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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT
TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-8207
THE HOME DEPOT, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE
(State or Other Jurisdiction of Incorporation or Organization)
IRS NO. 95-3261426
(I.R.S. Employer Identification No.)
2455 PACES FERRY ROAD, ATLANTA, GEORGIA
(Address of Principal Executive Offices)
30339-4024
(Zip Code)
Registrant's telephone number, including area code: (770) 433-8211
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -------------------
Common Stock, $.05 Par Value New York Stock Exchange
3 1/4% Convertible Subordinated Notes New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. X
-
The aggregate market value of the Common Stock of the Registrant held by
nonaffiliates of the Registrant on March 29, 1999, was $89,324,866,932. The
aggregate market value was computed by reference to the closing price of the
Common Stock on the New York Stock Exchange on such date. For the purposes of
this response, executive officers and directors are deemed to be the affiliates
of the Registrant and the holdings by nonaffiliates was computed at
1,392,980,381 shares.
The number of shares outstanding of the Registrant's Common Stock as of March
29, 1999 was 1,478,633,371 shares.
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INCORPORATION BY REFERENCE
Filings made by companies with the Securities and Exchange Commission sometimes
"incorporate information by reference." This means that the company is
referring you to information that was previously filed with the SEC, and this
information is considered to be part of the filing you are reading. The
following materials are incorporated by reference into this Form 10-K:
- Information contained in our Proxy Statement for the 1999
Annual Meeting of Stockholders is incorporated by reference
in response to Items 10 through 13 of Part III.
- Information contained on pages 22 through 35 of our 1998
Annual Report to Stockholders is incorporated by reference in
response to Items 6 and 8 of Part II.
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE
Certain statements we make in this report, and other written and oral
statements made by us or our authorized executive officers on our behalf may
constitute "forward-looking statements" within the meaning of the federal
securities laws. Words or phrases such as "should result," "are expected to,"
"we anticipate," "we estimate," "we project" or similar expressions are
intended to identify forward-looking statements. These statements are subject
to certain risks and uncertainties that could cause actual results to differ
materially from the Company's historical experience and its present
expectations or projections. These risks and uncertainties include, but are not
limited to:
- - conditions affecting the availability, acquisition, development and
ownership of real estate;
- - unanticipated weather conditions;
- - stability of costs and availability of sourcing channels;
- - our ability to attract, train and retain highly-qualified associates;
- - year 2000 problems;
- - general economic conditions;
- - the impact of competition; and
- - regulatory and litigation matters.
You should not place undue reliance on forward-looking statements, since such
statements speak only as of the date they are made. Additional information
concerning the risks and uncertainties listed above and other factors you may
wish to consider are provided on page 24 under "Item 7. Management's Discussion
and Analysis of Results of Operations and Financial Condition - Forward-Looking
Statements May Prove Inaccurate."
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PART I
ITEM 1. BUSINESS
The Home Depot, Inc. is the leading retailer in the home improvement industry
and ranked among the ten largest retailers in the United States based on net
sales volume for fiscal 1998. At the end of our fiscal year, we were operating
761 retail stores, which includes 753 Home Depot(R) stores and eight EXPO
Design Center(SM) stores. A description of these two types of stores is as
follows:
- HOME DEPOT STORES: Home Depot stores sell a wide assortment
of building materials and home improvement and lawn and
garden products. Home Depot stores average approximately
107,000 square feet of enclosed space, with an additional
approximately 24,000 square feet in the outside garden area.
At fiscal year end, we had Home Depot stores located
throughout the United States and Canada, as well as in Puerto
Rico and Chile.
- EXPO DESIGN CENTER STORES: EXPO Design Center stores sell
products and services primarily for design and renovation
projects. Unlike Home Depot stores, EXPO Design Center stores
do not sell building materials and lumber. Rather, EXPO
Design Center stores offer high-end interior design products,
such as kitchen and bath cabinetry, tiles, flooring and
lighting fixtures. The prototypical EXPO Design Center is
approximately 92,000 square feet. At fiscal year end, EXPO
Design Center stores were operating in California, Florida,
Georgia, New York and Texas.
We also offer products through direct marketing. Our Maintenance Warehouse(R)
subsidiary is a leading direct mail marketer of maintenance, repair and
operations products serving primarily the multi-family housing and lodging
facilities management market. Our National Blinds & Wallpaper(SM) subsidiary is
a telephone mail order service for wallpaper and custom window treatments.
Our Store Support Center (corporate office) is located at 2455 Paces Ferry
Road, Atlanta, Georgia 30339-4024. The telephone number is (770) 433-8211.
RETAIL BUSINESSES
HOME DEPOT STORES
OPERATING STRATEGY. The operating strategy for Home Depot stores is to offer a
broad assortment of high-quality merchandise at competitive prices using highly
knowledgeable, service-oriented personnel and aggressive advertising. We
believe that our associates' knowledge of products and home improvement
techniques and applications are very important in our marketing approach and
our ability to maintain customer satisfaction. We regularly check our
competitors' prices to ensure that our low "day-in day-out" warehouse prices
are competitive within each market.
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CUSTOMERS. Home Depot stores serve three primary customer groups:
- D-I-Y (DO-IT-YOURSELF) CUSTOMERS: These customers are
typically homeowners who purchase products and complete their
own projects and installations. To complement the in-store
expertise of our associates, Home Depot stores offer many
D-I-Y "how-to" clinics taught by associates and merchandise
vendors.
- B-I-Y (BUY-IT-YOURSELF) CUSTOMERS: These customers are
typically homeowners who purchase materials themselves and
hire third parties to complete the project and/or
installation. We offer B-I-Y customers installation services
for a variety of products through third party contractors.
- PROFESSIONAL CUSTOMERS: These customers are professional
remodelers and commercial users. To increase sales to
professional customers, we are testing a variety of programs,
including expanded commercial credit programs, delivery
services and incremental, dedicated staff.
PRODUCTS. A typical Home Depot store stocks approximately 40,000 to 50,000
product items, including variations in color and size. Each store carries a
wide selection of high-quality and nationally advertised brand name
merchandise. The following table shows the percentage of sales of each major
product group for each of the last three fiscal years:
<TABLE>
<CAPTION>
Percentage of Sales for
Fiscal Year Ended
--------------------------------
Jan. 31, Feb. 1, Feb. 2,
1999 1998 1997
-------- ------- -------
<S> <C> <C> <C>
Product Group
Building materials, lumber, floor and wall coverings.......... 34.1% 34.2% 34.0%
Plumbing, heating, lighting and electrical supplies........... 26.8 27.1 27.4
Seasonal and specialty items.................................. 15.0 14.8 14.7
Hardware and tools............................................ 13.6 13.5 13.4
Paint and other............................................... 10.5 10.4 10.5
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Total.................................................... 100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
We buy our store merchandise from vendors located throughout the world. No
single vendor accounts for as much as five percent of our total purchases, and
we are not dependent on any single vendor. Most of our merchandise is purchased
directly from manufacturers, which eliminates "middleman" costs. We believe
that competitive sources of supply are readily available for substantially all
of the products we sell in Home Depot stores.
We maintain an import merchandise program to find high-quality products to
import from overseas to give our customers a broader selection of products and
better values and to enhance our sales margins. Our product development
managers travel internationally to identify
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opportunities to purchase items directly for our stores. This enables us to
import products not currently available to our customers, to offer at a lower
price products that would otherwise be purchased from third party importers and
to improve product quality.
To complement the full range of established national brand name products we
offer, we have formed strategic alliances with vendor partners to market
products under brand names that are only offered through The Home Depot. At the
end of fiscal year 1998, we offered products under more than 40 proprietary
brands, including RIDGID(R) power tools; Scotts(R) mowers; GE SmartWater(TM)
water heaters manufactured by Rheem(R); Husky(R) mechanics' tools; and Hampton
Bay(TM) fans, lighting and accessories. In the future, we may strategically
consider additional opportunities to align with other vendors to offer products
under proprietary brand names. Additionally, we will continue to assess
opportunities to expand the range of products available under existing
proprietary brands.
INSTALLED SALES SERVICES. Home Depot stores offer a variety of installed sales
programs. These programs include the installation of flooring, kitchen
cabinets, solid surface countertops, millwork, garage doors, window treatments
and water heaters. This service targets the B-I-Y customer who will select and
purchase materials for a project but lacks either the desire or the ability to
undertake the installation. We implement our installed sales programs through
approximately 4,500 independent licensed contractors in the U.S. and Canada.
IN-STORE INITIATIVES. We continually assess our business to find opportunities
to increase sales. Accordingly, we implemented or expanded a number of in-store
initiatives in Home Depot stores during fiscal 1998, including:
- Professional Business Customer Test. We are committed to having
Home Depot stores be the supplier of choice to a variety of
professional customers, including remodelers, carpenters,
plumbers, electricians, building maintenance professionals and
designers. During fiscal 1997 and 1998, in stores in the Austin,
Texas and Las Vegas, Nevada markets, we began testing the impact
of adding additional products and service-related programs
designed to increase sales to professional customers. These stores
added associates dedicated to providing more personalized service
to professional customers, including associates to manage accounts
and to take and fill orders for pick-up or same-day delivery.
Additionally, during the hours when professionals typically shop,
they added sales associates in certain departments to assist these
customers. We also added new product lines to our inventory and
increased quantities of existing products purchased by
professionals in bulk quantities to better serve our professional
customers. We anticipate that during fiscal 1999 the test will be
expanded into, and customized for, additional markets. Through
this test, we have identified best practices in serving our
professional customers that are being implemented in many of our
stores without material additional costs.
- Tool Rental. As part of our efforts to satisfy a broad range of
the needs of our professional customers, as well as our D-I-Y
customers, we have begun offering a
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tool rental service in some of our stores. Under this program, we
rent approximately 200 commercial-quality tools in ten categories,
including saws, floor sanders, generators, gas powered lawn
equipment and plumbing tools. Customers can lease the tools on an
hourly, daily, weekly or monthly basis. Our associates who work in
the tool rental area receive special training concerning the use
and maintenance of the tools. In fiscal 1998, we opened tool
rental facilities in selected major markets in each of our
divisions, and, as of our fiscal year end, we offered the service
in 46 stores. During fiscal 1999, we anticipate expanding tool
rental services into additional stores. We believe that offering
this service increases the sales of related merchandise without
reducing the sales of equipment similar to that available for
rental.
- Load 'N Go(R). The Load 'N Go program, which is known as Home
Express(R) in our Canadian stores, offers pickup truck rentals at
low hourly rates to those customers who are unable to transport
their purchases in their own vehicles and who choose to forego the
regular delivery service offered by the stores. The program gives
our customers the ability to buy and transport large items or
large quantities of items at the time of purchase. We believe that
this service increases our sales while reducing delivery expenses
and making our delivery trucks available for deliveries to our
professional customers. By the end of fiscal 1998, Load 'N Go was
available in approximately 560 Home Depot stores, an increase from
the approximately 300 stores in which the service was available at
the end of fiscal 1997. We anticipate expanding this service to
approximately 130 additional stores during fiscal 1999.
- Special Order Center Test. We are currently testing the special
order center, or SOC, in approximately 35 Home Depot stores in
Michigan and Minnesota. The SOC supports special order sales of
blinds and wallpaper, which are time intensive due to the precise
measurements that are required. Customers are initially helped in
selecting merchandise by in-store associates, but when they are
ready to place an order, they use telephones placed in the store
to speak to an associate at the SOC. The SOC associate can also
assist with scheduling the installation of the product. We believe
that because of the special expertise offered by the SOC, it
increases the accuracy of orders, while decreasing the time
required to place a special order and enabling in-store associates
to help more customers. We anticipate expanding the SOC test
during fiscal 1999 and researching how the SOC may support other
Home Depot special order processes.
- Customer Education Programs. We offer several programs to enhance
the skills and confidence of our D-I-Y customers. Our associates
and vendors teach "how-to" clinics, which focus on D-I-Y projects,
such as installing garbage disposals, laying patio pavers or
building a deck. In addition to the clinics, we have initiated
Home Depot University(SM), which was available in approximately 90
stores at the end of fiscal 1998. Home Depot University presents
four-week modules allowing our customers to learn about several
facets of a home improvement topic. For example, a
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room enhancement module may provide instruction on paint, wallpaper
and window treatments. We anticipate that Home Depot University will
be expanded to additional stores during fiscal year 1999. Through The
Home Depot Kids Workshop(SM) program, children are instructed in tool
safety and complete a small project, such as building a birdhouse or
tool box. We believe that these types of educational programs increase
our sales by encouraging our customers to undertake more projects,
differentiating us from our competition and reinforcing our position
as experts in home improvement.
U.S. STORE GROWTH. At the end of fiscal 1998, we were operating 707 Home Depot
stores in the United States. During fiscal 1998, in the United States we opened
121 new Home Depot stores, relocated four existing Home Depot stores and
closed one store, which will be reopened in the same location during fiscal
1999. Although these new store openings occurred primarily in existing markets,
we continued our geographic expansion by opening stores in a number of new
markets.
In existing markets, we believe a number of Home Depot stores are operating at
or above their optimum capacity. To enhance long-term market penetration, we
often open new stores near the edge of the market areas served by existing
stores. While these openings may initially have a negative impact on comparable
store-for-store sales, we believe this "cannibalization" strategy increases
customer satisfaction and overall market share by reducing delays in shopping,
increasing utilization by existing customers and attracting new customers to
more convenient locations.
We currently anticipate opening approximately 167 new stores in fiscal 1999.
This plan is consistent with our policy of opening stores at a consistent rate
of 21-22% per year for the forseeable future. Overall, our current plan
anticipates having over 1,600 stores by the end of fiscal 2002, the substantial
majority of which will be Home Depot stores located in the United States.
INTERNATIONAL MARKETS. At the end of fiscal 1998, Home Depot stores were
operating in the following international markets:
Canada. At the end of fiscal 1998, we were operating 43 Home Depot stores in
five Canadian provinces. Of these stores, eleven were opened during fiscal
1998. We currently anticipate opening eleven new Home Depot stores in Canada in
fiscal 1999.
During the first quarter of fiscal 1998, we purchased for $261 million the
remaining 25% partnership interest in The Home Depot Canada partnership
previously owned by The Molson Companies. Our Canadian stores are now operated
through Home Depot of Canada, Inc., a wholly owned subsidiary of The Home
Depot.
Latin America. During fiscal 1998, we opened our first two Home Depot stores in
Latin America in Santiago, Chile. We expect to open two additional Home Depot
stores in Chile during fiscal 1999. We operate our Chilean Home Depot stores
through a joint venture with S.A.C.I. Falabella, a leading department store
retailer in Chile. Our controlling share of the
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joint venture is 66.67%. We believe our alliance with Falabella enhances our
presence in the Chilean market by offering attractive real estate opportunities
and providing assistance with, among other things, information systems, credit
marketing and distribution logistics. We have offices in Chile from which the
day-to-day management of the operation is handled by a management team
comprised of both Chilean nationals and seasoned Home Depot managers.
We expect to open our first Home Depot store in Buenos Aires, Argentina during
fiscal 2000. We anticipate opening offices in Argentina to manage the operation
of the business.
Puerto Rico. We opened our first Home Depot store in San Juan, Puerto Rico in
September 1998. We expect to open an additional store in Puerto Rico in fiscal
1999.
EXPO DESIGN CENTER STORES
OPERATING STRATEGY. The operating strategy for our EXPO Design Center stores is
to offer complete interior design services and high-quality, competitively
priced products to assist our customers in their home decor and remodeling
projects. Each EXPO Design Center store features up to eight different
showrooms, each with complete, full-size displays to help customers visualize
the end result of possible projects. To assist our customers, we employ
associates who have expertise in planning and completing projects and who
provide exceptional customer service.
CUSTOMERS. Typically, customers at EXPO Design Center stores are middle to
upper income B-I-Y customers, who purchase merchandise for installation by
others. Accordingly, we offer installation services for most of the products we
sell.
PRODUCTS. EXPO Design Center stores offer interior design products and
installation services in the following core product categories:
- Kitchens
- Baths
- Decor
- Lighting
- Flooring
- Appliances
- Patio
EXPO Design Center stores offer a broad range of merchandise in an effort to
meet all the needs of shoppers whose interior design preferences may go beyond
the items available in a Home Depot store. While there is some overlap between
the products offered in Home Depot stores and EXPO Design Center stores, those
available at EXPO Design Center stores are typically higher-end or more unusual
items. In addition to nationally advertised brand name products, we also offer
items that must be special ordered or that are typically offered through
showrooms open only to design professionals.
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STORE GROWTH. At the end of fiscal 1998, we were operating eight EXPO Design
Center stores in San Diego, California; Boynton Beach, Davie and Miami,
Florida; Atlanta, Georgia; Westbury, New York; and Dallas (two stores), Texas.
We opened three of these stores during fiscal 1998. We currently anticipate
opening seven additional stores in fiscal 1999, including stores in Houston,
Texas, Fairfax, Virginia and Huntington Beach, California, and we expect to be
operating approximately 200 stores in the next five to seven years. These new
stores are expected to average approximately 92,000 square feet and will
incorporate lowered ceilings and muted lighting, rather than a warehouse
environment.
IN-STORE SERVICES. We have associates at our EXPO Design Center stores to
assist with every phase of a project. Certified kitchen and bath designers are
on staff. We also have design professionals to help our customers design
lighting, tile and flooring, custom upholstery and bedding, and custom closets
and window treatments. Installation services are available for most products at
EXPO Design Center stores, including kitchens, baths, flooring, wallpaper,
tile, lighting fixtures and window treatments. Our project managers ensure that
the products are available and then schedule licensed third party contractors
to complete the work. We warrant the workmanship of each installation for as
long as the customer owns the home.
VILLAGER'S HARDWARE(SM) STORES
During fiscal 1999, we plan to test and develop the Villager's Hardware store
concept by opening the first of four stores in New Jersey. These stores will
stock approximately 35,000 to 40,000 items, including variations in color and
size, including hardware, fasteners, tools, plumbing, electrical and seasonal,
as well as a broad selection of home enhancement products, including paint and
wallpaper, window treatments, lighting, storage, housewares and giftware. We
believe that the primary focus for these stores will be home enhancement and
small projects. Each Villager's Hardware store is expected to have
approximately 30,000 to 40,000 square feet of selling space in a retail
environment, emphasizing customer service and education.
DIRECT MARKETING SALES
We have two subsidiaries that sell merchandise through direct marketing:
- MAINTENANCE WAREHOUSE. Our Maintenance Warehouse subsidiary
is a leading provider of maintenance, repair and operations
products to the multi-family housing and lodging facilities
management market. Through its catalog, which is published
semi-annually, Maintenance Warehouse offers approximately
11,750 items, including variations in color and size.
Maintenance Warehouse emphasizes accurate order taking and
delivery and personalized service, and the company employs
approximately 600 people. Orders are typically placed over
the telephone, filled through one of Maintenance Warehouses'
13 distribution centers and shipped for next-day delivery.
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- NATIONAL BLINDS & WALLPAPER, INC. National Blinds and
Wallpaper, Inc. sells decor products through telephone sales.
The company, which is one of the leaders in its industry,
markets primarily through magazine advertising aimed at
customers seeking the lowest prices. The company maintains no
inventory, but rather acts as a broker to fill special order
sales.
STORE SUPPORT SERVICES
INFORMATION SYSTEMS. Each Home Depot and EXPO Design Center store is equipped
with a computerized point of sale system, electronic bar code scanning system
and a UNIX server. Store information is communicated to the Store Support
Center's computers via a land-based frame relay network. These computers
provide corporate, financial, merchandising and other back office function
support. We believe our systems provide efficient customer check-out (with a
greater than 90% rate of scannable products), store-based inventory management,
rapid order replenishment, labor planning support and item movement
information. Fast registers, credit authorizations and check approvals expedite
transactions in our stores at a pace that we believe sets the standard for our
industry. For example, to better serve the increasing number of customers
applying for credit, the charge card approval process time has been reduced to
less than 30 seconds.
We have implemented a mobile ordering system in our Home Depot stores using
portable carts with computers to assist our associates in placing accurate
orders for inventory. Through the system, an associate on the sales floor can
see the supply the store has for a given item, review the suggested re-order
quantities based on the store's historical experience and place an order with
the vendor. We believe the system increases the efficiency and productivity of
our associates because it requires less time and fewer people to assess and
order inventory.
We are continuously assessing and upgrading our information systems to support
growth, reduce and control costs and enable our associates to make better
decisions. We continue to realize greater efficiency as a result of our
electronic data interchange program. Currently, most of our high volume vendors
are participating in the EDI program, which represents more than 75% of our
total volume. EDI is a paperless system, which processes orders from buying
offices to vendors, alerts the stores when the merchandise is to arrive and
transmits invoice data from the vendors and freight carriers to the Store
Support Center.
ASSOCIATE DEVELOPMENT. As of January 31, 1999, we employed approximately
157,000 associates, of whom approximately 9,420 were salaried, with the
remainder compensated on an hourly basis. Approximately 75% of our associates
are employed on a full-time basis. To attract and retain qualified personnel,
we seek to maintain salary and wage levels above those of our competitors in
each market area. Store managers have access to information regarding
competitive salary rates in their respective markets.
In fiscal 1998, we enhanced our training programs in a continuing effort to
service the needs of our associates. These programs are designed to increase
associates' knowledge of merchandising departments and products, including
mandatory product knowledge training classes, and to educate,
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develop and test the skills of those associates who are interested in being
promoted. Because our policy is to promote or relocate current associates to
serve as store managers and assistant managers for new stores, training and
assessment of our associates is essential to our growth. Our district managers
and store managers typically meet with our human resource associates concerning
their assistant managers and certain department heads to discuss their
development and consider possible candidates for promotion.
Also during fiscal 1998, we implemented programs to ensure that we hire and
promote the best qualified associates in a non-discriminatory way. These
programs integrate validated computerized tests for all applicants, as well as
specialized tests for certain positions. If an applicant passes the computer
test, he or she may be selected for a structured interview in which questions
selected by the computer as a result of the answers given on the test will be
asked. We also maintain a list of qualified associates who are interested in a
new assignment and applicants that can be reviewed when positions become
available.
We have never experienced a strike or any work stoppage, and we believe that
our employee relations are good. There are no collective bargaining agreements
covering any of our associates.
MARKETING. We are one of the nation's largest retail advertisers utilizing all
forms of mass media and selected forms of highly targeted media. We also
incorporate major sponsorships into our marketing plan, such as NASCAR(R), the
Olympics, home and garden shows and sports teams. We extend our reach and
educate our customers through proprietary publications, such as Home
Improvement 1-2-3(TM), of which over one million copies have been sold. These
books are sold not only in our stores, but also through traditional and
Internet book sellers.
We execute our marketing campaigns on both a national and regional basis.
Because our stores are located throughout the United States and Canada, we can
achieve greater efficiencies than smaller retailers by using national
advertising. At the same time, we tailor a significant portion of our
advertising regionally to respond to market differences, both in terms of
products and the competitive environment.
INTELLECTUAL PROPERTY. Through our subsidiary, Homer TLC, Inc., we have
registered or applied for registration of a variety of trade names, service
marks or trademarks for use in our business, including The Home Depot(R), the
"Homer"(R) character, Villager's Hardware(SM) and EXPO Design Center(SM) stores.
We regard our intellectual property as having significant value and as being an
important factor in the marketing of the Company and our stores and direct
marketing efforts. We are not aware of any facts that could be expected to
negatively impact our continuing use of any of our intellectual property.
QUALITY ASSURANCE PROGRAM. As part of our import merchandise program, we have
implemented a quality assurance program. Through this program, we develop and
document specifications for the products we import. Additionally, before we
begin importing goods from a vendor, we typically retain independent certified
assessors to conduct an inspection of the vendor's factory, based on standards
that we have developed. Through these inspections,
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we ensure that the factories can manufacture the products to our specifications
and also try to ensure that they are not using forced or child labor. After a
vendor's factory passes this initial inspection, our independent certified
assessors typically inspect every shipment for product quality.
LOGISTICS. We use several mechanisms to lower distribution costs and increase
our efficiencies. The vast majority of our products are shipped from the
manufacturer directly to the stores. Certain import products require the use of
distribution centers. Accordingly, we have four distribution centers, located
in Savannah, Georgia (approximately 1.4 million square feet); Cranbury, New
Jersey (approximately 812,000 square feet); Ontario, California (approximately
317,000 square feet); and Ontario, Canada (approximately 135,000 square feet).
Additionally, at the end of fiscal 1998, we had 23 lumber distribution
facilities located throughout the United States and Canada to support the
lumber demands of our stores. We also opened a transit facility in Philadelphia
during fiscal 1998. At this facility, we receive merchandise from manufacturers
and immediately load it onto trucks for delivery to our stores.
COMPETITION. Our business is highly competitive, based in part on price, store
location, customer service and depth of merchandise. In each of the markets we
serve, there are a number of other chains of electrical, plumbing and building
materials supply houses, lumber yards and home improvement stores. With respect
to some products, we also compete with discount stores, local, regional and
national hardware stores, mail order firms, warehouse clubs, independent
building supply stores and, to a lesser extent, other retailers. In addition to
these entities, our EXPO Design Center stores also compete with specialty
design stores or showrooms, some of which are only open to interior design
professionals.
Due to the variety of competition we face, we are unable to precisely measure
our market share in existing market areas. We believe that we are an effective
and significant competitor in our markets. Based on U.S. Census data estimates,
internal estimates and data provided by the Home Improvement Research
Institute, we believe that our market share in the U.S. and Canada, currently
defined as including the Do-It-Yourself/Buy-It-Yourself, Tradesmen,
Builders/General Contractors, Heavy Industrial, Repair and Remodeling and
Property Maintenance markets, is approximately 8%.
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EXECUTIVE OFFICERS
The following provides information as of January 31, 1999 concerning our
executive officers:
BERNARD MARCUS, age 69, is a co-founder of The Home Depot and serves
as Chairman of the Board. From inception of the Company in 1978 until 1997, he
served as Chairman of the Board and Chief Executive Officer, at which time the
title of CEO was passed on to Mr. Arthur M. Blank. Mr. Marcus serves as a
director on the boards of National Service Industries, Inc., The New York Stock
Exchange, Inc., Westfield Corporation, Inc. and DBT Online, Inc.
ARTHUR M. BLANK, age 56, has been the President, Chief Operating
Officer and a director of The Home Depot since its inception in 1978 and was
named CEO in 1997. He is, together with Mr. Bernard Marcus and Mr. Kenneth G.
Langone, a co-founder of the Company. Mr. Blank is a member of the Board of
Directors of Cox Enterprises, Inc. and Post Properties, Inc.
RONALD M. BRILL, age 55, has been Executive Vice President and Chief
Administrative Officer of the Company since 1995. Mr. Brill joined The Home
Depot as Controller in 1978, was elected Treasurer in 1980, Vice
President-Finance in 1981, Senior Vice President and Chief Financial Officer in
1984, Executive Vice President and CFO in 1993 and was elected as a director in
1987.
MARK R. BAKER, age 41, has been President of the Midwest Division since
1997. Mr. Baker joined the Company in 1996 as Vice President-Merchandising for
the Midwest Division. Prior to joining The Home Depot, from 1992 until 1996, Mr.
Baker was an Executive Vice President - Merchandising for HomeBase in Fullerton,
California.
BRUCE W. BERG, age 50, had been President of the Southeast Division
since 1991. Mr. Berg joined the Company in 1984 as Vice President-Merchandising
(East Coast) and was promoted to Senior Vice President (East Coast) in 1988.
Mr. Berg retired from the Company in February 1999.
DENNIS J. CAREY, age 52, has been Executive Vice President and Chief
Financial Officer since May 1998. From 1994 to 1998, Mr. Carey was employed by
AT&T Corp., most recently as Vice President and General Manager - Corporate
Productivity and Mergers and Acquisitions. Prior to joining AT&T, Mr. Carey
held a number of positions during his 25 year tenure with General Electric
Company, including Vice President and General Manager of International
Operations.
JEFFREY W. COHEN, age 40, has been Group President - Direct Marketing
Businesses since May 1998. From January 1997 until he joined The Home Depot,
Mr. Cohen was President of Cohen & Associates Management Consultants. From 1995
through 1997, he was Executive Vice President of Harte-Hanks Direct Marketing
and prior thereto he was a Senior Vice President - General Manager at GE
Capital Corp.
11
<PAGE> 14
MARSHALL L. DAY, age 55, has been Senior Vice President-Finance and
Accounting since 1998. Mr. Day previously served as Senior Vice President -
Chief Financial Officer from 1995 to 1998 and as Senior Vice President -
Finance from 1993 to 1995.
BILL HAMLIN, age 46, has been Group President since 1998 and has been
Executive Vice President - Merchandising since 1994. Mr. Hamlin served as
President of the Western Division from 1990 until 1994.
VERNON JOSLYN, age 47, has been President of the Northeast Division
since 1996. Mr. Joslyn previously served as Vice President-Operations for the
Northeast Division from 1993 until his promotion to his current position.
LYNN MARTINEAU, age 42, has been President of the Western Division
since 1996. Mr. Martineau most recently served as Vice President-Merchandising
for the Southeast Division from 1989 until his promotion to his current
position.
W. ANDREW McKENNA, age 53, has been Senior Vice President-Strategic
Business Development since December 1997. Mr. McKenna joined The Home Depot as
Senior Vice President-Corporate Information Systems in 1990. In 1994, he was
named President of the Midwest Division, a position he held until he assumed the
duties of his current position.
LARRY M. MERCER, age 52, has been Group President since 1998 and has
been Executive Vice President-Operations since 1996. Mr. Mercer previously
served as President of the Northeast Division from 1991 until his promotion in
1996.
STEPHEN R. MESSANA, age 54, has been Senior Vice President - Human
Resources since 1993.
BARRY L. SILVERMAN, age 40, has been President of the Southwest
Division since July 1997. Mr. Silverman previously served as Vice
President-Merchandising of the Northeast Division from 1991 until his promotion
to his current position.
LAWRENCE A. SMITH, age 51, has been Senior Vice President - Legal
since February 1998. Mr. Smith has been employed by the Company since 1983 and
served as Vice President - Legal prior to his promotion to his current
position. Mr. Smith is the nephew of Mr. Marcus.
DAVID SULITEANU, age 46, has served as Group President - Diversified
Businesses since April 1998. Mr. Suliteanu previously served as Vice Chairman
and Director of Stores for Macy's East, a position he held from 1993 until he
joined The Home Depot.
ANNETTE M. VERSCHUREN, age 42, has been President of The Home Depot
Canada since 1996. In 1992, Ms. Verschuren formed Verschuren Ventures Inc. and
remained there until joining Michaels of Canada Inc. in 1993, where she served
as President until joining The Home Depot.
12
<PAGE> 15
M. FAYE WILSON, age 61, has served as Senior Vice President - Value
Initiatives since 1998 and as a director since 1992. From 1992 until joining
The Home Depot, she was an Executive Vice President of Bank of America NT&SA.
Ms. Wilson serves as a director of Farmers Insurance Group.
13
<PAGE> 16
Item 2. PROPERTIES
The following tables show the number of Home Depot store locations by
state in the United States and internationally as of January 31, 1999:
<TABLE>
<CAPTION>
Number of Stores
State in State
- ---------------------------------------------------
<S> <C>
Alabama 6
Alaska 1
Arizona 21
Arkansas 3
California 106
Colorado 13
Connecticut 13
Delaware 3
Florida 72
Georgia 39
Idaho 2
Illinois 26
Indiana 3
Iowa 2
Kansas 3
Kentucky 5
Louisiana 12
Maine 2
Maryland 17
Massachusetts 21
Michigan 26
Minnesota 10
Mississippi 4
Missouri 9
Montana 1
Nevada 6
New Hampshire 5
New Jersey 27
New Mexico 3
New York 38
North Carolina 18
Ohio 17
Oklahoma 6
Oregon 8
Pennsylvania 23
Rhode Island 1
South Carolina 10
Tennessee 19
Texas 63
Utah 6
Vermont 1
Virginia 18
Washington 15
Wisconsin 3
---
Subtotal 707
---
</TABLE>
14
<PAGE> 17
<TABLE>
<CAPTION>
Number of Stores
International Location in Location
-----------------------------------------------
<S> <C>
Canadian Provinces
Alberta 6
British Columbia 8
Manitoba 2
Ontario 26
Saskatchewan 1
Latin America
Chile 2
Puerto Rico 1
---
Subtotal 46
---
TOTAL HOME DEPOT STORES 753
===
</TABLE>
The following table shows the number of EXPO Design Center store locations by
state as of January 31, 1999:
<TABLE>
<CAPTION>
Number of Stores
State In State
---------------------------------------------------------
<S> <C>
California 1
Florida 3
Georgia 1
New York 1
Texas 2
-
TOTAL EXPO DESIGN CENTER STORES 8
=
</TABLE>
Of our 761 Home Depot stores and EXPO Design Center stores at January
31, 1999, approximately 75% were owned (including those owned subject to a
ground lease) consisting of approximately 60,734,000 square feet and
approximately 25% were leased consisting of approximately 20,793,000 square
feet. In recent years, we have increased the relative percentage of new stores
that are owned. Although we take advantage of lease financing opportunities, we
generally prefer to own stores because of greater operating control and
flexibility, generally lower occupancy costs and certain other economic
advantages.
Our executive, corporate staff and accounting offices occupy
approximately 1,308,000 square feet of leased and owned space in Atlanta,
Georgia. We are currently building an additional approximately 632,000 square
feet of office space in Atlanta. In addition, as of January 31, 1999, we
occupied an aggregate of approximately 997,000 square feet, of which
approximately 236,000 square feet is owned and approximately 761,000 square
feet is leased, for divisional store support centers and subsidiary customer
support centers. These support centers are located in Fullerton and San Diego,
California; Tampa, Florida; Atlanta, Georgia; Arlington, Illinois; Southfield,
Michigan; South Plainfield, New Jersey; Dallas, Texas; Tukwila, Washington;
Scarborough, Ontario, Canada; and Santiago, Chile.
15
<PAGE> 18
At January 31, 1999, we utilized approximately 5,816,000 square feet
of warehousing and distribution space, of which approximately 709,000 is owned
and approximately 5,107,000 is leased.
We believe that at the end of existing lease terms, our current leased
space can be either relet or replaced by alternate space for lease or purchase
that is readily available.
Item 3. LEGAL PROCEEDINGS
We have litigation arising from the normal course of business. In our
opinion, this litigation will not materially affect our consolidated financial
position or the results of operations.
In fiscal 1997, we settled, without admitting wrongdoing, a class
action lawsuit and three other lawsuits seeking class action status, each of
which involved claims of gender discrimination. In connection with these
settlements, we expedited the implementation of certain programs and practices
to ensure that we are hiring, assigning, promoting and paying our associates in
a non-discriminatory manner. These programs and practices include using minimum
objective and job-related criteria for filling certain positions, implementing
training for managers and supervisors and developing a system to allow
qualified applicants and associates to register their interest in certain
positions. Additionally, we are monitoring and reporting to plaintiffs' counsel
the progress of the implementation of these programs and practices.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the
fourth quarter of fiscal 1998.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Since April 19, 1984, our common stock has been listed on the New York
Stock Exchange under the symbol "HD." The table below sets forth the low and
high sales prices of our common stock on the New York Stock Exchange Composite
Tape as reported in The Wall Street Journal and the quarterly cash dividends
declared per share of common stock during the periods indicated.
16
<PAGE> 19
<TABLE>
<CAPTION>
PRICE RANGE* CASH
----------------- DIVIDENDS
LOW HIGH DECLARED*
--- ---- ---------
<S> <C> <C> <C>
FISCAL YEAR 1997
First Quarter ended May 4, 1997 $16.50 $19.54 $.020
Second Quarter ended August 3, 1997 19.13 25.00 .025
Third Quarter ended November 2, 1997 23.53 28.32 .025
Fourth Quarter ended February 1, 1998 26.47 30.82 .025
FISCAL YEAR 1998
First Quarter ended May 3, 1998 $30.63 $36.34 $.025
Second Quarter ended August 2, 1998 33.84 49.00 .030
Third Quarter ended November 1, 1998 31.63 45.94 .030
Fourth Quarter ended January 31, 1999 43.13 62.00 .030
FISCAL YEAR 1999
First Quarter (through April 16, 1999) $53.81 $67.94 --
</TABLE>
- ---------------------------
*On July 2, 1998, there was a two-for-one stock split on all shares of stock
owned by stockholders as of June 11, 1998. On July 3, 1997, there was a
three-for-two stock split on all shares of stock owned by stockholders as of
June 12, 1997. The prices and dividends in the table set forth above have been
adjusted to reflect these splits.
The Company paid its first cash dividend on June 22, 1987, and has
paid dividends, during each subsequent quarter. Future dividend payments will
depend on the Company's earnings, capital requirements, financial condition and
other factors considered relevant by the Board of Directors.
The number of record holders of The Home Depot's Common Stock as of
April 15, 1999 was 151,178 (excluding individual participants in nominee
security position listings).
Item 6. SELECTED FINANCIAL DATA
We refer you to "Ten Year Summary of Financial and Operating Results"
contained in our Annual Report to Stockholders for the fiscal year ended
January 31, 1999 for information on fiscal years 1994-1998.
17
<PAGE> 20
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
The data below reflect selected sales data, the percentage relationship between
sales and major categories in the Consolidated Statements of Earnings and the
percentage change in the dollar amounts of each of the items.
<TABLE>
<CAPTION>
PERCENTAGE
INCREASE (DECREASE)
IN DOLLAR AMOUNTS
FISCAL YEAR(1) ---------------------
SELECTED CONSOLIDATED ------------------------------------------- 1998 1997
STATEMENTS OF EARNINGS DATA 1998 1997 1996 vs. 1997 vs. 1996
- --------------------------- ---- ---- ---- -------- --------
<S> <C> <C> <C> <C> <C>
NET SALES ........................................... 100.0% 100.0% 100.0% 25.1% 23.7%
GROSS PROFIT ........................................ 28.5 28.1 27.8 26.9 24.8
OPERATING EXPENSES:
Selling and Store Operating(2) .................. 17.7 17.8 18.0 24.1 21.9
Pre-Opening ..................................... 0.3 0.3 0.3 34.1 19.7
General and Administrative ...................... 1.7 1.7 1.7 24.9 27.2
Non-Recurring Charge ............................ -- 0.4 -- NM(3) NM(3)
--------- --------- --------- ----- -----
Total Operating Expenses ..................... 19.7 20.2 20.0 21.7 25.0
--------- --------- --------- ----- -----
OPERATING INCOME ............................. 8.8 7.9 7.8 40.4 24.3
INTEREST INCOME (EXPENSE):
Interest and Investment Income .................. 0.1 0.2 0.1 (32.1) 73.8
Interest Expenses ............................... (0.1) (0.2) -- (11.0) 160.8
--------- --------- --------- ----- -----
Interest, net ................................ -- -- 0.1 (386.2) (73.7)
--------- --------- --------- ----- -----
Earning Before Income Taxes .................. 8.8 7.9 7.9 39.8 23.7
Income Taxes ........................................ 3.5 3.1 3.1 40.9 23.7
--------- --------- --------- ----- -----
NET EARNINGS ................................. 5.3% 4.8% 4.8% 39.1% 23.7%
--------- --------- --------- ----- -----
SELECTED CONSOLIDATED SALES DATA
Number of Transactions (000s) ....................... 665,125 550,226 464,089 20.9% 18.6%
Average Sale per Transaction ........................ $ 45.05 $ 43.63 $ 42.09 3.3 3.7
Weighted Average Weekly Sales Per Operating Store ... $ 844,000 $ 829,000 $ 803,000 1.8 3.2
Weighted Average Sales per Square Foot .............. $ 409.79 $ 405.56 $ 398.29(4) 1.0 1.8
</TABLE>
- ----------------------
(1) Fiscal years 1998, 1997 and 1996 refer to the fiscal years ended January
31, 1999; February 1, 1998; and February 2, 1997, respectively.
(2) Minority interest has been reclassified to selling and store operating
expenses.
(3) Not meaningful.
(4) Adjusted to reflect the first 52 weeks of the 53-week fiscal year in 1996.
18
<PAGE> 21
RESULTS OF OPERATIONS
For an understanding of the significant factors that influenced the Company's
performance during the past three fiscal years, the following discussion should
be read in conjunction with the consolidated financial statements presented in
our Annual Report to Stockholders for the fiscal year ended January 31, 1999.
FISCAL YEAR ENDED JANUARY 31, 1999 COMPARED TO FEBRUARY 1, 1998
Net sales for fiscal 1998 increased 25.1% to $30.2 billion from $24.2 billion
in fiscal 1997. This increase was attributable to, among other things, full
year sales from the 112 new stores opened during fiscal 1997, a 7% comparable
store-for-store sales increase, and 138 new store openings and 4 store
relocations during fiscal 1998. One store opened during fiscal 1998 was
subsequently closed during the year and is planned to reopen during fiscal
1999.
Gross profit as a percent of sales was 28.5% for fiscal 1998 compared to 28.1%
for fiscal 1997. The rate increase was primarily attributable to a lower cost
of merchandise resulting from product line reviews and other merchandising
initiatives begun in fiscal 1996 and continued through fiscal 1997 and 1998. In
addition, sales mix changes, better inventory shrink results, and benefits from
import strategies contributed to the overall gross profit improvement.
Operating expenses as a percent of sales were 19.7% for fiscal 1998 compared to
20.2% for fiscal 1997. Operating expenses for fiscal 1997 included a $104
million non-recurring charge related to the settlements of a class action
gender discrimination lawsuit and three other gender discrimination lawsuits.
Excluding the non-recurring charge, operating expenses as a percent of sales
were 19.8% for fiscal 1997.
Selling and store operating expenses as a percent of sales decreased to 17.7%
in fiscal 1998 from 17.8% in fiscal 1997. The decrease was primarily
attributable to lower net advertising expenses resulting from higher
cooperative advertising participation by vendors, increased use of national
advertising and leverage achieved from opening stores in existing markets. In
addition, improved claims management and focus on safety programs resulted in
lower workers' compensation and general liability claims experience as a
percent of sales. Also, minority interest decreased from fiscal 1997, mainly
due to the purchase of the remaining 25% of The Home Depot Canada partnership
from The Molson Companies during the first quarter of fiscal 1998. Partially
offsetting these decreases were higher medical costs from increased family
enrollment in the Company's medical plans and higher store selling payroll
expenses as a percent of sales. The increase in store selling payroll expenses
was primarily due to increased sales penetrations in higher margin decor
categories, which require more hours and higher average pay rates to support.
Overall productivity, in terms of sales per labor hour, increased from fiscal
1997.
Pre-opening expenses as a percent of sales were 0.3% for both fiscal 1998 and
1997. The Company opened 138 new stores and relocated 4 stores in fiscal 1998,
and opened 112 new
19
<PAGE> 22
stores and relocated 5 stores in fiscal 1997. Pre-opening expenses averaged
$618,000 per store in fiscal 1998 compared to $559,000 per store in fiscal
1997. The higher average expense resulted primarily from the Company's initial
entry into markets such as Chile, Puerto Rico and Alaska, which involve longer
pre-opening periods and higher travel and relocation costs.
General and administrative expenses as a percent of sales were 1.7% for both
fiscal 1998 and 1997. Incremental expenses related to long-term growth and
business planning initiatives incurred in fiscal 1998 were offset by
efficiencies realized from increased sales.
Interest and investment income as a percent of sales decreased to 0.1% in
fiscal 1998 from 0.2% in fiscal 1997 due to lower investment balances and lower
interest rates. Interest expense as a percent of sales was 0.1% in fiscal 1998
compared to 0.2% in fiscal 1997. The decrease from fiscal 1997 was primarily
attributable to economies realized from a 25.1% increase in sales for fiscal
1998 and higher capitalized interest resulting from a higher percentage of
owned stores under construction.
The Company's combined federal and state effective income tax rate was 39.2%
for fiscal 1998 compared to 38.9% for fiscal 1997. The increase was due to a
reduction in tax-exempt interest income as investment balances declined during
the year and to higher effective state tax rates.
Net earnings as a percent of sales were 5.3% for fiscal 1998 compared to 4.8%
for fiscal 1997, reflecting a higher gross profit rate, lower selling and store
operating expenses as a percent of sales and the non-recurring charge recorded
in fiscal 1997. Diluted earnings per share were $1.06 for fiscal 1998 compared
to $0.78 for fiscal 1997. Excluding the non-recurring charge, diluted earnings
per share were $0.82 for fiscal 1997.
FISCAL YEAR ENDED FEBRUARY 1, 1998 COMPARED TO FEBRUARY 2, 1997
Fiscal 1997 consisted of 52 weeks compared to 53 weeks in fiscal 1996. Net
sales for fiscal 1997 increased 23.7% to $24.2 billion from $19.5 billion in
fiscal 1996. The increase was attributable to, among other things, full year
sales from the 89 new stores opened during fiscal 1996, a 7% comparable 52-week
store-for-store sales increase, and 112 new store openings and 5 store
relocations during fiscal 1997. The percentage increase in sales was negatively
impacted by one less week of sales in fiscal 1997 versus fiscal 1996.
Gross profit as a percent of sales was 28.1% for fiscal 1997 compared to 27.8%
for fiscal 1996. The rate increase was primarily attributable to a lower cost
of merchandise resulting from product line reviews and other merchandising
initiatives begun in fiscal 1996 and continued through fiscal 1997. In
addition, lower and more stable lumber costs, sales mix changes, and better
inventory shrink results contributed to the gross profit improvement.
Operating expenses as a percent of sales were 20.2% for fiscal 1997 compared to
20.0% for fiscal 1996. Operating expenses for fiscal 1997 included a $104
million non-recurring charge related to the settlements of a class action
gender
20
<PAGE> 23
discrimination lawsuit and three other gender discrimination lawsuits. The
non-recurring charge included $65 million for the plaintiff class members,
$22.5 million for the plaintiffs' attorneys and approximately $17 million for
other related internal costs, including implementation or enhancement of
certain human resources programs, as well as the settlement terms of the three
other lawsuits. Excluding the non-recurring charge, operating expenses as a
percent of sales were 19.8% for fiscal 1997.
Selling and store operating expenses as a percent of sales decreased to 17.8%
in fiscal 1997 from 18.0% in fiscal 1996. The decrease was primarily
attributable to lower net advertising expenses resulting from higher
cooperative advertising participation by vendors and increased use of national
advertising, as well as lower medical insurance costs primarily due to a higher
percentage of the Company's associates using in-network providers. Partially
offsetting these decreases were higher store payroll expenses as a percent of
sales, mainly due to increased focus on certain higher margin merchandising
categories that require more labor hours to support, such as flooring and other
decor areas.
Pre-opening expenses as a percent of sales were 0.3% for both fiscal 1997 and
1996. The Company opened 112 new stores and relocated 5 stores in fiscal 1997,
and opened 89 new stores and relocated 7 stores in fiscal 1996. Pre-opening
expenses averaged $559,000 per store in fiscal 1997 compared to $570,000 per
store in fiscal 1996.
General and administrative expenses as a percent of sales were 1.7% for both
fiscal 1997 and 1996. Incremental expenses related to long-term growth and
business planning initiatives incurred in fiscal 1997 were partially offset by
efficiencies realized from increased sales.
Interest and investment income as a percent of sales increased to 0.2% in
fiscal 1997 from 0.1% in fiscal 1996 due to a full year of investment income
earned in fiscal 1997 from the proceeds of the issuance of $1.1 billion of the
Company's 3 1/4% Convertible Subordinated Notes ("3 1/4% Notes") in October
1996 (see "--Liquidity and Capital Resources"). Interest expense as a percent
of sales was 0.2% in fiscal 1997 compared to 0% in fiscal 1996. The increase
from the prior year was primarily attributable to a full year of interest
expense on the 3 1/4% Notes in fiscal 1997, compared to a partial year of
interest expense on the 3 1/4% Notes and lower levels of long-term debt prior
to issuance of the 3 1/4% Notes in fiscal 1996.
The Company's combined federal and state effective income tax rate was 38.9%
for both fiscal 1997 and 1996.
Net earnings as a percent of sales were 4.8% for both fiscal 1997 and 1996,
reflecting a higher gross profit percentage and lower selling and store
operating expenses as a percent of sales, offset by the non-recurring charge
recorded during fiscal 1997, as described above. Diluted earnings per share
were $0.78 for fiscal 1997 compared to $0.65 for fiscal 1996. Excluding the
non-recurring charge, diluted earnings per share were $0.82 for fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow generated from store operations provides the Company with a
significant source of
21
<PAGE> 24
liquidity. Additionally, a significant portion of the Company's inventory is
financed under vendor credit terms.
The Company plans to open approximately 167 new stores and relocate 8 existing
stores during fiscal 1999. It is anticipated that approximately 84% of these
locations will be owned, and the remainder will be leased. The Company also
plans to open approximately 200 stores, including relocations, in fiscal 2000.
During the last three fiscal years, the Company entered into two operating
lease agreements totaling $882 million for the purpose of financing
construction costs of certain new stores. Under the operating lease agreements,
the lessor purchases the properties, pays for the construction costs and
subsequently leases the facilities to the Company. The leases provide for
substantial residual value guarantees and include purchase options at original
cost on each property. The Company financed a portion of its new stores in
fiscal 1997 and 1998 under the operating lease agreements and anticipates
utilizing these facilities to finance selected new stores in fiscal 1999 and
2000 and an office building in fiscal 1999. In addition, some locations for
fiscal 1999 will be leased individually.
The cost of new stores to be constructed and owned by the Company varies
widely, principally due to land costs, and is currently estimated to average
approximately $12.9 million per location. The cost to remodel and/or fixture
stores to be leased is expected to average approximately $3.2 million per
store. In addition, each new store will require approximately $3.1 million to
finance inventories, net of vendor financing.
During fiscal 1996, the Company issued, through a public offering, $1.1 billion
of 3 1/4% Convertible Subordinated Notes due October 1, 2001. The 3 1/4% Notes
were issued at par and are convertible into shares of the Company's common
stock at any time prior to maturity, unless previously redeemed by the Company,
at a conversion price of $23.0417 per share, subject to adjustment under
certain conditions. The 3 1/4% Notes may be redeemed by the Company at any time
on or after October 2, 1999, in whole or in part, at a redemption price of
100.813% of the principal amount and after October 1, 2000, at 100% of the
principal amount. The Company used the net proceeds from the offering to repay
outstanding commercial paper obligations, to finance a portion of the Company's
capital expenditure program, including store expansions and renovations, and
for general corporate purposes.
The Company has a commercial paper program that allows borrowings up to a
maximum of $800 million. As of January 31, 1999, there was $246 million
outstanding under the program. In connection with the program, the Company has
a back-up credit facility with a consortium of banks for up to $800 million.
The credit facility, which expires in December 2000, contains various
restrictive covenants, none of which is expected to impact the Company's
liquidity or capital resources.
As of January 31, 1999, the Company had $62 million in cash and cash
equivalents. Management believes that its current cash position, internally
generated funds, funds available from its $800 million commercial paper
program, funds available from the operating lease
22
<PAGE> 25
agreements, and the ability to obtain alternate sources of financing should
enable the Company to complete its capital expenditure programs, including
store openings and renovations, through the next several fiscal years.
YEAR 2000
The Company is currently addressing a universal situation commonly referred to
as the "Year 2000 Problem." The Year 2000 Problem relates to the inability of
certain computer software programs to properly recognize and process
date-sensitive information relative to the year 2000 and beyond. During fiscal
1997, the Company developed a plan to devote the necessary resources to
identify and modify internal systems impacted by the Year 2000 Problem, or
implement new systems to become year 2000 compliant in a timely manner. This
compliance plan consists of four major areas of focus: systems, desktops,
facilities and supplier management. The total cost of executing this plan is
estimated at $13 million, and as of January 31, 1999, the Company had expended
approximately $8.75 million to effect the plan.
The Company has completed the initial phases of the systems portion of the
compliance plan. The initial phases included completing an inventory of all
software programs operating on Company systems and identifying year 2000
problems. The next phase involved creating an appropriate testing environment,
and as of January 31,1999, this phase was substantially complete. Subsequent
phases of the systems portion of the compliance plan involve testing and
installing year 2000 compliant software in the production environment, which
were approximately 95% and 80% complete, respectively, at the end of fiscal
1998. The Company anticipates substantially completing the systems portion of
its compliance plan by the end of the first quarter of fiscal 1999.
All desktop applications critical to the Company's overall business have been
inventoried and evaluated under the method described above, and as of January
31, 1999, this process was complete. Desktop infrastructure is also being
tested and is expected to be substantially complete during the first quarter of
fiscal 1999.
Substantially all critical facilities systems, including, but not limited to,
security systems, energy management, material handling, copiers and faxes, have
been inventoried and are being tested. As of January 31, 1999, this process was
approximately 60% complete. The Company anticipates completing the facilities
systems portion of its compliance plan before the end of the second quarter of
fiscal 1999.
The Company is assessing the year 2000 compliance status of its suppliers, many
of which participate in electronic data interchange ("EDI") or similar programs
with the Company. The Company anticipates conducting substantial testing with
EDI merchandise suppliers during 1999. In addition, the Company plans to
communicate with all its transportation carriers and to conduct similar
testing. With respect to merchandise suppliers participating in EDI programs
with the Company, the Company anticipates conducting point-to-point testing of
these EDI systems for year 2000 compliance.
23
<PAGE> 26
The Company's risks involved with not solving the Year 2000 Problem include,
but are not limited to, the following: loss of local or regional electrical
power, loss of telecommunication services, delays or cancellations of
merchandise shipments, manufacturing shutdowns, delays in processing customer
transactions, bank errors and computer errors by suppliers. Because the
Company's year 2000 compliance is dependent upon certain third parties
(including infrastructure providers) also being year 2000 compliant on a timely
basis, there can be no assurance that the Company's efforts will prevent a
material adverse impact on its results of operations, financial condition or
business.
The Company is modifying its existing disaster recovery plans to include year
2000 contingency planning. Also, the Company is identifying critical activities
that would normally be conducted during the first two weeks of January 2000,
which may be completed instead in December 1999. The Company expects its year
2000 contingency planning to be substantially complete by the end of the second
quarter of fiscal 1999, and to test and modify contingency plans throughout the
remainder of 1999.
IMPACT OF INFLATION AND CHANGING PRICES
Although the Company cannot accurately determine the precise effect of
inflation on its operations, it does not believe inflation has had a material
effect on sales or results of operations.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative
Instruments and Hedging Activities," effective for all fiscal quarters of
fiscal years beginning after June 15, 1999.
SFAS 133 requires all derivatives to be carried on the balance sheet at fair
value. Changes in the fair value of derivatives must be recognized in the
Company's Consolidated Statements of Earnings when they occur; however, there
is an exception for derivatives that qualify as hedges as defined by SFAS 133.
If a derivative qualifies as a hedge, a company can elect to use "hedge
accounting" to eliminate or reduce the income statement volatility that would
arise from reporting changes in a derivative's fair value. Adoption of SFAS 133
is not expected to materially impact the Company's reported financial results.
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE
Certain statements we make in this report, and other written or oral statements
made by or on behalf of the Company, may constitute "forward-looking
statements" within the meaning of the federal securities laws. Words or phrases
such as "should result," "are expected to," "we estimate," "we project," or
similar expressions are intended to identify forward-looking statements.
Examples of such statements in this report include descriptions of our plans
with respect to new store openings and relocations, our plans to enter new
markets and expectations relating to our
24
<PAGE> 27
continuing growth. These statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from the
Company's historical experience and its present expectations or projections.
Management believes that these forward-looking statements are reasonable;
however, you should not place undue reliance on such statements. Such
statements speak only as of the date they are made and we undertake no
obligation to publicly update or revise any forward-looking statement, whether
as a result of future events, new information or otherwise.
The following are some of the factors that could cause the Company's
actual results to differ materially from the expected results described in the
Company's forward-looking statements:
- - Conditions affecting the availability, acquisition, development and
ownership of real estate, including local zoning and land use issues,
environmental regulations and general conditions in the commercial
real estate market.
- - Adverse or unanticipated weather conditions, which may affect the
Company's overall level of sales and sales of particular lines of
products, such as building materials, lumber and lawn and garden
supplies.
- - Instability of costs and availability of sourcing channels, which may
affect the prices that the Company pays for certain commodity
products, such as lumber and plywood, as well as the Company's ability
to improve its mix of merchandise. Our cost of sales is affected by
our ability to maintain favorable arrangements and relationships with
our suppliers. Our sources of supply may be affected by trade
restrictions, tariffs, currency exchange rates, transport costs and
capacity, and other factors affecting domestic and international
markets.
- - Our ability to attract, train and retain highly qualified associates
to staff both existing and new stores.
- - Our ability to replace, modify or upgrade computer programs and other
systems in order to adequately address the Year 2000 Problem, and the
ability of our suppliers, other business partners and other entities
to address this issue.
- - The impact of competition, including competition for customers,
locations and products and in other important aspects of our business.
Our primary competitors include chains of electrical, plumbing and
building materials supply houses, lumber yards, home improvement
stores and other local, regional or national hardware stores, as well
as discount department stores and any other channel of distribution
that offers products that we sell. Our business is highly competitive,
and we may face new types of competitors as we enter new markets or
lines of business.
- - General economic conditions, which affect consumer confidence and home
improvement and home-building spending, including interest rates, the
overall level of economic activity, the availability of consumer
credit and mortgage financing and unemployment rates.
25
<PAGE> 28
- - Changes in laws and regulations, including changes in accounting
standards, tax statutes or regulations and environmental and land use
regulations, and uncertainties of litigation.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We have not entered into any transactions using derivative financial
instruments or derivative commodity instruments and believe that our exposure
to market risk associated with other financial instruments (such as
investments) are not material.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
We refer you to the "Consolidated Statements of Earnings,"
"Consolidated Balance Sheets," "Consolidated Statements of Stockholders' Equity
and Comprehensive Income," "Consolidated Statements of Cash Flows," "Notes to
Consolidated Financial Statements" and "Independent Auditors' Report" contained
in our Annual Report to Stockholders for the fiscal year ended January 31,
1999.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
We refer you to our Proxy Statement for the 1999 Annual Meeting of
Stockholders and the heading "Election of Directors and Nominee Biographies,"
"Standing Director Biographies" and "Board of Directors Information."
Biographical information on our executive officers is contained in Item I of
this Annual Report on Form 10-K.
Item 11. EXECUTIVE COMPENSATION
We refer you to the information in our Proxy Statement for the 1999
Annual Meeting of Stockholders under the heading "Executive Compensation."
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
We refer you to the information in our Proxy Statement for the 1999
Annual Meeting of Stockholders under the heading "Stock Ownership."
26
<PAGE> 29
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We refer you to the information in our Proxy Statement for the 1999
Annual Meeting of Stockholders under the heading "Insider Transactions."
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The following financial statements are incorporated by reference from
pages 22 through 33 of our Annual Report to Stockholders for the fiscal year
ended January 31, 1999, as provided in Item 8 hereof:
- Consolidated Statements of Earnings for the fiscal years ended
January 31, 1999; February 1, 1998 and February 2, 1997.
- Consolidated Balance Sheets as of January 31, 1999 and February 1,
1998.
- Consolidated Statements of Stockholders' Equity and Comprehensive
Income for the fiscal years ended January 31, 1999, February 1, 1998 and
February 2, 1997.
- Consolidated Statements of Cash Flows for the fiscal years ended
January 31, 1999, February 1, 1998 and February 1, 1997.
- Notes to Consolidated Financial Statements.
- Independent Auditors' Report.
2. Financial Statement Schedules
All schedules are omitted as the required information is inapplicable
or the information is presented in the consolidated financial statements or
related notes.
(b) Reports on Form 8-K
There were no Current Reports on Form 8-K filed during the fourth
quarter of fiscal 1998.
(c) Exhibits
Exhibits marked with an asterisk (*) are incorporated by reference to
exhibits or appendices previously filed with the SEC, as indicated by the
references in brackets.
27
<PAGE> 30
<TABLE>
<S> <C>
*3.l Restated Certificate of Incorporation of The Home Depot, Inc., as amended. [FORM 10-Q FOR THE FISCAL
QUARTER ENDED AUGUST 2, 1998, EXHIBIT 3.1]
*3.2 By-laws, as amended. [FORM 10-Q FOR THE FISCAL QUARTER END AUGUST 2, 1998, EXHIBIT 3.2]
*4.1 Indenture dated as of October 1, 1996, between The Home Depot, Inc., as issuer and The First National Bank of
Chicago, as trustee for $1,104,000,000 aggregate principal amount of 3 1/4% Convertible Subordinated Notes due
2001. [FORM S-3 REGISTRATION STATEMENT NO. 333-12575, EXHIBIT 4.2]
*10.1 Investment Banking Consulting Contract dated April 17, 1985, between Invemed Associates, Inc. and
the Registrant. [FORM 10-K FOR THE FISCAL YEAR ENDED FEBRUARY 1, 1998, EXHIBIT 10.1]
*10.2 +Corporate Office Management Bonus Plan of the Registrant dated March 1, 1991. [FORM 10-K FOR THE
FISCAL YEAR ENDED FEBRUARY 1, 1998, EXHIBIT 10.2]
*10.3 +Employee Stock Purchase Plan, as amended. [APPENDIX A TO REGISTRANT'S PROXY STATEMENT FOR THE
ANNUAL MEETING OF STOCKHOLDERS HELD MAY 31, 1995]
*10.4 +Senior Officers' Bonus Pool Plan, as amended. [APPENDIX A TO REGISTRANT'S PROXY STATEMENT FOR THE
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD MAY 26, 1999]
*10.5 +Executive Officers' Bonus Plan. [APPENDIX B TO REGISTRANT'S PROXY STATEMENT FOR THE ANNUAL MEETING OF
STOCKHOLDERS HELD MAY 27, 1998]
*10.6 +The Home Depot, Inc. 1997 Omnibus Stock Incentive Plan. [FORM 10-K FOR THE FISCAL YEAR ENDED FEBRUARY
1, 1998, EXHIBIT 10.5]
10.7 +Executive Medical Reimbursement Plan, effective January 1, 1992.
*10.8 +The Home Depot ESOP Restoration Plan. [FORM 10-K FOR THE FISCAL YEAR ENDED JANUARY 29, 1995, EXHIBIT 10.8]
*10.9 $800,000,000 Credit Agreement dated as of December 20, 1995 among The Home Depot, Inc., the Banks Listed
Therein and Wachovia Bank of Georgia, N.A., as Agent (without exhibits). [FORM 10-K FOR THE FISCAL YEAR
ENDED JANUARY 28, 1996, EXHIBIT 4.1]
10.10 Participation Agreement dated as of October 22, 1998 among The Home Depot, Inc. as Guarantor; Home Depot
U.S.A., Inc. as Lessee; HD Real Estate Funding Corp. II as Facility Lender; Credit Suisse Leasing 92A L.P. as
Lessor; The Bank of New
</TABLE>
28
<PAGE> 31
<TABLE>
<S> <C>
York as Indenture Trustee; and Credit Suisse First Boston Corporation and Invemed
Associates, Inc. as Initial Purchasers.
10.11 Participation Agreement dated as of June 25, 1996 among The Home Depot, Inc. as Guarantor; Home Depot U.S.A.,
Inc. as Lessee and Construction Agent; HD Real Estate Funding Corp. as Facility Lender; the lenders named on
the Schedule thereto as Lenders; Credit Suisse First Boston Corporation as Agent Bank and Lender; and Credit
Suisse Leasing 92A L.P. as Lessor.
10.12 First Amendment and Supplement to the Participation Agreement dated as of May 8, 1997 among The Home Depot,
Inc. as Guarantor; Home Depot U.S.A., Inc. as Lessee and Construction Agent; HD Real Estate Funding Corp. as
Facility Lender; the lenders named on the Schedule thereto as Lenders; Credit Suisse First Boston Corporation
as Agent Bank and Lender; and Credit Suisse Leasing 92A L.P. as Lessor.
10.13 Master Modification Agreement dated as of April 20, 1998 among The Home Depot, Inc. as Guarantor; Home Depot
U.S.A., Inc., as Lessee and Construction Agent; HD Real Estate Funding Corp., as Facility Lender; Credit Suisse
Leasing 92A L.P. as Lessor; the lenders named on the Schedule thereto as Lenders; and Credit Suisse First Boston
Corporation as Agent Bank.
10.14 +Supplemental Executive Choice Program, effective January 1, 1999.
*11 Computation of Earnings Per Common and Common Equivalent Share. [ANNUAL REPORT TO STOCKHOLDERS FOR
THE FISCAL YEAR ENDED JANUARY 31, 1999, FILED HEREWITH AS EXHIBIT 13, NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS, NOTE 7]
13 The Registrant's Annual Report to Stockholders for the fiscal year ended January 31, 1999. Only those portions
of said report which are specifically designated in this Form 10-K as being incorporated by reference are
being electronically filed pursuant to the Securities Exchange Act of 1934.
*21 List of Subsidiaries of the Registrant. [FORM 10-K FOR THE FISCAL YEAR ENDED FEBRUARY 1, 1998, EXHIBIT 21]
23 Consent of Independent Auditors.
24 Special Powers of Attorney authorizing execution of this Form 10-K Annual Report have been granted and are
filed herewith as follows:
Power of Attorney from Frank Borman.
Power of Attorney from John L. Clendenin.
Power of Attorney from Berry R. Cox.
Power of Attorney from Milledge A. Hart, III.
</TABLE>
29
<PAGE> 32
<TABLE>
<S> <C>
Power of Attorney from Donald R. Keough.
Power of Attorney from Kenneth G. Langone.
Power of Attorney from M. Faye Wilson.
27 Financial Data Schedule. [FILED ELECTRONICALLY WITH SEC ONLY.]
</TABLE>
- ---------------
+Management contract or compensatory plan or arrangement required to be filed
as an exhibit to this form pursuant to Item 14(c) of this report.
30
<PAGE> 33
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
THE HOME DEPOT, INC.
By: /s/ Arthur M. Blank
---------------------------------------
(Arthur M. Blank, President & CEO)
Date: April 16, 1999
------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant, The Home Depot, Inc., and in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Bernard Marcus Chairman of the Board April 16, 1999
- ----------------------------
(Bernard Marcus)
/s/Arthur M. Blank President & CEO April 16, 1999
- ---------------------------- and Director
(Arthur M. Blank) (Principal Executive Officer)
/s/ Ronald M. Brill Executive Vice President,
- ---------------------------- Chief Administrative Officer, Assistant April 16, 1999
(Ronald M. Brill) Secretary and Director
* Director
- ----------------------------
(Frank Borman)
/s/ Dennis Carey Executive Vice President and April 16, 1999
- ---------------------------- Chief Financial Officer (Principal Financial
(Dennis Carey) Officer)
</TABLE>
31
<PAGE> 34
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Marshall Day Senior Vice President-Finance April 16, 1999
- ---------------------------- and Accounting
(Marshall Day)
* Director
- ----------------------------
(John L. Clendenin)
* Director
- ----------------------------
(Berry R. Cox)
* Director
- ----------------------------
(Milledge A. Hart, III)
* Director
- ----------------------------
(Donald R. Keough)
* Director
- ----------------------------
(Kenneth G. Langone)
* Director
- ----------------------------
(M. Faye Wilson)
</TABLE>
* The undersigned, by signing his name hereto, does hereby sign this
report on behalf of each of the above-indicated directors of the
Registrant pursuant to powers of attorney, executed on behalf of each
such director.
By: /s/ Arthur M. Blank
------------------------------------------
(Arthur M. Blank, Attorney-in-fact)
32
<PAGE> 35
<TABLE>
<CAPTION>
EXHIBIT INDEX
- -------------
<S> <C>
10.7 +Executive Medical Reimbursement Plan, effective January 1, 1992.
10.10 Participation Agreement dated as of October 22, 1998 among The Home
Depot, Inc. as Guarantor; Home Depot U.S.A., Inc. as Lessee; HD Real
Estate Funding Corp. II as Facility Lender; Credit Suisse Leasing 92A
L.P. as Lessor; The Bank of New York as Indenture Trustee; and Credit
Suisse First Boston Corporation and Invemed Associates, Inc. as
Initial Purchasers.
10.11 Participation Agreement dated as of June 25, 1996 among The Home Depot,
Inc. as Guarantor; Home Depot U.S.A., Inc. as Lessee and Construction
Agent; HD Real Estate Funding Corp. as Facility Lender; the lenders
named on the Schedule thereto as Lenders; Credit Suisse First Boston
Corporation as Agent Bank and Lender; and Credit Suisse Leasing 92A
L.P. as Lessor.
10.12 First Amendment and Supplement to the Participation Agreement dated as of
May 8, 1997 among The Home Depot, Inc. as Guarantor; Home Depot
U.S.A., Inc. as Lessee and Construction Agent; HD Real Estate Funding
Corp. as Facility Lender; the lenders named on the Schedule thereto as
Lenders; Credit Suisse First Boston Corporation as Agent Bank and
Lender; and Credit Suisse Leasing 92A L.P. as Lessor.
10.13 Master Modification Agreement dated as of April 20, 1998 among The Home
Depot, Inc. as Guarantor; Home Depot U.S.S., Inc. As Lessee and Construction
Agent; HD Real Estate Funding Corp., as Facility Lender; Credit Suisse Leasing
92A L.P. as Lessor; the Lenders named on the Schedule thereto as Lenders; and
Credit Suisse First Boston Corporation as Agent Bank.
10.14 +Supplemental Executive Choice Program, effective January 1, 1992.
13 The Registrant's Annual Report to Stockholders for the fiscal year
ended January 31, 1999. Only those portions of said report which are
specifically designated in this Form 10-K as being incorporated by
reference are being electronically filed pursuant to the Securities
Exchange Act of 1934.
23 Consent of Independent Auditors.
24 Special Powers of Attorney authorizing execution of this Form 10-K
Annual Report have been granted and are filed herewith as follows:
Power of Attorney from Frank Borman.
Power of Attorney from John L. Clendenin.
Power of Attorney from Berry R. Cox.
Power of Attorney from Milledge A. Hart, III.
Power of Attorney from Donald R. Keough.
Power of Attorney from Kenneth G. Langone.
Power of Attorney from M. Faye Wilson.
</TABLE>
<PAGE> 36
27 Financial Data Schedule. [FILED ELECTRONICALLY WITH SEC ONLY.]
- -----------------
+Management contract or compensatory plan or arrangement required to be filed
as an exhibit to this form pursuant to Item 14(c) of this report.
<PAGE> 1
EXECUTIVE MEDICAL REIMBURSEMENT PLAN
THE HOME DEPOT(R)
EFFECTIVE JANUARY 1, 1992
ELIGIBILITY
To be eligible for EMRP, an employee must be an officer of the Company. The
employee must elect coverage for himself/herself land any eligible dependents
under the Company's Group Health Plan.
ENROLLMENT
Upon becoming eligible for the EMRP, an employee will automatically be enrolled
in the plan provided he/she is currently enrolled in the Group Health Plan.
COVERAGE
Coverage will be extended by the plan for any medical expense which would be a
deductible medical expense under Federal Income Tax regulations. This can
include expenses not reimbursed by the Group Health Plan due to deductibles,
co-insurance, plan exclusions, eyeglasses, orthodontics, or medically necessary
additions and alterations to a home. These and other expenses would be covered
by EMRP if they qualify under applicable IRS regulations.
BENEFITS
EMRP does not require satisfaction of a deductible. Eligible medical expenses
will be reimbursed at 100%.
CLAIM FILING
Bills for medical expenses should be submitted to the Claims Administrator in
the special MRP envelopes provided. The administrator will first pay benefits
under the Group Health Plan. Reimbursement for expenses not fully covered (or
not covered at all) by the Group Health Plan will then be paid for the EMRP.
MAXIMUM ANNUAL BENEFIT
The maximum EMRP benefits payable during a calendar year for a covered employee
and family is $10,000.
TAXES
Unlike benefit received from the Group Health Plan (which are not taxable
income) payments under EMRP are regular income. They are subject to both Federal
and State income tax, and FICA if the employee's pay falls below the FICA salary
limit.
<PAGE> 2
ADDITIONAL REIMBURSEMENT
In March of each year while the EMRP remains in effect, the Company will make an
additional payment to each employee who received benefits under the plan during
the previous year. The amount paid will be a percentage of the EMRP benefits,
calculated to cover the taxes generated by such benefit payments. That
percentage may be changed from time to time in order to reflect changes in
applicable tax rates. The additional reimbursement is also taxable income, and
will be included in the employee's W-2 for the year in which the additional
reimbursement was paid.
TERMINATION OF COVERAGE
Coverage will terminate on the earliest of the following dates:
1. An employee terminates employment with Home Depot.
2. Coverage under the Company's Group Health Plan terminates, either due
to voluntary action on the part of the employee, or because the Company
has cancelled the Group Health Plan.
3. At the end of an approved leave of absence, unless the employee returns
to full-time employment with the Company.
4. The employee is no longer an officer of the Company.
5. The Company elects to discontinue the Executive Medical Reimbursement
Plan.
ERISA
EMRP is a cash bonus plan, not insurance. It is not funded, nor does it come
under provisions of the Federal Employee Retirement Income Security Act.
<PAGE> 1
EXECUTION COPY
- --------------------------------------------------------------------------------
PARTICIPATION AGREEMENT
dated as of October 22, 1998
among
THE HOME DEPOT, INC.,
as Guarantor,
HOME DEPOT U.S.A., INC., as
Lessee,
HD REAL ESTATE FUNDING CORP. II,
as Facility Lender,
CREDIT SUISSE LEASING 92A, L.P.,
as Lessor,
THE BANK OF NEW YORK,
as Indenture Trustee
and
CREDIT SUISSE FIRST BOSTON CORPORATION
and
INVEMED ASSOCIATES, INC.,
as Initial Purchasers
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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Page
<S> <C> <C>
SECTION 1. DEFINITIONS; INTERPRETATION.....................................................................2
SECTION 2. CLOSING DATE....................................................................................2
SECTION 3. LEASE OF LAND AND FACILITIES; FINANCING ARRANGEMENTS............................................2
SECTION 3.1. Lessor's Agreement to Refinance and Lease. ...........................................2
SECTION 3.2. Facility Lender's Agreements...........................................................3
SECTION 3.3. Issuance of Fixed Rate Notes...........................................................3
SECTION 3.4. Allocation of Lessor Investment Amount and Loan........................................3
SECTION 4. CERTIFICATE EARNINGS; INTEREST; COMMITMENT FEES.................................................4
SECTION 4.1. Certificate Earnings...................................................................4
SECTION 4.2. Interest on Loan.......................................................................4
SECTION 5. DISTRIBUTIONS OF PAYMENTS AND COLLATERAL PROCEEDS...............................................4
SECTION 5.1. Agreement of Indenture Trustee and Participants........................................4
SECTION 5.2. Basic Rent.............................................................................5
SECTION 5.3. Purchase Payments by Lessee............................................................6
SECTION 5.4. Residual Value Guaranty................................................................7
SECTION 5.5. Sales Proceeds of Remarketing of Properties............................................7
SECTION 5.6. Supplemental Rent......................................................................8
SECTION 5.7. Excepted Payments......................................................................8
SECTION 5.8. Distribution of Payments after Lease Event of
Default or Loan Agreement Event of Default....................................8
SECTION 5.9. Other Payments.........................................................................9
SECTION 5.10. Casualty and Condemnation Amounts.....................................................10
SECTION 5.11. Order of Application..................................................................10
SECTION 5.12. Remaining Funds.......................................................................10
SECTION 5.13. Time of Payment.......................................................................10
SECTION 6. CERTAIN INTENTIONS OF THE PARTIES..............................................................10
SECTION 7. CONDITIONS PRECEDENT TO CLOSING DATE...........................................................11
SECTION 7.1. Conditions Precedent -- Documentation.................................................11
SECTION 7.2. Conditions Precedent -- Properties....................................................14
SECTION 7.3. INTENTIONALLY OMITTED.................................................................16
SECTION 7.4. Conditions Precedent to Substitution of Properties....................................16
SECTION 8. REPRESENTATIONS................................................................................18
SECTION 8.1. Representations of the Lessor.........................................................18
SECTION 8.2. Representations of the Guarantor and the Lessee.......................................20
SECTION 8.3. Representations of Guarantor and Lessee as to Properties..............................23
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
SECTION 8.4. Representations of Facility Lender....................................................23
SECTION 8.5. Representations and Warranties of the Indenture Trustee...............................24
SECTION 9. PAYMENT OF CERTAIN EXPENSES....................................................................25
SECTION 9.1. Transaction Expenses..................................................................25
SECTION 9.2. Brokers' Fees and Stamp Taxes. ......................................................25
SECTION 9.3. Certain Fees and Expenses. ..........................................................25
SECTION 10. OTHER COVENANTS AND AGREEMENTS.................................................................26
SECTION 10.1. Covenants of Guarantor and Lessee.....................................................26
SECTION 10.2. Cooperation with the Lessee...........................................................32
SECTION 10.3. Release of Properties.................................................................32
SECTION 10.4. Discharge of Liens....................................................................32
SECTION 10.5. Notice of Credit Rating...............................................................33
SECTION 10.6. Covenants of the Facility Lender and the Lessor.......................................33
SECTION 10.7. No Bankruptcy Proceedings.............................................................34
SECTION 10.8. Notice of Claims Against Lessor.......................................................35
SECTION 11. LESSEE DIRECTIONS..............................................................................35
SECTION 11.1. Lessee Directions. ..................................................................35
SECTION 12. TRANSFER OF INTEREST...........................................................................36
SECTION 12.1. Restrictions on and Effect of Transfer................................................36
SECTION 12.2. Replacement of Lessor or Facility Lender..............................................36
SECTION 13. INDEMNIFICATION................................................................................37
SECTION 13.1. General Indemnification...............................................................37
SECTION 13.2. Environmental Indemnity...............................................................39
SECTION 13.3. Proceedings in Respect of Claims......................................................41
SECTION 13.4. End of Term Indemnity.................................................................42
SECTION 13.5. General Tax Indemnity.................................................................43
SECTION 14. MISCELLANEOUS..................................................................................47
SECTION 14.1. Survival of Agreements................................................................47
SECTION 14.2. No Broker; etc........................................................................47
SECTION 14.3. Notices 47
SECTION 14.4. Counterparts..........................................................................50
SECTION 14.5. Amendments............................................................................50
SECTION 14.6. Usury 51
SECTION 14.7. Confidentiality.......................................................................51
SECTION 14.8. Headings; etc. ......................................................................52
SECTION 14.9. Parties in Interest...................................................................52
SECTION 14.10. GOVERNING LAW.........................................................................52
SECTION 14.11. Severability..........................................................................52
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
SECTION 14.12. Further Assurances....................................................................52
SECTION 14.13. WAIVER OF JURY TRIAL..................................................................53
SECTION 14.14. Limitations on Recourse Against Lessor................................................53
SECTION 14.15. Limitation on Recourse Against Facility Lender........................................53
APPENDICES
APPENDIX 1 Definitions and Interpretation
APPENDIX 2 Property Costs
APPENDIX 3 Pricing Provisions for Lessor Investment Amount
EXHIBITS
EXHIBIT A Opinion of Counsel to Lessee
EXHIBIT B Opinion of Counsel to Facility Lender
EXHIBIT C Opinion of Counsel to Lessor
EXHIBIT D Assignment of Lease and Consent to Assignment
EXHIBIT E Master Assignment and Consent to Master Assignment
EXHIBIT F Form of Lease
EXHIBIT G Form of Opinion of Counsel to Lessee Required for Substitution of Properties
EXHIBIT H Form of Compliance Certificate
</TABLE>
<PAGE> 5
PARTICIPATION AGREEMENT
THIS PARTICIPATION AGREEMENT, dated as of October 22, 1998 (this
"Agreement" or "Participation Agreement"), is entered into by and among THE HOME
DEPOT, INC., a Delaware corporation, as Guarantor (the "Guarantor"), HOME DEPOT
U.S.A., INC. a Delaware corporation, as Lessee ("Lessee"), HD REAL ESTATE
FUNDING CORP. II, a Delaware corporation ("Facility Lender"), CREDIT SUISSE
LEASING 92A, L.P., a Delaware limited partnership, as lessor ("Lessor"), THE
BANK OF NEW YORK, a banking corporation organized and existing under the laws of
the State of New York, as Indenture Trustee for the Noteholders (in such
capacity, the "Indenture Trustee") and CREDIT SUISSE FIRST BOSTON CORPORATION
and INVEMED ASSOCIATES, INC. (collectively, the "Initial Purchasers").
PRELIMINARY STATEMENT
In accordance with the terms of this Participation Agreement, the
Lease, the Loan Agreement, the Indenture of Trust and the other Operative
Documents,
A. the Lessor is the owner of certain parcels of Land on
which certain Improvements have been constructed for the use of Lessee;
B. the Lessor wishes to refinance approximately 97% of the
total cost of the acquisition of such Land and the construction of such
Improvements;
C. the Facility Lender has agreed to issue Fixed Rate Notes at
par to the Initial Purchasers pursuant to the Indenture of Trust in an
aggregate principal amount equal to the Maximum Debt Amount, with the
gross proceeds of the sale of the Fixed Rate Notes to be lent to the
Lessor pursuant to the Loan Agreement for the refinancing of the
existing indebtedness secured by Liens on the Properties;
D. the Lessee wishes to lease the Properties from the Lessor
under the Lease and the Guarantor is willing to guarantee the Lessee's
obligations under the Operative Documents;
E. the Lessee, in consideration of the obligations of the
Facility Lender pursuant to the Operative Documents, is willing to pay
all costs and fees of the Participants incurred in connection with the
transactions contemplated hereby, subject to the limitations contained
herein;
F. to secure its obligations to the Facility Lender pursuant
to the Loan Agreement, the Lessor is granting a lien to the Facility
Lender, pursuant to the Mortgages and the other Security Documents, on
all of the Lessor's right, title and interest in the Properties and
substantially all of the Lessor's rights under the Lease with respect
to the Properties; and
<PAGE> 6
G. to secure its obligations to the Indenture Trustee and the
Noteholders under the Indenture of Trust, the Facility Lender is
pledging to the Indenture Trustee, for the benefit of the Noteholders,
pursuant to the Master Assignment, substantially all of its right,
title and interest in and to the Loan Agreement, the Note and Security
Documents received from the Lessor.
In consideration of the mutual agreements contained in this
Participation Agreement and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
SECTION 1.
DEFINITIONS; INTERPRETATION
Unless the context shall otherwise require, capitalized terms used and
not defined herein shall have the meanings assigned thereto in Appendix 1
attached hereto and made a part hereof by this reference for all purposes
hereof; and the rules of interpretation set forth in Appendix 1 hereto shall
apply to this Participation Agreement.
SECTION 2.
CLOSING DATE
The Closing Date shall occur on the earliest date (on or before October
30, 1998) on which all the conditions precedent thereto set forth in this
Agreement shall have been satisfied or waived by the applicable parties as set
forth therein (such date referred to herein as the "Closing Date").
SECTION 3.
LEASE OF LAND AND FACILITIES; FINANCING ARRANGEMENTS
SECTION 3.1. Lessor's Agreement to Refinance and Lease. Subject to the
conditions and terms of this Participation Agreement and the other Operative
Documents, the Lessor agrees to take the following actions on the Closing Date:
(a) to refinance the existing indebtedness secured by the
Properties listed on Appendix 2 hereto in the amount of
$273,278,000 with the proceeds of the Loan from the Facility
Lender;
<PAGE> 7
(b) to have invested its own funds in the Properties in an amount
of not less than the Minimum Equity Amount; and
(c) to lease the Properties listed on Appendix 2 to the Lessee
under the Lease.
Notwithstanding any other provision hereof, after giving effect to the
transactions contemplated hereby, the following statements shall be true (i) the
Lessor shall have invested the Lessor Investment Amount in the Properties in the
amount shown on Appendix 2, (ii) the aggregate Property Costs with respect to
the Properties shall not exceed the Maximum Property Cost, (iii) the aggregate
Property Costs with respect to the Properties listed on Appendix 2 shall not
exceed 100% of the aggregate As Built Value of such Properties; and (iv) each of
the Properties shall be a Facility located in the continental United States.
SECTION 3.2. Facility Lender's Agreements. Subject to the conditions
and terms of this Participation Agreement and the other Operative Documents, the
Facility Lender agrees to make the Loan to the Lessor on the Closing Date
pursuant to the Loan Agreement in an aggregate principal amount equal to the
Maximum Debt Amount for the Lessor to refinance the existing indebtedness
secured by the Properties. Notwithstanding any other provision hereof, the
Facility Lender shall not be obligated to make the Loan if the Facility Lender
is unable to issue Fixed Rate Notes in an amount sufficient to fund such Loan
pursuant to Section 3.3.
SECTION 3.3. Issuance of Fixed Rate Notes. Subject to the terms and
conditions of this Participation Agreement, the Purchase Agreement and the other
Operative Documents, in order to fund its obligation to make the Loan to the
Lessor pursuant to the Loan Agreement, the Facility Lender shall on the Closing
Date, issue the Fixed Rate Notes pursuant to the Indenture of Trust to the
Initial Purchasers at par in an aggregate principal amount equal to the Maximum
Debt Amount.
SECTION 3.4. Allocation of Lessor Investment Amount and Loan.
Notwithstanding any provision of this Participation Agreement to the contrary,
the outstanding Facility Lender Property Balance and Lessor Property Balance
with respect to each Property shall equal the amount set forth for each Property
on Appendix 2, or in the event of any Property substituted therefor after the
Closing Date, in the applicable Lease Supplement, as such amounts may be reduced
from time to time pursuant to the terms of the Operative Documents.
SECTION 3.5. Use of Proceeds. The proceeds of the Loan shall be used
to refinance the existing indebtedness in the principal amount of $273,278,000
secured by the Properties (the "Existing Indebtedness").
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<PAGE> 8
SECTION 4.
CERTIFICATE EARNINGS; INTEREST; COMMITMENT FEES
SECTION 4.1. Certificate Earnings. (a) The amount of the Lessor
Investment Amount outstanding from time to time shall accrue earnings
("Certificate Earnings") at the Certificate Earnings Rate. If all or any portion
of the Lessor Investment Amount, any Certificate Earnings payable thereon or any
other amount payable by Guarantor or Lessee hereunder shall not be paid within
thirty (30) days of the date when due (whether at stated maturity, the
acceleration or otherwise), such overdue amount shall bear interest at a rate
per annum which is equal to the Overdue Rate which, in the event such amount is
not paid within such thirty (30) day period, shall be deemed to have begun to
accrue on the due date thereof.
(b) Lessor shall select the applicable Certificate Earnings
Rate in accordance with the terms and conditions set forth on Appendix 3
attached hereto and incorporated herein by this reference.
(c) On each Payment Date, the Lessor shall, subject to the
provisions of Section 5, receive the Lessor Basic Rent (determined on the basis
of accrued Certificate Earnings) received from payments of Basic Rent made by
the Lessee under the Lease from time to time as provided in Section 5.
SECTION 4.2. Interest on Loan. (a) The Loan shall accrue interest
computed and payable in accordance with the terms of the Loan Agreement.
(b) The interest on the Loan shall be paid through the payment
of the Lender Basic Rent (determined on the basis of interest on the Loan)
received from payments of Basic Rent made by the Lessee under the Lease from
time to time as provided in Section 5.
SECTION 5.
DISTRIBUTIONS OF PAYMENTS AND COLLATERAL PROCEEDS
In order to provide for the priority and allocation of payments
received from the Lessee and Guarantor and the proceeds of the exercise of
remedies by any of the Participants pursuant to the Security Documents, the
parties hereto agree as follows:
SECTION 5.1. Agreement of Indenture Trustee and Participants. Pursuant
to the Master Assignment, all of the payments (other than the Excepted Payments)
under the Lease, the Mortgages, the Note, the Participation Agreement and the
Loan Agreement have been assigned to the Indenture Trustee for the benefit of
the Noteholders. The Indenture Trustee hereby agrees to deposit all such
payments, receipts and other consideration of any kind whatsoever (other than
the Excepted Payments) received by the Indenture Trustee pursuant to the Master
Assignment and any other Security Document in the form received into a
segregated cash collateral account
4
<PAGE> 9
maintained by the Indenture Trustee for such purpose, which account shall be an
Eligible Account (as defined in the Indenture of Trust) (the "Cash Collateral
Account"); provided however, each of the Participants expressly agrees that
unless the Lessee has received notice that a Loan Agreement Default or Loan
Agreement Event of Default has occurred and is continuing, the Lessee may make
any payments of Basic Rent constituting Certificate Earnings directly to the
Lessor on each Payment Date. Each Participant hereby agrees that any payment
received pursuant to the Guaranty shall immediately be delivered in the form
received to the Indenture Trustee for deposit in the Cash Collateral Account and
application as set forth herein. The Indenture Trustee shall make distributions
from the Cash Collateral Account pursuant to the requirements of this Section 5
to each Participant or other Person entitled thereto as promptly as possible (it
being understood that any such payment received on a timely basis in accordance
with the provisions of the Lease, this Participation Agreement and the other
Operative Documents shall be distributed by the Indenture Trustee on the same
Business Day to the extent practicable).
SECTION 5.2. Basic Rent. Subject to Section 5.8, each payment of Basic
Rent (and any payment of interest on overdue installments of Basic Rent) shall
be made by Lessee to the Indenture Trustee (subject to the proviso set forth in
Section 5.1 hereof) and shall be distributed by the Indenture Trustee as follows
(in the following order of priority):
first, an amount equal to the Lender Basic Rent shall be
distributed to the Noteholders for application to pay in full all
accrued but unpaid interest owing to the Noteholders pursuant to the
terms of the Indenture of Trust and the Fixed Rate Notes, with a
corresponding reduction of accrued interest on the Loan, and
second, subject to the last paragraph of this Section 5.2, to
the extent received by the Indenture Trustee, an amount equal to the
Lessor Basic Rent shall be distributed to the Lessor for application to
pay in full all accrued but unpaid Certificate Earnings (together with
any overdue interest thereon).
Notwithstanding any provision of this Section 5.2 to the contrary, in
the event that a Loan Agreement Default under Section 5(a) or (e) of the Loan
Agreement or a Loan Agreement Event of Default shall have occurred and be
continuing, any such payments which would otherwise be paid to the Lessor
pursuant to clause second of this Section 5.2 shall be instead held in the Cash
Collateral Account until the earliest to occur of (i) the first date thereafter
on which all such Loan Agreement Defaults and Loan Agreement Events of Default
shall have been cured (in which case such payment under clause second shall then
be made), (ii) the date of any acceleration of the Loan (in which case such
payment shall then be applied in the manner contemplated by Section 5.8), or
(iii) the 180th day after the occurrence of such Loan Agreement Default or Loan
Agreement Event of Default (in which case such payment under clause second shall
then be made); provided, however, that notwithstanding the disposition of any
prior installment of Lessor Basic Rent under this Section 5.2, each time an
installment of Lessor Basic Rent is received by the Indenture Trustee,
distribution of such funds shall be made pursuant to clause second, subject to
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<PAGE> 10
the terms of this paragraph.
SECTION 5.3. Purchase Payments by Lessee. Subject to Section 5.8, any
payment made by the Lessee pursuant to the Lease as a result of:
(a) the purchase of the Properties in connection with Lessee's
exercise of its Lease Termination Date Purchase Option
pursuant to Section 22.2 of the Lease, or
(b) the Lessee's purchase of a Property or Properties pursuant to
Section 15.4, 16.2 or 17.6 of the Lease, or
(c) payment of the Property Balance in accordance with Section
15.4, Section 16.2(b), Section 20.1, or Section 22.3(b) of the
Lease,
shall be distributed by the Indenture Trustee in the following order of
priority:
first, an amount equal to the Facility Lender Property Balance
with respect to such Property and all accrued and unpaid interest
thereon shall be distributed to the Noteholders, with a corresponding
reduction in the principal and interest due on the Loan, such amount to
be paid pro rata to the Noteholders in accordance with the terms of the
Indenture of Trust, and
second, an amount equal to the Lessor Property Balance with
respect to such Property and all accrued and unpaid Certificate
Earnings thereon shall be distributed to the Lessor, and the Lessor
Investment Amount and accrued and unpaid Certificate Earnings
thereunder shall be reduced by such amount, provided, however, that if
a Loan Agreement Default under Section 5(a) or (e) of the Loan
Agreement or a Loan Agreement Event of Default shall have occurred and
be continuing, any such payments which would otherwise be paid to the
Lessor pursuant to clause second of this Section 5.3 shall be instead
held in the Cash Collateral Account until the earliest to occur of (i)
the first date thereafter on which all such Loan Agreement Defaults and
Loan Agreement Events of Default shall have been cured (in which case
such payment under clause second shall then be made), (ii) the date of
any acceleration of the Loan (in which case such payment shall then be
applied in the manner contemplated by Section 5.8), or (iii) the 180th
day after the occurrence of such Loan Agreement Default or Loan
Agreement Event of Default (in which case such payment under clause
second shall then be made); provided, further, that notwithstanding the
disposition of any prior installment of Lessor Basic Rent under this
clause second, each time an installment of Lessor Basic Rent is
received by the Indenture Trustee, distribution of such funds shall be
made pursuant to this clause second, subject to the terms of the
immediately preceding proviso.
SECTION 5.4. Residual Value Guaranty. Subject to Section 5.8, the
Residual Value
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<PAGE> 11
Guaranty paid by Lessee pursuant to Article XXII of the Lease shall be
distributed by the Indenture Trustee on the Lease Termination Date to the
Noteholders in accordance with the terms of the Indenture of Trust, with a
corresponding reduction in the Loan.
No amount of the Residual Value Guaranty shall be applied pursuant to
this Section 5.4 to reduce any portion of the Lessor Investor Amount.
SECTION 5.5. Sales Proceeds of Remarketing of Properties. Subject to
Section 5.8, any payments received by the Indenture Trustee as Gross Proceeds
from the sale of the Properties sold pursuant to Lessee's exercise of the
Remarketing Option pursuant to Article XXII of the Lease or otherwise sold by
Indenture Trustee, or following the repayment in full of all of the Fixed Rate
Notes and the termination of the Master Assignment, the Facility Lender or
Lessor, together with any payment made by Lessee as a result of an indemnity
payment pursuant to Section 13.4, shall be distributed by Indenture Trustee,
Facility Lender or Lessor, as the case may be, on the Lease Termination Date (or
following the Lease Termination Date, upon receipt), in the following order of
priority:
first, to the Noteholders in an amount sufficient to repay the
outstanding Fixed Rate Notes in full, including all accrued interest
and Premium thereon, if any, (with a corresponding reduction in the
Loan) such amount to be paid pro rata to the Noteholders in accordance
with the Indenture of Trust,
second, the balance, if any, to be distributed to the Lessor
to be applied to payment of Certificate Earnings and overdue interest
and to repay the Lessor Investment Amount, and
third, the balance, if any, shall be distributed to the Lessee
to the extent permitted by Section 5.12;
provided, however, that if a Loan Agreement Default under Section 5(a) or (e) of
the Loan Agreement or a Loan Agreement Event of Default shall have occurred and
be continuing, any such payments which would otherwise be paid to the Lessor
pursuant to clause second of this Section 5.6 shall be instead held in the Cash
Collateral Account until the earliest to occur of (i) the first date thereafter
on which all such Loan Agreement Defaults and Loan Agreement Events of Default
shall have been cured (in which case such payment under clause second shall then
be made), (ii) the date of any acceleration of the Loan (in which case such
payment shall then be applied in the manner contemplated by Section 5.8), or
(iii) the 180th day after the occurrence of such Loan Agreement Default or Loan
Agreement Event of Default (in which case such payment under clause second shall
then be made); provided, further, that notwithstanding the disposition of any
prior installment of Lessor Basic Rent under clause second, each time an
installment of Lessor Basic Rent is received by the Indenture Trustee,
distribution of such funds shall be made pursuant to clause second, subject to
the terms of the immediately preceding proviso.
7
<PAGE> 12
To the extent that any amounts received pursuant to this Section 5.5
relate to a specific Property, the Property Balance relating to such Property
shall be deemed to be reduced by the amounts applied pursuant hereto, with a
corresponding reduction in the principal amount of the Note and Lessor
Investment Amount.
SECTION 5.6. Supplemental Rent. Subject to Section 5.7, all payments of
Supplemental Rent received by the Indenture Trustee (excluding any amounts
payable pursuant to the preceding provisions of this Section 5) shall be
distributed promptly by the Indenture Trustee upon receipt thereof to the
Persons entitled thereto pursuant to the Operative Documents.
SECTION 5.7. Excepted Payments. Notwithstanding any other provision of
this Participation Agreement or the Operative Documents, any Excepted Payment
received at any time by the Indenture Trustee or any Participant shall, subject
to the penultimate sentence of Section 5.1, be distributed promptly to the
Person entitled to receive such Excepted Payment.
SECTION 5.8. Distribution of Payments after Lease Event of Default or
Loan Agreement Event of Default. (a) Subject to Section 5.6, all payments (other
than Excepted Payments) received and amounts realized or held by the Indenture
Trustee, Facility Lender or Lessor after a Lease Event of Default has occurred
and is continuing, including proceeds from the sale of any of the Properties or
other collateral, proceeds of any amounts from any insurer or any Governmental
Authority in connection with any Casualty or Condemnation, from the Lessee as
payment in accordance with the Lease, including any payment received from the
Lessee pursuant to Section 17 of the Lease (but excluding Section 17.6 of the
Lease), or from the Guarantor pursuant to the Guaranty shall, be paid to the
Indenture Trustee as promptly as possible and shall be distributed by Indenture
Trustee in the following order of priority:
first, so much of such payment or amount as shall be required
to reimburse the Indenture Trustee or the Noteholders for any tax,
expense or other loss incurred by the Indenture Trustee or the
Noteholders in connection with the collection of such amounts (to the
extent not previously reimbursed) shall be distributed to the Indenture
Trustee or the Noteholders, as applicable (to be divided amongst such
parties pro rata to the extent insufficient to satisfy all claims);
second, so much of such amount as shall be required to pay in
full the outstanding principal amount, and all accrued interest and
premium, if any, on the Fixed Rate Notes shall be distributed on a pro
rata basis to the Noteholders in accordance with the terms of the
Indenture of Trust with a corresponding reduction of amounts due with
respect to the Loan;
third, so much of such amount as shall be required to
reimburse the Facility Lender
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<PAGE> 13
or the Lessor for any tax, expense or other loss incurred by the
Facility Lender or the Lessor in connection with the collection of such
amounts (to the extent not previously reimbursed) shall be distributed
to the Facility Lender or the Lessor, as applicable (to be divided
amongst such parties pro rata to the extent insufficient to satisfy all
claims);
fourth, so much of such amount or amounts as shall be required
to pay in full the Participant Balance of Lessor shall be distributed
to the Lessor; and
fifth, the balance, if any, of such payment or amounts
remaining thereafter shall be promptly distributed to, or as directed
by, the Lessor, pursuant to the Operative Documents.
(b) During the occurrence and continuance of a Loan Agreement Event of
Default if the Loan has been accelerated, all amounts (other than Excepted
Payments) received or realized by any Participant and otherwise distributable
pursuant to Sections 5.2 and 5.3 shall be distributed as provided for in Section
5.8 (a) above except that if such Loan Agreement Default does not arise out of,
or is not attributable to a Lease Event of Default, clause fifth shall, subject
to Section 5.12, be directed by the Lessee.
SECTION 5.9. Other Payments. (a) Except as otherwise provided in this
Section 5 and paragraph (b) below,
(i) any payment received by Indenture Trustee for which no
provision as to the application thereof is made in the Operative
Documents or elsewhere in this Section 5, and
(ii) all payments received and amounts realized by any
Participant under the Lease or otherwise with respect to the Properties
to the extent received or realized at any time after payment in full of
the Participant Balances of all of the Participants and any other
amounts due and owing to the Lessor, Facility Lender, Noteholders or
the Indenture Trustee,
shall be distributed forthwith by the Indenture Trustee in the order of priority
set forth in Section 5.3 (in the case of any payment described in clause (i)
above) or in Section 5.8 hereof (in the case of any payment described in clause
(ii) above).
(b) Except as otherwise provided in this Section 5 hereof and except
after a Lease Event of Default has occurred and is continuing, any payment
received by the Indenture Trustee for which provision as to the application
thereof is made in an Operative Document but not elsewhere in this Section 5
shall be distributed forthwith by the Indenture Trustee to the Person and for
the purpose for which such payment was made in accordance with the terms of such
Operative Document.
9
<PAGE> 14
SECTION 5.10. Casualty and Condemnation Amounts. Any amounts payable to
the Indenture Trustee, Lessor or Facility Lender as a result of a Casualty or
Condemnation pursuant to Section 15.1 of the Lease (but excluding any amounts
payable pursuant to Section 16.2 of the Lease) shall, if no Lease Event of
Default exists, be paid over to the Lessee to reimburse Lessee for any amounts
expended by Lessee for the rebuilding or restoration of the Property to which
such Casualty or Condemnation applied, and any excess proceeds shall be paid in
accordance with the Lease. If a Lease Event of Default exists, then during the
continuance of such Lease Event of Default, all such amounts shall be held by
the Indenture Trustee in the Cash Collateral Account and upon exercise of the
Indenture Trustee's remedies under the Operative Documents shall be distributed
pursuant to Section 5.8.
SECTION 5.11. Order of Application. To the extent any payment made to
any Participant pursuant to Sections 5.2, 5.3, 5.4, 5.5 or 5.8 is insufficient
to pay in full (without duplication) the Participant Balance of such
Participant, then each such payment shall first be applied to overdue interest,
then to accrued interest and premium, if any, and then to principal.
SECTION 5.12. Remaining Funds. Upon the payment in full of (i) the
Fixed Rate Notes (and the Note), including all interest and premium, if any,
owing with respect thereto and the Lessor Investment Amount, including principal
and all accrued and unpaid Certificate Earnings, and (ii) all amounts owing by
the Lessee or Guarantor to any Person under the Operative Documents, all
remaining moneys in the Cash Collateral Account shall be paid to the Lessee.
SECTION 5.13. Time of Payment. Each payment due from Lessee or
Guarantor under the Operative Documents shall be made prior to 2:00 p.m. (New
York time) on the date when due in immediately available funds consisting of
lawful currency of the United States of America, unless such date shall not be a
Business Day, in which case payment shall be made on the next succeeding
Business Day. Payments received after 2:00 p.m. (New York time) shall be deemed
received on the next succeeding Business Day.
SECTION 6.
CERTAIN INTENTIONS OF THE PARTIES
Anything else herein, in any other Operative Document, or elsewhere to
the contrary notwithstanding, it is the intention of Guarantor, the Lessee, the
Lessor, the Facility Lender and the Indenture Trustee (and, assuming enforcement
of the Operative Documents in accordance with their terms, it is the
representation and warranty of the Guarantor and the Lessee) that: (i) the
amount and timing of installments of Basic Rent due and payable from time to
time from the Lessee under the Lease shall be equal to the aggregate payments
due and payable for interest on the Loan and Certificate Earnings on the Lessor
Investment Amount on each Payment Date and
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<PAGE> 15
that such interest amount payable on the Loan shall at all times equal the
aggregate accrued interest on the principal amount of the Fixed Rate Notes; (ii)
if the Lessee elects the Lease Termination Date Purchase Option or becomes
obligated to purchase any Property under the Lease, the Loan, the Lessor
Investment Amount, all interest, Certificate Earnings and Premium related to
such Property and all other obligations of the Lessee owing to the Lessor, the
Facility Lender, the Noteholders and the Indenture Trustee relating thereto
shall be paid in full by the Lessee so that the aggregate Property Costs shall
at all times equal the sum of (x) the Principal Amount of the Fixed Rate Notes,
plus (y) the Lessor Investment Amount not previously prepaid; (iii) if the
Lessee properly elects the Remarketing Option with respect to a Property and
provided that no Lease Event of Default has occurred and is continuing, Lessee
shall only be required to pay to the Lessor the Gross Proceeds of the sale of
such Property, the Residual Value Guaranty for such Property, any amounts
payable pursuant to Section 13 of this Participation Agreement and any Rent with
respect to such Property (which aggregate amounts may be less than the Property
Balance under the Lease with respect to such Property); and (iv) upon a Lease
Event of Default, the amounts then due and payable by the Lessee under the Lease
shall include the Lease Balance which shall be sufficient to repay the Fixed
Rate Notes and Lessor Investment Amount in full.
SECTION 7.
CONDITIONS PRECEDENT TO
CLOSING DATE
SECTION 7.1. Conditions Precedent -- Documentation. The obligations of
the Lessor and Facility Lender on the Closing Date are subject to satisfaction
of the following conditions precedent and to the conditions precedent set forth
in Section 7.2:
(a) Operative Documents. Each of the Operative Documents to be entered
into on the Closing Date shall have been duly authorized, executed and delivered
by the parties thereto, and shall be in full force and effect, including (i)
this Participation Agreement, (ii) the Lease, (iii) the Loan Agreement, (iv) the
Note, (v) the Indenture of Trust, (vi) the Fixed Rate Notes, (vii) the
Assignment of Lease (together with all supplemental assignments, the "Assignment
of Lease"), from the Lessor to the Facility Lender, and consented to by Lessee
pursuant to that certain Lessee's Consent, dated as of the Closing Date (the
"Consent to Assignment") by Lessee, in favor of the Facility Lender, in each
case, substantially in the respective forms set forth as Exhibit D to this
Agreement, with such modifications thereto as local law or custom may indicate
and are agreed to by the participants, (viii) the Guaranty, (ix) the Master
Assignment (together with all supplemental assignments, the "Master Assignment")
from the Facility Lender to the Indenture Trustee for the benefit of the
Noteholders, and consented to by the Lessor and Lessee pursuant to that certain
Consent to Master Assignment, dated as of the Closing Date (the "Consent to
Master Assignment") by the Lessor and the Lessee in favor of the Indenture
Trustee for the benefit of the Noteholders,
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<PAGE> 16
and the Lessor, Lessee, the Indenture Trustee and the Facility Lender shall each
have received a fully executed copy of each of the Operative Documents.
(b) No Default. No Default or Event of Default shall exist (both before
and after giving effect to the transactions contemplated by the Operative
Documents).
(c) Recordation of Documents. The Operative Documents (or memoranda
thereof), any supplements thereto and any financing statements in connection
therewith required under the Uniform Commercial Code shall have been recorded,
registered and filed, if necessary, in such manner as to enable Lessee's counsel
to render its opinion referred to in clause (e) below and local counsel to
render the opinions required by Section 7.2(f).
(d) Taxes. All taxes, fees and other charges in connection with the
execution, delivery, recording, filing and registration of the Operative
Documents shall have been paid or provisions for such payment shall have been
made to the satisfaction of the Lessor, Facility Lender and the Initial
Purchasers.
(e) Opinion of Counsel. King & Spalding, counsel to Guarantor and
Lessee, shall have issued to the Lessor, the Indenture Trustee, the Noteholders
and the Facility Lender its opinion to the effect and in the form set forth on
Exhibit A attached to this Agreement.
(f) Governmental Approvals. All necessary (or, in the reasonable
opinion of the Lessor or the Indenture Trustee or any of their respective
counsel advisable) Governmental Actions, in each case required by any
Requirement of Law, shall have been obtained or made and be in full force and
effect.
(g) Litigation. No action or proceeding shall have been instituted, nor
shall any action or proceeding be threatened, before any Governmental Authority,
nor shall any order, judgment or decree have been issued or proposed to be
issued by any Governmental Authority (i) to set aside, restrain, enjoin or
prevent the full performance of this Participation Agreement, any other
Operative Document or any transaction contemplated hereby or thereby or (ii)
which could have a Material Adverse Effect.
(h) Requirements of Law. The transactions contemplated by the Operative
Documents do not and will not violate any applicable Requirement of Law and do
not and will not subject the Lessor, the Facility Lender, the Indenture Trustee
or any Noteholder to any adverse regulatory prohibitions or constraints.
(i) Officer's Certificate of Guarantor and Lessee. The Lessor, the
Facility Lender and the Indenture Trustee shall each have received an Officer's
Certificate, dated as of the Closing Date, of each of Guarantor and Lessee
stating that (i) each and every representation and warranty of Guarantor or
Lessee, as the case may be, contained in the Operative Documents to which it is
a
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<PAGE> 17
party is true and correct on and as of the Closing Date; (ii) no Default or
Event of Default has occurred and is continuing under any Operative Document;
(iii) each Operative Document to which Guarantor or Lessee, as the case may be,
is a party is in full force and effect with respect to it; and (iv) Guarantor or
Lessee, as the case may be, has duly performed and complied with all covenants,
agreements and conditions contained herein or in any Operative Document required
to be performed or complied with by it on or prior to the Closing Date.
(j) Guarantor and Lessee's Resolutions and Incumbency Certificate, etc.
The Lessor, the Facility Lender and the Indenture Trustee shall each have
received (i) a certificate of the Secretary or an Assistant Secretary of each of
Guarantor and Lessee attaching and certifying as to (A) the resolutions of the
Board of Directors duly authorizing the execution, delivery and performance by
Guarantor or Lessee, as the case may be, of each Operative Document to which it
is or will be a party, (B) its certificate of incorporation and bylaws, in each
case certified as of a recent date by the Secretary of State of Delaware, and
(C) the incumbency and signature of persons authorized to execute and deliver on
its behalf the Operative Documents to which it is a party, and (ii) a good
standing certificate from the appropriate officer of the state in which such
Person is incorporated and the state in which such Person's principal place of
business is located.
(k) Officer's Certificate of Facility Lender. Lessee, Guarantor, the
Indenture Trustee and the Lessor shall have received an Officer's Certificate of
the Facility Lender, dated as of the Closing Date, stating that (i) each and
every representation and warranty of the Facility Lender contained in the
Operative Documents to which it is a party is true and correct on and as of the
Closing Date, (ii) each Operative Document to which the Facility Lender is a
party is in full force and effect with respect to it, and (iii) the Facility
Lender has duly performed and complied with all covenants, agreements and
conditions contained herein or in any Operative Document required to be
performed or complied with by it on or prior to the Closing Date.
(l) Facility Lender's Resolutions and Incumbency Certificate. etc.
Lessee, Guarantor, the Indenture Trustee and the Lessor shall have received a
certificate of the Secretary or an Assistant Secretary of the Facility Lender
attaching and certifying as to (A) the resolutions of the Board of Directors
duly authorizing the execution, delivery and performance by the Facility Lender
of each Operative Document to which it is or will be a party, (B) its articles
of incorporation, certified as of a recent date by the Secretary of State of the
State of its incorporation, (C) its by-laws and (D) the incumbency and signature
of persons authorized to execute and deliver on its behalf the Operative
Documents to which it is a party.
(m) Opinions of Counsel to Facility Lender. Ropes & Gray, counsel to
the Facility Lender and Hunton & Williams, special counsel to the Facility
Lender, shall have issued to Lessee, Guarantor, Lessor and the Indenture Trustee
their opinion to the effect and in the form set forth on Exhibit B attached to
this Agreement.
(n) Officer's Certificate of Lessor. Lessee, Guarantor, the Indenture
Trustee and the
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<PAGE> 18
Facility Lender shall have received an Officer's Certificate of the Lessor,
dated as of the Closing Date, stating that (i) each and every representation and
warranty of the Lessor contained in the Operative Documents to which it is a
party is true and correct on and as of the Closing Date, (ii) each Operative
Document to which the Lessor is a party is in full force and effect with respect
to it, and (iii) the Lessor has duly performed and complied with all covenants,
agreements and conditions contained herein or in any Operative Document required
to be performed or complied with by it on or prior to the Closing Date.
(o) Lessor's Partnership Certificate, etc. Lessee, Guarantor, the
Indenture Trustee and the Facility Lender shall have received a certificate of
the Secretary or an Assistant Secretary of the Lessor attaching and certifying
as to (A) the resolutions of the Board of Directors of its general partner and
other evidence of partner approval duly authorizing the execution, delivery and
performance by the Lessor of each Operative Document to which it is or will be a
party, (B) its certificate of limited partnership, certified as of a recent date
by the Secretary of State of the State of its organization, (C) its partnership
agreement and (D) the incumbency and signature of persons authorized to execute
and deliver on its behalf the Operative Documents to which it is a party.
(p) Opinion of Counsel to Lessor. Hunton & Williams, counsel to the
Lessor, shall have issued to Lessee, the Guarantor, the Facility Lender and the
Indenture Trustee their opinion to the effect and in the form set forth on
Exhibit C attached to this Agreement and made a part hereof by this reference.
(q) Rating of Fixed Rate Notes. Moody's and/or S&P shall have issued a
rating of the Fixed Rate Notes as of the Closing Date satisfactory to satisfy
the requirements of the Indenture of Trust and all conditions precedent to the
issuance of the Fixed Rate Notes under the Indenture of Trust shall have been
satisfied or waived.
(r) Pay-Off of Existing Indebtedness; Release of Liens. Existing
Indebtedness shall have been repaid in full, all mortgages, deeds of trust and
other Liens against the Properties securing the Existing Indebtedness shall have
been released or removed and all of the existing leases on the Properties
executed in connection with the Existing Indebtedness shall have been
terminated.
(s) Note Purchase Agreement. The satisfaction or waiver by the Initial
Purchasers of all conditions to the closing of the transactions contemplated by
the Purchase Agreement.
SECTION 7.2. Conditions Precedent -- Properties. The obligation of the
Lessor and Facility Lender on the Closing Date are subject to satisfaction of
the following conditions precedent with respect to each Property listed on
Appendix 2 hereto and to the conditions precedent set forth in Section 7.1:
(a) Environmental Audits. An Environmental Audit for each Property
shall have been delivered to and shall be reasonably
satisfactory in form and substance to the Initial
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<PAGE> 19
Purchasers and the Lessor.
(b) Appraisals. An Appraisal of each Property shall have been
delivered to and shall be reasonably satisfactory to the
Initial Purchasers and the Lessor.
(c) Memoranda of Lease. The Lessee and the Lessor shall have
delivered an original counterpart of the Lease Supplement and
a Memorandum of Lease (in form suitable for recording in the
state in which such Property is located) executed by the
Lessee and the Lessor with respect to each Property listed on
Appendix 2 hereto to the Indenture Trustee, with a copy to the
Facility Lender.
(d) Mortgages. The Lessor shall have delivered to the Indenture
Trustee a Mortgage executed by the Lessor with respect to such
Property, together with accompanying UCC fixture filings (in
form suitable for recording in the state in which such
Property is located).
(e) Assignment of Lease. The Lessor shall have delivered to the
Indenture Trustee a supplement to Assignment of Lease and the
Assignment of Lease executed by the Lessor with respect to the
Properties, together with a consent to the Assignment of Lease
and Supplement of Assignment of Lease executed by the Lessee
with respect to each Property.
(f) Opinion of Local Counsel. The Indenture Trustee, the Lessor
and the Facility Lender shall have received an opinion of
counsel, which counsel and whose opinion shall be reasonably
satisfactory to the Initial Purchasers and the Lessor and
which shall be qualified with respect to the laws of the
jurisdiction in which such Property is located.
(g) Survey. The Lessee shall have delivered a survey of each of
the Properties, to the Lessor and the Initial Purchasers in
form and substance reasonably satisfaction to them.
(h) Title Insurance Policy. The Lessee shall deliver, or cause to
be delivered, to the Indenture Trustee, the Facility Lender,
and the Lessor an ALTA extended leaseholder's (with respect to
Lessee) and lender's (with respect to the Facility Lender and
the Indenture Trustee) title insurance commitment covering
such Property in favor of the Indenture Trustee, the Facility
Lender, and the Lessee reasonably satisfactory in form and
substance to the Initial Purchasers, Facility Lender and
Lessor, with customary coverage over the general exceptions to
such policy and customary endorsements issued by the title
company and evidencing the first priority status of the
Mortgage, subject only to the exceptions noted therein.
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<PAGE> 20
(i) Evidence of Completion. Completion shall have been reached
with respect to each Property and each Property shall be ready
for occupancy and operation and shall be free and clear of all
Liens except for Permitted Liens.
(j) Representations and Warranties. On such date the
representations and warranties of Guarantor and Lessee
contained herein and in each of the other Operative Documents
shall be true and correct in all material respects as though
made on and as of such date, except to the extent such
representations and warranties relate solely to an earlier
date, in which case such representations and warranties shall
have been true and correct in all material respects as of such
earlier date.
(k) Performance by Other Parties. The other parties hereto shall
have performed their respective agreements contained herein
and in the other Operative Documents to be performed by them
on or prior to such date.
(l) No Default. There shall not have occurred and be continuing
any Default or Event of Default and not Default or Event of
Default will have occurred after giving effect to the
transactions contemplated hereby.
SECTION 7.3. INTENTIONALLY OMITTED.
SECTION 7.4. Conditions Precedent to Substitution of Properties. In
addition to Section 16.3 and Article XV of the Lease and the other requirements
of the Operative Documents in connection with the substitution of any
Replacement Property pursuant to the terms of the Lease, the Lessee's right to
substitute a Replacement Property is subject to the following requirements on
the part of the Lessee to be completed as of the date of such substitution:
(a) Environmental Audits. An Environmental Audit for such
Replacement Property shall have been delivered to and shall be
reasonably satisfactory in form and substance to the Lessor
and prepared in a manner consistent with the customary and
usual practices that Lessee and the Guarantor utilize with
respect to all other real properties owned or leased by Lessee
and the Guarantor.
(b) Appraisals. An Appraisal of such Property shall have been
delivered to and shall be reasonably satisfactory to the
Lessor and prepared in a manner consistent with the customary
and usual practices that Lessee and the Guarantor utilizes
with respect to all other real properties owned or leased by
Lessee and the Guarantor.
(c) Lease Supplement and Memoranda of Lease. The Lessee and the
Lessor shall have delivered an original counterpart of a Lease
Supplement and a Memorandum of Lease (in form suitable for
recording in the state in which such Property is located)
executed by the Lessee and the Lessor with respect to such
Replacement Property
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<PAGE> 21
to the Indenture Trustee, with a copy to the Facility Lender.
(d) Supplement to Assignment of Lease and Master Assignment. The
Lessor and the Facility Lender shall have executed and
delivered to the Indenture Trustee a Supplement to Assignment
of Lease and a Supplement to Master Assignment in form
suitable for recording in the state where such Replacement
Property is located, together with a consent of Lessee and the
Facility Lender with respect thereto.
(e) Mortgages. The Lessor shall have delivered to the Indenture
Trustee a Mortgage executed by the Lessor with respect to such
Replacement Property, together with accompanying UCC fixture
filings (in form suitable for recording in the state in which
such Property is located).
(f) Opinion of Local Counsel. The Indenture Trustee, the Lessor
and the Facility Lender shall have received an opinion of
counsel, which counsel and whose opinion shall be reasonably
satisfactory to the Lessor and qualified with respect to the
laws of the jurisdiction in which such Replacement Property is
located.
(g) Survey. The Lessee shall have delivered a survey of such
Replacement Property to the Lessor in form and substance
reasonably satisfaction to Lessor and prepared in a manner
consistent with the customary and usual practices that Lessee
and the Guarantor utilizes with respect to all other real
properties owned or leased by Lessee and the Guarantor.
(h) Title Insurance Policy. The Lessee shall deliver, or cause to
be delivered, to the Indenture Trustee, the Facility Lender
and the Lessor an ALTA extended leasehold owner's (with
respect to Lessee) and lender's (with respect to the Facility
Lender and the Indenture Trustee) title insurance commitment
covering such Replacement Property in favor of the Indenture
Trustee, the Facility Lender and the Lessee reasonably
satisfactory in form and substance to the Facility Lender and
Lessor, with customary coverage over the general exceptions to
such policy and customary endorsements issued by the title
company and evidencing the first priority status of the
Mortgage, subject only to the exceptions noted therein.
(i) Evidence of Completion. Completion shall have been reached
with respect to such Replacement Property and such Property
shall be ready for occupancy and operation and shall be free
and clear of all Liens except for Permitted Liens.
(j) Opinion of Counsel. The Lessee shall deliver an opinion of
counsel to Lessor substantially in the form and to the effect
set forth on Exhibit H to this Agreement.
(k) Limit on Substitution. The Replacement Property shall be a
warehouse-style retail
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home improvement center which (1) is located in a
substantially similar locale, based on a current market
analysis, and in the same region of the United States to the
Property to be released, and (2) has a substantially similar
appraised value as determined by an Appraiser based on
projected net cash flow (after reserves) at stabilized
occupancy (assuming the Lease has been terminated and the
Lessee is not available as a tenant of the Replacement
Property or the Property to be released) as the Property to be
released and any substitution pursuant to the Lease shall be
permitted only where the aggregate Property Costs of the
Properties remaining subject to the Lease after giving effect
to the proposed substitution (exclusive of any Replacement
Properties that previously became subject to the Lease
pursuant to Section 16.3 or Article XV thereof) is not less
than the Permitted Amount.
SECTION 8.
REPRESENTATIONS
SECTION 8.1. Representations of the Lessor. Lessor represents and
warrants to each of the other parties hereto as follows:
(a) Due Organization; etc. It is a limited partnership duly
organized and validly existing and in good standing under the
laws of the State of Delaware and has the power and authority
to enter into and perform its obligations under the Operative
Documents to which it is or will be a party and each other
agreement, instrument and document to be executed and
delivered by it in connection with or as contemplated by each
such Operative Document to which it is or will be a party. It
is duly qualified to transact business in every jurisdiction
where the failure to qualify would have a material adverse
effect on its ability to perform its obligations under the
Operative Documents as contemplated on the Closing Date.
(b) Authorization; No Conflict. The execution, delivery and
performance of each Operative Document to which it is or will
be a party, has been duly authorized by all necessary action
on its part and on the part of its general partner and neither
the execution and delivery thereof, nor the consummation of
the transactions contemplated thereby, nor compliance by it
with any of the terms and provisions thereof (i) does or will
require any approval or consent of any trustee or holders of
any of its indebtedness or obligations or those of its general
partner, (ii) does or will contravene any current law,
governmental rule or regulation relating to it or its general
partner, (iii) does or will contravene or result in any breach
of or constitute any default under, or result in the creation
of any Lien upon any of it or its general partner's property
under its partnership agreement or any Contractual Obligation
of the Lessor or its general partner, or (iv) does or will
require any Governmental Action by any Governmental Authority.
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<PAGE> 23
(c) Enforceability; etc. Each Operative Document to which the
Lessor is or will be a party has been, or on or before any
Closing Date on which such Operative Document is to be signed
will be, duly executed and delivered by the Lessor and each
such Operative Document to which the Lessor is a party
constitutes, or upon execution and delivery will constitute,
assuming the due authorization, execution and delivery hereof
and thereof by the other parties hereto and thereto, a legal,
valid and binding obligation enforceable against the Lessor in
accordance with the terms thereof, except as such
enforceability may be limited or denied by (i) applicable
bankruptcy, insolvency, reorganization, moratorium or similar
laws effecting creditors' rights and the enforcement of
debtors' obligations generally, and (ii) general principles of
equity, regardless of whether enforcement is pursuant to a
proceeding in equity or at law.
(d) Litigation. There is no action or proceeding pending or, to
Lessor's knowledge, threatened to which it or, to the best of
its knowledge, its general partner is or will be a party,
before any Governmental Authority that, if adversely
determined, could reasonably be expected to have a material
adverse effect on the property, operations or financial
condition of the Lessor or, to the best of its knowledge, its
general partner.
(e) Assignment. It has not assigned or transferred any of its
right, title or interest in or under the Lease or the Guaranty
except in accordance with the Operative Documents.
(f) Defaults. No Default or Event of Default under the Operative
Documents attributable to it has occurred and is continuing.
(g) Securities Act. Neither the Lessor nor any Person authorized
by the Lessor to act on its behalf has offered or sold any
interest in the Lessor Investment Amount or the Note, or in
any similar security relating to a Property, or in any
security the offering of which for the purposes of the
Securities Act would be deemed to be part of the same offering
as the offering of the aforementioned securities to, or
solicited any offer to acquire any of the same from, any
Person other than the parties hereto and neither the Lessor
nor any Person authorized by the Lessor to act on its behalf
will take any action which would subject the issuance or sale
of any interest in the Lessor Investment Amount or the Note to
the provisions of Section 5 of the Securities Act or require
the qualification of any Operative Document under the Trust
Indenture Act.
(h) Chief Place of Business. The Lessor's chief place of business,
chief executive office and office where the documents,
accounts and records relating to the transactions
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<PAGE> 24
contemplated by this Participation Agreement and each other
Operative Document are kept are located at 11 Madison Avenue,
23rd Floor, New York, New York 10010.
(i) Federal Reserve Regulations. The Lessor is not engaged
principally in, and does not have as one of its important
activities, the business of extending credit for the purpose
of purchasing or carrying any margin stock (within the meaning
of Regulation U of the Federal Reserve Board).
(j) Investment Company Act. The Lessor is not an "investment
company" or a company controlled by an "investment company"
within the meaning of the Investment Company Act of 1940, as
amended.
(k) General Partner. Credit Suisse First Boston is the sole
general partner of the Lessor.
SECTION 8.2. Representations of the Guarantor and the Lessee. Each of
the Guarantor and the Lessee represents and warrants to each of the other
parties hereto that:
(a) Corporate Existence and Power. Each of the Guarantor and the
Lessee is a corporation duly organized, validly existing and
in good standing under the laws of the jurisdiction of its
incorporation, is duly qualified to"transact business in every
jurisdiction where each Property is located (in the case of
Lessee) and where the failure to so qualify would reasonably
be expected to have or cause a Material Adverse Effect, and
has all corporate powers and all governmental licenses,
authorizations, consents and approvals required to carry on
its business as now conducted, except where the failure to
possess any such licenses, authorizations, consents, or
approvals would not reasonably be expected to have or cause a
Material Adverse Effect.
(b) Corporate and Governmental Authorization; No Contravention.
The execution, delivery and performance by each of the
Guarantor and the Lessee of this Participation Agreement and
the other Operative Documents to which it is a party (i) are
within its corporate powers, (ii) have been duly authorized by
all necessary corporate action, (iii) require no Governmental
Action by or in respect of or filing with, any Governmental
Authority, (iv) do not contravene, or constitute a default
under, any Applicable Law or of the certificate of
incorporation or by-laws of the Guarantor, Lessee, or of any
material agreement, judgment, injunction, order, decree or
other instrument binding upon the Guarantor or the Lessee, and
(v) do not result in the creation or imposition of any Lien on
any asset of the Guarantor or the Lessee.
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<PAGE> 25
(c) Binding Effect. This Participation Agreement constitutes a
valid and binding agreement of each of the Guarantor and the
Lessee enforceable in accordance with its terms, and the other
Operative Documents to which it is, or will become a party,
when executed and delivered in accordance with this
Participation Agreement, will constitute valid and binding
obligations of the Guarantor or Lessee enforceable in
accordance with their respective terms, provided that the
enforceability hereof and thereof is subject in each case to
general principles of equity and to bankruptcy, insolvency and
similar laws affecting the enforcement of creditors' rights
generally.
(d) Trust Indenture Act. Assuming that the Initial Purchasers'
representations and warranties contained in the Purchase
Agreement are true and assuming compliance by the Initial
Purchasers with the covenants set forth in Section 4 of the
Purchase Agreement, it is not necessary in connection with the
offer, sale and delivery of the Fixed Rate Notes in the manner
contemplated by the Indenture of Trust to register the Fixed
Rate Notes under the Securities Act or to qualify the
Indenture or Trust under the United States Trust Indenture Act
of 1939 (the "Trust Indenture Act").
(e) Rule 144 A Representations. (i) When the Fixed Rate Notes are
issued and delivered pursuant to the Indenture of Trust, such
Fixed Rate Notes will not be of the same class (within the
meaning of Rule 144A) as securities of the Guarantor which are
listed on a national securities exchange registered under
Section 6 of the Exchange Act or quoted in a U.S. automated
inter-dealer quotation system; (ii) the Guarantor is not
subject to Section 13 or 15(d) of the Exchange Act; (iii) the
Guarantor is not an open-end investment company, unit
investment trust or face-amount certificate company that is or
is required to be registered under Section 8 of the United
States Investment Company Act of 1940 (the "Investment Company
Act"); (iv) neither the Guarantor nor any affiliate (as
defined in Rule 501 (b) under the Securities Act) of the
Guarantor has, directly or through any agent, sold, offered
for sale, solicited offers to buy or otherwise negotiated in
respect of, any security (as defined in the Securities Act)
which is or will be integrated with the sale of the Fixed Rate
Notes in a manner that would require the registration of the
Fixed Rate Notes under the Securities Act; and (v) neither the
Guarantor nor any person acting on its behalf (other than the
Initial Purchasers, as to which the Guarantor makes no
representation) has engaged or will engage, in connection with
the offering of the Fixed Rate Notes, in any form of general
solicitation or general advertising within the meaning of Rue
502(c) under the Securities Act, or with respect to Fixed Rate
Notes sold in reliance on Rule 903 ("Rule 903") under the
Securities Act, in any directed selling efforts within the
meaning of Rule 903 with respect to the Fixed Rate Notes and
each of them has complied and will comply with the offering
restrictions requirement of Regulation S.
(f) No Default. Neither the Guarantor nor any of its Subsidiaries
is in default under or
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<PAGE> 26
with respect to any agreement, instrument or undertaking to
which it is a party or by which it or any of its property is
bound which could reasonably be expected to have or cause a
Material Adverse Effect. No Default or Event of Default has
occurred and is continuing.
(g) Environmental Matters. (i) Neither the Guarantor nor any
Subsidiary is subject to any claim under the Environmental
Laws with respect to the Properties which could have or cause
a Material Adverse Effect and neither the Guarantor nor any
Subsidiary has been designated as a potentially responsible
party under CERCLA or under any state statute similar to
CERCLA. None of the Properties has been identified on any
current or proposed (x) National Priorities List under 40
C.F.R. ss. 300, (y) CERCLIS list or (z) any list arising from
a state statute similar to CERCLA.
(ii) No Hazardous Substances have been or are being
used, produced, manufactured, processed, treated, recycled,
generated, stored, disposed of, managed or otherwise handled
at, or shipped or transported to or from the Properties or are
otherwise present at, on, in or under the Properties, or, to
the best of the knowledge of the Guarantor and Lessee, at or
from any adjacent site or facility, except for Hazardous
Substances, such as cleaning solvents, pesticides and other
materials used, produced, manufactured, processed, treated,
recycled, generated, stored, disposed of, managed, or
otherwise handled in minimal amounts in the ordinary course of
business in compliance with all applicable Environmental Laws.
(iii) Each of the Guarantor and each of its
Subsidiaries and Affiliates, (x) has procured all permits and
authorizations required under the Environmental Laws necessary
for the conduct of its business on the Properties, and (y) is
in compliance with all Environmental Laws in connection with
the operation of the Properties and the Guarantor's and each
of its Subsidiary's and Affiliate's, respective businesses, in
each case set forth in either of clause (x) or (y) where the
failure to procure or non-compliance with which would
reasonably be expected to have or cause a Material Adverse
Effect.
(h) Facility Lender. The representations and warranties of the
Facility Lender, set forth in the Operative Documents
(including the representations and warranties set forth in
Sections 8.4) are true and correct in all material respects
and the Facility Lender is in compliance with its obligations
under the Operative Documents.
(i) Disclosure. All written information heretofore furnished by
the Guarantor or the Lessee to the Facility Lender, Indenture
Trustee, Initial Purchasers or Lessor for purposes of or in
connection with this Participation Agreement or any
transaction contemplated hereby is, and all such information
hereafter furnished by the
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<PAGE> 27
Guarantor or the Lessee to the Facility Lender, Indenture
Trustee, any Noteholder or Lessor will be, true and correct in
all material respects or based on what the Guarantor or the
Lessee in good faith believes to be reasonable estimates on
the date as of which such information is stated or certified.
(j) No Litigation. There is no action, suit or proceeding pending,
or to the knowledge of the Guarantor or Lessee, threatened,
against or affecting the Guarantor, Lessee or any of their
Subsidiaries, before any court or arbitrator or any
Governmental Authority which would reasonably be expected to
have or cause a Material Adverse Effect.
SECTION 8.3. Representations of Guarantor and Lessee as to Properties.
Each of the Guarantor and the Lessee hereby represents and warrants as of the
Closing Date with respect to each Property, as follows:
(a) Property. Each Property consists of Land on which a Facility
has been constructed. Such Property is located in the
continental United States.
(b) Insurance. Lessee has obtained insurance coverage covering
such Property or is self-insured in a manner which meets the
requirements of Article XIV of the Lease, and such coverage is
in full force and effect.
(c) Lease. Upon the execution and delivery of a Lease Supplement
to the Lease and Memorandum of Lease, (i) Lessee will have
unconditionally accepted the Land and existing Improvements
subject to such Lease Supplement and will have good and
marketable title to a valid and subsisting leasehold interest
in the Land and existing Improvements, subject only to
Permitted Exceptions, (ii) no offset will exist with respect
to any Rent or other sums payable under the Lease and (iii) no
Rent under the Lease will have been prepaid.
(d) Protection of Interests. Upon recordation, each Mortgage and
each Supplement to Assignment of Lease delivered on the
Closing Date will constitute a valid and perfected first Lien
on the Property that is subject to such Mortgage and
Supplement to Assignment of Lease and all of the Lessor's
right, title and interest in and to the Improvements located
thereon, subject only to Permitted Exceptions.
(e) Flood Hazards. No portion of any Property is located in an
area identified as a special flood hazard area by the Federal
Emergency Management Agency or other applicable agency, or if
any such Property is located in an area identified as a
special flood hazard area by the Federal Emergency Management
Agency or other applicable agency, then flood insurance has
been obtained for such Property in accordance with Section XI
of the Lease and in accordance with the National Flood
23
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Insurance Act of 1968, as amended.
SECTION 8.4. Representations of Facility Lender. Facility Lender
represents and warrants to each of the other parties hereto that:
(a) Corporate Status. It (i) is a duly organized and validly
existing corporation in good standing under the laws of the
state of its incorporation and has the corporate power and
authority to own its property and assets and to transact the
business in which it is engaged and (ii) has duly qualified
and is authorized to do business and is in good standing in
all jurisdictions where it is required to be so qualified and
where the failure to be so qualified could have a material
adverse effect on the property, operations or financial
condition of Facility Lender.
(b) Corporate Power and Authority. It has the corporate power and
authority to execute, deliver and carry out the terms and
provisions of the Operative Documents to which it is or will
be a party, has taken all necessary corporate action to
authorize the execution, delivery and performance of the
Operative Documents to which it is or will be a party, has
duly executed and, assuming the due authorization, execution
and delivery hereof and thereof by the other parties hereto
and thereto, delivered each Operative Document required to be
executed and delivered by it and each such Operative Document
constitutes a legal, valid and binding obligation enforceable
against it in accordance with its terms, except as such
enforceability may be limited or denied by (i) applicable
bankruptcy, insolvency, reorganization, moratorium or similar
laws effecting creditors' rights and the enforcement of
debtors' obligations generally, and (ii) general principles of
equity, regardless of whether enforcement is pursuant to a
proceeding in equity or at law.
(c) No Violation. Neither the execution, delivery and performance
by it of the Operative Documents to which it is or will be a
party nor compliance with the terms and provisions thereof,
nor the consummation of the transactions contemplated therein
(i) will contravene any Applicable Law, or (iii) will violate
any provision of its certificate of incorporation or by-laws.
(d) No Other Activities. It does not hold any assets, conduct any
business nor is it party to any Contractual Obligation except
as expressly contemplated by the Operative Documents.
(e) Indenture of Trust. Each of the representations and warranties
of the Facility Lender set forth in the Indenture of Trust are
true and correct in all material respects and the Facility
Lender is in compliance with its obligations under the
Operative Documents.
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<PAGE> 29
(f) No Litigation. There is no action, suit or proceeding pending,
or to the knowledge of the Facility Lender, threatened,
against or affecting the Facility Lender, before any court or
arbitrator or any Governmental Authority which would
reasonably be expected to have or cause a Material Adverse
Effect.
SECTION 8.5. Representations and Warranties of the Indenture Trustee.
The Indenture Trustee hereby represents and warrants to each of the other
Participants that:
(a) Corporate Existence and Power. It is, respectively, a banking
association or corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its
organization and has all corporate powers and all material
governmental licenses, authorizations and approvals required
to perform its obligations hereunder.
(b) Binding Effect. This Participation Agreement and each other
Operative Document to which the Indenture Trustee is a party
constitutes a valid and binding agreement of it enforceable
against it in accordance with its terms, provided that the
enforceability hereof is subject in each case to general
principles of equity and to bankruptcy, insolvency and similar
laws affecting the enforcement of creditors' rights generally.
SECTION 9.
PAYMENT OF CERTAIN EXPENSES
Guarantor and Lessee agree, jointly and severally, for the benefit of
the Lessor, the Facility Lender, the Indenture Trustee and the Noteholders, to:
SECTION 9.1. Transaction Expenses. On the Closing Date (if statements
are received in satisfactory form within a reasonable time prior to such date
and in any event within thirty (30) days after receipt thereof), pay, or cause
to be paid, all reasonable fees, expenses and disbursements of the respective
counsel (including local counsel) for each of the Lessor, the Facility Lender
and the Indenture Trustee in connection with the transactions contemplated by
the Operative Documents and incurred in connection with the Closing Date
(subject to any negotiated fee arrangements which shall survive the execution
and delivery of this Agreement), including all other Transaction Expenses (in
connection with the Closing Date) and all other expenses in connection with the
Closing Date, including, without limitation, all expenses relating to
Environmental Audits, Appraisals, title insurance, surveys and all fees, taxes
and expenses for the recording, registration and filing of documents.
SECTION 9.2. Brokers' Fees and Stamp Taxes. Pay, or cause to be paid,
any brokers'
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fees and any and all stamp, transfer and other similar taxes, fees and excises,
if any, including any interest and penalties, which are payable in connection
with the transactions contemplated by this Participation Agreement and the other
Operative Documents.
SECTION 9.3. Certain Fees and Expenses. Pay or cause to be paid (i)
any and all Transaction Expenses of the Facility Lender (or any successor to the
Facility Lender), the Lessor and the Indenture Trustee (subject to any
negotiated fee arrangements which shall survive the execution and delivery of
this Agreement), (ii) all Transaction Expenses incurred by the Facility Lender,
the Indenture Trustee or the Lessor in entering into any future amendments or
supplements with respect to any of the Operative Documents, whether or not such
amendments or supplements are ultimately entered into, or giving or withholding
of waivers of consents hereto or thereto, which have been requested by Lessee or
Guarantor, (iii) all Transaction Expenses incurred by Lessor, the Indenture
Trustee or the Facility Lender in connection with a transfer made pursuant to
Section 12.2 of this Participation Agreement or any substitution of a Property
pursuant to Section 7.4, and (iv) all Transaction Expenses incurred by the
Lessor, the Facility Lender or the Indenture Trustee in connection with any
purchase or substitution of any Property by the Lessee or other Person pursuant
to Articles XVI, XVII, XX or XXII of the Lease.
SECTION 10.
OTHER COVENANTS AND AGREEMENTS
SECTION 10.1. Covenants of Guarantor and Lessee. Guarantor and Lessee
hereby agree that so long as this Participation Agreement is in effect:
(a) Information. To the extent not already provided, the Guarantor
will deliver to the Lessor, S&P and Moody's.
(i) as soon as available and in any event within ninety
(90) days after the end of each Fiscal Year, a
consolidated balance sheet of the Guarantor and its
Subsidiaries as of the end of such Fiscal Year and
the related consolidated statements of income,
stockholders' equity and cash flows for such Fiscal
Year, setting forth in each case in comparative form
the figures for the previous Fiscal Year, all
certified by KPMG Peat Marwick, LLP or other
independent public accountants of nationally
recognized standing;
(ii) as soon as available and in any event within
forty-five (45) days after the end of each of the
first three (3) Fiscal Quarters of each Fiscal Year,
a consolidated balance sheet of the Guarantor and its
Consolidated Subsidiaries as of the end of such
Fiscal Quarter and the related statement of income
and statement of cash flows for such Fiscal Quarter
and for the
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portion of the Fiscal Year ended at the end of such
Fiscal Quarter, setting forth in each case in
comparative form the figures for the corresponding
Fiscal Quarter (Fiscal Year only in the case of
balance sheets) and the corresponding portion of the
previous Fiscal Year;
(iii) promptly upon the mailing thereof to the stockholders
of the Guarantor generally, copies of all financial
statements, reports and proxy statements so mailed;
and
(iv) promptly upon the filing thereof, copies of all
registration statements (other than the exhibits
thereto and any registration statements on Form S-8
or its equivalent) and annual, quarterly, monthly or
other periodic reports (including reports on Form
8-K) which the Guarantor shall have filed with the
Securities and Exchange Commission.
(v) simultaneously with the delivery of each set of
financial statements referred to in paragraphs (i)
and (ii) above, a certificate, substantially in the
form of Exhibit H (a "Compliance Certificate"), of
the chief financial officer or the chief accounting
officer of the Guarantor stating whether any Event of
Default exists on the date of such certificate and,
if any Event of Default then exists, setting forth
the details thereof and the action which the
Guarantor or Lessee is taking or proposes to take
with respect thereto;
(vi) within five (5) Business Days after any of the chief
executive, chief financial, chief operating, chief
legal or chief accounting officer of the Guarantor or
Lessee becomes aware of the occurrence of any Event
of Default, a certificate of the chief financial
officer or the chief accounting officer of the
Guarantor or Lessee setting forth the details thereof
and the action which the Guarantor or Lessee is
taking or proposes to take with respect thereto;
(vii) from time to time such additional information
regarding the financial position or business of the
Guarantor or any of its Subsidiaries or any of the
Properties, as the Facility Lender, the Lessor, the
Indenture Trustee (at the request of a Noteholder) or
a Rating Agency may reasonably request, including
without limitation, information regarding the
Property Balance and the related amount of the Loan
and Lessor Investment Amounts allocated to each
Property.
(b) Inspection of Property, Books and Records. The Guarantor will
(i) keep, and cause each domestic Subsidiary to keep, proper
books of record and account in which full, true and correct
entries in conformity with GAAP shall be made of all dealings
and transactions in relation to its business and activities;
and (ii) permit, and cause each
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Subsidiary to permit, representatives of the Facility Lender,
the Lessor, the Indenture Trustee (acting at the request of a
Noteholder) or a Rating Agency, at such person's expense prior
to the occurrence of a Default and at the Guarantor's expense
after the occurrence of a Default, to visit and inspect any of
their respective properties, to examine and make abstracts
from any of their respective books and records and to discuss
their respective affairs, finances and accounts with their
respective officers, employees and independent public
accountants. The Guarantor and the Lessee agree to cooperate
and assist in such visits and inspections, in each case at
such reasonable times and as often as may reasonably be
requested.
(c) Payment of Obligations. The Guarantor and the Lessee each
covenants and agrees for the benefit of each Participant and
the Noteholders that it will duly and punctually pay its
respective obligations under the Operative Documents in
accordance with the terms thereof.
(d) Corporate Existence. Subject to Section 10.1(g) below, the
Guarantor will do, or cause to be done, all things necessary
to preserve and keep in full force and effect its corporate
existence and the corporate existence of the Lessee.
(e) Limitations on Liens. (i) The Guarantor will not, and will not
permit any Subsidiary to, issue, assume or guarantee any
notes, bonds, debentures or other similar evidences of
indebtedness for money borrowed (herein referred to as
"indebtedness") secured by any mortgage, security interest,
pledge or lien (herein referred to as "mortgage") of or upon
any Principal Property, or upon shares of capital stock or
evidences of indebtedness for borrowed money issued by any
Subsidiary that owns Principal Property and owned by the
Guarantor or any Subsidiary, whether owned at the date of this
Agreement or thereafter acquired, without making effective
provision, and the Guarantor in each case will make or cause
to be made effective provision, whereby the obligations of the
Guarantor pursuant to the Guaranty shall be secured equally
and ratably with (or at the option of the Guarantor, prior to)
any and all other indebtedness thereby secured, so long as
such indebtedness shall be so secured; provided, however, that
this subsection (e) shall not apply to indebtedness secured by
any of the following:
(1) mortgages for taxes or other governmental charges either
not yet delinquent or the nonpayment of which is being contested in
good faith by appropriate proceedings, provided enforcement of any lien
has been stayed; mortgages comprising landlord's liens or liens of
carriers, warehousemen, mechanics or materialmen incurred in the
ordinary course of business for sums not yet due and payable or which
are being contested in good faith by appropriate proceedings; and any
other mortgages incurred or created in the ordinary course of business
not arising in connection with indebtedness that do not in the
aggregate materially
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impair the use or value of the properties or assets of the Guarantor
and its Subsidiaries, taken as a whole;
(2) mortgages existing on the date hereof;
(3) mortgages on any property existing at the time of
acquisition thereof;
(4) mortgages on property of a corporation existing at the
time such corporation is merged into or consolidated with the Guarantor
or a Subsidiary or at the time of a sale, lease or other disposition of
the properties of such corporation (or a division thereof) as an
entirety or substantially as an entirety to the Guarantor or a
Subsidiary, provided that such mortgage as a result of such merger,
consolidation, sale, lease or other disposition is not extended to
property owned by the Guarantor or such Subsidiary immediately prior
thereto;
(5) mortgages on property of a corporation, shares of capital
stock or debt of any corporation existing at the time such corporation
becomes a Subsidiary;
(6) mortgages securing indebtedness of a Subsidiary to the
Guarantor or to another Subsidiary;
(7) mortgages on property to secure all or part of the cost of
acquiring, substantially repairing or altering, constructing,
developing or substantially improving such property, or to secure
indebtedness incurred to provide funds for any such purpose or for
reimbursement of funds previously expended for any such purpose,
provided the commitment of the creditor to extend the credit secured by
any such mortgage shall have been obtained not later than twelve months
after the later of (a) the completion of the acquisition, substantial
repair or alteration, construction, development or substantial
improvement of such property or (b) the placing in operation of such
property or of such property as so substantially repaired or altered,
constructed, developed or substantially improved;
(8) mortgages securing indebtedness payable on demand or not
more than one year after the date as of which the determination is made
(excluding any indebtedness renewable or extendable at the option of
the debtor for a period or periods ending more than one year after the
date as of which such determination is made), which indebtedness in
accordance with generally accepted accounting practices would be
included among current liabilities;
(9) any extension, renewal or replacement (or successive
extensions, renewals or replacements), in whole or in part, of any
mortgage referred to in the foregoing clauses (1) to (8) inclusive;
provided, however, that the principal amount
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of indebtedness secured thereby and not otherwise authorized by said
clauses (1) to (8) inclusive shall not exceed the principal amount of
indebtedness, plus any premium or fee payable in connection with any
such extension, renewal or replacement, so secured at the time of such
extension, renewal or replacement;
(10) mortgages in favor of the United States of America or any
State thereof, or any department, agency or instrumentality or
political subdivision of the United States of America or any State
thereof, to secure partial progress, advance or other payments pursuant
to any contract or statute or to secure any indebtedness incurred for
the purpose of financing all or any part of the purchase price or the
cost of constructing or improving the property subject to such
mortgages;
(11) mortgages arising out of any final judgment for the
payment of money aggregating not in excess of $10,000,000 or mortgages
created by or relating to any legal proceeding or final judgment which
at the time is being contested in good faith by appropriate
proceedings, provided enforcement of any lien has been stayed; or
(12) easements or similar encumbrances, the existence of which
do not materially impair the use of the property subject thereto for
the purposes for which it is held or was acquired.
(ii) Notwithstanding the provisions of subsection (e)(i), the Guarantor
or any Subsidiary may issue, assume or guarantee indebtedness secured by
mortgages which would otherwise be subject to the restrictions of subsection
(e)(i) in an aggregate amount which, together with all Attributable Debt
outstanding pursuant to subsection (f)(ii) and all indebtedness outstanding
pursuant to this subsection (e), does not at the time exceed 15% of Consolidated
Capitalization.
(f) Limitations on Sale and Lease-Back Transactions. (i) The
Guarantor will not, nor will it permit any Subsidiary to,
enter into any Sale and Lease-Back Transaction with respect to
any Principal Property (except for a transaction providing for
a lease for a term, including any renewal thereof, of not more
than three years and except for a transaction between the
Guarantor and a Subsidiary or between Subsidiaries), unless
either (x) the Guarantor or such Subsidiary would be entitled
pursuant to subsection (e)(i) to issue, assume or guarantee
indebtedness secured by a mortgage on such Principal Property
in an amount at least equal to the Attributable Debt in
respect of such Sale and Lease-Back Transaction without being
required by subsection (e)(i) to equally and ratably secure
the obligations of the Guarantor pursuant to the Guaranty or
(y) the Guarantor shall apply or cause to be applied, in the
case of a sale or transfer for cash, an amount equal to the
net proceeds thereof (but not in excess of the net book value
of such Principal Property at the date of such sale or
transfer) and, in the case of a sale or transfer otherwise
than for cash, an amount equal to the fair value (as
determined by the Board of Directors) of the Principal
Property so leased to the retirement, within 180 days after
the effective
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date of such Sale and Lease-Back Transaction, of Senior Funded
Indebtedness of the Guarantor or a Subsidiary; provided,
however, that the amount to be applied to such retirement of
Senior Funded Indebtedness shall be reduced by an amount equal
to the principal amount, plus any premium or fee paid in
connection with any redemption in accordance with the terms,
of Senior Funded Indebtedness voluntarily retired by the
Guarantor within 180 days after the effective date of such
Sale and Lease-Back Transaction, excluding retirements
pursuant to mandatory sinking fund or prepayment provisions
and payments at maturity.
(ii) Notwithstanding the provisions of subsection (f)(i), the
Guarantor or any Subsidiary may enter into a Sale and Lease-Back Transaction
which would otherwise be subject to the restrictions of subsection (f)(i) so as
to create an aggregate amount of Attributable Debt which, together with all
indebtedness outstanding pursuant to subsection (e)(ii) and all Attributable
Debt outstanding pursuant to this subsection (f)(ii), does not exceed 15% of
Consolidated Capitalization.
(g) Consolidations, Mergers, Conveyance or Transfer. Neither the
Guarantor nor Lessee shall consolidate with or merge into any
other Person or convey or transfer its properties and assets
substantially as an entirety to any Person, unless:
(1) the Person formed by such consolidation or into
which the Guarantor or the Lessee is merged or the Person
which acquires by conveyance or transfer the properties and
assets of the Guarantor or the Lessee, as applicable,
substantially as an entirety shall be a Person organized and
existing under the laws of the United States of America or any
State or the District of Columbia, and shall expressly assume,
by an assumption agreement executed and delivered to the
Lessor, the Facility Lender and the Indenture Trustee, all
obligations of the Guarantor or the Lessee, as applicable,
pursuant to the Operative Documents and the performance or
observance of every covenant of this Agreement on the part of
the Guarantor or the Lessee, as applicable, to be performed or
observed;
(2) immediately after giving effect to such
transaction, no Event of Default, and no event which, after
notice or lapse of time, or both, would become an Event of
Default, shall have happened and be continuing; and
(3) the Guarantor or the Lessee, as applicable, has
delivered to the Lessor, the Facility Lender and the Indenture
Trustee an Officers' Certificate and an Opinion of Counsel
each stating that such consolidation, merger, conveyance or
transfer and, if an assumption agreement is required in
connection with such transaction, such assumption agreement
comply with this Section 10.1(g) and that all conditions
precedent herein provided for relating to such transaction
have been complied with.
Upon any consolidation or merger, or any conveyance or transfer of the
properties and
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assets of the Guarantor or the Lessee, as applicable, substantially as
an entirety in accordance with this subsection, the successor Person
formed by such consolidation or into which the Guarantor or the Lessee,
as applicable, is merged or to which such conveyance or transfer is
made shall succeed to, and be substituted for, and may exercise every
right and power of, the Guarantor or the Lessee, as applicable, under
the Operative Documents with the same effect as if such successor
corporation had been named as the Guarantor or the Lessee, as
applicable, herein and thereafter the predecessor corporation shall be
released from all obligations and covenants under this Agreement and
the other Operative Documents. In the event of any such conveyance or
transfer, the Guarantor or the Lessee, as applicable, as the
predecessor corporation may be dissolved, wound up and liquidated at
any time thereafter.
(h) Actions Under Indenture of Trust. The Guarantor shall fulfill
all obligations of the Facility Lender pursuant to Sections
9.01 and 9.02 of the Indenture of Trust.
SECTION 10.2. Cooperation with the Lessee. The Lessor, the Facility
Lender and the Indenture Trustee shall, to the extent reasonably requested by
Lessee (but without assuming additional liabilities on account thereof), at
Lessee's expense, cooperate with Lessee in connection with its covenants
contained herein including, without limitation, at any time and from time to
time, upon the request of Lessee, to promptly and duly execute and deliver any
and all such further instruments, documents and financing statements and
continuation statements related thereto) as Lessee may reasonably request in
order to perform such covenants. Each of the Lessor, the Facility Lender and the
Indenture Trustee agrees that, to the extent it shall obtain actual knowledge of
the occurrence of an Event of Default, a Loan Agreement Event of Default or an
Indenture Event of Default under the Operative Documents, it shall promptly
notify Lessee describing the same in reasonable detail.
SECTION 10.3. Release of Properties. If the Lessee shall at any time
purchase any Property pursuant to the terms of the Lease, or if all of the
Properties shall be sold in accordance with, and the Lessee otherwise satisfies
each of the obligations and conditions set forth in the Lease for the release or
substitution of a Property therefrom, then, upon application of the proceeds of
any such sale pursuant to Section 5 (except in the case of a substitution) and
all accrued interest and any other payments due and owing from Lessee to the
Indenture Trustee, the Noteholders, the Facility Lender or Lessor on such date,
including without limitation pursuant to Section 13 of this Agreement, such
Property shall be released from the Liens created by the Security Documents and
the Indenture Trustee, Lessor and the Facility Lender shall, at the expense of
the Lessee, execute and deliver such instruments as are legally required in
order to effectuate such release. In addition, upon the payment in full of all
other amounts owing by the Lessee hereunder or under any other Operative
Document, the Properties shall be released from the Liens created by the
Security Documents. Upon request of the Lessee or Lessor following any such
release, the Indenture Trustee and Facility Lender shall, at the sole cost and
expense of the Lessee or Lessor execute and deliver to the Lessor or the Lessee
such documents as the Lessee or Lessor shall reasonably request
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to evidence such release.
SECTION 10.4. Discharge of Liens. (a) Each of the Facility Lender and
the Lessor hereby severally agrees that it will not create or permit to exist at
any time, and will, at its own cost and expense, promptly take such action as
may be necessary duly to discharge, or to cause to be discharged, all Lessor
Liens on the Properties (and its rights under the Operative Documents)
attributable to it; provided, however, that such Participants shall not be
required to so discharge any such Lessor Lien prior to any sale of the
Properties while the same is being contested in good faith by appropriate
proceedings.
(b) The Indenture Trustee hereby severally agrees that it will not
create or permit to exist at any time, and will, at its own cost
and expense, promptly take such action as may be necessary duly to
discharge, or to cause to be discharged, all Trustee's Liens on
the Properties attributable to it; provided, however, that the
Indenture Trustee shall not be required to so discharge any such
Trustee's Lien prior to any sale of the Properties while the same
is being contested in good faith by appropriate proceedings.
SECTION 10.5. Notice of Credit Rating. The Lessor agrees that it shall
immediately notify the Guarantor and the Lessee in writing in the event that its
general partner's long or short term debt rating is downgraded, withdrawn, or
qualified by any Rating Agency or if Lessor (or its general partner) is placed
on credit watch with negative implications by any Rating Agency.
SECTION 10.6. Covenants of the Facility Lender and the Lessor. Each of
the Facility Lender and the Lessor hereby agrees, severally and not jointly,
that so long as this Participation Agreement is in effect:
(a) Maintenance of Existence. It shall maintain its corporate or
partnership existence and qualification as a foreign
corporation or foreign limited partnership in each state in
which a Property is located and in which the failure to
maintain such existence or qualification would have a
materially adverse effect on its ability to perform its
obligations under the Operative Documents as contemplated on
the Closing Date.
(b) Certificate of Incorporation. Facility Lender shall not allow
an amendment to its certificates of incorporation or other
governing documents without the consent of the Lessee,
Indenture Trustee and Lessor.
(c) Prepayment. Other than as provided in Section 5, the Facility
Lender will not prepay, redeem or refinance any of the Fixed
Rate Notes. Except as permitted by the Operative Documents,
the Lessor shall not prepay the Loan in whole or in part;
provided, however, that subject to Section 5, Lessor may
prepay or cause to be prepaid all or any portion of the Note
at any time following an Event of Default where the
Participants are exercising remedies.
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(d) Indebtedness; Other Business. The Facility Lender shall not
contract for, create, incur or assume any Indebtedness, or
enter into any business or other activity, other than pursuant
to, under or as contemplated by the Operative Documents.
(e) Change of Chief Place of Business. Each of the Lessor and the
Facility Lender, with respect to itself only, shall give
prompt notice to Lessee and the Indenture Trustee if the
Lessor's or the Facility Lender's chief place of business or
chief executive office, or the office where the records
concerning the accounts or contract rights relating to a
Property are kept, shall cease to be located at the address
set forth in Section 14.3 or if it shall change its name,
identity or corporate structure.
(f) Subordination of Liens. During the Term, the Liens created by
the Security Documents related to each Property shall be
expressly made subject and subordinate to the Lease related to
such Property.
(g) No Voluntary Bankruptcy. Neither the Lessor (unless the Lessee
shall give its prior written consent) nor the Facility Lender
shall (A) commence any case, proceeding or other action under
any existing or future law of any jurisdiction, domestic or
foreign, relating to bankruptcy, insolvency, reorganization,
arrangement, winding-up, liquidation, dissolution, composition
or other relief with respect to it or its debts, or (B) seek
appointment of a receiver, trustee, custodian or other similar
official for it or for all or any substantial benefit of its
creditors; and neither the Lessor nor the Facility Lender
shall take any action in furtherance of, or indicating its
consent to, approval of, or acquiescence in, any of the acts
set forth in this paragraph.
(h) No Sale of Properties. Neither the Lessor nor the Facility
Lender shall transfer any of their respective interests in the
Properties except as provided in the Operative Documents.
(i) No Powers of Attorney. The Facility Lender shall not grant any
powers of attorney to any Person for any purposes except (i)
for the purpose of permitting any Person to perform any
ministerial or administrative functions on behalf of the
Facility Lender which are not inconsistent with the terms of
the Operative Documents, (ii) to the Indenture Trustee for the
purposes of the Security Documents, or (iii) where provided
for or permitted by the Operative Documents.
(j) Same Business. Unless the Lessee otherwise consents in
writing, Lessor shall stay engaged in substantially the same
business (including engaging in the business of leasing
personal and real property as lessor, or acting as agent,
broker or advisor in leasing such property and making,
acquiring or servicing loans or other investments or
extensions of credit in connection therewith or incidental
thereto) as conducted
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on the Closing Date.
SECTION 10.7. No Bankruptcy Proceedings. The Guarantor, Lessee and each
Participant hereby agrees that it will not institute against, or join any other
Person in instituting against, the Facility Lender or the Lessor any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceeding, or other
proceeding under any Federal or state bankruptcy or similar law, for one year
and a day after the Fixed Rate Notes are paid. Nothing in this Section 10.7
shall preclude, or be deemed to estop, the Guarantor, Lessee or any Participant
(i) from taking or omitting to take any action prior to such date in (A) any
case or proceeding voluntarily filed or commenced by or on behalf of the
Facility Lender under or pursuant to any such law or (B) any involuntary case or
proceeding pertaining to the Facility Lender which is filed or commenced by or
on behalf of a Person other than the Guarantor, Lessee or any Participant under
or pursuant to any such law, or (ii) from commencing or prosecuting any legal
action which is not an involuntary case or proceeding under or pursuant to any
such law against the Participant or any of its properties or otherwise
exercising its remedies under the Operative Documents.
SECTION 10.8. Notice of Claims Against Lessor. Lessor shall promptly
notify the Lessee and the Guarantor in writing in the event that Lessor defaults
in any obligation or any Claim is asserted against Lessor (including any
Environmental Claim) which, exceeds $5,000,000 in any one instance or
$10,000,000 in the aggregate (other than defaults or Claims arising in
connection with the Operative Documents and the transactions contemplated
thereby). Upon receipt of such notice the Lessee may either:
(i) Replace the Lessor pursuant to Section 12.2; or
(ii) Require that the Lessor promptly execute, deliver and
record mortgages in form satisfactory to Lessee granting to Lessee a
Lien on the Properties to secure the performance of all obligations of
Lessor pursuant to the Lease and the other Operative Documents, which
Lien shall be second in priority to the Mortgages. Each of the
Participants hereby acknowledges and agrees that any such Liens granted
to the Lessee hereunder shall constitute "Permitted Liens" pursuant to
clause (i) of such definition.
SECTION 11.
LESSEE DIRECTIONS
SECTION 11.1. Lessee Directions. The Lessor, the Guarantor, the
Indenture Trustee and the Facility Lender agree that, so long as no Default or
Event of Default exists:
(a) Lessee shall have the right to give all notices pursuant to
the Indenture of Trust with respect to the redemption,
defeasance, prepayment or other matters relating to the
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Fixed Rate Notes and to direct the Facility Lender and Lessor
to take all actions necessary to accomplish such directions;
provided, however, that any such directions shall not conflict
with any provision of any of the Operative Documents;
(b) [INTENTIONALLY OMITTED];
(c) Lessee shall have the right to approve any successor
"Indenture Trustee" to the extent permitted pursuant to
Section 8.11 of the Indenture of Trust;
(d) without limiting the foregoing clauses (a) through (c) and in
addition thereto, Lessee shall have the right to exercise any
other right of the Lessor under the Loan Documents and the
Facility Lender under the Indenture of Trust upon not less
than three (3) Business Days' prior written notice from Lessee
to the Lessor, Indenture Trustee, and the Facility Lender,
unless such party objects to such exercise within three (3)
Business Days of receipt of such notice; and
(e) Lessee shall have the right to give notices pursuant to
Appendix 3 of this Participation Agreement.
SECTION 12.
TRANSFER OF INTEREST
SECTION 12.1. Restrictions on and Effect of Transfer. Except for the
transactions contemplated hereby, no Participant shall assign, convey or
otherwise transfer (including pursuant to a participation) all or any portion of
its right, title or interest in, to or under any of the Operative Documents,
except (x) with respect to the Noteholders, as provided in Article 2.08 of the
Indenture of Trust, and (y) with respect to the Facility Lender and the Lessor,
with the prior written consent of the Indenture Trustee and Lessee, which
consent, in the case of the Indenture Trustee, shall not be unreasonably
withheld, and (z) with respect to the Lessor, with the prior written consent of
the Lessee and only if the Lessor shall have provided written confirmation from
each of Moody's and S&P that immediately after giving effect to such transfer
the Fixed Rate Notes shall not be rated lower than the Fixed Rate Notes are
rated immediately prior to such transfer and such transfer shall not result in a
downgrade, withdrawal or qualification of the ratings assigned to the Fixed Rate
Notes by Moody's and S&P; provided that, in the event that an Event of Default
has occurred and is continuing pursuant to which the Participants have begun to
exercise remedies against the Lessee or Guarantor, the consent of the Lessee
shall not be required for any such transfer by the Lessor. Any transfer made
pursuant to the Operative Documents shall be subject to the Security Documents
and any transferee or assignee shall expressly agree in writing to be bound by
the terms of this Participation Agreement.
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SECTION 12.2. Replacement of Lessor or Facility Lender. (A) If the
Lessor or Facility Lender (i) defaults in any of its material obligations
pursuant to the Operative Documents or, with respect to Facility Lender, any
Indenture Event of Default shall occur, or with respect to Lessor, any Loan
Agreement Event of Default shall occur (which in either case, does not arise out
of, or is not attributable to, an Event of Default), or (ii) in the case of the
Lessor, (x) the Lessor or its general partner suffer a downgrade, qualification
or withdrawal or, in the reasonable judgment of the Lessee, potential downgrade,
qualification or withdrawal, of its long or short term credit rating by any
Rating Agency or (y) Credit Suisse First Boston ceases to be the sole general
partner of Lessor, the Lessee shall be permitted to replace the Lessor at any
time, or (B) if the Lessor or its general partner suffers a downgrade,
withdrawal or qualification of its credit rating to the extent that such
downgrade, withdrawal or qualification results or would result in the credit
rating assigned to the Fixed Rate Notes by either of the Rating Agencies being
lower than the credit rating then assigned by the Rating Agencies to the
Guarantor, the Lessee shall be required to replace the Lessor; provided that in
any instance described in clause (a) or (b) above (i) such replacement does not
conflict with any Requirement of Law, (ii) any replacement Lessor shall
purchase, at par, the Lessor Investment Amount, all accrued and unpaid
Certificate Earnings thereon and other amounts owing to Lessor under the
Operative Documents on or prior to the date of replacement, (iii) the
replacement Lessor or Facility Lender shall be reasonably satisfactory to the
Indenture Trustee, (iv) the Guarantor and Lessee shall be obligated to pay any
Transaction Expenses arising in connection therewith, (v) the replacement Lessor
or Facility Lender shall agree in writing to be subject to all of the terms and
conditions of the Operative Documents and this Participation Agreement and (vi)
as a condition precedent to such replacement, the Guarantor or Lessee shall have
provided written confirmation from each of Moody's and S&P that immediately
after having given effect to such replacement, the Fixed Rate Notes shall not be
rated lower than the Fixed Rate Notes are rated immediately prior to such
replacement and such replacement shall not result in a downgrade, withdrawal or
qualification of the rating assigned to the Fixed Rate Notes by Moody's or S&P.
The Lessor and the Facility Lender agree to cooperate with the Lessee in its
efforts to arrange replacements as contemplated by this Section 12.2.
SECTION 13.
INDEMNIFICATION
SECTION 13.1. General Indemnification. The Guarantor and Lessee,
jointly and severally, whether or not any of the transactions contemplated
hereby shall be consummated, hereby assume liability for, and indemnify,
protect, defend, save and keep harmless each Indemnitee, on an After Tax Basis,
from and against any and all Claims that may be imposed on, incurred by or
asserted against such Indemnitee in any way relating to or arising out of:
(a) any of the Operative Documents or any of the transactions
contemplated thereby, and any amendment, modification or
waiver in respect thereof; or
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(b) the Properties or any part thereof or interest therein;
(c) the purchase, design, construction, preparation, installation,
inspection, delivery, non-delivery, acceptance, rejection,
ownership, management, possession, operation, rental, lease,
sublease, repossession (whether by summary proceedings or
otherwise), maintenance, repair, alteration, modification,
addition, substitution, storage, transfer of title,
redelivery, use, financing, refinancing, disposition,
operation, condition, sale (including, without limitation, any
sale pursuant to the Lease), return or other disposition of
all or any part of any interest in the Properties or the
imposition of any Lien (or incurring of any liability to
refund or pay over any amount as a result of any Lien)
thereon, including, without limitation: (l) personal injury,
death or property damage, including Claims or penalties
arising from any violation of law or in tort (strict liability
or otherwise), (2) latent or other defects, whether or not
discoverable, (3) any Claim based upon a violation or alleged
violation of the terms of any Applicable Law or any
restriction, easement, condition or covenant or other matter
affecting title to the Properties or any part thereof, (4) the
making of any Modifications in violation of any Insurance
Requirements, (5) any Claim for patent, trademark or copyright
infringement, and (6) Claims arising from any public
improvements with respect to the Properties resulting in any
change or special assessments being levied against the
Properties or any Claim for utility "tap-in" fees;
(d) the offer, issuance, sale or delivery of the Fixed Rate Notes
or the Note;
(e) the breach or alleged breach by the Guarantor or the Lessee of
any representation or warranty made by it or deemed made by it
in any Operative Document or any certificate required to be
delivered by any Operative Document or the breach or alleged
breach by the Guarantor or the Lessee of any covenant or
obligation made by it in any Operative Document;
(f) the retaining or employment of any broker, finder or financial
advisor by the Guarantor or Lessee to act on its behalf in
connection with the Operative Documents, or the authorization
of any broker or financial adviser retained or employed by the
Guarantor or the Lessee so to act, or the incurring of any
fees or commissions by the Lessee or the Guarantor to which
the Indemnitees might be subjected by virtue of their entering
into the transactions contemplated by the Operative Documents;
(g) the existence of any Lien on or with respect to the
Properties, any Basic Rent or Supplemental Rent, title
thereto, or any interest therein, including any Liens which
arise out of the possession, use, occupancy, construction,
repair or rebuilding of any
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of the Properties or by reason of labor or materials furnished
or claimed to have been furnished to the Lessee, or any of its
contractors or agents or by reason of the financing of any
personalty or equipment purchased or leased by the Lessee or
Modifications constructed by the Lessee, except in all cases
Permitted Liens;
(h) any breach of any requirement, condition, restriction or
limitation in any other Operative Document on the part of
Lessee or Guarantor to be performed; or
(i) any easement, license, right-of-way, covenant, restriction or
other document or agreement entered into by Lessor at the
request of Lessee;
provided, however, neither the Guarantor nor the Lessee shall be required to
indemnify any Indemnitee under this Section 13.1 for any of the following: (1)
any Claim to the extent that such Claim resulted from the willful misconduct or
gross negligence of such Indemnitee, (2) any Claim to the extent resulting from
Lessor Liens which the Indemnitee is responsible for discharging under the
Operative Documents, (3) any Claim to the extent directly resulting from a
breach of an Operative Document or Applicable Law by such Indemnitee (except for
a breach by the Facility Lender that is arising out of or attributable to a
breach by the Lessee or Guarantor of any of its obligations under any of the
Operative Documents), and (4) any Claim related to the Properties to the extent
attributable to acts or events occurring after the Lease Termination Date unless
an Event of Default has occurred and is continuing and the Participants are
exercising remedies against the Lessee or the Properties in respect of the
Operative Documents (in which event all of the foregoing provisions of this
Section 13.1 shall remain in full force and effect). It is expressly understood
and agreed that the indemnity provided for herein shall survive the expiration
or termination of the Lease and the other Operative Documents and the payment by
Lessee and Guarantor of all amounts due thereunder for a period of three (3)
years (but shall continue in full force and effect following such date with
respect to any Claim asserted prior to such date), and shall be separate and
independent from any remedy under the Lease or any other Operative Document;
provided that, to the extent that any Claim arises after such three (3) year
period which was not asserted during such three (3) year period due to a failure
to discover such Claim or for any other reason, the indemnity provided for in
this Section 13.1 shall be revived upon the assertion of such Claim solely with
respect to such Claim.
SECTION 13.2. Environmental Indemnity. In addition to, and not in
derogation of, the indemnities contained in Section 13.1 and 13.4 the Guarantor
and the Lessee, jointly and severally, hereby indemnify, hold harmless and
defend each Indemnitee from and against any and all Claims, including, but not
limited to, all costs incurred in connection with any investigation or
monitoring of site conditions or any clean-up, remediation, removal or
restoration work by or at the direction of any Governmental Authority, related
to the Properties or the Lessee's use of the Properties, arising directly or
indirectly, in whole or in part, out of
(i) the presence on or under any Property of any
Hazardous Substances, or
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any releases or discharges of any Hazardous Substances on,
under, from or onto any Property or any other Hazardous
Condition with respect to any Property,
(ii) any Hazardous Activity, including, without
limitation, construction, carried on or undertaken on or off
any Property, and whether by the Lessee, or any predecessor in
title or any employees, Indenture Trustee, contractors or
subcontractors of the Lessee, or any predecessor in title, or
any other Persons, in connection with the handling, treatment,
removal, storage, decontamination, clean-up, transport or
disposal of any Hazardous Substances that at any time are
located or present on or under any Property or that at any
time migrate, flow, percolate, diffuse or in any way move onto
or under any Property,
(iii) loss of or damage to any property or the
environment (including, without limitation, clean-up costs,
response costs, remediation and removal costs, cost of
corrective action, costs of financial assurance, fines and
penalties and natural resource damages), or death or injury to
any Person, and all expenses associated with the protection of
wildlife, aquatic species, vegetation, flora and fauna, and
any mitigative action required by or under Environmental Laws,
(iv) any Claim concerning lack of compliance with
Environmental Laws with respect to the Properties, or any act
or omission causing an environmental condition with respect to
the Properties that requires remediation or would allow any
governmental agency to record a lien or encumbrance on the
land records with respect to the Properties,
(v) any residual contamination on or under any
Property, including any such contamination affecting any
natural resources, and to any such contamination of any
property or natural resources arising in connection with the
generation, use, handling, storage, transport or disposal of
any Hazardous Substances associated with such Property and
related to the residual contamination, the obligation
existing, irrespective of whether any of such activities were
or will be undertaken in accordance with applicable laws,
regulations, codes and ordinances,
(vi) in any case with respect to the matters
described in the foregoing clauses (i) through (v) that arise
or occur
(w) during the Term,
(x) at any time during which the Lessee or
any Affiliate thereof owns any interest in or
otherwise occupies, controls or possesses the
relevant Property or any portion thereof, or
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(y) during any period after and during the
continuance of any Event of Default, or
(vii) a breach of the representations and warranties
of the Guarantor and the Lessee provided herein;
provided, however, that neither the Guarantor nor the Lessee shall be required
to indemnify any Indemnitee under this Section 13.2 for any of the following:
(1) any Claim to the extent that such Claim resulted from the willful misconduct
or gross negligence of such Indemnitee, (2) any Claim to the extent proximately
caused by any action on the part of such Indemnitee or, to the extent such Claim
relates to or is attributable to, events occurring after the Term where such
Indemnitee is in control of the Property or Properties, inaction on the part of
such Indemnitee, and (3) any Claim related to the Properties to the extent
attributable to acts or events occurring before or after the Term unless, in the
case of Claims attributable to acts or events occurring after the Lease
Termination Date, an Event of Default has occurred and is continuing and the
Participants are exercising remedies against the Lessee or the Properties under
the Operative Documents (in which event all of the foregoing provisions of this
Section 13.2 shall remain in full force and effect), or the Claim arises out of
a breach of the representations and warranties of the Guarantor or Lessee
contained herein. It is expressly understood and agreed that the indemnity
provided for herein shall survive the expiration or termination of the Lease and
the other Operative Documents and the payment by Lessee and Guarantor of all
amounts due thereunder for a period of three (3) years (but shall continue in
full force and effect following such date with respect to any Claim asserted
prior to such date) and shall be separate and independent from any remedy under
the Lease or any other Operative Document; provided that, to the extent that any
Claim arises after such three (3) year period which was not asserted during such
three (3) period due to a failure to discover such Claim or for any other
reason, the indemnity provided for in this Section 13.2 shall be revived upon
the assertion of such Claim solely with respect to such Claim.
SECTION 13.3. Proceedings in Respect of Claims. With respect to any
amount that the Guarantor or the Lessee is requested by an Indemnitee to pay by
reason of Section 13.1 or 13.2, such Indemnitee shall, if so requested by the
Guarantor or the Lessee and prior to any payment, submit such additional
information to the Guarantor or the Lessee as the Guarantor or the Lessee may
reasonably request and which is in the possession of such Indemnitee to
substantiate properly the requested payment. In case any action, suit or
proceeding shall be brought against any Indemnitee, such Indemnitee shall notify
the Guarantor or the Lessee of the commencement thereof, and the Guarantor or
the Lessee shall be entitled, at its expense, to participate in, and, to the
extent that the Guarantor or the Lessee desires to, assume and control the
defense thereof; provided, however, that the Guarantor or the Lessee shall have
acknowledged in writing its obligation to fully indemnify such Indemnitee in
respect of such action, suit or proceeding and the Guarantor or the Lessee shall
keep such Indemnitee fully apprised of the status of such action, suit or
proceeding and shall provide such Indemnitee with all information with respect
to such action suit or proceeding as such Indemnitee shall reasonably request,
and, provided further, that the Guarantor or the Lessee shall not be entitled to
assume and control the defense of any such action, suit or proceeding if and to
the extent that, (A) in the reasonable opinion of such Indemnitee, (x) such
action, suit or proceeding involves any possibility of imposition of criminal
liability or any material risk of material civil liability on such Indemnitee or
will involve a material risk of the sale, forfeiture or loss of, or the creation
of any Lien (other than a Permitted Lien) on the Properties or any part thereof
unless the
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Guarantor or the Lessee shall have posted a bond or other security satisfactory
to the relevant Indemnitees in respect to such risk or (y) the control of such
action, suit or proceeding would involve an actual or potential conflict of
interest (in which case each Indemnitee may retain separate counsel at the
expense of Lessee and Guarantor), (B) such proceeding involves Claims not fully
indemnified by the Guarantor or the Lessee which the Guarantor or the Lessee and
the Indemnitee have been unable to sever from the indemnified claim(s), or (C)
an Event of Default has occurred and is continuing. The Indemnitee may
participate in a reasonable manner at its own expense and with its own counsel
in any proceeding conducted by the Guarantor or the Lessee in accordance with
the foregoing. Neither the Guarantor nor the Lessee shall enter into any
settlement or other compromise with respect to any Claim which is entitled to be
indemnified under Section 13.1 or 13.2 without the prior written consent of the
related Indemnitee, which consent shall not be unreasonably withheld.
No Indemnitee shall enter into any settlement or other compromise with
respect to any Claim which is entitled to be indemnified under Section 13.1 or
13.2 without the prior written consent of the Lessee, which consent shall not be
unreasonably withheld, unless such Indemnitee waives its right to be indemnified
under Section 13.1 or 13.2 with respect to such Claim.
Upon payment in full of any Claim by the Guarantor or the Lessee
pursuant to Section 14.1 or 13.2 to or on behalf of an Indemnitee, the Guarantor
or the Lessee, as the case may be, without any further action, shall be
subrogated to any and all claims that such Indemnitee may have relating thereto
(other than claims in respect of insurance policies maintained by such
Indemnitee at its own expense) to the extent of such payment, and such
Indemnitee shall execute such instruments of assignment and conveyance, evidence
of claims and payment and such other documents, instruments and agreements as
may be reasonably necessary to preserve any such claims and otherwise cooperate
with the Guarantor and the Lessee and give such further assurances as are
reasonably necessary or advisable to enable the Guarantor or the Lessee
vigorously to pursue such claims.
Any amount payable to an Indemnitee pursuant to Section 13.1 or 13.2
shall be paid to such Indemnitee promptly upon receipt of a written demand
therefor from such Indemnitee, accompanied by a written statement describing in
reasonable detail the basis for such indemnity and the computation of the amount
so payable.
SECTION 13.4. End of Term Indemnity. In addition to the indemnities
provided in Sections 13.1 and 13.2, if the Lessee elects the Remarketing Option
set forth at Section 22.1 of the Lease with respect to the Properties subject to
the Lease and there is a Shortfall Amount with
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respect to such Properties, then prior to the Lease Termination Date and as a
condition to Lessee's right to complete the remarketing of such Property
pursuant to Section 22.1 of the Lease, Lessee shall cause to be delivered to
Lessor no later than the Lease Termination Date, at Lessee's sole cost and
expense, a report from an Appraiser in form and substance reasonably
satisfactory to the Indenture Trustee and the Lessor (the "End of the Term
Report") to establish the reason for any impairment to the value of any of such
Property which was sold for an amount less than the Property Balance for such
Property or not sold. On the Lease Termination Date, the Lessee shall pay to
Lessor an amount equal to the Shortfall Amount that the End of the Term Report
demonstrates was the result of an impairment to the value in such Property due
to:
(a) extraordinary use, failure to maintain, to repair, to restore,
to rebuild or to replace, failure to comply with all
Requirements of Law, failure to use quality workmanship,
method of installation or removal or maintenance, repair,
rebuilding or replacement, (excepting in each case ordinary
wear and tear), or
(b) the existence of any Hazardous Activity, Hazardous Substance
or Environmental Violations occurring or discovered after the
Closing Date for such Property (regardless of the Person so
discovering any of the foregoing), or
(c) any restoration or rebuilding carried out by the Lessee or any
failure to complete any Modification, restoration or
rebuilding, in either case, by the Lease Termination Date,
(d) any grant, release, dedication, transfer, annexation or
amendment made pursuant to Section 12.2 of the Lease or any
release of a portion of the Property made pursuant to Section
12.3 of the Lease; or
(e) the failure of the Lessor to have good and marketable title to
such Property free and clear of all Liens (including Permitted
Liens (other than Lessor Liens and Trustee's Liens)) and
exceptions to title.
SECTION 13.5. General Tax Indemnity. (a) Indemnification.
Guarantor and Lessee, jointly and severally, shall pay and assume liability for,
and do hereby agree to indemnify, protect and defend each Property and all Tax
Indemnitees, and hold them harmless against, all Impositions on an After Tax
Basis.
(b) Contests. If any claim shall be made against any Tax
Indemnitee or if any proceeding shall be commenced against any Tax Indemnitee
(including a written notice of such proceeding) for any Imposition as to which
the Lessee may have an indemnity obligation pursuant to Section 13.5(a), or if
any Tax Indemnitee shall determine that any Imposition as to which the Lessee
may have an indemnity obligation pursuant to Section 13.5(a) may be payable,
such Tax Indemnitee shall promptly notify Lessee in writing and shall not take
any action with respect to
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such claim, proceeding or Imposition without the written consent of Lessee (such
consent not to be unreasonably withheld or unreasonably delayed) for thirty (30)
days after the receipt of such notice by Lessee; provided, however, that in the
case of any such claim or proceeding, if such Tax Indemnitee shall be required
by law or regulation to take action prior to the end of such thirty (30) day
period, such Tax Indemnitee shall in such notice to Lessee, so inform Lessee,
and such Tax Indemnitee shall not take any action with respect to such claim,
proceeding or Imposition without the consent of Lessee (such consent not to be
unreasonably withheld or unreasonably delayed) for ten (10) days after the
receipt of such notice by Lessee unless the Tax Indemnitee shall be required by
law or regulation to take action prior to the end of such ten (10)-day period.
Lessee shall be entitled for a period of thirty (30) days from receipt
of such notice from the Tax Indemnitee (or such shorter period as the Tax
Indemnitee has notified Lessee is required by law or regulation for the Tax
Indemnitee to commence such contest) to request in writing that such Tax
Indemnitee contest the imposition of such Tax, at Guarantor's and Lessee's joint
and several expense and the Tax Indemnitee shall, at the joint and several
expense of Guarantor and Lessee, in good faith conduct and control such contest
(including, without limitation, by pursuit of appeals) related to the validity,
applicability or amount of such Impositions (provided, however, that (A) if such
contest involves a tax other than a tax on net income and can be pursued
independently from any other proceeding involving a tax liability of such Tax
Indemnitee, the Tax Indemnitee, at Lessee's request, shall allow Guarantor or
Lessee to conduct and control such contest and (B) in the case of any contest,
the Tax Indemnitee may request Guarantor or Lessee to conduct and control such
contest) by, in the sole discretion of the Person conducting and controlling
such contest, (l) resisting payment thereof, (2) not paying the same except
under protest, if protest is necessary and proper, (3) if the payment be made,
using reasonable efforts to obtain a refund thereof in appropriate
administrative and judicial proceedings, or (4) taking such other action as is
reasonably requested by Guarantor or Lessee from time to time.
The party controlling any contest shall consult in good faith with the
non-controlling party and shall keep the noncontrolling party reasonably
informed as to the conduct of such contest; provided that, all decisions
ultimately shall be made in the sole discretion of the controlling party. The
parties agree that a Tax Indemnitee may at any time decline to take further
action with respect to the contest of any Imposition and may settle such contest
if such Tax Indemnitee shall waive its rights to any indemnity from Lessee that
otherwise would be payable in respect of such claim (and any future claim by any
taxing authority, the contest of which is precluded by reason of such resolution
of such claim) and shall pay to Lessee any amount previously paid or advanced by
Lessee pursuant to this Section 13.5 by way of indemnification or advance for
the payment of an Imposition other than expenses of such contest.
Notwithstanding the foregoing provisions of this Section 13.5, a Tax
Indemnitee shall not be required to take any action and neither Guarantor nor
Lessee shall be permitted to contest any Impositions in its own name or that of
the Tax Indemnitee unless (A) Lessee shall have agreed to pay and shall pay to
such Tax Indemnitee on demand and on an After Tax Basis all reasonable
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costs, losses and expenses that such Tax Indemnitee actually incurs in
connection with contesting such Impositions, including, without limitation, all
reasonable legal, accounting and investigatory fees and disbursements, (B) Tax
Indemnitee shall have reasonably determined that the action to be taken will not
result in any material danger of sale, forfeiture or loss of any Property, or
any part thereof or interest therein, will not interfere with the payment of
Rent, and will not result in risk of criminal liability, (C) if such contest
shall involve the payment of the Imposition prior to the contest, Lessee shall
provide to the Tax Indemnitee an interest-free advance in an amount equal to the
Imposition that the Tax Indemnitee is required to pay (with no additional net
after-tax cost to such Tax Indemnitee), (D) in the case of a claim that must be
pursued in the name of a Tax Indemnitee (or an Affiliate thereof), Lessee shall
have provided to such Tax Indemnitee an opinion of independent tax counsel
selected by the Lessee and reasonably satisfactory to Tax Indemnitee stating
that a reasonable basis exists to contest such claim (or, in the case of an
appeal of an adverse determination, an opinion of such counsel to the effect
that the position asserted in such appeal will more likely than not prevail) and
(E) no Event of Default hereunder shall have occurred and be continuing.
Each Tax Indemnitee shall at Lessee's expense supply Lessee with such
information and documents reasonably requested by Lessee as are in such Tax
Indemnitee's possession and as are necessary or advisable for Lessee to
participate in any action, suit or proceeding to the extent permitted by this
Section 13.5(b); provided that, such Tax Indemnitee shall not be required to
disclose its tax return to Lessee to the extent that the information deemed
necessary or desirable by Lessee contained therein is otherwise made available
to the Lessee in a form which will not hinder Lessee's contest of such action,
suit or proceeding.
Notwithstanding anything contained herein to the contrary, a Tax
Indemnitee will not be required to contest a claim with respect to the
imposition of any Tax if such Tax Indemnitee shall waive its right to
indemnification under this Section 13.5 with respect to such claim and any
related claim with respect to other taxable years the contest of which is
precluded or otherwise materially adversely affected as a result of such waiver.
(c) Reimbursement for Tax Savings. If (x) a Tax Indemnitee
shall obtain a credit or refund of any Taxes paid by Lessee pursuant to this
Section 13.5 or (y) by reason of the incurrence or imposition of any Tax for
which a Tax Indemnitee is indemnified hereunder or any payment made to or for
the account of such Tax Indemnitee by Lessee pursuant to this Section 13.5 or
any payment made by a Tax Indemnitee to Lessee by reason of this Section
13.5(c), such Tax Indemnitee at any time actually realizes a reduction in any
Taxes for which Lessee is not required to indemnify such Tax Indemnitee pursuant
to this Section 13.5 which reduction in Taxes was not taken into account in
computing such payment by Lessee to or for the account of such Tax Indemnitee or
by the Tax Indemnitee to Lessee, then such Tax Indemnitee shall promptly pay to
Lessee on an After Tax Basis (xx) the amount of such credit or refund, together
with the amount of any interest received by such Tax Indemnitee on account of
such credit or refund or (yy) an amount equal to such reduction in Taxes, as the
case may be; provided that no such payment shall be made
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so long as an Event of Default shall have occurred and be continuing but shall
be paid promptly after cure of such Event of Default. Each Tax Indemnitee agrees
to take such actions as Lessee may reasonably request (provided in the good
faith judgment of the Tax Indemnitee, such actions would not result in any
adverse effect on the Tax Indemnitee for which the Tax Indemnitee is not
entitled to indemnification from Lessee) and to otherwise act in good faith to
claim such refunds and other available Tax benefits, and take such other actions
as may be reasonable to minimize any payment due from Lessee pursuant to this
Section 13.5. The disallowance or reduction of any credit, refund or other tax
savings with respect to which a Tax Indemnitee has made a payment to Lessee
under this Section 13.5(c) shall be treated as a Tax for which Lessee is
obligated to indemnify such Tax Indemnitee hereunder without regard to the
exclusions set forth in the definition of Impositions.
(d) Payments. Any Imposition indemnifiable under this Section
13.5 shall be paid directly when due to the applicable taxing authority if
direct payment is practicable and permitted. If direct payment to the applicable
taxing authority is not permitted or is otherwise not made, any amount payable
to a Tax Indemnitee pursuant to this Section 13.5 shall be paid within thirty
(30) days after receipt of a written demand therefor from such Tax Indemnitee
accompanied by a written statement describing in reasonable detail the amount so
payable, but not before two (2) Business Days prior to the date that the
relevant Taxes are due. Any payments made pursuant to Section 13.5 shall be made
in immediately available funds at such bank or to such account as specified by
the payee in written directions to the payor, or, if no such direction shall
have been given, by check of the payor payable to the order of the payee by
certified mail, postage prepaid at its address as set forth in this
Participation Agreement. Upon the request of any Tax Indemnitee with respect to
a Tax that Lessee is required to pay, Lessee shall furnish to such Tax
Indemnitee the original or a certified copy of a receipt for Lessee's payment of
such Tax or such other evidence of payment as is reasonably acceptable to such
Tax Indemnitee.
(e) Reports. In the case of any report, return or statement
required to be filed with respect to any Taxes that are subject to
indemnification under this Section 13.5, Lessee shall promptly notify the Tax
Indemnitee of such requirement and, at Lessee's expense (i) if Lessee is
permitted (unless otherwise requested by the Tax Indemnitee) by Applicable Law,
timely file such report, return or statement in its own name or (ii) if such
report, return or statement is required to be in the name of or filed by such
Tax Indemnitee or the Tax Indemnitee otherwise requests that such report, return
or statement be prepared for filing by such Tax Indemnitee, prepare such report,
return or statement in such manner as shall be satisfactory to such Tax
Indemnitee and send the same to the Tax Indemnitee for filing no later than
fifteen (15) days prior to the due date therefor. In any case in which the Tax
Indemnitee will file any such report, return or statement, Lessee shall, upon
written request of such Tax Indemnitee, provide such Tax Indemnitee with such
information as is reasonably necessary to allow the Tax Indemnitee to file such
report, return or statement.
(f) Verification. At Lessee's request, the amount of any
indemnity payment by Lessee or any payment by a Tax Indemnitee to Lessee
pursuant to this Section 13.5 shall be verified
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and certified by an independent public accounting firm mutually acceptable to
Lessee and the Tax Indemnitee. The costs of such verification shall be borne by
Lessee unless such verification shall result in an adjustment in Lessee's favor
of ten percent (10%) of the payment as computed by the Tax Indemnitee, in which
case such fee shall be paid by the Tax Indemnitee. In no event shall Lessee have
the right to review the Tax Indemnitee's tax returns or receive any other
confidential information from the Tax Indemnitee in connection with such
verification. Any information provided to such accountants by any Person shall
be and remain the exclusive property of such Person and shall be deemed by the
parties to be (and the accountants will confirm in writing that they will treat
such information as) the private, proprietary and confidential property of such
Person, and no Person other than such Person and the accountants shall be
entitled thereto and all such materials shall be returned to such Person. Such
accounting firm shall be requested to make its determination within thirty (30)
days of Lessee's request for verifications and the computations of the
accounting firm shall be final, binding and conclusive upon Lessee and the Tax
Indemnitee. The parties agree that the sole responsibility of the independent
public accounting firm shall be to verify the amount of a payment pursuant to
this Participation Agreement and that matters of interpretation of this
Participation Agreement are not within the scope of the independent accounting
firm's responsibilities.
SECTION 14.
MISCELLANEOUS
SECTION 14.1. Survival of Agreements. The representations, warranties,
covenants, indemnities and agreements of the parties provided for in the
Operative Documents, and the parties' obligations under any and all thereof,
shall survive the execution and delivery of this Participation Agreement, the
transfer of any Property to the Lessor, any disposition of any interest of the
Lessor in any Property or any Improvements, the payment of the Note and any
disposition thereof shall be and continue in effect notwithstanding any
investigation made by any party and the fact that any party may waive compliance
with any of the other terms, provisions or conditions of any of the Operative
Documents. Except as expressly provided herein, it is expressly understood and
agreed that each of the indemnities provided for herein shall survive the
expiration or termination of the Lease and the other Operative Documents and the
payment by Lessee and Guarantor of all amounts due thereunder for a period of
three (3) years (but shall continue in full force and effect following such date
with respect to any Claim asserted prior to such date) and shall be separate and
independent from any remedy under the Lease or any other Operative Document;
provided that, to the extent that any Claim arises after such three (3) year
period which was not asserted during such three (3) period due to a failure to
discover such Claim or for any other reason, such indemnity shall be revived
upon the assertion of such Claim solely with respect to such Claim.
SECTION 14.2. No Broker; etc. Each of the parties hereto represents to
the others
47
<PAGE> 52
that it has not retained or employed any broker, finder or financial adviser,
other than Credit Suisse First Boston Corporation and Invemed Associates, Inc.,
to act on its behalf in connection with this Participation Agreement or the
transactions contemplated herein, nor has it authorized any broker, finder or
financial adviser retained or employed by any other Person so to act. Any party
who is in breach of this representation shall indemnify and hold the other
parties harmless from and against any liability arising out of such breach of
this representation.
SECTION 14.3. Notices. Unless otherwise specifically provided herein,
all notices, consents, directions, approvals, instructions, requests and other
communications required or permitted by the terms hereof to be given to any
Person shall be given in writing by United States mail, by nationally recognized
courier service, by hand or by facsimile communication and any such notice shall
become effective five (5) Business Days after being deposited in the mails,
certified or registered with appropriate postage prepaid or one (1) Business Day
after delivery to a nationally recognized courier service specifying overnight
delivery or, if delivered by hand, when received, or, if sent by facsimile
communication, when confirmed by electronic or other means during business hours
on a Business Day (or, if confirmed after business hours or on a non-Business
Day, on the next Business Day) and shall be directed to the address of such
Person as indicated:
If to Guarantor, to it at:
The Home Depot, Inc.
2455 Paces Ferry Road
Atlanta, Georgia 30339
Attn: Treasurer
Telephone No.: (770) 384-5735
Telecopy No.: (770) 384-4522
with a copy to:
L.A. Smith
Senior Vice President/Legal
2455 Paces Ferry Road
Atlanta, Georgia 30339
Telephone No.: (770) 384-2737
Telecopy No.: (770) 384-2752
If to Lessee, to it at:
Home Depot U.S.A., Inc.
2455 Paces Ferry Road
Atlanta, Georgia 30339
Attn: Treasurer
Telephone No.: (770) 384-5735
Telecopy No.: (770) 384-4522
48
<PAGE> 53
with a copy to:
L.A. Smith
Senior Vice President/Legal
2455 Paces Ferry Road
Atlanta, Georgia 30339
Telephone No.: (770) 384-2737
Telecopy No.: (770) 384-2752
If to the Lessor, to it at:
11 Madison Avenue, 23rd Floor
New York, New York 10010
Attn: Director
Telecopy No.: (212) 325-8094
Telephone No.: (212) 325-9138
If to the Indenture Trustee, to it at:
The Bank of New York
101 Barclay Street, 21st Floor
Corporate Trust Administration
New York, New York 10286
Telephone No.: (212) 815-5092
Telecopy No.: (212) 815-5915
If to Facility Lender, to it at:
HD Real Estate Funding Corp. II
c/o JH Management Corporation
Room 520
One International Place
Boston, Massachusetts 02110
Attn: R. Douglas Donaldson
Telecopy No.: (617) 951-7050
Telephone No.: (617) 951-7690
49
<PAGE> 54
If to Moody's, to it at:
Moody's Investors Service
99 Church Street
New York, New York 10007
Telecopier No.: (212) 553-1350
Telephone No.: (212) 553-4595
If to S&P, to it at:
Standard & Poors
25 Broadway
New York, New York 10004
Telecopier No.: (212) 325-8094
Telephone No.: (212) 325-9138
From time to time any party may designate a new address for purposes of
notice hereunder by notice to each of the other parties hereto. The Lessee shall
receive a copy of each notice delivered pursuant to the Operative Documents and
Lessee hereby agrees to notify promptly Moody's and S&P of any termination of
the Lease.
SECTION 14.4. Counterparts. This Participation Agreement may be
executed by the parties hereto in separate counterparts, each of which when so
executed and delivered shall be an original, but all such counterparts shall
together constitute but one and the same agreement.
SECTION 14.5. Amendments. No Operative Document nor any of the terms
thereof may be terminated, amended, supplemented, waived or modified with
respect to Guarantor, Lessee, the Lessor, the Facility Lender or the Indenture
Trustee, except (a) in the case of a termination, amendment, supplement, waiver
or modification to be binding on Guarantor, Lessee, the Lessor, the Facility
Lender or the Indenture Trustee, with the written agreement or consent of such
party, and (b) in the case of a termination, amendment, supplement, waiver or
modification to the Indenture of Trust, in accordance with the terms thereof;
provided, however, that
(1) no such termination, amendment, supplement, waiver or
modification shall without written agreement or consent of each Participant
(other than Facility Lender):
50
<PAGE> 55
(x)(i) modify any of the provisions of this Section 14.5; (ii)
reduce, modify, amend or waive any fees or indemnities in favor of any
Participant, including without limitation amounts payable pursuant to
Section 13 (except that any Person (other than the Facility Lender) may
consent to any reduction, modification, amendment or waiver of any
indemnity payable to it); (iii) modify, postpone, reduce or forgive, in
whole or in part, any payment of Rent (other than pursuant to the terms
of any Operative Document), any Loan or Lessor Investment Amount, the
Lease Balance, Residual Value Guaranty, amounts due pursuant to Section
22.2 of the Lease, interest or Certificate Earnings or, subject to
clause (ii) above, any other amount payable under any Lease or this
Participation Agreement, or modify the definition or method of
calculation of Rent (other than pursuant to the terms of any Operative
Document), any Loan or Lessor Investment Amount, Lease Balance,
Shortfall Amount, Residual Value Guaranty, Maximum Property Costs, or
any other definition which would affect the amounts to be advanced or
which are payable under the Operative Documents or any of the other
matters set forth above; or
(y) consent to any assignment of the Lease or the Guaranty,
releasing Lessee from its obligations in respect of the payments of
Rent and the Lease Balance or changing the absolute and unconditional
character of such obligation or releasing the Guarantor from its
obligations in respect of the payments under the Guaranty or changing
the absolute and unconditional character of such obligation;
(2) no other termination, amendment, supplement, waiver or
modification shall, without the written agreement or consent of the Lessor and
the Indenture Trustee, be made to Sections 5 or 7 of this Participation
Agreement or the definition of "Lease Event of Default".
Notwithstanding the foregoing, any termination, amendment, supplement, waiver or
modification to any provision of any of the Operative Documents (other than an
amendment, supplement, waiver or modification made to cure any ambiguity, to
correct or supplement any provision in such Operative Document which may be
defective or inconsistent with any other provision in such Operative Document or
any related Operative Document shall not be effective unless, as a condition
precedent thereto, each of Moody's and S&P shall have provided written
confirmation that immediately after giving effect to such modification,
supplement, amendment, waiver or termination, the Fixed Rate Notes shall not be
rated lower than such Fixed Rate Notes are rated immediately prior to giving
effect thereto and such supplement, amendment, modification, waiver or
termination shall not result in a downgrade, withdrawal or qualification of the
rating assigned to the Fixed Rate Notes by Moody's and S&P.
SECTION 14.6. Usury. It is the intent of the parties hereto not to
violate any federal or state law, rule or regulation pertaining either to usury
or to the contracting for or charging or collecting of interest, and each of the
parties hereto agree that, should any provision of this Participation Agreement
or of any of the Operative Documents, or any act performed hereunder or
51
<PAGE> 56
thereunder, violate any such law, rule or regulation, then the excess of
interest contracted for or charged or collected over the maximum lawful rate of
interest shall be applied to the outstanding principal indebtedness due to the
Participants under the applicable Operative Document.
SECTION 14.7. Confidentiality. Each Participant agrees to exercise
commercially reasonable efforts to keep any information delivered or made
available by the Guarantor or Lessee to it which is clearly indicated or stated
to be confidential information (or when the circumstances under which such
information is delivered or when the content thereof would cause a reasonable
person to believe that such information is confidential), confidential from
anyone other than persons employed or retained by such Participant who are or
are expected to become engaged in evaluating, approving, structuring or
administering any of the Operative Documents (such Persons to likewise be under
similar obligations of confidentiality with respect to such information);
provided, however that nothing herein shall prevent any Participant from
disclosing such information (i) to any other Participant, (ii) upon the order of
any court or administrative agency, (iii) upon the request or demand of any
regulatory agency or authority having jurisdiction over such Participant, (iv)
which has been publicly disclosed, (v) to the extent reasonably required in
connection with any litigation to which any Participant or its Affiliates may be
a party, (vi) to the extent reasonably required in connection with the exercise
of any remedy hereunder or under any other Operative Document, (vii) to such
Participant's legal counsel, independent auditors and to such Participant's
Affiliates, (viii) to any actual or proposed Participant, assignee or other
transferee of all or part of its rights hereunder which has agreed in writing to
be bound by the provisions of this Section 14.7, and (ix) to the Rating
Agencies; provided, that, should disclosure of any such confidential information
be required by virtue of clause (ii) or (v) of the immediately preceding
provisos, any relevant Participant shall notify Lessee and Guarantor of the same
so as to allow the Lessee or Guarantor, at Lessee's or Guarantor's sole cost and
expense, to seek a protective order or to take any other appropriate action;
provided, further, that, no Participant shall be required to delay compliance
with any directive to disclose beyond the last date such delay is legally
permissible any such information so as to allow the Lessee or Guarantor to
effect any such action.
SECTION 14.8. Headings; etc. The Table of Contents and headings of the
various Articles and Sections of this Participation Agreement are for
convenience of reference only and shall not modify, define, expand or limit any
of the terms or provisions hereof.
SECTION 14.9. Parties in Interest. Except as expressly provided
herein, none of the provisions of this Participation Agreement are intended for
the benefit of any Person except the parties hereto.
SECTION 14.10. GOVERNING LAW. THIS PARTICIPATION AGREEMENT SHALL IN ALL
RESPECTS BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK, INCLUDING ALL MATTERS
OF CONSTRUCTION, VALIDITY AND PERFORMANCE (INCLUDING SECTIONS 5-1401 AND 5-1402
OF THE NEW YORK GENERAL OBLIGATIONS LAW, BUT EXCLUDING ALL OTHER CHOICE OF LAW
AND
52
<PAGE> 57
CONFLICTS OF LAW RULES).
SECTION 14.11. Severability. Any provision of this Participation
Agreement that is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
SECTION 14.12. Further Assurances. The parties hereto shall promptly
cause to be taken, executed, acknowledged or delivered, at the sole, joint and
several expense of Guarantor and Lessee, all such further acts, conveyances,
documents and assurances as the other parties may from time to time reasonably
request in order to carry out and effectuate the intent and purposes of this
Participation Agreement, the other Operative Documents, and the transactions
contemplated hereby and thereby (including, without limitation, the preparation,
execution and filing of any and all Uniform Commercial Code financing statements
and other filings or registrations which the parties hereto may from time to
time request to be filed or effected). Lessee will, at its own expense and
without need of any prior request from any other party, take such action as may
be necessary (including any action specified in the preceding sentence), or (if
the Lessor or Indenture Trustee shall so request) as so requested, in order to
maintain and protect all security interests provided for hereunder or under any
other Operative Document.
SECTION 14.13. WAIVER OF JURY TRIAL. TO THE EXTENT PERMITTED BY
APPLICABLE LAW, EACH OF THE PARTIES HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT
TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THE
OPERATIVE DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY.
SECTION 14.14. Limitations on Recourse Against Lessor. Notwithstanding
anything contained in this Participation Agreement or any other Operative
Documents to the contrary, each of the parties hereto agrees to look solely to
Lessor's (or to any partner thereof's) estate and interest in the Properties and
the Improvements thereon and rights under the Operative Documents for the
collection of any judgment requiring the payment of money by Lessor in the event
of liability by Lessor, and no other property or assets of Lessor or any
shareholder, owner or partner (direct or indirect) in or of Lessor, or any
director, officer, employee, beneficiary, Affiliate of any of the foregoing
shall be subject to levy, execution or other enforcement procedure for the
satisfaction of the remedies of any party hereto against Lessor under or with
respect to the Operative Documents, the relationship of Lessor and any other
party hereto hereunder or any other liability of Lessor to any other party
hereto under the Operative Documents; provided that, nothing herein shall limit
recourse against the Lessor or its partners for the gross negligence or willful
misconduct of such Persons or claims proximately caused by Lessor's breach of
its obligations pursuant to Sections 9.1, 10.2 (solely with respect to the first
sentence thereof), 10.3, 10.4, 10.6(a), (g), (h) or 10.7 of this Participation
Agreement; provided further, that the foregoing proviso is intended to allow a
claim
53
<PAGE> 58
for damages against Lessor but shall not be construed as creating a full
recourse obligation on the part of Lessor (or any partner thereof) to repay the
Loan in whole or in part or any amounts relating to the Loan arising under the
Loan Agreement and the Note.
SECTION 14.15. Limitation on Recourse Against Facility Lender. The
provisions of Section 2.14 of the Indenture of Trust are hereby incorporated
herein by this reference and made a part hereof and of each of the Operative
Documents and each party hereto agrees to be bound by the limitations set forth
therein.
[SIGNATURE PAGES BEGIN ON THE FOLLOWING PAGE]
54
<PAGE> 59
IN WITNESS WHEREOF, the parties hereto have caused this Participation
Agreement to be duly executed by their respective officers thereunto duly
authorized as of the day and year first above written.
THE HOME DEPOT, INC., as Guarantor
By: /s/ Lawrence A. Smith
------------------------------------------
Name: Lawrence A. Smith
Title: Senior Vice President - Legal
Attest: /s/ Larry B. Appel
--------------------------------------
Name: Larry B. Appel
Title: Assistant Secretary
[CORPORATE SEAL]
55
<PAGE> 60
HOME DEPOT U.S.A., INC., as Lessee
By: /s/ Carol B. Tome
------------------------------------------
Name: Carol B. Tome
Title: Vice President and Treasurer
Attest: /s/ Mary Beth Lamoree
--------------------------------------
Name: Mary Beth Lamoree
Title: Assistant Secretary
[CORPORATE SEAL]
56
<PAGE> 61
HD REAL ESTATE FUNDING CORPORATION II, as
Facility Lender
By: /s/ R. Douglas Donaldson
------------------------------------------
Name: R. Douglas Donaldson
Title: Treasurer
CREDIT SUISSE LEASING 92A, L.P., a
Delaware limited partnership, as Lessor
BY: CREDIT SUISSE FIRST BOSTON,
its general partner
By: /s/Carl Weatherley-White
------------------------------------------
Name: Carl Weatherley-White
Title: Associate
By: /s/ Darcy Sledge
------------------------------------------
Name: Darcy Sledge
Title: Vice President
57
<PAGE> 62
THE BANK OF NEW YORK, as Indenture Trustee
By: /s/ Marie E. Trimboli
------------------------------------------
Name: Marie E. Trimboli
Title: Assistant Treasurer
CREDIT SUISSE FIRST BOSTON
CORPORATION, as Initial Purchaser
By: /s/ Andrew R. Taussig
------------------------------------------
Name: Andrew R. Taussig
Title: Managing Director
INVEMED ASSOCIATES, INC.,
as Initial Purchaser
By: /s/ Cristina H. Kepner
------------------------------------------
Name: Cristina H. Kepner
Title: Executive Vice President
58
<PAGE> 1
- --------------------------------------------------------------------------------
PARTICIPATION AGREEMENT
dated as of June 25, 1996
among
THE HOME DEPOT, INC.,
as Guarantor,
HOME DEPOT U.S.A., INC., as
Lessee and Construction Agent,
HD REAL ESTATE FUNDING CORP.,
as Facility Lender,
CREDIT SUISSE LEASING 92A, L.P.,
as Lessor,
OTHER FINANCIAL INSTITUTIONS LISTED ON THE
SIGNATURE PAGES HEREOF OR THAT MAY
HEREAFTER BECOME PARTY HERETO,
as Lenders,
and
CREDIT SUISSE, as Agent Bank and Lender
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 1. DEFINITIONS; INTERPRETATION......................................................................2
SECTION 2. INITIAL CLOSING DATE.............................................................................2
SECTION 3. ACQUISITIONS OF LAND AND FACILITIES; FUNDINGS OF ADVANCES........................................3
SECTION 3.1. Agreement to Acquire and Lease................................................3
SECTION 3.2. Lessor's Commitment...........................................................3
SECTION 3.3. Facility Lender Commitments...................................................4
SECTION 3.4. Issuance of Commercial Paper..................................................4
SECTION 3.5. Procedures for Acquisitions of Land...........................................4
SECTION 3.6. Guarantor's and Lessee's Deemed Representation for Each Acquisition...........5
SECTION 3.7. Procedures for Advances.......................................................5
SECTION 3.8. Guarantor's and Lessee's Deemed Representation
for Each Advance......................................................6
SECTION 3.9. Allocation of Advances........................................................6
SECTION 3.10. Use of Proceeds...............................................................7
SECTION 3.11. Return of Advances............................................................7
SECTION 4. CERTIFICATE EARNINGS; INTEREST; COMMITMENT FEES..................................................7
SECTION 4.1. Certificate Earnings..........................................................7
SECTION 4.2. Interest on Loans.............................................................8
SECTION 4.3. Commitment Fees...............................................................8
SECTION 5. DISTRIBUTIONS OF PAYMENTS AND COLLATERAL PROCEEDS................................................8
SECTION 5.1. Agreement of Agent Bank and Participants......................................8
SECTION 5.2. Basic Rent....................................................................9
SECTION 5.3. Purchase Payments by Lessee..................................................10
SECTION 5.4. Residual Value Guarantee.....................................................11
SECTION 5.5. Sales Proceeds of Remarketing of Properties..................................12
SECTION 5.6. Supplemental Rent............................................................13
SECTION 5.7. Excepted Payments............................................................13
SECTION 5.8. Distribution of Payments after Lease Event of Default or Loan Agreement Event
of Default...........................................................13
SECTION 5.9. Other Payments...............................................................14
SECTION 5.10. Casualty and Condemnation Amounts............................................15
SECTION 5.11. Reduction of Commitment......................................................15
SECTION 5.12. Order of Application.........................................................15
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
SECTION 5.13. Remaining Funds..............................................................16
SECTION 5.14. Time of Payment..............................................................16
SECTION 6. CERTAIN INTENTIONS OF THE PARTIES...............................................................16
SECTION 7. CONDITIONS PRECEDENT TO ACQUISITIONS AND ADVANCES...............................................17
SECTION 7.1. Conditions Precedent -- Documentation........................................17
SECTION 7.2. Further Conditions Precedent.................................................19
SECTION 8. COMPLETION DATE CONDITIONS......................................................................20
SECTION 9. REPRESENTATIONS.................................................................................22
SECTION 9.1. Representations of the Lessor................................................22
SECTION 9.2. Representations of the Guarantor and the Lessee..............................24
SECTION 9.3. Representations of Guarantor and Lessee on Property Closing Date.............28
SECTION 9.4. Additional Representations of Guarantor and Lessee...........................30
SECTION 9.5. Representations of Facility Lender...........................................31
SECTION 9.6. Representations and Warranties of the Agent Bank and the Lenders.............31
SECTION 10.PAYMENT OF CERTAIN EXPENSES.....................................................................32
SECTION 10.1. Transaction Expenses.........................................................32
SECTION 10.2. Brokers' Fees and Stamp Taxes................................................33
SECTION 10.3. Certain Fees and Expenses....................................................33
SECTION 11.OTHER COVENANTS AND AGREEMENTS..................................................................33
SECTION 11.1. Covenants of Guarantor and Lessee............................................33
SECTION 11.2. Cooperation with the Lessee..................................................39
SECTION 11.3. Release of Properties........................................................40
SECTION 11.4. Discharge of Liens...........................................................40
SECTION 11.5. Notice of Credit Rating......................................................40
SECTION 11.6. Covenants of the Facility Lender and the Lessor..............................41
SECTION 11.7. No Bankruptcy Proceedings....................................................42
SECTION 11.8. Notice of Claims Against Lessor..............................................43
SECTION 12.LESSEE DIRECTIONS...............................................................................43
SECTION 12.1. Lessee Directions............................................................43
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
SECTION 13.TRANSFER OF INTEREST............................................................................44
SECTION 13.1. Restrictions on and Effect of Transfer.......................................44
SECTION 13.2. Replacement of Lessor or Facility Lender. ..................................45
SECTION 14.INDEMNIFICATION.................................................................................45
SECTION 14.1. General Indemnification......................................................45
SECTION 14.2. Environmental Indemnity......................................................47
SECTION 14.3. Proceedings in Respect of Claims.............................................49
SECTION 14.4. End of Term Indemnity........................................................50
SECTION 14.5. General Tax Indemnity........................................................51
SECTION 14.6. Completion Guaranty..........................................................55
SECTION 15.MISCELLANEOUS..................................................................................55
SECTION 15.1. Survival of Agreements.......................................................55
SECTION 15.2. No Broker; etc...............................................................56
SECTION 15.3. Notices..................................................................... 56
SECTION 15.4. Counterparts.................................................................58
SECTION 15.5. Amendments...................................................................58
SECTION 15.6 Usury........................................................................60
SECTION 15.7 Confidentiality..............................................................60
SECTION 15.8. Headings; etc................................................................61
SECTION 15.9. Parties in Interest..........................................................61
SECTION 15.10. GOVERNING LAW................................................................61
SECTION 15.11. Severability.................................................................61
SECTION 15.12. Further Assurances...........................................................61
SECTION 15.13. WAIVER OF JURY TRIAL.........................................................61
SECTION 15.14 Limitations on Recourse Against Lessor.......................................62
SECTION 15.15 Limitations on Recourse Against Facility Lender..............................62
SCHEDULES
SCHEDULE I Lenders and Their Addresses
APPENDICES
APPENDIX 1 Definitions and Interpretation
APPENDIX 2 Initial Closing Date Conditions Precedent
APPENDIX 3 Pricing Provisions for Lessor Investment Amounts
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
EXHIBITS
<S> <C>
EXHIBIT A Acquisition Request
EXHIBIT B Funding Request
EXHIBIT C Opinion of Counsel to Lessee
EXHIBIT D Supplement to the Assignment of Leases
EXHIBIT E Local Counsel Opinion
EXHIBIT F Property Closing Certificate
EXHIBIT G Opinion of Counsel to Facility Lender
EXHIBIT H Completion Date Certificate
EXHIBIT I Opinion of Counsel to Lessor
EXHIBIT J Assignment of Lease and Consent to Assignment
EXHIBIT K Construction Agency Agreement Assignment and Consent to Construction Agency
Agreement Assignment
EXHIBIT L Master Assignment and Consent to Master Assignment
EXHIBIT M Form of Security Agreement
EXHIBIT N-1 Form of Mortgage and Security Agreement
EXHIBIT N-2 Form of Deed of Trust and Security Agreement
EXHIBIT N-3 Form of Deed to Secure Debt and Security Agreement
EXHIBIT O Form of Lease
EXHIBIT P Form of Compliance Certificate
</TABLE>
<PAGE> 6
PARTICIPATION AGREEMENT
THIS PARTICIPATION AGREEMENT, dated as of June 25, 1996 (this
"Agreement" or "Participation Agreement"), is entered into by and among THE HOME
DEPOT, INC., a Delaware corporation, as Guarantor (the "Guarantor"); HOME DEPOT
U.S.A., INC. a Delaware corporation, as Lessee and Construction Agent ("Lessee"
or "Construction Agent"), HD REAL ESTATE FUNDING CORP., a Delaware corporation
("Facility Lender"), CREDIT SUISSE LEASING 92A, L.P., a Delaware limited
partnership, as lessor ("Lessor"), the financial institutions listed on the
signature pages hereto or that may hereafter become parties hereto, (each, a
"Lender" and collectively, the "Lenders") and CREDIT SUISSE, a Swiss bank
operating through its New York branch, as Agent Bank for the Lenders (in such
capacity, the "Agent Bank")
PRELIMINARY STATEMENT
In accordance with the terms of this Participation Agreement, the
Lease, the Loan Agreement, the Liquidity Agreement and the other Operative
Documents,
A. the Lessor contemplates acquiring undeveloped parcels of
Land from time to time during the Commitment Period, by purchasing Land
from third party sellers;
B. using Advances from the Lessor, Lessee contemplates
building, or causing to be built, as Construction Agent, Improvements
on such undeveloped parcels of Land for the Lessor;
C. the Lessor wishes to arrange financing for up to 97% of the
total cost of the acquisition of such Land and the construction of such
Improvements;
D. the Facility Lender has agreed to issue Commercial Paper
Notes during the Commitment Period in an aggregate amount not to exceed
the Facility Lender Commitments, with the proceeds of the sale of the
Commercial Paper Notes to be lent to the Lessor pursuant to the Loan
Agreement for the acquisition of such Land by the Lessor and the
construction of such Improvements by the Construction Agent, as agent
for the Lessor;
E. the Agent Bank and the Lenders are willing to provide the
Liquidity Facility to the Facility Lender to ensure the Facility
Lender's ability to pay the Principal Component and the Interest
Component of such Commercial Paper Notes and to make Loans to the
Lessor as needed for the acquisition and improvement of the Properties;
F. the Lessee wishes to lease the Properties from the Lessor
under the Lease and the Guarantor is willing to guarantee the Lessee's
obligations under the Operative Documents;
<PAGE> 7
G. to secure its obligations to the Facility Lender pursuant
to the Loan Agreement, the Lessor is granting a lien to the Facility
Lender, pursuant to the Mortgages and the other Security Documents, on
all of the Lessor's right, title and interest in the Properties and
substantially all of the Lessor's rights under the Lease with respect
to the Properties; and
H. to secure its obligations to the Agent Bank and the Lenders
under the Liquidity Agreement, the Facility Lender is pledging to the
Agent Bank, for the benefit of the Lenders, pursuant to the Master
Assignment and the Security Agreement, substantially all of its right,
title and interest in and to the Loan Agreement, the Notes and Security
Documents received from the Lessor.
In consideration of the mutual agreements contained in this
Participation Agreement and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
SECTION 1.
DEFINITIONS; INTERPRETATION
Unless the context shall otherwise require, capitalized terms used and
not defined herein shall have the meanings assigned thereto in Appendix 1
attached hereto and made a part hereof by this reference for all purposes
hereof; and the rules of interpretation set forth in Appendix 1 hereto shall
apply to this Participation Agreement.
SECTION 2.
INITIAL CLOSING DATE
The initial Closing Date shall occur on the earliest date (on or before
June 30, 1996) on which all the conditions precedent thereto set forth in
Appendix 2 attached hereto and made a part hereof by this reference shall have
been satisfied or waived by the applicable parties as set forth therein (such
date referred to herein as the "Initial Closing Date").
<PAGE> 8
SECTION 3.
ACQUISITIONS OF LAND AND FACILITIES; FUNDINGS OF ADVANCES
SECTION 3.1. Agreement to Acquire and Lease. Subject to the conditions
and terms of this Participation Agreement and the other Operative Documents, the
Lessor agrees to take the following actions at the request of Lessee from time
to time during the Commitment Period:
(a) purchase Land (through Advances funded by the Lessor and the
Facility Lender as provided herein);
(b) concurrently with each Property Closing Date, lease the
applicable Land and the existing Improvements thereon to the
Lessee under the Lease;
(c) cause the Improvements to be built by its agent, the
Construction Agent, pursuant to the Construction Agency
Agreement (utilizing funds provided by the Lessor and the
Facility Lender as provided herein); and
(d) as of the applicable Completion Date, lease the completed
Improvements to the Lessee under the Lease.
Notwithstanding any other provision hereof, the Lessor shall not be obligated to
make any Advance if (i) the amount of such Advance would exceed the Available
Commitments, (ii) if after giving effect to such Advance, the aggregate Property
Costs with respect to the Properties would exceed the Maximum Property Costs,
(iii) if after giving effect to such Advance, the Property Costs with respect to
any Property would exceed 100% of the As Built Value of such Property; or (iv)
if such Advance is for the purchase or improvement of a Support Facility and the
total amount of Advances expended for such purposes would (after giving effect
to such Advance) exceed twenty percent (20%) of the Total Commitments.
SECTION 3.2. Lessor's Commitment. Subject to the terms and conditions
of this Participation Agreement and the other Operative Documents, the Lessor,
at the request of the Lessee, agrees to make investments of its own funds in the
Properties from time to time during the Commitment Period on a Funding Date in
amounts (each a "Lessor Investment Amount") equal to the amount of the
applicable Advance requested in the applicable Funding Request to be funded by a
Lessor Investment Amount; provided that, the aggregate amount of the Lessor
Investment Amounts funded shall at all times equal or exceed the Lessor's
Commitment Percentage of the total outstanding Advances. Notwithstanding any
other provision hereof, the Lessor shall not be obligated to make available any
Lessor Investment Amount if, after giving effect to the requested Lessor
Investment Amount, the aggregate amount of Lessor Investment Amounts funded
would exceed the Lessor's Commitment.
SECTION 3.3. Facility Lender Commitments. Subject to the conditions and
terms of this Participation Agreement and the other Operative Documents, the
Facility Lender, at the request of the Lessor or its agent, the Construction
Agent, agrees to make Loans to the Lessor
<PAGE> 9
pursuant to the Loan Agreement, and the Lessor hereby agrees to make the
proceeds of such Loans available to the Lessee or the Construction Agent
pursuant to Section 3.1, from time to time during the Commitment Period on each
Funding Date in an amount in immediately available funds equal to the amount of
the Advance requested to be funded by Loan proceeds in the applicable Funding
Request; provided that, the aggregate principal amount of the Loans shall at all
times be less than or equal to the Facility Lender Commitment Percentage of the
aggregate outstanding Advances. Notwithstanding any other provision hereof, the
Facility Lender shall not be obligated to make any Loan if, (i) after giving
effect to the proposed Loan, the aggregate outstanding amount of the Loans would
exceed the Facility Lender Commitments, or (ii) the Facility Lender is unable to
issue Commercial Paper Notes in an amount sufficient to fund such Loan pursuant
to Section 3.4 or to borrow the necessary amount from the Lenders as Direct
Funding Loans pursuant to the Liquidity Facility.
SECTION 3.4. Issuance of Commercial Paper. Provided that the Liquidity
Agreement is in full force and effect and subject to the terms and conditions of
this Participation Agreement and the other Operative Documents, in order to fund
its obligation to make the Loans to the Lessor pursuant to the Loan Agreement:
(a) the Facility Lender shall (i) issue Commercial Paper Notes, the net proceeds
of which are sufficient to make Loans in a principal amount equal to the amount
of the Advance requested by the Lessee to be funded with Loan proceeds on each
Funding Date, or (ii) request a Direct Funding Loan pursuant to the Liquidity
Agreement in such principal amount; and
(b) The Facility Lender shall cause (i) the Issuing and Paying Agent
Bank to deliver the net proceeds of the Commercial Paper Notes issued on such
Funding Date, or (ii) the Agent to deliver the proceeds of any Direct Funding
Loans made pursuant to the Liquidity Agreement on such Funding Date, to the
Construction Agent or such other Person as may be directed by the Construction
Agent;
provided however, that in no event shall (i) the sum of (x) the Interest
Component and Principal Component of all outstanding Commercial Paper Notes,
plus (y) the aggregate outstanding principal amount of the Facility Loans, minus
(z) Deposited Funds at any time exceed the Commitment then in effect, or (ii)
the Facility Lender issue any Commercial Paper Notes with a maturity date later
than five (5) Business Days' prior to the Maturity Date then in effect.
SECTION 3.5. Procedures for Acquisitions of Land. With respect to each
acquisition of Land,
(a) Lessee and/or Construction Agent shall provide to Lessor
and Agent Bank with respect to the proposed acquisition, the
Environment Audit, Appraisal, survey and title insurance commitment
required to be delivered pursuant to Section 7.1 for such Property and
the Lessor and Agent Bank shall notify the Lessee of any deficiencies
in, or comments on, such items as soon as possible (and in any event
within ten (10) Business Days);
(b) Lessor and Agent Bank shall receive the form of opinion of
counsel
<PAGE> 10
required pursuant to Section 7.1(j) (with the understanding that Lessor
and Agent Bank shall respond to any draft of such opinion within five
(5) Business Days);
(c) Upon satisfaction of the foregoing conditions and receipt
of the form of Deed, Lessor shall execute and deliver a limited power
of attorney to Lessee (or a representative thereof) in recordable form
and satisfactory to Lessor and Agent Bank sufficient to allow Lessee,
upon satisfaction of the remaining conditions precedent set forth in
Sections 7.1 and 7.2, to execute and record such documents necessary or
advisable in connection with the acquisition of such Land on the
Property Closing Date;
(d) Lessor, Facility Lender and Agent Bank shall execute and
deliver such other documents as may be required to be executed by them
in order to fulfill or to confirm whether the conditions precedent set
forth in Section 7.1 have been fulfilled or waived within three (3)
Business Days' following request; and
(e) Lessee shall give the Lessor, the Facility Lender, and the
Agent Bank an irrevocable prior written notice not later than 1:00
p.m., New York time, on the Business Day of the proposed Property
Closing Date, pursuant, in each case, to an Acquisition Request in the
form of Exhibit A attached hereto and made a part hereof by this
reference (an "Acquisition Request"), specifying with respect to such
Land: (i) the Property Closing Date, (ii) the Land to be acquired,
(iii) the identity of the seller and the Property Acquisition Cost, and
(iv) the Estimated Completion Date for such Property.
SECTION 3.6. Guarantor's and Lessee's Deemed Representation for Each
Acquisition. Each Acquisition Request by Lessee shall be deemed a representation
and warranty by Guarantor and the Lessee to the Lessor, the Facility Lender,
each Lender and the Agent Bank that on the proposed Property Closing Date, (i)
no Default or Event of Default exists, (ii) the representations of Guarantor and
Lessee set forth in Section 9 are true and correct in all material respects as
though made on and as of such Property Closing Date except to the extent such
representations or warranties relate solely to an earlier date, in which case
such representations and warranties shall have been true and correct in all
material respects on and as of such earlier date, and (iii) the conditions
precedent to the acquisition of such Land by the Lessor on such Property Closing
Date set forth in Section 7 have been satisfied.
SECTION 3.7. Procedures for Advances. With respect to each funding of
an Advance, Construction Agent shall give the Lessor, the Facility Lender, and
the Agent Bank an irrevocable prior written notice not later than 1:00 p.m., New
York time, on the Business Day of the proposed Funding Date, pursuant, in each
case, to a Funding Request in the form of Exhibit B attached hereto and made a
part hereof by this reference (a "Funding Request"), specifying (i) the proposed
Funding Date, (ii) the amount of the Advance requested, (iii) the relative
percentages of such Advance to be funded by Lessor Investment Amounts and Loan
proceeds, and (iv) to which Properties such Advance is being allocated and the
allocation of such Advance to the respective Property Acquisition Costs and
Property Improvements Costs of such Properties. All requests for Advances shall
be in a minimum amount of $250,000; provided that, to the extent any Advances
are to be funded using the proceeds of Direct Funding Loans (other than Interest
Payment Loans),
<PAGE> 11
the portion of the Advance to be funded by Direct Funding Loans shall be in a
minimum amount of $5,000,000 and in integral multiples of $250,000. All
remittances made by the Lessor and the Facility Lender for the funding of any
Advance shall be made in immediately available funds by wire transfer to the
Construction Agent, with receipt by the Construction Agent not later than 3:00
p.m., New York time, on the applicable Funding Date. Upon (i) the Construction
Agent's receipt of the funds provided by the Lessor and the Facility Lender with
respect to an Advance and (ii) satisfaction or waiver of the conditions
precedent to such Advance set forth in Section 7, the Construction Agent shall
pay to Lessee or the Person designated by Lessee for payment or reimbursement of
the Property Acquisition Costs of such Land or Property or Property Improvements
Costs, as the case may be, the funds provided by the Lessor and the Facility
Lender for such Advance.
SECTION 3.8. Guarantor's and Lessee's Deemed Representation for Each
Advance. Each Funding Request by Lessee shall be deemed a representation and
warranty by Guarantor and the Lessee to the Lessor, the Facility Lender, each
Lender and the Agent Bank that on the proposed Funding Date, (i) the amount of
Advance requested represents amounts owing in respect of the purchase price of
Land, or amounts owed or paid by Lessee to third parties in respect of Property
Costs for which Lessee has not previously been reimbursed by an Advance, (ii)
the Advance will not cause the aggregate Advances allocated to the Properties on
such Funding Date and any prior Funding Dates to exceed the Maximum Property
Costs, (iii) the Advance will not cause the aggregate Advances allocated to
reimburse or to pay Soft Costs incurred in connection with the Properties to
exceed ten percent (10%) of the Total Commitments, (iv) no Default or Event of
Default exists, (v) the representations of the Guarantor and the Lessee set
forth in Section 9 are true and correct in all material respects as though made
on and as of such Funding Date, except to the extent such representations or
warranties relate solely to an earlier date, in which case such representations
and warranties shall have been true and correct in all material respects on and
as of such earlier date, and (vi) the conditions precedent to such Advance and
the related Lessor Investment Amount and Loans set forth in Section 7 have been
satisfied.
SECTION 3.9. Allocation of Advances. The amount of each Advance shall
be allocated to the Property Acquisition Costs and/or Property Improvement Costs
of the Properties specified in the applicable Funding Request as provided in
Section 3.7. Notwithstanding any provision of this Participation Agreement to
the contrary however, the outstanding Lessor Investment Amounts and the
outstanding Loans shall be deemed to be allocated among the respective Property
Acquisition Costs and/or Property Improvement Costs (as applicable) of each
Property pro rata based upon the percentage of the aggregate outstanding Lessor
Investment Amounts or Loans, as the case may be, to the aggregate amount of
Advances regardless of the actual application of the proceeds thereof to any
particular Property.
SECTION 3.10. Use of Proceeds. The proceeds of all Advances made
pursuant to the Operative Documents shall be used solely for the acquisition of
Land located in the United States or Canada and the construction of Improvements
thereon pursuant to the Construction Agency Agreement which shall be leased
(upon completion, in the case of Improvements constructed thereon by the
Construction Agent) by the Lessor to the Lessee pursuant to the Lease, which
<PAGE> 12
Improvements shall be constructed as a Facility on such Land; provided that the
total amount of Advances expended for the acquisition and construction of
Properties to be used as Support Facilities shall not exceed twenty percent
(20%) of the Total Commitments.
SECTION 3.11. Return of Advances. In the event that the Facility Lender
is required to return the proceeds of any Facility Loan to the Agent Bank
pursuant to Section 3.03(b) of the Liquidity Agreement, the Lessor, the Lessee
and the Construction Agent agree (without duplication) to return any such
proceeds advanced to any of them pursuant to the Operative Documents.
SECTION 4.
CERTIFICATE EARNINGS; INTEREST; COMMITMENT FEES
SECTION 4.1. Certificate Earnings. (a) The amount of the Lessor
Investment Amounts outstanding from time to time shall accrue earnings
("Certificate Earnings") at the Certificate Earnings Rate. If all or any portion
of the Lessor Investment Amounts, any Certificate Earnings payable thereon or
any other amount payable by Guarantor or a Lessee hereunder shall not be paid
within five (5) Business Days of the date when due (whether at stated maturity,
the acceleration or otherwise), such overdue amount shall bear interest at a
rate per annum which is equal to the Overdue Rate which, in the event such
amount is not paid within such five (5) Business Day period, shall be deemed to
have begun to accrue on the due date thereof).
(b) Lessor shall select the applicable Certificate Earnings
Rate in accordance with the terms and conditions set forth on Appendix 3
attached hereto and incorporated herein by this reference.
(c) On each Payment Date, the Lessor shall, subject to the
provisions of Section 5, receive from the Basic Rent paid by the Lessee, the
Lessor Basic Rent (determined on the basis of accrued Certificate Earnings)
received from the Lessee under the Lease from time to time as provided in
Section 5.
(d) The Lessor shall be deemed to have requested that, prior
to the Completion Date, the aggregate amount of accrued Certificate Earnings due
and payable on such date with respect to the Lessor Investment Amounts allocated
to the Property Acquisition Costs and Property Improvements Cost, as applicable
of the Construction Period Properties be capitalized. Such capitalization shall
be deemed to occur on the relevant Scheduled Payment Date. On each such
Scheduled Payment Date, the Lessor Investment Amounts and the Property
Acquisition Costs and Property Improvements Cost, as applicable of each
Construction Period Property shall be increased by the amount so capitalized.
SECTION 4.2. Interest on Loans. (a) Each Loan shall accrue interest
computed and payable in accordance with the terms of the Loan Agreement.
<PAGE> 13
(b) The interest on the Loans shall be paid through the
payment of the Lender Basic Rent (determined on the basis of interest on the
Loans) received from the Lessee under the Lease from time to time as provided in
Section 5.
(c) To the extent that any Interest Payment Loans are made
pursuant to the Loan Agreement to capitalize interest on the Loans allocated to
the Property Acquisition Costs and the Property Improvements Cost, as applicable
of the Construction Period Properties, such Interest Payment Loan shall be
deemed to have been made on the relevant Scheduled Payment Date. On each such
Scheduled Payment Date, the Loans and the Property Acquisition Costs and the
Property Improvements Cost, as applicable of each Construction Period Property
shall be increased by the amount so capitalized.
SECTION 4.3. Commitment Fees. Lessor shall receive commitment fees on
the Lessor's Commitment as set forth on Appendix 3.
SECTION 5.
DISTRIBUTIONS OF PAYMENTS AND COLLATERAL PROCEEDS
In order to provide for the priority and allocation of payments
received from the Lessee and Guarantor and the proceeds of the exercise of
remedies by any of the Participants pursuant to the Security Documents, the
parties hereto agree as follows:
SECTION 5.1. Agreement of Agent Bank and Participants. Pursuant to the
Master Assignment and the Security Agreement, all of the payments (other than
the Excepted Payments) under the Lease, the Construction Agency Agreement, the
Mortgages, the Notes, the Participation Agreement and the Loan Agreement have
been assigned to the Agent Bank for the benefit of the Lenders. The Agent Bank
hereby agrees to deposit all such payments, receipts and other consideration of
any kind whatsoever (other than Excepted Payments) received by the Agent Bank
pursuant to the Master Assignment, the Security Agreement and any other Security
Document in the form received into the Cash Collateral Account. Each Participant
hereby agrees that any payment received pursuant to the Guaranty (other than
payments received by the Facility Lender pursuant to Section 5.6 which shall be
deposited in the Commercial Paper Account) shall immediately be delivered in the
form received to the Agent Bank for deposit in the Cash Collateral Account and
application as set forth herein. Agent Bank shall make distributions from the
Cash Collateral Account pursuant to the requirements of this Section 5 to each
Participant or other Person entitled thereto as promptly as possible (it being
understood that any such payment received on a timely basis in accordance with
the provisions of the Lease, this Participation Agreement and the other
Operative Documents shall be distributed by the Agent Bank on the same Business
Day to the extent practicable).
SECTION 5.2. Basic Rent. Subject to Section 5.8, each payment of Basic
Rent (and any payment of interest on overdue installments of Basic Rent) shall
be made by Lessee to the Agent Bank and shall be distributed by the Agent Bank
as follows:
<PAGE> 14
first, an amount equal to the Lender Basic Rent shall be
distributed to the Lenders for application to pay in full all accrued
but unpaid interest owing to the Lenders pursuant to the terms of the
Liquidity Agreement and the Liquidity Notes and the remainder of such
amount shall be deposited in the Commercial Paper Account to pay in
full the Interest Component of all Commercial Paper Notes in order of
maturity (subject to the last paragraph of this Section 5.2), and
second, an amount equal to the Lessor Basic Rent shall be
distributed to the Lessor for application to pay in full all accrued
but unpaid Certificate Earnings not required to be capitalized pursuant
to Section 4.1(d) (together with any overdue interest thereon).
Notwithstanding any provision of this Section 5.2 to the contrary, in
the event that the Facility Lender is required pursuant to the terms of the
Operative Documents to make Interest Payment Loans to capitalize interest on the
Notes, subject to the terms and conditions of the Operative Documents,
Commercial Paper Notes shall be issued with a greater aggregate Principal
Component (or, if the Facility Lender is not able or permitted to do so,
Facility Loans shall be made pursuant to the Liquidity Agreement) to pay accrued
but unpaid interest on the Facility Loans or the Interest Component of maturing
Commercial Paper Notes such that the outstanding principal amount of the Loans
shall at all times equal the sum of (x) the outstanding principal amount of the
Facility Loans, plus (y) Principal Component of the outstanding Commercial Paper
Notes, minus (z) the Deposited Funds; provided, however, that if a Loan
Agreement Default under Section 5(a) or (e) of the Loan Agreement or a Loan
Agreement Event of Default shall have occurred and be continuing, any such
payments which would otherwise be paid to the Lessor pursuant to clause second
of this Section 5.2 shall be instead held in the Cash Collateral Account until
the earliest to occur of (i) the first date thereafter on which all such Loan
Agreement Defaults and Loan Agreement Events of Default shall have been cured
(in which case such payment under clause second shall then be made), (ii) the
date of any acceleration of the Loans (in which case such payment shall then be
applied in the manner contemplated by Section 5.8), or (iii) the 180th day after
the occurrence of such Loan Agreement Default or Loan Agreement Event of Default
(in which case such payment under clause second shall then be made).
SECTION 5.3. Purchase Payments by Lessee. Subject to Section 5.8, any
payment made by the Lessee pursuant to the Lease or by the Construction Agent
pursuant to the Construction Agency Agreement as a result of:
(a) the purchase of any of the Properties in connection with
Lessee's exercise of its Purchase Option under Section 20.1 of
the Lease or the Expiration Date Purchase Option pursuant to
Section 22.2 of the Lease (and any related purchase by the
Construction Agent pursuant to the Construction Agency
Agreement), or
(b) the Lessee's purchase of a Property or Properties pursuant to
Section 17.6 of the Lease (and any related purchase by the
Construction Agent pursuant to the Construction Agency
Agreement) or the Construction Agent's purchase pursuant
<PAGE> 15
to Section 5.3 of the Construction Agency Agreement, or
(c) payment of the Property Balance in accordance with Section
15.4, Section 16.2(b) Section 22.3(b) of the Lease (and any
related purchase by the Construction Agent pursuant to the
Construction Agency Agreement),
shall except as otherwise provided in Section 5.11, be distributed by the Agent
Bank in the following order of priority:
first, an amount equal to the Facility Lender Property Balance
with respect to such Property shall be distributed to the Lenders in an
amount sufficient to repay the outstanding Facility Loans in full, such
amount to be paid pro rata to the Lenders in accordance with the terms
of the Liquidity Agreement, with the remainder of such amount to be
deposited in the Commercial Paper Account to be applied to repay in
full the Commercial Paper Notes in order of maturity (and the
outstanding principal amount of the Notes shall be proportionately
reduced by such repayments), and
second, an amount equal to the Lessor Property Balance with
respect to such Property shall be distributed to the Lessor, and the
Lessor Investment Amounts shall be reduced by such amount, provided,
however, that if a Loan Agreement Default under Section 5(a) or (e) of
the Loan Agreement or a Loan Agreement Event of Default shall have
occurred and be continuing, any such payments which would otherwise be
paid to the Lessor pursuant to clause second of this Section 5.3 shall
be instead held in the Cash Collateral Account until the earliest to
occur of (i) the first date thereafter on which all such Loan Agreement
Defaults and Loan Agreement Events of Default shall have been cured (in
which case such payment under clause second shall then be made), (ii)
the date of any acceleration of the Loans (in which case such payment
shall then be applied in the manner contemplated by Section 5.8), or
(iii) the 180th day after the occurrence of such Loan Agreement Default
or Loan Agreement Event of Default (in which case such payment under
clause second shall then be made).
SECTION 5.4. Residual Value Guarantee. (a) Subject to Section 5.8, in
the event that upon the Expiration Date, following the election by the Lessee of
the Remarketing Option in accordance with Article XXII of the Lease, the
outstanding principal amount of Loans divided by the outstanding principal
amount of all Advances pursuant to the Total Commitment (expressed as a
percentage) equals the Facility Lender Commitment Percentage, the Residual Value
Guarantee paid by Lessee pursuant to Article XXII of the Lease (which shall
equal the Tranche A Balance) shall be distributed by the Agent Bank on the
Expiration Date in the following order of priority (with the principal amount of
Tranche A Note to be deemed to have been paid in full by such distribution):
first, to the Lenders to repay all outstanding Tranche A
Facility Loans in full,
second, the balance, if any, to be deposited in the Commercial
Paper Account to be applied to pay in full the Commercial Paper Notes
in order of maturity (with any remaining
<PAGE> 16
amount of the Commercial Paper Notes to be paid in full with Gross
Proceeds or Residual Loans).
No amount of the Residual Value Guarantee shall be applied pursuant to
this Section 5.4(a) to reduce the Tranche B Balance or any portion of the Lessor
Investor Amounts.
(b) In the event that upon the Expiration Date, following the election
by the Lessee of the Remarketing Option in accordance with Article XXII of the
Lease, the outstanding principal amount of the Loans divided by the aggregate
amount of all Advances outstanding pursuant to the Total Commitments (expressed
as a percentage) is less than the Facility Lender Commitment Percentage, the
Residual Value Guarantee shall be distributed by the Agent Bank in the following
order of priority (with the principal amount of the Notes to be reduced by the
amounts distributed pursuant to the first and second priority categories):
first, to the Lenders in an amount sufficient to pay the
outstanding Tranche A Facility Loans in full,
second, the balance, if any, to be deposited in the Commercial
Paper Account to repay in full the Commercial Paper Notes in order of
maturity in an amount sufficient to repay the outstanding Commercial
Paper Notes in full (with any remaining amount of the outstanding
Commercial Paper Notes to be repaid in full with Gross Proceeds or
Residual Loans), provided that the amount deposited in the Commercial
Paper Account pursuant to this clause second, together with the amount
applied under clause first above, shall not exceed an amount equal to
86.6% of the principal amount of the Loans outstanding on the
Expiration Date prior to any application of funds pursuant to Sections
5.3 or 5.5,
third, the balance, if any, to be distributed to the Lessor to
be applied to Certificate Earnings, any overdue interest and to repay
Lessor Investment Amounts.
SECTION 5.5. Sales Proceeds of Remarketing of Properties. Subject to
Section 5.8, any payments received by Agent Bank as Gross Proceeds from the sale
of the Properties sold pursuant to Lessee's exercise of the Remarketing Option
pursuant to Article XXII of the Lease or otherwise sold by Agent Bank, or
following the repayment in full of all of the Facility Loans and the termination
of the Master Assignment, the Facility Lender or Lessor, together with any
payment made by Lessee as a result of an indemnity payment pursuant to Section
14.4, shall be distributed by Agent Bank, Facility Lender or Lessor, as the case
may be, on the Expiration Date (or following the Expiration Date, upon receipt),
in the following order of priority:
first, to the Lenders for application to repay the Tranche B
Facility Loans in full (with a corresponding reduction in the Tranche B
Note),
second, the balance, if any, to be deposited in the Commercial
Paper Account for payment in full of the Commercial Paper Notes in
order of maturity (with any remaining amount of the outstanding
Commercial Paper Notes to be repaid with Residual Loans), provided that
the amount deposited in the Commercial Paper Account pursuant to this
clause second, together with the amount applied under clause first
above, shall not exceed
<PAGE> 17
an amount equal to 13.4% of the principal amount of the Loans
outstanding on the Expiration Date prior to any application of funds
pursuant to Sections 5.3 or 5.4,
third, the balance, if any, to be distributed to the Lessor to
be applied to payment of Certificate Earnings and overdue interest and
to repay the Lessor Investment Amounts,
fourth, the balance, if any, shall be distributed to the
Lessee to the extent permitted by Section 5.13;
provided, however, that if a Loan Agreement Default under Section 5(a) or (e) of
the Loan Agreement or a Loan Agreement Event of Default shall have occurred and
be continuing, any such payments which would otherwise be paid to the Lessor
pursuant to clause third of Section 5.5 shall be instead held in the Cash
Collateral Account until the earliest to occur of (i) the first date thereafter
on which all such Loan Agreement Defaults and Loan Agreement Events of Default
shall have been cured (in which case such payment under clause third shall then
be made), (ii) the date of any acceleration of the Loans (in which case such
payment shall then be applied in the manner contemplated by Section 5.8), or
(iii) the 180th day after the occurrence of such Loan Agreement Default or Loan
Agreement Event of Default (in which case such payment under clause third shall
then be made).
To the extent that any amounts received pursuant to this Section 5.5
relate to a specific Property, the Property Balance relating to such Property
shall be deemed to be reduced by the amounts applied pursuant hereto, with a
corresponding reduction in the principal amount of the Notes.
SECTION 5.6. Supplemental Rent. Subject to Section 5.7, all payments of
Supplemental Rent received by any Agent Bank (excluding any amounts payable
pursuant to the preceding provisions of this Section 5) shall be distributed
promptly by Agent Bank upon receipt thereof to the Persons entitled thereto
pursuant to the Operative Documents. In the event that a Lease Event of Default
has occurred and is continuing, relieving the Lenders of their obligation to
make Liquidity Loans or (in the case of a Material Lease Event of Default)
Residual Loans pursuant to the Liquidity Agreement, unless, upon electing not to
make such Loans, the Agent Bank has immediately demanded payment of the Lease
Balance from the Lessee pursuant to the Lease and, in the event such amount is
not immediately repaid, immediately demanded payment of such amount from the
Guarantor pursuant to the Guaranty, the Facility Lender, acting through the
Issuing and Payment Agent, shall be entitled to receive and to apply to the
Commercial Paper Notes in order of maturity, an amount equal to the sum of (i)
the mandatory prepayment of the Notes required by Section 2.4 of Loan Agreement,
such amount to be funded by a payment of Supplemental Rent pursuant to the
Lease, and (upon payment of such amount by Lessee or the Guarantor) the Lease
Balance shall be reduced by the amount of any such payment, plus any Basic Rent
owed by the Lessee with respect to the Interest Component of the maturing
Commercial Paper Notes giving rise to such mandatory prepayment. In the event
that the Lessee does not fund such amount, the Facility Lender, acting through
the Administrative Agent, shall be entitled to make an immediate demand therefor
in accordance with the terms of Section 7 of the Guaranty. In addition, in the
event of any voluntary prepayment of the principal amount of the
<PAGE> 18
Loans pursuant to Section 2.4 of the Loan Agreement, which amounts are applied
to repay the principal of Liquidity Loans or Commercial Paper Notes, the Lease
Balance shall be reduced by the amount of such payment to the extent funded by
the payment of Supplemental Rent.
SECTION 5.7. Excepted Payments. Notwithstanding any other provision of
this Participation Agreement or the Operative Documents, any Excepted Payment
received at any time by the Agent Bank or any Participant shall, subject to the
penultimate sentence of Section 5.1, be distributed promptly to the Person
entitled to receive such Excepted Payment.
SECTION 5.8. Distribution of Payments after Lease Event of Default or
Loan Agreement Event of Default. (a) Subject to Section 5.6, all payments (other
than Excepted Payments) received and amounts realized by Agent Bank, Facility
Lender or Lessor after a Lease Event of Default has occurred and is continuing,
including proceeds from the sale of any of the Properties or other collateral,
proceeds of any amounts from any insurer or any Governmental Authority in
connection with any Casualty or Condemnation, from the Lessee as payment in
accordance with the Lease, including any payment received from the Lessee
pursuant to Section 17 of the Lease (but excluding Section 17.6 of the Lease),
or subject to subsection (c) below from the Guarantor pursuant to the Guaranty
shall, be paid to the Agent Bank as promptly as possible and shall be
distributed by Agent Bank in the following order of priority:
first, so much of such payment or amount as shall be required
to reimburse Agent Bank, Facility Lender, the Lenders or Lessor for any
tax, expense or other loss incurred by Agent Bank, Facility Lender, the
Lenders or Lessor incurred in connection with the collection of such
amounts (to the extent not previously reimbursed) shall be distributed
to Agent Bank, Facility Lender, the Lenders or Lessor, as applicable
(to be divided amongst the Participants pro rata to the extent
insufficient to satisfy all claims);
second, subject to clause (c) below, so much of such amount as
shall be required to pay in full each Lender's Participant Balance, and
in the case that the amount so to be distributed shall be insufficient
to pay in full as aforesaid, then, pro rata among the Lenders without
priority of one Lender over the other in the proportion that each
Lender's Participant Balance bears to the aggregate Participant
Balances of all of the Lenders, shall be distributed to the Lenders;
third, subject to clause (c) below, the balance, if any, shall
be deposited in the Commercial Paper Account to repay in full the
Interest Component and Principal Component of all outstanding
Commercial Paper Notes;
fourth, so much of such amount or amounts as shall be required
to pay in full the Participant Balance of Lessor shall be distributed
to the Lessor; and
fifth, the balance, if any, of such payment or amounts
remaining thereafter shall be promptly distributed to, or as directed
by, the Lessor, pursuant to the Operative Documents.
<PAGE> 19
(b) During the occurrence and continuance of a Loan Agreement Event of
Default if the Loans have been accelerated, all amounts (other than Excepted
Payments) received or realized by any Participant and otherwise distributable
pursuant to Sections 5.2 and 5.3 shall be distributed as provided for in Section
5.8 (a) above except that if such Loan Agreement Default does not arise out of,
or is not attributable to a Lease Event of Default, clause fifth shall, subject
to Section 5.13, be directed by the Lessee.
(c) Notwithstanding the foregoing, any payments received pursuant to
the Guaranty upon the occurrence and during the continuance of a Lease Event of
Default (except as provided in Section 5.6), shall be divided amongst clause
second and clause third of subsection (a) above pro rata, without priority one
over another.
SECTION 5.9. Other Payments. (a) Except as otherwise provided in
Sections 5.2, 5.3, 5.8 and paragraph (b) below,
(i) any payment received by Agent Bank for which no provision
as to the application thereof is made in the Operative Documents or
elsewhere in this Section 5, and
(ii) all payments received and amounts realized by any
Participant under the Lease or otherwise with respect to the Properties
to the extent received or realized at any time after payment in full of
the Participant Balances of all of the Participants and any other
amounts due and owing to the Lessor, Facility Lender, Lenders or the
Agent Bank,
shall be distributed forthwith by the Agent Bank in the order of priority set
forth in Section 5.3 (in the case of any payment described in clause (i) above)
or in Section 5.8 hereof (in the case of any payment described in clause (ii)
above).
(b) Except as otherwise provided in Sections 5.2, 5.3 and 5.8
hereof and except after a Lease Event of Default has occurred and is continuing,
any payment received by Agent Bank for which provision as to the application
thereof is made in an Operative Document but not elsewhere in this Section 5
shall be distributed forthwith by Agent Bank to the Person and for the purpose
for which such payment was made in accordance with the terms of such Operative
Document.
SECTION 5.10. Casualty and Condemnation Amounts. Any amounts payable to
Agent Bank, Lessor or Facility Lender as a result of a Casualty or Condemnation
pursuant to Section 15.1 of the Lease (but excluding any amounts payable
pursuant to Section 16.2 of the Lease) shall, if no Lease Event of Default
exists, be paid over to the Lessee to reimburse Lessee for any amounts expended
by Lessee for the rebuilding or restoration of the Property to which such
Casualty or Condemnation applied, and any excess proceeds shall be paid in
accordance with the Lease. If a Lease Event of Default exists, then during the
continuance of such Lease Event of Default, all such amounts shall be held by
Agent Bank in the Cash Collateral Account and upon exercise of Agent Bank's
remedies under the Operative Documents shall be distributed pursuant to Section
5.8.
<PAGE> 20
SECTION 5.11. Reduction of Commitment. In the event of reduction of the
Commitment pursuant to the terms of Sections 4.02 or 4.04 of the Liquidity
Agreement (with an automatic and corresponding reduction of the Facility
Lender's Commitments) to an amount which is less than the sum of the Lease
Balance plus the aggregate Property Improvement Costs expended pursuant to the
Construction Agency Agreement for Properties which have not yet reached
Completion Date (the "Invested Amount"), the Lessee and the Construction Agent
shall, to the extent permitted by Section 20 of Lease (and to extent that the
Agent Bank consents to any required decrease of the Permitted Amount) purchase
Properties in accordance with the terms of the Lease to reduce the Invested
Amount to the amount of the Commitment. The Purchase Option Price paid by Lessee
in such event shall be distributed to the Non-Consenting Lenders in accordance
with Section 5.02(b)(ii) of the Liquidity Agreement.
SECTION 5.12. Order of Application. To the extent any payment made to
any Participant pursuant to Sections 5.2, 5.3, 5.4, 5.5 or 5.8 is insufficient
to pay in full the Participant Balance of such Participant, then each such
payment shall first be applied to overdue interest, then to accrued interest and
then to principal.
SECTION 5.13. Remaining Funds. Upon the termination of the Total
Commitments and the Commitments and the payment in full of (i) the Loans, the
Facility Loans, the Commercial Paper Notes, the Lessor Investment Amounts and
all accrued and unpaid Certificate Earnings, and (ii) all amounts owing by the
Lessee or Guarantor to any Person under the Operative Documents, all remaining
moneys in the Cash Collateral Account shall be paid to the Lessee.
SECTION 5.14. Time of Payment. Each payment due from Lessee or
Guarantor under the Operative Documents shall be made in immediately available
funds prior to 2:00 p.m. New York time on the date when due in immediately
available funds consisting of lawful currency of the United States of America,
unless such date shall not be a Business Day, in which case payment shall be
made on the next succeeding Business Day. Payments received after 2:00 p.m. New
York time shall be deemed received on the next succeeding Business Day.
SECTION 6.
CERTAIN INTENTIONS OF THE PARTIES
Anything else herein, in any other Operative Document, or elsewhere to
the contrary notwithstanding, it is the intention of Guarantor, the Lessee, the
Lessor, the Facility Lender, the Lenders and the Agent Bank (and, assuming
enforcement of the Operative Documents in accordance with their terms, it is the
representation and warranty of the Guarantor and the Lessee) that: (i) the
amount and timing of installments of Basic Rent due and payable from time to
time from the Lessee under the Lease shall be equal to the aggregate payments
due and payable for interest on the Loans and Certificate Earnings on the Lessor
Investment Amounts on each Payment Date (to the extent such interest and
Certificate Earnings are not Property Costs with respect to Construction Period
Properties permitted to be funded by Interest Payment Loans or increases to
Lessor Investment Amounts by capitalization thereof during a Construction
Period)
<PAGE> 21
and that such interest amount payable on the Loans shall at all times equal the
aggregate accrued interest on the principal amount of Facility Loans and the
Interest Component of maturing Commercial Paper Notes (with the express
understanding that any interest on the Facility Loans or Interest Component of
maturing Commercial Paper Notes not paid with Lender Basic Rent payments due to
such capitalization of the interest on the Loans will be paid by the proceeds of
new Commercial Paper Notes or Facility Loans); (ii) the amount and timing of
Supplemental Rent payable by the Lessee shall include amounts equal to the
mandatory prepayments of the Loans required pursuant to Section 2.4 of the Loan
Agreement which shall equal the amount of maturing Commercial Paper Notes not
repaid by the issuance of new Commercial Paper Notes or Liquidity Loans to the
extent set forth in Section 5.6; (iii) if the Lessee elects the Purchase Option
or becomes obligated to purchase any Property under the Lease, the Loans, the
Lessor Investment Amounts, all interest, Certificate Earnings and Facility Fees
related to such Property and all other obligations of the Lessee owing to the
Lessor, the Facility Lender, the Lenders and the Agent Bank relating thereto
shall be paid in full by the Lessee so that the aggregate Property Costs
(including amounts owing by the Construction Agent pursuant to the Construction
Agency Agreement with respect to Construction Period Properties) shall at all
times equal the sum of (x) the Facility Loans, plus (y) the Interest Component
and Principal Component of outstanding Commercial Paper Notes (less any
Deposited Funds) plus (z) the Lessor Investment Amounts not previously prepaid;
(iv) if the Lessee properly elects the Remarketing Option with respect to a
Property and provided that no Lease Event of Default has occurred and is
continuing, Lessee shall only be required to pay to the Lessor the Gross
Proceeds of the sale of such Property, the Residual Value Guarantee for such
Property, any amounts payable pursuant to Section 14 and any Rent with respect
to such Property (which aggregate amounts may be less than the Property Balance
under the Lease with respect to such Property) with the express understanding
that any remaining amount of the Commercial Paper Notes shall be repaid with the
proceeds of Facility Loans; (v) upon a Lease Event of Default, the amounts then
due and payable by the Lessee under the Lease shall include the Lease Balance
which shall be sufficient to repay the Commercial Paper Notes, Liquidity Loans
and Lessor Investment Amounts in full; and (vi) the amount of interest accruing
on the Loans for any period shall equal the sum of the interest accruing on the
Liquidity Notes and the Interest Component of the Commercial Paper Notes
outstanding during such period.
SECTION 7.
CONDITIONS PRECEDENT TO
ACQUISITIONS AND ADVANCES
SECTION 7.1. Conditions Precedent -- Documentation. The obligation of
the Lessor to acquire a Property on a Property Closing Date, to make the initial
Advance in respect of such Property on the initial Funding Date with respect to
such Property, and to make any related Lessor Investment Amount available on
such Funding Date, the right and obligation of the Facility Lender to make any
Loans to Lessor on such Funding Date to fund such Advances and the obligation of
the Lenders to make Direct Funding Loans under the Liquidity Agreement, are
subject to satisfaction of the following conditions precedent and to the
conditions precedent set
<PAGE> 22
forth in Section 7.2:
(a) the Agent Bank, the Lessor, and the Facility Lender shall have
received a fully executed counterpart of the Acquisition
Request, appropriately completed by Lessee, in accordance with
Section 3.5, and a fully executed counterpart of the Funding
Request, appropriately completed by Lessee, in accordance with
Section 3.7;
(b) the Environmental Audit for such Property shall have been
delivered to and shall be satisfactory in form and substance
to the Agent Bank and the Lessor;
(c) on or prior to the Property Closing Date for the related
Property, the Agent Bank, the Lessor and the Facility Lender
shall have received an Appraisal of each Property being
acquired on such Property Closing Date reasonably satisfactory
to the Agent Bank and the Lessor;
(d) on or prior to the Property Closing Date for the related
Property, the Lessor shall have received a deed (a "Deed") (in
form and substance appropriate for recording with the
applicable Governmental Authorities, with respect to such
Property (and all Improvements located thereon) being
purchased on such Property Closing Date, conveying fee simple
title to such Property to the Lessor, subject only to
Permitted Exceptions;
(e) on or prior to the Property Closing Date for the related
Property, Lessee and the Lessor shall have delivered to the
Agent Bank and the Facility Lender a Construction Agency
Agreement Supplement with respect to such Property fully
executed by Construction Agent and the Lessor;
(f) on or prior to the Property Closing Date for the related
Property, the Lessee and the Lessor shall have delivered the
original counterpart of the Lease Supplement and Memorandum of
Lease executed by the Lessee and the Lessor with respect to
such Property to the Agent Bank, with a copy to the Facility
Lender;
(g) on or prior to the Property Closing Date for the related
Property, the Lessor shall have delivered to the Agent Bank a
Mortgage executed by the Lessor with respect to such Property;
(h) on or prior to the Property Closing Date for the related
Property, the Lessor shall have delivered to the Agent Bank a
Supplement to the Assignment of Leases executed by the Lessor
with respect to such Property;
(i) on or prior to the Property Closing Date for the related
Property, the Lessee shall have delivered to the Agent Bank a
consent to the Supplement to the Assignment of Leases executed
by the Lessee with respect to such Property;
<PAGE> 23
(j) on or prior to the Property Closing Date for the Property, the
Agent Bank, the Lessor and the Facility Lender shall have
received an opinion of counsel, which counsel and whose
opinion shall be reasonably satisfactory to the Agent Bank and
the Lessor and qualified with respect to the laws of the
jurisdiction in which such Property is located as to the
matters set forth in Exhibit E attached hereto and made a part
hereof by this reference;
(k) on or prior to the Property Closing Date for the related
Property, the Facility Lender shall have delivered to the
Agent Bank a Supplement to the Master Assignment assigning to
Agent Bank, for the benefit of the Lenders, substantially all
of the rights of Lessor to the documents described in
subparagraphs (e) through (i) and a consent of the Lessee and
Lessor to such assignment;
(l) on or prior to the Property Closing Date for the related
Property, the Lessee shall deliver, or cause to be delivered,
to the Agent Bank and the Lessor an ALTA extended owner's
(with respect to Lessor) and lender's (with respect to Agent
Bank) title insurance commitment covering such Property in
favor of the Agent Bank, the Facility Lender and the Lessor
reasonably satisfactory in form and substance to the Agent
Bank and Lessor, with customary coverage over the general
exceptions to such policy and customary endorsements issued by
the title company and evidencing the first priority status of
the Mortgage, subject only to the exceptions noted therein;
(m) on or prior to the Property Closing Date for the related
Property, the Agent Bank shall have received evidence
satisfactory to it that each of the Deed, the Memorandum of
Lease, the Supplement to the Assignment of Leases, the Consent
to the Assignment, the Mortgage, the Supplement to Master
Assignment and the consent to Master Assignment delivered on
any Property Closing Date shall have been or are being
recorded with the appropriate Governmental Authorities in the
order in which such documents are listed in this clause, and
the UCC Financing Statements with respect to the Property
being acquired shall have been or are being filed with the
appropriate Governmental Authorities, and that all of the
recording fees, filing fees, transfer taxes and recording
taxes with respect to the foregoing have been paid; and
(n) Lessee shall have delivered to the Agent Bank, the Lessor and
the Facility Lender its duly completed Property Closing
Certificate substantially in the form of Exhibit F attached
hereto and made a part hereof by this reference, as to the
satisfaction of the conditions precedent set forth in Section
7.2.
SECTION 7.2. Further Conditions Precedent. The obligation of the Lessor
to acquire a Property on a Property Closing Date, to make an Advance on a
Funding Date, to make available any related Lessor Investment Amount on such
Funding Date, the right and obligation of Facility Lender to make any related
Loans on such Funding Date to fund such Advances and the Lenders' obligation to
make Direct Funding Loans under the Liquidity Agreement, are subject to
satisfaction of the following conditions precedent and to satisfaction on or
before the related Property Closing
<PAGE> 24
Date of the conditions precedent set forth in Section 7.1:
(a) on such date the representations and warranties of Guarantor,
Lessee, contained herein and in each of the other Operative
Documents shall be true and correct in all material respects
as though made on and as of such date, except to the extent
such representations and warranties relate solely to an
earlier date, in which case such representations and
warranties shall have been true and correct in all material
respects as of such earlier date;
(b) the other parties hereto shall have performed their respective
agreements contained herein and in the other Operative
Documents to be performed by them on or prior to such date;
(c) there shall not have occurred and be continuing any Facility
Agreement Default or Facility Agreement Event of Default and
no Facility Agreement Default or Facility Agreement Event of
Default will have occurred after giving effect to the
acquisition of Land requested by such Acquisition Request
and/or the making of the Advance requested by such Funding
Request, as the case may be;
(d) the Available Commitments, in the reasonable judgment of the
Construction Agent will be sufficient to complete the
Improvements on the Construction Period Properties and the
Advances being made and which have been made with respect to
the Construction Period Properties will not exceed the Maximum
Property Costs for the Properties; and
(e) the Estimated Completion Date of such Property shall not be
after the last day of the Commitment Period or beyond the
Outside Completion Date.
Notwithstanding the foregoing, as more specifically set forth in the Liquidity
Agreement, the Facility Lender may, in compliance with the Liquidity Agreement,
continue to issue Commercial Paper Notes in an amount sufficient to repay the
Principal Component of maturing Commercial Paper Notes and Facility Loans unless
a Material Lease Event of Default shall have occurred and be continuing.
SECTION 8.
COMPLETION DATE CONDITIONS
The occurrence of the Completion Date with respect to any Property
shall be subject to the fulfillment to the reasonable satisfaction of, or waiver
by, the Agent Bank and the Lessor of the following conditions precedent:
(a) Construction Completion. The construction of the Improvements
shall have been completed substantially in accordance with the
Plans and Specifications for such Property and all applicable
Requirements of Law, and such
<PAGE> 25
Property shall be ready for occupancy and operation.
Substantially all fixtures, furniture, furnishings, equipment
and other property contemplated under such Plans and
Specifications to be incorporated into or installed in such
Property shall have been incorporated or installed, free and
clear of all Liens except for Permitted Liens.
(b) Lessee Certification. Lessee shall have furnished the Lessor,
the Facility Lender and the Agent Bank with a certification of
Lessee (substantially in the form of Exhibit H attached hereto
and made a part hereof by this reference) to the effect that:
(i) all amounts owing to third parties for the
construction of the Improvements have been paid in
full (or are being contested in good faith or held
until completion of certain punch list items and the
amount being contested or held back does not exceed
ten percent (10%) of the related Property Cost), and
no litigation or proceedings are pending, or to the
best of Lessee's knowledge, are threatened, against
such Property or Lessee which could have a Material
Adverse Effect;
(ii) a certificate of occupancy (temporary or permanent)
and all other material Governmental Action required
for the construction and operation of such Property
have been obtained and are in full force and effect;
(iii) such Property has available all services of public
facilities and other utilities necessary for use and
operation of the Facility and the other Improvements
for their intended purposes, including (as
applicable), without limitation, adequate water, gas
and electrical supply, storm and sanitary sewerage
facilities, telephone, other required public
utilities and means of access between the Facility
and public highways for pedestrians and motor
vehicles;
(iv) all material agreements, easements and other rights,
public or private, which are necessary to permit the
lawful use and operation of such Property as the
Lessee intends to use such Property under the Lease
and which are necessary to permit the lawful intended
use and operation of all then intended utilities,
driveways, roads and other means of egress and
ingress to and from the same have been obtained and
are in full force and effect and Lessee has no actual
knowledge of any pending modification or cancellation
of any of the same; and the use of such Property
substantially as intended does not depend on any
variance, special exception or other municipal
approval, permit or consent that has not been
obtained and is in full force and effect for its
continuing legal use;
(v) all of the requirements and conditions set forth in
Section 8(a) hereof have been completed and
fulfilled;
(vi) no changes or modifications were made to the related
Plans and
<PAGE> 26
Specifications after the related Property Closing
Date that have had a material adverse effect on the
current value, residual value, operation, use or
useful life of such Property; and
(vii) upon the execution and delivery of a Lease Supplement
with respect to the Improvements, Lessee will have
unconditionally accepted such Improvements subject to
such Lease Supplement and will have good and
marketable title to a valid and subsisting leasehold
interest in the Property, subject only to Permitted
Exceptions.
(c) Lease Supplement. Lessee and Lessor shall have executed and
delivered to the Agent Bank a Lease Supplement with respect to
such Improvements.
SECTION 9.
REPRESENTATIONS
SECTION 9.1. Representations of the Lessor. Lessor represents and
warrants to each of the other parties hereto as follows:
(a) Due Organization; etc. It is a limited partnership duly
organized and validly existing and in
good standing under the laws of the State of Delaware and has
the power and authority to enter into and perform its
obligations under the Operative Documents to which it is or
will be a party and each other agreement, instrument and
document to be executed and delivered by it in connection with
or as contemplated by each such Operative Document to which it
is or will be a party. It is duly qualified to transact
business in every jurisdiction where the failure to qualify
would have a material adverse effect on its ability to perform
its obligations under the Operative Documents as contemplated
on the Initial Closing Date.
(b) Authorization; No Conflict. The execution, delivery and
performance of each Operative Document to which it is or will
be a party, has been duly authorized by all necessary action
on its part and on the part of its general partner and neither
the execution and delivery thereof, nor the consummation of
the transactions contemplated thereby, nor compliance by it
with any of the terms and provisions thereof (i) does or will
require any approval or consent of any trustee or holders of
any of its indebtedness or obligations or those of its general
partner, (ii) does or will contravene any current law,
governmental rule or regulation relating to it or its general
partner, (iii) does or will contravene or result in any breach
of or constitute any default under, or result in the creation
of any Lien upon any of it or its general partner's property
under its partnership agreement or any Contractual Obligation
of the Lessor or its general partner, or (iv) does or will
require any Governmental Action by any Governmental Authority.
<PAGE> 27
(c) Enforceability; etc. Each Operative Document to which the
Lessor is or will be a party has been, or on or before any
Closing Date on which such Operative Document is to be signed
will be, duly executed and delivered by the Lessor and each
such Operative Document to which the Lessor is a party
constitutes, or upon execution and delivery will constitute,
assuming the due authorization, execution and delivery hereof
and thereof by the other parties hereto and thereto, a legal,
valid and binding obligation enforceable against the Lessor in
accordance with the terms thereof, except as such
enforceability may be limited or denied by (i) applicable
bankruptcy, insolvency, reorganization, moratorium or similar
laws effecting creditors' rights and the enforcement of
debtors' obligations generally, and (ii) general principles of
equity, regardless of whether enforcement is pursuant to a
proceeding in equity or at law.
(d) Litigation. There is no action or proceeding pending or, to
Lessor's knowledge, threatened to which it or, to the best of
its knowledge, its general partner is or will be a party,
before any Governmental Authority that, if adversely
determined, could reasonably be expected to have a material
adverse effect on the property, operations or financial
condition of the Lessor or, to the best of its knowledge, its
general partner.
(e) Assignment. It has not assigned or transferred any of its
right, title or interest in or under the Lease, the Guaranty
or the Construction Agency Agreement except in accordance with
the Operative Documents.
(f) Defaults. No Default or Event of Default under the Operative
Documents attributable to it has occurred and is continuing.
(g) Securities Act. Neither the Lessor nor any Person authorized
by the Lessor to act on its behalf has offered or sold any
interest in the Lessor Investment Amounts or the Notes, or in
any similar security relating to a Property, or in any
security the offering of which for the purposes of the
Securities Act would be deemed to be part of the same offering
as the offering of the aforementioned securities to, or
solicited any offer to acquire any of the same from, any
Person other than the parties hereto and neither the Lessor
nor any Person authorized by the Lessor to act on its behalf
will take any action which would subject the issuance or sale
of any interest in the Lessor Investment Amounts or the Notes
to the provisions of Section 5 of the Securities Act or
require the qualification of any Operative Document under the
Trust Indenture Act of 1939, as amended.
(h) Chief Place of Business. The Lessor's chief place of business,
chief executive office and office where the documents,
accounts and records relating to the transactions contemplated
by this Participation Agreement and each other Operative
Document are kept are located at 12 East 49th Street, New
York, New York 10017.
(i) Federal Reserve Regulations. The Lessor is not engaged
principally in, and does not
<PAGE> 28
have as one of its important activities, the business of
extending credit for the purpose of purchasing or carrying any
margin stock (within the meaning of Regulation U of the
Board).
(j) Investment Company Act. The Lessor is not an "investment
company" or a company controlled by an "investment company"
within the meaning of the Investment Company Act.
(k) General Partner. Credit Suisse is the sole general partner of
the Lessor.
SECTION 9.2. Representations of the Guarantor and the Lessee. Each of
the Guarantor and the Lessee represents and warrants to each of the other
parties hereto that:
(a) Corporate Existence and Power. Each of the Guarantor and the
Lessee is a corporation duly organized, validly existing and
in good standing under the laws of the jurisdiction of its
incorporation, is duly qualified to"transact business in every
jurisdiction where each Property is located (in the case of
Lessee) and where the failure to so qualify would reasonably
be expected to have or cause a Material Adverse Effect, and
has all corporate powers and all governmental licenses,
authorizations, consents and approvals required to carry on
its business as now conducted, except where the failure to
possess any such licenses, authorizations, consents, or
approvals would not reasonably be expected to have or cause a
Material Adverse Effect.
(b) Corporate and Governmental Authorization; No Contravention.
The execution, delivery and performance by each of the
Guarantor and the Lessee of this Participation Agreement and
the other Operative Documents to which it is a party (i) are
within its corporate powers, (ii) have been duly authorized by
all necessary corporate action, (iii) require no Governmental
Action by or in respect of or filing with, any Governmental
Authority, (iv) do not contravene, or constitute a default
under, any Applicable Law or of the certificate of
incorporation or by-laws of the Guarantor, Lessee, or of any
material agreement, judgment, injunction, order, decree or
other instrument binding upon the Guarantor, the Lessee or any
of the Guarantor's other Significant Subsidiaries, and (v) do
not result in the creation or imposition of any Lien on any
asset of the Guarantor, Lessee or any of the Guarantor's other
Significant Subsidiaries.
(c) Binding Effect. This Participation Agreement constitutes a
valid and binding agreement of each of the Guarantor and the
Lessee enforceable in accordance with its terms, and the other
Operative Documents to which it is, or will become a party,
when executed and delivered in accordance with this
Participation Agreement, will constitute valid and binding
obligations of the Guarantor or Lessee enforceable in
accordance with their respective terms, provided that the
enforceability hereof and thereof is subject in each case to
general principles of equity and to bankruptcy, insolvency and
similar laws affecting the enforcement of creditors' rights
generally.
<PAGE> 29
(d) Financial Information. The consolidated balance sheet of the
Guarantor and its Consolidated Subsidiaries as of January 28,
1996 and the related consolidated statements of income,
stockholders' equity and cash flows for the Fiscal Year then
ended, reported on by KPMG Peat Marwick, LLP, copies of which
have been delivered to each of the Lenders and the Lessor
fairly present, in conformity with GAAP, the consolidated
financial position of the Guarantor and its Consolidated
Subsidiaries as of such date and their consolidated results of
operations and cash flows for such period.
(e) No Litigation. There is no action, suit or proceeding pending,
or to the knowledge of the Guarantor or Lessee, threatened,
against or affecting the Guarantor, Lessee or any of their
other Subsidiaries, before any court or arbitrator or any
Governmental Authority which would reasonably be expected to
have or cause a Material Adverse Effect.
(f) Compliance with ERISA. (i) The Guarantor and each member of
the Controlled Group have fulfilled their obligations under
the minimum funding standards of ERISA and the Code with
respect to each Plan and are in compliance in all material
respects with the presently applicable provisions of ERISA and
the Code, and have not incurred any liability to the PBGC or a
Plan under Title IV of ERISA.
(ii) Neither the Guarantor nor to the best of
Guarantor's knowledge and belief any member of the Controlled
Group is or ever has been obligated to contribute to any
Multiemployer Plan.
(g) Compliance with Laws; Payment of Taxes. The Guarantor, the
Lessee and each of their other Subsidiaries are in compliance
with all applicable Requirements of Law, except where (i) such
compliance is being contested in good faith through
appropriate proceedings or (ii) the failure to be in
compliance would not reasonably be expected to have or cause a
Material Adverse Effect. There have been filed on behalf of
the Guarantor and its Subsidiaries all Federal, state and
local income, excise, property and other tax returns which are
required to be filed by them and all taxes shown due and owing
by such returns have been paid. The charges, accruals and
reserves on the books of the Guarantor and its Subsidiaries in
respect of taxes or other governmental charges are, in the
opinion of the Guarantor, adequate. United States federal
income tax returns of the Guarantor and its Subsidiaries have
been examined and closed through the fiscal year ended
February 3, 1991.
(h) Significant Subsidiaries. Each of the Guarantor's Significant
Subsidiaries is a corporation duly organized, validly existing
and in good standing under the laws of its jurisdiction of
incorporation, is duly qualified to transact business in every
jurisdiction where the failure to qualify would reasonably be
expected to have or cause a Material Adverse Effect, and has
all corporate powers and all governmental licenses,
authorizations, consents and approvals required to carry on
its business
<PAGE> 30
substantially as now conducted, except where the failure to
possess any such licenses, authorizations, consents or
approvals would not reasonably be expected to have or cause a
Material Adverse Effect.
(i) Investment Company Act. Neither the Guarantor, the Lessee nor
any of the other Subsidiaries is an "investment company"
within the meaning of the Investment Company Act of 1940, as
amended.
(j) Public Utility Holding Company Act. Neither the Guarantor, the
Lessee nor any of the other Subsidiaries is a "holding
company", or a "subsidiary company" of a "holding company", or
an "affiliate" of a "holding company" or of a "subsidiary
company" of a "holding company", as such terms are defined in
the Public Utility Holding Company Act of 1935, as amended.
(k) Ownership of Property; Liens. Each of the Guarantor and its
Significant Subsidiaries has title to its properties
sufficient for the conduct of its business, and none of such
property is subject to any Lien except Liens permitted by the
Operative Documents.
(l) No Default. Neither the Guarantor nor any of its Consolidated
Subsidiaries is in default under or with respect to any
agreement, instrument or undertaking to which it is a party or
by which it or any of its property is bound which could
reasonably be expected to have or cause a Material Adverse
Effect. No Default or Event of Default has occurred and is
continuing.
(m) Full Disclosure. All written information heretofore furnished
by the Guarantor or the Lessee to the Agent Bank, the
Placement Agent, the Issuing and Paying Agent, any Lender or
Lessor for purposes of or in connection with this
Participation Agreement or any transaction contemplated hereby
is, and all such information hereafter furnished by the
Guarantor or the Lessee to the Agent Bank, or any Lender or
Lessor will be, true and correct in all material respects or
based on what the Guarantor or the Lessee in good faith
believes to be reasonable estimates on the date as of which
such information is stated or certified.
(n) Environmental Matters. (i) Neither the Guarantor nor any
Subsidiary is subject to any claim under the Environmental
Laws which could have or cause a Material Adverse Effect and
neither the Guarantor nor any Subsidiary has been designated
as a potentially responsible party under CERCLA or under any
state statute similar to CERCLA. None of the Properties has
been identified on any current or proposed (x) National
Priorities List under 40 C.F.R. ss. 300, (y) CERCLIS list or
(z) any list arising from a state statute similar to CERCLA.
(ii) No Hazardous Substances have been or are being
used, produced, manufactured, processed, treated, recycled,
generated, stored, disposed of, managed or otherwise handled
at, or shipped or transported to or from the Properties or are
<PAGE> 31
otherwise present at, on, in or under the Properties, or, to
the best of the knowledge of the Guarantor and Lessee, at or
from any adjacent site or facility, except for Hazardous
Substances, such as cleaning solvents, pesticides and other
materials used, produced, manufactured, processed, treated,
recycled, generated, stored, disposed of, managed, or
otherwise handled in minimal amounts in the ordinary course of
business in compliance with all applicable Environmental Laws.
(iii) Each of the Guarantor and each of its
Subsidiaries and Affiliates, (x) has procured all permits and
authorizations required under the Environmental Laws necessary
for the conduct of its business, and (y) is in compliance with
all Environmental Laws in connection with the operation of the
Properties and the Guarantor's and each of its Subsidiary's
and Affiliate's, respective businesses, in each case set forth
in either of clause (x) or (y) where the failure to procure or
non-compliance with which would reasonably be expected to have
or cause a Material Adverse Effect.
(o) Capital Stock. All Capital Stock, debentures, bonds, notes and
all other securities of the Guarantor and its Subsidiaries
presently issued and outstanding are validly and properly
issued in accordance with all Applicable Laws, including, but
not limited to, the "Blue Sky" laws of all applicable states
and the federal securities laws, except where the failure to
have complied with such laws would not reasonably be expected
to have or cause a Material Adverse Effect. The issued shares
of Capital Stock of the Lessee are owned by the Guarantor free
and clear of any Lien or adverse claim. At least a majority of
the issued shares of capital stock of each of the Guarantor's
other Significant Subsidiaries is owned by the Guarantor free
and clear of any Lien or adverse claim.
(p) Margin Stock. Neither the Guarantor nor any of its
Subsidiaries is engaged principally, or as one of its
important activities, in the business of purchasing or
carrying any Margin Stock, and no part of the proceeds of any
Advance will be used for any purpose, including, without
limitation, to purchase or carry any Margin Stock or to extend
credit to others for the purpose of purchasing or carrying any
Margin Stock, which violates, or which is inconsistent with,
the provisions of Regulation G, Regulation T, Regulation U or
Regulation X.
(q) Insolvency. After giving effect to the execution and delivery
of the Operative Documents, the Guarantor will not be
"insolvent," within the meaning of such term as used in
O.C.G.A. ss. 18-2-22 or as defined in ss. 101 of Title 11 of
the United States Code or Section 2 of the Uniform Fraudulent
Transfer Act, or any other applicable state law pertaining to
fraudulent transfers, as each may be amended from time to
time, or be unable to pay its debts generally as such debts
become due, or have an unreasonably small capital to engage in
any business or transaction, whether current or contemplated.
(r) Securities Act. Neither the Guarantor, the Lessee nor any
Person authorized by
<PAGE> 32
either of the Guarantor or Lessee to act on its behalf has
offered or sold any interest in the Notes, the Commercial
Paper Notes or in any similar security relating to a Property,
or in any security the offering of which for the purposes of
the Securities Act would be deemed to be part of the same
offering as the offering of the aforementioned securities to,
or solicited any offer to acquire any of the same from, any
Person other than an "Accredited Investor" (as such term is
defined in the Securities Act).
(s) Commercial Paper Notes. All Commercial Paper Notes shall
constitute exempt securities under Section 4(2) of the
Securities Act, no registration of the Commercial Paper Notes
under the Securities Act, nor qualification of an indenture
with respect to the Commercial Paper Documents under the Trust
Indenture Act of 1939, as amended, will be required in
connection with the offer, issuance or sale of the Commercial
Paper Notes.
SECTION 9.3. Representations of Guarantor and Lessee on Property
Closing Date. Each of the Guarantor and the Lessee hereby represents and
warrants as of each Property Closing Date, as follows:
(a) Representations. The representations and warranties of the
Guarantor, Lessee and the Construction Agent and, to the
knowledge of Guarantor and Lessee, the Facility Lender, set
forth in the Operative Documents are true and correct in all
material respects. The Guarantor, Lessee and the Construction
Agent, and, to the knowledge of the Guarantor and the Lessee,
the Facility Lender are in compliance with their respective
obligations under the Operative Documents and there exists no
Default or Event of Default under any of the Operative
Documents. No Default or Event of Default will occur under any
of the Operative Documents as a result of, or after giving
effect to, the Advance requested by the Funding Request on
such Property Closing Date.
(b) Property. The Property then being acquired consists of (i)
Land on which Facilities will be constructed pursuant to the
Construction Agency Agreement, and (ii) existing Improvements
on such Land. Such Property is located in the continental
United States or Canada.
(c) Title. Upon the acquisition by purchase of such Property on
such Property Closing Date, the Lessor will have good and
marketable title to such Property in fee simple, subject only
to Permitted Exceptions. The Lessor will at all times have
good and marketable title to all Improvements located on such
Property, subject only to Permitted Liens.
(d) Insurance. Lessee has obtained insurance coverage covering
such Property or is self-insured in a manner which meets the
requirements of the Construction Agency Agreement and Article
XIV of the Lease, and such coverage is in full force and
effect.
<PAGE> 33
(e) Lease. Upon the execution and delivery of a Lease Supplement
to the Lease and Memorandum of Lease, (i) Lessee will have
unconditionally accepted the Land and existing Improvements
subject to such Lease Supplement and will have good and
marketable title to a valid and subsisting leasehold interest
in the Land and existing Improvements, subject only to
Permitted Exceptions, (ii) no offset will exist with respect
to any Rent or other sums payable under the Lease and (iii) no
Rent under the Lease will have been prepaid.
(f) Protection of Interests. Upon recordation, each Mortgage and
each Supplement to the Assignment of Leases delivered on such
Property Closing Date will constitute a valid and perfected
first Lien on such Property and all of the Lessor's right,
title and interest in and to the Improvements located thereon
or to be constructed thereon following the Property Closing
Date subject only to Permitted Exceptions.
(g) Property as Improved. The Property as improved in accordance
with the Plans and Specifications will comply in all material
respects with all Requirements of Law (including, without
limitation, all zoning and land use laws and Environmental
Laws) and Insurance Requirements. The Plans and Specifications
have been or will be prepared in all material respects in
accordance with applicable Requirements of Law (including,
without limitation, all applicable Environmental Laws and
building, planning, zoning and fire codes) and upon completion
of the related Facility in accordance with the Plans and
Specifications, such Facility and the other Improvements on
the Property will not encroach in any manner onto any
adjoining land (except as permitted by express written
easements) and such Facility and other Improvements and the
use thereof by Lessee and its agents, assignees, employees,
invitees, lessees, licensees and tenants will comply in all
respects with all applicable material Requirements of Law
(including, without limitation, all applicable Environmental
Laws and building, planning, zoning and fire codes).
(h) Flood Hazards. No portion of any Property being acquired by
the Lessor on such Property Closing Date is located in an area
identified as a special flood hazard area by the Federal
Emergency Management Agency or other applicable agency, or if
any such Property is located in an area identified as a
special flood hazard area by the Federal Emergency Management
Agency or other applicable agency, then flood insurance has
been obtained for such Property in accordance with Section XI
of the Lease and in accordance with the National Flood
Insurance Act of 1968, as amended.
(i) Environmental Matters. The Property is in compliance with all
Environmental Laws and there neither exists nor has existed
any Hazardous Condition, Hazardous Activity, Release,
threatened Release or violation of Environmental Law which
could give rise to an Environmental Claim against Lessee or
any Indemnitee with respect to such Property.
<PAGE> 34
(j) Conditions Precedent. All conditions precedent to be performed
and delivered by Lessee contained in this Participation
Agreement and in the other Operative Documents relating to the
acquisition of such Property by the Lessor have been satisfied
in full.
SECTION 9.4. Additional Representations of Guarantor and Lessee. Each
of Guarantor and the Lessee hereby represents and warrants as of each Funding
Date on which an Advance is made as follows:
(a) Representations. The representations and warranties of the
Guarantor, Lessee and Construction Agent and, to the knowledge
of Guarantor and Lessee, the Facility Lender, set forth in the
Operative Documents (including the representations and
warranties set forth in Sections 9.2 and 9.3) are true and
correct in all material respects on and as of such Funding
Date. The Guarantor, Lessee and Construction Agent and, to the
knowledge of Guarantor and Lessee, the Facility Lender, are in
compliance with their respective obligations under the
Operative Documents and there exists no Default or Event of
Default under any of the Operative Documents. No Default or
Event of Default will occur under any of the Operative
Documents as a result of, or after giving effect to, the
Advance requested by the Funding Request on such date.
(b) Improvements. Construction of the Improvements to date has
been performed in a good and workmanlike manner, substantially
in accordance with the Plans and Specifications and in
compliance in all material respects with all Insurance
Requirements and Requirements of Law.
SECTION 9.5. Representations of Facility Lender. Facility Lender
represents and warrants to each of the other parties hereto that:
(a) Corporate Status. It (i) is a duly organized and validly
existing corporation in good standing under the laws of the
state of its incorporation and has the corporate power and
authority to own its property and assets and to transact the
business in which it is engaged and (ii) has duly qualified
and is authorized to do business and is in good standing in
all jurisdictions where it is required to be so qualified and
where the failure to be so qualified could have a material
adverse effect on the property, operations or financial
condition of Facility Lender.
(b) Corporate Power and Authority. It has the corporate power and
authority to execute, deliver and carry out the terms and
provisions of the Operative Documents to which it is or will
be a party, has taken all necessary corporate action to
authorize the execution, delivery and performance of the
Operative Documents to which it is or will be a party, has
duly executed and, assuming the due authorization, execution
and delivery hereof and thereof by the other parties hereto
and thereto, delivered each Operative Document required to be
executed and delivered' by it and each such Operative Document
constitutes a legal, valid and binding obligation enforceable
<PAGE> 35
against it in accordance with its terms, except as such
enforceability may be limited or denied by (i) applicable
bankruptcy, insolvency, reorganization, moratorium or similar
laws effecting creditors' rights and the enforcement of
debtors' obligations generally, and (ii) general principles of
equity, regardless of whether enforcement is pursuant to a
proceeding in equity or at law.
(c) No Violation. Neither the execution, delivery and performance
by it of the Operative Documents to which it is or will be a
party nor compliance with the terms and provisions thereof,
nor the consummation of the transactions contemplated therein
(i) will contravene any Applicable Law, or (iii) will violate
any provision of its certificate of incorporation or by-laws.
(d) No Other Activities. It does not hold any assets, conduct any
business nor is it party to any Contractual Obligation except
as expressly contemplated by the Operative Documents.
(e) Commercial Paper Documents. Each of the representations and
warranties of the Facility Lender set forth in the Commercial
Paper Documents are true and correct in all material respects.
SECTION 9.6. Representations and Warranties of the Agent Bank and the
Lenders. Each of the Agent Bank and the Lenders hereby represents and warrants
to each of the other Participants that:
(a) Corporate Existence and Power. It is, respectively, a banking
association or corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its
organization and has all corporate powers and all material
governmental licenses, authorizations and approvals required
to perform its obligations hereunder.
(b) Binding Effect. This Participation Agreement and each other
Operative Document to which the Agent Bank or any Lender is a
party constitutes a valid and binding agreement of it
enforceable against it in accordance with its terms, provided
that the enforceability hereof is subject in each case to
general principles of equity and to bankruptcy, insolvency and
similar laws affecting the enforcement of creditors' rights
generally.
SECTION 10.
PAYMENT OF CERTAIN EXPENSES
Guarantor and Lessee agree, jointly and severally, for the benefit of
the Lessor, the Facility Lender, the Agent Bank, the Issuing and Paying Agent,
the Placement Agent and the Lenders, to:
<PAGE> 36
SECTION 10.1. Transaction Expenses. (a) On the Initial Closing Date (if
statements are received in satisfactory form within a reasonable time prior to
such date and in any event within thirty (30) day+s after receipt thereof), pay,
or cause to be paid, all reasonable fees, expenses and disbursements of the
respective counsel (including local counsel) for each of the Lessor, the
Facility Lender, the Issuing and Paying Agent, the Placement Agent and the Agent
Bank in connection with the transactions contemplated by the Operative Documents
and incurred in connection with such Initial Closing Date, including all
Transaction Expenses (arising from the Initial Closing Date), and all other
expenses in connection with such Initial Closing Date, including, without
limitation, all expenses relating to title insurance and all fees, taxes and
expenses for the recording, registration and filing of documents; and
(b) On each Property Closing Date and Funding Date (if statements are
received in satisfactory form within a reasonable time prior to such date and in
any event within thirty (30) days after receipt thereof), pay, or cause to be
paid, all reasonable fees, expenses and disbursements of the respective counsel
(including local counsel) for each of the Lessor, the Facility Lender, the
Issuing and Paying Agent, the Placement Agent and the Agent Bank in connection
with the transactions contemplated by the Operative Documents and incurred in
connection with such Property Closing Date or Funding Date, including all
Transaction Expenses (arising from such Property Closing Date or Funding Date),
and all other expenses in connection with such Property Closing Date or Funding
Date, including, without limitation, all expenses relating to all Environmental
Audits, each Appraisal, title insurance policies, and all fees, taxes and
expenses for the recording, registration and filing of documents.
SECTION 10.2. Brokers' Fees and Stamp Taxes. Pay, or cause to be paid,
any brokers' fees and any and all stamp, transfer and other similar taxes, fees
and excises, if any, including any interest and penalties, which are payable in
connection with the transactions contemplated by this Participation Agreement
and the other Operative Documents.
SECTION 10.3. Certain Fees and Expenses. Pay or cause to be paid (i)
any and all Transaction Expenses of the Facility Lender (or any successor
(including, without limitation, Transaction Expenses by or due to Agent Bank,
Facility Lender or Lenders pursuant to Sections 3.07, 3.09 and 4.01 of the
Liquidity Agreement) to the Facility Lender), the Lessor, the Lenders, the
Issuing and Paying Agent, the Placement Agent and the Agent Bank, (ii) all
Transaction Expenses incurred by the Facility Lender, the Agent Bank, the
Lenders or the Lessor in entering into any future amendments or supplements with
respect to any of the Operative Documents, whether or not such amendments or
supplements are ultimately entered into, or giving or withholding of waivers of
consents hereto or thereto, which have been requested by Lessee or Guarantor,
(iii) all Transaction Expenses incurred by Lessor, the Agent Bank, the Facility
Lender or any Lender in connection with a transfer made pursuant to Section 13.2
of this Participation Agreement, and (iv) all Transaction Expenses incurred by
the Lessor, the Facility Lender, the Lenders or the Agent Bank in connection
with any Property Closing Date, Completion Date or any purchase of any Property
by the Lessee or other Person pursuant to Articles XVI, XVII, XX or XXII of the
Lease and any accompanying purchase by the Construction Agent of any incompleted
Improvements thereon pursuant to the Construction Agency Agreement.
<PAGE> 37
SECTION 11.
OTHER COVENANTS AND AGREEMENTS
SECTION 11.1. Covenants of Guarantor and Lessee. Guarantor and Lessee
hereby agree that so long as this Participation Agreement is in effect:
(a) Information. The Guarantor will deliver to the Agent Bank (in
sufficient copies for each of the Lenders with respect to
deliveries pursuant to clauses (i), (ii), (iii), (v) and (vi)
below) and Lessor:
(i) as soon as available and in any event within ninety
(90) days after the end of each Fiscal Year, a
consolidated balance sheet of the Guarantor and its
Subsidiaries as of the end of such Fiscal Year and
the related consolidated statements of income,
stockholders' equity and cash flows for such Fiscal
Year, setting forth in each case in comparative form
the figures for the previous Fiscal Year, all
certified by KPMG Peat Marwick, LLP or other
independent public accountants of nationally
recognized standing, with such certification to be
free of material exceptions and qualifications not
reasonably acceptable to the Required Lenders;
(ii) as soon as available and in any event within
forty-five (45) days after the end of each of the
first three (3) Fiscal Quarters of each Fiscal Year,
a consolidated balance sheet of the Guarantor and its
Consolidated Subsidiaries as of the end of such
Fiscal Quarter and the related statement of income
and statement of cash flows for such Fiscal Quarter
and for the portion of the Fiscal Year ended at the
end of such Fiscal Quarter, setting forth in each
case in comparative form the figures for the
corresponding Fiscal Quarter (Fiscal Year only in the
case of balance sheets) and the corresponding portion
of the previous Fiscal Year, all certified (subject
to the absence of footnotes and to normal year-end
audit adjustments) as to fairness of presentation,
GAAP and consistency by the chief financial officer
or the chief accounting officer of the Guarantor;
(iii) simultaneously with the delivery of each set of
financial statements referred to in paragraphs (i)
and (ii) above, a certificate, substantially in the
form of Exhibit P (a "Compliance Certificate"), of
the chief financial officer or the chief accounting
officer of the Guarantor (x) setting forth in
reasonable detail the calculations required to
establish whether the Guarantor was in compliance
with the requirements of paragraphs (c) and (k) on
the date of such financial statements and (y) stating
whether any Event of Default exists on the date of
such certificate and, if any Event of Default then
exists, setting forth the details thereof and the
action which the Guarantor or Lessee is taking or
proposes to take with respect thereto;
<PAGE> 38
(iv) within five (5) Business Days after any of the chief
executive, chief financial, chief operating, chief
legal or chief accounting officer of the Guarantor or
Lessee becomes aware of the occurrence of any Event
of Default, a certificate of the chief financial
officer or the chief accounting officer of the
Guarantor or Lessee setting forth the details thereof
and the action which the Guarantor or Lessee is
taking or proposes to take with respect thereto;
(v) promptly upon the mailing thereof to the stockholders
of the Guarantor generally, copies of all financial
statements, reports and proxy statements so mailed;
(vi) promptly upon the filing thereof, copies of all
registration statements (other than the exhibits
thereto and any registration statements on Form S-8
or its equivalent) and annual, quarterly or monthly
reports which the Guarantor shall have filed with the
Securities and Exchange Commission;
(vii) if and when any member of the Controlled Group (i)
gives or is required to give notice to the PBGC of
any "reportable event" (as defined in Section 4043 of
ERISA) with respect to any Plan which might
constitute grounds for a termination of such Plan
under Title IV of ERISA, or knows that the plan
administrator of any Plan has given or is required to
give notice of any such reportable event, a copy of
the notice of such reportable event given or required
to be given to the PBGC; (ii) receives notice of
complete or partial withdrawal liability under Title
IV of ERISA, a copy of such notice; or (iii) receives
notice from the PBGC under Title IV of ERISA of an
intent to terminate or appoint a trustee to
administer any Plan, a copy of such notice; and
(viii) from time to time such additional information
regarding the financial position or business of the
Guarantor or any of its Subsidiaries or any of the
Properties, as the Agent Bank, at the request of any
Lender, or Lessor may reasonably request, including
without limitation, information regarding the
Property Balance, Property Acquisition Costs,
Property Improvement Costs and the related amount of
the Loans and Lessor Investment Amounts allocated to
each Property .
(b) Inspection of Property, Books and Records. The Guarantor will
(i) keep, and cause each Subsidiary to keep, proper books of
record and account in which full, true and correct entries in
conformity with GAAP shall be made of all dealings and
transactions in relation to its business and activities; and
(ii) permit, and cause each Subsidiary to permit,
representatives of the Agent Bank at the Lenders' expense
prior to the occurrence of a Default and at the Guarantor's
expense after the occurrence of a Default to visit and inspect
any of their respective properties, to examine and make
abstracts from any of their respective books and records and
to
<PAGE> 39
discuss their respective affairs, finances and accounts with
their respective officers, employees and independent public
accountants. The Guarantor and the Lessee agree to cooperate
and assist in such visits and inspections, in each case at
such reasonable times and as often as may reasonably be
requested.
(c) Ratio of Consolidated Funded Debt to Consolidated Total
Tangible Capital. The ratio of Consolidated Funded Debt to
Consolidated Total Tangible Capital will not exceed 0.60 to
1.00, calculated at the end of each Fiscal Quarter.
(d) Negative Pledge. Neither the Guarantor nor any Consolidated
Subsidiary will create, assume or suffer to exist any Lien on
any asset now owned or hereafter acquired by it, except:
(i) Liens existing on the date of this Participation
Agreement securing Indebtedness outstanding on the
date of this Participation Agreement in an aggregate
principal amount with respect to Indebtedness for
borrowed money and capital leases not exceeding
$99,036,000;
(ii) any Lien existing on any asset of any (i) corporation
or partnership at the time such corporation or such
partnership becomes a Consolidated Subsidiary, or
(ii) Subsidiary at the time it becomes a Significant
Subsidiary, and in either case not created in
contemplation of such event;
(iii) any Lien on any asset securing Indebtedness incurred
or assumed for the purpose of financing all or any
part of the cost of acquiring or constructing such
asset, that such Lien attaches to such asset
concurrently with or within eighteen (18) months
after the acquisition or completion of construction
thereof;
(iv) any Lien on any asset of any corporation existing at
the time such corporation is merged or consolidated
with or into the Guarantor or a Consolidated
Subsidiary and not created in contemplation of such
event;
(v) any Lien existing on any asset prior to the
acquisition thereof by the Guarantor or a
Consolidated Subsidiary and not created in
contemplation of such acquisition;
(vi) Liens securing Indebtedness owing by any Subsidiary
to the Guarantor;
(vii) any Lien arising out of the refinancing, extension,
renewal or refunding of any Indebtedness secured by
any Lien permitted by any of the foregoing paragraphs
of this Section, provided that (x) such Indebtedness
is not secured by any additional assets, and (y) the
amount of such Indebtedness secured by any such Lien
is not increased;
<PAGE> 40
(viii) Liens incidental to the conduct of its business or
the ownership of its assets which (x) do not secure
Indebtedness (other than Indebtedness arising from
operating leases which become capital leases as
required by GAAP) and (y) do not in the aggregate
materially detract from the value of its assets or
materially impair the use thereof in the operation of
its business;
(ix) any Lien on Margin Stock; and
(x) Liens not otherwise permitted by the foregoing
paragraphs of this Section securing Indebtedness in
an aggregate principal amount at any time outstanding
not to exceed twenty percent (20%) of Consolidated
Tangible Net Worth.
provided Liens permitted by the foregoing paragraphs (i) through (x)
shall at no time secure Indebtedness in an aggregate amount greater
than twenty-five (25%) of Consolidated Tangible Net Worth.
(e) Maintenance of Existence. The Guarantor shall, and shall cause
each Subsidiary to, maintain its corporate existence and carry
on its business in substantially the same manner and in
substantially the same fields as such business is now carried
on and maintained, except as permitted by clause (g) below;
provided, however, that (i) any Subsidiary may be
reincorporated under the laws of another state, and (ii) so
long as no Event of Default shall be in existence or be caused
thereby, nothing in this Participation Agreement shall prevent
the abandonment or termination of the existence, rights and
franchises, or the change in the business of any Subsidiary
which is not a Significant Subsidiary, if, in the opinion"of
the Board of" Directors of the Guarantor, such abandonment,
termination or change is in the best interest of the Guarantor
and not disadvantageous in any material respect to the
Lenders.
(f) Dissolution. Neither the Guarantor nor any of its Significant
Subsidiaries shall suffer or permit dissolution or liquidation
either in whole or"in part (except as permitted by clause (e)
above) or redeem or retire any shares of its own stock or that
of any Significant Subsidiary, except through corporate
reorganization to the extent permitted by clause (g) below.
(g) Consolidations, Mergers and Sales of Assets. The Guarantor
will not, nor will it permit any Significant Subsidiary to,
consolidate with or merge into, or sell, lease or otherwise
transfer all or any substantial part of its assets to, any
other Person; provided that (i) the Guarantor or the Lessee
may consolidate with or merge into another Person if (A) such
Person is a solvent corporation organized under the laws of
the United States of America or one of its states, (B) the
Guarantor or the Lessee is the corporation surviving such
merger or consolidation and (C) immediately after giving
effect to such merger or consolidation, no Event of Default
shall have occurred and be continuing, (ii) Subsidiaries may
consolidate with or merge into one another or into any other
Person if, in the case of a merger or consolidation
<PAGE> 41
involving a Significant Subsidiary, (A) such other Person is a
solvent corporation organized under the laws of the United
States of America or one of its states, (B) the Person
surviving such merger or consolidation is a wholly owned
Subsidiary and (C) immediately after giving effect to such
merger or consolidation no Event of Default shall have
occurred and be continuing, (iii) the Guarantor and its
Subsidiaries may sell, lease or otherwise transfer assets
among themselves, and (iv) the foregoing limitation on the
sale, lease or other transfer of assets shall not prohibit,
during any fiscal quarter, a transfer of assets (in a single
transaction or in a series of related transactions) unless the
aggregate assets to be so transferred, when combined with all
other assets transferred during such Fiscal Quarter and the
immediately preceding three (3) Fiscal Quarters, either (A)
constituted more than ten percent (10%) of Consolidated Total
Assets at the end of such Fiscal Quarter or (B) contributed
more than ten percent (10%) of Consolidated Operating Profits
during such Fiscal Quarter and the three (3) Fiscal Quarters
immediately preceding such Fiscal Quarter.
(h) Compliance with Laws; Payment of Taxes. The Guarantor will,
and will cause each of its Subsidiaries and each member of the
Controlled Group to, comply with applicable laws (including
but not limited to ERISA), regulations and similar
requirements of governmental authorities (including but not
limited to PBGC), except where the necessity of such
compliance is being contested in good faith through
appropriate proceedings or where the failure to so comply
would not reasonably be expected to have or cause a Material
Adverse Effect. The Guarantor will, and will cause each of its
Subsidiaries to, pay promptly when due all taxes, assessments,
governmental charges, claims for labor, supplies, rent and
other obligations which, if unpaid, would become a lien
against the property of the Guarantor or any Subsidiary,
except (i) liabilities being contested in good faith and
against which, if requested by the Agent Bank, the Guarantor
will set up reserves in accordance with GAAP or (ii) where the
failure to so pay would not reasonably be expected to have or
cause a Material Adverse Effect.
(i) Environmental Matters. The Guarantor and its Subsidiaries will
not use, produce, manufacture, process, treat, recycle,
generate, store, dispose of, manage at, any of its properties,
or otherwise handle, or ship or transport to or from any of
its properties any Hazardous Substances except for Hazardous
Substances used, produced, manufactured, processed, treated,
recycled, generated, stored, disposed, managed, or otherwise
handled in the ordinary course of business in compliance in
all material respects with applicable Environmental Laws, and
will take commercially reasonable steps to prohibit any other
Person from doing any of the acts prohibited by the foregoing.
(j) Environmental Release. The Guarantor and the Lessee each agree
that upon obtaining knowledge of the occurrence of a Release
at or on any of its properties, it will act promptly to
investigate the extent of, and to take appropriate remedial
action to eliminate, such Release, whether or not ordered or
otherwise directed to
<PAGE> 42
do so by any Governmental Authority.
(k) Debt of Subsidiaries. The Guarantor shall not permit any
Subsidiary to incur any Indebtedness except for (i)
Indebtedness owing to the Guarantor or another Subsidiary and
(ii) other Indebtedness which shall not exceed in the
aggregate for all Subsidiaries an amount in excess of twenty
percent (20%) of Consolidated Net Worth.
(l) With respect to all properties (other than the Properties
subject to the Lease):
(i) Insurance. The Guarantor will maintain, and will
cause each of its Subsidiaries to maintain (either in
the name of the Guarantor or in such Subsidiary's own
name), with financially sound and reputable insurance
companies, insurance on all its property in
substantially such amounts and against substantially
such risks as are usually insured against in the same
general area by companies of established repute and
of similar size and financial strength engaged in the
same or similar business;
(ii) Maintenance of Property. The Guarantor shall, and
shall cause each Significant Subsidiary to, maintain
to the extent commercially reasonable, all of its
properties and assets in good condition, repair and
working order, ordinary wear and tear excepted; and
(iii) Environmental Notices. The Guarantor shall furnish to
the Agent Bank and the Lessor prompt written notice
of all Environmental claims or proceedings, pending,
threatened or anticipated notices of Environmental
Violations, and Releases at, on, in, under or in any
way affecting all real property owned or leased or
otherwise used or occupied by Guarantor or any
Subsidiary or any adjacent property, and all facts,
events, or conditions that could lead to any of the
foregoing; provided, that, no such notification
will be required, unless any of the foregoing facts,
events or conditions would reasonably be expected to
have or cause a Material Adverse Effect.
(m) Further Assurances. Guarantor and Lessee shall promptly cause
to be taken, executed acknowledged or delivered, at the sole
joint and several expense of Guarantor and Lessee, all such
further acts, conveyances, documents and assurances as the
other parties may from time to time reasonably request in
order to carry out and effectuate the intent and purposes of
this Participation Agreement, the other Operative Documents,
and the transactions contemplated hereby and thereby
(including without limitation, the preparation, execution and
filing of all Uniform Commercial Code financing statements and
all other instruments necessary or advisable to maintain and
protect all Liens provided for hereunder or under any other
Operative Document).
SECTION 11.2. Cooperation with the Lessee. The Lessor, the Facility
Lender, the Agent
<PAGE> 43
Bank and Lenders shall, to the extent reasonably requested by Lessee (but
without assuming additional liabilities on account thereof), at Lessee's
expense, cooperate with Lessee in connection with its covenants contained herein
including, without limitation, at any time and from time to time, upon the
request of Lessee, to promptly and duly execute and deliver any and all such
further instruments, documents and financing statements and continuation
statements related thereto) as Lessee may reasonably request in order to perform
such covenants. Each of the Lessor, the Facility Lender, the Agent Bank and
Lenders agrees that, to the extent it shall obtain actual knowledge of the
occurrence of an Event of Default, a Loan Agreement Event of Default or a
Facility Agreement Event of Default under the Operative Documents, it shall
promptly notify Lessee describing the same in reasonable detail.
SECTION 11.3. Release of Properties. If the Lessee shall at any time
purchase any Property pursuant to Section 16.2 of the Lease or exercise its
Purchase Option with respect to any Property under the Lease, or if all of the
Properties shall be sold in accordance with, and the Lessee otherwise satisfies
each of the obligations and conditions set forth in the Lease for the release of
a Property therefrom, then, upon application of the proceeds of any such sale
pursuant to Section 5 and all accrued interest and any other payments due and
owing from Lessee to the Agent Bank, the Lenders, the Facility Lender or Lessor
on such date, including without limitation pursuant to Section 14 of this
Agreement, such Property shall be released from the Liens created by the
Security Documents and the Agent Bank, Lessor and the Facility Lender shall, at
the expense of the Lessee, execute and deliver such instruments as are legally
required in order to effectuate such release. In addition, upon the termination
of the Facility Lender Commitments and the payment in full of all other amounts
owing by the hereunder or under any other Operative Document, the Properties
shall be released from the Liens created by the Security Documents. Upon request
of the Lessee or Lessor following any such release, the Agent Bank and Facility
Lender shall, at the sole cost and expense of the Lessee or Lessor execute and
deliver to the Lessor or the Lessee such documents as the Lessee or Lessor shall
reasonably request to evidence such release.
SECTION 11.4. Discharge of Liens. (a) Each of the Facility Lender and
the Lessor hereby severally agrees that it will not create or permit to exist at
any time, and will, at its own cost and expense, promptly take such action as
may be necessary duly to discharge, or to cause to be discharged, all Lessor
Liens on the Properties (and its rights under the Operative Documents)
attributable to it; provided, however, that such Participants shall not be
required to so discharge any such Lessor Lien prior to any sale of the
Properties while the same is being contested in good faith by appropriate
proceedings.
(b) The Agent Bank hereby severally agrees that it will not create or
permit to exist at any time, and will, at its own cost and expense, promptly
take such action as may be necessary duly to discharge, or to cause to be
discharged, all Agent's Liens on the Properties attributable to it; provided,
however, that the Agent Bank shall not be required to so discharge any such
Agent's Lien prior to any sale of the Properties while the same is being
contested in good faith by appropriate proceedings.
SECTION 11.5. Notice of Credit Rating. Each of the Agent Bank, the
Lenders and the Lessor severally agrees that it shall immediately notify the
Guarantor and the Lessee in writing in
<PAGE> 44
the event that its (or in the case of the Lessor, its general partner's) long or
short term debt rating is downgraded or withdrawn by any Rating Agency or if
such entity (or in the case of the Lessor, its general partner) is placed on
credit watch with negative implications by any Rating Agency.
SECTION 11.6. Covenants of the Facility Lender and the Lessor. Each of
the Facility Lender and the Lessor hereby agrees, severally and not jointly,
that so long as this Participation Agreement is in effect:
(a) Maintenance of Existence. It shall maintain its corporate or
partnership existence and qualification as a foreign
corporation or foreign limited partnership in each state in
which a Property is located.
(b) Certificate of Incorporation. Facility Lender shall not allow
an amendment to its Certificate of Incorporation or other
governing documents without the consent of the Lessee, Agent
Bank and Lessor.
(c) Prepayment. Other than issuing new Commercial Paper Notes at
maturity or with the proceeds of Facility Loans or Residual
Loans under the Liquidity Agreement and other than as provided
in Section 5, the Facility Lender will not prepay, redeem or
refinance any Commercial Paper Notes. Except as expressly
required by the Operative Documents or in connection with the
issuance of Commercial Paper Notes in accordance with the
terms of the Commercial Paper Documents, the Facility Lender
shall not voluntarily prepay the Liquidity Notes, or any part
thereof, without the written consent of Lessee; provided,
however, that subject to Section 5, Facility Lender may
prepay, or cause to be prepaid, all or any portion of the
Liquidity Notes at any time following an Event of Default
where any or all of the Participants are exercising remedies.
Except as permitted by the Operative Documents, the Lessor
shall not prepay any Loans; provided, however, that subject to
Section 5, Lessor may prepay or cause to be prepaid all or any
portion of the Notes at any time following an Event of Default
where the Participants are exercising remedies.
(d) Indebtedness; Other Business. The Facility Lender shall not
contract for, create, incur or assume any Indebtedness, or
enter into any business or other activity, other than pursuant
to, under or as contemplated by the Operative Documents.
(e) Change of Chief Place of Business. Each of the Lessor and the
Facility Lender, with respect to itself only, shall give
prompt notice to Lessee and the Agent Bank if the Lessor's or
the Facility Lender's chief place of business or chief
executive office, or the office where the records concerning
the accounts or contract rights relating to a Property are
kept, shall cease to be located at the address set forth in
Section 15.3 or if it shall change its name, identity or
corporate structure.
(f) Subordination of Liens. During the Term, the Liens created by
the Security Documents related to each Property shall be
expressly made subject and subordinate
<PAGE> 45
to the Lease related to such Property.
(g) No Voluntary Bankruptcy. Neither the Lessor (unless the Lessee
shall give its prior written consent) nor the Facility Lender
shall (A) commence any case, proceeding or other action under
any existing or future law of any jurisdiction, domestic or
foreign, relating to bankruptcy, insolvency, reorganization,
arrangement, winding-up, liquidation, dissolution, composition
or other relief with respect to it or its debts, or (B) seek
appointment of a receiver, trustee, custodian or other similar
official for it or for all or any substantial benefit of its
creditors; and neither the Lessor nor the Facility Lender
shall take any action in furtherance of, or indicating its
consent to, approval of, or acquiescence in, any of the acts
set forth in this paragraph.
(h) No Sale of Properties. Neither the Lessor nor the Facility
Lender shall transfer any of their respective interests in the
Properties except as provided in the Operative Documents.
(i) Rollover of Commercial Paper Documents. Except as provided in
Section 5 or in the Commercial Paper Documents or as otherwise
directed by Lessee, during the Term, upon the maturity of the
Commercial Paper Notes, the Facility Lender shall, to the
extent permitted under the Operative Documents and otherwise
commercially feasible, issue new Commercial Paper Notes in
accordance with the terms of the Commercial Paper Documents.
(j) No Powers of Attorney. The Facility Lender shall not grant any
powers of attorney to any Person for any purposes except (i)
for the purpose of permitting any Person to perform any
ministerial or administrative functions on behalf of the
Facility Lender which are not inconsistent with the terms of
the Operative Documents, (ii) to the Agent Bank for the
purposes of the Security Documents, or (iii) where provided
for or permitted by the Operative Documents.
(k) Same Business. Unless the Lessee otherwise consents in
writing, Lessor shall stay engaged in substantially the same
business (including engaging in the business of leasing
personal and real property as lessor, or acting as agent,
broker or advisor in leasing such property and making,
acquiring or servicing loans or other investments or
extensions of credit in connection therewith or incidental
thereto) as conducted on the Initial Closing Date.
SECTION 11.7. No Bankruptcy Proceedings. The Guarantor, Lessee,
Construction Agent and each Participant hereby agrees that it will not institute
against, or join any other Person in instituting against, the Facility Lender
any bankruptcy, reorganization, arrangement, insolvency or liquidation
proceeding, or other proceeding under any Federal or state bankruptcy or similar
law, for one year and a day after the latest maturing Commercial Paper Note is
paid. Nothing in this Section 11.7 shall preclude, or be deemed to estop, the
Guarantor, Lessee, Construction Agent or any Participant (i) from taking or
omitting to take any action prior to such date in (A) any case or proceeding
voluntarily filed or commenced by or on behalf of the Facility Lender under or
pursuant
<PAGE> 46
to any such law or (B) any involuntary case or proceeding pertaining to the
Facility Lender which is filed or commenced by or on behalf of a Person other
than the Guarantor, Lessee, Construction Agent or any Participant under or
pursuant to any such law, or (ii) from commencing or prosecuting any legal
action which is not an involuntary case or proceeding under or pursuant to any
such law against the Participant or any of its properties or otherwise
exercising its remedies under the Operative Documents.
SECTION 11.8. Notice of Claims Against Lessor. Lessor shall promptly
notify the Lessee and the Guarantor in writing in the event that Lessor defaults
in any obligation or any Claim is asserted against Lessor (including any
Environmental Claim) which, exceeds $5,000,000 in any one instance or
$10,000,000 in the aggregate (other than defaults or Claims arising in
connection with the Operative Documents and the transactions contemplated
thereby). Upon receipt of such notice the Lessee may either:
(i) Replace the Lessor pursuant to Section 13.2; or
(ii) Require that the Lessor promptly execute, deliver and
record mortgages in form satisfactory to Lessee granting to Lessee a
Lien on the Properties to secure the performance of all obligations of
Lessor pursuant to the Lease and the other Operative Documents, which
Lien shall be second in priority to the Mortgages. Each of the
Participants hereby acknowledges and agrees that any such Liens granted
to the Lessee hereunder shall constitute "Permitted Liens" pursuant to
clause (i) of such definition.
SECTION 12.
LESSEE DIRECTIONS
SECTION 12.1. Lessee Directions. The Lenders, the Lessor, the
Guarantor, the Agent Bank, the Facility Lender agree that, so long as no Default
or Event of Default exists:
(a) Lessee shall have the right to give all borrowing notices
pursuant to the Loan Agreement and the Liquidity Agreement and
all notices relating to the issuance of the Commercial Paper
Notes pursuant to the Commercial Paper Documents;
(b) Lessee shall have the right to terminate or reduce the
Commitment pursuant to Section 4.02 of the Liquidity Agreement
and the Facility Lender Commitments pursuant to Section 2.5 of
the Loan Agreement (which commitments shall be reduced
proportionately and simultaneously); provided that, following
such reduction, the remaining amount of the Available
Commitments shall be sufficient, in the reasonable judgment of
the Construction Agent, to complete construction of the
Improvements with respect to each Construction Period Property
and Lessee shall have the right to direct the Lessor to prepay
the Loans pursuant to Section 2.4 of the Loan Agreement to the
extent that Lessee makes a payment of Supplemental Rent in the
amount of such prepayment on the date of such prepayment;
<PAGE> 47
(c) Lessee shall have the right to give Extension Notices and
Extension Requests pursuant to Section 4.04 of the Liquidity
Agreement;
(d) Lessee shall have the right to replace a Non-Consenting Lender
pursuant to Section 4.05 of the Liquidity Agreement;
(e) Lessee shall have the right to give "Notices of Conversion"
and "Notices of Continuation" pursuant to Section 3.05 of the
Liquidity Agreement;
(f) Lessee shall have the right to approve any successor "Agent
Bank" to the extent permitted pursuant to Section 10.12 of the
Liquidity Agreement;
(g) without limiting the foregoing clauses (a) through (f) and in
addition thereto, Lessee shall have the right to exercise any
other right of the Lessor under the Loan Documents and the
Facility Lender under the Liquidity Agreement and Commercial
Paper Documents upon not less than three (3) Business Days'
prior written notice from Lessee to the Lessor, Agent Bank,
and the Facility Lender, unless such party objects to such
exercise within three (3) Business Days of receipt of such
notice; and
(h) Lessee shall have the right to give notices pursuant to
Appendix C of this Participation Agreement.
SECTION 13.
TRANSFER OF INTEREST
SECTION 13.1. Restrictions on and Effect of Transfer. No Participant
shall assign, convey or otherwise transfer (including pursuant to a
participation) all or any portion of its right, title or interest in, to or
under any of the Operative Documents, any Note or Liquidity Note, except (x)
with respect to the Lenders, as provided in Section 10.04 of the Liquidity
Agreement, and (y) with respect to the Facility Lender and the Lessor, with the
prior written consent of the Agent Bank, the Lenders (to the extent required by
Section 10.04 of the Liquidity Agreement) and Lessee, which consent, in the case
of the Agent Bank, shall not be unreasonably withheld; provided that, in the
event that an Event of Default has occurred and is continuing pursuant to which
the Participants have begun to exercise remedies against the Lessee or
Guarantor, the consent of the Lessee shall not be required for any such transfer
by the Lessor. Any transfer made pursuant to the Operative Documents shall be
subject to the Security Documents and any transferee or assignee shall expressly
agree in writing to be bound by the terms of this Participation Agreement.
SECTION 13.2. Replacement of Lessor or Facility Lender. If the Lessor
or Facility Lender (i) fails to approve a renewal of the Lease pursuant to
Article XXI of the Lease, (ii) defaults in any of its material obligations
pursuant to the Operative Documents or, with respect to Facility Lender, any
Facility Agreement Event of Default shall occur, or with respect to Lessor, any
Loan
<PAGE> 48
Agreement Event of Default shall occur (which in either case, does not arise out
of, or is not attributable to, an Event of Default), or (iii) in the case of the
Lessor, (x) the Lessor or its general partner suffer a downgrade or withdrawal
or, in the reasonable judgment of the Lessee, potential downgrade or withdrawal,
of its long or short term credit rating by any Rating Agency or (y) Credit
Suisse ceases to be the sole general partner of Lessor, the Lessee shall be
permitted to replace such Person at any time; provided that (i) such replacement
does not conflict with any Requirement of Law, (ii) any replacement Lessor shall
purchase, at par, all Lessor Investment Amounts, all accrued and unpaid
Certificate Earnings thereon and other amounts owing to Lessor under the
Operative Documents on or prior to the date of replacement, (iii) the
replacement Lessor or Facility Lender shall be reasonably satisfactory to the
Required Lenders, (iv) the Guarantor and Lessee shall be obligated to pay any
Transaction Expenses arising in connection therewith, (v) the replacement Lessor
or Facility Lender shall agree in writing to be subject to all of the terms and
conditions of the Operative Documents (including the renewal of the Lease
contemplated by any relevant Renewal Request) and this Participation Agreement
and (vi) as a condition precedent to such replacement, the Guarantor or Lessee
shall have provided written confirmation from each of Moody's and S&P that
immediately after having given effect to such replacement, the Commercial Paper
Notes shall not be rated lower than the Commercial Paper Notes are rated
immediately prior to such replacement and such replacement shall not result in a
downgrade, withdrawal or qualification of the rating assigned to the Commercial
Paper Notes by Moody's or S&P. The Lessor and the Facility Lender agree to
cooperate with the Lessee in its efforts to arrange replacements as contemplated
by this Section 13.2.
SECTION 14.
INDEMNIFICATION
SECTION 14.1. General Indemnification. The Guarantor and Lessee,
jointly and severally, whether or not any of the transactions contemplated
hereby shall be consummated, hereby assume liability for, and indemnify,
protect, defend, save and keep harmless each Indemnitee, on an After Tax Basis,
from and against any and all Claims that may be imposed on, incurred by or
asserted against such Indemnitee in any way relating to or arising out of:
(a) any of the Operative Documents or any of the transactions
contemplated thereby, and any amendment, modification or
waiver in respect thereof; or
(b) the Properties or any part thereof or interest therein;
(c) the purchase, design, construction, preparation, installation,
inspection, delivery, non-delivery, acceptance, rejection,
ownership, management, possession, operation, rental, lease,
sublease, repossession (whether by summary proceedings or
otherwise), maintenance, repair, alteration, modification,
addition, substitution, storage, transfer of title,
redelivery, use, financing, refinancing, disposition,
operation, condition, sale (including, without limitation, any
sale pursuant to the Lease), return or other disposition of
all or any part of any interest in the Properties
<PAGE> 49
or the imposition of any Lien (or incurring of any liability
to refund or pay over any amount as a result of any Lien)
thereon, including, without limitation: (l) personal injury,
death or property damage, including Claims or penalties
arising from any violation of law or in tort (strict liability
or otherwise), (2) latent or other defects, whether or not
discoverable, (3) any Claim based upon a violation or alleged
violation of the terms of any Applicable Law or any
restriction, easement, condition or covenant or other matter
affecting title to the Properties or any part thereof, (4) the
making of any Modifications in violation of any Insurance
Requirements, (5) any Claim for patent, trademark or copyright
infringement, and (6) Claims arising from any public
improvements with respect to the Properties resulting in any
change or special assessments being levied against the
Properties or any Claim for utility "tap-in" fees;
(d) the offer, issuance, sale or delivery of the Commercial Paper
Notes, the Liquidity Notes or the Notes;
(e) the breach or alleged breach by the Guarantor or the Lessee of
any representation or warranty made by it or deemed made by it
in any Operative Document or any certificate required to be
delivered by any Operative Document or the breach or alleged
breach by the Guarantor or the Lessee of any covenant or
obligation made by it in any Operative Document;
(f) the retaining or employment of any broker, finder or financial
advisor by the Guarantor or Lessee to act on its behalf in
connection with the Operative Documents, or the authorization
of any broker or financial adviser retained or employed by the
Guarantor or the Lessee so to act, or the incurring of any
fees or commissions by the Lessee or the Guarantor to which
the Indemnitees might be subjected by virtue of their entering
into the transactions contemplated by the Operative Documents;
(g) the existence of any Lien on or with respect to the
Properties, any Basic Rent or Supplemental Rent, title
thereto, or any interest therein, including any Liens which
arise out of the possession, use, occupancy, construction,
repair or rebuilding of any of the Properties or by reason of
labor or materials furnished or claimed to have been furnished
to the Lessee, or any of its contractors or agents or by
reason of the financing of any personalty or equipment
purchased or leased by the Lessee or Modifications constructed
by the Lessee, except in all cases Permitted Liens;
(h) any act or omission by the Construction Agent under the
Construction Agency Agreement, and any breach of any
requirement, condition, restriction or limitation in any Deed
or other Operative Document; or
(i) any easement, license, right-of-way, covenant, restriction or
other document or agreement entered into by Issuer at the
request of Lessee;
<PAGE> 50
provided, however, neither the Guarantor nor the Lessee shall be required to
indemnify any Indemnitee under this Section 14.1 for any of the following: (1)
any Claim to the extent that such Claim resulted from the willful misconduct or
gross negligence of such Indemnitee, (2) any Claim to the extent resulting from
Lessor Liens which the Indemnitee is responsible for discharging under the
Operative Documents, (3) any Claim to the extent directly resulting from a
breach of an Operative Document or Applicable Law by such Indemnitee (except for
a breach by the Facility Lender that is arising out of or attributable to a
breach by the Lessee or Guarantor of any of its obligations under any of the
Operative Documents), and (4) any Claim related to the Properties to the extent
attributable to acts or events occurring after the Expiration Date unless an
Event of Default has occurred and is continuing and the Participants are
exercising remedies against the Lessee or the Properties in respect of the
Operative Documents (in which event all of the foregoing provisions of this
Section 14.1 shall remain in full force and effect). It is expressly understood
and agreed that the indemnity provided for herein shall survive the expiration
or termination of the Lease and the other Operative Documents and the payment by
Lessee and Guarantor of all amounts due thereunder for a period of three (3)
years (but shall continue in full force and effect following such date with
respect to any Claim asserted prior to such date), and shall be separate and
independent from any remedy under the Lease or any other Operative Document;
provided that, to the extent that any Claim arises after such three (3) year
period which was not asserted during such three (3) year period due to a failure
to discover such Claim or for any other reason, the indemnity provided for in
this Section 14.1 shall be revived upon the assertion of such Claim solely with
respect to such Claim.
SECTION 14.2. Environmental Indemnity. In addition to, and not in
derogation of, the indemnities contained in Section 14.1 and 14.4 the Guarantor
and the Lessee, jointly and severally, hereby indemnify, hold harmless and
defend each Indemnitee from and against any and all Claims, including, but not
limited to, all costs incurred in connection with any investigation or
monitoring of site conditions or any clean-up, remedial, removal or restoration
work by or at the direction of any Governmental Authority, related to the
Properties or the Lessee's use of the Properties, arising directly or
indirectly, in whole or in part, out of
(i) the presence on or under any Property of any
Hazardous Substances, or any releases or discharges of any
Hazardous Substances on, under, from or onto any Property or
any other Hazardous Condition with respect to any Property,
(ii) any Hazardous Activity, including, without
limitation, construction, carried on or undertaken on or off
any Property, and whether by the Lessee, or any predecessor in
title or any employees, Agent Bank, contractors or
subcontractors of the Lessee, or any predecessor in title, or
any other Persons, in connection with the handling, treatment,
removal, storage, decontamination, clean-up, transport or
disposal of any Hazardous Substances that at any time are
located or present on or under any Property or that at any
time migrate, flow, percolate, diffuse or in any way move onto
or under any Property,
(iii) loss of or damage to any property or the
environment (including, without limitation, clean-up costs,
response costs, remediation and removal costs, cost of
<PAGE> 51
corrective action, costs of financial assurance, fines and
penalties and natural resource damages), or death or injury to
any Person, and all expenses associated with the protection of
wildlife, aquatic species, vegetation, flora and fauna, and
any mitigative action required by or under Environmental Laws,
(iv) any Claim concerning lack of compliance with
Environmental Laws with respect to the Properties, or any act
or omission causing an environmental condition with respect to
the Properties that requires remediation or would allow any
governmental agency to record a lien or encumbrance on the
land records with respect to the Properties,
(v) any residual contamination on or under any
Property, including any such contamination affecting any
natural resources, and to any such contamination of any
property or natural resources arising in connection with the
generation, use, handling, storage, transport or disposal of
any Hazardous Substances associated with such Property and
related to the residual contamination, the obligation
existing, irrespective of whether any of such activities were
or will be undertaken in accordance with applicable laws,
regulations, codes and ordinances,
(vi) in any case with respect to the matters
described in the foregoing clauses (i) through (v) that arise
or occur
(w) during the Term,
(x) at any time during which the Lessee or
any Affiliate thereof owns any interest in or
otherwise occupies, controls or possesses the
relevant Property or any portion thereof, or
(y) during any period after and during the
continuance of any Event of Default, or
(vii) a breach of the representations and warranties
of the Guarantor and the Lessee provided herein;
provided, however, that neither the Guarantor nor the Lessee shall be required
to indemnify any Indemnitee under this Section 14.2 for any of the following:
(1) any Claim to the extent that such Claim resulted from the willful misconduct
or gross negligence of such Indemnitee, (2) any Claim to the extent proximately
caused by any action on the part of such Indemnitee or, to the extent such Claim
relates to or is attributable to, events occurring after the Term where such
Indemnitee is in control of the Property or Properties, inaction on the part of
such Indemnitee, and (3) any Claim related to the Properties to the extent
attributable to acts or events occurring before or after the Term unless, in the
case of Claims attributable to acts or events occurring after the Term, an Event
of Default has occurred and is continuing and the Participants are exercising
remedies against the Lessee or the Properties under the Operative Documents (in
which event all of the foregoing provisions of this Section 14.2 shall remain in
full force and effect), or the Claim arises out of a
<PAGE> 52
breach of the representations and warranties of the Guarantor or Lessee
contained herein. It is expressly understood and agreed that the indemnity
provided for herein shall survive the expiration or termination of the Lease and
the other Operative Documents and the payment by Lessee and Guarantor of all
amounts due thereunder for a period of three (3) years (but shall continue in
full force and effect following such date with respect to any Claim asserted
prior to such date) and shall be separate and independent from any remedy under
the Lease or any other Operative Document; provided that, to the extent that any
Claim arises after such three (3) year period which was not asserted during such
three (3) period due to a failure to discover such Claim or for any other
reason, the indemnity provided for in this Section 14.2 shall be revived upon
the assertion of such Claim solely with respect to such Claim.
SECTION 14.3. Proceedings in Respect of Claims. With respect to any
amount that the Guarantor or the Lessee is requested by an Indemnitee to pay by
reason of Section 14.1 or 14.2, such Indemnitee shall, if so requested by the
Guarantor or the Lessee and prior to any payment, submit such additional
information to the Guarantor or the Lessee as the Guarantor or the Lessee may
reasonably request and which is in the possession of such Indemnitee to
substantiate properly the requested payment. In case any action, suit or
proceeding shall be brought against any Indemnitee, such Indemnitee shall notify
the Guarantor or the Lessee of the commencement thereof, and the Guarantor or
the Lessee shall be entitled, at its expense, to participate in, and, to the
extent that the Guarantor or the Lessee desires to, assume and control the
defense thereof; provided, however, that the Guarantor or the Lessee shall have
acknowledged in writing its obligation to fully indemnify such Indemnitee in
respect of such action, suit or proceeding and the Guarantor or the Lessee shall
keep such Indemnitee fully apprised of the status of such action, suit or
proceeding and shall provide such Indemnitee with all information with respect
to such action suit or proceeding as such Indemnitee shall reasonably request,
and, provided further, that the Guarantor or the Lessee shall not be entitled to
assume and control the defense of any such action, suit or proceeding if and to
the extent that, (A) in the reasonable opinion of such Indemnitee, (x) such
action, suit or proceeding involves any possibility of imposition of criminal
liability or any material risk of material civil liability on such Indemnitee or
will involve a material risk of the sale, forfeiture or loss of, or the creation
of any Lien (other than a Permitted Lien) on the Properties or any part thereof
unless the Guarantor or the Lessee shall have posted a bond or other security
satisfactory to the relevant Indemnitees in respect to such risk or (y) the
control of such action, suit or proceeding would involve an actual or potential
conflict of interest (in which case each Indemnitee may retain separate counsel
at the expense of Lessee and Guarantor), (B) such proceeding involves Claims not
fully indemnified by the Guarantor or the Lessee which the Guarantor or the
Lessee and the Indemnitee have been unable to sever from the indemnified
claim(s), or (C) an Event of Default has occurred and is continuing. The
Indemnitee may participate in a reasonable manner at its own expense and with
its own counsel in any proceeding conducted by the Guarantor or the Lessee in
accordance with the foregoing. Neither the Guarantor nor the Lessee shall enter
into any settlement or other compromise with respect to any Claim which is
entitled to be indemnified under Section 14.1 or 14.2 without the prior written
consent of the related Indemnitee, which consent shall not be unreasonably
withheld.
No Indemnitee shall enter into any settlement or other compromise with
respect to any Claim which is entitled to be indemnified under Section 14.1 or
14.2 without the prior written
<PAGE> 53
consent of the Lessee, which consent shall not be unreasonably withheld, unless
such Indemnitee waives its right to be indemnified under Section 14.1 or 14.2
with respect to such Claim.
Upon payment in full of any Claim by the Guarantor or the Lessee
pursuant to Section 14.1 or 14.2 to or on behalf of an Indemnitee, the Guarantor
or the Lessee, as the case may be, without any further action, shall be
subrogated to any and all claims that such Indemnitee may have relating thereto
(other than claims in respect of insurance policies maintained by such
Indemnitee at its own expense) to the extent of such payment, and such
Indemnitee shall execute such instruments of assignment and conveyance, evidence
of claims and payment and such other documents, instruments and agreements as
may be reasonably necessary to preserve any such claims and otherwise cooperate
with the Guarantor and the Lessee and give such further assurances as are
reasonably necessary or advisable to enable the Guarantor or the Lessee
vigorously to pursue such claims.
Any amount payable to an Indemnitee pursuant to Section 14.1 or 14.2
shall be paid to such Indemnitee promptly upon receipt of a written demand
therefor from such Indemnitee, accompanied by a written statement describing in
reasonable detail the basis for such indemnity and the computation of the amount
so payable.
SECTION 14.4. End of Term Indemnity. In addition to the indemnities
provided in Sections 14.1 and 14.2, if the Lessee elects the Remarketing Option
set forth at Section 22.1 of the Lease with respect to the Properties (which
shall, for purposes of this Section 14.4, include all Improvements thereon being
constructed pursuant to the Construction Agency Agreement and for which the
Completion Date has not occurred) subject to the Lease and there is a Shortfall
Amount with respect to such Properties, then prior to the Expiration Date and as
a condition to Lessee's right to complete the Remarketing of such Property
pursuant to Section 22.1 of the Lease, Lessee shall cause to be delivered to
Lessor no later than the Expiration Date, at Lessee's sole cost and expense, a
report from an Appraiser in form and substance reasonably satisfactory to the
Required Lenders and the Lessor (the "End of the Term Report") to establish the
reason for any impairment to the value of any of such Property which was sold
for an amount less than the Property Balance for such Property. On the
Expiration Date, the Lessee shall pay to Lessor an amount equal to the Shortfall
Amount that the End of the Term Report demonstrates was the result of an
impairment to the value in such Property due to:
(a) extraordinary use, failure to maintain, to repair, to restore,
to rebuild or to replace, failure to comply with all
Requirements Laws, failure to use quality workmanship, method
of installation or removal or maintenance, repair, rebuilding
or replacement, (excepting in each case ordinary wear and
tear), or
(b) the existence of any Hazardous Activity, Hazardous Substance
or Environmental Violations occurring or discovered after the
Property Closing Date for such Property (regardless of the
Person so discovering any of the foregoing), or
(c) any restoration or rebuilding carried out by the Lessee or any
failure to reach Completion Date or to complete any
Modification, restoration or rebuilding, in
<PAGE> 54
either case, by the Expiration Date,
(d) any grant, release, dedication, transfer, annexation or
amendment made pursuant to Section 12.2 of the Lease or any
release of a portion of the Property made pursuant to Section
12.3 of the Lease; or
(e) the failure of the Lessor to have good and marketable title to
such Property free and clear of all Liens (including Permitted
Liens (other than Lessor Liens and Agent's Liens)) and
exceptions to title.
SECTION 14.5. General Tax Indemnity. (a) Indemnification. Guarantor and
Lessee, jointly and severally, shall pay and assume liability for, and do hereby
agree to indemnify, protect and defend each Property and all Tax Indemnitees,
and hold them harmless against, all Impositions on an After Tax Basis.
(b) Contests. If any claim shall be made against any Tax
Indemnitee or if any proceeding shall be commenced against any Tax Indemnitee
(including a written notice of such proceeding) for any Imposition as to which
the Lessee may have an indemnity obligation pursuant to Section 14.5(a), or if
any Tax Indemnitee shall determine that any Imposition as to which the Lessee
may have an indemnity obligation pursuant to Section 14.5(a) may be payable,
such Tax Indemnitee shall promptly notify Lessee in writing and shall not take
any action with respect to such claim, proceeding or Imposition without the
written consent of Lessee (such consent not to be unreasonably withheld or
unreasonably delayed) for thirty (30) days after the receipt of such notice by
Lessee; provided, however, that in the case of any such claim or proceeding, if
such Tax Indemnitee shall be required by law or regulation to take action prior
to the end of such thirty (30)-day period, such Tax Indemnitee shall in such
notice to Lessee, so inform Lessee, and such Tax Indemnitee shall not take any
action with respect to such claim, proceeding or Imposition without the consent
of Lessee (such consent not to be unreasonably withheld or unreasonably delayed)
for ten (10) days after the receipt of such notice by Lessee unless the Tax
Indemnitee shall be required by law or regulation to take action prior to the
end of such ten (10)-day period.
Lessee shall be entitled for a period of thirty (30) days from receipt
of such notice from the Tax Indemnitee (or such shorter period as the Tax
Indemnitee has notified Lessee is required by law or regulation for the Tax
Indemnitee to commence such contest) to request in writing that such Tax
Indemnitee contest the imposition of such Tax, at Guarantor's and Lessee's joint
and several expense and the Tax Indemnitee shall, at the joint and several
expense of Guarantor and Lessee, in good faith conduct and control such contest
(including, without limitation, by pursuit of appeals) related to the validity,
applicability or amount of such Impositions (provided, however, that (A) if such
contest involves a tax other than a tax on net income and can be pursued
independently from any other proceeding involving a tax liability of such Tax
Indemnitee, the Tax Indemnitee, at Lessee's request, shall allow Guarantor or
Lessee to conduct and control such contest and (B) in the case of any contest,
the Tax Indemnitee may request Guarantor or Lessee to conduct and control such
contest) by, in the sole discretion of the Person conducting and controlling
such contest, (l) resisting payment thereof, (2) not paying the same except
under protest, if protest is necessary and proper, (3) if the payment be made,
using reasonable efforts to obtain a refund
<PAGE> 55
thereof in appropriate administrative and judicial proceedings, or (4) taking
such other action as is reasonably requested by Guarantor or Lessee from time to
time.
The party controlling any contest shall consult in good faith with the
non-controlling party and shall keep the noncontrolling party reasonably
informed as to the conduct of such contest; provided that, all decisions
ultimately shall be made in the sole discretion of the controlling party. The
parties agree that a Tax Indemnitee may at any time decline to take further
action with respect to the contest of any Imposition and may settle such contest
if such Tax Indemnitee shall waive its rights to any indemnity from Lessee that
otherwise would be payable in respect of such claim (and any future claim by any
taxing authority, the contest of which is precluded by reason of such resolution
of such claim) and shall pay to Lessee any amount previously paid or advanced by
Lessee pursuant to this Section 14.5 by way of indemnification or advance for
the payment of an Imposition other than expenses of such contest.
Notwithstanding the foregoing provisions of this Section 14.5, a Tax
Indemnitee shall not be required to take any action and neither Guarantor nor
Lessee shall be permitted to contest any Impositions in its own name or that of
the Tax Indemnitee unless (A) Lessee shall have agreed to pay and shall pay to
such Tax Indemnitee on demand and on an After Tax Basis all reasonable costs,
losses and expenses that such Tax Indemnitee actually incurs in connection with
contesting such Impositions, including, without limitation, all reasonable
legal, accounting and investigatory fees and disbursements, (B) Tax Indemnitee
shall have reasonably determined that the action to be taken will not result in
any material danger of sale, forfeiture or loss of any Property, or any part
thereof or interest therein, will not interfere with the payment of Rent, and
will not result in risk of criminal liability, (C) if such contest shall involve
the payment of the Imposition prior to the contest, Lessee shall provide to the
Tax Indemnitee an interest-free advance in an amount equal to the Imposition
that the Tax Indemnitee is required to pay (with no additional net after-tax
cost to such Tax Indemnitee), (D) in the case of a claim that must be pursued in
the name of a Tax Indemnitee (or an Affiliate thereof), Lessee shall have
provided to such Tax Indemnitee an opinion of independent tax counsel selected
by the Lessee and reasonably satisfactory to Tax Indemnitee stating that a
reasonable basis exists to contest such claim (or, in the case of an appeal of
an adverse determination, an opinion of such counsel to the effect that the
position asserted in such appeal will more likely than not prevail) and (E) no
Event of Default hereunder shall have occurred and be continuing.
Each Tax Indemnitee shall at Lessee's expense supply Lessee with such
information and documents reasonably requested by Lessee as are in such Tax
Indemnitee's possession and as are necessary or advisable for Lessee to
participate in any action, suit or proceeding to the extent permitted by this
Section 14.5(b); provided that, such Tax Indemnitee shall not be required to
disclose its tax return to Lessee to the extent that the information deemed
necessary or desirable by Lessee contained therein is otherwise made available
to the Lessee in a form which will not hinder Lessee's contest of such action,
suit or proceeding.
Notwithstanding anything contained herein to the contrary, a Tax
Indemnitee will not be required to contest a claim with respect to the
imposition of any Tax if such Tax Indemnitee shall waive its right to
indemnification under this Section 14.5 with respect to such claim and any
related
<PAGE> 56
claim with respect to other taxable years the contest of which is precluded or
otherwise materially adversely affected as a result of such waiver.
(c) Reimbursement for Tax Savings. If (x) a Tax Indemnitee
shall obtain a credit or refund of any Taxes paid by Lessee pursuant to this
Section 14.5 or (y) by reason of the incurrence or imposition of any Tax for
which a Tax Indemnitee is indemnified hereunder or any payment made to or for
the account of such Tax Indemnitee by Lessee pursuant to this Section 14.5 or
any payment made by a Tax Indemnitee to Lessee by reason of this Section
14.5(c), such Tax Indemnitee at any time actually realizes a reduction in any
Taxes for which Lessee is not required to indemnify such Tax Indemnitee pursuant
to this Section 14.5 which reduction in Taxes was not taken into account in
computing such payment by Lessee to or for the account of such Tax Indemnitee or
by the Tax Indemnitee to Lessee, then such Tax Indemnitee shall promptly pay to
Lessee on an After Tax Basis (xx) the amount of such credit or refund, together
with the amount of any interest received by such Tax Indemnitee on account of
such credit or refund or (yy) an amount equal to such reduction in Taxes, as the
case may be; provided that no such payment shall be made so long as an Event of
Default shall have occurred and be continuing but shall be paid promptly after
cure of such Event of Default. Each Tax Indemnitee agrees to take such actions
as Lessee may reasonably request (provided in the good faith judgment of the Tax
Indemnitee, such actions would not result in any adverse effect on the Tax
Indemnitee for which the Tax Indemnitee is not entitled to indemnification from
Lessee) and to otherwise act in good faith to claim such refunds and other
available Tax benefits, and take such other actions as may be reasonable to
minimize any payment due from Lessee pursuant to this Section 14.5. The
disallowance or reduction of any credit, refund or other tax savings with
respect to which a Tax Indemnitee has made a payment to Lessee under this
Section 14.5(c) shall be treated as a Tax for which Lessee is obligated to
indemnify such Tax Indemnitee hereunder without regard to the exclusions set
forth in the definition of Impositions.
(d) Payments. Any Imposition indemnifiable under this Section
14.5 shall be paid directly when due to the applicable taxing authority if
direct payment is practicable and permitted. If direct payment to the applicable
taxing authority is not permitted or is otherwise not made, any amount payable
to a Tax Indemnitee pursuant to this Section 14.5 shall be paid within thirty
(30) days after receipt of a written demand therefor from such Tax Indemnitee
accompanied by a written statement describing in reasonable detail the amount so
payable, but not before two (2) Business Days prior to the date that the
relevant Taxes are due. Any payments made pursuant to Section 14.5 shall be made
in immediately available funds at such bank or to such account as specified by
the payee in written directions to the payor, or, if no such direction shall
have been given, by check of the payor payable to the order of the payee by
certified mail, postage prepaid at its address as set forth in this
Participation Agreement. Upon the request of any Tax Indemnitee with respect to
a Tax that Lessee is required to pay, Lessee shall furnish to such Tax
Indemnitee the original or a certified copy of a receipt for Lessee's payment of
such Tax or such other evidence of payment as is reasonably acceptable to such
Tax Indemnitee.
(e) Reports. In the case of any report, return or statement
required to be filed with respect to any Taxes that are subject to
indemnification under this Section 14.5, Lessee shall promptly notify the Tax
Indemnitee of such requirement and, at Lessee's expense (i) if Lessee is
<PAGE> 57
permitted (unless otherwise requested by the Tax Indemnitee) by Applicable Law,
timely file such report, return or statement in its own name or (ii) if such
report, return or statement is required to be in the name of or filed by such
Tax Indemnitee or the Tax Indemnitee otherwise requests that such report, return
or statement be prepared for filing by such Tax Indemnitee, prepare such report,
return or statement in such manner as shall be satisfactory to such Tax
Indemnitee and send the same to the Tax Indemnitee for filing no later than
fifteen (15) days prior to the due date therefor. In any case in which the Tax
Indemnitee will file any such report, return or statement, Lessee shall, upon
written request of such Tax Indemnitee, provide such Tax Indemnitee with such
information as is reasonably necessary to allow the Tax Indemnitee to file such
report, return or statement.
(f) Verification. At Lessee's request, the amount of any
indemnity payment by Lessee or any payment by a Tax Indemnitee to Lessee
pursuant to this Section 14.5 shall be verified and certified by an independent
public accounting firm mutually acceptable to Lessee and the Tax Indemnitee. The
costs of such verification shall be borne by Lessee unless such verification
shall result in an adjustment in Lessee's favor of ten percent (10%) of the
payment as computed by the Tax Indemnitee, in which case such fee shall be paid
by the Tax Indemnitee. In no event shall Lessee have the right to review the Tax
Indemnitee's tax returns or receive any other confidential information from the
Tax Indemnitee in connection with such verification. Any information provided to
such accountants by any Person shall be and remain the exclusive property of
such Person and shall be deemed by the parties to be (and the accountants will
confirm in writing that they will treat such information as) the private,
proprietary and confidential property of such Person, and no Person other than
such Person and the accountants shall be entitled thereto and all such materials
shall be returned to such Person. Such accounting firm shall be requested to
make its determination within thirty (30) days of Lessee's request for
verifications and the computations of the accounting firm shall be final,
binding and conclusive upon Lessee and the Tax Indemnitee. The parties agree
that the sole responsibility of the independent public accounting firm shall be
to verify the amount of a payment pursuant to this Participation Agreement and
that matters of interpretation of this Participation Agreement are not within
the scope of the independent accounting firm's responsibilities.
SECTION 14.6. Completion Guaranty. To the extent that the Advances made
pursuant to this Agreement are not sufficient to complete the construction of
any Improvements on any Property in accordance with the Plans and Specification
therefor, the Guarantor and the Lessee hereby agree, jointly and severally, to
pay all costs necessary to complete such Improvements substantially in
accordance with such Plans and Specifications, with the Construction Agent to
use its commercially reasonable efforts to cause such Improvement to be
completed by the Expiration Date.
SECTION 15.
MISCELLANEOUS
SECTION 15.1. Survival of Agreements. The representations, warranties,
covenants, indemnities and agreements of the parties provided for in the
Operative Documents, and the parties'
<PAGE> 58
obligations under any and all thereof, shall survive the execution and delivery
of this Participation Agreement, the transfer of any Property to the Lessor, the
construction of any Improvements, any disposition of any interest of the Lessor
in any Property or any Improvements, the payment of the Notes and any
disposition thereof shall be and continue in effect notwithstanding any
investigation made by any party and the fact that any party may waive compliance
with any of the other terms, provisions or conditions of any of the Operative
Documents. Except as expressly provided herein, it is expressly understood and
agreed that each of the indemnities provided for herein shall survive the
expiration or termination of the Lease and the other Operative Documents and the
payment by Lessee and Guarantor of all amounts due thereunder for a period of
three (3) years (but shall continue in full force and effect following such date
with respect to any Claim asserted prior to such date) and shall be separate and
independent from any remedy under the Lease or any other Operative Document;
provided that, to the extent that any Claim arises after such three (3) year
period which was not asserted during such three (3) period due to a failure to
discover such Claim or for any other reason, such indemnity shall be revived
upon the assertion of such Claim solely with respect to such Claim.
SECTION 15.2. No Broker; etc. Each of the parties hereto represents to
the others that it has not retained or employed any broker, finder or financial
adviser, other than CS First Boston, to act on its behalf in connection with
this Participation Agreement or the transactions contemplated herein, nor has it
authorized any broker, finder or financial adviser retained or employed by any
other Person so to act. Any party who is in breach of this representation shall
indemnify and hold the other parties harmless from and against any liability
arising out of such breach of this representation.
SECTION 15.3. Notices. Unless otherwise specifically provided herein,
all notices, consents, directions, approvals, instructions, requests and other
communications required or permitted by the terms hereof to be given to any
Person shall be given in writing by United States mail, by nationally recognized
courier service, by hand or by facsimile communication and any such notice shall
become effective five (5) Business Days after being deposited in the mails,
certified or registered with appropriate postage prepaid or one (1) Business Day
after delivery to a nationally recognized courier service specifying overnight
delivery or, if delivered by hand, when received, or, if sent by facsimile
communication, when confirmed by electronic or other means during business hours
on a Business Day (or, if confirmed after business hours or on a non-Business
Day, on the next Business Day) and shall be directed to the address of such
Person as indicated:
If to Guarantor, to it at:
The Home Depot, Inc.
2455 Paces Ferry Road
Atlanta, Georgia 30339
Attn: Treasurer
Telephone No.: (770) 384-4522
Telecopy No.: (770) 384-5735
<PAGE> 59
with a copy to:
L.A. Smith
Vice President/Legal
Telephone No.: (770) 431-2737
Telecopy No.: (770) 431-2752
If to Lessee, to it at:
Home Depot U.S.A., Inc.
2455 Paces Ferry Road
Atlanta, Georgia 30339
Attn: Treasurer
Telephone No.: (770) 384-4522
Telecopy No.: (770) 384-5735
with a copy to:
L.A. Smith
Vice President/Legal
Telephone No.: (770) 431-2737
Telecopy No.: (770) 431-2752
If to the Lessor, to it at:
12 East 49th Street
New York, New York 10017
Attn: Director
Telecopy No.: (212) 238-5331
Telephone No.: (212) 238-5323
If to the Agent Bank, to it at:
Tower 49
12 East 49th Street
New York, New York 10017
Attn: Agency Administration
<PAGE> 60
Telecopy No.: (212) 238-2586
Telephone No.: (212) 238-5073
If to a Lender, to it at the address set forth in Schedule 1.
If to Facility Lender, to it at:
HD Real Estate Funding Corp.
c/o JH Management Corporation
Room 520
One International Place
Boston, Massachusetts 02110
Attn: R. Douglas Donaldson
Telecopy No.: (617) 951-7050
Telephone No.: (617) 951-7690
If to Moody's or S&P, to it at the addresses set forth in the Liquidity
Agreement.
From time to time any party may designate a new address for purposes of
notice hereunder by notice to each of the other parties hereto. The Lessee shall
receive a copy of each notice delivered pursuant to the Operative Documents and
Lessee hereby agrees to notify promptly Moody's and S&P of any termination of
the Lease or determination to cease issuing Commercial Paper Notes pursuant to
the terms of the Operative Documents.
SECTION 15.4. Counterparts. This Participation Agreement may be
executed by the parties hereto in separate counterparts, each of which when so
executed and delivered shall be an original, but all such counterparts shall
together constitute but one and the same agreement.
SECTION 15.5. Amendments. No Operative Document nor any of the terms
thereof may be terminated, amended, supplemented, waived or modified with
respect to Guarantor, Lessee, the Lessor, the Facility Lender, the Agent Bank or
any Lender, except (a) in the case of a termination, amendment, supplement,
waiver or modification to be binding on Guarantor, Lessee, the Lessor, the
Facility Lender, or the Agent Bank with the written agreement or consent of such
party, and (b) in the case of a termination, amendment, supplement, waiver or
modification to be binding on the Lenders, with the written agreement or consent
of the Required Lenders; provided, however, that
(1) no such termination, amendment, supplement, waiver or
modification shall without written agreement or consent of each Participant
(other than Facility Lender):
(x)(i) modify any of the provisions of this Section 15.5,
change the definition of "Required Lenders" or modify any provision of
an Operative Document requiring action by
<PAGE> 61
the Required Lenders; (ii) amend, modify, waive or supplement any of
the provisions of Sections 2.01, 4.06, 10.03 or Article VI of the
Liquidity Agreement or the representations of such Participant in
Section 9 or the covenants in Section 11 of this Participation
Agreement; (iii) reduce, modify, amend or waive any fees or indemnities
in favor of any Participant, including without limitation amounts
payable pursuant to Section 14 ((except that any Person (other than the
Facility Lender) may consent to any reduction, modification, amendment
or waiver of any indemnity payable to it)); (iv) modify, postpone,
reduce or forgive, in whole or in part, any payment of Rent (other than
pursuant to the terms of any Operative Document), any Loan or Lessor
Investment Amount, the Lease Balance, Residual Value Guarantee, amounts
due pursuant to Section 22.2 of the Lease, interest or Certificate
Earnings or, subject to clause (iii) above, any other amount payable
under any Lease or this Participation Agreement, or modify the
definition or method of calculation of Rent (other than pursuant to the
terms of any Operative Document), any Loan or Lessor Investment Amount,
Lease Balance, Shortfall Amount, Residual Value Guarantee, Maximum
Property Costs, or any other definition which would affect the amounts
to be advanced or which are payable under the Operative Documents or
any of the other matters set forth above; or
(y) consent to any assignment of the Lease or the Guaranty,
releasing Lessee from its obligations in respect of the payments of
Rent and the Lease Balance or changing the absolute and unconditional
character of such obligation or releasing the Guarantor from its
obligations in respect of the payments under the Guaranty or changing
the absolute and unconditional character of such obligation (with the
express understanding that any termination, amendment, supplement,
modification or waiver of the Guaranty or any provision thereof is
subject to the prior approval and confirmation of Moody's and S&P as
set forth therein); and
(2) no other termination, amendment, supplement, waiver or
modification shall, without the written agreement or consent of the Lessor and
the Required Lenders, be made to Sections 5 or 7 of this Participation Agreement
or the definition of "Lease Event of Default".
Notwithstanding the foregoing, no termination, amendment, supplement, waiver or
modification to Sections 5 or 6 of this Participation Agreement, any provision
of the Operative Documents described in clause (b)(1)(x)(iv) above (with the
express understanding that any amendment, supplement, modification, waiver or
termination of any provision of the Operative Documents affecting the
sufficiency or timely availability of payments of Rent or other amounts due
under the Lease or the Construction Agency Agreement to repay Commercial Paper
Notes in full as and when maturing is subject to the confirmation of Moody's and
S&P described in this paragraph) or any provision of the Liquidity Agreement, or
any provision of the other Operative Documents governing the obligation of the
Lenders to fund Residual Loans thereunder shall be effective unless, as a
condition precedent thereto, the Guarantor and the Lessee shall have provided
written confirmation from each of Moody's and S&P that immediately after giving
effect to such modification, waiver or termination, the Commercial Paper Notes
shall not be rated lower than such Commercial Paper Notes are rated immediately
prior to giving effect thereto and such modification, waiver or termination
shall not result in a downgrade, withdrawal or qualification or the rating
<PAGE> 62
assigned to the Commercial Paper Notes by Moody's and S&P.l have received notice
thereof and shall have agreed that such action shall not result in a downgrade
of the rating of the Commercial Paper Notes.
SECTION 15.6. Usury. It is the intent of the parties hereto not to
violate any federal or state law, rule or regulation pertaining either to usury
or to the contracting for or charging or collecting of interest, and each of the
parties hereto agree that, should any provision of this Participation Agreement
or of any of the Operative Documents, or any act performed hereunder or
thereunder, violate any such law, rule or regulation, then the excess of
interest contracted for or charged or collected over the maximum lawful rate of
interest shall be applied to the outstanding principal indebtedness due to the
Participants under the applicable Operative Document.
SECTION 15.7. Confidentiality. Each Participant agrees to exercise
commercially reasonable efforts to keep any information delivered or made
available by the Guarantor or Lessee to it which is clearly indicated or stated
to be confidential information (or when the circumstances under which such
information is delivered or when the content thereof would cause a reasonable
person to believe that such information is confidential), confidential from
anyone other than persons employed or retained by such Participant who are or
are expected to become engaged in evaluating, approving, structuring or
administering any of the Operative Documents (such Persons to likewise be under
similar obligations of confidentiality with respect to such information);
provided, however that nothing herein shall prevent any Participant from
disclosing such information (i) to any other Participant, (ii) upon the order of
any court or administrative agency, (iii) upon the request or demand of any
regulatory agency or authority having jurisdiction over such Participant, (iv)
which has been publicly disclosed, (v) to the extent reasonably required in
connection with any litigation to which any Participant or its Affiliates may be
a party, (vi) to the extent reasonably required in connection with the exercise
of any remedy hereunder or under any other Operative Document, (vii) to such
Participant's legal counsel, independent auditors and to such Participant's
Affiliates, and (viii) to any actual or proposed Participant, assignee or other
transferee of all or part of its rights hereunder which has agreed in writing to
be bound by the provisions of this Section 15.7; provided, that, should
disclosure of any such confidential information be required by virtue of clause
(ii) or (v) of the immediately preceding provisos, any relevant Participant
shall notify Lessee and Guarantor of the same so as to allow the Lessee or
Guarantor, at Lessee's or Guarantor's sole cost and expense, to seek a
protective order or to take any other appropriate action; provided, further,
that, no Participant shall be required to delay compliance with any directive to
disclose beyond the last date such delay is legally permissible any such
information so as to allow the Lessee or Guarantor to effect any such action.
SECTION 15.8. Headings; etc. The Table of Contents and headings of the
various Articles and Sections of this Participation Agreement are for
convenience of reference only and shall not modify, define, expand or limit any
of the terms or provisions hereof.
SECTION 15.9. Parties in Interest. Except as expressly provided herein,
none of the provisions of this Participation Agreement are intended for the
benefit of any Person except the parties hereto.
<PAGE> 63
SECTION 15.10. GOVERNING LAW. THIS PARTICIPATION AGREEMENT SHALL IN ALL
RESPECTS BE GOVERNED BY THE LAWS OF THE STATE OF GEORGIA (EXCLUDING ANY OTHER
CONFLICT-OF-LAW OR CHOICE-OF-LAW RULES WHICH MIGHT LEAD TO THE APPLICATION OF
THE INTERNAL LAWS OF ANY OTHER JURISDICTION) AS TO ALL MATTERS OF CONSTRUCTION,
VALIDITY AND PERFORMANCE.
SECTION 15.11. Severability. Any provision of this Participation
Agreement that is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
SECTION 15.12. Further Assurances. The parties hereto shall promptly
cause to be taken, executed, acknowledged or delivered, at the sole, joint and
several expense of Guarantor and the Lessee, all such further acts, conveyances,
documents and assurances as the other parties may from time to time reasonably
request in order to carry out and effectuate the intent and purposes of this
Participation Agreement, the other Operative Documents, and the transactions
contemplated hereby and thereby (including, without limitation, the preparation,
execution and filing of any and all Uniform Commercial Code financing statements
and other filings or registrations which the parties hereto may from time to
time request to be filed or effected). Lessee will, at its own expense and
without need of any prior request from any other party, to take such action as
may be necessary (including any action specified in the preceding sentence), or
(if the Lessor or Agent Bank shall so request) as so requested, in order to
maintain and protect all security interests provided for hereunder or under any
other Operative Document.
SECTION 15.13. WAIVER OF JURY TRIAL. TO THE EXTENT PERMITTED BY
APPLICABLE LAW, EACH OF THE PARTIES HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT
TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THE
OPERATIVE DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY.
SECTION 15.14. Limitations on Recourse Against Lessor. Notwithstanding
anything contained in this Participation Agreement or any other Operative
Documents to the contrary, each of the parties hereto agrees to look solely to
Lessor's (or to any partner thereof's) estate and interest in the Properties and
the Improvements thereon and rights under the Operative Documents for the
collection of any judgment requiring the payment of money by Lessor in the event
of liability by Lessor, and no other property or assets of Lessor or any
shareholder, owner or partner (direct or indirect) in or of Lessor, or any
director, officer, employee, beneficiary, Affiliate of any of the foregoing
shall be subject to levy, execution or other enforcement procedure for the
satisfaction of the remedies of any party hereto against Lessor under or with
respect to the Operative Documents, the relationship of Lessor and any other
party hereto hereunder or any other liability of Lessor to any other party
hereto under the Operative Documents; provided that, nothing herein shall limit
recourse against the Lessor or its partners for the gross negligence or willful
misconduct of such Persons or claims proximately caused by Lessor's breach of
its obligations pursuant to Sections 9.1,
<PAGE> 64
11.2 (solely with respect to the first sentence thereof), 11.3, 11.4, 11.6(a),
(g), (h) or 11.7 of this Participation Agreement; provided further, that the
foregoing proviso is intended to allow a claim for damages against Lessor but
shall not be construed as creating a full recourse obligation on the part of
Lessor (or any partner thereof) to repay any of the Loans or any amounts
relating to the Loans arising under the Loan Agreement and the Notes.
SECTION 15.15. Limitation on Recourse Against Facility Lender. The
provisions of Section 3.11 of the Liquidity Agreement are hereby incorporated
herein by this reference and made a part hereof and of each of the Operative
Documents and each party hereto agrees to be bound by the limitations set forth
therein.
<PAGE> 65
[PARTICIPATION AGREEMENT]
IN WITNESS WHEREOF, the parties hereto have caused this Participation
Agreement to be duly executed by their respective officers thereunto duly
authorized as of the day and year first above written.
THE HOME DEPOT, INC., as Guarantor
By: /s/ Marshall L. Day
--------------------------------
Marshall L. Day
Senior Vice President and
Chief Financial Officer
Attest: /s/ Lawrence A. Smith
----------------------------
Lawrence A. Smith
Assistant Secretary
[CORPORATE SEAL]
<PAGE> 66
HOME DEPOT U.S.A., INC., as Lessee and
Construction Agent
By: /s/ Marshall L. Day
------------------------------------
Marshall L. Day
Senior Vice President and
Chief Financial Officer
Attest: /s/ Lawrence A. Smith
--------------------------------
Lawrence A. Smith
Assistant Secretary
[CORPORATE SEAL]
<PAGE> 67
HD REAL ESTATE FUNDING CORPORATION, as
Facility Lender
By: /s/ R. Douglas Donaldson
------------------------------------
Name: R. Douglas Donaldson
Title: Treasurer
CREDIT SUISSE LEASING 92A, L.P., a
Delaware limited partnership, as Lessor
By: CREDIT SUISSE, its general partner
By: /s/ Carl Weatherley-White
-----------------------------------
Name: Carl Weatherly-White
Title: Associate
By: /s/ Conrad A. Meyer
-----------------------------------
Name: Conrad A. Meyer
Title: Associate
CREDIT SUISSE, as Agent Bank
By: /s/ Heather Rietenberg
------------------------------------
Name: Heather Rietenberg
Title: Member of Senior Management
By: /s/ Ira Lubinsky
--------------------------------------
Name: Ira Lubinsky
Title: Associate
<PAGE> 68
CREDIT SUISSE,
as Agent Bank
By:/s/ Carl Weatherley-White
------------------------------------
Name: Carl Weatherley-White
Title: Associate
By:/s/ Conrad A. Meyer
------------------------------------
Name: Conrad A. Meyer
Title: Associate
CREDIT SUISSE,
as Lender
By:/s/ Carl Weatherley-White
------------------------------------
Name: Carl Weatherley-White
Title: Associate
By:/s/ Conrad A. Meyer
------------------------------------
Name: Conrad A. Meyer
Title: Associate
DEUTSCHE BANK AG, NEW YORK AND/OR
CAYMAN ISLANDS BRANCH,
as Documentation Agent
By:/s/ David H. Kahn
------------------------------------
Name: David H. Kahn
Title: Assistant Vice President
By: Hans-Josef Thiele
------------------------------------
Name: Hans-Josef Thiele
Title: Vice President
<PAGE> 69
NATIONSBANK, N.A. (SOUTH)
as Lender
By: /s/ Shawn B. Welsh
------------------------------------
Name: Shawn B. Welsh
Title: Vice President
SUNTRUST BANK, ATLANTA,
as Lender
By: /s/ J. Christopher Debley
------------------------------------
Name: J. Christopher Debley
Title: Vice President-Team Leader
By:/s/ Dennis H. James, Jr.
----------------------------------
Name: Dennis H. James, Jr.
Title: Assistant Vice President
TORONTO DOMINION (TEXAS), INC.,
as Lender
By:/s/ David G. Parker
------------------------------------
Name: David G. Parker
Title: Vice President
UNION BANK OF SWITZERLAND,
as Lender
By:/s/ Robert W. Casey, Jr.
------------------------------------
Name: Robert W. Casey, Jr.
Title: Managing Director
By: /s/ Hamilton W. Bullard
------------------------------------
Name: Hamilton W. Bullard
Title: Assistant Treasurer
<PAGE> 70
BANK OF AMERICA NT&SA,
as Lender
By: /s/ Michelle W. Kacergis
------------------------------------
Name: Michelle W. Kacergis
Title: Vice President
THE BANK OF NEW YORK,
as Lender
By:/s/ Paula M. Diponzio
------------------------------------
Name: Paula M. Diponzio
Title: Vice President
THE FIRST NATIONAL BANK OF CHICAGO,
as Lender
By:/s/ Paul E. Rigby
------------------------------------
Name: Paul E. Rigby
Title: Managing Director
FIRST UNION NATIONAL BANK OF GEORGIA,
as Lender
By:/s/ Mayla M. Thom
------------------------------------
Name: Mayla M .Thom
Title: Vice President
MORGAN GUARANTY TRUST CO. OF NEW YORK
as Lender
By:
------------------------------------
Name:
Title:
<PAGE> 71
WACHOVIA BANK OF GEORGIA
as Lender
By: /s/ John T. Seeds
------------------------------------
Name: John T. Seeds
Title: Senior Vice President
<PAGE> 1
FIRST AMENDMENT AND SUPPLEMENT TO THE PARTICIPATION AGREEMENT
FIRST AMENDMENT AND SUPPLEMENT TO THE PARTICIPATION AGREEMENT, dated
as of May 8, 1997 (this "Agreement"), among The Home Depot, Inc., as Guarantor
(the "Guarantor"), Home Depot U.S.A., Inc., as Lessee and Construction Agent
(the "Lessee"), HD Real Estate Funding Corp., as Facility Lender (the "Facility
Lender"), the lenders named on Schedule I hereto, as Lenders (the "Lenders"),
Credit Suisse First Boston, formerly known as Credit Suisse, as Agent Bank and
Lender (the "Agent Bank"), and Credit Suisse Leasing 92A L.P., as Lessor (the
"Lessor").
W I T N E S S E T H:
WHEREAS, the Guarantor, the Lessee, the Facility Lender, the lenders
named therein, the Agent Bank and the Lessor are parties to the Participation
Agreement dated as of June 25, 1996 (the "Original Participation Agreement" and
as amended hereby, the "Participation Agreement"), among the Guarantor, the
Lessee, the Facility Lender, the Agent Bank, the Lessor and the lenders named
therein (the "Existing Lenders");
WHEREAS, the Guarantor, the Lessee, the Facility Lender, the Existing
Lenders, the Agent Bank and the Lessor have agreed, subject to the terms and
conditions contained herein, to amend and supplement the Original Participation
Agreement and the lenders named on Schedule A hereto (the "New Lenders') have
agreed to become parties thereto and to be bound by the terms thereof:
NOW, THEREFORE, in consideration of the premises and the covenants and
agreements contained herein, the parties hereto hereby agree as follows:
SECTION 1. Definitions and Rules.
(a) Capitalized terms used but not otherwise defined in this
Amendment have the respective meanings specified in Appendix 1 of the Original
Participation Agreement and the rules of interpretation set forth in such
Appendix 1 shall apply hereto.
(b) Appendix 1 to the Original Participation Agreement is hereby
amended by amending and restating the following definitions in their entirety.
"Administrative Agent" shall mean Credit Suisse First Boston, as
"Administrative Agent" pursuant to the Administration Agreement, and any
successor thereto.
"Agent Bank" means Credit Suisse First Boston, as "Agent Bank" for the
Lenders pursuant to the Liquidity Agreement, or any successor or additional
Agent Bank appointed in accordance with the terms of the Liquidity Agreement.
<PAGE> 2
"Basic Term Expiration Date" shall mean May 8, 2002.
"Commercial Paper Notes" shall mean the Commercial Paper Notes issued
by the Facility Lender pursuant to the Commercial Paper Documents in an
aggregate face amount not to exceed $582,000,000.
"Lessor's Commitment" means the commitment of Lessor to invest Lessor
Investment Amounts in the Properties in an aggregate amount not to exceed
$18,000,000.
"Loan Termination Date" shall mean May 8, 2002, as such date may be
extended from time to time pursuant to Section 2.5 of the loan Agreement.
"Maximum Property Costs" means the lesser of (x) $600,000,000 and (y)
the amount of the Total Commitments then in effect.
"Placement Agent" means Credit Suisse First Boston.
"Scheduled Commitment Termination Date" shall mean May 8, 2002.
"Scheduled Payment Date" means (a) as to any Lessor Basic Rent
relating to Lessor Investment Amounts having an Investment Period of three
months or less, the last day of such Investment Period, and as to any Lessor
Investment Amount having an Investment Period longer than three (3) months,
each day which is three (3) months, or a whole multiple thereof, after the
first (1st) day of such Investment Period and the last day of such Investment
Period, and (b) as to any Lender Basic Rent (x) the date of the maturity of any
Commercial Paper Notes, and (y) the date on which any interest is due on any
Facility Loans pursuant to the terms of the Liquidity Agreement.
(c) Appendix 1 to the Original Participation Agreement is hereby
amended by adding the following definition.
"Basic Term" shall have the same meaning as "Term."
"Investment Period" has the meaning set forth in Appendix 3 to the
Participation Agreement.
SECTION 2. (a) Amendment to Appendix 3. Appendix 3 to the
Original Participation Agreement is amended by deleting such Appendix in its
entirety and substituting in lieu thereof Appendix 3 attached hereto.
(b) Amendment to Exhibit N-1. Exhibit No-1 to the Original
Participation Agreement is amended by deleting such Exhibit in its entirety and
substituting in lieu thereof Exhibit N-1 attached hereto.
(c) Amendment to Exhibit N-2. Exhibit N-2 to the Original
Participation
<PAGE> 3
Agreement is amended by deleting such Exhibit in its entirety and substituting
in lieu thereof Exhibit N-2 attached hereto.
(d) Amendment to Exhibit N-3. Exhibit N-3 to the Original
Participation Agreement is amended by deleting such Exhibit in its entirety and
substituting in lieu thereof Exhibit N-3 attached hereto.
SECTION 3. Additional Lenders. The New Lenders shall become parties to
the Participation Agreement as of the date hereof and shall be deemed "Lenders"
for all purposes of the Participation Agreement and the other Operative
Documents and shall be subject to and shall benefit from all of the rights and
obligations of a Lender under the Participation Agreement and the other
Operative Documents. Each New Lender hereby agrees that it will perform its
obligations as a Lender under the Participation Agreement as required by the
terms thereof and hereby represents and warrants that the representations and
warranties of the Lenders contained in Section 9.6 of the Participation
Agreement are true and correct on and as of the date hereof.
SECTION 4. Amendment to Schedule I. Schedule I to the Original
Participation Agreement is amended by deleting such Schedule in its entirety
and substituting in lieu thereof Schedule I attached hereto.
SECTION 5. Amendment to Section 9.1
(a) Amendment to Section 9.1(h). Section 9.1(h) of the Original
Participation Agreement shall be amended by deleting the address information
for the Lessor and replacing it with: 11 Madison Avenue, New York, NY 10010.
(b) Amendment to Section 9.1(k). Section 9.1(k) of the Original
Participation Agreement is hereby amended by deleting such Section 9.1(k) in
its entirety and substituting in lieu thereof the following:
(k) General Partner. Credit Suisse First Boston is the sole
general partner of the Lessor.
SECTION 6. Amendment to Section 15.3. Section 15.3 of the Original
Participation Agreement shall be amended by deleting the address information
for the Lessor and the Agent Bank and replacing it with: 11 Madison Avenue,
19th Floor, New York, New York 10010-3629.
SECTION 7. Amendment of Documents. Each of the parties hereto hereby
consents to the amendments executed as of the date hereof to the Lease, in the
form of Exhibit Y hereto and to the Loan Agreement, in the form of Exhibit Z
hereto and each other amendment referenced in Appendix 2 hereof.
<PAGE> 4
SECTION 8. Section 15.5. Each of the parties hereto hereby agree that
the Original Participation Agreement has been amended and supplemented in
accordance with Section 15.5 of the Original Participation Agreement and except
as expressly amended hereby, that all of the terms and provisions of the
Original Participation Agreement are in full force and effect.
SECTION 9. References in Operative Documents. Each of the parties
hereto hereby agrees that each reference in the Operative Documents to the
Participation Agreement, the Lease, the Liquidity Agreement, the Notes and the
Liquidity Notes means such documents as amended in connection herewith.
SECTION 10. Effectiveness. This Amendment shall become effective on
the date which all the conditions precedent set forth in Appendix A attached
hereto and made a part hereof by this reference shall have been satisfied or
waived by the parties hereto as set forth therein.
SECTION 11. Counterparts. This Amendment may be executed in any number
of counterparts by the parties hereto, each of which counterparts when so
executed shall be an original, but all counterparts shall together constitute
one and the same instrument.
SECTION 12. Governing Law. THIS AMENDMENT SHALL IN ALL RESPECTS BE
GOVERNED BY THE LAWS OF THE STATE OF GEORGIA (EXCLUDING ANY OTHER
CONFLICT-OF-LAW OR CHOICE-OF-LAW RULES WHICH MIGHT LEAD TO THE APPLICATION OF
THE INTERNAL LAWS OF ANY OTHER JURISDICTION) AS TO ALL MATTERS OF CONSTRUCTION,
VALIDITY AND PERFORMANCE.
SECTION 13. Successors and Assigns. All the terms and provisions of
this Amendment shall inure to the benefit of, and be binding upon, the parties
hereto and their respective successors and permitted assigns.
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed by their respective officers thereunto duly authorized as of
the day and year first above written.
THE HOME DEPOT, INC., as Guarantor
By: /s/Marshall L. Day
---------------------------------------
Name: Marshall L. Day
Title: Senior Vice President/Chief Financial
Officer
Attest: /s/ Carol B. Tome
-----------------------------------
Name: Carol B. Tome
Title: Vice President/Treasurer
[Corporate Seal]
HOME DEPOT U.S.A., INC., as Lessee and
Construction Agent
By: /s/ Carol B. Tome
---------------------------------------
Name: Carol B. Tome
Title: Vice President/Treasurer
Attest: /s/Sheryl M. Mouso
-----------------------------------
Name: Sheryl M. Mouso
Title: Assistant Secretary
[Corporate Seal]
HD REAL ESTATE FUNDING CORPORATION
as Facility Lender
By: /s/ Tiffany Percival
---------------------------------------
Name: Tiffany Percival
Title: Vice President
<PAGE> 6
CREDIT SUISSE LEASING 92A, L.P., as Lessor
By: CREDIT SUISSE FIRST BOSTON, its general
partner
By: /s/ Carl Weatherley-White
----------------------------------
Name: Carl Weatherley-White
Title: Associate
By: /s/
----------------------------------
Name:
Title:
CREDIT SUISSE FIRST BOSTON, formerly
known as credit Suisse, as Agent Bank
By: /s/ Heather Riekenberg
----------------------------------
Name: Heather Riekenberg
Title: Vice President
By: /s/ Ira Lubinsky
----------------------------------
Name: Ira Lubinsky
Title: Associate
CREDIT SUISSE FIRST BOSTON, formerly
known as Credit Suisse, as Lender
By: /s/ Carl Weatherley-White
----------------------------------
Name: Carl Weatherley-White
Title: Associate
By: /s/
----------------------------------
Name:
Title:
<PAGE> 7
DEUTSCHE BANK AG, NEW YORK AND/OR
CAYMAN ISLANDS BRANCH
as Documentation Agent
By: /s/ Joel Makowsky
-----------------------------------
Name: Joel Makowsky
Title: Assistant Vice President
By: /s/ Elizabeth Hope Tallmadge
-----------------------------------
Name: Elizabeth Hope Tallmadge
Title: Director
NATIONSBANK, N.A. (SOUTH)
as Lender
By: /s/ Shawn B. Welch
-----------------------------------
Name: Shawn B. Welch
Title: Vice President
By:
-----------------------------------
Name:
Title:
SUNTRUST BANK, ATLANTA,
as Lender
By: /s/ Christopher Deisley
-----------------------------------
Name: Christopher Deisley
Title: First Vice President
By: /s/ Jeffrey L. Seavey
-----------------------------------
Name: Jeffrey L. Seavey
Title: Vice President
<PAGE> 8
TORONTO DOMINION (TEXAS), INC.,
as Lender
By: /s/ Darlene Riedel
-----------------------------------
Name: Darlene Riedel
Title: Vice President
UNION BANK OF SWITZERLAND,
as Lender
By: /s/ Daniel R. Strickford
-----------------------------------
Name: Daniel R. Strickford
Title: Assistant Vice President
By: /s/ Samuel Azizo
-----------------------------------
Name: Samuel Azizo
Title: Vice President
BANK OF AMERICA NT&SA,
as Lender
By: /s/ Robert A. Kilgannon
-----------------------------------
Name: Robert A. Kilgannon
Title: Senior Vice President
THE BANK OF NEW YORK,
as Lender
By: /s/ Michael Flannery
-----------------------------------
Name: Michael Flannery
Title: Vice President
THE FIRST NATIONAL BANK OF CHICAGO,
as Lender
By: /s/ Dianne M. Stark
-----------------------------------
Name: Dianne M. Stark
Title: Vice President
<PAGE> 9
FIRST UNION NATIONAL BANK OF GEORGIA
as Lender
By: /s/ Shelley N. Rogers
-----------------------------------
Name: Shelley N. Rogers
Title: Assistant Secretary
MORGAN GUARANTY TRUST CO. OF NEW YORK,
as Lender
By: /s/ John M. Mikolay
-----------------------------------
Name: John M .Mikolay
Title: Vice President
WACHOVIA BANK OF GEORGIA,
as Lender
By: /s/ John T. Seeds
-----------------------------------
Name: John T .Seeds
Title: Senior Vice President
CANADIAN IMPERIAL BANK OF COMMERCE,
as Lender
By: /s/ Richard W. Crannell, Jr.
-----------------------------------
Name: Richard W. Crannell, Jr.
Title: As Agent
THE CHASE MANHATTAN BANK,
as Lender
By: /s/ Ellen Geitnor
-----------------------------------
Name: Ellen Geitnor
Title: Vice President
<PAGE> 10
THE BANK OF NOVA SCOTIA,
as Lender
By: /s/ William E. Zarrett
-----------------------------------
Name: William E. Zarrett
Title: Senior Relationship Manager
ABN AMRO BANK N.V.,
as Lender
By: /s/ Steven L. Hipsman
-----------------------------------
Name: Steven L. Hipsman
Title: Vice President
By: /s/ Larry Kelley
-----------------------------------
Name: Larry Kelley
Title: Group Vice President
NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION, as Lender
By: /s/ Ann C. Pifer
-----------------------------------
Name: Ann C. Pifer
Title: Vice President
CRESTAR BANK,
as Lender
By: /s/ Keith A. Hubbard
-----------------------------------
Name: Keith A. Hubbard
Title: Senior Vice President
<PAGE> 11
BANK BOSTON, N.A.,
as Lender
By: /s/ Peter L. Griswold
-----------------------------------
Name: Peter L. Griswold
Title: Director
<PAGE> 1
EXECUTION COPY
MASTER MODIFICATION AGREEMENT
THIS MASTER MODIFICATION AGREEMENT (this "Agreement") dated
as of April 20, 1998, by and among THE HOME DEPOT, INC., a Delaware
corporation, as Guarantor (the "Guarantor"); HOME DEPOT U.S.A., INC. a Delaware
corporation, as Lessee and Construction Agent ("Lessee" or "Construction
Agent"), HD REAL ESTATE FUNDING CORP., a Delaware corporation, as Facility
Lender ("Facility Lender"), CREDIT SUISSE LEASING 92A, L.P., a Delaware limited
partnership, as lessor ("Lessor"), the financial institutions listed on the
signature pages hereto (each, a "Lender" and collectively, the "Lenders") and
CREDIT SUISSE FIRST BOSTON, a Swiss bank operating through its New York branch,
as Agent Bank for the Lenders (in such capacity, the "Agent Bank");
W I T N E S S E T H:
WHEREAS, each of the parties described above have entered
into that certain Participation Agreement, dated as of June 25, 1996, as
amended by that certain First Amendment and Supplement to the Participation
Agreement, dated as of May 8, 1997 (as amended, the "Participation Agreement")
wherein the Lessor has agreed to acquire and construct certain facilities to be
leased to the Lessee, financed by certain debt provided by the Lenders,
together with certain equity contributions of the Lessor;
WHEREAS, the Lessee has requested, and each of the parties,
subject to the terms and conditions hereof, has agreed, to modify the terms of
the Participation Agreement and the other Operative Documents (as such term is
defined in the Participation Agreement) to allow the Lessee to lease to the
Lessor, pursuant to a long-term ground lease in substantial the form attached
as Exhibit A hereto (the "Ground Lease"), certain real property located in
Atlanta, Georgia, as more fully described on Exhibit A to the Ground Lease (the
"Land"), which Lessee desires to lease back from the Lessor in order to
construct an office building thereon for use by the Lessee;
WHEREAS, the parties hereto wish to enter into this Agreement
to evidence their consent to the Lessee's request and to set forth certain
modifications to the Operative Documents, all as more particularly set forth
below;
NOW, THEREFORE, for and in consideration of the mutual
premises contained herein and other valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound, agree as follows:
SECTION I. Definitions; Interpretation.
<PAGE> 2
Unless the context shall otherwise require, capitalized terms used and
not defined herein shall have the meanings assigned thereto in Appendix 1 to
the Participation Agreement and the rules of interpretation set forth in
Appendix 1 thereto shall apply to this Agreement.
SECTION II. Consent.
Notwithstanding any provision of the Operative Documents to the
contrary, each of the parties hereto hereby agrees (i) that the Lessee may
enter into a Ground Lease with the Lessor with respect to Land which shall
constitute a Property pursuant to the terms of the Operative Documents, (ii)
that Lessee may, subject to the terms of the Operative Documents, including
without limitation, Section 3.10 of the Participation Agreement, build a
Support Facility thereon and (iii) any provision of the Operative Documents not
expressly amended or modified by the terms of this Agreement shall be deemed
modified to the extent necessary to reflect that the Lessor is leasing the Land
under the Ground Lease and is not acquiring fee title to the Land.
SECTION III. Amendments.
A. Participation Agreement.
1. Amendments to Section 3.1 of the Participation
Agreement. Section 3.1 of the Participation Agreement is hereby
amended by deleting subsection (a) thereof in its entirety and by
substituting the following in lieu thereof:
"(a) purchase Land (through Advances funded by the Lessor
and the Facility Lender as provided herein) or enter
into the Ground Lease with Lessee with respect to
Land;"
2. Amendment to Section 3.5 of the Participation
Agreement. Section 3.5 of the Participation Agreement is hereby
amended by deleting the preamble and subsections (c) and (e) thereof
and substituting the following in lieu thereof:
"SECTION 3.5. Procedures for Acquisitions of Land.
With respect to each acquisition of Land or the entering into
of the Ground Lease, . . .
"(c) Upon satisfaction of the foregoing conditions
and receipt of the form of Deed or the Ground Lease, as
applicable, Lessor shall execute and deliver a limited power
of attorney to Lessee (or a representative thereof) in
recordable form and satisfactory to Lessor and Agent Bank
sufficient to allow Lessee, upon satisfaction of the
remaining conditions precedent set forth in Sections 7.1 and
7.2, to execute and record such documents necessary or
advisable in connection with the acquisition or lease, as
applicable, of such Land on the Property Closing Date;"
2
<PAGE> 3
and
"(e) Lessee shall give the Lessor, the Facility
Lender, and the Agent Bank an irrevocable prior written
notice not later than 1:00 p.m., New York time, on the
Business Day of the proposed Property Closing Date, pursuant,
in each case, to an Acquisition Request in the form of
Exhibit A attached hereto and made a part hereof by this
reference (an "Acquisition Request"), specifying with respect
to such Land: (i) the Property Closing Date, (ii) the Land to
be acquired or leased, (iii) the identity of the seller or
lessor and the Property Acquisition Cost (except in the case
of the Land subject to the Ground Lease), and (iv) the
Estimated Completion Date for such Property."
3. Amendment to Section 3.10 of the Participation
Agreement. Section 3.10 of the Participation Agreement is hereby
amended by deleting such Section in its entirety and substituting the
following in lieu thereof:
"SECTION 3.10. Use of Proceeds. The proceeds of all
Advances made pursuant to the Operative Documents shall be
used solely for the acquisition of Land located in the United
States or Canada (or the ground lease thereof) and the
construction of Improvements thereon pursuant to the
Construction Agency Agreement which shall be leased (upon
completion, in the case of Improvements constructed thereon
by the Construction Agent) by the Lessor to the Lessee
pursuant to the Lease, which Improvements shall be
constructed as a Facility on such Land; provided that the
total amount of Advances expended for the acquisition (or
ground lease) and construction of Properties to be used as
Support Facilities shall not exceed twenty percent (20%) of
the Total Commitments."
4. Amendment to Section 7.1 of the Participation
Agreement. Section 7.1 of the Participation Agreement is hereby amended
by deleting the preamble thereof and subsections (d) and (m) thereof
and substituting the following in lieu thereof:
"SECTION 7.1. Conditions Precedent -- Documentation.
The obligation of the Lessor to acquire a Property or to
enter into the Ground Lease with respect to a Property on a
Property Closing Date, to make the initial Advance in respect
of such Property on the initial Funding Date with respect to
such Property, and to make any related Lessor Investment
Amount available on such Funding Date, the right and
obligation of the Facility Lender to make any Loans to Lessor
on such Funding Date to fund such Advances and the obligation
of the Lenders to make Direct Funding Loans under the
Liquidity Agreement, are subject to satisfaction of the
following conditions precedent and to the conditions
precedent set forth in Section 7.2:"
3
<PAGE> 4
and
"(d) on or prior to the Property Closing Date for
the related Property, the Lessor shall have received (x) a
deed (a "Deed") (in form and substance appropriate for
recording with the applicable Governmental Authorities), with
respect to such Property (and all Improvements located
thereon) being purchased, on such Property Closing Date,
conveying fee simple title to such Property to the Lessor,
subject only to Permitted Exceptions or (y) in the case of
the Property subject to the Ground Lease, a copy of the
Ground Lease and a Memorandum thereof (in each case, in form
and substance satisfactory to the Lessor and the Agent and,
in the case of the Memorandum, in form and substance
satisfactory for recording), conveying leasehold title to the
such Property to the Lessor, in either case, subject only to
Permitted Exceptions;"
and
"(m) on or prior to the Property Closing Date for
the related Property, the Agent Bank shall have received
evidence satisfactory to it that each of the Deed (or in the
case of the Property subject to the Ground Lease, the
Memorandum thereof), the Memorandum of Lease, the Supplement
to the Assignment of Leases, the Consent to the Assignment,
the Mortgage, the Supplement to Master Assignment and the
consent to Master Assignment delivered on any Property
Closing Date shall have been or are being recorded with the
appropriate Governmental Authorities in the order in which
such documents are listed in this clause, and the UCC
Financing Statements with respect to the Property being
acquired or leased shall have been or are being filed with
the appropriate Governmental Authorities, and that all of the
recording fees, filing fees, transfer taxes and recording
taxes with respect to the foregoing have been paid; and"
5. Amendment to Section 9.3 of the Participation
Agreement. Section 9.3 of the Participation Agreement is hereby
amended by deleting subsections (b) and (c) thereof in their entirety
and substituting the following in lieu thereof:
"(b) Property. The Property then being acquired or,
in the case of the Property subject to the Ground Lease,
leased, consists of (i) Land on which Facilities will be
constructed pursuant to the Construction Agency Agreement,
and (ii) existing Improvements on such Land. Such Property is
located in the continental United States or Canada.
(c) Title. Upon (x) the acquisition by purchase of
such Property on such Property Closing Date, the Lessor will
have good and marketable title to such Property in fee simple
and (y) in the case of the Property subject to the Ground
Lease, upon leasing the Property pursuant to the Ground
Lease, the Lessor shall
4
<PAGE> 5
have good and marketable leasehold title to such Property, in
either case, subject only to Permitted Exceptions. The Lessor
will at all times have good and marketable title to all
Improvements located on such Property, subject only to
Permitted Liens."
B. Appendix I to Operative Documents. Appendix I to the
Operative Documents is hereby amended as follows:
(1) By adding the following definition of Ground Lease
in correct alphabetical order:
"Ground Lease" shall mean that certain Ground Lease,
dated as of April __, 1998, by and among Lessee, as ground
lessor, and Lessor, as ground lessee with respect to the
Property described therein."
(2) By deleting the definitions of "Operative
Documents", "Property" and "Property Closing Date" in their entirety
and substituting the following in lieu thereof:
"Operative Documents" means the following:
<TABLE>
<S> <C>
(a) the Issuing and Paying Agency Agreement;
(b) the Participation Agreement;
(c) the Loan Agreement;
(d) the Notes;
(e) the Lease and each Lease Supplement;
(f) the Assignment of Leases and each Supplement to the
Assignment of Lease;
(g) each Consent to Assignment;
(h) the Guaranty;
(i) the Mortgages;
(j) the Financing Statements;
(k) the Construction Agency Agreement and each Construction
Agency Agreement Supplement;
(l) the Construction Agency Agreement Assignment;
(m) the Consent to Construction Agency Agreement Assignment;
(n) the Funding Requests;
(o) the Acquisition Requests;
(p) the Liquidity Agreement;
(q) the Liquidity Notes;
(r) the Commercial Paper Notes;
(s) the Master Assignment and each Supplement to Master
Assignment;
(t) each Consent to Master Assignment;
</TABLE>
5
<PAGE> 6
<TABLE>
<S> <C>
(u) the Construction Documents;
(v) the Security Agreement;
(w) each other Commercial Paper Document;
(x) the Ground Lease; and
(y) the Fee Letter.
</TABLE>
"Property" means (i) as of the relevant Property
Closing Date, a parcel of Land (including all Appurtenant
Rights attached thereto) acquired, or the rights in a parcel
of land leased, by the Lessor pursuant to the provisions of
the Participation Agreement and all of the Improvements then
located on or under the related Land, and (ii) as of the
Completion Date, the Land and Improvements described in
clause (i) together with any Improvements constructed thereon
in accordance with the Construction Agency Agreement, or
thereafter constructed thereon.
"Property Closing Date" means each date on which the
Lessor purchases any Property or enters into the Ground Lease
with respect to any Property.
C. Lease.
The Lease is hereby amended as follows:
1. Amendments to Section 2.2 of the Lease. Section 2.2
of the Lease is hereby amended by deleting such Section in its
entirety and substituting the following in lieu thereof:
"2.2. Acceptance Procedure. Lessor hereby authorizes
one or more employees of Lessee, to be designated by Lessor
as the authorized representative or representatives of Lessor
(such designation to be evidenced by delivery of a power of
attorney pursuant to Section 3.5 of the Participation
Agreement) to accept delivery of the Deed to each Property to
be subject to the hereto on the Property Closing Date for
such Property (other than the Property subject to the Ground
Lease) and to execute such other agreements, easements and
other documents in connection therewith. Lessor and Lessee
hereby agree that such acceptance of delivery of such Deed
(other than the Property subject to the Ground Lease), and
the execution and delivery by Lessee on each Property Closing
Date for a Property to be subject hereto of a Lease
Supplement in the form of Exhibit A attached hereto and made
a part hereof by this reference (appropriately completed)
shall, without further act, constitute the irrevocable
acceptance by Lessee of that Property which is the subject
thereof for all purposes of this Lease and the other
Operative Documents on the terms set forth therein and
herein, and that such Property, together with any
Improvements then existing
6
<PAGE> 7
thereon shall be deemed to be included in the leasehold
estate of this Lease as of such Property Closing Date and any
Improvements constructed thereon pursuant to the Construction
Agency Agreement and this Lease shall be deemed to be
included in the leasehold estate of this Lease as of the
Completion Date at which time Lessee shall execute and
deliver to Lessor a Lease Supplement with respect to such
Improvements (appropriately completed)."
2. Amendments to Section 3.1 of the Lease. Section 3.1 of the
Lease is hereby amended by adding the following subsection after subsection
(c):
"(d) During the Term, Lessee shall pay to Lessor, as rent for
the sublease by Lessor to Lessee of its leasehold interest in the Land
under the Ground Lease, an amount equal to the amount payable by
Lessor to Lessee as ground rent under Section 3 of the Ground Lease.
The amount payable by the Lessee under this Section 3.1(d) shall be
due on each date on which ground rent is due from Lessor under Section
3 of the Ground Lease, and shall automatically be offset against the
amount due under such Section 3 of the Ground Lease on each date on
which such amount is due."
SECTION IV. Forms of Documents. Notwithstanding any provision of the
Operative Documents to the contrary, the parties hereto hereby agree that, with
respect to the Property subject to the Ground Lease, the forms of the following
Operative Documents attached hereto as the respective exhibits referenced below
shall be executed and delivered by the Lessee and the Participants in
satisfaction of the conditions of the Operative Documents:
Supplement to Master Assignment - Exhibit B
Supplement to Construction Agency Agreement - Exhibit C
Supplement to Assignment of Leases - Exhibit D
Special Power of Attorney - Exhibit E
Lease Supplement - Exhibit F
Lessee's Consent - Exhibit G
Mortgage - Exhibit H
Consent to Master Assignment - Exhibit I
Memorandum of Lease - Exhibit J
Ground Lease - Exhibit K
Memorandum of Ground Lease - Exhibit L
Acquisition Request - Exhibit M
Property Closing Certificate - Exhibit N
SECTION V. Conditions of Effectiveness. This Agreement shall become
effective as of the date first above written (the "Effective Date") when this
Agreement shall have been executed and delivered by each of the Guarantor, the
Lessee, the Facility Lender, the Lessor, the Agent Bank and the Requited
Lenders.
7
<PAGE> 8
SECTION VI. No Waiver, Etc. Lessee and Guarantor each hereby agrees
that nothing herein shall constitute a waiver by the Participants of any Lease
Default or Lease Event of Default, whether known or unknown, which may exist
under the Lease. Lessee and Guarantor each hereby further agrees that no
action, inaction or agreement by the Participants, including without
limitation, any indulgence, waiver, consent or agreement altering the
provisions of the Operative Documents which may have occurred with respect to
the non-payment of any obligation under the terms of the Operative Documents or
any portion thereof, or any other matter relating to the Operative Documents,
shall require or imply any future indulgence, waiver, or agreement by the
Participants.
SECTION VII. Ratification of Operative Documents. Except as expressly
amended herein, all terms, covenants and conditions of the Participation
Agreement and the other Operative Documents shall remain in full force and
effect, and the parties hereto do expressly ratify and confirm the Operative
Documents as amended herein. All future references to the Operative Documents
shall be deemed to refer to the Operative Documents as amended hereby.
SECTION VIII. Binding Nature. This Agreement shall be binding upon and
inure to the benefit of the parties hereto, their respective heirs, successors,
successors-in-title, and assigns.
SECTION IX. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Georgia.
SECTION X. Entire Understanding. This Agreement sets forth the entire
understanding of the parties with respect to the matters set forth herein, and
shall supersede any prior negotiations or agreements, whether written or oral,
with respect thereto.
SECTION XI. Counterparts. This Agreement may be executed in any number
of counterparts and by different parties hereto in separate counterparts and
may be delivered by telecopier. Each counterpart so executed and delivered
shall be deemed an original and all of which taken together shall constitute
but one and the same instrument.
[Signatures Set Forth on Next Page]
8
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
through their authorized officers as of the date first above written.
HOME DEPOT U.S.A., INC.
By: /s/ Carol B. Tome
----------------------------------------
Title: Vice President & Treasurer
Attest: /s/ Larry Menter
------------------------------------
Assistant Secretary
THE HOME DEPOT, INC.
By: /s/ Marshall Day
----------------------------------------
Title: Sr. Vice President &
Chief Financial Officer
Attest: /s/ Carol B. Tome
------------------------------------
Vice President & Treasurer
HD REAL ESTATE FUNDING CORP.
By: /s/ Dolores A. Briton
----------------------------------------
Title: Vice President
Attest: /s/ Jacey L. Wilson
------------------------------------
Title: Secretary
9
<PAGE> 10
CREDIT SUISSE LEASING 92A, L.P., A
DELAWARE LIMITED PARTNERSHIP
BY: CREDIT SUISSE FIRST BOSTON, ITS
GENERAL PARTNER
By: /s/ Carl Wheatherley-White
---------------------------------------
Title: Associate
By: /s/ Richard O'Day
---------------------------------------
Title: Associate
CREDIT SUISSE FIRST BOSTON, AS AGENT BANK
By: /s/ Robert M. Finney
---------------------------------------
Title: Managing Director
By: /s/ Julie P. Kingsbury
---------------------------------------
Title: Assistant Vice President
10
<PAGE> 11
CREDIT SUISSE FIRST BOSTON,
as Lender
By /s/ Robert M. Finney
------------------------------------
Name: Robert M. Finney
Title: Managing Director
By: /s/ Julia F. Kingsbury
-----------------------------------
Name: Julia F. Kingsbury
Title: Assistant Vice President
DEUTCHE BANK AG, NEW YORK AND/OR
CAYMAN ISLANDS BRANCH,
as Document Agent
By:
-----------------------------------
Name:
Title:
By:
-----------------------------------
Name:
Title:
NATIONSBANK, N.A. (SOUTH),
as Lender
By: /s/ Kathryn W. Robinson
-----------------------------------
Name: Kathryn W. Robinson
Title: Senior Vice President
By:
-----------------------------------
Name:
Title:
SUNTRUST BANK, ATLANTA,
as Lender
By: /s/ Christopher Deisley
-----------------------------------
Name: Christopher Deisley
Title: First Vice President
<PAGE> 12
By: /s/ Jeffrey L. Seavey
-----------------------------------
Name: Jeffrey L. Seavey
Title: Vice President
TORONTO DOMINION (TEXAS), INC.,
as Lender
By: /s/ Debbie A. Greene
-----------------------------------
Name: Debbie A. Greene
Title: Vice President
By: /s/ Jimmy Simien
-----------------------------------
Name: Jimmy Simien
Title: Vice President
UNION BANK OF SWITZERLAND,
as Lender
By:
-----------------------------------
Name:
Title:
By:
-----------------------------------
Name:
Title:
BANK OF AMERICA NT&SA,
as Lender
By: /s/ Michelle Kacergis
-----------------------------------
Name: Michelle Kacergis
Title: Managing Director
By:
-----------------------------------
Name:
Title:
<PAGE> 13
THE BANK OF NEW YORK,
as Lender
By: /s/ Paula Regan
-----------------------------------
Name: Paula Regan
Title: Vice President
By:
-----------------------------------
Name:
Title:
THE FIRST NATIONAL BANK OF CHICAGO,
as Lender
By: /s/ Dianne M. Stark
-----------------------------------
Name: Dianne M. Stark
Title: Vice President
By:
-----------------------------------
Name:
Title:
FIRST UNION NATIONAL BANK OF
GEORGIA, as Lender
By: /s/ Daniel L. Evans
-----------------------------------
Name: Daniel L. Evans
Title: Senior Vice President
By: /s/ Jim Ulmer
-----------------------------------
Name: Jim Ulmer
Title: Vice President
MORGAN GUARANTY TRUST CO. OF NEW
YORK, as Lender
By:/s/ John M. Mikolay
-----------------------------------
Name: John M. Mikolay
Title: Vice President
<PAGE> 14
By:
-----------------------------------
Name:
Title
WACHOVIA BANK OF GEORGIA,
as Lender
By:
-----------------------------------
Name:
Title:
By:
-----------------------------------
Name:
Title:
CANADIAN IMPERIAL BANK OF COMMERCE,
as Lender
By: /s/ Roger Colden
-----------------------------------
Name: Roger Colden
Title: Executive Director
CIBC Oppenheimer Corp.
As AGENT
By:
-----------------------------------
Name:
Title:
THE CHASE MANHATTAN BANK,
as Lender
By:
-----------------------------------
Name:
Title:
By:
-----------------------------------
Name:
Title:
<PAGE> 15
THE BANK OF NOVA SCOTIA,
as Lender
By: /s/ William E. Zegreti
-----------------------------------
Name: William E. Zegreti
Title: Senior Relationship Manager
By:
-----------------------------------
Name:
Title:
ABN AMRO BANK N.V.,
as Lender
By: /s/ Larry K. Kelley
-----------------------------------
Name: Larry K. Kelley
Title: Group Vice President
By: /s/ Steven B. Farley
-----------------------------------
Name: Steven B. Farley
Title: Vice President
NORTHWEST BANK MINNESOTA,
NATIONAL ASSOCIATION,
as Lender
By: /s/ Ann C. Pifer
-----------------------------------
Name: Ann C Pifer
Title: Vice President
By:
-----------------------------------
Name:
Title:
CRESTAR BANK,
as Lender
By:/s/ Keith A. Hubbard
-----------------------------------
Name: Keith A. Hubbard
Title: Senior Vice President
<PAGE> 16
By:
-----------------------------------
Name:
Title:
BANKBOSTON, N.A.,
as Lender
By: /s/ Peter L. Griswold
-----------------------------------
Name: Peter L. Griswold
Title: Director
By:
-----------------------------------
Name:
Title
<PAGE> 1
SUPPLEMENTAL EXECUTIVE CHOICE PROGRAM
THE HOME DEPOT
EFFECTIVE JANUARY 1, 1999
SUMMARY
Each calendar year every officer receives a supplemental benefit allowance
under the Supplemental Executive Choice Program (SECP). This allowance may be
used to purchase additional disability or life insurance benefits, or to
reimburse themselves for financial services or for health care expenses not
covered under Home Depot's standard health care plans.
ELIGIBILITY
To be eligible for SECP, an employee must be an officer of the Company. The
officer must elect coverage from the options available through SECP.
ENROLLMENT
Choices for enrollment will be available immediately upon eligibility and/or
during annual enrollment in the fall of each year.
MAXIMUM ANNUAL BENEFIT
The maximum benefits payable during a calendar year for all options combined is
$15,000 for senior officers and $10,000 for all other officers.
OPTIONS AVAILABLE
- - SUPPLEMENTAL LONG TERM DISABILITY (LTD) INSURANCE (SDIP) - additional LTD
insurance designed to replace a greater percentage of the value of the
officers total compensation.
- - SUPPLEMENTAL LIFE INSURANCE (SLI) - Variable Universal Life Insurance for
up to three times base salary plus bonus minus the $300,000 already
provided by The Home Depot, up to a specified maximum.
<PAGE> 2
- - FINANCIAL PLANNING & COUNSELING SERVICES - reimbursement for financial
planning and counseling services up to a specified amount which varies by
year.
- - EXECUTIVE MEDICAL REIMBURSEMENT ACCOUNT (EMRA) - reimbursement for most
medical and dental expenses not covered under the standard medical and
dental plans for self and family up to a maximum of the SECP benefits
allowance. Expenses must qualify under applicable IRS regulations.
TAXES
The dollars one elects to spend for SDIP, SLI, Financial Planning & Counseling
Services and EMRA under SECP will be taxable in the year in which the benefits
are paid. This amount will be reported on the W-2 for that same year.
Applicable taxes include Federal and State income taxes, and FICA if the
employee's pay falls below the FICA salary limit.
ADDITIONAL REIMBURSEMENT
In March of each year, while the SECP remains in effect, the Company will make
an additional payment to help cover the taxes incurred for benefits paid in the
previous year. This additional payment will be taxable income and will be
reported on the W-2 in the year in which it is paid.
TERMINATION OF COVERAGE
Coverage will terminate on the earliest of the following dates. In some
instances, portability of coverage may be applicable.
1. An employee terminates employment with Home Depot.
2. At the end of an approved leave of absence, unless the employee
returns to full-time employment with the Company.
3. The employee is no longer an officer of the Company.
4. The Company elects to discontinue the Supplemental Executive Choice
Program.
5. Coverage under the EMRA option only will terminate when coverage under
the Company's Group Health Plan terminates, either due to voluntary
action on the part of the employee, or because the Company cancels the
Group Health Plan.
<PAGE> 3
6. Coverages under SDIP, SLI and Financial Planning & Counseling Services
will terminate when the plan(s) is canceled either individually or
collectively due to voluntary action on the part of the employee or at
the discretion of the Company.
ERISA
SECP is a cash bonus plan. It is not funded, nor does it come under provisions
of the Federal Employee Retirement Income Security Act (ERISA).
<PAGE> 1
CONSOLIDATED STATEMENTS OF EARNINGS
THE HOME DEPOT, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA FISCAL YEAR ENDED
------------------------------------------
JANUARY 31, FEBRUARY 1, FEBRUARY 2,
1999 1998 1997
(52 WEEKS) (52 WEEKS) (53 WEEKS)
----------- ----------- -----------
<S> <C> <C> <C>
NET SALES $ 30,219 $ 24,156 $ 19,535
Cost of Merchandise Sold 21,614 17,375 14,101
-------- -------- --------
Gross Profit 8,605 6,781 5,434
OPERATING EXPENSES:
Selling and Store Operating 5,341 4,303 3,529
Pre-Opening 88 65 55
General and Administrative 515 413 324
Non-Recurring Charge (note 8) -- 104 --
-------- -------- --------
Total Operating Expenses 5,944 4,885 3,908
-------- -------- --------
OPERATING INCOME 2,661 1,896 1,526
Interest Income (Expense):
Interest and Investment Income 30 44 25
-------- -------- --------
Interest Expense (note 2) (37) (42) (16)
-------- -------- --------
Interest, net (7) 2 9
-------- -------- --------
Earnings Before Income Taxes 2,654 1,898 1,535
Income Taxes (note 3) 1,040 738 597
-------- -------- --------
NET EARNINGS $ 1,614 $ 1,160 $ 938
======== ======== ========
BASIC EARNINGS PER SHARE (note 7) $ 1.10 $ 0.80 $ 0.65
Weighted Average Number of Common Shares Outstanding 1,471 1,459 1,438
======== ======== ========
DILUTED EARNINGS PER SHARE (note 7) $ 1.06 $ 0.78 $ 0.65
Weighted Average Number of Common Shares Outstanding Assuming Dilution 1,547 1,524 1,464
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE> 2
CONSOLIDATED BALANCE SHEETS
THE HOME DEPOT, INC. AND SUBSIDIARIES
AMOUNTS IN MILLIONS, EXCEPT SHARE DATA
<TABLE>
<CAPTION>
JANUARY 31, FEBRUARY 1,
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents $ 62 $ 172
Short-Term Investments, including current maturities of long-term investments -- 2
Receivables, net 469 556
Merchandise Inventories 4,293 3,602
Other Current Assets 109 128
-------- --------
Total Current Assets 4,933 4,460
-------- --------
Property and Equipment, at cost:
Land 2,739 2,194
Buildings 3,757 3,041
Furniture, Fixtures and Equipment 1,761 1,370
Leasehold Improvements 419 383
Construction in Progress 540 336
Capital Leases (notes 2 and 5) 206 163
-------- --------
9,422 7,487
Less Accumulated Depreciation and Amortization 1,262 978
-------- --------
Net Property and Equipment 8,160 6,509
-------- --------
Long-Term Investments 15 15
Notes Receivable 26 27
Cost in Excess of the Fair Value of Net Assets Acquired, net of accumulated amortization
of $24 at January 31, 1999 and $18 at February 1, 1998 268 140
Other 63 78
-------- --------
$ 13,465 $ 11,229
======== ========
LIABILITIES AND STOCKHOLDERS, EQUITY
Current Liabilities:
Accounts Payable $ 1,586 $ 1,358
Accrued Salaries and Related Expenses 395 312
Sales Taxes Payable 176 143
Other Accrued Expenses 586 530
Income Taxes Payable 100 105
Current Installments of Long-Term Debt (notes 2 and 5) 14 8
-------- --------
Total Current Liabilities 2,857 2,456
-------- --------
Long-Term Debt, excluding current installments (notes 2 and 5) 1,566 1,303
Other Long-Term Liabilities 208 178
Deferred Income Taxes (note 3) 85 78
Minority Interest (note 10) 9 116
STOCKHOLDERS' EQUITY (notes 2, 4 and 6)
Common Stock, par value $0.05. Authorized: 2,500,000,000 shares; issued and outstanding--
1,475,452,000 shares at January 31, 1999 and 1,464,216,000 shares at February 1, 1998 74 73
Paid-in Capital 2,854 2,626
Retained Earnings 5,876 4,430
Accumulated Other Comprehensive Income (61) (28)
-------- --------
8,743 7,101
Less: Shares Purchased for Compensation Plans (notes 4 and 6) 3 3
-------- --------
Total Stockholders' Equity 8,740 7,098
-------- --------
Commitments and Contingencies (notes 5 and 9)
$ 13,465 $ 11,229
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE> 3
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
THE HOME DEPOT, INC. AND SUBSIDIARIES
AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA
<TABLE>
<CAPTION>
COMMON STOCK ACCUMULATED
--------------- OTHER TOTAL
PAID-IN RETAINED COMPREHENSIVE STOCKHOLDERS COMPREHENSIVE
SHARES AMOUNT CAPITAL EARNINGS INCOME OTHER EQUITY INCOME(1)
------ ------ ------- -------- ------------- ----- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 28, 1996 1,432 $72 $2,360 $ 2,579 $ (6) $(17) $ 4,988
===== === ====== ======= ==== ==== =======
Shares Sold Under Employee Stock
Purchase and Option Plans,
net of retirements (note 4) 10 -- 104 -- -- -- 104
Tax Effect of Sale of Option
Shares by Employees -- -- 11 -- -- -- 11
Net Earnings -- -- -- 938 -- -- 938 $ 938
Translation Adjustments -- -- -- -- 8 -- 8 8
Repayments of Notes Receivable from
ESOP, net (note 6) -- -- -- -- -- 17 17
Shares Purchased for Compensation
Plans (notes 4 and 6) -- -- -- -- -- (1) (1)
Cash Dividends ($0.077 per share) -- -- -- (110) -- -- (110)
-------
Comprehensive Income for Fiscal 1996 $ 946
=======
----- --- ------ ------- ---- ---- -------
BALANCE, FEBRUARY 2, 1997 1,442 $72 $2,475 $ 3,407 $ 2 $ (1) $ 5,955
===== === ====== ======= ==== ==== =======
Shares Sold Under Employee Stock
Purchase and Option Plans,
net of retirements (note 4) 8 -- 124 -- -- -- 124
Tax Effect of Sale of Option
Shares by Employees -- -- 26 -- -- -- 26
Net Earnings -- -- -- 1,160 -- -- 1,160 1,160
Translation Adjustments -- -- -- -- (30) -- (30) (30)
Immaterial Pooling of Interests 14 1 1 2 -- -- 4
Shares Purchased for Compensation
Plans (notes 4 and 6) -- -- -- -- -- (2) (2)
Cash Dividends ($0.095 per share) -- -- -- (139) -- -- (139)
------
Comprehensive Income for Fiscal 1997 $1,130
======
----- --- ------ ------- ---- ---- -------
BALANCE, FEBRUARY 1, 1998 1,464 $73 $2,626 $ 4,430 $(28) $ (3) $ 7,098
===== === ====== ======= ==== ==== =======
Shares Sold Under Employee Stock
Purchase and Option Plans,
net of retirements (note 4) 11 1 165 -- -- -- 166
Tax Effect of Sale of Option
Shares by Employees -- -- 63 -- -- -- 63
Net Earnings -- -- -- 1,614 -- -- 1,614 1,614
Translation Adjustments -- -- -- -- (33) -- (33) (33)
Cash Dividends ($0.115 per share) -- -- -- (168) -- -- (168)
------
Comprehensive Income for Fiscal 1998 $1,581
======
----- --- ------ ------- ---- ---- -------
BALANCE, JANUARY 31, 1999 1,475 $74 $2,854 $ 5,876 $(61) $ (3) $ 8,740
===== === ====== ======= ==== ==== =======
</TABLE>
(1) Components of comprehensive income are reported net of related taxes.
See accompanying notes to consolidated financial statements.
24
<PAGE> 4
CONSOLIDATED STATEMENTS OF CASH FLOWS
THE HOME DEPOT, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
AMOUNTS IN MILLIONS FISCAL YEAR ENDED
----------------------------------------
JANUARY 31, FEBRUARY 1, FEBRUARY 2,
1999 1998 1997
(52 WEEKS) (52 WEEKS) (53 WEEKS)
---------- ---------- ----------
<S> <C> <C> <C>
CASH PROVIDED FROM OPERATIONS:
Net Earnings $ 1,614 $ 1,160 $ 938
Reconciliation of Net Earnings to Net Cash Provided by Operations:
Depreciation and Amortization 373 283 232
Deferred Income Tax Expense (Benefit) 7 (28) 29
Decrease (Increase) in Receivables, net 85 (166) (58)
Increase in Merchandise Inventories (698) (885) (525)
Increase in Accounts Payable and Accrued Expenses 423 577 434
Increase in Income Taxes Payable 59 83 25
Other 54 5 25
------- ------- -------
Net Cash Provided by Operations 1,917 1,029 1,100
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures, net of $41, $44 and $54 of non-cash capital expenditures
in fiscal 1998, 1997 and 1996, respectively (2,059) (1,481) (1,194)
Purchase of Remaining Interest in The Home Depot Canada (261) -- --
Proceeds from Sales of Property and Equipment 45 85 22
Proceeds from Sales of Investments -- -- 41
Purchases of Investments (2) (194) (409)
Proceeds from Maturities of Investments 4 599 27
Repayments of Advances Secured by Real Estate, net 2 20 6
------- ------- -------
Net Cash Used in Investing Activities (2,271) (971) (1,507)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of (Repayments of) Commercial Paper Obligations, net 246 -- (620)
Proceeds from Long-Term Borrowings, net -- 15 1,093
Repayments of Notes Receivable from ESOP -- -- 17
Principal Repayments of Long-Term Debt (8) (40) (3)
Proceeds from Sale of Common Stock, net 167 122 104
Cash Dividends Paid to Stockholders (168) (139) (110)
Minority Interest Contributions to Partnership 11 10 19
------- ------- -------
Net Cash Provided by (Used in) Financing Activities 248 (32) 500
------- ------- -------
Effect of Exchange Rate Changes on Cash and Cash Equivalents (4) -- --
(Decrease) Increase in Cash and Cash Equivalents (110) 26 93
Cash and Cash Equivalents at Beginning of Year 172 146 53
------- ------- -------
Cash and Cash Equivalents at End of Year $ 62 $ 172 $ 146
======= ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH PAYMENTS MADE FOR:
Interest, net of interest capitalized $ 36 $ 42 $ 3
Income Taxes $ 940 $ 685 $ 548
</TABLE>
See accompanying notes to consolidated financial statements.
25
<PAGE> 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE HOME DEPOT, INC. AND SUBSIDIARIES
Note 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Home Depot operates full-service, warehouse-style stores averaging
approximately 107,000 square feet in size. The stores stock approximately 40,000
to 50,000 different kinds of building materials, home improvement supplies and
lawn and garden products that are sold primarily to do-it-yourselfers, but also
to home improvement contractors, tradespeople and building maintenance
professionals. In addition, the Company operates EXPO Design Center stores,
which offer products and services primarily related to design and renovation
projects. At the end of fiscal 1998, the Company was operating 761 stores,
including 707 Home Depot stores and 8 EXPO Design Center stores in the United
States; 43 Home Depot stores in Canada; 2 Home Depot stores in Chile; and 1 Home
Depot store in Puerto Rico. Included in the Company's Consolidated Balance
Sheets at January 31, 1999 are $568 million of net assets of the Canadian and
Chilean operations.
Fiscal Year
The Company's fiscal year is a 52- or 53-week period ending on the Sunday
nearest to January 31. Fiscal years 1998 and 1997, which ended January 31, 1999
and February 1, 1998, respectively, consisted of 52 weeks, while fiscal year
1996, which ended February 2, 1997, consisted of 53 weeks.
Basis of Presentation
The consolidated financial statements include the accounts of the Company, its
wholly-owned subsidiaries, and its majority-owned partnership. All significant
intercompany transactions have been eliminated in consolidation.
Stockholders' equity, share and per share amounts for all periods
presented have been adjusted for a two-for-one stock split effected in the form
of a stock dividend on July 2, 1998, and a three-for-two stock split effected in
the form of a stock dividend on July 3, 1997.
Cash Equivalents
The Company considers all highly liquid investments purchased with a maturity of
three months or less to be cash equivalents. The Company's cash and cash
equivalents are primarily cash equivalents carried at fair market value and
consist primarily of commercial paper, money market funds, U.S. government
agency securities and tax-exempt notes and bonds.
Merchandise Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market, as
determined by the retail inventory method.
Income Taxes
The Company provides for federal, state and foreign income taxes currently
payable, as well as for those deferred because of timing differences between
reporting income and expenses for financial statement purposes versus tax
purposes. Federal, state and foreign incentive tax credits are recorded as a
reduction of income taxes. Deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect of a change in tax rates is recognized as income or expense in the period
that includes the enactment date.
The Company and its eligible subsidiaries file a consolidated U.S.
federal income tax return. Non-U.S. subsidiaries, which are consolidated for
financial reporting, are not eligible to be included in consolidated U.S.
federal income tax returns, and separate provisions for income taxes have been
determined for these entities. The Company intends to reinvest the unremitted
earnings of its non-U.S. subsidiaries and postpone their remittance
indefinitely. Accordingly, no provision for U.S. income taxes for non-U.S.
subsidiaries was required for any year presented.
Depreciation and Amortization
The Company's buildings, furniture, fixtures and equipment are depreciated using
the straight-line method over the estimated useful lives of the assets.
Improvements to leased premises are amortized using the straight-line method
over the life of the lease or the useful life of the improvement, whichever is
shorter. The Company's property and equipment is depreciated using the following
estimated useful lives:
<TABLE>
<CAPTION>
LIFE
-----------
<S> <C>
Buildings 10-45 years
Furniture, fixtures and equipment 5-20 years
Leasehold improvements 5-30 years
Computer software 3-5 years
</TABLE>
Cost in Excess of the Fair Value of Net Assets Acquired
Goodwill, which represents the excess of purchase price over fair value of net
assets acquired, is amortized on a straight-line basis over 40 years. The
Company assesses the recoverability of this intangible asset by determining
whether the amortization of the goodwill balance over its remaining useful life
can be recovered through undiscounted future operating cash flows of the
acquired operation. The amount of goodwill impairment, if any, is measured based
on projected discounted future operating cash flows using a discount rate
reflecting the Company's average cost of funds.
Notes Receivable
Notes receivable, which are issued to real estate developers in connection with
development and construction of stores and underlying real estate, are recorded
at cost less an allowance for impaired notes receivable when necessary.
26
<PAGE> 6
Store Pre-Opening Costs
Non-capital expenditures associated with opening new stores are expensed as
incurred.
Impairment of Long-Lived Assets
The Company reviews long-lived assets for impairment when circumstances indicate
the carrying amount of an asset may not be recoverable. An impairment is
recognized to the extent the sum of undiscounted estimated future cash flows
expected to result from the use of the asset is less than the carrying value.
Accordingly, when the Company commits to relocate or close a store, the
estimated unrecoverable costs are charged to expense. Such costs include the
estimated loss on the sale of land and buildings, the book value of abandoned
fixtures, equipment and leasehold improvements, and a provision for the present
value of future lease obligations, less estimated sub-lease income.
Stock Compensation
The Company has adopted Statement of Financial Accounting Standards No. 123
("SFAS 123"), "Accounting for Stock-Based Compensation." SFAS 123 encourages the
use of a fair-value-based method of accounting for stock-based awards under
which the fair value of stock options is determined on the date of grant and
expensed over the vesting period. Under SFAS 123, companies may, however,
measure compensation costs for those plans using the method prescribed by
Accounting Principles Board Opinion No. 25 ("APB No. 25"), "Accounting for Stock
Issued to Employees." Companies that apply APB No. 25 are required to include
pro forma disclosures of net earnings and earnings per share as if the
fair-value-based method of accounting had been applied. The Company elected to
account for such plans under the provisions of APB No. 25.
Comprehensive Income
Comprehensive income includes net earnings adjusted for certain revenues,
expenses, gains and losses that are excluded from net earnings under generally
accepted accounting principles. Examples include foreign currency translation
adjustments and unrealized gains and losses on investments.
Foreign Currency Translation
The assets and liabilities denominated in a foreign currency are translated into
U.S. dollars at the current rate of exchange on the last day of the reporting
period, revenues and expenses are translated at the average monthly exchange
rates, and all other equity transactions are translated using the actual rate on
the day of the transaction.
Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from these estimates.
Reclassifications
Certain balances in prior fiscal years have been reclassified to conform with
the presentation adopted in the current fiscal year.
Note 2 LONG-TERM DEBT
The Company's long-term debt at the end of fiscal 1998 and 1997 consisted of the
following (amounts in millions):
<TABLE>
<CAPTION>
JANUARY 31, FEBRUARY 1,
1999 1998
----------- -----------
<S> <C> <C>
3 1/4% Convertible Subordinated Notes, due
October 1, 2001; convertible into shares
of common stock of the Company at a
conversion price of $23.0417 per share;
redeemable by the Company at a premium,
plus accrued interest, beginning
October 2, 1999 $1,103 $1,104
Commercial Paper; weighted average
interest rate of 4.8% at January 31, 1999 246 --
Capital Lease Obligations; payable in
varying installments through
January 31, 2019 (see note 5) 180 151
Installment Notes Payable; interest
imputed at rates between 6.1% and
10.5%; payable in varying installments
through 2018 27 32
Unsecured Bank Loan; floating interest
rate averaging 5.9% in fiscal 1998 and
6.05% in fiscal 1997; payable in
August 2002 15 15
Variable Rate Industrial Revenue Bonds;
secured by letters of credit or land;
interest rates averaging 3.8% during
fiscal 1998 and 4.2% during fiscal 1997;
payable in varying installments
through 2010 9 9
------ ------
Total long-term debt 1,580 1,311
Less current installments 14 8
------ ------
Long-term debt, excluding
current installments $1,566 $1,303
====== ======
</TABLE>
In October 1996, the Company issued, through a public offering, $1.1
billion of 3 1/4% Convertible Subordinated Notes ("3 1/4% Notes") due October 1,
2001. The 3 1/4% Notes were issued at par and are convertible into shares of
common stock at any time prior to maturity, unless previously redeemed by the
Company, at a conversion price of $23.0417 per share, subject to adjustment
under certain conditions. The 3 1/4% Notes may be redeemed by the Company at any
time on or after October 2, 1999, in whole or in part, at a redemption price of
100.813% of the principal amount and after October 1, 2000, at 100% of the
principal amount. The 3 1/4% Notes are not subject to sinking fund provisions.
27
<PAGE> 7
The Company has an $800 million commercial paper program supported by a
back-up credit facility with an available commitment amount of $800 million. The
back-up credit facility expires in December 2000. Covenants related to the
back-up credit facility place limitations on total Company indebtedness,
subsidiary indebtedness and liens. As of January 31, 1999, the Company was in
compliance with all restrictive covenants.
The restrictive covenants related to letter of credit agreements
securing the industrial revenue bonds are no more restrictive than those
referenced or described above.
Interest expense in the accompanying Consolidated Statements of
Earnings is net of interest capitalized of $31 million in fiscal 1998, $19
million in fiscal 1997 and $23 million in fiscal 1996.
Maturities of long-term debt (excluding the 3 1/4% Notes) are $14
million for fiscal 1999, $250 million for fiscal 2000, $3 million for fiscal
2001, $19 million for fiscal 2002 and $5 million for fiscal 2003.
The estimated fair value of the 3 1/4% Notes, which are publicly
traded, was approximately $2.9 billion based on the market price at January
31, 1999. The estimated fair value of commercial paper borrowings approximate
their carrying value. The estimated fair value of all other long-term borrowings
was approximately $382 million compared to the carrying value of $231 million.
These fair values were estimated using a discounted cash flow analysis based on
the Company's incremental borrowing rate for similar liabilities.
Note 3 INCOME TAXES
The provision for income taxes consisted of the following (in millions):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------------
JANUARY 31, FEBRUARY 1, FEBRUARY 2,
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Current:
U.S. $ 823 $ 653 $ 486
State 150 98 72
Foreign 20 15 10
------- ------- -------
993 766 568
------- ------- -------
Deferred:
U.S. 46 (31) 23
State (1) 1 6
Foreign 2 2 --
------- ------- -------
47 (28) 29
------- ------- -------
Total $ 1,040 $ 738 $ 597
======= ======= =======
</TABLE>
The Company's combined federal, state and foreign effective tax rates
for fiscal years 1998, 1997 and 1996, net of offsets generated by federal, state
and foreign tax incentive credits, were approximately 39.2%, 38.9% and 38.9%,
respectively. A reconciliation of income tax expense at the federal statutory
rate of 35% to actual tax expense for the applicable fiscal years follows (in
millions):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------
JANUARY 31, FEBRUARY 1, FEBRUARY 2,
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Income taxes at U.S. statutory rate $ 929 $ 664 $ 537
State income taxes, net of
federal income tax benefit 96 65 51
Foreign rate differences -- 2 2
Other, net 15 7 7
------ ------ ------
Total $1,040 $ 738 $ 597
====== ====== ======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities as of January
31, 1999 and February 1, 1998 were as follows (in millions):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------
JANUARY 31, FEBRUARY 1,
1999 1998
----------- -----------
<S> <C> <C>
Deferred Tax Assets
Accrued self-insurance liabilities $ 110 $ 92
Other accrued liabilities 97 104
----- -----
Total gross deferred tax assets 207 196
----- -----
Deferred Tax Liabilities
Accelerated depreciation (249) (196)
Other (43) (38)
----- -----
Total gross deferred tax liabilities (292) (234)
----- -----
Net deferred tax liability $ (85) $ (38)
===== =====
</TABLE>
No valuation allowance was recorded against the deferred tax assets at
January 31, 1999 or February 1, 1998. Company management believes the existing
net deductible temporary differences comprising the total gross deferred tax
assets will reverse during periods in which the Company generates net taxable
income.
28
<PAGE> 8
Note 4 EMPLOYEE STOCK PLANS
The 1997 Omnibus Stock Incentive Plan ("1997 Plan"), which is an amendment and
restatement of the 1991 Omnibus Stock Option Plan ("1991 Plan"), provides that
incentive stock options, non-qualified stock options, stock appreciation rights,
restricted stock and deferred shares may be issued to selected associates,
officers and directors of the Company. The maximum number of shares of the
Company's common stock available for issuance under the 1997 Plan is the lesser
of 100 million shares, or the number of shares carried over from prior plans
plus one-half percent of the total number of outstanding shares as of the first
day of each fiscal year. In addition, restricted shares issued under the 1997
Plan may not exceed 10 million shares. As of January 31, 1999, the maximum
shares available for future grants under the 1997 Plan were 85,549,859.
Under the 1997 Plan, incentive and non-qualified options for 15,788,234
shares, net of cancellations (of which 17,577 had been exercised), have been
granted at prices ranging from $19.17 to $47.88 per share. Incentive stock
options vest at the rate of 25% per year commencing on the first anniversary
date of the grant and expire on the tenth anniversary date of the grant. The
non-qualified options have similar terms; however, vesting does not generally
begin until the second anniversary date of the grant.
As of January 31, 1999, 108,594 shares of restricted stock were
outstanding. The restricted shares vest over varying terms and are generally
based on the attainment of certain performance goals. The expected fair value of
the restricted shares on the vesting dates will be charged to expense ratably
over the vesting periods unless it is determined that the performance goals will
not be met.
Under the 1991 Plan, which became effective June 1, 1991, options for
52,798,833 shares, net of cancellations (of which 20,881,960 had been
exercised), had been granted at prices ranging from $8.17 to $17.79 per share as
of January 31, 1999. The 1991 Plan expired on February 28, 1997, and the shares
available for grant were carried over to the 1997 Plan.
The per share weighted average fair value of stock options granted
during fiscal years 1998, 1997 and 1996 was $14.91, $6.30 and $4.62,
respectively. These amounts were determined using the Black-Scholes
option-pricing model, which values options based on the stock price at the grant
date, the expected life of the option, the estimated volatility of the stock,
expected dividend payments, and the risk-free interest rate over the expected
life of the option. The dividend yield was calculated by dividing the current
annualized dividend by the option price for each grant. Expected volatility was
based on stock prices for the fiscal year the grant occurred and the two
previous fiscal years. The risk-free interest rate was the rate available on
zero coupon U.S. government issues with a term equal to the remaining term for
each grant. The expected life of each option was estimated based on the exercise
history from previous grants. The assumptions used in the Black-Scholes model
were as follows:
<TABLE>
<CAPTION>
STOCK OPTIONS
GRANTED IN FISCAL YEAR
-----------------------------
1998 1997 1996
-----------------------------
<S> <C> <C> <C>
Risk-free interest rate 5.6% 6.1% 6.1%
Expected volatility of common stock 45.7% 30.0% 23.5%
Dividend yield 0.4% 0.5% 0.6%
Expected option term 5 years 5 years 5 years
</TABLE>
The Company applies APB No. 25 in accounting for its stock plans and,
accordingly, no compensation costs have been recognized in the Company's
financial statements for incentive or non-qualified stock options granted. If,
under SFAS 123, the Company determined compensation costs based on the fair
value at the grant date for its stock options, net earnings and earnings per
share would have been reduced to the pro forma amounts below (in millions,
except per share data):
<TABLE>
<CAPTION>
FISCAL YEAR
--------------------------
1998 1997 1996
--------------------------
<S> <C> <C> <C>
Net Earnings
As reported $1,614 $1,160 $ 938
Pro forma $1,527 $1,118 $ 916
Basic Earnings per Share
As reported $ 1.10 $ 0.80 $0.65
Pro forma $ 1.04 $ 0.77 $0.64
Diluted Earnings per Share
As reported $ 1.06 $ 0.78 $0.65
Pro forma $ 1.01 $ 0.75 $0.63
</TABLE>
The following table summarizes shares outstanding under the various
stock option plans at January 31, 1999, February 1, 1998 and February 2, 1997
and changes during the fiscal years ended on these dates (shares in thousands):
<TABLE>
<CAPTION>
NUMBER AVERAGE
OF SHARES OPTION PRICE
--------- ------------
<S> <C> <C>
Outstanding at January 28, 1996 29,970 $ 11.79
Granted 14,438 14.57
Exercised (5,982) 9.74
Cancelled (2,288) 13.12
------ --------
Outstanding at February 2, 1997 36,138 13.16
Granted 17,238 21.87
Exercised (6,862) 13.23
Cancelled (2,696) 15.28
------ --------
Outstanding at February 1, 1998 43,818 15.12
Granted 14,027 32.44
Exercised (7,760) 13.61
Cancelled (2,357) 20.84
------ --------
OUTSTANDING AT JANUARY 31, 1999 47,728 $ 20.17
====== ========
Exercisable 13,105 $ 13.35
====== ========
</TABLE>
29
<PAGE> 9
The average remaining contractual life of the outstanding options as
of January 31, 1999 was approximately 7.6 years.
In addition, the Company had 7,962,854 shares available for future
grants under the Employee Stock Purchase Plan ("ESPP") at January 31, 1999. The
ESPP enables the Company to grant substantially all full-time associates
options to purchase up to 66,412,500 shares of common stock, of which
58,449,648 shares have been exercised from inception of the plan, at a price
equal to the lower of 85% of the stock's fair market value on the first day or
the last day of the purchase period. Shares purchased may not exceed the lesser
of 20% of the associate's annual compensation, as defined, or $25,000 of common
stock at its fair market value (determined at the time such option is granted)
for any one calendar year. Associates pay for the shares ratably over a period
of one year (the purchase period) through payroll deductions, and cannot
exercise their option to purchase any of the shares until the conclusion of the
purchase period. In the event an associate elects not to exercise such options,
the full amount withheld is refundable. During fiscal 1998, options for
3,669,886 shares were exercised at an average price of $19.27 per share. At
January 31, 1999, there were 2,184,525 options outstanding, net of
cancellations, at an average price of $31.41 per share.
Note 5 LEASES
The Company leases certain retail locations, office space, warehouse and
distribution space, equipment and vehicles. While the majority of the leases are
operating leases, certain retail locations are leased under capital leases. As
leases expire, it can be expected that in the normal course of business, leases
will be renewed or replaced.
In June 1996, the Company entered into a $300 million operating lease
agreement for the purpose of financing construction costs for selected new
stores. The Company increased its available funding under the operating lease
agreement to $600 million in May 1997. In October 1998, through a second
operating lease agreement, the Company further increased the available funding
by $282 million to $882 million. Under the agreements, the lessor purchases the
properties, pays for the construction costs and subsequently leases the
facilities to the Company. The initial lease term for the $600 million
agreement is five years with five 2-year renewal options. The lease term for
the $282 million agreement is 10 years with no renewal options. Both lease
agreements provide for substantial residual value guarantees and include
purchase options at original cost on each property. The Company financed a
portion of its new stores in fiscal 1997 and 1998 under the operating lease
agreements and anticipates utilizing these facilities to finance selected new
stores in fiscal 1999 and 2000 and an office building in fiscal 1999.
During 1995, the Company entered into two operating lease agreements
under which the Company leases an import distribution facility, including its
related equipment, and an office building for store support functions. The
initial lease terms are five and seven years, respectively, with five 5-year
renewal options for the import distribution facility and one 5-year renewal
option for the office building. Both lease agreements provide for substantial
residual value guarantees and include purchase options at the higher of the
cost or fair market value of the assets for the import distribution facility
and at cost for the office building.
The maximum amount of the residual value guarantees relative to the
assets under the lease agreements described above is projected to be $855
million. As the leased assets are placed into service, the Company estimates
its liability under the residual value guarantees and records additional rent
expense on a straight-line basis over the remaining lease terms.
Total rent expense, net of minor sublease income for the fiscal years
ended January 31, 1999, February 1, 1998 and February 2, 1997 was $321 million,
$262 million and $219 million, respectively. Real estate taxes, insurance,
maintenance, and operating expenses applicable to the leased property are
obligations of the Company under the building leases. Certain of the store
leases provide for contingent rentals based on percentages of sales in excess
of specified minimums. Contingent rentals for the fiscal years ended January
31,1999, February 1, 1998 and February 2, 1997 were approximately $11 million,
$10 million and $10 million, respectively.
The approximate future minimum lease payments under capital and
operating leases at January 31, 1999 were as follows (in millions):
<TABLE>
<CAPTION>
CAPITAL OPERATING
FISCAL YEAR LEASES LEASES
------- ---------
<S> <C> <C>
1999 $ 29 $ 358
2000 29 352
2001 29 325
2002 29 299
2003 30 282
Thereafter 396 3,109
---- ------
542 $4,725
======
Less: Imputed interest (362)
----
Net present value of capital lease obligations 180
Less: Current installments (2)
----
Long-term capital lease obligations,
excluding current installments $178
====
</TABLE>
Short-term and long-term obligations for capital leases are included
in the Company's Consolidated Balance Sheets in Current Installments of
Long-Term Debt and Long-Term Debt, respectively. The assets under capital
leases recorded in Net Property and Equipment, net of amortization, totaled
$180 million and $147 million at January 31, 1999 and February 1, 1998,
respectively.
30
<PAGE> 10
Note 6 EMPLOYEE BENEFIT PLANS
During fiscal 1996, the Company established a defined contribution plan
("401(k)") pursuant to Section 401(k) of the Internal Revenue Code. The 401(k)
covers substantially all associates that meet certain service requirements. The
Company makes matching cash contributions, on a weekly basis, up to specified
percentages of associates' contributions as approved by the Board of Directors.
During fiscal 1988, the Company established a leveraged Employee Stock
Ownership Plan and Trust ("ESOP") covering substantially all full-time
associates. At January 31, 1999, the ESOP held a total of 21,024,649 shares of
the Company's common stock in trust for plan participants' accounts. The ESOP
purchased the shares in the open market with contributions received from the
Company in fiscal 1998 and 1997, and from the proceeds of loans obtained from
the Company during fiscal 1992, 1990 and 1989 totaling approximately $81
million. All loans payable to the Company in connection with the purchase of
such shares have been paid in full.
During February 1999, the Company made its final contribution to the
ESOP plan and amended its 401(k) plan. In the amendment, the Company elected to
increase its percentage contribution to the 401(k) in lieu of future ESOP
contributions.
The Company adopted a non-qualified ESOP Restoration Plan in fiscal
1994. The Company also made its final contribution to the ESOP Restoration Plan
during February 1999 and established a new 401(k) Restoration Plan. The primary
purpose of the new plan is to provide certain associates deferred compensation
that they would have received under the 401(k) matching contribution if not for
the maximum compensation limits under the Internal Revenue Code of 1986, as
amended. The Company has established a "rabbi trust" to fund the benefits under
the ESOP Restoration Plan. Compensation expense related to this plan for fiscal
years 1998, 1997 and 1996 was not material. Funds provided to the trust are
primarily used to purchase shares of the Company's common stock in the open
market.
The Company's combined contributions to the 401(k) and ESOP were $41
million, $33 million and $25 million for fiscal years 1998, 1997 and 1996,
respectively.
Note 7 BASIC AND DILUTED EARNINGS PER SHARE
The calculations of basic and diluted earnings per share for fiscal years 1998,
1997 and 1996 were as follows (amounts in millions, except per share data):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------
JANUARY 31, FEBRUARY 1, FEBRUARY 2,
1999 1998 1997
(52 WEEKS) (52 WEEKS) (53 WEEKS)
----------- ----------- -----------
<S> <C> <C> <C>
CALCULATION OF BASIC
EARNINGS PER SHARE
Net earnings $1,614 $1,160 $ 938
Weighted average number of
common shares outstanding 1,471 1,459 1,438
------ ------ ------
BASIC EARNINGS PER SHARE $ 1.10 $ 0.80 $ 0.65
====== ====== ======
CALCULATION OF DILUTED
EARNINGS PER SHARE
Net earnings $1,614 $1,160 $ 938
Tax-effected interest expense
attributable to 3 1/4% Notes 23 23 8
------ ------ ------
Net earnings assuming dilution $1,637 $1,183 $ 946
------ ------ ------
Weighted average number of
common shares outstanding 1,471 1,459 1,438
Effect of potentially
dilutive securities:
3 1/4% Notes 48 48 16
Employee stock plans 28 17 10
------ ------ ------
Weighted average number of
common shares outstanding
assuming dilution 1,547 1,524 1,464
------ ------ ------
DILUTED EARNINGS
PER SHARE $ 1.06 $ 0.78 $ 0.65
====== ====== ======
</TABLE>
Employee stock plans represent shares granted under the Company's
employee stock purchase plan and stock option plans, as well as shares issued
for deferred compensation stock plans. For fiscal years 1998, 1997 and 1996,
shares issuable upon conversion of the Company's 3 1/4% Notes, issued in
October 1996, were included in weighted average shares assuming dilution for
purposes of calculating diluted earnings per share. To calculate diluted
earnings per share, net earnings are adjusted for tax-effected net interest and
issue costs on the 3 1/4% Notes and divided by weighted average shares assuming
dilution.
31
<PAGE> 11
Note 8 LAWSUIT SETTLEMENTS
During fiscal 1997, the Company, without admitting any wrongdoing, entered into
a settlement agreement with plaintiffs in the class action lawsuit Butler et.
al. v. Home Depot, Inc., in which the plaintiffs had asserted claims of gender
discrimination. The Company subsequently reached agreements to settle three
other lawsuits seeking class action status, each of which involved claims of
gender discrimination.
As a result of these agreements, the Company recorded a pre-tax
non-recurring charge of $104 million in fiscal 1997 and, in fiscal 1998, made
payments to settle these agreements. The payments made in fiscal 1998 included
$65 million to the plaintiff class members and $22.5 million to the plaintiffs'
attorneys in Butler, and approximately $8 million for other related internal
costs, including implementation or enhancement of certain human resources
programs, as well as the settlement terms of the three other lawsuits. The
Company expects to spend the remaining $9 million for related internal costs
over the next two years. Excluding the non-recurring charge, diluted earnings
per share for fiscal 1997 were $0.82 compared to $0.78 as reported.
Note 9 COMMITMENTS AND CONTINGENCIES
At January 31, 1999, the Company was contingently liable for approximately $431
million under outstanding letters of credit issued primarily in connection with
purchase commitments.
The Company is involved in litigation arising from the normal course
of business. In management's opinion, this litigation is not expected to
materially impact the Company's consolidated results of operations or financial
condition.
Note 10 MERGERS AND ACQUISITIONS
During the first quarter of fiscal 1998, the Company purchased, for $261
million, the remaining 25% partnership interest held by The Molson Companies in
The Home Depot Canada. The excess purchase price over the estimated fair value
of net assets of $117 million as of the acquisition date was recorded as
goodwill and is being amortized over 40 years. As a result of this
transaction, the Company now owns all of The Home Depot's Canadian operations.
The Home Depot Canada partnership was formed in 1994 when the Company acquired
75% of Aikenhead's Home Improvement Warehouse for approximately $162 million.
The terms of the original partnership agreement provided for a put/call option,
which would have resulted in the Company purchasing the remaining 25% of The
Home Depot Canada at any time after the sixth anniversary of the original
agreement. The companies reached a mutual agreement to complete the purchase
transaction at an earlier date.
Note 11 QUARTERLY FINANCIAL DATA
The following is a summary of the unaudited quarterly results of operations for
the fiscal years ended January 31, 1999 and February 1, 1998 (dollars in
millions, except per share data):
<TABLE>
<CAPTION>
PERCENT INCREASE BASIC DILUTED
IN COMPARABLE GROSS NET EARNINGS EARNINGS
NET SALES STORE SALES PROFIT EARNINGS PER SHARE PER SHARE
--------- ---------------- ------ -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Fiscal year ended January 31, 1999:
First quarter $ 7,123 7% $1,968 $ 337 $0.23 $0.22
Second quarter 8,139 7% 2,263 467 0.32 0.31
Third quarter 7,699 7% 2,177 392 0.27 0.26
Fourth quarter 7,258 9% 2,197 418 0.28 0.27
------- -- ------ ------ ----- -----
Fiscal year $30,219 7% $8,605 $1,614 $1.10 $1.06
======= == ====== ====== ===== =====
Fiscal year ended February 1, 1998:
First quarter $ 5,657 11% $1,552 $ 259 $0.18 $0.18
Second quarter 6,550 5% 1,800 358 0.25 0.24
Third quarter 6,217 7% 1,726 236 0.16 0.16
Fourth quarter 5,732 6% 1,703 307 0.21 0.20
------- -- ------ ------ ----- -----
Fiscal year $24,156 7% $6,781 $1,160 $0.80 $0.78
======= == ====== ====== ===== =====
</TABLE>
32
<PAGE> 12
THE HOME DEPOT, INC. AND SUBSIDIARIES
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
The financial statements presented in this Annual Report have been prepared with
integrity and objectivity and are the responsibility of the management of The
Home Depot, Inc. These financial statements have been prepared in conformity
with generally accepted accounting principles and properly reflect certain
estimates and judgments based upon the best available information.
The Company maintains a system of internal accounting controls, which
is supported by an internal audit program and is designed to provide reasonable
assurance, at an appropriate cost, that the Company's assets are safeguarded
and transactions are properly recorded. This system is continually reviewed and
modified in response to changing business conditions and operations and as a
result of recommendations by the external and internal auditors. In addition,
the Company has distributed to associates its policies for conducting business
affairs in a lawful and ethical manner.
The financial statements of the Company have been audited by KPMG LLP,
independent auditors. Their accompanying report is based upon an audit
conducted in accordance with generally accepted auditing standards, including
the related review of internal accounting controls and financial reporting
matters.
The Audit Committee of the Board of Directors, consisting solely of
outside Directors, meets quarterly with the independent auditors, the internal
auditors and representatives of management to discuss auditing and financial
reporting matters. The Audit Committee, acting on behalf of the stockholders,
maintains an ongoing appraisal of the internal accounting controls, the
activities of the outside auditors and internal auditors and the financial
condition of the Company. Both the Company's independent auditors and the
internal auditors have free access to the Audit Committee.
/s/ Dennis Carey /s/ Marshall L. Day
Dennis Carey Marshall L. Day
Executive Vice President and Senior Vice President-
Chief Financial Officer Finance and Accounting
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS AND STOCKHOLDERS
The Home Depot, Inc.:
We have audited the accompanying consolidated balance sheets of The Home Depot,
Inc. and subsidiaries as of January 31, 1999 and February 1, 1998, and the
related consolidated statements of earnings, stockholders' equity and
comprehensive income, and cash flows for each of the years in the three-year
period ended January 31, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of The
Home Depot, Inc. and subsidiaries as of January 31, 1999 and February 1, 1998,
and the results of their operations and their cash flows for each of the years
in the three-year period ended January 31, 1999 in conformity with generally
accepted accounting principles.
/s/ KPMG LLP
Atlanta, Georgia
March 12, 1999
33
<PAGE> 13
10-YEAR SUMMARY OF FINANCIAL AND OPERATING RESULTS
THE HOME DEPOT, INC. AND SUBSIDIARIES
AMOUNTS IN MILLIONS, EXCEPT WHERE NOTED
<TABLE>
<CAPTION>
5-YEAR 10-YEAR
COMPOUND ANNUAL COMPOUND ANNUAL
GROWTH RATE GROWTH RATE 1998
--------------- --------------- --------
<S> <C> <C> <C>
STATEMENT OF EARNINGS DATA
Net sales 26.7% 31.2% $ 30,219
Net sales increase (%) -- -- 25.1
Earnings before income taxes(2) 29.2 35.6 2,654
Net earnings(2) 28.7 35.6 1,614
Net earnings increase (%)(2) -- -- 31.9
Diluted earnings per share ($)(2,3,4) 25.9 30.5 1.06
Diluted earnings per share increase (%)(2) -- -- 29.3
Weighted average number of common shares
outstanding assuming dilution(3) 1.7 4.1 1,547
Gross margin--% of sales -- -- 28.5
Store selling and operating expense--% of sales -- -- 17.7
Pre-opening expense--% of sales -- -- 0.3
General and administrative expense--% of sales -- -- 1.7
Net interest income (expense)--% of sales -- -- --
Earnings before income taxes--% of sales(2) -- -- 8.8
Net earnings--% of sales(2) -- -- 5.3
---- ---- --------
BALANCE SHEET DATA AND FINANCIAL RATIOS
Total assets 23.4% 34.4% $ 13,465
Working capital 15.9 30.7 2,076
Merchandise inventories 27.1 30.7 4,293
Net property and equipment 28.0 37.7 8,160
Long-term debt 12.4 30.7 1,566
Stockholders' equity 25.4 36.7 8,740
Book value per share ($)(3) 23.2 31.7 5.92
Long-term debt to equity (%) -- -- 17.9
Current ratio -- -- 1.73:1
Inventory turnover -- -- 5.4x
Return on invested capital (%)(2) -- -- 19.3
---- ---- --------
STATEMENT OF CASH FLOWS DATA
Depreciation and amortization 32.9% 38.2% $ 373
Capital expenditures 18.4 34.9 2,100
Cash dividends per share ($)(3) 25.2 35.7 0.12
---- ---- --------
STORE DATA(5)
Number of stores 23.6% 23.0% 761
Square footage at year-end 25.3 25.8 81
Increase in square footage (%) -- -- 22.8
Average square footage per store (in thousands) 1.4 2.3 107
---- ---- --------
STORE SALES AND OTHER DATA(5)
Comparable store sales increase (%)(6) -- -- 7
Weighted average weekly sales per operating store (in thousands) 2.0% 6.2% $ 844
Weighted average sales per square foot ($)(6) 0.6 3.8 410
Number of customer transactions 23.0 26.3 665
Average sale per transaction ($) 2.9 3.8 45.05
Number of associates at year-end (actual) 25.4 28.3 156,700
---- ---- --------
</TABLE>
(1) Fiscal years 1996 and 1990 consisted of 53 weeks; all other years reported
consisted of 52 weeks.
(2) Excludes the effect of a $104 million non-recurring charge in fiscal 1997.
(3) All share and per share data have been adjusted for a two-for-one stock
split on July 2, 1998.
34
<PAGE> 14
THE HOME DEPOT, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
1997 1996(1) 1995 1994 1993 1992 1991 1990(1) 1989
- -------- ------- ------- -------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 24,156 $19,535 $15,470 $ 12,477 $ 9,239 $ 7,148 $ 5,137 $ 3,815 $ 2,759
23.7 26.3 24.0 35.0 29.2 39.2 34.6 38.3 38.0
2,002 1,535 1,195 980 737 576 396 260 182
1,224 938 732 605 457 363 249 163 112
30.5 28.2 21.0 32.2 26.1 45.6 52.5 46.0 45.9
0.82 0.65 0.51 0.44 0.34 0.28 0.20 0.15 0.10
26.2 27.5 15.9 29.4 21.4 40.0 33.3 50.0 42.9
1,524 1,464 1,434 1,428 1,421 1,397 1,323 1,216 1,147
28.1 27.8 27.7 27.9 27.7 27.6 28.1 27.9 27.8
17.8 18.0 18.0 17.8 17.6 17.4 18.1 18.2 18.3
0.3 0.3 0.4 0.4 0.4 0.4 0.3 0.4 0.3
1.7 1.7 1.7 1.8 2.0 2.1 2.3 2.4 2.5
-- 0.1 0.1 (0.1) 0.3 0.4 0.3 (0.1) (0.1)
8.3 7.9 7.7 7.8 8.0 8.1 7.7 6.8 6.6
5.1 4.8 4.7 4.8 5.0 5.1 4.8 4.3 4.1
- -------- ------- ------- -------- ------- ------- ------- -------- --------
$ 11,229 $ 9,342 $ 7,354 $ 5,778 $ 4,701 $ 3,932 $ 2,510 $ 1,640 $ 1,118
2,004 1,867 1,255 919 994 807 624 301 274
3,602 2,708 2,180 1,749 1,293 940 662 509 381
6,509 5,437 4,461 3,397 2,371 1,608 1,255 879 514
1,303 1,247 720 983 874 844 271 531 303
7,098 5,955 4,988 3,442 2,814 2,304 1,691 683 512
4.85 4.13 3.48 2.53 2.09 1.73 1.34 0.64 0.49
18.4 20.9 14.4 28.6 31.1 36.6 16.0 77.7 59.1
1.82:1 2.01:1 1.89:1 1.76:1 2.02:1 2.07:1 2.17:1 1.73:1 1.94:1
5.4x 5.6x 5.5x 5.7x 5.9x 6.3x 6.1x 6.0x 5.9x
17.0 16.3 16.3 16.5 13.9 17.6 19.8 20.6 23.2
- -------- ------- ------- -------- ------- ------- ------- -------- --------
$ 283 $ 232 $ 181 $ 130 $ 90 $ 70 $ 52 $ 34 $ 21
1,525 1,248 1,308 1,220 900 437 432 400 205
0.10 0.08 0.06 0.05 0.04 0.03 0.02 0.01 0.01
- -------- ------- ------- -------- ------- ------- ------- -------- --------
624 512 423 340 264 214 174 145 118
66 54 44 35 26 21 16 13 10
23.1 21.6 26.3 33.2 26.3 26.8 24.1 27.4 26.9
106 105 105 103 100 98 95 92 88
- -------- ------- ------- -------- ------- ------- ------- -------- --------
7 7 3 8 7 15 11 10 13
$ 829 $ 803 $ 787 $ 802 $ 764 $ 724 $ 633 $ 566 $ 515
406 398 390 404 398 387 348 322 303
550 464 370 302 236 189 146 112 84
43.63 42.09 41.78 41.29 39.13 37.72 35.13 33.92 32.65
124,400 98,100 80,800 67,300 50,600 38,900 28,000 21,500 17,500
- -------- ------- ------- -------- ------- ------- ------- -------- --------
</TABLE>
(4) Diluted earnings per share for fiscal 1997, including a $104 million
non-recurring charge, were $0.78 (see note 8 of the Notes to Consolidated
Financial Statements).
(5) Excludes Maintenance Warehouse and National Blinds and Wallpaper, Inc.
(6) Adjusted to reflect the first 52 weeks of the 53-week fiscal years in 1996
and 1990.
35
<PAGE> 1
The Board of Directors
The Home Depot, Inc.:
We consent to incorporation by reference in the registration statements (No.'s
333-61733, 333-56207, 33-46476, 33-22531, 33-22299, 33-58807, 333-16695,
333-01385) on Form S-8 and (No. 333-03497) on Form S-3 of The Home Depot, Inc.
of our report dated March 12, 1999, relating to the consolidated balance sheets
of The Home Depot, Inc. and subsidiaries as of January 31, 1999 and February 1,
1998, and the related consolidated statements of earnings, stockholders' equity
and comprehensive income, and cash flows for each of the years in the
three-year period ended January 31, 1999, which report is incorporated by
reference in the January 31, 1999, annual report on Form 10-K of The Home
Depot, Inc.
/s/ KPMG LLP
Atlanta, Georgia
April 16, 1999
<PAGE> 1
POWER OF ATTORNEY
I, Frank Borman, a director of The Home Depot, Inc., a Delaware
corporation, do hereby constitute and appoint Arthur M. Blank and Ronald M.
Brill, jointly and severally, my true and lawful attorneys-in-fact, each with
full power of substitution, for me in any and all capacities, to sign, pursuant
to the requirements of the Securities Exchange Act of 1934, the Annual Report
of the Corporation on Form 10-K for the fiscal year of the Corporation ended
January 31, 1999, and to file the same with the Securities and Exchange
Commission, together with all exhibits thereto and other documents in
connection therewith, including such as are incorporated therein by reference,
and to sign on my behalf and in my stead, in any and all capacities, any
amendments to said Annual Report, incorporating such changes as any of the said
attorneys-in-fact deems appropriate, hereby ratifying and confirming all that
each of said attorneys-in-fact deems appropriate, and all that each of said
attorneys-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 16th day
of April, 1999.
/s/ Frank Borman
----------------------
Frank Borman
<PAGE> 2
POWER OF ATTORNEY
I, John L. Clendenin, a director of The Home Depot, Inc., a Delaware
corporation, do hereby constitute and appoint Arthur M. Blank and Ronald M.
Brill, jointly and severally, my true and lawful attorneys-in-fact, each with
full power of substitution, for me in any and all capacities, to sign, pursuant
to the requirements of the Securities Exchange Act of 1934, the Annual Report
of the Corporation on Form 10-K for the fiscal year of the Corporation ended
January 31, 1999, and to file the same with the Securities and Exchange
Commission, together with all exhibits thereto and other documents in
connection therewith, including such as are incorporated therein by reference,
and to sign on my behalf and in my stead, in any and all capacities, any
amendments to said Annual Report, incorporating such changes as any of the said
attorneys-in-fact deems appropriate, hereby ratifying and confirming all that
each of said attorneys-in-fact deems appropriate, and all that each of said
attorneys-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 5th day
of April, 1999.
/s/ John L. Clendenin
--------------------------
John L. Clendenin
<PAGE> 3
POWER OF ATTORNEY
I, Berry Cox, a director of The Home Depot, Inc., a Delaware
corporation, do hereby constitute and appoint Arthur M. Blank and Ronald M.
Brill, jointly and severally, my true and lawful attorneys-in-fact, each with
full power of substitution, for me in any and all capacities, to sign, pursuant
to the requirements of the Securities Exchange Act of 1934, the Annual Report
of the Corporation on Form 10-K for the fiscal year of the Corporation ended
January 31, 1999, and to file the same with the Securities and Exchange
Commission, together with all exhibits thereto and other documents in
connection therewith, including such as are incorporated therein by reference,
and to sign on my behalf and in my stead, in any and all capacities, any
amendments to said Annual Report, incorporating such changes as any of the said
attorneys-in-fact deems appropriate, hereby ratifying and confirming all that
each of said attorneys-in-fact deems appropriate, and all that each of said
attorneys-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 5th day
of April, 1999.
/s/ Berry R. Cox
--------------------
Berry R. Cox
<PAGE> 4
POWER OF ATTORNEY
I, Milledge Hart, III, a director of The Home Depot, Inc., a Delaware
corporation, do hereby constitute and appoint Arthur M. Blank and Ronald M.
Brill, jointly and severally, my true and lawful attorneys-in-fact, each with
full power of substitution, for me in any and all capacities, to sign, pursuant
to the requirements of the Securities Exchange Act of 1934, the Annual Report
of the Corporation on Form 10-K for the fiscal year of the Corporation ended
January 31, 1999, and to file the same with the Securities and Exchange
Commission, together with all exhibits thereto and other documents in
connection therewith, including such as are incorporated therein by reference,
and to sign on my behalf and in my stead, in any and all capacities, any
amendments to said Annual Report, incorporating such changes as any of the said
attorneys-in-fact deems appropriate, hereby ratifying and confirming all that
each of said attorneys-in-fact deems appropriate, and all that each of said
attorneys-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 6th day
of April, 1999.
/s/ Milledge A. Hart, III
-------------------------
Milledge A. Hart, III
<PAGE> 5
POWER OF ATTORNEY
I, Donald Keough, a director of The Home Depot, Inc., a Delaware
corporation, do hereby constitute and appoint Arthur M. Blank and Ronald M.
Brill, jointly and severally, my true and lawful attorneys-in-fact, each with
full power of substitution, for me in any and all capacities, to sign, pursuant
to the requirements of the Securities Exchange Act of 1934, the Annual Report
of the Corporation on Form 10-K for the fiscal year of the Corporation ended
January 31, 1999, and to file the same with the Securities and Exchange
Commission, together with all exhibits thereto and other documents in
connection therewith, including such as are incorporated therein by reference,
and to sign on my behalf and in my stead, in any and all capacities, any
amendments to said Annual Report, incorporating such changes as any of the said
attorneys-in-fact deems appropriate, hereby ratifying and confirming all that
each of said attorneys-in-fact deems appropriate, and all that each of said
attorneys-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 7th day
of April, 1999.
/s/ Kenneth G. Langone
----------------------
Kenneth G. Langone
<PAGE> 6
POWER OF ATTORNEY
I, Kenneth G. Langone, a director of The Home Depot, Inc., a Delaware
corporation, do hereby constitute and appoint Arthur M. Blank and Ronald M.
Brill, jointly and severally, my true and lawful attorneys-in-fact, each with
full power of substitution, for me in any and all capacities, to sign, pursuant
to the requirements of the Securities Exchange Act of 1934, the Annual Report
of the Corporation on Form 10-K for the fiscal year of the Corporation ended
January 31, 1999, and to file the same with the Securities and Exchange
Commission, together with all exhibits thereto and other documents in
connection therewith, including such as are incorporated therein by reference,
and to sign on my behalf and in my stead, in any and all capacities, any
amendments to said Annual Report, incorporating such changes as any of the said
attorneys-in-fact deems appropriate, hereby ratifying and confirming all that
each of said attorneys-in-fact deems appropriate, and all that each of said
attorneys-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 6th day
of April, 1999.
/s/ Donald R. Keough
--------------------
Donald R. Keough
<PAGE> 7
POWER OF ATTORNEY
I, M. Faye Wilson, a director of The Home Depot, Inc., a Delaware
corporation, do hereby constitute and appoint Arthur M. Blank and Ronald M.
Brill, jointly and severally, my true and lawful attorneys-in-fact, each with
full power of substitution, for me in any and all capacities, to sign, pursuant
to the requirements of the Securities Exchange Act of 1934, the Annual Report
of the Corporation on Form 10-K for the fiscal year of the Corporation ended
January 31, 1999, and to file the same with the Securities and Exchange
Commission, together with all exhibits thereto and other documents in
connection therewith, including such as are incorporated therein by reference,
and to sign on my behalf and in my stead, in any and all capacities, any
amendments to said Annual Report, incorporating such changes as any of the said
attorneys-in-fact deems appropriate, hereby ratifying and confirming all that
each of said attorneys-in-fact deems appropriate, and all that each of said
attorneys-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 14th
day of April, 1999.
/s/ M. Faye Wilson
------------------
M. Faye Wilson
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-END> JAN-31-1999
<CASH> 62
<SECURITIES> 0
<RECEIVABLES> 469
<ALLOWANCES> 0
<INVENTORY> 4,293
<CURRENT-ASSETS> 4,933
<PP&E> 9,422
<DEPRECIATION> 1,262
<TOTAL-ASSETS> 13,465
<CURRENT-LIABILITIES> 2,857
<BONDS> 1,566
0
0
<COMMON> 74
<OTHER-SE> 8,666
<TOTAL-LIABILITY-AND-EQUITY> 13,465
<SALES> 30,219
<TOTAL-REVENUES> 30,219
<CGS> 21,614
<TOTAL-COSTS> 21,614
<OTHER-EXPENSES> 5,944
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7
<INCOME-PRETAX> 2,654
<INCOME-TAX> 1,040
<INCOME-CONTINUING> 1,614
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,614
<EPS-PRIMARY> 1.10
<EPS-DILUTED> 1.06
</TABLE>
