FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended October 31, 1997
Commission file number 1-4372
FOREST CITY ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
Ohio 34-0863886
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1100 Terminal Tower Cleveland, Ohio 44113
(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code 216-621-6060
10800 Brookpark Road, Cleveland, Ohio 44130
(Former name, former address and former fiscal year, if changed since
last report).
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO _____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at December 1, 1997
Class A Common Stock, $.33 1/3 par value 9,593,036 shares
Class B Common Stock, $.33 1/3 par value 5,396,240 shares
<PAGE>
FOREST CITY ENTERPRISES, INC.
Index
Page No.
Part I. Financial Information:
Item 1. Financial Statements
Forest City Enterprises, Inc. and Subsidiaries
Consolidated Balance Sheets - October 31, 1997
(Unaudited) and January 31, 1997 3
Consolidated Statements of Earnings and Retained
Earnings (Unaudited) - Three and Nine Months
Ended October 31, 1997 and 1996 4
Consolidated Statements of Cash Flows (Unaudited) - 5 - 6
Nine Months Ended October 31, 1997 and 1996
Notes to Consolidated Financial Statements
(Unaudited) 7 - 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9 - 22
Part II. Other Information
Item I. Legal Proceedings 23
Item 6. Exhibits and Reports on Form 8-K 23
Signatures 24
<PAGE>
PART I - FINANCIAL INFORMATION
<TABLE>
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
October 31,1997 January 31, 1997
---------------- ----------------
(Unaudited)
(dollars in thousands)
<S> <C> <C>
ASSETS
Real Estate
Completed rental properties $ 2,239,005 $ 2,247,393
Projects under development 345,790 220,137
Land held for development or sale 53,791 52,649
------------- -------------
2,638,586 2,520,179
Less accumulated depreciation (435,623) (399,830)
------------- -------------
Total Real Estate 2,202,963 2,120,349
Cash 27,096 41,302
Notes and accounts receivable, net 196,618 204,959
Inventories 46,645 48,769
Investments in and advances to affiliates 174,452 145,242
Other assets 175,028 180,784
------------- -------------
$ 2,822,802 $ 2,741,405
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Mortgage debt, nonrecourse $ 1,941,887 $ 1,898,428
Accounts payable and accrued expenses 346,099 378,230
Notes payable 26,288 37,041
Long-term debt 91,865 94,923
Deferred income taxes 113,411 115,488
Deferred profit 24,270 25,317
------------- -------------
Total Liabilities 2,543,820 2,549,427
------------- -------------
SHAREHOLDERS' EQUITY
Preferred stock - convertible, without par value;
5,000,000 and 1,000,000 shares authorized, respectively;
no shares issued. - -
Common stock - $.33 1/3 par value
Class A, 48,000,000 and 16,000,000 shares authorized,
9,896,486 and 7,932,358 shares issued, 9,582,836
and 7,696,408 outstanding, respectively. 3,297 2,643
Class B, convertible, 18,000,000 and 6,000,000 shares
authorized, 5,545,490 and 5,554,618 shares issued,
5,406,440 and 5,415,568 outstanding, respectively. 1,848 1,851
------------- --------------
5,145 4,494
Additional paid-in capital 119,429 43,996
Retained earnings 165,893 152,077
-------------- --------------
290,467 200,567
Less treasury stock, at cost: 313,650 Class A
and 139,050 Class B; 235,950 Class A and
139,050 Class B shares, respectively. (11,485) (8,589)
------------- --------------
Total Shareholders' Equity 278,982 191,978
------------- --------------
$ 2,822,802 $ 2,741,405
============= ==============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS
(UNAUDITED)
<CAPTION>
Three Months Ended October 31, Nine Months Ended October 31,
------------------------------ -----------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
Revenues $ 154,975 $ 163,809 $ 448,078 $ 441,272
----------- ----------- ----------- -----------
Operating expenses 91,904 103,470 259,981 276,034
Interest expense 32,655 32,851 96,261 99,401
Provision for decline in real estate - 11,107 - 11,107
Depreciation and amortization 18,354 17,977 54,265 52,730
---------- ---------- ----------- -----------
142,913 165,405 410,507 439,272
---------- ----------- ----------- -----------
Gain (loss) on disposition of properties - 17,123 (38,637) 18,057
---------- ----------- ----------- -----------
EARNINGS (LOSS) BEFORE INCOME TAXES 12,062 15,527 (1,066) 20,057
---------- ----------- ----------- -----------
INCOME TAX EXPENSE (BENEFIT)
Current 2,737 (927) 4,387 1,758
Deferred (1,324) 8,400 (7,785) 8,369
---------- ----------- ----------- -----------
1,413 7,473 (3,398) 10,127
---------- ----------- ----------- -----------
NET EARNINGS BEFORE EXTRAORDINARY GAIN 10,649 8,054 2,332 9,930
Extraordinary gain, net of tax - 1,993 14,187 2,900
---------- ----------- ----------- ----------
NET EARNINGS 10,649 10,047 16,519 12,830
Retained earnings at beginning of period 156,144 146,373 152,077 143,590
Dividends on common stock - $.06 and $.18 per share,
respectively in 1997; $.21 per share in 1996 (900) (2,798) (2,703) (2,798)
----------- ----------- ----------- ---------
Retained earnings at end of period $ 165,893 $ 153,622 $ 165,893 $ 153,622
----------- ----------- ----------- ----------
Weighted average common shares outstanding 15,003,634 13,122,421 14,272,223 13,169,612
----------- ----------- ----------- ----------
NET EARNINGS PER COMMON SHARE
Net earnings before extraordinary gain,
net of tax $ 0.71 $ 0.62 $ 0.16 $ 0.75
Extraordinary gain, net of tax - 0.15 1.00 0.22
----------- ----------- ------------ -----------
NET EARNINGS PER COMMON SHARE $ 0.71 $ 0.77 $ 1.16 $ 0.97
=========== =========== ============ ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Nine Months Ended October 31,
-----------------------------
1997 1996
----------- ------------
(in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Rents and other revenues received $ 431,987 $ 401,571
Proceeds from land sales 15,237 25,942
Land development expenditures (17,400) (15,629)
Operating expenditures (272,591) (231,240)
Interest paid (96,261) (99,401)
------------ -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 60,972 81,243
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (209,999) (143,458)
Proceeds from disposition of property - 33,052
Investments in and advances to affiliates (27,121) (20,243)
------------ -----------
NET CASH USED IN INVESTING ACTIVITIES (237,120) (130,649)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in mortgage and long-term debt 225,714 120,407
Principal payments on mortgage debt on real estate (44,681) (38,122)
Payments on long-term debt (76,557) (24,319)
Increase in notes payable 35,470 6,749
Payments on notes payable (46,754) (13,384)
Decrease in restricted cash 3,600 -
Payment of deferred financing costs (5,448) (7,496)
Net proceeds from sale of common stock 76,084 -
Purchase of treasury stock (2,896) (6,080)
Dividends paid to shareholders (2,590) -
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 161,942 37,755
---------- -----------
NET DECREASE IN CASH (14,206) (11,651)
CASH AT BEGINNING OF PERIOD 41,302 39,145
---------- -----------
CASH AT END OF PERIOD $ 27,096 $ 27,494
========== ===========
</TABLE>
<PAGE>
<TABLE>
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(UNAUDITED)
<CAPTION>
Nine Months Ended October 31,
------------------------------
1997 1996
------------ -------------
(in thousands)
<S> <C> <C>
RECONCILIATION OF NET EARNINGS TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
NET EARNINGS $ 16,519 $ 12,830
Depreciation 42,974 40,157
Amortization 11,291 12,573
(Decrease) increase in deferred income taxes (2,241) 8,519
Loss (gain) on disposition of properties 38,637 (18,057)
Provision for decline in real estate - 11,107
Extraordinary gain (18,272) (4,797)
(Increase) decrease in land held for development or sale (7,296) 2,428
Decrease (increase) in notes and accounts receivable 7,193 (24,609)
Decrease (increase) in inventories 2,124 (1,143)
(Decrease)increase in accounts payable and accrued expenses (25,344) 29,946
(Decrease)increase in deferred profit (1,047) 2,285
(Increase)decrease in other assets (3,566) 10,004
---------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 60,972 $ 81,243
========== ===========
</TABLE>
Supplemental Non-Cash Disclosure:
The following items represent the non-cash effect of an increase in the
Company's interest in Skylight Office Tower, the disposition of the Company's
interest in Toscana, a reduction of the Company's interest in MIT Phase II, and
the exchange of Woodridge during the period ended October 31, 1997 and a
reduction of the Company's interest in the Clark Building during the period
ended October 31, 1996.
<TABLE>
<S> <C> <C>
Operating Activities
Notes and accounts receivable $ (5,072) $ 212
Other assets (121) 844
Accounts payable and accrued expenses (6,900) (2,051)
Deferred taxes 164 -
---------- -----------
Total effect on operating activities $ (11,929) $ (995)
---------- -----------
Investing Activities
Capital expenditures $ 53,070 $ 9,073
Investments in and advances to affiliates 4,131 -
---------- -----------
Total effect on investing activities $ 57,201 $ 9,073
---------- -----------
Financing Activities
Mortgage and long-term debt $ (45,803) $ (8,078)
Notes payable 531 -
---------- -----------
Total effect on financing activities $ (45,272) $ (8,078)
---------- -----------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
A. EXTRAORDINARY GAIN
During the first quarter of 1997, the Company recorded an extraordinary
gain, net of tax, of $11,045,000, or $.84 per share, resulting from debt
extinguishment of Toscana, a 563-unit apartment complex which was sold in
February 1997. In the second quarter, the Company recorded an extraordinary
gain of $3,142,000, or $.22 per share, representing an adjustment of the
estimated income tax effect of the Toscana debt extinguishment that
occurred in the first quarter. See note E and "Sale of Toscana" in
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
B. DIVIDENDS
On March 19, 1997, the Board of Directors declared a regular quarterly cash
dividend of $.06 per share on both Class A and Class B common shares,
payable June 16, 1997, to shareholders of record on June 2, 1997.
On June 9, 1997, the Board of Directors declared a regular quarterly cash
dividend of $.06 per share on both Class A and Class B common shares,
payable September 15, 1997, to shareholders of record on September 2, 1997.
On September 8, 1997, the Board of Directors declared a regular quarterly
cash dividend of $.06 per share on both Class A and Class B common shares,
payable December 15, 1997, to shareholders of record on December 1, 1997.
On December 11, 1997, the Board of Directors declared a regular quarterly
cash dividend of $.07 per share on both Class A and Class B common shares,
payable March 16, 1998, to shareholders of record on March 2, 1998.
C. AUTHORIZED SHARES
On June 10, 1997, the shareholders approved amendments to the Company's
Articles of Incorporation to increase the Company's capitalization to a)
48,000,000 shares of Class A common stock from 16,000,000 shares;
b)18,000,000 shares of Class B common stock from 6,000,000 shares; and c)
5,000,000 shares of preferred stock from 1,000,000 shares.
D. TREASURY STOCK
On August 18, 1997, the Company purchased 77,700 shares of Class A common
stock owned by three children of Samuel H. Miller, the Company's
Co-Chairman of the Board of Directors, and Ruth Miller, who died on
November 26, 1996. The purchase price was $36.50 per share plus 8% interest
from May 7, 1997 to August 18, 1997, less dividends paid between those two
dates, for a total of $2,896,000.
<PAGE>
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
E. EARNINGS PER SHARE
Earnings per share for the nine months ended October 31, 1997 does not
equal the sum of the first three quarters because of the effect on weighted
average common shares outstanding caused by the public offering of Class A
common stock (see note F) and the purchase of treasury stock (see note D).
F. PUBLIC OFFERING/SUPPLEMENTARY EARNINGS PER SHARE
On May 20, 1997, the Company sold to the public 1,955,000 shares of Class A
common stock at an initial price of $42.00 per share. Had the issuance of
these shares occurred at the beginning of each of the periods presented,
earnings per share would have been as follows:
Three Months Nine Months
Ended October 31, Ended October 31,
----------------- -----------------
1997 1996 1997 1996
------ ------ ------ ------
Net earnings before
extraordinary gain, net of tax $.71 $.54 $ .16 $ .66
Extraordinary gain, net of tax - .13 .94 .19
---- ----- ----- -----
Net earnings per common share $.71 $.67 $1.10 $ .85
==== ==== ===== =====
G. LONG-TERM DEBT
On December 10, 1997, the Company replaced its $37,500,000 term loan due
July 1, 2001 and its $80,000,000 revolving credit facility with a new
credit agreement. The new credit agreement with a group of eight banks
consists of a $55,200,000 term loan due January 1, 2004 and a $151,800,000
revolving credit facility maturing December 10, 2000. The Company expects
that an additional bank will soon be added to the group, thereby increasing
the term loan to $60,000,000 and the revolving credit facility to
$165,000,000.
Quarterly principal payments of $2,500,000 on the term loan will commence
April 1, 1998. The revolving credit facility allows for up to $30,000,000
in outstanding letters of credit, which reduces the revolving credit
portion available to the Company. The revolving credit facility may be
renewed annually by unanimous consent of the banks or the outstanding
revolving credit loans may be converted by the Company to a four-year term
loan at its maturity. The new credit agreement provides, among other
things, for 1) interest rates ranging from 1/4% to 3/4% over the prime rate
or 2% to 2 1/2% over the London Interbank Offered Rate ("LIBOR"); 2)
maintenance of debt service coverage ratio, specified level of net worth
and cash flow (as defined); and 3) restriction on dividend payments.
<PAGE>
The enclosed financial statements have been prepared on a basis
consistent with accounting principles applied in the prior periods and reflect
all adjustments which are, in the opinion of management, necessary for a fair
presentation of the results of operations for the periods presented. All such
adjustments were of a normal recurring nature. Results of operations for the
nine months ended October 31, 1997 are not necessarily indicative of results of
operations which may be expected for the full year.
The following Management's Discussion and Analysis of Financial
Condition and Results of Operations of Forest City Enterprises, Inc. should be
read in conjunction with the financial statements and the footnotes thereto
contained in the January 31, 1997 annual report ("Form 10-K").
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
- -----------------------------------------------------------------------
GENERAL
The Company develops, acquires, owns and manages commercial and residential real
estate properties in 21 states and the District of Columbia. The Company owns a
portfolio that is diversified both geographically and by property types and
operates through four principal business groups: Commercial Group, Residential
Group, Land Group and Lumber Trading Group.
The Company uses an additional measure, along with net earnings, to report its
operating results. This measure, referred to as Earnings Before Depreciation,
Amortization and Deferred Taxes ("EBDT"), is not a measure of operating results
or cash flows from operations as defined by generally accepted accounting
principles. However, the Company believes that EBDT provides additional
information about its operations and, along with net earnings, is necessary to
understand its operating results. The Company's view is that EBDT is also an
indicator of the Company's ability to generate cash to meet its funding
requirements. EBDT is defined and discussed in detail under "Results of
Operations - EBDT."
The Company's EBDT grew by 11.3%, or decreased 2.7% per share, in the third
quarter 1997 to $26,947,000, or $1.80 per share, from $24,213,000, or $1.85 per
share, for the third quarter of 1996. On a per-share basis, EBDT decreased
because of a 14.4% increase in the weighted average number of shares outstanding
pursuant to a public offering in May 1997. Per-share figures have also been
adjusted for a three-for-two stock split in February 1997. Proforma per share
EBDT, reflecting the sale of 1,955,000 shares of Class A common stock in May,
1997, was $1.80 for the third quarter of 1997 and $1.61 for the same period of
1996.
<PAGE>
EBDT for the nine months ended October 31, 1997 grew by 29.2%,or 19.1% per
share, to $80,119,000, or $5.61 per share, from $61,991,000, or $4.71 per share,
for the comparable period of 1996. Proforma per share EBDT for the nine months
ended October 31, 1997 and 1996, reflecting the sale of 1,955,000 shares of
Class A common stock in May, 1997, was $5.33 and $4.10, respectively.
EBDT for the nine months ended October 31, 1997 grew primarily as a result of a
litigation settlement related to Toscana, a 563-unit apartment complex in
Irvine, California ($6,991,000 - see "Sale of Toscana" below), improved
operations and acqusitions of apartment units by the Residential Group
($2,745,000), the openings of new properties in the Commercial Group
($4,795,000), results of Lumber Trading Group ($1,299,000) and an increase in
capitalized interest on development projects ($4,659,000). In addition, the
provision for current income taxes for the nine months ended October 31, 1997 in
the Commercial Group increased $5,085,000 over the same period last year due to
1996 net operating loss benefits not recurring in 1997. This increase in current
taxes was offset by a decrease of $5,841,000 compared to 1996 in Corporate
Activities which is attributable primarily to higher tax benefits in the current
year and a refund of Alternative Minimum Tax for last year received in 1997.
RESULTS OF OPERATIONS
The Company reports its results of operations by each of its four principal
business groups as it believes it provides the most meaningful understanding of
the Company's financial performance.
The major components of EBDT are Revenues, Operating Expenses and Interest
Expense, each of which is discussed below. Net Operating Income ("NOI") is
defined as Revenues less Operating Expenses. See the information in the table
"Earnings before Depreciation, Amortization and Deferred Taxes" at the end of
this Management's Discussion and Analysis of Financial Condition and Results of
Operations.
COMMERCIAL GROUP
REVENUES. Revenues of the Commercial Group increased by $911,000, or 1.1%,
to $84,162,000 in the third quarter of 1997 from $83,251,000 for the third
quarter of 1996. This increase is primarily the result of the sale of the
Brooklyn, Ohio land ($4,500,000) and property openings including Atlantic Center
in Brooklyn, New York ($2,141,000), Bruckner Boulevard in the Bronx, New York
($380,000), Gun Hill Road in the Bronx ($462,000), Marketplace at Riverpark in
Fresno, California ($398,000) and Showcase in Las Vegas, Nevada ($529,000). In
addition, the Marriott hotel in Charleston, West Virginia and the Ritz-Carlton
hotel in Cleveland, Ohio realized increased hotel revenues over last year of
$64,000 and $975,000, respectively. These increases were partially offset by the
1996 commercial land sales ($8,224,000) which did not recur in 1997, the closing
of the Handy Andy Stores stores that were the Company's tenants ($156,000) and
the disposition in 1996 of Beachwood Place ($334,000).
Revenues of the Commercial Group increased $1,047,000, or .5%, to $233,713,000
in the nine months ended October 31, 1997 compared to $232,666,000 for the
comparable period of 1996. This increase is primarily the result of the sale of
the Brooklyn, Ohio land ($4,500,000) and property openings including Galleria at
Sunset in Henderson, Nevada ($920,000), Atlantic Center ($5,983,000), Bruckner
Boulevard ($1,343,000), Gun Hill Road ($462,000), Marketplace at Riverpark
($738,000), and Showcase ($1,173,000). In addition, the Charleston Marriott and
Ritz-Carlton, Cleveland realized increased revenues in the first nine months of
1997 over the prior year of $833,000 and $1,182,000, respectively, and office
portfolio revenues increased $1,516,000. These increases were partially offset
by 1996 land sales which did not recur ($13,330,000), the sale of Beachwood
Place in 1996 ($1,389,000) and the closing of the Handy Andy stores
($3,032,000).
<PAGE>
OPERATING AND INTEREST EXPENSES. In the third quarter of 1997, operating
expenses decreased $4,236,000, or 9.3%, to $41,271,000 from $45,507,000 for the
third quarter of 1996. Interest expense for the third quarter of 1997 increased
$2,066,000, or 9.52%, to $23,770,000 compared to $21,704,000 for the third
quarter of 1996. The decrease in operating expenses is attributable primarily to
the decrease in costs associated with the sales of land in 1996 ($5,322,000)
which did not recur in 1997, the closing or sale of properties during 1996
($355,000) and a decrease in project write-offs ($1,726,000). This decrease was
partially offset by the cost associated with the sale of the Brooklyn, Ohio land
($1,232,000), an increase in operating expenses from the opening of new retail
properties ($933,000) and incremental costs associated with increased hotel
occupancy ($938,000). The increase in interest expense was attributable to the
opening of new properties.
During the nine months ended October 31, 1997, operating expenses decreased
$4,123,000, or 3.4%, and interest expense increased $4,374,000, or 6.7%, over
the comparable period in 1996 to $117,310,000 and $69,969,000, respectively from
$121,433,000 and $65,595,000 respectively. The decrease in operating expenses
was attributable primarily to costs associated with the sale of land in 1996
($8,763,000) which did not recur in 1997 and costs associated with properties
which were sold or closed during 1996 ($1,863,000), partially offset by the
costs associated with the sale of the Brooklyn, Ohio land ($1,232,000), the
opening of new retail properties ($3,155,000) and costs associated with
increased hotel occupancy ($1,747,000). The increase in interest expense was
attributable to the opening of new properties.
RESIDENTIAL GROUP
REVENUES. Revenues for the Residential Group increased by $2,224,000, or
7.7%, in the third quarter of 1997 to $31,240,000 from $29,016,000 in the third
quarter of 1996. This increase reflects development fees from The Knolls, an
acquisition and redevelopment project consisting of 260 apartment units in
Orange, California ($1,145,000) and acquisitions of Museum Tower, a 286-unit
building in Philadelphia, Pennsylvania ($912,000) and Colony Woods, a 396-unit
complex in Bellevue, Washington ($272,000). In addition, portfolio revenues
improved over last year ($1,733,000), offset by the loss of revenue due to the
sale of Toscana in February, 1997 ($1,803,000 - see "Sale of Toscana" below.)
Revenues for the Residential Group increased by $18,726,000, or 21.9% in the
nine months ended October 31, 1997 to $104,087,000 from $85,361,000 for the
comparable period in 1996. This increase reflects proceeds from the Toscana
litigation settlement ($15,000,000 - see "Sale of Toscana" below), development
fees from The Knolls ($1,145,000) and the acquisitions of Emerald Palms
($1,021,000), Museum Tower ($1,600,000) and Colony Woods ($619,000). In
addition, portfolio revenues improved over last year ($3,906,000), offset by the
loss of revenue due to the sale of Toscana ($5,289,000).
<PAGE>
OPERATING AND INTEREST EXPENSES. Operating expenses decreased by $93,000,
or .6% to $15,900,000 in the third quarter of 1997 from $15,993,000 in the third
quarter of 1996. Interest expense decreased $466,000, or 5.7%, to $7,747,000 in
the third quarter of 1997 from $8,213,000 in the third quarter of 1996. The
majority of the decrease in operating expenses reflected the reduction in
expenses due to the sale of Toscana ($739,000), partially offset by increases in
expenses due to the acquisitions of Museum Tower ($406,000) and Colony Woods
($191,000). The decrease in interest expense is primarily the result of the sale
of Toscana ($1,024,000 see "Sale of Toscana" below), offset by increases due to
acquisition mortgages.
Operating expenses increased by $520,000, or 1.1%, to $46,915,000 in the nine
months ended October 31, 1997 from $46,395,000 in the comparable period of 1996.
Interest expense decreased by $1,877,000, or 7.7 %, to $22,477,000 in the nine
months ended October 31, 1997 from $24,354,000 for the comparable period of
1996. The increase in operating expenses is attributable primarily to the
acquisitions of Museum Tower ($706,000), Colony Woods ($423,000) and Emerald
Palms ($453,000), real estate taxes at The Laurels in Justice, Illinois
($332,000) and normal inflationary growth on the portfolio (approximately
$800,000), partially offset by a decrease in expenses due to the sale of Toscana
($2,214,000). The decrease in interest expenses is primarily the result of the
sale of Toscana ($3,049,000), partially offset by increases due to acquisition
mortgages.
LAND GROUP
REVENUES. Revenues for the Land Group decreased by $8,645,000, or 63.8%, to
$4,907,000 in the third quarter of 1997 from $13,552,000 in the third quarter of
1996. In the third quarter of 1996, the Land Group had a significant land sale
in Miami, Florida which did not recur in the third quarter of 1997.
Revenues for the Land Group decreased by $15,983,000, or 56.7%, to $12,224,000
in the nine months ended October 31, 1997 from $28,207,000 in the comparable
period in 1996. This decrease was attributable primarily to 1996 activity at
Silver Lakes in Fort Lauderdale, Florida and a significant land sale, both of
which did not recur in 1997.
OPERATING AND INTEREST EXPENSES. Operating expenses and interest expense
decreased by $6,156,000 and $153,000 (or 61.4% and 8.7%), respectively, in the
third quarter of 1997 to $3,864,000 and $1,610,000, respectively, from
$10,020,000 and $1,763,000, respectively, in the third quarter of 1996. The
decrease in operating expenses reflects the fluctuation in sales volume from the
prior year. The decrease in interest expense was due primarily to the reduction
of principal during 1996 on the acquisition and development mortgages relating
to the Seven Hills project in Henderson, Nevada and the Silver Lakes project.
<PAGE>
Operating expenses and interest expense decreased by $13,240,000 and $862,000
(or 56.3% and 16.7%), respectively, in the nine months ended October 31, 1997 to
$10,274,000 and $4,303,000, respectively, from $23,514,000 and $5,165,000,
respectively, in the nine months ended October 31, 1996. The decrease in
operating expenses reflects the fluctuation in sales volume from the prior year.
The decrease in interest expense was due primarily to the reduction of principal
throughout 1996 on the acquisition and development mortgages relating to the
Seven Hills and Silver Lakes projects.
LUMBER TRADING GROUP
REVENUES. Revenues of the Lumber Trading Group decreased by $295,000, or
.9%, to $33,974,000 in the third quarter of 1997 from $34,269,000 in the third
quarter of 1996. The decrease was due primarily to an decrease in trading volume
because of a more level market in the third quarter of 1997 compared to third
quarter of 1996 ($2,474,000), partially offset by an increase due to the sale of
a facsimile line of business ($2,179,000).
Revenues of the Lumber Trading Group increased by $4,756,000, or 5.3%, to
$94,377,000 in the nine months ended October 31, 1997 from $89,621,000 in the
nine months ended October 31, 1996. The increase was due primarily to an
increase in volume at Forest City/Babin ($2,694,000) and the sale of a facsimile
line of business ($2,179,000).
OPERATING AND INTEREST EXPENSES. Operating expenses in the Lumber Trading
Group decreased in the third quarter of 1997 by $1,604,000, or 5.3%, to
$28,650,000 from $30,254,000 in the third quarter of 1996. This decrease
reflected the fluctuation in variable expenses due to decreased lumber trading
sales volume. Interest expense for the third quarter of 1997 increased by
$380,000, or 38.8%, to $1,359,000 from $979,000 in the third quarter of 1996.
This increase in interest expense was the result of an increase in the average
borrowings during the third quarter of 1997 compared to the same period in 1996.
Operating expenses in the Lumber Trading Group increased in the nine months
ended October 31, 1997 by $2,751,000, or 3.5% to $82,172,000 from $79,421,000 in
the nine months ended October 31, 1996. This increase reflected the fluctuation
in variable expenses due to increased sales volume. Interest expense for the
nine months ended October 31, 1997 decreased by $135,000, or 3.3% to $3,949,000
from $4,084,000 in the same period for 1996. This decrease in interest expense
was the result of a reduced rate of interest on the Lumber Trading Group's line
of credit from an average of 8.49% for the nine months ended October 31, 1996 to
7.13% for the nine months ended October 31, 1997, partially offset by an
increase of approximately $8,000,000 in the average borrowings for the same
period.
CORPORATE ACTIVITIES
REVENUES. Revenues of the Corporate Activities decreased $3,029,000, or
81.4%, in the third quarter of 1997 to $692,000 from $3,721,000 in the third
quarter of 1996. Revenues of the Corporate Activities decreased $1,740,000, or
32.1%, for the nine months ended October 31, 1997 to $3,677,000 compared to
$5,417,000 for the same period in 1996. Corporate Activities revenues consists
primarily of interest income on advances made by the Company on behalf of our
partners, and vary from year to year depending on interest rates and the amount
of loans outstanding.
<PAGE>
OPERATING AND INTEREST EXPENSES. Operating expenses increased $577,000, or
23.4%, in the third quarter of 1997 to $3,048,000 from $2,471,000 in the third
quarter of 1996. Operating expenses decreased $1,946,000, or 25.8%, in the nine
months ended October 31, 1997 to $5,611,000 from $7,557,000 for the comparable
period of 1996. This decrease was primarily the result of adjustments to
estimated accruals. Interest expense, net of capitalized interest on development
projects, decreased $2,023,000 in the third quarter of 1997 to ($1,831,000) from
$192,000 in the third quarter of 1996. Interest expense, net of capitalized
interest on development projects, decreased $4,640,000 for the nine months ended
October 31, 1997 to ($4,437,000) from $203,000 for the nine months ended October
31, 1996. Interest expense consists primarily of interest expense on the Term
Loan and Revolving Credit Facility that has not been allocated to a principal
business unit, net of interest capitalized on development projects.
LOSS ON DISPOSITION OF PROPERTIES
During the second quarter of 1997, the Company sold its interest in Woodridge, a
land development project in suburban Chicago, Illinois and recorded a loss on
disposition of $1,894,000, after tax. During the first quarter of 1997, the
Company recorded a loss on disposition of Toscana, as discussed in the next
paragraph.
SALE OF TOSCANA / EXTRAORDINARY GAIN
During February 1997, the Company sold Toscana, a 563-unit apartment complex in
Irvine, California, back to the original land owner and settled litigation
related to the property. As a result, the Company recorded a loss on disposition
of property of $21,463,000, after tax, and an extraordinary gain of $14,187,000,
after tax, related to the extinguishment of a portion of the property's
nonrecourse mortgage debt. During the second quarter of 1997, the income tax
estimate on the extraordinary gain was reduced by $3,142,000. Proceeds from the
litigation settlement resulted in EBDT of $6,991,000 for the first quarter of
1997 and nine months ended October 31, 1997. The result of these transactions to
the Company is after-tax income of $1,882,000.
NET EARNINGS
In the third quarter of 1997, the Company's net earnings were $10,649,000, or
$.71 per share, compared to net earnings of $10,047,000, or $.77 per share, in
the third quarter of 1996. Proforma per share amounts, reflecting the issuance
of 1,955,000 shares of Class A common stock in May 1997, are $.71 and $.67 for
the third quarter of 1997 and 1996, respectively.
For the nine months ended October 31, 1997, the Company's net earnings were
$16,519,000, or $1.16 per share, compared to net earnings of $12,830,000, or
$.97 per share, for the nine months ended October 31, 1996. Proforma per share
amounts, reflecting the issuance of 1,955,000 shares of Class A common stock in
May 1997, are $1.10 and $.85 for the nine months ended October 31, 1997 and
1996, respectively.
<PAGE>
Earnings per share for the nine months ended October 31, 1997 does not equal the
sum of the three quarterly earnings per share because of the sale of 1,955,000
share of Class A common stock in May 1997 and the purchase of treasury stock in
the third quarter.
EBDT
Earnings Before Depreciation, Amortization and Deferred Taxes ("EBDT") is
defined as net earnings from operations before depreciation, amortization and
deferred taxes on income, and excludes provision for decline in real estate,
gain (loss) on disposition of properties and extraordinary gain. The Company
excludes depreciation and amortization expense from EBDT because they are
non-cash items and the Company believes the values of its properties have
appreciated, over time, in excess of their original cost. Deferred income taxes
are excluded because they are a non-cash item. Payment of income taxes has not
been significant and is not expected to be significant in the foreseeable
future. The provision for decline in real estate is excluded from EBDT because
it is a non-cash item that varies from year to year based on factors unrelated
to the Company's overall financial performance. The Company excludes gain (loss)
on the disposition of properties from EBDT because it develops and acquires
properties for long-term investment, not short-term trading gains. As a result,
the Company views dispositions of properties other than commercial outlots or
land held by the Land Group as nonrecurring items. Extraordinary gains are
generally the result of the restructuring of nonrecourse debt obligations and
are not considered to be a component of the Company's operating results.
FINANCIAL CONDITION AND LIQUIDITY
On May 20, 1997, the Company sold 1,955,000 new shares of its Class A common
stock at $42 per share and realized net proceeds, after offering costs, of
approximately $76,100,000. The proceeds were used to repay the outstanding
balance on the Revolving Credit Facility ($71,000,000) and the remainder was
allocated for working capital. The Company plans to draw on the Revolving Credit
Facility for its equity investment in development projects.
On December 10, 1997, the Company replaced its $37,500,000 term loan due July 1,
2001 and its $80,000,000 revolving credit facility with a new credit agreement.
The new credit agreement with a group of eight banks consists of a $55,200,000
term loan due January 1, 2001 and a $151,800,000 revolving credit facility
maturing December 10, 2000. The Company expects that an additional bank will
soon be added to the participating bank group, thereby increasing the term loan
to $60,000,000 and the revolving credit facility to $165,000,000. Quarterly
principal payments of $2,500,000 on the term loan will commence April 1, 1998.
The revolving credit facility allows for up to $30,000,000 in outstanding
letters of credit, which reduces the revolving credit available to the Company.
The revolving credit facility may be renewed annually by unanimous consent of
the banks and may be converted to a four-year term loan at its maturity. The new
credit agreement provides, among other things, for 1) interest rates ranging
from 1/4% to 3/4% over the prime rate or 2% to 2-1/2% over the London Interbank
Offered Rate ("LIBOR"); 2) maintenance of debt service coverage ratio, specified
level of net worth and cash flow (as defined) and 3) restriction on dividend
payments.
<PAGE>
The Company believes that its sources of liquidity and capital are adequate. The
Company's principal sources of funds are cash provided by operations, the
Revolving Credit Facility and refinancings of existing properties. The Company's
principal use of funds are the financing of new developments, capital
expenditures and payments on non-recourse mortgage debt on real estate.
The Lumber Trading Group is financed separately from the rest of the Company's
principal business groups, and the financing obligations of Lumber Trading Group
are not recourse to the Company. Accordingly, the liquidity of Lumber Trading
Group is discussed separately below under "Lumber Trading Group Liquidity."
MORTGAGE REFINANCINGS
During the nine months ended October 31, 1997, the Company completed
$370,000,000 in financings, including $245,000,000 in refinancings, $81,000,000
for new development projects and $44,000,000 in acquisition mortgages. The
Company anticipates its non-recourse mortgage indebtedness will either be
refinanced with new non-recourse mortgage indebtedness or extended as it
matures.
LONG-TERM DEBT
On December 10, 1997, the Company entered into a new increased credit agreement
described above. Under the terms of the Company's prior credit agreement in
place at October 31, 1997, the Company had recourse debt of $90,500,000
outstanding, comprised of $37,500,000 Term Loan maturing July 1, 2001 and
$53,000,000 under a Revolving Credit Facility maturing July 25, 1998. The
Company was required to make quarterly principal payments of $2,500,000 under
the Term Loan.
INTEREST RATE EXPOSURE
At October 31, 1997 the composition of non-recourse mortgage debt is as follows:
Amount Rate (1)
------ --------
(in thousands)
Fixed $ 927,820 7.93%
Variable -
Taxable (2) 784,452 7.65%
Tax-Exempt 152,024 4.58%
UDAG and other subsidized loans 77,591 2.59%
-----------
$1,941,887 7.34%
=========== =====
(1) The weighted average interest rates shown above include both the base
index and the lender margin.
(2) At October 31, 1997, $413,600,000 of this variable debt is subject to
interest rate swaps as described below.
With respect to taxable variable-rate debt, the Company generally attempts to
obtain interest rate protection for such debt with a maturity in excess of one
year. Of the $784,452,000 in taxable variable-rate debt outstanding at October
31, 1997, $413,600,000 was protected by interest rate swaps with a weighted
average rate of 7.78% and an average term of 1.7 years, effectively reducing the
Company's taxable variable-rate debt to $370,852,000 as of October 31, 1997. In
addition, the Company has purchased interest rate cap protection for its
variable-rate debt portfolio in the amount of $66,270,000, $253,600,000 and
$320,600,000 for the fiscal years ending January 31, 1998, 1999 and 2000,
respectively. The Company generally does not hedge tax-exempt debt because,
since 1992, the base rate of this type of financing has averaged only 3.25% and
has never exceeded 5.75%.
<PAGE>
At October 31, 1997, a 100 basis point increase in taxable interest rates would
increase the annual pre-tax interest cost of the Company's taxable variable-rate
debt by approximately $3,700,000. Although tax-exempt rates generally increase
in an amount that is smaller than corresponding changes in taxable interest
rates, a 100 basis point increase in tax-exempt interest rates would increase
the annual pre-tax interest cost of the Company's tax-exempt variable-rate debt
by approximately $1,500,000.
LUMBER TRADING GROUP LIQUIDITY
The Lumber Trading Group is separately financed with two lines of credit and an
accounts receivable sale program. These credit facilities are not recourse to
the Company.
The Lumber Trading Group's two lines of credit total $46,000,000. These credit
lines are secured by the assets of the Lumber Trading Group and are used by the
Trading Group to finance its working capital needs. At October 31, 1997, the
Lumber Trading Group had $44,900,000 of available credit under these facilities.
The Lumber Trading Group also has sold an undivided ownership interest in a pool
of accounts receivable of up to a maximum of $90,000,000 and uses this program
to finance its working capital needs. At October 31, 1997, $49,000,000 had been
sold under this accounts receivable program.
The Company believes that the amounts available under these credit facilities,
together with the accounts receivable sale program, will be sufficient to meet
the Lumber Trading Group's liquidity needs.
CASH FLOWS
Net cash provided by operating activities was $60,972,000 and $81,243,000 for
the nine months ended October 31, 1997 and 1996, respectively. The decrease in
cash provided by operating activities in 1997 compared to 1996 is primarily the
result of the reduction in accounts payable and accrued expenses of $55,290,000
primarily from Lumber Trading Group and an increase in land held for development
or sale of $9,724,000, offset by receipt of the $10,000,000 Toscana litigation
settlement and a $31,802,000 increase in the collection of notes and accounts
receivable primarily from Lumber Trading Group.
<PAGE>
Net cash used in investing activities totaled $237,120,000 and $130,649,000 for
the nine months ended October 31, 1997 and 1996, respectively. Capital
expenditures, other than development and acquisition activities, totaled
$31,609,000 (including both recurring and investment capital expenditures) in
the nine months ended October 31, 1997 and were financed primarily with cash
provided by operating activities. In the nine months ended October 31, 1997, net
cash used in investing activities reflected the Company's use of $178,390,000 of
funds for acquisition and development activities, which were financed with
approximately $135,000,000 in new mortgage indebtedness and proceeds from the
sale of common stock in May of this year. In addition, $27,121,000 was used for
investments in and advances to affiliates, and includes investments in
syndicated residential projects including The Grand in North Bethesda, Maryland
($9,700,000) and The Enclave in San Jose, California ($1,600,000); Land Group's
investments in Silver Shores ($1,700,000) in Ft. Lauderdale, Florida and Seven
Hills in Henderson, Nevada ($800,000); advances to our New York affiliate
($8,400,000); and temporary advances for financing commitments ($6,000,000).
Net cash provided by financing activities totaled $161,942,000 and $37,755,000
in the nine months ended October 31, 1997 and 1996, respectively. Net proceeds
from the sale of 1,955,000 shares of Class A common stock in May of 1997 were
$76,084,000. The Company's refinancing of mortgage indebtedness is discussed
above in "Mortgages Refinancings" and borrowings under new mortgage indebtedness
for acquisition and development activities is included in the preceding
paragraph discussing net used in investing activities. In addition, net cash
provided by financing activities in the nine months ended October 31, 1997
reflected net repayment of $17,628,000 on Lumber Trading Group's lines of
credit, repayment of the $6,365,000 note payable relating to the purchase of the
Company's additional 33-1/3% interest in the Pittsburgh Mall and repayment of a
land note of $5,521,000. In addition, financing activities for the nine months
ended October 31, 1997 include the release of $3,600,000 in restricted cash
related to the financing of Atlantic Center in Brooklyn, New York, payment of
deferred financing costs of $5,448,000, purchase of 77,700 shares of treasury
stock for $2,896,000 and payment of $2,590,000 of dividends.
SHELF REGISTRATION
On December 3, 1997, the Company filed a shelf registration statement with the
Securities and Exchange Commission for the potential offering on a delayed basis
of up to $250,000,000 in debt or equity securities. This registration is in
addition to the shelf registration filed March 4, 1997 of up to $250,000,000 in
debt or equity securities. The Company has sold approximately $82,000,000 of the
earlier shelf registration through an equity offering completed on May 20, 1997.
With this most recent shelf registration, the Company has available
approximately $418,000,000 of debt, equity or any combination thereof.
STOCK SPLIT, DIVIDENDS, CAPITALIZATION AND TREASURY STOCK PURCHASE
A three for two stock split of both the Company's Class A and Class B Common
Stock, was effective February 17, 1997 to shareholders of record at the close of
business on February 3, 1997. The stock split was effected as a stock dividend.
<PAGE>
Quarterly cash dividends of $.06 per share (post-split) on shares of both Class
A and Class B Common Stock were paid on March 17, June 16 and September 15,
1997. The fourth 1997 quarterly dividend of $.06 per share on shares of both
Class A and Class B Common Stock will be paid on December 15, 1997 to
shareholders of record at the close of business on December 1, 1997. The first
1998 quarterly dividend of $.07 per share on shares of both Class A and Class B
Common Stock will be paid on March 16, 1998 to shareholders of record at the
close of business on March 2, 1998.
On June 10, 1997, the shareholders approved an amendment to the Company's
Articles of Incorporation to increase the Company's capitalization to a)
48,000,000 shares of Class A Common Stock from 16,000,000 shares; b) 18,000,000
shares of Class B Common Stock from 6,000,000 shares; and c) 5,000,000 shares of
preferred stock from 1,000,000 shares.
On August 18, 1997, the Company purchased 77,700 shares of Class A common stock
owned by Richard Miller, Aaron Miller and Gabrielle Miller, the children of
Samuel H. Miller, the Company's Co-Chairman of the Board of Directors, and Ruth
Miller, who died on November 26, 1996. The repurchase will provide funds
necessary to pay taxes on the estate of Ruth Miller. The shares were purchased
at a price of $36.50 for an aggregate purchase price of $2,836,050 plus 8.0%
interest from May 7, 1997 to August 18, 1997, less any dividends paid between
those two dates, for a total of $2,896,000.
NEW ACCOUNTING STANDARDS
In February 1997, FASB issued SFAS 128 "Earnings per Share," which is effective
for fiscal years ending after December 15, 1997. This Statement simplifies the
standards for computing earnings per share ("EPS") and makes them comparable to
international EPS standards. The Company will adopt the provisions of SFAS 128
in its 1997 Annual Report, but does not expect this statement to have a material
impact on EPS.
INFORMATION RELATING TO FORWARD-LOOKING STATEMENTS
This Quarterly Report, together with other statements and information publicly
disseminated by the Company, contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Such statements reflect
management's current views with respect to financial results related to future
events and are based on assumptions and expectations which may not be realized
and are inherently subject to risks and uncertainties, many of which cannot be
predicted with accuracy and some of which might not even be anticipated. Future
events and actual results, financial or otherwise, may differ from the results
discussed in the forward-looking statements. Risks and other factors that might
cause differences, some of which could be material, include, but are not limited
to, the effect of economic and market conditions on a nation-wide basis as well
as regionally in areas where the Company has a geographic concentration of
properties; failure to consummate financing arrangements; development risks,
including lack of satisfactory financing, construction and lease-up delays and
cost overruns; the level and volatility of interest rates; financial stability
of tenants within the retail industry, which may be impacted by competition and
consumer spending; the rate of revenue increases versus expenses increases; the
cyclical nature of the lumber wholesaling business; as well as other risks
listed from time to time in the Company's reports filed with the Securities and
Exchange Commission. The Company has no obligation to revise or update any
forward-looking statements as a result of future events or new information.
Readers are cautioned not to place undue reliance on such forward-looking
statements.
<PAGE>
<TABLE>
FOREST CITY ENTERPRISES, INC.
EARNINGS BEFORE DEPRECIATION, AMORTIZATION AND DEFERRED TAXES
FOR THE THIRD QUARTER ENDED OCTOBER 31, 1997 AND 1996
(IN THOUSANDS)
<CAPTION>
Commercial Group Residential Group Land Group
-------------------- -------------------- ---------------------
1997 1996 1997 1996 1997 1996
--------- --------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 84,162 $ 83,251 $ 31,240 $ 29,016 $ 4,907 $ 13,552
Operating expenses,
including depreciation
and amortization for non-
real estate Groups 41,271 45,507 15,900 15,993 3,864 10,020
Interest expense 23,770 21,704 7,747 8,213 1,610 1,763
Income tax provision 2,106 (741) 940 (763) (2,199) 699
--------- --------- --------- --------- ---------- ----------
67,147 66,470 24,587 23,443 3,275 12,482
--------- --------- --------- --------- ---------- ----------
Earnings before
depreciation, amortization
and deferred taxes
(EBDT) $ 17,015 $ 16,781 $ 6,653 $ 5,573 $ 1,632 $ 1,070
========= ========= ========= ========= ========== ==========
Lumber Trading Group Corporate Activities Total
-------------------- -------------------- ---------------------
1997 1996 1997 1996 1997 1996
--------- --------- --------- --------- ---------- ----------
Revenues $ 33,974 $ 34,269 $ 692 $ 3,721 $ 154,975 $ 163,809
Operating expenses,
including depreciation
and amortization for non-
real estate groups 28,650 30,254 3,048 2,471 92,733 104,245
Interest expense 1,359 979 (1,831) 192 32,655 32,851
Income tax provision 1,376 1,201 417 2,104 2,640 2,500
--------- --------- --------- --------- ---------- ----------
31,385 32,434 1,634 4,767 128,028 139,596
--------- --------- --------- --------- ---------- ----------
Earnings before
depreciation, amortization
and deferred tax
(EBDT) $ 2,589 $ 1,835 ($ 942) ($ 1,046) $ 26,947 $ 24,213
========= ========= ========= ========= ========== ==========
Reconciliation to net earnings:
Earnings before depreciation,
amortization and deferred taxes (EBDT) $ 26,947 $ 24,213
Depreciation and amortization - real estate Groups (17,525) (17,202)
Deferred taxes - real estate Groups 1,227 (1,824)
Provision for decline in real estate, net of tax 0 (6,714)
Gain on disposition of properties, net of tax 0 9,581
Extraordinary gain, net of tax 0 1,993
---------- ----------
Net earnings $ 10,649 $ 10,047
========== ==========
</TABLE>
<PAGE>
<TABLE>
FOREST CITY ENTERPRISES, INC.
EARNINGS BEFORE DEPRECIATION, AMORTIZATION AND DEFERRED TAXES
FOR THE NINE MONTHS ENDED OCTOBER 31, 1997 AND 1996
(IN THOUSANDS)
<CAPTION>
Commercial Group Residential Group Land Group
-------------------- -------------------- ---------------------
1997 1996 1997 1996 1997 1996
--------- --------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 233,713 $ 232,666 $ 104,087 $ 85,361 $ 12,224 $ 28,207
Operating expenses,
including depreciation
and amortization for non-
real estate Groups 117,310 121,433 46,915 46,395 10,274 23,514
Interest expense 69,969 65,595 22,477 24,354 4,303 5,165
Income tax provision 2,858 (2,227) 9,039 (1,442) (2,897) (187)
--------- --------- --------- --------- ---------- ----------
190,137 184,801 78,431 69,307 11,680 28,492
--------- --------- --------- --------- ---------- ----------
Earnings before
depreciation, amortization
and deferred taxes
(EBDT) $ 43,576 $ 47,865 $ 25,656 $ 16,054 $ 544 ($ 285)
========= ========= ========= ========= ========== ==========
Lumber Trading Group Corporate Activities Total
-------------------- -------------------- ---------------------
1997 1996 1997 1996 1997 1996
--------- --------- --------- --------- ---------- ----------
Revenues $ 94,377 $ 89,621 $ 3,677 $ 5,417 $ 448,078 $ 441,272
Operating expenses,
including depreciation
and amortization for non-
real estate groups 82,172 79,421 5,611 7,557 262,282 278,320
Interest expense 3,949 4,084 (4,437) 203 96,261 99,401
Income tax provision 3,260 2,419 (2,844) 2,997 9,416 1,560
--------- --------- --------- --------- ---------- ----------
89,381 85,924 (1,670) 10,757 367,959 379,281
--------- --------- --------- --------- ---------- ----------
Earnings before
depreciation, amortization
and deferred tax
(EBDT) $ 4,996 $ 3,697 $ 5,347 ($ 5,340) $ 80,119 $ 61,991
========= ========= ========= ========= ========== ==========
Reconciliation to net earnings:
Earnings before depreciation,
amortization and deferred taxes (EBDT) $ 80,119 $ 61,991
Depreciation and amortization - real estate Groups (51,964) (50,444)
Deferred taxes - real estate Groups (2,467) (5,049)
Provision for decline in real estate, net of tax 0 (6,714)
Gain (loss) on disposition of properties, net of tax (23,356) 10,146
Extraordinary gain, net of tax 14,187 2,900
---------- ----------
Net earnings $ 16,519 $ 12,830
========== ==========
</TABLE>
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The ownership of 50% (i.e., a 33-1/3% interest in the project) of the
Company's interest in the Pittsburgh Mall project, which is currently under
development, is under dispute in litigation pending in Common Pleas Court in
Cuyahoga County, Ohio, between a subsidiary of the Company (RMI) and Simon
DeBartolo Group, L.P. (SDG). SDG has sought injunctive relief concerning its
alleged rights to such interest, as well as $20 million compensatory and $10
million punitive damages. The Company believes it has meritorious defenses to
these claims, and intends to defend against them vigorously. No assurance,
however, can be given that such litigation will not delay or hinder the
development of this project; if decided in a manner adverse to RMI, such
litigation could adversely affect the potential value of this project to the
Company. The parties have negotiated and agreed to a settlement, however, the
settlement has not been finalized. The Company's General Counsel is of the
opinion that these claims would not have a material adverse effect on the
Company.
The Company is involved in various other claims and lawsuits incidental to
its business. The Company's General Counsel is of the opinion that none of these
other claims and lawsuits will have a material adverse effect on the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
No. 10.38 - Credit Agreement, dated as of December 10, 1997, by and
among Forest City Rental Properties Corporation, the banks named
therein, KeyBank National Association, as administrative agent,
and National City Bank, as syndication agent.
No. 10.39 - Guaranty of Payment of Debt, dated as of December 10,
1997, by and among Forest City Enterprises, Inc., the banks named
therein, KeyBank National Association, as administrative agent,
and National City Bank, as syndication agent.
No. 27 - Financial Data Schedules
(b) Reports on Form 8-K - none.
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
FOREST CITY ENTERPRISES, INC.
(Registrant)
Date December 15, 1997 /s/ Thomas G. Smith
Thomas G. Smith, Senior Vice President
and Chief Financial Officer
Date December 15, 1997 /s/ Linda M. Kane
Linda M. Kane, Vice President,
Corporate Controller
SIGNATURES
Pursuant to the requirements 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.
FOREST CITY ENTERPRISES, INC.
(Registrant)
Date December 12, 1997 /s/
Thomas G. Smith, Senior Vice President
and Chief Financial Officer
Date December 12, 1997 /s/
Linda M. Kane, Vice President,
Corporate Controller
CREDIT AGREEMENT
by and among
FOREST CITY RENTAL PROPERTIES CORPORATION
as Borrower
and
VARIOUS LENDING INSTITUTIONS
as Banks
and
KEYBANK NATIONAL ASSOCIATION
as Administrative Agent for the Banks
and
NATIONAL CITY BANK
as Syndication Agent for the Banks
Dated as of December 10, 1997
- --------------------------------------------------------------------------------
<PAGE>
Page
TABLE OF CONTENTS
Page
I DEFINITIONS.................................................1
II TERM LOANS..................................................7
2.01(a) INITIAL TERM LOANS.............................7
2.01(b) REPAYMENT OF INITIAL TERM LOANS................8
2.02(a) ADDITIONAL TERM LOANS ON CONVERSION OF
REVOLVING LOANS ................8
2.02(b) REPAYMENT OF ADDITIONAL TERM LOANS.............8
2.03 TERM NOTES.....................................9
2.04 INTEREST ON TERM LOANS.........................9
2.05 LIMITATION ON TOTAL ANNUAL PRINCIPAL
PAYMENTS ON THE TERM LOANS...................9
III REVOLVING LOANS.............................................10
3.01 AMOUNT OF THE REVOLVING LOAN FACILITY..........10
3.02 REVOLVING LOAN COMMITMENTS.....................10
3.03 REVOLVING LOANS................................10
3.04 PURPOSE OF THE REVOLVING LOANS.................11
3.05 REVOLVING LOAN NOTES...........................11
3.06 LETTERS OF CREDIT..............................11
3.07 REPAYMENT OF THE REVOLVING LOAN NOTES..........13
3.08 INTEREST ON THE REVOLVING LOANS................13
3.09 EXTENSIONS OF THE REVOLVING LOANS..............13
IV INTEREST ON THE TERM LOANS AND THE REVOLVING LOANS..........14
4.01(a) INTEREST OPTIONS...............................14
4.01(b) LIBOR RATE OPTION..............................14
4.01(c) PRIME RATE OPTION..............................14
4.01(d) INDICATED SPREAD...............................14
4.02 INTEREST PERIODS...............................16
4.03 INTEREST PAYMENT DATES.........................16
4.04 INTEREST CALCULATIONS..........................16
4.05 POST-DEFAULT RATE..............................16
4.06 RESERVES OR DEPOSIT REQUIREMENTS, ETC..........16
4.07 TAX LAW, ETC...................................17
4.08 INDEMNITY......................................18
4.09 EURODOLLAR DEPOSITS UNAVAILABLE OR INTEREST
RATE UNASCERTAINABLE........................18
4.10 CHANGES IN LAW RENDERING LIBOR LOANS UNLAWFUL..19
4.11 FUNDING........................................19
(i)
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Page
V AGREEMENTS AND CONDITIONS APPLICABLE TO ALL LOANS...........19
5.01 NOTICE OF BORROWING............................19
5.02 DISBURSEMENT OF FUNDS..........................20
5.03 CONDITIONS TO LOANS............................20
5.04 PAYMENT ON NOTES, ETC.........................21
5.05 PREPAYMENT....................................21
5.06 UNUSED COMMITMENT FEES.........................22
VI CONDITIONS PRECEDENT........................................23
6.01 CORPORATE AND LOAN DOCUMENTS...................23
6.02 OPINION OF COUNSEL FOR PARENT..................24
6.03 OPINION OF COUNSEL FOR BORROWER................24
6.04 TERMINATION OF OLD CREDIT AGREEMENT............24
6.05 ADVERSE CHANGE, ETC............................24
6.06 JUDGMENT, ORDERS...............................25
6.07 LITIGATION.....................................25
6.08 NOTICE OF BORROWING............................25
6.09 PAYMENT OF FEES................................25
VII AFFIRMATIVE COVENANTS.......................................25
7.01 PAYMENT OF AMOUNTS DUE.........................25
7.02 EXISTENCE, BUSINESS, ETC.......................25
7.03 MAINTENANCE OF PROPERTIES......................25
7.04 PAYMENT OF TAXES, ETC..........................26
7.05 FINANCIAL STATEMENTS...........................26
7.06 INSPECTION.....................................27
7.07 ENVIRONMENTAL COMPLIANCE.......................27
7.08 ERISA..........................................28
7.09 INSURANCE......................................29
7.10 MONEY OBLIGATIONS..............................29
7.11 RECORDS........................................29
7.12 FRANCHISES.....................................30
7.13 NOTICE.........................................30
7.14 POST CLOSING ITEMS.............................30
7.15 FURTHER ASSURANCES.............................30
7.16 NOTICE OF DEFAULT OR LITIGATION................30
7.17 USE OF PROCEEDS................................31
VIII NEGATIVE COVENANTS..........................................31
8.01. PLAN...........................................31
8.02. COMBINATIONS...................................31
(ii)
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Page
8.03. BULK TRANSFERS.................................31
8.04. BORROWINGS.....................................31
8.05 LIENS..........................................32
8.06 LOANS..........................................33
8.07 GUARANTEES....................................33
8.08 AMENDMENT OF ARTICLES OF INCORPORATION AND/OR
REGULATIONS.................................34
8.09 FISCAL YEAR....................................35
8.10 REGULATION U...................................35
8.11 NO PLEDGE......................................35
8.12 TRANSACTIONS WITH AFFILIATES...................35
8.13 DEBT SERVICE COVERAGE RATIO....................35
IX REPRESENTATIONS AND WARRANTIES..............................36
9.01 EXISTENCE......................................36
9.02 RIGHT TO ACT...................................36
9.03 BINDING EFFECT.................................37
9.04 LITIGATION.....................................37
9.05 EMPLOYEE RETIREMENT INCOME SECURITY ACT........37
9.06 ENVIRONMENTAL COMPLIANCE.......................37
9.07 SOLVENCY.......................................38
9.08 FINANCIAL STATEMENTS...........................38
9.09 DEFAULTS.......................................38
9.10 OPERATIONS.....................................38
9.11 TITLE TO PROPERTIES; PATENTS, TRADE MARKS, ETC.38
9.12 COMPLIANCE WITH OTHER INSTRUMENTS..............39
9.13 MATERIAL RESTRICTIONS..........................39
9.14 CORRECTNESS OF DATA FURNISHED..................39
9.15 TAXES..........................................39
9.16 COMPLIANCE WITH LAWS...........................40
9.17 REGULATION U, ETC..............................40
9.18 HOLDING COMPANY ACT............................40
9.19 SECURITIES ACT, ETC............................40
9.20 INVESTMENT COMPANY ACT.........................40
9.21 INDEBTEDNESS OF SUBSIDIARIES...................40
9.22 GUARANTEES.....................................41
9.23 FUNDED INDEBTEDNESS............................41
X EVENTS OF DEFAULT...........................................41
10.01 PAYMENTS.......................................41
10.02 COVENANTS......................................41
10.03 REPRESENTATIONS AND WARRANTIES.................41
(iii)
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Page
10.04 CROSS DEFAULT..................................42
10.05 TERMINATION OF PLAN............................42
10.06 DOMESTIC SUBSIDIARY SOLVENCY...................42
10.07 BORROWER'S SOLVENCY............................43
10.08 CHANGE OF OWNERSHIP............................43
10.09 JUDGMENTS......................................43
10.10 DEFAULT UNDER GUARANTY.........................43
XI REMEDIES UPON DEFAULT.......................................44
11.01 OPTIONAL DEFAULTS..............................44
11.02 AUTOMATIC DEFAULTS.............................44
11.03 REMEDIES RELATING TO LETTERS OF CREDIT.........44
11.04 OFFSETS........................................45
11.05 REMEDIES WITH RESPECT TO GUARANTY DEFAULT......45
XII THE AGENT...................................................45
12.01 APPOINTMENT AND AUTHORIZATION..................45
12.02 DELEGATION OF DUTIES...........................46
12.03 EXCULPATORY PROVISIONS.........................46
12.04 RELIANCE BY AGENT..............................46
12.05 RESIGNATION OF THE AGENT; SUCCESSOR AGENT......47
12.06 NOTE HOLDERS...................................47
12.07 CONSULTATION WITH COUNSEL......................47
12.08 DOCUMENTS......................................48
12.09 AGENT AND AFFILIATES...........................48
12.10 KNOWLEDGE OF DEFAULT...........................48
12.11 INDEMNIFICATION................................48
12.12 EQUALIZATION PROVISION.........................49
XIII MISCELLANEOUS...............................................49
13.01 NO WAIVER; CUMULATIVE REMEDIES.................49
13.02 AMENDMENTS, CONSENTS...........................49
13.03 NOTICES........................................50
13.04 COSTS, EXPENSES AND TAXES......................50
13.05 SURVIVAL OF REPRESENTATIONS AND WARRANTIES.....51
13.06 OBLIGATIONS SEVERAL; NO FIDUCIARY OBLIGATIONS..51
13.07 EXECUTION IN COUNTERPARTS......................51
13.08 BINDING EFFECT; ASSIGNMENT.....................51
13.09 GOVERNING LAW..................................52
13.10 SEVERABILITY OF PROVISIONS; CAPTIONS...........53
13.11 PURPOSE........................................53
13.12 CONSENT TO JURISDICTION........................53
(iv)
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Page
13.13 ENTIRE AGREEMENT..............................53
13.14. JURY TRIAL WAIVER..............................53
13.15 SURVIVAL.......................................54
13.16 INDEPENDENCE OF COVENANTS......................54
EXHIBITS
A THE BANKS AND THE COMMITMENTS
B FORM OF GUARANTY
C FORM OF TERM NOTE
D FORM OF REVOLVING LOAN NOTE
E FORM OF LETTER OF CREDIT REQUEST
F FORM OF NOTICE OF BORROWING
SCHEDULES
3.03 AUTHORIZED FISCAL OFFICERS
3.06 OUTSTANDING LETTERS OF CREDIT
7.05 FORM OF COVENANT COMPLIANCE WORKSHEET
7.14 POST-CLOSING ITEMS
9.00 EXCEPTIONS TO REPRESENTATIONS AND WARRANTIES
9.16 COMPLIANCE WITH LAWS
9.22 OUTSTANDING GUARANTEES
9.23 OUTSTANDING INDEBTEDNESS
(v)
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C R E D I T A G R E E M E N T
Credit Agreement, effective as of December 10, 1997, between FOREST
CITY RENTAL PROPERTIES CORPORATION, an Ohio corporation (hereinafter sometimes
called the "Borrower"), the banking institutions named in Exhibit A attached
hereto and made a part hereof (hereinafter sometimes collectively called the
"Banks" and individually "Bank"), KEYBANK NATIONAL ASSOCIATION, Cleveland, Ohio,
as Administrative Agent for the Banks under this Credit Agreement (the "Agent")
and NATIONAL CITY BANK, Cleveland, Ohio as Syndication Agent for the Banks under
this Credit Agreement (the "Syndication Agent").
W I T N E S S E T H:
WHEREAS, the Borrower and the Banks desire to contract for the
establishment of credits in the aggregate principal amounts hereinafter set
forth, to be made available to the Borrower upon the terms and subject to the
conditions hereinafter set forth;
NOW, THEREFORE, it is mutually agreed as follows:
ARTICLE I
DEFINITIONS
As used in this Credit Agreement, the following terms shall have the
following meanings:
"Additional Term Loan" shall have the meaning set forth in Section 2.02(a)
hereof.
"Advantage" shall mean any payment (whether made voluntarily or
involuntarily, by offset of any deposit or other indebtedness or otherwise)
received by any Bank in respect of Borrower's Debt to the Banks if such payment
results in that Bank having a lesser share of Borrower's Debt to the Banks, than
was the case immediately before such payment.
"Affiliate" shall mean, with respect to any Person, any other Person
directly or indirectly controlling (including, but not limited to, all directors
and officers of such Person), controlled by, or under direct or indirect common
control with such Person.
"Agent" means KeyBank National Association, in its capacity as
administrative agent for the Banks hereunder, and its successors in such
capacity.
"Agents" means collectively, the Agent and the Syndication Agent.
"Authorized Fiscal Officer" shall have the meaning set forth in Section
3.03(b) hereof.
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"Bank" means each bank listed on Exhibit A attached hereto and its
successors and assigns.
"Borrower" means Forest City Rental Properties Corporation, an Ohio
corporation.
"Change of Ownership Event " shall mean (i) the Ratner family, the
Shafner family and the Miller family shall cease to collectively own at least
fifty one percent (51%) on a fully diluted basis, of the economic and voting
interests of the Parent, or (ii) the Parent shall cease to own at least one
hundred percent (100%) on a fully diluted basis, of the economic and voting
interests of the Borrower.
"Cleveland Banking Day" shall mean a day on which the main office of
the Agent is open for the transaction of business.
"Closing Date" means December 10, 1997.
"Code" means the Internal Revenue Code of 1986, as amended, or any
successor statute.
"Commitment" shall mean the obligation hereunder of each Bank to make
Term Loans and, until the Termination Date, Revolving Loans up to the amount set
forth opposite such Bank's name under the column headed "Maximum Amount" on
Exhibit A hereof (or such lesser amount as shall be determined pursuant to
Section 3.02(b) hereof).
"Controlled Group" shall mean a controlled group of corporations as
defined in Section 1563 of the Code, of which Borrower or any Subsidiary is a
part.
"Credit Agreement" means this Credit Agreement as the same may be from
time to time amended, supplemented, modified, extended and/or restated.
"Debt" shall mean, collectively, all indebtedness incurred by Borrower
to the Banks pursuant to this Credit Agreement and includes the principal of and
interest on all Notes and each extension, renewal or refinancing thereof in
whole or in part, the stated amounts of all letters of credit issued by the
Agent or the Banks hereunder, and the fees and any prepayment premium payable
hereunder.
"Debt Service Coverage Ratio" shall mean the ratio of (i) Net Operating
Income to (ii) the sum of (X) all scheduled principal payments (excluding
balloon payments) on non-recourse mortgage indebtedness plus (Y) all interest
payments on such non-recourse mortgage indebtedness and less (Z) non-cash
interest expense accrued with respect to Terminal Investments, Inc. and Grant
Liberty Development Group Associates, but not currently payable.
"Domestic Subsidiary" shall mean any Subsidiary organized under the
laws of any state of the United States of America which conducts the major
portion of its business within the United States.
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"Draw" shall have the meaning set forth in Section 3.06(c) hereof.
"Environmental Laws" shall mean all provisions of law, statutes,
ordinances, rules, regulations, permits, licenses, judgments, writs,
injunctions, decrees, orders, awards and standards promulgated by the government
of the United States of America or by any state or municipality thereof or by
any court, agency, instrumentality, regulatory authority or commission of any of
the foregoing, now or hereafter in effect, and in each case as amended,
concerning or relating to health, safety and protection of, or regulation of the
discharge of substances into, the environment.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time, and the regulations and rulings issued thereunder.
"ERISA Affiliate" shall mean each person (as defined in Section 3(9) of
ERISA) which together with the Borrower, the Parent or any Subsidiary of the
Borrower or any subsidiary the Parent would be deemed a "single employer" within
the meaning of Sections 414(b), (c), (m) or (o) of the Code.
"Event of Default" shall have the meaning set forth in Article X hereof.
"Funded Indebtedness" means indebtedness that (including any renewal or
extension in whole or in part) matures or remains unpaid more than twelve months
after the date on which originally incurred.
"GAAP" shall mean generally accepted accounting principles in the
United States of America in effect from time to time.
"Guaranty" means the Guaranty of Payment of Debt issued by the Parent
to the Agent and the Banks in substantially the form and substance of Exhibit B
attached hereto.
"Guaranty Default" shall mean any one or more of the events
constituting defaults under Section 10 of the Guaranty.
"Indicated Spread" shall have the meaning set forth in Section 4.01(d)
hereof.
"Initial Term Loan" shall have the meaning set forth in Section 2.01(a)
hereof.
"Interest Adjustment Date" shall mean the last day of each Interest Period.
"Interest Options" means the LIBOR Rate Option and the Prime Rate Option.
"Interest Period" shall mean a period of one, two, three or six months
or one year (as selected by the Borrower) commencing on the applicable borrowing
or conversion date of each Loan subject to the LIBOR Rate Option and on the date
that is one London Banking Day after
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each Interest Adjustment Date occurring thereafter with respect thereto;
provided, that if any such Interest Period would be affected by a reduction in
the Revolving Loan Commitment as provided in Section 3.02(b) hereof, prepayment
rights as provided in Section 5.05 hereof or maturity of Loans as provided in
Sections 2.01(b), 2.02(b), and/or 3.07 hereof, such Interest Period shall be
shortened to end on such date. Notwithstanding anything to the contrary
contained above:
(i) if any Interest Period begins on a day for which there is
no numerically corresponding day in the calendar month at the end of
such Interest Period, such Interest Period shall end on the last London
Banking Day of such calendar month;
(ii)if any Interest Period would otherwise expire on a day
which is not a London Banking Day, such Interest Period shall expire on
the next succeeding London Banking Day, provided, that if any Interest
Period would otherwise expire on a day which is not a London Banking
Day but is a day of the month after which no further London Banking Day
occurs in such month, such Interest Period shall expire on the next
preceding London Banking Day;
(iii) no Interest Period may be selected if it would extend
beyond the scheduled maturity date or principal repayment date(s) of
the Loans to which it would apply; and
(iv) no Interest Period may be selected if it would extend beyond the
Termination Date.
"LIBOR" shall mean the average (rounded upward to the nearest 1/16th of
1%) of the per annum rates at which deposits in immediately available funds in
United States dollars for the relevant Interest Period and in the amount of the
principal of the Loans to be disbursed or to remain outstanding during such
Interest Period, as the case may be, are offered to the Reference Banks by prime
banks in any Eurodollar market reasonably selected by the Reference Banks,
determined as of 11:00 a.m. London time (or as soon thereafter as practicable),
two (2) London Banking Days prior to the beginning of the relevant Interest
Period. In the event one or more of the Reference Banks fail to furnish its
quote of any rate required herein, such rate shall be determined on the basis of
the quote or quotes of the remaining Reference Bank or Banks.
"LIBOR Rate Option" means interest determined pursuant to Section
4.01(b) and related provisions hereof.
"Lien" shall mean any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind (including any agreement to give any of the
foregoing, any conditional sale or other title retention agreement, any
financing or similar statement or notice filed under the Uniform Commercial Code
or any similar notice or recording statute, and any lease having substantially
the same effect as any of the foregoing).
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"Loan" means an Initial Term Loan, an Additional Term Loan, or a Revolving
Loan, and "Loans" means Initial Term Loans, Additional Term Loans, Revolving
Loans or any combination of the foregoing.
"London Banking Day" shall mean a day on which banks are open for
business in London, England, and quoting deposit rates for dollar deposits.
"Material Adverse Effect" shall have the meaning set forth in Section 6.05
hereof.
"Net Operating Income" shall mean for any relevant period, the excess
of the Borrower's revenues over the Borrower's operating expenses, in each case,
as determined in accordance with GAAP. For purposes of this definition, Net
Operating Income (i) shall not include any gains or losses from the sale of
income producing real property, other than gains or losses obtained from the
sale of net outlot parcels to a total maximum aggregate amount of $15,000,000
for the immediately preceding four consecutive quarters and (ii) shall include
adjustments for cash flow of properties pursuant to which the Borrower is
receiving a preferred return over and above its ownership percentage in such
properties.
"Note" or "Notes" shall mean a note or notes executed and delivered
pursuant to Sections 2.03 and 3.05 hereof.
"Notice of Borrowing" shall have the meaning set forth in Section 5.01
hereof.
"Old Credit Agreement" means the Credit Agreement dated as of July 25,
1994, as amended, among Borrower, The Huntington National Bank, KeyBank National
Association (fka Society National Bank) for itself and as agent, National City
Bank, Comerica Bank and First National Bank of Ohio.
"Parent" means Forest City Enterprises, Inc., an Ohio corporation.
"PBGC" means the Pension Benefit Guaranty Corporation established
pursuant to Section 4002 of ERISA, or any successor thereto.
"Person" means an individual, a corporation, a limited liability
company, a partnership, an association, a trust or any other entity or
organization, including, without limitation, governmental or political
subdivision or an agency or instrumentality thereof.
"Plan" shall mean any employee pension benefit plan subject to Title IV
of ERISA, established or maintained by Borrower, any Subsidiary, or any member
of the Controlled Group, or any such Plan to which Borrower, any Subsidiary, or
any member of the Controlled Group is required to contribute on behalf of any of
its employees.
"Possible Default" shall mean any event, act or condition which with
notice or lapse of time, or both, would constitute an Event of Default.
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"Post Closing Items" shall have the meaning set forth in Section 7.14
hereof.
"Prime Rate" shall mean that interest rate established from time to
time by Agent as Agent's prime rate, whether or not such rate is publicly
announced; the Prime Rate may be other than the lowest interest rate charged by
Agent for commercial or other extensions of credit.
"Prime Rate Option" means interest determined pursuant to Section
4.01(c) and related provisions hereof.
"Pro rata" when used with reference to the Banks means (unless the
context otherwise clearly indicates) pro rata according to the unpaid principal
amounts owing to the respective Banks under the Notes, or, if no principal is
then owing to any Bank, according to the Commitment, as the case may be, of the
respective Bank.
"Quarterly Date" shall mean each of January 1, April 1, July 1 and October
1.
"Reference Banks" shall mean KeyBank National Association and National City
Bank.
"Regulatory Change" shall mean, as to any Bank, any change in federal,
state or foreign laws or regulations or the adoption or making of any
interpretations, directives or requests of or under any federal, state or
foreign laws or regulations (whether or not having the force of law) by any
court or governmental authority charged with the interpretation or
administration thereof.
"Related Writing" shall mean any Note, assignment, mortgage, security
agreement, guaranty agreement, subordination agreement, financial statement,
audit report or other writing furnished by Borrower, the Parent or any of their
respective officers to the Agents or the Banks pursuant to or otherwise in
connection with this Credit Agreement.
"Reportable Event" shall mean a reportable event as that term is
defined in Title IV of ERISA with respect to a Plan as to which the 30-day
notice requirement has not been waived by the PBGC.
"Required Banks" means at any time Banks having at least 66 2/3% of the
aggregate amount of the Commitments or, if the Commitments shall have been
terminated, Banks holding Notes evidencing at least 66 2/3% of the aggregate
unpaid principal amount of the Loans.
"Revolving Loans" shall have the meaning set forth in Section 3.03(a)
hereof.
"Revolving Loan Commitment" shall have the meaning set forth in Section
3.02(a) hereof.
"Revolving Loan Note" shall have the meaning set forth in Section 3.05(a)
hereof.
"Satisfaction Date" shall have the meaning set forth in Section 7.14
hereof.
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"Subsidiary" of any Person shall mean and include (i) any corporation
more than fifty percent (50%) of whose stock of any class or classes having by
the terms thereof ordinary voting power to elect a majority of the directors of
such corporation is at the time owned by such Person directly or indirectly
through Subsidiaries and (ii) any partnership, limited liability company,
association (including business trusts) or other entity in which such Person
directly or indirectly through Subsidiaries, has more than a fifty percent (50%)
voting or equity interest at the time.
"Syndication Agent" means National City Bank, in its capacity as
syndication agent for the Banks hereunder, and its successors in such capacity.
"Term Loans" means the Initial Term Loans and the Additional Term Loans.
"Term Note" shall have the meaning set forth in Section 2.03(a) of this
Credit Agreement.
"Termination Date" means the third anniversary of the Closing Date,
unless extended by the Banks pursuant to Section 3.09 of this Credit Agreement,
in which case the Termination Date shall be the date of the expiration of any
such extension.
"Unfunded Current Liabilities" of any Plan shall mean the amount, if
any, by which the actuarial present value of the accumulated plan benefits under
the Plan as of the close of its most recent plan year, determined in accordance
with Statement of Financial Accounting Standards No. 35, based upon the
actuarial assumptions used by the Plan's actuary in the most recent annual
valuation of the Plan, exceeds the fair market value of the assets allocable
thereto, determined in accordance with Section 412 of the Code.
Any accounting term not specifically defined in this Article I or
elsewhere in the Credit Agreement, shall have the meaning ascribed thereto by
generally accepted accounting principles not inconsistent with Borrower's
present accounting procedures.
The foregoing definitions shall be applicable to the singular and
plurals of the foregoing defined terms.
ARTICLE II
TERM LOANS
SECTION 2.01(a). INITIAL TERM LOANS. Subject to and upon the terms and
conditions of this Credit Agreement, each Bank severally agrees that it will, on
the Closing Date, make a term loan (each an "Initial Term Loan" and
collectively, the "Initial Term Loans") to the Borrower in the amount set forth
below opposite the name of the Bank:
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Amount of
Name of Bank Initial Term Loan
KeyBank National Association $10,666,666.67
National City Bank 10,666,666.67
The Huntington National Bank 8,666,666.67
First Merit Bank 6,000,000.00
Comerica Bank 4,800,000.00
Star Bank 4,800,000.00
Credit Lyonnais 4,800,000.00
Manufacturers and Traders Trust Company 4,800,000.00
-------------
TOTAL $55,200,000.00
The proceeds of the Initial Term Loans shall be used exclusively to pay the
indebtedness incurred by Borrower under the Old Credit Agreement.
SECTION 2.01(b). REPAYMENT OF INITIAL TERM LOANS. The principal of the
Initial Term Loans shall be payable in twenty-four consecutive quarterly
installments, each in an amount equal to $2,500,000, commencing April 1, 1998
and continuing on each Quarterly Date thereafter until January 1, 2004, when all
remaining principal of the Initial Term Loans shall be due and payable in full,
unless such principal becomes due and payable earlier pursuant to the provisions
of Article X hereof.
SECTION 2.02(a). ADDITIONAL TERM LOANS ON CONVERSION OF REVOLVING
LOANS. Subject to the terms and conditions of this Credit Agreement, each Bank
severally agrees that it will, upon not less than two (2) London Banking Days'
prior written request of the Borrower to the Agent, make a term loan (each
"Additional Term Loan" and collectively the "Additional Term Loans") to the
Borrower on the Termination Date in an amount not exceeding the lesser of (x)
the then outstanding aggregate principal amount of Revolving Loans made by such
Bank, or (y) the then amount of the Commitment of such Bank minus the amount of
the Initial Term Loan made by such Bank to the Borrower pursuant to Section
2.01(a) above. The proceeds of each Additional Term Loan shall be used
exclusively to pay the Revolving Loans made by such Banks hereunder and, upon
the making of Additional Term Loans, no additional Revolving Loans shall be
made.
SECTION 2.02(b). REPAYMENT OF ADDITIONAL TERM LOANS. Subject to Section
2.05, the principal of the Additional Term Loans shall be payable in fifteen
(15) consecutive quarterly installments, each in an amount equal to the original
principal amount of the Additional Term Loans divided by fifteen (15), such
payments to commence on the first Quarterly Date next following the date on
which the Additional Term Loans are made and continuing on each Quarterly Date
thereafter until the Quarterly Date that is the fifteenth (15th) Quarterly Date
after but not including the Quarterly Date on which the first such installment
was due, at which time all remaining principal of the Additional Term Loans
shall be due and payable
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in full, unless such principal becomes due and payable earlier pursuant to the
provisions of Article X hereof.
SECTION 2.03. TERM NOTES. (a) The Borrower's obligation to pay the
principal of, and interest on, all the Term Loans made to it by each Bank shall
be evidenced by a promissory note substantially in the form of Exhibit C
attached hereto with blanks appropriately completed in conformity herewith (each
a "Term Note" and, collectively, the "Term Notes").
(b) In the case of Initial Term Loans, the Term Note issued to each
Bank shall (i) be executed by the Borrower, (ii) be payable to the order of such
Bank and dated as of the Closing Date, (iii) be in a stated principal amount
equal to the amount of the Initial Term Loan set forth in Section 2.01 (a) for
such Bank and be payable in such principal amount of the Initial Term Loan, (iv)
mature on January 1, 2004, (v) bear interest as provided in Section 2.04 and the
appropriate clauses of Article IV in respect of the Initial Term Loan evidenced
thereby and (vi) be entitled to the benefits of this Credit Agreement and the
other Related Writings.
(c) In the case of Additional Term Loans, the Term Note issued to each
Bank shall (i) be executed by the Borrower, (ii) be payable to the order of such
Bank and dated as of the Termination Date, (iii) be in a stated principal amount
equal to the amount determined pursuant to Section 2.02 (a) for such Bank and be
payable in the principal amount of the Additional Term Loan evidenced thereby,
(iv) mature on the fifteenth (15th) Quarterly Date after the first Quarterly
Date following the date on which the Additional Term Loan was made, (v) bear
interest as provided in Section 2.04 and the appropriate clauses of Article IV
in respect of the Additional Term Loan evidenced thereby and (vi) be entitled to
the benefits of this Credit Agreement and the other Related Writings.
SECTION 2.04. INTEREST ON TERM LOANS. All principal from time to time
outstanding on the Initial Term Loans and the Additional Term Loans shall bear
interest at the rates, and shall be payable at the times, provided for in
Article IV hereof.
SECTION 2.05. LIMITATION ON TOTAL ANNUAL PRINCIPAL PAYMENTS ON THE TERM
LOANS. Other than at maturity (by acceleration or otherwise) and provided no
Event of Default has occurred and is continuing, the Borrower shall not be
required to make principal payments on the Term Loans in any one calendar year
in a total aggregate amount in excess of $22,500,000. To the extent such
principal payments are limited by this Section 2.05, they shall be applied
first, pro rata among the Term Loans (other than Additional Term Loans), if any,
outstanding at the time of such payments and second, pro rata among the
Additional Term Loans, if any, outstanding at the time of such payments.
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ARTICLE III
REVOLVING LOANS
The Banks hereby establish a revolving loan facility pursuant to which
Revolving Loans will be made to the Borrower, on and subject to the terms and
conditions set forth in this Credit Agreement.
SECTION 3.01. AMOUNT OF THE REVOLVING LOAN FACILITY. The aggregate
principal amount of the Revolving Loans outstanding from time to time shall not
exceed the sum of the amounts of the Revolving Loan Commitments in effect at the
time.
SECTION 3.02. REVOLVING LOAN COMMITMENTS. (a) As used in this Credit
Agreement, the "Revolving Loan Commitment" of each Bank at any time means the
several obligations of each Bank to advance, on and subject to the terms and
conditions set forth herein, up to the Maximum Amount set forth for such Bank on
Exhibit A hereto on a Pro rata basis.
(b) The Borrower shall have the right at all times to permanently
reduce the Revolving Loan Commitments in whole or in part by giving written
notice of the reduction to the Agent at least one Cleveland Banking Day prior to
the reduction, each such reduction to be equal to at least $500,000, or the then
Revolving Loan Commitments if the then Revolving Loan Commitments are less than
$500,000. Each such reduction shall reduce each Bank's Revolving Loan Commitment
Pro rata. Concurrently with each reduction, the Borrower shall prepay the
amount, if any, together with interest thereon by which the aggregate unpaid
principal amount of the Revolving Loans (including the stated amounts of all
letters of credit then outstanding issued pursuant to Section 3.06 hereof)
exceeds the sum of the Revolving Loan Commitments as so reduced.
(c) All borrowings of Revolving Loans under this Credit Agreement shall
be made by the Banks Pro rata on the basis of their Revolving Loan Commitments.
It is understood that no Bank shall be responsible for any default by any other
Bank of its obligation to make Loans hereunder and that each Bank shall be
obligated to make the Loans to be made by it hereunder, regardless of the
failure of any other Bank to fulfill its commitments hereunder.
SECTION 3.03. REVOLVING LOANS. (a) Each Bank severally agrees, subject
to the fulfillment of the terms and conditions of this Credit Agreement, to make
revolving loans (the "Revolving Loans") to the Borrower from time to time from
and including the Closing Date until the Termination Date. Subject to the
provisions of this Credit Agreement, Revolving Loans may be repaid in whole or
in part, and amounts so repaid may be reborrowed, but in no event shall the
aggregate principal amount of each Bank's Revolving Loans to the Borrower exceed
at any time the then Revolving Loan Commitment of such Bank.
(b) The requesting of a Revolving Loan in and of itself pursuant to a
Notice of Borrowing constitutes a representation and warranty by the Borrower to
the Banks and the
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Agents that the conditions specified in Section 5.01 hereof have been satisfied.
Each oral request for a Revolving Loan (which request shall be promptly
confirmed in writing as specified in Section 5.01 hereof) shall be made by a
person authorized by the Borrower to do so and designated on Schedule 3.03, or
as that Schedule may be amended from time to time in writing by the Borrower (an
"Authorized Fiscal Officer"), and the making of a Revolving Loan as provided
herein shall conclusively establish Borrower's obligation to repay such Loan.
SECTION 3.04. PURPOSE OF THE REVOLVING LOANS. The proceeds of Revolving
Loans shall be used by the Borrower to pay all indebtedness incurred under the
Old Credit Agreement not paid with the proceeds of the Initial Term Loans and
for working capital purposes of the Borrower.
SECTION 3.05. REVOLVING LOAN NOTES. (a) On the Closing Date, the
Borrower shall execute and deliver to the respective Banks a promissory note
substantially in the form and substance of Exhibit D attached hereto with all
blanks appropriately completed in conformity herewith (each a "Revolving Loan
Note" and, collectively "Revolving Loan Notes").
(b) The Revolving Loan Note issued to each Bank with a Revolving Loan
Commitment to evidence its Revolving Loan to the Borrower shall (i) be executed
by the Borrower, (ii) be payable to the order of such Bank and be dated the
Closing Date, (iii) be in a stated principal amount equal to the Revolving Loan
Commitments of such Bank and be payable in the principal amount of the Revolving
Loans evidenced thereby, (iv) mature on January 1, 2001, unless extended in
accordance with Section 3.09 hereof and (v) be entitled to the benefits of this
Credit Agreement and other Related Writings. The Revolving Loan Notes shall be
subject to the terms of this Credit Agreement.
SECTION 3.06. LETTERS OF CREDIT. (a) The Banks agree to make available
to the Borrower letters of credit, issued by the Agent, pursuant to their
respective Revolving Loan Commitments up to an aggregate amount at any one time
outstanding of $30,000,000. The availability of letters of credit will be
subject to (i) the Agent and the Banks being satisfied with the terms of the
letter of credit, (ii) the Borrower's executing and delivering such letter of
credit and reimbursement agreements and related documents as required by the
Agent, and (iii) satisfaction of all conditions to the Borrower obtaining a
Revolving Loan in the amount of the requested letter of credit. The Borrower
shall pay a fee for each letter of credit to the Agent for the Pro rata benefit
of the Banks in the amount of two percent (2%) of the stated amount of the
letter of credit; provided that, the Agent shall be entitled to .125% of such
fee prior to the distribution of the balance of such fee Pro rata to the Banks.
In addition, the Borrower shall pay to the Agent upon issuance of each letter of
credit provided for under this Section 3.06 an issuance fee of $500 for the
Agent's services in issuing the letter of credit. No letter of credit shall be
issued having an expiration date after the Termination Date. The amounts of all
letter(s) of credit issued at any time for the account of the Borrower by the
Agent for the Banks shall reduce the amount of Revolving Loans available for
borrowing hereunder in the amount of the letter(s) of credit outstanding until
such time as the letter of credit has expired without any Draws having been made
and until all Draws paid have been reimbursed in full. All letters of credit
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shall be in such form and substance as the Agent, the Banks and the Borrower
agree. The Borrower shall not be entitled to obtain letters of credit from the
Agent unless the Borrower is then entitled to obtain Revolving Loans from the
Banks in an amount not less than the stated amount of the letter of credit
requested, the other conditions of Section 5.01 of this Credit Agreement have
been satisfied as if the Borrower was obtaining a Revolving Loan and the
Borrower has executed and delivered such letter of credit, reimbursement
agreements and other related documents as may be required by the Agent.
(b) On the Closing Date, certain letters of credit identified on
Schedule 3.06 that were issued for the account of the Borrower by some of the
Banks remain outstanding. Such letters of credit shall be deemed to be letters
of credit issued pursuant to this Section 3.06 for all purposes and shall, so
long as outstanding, reduce availability under the Revolving Loan Commitments of
each such Bank by the stated amounts thereof. Not later than six (6) months
following the Closing Date, each letter of credit listed on Schedule 3.06 shall
be replaced by a letter of credit issued by the Agent pursuant to this Section
3.06. The fees paid by the Borrower for the issuance thereof prior to the
Closing Date shall be retained by the Banks that received them, but all fees
payable in respect of such letter of credit and/or any renewals or extensions
thereof from and after the Closing Date shall be as provided in this Section
3.06 and shall be for the Pro rata benefit of the Banks subject to the other
provisions of this Section 3.06.
(c) In the event the Agent pays any amount under or on account of a
letter of credit (the payment by the Agent under or on account of a letter of
credit being herein called a "Draw"), a Revolving Loan shall be deemed to be
made to the Borrower by each Bank to the extent of its Pro rata share of the
Revolving Loan Commitments to reimburse immediately the Agent for the amount of
the Draw. The Agent shall notify each Bank of the occurrence and payment of a
Draw and not later than 1:00 p.m. of the date of such notice, each Bank will
make available to the Agent its Pro rata portion of the Draw deemed to be a
Revolving Loan. All amounts shall be made available to the Agent in U.S. Dollars
and immediately available funds at its office listed on the signature pages
hereto. If such corresponding Pro rata amount is not in fact made available to
the Agent by such Bank the Agent shall be entitled to recover such corresponding
amount from such Bank. If such Bank does not pay such corresponding amount
forthwith upon the Agent's demand therefor, the Agent shall promptly notify the
Borrower, and the Borrower shall immediately pay such corresponding amount to
the Agent. The Agent shall also be entitled to recover from the Bank or the
Borrower, as the case may be, interest on such corresponding amount in respect
of each day from the date such corresponding amount was made available by the
Agent to the Borrower to the date such corresponding amount is recovered by the
Agent at a rate per annum equal to (i) if paid by such Bank, the overnight
federal funds effective rate or (ii) if paid by the Borrower, the then
applicable rate of interest, calculated in accordance with Article IV, for the
Loans. In the event no Revolving Loan or only a partial Revolving Loan is deemed
to be made, the Agent is hereby authorized to charge (without prior notice to
the Borrower) the amount of each Draw, together with interest thereon, against
any account of the Borrower maintained with the Agent.
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(d) So long as letters of credit are outstanding, the amount of
Revolving Loans that the Borrower is entitled to obtain under this Article III
shall be reduced by the stated amount of the letters of credit issued for the
accounts of the Borrower and, in addition to otherwise constituting part of the
Revolving Loan, except as otherwise expressly stated herein, the stated amount
of the letters of credit shall be treated as principal of the Revolving Loans.
(e) Whenever the Borrower desires that a letter of credit be issued,
the Borrower shall give the Agent written notice (including by way of facsimile
transmission) thereof prior to 1:00 P.M. (Cleveland Time) at least five
Cleveland Banking Days (or such shorter period as may be acceptable to the
Agent) prior to the proposed date of issuance (which shall be a Cleveland
Business Day), which written notice shall be in the form of Exhibit E hereto
(each, a "Letter of Credit Request"). Each Letter of Credit Request shall
include an application for such letter of credit and any other documents that
the Agent customarily requires in connection therewith. The Agent shall promptly
notify each Bank of each Letter of Credit Request.
(f) The delivery of each Letter of Credit Request shall be deemed a
representation and warranty by the Borrower that such letter of credit as
requested in such Letter of Credit Request may be issued in accordance with and
will not violate the requirements of this Section 3.06. The Agent shall, on the
date of each issuance of or amendment or modification to a letter of credit by
it, give each Bank and the Borrower written notice of the issuance of or
amendment or modification to such letter of credit.
(g) In determining whether to pay under any letter of credit, the Agent
shall not have any obligation relative to the Banks other than to determine that
any documents required to be delivered under such letter of credit have been
delivered and that they appear to comply on their face with the requirements of
the letter of credit. Any action taken or omitted to be taken by the Agent with
respect to a letter of credit issued by it if taken or omitted in the absence of
gross negligence or willful misconduct, shall not create any resulting liability
for the Agent.
SECTION 3.07. REPAYMENT OF THE REVOLVING LOAN NOTES. The principal of
the Revolving Loan Notes shall be due and payable in full on the Termination
Date, unless such principal sums shall become due earlier in whole or in part by
reason of the principal amount exceeding the aggregate amount of the Revolving
Loan Commitments at any time in effect or pursuant to the provisions of Article
X hereof.
SECTION 3.08. INTEREST ON THE REVOLVING LOANS. All principal from time
to time outstanding on the Revolving Loans shall bear interest at the rates, and
shall be payable at the times provided for in Article IV hereof.
SECTION 3.09. EXTENSIONS OF THE REVOLVING LOANS. Within sixty (60) days
prior to the first anniversary of the Closing Date and within sixty (60) days
prior to each anniversary thereafter, if applicable, the Borrower may request
the Banks to extend the Termination Date for one additional year in a writing
delivered to the Agent in accordance with the terms of this Credit Agreement.
The unanimous consent of the Banks shall be required for
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any such extension and the Banks shall have the right, but not the obligation to
approve such request for an extension. Any approval of the Borrower's request
shall be subject to such terms and conditions as the Banks may deem appropriate.
ARTICLE IV
INTEREST ON THE TERM LOANS AND THE REVOLVING LOANS
SECTION 4.01(a). INTEREST OPTIONS. The Borrower shall pay interest on
the Term Loans and the Revolving Loans at the rates in effect from time to time
pursuant to the Interest Options provided for in Sections 4.01(b) and 4.01(c) as
selected by the Borrower or otherwise in effect in accordance with the terms and
conditions of this Credit Agreement from time to time. Interest on the Term
Loans (other than Additional Term Loans) and the Revolving Loans shall accrue
from and including the Closing Date to but excluding the date of repayment
thereof. Interest on the Additional Term Loans shall accrue from and including
the date such Loans are made to the Borrower to but excluding the date of
repayment thereof.
SECTION 4.01(b). LIBOR RATE OPTION. Interest on the principal amount of
all Loans at any time subject to the interest rate option provided for pursuant
to this Section 4.01(b) (the "LIBOR Rate Option") shall be at rates determined
by adding the applicable LIBOR rate at the time in effect for each Term Loan and
Revolving Loan and the applicable Indicated Spread for the LIBOR Rate Option set
forth in Section 4.01(d) below. The LIBOR Rate Option shall be in effect for all
portions of the principal of the Loans for which the Borrower has selected an
Interest Period in accordance with Section 4.02 hereof, unless and until any
event or circumstance provided for in Sections 4.09 or 4.10 hereof shall have
occurred and continue to be in effect.
SECTION 4.01(c). PRIME RATE OPTION. Interest on the principal amount of
all Loans at any time subject to the interest rate option provided for pursuant
to this Section 4.01(c) (the "Prime Rate Option") shall be at rates determined
by adding the Prime Rate in effect from time to time and the applicable
Indicated Spread for the Prime Rate Option set forth in Section 4.01(d) below.
The interest rate in effect under the Prime Rate Option shall change
automatically and immediately with each change in the Prime Rate. The Prime Rate
Option shall be in effect for all portions of the principal of the Loans for
which the LIBOR Rate Option is not in effect at any time.
SECTION 4.01(d). INDICATED SPREAD. The Indicated Spread is measured in
basis points and shall be determined as follows:
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Revolving Loans
Period Indicated Spread
(Basis Points)
Prime Rate Option LIBOR Rate Option
From and including the Closing Date 25 200
to the Termination Date
Term Loans
Period Indicated Spread
(Basis Points)
Prime Rate Option LIBOR Rate Option
From and including the Closing Date 25 200
to but not including January 1, 2001
From and including January 1, 2001 50 225
to but not including January 1, 2003
From and including January 1, 2003 75 250
and thereafter
Additional Term Loans
Period Indicated Spread
(Basis Points)
Prime Rate Option LIBOR Rate Option
From and including the 50 225
Termination Date to but not
including the second anniversary
of the Termination Date
From and including the second 75 250
anniversary of the Termination Date
and thereafter.
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SECTION 4.02. INTEREST PERIODS. The Borrower shall have the option to
select and advise the Agent of the Interest Periods the Borrower has selected
for Term Loans and Revolving Loans not less than two (2) Cleveland Banking Days
prior to (a) the Closing Date, for the Term Loans and the Revolving Loans to be
made on the Closing Date, (b) each Interest Adjustment Date, (c) the date any
Term Loans or Revolving Loans are to be made subsequent to the Closing Date, and
(d) any date on which the Borrower desires to have any portion of the principal
of the Loans not subject to the LIBOR Rate Option to become subject to the LIBOR
Rate Option. Each Interest Period selected shall apply to not less than $500,000
in principal amount of the Loans; provided, that at no time shall there be
outstanding more than ten (10) borrowings of Loans under the Libor Rate Option.
The principal amount subject to each Interest Period shall be deemed distributed
Pro rata among the Banks with respect to the respective Loans to which the
Interest Period applies. If the Borrower fails to timely select any Interest
Period, the Agent may select an Interest Period in the sole discretion of the
Agent and such selection shall be binding on the Borrower.
SECTION 4.03. INTEREST PAYMENT DATES. (a) Interest on all Loans subject
to the Prime Rate Option shall be payable in arrears (i) on the first Cleveland
Banking Day of each month, beginning January 1, 1998, and (ii) on the date all
remaining principal and/or interest on any Loan is payable, whether by reason of
scheduled maturity or acceleration of maturity of such Loan.
(b) Interest on all Loans subject to the LIBOR Rate Option shall be
payable in arrears on the last day of each Interest Period applicable thereto
and, in the case of an Interest Period in excess of three months, on each date
occurring at three month intervals after the first day of such Interest Period.
(c) Interest with respect to each Loans shall be payable on any
prepayment or conversion (on the amount prepaid or converted), at maturity
(whether by acceleration or otherwise) and, after such maturity, on demand.
SECTION 4.04. INTEREST CALCULATIONS. All interest shall be computed on
the basis of a three hundred sixty (360) day year for the actual number of days
elapsed. Interest shall in all events continue to accrue in accordance with the
provisions of this Credit Agreement until the time payment is received.
SECTION 4.05. POST-DEFAULT RATE. After the occurrence and during the
continuation of any Event of Default, the Loans and any interest on the Loans
not paid when due shall bear interest at a rate equal to the rate(s) otherwise
in effect pursuant to this Credit Agreement plus two percent (2%) per annum, and
all such interest shall be due on demand. No interest shall accrue on any
interest that is being charged with respect to any interest not paid when due.
SECTION 4.06. RESERVES OR DEPOSIT REQUIREMENTS, ETC. If at any time
any law, treaty, regulation (including, without limitation, Regulation D of
the Board of
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Governors of the Federal Reserve System), governmental rule, guideline, order or
request (whether or not having force of law) or the interpretation or
administration thereof by any governmental authority charged with the
administration thereof or any central bank or other fiscal, monetary or other
authority shall impose, modify or deem applicable any reserve and/or special
deposit requirement against assets held by, or deposits in or for the amount of
any Loans by, any Bank, and the result of the foregoing is to increase the cost
(whether by incurring a cost or adding to a cost) to such Bank of making or
maintaining Loans hereunder or to reduce the amount of principal or interest
received by such Bank with respect to such Loans, then upon demand by such Bank
the Borrower shall pay to such Bank from time to time on each interest payment
date with respect to such Loans, as additional consideration hereunder,
additional amounts sufficient to fully compensate and indemnify such Bank for
such increased cost or reduced amount, assuming (which assumption such Bank need
not corroborate) such additional cost or reduced amount were allocable to such
Loans. A statement as to the increased cost or reduced amount as a result of any
event mentioned in this Section 4.06, setting forth the calculations therefor,
shall be submitted by such Bank to the Borrower not later than one hundred fifty
(150) days after the events giving rise to the same occurred and shall, in the
absence of manifest error, be conclusive and binding as to the amount thereof.
Notwithstanding any other provision of this Credit Agreement, after any such
demand for compensation by any Bank, Borrower, upon at least one (1) Cleveland
Banking Day's prior written notice to such Bank through the Agent, may prepay
all Loans in full regardless of the Interest Period of any thereof. Any such
prepayment shall be subject to the prepayment premium set forth in Section 5.05
hereof.
SECTION 4.07. TAX LAW, ETC. In the event that by reason of any law,
regulation or requirement or in the interpretation thereof by an official
authority, or the imposition of any requirement of any central bank whether or
not having the force of law, any Bank shall, with respect to this Credit
Agreement or any transaction under this Credit Agreement, be subjected to any
tax, levy, impost, charge, fee, duty, deduction or withholding of any kind
whatsoever (other than any tax imposed upon the total net income of such Bank)
and if any such measures or any other similar measure shall result in an
increase in the cost to such Bank of making or maintaining any Loan or in a
reduction in the amount of principal, interest or commitment fee receivable by
such Bank in respect thereof, then such Bank shall promptly notify the Borrower
stating the reasons therefor. The Borrower shall thereafter pay to such Bank
upon demand from time to time on each interest payment date with respect to such
Loans, as additional consideration hereunder, such additional amounts as will
fully compensate such Bank for such increased cost or reduced amount. A
statement as to any such increased cost or reduced amount, setting forth the
calculations therefor, shall be submitted by such Bank to the Borrower not later
than one hundred fifty (150) days after the events giving rise to the same
occurred and shall, in the absence of manifest error, be conclusive and binding
as to the amount thereof.
If any Bank receives such additional consideration from the Borrower
pursuant to this Section 4.07, such Bank shall use its best efforts to obtain
the benefits of any refund, deduction or credit for any taxes or other amounts
on account of which such additional
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consideration has been paid and shall reimburse the Borrower to the extent, but
only to the extent, that such Bank shall receive a refund of such taxes or other
amounts together with any interest thereon or an effective net reduction in
taxes or other governmental charges (including any taxes imposed on or measured
by the total net income of such Bank) of the United States or any state or
subdivision thereof by virtue of any such deduction or credit, after first
giving effect to all other deductions and credits otherwise available to such
Bank. If, at the time any audit of such Bank's income tax return is completed,
such Bank determines, based on such audit, that it was not entitled to the full
amount of any refund reimbursed to the Borrower as aforesaid or that its net
income taxes are not reduced by a credit or deduction for the full amount of
taxes reimbursed to the Borrower as aforesaid, the Borrower, upon demand of such
Bank, will promptly pay to such Bank the amount so refunded to which such Bank
was not so entitled, or the amount by which the net income taxes of such Bank
were not so reduced, as the case may be.
Notwithstanding any other provision of this Credit Agreement, after any
such demand for compensation by any Bank, Borrower, upon at least one (1)
Cleveland Banking Day's prior written notice to such Bank through the Agent, may
prepay all Loans in full regardless of the Interest Period of any thereof. Any
such prepayment shall be subject to the prepayment premium set forth in Section
5.05 hereof.
SECTION 4.08. INDEMNITY. Without prejudice to any other provisions of
this Article IV, the Borrower hereby agrees to indemnify each Bank against any
loss or expense which such Bank may sustain or incur as a consequence of any
Event of Default hereunder, including, but not limited to, any loss of profit,
premium or penalty incurred by such Bank in respect of funds borrowed by it for
the purpose of making or maintaining any Loan subject to the Libor Rate Option,
as determined by such Bank in the exercise of its sole but reasonable
discretion. A statement as to any such loss or expense shall be promptly
submitted by such Bank to the Borrower not later than one hundred fifty (150)
days after the events giving rise to the same occurred and shall, in the absence
of manifest error, be conclusive and binding as to the amount thereof.
SECTION 4.09. EURODOLLAR DEPOSITS UNAVAILABLE OR INTEREST RATE
UNASCERTAINABLE. In the event that the Agent shall have determined that dollar
deposits of the relevant amount for the relevant Interest Period are not
available to the Reference Banks in the applicable Eurodollar market or that, by
reason of circumstances affecting such market, adequate and reasonable means do
not exist for ascertaining the LIBOR rate applicable to such Interest Period, as
the case may be, the Agent shall promptly give notice of such determination to
the Borrower. In any such event, all principal of the Loans then subject to the
LIBOR Rate Option shall become subject to the Prime Rate Option on expiration of
any Interest Periods then in effect. In the event that the circumstances causing
any such unavailability of deposits or inability to determine the LIBOR rate
shall change or terminate so that the LIBOR rate may again be determined, the
Agent shall promptly so notify the Borrower.
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SECTION 4.10. CHANGES IN LAW RENDERING LIBOR LOANS UNLAWFUL.
If at any time any new law, treaty, regulation, governmental rule, guideline,
order or request or any change in any existing law, treaty, regulation,
governmental rule, guideline, order or request or any interpretation thereof by
any governmental or other regulatory authority charged with the administration
thereof, shall make it unlawful for any Bank to fund any Loans which it is
committed to make hereunder subject to the LIBOR Rate Option with moneys
obtained in the Eurodollar market, the Commitment of such Bank to fund such
Loans shall, upon the happening of such event forthwith be suspended for the
duration of such illegality, and such Bank shall by written notice to the
Borrower and the Agent declare that its Commitment with respect to such Loans
has been so suspended and, if and when such illegality ceases to exist, such
suspension shall cease and such Bank shall similarly notify the Borrower and the
Agent. If any such change shall make it unlawful for any Bank to continue in
effect the funding in the applicable Eurodollar market of any Loan previously
made by it hereunder subject to the LIBOR Rate Option, such Bank shall, upon the
happening of such event, notify the Borrower, the Agent and the other Banks
thereof in writing stating the reasons therefor, and the Borrower shall, on the
earlier of (i) the last day of the then current Interest Period or (ii) if
required by such law, regulation or interpretation, on such date as shall be
specified in such notice, prepay all such Loans to the Banks in full. Any such
prepayment or conversion may be made without payment of the prepayment premium
provided from Section 5.05 hereof, but Borrower shall compensate such Bank(s)
for any costs or expenses relating to such Loan incurred in connection with the
events provided for in this Section on written request to the Borrower
describing such costs or expenses.
SECTION 4.11. FUNDING. Each Bank may, but shall not be required to, make
Loans hereunder with funds obtained outside the United States.
ARTICLE V
AGREEMENTS AND CONDITIONS APPLICABLE TO ALL LOANS
SECTION 5.01 NOTICE OF BORROWING. (a) Whenever the Borrower desires to
incur a Loan, it shall give the Agent, prior to 12:00 noon (Cleveland time), at
least two Cleveland Banking Day's prior written notice (or telephonic notice
promptly confirmed in writing) of each Loan to be subject to the LIBOR Rate
Option and at least one Cleveland Banking Days' prior written notice (or
telephonic notice promptly confirmed in writing) of each Loan to be subject to
the Prime Rate Option. Each such notice (each, a "Notice of Borrowing" a form of
which is attached hereto as Exhibit F) shall be appropriately completed to
specify (i) the type of Loan(s) to be made, (ii) the aggregate principal amount
of each type of Loan to be made, which, in the case of Revolving Loans shall be
an amount equal to an integral multiple of $500,000, (iii) the date such Loan(s)
is to be made (which shall be a Cleveland Banking Day), and (iv) whether the
Loan(s) shall be subject to the Prime Rate Option or the Libor Rate Option and,
in the latter case, the Interest Period to be initially applicable thereto. The
Agent shall promptly give each Bank written notice (or telephonic
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notice promptly confirmed in writing) of each proposed Loan, of such Bank's
proportionate share thereof and of the other matters covered by the Notice of
Borrowing.
(b) Without in any way limiting the obligation of the Borrower to
confirm in writing any telephonic notice permitted to be given hereunder, the
Agent may, prior to receipt of written confirmation, act without liability upon
the basis of such telephonic notice, believed by the Agent in good faith to be
from an Authorized Fiscal Officer of the Borrower. In such case, the Borrower
hereby waives the right to dispute the Agent's record of the terms of such
telephonic notice.
SECTION 5.02 DISBURSEMENT OF FUNDS. (a) No later than 1:00 PM
(Cleveland time) on the date specified in each Notice of Borrowing, each Bank
will make available its Pro rata portion of each Loan requested to be made on
such date in the manner provided below in this Section 5.02(a). All amounts
shall be made available to the Agent in U.S. dollars and immediately available
funds at its office listed on the signature pages hereto and the Agent promptly
will make available to the Borrower by depositing to its account at the Agent's
office the aggregate of the amounts so made available in the type of funds
received. Unless the Agent shall have been notified by any Bank prior to the
date specified in the Notice of Borrowing that such Bank does not intend to make
available to the Agent its portion of the Loan or Loans to be made on such date,
the Agent may assume that such Bank has made such amount available to the Agent
on such date of borrowing, and the Agent, in reliance upon such assumption, may
(in its sole discretion and without any obligation to do so) make available to
the Borrower a corresponding amount. If such corresponding amount is not in fact
made available to the Agent by such Bank and the Agent has made available same
to the Borrower, the Agent shall be entitled to recover such corresponding
amount from such Bank. If such Bank does not pay such corresponding amount
forthwith upon the Agent's demand therefor, the Agent shall promptly notify the
Borrower, and the Borrower shall immediately pay such corresponding amount to
the Agent. The Agent shall also be entitled to recover from the Bank or the
Borrower, as the case may be, interest on such corresponding amount in respect
of each day from the date such corresponding amount was made available by the
Agent to the Borrower to the date such corresponding amount is recovered by the
Agent at a rate per annum equal to (i) if paid by such Bank, the overnight
federal funds effective rate or (ii) if paid by the Borrower, the then
applicable rate of interest, calculated in accordance with Article IV, for the
Loans.
(b) Nothing herein shall be deemed to relieve any Bank from its
obligation to fulfill its commitments hereunder or to prejudice any rights which
the Borrower may have against any Bank as a result of any default by such Bank
hereunder.
SECTION 5.03. CONDITIONS TO LOANS. The obligation of each Bank to make
Loans hereunder is conditioned, in the case of each Loan hereunder, upon the
following:
(a) receipt by the Agent of a Notice of Borrowing or Letter of Credit
Request, as applicable;
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(b) no Event of Default or Possible Default existing then or immediately
after giving effect to the Loan; and
(c) the conditions set forth in Article VI hereof having been satisfied;
and
(d) the representations and warranties contained in Article IX hereof
being true and correct in all material respects with the same force and effect
as if made on and as of the date of such Loan except to the extent that any
thereof expressly relate to an earlier date.
Each request for a Loan by the Borrower hereunder shall be deemed to be a
representation and warranty by the Borrower as of the date of such borrowing as
to the truth of the matters specified in (b), (c) and (d) above.
SECTION 5.04. PAYMENT ON NOTES, ETC. All payments of principal,
interest, and any other amounts under the Credit Agreement shall be made to the
Agent in immediately available funds and in lawful money of the United States of
America for the account of the Banks, not later than 12:00 noon (Cleveland time)
on the date when due. Any such payment received by the Agent after 12:00 noon on
a Cleveland Banking Day shall be deemed received on the next succeeding
Cleveland Banking Day and interest shall accrue to such next Cleveland Banking
Day in respect of any principal of the Loans to be paid by such payment. All
payments made by the Borrower hereunder, under any Note or any other Related
Writing, will be made without setoff, counterclaim or defense. The Agent shall
distribute to each Bank its Pro rata share of the amount of principal, interest
and other amounts received by it for the account of such Bank on the same day
the Agent receives payment thereof from the Borrower in immediately available
funds, unless the Agent does not receive such payment from the Borrower until
after 12:00 noon, in which case the Agent shall make payment thereof to the
Banks on the next Cleveland Banking Day. Each Bank shall endorse each Note held
by it with appropriate notations evidencing each payment of principal made
thereon or shall record such principal payment by such other method as such Bank
may generally employ; provided, that failure to make any such entry shall in no
way detract from Borrower's obligations under each such Note. Whenever any
payment to be made hereunder, including without limitation any payment to be
made on any Note, shall be stated to be due on a day which is not a Cleveland
Banking Day, such payment shall be made on the next succeeding Cleveland Banking
Day and such extension of time shall in each case be included in the computation
of the interest payable on such Note; provided, that if the next succeeding
Cleveland Banking Day falls in the succeeding calendar month, such payment shall
be made on the preceding Cleveland Banking Day and the relevant Interest Period
shall be adjusted accordingly.
SECTION 5.05. PREPAYMENT. The Borrower shall have the right (subject to
the payment of a prepayment premium as hereinafter described in this Section
5.05), at any time or from time to time, upon two (2) Cleveland Banking Days'
prior written notice (or telephonic notice promptly confirmed in writing) to
prepay on a Pro rata basis, all or any part of the principal amount of the Notes
then outstanding as designated by the Borrower, plus interest accrued on the
amount so prepaid to the date of such prepayment, which notice shall
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promptly be transmitted by the Agent to each of the Banks. The Borrower agrees
that if LIBOR as determined as of 11:00 a.m. London time, two (2) London Banking
Days' prior to the date of prepayment or acceleration of any Loans (hereinafter,
"Prepayment LIBOR") shall be lower than the last LIBOR previously determined for
those Loans with respect to which prepayment is intended to be made or that are
accelerated (hereinafter, "Last LIBOR"), then the Borrower shall, upon written
notice by the Agent, promptly pay to the Agent, for the account of each of the
Banks, in immediately available funds, a prepayment premium measured by a rate
(the "Prepayment Premium Rate") which shall be equal to the difference between
the Last LIBOR and the Prepayment LIBOR. In determining the Prepayment LIBOR
payable to each Bank, Agent shall apply a rate for each Bank equal to LIBOR for
a deposit approximately equal to each Bank's portion of such prepayment or
accelerated balance which would be applicable to an Interest Period commencing
on the date of such prepayment or acceleration and having a duration as nearly
equal as practicable to the remaining duration of the actual Interest Period
during which such acceleration occurs or prepayment is to be made. In addition,
Borrower shall immediately pay directly to each Bank the amount claimed as
additional costs or expenses (including, without limitation, cost of telex,
wires, or cables) incurred by such Bank in connection with the prepayment or
acceleration upon Borrower's receipt of a written statement from such Bank. The
Prepayment Premium Rate shall be applied to all or such part of the principal
amounts of the Notes as related to the Loans to be prepaid, or that are
accelerated and the prepayment premium shall be computed for the period
commencing with the date on which such prepayment is to be made or acceleration
occurs to that date which coincides with the last day of the Interest Period
previously established when the Loans, which are to be prepaid or are
accelerated, were made. Each prepayment of a Loan shall be in the aggregate
principal sum of not less than One Million Dollars ($1,000,000) (except in the
case of a Loan initially made in an aggregate amount less than One Million
Dollars ($1,000,000)) and, if greater, in an integral multiple of Two Hundred
Fifty Thousand Dollars ($250,000). In the event the Borrower cancels a proposed
Loan subsequent to the delivery to the Agent of a Notice of Borrowing with
respect to such Loan, but prior to the draw down of funds thereunder, such
cancellation shall be treated as a prepayment subject to the aforementioned
prepayment premium. Each prepayment of the Notes evidencing Term Loans shall be
applied to the principal installments thereof in the inverse order of their
respective maturities.
SECTION 5.06. UNUSED COMMITMENT FEES. Borrower agrees to pay to Agent,
for the Pro rata benefit of each Bank, as consideration for its Commitment
hereunder, an unused commitment fee calculated at the rate of three eighths of
one percent per annum (3/8%) (based on a year having 360 days and calculated for
the actual number of days elapsed) from the date hereof to and including the
Termination Date, on the average daily unborrowed amount of such Bank's
Revolving Loan Commitment hereunder, payable on April 1, 1998 and on each
Quarterly Date thereafter. After any permanent reduction of the Revolving Loan
Commitments pursuant to Section 3.02(b), the unused commitment fees payable
hereunder shall be calculated upon the Revolving Loan Commitments of the Banks
as so reduced.
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ARTICLE VI
CONDITIONS PRECEDENT
Prior to or concurrently with the execution and delivery of this Credit
Agreement, and as conditions precedent to the making of any Loans hereunder, the
following actions shall be taken, all in form and substance satisfactory to the
Agents and the Banks and their respective counsel:
SECTION 6.01. CORPORATE AND LOAN DOCUMENTS. Borrower shall deliver or cause
to be delivered to the Agents and the Banks the following documents, in all
cases duly executed, delivered and/or certified, as the case may be:
(a) Certified copies of the resolutions of the board of directors of
Borrower evidencing approval of the execution, delivery and performance of this
Credit Agreement and the Notes provided for herein;
(b) Certified copies of resolutions of the board of directors of the Parent
evidencing approval of the execution, delivery and performance of the Guaranty;
(c) Copies of the Articles of Incorporation of Borrower, certified by the
Ohio Secretary of State as of a recent date;
(d) Copies of the Articles of Incorporation of the Parent, certified by the
Ohio Secretary of State as of a recent date;
(e) Code of Regulations of Borrower, certified as true and complete as of
the Closing Date by the secretary of Borrower;
(f) Code of Regulations of Parent, certified as true and complete as of the
Closing Date by the secretary of Parent;
(g) Borrower good standing certificate from the State of Ohio as of a
recent date;
(h) Parent good standing certificate from the State of Ohio as of a recent
date.
(i) A certificate of the secretary or assistant secretary of Borrower
certifying the names of the officers of Borrower authorized to sign this Credit
Agreement and the Notes, together with the true signatures of such officers.
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(j) A certificate of the secretary or assistant secretary of Parent
certifying the names of the officers of Parent authorized to sign the Guaranty,
together with the true signatures of such officers.
(k) The Borrower, the Agents, and the Banks shall have executed and
delivered counterparts of the Credit Agreement.
(l) The Borrower shall have executed and delivered the Revolving Loan Notes
and the Term Notes evidencing the Initial Term Loans to the Banks.
(m) The Parent shall have executed and delivered the Guaranty to the Agent
and the Banks.
(n) A certificate of the secretary or assistant secretary of Borrower
certifying that as of the date of this Credit Agreement and after giving effect
thereto (i) there shall exist no Possible Default or Event of Default and (ii)
all representations and warranties contained herein shall be true and correct in
all material respects.
SECTION 6.02. OPINION OF COUNSEL FOR PARENT. Borrower shall deliver or
caused to be delivered to the Agents and the Banks a favorable opinion of
counsel for the Parent as to the due authorization, execution and delivery, and
legality, validity, and enforceability of the Guaranty and such other matters as
the Agents and the Banks may request.
SECTION 6.03. OPINION OF COUNSEL FOR BORROWER. Borrower shall
deliver or cause to be delivered to the Agents and the Banks a favorable opinion
of counsel for the Borrower as to the due authorization, execution and delivery,
and legality, validity and enforceability of the Credit Agreement and the Notes
and such other matters as the Agents and the Banks may request.
SECTION 6.04. TERMINATION OF OLD CREDIT AGREEMENT. The Old Credit
Agreement shall have been canceled and terminated and all indebtedness and
obligations of Borrower thereunder satisfied and performed in full.
SECTION 6.05 ADVERSE CHANGE, ETC. From July 31, 1997 to the Closing
Date, nothing shall have occurred (and neither the Banks nor the Agents shall
have become aware of any facts or conditions not previously known) which the
Banks or the Agents shall determine (a) has, or could reasonably be expected to
have, a material adverse effect on the rights or remedies of the Banks or the
Agents, or on the ability of the Borrower or the Parent to perform its
obligations to them or (b) has, or could have, a material adverse effect on the
business, properties, assets, liabilities or condition (financial or otherwise)
(a "Material Adverse Effect") of the Borrower or the Parent.
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SECTION 6.06. JUDGMENT, ORDERS. On the Closing Date, there shall not
exist any judgment, order, injunction or other restraint issued or filed with
respect to the consummation of the transactions contemplated by this Credit
Agreement.
SECTION 6.07 LITIGATION. On the Closing Date, there shall be no actions,
suits or proceedings pending or threatened (a) with respect to this Credit
Agreement or the transactions contemplated hereby or (b) which the Agents or the
Banks shall determine could (i) have a Material Adverse Effect or (ii) have a
material adverse effect on the rights or remedies of the Banks hereunder or
under the Notes or Guaranty or on the ability of either the Borrower or the
Parent to perform its respective obligations to the Banks hereunder or under the
Notes or the Guaranty.
SECTION 6.08. NOTICE OF BORROWING. Prior to the making of each Loan, the
Agent shall have received a Notice of Borrowing satisfying the requirements of
Section 5.01.
SECTION 6.09. PAYMENT OF FEES. On the Closing Date, the Borrower shall have
paid to the Agents and the Banks all costs, fees and expenses, and all other
compensation contemplated by this Credit Agreement (including, without
limitation, legal fees and expenses) to the extent then due.
ARTICLE VII
AFFIRMATIVE COVENANTS
Borrower covenants and agrees that on the Closing Date and thereafter,
for so long as this Credit Agreement remains in effect and until the Commitments
have terminated and the principal of and interest on all Notes and all other
payments due hereunder shall have been paid in full, Borrower will perform and
observe all of the following provisions, namely:
SECTION 7.01. PAYMENT OF AMOUNTS DUE. The Borrower will make all payments
of the principal of and interest on the Loans and the Notes promptly as the same
become due.
SECTION 7.02. EXISTENCE, BUSINESS, ETC. The Borrower will cause to be done
all things necessary to preserve and to keep in full force and effect its
existence and rights and those of its Subsidiaries. The Borrower will, and will
cause its Subsidiaries to, comply in all material respects with all federal,
state and local laws and regulations now in effect or hereafter promulgated by
any governmental authority having jurisdiction over it or them, as applicable.
SECTION 7.03. MAINTENANCE OF PROPERTIES. The Borrower will, and will cause
its Subsidiaries to, at all times maintain, preserve, protect and keep its
properties used in the conduct of its business in good repair, working order and
condition, ordinary wear and tear excepted, and, from time to time, make all
needful and proper repairs, renewals, replacements,
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betterments, and improvements thereto, so that the business carried on in
connection therewith may be properly conducted at all times.
SECTION 7.04. PAYMENT OF TAXES, ETC. The Borrower will pay and
discharge all lawful taxes, assessments and governmental charges or levies
imposed upon it, upon its income or profits or upon its properties, before the
same shall become in default or penalties attach thereto, as well as all lawful
claims for same which have become due and payable which, if unpaid, might become
a lien or charge upon such properties or any part thereof; provided, that the
Borrower shall not be required to pay and discharge any such tax, assessment,
charge, levy or claim so long as the validity thereof shall be contested in good
faith by appropriate proceedings and there shall be set aside on its books such
reserves with respect thereto as are required by generally accepted accounting
principles. Except where the liability for the tax, assessment, charge, levy or
claim is limited solely to the property on which assessed and is not subject to
enforcement against the Borrower, the Borrower will in all events pay such tax,
assessment, charge, levy or claim before the property subject thereto shall be
sold to satisfy any lien which has attached as security therefor.
SECTION 7.05. FINANCIAL STATEMENTS. The Borrower will furnish to each
Bank:
(a) within forty-five (45) days after the end of each of the
first three (3) quarter-annual fiscal periods of each of the Borrower's fiscal
years, an unaudited consolidated and consolidating balance sheet of the Parent,
the Borrower and their respective Subsidiaries as at the end of that period and
an unaudited consolidated and consolidating statement of earnings of the Parent,
the Borrower and their respective Subsidiaries for the Borrower's current fiscal
year to the end of that period, all prepared in form and detail in accordance
with generally accepted accounting principles, consistently applied, and
certified by a Chief Financial Officer of the Parent, together with a
certificate of a senior officer of the Borrower (i) specifying the nature and
period of existence of each Event of Default and/or Possible Default, if any,
and the action taken, being taken or proposed to be taken by the Borrower in
respect thereof, or if none, so stating, (ii) certifying that the
representations and warranties of the Borrower set forth in Article IX hereof
are true and correct as of the date of such certificate, or, if not, all
respects in which they are not and (iii) certifying compliance by the Borrower
with the covenants contained in Section 8.13;
(b) within ninety (90) days after the end of each of the
Borrower's fiscal years, complete audited annual financial statements of the
Parent, the Borrower and their respective Subsidiaries for that year prepared on
a consolidated basis and unaudited on a consolidating basis and in form and
detail satisfactory to the Banks, together with (i) a certificate of a senior
officer of Borrower (x) specifying the nature and period of existence of each
Event of Default and/or Possible Default, if any, and the action taken, being
taken or proposed to be taken by Borrower in respect thereof or, if none, so
stating, and (y) certifying that the representations and warranties of the
Borrower set forth in Article IX hereof are true and correct as of the date of
such certificate, or, if not, all respects in which they are not, and
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(ii) a fully completed covenant compliance worksheet in the form and substance
of Schedule 7.05 hereof relating to such fiscal year duly certified by the
Borrower's accountants; and
(c) forthwith upon the Agent's or any Bank's written request, such other
information about the financial condition, properties and operations of Borrower
and its Subsidiaries, including, but not limited to, financial statements, rent
rolls and other similar information for each Subsidiary of the Borrower, in each
case as the Agent or that Bank may from time to time reasonably request.
SECTION 7.06. INSPECTION. The Borrower will and will cause each Subsidiary
to permit its properties and records to be examined at all reasonable times by
the Agent and each of the Banks.
SECTION 7.07. ENVIRONMENTAL COMPLIANCE. The Borrower will comply in all
material respects with any and all Environmental Laws including, without
limitation, all Environmental Laws in jurisdictions in which Borrower or any
Subsidiary owns property, operates, arranges for disposal or treatment of
hazardous substances, solid waste or other wastes, accepts for transport any
hazardous substances, solid waste or other wastes or holds any interest in real
property or otherwise. The Borrower will furnish to the Banks promptly after
receipt thereof a copy of any notice the Borrower or any Subsidiary may receive
from any governmental authority, private person or entity or otherwise that any
litigation or proceeding pertaining to any environmental, health or safety
matter has been filed or is threatened against the Borrower or such Subsidiary,
any real property in which the Borrower or such Subsidiary holds any interest or
any past or present operation of the Borrower or such Subsidiary. The Borrower
will not allow the storage, release or disposal of hazardous waste, solid waste
or other wastes on, under or to any real property in which Borrower holds any
interest or performs any of its operations, in violation of any Environmental
Law. As used in this subsection "litigation or proceeding" means any demand,
claim, notice, suit, suit in equity, action, administrative action,
investigation or inquiry whether brought by any governmental authority, private
person or entity or otherwise. The Borrower shall defend, indemnify and hold the
Banks harmless against all costs, expenses, claims, damages, penalties and
liabilities of every kind or nature whatsoever (including attorneys' fees)
arising out of or resulting from the noncompliance of the Borrower or any
Subsidiary with any Environmental Law provided that, so long as and to the
extent that the Banks are not required to make any payment or suffer to exist
any unsatisfied judgment, order or assessment against them, the Borrower may
pursue rights of appeal to comply with such Environmental Laws. In any case of
noncompliance with any Environmental Law by a Subsidiary, the Banks' recourse
for indemnity in respect of the matters provided for in this Section shall be
limited solely to the property of the Subsidiary holding title to the property
involved in such noncompliance and such recovery shall not be a lien, or a basis
of a claim of lien or levy of execution, against either the Borrower's general
assets or the general assets of any of its Subsidiaries.
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SECTION 7.08. ERISA. (a) At the request of any Bank, the Borrower will
deliver to each Bank a complete copy of the annual report (Form 5500) of each
Plan required to be filed with the Internal Revenue Service. In addition to any
certificates or notes delivered to the Banks pursuant to this Section 7.08,
copies of any notices received by the Borrower or any Subsidiary of the Borrower
or any ERISA Affiliate with respect to any Plan shall be delivered to the Banks
no later than (10) days after the date such notice has been filed with the
Internal Revenue Service or the PBGC or such notice has been received by the
Borrower or such Subsidiary or such ERISA Affiliate, as applicable.
(b) As soon as possible and, in any event, within ten (10) days after
the Borrower, any of its Subsidiaries or any ERISA Affiliate knows or has reason
to know of the occurrence of any of the following, the Borrower will deliver to
each of the Banks a certificate of an authorized officer of the Borrower setting
forth details as to the occurrence and such action, if any, which the Borrower,
such Subsidiary or such ERISA Affiliate is required or proposed to take,
together with any notices required or proposed to be given to or filed with or
by the Borrower, such Subsidiary, such ERISA Affiliate, the PBGC, a Plan
participant or the Plan administrator with respect thereto:
(i) that a Reportable Event has occurred;
(ii) that an accumulated funding deficiency has been incurred or any
application may be or has been made to the Secretary of the Treasury for a
waiver or modification of the minimum funding standard (including any required
installment payments) or an extension of any amortization period under Section
412 of the Code with respect to a Plan;
(iii) that a contribution required to be made to a Plan has not been timely
made;
(iv) that a Plan has been or may be terminated, reorganized, partitioned or
declared insolvent under Title IV of ERISA;
(v) that a Plan has an Unfunded Current Liability giving rise to a lien
under ERISA or the Code;
(vi) that proceedings may be or have been instituted to terminate or
appoint a trustee to administer a Plan;
(vii) that a proceeding has been instituted pursuant to Section 515 of
ERISA to collect a delinquent contribution to a Plan;
(viii) that the Borrower, any of its Subsidiaries or any ERISA
Affiliate will or may incur any liability (including any indirect,
contingent or secondary liability) to or on account of the termination
of or withdrawal from a Plan under Section 4062,
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4069, 4201, 4204 or 4212 of ERISA or with respect to a Plan under
Section 401(a)(29), 4971, 4975, or 4980 of the Code or Sections 409 or
502(i) or 501(1) of ERISA; or
(ix) that the Borrower or any of its Subsidiaries may incur
any material liability pursuant to any employee welfare benefit plan
(as defined in Section 3(1) of ERISA) that provides benefits to retired
employees or other former employees (other than as required by Section
601 of ERISA) or any employee pension benefit plan (as defined in
Section 3(2) of ERISA).
SECTION 7.09. INSURANCE. The Borrower will and will cause each of its
Subsidiaries to (a) keep itself and all of its insurable properties insured at
all times to such extent, by such insurers, and against such hazards and
liabilities as is generally and prudently done by like businesses, it being
understood that the Parent, the Borrower and each Subsidiary has obtained a
fidelity bond for each of its employees that handle funds, (b) give each Bank
prompt written notice of each material change in the Borrower's or any
Subsidiary's insurance coverage and the details of the change and (c) forthwith
upon any Bank's written request, furnish to each Bank such information about the
Borrower's or any Subsidiary's insurance as any Bank may from time to time
reasonably request, which information shall be prepared in form and detail
satisfactory to each Bank and certified by an officer of the Borrower or such
Subsidiary, as applicable.
SECTION 7.10. MONEY OBLIGATIONS. The Borrower will and will cause each
Subsidiary to pay in full (a) prior in each case to the date when penalties
would attach, all taxes, assessments and governmental charges and levies (except
only those so long as and to the extent that the same shall be contested in good
faith by appropriate and timely proceedings diligently pursued) for which it may
be or become liable or to which any or all of its properties may be or become
subject, (b) all of its wage obligations to its employees in compliance with the
Fair Labor Standards Act (29 U.S.C. ss.ss.206-207) or any comparable provisions,
and (c) all of its other obligations calling for the payment of money (except
only those so long as and to the extent that the same shall be contested in good
faith by appropriate and timely proceedings diligently pursued) before such
payment becomes overdue except where the failure to make such payments, either
singly or in the aggregate, would not have a Material Adverse Effect on the
Borrower and provided that Borrower shall promptly give written notice to the
Administrative Agent of any such non-payments.
SECTION 7.11. RECORDS. The Borrower will and will cause each Subsidiary
to (a) at all times maintain true and complete records and books of account, and
without limiting the generality of the foregoing, maintain appropriate reserves
for possible losses and liabilities, all in accordance with generally accepted
accounting principles applied on a basis not inconsistent with its present
accounting procedures, and (b) at all reasonable times permit any Bank to
examine the Borrower's or any Subsidiary's books and records and to make
excerpts therefrom and transcripts thereof.
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SECTION 7.12. FRANCHISES. The Borrower will and will cause each
Subsidiary to preserve and maintain at all times its corporate existence, rights
and franchises; provided that this Section 7.12 shall not prohibit any merger,
consolidation, dissolution or transfer permitted by Section 8.02.
SECTION 7.13. NOTICE. The Borrower will cause its Chief Financial Officer,
or in his or her absence another officer designated by the Chief Financial
Officer, to promptly notify the Banks whenever:
(a) any Event of Default or Possible Default may occur hereunder or any
representation or warranty made in Article IX hereof or elsewhere in this Credit
Agreement or in any Related Writing may for any reason cease in any material
respect to be true and complete; and/or
(b) any Subsidiary shall (i) be in default of any material (either with
respect to the Subsidiary or the Borrower) obligation for payment of borrowed
money or, to the knowledge of Borrower, any material obligations in respect of
guarantees, taxes and/or indebtedness for goods or services purchased by, or
other contractual obligations of, such Subsidiary and/or (ii) not, to the
knowledge of Borrower, be in compliance with any law, order, rule, judgments,
ordinance, regulation, license, franchise, lease or other agreement that has or
could reasonably be expected to have a material adverse effect on the business,
operations, property or financial condition of the Subsidiary, and/or (iii)
Borrower and/or the Subsidiary shall have received or have knowledge of any
actual, pending or threatened claim, notice, litigation, citation, proceeding,
or demand relating to any matter(s) described in subsections (i) and (ii) of
this Section 7.13; and/or
(c) the Borrower shall be in default of any guarantee permitted by Section
8.05(b).
SECTION 7.14. POST CLOSING ITEMS. The Borrower will promptly perform and
complete to the satisfaction of the Agent each of the matters, if any, set forth
on Schedule 7.14 attached hereto (the "Post Closing Items") on or before the
date set forth on Schedule 7.14 for the performance and completion thereof (the
"Satisfaction Date").
SECTION 7.15. FURTHER ASSURANCES. The Borrower agrees to execute and
deliver to the Agent and/or the Banks any agreements, documents and instruments,
including, without limitation, additional Notes as replacements or substitutions
as may be required by the Agent and/or the Banks, and to take such other actions
as reasonably requested by the Agent to effect the transactions contemplated
hereby.
SECTION 7.16. NOTICE OF DEFAULT OR LITIGATION. Promptly, and in any event
within three (3) Cleveland Banking Days after any officer of the Borrower or any
of its Subsidiaries obtains knowledge thereof, notice to the Agents of (a) the
occurrence of any event which constitutes a Possible Default or Event of
Default, which notice shall specify the nature thereof, the period of existence
thereof and what action the Borrower proposes to take with
<PAGE>
respect thereto, and (b) the commencement of, or written threat of, or any
significant development in, any litigation or governmental proceeding pending
against the Borrower or any of its Subsidiaries which is likely to have a
Material Adverse Effect or a material adverse effect on the ability of the
Borrower to perform its obligations hereunder or under the Notes.
SECTION 7.17. USE OF PROCEEDS. All proceeds of the Loans shall be used as
provided in Sections 2.01(a), 2.02(a) or 3.04, as applicable.
ARTICLE VIII
NEGATIVE COVENANTS
Borrower covenants and agrees that as of the Closing Date, and thereafter for so
long as this Credit Agreement is in effect and until the Commitments and all
letters of credit are terminated, no Notes are outstanding and the Loans,
together with interest, fees and all other obligations incurred hereunder, are
paid in full, the Borrower will observe all of the following provisions, namely:
SECTION 8.01. PLAN. Neither the Borrower nor any Subsidiary will suffer
or permit any Plan to be amended if, as a result of such amendment, the current
liability under the Plan is increased to such an extent that security is
required pursuant to Section 307 of the ERISA. As used herein, "current
liability" means current liability as defined in Section 307 of ERISA.
SECTION 8.02. COMBINATIONS. The Borrower will not dissolve or
liquidate, and will not permit any Subsidiary to dissolve or liquidate, except
in the ordinary course of business to the extent that no Material Adverse Effect
is thereby suffered by Borrower. The Borrower will not and will not permit any
Subsidiary to be a party to any consolidation or merger; provided, that this
Section shall not apply to (i) any merger of a Subsidiary into Borrower (with
Borrower being the surviving corporation) or into another Subsidiary, (ii) any
consolidation of a Subsidiary with another Subsidiary, or (iii) a merger of
Borrower into Parent on such terms that the surviving corporation will be liable
for all obligations of Borrower arising under this Credit Agreement.
SECTION 8.03. BULK TRANSFERS. The Borrower will not and will not permit
a Subsidiary to be a party to any lease, sale or other transfer involving all or
a substantial part of the assets of the Companies as a whole; provided, that
this Section shall not apply to (a) any transfer of assets to Borrower or
another Subsidiary, (b) the transfer of assets to a trustee (other than a
trustee for the benefit of creditors) in connection with a building project
involving such assets, or (c) any transfer effected in the normal course of
business and on commercially reasonable terms.
SECTION 8.04. BORROWINGS. The Borrower will not and will not permit any
Subsidiary to create, assume or suffer to exist any indebtedness for borrowed
money or any
<PAGE>
Funded Indebtedness of any kind; provided, that this Section shall not apply to
(a) any Loans obtained hereunder, (b) any indebtedness of Borrower or of any
Subsidiary created in the course of purchasing or developing real estate or
financing construction or other improvements thereon or purchasing furniture,
fixtures or other equipment therefor or any other indebtedness of Borrower or of
any Subsidiary for borrowed money or any refinancings thereof, provided that
neither Borrower nor any Subsidiary (other than a Subsidiary whose sole assets
consist of contiguous parcels of land which are being purchased or developed
with such financing, the improvements, if any, thereon, furniture, fixtures and
other equipment used in connection therewith, receivables incurred by tenants in
connection therewith and the proceeds of such receivables and other property
directly obtained from the ownership of such assets) shall have any personal
liability for such indebtedness, the creditors' recourse being solely to the
property being pledged as collateral for such indebtedness and the income
therefrom, or (c) any Funded Indebtedness hereafter incurred by the Borrower or
any Subsidiary that is fully subordinated, by written agreement in form and
substance satisfactory to the Banks, which agreements shall include, among
others, terms providing that such subordinated indebtedness (i) shall be
unsecured, (ii) shall have a maturity date of at least four (4) years beyond the
maturity date of the Revolving Loans, including all extensions thereof and
including the term of any Additional Term Loans made upon the Termination Date
and (iii) shall be subject to a stand still period of at least twelve (12)
months, in favor of the prior payment in full of the Borrower's Debt to the
Banks, and provided further that all proceeds of such Funded Indebtedness shall
be used to repay the outstanding principal amounts of the Term Loans.
SECTION 8.05. LIENS. The Borrower will not and will not permit any
Subsidiary to (a) acquire any property subject to any inventory consignment,
land contract or other title retention contract, (b) other than the periodic
sale by Borrower or any Subsidiary of any mortgages held by Borrower or such
Subsidiary, sell or otherwise transfer any receivables, or (c) suffer or permit
any property now owned or hereafter acquired by it to be or become encumbered by
any mortgage, security interest, financing statement or lien of any kind or
nature other than:
(i) any lien for a tax, assessment or governmental charge or levy so long
as the payment thereof is not at the time required by Section 7.10 hereof;
(ii) any lien securing only its workers' compensation, unemployment
insurance and similar obligations;
(iii) any mechanic's, carrier's or similar common law or statutory lien
incurred in the normal course of business;
(iv) any transfer of a check or other medium of payment for deposit or
collection through normal banking channels or any similar transaction in the
normal course of business;
<PAGE>
(v) any mortgage, security interest or other lien securing only
indebtedness
permitted by clause (b) of Section 8.04;
(vi) any transfer of receivables without recourse;
(vii) any assignment of rents, profits and/or cash flows derived from
particular real estate given as additional security to a mortgage or security
interest on such real estate permitted by this Section 8.05, provided, that the
mortgage or security interest encumbers only the real property in question;
(viii) any financing statement perfecting a security interest permitted by
this Section;
(ix) easements, restrictions, minor title irregularities and similar
matters having no adverse effect as a practical matter on the ownership or use
of the Borrower's or any Subsidiary's real property; or
(x) any mortgage, security interest and lien securing any indebtedness
incurred to the Banks under this Credit Agreement.
SECTION 8.06. LOANS. The Borrower will not and will not permit any
Subsidiary to knowingly make or have outstanding at any time to any third party,
any advance or loan of any kind other than:
(a) any loan secured solely by mortgages on real estate and not exceeding
eighty per cent (80%) of the value of the real estate as appraised by the lender
(provided, however, that in the case of any federally insured loan, the amount
of the loan may be up to one hundred percent (100%) of such appraised value),
(b) any loan from Borrower to one of its Subsidiaries or from such a Subsidiary
to Borrower, provided, that any such loan from a Subsidiary to the Borrower
shall be subordinated in all respects to the Borrower's Debt to the Banks and
shall be on such terms and conditions as may be satisfactory to the Banks or (c)
any advance or loan made in the normal course of business of acquiring
properties for, or developing properties of, the Borrower or any Subsidiary.
SECTION 8.07. GUARANTEES. The Borrower will not and will not permit any
Subsidiary to pledge its credit or property in any manner for the payment or
other performance of the indebtedness, contract or other obligation of another,
whether as guarantor (whether of payment or of collection), surety, co-maker,
endorser or by agreeing conditionally or otherwise to make any purchase, loan or
investment in order thereby to enable another to prevent or correct a default of
any kind, or otherwise, except for:
(a) endorsements of negotiable instruments for deposit or collection or
similar transactions in the normal course of business;
<PAGE>
(b) any guarantee of the completion of a real estate building project if
the Borrower or any Subsidiary is the developer of the project or has a property
interest in the project, provided, that such guarantee contains balancing
provisions satisfactory to the Banks and provided, further, that no debt service
guarantees or balancing guarantees through lease-up shall be permitted;
(c) the guarantee by Parent of all Loans granted to Borrower hereunder;
(d) any indemnity or guarantee of a surety bond for the performance by some
customer of a the Borrower or any Subsidiary of the customer's obligations under
a land development contract;
(e) any guarantee by Borrower of the equity investment or performance of a
Subsidiary (other than any obligations of such Subsidiary incurred for borrowed
money) in connection with a real estate project in favor of a partner or
partnership in which such Subsidiary is a general partner, when Borrower deems
it to be in its best interest not to be a partner or have a direct interest in
the partnership;
(f) Borrower's guarantee of up to Six Million Eight Hundred Thousand
Dollars ($6,800,000) of the Wisconsin Park Associates' letter of credit; and
(g) guarantee(s) by Borrower not permitted under the provisions of
Subsections (a) through (f), inclusive, of this Section 8.07 of up to an
aggregate principal amount of indebtedness not at any time exceeding an amount
equal to (i) Four Million Five Hundred Thousand Dollars ($4,500,000) minus (ii)
all amounts subject to guarantee(s) permitted by Section 9.12(f) of the
Guaranty; provided, that no debt service guarantees shall be permitted under
this Section 8.07(g) unless, and only so long as, amounts of indebtedness to
which any debt service guarantees apply together with the amounts of
indebtedness guaranteed by any other guarantees not permitted by the provisions
of subsections (a) through (f), inclusive, of this Section 8.07, do not at any
time exceed the amount then permitted to be guaranteed under this Section 8.07
(g), and that Borrower shall provide a written report to each of the Banks
within forty-five (45) days after the end of each quarter-annual fiscal period
of Borrower identifying each quarter-annual fiscal period of Borrower
identifying each guarantee of Borrower then outstanding that is not permitted by
the provisions of subsections (a) through (f), inclusive, of this Section 8.07.
For purposes of Section 8.07(b), the term "balancing provisions" means
provisions that (i) require additional funds to be contributed to a project by
an obligor, which will be disbursed to pay construction costs prior to any
further disbursements by a lender of loan proceeds and (ii) are generally in
effect when the cost to complete a project exceeds the amount of loan proceeds
remaining to be disbursed by the lender.
SECTION 8.08. AMENDMENT OF ARTICLES OF INCORPORATION AND/OR
REGULATIONS. The Borrower will not amend, modify or supplement its articles of
<PAGE>
incorporation or its code of regulations in any material respect that would be
detrimental to the performance by the Borrower of its obligations under this
Credit Agreement or the Notes or the rights of the Agent or the Banks under this
Credit Agreement or the Notes.
SECTION 8.09. FISCAL YEAR. Except as required by law, or required in
connection with a transaction permitted under Section 7.14 hereof, the Borrower
will not change its fiscal year without the consent of the Banks, which consent
shall not be unreasonably withheld.
SECTION 8.10. REGULATION U. The Borrower will not, and will not permit
its Subsidiaries to, directly or indirectly, (a) apply any part of the proceeds
of any Loan to the purchasing or carrying of any "margin stock" within the
meaning of Regulations G, T, U or X of the Federal Reserve Board, or any
regulations, interpretations or rulings thereunder, (b) extend credit to others
for the purpose of purchasing or carrying any such margin stock, or (c) retire
Indebtedness which was incurred to purchase or carry any such margin stock.
SECTION 8.11. NO PLEDGE. The Borrower will not sell, assign, pledge or
otherwise dispose of or encumber any of its partnership interests or other
equity interests in any of its Subsidiaries, except as permitted under Section
8.02.
SECTION 8.12. TRANSACTIONS WITH AFFILIATES. The Borrower will not and
will not permit any of its Subsidiaries to, enter into any transaction or series
of transactions with any Affiliate other than in the ordinary course of business
and on terms and conditions substantially as favorable as would be obtainable by
the Borrower or such Subsidiary, at the time in a comparable arm's-length
transaction with a Person other than an Affiliate, provided, that the following
shall in any event be permitted: (a) Distributions permitted by Section 8.11 and
(b) loans permitted by Section 8.04.
SECTION 8.13. DEBT SERVICE COVERAGE RATIO. (a) The Borrower will not
permit the Debt Service Coverage Ratio in each case for the four (4) consecutive
quarters ending on the dates set forth below to be less than the ratio set forth
opposite such dates below:
For consecutive quarter
period Ending Ratio
January 31, 1998 1.15:1.00
April 30, 1998 1.15:1.00
July 31, 1998 1.15:1.00
October 31, 1998 1.15:1.00
January 31, 1999 and for
each January 31, April 30, July 31
and October 31 thereafter 1.20:1.00
<PAGE>
(b) In the event of a violation of Section 8.13(a), the
Borrower will have thirty (30) days from the due date of the most recent
financial statement and covenant compliance certificate delivered in accordance
with Section 7.05 to correct such violation. If the Borrower is unwilling or
unable to cure such violation within such thirty (30) day period, the Revolving
Loan Commitments will be terminated and the then outstanding amount of the
Revolving Loans will be converted to Additional Term Loans as provided in
Section 2.02(a), subject to the provisions contained in Sections 2.02(b), 2.03
and 2.05. Interest shall be paid in accordance with Section 2.03, provided, that
the Indicated Spread for such Additional Term Loans subject to the LIBOR Rate
Option shall be two hundred fifty (250) basis points and to the Prime Rate
Option shall be seventy-five (75) basis points. From and after the conversion of
the Revolving Loans to the Additional Term Loans pursuant to this Section
8.13(b), the Borrower will not permit the Debt Service Coverage Ratio in each
case for the four (4) consecutive quarters ending on each January 31, April 30,
July 31 and October 31 to be less than 1.00:1.00.
ARTICLE IX
REPRESENTATIONS AND WARRANTIES
Subject only to such exceptions, if any, as may be fully disclosed in
an officer's certificate in the form of Schedule 9.00 hereto furnished by
Borrower to each Bank prior to the execution and delivery hereof, Borrower
represents and warrants as follows:
SECTION 9.01. EXISTENCE. Borrower is a corporation duly organized and
validly existing in good standing under the laws of the State of Ohio and is
duly qualified to transact business and is in good standing as a foreign
corporation in all jurisdictions (other than jurisdictions in which the nature
of the property owned or business conducted, when considered in relation to the
absence of serious penalties, renders qualification as a foreign corporation
unnecessary as a practical matter) where the nature of the property owned and
business transacted by Borrower render such qualification necessary. Each of the
Borrower's Subsidiaries is duly organized and existing in good standing in the
jurisdiction of its incorporation or formation. The Borrower and each of its
Subsidiaries has full power, authority, and legal right to own and operate its
respective properties and to carry on the business in which it engages and
intends to engage.
SECTION 9.02. RIGHT TO ACT. No registration with or approval of any
governmental agency of any kind is required for the due execution and delivery
or for the enforceability of this Credit Agreement and any Note issued pursuant
to this Credit Agreement. Borrower has legal power and right to execute and
deliver this Credit Agreement and any Note issued pursuant to this Credit
Agreement and to perform and observe the provisions of this Credit Agreement and
any Note issued pursuant hereto and all such actions have been duly authorized
by all necessary corporate action of Borrower. By executing and delivering this
Credit Agreement and any Note issued pursuant to this Credit Agreement and by
performing and observing the provisions of this Credit Agreement and any Note
issued
<PAGE>
pursuant hereto, Borrower will not violate any existing provision of its
articles of incorporation, code of regulations or by-laws or any applicable law
or violate or otherwise become in default under any existing contract,
agreement, indenture or other obligation binding upon Borrower. The officers
executing and delivering this Credit Agreement on behalf of Borrower have been
duly authorized to do so, and this Credit Agreement and any Note, when executed,
are legally valid, binding and enforceable against Borrower in every respect.
SECTION 9.03. BINDING EFFECT. This Credit Agreement constitutes a valid
and binding agreement of the Borrower, and the Guaranty constitutes a valid and
binding agreement of the Parent, in both cases enforceable in accordance with
their respective terms, and the Notes, when executed and delivered in accordance
with this Credit Agreement, will constitute valid and binding obligations of the
Borrower, enforceable in accordance with their terms.
SECTION 9.04. LITIGATION. No litigation or proceeding is pending or
being threatened against Borrower or any Subsidiary before any court or any
administrative agency which might, if successful, be expected to have a Material
Adverse Effect on Borrower, or to have a material adverse effect on the ability
of the Borrower to perform its obligations to the Banks hereunder or under the
Notes. The Internal Revenue Service has not alleged any default by Borrower or
any Subsidiary in the payment of any tax or threatened to make any assessment in
respect thereof.
SECTION 9.05. EMPLOYEE RETIREMENT INCOME SECURITY ACT. No material Plan
established or maintained by Borrower or any Domestic Subsidiary, which is
subject to Part 3 of Subtitle B of Title I of ERISA, had an accumulated funding
deficiency (as such term is defined in Section 302 of ERISA) as of the last day
of the most recent fiscal year of such Plan ended prior to the date hereof, or
would have had an accumulated funding deficiency (as so defined) on such day if
such year were the first year of such Plan to which Part 3 of Subtitle B of
Title I of that Act applied, and no material liability to the PBGC, has been, or
is expected by Borrower or any Domestic Subsidiary to be, incurred with respect
to any such Plan by Borrower or any Domestic Subsidiary.
SECTION 9.06. ENVIRONMENTAL COMPLIANCE. To the best of Borrower's
knowledge, Borrower and each Subsidiary are in compliance with any and all
Environmental Laws including, without limitation, all Environmental Laws in all
jurisdictions in which Borrower or any Subsidiary owns or operates, or has owned
or operated, a facility or site, arranges or has arranged for disposal or
treatment of hazardous substances, solid waste or other wastes, accepts or has
accepted for transport any hazardous substances, solid waste or other wastes or
holds or has held any interest in real property or otherwise. No litigation or
proceeding arising under, relating to or in connection with any Environmental
Law is pending or threatened against Borrower or any Subsidiary, any real
property in which Borrower or any Subsidiary holds or has held an interest or
any past or present operation of Borrower or any Subsidiary. To the best of
Borrower's knowledge, no release, threatened release or disposal of
<PAGE>
hazardous waste, solid waste or other wastes is occurring, or has occurred, on,
under, from, or to any real property in which Borrower or any Subsidiary holds
any interest or performs any of its operations, in violation of any
Environmental Law. As used in this subsection, "litigation or proceeding" means
any demand, claim, notice, suit, suit in equity, action, administrative action,
investigation or inquiry whether brought by any governmental authority, private
person or entity or otherwise.
SECTION 9.07. SOLVENCY. Borrower has received consideration which is
the reasonable equivalent value of the obligations and liabilities that Borrower
has incurred to the Banks. Borrower is not insolvent as defined in any
applicable state or federal statute, nor will Borrower be rendered insolvent by
the execution and delivery of this Credit Agreement or any Note to the Banks.
Borrower is not engaged or about to engage in any business or transaction for
which the assets retained by it shall be an unreasonably small capital, taking
into consideration the obligations to the Banks incurred hereunder. Borrower
does not intend to, nor does it believe that it will, incur debts beyond its
ability to pay them as they mature.
SECTION 9.08. FINANCIAL STATEMENTS. The annual financial statements of
Borrower prepared as of January 31, 1997, and the interim financial statements
of Borrower prepared as of July 31, 1997, in each case certified by Borrower's
Chief Financial Officer and heretofore furnished to each Bank, are true and
complete, have been prepared in accordance with GAAP applied on a basis
consistent with those used by Borrower during its immediately preceding full
fiscal year and fairly present its financial condition as of those dates and the
results of its operations for the periods set forth therein. Since July 31, 1997
there has been no material adverse change in Borrower's financial condition,
properties or business or in the financial condition, properties or business of
any Subsidiary other than any change which has been previously disclosed to the
Banks.
SECTION 9.09. DEFAULTS. No Event of Default or Possible Default exists
hereunder, nor will any begin to exist immediately after the execution and
delivery hereof.
SECTION 9.10. OPERATIONS. The Borrower and its Subsidiaries have obtained
and continue to possess all permits, licenses and authorizations the absence of
which would materially and adversely affect the Borrower's or a Subsidiary's
ability to carry on its business in the ordinary course.
SECTION 9.11. TITLE TO PROPERTIES; PATENTS, TRADE MARKS, ETC. The Borrower
and its Subsidiaries have good and marketable title to all of their properties
and assets, including, without limitation, the properties and assets reflected
in the financial statements referred to in Section 9.08 (excepting, however,
inventory and other immaterial assets, in each case sold or otherwise disposed
of in the ordinary course of business subsequent to the date of such financial
statements). There are no Liens of any nature whatsoever on any of the
properties or assets of the Borrower and its Subsidiaries other than such as are
permitted under Section 8.05. The Borrower and its Subsidiaries owns or
possesses all the patents, trademarks, service marks, trade names, copyrights,
and licenses and
<PAGE>
rights with respect to the foregoing necessary for the conduct of their
respective businesses as now conducted, without any known conflict with the
valid rights of others which would be inconsistent with the conduct of its
business substantially as now conducted and as currently proposed to be
conducted.
SECTION 9.12. COMPLIANCE WITH OTHER INSTRUMENTS. The Borrower and, to
the best of the Borrower's knowledge, each Subsidiary is not in default in the
performance, observance or fulfillment of any of the material obligations,
covenants or conditions contained in any evidence of indebtedness. Neither the
execution and delivery of this Credit Agreement, nor the consummation of the
transactions contemplated hereby, nor compliance with the terms and provisions
hereof will violate the provisions of any applicable law or of any applicable
order or regulations of any governmental authority having jurisdiction over the
Borrower or its Subsidiaries, or will conflict with any material permit, license
or authorization, or will conflict with or result in a breach of any of the
terms, conditions or provisions of any restriction or of any agreement or
instrument to which the Borrower is now a party, or will constitute a default
thereunder, or will result in the creation or imposition of any Lien upon any of
the properties or assets of the Borrower or any Subsidiary.
SECTION 9.13. MATERIAL RESTRICTIONS. Neither the Borrower nor any of
its Subsidiaries are a party to any agreement or other instrument or subject to
any other restriction which would have a Materially Adverse Effect on the
Borrower and its Subsidiaries taken as a whole.
SECTION 9.14. CORRECTNESS OF DATA FURNISHED. This Credit Agreement and
all schedules and exhibits attached hereto do not contain any untrue statement
of a material fact or omit a material fact necessary to make the statements
contained herein or therein not misleading; and there is no fact not otherwise
disclosed in writing to the Agent which, to the knowledge of the Borrower, would
have a Material Adverse Effect on the Borrower and its Subsidiaries.
SECTION 9.15. TAXES. The Borrower and each of its Subsidiaries has (a)
timely filed all returns required to be filed by it with respect to all taxes,
(b) paid all taxes shown to have become due pursuant to such returns, and (c)
paid all other taxes for which a notice of assessment or demand for payment has
been received other than taxes that the Borrower or such Subsidiary is
contesting in good faith with appropriate proceedings. All tax returns have been
prepared in accordance with all applicable laws and requirements and accurately
reflect in all material respects the taxable income (or other measure of tax) of
the Borrower filing the same. The accruals for taxes contained in the financial
statements referred to in Section 9.08 are adequate under GAAP to cover all
liabilities for taxes for all periods ending on or before the date of such
financial statements and include adequate provision for all deferred taxes
(including deferred federal taxes), and nothing has occurred subsequent to that
date to make any of such accruals inadequate. All taxes for periods beginning
after the date of this Credit Agreement through and including the Closing Date
have been paid or are adequately reserved
<PAGE>
against on the books of the Borrower. The Borrower and each of its Subsidiaries
has timely filed all information returns or reports which are required to be
filed and has accurately reported all information required to be included on
such returns or reports. There are no proposed assessments of taxes against the
Borrower or any of its Subsidiaries nor proposed adjustments to any tax return
filed that, individually or in the aggregate, wold have a Material Adverse
Effect on the Borrower.
SECTION 9.16. COMPLIANCE WITH LAWS. Except as disclosed on Schedule
9.16, the Borrower and, to the best of the Borrower's knowledge, each of its
Subsidiaries is in compliance in all material respects with all material laws,
rules, regulations, court orders and decrees, and orders of any governmental
agency which are applicable to the Borrower or its Subsidiaries or to their
respective properties.
SECTION 9.17. REGULATION U, ETC. The Borrower does not own, nor does it
have any present intention of acquiring, any "margin stock" within the meaning
of Regulation U (12 CFR Part 221) of the Board of Governors of the Federal
Reserve System (herein called "margin stock"). The proceeds of the Loans will
not be used, directly or indirectly, by the Borrower for the purpose of
purchasing or carrying, or for the purpose of reducing or retiring any
indebtedness or other liability which was originally incurred to purchase or
carry, any margin stock or for any other purpose which might cause the
transactions contemplated hereby to be considered a "purpose credit" within the
meaning of said Regulation U, or which might cause this Credit Agreement to
violate Regulation G, Regulation U, Regulation T, Regulation X or any other
regulation of the Board of Governors of the Federal Reserve System or the
Securities Exchange Act of 1934. Upon request, the Borrower will promptly
furnish the Agent with a statement in conformity with the requirements of
Federal Reserve Form U-1 referred to in said Regulation U.
SECTION 9.18. HOLDING COMPANY ACT. The Borrower is not 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.
SECTION 9.19. SECURITIES ACT, ETC. Neither the registration of any
security under the Securities Act of 1933, as amended, or any other federal,
state or local securities laws, nor the qualification of the Credit Agreement,
the Notes and/or the Guaranty under the Trust Indenture Act of 1939, as amended,
is required in connection with the Loans or the issuance and delivery of the
Notes pursuant hereto.
SECTION 9.20. INVESTMENT COMPANY ACT. The Borrower is not, nor
immediately after the application by the Borrower of the proceeds of each Loan
will the Borrower be, an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
<PAGE>
SECTION 9.21. INDEBTEDNESS OF SUBSIDIARIES. No Subsidiary has any
indebtedness for borrowed money other than (a) on terms that limit recourse for
the payment thereof to the real property or other assets of the Subsidiary
securing such indebtedness or (b) such indebtedness owed by a Subsidiary the
sole assets of which consist of contiguous parcels of land, the improvements, if
any, thereon, furniture, fixtures and other equipment used in connection
therewith, receivables incurred by tenants in connection therewith and the
proceeds of such receivables and other property directly obtained from the
ownership of such assets.
SECTION 9.22. GUARANTEES. All outstanding guarantees, including, but
not limited to completion guarantees, issued by Borrower and the maximum amounts
guaranteed pursuant to each such guaranty are set forth on Schedule 9.22
attached hereto.
SECTION 9.23. FUNDED INDEBTEDNESS. Schedule 9.23 attached hereto sets
forth a complete and accurate list of all Funded Indebtedness, including, but
not limited to, intercompany Funded Indebtedness, of each of the Parent and the
Borrower (other than the Loans). All such intercompany Funded Indebtedness is
subordinated in all respects to Borrower's Debt to the Banks.
ARTICLE X
EVENTS OF DEFAULT
Each of the following shall constitute an event of default (each an
"Event of Default") hereunder:
SECTION 10.01. PAYMENTS. If all or any installment of the principal of, or
interest on, any Note, or any fee provided hereunder shall not be paid in full
punctually when due and payable.
SECTION 10.02. COVENANTS.
(a) If Borrower shall fail or omit to perform or observe any
agreement or other provision contained or referred to in Sections 7.13(a), 7.15,
7.16(a), 7.17 or Article 8 (other than Section 8.13(a)) of this Credit
Agreement; or
(b) If Borrower shall fail or omit to perform or observe any
agreement or other provision (other than those referred to in Sections 10.01 or
10.02(a) hereof) contained or referred to in this Credit Agreement or any
Related Writing that is on Borrower's part to be complied with, and Borrower
shall not have corrected such failure or omission within thirty (30) days after
the giving of written notice thereof to Borrower by Agent or any Bank that the
specified default is to be remedied.
<PAGE>
SECTION 10.03. REPRESENTATIONS AND WARRANTIES. If any
representation, warranty or statement made in or pursuant to this Credit
Agreement or any Related Writing or any other material information furnished by
Borrower to the Agents, the Banks or any thereof or any other holder of any
Note, shall be false or erroneous in any material respect.
SECTION 10.04. CROSS DEFAULT. If Borrower and/or any Subsidiary
defaults in any payment of principal or interest due and owing upon any
obligation for borrowed money or, in the case of the Borrower, in the payment or
performance of any obligation permitted to be outstanding or incurred pursuant
to Sections 8.04 or 8.05, 8.06, or 8.07 hereof, beyond any period of grace
provided with respect thereto or in the performance of any other agreement, term
or condition contained in any agreement under which any such obligation is
created, if the effect of such default is to accelerate the maturity of the
related indebtedness or to permit the holder thereof to cause such indebtedness
to become due prior to its stated maturity or foreclose on any lien on property
of Borrower securing the same, except that defaults in payment or performance of
non-recourse obligations of Borrower or any Subsidiary shall not constitute
Events of Default under this Section 10.04 unless such defaults have,
individually or in the aggregate, a Material Adverse Effect on the Borrower.
SECTION 10.05. TERMINATION OF PLAN. If (a) any Reportable Event occurs
and the Banks, in their sole determination, deem such Reportable Event to
constitute grounds (i) for the termination of any Plan by the PBGC or (ii) for
the appointment by the appropriate United States district court of a trustee to
administer any Plan and such Reportable Event shall not have been fully
corrected or remedied to the full satisfaction of the Banks within thirty (30)
days after the giving of written notice of such determination to Borrower by the
Banks or (b) any Plan shall be terminated within the meaning of Title IV of
ERISA or (c) a trustee shall be appointed by the appropriate United States
district court to administer any Plan, or (d) the PBGC shall institute
proceedings to terminate any Plan or to appoint a trustee to administer any
Plan.
SECTION 10.06. DOMESTIC SUBSIDIARY SOLVENCY. If (a) any Domestic
Subsidiary shall (i) generally not pay its debts as such debts become due, or
(ii) make a general assignment for the benefit of creditors, or (iii) apply for
or consent to the appointment of a receiver, a custodian, a trustee, an interim
trustee or liquidator of itself or all or a substantial part of its assets, or
(iv) be adjudicated a debtor or have entered against it an order for relief
under Title 11 of the United States Code, as the same may be amended from time
to time, or (v) file a voluntary petition in bankruptcy or file a petition or an
answer seeking reorganization or an arrangement with creditors or seeking to
take advantage of any other law (whether federal or state) relating to relief of
debtors, or admit (by answer, by default or otherwise) the material allegations
of a petition filed against it in any bankruptcy, reorganization, insolvency or
other proceeding (whether federal or state) relating to relief of debtors, or
(vi) suffer or permit to continue unstayed and in effect for thirty (30)
consecutive days any judgment, decree or order, entered by a court of competent
jurisdiction, which approves a petition seeking its reorganization or appoints a
receiver, custodian, trustee,
<PAGE>
interim trustee or liquidator of itself or of all or a substantial part of its
assets, or (vii) take or omit to take any other action in order thereby to
effect any of the foregoing or (viii) fail to pay and discharge all lawful
taxes, assessments and governmental charges or levies imposed upon it or its
income, profits, or properties, and/or all lawful claims for labor, materials
and supplies, which, if unpaid, might become a lien or charge against such
properties, in all cases before the same shall become in default, or (ix) fail
to comply with any and all Environmental Laws applicable to such Domestic
Subsidiary, its properties or activities, or (x) fail to observe, perform or
fulfill any of its obligations, covenants or conditions contained in any
evidence of indebtedness or other contract, decree, order, judgment, or
instrument to which such Domestic Subsidiary is a party or by which it or its
assets are bound, and (b) any such event or events described in (a) above shall
in the reasonable judgment of the Banks have a Material Adverse Effect on the
Borrower.
SECTION 10.07. BORROWER'S SOLVENCY. If Borrower shall (a) discontinue
business, or (b) generally not pay its debts as such debts become due, or (c)
make a general assignment for the benefit of creditors, or (d) apply for or
consent to the appointment of a receiver, a custodian, a trustee, an interim
trustee or liquidator of all or a substantial part of its assets, or (e) be
adjudicated a debtor or have entered against it an order for relief under Title
11 of the United States Code, as the same may be amended from time to time (the
"Bankruptcy Code"), or (f) file a voluntary petition under any chapter or
provision of the Bankruptcy Code or file a petition or an answer seeking
reorganization or an arrangement with creditors or seeking to take advantage of
any other law (whether federal or state) relating to relief of debtors, or admit
(by answer, by default or otherwise) the material allegations of a petition
filed against it in any bankruptcy, reorganization, insolvency or other
proceeding (whether federal or state) relating to relief of debtors, or (g)
suffer or permit to continue unstayed and in effect for thirty (30) consecutive
days any judgment, decree or order entered by a court or governmental commission
of competent jurisdiction, which assumes custody or control of Borrower,
approves a petition seeking reorganization of Borrower or any other judicial
modification of the rights of its creditors, or appoints a receiver, custodian,
trustee, interim trustee or liquidator for Borrower or of all or a substantial
part of its assets, or (h) take or omit to take any action in order thereby to
effect any of the foregoing.
SECTION 10.08. CHANGE OF OWNERSHIP. If a Change of Ownership Event
shall occur.
SECTION 10.09. JUDGMENTS. If one or more judgments or decrees shall be
entered against the Borrower involving a liability (not paid or fully covered by
a reputable and solvent insurance company) in excess of $5,000,000 for all such
judgments or decrees and any such judgments or decrees shall not have been
vacated, discharged, stayed or bonded pending appeal within sixty (60) days from
the entry thereof.
SECTION 10.10. DEFAULT UNDER GUARANTY. (a) If the Parent defaults in the
payment or performance of any obligation in the Guaranty or in the performance
of any other
<PAGE>
agreement, covenant, term or condition in the Guaranty, other than a violation
of Section 9.14(a) of the Guaranty.
ARTICLE XI
REMEDIES UPON DEFAULT
Notwithstanding any contrary provision or inference herein or
elsewhere, the Banks may take any or all of the following actions if any Event
of Default occurs and is continuing:.
SECTION 11.01. OPTIONAL DEFAULTS. If any Event of Default referred to
in Sections 10.01, 10.02(a), 10.02(b), 10.03, 10.04, 10.05, 10.06, 10.07 (other
than (e) or (f) thereof) and/or 10.08. 10.09 or 10.10 shall occur, the Required
Banks shall have the right in their discretion, by directing the Agent, on
behalf of the Banks, to give written notice to Borrower, and to
(a) terminate the Commitments and the credits hereby
established and any letter of credit which may be terminated in accordance with
its terms, in each case, if not theretofore terminated, and forthwith upon such
election the obligations of the Banks, and each thereof, to make any further
Loan or Loans and/or issue further letters of credit hereunder immediately shall
be terminated, and/or
(b) accelerate the maturity of all of Borrower's Debt to the
Banks (if it be not already due and payable), whereupon all of Borrower's Debt
to the Banks shall become and thereafter be immediately due and payable in full
without any presentment or demand and without any further or other notice of any
kind, all of which are hereby waived by Borrower.
SECTION 11.02. AUTOMATIC DEFAULTS. If any Event of Default referred to in
Section 10.07(e) or 10.07(f) hereof shall occur,
(a) all of the Commitments and the credits hereby established
shall automatically and forthwith terminate, if not theretofore terminated, and
no Bank thereafter shall be under any obligation to grant any further Loan or
Loans and/or issue further letters of credit hereunder, and
(b) the principal of and interest on all Notes then
outstanding, and all of Borrower's Debt to the Banks shall thereupon become and
thereafter be immediately due and payable in full (if it be not already due and
payable), all without any presentment, demand or notice of any kind, all of
which are hereby waived by Borrower.
SECTION 11.03. REMEDIES RELATING TO LETTERS OF CREDIT. In the event the
Commitments are terminated and/or the Debt is accelerated pursuant to Sections
11.01 or 11.02 above, Borrower shall immediately deposit with the Agent an
amount of cash equal to the then aggregate amount of the stated amounts of all
letters of credit outstanding hereunder
<PAGE>
as security for reimbursement of any drawings made on any such letters of credit
and as collateral for repayment of the Debt or any part thereof.
SECTION 11.04. OFFSETS. If there shall occur or exist any Possible
Default under Section 10.07 hereof or if the maturity of the Notes is
accelerated pursuant to Sections 11.01 or 11.02 hereof, each Bank shall have the
right at any time to set off against, and to appropriate and apply toward the
payment of, any and all Debt then owing by Borrower to that Bank (including,
without limitation, any participation purchased or to be purchased pursuant to
Section 12.05 hereof), whether or not the same shall then have matured, any and
all deposit balances and all other indebtedness then held or owing by that Bank
to or for the credit or account of the Borrower, all without notice to or demand
upon the Borrower or any other Person, all such notices and demands being hereby
expressly waived by the Borrower.
SECTION 11.05. REMEDIES WITH RESPECT TO GUARANTY DEFAULT. In
the event of a violation of Section 9.14(a) of the Guaranty, the Borrower will
have thirty (30) days from the due date of the most recent financial statement
and covenant compliance certificate delivered in accordance with Section 7.05 to
correct such violation. If the Borrower is unwilling or unable to cure such
violation within such thirty (30) day period, the Revolving Loan Commitments
will be terminated and the then outstanding amount of the Revolving Loans will
be converted to Additional Term Loans as provided in Section 2.02(a), subject to
the provisions contained in Sections 2.02(b), 2.03 and 2.05. Interest shall be
paid in accordance with Section 2.03, provided, that the Indicated Spread for
such Additional Term Loans subject to the LIBOR Rate Option shall be two hundred
fifty (250) basis points and to the Prime Rate Option shall be seventy-five (75)
basis points.
ARTICLE XII
THE AGENT
SECTION 12.01. APPOINTMENT AND AUTHORIZATION. Each Bank hereby
irrevocably designates and appoints KeyBank National Association as Agent of
such Bank to act as specified herein and each such Bank hereby irrevocably
authorizes KeyBank National Association to take such action as Agent on its
behalf and to exercise such powers and perform such duties hereunder as are
expressly delegated to the Agent by the terms hereof, together with such other
powers as are reasonably incidental thereto. The Agent agrees to act as such
upon the express conditions contained in this Article XII. Notwithstanding any
provision to the contrary elsewhere in this Credit Agreement, the Agent shall
not have any duties or responsibilities, except those expressly set forth
herein, or any fiduciary relationship with any Bank, and no implied covenants,
functions, responsibilities, duties, obligations or liabilities shall be created
by or arise under this Credit Agreement or otherwise exist against the Agent.
Subject to the provisions of Sections 12.03 and 12.11, the Agent shall
administer the Loans in the same manner as it administers its own loans. The
provisions of this Article XII are solely for the benefit of the Agent and the
Banks, and neither the Borrower, the Parent nor any of their respective
Subsidiaries shall have any rights as a third party beneficiary of
<PAGE>
any of the provisions hereof. In performing its functions and duties under this
Credit Agreement, the Agent shall act solely as agent of the Banks and the Agent
does not assume and shall not be deemed to have assumed any obligation or
relationship of agency or trust with or for the Borrower, the Parent or their
respective Subsidiaries.
SECTION 12.02. DELEGATION OF DUTIES. The Agent may execute any of its
duties under this Credit Agreement, the Notes or any Related Writing by or
through agents or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. The Agent shall not be
responsible for the negligence or misconduct of any agents or attorneys-in-fact
selected by it with reasonable care except to the extent otherwise required by
Section 12.03.
SECTION 12.03. EXCULPATORY PROVISIONS. Neither the Agent nor any of its
officers, directors, employees, agents, attorneys-in-fact or affiliates shall be
(a) liable for any action lawfully taken or omitted to be taken by such Person
under or in connection with this Credit Agreement, the Notes or the other
Related Writings (except for its or such Person's own gross negligence or
willful misconduct) or (b) responsible in any manner to any of the Banks for any
recitals, statements, representations or warranties made by the Borrower, the
Parent, or any of their respective Subsidiaries or any of their responsible
officers contained in this Credit Agreement or any Related Writing, or for any
failure of the Borrower, the Parent or any of their respective Subsidiaries or
any of their respective officers to perform its obligations hereunder or
thereunder. Each Bank by its signature to this Credit Agreement acknowledges and
agrees that the Agent has made no representation or warranty, express or
implied, with respect to the creditworthiness, financial condition or any other
condition of Borrower, the Parent or any Subsidiary, or with respect to the
statements contained in any information memorandum furnished in connection
herewith or in any other oral or written communication between the Agent and
such Bank. Each Bank represents that it has made and shall continue to make its
own independent investigation of the creditworthiness, financial condition and
affairs of Borrower, the Parent and any Subsidiary in connection with the
extension of credit hereunder, and agrees that the Agent has no duty or
responsibility, either initially or on a continuing basis, to provide any Bank
with any credit or other information with respect thereto (other than such
notices as may be expressly required to be given by Agent to the Banks
hereunder), whether coming into its possession before the granting of the first
Loans or at any time or times thereafter.
SECTION 12.04. RELIANCE BY AGENT. The Agent shall be entitled to rely,
and shall be fully protected in relying, upon any note, writing, resolution,
notice, consent, certificate, affidavit, letter, cablegram, facsimile
transmission, telex or teletype message, statement, order or other document or
conversation reasonably believed by it to be genuine and correct and to have
been signed, sent or made by the proper Person or Persons and upon advice and
statements of legal counsel (including counsel to the Borrower), independent
accountants and other experts selected by the Agent. The Agent shall be fully
justified in failing or refusing to take any action under this Credit Agreement
or the Notes unless it shall first receive such advice or concurrence of the
Required Banks or the Super Majority Banks,
<PAGE>
as it deems appropriate, or it shall first be indemnified to its satisfaction by
the Banks against any and all liability and expense which may be incurred by it
by reason of taking or continuing to take any such action. The Agent shall in
all cases be fully protected in acting, or in refraining from acting, under this
Credit Agreement, the Notes or the other Related Writings in accordance with a
request of the Required Banks or the Super Majority Banks, as applicable, and
such request and any action or failure to act pursuant thereto shall be binding
upon all the Banks.
SECTION 12.05. RESIGNATION OF THE AGENT; SUCCESSOR AGENT. The Agent may
resign as the Agent upon 20 days' notice to the Banks. Upon the resignation of
the Agent, the Required Banks shall appoint from among the Banks a successor
Agent for the Banks subject to prior approval by the Borrower so long as no
Possible Default or Event of Default then exists (such approval not to be
unreasonably withheld or delayed), whereupon such successor agent shall succeed
to the rights, powers and duties of the Agent, and the term "Agent" shall
include such successor agent effective upon its appointment, and the resigning
Agent's rights, powers and duties as the Agent shall be terminated, without any
other or further act or deed on the part of the former Agent or any of the
parties to the Credit Agreement. After the resignation of the Agent hereunder,
the provisions of this Article XII shall inure to its benefit as to any actions
taken or omitted to be taken by it while it was Agent under this Credit
Agreement. In the event no successor agent has been appointed by the end of such
20 day period, the resignation of the Agent shall become effective and the
Required Banks shall perform the duties of the Agent until a successor agent is
appointed.
SECTION 12.06. NOTE HOLDERS. The Agent may deem and treat the payee of
any Note as the holder thereof for all purposes unless and until written notice
of the assignment, transfer or endorsement thereof, as the case may be, shall
have been filed with the Agent. Any request, authority or consent of any Person
or entity who, at the time of making such request or giving such authority or
consent, is the holder of any Note shall be conclusive and binding on any
subsequent holder, transferee, assignee or indorsee, as the case may be, of such
Note or of any Note or Notes issued in exchange therefor.
SECTION 12.07. CONSULTATION WITH COUNSEL. (a) The Agent may consult with
legal counsel selected by it and shall not be liable for any action taken or
suffered in good faith by it in accordance with the opinion of such counsel.
(b) Should the Agent (i) employ counsel for advice or other
representation (whether or not any suit has been or shall be filed) with respect
to this Credit Agreement, the Notes or any of the Related Writings, or (ii)
commence any proceeding or in any way seek to enforce its rights or remedies
under this Credit Agreement, the Notes or any Related Writing, each Bank, upon
demand therefor from time to time, shall contribute its share (based on its Pro
Rate share) of the reasonable costs and/or expenses of any such advice or other
representation, enforcement or acquisition, including, but not limited to, fees
of receivers, court costs and fees and expenses of attorneys to the extent not
otherwise reimbursed by Borrower; provided that the Agent shall not be entitled
to reimbursement of its attorneys' fees
<PAGE>
and expenses incurred in connection with the resolution of disputes between the
Agent and the other Banks unless the Agent shall be the prevailing party in any
such dispute. Any loss of principal and interest resulting from any Event of
Default shall be shared by the Banks in accordance with their respective Pro
Rata shares.
SECTION 12.08. DOCUMENTS. The Agent shall not be under a duty to
examine into or pass upon the validity, effectiveness, genuineness or value of
this Credit Agreement, the Notes or any other Related Writing furnished pursuant
hereto or in connection herewith or the value of any collateral obtained
hereunder, and the Agent shall be entitled to assume that the same are valid,
effective and genuine and what they purport to be.
SECTION 12.09. AGENT AND AFFILIATES. With respect to the Loans made
hereunder, the Agent shall have the same rights and powers hereunder as any
other Bank and may exercise the same as though it were not the Agent, and the
Agent and its affiliates may accept deposits from, lend money to and generally
engage in any kind of business with the Borrower or any Subsidiary or Affiliate
of the Borrower.
SECTION 12.10. KNOWLEDGE OF DEFAULT. It is expressly understood and
agreed that the Agent shall not be deemed to have knowledge or notice of the
occurrence of any Possible Default or Event of Default hereunder, unless the
Agent has actually received written notice from a Bank or the Borrower
describing such Possible Default or Event of Default and stating that such
notice is a "notice of default." In the event that the Agent receives such a
notice, the Agent shall give prompt notice thereof to the Banks. The Agent shall
take such action with respect to such Default or Event of Default as shall be
reasonably directed by the Required Banks; provided, that unless and until the
Agent shall have received such directions, the Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, with respect
to such Possible Default or Event of Default as it shall deem advisable in the
best interests of the Banks.
SECTION 12.11. INDEMNIFICATION. The Banks agree to indemnify the Agent
in its capacity as such (to the extent not reimbursed by the Borrower), Pro rata
according to the respective principal amounts of their Commitments, from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind or
nature whatsoever which may be imposed on, incurred by or asserted against the
Agent in its capacity as agent in any way relating to or arising out of this
Credit Agreement, the Notes or any Related Writing, or the transactions
contemplated hereby or thereby, or any action taken or omitted to be taken by
the Agent under or in connection with the foregoing, provided, that no Bank
shall be liable to the Agent for any portion of such liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements resulting from the Agent's gross negligence, willful misconduct or
from any action taken or omitted by the Agent in any capacity other than as
agent under this Credit Agreement. If any indemnity furnished to the Agent for
any purpose shall, in the opinion of the Agent, be insufficient or become
impaired, the Agent may call for additional indemnity and cease, or not
commence, to do the acts indemnified against until such additional
<PAGE>
indemnity is furnished. The agreements in this Section 12.11 shall survive
the termination of this Credit Agreement.
SECTION 12.12. EQUALIZATION PROVISION. Each Bank agrees with the other
Banks that if it at any time shall obtain any Advantage over the other Banks or
any thereof in respect of Borrower's Debt to the Banks including without
limitation in respect of the letters of credit described in Schedule 3.06 hereof
(except under Sections 4.06, 4.07, 4.08, 4.09, 4.10 and/or 4.11, hereof), it
will purchase from the other Banks, for cash and at par, such additional
participation in Borrower's Debt to the Banks as shall be necessary to nullify
the Advantage. If any said Advantage resulting in the purchase of an additional
participation as aforesaid shall be recovered in whole or in part from the Bank
receiving the Advantage each such purchase shall be rescinded, and the purchase
price restored (but without interest unless the Bank receiving the Advantage is
required to pay interest on the Advantage to the Person recovering the Advantage
from such Bank) ratably to the extent of the recovery. Each Bank further agrees
with the other Banks that if it at any time shall receive any payment for or on
behalf of Borrower on any indebtedness owing by Borrower to that Bank by reason
of offset of any deposit or other indebtedness, it will apply such payment first
to any and all indebtedness owing by Borrower to that Bank pursuant to this
Credit Agreement (including, without limitation, any participation purchased or
to be purchased pursuant to this Section 12.12) until Borrower's Debt has been
paid in full. Borrower agrees that any Bank so purchasing a participation from
the other Banks or any thereof pursuant to this Section may exercise all its
rights of payment (including the right of set-off) with respect to such
participation as fully as if such Bank were a direct creditor of Borrower in the
amount of such participation.
ARTICLE XIII
MISCELLANEOUS
SECTION 13.01. NO WAIVER; CUMULATIVE REMEDIES. No failure or delay on
the part of the Agent or any Bank in exercising any right, power or privilege
hereunder and no omission or course of dealing on the part of Agent, any Bank or
the holder of any Note in exercising any right, power or remedy hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of any
such right, power or remedy preclude any other or further exercise thereof or
the exercise of any other right, power or remedy hereunder. The remedies herein
provided are cumulative and in addition to any other rights, powers or
privileges that the Agent or any Bank would otherwise have. No notice to or
demand on the Borrower in any case shall entitle the Borrower to any other or
further notice or demand in similar or other circumstances or constitute a
waiver of the rights of the Agent or the Banks to any other or further action in
any circumstances without notice or demand.
SECTION 13.02. AMENDMENTS, CONSENTS. No amendment, modification,
termination, or waiver of any provision of this Credit Agreement or of the
Notes, nor consent to any variance therefrom, shall be effective unless the same
shall be in writing and signed by the Required Banks or all of the Banks in
cases provided for in the next sentence, and any
<PAGE>
such waiver or consent shall be effective only in the specific instance and for
the specific purpose for which given. Unanimous consent of the Banks, or, if
there is any borrowing hereunder, the holders of one hundred percent (100%) (by
amount) of the Notes, shall be required with respect to (i) any increase in any
Commitment, the extension of maturity of the Notes or the payment date of
interest thereunder, (ii) any reduction in the rate of interest on the Notes, or
in any amount of principal or interest due on any Note or any change in the
manner of Pro rata application of any payments made by Borrower to the Banks
hereunder, or any change in amortization schedules, or in the manner of
calculating fees or prepayment penalties, (iii) any change in any percentage
voting requirements in this Credit Agreement, or (iv) the release of the
Guaranty or any other guarantee in favor of the Banks, or (v) any amendment to
the definitions of Required Banks, Super Majority Banks or Reference Banks set
forth herein or to this Section 13.02, or (vi) any material amendment to any
representation, warranty, covenant, Possible Default Event of Default or remedy
provided for hereunder. The consent of the holders of eighty percent (80%)(by
amount) of the Notes (the "Super Majority Banks") shall be required for any
amendments, modifications or other changes to Sections 8.13. Notice of
amendments or consents ratified by the Banks hereunder shall immediately be
forwarded by Borrower to all Banks. Each Bank or other holder of a Note shall be
bound by any amendment, waiver or consent obtained as authorized by this
section, regardless of its failure to agree thereto.
SECTION 13.03. NOTICES. Except as otherwise expressly provided herein,
all notices, requests, demands and other communications provided for hereunder
shall be in writing (including telegraphic, telex, facsimile, transmission or
cable communication) and mailed, telexed, telegraphed, facsimile transmitted,
cabled or delivered, if to Borrower, addressed to it at the address specified on
the signature pages of this Credit Agreement, if to a Bank, addressed to the
address of such Bank specified on the signature pages of this Credit Agreement
and if the Agents, addressed to them at the address of the Agent or the
Syndication Agent, as applicable, specified on the signature pages of this
Credit Agreement. All notices, statements, requests, demands and other
communications provided for hereunder shall be deemed to be given or made when
delivered or forty-eight (48) hours after being deposited in the mails with
postage prepaid by registered or certified mail or delivered to a telegraph
company, addressed as aforesaid, except that notices from Borrower to the Agent
or the Banks pursuant to any of the provisions hereof shall not be effective
until received by the Agent or the Banks.
SECTION 13.04. COSTS, EXPENSES AND TAXES. Borrower agrees to pay on
demand all costs and expenses of the Banks and the Agents, any expenses incurred
in connection with the preparation of this Credit Agreement, the Notes and any
Related Writings, including, without limitation (i) administration and
out-of-pocket expenses of the Agent in connection with the administration of
this Credit Agreement, the Notes, the collection and disbursement of all funds
hereunder and the other instruments and documents to be delivered hereunder,
(ii) extraordinary expenses of the Agents or the Banks in connection with the
administration of this Credit Agreement, the Notes and the other instruments and
documents to be delivered hereunder, (iii) the reasonable fees and out-of-pocket
expenses of Thompson Hine & Flory LLP, counsel to the Agent, in connection with
the negotiation, preparation, execution and delivery of this Credit Agreement
and related matters, and (iv) all costs and expenses, including reasonable
attorneys' fees and out-of-pocket expenses, in connection with the restructuring
or enforcement of this Credit Agreement, the Notes or any Related Writing. In
addition, Borrower shall pay any and all stamp and other taxes and fees payable
or determined to be payable in connection with the execution and delivery of
this Credit Agreement or the Notes, and the other instruments and documents to
be delivered hereunder, and agrees to save the Agents and each Bank harmless
from and against any and all liabilities with respect to or resulting from any
delay in paying or omission to pay such taxes or fees.
SECTION 13.05. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties of the Borrower made in or pursuant to this
Credit Agreement or in any certificate or other Related Writing in connection
herewith shall survive the closing hereof or the making of the Loans or other
transactions in connection with which given.
SECTION 13.06. OBLIGATIONS SEVERAL; NO FIDUCIARY OBLIGATIONS.
The obligations of the Banks hereunder are several and not joint. Nothing
contained in this Credit Agreement and no action taken by the Agents or the
Banks pursuant hereto shall be deemed to constitute the Banks a partnership,
association, joint venture or other entity. No default by any Bank hereunder
shall excuse the other Banks from any obligation under this Credit Agreement;
but no Bank shall have or acquire any additional obligation of any kind by
reason of such default. The relationship among Borrower and the Banks with
respect to this Credit Agreement, any Note and any Related Writing is and shall
be solely that of debtor and creditor, respectively, and no Bank has any
fiduciary obligation toward Borrower with respect to any such documents or the
transactions contemplated thereby.
SECTION 13.07. EXECUTION IN COUNTERPARTS. This Credit Agreement may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed and delivered shall be
deemed to be an original and all of which taken together shall constitute but
one and the same agreement.
SECTION 13.08. BINDING EFFECT; ASSIGNMENT. (a) This Credit Agreement
shall become effective when it shall have been executed by Borrower, Agent and
by each Bank and thereafter shall be binding upon and inure to the benefit of
Borrower and each of the Banks and their respective successors and assigns,
except that Borrower shall not have the right to assign its rights hereunder or
any interest herein without the prior written consent of all of the Banks, which
consent may be withheld in their sole discretion. Each Bank may at any time
grant participations in any of its rights hereunder or under its Note or Notes
to another commercial bank, financial institution, mutual fund or any
institutional "accredited investor" (as defined in Regulation D of the
Securities Act of 1933, as amended), provided, that in the case of any such
participation, the participant shall not have any rights under this Credit
Agreement, the Notes or any Related Writing (the participant's rights against
such
<PAGE>
Bank in respect of any such participation to be those set forth in the agreement
executed by such Bank in favor of the participant relating thereto) and all
amounts payable by such Bank hereunder shall be determined as if such Bank had
not sold such participation; and provided further, that no Bank shall transfer,
assign or grant any participation under this Credit Agreement under which the
participant shall have rights to approve any amendment to or waiver of this
Credit Agreement or any Related Writing.
(b) Notwithstanding the foregoing, (i) any Bank may assign all
or a portion of its Loans and/or Commitments and its rights and obligations
hereunder to an affiliate of such Bank and (ii) with the consent of the Agent
and the Borrower so long as no Possible Default or Event of Default then exists
(which consents shall not be unreasonably withheld or delayed), any Bank may
assign all or a portion of its Loans and/or Commitments and its rights and
obligations hereunder to one or more commercial banks, financial institutions
(including one or more Banks), mutual funds or institutional "accredited
investors" (as defined in Regulation D of the Securities Act of 1933, as
amended), provided, that (A) any assignment of a Bank's Revolving Loans shall
include a ratable part of such Bank's Revolving Loan Commitment, and (B) the
consent of the Agent shall be required for any assignment of a Revolving Loan
Commitment to the extent any letters of credit are outstanding. No assignment
pursuant to subsection (ii) of the immediately preceding sentence shall be in an
aggregate amount less than Ten Million Dollars ($10,000,000). If any Bank so
sells all or a part of its rights hereunder or under any Note, any reference to
this Credit Agreement or such Note to such assigning Bank shall thereafter refer
to such Bank and to the respective assignee to the extent of their respective
interests and the respective assignee shall have, to the extent of such
assignment (unless otherwise provided therein), the same rights and benefits as
it would if it were such assigning Bank. Each assignment pursuant to Section
13.08(b)(ii) shall be effected by the assigning Bank and the assignee Bank
executing a Bank Assignment and Assumption Agreement substantially in the form
of Exhibit E (appropriately completed). At the time of any such assignment
pursuant to Section 13.08(b)(ii), (X) Exhibit A shall be deemed to be amended to
reflect the Commitments of the respective assignee (which shall result in a
direct reduction of the Commitment of the assigning Bank) and of the other Banks
(Y) if any such assignment occurs after the Closing Date, the Borrower will
issue new Notes to the respective assignee and to the assigning Bank (upon
delivery of the existing Note or Notes of such assigning Bank) in conformity
with the requirements of this Credit Agreement and (Z) the Agent shall receive
at the time of each such assignment, from the assigning or assignee Bank, the
payment of a nonrefundable assignment fee of $3,000.
(c) Notwithstanding any other provisions of this Section
13.08, no transfer or assignment of the interests or obligations of any Bank
hereunder or any grant of participations therein shall be permitted if such
transfer, assignment or grant would require the Borrower to file a registration
Statement with the Securities and Exchange Commission or to qualify the loans
under the "Blue Sky" laws of any State.
SECTION 13.09. GOVERNING LAW. This Credit Agreement, each of the Notes and
any Related Writing shall be governed by and construed in accordance with the
laws of
<PAGE>
the State of Ohio, without regard to the principles of conflict of laws and the
respective rights and obligations of Borrower and the Banks shall be governed by
Ohio law.
SECTION 13.10. SEVERABILITY OF PROVISIONS; CAPTIONS. Any provision of
this Credit Agreement which 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 or
affecting the validity or enforceability of such provision in any other
jurisdiction. The several headings to Sections and subsections herein are
inserted for convenience only and shall be ignored in interpreting the
provisions of this Credit Agreement.
SECTION 13.11. PURPOSE. Each of the Banks represents and warrants to
Borrower that it is entering into this Credit Agreement with the present
intention of acquiring any Note issued pursuant hereto solely in connection with
such Bank's commercial lending activities and not for the purpose of
distribution or resale, it being understood, however, that each Bank shall at
all times retain full control over the disposition of its assets.
SECTION 13.12. CONSENT TO JURISDICTION. The Borrower agrees that any
action or proceeding to enforce or arising out of this Credit Agreement may be
commenced in the Court of Common Pleas for Cuyahoga County, Ohio or in the
District Court of the United States for the Northern District of Ohio, and the
Borrower waives personal service of process and agrees that a summons and
complaint commencing an action or proceeding in any such court shall be properly
served and shall confer personal jurisdiction over the Borrower if served to the
Borrower at the address listed opposite the signature of the Borrower at the end
of this Credit Agreement or as otherwise provided by the laws of the State of
Ohio or the United States.
SECTION 13.13. ENTIRE AGREEMENT. This Credit Agreement, the Notes, the
Related Writings and any other agreement, document or instrument attached hereto
or referred to herein or executed on or as of the date hereof integrate all the
terms and conditions mentioned herein or incidental hereto and supersede all
oral representations and negotiations and prior writings with respect to the
subject matter hereof.
SECTION 13.14. JURY TRIAL WAIVER. BORROWER AND EACH OF THE BANKS WAIVE
ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING
IN CONTRACT, TORT OR OTHERWISE, AMONG BORROWER AND THE BANKS, OR ANY THEREOF,
ARISING OUT OF, IN CONNECTION WITH, RELATED TO, OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS CREDIT AGREEMENT OR
ANY NOTE OR OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN
CONNECTION HEREWITH OR THE TRANSACTIONS RELATED THERETO. THIS WAIVER SHALL NOT
IN ANY WAY AFFECT, WAIVE, LIMIT, AMEND OR MODIFY ANY BANK'S ABILITY TO PURSUE
REMEDIES PURSUANT TO ANY CONFESSION OF JUDGMENT OR COGNOVIT
<PAGE>
PROVISION CONTAINED IN ANY NOTE OR OTHER INSTRUMENT, DOCUMENT OR AGREEMENT AMONG
BORROWER AND THE BANKS, OR ANY THEREOF.
SECTION 13.15. SURVIVAL. All indemnities set forth herein shall survive
the execution and delivery of this Credit Agreement and the making and repayment
of the Loans and the satisfaction of all other obligations under this Credit
Agreement.
SECTION 13.16. INDEPENDENCE OF COVENANTS. All covenants hereunder
shall be given independent effect so that if a particular action or condition is
not permitted by any of such covenants, the fact that it would be permitted by
an exception to, or be otherwise within the limitations of, another covenant
shall not avoid the occurrence of a Possible Default or an Event of Default if
such action is taken or condition exists, and if a particular action or
condition is expressly permitted under any covenant, unless expressly limited to
such covenant, the fact that it would not be permitted under the general
provisions of another covenant shall not constitute a Possible Default or an
Event of Default if such action is taken or condition exists.
IN WITNESS WHEREOF, the parties hereto have caused this Credit
Agreement to be executed and delivered as of the date set forth above, each by
an officer thereunto duly authorized.
Address: FOREST CITY RENTAL PROPERTIES
1100 Terminal Tower CORPORATION
Cleveland, Ohio 44113
By: Thomas G. Smith
Title: Vice President and Assistant Secretary
Address: KEYBANK NATIONAL ASSOCIATION
127 Public Square individually and as Agent
Cleveland, Ohio 44114
By: Michael D. Mitro
Title: Vice President
Address: NATIONAL CITY BANK
1900 East Ninth Street individually and as Syndication Agent
Cleveland, Ohio 44114
By: Anthony Di Mare
Title: Senior Vice President
<PAGE>
Address: THE HUNTINGTON NATIONAL BANK
917 Euclid Avenue
Cleveland, Ohio 44114 By: James R. Logan
Title: Senior Vice President
Address: COMERICA BANK
211 West Fort Street
Detroit, MI 4275-1195 By: David J. Campbell
Title: Vice President
Address: FIRST MERIT BANK
By: John F. Newmann
Title: Vice President
Address: STAR BANK
By: Perry D. Quick
Title: Vice President
Address: CREDIT LYONNAIS
By: Gregory E. Allen
Title: Vice President
Address: MANUFACTURERS AND TRADERS TRUST
COMPANY
By: Kevin B. Quinn
Title: Banking Officer
<PAGE>
EXHIBIT A
Bank Maximum Amount
KeyBank National Association $29,333,333.33
National City Bank $29,333,333.33
The Huntington National Bank $23,833,333.33
First Merit Bank $16,500,000.00
Comerica Bank $13,200,000.00
Credit Lyonnais $13,200,000.00
Star Bank $13,200,000.00
Manufacturers and Traders Trust
Company $13,200,000.00
TOTAL $151,800,000.00
<PAGE>
SCHEDULE 7.14
POST-CLOSING ITEMS
ITEM DUE DATE
1. Completion of Schedule 9.22 to the As soon as possible but no later than
Credit Agreement ten (10) days following the Closing Date
GUARANTY OF PAYMENT OF DEBT
THIS GUARANTY OF PAYMENT OF DEBT (this "Guaranty") is made and issued by
FOREST CITY ENTERPRISES, INC., an Ohio corporation (the "Guarantor"), as of this
10th day of December, 1997, in order to induce the Banks (as hereinafter
defined), KEYBANK NATIONAL ASSOCIATION, as agent for the Banks (the "Agent") and
NATIONAL CITY BANK, as syndication agent for the Banks (the "Syndication Agent"
and together with the Agent, the "Agents"), to enter into, and lend money
pursuant to, a certain Credit Agreement of even date herewith (said Credit
Agreement as it may be from time to time amended, restated, or modified being
herein called the "Agreement"), by and among the Banks, the Agents and FOREST
CITY RENTAL PROPERTIES CORPORATION, a subsidiary of the Guarantor (the
"Borrower").
1. DEFINITIONS. As used in this Guaranty, the following terms shall have
the following meanings:
1.1. "Banks" shall mean COMERICA BANK, FIRST MERIT BANK, THE HUNTINGTON
NATIONAL BANK, KEYBANK NATIONAL ASSOCIATION, NATIONAL CITY BANK, STAR BANK,
CREDIT LYONNAIS, MANUFACTURERS AND TRADERS TRUST COMPANY, any other bank(s) that
may become parties to the Agreement, and all successors and assigns of any such
bank; and "Bank" shall mean any one of the foregoing;
1.2. "Cash Flow Coverage Ratio" shall mean the ratio of (i) Consolidated
Net Operating Cash Flow to (ii) the sum of (X) all scheduled payments of
principal of and interest on any indebtedness owing by the Borrower (excluding
any non-recourse mortgage indebtedness owing by Borrower or any Subsidiary of
Borrower), (Y) all scheduled payments of principal of and interest on any
indebtedness owing by the Parent and (Z) Dividends;
1.3. "Collateral" shall mean, collectively, all property, if any, securing
the Debt or any part thereof at the time in question;
1.4. "Company" shall mean Guarantor and/or a Subsidiary of Guarantor;
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1.5. "Consolidated Shareholder's GAAP Equity" shall mean the consolidated
shareholder equity of the Borrower and the Parent, as calculated in accordance
with GAAP;
1.6. "Consolidated Net Operating Cash Flow" shall mean Net Operating Income
(a) less (i) all scheduled payment of principal of non-recourse mortgage
indebtedness (excluding any balloon payments), (ii) all interest payments on
such non-recourse indebtedness, (iii) Ten Million Dollars ($10,000,000) of
normal recurring capital expenditures and (b) plus (i) net income (loss) before
taxes and corporate interest expense of the Land Group, (ii) net income (loss)
before taxes of the Lumber Trading Group, (iii) net income (loss) before taxes
and corporate interest expense (including, but not limited to, interest incurred
on Debt, subordinated debt or any other third party debt) of the Corporate
Activity Group, (iv) actual cash taxes paid on the Net Operating Income and the
income set forth in subsections (b)(i), (b)(ii) and (b)(iii) above and (v)
non-cash interest expense accrued with respect to Terminal Investments, Inc. and
Grant Liberty Development Group Associates;
1.7. "Controlled Group" shall mean a controlled group of corporations as
defined in Section 1563 of the Internal Revenue Code of 1986, as may be amended
from time to time, of which Guarantor or any Subsidiary is a part;
1.8. "Debt" shall mean, collectively, (a) all indebtedness now owing or
hereafter incurred by Borrower to the Agents and/or the Banks arising under or
in connection with the Agreement, whether pursuant to commitment or otherwise,
and including, without limitation, the principal amount of all Loans made
pursuant to the Agreement, all interest thereon determined as provided in the
Agreement, all fees provided to be paid by the Borrower to the Banks and/or the
Agents pursuant to the Agreement and all liabilities in respect of letters of
credit issued by the Agent and/or any of the Banks for the account of the
Borrower (but not including indebtedness held by any Bank arising and
outstanding under any transaction or document referred to in Sections 8.04
(other than that referred to in subclause (a) thereof), and/or 8.07 of the
Agreement), (b) each renewal, extension, consolidation or refinancing of any
such indebtedness in whole or in part, and (c) all interest from time to time
accruing on any of the foregoing indebtedness;
1.9. "Dividends" shall include all cash dividends (other than dividends
payable only in capital stock of any Company) declared and/or paid, capital
return and other distributions of any kind made on any share of capital stock
outstanding at the time;
1.10. "EBDT" shall mean net earnings from operations before depreciation,
amortization and deferred taxes on income and excludes provision for decline in
real estate, gain (loss) on disposition of properties and extraordinary gains.
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1.11. "ERISA Net Worth" shall mean (a) as to any Subsidiary, the excess of
the net book value of such Subsidiary's assets (other than patents, treasury
stock, goodwill and similar intangibles but including unamortized mortgage and
lease costs) over all of its liabilities (other than liabilities to any other
Company), such excess being determined in accordance with generally accepted
accounting principles applied on a basis consistent with Guarantor's present
accounting procedures, and (b) as to Guarantor, the excess of the net book value
(after deducting all applicable reserves and deducting any value attributable to
the re-appraisal or write-up of any asset) of Guarantor's assets (other than
patents, good will, treasury stock and similar intangibles but including
unamortized mortgage and lease costs) over all of its liabilities as determined
on an accrued and consolidated and consolidating basis and in accordance with
generally accepted accounting principles not inconsistent with Borrower's
present accounting principles consistently applied;
1.12. "Environmental Laws" means all provisions of law, statutes,
ordinances, rules, regulations, permits, licenses, judgments, writs,
injunctions, decrees, orders, awards and standards promulgated by the government
of the United States of America or by any state or municipality thereof or by
any court, agency, instrumentality, regulatory authority or commission of any of
the foregoing, now or hereafter in effect, and in each case, as amended,
concerning or relating to health, safety and protection of, or regulation of the
discharge of substances into, the environment;
1.13. "Event of Default" shall have the meaning set forth in Section 10
hereof;
1.14. "Funded Indebtedness" shall mean indebtedness (including any renewal
or extension in whole or in part) that by its terms matures or remains unpaid
more than twelve (12) months after the date on which originally incurred;
1.15. "GAAP" shall mean generally accepted accounting principles in the
United States of America in effect from time to time;
1.16. "Net Earnings" shall mean Guarantor's net earnings, as determined
separately for each fiscal year, after taxes, upon a consolidated basis (after
deducting minority interests) and in accordance with generally accepted
accounting principles consistently applied;
1.17. "Net Losses" shall mean Guarantor's net losses, as determined
separately for each fiscal year, after taxes, upon a consolidated basis (after
deducting minority interests) in accordance with generally accepted accounting
principles consistently applied;
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<PAGE>
1.18. "Net Operating Income" shall mean for any relevant period, the excess
of the Borrower's revenues over the Borrower's operating expenses, in each case
as determined in accordance with GAAP. For purposes of this definition, Net
Operating Income (i) shall not include any gains or losses from the sale of
income producing real properties, other than gains or losses obtained from the
sale of net outlot parcels to a maximum aggregate amount of Fifteen Million
Dollars ($15,000,000) for the immediately preceding four consecutive quarters
and (ii) shall include adjustments for cash flow of properties pursuant to which
the Borrower is receiving a preferred return over and above its ownership
percentage in such properties;
1.19. "Obligor" shall mean any Person or entity who, or any of whose
property is or shall be, obligated on the Debt or any part thereof in any manner
and includes, without limiting the generality of the foregoing, Borrower,
Guarantor and any co-maker, endorser, other guarantor of payment, subordinating
creditor, assignor, grantor of a security interest, pledgor, mortgagor or
hypothecator of property, if any;
1.20. "Plan" shall mean any employee pension benefit plan subject to Title
IV of the Employee Retirement Income Security Act of 1974, as amended,
established or maintained by Guarantor, any Subsidiary, any member of the
Controlled Group, or any such Plan to which Guarantor, any Subsidiary or any
member of the Controlled Group is required to contribute on behalf of its
employees;
1.21. "Possible Default" shall mean an event or condition which, with
notice or lapse of time or both, would constitute an Event of Default referred
to in Section 10 hereof;
1.22. "Quarterly Date" shall mean each of January 1, April 1, July 1 and
October 1 and "Fiscal Quarterly Date" shall mean each of January 31, April 30,
July 31 and October 31.
1.23. "Receivable" shall mean a claim for moneys due or to become due,
whether classified as a contract right, account, chattel paper, instrument,
general intangible or otherwise;
1.24. "Reportable Event" shall mean a reportable event as that term is
defined in Title IV of the Employee Retirement Income Security Act of 1974, as
amended, with respect to a Plan as to which the thirty (30) day notice
requirement has not been waived by the Pension Benefit Guaranty Corporation;
1.25. "Restricted Company" shall mean Guarantor or a Restricted Subsidiary;
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<PAGE>
1.26. "Restricted Subsidiary" shall mean any Subsidiary of Guarantor other
than (a) Borrower, and (b) any Subsidiary of Borrower;
1.27. "Subsidiary" of any Person shall mean and include (a) any corporation
more than fifty percent (50%) of whose stock of any class or classes having by
the terms thereof ordinary voting power to elect a majority of the directors of
such corporation is at the time owned by such Person directly or indirectly
through Subsidiaries and (b) any partnership, limited liability company,
association (including business trusts) or other entity in which such Person
directly or indirectly through Subsidiaries, has more than a fifty percent (50%)
voting or equity interest at the time;
1.28. "Trading Loans" shall mean any loans that are now or hereafter
outstanding from Forest City Trading Group, Inc. (but not from any other lender,
whether or not such lender is a Subsidiary of the Guarantor) to the Guarantor.
1.29. All capitalized terms used herein but not herein defined that are
defined in the Agreement shall have the respective meanings ascribed to them in
the Agreement.
1.30. All financial covenants contained in this Guaranty shall be measured
on each Fiscal Quarterly Date.
2. ACKNOWLEDGMENTS, CONSIDERATION. Guarantor desires that the Agent and the
Banks grant Borrower the loan(s), credit and financial accommodations provided
for under the Agreement. The Agreement provides, on and subject to certain
conditions therein set forth, for Term Loans and Revolving Loans by the Banks to
the Borrower up to an aggregate maximum principal amount of Two Hundred Seven
Million Dollars ($207,000,000). There exists and will hereafter exist economic
and business relationships between the Guarantor and the Borrower which will be
of benefit to the Guarantor. Guarantor finds it to be in the direct business and
economic interest of Guarantor that Borrower obtain the loans, credit and
financial accommodations from the Agents and the Banks provided for in the
Agreement. Guarantor understands that the Agents and the Banks are willing to
grant the loans, credit and financial accommodations to Borrower provided for in
the Agreement only upon certain terms and conditions, one of which is that the
Guarantor unconditionally guarantee the payment of the Debt and this instrument
is being executed and delivered by Guarantor to satisfy that condition and in
consideration of the Agents and the Banks entering into the Agreement.
3. GUARANTY. Guarantor hereby absolutely, irrevocably and unconditionally
guarantees (a) the punctual and full payment of all and every portion of the
Debt when due, by acceleration or otherwise, whether now owing or hereafter
arising, (b) the prompt observance and performance by the Borrower of each and
all of Borrower's covenants,
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<PAGE>
undertakings, obligations and agreements set forth in the Agreement, the Notes
and/or any other instruments evidencing or pertaining thereto, and (c) the
prompt payment of all expenses and costs, including reasonable attorneys' fees,
incurred by or for the account of the Agents and/or the Banks in connection with
any action to enforce payment or collection of the Debt from the Borrower and/or
the Guarantor or to prepare any amendments, restatements or modifications of the
Agreement, the Notes and/or this Guaranty. If the Debt or any part thereof shall
not be paid in full punctually when due and payable, the Agents and/or the Banks
in each case shall have the right to proceed directly against Guarantor under
this Guaranty regardless of whether or not the Agents and/or the Banks shall
have theretofore proceeded or shall then be proceeding against Borrower or any
other Obligor or Collateral, if any, or any of the foregoing, it being
understood that the Agents and/or the Banks in their sole discretion may proceed
or not proceed against the Borrower, the Obligors and/or any Collateral and may
exercise or not exercise each right, power or privilege that the Agents and/or
the Banks may at any time have, either simultaneously or separately and, in any
event, at such time or times and as often and in such order as the Agents and/or
the Banks in their sole discretion, may from time to time deem expedient, all
without affecting the obligations of the Guarantor hereunder or the right of the
Agents and/or the Banks to demand and/or enforce performance by Guarantor of
Guarantor's obligations hereunder.
4. REINSTATEMENT. This Guaranty shall continue to be effective or be
reinstated, as the case may be, if any amount paid by or on behalf of the
Borrower to the Agents or the Banks on or in respect of the Debt is rescinded,
restored or returned in connection with the insolvency, bankruptcy, dissolution,
liquidation or reorganization of the Borrower or any other Obligor, or as a
result of the appointment of a receiver, intervenor or conservator of, or
trustee or similar officer for, the Borrower or any other Obligor or any part of
the property of the Borrower or any other Obligor, or otherwise, all as though
such payment had not been made.
5. WAIVERS. Guarantor waives any and all contractual, legal and/or
equitable rights of subrogation, contribution, exoneration, indemnity and/or
reimbursement from or against Borrower or any Obligor with respect to the Debt
and/or any payments made by Guarantor on account of this Guaranty.
6. ADDITIONAL AGREEMENTS. Regardless of the duration of time, regardless of
whether Borrower may from time to time cease to be indebted to the Banks and
irrespective of any act, omission or course of dealing whatever on the part of
the Agents and/or the Banks, Guarantor's liabilities and other obligations under
this Guaranty shall remain in full force and effect until the full and final
payment of all of the Debt. Without limiting the generality of the foregoing:
6.1. The obligations of the Guarantor hereunder shall not be released,
discharged or in any way affected, nor shall the Guarantor have any rights or
recourse against the
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<PAGE>
Agents or the Banks by reason of (a) any action the Agents or the Banks may take
or omit to take, or (b) any defense raised or asserted by the Borrower against
enforcement of the Agreement or the Notes or any challenge to the sufficiency or
enforceability of the Agreement, any of the Notes or this Guaranty.
6.2. The obligations of the Guarantor under this Guaranty shall be
satisfied strictly in accordance with the terms of this Guaranty, under all
circumstances whatsoever, including, without limitation, the existence of any
claim, setoff, defense or right which the Guarantor or the Borrower may have at
any time against the Agents or the Banks or any other Person or entity, whether
in connection with this Guaranty, the Agreement, the Notes or the transactions
contemplated hereby or any unrelated transaction.
6.3. The Banks shall at no time be under any duty to the Guarantor to grant
any loans, credit or financial accommodation to the Borrower, irrespective of
any duty or commitment of the Banks to the Borrower, or to follow or direct the
application of the proceeds of any such loans, credit or financial
accommodation.
6.4. The Guarantor waives (a) notice of the granting of any loan to the
Borrower or the incurring of any other indebtedness, including, but not limited
to the creation of the Debt by Borrower or the terms and conditions thereof, (b)
presentment, notice of nonpayment, demand for payment, protest, notice of
protest and notice of dishonor of the Notes or any other indebtedness incurred
by the Borrower to the Banks, (c) notice of any indulgence granted to any
Obligor, (d) notice of the Banks' acceptance of this Guaranty, and (e) any other
notice to which Guarantor might, but for the within waiver, be entitled.
6.5. The Agents and/or the Banks in their sole discretion may, without
prejudice to their rights under this Guaranty, at any time or times (a) grant
the Borrower whatever loans, credit or financial accommodations that the Banks,
or any thereof, may from time to time deem advisable, even if the Borrower might
be in default and even if those loans, credit or financial accommodations might
not constitute Debt the payment of which is guaranteed hereunder, (b) assent to
any renewal, extension, consolidation or refinancing of the Debt or any part
thereof, (c) forbear from demanding security, if the Agents and/or the Banks
shall have the right to do so, (d) release any Obligor or Collateral or assent
to any exchange of Collateral, if any, irrespective of the consideration, if
any, received therefor, (e) grant any waiver or consent or forbear from
exercising any right, power or privilege that the Agents and/or the Banks may
have or acquire, (f) assent to any amendment, deletion, addition, supplement or
other modification in, to or of any writing evidencing or securing any Debt or
pursuant to which any Debt is created, (g) grant any other indulgence to any
Obligor, (h) accept any Collateral for or other Obligors upon the Debt or any
part thereof, or (i) fail, neglect or omit in any way to realize upon any
Collateral or to protect the Debt or any part thereof or any Collateral
therefor.
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6.6. Guarantor's liabilities and other obligations under this Guaranty
shall survive any merger, consolidation or dissolution of Guarantor.
6.7. Guarantor's liabilities and other obligations under this Guaranty
shall be absolute and unconditional irrespective of any lack of validity or
enforceability of any agreement, instrument or document evidencing the Debt or
related thereto, or any other defense available to Guarantor in respect of this
Guaranty.
7. REPRESENTATIONS AND WARRANTIES. The Guarantor represents and warrants
that (a) it is a duly organized and validly existing corporation under the laws
of the State of Ohio, (b) the execution, delivery and performance of this
Guaranty have been duly authorized by all necessary corporate action, (c) there
is no prohibition in either its Articles of Incorporation, Code of Regulations
or in any agreement, instrument, judgment, decree or order to which it is a
party that in any way restricts or prohibits the execution, delivery and
performance of this Guaranty in any respect, and (d) this Guaranty has been duly
executed and delivered by the Guarantor and is a valid and binding obligation of
the Guarantor enforceable against Guarantor in accordance with its terms.
The Guarantor further represents and warrants that this Guaranty is made in
furtherance of the purposes for which the Guarantor was incorporated and is
necessary to promote and further the business of the Guarantor and that the
assumption by the Guarantor of its obligations hereunder will result in direct
financial benefits to the Guarantor.
This Guaranty is not made in connection with any consumer loan or consumer
transaction.
The Guarantor further represents and warrants that (a) the Guarantor has
received consideration which is the reasonably equivalent value of the
obligations and liabilities that the Guarantor has incurred to the Agents and/or
the Banks, (b) the Guarantor is not insolvent as defined in any applicable state
or federal statute, nor will the Guarantor be rendered insolvent by the
execution and delivery of this Guaranty to the Agents and the Banks, (c) the
Guarantor is not engaged or about to engage in any business or transaction for
which the assets retained by the Guarantor shall be an unreasonably small
capital, taking into consideration the obligations to the Agents and the Banks
incurred hereunder, and (d) the Guarantor does not intend to, nor does the
Guarantor believe, that the Guarantor will incur debts beyond the Guarantor's
ability to pay as they become due.
The Guarantor further represents and warrants that the Guarantor has
provided to the Agent three copies of all promissory notes or other writings
evidencing any
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Trading Loans outstanding on the date hereof and that the Guarantor has no other
indebtedness for borrowed money or Funded Indebtedness outstanding from any
Subsidiary to the Guarantor.
8. NOTICES. The Agents and/or the Banks shall be deemed to have knowledge
or to have received notice of any event, condition or thing only if the Agents
and/or the Banks shall have received written notice thereof as provided in the
Agreement. A written notice shall be deemed to have been duly given to the
Guarantor whenever a writing to that effect shall have been sent by registered
or certified mail to the Guarantor at the address set forth opposite the
Guarantor's signature below (or to such other address of the Guarantor as the
Guarantor may hereafter furnish to the Banks in writing for such purpose), but
no other method of giving notice to or making a request of the Guarantor is
hereby precluded.
9. COVENANTS. The Guarantor hereby agrees to perform and observe and to
cause each Subsidiary to perform and observe, all of the following covenants and
agreements:
9.1. INSURANCE. Each Company will:
(a) insure itself and all of its insurable properties to such extent, by
such insurers and against such hazards and liabilities as is generally done by
businesses similarly situated, it being understood that the Guarantor has
obtained a fidelity bond for such of its employees as handle funds belonging to
the Borrower or the Guarantor,
(b) give the Agent prompt written notice of any material reduction or
adverse change in that Company's insurance coverage, and
(c) forthwith upon any Bank's or the Agent's written request, furnish to
each Bank and the Agent such information in writing about that Company's
insurance as any Bank or the Agent, as applicable, may from time to time
reasonably request.
9.2. MONEY OBLIGATIONS. Each Company will pay in full:
(a) prior in each case to the date when penalties would attach, all taxes,
assessments and governmental charges and levies (except only those so long as
and, to the extent that, the same shall be contested in good faith by
appropriate and timely proceedings diligently pursued and taxes and assessments
on inconsequential parcels of vacant land, the nonpayment of which does not
materially adversely affect the financial condition of the Guarantor) for which
it may be or become liable or to which any or all of its properties may be or
become subject,
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(b) all of its wage obligations to its employees in compliance with the
Fair Labor Standards Act (29 U.S.C. Section 206-207) or any comparable
provisions, and
(c) all of its other obligations calling for the payment of money (except
only those so long as and to the extent that the same shall be contested in good
faith by appropriate and timely proceedings diligently pursued) before such
payment becomes overdue.
9.3. RECORDS. Each Company will:
(a) at all times maintain true and complete records and books of account
and, without limiting the generality of the foregoing, maintain appropriate
reserves for possible losses and liabilities, all in accordance with generally
accepted accounting principles applied on a basis not inconsistent with its
present accounting procedures, and
(b) at all reasonable times permit each Bank to examine that Company's
books and records and to make excerpts therefrom and transcripts thereof.
9.4. FRANCHISES. Each Company will preserve and maintain at all times its
corporate existence, rights and franchises; provided that this Section shall not
apply to (a) any merger of a Subsidiary into the Guarantor or into another
Subsidiary, (b) any consolidation of a Subsidiary with another Subsidiary, or
(c) any dissolution of any Subsidiary.
9.5. NOTICE. The Guarantor will cause its Chief Financial Officer, or in
his or her absence another officer designated by the Chief Financial Officer, to
promptly notify the Banks whenever (a) any Event of Default or Possible Default
may occur hereunder or any representation or warranty made herein may for any
reason cease in any material respect to be true and complete, and/or (b) any
Restricted Subsidiary shall (i) be in default of any material (either with
respect to the Subsidiary or the Guarantor) obligation for payment of borrowed
money, or, to the knowledge of the Guarantor, any material obligations in
respect of guarantees, taxes and/or indebtedness for goods or services purchased
by, or other contractual obligations of, such Subsidiary, and/or (ii) not, to
the knowledge of the Guarantor, be in compliance with any law, order, rule,
judgment, ordinance, regulation, license, franchise, lease or other agreement
that has or could reasonably be expected to have a material adverse effect on
the business, operations, property or financial condition of the Subsidiary,
and/or (iii) the Guarantor and/or the Subsidiary shall have received notice, or
have knowledge, of any actual, pending or threatened claim, notice, litigation,
citation, proceeding or demand relating to any matter(s) described in subclauses
(i) and (ii) of this Section 9.5.
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9.6. ERISA COMPLIANCE. No Company will incur any material accumulated
funding deficiency within the meaning of the Employee Retirement Income Security
Act of 1974, as amended from time to time, and the regulations thereunder or any
material liability to the Pension Benefit Guaranty Corporation, established
thereunder in connection with any Plan. Each Company will furnish (i) as soon as
possible and in any event within thirty (30) days after such Company knows or
has reason to know that any Reportable Event with respect to any Plan has
occurred, a statement of the Chief Financial Officer of such Company setting
forth details as to such Reportable Event and the action which such Company
proposes to take with respect thereto, together with a copy of the notice of
such Reportable Event given to the Pension Benefit Guaranty Corporation if a
copy of such notice is available to such Company, (ii) promptly after the filing
thereof with the United States Secretary of Labor or the Pension Benefit
Guaranty Corporation, copies of each annual report with respect to each Plan
established or maintained by such Company for each plan year, including (x)
where required by law, a statement of assets and liabilities of such Plan as of
the end of such plan year and statements of changes in fund balance and in
financial position, or a statement of changes in net assets available for plan
benefits, for such plan year, certified by an independent public accountant
satisfactory to the Banks, and (y) an actuarial statement of such Plan
applicable to such plan year, certified by an enrolled actuary of recognized
standing acceptable to the Banks, and (iii) promptly after receipt thereof a
copy of any notice such Company, any Subsidiary or any member of the Controlled
Group may receive from the Pension Benefit Guaranty Corporation or the Internal
Revenue Service with respect to any Plan administered by such Company; provided,
that this latter clause shall not apply to notices of general application
promulgated by the Pension Benefit Guaranty Corporation or the Internal Revenue
Service. As used in this Section 9.6, "material" means the measure of a matter
of significance which shall be determined as being an amount equal to five per
cent (5%) of each Company's ERISA Net Worth.
9.7. FINANCIAL STATEMENTS. The Guarantor will furnish to each Bank:
(a) within forty-five (45) days after the end of each quarter-annual period
of each fiscal year of the Guarantor, a copy of the Guarantor's Form 10-Q
quarterly report filed by the Guarantor with the Securities Exchange Commission,
(b) within forty-five (45) days after the end of each of the first three
(3) quarter-annual fiscal periods of each fiscal year of the Guarantor, an
unaudited consolidated and consolidating balance sheet of the Guarantor and its
Subsidiaries as at the end of that period and an unaudited consolidated and
consolidating statement of earnings for the Guarantor and its Subsidiaries for
the Guarantor's current fiscal year to the end of that period, all prepared in
form and detail in accordance with GAAP, consistently applied, and certified by
a financial officer of the Guarantor, subject to
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changes resulting from year-end adjustments, together with a certificate of
the Chief Financial Officer of the Guarantor (i) specifying the nature and
period of existence of each Event of Default and/or Possible Default, if any,
and the action taken, being taken or proposed to be taken by the Guarantor in
respect thereof or if none, so stating, and (ii) certifying that the
representations and warranties of the Guarantor set forth herein are true and
correct as of the date of such certificate, or, if not, all respects in which
they are not, and (iii) a covenant compliance worksheet in the form and
substance of Schedule 9.70 hereof completed as of the end of such fiscal
quarterly period,
(c) within ninety (90) days after the end of each fiscal year of the
Guarantor, complete audited annual financial statements of the Guarantor and its
Subsidiaries for that year prepared on a consolidated basis certified by an
independent public accountant satisfactory to the Banks and on an unaudited
consolidating basis and in each case, in form and detail satisfactory to the
Banks, together with (i) a certificate of the Chief Financial Officer of the
Guarantor (X) specifying the nature and period of existence of each Event of
Default and/or Possible Default, if any, and the action taken, being taken or
proposed to be taken by the Guarantor in respect thereof or if none, so stating,
and (Y) certifying that the representations and warranties of the Guarantor set
forth herein are true and correct as of the date of such certificate, or, if
not, all respects in which they are not, and (ii) a fully completed covenant
compliance worksheet in the form and substance of Schedule 9.70 hereof relating
to such fiscal year duly certified by the Guarantor's accountants,
(d) concurrently with furnishing any quarterly financial statement or audit
report pursuant to this Section 9.7, a certificate by Charles A. Ratner, Albert
Ratner, Samuel H. Miller or Thomas G. Smith stating whether any Company has made
any guaranty or incurred any indebtedness referred to in Section 9.10(d) or
Section 9.12(g) hereof and, if so, the details thereof,
(e) as soon as available, copies of all notices, reports, proxy statements
and other similar documents sent by the Guarantor to its shareholders, to the
holders of any of its debentures or bonds or the trustee of any indenture
securing the same or pursuant to which they have been issued, to any securities
exchange or to the Securities Exchange Commission or any similar federal agency
having regulatory jurisdiction over the issuance of the Guarantor's securities,
and
(f) forthwith upon any Bank's written request such other information of any
Company's financial condition and business.
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9.8. EBDT. The Guarantor will not suffer or permit its EBDT at any time to
fall below the amounts set forth below for the respective periods set forth
below:
Period EBDT
Fiscal year ending
January 31,1998 $ 95,000,000
Fiscal year ending
January 31, 1999 $100,000,000
Fiscal year ending
January 31, 2000 $105,000,000
Fiscal year ending January 31, 2001 and for each fiscal year ending on each
January 31 thereafter $110,000,000
9.9. COMBINATIONS, BULK TRANSFERS. No Restricted Company will be a party to
any consolidation or merger or lease, sell or otherwise transfer all or any
substantial part of its assets or sell, pledge, hypothecate or transfer its
stock or other interests in any Subsidiary; provided, that this Section 9.9
shall not apply to any transfer effected in the normal course of business on
commercially reasonable terms.
9.10. BORROWINGS. No Restricted Company will create, assume or suffer to
exist any indebtedness for borrowed money or any Funded Indebtedness of any kind
including, but not limited to, leases required to be capitalized under Financial
Accounting Standards Board Standard No. 13; provided, that this Section 9.10
shall not apply to:
(a) any loan obtained by Forest City Trading Group, Inc., formerly known as
American International Forest Products, Inc. (or any of its wholly- owned
subsidiaries) from any lender other than the Companies,
(b) any loan obtained from the Guarantor by any Restricted Subsidiary and,
in the ordinary course of business by Forest City Trading Group, Inc. (or any of
its wholly-owned subsidiaries),
(c) any real estate loan heretofore or hereafter obtained or guaranteed by
the Guarantor for the purpose of financing any building to be used
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only for the business of Guarantor and its Subsidiaries, provided that
no such loan shall exceed eighty per cent (80%) of the lender's
appraisal of the real estate being financed,
(d) any loan that is obtained or guaranteed by the Guarantor; provided,
that the Guarantor's aggregate personal liability in respect of all such loans
(other than any loan obtained by the Guarantor and permitted by any other clause
of this Section 9.10) and in respect of all guaranteed loans referred to in
clause (f) of Section 9.12 hereof, does not then exceed and after incurring the
indebtedness in question would not exceed, Four Million Five Hundred Thousand
Dollars ($4,500,000) minus all amounts subject to guarantees permitted by
Section 8.07 of the Agreement,
(e) leases required to be capitalized under Financial Accounting Standards
Board Standard No. 13 in the aggregate amount for all Restricted Subsidiaries of
Three Million Dollars ($3,000,000),
(f) any indebtedness created in the course of purchasing or developing real
estate or financing construction or other improvements thereon or purchasing
furniture, fixtures or other equipment therefor or any other indebtedness of any
Restricted Company for borrowed money or any refinancings thereof; provided,
that no Restricted Company (other than a Restricted Company whose sole assets
consist of contiguous parcels of land which are being purchased or developed
with such financing, the improvements, if any, thereon, furniture, fixtures and
other equipment used in connection therewith, receivables incurred by tenants in
connection therewith and the proceeds of such receivables and other property
directly obtained from the ownership of such assets) shall have any personal
liability for such indebtedness, the creditors' recourse being solely to the
property being pledged as collateral for such indebtedness and the income
therefrom,
(g) any Trading Loans, provided that, each of the following conditions is
satisfied as to each of such Trading Loans:
(i) the aggregate principal amount of all the Trading Loans may not exceed
Ten Million Dollars ($10,000,000);
(ii) no interest shall accrue or be payable with respect to any Trading
Loan;
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(iii) there shall be no scheduled principal payments prior to the maturity
date of any Trading Loan, as any promissory notes evidencing such Trading Loans
may be extended from time to time; no principal payments shall be made on any
Trading Loan at any time that a Possible Default or Event of Default exists
under the Guaranty or the Agreement, or at any time that the Agent has
determined, in its sole discretion, that there has been a material adverse
change in the financial condition of the Guarantor; and the Trading Loans,
either individually or in the aggregate, shall not be revolving loans and, if
any principal payments are made on any Trading Loan, the Ten Million Dollars
($10,000,000) maximum amount of permissible Trading Loans set forth above shall
automatically and irrevocably decline by like amount upon such payment;
(iv) each Trading Loan shall be expressly subordinate in right of payment
to the prior payment in full of the indebtedness under the Guaranty and the
Agreement, whether such indebtedness arises due to a Term Loan, a Revolving Loan
or otherwise;
(v) an event of default as to any Trading Loan(s) will automatically
constitute an Event of Default under the Agreement, the Term Notes, the
Revolving Notes and the Guaranty; and
(vi) each Trading Loan shall be evidenced by a written promissory note,
including the terms set forth above in clauses (i) through (v) and shall
otherwise be in form and substance approved in advance by the Agent, executed by
the Guarantor and Forest City Trading Group, Inc. and, in the case of any
Trading Loan(s) on or after the date of the date hereof, executed by such
parties not later than the date of the first disbursement of such Trading Loan,
a copy of which note(s) shall be provided within ten (10) days after execution,
or
(h) any indebtedness or obligations of the Guarantor created by or arising
out of an interest rate lock agreement among Guarantor, as obligor, and an
affiliate of Daiwa Finance Corp. or another financial institution approved in
advance by the Administrative Agent, as the counterparty (the "Interest Rate
Lock Agreement"), which Interest Rate Lock Agreement is related to the interest
rate under the terms of the permanent loan commitment from Daiwa Finance Corp.
to Forest City Finance Corporation, an affiliate of the Guarantor and the
Borrower, dated August 14, 1997, which commitment is with respect to a project
in Cambridge, Massachusetts that will include two office buildings with
aggregate square footage of 225, 000 square feet and a 532 - car parking garage
(the "University Park Project"), and provides for an initial loan amount not
exceed $55,000,000, with an earn out based on a debt service coverage test that
will be applied at the time of the permanent loan closing, and will be assigned
by Forest City Finance Corporation to FC 45/75 Sidney, Inc., an affiliate of the
Guarantor and the Borrower (the "University Park Permanent Loan Commitment").
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9.11. LIENS. No Restricted Company will:
(a) sell or otherwise transfer any Receivables, including, but not limited
to, any mortgages held by the Guarantor or any of its Subsidiaries, other than
in the ordinary course of business,
(b) acquire any property subject to any land contract, conditional sale
contract or other title retention contract, or
(c) suffer or permit any property now owned or hereafter acquired by it to
be or become encumbered by any mortgage, security interest, financing statement,
encumbrance or lien of any kind or nature;
provided, that this Section 9.11 shall not apply to:
(i) any lien for a tax, assessment or other governmental charge or levy so
long as the payment thereof is not required by Section 9.2(a) hereof,
(ii) any lien securing only workmen's compensation, unemployment insurance
or similar obligations,
(iii) any mechanic's, warehousemen's, carrier's or similar common law or
statutory lien incurred in the normal course of business,
(iv) any mortgage, security interest or other lien encumbering property of
any Restricted Subsidiary for the purpose of securing any indebtedness owing by
only that Subsidiary,
(v) any mortgage, security interest or other lien encumbering property of
the Guarantor and securing any indebtedness or liability of the Guarantor
permitted by clause (c) of Section 9.10 or by Section 9.12 hereof,
(vi) any transfer made in the ordinary course of business by Forest City
Trading Group, Inc. (or any of its wholly-owned subsidiaries), or
(vii) any financing statement perfecting a security interest permitted by
this Section 9.11
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9.12. GUARANTEES. No Restricted Company will be or become a guarantor of
any kind; provided, that this Section 9.12 shall not apply to:
(a) any endorsement of a check or other medium of payment for deposit or
collection through normal banking channels or any similar transaction in the
normal course of business,
(b) any indemnity or guaranty of a surety bond for the performance by a
customer of a Restricted Company of the customer's obligations under a land
development contract,
(c) any guaranty by Guarantor of a real estate loan permitted by clause (c)
of Section 9.10,
(d) any guarantee of the completion of a real estate building project, if
Guarantor or any Company is the developer of the project or has a property
interest in the project,
(e) the guaranty by Guarantor set forth in Section 3 hereof,
(f) any other guaranty by Guarantor, provided that Guarantor's aggregate
personal liability in respect of all those other guarantees and all indebtedness
for borrowed money (other than any loan permitted by clauses (a) through (c),
both inclusive, of Section 9.10 hereof) does not exceed, and after making the
guaranty in question would not exceed, Four Million Five Hundred Thousand
Dollars ($4,500,000) minus all amounts subject to guarantees permitted by
Section 8.07 of the Agreement,
(g) any guarantee by Guarantor of the equity investment of performance of a
Subsidiary (other than any obligations of such Subsidiary incurred for borrowed
money) in connection with a real estate project in favor of a partner or
partnership in which such Subsidiary is a general partner, when Guarantor deems
it to be in its best interest not to be a partner or have a direct interest in
the partnership,
(h) any indebtedness or obligations of the Guarantor created by or arising
out of the Interest Rate Lock Agreement, or
(i) the guaranty by Guarantor of the obligations of Wisconsin Park
Associates Limited Partnership to make a deposit of $6,800,000 into a cash
collateral
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account in connection with the high rise luxury apartment facility to be
known as Lenox at White Flint to be located in Rockville, Maryland.
9.13. REDEMPTIONS, PREPAYMENTS, AND DIVIDENDS.
(a) The Guarantor will not directly or indirectly purchase, acquire, redeem
or retire any shares of its capital stock at any time outstanding or set aside
funds for any such purpose in an amount greater than Ten Million Dollars
($10,000,000), including any amounts paid as permitted by section 9.13 (c), in
any yearly period measured by anniversary dates of the date of the Agreement
thereafter,
(b) The Guarantor will not directly or indirectly pay any principal of,
make sinking fund payments in respect of or purchase any Funded Indebtedness now
or hereafter owing by Guarantor other than any principal payment, sinking fund
payment or purchase the omission of which would (or with the giving of notice or
the lapse of any applicable grace period or both) accelerate, or give any one
the right to accelerate, the maturity of such Funded Indebtedness in accordance
with the original terms thereof,
(c) The Guarantor will not directly or indirectly declare or pay any
Dividends, except that, so long as no Event of Default shall have occurred and
be continuing hereunder and no Event of Default shall have occurred and be
continuing under the Agreement, Guarantor may pay Dividends in aggregate amounts
not exceeding Ten Million Dollars ($10,000,000), including any amounts paid as
permitted by Section 9.13(a), in any yearly period measured by anniversary dates
of the date of the Agreement thereafter.
9.14. CASH FLOW COVERAGE RATIO. (a) The Guarantor will not permit the Cash
Flow Coverage Ratio (i) for any fiscal year to be less than 1.75:1.00 and (ii)
for any four (4) consecutive quarters to be less than 1.50:1.00.
(b) In the event of a violation of Section 9.14(a), the Guarantor will have
thirty (30) days from the due date of the most recent financial statement and
covenant compliance certificate delivered in accordance with Section 9.7 to
correct such violation. If the Guarantor is unwilling or unable to cure such
violation within such thirty (30) day period, the Revolving Loan Commitments
will be terminated and the then outstanding amount of the Revolving Loans will
be converted to Additional Loans as provided in Section 2.02(a) of the
Agreement. From and after such conversion, the Guarantor will not permit the
Cash Flow Coverage Ratio to be less than 1.25:1.00.
9.15. CONSOLIDATED SHAREHOLDER'S GAAP EQUITY. The Guarantor will not permit
at any time, the Consolidated Shareholder's GAAP Equity to be less
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than (a) on the Closing Date, Two Hundred Fifty Million Dollars ($250,000,000),
(b) on each Fiscal Quarterly Date thereafter (other than the January 31 Fiscal
Quarterly Date), the sum of (i) Two Hundred Fifty Million Dollars
($250,000,000), (ii) one hundred percent (100%) of the cash proceeds from any
sale or issuance of equity, and (iii) twenty-five percent (25%) of the
Guarantor's consolidated net income for such period calculated in accordance
with GAAP, and (c) on each January 31 Fiscal Quarterly Date thereafter, the sum
of (i) Two Hundred Fifty Million Dollars ($250,000,000), (ii) one hundred
percent (100%) of the cash proceeds from any sale or issuance of equity, and
(iii) fifty percent (50%) of the Guarantor's consolidated net income for such
period calculated in accordance with GAAP.
9.16. ENVIRONMENTAL COMPLIANCE. The Guarantor will comply with any and all
Environmental Laws including, without limitation, all Environmental Laws in
jurisdictions in which the Guarantor or any Restricted Subsidiary owns property,
operates, arranges for disposal or treatment of hazardous substances, solid
waste or other wastes, accepts for transport any hazardous substances, solid
waste or other wastes or holds any interest in real property or otherwise. The
Guarantor will furnish to the Banks promptly after receipt thereof a copy of any
notice the Guarantor or any Restricted Subsidiary may receive from any
governmental authority, private person or entity or otherwise that any
litigation or proceeding pertaining to any environmental, health or safety
matter has been filed or is threatened against the Guarantor or such Restricted
Subsidiary, any real property in which the Guarantor or such Restricted
Subsidiary holds any interest or any past or present operation of the Guarantor
or such Restricted Subsidiary. The Guarantor will not knowingly allow the
storage, release or disposal of hazardous waste, solid waste or other wastes on,
under or to any real property in which the Guarantor holds any interest or
performs any of its operations, in violation of any Environmental Law. As used
in this Section, "litigation or proceeding" means any demand, claim, notice,
suit, suit in equity, action, administrative action, investigation or inquiry
whether brought by any governmental authority, private person or entity or
otherwise. The Guarantor shall defend, indemnify and hold the Banks harmless
against all costs, expenses, claims, damages, penalties and liabilities of every
kind or nature whatsoever (including attorneys' fees) arising out of or
resulting from the noncompliance of the Guarantor or any Restricted Subsidiary
with any Environmental Law, provided that, so long as and to the extent that the
Banks are not required to make any payment or suffer to exist any unsatisfied
judgment, order, or assessment against them, the Guarantor may pursue rights of
appeal to comply with such Environmental Laws. In any case of noncompliance with
any Environmental Law by a Restricted Subsidiary, the Banks' recourse for such
indemnity herein shall be limited solely to the property of the Restricted
Subsidiary holding title to the property involved in such noncompliance and such
recovery shall not be a lien, or a basis of a claim of lien or levy of
execution, against either the Guarantor's general assets or the general assets
of any of its Restricted Subsidiaries.
9.17. PLAN. Neither Guarantor nor any Restricted Subsidiary will suffer or
permit any Plan to be amended if, as a result of such amendment, the current
liability under
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the Plan is increased to such an extent that security is required pursuant to
Section 307 of the Employee Retirement Income Security Act of 1974, as amended
from time to time. As used herein, "current liability" means current liability
as defined in Section 307 of such Act.
10. DEFAULT; REMEDIES. The Guarantor shall be in default hereunder in the
event that any of the following (each an "Event of Default") shall occur or
exist:
(a) Any representation or warranty made by the Guarantor, or any of its
officers, herein, or in any written statement or certificate furnished at any
time in connection herewith, shall prove untrue in any material respect as of
the date it was made, or
(b) The Guarantor shall fail to observe, perform, or comply with any
obligation, covenant, agreement, or undertaking of Guarantor set forth in
Sections 3, 9.5, 9.8, 9.13, 9.14 and/or 9.15 hereof, or
(c) The Guarantor shall fail to observe, perform, or comply with any
obligation, covenant, agreement, or undertaking of Guarantor set forth in any
section or provision hereof other than those identified specifically in
subsection (b) above and Guarantor shall not have corrected such failure within
thirty (30) days after the giving of written notice thereof to Guarantor by
Agent or any Bank that the specified failure is to be corrected, or
(d) Guarantor and/or any Restricted Subsidiary defaults in any payment of
principal or interest due and owing upon any obligation for borrowed money or,
in the case of the Guarantor, in the payment or performance of any obligation
permitted to be outstanding or incurred pursuant to Sections 9.10 and/or 9.12
hereof, beyond any period of grace provided with respect thereto or in the
performance of any other agreement, term or condition contained in any agreement
under which any such obligation is created, if the effect of such default is to
accelerate the maturity of the related indebtedness or to permit the holder
thereof to cause such indebtedness to become due prior to its stated maturity or
foreclose on any lien on property of Guarantor securing the same, except that
defaults in payment or performance of non-recourse obligations of Guarantor or
any Restricted Subsidiary shall not constitute Events of Default under this
Section 10(d) unless such defaults have, or individually or in the aggregate, a
material adverse effect on the business or financial condition of Guarantor, or
(e) (i) any Restricted Subsidiary shall (A) generally not pay its debts as
such debts become due, or (B) make a general assignment for the benefit of
creditors, or (C) apply for or consent to the appointment of a receiver, a
custodian, a trustee, an interim trustee or liquidator of itself or all or a
substantial part of its assets, or (D) be
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adjudicated a debtor or have entered against it an order for relief under
Title 11 of the United States Code, as the same may be amended from time to
time, or (E) file a voluntary petition in bankruptcy or file a petition or an
answer seeking reorganization or an arrangement with creditors or seeking to
take advantage of any other law (whether federal or state) relating to relief of
debtors, or admit (by answer, by default or otherwise) the material allegations
of a petition filed against it in any bankruptcy, reorganization, insolvency or
other proceeding (whether federal or state) relating to relief of debtors, or
(F) suffer or permit to continue unstayed and in effect for thirty (30)
consecutive days any judgment, decree or order, entered by a court of competent
jurisdiction, which approves a petition seeking its reorganization or appoints a
receiver, custodian, trustee, interim trustee or liquidator of itself or of all
or a substantial part of its assets, or (G) take or omit to take any other
action in order thereby to effect any of the foregoing or (H) fail to pay and
discharge all lawful taxes, assessments, and governmental charges or levies
imposed upon it or its income, profits, or properties, and/or all lawful claims
for labor, materials, and supplies, which, if unpaid, might become a lien or
charge against such properties, in all cases before the same shall become in
default, or (I) fail to comply with any and all Environmental Laws applicable to
such Subsidiary, its properties, or activities, or (J) fail to observe, perform,
or fulfill any of its obligations, covenants or conditions contained in any
evidence of indebtedness or other contract, decree, order, judgment, or
instrument to which such Subsidiary is a party or by which it or its assets are
bound, and (ii) any such event or events described in (i) above shall in the
reasonable judgment of the Banks have a material adverse effect on the business
or financial condition of the Guarantor, or
(f) An Event of Default specified in Article X of the Agreement shall have
occurred and be continuing, or
(g) The Guarantor shall (i) make a general assignment for the benefit of
creditors, (ii) file a voluntary petition under any chapter or provision of
Title 11 United States Code (Bankruptcy), as from time to time in effect (the
"Bankruptcy Code") or a petition or answer seeking reorganization of the
Guarantor or a readjustment of its indebtedness under the Bankruptcy Code or any
other federal or state law providing for relief of debtors, reorganization,
liquidation, or arrangements with creditors, (iii) consent to the appointment of
a receiver or trustee of its properties, or (iv) cease to be or be unable to pay
its debts generally as they become due, or
(h) Relief shall be ordered against Guarantor as debtor in any involuntary
case under the Bankruptcy Code, or a petition or proceedings for bankruptcy or
for reorganization shall be filed against Guarantor under the Bankruptcy Code or
any other federal or state law providing for relief of debtors, reorganization,
liquidation, or arrangements with creditors, and Guarantor shall admit the
material allegations thereof, or an order, judgment or decree entered therein
shall not be vacated or stayed within
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thirty (30) days of its entry, or a receiver or trustee shall be appointed
for the Guarantor or its properties or any part thereof and remain in possession
thereof for thirty (30) days,
then, in any such event, and at any time thereafter, the Agent and/or the Banks
may at their option, by written notice delivered or mailed to the Guarantor, do
any one or more of the following: (a) declare the Debt to be immediately due and
payable, and upon any such declaration such indebtedness shall become and be
forthwith due and payable by Guarantor without any further notice, presentment,
or demand of any kind, all of which are expressly waived by the Guarantor, or
(b) require the Guarantor to purchase the Debt at par value, without recourse,
within ten (10) days after such notice, by paying to the Agent, in immediately
available U.S. funds, an amount equal to the unpaid principal amount then
outstanding on the Notes and any other matured or unmatured Debt owing to the
Banks, plus the unpaid accrued interest on the Notes at the rate or rates
determined in accordance with the Agreement. The foregoing rights, powers, and
remedies of the Agent and the Banks are not exclusive and are in addition to any
and all other rights, powers, and remedies provided for hereunder (including,
without limitation, under Section 13 hereof), at law, and/or in equity. The
exercise by the Agent and/or the Banks of any right, power, or remedy shall not
waive or preclude the exercise of any other rights, powers, and/or remedies.
11. MISCELLANEOUS. The foregoing rights, powers, and remedies of the Agent
and the Banks are not exclusive and are in addition to any and all other rights,
powers, and remedies provided for hereunder, at law, and/or in equity. The
exercise by the Agent and/or the Banks of any right, power, or remedy shall not
waive or preclude the exercise of any other rights, powers, and/or remedies.
This Guaranty shall bind the Guarantor and its successors and assigns and shall
inure to the benefit of the Agent and the Banks and their respective successors
and assigns including (without limitation) each holder of any Note. The
provisions of this Guaranty and the respective rights and duties of the
Guarantor and the Agent and/or the Banks hereunder shall be interpreted and
determined in accordance with Ohio law, without regard to principles of conflict
of laws. If at any time one or more provisions of this Guaranty is or becomes
invalid, illegal or unenforceable in whole or in part, the validity, legality
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby. This Guaranty constitutes a final written expression of all
of the terms of this Guaranty, is a complete and exclusive statement of those
terms and supersedes all oral representations, negotiations, and prior writings,
if any, with respect to the subject matter hereof. The relationship between the
Guarantor and the Agent and/or the Banks with respect to this Guaranty is and
shall be solely that of debtor and creditor, respectively, and the Agent and/or
the Banks have no fiduciary obligation to the Guarantor with respect to this
Guaranty or the transactions contemplated thereby. All representations and
warranties of the Guarantor shall survive the execution and delivery of this
Guaranty and be and remain true and correct until this Guaranty is discharged.
Captions herein are for convenient reference only and shall have no effect on
the interpretation of any provision hereof.
-22-
<PAGE>
12. JURY TRIAL WAIVER. The Guarantor waives the right to have a jury
participate in resolving any dispute, whether sounding in contract, tort, or
otherwise, between or among the Guarantor and the Agent, the Banks, and/or
Borrower arising out of or in connection with the Agreement, this Guaranty, or
any other agreement, instrument or document executed or delivered in connection
therewith or the transactions related thereto. This waiver shall not in any way
affect, waive, limit, amend or modify the rights or powers of the Agent and/or
the Banks to pursue remedies pursuant to any confession of judgment or cognovit
provision contained in this instrument, any note or any other guaranty of
payment, agreement, instrument or document related thereto.
13. WARRANT OF ATTORNEY. The Guarantor authorizes any attorney at law at
any time or times to appear in any state or federal court of record in the
United States of America after the Debt or any part thereof shall have become
due and payable (whether the payment becomes due by lapse of time or by
acceleration of maturity or otherwise) and in each case to waive the issuance
and service of process, to admit the maturity of the Debt and the nonpayment
thereof when due, to present each evidence of the Debt in question or any part
thereof to the court and to certify the amount of the Debt then owing thereon,
to confess judgment against the Guarantor in favor of the Agents and/or the
Banks for the amount of the Debt then appearing due, together with interest and
costs of suit, and thereupon to release all errors and waive all rights of
appeal and stay of execution. The foregoing warrant of attorney shall survive
any judgment, and should any judgment be vacated for any reason the Agent and/or
the Banks may nevertheless utilize the foregoing warrant of attorney in
thereafter obtaining additional judgment or judgments against the Guarantor. The
Guarantor expressly authorizes any attorneys for the Agent and/or the Banks to
receive compensation from the Agent and/or the Banks for services rendered in
exercising the foregoing warrant of attorney and in the enforcement of any
judgment obtained against the Guarantor in favor of the Agent and/or the Banks
on this Guaranty, and the Guarantor expressly waives any conflict of interest to
which any attorneys for the Agent and/or the Banks may be subject that may arise
in connection with such attorneys exercising any of the rights and/or powers of
the Agent and/or the Banks provided for herein or the enforcement of any
judgment hereon in favor of the Agent and/or the Banks.
-23-
<PAGE>
"WARNING--BY SIGNING THIS PAPER YOU GIVE UP YOUR
RIGHT TO NOTICE AND COURT TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY
BE TAKEN AGAINST YOU WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN
BE USED TO COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE
CREDITOR WHETHER FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY
WITH THE AGREEMENT, OR ANY OTHER CAUSE."
Address: FOREST CITY ENTERPRISES,
INC.
1100 Terminal Tower
Cleveland, Ohio 44113 By: Thomas G. Smith
Senior Vice President, Chief
Financial Officer and Secretary
-24-
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