<PAGE> 1
FORM 10Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1996
-------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to __________________
Commission File Number 1-2299
------------
BEARINGS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 34-0117420
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3600 Euclid Avenue, Cleveland, Ohio 44115
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (216) 881-2838
---------------------
None
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report.)
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
----- -----
Shares of common stock outstanding on April 30, 1996 12,350,718
-------------------------------------
(No par Value)
<PAGE> 2
BEARINGS, INC.
--------------
INDEX
- --------------------------------------------------------------------------------
Page No.
Part I: FINANCIAL INFORMATION
Item 1: Financial Statements
Statements of Consolidated Income -
Three Months and Nine Months
Ended March 31, 1996 and 1995 2
Consolidated Balance Sheets -
March 31, 1996 and June 30, 1995 3
Statements of Consolidated Cash Flows
Nine Months Ended March 31, 1996 and 1995 4
Statements of Consolidated Shareholders' Equity -
Nine Months Ended March 31, 1996 and
Year Ended June 30, 1995 5
Notes to Consolidated Financial Statements 6 - 8
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations 9 - 11
Part II: OTHER INFORMATION
Item 1: Legal Proceedings 12 - 13
Item 6: Exhibits and Reports on Form 8-K 13 - 15
Signatures 15
<PAGE> 3
PART I: FINANCIAL INFORMATION
ITEM I: Financial Statements
BEARINGS, INC. AND SUBSIDIARIES
-------------------------------
STATEMENTS OF CONSOLIDATED INCOME
(Unaudited)
(Thousands, except per share amounts)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31 March 31
1996 1995 1996 1995
---------------------- ----------------------
<S> <C> <C> <C> <C>
Net Sales $ 296,064 $ 277,029 $ 848,263 $ 774,540
--------- --------- --------- ---------
Cost and Expenses
Cost of sales 220,454 206,788 630,544 577,505
Selling, distribution and
administrative 62,663 60,690 183,494 173,128
--------- --------- --------- ---------
283,117 267,478 814,038 750,633
--------- --------- --------- ---------
Operating Income 12,947 9,551 34,225 23,907
--------- --------- --------- ---------
Interest
Interest expense 2,426 2,123 6,879 5,653
Interest income (199) (57) (375) (217)
--------- --------- --------- ---------
2,227 2,066 6,504 5,436
--------- --------- --------- ---------
Income Before Income Taxes 10,720 7,485 27,721 18,471
--------- --------- --------- ---------
Income Taxes
Federal 3,665 2,469 9,563 6,185
State and local 933 667 2,332 1,565
--------- --------- --------- ---------
4,598 3,136 11,895 7,750
--------- --------- --------- ---------
Net Income $ 6,122 $ 4,349 $ 15,826 $ 10,721
========= ========= ========= =========
Net Income per share $ 0.50 $ 0.37 $ 1.29 $ 0.93
========= ========= ========= =========
Cash dividends per common
share $ 0.14 $ 0.12 $ 0.40 $ 0.35
========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 4
BEARINGS, INC. AND SUBSIDIARIES
-------------------------------
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31 June 30
1996 1995
--------- ---------
(Unaudited)
<S> <C> <C>
Assets
------
Current assets
Cash and temporary investments $ 13,238 $ 4,789
Accounts receivable, less allowance
of $3,153 and $2,300 156,088 145,680
Inventories (at LIFO) 132,346 112,596
Other current assets 2,619 2,307
--------- ---------
Total current assets 304,291 265,372
--------- ---------
Property - at cost
Land 11,762 11,783
Buildings 59,604 57,365
Equipment 70,497 68,926
--------- ---------
141,863 138,074
Less accumulated depreciation 61,664 58,802
--------- ---------
Property - net 80,199 79,272
--------- ---------
Other assets 23,531 14,587
--------- ---------
TOTAL ASSETS $ 408,021 $ 359,231
========= =========
Liabilities and Shareholders' Equity
- ------------------------------------
Current liabilities
Notes payable $ 50,025 $ 18,575
Current portion of long-term debt 11,429 5,714
Accounts payable 49,473 53,722
Compensation and related benefits 21,415 18,248
Other accrued liabilities 16,050 15,558
--------- ---------
Total current liabilities 148,392 111,817
Long-term debt 68,571 74,286
Deferred income taxes 918 918
Other liabilities 8,889 6,809
--------- ---------
TOTAL LIABILITIES 226,770 193,830
--------- ---------
Shareholders' Equity
Preferred Stock - no par value; 2,500
shares authorized; none issued or
outstanding
Common stock - no par value; 30,000
shares authorized; 13,954 shares issued 10,000 10,000
Additional paid-in capital 6,180 11,311
Income retained for use in the business 191,438 177,402
Less 1,591 and 2,266 treasury shares -
at cost (20,997) (29,253)
Less shares held in trust for
deferred compensation plans (3,078) (1,426)
Less unearned restricted common
stock compensation (2,292) (2,633)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 181,251 165,401
--------- ---------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 408,021 $ 359,231
========= =========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 5
BEARINGS, INC. AND SUBSIDIARIES
-------------------------------
STATEMENTS OF CONSOLIDATED CASH FLOWS
(Unaudited)
(Amounts in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
March 31
--------------------
1996 1995
- ----------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows from Operating Activities
Net income $ 15,826 $ 10,721
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation 10,193 9,995
Provision for losses on accounts receivable 1,966 901
Gain on sale of property (889) (136)
Amortization of restricted common stock
compensation and goodwill 723 492
Treasury shares contributed to employee
benefit plans 2,402 2,206
Changes in current assets and liabilities, net of
effects from acquisition of businesses:
Accounts receivable (9,539) (14,216)
Inventories (17,329) (15,226)
Other current assets 1,537 (950)
Accounts payable and accrued expenses (1,583) 9,698
Other - net 956 966
- ----------------------------------------------------------------------------------
Net Cash provided by Operating Activities 4,263 4,451
- ----------------------------------------------------------------------------------
Cash Flows from Investing Activities
Property purchases (13,210) (7,356)
Proceeds from property sales 3,667 1,038
Acquisition of businesses, less cash acquired (4,328) (1,839)
Deposits and other (8,451) (685)
- ----------------------------------------------------------------------------------
Net Cash used in Investing Activities (22,322) (8,842)
- ----------------------------------------------------------------------------------
Cash Flows from Financing Activities
Net borrowings under line-of-credit agreements 31,450 4,410
Exercise of stock options 1,219 3,915
Dividends paid (4,799) (3,999)
Purchase of treasury shares (1,362) (3,874)
- ----------------------------------------------------------------------------------
Net Cash provided by Financing Activities 26,508 452
- ----------------------------------------------------------------------------------
Increase (decrease) in cash
and temporary investments 8,449 (3,939)
Cash and temporary investments
at beginning of period 4,789 10,935
- ----------------------------------------------------------------------------------
Cash and Temporary Investments
at End of Period $ 13,238 $ 6,996
==================================================================================
Supplemental Cash Flow Information
Cash paid during the period for:
Income taxes $ 12,933 $ 9,802
Interest $ 6,297 $ 6,352
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 6
BEARINGS, INC. AND SUBSIDIARIES
-------------------------------
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
For the Nine Months Ended March 31, 1996 (Unaudited)
and Year Ended June 30, 1995
(Amounts in thousands)
<TABLE>
<CAPTION>
Income
Shares of Additional Retained Treasury
Common Stock Common Paid-in for Use in Shares
Outstanding Stock Capital the Business - at Cost
============================================================================================================================
<S> <C> <C> <C> <C> <C>
Balance at July 1, 1994 11,319 $10,000 $6,962 $165,807 ($32,278)
Net income 16,909
Cash dividends - $.47 per share (5,397)
Purchase of common stock
for treasury (180) (3,874)
Treasury shares issued for:
401-(k) Savings Plan contributions 140 1,124 1,788
Exercise of stock options 225 1,565 2,789
Restricted common stock awards 138 1,232 1,727
Deferred compensation plans 46 428 595
Amortization of restricted common
stock compensation
Other 83
- ----------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1995
As previously reported 11,688 10,000 11,311 177,402 (29,253)
Pooling of interests with
Engineered Sales, Inc. 486 (6,530) 3,009 6,408
- ----------------------------------------------------------------------------------------------------------------------------
Balance as restated 12,174 10,000 4,781 180,411 (22,845)
Net income 15,826
Cash dividends - $.40 per share (4,799)
Purchase of common stock
for treasury (57) (1,362)
Treasury shares issued for:
Retirement Savings Plan contributions 100 1,113 1,289
Exercise of stock options 103 (119) 1,338
Deferred compensation plans 42 392 564
Restricted common stock awards 1 13 19
Amortization of restricted common
stock compensation
Other
- ----------------------------------------------------------------------------------------------------------------------------
Balance at March 31, 1996 12,363 $10,000 $6,180 $191,438 ($20,997)
============================================================================================================================
</TABLE>
See notes to consolidated financial statements.
<TABLE>
<CAPTION>
Shares Held in Unearned
Trust for Restricted Total
Deferred Common Stock Shareholders'
Compensation Plans Compensation Equity
=======================================================
<S> <C> <C>
$150,491
16,909
(5,397)
(3,874)
2,912
4,354
($2,959)
($1,023)
326 326
(403) (320)
- -------------------------------------------------------
(1,426) (2,633) 165,401
2,887
- -------------------------------------------------------
(1,426) (2,633) 168,288
15,826
(4,799)
(1,362)
2,402
1,219
(956)
(32)
373 373
(696) (696)
- -------------------------------------------------------
($3,078) ($2,292) $181,251
=======================================================
</TABLE>
5
<PAGE> 7
BEARINGS, INC. AND SUBSIDIARIES
-------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands) (Unaudited)
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of only normal
recurring adjustments) necessary to present fairly the financial
position as of March 31, 1996, and the results of operations for the
three months and nine months ended March 31, 1996 and 1995, and cash
flows for the nine months ended March 31, 1996 and 1995.
The results of operations for the three and nine month periods ended
March 31, 1996 are not necessarily indicative of the results to be
expected for the fiscal year.
Cost of sales for interim financial statements are computed using
estimated gross profit percentages which are adjusted throughout the
year based upon available information. Adjustments to actual cost are
made based on the annual physical inventory and the effect of year-end
inventory quantities on LIFO costs.
2. NET INCOME PER SHARE
Net income per share was computed using the weighted average number of
common shares outstanding for the period.
All share and per share data have been restated to reflect a three for
two stock split effective on December 4, 1995.
Average shares outstanding for the computation of net income per share
were as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31 March 31
1996 1995 1996 1995
------------------ ----------------
<S> <C> <C> <C>
12,341 11,624 12,285 11,516
</TABLE>
6
<PAGE> 8
BEARINGS, INC. AND SUBSIDIARIES
-------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands) (Unaudited)
- --------------------------------------------------------------------------------
3. BUSINESS COMBINATIONS
On February 9, 1996 the Company exchanged 486 shares of Bearings, Inc.
common stock for all of the outstanding shares of Engineered Sales,
Inc., a distributor of hydraulic, pneumatic and electro-hydraulic
components, systems and related fluid power engineering services. This
business combination is accounted for as a pooling of interests.
Previously reported financial results for the current fiscal year have
been restated to include Engineered Sales for the entire nine month
period ended March 31, 1996. The prior years' consolidated financial
statements have not been restated because the effects are not material.
Separate results of operations for Engineered Sales prior to the
acquisition are not included as these amounts are not material.
During the quarter ended September 30, 1995 the Company acquired the
assets of two distributors of drive products and rubber products, for a
total of $4,328. The acquisitions of these businesses were accounted
for as purchases and their results of operations are included in the
accompanying consolidated financial statements from their respective
acquisition dates. Results of operations for these acquisitions are not
material for all periods presented. Goodwill recognized in connection
with these combinations is being amortized over 15 years.
4. LONG-TERM COMMITMENT
During the quarter ended March 31, 1996 the Company entered into a
twenty year lease agreement with the Cleveland-Cuyahoga County Port
Authority (the Port) in connection with the construction of a new
corporate headquarters facility. Lease payments are to begin upon
completion of construction in July 1997 and the facility portion of the
lease will be accounted for as an operating lease. The Company will
also have a capital lease for $2,000 of furniture, fixtures and
equipment as part of the agreement. Payments under this lease
commitment are $1,486 in 1998; $1,486 in 1999; $1,486 in 2000; and
$1,486 in 2001; $1,486 in 2002 and $35,880 after 2002. In connection
with the lease agreement the Company has also agreed to guarantee
repayment of $5,678 of bonds issued by the Port and Cuyahoga County to
fund construction of the new headquarters facility.
7
<PAGE> 9
BEARINGS, INC. AND SUBSIDIARIES
-------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands) (Unaudited)
- --------------------------------------------------------------------------------
5. RECENTLY ISSUED ACCOUNTING STANDARD
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation", which the Company will be required to adopt
for the fiscal year ending June 30, 1997. As permitted by SFAS 123, the
Company does not intend to change its method of accounting for
stock-based compensation. The Company has not yet determined the pro
forma disclosures for employee awards granted in the fiscal year ending
June 30, 1996, which will be presented in the notes to financial
statements for the year ending June 30, 1997.
6. RETIREMENT PLAN MERGER
On July 1, 1995, The Bearings, Inc. Employees' Profit-Sharing Trust was
merged into The Bearings, Inc 401(k) Savings Plan. The merged plan is
known as The Bearings, Inc. Retirement Savings Plan.
7. INTEREST RATE SWAP
Effective March 1, 1996 the Company entered into a two year interest
rate swap agreement with a major bank that effectively converts $15,000
of variable rate borrowings to a fixed rate. Under this agreement, the
Company receives payments at variable rates based on LIBOR, as
determined at monthly intervals and makes payments at a fixed interest
rate of 5.29%. Net interest earned under this agreement reduced
interest expense. The interest rate swap agreement has nominal carrying
value.
8. SUBSEQUENT EVENT
In April 1996 approximately one quarter of the unearned restricted
common stock vested on an accelerated basis due to price performance of
the Company's stock. Previously, the expense for vesting of these
shares was being recognized over a six year period.
8
<PAGE> 10
BEARINGS, INC. AND SUBSIDIARIES
-------------------------------
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
The following is Management's discussion and analysis of certain significant
factors which have affected the Company's: (1) financial condition at March 31,
1996 and June 30, 1995 and (2) results of operations during the periods included
in the accompanying Statements of Consolidated Income and Consolidated Cash
Flows.
FINANCIAL CONDITION
Liquidity and Working Capital
- ------------------------------
Cash provided by operating activities was $4.2 million in the nine months ended
March 31, 1996. This compares to $4.5 million of cash provided by operating
activities in the same period a year ago.
Cash flow from operations depends primarily upon generating operating income and
controlling the investment in inventory and receivables. The Company has
continuing programs to monitor and control these investments. During the nine
month period ended March 31, 1996 inventories increased approximately $17.3
million and accounts receivable increased by $9.5 million. These increases are
primarily attributable to the increase in sales volume and to improved customer
fill rates.
Working capital at March 31, 1996 was $155.9 million compared to $153.6 million
at June 30, 1995. The current ratio was 2.1 at March 31, 1996 and 2.4 at June
30, 1995. This decrease is primarily due to a portion of long-term debt becoming
current and an increase in short-term notes payable from the increase in
inventory.
Capital Resources
- -----------------
Capital resources are obtained from income retained in the business, borrowings
under the Company's lines of credit and long-term debt.
Average combined short-term and long-term borrowing was $113.5 million for the
nine months ended March 31, 1996 and $97.9 million during the year ended June
30, 1995. The average effective interest rate on the short-term borrowings for
the nine months ended March 31, 1996 increased to 6.1% from an average rate of
5.7% for the nine months ended March 31, 1995 due to higher prevailing
short-term interest rates. The Company has $110 million of short-term lines of
credit with commercial banks which provide for payment of interest at various
interest rate options, none of which are in excess of the banks' prime rate. The
Company had $50.0 million of borrowings under these short-term bank lines of
credit at March 31, 1996. Unused bank lines of credit of $60.0 million are
available for future short-term financing needs.
9
<PAGE> 11
BEARINGS, INC. AND SUBSIDIARIES
-------------------------------
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
The Company entered into a twenty year lease agreement with the
Cleveland-Cuyahoga County Port Authority in connection with the construction of
a new corporate headquarters facility. Lease payments are to begin upon
completion of construction in July 1997. See Note 4 of the Notes to Consolidated
Financial Statements.
Management expects that capital resources provided from operations, available
lines of credit and long-term debt will be sufficient to finance normal working
capital needs and capital expenditure programs. Management also believes that
additional long-term debt and line of credit financing could be obtained if
desired.
RESULTS OF OPERATIONS
- ---------------------
A summary of the period-to-period changes in principal items included in the
statements of consolidated income follows:
<TABLE>
<CAPTION>
Increase (Decrease)
(Dollars in thousands)
Three Months Ended Nine Months Ended
March 31 March 31
1996 and 1995 1996 and 1995
Percent Percent
Amount Change Amount Change
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales $19,035 6.9% $73,723 9.5%
Cost of sales 13,666 6.6% 53,039 9.2%
Selling, distribution and
administrative expenses
1,973 3.3% 10,366 6.0%
Operating income 3,396 35.6% 10,318 43.2%
Interest expense -net 161 7.8% 1,068 19.6%
Income before income taxes
3,235 43.2% 9,250 50.1%
Income taxes 1,462 46.6% 4,145 53.5%
Net income 1,773 40.8% 5,105 47.6%
</TABLE>
10
<PAGE> 12
BEARINGS, INC. AND SUBSIDIARIES
-------------------------------
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
- --------------------------------------------------------------------------------
Three Months Ended March 31, 1996 and 1995
- ------------------------------------------
Increases in sales for the quarter were primarily due to volume and price
increases. Gross profit, as a percentage of sales, increased from 25.4% to
25.5%.
Selling, distribution and administrative expenses increased by 3.3% from higher
compensation expense due to an increase in the number of associates from recent
acquisitions, loss on the disposal of data processing equipment and higher bad
debt expense.
Interest expense-net for the quarter increased by 7.8% from higher short-term
interest rates and increased average borrowing. The Company has an outstanding
swap agreement at March 31, 1996. See Note 7 of the Notes to the Consolidated
Financial Statements.
Income taxes as a percentage of income before taxes was 42.9% in the three
months ended March 31, 1996 and 41.9% in the three months ended March 31, 1995.
As a result of the above factors, net income increased by 40.8% compared to the
same quarter of last year. Income per share increased by 35.1% due to an
increase in income and the increase in the average shares outstanding.
Nine Months Ended March 31, 1996 and 1995
- -----------------------------------------
Increases in sales for the period were primarily due to volume and price
increases. Gross profit, as a percentage of sales, increased from 25.4% to
25.7%.
Selling, distribution and administrative expenses increased by 6.0% from higher
bad debts and higher compensation expense and hospitalization costs from an
increase in the number of associates due to recent acquisitions.
Interest expense-net for the period increased by 19.6% from higher short-term
interest rates and increased average borrowing. The Company has an outstanding
swap agreement at March 31, 1996.
Income taxes as a percentage of income before taxes was 42.9% in the nine months
ended March 31, 1996 and 42.0% in the nine months ended March 31, 1995.
As a result of the above factors, net income increased by 47.6% compared to the
same period last year. Income per share increased by 38.7% due to an increase in
income and the increase in the average shares outstanding.
11
<PAGE> 13
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings.
------------------
(a) The Company incorporates by reference herein the description of
the cases captioned SAMMIE ADKINS, ET AL. V. A. P. GREEN
INDUSTRIES, INC., ET AL., Summit County, Ohio, Court of Common
Pleas, Case No. ACV 88-7-2398 (and related cases) found in Item 3
"Pending Legal Proceedings" contained in the Company's Form 10-K
for the fiscal year ended June 30, 1995 and Item 1 "Legal
Proceedings" contained in the Company's Form 10-Q for the quarter
ended December 31, 1995. Notwithstanding possible indemnification
from suppliers and insurance, the Company believes, based on
circumstances presently known, that these cases are not material
to its business or its financial condition.
(b) The Company incorporates by reference herein the description of
the cases captioned IN RE: ROBERT LEE BICKHAM, ET AL. V.
METROPOLITAN LIFE INSURANCE CO., ET AL., 22nd Judicial District
Court for the Parish of Washington, Louisiana, Case No. 70,760-E;
and IDA MAE WILLIAMS, ET AL. V. METROPOLITAN LIFE INSURANCE
COMPANY, ET AL., 22nd Judicial District Court for the Parish of
Washington, Louisiana, Case No. 72,986-F, found in Item 3 "Pending
Legal Proceedings" contained in the Company's Form 10-K for the
fiscal year ended June 30, 1995. In March 1996, the Company was
served with the Second Supplemental and Amending Petition in a
related case, BENNIE L. ADAMS, ET AL. V. METROPOLITAN LIFE
INSURANCE CO., ET AL., 22nd Judicial District Court for the
Parish of Washington, Louisiana, Case No. 72,154-B. This case
involves 89 persons or heirs of persons who were allegedly exposed
to asbestos-containing products while employed at the Bogalusa,
Louisiana, Paper Mill and/or Box Factory. The allegations made in
the ADAMS case are substantially identical to those made in the
BICKHAM and WILLIAMS cases. Notwithstanding
12
<PAGE> 14
potential indemnification from suppliers and insurance, the
Company believes, based on circumstances presently known, that
these cases are not material to its business or its financial
condition.
(c) The Company also incorporates by reference herein the description
of the case captioned KING BEARING, INC. V. CARYL EDMUND ORANGES,
ET AL., Superior Court of the State of California, County of
Orange, Case No. 53-42-31 found in Item 3 "Pending Legal
Proceedings" contained in the Company's Form 10-K for the fiscal
year ended June 30, 1995. The case is now pending in the
California Court of Appeal. The Company believes that this case
will have no material adverse effect on its business or financial
condition.
(d) Bearings, Inc. and/or one of its subsidiaries is a defendant in
several employment-related lawsuits. Based on circumstances
presently known, the Company believes that these cases are not
material to its business or its financial condition.
ITEM 6. Exhibits and Reports on Form 8-K.
---------------------------------
(a) Exhibits.
---------
Exhibit No. Description
----------- -----------
4(a) Amended and Restated Articles of Incorporation
of Bearings, Inc., filed with the Ohio Secretary
of State on October 18, 1988 (filed as Exhibit
4(a) to the Bearings, Inc. Form 8-K dated
October 21, 1988, SEC File No. 1-2299, and
incorporated here by reference).
4(b) Code of Regulations of Bearings, Inc., adopted
September 6, 1988 (filed as Exhibit 4(b) to the
Bearings, Inc. Form 8-K dated October 21, 1988,
SEC File No.
13
<PAGE> 15
1-2299, and incorporated here by reference).
4(c) Certificate of Amendment of Amended and Restated
Articles of Incorporation of Bearings, Inc.
filed with the Ohio Secretary of State on
October 27, 1988 (filed as Exhibit 4(c) to the
Bearings, Inc. Form 10-Q for the Quarter Ended
September 30, 1988, SEC File No. 1-2299, and
incorporated here by reference).
4(d) Certificate of Merger of Bearings, Inc. (Ohio)
and Bearings, Inc. (Delaware) filed with the
Ohio Secretary of State on October 18, 1988
(filed as Exhibit 4 to the Bearings, Inc. Form
10-K for the fiscal year ended June 30, 1989,
SEC File No. 1-2299, and incorporated here by
reference).
4(e) Certificate of Amendment of Amended and Restated
Articles of Incorporation of Bearings, Inc.
filed with the Ohio Secretary of State on
October 17, 1990 (filed as Exhibit 4(e) to the
Bearings, Inc. Form 10-Q for the quarter ended
September 30, 1990, SEC File No. 1-2299, and
incorporated here by reference).
4(f) $80,000,000 Maximum Aggregate Principal Amount
Note Purchase and Private Shelf Facility dated
October 31, 1992 between Bearings, Inc. and The
Prudential Insurance Company of America (filed
as Exhibit 4(f) to the Bearings, Inc. Form 10-Q
for the quarter ended September 30, 1992, SEC
File No. 1-2299, and incorporated here by
reference).
4(g) Amendment to $80,000,000 Maximum Aggregate
Principal Amount Note Purchase and Private
Shelf Facility dated October 31, 1992 between
Bearings, Inc. and The Prudential Insurance
Company of America.
10 Lease dated as of March 1, 1996, between
Bearings, Inc. and the Cleveland-Cuyahoga County
Port Authority, for a new corporate headquarters
facility.
14
<PAGE> 16
11 Computation of Net Income Per Share.
27 Financial Data Schedule.
(b) The Company did not file, nor was it required to file, a Report on
Form 8-K with the Securities and Exchange Commission during the
quarter ended March 31, 1996.
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of
1934, the Company has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
BEARINGS, INC.
(Company)
Date: May 14, 1996 By: /s/ John C.Robinson
--------------------
John C. Robinson
President & Chief
Operating Officer
Date: May 14, 1996 By: /s/ John R.Whitten
-------------------
John R. Whitten
Vice President-Finance
& Treasurer
15
<PAGE> 17
BEARINGS, INC.
EXHIBIT INDEX
TO FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1996
Exhibit No. Description Page
----------- ----------- ----
4(a) Amended and Restated Articles of
Incorporation of Bearings, Inc., filed
with the Ohio Secretary of State on
October 18, 1988 (filed as Exhibit
4(a) to the Bearings, Inc. Form 8-K
dated October 21, 1988, SEC File No.
1-2299, and incorporated here by
reference).
4(b) Code of Regulations of Bearings, Inc.,
adopted September 6, 1988 (filed as
Exhibit 4(b) to the Bearings, Inc.
Form 8-K dated October 21, 1988, SEC
File No. 1-2299, and incorporated here
by reference).
4(c) Certificate of Amendment of Amended
and Restated Articles of Incorporation
of Bearings, Inc., filed with the Ohio
Secretary of State on October 27, 1988
(filed as Exhibit 4(c) to the
Bearings, Inc. Form 10-Q for the
Quarter Ended September 30, 1988, SEC
File No. 1-2299, and incorporated here
by reference).
4(d) Certificate of Merger of Bearings,
Inc. (Ohio) and Bearings, Inc.
(Delaware)
<PAGE> 18
filed with the Ohio Secretary of State
on October 18, 1988 (filed as Exhibit
4 to the Bearings, Inc. Form 10-K for
the fiscal year ended June 30, 1989,
SEC File No. 1-2299, and incorporated
here by reference).
4(e) Certificate of Amendment of Amended
and Restated Articles of Incorporation
of Bearings, Inc. filed with the Ohio
Secretary of State on October 17, 1990
(filed as Exhibit 4(e) to the
Bearings, Inc. Form 10-Q for the
quarter ended September 30, 1990, SEC
File No. 1-2299, and incorporated here
by reference).
4(f) $80,000,000 Maximum Aggregate
Principal Amount Note Purchase and
Private Shelf Facility dated October
31, 1992 between Bearings, Inc. and
The Prudential Insurance Company of
America (filed as Exhibit 4(f) to the
Bearings, Inc. Form 10-Q for the
quarter ended September 30, 1992, SEC
File No. 1-2299, and incorporated here
by reference).
4(g) Amendment to $80,000,000 Maximum Attached
Aggregate Principal Amount Note
Purchase and Private Shelf Facility
dated October 31, 1992 between
Bearings, Inc. and The Prudential
Insurance Company of America.
10 Lease dated as of March 1, 1996, Attached
between Bearings, Inc. and the
Cleveland-Cuyahoga County Port
Authority, for a new corporate
headquarters facility.
<PAGE> 19
11 Computation of Net Income Per Share. Attached
27 Financial Data Schedule. Attached
<PAGE> 1
Exhibit 4(g)
- --------------------------------------------------------------------------------
The PRUDENTIAL [LOGO] PRUDENTIAL CAPITAL GROUP
Two Prudential Plaza, Suite 5600
Chicago, IL 60601-6716
312 540-0931 Fax: 312 540-4222
March 28, 1996
Bearings, Inc.
3600 Euclid Avenue
Cleveland, Ohio 44115-2515
Attention: John R. Whitten
Vice President-Finance and Treasurer
Ladies & Gentlemen:
Reference is made to that certain Note Purchase and Private
Shelf Agreement dated as of October 31, 1992 (the "Note Agreement") between
Bearings, Inc., an Ohio corporation (the "Company"), and The Prudential
Insurance Company of America ("Prudential"), pursuant to which the Company
issued and sold and Prudential purchased the Company's 7.82% senior note in the
original principal amount of $80,000,000, due December 8, 2002. Capitalized
terms used herein and not otherwise defined herein shall have the meanings
assigned to such terms in the Note Agreement.
Pursuant to the request of the Company and in accordance with
the provisions of paragraph 11C of the Note Agreement, the parties hereto agree
as follows:
SECTION 1. AMENDMENT. From and after the date this letter
becomes effective in accordance with Section 2 below, (A) paragraphs 5 and 6 of
the Note Agreement are amended and restated in their entirety so as to read as
set forth, respectively, in paragraphs 5 and 6 of EXHIBIT A attached hereto and
(i) cross references to paragraphs 5 or 6, as the case may be, shall be deemed
to refer to paragraphs 5 or 6, as the case may be, as amended hereby and (ii)
the definitions of the following terms appearing in paragraph 10 of the Note
Agreement are amended and restated so as to read as set forth in EXHIBIT A
attached hereto: "Called Principal", "Debt", "Discounted Value" and "Settlement
Date" and (B) the following definitions set forth in EXHIBIT A attached hereto
are hereby added to paragraph 10B in appropriate alphabetical order: "County
Bonds Guaranty", "Inducement Agreement" and "Project Bond Guaranty". In
addition, the amounts "$1,000,000" and "$5,000,000" appearing in paragraph
7A(iii) of the Note Agreement are hereby deleted and the amounts "$5,000,000"
and "$10,000,000" are hereby respectively substituted therefor.
SECTION 2. CONDITIONS PRECEDENT. This letter shall be
and become effective as of March 28, 1996 upon the return by the Company to
Prudential of a counterpart hereof duly executed by the Company.
<PAGE> 2
Bearings, Inc.
March 28, 1996
Page 2
SECTION 3. REFERENCE TO AND EFFECT ON NOTE AGREEMENT. Upon
the effectiveness of this letter, each reference to the Note Agreement in any
other document, instrument or agreement shall mean and be a reference to the
Note Agreement as modified by this letter. Except as specifically set forth in
Section 1 hereof, the Note Agreement shall remain in full force and effect and
is hereby ratified and confirmed in all respects.
SECTION 4. GOVERNING LAW. THIS LETTER SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS, WITHOUT REGARD
TO PRINCIPLES OF CONFLICT OF LAWS OF SUCH STATE.
SECTION 5. COUNTERPARTS; SECTION TITLES. This letter may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed and delivered shall be
deemed to be an original and all of which taken together shall constitute but
one and the same instrument. The section titles contained in this letter are
and shall be without substance, meaning or content of any kind whatsoever and
are not a part of the agreement between the parties hereto.
Very truly yours,
THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA
By: /s/ Mark Hoffmeister
______________________________________
Vice President
Agreed and accepted:
BEARINGS, INC.
By:
_____________________________
John R. Whitten
Vice President-Finance and Treasurer
<PAGE> 3
EXHIBIT A
TO
AMENDMENT NO. 1
DATED MARCH 28, 1996
5. AFFIRMATIVE COVENANTS.
5A. FINANCIAL STATEMENTS. The Company covenants that it will deliver
to each Significant Holder in triplicate:
(i) as soon as practicable and in any event within 60 days
after the end of each quarterly period (other than the last quarterly
period) in each fiscal year, consolidated statements of income,
stockholders' equity and cash flows of the Company and its
Subsidiaries for the period from the beginning of the current fiscal
year to the end of such quarterly period, and a consolidated balance
sheet of the Company and its Subsidiaries as at the end of such
quarterly period, setting forth in each case in comparative form
figures for the corresponding period in the preceding fiscal year, all
in reasonable detail and certified by an authorized financial officer
of the Company, subject to changes resulting from year-end
adjustments; PROVIDED, HOWEVER, that delivery pursuant to clause (iii)
below of copies of the Quarterly Report on Form 10-Q of the Company
for such quarterly period filed with the Securities and Exchange
Commission shall be deemed to satisfy the requirements of this clause
(i);
(ii) as soon as practicable and in any event within 120 days
after the end of each fiscal year, consolidated statements of income,
stockholders' equity, and cash flows of the Company and its
Subsidiaries for such year, and a consolidated balance sheet of the
Company and its Subsidiaries as at the end of such year, setting forth
in each case in comparative form corresponding consolidated figures
from the preceding annual audit, all in reasonable detail and
satisfactory in form to the Required Holder(s) and, reported on by
independent public accountants of recognized national standing
selected by the Company whose report shall be without limitation as to
scope of the audit and satisfactory in substance to the Required
Holder(s); PROVIDED, HOWEVER, that delivery pursuant to clause (iii)
below of copies of the Annual Report on Form 10-K of the Company for
such fiscal year filed with the Securities and Exchange Commission
shall be deemed to satisfy the requirements of this clause (ii);
(iii) promptly upon transmission thereof, copies of all such
financial statements, proxy statements, notices and reports as it
shall send to its public stockholders and copies of all registration
statements (without exhibits) and all reports which it files with the
Securities and Exchange Commission (or any
1
<PAGE> 4
governmental body or agency succeeding to the functions of the
Securities and Exchange Commission), excluding registration statements
on Form S-8 and reports filed under Section 16 of the Securities
Exchange Act of 1934;
(iv) promptly upon receipt thereof, a copy of each other
report submitted to the Company or any Subsidiary by independent
accountants in connection with any annual, interim or special audit
made by them of the books of the Company or any Subsidiary; and
(v) with reasonable promptness, such other financial data as
such Significant Holder may reasonably request.
Together with each delivery of financial statements required by clauses (i) and
(ii) above, the Company will deliver to each Significant Holder an Officer's
Certificate demonstrating (with computations in reasonable detail) compliance
by the Company and its Subsidiaries with the provisions of paragraph 6 and
stating that, to the best of their knowledge based upon reasonable inquiry,
there exists no Event of Default or Default, or, if any Event of Default or
Default exists, specifying the nature and period of existence thereof and what
action the Company proposes to take with respect thereto. Together with each
delivery of financial statements required by clause (ii) above, the Company
will deliver to each Significant Holder a report of such accountants stating
that, in making the audit necessary for their report on such financial
statements, they have obtained no knowledge of any Event of Default or Default,
or, if they have obtained knowledge of any Event of Default or Default,
specifying the nature and period of existence thereof. Such accountants,
however, shall not be liable to anyone by reason of their failure to obtain
knowledge of any Event of Default or Default which would not be disclosed in
the course of an audit conducted in accordance with generally accepted auditing
standards.
The Company also covenants that immediately after any Responsible
Officer obtains knowledge of an Event of Default or Default, it will deliver to
each Significant Holder an Officer's Certificate specifying the nature and
period of existence thereof and what action the Company proposes to take with
respect thereto.
5B. INFORMATION REQUIRED BY RULE 144A. The Company covenants that it
will, upon the request of the holder of any Note, provide such holder, and any
qualified institutional buyer designated by such holder, such financial and
other information as such holder may reasonably determine to be necessary in
order to permit compliance with the information requirements of Rule 144A under
the Securities Act in connection with the resale of Notes, except at such times
as the Company is subject to the reporting requirements of section 13 or 15(d)
of the Exchange Act. For the purpose of this paragraph 5B, the term "qualified
institutional buyer" shall have the meaning specified in Rule 144A under the
Securities Act.
5C. INSPECTION OF PROPERTY. The Company covenants that it will
permit any Person designated by any Significant Holder in writing, at such
Significant Holder's expense, to visit and
2
<PAGE> 5
inspect any of the properties of the Company and its Subsidiaries, to examine
the corporate books and financial records of the Company and its Subsidiaries
and obtain copies thereof or extracts therefrom and to discuss the affairs,
finances and accounts of any of such corporations with the principal officers
of the Company and its independent public accountants, all at such reasonable
times as the Company and such Significant Holder shall agree but in any event
within three Business Days from request and during normal business hours.
5D. COVENANT TO SECURE NOTES EQUALLY. The Company covenants that, if
it or any Subsidiary shall create or assume any Lien upon any of its property
or assets, whether now owned or hereafter acquired, other than Liens permitted
by the provisions of paragraph 6B(1) (unless the prior written consent to the
creation or assumption thereof shall have been obtained pursuant to paragraph
11C), it will make or cause to be made effective provision whereby the Notes
will be secured by such Lien equally and ratably with any and all other Debt
thereby secured so long as any such other Debt shall be so secured.
5E. MAINTENANCE OF INSURANCE. The Company covenants that it and each
Subsidiary shall maintain, with financially sound and reputable insurers,
insurance in such amounts and against such liabilities and hazards as is
ordinarily carried by companies similarly situated in the same or similar lines
of business.
6. NEGATIVE COVENANTS. Unless the Required Holders shall otherwise
consent in writing, the Company agrees to observe and perform each of the
negative covenants set forth below so long as any Note shall remain
outstanding.
6A(1). LIQUIDITY. The Company covenants that it will not permit
Consolidated Current Assets less Consolidated Current Liabilities determined at
the end of any fiscal quarter to fall below an amount equal to $125,000,000.
6A(2). CURRENT RATIO. The Company covenants that it will not permit
the ratio (expressed as a percentage) of Consolidated Current Assets to
Consolidated Current Liabilities determined at the end of any fiscal quarter to
fall below 150%.
6A(3). CONSOLIDATED TANGIBLE NET WORTH. The Company covenants that
it will not permit Consolidated Tangible Net Worth determined at the end of any
fiscal quarter to fall below $115,000,000 PLUS an amount equal to 30% of annual
Consolidated Net Income (less 0% in the event of a loss), applied at the end of
each fiscal year commencing with the fiscal year ending June 30, 1996.
6B. CREDIT AND OTHER RESTRICTIONS. The Company covenants that it
will not and will not permit any Subsidiary to:
6B(1). LIEN RESTRICTIONS. Create, incur, assume or suffer to exist
any Lien upon any of its property or assets, whether now owned or hereafter
acquired (whether or not provision is made
3
<PAGE> 6
for the equal and ratable securing of Notes in accordance with the provisions
of paragraph 5D hereof), except:
(i) Liens for taxes or other governmental charges not yet due
or which are being actively contested in good faith by appropriate
proceedings;
(ii) Liens incidental to the conduct of its business or the
ordinary operation or use of its property which were not incurred in
connection with the borrowing of money or obtaining credit or
advances;
(iii) Liens on property or assets of a Subsidiary to secure
obligations of such Subsidiary to the Company or another Subsidiary;
(iv) Liens identified on EXHIBIT G to this Agreement;
(v) Liens relating to the ledger balances, consignments, and
other similar arrangements and other Liens (including Liens consisting
of Capitalized Lease Obligations and/or purchase money security
interests) to secure Debt, provided that (x) the Debt to which the
Lien relates is permitted by paragraph 6B(2) and (y) the aggregate
amount of Debt (plus, without duplication, the aggregate amount of
such ledger balances, consignments and other similar arrangements)
secured by such Liens does not exceed at any time 20% of Consolidated
Tangible Net Worth; and
(vi) Liens consisting of survey exceptions, minor
encumbrances, easements and rights of way, or zoning or other
restrictions as to the use of real properties; PROVIDED, HOWEVER, that
such Liens in the aggregate do not materially impair the usefulness of
such property in the business of the Company and its Subsidiaries,
taken as a whole.
6B(2). DEBT RESTRICTION. Create, incur, assume or suffer to exist
any Debt, except:
(i) Debt in existence on March 28, 1996;
(ii) Debt of any Subsidiary to the Company or to any other
Subsidiary; and
(iii) additional Debt of the Company;
PROVIDED, HOWEVER, that the aggregate principal amount of consolidated Debt of
the Company and its Subsidiaries shall not exceed at any time an amount equal
to 58% of Consolidated Capitalization.
6B(3). LOANS, ADVANCES AND INVESTMENTS. Make or permit to remain
outstanding loans or advances to, or own, purchase or acquire any stock
obligations or securities of, or any other
4
<PAGE> 7
interest in, or make any capital contributions to, any Person (collectively,
"INVESTMENTS"), except that the Company or any Subsidiary may:
(i) make or permit to remain outstanding loans or advances to
any Subsidiary;
(ii) own, purchase or acquire stock, obligations or
securities of a Subsidiary or of a corporation which immediately after
such purchase or acquisition will be a Subsidiary;
(iii) acquire and own (a) stock of the Company so long as no
Default or Event of Default exists after giving effect to the
acquisition thereof and (b) stock, obligations or securities received
in settlement of debts (created in the ordinary course of business)
owing to the Company or any Subsidiary;
(iv) own, purchase or acquire prime commercial paper,
banker's acceptances and certificates of deposit in the United States
and Canadian commercial banks (having capital resources in excess of
$100 million U.S.), repurchase agreements with respect to the
foregoing, in each case due within one year from the date of purchase
and payable in the United States in United States dollars, obligations
of the United States Government or any agency thereof, and obligations
guaranteed by the United States Government;
(v) make or permit to remain outstanding relocation, travel
and other like advances to officers and employees in the ordinary
course of business;
(vi) permit to remain outstanding Investments existing on
March 28, 1996; and
(vii) make other Investments not in excess of 15% of
Consolidated Tangible Net Worth.
6B(4). DISPOSITION OF CERTAIN ASSETS. Sell, lease, transfer or
otherwise dispose of any assets of the Company or any Subsidiary other than in
the ordinary course of business, unless the net book value of the assets sold,
leased, transferred or otherwise disposed of outside of the ordinary course of
business in the then most recent 24 month period together with the net book
value of any assets then proposed to be sold, leased, transferred or otherwise
disposed of outside of the ordinary course of business do not exceed 30% of
Consolidated Tangible Net Worth. For purposes of this paragraph and paragraph
6B(2), a sale of the Company's or its Subsidiaries' receivables in connection
with financing of the Company or any of its Subsidiaries under a securitization
program shall be deemed to constitute Debt of the Company or any such
Subsidiary and not a sale of assets.
5
<PAGE> 8
6B(5). SALE OF STOCK AND DEBT OF SUBSIDIARIES. Sell or otherwise
dispose of, or part with control of, any shares of stock or debt of any
Subsidiary, except to the Company or any Subsidiary, and except that all shares
of stock and debt of any Subsidiary at the time owned by or owed to the Company
and all Subsidiaries may by sold as an entirety for fair market value (as
determined in good faith by the Board of Directors of the Company) provided
that the net book value of the assets of such Subsidiary, together with the net
book value of the assets of the Company and any other Subsidiaries sold during
the then most recent 24 month period do not exceed 30% of Consolidated Tangible
Net Worth.
6B(6). MERGER AND CONSOLIDATION. Merge with or consolidate into any
other company, except (i) Subsidiaries may be merged into the Company, (ii) the
Company may merge with another entity provided that the Company is the
surviving corporation and no Default or Event of Default under this Agreement
would exist after giving effect to the merger or as a result thereof and (iii)
the Company may be merged into a Subsidiary or a newly created entity organized
under the laws of any state of the United States which has conducted no
previous business and at the time of such merger shall have no liabilities, if,
in either case, the surviving corporation assumes the obligations of the
Company under the Notes in a manner reasonably satisfactory to the Required
Holders of the Notes.
6B(7). SALE OR DISCOUNT OF RECEIVABLES. Sell with recourse, discount
or pledge any of its notes receivable or accounts receivable other than
receivables sold constituting Debt under clause (vii) of the definition thereof
provided that (i) the aggregate face amount of all such receivables sold shall
not exceed $70,000,000, and (ii) after giving effect to such sale, the Company
is in compliance with paragraph 6B(2).
6B(8). LEASE OBLIGATIONS. Lease real property or personal property
(excluding data processing equipment, vehicles, and other equipment leased in
the ordinary course of business) for terms exceeding three years if after
giving effect thereto the aggregate amount of all payments in any fiscal year
payable by the Company and its Subsidiaries would exceed an aggregate of 15% of
Consolidated Tangible Net Worth.
6B(9). RESTRICTED TRANSACTIONS. Deal directly or indirectly with an
Affiliate, any Person related by blood, adoption, or marriage to any Affiliate
or any Person owning 5% or more of the Company's stock, provided that (i) the
Company may deal with such Persons in the ordinary course of business at arm's
length, (ii) the Company may make loans or advances to officers permitted by
paragraph 6B(3) and (iii) in addition to the foregoing, so long as the stock of
the Company is publicly held, the Company may deal with such Persons so long as
the aggregate amount of such transactions does not exceed $100,000 in any
fiscal year.
6
<PAGE> 9
10. DEFINITIONS.
10A. YIELD-MAINTENANCE TERMS.
"CALLED PRINCIPAL" shall mean, with respect to any Note, the principal
of such Note that is to be prepaid pursuant to paragraph 4B or is declared to
be immediately due and payable pursuant to paragraph 7A, as the context
requires.
"DISCOUNTED VALUE" shall mean, with respect to the Called Principal of
any Note, the amount obtained by discounting all Remaining Scheduled Payments
with respect to such Called Principal from their respective scheduled due dates
to the Settlement Date with respect to such Called Principal, in accordance
with accepted financial practice and at a discount factor (as converted to
reflect the periodic basis on which interest on such Note is payable, if
payable other than on a semi-annual basis) equal to the Reinvestment Yield with
respect to such Called Principal.
"SETTLEMENT DATE" shall mean, with respect to the Called Principal of
any Note, the date on which such Called Principal is to be prepaid pursuant to
paragraph 4B or is declared to be immediately due and payable pursuant to
paragraph 7A, as the context requires.
10B. OTHER TERMS.
"AUTHORIZED OFFICER" shall mean (i) in the case of the Company, its
chief executive officer, its chief operating officer, its chief financial
officer, its corporate secretary, and any vice president of the Company
designated as an "Authorized Officer" of the Company for the purpose of this
Agreement in an Officer's Certificate executed by the Company's chief executive
officer or chief financial officer and delivered to Prudential, and (ii) in the
case of Prudential, any vice president and any officer of Prudential designated
as its "Authorized Officer" for the purpose of this Agreement in a certificate
executed by one of its Authorized Officers or a member of its Law Department.
Any action taken under this Agreement on behalf of the Company by any
individual who on or after the date of this Agreement shall have been an
Authorized Officer of the Company and whom Prudential in good faith believes to
be an Authorized Officer of the Company at the time of such action shall be
binding on the Company even though such individual shall have ceased to be an
Authorized Officer of the Company, and any action taken under this Agreement on
behalf of Prudential by any individual who on or after the date of this
Agreement shall have been an Authorized Officer of Prudential and whom the
Company in good faith believes to be an Authorized Officer of Prudential at the
time of such action shall be binding on Prudential even though such individual
shall have ceased to be an Authorized Officer of Prudential.
"COUNTY BONDS GUARANTY" shall have the meaning assigned to such term
in the Inducement Agreement.
"DEBT" shall mean and include, (i) any obligation payable for
borrowed money (including
7
<PAGE> 10
capitalized lease obligations but excluding reserves for deferred income taxes
and other reserves to the extent that such reserves do not constitute an
obligation); (ii) indebtedness payable which is secured by any lien on property
owned by the Company or any Subsidiary; (iii) guarantees, endorsements (other
than endorsements of negotiable instruments for collection in the ordinary
course of business) and other contingent liabilities (whether direct or
indirect) in connection with the obligation, stock or dividends of any Person
(other than under the Project Bonds Guaranty and the County Bonds Guaranty);
(iv) obligations under any contract providing for the making of loans, advances
or capital contributions to any Person, in each case in order to enable such
Person primarily to maintain working capital, net worth or any other balance
sheet condition or to pay debts, dividends or expenses; (v) ledger balances,
consignments and other similar arrangements but only to the extent required to
be shown as debt on the consolidated balance sheet of the Company in accordance
with generally accepted accounting principles; (vi) obligations under any other
contract which, in economic effect, is substantially equivalent to a
guarantee; (vii) the face amount of receivables sold to any Person for the
purpose of enabling such Person to incur Debt or sell interests in such
receivables to finance the purchase price of such receivables, and (viii)
guaranteed purchase contracts which are required to be shown as debt on the
Company's consolidated balance sheet in accordance with generally accepted
accounting principles (but not including guaranteed purchase contracts to the
extent that the obligations thereunder are not required to be shown as debt on
the Company's consolidated balance sheet in accordance with generally accepted
accounting principles); all as determined in accordance with generally accepted
accounting principles. The term Debt shall not include (a) obligations under
the Company's compensation or benefit plans in effect from time to time to the
extent not required to be shown as debt on the consolidated balance sheet of
the Company prepared in accordance with generally accepted accounting
principles and (b) trade payables incurred in the ordinary course of business
(including ledger balances, consignments and other similar arrangements) to the
extent such trade payables (including ledger balances, consignments and other
similar arrangements) are not required to be shown as debt on the consolidated
balance sheet of the Company prepared in accordance with generally accepted
accounting principles.
"INDUCEMENT AGREEMENT" shall mean that certain Inducement Agreement
dated as of March 1, 1996 between the Company and Prudential.
"PROJECT BOND GUARANTY" shall have the meaning assigned to such term
in the Inducement Agreement.
8
<PAGE> 1
EXHIBIT 10
----------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LEASE
between
CLEVELAND-CUYAHOGA COUNTY PORT AUTHORITY, Lessor
and
BEARINGS, INC., Lessee
_____________________________________________
Dated
as of
March 1, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
(This Table of Contents is not a part of the Lease
but rather is for convenience of reference only.)
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Preambles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE I
DEFINITIONS
Section 1.1 Use of Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.2 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.3 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 1.4 Captions and Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE II
LEASE OF PROJECT
Section 2.1 Lease; Lease Term; Possession and Use . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 2.2 Loan Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 2.3 Representations of the Lessor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 2.4 Representations of the Lessee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 2.5 Recordation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE III
RENTAL PAYMENTS AND ADDITIONAL PAYMENTS
Section 3.1 Rental Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 3.2 Additional Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 3.3 Place of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 3.4 Obligations Unconditional . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 3.5 Past Due Rent, Additional Payments and Rentals . . . . . . . . . . . . . . . . . . . . 14
Section 3.6 Assignment of Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 3.7 No Abatement of Rental Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE IV
LESSEE'S OWN PERSONAL PROPERTY
Section 4.1 Installation of the Lessee's Own Personal Property . . . . . . . . . . . . . . . . . . 15
ARTICLE V
MAINTENANCE AND USE OF PROJECT
Section 5.1 Compliance with Legal and Insurance Requirements . . . . . . . . . . . . . . . . . . . 17
Section 5.2 Maintenance and Use of Project . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 5.3 Alterations, Additions and Improvements . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 5.4 Removals and Substitutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 5.5 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 5.6 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 5.7 Performance by Lessor of Lessee's Requirements . . . . . . . . . . . . . . . . . . . . 21
</TABLE>
- i -
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE VI
TAXES, MECHANICS' LIENS AND INSURANCE
Section 6.1 Taxes, Other Governmental Charges and
Utility Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 6.2 Mechanics' and Other Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 6.3 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 6.4 Workers' Compensation and Unemployment Coverage . . . . . . . . . . . . . . . . . . . . 23
Section 6.5 Waiver of Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 6.6 Payment of Amounts Not Paid by Lessee . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE VII
DAMAGE, DESTRUCTION AND CONDEMNATION
Section 7.1 Damage to or Destruction of Project . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 7.2 Use of Insurance Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 7.3 Eminent Domain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 7.4 Investment and Disbursement of Net Proceeds . . . . . . . . . . . . . . . . . . . . . . 26
Section 7.5 Lessee's Own Personal Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE VIII
FURTHER REPRESENTATIONS AND AGREEMENTS
RESPECTING THE PROJECT
Section 8.1 Right of Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 8.2 Lessee to Maintain its Corporate Existence;
Conditions Under Which Exceptions Permitted . . . . . . . . . . . . . . . . . . . . 27
Section 8.3 Title of Project Site . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 8.5 No Warranty of Condition or Suitability . . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE IX
TERMINATION OF LEASE
Section 9.1 Option to Terminate on Payment of Rental
Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 9.2 Termination of Lease on Substantial Casualty
or Condemnation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 9.3 Option to Purchase Lessor's Interest in Project . . . . . . . . . . . . . . . . . . . . 30
Section 9.4 Conveyance on Exercise of Option to Purchase . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE X
EVENTS OF DEFAULT
Section 10.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 10.2 Remedies on Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 10.3 No Remedy Exclusive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 10.4 Lessee to Pay Attorneys' Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . 35
Section 10.5 No Additional Waiver Implied by One Waiver . . . . . . . . . . . . . . . . . . . . . . 35
</TABLE>
- ii -
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE XI
ASSIGNMENT OF LEASE, SUBLEASING AND RELEASE
OF PORTIONS OF PROJECT
Section 11.1 Subleasing by Lessee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 11.2 Mortgage and Assignment of Lease by Lessor . . . . . . . . . . . . . . . . . . . . . . 36
Section 11.3 Restrictions on Transfer and Encumbrance of
Project by the Lessor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 11.4 Release of Project . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 11.5 Granting Easements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 11.6 No Abatement or Diminution of Payments . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 11.7 Payment on Release or Conveyance . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 11.8 Lessor to Apply Lease Payments to Debt Amortization
During Any Extension of Lease Term . . . . . . . . . . . . . . . . . . . . . . . . . 38
ARTICLE XII
MISCELLANEOUS
Section 12.1 Quiet Enjoyment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 12.2 Surrender of Project . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 12.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 12.4 Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 12.5 Amendments, Changes and Modifications . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 12.6 Execution Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 12.7 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 12.8 Extent of Covenants; No Personal Liability . . . . . . . . . . . . . . . . . . . . . . 40
Section 12.9 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 12.10 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 12.11 Estoppel Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 12.12 Relationship of the Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 12.13 Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 12.14 Other Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 12.15 No Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 12.16 Extension of Lease Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Acknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Exhibit A - PROJECT FACILITIES
Exhibit B - PROJECT SITE
Exhibit C - RENTAL PAYMENT AMOUNTS
</TABLE>
- iii -
<PAGE> 5
LEASE
THIS LEASE made and entered into as of March 1, 1996, between
CLEVELAND-CUYAHOGA COUNTY PORT AUTHORITY, as lessor (the "Lessor"), a body
corporate and politic, duly organized and validly existing under the laws of
the State of Ohio, and BEARINGS, INC., as lessee (the "Lessee"), a corporation
for profit organized and existing under the laws of the State of Ohio (all
terms used as defined terms being used as defined in Article I of this Lease),
WITNESSETH:
WHEREAS, pursuant to and in accordance with the provisions of the
Ohio Constitution and the Act, and a resolution adopted by the Legislative
Authority on March 25, 1996, the Lessor has determined, upon the terms and
conditions hereinafter set forth, to lease the Project to the Lessee and the
Lessee desires, upon the terms and conditions hereinafter set forth, to lease
the Project from the Lessor; and
WHEREAS, the Lessor and the Lessee each have full right and
lawful authority to enter into this Lease and to perform and observe the
provisions hereof on their respective parts to be performed and observed;
NOW THEREFORE, in consideration of the premises and the mutual
agreements hereinafter contained, the parties hereto agree as follows:
(Balance of Page Intentionally Left Blank)
<PAGE> 6
ARTICLE I
DEFINITIONS
Section 1.1. USE OF DEFINED TERMS. In addition to the words and
terms elsewhere defined in this Lease or by reference to the Project Bond
Indenture, the words and terms set forth in Section 1.2 of this Lease shall
have the meanings set forth therein unless the context or use indicates another
or different meaning or intent and such definitions shall be equally applicable
to both the singular and plural forms of any of the words and terms herein:
Section 1.2. DEFINITIONS. As used herein:
"Act" means Sections 4582.01 to 4582.20, both inclusive, of the
Ohio Revised Code, as enacted and amended.
"Additional Bonds" means the Additional Bonds of the Lessor which
may be issued under and as defined in the Project Bond Indenture.
"Additional Payments" means the amounts required to be paid by
the Lessee pursuant to the provisions of Section 3.2 hereof.
"Assignment of Lease" means the Assignment of Lease, dated as of
even date herewith, transferring all right, title and interest of the Lessor in
and to this Lease to the Project Bond Trustee.
"Authorized Lessee Representative" means the person at the time
designated to act on behalf of the Lessee by written certificate furnished to
the Lessor containing the specimen signature of such person and signed on
behalf of the Lessee by the Chair, the President, a Vice President, the
Treasurer, the Secretary or the Assistant Secretary of the Lessee. Such
certificate may designate an alternate or alternates who shall have the same
authority, duties and powers as the Authorized Lessee Representative. In the
event that all such incumbents become unavailable or unable to act and the
Lessee fails to designate at least one replacement within ten business days
after notice to the Lessee from the Lessor of such unavailability or inability
to act, the Lessor may appoint a successor.
"Bonds" means the Project Bonds and any Additional Bonds.
"Bond Service Charges" means, for any period or payable at any
time, the principal of and interest and any premium due on the Bonds for that
period or payable at that time whether due at maturity or upon acceleration or
redemption.
"CDP" means Cleveland Development Partnership I, Limited
Partnership, a Delaware limited partnership.
"CDP Note" means the revenue note issued by the Lessor to
evidence the Lessor's limited obligation to repay a loan made to the Lessor by
CDP in the aggregate principal amount of $2,500,000.
"City" means the City of Cleveland, Ohio, a municipal corporation
organized and existing under its Charter and the Constitution and laws of the
State.
- 2 -
<PAGE> 7
"City of Cleveland Notes" means, collectively, the City of
Cleveland UDAG Note, the City of Cleveland NDIF Note and the City of Cleveland
J.C. Hub Note.
"City of Cleveland J.C. Hub Note" means the revenue note which
will be issued by the Lessor, if needed and subject to the approval of
Cleveland City Council, to evidence its limited obligation to repay a loan to
be made to the Lessor by the City in the principal amount of $900,000.
"City of Cleveland NDIF Note" means the revenue note issued by
the Lessor to evidence its limited obligation to repay a loan made to the
Lessor by the City in the principal amount of $3,000,000.
"City of Cleveland UDAG Note" means the revenue note issued by
the Lessor to evidence its limited obligations to repay a loan made to the
lessor by the City in the principal amount of $1,000,000.
"City Grant" means the grant in the amount of $1,000,000 made by
the State and assigned by the City to the Lessor to be used for acquisition of
a portion of the Project Site.
"Completion Date" means the date specified as such in the
certificate furnished pursuant to Sections 2.2 and 4.6 of the Project Service
Agreement.
"Consumer Price Index Increase" means the percentage of increase
in the Consumer Price Index for Urban Wage Earners and Clerical Workers as
finally issued for Cleveland, Ohio by the Bureau of Labor Statistics of the
United States Department of Labor, or any successor thereto, from that index as
issued for the month of the execution and delivery of this Lease. In the event
such index should be abolished and no substitute provided, then any index,
service or publication which, in the judgment of the Lessor, most nearly
provides the measurement now being provided by the Consumer Price Index shall
be used in place of the Consumer Price Index.
"County" means the County of Cuyahoga, Ohio, a county and
political subdivision organized and existing under the Constitution and laws of
the State.
"County Bond Holder" means any registered owner of all or a
portion of the County's $1,800,000 Taxable Development Revenue Bonds, Series
1996 (Bearings, Inc. Project), the proceeds of which were used by the County to
make a loan to the Lessor, repayment of which is evidenced by the County Note.
"County Grant" means the grant in the amount of $300,000 approved
by the County for the purpose of providing funds for the acquisition of
personal property included in the Project Facilities.
"County Note" means the revenue note issued by the Lessor to
evidence its limited obligation to repay a loan made to the Lessor by the
County in the aggregate principal amount of $1,800,000.
"Director" means The Director of Development of the State of
Ohio, acting on behalf of the State.
"Discounted Rent" shall mean the amount of the Rental Payments,
determined in the manner set forth in Section 9.2 of this Lease, to be paid in
full satisfaction of the Lessee's obligation to pay the remaining Rental
Payments hereunder in the event that, as a result of the occurrence of any of
the events described in Section 9.2 of this Lease, the Lessee shall have
- 3 -
<PAGE> 8
certified that it will prepay all remaining Rental Payments by paying the
Discounted Rent and terminate the Lease.
"Engineer" means Gilberti Spittler International, Cleveland, Ohio
or another individual or firm qualified to practice the profession of
engineering or architecture under the laws of the State, designated by the
Lessor and acceptable to the Lessee.
"Environmental Damages" means all claims, judgments, damages,
losses, penalties, fines, liabilities (including strict liability),
encumbrances, liens, costs, and expenses of investigation and defense of any
claim, whether or not such claim is ultimately defeated, and of any good faith
settlement of judgment, of whatever kind or nature, contingent or otherwise,
matured or unmatured, foreseeable or unforeseeable, including without
limitation reasonable attorneys' fees and disbursements and consultants' fees,
any of which are incurred at any time as a result of the existence of Hazardous
Materials upon, about, beneath the Project Site or migrating or threatening to
migrate to or from the Project Site, or the existence of a violation of
Environmental Requirements pertaining to the Project Site, regardless of
whether the existence of such Hazardous Materials or the violation of
Environmental Requirements arose prior to the present ownership or operation of
the Project Site, and including without limitation:
(i) Fees incurred for the services of attorneys, consultants,
contractors, experts, laboratories and all other costs
incurred in connection with the investigation or
remediation of such Hazardous Materials or violation of
Environmental Requirements including, but not limited to,
the preparation of any feasibility studies or reports or
the performance of any cleanup, remediation, removal,
response, abatement, containment, closure, restoration or
monitoring work required by any federal, state or local
governmental agency or political subdivision, or reasonably
necessary to make full economic use of the Project Site or
any other property [in a manner consistent with its current
use] or otherwise expended in connection with such
conditions, and including without limitation any attorneys'
fees, costs and expenses incurred in enforcing this
agreement or collecting any sums due hereunder; and
(ii) Liability to any third person or governmental agency to
indemnify such person or agency for costs expended in
connection with the items referenced in subparagraph (i)
herein.
"Environmental Requirements" means all applicable present and
future statutes, regulations, rules, ordinances, codes, licenses, permits,
orders, approvals, plans, authorizations, concessions, franchises, and similar
items, of all governmental agencies, departments, commissions, boards, bureaus,
or instrumentalities of the United States, states and political subdivisions
thereof and all applicable judicial, administrative, and regulatory decrees,
judgments, and orders relating to the protection of human health or the
environment, including, without limitation:
(i) All requirements, including but not limited to those
pertaining to reporting, licensing, permitting,
investigation, and remediation of emissions, discharges,
releases, or threatened releases of Hazardous Materials,
chemical substances, pollutants, contaminants, or hazardous
or toxic substances, materials or wastes whether solid,
liquid, or gaseous in nature, into the air, surface water,
groundwater, or land, or relating to the manufacture,
processing, distribution, use, treatment, storage,
disposal, transport, or handling of chemical substances,
pollutants, contaminants, or hazardous or toxic substances,
materials, or wastes, whether solid, liquid, or gaseous in
nature; and
- 4 -
<PAGE> 9
(ii) All requirements pertaining to the protection of the health
and safety of employees or the public.
"Essential Lessor Personal Property" has the meaning assigned in
Section 5.2(f).
"Event of Default" means any of the events described as an event
of default in Section 10.1 hereof.
"Fair Market Value" of any property as of any date shall mean the
rental payment in money or the cash price that would be obtained in an
arm's-length lease or sale, as the case may be, between an informed and willing
third party lessee or buyer (under no compulsion to lease or purchase) and an
informed and willing lessor or seller (under no compulsion to lease or sell) of
the property in question, and shall be determined on the basis that the Project
has been maintained in accordance with the requirements of this Lease (but
otherwise on an "as-is" basis). Whenever Fair Market Value is to be determined
hereunder and the parties cannot agree on the Fair Market Value, the
determination shall be made according to the arbitration provision set forth in
Section 12.13 hereof. Fair Market Value shall be determined without regard to
and exclusive of modifications (other than substitutions) and additions to the
Project during the Lease Term paid for by the Lessee.
"Grants" means, collectively, the County Grant, the City Grant
and the State Grant.
"Hazardous Materials" means any substance:
(i) the presence of which requires investigation or
remediation under any federal, state or local statute,
regulation, ordinance, order, action, policy or common
law;
(ii) which is or becomes defined as a "hazardous waste,"
"hazardous substance," pollutant or contaminant under any
federal, state or local statute, regulation, rule or
ordinance or amendments promulgate thereto including,
without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act (42 U.S.C.
section 9601 ET SEQ.), as amended by the Superfund
Amendments and Reauthorization Act of 1986, the Resource
Conservation and Recovery Act, 42 U.S.C. Section 6901 ET
SEQ., the Hazardous Materials Transportation Act, 49
U.S.C. Section 6901 ET SEQ., the Federal Water Pollution
Control Act, 33 U.S.C. Section 1251 ET SEQ., the Clean
Air Act, 42 U.S.C. Section 741 ET SEQ., the Clean Water
Act, 33 U.S.C. Section 7401 ET SEQ., the Total
Substances Control Act, 15 U.S.C. Section Section
2601-2629 and the Safe Drinking Water Act, 42 U.S.C.
Section Section 300f-300j;
(iii) which is toxic, explosive, corrosive, flammable,
infectious, radioactive, carcinogenic, mutagenic, or
otherwise hazardous and is or become regulated by any
governmental authority, agency, department, commission,
board, agency or instrumentality of the United States,
the State of Ohio or any political subdivision;
(iv) the presence of which on the Project Site causes or
threaten to cause a nuisance upon the Project Site or to
adjacent properties or poses or threatens to pose a
hazard to the health or safety of persons on or about the
Project Site;
- 5 -
<PAGE> 10
(v) without limitation which contains gasoline, diesel fuel
or other petroleum hydrocarbons;
(vi) without limitation which contains polychlorinated
biphenyls (PCBs), asbestos or urea formaldehyde foam
insulation; or
(vii) without limitation asbestos and radon gas.
"Holder" means the person in whose name a Bond is registered on
the books kept and maintained for the registration and transfer of Bonds
pursuant to the Project Bond Indenture.
"Independent Counsel" means an attorney acceptable to the Lessor
duly admitted to practice law before the highest court of the State and who is
not a salaried employee of the Lessor or the Lessee.
"Insurance Requirements" means all material provisions of any
insurance policy covering or applicable to the Project or any part thereof, all
material requirements of the issuer of any such policy, and all material
orders, rules, regulations or other requirements of the National Board of Fire
Underwriters (or any other body exercising similar functions) applicable to or
affecting the Project or any part thereof.
"Interest Rate for Advances" means the rate of twelve percent
(12%) per year or a rate which is two percent (2%) per year plus the annual
interest rate then charged by the Project Bond Trustee to its most creditworthy
commercial borrowers in its lending capacity as a bank, whichever is, in whole
or in part, greater and lawfully chargeable.
"Lease" means this Lease, as it may be duly amended and
supplemented from time to time in accordance with its terms.
"Lease Term" means the period commencing on the date of delivery
of this Lease and, unless earlier terminated as herein provided, ending on
March 1, 2016, or the date to which this Lease is extended pursuant to the
provisions of this Lease, whichever is latest.
"Legal Requirements" means all laws, statutes, codes, acts,
ordinances, resolutions, orders, judgments, decrees, injunctions, rules,
regulations, permits, licenses, directions and requirements of all governments
and departments, commissions, boards, courts, authorities, agencies, officials
and officers of governments, foreseen or unforeseen, ordinary or extraordinary,
which now or at any time hereafter may be applicable to the Project or any part
thereof, or any use or condition of the Project or any part thereof.
"Legislative Authority" means the Board of Directors of the
Lessor.
"Lenders" means, collectively, the Project Bond Trustee, the
County Bond Holders, the City, the County, CDP and the Director.
"Lessor Personal Property" has the meaning assigned in Section
5.2(f) hereof.
"Loan Agreements" is used as defined in the Project Service
Agreement.
"Moveable Personal Property" means, collectively or separately,
the furniture, furnishings, equipment and other personal property to be
acquired with the proceeds of the Project Debt, the Grants and any deposits
made by the Lessee in the Corporation Account of the Project Fund created under
the Project Bond Indenture, and installed in the Project Facilities and
- 6 -
<PAGE> 11
generally described in part II of Exhibit A hereto (and more specifically
identified in requests to disburse funds therefor pursuant to Section 4.2 of
the Project Service Agreement, in the certificate to be given by the Authorized
Lessee Representative pursuant to Sections 2.2(c) and 4.6 of the Project
Service Agreement), together with any substitutions therefor, less any removals
of such personal property, all in the manner and to the extent provided in this
Lease.
"Net Proceeds", when used with respect to any insurance proceeds
or condemnation award, means the gross proceeds thereof less the payment of all
expenses, including reasonable attorneys' fees, incurred in connection with the
collection of such gross proceeds.
"Notes" means, collectively, the County Note, the City of
Cleveland Notes, the CDP Note and the State Loan Note.
"Notice Address" means:
(a) As to the Lessee: Bearings, Inc.
3600 Euclid Avenue
Cleveland, Ohio 44115
Attention: Chief Financial Officer
and a copy to the General Counsel at the same address
(b) As to the Lessor: Cleveland-Cuyahoga County Port
Authority
101 Erieside Avenue
Cleveland, Ohio 44114
Attention: Executive Director
and
Climaco, Climaco, Seminatore, Lefkowitz
& Garofoli Co., L.P.A.
The Halle Building, Suite 900
1228 Euclid Avenue
Cleveland, Ohio 44115
Attention: Anthony Garofoli
(c) As to the Project The Huntington National Bank
Bond Trustee: 41 South High Street
Columbus, Ohio 43215
Attention: Corporate Trust Department
and
The Huntington National Bank
917 Euclid Avenue
Cleveland, Ohio 44115
Attention: Corporate Trust Department
and
- 7 -
<PAGE> 12
The Prudential Insurance Company of America
c/o Prudential Capital Group
Two Prudential Plaza
Suite 5600
Chicago, Illinois 60601
Attention: Managing Director
(d) As to the Director: Director of Development
Ohio Department of Development
77 South High Street - 29th Floor
Columbus, Ohio 43215
(e) As to the County: Board of Cuyahoga County Commissioners
County Administration Building
1219 Ontario Street
Cleveland, Ohio 44113
Attention: County Administrator
and
The Prudential Insurance Company of America
c/o Prudential Capital Group
Two Prudential Plaza
Suite 5600
Chicago, Illinois 60601
Attention: Managing Director
(f) As to the City: City of Cleveland
Cleveland City Hall
601 Lakeside Avenue, N.E.
Cleveland, Ohio 44114
Attention: Director of Law
(g) As to CDP Cleveland Development Partnership I
1801 Euclid Avenue, Suite 1020
Cleveland, Ohio 44114
Attention: Director
or such different address notice of which is given under Section 12.3 hereof.
"Person" or words importing persons means firms, associations,
partnerships (including, without limitation, general, limited and limited
liability partnerships), joint ventures, societies, estates, trusts,
corporations, limited liability companies, public or governmental bodies, other
legal entities and natural persons.
"Plans and Specifications" means the plans and specifications for
the Project as filed with the Lessor, and as such may be completed in
accordance herewith and changed from time to time as herein provided.
"Project" means the Project Site and the Project Facilities
together constituting "port authority facilities" as defined in the Act.
- 8 -
<PAGE> 13
"Project Bond Indenture" means the Trust Indenture dated as of
even date with this Lease between the Lessor and the Project Bond Trustee, as
amended and supplemented from time to time.
"Project Bonds" means the $18,835,000 aggregate principal amount
of revenue bonds of the Lessor designated "Taxable Headquarters Revenue Bonds,
Series 1996 (Bearings, Inc. Project)", including both Series A and Series B
thereof.
"Project Bond Trustee" means The Huntington National Bank, until
a successor Project Bond Trustee shall have become such pursuant to the
applicable provisions of the Project Bond Indenture, and thereafter "Project
Bond Trustee" shall mean the successor Project Bond Trustee.
"Project Debt" means the Project Bonds, any Additional Bonds that
may hereafter be issued, and the Notes.
"Project Facilities" means the facilities generally identified in
Exhibit A hereto (and more particularly described in the Plans and
Specifications or, with respect to personal property, to be more specifically
identified in requests to disburse funds therefor pursuant to Section 4.2 of
the Project Service Agreement, or in the certificate to be given by the
Authorized Lessee Representative pursuant to Sections 2.2(c) and 4.6 of the
Project Service Agreement), together with any additions and improvements
thereto, modifications thereof and substitutions therefor, less any removals of
such property, all in the manner and to the extent in this Lease provided.
"Project Purposes" means acquiring, constructing, equipping,
furnishing, improving and otherwise developing real and personal property, or
any combination thereof, comprising port authority facilities to be used as the
headquarters of the Lessee and as may otherwise be permitted by this Lease and
the Project Service Agreement.
"Project Service Agreement" means the Project Service and
Indemnity Agreement dated as of even date herewith among the Lessor, the Lessee
and to the extent set forth therein, the Lenders named therein, as the same may
be amended and supplemented from time to time.
"Project Site" means the real estate described in Exhibit B
hereto and the Lessor's interest therein, together with any additions thereto
and less any removals therefrom, in the manner and to the extent provided in
this Lease.
"Rental Payments" means the rent required to be paid by the
Lessee to the Lessor as provided in Sections 3.1 and 3.3 hereof.
"Rental Payment Date" means the last business day of each
calendar month commencing with the last business day in June, 1997.
"Required Property Insurance Coverage" means at any time
insurance in the amount of (i) the then full insurable value of the Project
Facilities or (ii) the then total unpaid principal amount of the Bonds and the
Notes then outstanding, whichever is greater, provided that the coverage shall
not be less than an amount that would result in coinsurance, insuring the
Project Facilities against loss or damage by fire and extended coverage risks
and containing loss deductible provisions of not to exceed $1,000,000; provided
that the amounts of such deductible may be increased on each January 1 by the
Consumer Price Index Increase to the extent that such Consumer Price Index
Increase had not previously been utilized to increase such deductible.
- 9 -
<PAGE> 14
"Required Public Liability Insurance Coverage" means
comprehensive general accident and public liability insurance with coverage
limits in the minimum amounts of $10,000,000 as to death or bodily injury in
each occurrence and $10,000,000 as to property damage with a loss deductible
clause of not to exceed $5,000,000; provided that the amounts of coverage shall
be, and any deductible may be, increased on each January 1 by ten percent for
each ten percent increase in the Consumer Price Index Increase.
"State" means the State of Ohio.
"State Grant" means the grant or grants in the amount of $500,000
approved by the State for the purpose of providing funds for the acquisition of
personal property included in the Project Facilities and related improvements,
which will be available on or about April 1, 1996.
"State Loan Note" means the revenue note issued by the Lessor to
evidence its limited obligation to repay a loan made to the Lessor by the
Director in the aggregate principal amount of $6,000,000.
Section 1.3. INTERPRETATION. Any reference herein to the
Lessor, to the Legislative Authority or to any member or officer of either
includes entities or officials succeeding to their respective functions, duties
or responsibilities pursuant to or by operation of law or lawfully performing
their functions.
Any reference to a section or provision of the Constitution of
the State or the Act, or to a section, provision or chapter of the Ohio Revised
Code or to any statute of the United States of America, includes that section,
provision or chapter as amended, modified, revised, supplemented or superseded
from time to time; provided, that no amendment, modification, revision,
supplement or superseding section, provision or chapter shall be applicable
solely by reason of this provision, if it constitutes in any way a limitation,
restriction or impairment of the rights or obligations of the Lessor or the
Lessee under this Lease or the rights of any other person under this Lease.
Unless the context indicates otherwise, words importing the
singular number include the plural number, and vice versa; the terms "hereof",
"hereby", "herein", "hereto", "hereunder" and similar terms refer to this
Lease; and the term "hereafter" means after, and the term "heretofore" means
before, the date of execution and delivery of this Lease. Words of any gender
include the correlative words of the other genders, unless the sense indicates
otherwise.
Section 1.4. CAPTIONS AND HEADINGS. The captions and headings
in this Lease are solely for convenience of reference and in no way define,
limit or describe the scope or intent of any Articles, Sections, subsections,
paragraphs, subparagraphs or clauses hereof.
(End of Article I)
- 10 -
<PAGE> 15
ARTICLE II
LEASE OF PROJECT
Section 2.1. LEASE; LEASE TERM; POSSESSION AND USE. Upon and
subject to the provisions herein set forth, the Lessor does hereby lease to the
Lessee, and the Lessee does hereby lease from the Lessor, the Project for the
Lease Term. Possession of the Project shall be delivered by the Lessor and
accepted by the Lessee on the Completion Date; provided that from and after the
commencement of the Lease Term, the Lessee and its agents and independent
contractors shall have the right to enter upon the Project Site for purposes of
inspection and taking actions in accordance with this Lease to (i) determine
that acquisition, construction, improvement, furnishing, equipping and
development of the Project is being made in accordance with the Project Service
Agreement and the Plans and Specifications and (ii) prepare to occupy and use
the Project. Upon delivery of possession and during the Lease Term, the Lessee
shall have the right to use the Project for the Project Purposes.
Section 2.2. LOAN AGREEMENTS. The Lessee hereby approves the
Loan Agreements, and all commitments of the Lessor, and the Lessee thereunder,
acknowledges all rights of the City, the County, CDP, the Director, the Project
Bond Trustee, the Holders and the County Bond Holders under the Loan
Agreements, and all obligations of the Lessor thereunder, and, for itself and
its successors and assigns and any permitted sublessees, covenants and agrees
to the extent set forth in the Loan Agreements, to abide by all covenants and
agreements set forth therein with respect to the Lessee and covenants and
agrees, subject to the express provisions of this Lease, to cooperate with the
Lessor to, and not impair the ability of the Lessor to, satisfy its obligations
thereunder and not to impede the City, the County, CDP, the Director, the
Project Bond Trustee, any Holder or any County Bond Holder in the exercise of
their respective rights thereunder.
Section 2.3. REPRESENTATIONS OF THE LESSOR. The Lessor
represents that: (a) it is duly organized and validly existing under the laws
of the State; (b) it is not in violation of or in conflict with any provisions
of the laws of the State or any agreement or instrument to which the Lessor is
a party or by which it is bound which would impair its ability to carry out its
obligations contained in this Lease and the Project Service Agreement; (c) it
is empowered to enter into the transactions contemplated by this Lease and the
Project Service Agreement; and (d) it has duly authorized the execution,
delivery and performance of this Lease and the Project Service Agreement.
Section 2.4. REPRESENTATIONS OF THE LESSEE. The Lessee
represents that:
(a) It is a corporation for profit organized and
existing under the laws of the State.
(b) It has full corporate power and authority to
execute, deliver and perform this Lease and to enter into and
carry out the transactions contemplated by this Lease. That
execution, delivery and performance, and such entering into and
carrying out of those transactions, do not, and will not, violate
any provision of law applicable to the Lessee or the Lessee's
Articles of Incorporation or its Code of Regulations and do not,
and will not, conflict with or result in a default under any
agreement or instrument to which the Lessee is a party or by
which it is bound, which would impair its ability to carry out
its obligations contained in this Lease or resulting from those
transactions. This Lease has, and to the extent required the
transactions contemplated by this Lease have, by proper action,
been duly
- 11 -
<PAGE> 16
authorized, and this Lease has been duly executed and delivered
by the Lessee and all steps necessary have been taken to
constitute this Lease a valid and binding obligation of the
Lessee.
(c) The provision of financial assistance to be made
available to it with respect to the Project, including the terms
of this Lease and the commitments therefor made by the Lessor,
have induced the Lessee to continue, within the boundaries of the
Lessor, that business of the Lessee to be conducted by use of the
Project and such business will preserve jobs and employment
opportunities within the jurisdiction of the Lessor.
(d) It presently intends to use or operate the Project
during the Lease Term in a manner consistent with the Project
Purposes and knows of no reason why the Project will not be so
operated. If, in the future, there is a cessation of that
operation, it will use its best efforts to resume that operation
or accomplish an alternative use by the Lessee or others which
will be consistent with the Act and this Lease.
Section 2.5. RECORDATION. The Lessee, at its expense, shall
cause financing statements, including all necessary amendments, supplements and
appropriate continuation statements, to be filed, and to be kept filed, in such
manner and in such places as may be required, and to take such other actions,
in order to establish, preserve and protect the security interest created by
this Lease with respect to the Moveable Equipment as a valid, perfected
security interest therein (including without limitation, any such properties
acquired after the execution hereof), and without limiting the generality of
the foregoing, will execute, deliver and cause to be recorded such financing
statements as shall be necessary or appropriate in connection with the
acquisition, construction, furnishing, equipping and otherwise developing of
the Project. If requested by the Lessor but in each case not more than once in
each calendar year, the Lessee, at its expense, will furnish or cause to be
furnished to the Lessor an opinion of Independent Counsel, specifying that the
action required to be taken by the Lessee to comply with this Section 2.5 since
the date of this Lease or the date of the most recent such opinion has been
taken or stating that no such action is necessary.
(End of Article II)
- 12 -
<PAGE> 17
ARTICLE III
RENTAL PAYMENTS AND ADDITIONAL PAYMENTS
Section 3.1. RENTAL PAYMENTS. The Lessee shall make Rental
Payments to the Lessor, whether or not construction of the Project has been
completed, on or before each Rental Payment Date in immediately available funds
commencing with the last business day of June, 1997 in the respective amounts
shown for each such month in Exhibit C hereto.
Section 3.2. ADDITIONAL PAYMENTS. The Lessee agrees to make
Additional Payments as follows:
(a) To the Lessor, payment for or reimbursement of any
and all costs, expenses and liabilities incurred by the Lessor in
satisfaction of any obligations of the Lessee hereunder not
performed by the Lessee.
(b) To the Lessor, reimbursement for or prepayment of
expenses paid or to be paid by the Lessor and incurred as a
result of a request by the Lessee or in enforcing performance by
or the obligations of the Lessee under this Lease.
Section 3.3. PLACE OF PAYMENTS. The Lessee shall make all
Rental Payments and Additional Payments directly to the Lessor at its principal
office or at such other office for the delivery of such payments as the Lessee
is given notice of in writing (at least five business days before the
applicable payment) in accordance with Section 12.3 hereof.
Section 3.4. OBLIGATIONS UNCONDITIONAL. The obligations of the
Lessee to make Rental Payments, Additional Payments and any other payments
required hereunder shall be absolute and unconditional and the Lessee shall
make such payments without abatement, diminution or deduction regardless of any
cause or circumstances whatsoever including, without limitation, any defense,
set-off, recoupment or counterclaim which the Lessee may have or assert against
the Lessor or any other Person. The Lessee (i) will not suspend or discontinue
any such payments, (ii) will perform and observe all of its other agreements
contained in this Lease and (iii) will not terminate this Lease except as
expressly permitted hereby, for any cause including, without limitation,
failure to complete the Project Facilities, failure of title to the Project or
any portion thereof, any acts or circumstances that may constitute failure of
consideration, destruction of or damage to the Project, commercial frustration
of purpose, any change in the tax or other laws or administrative rulings of or
administrative actions by or under authority of the United States of America,
the State or any political subdivision thereof or any failure of the Lessor,
any Lender, any Holder, any County Bond Holder or any other person to perform
and observe any agreement, whether express or implied, or any duty, liability
or obligation arising out of or connected with this Lease, the Project Service
Agreement, the Loan Agreements or otherwise. The obligations and liabilities
of the Lessee hereunder shall in no way be released, discharged or otherwise
affected for any reason, including, without limitation: (i) any defect in the
condition, quality or fitness for use of the Project or any part thereof; (ii)
any damage to, removal, abandonment, salvage, loss, scrapping or destruction of
or any requisition or taking of the Project or any part thereof; (iii) any
restriction, prevention or curtailment of or interference with any use of the
Project or any part thereof; (iv) any defect in title to the Project or any
encumbrance on such title; (v) any change, waiver, extension, indulgence or
other action or omission in respect of any obligation or liability of Lessor;
(vi) any bankruptcy, insolvency, reorganization, composition, adjustment,
dissolution, liquidation or other like proceeding relating to Lessor or Lessee
or any action taken with respect to this Lease by any trustee or receiver of
Lessor or Lessee, or by any court, in any such proceeding; (vii) any claim
which Lessee has or
- 13 -
<PAGE> 18
might have against any person, including, without limitation, Lessor, any
Lender, any Holder or any County Bond Holder; (viii) any failure on the part of
Lessor or any other person to perform or comply with any of the terms hereof or
of any other agreement, including, without limitation, any Loan Agreement; (ix)
any invalidity or unenforceability or disaffirmance of this Lease or any
provision hereof; or (x) any other occurrence whatsoever, whether similar or
dissimilar to the foregoing, whether or not Lessee shall have notice or
knowledge of any of the foregoing; provided, however, that this provision does
not represent a waiver of any claims that Lessee may have against Lessor, any
Lender, any Holder or any County Bond Holder. This Lease shall be
non-cancelable by Lessee and, to the extent permitted by law, Lessee waives all
rights now or hereafter conferred by statute or otherwise to quit, terminate or
surrender this Lease or the Project Facilities, or to any diminution or
reduction of Rental Payments or Additional Payments payable by Lessee
hereunder. All payments by Lessee made hereunder as required hereby shall be
final, and, except as provided herein, Lessee will not seek to recover any such
payment or any part thereof from Lessor or any other person. If for any reason
whatsoever this Lease shall be terminated in whole or in part by operation of
law or otherwise, Lessee will nonetheless pay an amount equal to each Rental
Payment and any other amount payable by Lessee hereunder at the time and in the
manner that such Rental Payment or other payment would have become due and
payable under the terms of this Lease if it had not been terminated in whole or
in part. Nothing contained in this Section shall be construed to release the
Lessor from the performance of any of the agreements on its part contained in
this Lease, and in the event the Lessor should fail to perform any such
agreement on its part, the Lessee may institute such action against the Lessor
as the Lessee may deem necessary to compel performance or recover its damages
for nonperformance so long as such action shall not be inconsistent with the
agreements of the Lessee contained in the preceding sentences. The Lessee may,
however, at its own cost and expense and in its own name or, to the extent
lawful, in the name of the Lessor, prosecute or defend any action or proceeding
or take any other action involving third Persons which the Lessee deems
reasonably necessary in order to secure or protect its right of possession,
occupancy and use hereunder, and in such event the Lessor hereby agrees to
cooperate fully with the Lessee, but at the Lessee's expense, and to take all
action necessary to effect the substitution of the Lessee for the Lessor in any
such action or proceeding if the Lessee shall so request.
Section 3.5. PAST DUE RENT, ADDITIONAL PAYMENTS AND RENTALS. If
the Lessee fails to make any Rental Payment, Additional Payment or other
payment hereunder, the item in default shall continue as an obligation of the
Lessee until such payment shall have been fully paid. During the default
period, the portion of any such Rental Payment, any Additional Payment or other
payment in default shall bear interest at the Interest Rate for Advances until
such amount (including all such interest) is paid.
Section 3.6. ASSIGNMENT OF LEASE. The Lessee acknowledges that
the Lessor may sell, assign, transfer and convey all of its right, title and
interest in and to this Lease, including the Rental Payments, to the Project
Bond Trustee. The Lessee further acknowledges that, upon the execution and
delivery of the Assignment of Lease, the Lessor, as assignor, will have neither
any interest under this Lease, nor any obligations or rights with respect to
this Lease, and all such interest, obligations and rights of the Lessor
hereunder shall be vested irrevocably in the Project Bond Trustee, as assignee.
Section 3.7. NO ABATEMENT OF RENTAL PAYMENTS. Except as
specifically provided in this Lease to the contrary, no action pursuant to any
provision of this Lease shall abate in any way payment of Rental Payments or
any Additional Payments payable hereunder.
(End of Article III)
- 14 -
<PAGE> 19
ARTICLE IV
LESSEE'S OWN PERSONAL PROPERTY
Section 4.1. INSTALLATION OF THE LESSEE'S OWN PERSONAL PROPERTY.
From time to time, in its sole discretion and at its own expense, the Lessee
may, and may permit any of its licensees or sublessees to, install personal
property on the Project Site or in the Project Facilities, including without
limitation, personal property which becomes in whole or in part a fixture when
installed. All personal property so installed shall remain the sole property
of the Lessee or the licensee or sublessee, as the case may be, unless it is a
fixture necessary to the structural integrity of the Project Facilities (other
than a trade fixture) or is essential for the faithful and efficient
administration, maintenance and operation of the Project Facilities, in which
case such personal property shall become and be deemed to be property of the
Lessor and part of the Project, and with that exception, the Lessor and the
Lenders shall have no interest in that personal property. Any damage to the
Project Facilities caused by the removal of the personal property or fixtures
which remain the property of the Lessee shall be repaired by the Lessee at the
Lessee's sole expense so as to restore the Project Facilities to their original
condition.
The personal property which is the sole property of the Lessee or
a licensee or sublessee may be modified or removed at any time, but without
causing any damage to the Project, if there is then no Event of Default under
this Lease, and if an Event of Default then exists, may be modified or removed
if a certificate of the Authorized Lessee Representative has been delivered to
the Lessor and the Project Bond Trustee stating that such modification or
removal will not prevent the Project from being operated or used for the
Project Purposes.
Nothing contained in this Lease shall prevent the Lessee or any
of its licensees or sublessees from acquiring personal property (other than any
personal property purchased pursuant to Section 4.7 of the Project Agreement)
under a lease or under a conditional sale, installment purchase or lease sale
contract, or subject to a vendor's lien or security agreement, as security for
the unpaid portion of the purchase price thereof or to prevent a vendor so
secured from exercising its remedies; provided, however, that no lien or
security interest shall attach to any part of the Project.
The Lessee shall pay or cause to be paid, as they become due, the
purchase price of, and all costs and expenses in connection with, the
acquisition and installation of any personal property installed by the Lessee
or any of its licensees or sublessees pursuant to this Section. The Lessee
may, at its expense, in good faith contest those purchase prices, costs and
expenses. In the event of a contest, the Lessee may permit the purchase
prices, costs and expenses contested to remain unpaid during the period of the
contest and any appeal unless the Lessor shall notify the Lessee that, in the
reasonable opinion of Lessor, by nonpayment the interests of the Lessor or the
Lessee in the Project Site or the Project Facilities will be materially
endangered or the Project Site or the Project Facilities or any part of either
or both will be subject to imminent loss or forfeiture, in which event those
purchase prices, costs and expenses shall be paid promptly by the Lessee. The
Lessor will cooperate fully with the Lessee, but at the Lessee's expense, in
any such contest.
From time to time, the Lessor shall execute and deliver such
documents as the Lessee may properly and reasonably request to evidence that
particular items of personal property installed on or removed from the Project
pursuant to this Section, are not part of the Project for purposes of this
Lease or that fixtures have been removed as provided in this Lease. In the
event any removal of property pursuant to this Section causes damage to any
portion of
- 15 -
<PAGE> 20
the Project, the Lessee shall restore the same or repair such damage to the
condition existing prior to such removal at its sole expense.
The Lessee shall execute and deliver such documents (if any) as
the Lessor may properly and reasonably request in connection with any action
taken by the Lessee in conformity with this Section. Any action taken by the
Lessee pursuant to this Section shall not entitle the Lessee to any abatement
or diminution of the Rental Payments or Additional Payments payable hereunder.
Upon the termination of this Lease, any such personal property
not removed from the Project Site by the Lessee pursuant to this Section 4.1
shall become the exclusive property of the Lessor.
(End of Article IV)
- 16 -
<PAGE> 21
ARTICLE V
MAINTENANCE AND USE OF PROJECT
Section 5.1. COMPLIANCE WITH LEGAL AND INSURANCE REQUIREMENTS.
The Lessee, at its expense, will promptly comply or cause compliance with all
Legal Requirements and Insurance Requirements, and will procure, maintain and
comply (or cause compliance) in all material respects with all permits,
licenses and other authorizations required for any use of the Project or any
part thereof then being made or anticipated to be made by the Lessee, and for
the proper operation and maintenance of the Project or any part thereof during
the Lease Term, and will comply in all material respects with any instruments
of record as of the date of initial delivery of the Project Bonds in force and
currently burdening the Project or any part thereof or hereafter approved in
writing by the Lessee. The Lessee may, at its expense and after prior notice
to the Lessor, contest by appropriate legal proceedings conducted in good faith
and with due diligence any Legal Requirement and postpone compliance therewith
pending the completion of such contest provided that such postponement does
not, in the reasonable opinion of the Lessor, subject the Project, or any part
thereof, to imminent loss or forfeiture or subject the Lessor to any criminal
liability.
Section 5.2. MAINTENANCE AND USE OF PROJECT.
(a) Subject to Article VII hereof, the Lessee, at its
expense, will keep or cause the Project to be kept in good
repair, working order and condition (ordinary wear and tear
excepted) and will make all necessary or appropriate repairs,
replacements and renewals thereof, interior, exterior, structural
and non-structural, ordinary and extraordinary and foreseen and
unforeseen so that the Project can be used for the Project
Purposes.
(b) The Lessee will not do, or permit to be done, any
act or omission or thing which might materially impair the value
or usefulness of the Project or any part thereof, will not commit
or permit any material waste of the Project or any part thereof,
and will not permit any unlawful occupation, business or trade to
be conducted on the Project or any part thereof.
(c) The Lessee shall also, at its expense, promptly
comply with all rights of way or use, privileges, franchises,
servitudes, licenses, easements, tenements, hereditaments and
appurtenances forming a part of the Project and all instruments
creating or evidencing the same, in each case, to the extent that
(i) compliance therewith is required of the Lessee under the
terms thereof and (ii) the same are currently of record or
subsequently approved in writing by the Lessee.
(d) The Lessee shall remove regularly all trash, litter
and debris from the Project Site at the Lessee's expense and
shall maintain the Project Site in a neat and safe manner.
(e) The Lessee agrees to permit the Lessor and its
employees and agents to enter upon the Project at all reasonable
times to inspect the same, but no such inspection shall
unreasonably interfere with the Lessee's operation and use of the
Project and shall be subject to reasonable safety and security
regulations, and no such inspection shall be conducted without
reasonable prior notice and the failure of the Lessor to make any
such inspection shall not impose any liability upon either for
- 17 -
<PAGE> 22
its failure to do so. The Lessee shall have the right to have
its representative in attendance at any such inspection.
(f) The Lessee covenants and agrees to obtain and
maintain within the Project Facilities all moveable equipment,
furnishings and other personal property (including any personal
property which upon installation becomes a fixture) acquired by
the Lessor, or acquired pursuant to disbursement requests
submitted pursuant to Section 4.2 of the Project Service
Agreement, and any property acquired pursuant to this Article V
as a substitution or replacement for any such property
(collectively, "Lessor Personal Property"). The Lessee further
covenants and agrees (notwithstanding clause (ii) of the first
sentence of Section 5.4 hereof) to replace promptly any worn out
or obsolete Lessor Personal Property with other personal property
of similar value and use if the worn out or obsolete Lessor
Personal Property is essential for the efficient or proper
operation or maintenance of the Project Facilities for the
Project Purposes in accordance herewith and as it is then being
used (the "Essential Lessor Personal Property"). The Lessee
further covenants and agrees that no Essential Lessor Personal
Property will be removed or relocated without securing a
replacement therefor. The Lessee further agrees that title to
any Lessor Personal Property acquired in replacement of Lessor
Personal Property pursuant to this Section, or in substitution
therefor pursuant to Section 5.4 hereof, shall vest immediately
in the Lessor and such personal property so acquired shall be and
be considered for all purposes a part of the Project Facilities
as if originally a part thereof. Without limiting the foregoing,
the Lessee shall promptly upon such replacement or substitution
deliver a bill of sale or other similar evidence of title to the
Lessor, and Lessor shall promptly deliver to the Lessee a release
of any interest in any Lessor Personal Property so replaced by
the Lessee. Any action taken by the Lessee pursuant to this
Section shall not entitle the Lessee to any abatement or
diminution of the Rental Payments or any Additional Payments
payable hereunder.
Section 5.3. ALTERATIONS, ADDITIONS AND IMPROVEMENTS. The
Lessee may, in its discretion and at its expense, make from time to time any
alterations, additions, or improvements to the Project which it may deem
desirable for its business purposes provided that no such alterations,
additions, or improvements shall adversely affect the structural integrity or
strength of any improvements constituting a part of the Project Facilities,
substantially reduce the value of the Project or materially interfere with the
use and operation thereof as a headquarters building. All alterations,
additions, and improvements so made to the Project Facilities by the Lessee
shall become and be deemed to be the property of Lessor and constitute a part
of the Project. At the end of the Lease Term the Lessee shall have no
obligation, but may, in its discretion and at its expense, remove any such
alteration, addition or improvement, provided that upon such removal the Lessee
is required to restore the Premises to their original condition. Any free
standing buildings or other free standing structures erected and paid for by
the Lessee shall be the property of the Lessee but shall be removed at the
Lessee's expense at the expiration or termination of the Lease Term unless the
Lessor shall have agreed to accept such buildings or structures in which event
they need not be removed and shall become property of the Lessor at the
conclusion of the Lease Term.
Section 5.4. REMOVALS AND SUBSTITUTIONS. Subject to the
requirements of Section 5.2 with respect to Essential Lessor Personal Property,
in any instance where the Lessee, in its reasonable discretion, determines that
any item of Lessor Personal Property shall have become inadequate, obsolete,
worn-out, unsuitable, undesirable or unnecessary or should otherwise be
replaced, the Lessee may remove such items; provided, that such removal (taking
into account any substitutions) shall not impair the operation of the Project
and that any damage caused to any portion of the Project as a result of such
removal is restored or repaired at Lessee's sole
- 18 -
<PAGE> 23
cost; and provided, further, that the Lessee (i) substitutes and installs other
items of property having equal or greater value (but not necessarily having the
same function in the operation of the Project), which such substituted property
shall be free from liens and encumbrances and shall be the property of Lessor
and become part of the Project, without taking account of personal property
previously designated to be the property of Lessor as Lessor Personal Property
as required by Section 5.2 or 5.4 hereof, or (ii) in the case of removal of
property without substitution, promptly pays to the Lessor an amount equal to
(A) if the removed property is sold or scrapped, the proceeds of such sale or
the scrap value thereof, (B) if the removed property is used as a trade-in for
property not to be installed as part of the Project, the trade-in credit
received by the Lessee, or (C) in the case of the retention of such removed
property by the Lessee for use at locations other than at the Project, the Fair
Market Value, less the Excess Value, of such property. If, prior to or
concurrently with any such removal, the Lessee shall have acquired and
installed personal property with its own funds which has become a part of the
Project Facilities, the Lessee may credit the amount so spent, or, if such
property was acquired more than six (6) months prior to the date on which the
credit is to be made, the Fair Market Value of such property, against the
requirement that it either substitute other property or make payment under this
Section on account of such removal, provided that such previously acquired and
installed property meets the requirements for substituted property under clause
(i) of the next preceding sentence of this Section. "Excess Value" shall mean
the amount by which the then Fair Market Value of replacement Lessor Personal
Property exceeds the Fair Market Value of replaced Lessor Personal Property at
the time of its replacement. The Authorized Lessee Representative shall
promptly report to the Lessor each such removal, substitution, sale or other
disposition, shall take such actions as are required to vest title to any such
replacement or substitution property (including any property substituted
pursuant to the next preceding sentence) in the Lessor, and shall pay to the
Lessor such amounts as are required by the provisions of clause (ii) of the
second preceding sentence of this Section (but after taking into account any
credits available pursuant to the next preceding sentence) to be paid to the
Lessor promptly after the sale, trade-in or other disposition requiring such
payment; provided, however, that no such payment need be made until the amount
to be paid to the Lessor on account of all such sales, trade-ins or other
dispositions not previously paid aggregates at least $100,000. Except as
otherwise provided in the Project Bond Indenture, any amounts so paid shall be
made available to the Lessee for use for, alterations, additions or
improvements to the Project, or the acquisition and installation of personal
property within the Project Facilities, which alterations, additions,
improvements or personal property shall be the property of Lessor and become a
part of the Project for all purposes of this Lease, and the Lessee shall
promptly deliver to the Lessor a bill of sale or other appropriate evidence of
title thereto. Upon the request of the Lessee, the Lessor shall promptly
execute and deliver to the Lessee appropriate instruments releasing any
property removed pursuant to this Section from the Project and this Lease.
Section 5.5. INDEMNIFICATION. In order to induce the Lessor to
undertake the duties, obligations and responsibilities set forth herein, the
Lessee releases the Lessor from, agrees that the Lessor shall not be liable
for, and indemnifies the Lessor against, all liabilities, obligations, claims,
damages, costs and expenses (including, without limitation, reasonable
attorney's fees and expenses except as may be limited by law or judicial
decision or order) imposed upon, incurred or asserted against the Lessor on
account of: (a) ownership of any interest in the Project; (b) any loss or
damage to property or any accident or injury to or death of or loss by any
person that may be occasioned by any cause whatsoever pertaining to activities
pursuant to Sections 4.1, 5.3 and 5.4 of this Lease or the maintenance,
operation and use of the Project or any part thereof or the adjoining
sidewalks, curbs, vaults and vault space, if any, streets, alleys or ways; (c)
any use, disuse or condition of the Project or any part thereof or the
adjoining sidewalks, curbs, vaults and vault space, streets, alleys or ways, or
arising from any act or failure to act by the Lessee, or any of its agents,
contractors, servants, employees, sublessees or licensees; (d) any failure of
compliance of Lessee with the provisions of Section 4115.05 and
- 19 -
<PAGE> 24
any other applicable provision of Chapter 4115, Ohio Revised Code; (e) without
limitation on the provisions of Section 5.6 hereof, all risk of loss or expense
arising out of the existence in, on or about the Project of Hazardous
Materials, whether arising prior to or during the Lease Term and regardless of
whether the same arise out of the release by the Lessee of such materials, and
including without limitation civil and criminal fines and penalties, and (f)
any claim, action or proceeding brought with respect to the matters set forth
in (a), (b), (c), (d) and (e) above. The Lessee shall promptly notify the
Lessor of any knowledge it may receive of any risk of loss or expense under
clause (e) of the next preceding sentence.
The Lessee agrees to indemnify the Lessor for and to hold it
harmless against all liabilities, claims, costs and expenses incurred without
negligence or bad faith on the part of the Lessor on account of any action
taken or omitted to be taken by the Lessor in accordance with the terms of this
Lease or any related instruments or any action taken at the request of or with
the consent of the Lessee, including the costs and expenses of the Lessor in
defending itself against any such claim, action or proceeding brought in
connection with the exercise or performance of any of its powers or duties
under this Lease or any related instrument.
The Lessee agrees to indemnify the Lessor for and to hold it
harmless against all liabilities, claims, costs and expenses incurred without
negligence or bad faith on its part arising from the issuance, sale, trading or
redemption or purchase of the Bonds, or performance by the Lessor of its
obligations under the Project Bond Indenture with respect to, the Project
Bonds, and the provision by the Lessee of any information or certification
furnished in connection therewith concerning the Project Bonds, the Project or
the Lessee.
In case any action or proceeding is brought against the Lessor in
respect of which indemnity may be sought hereunder, the Lessor promptly shall
give notice of that action or proceeding to the Lessee, and the Lessee upon
receipt of that notice shall have the obligation and the right to assume the
defense of the action or proceeding; provided, that failure to give that notice
shall not relieve the Lessee from any of its obligations under this Section
except to the extent that such failure prejudices the defense of the action or
proceeding by the Lessee. At its own expense, an indemnified party may employ
separate counsel and participate in the defense. The Lessee shall not be
liable for any settlement made without its consent.
The indemnifications set forth above are intended to and shall
include the indemnification of all affected officials, directors, officers and
employees of the Lessor. Those indemnifications are intended to and shall be
enforceable to the full extent permitted by law and shall survive the
termination or expiration of this Lease.
Section 5.6. ENVIRONMENTAL MATTERS. (a) Throughout the Lease
Term, Lessee or its employees, contractors or agents shall
(i) not use or occupy or permit the Project Site
to be used or occupied, nor do or permit anything to be
done in or on the Project Site, in whole or in part, which
will cause or be apt to cause structural damage to the
Project Site, or will constitute a public or private
nuisance or will cause pollution or contamination of the
air, water and/or ground or will violate any applicable
Environmental Requirements with respect to the Project
Site.
(ii) not permit any material waste, damage or
injury to the Project Site.
(iii) not unlawfully store at, dispose of, emit or
release from, or locate, spill or leak in, upon, over or
through the Project Site any toxic or Hazardous
- 20 -
<PAGE> 25
Material waste, substance or material of any kind or nature,
including without limitation, asbestos and radon.
Notwithstanding the foregoing, the Lessee shall not be
deemed to be in default under this Section 5.2(a) for any
violation of this subsection which does not require an
investigation or remediation under any federal, state or local
statute, regulation, ordinance, order, action, policy or common
law.
(b) Lessee, its successors and assigns agree to
indemnify, defend, reimburse and hold harmless the Lessor from
and against any and all Environmental Damages arising from the
presence of Hazardous Materials upon, about or beneath the
Project Site or migrating to or from the Project Site, or arising
in any manner whatsoever out of the violation of any
Environmental Requirements pertaining to the Project Site and
activities thereon, or the breach of any warranty or covenant or
the inaccuracy of any representation of Lessee contained in this
Lease. Moreover, Lessee agrees to indemnify the Lessor for any
and all Environmental Damages which are incurred by the Lessor
which shall include, but not be limited to, the burden and
expense of defending all claims, suits and administrative
proceedings, even if such claims, suits or proceedings are
groundless, false or fraudulent, and conducting all negotiations
of any description, and paying and discharging, when and as the
same become due, any and all judgments, penalties or other sums
due against the Lessor. The Lessor, at its sole expense, may
employ additional counsel of its choice to associate with counsel
representing Lessee.
(c) In the event Lessee shall become aware of or receive
notice or other communication concerning any actual, alleged,
suspected or threatened violation of Environmental Requirements,
or liability of Lessee for Environmental Damages in connection
with the Project Site or past or present activities of any person
thereon, or that any representation set forth in this agreement
is not or is no longer accurate, including but not limited to
notice or other communication concerning any actual or threatened
investigation, inquiry, lawsuit, claim, citation, directive,
summons, proceeding, complaint, notice, order, writ, or
injunction, relating to same, then Lessee shall deliver to the
Lessor, within ten days of the receipt of such notice or
communication by Lessee, a written description of said violation,
liability, correcting information, or actual or threatened event
or condition, together with copies of any documents evidencing
same to the Notice Address for the Lessor. Receipt of such
notice shall not be deemed to create any obligation on the part
of Lessor to defend or otherwise respond to any such
notification. Lessee's obligations and duties, which are set
forth in this section, to the Lessor shall continue unabated
until the Lessor has no environmental obligations or liabilities
under any local, state or federal laws and any rules or
regulations thereunder.
Section 5.7. PERFORMANCE BY LESSOR OF LESSEE'S REQUIREMENTS. If
the Lessee shall fail to do or perform any act or thing required to be done by
it under the terms of this Lease, the Lessor may, at its sole option, after
reasonable notice to the Lessee with respect thereto and reasonable opportunity
afforded to the Lessee to do and perform the same, itself or by its employees,
enter the Project and do and perform the same on the Lessee's behalf and at the
Lessee's cost and expense; and the Lessee shall, forthwith upon receipt of
notice of the amount of such cost and expense, pay the same to the Lessor as
Additional Payments under Section 3.2, together with interest thereon at the
Interest Rate for Advances, from the date of each payment by the Lessor to the
date of repayment (including such interest) by the Lessee.
(End of Article V)
- 21 -
<PAGE> 26
ARTICLE VI
TAXES, MECHANICS' LIENS AND INSURANCE
Section 6.1. TAXES, OTHER GOVERNMENTAL CHARGES AND UTILITY
CHARGES. This is a net lease and, in addition to paying the Rental Payments
and Additional Payments hereunder, except to the extent that certain costs are
paid pursuant to Section 4.2 of the Project Service Agreement, Lessee shall be
responsible for and shall pay any and all expenses of owning, operating,
maintaining and repairing the Project incurred from and after the date hereof
until the expiration of the Lease Term and any and all other costs, charges,
assessments, expenses and taxes of every kind and character, ordinary or
extraordinary, arising out of or incurred in connection with the use or
occupancy of the Project or the execution, delivery and performance by Lessee
of this Lease, whether or not such cost, charge, assessment, expense or tax is
expressly referred to herein, so as to allow the Lessor to receive the Rental
Payments as net rent. Without limiting the generality of the foregoing, the
Lessee shall pay, as the same respectively become due, all taxes, assessments,
whether general or special, and governmental charges of any kind whatsoever
that may at any time during the Lease Term be lawfully assessed or levied
against or with respect to the Project (including, without limitation, any
taxes levied upon or with respect to the revenues, income or profits of the
Lessee from the Project) which, if not paid, may become or be made a lien on
the Project or any part thereof, or a charge on such revenues, income and
profits therefrom, and all utility and other charges incurred in the operation,
maintenance, use, occupancy and upkeep of the Project during the Lease Term;
provided, that with respect to special assessments or other governmental
charges that lawfully may be paid in installments over a period of years, the
Lessee shall be obligated to pay only such installments as are required to be
paid during the Lease Term.
The Lessee may, at its expense, in good faith contest any such
taxes, assessments and other charges and, in the event of any such contest,
during the period of such contest and any appeal therefrom, may permit the
taxes, assessments or other charges so contested to remain unpaid unless the
Lessor shall notify the Lessee that, in the reasonable opinion of the Lessor,
by nonpayment of any such items the Project or any part of the Project will be
materially affected or the Project or any part thereof will be subject to
imminent loss or forfeiture, in which event such taxes, assessments or charges
shall be paid or provisions for payment by deposit or bonding shall be made
promptly by the Lessee.
Section 6.2. MECHANICS' AND OTHER LIENS. The Lessee shall not
suffer or permit any mechanics' or other liens to be filed or exist (i) against
the Project, nor (ii) against any account or fund in which Rental Payments,
Additional Payments or proceeds of the Bonds, the Notes or the Grants are
deposited, by reason of work, labor, services or materials supplied or claimed
to have been supplied to, for, or in connection with the Project or to the
Lessee or anyone holding the Project or any part thereof through or under the
Lessee, or otherwise; provided, however, that if any such liens shall at any
time be filed, the Lessee shall, within ninety days after notice of the filing
thereof but subject to the right to contest hereinafter set forth, cause the
same to be discharged of record by payment, deposit, bonding, order of a court
of competent jurisdiction or otherwise. The Lessee shall have the right, but
at its own cost and expense, to contest the validity or the amount of any such
lien by appropriate proceedings timely instituted, unless the Lessor shall
notify the Lessee that, in the reasonable opinion of the Lessor, by nonpayment
of any such items any part of the Project or moneys in such an account or fund
will be subject to imminent loss or forfeiture, in which event the Lessee shall
promptly cause such lien to be discharged as aforesaid. Lessor will cooperate
fully with the Lessee, but at the Lessee's expense, in any such contest (except
as any such lien is asserted by the Lessor in which event the Lessee shall have
the right to contest such lien as if it were the owner of the Project).
- 22 -
<PAGE> 27
If the Lessee shall fail to cause such lien to be discharged, or to contest the
validity or amount thereof, within the period aforesaid, then, in addition to
any other right or remedy of the Lessor, the Lessor may, but shall not be
obligated to, discharge the same by deposit or by bonding.
Section 6.3. INSURANCE. The Lessee shall keep the Project
Facilities continuously insured in the amount and with the coverage of the
Required Property Insurance Coverage and shall keep and maintain, with respect
to the Project, Required Public Liability Insurance Coverage, provided, that
through the Completion Date, the Lessee shall provide all-risk builders risk
insurance covering the then insurable value of the Project. Subject to the
next paragraph of this section, such insurance shall name the Lessor, the
Lenders, the Holders and the County Bond Holders as, with respect to Public
Liability Required Insurance Coverage, additional insureds and, with respect to
Required Property Insurance Coverage, the Lessor, the Lenders, the Holders and
the County Bond Holders as loss payees, as their respective interests may
appear, and shall be obtained and maintained by means of policies with
generally recognized, responsible insurance companies qualified to do business
in the State, in conjunction with other companies through an insurance trust or
other arrangements reasonably satisfactory to the Lessor. The insurance to be
provided may be by blanket policies. Each policy of insurance shall be written
so as not to be subject to cancellation or substantial modification without not
less than thirty days' advance written notice to the Lessor and the Lenders.
The Lessee shall deposit with the Lessor certificates or other evidence
reasonably satisfactory to the Lessor that the insurance required hereby has
been obtained and is in full force and effect and, at least 30 days prior to
the expiration of any such insurance, the Lessee shall furnish the Lessor with
evidence reasonably satisfactory to the Lessor that such insurance has been
renewed or replaced.
All policies providing the Required Property Insurance Coverage
shall contain a clause requiring all proceeds resulting from any claim for loss
or damage, if the proceeds of such claim are in excess of $500,000 (increased
on each January 1 by ten percent for each ten percent increase in the Consumer
Price Index Increase not theretofore the subject of such increase), to be paid
to the Lessor or its designee, and any Net Proceeds of insurance providing such
coverage shall be paid and applied as provided in Section 7.2 hereof. The
proceeds of insurance providing Required Public Liability Insurance Coverage
shall be applied toward the extinguishment or satisfaction of the liability
with respect to which such insurance proceeds have been paid.
Section 6.4. WORKERS' COMPENSATION AND UNEMPLOYMENT COVERAGE.
The Lessee shall maintain, or cause to be maintained in connection with the
Project, the workers' compensation and unemployment coverages required of it by
the applicable laws of the State.
Section 6.5. WAIVER OF SUBROGATION. Notwithstanding any other
provision of this Lease to the contrary, it is mutually agreed that the Lessor
shall not be responsible for damage by fire, lightning, windstorm, hail,
explosion, riot, riot attending a strike, civil commotion, aircraft, vehicles,
smoke, vandalism or malicious mischief to the property of the Lessee and the
Lessee shall not be responsible for damage to the property of the Lessor by the
same perils as mentioned above regardless of the negligence of either party.
The Lessee will cause each insurance carrier issuing any policy required by
this Lease to waive all rights of subrogation against the Lessor, the Lenders
and the Holders.
Section 6.6. PAYMENT OF AMOUNTS NOT PAID BY LESSEE. If the
Lessee fails to (i) pay taxes, assessments and other governmental or utility
charges as required by Section 6.1 hereof, (ii) pay or discharge mechanics' or
other liens as required by Section 6.2 hereof, (iii) maintain and keep in force
the insurance required by Section 6.3 hereof or (iv) maintain required workers'
compensation and unemployment coverage as required by Section 6.4 hereof, the
Lessor may (but shall not be obligated to) advance funds to pay any such
required charges or
- 23 -
<PAGE> 28
items after ten business days' prior written notice to the Lessee. Any funds
so advanced shall be payable by the Lessee on demand as Additional Payments
pursuant to Section 3.2 hereof and shall bear interest from the date of
advancement to the date the Lessor is repaid (including such interest) at the
Interest Rate for Advances.
(End of Article VI)
- 24 -
<PAGE> 29
ARTICLE VII
DAMAGE, DESTRUCTION AND CONDEMNATION
Section 7.1. DAMAGE TO OR DESTRUCTION OF PROJECT. In case of
any damage to or destruction of the Project Facilities or any part thereof, the
Lessee will promptly give or cause to be given written notice thereof to the
Lessor and the Lenders generally describing the nature and extent of such
damage or destruction. Unless such damage or destruction is such that the
Lessee shall have certified that it will prepay all remaining Rental Payments
by paying the Discounted Rent and terminate this Lease in accordance with
Article IX hereof, there shall be no abatement or diminution of Rental Payments
and the Lessee shall, whether or not the Net Proceeds of insurance, if any,
received on account of such damage or destruction shall be sufficient for such
purpose, promptly commence and complete, or cause to be commenced and
completed, repair or restoration of the Project Facilities as nearly as
practicable to the value, condition and character thereof existing immediately
prior to such damage or destruction, with such changes or alterations, however,
as the Lessee may deem necessary for proper operation of the Project and to
which the Lessor has consented, which consent shall not be unreasonably
withheld. Notwithstanding the foregoing, Lessee may under certain
circumstances relating to damage or destruction terminate this Lease and/or
acquire the Project as set forth in Article IX.
Section 7.2. USE OF INSURANCE PROCEEDS. In connection with the
repair or restoration of the Project Facilities pursuant to Section 7.1 hereof,
Net Proceeds of Required Property Insurance Coverage not in excess of $500,000
(increased on each January 1 by ten percent for each ten percent increase in
the Consumer Price Index Increase not theretofore the subject of such increase)
shall be paid to the Lessee for application of as much as may be necessary for
such repair and restoration. If such Net Proceeds are in excess of $500,000
(increased on each January 1 by ten percent for each ten percent increase in
the Consumer Price Index Increase not theretofore the subject of such an
increase) the Net Proceeds shall be paid to and held by the Lessor or its
designee, as described in the second paragraph of Section 6.3 hereof, in a
separate insurance loss account, for application of as much as may be necessary
of the Net Proceeds for the payment of the costs of repair, rebuilding or
restoration, either on completion thereof or as the work progresses as directed
by the Lessee or otherwise provided in the Project Bond Indenture. Any balance
of the Net Proceeds held by the Lessor or its designee remaining after payment
of all costs of such repair, rebuilding or restoration shall, except as
otherwise provided in the Project Bond Indenture, be made available to Lessee
for alterations, additions or improvements to the Project thereafter during the
Lease Term.
If, in lieu of repair and restoration, the Lessee has certified
that it will prepay all remaining Rental Payments by paying the Discounted Rent
and terminate this Lease in accordance with Article IX hereof, any Net Proceeds
received by the Lessor or its designee prior to such prepayment shall be
credited against the Discounted Rent payable by the Lessee pursuant to this
Lease, and after such prepayment, no further Rental Payments shall be due
hereunder.
Section 7.3. EMINENT DOMAIN. If title to or the temporary use
of the Project, or any part thereof, shall be taken under the exercise of the
power of eminent domain by any governmental body or by any person, firm or
corporation acting under governmental authority, the Lessee will promptly give
or cause to be given written notice thereof to the Lessor, the Lenders, the
Holders and the County Bond Holders describing the nature and extent of such
taking. Any Net Proceeds received from any award made in such eminent domain
proceedings shall be paid to and held by or on behalf of the Lessor or its
designee in a separate condemnation award account and, unless the taking is
such that the Lessee shall have certified that it will prepay all remaining
Rental Payments by paying the Discounted Rent and terminate
- 25 -
<PAGE> 30
this Lease in accordance with Article IX hereof, shall, except as otherwise
provided in the Project Bond Indenture, be made available to Lessee to be
applied in one of the following ways:
(a) The restoration of the Project Facilities to
substantially the same condition as existing prior to the
exercise of the power of eminent domain;
(b) The acquisition by construction or otherwise of
other improvements acceptable to the Lessor and suitable for the
Lessee's operations on the Project Site (which improvements shall
be deemed property of the Lessor and a part of the Project).
The balance of any net Proceeds remaining after application to (a) and (b)
above shall, except as otherwise provided in the Project Bond Indenture, be
made available to the Lessee for alterations, additions and improvements to the
Project thereafter during the Lease Term.
If the Lessee shall have certified that it will prepay all
remaining Rental Payments by paying the Discounted Rent and terminate this
Lease in accordance with Article IX hereof, any Net Proceeds received from any
award made in such eminent domain proceeding shall be credited against the
Discounted Rent payable by the Lessee pursuant to this Lease, and after such
prepayment no further Rental Payments shall be due hereunder. If the Lessee
shall not have so certified, there shall be no abatement or diminution of
Rental Payments.
Section 7.4. INVESTMENT AND DISBURSEMENT OF NET PROCEEDS. All
moneys received by or on behalf of the Lessor or its designee constituting Net
Proceeds may, pending application, be invested and shall, to the extent to be
used for repair, rebuilding, improvement, restoration, acquisition or
construction, be disbursed as provided in or pursuant to the Project Bond
Indenture and the Project Service Agreement for the investment and disbursement
of moneys in the Proceeds Account of the Project Fund created under the Project
Bond Indenture.
Section 7.5. LESSEE'S OWN PERSONAL PROPERTY. The Lessee or any
permitted assignee or sublessee of the Lessee shall be entitled to the net
proceeds of any insurance claims or eminent domain award for damage or
destruction or taking of its personal property (including with respect to the
net proceeds resulting from any taking, the value to the Lessee, if any,
determined by the court to be represented by the Lessee's leasehold interest).
(End of Article VII)
- 26 -
<PAGE> 31
ARTICLE VIII
FURTHER REPRESENTATIONS AND AGREEMENTS
RESPECTING THE PROJECT
Section 8.1. RIGHT OF ACCESS. The Lessee agrees that
inspections may be made as provided in Section 5.2 hereof. The Lessee further
agrees that the Lessor, the Lenders, the Holders and any County Bond Holder and
their employees and agents shall be provided such access to the Project upon
reasonable notice to the Lessee, as may be reasonably necessary to cause to be
completed the Project Facilities and thereafter for the proper maintenance of
the Project in the event of failure by the Lessee to perform any of its
obligations.
Section 8.2. LESSEE TO MAINTAIN ITS CORPORATE EXISTENCE;
CONDITIONS UNDER WHICH EXCEPTIONS PERMITTED. The Lessee agrees that during the
Lease Term it will maintain its corporate existence, will not dissolve or
otherwise dispose of all or substantially all of its assets and will not
consolidate with or merge into another corporation or permit one or more other
corporations to consolidate with or merge into it; provided, that the Lessee
may, without violating the agreement contained in this Section, consolidate
with or merge into another corporation, or permit one or more other
corporations to consolidate with or merge into it, or sell or otherwise
transfer to another corporation all or substantially all of its assets as an
entirety and thereafter dissolve, provided that if the surviving, resulting or
transferee corporation, as the case may be, is other than the Lessee, such
surviving, resulting or transferee corporation assumes in writing all of the
obligations of the Lessee herein and either obtains the consent of the Lessor
or has a net worth at least equal to that of the Lessee prior to dissolution,
sale, consolidation or merger, and provided further that such consolidation,
merger, sale or transfer does not violate any provision of any other agreement
with any Lender, any Holder or any County Bond Holder to which the Lessee is a
party. Net worth shall be determined in accordance with generally accepted
accounting principles consistently applied.
If consolidation, merger or sale or other transfer is made as
provided in this Section, the provisions of this Section shall continue in full
force and effect and no further consolidation, merger or sale or other transfer
shall be made except in compliance with the provisions of this Section.
Section 8.3. TITLE OF PROJECT SITE. Written evidence as to the
status of title to the Project Site as of the date of delivery of this Lease
has been made available to the Lessee and the Lessor. The Lessee and the
Lessor agree that such title is satisfactory and that all defects in and liens
and encumbrances on such title, as set forth in such evidence as exclusions
from coverage and exceptions, do not materially impair the Lessee's use or the
value of the Project Site.
Section 8.4. NO WARRANTY OF CONDITION OR SUITABILITY. The
Lessor does not make any warranty, either express or implied, as to the
suitability or utilization of the Project for the Project Purposes, or as to
the condition of the Project or whether the Project is or will be suitable for
the Lessee's purposes or needs. Lessor and Lessee agree that the Project is
being leased to Lessee, and Lessee hereby accepts possession of the Project,
"as-is, where-is, with all faults," with no right of set-off or reduction in
the Rental Payments, and that such transaction shall be without representation
or warranty of any kind or nature whatsoever by Lessor, or any officer,
director, employee, agent or attorney of Lessor, or any other party related in
any way to any of the foregoing (all of which parties are collectively referred
to as the "Lessor Parties"), whether express, implied, statutory or otherwise,
including, without limitation, title, warranty of income potential, operating
expenses, uses, condition, merchantability, habitability,
- 27 -
<PAGE> 32
compliance with designs, specifications or legal requirements, absence of
latent defects, or fitness for a particular purpose, and Lessor, for itself and
each of the other Lessor Parties does hereby disclaim and renounce any such
representation or warranty. Nothing in this Section 8.4 shall affect the
representations made by the Lessor under Section 2.3 hereof.
(End of Article VIII)
- 28 -
<PAGE> 33
ARTICLE IX
TERMINATION OF LEASE
Section 9.1. OPTION TO TERMINATE ON PAYMENT OF RENTAL PAYMENTS.
The Lessee shall have the option to terminate this Lease when payment of the
Discounted Rent (as defined in Section 9.2 hereof but exclusive of clause (4)
of that definition) shall have been made to the Lessor. Such option shall be
exercised by the Lessee giving the Lessor, each of the Lenders, the Holders and
the County Bond Holders notice of such termination and, upon such payments or,
to the extent applicable, provision for payments, such termination shall
forthwith become effective.
Section 9.2. TERMINATION OF LEASE ON SUBSTANTIAL CASUALTY OR
CONDEMNATION. If the Project shall have been damaged or destroyed, or title to
or the temporary use of all or substantially all of the Project shall have been
taken under the exercise of the power of eminent domain by any governmental
authority, or other Person acting under governmental authority, to such an
extent that, in the opinion of the Board of Directors of the Lessee, it is not
economically feasible to repair, rebuild, restore or replace the Project to
substantially the condition thereof immediately preceding the damage,
destruction or taking (because for example, without limitation, of the
occurrence of an uninsurable casualty), then, within 90 days following the date
on which the event authorizing that exercise occurred (the date of the
occurrence of any damage or destruction or the date of entry of a final order
in any eminent domain proceeding), the Authorized Lessee Representative shall
provide the Lessor with a copy of the action of the Board of Directors making
such determination and with its certification that (i) it will prepay all of
the remaining Rental Payments by paying the Discounted Rent on the date
required as set forth below, (ii) upon such payment it will terminate this
Lease and (iii) the Lessee has irrevocably taken such steps as are necessary
under the Project Service Agreement to terminate the Project Service Agreement,
in accordance with its terms, on or prior to such date. Copies of those
certificates shall be provided to the Lenders. In the event that such
certification is given, such certifications shall be irrevocable and the Lessee
shall pay the Discounted Rent (less any amounts on deposit with the Lessor or
its designee and available therefor pursuant to Article VII hereof, including
without limitation, the Net Proceeds of Required Property Insurance Coverage or
Net Proceeds of any eminent domain or similar payments) to the Lessor on or
prior to the business day preceding the next Interest Payment Date (as defined
in the Project Bond Indenture) occurring at least 35 days after delivery of the
certification (and all copies thereof) pursuant to the preceding two sentences,
which date shall be specified in the certification of the Authorized Lessee
Representative. The Discounted Rent is irrevocably agreed and acknowledged by
the parties to be the sum of the following amounts (collectively being the
"Discounted Rent" as used and defined herein):
(1) an amount of money which will be sufficient pursuant
to the Project Bond Indenture to pay all outstanding principal of
and premium with respect to the Bonds and to pay any accrued, but
unpaid interest on the Bonds to such Interest Payment Date; and
(2) an amount of money which will be sufficient to pay
all outstanding principal of the Notes plus any interest and
service charges accrued, but unpaid, along with any premium on
the Notes, to such Interest Payment Date; and
- 29 -
<PAGE> 34
(3) an amount of money (or provision therefor
satisfactory to the Lessor) equal to the Additional Payments and
other amounts payable hereunder accrued and to accrue to such
Interest Payment Date; and
(4) an amount of money sufficient to raze the damaged
structures and level and seed the sites of such structures, which
amount shall be placed in a segregated account to be so used
solely for such purpose.
In the event the Net Proceeds of Required Property Insurance Coverage or the
Net Proceeds of any eminent domain or similar payments are received subsequent
to the payment by the Lessee of the Discounted Rent, such Net Proceeds shall be
paid to the Lessee.
The mutual agreements contained in this Section 9.2 are
independent of, and constitute an agreement separate and distinct from, any
other provisions of this Lease and any other agreements between the Lessor and
the Lessee and shall be unaffected by any fact or circumstance which might
impair or be alleged to impair the validity of those other provisions. Upon
acquisition of the Bonds and the Notes by the Lessee, the Bonds, and the Notes
shall be surrendered for cancellation, this Lease shall be terminated (subject
to survival of such provisions hereof as are intended to survive termination of
this Lease), all right, title and interest of the Lessee or the Lessor in or to
the Project will revert to and vest in the Lessor, as the fee owner of the
Project Facilities and the Lessee shall terminate the Project Service
Agreement.
Section 9.3. OPTION TO PURCHASE LESSOR'S INTEREST IN PROJECT.
The Lessee is hereby granted an option to purchase all interests of the Lessor
in the Project upon the termination of the Lease Term pursuant to Section 9.1
or 9.2 of this Lease, or at the expiration of the Lease Term, in any such case,
by payment to the Lessor of the following sums, as applicable.
In the case of a termination pursuant to Section 9.1 of this
Lease or at the expiration of the Lease Term (other than when the termination
or expiration results from the insolvency or bankruptcy of either the
Cleveland-Cuyahoga County Port Authority or the County of Cuyahoga), the Lessee
shall pay to the Lessor the sum of
(x) $100.00; and
(y) an amount of money which is the greater of (a) the
Fair Market Value of the Project (other than the Moveable
Personal Property) minus an amount equal to the future value of
the Lessee's original equity contribution to the acquisition of
Permanent Parcel No. 103-07-036, as shown on the Cuyahoga County
1994 General Tax Duplicate, compounded monthly at an 8% annual
interest rate from the date of the equity contribution to the
date of purchase of the Project or (b) the amount required to
retire in full the Bonds and the Notes plus any interest and
service charges accrued, but unpaid, along with any premium on
the Bonds and the Notes, to the specified purchase date.
In the case of a termination pursuant to Section 9.2 of this
Lease (and assuming with respect to a condemnation proceeding that the Lessee
has not taken steps to initiate or encourage the condemnation proceeding), or
in the case of (a) a termination pursuant to Section 9.1 of this Lease or (b)
at the expiration of the Lease Term and, in the case of either clause (a) or
clause (b), resulting from the insolvency or bankruptcy of either the
Cleveland-Cuyahoga County Port Authority or the County of Cuyahoga, the Lessee
shall pay to the Lessor the sum of
(x) $100.00; and
- 30 -
<PAGE> 35
(y) the amount of money required to retire in full the
Bonds and the Notes plus any interest and service charges
accrued, but unpaid, along with any premium on the Bonds and the
Notes, to the specified purchase date.
Any amount required to the paid by the Lessee pursuant to this
Section 9.3 in order to purchase all interests of the Lessor in the Project
shall be reduced by the amount previously paid by the Lessee pursuant to either
Section 9.1 or Section 9.2 hereof as Discounted Rent (to the extent of clauses
(1) and (2) of that definition) in connection with the termination of the
Lease.
If the Lessee exercises its option to purchase in connection with
its option pursuant to Section 9.2 of this Lease, it shall do so within the
time and in the manner as is provided in that Section. If the Lessee exercises
its option pursuant to this Section, the Lessee shall give written notice to
the Lessor and the Lenders at least six months prior to the purchase date.
Section 9.4. CONVEYANCE ON EXERCISE OF OPTION TO PURCHASE. Upon
exercise by the Lessee of its option under Section 9.3 hereof and upon payment
of all amounts payable by the Lessee in connection therewith, the Lessor will
deliver, or cause to be delivered, to the Lessee such quitclaim deeds, bills of
sale, instruments and other documents conveying to the Lessee all of the
Lessor's interests in the Project, as the Project then exists, subject to
(a) liens and encumbrances, if any, to which title to the
Project was subject at the commencement of the Lease Term;
(b) liens and other encumbrances created by the Lessee or to or
in the creation or suffering of which the Lessee consented or
acquiesced or in the creation of which it participated;
(c) liens and other encumbrances for taxes, governmental
charges or special assessments not then delinquent;
(d) liens and other encumbrances resulting from the failure of
the Lessee to observe or perform any of its covenants, agreements
or obligations under this Lease; and
(e) if the option under Section 9.3 hereof is exercised in
connection with the exercise by the Lessee of its option under
Section 9.2 hereof pursuant to the provisions of Section 9.2(a)
hereof, the rights and title of the condemning authority.
If the option under Section 9.3 hereof is exercised in connection
with the exercise by Lessee of the option under Section 9.2 hereof pursuant to
the provisions of paragraph (a) of that Section, the Lessee, upon payment of
the option price to Lessor, shall be entitled to all insurance proceeds in
connection with the damage or destruction or, at the Lessee's option, the
Lessee shall be entitled to credit such net proceeds against the payment of the
option price.
No further action of the Legislative Authority shall be required
to authorize or to effect the conveyance contemplated in this Section, and upon
the payment by the Lessee of all amounts payable by the Lessee in connection
therewith and upon satisfaction by the Lessee of all other requirements
therefor, the Executive, either alone or together with any other officer or
- 31 -
<PAGE> 36
officers deemed by the Executive to be appropriate, is authorized and directed
hereby to execute and deliver any instruments and documents necessary or
advisable to effect the conveyance.
(End of Article IX)
- 32 -
<PAGE> 37
ARTICLE X
EVENTS OF DEFAULT
Section 10.1. EVENTS OF DEFAULT. Each of the following shall be
an "Event of Default":
(a) The Lessee shall fail (i) to pay in full any Rental
Payment on or prior to any Rental Payment Date and such failure
continues for a period of five (5) calendar days thereafter, or
(ii) to pay in full the Discounted Rent on or prior to the date
established for the payment thereof pursuant to Section 9.2 of
this Lease or (iii) to maintain any of the insurance required by
Section 6.3 of this Lease or fail to maintain the required levels
of insurance for a period of five (5) calendar days.
(b) The Lessee shall fail to make any payment, other
than a Rental Payment or a payment of Discounted Rent, required
to be made under this Lease or the Project Service Agreement,
which failure shall continue for a period of 30 days after
written notice (unless the Lessor shall agree in writing to an
extension of such time prior to its expiration) specifying such
failure and requesting that it be remedied, given by the Lessor
to the Lessee.
(c) The Lessee shall fail to observe and perform any of
its other covenants, conditions or agreements contained herein
for a period of 60 days after written notice (unless the Lessor
shall agree in writing to an extension of such time prior of its
expiration) specifying such failure and requesting that it be
remedied, given by the Lessor to the Lessee; provided, however,
that if such failure is other than the payment of money and is of
such a nature that it cannot be corrected within such 60 day
period, then such failure shall not constitute an Event of
Default so long as the Lessee notifies the Lessor of its
intention to cure such failure as soon as possible after such 60
day period, institutes curative action within such 60 day period,
diligently pursues such action to completion, and cures such
failure within a reasonable period of time, not to exceed 120
days, after such 60 day period.
(d) Any representation or warranty by the Lessee
contained in this Lease is false or misleading in any material
respect.
(e) The Lessee shall: (A) (i) admit in writing its
inability to pay its debts generally as they become due; or (ii)
file a petition in bankruptcy or a petition to take advantage of
any insolvency act; or (iii) make an assignment for the benefit
of creditors; or (iv) consent to the appointment of a receiver
for itself or of the whole or any substantial part of its
property; or (B) file a petition or answer seeking reorganization
or arrangement under the Federal bankruptcy laws or any other
applicable law or statute of the United States of America or any
state thereof; or (C) if a petition in bankruptcy is filed
against it, be adjudicated a bankrupt, or have a court of
competent jurisdiction enter an order or decree appointing,
without the consent of the Lessee, a receiver or trustee for the
Lessee or for the whole or substantially all of its property, or
have a court of competent jurisdiction enter an order or decree
approving a petition filed against it seeking reorganization or
arrangement of the Lessee under the Federal bankruptcy laws or
any other applicable law or statute of the United States of
America or any state thereof, if any such adjudication, order or
decree under this clause (C) shall not be vacated or set aside or
stayed within 90 days from the date of the entry thereof.
- 33 -
<PAGE> 38
(f) The Lessee shall fail, within 90 days after the
commencement of any proceeding against the Lessee seeking any
reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any present or
future statute, law or regulation, to have such proceeding
dismissed, or, within 90 days after the appointment without the
consent or acquiescence of the Lessee, of any trustee, receiver
or liquidator of the Lessee or any material part of its
properties, to have such appointment vacated, or the Lessee shall
be adjudicated as a bankrupt or insolvent.
(g) Any "Event of Default", as defined in the Inducement
Agreement dated as of the date hereof, between the Lessee and the
original purchaser of the Bonds shall have occurred.
Section 10.2. REMEDIES ON DEFAULT. Whenever an Event of Default
shall have happened and be subsisting, any one or more of the following
remedial steps may be taken:
(a) The Lessor may declare all Rental Payments, together
with any Additional Payments and other amounts payable hereunder
to be immediately due and payable, whereupon, to the extent
permitted by law, the same shall become immediately due and
payable;
(b) The Lessor may re-enter and take possession of the
Project without terminating the Lease and sublease the Project
for the account of the Lessee, holding the Lessee liable for the
difference between the rent and other amounts payable by such
sublessee in such subleasing and the aggregate of the Rental
Payments, Additional Payments and other amounts payable by the
Lessee hereunder;
(c) The Lessor may terminate this Lease, exclude the
Lessee from possession of the Project and lease the Project to
another, but holding the Lessee liable for all Rental Payments,
Additional Payments and other amounts payable hereunder up to the
effective date of such leasing;
(d) The Lessor may have access to and inspect, examine
and make copies of the books and records and any and all
accounts, data and income tax and other tax returns of the
Lessee, only, however, insofar as they pertain to the Project;
(e) The Lessor may take whatever action at law or in
equity may appear necessary or desirable to collect the Rental
Payments, Additional Payments and other amounts then due and
thereafter to become due, or to enforce performance and
observance of any other obligation or agreement of the Lessee,
under this Lease.
After the termination of the Lease or of Lessee's right of
possession, the Lessor shall, to the extent required under applicable law, use
reasonable efforts to mitigate damages by reletting the Project, in whole or in
part, either in its own name or as agent for the Lessee, for a term or terms,
that at the Lessor's option, may be for the remainder of the then current Lease
Term or for any longer or shorter period. The Lessor may waive and rescind any
declaration made pursuant to subparagraph (a) of the first paragraph of this
Section and waive and rescind the consequences of such declaration and of the
Event of Default with respect to which such declaration has been made, provided
that no such waiver or rescission shall extend to or affect any subsequent or
other default or impair any right consequent thereon.
The Lessor and the Lessee acknowledge that the Lessor has
borrowed money from several sources in order to provide the moneys necessary to
acquire the Project Site and
- 34 -
<PAGE> 39
construct, improve, furnish, equip and develop the Project Facilities and that
the Lessor, with the knowledge of the Lessee, has contractually obligated
itself to use the Rental Payments to repay its borrowings and that an Event of
Default under Section 10.1 hereof would eliminate future Rental Payments and
the source to be used to repay the Lessor's borrowings. The Lessor and the
Lessee agree that amounts paid pursuant to paragraph (a) of this Section are
liquidated damages and not a penalty and will permit the Lessor to repay the
borrowings that would have been repaid from Rental Payments during the Lease
Term so that the Lenders, the Holders and the County Bond Holders do not suffer
any loss by reason of the breach by the Lessee of the terms of this Lease.
The Lessor shall give prompt notice to each of the Lenders of an
Event of Default under this Lease and of any waiver thereof and of any
rescission of an acceleration.
Section 10.3. NO REMEDY EXCLUSIVE. No remedy conferred or
reserved by this Lease is intended to be exclusive of any other available
remedy or remedies, but each and every such remedy shall be cumulative and
shall be in addition to every other remedy given under this Lease or now or
hereafter existing at law, in equity or by statute. No delay or omission to
exercise any right or power accruing upon any default shall impair any such
right or power or shall be construed to be a waiver thereof, but any such right
and power may be exercised from time to time and as often as may be deemed
expedient. In order to entitle the Lessor to exercise any remedy reserved to
it in this Article, it shall not be necessary to give any notice, other than
such notice as may be expressly required herein or by applicable law.
Section 10.4. LESSEE TO PAY ATTORNEYS' FEES AND EXPENSES. If an
Event of Default occurs and the Lessor, any Lender, any Holder or any County
Bond Holder employs attorneys or incurs other expenses for the enforcement of
any obligation or agreement of the Lessee contained herein or in any other
agreement to which the Lessee is a party, the Lessee shall, on demand therefor
and to the extent permitted by law, reimburse the reasonable fees of such
attorneys and such other expenses so incurred.
Section 10.5. NO ADDITIONAL WAIVER IMPLIED BY ONE WAIVER. In
the event any agreement contained in this Lease should be breached by either
party and thereafter waived by the other party, such waiver shall be limited to
the particular breach so waived and shall not be deemed to waive any other
breach hereunder.
(End of Article X)
- 35 -
<PAGE> 40
ARTICLE XI
ASSIGNMENT OF LEASE, SUBLEASING AND RELEASE
OF PORTIONS OF PROJECT
Section 11.1. SUBLEASING BY LESSEE. The Project may be
subleased in whole or in part, by the Lessee without the necessity of obtaining
the consent of the Lessor; provided that if the Lessee and its subsidiaries are
occupying and using less than 90 percent of the usable space of the Project
Facilities, then ten business days prior to executing any sublease the Lessee
shall provide notice to the Lessor specifying the name of the sublessee, the
nature of its business, the use to be made of the subleased space, the number
of persons anticipated to be employed in the subleased space, whether any
hazardous or flammable materials will be located in the space and any
remodeling that is to be accomplished to accommodate the sublessee; subject,
however, to each of the following conditions:
(a) No subletting shall relieve the Lessee from primary
liability for any of its obligations hereunder, and in the event
of any such subletting the Lessee shall continue to remain
primarily and fully liable for the Rental Payments and Additional
Payments and for performance and observance of the agreements on
its part herein provided to be performed and observed by it.
(b) Any sublease from the Lessee must retain for the
Lessee such rights and interests as will permit it fully to
perform its obligations under this Lease.
(c) The Lessee shall, prior to the delivery thereof,
furnish or cause to be furnished to the Lessor a true and
complete copy of each such proposed sublease, together with,
after delivery, a fully executed original counterpart of such
sublease.
(d) Any sublease from the Lessee shall not materially
impair fulfillment of the purposes of the Act to be accomplished
by operation of the Project.
Section 11.2. MORTGAGE AND ASSIGNMENT OF LEASE BY LESSOR. In
accordance with applicable laws, the Lessor may grant a security interest or an
assignment of its interest in the Project, and may mortgage and grant a
security interest in the Project, to one or more of the Lenders and the County
Bond Holders, as security for payment of the Bonds and the Notes. If requested
by any such Lender or by the County Bond Holders, Lessee will execute and
deliver such agreement or agreements as may be reasonably required by such
Lender or by the County Bond Holders to subordinate Lessee's interest in this
Lease to any such mortgage, security interest or assignment and will join in
the execution of any such mortgage, security interest or assignment to the
extent necessary to subject any interest Lessee may have in any property for
which Lessee provided moneys pursuant to Section 4.7 of the Project Service
Agreement, any additions, modifications or improvements made pursuant to
Section 5.3 hereof, any replacements pursuant to Section 5.4 hereof, and any
property restored pursuant to Article VII hereof. Upon request of any such
Lender or the County Bond Holders, Lessee will agree to become a tenant to the
new owner of the Project after the purchase on any foreclosure sale or
conveyance in lieu of foreclosure on the same terms and conditions of this
Lease and will execute such instruments as may be necessary or appropriate to
evidence such agreement. It shall be a condition of any such mortgage,
security interest or assignment of interest in the Project that such Lender or
the County Bond Holders shall expressly agree in its mortgage, security
agreement or assignment, that (A) on behalf of itself, its successors and
assigns, in the event of foreclosure of the Project or conveyance of the
Project in lieu of foreclosure which occurs prior to the end of the Lease Term,
and provided that there is no outstanding Event of Default, Lessee shall have
the right
- 36 -
<PAGE> 41
to remain in possession of the Project and no such foreclosure or conveyance in
lieu of foreclosure shall divest, impair, modify, abrogate or otherwise
adversely affect any interests or rights whatsoever of Lessee under this Lease,
and (B) within fifteen (15) business days after a request therefor by Lessee,
such Lender or the County Bond Holders shall execute a separate non-disturbance
agreement with Lessee which shall contain the provisions required by the terms
of clause (A) hereinabove.
Section 11.3. RESTRICTIONS ON TRANSFER AND ENCUMBRANCE OF
PROJECT BY THE LESSOR. The Lessor agrees that, so long as no Event of Default
has occurred and is continuing under this Lease and except as otherwise
provided in this Lease, it will not, directly or indirectly, sell, assign,
transfer, convey, grant any easement or encumbrance or otherwise dispose of the
Project or any portion thereof during the Lease Term, nor will it create or
suffer to be created by, through and under it any debt, lien or charge thereon
(except the lien or charge for taxes, governmental charges or special
assessments) or make any pledge or assignment of or create any lien or
encumbrance upon the rents, revenues and receipts derived from the sale, lease
or other use or disposition of the Project, other than as provided in Section
11.2 hereof, or as a result of foreclosure by a Lender or by the County Bond
Holders on the interest of Lessor mortgaged as described in Section 11.2 or
transfer in lieu of such foreclosure, or as approved by the Lessee.
Section 11.4. RELEASE OF PROJECT. The Lessee hereby reserves
the right and the Lessor hereby agrees, at any time and from time to time, to
amend this Lease to effect the release of and removal from this Lease and the
leasehold estate created hereby of any part of or interest in the Project and
the conveyance or transfer for Fair Market Value of such part or interest to
the Lessee or one of its subsidiaries or to a grantee so long as that grantee
is approved by the Lessee and the Lessor which approval shall not be
unreasonably withheld or delayed; provided, that such amendment shall not be
effective until and unless there are deposited with the Lessor the following:
(a) An executed copy of said amendment.
(b) A certificate of the Authorized Lessee
Representative (i) stating that to his knowledge no Event of
Default exists and the Lessee is not in default under any of the
provisions of this Lease, (ii) giving, if applicable, an adequate
legal description of that portion of the Project to be released,
(iii) stating the purpose for which the release is desired, (iv)
stating that the improvements, if any, to be constructed upon
that portion of the Project to be released are consistent with,
or not inconsistent with, the purposes of the Act, (v) requesting
such release and (vi) approving such amendment.
(c) Evidence of the authority of the officer of the
Lessee who executed such amendment.
(d) A certificate of the Chair, the President or a Vice
President of the Lessee or an opinion of counsel for the Lessee
stating that, to the best of his or her knowledge after due
inquiry, the Lessee is not in default under this Lease.
(e) A fully executed counterpart of the instrument
conveying or transferring the interest proposed to be released.
(f) A certificate of an Engineer, acceptable to the
Lessor, dated not more than sixty days prior to the date of the
release and stating that, in the opinion of such Engineer, (i)
the release of the portion of the Project so proposed to be
released is
- 37 -
<PAGE> 42
necessary or desirable in order to benefit the Project, or such
portion is not needed for the operation of the Project, and (ii)
the release so proposed to be made will not impair the usefulness
of the Project as furthering the Project Purposes, and will not
destroy or materially impair means of ingress to and egress from
the Project.
(g) An appraisal from an appraiser satisfactory to the
Lessee and the Lessor, establishing the Fair Market Value of that
portion of the Project to be released.
The Lessor shall execute and deliver such documents as the Lessee
may properly request in order to effect any release pursuant to this Section.
Any release pursuant to this Section may be made for the purpose of conveying
the part or interests released to the Lessee.
Section 11.5. GRANTING EASEMENTS. The Lessee may grant or
release, as the case may be, those easements, licenses, rights-of-way or use
(including without limitation, the dedication of public highways), party wall
rights, rights of lateral support and other rights and privileges in the nature
of easements with respect to the Project which may be lawful and which do not
unreasonably interfere in the proper and efficient use and operation of the
Project and do not materially impair the value of the Project. The Lessee
covenants and agrees that it will deliver to the Lessor at least ten days prior
to the effectiveness of the executed grant or release (a) a copy of the
instrument of grant or release, and (b) a certificate of the Authorized Lessee
Representative stating that in his opinion the grant or release (i) will not
interfere with the proper and efficient use and operation of the Project for
the Project Purposes and (ii) will not destroy or materially impair means of
ingress to or egress from the Project or the Project Facilities.
Section 11.6. NO ABATEMENT OR DIMINUTION OF PAYMENTS. No grant,
release, removal or conveyance effected under any of the provisions of this
Lease shall entitle the Lessee to any abatement or diminution of the Rental
Payments or Additional Payments payable hereunder.
Section 11.7. PAYMENT ON RELEASE OR CONVEYANCE. Any grant,
release, removal or conveyance under Section 11.4 or 11.5 of this Lease shall
be made only for consideration which is equal to or greater than the appraised
value or which the Authorized Lessee Representative certifies, and the Lessor
acknowledges, is a fair and adequate consideration. Any moneys received as
such consideration shall be paid to the Lessor and used by the Lessor for, or
made available to the Lessee (which shall promptly deliver a bill of sale or
other similar evidence of title to the Lessor) for use for, capital
alterations, additions or improvements to the Project or the acquisition of
personal property for the Project (which capital alterations, additions or
improvements and any such personal property shall become a part of the Project
for all purposes of this Lease) thereafter during the Lease term.
Section 11.8. LESSOR TO APPLY LEASE PAYMENTS TO DEBT
AMORTIZATION DURING ANY EXTENSION OF LEASE TERM. In the event that Lessee
extends the Lease Term pursuant to Section 12.16 of this Lease, Lessor agrees
to apply all Rental Payments received during that extension of the Lease Term
to the amortization of debt issued by the Cleveland-Cuyahoga County Port
Authority to refinance the Project Debt in accordance with the provisions
contained in any trust indenture, loan agreement or similar instrument entered
into by the Port Authority in connection with that refinancing directing the
application of Rental Payments to debt amortization.
(End of Article XI)
- 38 -
<PAGE> 43
ARTICLE XII
MISCELLANEOUS
Section 12.1. QUIET ENJOYMENT. The Lessor covenants with the
Lessee that, so long as the Lessee shall have paid all Rental Payments,
Additional Payments and other payments due hereunder, as and when due, and
performed and observed the other covenants and agreements on its part to be
performed and observed hereunder, the Lessee shall and may peaceably and
quietly have, hold and enjoy the Project without let or hindrance from any
Person whatsoever; provided that from and after delivery of the Assignment of
Lease, with respect to the Project Bond Trustee, as assignee or its successors
or assigns, such covenant to provide the peaceable and quiet enjoyment of the
Project shall be limited to Persons claiming by, through or under the assignee.
Section 12.2. SURRENDER OF PROJECT. Upon the termination or
expiration of this Lease, the Lessee shall surrender peaceably and promptly
possession of the Project, leaving same in good condition and repair (ordinary
wear and tear excepted) and subject to damage, destruction and taking by
eminent domain if the Lessee has elected to terminate this Lease pursuant to
Section 9.1 of this Lease.
Section 12.3. NOTICES. All notices, certificates, requests or
other communications hereunder shall be by first-class mail, postage prepaid,
courier service, delivery charges prepaid, facsimile transmission (if the
sender's system can confirm receipt of the transmission), or delivery addressed
to the appropriate Notice Address and deemed effective on receipt, with a
duplicate copy of such notice to be provided to any Lessor which shall have
requested such notices and provided a Notice Address to the Lessor and the
Lessee. The Lessee, the Lessor, and any other person to receive notices as
provided in the definitions of Notice Address may, by notice given hereunder,
designate any further or different addresses to which subsequent notices,
certificates, requests or other communications shall be sent.
Section 12.4. BINDING EFFECT. This Lease shall inure to the
benefit of and shall be binding in accordance with its terms upon the Lessor,
the Lessee, the Lenders, the Holders and the County Bond Holders and their
respective successors and assigns.
Section 12.5. AMENDMENTS, CHANGES AND MODIFICATIONS. This Lease
may not be effectively amended, changed, modified, altered or terminated except
in writing signed by both the Lessor and the Lessee.
Section 12.6. EXECUTION COUNTERPARTS. This Lease may be
executed in counterpart, and in any number of counterparts, each of which shall
be regarded as an original and all of which shall constitute but one and the
same instrument.
Section 12.7. SEVERABILITY. If any provision of this Lease, or
any covenant, stipulation, obligation, agreement, act, or action, or part
thereof made, assumed, entered into, or taken thereunder or any application
thereof, is for any reason held to be illegal or invalid, such illegality or
invalidity shall not affect any other provision or any other covenant,
stipulation, obligation, agreement, act or action or part thereof, made,
assumed, entered into, or taken, each of which shall be construed and enforced
as if such illegal or invalid portion were not contained herein. Nor shall
such illegality or invalidity of any application thereof affect any legal and
valid application thereof, and each such provision, covenant, stipulation,
obligation, agreement, act, or action, or part shall be deemed to be effective,
operative, made, entered into or taken in the manner and to the full extent
permitted by law.
- 39 -
<PAGE> 44
Section 12.8. EXTENT OF COVENANTS; NO PERSONAL LIABILITY. All
covenants, stipulations, obligations and agreements of the Lessor contained in
this Lease shall be effective to the extent authorized and permitted by
applicable law. No covenant, stipulation, obligation or agreement contained in
this Lease shall be deemed to be a covenant, stipulation, obligation or
agreement of any present or future member, officer, agent or employee of the
Lessor or the Lessee in other than his official capacity, and neither the
members of the Legislative Authority or any director or other officer of the
Lessor or the Lessee shall be subject to any personal liability or
accountability by reason of the covenants, stipulations, obligations or
agreements contained in this Lease or other instruments referred to herein.
Section 12.9. CAPTIONS. The table of contents, captions and
headings in this Lease are for convenience only and in no way define, limit or
describe the scope or intent of any provisions or sections of this Lease.
Section 12.10. GOVERNING LAW. This Lease shall be governed
exclusively by and construed in accordance with the laws of the State.
Section 12.11. ESTOPPEL CERTIFICATE. Upon the written request
of either the Lessor or the Lessee, as the case may be, the Lessor and the
Lessee agree to deliver to the other a statement in writing and certified that
this Lease is a true and exact copy of the lease between the parties, that
there are no amendments thereto (or stating what amendments there may be and
attaching copies thereof), that to the extent the same are true this Lease is
in full force and effect, there are no offsets, defenses or counterclaims with
respect to the payment of any obligations under the terms of this Lease or
under the performance of any other terms, covenants and conditions thereof,
that there are no defaults or if there are defaults, setting forth the nature
of such defaults, the status of the Rental Payments and other payments due
under the terms of this Lease and such other information reasonably requested
by the Lessor or the Lessee. The Lessor and the Lessee agree to promptly
supply the aforesaid instrument to the other party but no later than ten days
after receipt of a written request therefor. The Lessor and the Lessee agree
that any statement as aforesaid may be relied upon by any prospective
purchaser, mortgagee, assignee, sublessee or any other Person concerning the
Project.
Section 12.12. RELATIONSHIP OF THE PARTIES. Nothing contained
in this Lease shall be deemed or construed by the parties hereto, or by any
third party, as creating the relationship of principal and agent, or of
partnership or joint venture between the parties hereto, it being understood
and agreed that neither the method of computation of Rental Payments or
Additional Payments nor any other provision contained in this Lease, nor any
acts of the parties to this Lease, shall be deemed to create any relationship
between the parties hereto other than the relationship of landlord and tenant.
Section 12.13. ARBITRATION. If any controversy concerning the
determination of Fair Market Value ("Controversy") shall arise under this Lease
which is not resolved by the parties hereto, at the request of either of the
parties hereto, and unless otherwise prohibited by law, such Controversy shall
be determined in Cleveland, Ohio by three disinterested arbitrators, one of
whom shall be chosen by the Lessor, one by the Lessee and a third by the two so
chosen. The arbitrators shall as promptly as possible determine the Fair
Market Value. The Lessee shall pay the fees and expenses of that arbitration.
Each arbitrator shall have at least 15 years experience in appraising
commercial office projects.
The party hereto requesting arbitration, as aforesaid, shall give
notice in writing to the other party of such desire, naming therein the
arbitrator selected by it. In the event the other party shall fail, within a
period of thirty business days after the giving of such notice, to notify the
other in writing of the arbitrator selected by it, or in the event the two
arbitrators chosen
- 40 -
<PAGE> 45
shall fail, within fifteen business days after their selection, to agree upon
the third, or if the arbitrator shall die, resign or become incapable of acting
as an arbitrator, then a judge of the Probate Division of the Common Pleas
Court of Cuyahoga County, Ohio shall, on request of the party not in default,
appoint, within fifteen days after such request, an arbitrator or arbitrators,
to fill the place or places remaining vacant.
The Ohio rules of evidence and civil procedure shall apply to any
arbitration hereunder. Each side shall be limited in its rights of discovery
to discovery permitted by the arbitrators. The decision of any two of the
arbitrators in conformity with the foregoing direction shall be final and
conclusive upon the parties hereto. The decision of the arbitrators shall be
in writing, signed in duplicate by any two of said arbitrators, and a copy
shall be delivered to each of the parties hereto. Judgment upon such decision
may be entered in any court of competent jurisdiction and shall be specifically
enforceable to the full extent permitted by law.
Except as hereinbefore in this Section provided, the rules of the
American Arbitration Association (or of any successor thereto) shall apply to
any arbitration proceeding hereunder.
Section 12.14. OTHER AGREEMENTS. Nothing herein shall be
construed nor is intended to limit or in any manner adversely affect the
rights, privileges or remedies afforded to any mortgagee of the Lessor or any
other Person under any other agreement executed in connection with the
execution and delivery of this Lease and the Project Service Agreement or the
issuance of the Bonds and the Notes.
Section 12.15. NO MERGER. The acquisition by Lessee or Lessor,
or any other Person, of any greater or lesser estate in the Project or any
portion thereof shall in no event result in a merger or extinguishment of the
estate created hereby.
Section 12.16. EXTENSION OF LEASE TERM. The Lessee is granted
an option to extend the Lease Term for two (2) ten (10) year periods with the
first such period commencing March 1, 2016 (the "first extension") and the
second March 1, 2026 (the "second extension"). To exercise the option to
extend this Lease, the Lessee must notify the Lessor that it is exercising the
option, designating the period therein for which the option is exercised, not
later than eighteen (18) months prior to the commencement of the period for
which the option is exercised. The Rental Payment to be paid on the first
business day of each month by the Lessee as rent for the Project during the
first extension shall be that amount necessary to amortize, through a
refinancing by the Cleveland-Cuyahoga County Port Authority (the "Authority"),
the (i) Unamortized Debt (as defined in Section 9(g) of the resolution adopted
by the Board of the Authority on March 25, 1996), (ii) deferred interest on the
CDP Note (as deferred in the Project Service Agreement), (iii) the Amortized
Principal (as defined in the Escrow and Transfer Agreement dated as of March 1,
1996 between the City and the Project Bond Trustee) and (iv) reasonable costs
of issuance relating to the refinancing, such refinancing to be repayable over
ten years in equal monthly installments of principal and interest and bearing
interest at a Fair Market Interest Rate (but not to exceed a rate of 12% per
year) plus an Authority fee of not to exceed 1/2 of 1% per year less the
monthly amount required to amortize an amount of money equal to the amount, if
any, provided by the Lessee under the Guaranty Agreement dated as of March 1,
1996 from the Lessee to the Trustee repayable over ten years in equal monthly
installments of principal and interest and bearing interest at a Fair Market
Interest Rate (but not to exceed a rate of 12% per year). As used herein, Fair
Market Interest Rate means that rate of interest to be borne by the debt
("Debt") issued in connection with the refinancing referred to in the previous
sentence which is determined by a reputable investment banking firm selected by
the Authority to be a fair market rate of interest for securities of comparable
maturity and credit quality as the Debt. The Rental Payment to be paid on the
first business day of each month by the Lessee as rent for the Project during
the second extension shall be $5.00 per square foot.
(End of Article XII)
- 41 -
<PAGE> 46
IN WITNESS WHEREOF, the Lessor and the Lessee have caused this
Lease to be duly executed in their respective names, all as of the date
hereinbefore written.
Signed and acknowledged in CLEVELAND-CUYAHOGA COUNTY
the presence of: PORT AUTHORITY
______________________________ By: _____________________________________
Name: Chair
______________________________ Attest: _________________________________
Name: Secretary
(Witnesses as to Lessor)
Signed and acknowledged in BEARINGS, INC.
the presence of:
______________________________ By: _____________________________________
Name: Vice President
______________________________ By: _____________________________________
Name: Assistant Secretary
(Witnesses as to the Lessee)
Approved as to form:
________________________________________
General Counsel
Cleveland-Cuyahoga County Port Authority
- 42 -
<PAGE> 47
STATE OF OHIO )
) ss:
COUNTY OF CUYAHOGA )
On this ______ day of March, 1996, before me a Notary Public in
and for said County and State, personally appeared Reverend Sterling E. Glover
and Howard W. Broadbent, Chair of the Board of Directors and Secretary of, the
Cleveland-Cuyahoga County Port Authority, respectively, and acknowledged the
execution of the foregoing instrument, and that the same is their voluntary act
and deed on behalf of said Cleveland-Cuyahoga County Port Authority and the
voluntary act and deed of said Cleveland-Cuyahoga County Port Authority.
IN WITNESS WHEREOF, I have hereunto subscribed my name and
affixed my official seal on the day and year aforesaid.
(SEAL)
___________________________________
Notary Public
STATE OF OHIO )
) ss:
COUNTY OF CUYAHOGA )
On this _______ day of March, 1996, before me a Notary Public in
and for said County and State, personally appeared Robert C. Stinson and Fred
D. Bauer, Vice President and Assistant Secretary, respectively, of Bearings,
Inc. the corporation which executed the foregoing instrument, who acknowledged
that they did sign said instrument as such officer, for and on behalf of said
corporation and by authority granted in its by-laws and by its Board of
Directors; that the same is their voluntary act and deed on behalf of said
corporation and the voluntary act and deed of said corporation.
IN WITNESS WHEREOF, I have hereunto subscribed my name and
affixed my official seal on the day and year aforesaid.
(SEAL)
___________________________________
Notary Public
This instrument was prepared by: Richard K. Desmond, Esq.
Squire, Sanders & Dempsey
4900 Society Center
127 Public Square
Cleveland, Ohio 44114-1304
- 43 -
<PAGE> 48
EXHIBIT A
PROJECT FACILITIES
------------------
[Description of Headquarters Building and Moveable Personal Property]
A-1
<PAGE> 49
Exhibit B
PROJECT SITE
The land referred to in this policy is described as follows:
Situated in the City of Cleveland, County of Cuyahoga and State of Ohio and
known as being a part of Original Ten Acre Lots Nos. 88, 89 and 90 and bounded
and described as follows:
Beginning at a stone monument on the centerline of East 36th Street at a point
North 00(Degree) 04' 35" East, 49.50 feet of the intersection of the centerlines
of said East 36th Street (60 feet wide) and Euclid Avenue (99 feet wide);
Thence North 89(Degree) 57' 58" West, 30 feet to the principal place of
beginning at the intersection of the westerly right of way line of said East
36th Street with the northerly right of way of said Euclid Avenue;
Thence North 89(Degree) 57' 58" West, 776.72 feet along the northerly right of
way of said Euclid Avenue to the southeasterly corner of the property conveyed
to Midtown Professional Center Partnership by Deed dated August 29, 1988 in
Volume 88-4592, Page 31 of Cuyahoga County Records;
Thence North 00(Degree) 11' 39" East, 381.79 feet along the easterly property
line of Midtown Professional Center Partnership to the southwesterly corner of
the property conveyed to Teamsters Joint Council No. 41 by Deed dated July 16,
1986 in Volume 86-4345, Page 17 of Cuyahoga County Records;
Thence South 89(Degree) 57' 56" East, 161.95 feet along the southerly property
line Teamsters Joint Council No. 41 to the southeasterly corner of said
property;
Thence North 00(Degree) 10' 42" East, 230.97 feet along the easterly line of
said Teamsters Joint Council No. 41 property to the northeasterly corner
thereof;
Thence South 83(Degree) 46' 25" East, 486.87 feet along the former southerly
right of way line of Chester Avenue (86 feet wide) to the northwesterly corner
of the property conveyed to Donna E. Stratton by Deed dated January 24, 1990 in
Volume 90-0447, Page 5 of Cuyahoga County Records;
Thence South 00(Degree) 08' 00" West, 225.67 feet along the westerly line of
said Donna E. Stratton property to an angle point therein;
<PAGE> 50
Thence South 44(Degree) 53' 25" East, 27.91 feet along the southwesterly line of
said Donna E. Stratton property to an angle point therein;
Thence South 89(Degree) 55' 25" East, 65.00 feet along the southerly line of
said Donna E. Stratton property to the southeasterly corner thereof;
Thence North 00(Degree) 04' 35" East, 75.00 feet along an easterly line of said
Donna E. Stratton property to an angle point therein;
Thence South 89(Degree) 55' 25" East, 45.00 feet along a southerly line of said
Donna E. Stratton property to a point on the westerly right of way line of East
36th Street (60 feet wide);
Thence South 00(Degree) 04' 35" West, 389.72 feet along said westerly right of
way line of East 36th Street to the principal place of beginning and containing
8.962 acres, more or less, as determined by Ralph C. Tyler, Registered Surveyor
No. 4236 State of Ohio, in August 1995, but subject to all legal highways and
easements of record.
The basis of bearing of this description is Plat Volume 127, Page 11 of the
Cuyahoga County Record of Plats.
<PAGE> 51
EXHIBIT C
RENTAL PAYMENT AMOUNTS
----------------------
<TABLE>
<CAPTION>
Year Amount Year Amount
---- ------ ---- ------
<S> <C> <C> <C>
07/01/97 156,622.28 03/01/2002 161,288.62
08/01/97 156,592.33 04/01/2002 201,633.66
09/01/97 156,562.36 05/01/2002 201,341.79
10/01/97 156,907.40 06/01/2002 201,049.91
11/01/97 156,877.45 07/01/2002 215,853.20
12/01/97 159,816.49 08/01/2002 215,561.32
01/01/98 159,786.35 09/01/2002 215,269.44
02/01/98 159,756.58 10/01/2002 214,977.57
03/01/98 159,726.62 11/01/2002 214,685.70
04/01/98 160,071.65 12/01/2002 214,393.82
05/01/98 160,041.70 01/01/2003 214,101.95
06/01/98 160,011.73 02/01/2003 213,810.08
07/01/98 159,981.79 03/01/2003 213,518.20
08/01/98 159,951.82 04/01/2003 213,226.32
09/01/98 159,921.87 05/01/2003 212,934.44
10/01/98 160,266.91 06/01/2003 212,642.56
11/01/98 160,236.95 07/01/2003 212,350.70
12/01/98 160,206.98 08/01/2003 212,058.82
01/01/99 160,177.04 09/01/2003 216,766.95
02/01/99 160,147.08 10/01/2003 216,442.65
03/01/99 160,117.11 11/01/2003 216,118.36
04/01/99 160,462.16 12/01/2003 215,794.07
05/01/99 160,432.19 01/01/2004 215,469.78
06/01/99 160,402.24 02/01/2004 215,145.49
07/01/99 160,372.29 03/01/2004 214,821.20
08/01/99 160,342.33 04/01/2004 219,496.90
09/01/99 160,312.37 05/01/2004 219,138.89
10/01/99 160,657.41 06/01/2004 218,780.90
11/01/99 160,627.45 07/01/2004 218,422.90
12/01/99 160,597.49 08/01/2004 218,064.90
01/01/2000 160,567.54 09/01/2004 217,706.91
02/01/2000 160,537.57 10/01/2004 217,348.90
03/01/2000 160,507.62 11/01/2004 216,990.89
04/01/2000 160,852.66 12/01/2004 216,632.90
05/01/2000 160,822.69 01/01/2005 216,274.90
06/01/2000 160,792.74 02/01/2005 215,916.90
07/01/2000 160,762.79 03/01/2005 215,558.90
08/01/2000 160,732.83 04/01/2005 215,200.90
09/01/2000 160,702.87 05/01/2005 214,842.89
10/01/2000 161,047.61 06/01/2005 214,484.90
11/01/2000 161,017.95 07/01/2005 219,126.90
12/01/2000 160,987.99 08/01/2005 218,736.49
01/01/2001 160,958.04 09/01/2005 218,346.07
02/01/2001 160,928.08 10/01/2005 217,955.65
03/01/2001 160,898.12 11/01/2005 217,565.24
04/01/2001 161,243.16 12/01/2005 217,174.81
05/01/2001 161,213.20 01/01/2006 216,784.41
06/01/2001 161,183.24 02/01/2006 216,393.99
07/01/2001 161,153.29 03/01/2006 216,003.57
08/01/2001 161,123.33 04/01/2006 215,613.15
09/01/2001 161,093.37 05/01/2006 215,222.73
10/01/2001 161,438.41 06/01/2006 214,832.31
11/01/2001 161,408.45 07/01/2006 214,441.91
12/01/2001 161,378.49 08/01/2006 214,051.49
01/01/2002 161,348.54 09/01/2006 213,661.07
02/01/2002 161,318.58 10/01/2006 213,270.65
</TABLE>
C-1
<PAGE> 52
<TABLE>
<CAPTION>
Year Amount Year Amount
---- ------ ---- ------
<S> <C> <C> <C>
11/01/2006 212,880.23 09/01/2011 218,313.86
12/01/2006 212,489.81 10/01/2011 217,696.40
01/01/2007 212,099.41 11/01/2011 217,078.95
02/01/2007 211,708.99 12/01/2011 216,461.49
03/01/2007 221,318.57 01/01/2012 215,844.02
04/01/2007 220,865.77 02/01/2012 220,226.58
05/01/2007 220,412.98 03/01/2012 219,576.69
06/01/2007 219,960.19 04/01/2012 218,926.81
07/01/2007 219,507.40 05/01/2012 218,276.95
08/01/2007 219,054.61 06/01/2012 217,627.07
09/01/2007 218,601.81 07/01/2012 216,977.10
10/01/2007 218,149.02 08/01/2012 216,327.32
11/01/2007 217,696.24 09/01/2012 215,677.44
12/01/2007 217,243.44 10/01/2012 215,027.56
01/01/2008 216,790.65 11/01/2012 214,377.70
02/01/2008 216,337.86 12/01/2012 213,727.81
03/01/2008 215,885.07 01/01/2013 213,077.93
04/01/2008 215,432.27 02/01/2013 217,428.08
05/01/2008 214,979.48 03/01/2013 216,745.78
06/01/2008 219,526.69 04/01/2013 216,063.48
07/01/2008 219,040.18 05/01/2013 215,381.20
08/01/2008 223,553.69 06/01/2013 214,698.89
09/01/2008 223,034.78 07/01/2013 214,016.60
10/01/2008 222,515.86 08/01/2013 213,334.32
11/01/2008 221,996.94 09/01/2013 212,652.02
12/01/2008 221,478.03 10/01/2013 211,969.73
01/01/2009 220,959.11 11/01/2013 211,287.45
02/01/2009 220,440.19 12/01/2013 210,605.16
03/01/2009 219,921.28 01/01/2014 219,922.86
04/01/2009 219,402.36 02/01/2014 219,174.44
05/01/2009 218,883.44 03/01/2014 218,426.03
06/01/2009 218,364.53 04/01/2014 217,677.61
07/01/2009 217,845.61 05/01/2014 221,929.19
08/01/2009 217,326.69 06/01/2014 221,150.81
09/01/2009 216,807.78 07/01/2014 220,372.45
10/01/2009 216,288.86 08/01/2014 219,594.06
11/01/2009 220,769.94 09/01/2014 218,815.69
12/01/2009 220,218.61 10/01/2014 218,037.32
01/01/2010 219,667.28 11/01/2014 217,258.95
02/01/2010 219,115.94 12/01/2014 221,480.57
03/01/2010 218,564.61 01/01/2015 220,669.78
04/01/2010 218,013.28 02/01/2015 219,858.98
05/01/2010 217,461.95 03/01/2015 219,048.20
06/01/2010 216,910.61 04/01/2015 218,237.40
07/01/2010 216,359.27 05/01/2015 217,426.62
08/01/2010 215,807.95 06/01/2015 216,615.81
09/01/2010 215,256.61 07/01/2015 215,805.03
10/01/2010 214,705.27 08/01/2015 214,994.24
11/01/2010 214,153.94
12/01/2010 213,602.61
01/01/2011 218,051.28
02/01/2011 217,467.54
03/01/2011 216,883.78
04/01/2011 216,300.03
05/01/2011 215,716.28
06/01/2011 215,132.53
07/01/2011 219,548.78
08/01/2011 218,931.33
</TABLE>
C-2
<PAGE> 53
[The first sixty Lease rental payments are subsidized by $1,876,000 of proceeds
from a Neighborhood Development Investment Fund loan made by the City of
Cleveland to the Cleveland-Cuyahoga County Port Authority. As a result of these
subsidies, each of the first sixty rental payments to be made by Bearings is
$37,500 lower than the amount shown in Exhibit C.]
<PAGE> 1
EXHIBIT 11
BEARINGS, INC. AND SUBSIDIARIES
-------------------------------
Computation of Net Income Per Share
(Unaudited)
(Thousands, except per share amounts)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31 March 31
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Average Shares Outstanding (B)
------------------------------
1. Average common shares
outstanding 12,341 11,624 12,285 11,516
2. Net additional shares
outstanding assuming stock
options exercised and
proceeds used to purchase
treasury stock 255 177 274 204
------- ------- ------- -------
3. Adjusted average common
shares outstanding for
fully diluted computation 12,596 11,801 12,559 11,720
======= ======= ======= =======
Net Income
----------
4. Net income as reported in
statements of consolidated
income $ 6,122 $ 4,349 $15,826 $10,721
======= ======= ======= =======
Net Income Per Share (B)
------------------------
5. Net income per average
common share outstanding
(4/1) $ 0.50 $ 0.37 $ 1.29 $ 0.93
======= ======= ======= =======
6. Net income per common
share on a fully
dilutive basis (4/3) $ 0.49(A) $ 0.37(A) $ 1.26(A) $ 0.91(A)
======= ======= ======= =======
<FN>
(A) Fully diluted net income per share is not presented as the dilutive
effect is less than 3%.
(B) All share and per share data have been restated to reflect the three
for two stock split effective December 4, 1995.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 13,238
<SECURITIES> 0
<RECEIVABLES> 159,241
<ALLOWANCES> 3,153
<INVENTORY> 132,346
<CURRENT-ASSETS> 304,291
<PP&E> 141,863
<DEPRECIATION> 61,664
<TOTAL-ASSETS> 408,021
<CURRENT-LIABILITIES> 148,392
<BONDS> 0
<COMMON> 10,000
0
0
<OTHER-SE> 171,251
<TOTAL-LIABILITY-AND-EQUITY> 408,021
<SALES> 848,263
<TOTAL-REVENUES> 848,263
<CGS> 630,544
<TOTAL-COSTS> 630,544
<OTHER-EXPENSES> 181,528
<LOSS-PROVISION> 1,966
<INTEREST-EXPENSE> 6,504
<INCOME-PRETAX> 27,721
<INCOME-TAX> 11,895
<INCOME-CONTINUING> 15,826
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,826
<EPS-PRIMARY> 1.29
<EPS-DILUTED> 1.26
</TABLE>
