SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended November 9, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File No. 1-11274
FRED MEYER, INC.
(Exact name of registrant as specified in its charter)
Delaware 93-0798201
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3800 S.E. 22nd Avenue
Portland, Oregon 97202
(Address of principal executive offices) (Zip Code)
(503) 232-8844
(Registrant's telephone number, including area code)
Not applicable.
(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 XX No
---- ----
Shares of Common Stock Outstanding at November 9, 1996: 24,571,712
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Part I - Financial Information
FRED MEYER, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
November 9, February 3,
1996 1996
---------- ----------
ASSETS
<S> <C> <C>
CURRENT ASSET:
Cash and cash equivalents.................................. $ 42,834 $ 41,849
Receivables-net............................................ 34,579 24,683
Inventories................................................ 679,430 520,555
Prepaid expenses and other................................. 25,682 23,680
Current portion of deferred taxes.......................... 22,039 22,046
---------- ----------
Total current assets.................................... 804,564 632,813
---------- ----------
PROPERTY AND EQUIPMENT-NET.................................... 936,582 1,014,148
---------- ----------
OTHER ASSETS.................................................. 21,231 24,631
---------- ----------
TOTAL................................................ $1,762,377 $1,671,592
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and outstanding checks.................... $ 449,630 $ 257,073
Current portion of long-term debt
and lease obligations................................... 1,468 1,468
Income taxes payable....................................... 12,662 4,857
Accrued expenses and other................................. 91,130 86,333
---------- ----------
Total current liabilities............................... 554,890 349,731
---------- ----------
LONG-TERM DEBT AND MORTGAGES.................................. 576,891 656,260
---------- ----------
CAPITAL LEASE OBLIGATIONS..................................... 13,224 13,298
---------- ----------
DEFERRED LEASE TRANSACTIONS................................... 47,564 42,271
---------- ----------
DEFERRED INCOME TAXES......................................... 29,423 30,814
---------- ----------
OTHER LONG-TERM LIABILITIES................................... 6,895 7,984
---------- ----------
STOCKHOLDERS' EQUITY
Common stock............................................... 270 270
Additional paid-in capital................................. 200,954 199,363
Retained earnings.......................................... 406,485 375,577
Treasury stock and other................................... (74,219) (3,976)
---------- ----------
Total stockholders' equity.............................. 533,490 571,234
---------- ----------
TOTAL................................................ $1,762,377 $1,671,592
========== ==========
See notes to consolidated financial statements.
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FRED MEYER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
12 Weeks Ended
--------------------------------
November 9, November 4,
1996 1995
---------- ----------
<S> <C> <C>
NET SALES..................................................... $835,142 $749,015
-------- --------
COST OF MERCHANDISE SOLD:
General................................................... 589,430 539,939
Related party lease....................................... 1,285 1,285
-------- --------
Total cost of merchandise sold............................ 590,715 541,224
-------- --------
GROSS MARGIN.................................................. 244,427 207,791
-------- --------
OPERATING AND ADMINISTRATIVE EXPENSES:
General................................................... 214,049 189,990
Related party leases...................................... 11,906 12,408
-------- --------
Total operating and administrative expenses............... 225,955 202,398
-------- --------
INCOME FROM OPERATIONS........................................ 18,472 5,393
INTEREST EXPENSE-NET.......................................... 8,324 9,117
-------- --------
INCOME (LOSS) BEFORE INCOME TAXES............................. 10,148 (3,724)
PROVISION (BENEFIT) FOR INCOME TAXES.......................... 3,856 (1,415)
-------- --------
NET INCOME (LOSS)............................................. $ 6,292 $ (2,309)
======== ========
INCOME (LOSS) PER COMMON SHARE................................ $.23 $(.08)
==== =====
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING.................................. 27,693 28,254
====== ======
See notes to consolidated financial statements.
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FRED MEYER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
40 Weeks Ended
----------------------------------
November 9, November 4,
1996 1995
---------- ----------
<S> <C> <C>
NET SALES.................................................. $2,729,084 $2,459,068
---------- ----------
COST OF MERCHANDISE SOLD:
General................................................ 1,922,917 1,761,500
Related party lease.................................... 4,282 4,282
---------- ----------
Total cost of merchandise sold......................... 1,927,199 1,765,782
---------- ----------
GROSS MARGIN............................................... 801,885 693,286
---------- ----------
OPERATING AND ADMINISTRATIVE EXPENSES:
General................................................ 681,761 604,287
Related party leases................................... 39,665 42,248
---------- ----------
Total operating and administrative expenses............ 721,426 646,535
---------- ----------
INCOME FROM OPERATIONS..................................... 80,459 46,751
INTEREST EXPENSE-NET....................................... 30,606 28,288
---------- ----------
INCOME BEFORE INCOME TAXES................................. 49,853 18,463
PROVISION FOR INCOME TAXES................................. 18,944 7,016
---------- ----------
NET INCOME ................................................ $ 30,909 $ 11,447
========== ==========
EARNINGS PER COMMON SHARE.................................. $1.09 $.40
===== ====
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING...................................... 28,335 28,373
====== ======
See notes to consolidated financial statements.
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FRED MEYER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
40 Weeks Ended
-------------------------------
November 9, November 4,
1996 1995
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................... $ 30,909 $ 11,447
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization of
property and equipment.............................. 89,444 80,851
Amortization of goodwill............................... 237 237
Deferred lease transactions............................ (3,699) (2,740)
Deferred income taxes.................................. (1,384) ---
Other liabilities...................................... (1,089) (1,972)
Income taxes........................................... 7,805 9,835
Inventories............................................ (158,875) (105,968)
Other current assets................................... (11,898) 636
Accounts payable and accrued expenses.................. 193,080 82,252
Other.................................................. (8,821) 625
-------- --------
Net cash provided by operating activities................. 135,709 75,203
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock-net.............................. 1,188 2,276
Stock repurchase and related expenses..................... (69,911) ---
Increase (decrease) in outstanding checks................. 4,275 (12,420)
Decrease in notes receivable.............................. (149) (1,359)
Long-term financing:
Borrowings............................................. 90 134,461
Repayments............................................. (79,533) (695)
-------- --------
Net cash (used for) provided by financing
activities............................................. (144,040) 122,263
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net maturities of investment securities................... 12,340 1,510
Purchases of property and equipment....................... (124,185) (198,641)
Net proceeds from sale of real property................... 121,161 6,532
-------- --------
Net cash provided by (used for) investing
activities............................................. 9,316 (190,599)
-------- --------
CASH AND CASH EQUIVALENTS:
Net increase for the period............................... 985 6,867
Beginning of period....................................... 41,849 34,868
-------- --------
End of period............................................. $ 42,834 $ 41,735
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid (refunded) during the period for:
Interest............................................... $30,364 $31,309
Income taxes........................................... 12,279 (3,120)
See notes to consolidated financial statements.
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5
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FRED MEYER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Interim Reporting Periods
-------------------------
The Company's interim reporting periods for reports to stockholders
are the 16th, 28th, and 40th weeks of its fiscal year.
2. Reclassifications
-----------------
Certain prior year balances have been reclassified to conform to
current year presentation.
3. Inventories
-----------
Inventories consist mainly of merchandise held for sale.
Substantially all the inventories are valued at the lower of last-in,
first-out (LIFO) cost or market. Estimated gross margins have been
used for determining the cost of merchandise sold for those operating
departments not taking physical inventories at the end of the interim
periods.
4. Income Taxes
------------
Income taxes have been provided for based upon the current estimate
of the Company's annual effective tax rate.
5. Stockholders' Equity
--------------------
Changes in stockholders' equity for the forty weeks ended November 9,
1996 were:
(In thousands)
--------------
Stockholders' equity, February 3, 1996 $571,234
Issuance of common stock-net 1,188
Stock repurchase and related expenses (69,911)
Amortization of unearned compensation 70
Net income 30,909
--------
Stockholders' equity, November 9, 1996 $533,490
========
6. Earnings Per Common Share
-------------------------
Fully diluted earnings per common share are computed by dividing net
income by the weighted average number of common and common equivalent
shares outstanding. Weighted average shares reflect the dilutive
effect of outstanding stock options (ranging in exercise price from
$3.24 to $41.25 per share) which was determined by using the
"treasury stock" method.
7. Commitments and Contingencies
-----------------------------
The Company and its subsidiaries are parties to various legal claims,
actions, and complaints, certain of which involve material amounts.
Although the Company is unable to predict with certainty whether or
not it will ultimately be successful in these legal proceedings or,
if not, what the impact might be, management presently believes that
disposition of these matters will not have a material adverse effect
on the Company's consolidated financial position or consolidated
results of operations.
---------------
6
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The financial information furnished in this Form 10-Q reflects all
adjustments of a normal recurring nature, which, in the opinion of
management, are necessary for a fair presentation of the results for the 12
and 40 weeks ended November 9, 1996 and November 4, 1995.
The consolidated results of operations presented herein are not necessarily
indicative of the results to be expected for the year due to the
seasonality of the Company's business. These consolidated financial
statements should be read in conjunction with the financial statements and
related notes incorporated by reference in the Company's latest annual
report filed on Form 10-K.
FRED MEYER, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
The Company funded its working capital and capital expenditure needs in
1996 and 1995 primarily through internally-generated cash flow and
available lease facilities, supplemented by borrowings under committed and
uncommitted bank lines of credit, unrated commercial paper lines of credit,
and the sale of fixed rate five- and seven-year term notes.
The Company entered into a new credit facility in 1995 with several
domestic and foreign banks for a committed line of credit which provides
for borrowings of up to $500,000,000. This agreement continues through June
30, 2000, at which time the agreement terminates; and any outstanding
amounts must be paid in full. In addition to this committed credit
facility, the Company has $105,000,000 of uncommitted money market lines of
credit with several foreign banks and $160,000,000 of uncommitted money
market lines of credit with banks who are in the committed credit facility.
The bank lines of credit and unrated commercial paper lines of credit are
used primarily for seasonal inventory requirements, new store construction
and financing, existing store remodeling, acquisition of land, and major
projects such as MIS development. At November 9, 1996, the Company had
unrated commercial paper outstanding in the amount of approximately
$327,546,000, and a total of approximately $172,454,000 available for
borrowings under its committed credit facilities.
The Company has entered into interest rate swap and cap agreements to
reduce the impact of changes in interest rates on its floating rate
long-term debt. At November 9, 1996, the Company had outstanding six
interest rate contracts with commercial banks, having a total notional
principal amount of $100,000,000. Three of these agreements effectively fix
the Company's interest rate on unrated commercial paper, floating rate
facilities, and uncommitted lines of credit at rates between 4.625 percent
and 7.595 percent on a notional principal amount of $50,000,000. These
contracts expire in 1996, 1997, and 1998. The remaining three agreements
effectively limit the maximum interest rate the Company will pay at rates
between 5.00 percent and 9.00 percent on notional principal amounts
totaling $50,000,000. These three agreements mature in 1996, 1998, and
1999.
On April 25, 1995, the Company issued $50,000,000 of unsecured seven-year
senior 7.77 percent notes to a major insurance company. On May 17, 1995,
the Company borrowed $20,000,000 from a major international bank, with a
maturity of May 17, 2000 and bearing interest at 6.775 percent. In May 1995
and December 1995 the Company also put into place two lease lines of credit
for land and buildings for up to $100,000,000 and $60,000,000,
respectively.
The Company has entered into swap and cap agreements to reduce the impact
of changes in rent expense on its two lease lines of credit. At November 9,
1996, the Company had outstanding seven rent rate contracts with commercial
banks, having a total notional principal amount of $80,000,000. Three of
these agreements effectively fix the Company's rental rate on the lease
lines at rates
7
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between 6.2775 percent and 6.48 percent on notional principal amounts of
$40,000,000. The remaining four agreements effectively limit the maximum
rental rate the Company will pay at 7.25 percent on notional principal
amounts totaling $40,000,000. All seven of these contracts expire in 2000.
The Company is exposed to credit loss in the event of nonperformance by the
other counterparties to the interest/rent rate swap agreements. However,
the Company does not anticipate nonperformance by the counterparties.
On September 5, 1996, the Company closed a sale/leaseback with respect to
ten of its stores which generated $108,000,000 in net proceeds used to pay
down its credit lines. The leases are for an initial term of 21 years,
subject to renewal at the option of the Company; and the average rent,
including amortization of fees and a deferred gain, is approximately
$8,200,000 annually.
The Company believes that a combination of cash flow from operations,
proceeds from sale and leasebacks, and borrowings under its credit
facilities will permit it to finance its capital expenditure requirements,
currently budgeted to be approximately $160,000,000 in 1996, net of
estimated land sales and real estate financed on leases. If the Company
determines that it is preferable, it may fund its capital expenditure
requirements by mortgaging facilities, or by issuing additional debt.
On September 30, 1996, the Company completed a public offering of 3,965,546
shares of its Common Stock held by FMI Associates, an affiliate of Kohlberg
Kravis Roberts & Co., L.P. The Company did not sell any shares in the
offering. Concurrently with the public offering, the Company repurchased
2,200,000 shares of its Common Stock from FMI Associates at a cost of
$69,911,000, including related expenses. The Company financed the cost of
the share repurchase with borrowings through its existing credit facilities
and sale/leaseback proceeds. Prior to the offering and share repurchase,
FMI Associates beneficially owned 10,700,038 shares, and after the offering
and repurchase beneficially owns 4,534,492 shares.
On December 2, 1996 the Company was notified by KKR Associates, the general
partner of FMI Associates, of its intent to dissolve FMI Associates on
December 31, 1996. Following dissolution the partnership will sell up to
approximately 260,000 shares of its stock in the open market in early 1997.
The partnership will distribute the balance of the shares to its partners,
including approximately 3,650,000 shares to Metropolitan Life Insurance
Company and approximately 580,000 shares to KKR Associates. Metropolitan
Life Insurance Company, which had requested that the partnership distribute
rather than sell its interests, will own approximately 14 percent of the
Company's outstanding shares following the partnership's dissolution. The
Company has also been advised that effective January 1, 1997, Michael
Michelson, Paul Raether, and Saul Fox will resign from the Company's board
of directors.
RESULTS OF OPERATIONS
Comparison of the 12 weeks ended November 9, 1996 with the 12 weeks ended
November 4, 1995.
Net sales for the third quarter of 1996 increased $86,127,000 or 11.5
percent over the corresponding quarter in 1995. The 1996 increase in sales
reflects openings of new stores, strong fall apparel sales and continued
strong food sales, and the acquisition of 71 mall jewelry stores.
Comparable store sales increased 4.1 percent for the third quarter of 1996.
Food comparable store sales increased 3.5 percent, and nonfood comparable
store sales increased 4.6 percent. The Company's food operations accounted
for 41.9 percent of the overall sales in 1996's third quarter and 42.5
percent in 1995's third quarter.
Gross margin as a percent of net sales was 29.3 percent for the third
quarter of 1996, compared with 27.7 percent for 1995's third quarter. Gross
margins increased in the third quarter of 1996 primarily due to lower
markdowns, the
8
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improved sales mix in nonfood products, the impact on margins of the two
multistore jewelry acquisitions, lower distribution center and delivery
costs as a percent of sales, low inflation, and improved plant profits.
Operating and administrative expenses as a percent of net sales were 27.1
percent for the third quarter of 1996, compared with 27.0 percent for
1995's third quarter. Expenses that increased were due to the Company's
commitment to improved customer service through added sales staffing at
store level and the impact on expenses of the two jewelry acquisitions,
offset by lower costs associated with new stores and closures that affected
last year's third quarter results, and lower 1996 advertising and corporate
overhead expenses as a percent of sales. Third quarter 1996 expenses were
also higher due to the early completion of Christmas merchandising and
costs associated with rolling out a new Sensormatic store security system.
Net interest expense in the third quarter of 1996 was $8,324,000, a
decrease of 8.7 percent from the $9,117,000 reported for 1995. The decrease
primarily reflects lower borrowings due to the impact of the Company's
recently completed $108 million sale/leaseback of ten stores and to
improved cash flow from operations, offset in part by the repurchases of
$69,911,000 of common Stock from FMI Associates, an affiliate of Kohlberg
Kravis Roberts & Co., L.P.
The effective tax rate for the third quarters of 1996 and 1995 was 38.0
percent.
Net income was $6,292,000 in the third quarter of 1996, compared with a net
loss of $2,309,000 in the third quarter of 1995. Earnings per share for the
third quarter of 1996 were $.23 based on 27,693,000 shares outstanding,
compared with a net loss per share of $.08 for the prior year's third
quarter based on 28,254,000 shares outstanding.
Comparison of the 40 weeks ended November 9, 1996 with the 40 weeks ended
November 4, 1995.
Net sales for the first 40 weeks of 1996 increased $270,016,000 or 11.0
percent to $2,729,084,000. This increase reflects openings of new stores,
strong food sales and improving nonfood sales, and the acquisition of 71
mall jewelry stores. Comparable store sales increased 4.1 percent, with
food comparable sales up 5.1 percent and nonfood comparable store sales up
3.4 percent. The Company's food operations accounted for 42.5 percent of
the overall sales for the first 40 weeks of 1996 compared with 42.1 percent
for the first 40 weeks of 1995.
Gross margin as a percent of net sales was 29.4 percent for the first 40
weeks of 1996 compared with 28.2 percent for 1995. Gross margins increased
in the first 40 weeks of 1996 primarily due to lower markdowns, lower
distribution center and delivery costs as a percent of sales, the impact on
margins of the two multistore jewelry acquisitions, the improved sales mix
in nonfood products, low inflation, and improved plant profits.
Operating and administrative expenses as a percent of net sales were 26.4
percent for the first 40 weeks of 1996 compared with 26.3 percent for the
first 40 weeks of 1995. Expenses that increased were due to the Company's
commitment to improved customer service through added sales staffing at
store level and the impact on expenses of the two jewelry acquisitions,
offset by lower costs associated with new stores and closures that affected
last year's results and lower 1996 corporate overhead and advertising costs
as a percent of sales.
Net interest expense in the first 40 weeks of 1996 was $30,606,000, an
increase of 8.2 percent from the $28,288,000 for 1995. The increase
primarily reflects higher borrowings due to the Company's new store
construction and remodel plan.
The effective tax rate for the first 40 weeks of 1996 and 1995 was 38.0
percent.
Net income increased 170.0 percent to $30,909,000 in the first 40 weeks of
1996 from $11,447,000 in 1995. Earnings per share were $1.09 for the first
40 weeks of 1996 based on 28,335,000 shares outstanding, compared with $.40
for the prior year's period based on 28,373,000 shares outstanding.
9
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EFFECT OF LIFO
The Company estimates annual LIFO expense based on estimates of three
factors: inflation rates (calculated by reference to the Department Stores
Inventory Price Index published by the Bureau of Labor Statistics for
softgoods and jewelry, and to internally generated indices based on Company
purchases during the year for all other departments), expected inventory
levels, and expected markup levels (after reflecting permanent markdowns
and cash discounts). The Company reviewed these year-to-date indices at the
end of the third quarter and adjusted its LIFO reserve on a year-to-date
basis to reflect the Company's overall product mix, anticipated year-end
inventory levels, and the Company's expectations of the indices for the
remainder of the year.
10
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit
-------
10X. Bond Lease Agreement, dated September 5, 1996 by and
between Texas Commerce Bank National Association, as
Trustee (Landlord), and Fred Meyer, Inc., a Delaware
corporation, and Roundup Co., a Washington corporation,
as tenants (Tenants), including Guaranty, dated September
5, 1996 of Fred Meyer, Inc., as Guarantor.
10Y. Rent Rebate Agreement, dated September 5, 1996 between
Texas Commerce Bank National Association (Landlord) and
Fred Meyer, Inc. and Roundup Co. (Tenants).
11. Computation of Earnings (Loss) per Common Share.
27. Financial Data Schedule.
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K have been filed during the period for
which this report is filed.
11
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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.
FRED MEYER, INC.
(Registrant)
Dated: December 6, 1996 KENNETH THRASHER
---------------- -----------------------------------
Kenneth Thrasher
Senior Vice President - Finance
Chief Financial Officer
12
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EXHIBIT INDEX
Exhibit Sequential
Number Document Description Page Number
- ------ -------------------- -----------
10X. Bond Lease Agreement, dated September 5, 1996
by and between Texas Commerce Bank National
Association, as Trustee (Landlord), and Fred
Meyer, Inc., a Delaware corporation, and
Roundup Co., a Washington corporation, as
tenants (Tenants), including Guaranty, dated
September 5, 1996 of Fred Meyer, Inc., as
Guarantor..
10Y. Rent Rebate Agreement, dated September 5, 1996
between Texas Commerce Bank National
Association (Landlord) and Fred Meyer, Inc.
and Roundup Co. (Tenants).
11. Computation of Earnings (Loss) per Common Share.
27. Financial Data Schedule.
---------------
BOND
LEASE AGREEMENT
---------------
LANDLORD: TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, AS TRUSTEE
TENANTS: FRED MEYER, INC.
ROUNDUP CO.
GUARANTOR: FRED MEYER, INC.
<PAGE>
INDEX FOR BOND LEASE AGREEMENT
1. Leased Premises; Term; Possession, Guaranty............................. 1
1.1 Lease to Tenant................................................ 1
1.2 Lease Term..................................................... 2
1.3 Renewal Options................................................ 2
1.4 Lease Guaranty................................................. 3
1.5 Purchase Requirement and Prices................................ 3
2. Acceptance of Properties................................................ 3
2.1 Condition of the Properties.................................... 3
2.2 Personal Property.............................................. 4
3. Rent.................................................................... 4
3.1 Base Rent...................................................... 4
3.2 Time of Payment................................................ 5
3.3 Partial or Delinquent Payments................................. 5
3.4 No Offsets..................................................... 6
3.5 Absolute Net Lease; Nonterminability........................... 6
3.6 Nonterminability for Insolvency................................ 6
4. Utilities and Taxes..................................................... 7
4.1 Utility Charges................................................ 7
4.2 Payment of Impositions......................................... 7
4.3 Definition of Impositions...................................... 7
4.4 Substitute Impositions......................................... 8
4.5 Payment in Installments........................................ 8
4.6 Right to Contest............................................... 8
4.7 Personal Property Taxes........................................ 10
4.8 Tax Returns and Statements..................................... 10
4.9 Tax Hold Harmless Clause....................................... 10
5. Insurance and Damage.................................................... 10
5.1 Liability Insurance by Tenant.................................. 10
5.2 Fire and Casualty Insurance.................................... 10
5.3 Specific Perils to be Insured.................................. 11
5.4 Insurance on Personal Property................................. 11
5.5 Waiver of Subrogation.......................................... 11
5.6 Restoration of Damage.......................................... 12
5.7 Policy Form, Content, Insurer.................................. 15
5.8 Blanket Policies............................................... 15
5.9 Self-Insurance Arrangements.................................... 15
5.10 Tenant's Responsibility for Self-Insured Amount................ 16
5.11 Business Interruption Insurance................................ 16
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5.12 Failure to Maintain Insurance.................................. 16
5.13 No Abatement................................................... 16
5.14 Tenant's Net Worth............................................. 17
5.15 Insurance Requirements of S&P.................................. 17
6. Use of Property......................................................... 17
6.1 Use............................................................ 17
6.2 No Use in Violation of Law..................................... 17
6.3 No Nuisance.................................................... 17
6.4 Compliance with Laws........................................... 17
6.5 Avoidance of Hazards; Vermin................................... 18
6.6 No Impairment of Reversionary Rights........................... 18
7. Maintenance and Alterations............................................. 18
7.1 Repairs and Maintenance........................................ 18
7.2 Alterations.................................................... 18
7.3 Conditions to Making Alterations............................... 19
7.4 Requirements of Governmental Agencies.......................... 20
7.5 No Duties on Landlord.......................................... 20
7.6 Ownership of New Improvements During Term...................... 21
7.7 Ownership at Termination....................................... 21
8. Signs................................................................... 22
9. Liens, Indemnification and Liability.................................... 22
9.1 No Liens Permitted On Reversion................................ 22
9.2 Mechanics Liens................................................ 22
9.3 Indemnification of Landlord.................................... 23
9.4 Tenant's Indemnity Agreement................................... 23
9.5 Disclaimer of Landlord's Responsibilities...................... 24
10. Condemnation............................................................ 24
10.1 Definitions.................................................... 24
10.2 Condemnation................................................... 26
10.3 Separate Awards................................................ 28
11. Assignment and Subleasing............................................... 29
11.1 Tenant's Right to Assign....................................... 29
11.2 Tenant's Right to Sublease..................................... 29
12. Default by Tenant....................................................... 29
12.1 Payment Default................................................ 29
12.2 Material Default in Other Covenants............................ 29
12.3 Non-Material Defaults in Other Covenants....................... 30
12.4 Insolvency Default............................................. 30
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12.5 Failure of Lease Guaranty...................................... 30
13. Remedies on Tenant's Default............................................ 31
13.1 Landlord's Remedies............................................ 31
13.2 Cumulative Remedies............................................ 33
13.3 Waiver of Breach............................................... 33
13.4 Survival of Remedies........................................... 33
14. Default by Landlord..................................................... 33
15. Surrender at Expiration................................................. 34
15.1 Condition of Properties........................................ 34
15.2 Holdover....................................................... 35
15.3 Title to Building and Improvements............................. 35
15.4 Remaining Personal Property on the Property.................... 35
15.5 Survival....................................................... 35
16. Covenant of Quiet Enjoyment............................................. 35
17. Tenant's Powers;Easements, etc.......................................... 35
18. Substitution............................................................ 36
18.1 Substitution Events............................................ 36
18.2 Substitution Conditions........................................ 37
18.3 Failure of Substitution Conditions............................. 39
19. Hazardous Materials..................................................... 39
19.1 Use of Hazardous Materials..................................... 39
19.2 Tenant's Indemnity Obligations................................. 40
19.3 Notice......................................................... 40
19.4 Remediation by Tenant and Survival............................. 41
19.5 Disclosure..................................................... 41
19.6 Inspection..................................................... 41
19.7 Governing Provisions for Environmental Matters................. 43
20. Leasehold Financing..................................................... 43
20.1 Tenant's Right to Encumber its Leasehold Interest.............. 43
21. General Provisions...................................................... 43
21.1 Time of Essence................................................ 43
21.2 Nonwaiver...................................................... 43
21.3 Succession..................................................... 43
21.4 Inspection..................................................... 43
21.5 Attornment..................................................... 44
21.6 Subordination to Mortgages..................................... 44
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21.7 Changes Required by Landlord's Mortgagee....................... 44
21.8 Estoppel Certificates.......................................... 44
21.9 Proration of Rent.............................................. 45
21.10 Notices........................................................ 45
21.11 Attorneys' Fees................................................ 46
21.12 Relationship of Parties........................................ 46
21.13 Authorization of Lease......................................... 47
21.14 Consent........................................................ 47
21.15 Brokers........................................................ 47
21.16 Section Headings............................................... 47
21.17 Applicable Law................................................. 47
21.18 Prior Agreements............................................... 48
21.19 Validity of Provisions......................................... 48
21.21 Joint and Several Liability.................................... 48
21.22 Modifications.................................................. 48
21.23 Recording...................................................... 48
21.24 Personal Property and Moving Expenses.......................... 48
21.25 Nonmerger of Fee and Leasehold Estates......................... 48
21.26 Agreement to Act Reasonably.................................... 48
21.27 Gender; Singular and Plural.................................... 49
21.28 Exhibits....................................................... 49
21.29 First Opportunity to Purchase.................................. 49
21.30 Merger, Consolidation or Sale of Assets........................ 50
21.31 Existing Leases................................................ 50
21.32 Equipment Financing............................................ 51
21.33 Reasonable Efforts to Mitigate................................. 51
21.34 Indemnification................................................ 51
21.35 Confidentiality of Financial or Sales Information.............. 52
21.36 No Third Party Beneficiaries................................... 52
21.37 Surplus Property............................................... 52
21.38 Sale-Purchase Claims........................................... 53
21.39 Counterparts................................................... 53
21.40 Prior Agreements............................................... 53
21.41 Sale or Assignment by Landlord................................. 53
21.42 Rule 144A Information Requirements............................. 54
21.43 Statutory Notice............................................... 54
ATTACHED EXHIBITS & SCHEDULES
- -----------------------------
EXHIBIT A - Legal Description
EXHIBIT B - Permitted Exceptions
EXHIBIT C - Insurance
EXHIBIT D - Purchase Price Upon Happening of Certain Events
EXHIBIT E - Lease Guaranty
EXHIBIT F - Additional Option Term Rent
iv
<PAGE>
BOND
LEASE AGREEMENT
---------------
THIS BOND LEASE AGREEMENT ("Lease") is made as of the 5th day of
September, 1996 by and between TEXAS COMMERCE BANK NATIONAL ASSOCIATION,
NOT IN ITS INDIVIDUAL CAPACITY BUT SOLELY IN ITS CAPACITY AS TRUSTEE
("LANDLORD") UNDER THAT CERTAIN TRUST AGREEMENT DATED AS OF SEPTEMBER 1,
1996 BETWEEN TEXAS COMMERCE BANK NATIONAL ASSOCIATION, AS TRUSTEE AND
CHEMICAL TRUST COMPANY OF CALIFORNIA, A CALIFORNIA BANKING CORPORATION, AS
BENEFICIARY ("CTCC") and FRED MEYER, INC., A DELAWARE CORPORATION ("FMI")
as to the Properties described in Exhibits "A-1" through Exhibits "A-6" and
ROUNDUP CO., A WASHINGTON CORPORATION ("RC") as to the Properties described
in Exhibits A-7 through A-10 (FMI and RC being sometimes individually and
collectively referred to herein as "Tenant").
1. Leased Premises; Term; Possession, Guaranty.
--------------------------------------------
1.1 Lease to Tenant. Landlord hereby leases to Tenant, and Tenant
hereby hires from Landlord, the following: (i) those parcels of land and
being more particularly described in Exhibit "A-1" through Exhibit "A-10"
attached hereto and made a part hereof ("Land"), (ii) those certain
buildings presently situated on the parcels of Land, (the "Building" or
"Buildings"), and any other existing structures, buildings, fixtures or
other improvements owned by Landlord and presently located on the Land,
including, without limitation, all apparatus, equipment and appliances used
in the operation thereof, such as heating and air conditioning systems and
other building systems used to provide utility services, heating, air
conditioning and ventilation, life safety, or other services thereof, and
all presently existing landscaping, paving, parking, common area
improvements, grading, water banks and channels and other site improvements
located on the Land, which Landlord purchased from Tenant pursuant to a
Contract of Sale and Leaseback between the parties dated May 13, 1996 (as
heretofore amended from time to time, the "Sale Agreement"), and (iii)
subsequently erected or installed structures, buildings, fixtures, common
area improvements and other site or other improvements hereafter located
upon or attached to the Land or the existing improvements located thereon,
subject to the provisions of Section 2.2 below (such Buildings, other
improvements and items of realty referenced in subparagraphs (ii) and (iii)
above are sometimes being collectively referred to as the "Improvements"
and the Land and Improvements being sometimes collectively referred to as
the "Properties"), together with all rights, privileges, easements and
appurtenances belonging to or in any way appertaining to the Land, at the
rental, and upon all of the covenants and conditions set forth herein. For
purposes of clarification, Improvements shall include, without limitation,
all buildings, structures, fixtures (except as specifically excluded by
this Lease), fences, interior driveways, garages, parking lots, fountains,
utility installations, excavations, surfacing, water banks or channels,
landscaping, grading and plantings. This Lease is subject to the following
matters to the extent that they affect the Properties:
<PAGE>
1.1.1 The "Permitted Exceptions" as defined and set forth in
Exhibits "B-1" through Exhibit "B-10".
1.1.2 The effect of all present building restrictions and
regulations and present and future zoning laws, ordinances, resolutions and
regulations of the City, County and State where a respective Property is
situated and all present ordinances, regulations and orders of all boards,
bureaus, commissions and bodies of any city, county, state or federal
agency, now having or hereafter having acquired, jurisdiction of the
Properties and the use and improvement thereof.
1.1.3 The condition and state of repair of the Properties on the
"Commencement Date" (as defined in Section 1.2 below).
1.1.4 All taxes (including local improvement rates), duties,
assessments, special assessments, water charges and sewer rents, and any
other "Impositions" (as defined in Section 4.3 below), accrued or
unaccrued, fixed or not fixed, and as hereinafter more fully provided.
1.1.5 Present violations of law, ordinances, orders or
requirements that might be disclosed by an examination and inspection or
search of the Properties by any federal, state, county or municipal
department or authority having jurisdiction, as the same may exist on the
Commencement Date.
This Lease provides for the lease by Landlord and the hiring by Tenant of
the Properties owned by Landlord and identified above. Except as to the
extent this Lease refers to a singular "Property", the agreements, terms
and conditions set forth herein shall apply to the "Properties"
collectively.
1.2 Lease Term. The lease term ("Original Term") shall commence on
September ___, 1996 ("Commencement Date") and shall expire on the September
30, 2017, unless sooner terminated or extended as provided herein.
1.3 Renewal Options. Provided Tenant is not then in default hereunder,
beyond expiration of any applicable notice and/or grace period herein
provided, Tenant shall have and is hereby granted an option ("First
Option") to extend the Original Term for one additional term of ten years
("First Option Term") on the same terms and conditions as herein provided.
In the event that Tenant timely exercises the First Option, Tenant shall
have and is hereby granted four additional consecutive options (each an
"Additional Option" and together with the First Option the "Options") to
extend the Term. Each Additional Option shall be for five years (each an
"Additional Option Term"). The First Option may be exercised only with
respect to all, but not some, of the Properties. Each of the Additional
Options may be exercised with respect to all or any combination of the
Properties. Notwithstanding the foregoing, Tenant shall not have the right
to exercise any Additional Option if at the time such Additional Option is
otherwise exercisable, Tenant shall be in default hereunder, beyond
expiration of any applicable notice and/or grace period herein
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provided, or any prior Option with respect to the Property has not been
timely exercised. In any such event, any unexercised Option shall lapse and
be of no further force or effect. During the First Option Term, the "Base
Rent" (as defined in Section 3.1 below) shall be $8,925,840.00. During each
Additional Option Terms the Base Rent shall be the sum of the "Option Rent"
for each Property which said Additional Option Term is applicable as such
"Option Rent" for that Property is set forth on Exhibit "F" attached hereto
and made a part hereof. Tenant shall exercise the First Option and each
Additional Option by delivery to Landlord of written notice thereof not
later than 730 days prior to expiration of the Original Term, First Option
Term or the then current Additional Option Term, as the case may be.
Notwithstanding the foregoing, Tenant's right to exercise any Option shall
not terminate until ten days after receipt by Tenant of written notice from
Landlord of the nonexercise by Tenant of such Option and Tenant's failure
to elect to exercise such Option within such ten day period. The Original
Term, as the same may be extended from time to time by the First Option
Term and any Additional Option Term, is sometimes referred to herein as the
"Term".
1.4 Lease Guaranty. All of RC's obligations under this Lease shall be
unconditionally guaranteed by FMI pursuant to that certain Lease Guaranty
attached hereto as Exhibit "E" and made a part hereof. FMI agrees to
execute and deliver such Lease Guaranty on the Commencement Date and to
execute and deliver to Landlord, from time to time, upon request of
Landlord, written confirmation that the Lease Guaranty is still in effect.
1.5 Purchase Requirement and Prices. Pursuant to the terms and
conditions herein contained, the parties have agreed that upon the
happening of certain events, Landlord shall have the option of requiring
Tenant to purchase one or more of the Properties from Landlord. In such
event, the purchase and sale shall close within 30 days after the exercise
of said option by Landlord. Landlord shall execute and deliver a deed,
similar in form and substance to the Deed given by Tenant to Landlord
pursuant to the Sale Agreement for such Property, conveying fee simple
title to said Property and otherwise in a form and substance reasonably
acceptable to Tenant and the parties shall execute and deliver an amendment
to this Lease, deleting said Property from the terms of this Lease. The
purchase price shall be as set forth in the applicable section requiring
said purchase and sale. Landlord and Tenant agree that the purchase prices
set forth in Exhibit "D" are fair and reasonable and were determined
independently by Landlord and Tenant from any other matter herein set
forth.
2. Acceptance of Properties.
-------------------------
2.1 Condition of the Properties. Tenant was the immediate past owner
of the Properties, constructed the Buildings and the other existing
Improvements and is thoroughly familiar with the Properties. Tenant hereby
accepts the Properties in their present condition, AS IS. Landlord shall
not be required to perform any work on the Properties whatsoever and there
are no other preconditions to the
3
<PAGE>
commencement of this Lease and full performance by Tenant of all
obligations owed to Landlord under this Lease. Landlord has not made and
does not make any representations or warranties, express or implied, as to
the physical condition, expenses, operation and maintenance, zoning, status
of title, the use that may be made of any Property or any other matter or
thing affecting or related to the Properties, including, without
limitation, as to the present or future suitability of any Property for the
conduct of Tenant's business thereon. Tenant hereby assumes all risks
resulting from any defects (patent or latent) in the Properties or from any
failure of the same to comply with any Legal Requirements (as defined in
Section 6.4 below), any recorded or unrecorded encumbrance or agreement
affecting the Land, or the uses or purposes for which the same may be
occupied.
2.2 Personal Property. Subject to the provisions of this Lease, Tenant
may place or install on and/or in the Properties such fixtures and
equipment as it shall deem desirable for the conduct of business therein,
and may paint any Improvements such colors as Tenant elects, subject to all
Legal Requirements. Personal property, inventory, furniture, fixtures and
equipment used in the conduct of Tenant's business (as distinguished from
those fixtures and equipment used in connection with the operation and
maintenance of any Improvements which belong to Landlord and/or which were
transferred to Landlord pursuant to the Sale Agreement) (collectively,
"FF&E" or "Equipment") placed by Tenant (even though placed prior to the
commencement of this Lease), and the personal property of any "subtenant"
(as defined below) shall not become a part of the realty, even if nailed or
screwed or otherwise fastened to the Properties, but shall retain their
status as personalty and may be removed by Tenant or respective subtenant
at any time, provided, that Tenant shall, at its sole expense, immediately
repair any damage caused by such removal even if caused by any subtenant.
Landlord also recognizes that Tenant may finance Tenant's FF&E (subject to
Section 21.32 below) and in such event a third party may have a security
interest or an ownership interest in such FF&E. Landlord hereby waives any
security interest it may have, at law or in equity, relative to Tenant's
FF&E. Upon request of Tenant, Landlord will execute such further
instruments as are reasonably required by Tenant to confirm Landlord's
waiver of such security interest. Landlord hereby acknowledges that
(subject to Section 21.32 below) Tenant's FF&E lienholders or landlords
shall also have the right to remove such FF&E, so long as such removal is
accomplished in a workmanlike manner and with as little disruption as
possible to the operation and maintenance of the Properties and any damage
caused the Properties by such removal shall be promptly repaired by Tenant
at its expense.
3. Rent.
-----
3.1 Base Rent. Commencing on the Commencement Date, and continuing
through September 30, 2011, Tenant shall pay to Landlord the sum of
$12,100,000.00 per year ("Base Rent"). Commencing on October 1, 2011, and
continuing through the end of the Original Term, Tenant shall pay to
Landlord Base Rent in the amount of $5,001,500 per year. The Base Rent
shall be paid by wire
4
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transfer of immediately available funds at such address or account which
Landlord, or any successor in interest of Landlord, may designate to Tenant
from time to time in writing provided that such address and account shall
be in the United States. Payment of all sums to Landlord hereunder shall be
made in such currency of the United States as at the time of payment shall
be legal tender for the payment of private debts.
3.2 Time of Payment. Base Rent shall be paid in advance on the 1st day
of each calendar quarter during the Term (e.g., January, April, July and
October). Base Rent is uniformly apportionable day to day based upon a year
consisting of twelve 30 day months. Base Rent for the partial quarter (if
any) in which the Term commences or is terminated shall be prorated and
paid on the Commencement Date or pro-rata refunded on the termination date,
as the case may be. Notwithstanding any other provision of this Lease,
Tenant will pay on the Commencement Date of this Lease (a) the Base Rent
for the month of September 1996 (or partial month, as applicable) and (b)
the quarterly Base Rent payment due as of October 1, 1996; provided,
however, that said October 1, 1996 quarterly Base Rent installment will be
discounted to the date of payment utilizing a 6% per annum discount rate,
to adjust for such payment prior to October 1, 1996. Such payment and
discount are permitted payments and this Section will supersede any other
provision of this Lease or any provision of Landlord's financing documents
with Landlord's lenders concerning restrictions on prepayment of rent under
this Lease.
3.3 Partial or Delinquent Payments. Payment by Tenant or receipt by
Landlord of any amount less than the full Base Rent for any period or any
other sums due from Tenant, or any endorsement or statement on any check or
letter accompanying any check or rent payment, shall not in any event be
deemed an accord and satisfaction. Landlord may accept such check or
payment without prejudice to Landlord's right to recover the balance of
such Base Rent or other sums or pursue any other remedy provided in this
Lease or otherwise available to Landlord at law or in equity. Any
installment of Base Rent or any other payment becoming due and owing to
Landlord by Tenant pursuant to the terms and provisions of this Lease which
is not paid when due (subject to any permitted grace period or notice
requirement set forth herein and without requirement of any further notice
being given), whether or not a default is declared by Landlord hereunder,
shall bear interest at a rate equal to the lesser of ten percent per anum
or the maximum rate of interest permitted by applicable law, if any, from
the date due to the date paid ("Late Payment Rate"). In addition, Tenant
will pay to Landlord a late charge equal to four percent of any amount due
under this Lease not timely paid (subject to any permitted grace period or
notice requirement set forth herein and without requirement of any further
notice being given) to cover expenses incurred in handling the delinquent
payment ("Late Charge"), whether or not a default is declared by Landlord
hereunder.
3.4 No Offsets. All rent and other sums due hereunder shall be paid by
Tenant without notice, demand, counterclaim, setoff, offset, abatement,
charge, assessment, imposition or deduction of any kind.
5
<PAGE>
3.5 Absolute Net Lease; Nonterminability. It is the intent of the
parties and the effect of this Lease that all rent and other sums paid, or
to be paid, by Tenant hereunder shall be an absolute net return to
Landlord. Landlord shall not be responsible for payment of any taxes,
assessments, or other Impositions (as defined in Section 4.3 below, and
subject to the provisions of Sections 4.3 and 4.4 below), any operating
expenses, or any other costs, expenses, charges or premiums under this
Lease directly or indirectly related to the Properties or any Improvements
now or hereafter located thereon. Under no circumstances or conditions,
whether now existing or hereafter arising, or whether beyond the present
contemplation of the parties, shall Landlord be expected or required to
make any payment of any kind whatsoever or be under any other obligation or
liability hereunder. Tenant shall pay all costs, expenses and charges of
every kind and nature relating to the Properties (except debt service on
any financing obtained by Landlord) which may arise or become due or
payable during or after, but attributable to a period falling within, the
Term. Tenant's obligation to pay rent and any other sum hereunder shall not
terminate prior to the expiration of the Term, notwithstanding the exercise
by Landlord of any or all of its rights hereunder or otherwise. The
obligations of Tenant hereunder are absolute, unconditional and shall not
be affected by reason of: (a) any damage to or destruction of the
Properties or any part thereof, (b) any Taking of the Properties or any
part thereof or interest therein by condemnation or otherwise, (c) any
prohibition, limitation, restriction or prevention of Tenant's use,
occupancy or enjoyment of the Properties or any part thereof, or any
interference with such use, occupancy or enjoyment by any person or
governmental agency or for any reason whatsoever, (d) any matter affecting
title to the Properties, (e) any eviction by paramount title or otherwise,
(f) any default by Landlord hereunder or under any other agreement between
Landlord and Tenant, (g) the impossibility, impracticability or illegality
of performance by Landlord, Tenant or both, (h) any action of any judicial
or governmental authority, (i) Tenant's acquisition of ownership of all or
part of the Properties (unless this Lease shall be terminated by a writing
signed by all persons, including any mortgagee, having an interest in the
Properties), (j) any breach of warranty or misrepresentation by Tenant or
Landlord or (k) any other cause whether similar or dissimilar to the
foregoing and whether or not Tenant shall have notice or knowledge thereof
and whether or not such cause shall be foreseeable.
3.6 Nonterminability for Insolvency. Tenant shall remain obligated
under this Lease in accordance with its terms and shall not take any action
to terminate, rescind or avoid this Lease, notwithstanding any bankruptcy,
insolvency, reorganization, liquidation, dissolution or other proceeding
affecting Landlord and/or Tenant or any action with respect to this Lease
which may be taken by any trustee, receiver or liquidator or by any court.
4. Utilities and Taxes.
--------------------
4.1 Utility Charges. Tenant is responsible for all past, present and
future utility charges, incurred prior to or during the Term, for the
Properties. Tenant shall pay, or cause to be paid, prior to delinquency,
and shall hold Landlord and the
6
<PAGE>
Properties free and harmless from, all charges for the furnishing of
electricity, gas, water, telephone, sewage, garbage and rubbish removal to
the Properties and/or for all other public and private services charges
thereafter used for, by or in connection with, or otherwise charged or
imposed against, the Property.
4.2 Payment of Impositions. In addition to the rent required to be
paid under this Lease, Tenant shall pay, and Tenant hereby agrees to pay or
cause to be paid, prior to delinquency, all "Impositions" (as defined in
Section 4.3 below) falling due or applicable to the period from the
Commencement Date to the end of the Term. A true and correct copy of the
official receipt for the payment, canceled check or other such reasonably
acceptable proof of payment of such Impositions, shall be delivered to
Landlord not later than 60 days after the date such Impositions are paid by
Tenant.
4.3 Definition of Impositions. For the purposes of this Lease,
"Impositions" shall mean all taxes, special and general assessments, use
and occupancy taxes, rent taxes, possessory interest taxes, excises,
levies, charges, duties, impositions, license and sales and permit fees and
taxes of general application, transfer taxes, charges for public utilities
of any kind, payments and other charges of every kind and nature
whatsoever, ordinary or extraordinary, foreseen or unforeseen, general or
special, in said categories, which under the laws of the state in which a
Property is situated constitute a lien against said Property, together with
any interest or penalties imposed upon the late payment thereof, which,
pursuant to past, present or future law, during or prior to the Term, shall
have been or shall be levied, charged, assessed, imposed upon or grow or
become due and payable out of or have become a lien on the Properties or
any part thereof, any interest in the Properties, including the leasehold
estate or any subleasehold estate, or any Improvements or personal property
in or on the Properties, by any governmental authority or entity having
jurisdiction, whether belonging to or chargeable against Landlord or
Tenant. Impositions shall not include corporate excise and income taxes and
other taxes based on Landlord's income or which constitute a "franchise" on
Landlord's income, capital stock tax or similar tax of Landlord, and any
transfer taxes imposed upon the recording of any deed subsequently
transferring Landlord's interest in the Properties. Tenant, upon request
from Landlord, shall submit to Landlord the proper and sufficient receipts
or other evidence of payment and discharge of the same. In the event any
statement of Impositions to be paid is sent by the taxing authority to
Landlord, Landlord will promptly forward a copy of the statement to Tenant,
so that Tenant can make the payment directly to the taxing authority.
Tenant will not be responsible for any interest, penalties or late charge:
(i) payable to the taxing authority if Landlord receives the statement of
Impositions to be paid and fails to forward it with reasonable promptness
to Tenant, or (ii) to Landlord for any Impositions to be reimbursed by
Tenant if Tenant pays the amount to Landlord within twenty (20) days after
receipt of an invoice therefor in reasonable detail showing the amount and
nature of the Impositions paid by Landlord and including a copy of the
statement received from the taxing authority that was paid by Landlord.
7
<PAGE>
4.4 Substitute Impositions. If at any time during the Term, a tax,
excise or assessment is levied or assessed against any Property, or against
Landlord by reason of Landlord's ownership of the Properties or the rent
payable under this Lease, or with respect to the development of income by
this Lease, which are a substitute in whole or in part for any Impositions
specified in Sections 4.2 and 4.3, such tax, excise on rent or assessment
shall, to the extent of the amount, be deemed to be an additional
Imposition which is, and shall be, the obligation of Tenant to pay pursuant
to this Lease.
4.5 Payment in Installments. If any taxes, assessments or other
Impositions are payable in installments, only installments coming due or
accruing for periods of time, during the Term will be the responsibility of
Tenant under this Lease. If either party's consent is required to cause the
bonding of any assessment or to contest any Imposition, the party will not
unreasonably withhold or delay its consent upon request.
4.6 Right to Contest.
4.6.1 Impositions. Tenant shall have the right to contest,
oppose, or object to the amount or validity of any Imposition levied on or
assessed against the Properties, Improvements, and/or Tenant's interest
therein, or any part thereof. Written notice of the contest, opposition, or
objection shall be given to Landlord within a reasonable time after such
contest is filed; provided, however that if Landlord's joinder is required
to pursue the contest, opposition or objection or if Tenant is seeking a
reduction in assessed value with respect to any one Property that would be
greater than 10% of the amount determined by the taxing authority with
respect to that Property in the prior tax year, such notice shall be given
within a reasonable time prior to the filing of the same. Unless Landlord's
joinder is required as a jurisdictional matter or by any law, rule or
regulation in order to make such action or proceeding effective (and in
such event Landlord shall join solely for the purpose of allowing Tenant to
proceed with its contest and Tenant shall pay the reasonable costs incurred
by Landlord in connection with such joinder; provided, however, no such
joinder shall preclude Landlord from supporting any valuation of any
Property made for the purposes of assessing taxes thereon which valuation
Tenant has elected to contest), Landlord shall not be required to join in
or cooperate in any such contest, opposition or objection, nor shall
Landlord be required to expend any monies in this connection, nor shall
Landlord be liable for any costs or expenses incurred or awarded in the
proceeding. Furthermore, no such contest, opposition, or objection shall be
commenced, continued to maintained after the date on which the Imposition,
assessment, or other charge being contested becomes delinquent, unless
Tenant has either:
4.6.1.1 Paid such Imposition, or other charge under protest
to delinquency; or
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4.6.1.2 Obtained and maintained a stay of all proceedings
for enforcement and collection of the tax, assessment, or other
charge by posting such bond or other security required by law for
such a stay; or
4.6.1.3 Delivered to Landlord good and sufficient security
or other reasonable assurance, as approved by Landlord, for the
purposes of insuring the payment by Tenant of the Imposition,
assessment, or charge together with the amount of any fines,
interest, penalties, costs, and expenses that may have accrued or
been imposed thereon in connection with Tenant's contest,
opposition, or objection to such imposition, or other charge. Any
rebate or refund of Impositions by reason of such contest shall
be paid to Tenant.
Tenant further agrees to keep Landlord informed as to the status of any
such contests and to provide Landlord information reasonably requested with
respect thereto. Tenant shall promptly pay any and all judgments, decrees
and costs (including all attorneys' fees and expenses) in connection with
any such contest and shall, promptly after the final determination of such
contest, fully pay and discharge the amounts of which shall be levied,
assessed, charged or imposed or be determined to be payable therein or in
connection therewith, together with all penalties, fines, interest, costs
and expenses thereof or in connection therewith, and perform all acts the
performance of which shall be ordered or decreed as a result thereof,
before any action may be taken with respect to the foreclosure or other
enforcement of any such judgments or decrees.
4.6.2 Other Laws. Tenant shall have the right to contest by
appropriate proceedings diligently pursued in the name of Landlord or
Tenant or both, without any cost or expense whatsoever to Landlord, the
validity or the application of any law, ordinance, order, rule, regulation
or requirement to the Properties. If compliance with any such law,
ordinance, order, rule, regulation or requirement may be legally delayed
pending the prosecution of any such proceeding without the incurrence of
any lien, charge or liability of any kind against the Properties or the
Land or Tenant's or Landlord's interest therein and without subjecting
Tenant or Landlord to any liability, civil or criminal (other than
liability which can be bonded against), for failure to comply therewith,
Tenant may delay compliance until the final determination of such
proceeding. Otherwise, Tenant shall comply and/or bond as appropriate or
required to protect Landlord's interest in the fee interest of the Land and
Improvements.
4.7 Personal Property Taxes. Tenant shall pay, before delinquency, all
personal property taxes assessed against its leasehold improvements,
equipment, furniture, fixtures, inventory and any of its other personal
property on the Properties.
4.8 Tax Returns and Statements. Tenant shall, as between Landlord and
Tenant, have the duty of preparing, making, and filing any statement,
return, report, or other instrument required or permitted by law in
connection with the
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determination, equalization, reduction, or payment of any taxes, special or
general assessments, or other charges or Impositions that are or may be
levied on or assessed against the Properties, any portion of the
Properties, any interest in the Properties, any Improvements or other
property on the Properties.
4.9 Tax Hold Harmless Clause. Tenant shall indemnify and hold Landlord
and the Properties and any Improvements now or hereafter on the Properties,
free and harmless from any liability, loss, cost or expense incurred by
Landlord as a result of Tenant's failure to timely pay any Impositions or
other charges as are required by this Lease to be paid by Tenant and from
all interest, penalties, and other sums imposed thereon and from any sale
or other proceeding to enforce collection of the Impositions or other
charges.
5. Insurance and Damage.
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5.1 Liability Insurance by Tenant. Tenant shall continuously maintain
at its sole cost and expense commercial general liability insurance
insuring Tenant, Landlord and any Landlord's Mortgagee (as defined in
Section 21.41). Such coverage shall have a combined single limit initially
of either (a) $5,000,000 with respect to each Property or (b) $10,000,000
with respect to all of the Properties together, at Tenant's option to be
made on the Commencement Date and thereafter from time to time upon written
notice to Landlord, and thereafter such greater amount as may from time to
time customarily be furnished by tenants under comparable leases for
similar properties consistent with industry standards for comparable
business operations and properties.
5.2 Fire and Casualty Insurance. Tenant, at its sole cost and expense,
shall keep the Improvements insured for the mutual benefit of Landlord,
Tenant and Landlord's Mortgagee during the term of this Lease, against loss
or damage by fire or other physical damage to the Improvements, including
but not limited to fire, lightning, vandalism, malicious mischief, flood,
boiler and machinery and sprinkler leakage damages and against loss or
damage by other risks now or hereafter embraced by the form of "Extended
Coverage" (or similar) endorsement available in the State where the
applicable Property is located and customarily obtained in connection with
insurance policies of the type herein described and, subject to the last
sentence of this Section 5.2, against such other risks as are commonly
insured by operators of similar Improvements, in an amount not less than
100% of their then full insurable value. For the purposes hereof, "full
insurable value" shall mean the actual replacement costs of all
Improvements on said Property. Such full insurable value shall be
determined from time to time (but not less frequently than once every two
years) at the request of Landlord by an appraiser, engineer, architect or
contractor or qualified insurance company representative, designated by
Tenant and reasonably approved by Landlord (provided, that periodic
re-determinations of the full insurable value will not be required if the
applicable policy(s) contains an agreed amount endorsement reasonably
acceptable to Landlord), and paid for by Tenant, but Landlord's failure to
request a determination or redetermination of full insurable value
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shall not relieve Tenant of its obligation to maintain the insurance
required by the terms hereof. Tenant's additional coverages or insurance
against other insurable risks hereunder shall be at a minimum that which
Tenant typically maintains on retail developments owned or operated by
Tenant under the insurance program then generally maintained by FMI on all
its and its affiliates' properties.
5.3 Specific Perils to be Insured. Notwithstanding anything to the
contrary contained in Section 5.2 of this Lease, the fire and casualty
insurance shall, whether or not included in the extended coverage
endorsement mentioned in Section 5.2, insure all of the Improvements, as
well as any and all additions thereof, against loss or destruction by
windstorm, cyclone, flood, tornado, hail, explosion, riot, riot attending a
strike, civil commotion, malicious mischief, vandalism, aircraft, fire,
smoke damage, boiler and machinery damage and sprinkler leakage.
Furthermore, during construction, or demolition, or reconstruction, the
fire and casualty insurance shall include "all risks" builders' risk
insurance, with course of construction, vandalism, and malicious mischief
clauses attached insuring the Improvements and all materials and equipment
delivered to the site of said Improvements for their full insurable value,
except in the event Tenant demonstrates to Landlord's reasonable
satisfaction that the contractor for such work carries such "all risks"
builder's risk insurance. Additionally, Tenant shall procure and maintain
workers' compensation insurance in such amounts as required by applicable
law. If Tenant commits, permits, or causes the conduct of any activity or
the bringing or operation of any equipment on or about the Property which
creates an increased risk and which activity or operation can be separately
insured, Tenant shall procure and maintain in force, during such activity
or operation, insurance, if reasonably available, sufficient to cover the
risks represented thereby.
5.4 Insurance on Personal Property. Tenant will be responsible for
continuously maintaining at its expense insurance covering its own
leasehold improvements, merchandise, trade fixtures and other personal
property of Tenant on the Properties including, without limitation, its
FF&E. Such insurance shall be in amount adequate to cover the cost of
replacement of the property required to be insured, subject to reasonable
deductibles and self-insurance arrangements pursuant to Section 5.9 below
and in such amounts as Tenant typically maintains on retail developments
owned or operated by Tenant under the insurance program then generally
maintained by FMI on all its and its affiliates' properties.
5.5 Waiver of Subrogation. Tenant's insurance under this Lease shall
contain provisions waiving (or permitting Tenant to waive and acknowledging
that such waiver is binding on the insurer) the insurer's right of
subrogation against the Landlord. Neither party shall be liable to the
other for any loss or damage caused by water damage, sprinkler leakage, or
any of the risks covered by a standard fire insurance policy with extended
coverage endorsements, and there shall be no subrogated claim by one
party's insurance carrier against the other party arising out of any such
loss.
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5.6 Restoration of Damage.
5.6.1 Generally. In the event of any loss or damage of any nature
from any cause whatsoever (a "Casualty") to the Properties or any
Improvement, or any part thereof, Tenant shall repair, restore, or replace
the damaged or destroyed Property or Improvement or construct additional
improvements of at least equal value to those existing prior to the damage.
In no event shall Base Rent be abated. Except as otherwise set forth
elsewhere in this Lease, all insurance proceeds related to the Properties
shall be paid to Tenant (or, if required by Landlord's Mortgagee, to a
neutral institutional depository mutually acceptable to Landlord, Tenant
and Landlord's Mortgagee) and used by Tenant for purposes of such repair,
restoration, replacement and improvement as provided herein. If the
insurance proceeds are not sufficient to pay the full estimated cost of
repair, restoration or replacement, Tenant will, nonetheless be responsible
for completion of such repair, restoration or replacement.
5.6.2 Substantial Casualty During Original Term. If a substantial
fire or other substantial Casualty occurs (substantial being affecting more
than 50% of the greater of a particular Property or the then Improvements
located therein) during the Original Term of this Lease, such that Tenant,
acting reasonably, believes it uneconomical to make any such repair,
restoration or replacement Tenant may elect not to rebuild or restore the
damaged Property, but instead may elect to substitute another property for
the damaged Property subject to the terms and conditions of this Section
5.6.2. Tenant shall deliver written notice to Landlord as to Tenant's
desire to effect a substitution within 60 days after the date of a
substantial fire or other substantial Casualty. Such notice will be
accompanied by a written offer to substitute another property for the
damaged Property in accordance with the provisions of Section 18 below.
Landlord shall accept or reject the offer to substitute within 30 days
after Landlord's receipt of said written notice. Failure by Landlord to
respond to the offer to substitute within said 30 day period shall
conclusively be deemed an acceptance of the offer to substitute; provided,
however, that all of the terms and provisions of Section 18.2 must still be
satisfied prior to completion of any such substitution. In the event of the
failure of any such condition to substitution set forth in Section 18.2
after Landlord's acceptance or deemed acceptance of the offer to substitute
pursuant to this Section 5.6.2, the provisions of Section 18.3 shall apply.
In the event Landlord rejects the offer to substitute within said 30 day
period, such rejection will also constitute the election by Landlord to
cancel this Lease as it pertains to the damaged Property and this Lease
will then terminate as it applies to such damaged Property on the date 60
days after Tenant receives Landlord's rejection. Base Rent will then be
proportionately adjusted and reduced effective on such termination date
based upon the "Property Percentage" of the damaged Property set forth in
Exhibit "D" attached hereto. Additionally, Landlord shall then be entitled
to receive, in addition to any self-insured payment amount to be made by
Tenant hereunder, if any, the insurance proceeds relative to the damaged
Property. If the parties effect such a substitution, then effective at the
closing of the substitution, Tenant shall receive, and Landlord does hereby
assign its interest in, the
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insurance proceeds relative to the damaged Property. The Base Rent
hereunder will not be abated whatsoever during the election periods
referred to above or during the substitution process, if applicable.
Additional requirements and conditions for a substitute property and the
procedures for such a substitution are detailed in Section 18 of this
Lease.
5.6.3 Substantial Casualty During Option Terms. If a substantial
fire or other substantial Casualty occurs during an Option Term, Tenant
may, in addition to its election to offer to substitute for the damaged
Property as set forth in Section 5.6.2 above and provided Tenant pays to
Landlord the amount of any self-insured amount maintained by Tenant on the
damaged Property, elect to cancel this Lease upon 60 days prior written
notice to the Landlord. Such election to cancel must be made by Tenant
within 60 days of the substantial fire or other substantial Casualty. If
such election is timely made, this Lease will then terminate as it applies
to such damaged Property on the date 60 days after Landlord receives
Tenant's notice. Base Rent will then be proportionately adjusted and
reduced effective on such termination date based upon the Base Rent then
being paid by Tenant for such Property as determined by Section 1.3 above.
In such an event, Landlord shall be entitled, in addition to any
self-insured payment amount to be made by Tenant, if any, to the insurance
proceeds relative to the damaged Property. If, however, Tenant elects to
rebuild, repair and/or restore the damaged Property after a substantial
fire or other substantial Casualty occurring during an Option Term and the
insurance proceeds exceed the cost of such restoration, such excess
proceeds shall be shared equally between Landlord and Tenant and the Base
Rent under this Lease shall remain unaffected.
5.6.4 Substantial Casualty During Last Two Years of Original
Term. Notwithstanding anything to the contrary contained in Section 5.6.2
above, in the event a substantial fire or other substantial Casualty occurs
during the last 730 days of the Original Term and Tenant did not timely
exercise its option to extend the Original Term as set forth in Section 1.3
above, then in such event Tenant shall either:
5.6.4.1 Offer to substitute another property for the damaged
Property for the remaining portion of the Original Term (also referred to
below as a "Temporary Substitution"), subject to the terms and conditions
stated herein below. Tenant will promptly (but no later than 60 days after
the date of a substantial fire or other substantial casualty) notify
Landlord in writing as to Tenant's desire to effect a Temporary
Substitution. Such notice will be accompanied by a written offer to
substitute another property for the damaged Property for the remaining
portion of the Original Term in accordance with the terms and conditions
set forth in Section 18 below. Landlord shall accept or reject the offer to
substitute within 30 days after Landlord's receipt of said written notice.
Failure by Landlord to respond to the offer to substitute within such 30
day period shall conclusively be deemed an acceptance of the offer to
substitute; provided, however, that all of the terms and provisions of
Section 18.2 must still be satisfied prior to completion of any such
substitution. In
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the event of the failure of any such condition to substitution set forth in
Section 18.2 after Landlord's acceptance or deemed acceptance of the offer
to substitute pursuant to this Section 5.6.4.1, the provisions of Section
18.3 shall apply. In the event Landlord rejects the offer to substitute
within said 30 day period, such rejection will also constitute the election
by Landlord to cancel this Lease as it pertains to the damaged Property and
this Lease will then terminate as it applies to such damaged Property on
the date 60 days after Tenant receives Landlord's rejection. Base Rent will
then be proportionately adjusted and reduced effective on such termination
date based upon the "Property Percentage" of the damaged Property set forth
in Exhibit "D" attached hereto. Additionally, Landlord shall be entitled to
the insurance proceeds relative to the damaged Property plus the
self-insured amount maintained by Tenant on the damaged Property. In the
event of such Temporary Substitution, the "Substitute Property" (as defined
in Section 18.1) will be substituted for the damaged Property (also
referred to as the "Replaced Property") until the end of the Original Term,
with no abatement or adjustment of Base Rent, at which time the Replaced
Property will be substituted back for the Substitute Property, and Landlord
shall be entitled to all insurance proceeds relative to the damaged
Property plus the self-insured amount maintained by Tenant on the damaged
Property ; or
5.6.4.2 Terminate this Lease as to the damaged Property upon 30
days prior written notice to Landlord accompanied by a payment to Landlord
of a lease cancellation fee, payable on the effective date of cancellation
of this Lease as to the damaged Property, equal to the lesser of: (i) the
Base Rent payable for such damaged Property (determined by using the
"Property Percentages" set forth on Exhibit "D") for the remainder of the
Original Term, as of the effective date for cancellation of this Lease as
to the damaged Property, without discount for prepayment; or (ii) the
difference, if any, between the insurance proceeds (including, for this
purpose, the self-insured payment amount to be paid by Tenant) and the then
remaining balance of Landlord's first Mortgage Financing on the damaged
Property plus accrued interest thereon, if any, for the period commencing
on the last day for which Base Rent has then been paid by Tenant through
the end of the Original Term, plus any prepayment premium charged to
Landlord under said mortgage in connection therewith. If such first
Mortgage Financing covers more than the damaged Property, the aggregate
amount of the first Mortgage Financing will be allocated between the
Properties in accordance with the "Property Percentages" set forth on
Exhibit "D," for purposes of computing such balance for purposes of this
paragraph. Base Rent will then be proportionately adjusted and reduced
effective on such termination date based upon the "Property Percentage" of
the damaged Property set forth in Exhibit "D" attached hereto.
5.7 Policy Form, Content, Insurer. All casualty and liability
insurance required by express provisions of this Lease shall name Tenant,
Landlord and Landlord's Mortgagee as additional insureds or loss payees, as
their interests may appear, as to the Properties, and shall be carried only
by companies having a rating of not less than A- from Best's and all such
companies shall be authorized to do insurance business in the state in
which the applicable Property is located. All such
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policies shall be nonassessable and shall contain language, to the extent
obtainable, to the effect that (1) any loss shall be payable
notwithstanding any act or negligence of Landlord that might otherwise
result in a forfeiture of the insurance, (2) the insurer waives the right
of subrogation against Landlord and against Landlord's agents and
representatives, (3) the policies are primary and noncontributing with any
insurance that may be carried by Landlord, and (4) they cannot be canceled
or materially changed except after 30 days' notice by the insurer to
Landlord and Landlord's Mortgagee. At the expiration of the Term of this
Lease, in the event Tenant is able to assign to Landlord its right, title
and interest in insurance required to be maintained hereunder, and Landlord
requests such assignment, Landlord shall reimburse Tenant pro rata for all
prepaid premiums on such insurance. Tenant may effect for its own account
any insurance not required under the Lease.
5.8 Blanket Policies. Any policies of insurance required of Tenant
hereunder may be part of blanket coverage relating to various properties
operated by Tenant. Tenant may partially self-insure to an extent which is
reasonable in relation to its financial worth and as set forth in Section
5.9. Tenant will deliver to Landlord certificates of such insurance
coverage prior to or concurrent with Tenant's obtaining possession of the
Properties and thereafter, as to policy renewals, Tenant will deliver to
Landlord certificates of coverage or other confirmation of arrangements for
coverage within 10 days prior to the expiration of the term of each such
policy. Each certificate and policy of insurance shall evidence insurance
coverage as required by this Lease.
5.9 Self-Insurance Arrangements. Tenant's current insurance policies,
deductibles and self-insurance arrangements as set forth in Exhibit "C" are
approved by Landlord. Tenant shall have the right to self-insure any of the
insurance coverages required by this Lease provided that Tenant will at all
times maintain a net worth of not less than $200,000,000 and that such
self-insurance will not exceed five percent of Tenant's net worth as
evidenced by Tenant's then most recent annual report or certificate
provided to Landlord below. Tenant will, within 90 days after each fiscal
year-end during the term of this Lease, send a copy of Tenant's annual
report, (if Tenant is publicly held) or a certificate (if Tenant is not
publicly held) signed by its chief financial officer that Tenant's net
worth is at least $200,000,000, or specifying what such net worth is if
less than such amount (to the extent Tenant is maintaining "SIRs" (as
defined below) higher than $500,000), and certifying that the requirements
of this Section 5.9 are satisfied for purposes of notifying Landlord as to
the net worth of Tenant, to the extent Tenant is then maintaining
deductibles and/or self insured retention levels (collectively, for this
purpose, referred to below as "SIRs") in excess of $500,000.
Notwithstanding the foregoing, Tenant's right to self-insure as provided
herein shall be conditioned upon the same not violating any Legal
Requirements affecting the Properties and/or Tenant and its business.
5.10 Tenant's Responsibility for Self-Insured Amount. With respect to
any claim, loss or liability that would have been covered by the insurance
policies required to be maintained by Tenant but which are within the
self-insured retention
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or deductible amount (the "Self-insured Amount"), Tenant will be
responsible for payment of the Self-insured Amount on or for such claim,
loss or liability on the same basis as the insurance carrier would have
been if there had been no self-insured arrangements or deductibles on the
insurance policies, but this sentence will not otherwise limit or affect
Tenant's indemnity obligations or other obligations under this Lease. The
provisions of this Section 5.10 shall survive the expiration or earlier
termination of this Lease.
5.11 Business Interruption Insurance. Tenant shall also maintain at
its sole cost and expense, business interruption insurance, in an amount
not less than 50% of the then annual Base Rent.
5.12 Failure to Maintain Insurance. If Tenant fails or refuses to
procure or to maintain insurance as required by this Lease or fails or
refuses to furnish Landlord with required proof that the insurance has been
procured and is in force and paid for, Landlord shall have the right, at
Landlord's election and upon reasonable prior notice (unless the time
required to give notice would result in the Properties or any portion
thereof being uninsured, in which event Landlord shall give Tenant written
notice of having obtained such insurance within 3 business days thereafter)
to procure and maintain such insurance. The premiums paid by Landlord shall
be treated as additional rent due from Tenant with interest at the Late
Payment Rate, to be paid on the first day of the quarter following the date
on which the premiums were paid. Landlord shall give Tenant prompt written
notice of the payment of such premiums, stating the amounts paid and the
names of the insurer or insurers, and interest shall run from the date of
the notice.
5.13 No Abatement. Notwithstanding anything to the contrary contained
herein, no destruction of or damage to the Properties or the Improvements
or any part thereof by fire or any other Casualty, irrespective of whether
such destruction or damage may occur before, on or after the Commencement
Date, shall permit Tenant to surrender this Lease or shall relieve Tenant
from its liability to pay the Base Rent and the Impositions and other
charges payable under this Lease, and Tenant waives any rights now or
hereafter conferred upon it by statute or otherwise to quit or surrender
this Lease of the Properties or any part thereof, or to any suspension,
diminution, abatement or reduction of Base Rent on account of such
destruction or damage.
5.14 Tenant's Net Worth. Notwithstanding anything to the contrary
contained in this Lease, including without limitation, reference to the net
worth of Tenant, all such net worth requirements may be satisfied by the
consolidated net worth of FMI provided FMI maintains the self-insurance
programs set forth herein (and/or as initially described on Exhibit "C") on
all of the Properties. FMI hereby agrees to be responsible to Landlord with
respect to any loss or liability covered by such self-insurance programs in
the event of any injury, damage or loss.
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5.15 Insurance Requirements of S&P. Notwithstanding anything to the
contrary contained in this Lease, at all times during which S&P shall be
maintaining a rating on the Senior Notes (as defined in Exhibit "D") (i)
all insurance required to be maintained by Tenant pursuant to this Lease
shall be maintained by insurers having a claims-paying ability rating by
S&P of not less than one rating category below the highest rating
outstanding on the Senior Notes, but in no event below BBB, (ii) Tenant
shall maintain in addition to the insurance required pursuant to this Lease
a comprehensive liability insurance policy covering all of the Properties
for an amount not less than $25,000,000 on an occurrence basis, (iii) the
property insurance required to be maintained under Sections 5.2 and 5.3
shall also include (x) coverage that is at least equivalent to the "all
risks" form, including coverage for flood and earthquake losses, with
valuation of the Properties at their replacement cost, including costs
associated with "civil or ordinance of law" requirements, and (y)
comprehensive boiler and machinery coverage on all mechanical equipment
that would cause a disruption in Tenant's revenue if rendered
nonoperational, which coverage shall cover both direct losses and
consequential losses that could materially jeopardize Tenant's revenues,
and (iv) Tenant's right to self-insure under this Lease shall be subject to
the further condition that Tenant's unsecured long-term debt be rated by
S&P not less than A-.
6. Use of Property.
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6.1 Use. Tenant may use the Properties for any lawful purposes.
6.2 No Use in Violation of Law. Tenant will not use or allow the
Properties or any part thereof to be used or occupied for any unlawful
purpose or in violation of any certificate of occupancy or certificate of
compliance covering or affecting the Properties, the Improvements, or any
part thereof, and Tenant will not suffer or allow any dangerous condition
to exist on the Properties or any part thereof unless appropriately and
commercially reasonably safeguarded.
6.3 No Nuisance. Tenant shall not conduct or permit any activities on
or about the Properties that create a public or private nuisance.
6.4 Compliance with Laws. In connection with its occupancy, use,
operation, management and maintenance of the Properties, and the conduct of
its business thereon, Tenant, at its expense, shall at all times during the
Term comply with all "Legal Requirements." The term "Legal Requirements,"
as used in this Lease, means all laws, statutes, ordinances, orders,
judgments, decrees, injunctions, rules, regulations, permits, licenses,
authorizations, directions and requirements of and agreements with all
federal, state, and local government agencies and officials, and all
private covenants, conditions and restrictions, whether foreseen or
unforeseen, which now or at any time hereafter are applicable to all or any
part of the Properties (and any improvements thereon), to the use or
condition of all or any part of the Properties (and the Improvements
located thereon), and to the Tenant and the conduct of Tenant's business
thereon, and shall include, but not be limited to,
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any such Legal Requirements applicable to the generation, storage, use,
disposal, transportation or sale of any Hazardous Materials (as defined in
Section 19.1 below) or products containing Hazardous Materials, the
presence, release or threatened release of any Hazardous Materials in, on,
around, or under the Properties (including the soil and groundwater
thereunder).
6.5 Avoidance of Hazards; Vermin. Tenant will not allow the Properties
or any Improvements or any part thereof at any time to fall into such a
state of disrepair or disorder as to cause cancellation of required
insurance coverage, and will reasonably keep them free from vermin.
6.6 No Impairment of Reversionary Rights. Tenant shall take all
commercially reasonable efforts to prevent the Properties, or any portion
thereof, from being used by the public, as such, in a manner which would
permit a claim or claims (i) of adverse usage or adverse possession by the
public, as such, or (ii) of implied dedication of the Properties or any
portion thereof to the public, as such.
7. Maintenance and Alterations.
----------------------------
7.1 Repairs and Maintenance. Tenant shall keep the Properties,
including entryways and canopies, at all times in a neat, clean, safe, and
sanitary condition, keep the glass of all windows and doors clean and
presentable, and keep and maintain the Properties in a good state of
repair. Tenant will maintain and repair the walls, roof and other
structural components and building systems and all painting, electrical,
plumbing and other utility systems, doors, glass and its personal property.
Tenant shall maintain the outside doors and their closure apparatus and
mechanisms, replace all cracked or broken glass, and protect the sprinkler
system and all pipes and drains so that they will not freeze or become
clogged. Tenant shall also maintain, operate and repair the utility systems
within the Properties, including the cost of connection to the utility
distribution systems. Tenant shall use commercially reasonable efforts to
remove all snow and ice from the roof of the Buildings and other
Improvements and will keep entrances to the Buildings free from snow and
ice. All of Tenant's obligations hereunder shall be performed in such
manner so as to maintain the Properties as first class projects.
7.2 Alterations. Tenant agrees that Landlord shall be under no
obligation to rebuild, replace, maintain or make any repairs to the
Properties or to any Improvements thereon or any portion thereof during the
Term. Landlord agrees that Tenant may make, or permit to be made, subject
to the provisions of this Section 7 such alterations and improvements to
the Properties as Tenant may deem desirable for the use thereof and may, at
Tenant's option and without cost to Landlord, at any time and from time to
time during the Term, do any one or more of the following:
7.2.1 Alter or remodel any Buildings or Improvements on the
Properties, provided the fair market value of any Buildings or Improvements
or
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Property so altered or remodeled is not made less than the fair market
value immediately prior to such alteration or remodel, and/or
7.2.2 Construct an addition, or additions, to any Building or
Improvements located on the Properties, provided the fair market value of
the Property as so altered is immediately thereafter not less than the fair
market value immediately prior to such alteration, and/or
7.2.3 Raze any Building or Improvements situated on the
Properties and construct new building or improvements on the Properties,
provided the fair market value of the affected Property immediately
thereafter is not less than the fair market value immediately prior
thereto.
Any such alteration, remodel, addition or razing and construction will be
in the ordinary course of Tenant's business and consistent with the
continued operation of the affected Property as a retail development. If
the cost of doing the any work permitted under this Section 7.2 would
exceed $1,000,000 with respect to any one Property then the work is further
conditioned upon Tenant's reasonably satisfying Landlord that there will be
no material adverse effect on the fair market value of the affected
Property at the expiration or earlier termination of this Lease as a result
of the performance and completion of such work.
7.3 Conditions to Making Alterations. Notwithstanding anything to the
contrary contained in this Section 7 or elsewhere in this Lease, prior to
and as a condition precedent to commencement of any construction work on
any alteration, modification, replacement on any Property set forth in
Section 7.2 above, or any repair, if such alteration, modification,
replacement or repair involves construction work costing in excess of
$1,000,000, (i) Tenant shall give at least 15 days prior written notice
thereof to Landlord, (ii) Tenant shall deliver to Landlord a performance
bond and lien and completion bond, in an amount equal to 150% of the cost
thereof, issued by a reputable bonding company authorized to do business in
the state where the Property is located, or so long as Tenant's net worth
exceeds $200,000,000 an affidavit and indemnity, in form prepared by Tenant
and reasonably acceptable to Landlord, that Tenant will cause the work to
be completed in a good and workmanlike manner and in a lien-free condition
(in which event Tenant will be the surety to Landlord, on the same basis as
if the work were covered by such bonds), (iii) Landlord shall at all times
have the right to post and maintain on the affected Property and to record
as required by law any notice or notices of nonresponsibility, (iv) all
work shall be done in strict compliance with all Legal Requirements
affecting said Property, (v) Tenant shall maintain (or cause its
contractors and subcontractors to maintain), and shall provide evidence to
Landlord of, such worker's compensation insurance or worker's compensation
coverage in compliance with the laws of the State in which the respective
property is located, covering all persons who may have claims which could
arise from construction or equipping on or of said Property, such insurance
to otherwise comply with the requirements for other insurance policies
herein required of Tenant and (vi) Tenant shall assume the entire
responsibility and
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liability for any and all damages or injury of any kind or nature whatever
to all persons, whether employees or otherwise, and to all property,
arising from the conduct of any such work on said Property or any adjacent
property or on nearby public streets and Tenant shall indemnify and hold
Landlord, and its agents, servants and employees harmless from and against
any and all loss, costs, and expenses, including reasonable attorneys fees,
damages, or injury, incurred or suffered by Landlord and arising from or
occurring in connection with any such work.
7.4 Requirements of Governmental Agencies. At all times during the
term of the Lease, Tenant, at Tenant's own cost and expense, and without
any reduction or abatement of rent whatsoever, shall:
(a) Make all alterations, additions, or repairs to the
Properties, the Improvements and/or any portion thereof required by
the terms of any Legal Requirements;
(b) Observe and comply with all applicable Legal Requirements;
and
(c) Indemnify and hold Landlord and the Properties free and
harmless from any and all liability, costs, damages, fines, penalties,
claims, and actions resulting from Tenant's failure to comply with and
perform the requirements of this Section 7.4.
Nothing in this Section 7.4 shall limit Tenant's rights set forth herein to
contest the applicability or application of any such Legal Requirements by
appropriate action, subject to the indemnification and other provisions set
forth herein.
7.5 No Duties on Landlord. Landlord shall not be required to furnish
any services or facilities whatsoever nor to make any repairs or
alterations in or to the Properties or the Improvements or any portion
thereof. Tenant hereby assumes the full and sole responsibility for the
condition, operation, repair, replacement, maintenance, development and
management of the Properties and the Improvements throughout the entire
Term of this Lease. Tenant accepts the Properties in their condition
existing as of the date of this Lease and acknowledges that Landlord has
not made any representation or warranty as to the present suitability or
future suitability of the Land for the proposed development of any
Improvements or for the conduct of Tenant's business on the Properties. At
the expiration or termination of this Lease, Tenant shall leave the
Properties in the condition described in Section 15.1 of this Lease and
Tenant shall not be required to restore the Properties to the condition in
which the Properties are in as of the commencement of the Term hereof, it
being agreed that Landlord shall accept the Properties with such
alterations, remodeling, additions, or new construction as may have been
made pursuant to the terms of this Lease. All alterations and improvements
shall be made in a good and workmanlike manner and in compliance with
applicable Legal Requirements.
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7.6 Ownership of New Improvements During Term. All Improvements at any
time newly constructed on the Properties by Tenant after the Commencement
Date shall be owned by Tenant until expiration of the Term hereof or sooner
termination of the Lease as herein provided, at which time, full right,
title and interest in such Improvements shall fully vest with Landlord. In
connection therewith, Tenant hereby agrees that, to the extent permitted by
applicable law, Landlord has a present grant of such residual interest in
any such Improvements. To the extent necessary, Tenant agrees to deliver to
Landlord all conveying and other documents necessary to convey to Landlord
at the expiration of the Term hereof or earlier termination of the Lease as
herein provided, all of Tenant's right, title and interest in such
Improvements. To effectuate the foregoing, upon the Commencement Date,
Tenant agrees to deliver to an escrowee reasonably acceptable to Landlord
and Landlord's Mortgagee a bill of sale and/or deed covering any and all
such Improvements that may be constructed by Tenant during the Term hereof
such that said bill of sale and/or deed shall be automatically delivered to
Landlord upon expiration of the Term hereof or sooner termination of the
Lease, without any further action on part of the Tenant. Notwithstanding
the foregoing, Tenant further acknowledges and agrees to execute upon
expiration of the Term hereof or sooner termination of the Lease, any such
additional documents as may be required to transfer such interest in the
new Improvements to Landlord. Tenant or any successor to its rights shall
not remove any Improvements from the Properties nor waste, destroy or
modify any Improvements except as expressly permitted by this Lease. Tenant
acknowledges and agrees that the provisions of this Section 7.6 shall not
apply in connection with any new Improvements made to the Properties
pursuant to Sections 5.6.1, 7.2.3 or 10.2.4.2 herein. Any new Improvements
made by Tenant pursuant to Sections 5.6.1, 7.2.3 or 10.2.4.2 herein shall
at all times be deemed owned by Landlord, it being the express intent of
Landlord and Tenant that Tenant's ownership rights under this Section 7.6
shall be limited to Improvements that constitute additions to, or
expansions of (but not replacements of) existing Improvements.
7.7 Ownership at Termination. All Improvements on the Properties at
the expiration of the Term or sooner termination of this Lease, shall,
without compensation to Tenant, then become Landlord's property free and
clear of all claims to or against them by Tenant or any third person, and
Tenant shall defend and indemnify Landlord against all liability and loss
arising from any such third party claims.
8. Signs.
------
During the Term, Tenant may, at its sole cost and expense, erect
appropriate signs on any portion of the Properties. All signs shall be in
conformance with all applicable Legal Requirements in effect. Tenant shall
remove all of Tenant's signs (excluding any pylon signs, monument signs and
sign cans, but including all of Tenant's identification signage thereon) at
the expiration or earlier termination of this Lease, and Tenant shall
restore any damage to the Properties in connection with
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such removal. Tenant acknowledges that it has full responsibility for the
maintenance of such signs and agrees to keep them in good condition and
repair.
9. Liens, Indemnification and Liability.
-------------------------------------
9.1 No Liens Permitted On Reversion. Tenant will not create or permit
to be created by its acts or omissions or the acts or omissions of its
subtenants, contractors or subcontractors or to remain, and will discharge,
any lien, encumbrance or charge which might be or become a lien, charge, or
encumbrance on the reversionary interest of Landlord under this Lease or
Landlord's fee ownership of the Land and Improvements and will also
discharge any lien levied on account of any Imposition or any mechanic's,
laborer's or materialman's lien, environmental lien, mortgage, conditional
sale, title retention agreement, security agreement or otherwise which
might be or become a lien, encumbrance or charge upon the reversionary
interest of Landlord under this Lease or Landlord's fee ownership of the
Land and Improvements or any part thereof; provided, however, nothing
herein shall require payment by Tenant of any lien or encumbrance on the
Properties created by Landlord's own affirmative acts or omissions or which
is imposed upon Landlord by reason of Landlord's ownership of the fee
estate (other than the Impositions) regardless of the tenancy of Tenant and
not caused by the acts or omissions of Tenant. Tenant further agrees that
Tenant will not, except as in this Lease provided, suffer or create any
other matter or thing whereby the reversionary estate, rights and interest
of Landlord in the Properties or any part thereof might be impaired; and
any Imposition shall, after the same becomes a lien on the Properties, be
paid (or contested) by Tenant in accordance with Section 4.6 hereof, and
any mechanics, laborer's or materialman's lien incurred by Tenant shall be
discharged (or contested) in accordance with Section 9.2 below.
9.2 Mechanics Liens. If any mechanic's, laborer's or materialman's
lien shall at any time be recorded against the Properties or any part
thereof, Tenant, within 30 days after notice to it of such lien or claim of
lien, or within ten days after commencement of foreclosure action thereon,
will cause the same to be discharged of record by payment, deposit, bond,
order of a court of competent jurisdiction or otherwise; provided, that if
Tenant (or Guarantor) has a net worth in excess of $200,000,000, then
Tenant will have the right to contest the lien claim in good faith by
appropriate action without causing it to be discharged of record, unless
and until the lien claimant commences enforcement action (in which event
Tenant will cause it to be discharged of record as a lien against the
realty within twenty (20) days after Tenant is notified of commencement of
the enforcement action), so long as Tenant delivers to Landlord an
indemnity agreement specifically covering the lien claim being contested,
in form prepared by Tenant and reasonably acceptable to Landlord, that
Tenant will unconditionally indemnify Landlord with respect to the lien
claim and will cause it to be discharged of record as a lien against the
realty within the 20-day period referenced above. If Tenant shall fail to
cause such lien to be discharged as herein provided within the period
aforesaid, then, in addition to any other right or remedy which Landlord
may have under this Lease or otherwise, Landlord may, but
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shall not be obligated to, discharge the same either by paying the amount
claimed to be due or by procuring the discharge of such lien by deposit or
by bonding proceedings, and in any such event Landlord shall be entitled,
if Landlord so elects, to defend the prosecution of an action for the
foreclosure of such lien by the lienor and to pay the amount of any
judgment in favor of the lienor with interest, costs and allowances
included in such judgment, and recover such sums plus interest from Tenant
as additional rent hereunder.
9.3 Indemnification of Landlord. In addition to all other
indemnification provisions herein contained, Tenant shall indemnify
Landlord (and Landlord's shareholders, officers, directors, employees and
members) from any loss, liability, claim of liability or expense (including
reasonable attorneys' fees and litigation expenses) arising out of or
related to any violation of law by Tenant with respect to the Properties or
any wilful misconduct, negligent action or inaction of Tenant, and its
agents, independent contractors, employees, customers, suppliers or
invitees, any condition of the Properties, or any goods sold from the
Properties (including product liability and other claims).
9.4 Tenant's Indemnity Agreement. Notwithstanding Section 9.3 above,
Tenant shall indemnify and hold Landlord, Landlord's Mortgagee and
Landlord's reversionary interest under this Lease and the Land and
Improvements free and harmless from and against any and all liability,
claims, loss, damages, penalties, fines, causes of action and expenses
resulting from Tenant's occupation and use of the Properties which may
arise or accrue during the term of this Lease, specifically including,
without limitation, any liability, claim, loss, damage, penalties, fines,
causes of action and expense incurred or suffered by Landlord and arising
by reason of:
9.4.1 The death or injury of any person, including any person who
is an employee or agent of Tenant, or by reason of the damage to or
destruction of any property, including property owned by Tenant or by any
person who is an employee or agent of Tenant, from any cause whatsoever
(other than any act or omission of Landlord, its employees, agents or
contractors) while such person or property is in or on any Property or any
of the Improvements; and
9.4.2 Tenant's failure to perform any provision of this Lease or,
subject to any rights to contest provided Tenant herein, to comply with any
requirement of law or any requirement imposed on Tenant in connection with
the Improvements thereon, or the Properties, by any duly authorized
governmental agency or political subdivision.
9.4.3 THE LANDLORD AND TENANT SPECIFICALLY AGREE THAT THE
PROVISIONS OF THIS SECTION 9.4 ALSO APPLY TO ANY CLAIM OF INJURY OR DAMAGE
TO THE PERSONS OR PROPERTY OF THE TENANT'S EMPLOYEES, AND TENANT
ACKNOWLEDGES AND AGREES THAT AS TO SUCH CLAIMS, TENANT DOES HEREBY WAIVE
ANY RIGHT OF IMMUNITY WHICH TENANT MAY HAVE
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UNDER INDUSTRIAL INSURANCE (TITLE 51 RCW AS AMENDED AND UNDER ANY
SUBSTITUTE OR REPLACEMENT STATUTE). THIS WAIVER AND AGREEMENT WAS
SPECIFICALLY NEGOTIATED BY LANDLORD AND TENANT AND IS SOLELY FOR THE
BENEFIT OF LANDLORD AND TENANT AND THEIR SUCCESSORS AND ASSIGNS AND IS NOT
INTENDED AS A WAIVER OF, OR OTHERWISE DIMINISH IN ANY MANNER, TENANT'S
RIGHTS OF IMMUNITY UNDER SAID INDUSTRIAL INSURANCE FOR ANY OTHER PURPOSE.
--------------- ---------------
Landlord Tenant
Date: Date:
---------- ---------
9.5 Disclaimer of Landlord's Responsibilities. Landlord shall not
under any circumstances be liable to pay for any work, labor or services
rendered or materials furnished to or for the account of Tenant, and no
mechanic's or other lien for such work, labor or services or material
furnished shall, under any circumstances, attach to or affect the
Properties or any alterations, repairs, or improvements to be erected or
made thereon. Nothing contained in this Lease shall be deemed or construed
in any way as constituting the request or consent of Landlord, either
express or implied, to any contractor, subcontractor, laborer or
materialman for the performance of any labor or the furnishing of any
materials for any specific improvement, alteration to or repair of any
Improvement or any part thereof, nor as giving Tenant any right, power or
authority to contract for or permit the rendering of any services or the
furnishing of any materials on behalf of Landlord that would give rise to
the filing of any lien against the Properties.
10. Condemnation.
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10.1 Definitions.
10.1.1 Taking. "Taking" means the taking or damaging, including
severance damage, by eminent domain or by inverse condemnation or for any
public or quasi-public use under any statute by any governmental agency or
body. Taking includes not only a taking of the fee estate but also the
leasehold estate of Tenant under this Lease and/or access to a Property.
The transfer of title, if any, may be a transfer resulting from the
recording of a final order in condemnation or a voluntary transfer or
conveyance to the condemning agency or entity under threat of condemnation,
in avoidance of an exercise of eminent domain, or while condemnation
proceedings are pending. The Taking shall be considered to take place as of
the later of (i) the date actual physical possession is taken by the
condemnor or (ii) the date on which the right to compensation and damages
accrues under the law applicable to the Property or by agreement.
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10.1.2 Limited Taking. "Limited Taking" means any Taking of the
temporary use of all or any part or parts of a Property or Improvements
thereon or both for a period, or of any estate less than a fee, ending on
or before the expiration date of the Term of the Lease.
10.1.3 Partial Taking. "Partial Taking" means any Taking of the
fee title to a Property and/or Improvements thereon that is not either a
Total Taking or a Substantial Taking (as defined below).
10.1.4 Substantial Taking. "Substantial Taking" means the Taking
of so much of fee title or leasehold estate with respect to a Property or
Improvements thereon or both and/or access of the Property so that the
portion not so taken cannot be, as reasonably determined by Tenant in good
faith, repaired or reconstructed for continued use in Tenant's retailing
operations, taking into consideration the amount of the Award available for
repair or reconstruction and performance of all covenants required of
Tenant by law and under this Lease.
10.1.5 Total Taking. "Total Taking" means the Taking of the fee
title to all of a Property and the Improvements thereon, which, for the
purpose of allocating any Award between Landlord and Tenant, shall be
considered to include any offsite improvements installed by Tenant to serve
said Property or the Improvements on said Property.
10.1.6 Notice of Intended Taking. "Notice of Intended Taking"
means any notice or notification on which a reasonably prudent person would
rely and which such person would interpret as expressing an existing
intention of Taking as distinguished from a mere preliminary inquiry or
proposal. It includes, but is not limited to, the service of a condemnation
summons and complaint on a party to the Lease. A Notice of Intended Taking
is considered to have been received when a party to the Lease receives from
the condemning agency or entity a notice of intent to take, in writing,
containing a description or map of the Taking reasonably defining the
extent of the Taking.
10.1.7 Award. "Award" means all compensation, sums or anything of
value awarded, paid or received for a Taking whether pursuant to judgement
or by agreement or otherwise.
10.2 Condemnation.
The following provisions apply to any Taking of or damage to all or
any part of a Property or Improvements thereon, or any interest in them by
eminent domain or inverse condemnation.
10.2.1 Notice to Other Party. The party receiving any (a) Notice
of Intended Taking, (b) service of any legal process relating to a Taking
of a Property or Improvements thereon, (c) notice in connection with any
proceedings or
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negotiations with respect to such a Taking, or (d) notice of intent or
willingness to make or negotiate a private purchase, sale, or transfer in
lieu of condemnation shall promptly give the other party notice of the
receipt, contents, and date of the notice received.
10.2.2 Representative of Each Party; Effectuation. Landlord,
Tenant, and all persons and entities holding under Landlord or Tenant shall
each have the right to represent his or its respective interest in each
proceeding or negotiation with respect to a Taking or Notice of Intended
Taking and to make full proof of his or its claims. No agreement,
settlement, sale or transfer to or with the Condemnor shall be made without
the consent of Landlord and Tenant and, if the Taking would involve more
than $1,000,000, Landlord's Mortgagee. Landlord and Tenant each agree to
execute and deliver to the other any instruments that may be required to
effectuate or facilitate the provisions of this Lease relating to
condemnation.
10.2.3 Total or Substantial Taking.
10.2.3.1 Effect on Rent and Term.
(a) Total Taking. On a Total Taking, this Lease shall not
terminate and expire on the date of such Total Taking and Tenant's
obligation to pay rent shall not terminate on the date of such Total
Taking but Tenant shall immediately substitute another property for
the Property so taken pursuant to the provisions of Section 18 hereof.
Base Rent shall in no event be abated or delayed by reason of such
Total Taking.
(b) Substantial Taking. If Tenant believes the Taking is a
Substantial Taking, as defined herein, Tenant may, by notice to
Landlord given promptly after Tenant receives Notice of Intended
Taking, elect to treat the Taking as a Total Taking. If Tenant does
not so notify Landlord, the Taking shall be deemed a Partial Taking.
If Tenant gives such notice and Landlord gives Tenant notice disputing
Tenant's contention within 30 days following Tenant's notice, the
dispute shall be promptly determined by arbitration and the rules then
prevailing of the American Arbitration Association. If Landlord gives
no such Notice, or if Substantial Taking is determined by arbitration,
the Taking shall be treated as a Total Taking.
(c) Other Total or Substantial Taking. During the last 730
days of the Original Term and provided Tenant has not exercised its
option to extend the Term pursuant to Section 1.3 above, Tenant will
not be required to substitute another Property in the event of a Total
Taking or Substantial Taking but Landlord shall have the option of
either (i) terminating this Lease as to the Property affected by the
Total Taking or Substantial Taking or (ii) requiring Tenant to
purchase the Property so affected for the Repurchase Price set forth
in Exhibit "D" whereupon Landlord shall first be entitled to receive
such portion of the Award or Awards as shall represent the sale price.
The
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balance of the Award or Awards (including compensation for any
Improvements not so taken) shall be shared equally by Landlord and
Tenant. In the event Landlord terminates this Lease, Landlord shall be
entitled to receive all of the Award or Awards in connection
therewith.
(d) Total or Substantial Taking During Option Terms. In the
event of any Total or Substantial Taking During any Option Term,
Tenant will not be required to substitute another Property in the
event of a Total Taking or Substantial Taking but Landlord shall have
the option of either (i) terminating this Lease as to the Property
affected by the Total Taking or Substantial Taking or (ii) requiring
Tenant to purchase the Property so affected for the Repurchase Price
set forth in Exhibit "D" whereupon Landlord shall first be entitled to
receive such portion of the Award or Awards as shall represent said
purchase price. The balance of the Award or Awards (including
compensation for any Improvements not so taken) shall be shared
equally by Landlord and Tenant. In the event Landlord terminates this
Lease, Landlord shall be entitled to receive all of the Award or
Awards in connection therewith.
10.2.3.2 Apportionment, Distribution of Award for Total
Taking or Substantial Taking. In the event of a Total Taking or Substantial
Taking, and a substitution of a Replacement Property herein, Tenant shall
first be entitled to receive such portion of the Award or Awards as shall
equal the Repurchase Price for said Property set forth in Exhibit "D" or
with respect to any Replacement Property so taken, Tenant's original cost
thereof as certified to Landlord at the time of the original substitution
of said Replacement Property. The balance of the Award or Awards (including
compensation for any Improvements not so taken) shall be shared equally by
Landlord and Tenant.
10.2.4 Partial Taking.
10.2.4.1 Effect on Rent, Term. On a Partial Taking of any
Property, this Lease shall remain in full force and effect, covering the
remaining Property. Base Rent shall not be reduced in any manner and the
entire Award or Awards therefore shall be paid and belong to Tenant;
provided, however, if the Award or Awards exceed $1,000,000 and if so
required by Landlord's Mortgagee, such awards shall be paid to a neutral
institutional depository mutually acceptable to Landlord, Tenant and
Landlord's Mortgagee and shall be used by Tenant as set forth in Section
10.2.4.2 below.
10.2.4.2 Restoration of Improvements. Promptly after a
Partial Taking, Tenant shall repair, alter, modify, or reconstruct the
Improvements to complete structural unit or units which can be operated on
an economically feasible basis. Tenant shall use any Award, proceeds of
insurance policy or its own funds, as necessary to so restore the affected
Property.
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10.2.4.3 During Option Terms. Tenant is relieved of the duty
to, but may at its sole option, repair, alter, modify, or reconstruct the
Improvements if a Partial Taking occurs during any Option Term whereupon
this Lease shall terminate and Tenant shall pay to Landlord an amount equal
to the Base Rent which would otherwise have been payable up to the
effective date of such earlier termination. On a Partial Taking, Tenant
shall be entitled to receive that portion of the Award or Awards in an
amount equal to the cost of repairing, altering, modifying and
reconstructing the Improvements. Any funds remaining will be divided
equally between Landlord and Tenant.
10.2.5 Limited Taking.
10.2.5.1 Taking for Temporary Use. When the Taking
constitutes a Taking for a temporary use or occupancy by a condemnor,
neither the Term nor the rent shall be reduced or affected in any way, and
Tenant shall be entitled to any Award for the use or estate taken. If a
result of the Taking for temporary use is to necessitate expenditures for
changes, repairs, alterations, modifications, or reconstruction of the
Improvements to bring them in compliance with the provisions of this Lease,
Tenant shall receive hold, and disburse the Award in trust for such work.
To the extent that the Award exceeds any such expenditures, such excess
shall be paid to Landlord.
10.2.5.2 Temporary Taking Beyond Term of Lease. If any such
Taking is for a period extending beyond the expiration date of the Term or
any Option Term of this Lease, after payment to Landlord from any Award the
estimated costs to restore the affected Property to the extent that any
such Award is intended to compensate for damage to said Property, the Award
shall be apportioned by Landlord and Tenant as of the date of expiration of
this Lease in the same ratio that the part of the entire period for which
such compensation is made occurring before the date of expiration and that
part occurring after, bear to the entire period.
10.3 Separate Awards. Landlord and Tenant each covenant and agree to
seek separate Awards in all condemnation proceedings and to use their
respective best efforts to see that such separate Awards are made at all
stages of the condemnation proceedings. If any order or decree in any
condemnation or similar proceeding shall fail to separately state the
amount to be awarded to Tenant and/or Landlord, by way of compensation,
damages, rent, the cost of demolition, removal or restoration, or
otherwise, and if Landlord and Tenant cannot agree thereon within 30 days
after the final Award or Awards shall have been fixed and determined, such
dispute shall be resolved by arbitration. In determining the amounts to be
made to Landlord and Tenant under the provisions of this Section 10, to the
extent relevant, due regard shall be given to the rights and benefits which
each party is entitled to receive under the provisions of this Lease.
11. Assignment and Subleasing.
--------------------------
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11.1 Tenant's Right to Assign. Tenant may assign this Lease, in whole
but not in part, without Landlord's express written consent; provided no
assignment shall release Tenant from any liability hereunder, and Tenant
shall remain primarily liable and responsible under this Lease, including,
without limitation, during any Option Term. Any assignment in violation of
the terms hereof shall be deemed void and at Landlord's option, a default
hereunder.
11.2 Tenant's Right to Sublease. Tenant may sublease all or any
portion of a Property and the Improvements thereon for the use in
accordance with the Permitted Uses hereunder and may extend or renew any
sublease without Landlord's consent, provided that no sublease shall
release Tenant from any obligation or liability under the Lease, and Tenant
shall at all times remain primarily liable for all obligations under this
Lease. All such subleases shall be subject and subordinate to Landlord's
rights under this Lease. No sublease shall extend beyond the Term of this
Lease unless there is a unilateral right to terminate such sublease which
may be exercised by Landlord at any time this Lease is terminated for any
reason whatsoever or at the end of the Term of this Lease if the Term is
not extended as provided herein. Tenant shall deliver to Landlord true
copies of each sublease affecting more than 10% of the gross rentable floor
area of a Property not later than 20 days after the same has been executed
and delivered by the parties.
12. Default by Tenant.
------------------
The following shall be "defaults" and/or "events of default"
hereunder:
12.1 Payment Default. Failure of Tenant to make any installment of
Base Rent or any other payment or sum required to be paid by Tenant under
this Lease and such failure continues for a period of 5 days after written
notice given by Landlord to Tenant.
12.2 Material Default in Other Covenants. Tenant shall fail to perform
or observe or shall be in material breach of any other term, covenant,
condition, obligation or agreement contained herein on its part to be
performed or observed and any such failure or breach materially and
adversely affects Tenant, any Property and/or Landlord and remains
unremedied for thirty (30) days after written notice thereof has been given
to Tenant by Landlord (or Landlord's Mortgagee) specifying the nature of
the default with reasonable particularity. If the default is of such a
nature that it cannot be remedied fully and reasonably within the 30 day
period, this requirement shall be satisfied if Tenant begins correction of
the default within the 30 day period and thereafter proceeds with
reasonable diligence and in good faith to effect the remedy as soon as
practicable.
12.3 Non-Material Defaults in Other Covenants. Tenant shall fail to
perform or observe or shall be in breach of any term, covenant, condition,
obligation or agreement herein on its part to be performed or observed,
which such individual failure or breach is not by itself material, but
which shall be deemed for the purposes
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of this Section 12.3 to be material as the result of either (i) its
repetition or continuous nature or (ii) when taken together with other such
occurrences shall be materially adverse to the assets or liabilities, or to
the business or condition, financial or otherwise, or to the results of
operations of Tenant, any Property or Landlord or would deny Landlord any
material benefit under this Lease, and such failure or breach remains
unremedied for 120 days after written notice thereof has been given to
Tenant by Landlord declaring such notice to be a notice of default and
specifying the nature of the default with reasonable particularity. If the
default is of such a nature that it cannot be remedied fully and reasonably
within the 120 day period, this requirement shall be satisfied if Tenant
begins correction of the default within the 120 day period and thereafter
proceeds with reasonable diligence and in good faith to effect the remedy
as soon as practicable.
12.4 Insolvency Default. Any "Event of Insolvency" occurs as defined
below. Tenant shall immediately notify Landlord, in writing, of any Event
of Insolvency. An "Event of Insolvency" shall consist of the following: the
making by Tenant of any general assignment or arrangement for the benefit
of creditors, or the filing by or against Tenant of a petition to have
Tenant adjudged bankrupt, or a petition or reorganization or arrangement
under any law relating to bankruptcy or the filing against Tenant of a
petition to have Tenant adjudged bankrupt, or a petition or reorganization
or arrangement or under any law relating to bankruptcy, if the same is not
dismissed within 60 days of filing, or the appointment of a trustee or
receiver to take possession of substantially all of Tenant's assets located
on the Properties or of Tenant's interest in this Lease; or the attachment,
execution or other judicial seizure of substantially all of Tenant's assets
located on the Properties or of Tenant's interest in this Lease. In the
event Tenant's assets are seized by any such authority in connection with
an Event of Insolvency, Landlord continuously shall have the right to
approve or reject any subsequent Tenant to whom such authority assigns or
sublets the Properties (subject to applicable limitations, if any, under
Federal bankruptcy law).
12.5 Failure of Lease Guaranty. Any of the following events with
respect to the Lease Guaranty: (a) the termination of FMI's liability with
respect to this Lease pursuant to the Lease Guaranty for any reason
whatsoever, (b) FMI refuses to honor the Lease Guaranty for any reason
whatsoever, (c) FMI's breach or repudiation of its guaranty obligation on
an anticipatory basis and/or (d) the Lease Guaranty becomes invalid or
unenforceable for any reason whatsoever; provided, however, that with
respect to any of the events listed in this Section 12.5, an event of
default under this Lease will not be deemed to occur unless FMI fails to
cure such event after notice and within the time periods set forth in
Section 12.1 for monetary defaults and Sections 12.2, 12.3 or 12.4 for the
respective nonmonetary defaults and provided further that any notice given
pursuant to said Sections shall be deemed a notice under this Section 12.5
such that no separate notice need be given pursuant to this Section 12.5.
13. Remedies on Tenant's Default.
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13.1 Landlord's Remedies. Upon default, Landlord may at any time
thereafter in Landlord's sole discretion, with or without notice or demand,
exercise any one or more of the remedies set forth in this Section, or any
other remedy now or hereafter available under applicable law, in equity or
contained in this Lease. In no event shall such election of remedies of
default prejudice or mitigate any other rights of action or claims against
Tenant as permitted by law. All remedies contained in this Section are
cumulative and not exclusive and may be pursued by Landlord, singularly,
together or in the alternative. No election of remedies shall be created or
presumed by Landlord's exercising any given remedy at any given time. Such
remedies upon default include, without limitation, the following:
13.1.1 Termination. Upon any event of default hereunder, Landlord
may at its election terminate this Lease by giving Tenant notice of
termination. On the giving of the notice, all Tenant's rights in the
Properties and in the Improvements shall terminate. Promptly after notice
of termination, Tenant shall surrender and vacate the Properties and the
Improvements in broom-clean condition, and Landlord may reenter and take
possession of the Properties and the Improvements and eject all parties in
possession or eject some and not others or eject none. Termination shall
not relieve Tenant from the payment of any sums then due to Landlord
hereunder plus interest thereon from the date due at the Late Payment Rate,
plus the Late Charge, or from any claim for damages previously accrued or
then accruing against Tenant up to the date of termination.
13.1.2 Reentry Without Termination. Upon any event of default
hereunder, Landlord may at its election terminate Tenant's right of
possession of the Properties, reenter the Properties, and without
terminating this Lease, at any time and from time to time, relet the
Properties and the Improvements or any part or parts of them for the
account and in the name of Tenant or otherwise. Landlord may at its
election eject all persons or eject some and not others or eject none. Any
reletting may be for the remainder of the Term or for a longer or shorter
period. Landlord shall be entitled to all rents from the use, operation, or
occupancy of the Properties or Improvements or both. No act by or on behalf
of Landlord under this provision shall constitute a termination of this
Lease unless Landlord gives Tenant notice of termination.
13.1.3 Tenant's Personal Property Located in the Demised
Premises. Any FF&E or other personal property of Tenant which is not
removed within thirty (30) days after this Lease is terminated for Tenant's
default or Landlord re-enters any Property will be deemed abandoned, and
Landlord will be entitled to use the same without compensation and without
liability for use or damage, or store them for the account and at the cost
of Tenant. The election of one remedy for any one item shall not foreclose
an election of any other remedy for another item or for the same item at a
later time.
13.1.4 Recovery of Rent. Landlord shall be entitled at its
election to recover all rent and other charges due and payable hereunder
for any period before
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termination, plus any Late Charges with respect to any delinquent payments,
plus interest at the Late Payment Rate from the due date of each payment
until paid.
13.1.5 Damages. In addition to all other rights hereunder should
this Lease be terminated by Landlord pursuant to any provision hereof,
Landlord shall be entitled to damages for all amounts that would have
fallen due as rent between the time of termination of this Lease and the
time of the claim, judgment, or other award, less the proceeds of all
reletting and attornment, plus interest on the balance, until paid in full,
at the Late Payment Rate.
13.1.6 Late Charges. Tenant hereby acknowledges that late payment
by Tenant to Landlord of rent and other sums due hereunder will cause
Landlord to incur costs not contemplated by this Lease, the exact amount of
which will be extremely difficult to ascertain. Such costs include, but are
not limited to processing and accounting charges, and late charges which
may be imposed on Landlord by the terms of any mortgage or trust deed
covering any Property. Accordingly, if any installment of rent or any other
sum due from Tenant shall not be received by Landlord or Landlord's
designee when such amount shall be due (subject to any applicable grace
period or notice requirement herein contained), then, without any
requirement for additional notice to Tenant, Tenant shall pay, to Landlord
a Late Charge equal to four percent of such overdue amount. The parties
hereby agree that such Late Charge represents a fair and reasonable
estimate of the costs Landlord will incur by reason of late payment by
Tenant. Acceptance of such Late Charge by Landlord shall in no event
constitute a waiver of Tenant's default with respect to such overdue
amount, nor prevent Landlord from exercising any of the other rights and
remedies granted hereunder; provided, however, that payment in full of the
Late Charge and all other amounts required by this Lease to completely cure
the default, if such payments are made timely within applicable cure
periods set forth herein, or are otherwise accepted in full by Landlord,
will cure such default.
13.1.7 Continuation of Lease. Landlord may, at Landlord's option,
elect not to terminate this Lease, in which case this Lease shall continue
in effect whether or not Tenant shall have abandoned the Properties or any
portion thereof. In such event, Landlord shall be entitled to enforce all
of Landlord's rights and remedies under this Lease, including the right to
recover all reasonable damages caused by the default and expenses as
described in this Section 13.
13.1.8 Cure of Tenant's Default. Without prejudice to any other
remedy for default, Landlord may perform any obligation or make any payment
reasonably required to cure a default by Tenant, after ten days' notice to
Tenant of Landlord's intent to pursue this remedy if the default is not
cured within such time period; provided, however, that ten days notice will
not be required in cases of emergency where action is required to protect
lives or property of Tenant, subtenants or others in the Properties or
Landlord's interest in the Properties or any portion thereof and Tenant is
not proceeding to take appropriate remedial action. But Landlord in any
event will attempt to notify Tenant, by telephone or in writing, as to
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the emergency and what actions Landlord is taking or proposes to take. The
reasonable costs of performance, including reasonable attorneys' fees and
all reasonable disbursements, shall immediately be repaid by Tenant upon
demand, together with interest from the date of expenditure until fully
repaid at the Late Payment Rate.
13.2 Cumulative Remedies. The remedies given to Landlord herein shall
not be exclusive but shall be cumulative with and in addition to all
remedies now or hereafter allowed by law in equity and/or elsewhere
provided in this Lease.
13.3 Waiver of Breach. No waiver by a party of any default by the
other shall constitute a waiver of any other breach or default by the
other, whether of the same or any other covenant or condition. No waiver,
benefit, privilege, or service voluntarily given or performed by a party
shall give the other any contractual right by custom, estoppel, or
otherwise. The subsequent acceptance of rent pursuant to this Lease shall
not constitute a waiver of any preceding default by Tenant other than
default in the payment of the particular rental payment so accepted,
regardless of Landlord's knowledge of the preceding breach at the time of
accepting the rent, nor shall acceptance of rent or any other payment after
termination constitute a reinstatement, extension, or renewal of this Lease
or revocation of any notice or other act by Landlord.
13.4 Survival of Remedies. The remedies of the Landlord set forth
herein shall survive any termination of the Lease or termination of
Tenant's right of possession.
14. Default by Landlord.
--------------------
In the event Landlord shall neglect or fail to perform or observe any
of the covenants, provisions or conditions contained in this Lease on its
part to be performed or observed within 60 days after written notice of
default (or if more than 60 days shall be required because of the nature of
the default, if Landlord shall fail to proceed diligently to cure such
default after written notice thereof), then in that event Landlord shall be
liable to Tenant for any and all actual damages as contrasted to
consequential damages sustained by Tenant as a result of Landlord's breach.
If the Properties or any part thereof are at any time subject to a fee
mortgage and this Lease or the rentals due from Tenant hereunder are
assigned to the fee mortgagee, trustee or beneficiary (the "Assignee") and
Tenant is given written notice hereof, including the post office address of
such Assignee, then Tenant shall give written notice to such Assignee in
the manner required by Section 21.10 hereof, specifying the default in
reasonable detail. Assignee shall have a period of 60 days after receipt of
written notice of Landlord's default within which to cure the same;
provided, however, if the nature of such default requires more than 60 days
to cure the same, Assignee shall have such additional time as may be
reasonably necessary to make performance on behalf of Landlord so long as
Assignee is proceeding with due diligence to cure the default prior to the
expiration of such 60 day period and
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thereafter diligently pursues the cure to completion. Assignee shall not
have any liability whatsoever to Tenant for any such default; provided,
however, if and when the said Assignee has made performance on behalf of
Landlord, such default shall be deemed cured. If, after such notice to
Landlord and Assignee, if any, Landlord or Assignee shall fail to cure such
default as provided herein, Tenant shall have the right to cure any such
default at Landlord's (but not Assignee's) expense, including in such
expenditure all reasonable costs and attorney's fees incurred to cure such
default or breach of the terms and provisions of this Lease and Landlord
shall reimburse Tenant for the full amount of such costs within ten days
after the receipt by Landlord of an invoice therefor. All sums not paid to
Tenant by the expiration of the aforesaid ten day period shall bear
interest at the Late Payment Rate from the due date thereof until paid in
full. Tenant shall have no right to terminate this Lease as a result of any
default by Landlord hereunder or to offset against any rent payable
hereunder the amount of costs incurred by Tenant in curing a default by
Landlord. In no event shall any rent be abated whatsoever during, or as a
result of, any default by Landlord hereunder.
15. Surrender at Expiration.
------------------------
15.1 Condition of Properties. Upon expiration of the Term or earlier
termination on account of default or any other reason pursuant to this
Lease, Tenant shall surrender the Properties and the Improvements, and all
facilities in any way appurtenant to the Properties in good order and first
class condition and repair, and in as safe and clean condition as
practicable and free and clear of liens and encumbrances, in compliance
with all Hazardous Materials Laws (as defined in Section 19.1 below),
subject to and excepting wear and tear. Tenant will allow Landlord or its
representative to inspect the Properties during reasonable business hours
at any time, and from time to time during the Term, upon reasonable notice
to verify the condition of the Properties. Tenant will promptly correct any
deficiency for which Tenant is responsible under the terms of this Lease,
at Tenant's sole expense, and if Tenant fails to do so, Landlord may take
the necessary action and collect its reasonable costs of performance as
additional rent hereunder. This Lease shall terminate without further
notice at the expiration of the Term (as it may have been previously
extended).
15.2 Holdover. If Tenant does not vacate any Property at the time
required, Landlord shall have the option to treat Tenant as a tenant from
month to month, subject to all of the provisions of this Lease (except that
the term will be month to month); provided, however, that any holding-over
by Tenant after expiration shall not constitute a renewal or extension or
give Tenant any rights in or to any Property.
15.3 Title to Building and Improvements. Title to the Improvements
shall automatically vest in Landlord without requirement of any deed,
conveyance or bill of sale thereon. However, if Landlord should reasonably
require any such document in confirmation thereof, Tenant shall execute the
same without costs or expense to Tenant.
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15.4 Remaining Personal Property on the Property. Any personal
property of Tenant or any subtenant which shall remain on any Property 30
days after the termination of this Lease and the removal of Tenant and such
subtenant from said Property, may, at the option of Landlord, be deemed to
have been abandoned by Tenant or such subtenant and either may be retained
by Landlord as its property or be disposed of, without accountability, in
such manner as Landlord may see fit. However, Landlord shall also have the
right to require Tenant to remove any such personal property at any such
time at Tenant's own cost and expense, provided that Landlord shall give
Tenant written notice requesting the removal of the personal property of
Tenant or such subtenant from the Property.
15.5 Survival. The provisions of this Section 15 shall survive the
expiration or any termination of this Lease.
16. Covenant of Quiet Enjoyment.
----------------------------
So long as Tenant complies with all terms of this Lease, Tenant shall
be entitled to peaceable and undisturbed possession of the Properties free
from any interference by Landlord or those claiming through Landlord.
17. Tenant's Powers;Easements, etc.
-------------------------------
Landlord hereby empowers Tenant, from time to time during the Term of
this Lease (a) to grant easements, licenses, rights-of-way and other rights
and privileges in the nature of easements affecting the Properties or any
portion there or to release existing easements or appurtenances which are
for the benefit of the Properties or any portion thereof, with or without
consideration; (b) to dedicate or convey, as required, insubstantial
portions of the Properties for road, highway and other public purposes; (c)
to execute petitions to have the Properties or a portion or portions
thereof annexed to any municipality or included within any utility, highway
or other improvement or service district; and (d) to execute petitions to
vacate all or any part of any streets, sidewalks or alleys adjoining the
Properties. Without limiting the generality of the foregoing, any
easements, dedications or other similar rights or obligations created or
granted by Tenant, including without limitation any action taken or
permitted to be taken, by Tenant pursuant (a) - (d) above, shall affect
only Tenant's leasehold estate in the Properties and shall not encumber or
affect the Landlord's reversionary estate without Landlord's prior written
consent, which consent shall not be unreasonably withheld or delayed;
provided it shall be deemed reasonable for Landlord to withhold its consent
if any such event reduces the value of Landlord's interest in the affected
Property. In the event Tenant exercises any of the powers specified in
items (a) - (d) above, Tenant shall deliver to Landlord a certificate of
Tenant stating that such grant, release, dedication, conveyance or petition
is not detrimental to the proper conduct of the Tenant's business on the
affected Property, and does not materially impair the effective use of the
affected Property for the purpose for which it is then being used or
adversely affect its value. The powers hereinabove granted to Tenant shall
be exercised by Tenant without the
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joinder of Landlord or Landlord's first mortgage holder, if any, but
Landlord agrees to cooperate fully with Tenant if for any reason it is
necessary or desirable under the laws of the state in which the Property is
located for Landlord to join in the execution of any instrument or to
cooperate with Tenant in any other way in order for said powers to be
effectively exercised. In such case, Tenant shall be responsible for
Landlord's reasonable attorneys' fees and costs.
18. Substitution
------------
18.1 Substitution Events. If (a) after the second anniversary of the
Commencement Date, Tenant, acting reasonably, believes that a Property has
become uneconomic for continued use in Tenant's business and Tenant
thereafter commits to discontinue use thereof within 60 days of notice to
that effect to Landlord (as evidenced by a certificate executed by
authorized officers of Tenant) or (b) in the event of a substantial
condemnation or Casualty during the Original Term after which Tenant elects
not to rebuild or restore the damaged Property as set forth hereinabove,
then and provided Tenant is not then in default hereunder (after expiration
of any applicable notice and/or grace period), Tenant may (i) substitute
pursuant to Section 10.2.3 another property for the Property that is
subject to such substantial condemnation, or (ii) offer to substitute
pursuant to Section 5.6 or Section 18.1(a), as applicable, another property
for the Property that is subject to such substantial Casualty or for such
uneconomic Property, as the case may be, and each subject to the terms and
conditions stated below. Tenant will notify Landlord in writing as to
Tenant's election to substitute under Section 10.2.3 or Tenant's offer to
substitute under Section 5.6 or Section 18.1(a). Any such notice under
Section 10.2.3 will specify another property to be substituted for the
Property that is subject to such substantial condemnation, in accordance
with this Section 18. Any such notice under Section 5.6 or Section 18.1(a)
will be accompanied by an offer to substitute another property in
accordance with this Section 18. Landlord will notify Tenant of its
acceptance or rejection of any such offer to substitute under Section 5.6
or Section 18.1(a) within 30 days after Landlord's receipt of Tenant's
notice. Failure by Landlord to respond to the offer to substitute within
said 30 day period shall conclusively be deemed an acceptance of the offer
to substitute; provided, however, that all of the terms and provisions of
Section 18.2 must still be satisfied prior to completion of any such
substitution. In the event of the failure of any such condition to
substitution set forth in Section 18.2 after Landlord's acceptance or
deemed acceptance of the offer to substitute, the provisions of Section
18.3 shall apply. In the event Landlord rejects the offer to substitute
within said 30 day period, such rejection will also constitute the election
by Landlord to cancel this Lease as it pertains to the uneconomic,
condemned or damaged Property, as the case may be, and this Lease will then
terminate as it applies to such Property on the date 60 days after Tenant
receives Landlord's rejection. Base Rent will then be proportionately
adjusted and reduced effective on such termination date based upon the
"Property Percentage" of the applicable Property set forth in Exhibit "D"
attached hereto. Additionally, Landlord shall then be entitled to receive,
in addition to any self-insured payment amount to be made by Tenant
hereunder, if any, the insurance proceeds
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relative to the affected Property. If the parties effect such a
substitution, then effective at the closing of the substitution, Tenant
shall receive, and Landlord does hereby assign its interest in, the
insurance proceeds relative to the affected Property. The Base Rent
hereunder will not be abated whatsoever during the election periods
referred to above or during the substitution process, if applicable. If
Tenant elects to substitute under Section 10.2.3 or if Tenant offers to
substitute under Section 5.6 or Section 18.1(a) and if Landlord accepts (or
is deemed to have accepted) the offer to substitute within such 30 day
period as otherwise provided in this Lease, then Tenant on not less than 30
days prior written notice, shall have the right and/or obligation, as the
case may be, to substitute another property for the affected Property on
and subject to the satisfaction of the terms and conditions described
herein. For purposes of this Section 18, the Property being replaced is
referred to as the Replaced Property and the property being substituted
therefor is referred to as the Substitute Property.
18.2 Substitution Conditions. Notwithstanding anything to the contrary
contained herein, Tenant will give Landlord at least 30 days prior written
notice specifying the proposed Substitute Property and the desired closing
date for the substitution. On the date set for substitution in said notice,
Landlord shall execute and deliver to Tenant a deed (similar in form to the
deed given to Landlord by Tenant pursuant to the Sale Agreement) conveying
title to the Replaced Property (such title shall be free of any financing
encumbrances and is to be subject only to exceptions to title that were in
existence as of the Commencement Date or exceptions that may have been
created or suffered by Tenant during the Term hereof) and a fully executed
lease cancellation agreement canceling this Lease with regard to the
Replaced Property, in recordable form. Landlord shall not be obligated to
deliver such deeds and documents, unless all of the following conditions
have been satisfied:
18.2.1 The Substitute Property is of similar size and use as the
Replaced Property. The Substitute Property is reasonably acceptable to
Landlord and the aggregate fair market value and useful life, determined as
provided in paragraph (18.2.2) below, of the Substitute Property shall be
not less than the "Repurchase Price" of the Replaced Property as set forth
in Exhibit "D".
18.2.2 Landlord shall have received an appraisal of the fair
market value of the such Substitute Property as of a date within 90 days
prior to the substitution date made by an independent appraiser selected by
Tenant, subject to the approval of Landlord, and which appraisal shall have
been made at the expense of Tenant. The Landlord may, in its sole
discretion, waive the requirement that the Tenant obtain an appraisal
pursuant to this paragraph.
18.2.3 The Landlord shall have received a deed for the Substitute
Property similar to the deed for the Replaced Property received by Landlord
from Tenant pursuant to the Sale Agreement and otherwise reasonably
conveying fee simple title (not a ground lessee's interest) in a form and
substance acceptable to
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Landlord and an amendment to this Lease, duly authorized, executed and
delivered by Tenant including the Substitute Property into the terms of
this Lease.
18.2.4 All necessary approvals, authorizations and consents of
all governmental bodies (including courts) having jurisdiction with respect
to the transactions contemplated by this Section 18 shall have been
obtained.
18.2.5 Tenant shall have paid or shall have committed to pay all
taxes, fees and expenses, including reasonable attorneys' fees incurred by
Landlord and/or its first mortgage holder in connection with the
substitution.
18.2.6 Tenant shall have provided to Landlord, relative to the
Substitute Property, an up-to-date survey, policy of title insurance in the
amount of the fair market value of the Substitute Property, evidence of
casualty and liability insurance, a certificate of occupancy, a phase I
environmental study, and any other documents or certificates reasonably
requested by Landlord (all of which must be in form and substance
satisfactory to Landlord) relative to the Substitute Property, and the
Substitute Property shall comply in all applicable respects to all
covenants, conditions, representations and warranties set forth in the Sale
Agreement and this Lease as if the Substitute Property were originally
subject thereto, including without limitation any Hazardous Materials
provisions and all indemnifications, representations, warranties and other
covenants and obligations of Tenant hereunder shall survive such
substitution and shall, as applicable, apply and remain in full force and
effect with respect to the Substitute Property. In addition to the
foregoing, in the event that there shall be a fee mortgagee of Landlord's
interest in the Replaced Property at the time of such proposed replacement,
the proposed substitution of the Substitute Property must be reasonably
acceptable to said fee mortgagee. The parties agree that it shall be
reasonable for Landlord's Mortgagee to withhold its approval of any
substitution if both of the following conditions are not satisfied: (1) the
provisions of Landlord's Mortgagee's financing permit such substitution and
(2) An opinion is delivered to Landlord's Mortgagee by tax counsel that
said substitution will not adversely affect the federal income tax
treatment of principal and interest payments made to Landlord's Mortgagee
or have any other adverse tax effect on such mortgagee.
18.3 Failure of Substitution Conditions. If any of the conditions set
forth in Section 18.2 cannot be satisfied after Tenant's good faith,
reasonable efforts to satisfy such conditions, then Landlord and Tenant
shall each have the option to discontinue the efforts to provide a
Substitute Property by written notice to the other and Tenant will then
either (i) purchase the uneconomic, condemned or damaged Property, as the
case may be, for its Repurchase Price as set forth in Exhibit "D." and this
Lease will terminate as to said Property as of the closing of said purchase
or (ii) in the case of an uneconomic or damaged Property, as the case may
be (it being the intent of the parties that this subsection (ii) shall not
apply to a condemned Property), continue to lease and operate the
uneconomic property or fully repair, restore or rebuild the damaged
property, as the case may be. In the event of a
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purchase as aforesaid, the Base Rent will be proportionately adjusted and
reduced effective as of such closing based on the "Property Percentage" as
set forth on Exhibit "D," for the uneconomic, condemned or damaged Property
and the closing shall occur on a mutually acceptable day not later than 30
days after delivery and receipt of the written notice set forth in this
Section 18.3. In the event that Tenant continues to lease and operate the
uneconomic Property, this Lease shall continue unchanged as it pertains to
such Property and Base Rent shall not be abated. In the event that Tenant
elects to repair, restore or rebuild the damaged Property, Tenant shall
diligently pursue completion of such repair, restoration or rebuilding of
the damaged Property and this Lease shall continue unchanged as it pertains
to such Property and Base Rent shall not be abated.
19. Hazardous Materials.
--------------------
19.1 Use of Hazardous Materials. Tenant shall keep and maintain the
Properties and all portions thereof in compliance with any and all
"Hazardous Materials Laws" at all times during the Term hereof. Tenant
shall not cause or permit the release, use, generation, treatment,
manufacture, storage or disposal on, under or about the Property, or the
transportation to or from the Property, of any "Hazardous Materials" in
violation of any Hazardous Materials Laws. "Hazardous Materials" means and
includes petroleum, asbestos, polychlorinated biphenyls, urea formaldehyde,
and any flammable explosives, radioactive materials or hazardous, toxic or
dangerous wastes, substances or related materials or any other chemicals,
materials or substances, exposure to which is prohibited, limited or
regulated by any federal, state, county, regional or local authority,
including, but not limited to, substances defined as such in (or for
purposes of) the Comprehensive Environmental Response, Compensation, and
Liability Act, as amended (42 U.S.C. Section 9601, et seq.); the Hazardous
Materials Transportation Act (49 U.S.C. Section 1801, et seq.); the
Resource Conservation and Recovery Act (42 U.S.C. Section 6901, et seq.);
and any so-called "Superfund" or "Superlien" law, or any other federal,
state or local statute, law, ordinance, code, rule, regulation, order or
decree regulating, relating to or imposing liability, standards of conduct
or removal or remedial obligations concerning any hazardous, toxic or
dangerous waste, substance or material. "Hazardous Materials Laws" means
all federal, state and local environmental laws, ordinances and regulations
relating to Hazardous Materials and applicable to the activities of the
Tenant the violation of which would have a material adverse impact upon the
Properties or any portion thereof or require any onsite or offsite removal
or remediation activities arising from the release or threatened release of
Hazardous Materials.
19.2 Tenant's Indemnity Obligations. If Tenant breaches the
obligations stated in Section 19.1 or if Hazardous Materials are released,
used, generated, treated, manufactured, stored or disposed of on, under or
about any Property after the Commencement Date, or enter upon or migrate
onto any Property after the Commencement Date from nearby properties, then
Tenant shall at Tenant's cost and expense remove the same, and Tenant shall
indemnify, defend and hold Landlord,
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and Landlord's Mortgagee, harmless from and against any and all damage,
cost, loss, liability and expense (including reasonable attorneys' fees and
consultant's fees) which may be incurred by Landlord or Landlord's
Mortgagee by reason of, resulting from, in connection with or arising in
any manner whatsoever as a result of the use, generation, treatment,
manufacture, storage, disposal, release or migration of any such Hazardous
Materials on or from or to any Property. Further, Tenant previously owned
the Properties and transferred the same to Landlord concurrently with the
execution of this Lease. Accordingly, Tenant shall be responsible for the
removal or remediation of any such Hazardous Materials existing on, under
or about the Properties as of the Commencement Date from any source
whatsoever, at its sole cost and shall also indemnify, defend and hold
Landlord, and Landlord's Mortgagee, harmless from any and all damage, cost,
loss, liability and expense (including reasonable attorneys' fees and
consultant's fees) which may be incurred by Landlord or Landlord's
Mortgagee as a result of the existence of such Hazardous Materials.
Tenant's indemnity obligations shall include, but not be limited to, all
liabilities, losses, claims, demands, penalties, fines, settlements,
damages, response, remedial, closure or inspection costs, and any expenses
(including, without limit, attorney and consultant fees, investigation
expenses, and laboratory and litigation costs) of whatever kind or nature
which are incurred by Landlord, and Landlord's Mortgagee, and any personal
injuries (including death) or property damages, real or personal, any
violations of law or of orders, regulations, requirements, or demands of
governmental authorities, and any lawsuit brought or threatened, settlement
reached, or government order arising out of or in any way related to the
existence of Hazardous Materials on the Properties as of the Commencement
Date or the use, generation, treatment, manufacture, storage, disposal,
release or migration of Hazardous Materials on or onto the Properties after
the Commencement Date, including but not limited to removal and remediation
costs and third-party claims. Notwithstanding the foregoing, Tenant shall
have no obligation to remove any Hazardous Material which has migrated onto
or under any Property from a neighboring property during the Term hereof
unless such removal is required by any Hazardous Materials Law.
19.3 Notice. Landlord agrees to give prompt written notice to Tenant
with respect to any suit or claim initiated or threatened to be initiated
against Landlord which Landlord has reason to believe is likely to give
rise to a claim for indemnity hereunder, and Tenant shall promptly proceed
to provide an appropriate defense, compromise, or settlement of such suit
or claim at its sole expense; provided, however, that Landlord shall be
entitled to participate in and approve such defense, compromise or
settlement, which approval shall not be unreasonably withheld or delayed.
If Tenant shall fail, however, in Landlord's reasonable judgment, to take
reasonable and appropriate action to defend, compromise, or settle any suit
or claim covered by Tenant's indemnity obligations described in this
Section 19, Landlord shall have the right promptly to hire counsel and any
reasonable necessary experts at Tenant's sole expense to carry out such
defense, compromise, or settlement, which expenses, as well as payments in
satisfaction, settlement or compromise of such suit or claim, shall be
immediately due and payable to Landlord upon receipt by Tenant of an
invoice therefor.
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19.4 Remediation by Tenant and Survival. Without limiting the
foregoing, if Hazardous Materials exist on the Properties as of the
Commencement Date, or if Tenant, its agents, contractors, guests, invitees
or subtenants cause or permit Hazardous Materials to be used, generated,
manufactured, treated, stored, disposed of or released on or from the
Properties during the term of this Lease in violation of any Hazardous
Material Laws, or if Hazardous Materials are transported from, migrate onto
or under the Properties, Tenant shall promptly take all actions at its sole
expense as are required by any environmental agency having jurisdiction to
comply with all laws and regulations governing such use, generation,
manufacture, storage, treatment, disposal or release of such Hazardous
Material and/or to remediate the conditions created by such Hazardous
Materials; provided that except in an emergency Landlord's approval of such
actions shall first be obtained, which approval shall not be unreasonably
withheld. The indemnities of Tenant provided in this Section 19 shall
survive the expiration or earlier termination of this Lease and the
assignment by Tenant of the leasehold estate created hereby.
19.5 Disclosure. Within ten business days after receipt of written
notice thereof, Tenant shall advise Landlord and Landlord shall advise
Tenant, as the case may be, in writing of (i) any and all notices of
enforcement or other governmental or regulatory actions pursuant to which
removal or remediation of Hazardous Materials on the Properties will be
required, and (ii) all written claims made by any third party against
Tenant or Landlord, as the case may be, or the Properties relating to
damage, contribution, cost recovery compensation, loss or injury resulting
from Hazardous Materials on or from the Properties. Tenant shall disclose
to Landlord the names of each subtenant whose business use under its
sublease includes the storage, use, manufacture, generation, treatment, or
disposal of Hazardous Materials on any Property in amounts for which a
permit is required to be obtained pursuant to applicable Hazardous
Materials Laws or for which reports must be filed with governmental
agencies.
19.6 Inspection. Landlord and its agents (including, without
limitation, Landlord's Mortgagee and its representatives) shall have the
right, but not the duty, at Landlord's sole cost and expense to conduct
reasonable inspections of the Properties, to determine whether Tenant (or
its subtenants) are complying with this Section 19. Such inspections shall
be performed during business hours, upon reasonable prior notice to Tenant,
and shall be accomplished in a manner reasonably calculated not to disturb
existing business operations of Tenant or any subtenant. Landlord shall use
its best efforts to minimize interference with the business of Tenant and
subtenants being conducted on the Properties but shall not be liable for
any reasonable interference caused thereby. If, as a result of any such
inspection, Landlord determines, in its reasonable judgment, that Tenant or
its subtenants are not in compliance with this Section 19, Landlord shall
promptly notify Tenant in writing of the event or situation which gives
rise to Tenant's or a subtenant's violation of such Section. Unless
Tenant's or a subtenant's violation of this Section 19 creates an emergency
situation, in which event Tenant shall immediately take such action as may
be required by the nature of such situation to remedy the same
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and if Tenant fails to do so Landlord shall have the right to enter upon
the Properties and to take such action as Landlord deems appropriate in its
reasonable judgment to remedy or correct such emergency situation, Tenant
shall within 60 days after the receipt of notice of such violation from
Landlord (provided that Tenant will, in any event proceed diligently),
submit to Landlord a written plan setting forth a general description of
the action that Tenant proposes to take with respect thereto. The plan
shall be subject to the Landlord's written approval, which approval shall
not be unreasonably withheld or delayed. Landlord shall notify Tenant in
writing of its approval or disapproval of the plan within 15 days after
receipt thereof by Landlord. If Landlord disapproves the plan, Landlord's
notice to tenant of such disapproval shall include a detailed explanation
of the reasons thereof. Landlord shall have no right to disapprove any plan
if such plan is approved by or is otherwise satisfactory to all
environmental agencies having and exercising jurisdiction with respect to
the matters which are subject to the plan; however, Tenant shall
nonetheless provide a copy of such plan (and all correspondence by and
between Tenant and such environmental agencies related to the subject
matter of the plan) to Landlord. Within 30 days after receipt of such
notice of disapproval; Tenant shall submit to Landlord a revised plan that
remedies the defects reasonably identified by Landlord as reasons for
Landlord's disapproval of the initial plan. If Tenant fails to submit a
revised plan to Landlord within said 30 day period, such failure shall, at
Landlord's option and upon notice to Tenant, constitute an "event of
default" hereunder. If Landlord's option and upon notice to Tenant of its
approval or disapproval of the revised plan within 15 days after the
receipt thereof, the plan shall be deemed approved. Once any such plan is
approved in writing or deemed approved by Landlord, Tenant shall promptly
commence all action necessary to comply with all requirements and
conditions imposed by all environmental boards or agencies having and
exercising jurisdiction, and shall diligently and continuously pursue each
action to completion in accordance with the terms thereof; provided that
Tenant may commence such actions sooner or on such other timetable if
required to do so by any such board or agency. If Landlord's inspections of
the Properties reflect a violation by Tenant or a subtenant of the
provisions of this Section 19 which violation Landlord reasonably believes
may have caused any Property or any part thereof to have become
contaminated by Hazardous Materials, Landlord shall have the right to
initiate testing (including soil and groundwater) of that Property to
determine whether, or the extent to which such violation has in fact caused
the contamination of said Property by Hazardous Materials. If such tests
reveal that said Property is contaminated by Hazardous Materials, Landlord
shall immediately deliver a copy of the test results to Tenant. Tenant
shall thereafter comply with the terms and provisions of the preceding
paragraph with respect to formulating a plan to remediate any such
contamination and shall reimburse Landlord for all reasonable costs
incurred in connection with such testing. Any entry, testing or work which
Landlord elects to perform pursuant to this Section 19 shall, to the extent
commercially reasonable, be performed in a manner reasonably designed to
minimize interference with the business operations of Tenant and its
Subtenants on the Property.
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19.7 Governing Provisions for Environmental Matters. Notwithstanding
any other provision of this Lease, this Section 19 shall supersede and take
precedence over all other provisions of this Lease regarding environmental
matters including, but not limited to, the indemnification of Landlord by
Tenant.
20. Leasehold Financing.
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20.1 Tenant's Right to Encumber its Leasehold Interest. Tenant, and
its successors and assigns, shall have no right to take back a purchase
money mortgage or deed of trust upon a sale and assignment of the leasehold
estate created by this Lease. Additionally, Tenant shall have no right to
mortgage this Lease and Tenant's leasehold estate herein, any existing or
new Improvements, or otherwise encumber Tenant's leasehold estate, any
existing or new Improvements, in any manner whatsoever except as expressly
permitted by Section 21.32.
21. General Provisions.
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21.1 Time of Essence. Time is of the essence is the performance of
this Lease.
21.2 Nonwaiver. Waiver of performance of any provision shall not be a
waiver of, nor prejudice any party's right otherwise to require performance
of the same provision or any other provision.
21.3 Succession. This Lease shall bind and inure to the benefit of the
parties, their respective heirs, successors and assigns. The term
"Landlord" as used herein shall mean only the owner or the mortgagee in
possession for the time being of the Properties, so that in the event of
any sale, transfer or conveyance of the Properties or any portion thereof,
Landlord shall be and hereby is entirely freed and relieved of all
agreements, covenants and obligation of Landlord hereunder which may accrue
from and after the date of transfer with respect to the Properties or
portion thereof transferred.
21.4 Inspection. Landlord, Landlord's Mortgagee or any of their
respective authorized representatives may enter any Property at any time
upon reasonable advance notice to determine Tenant's compliance with this
Lease or, at any reasonable time after reasonable advance notice, to show
any Property to prospective tenants during the last 24 months of the Term
in which Tenant has not exercised any Options, or to show any Property to
prospective purchasers; provided, that Landlord and its representatives and
invitees will not, without Tenant's advance consent, which will not be
unreasonably withheld, enter into restricted access areas (such as safes
and computer rooms) within a Property.
21.5 Attornment. In the event any proceedings are brought for
foreclosure, or in the event of the exercise of the power of sale under any
mortgage or trust deed
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made by Landlord covering a Property, Tenant shall attorn to the purchaser
upon any such foreclosure or sale and recognize such purchaser as Landlord
under this Lease.
21.6 Subordination to Mortgages. This Lease, at Landlord's option,
shall be subordinate to the lien of any trust deed or mortgage subsequently
placed upon any Property by Landlord, and to any and all advances made on
the security thereof, or of any existing trust deed or mortgage, and to all
renewals, modifications, increases, consolidations, replacements and
extensions thereof; provided, however, that this provision shall apply only
if the lender who receives the benefit of the subordination enters into a
written agreement stating that Tenant's right to quiet possession shall not
be disturbed so long as Tenant pays the rent and observes and performs all
of the provisions of this Lease and that the lender will be bound by the
leasehold mortgagee protection agreement described herein. Upon Landlord's
request, Tenant will execute any attornment, subordination, nondisturbance
and recognition agreement ("SNDA"), or other documents required by Landlord
from Tenant consistent with this Lease in connection with any financing or
sale by Landlord (with the reasonable attorneys' fees and expenses in
reviewing such agreements to be paid by Landlord as a condition of Tenant's
review of the document).
21.7 Changes Required by Landlord's Mortgagee. If Landlord's Mortgagee
requires any reasonable clarifications or modifications of this Lease as a
condition to advancing its loan to Landlord, Tenant will cooperate in
executing a modification agreement reasonably acceptable to the parties,
provided that such agreement does not increase the rent or the obligations
and burdens placed on Tenant under this Lease, or interfere with or
diminish the rights and the benefits provided to Tenant under this Lease.
As a precondition to Tenant's review of any modification document, Landlord
agrees that Landlord will reimburse Tenant for its reasonable attorneys'
fees and expenses in reviewing the request and the modification document.
21.8 Estoppel Certificates. Within 20 days after receipt of a written
request, either party shall deliver a written statement to the other
stating the date to which the rent and other charges have been paid,
whether this Lease is unmodified and in full force and effect, whether the
other party is in compliance with this Lease and any other matters that may
reasonably be requested.
21.9 Proration of Rent. If this Lease starts or ends during a rental
period, the rent shall be prorated as of such date. Upon termination other
than for default, prepaid rent shall be refunded, if applicable.
21.10 Notices. Notices under this Lease shall be in writing, effective
when personally delivered, or if mailed, effective when received after
mailed registered mail, postage prepaid, to the address for the party
stated in this Lease, or to such other address as either party may specify
by written notice to the other. Notices may also be sent by an overnight
delivery service of national reputation, so long as such overnight delivery
service can provide proof of delivery. Notices sent by such
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an overnight delivery service shall be effective when received. Any notice
to Tenant will be sent to the following address (or such other address as
Tenant may designate from time to time by notice to Landlord given in the
same manner as provided in this Section):
Fred Meyer, Inc.
3800 SE 22nd Avenue
P.O. Box 42121
Portland, Oregon 97242-0121
Attn: Corporate Treasurer
Facsimile No: (503) 797-5299
With Copies to:
Fred Meyer, Inc.
3800 SE 22nd Avenue
P.O. Box 42121
Portland, Oregon 97242-0121
Attn: Corporate Legal Department
Facsimile No: (503) 797-5623
And to:
Stoel Rives LLP
950 Port of Portland Building
700 NE Multnomah
Portland, Oregon 97232
Attn: David W. Green
(503) 872-4810
Facsimile No: (503) 230-1907
Any notice to Landlord will be sent to the following address (or such other
address as Landlord may designate from time to time by notice to Tenant
given in the same manner as provided in this Section):
To Landlord:
Texas Commerce Bank, National Association
4th Floor
201 East Main Street
El Paso, Texas 79901
Attn: Sarah Wilson
915-546-6501
Facsimile No: 915-546-2423
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With Copies to:
CA FM, LLC
18324 Clark Street, #323
Tarzana, California 91356
Attn: Neal Smaler
818-881-8233
Facsimile No: 818-774-1154
And to:
Heenan Blaikie
Suite 1100
9401 Wilshire Boulevard
Beverly Hills, California 90212
Attn: B.J. Yankowitz, Esq.
Telephone: (310) 275-3600
Fax: (310) 724-8240
21.11 Attorneys' Fees. In the event suit, action or arbitration is
instituted to interpret or enforce the terms of this Lease, the prevailing
party shall be entitled to recover from the other party such sum as the
court or arbitrator may adjudge reasonable as attorneys' fees and other
costs of litigation at trial, hearing or on appeal of such suit or action,
or on any petition for review, in addition to all other sums provided by
law. References to arbitration in this paragraph shall not, however,
constitute an agreement to arbitrate disputes under this Lease. Whether or
not suit or action is instituted, if a party defaults in its obligations
under this Lease (subject to any notice requirements or grace periods
specified in this Lease), the defaulting party will be responsible for the
other party's reasonable attorneys' fees and costs in pursuing the default
and enforcing compliance with this Lease.
21.12 Relationship of Parties. The relationship of the parties to this
Lease is Landlord and Tenant. Landlord is not a partner or joint venturer
with Tenant in any respect or for any purpose in the conduct of Tenant's
business or otherwise.
21.13 Authorization of Lease. Each party covenants and warrants to the
other that the person(s) executing this Lease on behalf of the party is
duly authorized to execute and bind the party under this Lease.
21.14 Consent. Unless this Lease specifically provides otherwise,
whenever either party's decision, determination, approval or consent is
required under this Lease, the party will promptly exercise judgement
reasonably. Any consent granted by a party under this Lease shall not
constitute a waiver of the requirement for
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consent in subsequent cases. Any denial of consent will include a reasonable
explanation for such denial.
21.15 Brokers. Each party will defend, indemnify, and hold the other
party harmless from any claim, loss, or liability made or imposed by any
other party claiming a commission or fee in connection with this
transaction and arising out of its own conduct.
21.16 Section Headings. The headings to the sections and paragraphs of
this Lease and the Summary of Terms appearing on the cover page of this
Lease are included only for the convenience of the parties and shall not
have the effect of enlarging, diminishing, or affecting the interpretation
of its terms.
21.17 Applicable Law. The parties agree that the law of Oregon shall
be applicable for all purposes, including construing and determining the
validity of this Lease, determining the rights and remedies of Landlord in
the event of default by Tenant and other matters, except that in the event
that the laws of the state in which a respective Property is located differ
with respect to any remedy available to Landlord upon a default by Tenant,
or upon any procedural matter with respect to enforcing any right of
Landlord hereunder with respect to that Property, such laws will be the
applicable law in determining said rights and remedies. Each of the parties
hereto hereby irrevocably and unconditionally (a) submits for itself and
its property in any legal action or proceeding relating to this Lease, or
for recognition and enforcement of any judgment in respect thereof, to the
non-exclusive general jurisdiction of the Courts of the State of Oregon,
the courts of the United States of America for the District of Oregon, and
appellate courts from any thereof; (b) consents that any such action or
proceeding may be brought in such courts and waives any objection that it
may now or hereafter have the venue of any such action or proceeding in any
such court or that such action or proceeding was brought in an inconvenient
court and agrees not to plead or claim the same; and (c) agrees that
service of process in any such action or proceeding may be effected by
mailing a copy thereof by registered or certified mail (or any
substantially similar form of mail) postage prepaid, or by any of the other
methods for notices to be delivered hereunder as are specified in Section
21.10, to such party at its address set forth in this Lease or at such
other address of which the parties hereto shall have been notified pursuant
thereto.
21.18 Prior Agreements. This Lease (including attached exhibits) is
the entire, final and complete agreement of the parties with respect to the
matters set forth in this Lease, and supersedes and replaces all written
and oral agreements previously made or existing by and between the parties
or their representatives with respect to such matters.
21.19 Validity of Provisions. If any of the provisions contained in
this Lease shall be invalid, illegal or unenforceable in any respect, the
validity of the remaining provisions contained in this Lease shall not be
affected.
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21.20 Operating Lease. Landlord and Tenant agree that this Lease is a
true lease and does not represent a financing arrangement. Each party shall
reflect the transactions represented hereby in all applicable books,
records, reports, and the tax filings in a manner consistent with "true
lease" treatment rather than "financing treatment." Each party will
promptly inform the other if the party receives any notice that the "true
lease" treatment of this Lease is being questioned or challenged, and the
parties will reasonably cooperate with each other in connection with such
matter.
21.21 Joint and Several Liability. In the event Tenant consists of
more than one person, firm or corporation, then all such persons, firms or
corporations shall be jointly and severally liable as Tenant under this
Lease.
21.22 Modifications. This Lease may not be modified except by
endorsement, in writing, attached to this Lease, dated and signed by the
parties. To the extent required by the provisions of Landlord's Mortgagee's
financing, any material modification will not be binding on Landlord's
Mortgagee unless Landlord's Mortgagee consents thereto. Neither party shall
be bound by any oral statement of any agent or employee modifying this
Lease.
21.23 Recording. This Lease shall not be recorded, but the parties
shall execute a memorandum of this Lease in recordable form which may be
recorded.
21.24 Personal Property and Moving Expenses. Any Award or part of an
Award paid specifically as compensation for the Taking of personal property
owned by Tenant or a subtenant or for moving expenses or goodwill of Tenant
or a subtenant shall be payable to Tenant or such subtenant as the case may
be.
21.25 Nonmerger of Fee and Leasehold Estates. If both Landlord's and
Tenant's estates in the Properties or the Improvements or both become
vested in the same owner, this Lease shall nevertheless not be destroyed by
application of the doctrine of merger.
21.26 Agreement to Act Reasonably. Except where specifically provided
to the contrary in this Lease, in each instance in this Lease where the
approval or consent of a party is required, both Landlord and Tenant intend
and agree to act reasonably. As used in the foregoing sentence, the term
"reasonable" shall not be interpreted as justifying arbitrary action but
shall mean an even-handed application of judgment in accordance with
traditional business polices and practices, industry standards and
commercial usage and custom concerning major real estate transactions
involving prime commercial properties.
21.27 Gender; Singular and Plural. The neuter gender includes the
feminine and masculine, the masculine includes the feminine and neuter, and
the feminine includes the masculine and neuter, and each includes
corporation, partnership, or other legal entity when the context so
requires. The singular number includes the plural whenever the context so
requires.
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21.28 Exhibits. All Exhibits to which reference is made in this Lease
are incorporated in this Lease by the respective references to them,
whether or not they are actually attached, provided they have been signed
or initialed by the parties. Reference to this Lease includes matters
incorporated by reference.
21.29 First Opportunity to Purchase. Landlord grants Tenant the first
opportunity to purchase the Property during the Term. If Landlord decides
to sell, exchange or otherwise transfer the Properties during the Term,
other than sales or transfers to a related party or affiliated company,
Landlord will give written notice to Tenant of the general terms on which
Landlord intends to sell the Properties, including a copy of any written
offer received from third parties. Such notice shall state the purchase
price and the terms for the Properties and will not include other property
of Landlord or consideration other than cash payments (other than any
property which Tenant may cause to be conveyed to Landlord as part of a
property exchange involving a third party's property, as described below).
Tenant shall have 30 days after receipt of the notice in which to elect to
acquire Landlord's interest on the terms contained in the notice. Tenant's
election shall be by written notice to Landlord. If the third party offer
includes an exchange of properties, Tenant shall, at Landlord's request,
cooperate in effecting the acquisition of the exchange property from its
owner and Tenant shall exchange such property with Landlord for the
Properties, which transactions will be closed consecutively on the same
date in escrow, with any additional costs incurred in transfer or
conveyance taxes, closing costs, sales commissions, etc., as a result of
such an exchange paid by Landlord. If Tenant does not elect to acquire the
Properties, Landlord may sell, exchange or otherwise transfer Landlord's
interest in the Properties at a purchase price and on terms not more
favorable to the purchaser than the terms stated in the original notice to
Tenant, provided the transaction is closed within nine months after the
date of Landlord's original notice. If the transaction is not closed within
such nine-month period or Landlord desires to transfer its interest in the
Properties on terms more favorable to the purchaser than offered to Tenant,
Landlord shall not transfer its interest in the Properties without first
again granting to Tenant the opportunity to purchase as provided above.
Only 15 days' written notice of a specific sales transaction (including a
copy of any written offer) will be required in the event Landlord is
required to reoffer the Properties to Tenant because of a proposed sale on
terms more favorable to the purchaser. Transfers of interest in the
Properties between partners or the principals of Landlord, members of their
respective families or affiliated companies of Landlord may be made without
compliance with this paragraph, it being understood that the provisions of
this paragraph shall survive any such transfers. This paragraph 21.29 will
not apply to or restrict in any manner any foreclosure, foreclosure sale,
deed-in-lieu of foreclosure or other action taken by the holder of any
trust deed, mortgage or other security interest on Landlord's interest in
the Improvements and/or Properties, it being understood that the provisions
of this paragraph shall not survive any such action, event or conveyance.
Any sale or other conveyance by Landlord to third parties pursuant to this
Lease, and any transfers between related parties or affiliated companies,
will remain and be subject to all of the terms of this Lease.
Notwithstanding the foregoing to the contrary, if the entity
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comprising Landlord is a trust, (a) no transfer of all or any beneficial
interest in said trust and/or (b) no substitution of trustees in said
trust, shall be deemed or construed as a sale, exchange or other transfer
of the Properties and the rights granted Tenant hereunder shall not apply
upon the happening of any such event.
21.30 Merger, Consolidation or Sale of Assets. In the event of a
merger, consolidation, acquisition, sale or other disposition involving
Tenant or all or substantially all the assets of Tenant to one or more
other entities, the surviving entity or transferee of assets, as the case
may be, shall (i) be formed and existing under the laws of a state,
district or commonwealth of the United States of America and (ii) deliver
to Landlord an acknowledged instrument in recordable form assuming all
obligation, covenants and responsibilities of Tenant under this Lease and
at Landlord's option, a new Lease Guaranty in the form attached hereto as
Exhibit "E". Without limiting the foregoing, if RC is merged into FMI, then
the Lease Guaranty will continue to be applicable to all obligations of RC
through the effective date of the merger, but a new (or continuation of the
former) Lease Guaranty will not be required of FMI, since it is already a
party to this Lease.
21.31 Existing Leases. Landlord hereby assigns and transfers to
Tenant, as of the Commencement Date and for as long as this Lease is in
effect, all of its right, title and interest (if any) in and to the
existing leases on the Properties which were assigned to Landlord pursuant
to the Sale Agreement (the "Existing Leases"), including (without
limitation) all rights under the Existing Leases to collect and retain rent
due under the Existing Leases and other charges payable by the tenants
thereunder with respect to period commencing on or after the Commencement
Date. Tenant will continue to have all rights and obligations under such
Existing Leases, and such Existing Leases will, for purposes of this Lease,
be considered subleases of portions of the respective Property. In the
event Landlord's first trust deed beneficiary or mortgagee requires that
Landlord attempt to get a subordination and non-disturbance agreement (the
"SNDA") from tenants under any of the Existing Leases, Tenant will forward
the proposed form of SNDA as Landlord may provide to Tenant to such tenants
and request that they execute the same. However, Tenant will be under no
obligation to obtain execution of the SNDA by such tenants or to pay any
amounts or take other action to obtain the same, other than the forwarding
of the required form of SNDA with such request. Tenant agrees to indemnify,
defend and hold harmless Landlord and Landlord's Mortgagee from any
liabilities, costs, damages, losses and expenses arising from the Existing
Leases or any assignment of this Lease or any new sublease entered into by
Tenant to the extent such liabilities, costs, damages and expenses have
arisen or accrued before, or arise or accrue during, the Term of this
Lease.
21.32 Equipment Financing. Notwithstanding any other provision of this
Lease, Tenant will have the right to lease or mortgage, pledge and encumber
its FF&E and other personal property (for this purpose, collectively, the
"Equipment") from time to time (the "Equipment Financing") with an
equipment leasing company or through a bank, life insurance company, thrift
institution or other institutional
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lender (collectively, an "Equipment Lender"). Landlord further agrees that
the Equipment shall remain personal property, notwithstanding the manner or
mode of the attachment to the Property. Landlord recognizes and
acknowledges that any claims that Equipment Lender now has or may hereafter
have against the Equipment by virtue of the equipment lease or financing
documents, are superior to any lien or claim of any nature which Landlord
now has or may hereafter have to the Equipment by statute, agreement or
otherwise. In the event of default by Tenant in the payment of any amount
to the Equipment Lender, or in the performance of any extensions or
renewals thereof, the Equipment Lender or its assigns may remove such
Equipment or any part thereof from the Properties (provided that any
physical damage to the Properties in connection with such removal will be
promptly repaired). In the event of such removal, Landlord will make no
claim whatsoever to such equipment. The Equipment Lender may, without
affecting the validity of this waiver, extend the terms of payment of any
rental or other sum or the performance of any of the other terms or
conditions of the equipment lease or financing documents, without the
consent of Landlord and without giving notice to Landlord. This waiver
shall inure to the benefit of the successors and assigns of the Equipment
Lender and shall be binding upon the heirs, personal representatives,
successors or assigns of Landlord. Landlord will execute, not later than 30
days after receipt of a written request, any consent, easement, Landlord's
waiver of lien rights, acknowledgement, estoppel certificate or other
document required by the Equipment Lender in order to carry out the intent
of this paragraph (the "Equipment Documents"). If Landlord fails to do so
in such 30 day period, Tenant is hereby designated as attorney-in-fact for
Landlord, coupled with an interest, to execute and deliver the Equipment
Documents on behalf of Landlord.
21.33 Reasonable Efforts to Mitigate. In the event of default by a
party under this Lease, the other party shall use reasonable efforts to
mitigate its damages.
21.34 Indemnification. The provisions of this Lease concerning
indemnification are subject to the following conditions: (i) the party
seeking indemnification (the "Indemnified Party") will promptly notify the
indemnifying party (the "Indemnitor") in writing as soon as the Indemnified
Party becomes aware of the injury, action, event, claim or demand giving
right to the obligation to indemnify; (ii) the Indemnified Party will take
no steps (such as admission of liability) which will operate to bar
Indemnitor from obtaining any protection afforded by any policies of
insurance it may hold or which operate to prejudice the defense in any such
legal proceedings or otherwise prevent Indemnitor from protecting itself
against such claim, action, demand, or legal proceeding, Indemnitor having
the sole and exclusive right to conduct the response to or defense of any
such claim, action, demand, or legal proceeding; and (iii) the parties will
reasonably cooperate (at Indemnitor's expense) in responding to any claim,
action, demand or legal proceeding covered by the Indemnity; provided,
however that any failure to give such required notice herein above shall
not release Indemnitor from any obligation hereunder.
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21.35 Confidentiality of Financial or Sales Information. Any financial
or sales information on Tenant, any guarantor of this Lease, or any
subtenant shall be held in confidence by the party receiving the same and
will be utilized solely for purposes of this Lease, but may be provided by
Landlord in confidence to Landlord's Mortgagee, any Noteholder, any
potential transferee of any rights or interest of Landlord's Mortgagee or
any Noteholder in the Mortgage Financing, this Lease or the Property, to
any of Landlord's, Landlord's Mortgagee's or any Noteholder's attorneys,
accountants and professional advisers, any federal or state regulatory
authority having jurisdiction over any of the foregoing, the National
Association of Insurance Commissioners or similar organization, any
nationally recognized rating agency (including, without limitation, S&P),
any other person to which such disclosure is necessary or appropriate
pursuant to any law, rule regulation or order, or in connection with any
enforcement of or protection of rights or remedies under this lease or the
Mortgage Financing or in respect of the Properties. Tenant will have the
right to require that the person receiving such information sign a
confidentiality agreement reasonably acceptable to Tenant.
21.36 No Third Party Beneficiaries. Nothing in this Lease, express or
implied, shall confer upon any person, other than the parties and their
respective successors and assigns as Landlord and Tenant hereunder, any
right or remedies under or by reason of this Lease or its provisions. There
are no third party beneficiaries with respect to any such right or remedy
except Landlord's Mortgagee as provided herein.
21.37 Surplus Property. Under the terms of the Sale Agreement, Tenant
has the right to obtain a release and re-conveyance to Tenant of certain
surplus land area (the "Surplus Property"), as soon as Tenant obtains an
approved subdivision, short plat or partition sufficient to permit the
remaining portion of the affected Property and the Surplus Property to be
separated as valid legal lots, and the other requirements of the Sale
Agreement are satisfied with respect thereto. Tenant is solely responsible
for the repair, upkeep and care of the Surplus Property and all
representations, warranties, indemnification provisions, covenants and
terms of this Lease shall apply to the Surplus Property for so long as it
is included in the "Property" and will survive the re-conveyance to Tenant
as to any claim or event that arose, occurred or accrued while it was
included in the "Property" under this Lease. There shall be no change in
the rent under this Lease upon the reconveyance of the Surplus Property to
Tenant.
21.38 Sale-Purchase Claims. No provision of this Lease will be deemed
to modify in any manner the obligations and liabilities that FMI and RC
have to Landlord pursuant to the terms of the Sale Agreement, which will
survive the closing of the purchase of the Properties by Landlord. FMI and
RC hereby agree to indemnify, defend and hold Landlord harmless from any
and all costs, expenses, liabilities and damages (including, without
limitation, reasonable attorneys' fees and costs) incurred by Landlord as
Buyer in connection with any material misrepresentation of FMI and/or RC as
Seller under the Sale Agreement or any breach by either of them of the
terms of the Sale Agreement, subject to the terms and limitations contained
therein.
52
<PAGE>
Breach of such indemnification obligation will also be a breach of this
Lease, subject to the provisions of Section 12.1 or 12.2, as applicable.
21.39 Counterparts. This Lease may be executed in one (1) or more
counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute one (1) and the same instrument.
21.40 Prior Agreements. This Lease (including attached Exhibits) is
the entire, final and complete agreement of the parties only with respect
to the specific matters set forth in this Lease, and supersedes and
replaces all written and oral agreements previously or contemporaneously
made or existing by and between the parties or their representatives with
respect to such specific matters.
21.41 Sale or Assignment by Landlord. Notwithstanding anything to the
contrary contained herein, but subject to Section 21.41.3 below, the
following will be applicable in connection with financing by Landlord that
is secured by the Properties:
21.41.1 The Landlord shall have the right to finance the
acquisition and ownership of the Properties by pledging, assigning,
mortgaging or otherwise transferring its right, title and interest in the
Properties and any or all amounts due from the Tenant or any third party
under this Lease to any holder (each, a "Noteholder") of any note or
instrument issued by the Landlord in respect of such financing (a "Mortgage
Financing"), or any agent or trustee acting on behalf of or for the benefit
of such holder(s)' benefit (collectively, with their respective successors
and assigns, "Landlord's Mortgagee"); provided, that any such pledge,
assignment, mortgage or transfer shall be subject to the rights and
interest of the Tenant under this Lease; and
21.41.2 Any Landlord's Mortgagee shall, except as otherwise
agreed by the Landlord and such Landlord's Mortgagee, have all the rights,
powers, privileges and remedies of the Landlord hereunder, and the Tenant's
obligations as between itself and such Landlord's Mortgagee hereunder shall
not be subject to any claims or defenses that the Tenant may have against
the Landlord. Upon written notice to the Tenant of any such assignment, the
Tenant shall thereafter make payments of Basic Rent and other sums due
hereunder to the Landlord's Mortgagee, to the extent specified in such
notice, and such payments shall discharge the obligation of the Tenant to
the Landlord hereunder to the extent of such payments. Anything contained
herein to the contrary notwithstanding, no Landlord's Mortgagee shall be
obligated to perform any duty, covenant or condition or required to be
performed by the Landlord hereunder, and any such duty, covenant or
condition shall be and remain the sole obligation of the Landlord. Tenant
further acknowledges that upon written notice to the Tenant of any such
assignment, to the extent specified in such notice, the Landlord may not
consent to any amendment, modification or waiver to this Lease, give any
approval, consent, notice or acceptance under this Lease or exercise any
discretion under this Lease, in each case without the prior
53
<PAGE>
written consent of the Landlord's Mortgagee and the Tenant agrees to
provide to the Landlord's Mortgagee a copy of all notices or consents or
requests for consent or approval by Landlord pursuant to the terms of this
Lease.
21.41.3 Notwithstanding the foregoing, if Landlord's Mortgagee
consists of more than one person or entity, or if there are multiple
Noteholders, Tenant will be provided with a single address to which all
notices, consents and requests for consent and approval are to be sent on
behalf of the Landlord's Mortgagee and Noteholders and to which any
payments required (pursuant to Section 21.41.2) to be made by Tenant to
Landlord's Mortgagee or Noteholders are to be sent. Tenant may require that
any such payments be made by wire transfer of federal (or other same-day)
funds.
21.42 Rule 144A Information Requirements. Except as such times as FMI
is a reporting company under Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act") or has complied with the
requirements for the exemption from registration under the Exchange Act set
forth in Rule 12g3-2(b) under the Exchange Act, FMI shall deliver promptly
to Landlord or Landlord's Mortgagee on request such financial and other
information as any Noteholder may reasonably require to permit such
Noteholder to comply with the requirements of Rule 144A promulgated under
the Securities Act of 1933, as amended, in connection with the resale by it
of such notes or other instruments.
21.43 Statutory Notice. THIS INSTRUMENT WILL NOT ALLOW USE OF THE
PROPERTY DESCRIBED IN THIS INSTRUMENT IN VIOLATION OF APPLICABLE LAND USE
LAWS AND REGULATIONS. BEFORE SIGNING OR ACCEPTING THIS INSTRUMENT, THE
PERSON ACQUIRING FEE TITLE TO THE PROPERTY SHOULD CHECK WITH THE
APPROPRIATE CITY OR COUNTY PLANNING DEPARTMENT TO VERIFY APPROVED USES AND
TO DETERMINE ANY LIMITS ON LAWSUITS AGAINST FARMING OR FOREST PRACTICES AS
DEFINED IN ORS 30.930. THE PROPERTY DESCRIBED IN THIS INSTRUMENT MAY NOT BE
WITHIN A FIRE PROTECTION DISTRICT PROTECTING STRUCTURES. THE PROPERTY IS
SUBJECT TO LAND USE LAWS AND REGULATIONS WHICH, IN FARM OR FOREST ZONES,
MAY NOT AUTHORIZE CONSTRUCTION OR SITING OF A RESIDENCE AND WHICH LIMIT
LAWSUITS AGAINST FARMING OR FOREST PRACTICES AS DEFINED IN ORS 30.930 IN
ALL ZONES. BEFORE SIGNING OR ACCEPTING THIS INSTRUMENT, THE PERSON
ACQUIRING FEE TITLE TO THE PROPERTY SHOULD CHECK WITH THE APPROPRIATE CITY
OR COUNTY PLANNING DEPARTMENT TO VERIFY APPROVED USES AND EXISTENCE OF FIRE
PROTECTION FOR STRUCTURES.
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54
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IN WITNESS WHEREOF, the parties have executed this Lease as of the
date first above written.
LANDLORD:
TENANT:
55
<PAGE>
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, NOT IN ITS INDIVIDUAL
CAPACITY BUT SOLELY IN ITS CAPACITY
AS TRUSTEE UNDER THAT CERTAIN TRUST
AGREEMENT DATED AS OF SEPTEMBER 1,
1996 BETWEEN TEXAS COMMERCE BANK
NATIONAL ASSOCIATION, AS TRUSTEE
AND CHEMICAL TRUST COMPANY OF
CALIFORNIA, A CALIFORNIA BANKING
CORPORATION, AS BENEFICIARY
BY: KATHRYN M. HOUSTON
------------------------------
ITS: VICE PRESIDENT
-----------------------------
FRED MEYER, INC.,
A DELAWARE CORPORATION
BY: KENNETH THRASHER
------------------------------
ITS: SR VP-FINANCE
-----------------------------
ROUNDUP CO.,
A WASHINGTON CORPORATION
BY: KENNETH THRASHER
------------------------------
ITS: VICE PRESIDENT
-----------------------------
56
<PAGE>
STATE OF OREGON )
)
County of Multnomah )
The foregoing instrument was acknowledged before me this 30th day of
August, 1996, by Kenneth Thrasher, the SR VP-Finance of Fred Meyer, Inc., a
Delaware corporation, on behalf of the corporation by its authority duly
given, and acknowledged the said instrument to be the act and deed of said
corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year first above written.
FRANCES FOLEY
----------------------------------------
Notary Public in and for the State of
Oregon
Residing at: Vancouver, WA
---------------------------
My Commission expires: 9/1/98
-----------------
STATE OF OREGON )
)
County of Multnomah )
The foregoing instrument was acknowledged before me this 30th day of
August, 1996, by Kenneth Thrasher, the VP of Roundup Co., a Washington
corporation, on behalf of the corporation by its authority duly given, and
acknowledged the said instrument to be the act and deed of said
corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year first above written.
FRANCES FOLEY
----------------------------------------
Notary Public in and for the State of
Oregon
Residing at: Vancouver, WA
---------------------------
My Commission expires: 9/1/98
-----------------
57
<PAGE>
STATE OF TEXAS )
) ss.
COUNTY OF El Paso )
On August 30, 1996, before me Helen D. Mott personally appeared Kathryn M.
Houston, personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person(s) whose name(s) is subscribed to
the within instrument and acknowledged to me that she executed the same in
her authorized capacity(ies), and that by her signature(s) on the
instrument the person(s), or the entity upon behalf of which the person(s)
acted, executed the instrument.
WITNESS my hand and official seal.
HELEN D. MOTT
- -----------------------------------
Notary Public in and for said
County and State
My Commission Expires: 12/31/98 [SEAL]
58
<PAGE>
EXHIBIT A
Legal Description
A-1
<PAGE>
EXHIBIT B
Permitted Exceptions
B-1
<PAGE>
EXHIBIT C
Insurance
C-1
<PAGE>
EXHIBIT D
Purchase Price Upon The Happening of Certain Events
The "Repurchase Price" of a Replaced Property required to be
repurchased by Tenant pursuant to Section 18 of the Lease shall equal the
greater of (a) the Property Amount with respect to such Replaced Property,
as set forth on the following table, (b) the then current market value of
the Replaced Property on the substitution date, as determined pursuant to
Section 18 of the Lease, and (c) the Substitution Payment with respect to
such Replaced Property.
Property Property Amount Property Percentage
-------- --------------- -------------------
Brookings, OR $ 8,776,000 7.97818%
Federal Way, WA 14,623,000 13.29364
Boise, ID 10,683,080 9.71182
Lake City, WA 15,470,000 14.06364
So. Medford, OR 10,527,000 9.57000
North Coast, OR 9,953,000 9.04818
Newburg, OR 8,766,000 7.96909
Orchards, WA 11,637,000 10.57909
Tillamook, OR 9,369,000 8.51727
Yakima, WA 10,196,000 9.26909
---------
100.00000%
=========
"Substitution Payment" means, with respect to a Replaced Property, the
sum of (i) the Property Percentage with respect to such Replacement
Property multiplied by the aggregate outstanding principal amount of the
Senior Notes (as defined below), plus (ii) an amount equal to the accrued
interest through the substitution date on the amount referred to in clause
(i), plus (iii) the Make-Whole Amount with respect to the amount referred
to in clause (i).
The Make-Whole Amount with respect to the Property Amount shall be
equal to the sum of the Make-Whole Amounts payable pursuant to the
Indenture dated as of September 1, 1996 among Landlord, CTCC and First
Trust National Association, as indenture trustee (the "Indenture Trustee")
with respect to the Senior Notes (as defined therein) to be prepaid
pursuant to Section 2.3(c) thereof upon the receipt by the Indenture
Trustee of the Property Amount.
D-1
<PAGE>
EXHIBIT E
Lease Guaranty
(see attached)
E-1
<PAGE>
EXHIBIT F
Additional Option Term Rent
Property Base Rent
-------- ---------
Brookings, OR $ 712,119.58
Federal Way, WA 1,186,569.04
Boise, ID 866,861.51
Lake City, WA 1,255,298.00
So. Medford, OR 854,202.89
North Coast, OR 807,626.07
Newburg, OR 711,308.22
Orchards, WA 944,272.65
Tillamook, OR 760,237.89
Yakima, WA 827,344.14
-------------
$ 8,925,840.00
F-1
<PAGE>
GUARANTY
--------
THIS GUARANTY (the "Guaranty") is attached to and made a part of that
certain Bond Lease Agreement (the "Lease") dated September 5, 1996, between
Texas Commerce Bank National Association, not in its individual capacity
but solely in its capacity as Trustee under that certain Trust Agreement
dated as of September 1, 1996 between Texas Commerce Bank National
Association, as Trustee and Chemical Trust Company of California, a
California Banking Corporation, as Beneficiary, as Landlord, and Fred
Meyer, Inc., a Delaware corporation ("FMI") and Roundup Co., a Washington
corporation ("RC"), as Tenant, covering the Properties. The terms used in
this Guaranty shall have the same definitions as set forth in the Lease. In
order to induce Landlord to enter into the Lease with Tenant, Fred Meyer,
Inc. ("Guarantor") has agreed to and does hereby execute and deliver this
Guaranty to Landlord. Guarantor acknowledges that Landlord would not enter
into the Lease if Guarantor did not execute and deliver this Guaranty to
Landlord.
1. GUARANTY. In consideration of the execution of the Lease by
Landlord and as a material inducement to Landlord to execute the Lease,
Guarantor hereby irrevocably, unconditionally, jointly and severally
guarantees the full, timely and complete (a) payment of all Base Rent, and
other sums payable by RC to Landlord under the Lease, and any amendments or
modifications thereto by agreement of course of conduct, (b) performance of
all covenants, representations and warranties made by RC and all
obligations to be performed by RC pursuant to the Lease, and any amendments
or modifications thereto by agreement or course of conduct and (c) payment
of all reasonable costs and expenses, including reasonable attorney's fees,
incurred by Landlord in connection with enforcing its rights under the
Lease and/or this Guaranty (collectively, the "Guaranteed Obligations").
The payment of those amounts and performance of those obligations shall be
conducted in accordance with all terms, covenants and conditions set forth
in the Lease, without deduction, offset or excuse of any nature and without
regard to the enforceability or validity of the Lease, or any part thereof,
or any disability of RC. Guarantor's obligations hereunder include any
obligations that RC has under the Lease, or under any portion of the Lease
in the event that the Lease is determined to be divisible or severable.
2. LANDLORD'S RIGHTS. Landlord may perform any of the following acts
at anytime during the term of the Lease, without notice to or assent of
Guarantor and without in any way releasing, affecting or impairing any of
Guarantor's obligations or liabilities under this Guaranty: (a) alter,
modify or amend the Lease by agreement or course of conduct, (b) grant
extensions or renewals of the Lease, (c) assign or otherwise transfer its
interest in the Lease, the Improvements, the Properties, or this Guaranty,
(d) consent to any transfer or assignment of RC's or any future tenant's
<PAGE>
interest under the Lease, (e) release one or more guarantor, or amend or
modify this Guaranty with respect to any guarantor, without releasing or
discharging any other guarantor from any of such guarantor's obligations or
liabilities under this Guaranty, (f) take and hold security for the payment
of this Guaranty and exchange, enforce, waive and release any such
security, (g) apply such security and direct the order or manner of sale
thereof as Landlord, in its sole and absolute discretion, deems
appropriate, and (h) foreclose upon any such security by judicial or
nonjudicial sale, without affecting or impairing in any way the liability
of Guarantor under this Guaranty.
3. TENANT'S DEFAULT. This Guaranty is a guaranty of payment and
performance, and not of collection. Upon any breach or default by RC under
the Lease, Landlord may proceed immediately against RC and/or Guarantor to
enforce any of Landlord's rights or remedies against RC or Guarantor
pursuant to this Guaranty, the Lease, or at law or in equity without notice
to or demand upon Tenant, RC or Guarantor. This Guaranty shall not be
released, modified or affected by any failure or delay by Landlord to
enforce any of its rights or remedies under the Lease or this Guaranty, or
at law or in equity.
4. GUARANTOR'S WAIVERS. Guarantor hereby waives (a) presentment,
demand or payment and protest of non-performance under the Lease, (b)
notice of any kind including, without limitation, notice of acceptance of
this Guaranty, protest, presentment, demand for payment, default,
nonpayment, or the creation or incurring of new or additional obligations
of Tenant or RC to Landlord, (c) any right to require Landlord to enforce
its rights or remedies against Tenant under the Lease, or otherwise, or
against any other guarantor, (d) any right to require Landlord to proceed
against any security held from Tenant, RC or any other party, (e) any right
of subrogation, (f) any defense arising out of the absence, impairment or
loss of any right of reimbursement or subrogation or other right or remedy
of Guarantor against Landlord or any such security, whether resulting from
an election by Landlord, or otherwise, and (g) to the extent allowable by
law, all "suretyship defenses". Any part payment by RC or other
circumstance which operates to toll any statute of limitations as to RC
shall operate to toll the statute of limitations as to Guarantor.
5. SEPARATE AND DISTINCT OBLIGATIONS. Guarantor acknowledges and
agrees that Guarantor's obligations to Landlord under this Guaranty are
separate and distinct from Tenant's obligations to Landlord under the
Lease. The occurrence of any of the following events shall not have any
effect whatsoever on any of Guarantor's obligations to Landlord hereunder,
each of which obligations shall continue in full force or effect as though
such event had not occurred: (a) the commencement by RC of a voluntary case
under the federal bankruptcy laws, as now constituted or hereafter amended
or replaced, or any other applicable federal or state bankruptcy,
insolvency or other similar law (collectively, the "Bankruptcy Laws"), (b)
the consent by RC to the
-2-
<PAGE>
appointment of or taking possession by a receiver, liquidator, assignee,
trustee, custodian, sequestrator or similar official of RC or of any
substantial part of its property, (c) any assignment by RC for the benefit
of creditors, (d) the failure of RC generally to pay its debts as such
debts become due, (e) the taking of a corporate action by RC in the
furtherance of any of the foregoing; or (f) the entry of a decree or order
for relief by a court having jurisdiction in respect of RC in any
involuntary case under the Bankruptcy Laws, or appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or similar
official) of RC or of any substantial part of its property, or ordering the
winding-up or liquidation of any of its affairs and the continuance of any
such decree or order unstayed and in effect for a period of sixty (60)
consecutive days. The liability of Guarantor under this Guaranty is not and
shall not be affected or impaired by any payment made to Landlord under or
related to the Lease for which Landlord is required to reimburse RC
pursuant to any court order or in settlement of any dispute, controversy or
litigation in any bankruptcy, reorganization, arrangement, moratorium or
other federal or state debtor relief proceeding. If, during any such
proceeding, the Lease is assumed by RC or any trustee, or thereafter
assigned by RC or any trustee to a third party, this Guaranty shall remain
in full force and effect with respect to the full performance of RC, any
such trustee or any such third party's obligations under the Lease. If the
Lease is terminated or rejected during any such proceeding, or if any of
the events described in Subparagraphs (a) through (f) of this Paragraph 5
occur, as between Landlord and Guarantor, Landlord shall have the right, at
its option, to (i) accelerate all of Tenant's (including RC's) obligations
under the Lease and Guarantor's obligations under this Guaranty, in which
event, all such obligations shall become immediately due and payable by
Guarantor to Landlord or (ii) require Guarantor to perform on a timely
basis all obligations of RC under the Lease. Guarantor waives any defense
arising by reason of any disability or other defense of Tenant or by reason
of the cessation for any cause whatsoever of the liability of Tenant.
6. ADDITIONAL RIGHTS AND OBLIGATIONS. In addition to all other rights
and obligations of Guarantor hereunder, and without limiting the generality
of anything contained elsewhere in this Guaranty, Guarantor hereby
guarantees that the obligations herein guaranteed (including, without
limitation, the Guaranteed Obligations) will be paid strictly in accordance
with the terms of the Lease or any other agreement relating thereto,
regardless of the value, genuineness, validity, regularity or
enforceability of the obligations, and of any law, regulation or order now
or hereafter in effect in any jurisdiction affecting any of such terms or
the rights of the trustee with respect thereto. The liability of Guarantor
to the extent herein set forth shall be absolute and unconditional, not
subject to any reduction, limitation, impairment, termination, defense,
offset, counterclaim or recoupment whatsoever (all of which are hereby
expressly waived by Guarantor) whether by reason of any claim of any
character whatsoever, including, without limitation, any claim of waiver,
release, surrender, alteration or compromise, or by reason of any liability
at any time
-3-
<PAGE>
to Guarantor or otherwise, whether based upon any obligations or any other
agreement or otherwise, and however arising, whether out of action or
inaction or otherwise and whether resulting from default, willful
misconduct, negligence or otherwise, and without limiting the foregoing
irrespective of: (1) any lack of validity or enforceability of the Lease of
any agreement or instrument relating thereto; (2) any change in the time,
manner or place of payment of, or in any other term in respect of, all or
any of the obligations, or any other amendment or waiver of or consent to
obligations, or any other amendment or waiver of or consent to any
departure from the Lease of any other agreement relating to any
obligations; (3) any increase in, addition to, exchange or release of, or
nonperfection of any lien on or security interest in, any collateral, or
any release or amendment or waiver of or consent to any departure from or
failure to enforce any other guarantee, for all or any of the indebtedness;
(4) any other circumstance which might otherwise constitute a defense
available to, or a discharge of, RC in respect of the obligations to
Landlord; (5) the absence of any action on the part of the Landlord to
obtain payment of the obligations from the RC; (6) any insolvency,
bankruptcy, reorganization or dissolution, or any proceeding of RC, the
Tenant or the Guaranteed Obligations in such bankruptcy; or (7) the absence
of notice or any delay in any action to enforce any obligations or to
exercise any right or remedy against Guarantor, or RC, whether hereunder,
under any obligations or any agreement or any indulgence, compromise or
extension granted.
7. SUCCESSORS AND ASSIGNS. This Guaranty binds Guarantor's successors
and assigns.
8. ENCUMBRANCES. If Landlord's interest in the Improvements, the
Properties or the Lease, or the rents, issues or profits therefrom, are
subject to any deed of trust, mortgage or assignment for security,
Guarantor's acquisition of Landlord's interest in the Properties or Lease
shall not affect any of Guarantor's obligations under this Guaranty. In
such event, this Guaranty shall nevertheless continue in full force and
effect for the benefit of any mortgagee, beneficiary, trustee or assignee
or any purchaser at any sale by judicial foreclosure or under any private
power of sale, and their successors and assigns. Additionally, Guarantor
hereby waives any requirements that the trustee, beneficiary, mortgagee or
other holder of any such deed of trust, mortgage or assignment, protect,
secure, perfect or insure any security interest or lien or any property
subject thereto or exhaust any right or take any action against any person
or any collateral (including any rights relating to marshaling of assets).
Without limiting the generality of the foregoing, this Guaranty shall run
to the benefit of Landlord's Mortgagee without the requirement of any
further action on the part of Landlord's Mortgagee or any other party.
Landlord's Mortgagee shall, except as otherwise agreed by the Landlord and
such Landlord's Mortgagee, have all the rights, powers, privileges and
remedies of the Landlord hereunder, and the Guarantor's obligations as
between itself and such Landlord's Mortgagee hereunder shall not be subject
to any claims or defenses that the Guarantor may have against the Landlord.
-4-
<PAGE>
Upon written notice to the Guarantor of any such assignment, the Guarantor
shall thereafter make payments of all sums due hereunder to the Landlord's
Mortgagee, to the extent specified in such notice, and such payments shall
discharge the obligation of the Guarantor to the Landlord hereunder to the
extent of such payments. Anything contained herein to the contrary
notwithstanding, no Landlord's Mortgagee shall be obligated to perform any
duty, covenant or condition required to be preformed by the Landlord
hereunder, and any such duty, covenant or condition shall be and remain the
sole obligation of the Landlord. Guarantor further acknowledges that upon
written notice to the Guarantor of any such assignment, to the extent
specified in such notice, the Landlord may not consent to any amendment,
modification or waiver to this Guaranty or give any approval, consent,
notice or acceptance under this Guaranty, in each case without the prior
written consent of the Landlord's Mortgagee.
9. GUARANTOR'S DUTY. Guarantor acknowledges that it is aware of the
present financial condition of RC. Guarantor assumes the responsibility to
remain informed of the financial condition of RC and of all other
circumstances bearing upon the risk of RC's default, which reasonable
inquiry would reveal, and agree that Landlord shall have no duty to advise
Guarantor of information known to it regarding such condition or any such
circumstance.
10. LANDLORD'S RELIANCE. Landlord shall not be required to inquire
into the powers of RC or the officers, employees, partners or agents acting
or purporting to act on its behalf, and any indebtedness made or created in
reliance upon the professed exercise of such powers shall be guaranteed
under this Guaranty.
11. INCORPORATION OF CERTAIN LEASE PROVISIONS. Guarantor hereby
represents and warrants to Landlord that Guarantor has received a copy of
the Lease, has read or had the opportunity to read the Lease, and
understands the terms of the Lease. The provisions in the Lease relating to
the execution of additional documents, legal proceedings by Landlord
against Tenant, severability of the provisions of the Lease, interpretation
of the Lease, notices, waivers, the applicable laws which govern the
interpretation of the Lease and the authority of the Tenant to execute the
Lease are incorporated herein in their entirety by this reference and made
a part hereof. Any reference in those provisions to "Tenant" and/or "RC"
shall mean Guarantor and any reference in those provisions to the "Lease"
shall mean this Guaranty, except that (a) any notice which any Guarantor
desires or is required to provide to Landlord including, without
limitation, any notice of revocation of this Guaranty, shall be effective
only if signed by Guarantor and (b) notice which Landlord desires or is
required to provide to Guarantor shall be sent to Guarantor at such address
indicated below, or if no address is indicated below, at the address for
notices to be sent to RC under the Lease.
-5-
<PAGE>
12. CONTINUING GUARANTY. This is a continuing guarantee of the
Guaranteed Obligations and may not be terminated or revoked for any reason
whatsoever.
13. NO SUBROGATION, ETC. Until all of the Guaranteed Obligations are
paid or satisfied in full, Guarantor shall not exercise any of the
following rights that it may have against RC, for any amounts paid by it,
or acts performed by it, under this Guaranty: (i) Subrogation; (ii)
Reimbursement; (iii) Performance; (iv) Indemnification; or (v)
Contribution.
14. SUBORDINATION OF GUARANTOR.
a. Subordination of all Claims. All principal and interest on all
existing and future indebtedness, liabilities, and obligations of RC to
Guarantor, whether fixed or contingent, matured or unmatured, and
liquidated or unliquidated (the "Subordinated Debt") shall at all times be
subordinated in right of payment to the payment and performance of the
Guaranteed Obligations.
b. Payments. At any time that no "event of default" (as defined
in the Lease) has occurred and is continuing, Guarantor may accept payments
on any of the Subordinated Debt. At any time following the occurrence of
such an "event of default", and prior to its cure thereof, if Guarantor
does receive any payments on the Subordinated Debt, it will hold those
payments in trust for the benefit of Landlord and immediately deliver them
to Landlord.
c. Attorney-in-Fact. Guarantor appoints Landlord Guarantor's
attorney-in-fact to file claims, and receive payments, on behalf of
Guarantor with respect to any of the Subordinated Debt in any proceeding by
or against RC under the Bankruptcy Code (including Chapters 7 or 11), any
assignment for the benefit of creditors made by RC, or in any other
reorganization or insolvency proceeding.
15. LANDLORD'S OTHER RIGHTS. Landlord shall have the following
additional rights:
a. Revival of Debt. Guarantor further agrees that, to the extent
that RC or Guarantor makes a payment or payments to Landlord, which payment
or payments or any part thereof are subsequently invalidated, declared to
be fraudulent or preferential, set aside and/or required to be repaid to RC
or Guarantor or their respective estate, trustee, receiver or any other
party under any bankruptcy law, state or federal law, common law or
equitable cause, then to the extent of such payment or repayment, this
Guaranty and the advances or part thereof which have been paid, reduced or
satisfied by such amount shall be reinstated and continued in full force
and effect as of the date such initial payment, reduction or satisfaction
occurred.
-6-
<PAGE>
b. No Marshalling. Landlord has no obligations to marshall any
assets in favor of Guarantor, or against or in payment of the Guaranteed
Obligations.
c. Fees and Costs. Guarantor will pay all of Landlord's
reasonable expenses incurred in enforcing this Guaranty, including
Landlord's reasonable attorneys' fees.
d. Assignment. Guarantor may not assign its obligations or
liability under this Guaranty. Subject to the preceding sentence, this
Guaranty shall be binding upon the parties hereto and their respective
heirs, executors, successors, representatives and assigns and shall inure
to the benefit of the parties hereto and their respective successors and
assigns. No assignment or other transfer that Guarantor or RC may make
pursuant to the terms of the Lease shall affect in any manner the
obligations of Guarantor under this Guaranty and this Guaranty shall remain
unimpaired and in full force and effect notwithstanding such assignment or
other transfer.
16. MISCELLANEOUS.
a. Applicable Law. The law of the State of Oregon will apply to
the interpretation and enforcement of this Guaranty.
b. Integration. This Guaranty, together with the documents
referred to herein, is the entire agreement of Guarantor with respect to
the subject matter of this Guaranty.
c. Rights Cumulative. All of Landlord's rights under this
Guaranty are cumulative. The exercise of any one right does not exclude the
exercise of any other right given this Guaranty or any other right of
Landlord not set forth in the Guaranty.
d. Rules of Construction. The following rules shall apply in
interpreting the meaning of this Guaranty:
(i) "Includes" and "including" are not limiting; and
(ii) "Or" is not exclusive.
e. Severability. If any provision of this Guaranty is declared by
a court of competent jurisdiction to be unenforceable, or otherwise
invalid, the remaining provisions of this Guaranty may be enforced to the
fullest possible extent.
-7-
<PAGE>
f. Notices. Landlord may give any notice to Guarantor at the
following address, until changed in writing by notice given by Guarantor
(but nothing herein shall be deemed to require the Landlord to give any
notice):
Fred Meyer, Inc.
3800 SE 22nd Avenue
P.O. Box 42121
Portland, Oregon 97242-0121
Attn: Corporate Treasurer
Facsimile No: (503) 797-5299
With Copies to:
Fred Meyer, Inc.
3800 SE 22nd Avenue
P.O. Box 42121
Portland, Oregon 97242-0121
Attn: Corporate Legal Department
Facsimile No: (503) 797-5623
And to:
Stoel Rives LLP
950 Port of Portland Building
700 NE Multnomah
Portland, Oregon 97232
Attn: David W. Green
(503) 872-4810
Facsimile No: (503) 230-1907
g. Headings. Section headings used in this Guaranty are for
convenience only. They are not a part of this Guaranty and shall not be
used in construing it.
h. Acknowledgment of Waivers. GUARANTOR ACKNOWLEDGES THAT THIS
GUARANTY CONTAINS WAIVERS OF CERTAIN RIGHTS AND DEFENSES THAT GUARANTOR
WOULD OTHERWISE HAVE UNDER APPLICABLE LAW. GUARANTOR WARRANTS AND AGREES
THAT EACH OF THE WAIVERS AND CONSENTS SET FORTH HEREIN ARE MADE AFTER
CONSULTATION WITH LEGAL COUNSEL AND WITH FULL KNOWLEDGE OF THEIR
SIGNIFICANCE AND CONSEQUENCES, WITH THE UNDERSTANDING THAT EVENTS GIVING
RISE TO ANY
-8-
<PAGE>
DEFENSE OR RIGHT WAIVED MAY DIMINISH, DESTROY OR OTHERWISE
ADVERSELY AFFECT RIGHTS WHICH GUARANTOR OTHERWISE MAY HAVE
AGAINST LANDLORD, RC OR OTHERS, OR AGAINST ANY COLLATERAL, AND
THAT, UNDER THE CIRCUMSTANCES, THE WAIVERS AND CONSENTS HEREIN
GIVEN ARE REASONABLE AND NOT CONTRARY TO PUBLIC POLICY OR LAW. IF
ANY OF THE WAIVERS OR CONSENTS HEREIN ARE DETERMINED TO BE
UNENFORCEABLE UNDER APPLICABLE LAW, SUCH WAIVERS AND CONSENTS
SHALL BE EFFECTIVE TO THE MAXIMUM EXTENT PERMITTED BY LAW.
KT
-----------
(initialed)
i. Lease Notices. Nothing in this Guaranty, including, without
limitation, the waivers set forth above, shall affect the provisions of the
Lease with respect to notices to be given Guarantor under the Lease in its
capacity as a tenant thereunder.
IN WITNESS WHEREOF, Guarantor has executed this Guaranty as of this
5th day of September 1996.
FRED MEYER, INC.,
a Delaware corporation,
By: KENNETH THRASHER
-----------------------------------
Name: KENNETH THRASHER
---------------------------------
Title: SR VP-Finance
--------------------------------
-9-
<PAGE>
STATE OF OREGON )
)
County of Multnomah )
The foregoing instrument was acknowledged before me this 30th day of
August, 1996, by Kenneth Thrasher, the SR VP-Finance of Fred Meyer, Inc., a
Delaware corporation, on behalf of the corporation by its authority duly
given, and acknowledged the said instrument to be the act and deed of said
corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year first above written.
FRANCES FOLEY
---------------------------------------
Notary Public in and for the State of
Oregon
Residing at: Vancouver, WA
--------------------------
My Commission expires: 9/1/98
----------------
-10-
RENT REBATE AGREEMENT
THIS RENT REBATE AGREEMENT (the "Agreement") is made as of September
5, 1996 between TEXAS COMMERCE BANK NATIONAL ASSOCIATION, not in its
individual capacity but solely in its capacity as Trustee under that
certain Trust Agreement dated as of September 1, 1996 between Texas
Commerce Bank National Association, as trustee, and Chemical Trust Company
of California, as owner participant thereunder ("Landlord") and FRED MEYER,
INC., a Delaware corporation ("FMI") and ROUNDUP CO., a Washington
corporation ("RC"; together with FMI, the "Tenant"), and is made with
reference to the following facts:
A. Landlord and Tenant have entered into a Bond Lease Agreement dated
as of September 5, 1996 (the "Lease").
B. Landlord has agreed to rebate to Tenant a portion of the Base Rent
under the Lease. Such rental rebate is to be paid on October 30, 2017 (the
"Rebate Date"), subject to the terms and conditions set forth herein.
THEREFORE, the parties agrees as follows:
SECTION 1. INCORPORATION OF DEFINITIONS. Unless otherwise defined,
capitalized terms not otherwise defined in this Agreement have the meanings
set forth in the Lease.
SECTION 2. RENT REBATE. (a) If, on the date on which the Original Term
of the Lease expires, there shall not have occurred and be continuing any
material default or material event of default (after expiration of any
applicable notice or grace period) as set forth in Section 12 of the Lease,
Landlord shall rebate to Tenant a portion of the Base Rental paid during
the Original Term in an amount equal to $36,918.264.97 (the "Rebate
Amount"). The Rebate Amount shall be paid by Landlord to the order of
Tenant by wire transfer of federal or other same-day funds on the Rebate
Date to the address of Tenant set forth in the Lease. If, prior to the
Rebate Date, a material default or event of default (after expiration of
any applicable notice or grace period, as set forth in Section 12 of the
Lease) shall have occurred under Section 12 of the Lease which shall not
have been cured or waived by the Rebate Date, Landlord may elect, in its
sole discretion, to withhold payment of the Rebate Amount until such
default or event of default has been cured or, after the Senior Notes have
been paid in full, to off-set against the Rebate Amount any rent or other
charge or reimbursement then owed to Landlord by Tenant under the Lease
(but such
-1-
<PAGE>
withholding or set-off by Landlord will not be Landlord's only remedy for
such default by Tenant, and Landlord will continue to have all other rights
and remedies provided by the Lease).
(b) In the event that the Lease is terminated as to any Property prior
to the end of the Original Term of the Lease as a result of condemnation or
casualty or the discontinuance of use of an uneconomic Property and a
failure of conditions for substitution or otherwise (a "Terminated
Property"), or as a result of the Purchase of any Property upon exercise of
Tenant's right of first refusal (a "Purchased Property"), then a portion of
the Rebate Amount (the "Partial Amount"), equal to the product of the
Property Percentage of such Terminated Property or Purchased Property as
set forth on Exhibit D to the Lease multiplied by the appropriate amount
set forth on Schedule A hereto (the "Schedule A Amounts"), shall be payable
to Tenant at the time of such repurchase or payment (the "Early Payment
Date"). The payment of the Partial Amount will be subject to Landlord's
right to effect a withhold or off-set, pursuant to Section 2(a) hereof, if
a material default or event of default (after expiration of any applicable
notice or grace periods) shall have occurred and shall not have been cured
or waived in writing by the Early Payment Date as to any of the Properties.
Any Partial Amount with respect to a Terminated Property will only be
payable under this Section 2(b) on the corresponding Early Payment Date to
the extent that the Repurchase Price (as defined in Exhibit "D" to the
Lease) or other amounts payable by the Tenant with respect to the
Terminated Property exceeds the Substitution Payment (as defined in Exhibit
"D" to the Lease) with respect to the Terminated Property; to the extent
all or part of any Partial Amount is not paid on the Early Payment Date, it
shall bear interest at the rate of 9.66% per annum and shall become due and
payable on the Rebate Date. Any Partial Amount with respect to a Purchased
Property will be payable in full on the Early Payment Date.
SECTION 3. NO OFFSET OR ABATEMENT. Notwithstanding anything to the
contrary contained in this Agreement, but subject to Section 4 hereof, as
long as the Senior Notes (as defined in Exhibit D to the Lease) have not
been paid in full, (i) Tenant shall not have any right to offset any
amounts due to it under this Agreement against any amount owing by it under
the Lease or the Lease Guaranty and no amount due under the Lease or the
Lease Guaranty shall be abated in any manner as a result of the obligations
created under this Agreement and (ii) Tenant shall not be entitled to
assert that it is owed any amounts hereunder (other than amounts owing
pursuant to Section 2(b)). In the event that Landlord fails to pay any
amount due and payable to Tenant when due, Tenant will provide (or cause to
be provided) to Landlord and to any Assignee written notice of the amount
required to be paid by Landlord pursuant to this Agreement, and such amount
will bear interest until paid in full at a rate equal to the Late Payment
Rate, and if such amount has not been paid in full within 10 days after the
due date, Tenant may, at its option and at its discretion, but only if the
Senior Notes have been paid in full, offset the amount due to Tenant
against the rent or other amounts then or thereafter due from Tenant under
the Lease (but such offset shall not
-2-
<PAGE>
be Tenant's sole remedy for such failure by Landlord to make the required
payment, and Tenant will have any right available under applicable law for
breach of contract, including, without limitation, specific performance).
Neither Landlord nor Tenant shall make any offset or consent to any offset
by the other with respect to any amount at any time to the extent such
offset is not permitted by the terms of this Agreement.
SECTION 4. NO OFFSET WHILE SENIOR NOTES OUTSTANDING. Notwithstanding
anything to the contrary contained in this Agreement, Tenant shall have no
right to make any offset or deduction with respect to any payment of Base
Rent under the Lease on account of any obligation of Landlord to Tenant
under this Agreement prior to the date on which all of the outstanding
Senior Notes shall have been paid in full, and Landlord shall not consent
to any such offset.
SECTION 5. INCOME TAX REPORTING. Tenant and Landlord will, for
federal, state and local income tax purposes, report the Base Rent as
rental income and expense in the same manner as those amounts are payable
under Section 3.1 of the Lease, and will report the payment of the Rebate
Amount, to the extent it is paid, at the time of payment on the Rebate Date
or the Early Payment Date, as applicable.
SECTION 6. MISCELLANEOUS. This Agreement shall bind and inure to the
benefit to the parties and their respective heirs, successors and assigns.
The provisions of Sections 21.11, 21.16, 21.17, 21.19, 21.21, 21.22, 21.27
and 21.39 of the Lease shall apply to this Agreement, except that all
references to the Lease therein shall be deemed to be references to this
Agreement.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
LANDLORD: TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, NOT IN ITS INDIVIDUAL
CAPACITY BUT SOLELY IN ITS CAPACITY AS
TRUSTEE UNDER THAT CERTAIN TRUST
AGREEMENT DATED AS OF SEPTEMBER 1, 1996
BETWEEN TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, AS TRUSTEE, AND CHEMICAL
TRUST COMPANY OF CALIFORNIA, A
CALIFORNIA BANKING CORPORATION, AS OWNER
PARTICIPANT
BY: SARAH WILSON
-----------------------------------
ITS: VICE PRESIDENT
----------------------------------
TENANT: FRED MEYER, INC.,
A DELAWARE CORPORATION
BY: JAMES C. AALBERG
-----------------------------------
ITS: VICE PRESIDENT
----------------------------------
ROUNDUP CO.,
A WASHINGTON CORPORATION
BY: KENNETH THRASHER
-----------------------------------
ITS: VICE PRESIDENT
----------------------------------
-4-
EXHIBIT 11
<TABLE>
<CAPTION>
FRED MEYER, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
(In thousands, except per share amounts)
(Unaudited)
12 Weeks Ended 40 Weeks Ended
---------------------- ---------------------
Nov. 9, Nov. 4, Nov. 9, Nov. 4,
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Weighted average number of
shares outstanding............................... 25,385 26,704 26,314 26,676
Weighted average number of
shares under option.............................. 4,419 2,467 4,080 2,772
Shares assumed to have been
purchased under the
treasury stock method............................ (2,111) (917) (2,059) (1,075)
------ ------ ------ ------
Weighted average number of
common and common equivalent
shares outstanding............................ 27,693 28,254 28,335 28,373
====== ====== ====== ======
Net income ........................................ $6,292 $(2,309) $30,909 $11,447
====== ======= ======= =======
Earnings per common share.......................... $ .23 $(.08) $1.09 $.40
===== ===== ===== ====
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-1-1997
<PERIOD-END> NOV-09-1996
<CASH> 42,834
<SECURITIES> 0
<RECEIVABLES> 34,579
<ALLOWANCES> 0
<INVENTORY> 679,430
<CURRENT-ASSETS> 804,564
<PP&E> 1,542,501
<DEPRECIATION> (605,919)
<TOTAL-ASSETS> 1,762,377
<CURRENT-LIABILITIES> 554,890
<BONDS> 576,891
270
0
<COMMON> 0
<OTHER-SE> 533,220
<TOTAL-LIABILITY-AND-EQUITY> 1,762,377
<SALES> 2,729,084
<TOTAL-REVENUES> 2,729,084
<CGS> 1,927,199
<TOTAL-COSTS> 721,426
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,606
<INCOME-PRETAX> 49,853
<INCOME-TAX> 18,944
<INCOME-CONTINUING> 30,909
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,909
<EPS-PRIMARY> 1.09
<EPS-DILUTED> 1.09
</TABLE>
