f) no Pension Plan or other "employee
pension benefit plan," as defined in Section 3(2) of ERISA, to which Debtor
or any Consolidated Subsidiary is a party has an "accumulated funding
deficiency" (whether or not waived), as defined in Section 302 of ERISA or
in Section 412 of the Internal Revenue Code; (g) the present value of all
benefits vested under any Pension Plan does not exceed the value of the
assets of such Pension Plan allocable to such vested benefits; (h) each
Pension Plan and each other "employee benefit plan," as defined in Section
3(3) of ERISA, to which Debtor or any Consolidated Subsidiary is a party is
in substantial compliance with ERISA, and no such plan or any
administrator, trustee, or fiduciary thereof has engaged in a prohibited
transaction described in Section 406 of ERISA or in Section 4975 of the
Internal Revenue Code; (i) each Pension Plan and each other "employee
benefit plan," as defined in Section 3(2) of ERISA, to which Debtor or any
Consolidated Subsidiary is a party has received a favorable determination
by the Internal Revenue Service with respect to qualification under Section
401(a) of the Internal Revenue Code; and (j) neither Debtor nor any
Consolidated Subsidiary has incurred any liability to a trustee or trust
established pursuant to Section 4049 of ERISA or to a trustee appointed
pursuant to Section 4042(b) or (c) of ERISA.
5.13. ENVIRONMENTAL MATTERS.
Except as provided in Exhibit D:
(a) Any Environmental Questionnaire previously provided to Secured
Party was and is accurate and complete and does not omit any material fact
the omission of which would make the information contained therein
materially misleading.
(b) No above ground or underground storage tanks containing Hazardous
Substances are, or have been located on, any property owned, leased, or
operated by Debtor or any Consolidated Subsidiary, except to the extent
permitted by law. Any such storage tank owned, leased, or operated by
Debtor materially complies with all Environmental Laws and neither is
leaking nor has leaked to a degree which would require remediation under
any applicable Environmental Laws, and that any and all acts required under
applicable Environmental Laws in connection with any such leakage have been
performed.
(c) No property owned, leased, or operated by Debtor or any
Consolidated Subsidiary is, or to the knowledge of Debtor has been, used
for the Disposal of any Hazardous Substance or for the treatment or
Disposal of Hazardous Substances, except to the extent permitted by law.
(d) No Release of any Hazardous Substances to the knowledge of Debtor
has occurred, or is threatened on, at or from any property owned, leased,
controlled, or operated by Debtor or any Consolidated Subsidiary.
(e) Neither Debtor nor any Consolidated Subsidiary has knowledge of
any existing, pending, or threatened suit, claim, notice of violation, or
request for information under any Environmental Law.
(f) Debtor and each Consolidated Subsidiary are in compliance with,
and have obtained all Environmental Permits required by, all Environmental
Laws.
5.14. VALIDITY OF TRANSACTION DOCUMENTS. The Transaction Documents
constitute the legal, valid, and binding obligations of Debtor and each
Consolidated Subsidiary and any Third Parties thereto, enforceable in
accordance with their respective terms, except as enforceability may be
limited by applicable bankruptcy and insolvency laws and laws affecting
creditors' rights generally.
5.15. NO CONSENT OR FILING. No consent, license, approval, or
authorization of, or registration, declaration, or filing with, any court,
governmental body or authority, or other person or entity is required in
connection with the valid execution, delivery, or performance of the
Transaction Documents or for the conduct of Debtor's business as now
conducted, other than filings and recordings to perfect security interests
in or liens on the Collateral in connection with the Transaction Documents.
5.16. NO VIOLATIONS. Neither Debtor nor any Consolidated Subsidiary is
in violation of any term of its articles, or certificate of incorporation,
or by-laws, or of any mortgage, borrowing agreement, or other instrument or
agreement pertaining to indebtedness for borrowed money. Neither Debtor nor
any Consolidated Subsidiary is in violation of any term of any other
indenture, instrument, or agreement to which it is a party or by which it
or its property may be bound, resulting, or which might reasonably be
expected to result, in a material and adverse effect upon its business or
assets. Neither Debtor nor any Consolidated Subsidiary is in violation of
any order, writ, judgment, injunction, or decree of any court of competent
jurisdiction or of any statute, rule, or regulation of any governmental
authority, the violation of which could materially adversely affect the
condition, business, or operations of Debtor or any Consolidated
Subsidiary. The execution and delivery of the Transaction Documents and the
performance of all of the same, is, and will be, in compliance with the
foregoing and will not result in any violation thereof, or result in the
creation of any mortgage, lien, security interest, charge, or encumbrance
upon, any properties or assets except in favor of Secured Party. There
exists no fact or circumstance (whether or not disclosed in the Transaction
Documents) which materially adversely affects, or in the future (so far as
Debtor can now foresee) may materially adversely affect, the condition,
business, or operations of Debtor or any Consolidated Subsidiary or any
Third Party.
5.17. TRADEMARKS AND PATENTS. Debtor and each Consolidated Subsidiary
possesses all trademarks, trademark rights, patents, patent rights,
tradenames, tradename rights and copyrights that are required to conduct
its business as now conducted without conflict with the rights or claimed
rights of others. A list of the foregoing is set forth in Item 14 of the
Schedule.
5.18. CONTINGENT LIABILITIES. There are no suretyship agreements,
guaranties, or other contingent liabilities of Debtor or any Consolidated
Subsidiary which are not disclosed by the financial statements described in
Section 5.9 or Item 25 of the Schedule.
5.19. SOLVENCY. Debtor individually is, and Debtor and the
Consolidated Subsidiaries taken as a whole are, and during the term of this
Agreement, Debtor individually, and the Consolidated Subsidiaries taken as
a whole, will be, at all times, Solvent, both before and after giving
effect to the transactions contemplated by the Transaction Documents and
any acquisition of stock or assets occurring in conjunction with or related
to the Transaction Documents.
5.20. COMPLIANCE WITH LAWS. Debtor is in compliance with all
applicable laws, rules, regulations, and other legal requirements with
respect to its business and the use, maintenance, and operations of the
real and personal property owned or leased by it in the conduct of its
business, the violation of which could materially adversely affect the
condition, business, operations of Debtor or any Consolidated Subsidiary.
5.21. LICENSES, PERMITS, ETC. Each material franchise, grant,
approval, authorization, license, permit, easement, consent, certificate,
and order of and registration, declaration, and filing with, any court,
governmental body or authority, or other person or entity required for or
in connection with the conduct of Debtor's and each Consolidated
Subsidiary's business as now conducted is in full force and effect. Neither
Debtor nor any of its Consolidated Subsidiaries is in default under or has
otherwise violated the terms of such licenses. As of the date hereof,
Debtor has advised Secured Party, in writing, of all regulatory defects or
deficiencies under any state laws applicable to Debtor and its Consolidated
Subsidiaries of which Debtor has been advised or has actual knowledge.
5.22. USE OF PROCEEDS; MARGIN STOCK. Neither Debtor's execution and
delivery of the Transaction Documents nor the borrowing by Debtor of any
sums pursuant thereto violates Section 7 of the Securities Act of 1934, as
amended, or any rule or regulation thereunder, and Debtor neither owns, nor
intends to purchase or carry, any "margin stock." None of the proceeds of
the Revolving Credit, Term Loan, or Letters of Credit will be used in
violation of Regulation G, U, T, or X of the Board of Governors of the
Federal Reserve System.
5.23. COMMISSIONS. No brokerage commission, finders fee, or investment
banking fees are payable by Debtor to any person or entity in connection
with the Transaction Documents or the transactions contemplated thereby,
other than the payment by Debtor to Tony Abernethey, or his assigns, of a
loan origination fee equal to one-half percent (0.5%) of the total amount
of the credit facilities provided hereunder.
5.24. LABOR CONTRACTS. Neither Debtor nor any Consolidated Subsidiary
is a party to any collective bargaining agreement or to any existing or
threatened labor dispute or controversies except as set forth in Item 15 of
the Schedule.
5.25. CONSOLIDATED SUBSIDIARIES. Debtor has no Consolidated
Subsidiaries other than those listed in Item 33 of the Schedule, and the
percentage ownership of Debtor in each such Consolidated Subsidiary is
specified in such Item 33.
5.26. ACCURACY OF REPRESENTATIONS. No representation, warranty, or
statement by Debtor or any Third Party contained herein, or in any
certificate, financial statement, or other document furnished by Debtor or
any Third Party pursuant hereto, or in connection herewith, fails to
contain any representation or warranty not misleading in any material
respect in light of the circumstances under which it is made.
5.27. PARTNERSHIP INTERESTS. Debtor's total partnership interests are
set forth in Item 16 of the Schedule. No other partnership interests of the
Debtor of any class or type are authorized or outstanding.
5.28. NO ADVERSE CHANGE. As of September 30, 1997, (a) no adverse
change has occurred in the financial condition of Debtor or any Third
Party, and (b) no other matter exists or has occurred which might have an
adverse affect on the Debtor or any Third Party, financial or otherwise.
5.29. NO DEFAULT. No event has occurred and is continuing which
constitutes an Event of Default or, upon passage of time, will constitute
an Event of Default.
5.30. MATERIAL AGREEMENTS. Debtor is not in default in any material
respect under any loan agreement, indenture, mortgage, security agreement,
or other material agreement or obligation to which it is a party or by
which any of its properties are bound.
5.31. NO FINANCING OF CORPORATE TAKEOVERS. No proceeds of the
Revolving Credit or the Term Loan will be used to acquire any security in
any transaction that is subject to Section 13 or 14 of the Securities
Exchange Act of 1934, including particularly (but without limitation)
Section 13(d) and 14(d) thereof.
6. CERTAIN DOCUMENTS TO BE DELIVERED TO SECURED PARTY.
6.1. DOCUMENTS. Debtor shall deliver to Secured Party, all documents
specified in Item 17 of the Schedule, as frequently as indicated therein or
at such other times as Secured Party may reasonably request, and all other
documents and information reasonably requested by Secured Party, all in
form, content and detail satisfactory to Secured Party. The documents and
schedules to be provided under this Section are solely for the convenience
of Secured Party in administering this Agreement and maintaining records of
the Collateral. Debtor's failure to provide Secured Party with any such
schedule shall not affect the Security Interest.
6.2. INVOICES. If requested by Secured Party, copies of all Invoices
not previously delivered to Secured Party shall be delivered to Secured
Party with each schedule of Receivables. Copies of all Invoices which are
voided or canceled or which, for any other reason, do not evidence a
Receivable shall be included in such delivery. If any Invoice or copy
thereof is lost, destroyed, or otherwise unavailable, Debtor shall account
in writing, in form satisfactory to Secured Party, for such missing
Invoice.
6.3. CHATTEL PAPER. The original of each item of Chattel Paper
evidencing a Receivable shall be delivered to Secured Party with the
schedule listing the Receivable which it evidences, together with an
assignment in form and content satisfactory to Secured Party of such
Chattel Paper by Debtor to the Secured Party.
7. COLLECTIONS. Unless Secured Party notifies Debtor that it
specifically dispenses with one or more of the following requirements, any
Proceeds of Collateral received by Debtor, including, without limitation,
payments on Receivables and other payments from sales or leases of
Inventory, shall be held by Debtor in trust for Secured Party in the same
medium in which received, shall not be commingled with any assets of
Debtor, and shall be delivered immediately to Secured Party. So long as
Secured Party elects to keep the Marine Payment Account in existence,
Debtor shall deposit Proceeds of Collateral into the Marine Payment Account
and shall, on the day of each such deposit, forward to Secured Party a copy
of the deposit receipt of the depository bank indicating that such deposit
has been made. Upon receipt of Proceeds of Collateral, Secured Party, shall
apply such Proceeds directly to the Indebtedness in the manner provided in
Section 8.5. Checks drawn on the Marine Payment Account, and all or any
part of the balance of the Marine Payment Account, shall be applied from
time to time to the Indebtedness in the manner provided in Section 8.5.
8. PAYMENT OF PRINCIPAL, INTEREST, FEES, AND COSTS AND EXPENSES.
8.1. PROMISE TO PAY PRINCIPAL.
(a) Debtor promises to pay to Secured Party the outstanding principal
of the Revolving Credit in full upon termination of this Agreement pursuant
to Section 14.13, or acceleration of the time for payment of the
Indebtedness, pursuant to Section 12.2. Whenever the outstanding principal
balance of the Revolving Credit exceeds the Borrowing Capacity, Debtor
shall immediately pay to Secured Party the excess of the outstanding
principal balance of the Revolving Credit over the Borrowing Capacity.
(b) Debtor promises to pay to Secured Party the outstanding principal
of the Term Loan as follows:
(i) In 35 consecutive monthly installments each in the amount of
$95,238.10, commencing on December 1, 1997, and thereafter, on the first
day of each succeeding calendar month through and including October 1,
2000, and
(ii) In one final installment on November 1, 2000, in the amount of
the unpaid principal balance of, and accrued interest upon, the Term Loan.
(iii) Notwithstanding the foregoing clauses (i) and (ii) of this
subsection (b), in the event this Agreement is terminated pursuant to
Section 14.13, or accelerated pursuant to Section 12.2, Debtor shall
immediately pay to Secured Party in full, the outstanding unpaid principal
balance of, and accrued interest upon, the Term Loan.
8.2. PROMISE TO PAY INTEREST.
(a) Debtor promises to pay to Secured Party interest on the principal
of Advances from time to time unpaid at the lesser of (i) the Highest
Lawful Rate or (ii) the fluctuating per annum rate specified in Item 18 of
the Schedule. From the date of the occurrence of, and during the
continuance of, an Event of Default, Debtor, as additional compensation to
Secured Party for its increased credit risk promises to pay interest on (i)
the principal of Advances, whether or not past due; and (ii) past due
interest and any other amount past due under the Transaction Documents, at
a per annum rate of the lesser of (i) the Highest Lawful Rate and (ii)
3.00% greater than each of the rates of interest specified in Item 18 of
the Schedule.
(b) Interest (other than past due interest as set forth in Section
8.2(a)) shall be due and payable (i) on the first day of each month in
arrears, (ii) on termination of this Agreement, pursuant to Section 14.13,
(iii) on acceleration of the time for payment of the Indebtedness, pursuant
to Section 12.2, and (iv) on the date the Indebtedness is paid in full.
Past due interest (as set forth in Section 8.2(a)) shall be due and payable
immediately upon demand.
(c) Any change in the interest rate resulting from a change in the
Prime Rate shall take effect simultaneously with such change in the Prime
Rate. Interest shall be computed on the daily unpaid principal balance of
Advances. Interest shall be calculated for each calendar day at 1/360th of
the applicable per annum rate which will result in an effective per annum
rate higher than that specified in Item 18 of the Schedule, unless such
calculation would exceed the Highest Lawful Rate, in which case interest
shall be calculated for each calendar day at 1/365th or 1/366th, as the
case may be, of the applicable per annum rate. In no event shall the rate
of interest exceed the Highest Lawful Rate. If Debtor pays to Secured Party
interest in excess of the Highest Lawful Rate, such excess shall be applied
in reduction of the principal of Advances made pursuant to this Agreement,
and any remaining excess interest, after application thereof to the
principal of Advances, shall be refunded to Debtor.
8.3. PROMISE TO PAY FEES.
(a) Debtor shall pay to Secured Party any fees specified in Item 19 of
the Schedule on the applicable due dates also specified in Item 19 of the
Schedule.
(b) The fees described in this Agreement represent compensation for
services rendered and to be rendered separate and apart from the lending of
money or the provision of credit and do not constitute compensation for the
use, detention, or forbearance of money, and the obligation of the Debtor
to pay each fee described herein shall be in addition to, and not in lieu
of, the obligation of Debtor to pay interest, other fees described in this
Agreement, and expenses otherwise described in this Agreement. All fees
including, without limitation, those referred to in this Section, shall be
part of the obligations of the Debtor hereunder, shall be nonrefundable,
and shall, to the fullest extent permitted by law, bear interest, if not
paid when due, at the rate of interest specified in Section 8.2 (a)(ii).
8.4. PROMISE TO PAY COSTS AND EXPENSES.
(a) Debtor agrees to pay to Secured Party, on demand, all costs and
expenses as provided in this Agreement, and all costs and expenses incurred
by Secured Party from time to time in connection with this Agreement,
including, without limitation, those incurred in: (i) preparing,
negotiating, amending, waiving, or granting consent with respect to the
terms of any or all of the Transaction Documents; (ii) enforcing the
Transaction Documents; (iii) performing, pursuant to Section 14.2, Debtor's
duties under the Transaction Documents upon Debtor's failure to perform
them; (iv) filing financing statements, assignments, or other documents
relating to the Collateral (e.g., filing fees, recording taxes, and
documentary stamp taxes); (v) maintaining the Marine Payment Account; (vi)
administering the Transaction Documents, but not ordinary general and
administrative expenses; (vii) compromising, pursuing, or defending any
controversy, action, or proceeding resulting, directly or indirectly, from
Secured Party's relationship with Debtor, regardless of whether Debtor is a
party to such controversy, action, or proceeding and of whether the
controversy, action, or proceeding occurs before or after the Indebtedness
has been paid in full; (viii) realizing upon or protecting any Collateral;
(ix) enforcing or collecting any Indebtedness or guaranty thereof; (x)
employing collection agencies or other agents to collect any or all of the
Receivables; (xi) examining Debtor's books and records or inspecting the
Collateral including, without limitation, the reasonable costs of
examinations and inspections conducted by third parties, provided that
nothing herein shall limit Secured Party's right to audit, examination,
inspection, or other fees otherwise payable under Section 8.3; and (xii)
obtaining independent appraisals from time to time as deemed necessary or
appropriate by Secured Party.
(b) Without limiting Section 8.4(a), Debtor also agrees to pay to
Secured Party, on demand, the reasonable fees and disbursements incurred by
Secured Party for attorneys retained by Secured Party for advice, suit,
appeal, or insolvency or other proceedings under the Federal Bankruptcy
Code or otherwise, in connection with this Agreement, including without
limitation any purpose specified in Section 8.4(a).
8.5. METHOD OF PAYMENT OF PRINCIPAL, INTEREST, FEES, AND COSTS AND
EXPENSES. Without limiting Debtor's obligation, pursuant to Sections 8.1,
8.2., 8.3, and 8.4 to pay the principal of Advances, interest, fees, and
costs and expenses, the following provisions shall apply to the payment
thereof:
(a) Payment of Principal. Debtor authorizes Secured Party to apply any
Proceeds of Collateral, including, without limitation, payments on
Receivables, other payments from sales or leases of Inventory, and any
funds in the Marine Payment Account, to the unpaid principal of Advances.
(b) Payment of Interest, Fees, and Costs and Expenses. Without
limiting Debtor's obligation to pay accrued interest, fees, and costs and
expenses, Debtor authorizes Secured Party to (provided, however, Secured
Party shall incur no liability for failure to): (i) make an Advance to pay
for such items; or (ii) apply Proceeds of Collateral, including, without
limitation, payments on Receivables, other payments from sales or leases of
Inventory, and any funds in the Marine Payment Account, to the payment of
such items.
(c) Notwithstanding any other provision of this Agreement, Secured
Party, in its sole discretion, shall determine the manner and amount of
application of payments and credits and Proceeds of Collateral, if any, to
be made on all or any part of any component or components of the
Indebtedness, whether principal, interest, fees, costs and expenses, or
otherwise.
8.6. COMPUTATION OF DAILY OUTSTANDING BALANCE. For the purpose of
calculating the aggregate principal balance of outstanding Advances under
Section 2.1, Advances shall be deemed to be paid on the date that checks
drawn on, or other funds received from, the Marine Payment Account are
applied by Secured Party to Advances, and on the date any other payments on
Receivables, or other payments from sales or leases of Inventory to be so
applied, have been processed for collection by Secured Party; provided,
however, for the purpose of calculating interest payable by Debtor, funds
from the Marine Payment Account, payments on Receivables, other payments
from sales or leases of Inventory, and any other payments, shall be deemed
to be applied to Advances the number of days specified in Item 20 of the
Schedule after the application of such funds from the Marine Payment
Account or receipt of such payments by Secured Party, and the amount of
interest payable will be adjusted by Secured Party from time to time
accordingly. Notwithstanding any other provision of this Agreement, if any
item presented for collection by Secured Party is not honored, Secured
Party may reverse any provisional credit which has been given for the item
and make appropriate adjustments to the amount of interest and principal
due.
8.7. ACCOUNT STATED. Debtor agrees that each monthly or other
statement of account mailed or delivered by Secured Party to Debtor
pertaining to the outstanding balance of Advances, the amount of interest
due thereon, fees, and costs and expenses shall be final, conclusive, and
binding on Debtor and shall constitute an "account stated" with respect to
the matters contained therein unless, within thirty (30) calendar days from
when such statement is mailed or, if not mailed, delivered to Debtor,
Debtor shall deliver to Secured Party written notice of any objections
which it may have as to such statement of account, and in such event, only
the items to which objection is expressly made in such notice shall be
considered to be disputed by Debtor.
8.8. CAPITAL ADEQUACY. Debtor shall pay directly to Secured Party as
set forth below, on request, such amounts as Secured Party may determine to
be necessary to compensate Secured Party for any costs which it determines
are attributable to the maintenance by Secured Party, pursuant to a
governmental requirement implemented or effective after the date hereof or
a change made in any governmental requirement after the date hereof, or any
change in the interpretation, application or administration thereof,
whether or not having the force of law, but affecting the banking industry
generally, of capital in respect of Secured Party's commitment to lend
hereunder, such compensation to include, without limitation, an amount
equal to any reduction of the rate of return on assets or equity of Secured
Party (or its parent holding company) which Secured Party could have
achieved with respect to such commitment but for such governmental
requirement or change in a governmental requirement or any such change in
the interpretation, application or administration thereof, whether or not
having the force of law, but affecting the banking industry generally.
Secured Party will notify Debtor of any event occurring after the date of
this Agreement that will entitle Secured Party to compensation pursuant to
this Section as promptly as practicable after it obtains knowledge thereof.
Debtor will not be responsible for any amounts as compensation pursuant to
this Section accruing prior to ninety (90) days before the notice to Debtor
in accordance with the preceding sentence. In the event Secured Party is
entitled to such compensation, Secured Party will furnish Debtor with a
certificate setting forth the amount of each request by Secured Party for
compensation under this Section, with such certificate setting forth in
reasonable detail the basis for determining, and the calculation of, such
compensation. Determinations and allocations by Secured Party for purposes
of this Section of the effect of any governmental requirement pursuant to
this Section, or of the effect of capital maintained pursuant to this
Section, on Secured Party's cost or rate of return of maintaining
Indebtedness or its obligation to make Advances, and of the amounts
required to compensate Secured Party hereunder, shall be conclusive absent
manifest error.
8.9. ADDITIONAL PROVISIONS APPLICABLE TO LIBOR.
(a) Notice of Continuation/Conversion. If Debtor desires at the
expiration of a Eurodollar Interest Period to continue such Advance as an
Advance bearing interest at LIBOR for a new Eurodollar Interest Period,
such Debtor shall give Secured Party notice thereof, either telephonically
or in writing, no later than 10:00 a.m. (London time) on the third Business
Day immediately preceding the last day of the then expiring Eurodollar
Interest Period, which shall specify the aggregate principal amount of the
Eurodollar Rate Loan to be continued for a new Eurodollar Interest Period
and the new Eurodollar Interest Period to be applicable thereto. If Debtor
desires at the expiration of an applicable Eurodollar Interest Period to
convert all or part of an Advance from an Advance bearing interest at LIBOR
to an Advance bearing interest at the Prime Rate, the Debtor shall give the
Secured Party notice thereof, either telephonically or in writing in the
aforesaid manner. Each continuation/conversion notice shall be in writing
(each a "Notice of Continuation/Conversion"), and any telephonic notice
shall be promptly followed by such Debtor's delivery to Secured Party of a
Notice of Continuation/Conversion.
(b) Failure to Deliver Notice of Continuation/Conversion. If the
applicable Debtor shall have failed to properly deliver a Notice of
Continuation/Conversion specifying a continuation or conversion pursuant to
Section 8.9(a), such Debtor shall be deemed to have elected to continue
such Advance bearing interest at LIBOR for a Eurodollar Interest Period of
the same duration as the Eurodollar Interest Period so expiring.
(c) Eurodollar Deposits Unavailable or LIBOR Unascertainable or
Uneconomical. In the event that, prior to the commencement of any
Eurodollar Interest Period for any Advance bearing interest at LIBOR, by
reason of circumstances affecting the Eurodollar interbank market
generally, the Secured Party or Marine Midland Bank shall have reasonably
determined in good faith (which determination shall be conclusive and
binding upon all parties hereto) that (i) U.S. dollars in the relevant
amount and for the relevant Eurodollar Interest Period for such Advances
bearing interest at LIBOR are not available in the applicable Eurodollar
interbank market generally, or (ii) adequate and reasonable means do not
exist for ascertaining LIBOR applicable to such Eurodollar Interest Period,
whereupon (x) any request for an Advance bearing interest at LIBOR shall be
deemed a request for an Advance based upon the Prime Rate, and (y) each
outstanding Advance bearing interest at LIBOR shall be converted, without
any additional notice to or from the affected Borrower, to an Advance based
upon the Prime Rate (disregarding any requirements for any notice or a
minimum aggregate principal amount) on the last day of the Eurodollar
Interest Period with respect thereto.
(d) Special Fees in Respect of Reserve Requirements. Debtor agrees to
pay to Secured Party on any such Advances bearing interest at LIBOR, as
additional interest, such amounts as will compensate Secured Party for any
cost to Secured Party, from time to time, of any additional reserve or
additional special deposit requirement against assets held by, or deposits
in or for the amount of any loans by, Secured Party which are imposed on,
or deemed applicable by, such Lender, from time to time, under or pursuant
to any applicable governmental requirements respecting the Eurodollar
Lending Office or any Advance bearing interest at LIBOR. In connection
herewith, Secured Party shall not be required to prove that it actually
funded any Advance bearing interest at LIBOR, in whole or in part, with
matching deposits in U.S. dollars acquired by Secured Party from a prime
bank in the Eurodollar interbank market, irrespective of whether Secured
Party has any such deposits. A certificate as to the amount of any such
cost (including calculations, in reasonable detail, showing how Secured
Party computed and allocated such cost) shall be promptly furnished by
Secured Party to Debtor and shall, in the absence of manifest error, be
conclusive and binding.
(e) Reasonable Efforts. Secured Party agrees that it will use all
reasonable efforts, including ,without limitation, reasonable good faith
efforts, to designate a different Eurodollar Lending Office to make or
maintain any Advance bearing interest at LIBOR, in order to avoid or to
minimize, as the case may be, the payment by Debtor of any additional
amounts under the terms of Section 8.9(d), and that it will, as promptly as
practicable, notify the Debtor of the existence of any event which will
require the payment by Debtor of any such additional amounts; provided,
that the Secured Party shall not be obligated to make Advances bearing
interest at LIBOR hereunder at any office located in the United States to
avoid or minimize such payments.
(f) Funding Losses. If Debtor makes any payment of principal on any
Advance bearing interest at LIBOR, or converts such an Advance into an
Advance bearing interest at the Prime Rate on any day other than the last
day of the Eurodollar Interest Period applicable thereto, Debtor shall
reimburse the Secured Party within ten (10) Business Days after demand, for
any resulting loss or expense actually incurred by it, including (without
limitation) any loss incurred in obtaining, liquidating, employing or
redeploying deposits or foreign currencies from third parties (including,
without limitation, the amount of Secured Party's consequential losses),
for the period after any such payment or conversion through the end of such
Eurodollar Interest Period (the calculation of such loss or expense shall
include a credit, not in excess of such loss or expense, for the interest
that could be earned by the Secured Party as a result of redepositing such
amount), together with interest thereon at the past due rate specified in
Section 8.2(a) from the date of demand until paid in full; provided that
Secured Party shall have delivered to Debtor a certificate as to the amount
of such loss or expense, which certificate shall be conclusive in the
absence of manifest error. In connection herewith, Secured Party shall not
be required to prove that it actually funded any Advance bearing interest
at LIBOR, in whole or in part, with matching deposits in U.S. dollars
acquired by the Secured Party from a prime bank in the applicable
Eurodollar interbank market, irrespective of whether Secured Party has any
such deposits.
(g) Changes in Law Rendering LIBOR Loans Unlawful. In the event that
after the date hereof it shall be unlawful for Secured Party, in the
reasonable determination in good faith of Secured Party, to make or
maintain any Advance as an Advance bearing interest at LIBOR, Secured Party
shall, upon the occurrence of such event, notify the Debtor in writing,
stating the reasons therefor; provided, however, that before giving any
such notice, Secured Party shall use reasonable good faith efforts to
designate a different Eurodollar Lending Office to make or maintain such
Advance as an Advance bearing interest at LIBOR if such designation will
avoid the need for giving such notice and will not be otherwise materially
disadvantageous to the Secured Party. Upon receiving a notice of any such
event, the Debtor shall have the following options, one of which must be
exercised:
(i) to prepay immediately all of the Advances which are so affected;
or,
(ii) convert all affected Advances (including accrued interest
thereon) to Advances based on the rate of interest based on the Prime Rate.
(h)......Reimbursable Taxes. Debtor covenants and agrees that, with
respect to each Advance bearing interest at LIBOR:
(i) Debtor will pay, when due (upon prior written notice by Secured
Party, and on an after-tax basis), all present and future income, stamp and
other taxes, levies, costs and charges whatsoever imposed, assessed, levied
or collected on or in respect of such Advance; provided, however, that if
Debtor disputes in good faith any such taxes, levies, costs or charges and
refuses to pay same pending resolution of such dispute, Debtor shall so
advise Secured Party in writing and shall make the appropriate reserves
therefor. Debtor's obligation pursuant hereto shall exclude, however, any
such taxes, levies, costs or charges imposed or determined by reference to
income of Secured Party or any Eurodollar Lending Office by any
jurisdiction in which the Secured Party or any such Eurodollar Lending
Office is located (all such non-excluded taxes, levies, costs and charges
being collectively called "Reimbursable Taxes" in this Section). Promptly
after the date on which payment of any such Reimbursable Tax is due
pursuant to applicable law, Debtor will, at the request of Secured Party,
furnish to Secured Party an official receipt issued by the relevant taxing
authority showing the amount of such tax and its payment by Debtor or such
other evidence in form and substance satisfactory to Secured Party that
Debtor has met its obligation under this Section.
(ii) Debtor will indemnify the Secured Party against, and reimburse
the Secured Party on demand for, any Reimbursable Taxes paid by Secured
Party upon Debtor's failure to pay such amounts in a timely manner after
written notice by the Secured Party, and any loss, liability, claim or
expense, including interest, penalties and reasonable legal fees, that
Secured Party may incur at any time arising out of or in connection with a
failure by the Debtor to pay such Reimbursable Taxes. A certificate of the
Secured Party as to the amount of any such Reimbursable Taxes and other
amounts paid by the Secured Party shall be conclusive and binding in the
absence of manifest error.
(iii) All payments on account of the principal of and interest on the
Advances and all other amounts payable by Debtor to the Secured Party
hereunder shall be made free and clear of and without reduction by reason
of any Reimbursable Taxes, all of which will be for the account of the
Debtor and paid when due by the Debtor.
(iv) If Debtor is ever required to pay any Reimbursable Tax with
respect to any Advance bearing interest at LIBOR, Debtor may elect to
convert all outstanding Advances bearing interest at LIBOR to Advances
bearing interest at the Prime Rate, but such election shall not diminish
Debtor's obligation to pay all Reimbursable Taxes theretofore imposed,
assessed, levied or collected.
(v) Notwithstanding the foregoing provisions of this Section to the
contrary, Debtor shall have no obligation to pay to the Secured Party any
amount payable by reason of the failure of the Secured Party to file, to
the extent the Secured Party is legally entitled to file, any statement of
exemption required by Treasury Regulation Section 1.1441-4(a) or any
subsequent version thereof promulgated under the Code, or any claim for
relief from United Kingdom Inland Tax pursuant to Article 11 of the United
States-United Kingdom Income Tax Treaty.
9. PROCEDURES AFTER SCHEDULING RECEIVABLES.
9.1. RETURNED MERCHANDISE. Debtor shall notify Secured Party
immediately of the return, rejection, repossession, stoppage in transit,
loss, damage, or destruction of any material portion of the Inventory.
Secured Party shall make appropriate adjustments to the Receivables
Borrowing Base and the Inventory Borrowing Base to reflect the return of
such Inventory.
9.2. CREDITS AND EXTENSIONS.
(a) Granting of Credits and Extensions. Debtor may grant such Credits
and such Extensions as are ordinary in the usual course of Debtor's
business without the prior consent of Secured Party; provided, however,
that any such Extension shall not extend the time for payment beyond thirty
(30) days after the original due date as shown on the Invoice evidencing
the related Receivable, or as computed based on the information set forth
on such Invoice.
(b) Accounting for Credits and Extensions. Debtor shall make a full
accounting of each grant of a Credit or an Extension, including a brief
description of the reasons therefor and a copy of all credit memoranda.
Such accountings shall be in form satisfactory to Secured Party and shall
be delivered to Secured Party daily or at such other intervals as may be
specified in Item 17 of the Schedule. All credit memoranda issued by Debtor
shall be numbered consecutively and copies of the same, when delivered to
Secured Party, shall be in numerical order and accounted for in the same
manner as provided in Section 6.2 with respect to Invoices.
(c) Adjustment to Receivables Borrowing Base. The Receivables
Borrowing Base will be reduced by the amount of all Credits reflected in an
accounting required by Section 9.2(b) and by the full amount of any
Receivables for which Extensions were granted.
9.3. RETURNED INSTRUMENTS. In the event that any check or other
instrument received in payment of a Receivable shall be returned
uncollected for any reason, Secured Party shall again forward the same for
collection or return the same to Debtor. Upon receipt of a returned check
or instrument by Debtor, Debtor shall immediately make the necessary
entries on its books and records to reinstate the Receivable as outstanding
and unpaid and immediately notify Secured Party of such entries. All
Receivables of an Account Debtor with respect to which such check or
instrument was received shall thereupon become Ineligible Receivables.
9.4. DEBIT MEMORANDA.
(a) Unless Secured Party otherwise notifies Debtor in writing, Debtor
shall deliver at least weekly to Secured Party, together with the schedule
of Receivables provided for in Item 17 of the Schedule, copies of all debit
memoranda issued by Debtor.
(b) All debit memoranda issued by Debtor, when delivered to Secured
Party, shall be accounted for in the same manner as provided in Section 6.2
with respect to Invoices.
9.5. NOTES RECEIVABLE. Any note or other instrument (except a check or
other instrument for the immediate payment of money) with respect to any
Receivable accepted by Debtor without the prior written consent of Secured
Party shall be excluded from the Borrowing Capacity. If Secured Party, in
its reasonable judgment, consents to the acceptance of any such note or
instrument, the same shall be considered as evidence of the Receivable
giving rise to such note or instrument, shall be subject to the Security
Interest and included in the determination of Borrowing Capacity, and shall
not constitute payment of such Receivable, and Debtor shall forthwith
endorse such note or instrument to the order of Secured Party and deliver
the same to Secured Party, together with the Schedule listing the
Receivables which it evidences. Upon collection, the proceeds of such note
or instrument may be applied directly to unpaid Advances, interest, and
costs and expenses as provided in Section 8.5.
10. AFFIRMATIVE COVENANTS. So long as any part of the Indebtedness
remains unpaid, or this Agreement remains in effect, Debtor shall comply
with the covenants contained in Item 21 of the Schedule or elsewhere in
this Agreement, and with the covenants listed below:
10.1. FINANCIAL STATEMENTS. Debtor shall furnish to Secured Party:
(a) Within 90 days after the end of each fiscal year, audited
consolidated financial statements of Debtor and all Consolidated
Subsidiaries as of the end of such year, fairly presenting their
consolidated financial position, which statements shall consist of a
balance sheet and related statements of income, retained earnings, and cash
flow covering the period of Debtor's immediately preceding fiscal year, and
which shall be audited by independent certified public accountants
satisfactory to Secured Party and accompanied by an opinion by such
certified public accountants (which shall not be qualified by reason of any
limitation imposed by Debtor) to the effect that the financial statements
have been prepared in accordance with generally accepted accounting
principles and that the examination of the accounts in connection with
those financial statements has been made in accordance with generally
accepted auditing standards and, accordingly, includes such tests of the
accounting records and such other audit procedures as were considered
necessary in the circumstances by such certified public accountants.
(b) Within thirty (30) days after the end of each month, consolidated
and consolidating financial statements of Debtor and each Consolidated
Subsidiary as of the end of such month, fairly presenting Debtor's and such
Consolidated Subsidiary's financial position, which statements shall
consist of a balance sheet and related statements of income, and retained
earnings covering the period from the end of the immediately preceding
fiscal year to the end of such month, all in such detail as Secured Party
may reasonably request and signed and certified to be correct by the
president or chief financial officer of Debtor or other financial officer
satisfactory to Secured Party.
(c) Within thirty (30) days after the end of each month, a compliance
certificate executed by the president or chief financial officer of Debtor
or other financial officer satisfactory to Secured Party in the form of
Exhibit A attached hereto and made a part hereof.
(d) Promptly after their preparation, copies of any and all proxy
statements, financial statements, and reports which Debtor or any Third
Party sends to its shareholders, and copies of any and all periodic and
special reports and registration statements which Debtor or any Third Party
files with the Securities and Exchange Commission.
(e) Such additional information, including but not limited to current
business plans by fiscal year end, as Secured Party may from time to time
reasonably request regarding the financial and business affairs of Debtor,
or any Consolidated Subsidiary, or any Third Party.
10.2. GOVERNMENT AND OTHER SPECIAL RECEIVABLES. Debtor shall promptly
notify Secured Party in writing of the existence of any Receivable as to
which the perfection, enforceability, or validity of Secured Party's
Security Interest in such Receivable, or Secured Party's right or ability
to obtain direct payment to Secured Party of the Proceeds of such
Receivable, is governed by any federal or state statutory requirements
other than those of the Uniform Commercial Code, including, without
limitation, any Receivable subject to the Federal Assignment of Claims Act
of 1940, as amended.
10.3. TERMS OF SALE. The terms on which sales or leases giving rise to
Receivables are made shall be as specified in Items 3 and 22 of the
Schedule.
10.4. BOOKS AND RECORDS. Debtor shall maintain, at its own cost and
expense, accurate and complete books and records with respect to the
Collateral, in form satisfactory to Secured Party, and including, without
limitation, records of all payments received and all Credits and Extensions
granted with respect to the Receivables, of the return, rejection,
repossession, stoppage in transit, loss, damage, or destruction of any
Inventory, and of all other dealings affecting the Collateral. Debtor shall
deliver such books and records to Secured Party or its representative on
request. At Secured Party's request, Debtor shall mark all or any records
to indicate the Security Interest. Debtor shall further indicate the
Security Interest on all financial statements issued by it or shall cause
the Security Interest to be so indicated by its accountants.
10.5. INVENTORY IN POSSESSION OF THIRD PARTIES. If any Inventory
remains in the hands or control of any of Debtor's agents, finishers,
contractors, or processors, or any other third party, Debtor, if requested
by Secured Party, shall notify such party of Secured Party's Security
Interest in the Inventory and shall instruct such party to hold such
Inventory for the account of Secured Party and subject to the instructions
of Secured Party.
10.6. EXAMINATIONS. Debtor shall at all reasonable times and from time
to time permit Secured Party or its agents to inspect the Collateral and to
examine and make extracts from, or copies of, any of Debtor's books,
ledgers, reports, correspondence, and other records.
10.7. VERIFICATION OF COLLATERAL. Secured Party shall have the right
to verify all or any Collateral in any manner and through any medium
Secured Party may consider appropriate and Debtor agrees to furnish all
assistance and information and perform any acts which Secured Party may
require in connection therewith. Third party inventory confirmation service
providers must be bonded and act as an Agent for Secured Party, permitting
Secured Party to rely directly upon all findings.
10.8. RESPONSIBLE PARTIES. Debtor shall notify Secured Party of the
occurrence of any event specified in Section 1.1(dd)(iv) with respect to
any Responsible Party promptly after receiving notice thereof.
10.9. TAXES. Debtor shall promptly pay and discharge all of its taxes,
assessments, and other governmental charges prior to the date on which
penalties are attached thereto, establish adequate reserves for the payment
of such taxes, assessments, and other governmental charges, make all
required withholding and other tax deposits, and, upon request, provide
Secured Party with receipts or other proof that such taxes, assessments,
and other governmental charges have been paid in a timely fashion;
provided, however, that nothing contained herein shall require the payment
of any tax, assessment, or other governmental charge so long as its
validity is being contested in good faith, and by appropriate proceedings
diligently conducted, and adequate reserves for the payment thereof have
been established.
10.10. LITIGATION.
(a) Debtor shall promptly notify Secured Party in writing of any
litigation, proceeding, or counterclaim against, or of any investigation
of, Debtor or any Consolidated Subsidiary if: (i) the outcome of such
litigation, proceeding, counterclaim, or investigation may materially and
adversely affect the finances or operations of Debtor or any Consolidated
Subsidiary or title to, or the value of, any Collateral; or (ii) such
litigation, proceeding, counterclaim, or investigation questions the
validity of any Transaction Document or any action taken, or to be taken,
pursuant to any Transaction Document.
(b) Debtor shall furnish to Secured Party such information regarding
any such litigation, proceeding, counterclaim, or investigation as Secured
Party shall request.
10.11. INSURANCE.
(a) Debtor shall at all times carry and maintain in full force and
effect such insurance as Secured Party may from time to time reasonably
require, in coverage, form, and amount, and issued by insurers,
satisfactory to Debtor and Secured Party, including, without limitation:
workers' compensation or similar insurance; public liability insurance; and
insurance against such other risks as are usually insured against by
business entities of established reputation engaged in the same or similar
businesses as Debtor and similarly situated.
(b) Debtor shall deliver to Secured Party certificates of insurance
required by Secured Party, with appropriate endorsements designating
Secured Party and Marine Midland Bank as an additional insured, mortgagee
and loss payee as requested by Secured Party. Each policy of insurance
shall provide that if such policy is canceled for any reason whatsoever, if
any substantial change is made in the coverage which affects Secured Party,
or if such policy is allowed to lapse for nonpayment of premium, such
cancellation, change, or lapse shall not be effective as to Secured Party
until thirty (30) days after receipt by Secured Party of written notice
thereof from the insurer issuing such policy.
(c) Debtor hereby appoints Secured Party as its attorney-in-fact, with
full authority in the place and stead of Debtor and in the name of Debtor,
Secured Party, or otherwise, from time to time in Secured Party's
discretion, to take any actions and to execute any instruments which
Secured Party may deem necessary or desirable to obtain, adjust, make
claims under, and otherwise deal with insurance required pursuant hereto
and to receive, endorse, and collect any drafts or other instruments
delivered in connection therewith; provided, however, Secured Party shall
not take any such action or make any such execution until an Event of
Default has occurred.
10.12. EXISTENCE; BUSINESS.
(a) Debtor shall take all necessary steps to preserve its existence
and its right to conduct business in all states in which the nature of its
business or ownership of its property requires such qualification.
(b) Debtor shall engage only in the operation of convenience stores,
truck stops, and the retail sale of motor fuel; the operation of fuel
terminals, including the processing of commingled products and storage and
delivery of fuel for third parties; the wholesale distribution of motor
fuel; and activities ancillary to the foregoing.
10.13. PENSION REPORTS. Upon the occurrence of any Pension Event,
Debtor shall furnish to Secured Party, as soon as possible and, in any
event, within thirty (30) days after Debtor knows, or has reason to know,
of such occurrence, the statement of the president or chief financial
officer of Debtor setting forth the details of such Pension Event and the
action which Debtor proposes to take with respect thereto.
10.14. NOTICE OF NON-COMPLIANCE. Debtor shall notify Secured Party in
writing of any failure by Debtor or any Third Party to comply with any
provision of any Transaction Document immediately upon learning of such
non-compliance, or if any representation or warranty contained in any
Transaction Document is no longer true in any material respect.
10.15. COMPLIANCE WITH ENVIRONMENTAL LAWS.
(a) Debtor shall materially comply with all Environmental Laws.
(b) Debtor shall not suffer, cause, or permit the Disposal of
Hazardous Substances at any property owned, leased, or operated by it or
any Consolidated Subsidiary in material violation of any Environmental Law.
For purposes of this Section 10.15, "material" means any fine, penalty, or
liabilities per occurrence in excess of $20,000.
(c) Debtor shall promptly notify Secured Party in the event of the
Disposal of any Hazardous Substance at any property owned, leased, or
operated by Debtor or any Consolidated Subsidiary, or in the event of any
Release, or threatened Release, of a Hazardous Substance, from any such
property in material violation of any Environmental Law.
(d) Debtor shall, at Secured Party's reasonable request, provide, at
Debtor's expense, updated Environmental Questionnaires and/or Environmental
Reports concerning any property owned, leased, or operated by Debtor or any
Consolidated Subsidiary at a maximum cost to Debtor annually of $20,000.
(e) Debtor shall deliver promptly to Secured Party (i) copies of any
documents received from the United States Environmental Protection Agency
or any state, county, or municipal environmental or health agency
concerning Debtor's or any Consolidated Subsidiary's operations; and (ii)
copies of any documents submitted by Debtor or any Consolidated Subsidiary
to the United States Environmental Protection Agency or any state, county,
or municipal environmental or health agency concerning its operations.
10.16. DEFEND COLLATERAL. Debtor shall defend the Collateral against
the claims and demands of all other parties (other than Secured Party),
including, without limitation, defenses, setoffs, and counterclaims
asserted by any Account Debtor against Debtor or Secured Party.
10.17. USE OF PROCEEDS. Debtor shall use the proceeds of Advances
solely for Debtor's working capital, for such other legal and proper
corporate purposes as are consistent with all applicable laws, Debtor's
certificate of limited partnership and partnership agreement, resolutions
of the Debtor's partners, and the terms of the Transaction Documents.
10.18. COMPLIANCE WITH LAWS. Debtor shall comply with all applicable
laws, rules, regulations, and other legal requirements with respect to its
business and the use, maintenance, and operations of the real and personal
property owned or leased by it in the conduct of its business.
10.19. MAINTENANCE OF PROPERTY. Debtor shall maintain its property,
including, without limitation, the Collateral, in good condition and repair
and shall prevent the Collateral, or any part thereof, from being or
becoming an accession to other goods not constituting Collateral.
10.20. LICENSES, PERMITS, ETC. Debtor shall maintain all of its
material franchises, grants, authorizations, licenses, permits, easements,
consents, certificates, and orders, if any, in full force and effect until
their respective expiration dates.
10.21. TRADEMARKS AND PATENTS. Debtor shall maintain all of its
material trademarks, trademark rights, patents, patent rights, licenses,
permits, tradenames, tradename rights, and approvals, if any, in full force
and effect until their respective expiration dates.
10.22. ERISA. Debtor shall comply with the provisions of ERISA and the
Internal Revenue Code with respect to each Pension Plan.
10.23. MAINTENANCE OF OWNERSHIP. Debtor shall at all times maintain
ownership of the percentages of issued and outstanding equity interests of
each Consolidated Subsidiary set forth in Item 33 of the Schedule and
notify Secured Party in writing prior to the formation of any new
Consolidated Subsidiary.
10.24. ACTIVITIES OF CONSOLIDATED SUBSIDIARIES. Unless the provisions
of this Section are expressly waived by Secured Party in writing, Debtor
shall cause each Consolidated Subsidiary to comply with Sections 10.1(b),
10.9, 10.11(a), 10.12, 10.15, and 10.18 through 10.22, inclusive, and any
of the provisions contained in Item 21 of the Schedule, and shall cause
each Consolidated Subsidiary to refrain from doing any of the acts
proscribed by Sections 11.2, 11.3, and 11.5 through 11.14, inclusive, or
proscribed by any of the provisions contained in Item 21 of the Schedule.
10.25. LANDLORD AND WAREHOUSEMAN WAIVERS. Unless expressly waived by
Secured Party in writing, Debtor shall use its best efforts to obtain from
each landlord from whom Debtor leases property, and the owner of each
warehouse in which Collateral is stored, a waiver or disclaimer of any
interest in, and an agreement to permit the removal of, all personal
property Collateral; provided, however, if Debtor does not obtain such
waiver, disclaimer, and agreement within sixty (60) days of the date hereof
with respect to such Collateral, such Collateral shall be excluded from the
Borrowing Capacity.
10.26. COMPLIANCE WITH MATERIAL AGREEMENTS. The Debtor shall, and
shall cause its Consolidated Subsidiary to, comply in all material respects
with all material agreements, indentures, mortgages or documents binding on
it or affecting its properties or business.
10.27. OTHER NOTICES. The Debtor shall, and shall cause its
Consolidated Subsidiary to, promptly notify the Secured Party of (a) any
change in its financial condition or its business, the effect of which
could have a material adverse effect, (b) any default under any agreement,
contract or other instrument to which it is a party or by which any of its
properties are bound, or any acceleration of the maturity of any
Indebtedness owing by the Debtor or its Consolidated Subsidiary, the effect
of which could have a material adverse effect, (c) any material adverse
claim against or affecting the Debtor or its Consolidated Subsidiary, or
any of their properties, or any actual or potential contingent liabilities,
involving an amount or amounts, in the aggregate, exceeding $25,000, and
(d) the commencement of, and any material determination in, any material
litigation with any third party or any proceeding before any Governmental
Authority affecting the Debtor or any Consolidated Subsidiary involving an
amount or amounts, in the aggregate, exceeding $25,000 other than any claim
or litigation referred to in (c) and (d) which is fully insured (less
customary deductibles) by one or more binding and enforceable insurance
policies in favor of the Debtor or its Consolidated Subsidiary, which
policies are issued in accordance with provisions of this Agreement.
11. NEGATIVE COVENANTS. So long as any part of the Indebtedness
remains unpaid or this Agreement remains in effect, Debtor, without the
written consent of Secured Party, shall not violate any covenant contained
in Item 21 of the Schedule and shall not:
11.1. LOCATION OF INVENTORY, EQUIPMENT, AND BUSINESS RECORDS. Move the
Inventory, Equipment, or the records concerning the Collateral from the
location where they are kept as specified in Items 11 and 13 of the
Schedule.
11.2. BORROWED MONEY. Create, incur, assume, or suffer to exist any
liability for borrowed money, except to Secured Party and except as may be
specified in Item 23 of the Schedule.
11.3. SECURITY INTEREST AND OTHER ENCUMBRANCES. Create, incur, assume,
or suffer to exist any mortgage, security interest, lien, or other
encumbrance upon any of its properties or assets, whether now owned or
hereafter acquired, except mortgages, security interests, liens, and
encumbrances (a) in favor of Secured Party and (b) as may be specified in
Item 12 of the Schedule. Debtor agrees that it will not, without the
Secured Party's prior written consent (a) create, incur, assume or suffer
to exist or to be created, incurred or assumed, any lien, security
interest, option or other encumbrance of any kind upon any of its rights,
title and interests in any of its real property assets. Further, Debtor
hereby agrees that it will not, without the Secured Party's prior written
consent, enter into any agreement with or in favor of any person or entity
other than the Secured Party, which agreement would hinder, qualify,
prohibit or otherwise limit in any manner the Debtor's right or ability to
(a) create, incur, assume or suffer to exist or to be created, incurred or
assumed, any lien, security interest, option or other encumbrance or any
kind upon any of its right, title and interest in any of its real property
assets whatsoever, or (b) sell, transfer, convey or assign any of its real
property assets unless in the ordinary course of business; provided,
however, none of the foregoing shall restrict or prohibit the granting of
purchase money security interests made in connection with any capital
expenditures contemplated in Section 11.11.
11.4. STORING AND USE OF COLLATERAL. Place the Collateral in any
warehouse which may issue a negotiable Document with respect thereto or use
the Collateral in violation of any provision of the Transaction Documents,
of any applicable statute, regulation, or ordinance, or of any policy
insuring the Collateral.
11.5. MERGERS, CONSOLIDATIONS, OR SALES. (a) Merge or consolidate with
or into any corporation; (b) enter into any joint venture or partnership
with any person, firm, or corporation; (c) convey, lease, or sell all or
any material portion of its property or assets or business to any other
person, firm, or corporation except for the sale of Inventory in the
ordinary course of its business and in accordance with the terms of this
Agreement; or (d) convey, lease, or sell any of its assets to any person,
firm, or corporation for less than the fair market value thereof; provided
however, that the distribution of assets and the mergers occurring in
connection with the division of FFPP and its Consolidated Subsidiaries into
two separate operating entities, as set forth in a registration statement
that will be filed with the United States Securities and Exchange
Commission shall be permitted.
11.6. PARTNERSHIP INTERESTS. Purchase or redeem any of its partnership
interests or otherwise change the capital structure of Debtor or change the
relative rights, preferences, or limitations relating to any of its
partnership interests; provided however, that any such change made in
connection with the division of FFPP and its Consolidated Subsidiaries into
two separate operating entities, as set forth in a registration statement
that will be filed with the United States Securities and Exchange
Commission shall be permitted.
11.7. DISTRIBUTIONS. Pay any cash distributions on any of its
partnership interests or dividends on any of its capital stock, if the
payment of such distributions or dividends would result in a failure to
comply with any of the financial covenants required by Item 30 of the
Schedule.
11.8. INVESTMENTS AND ADVANCES. Make any investment in, or advances
to, any other person, firm, or corporation, except (a) advance payments or
deposits against purchases made in the ordinary course of Debtor's regular
business; (b) direct obligations of the United States of America; (c) any
existing investments in, or existing advances to, the Consolidated
Subsidiaries; or (d) any investments or advances that may be specified in
Item 24 of the Schedule.
11.9. GUARANTIES. Become a guarantor, a surety, or otherwise liable
for the debts or other obligations of any other person, firm, or
corporation, whether by guaranty or suretyship agreement, agreement to
purchase indebtedness, agreement for furnishing funds through the purchase
of goods, supplies, or services (or by way of stock purchase, capital
contribution, advance, or loan) for the purpose of paying or discharging
indebtedness, or otherwise, except as an endorser of instruments for the
payment of money deposited to its bank account for collection in the
ordinary course of business and except as may be specified in Item 25 of
the Schedule.
11.10. LEASES. Enter, as lessee, into any lease of real or personal
property (whether such lease is classified on Debtor's financial statements
as a capital lease or operating lease) if the aggregate of the rentals of
such lease and of Debtor's other then existing leases would exceed, in any
one of Debtor's fiscal years, the amount specified in Item 26 of the
Schedule.
11.11. CAPITAL EXPENDITURES. Make or incur any capital expenditures in
any one fiscal year in an aggregate amount in excess of the amount, if any,
specified in Item 27 of the Schedule.
11.12. COMPENSATION.
(a) Pay, or obligate itself to pay, directly or indirectly, any
salaries, bonuses, dividends, or other compensation to its officers or
directors, or members of their immediate families, in the aggregate
exceeding the amount, if any, specified in Item 28 of the Schedule.
(b) Pay, or obligate itself to pay, directly or indirectly, any
salaries, bonuses, dividends, or other compensation to the individuals, if
any, specified in Item 29 of the Schedule in excess of the amount therein
specified for such individuals.
11.13. NAME CHANGE. Change its name without giving at least thirty
(30) days prior written notice of its proposed new name to Secured Party,
together with delivery to Secured Party of UCC-1 Financing Statements
reflecting Debtor's new name, all in form and substance satisfactory to
Secured Party.
11.14. DISPOSITION OF COLLATERAL. Sell, assign, or otherwise transfer,
dispose of, or encumber the Collateral or any interest therein, or grant a
security interest therein, or license thereof, except to Secured Party and
except the sale or lease of Inventory in the ordinary course of business of
Debtor and in accordance with the terms of this Agreement.
11.15. FINANCIAL COVENANTS. Fail to comply with the financial
covenants set forth in Item 30 of the Schedule.
11.16. FISCAL YEAR AND ACCOUNTING METHOD. Debtor shall not, and shall
not permit any of its Consolidated Subsidiaries to, change its fiscal year
or method of accounting other than as may be permitted by Generally
Accepted Accounting Principles.
11.17. LINES OF BUSINESS. The Debtor shall not, and shall not permit
its Consolidated Subsidiaries to, directly or indirectly, engage in any
business significantly and materially different from those in which it is
presently engaged or substantially alter its method of doing business.
12. EVENTS OF DEFAULT.
12.1. EVENTS OF DEFAULT. The occurrence of any one or more of the
following events shall constitute an event of default (individually, an
Event of Default and, collectively, Events of Default):
(a) Nonpayment. Nonpayment when due of any principal, interest,
premium, fee, cost, or expense due under the Transaction Documents.
(b) Negative Covenants. Default in the observance of any of the
covenants or agreements of Debtor contained in Article 11.
(c) Article 7. Default in the observance of any of the covenants or
agreements of Debtor contained in Article 7.
(d) Other Covenants. Default in the observance of any of the covenants
or agreements of Debtor contained in the Transaction Documents -- other
than in Article 11, Article 7 or Sections 8.1, 8.2, 8.3, or 8.4 -- or in
any other agreement with Secured Party which is not remedied within the
earlier of ten (10) days after (i) notice thereof by Secured Party to
Debtor, or (ii) the date Debtor was required to give notice to Secured
Party under Section 10.14.
(e) Cessation of Business or Voluntary Insolvency Proceedings. The (i)
cessation of operations of Debtor's business as conducted on the date of
this Agreement; (ii) filing by Debtor of a petition or request for
liquidation, reorganization, arrangement, adjudication as a bankrupt,
relief as a debtor, or other relief under the bankruptcy, insolvency, or
similar laws of the United States of America or any state or territory
thereof or any foreign jurisdiction now or hereafter in effect; (iii)
making by Debtor of a general assignment for the benefit of creditors; (iv)
consent by the Debtor to the appointment of a receiver or trustee,
including, without limitation, a "custodian," as defined in the Federal
Bankruptcy Code, for Debtor or any of Debtor's assets; (v) making of any,
or sending of any, notice of any intended bulk sale by Debtor; or (vi)
execution by Debtor of a consent to any other type of insolvency proceeding
(under the Federal Bankruptcy Code or otherwise) or any formal or informal
proceeding for the dissolution or liquidation of, or settlement of, claims
against or winding up of affairs of, Debtor.
(f) Involuntary Insolvency Proceedings. (i) The appointment of a
receiver, trustee, custodian, or officer performing similar functions,
including, without limitation, a "custodian," as defined in the Federal
Bankruptcy Code, for Debtor or any of Debtor's assets; or the filing
against Debtor of a request or petition for liquidation, reorganization,
arrangement, adjudication as a bankrupt, or other relief under the
bankruptcy, insolvency, or similar laws of the United States of America,
any state or territory thereof, or any foreign jurisdiction now or
hereafter in effect; or of any other type of insolvency proceeding (under
the Federal Bankruptcy Code or otherwise) or any formal or informal
proceeding for the dissolution or liquidation of, settlement of claims
against, or winding up of affairs of Debtor shall be instituted against
Debtor; and (ii) such appointment shall not be vacated, or such petition or
proceeding shall not be dismissed, within sixty (60) days after such
appointment, filing, or institution.
(g) Other Indebtedness and Agreements. Failure by Debtor to pay, when
due (or, if permitted by the terms of any applicable documentation, within
any applicable grace period), any indebtedness owing by Debtor to Secured
Party or any other person or entity (other than the Indebtedness incurred
pursuant to this Agreement, and including, without limitation, indebtedness
evidencing a deferred purchase price), whether such indebtedness shall
become due by scheduled maturity, by required prepayment, by acceleration,
by demand, or otherwise, or failure by the Debtor to perform any term,
covenant, or agreement on its part to be performed under any agreement or
instrument (other than a Transaction Document) evidencing or securing or
relating to any indebtedness owing by Debtor when required to be performed
if the effect of such failure is to permit the holder to accelerate the
maturity of such indebtedness.
(h) Judgments. Any judgment or judgments against Debtor (other than
any judgment for which Debtor is fully insured) which individually, or in
the aggregate, are in an amount greater than $20,000.00 and which remain
unpaid, unstayed on appeal, undischarged, unbonded, or undismissed for a
period of thirty (30) days.
(i) Pension Default. Any Reportable Event which Secured Party shall
determine in good faith constitutes grounds for the termination of any
Pension Plan by the Pension Benefit Guaranty Corporation, or for the
appointment by an appropriate United States district court of a trustee to
administer any Pension Plan, shall occur and shall continue thirty (30)
days after written notice thereof to Debtor by Secured Party; or the
Pension Benefit Guaranty Corporation shall institute proceedings to
terminate any Pension Plan or to appoint a trustee to administer any
Pension Plan; or a trustee shall be appointed by an appropriate United
States district court to administer any Pension Plan; or any Pension Plan
shall be terminated; or Debtor or any Consolidated Subsidiary shall
withdraw from a Pension Plan in a complete withdrawal or a partial
withdrawal; or there shall arise vested unfunded liabilities under any
Pension Plan that, in the good faith opinion of Secured Party, have or will
or might have a material adverse effect on the finances or operations of
Debtor; or Debtor or any Consolidated Subsidiary shall fail to pay to any
Pension Plan any contribution which it is obligated to pay under the terms
of such plan or any agreement or which is required to meet statutory
minimum funding standards.
(j) Collateral; Impairment. There shall occur with respect to the
Collateral any (i) fraud; (ii) material misappropriation, conversion, or
diversion; (iii) levy, seizure, or attachment; or (iv) material loss,
theft, or damage.
(k) Change. There shall occur any materially adverse change in the
business or financial condition of Debtor.
(l) Third Party Default. There shall occur with respect to any Third
Party or any Consolidated Subsidiary, including, without limitation, any
Guarantor or Consolidated Subsidiary (i) any event described in Section
12.1(e), 12.1(f), 12.1(g), or 12.1(h); (ii) any pension default event such
as described in Section 12.1(i) with respect to any pension plan maintained
by such Third Party or such Consolidated Subsidiary; or (iii) any failure
by Third Party or such Consolidated Subsidiary to perform in accordance
with the terms of any agreement between such Third Party and Secured Party,
or any default or event of default by such Third Party under any such
agreement.
(m) Representations. Any certificate, statement, representation,
warranty, or financial statement furnished by, or on behalf of, Debtor or
any Third Party, pursuant to, or in connection with, this Agreement
(including, without limitation, representations and warranties contained
herein) or as an inducement to Secured Party to enter into this Agreement
or any other lending agreement with Debtor shall prove to have been false
in any material respect at the time as of which the facts therein set forth
were certified or to have omitted any substantial contingent or
unliquidated liability or claim against Debtor or any such Third Party, or
if on the date of the execution of this Agreement there shall have been any
materially adverse change in any of the facts disclosed by any such
statement or certificate which shall not have been disclosed in writing to
Secured Party at, or prior to, the time of such execution.
(n) Challenge to Validity. Debtor or any Third Party commences any
action or proceeding to contest the validity or enforceability of any
Transaction Document or any lien or security interest granted or
obligations evidenced by any Transaction Document.
(o) Death or Incapacity; Termination. Any Third Party dies or becomes
incapacitated, or terminates or attempts to terminate, in accordance with
its terms or otherwise, any guaranty or other Transaction Document executed
by such Third Party.
(p) Change of Ownership. If all, or a controlling interest of, the
equity interests of Debtor shall be sold, assigned, or otherwise
transferred, other than any sale, assignment, or transfer occurring in
connection with the division of FFPP and its Consolidated Subsidiaries into
two separate operating entities, as set forth in a registration statement
that will be filed with the United States Securities and Exchange
Commission, or if a security interest or other encumbrance shall be granted
or otherwise acquired therein or with respect thereto.
(q) Termination of Validity Agreement. Upon termination of any
Validity Guaranty then in effect, unless such Validity Guaranty is replaced
by another Validity Guaranty in substantially the same form and content
executed by an officer of Debtor in favor of and acceptable to Secured
Party effective upon any such termination.
12.2. EFFECTS OF AN EVENT OF DEFAULT.
(a) Upon the happening of one or more Events of Default (except an
Event of Default under either Section 12.1(e) or 12.1(f)), Secured Party
may declare any obligations it may have hereunder to be canceled, and the
principal of the Indebtedness then outstanding to be immediately due and
payable, together with all interest thereon and costs and expenses accruing
under the Transaction Documents. Upon such declaration, any obligations
Secured Party may have hereunder shall be immediately canceled, and the
Indebtedness then outstanding shall become immediately due and payable
without presentation, demand, or further notice of any kind to Debtor.
(b) Upon the happening of one or more Events of Default under Section
12.1(e) or 12.1(f), Secured Party's obligations hereunder shall be canceled
immediately, automatically, and without notice, and the Indebtedness then
outstanding shall become immediately due and payable without presentation,
demand, or notice of any kind to the Debtor.
13. SECURED PARTY'S RIGHTS AND REMEDIES.
13.1. GENERALLY. Secured Party's rights and remedies with respect to
the Collateral, in addition to those rights granted herein and in any other
agreement between Debtor and Secured Party now or hereafter in effect,
shall be those of a secured party under the Uniform Commercial Code as in
effect in the State and under any other applicable law.
13.2. NOTIFICATION OF ACCOUNT DEBTORS. At any time after the
occurrence of an Event of Default or an event which with notice or lapse of
time, or both, would constitute an Event of Default, Secured Party may, at
any time and from time to time, contact Account Debtors directly to notify
any or all Account Debtors of the Security Interest and may direct such
Account Debtors to make all payments on Receivables directly to Secured
Party. Notwithstanding the foregoing, Secured Party may at any time contact
Account Debtors directly to verify Receivables.
13.3. POSSESSION OF COLLATERAL. Whenever Secured Party may take
possession of the Collateral, pursuant to Section 13.1, Secured Party may
take possession of the Collateral on Debtor's premises or may remove the
Collateral, or any part thereof, to such other places as the Secured Party
may, in its sole discretion, determine. If requested by Secured Party,
Debtor shall assemble all the books and records relating to the Collateral
and deliver it to Secured Party at such place as may be designated by
Secured Party.
13.4. COLLECTION OF RECEIVABLES. Upon the occurrence of an Event of
Default or an event which with notice or lapse of time, or both, would
constitute an Event of Default, Secured Party may demand, collect, and sue
for all monies and Proceeds due, or to become due, on the Receivables (in
either Debtor's or Secured Party's name at the latter's option) with the
right to enforce, compromise, settle, or discharge any or all Receivables.
If Secured Party takes any action contemplated by this Section with respect
to any Receivable, Debtor shall not exercise any right that Debtor would
otherwise have had to take such action with respect to such Receivable.
13.5. ENDORSEMENT OF CHECKS; DEBTOR'S MAIL. Debtor hereby irrevocably
appoints Secured Party the Debtor's agent with full power, in the same
manner, to the same extent, and with the same effect as if Debtor were to
do the same, immediately after the occurrence of an Event of Default or an
event which with notice or lapse of time, or both, would constitute an
Event of Default, to endorse Debtor's name on any Instruments or Documents
pertaining to any Collateral, to receive and collect all mail addressed to
Debtor, to direct the place of delivery of such mail to any location
designated by Secured Party, to open such mail, to remove all contents
therefrom, and to retain all contents thereof constituting or relating to
the Collateral. This agency is unconditional and shall not terminate until
all of the Indebtedness is paid in full and this Agreement has been
terminated. Secured Party agrees to give Debtor notice in the event it
exercises this agency, except with respect to the endorsement of Debtor's
name on any instruments or documents pertaining to any Collateral.
13.6. LICENSE TO USE PATENTS, TRADEMARKS, AND TRADENAMES. Debtor
grants to Secured Party a royalty-free, non-transferable license to use any
and all patents, trademarks, and tradenames now or hereafter owned by, or
licensed to, Debtor for the purposes of manufacturing and disposing of
Inventory after the occurrence of an Event of Default. All Inventory shall
at least meet quality standards maintained by Debtor prior to such Event of
Default.
14. MISCELLANEOUS.
14.1. PERFECTING THE SECURITY INTEREST; PROTECTING THE COLLATERAL.
Debtor hereby authorizes Secured Party to file such financing statements
relating to the Collateral without Debtor's signature thereon as Secured
Party may deem appropriate, and appoints Secured Party as Debtor's
attorney-in-fact (without requiring Secured Party) to execute any such
financing statement or statements in Debtor's name and to perform all other
acts which Secured Party deems appropriate to perfect and continue the
Security Interest and to protect, preserve, and realize upon the Collateral
and any insurance proceeds thereof.
14.2. PERFORMANCE OF DEBTOR'S DUTIES. Upon Debtor's failure to perform
any of its duties under the Transaction Documents, including, without
limitation, the duty to obtain insurance as specified in Section 10.11,
Secured Party may, but shall not be obligated to, perform any or all such
duties.
14.3. NOTICE OF SALE. Without in any way requiring notice to be given
in the following manner, Debtor agrees that any notice by Secured Party of
sale, disposition, or other intended action hereunder, or in connection
herewith, whether required by the Uniform Commercial Code as in effect in
the State or otherwise, shall constitute reasonable notice to Debtor if
such notice is mailed by regular or certified mail, postage prepaid, at
least ten (10) days prior to such action, to Debtor's address, attention
Vice President - Finance, or addresses specified above or to any other
address which Debtor has specified in writing to Secured Party as the
address to which notices hereunder shall be given to Debtor,.
14.4. WAIVER BY SECURED PARTY. No course of dealing between Debtor and
Secured Party and no delay or omission by Secured Party in exercising any
right or remedy under the Transaction Documents or with respect to any
Indebtedness shall operate as a waiver thereof or of any other right or
remedy, and no single or partial exercise thereof shall preclude any other
or further exercise thereof or the exercise of any other right or remedy.
All rights and remedies of Secured Party are cumulative.
14.5. WAIVER BY DEBTOR. Secured Party shall have no obligation to
take, and Debtor shall have the sole responsibility for taking, any and all
steps to preserve rights against any and all Account Debtors and against
any and all prior parties to any note, Chattel Paper, draft, trade
acceptance, or other instrument for the payment of money covered by the
Security Interest whether or not in Secured Party's possession. Secured
Party shall not be responsible to Debtor for loss or damage resulting from
Secured Party's failure to enforce any Receivables or to collect any moneys
due, or to become due, thereunder or other Proceeds constituting Collateral
hereunder. Debtor waives protest of any note, check, draft, trade
acceptance, or other instrument for the payment of money constituting
Collateral at any time held by Secured Party on which Debtor is in any way
liable and waives notice of any other action taken by Secured Party,
including, without limitation, notice of Secured Party's intent to
accelerate the Indebtedness or any part thereof.
14.6. SETOFF. Without limiting any other right of Secured Party,
whenever Secured Party has the right to declare any Indebtedness to be
immediately due and payable (whether or not it has so declared), Secured
Party, at its sole election, may setoff against the Indebtedness any and
all monies then or thereafter owed to Debtor by Secured Party in any
capacity, whether or not the Indebtedness or the obligation to pay such
monies owed by Secured Party is then due, and Secured Party shall be deemed
to have exercised such right of setoff immediately at the time of such
election even though any charge therefor is made or entered on Secured
Party's records subsequent thereto.
14.7. ASSIGNMENT. The rights and benefits of Secured Party hereunder
shall, if Secured Party so agrees, inure to any party acquiring any
interest in the Indebtedness or any part thereof.
14.8. SUCCESSORS AND ASSIGNS. Secured Party and Debtor, as used
herein, shall include the successors or assigns of those parties, except
that Debtor shall not have the right to assign its rights hereunder or any
interest herein.
14.9. MODIFICATION. No modification, rescission, waiver, release, or
amendment of any provision of this Agreement shall be made, except as may
be provided in Item 35 of the Schedule or by a written agreement signed by
Debtor and a duly authorized officer of Secured Party.
14.10. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, and by Secured Party and Debtor on separate counterparts,
each of which, when so executed and delivered, shall be an original, but
all of which shall together constitute one and the same Agreement.
14.11. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. Any financial
calculation to be made, all financial statements and other financial
information to be provided, and all books and records to be kept in
connection with the provisions of this Agreement, shall be in accordance
with generally accepted accounting principles consistently applied during
each interval and from interval to interval; provided, however, that in the
event changes in generally accepted accounting principles shall be mandated
by the Financial Accounting Standards Board or any similar accounting body
of comparable standing, or should be recommended by Debtor's certified
public accountants, to the extent such changes would affect any financial
calculations to be made in connection herewith, such changes shall be
implemented in making such calculations only from and after such date as
Debtor and Secured Party shall have amended this Agreement to the extent
necessary to reflect such changes in the financial and other covenants to
which such calculations relate.
14.12. INDEMNIFICATION.
(a) If after receipt of any payment of all, or any part of, the
Indebtedness, Secured Party is, for any reason, compelled to surrender such
payment to any person or entity because such payment is determined to be
void or voidable as a preference, an impermissible setoff, or a diversion
of trust funds, or for any other reason, the Transaction Documents shall
continue in full force and Debtor shall be liable, and shall indemnify and
hold Secured Party harmless for, the amount of such payment surrendered.
The provisions of this Section shall be and remain effective
notwithstanding any contrary action which may have been taken by Secured
Party in reliance upon such payment, and any such contrary action so taken
shall be without prejudice to Secured Party's rights under the Transaction
Documents and shall be deemed to have been conditioned upon such payment
having become final and irrevocable. The provisions of this Section shall
survive the termination of this Agreement and the Transaction Documents.
(B) DEBTOR AGREES TO INDEMNIFY, DEFEND, AND HOLD HARMLESS SECURED
PARTY, ITS OFFICERS, DIRECTORS, EMPLOYEES, REPRESENTATIVES, AGENTS,
ATTORNEYS, ACCOUNTANTS, AND EXPERTS ("INDEMNIFIED PARTIES") FROM, AND
AGAINST, ANY AND ALL LIABILITIES, CLAIMS, DAMAGES, PENALTIES, EXPENDITURES,
LOSSES, OR CHARGES, INCLUDING, BUT NOT LIMITED TO, ALL COSTS OF
INVESTIGATION, MONITORING, LEGAL REPRESENTATIONS, REMEDIAL RESPONSE,
REMOVAL, RESTORATION, OR PERMIT ACQUISITION, WHICH MAY NOW, OR IN THE
FUTURE, BE UNDERTAKEN, SUFFERED, PAID, AWARDED, ASSESSED, OR OTHERWISE
INCURRED BY INDEMNIFIED PARTIES AS A RESULT OF THE PRESENCE OF, RELEASE OF,
OR THREATENED RELEASE OF HAZARDOUS SUBSTANCES IN VIOLATION OF ANY
ENVIRONMENTAL LAWS ON, IN, OR UNDER THE PROPERTY OWNED, LEASED, OR OPERATED
BY DEBTOR OR ANY CONSOLIDATED SUBSIDIARY. THE LIABILITY OF DEBTOR UNDER THE
COVENANTS OF THIS SECTION IS NOT LIMITED BY ANY EXCULPATORY PROVISIONS IN
THIS AGREEMENT OR ANY OTHER DOCUMENTS SECURING THE INDEBTEDNESS AND SHALL
SURVIVE REPAYMENT OF THE INDEBTEDNESS OR EXPIRATION OR ANY TRANSFER OR
TERMINATION OF THIS AGREEMENT REGARDLESS OF THE MEANS OF SUCH TRANSFER OR
TERMINATION. DEBTOR AGREES THAT INDEMNIFIED PARTIES SHALL NOT BE LIABLE IN
ANY WAY FOR THE COMPLETENESS OR ACCURACY OF ANY ENVIRONMENTAL REPORT OR THE
INFORMATION CONTAINED THEREIN. DEBTOR FURTHER AGREES THAT SECURED PARTY HAS
NO DUTY TO WARN DEBTOR OR ANY OTHER PERSON OR ENTITY ABOUT ANY ACTUAL OR
POTENTIAL ENVIRONMENTAL CONTAMINATION OR OTHER PROBLEM THAT MAY HAVE BECOME
APPARENT, OR WILL BECOME APPARENT, TO INDEMNIFIED PARTIES.
(C) DEBTOR AGREES TO PAY, INDEMNIFY, AND HOLD INDEMNIFIED PARTIES
HARMLESS FROM, AND AGAINST, ANY AND ALL LIABILITIES, OBLIGATIONS, LOSSES,
DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES, OR
DISBURSEMENTS OF ANY KIND OR NATURE WHATSOEVER (INCLUDING, WITHOUT
LIMITATION, COUNSEL AND SPECIAL COUNSEL FEES AND DISBURSEMENTS IN
CONNECTION WITH ANY LITIGATION, INVESTIGATION, HEARING, OR OTHER
PROCEEDING) WITH RESPECT, OR IN ANY WAY RELATED, TO THE EXISTENCE,
EXECUTION, DELIVERY, ENFORCEMENT, PERFORMANCE, AND ADMINISTRATION OF THIS
AGREEMENT AND ANY OTHER TRANSACTION DOCUMENT (ALL OF THE FOREGOING,
COLLECTIVELY, THE "INDEMNIFIED LIABILITIES"). THE AGREEMENTS IN THIS
SECTION SHALL SURVIVE REPAYMENT OF THE INDEBTEDNESS.
(D) THE FOREGOING INDEMNITIES SHALL EXTEND TO THE INDEMNIFIED PARTIES
NOTWITHSTANDING THE SOLE OR CONCURRENT NEGLIGENCE OF EVERY KIND OR
CHARACTER WHATSOEVER, WHETHER ACTIVE OR PASSIVE, WHETHER AN AFFIRMATIVE ACT
OR AN OMISSION, INCLUDING WITHOUT LIMITATION, ALL TYPES OF NEGLIGENT
CONDUCT IDENTIFIED IN THE RESTATEMENT (SECOND) OF TORTS OF ONE OR MORE OF
THE INDEMNIFIED PARTIES OR BY REASON OF STRICT LIABILITY IMPOSED WITHOUT
FAULT ON ANY ONE OR MORE OF THE INDEMNIFIED PARTIES. TO THE EXTENT THAT AN
INDEMNIFIED PARTY IS FOUND TO HAVE COMMITTED AN ACT OF GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT, THIS CONTRACTUAL OBLIGATION OF INDEMNIFICATION SHALL
CONTINUE BUT SHALL ONLY EXTEND TO THE PORTION OF THE CLAIM THAT IS DEEMED
TO HAVE OCCURRED BY REASON OF EVENTS OTHER THAN THE GROSS NEGLIGENT OR
WILLFUL MISCONDUCT OF THE INDEMNIFIED PARTY.
14.13. TERMINATION; PREPAYMENT PREMIUM.
(a) Termination. This Agreement is, and is intended to be, a
continuing Agreement and shall remain in full force and effect for an
initial term equal to the term set forth in Item 32 of the Schedule and for
any renewal term also specified in Item 32 of the Schedule; provided,
however, that either party may terminate this Agreement as of the end of
the initial term or any subsequent renewal term by giving the other party
notice to terminate in writing at least sixty (60) days prior to the end of
any such period whereupon at the end of such period all Indebtedness shall
be due and payable in full without presentation, demand, or further notice
of any kind, whether or not all or any part of such Indebtedness is
otherwise due and payable pursuant to the agreement or instrument
evidencing same. Secured Party may terminate this Agreement immediately and
without notice upon the occurrence of an Event of Default. Notwithstanding
the foregoing or anything in this Agreement or elsewhere to the contrary,
the Security Interest, Secured Party's rights and remedies under the
Transaction Documents and Debtor's obligations and liabilities under the
Transaction Documents, shall survive any termination of this Agreement and
shall remain in full force and effect until all of the Indebtedness
outstanding, or contracted or committed for (whether or not outstanding),
before the receipt of such notice by Secured Party, and any extensions or
renewals thereof (whether made before or after receipt of such notice),
together with interest accruing thereon after such notice, shall be finally
and irrevocably paid in full. No Collateral shall be released or financing
statement terminated until: (i) such final and irrevocable payment in full
of the Indebtedness as described in the preceding sentence; and (ii) Debtor
and Secured Party execute a mutual general release, subject to Section
14.12 of this Agreement, in form and substance satisfactory to the Secured
Party and Debtor and their respective counsel.
(b) Prepayment Premium. If Debtor pays in full all, or substantially
all, of the principal balance of Advances prior to the end of the initial
term or any renewal term of this Agreement as set forth in Item 32 of the
Schedule, other than temporarily from funds internally generated in the
ordinary course of business or from a public offering of equity interests,
at the time of any such payment Debtor shall also pay to Secured Party the
prepayment premium set forth in Item 34 of the Schedule. Any tender of
payment in full of such principal balance following an acceleration by
Secured Party of the Indebtedness, pursuant to Section 12.2 shall not be,
for purposes of this Section, deemed to be considered a prepayment
requiring Debtor to pay the prepayment premium set forth in Item 34 of the
Schedule.
14.14. FURTHER ASSURANCES. From time to time, Debtor shall take such
action and execute and deliver to Secured Party such additional documents,
instruments, certificates, and agreements as Secured Party may reasonably
request to effectuate the purposes of the Transaction Documents.
14.15. HEADINGS. Article and Section headings used in this Agreement
are for convenience only and shall not affect the construction of this
Agreement.
14.16. CUMULATIVE SECURITY INTEREST, ETC. The execution and delivery
of this Agreement shall in no manner impair or affect any other security
(by endorsement or otherwise) for payment or performance of the
Indebtedness, and no security taken hereafter as security for payment or
performance of the Indebtedness shall impair in any manner or affect this
Agreement, or the security interest granted hereby, all such present and
future additional security to be considered as cumulative security.
14.17. SECURED PARTY'S DUTIES. Without limiting any other provision of
this Agreement: (a) the powers conferred on Secured Party hereunder are
solely to protect its interests and shall not impose any duty to exercise
any such powers; and (b) except as may be required by applicable law,
Secured Party shall not have any duty as to any Collateral or as to the
taking of any necessary steps to preserve rights against any parties or any
other rights pertaining to any Collateral.
14.18. NOTICES GENERALLY. All notices and other communications
hereunder shall be made by telegram, telex, telecopy, facsimile, overnight
air courier, or certified or registered mail, return receipt requested, and
shall be deemed to be received (whether actually received or not) by the
party to whom sent: (i) one Business Day after sending, if sent by
telegram, telex, telecopy, facsimile, or overnight air courier; and (ii)
three Business Days after mailing, if sent by certified or registered mail.
All such notices and other communications to a party hereto shall be
addressed to such party at the address of that party (or in the case of a
telecopy, or facsimile machine, to the facsimile machine number of such
party) set forth on the cover page hereof or to such other address as such
party may designate for itself in a notice to the other party given in
accordance with this Section.
14.19. SEVERABILITY. The provisions of this Agreement are independent
of, and separable from, each other, and no such provision shall be affected
or rendered invalid or unenforceable by virtue of the fact that for any
reason any other such provision may be invalid or unenforceable in whole or
in part. If any provision of this Agreement is prohibited or unenforceable
in any jurisdiction, such provision shall be ineffective in such
jurisdiction only to the extent of such prohibition or unenforceability,
and such prohibition or unenforceability shall not invalidate the balance
of such provision to the extent it is not prohibited or unenforceable nor
render prohibited or unenforceable such provision in any other
jurisdiction.
14.20. INCONSISTENT PROVISIONS. The terms of this Agreement and the
other Transaction Documents shall be cumulative except to the extent that
they are specifically inconsistent with each other, in which case the terms
of this Agreement shall prevail.
14.21. USURY SAVINGS. All agreements between the Debtor and the
Secured Party, whether now existing or hereafter arising and whether
written or oral, are hereby expressly limited so that in no contingency or
event whatsoever, whether by reason of demand being made on the
indebtedness or otherwise, shall the amount paid, or agreed to be paid, to
the Secured Party for the use, forbearance, or detention of the money to be
loaned under this Agreement or otherwise or for the payment or performance
of any covenant or obligation contained herein or in any other Loan
Document exceed the Highest Lawful Rate. If, as a result of any
circumstances whatsoever, fulfillment of any provision hereof or of any of
such documents, at the time performance of such provision shall be due,
shall involve transcending the limit of validity prescribed by applicable
usury law, then, ipso facto, the obligation to be fulfilled shall be
reduced to the limit of such validity, and if, from any such circumstance,
the Secured Party shall ever receive interest or anything which might be
deemed interest under applicable law which would exceed the Highest Lawful
Rate, such amount which would be excessive interest shall be applied to the
reduction of the principal amount of the obligations of the Debtor to the
Secured Party and not to the payment of interest, or if such excessive
interest exceeds the unpaid principal balance of the obligations of Debtor
to the Secured Party under any Transaction Document, such excess shall be
refunded to Debtor. All sums paid or agreed to be paid to the Secured Party
for the use, forbearance, or detention of the indebtedness of Debtor to the
Secured Party shall, to the extent permitted by applicable law, be
amortized, prorated, allocated, and spread throughout the full term of such
indebtedness until payment in full of the principal thereof (including the
period of any renewal or extension thereof) so that the interest on account
of such indebtedness shall not exceed the Highest Lawful Rate. The terms
and provisions of this Section shall control and supersede every other
provision of all agreements between Debtor and the Secured Party. If, at
any time and from time to time, (i) the amount of interest payable to the
Secured Party on any date shall be computed at the Highest Lawful Rate
pursuant to this Section and (ii) for any subsequent interest computation
period the amount of interest otherwise payable to the Secured Party would
be less than the Highest Lawful Rate, then the amount of interest payable
to the Secured Party, for such subsequent interest computation period shall
continue to be computed at the Highest Lawful Rate until the total amount
of interest payable to the Secured Party, shall equal the total amount of
interest which would have been payable to the Secured Party if the total
amount of interest had been computed without giving effect to this Section.
14.22. PARTICIPATIONS. Secured Party may at any time grant to one or
more banks or other institutions a participating interest in the Borrowing
Capacity or any or all of the Advances. In the event of any such grant by
Secured Party of a participating interest, Secured Party shall remain
responsible for the performance of its obligations hereunder, and Debtor
shall continue to deal solely and directly with Secured Party in connection
with Secured Party's rights and obligations under this Agreement. Any
agreement pursuant to which Secured Party may grant such a participating
interest shall provide that Secured Party shall retain the sole right and
responsibility to enforce the Indebtedness, including, without limitation,
the right to approve any amendment, modification or waiver of any provision
of this Agreement. Debtor shall cooperate with any audits and other credit
investigations and reviews undertaken for the purpose of a participation,
and Secured Party shall be entitled to disclose any information in Secured
Party's possession regarding Debtor, whether or not such information shall
be of a confidential nature, subject only to the agreement of such lenders
to maintain the confidentiality of any confidential information.
14.23. APPLICABLE LAW. THIS AGREEMENT, AND THE TRANSACTIONS EVIDENCED
HEREBY, SHALL BE GOVERNED BY, AND CONSTRUED UNDER, THE INTERNAL LAWS OF THE
STATE, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW, AS THE SAME MAY
FROM TIME TO TIME BE IN EFFECT, INCLUDING, WITHOUT LIMITATION, THE UNIFORM
COMMERCIAL CODE AS IN EFFECT IN THE STATE.
14.24. CONSENT TO JURISDICTION. DEBTOR AND SECURED PARTY AGREE THAT
ANY ACTION OR PROCEEDING TO ENFORCE, OR ARISING OUT OF, THE TRANSACTION
DOCUMENTS MAY BE COMMENCED IN ANY COURT IN DALLAS, TEXAS, AND EACH WAIVES
PERSONAL SERVICE OF PROCESS AND AGREES THAT A SUMMONS AND COMPLAINT
COMMENCING AN ACTION OR PROCEEDING IN ANY SUCH COURT SHALL BE PROPERLY
SERVED AND SHALL CONFER PERSONAL JURISDICTION IF SERVED BY REGISTERED OR
CERTIFIED MAIL, OR AS OTHERWISE PROVIDED BY THE LAWS OF THE STATE OR THE
UNITED STATES.
14.25. JURY TRIAL WAIVER. DEBTOR AND SECURED PARTY HEREBY KNOWINGLY,
VOLUNTARILY, AND INTENTIONALLY WAIVE ANY RIGHT TO TRIAL BY JURY DEBTOR OR
SECURED PARTY MAY HAVE IN ANY ACTION OR PROCEEDING, IN LAW OR IN EQUITY, IN
CONNECTION WITH THE TRANSACTION DOCUMENTS OR THE TRANSACTIONS RELATED
THERETO. DEBTOR REPRESENTS AND WARRANTS THAT NO REPRESENTATIVE OR AGENT OF
SECURED PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SECURED PARTY
WILL NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THIS RIGHT TO JURY
TRIAL WAIVER. DEBTOR ACKNOWLEDGES THAT SECURED PARTY HAS BEEN INDUCED TO
ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE PROVISIONS OF THIS
SECTION.
14.26. ARTICLE 15.10(b). THE DEBTOR AND SECURED PARTY HEREBY AGREE
THAT, EXCEPT FOR ARTICLE 15.10(b) THEREOF, THE PROVISIONS OF CHAPTER 15 OF
TITLE 79 OF THE REVISED CIVIL STATUTES OF TEXAS, 1925, AS AMENDED
(REGULATING CERTAIN REVOLVING CREDIT LOANS AND REVOLVING TRI-PARTY
ACCOUNTS) SHALL NOT APPLY TO THE TRANSACTION DOCUMENTS.
14.27. FINAL AGREEMENT. THIS WRITTEN AGREEMENT REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE
ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
Accepted at Dallas, Texas by:
HSBC BUSINESS LOANS, INC. FFP PARTNERS, L.P.
("Secured Party") ("FFPP")
By: /s/Neal T. Legan By: FFP PARTNERS MANAGEMENT
Neal T. Legan COMPANY, INC., a Delaware
Vice President corporation, General Partner
By: /s/Steven B. Hawkins
Steven B. Hawkins, Vice President
FFP OPERATING PARTNERS, L.P.
("FFPO")
By: FFP PARTNERS MANAGEMENT
COMPANY, INC., a Delaware
corporation, General Partner
By: /s/Steven B. Hawkins
Steven B. Hawkins, Vice President
DIRECT FUELS, L.P.
("Direct Fuels")
By: DIRECT FUELS MANAGEMENT COMPANY, INC.
a Texas corporation, General Partner
By: /s/Steven B. Hawkins
Steven B. Hawkins, Vice President
SCHEDULE
This Schedule is a part of a Loan and Security Agreement, dated as of
October 31, 1997, between FFP PARTNERS, L.P., FFP OPERATING PARTNERS, L.P.,
DIRECT FUELS, L.P. and HSBC BUSINESS LOANS, INC. Capitalized terms used herein
have the same meaning given to such terms in the Loan and Security Agreement
unless otherwise defined herein. The abbreviation "N/A" means the information is
not applicable to this transaction.
1. Borrowing Capacity (ss. 1.1(c))
Borrowing Capacity in the aggregate with respect to FFP Partners, L.P.,
FFP Operating Partners, L.P., and Direct Fuels, L.P., at any time, shall
be the net amount determined by taking the lesser of the following
amounts:
(A) $15,000,000
or
(B) the amount equal to up to the sum of:
(i) 85% of the Receivables Borrowing Base; and
(ii) the lesser of $7,500,000 (the "Maximum Amount") or
50% of the Value of the amount of the Inventory
Borrowing Base;
and subtracting from the lesser of (A) or (B) above, the sum of
(w) banker's acceptances, plus (x) letters of guaranty, plus (y)
Letters of Credit.
2. Inventory Borrowing Base Percentages (ss.ss. 1.1(m) & 1.1(hh))
The following percentages of Value are applicable to the following
categories of Eligible Inventory:
Finished goods, to the extent up to 50%; raw materials, to the extent of
up to 50%.
3. Cash Discount (ss.ss. 1.1(g) & 10.3)
Maximum Cash Discount of 2%, 10 days.
4. Receivables--Age (ss. 1.1(dd)(i))
Three (3) times the normal and customary period of any given invoice,
but not to exceed 90 days after the Invoice date.
5. Receivables Disqualification Percentage (ss. 1.1 (dd)(v))
50% or more.
6. Permissible Foreign Account Debtors (ss. 1.1(dd)(vi))
None.
7. Inventory Accounting (ss. 1.1(hh)
First-in, First-out (FIFO).
8. Marine Payment Account (ss. 1.1(ll))
There is a Marine Payment Account that is governed by a separate blocked
Account Agreement with LaSalle National Bank, Chicago, Illinois.
Name and Address of depository bank:
LaSalle National Bank
135 S. LaSalle Avenue
Chicago, Illinois 60603
Account No. 2299-386
(Depository Account)
9. Letters of Credit (ss. 2.4)
$2,000,000.00 (subject to a sublimit of $1,000,000 for overnight
exposure related to Automated Clearing House transfers).
10. State of Organization (ss. 4.2 & 5.1)
FFP Partners, L.P.: Delaware
FFP Operating Partners, L.P.: Delaware
Direct Fuels, L.P.: Texas
11. Location (s) of Inventory and Equipment (ss.ss. 5.4(c), 5.7,
5.8(a), and 11.1)
See Attached Addendum.
12. Permitted Encumbrances (ss. 5.5(a), 5.5(c) & 11.3)
Only as shown on Exhibit B.
13. Business Records Location (ss. 5.8(a), 5.8(c) & 11.1)
See Item 11 above.
14. Trademarks and Patents (ss. 5.17)
Trademarks: FFP Partners; Kwik Pantry; Drivers; Drivers Diner;
Financial Express Money Order Company; Lazer Wizard
Patents: None.
15. Labor Contracts (ss. 5.24)
None.
16. Partnership Interests (ss. 5.27)
Hickory Branch Trading Company, L.L.C. -- 36.06%
See also Item 33.
17. Required Documents (ss.ss. 6.1, 9.2(b), 9.4(a))
Frequency
Due
Borrowing Base Report Monthly, within 20 days
after end of month.
Receivables Summary Aging Monthly, within 20 days
after end of month.
Invoice register / sales journal As requested.
Inventory Reports Monthly, within 20 days
after end of month.
Cash Receipts Journal and Schedule of As requested.
Payments on Receivables
Credits and Extensions Reports As requested.
Copies of shipping documents relating to As requested.
the Receivables
List of names and addresses of Account Semi-Annually on June 30
Debtors and December 31
Payable aging report Monthly, within 20 days
after end of month.
Reconciliation report, reconciling Monthly, within 30 days
monthly financial statements with after end of month.
Receivables Aging, Inventory and Payable
Aging
18. Interest Rate (ss. 8.2(a),(c))
Revolving Credit: At Debtor's option, (1) Prime Rate or (2) LIBOR plus
2.25%, available in increments of $500,000 for Interest Periods of 3 or
6 months.
Term Loan: At Debtor's option, (1) Prime Rate, (2) LIBOR plus 2.25%,
available in increments of $1,000,000 for Interest Periods of 6 months
or one year, or (3) Treasury Rate plus 2.50%.
19. Fees and Due Dates (ss.ss. 2.4 and 8.3(a))
Type Amount Due Date(s)
Loan Origination One-half of one percent (.50%) Closing Date only
(payable to Tony of the Borrowing Capacity
Abernethy)
Unused Line Fee Three-eighths of one percent Monthly, in arrears
(.375%) per annum on the
Revolving Credit Commitment.
Letter of Credit Normal and customary fees and Customary
charges.
Collateral $60/hour, not to exceed First day of month
Examination Expense $9,000.00 per year for actual following
Reimbursement time of examination. examination
20. Uncollected Funds Adjustment (ss. 8.6)
Zero (0) Business Days.
21. Additional Covenants (ss.ss. 10.24 and 11)
22. Terms of Sale (ss. 10.3)
Due dates of no more than thirty (30) calendar days from date of
Invoice, except in regard to transactions specified below under
"Datings."
Datings: None.
23. Permitted Borrowings (ss. 11.2)
Only as shown on Exhibit B.
24. Permitted Investments and Advances (ss. 11.8(d))
Up to $500,000 in advances to Nu-Way Beverage Company, outstanding at
any given time, which is presently evidenced by that certain promissory
note dated July 1, 1995 issued by Nu-Way Beverage Company to FFP
Operating Partners, L.P., in the original principal amount of $500,000.
25. Permitted Guaranties (ss.ss. 5.18, 11.9)
None.
26. Maximum Annual Lease Rentals(ss. 11.10)
N/A
27. Permitted Capital Expenditures (ss. 11.11)
Up to $6,000,000 annually.
28. Maximum Aggregate Compensation (ss. 11.12(a))
N/A
29. Maximum Annual Compensation for Certain Individuals (ss. 11.12(b))
N/A
30. Financial Covenants (ss. 11.7 & 11.15)
(a) Minimum Tangible Net Worth: Debtor shall maintain at all times a
minimum Tangible Net Worth ("TNW") in the amounts set forth below
which are to be measured monthly for the time period set forth
below:
Amount Time Period
$19,100,000 Closing through December 30, 1998
Prior year-end TNW plus $400,000 December 31, 1998 to December 30, 1999
Prior year-end TNW plus $400,000 December 31, 1999 to December 30, 2000
Prior year-end TNW plus $400,000
December 31, 2000 to
termination (in periods
terminating on December 30
and commencing on December
31)
Provided that for any extension period, the amount shall be
increased by $400,000 from the prior year-end TNW.
(b) Maximum Debt to Tangible Net Worth: Debtor shall maintain a ratio
of total liabilities (excluding the principal balance of any debt
that is subordinated to Secured Party in a manner satisfactory to
Secured Party) to Tangible Net Worth of no greater than the ratio
set forth below during the time periods set forth below:
Ratio Time Period
3.6 to 1 At each month-end
(c) Cash Flow Coverage: Debtor shall maintain, for the period of
determination indicated below, a ratio with: (i) the Net Profit
After Taxes, plus depreciation and amortization expense, less
distributions to holders of equity interests, all for the prior
twelve fiscal months as the numerator; and (ii) the sum of the
regular contractually scheduled principal payments of any long
term debt due over the next twelve fiscal months as the
denominator.
Ratio Time Period
1.5 to 1 Each fiscal year-end.
31. State (ss. 1.1(bbb))
Texas.
32. Term (ss. 14.13(a),(b))
Initial term: The initial term of the Loan Agreement commences on the
date hereof and terminates on November 1, 2000.
Renewal term: Twelve months.
33. Percentage of Equity Ownership of Consolidated Subsidiaries
(ss. 5.25 & 10.23)
FFP Operating Partners, L.P. -- 99%
FFP Financial Services, L.P. -- 99%
Direct Fuels, L.P. -- 99%
FFP Transportation, L.L.C. -- 100%
Practical Tank Management -- 100%
FFP Money Order Company, Inc. -- 100%
34. Prepayment Premium (ss. 14.13(b))
Revolving Credit Facility. 2% of the then approved Maximum Amount (as
defined in Item 1 hereof) in the first twelve months of the Agreement;
1% of the Maximum Amount in the second twelve months of the Agreement;
and 1/2% of the Maximum Amount in the third twelve months of the
Agreement.
Term Loan. 2% of the prepaid amount in the first twelve months of the
Agreement; 1% of the prepaid amount in the second twelve months of the
Agreement; and 1/2% of the prepaid amount in the third twelve months of
the Agreement. Notwithstanding the foregoing, the Term Loan may be
repaid without prepayment penalty if the prepayment is a result of the
proceeds of the formation of a real estate investment trust.
35. Other Provisions (ss. 14.9)
36. Licenses (ss. 5.21)
N/A
37. Eurodollar Lending Office (ss. 1.1(u))
38. Term Loan (ss. 2.5)
The lesser of:
(A) $8,000,000; or
(B) 60% of the Value of the Eligible Equipment on the closing date.
The undersigned have executed this Schedule on October 31, 1997.
HSBC BUSINESS LOANS INC. FFP PARTNERS, L.P.
By: FFP PARTNERS MANAGEMENT
By: /s/Neal T. Legan COMPANY, INC., General Partner
Neal T. Legan
Vice President
By: /s/Steven B. Hawkins
Steven B. Hawkins, Vice President
FFP OPERATING PARTNERS, L.P.
By: FFP PARTNERS MANAGEMENT
COMPANY, INC., General Partner
By: /s/Steven B. Hawkins
Steven B. Hawkins, Vice President
DIRECT FUELS, L.P.
By: DIRECT FUELS PARTNERS
MANAGEMENT COMPANY, INC.,
General Partner
By: /s/Steven B. Hawkins
Steven B. Hawkins, Vice President
LEASE AGREEMENT
THIS CONTRACT CONTAINS ARBITRATION PROVISIONS AND SHALL BE
SUBJECT TO ARBITRATION UNDER THE TEXAS GENERAL ARBITRATION ACT
(ARTICLE 224 ET SEQ. REVISED CIVIL STATUTES OF TEXAS).
THIS LEASE AGREEMENT is made and entered into on January 1, 1998, by and
between FFP Properties, L.P., a Texas limited partnership ("Lessor"), and
FFP Operating Partners, L.P., a Delaware limited partnership ("Lessee").
WHEREAS, the Lessor owns the property described on Exhibit A including all
improvements, buildings, and structures located thereon ("Premises"); and,
WHEREAS, Lessee desires to occupy and use such property for the conduct of
its business;
NOW, THEREFORE, it is agreed by and between Lessor and Lessee as follows:
ARTICLE I
Premises
Section 1.01. Lessor, in consideration of the covenants and agreements to be
performed by Lessee and upon the terms and conditions hereinafter stated,
does hereby lease, demise, and let unto Lessee the land described on Exhibit
A attached hereto ("Land"), together with all improvements, buildings, and
structures of Lessor, if any, situated on the Land (the "Improvements") and
all rights, easements and appurtenances pertaining to the Land, including all
parking and access rights relating thereto (collectively, the "Leased
Premises").
ARTICLE II
Term
Section 2.01. The term of this Lease shall be for a period commencing on
January 1, 1998 ("Commencement Date"), and ending on the December 31, 2002
("Term").
ARTICLE III
Use of Premises
Section 3.01. The Leased Premises shall be used for any lawful use,
including, but not limited to, the operation of the Leased Premises as a
convenience store, truck stop, and/or self-service gasoline station.
Section 3.02. Lessee shall not perform any acts or carry on any practices
which may injure the Leased Premises or constitute a nuisance, or use the
Leased Premises for any business which is unlawful or in violation of any
public or city ordinances.
ARTICLE IV
Rent
Section 4.01. Lessee, without offset or deduction, agrees to pay the Lessor
at 2801 Glenda Avenue, Fort Worth, Texas, or such other address as Lessor may
designate, rent for the Leased Premises at the rate of
___________________________________ dollars ($______________) per month
("Monthly Rent") in advance on the first day of each and every calendar month
during the Term of this Lease, the first such payment becoming due and
payable on the Commencement Date.. If the Commencement Date is other than
the first day of a month or if the term of the Lease terminates on a day
other than the last day of the month, a prorated monthly rental installment
shall be paid.
Section 4.02. All rental installments or payments (including any amounts
payable as additional rent) more than ten (10) days past due shall subject
Lessee to liability for payment of a late payment charge equal to five
percent (5.0%) of each such late monthly installment or payment.
ARTICLE V
Possession of Presmises
Section 5.01 Lessee acknowledges that Lessee has fully inspected the Leased
Premises and on the basis of such inspection Lessee hereby accepts the Leased
Premises "AS IS". Lessee acknowledges that the Improvements, if any,
situated thereon, are suitable for the purposes for which the same are
leased, in their present condition.
ARTICLE VI
Alteration, Operating Expenses,
Construction, and Ownership of Improvements
Section 6.01. Alterations and Improvements. Lessee shall have the right to
make alterations to or construct Improvements on the Leased Premises. Any
alteration or improvement made to the Leased Premises shall be made in a
workmanlike manner and in compliance with all valid laws, governmental
orders, and building ordinances and regulations pertaining thereto. Lessee
shall promptly pay and discharge all costs, expenses, damages, and other
liabilities which may arise in connection with or by reason of any
alterations, reconstruction, demolition, or other work on the Leased
Premises. All alterations, reconstruction, demolition or other work on the
Leased Premises when completed shall be of such a nature as not to reduce or
otherwise adversely affect the value of the Leased Premises. Lessee shall
have the right to grant easements upon the estate of Lessor which are
required for utilities or access in connection with construction of the
Improvements and Lessor agrees to execute all documents which Lessee may
reasonably request in order to grant such easements.
Section 6.02. Operating Expenses. Lessee agrees to pay any and all expenses
of operation of the Leased Premises including, but not being limited to,
electricity, water, gas, and other utility services to persons and parties
occupying the Leased Premises, it being the intention of this Lease that the
amounts payable to Lessor hereunder as rent shall be absolutely net to
Lessor, without diminution by reason of any expenses of operation of the
Leased Premises.
Section 6.03. Repairs; Compliance with Laws. Lessee shall keep all
Improvements from time to time situated on the Leased Premises in a good
repair and condition, and at the end or other expiration of the term of this
Lease deliver up the Leased Premises and all Improvements thereon, whether on
the Leased Premises at the time of execution of this Lease or constructed by
Lessee in accordance herewith, in good condition, reasonable wear and tear
excepted (subject to Article XII hereof). Lessee shall at its sole cost and
expense comply with all requirements of all municipal, state, and federal
authorities now in force or which may hereafter be in force, pertaining to
the Leased Premises and shall faithfully observe in the use of the Leased
Premises all municipal, state, and federal laws and regulations now in force
or which may hereafter be in force.
Section 6.04 Release. Lessor hereby releases Lessee, and Lessee hereby
releases Lessor, and their respective officers, agents, employees, and
representatives, from any and all claims or demands for damages, loss,
expense, or injury to the Leased Premises, or to the furnishings, fixtures,
and equipment, or inventory or other property of either Lessor or Lessee in,
about, or upon the Leased Premises, as the case may be, which is caused by or
results from perils, events, or happenings which are the subject of insurance
carried by the respective parties and in force at the time of any such loss;
provided, however, that such waiver shall be effective only to the extent
permitted by the insurance covering such loss and to the extent such
insurance is not prejudiced thereby or the expense of such insurance is not
thereby increased.
Section 6.05. Title to the Improvements. All Improvements presently
constituting a part of the Leased Premises shall be owned by Lessor. Title
to all Improvements and any modifications, additions, restorations, repairs,
and replacements thereof hereafter placed or constructed by Lessee upon the
Leased Premises shall be in Lessee, its successors and assigns, until the
expiration of the Lease Term; provided, however, that the terms and
provisions of this Lease shall apply to all such Improvements and that all
such Improvements (with the exception only of moveable equipment and trade
fixtures, and gasoline storage tanks, pumps, and equipment) shall be
surrendered to Lessor upon the termination of the Lease Term.
Section 6.06. Liens. Lessor does not consent, and has not by the execution
and delivery of this Lease consented, to the imposition by Lessee or any
contractor or subcontractor of any liens upon the Lessor's interest in the
Leased Premises. Lessee agrees that all Improvements at any time constructed
upon the Leased Premises will be completed free and clear of all liens and
claims of contractors, subcontractors, mechanics, laborers, and materialmen,
and other claimants. Lessee further covenants and agrees to protect,
indemnify, defend, and hold harmless Lessor from and against all bills and
claims, liens and rights to liens for labor and materials and architect's,
contractor's, and subcontractor's claims, and all fees, claims, and expenses
incident to the construction and completion of any Improvements, including
without limitation, reasonable attorneys' fees and court costs incurred by
Lessor.
ARTICLE VII
Utility Charges
Section 7.01. Lessee shall pay or cause to be paid promptly when due all
charges for water, electricity, gas, telephone, or any other utility services
furnished to the Leased Premises. Lessee expressly agrees that Lessor is
not, nor shall it be, required to furnish to Lessee or any other occupant of
the Leased Premises any water, sewer, gas, heat, electricity, light, power,
or any other facilities, equipment, labor, materials, or services of any kind
whatsoever.
ARTICLE VIII
Indemnification
Section 8.01. Lessee covenants and agrees, at its sole cost and expense, to
indemnify and hold Lessor harmless from and against any and all claims by or
on behalf of any person, firm, corporation, or governmental authority,
arising from the occupation, use, possession, conduct, or management of, or
from any work or thing whatsoever done in and about, the Leased Premises
during the Lease Term and any Renewal Term, or the subletting of any part
thereof. Lessee further agrees to indemnify and save Lessor harmless from
and against any and all claims arising from any condition of the Leased
Premises or the Improvements (including, but not limited to claims or
liability under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 and the Resource Conservation and Recovery Act of 1976)
or rising from any breach or default on the part of Lessee to be performed
pursuant to the terms of this Lease, or arising from any action, injury, or
damage whatsoever caused to any person, firm, or corporation, including any
sublessees of Lessee (other than those caused by Lessor or his
representatives and employees) occurring during the Lease Term or any Renewal
Term in or about the Leased Premises or upon and under the sidewalks and the
land adjacent thereto. The indemnification obligations of Lessee hereunder
shall include all costs, expenses, and liabilities incurred by Lessor,
including reasonable attorneys' fees. If any action or proceeding shall be
brought against Lessor by reason of any such claim, Lessee upon receipt of
written notice from Lessor covenants to defend such action or proceeding with
counsel satisfactory to Lessor, unless such action or proceeding is defended
by any carrier of public liability insurance maintained by Lessee. If Lessee
procures or maintains insurance insuring Lessee against liability for injury
to or death of a person or persons, such policy or policies shall name Lessor
as an additional insured.
ARTICLE IX
Taxes and Assessments
Section 9.01. Lessee shall pay to, or on behalf of, Lessor as additional
rent the amount of the real estate taxes allocable to the Leased Premises
(which shall be separately assessed) for each tax year included within the
Term or any Renewal Term of this Lease; for the first and last tax years
included in part within the term of this Lease, Lessee shall pay to Lessor a
pro rata share of such taxes for such tax years, based upon the portions of
such tax years included within the term of this Lease. Real estate taxes
shall not include any income, excess profits, estate, inheritance,
succession, transfer, franchise, capital, or other tax or assessment upon
Lessor or upon the rentals payable under this Lease, all of which shall be
the obligation of Lessor.
Section 9.02. If there shall be more than one taxing authority, the real
estate taxes for any period shall be the sum of such taxes for such period
attributable to each taxing authority. The real estate taxes for any tax
year shall mean such amounts as shall be finally determined to be the real
estate taxes assessed and payable for such tax year less any abatements,
refunds, or rebates made thereof. For the purpose of determining payments
due from Lessee to Lessor in accordance with the provisions hereof, (i) the
real estate taxes for any tax year shall be deemed to be the real estate
taxes assessed and payable for such tax year until such time as the same may
be reduced by abatement, refund or rebate, and (ii) if any abatement, refund
or rebate shall be made for such tax year, the real estate taxes for such tax
year shall be deemed to be the real estate taxes as so reduced plus the
expenses of obtaining the reduction, with an appropriate adjustment to be
made in the amount payable from or paid by Lessee to Lessor on account of
real estate taxes.
Section 9.03. Lessee shall have such rights to contest the validity or
amount of any real estate taxes as permitted to Lessor, or Lessee, by law,
either in its own name or in the name of Lessor. Lessor shall cooperate with
Lessee in any such contest and, in connection therewith, shall make available
to Lessee such information in its files as Lessee may reasonably request. If
any abatement, refund or rebate shall be obtained, the expenses of obtaining
the same shall be a first charge thereon.
Section 9.04. Lessor shall submit to Lessee copies of the real estate tax
bills for each tax year. Lessor shall bill Lessee for any amount that may be
payable by Lessee pursuant to the provisions herein. Such bill shall be
accompanied by a computation of the amount payable. The amount payable by
Lessee hereunder for any tax year shall be payable on or before the time that
Lessor shall be required to pay real estate taxes to the taxing authority for
such tax year, but if Lessee shall not have received a bill therefor at least
fourteen days prior to such time for payment, Lessee shall not be required to
make payment until fourteen days after the receipt of such bill. (If real
estate taxes are payable to any taxing authority for any tax year in
installments, the amount payable by Lessee hereunder shall be payable in
similar installments. If real estate taxes are payable to different taxing
authorities for any tax year at different times, an appropriate apportionment
shall be made of the amount payable by Lessee for such tax year and the
apportioned amounts shall be payable at such times). Lessor agrees that real
estate taxes upon the Leased Premises shall be paid by Lessor prior to the
last day that the same may be paid without penalty or interest, or if a
discount shall be available for early payment, prior to the last day of that
such discount shall be available. Lessor agrees to provide Lessee evidence
of any taxes paid by Lessor.
Section 9.05. Lessee agrees to pay all taxes levied against personal
property, trade fixtures, and inventory owned or placed by Lessee in, on, or
about the Leased Premises.
ARTICLE X
Title
Section 10.01. Lessor's Warranty of Title. Lessor warrants and represents
that the Leased Premises is owned by Lessor in fee, free, and clear of any
restrictions which would materially adversely affect the use of the Leased
Premises by Lessee and that Lessor has the legal right to make and enter into
this Lease.
Section 10.02. Peaceable Possession. Lessor warrants to Lessee the
peaceable enjoyment of the Leased Premises against the lawful let, hindrance,
or disturbance of any person or persons whomsoever.
ARTICLE XI
Assignment and Subletting
Section 11.01. Lessee may not assign this Lease or sublet all or any part of
the Leased Premises, without Lessor's prior written consent, which consent
shall not be unreasonably withheld.
Section 11.02. If Lessee assigns this Lease or sublets all or any part of
the Leased Premises, Lessee shall remain liable and responsible under this
Lease for the performance of the covenants and obligations of Lessee
hereunder unless Lessor shall have, in writing, specifically released Lessee
from such obligations.
Section 11.03. If Lessee assigns this Lease and shall remain liable
hereunder, then Lessor, when giving notice to said assignee or any future
assignee in respect of any default, shall also serve a copy of such notice
upon the original tenant first named hereinabove in this Lease ("Original
Lessee") and no notice of default shall be effective until a copy thereof is
received by the Original Lessee. The Original Lessee shall have the same
period after receipt of such notice to cure such default as is given to
Lessee under this Lease. If this Lease terminates or this Lease and the term
hereof ceases and expires because of a default of such assignee after an
assignment of this Lease shall have been made, Lessor shall promptly give the
Original Lessee notice thereof. The Original Lessee shall have the option to
be exercised by notifying Lessor within twenty (20) days after receipt by the
Original Lessee of Lessor's notice, to cure any default and become tenant
under a new lease for the remainder of the term of this Lease (including any
renewal periods) upon all of the same terms and conditions as then remain
under this Lease as it may have been amended by agreement between Lessor and
Original Lessee. If any default of such assignee is incapable of being cured
by the Original Lessee, then, notwithstanding the failure to cure same, the
Original Lessee shall have the foregoing option to enter into a new lease.
Such new lease shall commence on the date of termination of this Lease.
Notwithstanding the foregoing, if Lessor delivers to the Original Lessee,
together with Lessor's notice, a release as to all liability under this Lease
as theretofore amended, the Original Lessee shall not have the foregoing
option.
ARTICLE XII
Condemnation
Section 12.01. Entire Taking. If all of the Leased Premises shall be taken
in condemnation proceedings, this Lease shall terminate as of the taking and
the minimum rent and additional rent shall be paid to the date of such
termination. Lessor shall give Lessee a proportionate refund of any rent
paid in advance.
Section 12.02. Partial Taking.
A. If less than all of the Leased Premises shall be taken in
condemnation proceedings, Lessor and Lessee shall mutually determine, within
a reasonable time after such taking, whether the remaining building or
buildings (after necessary repairs and reconstruction to constitute the same
a complete architectural unit or units) can economically and feasibly be used
and subleased by Lessee. If Lessor and Lessee cannot mutually agree upon
such matter within ninety (90) days after notice of intent to take, the same
shall be determined thereafter upon request of either party by arbitration in
accordance with the provisions of Section 18.11. In arriving at their
decision, the arbitrators, among other things, shall take into consideration
whether such remaining premises will produce a fair and reasonable net return
to Lessor and will produce a fair and reasonable profit to Lessee.
B. If it is determined either by mutual agreement or arbitration that
such remaining building or buildings cannot economically and feasibly be used
by Lessee, Lessor or Lessee, at its election, may terminate this Lease on ten
(10) days' notice to the other party to such effect, and the minimum rent and
additional rent shall be paid to the date of such termination. Lessor shall
give Lessee a proportionate refund of any rent paid in advance. If between
the taking and the date of such termination, the condemning authority shall
have entered into physical possession of the condemned portion of the Leased
Premises, the Rental, during such period, shall be reduced to accommodate
such event and any dispute as to the amount of such reduction shall be
determined by arbitration in accordance with the provisions of Section
18.11. However, such election to terminate must be exercised within thirty
(30) days after the determination, as aforesaid, that the remaining building
or buildings cannot economically and feasibly be used by Lessee.
Section 12.03. Application of Award. If this Lease shall terminate
pursuant to the provisions of Section 12.01 or Section 12.02 of this Article,
Lessor's share of the condemnation award together with any separate award to
Lessee shall be apportioned and paid in the following order of priority:
A. There shall be first paid any and all reasonable expenses, charges
and fees, including reasonable counsel tees, in collecting the award.
B. Lessor shall then be entitled to receive an amount equal to the
reasonable market value of the Leased Premises, on a basis without
consideration of any unexpired portion of the term of this Lease and
unencumbered by this Lease. If Lessor and Lessee cannot agree as to such
value, the same shall be determined by arbitration in accordance with the
provisions of Section 18.11.
C. The balance of the award shall be paid to the Lessee; provided,
that if the remainder of the Lease Term is, at the time of the taking, less
than one year, such balance shall be paid to lessor.
Section 12.04. Application of Award in Partial Taking. If it is
determined pursuant to the provisions of Section 12.03, that the remaining
Improvements after a partial condemnation can be used economically by Lessee,
(i) this Lease shall not terminate but shall continue in full force and
effect as to the portion of the Leased Premises not taken, (ii) Lessee shall
commence and proceed with reasonable diligence to repair or reconstruct the
remaining building or buildings on the Leased Premises to a complete
architectural unit or units to the extent proceeds of the condemnation award
are available therefor, and (iii) the fixed annual rentals payable by Lessee
hereunder shall be reduced during the unexpired portion of this Lease to that
proportion of the annual fixed results herein reserved which the value of the
part of the Leased Premises not so taken bears to the value of the total of
the Leased Premises, such values to be determined as of the date when Lessee
is disturbed in its possession as a result of the taking. Lessor's share of
the award in condemnation proceedings for any partial taking where repair or
reconstruction is undertaken, together with any separate award to Lessee,
shall be apportioned and paid in the following order of priority:
A. There shall first be paid any and all reasonable expenses, charges
and fees, including reasonable counsel fees, in collecting the awards.
B. The proceeds of the awards shall next be used as a fund for the
restoration of the building, improvements and equipment situated on the
Leased Premises to a complete architectural unit or units. Said proceeds
shall be held by Lessor and shall be paid out from time to time to persons
furnishing labor or materials, or both, including architects' fees and
contractors' compensation in such restoration work on vouchers approved by a
licensed architect engineer or other person approved by Lessor and employed
by Lessee to superintend the work.
C. Lessor shall then be entitled to an amount equal to the reasonable
market value of the portion of the Leased Premises taken, without
consideration of any unexpired portion of the term of this Lease,
unencumbered by this Lease, plus a sum of money equal to damages sustained by
Lessor for severance damages to the remaining and untaken portion of the
Leased Premises, also unencumbered by this Lease as to such remaining untaken
portion of the Leased Premises.
D. The balance of the award shall be paid to Lessee.
Section 12.05. Temporary Possession. If any right of temporary possession
or occupancy of all or any portion of the Leased Premises shall be obtained
by any competent authority in the exercise of the power of eminent domain,
the foregoing provisions of this Article shall be inapplicable thereto and
this Lease shall continue in full force and effect without reduction or
suspension of minimum rent and additional rent and Lessee shall be entitled
to make claim for and recover any award or awards, whether in the form of
rental or otherwise, recoverable in respect of such possession or occupancy.
The award shall be paid to Lessor and applied against the Rental payable by
Lessee under this Lease, as the same becomes due, with any surplus to be paid
to Lessee; provided that if any portion of the award is intended to cover the
cost of restoring the Leased Premises to the condition they were in prior to
such temporary possession or occupancy or to make any repairs occasioned by
or resulting from such possession or occupancy, such portion shall be so
applied.
Section 12.06. Consent to settlement by Lessor. Lessee shall have primary
responsibility for dealing with the condemning authority in the condemnation
proceedings but Lessee shall not make any settlement with the condemning
authority nor convey or agree to convey the whole or any portion of the
Leased Premises to such authority in lieu of condemnation without first
obtaining the written consent of Lessor thereto, which consent shall not be
unreasonably withheld if Lessor receives (i) not less than the fair market
value of the Leased Premises taken at the time and (ii) a reasonable amount
for any diminution in value of the remaining portion.
ARTICLE XIII
Events of Default and Remedies
Section 13.01. Events of Default. The following events ("Events of
Default") shall be deemed to be events of default by Lessee under this Lease:
A. Failure by Lessee to pay any installment of the Monthly Rent or any
additional rent or any other sum of money payable hereunder on the date the
same is due and such failure shall continue for a period of ten (10) days
after written notice to Lessee.
B. Failure by Lessee to comply with any term, provision, or covenant
of this Lease, other than the payment of rent or other sums of money, and
shall not cure such failure within thirty (30) days after written notice
thereof to Lessee; or if such failure cannot reasonably be cured within the
said thirty (30) days and Lessee shall not have commenced to cure such
failure within such thirty (30) day period and shall not thereafter with all
due diligence and good faith proceed to cure such failure.
C. The entering of a decree or order by a court of competent
jurisdiction adjudging Lessee a bankrupt or insolvent or appointing a
receiver or trustee or assignee in bankruptcy or insolvency of all or
substantially all of its property, and any such decree or order shall have
continued in force undischarged or unstayed for a period of sixty (60) days.
D. The doing or permitting to be done by Lessee or any sublessee,
assignee, grantee, or agent of Lessee shall of anything which creates a lien
upon Lessor's interest in the Leased Premises, and any such lien is not
discharged or bonded within thirty (30) days after filing.
E. The insolvency of Lessee or the making a transfer in fraud of
creditors, an assignment for the benefit of creditors, or the filing of a
proceeding in bankruptcy by Lessee, or the appointing of a receiver or
trustee for Lessee or any of the assets of Lessee.
Section 13.02. Remedies. Upon the occurrence of any Event of Default
enumerated in Section 13.01 hereof, Lessor shall have the option of (i)
terminating this Lease by written notice thereof to Lessee, (ii) continuing
this Lease in full force and effect, or (iii) curing the default on behalf of
Lessee.
A. In the event that Lessor shall elect to terminate this Lease, upon
written notice to Lessee, this Lease shall be ended as to Lessee and all
persons holding under Lessee, and all of Lessee's rights shall be forfeited
and lapsed, as fully as if this Lease had expired by lapse of time. In such
event, Lessee shall be required immediately to vacate the Leased Premises and
there shall immediately become due and payable the amount by which (a) the
total rent and other benefits which would have accrued to Lessor under this
Lease for the remainder of the Term of this Lease if the terms and provisions
of this Lease had been fully complied with by Lessee exceeds (b) the total
fair market rental value of the Leased Premises for the balance of the Term
of this Lease (it being the intention of both parties hereto that Lessor
shall receive the benefit of its bargain); and Lessor shall at once have all
of the rights of re-entry upon the Leased Premises, without becoming liable
for damages or guilty of a trespass. In addition to the sum immediately due
from Lessee under the foregoing provision, there shall be recoverable from
Lessee: (w) the reasonable cost of restoring the Leased Premises to good
condition, normal wear and tear excepted (subject to Article XII hereof); (x)
all accrued unpaid sums, plus interest at the highest lawful rate per annum
and late charges, if in arrears, under the terms of this Lease up to the date
of termination; (y) Lessor's reasonable cost of recovering possession of the
Leased Premises; and (z) rent and sums accruing subsequent to the date of
termination pursuant to the holdover provisions of Section 18.14 hereof.
B. In the event that Lessor shall elect to continue this Lease in full
force and effect, Lessee shall continue to be liable for all rents. Lessor
shall nevertheless have all of the rights of re-entry upon said Leased
Premises without becoming liable for damages or being guilty of a trespass
and Lessor after re-entry may relet the Leased Premises or any part thereof,
to a substitute tenant or tenants for a period of time equal to or lesser or
greater than the remainder of the term on whatever terms and conditions
Lessor, at Lessor's sole discretion, deems advisable. Against the rents and
sums due from Lessee to Lessor during the remainder of the term, credit shall
be given Lessee in the net amount of rent received from the new tenant after
deduction by Lessor for: (a) the reasonable costs incurred by Lessor in
reletting the Leased Premises (including, without limitation, remodeling
costs, brokerage fees, legal fees, and the like); (b) the accrued sums, plus
interest and late charges if in arrears, under the terms of this Lease; (c)
Lessor's reasonable cost of recovering possession of the Leased Premises; and
(d) the cost of storing any of Lessee's property left on the Leased Premises
after re-entry. Notwithstanding any provision in this paragraph B of Section
13.02 to the contrary, upon the default of any substitute tenant or upon the
expiration of the lease term of such substitute tenant before the expiration
of the Term of this Lease, Lessor may, at Lessor's election, either relet to
still another substitute tenant or terminate this Lease and exercise its
rights under paragraph A of this Section 13.02.
C. In the event that Lessor shall elect to cure the default of Lessee,
all sums expended by Lessor in effecting such cure, plus interest thereon at
the highest lawful rate per annum, shall be due and payable immediately.
Such sum shall constitute additional rent hereunder, and failure to pay such
sum when due shall enable Lessor to exercise all of its remedies under this
Lease.
Section 13.03. Cumulative Rights. Pursuit of any of the foregoing remedies
shall not preclude pursuit of any of the other remedies herein provided or
any other remedies provided by law, nor shall pursuit of any remedy herein
provided constitute a forfeiture or waiver of any rent due to Lessor
hereunder or of any damages accruing to Lessor by reason of the violation of
any of the terms, provisions and covenants herein contained. Failure by
Lessor to enforce one or more of the remedies herein provided, upon any event
of default, shall not be deemed or construed to constitute a waiver of such
default or of any other violations or breach of any of the terms, provisions
and covenants herein contained.
Section 13.04. Re-Entry by Lessor. No re-entry or taking possession of the
Leased Premises by Lessor shall be construed as an election on its part to
terminate this Lease unless a written notice of such intention is given to
Lessee. Lessor, at its option, may make such alterations or repairs to the
Improvements as it, in its reasonable judgment, considers advisable and
necessary upon the occurrence of an Event of Default, at the cost of Lessee,
and the making of such alterations or repairs shall not operate or be
construed to release Lessee from liability hereunder. Lessor shall in no
event be liable in any way whatsoever for failure to relet the Leased
Premises and the improvements or, in the event the Leased Premises and the
Improvements are relet, for failure to collect rent thereof under such
reletting; and in no event shall Lessee be entitled to receive any excess of
such rent over the sums payable by Lessee to Lessor hereunder; provided,
however, that Lessor shall during such time as Lessor is in possession of the
Leased Premises as the result of any re-entry by Lessor hereunder, and prior
to any termination of this Lease, exercise reasonable efforts to cause tenant
space in the Leased Premises to be leased.
Section 13.05. Effect of Waiver or Forbearance. No waiver by Lessor of any
breach by Lessee of any of its obligations, agreements or covenants hereunder
shall be a waiver of any subsequent breach or of any obligation, agreement or
covenant, nor shall any forbearance by Lessor to seek a remedy for any breach
by Lessee be a waiver by Lessor of its rights and remedies with respect to
such subsequent breach.
Section 13.06. Bankruptcy of Lessee. The provisions of paragraph C and E
Section 13.01 above shall only apply with respect to the Lessee which is the
then owner of the leasehold estate. Notwithstanding the provisions of
Section 13.01 to the contrary, the happening of any of the Events of Default
mentioned in paragraph C or E of Section 13.01 above shall not operate or
permit Lessor to declare a default hereunder or terminate this Lease so long
as all covenants of Lessee hereunder shall be performed by Lessee or its
successor in interest or a Leasehold Mortgagee in accordance with the terms
of this Lease.
Section 13.07. New Lease with Leasehold Mortgagee Upon Termination. If this
Lease shall terminate by reason of the occurrence of any contingency
mentioned in Section 13.01 hereof, and in the manner therein set forth, and
if Lessor shall obtain possession of the Leased premises herefor, Lessor
agrees that any Leasehold Mortgagee shall have the right, for a period of
thirty (30) days subsequent to written notice of said termination of this
Lease, to elect to demand a new lease of the Leased premises of the character
and, when executed and delivered and possession of the Leased Premises is
taken thereunder, having the effect hereinafter set forth. Such new lease
shall be for a term to commence at the said termination of this Lease, as in
this Section 13.01 provided, and shall have as the date for the expiration
thereof the same date stated in this Lease as the date for the expiration
thereof. The rent thereof shall be at the same rate as would have been
applicable during such term under the provisions of this Lease, had this
Lease as the date for the expiration thereof. The rent therefor shall be at
the same rate as would have been applicable during such term under the
provisions of this Lease, had this Lease not so expired or terminated, and
all the rents, covenants, conditions and provisions of such new lease,
including, but not limited to, the conditional limitations set forth in this
Lease, shall be the same as the terms, conditions and provisions of this
Lease. If any such Leasehold Mortgagee as aforesaid shall elect to demand
such new lease within such 30-day period, such Leasehold Mortgagee shall give
written notice to Lessor of such election; and, thereupon, within ten (10)
days thereafter, Lessor and such Leasehold Mortgagee agree to execute and
deliver such new lease upon the terms above set forth, and such Leasehold
Mortgagee shall, at the time of the execution and delivery of such new lease,
pay to Lessor all rent and additional rent and other sums which would have
become payable hereunder by Lessee to Lessor to the date of the execution and
delivery of such new lease, had this Lease not terminated, and which remain
unpaid at the time of the execution and delivery of such new lease, together
with reasonable attorneys fees and expenses in connection therewith. Any
such new lease as contemplated in this Section 13.07 may, at the option of
the Leasehold Mortgagee, be executed by a nominee of such holder, without the
Leasehold Mortgagee assuming the burdens and obligations of Lessee thereunder
beyond the period of its ownership of the leasehold estate created hereby.
Any Leasehold Mortgagee of less than all of the Leased Premises who
elects to demand a new lease pursuant to this section with respect to the
part of the Leased Premises as to which it has obtained possession shall, as
a condition to Lessor's obligation to grant such new lease, agree to
guarantee the payment of rental for all of the Leased Premises.
Section 13.08. Notice to Leasehold Mortgagee. Lessor agrees, if and
so long as the leasehold estate of Lessee is encumbered by a leasehold
mortgage in favor of a Leasehold Mortgagee, to give such Leasehold Mortgagee
at such address or addresses as may be specified by the Leasehold Mortgagee
to Lessor in writing, written notice of any default or of the happening of
any contingency referred to in Section 13.01 hereof, simultaneously with the
giving of such notice to Lessee, and no such notice to Lessee shall be
effective or be deemed to have been given to Lessee hereunder unless such
notice is also given to the Leasehold Mortgagee; and the Leasehold Mortgagee
shall have the right, within the period limited by any such notice and for an
additional period of thirty (30) days thereafter, and to the same extent and
with the same effect as though done by Lessee, to take such action or to make
such payment as may be necessary or appropriate to cure any such default or
contingency so specified, it being the intention of the parties hereto that
Lessor shall not exercise its right to terminate this Lease as in Section
13.01 provided without first affording to any Leasehold Mortgagee the same
rights and the same notices with respect to any such default or contingency
and the same period or periods of time within which to cure the same,
including the right to enter into possession of the Leased Premises, to
enable the Leasehold Mortgagee also to do, as are afforded to Lessee
hereunder (and a period of thirty (30) days thereafter, and as are afforded
to the leasehold mortgagee under this Section 13.08).
Section 13.09. Foreclosure by Leasehold Mortgagee. Anything in this Lease
and specifically in this Article XI to the contrary notwithstanding, Lessor
shall not be entitled to exercise its right to terminate this Lease as in
this Article XIII provided during the period that any Leasehold Mortgagee
shall require to foreclose its mortgage or otherwise to fulfill or complete
its remedies under such leasehold mortgage or to cure any Event of Default,
provided, however, that such period shall in no event exceed ninety (90) days
and that within such period of time: (a) such Leasehold Mortgagee proceeds
promptly and with due diligence with its remedies under its mortgage on the
leasehold estate and thereafter prosecutes the same with all due diligence;
and (b) there is timely paid to Lessor the rent, additional rent and other
sums which have, or may, become due and payable during said period of time
and as the same become due and payable, and all other terms and provisions of
this Lease are duly complied with.
Section 13.10. No Voluntary Surrender of Leasehold Estate Without Consent of
Leasehold Mortgagee. So long as there exists any unpaid or undischarged
Leasehold Mortgage on the estate of Lessee created hereby, Lessor expressly
agrees for the benefit of such Leasehold Mortgagee that it will not accept a
voluntary surrender of the Leased Premises or a cancellation of this Lease
from Lessee prior to the termination of this Lease without the written
consent of the Leasehold Mortgagee, and Lessor and Lessee hereby agree for
the benefit of any Leasehold Mortgagee that they will not subordinate this
Lease to any mortgage that may hereafter be placed on the fee or amend or
alter any terms or provisions of this Lease or consent to any prepayment of
any rental or additional rental without securing the written consent thereto
of any such Leasehold Mortgagee. Nothing contained herein shall be construed
to limit the right of Lessor to sell or pledge its rights hereunder,
including but not limited to the right to receive rent pursuant to Article IV
hereof, without the prior consent or permission of any person.
ARTICLE XIV
Leasehold Mortgage
Section 14.01. Rights of Leasehold Mortgagee.
A. Lessee may, without Lessor's consent, mortgage, pledge, grant deeds of
trust, or otherwise encumber the leasehold estate created hereby and all or
any portion of the right, title and interest of Lessee hereunder, and assign,
hypothecate or pledge the same, as security for the payment of any debt to
any holder or beneficiary of a deed of trust or mortgage securing the payment
of indebtedness to Leasehold Mortgagee; provided, that no mortgagee, trustee,
or other person claiming by, through or under any instrument creating any
such encumbrance shall by virtue thereof acquire any greater right in the
Leased Premises than Lessee then had under this Lease, except for the right
expressly granted to such mortgagee, trustee or other person under the terms
of this Lease; and provided further, that such mortgage, deed of trust or
other instrument of encumbrance, and the indebtedness secured thereby, shall
at all times be and remain subject to all of the conditions, covenants and
obligations of this Lease and to all of the rights of Lessor hereunder. As
to any such Leasehold Mortgage Lessor consents to provisions therein, at the
option of Lessee, (a) for an assignment of Lessee's share of the net proceeds
from any award or other compensation resulting from a total or partial (other
than temporary) taking as set forth in Article X of this Lease, (b) for the
entry of any Leasehold Mortgagee upon the Leased Premises during business
hours, without notice to Lessor or Lessee, to view the state of the Leased
Premises, (c) that a default by Lessee under this Lease shall constitute a
default under any such leasehold mortgage, (d) for an assignment of Lessee's
right, if any, to terminate, cancel, modify, change, supplement, alter or
amend this Lease, (e) for an assignment of any sublease to which any such
leasehold mortgage is subordinated, subject to the rights of Lessor
hereunder, and (f) effective upon any default in any such leasehold mortgage,
(i) for the foreclosure of the Leasehold Mortgage pursuant to a power of sale
by judicial proceedings or other lawful means and the subsequent sale of the
leasehold estate to the purchaser at the foreclosure sale and a sale by such
purchaser or a sale by any subsequent purchaser, (ii) for the appointment of
a receiver, irrespective of whether any Leasehold Mortgagee accelerates the
maturity of all indebtedness secured by the Leasehold Mortgage, (iii) for the
rights of the Leasehold Mortgagee or the receiver to enter and take
possession of the Leased Premises, to manage and operate the same, to collect
the subrentals, issues and profits therefrom (subject to the rights of Lessor
hereunder), and to cure any default under the Leasehold Mortgage or any
default by Lessee under this Lease, and (iv) for an assignment of Lessee's
right, title and interest in and to the premiums for or dividends upon any
insurance required by the terms of this Lease, as well as in all refunds or
rebates of taxes or assessments upon or other charges against the Leased
Premises, whether paid or to be paid.
B. If at any time after the execution and recordation of any such mortgage
or deed of trust, the mortgagee or trustee therein shall notify Lessor in
writing that any such mortgage or deed of trust has been given and executed
by Lessee, and shall at the same time furnish Lessor with the address to
which it desires copies of notices to be mailed, or designate some person or
corporation as its agent and representative for the purpose of receiving
copies of notices, Lessor hereby agrees that it will thereafter mail to such
mortgagee or trustee and to the agent or representative so designated by such
mortgagee or trustee, at the address so given, duplicate copies of any and
all notices in writing which Lessor may from time to time give or serve upon
Lessee under and pursuant to the terms and provisions of this Lease.
Section 14.02. Liability of Leasehold Mortgagee. No Leasehold Mortgagee
shall be or become liable to Lessor as an assignee of this Lease or otherwise
until it expressly assumes by written instrument such liability, and no
assumption shall be inferred or result from foreclosure or other appropriate
proceedings in the nature thereof or as the result of any other action or
remedy provided for by any mortgage or deed of trust or other instrument
executed in connection with such leasehold mortgage or from a conveyance from
Lessee pursuant to which the purchaser at foreclosure or grantee shall
acquire the rights and interests of Lessee under the terms of this Lease.
ARTICLE XV
Attorney's Fees; Lessor's Lien
Section 15.01. Attorney's Fees. If on account of any breach or default by
either party hereunder, it shall become necessary for the other party hereto
to employ an attorney to enforce or defend any of said party's rights or
remedies hereunder, and should such party prevail in a final judgment, the
party against whom enforcement was sought shall pay to the other party any
reasonable attorney's fees incurred by reason of such proceedings.
Section 15.02. Lessor's Lien. In addition to the statutory landlord's lien,
Lessor shall have at all times, and Lessee does hereby grant to Lessor, a
valid contractual lien upon and a security interest upon all goods, wares,
equipment, fixtures, furniture and other personal property of Lessee
presently or which may hereafter be situated on the Leased Premises and all
proceeds therefrom to secure the payment by Lessee of all rentals and other
sums of money due hereunder, and such property shall not be removed therefrom
without the consent of Lessor until all arrearages in rent, as well as any
and all other sums of money then due to Lessor hereunder, shall first have
been paid and discharged. Upon the occurrence of an event of default by
Lessee, Lessor may sell any and all improvements, goods, wares, equipment,
fixtures, furniture and other personal property of Lessee situated on the
Leased Premises at one or more public or private sales after giving Lessee
reasonable notice of the time and place of any public sale or sales or of the
time after which any private sale or sales are to be made, with or without
having such property at the sale, at which Lessor or its assigns may purchase
property to be sold, being the highest bidder therefor. The requirement of
reasonable notice to Lessee hereunder shall be met if such notice is given in
the manner prescribed in Section 18.06 of this Lease at least ten (10) days
before the time of sale. The proceeds from any such disposition less any and
all expenses connected with the taking of possession, holding and selling of
the property (including reasonable attorney's fees and legal expenses) shall
be applied as a credit against any sums due by Lessee to Lessor. Any surplus
shall be paid to Lessee or as otherwise required by law. Upon request by
Lessor, Lessee agrees to execute and deliver to Lessor a financing statement
in form sufficient to perfect the security interest of Lessor in the
aforesaid property and proceeds under the provisions of the Uniform
Commercial Code in force in the state in which the Leased Premises are
located. Notwithstanding anything to the contrary stated herein, the
statutory lien of Lessor and the landlord's lien and security interest
granted in this paragraph are subject and subordinate to the rights, if any,
of the holder of any indebtedness secured by Lessee's leasehold interest in
the Leased Premises or in equipment or other property located thereon, and
Lessor agrees to execute such additional documents as shall be necessary to
effect or evidence such subordination.
ARTICLE XVI
Renewal Options
Section 16.01. Option to Renew. Lessee shall have, and is hereby given, two
(2) five (5) year options (the "Options") to renew and to extend the Term of
this Lease, such Options to follow consecutively upon the expiration of the
Term of this Lease, provided that at the time that each option to renew is
exercised, this Lease shall be in full force and effect and Lessee shall not
be in default hereunder. Each Option shall be for a term of five (5) years
(the "Renewal Term"). The Option shall be exercised by Lessee's giving to
Lessor written notice of its intention to renew and extend the Term of this
Lease at least three (3) months before the expiration date of the initial
Term of this Lease and any Renewal Term thereof. The renewal and extension
of this Lease for the Renewal Term shall be on and under the same covenants,
agreements, terms, provisions and conditions as are contained herein for the
initial Term of this Lease, except that rental shall be computed in the
manner set forth in Section 16.02 below. Any termination of this Lease
during the initial Term shall terminate all rights of renewal and extension
set forth herein.
Section 16.02. Adjustment to Monthly Rental. Commencing with the first
(1st) day of the first calendar month of each Renewal Term, the applicable
rental for each calendar month during such Renewal Term shall be equal to the
Monthly Rent multiplied by the percentage of increase by which the Consumer
Price Index in the calendar month three (3) months preceding the first month
of the Renewal Term exceeds the Consumer Price Index in December 1997;
provided, however, that in no event shall such adjusted rental for the
Renewal Term be less than the rental payable during the initial Term.
"Consumer Price Index" shall mean the Consumer Price Index for Urban Wage
Earners and Clerical Workers-All Items (Base Year 1967) of the United States
Bureau of Labor Statistics. If the manner in which such Consumer Price Index
is determined by the Bureau of Labor Statistics shall be substantially
revised, an adjustment shall be made in such revised index which would
produce results equivalent, as nearly as possible, to those which would have
been obtained if the Consumer Price Index had not been revised. If the
Consumer Price Index shall become unavailable to the public because
publication is discontinued, or otherwise, Lessor will substitute therefor a
comparable index based upon changes in the cost of living or purchasing power
of the consumer dollar published by any other governmental agency or, if no
such index shall be available, then a comparable index published by a major
bank or other financial institution or by a recognized financial publication.
ARTICLE XVII
Right of First Refusal
Sectoin 17.01. As long as Lessee is Lessee under this Lease and provided
Lessee is not in default hereunder, if at any time after the execution of
this Lease, Lessor shall receive a bona fide offer which it is willing to
accept to sell or transfer legal title to the Leased Premises (or any
interest therein) to any person (other than an affiliate, shareholder,
partner, joint venturer, spouse or lineal descendant of Lessor or any trust
for their benefit), Lessor shall, within fifteen (15) days after Lessor's
receipt of the acceptable offer, notify Lessee of the terms of such offer
("Lessor's Offer Notice"). Lessor's Offer Notice shall include the name of
the offeror and the offered consideration and other terms of such offer
(together with a copy of the offer) and Lessee, within ten (10) days after
receipt of Lessor's Offer Notice, shall have the right to purchase the
interest to be sold or transferred on all the other terms and conditions
stated in Lessor's Offer Notice. Failure of Lessee to exercise such right
within said ten (10) day period shall be deemed a waiver of such right. Upon
notice from Lessee of its decision not to exercise such right or upon waiver
of the same, Lessor shall be free to consummate the sale or transfer in
accordance with the terms set forth in Lessor's Offer Notice. In the event
such sale or transfer is not consummated within six (6) months after the date
of the delivery of Lessor's Offer Notice, the right granted to Lessee in this
Article XVII shall be reinstated, and any such subsequent sale or transfer
shall be subject to this right. Any sale or transfer contemplated by this
Article XVII shall be subject to the provisions of this Lease including,
without limitation, the rights of Lessee contained herein. Upon Lessee's
exercise of its right of first refusal hereunder, Lessee may assign such
rights to any other person or entity without the consent of Lessor or any
trust for their benefit, but any assignment shall not relieve Lessee of its
obligations hereunder or thereunder. The right of first refusal herein
granted to Lessee shall not apply to any transfer by Lessor of the Leased
Premises to any affiliate, shareholder, partner, joint venturer, spouse or
lineal descendant of Lessor or any trust for their benefit or to any transfer
by gift, will or the laws of descent and distribution.
ARTICLE XVIII
Miscellaneous
Section 18.01. Inspection. Lessee shall permit Lessor and its agents to
enter into and upon the Leased Premises at all reasonable times and upon
reasonable notice for the purpose of inspecting the same on condition that
Lessee's and Lessee's tenants use and quiet enjoyment of the same is not
interfered with.
Section 18.02. Estoppel Certificates. Lessee and Lessor shall, at any time
and from time to time upon not less than ten (10) days' prior request by the
other party, execute, acknowledge, and deliver to Lessor, or Lessee, as the
case may be, a statement in writing certifying that (i) this Lease is
unmodified and in full force and effect (or if there have been any
modifications, that the same are in full force and effect as modified and
stating the modifications) and, if so, the dates to which the fixed rent and
any other charges have been paid in advance, and (ii) that no default
hereunder on the part of the Lessor or Lessee, as the case may be, exists
(except that if any such default does exist, the certifying party shall
specify such default), it being intended that any such statement delivered
pursuant to this Section 18.02 may be relied upon by a prospective purchaser
or encumbrancer (including assignees) of the Leased Premises.
Section 18.03. Release. If requested by Lessor, Lessee shall upon
termination of this Lease, execute and deliver to Lessor an appropriate
release, in form proper for recording, of all Lessee's interest in the Leased
Premises, and upon request of Lessee, Lessor will execute and deliver a
written cancellation or termination of Lease in proper form for recording;
provided, that in no event shall any such release, cancellation or
termination constitute a release or relinquishment by either party of his or
its rights against the other party for any amounts payable by such other
party under the terms of this Lease or any damages to which such party is
entitled as a result of any default by the other party hereunder.
Section 18.04. Lessor's Right to Perform Lessee's Covenants. If Lessee
shall default in the performance of any of its covenants, obligations or
agreements contained in this Lease, other than the obligation to pay rent,
Lessor after ten (10) days' notice to Lessee, specifying such default (or
shorter notice if any emergency exists), may (but without any obligation so
to do) perform the same for the account and at the expense of Lessee, and the
amount of any payment made or other reasonable expenses, including reasonable
attorneys' fees incurred by Lessor for curing such default, with interest
thereon at the lower of twelve percent (12.0%) per annum or the maximum
amount allowed by law, shall be payable by Lessee to Lessor on demand.
Section 18.05. Non-Merger. Unless agreed to in writing by such person,
there shall be no merger of this Lease, the leasehold estate created hereby
or the Improvements with the fee state in and to the Leased Premises by
reason of the fact that this Lease, the leasehold estate created thereby or
the Improvements, or any interest in either thereof, may be held directly or
indirectly by or for the account of any person who shall own the fee estate
in and to the Leased Premises, or any portion thereof, and no such merger
shall occur unless and until all persons at the time having any interest in
the fee estate and all person having any interest in this Lease, the
leasehold estate or the Improvements, including the holder of any mortgage
upon the fee estate in and to the Leased Premises, shall join in a written
instrument effecting such merger.
Section 18.06. Notices. Any notice to be given or to be served in
connection with this Lease must be in writing, and may be given by facsimile,
by certified mail, or by overnight delivery service and shall be deemed to
have been given and received upon the earlier of receipt thereof by the
receiving party or on the third business day after a letter containing such
notice, properly addressed, with postage prepaid is deposited in the United
States Mail or given to a nationally recognized overnight delivery service,
addressed as follows:
If to Lessor:
FFP Properties, L.P.
Attn: Lease Administration
2801 Glenda Avenue
Fort Worth, Texas
76117-4391
Facsimile: 817/838-1871
If to Lessee:
FFP Operating Partners, L.P.
Attn: Contracts Adminstration
2801 Glenda Avenue
Fort Worth, Texas
76117-4391
Facsimile: 817/838-1871
Each party hereto shall have the right, by giving not less than five (5)
days' prior written notice to the other parties hereto, to change any address
of such party for the purpose of notices under this Section 18.06.
Section 18.07. Successors and Assigns. Lessor, as used in this instrument
shall extend to and include any and all persons, whether natural or
artificial who at any time or from time to time during the term of this Lease
shall succeed to the interest and estate of Lessor in the Leased Premises;
and all of the covenants, agreements, conditions and stipulations herein
contained which inure to the benefit of and are binding upon Lessor shall
also inure to the benefit of and shall be, jointly and severally, binding
upon the heirs, executors, administrators, successors, assigns and grantees
of Lessor, and each of them, and any and all persons who at any time or from
time to time during the term of this Lease shall succeed to the interest and
estate of Lessor in the real estate and property hereby demised. The word
"Lessee" as used in this instrument shall extend to and include any and all
persons, whether natural or artificial, who at any time or from time to time
during the term of this Lease shall succeed to the interest and estate of
Lessee hereunder and all of the covenants, agreements, conditions and
stipulations herein contained which inure to the benefit of or are binding
upon Lessee shall also inure to the benefit of and be jointly and severally
binding upon the successors, assigns, or other representatives of Lessee, and
of any and all persons who shall at any time or from time to time during the
term of this Lease succeed to the interest and estate of Lessee hereby
created in the Leased Premises. Lessee shall have the right to assign this
Lease to any person or entity.
Section 18.08. Modifications. This Lease may be modified only by written
agreement signed by the Lessor and Lessee.
Section 18.09. Descriptive Headings. The descriptive headings of this Lease
are inserted for convenience in reference only and do not in any way limit or
amplify the terms and provisions of this Lease.
Section 18.10. No Joint Venture. The relationship between Lessor and Lessee
at all times shall remain solely that of landlord and tenant and shall not be
deemed a partnership or joint venture.
Section 18.11. Arbitration. Wherever in this Lease it is provided that any
question shall be determined by arbitration, such question shall be settled
and finally determined by arbitration in accordance with the rules then in
effect of the American Arbitration Association, or its successors, and the
judgment upon the award rendered may be entered in any court having
jurisdiction thereover. Such arbitration shall be held in the City of Fort
Worth, Texas. The number of arbitrators to be appointed shall be three (3).
The arbitrators shall have at least five (5) years experience in real estate
in the area where the Leased Premises is located and shall not be related to
either party. The parties to the arbitration, in addition to the rights
granted under the rules of the Association, shall have the right to offer
evidence and testify at the hearings and cross-examine witnesses. The cost
of such arbitration shall be split equally between the parties.
Section 18.12. Memorandum of Lease. Lessor and Lessee agree that they
shall, at any time at the request of the other, promptly execute a memorandum
or short form of this Lease, in recordable form, setting forth a description
of the Leased Premises, the term of this Lease, and any other provisions
herein, or the substance thereof, as either party desires.
Section 18.13. Partial Invalidity. If any term or provision of this Lease
or the application thereof to any person or circumstance shall to any extent
be invalid or unenforceable, the remainder of this Lease, or the application
of such term or provision to any person or circumstances other than those as
to which it is invalid or unenforceable, shall not be affected thereby, and
each term of this Lease shall be valid and be in force to the fullest extent
permitted by law.
Section 18.14. Holding Over. Subject to the rights and remedies of Lessor
as set forth in Section 11.02 hereof and in addition thereto, in case of
holding over by Lessee after expiration or termination of the Term of this
Lease, Lessee shall pay monthly, as rent, an amount equal to 125% of the
amount of Monthly Rent under Section 4.01 hereof during each month or partial
month of the holdover period. No holding over by Lessee after the Term of
this Lease, either with or without consent and acquiescence of Lessor, shall
operate to extend the Lease for a longer period than one month unless (a) a
holdover agreement in writing specifies a longer period or (b) this Lease is
extended in writing; and any holding over without consent of Lessor in
writing shall thereafter constitute this Lease a lease from month to month.
In the event of any unauthorized holding over, Lessee shall indemnify Lessor
against all claims for damages by any other tenant or prospective tenant to
whom Lessor may have leased all or any part of the Leased Premises, resulting
from delay by Lessor in delivering possession of all or any part of the
Leased Premises.
Section 18.15. Lessor Default. In the event of any default hereunder by
Lessor, Lessee may, if such default continues after a reasonable notice
period following receipt of written notice thereof to Lessor, cure such
default for the account and at the expense of Lessor. If Lessee at any time
after the expiration of such curative period by reason of such breach, is
compelled to pay, or elects to pay, any sum of money or do any act which will
require the payment of any sum of money, or is compelled to incur any
expense, including reasonable attorney's fees, in instituting, prosecuting
and/or defending any action or proceeding to enforce Lessee's rights
hereunder or otherwise, the sum or sums so paid by Lessee, with all interest,
costs and damages, shall on demand be paid by Lessor to Lessee but Lessee
shall have no right to offset any such sums against any amounts which may be
due to Lessor hereunder.
Section 18.16. Lessor Covenant. Lessor shall pay when due all principal and
interest on any mortgage or superior lease to which this Lease is subordinate
or subordinated, and shall pay or discharge (by bonding or otherwise) all
valid mechanic's liens filed against the Leased Premises by reasons of any
construction by Lessor.
Section 18.17. Sublease. If this Lease is in fact a sublease, Lessee
accepts this Lease subject to all of the terms and conditions of the
underlying lease under which Lessor holds the Leased Premises as lessee.
Lessee covenants that it will do no act or thing which would constitute a
violation by Lessor of its obligation under such underlying lease; provided,
however, that Lessee's agreement in this regard is premised on Lessor's
assurances to the effect that the terms of this Lease do not violate such
underlying lease.
Section 18.18. Net Lease. It is understood and agreed that this Lease
Agreement is intended to be a net lease. It is the intention of the parties
that Lessor shall receive the Monthly Rent hereunder free from all charges
and expenses imposed upon or by reason of the Leased Premises and the
ownership thereof by Lessor.
Section 18.19. Venue. This Lease is entered into in Tarrant County, Texas,
and is performable and enforceable in that county.
IN WITNESS WHEREOF, the parties have executed this instrument the day and
year first above written.
LESSOR:
FFP PROPERTIES, L.P.
By: FFP Partners, L.P.
its sole general partner
By: FFP Real Estate Trust
its sole general partner
By: ______________________________
[Name and Title]
LESSEE:
FFP OPERATING PARTNERS, L.P.
By: FFP Operating LLC
its sole general partner
By: __________________________________
[Name and Title]
===============================================================================
THE STATE OF TEXAS
COUNTY OF TARRANT
This instrument was acknowledged before me on ___________________,
1998, by
________________________________________________________________ the
___________________________ of FFP Real Estate Trust who stated that the same
was signed in the capacity and for the purposes indicated therein.
_________________________________________
Notary Public, State of Texas
Commission Expires: _______________________
Printed Name: _____________________________
THE STATE OF TEXAS
COUNTY OF TARRANT
This instrument was acknowledged before me on ___________________,
1998, by
________________________________________________________________ the
___________________________ of FFP Operating LLC who stated that the same was
signed in the capacity and for the purposes indicated therein.
_________________________________________
Notary Public, State of Texas
Commission Expires: _______________________
Printed Name: _____________________________
BUILDING LEASE AGREEMENT
THIS CONTRACT CONTAINS ARBITRATION PROVISIONS AND SHALL BE
SUBJECT TO ARBITRATION UNDER THE TEXAS GENERAL ARBITRATION ACT
(ARTICLE 224 ET SEQ. REVISED CIVIL STATUTES OF TEXAS).
THIS BUILDING LEASE AGREEMENT is made and entered into on January 1, 1998,
by and between FFP Properties, L.P., a Texas limited partnership ("Lessor"),
and FFP Operating Partners, L.P., a Delaware limited partnership ("Lessee").
WHEREAS, the Lessor owns all buildings, structures, and other improvements
located on the property described on Exhibit A (such buildings, structures,
and improvements being referred to as the "Premises"); and,
WHEREAS, Lessee desires to occupy and use such property for the conduct of
its business;
NOW, THEREFORE, it is agreed by and between Lessor and Lessee as follows:
ARTICLE I
Premises
Section 1.01. Lessor, in consideration of the covenants and agreements to be
performed by Lessee and upon the terms and conditions hereinafter stated,
does hereby lease, demise, and let unto Lessee the buildings, structures, and
other improvements located on the property described on Exhibit A attached
hereto and all rights, easements and appurtenances pertaining thereto
(collectively, the "Leased Premises").
ARTICLE II
Term
Section 2.01. The term of this Lease shall be for a period commencing on
January 1, 1998 ("Commencement Date"), and ending on the December 31, 2002
("Term").
Section 2.02. It is expressly acknowledged by Lessor and Lessee that the
Leased Premises are situated on land leased by the Lessee hereunder from
another party and that the Term of this Building Lease Agreement, including
any renewals thereof, shall not extend beyond the termination date, including
any renewals thereof, of the lease on the land; provided, however, that if
the lease on the land shall terminate due to an event of default under such
lease by Lessee, then Lessee shall continue to be obligated to pay the
Monthly Rent (as hereinafter set forth) for the remainder of the Term, or
Renewal Term (as hereinafter defined), as applicable, hereunder.
ARTICLE III
Use of Premises
Section 3.01. The Leased Premises shall be used for any lawful use,
including, but not limited to, the operation of the Leased Premises as a
convenience store, truck stop, and/or self-service gasoline station.
Section 3.02. Lessee shall not perform any acts or carry on any practices
which may injure the Leased Premises or constitute a nuisance, or use the
Leased Premises for any business which is unlawful or in violation of any
public or city ordinances.
ARTICLE IV
Rent
Section 4.01. Lessee, without offset or deduction, agrees to pay the Lessor
at 2801 Glenda Avenue, Fort Worth, Texas, or such other address as Lessor may
designate, rent for the Leased Premises at the rate of
___________________________________ dollars ($______________) per month
("Monthly Rent") in advance on the first day of each and every calendar month
during the Term of this Lease, the first such payment becoming due and
payable on the Commencement Date.. If the Commencement Date is other than
the first day of a month or if the term of the Lease terminates on a day
other than the last day of the month, a prorated monthly rental installment
shall be paid.
Section 4.02. All rental installments or payments (including any amounts
payable as additional rent) more than ten (10) days past due shall subject
Lessee to liability for payment of a late payment charge equal to five
percent (5.0%) of each such late monthly installment or payment.
ARTICLE V
Possession of Presmises
Section 5.01 Lessee acknowledges that Lessee has fully inspected the Leased
Premises and on the basis of such inspection Lessee hereby accepts the Leased
Premises "AS IS". Lessee acknowledges that the Improvements, if any,
situated thereon, are suitable for the purposes for which the same are
leased, in their present condition.
ARTICLE VI
Alteration, Operating Expenses,
Construction, and Ownership of Improvements
Section 6.01. Alterations and Improvements. Lessee shall have the right to
make alterations to or construct Improvements on the Leased Premises. Any
alteration or improvement made to the Leased Premises shall be made in a
workmanlike manner and in compliance with all valid laws, governmental
orders, and building ordinances and regulations pertaining thereto. Lessee
shall promptly pay and discharge all costs, expenses, damages, and other
liabilities which may arise in connection with or by reason of any
alterations, reconstruction, demolition, or other work on the Leased
Premises. All alterations, reconstruction, demolition or other work on the
Leased Premises when completed shall be of such a nature as not to reduce or
otherwise adversely affect the value of the Leased Premises. Lessee shall
have the right to grant easements upon the estate of Lessor which are
required for utilities or access in connection with construction of the
Improvements and Lessor agrees to execute all documents which Lessee may
reasonably request in order to grant such easements.
Section 6.02. Operating Expenses. Lessee agrees to pay any and all expenses
of operation of the Leased Premises including, but not being limited to,
electricity, water, gas, and other utility services to persons and parties
occupying the Leased Premises, it being the intention of this Lease that the
amounts payable to Lessor hereunder as rent shall be absolutely net to
Lessor, without diminution by reason of any expenses of operation of the
Leased Premises.
Section 6.03. Repairs; Compliance with Laws. Lessee shall keep all
Improvements from time to time situated on the Leased Premises in a good
repair and condition, and at the end or other expiration of the term of this
Lease deliver up the Leased Premises and all Improvements thereon, whether on
the Leased Premises at the time of execution of this Lease or constructed by
Lessee in accordance herewith, in good condition, reasonable wear and tear
excepted (subject to Article XII hereof). Lessee shall at its sole cost and
expense comply with all requirements of all municipal, state, and federal
authorities now in force or which may hereafter be in force, pertaining to
the Leased Premises and shall faithfully observe in the use of the Leased
Premises all municipal, state, and federal laws and regulations now in force
or which may hereafter be in force.
Section 6.04 Release. Lessor hereby releases Lessee, and Lessee hereby
releases Lessor, and their respective officers, agents, employees, and
representatives, from any and all claims or demands for damages, loss,
expense, or injury to the Leased Premises, or to the furnishings, fixtures,
and equipment, or inventory or other property of either Lessor or Lessee in,
about, or upon the Leased Premises, as the case may be, which is caused by or
results from perils, events, or happenings which are the subject of insurance
carried by the respective parties and in force at the time of any such loss;
provided, however, that such waiver shall be effective only to the extent
permitted by the insurance covering such loss and to the extent such
insurance is not prejudiced thereby or the expense of such insurance is not
thereby increased.
Section 6.05. Title to the Improvements. All Improvements presently
constituting a part of the Leased Premises shall be owned by Lessor. Title
to all Improvements and any modifications, additions, restorations, repairs,
and replacements thereof hereafter placed or constructed by Lessee upon the
Leased Premises shall be in Lessee, its successors and assigns, until the
expiration of the Lease Term; provided, however, that the terms and
provisions of this Lease shall apply to all such Improvements and that all
such Improvements (with the exception only of moveable equipment and trade
fixtures, and gasoline storage tanks, pumps, and equipment) shall be
surrendered to Lessor upon the termination of the Lease Term.
Section 6.06. Liens. Lessor does not consent, and has not by the execution
and delivery of this Lease consented, to the imposition by Lessee or any
contractor or subcontractor of any liens upon the Lessor's interest in the
Leased Premises. Lessee agrees that all Improvements at any time constructed
upon the Leased Premises will be completed free and clear of all liens and
claims of contractors, subcontractors, mechanics, laborers, and materialmen,
and other claimants. Lessee further covenants and agrees to protect,
indemnify, defend, and hold harmless Lessor from and against all bills and
claims, liens and rights to liens for labor and materials and architect's,
contractor's, and subcontractor's claims, and all fees, claims, and expenses
incident to the construction and completion of any Improvements, including
without limitation, reasonable attorneys' fees and court costs incurred by
Lessor.
ARTICLE VII
Utility Charges
Section 7.01. Lessee shall pay or cause to be paid promptly when due all
charges for water, electricity, gas, telephone, or any other utility services
furnished to the Leased Premises. Lessee expressly agrees that Lessor is
not, nor shall it be, required to furnish to Lessee or any other occupant of
the Leased Premises any water, sewer, gas, heat, electricity, light, power,
or any other facilities, equipment, labor, materials, or services of any kind
whatsoever.
ARTICLE VIII
Indemnification
Section 8.01. Lessee covenants and agrees, at its sole cost and expense, to
indemnify and hold Lessor harmless from and against any and all claims by or
on behalf of any person, firm, corporation, or governmental authority,
arising from the occupation, use, possession, conduct, or management of, or
from any work or thing whatsoever done in and about, the Leased Premises
during the Lease Term and any Renewal Term, or the subletting of any part
thereof. Lessee further agrees to indemnify and save Lessor harmless from
and against any and all claims arising from any condition of the Leased
Premises or the Improvements (including, but not limited to claims or
liability under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 and the Resource Conservation and Recovery Act of 1976)
or rising from any breach or default on the part of Lessee to be performed
pursuant to the terms of this Lease, or arising from any action, injury, or
damage whatsoever caused to any person, firm, or corporation, including any
sublessees of Lessee (other than those caused by Lessor or his
representatives and employees) occurring during the Lease Term or any Renewal
Term in or about the Leased Premises or upon and under the sidewalks and the
land adjacent thereto. The indemnification obligations of Lessee hereunder
shall include all costs, expenses, and liabilities incurred by Lessor,
including reasonable attorneys' fees. If any action or proceeding shall be
brought against Lessor by reason of any such claim, Lessee upon receipt of
written notice from Lessor covenants to defend such action or proceeding with
counsel satisfactory to Lessor, unless such action or proceeding is defended
by any carrier of public liability insurance maintained by Lessee. If Lessee
procures or maintains insurance insuring Lessee against liability for injury
to or death of a person or persons, such policy or policies shall name Lessor
as an additional insured.
ARTICLE IX
Taxes and Assessments
Section 9.01. Lessee shall pay to, or on behalf of, Lessor as additional
rent the amount of the real estate taxes allocable to the Leased Premises
(which shall be separately assessed) for each tax year included within the
Term or any Renewal Term of this Lease; for the first and last tax years
included in part within the term of this Lease, Lessee shall pay to Lessor a
pro rata share of such taxes for such tax years, based upon the portions of
such tax years included within the term of this Lease. Real estate taxes
shall not include any income, excess profits, estate, inheritance,
succession, transfer, franchise, capital, or other tax or assessment upon
Lessor or upon the rentals payable under this Lease, all of which shall be
the obligation of Lessor.
Section 9.02. If there shall be more than one taxing authority, the real
estate taxes for any period shall be the sum of such taxes for such period
attributable to each taxing authority. The real estate taxes for any tax
year shall mean such amounts as shall be finally determined to be the real
estate taxes assessed and payable for such tax year less any abatements,
refunds, or rebates made thereof. For the purpose of determining payments
due from Lessee to Lessor in accordance with the provisions hereof, (i) the
real estate taxes for any tax year shall be deemed to be the real estate
taxes assessed and payable for such tax year until such time as the same may
be reduced by abatement, refund or rebate, and (ii) if any abatement, refund
or rebate shall be made for such tax year, the real estate taxes for such tax
year shall be deemed to be the real estate taxes as so reduced plus the
expenses of obtaining the reduction, with an appropriate adjustment to be
made in the amount payable from or paid by Lessee to Lessor on account of
real estate taxes.
Section 9.03. Lessee shall have such rights to contest the validity or
amount of any real estate taxes as permitted to Lessor, or Lessee, by law,
either in its own name or in the name of Lessor. Lessor shall cooperate with
Lessee in any such contest and, in connection therewith, shall make available
to Lessee such information in its files as Lessee may reasonably request. If
any abatement, refund or rebate shall be obtained, the expenses of obtaining
the same shall be a first charge thereon.
Section 9.04. Lessor shall submit to Lessee copies of the real estate tax
bills for each tax year. Lessor shall bill Lessee for any amount that may be
payable by Lessee pursuant to the provisions herein. Such bill shall be
accompanied by a computation of the amount payable. The amount payable by
Lessee hereunder for any tax year shall be payable on or before the time that
Lessor shall be required to pay real estate taxes to the taxing authority for
such tax year, but if Lessee shall not have received a bill therefor at least
fourteen days prior to such time for payment, Lessee shall not be required to
make payment until fourteen days after the receipt of such bill. (If real
estate taxes are payable to any taxing authority for any tax year in
installments, the amount payable by Lessee hereunder shall be payable in
similar installments. If real estate taxes are payable to different taxing
authorities for any tax year at different times, an appropriate apportionment
shall be made of the amount payable by Lessee for such tax year and the
apportioned amounts shall be payable at such times). Lessor agrees that real
estate taxes upon the Leased Premises shall be paid by Lessor prior to the
last day that the same may be paid without penalty or interest, or if a
discount shall be available for early payment, prior to the last day of that
such discount shall be available. Lessor agrees to provide Lessee evidence
of any taxes paid by Lessor.
Section 9.05. Lessee agrees to pay all taxes levied against personal
property, trade fixtures, and inventory owned or placed by Lessee in, on, or
about the Leased Premises.
ARTICLE X
Title
Section 10.01. Lessor's Warranty of Title. Lessor warrants and represents
that the Leased Premises is owned by Lessor in fee, free, and clear of any
restrictions which would materially adversely affect the use of the Leased
Premises by Lessee and that Lessor has the legal right to make and enter into
this Lease.
Section 10.02. Peaceable Possession. Lessor warrants to Lessee the
peaceable enjoyment of the Leased Premises against the lawful let, hindrance,
or disturbance of any person or persons whomsoever.
ARTICLE XI
Assignment and Subletting
Section 11.01. Lessee may not assign this Lease or sublet all or any part of
the Leased Premises, without Lessor's prior written consent, which consent
shall not be unreasonably withheld.
Section 11.02. If Lessee assigns this Lease or sublets all or any part of
the Leased Premises, Lessee shall remain liable and responsible under this
Lease for the performance of the covenants and obligations of Lessee
hereunder unless Lessor shall have, in writing, specifically released Lessee
from such obligations.
Section 11.03. If Lessee assigns this Lease and shall remain liable
hereunder, then Lessor, when giving notice to said assignee or any future
assignee in respect of any default, shall also serve a copy of such notice
upon the original tenant first named hereinabove in this Lease ("Original
Lessee") and no notice of default shall be effective until a copy thereof is
received by the Original Lessee. The Original Lessee shall have the same
period after receipt of such notice to cure such default as is given to
Lessee under this Lease. If this Lease terminates or this Lease and the term
hereof ceases and expires because of a default of such assignee after an
assignment of this Lease shall have been made, Lessor shall promptly give the
Original Lessee notice thereof. The Original Lessee shall have the option to
be exercised by notifying Lessor within twenty (20) days after receipt by the
Original Lessee of Lessor's notice, to cure any default and become tenant
under a new lease for the remainder of the term of this Lease (including any
renewal periods) upon all of the same terms and conditions as then remain
under this Lease as it may have been amended by agreement between Lessor and
Original Lessee. If any default of such assignee is incapable of being cured
by the Original Lessee, then, notwithstanding the failure to cure same, the
Original Lessee shall have the foregoing option to enter into a new lease.
Such new lease shall commence on the date of termination of this Lease.
Notwithstanding the foregoing, if Lessor delivers to the Original Lessee,
together with Lessor's notice, a release as to all liability under this Lease
as theretofore amended, the Original Lessee shall not have the foregoing
option.
ARTICLE XII
Condemnation
Section 12.01. Entire Taking. If all of the Leased Premises shall be taken
in condemnation proceedings, this Lease shall terminate as of the taking and
the minimum rent and additional rent shall be paid to the date of such
termination. Lessor shall give Lessee a proportionate refund of any rent
paid in advance.
Section 12.02. Partial Taking.
A. If less than all of the Leased Premises shall be taken in
condemnation proceedings, Lessor and Lessee shall mutually determine, within
a reasonable time after such taking, whether the remaining building or
buildings (after necessary repairs and reconstruction to constitute the same
a complete architectural unit or units) can economically and feasibly be used
and subleased by Lessee. If Lessor and Lessee cannot mutually agree upon
such matter within ninety (90) days after notice of intent to take, the same
shall be determined thereafter upon request of either party by arbitration in
accordance with the provisions of Section 18.11. In arriving at their
decision, the arbitrators, among other things, shall take into consideration
whether such remaining premises will produce a fair and reasonable net return
to Lessor and will produce a fair and reasonable profit to Lessee.
B. If it is determined either by mutual agreement or arbitration that
such remaining building or buildings cannot economically and feasibly be used
by Lessee, Lessor or Lessee, at its election, may terminate this Lease on ten
(10) days' notice to the other party to such effect, and the minimum rent and
additional rent shall be paid to the date of such termination. Lessor shall
give Lessee a proportionate refund of any rent paid in advance. If between
the taking and the date of such termination, the condemning authority shall
have entered into physical possession of the condemned portion of the Leased
Premises, the Rental, during such period, shall be reduced to accommodate
such event and any dispute as to the amount of such reduction shall be
determined by arbitration in accordance with the provisions of Section
18.11. However, such election to terminate must be exercised within thirty
(30) days after the determination, as aforesaid, that the remaining building
or buildings cannot economically and feasibly be used by Lessee.
Section 12.03. Application of Award. If this Lease shall terminate
pursuant to the provisions of Section 12.01 or Section 12.02 of this Article,
Lessor's share of the condemnation award together with any separate award to
Lessee shall be apportioned and paid in the following order of priority:
A. There shall be first paid any and all reasonable expenses, charges
and fees, including reasonable counsel tees, in collecting the award.
B. Lessor shall then be entitled to receive an amount equal to the
reasonable market value of the Leased Premises, on a basis without
consideration of any unexpired portion of the term of this Lease and
unencumbered by this Lease. If Lessor and Lessee cannot agree as to such
value, the same shall be determined by arbitration in accordance with the
provisions of Section 18.11.
C. The balance of the award shall be paid to the Lessee; provided,
that if the remainder of the Lease Term is, at the time of the taking, less
than one year, such balance shall be paid to lessor.
Section 12.04. Application of Award in Partial Taking. If it is
determined pursuant to the provisions of Section 12.03, that the remaining
Improvements after a partial condemnation can be used economically by Lessee,
(i) this Lease shall not terminate but shall continue in full force and
effect as to the portion of the Leased Premises not taken, (ii) Lessee shall
commence and proceed with reasonable diligence to repair or reconstruct the
remaining building or buildings on the Leased Premises to a complete
architectural unit or units to the extent proceeds of the condemnation award
are available therefor, and (iii) the fixed annual rentals payable by Lessee
hereunder shall be reduced during the unexpired portion of this Lease to that
proportion of the annual fixed results herein reserved which the value of the
part of the Leased Premises not so taken bears to the value of the total of
the Leased Premises, such values to be determined as of the date when Lessee
is disturbed in its possession as a result of the taking. Lessor's share of
the award in condemnation proceedings for any partial taking where repair or
reconstruction is undertaken, together with any separate award to Lessee,
shall be apportioned and paid in the following order of priority:
A. There shall first be paid any and all reasonable expenses, charges
and fees, including reasonable counsel fees, in collecting the awards.
B. The proceeds of the awards shall next be used as a fund for the
restoration of the building, improvements and equipment situated on the
Leased Premises to a complete architectural unit or units. Said proceeds
shall be held by Lessor and shall be paid out from time to time to persons
furnishing labor or materials, or both, including architects' fees and
contractors' compensation in such restoration work on vouchers approved by a
licensed architect engineer or other person approved by Lessor and employed
by Lessee to superintend the work.
C. Lessor shall then be entitled to an amount equal to the reasonable
market value of the portion of the Leased Premises taken, without
consideration of any unexpired portion of the term of this Lease,
unencumbered by this Lease, plus a sum of money equal to damages sustained by
Lessor for severance damages to the remaining and untaken portion of the
Leased Premises, also unencumbered by this Lease as to such remaining untaken
portion of the Leased Premises.
D. The balance of the award shall be paid to Lessee.
Section 12.05. Temporary Possession. If any right of temporary possession
or occupancy of all or any portion of the Leased Premises shall be obtained
by any competent authority in the exercise of the power of eminent domain,
the foregoing provisions of this Article shall be inapplicable thereto and
this Lease shall continue in full force and effect without reduction or
suspension of minimum rent and additional rent and Lessee shall be entitled
to make claim for and recover any award or awards, whether in the form of
rental or otherwise, recoverable in respect of such possession or occupancy.
The award shall be paid to Lessor and applied against the Rental payable by
Lessee under this Lease, as the same becomes due, with any surplus to be paid
to Lessee; provided that if any portion of the award is intended to cover the
cost of restoring the Leased Premises to the condition they were in prior to
such temporary possession or occupancy or to make any repairs occasioned by
or resulting from such possession or occupancy, such portion shall be so
applied.
Section 12.06. Consent to settlement by Lessor. Lessee shall have primary
responsibility for dealing with the condemning authority in the condemnation
proceedings but Lessee shall not make any settlement with the condemning
authority nor convey or agree to convey the whole or any portion of the
Leased Premises to such authority in lieu of condemnation without first
obtaining the written consent of Lessor thereto, which consent shall not be
unreasonably withheld if Lessor receives (i) not less than the fair market
value of the Leased Premises taken at the time and (ii) a reasonable amount
for any diminution in value of the remaining portion.
ARTICLE XIII
Events of Default and Remedies
Section 13.01. Events of Default. The following events ("Events of
Default") shall be deemed to be events of default by Lessee under this Lease:
A. Failure by Lessee to pay any installment of the Monthly Rent or any
additional rent or any other sum of money payable hereunder on the date the
same is due and such failure shall continue for a period of ten (10) days
after written notice to Lessee.
B. Failure by Lessee to comply with any term, provision, or covenant
of this Lease, other than the payment of rent or other sums of money, and
shall not cure such failure within thirty (30) days after written notice
thereof to Lessee; or if such failure cannot reasonably be cured within the
said thirty (30) days and Lessee shall not have commenced to cure such
failure within such thirty (30) day period and shall not thereafter with all
due diligence and good faith proceed to cure such failure.
C. The entering of a decree or order by a court of competent
jurisdiction adjudging Lessee a bankrupt or insolvent or appointing a
receiver or trustee or assignee in bankruptcy or insolvency of all or
substantially all of its property, and any such decree or order shall have
continued in force undischarged or unstayed for a period of sixty (60) days.
D. The doing or permitting to be done by Lessee or any sublessee,
assignee, grantee, or agent of Lessee shall of anything which creates a lien
upon Lessor's interest in the Leased Premises, and any such lien is not
discharged or bonded within thirty (30) days after filing.
E. The insolvency of Lessee or the making a transfer in fraud of
creditors, an assignment for the benefit of creditors, or the filing of a
proceeding in bankruptcy by Lessee, or the appointing of a receiver or
trustee for Lessee or any of the assets of Lessee.
Section 13.02. Remedies. Upon the occurrence of any Event of Default
enumerated in Section 13.01 hereof, Lessor shall have the option of (i)
terminating this Lease by written notice thereof to Lessee, (ii) continuing
this Lease in full force and effect, or (iii) curing the default on behalf of
Lessee.
A. In the event that Lessor shall elect to terminate this Lease, upon
written notice to Lessee, this Lease shall be ended as to Lessee and all
persons holding under Lessee, and all of Lessee's rights shall be forfeited
and lapsed, as fully as if this Lease had expired by lapse of time. In such
event, Lessee shall be required immediately to vacate the Leased Premises and
there shall immediately become due and payable the amount by which (a) the
total rent and other benefits which would have accrued to Lessor under this
Lease for the remainder of the Term of this Lease if the terms and provisions
of this Lease had been fully complied with by Lessee exceeds (b) the total
fair market rental value of the Leased Premises for the balance of the Term
of this Lease (it being the intention of both parties hereto that Lessor
shall receive the benefit of its bargain); and Lessor shall at once have all
of the rights of re-entry upon the Leased Premises, without becoming liable
for damages or guilty of a trespass. In addition to the sum immediately due
from Lessee under the foregoing provision, there shall be recoverable from
Lessee: (w) the reasonable cost of restoring the Leased Premises to good
condition, normal wear and tear excepted (subject to Article XII hereof); (x)
all accrued unpaid sums, plus interest at the highest lawful rate per annum
and late charges, if in arrears, under the terms of this Lease up to the date
of termination; (y) Lessor's reasonable cost of recovering possession of the
Leased Premises; and (z) rent and sums accruing subsequent to the date of
termination pursuant to the holdover provisions of Section 18.14 hereof.
B. In the event that Lessor shall elect to continue this Lease in full
force and effect, Lessee shall continue to be liable for all rents. Lessor
shall nevertheless have all of the rights of re-entry upon said Leased
Premises without becoming liable for damages or being guilty of a trespass
and Lessor after re-entry may relet the Leased Premises or any part thereof,
to a substitute tenant or tenants for a period of time equal to or lesser or
greater than the remainder of the term on whatever terms and conditions
Lessor, at Lessor's sole discretion, deems advisable. Against the rents and
sums due from Lessee to Lessor during the remainder of the term, credit shall
be given Lessee in the net amount of rent received from the new tenant after
deduction by Lessor for: (a) the reasonable costs incurred by Lessor in
reletting the Leased Premises (including, without limitation, remodeling
costs, brokerage fees, legal fees, and the like); (b) the accrued sums, plus
interest and late charges if in arrears, under the terms of this Lease; (c)
Lessor's reasonable cost of recovering possession of the Leased Premises; and
(d) the cost of storing any of Lessee's property left on the Leased Premises
after re-entry. Notwithstanding any provision in this paragraph B of Section
13.02 to the contrary, upon the default of any substitute tenant or upon the
expiration of the lease term of such substitute tenant before the expiration
of the Term of this Lease, Lessor may, at Lessor's election, either relet to
still another substitute tenant or terminate this Lease and exercise its
rights under paragraph A of this Section 13.02.
C. In the event that Lessor shall elect to cure the default of Lessee,
all sums expended by Lessor in effecting such cure, plus interest thereon at
the highest lawful rate per annum, shall be due and payable immediately.
Such sum shall constitute additional rent hereunder, and failure to pay such
sum when due shall enable Lessor to exercise all of its remedies under this
Lease.
Section 13.03. Cumulative Rights. Pursuit of any of the foregoing remedies
shall not preclude pursuit of any of the other remedies herein provided or
any other remedies provided by law, nor shall pursuit of any remedy herein
provided constitute a forfeiture or waiver of any rent due to Lessor
hereunder or of any damages accruing to Lessor by reason of the violation of
any of the terms, provisions and covenants herein contained. Failure by
Lessor to enforce one or more of the remedies herein provided, upon any event
of default, shall not be deemed or construed to constitute a waiver of such
default or of any other violations or breach of any of the terms, provisions
and covenants herein contained.
Section 13.04. Re-Entry by Lessor. No re-entry or taking possession of the
Leased Premises by Lessor shall be construed as an election on its part to
terminate this Lease unless a written notice of such intention is given to
Lessee. Lessor, at its option, may make such alterations or repairs to the
Improvements as it, in its reasonable judgment, considers advisable and
necessary upon the occurrence of an Event of Default, at the cost of Lessee,
and the making of such alterations or repairs shall not operate or be
construed to release Lessee from liability hereunder. Lessor shall in no
event be liable in any way whatsoever for failure to relet the Leased
Premises and the improvements or, in the event the Leased Premises and the
Improvements are relet, for failure to collect rent thereof under such
reletting; and in no event shall Lessee be entitled to receive any excess of
such rent over the sums payable by Lessee to Lessor hereunder; provided,
however, that Lessor shall during such time as Lessor is in possession of the
Leased Premises as the result of any re-entry by Lessor hereunder, and prior
to any termination of this Lease, exercise reasonable efforts to cause tenant
space in the Leased Premises to be leased.
Section 13.05. Effect of Waiver or Forbearance. No waiver by Lessor of any
breach by Lessee of any of its obligations, agreements or covenants hereunder
shall be a waiver of any subsequent breach or of any obligation, agreement or
covenant, nor shall any forbearance by Lessor to seek a remedy for any breach
by Lessee be a waiver by Lessor of its rights and remedies with respect to
such subsequent breach.
Section 13.06. Bankruptcy of Lessee. The provisions of paragraph C and E
Section 13.01 above shall only apply with respect to the Lessee which is the
then owner of the leasehold estate. Notwithstanding the provisions of
Section 13.01 to the contrary, the happening of any of the Events of Default
mentioned in paragraph C or E of Section 13.01 above shall not operate or
permit Lessor to declare a default hereunder or terminate this Lease so long
as all covenants of Lessee hereunder shall be performed by Lessee or its
successor in interest or a Leasehold Mortgagee in accordance with the terms
of this Lease.
Section 13.07. New Lease with Leasehold Mortgagee Upon Termination. If this
Lease shall terminate by reason of the occurrence of any contingency
mentioned in Section 13.01 hereof, and in the manner therein set forth, and
if Lessor shall obtain possession of the Leased premises herefor, Lessor
agrees that any Leasehold Mortgagee shall have the right, for a period of
thirty (30) days subsequent to written notice of said termination of this
Lease, to elect to demand a new lease of the Leased premises of the character
and, when executed and delivered and possession of the Leased Premises is
taken thereunder, having the effect hereinafter set forth. Such new lease
shall be for a term to commence at the said termination of this Lease, as in
this Section 13.01 provided, and shall have as the date for the expiration
thereof the same date stated in this Lease as the date for the expiration
thereof. The rent thereof shall be at the same rate as would have been
applicable during such term under the provisions of this Lease, had this
Lease as the date for the expiration thereof. The rent therefor shall be at
the same rate as would have been applicable during such term under the
provisions of this Lease, had this Lease not so expired or terminated, and
all the rents, covenants, conditions and provisions of such new lease,
including, but not limited to, the conditional limitations set forth in this
Lease, shall be the same as the terms, conditions and provisions of this
Lease. If any such Leasehold Mortgagee as aforesaid shall elect to demand
such new lease within such 30-day period, such Leasehold Mortgagee shall give
written notice to Lessor of such election; and, thereupon, within ten (10)
days thereafter, Lessor and such Leasehold Mortgagee agree to execute and
deliver such new lease upon the terms above set forth, and such Leasehold
Mortgagee shall, at the time of the execution and delivery of such new lease,
pay to Lessor all rent and additional rent and other sums which would have
become payable hereunder by Lessee to Lessor to the date of the execution and
delivery of such new lease, had this Lease not terminated, and which remain
unpaid at the time of the execution and delivery of such new lease, together
with reasonable attorneys fees and expenses in connection therewith. Any
such new lease as contemplated in this Section 13.07 may, at the option of
the Leasehold Mortgagee, be executed by a nominee of such holder, without the
Leasehold Mortgagee assuming the burdens and obligations of Lessee thereunder
beyond the period of its ownership of the leasehold estate created hereby.
Any Leasehold Mortgagee of less than all of the Leased Premises who
elects to demand a new lease pursuant to this section with respect to the
part of the Leased Premises as to which it has obtained possession shall, as
a condition to Lessor's obligation to grant such new lease, agree to
guarantee the payment of rental for all of the Leased Premises.
Section 13.08. Notice to Leasehold Mortgagee. Lessor agrees, if and
so long as the leasehold estate of Lessee is encumbered by a leasehold
mortgage in favor of a Leasehold Mortgagee, to give such Leasehold Mortgagee
at such address or addresses as may be specified by the Leasehold Mortgagee
to Lessor in writing, written notice of any default or of the happening of
any contingency referred to in Section 13.01 hereof, simultaneously with the
giving of such notice to Lessee, and no such notice to Lessee shall be
effective or be deemed to have been given to Lessee hereunder unless such
notice is also given to the Leasehold Mortgagee; and the Leasehold Mortgagee
shall have the right, within the period limited by any such notice and for an
additional period of thirty (30) days thereafter, and to the same extent and
with the same effect as though done by Lessee, to take such action or to make
such payment as may be necessary or appropriate to cure any such default or
contingency so specified, it being the intention of the parties hereto that
Lessor shall not exercise its right to terminate this Lease as in Section
13.01 provided without first affording to any Leasehold Mortgagee the same
rights and the same notices with respect to any such default or contingency
and the same period or periods of time within which to cure the same,
including the right to enter into possession of the Leased Premises, to
enable the Leasehold Mortgagee also to do, as are afforded to Lessee
hereunder (and a period of thirty (30) days thereafter, and as are afforded
to the leasehold mortgagee under this Section 13.08).
Section 13.09. Foreclosure by Leasehold Mortgagee. Anything in this Lease
and specifically in this Article XI to the contrary notwithstanding, Lessor
shall not be entitled to exercise its right to terminate this Lease as in
this Article XIII provided during the period that any Leasehold Mortgagee
shall require to foreclose its mortgage or otherwise to fulfill or complete
its remedies under such leasehold mortgage or to cure any Event of Default,
provided, however, that such period shall in no event exceed ninety (90) days
and that within such period of time: (a) such Leasehold Mortgagee proceeds
promptly and with due diligence with its remedies under its mortgage on the
leasehold estate and thereafter prosecutes the same with all due diligence;
and (b) there is timely paid to Lessor the rent, additional rent and other
sums which have, or may, become due and payable during said period of time
and as the same become due and payable, and all other terms and provisions of
this Lease are duly complied with.
Section 13.10. No Voluntary Surrender of Leasehold Estate Without Consent of
Leasehold Mortgagee. So long as there exists any unpaid or undischarged
Leasehold Mortgage on the estate of Lessee created hereby, Lessor expressly
agrees for the benefit of such Leasehold Mortgagee that it will not accept a
voluntary surrender of the Leased Premises or a cancellation of this Lease
from Lessee prior to the termination of this Lease without the written
consent of the Leasehold Mortgagee, and Lessor and Lessee hereby agree for
the benefit of any Leasehold Mortgagee that they will not subordinate this
Lease to any mortgage that may hereafter be placed on the fee or amend or
alter any terms or provisions of this Lease or consent to any prepayment of
any rental or additional rental without securing the written consent thereto
of any such Leasehold Mortgagee. Nothing contained herein shall be construed
to limit the right of Lessor to sell or pledge its rights hereunder,
including but not limited to the right to receive rent pursuant to Article IV
hereof, without the prior consent or permission of any person.
ARTICLE XIV
Leasehold Mortgage
Section 14.01. Rights of Leasehold Mortgagee.
A. Lessee may, without Lessor's consent, mortgage, pledge, grant deeds of
trust, or otherwise encumber the leasehold estate created hereby and all or
any portion of the right, title and interest of Lessee hereunder, and assign,
hypothecate or pledge the same, as security for the payment of any debt to
any holder or beneficiary of a deed of trust or mortgage securing the payment
of indebtedness to Leasehold Mortgagee; provided, that no mortgagee, trustee,
or other person claiming by, through or under any instrument creating any
such encumbrance shall by virtue thereof acquire any greater right in the
Leased Premises than Lessee then had under this Lease, except for the right
expressly granted to such mortgagee, trustee or other person under the terms
of this Lease; and provided further, that such mortgage, deed of trust or
other instrument of encumbrance, and the indebtedness secured thereby, shall
at all times be and remain subject to all of the conditions, covenants and
obligations of this Lease and to all of the rights of Lessor hereunder. As
to any such Leasehold Mortgage Lessor consents to provisions therein, at the
option of Lessee, (a) for an assignment of Lessee's share of the net proceeds
from any award or other compensation resulting from a total or partial (other
than temporary) taking as set forth in Article X of this Lease, (b) for the
entry of any Leasehold Mortgagee upon the Leased Premises during business
hours, without notice to Lessor or Lessee, to view the state of the Leased
Premises, (c) that a default by Lessee under this Lease shall constitute a
default under any such leasehold mortgage, (d) for an assignment of Lessee's
right, if any, to terminate, cancel, modify, change, supplement, alter or
amend this Lease, (e) for an assignment of any sublease to which any such
leasehold mortgage is subordinated, subject to the rights of Lessor
hereunder, and (f) effective upon any default in any such leasehold mortgage,
(i) for the foreclosure of the Leasehold Mortgage pursuant to a power of sale
by judicial proceedings or other lawful means and the subsequent sale of the
leasehold estate to the purchaser at the foreclosure sale and a sale by such
purchaser or a sale by any subsequent purchaser, (ii) for the appointment of
a receiver, irrespective of whether any Leasehold Mortgagee accelerates the
maturity of all indebtedness secured by the Leasehold Mortgage, (iii) for the
rights of the Leasehold Mortgagee or the receiver to enter and take
possession of the Leased Premises, to manage and operate the same, to collect
the subrentals, issues and profits therefrom (subject to the rights of Lessor
hereunder), and to cure any default under the Leasehold Mortgage or any
default by Lessee under this Lease, and (iv) for an assignment of Lessee's
right, title and interest in and to the premiums for or dividends upon any
insurance required by the terms of this Lease, as well as in all refunds or
rebates of taxes or assessments upon or other charges against the Leased
Premises, whether paid or to be paid.
B. If at any time after the execution and recordation of any such mortgage
or deed of trust, the mortgagee or trustee therein shall notify Lessor in
writing that any such mortgage or deed of trust has been given and executed
by Lessee, and shall at the same time furnish Lessor with the address to
which it desires copies of notices to be mailed, or designate some person or
corporation as its agent and representative for the purpose of receiving
copies of notices, Lessor hereby agrees that it will thereafter mail to such
mortgagee or trustee and to the agent or representative so designated by such
mortgagee or trustee, at the address so given, duplicate copies of any and
all notices in writing which Lessor may from time to time give or serve upon
Lessee under and pursuant to the terms and provisions of this Lease.
Section 14.02. Liability of Leasehold Mortgagee. No Leasehold Mortgagee
shall be or become liable to Lessor as an assignee of this Lease or otherwise
until it expressly assumes by written instrument such liability, and no
assumption shall be inferred or result from foreclosure or other appropriate
proceedings in the nature thereof or as the result of any other action or
remedy provided for by any mortgage or deed of trust or other instrument
executed in connection with such leasehold mortgage or from a conveyance from
Lessee pursuant to which the purchaser at foreclosure or grantee shall
acquire the rights and interests of Lessee under the terms of this Lease.
ARTICLE XV
Attorney's Fees; Lessor's Lien
Section 15.01. Attorney's Fees. If on account of any breach or default by
either party hereunder, it shall become necessary for the other party hereto
to employ an attorney to enforce or defend any of said party's rights or
remedies hereunder, and should such party prevail in a final judgment, the
party against whom enforcement was sought shall pay to the other party any
reasonable attorney's fees incurred by reason of such proceedings.
Section 15.02. Lessor's Lien. In addition to the statutory landlord's lien,
Lessor shall have at all times, and Lessee does hereby grant to Lessor, a
valid contractual lien upon and a security interest upon all goods, wares,
equipment, fixtures, furniture and other personal property of Lessee
presently or which may hereafter be situated on the Leased Premises and all
proceeds therefrom to secure the payment by Lessee of all rentals and other
sums of money due hereunder, and such property shall not be removed therefrom
without the consent of Lessor until all arrearages in rent, as well as any
and all other sums of money then due to Lessor hereunder, shall first have
been paid and discharged. Upon the occurrence of an event of default by
Lessee, Lessor may sell any and all improvements, goods, wares, equipment,
fixtures, furniture and other personal property of Lessee situated on the
Leased Premises at one or more public or private sales after giving Lessee
reasonable notice of the time and place of any public sale or sales or of the
time after which any private sale or sales are to be made, with or without
having such property at the sale, at which Lessor or its assigns may purchase
property to be sold, being the highest bidder therefor. The requirement of
reasonable notice to Lessee hereunder shall be met if such notice is given in
the manner prescribed in Section 18.06 of this Lease at least ten (10) days
before the time of sale. The proceeds from any such disposition less any and
all expenses connected with the taking of possession, holding and selling of
the property (including reasonable attorney's fees and legal expenses) shall
be applied as a credit against any sums due by Lessee to Lessor. Any surplus
shall be paid to Lessee or as otherwise required by law. Upon request by
Lessor, Lessee agrees to execute and deliver to Lessor a financing statement
in form sufficient to perfect the security interest of Lessor in the
aforesaid property and proceeds under the provisions of the Uniform
Commercial Code in force in the state in which the Leased Premises are
located. Notwithstanding anything to the contrary stated herein, the
statutory lien of Lessor and the landlord's lien and security interest
granted in this paragraph are subject and subordinate to the rights, if any,
of the holder of any indebtedness secured by Lessee's leasehold interest in
the Leased Premises or in equipment or other property located thereon, and
Lessor agrees to execute such additional documents as shall be necessary to
effect or evidence such subordination.
ARTICLE XVI
Renewal Options
Section 16.01. Option to Renew. Lessee shall have, and is hereby given, two
(2) five (5) year options (the "Options") to renew and to extend the Term of
this Lease, such Options to follow consecutively upon the expiration of the
Term of this Lease, provided that at the time that each option to renew is
exercised, this Lease shall be in full force and effect and Lessee shall not
be in default hereunder. Each Option shall be for a term of five (5) years
(the "Renewal Term"). The Option shall be exercised by Lessee's giving to
Lessor written notice of its intention to renew and extend the Term of this
Lease at least three (3) months before the expiration date of the initial
Term of this Lease and any Renewal Term thereof. The renewal and extension
of this Lease for the Renewal Term shall be on and under the same covenants,
agreements, terms, provisions and conditions as are contained herein for the
initial Term of this Lease, except that rental shall be computed in the
manner set forth in Section 16.02 below. Any termination of this Lease
during the initial Term shall terminate all rights of renewal and extension
set forth herein.
Section 16.02. Adjustment to Monthly Rental. Commencing with the first
(1st) day of the first calendar month of each Renewal Term, the applicable
rental for each calendar month during such Renewal Term shall be equal to the
Monthly Rent multiplied by the percentage of increase by which the Consumer
Price Index in the calendar month three (3) months preceding the first month
of the Renewal Term exceeds the Consumer Price Index in December 1997;
provided, however, that in no event shall such adjusted rental for the
Renewal Term be less than the rental payable during the initial Term.
"Consumer Price Index" shall mean the Consumer Price Index for Urban Wage
Earners and Clerical Workers-All Items (Base Year 1967) of the United States
Bureau of Labor Statistics. If the manner in which such Consumer Price Index
is determined by the Bureau of Labor Statistics shall be substantially
revised, an adjustment shall be made in such revised index which would
produce results equivalent, as nearly as possible, to those which would have
been obtained if the Consumer Price Index had not been revised. If the
Consumer Price Index shall become unavailable to the public because
publication is discontinued, or otherwise, Lessor will substitute therefor a
comparable index based upon changes in the cost of living or purchasing power
of the consumer dollar published by any other governmental agency or, if no
such index shall be available, then a comparable index published by a major
bank or other financial institution or by a recognized financial publication.
ARTICLE XVII
Right of First Refusal
Sectoin 17.01. As long as Lessee is Lessee under this Lease and provided
Lessee is not in default hereunder, if at any time after the execution of
this Lease, Lessor shall receive a bona fide offer which it is willing to
accept to sell or transfer legal title to the Leased Premises (or any
interest therein) to any person (other than an affiliate, shareholder,
partner, joint venturer, spouse or lineal descendant of Lessor or any trust
for their benefit), Lessor shall, within fifteen (15) days after Lessor's
receipt of the acceptable offer, notify Lessee of the terms of such offer
("Lessor's Offer Notice"). Lessor's Offer Notice shall include the name of
the offeror and the offered consideration and other terms of such offer
(together with a copy of the offer) and Lessee, within ten (10) days after
receipt of Lessor's Offer Notice, shall have the right to purchase the
interest to be sold or transferred on all the other terms and conditions
stated in Lessor's Offer Notice. Failure of Lessee to exercise such right
within said ten (10) day period shall be deemed a waiver of such right. Upon
notice from Lessee of its decision not to exercise such right or upon waiver
of the same, Lessor shall be free to consummate the sale or transfer in
accordance with the terms set forth in Lessor's Offer Notice. In the event
such sale or transfer is not consummated within six (6) months after the date
of the delivery of Lessor's Offer Notice, the right granted to Lessee in this
Article XVII shall be reinstated, and any such subsequent sale or transfer
shall be subject to this right. Any sale or transfer contemplated by this
Article XVII shall be subject to the provisions of this Lease including,
without limitation, the rights of Lessee contained herein. Upon Lessee's
exercise of its right of first refusal hereunder, Lessee may assign such
rights to any other person or entity without the consent of Lessor or any
trust for their benefit, but any assignment shall not relieve Lessee of its
obligations hereunder or thereunder. The right of first refusal herein
granted to Lessee shall not apply to any transfer by Lessor of the Leased
Premises to any affiliate, shareholder, partner, joint venturer, spouse or
lineal descendant of Lessor or any trust for their benefit or to any transfer
by gift, will or the laws of descent and distribution.
ARTICLE XVIII
Miscellaneous
Section 18.01. Inspection. Lessee shall permit Lessor and its agents to
enter into and upon the Leased Premises at all reasonable times and upon
reasonable notice for the purpose of inspecting the same on condition that
Lessee's and Lessee's tenants use and quiet enjoyment of the same is not
interfered with.
Section 18.02. Estoppel Certificates. Lessee and Lessor shall, at any time
and from time to time upon not less than ten (10) days' prior request by the
other party, execute, acknowledge, and deliver to Lessor, or Lessee, as the
case may be, a statement in writing certifying that (i) this Lease is
unmodified and in full force and effect (or if there have been any
modifications, that the same are in full force and effect as modified and
stating the modifications) and, if so, the dates to which the fixed rent and
any other charges have been paid in advance, and (ii) that no default
hereunder on the part of the Lessor or Lessee, as the case may be, exists
(except that if any such default does exist, the certifying party shall
specify such default), it being intended that any such statement delivered
pursuant to this Section 18.02 may be relied upon by a prospective purchaser
or encumbrancer (including assignees) of the Leased Premises.
Section 18.03. Release. If requested by Lessor, Lessee shall upon
termination of this Lease, execute and deliver to Lessor an appropriate
release, in form proper for recording, of all Lessee's interest in the Leased
Premises, and upon request of Lessee, Lessor will execute and deliver a
written cancellation or termination of Lease in proper form for recording;
provided, that in no event shall any such release, cancellation or
termination constitute a release or relinquishment by either party of his or
its rights against the other party for any amounts payable by such other
party under the terms of this Lease or any damages to which such party is
entitled as a result of any default by the other party hereunder.
Section 18.04. Lessor's Right to Perform Lessee's Covenants. If Lessee
shall default in the performance of any of its covenants, obligations or
agreements contained in this Lease, other than the obligation to pay rent,
Lessor after ten (10) days' notice to Lessee, specifying such default (or
shorter notice if any emergency exists), may (but without any obligation so
to do) perform the same for the account and at the expense of Lessee, and the
amount of any payment made or other reasonable expenses, including reasonable
attorneys' fees incurred by Lessor for curing such default, with interest
thereon at the lower of twelve percent (12.0%) per annum or the maximum
amount allowed by law, shall be payable by Lessee to Lessor on demand.
Section 18.05. Non-Merger. Unless agreed to in writing by such person,
there shall be no merger of this Lease, the leasehold estate created hereby
or the Improvements with the fee state in and to the Leased Premises by
reason of the fact that this Lease, the leasehold estate created thereby or
the Improvements, or any interest in either thereof, may be held directly or
indirectly by or for the account of any person who shall own the fee estate
in and to the Leased Premises, or any portion thereof, and no such merger
shall occur unless and until all persons at the time having any interest in
the fee estate and all person having any interest in this Lease, the
leasehold estate or the Improvements, including the holder of any mortgage
upon the fee estate in and to the Leased Premises, shall join in a written
instrument effecting such merger.
Section 18.06. Notices. Any notice to be given or to be served in
connection with this Lease must be in writing, and may be given by facsimile,
by certified mail, or by overnight delivery service and shall be deemed to
have been given and received upon the earlier of receipt thereof by the
receiving party or on the third business day after a letter containing such
notice, properly addressed, with postage prepaid is deposited in the United
States Mail or given to a nationally recognized overnight delivery service,
addressed as follows:
If to Lessor:
FFP Properties, L.P.
Attn: Lease Administration
2801 Glenda Avenue
Fort Worth, Texas
76117-4391
Facsimile: 817/838-1871
If to Lessee:
FFP Operating Partners, L.P.
Attn: Contracts Adminstration
2801 Glenda Avenue
Fort Worth, Texas
76117-4391
Facsimile: 817/838-1871
Each party hereto shall have the right, by giving not less than five (5)
days' prior written notice to the other parties hereto, to change any address
of such party for the purpose of notices under this Section 18.06.
Section 18.07. Successors and Assigns. Lessor, as used in this instrument
shall extend to and include any and all persons, whether natural or
artificial who at any time or from time to time during the term of this Lease
shall succeed to the interest and estate of Lessor in the Leased Premises;
and all of the covenants, agreements, conditions and stipulations herein
contained which inure to the benefit of and are binding upon Lessor shall
also inure to the benefit of and shall be, jointly and severally, binding
upon the heirs, executors, administrators, successors, assigns and grantees
of Lessor, and each of them, and any and all persons who at any time or from
time to time during the term of this Lease shall succeed to the interest and
estate of Lessor in the real estate and property hereby demised. The word
"Lessee" as used in this instrument shall extend to and include any and all
persons, whether natural or artificial, who at any time or from time to time
during the term of this Lease shall succeed to the interest and estate of
Lessee hereunder and all of the covenants, agreements, conditions and
stipulations herein contained which inure to the benefit of or are binding
upon Lessee shall also inure to the benefit of and be jointly and severally
binding upon the successors, assigns, or other representatives of Lessee, and
of any and all persons who shall at any time or from time to time during the
term of this Lease succeed to the interest and estate of Lessee hereby
created in the Leased Premises. Lessee shall have the right to assign this
Lease to any person or entity.
Section 18.08. Modifications. This Lease may be modified only by written
agreement signed by the Lessor and Lessee.
Section 18.09. Descriptive Headings. The descriptive headings of this Lease
are inserted for convenience in reference only and do not in any way limit or
amplify the terms and provisions of this Lease.
Section 18.10. No Joint Venture. The relationship between Lessor and Lessee
at all times shall remain solely that of landlord and tenant and shall not be
deemed a partnership or joint venture.
Section 18.11. Arbitration. Wherever in this Lease it is provided that any
question shall be determined by arbitration, such question shall be settled
and finally determined by arbitration in accordance with the rules then in
effect of the American Arbitration Association, or its successors, and the
judgment upon the award rendered may be entered in any court having
jurisdiction thereover. Such arbitration shall be held in the City of Fort
Worth, Texas. The number of arbitrators to be appointed shall be three (3).
The arbitrators shall have at least five (5) years experience in real estate
in the area where the Leased Premises is located and shall not be related to
either party. The parties to the arbitration, in addition to the rights
granted under the rules of the Association, shall have the right to offer
evidence and testify at the hearings and cross-examine witnesses. The cost
of such arbitration shall be split equally between the parties.
Section 18.12. Memorandum of Lease. Lessor and Lessee agree that they
shall, at any time at the request of the other, promptly execute a memorandum
or short form of this Lease, in recordable form, setting forth a description
of the Leased Premises, the term of this Lease, and any other provisions
herein, or the substance thereof, as either party desires.
Section 18.13. Partial Invalidity. If any term or provision of this Lease
or the application thereof to any person or circumstance shall to any extent
be invalid or unenforceable, the remainder of this Lease, or the application
of such term or provision to any person or circumstances other than those as
to which it is invalid or unenforceable, shall not be affected thereby, and
each term of this Lease shall be valid and be in force to the fullest extent
permitted by law.
Section 18.14. Holding Over. Subject to the rights and remedies of Lessor
as set forth in Section 11.02 hereof and in addition thereto, in case of
holding over by Lessee after expiration or termination of the Term of this
Lease, Lessee shall pay monthly, as rent, an amount equal to 125% of the
amount of Monthly Rent under Section 4.01 hereof during each month or partial
month of the holdover period. No holding over by Lessee after the Term of
this Lease, either with or without consent and acquiescence of Lessor, shall
operate to extend the Lease for a longer period than one month unless (a) a
holdover agreement in writing specifies a longer period or (b) this Lease is
extended in writing; and any holding over without consent of Lessor in
writing shall thereafter constitute this Lease a lease from month to month.
In the event of any unauthorized holding over, Lessee shall indemnify Lessor
against all claims for damages by any other tenant or prospective tenant to
whom Lessor may have leased all or any part of the Leased Premises, resulting
from delay by Lessor in delivering possession of all or any part of the
Leased Premises.
Section 18.15. Lessor Default. In the event of any default hereunder by
Lessor, Lessee may, if such default continues after a reasonable notice
period following receipt of written notice thereof to Lessor, cure such
default for the account and at the expense of Lessor. If Lessee at any time
after the expiration of such curative period by reason of such breach, is
compelled to pay, or elects to pay, any sum of money or do any act which will
require the payment of any sum of money, or is compelled to incur any
expense, including reasonable attorney's fees, in instituting, prosecuting
and/or defending any action or proceeding to enforce Lessee's rights
hereunder or otherwise, the sum or sums so paid by Lessee, with all interest,
costs and damages, shall on demand be paid by Lessor to Lessee but Lessee
shall have no right to offset any such sums against any amounts which may be
due to Lessor hereunder.
Section 18.16. Lessor Covenant. Lessor shall pay when due all principal and
interest on any mortgage or superior lease to which this Lease is subordinate
or subordinated, and shall pay or discharge (by bonding or otherwise) all
valid mechanic's liens filed against the Leased Premises by reasons of any
construction by Lessor.
Section 18.17. Sublease. If this Lease is in fact a sublease, Lessee
accepts this Lease subject to all of the terms and conditions of the
underlying lease under which Lessor holds the Leased Premises as lessee.
Lessee covenants that it will do no act or thing which would constitute a
violation by Lessor of its obligation under such underlying lease; provided,
however, that Lessee's agreement in this regard is premised on Lessor's
assurances to the effect that the terms of this Lease do not violate such
underlying lease.
Section 18.18. Net Lease. It is understood and agreed that this Lease
Agreement is intended to be a net lease. It is the intention of the parties
that Lessor shall receive the Monthly Rent hereunder free from all charges
and expenses imposed upon or by reason of the Leased Premises and the
ownership thereof by Lessor.
Section 18.19. Venue. This Lease is entered into in Tarrant County, Texas,
and is performable and enforceable in that county.
IN WITNESS WHEREOF, the parties have executed this instrument the day and
year first above written.
LESSOR:
FFP PROPERTIES, L.P.
By: FFP Partners, L.P.
its sole general partner
By: FFP Real Estate Trust
its sole general partner
By: ______________________________
[Name and Title]
LESSEE:
FFP OPERATING PARTNERS, L.P.
By: FFP Operating LLC
its sole general partner
By: __________________________________
[Name and Title]
===============================================================================
THE STATE OF TEXAS
COUNTY OF TARRANT
This instrument was acknowledged before me on ___________________,
1998, by
________________________________________________________________ the
___________________________ of FFP Real Estate Trust who stated that the same
was signed in the capacity and for the purposes indicated therein.
_________________________________________
Notary Public, State of Texas
Commission Expires: _______________________
Printed Name: _____________________________
THE STATE OF TEXAS
COUNTY OF TARRANT
This instrument was acknowledged before me on ___________________,
1998, by
________________________________________________________________ the
___________________________ of FFP Operating LLC who stated that the same was
signed in the capacity and for the purposes indicated therein.
_________________________________________
Notary Public, State of Texas
Commission Expires: _______________________
Printed Name: _____________________________
Exhibit 21.1
FFP Marketing Company, Inc.
Subsidiaries of the Registrant
Legal Name of Subsidiary State of Type of Percentage
Principal Trade Name(s) Used Organization Entity Owned [1]
FFP Operating Partners, L.P. Delaware Limited 100%
Kwik Pantry, Drivers, Drivers partnership
Diner, Nu-Way, Economy Drive
Ins, Dynamic Minute Mart,
Financial Express Money Order
Company, Direct Fuels
Direct Fuels, L.P. Texas Limited 100%
Direct Fuels partnership
FFP Financial Services, L.P. Delaware Limited 100%
FFP Financial Services, partnership
Lazer Wizard
FFP Money Order Company, Inc. Nevada Corporation 100%
Financial Express Money Order
Company
Practical Tank Management, Inc. Texas Corporation 100%
Practical Tank Management
FFP Transportation, L.L.C. Texas Limited liability 100%
FFP Transportation company
FFP Operating LLC Delaware Limited liability 100%
None company
Direct Fuels Management Company, Texas Corporation 100%
Inc.
None
- -----------------------------------
[1] Ownership percentage indicated includes
indirect ownership.
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